2015
What is all this talk of regulatory optimization, and don't some of these things
hurt clients? When will you know the final rules?
•
Page 16
To protect the company and to meet standards of safety and soundness, don't you
have to earn a fair profit? Many banks say that the cost of all the new rules makes
this hard to do.
Page 14
Do you think you now have “fortress controls” in place?
•
Page 14
Have you completed your major de-risking initiatives?
Page 11
Page 16
You say you have a "fortress balance sheet." What does that mean? Can you handle
the extreme stress that seems to happen around the world from time to time?
We must and will protect our company and those we serve
Page 9
How do you compare your franchises with your peers? What makes you believe your
businesses are strong?
•
II.
I. Our franchises are strong - and getting stronger
5
In this letter, I will discuss the issues highlighted below – which describe many of
our successes and opportunities, as well as our challenges and responses. The main
sections are listed below, and, unlike prior years, we have organized much of this
letter around some of the key questions we have received from shareholders and other
interested parties.
Many of the legal and regulatory issues that our company and the industry have faced
since the Great Recession have been resolved or are receding, which will allow the
strength and quality of our underlying business to more fully shine through.
1 On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.
•
•
How do you manage geopolitical and country risks?
Page 17
IV. We are here to serve our clients
Page 27
How are you doing retaining key people?
•
Page 26
With all the new rules, committees and centralization, how can you fight bureaucracy
and complacency and keep morale high?
Page 24
How are you doing in your diversity efforts?
•
Page 22
How are you ensuring you have the right conduct and culture?
•
III. We actively develop and support our employees
Page 21
Why are you making such a big deal about protecting customers' data in your bank?
•
Page 19
JPMorgan Chase, its clients and the broader economy?
Are you worried about liquidity in the marketplace? What does it mean for
•
Page 18
How do you manage your interest rate exposure? Are you worried about negative
interest rates and the growing differences across countries?
•
These charts show actual returns of the stock, with dividends included, for heritage shareholders of Bank One and JPMorgan Chase & Co.
vs. the Standard & Poor's 500 Index (S&P 500) and the Standard & Poor's Financials Index (S&P Financials Index).
•
(0.7)%
10.4%
S&P Financials Index
S&P 500
Bank One
Stock total return analysis
We continued to deliver for our shareholders in 2015. The table above shows the
growth in tangible book value per share, which we believe is a conservative measure
of value. You can see that our tangible book value per share has grown far more than
that of the Standard & Poor's 500 Index (S&P 500) in both time periods. For Bank
One shareholders since March 27, 2000, the stock has performed far better than most
financial companies and the S&P 500. We are not proud of the fact that our stock
performance has only equaled the S&P 500 since the JPMorgan Chase & Co. merger
with Bank One on July 1, 2004 and essentially over the last five to 10 years. On a
relative basis, though, JPMorgan Chase stock has far outperformed the S&P Financials
Index and, in fact, has been one of the best performers of all banks during this difficult
period. The details are shown on the table on the following page.
1 On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.
Tangible book value over time captures the company's use of capital, balance sheet and profitability. In this chart, we are looking at
heritage Bank One shareholders and JPMorgan Chase & Co. shareholders. The chart shows the increase in tangible book value per share;
it is an aftertax number assuming all dividends were retained vs. the Standard & Poor's 500 Index (S&P 500), which is a pre-tax number
with dividends reinvested.
209.3%
6.3%
(A) - (B)
Performance since becoming CEO of Bank One
(3/27/2000-12/31/2015)¹
Relative Results
127.6%
7.4%
13.7%
336.9%
S&P 500
(B)
(A)
JPMorgan Chase & Co.
5.0%
107.9%
12.5%
481.4%
(A) - (B)
Relative Results
7.5%
373.5%
Compounded annual gain
Overall gain
Performance since the Bank One
and JPMorgan Chase & Co. merger
12.6%
(1.6)%
1.4%
7.9%
8.4%
12.1%
0.7%
7.8%
7.4%
127.6%
7.6%
131.1%
S&P Financials Index
S&P 500
JPMorgan Chase & Co.
1.9%
35.3%
3.8%
81.3%
10.2%
364.1%
Ten years
Five years
One year
Compounded annual gain/(loss)
December 31, 2015:
Performance for the period ended
Overall gain
Compounded annual gain
(7/1/2004-12/31/2015)
7.3%
S&P 500
(B)
Page 28
How do you intend to win in payments, particularly with so many
strong competitors - many from Silicon Valley?
14%
15%
35%
40%
42%
Commercial
Bank
Citi
Citi
Investment
16%
13%
12%³
55%-60%
57%
59%¹
Corporate &
Banking
20%
15%
WFC
18%
~50%
12%
Banking
PNC
FITB
2014
Best-in-class ROTCE represents implied net income minus preferred stock dividends (NIAC) for each comparable LOB peer weighted by JPM average
tangible common equity: WFC, Citi Institutional Clients Group (Citi), Fifth Third Bank (FITB), Bank of America Global Wealth and Investment Manage-
ment (BAC), T. Rowe Price (TROW). JPM ROTCE represents the sum of the implied combined NIAC of all peers and JPM Corporate segment divided by
JPM average tangible equity.
4 Represents firmwide ROTCE for JPM. Goodwill is primarily related to the Bank One merger and prior acquisitions and is predominantly retained
by Corporate.
3 CIB ROE excluding legal expense was 14%.
2 Best-in-class overhead ratio represents implied expenses of comparable peer segments weighted by JPMorgan Chase (JPM) revenue: Wells Fargo
Community Banking (WFC), Citi Institutional Clients Group (Citi), PNC Corporate and Institutional Banking (PNC), UBS Wealth Management and
Wealth Management Americas (UBS WM) and BlackRock (BLK). JPM overhead ratio represents the sum of the implied expenses of all peers and
JPM Corporate segment divided by JPM revenue.
Excludes legal expense.
~15%4
12%
13%4
55%+/-
56%¹
58%¹
JPMorgan Chase
BAC & TROW
UBS WM & BLK
Management
25%+
24%
21%
≤70%
68%
73%
Asset
54%
WFC
•
Community
Consumer &
•
Page 40
Does the United States really need large banks?
•
VI. A safe, strong banking industry is absolutely critical to a country's
success - banks' roles have changed, but they will never be a utility
Page 37
You seem to be doing more and more to support your communities
- how and why?
•
V. We have always supported our communities
Page 35
Why do you say that banks need to be steadfast and always there for
their clients - doesn't that always put you in the middle of the storm?
Why are you still in the mortgage business?
Page 34
Investment Bank, when others seem to be cutting back?
Why are you investing in sales and trading, as well as in your
Page 33
How and why do you use big data?
•
Page 32
You always seem to be segmenting your businesses – how and why
are you doing this?
•
Page 31
•
Page 43
• Will banks ever regain a position of trust? How will this be done?
Page 46
JPM target
ROE
Best-in-class
peer ROTCE5
JPM 2015
ROE
JPM target
overhead
ratios
Best-in-class
peer overhead
ratios²
ratios
overhead
JPM 2015
Returns
Efficiency
JPMorgan Chase is in Line with Best-in-Class Peers in Both Efficiency and Returns
Because our business leaders do such a
good job describing their businesses (and
I strongly urge you to read their letters on
pages 52-72 in this Annual Report), it is
unnecessary for me to cover each in detail
here, other than to answer the following
critical questions.
continue to grow and that our consistent
strategy of building for the future and being
there for our clients in good times and bad
has put us in very good stead. Whatever the
future brings, we will face it from a position
of strength and stability.
When I travel around the world, and we do
business in over 100 countries, our clients
who are big companies to small businesses,
investors and individuals, as well as coun-
tries and their sovereign institutions - are
almost uniformly pleased with us. In fact,
most cities, states and countries want more
of JPMorgan Chase. They want us to bring
more of our resources - our financial capa-
bilities and technology, as well as our human
capital and expertise - to their communities.
While we do not know what the next few
years may bring, we are confident that the
needs of our clients around the world will
I. OUR FRANCHISES ARE STRONG - AND GETTING
STRONGER
7
Page 48
Are you worried about bad public policy?
•
VII. Good public policy is critically important
Page 46
Are you and your regulators thinking more comprehensively and
in a forward-looking way to play a role in helping to accelerate
global growth?
•
57%
Bank One
(A)
How do you view innovation, technology and FinTech? And have
banks been good innovators? Do you have economies of scale, and
how are they benefiting your clients?
Compounded annual gain
clients
communities
&
JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with
assets of $2.4 trillion and operations worldwide. The firm is a leader in investment
banking, financial services for consumers and small businesses, commercial
banking, financial transaction processing and asset management. A component
of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of
consumers in the United States and many of the world's most prominent corporate,
institutional and government clients under its J.P. Morgan and Chase brands.
Information about J.P. Morgan's capabilities can be found at jpmorgan.com and
about Chase's capabilities at chase.com. Information about JPMorgan Chase & Co.
is available at jpmorganchase.com.
3 The ratios presented are calculated under the Basel III Advanced Fully Phased-In Approach, which are non-GAAP financial
measures. For further discussion, see “Regulatory capital” on pages 151–155.
2 Non-GAAP financial measure. For further discussion, see “Explanation and Reconciliation of the Firm's Use Of Non-GAAP
Financial Measures" on pages 80-82.
1 Results are presented in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP),
except where otherwise noted.
Note: 2014 has been revised to reflect the adoption of new accounting guidance related to debt issuance costs and
investments in affordable housing projects. For additional information, see Accounting and Reporting Developments and
Note 1 on pages 170 and 183, respectively.
241,359
234,598
customers
Headcount
247,573
Total stockholders' equity
2,572,274
1,363,427
1,279,715
Deposits
2,351,698
Total assets
757,336
$ 837,299
Loans
231,727
employees
veterans
nonprofits
$6.00
$17.9
$19.0
$21.7
$24.4
$21.3
24%
22%
10%
($ in billions, except per share and ratio data)
Earnings, Diluted Earnings per share and Return on Tangible Common Equity
2004-2015
Our company earned a record $24.4 billion in net income on revenue of $96.6 billion
in 2015. In fact, we have delivered record results in the last five out of six years, and
we hope to continue to deliver in the future. Our financial results reflected strong
underlying performance across our businesses, and, importantly, we exceeded all our
major financial commitments – balance sheet optimization, capital deployment, global
systemically important bank (GSIB) surcharge reduction and expense cuts.
Jamie Dimon,
Chairman and
Chief Executive Officer
2
I feel enormously blessed to work for this great company and with such talented
employees. Our management team and employees have built an exceptional
organization that is one of the most trusted and respected financial institutions in the
world. It has been their dedication, fortitude and perseverance that made this possible.
And it fills me with tremendous pride.
Last year – in fact, the last decade – was an extraordinary time for our company. We
managed through the financial crisis and its turbulent aftermath while never losing
sight of the reason we are here: to serve our clients, our communities and countries
across the globe and, of course, to earn a fair profit for our shareholders. All the
while, we have been successfully executing our control and regulatory agenda and
continuing to invest in technology, infrastructure and talent – critical to the future of
the company. And each year, our company has been getting safer and stronger. We
continue to see exciting opportunities to invest for the future and to do more for our
clients and our communities – as well as continue to support the growth of economies
around the world.
-
Dear Fellow Shareholders,
JPMORGAN CHASE & Co.
local governments
hospitals
schools
business owners
12.7
(in millions, except per share, ratio data and headcount)
14.7
Total capital ratio³
$
Basic
Net income per share:
Per common share data
21,745
$
24,442
$
Net income
3,139
3,827
Provision for credit losses
33,838
34,529
Pre-provision profit
61,274
59,014
Total noninterest expense
95,112
93,543
Total net revenue
Overall gain
Reported basis¹
6.05
$17.4
5.33
6.00
11.4
13.3
Tier 1 capital ratio³
10.2
11.6
Common equity Tier 1 (“CET1”) capital ratio³
13
13
Return on tangible common equity²
10%
11%
Return on common equity
Selected ratios
44.60
48.13
Tangible book value²
56.98
60.46
Book value
1.58
1.72
Cash dividends declared
5.29
Diluted
15%
Selected balance sheet data (period-end)
13%
$44.60
$48.13
2004-2015
Tangible Book Value per Share
3
00h
gs of Many China & Co
GOOD
Vimala's
Curryblossom
$38.68
0000
2015
GOO
1015
JP
GoodWorks
015
Qallerg
2015
2015
TASEDENT
ANNUAL REPORT 2015
100
$33.62
$30.12
$27.09
(7/1/2004-12/31/2015)
and JPMorgan Chase & Co. merger
Performance since the Bank One
Overall gain
Compounded annual gain
(3/27/2000-12/31/2015)¹
Performance since becoming CEO of Bank One
Bank One/JPMorgan Chase & Co. tangible book value per share performance vs. S&P 500
2015
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
$16.45
$18.88
$21.96 $22.52
JPMORGAN CHASE & Co.
JPMORGAN CHASE&CO.
$40.72
NEW YORK
$1.35
$4.5
$2.26
$5.6
$2.35
$8.5
$3.96
6%
$4.00
$4.34
$4.48
$11.7
13%
$5.29
$5.19
10%
11%
15%
15%
$14.4
LONDON SINGAPORE TOKYO
$15.4
15%
$1.52
2004
$4.33
2006
10-03 12:03 18:03 19:03 05:03
2005
BE HONEST
KEEP YOUR MORD
HELP 
WHEN YOU CAN
BE FAIR
UPMORGAN
&
Financial Highlights
As of or for the year ended December 31,
While we did produce record profits last year, our returns on tangible common equity
have been coming down, mostly due to higher capital requirements, higher control
costs and low interest rates. Our return on tangible common equity was 13% last
year, though we still believe that we will be able to achieve, over time, returns of
approximately 15%. We still don't know the final capital rules, which could have
additional negative effects, but we do believe that the capital requirements eventually
will be offset by optimizing our use of capital and other precious resources, by realizing
market share gains due to some competitors leaving certain businesses, and by
implementing extensive cost efficiencies created by streamlining and digitizing our
processes. I will discuss some of these efforts later on in this letter.
Return on tangible common equity
Diluted earnings per share
DO YOUR WORK
2015
2014
2013
2012
2011
2010
2009
2008
2007
Net income
6,775 $
Asset management,
administration and
Period-end loans
$ 5,148
22,730
6,599
21,200
$
19,416
2014
origination volume
Revenue
$ 3,010 $ 2,942
$ 3,112
Lending- and deposit-related
fees
2013
2014
2015
As of or for the year
ended December 31,
(in millions, except
ratios)
Selected metrics
2013
commissions
Business metrics
Business banking
2,097
Time and other
1,815
18,063
2015
6,744
7,174
7,541
Noninterest revenue
238,223
255,148
279,897
Savings
492
534
611
All other income
187,182
213,049
246,448
Checking
1,495
1,605
1,721
Card income
Period-end deposits:
2,025
(in millions, except ratios)
Headcount
As of or for the year ended
thousands) (e)
Active online customers (in
46,000
51,000
51,000
20,290
18,056
17,777
ATMs
453,304
39,242
486,919
5,630
5,602
5,413
Branches
234,135
253,803
301,700
Number of:
Equity(c)
21,349
530,938
36,396
33,742
127,094
Selected income statement data
Consumer & Business Banking
JPMorgan Chase & Co./2015 Annual Report
86
(e) Users of all internet browsers and mobile platforms (mobile smartphone,
tablet and SMS) who have logged in within the past 90 days.
(d) The allowance for loan losses for PCI loans of $2.7 billion, $3.3 billion and
$4.2 billion at December 31, 2015, 2014, and 2013, respectively; these
amounts were also excluded from the applicable ratios.
(c) At December 31, 2015, 2014 and 2013, nonperforming assets excluded:
(1) mortgage loans insured by U.S. government agencies of $6.3 billion,
$7.8 billion and $8.4 billion, respectively, that are 90 or more days past
due; (2) student loans insured by U.S. government agencies under the
Federal Family Education Loan Program ("FFELP") of $290 million, $367
million and $428 million respectively, that are 90 or more days past due;
(3) real estate owned ("REO") insured by U.S. government agencies of
$343 million, $462 million and $2.0 billion, respectively. These amounts
have been excluded based upon the government guarantee.
(b) Excludes PCI loans. The Firm is recognizing interest income on each pool of
PCI loans as all of the pools are performing.
(a) Net charge-offs and the net charge-off rates excluded $208 million, $533
million, and $53 million of write-offs in the PCI portfolio for the years
ended December 31, 2015, 2014 and 2013, respectively. These write-offs
decreased the allowance for loan losses for PCI loans. For further
information on PCI write-offs, see Allowance for Credit Losses on
pages 130-132.
(d) Included average credit card loans held-for-sale of $1.6 billion, $509
million and $95 million for the years ended December 31, 2015, 2014 and
2013, respectively. These amounts are excluded when calculating the net
charge-off rate.
(c) Equity is allocated to the sub-business segments with $5.0 billion and $3.0
billion of capital in 2015 and 2014, respectively, held at the CCB level
related to legacy mortgage servicing matters.
(b) Included period-end credit card loans held-for-sale of $76 million, $3.0
billion and $326 million at December 31, 2015, 2014 and 2013,
respectively. These amounts were excluded when calculating delinquency
rates and the allowance for loan losses to period-end loans.
(a) Predominantly consists of prime mortgages originated with the intent to
sell that are accounted for at fair value.
56.7
57.2
57.8
CCB households (in millions)
15,629
19,084
22,810
Active mobile customers (in
thousands)
151,333
137,186
December 31,
26,022
3,539
10,442
707
391
703 $
286
703 $
270
Nonperforming assets
$
Allowance for loan
losses
1.79%
337
305 $
1.51%
253 $
1.16%
$
Net charge-offs
Net charge-off rate
Credit data and quality statistics
37,174
$
2.32%
2.21%
38,298
$
41,457
$
Average assets
$ 11,000
$ 11,000
Equity (period-end and average) $11,500
1.90%
2015 compared with 2014
Net revenue was $18.0 billion, down 1% compared with the
prior year. Net interest income was $10.4 billion, down 6%
due to deposit spread compression, largely offset by higher
deposit balances. Noninterest revenue was $7.5 billion, up
5%, driven by higher debit card revenue, reflecting an
increase in transaction volume, higher deposit-related fees
as a result of an increase in customer accounts and a gain on
the sale of a branch.
Deposits
3,994
23,588
21,039
18,041
2,149
2,514
2,764
Sales specialists
Personal bankers
Chase Private Client
locations
% managed accounts
Number of:
36%
39%
41%
11,852 $ 16,088 $ 16,006
218,551
213,459
188,840
Client investment assets
$
Retail branch business metrics
Net new investment
assets
Net revenue was $18.2 billion, up 5% compared with the
prior year. Net interest income was $11.1 billion, up 4%
compared with the prior year, driven by higher deposit
balances, largely offset by deposit spread compression.
Noninterest revenue was $7.2 billion, up 6%, driven by
higher investment revenue, reflecting an increase in client
investment assets, higher debit card revenue, reflecting an
increase in transaction volume, and higher deposit-related
fees as a result of an increase in customer accounts.
Consumer & Business Banking net income was $3.4 billion,
an increase of 17%, compared with the prior year, due to
higher net revenue.
2014 compared with 2013
Noninterest expense was $11.9 billion, a decrease of 2%
from the prior year, driven by lower headcount-related
expense due to branch efficiencies, partially offset by higher
legal expense.
Consumer & Business Banking net income was $3.6 billion,
an increase of 4% compared with the prior year.
Net interest income
Deposit margin
434,573
12,149
11,916
Noninterest expense
Average deposits:
347
305
254
Provision for credit losses
18,844
20,152
21,894
Average loans
451,427
489,546
544,408
deposits
17,412
18,226
17,983
Total net revenue
Total period-end
10,668
11,052
12,162
70
Checking
198,996
472,334
515,222
Total average deposits
26%
29,227
24,057
19,452
Time and other
4,903
$ 2,943
$ 3,443
31%
67
30%
66
Overhead ratio
Return on common equity
$ 3,581
Net income
229,341
249,281
269,057
Savings
5,772
5,813
Income before income tax
expense
176,005
226,713
Core loans
2,437
$ 416,580 $ 390,884 $ 393,006
15,852
expense
Income before income tax
11,686
16,156
27,842
25,609
24,909
Total noninterest expense
15,071
15,139
Noncompensation expense
15,239
10,538
Compensation expense
Noninterest expense
335
3,520
3,059
Provision for credit losses
28,985
46,537
44,368
43,820
Total net revenue
9,770
Income tax expense
6,063
6,054
Selected metrics
Management's discussion and analysis
85
JPMorgan Chase & Co./2015 Annual Report
Note: In the discussion and the tables which follow, CCB presents certain
financial measures which exclude the impact of PCI loans; these are non-GAAP
financial measures. For additional information, see Explanation and
Reconciliation of the Firm's Use of Non-GAAP Financial Measures.
Noninterest expense was $25.6 billion, a decrease of 8%
from the prior year, driven by lower Mortgage Banking
expense.
The provision for credit losses was $3.5 billion, compared
with $335 million in the prior year. The current-year
provision reflected a $1.3 billion reduction in the allowance
for loan losses and total net charge-offs of $4.8 billion. The
prior-year provision reflected a $5.5 billion reduction in the
allowance for loan losses and total net charge-offs of $5.8
billion.
Consumer & Community Banking net income was $9.2
billion, a decrease of 17% compared with the prior year,
due to higher provision for credit losses and lower net
revenue, partially offset by lower noninterest expense.
Net revenue was $44.4 billion, a decrease of 5% compared
with the prior year. Net interest income was $28.4 billion,
down 2%, driven by spread compression and lower
mortgage warehouse balances, largely offset by higher
deposit balances in Consumer & Business Banking and
higher loan balances in Credit Card. Noninterest revenue
was $16.0 billion, a decrease of 9%, driven by lower
mortgage fees and related income.
2014 compared with 2013
The provision for credit losses was $3.1 billion, a decrease
of 13% from the prior year, reflecting lower net charge-
offs, partially offset by a lower reduction in the allowance
for loan losses. The current-year provision reflected a $1.0
billion reduction in the allowance for loan losses, compared
with a $1.3 billion reduction in the prior year.
Noninterest expense was $24.9 billion, a decrease of 3%
from the prior year, driven by lower Mortgage Banking
expense.
Net revenue was $43.8 billion, a decrease of 1% compared
with the prior year. Net interest income was $28.2 billion,
down 1%, driven by spread compression, predominantly
offset by higher deposit and loan balances, and improved
credit quality including lower reversals of interest and fees
due to lower net charge-offs in Credit Card. Noninterest
revenue was $15.6 billion, down 2%, driven by lower
mortgage fees and related income, predominantly offset by
higher auto lease and card sales volume, and the impact of
non-core portfolio exits in Card in the prior year.
Consumer & Community Banking net income was $9.8
billion, an increase of 7% compared with the prior year,
driven by lower noninterest expense and lower provision for
credit losses, largely offset by lower net revenue.
2015 compared with 2014
18,360
7,299
$ 9,185 $ 11,061
60
23%
18%
58
18%
57
Overhead ratio
Return on common equity
Financial ratios
$ 9,789
Net income
28,431
28,228
Net interest income
17,552
2013
2014
2015
Selected income statement data
Consumer & Community Banking serves consumers and
businesses through personal service at bank branches
and through ATMs, online, mobile and telephone
banking. CCB is organized into Consumer & Business
Banking (including Consumer Banking/Chase Wealth
Management and Business Banking), Mortgage Banking
(including Mortgage Production, Mortgage Servicing
and Real Estate Portfolios) and Card, Commerce
Solutions & Auto ("Card"). Consumer & Business
Banking offers deposit and investment products and
services to consumers, and lending, deposit, and cash
management and payment solutions to small
businesses. Mortgage Banking includes mortgage
origination and servicing activities, as well as
portfolios consisting of residential mortgages and
home equity loans. Card issues credit cards to
consumers and small businesses, offers payment
processing services to merchants, and provides auto
loans and leases and student loan services.
CONSUMER & COMMUNITY BANKING
JPMorgan Chase & Co./2015 Annual Report
84
9%
10%
11%
$ 24,442 $ 21,745 $ 17,886
225
3,827 $ 3,139 $
$
NM
NM
NM
(6,756)
864
5,740
(28)
(35)
$ 3,039 $ 2,983
As of or for the year ended
December 31,
Year ended December 31,
Revenue
15,937
15,592
Noninterest revenue
1,473
1,463
2,281
All other income
5,785
5,779
5,491
Card income
5,195
3,560
2,511
income
Mortgage fees and related
2,116
2,096
2,172
commissions
administration and
Asset management,
Lending- and deposit-related fees $ 3,137
(in millions, except ratios)
(in millions, except
headcount)
Selected balance sheet
7,484
Trading assets - loans (a)
$ 472,972
Total assets
nonaccrual loans retained,
2.36
2.02
1.59
3.10
2.63
2.06
Allowance for loan losses to
period-end loans retained
Allowance for loan losses to
period-end loans retained,
excluding PCI loans (d)
Allowance for loan losses to
Selected balance sheet
46,000
464,412
246,751
273,494
502,520
51,000
51,000
Equity(c)
557,645
Deposits
341,881
Core loans
$ 447,750 $ 456,468
8,040
1.73
excluding credit card (b)(d)
58
Total loans
3.49
2.88
1.94
end loans, excluding credit card
and PCI loans(b)
209
392,797
917
389,967
2,062
414,518
Loans held-for-sale (d)
Loans retained
Nonaccrual loans to total period-
Loans:
2.80
2.38
1.69
credit card
end loans, excluding
15,603
Nonaccrual loans to total period-
57
57
Business metrics
1.40
Net charge-off rate, excluding PCI
loans
6,401
5,313
Nonaccrual loans (b)(c)
$ 452,929
$ 502,652 $ 455,634
5,953
Trading assets - loans (a)
$ 4,773 $ 5,826
4,084
$
Net charge-offs (a)
Credit data and quality statistics
2013
2014
2015
(in millions, except ratios and
where otherwise noted)
2013
2014
2015
December 31,
As of or for the year ended
Selected metrics
Total assets
data (period-end)
7,455
1.10
8,423
Nonperforming assets (b)(c)
940
394,291
399,704
445,858
Total loans
3,416
542
Loans held-for-sale (b)
1.48%
1.22%
0.99%
Net charge-off rate (a)
393,351
396,288
445,316
Loans retained
12,201
10,404
9,165
Allowance for loan losses (a)
Loans:
8,109
6,872
5,635
6,832
Client advisors
159,809
3,090
Total average loans owned
4,158
3,325
2,742
Allowance for PCI loans (a)
19,236
16,794
14,711
Option ARMS
$ 2,588
43,746
$ 2,188
3.55
2.61
1.57
30+ day delinquency rate,
excluding PCI loans (b)(c)
Allowance for loan losses,
excluding PCI loans
4,416
3,921
3,442
Subprime mortgage
12,909
11,257
$ 1,588
50,002
56,511
Allowance for loan losses
Other
Subprime mortgage
157,107
ARMS
period-end loans retained,
Prime mortgage, including option
3.68%
3.01%
1.94%
Allowance for loan losses to
period-end loans retained
Allowance for loan losses to
76,790
67,994
58,734
Home equity
Period-end loans owned
7,438
6,175
4,971
Nonperforming assets (d)(e)
Total Mortgage Banking
6,746
5,513
4,330
9,548
Prime mortgage
19,950
18,030
Subprime mortgage
0.06
0.03
0.04
option ARMS
12,038
10,220
8,893
Prime mortgage
Prime mortgage, including
18,927
17,095
14,989
Home equity
1.17
0.65
0.45
Home equity
Period-end loans owned
reported (a)
Net charge-off/(recovery) rate -
PCI loans
0.85
3,263
6,995
398
3,673
Subprime mortgage
16,045
Home equity
0.59
0.27
0.14
(recovery) rate - reported
Average loans owned
Total net charge-off/
53,055
46,696
40,998
Total period-end loans owned
1.70
1.76
1.61
Other
17,915
15,708
13,853
Option ARMS
0.74
(0.27)
(0.68)
4,175
106,342
8,756
477
95,166
11,279
excluding PCI loans
(period-end)
MSR carrying value
837.3
784.6
715.4
(average)
loans serviced
Third-party mortgage
815.5
751.5
674.0
end)
loans serviced (period-
Third-party mortgage
(period-end)
Total loans serviced
165.5
78.0
106.4
origination volume (a)
Total mortgage
77.0
88.5
48.5
Ratio of MSR carrying
70.3
value (period-end) to
loans serviced (period-
end)
JPMorgan Chase & Co./2015 Annual Report
90
The Federal Reserve Consent Order and certain other
mortgage-related settlements are the subject of ongoing
reporting to various regulators and independent overseers.
The Firm's compliance with certain of these settlements is
detailed in periodic reports published by the independent
overseers. The Firm is committed to fulfilling all of these
commitments with appropriate due diligence and oversight.
On June 11, 2015, the Firm signed the Second Amended
Mortgage Banking Consent Order (the "Amended OCC
Consent Order") with the Office of the Comptroller of the
Currency ("OCC"), which focused on ten remaining open
items from the original mortgage-servicing Consent Order
entered into with the OCC in April 2011 and imposed
certain business restrictions on the Firm's mortgage
banking activities. The Firm completed its work on those
items, and on January 4, 2016, the OCC terminated the
Amended OCC Consent Order and lifted the mortgage
business restrictions. The Firm remains under the
mortgage-servicing Consent Order entered into with the
Board of Governors of the Federal Reserve System ("Federal
Reserve") on April 13, 2011, as amended on February 28,
2013 (the "Federal Reserve Consent Order"). The Audit
Committee of the Board of Directors will provide
governance and oversight of the Federal Reserve Consent
Order in 2016.
The financial crisis resulted in unprecedented levels of
delinquencies and defaults of 1-4 family residential real
estate loans. Such loans required varying degrees of loss
mitigation activities. Foreclosure is usually a last resort, and
accordingly, the Firm has made, and continues to make,
significant efforts to help borrowers remain in their homes.
The Firm entered into various Consent Orders and
settlements with federal and state governmental agencies
and private parties related to mortgage servicing,
origination, and residential mortgage-backed securities
activities. The requirements of these Consent Orders and
settlements vary, but in the aggregate, include cash
compensatory payments (in addition to fines) and/or
"borrower relief," which may include principal reduction,
refinancing, short sale assistance, and other specified types
of borrower relief. Other obligations required under certain
Consent Orders and settlements, as well as under new
regulatory requirements, include enhanced mortgage
servicing and foreclosure standards and processes.
Mortgage servicing-related matters
(b) Represents the ratio of MSR carrying value (period-end) to third-party
mortgage loans serviced (period-end) divided by the ratio of loan servicing-
related revenue to third-party mortgage loans serviced (average).
(a) Firmwide mortgage origination volume was $115.2 billion, $83.3 billion
and $176.4. billion for the years ended December 31, 2015, 2014 and
2013, respectively.
0.40
2.95x
0.36
2.72x
0.35
2.80x
9.6
7.4
6.6
MSR revenue multiple (b)
serviced (average)
mortgage loans
revenue to third-party
servicing-related
Ratio of annualized loan
1.18%
0.98%
0.98%
third-party mortgage
0.37
Correspondent
29.5
Total average loans owned
588
511
93,742
12,103
99,542
10,178
7,876
436
Other
Subprime mortgage
131,982
Prime mortgage, including option
ARMS
82,319
72,440
63,261
Home equity
Average loans owned
183,786
183,569
223,234
Total period-end loans owned
551
1.99
1.60
0.87
203,555
$
182,671
(a) Predominantly consists of prime mortgages originated with the intent to
sell that are accounted for at fair value.
$
36.1
$
Retail
volume by channel
1,017.2
948.8
910.1
2013
2014
2015
Mortgage origination
(in billions, except
ratios)
As of or for the year
ended December 31,
Business metrics
Management's discussion and analysis
89
JPMorgan Chase & Co./2015 Annual Report
(e) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as all of the pools are performing.
(d) At December 31, 2015, 2014 and 2013, nonperforming assets excluded: (1)
mortgage loans insured by U.S. government agencies of $6.3 billion, $7.8 billion
and $8.4 billion, respectively, that are 90 or more days past due and (2) REO
insured by U.S. government agencies of $343 million, $462 million and $2.0
billion, respectively. These amounts have been excluded based upon the
government guarantee.
(c) The 30+ day delinquency rate for PCI loans was 11.21%, 13.33% and 15.31%
at December 31, 2015, 2014 and 2013, respectively.
(b) At December 31, 2015, 2014 and 2013, excluded mortgage loans insured by
U.S. government agencies of $8.4 billion $9.7 billion and $9.6 billion,
respectively, that are 30 or more days past due. These amounts have been
excluded based upon the government guarantee. For further discussion, see Note
14 which summarizes loan delinquency information.
(a) Net charge-offs and the net charge-off rates excluded $208 million, $533 million
and $53 million of write-offs in the PCI portfolio for the years ended December
31, 2015, 2014 and 2013, respectively. These write-offs decreased the
allowance for loan losses for PCI loans. For further information on PCI write-offs,
see Allowance for Credit Losses on pages 130-132.
188,752
2,931
0.18
(recovery) rate, excluding
Supplemental information
The provision for credit losses was a benefit of $217 million,
compared to a benefit of $2.7 billion in the prior year,
reflecting a smaller reduction in the allowance for loan
losses, partially offset by lower net charge-offs. The current-
year provision reflected a $400 million reduction in the non
credit-impaired allowance for loan losses and $300 million
reduction in the purchased credit-impaired allowance for loan
losses; the prior-year provision included a $2.3 billion
reduction in the non credit-impaired allowance for loan losses
and a $1.5 billion reduction in the purchased credit-impaired
allowance for loan losses. These reductions were due to
continued improvement in home prices and delinquencies.
Noninterest expense was $5.3 billion, a decrease of 30%,
from the prior year, reflecting lower headcount-related
expense, the absence of non-mortgage-backed securities
("MBS") related legal expense, lower expense on foreclosure-
related matters, and lower FDIC-related expense.
Net revenue was $7.8 billion, a decrease of 24%, compared
with the prior year. Net interest income was $4.2 billion, a
decrease of 11%, driven by spread compression and lower
loan balances due to portfolio runoff and lower warehouse
balances. Noninterest revenue was $3.6 billion, a decrease of
34%, driven by lower net production revenue, largely
reflecting lower volumes, lower servicing revenue, largely as
a result of lower average third-party loans serviced, and
lower revenue from an exited non-core product, largely offset
by higher MSR risk management income and lower MSR asset
amortization expense as a result of lower MSR asset value.
See Note 17 for further information regarding changes in
value of the MSR asset and related hedges, and mortgage
fees and related income.
Mortgage Banking net income was $1.7 billion, a decrease
of 48%, from the prior year, driven by a lower benefit from
the provision for credit losses and lower net revenue,
partially offset by lower noninterest expense.
2014 compared with 2013
Noninterest expense was $4.6 billion, a decrease of 13%
from the prior year, reflecting lower headcount-related
expense and lower professional fees.
The provision for credit losses was a benefit of $690 million,
compared to a benefit of $217 million in the prior year,
reflecting a larger reduction in the allowance for loan losses
and lower net charge-offs. The current-year provision
reflected a $600 million reduction in the non credit-impaired
allowance for loan losses and a $375 million reduction in the
purchased credit-impaired allowance for loan losses; the
prior-year provision included a $400 million reduction in the
non credit-impaired allowance for loan losses and a $300
million reduction in the purchased credit-impaired allowance
for loan losses. These reductions were due to continued
improvement in home prices and delinquencies in both
periods, as well as increased granularity in the impairment
estimates in the current year.
Net revenue was $6.8 billion, a decrease of 13% compared
with the prior year. Net interest income was $4.4 billion, an
increase of 3% from the prior year, due to higher loan
balances resulting from originations of high-quality loans that
have been retained, partially offset by spread compression.
Noninterest revenue was $2.4 billion, a decrease of 32%
from the prior year. This decrease was driven by lower
servicing revenue, largely as a result of lower average third-
party loans serviced and lower net production revenue,
reflecting a lower repurchase benefit.
Mortgage Banking net income was $1.8 billion, an increase
of 7% from the prior year, driven by lower noninterest
expense and a higher benefit from the provision for credit
losses, predominantly offset by lower net revenue.
2015 compared with 2014
For the year ended December
31,
(a) For further information on mortgage fees and related income, see Note 17.
$ 18,000
$ 16,000
Equity (period-end and
average)
74
68
16%
9%
10%
68
Overhead ratio
Return on common equity
$ 19,500
(in millions)
Net interest income:
2015
1,373
1,075
2,966
2,267
2,041
Mortgage Servicing
3,083
1,491 $ 1,644
$
Mortgage Production
Noninterest expense:
Real Estate Portfolios
Total net interest income
887
736 $
3,493
3,871
4,371 $ 4,229 $ 4,758
$
3,796
$
575
$
Mortgage Production and
Mortgage Servicing
2013
2014
5,315
$ 3,211
$ 1,668
$ 1,778
Net income
2013
2014
2015
(in millions, except ratios)
December 31,
$ 5,195
283
5,478
All other income
As of or for the year ended
Selected Financial statement data
Mortgage Banking
Management's discussion and analysis
87
JPMorgan Chase & Co./2015 Annual Report
(a) Includes checking accounts and Chase Liquid cards.
29,437
30,481
31,342
Accounts (in
thousands) (a)
215,888
325,653
441,369
Chase Private Clients
3,044
Revenue
1,553
Mortgage fees and related
income (a)
(65)
2,759
2,900
expense
Income before income tax
(2,681)
7,602
5,284
4,607
Noninterest expense
(217)
(690)
Provision for credit losses
10,236
7,826
6,817
Total net revenue
4,758
4,229
4,371
Net interest income
3,597
2,446
Noninterest revenue
$ 3,560
37
$ 2,511
$
4,607 $ 5,284 $ 7,602
Real Estate Portfolios
62,369
54,410
47,216
Home equity
1.55%
0.87%
0.60%
Home equity
Average loans owned
excluding PCI loans
130,731
136,873
182,236
Total period-end loans owned
Net charge-off/(recovery) rate,
551
477
398
Other
1,119
483
285
(recoveries), excluding PCI
loans
Prime mortgage, including
7,104
Prime mortgage, including option
ARMS
0.04
132,241
132,669
(10)
Total average loans owned
Total net charge-off/
588
1.70
1.76
1.61
Other
7,687
1.17
(0.43)
(1.22)
Subprime mortgage
61,597
71,491
6,257
511
4,434
436
Other
Subprime mortgage
107,723
0.09
0.04
option ARMS
PCI loans
5,083
Subprime mortgage
Home equity
Net charge-offs/(recoveries),
excluding PCI loans (a)
2013
2014
2015
(in millions, except ratios)
As of or for the year ended
December 31,
Credit data and quality statistics
15,603
8,040
7,484
$ 5,953 $ 8,423 $ 6,832
2013
2014
2015
Trading assets-loans (average) (a)
Trading assets loans (period-end) (a)
(in millions)
As of or for the year ended
December 31,
Selected balance sheet data
JPMorgan Chase & Co./2015 Annual Report
88
Total noninterest expense
$
3,732
283
Loans, excluding PCI loans
Total net charge-offs/
65,213
80,414
134,361
adjustable rate mortgages ("ARMS")
10
9
7
90
(27)
(53)
53
28
48
Other
Prime mortgage, including option
Subprime mortgage
57,863
50,899
43,745
Home equity
Prime mortgage, including
option ARMS
Period-end loans owned
$ 473 $ 966
Total
data (average)
23
Total net revenue
(in millions)
2015
Consumer & Community Banking
$ 43,820 $
Corporate & Investment Bank
33,542
2014
2013
44,368 $ 46,537
34,595 34,712
2015
Pre-provision profit/(loss)
2014
2015
2014
2013
21,361
$ 24,909 $ 25,609 $ 27,842
23,273 21,744
$ 18,911 $ 18,759 $ 18,695
12,181
11,322
12,968
2013
Commercial Banking
Total noninterest expense
The following tables summarize the business segment results for the periods indicated.
Chase Wealth
Management
• Business
Banking
Description of business segment reporting methodology
Results of the business segments are intended to reflect
each segment as if it were essentially a stand-alone
business. The management reporting process that derives
business segment results allocates income and expense
using market-based methodologies. The Firm periodically
assesses the assumptions, methodologies and reporting
classifications used for segment reporting, and further
refinements may be implemented in future periods.
Revenue sharing
When business segments join efforts to sell products and
services to the Firm's clients, the participating business
segments agree to share revenue from those transactions.
The segment results reflect these revenue-sharing
agreements.
Funds transfer pricing
Funds transfer pricing is used to allocate interest income
and expense to each business and transfer the primary
interest rate risk exposures to the Treasury group within
Corporate. The allocation process is unique to each business
segment and considers the interest rate risk, liquidity risk
and regulatory requirements of that segment as if it were
operating independently, and as compared with its stand-
alone peers. This process is overseen by senior
management and reviewed by the Firm's Asset-Liability
Committee ("ALCO").
Year ended December 31,
Preferred stock dividend allocation
Business segment capital allocation changes
Expense allocation
Where business segments use services provided by
corporate support units, or another business segment, the
costs of those services are allocated to the respective
business segments. The expense is generally
allocated based on actual cost and use of services provided.
In contrast, certain other costs related to corporate support
JPMorgan Chase & Co./2015 Annual Report
83
Management's discussion and analysis
units, or to certain technology and operations, are not
allocated to the business segments and are retained in
Corporate. Expense retained in Corporate generally includes
parent company costs that would not be incurred if the
Segment Results - Managed Basis
segments were stand-alone businesses; adjustments to
align corporate support units; and other items not aligned
with a particular business segment.
As part of its funds transfer pricing process, the Firm
allocates substantially all of the cost of its outstanding
preferred stock to its reportable business segments, while
retaining the balance of the cost in Corporate. This cost is
included as a reduction to net income applicable to common
equity in order to be consistent with the presentation of
firmwide results.
Asset Management
Corporate
Total
Year ended December 31,
Provision for credit losses
Net income/(loss)
Return on equity
(in millions, except ratios)
2015
2014
2013
2015
$ 37,619 $ 36,611 $ 29,257
Consumer & Community Banking
3,059 $
3,520 $
335 $ 9,789 $
2014
9,185 $ 11,061
2013
2015
2014
2013
18%
$
$ 59,014 $ 61,274 $ 70,467
99,724
$ 96,633 $ 97,885 $
6,885
12,119
267
6,882
7,092
2,881
2,695
2,610
4,004
4,187
4,482
12,028
11,405
8,886
12
(22)
977
8,538
1,159 10,255
8,016
3,233
3,490
3,389
(710) (1,147) (10,277)
Banking/
18%
• Consumer
Business
504,218
2015 compared with 2014
Net interest income excluding CIB's markets-based activities
increased by $740 million in 2015 to $39.8 billion, and
average interest-earning assets increased by $56.2 billion
to $1.6 trillion. The increase in net interest income in 2015
predominantly reflected higher average loan balances and
lower interest expense on deposits. The increase was
partially offset by lower loan yields and lower investment
securities net interest income. The increase in average
interest-earning assets largely reflected the impact of
higher average deposits with banks. These changes in net
interest income and interest-earning assets resulted in the
net interest yield decreasing by 4 basis points to 2.50% for
2015.
2014 compared with 2013
Net interest income excluding CIB's markets-based activities
increased by $543 million in 2014 to $39.1 billion, and
average interest-earning assets increased by $72.8 billion
to $1.5 trillion. The increase in net interest income in 2014
predominantly reflected higher yields on investment
securities, the impact of lower interest expense, and higher
average loan balances. The increase was partially offset by
lower yields on loans due to the run-off of higher-yielding
loans and new originations of lower-yielding loans. The
increase in average interest-earning assets largely reflected
the impact of higher average balance of deposits with
banks. These changes in net interest income and interest-
earning assets resulted in the net interest yield decreasing
by 9 basis points to 2.54% for 2014.
earning assets
excluding markets
$1,595,017
$1,538,832 $1,466,013
510,261
Net interest yield on
2.14%
2.18%
2.23%
Net interest yield on
average markets-based
interest-earning assets
Net interest yield on
average interest-earning
assets excluding
average interest-earning
assets - managed basis
markets
493,225
$2,049,093
Corporate
Year ended December 31,
(in millions, except rates)
Net interest income -
managed basis(a)(b)
Less: Markets-based net
interest income
Net interest income
excluding markets(a)
Average interest-earning
assets
Less: Average markets-
based interest-earning
assets
$1,970,231
Average interest-
2015
2014
2013
44,620 $ 44,619 $ 44,016
4,813
5,552
5,492
$ 39,807 $ 39,067 $ 38,524
$2,088,242
$
0.97
1.09
1.09
Wholesale Businesses
Corporate & Investment Bank
Banking
• Investment
Banking
• Treasury
Services
Lending
Markets & Investor
Services
• Fixed
Income
Markets
• Equity
Markets
• Securities
Services
Credit
Adjustments
- Commerce
Solutions
& Other
• Middle
Market
Banking
• Corporate
Client
Banking
• Commercial
Term
Lending
• Real Estate
Banking
Asset
Management
⚫ Global
Investment
Management
• Global
Wealth
Management
Consumer &
Commercial
Banking
• Auto &
Student
-
• Real Estate
Portfolios
2.50%
2.54%
2.63%
(a) Interest includes the effect of related hedging derivatives. Taxable-equivalent
amounts are used where applicable.
(b) For a reconciliation of net interest income on a reported and managed basis, see
reconciliation from the Firm's reported U.S. GAAP results to managed basis on
page 80.
82
2
JPMorgan Chase & Co./2015 Annual Report
BUSINESS SEGMENT RESULTS
The Firm is managed on a line of business basis. There are
four major reportable business segments - Consumer &
Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset Management. In addition,
there is a Corporate segment.
The business segments are determined based on the
products and services provided, or the type of customer
served, and they reflect the manner in which financial
information is currently evaluated by management. Results
of these lines of business are presented on a managed
basis. For a definition of managed basis, see Explanation
and Reconciliation of the Firm's use of Non-GAAP Financial
Measures, on pages 80-82.
JPMorgan Chase
Consumer Businesses
Consumer & Community Banking
Mortgage
Banking
Card, Commerce
Solutions & Auto
• Card
Services
Credit
Card
•
Mortgage
Production
Mortgage
Servicing
Banking
23%
On at least an annual basis, the Firm assesses the level of
capital required for each line of business as well as the
assumptions and methodologies used to allocate capital to
its lines of business and updates the equity allocations to its
lines of business as refinements are implemented. Each
business segment is allocated capital by taking into
consideration stand-alone peer comparisons, regulatory
capital requirements (as estimated under Basel III Advanced
Fully Phased-In rules) and economic risk. The amount of
capital assigned to each business is referred to as equity.
For further information about line of business capital, see
Line of business equity on page 156.
2,648
Add: Deferred tax liabilities (a)
Tangible common equity
Return on tangible common equity
Tangible book value per share
Period-end
Average
Less: Certain identifiable intangible assets
Year ended December 31,
Dec 31,
2014
2015
2014
2013
$
47,325
Dec 31,
2015
23
Less: Goodwill
(in millions, except per share and ratio data)
Common stockholders' equity at period-end /
Common shares at period-end
Overhead ratio
Total noninterest expense / Total net revenue
Return on assets ("ROA")
Reported net income / Total average assets
Return on common equity (“ROE")
Common stockholders' equity
Return on tangible common equity ("ROTCE")
Tangible book value per share ("TBVPS")
Tangible common equity at period-end / Common shares at period-end
* Represents net income applicable to common equity
Tangible common equity ("TCE"), ROTCE and TBVPS are
each non-GAAP financial measures. TCE represents the
Firm's common stockholders' equity (i.e., total stockholders'
equity less preferred stock) less goodwill and identifiable
intangible assets (other than MSRs), net of related deferred
tax liabilities. ROTCE measures the Firm's earnings as a
percentage of average TCE. TBVPS represents the Firm's TCE
at period-end divided by common shares at period-end.
TCE, ROTCE, and TBVPS are meaningful to the Firm, as well
as investors and analysts, in assessing the Firm's use of
equity.
Additionally, certain credit and capital metrics and ratios
disclosed by the Firm are non-GAAP measures. For
additional information on these non-GAAP measures, see
Credit Risk Management on pages 112-132, and Capital
Management on pages 149-158.
Tangible common equity
Net income* / Average tangible common equity
Book value per share ("BVPS")
221,505 $ 211,664
47,647
$ 207,400
ΝΑ
44.60
13%
13%
11%
NA
ΝΑ
ΝΑ
48.13 $
N/A
JPMorgan Chase & Co./2015 Annual Report
81
Management's discussion and analysis
Net interest income excluding markets-based activities
(formerly core net interest income)
In addition to reviewing net interest income on a managed
basis, management also reviews net interest income
excluding CIB's markets-based activities to assess the
performance of the Firm's lending, investing (including
asset-liability management) and deposit-raising activities.
The data presented below are non-GAAP financial measures
due to the exclusion of CIB's markets-based net interest
income and related assets. Management believes this
exclusion provides investors and analysts with another
measure by which to analyze the non-markets-related
business trends of the Firm and provides a comparable
measure to other financial institutions that are primarily
focused on lending, investing and deposit-raising activities.
Net interest income excluding CIB markets-based
activities data
(a) Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted
against goodwill and other intangibles when calculating TCE.
$ 215,690
$
$ 160,943
$ 196,409
47,445
48,029
48,102
1,015
1,192
$ 149,242
1,092
1,950
$
3,148
2,853
176,313 $ 165,678
2,964
$ 170,117
2,950
2,885
1,378
Calculation of certain U.S. GAAP and non-GAAP financial measures
Certain U.S. GAAP and non-GAAP financial measures are calculated as
follows:
Net income* / Average common stockholders' equity
85
8,090
6,908
8,850
12
10
15
Commercial Banking
442
(189)
2,083
2,191
2,635
2,153
15
18
19
Asset Management
4
4
(232)
65
(161)
Corporate & Investment Bank
332
1,935
21
1,643
1.67
Compensation expense
1.44
1.43
Credit Card (b)
30+ day delinquency rate:
12.63
12.03
12.33
9.16
Share Rankings
1,238
1,203
1,115
Noncompensation expense
1,492
9.41
Total allowance for loan
losses
Auto
Noninterest expense was $2.9 billion, an increase of 7%
compared with the prior year, reflecting investment in
controls.
Net revenue was $6.9 billion, flat compared with the prior
year. Net interest income was $4.5 billion, flat compared
with the prior year, with interest income from higher loan
balances offset by spread compression. Noninterest revenue
was $2.4 billion, flat compared with the prior year, with
higher investment banking revenue offset by lower lending-
related fees.
Net income was $2.2 billion, a decrease of 17% compared
with the prior year, driven by a higher provision for credit
losses and higher noninterest expense.
2015 compared with 2014
(b) Total net revenue included tax-equivalent adjustments from income tax
credits related to equity investments in designated community
development entities that provide loans to qualified businesses in low-
income communities, as well as tax-exempt income from municipal bond
activities of $493 million, $462 million and $407 million for the years
ended December 31, 2015, 2014 and 2013, respectively.
(a) Includes revenue from investment banking products and commercial card
transactions.
$ 2,191 $ 2,635 $ 2,648
Net income
4,397
1,749
1,741
1,371
Income tax expense
4,376
3,562
Income before income tax expense
2,610
2,695
2,881
Total noninterest expense
1,495
1.35
0.72
1.15
Allowance for loan losses:
Credit Card
$ 3,434
Auto & Student
698
$ 3,439 $
749
3,795
Noninterest expense
85
(189)
442
Provision for credit losses
7,092
6,882
6,885
Total net revenue(b)
4,794
280
The provision for credit losses was $442 million, reflecting
an increase in the allowance for credit losses for Oil & Gas
exposure and other select downgrades. The prior year was a
benefit of $189 million.
$
411
Student(c)
1.81
2.35
2.56
Total 30+ day
delinquency rate
1.42
1.42
1.23
1.58
Credit Card (b)
953
0.70
0.80
Nonperforming assets (d)
$
394
$
90+ day delinquency rate -
2014 compared with 2013
Net income was $2.6 billion, flat compared with the prior
year, reflecting lower net revenue and higher noninterest
expense, predominantly offset by a lower provision for
credit losses.
Net revenue was $6.9 billion, a decrease of 3% compared
with the prior year. Net interest income was $4.5 billion, a
decrease of 5%, reflecting spread compression, the
absence of proceeds received in the prior year from a
lending-related workout, and lower purchase discounts
recognized on loan repayments, partially offset by higher
loan balances. Noninterest revenue was $2.3 billion, up
2%, reflecting higher investment banking revenue, largely
offset by business simplification and lower lending fees.
Noninterest expense was $2.7 billion, an increase of 3%
from the prior year, largely reflecting investments in
controls.
67
63
30
30
31
$ 6,376
$ 6,122
$ 5,922
3,631
3,728
3,693
1,461
1,547
2,147
Total Banking(a)
11,468
11,397
11,762
Fixed Income Markets(a)
64
12,592
15%
12%
(c) Excluded student loans insured by U.S. government agencies under the
FFELP of $526 million, $654 million and $737 million at December 31,
2015, 2014 and 2013, respectively, that are 30 or more days past due.
These amounts have been excluded based upon the government guarantee.
(d) Nonperforming assets excluded student loans insured by U.S. government
agencies under the FFELP of $290 million, $367 million and $428 million
at December 31, 2015, 2014 and 2013, respectively, that are 90 or more
days past due. These amounts have been excluded from nonaccrual loans
based upon the government guarantee.
JPMorgan Chase & Co./2015 Annual Report
93
Management's discussion and analysis
CORPORATE & INVESTMENT BANK
The Corporate & Investment Bank, which consists of
Banking and Markets & Investor Services, offers a
broad suite of investment banking, market-making,
prime brokerage, and treasury and securities products
and services to a global client base of corporations,
investors, financial institutions, government and
municipal entities. Banking offers a full range of
investment banking products and services in all major
capital markets, including advising on corporate
strategy and structure, capital-raising in equity and
debt markets, as well as loan origination and
syndication. Banking also includes Treasury Services,
which provides transaction services, consisting of cash
management and liquidity solutions. Markets &
Investor Services is a global market-maker in cash
securities and derivative instruments, and also offers
sophisticated risk management solutions, prime
brokerage, and research. Markets & Investor Services
also includes Securities Services, a leading global
custodian which provides custody, fund accounting and
administration, and securities lending products
principally for asset managers, insurance companies
and public and private investment funds.
Selected income statement data
Year ended December 31,
(in millions)
Revenue
2015
2014
2013
Selected income statement data
Year ended December 31,
(in millions, except ratios)
Financial ratios
Return on common equity
Overhead ratio
Compensation expense as
percentage of total net
revenue
Revenue by business
Investment banking (a)
Treasury Services (b)
Lending(b)
2015
2014
2013
10%
(b) Period-end credit card loans included loans held-for-sale of $76 million,
$3.0 billion and $326 million at December 31, 2015, 2014 and 2013,
respectively. These amounts were excluded when calculating delinquency
rates and the allowance for loan losses to period-end loans.
14,075
Equity Markets(a)
9,905
8,947
9,289
Lending- and deposit-related fees
1,573
1,742
1,884
Asset management,
administration and commissions
4,467
4,687
4,713
All other income
1,012
1,474
1,519
Noninterest revenue
23,693
23,420
Principal transactions (a)
15,976
$ 6,736 $ 6,570 $ 6,331
(c) Consists primarily of credit valuation adjustments ("CVA") managed by the
credit portfolio group, and FVA and DVA on OTC derivatives and structured
notes. Results are presented net of associated hedging activities and net of
CVA and FVA amounts allocated to Fixed Income Markets and Equity
Markets.
5,694
5,044
4,994
Securities Services
3,777
4,351
4,100
Credit Adjustments & Other(c)
11
(272)
(2,120)
Total Markets & Investor
Service(a)
Total net revenue
22,074
$33,542
23,198
22,950
$34,595
$34,712
(a) Effective in 2015, Investment banking revenue (formerly Investment
banking fees) incorporates all revenue associated with investment banking
activities, and is reported net of investment banking revenue shared with
other lines of business; previously such shared revenue had been reported
in Fixed Income Markets and Equity Markets. Prior period amounts have
been revised to conform with the current period presentation.
(b) Effective in 2015, Trade Finance revenue was transferred from Treasury
Services to Lending. Prior period amounts have been revised to conform
with the current period presentation.
Investment banking fees
9.41
(a) Average credit card loans included loans held-for-sale of $1.6 billion, $509
million and $95 million for the years ended December 31, 2015, 2014 and
2013, respectively. These amounts are excluded when calculating the net
charge-off rate.
2.18
2,649
730
684
575
145
159
138
Total Commercial Banking net
revenue
$6,885
$6,882
$ 7,092
Investment banking revenue, gross
$2,179
$1,986
$1,676
Revenue by client segment
Middle Market Banking (b)
$2,742
$2,791
2,681
$ 3,015
$3,358 $3,730
Treasury services (a)
Investment banking
Other(a)
JPMorgan Chase & Co./2015 Annual Report
99
Management's discussion and analysis
CB product revenue consists of the following:
Lending includes a variety of financing alternatives, which
are primarily provided on a secured basis; collateral
includes receivables, inventory, equipment, real estate or
other assets. Products include term loans, revolving lines of
credit, bridge financing, asset-based structures, leases, and
standby letters of credit.
Treasury services includes revenue from a broad range of
products and services that enable CB clients to manage
payments and receipts, as well as invest and manage funds.
Investment banking includes revenue from a range of
products providing CB clients with sophisticated capital-
raising alternatives, as well as balance sheet and risk
management tools through advisory, equity underwriting,
and loan syndications. Revenue from Fixed Income and
Equity Markets products used by CB clients is also included.
Investment banking revenue, gross, represents total
revenue related to investment banking products sold to CB
clients.
Other product revenue primarily includes tax-equivalent
adjustments generated from Community Development
Banking activities and certain income derived from principal
transactions.
CB is divided into four primary client segments: Middle
Market Banking, Corporate Client Banking, Commercial
Term Lending, and Real Estate Banking.
Middle Market Banking covers corporate, municipal and
nonprofit clients, with annual revenue generally ranging
between $20 million and $500 million.
Corporate Client Banking covers clients with annual
revenue generally ranging between $500 million and $2
billion and focuses on clients that have broader investment
banking needs.
Commercial Term Lending primarily provides term
financing to real estate investors/owners for multifamily
properties as well as office, retail and industrial properties.
Real Estate Banking provides full-service banking to
investors and developers of institutional-grade real estate
investment properties.
Other primarily includes lending and investment-related
activities within the Community Development Banking
business.
Selected metrics
Year ended December 31,
(in millions, except ratios)
Revenue by product
Lending (a)
2015
2014
2013
$3,429
2,581
2.49
Corporate Client Banking (b)
Commercial Term Lending
1,982
100
JPMorgan Chase & Co./2015 Annual Report
$ 4,132
$ 4,188
$
4,748
Allowance for loan losses to
period-end loans:
Credit Card (b)
2.61%
Auto & Student
1.02
2.69%
1.17
2.98%
1.51
Total allowance for loan
losses to period-end
loans
2.07
(b) Effective in 2015, mortgage warehouse lending clients were transferred
from Middle Market Banking to Corporate Client Banking. Prior period
revenue, period-end loans, and average loans by client segment were
revised to conform with the current period presentation.
2,012
(a) Effective in 2015, Commercial Card and Chase Commerce Solutions product
revenue was transferred from Lending and Other, respectively, to Treasury
Services. Prior period amounts were revised to conform with the current
period presentation.
39
1,911
1,275
1,252
1,239
Real Estate Banking
Other
494
495
561
362
362
366
$6,885
$6,882
$ 7,092
Total Commercial Banking net
revenue
Financial ratios
Return on common equity
Overhead ratio
18%
19%
37
3.22%
Sales volume - Dollar amount of cardmember purchases, net
of returns.
2.92%
2013
2014
2015
Year ended December 31,
(in millions, except ratios)
ended December 31,
As of or for the year
Card Services supplemental information
Selected metrics
JPMorgan Chase & Co./2015 Annual Report
22
92
26.1
27.5
32.4
(in millions, except ratios)
volume (in billions)
Auto
35.6
38.1
42.0
billions)
Total transactions (in
$ 750.1
$ 847.9
949.3
$
volume (in billions)
Merchant processing
Commerce Solutions
55%
Loan and lease origination
56%
2015
2013
3,079
3,122
Provision for credit losses
158
181
375
210
Student
214
Auto
3,879
$
3,429
$
$ 3,122
2014
Credit Card
15,055
15,518
Total net revenue
Net charge-offs:
11,638
11,462
11,845
Net interest income
$ 3,977
$ 3,593
$ 3,673
Noninterest revenue
Credit data and quality
statistics
Revenue
15,615
2,179
67%
% of accounts acquired
125,113
52,961
9,987
125,881
56,487
8,763
Student
Auto
Credit Card
Loans:
$ 198,265
$ 202,609
$ 206,765
Total assets
data (average)
Selected balance sheet
6,690
9,182
123,613
Auto operating lease
assets
$ 194,935
$ 199,894
Total loans
$ 127,791
52,757
10,541
$ 131,048
54,536
9,351
$ 131,463
60,255
8,176
Student
Auto
Credit Card
Loans:
data (period-end)
Auto origination volume - Dollar amount of auto loans and
leases originated.
Accounts with sales activity - represents the number of
cardmember accounts with a sales transaction within the past
month.
Open accounts - Cardmember accounts with charging
privileges.
$ 191,089
online
50,748
Total loans
32.3
34.0
33.8
activity
Accounts with sales
65.3
64.6
59.3
Open accounts
7.3
8.8
8.7
New accounts opened
419.5
11,049
$
495.9
$
Sales volume (in billions)
Commercial Card
Credit Card, excluding
Business metrics
5,102
6,106
7,807
assets
Auto operating lease
$ 185,410
$ 188,061
$ 191,131
$ 465.6
2.87%
333
6,065
Total net charge-offs
Total transactions - Number of transactions and
authorizations processed for merchants.
Share Rankings
Year ended
December 31,
Market
Share
Rankings
Market
Share Rankings
Market
2013
Share Rankings
Based on fees(a)
Based on volume(f)
Debt, equity and
Debt, equity and
$ 3,546
equity-related
Global
7.7%
#1
7.6%
#1
8.3%
23,736
Card, Commerce Solutions & Auto
Selected income statement data
As of or for the year
Card income
All other income
Noninterest revenue
2013
equity-related
ended December 31,
$
$ 4,370
Total net revenue
Delinquency rates
Net interest income
2.36
2.12
1.87
Total net charge-off rate
Noninterest revenue
3.01
3.75
2.40
Student
Percentage of average loans:
0.31
3,985
0.34
Auto
$ 4,340
$ 3,547
$ 3,930
3.14%
Net income
2.75%
2.51%
Credit Card(a)
7,191
5,824
6,331
Income before income tax
expense
Net charge-off rate:
0.38
Noninterest expense
(in millions, except ratios)
2014
$ 19,000
31%
43
$15,500
Note: Chase Commerce Solutions, formerly known as Merchant Services,
includes Chase Paymentech, ChaseNet and Chase Offers businesses.
(a) Included operating lease depreciation expense of $1.4 billion, $1.2 billion
and $972 million for the years ended December 31, 2015, 2014 and
2013, respectively.
2015 compared with 2014
Card net income was $4.4 billion, an increase of 9%
compared with the prior year, driven by higher net revenue,
partially offset by higher noninterest expense.
Net revenue was $19.0 billion, an increase of 4% compared
with the prior year. Net interest income was $13.4 billion,
up 2% from the prior year, driven by higher loan balances
and improved credit quality including lower reversals of
interest and fees due to lower net charge-offs in Credit Card
and a reduction in the reserve for uncollectible interest and
fees, partially offset by spread compression. Noninterest
revenue was $5.6 billion, up 8% compared with the prior
year, driven by higher auto lease and card sales volumes,
the impact of non-core portfolio exits in the prior year and a
gain on the investment in Square, Inc. upon its initial public
offering, largely offset by the impact of renegotiated co-
brand partnership agreements and higher amortization of
new account origination costs.
The provision for credit losses was $3.5 billion, an increase
of 2% compared with the prior year, reflecting a lower
reduction in the allowance for loan losses, predominantly
offset by lower net charge-offs. The current-year provision
reflected a $51 million reduction in the allowance for loan
losses, primarily due to runoff in the student loan portfolio.
The prior-year provision included a $554 million reduction
in the allowance for loan losses, primarily related to a
decrease in the asset-specific allowance resulting from
increased granularity of the impairment estimates and
lower balances related to credit card loans modified in
troubled debt restructurings ("TDRS"), runoff in the student
loan portfolio and lower estimated losses in auto loans.
Noninterest expense was $8.4 billion, up 3% from the prior
year, driven by higher auto lease depreciation and higher
marketing expense, partially offset by lower legal expense.
2014 compared with 2013
Card net income was $4.1 billion, a decrease of 17%,
compared with the prior year, predominantly driven by
higher provision for credit losses and lower net revenue.
Net revenue was $18.3 billion, down 3% compared with the
prior year. Net interest income was $13.2 billion, a
decrease of 3% from the prior year, primarily driven by
spread compression in Credit Card and Auto, partially offset
by higher average loan balances. Noninterest revenue was
$5.2 billion, down 3% from the prior year. The decrease
was primarily driven by higher amortization of new account
origination costs and the impact of non-core portfolio exits,
largely offset by higher auto lease income and net
interchange income from higher sales volume.
The provision for credit losses was $3.4 billion, compared
with $2.7 billion in the prior year. The current-year
provision reflected lower net charge-offs and a $554
million reduction in the allowance for loan losses. The
reduction in the allowance for loan losses was primarily
related to a decrease in the asset-specific allowance
resulting from increased granularity of the impairment
estimates and lower balances related to credit card loans
modified in TDRs, runoff in the student loan portfolio, and
lower estimated losses in auto loans. The prior-year
provision included a $1.7 billion reduction in the allowance
for loan losses.
Noninterest expense was $8.2 billion, up 1% from the prior
year, primarily driven by higher auto lease depreciation
expense and higher investment in controls, predominantly
offset by lower intangible amortization and lower
remediation costs.
JPMorgan Chase & Co./2015 Annual Report
91
$ 18,500
93
Selected metrics
As of or for the year
ended December 31,
(in millions, except ratios
and where otherwise
noted)
Selected balance sheet
2015
2014
2013
5,512
The following are brief descriptions of selected business
metrics within Card, Commerce Solutions & Auto.
Card Services includes the Credit Card and Commerce
Solutions businesses.
Commerce Solutions is a business that primarily processes
transactions for merchants.
6,245
6,152
Management's discussion and analysis
2015
Equity (period-end and
average)
23%
44
Revenue
$ 3,769
1,836
$ 4,173
993
5,605
5,166
Net interest income
13,415
13,150
Total net revenue
19,020
18,316
Provision for credit losses
3,495
21%
45
3,432
Noninterest expense (a)
8,386
8,176
8,078
Income before income tax
expense
7,139
6,708
Net income
$ 4,430
$ 4,074
8,142
$ 4,907
Return on common equity
Overhead ratio
$ 4,289
1,041
5,330
13,559
18,889
2,669
Net interest income
15%
42
11,175
$ 96,409 $ 95,627
$106,908
Total loans
35,722
40,312
56,569
North America
59,905
Client deposits and other third-
party liabilities (average) (a)
56,097
Total international loans
8,362
8,950
8,609
Latin America/Caribbean
22,151
19,992
17,108
50,339
Europe/Middle East/Africa
Asia/Pacific
Latin America/Caribbean
All other regions
Total AUC
$395,297 $417,369 $ 383,667
164,054 175,364
170,131
$213,536
$242,005
$231,243
15,301
22,360
54,428
66,933
67,111
23,070
$152,712 $ 143,807
$141,062
North America
AUC (period-end) (in billions) (a)
Total client deposits and other
third-party liabilities
North America
Total international
$ 29,392
$ 12,034
$ 24,622 $ 27,155
Loans (period-end)(a)
2014
2015
Total net revenue(a)
Year ended December 31,
(in millions)
International metrics
Management's discussion and analysis
97
JPMorgan Chase & Co./2015 Annual Report
2013
(c) Client deposits and other third party liabilities pertain to the Treasury Services and Securities Services businesses.
(a) Market risk-related revenue is defined as the change in value of: principal transactions revenue; trading-related net interest income; brokerage commissions,
underwriting fees or other revenue; and revenue from syndicated lending facilities that the Firm intends to distribute; gains and losses from DVA and FVA are
excluded. Market risk-related revenue-trading loss days represent the number of days for which the CIB posted losses under this measure. The loss days determined
under this measure differ from the loss days that are determined based on the disclosure of market risk-related gains and losses for the Firm in the value-at-risk
("VaR") back-testing discussion on pages 135-137.
30,752
383,667
25,713
19,255
20,485
20,549 $
417,369 $
19,943 $
395,297 $
(b) Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts.
Europe/Middle East/Africa
$ 10,894 $ 11,598 $ 10,689
Asia/Pacific
$ 34,712
$ 34,595
$ 33,542
Total net revenue
17,947
17,120
16,651
North America
16,765
17,475
16,891
Total international net revenue
1,340
1,179
1,096
Latin America/Caribbean
4,736
4,698
4,901
Europe/Middle East/Africa
Asia/Pacific
$
7,909
$ 11,987 $ 11,299
8,562
9,186
2,133 $
1,434
1,627 $
1,571
1,315
1,499
Debt underwriting
3,169
3,372
$
3,517
$
6,736
$
6,570
$
6,331
96
JPMorgan Chase & Co./2015 Annual Report
Total investment banking fees
2013
2014
2015
excluding trade finance
and conduits (b)
1.88
1.82
2.02
Allowance for loan losses to
nonaccrual loans
retained(a)
294
940
672
Nonaccrual loans to total
period-end loans
0.40
0.12
0.32
Business metrics
(in millions)
Advisory
Equity underwriting
Year ended December 31,
League table results - wallet share
$ 19,943
2015
2014
2013
2014
2015
Noninterest revenue
All other income(a)
and commissions
Asset management, administration
Lending- and deposit-related fees
$ 1,033
Revenue
Year ended December 31,
Selected income statement data
Commercial Banking delivers extensive industry
knowledge, local expertise and dedicated service to
U.S. and U.S. multinational clients, including
corporations, municipalities, financial institutions and
nonprofit entities with annual revenue generally
ranging from $20 million to $2 billion. In addition, CB
provides financing to real estate investors and owners.
Partnering with the Firm's other businesses, CB
provides comprehensive financial solutions, including
lending, treasury services, investment banking and
asset management to meet its clients' domestic and
international financial needs.
COMMERCIAL BANKING
JPMorgan Chase & Co./2015 Annual Report
98
(a) Total net revenue is based predominantly on the domicile of the client or
location of the trading desk, as applicable. Loans outstanding (excluding
loans held-for-sale and loans at fair value), client deposits and other third-
party liabilities, and AUC are based predominantly on the domicile of the
client.
$ 20,549 $ 20,485
(in millions)
$
944
$ 978
2013
2015
2014
Year ended
December 31,
Fee
Fee
Fee
Share Rankings
4,533
4,520
Net interest income
2,298
2,349
2,365
116
1,149
1,279
1,333
92
88
League table results - volumes
period-end loans retained,
$
Client deposits and other third party liabilities (average) (c)
Global(c)
2
8.4
3
7.1
1
7.0
Global(c)
7.2
related
Equity and equity-
Equity and equity-
1
11.8
1
11.3
1
10.8
related
3
7.5
U.S.
8.5
Global
M&A announced (d)
2 2
12.1
2
8.2
3 2
11.0
1
12.4
U.S.
2
11.2
3
9.6
1
11.1
M&A(d)
U.S.
U.S.
1
1
1
11.3
U.S.
1
11.4
1
10.7
1
11.8
11.6
#1
7.3%
#1
6.8%
#1
6.8%
Global
#1
U.S.
1
11.9
1
6.7
1
6.8
Global
1 2
11.5
1
11.7
1
11.9
U.S.
8.2
1
8.0
1
8.3
Global
Long-term debt (b)
Long-term debt (b)
7.2
Trade finance loans (period-end)
10.0
8.0
December 31,
As of or for the year ended
Business metrics
(f) Source: Dealogic. Reflects transaction volume and market share. Global announced M&A is based on transaction value at announcement; because of joint M&A
assignments, M&A market share of all participants will add up to more than 100%. All other transaction volume-based rankings are based on proceeds, with full credit to
each book manager/equal if joint.
(e) Global investment banking fees per Dealogic exclude money market, short-term debt and shelf deals.
(d) M&A and Announced M&A rankings reflect the removal of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S. U.S.
announced M&A volumes represents any U.S. involvement ranking.
(c) Global equity and equity-related rankings include rights offerings and Chinese A-Shares.
(a) Source: Dealogic. Reflects the ranking of revenue wallet and market share.
(b) Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities ("ABS") and MBS; and exclude
money market, short-term debt, and U.S. municipal securities.
(in millions, except where otherwise noted)
#1
#1
8.0%
#1
7.9%
Global Investment
Banking fees (a)(e)
#1
17.8
#1
8.5%
Market risk-related revenue - trading loss days (a)
2015
2014
Total AUC
1,669
1,697
1,707
Other(b)
6,913
6,524
6,194
Equity
11,903
12,328 $
12,042 $
$
Fixed Income
Assets under custody ("AUC") by asset class (period-end) in billions:
0
9
9
2013
19.0
2 2
#1
U.S.
~ 1
36.9
24.1
2 3
25.2
2
36.7
U.S.
2
2
20.5
3
30.1
9,849
2
7.5
2 2
9.7
8.7
Loan syndications
Loan syndications
Global
U.S.
1
13.8
1
13.1
2
10.7
1
11.6
1
12.3
1
10.5
Global
1
9.9
1
9.3
1
7.6
16.8
Allowance for loan losses to
Global
1.07
56,500
61,000
62,000
Equity
Nonaccrual loans held-
163
110
428
retained(a)
Nonaccrual loans
11,913
107,540
101,376
100,772
110,084
Core Loans
5,567
101,976
110,606
Total loans
3,698
loans at fair value
Loans held-for-sale and
Nonaccrual loans:
95,627
96,409
106,908
Nonperforming assets:
for-sale and loans at
fair value
Loans retained(a)
10
180
assets
Trading assets-derivative
Total nonperforming
321,585
317,535
302,514
80
67
62
Assets acquired in loan
satisfactions
Trading assets-debt and equity
instruments
$ 859,071
$ 854,712
$824,208
Assets
415
275
204
Derivative receivables
(average)
343
121
438
Total nonaccrual loans
Selected balance sheet data
11
704
Loans:
$
Markets & Investor Services revenue was $22.1 billion,
down 5% from the prior year. Fixed Income Markets
revenue was $12.6 billion, down 11% from the prior year,
primarily driven by the impact of business simplification as
well as lower revenue in credit-related products on an
industry-wide slowdown, partially offset by increased
revenue in Rates and Currencies & Emerging Markets on
higher client activity. The lower Fixed Income revenue also
reflected higher interest costs on higher long-term debt.
Equity Markets revenue was $5.7 billion, up 13%, primarily
driven by higher equity derivatives revenue across all
regions. Securities Services revenue was $3.8 billion, down
13% from the prior year, driven by lower fees as well as
lower net interest income.
Banking revenue was $11.5 billion, up 1% versus the prior
year. Investment banking revenue was $6.4 billion, up 4%
from the prior year, driven by higher advisory fees, partially
offset by lower debt and equity underwriting fees. Advisory
fees were $2.1 billion, up 31% on a greater share of fees
for completed transactions as well as growth in the
industry-wide fee levels. The Firm maintained its #2 ranking
for M&A, according to Dealogic. Debt underwriting fees
were $3.2 billion, down 6%, primarily related to lower
bond underwriting and loan syndication fees on lower
industry-wide fee levels. The Firm ranked #1 globally in fee
share across high grade, high yield and loan products.
Equity underwriting fees were $1.4 billion, down 9%,
driven by lower industry-wide fee levels. The Firm was #1 in
equity underwriting fees in 2015, up from #3 in 2014.
Treasury Services revenue was $3.6 billion, down 3%
compared with the prior year, primarily driven by lower net
interest income. Lending revenue was $1.5 billion, down
6% from the prior year, driven by lower trade finance
revenue on lower loan balances.
Net income was $8.1 billion, up 17% compared with $6.9
billion in the prior year. The increase primarily reflected
lower income tax expenses largely reflecting the release in
2015 of U.S. deferred taxes associated with the
restructuring of certain non-U.S. entities and lower
noninterest expense partially offset by lower net revenue,
both driven by business simplification, as well as higher
provisions for credit losses.
2015 compared with 2014
JPMorgan Chase & Co./2015 Annual Report
94
(b) Included tax-equivalent adjustments, predominantly due to income tax
credits related to alternative energy investments; income tax credits and
amortization of the cost of investments in affordable housing projects; as
well as tax-exempt income from municipal bond investments of $1.7 billion,
$1.6 billion and $1.5 billion for the years ended December 31, 2015, 2014
and 2013, respectively.
(a) Included FVA and debt valuation adjustment ("DVA") on OTC derivatives and
structured notes, measured at fair value. FVA and DVA gains/(losses) were
$687 million and $468 million and $(1.9) billion for the years ended
December 31, 2015, 2014 and 2013, respectively.
$ 8,090 $ 6,908 $ 8,850
Net income
4,350
4,575
3,759
Income tax expense
13,200
11,483
11,849
expense
Income before income tax
21,744
23,273
21,361
Total noninterest expense
10,909
1.15
The provision for credit losses was $332 million, compared
to a benefit of $161 million in the prior year, reflecting a
higher allowance for credit losses, including the impact of
select downgrades within the Oil & Gas portfolio.
(78)
Noninterest expense was $21.4 billion, down 8% compared
with the prior year, driven by the impact of business
simplification as well as lower legal and compensation
expenses.
Net income was $6.9 billion, down 22% compared with
$8.9 billion in the prior year. These results primarily
reflected higher noninterest expense. Net revenue was
$34.6 billion, flat compared with the prior year.
(12)
$
(19)
$
(recoveries)
Net charge-offs/
$ 748,691 $ 861,466 $ 843,248
Assets
2013
2014
2015
(in millions, except ratios)
Credit data and quality
statistics
Selected balance sheet data
(period-end)
2013
2015
As of or for the year ended
December 31,
Selected metrics
(in millions, except headcount)
As of or for the year ended
December 31,
Selected metrics
Management's discussion and analysis
95
JPMorgan Chase & Co./2015 Annual Report
Noninterest expense was $23.3 billion, up 7% compared
with the prior year as a result of higher legal expense and
investment in controls. This was partially offset by lower
performance-based compensation expense as well as the
impact of business simplification.
Banking revenue was $11.4 billion, down 3% from the prior
year. Investment banking revenue was $6.1 billion, up 3%
from the prior year. The increase was driven by higher
advisory and equity underwriting fees, partially offset by
lower debt underwriting fees. Advisory fees were $1.6
billion, up 24% on stronger share of fees for completed
transactions as well as growth in the industry-wide fee
levels, according to Dealogic. Equity underwriting fees were
$1.6 billion, up 5%, driven by higher industry-wide
issuance. Debt underwriting fees were $3.4 billion, down
4%, primarily related to lower loan syndication fees on
lower industry-wide fee levels and lower bond underwriting
fees. The Firm also ranked #1 globally in fees and volumes
share across high grade, high yield and loan products. The
Firm maintained its #2 ranking for M&A, and improved
share of fees both globally and in the U.S. compared with
the prior year. Treasury Services revenue was $3.7 billion,
up 1% compared with the prior year, primarily driven by
higher net interest income from increased deposits, largely
offset by business simplification initiatives. Lending revenue
was $1.5 billion, down from $2.1 billion in the prior year,
driven by losses, compared with gains in the prior periods,
on securities received from restructured loans, as well as
lower net interest income and lower trade finance revenue.
Markets & Investor Services revenue was $23.2 billion, up
1% from the prior year. Fixed Income Markets revenue was
$14.1 billion, down 12% from the prior year, driven by
lower revenues in Fixed Income primarily from credit-
related and rates products as well as the impact of business
simplification. Equity Markets revenue was $5.0 billion, up
1% as higher prime services revenue was partially offset by
lower equity derivatives revenue. Securities Services
revenue was $4.4 billion, up 6% from the prior year,
primarily driven by higher net interest income on increased
deposits and higher fees and commissions. Credit
Adjustments & Other revenue was a loss of $272 million,
driven by net CVA losses partially offset by gains, net of
hedges, related to FVA/DVA. The prior year was a loss of
$2.1 billion (including the FVA implementation loss of $1.5
billion and DVA losses of $452 million).
2014 compared with 2013
463
2014
5,158
569
Allowance for lending-
related commitments
7,599
4,572
loans at fair value
Loans held-for-sale and
1,096
1,034
1,258
Allowance for loan
losses
95,764 104,864
98,331
439
Loans retained(a)
Allowance for credit losses:
70,353
64,833
67,263
receivables
838
10,976
Total net revenue(b)
33,542
34,595
34,712
Provision for credit losses
Loans:
332
525
$ 102,903 $103,363 $ 110,022
(a) Allowance for loan losses of $177 million, $18 million and $51 million
were held against these nonaccrual loans at December 31, 2015, 2014 and
2013, respectively.
(b) Effective in 2015, certain technology staff were transferred from CIB to CB;
previously-reported headcount has been revised to conform with the
current period presentation. As the related expense for these staff is not
material, prior period expenses have not been revised. Prior to 2015,
compensation expense related to this headcount was recorded in the CIB,
with an allocation to CB (reported in noncompensation expense);
commencing with 2015, such expense is recorded as compensation
expense in CB and accordingly total noninterest expense related to this
headcount in both CB and CIB remains unchanged.
(a) Loans retained includes credit portfolio loans, loans held by consolidated
Firm-administered multi-seller conduits, trade finance loans, other held-for-
investment loans and overdrafts.
period-end loans
Allowance for loan losses to
52,082
50,965
49,067
Headcount (b)
0.07%
(0.01)%
(0.02)%
Total loans
Net charge-off/(recovery)
rate
61,000
62,000
Equity
108,199
102,604
99,231
Core Loans
1,621
1,473
1,827
losses
Total allowance for credit
56,500
(b) Management uses allowance for loan losses to period-end loans retained,
excluding trade finance and conduits, a non-GAAP financial measure, to
provide a more meaningful assessment of CIB's allowance coverage ratio.
(161)
Noninterest expense
1.18
(232)
12,824
11,388
retained
10,835
10,449
Compensation expense
9,973
Noncompensation expense
(1)
$ 1,744 $ 1,598 $ 1,426
2013
2014
2015
Equity
Fixed income
Liquidity
Net asset flows:
Assets under management
rollforward
Beginning balance
Year ended December 31,
(in billions)
Client assets
Client assets were $2.4 trillion, an increase of 2%
compared with the prior year. Excluding the sale of
Retirement Plan Services, client assets were up 8%
compared with the prior year. Assets under management
were $1.7 trillion, an increase of 9% from the prior year
due to net inflows to long-term products and the effect of
higher market levels.
2014 compared with 2013
Client assets were $2.4 trillion, a decrease of 2% compared
with the prior year. Assets under management were $1.7
trillion, a decrease of 1% from the prior year due to the
effect of lower market levels partially offset by net inflows
to long-term products.
2015 compared with 2014
Client assets
Management's discussion and analysis
103
(c) Included $26.6 billion, $22.1 billion and $18.9 billion of prime mortgage
loans reported in the Consumer, excluding credit card, loan portfolio at
December 31, 2015, 2014 and 2013, respectively.
(b) Quartile ranking sourced from: Lipper for the U.S. and Taiwan domiciled
funds; Morningstar for the U.K., Luxembourg and Hong Kong domiciled
funds; Nomura for Japan domiciled funds and Fund Doctor for South Korea
domiciled funds. Includes only Global Investment Management retail open-
ended mutual funds that are ranked by the aforementioned sources.
Excludes money market funds, Undiscovered Managers Fund, and Brazil
and India domiciled funds.
(a) Represents the "overall star rating" derived from Morningstar for the U.S.,
the U.K., Luxembourg, Hong Kong and Taiwan domiciled funds; and Nomura
“star rating” for Japan domiciled funds. Includes only Global Investment
Management retail open-ended mutual funds that have a rating. Excludes
money market funds, Undiscovered Managers Fund, and Brazil and India
domiciled funds.
Client assets (continued)
18
(7)
33
$ 2,387 $
Ending balance, December 31
Market/performance/other impacts
Net asset flows
Beginning balance
Client assets rollforward
Multi-asset and alternatives
1,598
1,723 $ 1,744 $
$
Ending balance, December 31
86
48
(36)
2,343 $
Market/performance/other impacts
48
42
22
2,095
34
5
8
(4)
1
Core loans
27
375
370
(in billions, except where
otherwise noted)
2015
2014
2013
Multi-asset and alternatives
564
549
447
Total net revenue (in millions) (a)
Total assets under management
1,723
1,744
1,598
Europe/Middle East/Africa
$
1,946 $
2,080 $
1,881
Custody/brokerage/
administration/deposits
353
0.17
Equity
330
118
80
(64)
(74)
168
$
2,350 $ 2,387 $
2,343
December 31,
(in billions)
2015
2014
2013
Assets by asset class
Liquidity
$
464 $
461 $
451
International metrics
Fixed income
342
359
Year ended December 31,
0.21
$
Nonaccrual loans to period-
end loans
78
68
72
62
49%
2013
52%
2014
53%
2015
72
1 year
% of JPM mutual fund assets
ranked in 1st or 2nd
% of JPM mutual fund assets
rated as 4- or 5-star (a)
(in millions, except ranking
data and ratios)
As of or for the year ended
December 31,
Selected metrics
JPMorgan Chase & Co./2015 Annual Report
• Percentage of mutual fund assets under management in funds
ranked in the 1st or 2nd quartile (one, three and five years): All
quartile rankings, the assigned peer categories and the asset values
used to derive this analysis are sourced from the fund ranking
providers mentioned in footnote (b). Quartile rankings are done on
the net-of-fee absolute return of each fund. The data providers re-
denominate the asset values into U.S. dollars. This % of AUM is based
on fund performance and associated peer rankings at the share class
level for U.S. domiciled funds, at a “primary share class" level to
represent the quartile ranking of the U.K., Luxembourg and Hong Kong
funds and at the fund level for all other funds. The “primary share
class”, as defined by Morningstar, denotes the share class
recommended as being the best proxy for the portfolio and in most
cases will be the most retail version (based upon annual management
charge, minimum investment, currency and other factors). Where
peer group rankings given for a fund are in more than one "primary
share class" territory both rankings are included to reflect local
market competitiveness (applies to "Offshore Territories" and "HK SFC
Authorized" funds only). The performance data could have been
different if all funds/accounts would have been included. Past
performance is not indicative of future results.
• Percentage of mutual fund assets under management in funds
rated 4- or 5-star: Mutual fund rating services rank funds based on
their risk-adjusted performance over various periods. A 5-star rating
is the best rating and represents the top 10% of industry-wide ranked
funds. A 4-star rating represents the next 22.5% of industry-wide
ranked funds. A 3-star rating represents the next 35% of industry-
wide ranked funds. A 2-star rating represents the next 22.5% of
industry-wide ranked funds. A 1-star rating is the worst rating and
represents the bottom 10% of industry-wide ranked funds. The
"overall Morningstar rating" is derived from a weighted average of the
performance associated with a fund's three-, five- and ten-year (if
applicable) Morningstar Rating metrics. For U.S. domiciled funds,
separate star ratings are given at the individual share class level. The
Nomura "star rating" is based on three-year risk-adjusted
performance only. Funds with fewer than three years of history are
not rated and hence excluded from this analysis. All ratings, the
assigned peer categories and the asset values used to derive this
analysis are sourced from these fund rating providers mentioned in
footnote (a). The data providers re-denominate the asset values into
U.S. dollars. This % of AUM is based on star ratings at the share class
level for U.S. domiciled funds, and at a "primary share class" level to
represent the star rating of all other funds except for Japan where
Nomura provides ratings at the fund level. The "primary share class",
as defined by Morningstar, denotes the share class recommended as
being the best proxy for the portfolio and in most cases will be the
most retail version (based upon annual management charge,
minimum investment, currency and other factors). The performance
data could have been different if all funds/accounts would have been
included. Past performance is not indicative of future results.
J.P. Morgan Asset Management has two high-level
measures of its overall fund performance.
Retail clients include financial intermediaries and individual investors.
quartile:(b)
68
80
76
Deposits
Equity
Selected balance sheet data
(average)
Total assets
Loans
$ 129,743
107,418
$ 126,440
99,805
9,000
146,183
155,247
146,766
9,000
95,445
104,279
111,007
95,445
$128,701 $ 122,414
$ 131,451
111,007 104,279
Loans(c)
Total assets
Selected balance sheet data
(period-end)
5 years
3 years
69
Institutional clients include both corporate and public institutions,
endowments, foundations, nonprofit organizations and governments
worldwide.
0.20
627
86,066
Allowance for loan losses
266
271
278
Allowance for lending-
related commitments
Total allowance for credit
losses
271
276
283
Allowance for credit losses:
Net charge-off rate
0.01%
0.05%
Allowance for loan losses to
period-end loans
0.24
0.26
0.29
Allowance for loan losses to
nonaccrual loans
122
124
166
0.01%
Nonaccrual loans
5
5
107,418
99,805
86,066
149,525
150,121
139,707
9,000
9,000
9,000
Core loans
Deposits
Equity
Credit data and quality
statistics
$
12 $
6
9,000
40
218
218
167
Net charge-offs
5
$ 113,198
643
173
Asia/Pacific
71
569
704
800
1,972
(533)
267
(1,960)
12
1,864
3,093
(3,115)
Provision for credit losses
190
(10)
Noninterest expense (b)
977
Loss before income tax benefit
Income tax benefit
(700)
(3,137)
1,159
(1,112)
(1,976)
10,255
(10,249)
(3,493)
Net income/(loss)
Total net revenue
Treasury and CIO
Other Corporate (c)
Total net revenue
Net income/(loss)
Treasury and CIO
(35)
563
$
1,197
2,343
(a) Regional revenue is based on the domicile of the client.
104
JPMorgan Chase & Co./2015 Annual Report
CORPORATE
The Corporate segment consists of Treasury and Chief
Investment Office ("CIO”) and Other Corporate, which
includes corporate staff units and expense that is
centrally managed. Treasury and CIO are
predominantly responsible for measuring, monitoring,
reporting and managing the Firm's liquidity, funding
and structural interest rate and foreign exchange risks,
as well as executing the Firm's capital plan. The major
Other Corporate units include Real Estate, Enterprise
Technology, Legal, Compliance, Finance, Human
Resources, Internal Audit, Risk Management, Oversight
& Control, Corporate Responsibility and various Other
Corporate groups. Other centrally managed expense
includes the Firm's occupancy and pension-related
expenses that are subject to allocation to the
businesses.
Selected income statement data
Year ended December 31,
(in millions, except headcount)
Revenue
Principal transactions
Securities gains
All other income
Noninterest revenue
Net interest income(a)
Total net revenue
2015
2014
2013
666
$
41
$
Other Corporate (c)
(22)
(28)
$ 2,437 $ 864 $ (6,756)
(2,068)
Capital risk
Risk
The following sections outline the key risks that are inherent in the Firm's business activities.
Management's discussion and analysis
107
JPMorgan Chase & Co./2015 Annual Report
The Firm strives for continual improvement through
ongoing employee training and development, as well as
talent retention. The Firm follows a disciplined and
balanced compensation framework with strong internal
governance and independent Board oversight. The impact
of risk and control issues are carefully considered in the
Firm's performance evaluation and incentive compensation
processes. The Firm is also engaged in a number of
activities focused on conduct risk and in regularly
evaluating its culture with respect to its business principles.
The Firm's Operating Committee, which consists of the
Firm's Chief Executive Officer ("CEO"), Chief Risk Officer
("CRO") and other senior executives, is responsible for
developing and executing the Firm's risk management
framework. The framework is intended to provide controls
and ongoing management of key risks inherent in the Firm's
business activities and create a culture of transparency,
awareness and personal responsibility through reporting,
collaboration, discussion, escalation and sharing of
information. The Operating Committee is responsible and
accountable to the Firm's Board of Directors.
Ownership of risk management within each of the lines
of business and corporate functions; and
Firmwide structures for risk governance.
The Firm believes that effective risk management requires:
Acceptance of responsibility, including identification and
escalation of risk issues, by all individuals within the
Firm;
Firmwide Risk Management is overseen and managed on an
enterprise-wide basis. The Firm's approach to risk
management covers a broad spectrum of risk areas, such as
credit, market, liquidity, model, structural interest rate,
principal, country, operational, compliance, legal, capital
and reputation risk, with controls and governance
established for each area, as appropriate.
Risk is an inherent part of JPMorgan Chase's business
activities. When the Firm extends a consumer or wholesale
loan, advises customers on their investment decisions,
makes markets in securities, or offers other products or
services, the Firm takes on some degree of risk. The Firm's
overall objective is to manage its businesses, and the
associated risks, in a manner that balances serving the
interests of its clients, customers and investors and protects
the safety and soundness of the Firm.
ENTERPRISE-WIDE RISK MANAGEMENT
JPMorgan Chase & Co./2015 Annual Report
106
(b) Period-end investment securities included held-to-maturity securities of
$49.1 billion, $49.3 billion, $24.0 billion at December 31, 2015, 2014 and
2013, respectively.
(a) Average investment securities included held-to-maturity balances of $50.0
billion and $47.2 billion for the years ended December 31, 2015 and 2014
respectively. The held-to-maturity balance for full year 2013 was not
material.
3,779
5,145
347,562
343,146
3,308
2,834
2,501
2,136
Mortgage loans (period-end)
Definition
$ 2,350 $ 2,387 $
The risk the Firm has an insufficient level and composition of capital to support the
Firm's business activities and associated risks during normal economic environments
and stressed conditions.
Country risk The risk that a sovereign event or action alters the value or terms of contractual
obligations of obligors, counterparties and issuers or adversely affects markets
related to a particular country.
2,046
(22)
$
(493)
760
267 $
(1,317)
1,329
12
$
(235)
2,672
Total net income/(loss)
$ 2,437 $
(1,165) (1,454)
2,029
(5,302)
864 $ (6,756)
Selected balance sheet data
(period-end)
Total assets (period-end)
$768,204
$ 931,206 $ 805,506
Loans
2,187
Non-U.S.
dollar
Model risk
Market risk
Liquidity
risk
Legal risk
Credit risk
Compliance The risk of failure to comply with applicable laws, rules, and regulations.
risk
745
Total client assets
1,707
Private Banking
$
437 $
428 $
361
Assets under management
Institutional
816
827
777
Assets by client segment
Europe/Middle East/Africa
302 $ 329 $
305
Retail
470
489
460
Asia/Pacific
123
126
132
$
11,405
$ 12,119 $ 12,028 $
Total net revenue
1,130
1,199
1,133
Total client assets
$ 2,350 $ 2,387 $
2,343
Latin America/Caribbean
795
841
879
Total international net revenue
3,871
4,120
3,893
Memo:
Alternatives client assets(a)
172
166
158
North America
8,248
7,908
7,512
Total assets under management $
1,723 $
1,744 $
1,598
$ 2,350 $ 2,387 $
2,343
(a) Represents assets under management, as well as client balances in
Client assets
brokerage accounts.
Europe/Middle East/Africa
Asia/Pacific
$
351 $
391 $
367
Private Banking clients include high- and ultra-high-net-worth
individuals, families, money managers, business owners and small
corporations worldwide.
174
180
Latin America/Caribbean
110
115
117
Total international client assets
634
680
664
North America
1,716
1,598
1,679
1,114
1,253
1,723 $
Latin America/Caribbean
45
46
47
Private Banking
$ 1,050 $
1,057 $
977
Total international assets under
management
470
501
484
Institutional
824
835
777
North America
Retail
476
495
589
Total client assets
Total assets under management $
1,243
1,744 $
AM's client segments consist of the following:
797
AM's lines of business consist of the following:
Firmwide Valuation
Governance Forum
Governance
Committee (CGC)
Firmwide Capital
Firmwide Risk
Committeec (FRC)
Firmwide Asset
Liability Committee
(ALCO)
General Counsel
Chief Financial
Officer
Chief Risk
Officer
Chief Operating
Officer
Head of Human
Resources
Line of Business
CEOS
Chief Executive Officer
Operating Committee
Board of Directors
Board Committees
The chart below illustrates the key senior management level committees in the Firm's risk governance structure. Other
committees and forums are in place that are responsible for management and oversight of risk, although they are not shown in
the chart below.
The independent status of the Risk Management
Organization is supported by a governance structure that
provides for escalation of risk issues up to senior
management and the Board of Directors.
Risk governance structure
Internal Audit, a function independent of the businesses,
Compliance and the Risk Management Organization, tests
and evaluates the Firm's risk governance and management,
as well as its internal control processes. This function brings
a systematic and disciplined approach to evaluating and
improving the effectiveness of the Firm's governance, risk
management and internal control processes.
business, works closely with the Operating Committee and
management to provide independent review, monitoring
and oversight of business operations with a focus on
compliance with the legal and regulatory obligations
applicable to the offering of the Firm's products and
services to clients and customers.
Each line of business is accountable for managing its
compliance risk. The Firm's Compliance Organization
("Compliance”), which is independent of the lines of
The Firmwide Oversight and Control Group consists of
dedicated control officers within each of the lines of
business and corporate functions, as well as a central
oversight function. The group is charged with enhancing the
Firm's control environment by looking within and across the
lines of business and corporate functions to identify and
remediate control issues. The group enables the Firm to
detect control problems more quickly, escalate issues
promptly and engage other stakeholders to understand
common themes and interdependencies among the various
parts of the Firm.
In addition to the Risk Management Organization, the Firm's
control environment also includes firmwide functions like
Oversight and Control, Compliance and Internal Audit.
respective businesses and for operating within a sound
control environment.
(VGF)
JPMorgan Chase & Co./2015 Annual Report
CCB Risk Committee CIB Risk Committee CB Risk Committee AM Risk Committee CTC Risk Committee
↑
Line of Business and Regional Risk Committees review the
ways which the particular line of business or the business
operating in a particular region could be exposed to adverse
outcomes with a focus on identifying, accepting, escalating
and/or requiring remediation of matters brought to these
committees. These committees may escalate to the FRC, as
appropriate.
The Firmwide Reputation Risk Governance Group seeks to
promote consistent management of reputation risk across
the Firm. Its objectives are to increase visibility of
reputation risk governance; promote and maintain a
globally consistent governance model for reputation risk
across lines of business; promote early self-identification of
potential reputation risks to the Firm; and provide thought
leadership on cross-line-of-business reputation risk issues.
Each line of business has a separate reputation risk
governance structure which includes, in most cases, one or
more dedicated reputation risk committees.
The Firmwide Fiduciary Risk Governance Committee
("FFRGC") is a forum for risk matters related to the Firm's
fiduciary activities. The Committee oversees the firmwide
fiduciary risk governance framework, which supports the
consistent identification and escalation of fiduciary risk
matters by the relevant lines of business or corporate
functions responsible for managing fiduciary activities. The
Committee escalates significant issues to the FRC and any
other committee, as appropriate.
The Firmwide Control Committee ("FCC") is a forum for senior
management to discuss firmwide operational risks including
existing and emerging issues, to monitor operational risk
metrics, and to review the execution of the Operational Risk
Management Framework ("ORMF"). The FCC is co-chaired
by the Chief Control Officer and the Firmwide Risk Executive
for Operational Risk Governance. It serves as an escalation
point for the line of business, corporate functions and
regional Control Committees and escalates significant issues
to the FRC, as appropriate.
Among the Firm's senior management-level committees that
are primarily responsible for key risk-related functions are:
The Firmwide Risk Committee ("FRC") is the Firm's highest
management-level risk committee. It provides oversight of
the risks inherent in the Firm's businesses. The Committee is
co-chaired by the Firm's CEO and CRO. Members of the
Committee include the Firm's COO, CFO, Treasurer & Chief
Investment Officer, and General Counsel, as well as LOB
CEOs and CROS, and other senior managers from risk and
control functions. This Committee serves as an escalation
point for risk topics and issues raised by its members, the
Line of Business Risk Committees, Firmwide Control
Committee, Firmwide Fiduciary Risk Governance Committee,
Firmwide Reputation Risk Governance and regional Risk
Committees. The Committee escalates significant issues to
the Board of Directors, as appropriate.
The Compensation & Management Development Committee
assists the Board in its oversight of the Firm's compensation
programs and reviews and approves the Firm's overall
compensation philosophy, incentive compensation pools,
and compensation practices consistent with key business
objectives and safety and soundness. The Committee
reviews Operating Committee members' performance
against their goals, and approves their compensation
awards. The Committee also periodically reviews the Firm's
diversity programs and management development and
succession planning, and provides oversight of the Firm's
culture and conduct programs.
The Audit Committee of the Board assists the Board in its
oversight of management's responsibilities to assure that
there is an effective system of controls reasonably designed
to safeguard the assets and income of the Firm, assure the
integrity of the Firm's financial statements and maintain
compliance with the Firm's ethical standards, policies, plans
and procedures, and with laws and regulations. In addition,
the Audit Committee assists the Board in its oversight of the
Firm's independent registered public accounting firm's
qualifications and independence. The Independent Internal
Audit Function at the Firm is headed by the General Auditor,
who reports to the Audit Committee.
The Risk Policy Committee of the Board oversees the Firm's
global risk management framework and approves the
primary risk-management policies of the Firm. The
Committee's responsibilities include oversight of
management's exercise of its responsibility to assess and
manage risks of the Firm, as well as its capital and liquidity
planning and analysis. Breaches in risk appetite tolerances,
liquidity issues that may have a material adverse impact on
the Firm and other significant risk-related matters are
escalated to the Committee.
Management's discussion and analysis
109
Internal
Audit
JPMorgan Chase & Co./2015 Annual Report
The Board of Directors provides oversight of risk principally through the DRPC, Audit Committee and, with respect to
compensation and other management-related matters, Compensation & Management Development Committee. Each
committee of the Board oversees reputation risk issues within its scope of responsibility.
1 As applicable.
Firmwide Control
Committee (FCC)
Firmwide Reputation
Risk Governance
(FFRGC)
Firmwide Fiduciary Risk
Governance Committee
↑.
Line of Business and Corporate Function Control Committees
↑
Line of Business Reputation Risk Committees¹
Line of Business Fiduciary Risk Committees¹
↑
108
Loans held-for-sale and
was held against nonaccrual loans retained at December 31, 2015, 2014
and 2013, respectively.
$ 51,362
Middle Market Banking(a)
Allowance for credit losses:
529
341
401
Total nonperforming assets
Period-end loans by client
segment
15
10
8
Assets acquired in loan
satisfactions
514
331
393
43
14
18
Nonaccrual loans held-for-sale
and loans at fair value
Total nonaccrual loans
1,388
$137,138
135,583
13,500
$ 148,506
147,392
14,000
Global Investment Management provides comprehensive global
investment services, including asset management, pension analytics,
asset-liability management and active risk-budgeting strategies.
Global Wealth Management offers investment advice and wealth
management, including investment management, capital markets and
risk management, tax and estate planning, banking, lending and
specialty-wealth advisory services.
Equity
$ 51,009
$ 50,702
Corporate Client Banking(a)
31,871
loans at fair value
492
782
930
Total loans
Core loans
$ 157,881
156,975
The Firm places key reliance on each of the LOBS as the first
line of defense in risk governance. The LOBS are
accountable for identifying and addressing the risks in their
The Firm's CRO is responsible for the overall direction of the
Firm's Risk Management functions and is head of the Risk
Management Organization, reporting to the Firm's CEO and
DRPC. The Risk Management Organization operates
independently from the revenue-generating businesses,
which enables it to provide credible challenge to the
businesses. The leadership team of the Risk Management
Organization is aligned to the various LOBS and corporate
functions as well as across the Firm for firmwide risk
categories (e.g. firmwide market risk, firmwide model risk,
firmwide reputation risk, etc.) producing a matrix structure
with specific subject matter expertise to manage risks both
within the businesses and across the Firm.
138-139
148
Line of Business, Corporate Function and Regional Control
Committees oversee the control environment in the
particular line of business or corporate function or the
business operating in a particular region. They are
responsible for reviewing the data indicating the quality and
stability of the processes in a business or function, focusing
on those processes with shortcomings and overseeing
process remediation. These committees escalate to the FCC,
as appropriate.
143
The Firm's overall tolerance for risk is governed by a "Risk
Appetite" framework for measuring and monitoring risk.
The framework measures the Firm's capacity to take risk
against stated quantitative tolerances and qualitative
factors at each of the line of business ("LOB") levels, as well
as at the Firmwide level. The framework and tolerances are
set and approved by the Firm's CEO, Chief Financial Officer
("CFO"), CRO and Chief Operating Officer ("COO"). LOB-level
Risk Appetite parameters and tolerances are set by the
respective LOB CEO, CFO and CRO and are approved by the
Firm's CEO, CFO, CRO and COO. Quantitative risk tolerances
are expressed in terms of tolerance levels for stressed net
income, market risk, credit risk, liquidity risk, structural
interest rate risk, operational risk and capital. Risk Appetite
results are reported quarterly to the Risk Policy Committee
of the Board of Directors ("DRPC").
2,669
2,466
2,855
Allowance for loan losses
Allowance for lending-related
commitments
48,925
54,038
62,860
Commercial Term Lending
22,512
25,321
Earnings-at-risk
Core loans
110
Loans retained
140,982
131,100
(a) An allowance for loan losses of $64 million, $45 million and $81 million
2,103 $ 5,866 $
3,798
6,281
Cost
$
2013
2014
2015
December 31, (in millions).
Carrying value
Private equity portfolio information (a)
Selected income statement and balance sheet data
For further information on liquidity and funding risk, see
Liquidity Risk Management on pages 159-164. For
information on interest rate, foreign exchange and other
risks, Treasury and CIO VAR and the Firm's earnings-at-risk,
see Market Risk Management on pages 133-139.
Treasury and CIO achieve the Firm's asset-liability
management objectives generally by investing in high-
quality securities that are managed for the longer-term as
part of the Firm's investment securities portfolio. Treasury
and CIO also use derivatives to meet the Firm's asset-
liability management objectives. For further information on
derivatives, see Note 6. The investment securities portfolio
primarily consists of U.S. and non-U.S. government
securities, agency and nonagency mortgage-backed
securities, other asset-backed securities, corporate debt
securities and obligations of U.S. states and municipalities.
At December 31, 2015, the investment securities portfolio
was $287.8 billion, and the average credit rating of the
securities comprising the portfolio was AA+ (based upon
external ratings where available and where not available,
based primarily upon internal ratings that correspond to
ratings as defined by S&P and Moody's). See Note 12 for
further information on the details of the Firm's investment
securities portfolio.
Treasury and CIO are predominantly responsible for
measuring, monitoring, reporting and managing the Firm's
liquidity, funding and structural interest rate and foreign
exchange risks, as well as executing the Firm's capital plan.
The risks managed by Treasury and CIO arise from the
activities undertaken by the Firm's four major reportable
business segments to serve their respective client bases,
which generate both on- and off-balance sheet assets and
liabilities.
Treasury and CIO overview
Management's discussion and analysis
105
JPMorgan Chase & Co./2015 Annual Report
(d) Average core loans were $2.5 billion, $3.3 billion and $5.2 billion for the
years ended December 31, 2015, 2014 and 2013, respectively.
(b) Included legal expense of $832 million, $821 million and $10.2 billion for
the years ended December 31, 2015, 2014 and 2013, respectively.
(c) Effective in 2015, the Firm began including the results of Private Equity in
the Other Corporate line within the Corporate segment. Prior period
amounts have been revised to conform with the current period
presentation. The Corporate segment's balance sheets and results of
operations were not impacted by this reporting change.
(a) Included tax-equivalent adjustments, predominantly due to tax-exempt
income from municipal bond investments of $839 million, $730 million
and $480 million for the years ended December 31, 2015, 2014 and
2013, respectively.
Noninterest expense was $1.2 billion, a decrease of $9.1
billion due to a decrease in reserves for litigation and
regulatory proceedings in the prior year partially offset by
the impact of a $276 million goodwill impairment related to
the sale of a portion of the Private Equity business.
7,868
Private Equity gains were $540 million higher compared
with the prior year reflecting higher net gains on sales.
Prior year net revenue also included gains of $1.3 billion
and $493 million on the sales of Visa shares and One Chase
Manhattan Plaza, respectively.
157,389
(a) For more information on the Firm's methodologies regarding the valuation
of the Private Equity portfolio, see Note 3. For information on the sale of a
portion of the Private Equity business completed on January 9, 2015, see
Note 2.
Mortgage loans (average)
287,777
(period-end)(b)
Investment securities portfolio
353,712
349,285
314,802
(average) (a)
Investment securities portfolio
659
71 $
190 $
$
Securities gains
2013
2014
2015
December 31, (in millions)
As of or for the year ended
The carrying value of the private equity portfolio at
December 31, 2014 was $5.9 billion, down from $7.9
billion at December 31, 2013. The decrease in the portfolio
was predominantly driven by sales of investments, partially
offset by unrealized gains.
2014 compared with 2013
The carrying value of the private equity portfolio at
December 31, 2015 was $2.1 billion, down from $5.9
billion at December 31, 2014, driven by the sale of a
portion of the Private Equity business.
2015 compared with 2014
8,491
Net revenue was $12 million compared to a net loss of $22
million in the prior year. Current year net interest income
was a loss of $2 billion compared to a loss of $3.1 billion in
the prior year, primarily reflecting higher yields on
investment securities. Securities gains were $71 million,
compared with $659 million in the prior year, reflecting
lower repositioning activity of the investment securities
portfolio in the current period.
Net income was $864 million, compared to a net loss of
$6.8 billion in the prior year.
2014 compared with 2013
Total Commercial Banking
loans
Net charge-off/(recovery) rate (b)
Allowance for loan losses to
0.01%
-%
0.03%
Selected balance sheet data
(average)
$ 167,641 $ 148,506 $ 137,138
period-end loans retained
1.71
1.67
1.97
Allowance for loan losses to
nonaccrual loans retained(a)
761
778
567
$ 198,076 $191,857 $ 185,776
Nonaccrual loans to period-end
total loans
0.23
0.22
0.37
Total assets
Loans:
3,975
4,840
5,337
142
2,811
The current year reflected tax benefits of $2.6 billion
predominantly from the resolution of various tax audits
compared with tax benefits of $1.1 billion in the prior year.
Noninterest expense was $977 million, a decrease of $182
million from the prior year which had included a $276
million goodwill impairment related to the sale of a portion
of the Private Equity business.
Net revenue was $267 million, compared with $12 million
in the prior year. The current year included a $514 million
benefit from a legal settlement. Treasury and CIO included a
benefit of approximately $178 million associated with
recognizing the unamortized discount on certain debt
securities which were called at par and a $173 million
pretax loss primarily related to accelerated amortization of
cash flow hedges associated with the exit of certain non-
operating deposits. Private Equity gains were $1.2 billion
lower compared with the prior year, reflecting lower
valuation gains and lower net gains on sales as the Firm
exits this non-core business.
Net income was $2.4 billion, compared with net income of
$864 million in the prior year.
2015 compared with 2014
20,717
26,047
29,617
Headcount
3,958
2,848
JPMorgan Chase & Co./2015 Annual Report
2,182
4,004
2,871
198
165
Real Estate Banking
Other
16,211
13,298
11,024
Total allowance for credit losses
3,053
2,631
Core loans (d)
$ 167,641
166,939
14,000
845
Noninterest revenue
9,563
9,588
9,029
Net interest income
2,556
2,440
Total net revenue
12,119
12,028
2,376
11,405
564
Provision for credit losses
65
Noninterest expense
Compensation expense
5,113
5,082
4,875
Noncompensation expense
3,773
3,456
3,141
Total noninterest expense
4
8,886
388
$ 9,024 $ 8,232
$ 157,881 $ 141,764
$ 132,030
Headcount (b)
7,845
7,426
7,016
(a) Effective in 2015, mortgage warehouse lending clients were transferred
from Middle Market Banking to Corporate Client Banking. Prior period
revenue, period-end loans, and average loans by client segment were
revised to conform with the current period presentation.
(b) Effective in 2015, certain technology staff were transferred from CIB to CB;
previously-reported headcount has been revised to conform with the
current period presentation. As the related expense for these staff is not
material, prior period expenses have not been revised. Prior to 2015,
compensation expense related to this headcount was recorded in the CIB,
with an allocation to CB (reported in noncompensation expense);
commencing with 2015, such expense is recorded as compensation
expense in CB and accordingly total noninterest expense related to this
headcount in both CB and CIB remains unchanged.
JPMorgan Chase & Co./2015 Annual Report
101
Management's discussion and analysis
All other income
ASSET MANAGEMENT
Selected income statement data
2015
2014
2013
Year ended December 31,
(in millions, except ratios
and headcount)
Revenue
Asset management, administration
and commissions
$ 9,175
foreign
8,538
8,016
Income before income tax expense
27
26
Asset Management
27
29
29
Headcount
20,975
19,735 20,048
Number of client advisors
2,778
22
2,836
$ 6,327 $ 5,951
5,701 5,454
$ 11,405
2015 compared with 2014
Net income was $1.9 billion, a decrease of 10% compared
with the prior year, reflecting higher noninterest expense,
partially offset by higher net revenue.
Net revenue was $12.1 billion, an increase of 1%. Net
interest income was $2.6 billion, up 5%, driven by higher
loan balances and spreads. Noninterest revenue was $9.6
billion, flat from last year, as net client inflows into assets
under management and the impact of higher average
market levels were predominantly offset by lower
performance fees and the sale of Retirement Plan Services
("RPS") in 2014.
Revenue from Global Investment Management was $6.3
billion, flat from the prior year as the sale of RPS in 2014
and lower performance fees were largely offset by net client
inflows. Revenue from Global Wealth Management was $5.8
billion, up 2% from the prior year due to higher net interest
income from higher loan balances and spreads and net
client inflows, partially offset by lower brokerage revenue.
Noninterest expense was $8.9 billion, an increase of 4%,
predominantly due to higher legal expense and investment
in both infrastructure and controls.
2014 compared with 2013
Net income was $2.2 billion, an increase of 3% from the
prior year, reflecting higher net revenue and lower provision
for credit losses, predominantly offset by higher noninterest
expense.
Net revenue was $12.0 billion, an increase of 5% from the
prior year. Noninterest revenue was $9.6 billion, up 6%
from the prior year due to net client inflows and the effect
of higher market levels, partially offset by lower valuations
of seed capital investments. Net interest income was $2.4
billion, up 3% from the prior year due to higher loan and
deposit balances, largely offset by spread compression.
Revenue from Global Investment Management was $6.3
billion, up 6% due to net client inflows and the effect of
higher market levels, partially offset by lower valuations of
seed capital investments. Revenue from Global Wealth
Management was $5.7 billion, up 5% from the prior year
due to higher net interest income from loan and deposit
balances and net client inflows, partially offset by spread
compression and lower brokerage revenue.
Noninterest expense was $8.5 billion, an increase of 7%
from the prior year as the business continues to invest in
both infrastructure and controls.
102
JPMorgan Chase & Co./2015 Annual Report
2,962
Global Wealth Management
32
31
3,229
3,486
Income tax expense
1,294
1,333
Net income
$ 1,935
3,324
1,241
$ 2,153 $ 2,083
Revenue by line of business
Global Investment Management
Global Wealth Management
Total net revenue
$ 6,301
5,818
$12,119
$ 12,028
Financial ratios
Return on common equity
21%
23%
Overhead ratio
73
71
23%
70
Pretax margin ratio:
Global Investment Management
31
Total Commercial Banking
loans
Total loans
3,711
4,995
2015
December 31, (in millions, except
ratios)
2013
2014
2015
except headcount)
December 31, (in millions,
As of or for the year ended
Selected metrics (continued)
As of or for the year ended
2014
Selected metrics (continued)
The risk resulting from the Firm's traditional banking activities (both on- and off-
balance sheet positions) arising from the extension of loans and credit facilities,
taking deposits and issuing debt (collectively referred to as “non-trading activities”),
and also the impact from the CIO investment securities portfolio and other related CIO
and Treasury activities.
The risk that an action, transaction, investment or event will reduce trust in the Firm's Not applicable
integrity or competence by our various constituents, including clients, counterparties,
investors, regulators, employees and the broader public.
Carrying value, stress
The risk of an adverse change in the value of privately-held financial assets and
instruments, typically representing an ownership or junior capital position that have
unique risks due to their illiquidity or for which there is less observable market or
valuation data.
Structural
interest
rate risk
Reputation
risk
Principal
risk
4,512
Firm-specific loss experience; industry loss
experience; business environment and internal
control factors ("BEICF"); key risk indicators; key
control indicators; operating metrics
139
Risk appetite and governance
2013
Selected balance sheet data
Credit data and quality statistics
267
loans at fair value
Loans held-for-sale and
471
317
375
Nonaccrual loans retained (a)
135,750
147,661
167,374
Loans retained
Nonaccrual loans:
Loans:
Nonperforming assets
$ 200,700 $ 195,267 $ 190,782
Total assets
43
$
$ (7)
21
$
Net charge-offs/(recoveries)
(period-end)
FX net open position ("NOP")
142
144-146
133-139
$ 141,764 $ 132,030
140,390 130,141
(b) Loans held-for-sale and loans at fair value were excluded when calculating
the net charge-off/(recovery) rate.
Client deposits and other
third-party liabilities
191,529
204,017
198,356
Equity
14,000
14,000
13,500
Average loans by client
segment
Middle Market Banking(a)
exchange
("FX") risk
$ 51,303 $ 50,939 $ 50,236
29,125
23,113
22,512
Commercial Term Lending
58,138
51,120
45,989
Real Estate Banking
14,320
12,080
9,582
Other
Corporate Client Banking(a)
The risk of loss arising from the default of a customer, client or counterparty.
The risk of loss or imposition of damages, fines, penalties or other liability arising
from failure to comply with a contractual obligation or to comply with laws or
regulations to which the Firm is subject.
The risk that the Firm will be unable to meet its contractual and contingent
obligations or that it does not have the appropriate amount, composition and tenor of
funding and liquidity to support its assets.
159-164
146
112-132
140-141
147
Model status, model tier
Page
VaR, stress, sensitivities
LCR; stress
references
149-158
Total exposure; industry, geographic and customer
concentrations; risk ratings; delinquencies; loss
experience; stress
The risk of loss arising from potential adverse changes in the value of the Firm's
assets and liabilities resulting from changes in market variables such as interest rates,
foreign exchange rates, equity prices, commodity prices, implied volatilities or credit
spreads.
The risk of the potential for adverse consequences from decisions based on incorrect
or misused model outputs and reports.
The risk that changes in foreign exchange rates affect the value of the Firm's assets or
liabilities or future results.
Operational The risk of loss resulting from inadequate or failed processes or systems, human
risk
factors, or due to external events that are neither market nor credit-related.
Not applicable
Asset Management, with client assets of $2.4 trillion, is
a global leader in investment and wealth management.
AM clients include institutions, high-net-worth
individuals and retail investors in many major markets
throughout the world. AM offers investment
management across most major asset classes including
equities, fixed income, alternatives and money market
funds. AM also offers multi-asset investment
management, providing solutions for a broad range of
clients' investment needs. For Global Wealth
Management clients, AM also provides retirement
products and services, brokerage and banking services
including trusts and estates, loans, mortgages and
deposits. The majority of AM's client assets are in
actively managed portfolios.
Select risk management metrics
Risk-based capital ratios; supplementary leverage
ratio; stress
Various metrics related to market conduct, Bank
Secrecy Act/Anti-Money Laundering ("BSA/AML"),
employee compliance, fiduciary, privacy and
information risk
Default exposure at 0% recovery; stress; risk
ratings; ratings based capital limits
Loans, excluding PCI loans and loans held-for-sale
Risk measurement
JPMorgan Chase & Co./2015 Annual Report
The Firmwide Valuation Governance Forum ("VGF") is
composed of senior finance and risk executives and is
responsible for overseeing the management of risks arising
from valuation activities conducted across the Firm. The
VGF is chaired by the firmwide head of the Valuation Control
function (under the direction of the Firm's CFO), and
includes sub-forums covering the Corporate & Investment
Bank, Consumer & Community Banking, Commercial
Banking, Asset Management and certain corporate
functions, including Treasury and Chief Investment Office.
The Capital Governance Committee, chaired by the Head of
the Regulatory Capital Management Office (under the
direction of the Firm's CFO) is responsible for reviewing the
Firm's Capital Management Policy and the principles
underlying capital issuance and distribution. The Committee
is also responsible for governing the capital adequacy
assessment process, including overall design, assumptions
and risk streams, and for ensuring that capital stress test
programs are designed to adequately capture the
idiosyncratic risks across the Firm's businesses.
The Asset Liability Committee ("ALCO"), chaired by the Firm's
Treasurer under the direction of the COO, monitors the
Firm's balance sheet, liquidity risk and structural interest
rate risk. ALCO reviews the Firm's overall structural interest
rate risk position, funding requirements and strategy, and
securitization programs (and any required liquidity support
by the Firm of such programs). ALCO is responsible for
reviewing and approving the Firm's Funds Transfer Pricing
Policy (through which lines of business "transfer" interest
rate risk to Treasury) and the Firm's Intercompany Funding
and Liquidity Policy. ALCO is also responsible for reviewing
the Firm's Contingency Funding Plan.
The Firm has a broad spectrum of risk management
metrics, as appropriate for each risk category (refer to the
table on key risks included on page 108). Additionally, the
Firm is exposed to certain potential low-probability, but
plausible and material, idiosyncratic risks that are not well-
captured by its other existing risk analysis and reporting for
credit, market, and other risks. These idiosyncratic risks
may arise in a number of ways, such as changes in
legislation, an unusual combination of market events, or
specific counterparty events. The Firm has a process
intended to identify these risks in order to allow the Firm to
monitor vulnerabilities that are not adequately covered by
its other standard risk measurements.
In addition, the JPMorgan Chase Bank, N.A. Board of
Directors is responsible for the oversight of management of
the Bank. The JPMorgan Chase Bank, N.A. Board
accomplishes this function acting directly and through the
principal standing committees of the Firm's Board of
Directors. Risk oversight on behalf of JPMorgan Chase Bank
N.A. is primarily the responsibility of the DRPC and Audit
Committee of the Firm's Board of Directors and, with
respect to compensation and other management-related
matters, the Compensation & Management Development
Committee of the Firm's Board of Directors.
Consumer, excluding credit card
Total
The following table provides a summary of lifetime principal loss estimates included in either the nonaccretable difference or
the allowance for loan losses.
Summary of lifetime principal loss estimates
December 31, (in billions)
Home equity
Prime mortgage
Subprime mortgage
Option ARMS
Lifetime loss estimates (a)
LTD liquidation losses (b)
2015
2014
2015
2014
$
14.5 $
14.6
$
Management's discussion and analysis
117
JPMorgan Chase & Co./2015 Annual Report
As of December 31, 2015, approximately 14% of the
option ARM PCI loans were delinquent and approximately
64% of the portfolio has been modified into fixed-rate, fully
amortizing loans. Substantially all of the remaining loans
are making amortizing payments, although such payments
are not necessarily fully amortizing. This latter group of
loans is subject to the risk of payment shock due to future
payment recast. Default rates generally increase on option
ARM loans when payment recast results in a payment
increase. The expected increase in default rates is
considered in the Firm's quarterly impairment assessment.
Total current high-risk seconds
2015
2014
$
0.6
0.4
0.4
$ 0.7
0.5
0.6
12.7 $
$
$ 1.8
(a) Junior liens subordinate to senior liens that are 90 days or more past
due are classified as nonaccrual loans. At December 31, 2015 and
2014, excluded approximately $25 million and $50 million,
respectively, of junior liens that are performing but not current, which
were placed on nonaccrual in accordance with the regulatory
guidance.
Of the estimated $1.4 billion of current high-risk junior
liens at December 31, 2015, the Firm owns approximately
10% and services approximately 25% of the related senior
lien loans to the same borrowers. The increased probability
of default associated with these higher-risk junior lien loans
was considered in estimating the allowance for loan losses.
Mortgage: Prime mortgages, including option ARMS and
loans held-for-sale, increased from December 31, 2014 due
to originations of high-quality prime mortgage loans that
have been retained partially offset by paydowns, the run-off
of option ARM loans and the charge-off or liquidation of
delinquent loans. High-quality loan originations for the year
ending December 31, 2015 included both jumbo and
conforming loans, primarily consisting of fixed interest rate
loans. Excluding loans insured by U.S. government agencies,
both early-stage and late-stage delinquencies declined from
December 31, 2014. Nonaccrual loans decreased from the
prior year but remain elevated primarily as a result of loss
mitigation activities. Net charge-offs remain low, reflecting
continued improvement in home prices and delinquencies.
At December 31, 2015 and 2014, the Firm's prime
mortgage portfolio included $11.1 billion and $12.4 billion,
respectively, of mortgage loans insured and/or guaranteed
by U.S. government agencies, of which $8.4 billion and $9.7
billion, respectively, were 30 days or more past due (of
these past due loans, $6.3 billion and $7.8 billion,
respectively, were 90 days or more past due). In 2014, the
Firm entered into a settlement regarding loans insured
under federal mortgage insurance programs overseen by
the Federal Housing Administration ("FHA"), the U.S.
Department of Housing and Urban Development (“HUD”),
and the U.S. Department of Veterans Affairs ("VA"); the
Firm will continue to monitor exposure on future claim
payments for government insured loans, but any financial
impact related to exposure on future claims is not expected
to be significant and was considered in estimating the
allowance for loan losses.
At December 31, 2015 and 2014, the Firm's prime
mortgage portfolio included $17.7 billion and $16.3 billion,
respectively, of interest-only loans, which represented 11%
and 15%, respectively, of the prime mortgage portfolio.
These loans have an interest-only payment period generally
followed by an adjustable-rate or fixed-rate fully amortizing
payment period to maturity and are typically originated as
higher-balance loans to higher-income borrowers. To date,
losses on this portfolio generally have been consistent with
the broader prime mortgage portfolio and the Firm's
expectations. The Firm continues to monitor the risks
associated with these loans.
Subprime mortgages continued to decrease due to portfolio
runoff. Early-stage and late-stage delinquencies have
improved from December 31, 2014. Net charge-offs
continued to improve as a result of improvement in home
prices and delinquencies.
Auto: Auto loans increased from December 31, 2014, as
new originations outpaced paydowns and payoffs.
Nonaccrual loans were stable compared with December 31,
2014. Net charge-offs for the year ended December 31,
2015 increased compared with the prior year, as a result of
higher loan balances and a moderate increase in loss
severity. The auto loan portfolio predominantly consists of
prime-quality credits.
Business banking: Business banking loans increased from
December 31, 2014 due to an increase in loan originations.
Nonaccrual loans declined from December 31, 2014 and
net charge-offs for the year ended December 31, 2015
decreased from the prior year due to continued discipline in
credit underwriting.
Student and other: Student and other loans decreased from
December 31, 2014 due primarily to the run-off of the
student loan portfolio as the Firm ceased originations of
student loans during the fourth quarter of 2013.
Nonaccrual loans and net charge-offs also declined as a
result of the run-off of the student loan portfolio.
Purchased credit-impaired loans: PCI loans acquired in the
Washington Mutual transaction decreased as the portfolio
continues to run off.
1.4
12.4
4.0
3.8
All Other
38.8%
Top 5 States - Residential Real Estate
(at December 31, 2015)
Florida
4.8%
Texas
5.8%
Illinois
7.4%
At December 31, 2015, $123.0 billion, or 61% of total retained residential real estate loan portfolio, excluding mortgage
loans insured by U.S. government agencies and PCI loans, were concentrated in California, New York, Illinois, Texas and Florida,
compared with $94.3 billion, or 63%, at December 31, 2014. California had the greatest concentration of retained residential
loans with 28% at December 31, 2015, compared with 26% at December 31, 2014. The unpaid principal balance of PCI loans
concentrated in these five states represented 74% of total PCI loans at both December 31, 2015, and December 31, 2014. For
further information on the geographic composition of the Firm's residential real estate loans, see Note 14.
California
28.0%
37.4%
Top 5 States Residential Real Estate
(at December 31, 2014)
New York
15.2%
Texas
5.3%
Illinois
Florida
5.7%
7.2%
California
26.0%
All Other
Senior lien 90 days or more delinquent(a)
Geographic composition of residential real estate loans
(a) Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses plus additional principal losses recognized
subsequent to acquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses was $1.5 billion and $2.3
billion at December 31, 2015 and 2014, respectively.
3.7
3.5
3.3
3.3
3.0
2.8
10.0
9.9
(b) Life-to-date ("LTD") liquidation losses represent both realization of loss upon loan resolution and any principal forgiven upon modification.
For further information on the Firm's PCI loans, including write-offs, see Note 14.
9.5
$
31.8
$
31.6
$
28.9
$
28.0
9.3
New York
18.4%
Senior lien 30 89 days delinquent
Junior liens subordinate to:
Lending-related commitments(c)
58,478
58,153
Receivables from customers(d)
125
108
Total consumer exposure, excluding credit card
403,424
353,635
Credit Card
Loans retained(e)
Loans held-for-sale
Total credit card loans
Lending-related commitments(c)
Total credit card exposure
Total consumer credit portfolio
Memo: Total consumer credit portfolio, excluding PCI
0.46
0.30
1,318
954
344,355
294,979
5,315
6,418
954
1,318
0.30
0.46
131,387
Loans held-for-sale
395 (f)
98
91
Total consumer, excluding credit card loans
344,821
295,374
5,413
6,509
466 (f)
128,027
76
3,021
JPMorgan Chase & Co./2015 Annual Report
115
Management's discussion and analysis
(g) At December 31, 2015 and 2014, nonaccrual loans excluded: (1) mortgage loans insured by U.S. government agencies of $6.3 billion and $7.8 billion,
respectively, that are 90 or more days past due; and (2) student loans insured by U.S. government agencies under the FFELP of $290 million and $367
million, respectively, that are 90 or more days past due. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In
addition, credit card loans are generally exempt from being placed on nonaccrual status, as permitted by regulatory guidance.
(h) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as each of the pools is performing.
(i) Net charge-offs and net charge-off rates excluded $208 million and $533 million of write-offs of prime mortgages in the PCI portfolio for the years ended
December 31, 2015 and 2014. These write-offs decreased the allowance for loan losses for PCI loans. See Allowance for Credit Losses on pages 130-132 for
further details.
Consumer, excluding credit card
Portfolio analysis
(f) Predominantly represents prime mortgage loans held-for-sale.
Consumer loan balances increased during the year ended
December 31, 2015, predominantly due to originations of
high-quality prime mortgage loans that have been retained,
partially offset by paydowns and the charge-off or
liquidation of delinquent loans. Credit performance has
continued to improve across most portfolios as the economy
strengthened and home prices increased.
Home equity: The home equity portfolio declined from
December 31, 2014 primarily reflecting loan paydowns and
charge-offs. Both early-stage and late-stage delinquencies
declined from December 31, 2014. Net charge-offs for both
senior and junior lien home equity loans at December 31,
2015, declined when compared with the prior year as a
result of improvement in home prices and delinquencies,
but charge-offs remain elevated compared with pre-
recessionary levels.
At December 31, 2015, approximately 15% of the Firm's
home equity portfolio consists of home equity loans
("HELOANS") and the remainder consists of home equity
lines of credit ("HELOCS”). HELOANS are generally fixed-
rate, closed-end, amortizing loans, with terms ranging from
3-30 years. Approximately 60% of the HELOANS are senior
lien loans and the remainder are junior lien loans. In
general, HELOCs originated by the Firm are revolving loans
for a 10-year period, after which time the HELOC recasts
into a loan with a 20-year amortization period. At the time
of origination, the borrower typically selects one of two
minimum payment options that will generally remain in
effect during the revolving period: a monthly payment of
1% of the outstanding balance, or interest-only payments
based on a variable index (typically Prime). HELOCS
originated by Washington Mutual were generally revolving
loans for a 10-year period, after which time the HELOC
converts to an interest-only loan with a balloon payment at
the end of the loan's term.
The unpaid principal balance of HELOCs outstanding was
$41 billion at December 31, 2015. Since January 1, 2014,
approximately $8 billion of HELOCS have recast from
interest-only to fully amortizing payments; based upon
contractual terms, approximately $19 billion is scheduled
to recast in the future, consisting of $7 billion in 2016, $6
billion in 2017 and $6 billion in 2018 and beyond.
However, of the total $19 billion scheduled to recast in the
future, $13 billion is expected to actually recast; and the
remaining $6 billion represents loans to borrowers who are
expected to pre-pay or loans that are likely to charge-off
prior to recast. The Firm has considered this payment recast
risk in its allowance for loan losses based upon the
estimated amount of payment shock (i.e., the excess of the
fully-amortizing payment over the interest-only payment in
effect prior to recast) expected to occur at the payment
recast date, along with the corresponding estimated
probability of default and loss severity assumptions. Certain
factors, such as future developments in both unemployment
rates and home prices, could have a significant impact on
the performance of these loans.
The Firm manages the risk of HELOCS during their revolving
period by closing or reducing the undrawn line to the extent
permitted by law when borrowers are exhibiting a material
deterioration in their credit risk profile. The Firm will
continue to evaluate both the near-term and longer-term
repricing and recast risks inherent in its HELOC portfolio to
ensure that changes in the Firm's estimate of incurred
losses are appropriately considered in the allowance for
loan losses and that the Firm's account management
practices are appropriate given the portfolio's risk profile.
High-risk seconds are junior lien loans where the borrower
has a senior lien loan that is either delinquent or has been
modified. Such loans are considered to pose a higher risk of
default than junior lien loans for which the senior lien loan
is neither delinquent nor modified. The Firm estimates the
balance of its total exposure to high-risk seconds on a
quarterly basis using internal data and loan level credit
bureau data (which typically provides the delinquency
status of the senior lien loan). The estimated balance of
these high-risk seconds may vary from quarter to quarter
for reasons such as the movement of related senior lien
loans into and out of the 30+ day delinquency bucket.
116
JPMorgan Chase & Co./2015 Annual Report
Current high-risk seconds
December 31, (in billions)
PCI loans are excluded from the following discussions of
individual loan products and are addressed separately
below. For further information about the Firm's consumer
portfolio, including information about delinquencies, loan
modifications and other credit quality indicators, see
Note 14.
Modified current senior lien
(e) Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income.
(c) Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and
does not anticipate, that all available lines of credit would be used at the same time. For credit card and home equity commitments (if certain conditions are
met), the Firm can reduce or cancel these lines of credit by providing the borrower notice or, in some cases as permitted by law, without notice.
131,463
515,518
646,981
131,048
525,963
657,011
$ 1,050,405
$ 1,009,407
$ 1,010,646
$ 963,950
$ 5,413 $ 6,509
$ 5,413 $ 6,509
(d) Receivables from customers represent margin loans to retail brokerage customers, and are included in Accrued interest and accounts receivable on the
Consolidated balance sheets.
$ 4,076 $ 4,747
$ 4,076 $ 4,747
1.15%
1.30%
3,122 3,429 2.51 2.75
3,122
3,429
2.51
2.75
(a) At December 31, 2015 and 2014, excluded operating lease assets of $9.2 billion and $6.7 billion, respectively.
(b) At December 31, 2015 and 2014, approximately 64% and 57% of the PCI option ARMS portfolio has been modified into fixed-rate, fully amortizing loans,
respectively.
0.92%
1.02%
Current estimated loan-to-values ("LTVS") of
residential real estate loans
The current estimated average LTV ratio for residential real
estate loans retained, excluding mortgage loans insured by
U.S. government agencies and PCI loans, was 59% at both
December 31, 2015 and 2014.
Although home prices continue to recover, the decline in
home prices since 2007 has had a significant impact on the
collateral values underlying the Firm's residential real
estate loan portfolio. In general, the delinquency rate for
loans with high LTV ratios is greater than the delinquency
rate for loans in which the borrower has greater equity in
the collateral. While a large portion of the loans with
current estimated LTV ratios greater than 100% continue
to pay and are current, the continued willingness and ability
of these borrowers to pay remains a risk.
2014
December 31,
(in millions)
Retained
loans
Nonaccrual
retained
loans (d)
Retained
loans
Nonaccrual
retained
loans (d)
Modified residential real
estate loans, excluding
PCI loans (a)(b)
Home equity-senior lien $ 1,048 $
581
Home equity - junior lien
1,310
639
$ 1,101 $
1,304
628
632
2015
Nonaccrual loans
Nonaccrual loans: The following table presents changes in
the consumer, excluding credit card, nonaccrual loans for
the years ended December 31, 2015 and 2014.
Active and suspended foreclosure: For information on
loans that were in the process of active or suspended
foreclosure, see Note 14.
$ 4,792
$ 5,845
621
664
5,413
6,509
277
437
Prime mortgage,
48
Total assets acquired in loan satisfactions
Total nonperforming assets
325
473
$ 5,738 $
6,982
(a) At December 31, 2015 and 2014, nonperforming assets excluded: (1) mortgage
loans insured by U.S. government agencies of $6.3 billion and $7.8 billion,
respectively, that are 90 or more days past due; (2) student loans insured by U.S.
government agencies under the FFELP of $290 million and $367 million,
respectively, that are 90 or more days past due; and (3) real estate owned
insured by U.S. government agencies of $343 million and $462 million,
respectively. These amounts have been excluded based upon the government
guarantee.
(b) Excludes PCI loans that were acquired as part of the Washington Mutual
transaction, which are accounted for on a pool basis. Since each pool is
accounted for as a single asset with a single composite interest rate and an
aggregate expectation of cash flows, the past-due status of the pools, or that of
individual loans within the pools, is not meaningful. Because the Firm is
recognizing interest income on each pool of loans, each pool is considered to be
performing.
Nonaccrual loans in the residential real estate portfolio
totaled $4.8 billion and $5.8 billion at December 31, 2015,
and 2014, respectively, of which 31% and 32%,
respectively, were greater than 150 days past due. In the
aggregate, the unpaid principal balance of residential real
estate loans greater than 150 days past due was charged
down by approximately 44% and 50% to the estimated net
realizable value of the collateral at December 31, 2015 and
2014, respectively.
36
including option ARMS
4,826
1,287
ΝΑ
(in millions)
2015
2014
Subprime mortgage
3,242
NA
3,647
6,309
NA
$
Additions
6,509 $
3,662
7,496
4,905
Option ARMS
10,427
ΝΑ
Beginning balance
2014
ΝΑ
Prime mortgage
Subprime mortgage
1,864
670
6,145
2,878
1,559
931
Total modified
residential real estate
loans, excluding PCI
loans
5,686
$ 9,048 $ 3,177
3,750
Modified PCI loans (c)
Home equity
$ 2,526
ΝΑ
$ 2,580
ΝΑ
Year ended December 31,
$ 11,428 $
2015
Other
Real estate owned
Net
carrying
to current
estimated
collateral value(b)(d)
balance
LTV ratio(a)(b)
value(d)
collateral value(b)(d)
$ 15,342
Current
estimated
(c)
$ 13,281
68% (e)
$ 17,740
78% (c)
$ 15,337
8,919
66
7,908
73%
58
principal
to current
estimated
118
JPMorgan Chase & Co./2015 Annual Report
The following table presents the current estimated LTV ratios for PCI loans, as well as the ratios of the carrying value of the
underlying loans to the current estimated collateral value. Because such loans were initially measured at fair value, the ratios
of the carrying value to the current estimated collateral value will be lower than the current estimated LTV ratios, which are
based on the unpaid principal balances. The estimated collateral values used to calculate these ratios do not represent actual
appraised loan-level collateral values; as such, the resulting ratios are necessarily imprecise and should therefore be viewed as
estimates.
LTV ratios and ratios of carrying values to current estimated collateral values - PCI loans
2015
2014
December 31,
(in millions,
except ratios)
Unpaid
Home equity
Subprime mortgage
Option ARMS
Ratio of net
carrying value
Ratio of net
carrying value
Unpaid
principal
balance
Current
estimated
LTV ratio(a)(b)
Net
carrying
value(d)
Prime mortgage
Total loans - retained
4,051
14,353
64
For further information on current estimated LTVS of
residential real estate loans, see Note 14.
Loan modification activities - residential real estate loans
The performance of modified loans generally differs by
product type due to differences in both the credit quality
and the types of modifications provided. Performance
JPMorgan Chase & Co./2015 Annual Report
metrics for modifications to the residential real estate
portfolio, excluding PCI loans, that have been seasoned
more than six months show weighted-average redefault
rates of 20% for senior lien home equity, 22% for junior
lien home equity, 17% for prime mortgages including
option ARMS, and 29% for subprime mortgages. The
cumulative performance metrics for modifications to the
PCI residential real estate portfolio that have been seasoned
more than six months show weighted average redefault
rates of 20% for home equity, 19% for prime mortgages,
16% for option ARMS and 33% for subprime mortgages.
The favorable performance of the PCI option ARM
modifications is the result of a targeted proactive program
which fixed the borrower's payment to the amount at the
point of modification. The cumulative redefault rates reflect
the performance of modifications completed under both the
U.S. Government's Home Affordable Modification Program
("HAMP") and the Firm's proprietary modification programs
(primarily the Firm's modification program that was
modeled after HAMP) from October 1, 2009, through
December 31, 2015.
Certain loans that were modified under HAMP and the
Firm's proprietary modification programs have interest rate
reset provisions ("step-rate modifications"). Interest rates
on these loans generally began to increase in 2014 by 1%
per year and will continue to do so, until the rate reaches a
specified cap, typically at a prevailing market interest rate
for a fixed-rate loan as of the modification date. The
119
Management's discussion and analysis
carrying value of non-PCI loans modified in step-rate
modifications was $4 billion at December 31, 2015, with
$447 million that experienced the initial interest rate
increase in 2015 and $1 billion that is scheduled to
experience the initial interest rate increase in each of 2016
and 2017. The unpaid principal balance of PCI loans
modified in step-rate modifications was $10 billion at
December 31, 2015, with $1 billion that experienced the
initial interest rate increase in 2015, and $3 billion and $2
billion scheduled to experience the initial interest rate
increase in 2016 and 2017, respectively. The Firm
continues to monitor this risk exposure to ensure that it is
appropriately considered in the allowance for loan losses.
The following table presents information as of
December 31, 2015 and 2014, relating to modified
retained residential real estate loans for which concessions
have been granted to borrowers experiencing financial
difficulty. Modifications of PCI loans continue to be
accounted for and reported as PCI loans, and the impact of
the modification is incorporated into the Firm's quarterly
assessment of estimated future cash flows. Modifications of
consumer loans other than PCI loans are generally
accounted for and reported as TDRs. For further
information on modifications for the years ended
December 31, 2015 and 2014, see Note 14.
While the current estimated collateral value is greater than
the net carrying value of PCI loans, the ultimate
performance of this portfolio is highly dependent on
borrowers' behavior and ongoing ability and willingness to
continue to make payments on homes with negative equity,
as well as on the cost of alternative housing.
Modified residential real estate loans
The following table presents information as of
December 31, 2015 and 2014, about consumer, excluding
credit card, nonperforming assets.
Nonperforming assets (a)
December 31, (in millions)
Nonaccrual loans (b)
Residential real estate
Other consumer
Total nonaccrual loans
Assets acquired in loan satisfactions
Nonperforming assets
73
The current estimated average LTV ratios were 65% and
78% for California and Florida PCI loans, respectively, at
December 31, 2015, compared with 71% and 85%,
respectively, at December 31, 2014. Average LTV ratios
have declined consistent with recent improvements in home
prices as well as a result of loan pay downs. Although home
prices have improved, home prices in most areas of
California and Florida are still lower than at the peak of the
housing market; this continues to negatively affect current
estimated average LTV ratios and the ratio of net carrying
value to current estimated collateral value for loans in the
PCI portfolio. Of the total PCI portfolio, 6% of the loans had
a current estimated LTV ratio greater than 100%, and 1%
had a current LTV ratio of greater than 125% at
December 31, 2015, compared with 10% and 2%,
respectively, at December 31, 2014.
allowance for loan losses at December 31, 2015 and 2014 of $985 million and $1.2 billion for prime mortgage, $49 million and $194 million for option ARMS, $1.7
billion and $1.8 billion for home equity, respectively, and $180 million for subprime mortgage at December 31, 2014. There was no allowance for loan losses for
subprime mortgage at December 31, 2015.
3,263
13,804
59
62
10,249
4,652
71
9,027
79
3,493
16,496
(e) The current period ratio has been updated to include the effect of any outstanding senior lien related to a property for which the Firm holds the junior home equity
lien. The prior period ratio has been revised to conform with the current presentation.
69
63
59
65
15,514
(a) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated at least quarterly
based on home valuation models that utilize nationally recognized home price index valuation estimates; such models incorporate actual data to the extent available
and forecasted data where actual data is not available.
(b) Effective December 31, 2015, the current estimated LTV ratios and the ratios of net carrying value to current estimated collateral value reflect updates to the
nationally recognized home price index valuation estimates incorporated into the Firm's home valuation models. The prior period ratios have been revised to
conform with these updates in the home price index.
(c) Represents current estimated combined LTV for junior home equity liens, which considers all available lien positions, as well as unused lines, related to the property.
All other products are presented without consideration of subordinate liens on the property.
(d) Net carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition and is also net of the
73% (e)
ΝΑ
(j) Average consumer loans held-for-sale were $2.1 billion and $917 million, respectively, for the years ended December 31, 2015 and 2014. These amounts
were excluded when calculating net charge-off rates.
NA
ΝΑ
347
515
NA
ΝΑ
54
44
Total assets acquired in
loan satisfactions
ΝΑ
ΝΑ
401
559
Total assets
910,473
ΝΑ
865,391
Real estate owned
Other
7,408
837,299
757,336
6,429
7,133
59,677
78,975
204
275
customers and other
13,497
29,080
Total credit-related
assets
910,473
865,391
6,633
Assets acquired in loan
satisfactions
7,034
7,967
940,395
$1,850,868 $1,816,388 $
4,759
114
Average retained loans
Loans reported
780,293
729,876
Loans reported, excluding
residential real estate PCI loans
736,543
679,869
Net charge-off rates
Loans reported
Loans - reported, excluding PCI
0.52%
0.55
0.65%
0.70
$
4,086
$
2014
950,997
193
103
7,227 $
8,070
Lending-related
commitments
Total credit portfolio
Credit derivatives used in
credit portfolio
management activities (a)
Liquid securities and other
cash collateral held
against derivatives
21
Year ended December 31,
(in millions, except ratios)
$ (20,681) $ (26,703) $
(9) $
(16,580)
(19,604)
ΝΑ
ΝΑ
2015
Net charge-offs
25
2,611
2,861
The methodologies used to estimate credit losses depend
on the characteristics of the credit exposure, as described
below.
Scored exposure
The scored portfolio is generally held in CCB and
predominantly includes residential real estate loans, credit
card loans, certain auto and business banking loans, and
student loans. For the scored portfolio, credit loss estimates
are based on statistical analysis of credit losses over
discrete periods of time. The statistical analysis uses
portfolio modeling, credit scoring, and decision-support
tools, which consider loan-level factors such as delinquency
status, credit scores, collateral values, and other risk
factors. Credit loss analyses also consider, as appropriate,
uncertainties and other factors, including those related to
current macroeconomic and political conditions, the quality
of underwriting standards, and other internal and external
factors. The factors and analysis are updated on a quarterly
basis or more frequently as market conditions dictate.
Risk-rated exposure
Risk-rated portfolios are generally held in CIB, CB and AM,
but also include certain business banking and auto dealer
loans held in CCB that are risk-rated because they have
characteristics similar to commercial loans. For the risk-
rated portfolio, credit loss estimates are based on estimates
of the probability of default ("PD") and loss severity given a
default. The estimation process begins with risk ratings that
are assigned to each loan facility to differentiate risk within
the portfolio. These risk ratings are reviewed regularly by
Credit Risk Management and revised as needed to reflect
the borrower's current financial position, risk profile and
related collateral. The probability of default is the likelihood
that a loan will default and not be fully repaid by the
borrower. The loss given default ("LGD") is the estimated
loss on the loan that would be realized upon the default of
JPMorgan Chase & Co./2015 Annual Report
the borrower and takes into consideration collateral and
structural support for each credit facility. The probability of
default is estimated for each borrower, and a loss given
default is estimated for each credit facility. The calculations
and assumptions are based on historic experience and
management judgment and are reviewed regularly.
Stress testing
Stress testing is important in measuring and managing
credit risk in the Firm's credit portfolio. The process
assesses the potential impact of alternative economic and
business scenarios on estimated credit losses for the Firm.
Economic scenarios, and the parameters underlying those
scenarios, are defined centrally, are articulated in terms of
macroeconomic factors, and applied across the businesses.
The stress test results may indicate credit migration,
changes in delinquency trends and potential losses in the
credit portfolio. In addition to the periodic stress testing
processes, management also considers additional stresses
outside these scenarios, including industry and country-
specific stress scenarios, as necessary. The Firm uses stress
testing to inform decisions on setting risk appetite both at a
Firm and LOB level, as well as to assess the impact of stress
on individual counterparties.
Risk monitoring and management
The Firm has developed policies and practices that are
designed to preserve the independence and integrity of the
approval and decision-making process of extending credit to
ensure credit risks are assessed accurately, approved
properly, monitored regularly and managed actively at both
the transaction and portfolio levels. The policy framework
establishes credit approval authorities, concentration limits,
risk-rating methodologies, portfolio review parameters and
guidelines for management of distressed exposures. In
addition, certain models, assumptions and inputs used in
evaluating and monitoring credit risk are independently
validated by groups that are separate from the line of
businesses.
For consumer credit risk, delinquency and other trends,
including any concentrations at the portfolio level, are
monitored, as certain of these trends can be modified
through changes in underwriting policies and portfolio
guidelines. Consumer Risk Management evaluates
delinquency and other trends against business
expectations, current and forecasted economic conditions,
and industry benchmarks. Historical and forecasted trends
are incorporated into the modeling of estimated consumer
credit losses and are part of the monitoring of the credit
risk profile of the portfolio. For further discussion of
consumer loans, see Note 14.
Wholesale credit risk is monitored regularly at an aggregate
portfolio, industry, and individual client and counterparty
level with established concentration limits that are reviewed
and revised as deemed appropriate by management,
typically on an annual basis. Industry and counterparty
limits, as measured in terms of exposure and economic risk
appetite, are subject to stress-based loss constraints. In
addition, wrong-way risk – the risk that exposure to a
counterparty is positively correlated with the impact of a
default by the same counterparty, which could cause
exposure to increase at the same time as the counterparty's
capacity to meet its obligations is decreasing – is actively
monitored as this risk could result in greater exposure at
default compared with a transaction with another
counterparty that does not have this risk.
Management of the Firm's wholesale credit risk exposure is
accomplished through a number of means, including:
probability of default of an obligor or counterparty, the loss
severity given a default event and the exposure at default.
Based on these factors and related market-based inputs,
the Firm estimates credit losses for its exposures. Probable
credit losses inherent in the consumer and wholesale loan
portfolios are reflected in the allowance for loan losses, and
probable credit losses inherent in lending-related
commitments are reflected in the allowance for lending-
related commitments. These losses are estimated using
statistical analyses and other factors as described in Note
15. In addition, potential and unexpected credit losses are
reflected in the allocation of credit risk capital and
represent the potential volatility of actual losses relative to
the established allowances for loan losses and lending-
related commitments. The analyses for these losses include
stress testing considering alternative economic scenarios as
described in the Stress testing section below. For further
information, see Critical Accounting Estimates used by the
Firm on pages 165-169.
112
The Credit Risk Management function identifies, measures,
limits, manages and monitors credit risk across the Firm's
businesses. To measure credit risk, the Firm employs
several methodologies for estimating the likelihood of
obligor or counterparty default. Methodologies for
measuring credit risk vary depending on several factors,
including type of asset (e.g., consumer versus wholesale),
risk measurement parameters (e.g., delinquency status and
borrower's credit score versus wholesale risk-rating) and
risk management and collection processes (e.g., retail
collection center versus centrally managed workout
groups). Credit risk measurement is based on the
Risk identification and measurement
Home equity-senior lien
$
14,848
$
16,367
111
Management's discussion and analysis
•
CREDIT RISK MANAGEMENT
Credit risk management
Credit risk management is an independent risk
management function that identifies and monitors credit
risk throughout the Firm and defines credit risk policies and
procedures. The credit risk function reports to the Firm's
CRO. The Firm's credit risk management governance
includes the following activities:
•
Establishing a comprehensive credit risk policy
framework
Monitoring and managing credit risk across all portfolio
segments, including transaction and exposure approval
Setting industry concentration limits and establishing
underwriting guidelines
Assigning and managing credit authorities in connection
with the approval of all credit exposure
Managing criticized exposures and delinquent loans
Determining the allowance for credit losses and ensuring
appropriate credit risk-based capital management
Credit risk is the risk of loss arising from the default of a
customer, client or counterparty. The Firm provides credit
to a variety of customers, ranging from large corporate and
institutional clients to individual consumers and small
businesses. In its consumer businesses, the Firm is exposed
to credit risk primarily through its residential real estate,
credit card, auto, business banking and student lending
businesses. Originated mortgage loans are retained in the
mortgage portfolio, securitized or sold to U.S. government
agencies and U.S. government-sponsored enterprises; other
types of consumer loans are typically retained on the
balance sheet. In its wholesale businesses, the Firm is
exposed to credit risk through its underwriting, lending,
market-making, and hedging activities with and for clients
and counterparties, as well as through its operating services
activities (such as cash management and clearing
activities), securities financing activities, investment
securities portfolio, and cash placed with banks. A portion
of the loans originated or acquired by the Firm's wholesale
businesses are generally retained on the balance sheet; the
Firm's syndicated loan business distributes a significant
percentage of originations into the market and is an
important component of portfolio management.
(a) Represents the net notional amount of protection purchased and sold through
credit derivatives used to manage both performing and nonperforming wholesale
credit exposures; these derivatives do not qualify for hedge accounting under
U.S. GAAP. For additional information, see Credit derivatives on page 129 and
Note 6.
•
•
Total credit portfolio
ΝΑ
Loans held-for-sale
Loans at fair value
Total loans reported
Derivative receivables
Receivables from
Credit exposure
2015
2014
$ 832,792 $ 747,508
1,646
Nonperforming (b)(c)
2015
2014
$
6,303 $ 7,017
7,217
101
95
For discussion of the consumer credit environment and
consumer loans, see Consumer Credit Portfolio on pages
115-121 and Note 14. For discussion of wholesale credit
environment and wholesale loans, see Wholesale Credit
Portfolio on pages 122-129 and Note 14.
In the following tables, reported loans include loans
retained (i.e., held-for-investment); loans held-for-sale
(which are carried at the lower of cost or fair value, with
valuation changes recorded in noninterest revenue); and
certain loans accounted for at fair value. In addition, the
Firm records certain loans accounted for at fair value in
trading assets. For further information regarding these
loans, see Note 3 and Note 4. For additional information on
the Firm's loans and derivative receivables, including the
Firm's accounting policies, see Note 14 and Note 6,
respectively. For further information regarding the credit
risk inherent in the Firm's cash placed with banks,
investment securities portfolio, and securities financing
portfolio, see Note 5, Note 12, and Note 13, respectively.
Effective January 1, 2015, the Firm no longer includes
within its disclosure of wholesale lending-related
commitments the unused amount of advised uncommitted
lines of credit as it is within the Firm's discretion whether or
not to make a loan under these lines, and the Firm's
approval is generally required prior to funding. Prior period
amounts have been revised to conform with the current
period presentation.
CREDIT PORTFOLIO
Management's discussion and analysis
Loan syndications and participations
•
Loan sales and securitizations
•
Credit derivatives
•
Master netting agreements
Loan underwriting and credit approval process
Collateral and other risk-reduction techniques
•
•
Independently assessing and validating the changing risk
grades assigned to exposures; and
Evaluating the effectiveness of business units' risk
ratings, including the accuracy and consistency of risk
grades, the timeliness of risk grade changes and the
justification of risk grades in credit memoranda.
Risk reporting
To enable monitoring of credit risk and effective decision-
making, aggregate credit exposure, credit quality forecasts,
concentration levels and risk profile changes are reported
regularly to senior members of Credit Risk Management.
Detailed portfolio reporting of industry, customer, product
and geographic concentrations occurs monthly, and the
appropriateness of the allowance for credit losses is
reviewed by senior management at least on a quarterly
basis. Through the risk reporting and governance structure,
credit risk trends and limit exceptions are provided
regularly to, and discussed with, risk committees, senior
management and the Board of Directors as appropriate.
JPMorgan Chase & Co./2015 Annual Report
113
In addition to Credit Risk Management, Internal Audit
performs periodic exams, as well as continuous reviews,
where appropriate, of the Firm's consumer and wholesale
portfolios. For risk-rated portfolios, a Credit Review group
within Internal Audit is responsible for:
(b) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as each of the pools is performing.
December 31,
(in millions)
Loans retained
JPMorgan Chase & Co./2015 Annual Report
20,058
263
279
253
305
1.23
1.58
Student and other
10,096
10,970
242
270
200
347
1.89
21,208
3.07
Business banking
0.38
3,690
5,056
751
1,036
(53)
(27)
(1.22)
(0.43)
Auto(a)
60,255
54,536
116
115
214
181
0.34
Total loans, excluding PCI loans and loans held-for-sale
303,357
248,283
15,708
ΝΑ
금금금금
NA
NA
NA
NA
NA
NA
NA
NA
Total loans - PCI
40,998
46,696
(c) At December 31, 2015 and 2014, nonperforming assets excluded: (1) mortgage
loans insured by U.S. government agencies of $6.3 billion and $7.8 billion,
respectively, that are 90 or more days past due; (2) student loans insured by U.S.
government agencies under the FFELP of $290 million and $367 million,
respectively, that are 90 or more days past due; and (3) REO insured by U.S.
government agencies of $343 million and $462 million, respectively. These
amounts have been excluded based upon the government guarantee. In addition,
the Firm's policy is generally to exempt credit card loans from being placed on
nonaccrual status as permitted by regulatory guidance issued by the Federal
Financial Institutions Examination Council ("FFIEC").
13,853
NA
3,673
3,263
5,315
6,418
954
1,318
0.55
Loans - PCI
Home equity
Subprime mortgage
14,989
ΝΑ
Prime mortgage
Subprime mortgage
Option ARMS (b)
8,893
10,220
NA
17,095
0.04
0.35
39
120
6,509
5,413 $
$
(987)
(1,096)
Net additions/(reductions)
Ending balance
5,892
4,758
Total reductions
644
565
Foreclosures and other liquidations
2,083
1,725
JPMorgan Chase & Co./2015 Annual Report
2014
2015
2014
CONSUMER CREDIT PORTFOLIO
0.04
The Firm's consumer portfolio consists primarily of
residential real estate loans, credit card loans, auto loans,
business banking loans, and student loans. The Firm's focus
is on serving the prime segment of the consumer credit
market. The credit performance of the consumer portfolio
continues to benefit from discipline in credit underwriting as
well as improvement in the economy driven by increasing
home prices and lower unemployment. Both early-stage
delinquencies (30-89 days delinquent) and late-stage
delinquencies (150+ days delinquent) for residential real
estate, excluding government guaranteed loans, declined
from December 31, 2014 levels. The Credit Card 30+ day
delinquency rate and the net charge-off rate remain near
historic lows. For further information on consumer loans,
see Note 14.
The following table presents consumer credit-related information with respect to the credit portfolio held by CCB, prime
mortgage and home equity loans held by AM, and prime mortgage loans held by Corporate. For further information about the
Firm's nonaccrual and charge-off accounting policies, see Note 14.
Consumer credit portfolio
As of or for the year ended December 31,
Returned to performing status
(in millions, except ratios)
Nonaccrual loans (g)(h)
Net charge-offs/
(recoveries) (i)
2015
2014
2015
2014
2015
Credit exposure
1,306
Average annual net
charge-off/(recovery)
rate(i)(i)
1,859
0.50%
Home equity-junior lien
30,711
36,375
1,324
1,590
391
0.43%
0.67
Prime mortgage, including option ARMS
162,549
104,921
1,752
800
2,190
49
1.03
82
222
(c) Amounts represent the unpaid principal balance of modified PCI loans.
(d) As of December 31, 2015 and 2014, nonaccrual loans included $2.5 billion and
$2.9 billion, respectively, of TDRS for which the borrowers were less than 90
days past due. For additional information about loans modified in a TDR that are
on nonaccrual status, see Note 14.
ΝΑ
Principal payments and other (a)
Charge-offs
(a) Other reductions includes loan sales.
1,668
(a) Amounts represent the carrying value of modified residential real estate loans.
(b) At December 31, 2015 and 2014, $3.8 billion and $4.9 billion, respectively, of
loans modified subsequent to repurchase from Ginnie Mae in accordance with
the standards of the appropriate government agency (i.e., FHA, VA, RHS) are not
included in the table above. When such loans perform subsequent to
modification in accordance with Ginnie Mae guidelines, they are generally sold
back into Ginnie Mae loan pools. Modified loans that do not re-perform become
subject to foreclosure. For additional information about sales of loans in
securitization transactions with Ginnie Mae, see Note 16.
Total modified PCI loans $21,881
NA $ 24,247
ΝΑ
11,711
$
867 $
938
$
Reductions:
69 $
December 31, (in millions)
2014
2015
Receivables from customers primarily represent margin
loans to prime and retail brokerage clients that are
collateralized through a pledge of assets maintained in
clients' brokerage accounts which are subject to daily
minimum collateral requirements. In the event that the
collateral value decreases, a maintenance margin call is
made to the client to provide additional collateral into the
account. If additional collateral is not provided by the client,
the client's position may be liquidated by the Firm to meet
the minimum collateral requirements.
26,363 $
Derivative receivables
33,725
$
Credit derivatives
Foreign exchange
Equity
In the Firm's view, the total contractual amount of these
wholesale lending-related commitments is not
representative of the Firm's likely actual future credit
exposure or funding requirements. In determining the
amount of credit risk exposure the Firm has to wholesale
lending-related commitments, which is used as the basis for
allocating credit risk capital to these commitments, the Firm
has established a "loan-equivalent" amount for each
commitment; this amount represents the portion of the
unused commitment or other contingent exposure that is
expected, based on average portfolio historical experience,
to become drawn upon in an event of a default by an
obligor. The loan-equivalent amount of the Firm's lending-
related commitments was $212.4 billion and $216.5 billion
as of December 31, 2015 and 2014, respectively.
Clearing services
JPMorgan Chase & Co./2015 Annual Report
The following table summarizes the net derivative
receivables for the periods presented.
In the normal course of business, the Firm uses derivative
instruments predominantly for market-making activities.
Derivatives enable customers to manage exposures to
fluctuations in interest rates, currencies and other markets.
The Firm also uses derivative instruments to manage its
own credit and other market risk exposure. The nature of
the counterparty and the settlement mechanism of the
derivative affect the credit risk to which the Firm is
exposed. For OTC derivatives the Firm is exposed to the
credit risk of the derivative counterparty. For exchange-
traded derivatives ("ETD"), such as futures and options and
"cleared" over-the-counter ("OTC-cleared") derivatives, the
Firm is generally exposed to the credit risk of the relevant
CCP. Where possible, the Firm seeks to mitigate its credit
risk exposures arising from derivative transactions through
the use of legally enforceable master netting arrangements
and collateral agreements. For further discussion of
derivative contracts, counterparties and settlement types,
see Note 6.
Derivative contracts
The Firm provides clearing services for clients entering into
securities and derivative transactions. Through the
provision of these services the Firm is exposed to the risk of
non-performance by its clients and may be required to
share in losses incurred by central counterparties ("CCPS").
Where possible, the Firm seeks to mitigate its credit risk to
its clients through the collection of adequate margin at
inception and throughout the life of the transactions and
can also cease provision of clearing services if clients do not
adhere to their obligations under the clearing agreement.
For further discussion of Clearing services, see Note 29.
The Firm uses lending-related financial instruments, such as
commitments (including revolving credit facilities) and
guarantees, to meet the financing needs of its customers.
The contractual amounts of these financial instruments
represent the maximum possible credit risk should the
counterparties draw down on these commitments or the
Firm fulfills its obligations under these guarantees, and the
counterparties subsequently fail to perform according to
the terms of these contracts.
Lending-related commitments
Receivables from customers
1,423
Interest rate
1,838
Liquid securities and other cash collateral
held against derivative receivables
Total, net of all collateral
21,253
In addition to the collateral described in the preceding
paragraph, the Firm also holds additional collateral
(primarily cash; G7 government securities; other liquid
government-agency and guaranteed securities; and
corporate debt and equity securities) delivered by clients at
the initiation of transactions, as well as collateral related to
contracts that have a non-daily call frequency and collateral
that the Firm has agreed to return but has not yet settled as
of the reporting date. Although this collateral does not
reduce the balances and is not included in the table above,
it is available as security against potential exposure that
could arise should the fair value of the client's derivative
transactions move in the Firm's favor. As of December 31,
2015 and 2014, the Firm held $43.7 billion and $48.6
billion, respectively, of this additional collateral. The
derivative receivables fair value, net of all collateral, also
does not include other credit enhancements, such as letters
of credit. For additional information on the Firm's use of
collateral agreements, see Note 6.
Management's discussion and analysis
126
While useful as a current view of credit exposure, the net
fair value of the derivative receivables does not capture the
potential future variability of that credit exposure. To
capture the potential future variability of credit exposure,
the Firm calculates, on a client-by-client basis, three
measures of potential derivatives-related credit loss: Peak,
Derivative Risk Equivalent ("DRE"), and Average exposure
("AVG"). These measures all incorporate netting and
collateral benefits, where applicable.
127
JPMorgan Chase & Co./2015 Annual Report
Derivative receivables reported on the Consolidated balance
sheets were $59.7 billion and $79.0 billion at
December 31, 2015 and 2014, respectively. These amounts
represent the fair value of the derivative contracts, after
giving effect to legally enforceable master netting
agreements and cash collateral held by the Firm. However,
in management's view, the appropriate measure of current
credit risk should also take into consideration additional
liquid securities (primarily U.S. government and agency
securities and other group of seven nations ("G7")
government bonds) and other cash collateral held by the
Firm aggregating $16.6 billion and $19.6 billion at
December 31, 2015 and 2014, respectively, that may be
used as security when the fair value of the client's exposure
is in the Firm's favor. The decrease in derivative receivables
was predominantly driven by declines in interest rate
derivatives, commodity derivatives, foreign exchange
derivatives and equity derivatives due to market
movements, maturities and settlements related to client-
driven market-making activities in CIB.
Total, net of cash collateral
Commodity
17,177
59,371
$
(19,604)
(16,580)
78,975
59,677
13,982
9,185
8,177
5,529
43,097 $
-%
1,307
12
8
303
286
Returned to performing status
Sales
148
87
756
534
Paydowns and other
95
882
$
2014
2015
Gross charge-offs
Reductions:
Additions
Peak represents a conservative measure of potential
exposure to a counterparty calculated in a manner that is
broadly equivalent to a 97.5% confidence level. Peak is the
primary measure used by the Firm for setting of credit
limits for derivative transactions, senior management
reporting and derivatives exposure management. DRE
exposure is a measure that expresses the risk of derivative
exposure on a basis intended to be equivalent to the risk of
loan exposures. DRE is a less extreme measure of potential
credit loss than Peak and is used for aggregating derivative
credit risk exposures with loans and other credit risk.
Finally, AVG is a measure of the expected fair value of the
Firm's derivative receivables at future time periods,
including the benefit of collateral. AVG exposure over the
total life of the derivative contract is used as the primary
metric for pricing purposes and is used to calculate credit
capital and the CVA, as further described below. The three
year AVG exposure was $32.4 billion and $37.5 billion at
December 31, 2015 and 2014, respectively, compared with
derivative receivables, net of all collateral, of $43.1 billion
and $59.4 billion at December 31, 2015 and 2014,
respectively.
The following table presents the change in the nonaccrual
loan portfolio for the years ended December 31, 2015 and
2014.
Wholesale nonaccrual loan activity
Year ended December 31, (in millions)
Beginning balance
624 $ 1,044
-%
Total reductions
1,302
10
151
(139)
95
(85)
$ 337,407 $ 316,060
2014
2015
Net charge-off rate
Net charge-offs
Gross recoveries
915
Gross charge-offs
Loans reported
Year ended December 31,
(in millions, except ratios)
Wholesale net charge-offs
The following table presents net charge-offs, which are
defined as gross charge-offs less recoveries, for the years
ended December 31, 2015 and 2014. The amounts in the
table below do not include gains or losses from sales of
nonaccrual loans.
Net changes
Ending balance
624
(420)
392
1,016 $
$
Average loans retained
The fair value of the Firm's derivative receivables
incorporates an adjustment, the CVA, to reflect the credit
quality of counterparties. The CVA is based on the Firm's
AVG to a counterparty and the counterparty's credit spread
in the credit derivatives market. The primary components of
changes in CVA are credit spreads, new deal activity or
unwinds, and changes in the underlying market
environment. The Firm believes that active risk
management is essential to controlling the dynamic credit
risk in the derivatives portfolio. In addition, the Firm's risk
management process takes into consideration the potential
impact of wrong-way risk, which is broadly defined as the
potential for increased correlation between the Firm's
exposure to a counterparty (AVG) and the counterparty's
credit quality. Many factors may influence the nature and
magnitude of these correlations over time. To the extent
that these correlations are identified, the Firm may adjust
the CVA associated with that counterparty's AVG. The Firm
risk manages exposure to changes in CVA by entering into
credit derivative transactions, as well as interest rate,
foreign exchange, equity and commodity derivative
transactions.
2,289 $ 2,047
18,392
24,656
Exposure profile of derivatives measures
protection
purchased (a)
Notional amount of
December 31, (in millions)
Credit derivatives used in credit portfolio management
activities
Credit portfolio management activities
Included in the Firm's end-user activities are credit
derivatives used to mitigate the credit risk associated with
traditional lending activities (loans and unfunded
commitments) and derivatives counterparty exposure in the
Firm's wholesale businesses (collectively, “credit portfolio
management” activities). Information on credit portfolio
management activities is provided in the table below. For
further information on derivatives used in credit portfolio
management activities, see Credit derivatives in Note 6.
The Firm also uses credit derivatives as an end-user to
manage other exposures, including credit risk arising from
certain securities held in the Firm's market-making
businesses. These credit derivatives are not included in
credit portfolio management activities; for further
information on these credit derivatives as well as credit
derivatives used in the Firm's capacity as a market-maker in
credit derivatives, see Credit derivatives in Note 6.
The Firm uses credit derivatives for two primary purposes:
first, in its capacity as a market-maker, and second, as an
end-user to manage the Firm's own credit risk associated
with various exposures. For a detailed description of credit
derivatives, see Credit derivatives in Note 6.
Credit derivatives
As previously noted, the Firm uses collateral agreements to
mitigate counterparty credit risk. The percentage of the
Firm's derivatives transactions subject to collateral
agreements - excluding foreign exchange spot trades,
which are not typically covered by collateral agreements
due to their short maturity - was 87% as of December 31,
2015, largely unchanged compared with 88% as of
December 31, 2014.
(a) Prior period amounts have been revised to conform with current period presentation.
100%
59,371
100% $
43,097
$
1
821
2
17
7,500
2015
2014
Credit derivatives used to manage:
Loans and lending-related commitments
7,735
In the normal course of its wholesale business, the Firm
provides loans to a variety of customers, ranging from large
corporate and institutional clients to high-net-worth
individuals. The Firm actively manages its wholesale credit
exposure. One way of managing credit risk is through
secondary market sales of loans and lending-related
commitments. For further discussion on loans, including
information on credit quality indicators and sales of loans,
see Note 14.
JPMorgan Chase & Co./2015 Annual Report
130
The credit card allowance for loan losses was relatively
unchanged from December 31, 2014, reflecting stable
credit quality trends. For additional information about
delinquencies in the credit card loan portfolio, see
Consumer Credit Portfolio on pages 115-121 and Note 14.
The wholesale allowance for credit losses increased from
December 31, 2014, reflecting the impact of downgrades in
the Oil & Gas portfolio. Excluding Oil and Gas, the wholesale
portfolio continued to experience generally stable credit
quality trends and low charge-off rates.
The consumer, excluding credit card, allowance for loan
losses decreased from December 31, 2014, due to a
reduction in the residential real estate portfolio allowance,
reflecting continued improvement in home prices and
delinquencies and increased granularity in the impairment
estimates. For additional information about delinquencies
and nonaccrual loans in the consumer, excluding credit
card, loan portfolio, see Consumer Credit Portfolio on pages
115-121 and Note 14.
At least quarterly, the allowance for credit losses is
reviewed by the Chief Risk Officer, the Chief Financial
Officer and the Controller of the Firm, and discussed with
the DRPC and Audit Committee of the Firm's Board of
Directors. As of December 31, 2015, JPMorgan Chase
deemed the allowance for credit losses to be appropriate
and sufficient to absorb probable credit losses inherent in
the portfolio.
For a further discussion of the components of the allowance
for credit losses and related management judgments, see
Critical Accounting Estimates Used by the Firm on pages
165-169 and Note 15.
JPMorgan Chase's allowance for loan losses covers both the
consumer (primarily scored) portfolio and wholesale (risk-
rated) portfolio. The allowance represents management's
estimate of probable credit losses inherent in the Firm's
loan portfolio. Management also determines an allowance
for wholesale and certain consumer lending-related
commitments.
31
ALLOWANCE FOR CREDIT LOSSES
129
JPMorgan Chase & Co./2015 Annual Report
The effectiveness of the Firm's credit default swap ("CDS")
protection as a hedge of the Firm's exposures may vary
depending on a number of factors, including the named
reference entity (i.e., the Firm may experience losses on
specific exposures that are different than the named
reference entities in the purchased CDS); the contractual
terms of the CDS (which may have a defined credit event
that does not align with an actual loss realized by the Firm);
and the maturity of the Firm's CDS protection (which in
some cases may be shorter than the Firm's exposures).
However, the Firm generally seeks to purchase credit
protection with a maturity date that is the same or similar
to the maturity date of the exposure for which the
protection was purchased, and remaining differences in
maturity are actively monitored and managed by the Firm.
The credit derivatives used in credit portfolio management
activities do not qualify for hedge accounting under U.S.
GAAP; these derivatives are reported at fair value, with
gains and losses recognized in principal transactions
revenue. In contrast, the loans and lending-related
commitments being risk-managed are accounted for on an
accrual basis. This asymmetry in accounting treatment,
between loans and lending-related commitments and the
credit derivatives used in credit portfolio management
activities, causes earnings volatility that is not
representative, in the Firm's view, of the true changes in
value of the Firm's overall credit exposure.
(a) Amounts are presented net, considering the Firm's net protection
purchased or sold with respect to each underlying reference entity or
index.
$ 20,681 $ 26,703
Credit derivatives used in credit portfolio
management activities
Derivative receivables
$
Management's discussion and analysis
18,594
32
13,807
Ratings profile of derivative receivables
The following table summarizes the ratings profile by derivative counterparty of the Firm's derivative receivables, including credit
derivatives, net of other liquid securities collateral, at the dates indicated. The ratings scale is based on the Firm's internal ratings,
which generally correspond to the ratings as defined by S&P and Moody's.
JPMorgan Chase & Co./2015 Annual Report
128
10 years
Peak
DRE
AVG
5 years
Rating equivalent
1 year 2 years
20
40
60
80
100
120
140
(in billions)
December 31, 2015
0
The accompanying graph shows exposure profiles to the
Firm's current derivatives portfolio over the next 10 years
as calculated by the Peak, DRE and AVG metrics. The three
measures generally show that exposure will decline after
the first year, if no new trades are added to the portfolio.
December 31,
AAA/Aaa to AA-/Aa3
23
13,508
25
10,595
32%
18,713
24% $
10,371
$
(in millions, except ratios)
% of exposure net
of all collateral
% of exposure net
of all collateral
Exposure net of
all collateral
2014(a)
2015
Total
CCC+/Caal and below
BB+/Bal to B-/B3
BBB+/Baal to BBB-/Baa3
A+/A1 to A-/A3
Exposure net of
all collateral
Loans
13,751
•
Liquid
securities
Selected metrics
Noninvestment-grade
Wholesale credit exposure - industries(a)
Below are summaries of the Firm's exposures as of December 31, 2015 and 2014. For additional information on industry
concentrations, see Note 5.
Effective in the fourth quarter 2015, the Firm realigned its wholesale industry divisions in order to better monitor and manage
industry concentrations. Included in this realignment is the combination of certain previous stand-alone industries (e.g.
Consumer & Retail) as well as the creation of a new industry division, Financial Market Infrastructure, consisting of clearing
houses, exchanges and related depositories. In the tables below, the prior period information has been revised to conform with
the current period presentation.
Management's discussion and analysis
As of or for the year ended
123
of the special mention, substandard and doubtful
categories. The total criticized component of the portfolio,
excluding loans held-for-sale and loans at fair value, was
$14.6 billion at December 31, 2015, compared with $10.1
billion at December 31, 2014, driven by downgrades within
the Oil & Gas portfolio.
The Firm focuses on the management and diversification of
its industry exposures, paying particular attention to
industries with actual or potential credit concerns.
Exposures deemed criticized align with the U.S. banking
regulators' definition of criticized exposures, which consist
Wholesale credit exposure - industry exposures
(f) Prior period amounts have been revised to conform with current period presentation.
(e) The maturity profile of retained loans, lending-related commitments and derivative receivables is based on remaining contractual maturity. Derivative contracts that are in a
receivable position at December 31, 2015, may become a payable prior to maturity based on their cash flow profile or changes in market conditions.
(d) Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection, including Credit derivatives used in credit portfolio management
activities, are executed with investment grade counterparties.
(c) The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference entity on which
protection has been purchased.
JPMorgan Chase & Co./2015 Annual Report
(a) Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value.
(b) These derivatives do not quality for hedge accounting under U.S. GAAP.
December 31, 2015
Real Estate
231 $
1,463 $
88,076 $ 27,087 $
$ 116,857 $
held against
derivative
receivables
hedges(e)
Credit
derivative
(in millions)
Net charge-
offs/
(recoveries)
Criticized
nonperforming
Criticized
performing
Noncriticized
Investment-
grade
Credit
exposure(d)
and other
cash
collateral
30 days or
more past
due and
accruing
loans
208 $
88%
$
Subtotal
20,032
Total derivative receivables, net of all collateral
Lending-related commitments
(19,604)
(19,604)
Less: Liquid securities and other cash collateral
held against derivatives
78,975
94,635
227,078
74%
82,836
Total %
of IG
Total
Ratings profile
Noninvestment-
grade
BB+/Bal &
below
$
$ 241,666
77,814 $ 324,502
78,975
$ 324,502
(26,703)
16,130
262,572
412,979
Loans held-for-sale and loans at fair value(a)
Receivables from customers and other
(3,132)
$
(2,050) $ (18,653) $ (6,000) $ (26,703) $ (23,571)
$
Credit derivatives used in credit portfolio
management activities by reference entity
ratings profile(b)(c)(d)
$ 786,138
$ 786,138
23,209
9,674
110,697
other cash collateral held against derivatives
6,412
28,972
86
77
77
59,371
366,881
750,754
(f)
8,556
82,593
173,985
50,815 (f)
284,288
576,769
59,371
366,881
750,754
6,412
28,972
Total exposure - net of liquid securities and
(14) $
(54) $
(47)
277
4,263
13,158
24,379
42,077
Oil & Gas
(5,509)
22
(974)
17
63
610
7,654
35,071
43,398
Banks & Finance Cos
(5)
(245)
13
(37)
55
7
745
28,307
29,114
State & Municipal Govt(b)
(289)
(530)
(190)
3
47
168
5,655
24,983
30,853
Utilities
-
(24)
(7)
129
1,208
26,925
29,205
57,382
Telecommunications
Technology, Media &
(94)
44
(288)
18
207
1,947
29,659
53,647
85,460
Consumer & Retail
13
5
(1)
(806)
46
394
7,755
37,858
46,053
Healthcare
(39)
(386)
8
59
40
1,164
16,663
36,519
54,386
Industrials
(21)
$ 112,411 $ 134,277 $
AAA/Aaa to
BBB-/Baa3
Total
Due after 5
years
Derivative receivables
624
1,016
330,914
361,015
21
25
59,677
2,611
4
3
3,801
1,104
$357,050 $324,502 $ 988 $ 599
2014
2015
2,861
Nonperforming (c)
78,975
275
Liquid securities and
management activities (b) $ (20,681) $ (26,703) $
Credit derivatives used
in credit portfolio
Total wholesale credit
exposure
Lending-related
commitments
Total wholesale credit-
related assets
$ 1,413 $ 1,002
204
$800,463 $805,742
899
1,220
438,861
434,064
28,972
13,372
Receivables from
customers and other (a)
366,399 366,881
2014
2015
Credit exposure
Texas
California
14.0%
Top 5 States Credit Card - Retained
(at December 31, 2014)
Illinois 5.8%
Florida 5.9%
New York 8.6%
All Other
57.1%
8.7%
Texas 9.0%
(at December 31, 2015)
Top 5 States Credit Card - Retained
56.4%
All Other
Loans outstanding in the top five states of California, Texas,
New York, Florida and Illinois consisted of $57.5 billion in
receivables, or 44% of the retained loan portfolio, at
December 31, 2015, compared with $54.9 billion, or 43%,
at December 31, 2014. The greatest geographic
concentration of credit card retained loans is in California,
which represented 14% of total retained loans at both
December 31, 2015 and 2014, respectively. For further
information on the geographic composition of the Firm's
credit card loans, see Note 14.
Total credit card loans increased from December 31, 2014
due to higher new account originations and increased credit
card sales volume partially offset by sales of non-core loans
and the transfer of commercial card loans to the CIB. The
30+ day delinquency rate decreased to 1.43% at
December 31, 2015, from 1.44% at December 31, 2014.
For the years ended December 31, 2015 and 2014, the net
charge-off rates were 2.51% and 2.75%, respectively. The
Credit Card 30+ day delinquency rate and net charge-off
rate remain near historic lows. Charge-offs have improved
compared to a year ago due to continued discipline in credit
underwriting as well as improvement in the economy driven
by lower unemployment. The credit card portfolio continues
to reflect a well-seasoned, largely rewards-based portfolio
that has good U.S. geographic diversification.
Credit Card
California
14.3%
New York
8.5%
Illinois
Loans held-for-sale
Loans at fair value
Loans - reported
Loans retained
(in millions)
December 31,
Wholesale credit portfolio
The wholesale credit portfolio, excluding Oil & Gas,
continued to be generally stable throughout 2015,
characterized by low levels of criticized exposure,
nonaccrual loans and charge-offs. Growth in loans retained
was driven by increased client activity, notably in
commercial real estate. Discipline in underwriting across all
areas of lending continues to remain a key point of focus.
The wholesale portfolio is actively managed, in part by
conducting ongoing, in-depth reviews of client credit quality
and transaction structure, inclusive of collateral where
applicable; and of industry, product and client
concentrations.
The Firm's wholesale businesses are exposed to credit risk
through underwriting, lending, market-making, and hedging
activities with and for clients and counterparties, as well as
through various operating services such as cash
management and clearing activities. A portion of the loans
originated or acquired by the Firm's wholesale businesses is
generally retained on the balance sheet. The Firm
distributes a significant percentage of the loans it originates
into the market as part of its syndicated loan business and
to manage portfolio concentrations and credit risk.
WHOLESALE CREDIT PORTFOLIO
Management's discussion and analysis
121
JPMorgan Chase & Co./2015 Annual Report
For additional information about loan modification
programs to borrowers, see Note 14.
Consistent with the Firm's policy, all credit card loans
typically remain on accrual status until charged off.
However, the Firm establishes an allowance, which is offset
against loans and charged to interest income, for the
estimated uncollectible portion of accrued interest and fee
income.
At December 31, 2015 and 2014, the Firm had $1.5 billion
and $2.0 billion, respectively, of credit card loans
outstanding that have been modified in TDRs. These
balances included both credit card loans with modified
payment terms and credit card loans that reverted back to
their pre-modification payment terms because the
cardholder did not comply with the modified payment
terms. The decrease in modified credit card loans
outstanding from December 31, 2014, was attributable to a
reduction in new modifications as well as ongoing payments
and charge-offs on previously modified credit card loans.
Modifications of credit card loans
Florida
5.8%
5.9%
other cash collateral
55
held against derivatives
(19,604)
other cash collateral held against derivatives
Total exposure - net of liquid securities and
13,372
3,965
3,965
13,372
Loans held-for-sale and loans at fair value(a)
Receivables from customers and other
73
74
$ 783,883
81
8,324
98,477
196,115
34,773
267,922
570,431
43,097
366,399
766,546
18,862
9,843
119,505
12,836
251,042
419,780
227,261
Subtotal
43,097
366,399
766,546
105,514
$ 783,883
$
5 years
1 year
through
Due in 1
year or less
Investment-
grade
Due after
Maturity profile(e)
Derivative receivables
Credit derivatives used in credit portfolio
management activities by reference entity
ratings profile(b)(c)(d)
Loans retained
December 31, 2014
86%
$ (20,681)
(2,927)
$
(14,427) $ (5,446) $ (20,681) $ (17,754)
(808) $
(in millions, except ratios)
11,399
Total derivative receivables, net of all collateral
Lending-related commitments
(16,580)
Maturity profile (e)
Loans retained
(in millions, except ratios)
December 31, 2015
Wholesale credit exposure - maturity and ratings profile
The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of December 31, 2015 and
2014. The ratings scale is based on the Firm's internal risk ratings, which generally correspond to the ratings as defined by
S&P and Moody's. For additional information on wholesale loan portfolio risk ratings, see Note 14.
JPMorgan Chase & Co./2015 Annual Report
Due in 1
year or less
122
to prime and retail brokerage customers; these are classified in
accrued interest and accounts receivable on the Consolidated balance
sheets.
(a) Receivables from customers and other include $13.3 billion and $28.8
billion of margin loans at December 31, 2015 and 2014, respectively,
NA
NA
(9) $
103
193
(b) Represents the net notional amount of protection purchased and sold
through credit derivatives used to manage both performing and
nonperforming wholesale credit exposures; these derivatives do not
qualify for hedge accounting under U.S. GAAP. For additional
information, see Credit derivatives on page 129, and Note 6.
(c) Excludes assets acquired in loan satisfactions.
Due after
1 year
through
5 years
Investment-
grade
Ratings profile
Noninvestment-
grade
(16,580)
Less: Liquid securities and other cash collateral
held against derivatives
Derivative receivables
59,677
75%
$ 357,050
89,314
$
$ 267,736
90,800 $357,050
59,677
$ 110,348 $ 155,902 $
Total %
of IG
Total
BB+/Bal &
below
AAA/Aaa to
BBB-/Baa3
Total
Due after 5
years
(16,580)
Metals & Mining: Exposure to the Metals & Mining
industry was approximately 1.8% and 1.9% of the
Firm's total wholesale exposure as of December 31,
2015 and 2014, respectively. Exposure to the Metals &
Mining industry decreased by $920 million in 2015 to
$14.0 billion, of which $4.6 billion was drawn. The
portfolio largely consists of exposure in North America,
and 59% is concentrated in the Steel and Diversified
Mining sub-sectors. Approximately 46% of the exposure
in the Metals & Mining portfolio was investment-grade as
of December 31, 2015, a decrease from 55% as of
December 31, 2014, due to downgrades.
(8)
(81)
38
1
57
3,376
24,054
27,488
Asset Managers
Transportation
(130)
24
69
102
819
30,147
31,068
State & Municipal Govt(b)
(148)
(193)
20,619
6,703
Chemicals & Plastics
(1,161)
(11,342)
58
176
19,647
19,881
824
Central Govt
(42)
(12)
(4,545)
(9)
(12)
80 55
165
(279)
12,612
(155)
198
508
8,611
45,962
55,098
Banks & Finance Cos
(244)
(94)
17
16
(24)
(338)
(1)
58
32
42
488
193
(3)
46
(1,232)
255
3,653
23,533
27,441
Utilities
(161)
(144)
(4)
2
1
56
13,831
29,260
43,148
Oil & Gas
(9,369)
15
9,256
3,327
29
(19,604)
(825)
(11,290)
12 $ (26,703) $
(12)
1,231
2,301 $
977 $
9,142 $
Loans held-for-sale and loans at fair
value
187
15,214
165,779 $
(212)
(102)
4
20
55
10
435
2,245
6,412
Total(d)
The Firm continues to actively monitor and manage its
exposure to the Oil & Gas industry in light of market
conditions, and is also actively monitoring potential
contagion effects on other related or dependent
industries.
In addition to $42.1 billion in exposure classified as Oil
& Gas, the Firm had $4.3 billion in exposure to Natural
Gas Pipelines and related Distribution businesses, of
which $893 million was drawn at year end and 63% was
investment-grade, and $4.1 billion in exposure to
commercial real estate in geographies sensitive to the
Oil & Gas industry.
Oil & Gas: Exposure to the Oil & Gas industry was
approximately 5.3% and 5.4% of the Firm's total
wholesale exposure as of December 31, 2015 and
2014, respectively. Exposure to this industry decreased
by $1.1 billion in 2015 to $42.1 billion; of the $42.1
billion, $13.3 billion was drawn at year-end. As of
December 31, 2015, approximately $24 billion of the
exposure was investment-grade, of which $4 billion was
drawn, and approximately $18 billion of the exposure
was high yield, of which $9 billion was drawn. As of
December 31, 2015, $23.5 billion of the portfolio was
concentrated in the Exploration & Production and
Oilfield Services sub-sectors, 36% of which exposure
was drawn. Exposure to other sub-sectors, including
Integrated oil and gas firms, Midstream/Oil Pipeline
companies, and Refineries, is predominantly investment-
grade. As of December 31, 2015, secured lending, which
largely consists of reserve-based lending to the Oil & Gas
industry, was $12.3 billion, 44% of which exposure was
drawn.
Real Estate: Exposure to this industry increased by
$10.9 billion, or 10%, in 2015 to $116.9 billion. The
increase was largely driven by growth in multifamily
exposure in Commercial Banking. The credit quality of
this industry remained stable as the investment-grade
portion of the exposures was 75% for 2015 and 2014.
The ratio of nonaccrual retained loans to total retained
loans decreased to 0.25% at December 31, 2015 from
0.32% at December 31, 2014. For further information
on commercial real estate loans, see Note 14.
Presented below is a discussion of certain industries to
which the Firm has significant exposure and/or present
actual or potential credit concerns. For additional
information, refer to the tables on the previous pages.
Management's discussion and analysis
125
Receivables from customers and
interests in purchased receivables
JPMorgan Chase & Co./2015 Annual Report
(e) Credit exposure is net of risk participations and excludes the benefit of "Credit derivatives used in credit portfolio management activities" held against
derivative receivables or loans and "Liquid securities and other cash collateral held against derivative receivables".
(d) Excludes cash placed with banks of $351.0 billion and $501.5 billion, at December 31, 2015 and 2014, respectively, placed with various central banks,
predominantly Federal Reserve Banks.
(c) All other includes: individuals; SPES; holding companies; and private education and civic organizations, representing approximately 54%, 37%, 5% and
4%, respectively, at December 31, 2015, and 55%, 33%, 6% and 6%, respectively, at December 31, 2014.
(b) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2015 and 2014, noted above, the
Firm held: $7.6 billion and $10.6 billion, respectively, of trading securities; $33.6 billion and $30.1 billion, respectively, of available-for-sale ("AFS")
securities; and $12.8 billion and $10.2 billion, respectively, of held-to-maturity ("HTM") securities, issued by U.S. state and municipal governments. For
further information, see Note 3 and Note 12.
(a) The industry rankings presented in the table as of December 31, 2014, are based on the industry rankings of the corresponding exposures at
December 31, 2015, not actual rankings of such exposures at December 31, 2014.
28,972
805,742
$
(f) Represents the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives
do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain credit indices.
2,491
118,639
594,460 $
770,358 $
$
161
4,522
8,071
12,754
Automotive
(19)
(377)
1
18
6,161
8,304
14,969
Metals & Mining
(14)
(2)
1
504
(1)
(140)
Insurance
Subtotal
134,475
All other(c)
4,801
Securities Firms
(4)
499
11,487
11,986
Financial Markets Infrastructure
(2,372)
(52)
162
80
2,558
10,550
13,350
7,584
48,402
56,516
Healthcare
9,812
11,889
Insurance
(1)
(487)
(2)
4
1,958
1
4,580
9,182
13,864
Automotive
(4)
(449)
1
101
85
26
23
149,117
All other(c)
(256)
(102)
3
2,907
1,505
93
4,412
(167)
669
7,304
7,973
Financial Markets Infrastructure
(1,410)
(157)
Securities Firms
1,008
6,434
6,522
1
167
5,801
13,258
19,227
Transportation
(4,453)
15
(6)
18
-
31
3,570
20,214
23,815
Asset Managers
-
3
(51)
(243)
14,049
Metals & Mining
(17)
9
31
274
4,017
10,910
15,232
Chemicals & Plastics
(2,393)
(9,359)
7
97
17,871
17,968
Central Govt
130,488
(146)
18,095
164
92
187
(27)
(36) $
(9) $
309 $
253 $
9
receivables
and other
cash
collateral
Liquid
securities
Credit
derivative
hedges(f)
Selected metrics
Net charge-
offs/
(recoveries)
30 days or
more past
due and
accruing
loans
Criticized
nonperforming
held against
derivative
2,315
(81)
Technology, Media &
13
1,117
17,483
29,246
47,859
Industrials
(13)
(26)
(1,107)
25
59
1,446
15,358
29,792
46,655
Telecommunications
(5)
28,289
1,356 $
25,370 $
Receivables from customers and
3,965
Loans held-for-sale and loans at fair
value
(16,580)
10 $ (20,681) $
1,611 $
1,385 $
interests in purchased receivables
13,201 $
783,126 $ 585,111 $
$
Subtotal
(1,291)
(6,655)
10
1,015
183,429 $
13,372
Total
$
Criticized
performing
52,872
78,996 $
83,663
Consumer & Retail
Noncriticized
Investment-
grade
$ 105,975 $
Credit
exposure(e)
Real Estate
(in millions)
December 31, 2014
As of or for the year ended
Noninvestment-grade
JPMorgan Chase & Co./2015 Annual Report
124
800,463
370
13
JPMorgan Chase & Co./2015 Annual Report
Summary of changes in the allowance for credit losses
6
16
8
4
25
6
8
Equities
18
9
11
15
10
23
21
22
Commodities and other
10
6
14
26
Foreign exchange
$ 34
$ 37
2014
Avg.
Min
Max
Avg.
Min
Max
At December 31,
2015
2014
CIB trading VaR by risk type
Fixed income
$
42
$ 31
$
60
$
34
$ 23
$
45
8
5
14
10
18
10
16
Diversification benefit to CIB VaR
(a)
(9)
(b)
(b)
NM
NM
(8) (a)
(b)
(b)
NM
NM
(10) (a)
(9) (a)
CIB VaR
49
34
71
8
2015
13
10
6
Diversification benefit to CIB trading VaR
(35) (a)
NM (b)
NM (b)
(30) (a)
NM (b)
NM (b)
(28) (a)
(32) (a)
CIB trading VaR
44
27
68
35
24
49
46
38
Credit portfolio VaR
14
20
40
As of or for the year ended December 31,
(in millions)
The table below shows the results of the Firm's Risk Management VaR measure using a 95% confidence level.
DVA and FVA on derivatives and
structured notes
•
Originates and services mortgage
loans
.
•
Complex, non-linear interest rate
and basis risk
Non-linear risk arises primarily
from prepayment options
embedded in mortgages and
changes in the probability of
newly originated mortgage
commitments actually closing
Basis risk results from differences
in the relative movements of the
rate indices underlying mortgage
exposure and other interest rates
Deposits
Manages the Firm's liquidity,
funding, structural interest rate and
foreign exchange risks arising from
activities undertaken by the Firm's
four major reportable business
segments
•
•
Retained loan portfolio
Mortgage pipeline loans, classified
as derivatives
•
Deposits
Principal investing activities
•
MSRS
Mortgage Banking
•
Retained loan portfolio
Principal investing activities
•
Corporate
•
Makes markets and services clients
across fixed income, foreign
exchange, equities and commodities
• Market risk arising from changes
in market prices (e.g. rates and
credit spreads) resulting in a
potential decline in net income
•
•
Market risk (a) related to:
.
•
•
•
Trading assets/liabilities - debt
and equity instruments, and
derivatives, including hedges of
the retained loan portfolio
Certain securities purchased
under resale agreements and
securities borrowed
Certain securities loaned or sold
under repurchase agreements
Structured notes
Derivative CVA and associated
hedges
Positions included in other risk
measures (Not included in Risk
Management VaR)
•
•
•
Warehouse loans, classified as
trading assets - debt instruments
Hedges of pipeline loans,
distributed collective vehicles
managed by AM (i.e., co-
investments)
Retained loan portfolio
Deposits
134
JPMorgan Chase & Co./2015 Annual Report
Value-at-risk
JPMorgan Chase utilizes VaR, a statistical risk measure, to
estimate the potential loss from adverse market moves in a
normal market environment. The Firm has a single VaR
framework used as a basis for calculating Risk Management
VaR and Regulatory VaR.
The framework is employed across the Firm using historical
simulation based on data for the previous 12 months. The
framework's approach assumes that historical changes in
market values are representative of the distribution of
potential outcomes in the immediate future. The Firm
believes the use of Risk Management VaR provides a stable
measure of VaR that closely aligns to the day-to-day risk
management decisions made by the lines of business, and
provides the necessary and appropriate information needed
to respond to risk events on a daily basis.
Risk Management VaR is calculated assuming a one-day
holding period and an expected tail-loss methodology which
approximates a 95% confidence level. VaR provides a
consistent framework to measure risk profiles and levels of
diversification across product types and is used for
aggregating risks across businesses and monitoring limits.
These VaR results are reported to senior management, the
Board of Directors and regulators.
Under the Firm's Risk Management VaR methodology,
assuming current changes in market values are consistent
with the historical changes used in the simulation, the Firm
would expect to incur VaR “band breaks," defined as losses
greater than that predicted by VaR estimates, not more
than five times every 100 trading days. The number of VaR
band breaks observed can differ from the statistically
expected number of band breaks if the current level of
market volatility is materially different from the level of
market volatility during the 12 months of historical data
used in the VaR calculation.
Underlying the overall VaR model framework are individual
VaR models that simulate historical market returns for
individual products and/or risk factors. To capture material
market risks as part of the Firm's risk management
framework, comprehensive VaR model calculations are
performed daily for businesses whose activities give rise to
market risk. These VaR models are granular and incorporate
numerous risk factors and inputs to simulate daily changes
in market values over the historical period; inputs are
selected based on the risk profile of each portfolio as
sensitivities and historical time series used to generate daily
market values may be different across product types or risk
management systems. The VaR model results across all
portfolios are aggregated at the Firm level.
For certain products, specific risk parameters are not
captured in Var due to the lack of inherent liquidity and
availability of appropriate historical data for these products.
The Firm uses proxies to estimate the VaR for these and
other products when daily time series are not available. It is
likely that using an actual price-based time series for these
products, if available, would affect the VaR results
presented.
JPMorgan Chase & Co./2015 Annual Report
In addition, data sources used in VaR models may not be the
same as those used for financial statement valuations. In
cases where market prices are not observable, or where
proxies are used in VaR historical time series, the sources
may differ. The daily market data used in Var models may
be different than the independent third-party data collected
for VCG price testing in VCG's monthly valuation process
(see Valuation process in Note 3 for further information on
the Firm's valuation process). VaR model calculations
require daily data and a consistent source for valuation and
therefore it is not practical to use the data collected in the
VCG monthly valuation process.
Since VaR is based on historical data, it is an imperfect
measure of market risk exposure and potential losses, and
it is not used to estimate the impact of stressed market
conditions or to manage any impact from potential stress
events. In addition, based on their reliance on available
historical data, limited time horizons, and other factors, VaR
measures are inherently limited in their ability to measure
certain risks and to predict losses, particularly those
associated with market illiquidity and sudden or severe
shifts in market conditions. The Firm therefore considers
other measures in addition to VaR, such as stress testing, to
capture and manage its market risk positions.
The Firm's VaR model calculations are periodically
evaluated and enhanced in response to changes in the
composition of the Firm's portfolios, changes in market
conditions, improvements in the Firm's modeling techniques
and other factors. Such changes may also affect historical
comparisons of VaR results. Model changes undergo a
review and approval process by the Model Review Group
prior to implementation into the operating environment.
For further information, see Model risk on page 142.
The Firm calculates separately a daily aggregated VaR in
accordance with regulatory rules ("Regulatory VaR"), which
is used to derive the Firm's regulatory VaR-based capital
requirements under Basel III. This Regulatory VaR model
framework currently assumes a ten business-day holding
period and an expected tail loss methodology which
approximates a 99% confidence level. Regulatory VaR is
applied to "covered" positions as defined by Basel III, which
may be different than the positions included in the Firm's
Risk Management VaR. For example, credit derivative
hedges of accrual loans are included in the Firm's Risk
Management VaR, while Regulatory VaR excludes these
credit derivative hedges. In addition, in contrast to the
Firm's Risk Management VaR, Regulatory VaR currently
excludes the diversification benefit for certain Var models.
135
Management's discussion and analysis
For additional information on Regulatory VaR and the other
components of market risk regulatory capital (e.g. VaR-
based measure, stressed VaR-based measure and the
respective backtesting) for the Firm, see JPMorgan Chase's
Basel III Pillar 3 Regulatory Capital Disclosures reports,
which are available on the Firm's website (http://
investor.shareholder.com/jpmorganchase/basel.cfm).
party investors, typically in privately
Total VaR
•
products, such as mutual funds,
warehouse loans and MSRS,
classified as derivatives.
Interest-only securities, classified
as trading assets, and related
hedges, classified as derivatives
Treasury and CIO
•
Primarily derivative positions
measured at fair value through
earnings, classified as derivatives
.
Principal investing activities
•
Investment securities portfolio and
related hedges
•
Deposits
•
Long-term debt and related hedges
Initial seed capital investments and
related hedges, classified as
derivatives
•
Capital invested alongside third-
AM
•
Market risk arising from the Firm's
initial capital investments in
managed by AM
CCB
29
46
137
Management's discussion and analysis
Internal Capital Adequacy Assessment Process ("ICAAP")
processes. In addition, the results are incorporated into the
quarterly assessment of the Firm's Risk Appetite Framework
and are also presented to the DRPC.
Nonstatistical risk measures
Nonstatistical risk measures include sensitivities to
variables used to value positions, such as credit spread
sensitivities, interest rate basis point values and market
values. These measures provide granular information on the
Firm's market risk exposure. They are aggregated by line of
business and by risk type, and are also used for monitoring
internal market risk limits.
Loss advisories and profit and loss drawdowns
Loss advisories and profit and loss drawdowns are tools
used to highlight trading losses above certain levels of risk
tolerance. Profit and loss drawdowns are defined as the
decline in net profit and loss since the year-to-date peak
revenue level.
Earnings-at-risk
The VaR and stress-test measures described above illustrate
the economic sensitivity of the Firm's Consolidated balance
sheets to changes in market variables. The effect of interest
rate exposure on the Firm's reported net income is also
important as interest rate risk represents one of the Firm's
significant market risks. Interest rate risk arises not only
from trading activities but also from the Firm's traditional
banking activities, which include extension of loans and
credit facilities, taking deposits and issuing debt. The Firm
evaluates its structural interest rate risk exposure through
earnings-at-risk, which measures the extent to which
changes in interest rates will affect the Firm's net interest
income and interest rate-sensitive fees. Earnings-at-risk
excludes the impact of CIB's markets-based activities and
MSRs, as these sensitivities are captured under VaR.
JPMorgan Chase & Co./2015 Annual Report
The CIO, Treasury and Corporate ("CTC") Risk Committee
establishes the Firm's structural interest rate risk policies
and market risk limits, which are subject to approval by the
DRPC. The CIO, working in partnership with the lines of
business, calculates the Firm's structural interest rate risk
profile and reviews it with senior management including the
CTC Risk Committee and the Firm's ALCO. In addition,
oversight of structural interest rate risk is managed through
a dedicated risk function reporting to the CTC CRO. This risk
function is responsible for providing independent oversight
and governance around assumptions and establishing and
monitoring limits for structural interest rate risk. The Firm
manages structural interest rate risk generally through its
investment securities portfolio and interest rate derivatives.
•
•
•
Differences in the timing among the maturity or
repricing of assets, liabilities and off-balance sheet
instruments
Differences in the amounts of assets, liabilities and off-
balance sheet instruments that are repricing at the same
time
Differences in the amounts by which short-term and
long-term market interest rates change (for example,
changes in the slope of the yield curve)
The impact of changes in the maturity of various assets,
liabilities or off-balance sheet instruments as interest
rates change
The Firm manages interest rate exposure related to its
assets and liabilities on a consolidated, firmwide basis.
Business units transfer their interest rate risk to Treasury
and CIO through a transfer-pricing system, which takes into
account the elements of interest rate exposure that can be
risk-managed in financial markets. These elements include
asset and liability balances and contractual rates of interest,
contractual principal payment schedules, expected
prepayment experience, interest rate reset dates and
maturities, rate indices used for repricing, and any interest
rate ceilings or floors for adjustable rate products. All
transfer-pricing assumptions are dynamically reviewed.
The Firm generates a net interest income baseline, and then
conducts simulations of changes for interest rate-sensitive
assets and liabilities denominated in U.S. dollar and other
currencies ("non-U.S. dollar" currencies). Earnings-at-risk
scenarios estimate the potential change in this net interest
income baseline, excluding CIB's markets-based activities
and MSRS, over the following 12 months, utilizing multiple
assumptions. These scenarios may consider the impact on
exposures as a result of changes in interest rates from
baseline rates, as well as pricing sensitivities of deposits,
optionality and changes in product mix. The scenarios
include forecasted balance sheet changes, as well as
modeled prepayment and reinvestment behavior, but do not
include assumptions about actions which could be taken by
the Firm in response to any such instantaneous rate
changes. For example, mortgage prepayment assumptions
are based on current interest rates compared with
underlying contractual rates, the time since origination, and
other factors which are updated periodically based on
historical experience. The Firm's earnings-at-risk scenarios
are periodically evaluated and enhanced in response to
changes in the composition of the Firm's balance sheet,
changes in market conditions, improvements in the Firm's
simulation and other factors.
138
Structural interest rate risk can occur due to a variety of
factors, including:
The Firm's stress testing framework is utilized in calculating
results under scenarios mandated by the Federal Reserve's
Comprehensive Capital Analysis and Review ("CCAR") and
Stress scenarios are defined and reviewed by Market Risk,
and significant changes are reviewed by the relevant LOB
Risk Committees and may be redefined on a periodic basis
to reflect current market conditions.
Stress-test results, trends and qualitative explanations
based on current market risk positions are reported to the
respective LOB's and the Firm's senior management to allow
them to better understand the sensitivity of positions to
certain defined events and to enable them to manage their
risks with more transparency. In addition, results are
reported to the Board of Directors.
150
100
50
'
(50)
Market Risk-Related Gains and Losses
Risk Management VaR
First Quarter
Second Quarter
(100)
2015
2015
Third Quarter
2015
Fourth Quarter
2015
Other risk measures
Economic-value stress testing
Along with VaR, stress testing is an important tool in
measuring and controlling risk. While VaR reflects the risk
of loss due to adverse changes in markets using recent
historical market behavior as an indicator of losses, stress
testing is intended to capture the Firm's exposure to
unlikely but plausible events in abnormal markets. The Firm
runs weekly stress tests on market-related risks across the
lines of business using multiple scenarios that assume
significant changes in risk factors such as credit spreads,
equity prices, interest rates, currency rates or commodity
prices.
The Firm uses a number of standard scenarios that capture
different risk factors across asset classes including
geographical factors, specific idiosyncratic factors and
extreme tail events. The stress framework calculates
multiple magnitudes of potential stress for both market
rallies and market sell-offs for each risk factor and
combines them in multiple ways to capture different market
scenarios. For example, certain scenarios assess the
potential loss arising from current exposures held by the
Firm due to a broad sell off in bond markets or an extreme
widening in corporate credit spreads. The flexibility of the
stress testing framework allows risk managers to construct
new, specific scenarios that can be used to form decisions
about future possible stress events.
Stress testing complements VaR by allowing risk managers
to shock current market prices to more extreme levels
relative to those historically realized, and to stress test the
relationships between market prices under extreme
scenarios.
JPMorgan Chase & Co./2015 Annual Report
Effective January 1, 2015, the Firm conducts earnings-at-
risk simulations for assets and liabilities denominated in
U.S. dollars separately from assets and liabilities
denominated in non-U.S. dollar currencies in order to
enhance the Firm's ability to monitor structural interest rate
risk from non-U.S. dollar exposures.
The Firm's U.S. dollar sensitivity is presented in the table
below. The result of the non-U.S. dollar sensitivity scenarios
were not material to the Firm's earnings-at-risk at
December 31, 2015.
JPMorgan Chase's 12-month pretax net interest income
sensitivity profiles
•
Developing guidelines and policies consistent with a
comprehensive country risk framework
Assigning sovereign ratings and assessing country risks
Measuring and monitoring country risk exposure and
stress across the Firm
Managing country limits and reporting trends and limit
breaches to senior management
Developing surveillance tools for early identification of
potential country risk concerns
Providing country risk scenario analysis
Country risk identification and measurement
The Firm is exposed to country risk through its lending,
investing, and market-making activities, whether cross-
border or locally funded. Country exposure includes activity
with both government and private-sector entities in a
country. Under the Firm's internal country risk management
approach, country exposure is reported based on the
country where the majority of the assets of the obligor,
counterparty, issuer or guarantor are located or where the
majority of its revenue is derived, which may be different
than the domicile (legal residence) or country of
incorporation of the obligor, counterparty, issuer or
guarantor. Country exposures are generally measured by
considering the Firm's risk to an immediate default of the
counterparty or obligor, with zero recovery. Assumptions
are sometimes required in determining the measurement
and allocation of country exposure, particularly in the case
of certain tranched credit derivatives. Different
measurement approaches or assumptions would affect the
amount of reported country exposure.
Under the Firm's internal country risk measurement
framework:
•
•
•
•
•
Lending exposures are measured at the total committed
amount (funded and unfunded), net of the allowance for
credit losses and cash and marketable securities
collateral received
Securities financing exposures are measured at their
receivable balance, net of collateral received
Debt and equity securities are measured at the fair value
of all positions, including both long and short positions
Counterparty exposure on derivative receivables is
measured at the derivative's fair value, net of the fair
value of the related collateral. Counterparty exposure on
derivatives can change significantly because of market
movements
Credit derivatives protection purchased and sold is
reported based on the underlying reference entity and is
measured at the notional amount of protection
purchased or sold, net of the fair value of the recognized
derivative receivable or payable. Credit derivatives
protection purchased and sold in the Firm's market-
making activities is measured on a net basis, as such
activities often result in selling and purchasing
protection related to the same underlying reference
entity; this reflects the manner in which the Firm
manages these exposures
140
•
200
The Country Risk Management group, part of the
independent risk management function, works in close
partnership with other risk functions to identify and
monitor country risk within the Firm. The Firmwide Risk
Executive for Country Risk reports to the Firm's CRO.
Country Risk Management is responsible for the following
functions:
Country risk is the risk that a sovereign event or action
alters the value or terms of contractual obligations of
obligors, counterparties and issuers or adversely affects
markets related to a particular country. The Firm has a
comprehensive country risk management framework for
assessing country risks, determining risk tolerance, and
measuring and monitoring direct country exposures in the
Firm. The Country Risk Management group is responsible
for developing guidelines and policies for managing country
risk in both emerging and developed countries. The Country
Risk Management group actively monitors the various
portfolios giving rise to country risk to ensure the Firm's
country risk exposures are diversified and that exposure
levels are appropriate given the Firm's strategy and risk
tolerance relative to a country.
(Excludes the impact of CIB's markets-based activities and
MSRs)
(in billions)
Non-U.S. dollar FX Risk
Non-U.S. dollar FX risk is the risk that changes in foreign
exchange rates affect the value of the Firm's assets or
liabilities or future results. The Firm has structural non-U.S.
dollar FX exposures arising from capital investments,
forecasted expense and revenue, the investment securities
portfolio and issuing debt in denominations other than the
U.S. dollar. Treasury and CIO, working in partnership with
the lines of business, primarily manage these risks on
behalf of the Firm. Treasury and CIO may hedge certain of
these risks using derivatives within risk limits governed by
the CTC Risk Committee.
Instantaneous change in rates
December 31, 2015
+200 bps
U.S. dollar
$
5.2 $
+100 bps -100 bps
3.1
NM (a)
-200 bps
(a)
NM
(a) Downward 100- and 200-basis-points parallel shocks result in a
federal funds target rate of zero and negative three- and six-month
U.S. Treasury rates. The earnings-at-risk results of such a low
probability scenario are not meaningful.
The Firm's benefit to rising rates on U.S. dollar assets and
liabilities is largely a result of reinvesting at higher yields
and assets repricing at a faster pace than deposits. The
Firm's net U.S. dollar sensitivity profile at December 31,
2015 was not materially different than December 31,
2014.
Separately, another U.S. dollar interest rate scenario used
by the Firm - involving a steeper yield curve with long-term
rates rising by 100 basis points and short-term rates
staying at current levels - results in a 12-month pretax
benefit to net interest income, excluding CIB's markets-
based activities and MSRS, of approximately $700 million.
The increase in net interest income under this scenario
reflects the Firm reinvesting at the higher long-term rates,
with funding costs remaining unchanged. The result of the
comparable non-U.S. dollar scenario was not material to the
Firm.
JPMorgan Chase & Co./2015 Annual Report
139
Management's discussion and analysis
COUNTRY RISK MANAGEMENT
Country risk organization
56
250
Basel III Pillar 3 Regulatory Capital Disclosures reports,
which are based on Regulatory VaR applied to covered
positions. The chart shows that for the year ended
December 31, 2015, the Firm observed three VaR band
breaks and posted Market risk-related gains on 117 of the
260 days in this period.
3
2
Diversification benefit to other VaR
(3)
(a)
(b)
(b)
NM
NM
4
(4)
NM (b)
(b)
NM
(4) (a)
(3)
(a)
Other VaR
8
5
(a)
2
3
4
45
Mortgage Banking VaR
4
2
8
7
2
28
Treasury and CIO VAR
4
3
7
4
3
6
45
3
4
Asset Management VaR
3
2
12
10
5
27
$ 30
$
70
$
45
$ 46
(a) Average portfolio VaR and period-end portfolio VaR were less than the sum of the VaR of the components described above, which is due to portfolio diversification.
The diversification effect reflects the fact that risks are not perfectly correlated.
(b) Designated as not meaningful ("NM"), because the minimum and maximum may occur on different days for distinct risk components, and hence it is not meaningful
to compute a portfolio-diversification effect.
As presented in the table above, average Total VaR and
average CIB VaR increased during 2015 when compared
with 2014. The increase in Total VaR was primarily due to
higher volatility in the CIB in the historical one-year look-
back period during 2015 versus 2014.
Average CIB trading VaR increased during 2015 primarily
due to higher VaR in the Fixed Income and Equities risk
factors reflecting a combination of higher market volatility
and increased exposure.
Average Mortgage Banking VaR decreased from the prior
year. Average Mortgage Banking VaR was elevated late in
the second quarter of 2014 due to a change in the MSR
hedge position made in advance of an anticipated update to
certain MSR model assumptions; when such updates were
implemented, the MSR VaR decreased to levels more
consistent with prior periods.
The Firm continues to enhance the VaR model calculations
and time series inputs related to certain asset-backed
products.
The Firm's average Total VaR diversification benefit was $10
million or 21% of the sum for 2015, compared with $7
million or 16% of the sum for 2014. In general, over the
course of the year, VaR exposure can vary significantly as
positions change, market volatility fluctuates and
diversification benefits change.
VaR back-testing
The Firm evaluates the effectiveness of its VaR methodology
by back-testing, which compares the daily Risk Management
VaR results with the daily gains and losses recognized on
market-risk related revenue.
The Firm's definition of market risk-related gains and losses
is consistent with the definition used by the banking
regulators under Basel III. Under this definition market risk-
related gains and losses are defined as: gains and losses on
the positions included in the Firm's Risk Management VaR,
excluding fees, commissions, certain valuation adjustments
(e.g., liquidity and DVA), net interest income, and gains and
losses arising from intraday trading.
136
JPMorgan Chase & Co./2015 Annual Report
The following chart compares the daily market risk-related
gains and losses with the Firm's Risk Management VaR for
the year ended December 31, 2015. As the chart presents
market risk-related gains and losses related to those
positions included in the Firm's Risk Management VaR, the
results in the table below differ from the results of back-
testing disclosed in the Market Risk section of the Firm's
Daily Market Risk-Related Gains and Losses
vs. Risk Management VaR (1-day, 95% Confidence level)
Twelve months ended December 31, 2015
43
($millions)
$
$ 34
8
6
(a)
(b)
(b)
(a)
(b)
(b)
(a)
(a)
Diversification benefit to CIB and other VaR
Total VaR
$
(10)
47
NM
NM
(7)
NM
NM
(9)
(5)
$ 67
CIB
(a) Market risk measurement for derivatives generally incorporates the impact of DVA and FVA; market risk measurement for structured notes generally
excludes the impact of FVA and DVA.
Predominant business activities and
related market risks
8 $
$
697
$
705
(90)
(85)
Other
2
85
2
$
14
$
$
772
$
786
$
13
Ending balance at December 31,
164
163
1
9,734
3,325
3,325
Total allowance for loan losses
$
5,806 $
3,434 $
4,315 $ 13,555
$
7,050 $
3,439 $
3,696
$ 14,185
Allowance for lending-related commitments
Beginning balance at January 1,
$
13 $
Positions included in Risk
Management VaR
609 $
622 $
Provision for lending-related commitments
$
609
$
622
$
772
$
786
$
13
$
$
609 $
622
Total allowance for credit losses
Memo:
$ 5,820 $ 3,434
$
5,087
$ 14,341
$
7,063
$
3,439
$ 4,305 $ 14,807
Retained loans, end of period
14 $
1,126
$
562
Impairment methodology
Asset-specific
$
14
-
$
$
73
$
73
$
$
$
60
$
60
Formula-based
699
713
13
549
Total allowance for lending-related
commitments(c)
$
87
3,609
$
5,241
2,132
3,831
151
6,114
Gross recoveries
(704)
(366)
(85)
(1,155)
(814)
(402)
(139)
(1,355)
Net charge-offs
954
3,122
10
4,086
1,318
3,429
95
12
3,488
Gross charge-offs
Year ended December 31,
(in millions, except ratios)
2015
2014
Consumer,
excluding
credit card
Consumer,
Credit card Wholesale
Total
excluding
credit card
Credit card Wholesale
Total
Allowance for loan losses
Beginning balance at January 1,
$ 7,050
$
3,439 $
3,696
$ 14,185
$
8,456
$ 3,795 $ 4,013 $ 16,264
1,658
$ 344,355 $ 131,387
4,759
208
$
7,050
$
3,439
$
3,696 $ 14,185
Impairment methodology
Asset-specific (b)
$
364 $
Formula-based
PCI
2,700
460
2,974
$
274
4,041
$
2,742
1,098 $
9,715
2,742
539 $
3,186
500
2,939
4,315 $ 13,555
Write-offs of PCI loans (a)
3,434 $
$
208
533
533
Provision for loan losses
(82)
3,122
623
3,663
414
3,079
(269)
3,224
Other
(5)
6
1
31
(6)
(36)
(11)
Ending balance at December 31,
5,806 $
318,612
40,998
$
$ 357,050
337,407
-
-
-
3,122
3,079
2,179
Total consumer
3,040
3.493
2,179
307
5
1
3,041
3,498
308
Wholesale
Total
623
(269)
1
3,079
3,122
Credit card
Total provision for credit losses
(in millions)
2015
2014
2013
2015
2014
2013
2015
2014
2013
Consumer, excluding credit card
$
(82) $
414 $ (1,872) $
1 $
5 $
1
$
(81) $
419 $ (1,871)
(119)
163
(90)
36
Risk measurement
Tools used to measure risk
Because no single measure can reflect all aspects of market
risk, the Firm uses various metrics, both statistical and
nonstatistical, including:
124,274
VaR
Economic-value stress testing
Nonstatistical risk measures
Risk monitoring and control
Market risk is controlled primarily through a series of limits
set in the context of the market environment and business
strategy. In setting limits, the Firm takes into consideration
factors such as market volatility, product liquidity and
accommodation of client business and management
experience. The Firm maintains different levels of limits.
Corporate level limits include VaR and stress limits.
Similarly, line of business limits include VaR and stress
limits and may be supplemented by loss advisories,
nonstatistical measurements and profit and loss
drawdowns. Limits may also be set within the lines of
business, as well at the portfolio or legal entity level.
Limits are set by Market Risk and are regularly reviewed
and updated as appropriate, with any changes approved by
line of business management and Market Risk. Senior
management, including the Firm's CEO and CRO, are
responsible for reviewing and approving certain of these
risk limits on an ongoing basis. All limits that have not been
reviewed within specified time periods by Market Risk are
escalated to senior management. The lines of business are
responsible for adhering to established limits against which
exposures are monitored and reported.
Limit breaches are required to be reported in a timely
manner to limit approvers, Market Risk and senior
management. In the event of a breach, Market Risk consults
with Firm senior management and the line of business
senior management to determine the appropriate course of
action required to return to compliance, which may include
a reduction in risk in order to remedy the breach. Certain
Firm or line of business-level limits that have been breached
for three business days or longer, or by more than 30%, are
escalated to senior management and the Firmwide Risk
Committee.
•
Loss advisories
Profit and loss drawdowns
Earnings-at-risk
JPMorgan Chase & Co./2015 Annual Report
133
Management's discussion and analysis
The following table summarizes by LOB the predominant business activities that give rise to market risk, and the market risk
management tools utilized to manage those risks; CB is not presented in the table below as it does not give rise to significant
market risk.
Risk identification and classification for business activities
LOB
Each line of business is responsible for the management of
the market risks within its units. The independent risk
management group responsible for overseeing each line of
business is charged with ensuring that all material market
risks are appropriately identified, measured, monitored and
managed in accordance with the risk policy framework set
out by Market Risk.
Provision for
lending-related commitments
Risk identification and classification
Establishment of a market risk policy framework
Independent measurement, monitoring and control of
line of business and firmwide market risk
Definition, approval and monitoring of limits
786
(359)
(83)
$
3,663 $
3,224 $
188
$
164 $
(85) $
37
$ 3,827 $
3,139 $
225
132
JPMorgan Chase & Co./2015 Annual Report
MARKET RISK MANAGEMENT
Market risk is the potential for adverse changes in the value
of the Firm's assets and liabilities resulting from changes in
market variables such as interest rates, foreign exchange
rates, equity prices, commodity prices, implied volatilities
or credit spreads.
Market risk management
Market Risk management, part of the independent risk
management function, is responsible for identifying and
monitoring market risks throughout the Firm and defines
market risk policies and procedures. The Market Risk
function reports to the Firm's CRO.
Market Risk seeks to control risk, facilitate efficient risk/
return decisions, reduce volatility in operating performance
and provide transparency into the Firm's market risk profile
for senior management, the Board of Directors and
regulators. Market Risk is responsible for the following
functions:
Performance of stress testing and qualitative risk
assessments
Provision for loan losses
•
The wholesale provision for credit losses for the year ended
December 31, 2015 reflected the impact of downgrades in
the Oil & Gas portfolio.
110
NM
617
202
Allowance for loan losses to retained nonaccrual
loans excluding credit card
109
NM
437
161
110
NM
617
153
Net charge-off rates
0.30
2.51
0.52
0.46
2.75
0.65
Credit ratios, excluding residential real estate
PCI loans
215
Allowance for loan losses to
437
109
Year ended December 31,
4
$ 832,792
780,293
41,002
$ 294,979
289,212
$ 128,027
124,604
46,696
4
$ 324,502 $ 747,508
316,060 729,876
46,700
Retained loans, average
Credit ratios
Allowance for loan losses to retained loans
1.69%
2.61%
1.21%
1.63%
2.39%
2.69%
1.14%
1.90%
Allowance for loan losses to retained nonaccrual
loans (d)
NM
retained loans
PCI loans, end of period
2.61
58
NM
617
106
0.55%
2.75%
-%
0.70%
Note: In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures. For additional information, see
Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures on pages 80-82.
117
0.55%
(a)
(b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. The asset-specific credit card allowance
for loan losses modified in a TDR is calculated based on the loans' original contractual interest rates and does not consider any incremental penalty rates.
The allowance for lending-related commitments is reported in other liabilities on the Consolidated balance sheets.
(c)
(d) The Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.
131
Management's discussion and analysis
Provision for credit losses
For the year ended December 31, 2015, the provision for
credit losses was $3.8 billion, compared with $3.1 billion
for the year ended December 31, 2014.
1.01
The total consumer provision for credit losses for the year
ended December 31, 2015 reflected lower net charge-offs
due to continued discipline in credit underwriting as well as
improvement in the economy driven by increasing home
prices and lower unemployment, partially offset by a lower
reduction in the allowance for loan loss compared with
December 31, 2014.
Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as
purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g.,
upon liquidation). During the fourth quarter of 2014, the Firm recorded a $291 million adjustment to reduce the PCI allowance and the recorded
investment in the Firm's PCI loan portfolio, primarily reflecting the cumulative effect of interest forgiveness modifications. This adjustment had no impact
to the Firm's Consolidated statements of income.
-%
JPMorgan Chase & Co./2015 Annual Report
NM
2.51%
437
1.21
1.50
2.69
1.14
1.37
Allowance for loan losses to
retained nonaccrual loans (d)
58
NM
437
1.55
retained nonaccrual loans excluding credit
card
172
Net charge-off rates
58
Allowance for loan losses to
0.35%
155
617
NM
58
11.8%
1,465,262
12.0%
1,495,520
1,474,870
1,485,336
4.5%
200,482
224,616
220,179
229,976
234,413
199,047
200,482
199,047
(b)
11.7%
15.1
10.5%
8.5%
8.5%
$ 173,189
2,360,499
2,360,499
2,361,177
14.0
14.7
15.6
8.0
16.0
12.0
13.3
13.5
6.0
13.5
13.7
11.6%
173,189
CET1 capital ratio
175,398
Total capital
Tier 1 capital
CET1 capital
Risk-based capital metrics:
(in millions, except ratios)
December 31, 2014
SLR
Risk-weighted assets
SLR leverage exposure
Adjusted average assets
Leverage-based capital metrics:
Total capital ratio
Tier 1 capital ratio
CET1 capital ratio
4.0
Risk-weighted assets
Tier 1 leverage ratio(a)
Tier 1 capital ratio
Total capital ratio
Leverage-based capital metrics:
$
$ 175,398
ratios (d)
Advanced
capital
Minimum
Fully Phased-In
Standardized
capital
ratios (c)
Advanced
Minimum
Transitional
Standardized
SLR
SLR leverage exposure
Tier 1 leverage ratio(a)
Adjusted average assets
$
ΝΑ
15.0
8.4%
ΝΑ
7.6%
7.6%
2,463,902
2,463,902
2,464,915
2,464,915
13.0
4.0
12.7
8.0
13.1
11.0
11.4
11.8
6.0
11.6
13.9
ΝΑ
ΝΑ
NA
Total capital
JPMorgan Chase & Co./2015 Annual Report
150
(d) Represents the minimum capital ratios applicable to the Firm on a fully phased-in Basel III basis. At December 31, 2015, the ratios include the Firm's estimate of its Fully
Phased-In U.S. GSIB surcharge of 3.5%, based on the final U.S. GSIB rule published by the Federal Reserve on July 20, 2015. At December 31, 2014, the ratios included the
Firm's GSIB surcharge of 2.5% which was published in November 2014 by the Financial Stability Board and calculated under the Basel Committee on Banking Supervisions Final
GSIB rule. The minimum capital ratios will be fully phased-in effective January 1, 2019. For additional information on the GSIB surcharge, see page 152.
(e) In the case of the SLR, the fully phased-in minimum ratio is effective beginning January 1, 2018.
(c) Represents the transitional minimum capital ratios applicable to the Firm under Basel III as of December 31, 2015 and 2014.
(b) Effective January 1, 2015, the Basel III Standardized RWA is calculated under the Basel III definition of the Standardized approach. Prior periods were based on Basel I (inclusive
of Basel 2.5).
(a) The Tier 1 leverage ratio is not a risk-based measure of capital. This ratio is calculated by dividing Tier 1 capital by adjusted average assets.
Note: As of December 31, 2015 and 2014, the lower of the Standardized or Advanced capital ratios under each of the transitional and fully phased in approaches in the table above
represents the Firm's Collins Floor, as discussed in Monitoring and management of Capital on page 151.
5.0
(e)
5.6%
$ 3,320,404
4.0
7.5%
7.5%
ΝΑ
NA
ΝΑ
NA
12.6
$ 3,079,797
9.5%
10.5%
Fully Phased-In
Standardized
Minimum
capital
ratios (c)
Advanced
Standardized
Transitional
5.0
Advanced
6.5%
NA
6.5%
NA
(e)
$ 3,079,119
4.0
8.4%
NA
Minimum
capital
ratios (d)
$ 164,426
164,426
4.5%
10.2%
11.2%
1,619,287
1,561,145
1,608,240
1,472,602
(b)
206,179
184,572
184,572
216,719
210,576
221,117
186,263
186,263
164,514 $ 164,514
$
10.2%
Tier 1 capital
2,361,177
Risk-based capital metrics:
0.1
5.4
Singapore
2.4
1.3
0.7
2.1
4.4
1.7
2.5
4.2
Mexico
2.9
1.3
Sweden
4.2
3.2
6.5
7.7
Hong Kong
2.8
2.6
1.4
6.8
Spain
Italy
3.8
0.2
6.8
Luxembourg
6.4
0.1
2.8
Belgium
1.7
2.3
The Firm's principal investments are managed under
various lines of business and are captured within the
respective LOB's financial results. The Firm's approach to
managing principal risk is consistent with the Firm's general
risk governance structure. A Firmwide risk policy framework
exists for all principal investing activities. All investments
are approved by investment committees that include
executives who are independent from the investing
businesses. The Firm's independent control functions are
responsible for reviewing the appropriateness of the
carrying value of principal investments in accordance with
relevant policies. Approved levels for such investments are
established for each relevant business in order to manage
the overall size of the portfolios. Industry, geographic, and
position level concentration limits are in place and are
intended to ensure diversification of the portfolios. The
Firm also conducts stress testing on these portfolios using
specific scenarios that estimate losses based on significant
market moves and/or other risk events.
JPMorgan Chase & Co./2015 Annual Report
143
Management's discussion and analysis
OPERATIONAL RISK MANAGEMENT
Operational risk is the risk of loss resulting from inadequate
or failed processes or systems, human factors or due to
external events that are neither market- nor credit-related.
Operational risk is inherent in the Firm's activities and can
manifest itself in various ways, including fraudulent acts,
business interruptions, inappropriate behavior of
employees, failure to comply with applicable laws and
regulations or failure of vendors to perform in accordance
with their arrangements. These events could result in
financial losses, litigation and regulatory fines, as well as
other damage to the Firm. The goal is to keep operational
risk at appropriate levels, in light of the Firm's financial
strength, the characteristics of its businesses, the markets
in which it operates, and the competitive and regulatory
environment to which it is subject.
Principal investments are predominantly privately-held
financial assets and instruments, typically representing an
ownership or junior capital position, that have unique risks
due to their illiquidity or for which there is less observable
market or valuation data. Such investing activities are
typically intended to be held over extended investment
periods and, accordingly, the Firm has no expectation for
short-term gain with respect to these investments. Principal
investments cover multiple asset classes and are made
either in stand-alone investing businesses or as part of a
broader business platform. Asset classes include tax-
oriented investments (e.g., affordable housing and
alternative energy investments), private equity and various
debt investments.
Overview
Operational risk management framework
The components of the Operational Risk Management
Framework are:
Governance
The Firm's operational risk governance function reports to
the Firm's CRO and is responsible for defining the ORMF and
establishing the firmwide operational risk management
governance structure, policies and standards. The Firmwide
Risk Executive for Operational Risk Governance, a direct
report of the CRO, works with the line of business CROS to
provide independent oversight of the implementation of the
ORMF across the Firm. Operational Risk Officers ("OROS"),
who report to the LOB Chief Risk Officers or to the Firmwide
Risk Executive for Operational Risk Governance, are
independent of the lines of business and corporate
functions, and O&C. The OROS provide oversight of the
implementation of the ORMF within in each line of business
and corporate function.
Line of business, corporate function and regional control
committees oversee the operational risk and control
environments of their respective businesses, functions or
regions. These committees escalate operational risk issues
to the FCC, as appropriate. For additional information on
the Firmwide Control Committee, see Enterprise Risk
Management on pages 107-111.
Risk Identification and Self-Assessment
To monitor and control operational risk, the Firm maintains
an Operational Risk Management Framework ("ORMF")
designed to enable the Firm to maintain a sound and well-
controlled operational environment. The four main
components of the ORMF include: governance, risk
identification and assessment, monitoring and reporting,
and measurement.
PRINCIPAL RISK MANAGEMENT
JPMorgan Chase & Co./2015 Annual Report
142
4.0
JPMorgan Chase & Co./2015 Annual Report
(a) Lending includes loans and accrued interest receivable (net of
collateral and the allowance for loan losses), deposits with banks,
acceptances, other monetary assets, issued letters of credit net of
participations, and unused commitments to extend credit. Excludes
intra-day and operating exposures, such as from settlement and
clearing activities.
(b) Includes market-making inventory, AFS securities, counterparty
exposure on derivative and securities financings net of collateral and
hedging.
(c) Includes single reference entity ("single-name"), index and tranched
credit derivatives for which one or more of the underlying reference
entities is in a country listed in the above table.
(d) Includes capital invested in local entities and physical commodity
inventory.
141
MODEL RISK MANAGEMENT
Model risk
Model risk is the potential for adverse consequences from
decisions based on incorrect or misused model outputs and
reports.
The Firm uses models for many purposes including the
valuation of positions and the measurement of risk.
Valuation models are employed by the Firm to value certain
financial instruments for which quoted prices may not be
readily available. Valuation models may be employed as
inputs into risk measurement models including VaR,
regulatory capital, estimation of stress loss and the
allowance for credit losses.
Models are owned by various functions within the Firm
based on the specific purposes of such models. For
example, VaR models and certain regulatory capital models
are owned by the line of business-aligned risk management
functions. Owners of models are responsible for the
development, implementation and testing of their models,
as well as referral of models to the Model Risk function for
review and approval. Once models have been approved,
model owners are responsible for the maintenance of a
robust operating environment and must monitor and
evaluate the performance of the models on an ongoing
basis. Model owners may seek to enhance models in
response to changes in the portfolios and in product and
market developments, as well as to capture improvements
in available modeling techniques and systems capabilities.
The Model Risk review and governance functions review and
approve a wide range of models, including risk
management, valuation, and regulatory capital models used
by the Firm. Independent of the model owners, the Model
Risk review and governance functions are part of the Firm's
Model Risk unit, and the Firmwide Model Risk Executive
reports to the Firm's CRO.
Models are tiered based on an internal standard according
to their complexity, the exposure associated with the model
and the Firm's reliance on the model. This tiering is subject
to the approval of the Model Risk function. A model review
conducted by the Model Risk function considers the model's
suitability for the specific uses to which it will be put. The
factors considered in reviewing a model include whether the
model accurately reflects the characteristics of the product
and its significant risks, the selection and reliability of
model inputs, consistency with models for similar products,
the appropriateness of any model-related adjustments, and
sensitivity to input parameters and assumptions that cannot
be observed from the market. When reviewing a model, the
Model Risk function analyzes and challenges the model
methodology and the reasonableness of model assumptions
and may perform or require additional testing, including
back-testing of model outcomes. Model reviews are
approved by the appropriate level of management within
the Model Risk function based on the relevant tier of the
model.
Under the Firm's Model Risk Policy, the Model Risk function
reviews and approves new models, as well as material
changes to existing models, prior to implementation in the
operating environment. In certain circumstances, the head
of the Model Risk function may grant exceptions to the
Firm's model risk policy to allow a model to be used prior to
review or approval. The Model Risk function may also
require the owner to take appropriate actions to mitigate
the model risk if it is to be used in the interim. These actions
will depend on the model and may include, for example,
limitation of trading activity.
For a summary of valuations based on models, see Critical
Accounting Estimates Used by the Firm and Note 3.
0.1
3.3
4.3
Korea
$
23.8
$
21.8 $
1.1 $
46.7
exposure
13.8
0.2
30.7
14.2
11.9
0.1
26.2
16.7
Other(d)
Total
Trading and
investing (b)(c)
The Firm also has indirect exposures to country risk (for
example, related to the collateral received on securities
financing receivables or related to client clearing activities).
These indirect exposures are managed in the normal course
of business through the Firm's credit, market, and
operational risk governance, rather than through Country
Risk Management.
The Firm's internal country risk reporting differs from the
reporting provided under the FFIEC bank regulatory
requirements. For further information on the FFIEC'S
reporting methodology, see Cross-border outstandings on
page 327.
Country risk stress testing
The country risk stress framework aims to identify potential
losses arising from a country crisis by capturing the impact
of large asset price movements in a country based on
market shocks combined with counterparty specific
assumptions. Country Risk Management periodically defines
and runs ad hoc stress scenarios for individual countries in
response to specific market events and sector performance
concerns.
Country risk monitoring and control
The Country Risk Management group establishes guidelines
for sovereign ratings reviews and limit management.
Country stress and nominal exposures are measured under
a comprehensive country limit framework. Country ratings
and limits are actively monitored and reported on a regular
basis. Country limit requirements are reviewed and
approved by senior management as often as necessary, but
at least annually. In addition, the Country Risk Management
group uses surveillance tools, such as signaling models and
ratings indicators, for early identification of potential
country risk concerns.
Country risk reporting
The following table presents the Firm's top 20 exposures by
country (excluding the U.S.) as of December 31, 2015. The
selection of countries is based solely on the Firm's largest
total exposures by country, based on the Firm's internal
country risk management approach, and does not represent
the Firm's view of any actual or potentially adverse credit
conditions. Country exposures may fluctuate from period to
period due to normal client activity and market flows.
Top 20 country exposures
(in billions)
United Kingdom
Germany
France
Japan
China
December 31, 2015
Lending(a)
12.9
In order to evaluate and monitor operational risk, the lines
7.8
21.1
India
6.1
5.6
0.4
12.1
Brazil
12.4
6.2
11.1
Switzerland
6.7
0.9
1.9
9.5
4.9
1.4
6.0
5.0
10.3
7.2
1.0
18.5
Canada
13.9
2.9
0.3
17.1
Australia
7.7
5.9
-
13.6
Netherlands
0.4
of business and corporate functions utilize several
processes to identify, assess, mitigate and manage
operational risk. Firmwide standards are in place for each of
these processes and set the minimum requirements for how
they must be applied.
Risk Management is responsible for prescribing the ORMF to
the lines of business and corporate functions and for
providing independent oversight of its implementation. The
lines of business and corporate functions are responsible
for implementing the ORMF. The Firmwide Oversight and
Control Group ("O&C"), which consists of dedicated control
officers within each of the lines of business and corporate
functional areas, as well as a central oversight team, is
responsible for day to day execution of the ORMF.
The Firm also tracks and monitors operational risk events
which are analyzed by the responsible businesses and
corporate functions. This enables identification of the root
causes of the operational risk events and evaluation of the
associated controls.
CAPITAL MANAGEMENT
Capital risk is the risk the Firm has an insufficient level and
composition of capital to support the Firm's business
activities and associated risks during normal economic
environments and stressed conditions.
A strong capital position is essential to the Firm's business
strategy and competitive position. The Firm's capital
strategy focuses on long-term stability, which enables the
Firm to build and invest in market-leading businesses, even
in a highly stressed environment. Prior to making any
decisions on future business activities, senior management
considers the implications on the Firm's capital. In addition
to considering the Firm's earnings outlook, senior
management evaluates all sources and uses of capital with
a view to preserving the Firm's capital strength. Maintaining
a strong balance sheet to manage through economic
volatility is considered a strategic imperative by the Firm's
Board of Directors, CEO and Operating Committee. The
Firm's balance sheet philosophy focuses on risk-adjusted
returns, strong capital and reserves, and robust liquidity.
The Firm's capital management objectives are to hold
capital sufficient to:
•
•
•
•
Cover all material risks underlying the Firm's business
activities;
Maintain "well-capitalized" status and meet regulatory
capital requirements;
Retain flexibility to take advantage of future investment
opportunities;
Maintain sufficient capital in order to continue to build
and invest in its businesses through the cycle and in
stressed environments; and
Distribute excess capital to shareholders while balancing
the other objectives stated above.
These objectives are achieved through ongoing monitoring
and management of the Firm's capital position, regular
stress testing, and a capital governance framework. Capital
management is intended to be flexible in order to react to a
range of potential events. JPMorgan Chase has firmwide and
LOB processes for ongoing monitoring and active
management of its capital position.
JPMorgan Chase & Co./2015 Annual Report
149
Management's discussion and analysis
JPMorgan Chase & Co./2015 Annual Report
148
Reputation risk is the risk that an action, transaction,
investment or event will reduce trust in the Firm's integrity
or competence by our various constituents, including
clients, counterparties, investors, regulators, employees
and the broader public. Maintaining the Firm's reputation is
the responsibility of each individual employee of the Firm.
The Firm's Reputation Risk Governance policy explicitly
vests each employee with the responsibility to consider the
reputation of the Firm when engaging in any activity. Since
the types of events that could harm the Firm's reputation
are so varied across the Firm's lines of business, each line of
business has a separate reputation risk governance
infrastructure in place, which consists of three key
elements: clear, documented escalation criteria appropriate
to the business; a designated primary discussion forum - in
most cases, one or more dedicated reputation risk
committees; and a list of designated contacts, to whom
questions relating to reputation risk should be referred.
Line of business reputation risk governance is overseen by a
Firmwide Reputation Risk Governance function, which
provides oversight of the governance infrastructure and
process to support the consistent identification, escalation,
management and reporting of reputation risk issues
firmwide.
REPUTATION RISK MANAGEMENT
CET1 capital
The Firm's General Counsel reports to the CEO and is a
member of the Operating Committee, the Firmwide Risk
Committee and the Firmwide Control Committee. The
General Counsel's leadership team includes a General
Counsel for each line of business, the heads of the Litigation
and Corporate & Regulatory practices, as well as the Firm's
Corporate Secretary. Each region (e.g., Latin America, Asia
Pacific) has a General Counsel who is responsible for
managing legal risk across all lines of business and
functions in the region.
Legal works with various committees (including new
business initiative and reputation risk committees) and the
Firm's businesses to protect the Firm's reputation beyond
any particular legal requirements. In addition, it advises the
Firm's Conflicts Office which reviews the Firm's wholesale
transactions that may have the potential to create conflicts
of interest for the Firm.
146
JPMorgan Chase & Co./2015 Annual Report
COMPLIANCE RISK MANAGEMENT
Compliance risk is the risk of failure to comply with
applicable laws, rules, and regulations.
Overview
The following tables present the Firm's Transitional and Fully Phased-In risk-based and leverage-based capital metrics under
both Basel III Standardized and Advanced approaches. The Firm's Basel III CET1 ratio exceeds the regulatory minimum as of
December 31, 2015. For further discussion of these capital metrics and the Standardized and Advanced approaches refer to
Monitoring and management of capital on pages 151-155.
The Firm's risk and control self-assessment ("RCSA")
process and supporting architecture requires management
to identify material inherent operational risks, assess the
design and operating effectiveness of relevant controls in
place to mitigate such risks, and evaluate residual risk.
Action plans are developed for control issues that are
identified, and businesses are held accountable for tracking
and resolving issues on a timely basis. Risk Management
performs an independent challenge of the RCSA program
including residual risk results.
These compliance risks relate to a wide variety of legal and
regulatory obligations, depending on the line of business
and the jurisdiction, and include those related to products
and services, relationships and interactions with clients and
customers, and employee activities.
For example, one compliance risk, fiduciary risk, is the
failure to exercise the applicable high standard of care, to
act in the best interests of clients or to treat clients fairly, as
required under applicable law or regulation. Other specific
compliance risks include those associated with anti-money
laundering compliance, trading activities, market conduct,
and complying with the rules and regulations related to the
offering of products and services across jurisdictional
borders, among others.
Compliance implements various practices designed to
identify and mitigate compliance risk by implementing
policies, testing and monitoring, training and providing
guidance.
In recent years, the Firm has experienced heightened
scrutiny by its regulators of its compliance with regulations,
and with respect to its controls and operational processes.
In certain instances, the Firm has entered into Consent
Orders with its regulators requiring the Firm to take certain
specified actions to remediate compliance with regulations
and improve its controls. The Firm expects that such
regulatory scrutiny will continue.
Governance and oversight
Compliance is led by the Firms' Chief Compliance Officer
("CCO") who reports directly to the Firm's COO. The Firm
maintains oversight and coordination in its Compliance Risk
Management practices globally through the Firm's CCO,
lines of business CCOS and regional CCOS to implement the
Compliance program across the lines of business and
regions. The Firm's CCO is a member of the Firmwide
Control Committee and the Firmwide Risk Committee. The
Firm's CCO also provides regular updates to the Audit
Committee and DRPC. In addition, from time to time, special
committees of the Board have been established to oversee
the Firm's compliance with regulatory Consent Orders.
The Firm has in place a Code of Conduct (the "Code"), and
each employee is given annual training in respect of the
Code and is required annually to affirm his or her
compliance with the Code. The Code sets forth the Firm's
core principles and fundamental values, including that no
employee should ever sacrifice integrity - or give the
impression that he or she has. The Code requires prompt
reporting of any known or suspected violation of the Code,
any internal Firm policy, or any law or regulation applicable
to the Firm's business. It also requires the reporting of any
illegal conduct, or conduct that violates the underlying
principles of the Code, by any of the Firm's employees,
customers, suppliers, contract workers, business partners,
or agents. Specified employees are specially trained and
designated as "code specialists" who act as a resource to
employees on Code of Conduct matters. In addition,
concerns may be reported anonymously and the Firm
prohibits retaliation against employees for the good faith
reporting of any actual or suspected violations of the Code.
The Code and the associated employee compliance program
are focused on the regular assessment of certain key
aspects of the Firm's culture and conduct initiatives.
JPMorgan Chase & Co./2015 Annual Report
147
Each line of business is accountable for managing its
compliance risk. The Firm's Compliance Organization
("Compliance"), which is independent of the lines of
business, works closely with the Operating Committee and
management to provide independent review, monitoring
and oversight of business operations with a focus on
compliance with the legal and regulatory obligations
applicable to the offering of the Firm's products and
services to clients and customers.
December 31, 2015
(in millions, except ratios)
Third parties with which the Firm does business or that
facilitate the Firm's business activities (e.g., vendors,
exchanges, clearing houses, central depositories, and
financial intermediaries) could also be sources of
cybersecurity risk to the Firm, including with respect to
breakdowns or failures of their systems, misconduct by the
employees of such parties, or cyberattacks which could
affect their ability to deliver a product or service to the Firm
or result in lost or compromised information of the Firm or
its clients. In addition, customers with which or whom the
Firm does business can also be sources of cybersecurity risk
to the Firm, particularly when their activities and systems
are beyond the Firm's own security and control systems.
Customers will generally be responsible for losses incurred
due to their own failure to maintain the security of their
own systems and processes.
business interruption, and to remain in compliance with
global laws and regulations as they relate to resiliency risk.
The program includes corporate governance, awareness and
training, as well as strategic and tactical initiatives aimed to
ensure that risks are properly identified, assessed, and
managed.
Management's discussion and analysis
145
JPMorgan Chase's global resiliency and crisis management
program is intended to ensure that the Firm has the ability
to recover its critical business functions and supporting
assets (i.e., staff, technology and facilities) in the event of a
Business and technology resiliency
The Firm and several other U.S. financial institutions have
experienced significant distributed denial-of-service attacks
from technically sophisticated and well-resourced
unauthorized parties which are intended to disrupt online
banking services. The Firm and its clients are also regularly
targeted by unauthorized parties using malicious code and
viruses. On September 10, 2014, the Firm disclosed that a
cyberattack against the Firm had occurred. The
cyberattacks experienced to date have not resulted in any
material disruption to the Firm's operations nor have they
had a material adverse effect on the Firm's results of
operations. The Firm's Board of Directors and the Audit
Committee are regularly apprised regarding the
cybersecurity policies and practices of the Firm as well as
the Firm's efforts regarding significant cybersecurity events.
Cybersecurity attacks, like the one experienced by the Firm,
highlight the need for continued and increased cooperation
among businesses and the government, and the Firm
continues to work to strengthen its partnerships with the
appropriate government and law enforcement agencies and
other businesses, including the Firm's third-party service
providers, in order to understand the full spectrum of
cybersecurity risks in the environment, enhance defenses
and improve resiliency against cybersecurity threats.
The Firm has established, and continues to establish,
defenses to mitigate other possible future attacks. To
enhance its defense capabilities, the Firm increased
cybersecurity spending from approximately $250 million in
2014, to approximately $500 million in 2015, and expects
the spending to increase to more than $600 million in
2016. Enhancements include more robust testing, advanced
analytics, improved technology coverage, strengthened
access management and controls and a program to increase
employee awareness about cybersecurity risks and best
practices.
The Firm's operational risk capital methodology
incorporates the four required elements of the Advanced
Measurement Approach under the Basel III framework:
Internal losses,
JPMorgan Chase & Co./2015 Annual Report
The Firm devotes significant resources maintaining and
regularly updating its systems and processes that are
designed to protect the security of the Firm's computer
systems, software, networks and other technology assets
against attempts by unauthorized parties to obtain access
to confidential information, destroy data, disrupt or
degrade service, sabotage systems or cause other damage.
One of the ways operational loss may be mitigated is
through insurance maintained by the Firm. The Firm
purchases insurance to be in compliance with local laws and
regulations (e.g., workers compensation), as well as to
serve other needs (e.g., property loss and public liability).
Insurance may also be required by third parties with whom
the Firm does business. The insurance purchased is
reviewed and approved by senior management.
Cybersecurity
For information related to operational risk RWA, CCAR or
ICAAP, see Capital Management section, pages 149-158.
Insurance
The Firm considers the impact of stressed economic
conditions on operational risk losses and a forward looking
view of material operational risk events that may occur in a
stressed environment. The Firm's operational risk stress
testing framework is utilized in calculating results for the
Firm's CCAR, ICAAP and Risk Appetite processes.
The primary component of the operational risk capital
estimate is the result of a statistical model, the Loss
Distribution Approach ("LDA"), which simulates the
frequency and severity of future operational risk losses
based on historical data. The LDA model is used to estimate
an aggregate operational risk loss over a one-year time
horizon, at a 99.9% confidence level. The LDA model
incorporates actual internal operational risk losses in the
quarter following the period in which those losses were
realized, and the calculation generally continues to reflect
such losses even after the issues or business activities
giving rise to the losses have been remediated or reduced.
The calculation is supplemented by external loss data as
needed, as well as both management's view of plausible tail
risk, which is captured as part of the Scenario Analysis
process, and evaluation of key LOB internal control metrics
(BEICF). The Firm may further supplement such analysis to
incorporate feedback from its bank regulators.
Business environment and internal control factors.
Scenario analysis, and
The Firm has established comprehensive tracking and
reporting of resiliency plans in order to proactively
anticipate and manage various potential disruptive
circumstances such as severe weather and flooding,
technology and communications outages, cyber incidents,
mass transit shutdowns and terrorist threats, among others.
The resiliency measures utilized by the Firm include backup
infrastructure for data centers, a geographically distributed
workforce, dedicated recovery facilities, providing
technological capabilities to support remote work capacity
for displaced staff and accommodation of employees at
alternate locations. JPMorgan Chase continues to
coordinate its global resiliency program across the Firm and
mitigate business continuity risks by reviewing and testing
recovery procedures. The strength and proficiency of the
Firm's global resiliency program has played an integral role
in maintaining the Firm's business operations during and
quickly after various events in 2015 that have resulted in
business interruptions, such as severe winter weather and
flooding in the U.S. and various global protest-related
activities.
External losses,
LEGAL RISK MANAGEMENT
Overview
Furthermore, lines of business and corporate functions
establish key risk indicators to manage and monitor
operational risk and the control environment. These assist
in the early detection and timely escalation of issues or
events.
Risk monitoring and reporting
Legal risk is the risk of loss or imposition of damages, fines,
penalties or other liability arising from failure to comply
with a contractual obligation or to comply with laws or
regulations to which the Firm is subject.
144
JPMorgan Chase & Co./2015 Annual Report
Operational risk management and control reports provide
information, including actual operational loss levels, self-
assessment results and the status of issue resolution to the
lines of business and senior management. In addition, key
control indicators and operating metrics are monitored
against targets and thresholds. The purpose of these
reports is to enable management to maintain operational
risk at appropriate levels within each line of business, to
escalate issues and to provide consistent data aggregation
across the Firm's businesses and functions.
Two standard forms of operational risk measurement
include operational risk capital and operational risk losses
under baseline and stressed conditions.
Governance and oversight
In addition to providing legal services and advice to the
Firm, and communicating and helping the lines of business
adjust to the legal and regulatory changes they face,
including the heightened scrutiny and expectations of the
Firm's regulators, the global Legal function is responsible
for working with the businesses and corporate functions to
fully understand and assess their adherence to laws and
regulations. In particular, Legal assists Oversight & Control,
Risk, Finance, Compliance and Internal Audit in their efforts
to ensure compliance with all applicable laws and
regulations and the Firm's corporate standards for doing
business. The Firm's lawyers also advise the Firm on
potential legal exposures on key litigation and transactional
matters, and perform a significant defense and advocacy
role by defending the Firm against claims and potential
claims and, when needed, pursuing claims against others.
Measurement
•
$ 30,929
Tier 2 capital
$
16,679
Qualifying allowance for credit losses
14,341
$ 32,147
Change in qualifying allowance for credit losses
Change in long-term debt and other instruments qualifying as
Tier 2
Standardized Tier 2 capital at December 31, 2015
Standardized Total capital at December 31, 2015
Advanced Tier 2 capital at December 31, 2014
Increase in Standardized Tier 2 capital
Other
Change in qualifying allowance for credit losses
(4)
(1,218)
(466)
(748)
Other
14,475
Increase in Standardized/Advanced Tier 1 capital
Standardized/Advanced Tier 1 capital at December 31, 2015 $ 199,047
Standardized Tier 2 capital at December 31, 2014
Change in long-term debt and other instruments qualifying as
Tier 2
(91)
and to identifiable intangibles created in nontaxable transactions,
which are netted against goodwill and other intangibles when
calculating TCE.
$
22,927
(6,484)
(2,005)
(3,835)
(546)
(770)
(85)
(2,116)
$
173,189
(454)
(593)
8,675
(a) Includes the remaining balance of AOCI related to AFS debt securities
and defined benefit pension and other postretirement employee
benefit ("OPEB") plans that will qualify as Basel III CET1 capital upon
full phase-in.
(b) Predominantly includes regulatory adjustments related to changes in
FVA/DVA, as well as CET1 deductions for defined benefit pension plan
assets and deferred tax assets related to net operating loss and tax
credit carryforwards.
(c) Relates to intangible assets, other than goodwill and MSRs, that are
required to be deducted from CET1 capital upon full phase-in.
(d) Includes minority interest and the Firm's investments in its own CET1
capital instruments.
Changes in additional paid-in capital
Changes related to AOCI
Adjustment related to FVA/DVA
Other
Increase in Standardized/Advanced CET1 capital
Standardized/Advanced CET1 capital at December 31, 2015
Standardized/Advanced Tier 1 capital at December 31, 2014
Change in CET1 capital
Net issuance of noncumulative perpetual preferred stock
Other
$ 173,189
$ 184,572
8,675
6,005
(205)
$ 229,976
Standardized/Advanced CET1 capital at December 31, 2014 $ 164,514
Net income applicable to common equity
Dividends declared on common stock
Standardized Fully Phased-In Tier 2 capital
427
$
30,929
Standardized Fully Phased-in Total capital
$
229,976
Adjustment in qualifying allowance for credit losses for
Advanced Tier 2 capital
(9,797)
Advanced Fully Phased-In Tier 2 capital
$
21,132
Advanced Fully Phased-In Total capital
$
220,179
(a) Represents deferred tax liabilities related to tax-deductible goodwill
153
Management's discussion and analysis
The following table presents a reconciliation of the Firm's
Basel III Transitional CET1 capital to the Firm's estimated
Basel III Fully Phased-In CET1 capital as of December 31,
2015.
Capital rollforward
The following table presents the changes in Basel III Fully
Phased-In CET1 capital, Tier 1 capital and Tier 2 capital for
the year ended December 31, 2015.
(in millions)
Transitional CET1 capital
AOCI phase-in (a)
CET1 capital deduction phase-in(b)
Intangible assets deduction phase-in(c)
Other adjustments to CET1 capital(d)
Fully Phased-In CET1 capital
Net purchase of treasury stock
Year Ended December 31, (in millions)
2015
December 31,
2015
175,398
$ 21,607
December 31, 2014
Increase in Advanced Tier 2 capital
The Firm's common stock dividend policy reflects JPMorgan
Chase's earnings outlook, desired dividend payout ratio,
capital objectives, and alternative investment opportunities.
Following receipt on March 11, 2015, of the Federal
Reserve's non-objection to the Firm's 2015 capital plan
submitted under its CCAR, the Firm announced that its
Board of Directors increased the quarterly common stock
dividend to $0.44 per share, effective with the dividend
paid on July 31, 2015. The Firm's dividends are subject to
the Board of Directors' approval at the customary times
those dividends are declared.
For information regarding dividend restrictions, see Note 22
and Note 27.
The following table shows the common dividend payout
ratio based on reported net income.
Year ended December 31,
Common dividend payout ratio
Common equity
2015
2014
28%
29%
2013
33%
During the year ended December 31, 2015, warrant
holders exercised their right to purchase 12.4 million
shares of the Firm's common stock. The Firm issued 4.7
million shares of its common stock as a result of these
exercises. As of December 31, 2015, 47.4 million warrants
remained outstanding, compared with 59.8 million
outstanding as of December 31, 2014.
On March 11, 2015, in conjunction with the Federal
Reserve's release of its 2015 CCAR results, the Firm's Board
of Directors authorized a $6.4 billion common equity (i.e.,
common stock and warrants) repurchase program. As of
December 31, 2015, $2.7 billion (on a settlement-date
basis) of authorized repurchase capacity remained under
the program. This authorization includes shares
repurchased to offset issuances under the Firm's equity-
based compensation plans.
The following table sets forth the Firm's repurchases of
common equity for the years ended December 31, 2015,
2014 and 2013, on a settlement-date basis. There were no
warrants repurchased during the years ended December
31, 2015, 2014, and 2013.
when the Firm is not aware of material nonpublic
information.
The authorization to repurchase common equity will be
utilized at management's discretion, and the timing of
purchases and the exact amount of common equity that
may be repurchased is subject to various factors, including
market conditions; legal and regulatory considerations
affecting the amount and timing of repurchase activity; the
Firm's capital position (taking into account goodwill and
intangibles); internal capital generation; and alternative
investment opportunities. The repurchase program does not
include specific price targets or timetables; may be
executed through open market purchases or privately
negotiated transactions, or utilize Rule 10b5-1 programs;
and may be suspended at any time.
For additional information regarding repurchases of the
Firm's equity securities, see Part II, Item 5: Market for
registrant's common equity, related stockholder matters
and issuer purchases of equity securities on page 20.
Preferred stock
During the year ended December 31, 2015, the Firm issued
$6.0 billion of noncumulative preferred stock. Preferred
stock dividends declared were $1.5 billion for the year
ended December 31, 2015. Assuming all preferred stock
issuances were outstanding for the entire year and
quarterly dividends were declared on such issuances,
preferred stock dividends would have been $1.6 billion for
the year ended December 31, 2015. For additional
information on the Firm's preferred stock, see Note 22.
Redemption of outstanding trust preferred securities
On April 2, 2015, the Firm redeemed $1.5 billion, or 100%
of the liquidation amount, of JPMorgan Chase Capital XXIX
trust preferred securities. On May 8, 2013, the Firm
redeemed approximately $5.0 billion, or 100% of the
liquidation amount, of the following eight series of trust
preferred securities: JPMorgan Chase Capital X, XI, XII, XIV,
XVI, XIX, XXIV, and BANK ONE Capital VI. For a further
discussion of trust preferred securities, see Note 21.
Year ended December 31, (in millions)
2015
2014
2013
Total number of shares of common stock
repurchased
89.8
82.3
96.1
Aggregate purchase price of common
stock repurchases
$ 5,616 $ 4,760 $ 4,789
The Firm may, from time to time, enter into written trading
plans under Rule 10b5-1 of the Securities Exchange Act of
1934 to facilitate repurchases in accordance with the
common equity repurchase program. A Rule 10b5-1
repurchase plan allows the Firm to repurchase its equity
during periods when it would not otherwise be repurchasing
common equity - for example, during internal trading
"blackout periods." All purchases under a Rule 10b5-1 plan
must be made according to a predefined plan established
Dividends
Capital actions
JPMorgan Chase & Co./2015 Annual Report
On October 30, 2015, the Federal Reserve issued proposed
rules that would require the top-tier holding companies of
eight U.S. global systemically important bank holding
companies, including the Firm, among other things, to
maintain minimum levels of eligible TLAC and long-term
debt satisfying certain eligibility criteria ("eligible LTD")
commencing January 1, 2019. Under the proposal, these
eight U.S GSIBS would be required to maintain
minimum TLAC of no less than 18% of the financial
institution's RWA or 9.5% of its leverage exposure (as
defined by the rules), plus in the case of the RWA-based
measure, a TLAC buffer that is equal to 2.5% of the
financial institution's CET1, any applicable countercyclical
buffer and the financial institution's GSIB surcharge as
calculated under method 1. The minimum level of eligible
LTD that would be required to be maintained by these eight
U.S. GSIBS would be equal to the greater of (A) 6% of the
financial institution's RWA, plus the higher of the method 1
or method 2 GSIB surcharge applicable to the institution
and (B) 4.5% of its leverage exposure (as defined by the
rules). These proposed TLAC Rules would disqualify from
eligible LTD, among other instruments, senior debt
securities that permit acceleration for reasons other than
insolvency or payment default, as well as structured notes
and debt securities not governed by U.S. law. The Firm is
currently evaluating the impact of the proposal.
Line of business equity
January 1,
(in billions)
2016
2015
2014
Consumer & Community Banking
$
51.0
$ 51.0 $ 51.0
64.0
62.0
61.0
16.0
JPMorgan Chase & Co./2015 Annual Report
14.0
9.0
9.0
9.0
81.5
85.5
76.7
$
221.5
$ 221.5 $ 211.7
Asset Management
Corporate
Total common stockholders'
equity
Other capital requirements
Minimum Total Loss Absorbing Capacity
In November 2015, the Financial Stability Board ("FSB")
finalized the TLAC standard for GSIBS, which establishes the
criteria for TLAC eligible debt and capital instruments and
defines the minimum requirements for amounts of loss
absorbing and recapitalization capacity. This amount and
type of debt and capital instruments is intended to
effectively absorb losses, as necessary, upon the failure of a
GSIB, without imposing such losses on taxpayers of the
relevant jurisdiction or causing severe systemic disruptions,
and thereby ensuring the continuity of the GSIB's critical
functions. The final standard will require GSIBS to meet a
common minimum TLAC requirement of 16% of the
financial institution's RWA, effective January 1, 2019, and
at least 18% effective January 1, 2022. The minimum TLAC
must also be at least 6% of a financial institution's Basel II|
leverage ratio denominator, effective January 1, 2019, and
at least 6.75% effective January 1, 2022.
14.0
December 31,
157
Broker-dealer regulatory capital
JPMorgan Chase & Co./2015 Annual Report
159
Management's discussion and analysis
LCR and NSFR
The Firm must comply with the U.S. LCR rule, which is
intended to measure the amount of HQLA held by the Firm
in relation to estimated net cash outflows within a 30-day
period during an acute stress event. The LCR is required to
be 80% at January 1, 2015, increasing by 10% each year
until reaching the 100% minimum by January 1, 2017. At
December 31, 2015, the Firm was compliant with the fully
phased-in U.S. LCR.
On October 31, 2014, the Basel Committee issued the final
standard for the net stable funding ratio ("NSFR") – which
is intended to measure the "available" amount of stable
funding relative to the "required" amount of stable funding
over a one-year horizon. NSFR will become a minimum
standard by January 1, 2018 and requires that this ratio be
equal to at least 100% on an ongoing basis. At December
31, 2015, the Firm was compliant with the NSFR based on
its current understanding of the final Basel rule. The U.S.
banking regulators are expected to issue an NPR that would
outline requirements specific to U.S. banks.
HQLA
HQLA is the amount of assets that qualify for inclusion in
the U.S. LCR. HQLA primarily consists of cash and certain
unencumbered high quality liquid assets as defined in the
final rule.
As of December 31, 2015, the Firm's HQLA was $496
billion, compared with $600 billion as of December 31,
2014. The decrease in HQLA was due to lower cash
balances largely driven by lower non-operating deposit
balances; however, the Firm remains LCR-compliant given
the corresponding reduction in estimated net cash outflows
associated with those deposits. HQLA may fluctuate from
period to period primarily due to normal flows from client
activity.
The following table presents the estimated HQLA included in
the LCR broken out by HQLA-eligible cash and securities as
of December 31, 2015.
(in billions)
HQLA
Eligible cash (a)
Eligible securities (b)
Total HQLA
(a) Cash on deposit at central banks.
December 31, 2015
$ 304
192
$
496
(b) Predominantly includes U.S. agency mortgage-backed securities, U.S.
Treasuries, and sovereign bonds net of applicable haircuts under U.S.
LCR rules.
In addition to HQLA, as of December 31, 2015, the Firm has
approximately $249 billion of unencumbered marketable
securities, such as equity securities and fixed income debt
securities, available to raise liquidity, if required.
Furthermore, the Firm maintains borrowing capacity at
various Federal Home Loan Banks ("FHLBS"), the Federal
Reserve Bank discount window and various other central
banks as a result of collateral pledged by the Firm to such
banks. Although available, the Firm does not view the
borrowing capacity at the Federal Reserve Bank discount
window and the various other central banks as a primary
source of liquidity. As of December 31, 2015, the Firm's
remaining borrowing capacity at various FHLBS and the
Federal Reserve Bank discount window was approximately
$183 billion. This remaining borrowing capacity excludes
the benefit of securities included above in HQLA or other
unencumbered securities currently held at the Federal
Reserve Bank discount window for which the Firm has not
drawn liquidity.
Funding
Sources of funds
Management believes that the Firm's unsecured and
secured funding capacity is sufficient to meet its on- and
off-balance sheet obligations.
The Firm funds its global balance sheet through diverse
sources of funding including a stable deposit franchise as
well as secured and unsecured funding in the capital
markets. The Firm's loan portfolio ($837.3 billion at
December 31, 2015), is funded with a portion of the Firm's
deposits ($1,279.7 billion at December 31, 2015)
and through securitizations and, with respect to a portion of
the Firm's real estate-related loans, with secured
borrowings from the FHLBS. Deposits in excess of the
amount utilized to fund loans are primarily invested in the
Firm's investment securities portfolio or deployed in cash or
other short-term liquid investments based on their interest
rate and liquidity risk characteristics. Securities borrowed
or purchased under resale agreements and trading assets-
debt and equity instruments are primarily funded by the
Firm's securities loaned or sold under agreements to
repurchase, trading liabilities-debt and equity instruments,
and a portion of the Firm's long-term debt and
stockholders' equity. In addition to funding securities
borrowed or purchased under resale agreements and
trading assets-debt and equity instruments, proceeds from
the Firm's debt and equity issuances are used to fund
certain loans and other financial and non-financial assets,
or may be invested in the Firm's investment securities
portfolio. See the discussion below for additional
information relating to Deposits, Short-term funding, and
Long-term funding and issuance.
160
JPMorgan Chase & Co./2015 Annual Report
The Parent Company acts as a source of funding to its
subsidiaries. The Firm's liquidity management is intended to
maintain liquidity at the Parent Company, in addition to
funding and liquidity raised at the subsidiary operating
level, at levels sufficient to fund the operations of the
Parent Company and its subsidiaries for an extended period
of time in a stress environment where access to normal
funding sources is disrupted. The Parent Company currently
holds sufficient liquidity to withstand peak outflows over a
one year liquidity stress horizon, assuming no access to
wholesale funding markets.
Parent Company and subsidiary funding
The Firm's contingency funding plan ("CFP"), which is
reviewed by ALCO and approved by the DRPC, is a
compilation of procedures and action plans for managing
liquidity through stress events. The CFP incorporates the
limits and indicators set by the Liquidity Risk Oversight
group. These limits and indicators are reviewed regularly to
identify the emergence of risks or vulnerabilities in the
Firm's liquidity position. The CFP identifies the alternative
contingent liquidity resources available to the Firm in a
stress event.
Contingency funding plan
JPMorgan Chase's principal U.S. broker-dealer subsidiaries
are JPMorgan Securities and J.P. Morgan Clearing Corp.
("JPMorgan Clearing"). JPMorgan Clearing is a subsidiary of
JPMorgan Securities and provides clearing and settlement
services. JPMorgan Securities and JPMorgan Clearing are
each subject to Rule 15c3-1 under the Securities Exchange
Act of 1934 (the "Net Capital Rule"). JPMorgan Securities
and JPMorgan Clearing are also each registered as futures
commission merchants and subject to Rule 1.17 of the
Commodity Futures Trading Commission ("CFTC").
JPMorgan Securities and JPMorgan Clearing have elected to
compute their minimum net capital requirements in
accordance with the "Alternative Net Capital Requirements"
of the Net Capital Rule. At December 31, 2015,
JPMorgan Securities' net capital, as defined by the Net
Capital Rule, was $14.2 billion, exceeding the minimum
requirement by $11.9 billion, and JPMorgan Clearing's net
capital was $7.7 billion, exceeding the minimum
requirement by $6.2 billion.
In addition to its minimum net capital requirement,
JPMorgan Securities is required to hold tentative net capital
in excess of $1.0 billion and is also required to notify the
Securities and Exchange Commission ("SEC") in the event
that tentative net capital is less than $5.0 billion, in
accordance with the market and credit risk standards of
Appendix E of the Net Capital Rule. As of December 31,
2015, JPMorgan Securities had tentative net capital in
excess of the minimum and notification requirements.
J.P. Morgan Securities plc is a wholly owned subsidiary of
JPMorgan Chase Bank, N.A. and is the Firm's principal
operating subsidiary in the U.K. It has authority to engage in
banking, investment banking and broker-dealer activities.
J.P. Morgan Securities plc is jointly regulated by the U.K.
Prudential Regulation Authority ("PRA”) and Financial
Conduct Authority ("FCA"). Commencing January 1, 2014,
J.P. Morgan Securities plc became subject to the U.K. Basel
III capital rules.
At December 31, 2015, J.P. Morgan Securities plc had
estimated total capital of $33.9 billion; its estimated CET1
capital ratio was 15.4% and its estimated Total capital ratio
was 19.6%. Both capital ratios exceeded the minimum
standards of 4.5% and 8.0%, respectively, under the
transitional requirements of the European Union's ("EU")
Basel III Capital Requirements Directive and Regulation, as
well as the additional capital requirements specified by the
PRA.
158
JPMorgan Chase & Co./2015 Annual Report
LIQUIDITY RISK MANAGEMENT
Liquidity risk is the risk that the Firm will be unable to meet
its contractual and contingent obligations or that it does not
have the appropriate amount, composition and tenor of
funding and liquidity to support its assets.
Liquidity risk oversight
The Firm has a liquidity risk oversight function whose
primary objective is to provide assessment, measurement,
monitoring, and control of liquidity risk across the Firm.
Liquidity risk oversight is managed through a dedicated
firmwide Liquidity Risk Oversight group. The CTC CRO, as
part of the independent risk management function, has
responsibility for firmwide Liquidity Risk Oversight.
Liquidity Risk Oversight's responsibilities include but are
not limited to:
Establishing and monitoring limits, indicators, and
thresholds, including liquidity appetite tolerances;
Defining, monitoring, and reporting internal firmwide
and legal entity stress tests, and monitoring and
reporting regulatory defined stress testing;
Monitoring and reporting liquidity positions, balance
sheet variances and funding activities;
Conducting ad hoc analysis to identify potential
emerging liquidity risks.
Management's discussion and analysis
Risk I governance and measurement
Liquidity stress tests are intended to ensure sufficient
liquidity for the Firm under a variety of adverse scenarios.
Results of stress tests are therefore considered in the
formulation of the Firm's funding plan and assessment of its
liquidity position. Liquidity outflow assumptions are
modeled across a range of time horizons and contemplate
both market and idiosyncratic stress. Standard stress tests
are performed on a regular basis and ad hoc stress tests are
performed in response to specific market events or
concerns. Stress scenarios are produced for JPMorgan
Chase & Co. ("Parent Company") and the Firm's major
subsidiaries.
Liquidity stress tests assume all of the Firm's contractual
obligations are met and then take into consideration
varying levels of access to unsecured and secured funding
markets. Additionally, assumptions with respect to potential
non-contractual and contingent outflows are contemplated.
Liquidity management
Treasury is responsible for liquidity management. The
primary objectives of effective liquidity management are to
ensure that the Firm's core businesses are able to operate
in support of client needs, meet contractual and contingent
obligations through normal economic cycles as well as
during stress events, and to manage optimal funding mix,
and availability of liquidity sources. The Firm manages
liquidity and funding using a centralized, global approach in
order to optimize liquidity sources and uses.
In the context of the Firm's liquidity management, Treasury
is responsible for:
•
•
•
•
Analyzing and understanding the liquidity characteristics
of the Firm, lines of business and legal entities' assets
and liabilities, taking into account legal, regulatory, and
operational restrictions;
Defining and monitoring firmwide and legal entity
liquidity strategies, policies, guidelines, and contingency
funding plans;
Managing liquidity within approved liquidity risk
appetite tolerances and limits;
Setting transfer pricing in accordance with underlying
liquidity characteristics of balance sheet assets and
liabilities as well as certain off-balance sheet items.
Specific committees responsible for liquidity governance
include firmwide ALCO as well as line of business and
regional ALCOS, and the CTC Risk Committee. For further
discussion of the risk and risk-related committees, see
Enterprise-wide Risk Management on pages 107-111.
Internal Stress testing
Corporate & Investment Bank
Commercial Banking
156
On at least an annual basis, the Firm assesses the level of
capital required for each line of business as well as the
assumptions and methodologies used to allocate capital.
The line of business equity allocations are updated as
refinements are implemented. The table below reflects the
Firm's assessed level of capital required for each line of
business as of the dates indicated.
(53)
Portfolio runoff(b)
(13)
(8)
(21)
(21)
(8)
(29)
Movement in portfolio levels(c)
(18)
(15)
(33)
(27)
(14)
(41)
Changes in RWA
(48)
(38)
(86)
(86)
(37)
(123)
December 31, 2015
$
1,333 $
142 $
1,475 $
954 $
142 $
(15)
(38)
(32)
(15)
(4)
(475)
Advanced Tier 2 capital at December 31, 2015
Advanced Total capital at December 31, 2015
$ 21,132
$ 220,179
Other
154
JPMorgan Chase & Co./2015 Annual Report
RWA rollforward
The following table presents changes in the components of RWA under Basel III Standardized and Advanced Fully Phased-In for
the year ended December 31, 2015. The amounts in the rollforward categories are estimates, based on the predominant
driver of the change.
Year ended December 31, 2015
(in billions)
Credit risk
RWA
Standardized
Market risk
RWA
Advanced
400 $
Total RWA
Market risk Operational risk
RWA
RWA
Total RWA
Long-term debt and other instruments qualifying as
$
1,381 $
180 $
1,561
$
1,040 $
179 $
400 $
1,619
Model & data changes(a)
(17)
Credit risk
RWA
(a) Model & data changes refer to movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance (exclusive of rule
changes).
(b) Portfolio runoff for credit risk RWA reflects reduced risk from position rolloffs in legacy portfolios in Mortgage Banking, (primarily under the Advanced framework)
and Broker Dealer Services (primarily under the Standardized framework); and for market risk RWA reflects reduced risk from position rolloffs in legacy portfolios in
the wholesale businesses.
(c) Movement in portfolio levels for credit risk RWA refers to changes in book size, composition, credit quality, and market movements; and for market risk RWA refers to
changes in position and market movements.
•
•
Integrate firmwide and line of business capital
management activities;
Measure performance consistently across all lines of
business; and
Provide comparability with peer firms for each of the
lines of business.
Each business segment is allocated capital by taking into
consideration stand-alone peer comparisons, regulatory
capital requirements (as estimated under Basel III Advanced
Fully Phased-In) and economic risk. Capital is also allocated
to each line of business for, among other things, goodwill
and other intangibles associated with acquisitions effected
by the line of business. ROE is measured and internal
targets for expected returns are established as key
measures of a business segment's performance.
Line of business equity
Year ended December 31,
(in billions)
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Asset Management
Corporate
The Firm's framework for allocating capital to its business
segments (line of business equity) is based on the following
objectives:
2015
2014
2013
$ 51.0 $ 51.0 $ 46.0
62.0
61.0
14.0
14.0
56.5
13.5
9.0
79.7
9.0
72.4
9.0
71.4
Total common stockholders' equity $ 215.7
$ 207.4 $ 196.4
Yearly average
(748)
277
Line of business equity
Semiannually, the Firm completes the ICAAP, which provides
management with a view of the impact of severe and
unexpected events on earnings, balance sheet positions,
reserves and capital. The Firm's ICAAP integrates stress
testing protocols with capital planning.
Supplementary leverage ratio
The SLR is defined as Tier 1 capital under Basel III divided
by the Firm's total leverage exposure. Total leverage
exposure is calculated by taking the Firm's total average on-
balance sheet assets, less amounts permitted to be
deducted for Tier 1 capital, and adding certain off-balance
sheet exposures, such as undrawn commitments and
derivatives potential future exposure.
On September 3, 2014, the U.S. banking regulators adopted
a final rule for the calculation of the SLR. The U.S. final rule
requires public disclosure of the SLR beginning with the first
quarter of 2015, and also requires U.S. bank holding
companies, including the Firm, to have a minimum SLR of
5% and IDI subsidiaries, including JPMorgan Chase Bank,
N.A. and Chase Bank USA, N.A., to have a minimum SLR of
6%, both beginning January 1, 2018. As of December 31,
2015, the Firm estimates that JPMorgan Chase Bank, N.A.'s
and Chase Bank USA, N.A.'s Fully Phased-In SLRs are
approximately 6.6% and 8.3%, respectively.
The following table presents the components of the Firm's
Fully Phased-In SLR, a non-GAAP financial measure, as of
December 31, 2015.
(in millions, except ratio)
Fully Phased-in Tier 1 Capital
Total average assets
Less: amounts deducted from Tier 1 capital
Total adjusted average assets (a)
Off-balance sheet exposures (b)
SLR leverage exposure
SLR
December 31,
2015
The process assesses the potential impact of alternative
economic and business scenarios on the Firm's earnings and
capital. Economic scenarios, and the parameters underlying
those scenarios, are defined centrally and applied uniformly
across the businesses. These scenarios are articulated in
terms of macroeconomic factors, which are key drivers of
business results; global market shocks, which generate
short-term but severe trading losses; and idiosyncratic
operational risk events. The scenarios are intended to
capture and stress key vulnerabilities and idiosyncratic risks
facing the Firm. However, when defining a broad range of
scenarios, realized events can always be worse. Accordingly,
management considers additional stresses outside these
scenarios, as necessary. ICAAP results are reviewed by
management and the Board of Directors.
$
47,754
2,360,499
718,620
$ 3,079,119
6.5%
Planning and stress testing
Comprehensive Capital Analysis and Review
The Federal Reserve requires large bank holding
companies, including the Firm, to submit a capital plan on
an annual basis. The Federal Reserve uses the CCAR and
Dodd-Frank Act stress test processes to ensure that large
bank holding companies have sufficient capital during
periods of economic and financial stress, and have robust,
forward-looking capital assessment and planning processes
in place that address each bank holding company's (“BHC”)
unique risks to enable them to have the ability to absorb
losses under certain stress scenarios. Through the CCAR,
the Federal Reserve evaluates each BHC's capital adequacy
and internal capital adequacy assessment processes, as well
as its plans to make capital distributions, such as dividend
payments or stock repurchases.
On March 11, 2015, the Federal Reserve informed the Firm
that it did not object, on either a quantitative or qualitative
basis, to the Firm's 2015 capital plan. For information on
actions taken by the Firm's Board of Directors following the
2015 CCAR results, see Capital actions on page 157.
For 2016, the Federal Reserve revised the capital plan cycle
for the CCAR process. Under the revised time line, the Firm
is required to submit its 2016 capital plan to the Federal
Reserve by April 5, 2016. The Federal Reserve has
indicated that it expects to respond to the capital plan
submissions of bank holding companies by June 30, 2016.
The Firm's CCAR process is integrated into and employs the
same methodologies utilized in the Firm's ICAAP process, as
discussed below.
(a) Adjusted average assets, for purposes of calculating the SLR, includes
total quarterly average assets adjusted for on-balance sheet assets
that are subject to deduction from Tier 1 capital, predominantly
goodwill and other intangible assets.
(b) Off-balance sheet exposures are calculated as the average of the three
month-end spot balances in the reporting quarter.
JPMorgan Chase & Co./2015 Annual Report
155
Management's discussion and analysis
Internal Capital Adequacy Assessment Process
199,047
2,408,253
199,047
1,496
Standardized/Advanced Tier 1 capital
4Q15 CET1
estimate: 11.6%
9.0%
3.5%
8.0%
7.6%
Capital
conservation
buffer incl. G-SIB
2.6%
6.0%
1.8%
G-SIB surcharge
6.0%
2.5%
0.9%
1.9%
1.3%
4.5%
0.6%
4.0%
4.0%
Capital
conservation
buffer
10.0%
2.0%
$
Strategy and governance
The following chart presents the Basel III minimum CET1 capital ratio during the transitional periods and on a fully phased-in
basis under the Basel III rules currently in effect.
12.0%
10.5%
The Firm's estimates of its Basel III Standardized and
Advanced Fully Phased-In capital, RWA and capital ratios
and of the Firm's, JPMorgan Chase Bank, N.A.'s, and Chase
Bank USA, N.A.'s SLRs reflect management's current
understanding of the U.S. Basel III rules based on the
current published rules and on the application of such rules
to the Firm's businesses as currently conducted. The actual
Firm's capital position and to compare the Firm's capital to
that of other financial services companies.
Management's discussion and analysis
151
The Firm's capital, RWA and capital ratios that are
presented under Basel III Standardized and Advanced Fully
Phased-In rules and the Firm's and JPMorgan Chase Bank,
N.A.'s and Chase Bank USA, N.A.'s SLRs calculated under the
Basel III Advanced Fully Phased-In rules are non-GAAP
financial measures. However, such measures are used by
banking regulators, investors and analysts to assess the
Basel III capital rules will become fully phased-in on January
1, 2019, at which point the Firm will continue to calculate
its capital ratios under both the Basel III Standardized and
Advanced Approaches. While the Firm has imposed Basel III
Standardized Fully Phased-In RWA limits on its lines of
business, the Firm continues to manage each of the
businesses (including line of business equity allocations), as
well as the corporate functions, primarily on a Basel III
Advanced Fully Phased-In basis.
Basel III Fully Phased-In
Basel III also includes a requirement for Advanced
Approach banking organizations, including the Firm, to
calculate a Supplementary Leverage Ratio ("SLR"). For
additional information on SLR, see page 155.
Basel III establishes capital requirements for calculating
credit risk and market risk RWA, and in the case of Basel III
Advanced, operational risk RWA. Key differences in the
calculation of credit risk RWA between the Standardized
and Advanced approaches are that for Basel III Advanced,
credit risk RWA is based on risk-sensitive approaches which
largely rely on the use of internal credit models and
parameters, whereas for Basel III Standardized, credit risk
RWA is generally based on supervisory risk-weightings
which vary primarily by counterparty type and asset class.
Market risk RWA is calculated on a generally consistent
basis between Basel III Standardized and Basel III
Advanced, both of which incorporate the requirements set
forth in Basel 2.5. In addition to the RWA calculated under
these methodologies, the Firm may supplement such
amounts to incorporate management judgment and
feedback from its bank regulators.
Basel III capital rules, for large and internationally active
U.S. bank holding companies and banks, including the Firm
and its insured depository institution ("IDI") subsidiaries,
revised, among other things, the definition of capital and
introduced a new CET1 capital requirement. Basel III
presents two comprehensive methodologies for calculating
RWA, a general (Standardized) approach, which replaced
Basel I RWA effective January 1, 2015 ("Basel III
Standardized") and an advanced approach, which replaced
Basel II RWA ("Basel III Advanced"); and sets out minimum
capital ratios and overall capital adequacy standards.
Certain of the requirements of Basel III are subject to
phase-in periods that began on January 1, 2014 and
continue through the end of 2018 ("transitional period").
The capital adequacy of the Firm and its national bank
subsidiaries is evaluated against the Basel III approach
(Standardized or Advanced) which results in the lower ratio
(the "Collins Floor"), as required by the Collins Amendment
of the Dodd-Frank Act.
Basel III overview
The U.S. capital requirements generally follow the Capital
Accord of the Basel Committee, as amended from time to
time. Prior to January 1, 2014, the Firm and its banking
subsidiaries were subject to the capital requirements of
Basel I and Basel 2.5. Effective January 1, 2014, the Firm
became subject to Basel III (which incorporates Basel 2.5).
JPMorgan Chase & Co./2015 Annual Report
The Federal Reserve establishes capital requirements,
including well capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
minimum capital requirements for the Firm's national
banks, including JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A.
Regulatory capital
In its monitoring and management of capital, the Firm takes
into consideration an assessment of economic risk and all
regulatory capital requirements to determine the level of
capital needed to meet and maintain the objectives
discussed above, as well as to support the framework for
allocating capital to its business segments. While economic
risk is considered prior to making decisions on future
business activities, in most cases, the Firm considers risk-
based regulatory capital to be a proxy for economic risk
capital.
Monitoring and management of capital
The Firm's senior management recognizes the importance
of a capital management function that supports strategic
decision-making. The Capital Governance Committee and
the Regulatory Capital Management Office ("RCMO") are
key components in support of this objective. The Capital
Governance Committee is responsible for reviewing the
Firm's Capital Management Policy and the principles
underlying capital issuance and distribution alternatives.
The Committee is also responsible for governing the capital
adequacy assessment process, including overall design,
assumptions and risk streams, and ensuring that capital
stress test programs are designed to adequately capture the
idiosyncratic risks across the Firm's businesses. RCMO,
which reports to the Firm's CFO, is responsible for
reviewing, approving and monitoring the implementation of
the Firm's capital policies and strategies, as well as its
capital adequacy assessment process. The review assesses
the effectiveness of the capital adequacy process, the
appropriateness of the risk tolerance levels, and the
strength of the control infrastructure. The DRPC oversees
the Firm's capital adequacy process and its components.
The Basel Independent Review function ("BIR"), which
reports to the RCMO and the Capital Governance
Committee, conducts independent assessments of the Firm's
regulatory capital framework to ensure compliance with the
applicable U.S. Basel rules in support of the DRPC's and
senior management's oversight of the Firm's capital
processes. For additional discussion on the DRPC, see
Enterprise-wide Risk Management on pages 107-111.
The Firm's CEO, in conjunction with the Board of Directors,
establishes principles and guidelines for capital planning,
issuance, usage and distributions, and establishes capital
targets for the level and composition of capital in both
business-as-usual and highly stressed environments.
impact on the Firm's capital ratios and SLR as of the
effective date of the rules may differ from the Firm's current
estimates depending on changes the Firm may make to its
businesses in the future, further implementation guidance
from the regulators, and regulatory approval of certain of
the Firm's internal risk models (or, alternatively, regulatory
disapproval of the Firm's internal risk models that have
previously been conditionally approved).
4.0%
Risk-based capital regulatory minimums
4.5%
Total stockholders' equity
Less:
Less: Preferred stock
26,068
173,189
3,124
3,148
1,015
47,325
221,505
26,068
247,573
$
December 31,
2015
Deferred tax liabilities (a)
Other intangible assets
Goodwill
Add:
Less:
Common stockholders' equity
4.5%
JPMorgan Chase & Co./2015 Annual Report
Other Tier 1 adjustments
Less: Other CET1 capital adjustments
Standardized/Advanced CET1 capital
Preferred stock
(in millions)
4.5%
4.5%
4.5%
210
0.0%
1/1/2014
1/1/2015
1/1/2016
1/1/2017
1/1/2018
1/1/2019
Minimum
requirement
All banking institutions are currently required to have a
minimum capital ratio of 4.5% of CET1 capital. Certain
banking organizations, including the Firm, will be required
to hold additional amounts of capital to serve as a "capital
conservation buffer." The capital conservation buffer is
intended to be used to absorb potential losses in times of
financial or economic stress. If not maintained, the Firm
could be limited in the amount of capital that may be
distributed, including dividends and common equity
repurchases. The capital conservation buffer is to be
phased-in over time, beginning January 1, 2016 through
January 1, 2019.
At December 31, 2015 and 2014, JPMorgan Chase
maintained Basel III Standardized Transitional and Basel III
Advanced Transitional capital ratios in excess of the well-
capitalized standards established by the Federal Reserve.
Additional information regarding the Firm's capital ratios, as
well as the U.S. federal regulatory capital standards to
which the Firm is subject, is presented in Note 28. For
further information on the Firm's Basel III measures, see the
Firm's Pillar 3 Regulatory Capital Disclosures reports, which
are available on the Firm's website (http://
investor.shareholder.com/jpmorganchase/basel.cfm).
Capital components
As well as meeting the capital ratio requirements of Basel
III, the Firm must, in order to be "well-capitalized",
maintain a minimum 6% Tier 1 and a 10% Total capital
requirement. Each of the Firm's IDI subsidiaries must
maintain a minimum 5% Tier 1 leverage, 6.5% CET1, 8%
Tier 1 and 10% Total capital standard to meet the
definition of "well-capitalized" under the Prompt Corrective
Action ("PCA") requirements of the FDIC Improvement Act
("FDICIA") for IDI subsidiaries. The PCA standards for IDI
subsidiaries were effective January 1, 2015.
Based on the Firm's most recent estimate of its GSIB
surcharge and the current countercyclical buffer being set
at 0%, the Firm estimates its fully phased-in capital
conservation buffer would be 6%.
A reconciliation of total stockholders' equity to Basel III
Standardized and Advanced Fully Phased-In CET1 capital,
Tier 1 capital and Total capital is presented in the table
below. Beginning July 21, 2015, the Volcker Rule provisions
regarding the prohibitions against proprietary trading and
holding ownership interests in or sponsoring "covered
funds" became effective. The deduction from Basel III Tier 1
capital associated with the permissible holdings of covered
funds acquired after December 31, 2013 was not material
as of December 31, 2015. For additional information on the
components of regulatory capital, see Note 28.
JPMorgan Chase & Co./2015 Annual Report
152
When fully phased-in, the capital conservation buffer
requires an additional 2.5% of CET1 capital, as well as
additional levels of capital in the form of a GSIB surcharge
and the recently implemented countercyclical capital buffer.
On July 20, 2015, the Federal Reserve issued a final rule
requiring GSIBS to calculate their GSIB surcharge, on an
annual basis, under two separately prescribed methods, and
to be subject to the higher of the two. The first method
("Method 1") reflects the GSIB surcharge as prescribed by
Basel rules, and is calculated across five criteria: size, cross-
jurisdictional activity, interconnectedness, complexity and
substitutability. The second method ("Method 2") modifies
the requirements to include a measure of short-term
wholesale funding in place of substitutability, and
introduces a GSIB score "multiplication factor." Based upon
data as of December 31, 2015, the Firm estimates its fully
phased-in GSIB surcharge would be 2% of CET1 capital
under Method 1 and 3.5% under Method 2. On July 20,
2015, the date of the last published estimate, the Federal
Reserve had estimated the Firm's GSIB surcharge to be
2.5% under Method 1 and 4.5% under Method 2 as of
December 31, 2014.
The countercyclical capital buffer is a potential expansion of
the capital conservation buffer that takes into account the
macro financial environment in which large, internationally
active banks function. As of December 31, 2015 the Federal
Reserve reaffirmed setting the U.S. countercyclical capital
buffer at 0%, and stated that it will review the amount at
least annually. The countercyclical capital buffer can be
increased if the Federal Reserve, FDIC and OCC determine
that credit growth in the economy has become excessive
and can be set at up to an additional 2.5% of RWA. On
December 21, 2015, the Federal Reserve, in conjunction
with the FDIC and OCC, requested public comment, due
March 21, 2016, on a proposed policy statement detailing
the framework that would be followed in setting the U.S.
Basel III countercyclical capital buffer.
24,052 $
42,292
66,344 $
15,562 $
$
Total commercial paper
Client cash management
15,562 $
Stable
A-1
A+
Stable
A+
Stable
A-1
Stable
19,340 $ 19,442
18,800
38,140 $
F1
40,474
Securities sold under agreements to repurchase
Obligations of Firm-administered multi-seller conduits (a)
142,169 $ 147,498 $ 139,388
Trust preferred securities
3,969
5,435
4,341
5,408
Subordinated debt
25,027
29,387
27,310
29,009
Structured notes
32,813
31,309
30,311
Total long-term unsecured funding
Credit card securitization(a)
149,964 $
59,916
$
167,077 $ 168,163 $ 181,186
21,798
19,493 22,586
188,875 $ 187,656 $ 203,772
$
8,724 $
Other borrowed funds
$
21,105 $
12,047 $
30,222
11,961 $
$
10,427
28,816 $ 31,721
Securities loaned or sold under agreements to repurchase:
$
129,598 $
Securities loaned
18,174
Total securities loaned or sold under agreements to repurchase (b)(c)(d)
$
147,772 $
Senior notes
30,021
(a) Other securitizations includes securitizations of residential mortgages
and student loans.
A-
$ 18,454 $ 21,169
1,500
6,908
18,099
4,487
18,554
$ 44,961 $ 44,210
The Firm raises secured long-term funding through
securitization of consumer credit card loans and advances
from the FHLBS.
The following table summarizes the securitization issuance
and FHLB advances and their respective maturities or
redemption for the years ended December 31, 2015 and
2014.
Long-term secured funding
(in millions)
Credit card
securitization
$ 54,775 $ 52,277
Year ended
December 31,
Maturities/Redemptions
2015
2014
2015
2014
$ 6,807 $ 8,327
16,550 15,200
Issuance
$ 10,130 $ 3,774
248
9,960
19,806
4,956
Issuance
Senior notes issued in the U.S. market
Senior notes issued in non-U.S. markets
Total senior notes
Subordinated debt
Structured notes
Total long-term unsecured funding -
issuance
Maturities/redemptions
Senior notes
Trust preferred securities
Subordinated debt
Structured notes
22,165
Total long-term unsecured funding -
maturities/redemptions
2014
$ 19,212 $ 16,322
10,188
11,193
29,400
27,515
3,210
2015
A-2
309
12,079
802
Outlook
J.P. Morgan Securities LLC
Short-term
issuer
JPMorgan Chase & Co.
Long-term
issuer
issuer
issuer
Outlook
P-2
Stable
Stable
Long-term
issuer
Aa3
Outlook
P-1
Stable
A3
1,105
Long-term Short-term
issuer
Short-term
383
3,076
Other securitizations (a)
FHLB advances
Other long-term
secured funding
Total long-term
secured funding
$24,462 $24,329 $ 20,721 $ 19,238
$
The Firm's wholesale businesses also securitize loans for
client-driven transactions; those client-driven loan
securitizations are not considered to be a source of funding
for the Firm and are not included in the table above. For
further description of the client-driven loan securitizations,
see Note 16.
JPMorgan Chase & Co./2015 Annual Report
JPMorgan Chase Bank, N.A.
Chase Bank USA, N.A.
163
Credit ratings
The cost and availability of financing are influenced by
credit ratings. Reductions in these ratings could have an
adverse effect on the Firm's access to liquidity sources,
increase the cost of funds, trigger additional collateral or
funding requirements and decrease the number of investors
and counterparties willing to lend to the Firm. Additionally,
the Firm's funding requirements for VIES and other third
party commitments may be adversely affected by a decline
in credit ratings. For additional information on the impact of
a credit ratings downgrade on the funding requirements for
VIES, and on derivatives and collateral agreements, see
Special-purpose entities on page 77, and credit risk,
liquidity risk and credit-related contingent features in
Note 6.
The credit ratings of the Parent Company and the Firm's principal bank and nonbank subsidiaries as of December 31, 2015,
were as follows.
December 31, 2015
Moody's Investors Service
Standard & Poor's
Fitch Ratings
Management's discussion and analysis
211,773 $
$
27,906
Management also applies its judgment to adjust the
modeled loss estimates, taking into consideration model
imprecision, external factors and economic events that have
occurred but are not yet reflected in the loss factors.
Historical experience of both LGD and PD are considered
when estimating these adjustments. Factors related to
concentrated and deteriorating industries also are
incorporated where relevant. These estimates are based on
management's view of uncertainties that relate to current
macroeconomic and political conditions, quality of
underwriting standards and other relevant internal and
external factors affecting the credit quality of the current
portfolio.
Allowance for credit losses sensitivity
As noted above, the Firm's allowance for credit losses is
sensitive to numerous factors, which may differ depending
on the portfolio. Changes in economic conditions or in the
Firm's assumptions and estimates could affect its estimate
of probable credit losses inherent in the portfolio at the
balance sheet date. The Firm uses its best judgment to
assess these economic conditions and loss data in
estimating the allowance for credit losses and these
estimates are subject to periodic refinement based on any
changes to underlying external and Firm-specific historical
data. In many cases, the use of alternate estimates (for
example, the effect of home prices and unemployment rates
JPMorgan Chase & Co./2015 Annual Report
on consumer delinquency, or the calibration between the
Firm's wholesale loan risk ratings and external credit
ratings) or data sources (for example, external PD and LGD
factors that incorporate industry-wide information, versus
Firm-specific history) would result in a different estimated
allowance for credit losses. To illustrate the potential
magnitude of certain alternate judgments, the Firm
estimates that changes in the following inputs would have
the following effects on the Firm's modeled loss estimates
as of December 31, 2015, without consideration of any
offsetting or correlated effects of other inputs in the Firm's
allowance for loan losses:
•
•
•
For PCI loans, a combined 5% decline in housing prices
and a 1% increase in unemployment rates from current
levels could imply an increase to modeled credit loss
estimates of approximately $700 million.
For the residential real estate portfolio, excluding PCI
loans, a combined 5% decline in housing prices and a
1% increase in unemployment rates from current levels
could imply an increase to modeled annual loss
estimates of approximately $125 million.
A 50 basis point deterioration in forecasted credit card
loss rates could imply an increase to modeled
annualized credit card loan loss estimates of
approximately $600 million.
An increase in PD factors consistent with a one-notch
downgrade in the Firm's internal risk ratings for its
entire wholesale loan portfolio could imply an increase
in the Firm's modeled loss estimates of approximately
$2.1 billion.
A 100 basis point increase in estimated LGD for the
Firm's entire wholesale loan portfolio could imply an
increase in the Firm's modeled loss estimates of
approximately $175 million.
The purpose of these sensitivity analyses is to provide an
indication of the isolated impacts of hypothetical
alternative assumptions on modeled loss estimates. The
changes in the inputs presented above are not intended to
imply management's expectation of future deterioration of
those risk factors. In addition, these analyses are not
intended to estimate changes in the overall allowance for
loan losses, which would also be influenced by the judgment
management applies to the modeled loss estimates to
reflect the uncertainty and imprecision of these modeled
loss estimates based on then-current circumstances and
conditions.
It is difficult to estimate how potential changes in specific
factors might affect the overall allowance for credit losses
because management considers a variety of factors and
inputs in estimating the allowance for credit losses.
Changes in these factors and inputs may not occur at the
same rate and may not be consistent across all geographies
or product types, and changes in factors may be
directionally inconsistent, such that improvement in one
factor may offset deterioration in other factors. In addition,
JPMorgan Chase & Co./2015 Annual Report
it is difficult to predict how changes in specific economic
conditions or assumptions could affect borrower behavior
or other factors considered by management in estimating
the allowance for credit losses. Given the process the Firm
follows and the judgments made in evaluating the risk
factors related to its loss estimates, management believes
that its current estimate of the allowance for credit losses is
appropriate.
$
284.1
$
Trading debt and equity instruments
Total assets at
fair value
December 31, 2015
PD estimates are based on observable external through-
the-cycle data, using credit rating agency default statistics.
A LGD estimate is assigned to each loan or lending-related
commitment. The estimate represents the amount of
economic loss if the obligor were to default. The type of
obligor, quality of collateral, and the seniority of the Firm's
lending exposure in the obligor's capital structure affect
LGD. LGD estimates are based on the Firm's history of actual
credit losses over more than one credit cycle. Changes to
the time period used for PD and LGD estimates (for
example, point-in-time loss versus longer views of the credit
cycle) could also affect the allowance for credit losses.
The Firm applies judgment in estimating PD and LGD used
in calculating the allowances. Wherever possible, the Firm
uses independent, verifiable data or the Firm's own
historical loss experience in its models for estimating the
allowances, but differences in characteristics between the
Firm's specific loans or lending-related commitments and
those reflected in external and Firm-specific historical data
could affect loss estimates. Estimates of PD and LGD are
subject to periodic refinement based on any changes to
underlying external and Firm-specific historical data. The
use of different inputs would change the amount of the
allowance for credit losses determined appropriate by the
Firm.
MSRS
AFS securities
(in billions, except ratio data)
The following table includes the Firm's assets measured at
fair value and the portion of such assets that are classified
within level 3 of the valuation hierarchy. For further
information, see Note 3.
Assets measured at fair value
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. The majority of such assets and liabilities are
measured at fair value on a recurring basis. Certain assets
and liabilities are measured at fair value on a nonrecurring
basis, including certain mortgage, home equity and other
loans, where the carrying value is based on the fair value of
the underlying collateral.
Fair value of financial instruments, MSRs and commodities
inventory
Loans
evaluation of historical and current information and involve
subjective assessment and interpretation. Determining risk
ratings involves significant judgment; emphasizing one
factor over another or considering additional factors could
affect the risk rating assigned by the Firm.
166
The Firm assesses the credit quality of its borrower or
counterparty and assigns a risk rating. Risk ratings are
assigned at origination or acquisition, and if necessary,
adjusted for changes in credit quality over the life of the
exposure. In assessing the risk rating of a particular loan or
lending-related commitment, among the factors considered
are the obligor's debt capacity and financial flexibility, the
level of the obligor's earnings, the amount and sources for
repayment, the level and nature of contingencies,
management strength, and the industry and geography in
which the obligor operates. These factors are based on an
JPMorgan Chase & Co./2015 Annual Report
164
Although the Firm closely monitors and endeavors to
manage, to the extent it is able, factors influencing its credit
ratings, there is no assurance that its credit ratings will not
be changed in the future.
In May 2015, Moody's published its new bank rating
methodology. As part of this action, the Firm's preferred
stock, deposits and bank subordinated debt ratings were
upgraded by one notch. Additionally in May 2015, Fitch
changed its bank ratings methodology, implementing
ratings differentiation between bank holding companies and
their bank subsidiaries. This resulted in a one notch
upgrade to the issuer ratings, senior debt ratings and long-
term deposit ratings of JPMorgan Chase Bank, N.A., and
certain other subsidiaries. In December 2015, S&P removed
from its ratings for U.S. GSIBS the uplift assumption due to
extraordinary government support. As a result, the Firm's
short-term and long-term senior unsecured debt ratings
and its subordinated unsecured debt ratings were lowered
by one notch.
P-1
A+
CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM
Aa3
JPMorgan Chase's unsecured debt does not contain
requirements that would call for an acceleration of
payments, maturities or changes in the structure of the
existing debt, provide any limitations on future borrowings
or require additional collateral, based on unfavorable
changes in the Firm's credit ratings, financial ratios,
earnings, or stock price.
Downgrades of the Firm's long-term ratings by one or two
notches could result in an increase in its cost of funds, and
access to certain funding markets could be reduced as
noted above. The nature and magnitude of the impact of
ratings downgrades depends on numerous contractual and
behavioral factors (which the Firm believes are
incorporated in its liquidity risk and stress testing metrics).
The Firm believes that it maintains sufficient liquidity to
withstand a potential decrease in funding capacity due to
ratings downgrades.
'ཏི ཝཱ ཏི ཨུ ཨུཏ
Stable
F1+
AA-
Critical factors in maintaining high credit ratings include a
stable and diverse earnings stream, strong capital ratios,
strong credit quality and risk management controls, diverse
funding sources, and disciplined liquidity monitoring
procedures. Rating agencies continue to evaluate economic
and geopolitical trends, regulatory developments, future
profitability, risk management practices, and litigation
matters, as well as their broader ratings methodologies.
Changes in any of these factors could lead to changes in the
Firm's credit ratings.
Total level
3 assets
11.9
JPMorgan Chase's accounting policies and use of estimates
are integral to understanding its reported results. The
Firm's most complex accounting estimates require
management's judgment to ascertain the appropriate
carrying value of assets and liabilities. The Firm has
established policies and control procedures intended to
ensure that estimation methods, including any judgments
made as part of such methods, are well-controlled,
independently reviewed and applied consistently from
period to period. The methods used and judgments made
reflect, among other factors, the nature of the assets or
liabilities and the related business and risk management
strategies, which may vary across the Firm's businesses and
portfolios. In addition, the policies and procedures are
intended to ensure that the process for changing
methodologies occurs in an appropriate manner. The Firm
believes its estimates for determining the carrying value of
its assets and liabilities are appropriate. The following is a
brief description of the Firm's critical accounting estimates
involving significant judgments.
JPMorgan Chase's allowance for credit losses covers the
retained consumer and wholesale loan portfolios, as well as
the Firm's wholesale and certain consumer lending-related
commitments. The allowance for loan losses is intended to
adjust the carrying value of the Firm's loan assets to reflect
probable credit losses inherent in the loan portfolio as of
the balance sheet date. Similarly, the allowance for lending-
related commitments is established to cover probable credit
losses inherent in the lending-related commitments
portfolio as of the balance sheet date.
The Firm's methodology for determining the allowance for
loan losses and the allowance for lending-related
commitments involves the early identification of credits that
are deteriorating. The formula-based component of the
allowance calculation for wholesale loans and lending-
related components is the product of an estimated PD and
estimated LGD. These factors are determined based on the
credit quality and specific attributes of the Firm's loans and
lending-related commitments to each obligor.
Formula-based component - Wholesale loans and lending-
related commitments
These cash flow projections are based on estimates
regarding default rates (including redefault rates on
modified loans), loss severities, the amounts and timing of
prepayments and other factors that are reflective of current
and expected future market conditions. These estimates are
dependent on assumptions regarding the level of future
home price declines, and the duration of current overall
economic conditions, among other factors. These estimates
and assumptions require significant management judgment
and certain assumptions are highly subjective.
In connection with the Washington Mutual transaction,
JPMorgan Chase acquired certain PCI loans, which are
accounted for as described in Note 14. The allowance for
loan losses for the PCI portfolio is based on quarterly
estimates of the amount of principal and interest cash flows
expected to be collected over the estimated remaining lives
of the loans.
PCI loans
Overall, the allowance for credit losses for the consumer
portfolio, including credit card, is sensitive to changes in the
economic environment (e.g., unemployment rates),
delinquency rates, the realizable value of collateral (e.g.,
housing prices), FICO scores, borrower behavior and other
risk factors. While all of these factors are important
determinants of overall allowance levels, changes in the
various factors may not occur at the same time or at the
same rate, or changes may be directionally inconsistent
such that improvement in one factor may offset
deterioration in the other. In addition, changes in these
factors would not necessarily be consistent across all
geographies or product types. Finally, it is difficult to
predict the extent to which changes in these factors would
ultimately affect the frequency of losses, the severity of
losses or both.
Allowance for credit losses
Management's discussion and analysis
The formula-based allowance for credit losses for the
consumer portfolio, including credit card, is calculated by
applying statistical credit loss factors to outstanding
principal balances over an estimated loss emergence period
to arrive at an estimate of incurred credit losses in the
portfolio. The loss emergence period represents the time
period between the date at which the loss is estimated to
have been incurred and the ultimate realization of that loss
(through a charge-off). Estimated loss emergence periods
may vary by product and may change over time;
management applies judgment in estimating loss
emergence periods, using available credit information and
trends. In addition, management applies judgment to the
statistical loss estimates for each loan portfolio category,
using delinquency trends and other risk characteristics to
estimate the total incurred credit losses in the portfolio.
Management uses additional statistical methods and
considers portfolio and collateral valuation trends to review
the appropriateness of the primary statistical loss estimate.
The statistical calculation is then adjusted to take into
consideration model imprecision, external factors and
current economic events that have occurred but that are
not yet reflected in the factors used to derive the statistical
calculation; these adjustments are accomplished in part by
analyzing the historical loss experience for each major
product segment. However, it is difficult to predict whether
historical loss experience is indicative of future loss levels.
Management applies judgment in making this adjustment,
taking into account uncertainties associated with current
macroeconomic and political conditions, quality of
underwriting standards, borrower behavior, the potential
impact of payment recasts within the HELOC portfolio, and
other relevant internal and external factors affecting the
credit quality of the portfolio. In certain instances, the
interrelationships between these factors create further
uncertainties. For example, the performance of a HELOC
that experiences a payment recast may be affected by both
the quality of underwriting standards applied in originating
the loan and the general economic conditions in effect at
the time of the payment recast. For junior lien products,
management considers the delinquency and/or
modification status of any senior liens in determining the
adjustment. The application of different inputs into the
statistical calculation, and the assumptions used by
management to adjust the statistical calculation, are
subject to management judgment, and emphasizing one
input or assumption over another, or considering other
inputs or assumptions, could affect the estimate of the
allowance for loan losses for the consumer credit portfolio.
Formula-based component - Consumer loans and lending-
related commitments, excluding PCI loans
JPMorgan Chase & Co./2015 Annual Report
The asset-specific allowance for loan losses for each of the
Firm's portfolio segments is generally measured as the
difference between the recorded investment in the impaired
loan and the present value of the cash flows expected to be
collected, discounted at the loan's original effective interest
rate. Estimating the timing and amounts of future cash
flows is highly judgmental as these cash flow projections
rely upon estimates such as redefault rates, loss severities,
the amounts and timing of prepayments and other factors
that are reflective of current and expected future market
conditions. These estimates are, in turn, dependent on
factors such as the level of future home prices, the duration
of current overall economic conditions, and other
macroeconomic and portfolio-specific factors. All of these
estimates and assumptions require significant management
judgment and certain assumptions are highly subjective.
Asset-specific component
The allowance for loan losses includes an asset-specific
component, a formula-based component, and a component
related to PCI loans. The determination of each of these
components involves significant judgment on a number of
matters, as discussed below. For further discussion of the
methodologies used in establishing the Firm's allowance for
credit losses, see Note 15.
165
207,012 $ 210,458 $ 204,116
Derivative receivables (a)
7.9
(c) Excluded long-term structured repurchase agreements of $4.2 billion and $2.7 billion as of December 31, 2015 and 2014, respectively, and average
balances of $3.9 billion and $4.2 billion for the years ended December 31, 2015 and 2014, respectively.
AA-
(a) Included in beneficial interests issued by consolidated variable interest entities on the Firm's Consolidated balance sheets.
(b) Excludes federal funds purchased.
215,690 $207,400
24,040 $ 17,018
20,063
211,664
26,068 $
221,505 $
$
Common stockholders' equity(s)
$
Preferred stock (g)
97,324
5,031
60,667
70,150
4,332
$ 106,773 $
64,994
4,373
102,572
106,544 $
31,197
30,382
28,892
Other securitizations (e)
FHLB advances
Other long-term secured funding (f)
(d) Excluded average long-term securities loaned of $24 million as of December 31, 2014. There was no balance for the other periods presented.
1,760
1,909
2,734
71,581
5,297
Total long-term secured funding
$
2,008
(e) Other securitizations includes securitizations of residential mortgages and student loans. The Firm's wholesale businesses also securitize loans for client-
driven transactions, which are not considered to be a source of funding for the Firm and are not included in the table.
(f) Includes long-term structured notes which are secured.
(g) For additional information on preferred stock and common stockholders' equity see Capital Management on pages 149-158, Consolidated statements of
changes in stockholders' equity, Note 22 and Note 23.
0.8
28.0
1.7
1.9
Private equity investments (b)
Other
6.6
Total assets measured at fair value on a
recurring basis
6.6
2.9
0.8
241.8
19.8
343.8
Trading assets
1.5
59.7
625.0
Total assets measured at fair value on a
nonrecurring basis
162
JPMorgan Chase & Co./2015 Annual Report
Short-term funding
During the third quarter of 2015 the Firm completed the
discontinuation of its commercial paper customer sweep
cash management program. This change has not had a
significant impact on the Firm's liquidity as the majority of
these customer funds remain as deposits at the Firm.
The Firm's sources of short-term secured funding primarily
consist of securities loaned or sold under agreements to
repurchase. Securities loaned or sold under agreements to
repurchase are secured predominantly by high-quality
securities collateral, including government-issued debt and
agency MBS, and constitute a significant portion of the
federal funds purchased and securities loaned or sold under
repurchase agreements on the Consolidated balance sheets.
The decrease in securities loaned or sold under agreements
to repurchase at December 31, 2015, compared with the
balance at December 31, 2014 (as well as the average
balances for the full year 2015, compared with the prior
year) was due to a decline in secured financing of trading
assets-debt and equity instruments in CIB. The balances
associated with securities loaned or sold under agreements
to repurchase fluctuate over time due to customers'
investment and financing activities; the Firm's demand for
financing; the ongoing management of the mix of the Firm's
liabilities, including its secured and unsecured financing (for
both the investment securities and market-making
portfolios); and other market and portfolio factors.
Long-term funding and issuance
Long-term funding provides additional sources of stable
funding and liquidity for the Firm. The Firm's long-term
funding plan is driven by expected client activity, liquidity
considerations, and regulatory requirements. Long-term
funding objectives include maintaining diversification,
maximizing market access and optimizing funding costs, as
well as maintaining a certain level of liquidity at the Parent
Company. The Firm evaluates various funding markets,
tenors and currencies in creating its optimal long-term
funding plan.
31.2
32.2
626.7
2,351.7
$
Year ended December 31,
(in millions)
Total assets measured at fair value
Total Firm assets
1.0
1.7
$
Long-term unsecured funding
F1+
The Firm has typically experienced higher customer deposit inflows at quarter-ends. Therefore, the Firm believes average
deposit balances are generally more representative of deposit trends. The table below summarizes, by line of business, the
period-end and average deposit balances as of and for the years ended December 31, 2015 and 2014.
Average
As of or for the year ended December 31,
Sources of funds (excluding deposits)
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2015 and 2014,
and average balances for the years ended December 31, 2015 and 2014. For additional information, see the Consolidated
Balance Sheet Analysis on pages 75-76 and Note 21.
Management's discussion and analysis
161
JPMorgan Chase & Co./2015 Annual Report
A significant portion of the Firm's deposits are consumer deposits, which are considered a stable source of liquidity.
Additionally, the majority of the Firm's wholesale operating deposits are also considered to be stable sources of liquidity
because they are generated from customers that maintain operating service relationships with the Firm. Wholesale non-
operating deposits, including a portion of balances previously reported as commercial paper sweep liabilities, decreased by
approximately $200 billion from December 31, 2014 to December 31, 2015, predominantly driven by the Firm's actions to
reduce such deposits. The reduction has not had a significant impact on the Firm's liquidity position as discussed under LCR
and HQLA above. For further discussions of deposit and liability balance trends, see the discussion of the Firm's business
segments results and the Consolidated Balance Sheet Analysis on pages 83-106 and pages 75-76, respectively.
1,264,301
19,319
17,129
7,606
23,555
1,279,715 $ 1,363,427 $ 1,295,788 $
$
150,121
149,525
155,247
146,766
190,425
184,132
213,682
172,470
417,517
414,064
(in millions)
468,423
Commercial paper:
2015
Requires enhanced disclosures with respect to transactions
recognized as sales in which exposure to the derecognized assets
is retained through a separate agreement with the counterparty.
Requires enhanced disclosures with respect to the types of financial
assets pledged in secured financing transactions and the remaining
contractual maturity of the secured financing transactions.
• Amends the accounting for certain secured financing
transactions.
⚫ Limits disclosures required for investments that are eligible to be
measured using the NAV practical expedient to investments for
which the entity has elected the practical expedient.
Removes the requirement to categorize investments measured
under the net asset value ("NAV") practical expedient from the
fair value hierarchy.
• Does not impact the amortization method for these costs.
• Requires that unamortized debt issuance costs be presented as a
reduction of the applicable liability rather than as an asset.
Summary of guidance
Investments in qualified
affordable housing
projects
Reporting discontinued
operations and
disclosures of disposals of
components of an entity
Repurchase agreements
and similar transactions
investments in certain
entities that calculate net
asset value per share (or
its equivalent)
Disclosures for
issuance costs
Standard
Simplifying the
presentation of debt
Financial Accounting Standards Board ("FASB") Standards Adopted during 2015
ACCOUNTING AND REPORTING DEVELOPMENTS
Management's discussion and analysis
169
JPMorgan Chase & Co./2015 Annual Report
$
2014
2015
2014
Wholesale funding
Changes the criteria for determining whether a disposition
qualifies for discontinued operations presentation.
395,228
530,938 $
JPMorgan Chase is subject to the income tax laws of the
various jurisdictions in which it operates, including U.S.
federal, state and local and non-U.S. jurisdictions. These
laws are often complex and may be subject to different
interpretations. To determine the financial statement
impact of accounting for income taxes, including the
provision for income tax expense and unrecognized tax
benefits, JPMorgan Chase must make assumptions and
judgments about how to interpret and apply these complex
tax laws to numerous transactions and business events, as
well as make judgments regarding the timing of when
certain items may affect taxable income in the U.S. and
non-U.S. tax jurisdictions.
Income taxes
JPMorgan Chase & Co./2015 Annual Report
168
Declines in business performance, increases in credit losses,
increases in equity capital requirements, as well as
deterioration in economic or market conditions, adverse
estimates of regulatory or legislative changes or increases
in the estimated cost of equity, could cause the estimated
fair values of the Firm's reporting units or their associated
goodwill to decline in the future, which could result in a
material impairment charge to earnings in a future period
related to some portion of the associated goodwill.
For additional information on goodwill, see Note 17.
The projections for all of the Firm's reporting units are
consistent with management's short-term business outlook
assumptions, and in the longer term, incorporate a set of
macroeconomic assumptions and the Firm's best estimates
of long-term growth and returns on equity of its businesses.
Where possible, the Firm uses third-party and peer data to
benchmark its assumptions and estimates.
The goodwill of $101 million remaining as of December 31,
2014 associated with the Private Equity business was
disposed of as part of the Private Equity sale completed in
January 2015. For further information on the Private Equity
sale, see Note 2.
Based upon the updated valuations for all of its reporting
units, the Firm concluded that the goodwill allocated to its
reporting units was not impaired at December 31, 2015.
The fair values of these reporting units exceeded their
carrying values by approximately 10% - 180% for all
reporting units and did not indicate a significant risk of
goodwill impairment based on current projections and
valuations.
Management applies significant judgment when estimating
the fair value of its reporting units. Estimates of fair value
are dependent upon estimates of (a) the future earnings
potential of the Firm's reporting units, including the
estimated effects of regulatory and legislative changes,
such as the Dodd-Frank Act, (b) long-term growth rates and
(c) the relevant cost of equity. Imprecision in estimating
these factors can affect the estimated fair value of the
reporting units.
Under U.S. GAAP, goodwill must be allocated to reporting
units and tested for impairment at least annually. The Firm's
process and methodology used to conduct goodwill
impairment testing is described in Note 17.
Goodwill impairment
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of methodologies or
assumptions different than those used by the Firm could
result in a different estimate of fair value at the reporting
date. For a detailed discussion of the Firm's valuation
process and hierarchy, and its determination of fair value
for individual financial instruments, see Note 3.
Imprecision in estimating unobservable market inputs or
other factors can affect the amount of gain or loss recorded
for a particular position. Furthermore, while the Firm
believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
For instruments classified in levels 2 and 3, management
judgment must be applied to assess the appropriate level of
valuation adjustments to reflect counterparty credit quality,
the Firm's credit-worthiness, market funding rates, liquidity
considerations, unobservable parameters, and for portfolios
that meet specified criteria, the size of the net open risk
position. The judgments made are typically affected by the
type of product and its specific contractual terms, and the
level of liquidity for the product or within the market as a
whole. For further discussion of valuation adjustments
applied by the Firm see Note 3.
Level 3 assets as a percentage of total
Firm assets(a)
Level 3 assets as a percentage of total
Firm assets at fair value(a)
1.4%
5.1%
Note: Effective April 1, 2015, the Firm adopted new accounting guidance for
certain investments where the Firm measures fair value using the net asset value
per share (or its equivalent) as a practical expedient and has excluded these
investments from the fair value hierarchy. For further information, see Note 3.
(a) For purposes of table above, the derivative receivables total reflects the
impact of netting adjustments; however, the $7.9 billion of derivative
receivables classified as level 3 does not reflect the netting adjustment as
such netting is not relevant to a presentation based on the transparency
of inputs to the valuation of an asset. However, if the Firm were to net
such balances within level 3, the reduction in the level 3 derivative
receivables balance would be $546 million at December 31, 2015; this
is exclusive of the netting benefit associated with cash collateral, which
would further reduce the level 3 balances.
(b) Private equity instruments represent investments within the Corporate
line of business.
167
Management's discussion and analysis
Valuation
JPMorgan Chase's interpretations of tax laws around the
world are subject to review and examination by the various
taxing authorities in the jurisdictions where the Firm
operates, and disputes may occur regarding its view on a
tax position. These disputes over interpretations with the
various taxing authorities may be settled by audit,
administrative appeals or adjudication in the court systems
of the tax jurisdictions in which the Firm operates.
JPMorgan Chase regularly reviews whether it may be
assessed additional income taxes as a result of the
resolution of these matters, and the Firm records additional
reserves as appropriate. In addition, the Firm may revise its
estimate of income taxes due to changes in income tax laws,
legal interpretations and tax planning strategies. It is
possible that revisions in the Firm's estimate of income
taxes may materially affect the Firm's results of operations
in any reporting period.
486,919
The Firm's provision for income taxes is composed of
current and deferred taxes. Deferred taxes arise from
differences between assets and liabilities measured for
financial reporting versus income tax return purposes.
Deferred tax assets are recognized if, in management's
judgment, their realizability is determined to be more likely
than not. The Firm has also recognized deferred tax assets
in connection with certain net operating losses ("NOLS")
and tax credits. The Firm performs regular reviews to
ascertain whether its deferred tax assets are realizable.
These reviews include management's estimates and
assumptions regarding future taxable income, which also
incorporates various tax planning strategies, including
strategies that may be available to utilize NOLS before they
expire. In connection with these reviews, if it is determined
that a deferred tax asset is not realizable, a valuation
allowance is established. The valuation allowance may be
reversed in a subsequent reporting period if the Firm
determines that, based on revised estimates of future
taxable income or changes in tax planning strategies, it is
more likely than not that all or part of the deferred tax
asset will become realizable. As of December 31, 2015,
management has determined it is more likely than not that
the Firm will realize its deferred tax assets, net of the
existing valuation allowance.
on the undistributed earnings of certain non-U.S.
subsidiaries, to the extent that such earnings have been
reinvested abroad for an indefinite period of time. Changes
to the income tax rates applicable to these non-U.S.
subsidiaries may have a material impact on the effective tax
rate in a future period if such changes were to occur.
The Firm adjusts its unrecognized tax benefits as necessary
when additional information becomes available. Uncertain
tax positions that meet the more-likely-than-not recognition
threshold are measured to determine the amount of benefit
to recognize. An uncertain tax position is measured at the
largest amount of benefit that management believes is
more likely than not to be realized upon settlement. It is
possible that the reassessment of JPMorgan Chase's
unrecognized tax benefits may have a material impact on its
effective income tax rate in the period in which the
reassessment occurs.
502,520 $
557,645 $
$
2014
2015
2014
2015
Average
Total Firm
Corporate
Asset Management
Commercial Banking
Corporate & Investment Bank
Consumer & Community Banking
(in millions)
As of or for the period ended December 31,
Deposits
Year ended December 31,
For a description of the significant estimates and judgments
associated with establishing litigation reserves, see
Note 31.
As of December 31, 2015, total deposits for the Firm were
$1,279.7 billion, compared with $1,363.4 billion at
December 31, 2014 (61% and 58% of total liabilities at
December 31, 2015 and 2014, respectively). The decrease
was attributable to lower wholesale non-operating deposits,
partially offset by higher consumer deposits. For further
information, see Consolidated Balance Sheet Analysis on
pages 75-76.
A key strength of the Firm is its diversified deposit
franchise, through each of its lines of business, which
provides a stable source of funding and limits reliance on
the wholesale funding markets. As of December 31, 2015,
the Firm's loans-to-deposits ratio was 65%, compared with
56% at December 31, 2014.
Deposits
For additional information on income taxes, see Note 26.
Litigation reserves
JPMorgan Chase does not record U.S. federal income taxes
Requires enhanced disclosures about discontinued operations and
significant dispositions that do not qualify to be presented as
discontinued operations.
Applies to accounting for investments in affordable housing
projects that qualify for the low-income housing tax credit.
Replaces the effective yield method and allows companies to make
an accounting policy election to amortize the initial cost of its
investments in proportion to the tax credits and other benefits
received if certain criteria are met, and to present the amortization
as a component of income tax expense.
Effects on financial statements
The significant majority of the Firm's long-term unsecured
funding is issued by the Parent Company to provide
maximum flexibility in support of both bank and nonbank
subsidiary funding. The following table summarizes long-
term unsecured issuance and maturities or redemptions for
the years ended December 31, 2015 and 2014. For
additional information, see Note 21.
Details of the Firm's processes for determining fair value
are set out in Note 3. Estimating fair value requires the
application of judgment. The type and level of judgment
required is largely dependent on the amount of observable
market information available to the Firm. For instruments
valued using internally developed models that use
significant unobservable inputs and are therefore classified
within level 3 of the valuation hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
JPMorgan Chase & Co./2015 Annual Report
170
(a) The guidance was required to be applied retrospectively and accordingly, certain prior period amounts have been revised to conform with the current
period presentation.
⚫ For further information, see Note 1. (a)
Adopted January 1, 2015.
•
Stable
• There was no material impact on the Firm's
Consolidated Financial Statements.
Adopted January 1, 2015.
•
• For further information, see Note 6 and Note 13.
There was no material impact on the Firm's
Consolidated Financial Statements.
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate model to use. Second, the lack of observability
of certain significant inputs requires management to assess
all relevant empirical data in deriving valuation inputs
including, for example, transaction details, yield curves,
interest rates, prepayment rates, default rates, volatilities,
correlations, equity or debt prices, valuations of
comparable instruments, foreign exchange rates and credit
curves. For further discussion of the valuation of level 3
instruments, including unobservable inputs used, see
Note 3.
⚫ Disclosure enhancements adopted April 1, 2015.
Adopted October 1, 2015.
•
There was no material impact on the Firm's
• For further information, see Note 1. (a)
•
Consolidated balance sheets, and no impact on the
Firm's Consolidated results of operations.
• The application of this guidance only affected the
disclosures related to these investments and had
•
no impact on the Firm's Consolidated balance
sheets or results of operations.
• For further information, see Note 3. (a)
Accounting amendments adopted January 1, 2015.
Adopted April 1, 2015.
•
3,827
43,634
43,319
93,543
95,112
97,367
29,750
225
Noninterest expense
Compensation expense
43,510
30,160
30,810
Occupancy expense
3,139
9,350
54,048
7,463
202
77
667
2,513
3,563
5,205
5,924
6,020
7,897
6,022
3,013
4,608
50,033
51,478
3,768
50,973
51,531
52,669
3,032
3,909
7,002
Technology, communications and equipment expense
26,675
Income tax expense
6,260
8,954
8,789
Net income
$
30,699
24,442 $
17,886
Net income applicable to common stockholders
$
22,406 $
20,077 $
16,557
Net income per common share data
21,745 $
3,693
30,702
70,467
6,193
5,804
5,425
Professional and outside services
7,705
7,641
Marketing
Income before income tax expense
2,708
2,500
Total noninterest expense
9,593
11,146
20,398
59,014
61,274
2,550
Other expense
All other financing activities, net
Diluted earnings per share
Allowance for loan losses
Loans (included $2,861 and $2,611 at fair value)
Securities (included $241,754 and $298,752 at fair value and assets pledged of $14,883 and $24,912)
Trading assets (included assets pledged of $115,284 and $125,034)
Federal funds sold and securities purchased under resale agreements (included $23,141 and $28,585 at fair value)
Securities borrowed (included $395 and $992 at fair value)
Deposits with banks
Loans, net of allowance for loan losses
Cash and due from banks
December 31, (in millions, except share data)
Consolidated balance sheets
177
JPMorgan Chase & Co./2015 Annual Report
The Notes to Consolidated Financial Statements are an integral part of these statements.
14,983
Assets
Accrued interest and accounts receivable
Premises and equipment
Goodwill
484,477
340,015
27,831
20,490 $
$
2014
2015
Other borrowed funds (included $9,911 and $14,739 at fair value)
Commercial paper
Federal funds purchased and securities loaned or sold under repurchase agreements (included $3,526 and $2,979 at fair
value)
Deposits (included $12,516 and $8,807 at fair value)
Liabilities
Other assets (included $7,604 and $11,909 at fair value and assets pledged of $1,286 and $1,399)
Total assets (a)
Other intangible assets
Mortgage servicing rights
$
212,575
22,735
22,445
21,745 $
$
24,442
$
2013
2014
17,886
2015
Translation adjustments, net of hedges
Unrealized gains/(losses) on investment securities
Other comprehensive income/(loss), after-tax
Net income
Treasury stock and warrants repurchased
Dividends paid
Cash flow hedges
(2,144)
(15)
1,975
(4,070)
$
Comprehensive income
(2,903)
990
(1,997)
Total other comprehensive income/(loss), after-tax
1,467
(1,018)
111
Defined benefit pension and OPEB plans
(259)
44
51
(41)
(11)
$
215,803
98,721
110,435
(a) The Firm recognized other-than-temporary impairment ("OTTI") losses of $22 million, $4 million, and $21 million for the years ended December 31, 2015, 2014 and 2013,
respectively.
176
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2015 Annual Report
Consolidated statements of comprehensive income
Year ended December 31, (in millions)
1.44
JPMorgan Chase & Co./2015 Annual Report
180
3,502
9,573
8,194 $
1,392
9,423
(13,555)
The Notes to Consolidated Financial Statements are an integral part of these statements.
Net cash provided by/(used in) financing activities
1.58 $
1.72 $
Weighted-average basic shares
Weighted-average diluted shares
Cash dividends declared per common share
$
6.05 $
5.33 $
4.38
6.00
5.29
4.34
3,700.4
3,732.8
3,763.5
3,797.5
3,782.4
3,814.9
$
39,771
27,831 $
20,490 $
$
7,220
(726)
(6,056)
(6,990)
(7,873)
(4,760)
(5,616)
(1,800)
Net decrease in cash and due from banks
Effect of exchange rate changes on cash and due from banks
757,336
837,299
348,004
290,827
398,988
343,839
(768)
Basic earnings per share
(913)
118,228
$
$
53,723
39,771
27,831
Cash income taxes paid, net
Cash and due from banks at the end of the period
Cash interest paid
Cash and due from banks at the beginning of the period
(13,952)
(11,940)
(7,341)
272
(1,125)
(276)
28,324
(187,511)
(4,789)
15,562
823,744
3,139
3,827
$ 24,442 $ 21,745 $ 17,886
2013
2014
2015
Investing activities
225
Net cash provided by operating activities
Accounts payable and other liabilities
Trading liabilities
Other assets
Accrued interest and accounts receivable
Securities borrowed
Trading assets
Net change in:
Other operating adjustments
Proceeds from sales, securitizations and paydowns of loans held-for-sale
4,940
5,306
12,165
89,110
(24,814)
62,212
73,566
71,407
49,363
4,759
(75,928)
(48,109)
1,552
2,113
1,785
8,139
4,362
1,333
(67,525)
1,020
Originations and purchases of loans held-for-sale
Deferred tax expense
(21)
(21)
(21)
Balance at December 31
Reissuance from treasury stock
Purchase of treasury stock
Balance at January 1
(17,856)
(5,616)
1,781
Treasury stock, at cost
Shares held in RSU Trust, at cost
Balance at December 31
1,199
2,189
(2,903)
990
4,102
Balance at January 1 and December 31
Other
(14,847)
(4,760)
(4,789)
Depreciation and amortization
Provision for credit losses
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Net income
Operating activities
Year ended December 31, (in millions)
Consolidated statements of cash flows
(12,002)
179
The Notes to Consolidated Financial Statements are an integral part of these statements.
$ 247,573 $ 231,727 $ 210,857
Total stockholders' equity
(14,847)
1,944
1,751
(17,856)
(21,691)
JPMorgan Chase & Co./2015 Annual Report
1,199
7,562
(3,637)
81,476
(58,867)
10,905
(39,415)
Federal funds purchased and securities loaned or sold under repurchase agreements
89,346
(88,678)
Deposits
Commercial paper and other borrowed funds
Net change in:
(150,501)
(828)
2,181
(165,636)
3,703
106,980
(23,721)
(51,749)
73,312
(130,266)
12,033
Financing activities
20,115
(57,828)
2,784
Redemption of preferred stock
3,873
8,847
(60,497)
(65,275)
(67,247)
5,893
Proceeds from issuance of preferred stock
9,242
Payments of long-term borrowings
78,515
79,611
Proceeds from long-term borrowings
(10,433)
(834)
(5,632)
Beneficial interests issued by consolidated variable interest entities
83,546
22,664
89,631
76,448
40,444
(70,804) (121,504)
18,604
(108,962)
Net change in:
107,953
(2,129)
314
36,593
73,466
(5,122)
(5,750)
Deposits with banks
6,058
(9,772)
26,818
(28,972)
526
(9,166)
(3,701)
(2,340)
(23,361)
90,664
38,411
144,462
3,190
Net cash provided by/(used in) investing activities
All other investing activities, net
Other changes in loans, net
Proceeds from sales and securitizations of loans held-for-investment
Purchases
Proceeds from sales
Proceeds from paydowns and maturities
Federal funds sold and securities purchased under resale agreements
Available-for-sale securities:
4,169
(10,345)
6,099
(6,204)
Purchases
Proceeds from paydowns and maturities
Held-to-maturity securities:
(194,363)
47,726
(168,426)
30,848
189
(24,214)
(14,185)
2,189
(1,997)
192
Balance at January 1
231,727
247,573
(21)
(17,856)
(21,691)
2,189
129,977
93,270
$ 2,351,698 $ 2,572,274
92,500
146,420
192
(21)
4,105
20,063
26,068
Total liabilities and stockholders' equity
Treasury stock, at cost (441,459,392 and 390,144,630 shares)
Total stockholders' equity
Shares held in restricted stock units ("RSU”) trust, at cost (472,953 shares)
4,105
Accumulated other comprehensive income
(a) The following table presents information on assets and liabilities related to VIES that are consolidated by the Firm at December 31, 2015 and 2014. The difference between total
VIE assets and liabilities represents the Firm's interests in those entities, which were eliminated in consolidation.
2015
$
9,090
68,880
1,815
79,785
$
3,736 $
75,104
2,765
81,605
$
$
Total liabilities
December 31, (in millions)
All other liabilities
Liabilities
Total assets
All other assets
Loans
Trading assets
Assets
2014
Beneficial interests issued by consolidated variable interest entities
41,879 $
809
Retained earnings
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,606,750 and 2,006,250 shares)
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
152,678
$ 1,279,715 $ 1,363,427
$ 2,351,698 $ 2,572,274
102,098
105,572
1,192
1,015
192,101
7,436
47,647
47,325
15,133
14,362
70,079
46,605
743,151
6,608
Additional paid-in capital
15,106
21,105
Stockholders' equity
Commitments and contingencies (see Notes 29, 30 and 31)
276,379
2,340,547
2,104,125
Total liabilities (a)
288,651
52,320
66,344
41,879
206,939
177,638
Accounts payable and other liabilities (included $4,401 and $4,155 at fair value)
152,815
126,897
Trading liabilities
30,222
Beneficial interests issued by consolidated variable interest entities (included $787 and $2,162 at fair value)
Long-term debt (included $33,065 and $30,226 at fair value)
Other comprehensive income/(loss)
52,320
$
129,977
(284)
104,223
115,435
129,977
Balance at beginning of year, adjusted
Cumulative effect of change in accounting principle
115,435
Balance at January 1
93,828
93,270
92,500
Balance at December 31
(24)
(50)
(334)
Retained earnings
Other
103,939
21,745
Accumulated other comprehensive income
115,435
129,977
146,420
Balance at December 31
(5,585)
(6,078)
24,442
(6,484)
(805)
(1,125)
(1,515)
Preferred stock
Dividends declared:
Net income
17,886
Common stock ($1.72, $1.58 and $1.44 per share for 2015, 2014 and 2013, respectively)
949
(752)
(436)
$
2013
2014
2015
Redemption of preferred stock
Issuance of preferred stock
Balance at January 1
20,063 $ 11,158 $ 9,058
Preferred stock
Consolidated statements of changes in stockholders' equity
JPMorgan Chase & Co./2015 Annual Report
178
The Notes to Consolidated Financial Statements are an integral part of these statements.
The assets of the consolidated VIES are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general credit of JPMorgan
Chase. At both December 31, 2015 and 2014, the Firm provided limited program-wide credit enhancement of $2.0 billion, related to its Firm-administered multi-seller conduits,
which are eliminated in consolidation. For further discussion, see Note 16.
53,269
42,688 $
Year ended December 31, (in millions, except per share data)
(508)
6,005
3,900
Shares issued and commitments to issue common stock for employee stock-based compensation awards, and
related tax effects
94,604
93,828
93,270
Balance at January 1
Additional paid-in capital
4,105
8,905
4,105
Balance at January 1 and December 31
Common stock
Balance at December 31
11,158
20,063
26,068
(1,800)
4,105
15,931
14,327
5,945
$ 9,094
Net fair value of contracts outstanding at
December 31, 2015
9,826 $ 13,926
$
(6,256)
(6,772)
Effect of legally enforceable master netting
agreements
Liability
position
Asset
position
18,281
15,866
Gross fair value of contracts outstanding at
December 31, 2015
Maturity in excess of 5 years
Maturity 4-5 years
960
621
1,931
1,122
6,148
5,636
9,242
8,487 $
$
position
position
$
December 31, 2015 (in millions)
Maturity less than 1 year
Maturity 1-3 years
12,025
13,211
FORWARD-LOOKING STATEMENTS
JPMorgan Chase & Co./2015 Annual Report
172
9,094 $ 12,025
$
Net fair value of contracts outstanding at
December 31, 2015
(6,256)
(6,772)
Effect of legally enforceable master netting
agreements
18,281
15,866
Gross fair value of contracts outstanding at
December 31, 2015
(1,300)
1,428
Other changes in fair value
Changes in fair values attributable to changes in
valuation techniques and assumptions
5,027
3,704
Fair value of new contracts
(12,583)
(13,419)
Contracts realized or otherwise settled
27,137
24,153
Gross fair value of contracts outstanding at
January 1, 2015
Effect of legally enforceable master netting
agreements
From time to time, the Firm has made and will make
forward-looking statements. These statements can be
identified by the fact that they do not relate strictly to
historical or current facts. Forward-looking statements
often use words such as "anticipate,” “target," "expect,"
"estimate," "intend,” “plan,” “goal,” “believe,” or other
words of similar meaning. Forward-looking statements
provide JPMorgan Chase's current expectations or forecasts
of future events, circumstances, results or aspirations.
JPMorgan Chase's disclosures in this Annual Report contain
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The Firm
also may make forward-looking statements in its other
documents filed or furnished with the Securities and
Exchange Commission. In addition, the Firm's senior
management may make forward-looking statements orally
to investors, analysts, representatives of the media and
others.
Liability
The following table indicates the maturities of
nonexchange-traded commodity derivative contracts at
December 31, 2015.
Required effective date January 1, 2016.
•
•
• Will not have a material impact on the Firm's
Consolidated Financial Statements.
Required effective date January 1, 2016.
•
Effects on financial statements
Changes the accounting for certain contract costs, including whether
they may be offset against revenue in the statements of income, and
requires additional disclosures about revenue and contract costs.
May be adopted using a full retrospective approach or a modified,
cumulative effect-type approach wherein the guidance is applied only to
existing contracts as of the date of initial application, and to new
contracts transacted after that date.
Requires that revenue from contracts with customers be recognized upon
transfer of control of a good or service in the amount of consideration
expected to be received.
•
• Provides an alternative for consolidated financing VIES to elect: (1) to
measure their financial assets and liabilities separately under existing
U.S. GAAP for fair value measurement with any differences in such fair
values reflected in earnings; or (2) to measure both their financial assets
and liabilities using the more observable of the fair value of the financial
assets or the fair value of the financial liabilities.
• Amends the evaluation of fees paid to a decision maker or a service
provider, and exempts certain money market funds from consolidation.
Eliminates the deferral issued by the FASB in February 2010 of certain
VIE-related accounting requirements for certain investment funds,
including mutual funds, private equity funds and hedge funds.
•
Summary of guidance
Issued May 2014
revenue from contracts
with customers
Revenue recognition-
Issued August 2014
collateralized financing
entity
Measuring the financial
assets and financial
liabilities of a
consolidated
Issued February 2015
Amendments to the
consolidation analysis
Standard
FASB Standards Issued but not yet Adopted
Will not have a material impact on the Firm's
Consolidated Financial Statements.
Asset
Required effective date January 1, 2018. (a)
• The Firm plans to adopt the revenue
Net fair value of contracts outstanding at January 1,
2015
(in millions)
Year ended December 31, 2015
The following table summarizes the changes in fair value for
nonexchange-traded commodity derivative contracts for the
year ended December 31, 2015.
In the normal course of business, JPMorgan Chase trades
nonexchange-traded commodity derivative contracts. To
determine the fair value of these contracts, the Firm uses
various fair value estimation techniques, primarily based on
internal models with significant observable market
parameters. The Firm's nonexchange-traded commodity
derivative contracts are primarily energy-related.
NONEXCHANGE-TRADED COMMODITY DERIVATIVE CONTRACTS AT FAIR VALUE
Management's discussion and analysis
171
JPMorgan Chase & Co./2015 Annual Report
(b) Early adoption is permitted for the requirement to report changes in fair value due to the Firm's own credit risk in OCI, and the Firm is planning to early
adopt this guidance during 2016.
(a) Early adoption is permitted.
• The Firm is evaluating the potential impact of
the remaining guidance on the Consolidated
Financial Statements.
Adoption of the DVA guidance as of January 1,
2016, would result in a reclassification from
retained earnings to AOCI, reflecting the
cumulative change in value to change in the
Firm's credit spread subsequent to the
issuance of each liability. The amount of this
reclassification would be immaterial as of
January 1, 2016.
Required effective date January 1, 2018. (b)
.
Generally requires a cumulative-effective adjustment to its retained
earnings as of the beginning of the reporting period of adoption.
•
• For financial liabilities where the fair value option has been elected, the
portion of the total change in fair value caused by changes in Firm's own
credit risk is required to be presented separately in Other comprehensive
income ("OCI").
•
Issued January 2016
financial assets and
financial liabilities
Recognition and
measurement of
impact on the Consolidated Financial
statements and its selection of transition
method.
2018 and is currently evaluating the potential
recognition guidance in the first quarter of
• Because the guidance does not apply to
revenue associated with financial
instruments, including loans and securities
that are accounted for under other U.S.
GAAP, the Firm does not expect the new
revenue recognition guidance to have a
material impact on the elements of its
statements of income most closely
associated with financial instruments,
including Securities Gains, Interest Income
and Interest Expense.
All forward-looking statements are, by their nature, subject
to risks and uncertainties, many of which are beyond the
Firm's control. JPMorgan Chase's actual future results may
differ materially from those set forth in its forward-looking
statements. While there is no assurance that any list of risks
and uncertainties or risk factors is complete, below are
certain factors which could cause actual results to differ
from those in the forward-looking statements:
Requires that certain equity instruments be measured at fair value, with
changes in fair value recognized in earnings.
•
JPMorgan Chase & Co./2015 Annual Report
PricewaterhouseCoopers LLP • 300 Madison Avenue • New York, NY 10017
February 23, 2016
Pricewathoner Cropus LLP
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
A company's internal control over financial reporting is a
process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A
company's internal control over financial reporting includes
those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are
being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of
the company's assets that could have a material effect on
the financial statements.
material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a
reasonable basis for our opinions.
In our opinion, the accompanying consolidated balance
sheets and the related consolidated statements of income,
comprehensive income, changes in stockholders' equity and
cash flows present fairly, in all material respects, the
financial position of JPMorgan Chase & Co. and its
subsidiaries (the "Firm") at December 31, 2015 and 2014
and the results of their operations and their cash flows for
each of the three years in the period ended December 31,
2015 in conformity with accounting principles generally
accepted in the United States of America. Also in our
opinion, the Firm maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2015 based on criteria established in
Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Firm's management is responsible
for these financial statements, for maintaining effective
internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
"Management's report on internal control over financial
reporting". Our responsibility is to express opinions on
these financial statements and on the Firm's internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement
and whether effective internal control over financial
reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting
principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
To the Board of Directors and Stockholders of JPMorgan
Chase & Co.:
pwc
Report of independent registered public accounting firm
JPMorgan Chase & Co./2015 Annual Report
174
February 23, 2016
Executive Vice President and Chief Financial Officer
Marianne Lake
Mamalh
Chairman and Chief Executive Officer
спие
Cave Dinin
James Dimon
The effectiveness of the Firm's internal control over
financial reporting as of December 31, 2015, has been
audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report
which appears herein.
Based upon the assessment performed, management
concluded that as of December 31, 2015, JPMorgan Chase's
internal control over financial reporting was effective based
upon the COSO 2013 framework. Additionally, based upon
management's assessment, the Firm determined that there
were no material weaknesses in its internal control over
financial reporting as of December 31, 2015.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Management has
completed an assessment of the effectiveness of the Firm's
internal control over financial reporting as of December 31,
2015. In making the assessment, management used the
"Internal Control - Integrated Framework" ("COSO 2013")
promulgated by the Committee of Sponsoring Organizations
of the Treadway Commission ("COSO").
JPMorgan Chase's internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records, that, in reasonable detail,
accurately and fairly reflect the transactions and
dispositions of the Firm's assets; (2) provide reasonable
assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance
with generally accepted accounting principles, and that
receipts and expenditures of the Firm are being made only
in accordance with authorizations of JPMorgan Chase's
management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Firm's
assets that could have a material effect on the financial
statements.
175
Consolidated statements of income
Year ended December 31, (in millions, except per share data)
Revenue
•
5,801
10,141
10,531
10,408
5,694
6,354
6,542 $
6,751 $
$
2013
2014
2015
Management of JPMorgan Chase & Co. ("JPMorgan Chase"
or the "Firm") is responsible for establishing and
maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a
process designed by, or under the supervision of, the Firm's
principal executive and principal financial officers, or
persons performing similar functions, and effected by
JPMorgan Chase's Board of Directors, management and
other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with accounting principles generally accepted in the United
States of America.
Provision for credit losses
Net interest income
Interest expense
Interest income
Noninterest revenue
Other income
Card income
Mortgage fees and related income
Securities gains(a)
Asset management, administration and commissions
Lending- and deposit-related fees
Principal transactions
Investment banking fees
Total net revenue
Management's report on internal control over financial reporting
15,509
Any forward-looking statements made by or on behalf of
the Firm speak only as of the date they are made, and
JPMorgan Chase does not undertake to update forward-
looking statements to reflect the impact of circumstances or
events that arise after the date the forward-looking
statements were made. The reader should, however, consult
any further disclosures of a forward-looking nature the
Firm may make in any subsequent Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, or Current Reports
on Form 8-K.
JPMorgan Chase & Co./2015 Annual Report
Ability of the Firm to develop new products and services,
and the extent to which products or services previously
sold by the Firm (including but not limited to mortgages
and asset-backed securities) require the Firm to incur
liabilities or absorb losses not contemplated at their
initiation or origination;
The success of the Firm's business simplification
initiatives and the effectiveness of its control agenda;
counterparties or competitors;
Technology changes instituted by the Firm, its
slowdown or other economic or market disruption;
Ability of the Firm to deal effectively with an economic
Damage to the Firm's reputation;
Changes in credit ratings assigned to the Firm or its
subsidiaries;
Ability of the Firm to manage effectively its capital and
liquidity, including approval of its capital plans by
banking regulators;
Changes in investor sentiment or consumer spending or
savings behavior;
•
changes in market liquidity and volatility;
Changes in trade, monetary and fiscal policies and laws;
capital and liquidity requirements;
Local, regional and global business, economic and
political conditions and geopolitical events;
•
•
•
•
•
•
173
•
Securities and capital markets behavior, including
•
Changes in laws and regulatory requirements, including
•
Occurrence of natural or man-made disasters or
calamities or conflicts and the Firm's ability to deal
effectively with disruptions caused by the foregoing;
Ability of the Firm to maintain the security of its
financial, accounting, technology, data processing and
other operating systems and facilities; and
Ability of the Firm to determine accurate values of
certain assets and liabilities;
•
•
The other risks and uncertainties detailed in Part I, Item
1A: Risk Factors in the Firm's Annual Report on Form
10-K for the year ended December 31, 2015.
Ability of the Firm to effectively defend itself against
cyberattacks and other attempts by unauthorized
parties to access information of the Firm or its
customers or to disrupt the Firm's systems; and
•
Changes in applicable accounting policies;
•
Adverse judicial or regulatory proceedings;
disclosure controls and procedures and internal control
over financial reporting;
Adequacy of the Firm's risk management framework,
•
Competitive pressures;
•
•
•
Ability of the Firm to address enhanced regulatory
requirements affecting its businesses;
Changes in the credit quality of the Firm's customers
and counterparties;
Acceptance of the Firm's new and existing products and
services by the marketplace and the ability of the Firm
to innovate and to increase market share;
Ability of the Firm to attract and retain qualified
employees;
Ability of the Firm to control expense;
•
LCR and NSFR = Liquidity coverage ratio and net stable funding ratio
Level 3 assets = Assets whose value is estimated using model inputs that are unobservable and significant to the fair value
HQLA = High quality liquid assets predominantly include cash on deposit at central banks, and unencumbered U.S. agency
mortgage-backed securities, U.S. Treasuries and sovereign bonds
T = trillions
CET1 = Common equity Tier 1 ratio. CET1 ratios reflect the capital rule the firm was subject to at each reporting period
TCE = Tangible common equity
bps = basis points
RWA = Risk-weighted assets
(100) bps
4 Estimated
3 Reflects Basel III Advanced Fully Phased-In measure.
2 Reflects Basel I measure; CET1 reflects Tier 1 common.
1 Excludes goodwill and intangible assets.
3.5%4
GSIB = Global systemically important bank. The GSIB surcharge increases the regulatory minimum capital of large banks based
on their size, cross-jurisdiction activity, interconnectedness, complexity and short-term wholesale funding
N/A = Not applicable
4.5%
N/A
B = billions
$55 billion pre-tax over a nine-quarter
period, an amount that we would easily
manage because of the strength of our
capital base. Remember, the Federal Reserve
stress test is not a forecast - it appropriately
assumes multiple levels of conservatism
and that very little mitigating action can be
taken. However, we believe that if the stress
scenario actually happened, we would incur
minimal losses over a cumulative nine-
quarter period because of the extensive miti-
gating actions that we would take. It bears
China. We believe it likely that, in 20-25 years,
China will be a developed nation, probably
housing 25% or more of the top 3,000 compa-
nies globally. Going forward, we do not expect
China to enjoy the smooth, steady growth it
has had over the past 20 years. Reforming
inefficient state-owned enterprises, developing
healthy markets (like we have in the United
States) with full transparency and creating a
convertible currency where capital can move
freely will not be easy. There will be many
bumps in the road. We publicly disclose in
our Form 10-K that we have approximately
$19 billion of country exposure to China. We
run China through a severe stress test (essen-
tially, a major recession with massive defaults
and trading losses), and we estimate that our
losses in this scenario could be approximately
$4 billion. We do not expect this situation to
The stress test is extremely severe on credit.
The 2015 Comprehensive Capital Analysis
and Review (CCAR), or stress test, projected
credit losses over a nine-quarter period
that totaled approximately $50 billion for
JPMorgan Chase, or 6.4% of all our loans.
This is higher than what the actual cumula-
How do you manage your interest rate exposure? Are you worried about negative interest rates
and the growing differences across countries?
GSIB
To give you more comfort, I want to remind
you that throughout all the international
crises over the last decade, we maintained
our businesses in many places that were
under stress - such as Spain, Italy, Greece,
Egypt, Portugal and Ireland. In almost every
case, we did not have any material prob-
lems, and we are able to navigate every
issue and continue to serve all our clients.
Again, we hope this will put us in good
stead in these countries for decades. Later in
this letter, I will talk about another poten-
tially serious issue – Britain possibly leaving
the European Union.
third compared with France. Argentina is
an example of terrible public policy, often
adopted under the auspices of being good
for the people, that has resulted in extraordi-
nary damage to the economy. However, the
country has a highly educated population, a
new president who is making bold and intel-
ligent moves, peaceful neighbors and, like
Brazil, an abundance of natural resources.
You might be surprised to know that for
the past 10 years, in spite of the country's
difficulties, JPMorgan Chase has made a
modest profit there by consistently serving
our clients and the country. This year, we
took a little additional risk in Argentina
with a special financing to help bring the
country some stability and help get it back
into the global markets. We are hoping that
Argentina can be an example to the world of
what can happen when a country has a good
leader who adopts good policy.
Argentina. Argentina is now a country
with incredible opportunity. In the 1920s,
its GDP per person was larger than that
of France, whereas today, it is barely one-
Brazil. Brazil has had a deteriorating
economy, shrinking by 3%-4% over the last
year. In addition, as I write this letter, Brazil
faces political upheaval as its president is
being threatened with impeachment and its
former president is being indicted. Yet the
country has a strong judicial system, many
well-run companies, impressive universities,
peaceful neighbors and an enormous quan-
tity of natural resources. In Brazil, we have
banking relationships with more than 2,000
clients, approximately 450 multinational
corporations going into Brazil to do business
and approximately 50 Brazilian companies
going outbound. Our publicly disclosed expo-
sure to Brazil is approximately $11 billion,
but we think that in extreme stress, we might
lose $2 billion. In each of the last three years,
we actually have made money in Brazil. We
are not retreating - because the long-term
prospects are probably fine - and for decades
to come, Brazilians will appreciate our stead-
fastness when they most needed it.
happen, but if it did, we could easily handle
it. We manage our growth in China to try to
capture the long-term value (and, remember,
this will help a lot of our businesses outside of
China, too) and in a way that would enable us
to handle bad, unexpected outcomes. We don't
mind having a bad quarter or two, but we will
not risk our company on any country. This is
how we manage in all countries in which we
have material activity.
17
our services grows dramatically. While we
have a future growth plan for each country,
we obviously can't know with any certainty
everything that will happen or the timing
of recessions. No matter what the future
brings, we make sure that we can easily
bear the losses if we are wrong in our
assessments. For each material country,
we look at what our losses would be under
severe stress (not that different from the
Fed's CCAR stress test). We manage so
that should the extreme situation occur,
we might lose money, but we could easily
handle the result. Below are a few examples
of how we manage risk while continuing to
serve clients in specific countries.
We carefully monitor risks - country by country.
For each country, we take a long-term view
of its growth potential across all our lines
of business. Each country is different, but,
for the most part, emerging and developing
markets will grow faster than developed
countries. And as they grow, the need for
risk in that country. Therefore, we need plans
for the long term while carefully managing
current risk.
We operate in more than 100 countries
across the globe - and we are constantly
analyzing the geopolitical and country risks
that we face. The reason we operate in all
these countries is not simply because they
represent new markets where we can sell
our products. When we operate in a country,
we serve not only local institutions (govern-
ments and sovereign institutions, banks and
corporations in that country) but also some
of those institutions and corporations outside
their country, along with multinationals
when they enter that country. This creates
a huge network effect. In all the countries
where we operate, approximately 40% of the
business is indigenous, 30% is outbound and
30% is inbound. All these institutions need
financing and advice (M&A, equity, debt and
loans), risk management (foreign exchange
and interest rates) and asset management
services (financial planning and investment
management), as well as operating services
(custody and cash management) in their
own countries and globally. It takes decades
to build these capabilities and relationships
- we cannot go in and out of a country on a
whim, based on a short-term feeling about
How do you manage geopolitical and country risks?
As banks change their business models to
adapt to the new world, some are exiting
certain products or regions. Market shares
will change, and both products and product
pricing will change over time. Therefore, we
think there will be a lot of adjustments to
make and tools to deploy so that we can still
serve our clients and earn a fair profit.
Unfortunately, some of the final rules around
capital are still not fully known at this time.
There are still several new rules coming that
also could impact our company - probably
the most important to us is how the GSIB
capital surcharge is incorporated into the
CCAR stress test. To date, we have managed
to what we do know. We believe that when
the final rules are made and known, we can
adjust to them in an appropriate way.
16
12
repeating that in the actual Great Recession,
which was not unlike last year's stress test,
JPMorgan Chase never lost money in any
quarter and was quite profitable over the
nine-quarter period.
>100%
$1.6T
>100%
$2.6T
No, we are not worried about negative
interest rates in the United States. For years,
this country has had fairly consistent job
growth and increasingly strong consumers
(home prices are up, and the consumer
balance sheet is in the best shape it's ever
been in). Housing is in short supply, and
Total assets
common equity
$176B
+$10B
$166B
$(200)B
$74B
Total assets¹
7.7%
+110 bps
6.6%
4.9%
TCE/
11.6%³
Tangible
$2.4T
RWA
$1.17²
N/A
LCR and NSFR
(HQLA)
$496B
$(104)B
$600B
N/A
Liquidity
assets
$32B
$(22)B
$54B
$83B
Level 3
$1.5T³
$(100)B
$1.673
Compliant
household formation is going up, car sales are
at record levels, and we see that consumers
are spending the gas dividend. Companies
are financially sound - while some segments'
profits are down, companies have plenty of
cash. Nor are we worried about the diverging
interest rate policies around the world. While
they are a reasonable cause for concern, it
Total reserves¹
tive credit losses were for all banks during
the Great Recession (they were 5.6%), and
our credit book today is materially better
than what we had at that time. The 2015
CCAR losses were even with the actual losses
for banks during the worst two years of the
Great Depression in the 1930s (6.4%).
The effort is enormous.
common themes across the firm. We have
strengthened the Audit Department and risk
assessment throughout the firm, enhanced
data quality and controls, and also strength-
ened permanent standing committees that
review new clients, new products and all
reputational issues.
14
put in place to ensure constant review and
continuous improvement. For example,
we now have a permanent Oversight &
Control Group. The group is charged with
enhancing the firm's control environment
by looking within and across the lines of
business and corporate functions to identify
and remediate control issues. This func-
tion enables us to detect control problems
more quickly, escalate issues promptly and
engage other stakeholders to understand
We are good and are getting better. The
intense efforts over the last few years across
our operating businesses – Risk, Finance,
Compliance, Legal and Audit - are now
yielding real results that will protect the
company in the future. We have reinforced
a culture of accountability for assuming risk
and have come a long way in self-identifying
and fixing shortcomings. Many new perma-
nent organizational structures have been
tory agencies to want to improve the quality
of the businesses they oversee, particularly
around important issues such as customer
protection. We also expect this refinement
frequently will be achieved through enforce-
ment actions as opposed to the adoption of
new rules that raise standards. For many
years, regulations generally were viewed as
being static. As we do everywhere else, we
should be striving for constant improvement
to stay ahead of the curve.
However, we are going to be extremely vigi-
lant to do more de-risking if we believe that
something creates additional legal, regulatory
or political risks. We regularly review all our
business activities and try to exceed - not
just meet regulatory demands. We also now
ask our Legal Department to be on the search
for "emerging legal risks." We try to think
differently; for example, we try to look at
legal risks not based on how the law is today
but based on how the law might be inter-
preted differently 10 years from now. It is
perfectly reasonable for the legal and regula-
Since 2011, our total headcount directly asso-
ciated with Controls has gone from 24,000
people to 43,000 people, and our total annual
Controls spend has gone from $6 billion to
approximately $9 billion annually over that
same time period. We have more work to
do, but a strong and permanent foundation
is in place. Far more is spent on Controls if
you include the time and effort expended
by front-office personnel, committees and
reviews, as well as certain technology and
operations functions.
1 401(k) administration business
De-risking by discontinuing certain businesses
with high-risk clients in high-risk geographies:
Business Banking closed ~9,000 clients
Commercial Banking closed ~4,600 clients
Private Banking closed ~1,700 clients
Consumer Banking closed ~140,000 clients
CIB closed ~2,900 clients
Ceased originating student loans
Simplified Mortgage Banking products from 37
to 15 products
Other meaningful business actions
Exited government prepaid card
Sold Retirement Plan Services unit¹
Exited International Commercial Card
(Includes restricted/exited transaction services
for ~500 Foreign Correspondent Banking clients)
Exited majority of Broker-Dealer Services business
We have also made a very substantial amount
of progress in Anti-Money Laundering/Bank
Secrecy Act.
this activity is, not just to protect our
company but to help protect our country
from criminals and terrorists.
+140 bps
In the last year, we took some dramatic
actions to reduce our GSIB capital surcharge,
which we now have successfully reduced
from 4.5% to an estimate of 3.5%. These
steps included reducing non-operating
deposits by approximately $200 billion, level
3 assets by $22 billion and notional deriva-
tives amounts by $15 trillion. We did this
faster than we, or anyone, thought we could.
We still will be working to further reduce the
GSIB surcharge, but any reduction from this
point will take a few years.
In the new world, our company has approxi-
mately 20 new or significantly enhanced
balance sheet and liquidity-related regulatory
requirements the most critical ones are the
GSIB capital surcharge, CCAR, the Liquidity
Coverage Ratio, the Supplementary Leverage
Ratio and Basel III capital. Banks must neces-
sarily optimize across these constraints to be
able to meet all their regulatory requirements
and, importantly, earn a profit. Every bank
has a different binding constraint, and, over
time, that constraint may change. Currently,
our overriding constraint is the GSIB capital
surcharge. Our shareholders should bear in
mind that the U.S. government requires a
GSIB capital surcharge that is double that
of our international competitors. And this
additional charge may ultimately put some
U.S. banks at a disadvantage vs. international
competitors. This is one reason why we
worked so hard to reduce the GSIB capital
surcharge we do not want to be an outlier
in the long run because of it.
-
What is all this talk of regulatory optimization, and don't some of these things hurt clients?
When will you know the final rules?
many of the processes we implemented for
CCAR and AML/KYC had to be done quickly,
and many were effectively handled outside
our normal processes. Eventually, CCAR will
be embedded into our normal forecasting
and budgeting systems. And we are trying to
build the data collection part of KYC into a
utility that the entire industry can use – not
just for us and our peer group but, equally
important, for the client's benefit (the client
would essentially only have to fill out one
form, which then could be used by all banks).
In addition, throughout the company, contin-
ually creating straight-through processing,
online client service and other initiatives
will both improve the client experience and
decrease our costs.
Clearly, some of the new rules create
expenses and burdens on our company.
Some of these expenses will eventually be
passed on to clients, but we have many ways
to manage our expenses. Simplifying our
business, streamlining our procedures, and
automating and digitizing processes, some of
which previously were being done effectively
by hand, all will bring relief. For example,
We deployed a new anti-money laundering
(AML) system, Mantas, which is a moni-
toring platform for all global payment
transactions. It now is functioning across our
company and utilizes sophisticated algo-
rithms that are regularly enhanced based on
transactional experience. We review elec-
tronically $105 trillion of gross payments
each month, and then, on average, 55,000
transactions are reviewed by humans after
algorithms identify any single transaction
as a potential issue. Following this effort,
we stopped doing business with 18,000
customers in 2015. We also are required to
file suspicious activity reports (SAR) with the
government on any suspicious activity. Last
year, we filed 180,000 SARS, and we estimate
that the industry as a whole files millions
each We understand how important
year.
Having enough capital and liquidity, and
even the most solid fortress controls, doesn't
make
you completely safe and sound. Deliv-
ering proper profit margins and maintaining
profitability through a normal credit cycle
also are important. A business does this by
having the appropriate business mix, making
good loans and managing expenses over time.
15
5
they will happen - will take into account the
extraordinary effort to get it right.
-
You can see that we are doing everything in
our power to meet and even exceed the spirit
and the letter of the law to avoid making
mistakes and the high cost - both monetarily
and to our reputation – that comes with
that. But we also tried to make sure that in
our quest to eliminate risk, we did not ask
a lot of good clients to exit. We hope that in
the future, the regulatory response to any
mistakes – if and when they happen, and
In all cases, we carefully tried to get the balance
right while treating customers fairly.
We exited or restricted approximately 500
foreign correspondent banking relationships
and tens of thousands of client relationships
to simplify our business and to reduce our
AML risk. The cost of doing proper AML/
KYC (Know Your Customer) diligence on a
client increased dramatically, making many
of these relationships immediately unprofit-
able. But we did not exit simply due to profit-
ability - we could have maintained unprofit-
able client relationships to be supportive of
countries around the world that are allies to
the United States. The real reason we exited
was often because of the extraordinary legal
risk if we were to make a mistake. In many of
these places, it simply is impossible to meet
the new requirements, and if you make just
one mistake, the regulatory and legal conse-
quences can be severe and disproportionate.
We also remediated 130,000 accounts for
KYC - across the Private Bank, Commercial
Bank and the Corporate & Investment Bank.
This exercise vastly improved our data, gave
us far more information on our clients and
also led to our exiting a small number of
client relationships. We will be vigilant on
onboarding and maintaining files on all new
clients in order to stay as far away as we can
from
any
client with unreasonable risk.
To protect the company and to meet standards of safety and soundness, don't you have to earn a
fair profit? Many banks say that the cost of all the new rules makes this hard to do.
Exited Special Mezzanine Financing business
Exited Physical Commodities business
Exited Private Equity business
Eligible long-term debt
~$ 10
JPMorgan Chase quarterly estimated
pre-tax, pre-provision earnings
December 31, 2015:
Total loss absorbing resources
($ in billions)
Resilience of JPMorgan Chase through multiple layers of protection
$125
You can see in the table below that JPMorgan
Chase alone has enough loss absorbing
resources to bear all the losses, assumed by
CCAR, of the 31 largest banks in the United
States. Because of regulations and higher
capital, large banks in the United States are
far stronger. And even if any one bank might
fail, in my opinion, there is virtually no
chance of a domino effect. Our shareholders
should understand that while large banks do
significant business with each other, they do
not directly extend much credit to one other.
And when they trade derivatives, they mark-
to-market and post collateral to each other
every day.
enormous.
And the capital we have to bear losses is
almost never bear a loss of more than $5
billion (remember, we earn approximately
$10 billion pre-tax, pre-provision each
quarter). We recognize that on rare occa-
sions, we could experience a negative signifi-
cant event that could lead to our having a
poor quarter. But we will be vigilant and will
never take such a high degree of risk that it
jeopardizes the health of our company and
our ability to continue to serve our clients.
This is a bedrock principle. Later in this
letter, I will also describe how we think about
idiosyncratic geopolitical risk.
Second, we run hundreds of stress tests
of our own each week, across our global
trading operations, to ensure our ability
to withstand and survive many bad and
extreme scenarios. These scenarios include
events such as what happened in 2008, other
historically damaging events and also new
situations that might occur. We manage
our company so that even under the worst
market stress test conditions, we would
First, recall what actually happened to us in
2008. In the worst quarter of 2008, we lost
$1.7 billion; for the entire year, we made $6.3
billion in trading revenue in the Investment
Bank, which included some modest losses
on the Lehman default (one of our largest
counterparties). The trading books are much
more conservative today than they were in
2008, and at that time, we were still paying
a considerable cost for assimilating and
de-risking Bear Stearns.
Our 2015 CCAR trading and counterparty
losses were $24 billion. We have two compar-
isons that should give comfort that our losses
would never be this large.
The stress test is extremely severe on trading and
counterparty risk.
We have an extraordinary amount of capital
to sustain us in the event of losses. It is
instructive to compare assumed extreme
losses against how much capital we have for
this
purpose.
Preferred equity
26
CCAR industry losses²
Business simplification initiatives
Executed Significant Business Simplification Agenda
actions that we were willing to take to reduce
various forms of risk:
Yes, we have completed our major de-risking
initiatives, and some were pretty draconian.
In the chart below, I show just a few of the
Have you completed your major de-risking initiatives?
13
2 As estimated for the nine quarters ending December 31, 2016, by the Federal Reserve in the 2015 CCAR severely adverse scenario.
Note: Numbers may not sum due to rounding.
1 Includes credit, legal, tax and valuation reserves.
$222
167
Losses of 30 other participating banks
Total CCAR losses
25
~$350
Total resources
$ 55
JPMorgan Chase losses
173
CET1
18
Do you think you now have "fortress controls" in place?
10.2%3
CET1
■■#1 U.S. credit card issuer based on loans outstanding¹³
■■■#1 U.S. co-brand credit card issuer¹4
■#1 wholly-owned merchant acquirer¹5
■ #1 primary banking relationship share in Chase footprint¹¹
■#1 retail bank in the U.S. for acquiring, developing and
retaining customers¹²
■Relationships with ~50% of U.S. households
7.9%
#1
15.9%
#1
18.3%
#3
12.0%
11.6%
6.0%
Market share
■>80% of Fortune 500 companies do business with us
■Top 3 in 16 product areas out of 1716
#1
15.5%
#1
17.5%
#3
Equities
9.1%
Market share
#7
FICC6
Investment
Bank
7.9%
#8
Market share
■#1 in both N.A. and EMEA Investment Banking fees¹7
■#1 in Global Debt, Equity and Equity-related¹7
■#1 in Global Long-Term Debt and Loan Syndications¹7
■■■#1 in FICC productivity18
# of states with Middle Market
#1 in customer satisfaction20
% of North America
$2.2
$2.0
$0.7
revenue ($ in billions)
Gross Investment Banking
■Top 3 Custodian globally with AUC of $19.9 trillion
■ #1 USD clearing house with 18.9% share in 201519
Commercial
Banking
#1
#28
Multifamily lending
32
30
22
banking presence
#1
Corporate &
#8
Total Markets revenue
Consumer &
# of top 50 Chase markets
7.9%
7.6%
3.6%
Deposits market share¹
2015
Community
2014
Irreplicable Client Franchises Built Over the Long Term
choose who they want to do business with
each and every day, and we are gratified
that we continue to earn our clients' busi-
ness and their trust. If you are gaining
customers and market share, you have to
be doing something right. The chart below
shows that we have been meeting this goal
fairly consistently for 10 years.
Like us, most banks are modifying their
business models and client relationships to
accomplish their regulatory objectives. We
are doing this by managing our constraints
at the most granular level possible - by
product, client or business. Clearly, some
of these constraints, including GSIB and
CCAR, cannot be fully pushed down to
the client. Importantly, we are focused on
client-friendly execution - and we recog-
nize that these constraints are of no direct
concern to clients.
How do you compare your franchises with your peers? What makes you believe your businesses
are strong?
Virtually all of our businesses are close to
best in class, in overhead ratios and, more
important, in return on equity (ROE), as
shown on the chart on page 8. Of even more
relevance, we have these strong ratios while
making sizable investments for the future
(which we have reported on extensively in
the past and you can read more about in the
CEO letters). It is easy to meet short-term
targets by skimping on investments for
the future, but that is not our approach for
building the business for the long term.
We are deeply aware that our clients
7.0%²
2006
where we are #1 (top 3) deposits
Average deposits growth rate
11 (25)
7.7%
8.0%
8.6%
Market share5
#1
#1
#2
Global Investment Banking fees
21%
#1
#1
#3
Merchant processing volume 3,4
21%
16%
12 (40)
9.0%
19.5%
NM
Active mobile customers growth rate
Card sales market share²
Banking
■Leveraging the firm's platform - average 9 products/client²¹
■Top 3 in overall Middle Market, large Middle Market
and ABL bookrunner
■Industry-leading credit performance - 4th straight year of net
recoveries or single digit NCO rate
13 (40)
7.4%
22.1%
16%
fund complexes.
Good businesses also deeply care about
improving customer satisfaction. As shown
above, you can see that our Chase customer
satisfaction score continues to rise. In
addition, our Commercial Banking satis-
faction score is among the highest in the
industry in terms of customer loyalty. In
Asset Management, where customers vote
with their wallet, JPMorgan Funds finished
second in long-term net flows among all
4 Source: J.D. Power U.S. Credit Card Satisfaction Study (8/19/2010 and 8/20/2015).
3 Net promoter score = % promoters minus % detractors.
2 Big banks defined as top six U.S. banks.
Source: J.D. Power U.S. Retail Banking Satisfaction Study.
1
Later on in this letter, I will describe our
fortress balance sheet and controls, as
well as the discipline we have around risk
management. I will also talk more about
our employees, some exciting new oppor-
tunities – mostly driven by innovative
technologies and our ongoing support
for our communities and our country. It is
critical that we do all of these things right
to maintain the strength of our company.
3
2010
5
Rank
2015
2014
2013
2012
2011
2015
10
10
* Footnote: Our Chief Operating
Officer Matt Zames talks in his
letter on pages 52-55 about
many important initiatives to
protect our company, including
our physical security and
2015
Investment Banking fees
2014
2007
at December 31,
Our Fortress Balance Sheet
11
Among other things, last year's stress test
assumed that unemployment would go to
10.1%, housing prices would fall 25%, equity
markets would decline by nearly 60%, real
gross domestic product (GDP) would decline
4.6%, credit spreads would widen dramati-
cally and oil prices would rise to $110 per
barrel. The stress test also assumed an instan-
taneous global market shock, effectively far
worse than the one that happened in 2009,
causing large trading losses. It also assumed
the failure of the largest counterparty (this
is meant to capture the failure of the global
bank that you have the most extensive deriva-
tive relationship with; e.g., a Lehman-type
event), which would cause additional losses.
The stress test assumed that banks would not
stop buying back stock - therefore depleting
their capital – and would continue to grow
dramatically. (Of course, growing dramati-
cally and buying back stock if your bank were
under stress would be irresponsible - and is
something we would never do.) Under this
assumed stress, the Federal Reserve esti-
mates that JPMorgan Chase would lose
In addition, every year, the Federal Reserve puts
all large banks through a very severe and very
detailed stress test.
The chart on page 12 shows many of the
measures of our financial strength - both
from the year preceding the crisis and our
improvement in the last alone.
year
Nearly every year since the Great Recession,
we have improved virtually every measure of
financial strength, including many new ones.
It's important to note as a starting point that
in the worst years of 2008 and 2009, JPMorgan
Chase did absolutely fine - we never lost
money, we continued to serve our clients,
and we had the wherewithal and capability
to buy and integrate Bear Stearns and
Washington Mutual. That said, we none-
theless recognize that many Americans did
not do fine, and the financial crisis exposed
weaknesses in the mortgage market and
other areas. Later in this letter, I will also
describe what we are doing to strengthen
JPMorgan Chase and to help support the
entire economy.
You say you have a "fortress balance sheet." What does that mean? Can you handle the
extreme stress that seems to happen around the world from time to time?
company stronger and safer: our fortress
balance sheet with enhanced capital and
liquidity, our ability to survive extreme
stress of multiple types, our extensive
de-risking and simplification of the busi-
ness, and the building of fortress controls in
meeting far more stringent regulatory stan-
dards. Taken together, these actions have
enabled us to make extraordinary progress
toward reducing and ultimately eliminating
the risk of JPMorgan Chase failing and
the cost of any failure being borne by the
American taxpayer or the U.S. economy.
The actions we have taken to strengthen
our company.
In support of our main mission – to serve
our clients and our communities - there
is nothing more important than to protect
our company so that we are strong and can
continue to be here for all of those who
count on us. We have taken many actions
that should give our shareholders, clients and
regulators comfort and demonstrate that our
company is rock solid.
II. WE MUST AND WILL PROTECT OUR COMPANY AND
THOSE WE SERVE
cybersecurity, so I will not
duplicate any of that information.
2010
2015
In this section, we describe the many
actions that we have taken to make our
U.S. credit card satisfaction4
#1
North America Private Bank (Euromoney)
2.5%
1.8%
AUM market share
Management
#1
#2
mutual fund AUM flows
Global active long-term open-end
231
226
119
Mutual funds with a 4/5 star ratings
+81
36%
35%
#1
#2
2.6%
#1
Asset
■ #3 Global Private Bank and #1 LatAm Private Bank23
■Revenue and long-term AUM growth ~80% since 2006
■Doubled GWM client assets (2x industry rate) since 200610
Mortgage originations net promoter score³
2010
■■84% of 10-year long-term mutual fund AUM in top 2 quartiles²²
■■Positive client asset flows every year since 2004
+38
Midsized banks
Industry average
Big banks ■Regional banks
Chase
Improved Consumer Satisfaction: 2010-2015
9
U.S. retail banking satisfaction¹²
~4%
Firm Overview, and on Form 8-K as furnished to the SEC on February 24, 2016, which is available on the SEC's website (www.sec.gov).
Client assets market share¹º
For footnoted information, refer to slide 42 in the 2016 Firm Overview Investor Day presentation, which is available on JPMorgan Chase & Co.'s website at
(http://investor.shareholder.com/jpmorganchase/presentations.cfm), under the heading Investor Relations, Investor Presentations, JPMorgan Chase 2016 Investor Day,
~4%
NM = Not meaningful
~3%
599
12,565
35,054
(29,671)
(1,249,453)
(1,249,453)
13,982
398,864
(g)
78,975
Commercial nonagency
(g)
(g)
(g)
Total mortgage-backed securities
8,177
(g)
2,552
39,937
42,807
1,314,385
1,460,472
152,791
1,478
247
(g)
21,253
(g)
1,838
U.S. Treasury and government agencies (a)
33,725
(916,532)
(75,004)
(193,934)
(34,312)
Obligations of U.S. states and municipalities
137,193
Non-U.S. government debt securities
50,895
2,276
65,319
18,532
28,669
24,074
1,103
30,068
54
13,591
129
99
Certificates of deposit
21,009
50,865
65,319
Private equity investments()
Other assets:
Mortgage servicing rights
Loans
Total available-for-sale securities
Equity securities
Other
Collateralized loan obligations
Asset-backed securities:
Corporate debt securities
30
212,153
Other
(g)
Total derivative receivables(e)
Commodity
Foreign exchange
Equity
Credit
Interest rate
Derivative receivables:
Total debt and equity instruments(d)
Physical commodities(c)
Equity securities
Total debt instruments
4,352
1,264
3,088
Asset-backed securities
36,367
13,287
23,080
Loans(b)
31,088
2,989
28,099
Corporate debt securities
53,450
302
21,108
Total trading assets
758
Available-for-sale securities:
U.S. government agencies (a)
2,989
73,853
4,149
945,635
473
(g)
(g)
319,889
9,812
1,050
22,489
8,762
146,087
151,313
4,482
2
1,741
2,739
105,945
431
624
104,890
199,650
21,006
134,960
43,684
Residential nonagency
Mortgage-backed securities:
137,322
3,523
30,068
(g)
(g)
4,337
(g)
2,802
(g)
2,800
914,357
73,095
221,066
41,925
44,318
1,294,761
1,313,474
141
1,386
64,300
4,129
746
499
(g)
(g)
81,699
72
18,713
62,914
$
Total liabilities measured at fair value on a recurring basis
Long-term debt
Beneficial interests issued by consolidated VIES
Accounts payable and other liabilities (B)
Total trading liabilities
Total derivative payables(e)
Commodity
Equity
68,429 $
Foreign exchange
1,016
18,349
1,355,052
$
27,294
JPMorgan Chase & Co./2015 Annual Report
190
Note: Effective April 1, 2015, the Firm adopted new accounting guidance for investments in certain entities that calculate net asset value per share (or its equivalent). As a result of the
adoption of this new guidance, certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be
classified in the fair value hierarchy. At December 31, 2015 and 2014, the fair values of these investments, which include certain hedge funds, private equity funds, real estate and other
funds, were $1.2 billion and $1.5 billion, respectively, of which $337 million and $1.2 billion had been previously classified in level 2 and level 3, respectively, at December 31, 2014.
Included on the Firm's balance sheet at December 31, 2015 and 2014, were trading assets of $61 million and $124 million, respectively, and other assets of $1.2 billion and $1.4 billion,
respectively. The guidance was required to be applied retrospectively, and accordingly, prior period amounts have been revised to conform with the current period presentation.
215,883
$
(1,239,657)
$
(g)
30,226
2,162
4,155
152,815
(g)
71,116
(g)
17,068
11,740
(g)
22,970
(g)
1,593
17,745
(900,634)
(74,302)
(201,644)
(34,522)
(28,555)
(1,239,657)
(1,239,657)
1,164
14,626
14,698
26
1,146
11,877
32,059
(g)
Credit
Interest rate
Derivative payables:
$
Total assets measured at fair value on a recurring basis
Total other assets
4,018
All other
648
7,436
7,436
2,611
2,541
70
298,752
1,037
257,520
2,530
2,530
40,195
12,615
116
12,499
30,194
792
29,402
18,532
52,743
1,103
Deposits
$
4,666
197,652 $
$
2,624
17
2,641
1,750,280
Debt and equity instruments(d)
Trading liabilities:
14,739
1,453
13,286
2,979
2,979
Federal funds purchased and securities loaned or sold under repurchase agreements
Other borrowed funds
8,807
$
$
2,859
13,645
$
747,731
$
$ (1,249,453)
49,252
$
(g)
10,491
3,184
4,994
959
5,497
2,225
5,948
25,854
27,974
1,429
•
•
Derivatives that are valued using models such as the Black-Scholes
option pricing model, simulation models, or a combination of models,
that use observable or unobservable valuation inputs (e.g., plain vanilla
options and interest rate and credit default swaps). Inputs include:
Exchange-traded derivatives that are actively traded and valued using
the exchange price.
Valued using observable market prices or data
Physical commodities
Derivatives
Credit rating data
•
Credit spreads
•
Expected prepayment speed, conditional default rates, loss severity
Deal-specific payment and loss allocations
Collateral characteristics
•
•
.
Contractual terms including the period to maturity
Readily observable parameters including interest rates and volatility
Credit quality of the counterparty and of the Firm
recalibrate unobservable parameters
Actual transactions, where available, are used to regularly
benchmark tranche indices)
are modeled on a transaction basis and calibrated to liquid
•
• Credit correlation between the underlying debt instruments (levels
CDS spreads and recovery rates
Collateralized loan obligations ("CLOS"), specific inputs:
•
In addition, the following specific inputs are used for the following
derivatives that are valued based on models with significant
unobservable inputs:
Correlation levels
•
Market funding levels
•
Level 2 or 3
Predominantly Level 1 and 2
Level 1
Structured credit derivatives specific inputs include:
Certain long-dated equity option specific inputs include:
• Current market assumptions related to yield, prepayment speed,
conditional default rates and loss severity
Collateral characteristics
Trading loans conforming
residential mortgage loans
expected to be sold
-
Servicing costs
•
• Discount rates
Projected interest income, late-fee revenue and loan repayment
rates
Credit costs allowance for loan losses is considered a
reasonable proxy for the credit cost
-
Held for investment credit card Valuations are based on discounted cash flows, which consider:
receivables
For information regarding the valuation of loans measured at
collateral value, see Note 14.
Servicing costs
Discount rates
•
Prepayment speed
•
Fair value is based upon observable prices for mortgage-backed
securities with similar collateral and incorporates adjustments to
these prices to account for differences between the securities and the
value of the underlying loans, which include credit characteristics,
portfolio composition, and liquidity.
186
Level 3
Predominantly level 2
•
Mortgage- and asset-backed securities specific inputs:
In addition, the following inputs to discounted cash flows are used for
the following products:
• Discounted cash flows
Relevant broker quotes
•
Observable market prices for similar securities
Deal-specific payment and loss allocations
•
Level 1
Classifications in the valuation
hierarchy
In the absence of quoted market prices, securities are valued based on:
Quoted market prices are used where available.
Valuation methodology, inputs and assumptions
Product/instrument
Investment and trading
securities
JPMorgan Chase & Co./2015 Annual Report
Level 2 or 3
•
Long-dated equity volatilities
Certain interest rate and foreign exchange ("FX") exotic options specific
inputs include:
The embedded derivative features are considered using models
such as the Black-Scholes option pricing model, simulation
models, or a combination of models that use observable or
unobservable valuation inputs, depending on the embedded
derivative. The specific inputs used vary according to the nature of
the embedded derivative features, as described in the discussion
above regarding derivative valuation. Adjustments are then made
to this base valuation to reflect the Firm's own creditworthiness
(DVA) and to incorporate the impact of funding (FVA). See page
200 of this Note.
Valuations are based on discounted cash flow analyses that
consider the embedded derivative and the terms and payment
structure of the note.
The Firm's own creditworthiness (DVA). See page 200 of
this Note.
•
•
•
•
In the absence of observable market information, valuations are
based on the fair value of the underlying assets held by the VIE
Valuations are based on discounted cash flows, which consider:
Market rates for respective maturity
Valued using observable market information, where available
Adjustments to the NAV as required, for restrictions on redemption Level 2 or 3 (a)
(e.g., lock up periods or withdrawal limitations) or where
observable activity is limited
Structured notes (included in
deposits, other borrowed funds
and long-term debt)
Long-term debt, not carried at
fair value
Beneficial interests issued by
consolidated VIES
Level 1
NAV is validated by sufficient level of observable activity (i.e.,
purchases and sales)
Level 2 or 3
Predominantly level 2
Level 2 or 3
(a) Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient.
$
$
23,141
395
Securities borrowed
$
$
Federal funds sold and securities purchased under resale agreements
Level 1 or 2
Level 3
Level 1
December 31, 2015 (in millions)
Fair value hierarchy
Assets and liabilities measured at fair value on a recurring basis
The following table presents the asset and liabilities reported at fair value as of December 31, 2015 and 2014, by major
product category and fair value hierarchy.
JPMorgan Chase & Co./2015 Annual Report
188
Level 2
•
Net asset value ("NAV")
Valued using observable market prices less adjustments for
relevant restrictions, where applicable
187
JPMorgan Chase & Co./2015 Annual Report
Additionally, adjustments are made to reflect counterparty credit quality
(credit valuation adjustments or "CVA"), the Firm's own creditworthiness
(debit valuation adjustments or "DVA”), and funding valuation
adjustment ("FVA") to incorporate the impact of funding. See page 200
of this Note.
Forward commodity price
Commodity volatility
.
Certain commodity derivatives specific inputs include:
Notes to consolidated financial statements
• Parameters describing the evolution of underlying interest rates
•
Foreign exchange correlation
•
Interest rate spread volatility
•
Interest rate correlation
•
Correlation between interest rates and foreign exchange rates
Expected lifetime credit losses -considering expected and current
default rates, and loss severity
Product/instrument
("MSRS")
Public investments held in the Private Equity portfolio
Adjustments as required, since comparable public companies are
not identical to the company being valued, and for company-
specific issues and lack of liquidity
• Additional available inputs relevant to the investment
Fund investments (i.e., mutual/
collective investment funds,
private equity funds, hedge
funds, and real estate funds)
Operating performance of the underlying portfolio company
•
Trading multiples of comparable public companies
Mortgage servicing rights
•
•
Level 2 or 3
Level 3
Classification in the valuation
hierarchy
Fair value is estimated using all available information and considering
the range of potential inputs, including:
Private equity direct investments Private equity direct investments
Valuation methodology, inputs and assumptions
See Mortgage servicing rights in Note 17.
Transaction prices
•
Predominantly level 3
Predominantly level 3
Note 10
Page 223
Note 9
Page 223
Note 8
Page 221
Note 7
Page 208
Note 6
Page 203
Note 4
Page 184
Note 3
Interest income and interest expense
Pension and other postretirement
employee benefit plans
Employee stock-based incentives
Securities
Noninterest revenue
Page 231
Note 12
Page 233
Securities financing activities
Note 18
Premises and equipment
Page 274
Note 17
Goodwill and other intangible assets
Page 266
Note 16
Derivative instruments
Variable interest entities
Note 15
Allowance for credit losses
Page 242
Note 14
Loans
Page 238
Note 13
Page 262
The following table identifies JPMorgan Chase's other
significant accounting policies and the Note and page where
a detailed description of each policy can be found.
Fair value measurement
Fair value option
Significant accounting policies
For JPMorgan Chase's Consolidated statements of cash
flows, cash is defined as those amounts included in cash
and due from banks.
The primary beneficiary of a VIE (i.e., the party that has a
controlling financial interest) is required to consolidate the
assets and liabilities of the VIE. The primary beneficiary is
the party that has both (1) the power to direct the activities
of the VIE that most significantly impact the VIE's economic
performance; and (2) through its interests in the VIE, the
obligation to absorb losses or the right to receive benefits
from the VIE that could potentially be significant to the VIE.
To assess whether the Firm has the power to direct the
activities of a VIE that most significantly impact the VIE's
economic performance, the Firm considers all the facts and
circumstances, including its role in establishing the VIE and
its ongoing rights and responsibilities. This assessment
includes, first, identifying the activities that most
significantly impact the VIE's economic performance; and
second, identifying which party, if any, has power over those
The most common type of VIE is a special purpose entity
("SPE"). SPES are commonly used in securitization
transactions in order to isolate certain assets and distribute
the cash flows from those assets to investors. The basic SPE
structure involves a company selling assets to the SPE; the
SPE funds the purchase of those assets by issuing securities
to investors. The legal documents that govern the
transaction specify how the cash earned on the assets must
be allocated to the SPE's investors and other parties that
have rights to those cash flows. SPEs are generally
structured to insulate investors from claims on the SPE's
assets by creditors of other entities, including the creditors
of the seller of the assets.
VIES are entities that, by design, either (1) lack sufficient
equity to permit the entity to finance its activities without
additional subordinated financial support from other
parties, or (2) have equity investors that do not have the
ability to make significant decisions relating to the entity's
operations through voting rights, or do not have the
obligation to absorb the expected losses, or do not have the
right to receive the residual returns of the entity.
Variable Interest Entities
The Firm's investment companies have investments in both
publicly-held and privately-held entities, including
investments in buyouts, growth equity and venture
opportunities. These investments are accounted for under
investment company guidelines and accordingly,
irrespective of the percentage of equity ownership interests
held, are carried on the Consolidated balance sheets at fair
value, and are recorded in other assets.
partners or members have the ability to remove the Firm as
the general partner or managing member without cause
(i.e., kick-out rights), based on a simple majority vote, or
the non-affiliated partners or members have rights to
participate in important decisions. Accordingly, the Firm
does not consolidate these funds. In the limited cases where
the nonaffiliated partners or members do not have
substantive kick-out or participating rights, the Firm
consolidates the funds.
JPMorgan Chase & Co./2015 Annual Report
181
Certain Firm-sponsored asset management funds are
structured as limited partnerships or limited liability
companies. For many of these entities, the Firm is the
general partner or managing member, but the non-affiliated
The Firm determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity is
a voting interest entity or a variable interest entity ("VIE").
Voting Interest Entities
Assets held for clients in an agency or fiduciary capacity by
the Firm are not assets of JPMorgan Chase and are not
included on the Consolidated balance sheets.
Certain amounts reported in prior periods have been
reclassified to conform with the current presentation.
Consolidation
JPMorgan Chase & Co. ("JPMorgan Chase" or the "Firm"), a
financial holding company incorporated under Delaware law
in 1968, is a leading global financial services firm and one
of the largest banking institutions in the United States of
America ("U.S."), with operations worldwide. The Firm is a
leader in investment banking, financial services for
consumers and small business, commercial banking,
financial transaction processing and asset management. For
a discussion of the Firm's business segments, see Note 33.
The accounting and financial reporting policies of JPMorgan
Chase and its subsidiaries conform to accounting principles
generally accepted in the U.S. ("U.S. GAAP"). Additionally,
where applicable, the policies conform to the accounting
and reporting guidelines prescribed by regulatory
authorities.
Note 1 - Basis of presentation
Notes to consolidated financial statements
Non-U.S. government debt securities
Voting interest entities are entities that have sufficient
equity and provide the equity investors voting rights that
enable them to make significant decisions relating to the
entity's operations. For these types of entities, the Firm's
determination of whether it has a controlling interest is
primarily based on the amount of voting equity interests
held. Entities in which the Firm has a controlling financial
interest, through ownership of the majority of the entities'
voting equity interests, or through other contractual rights
that give the Firm control, are consolidated by the Firm.
Investments in companies in which the Firm has significant
influence over operating and financing decisions (but does
not own a majority of the voting equity interests) are
accounted for (i) in accordance with the equity method of
accounting (which requires the Firm to recognize its
proportionate share of the entity's net earnings), or (ii) at
fair value if the fair value option was elected. These
investments are generally included in other assets, with
income or loss included in other income.
Page 278
Notes to consolidated financial statements
The Firm performs on-going reassessments of: (1) whether
entities previously evaluated under the majority voting-
interest framework have become VIES, based on certain
events, and therefore subject to the VIE consolidation
framework; and (2) whether changes in the facts and
circumstances regarding the Firm's involvement with a VIE
cause the Firm's consolidation conclusion to change.
In February 2010, the Financial Accounting Standards
Board ("FASB") issued an amendment which deferred the
requirements of the accounting guidance for VIES for
certain investment funds, including mutual funds, private
equity funds and hedge funds. For the funds to which the
deferral applies, the Firm continues to apply other existing
authoritative accounting guidance to determine whether
such funds should be consolidated.
Statements of cash flows
share in the periods affected was not material. For further
information, see Note 26.
JPMorgan Chase & Co./2015 Annual Report
Investments in qualified affordable housing projects
Effective January 1, 2015, the Firm adopted new
accounting guidance for investments in affordable housing
projects that qualify for the low-income housing tax credit,
which impacted the Corporate & Investment Bank ("CIB").
As a result of the adoption of this new guidance, the Firm
made an accounting policy election to amortize the initial
cost of its qualifying investments in proportion to the tax
credits and other benefits received, and to present the
amortization as a component of income tax expense;
previously such amounts were predominantly presented in
other income. The guidance was required to be applied
retrospectively, and accordingly, certain prior period
amounts have been revised to conform with the current
period presentation. The cumulative effect on retained
earnings was a reduction of $284 million as of January 1,
2013. The adoption of this accounting guidance resulted in
an increase of $907 million and $924 million in other
income and income tax expense, respectively, for the year
ended December 31, 2014 and $761 million and $798
million, respectively, for the year ended December 2013,
which led to an increase of approximately 2% in the
effective tax rate for the year ended December 31, 2014
and 2013. The impact on net income and earnings per
For further discussion of the Firm's derivative instruments,
see Note 6. For further discussion of the Firm's repurchase
and reverse repurchase agreements, and securities
borrowing and lending agreements, see Note 13.
Simplifying the presentation of debt issuance costs
Effective October 1, 2015, the Firm early adopted new
accounting guidance that simplifies the presentation of debt
issuance costs, by requiring that unamortized debt issuance
costs be presented as a reduction of the applicable liability
rather than as an asset. The adoption of this guidance had
no material impact on the Firm's Consolidated balance
sheets, and no impact on the Firm's consolidated results of
operations. The guidance was required to be applied
retrospectively, and accordingly, certain prior period
amounts have been revised to conform with the current
period presentation.
Typical master netting agreements for these types of
transactions also often contain a collateral/margin
agreement that provides for a security interest in, or title
transfer of, securities or cash collateral/margin to the party
that has the right to demand margin (the “demanding
party"). The collateral/margin agreement typically requires
a party to transfer collateral/margin to the demanding
party with a value equal to the amount of the margin deficit
on a net basis across all transactions governed by the
master netting agreement, less any threshold. The
collateral/margin agreement grants to the demanding
party, upon default by the counterparty, the right to set-off
any amounts payable by the counterparty against any
posted collateral or the cash equivalent of any posted
collateral/margin. It also grants to the demanding party the
right to liquidate collateral/margin and to apply the
proceeds to an amount payable by the counterparty.
JPMorgan Chase & Co./2015 Annual Report
activities. In general, the parties that make the most
significant decisions affecting the VIE (such as asset
managers, collateral managers, servicers, or owners of call
options or liquidation rights over the VIE's assets) or have
the right to unilaterally remove those decision-makers are
deemed to have the power to direct the activities of a VIE.
To assess whether the Firm has the obligation to absorb
losses of the VIE or the right to receive benefits from the
VIE that could potentially be significant to the VIE, the Firm
considers all of its economic interests, including debt and
equity investments, servicing fees, and derivatives or other
arrangements deemed to be variable interests in the VIE.
This assessment requires that the Firm apply judgment in
determining whether these interests, in the aggregate, are
considered potentially significant to the VIE. Factors
considered in assessing significance include: the design of
the VIE, including its capitalization structure; subordination
of interests; payment priority; relative share of interests
held across various classes within the VIE's capital
structure; and the reasons why the interests are held by the
Firm.
182
U.S. GAAP permits entities to present derivative receivables
and derivative payables with the same counterparty and the
related cash collateral receivables and payables on a net
basis on the Consolidated balance sheets when a legally
enforceable master netting agreement exists. U.S. GAAP
also permits securities sold and purchased under
repurchase agreements to be presented net when specified
conditions are met, including the existence of a legally
enforceable master netting agreement. The Firm has
elected to net such balances when the specified conditions
are met.
Offsetting assets and liabilities
Gains and losses relating to translating functional currency
financial statements for U.S. reporting are included in other
comprehensive income/(loss) ("OCI") within stockholders'
equity. Gains and losses relating to nonfunctional currency
transactions, including non-U.S. operations where the
functional currency is the U.S. dollar, are reported in the
Consolidated statements of income.
JPMorgan Chase revalues assets, liabilities, revenue and
expense denominated in non-U.S. currencies into U.S.
dollars using applicable exchange rates.
Foreign currency translation
The preparation of the Consolidated Financial Statements
requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
revenue and expense, and disclosures of contingent assets
and liabilities. Actual results could be different from these
estimates.
Use of estimates in the preparation of consolidated
financial statements
The Firm uses master netting agreements to mitigate
counterparty credit risk in certain transactions, including
derivatives transactions, repurchase and reverse
repurchase agreements, and securities borrowed and
loaned agreements. A master netting agreement is a single
contract with a counterparty that permits multiple
transactions governed by that contract to be terminated
and settled through a single payment in a single currency in
the event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due after expiration of any grace period).
Upon the exercise of termination rights by the non-
defaulting party (i) all transactions are terminated, (ii) all
transactions are valued and the positive value or "in the
money" transactions are netted against the negative value
or "out of the money" transactions and (iii) the only
remaining payment obligation is of one of the parties to pay
the netted termination amount. Upon exercise of
repurchase agreement and securities loan default rights in
general (i) all transactions are terminated and accelerated,
(ii) all values of securities or cash held or to be delivered
are calculated, and all such sums are netted against each
other and (iii) the only remaining payment obligation is of
one of the parties to pay the netted termination amount.
Derivative netting
adjustments
Note 21
Income taxes
Loans held for investment and
associated lending-related
commitments
Loans and lending-related commitments - wholesale
Trading portfolio
Collateral
•
• Market rates for the respective maturity
Derivative features: for further information refer to the discussion
of derivatives below.
Level 2
Classifications in the valuation
hierarchy
Valuations are based on discounted cash flows, which consider:
Valuation methodology
Securities financing agreements
Product/instrument
The following table describes the valuation methodologies generally used by the Firm to measure its significant products/
instruments at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.
Notes to consolidated financial statements
185
Loans
consumer
Held for investment consumer
loans, excluding credit card
Where observable market data is available, valuations are based on:
Valuations are based on discounted cash flows, which consider:
For information regarding the valuation of loans measured at
collateral value, see Note 14.
Lending-related commitments are valued similar to loans and reflect
the portion of an unused commitment expected, based on the Firm's
average portfolio historical experience, to become funded prior to an
obligor default
Prepayment speed
•
• Credit spreads, derived from the cost of CDS; or benchmark credit
curves developed by the Firm, by industry and credit rating
Valuations are based on discounted cash flows, which consider:
JPMorgan Chase & Co./2015 Annual Report
Prepayment speed
•
Where observable market data is unavailable or limited, valuations
are based on discounted cash flows, which consider the following:
• Observed market prices for similar instruments
Relevant broker quotes
•
• Observed market prices (circumstances are infrequent)
Level 2 or 3
Credit spreads derived from the cost of credit default swaps
("CDS"); or benchmark credit curves developed by the Firm, by
industry and credit rating
A financial instrument's categorization within the valuation
hierarchy is based on the lowest level of input that is
significant to the fair value measurement.
Level 3 - one or more inputs to the valuation
methodology are unobservable and significant to the fair
value measurement.
Level 2 - inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument.
Valuation process
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of different
methodologies or assumptions by other market participants
compared with those used by the Firm could result in a
different estimate of fair value at the reporting date.
The level of precision in estimating unobservable market
inputs or other factors can affect the amount of gain or loss
recorded for a particular position. Furthermore, while the
Firm believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date. Fair value is based on quoted market
prices, where available. If listed prices or quotes are not
available, fair value is based on models that consider
relevant transaction characteristics (such as maturity) and
use as inputs observable or unobservable market
parameters, including but not limited to yield curves,
interest rates, volatilities, equity or debt prices, foreign
exchange rates and credit curves. Valuation adjustments
may be made to ensure that financial instruments are
recorded at fair value, as described below.
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. These assets and liabilities are predominantly
carried at fair value on a recurring basis (i.e., assets and
liabilities that are measured and reported at fair value on
the Firm's Consolidated balance sheets). Certain assets
(e.g., certain mortgage, home equity and other loans where
the carrying value is based on the fair value of the
underlying collateral), liabilities and unfunded lending-
related commitments are measured at fair value on a
nonrecurring basis; that is, they are not measured at fair
value on an ongoing basis but are subject to fair value
adjustments only in certain circumstances (for example,
when there is evidence of impairment).
Note 3 - Fair value measurement
Notes to consolidated financial statements
Risk-taking functions are responsible for providing fair value
estimates for assets and liabilities carried on the
Consolidated balance sheets at fair value. The Firm's
valuation control function, which is part of the Firm's
Finance function and independent of the risk-taking
functions, is responsible for verifying these estimates and
determining any fair value adjustments that may be
required to ensure that the Firm's positions are recorded at
fair value. In addition, the firmwide Valuation Governance
Forum ("VGF") is composed of senior finance and risk
executives and is responsible for overseeing the
management of risks arising from valuation activities
conducted across the Firm. The VGF is chaired by the
Firmwide head of the valuation control function (under the
direction of the Firm's Chief Financial Officer ("CFO")), and
183
Note 2 - Business changes and developments
Private Equity sale
Long-term debt
Page 290
Page 297
Note 29
Note 31
Off-balance sheet lending-related
financial instruments, guarantees and
other commitments
Litigation
Page 285
Note 26
As part of the Firm's business simplification agenda, the
sale of a portion of the Private Equity Business ("Private
Equity sale") was completed on January 9, 2015.
Concurrent with the sale, a new independent management
company was formed by the former One Equity Partners
investment professionals. The new management company
provides investment management services to the acquirer
of the investments sold in the Private Equity sale and to the
Firm for the portion of the private equity investments that
were retained by the Firm. The sale of the investments did
not have a material impact on the Firm's Consolidated
balance sheets or its results of operations.
Page 279
184
The valuation control function verifies fair value estimates
provided by the risk-taking functions by leveraging
independently derived prices, valuation inputs and other
market data, where available. Where independent prices or
inputs are not available, additional review is performed by
the valuation control function to ensure the reasonableness
of the estimates. The review may include evaluating the
limited market activity including client unwinds,
benchmarking of valuation inputs to those for similar
instruments, decomposing the valuation of structured
instruments into individual components, comparing
expected to actual cash flows, reviewing profit and loss
trends, and reviewing trends in collateral valuation. There
are also additional levels of management review for more
significant or complex positions.
Level 1 - inputs to the valuation methodology are
quoted prices (unadjusted) for identical assets or
liabilities in active markets.
•
•
A three-level valuation hierarchy has been established
under U.S. GAAP for disclosure of fair value measurements.
The valuation hierarchy is based on the transparency of
inputs to the valuation of an asset or liability as of the
measurement date. The three levels are defined as follows.
Valuation hierarchy
New valuation models, as well as material changes to
existing valuation models, are reviewed and approved prior
to implementation except where specified conditions are
met, including the approval of an exception granted by the
head of the Model Risk function. The Model Risk function
performs an annual status assessment that considers
developments in the product or market to determine
whether valuation models which have already been
reviewed need to be, on a full or partial basis, reviewed and
approved again.
The Model Risk function is independent of the model
owners. It reviews and approves a wide range of models,
including risk management, valuation and regulatory capital
models used by the Firm. The Model Risk review and
governance functions are part of the Firm's Model Risk unit,
and the Firmwide Model Risk Executive reports to the Firm's
Chief Risk Officer ("CRO"). When reviewing a model, the
Model Risk function analyzes and challenges the model
methodology, and the reasonableness of model
assumptions and may perform or require additional testing,
including back-testing of model outcomes.
includes sub-forums covering the Corporate & Investment
Bank, Consumer & Community Banking ("CCB"), Commercial
Banking, Asset Management and certain corporate
functions including Treasury and Chief Investment Office
("CIO").
If prices or quotes are not available for an instrument or a
similar instrument, fair value is generally determined using
valuation models that consider relevant transaction data
such as maturity and use as inputs market-based or
independently sourced parameters. Where this is the case
the price verification process described above is applied to
the inputs to those models.
Where appropriate, the Firm also applies adjustments to its
estimates of fair value in order to appropriately reflect
counterparty credit quality, the Firm's own creditworthiness
and the impact of funding, utilizing a consistent framework
across the Firm. For more information on such adjustments
see Credit and funding adjustments on page 200 of this
Note.
Unobservable parameter valuation adjustments may be
made when positions are valued using prices or input
parameters to valuation models that are unobservable
due to a lack of market activity or because they cannot
be implied from observable market data. Such prices or
parameters must be estimated and are, therefore,
subject to management judgment. Unobservable
parameter valuation adjustments are applied to reflect
the uncertainty inherent in the resulting valuation
estimate.
JPMorgan Chase & Co./2015 Annual Report
The Firm manages certain portfolios of financial
instruments on the basis of net open risk exposure and,
as permitted by U.S. GAAP, has elected to estimate the
fair value of such portfolios on the basis of a transfer of
the entire net open risk position in an orderly
transaction. Where this is the case, valuation
adjustments may be necessary to reflect the cost of
exiting a larger-than-normal market-size net open risk
position. Where applied, such adjustments are based on
factors that a relevant market participant would
consider in the transfer of the net open risk position,
including the size of the adverse market move that is
likely to occur during the period required to reduce the
net open risk position to a normal market-size.
Liquidity valuation adjustments are considered where an
observable external price or valuation parameter exists
but is of lower reliability, potentially due to lower market
activity. Liquidity valuation adjustments are applied and
determined based on current market conditions. Factors
that may be considered in determining the liquidity
adjustment include analysis of: (1) the estimated bid-
offer spread for the instrument being traded; (2)
alternative pricing points for similar instruments in
active markets; and (3) the range of reasonable values
that the price or parameter could take.
•
The valuation control function determines any valuation
adjustments that may be required to the estimates provided
by the risk-taking functions. No adjustments are applied to
the quoted market price for instruments classified within
level 1 of the fair value hierarchy (see below for further
information on the fair value hierarchy). For other
positions, judgment is required to assess the need for
valuation adjustments to appropriately reflect liquidity
considerations, unobservable parameters, and, for certain
portfolios that meet specified criteria, the size of the net
open risk position. The determination of such adjustments
follows a consistent framework across the Firm:
Valuation model review and approval
$
The Consolidated Financial Statements include the accounts
of JPMorgan Chase and other entities in which the Firm has
a controlling financial interest. All material intercompany
balances and transactions have been eliminated.
395
Credit
10,221
(624,945)
1,890
633,060
216
Interest rate
74,107
63
20,199
53,845
9,911
639
9,272
3,526
Foreign exchange
Equity
Commodity
Total derivative payables(e)
9,183
(29,480)
2,223
36,440
19,769
(171,131)
2,341
3,526
187,890
1,541
(48,988)
2,069
48,460
'
Accounts payable and other liabilities
Total trading liabilities
669
52
624,984
12,516
$
$
Derivative payables:
Debt and equity instruments(d)
Trading liabilities:
Federal funds purchased and securities loaned or sold under repurchase agreements
Other borrowed funds
Deposits
Total assets measured at fair value on a recurring basis
Total other assets
All other
Private equity investments()
2,861
6,608
2,087
241,754
9,097
31,007
12,436
36,676
102
101
1,657
1,860
31,227
2,950
$
9,566
$
1,316,893
(g)
6,447
(902,201) $
$
2,401
3,917
179,065 $
$
$
$
4,587
744
28
3,815
129
26,430
1,172
(15,578)
32,840
922
31,904
14
992
28,585
Total fair value
$
$
$
28,585
992
$
$
netting
adjustments
Level 3
1,381
663
2,044
927
1,429
Total fair value
23,141
Certificates of deposit, bankers' acceptances and commercial paper
1,273
9,298
Obligations of U.S. states and municipalities
26,276
Level 2
8,460
U.S. Treasury and government agencies(a)
36,117
1,891
34,212
14
1,233
306
17,816
Level 1
Derivative
Total mortgage-backed securities
59,164 $
$
Total liabilities measured at fair value on a recurring basis
Long-term debt
Beneficial interests issued by consolidated VIES
126,897
(890,122)
238
21,452
996,533
9,758
54,782
4,382
52,790
(890,122)
9,695
932,280
937
12,076
952,479
| | |
$
4,401
787
Commercial - nonagency
Residential nonagency
U.S. government agencies (a)
Mortgage-backed securities:
Debt instruments:
Trading assets:
Securities borrowed
19
549
11,613
25,528
Federal funds sold and securities purchased under resale agreements
Fair value hierarchy
Notes to consolidated financial statements
189
JPMorgan Chase & Co./2015 Annual Report
33,065
191,103
(890,122) $
$
December 31, 2014 (in millions)
6,608
10,571
824
Derivative receivables:
Total debt and equity instruments(d)
Other
Physical commodities (c)
Equity securities
Total debt instruments
4,224
1,832
2,392
Asset-backed securities
28,815
6,604
22,211
Loans(b)
23,543
Interest rate
Credit
Foreign exchange
Equity
4,657
1,064
94,930
265
606
172,618
10,921
736
121,681
Residential nonagency
Commercial - nonagency
U.S. government agencies (a)
Mortgage-backed securities:
Available-for-sale securities:
Total trading assets
Total derivative receivables(e)
Commodity
40,016
94,059
3,593
22,807
Corporate debt securities
53,112
1,493
194
1,299
32,536
715
31,815
6
1,080
U.S. Treasury and government agencies(a)
Commercial-nonagency
nonagency
Trading assets:
Residential
U.S. government agencies (a)
Mortgage-backed securities:
1,518
Total mortgage-backed securities
137,668
115
6
74
25,064
Non-U.S. government debt securities
1,042
1,042
Certificates of deposit, bankers' acceptances and commercial paper
7,637
1,195
651
Obligations of U.S. states and municipalities
19,021
6,985
12,036
35,224
1,024
34,194
6,986
11,152
134,503
Debt instruments:
11,896
Certificates of deposit
33,550
Obligations of U.S. states and municipalities
38
10,998
U.S. Treasury and government agencies(a)
1
105,581
Total mortgage-backed securities
22,897
1
27,618
55,066
Other assets:
Mortgage servicing rights
283
Non-U.S. government debt securities
23,199
13,477
744
283
33,550
11,036
105,582
22,897
27,619
Loans
55,066
9,033
759
30,248
Collateralized loan obligations
Asset-backed securities:
12,436
Corporate debt securities
64
Total available-for-sale securities
2,087
36,284
Other
(162,698)
1,616
177,525
734
1,423
(50,045)
2,618
17,177
48,850
(643,248)
2,766
666,491
354
284,101
Equity securities
11,930
26,363
35,150
204,646
1,343
(30,330)
343,778
709
(902,201)
19,876
1,087,239
138,864
(902,201)
7,946
59,677
1,196
9,185
(15,880)
237
24,720
108
5,529
952,736
5
(1,262)
(158)
70
(1,514)
(565) (856)
(2,061)
(24)
512
(3)
(935)
(41)
1,612 (c)
1
890
657
49
876
263
189
118
129
(136)
165
(1,785) 731
84
260
(526)
19
(149)
(296)
(430)
(725)
549
1,552
(32)
(509)
(43)
(90)
(99)
824
(28) (d)
Loans
2,541
(133) (c)
1,290
JPMorgan Chase & Co./2015 Annual Report
(a) Included derivatives DVA of $(6) million, $(1) million and $(115) million
for the years ended December 31, 2015, 2014 and 2013, respectively.
(b) Included structured notes DVA of $171 million, $20 million and $(337)
million for the years ended December 31, 2015, 2014 and 2013,
respectively.
(760)
200
(320)
754
51
(32) (d)
1,037
Total available-for-sale securities
(599)
(1,749)
536 (c)
Available-for-sale securities:
Asset-backed securities
908
51
(1,744)
(43)
823
(28)
Other
129
-
(29)
1
(61)
(99)
(26)
(173)
(1,229)
(35)
(47)
1,832
(32)
Total debt instruments
21,006
(181)
8,006
(8,360)
(3,540)
(6,010)
10,921
(256)
Equity securities
1,920
(41)
1,264
Asset-backed securities
Structured notes DVA and FVA(b)
1,171
(1,038)
(125)
(2,184)
736
2
431
Loans
(174)
3,532
(4,661)
(3,112)
(2,268)
6,604
(181)
13,287
(732)
96
(193)
(3,374)
(7,027) 11,930
སྐྱ | g| ཆེ
85
(89) (c)
Net derivative receivables: (a)
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total net derivative receivables
626
962
513
(9,866)
9,676
32 (c)
22,489
(132)
265
Physical commodities
2
(2)
-
Other
89
1,050
1,581
(1,313)
192
(885)
744
Total trading assets - debt and
equity instruments
119
(77)
consolidated VIES
73
at Dec. 31, 2013
Change in
unrealized
(gains)/losses
related to
financial
instruments held
Fair value at
Dec. 31,
2013
Transfers into
and/or out of
level 3 (i)
Issuances Settlements(h)
Sales
losses Purchases(g)
1, 2013
Fair value unrealized
(gains)/
at January
December 31, 2013
(in millions)
Liabilities:(b)
Year ended
Total
realized/
Fair value measurements using significant unobservable inputs
(64) (f)
Deposits
Other borrowed funds
$ 1,983 $ (82) (c)
1,619
$
(131)
(54)
2,594
(2,418)
291 (c)
(88) (c)
$
1,382
2,255
2,074
(222) $
(6,845)
1,248 $
7,108
(177) (c)
(83) (c)
205
Trading liabilities - debt and equity
instruments
$
$
(672) $
369
113
42 (c)
(195)
1,931
(1,306)
(191)
1,065
(c)
81
2,282
Loans
(d)
29
2,322
(27,375)
(63)
2,989
(273)
(21) (c)
Mortgage servicing rights
7,614
1,612 (e)
140
(345)
(1,080)
(427)
49
(17) (f)
2,122
All other
537
5,816
824 (c)
Private equity investments
Other assets:
1,612 (e)
9,614
(1,102)
(725)
2,215
5,590
(58) (1,152)
(100) (c)
Beneficial interests issued by
Credit and funding adjustments
Notes to consolidated financial statements
199
JPMorgan Chase & Co./2015 Annual Report
$1.6 billion of net gains on MSRs. For further discussion
of the change, refer to Note 17
• $2.2 billion of net gains on trading assets
equity instruments, largely driven by market making and
credit spread tightening nonagency mortgage-backed
securities and trading loans, and the impact of market
movements on client-driven financing transactions
debt and
-
$2.9 billion of net gains on derivatives, largely driven by
$2.5 billion of gains on equity derivatives, primarily
related to client-driven market-making activity and a rise
in equity markets; and $1.4 billion of gains,
predominantly on interest rate lock and mortgage loan
purchase commitments; partially offset by $1.7 billion
of losses on credit derivatives from the impact of
tightening reference entity credit spreads
•
•
•
2013
$1.1 billion of net gains on trading assets debt and
equity instruments, largely driven by market movements
and client-driven financing transactions
-
When determining the fair value of an instrument, it may be
necessary to record adjustments to the Firm's estimates of
fair value in order to reflect counterparty credit quality, the
Firm's own creditworthiness, and the impact of funding:
CVA is taken to reflect the credit quality of a
counterparty in the valuation of derivatives. Derivatives
are generally valued using models that use as their basis
observable market parameters. These market
parameters may not consider counterparty non-
performance risk. Therefore, an adjustment may be
necessary to reflect the credit quality of each derivative
counterparty to arrive at fair value.
The Firm estimates derivatives CVA using a scenario
analysis to estimate the expected credit exposure across
all of the Firm's positions with each counterparty, and
then estimates losses as a result of a counterparty credit
event. The key inputs to this methodology are (i) the
expected positive exposure to each counterparty based
on a simulation that assumes the current population of
existing derivatives with each counterparty remains
unchanged and considers contractual factors designed
to mitigate the Firm's credit exposure, such as collateral
and legal rights of offset; (ii) the probability of a default
event occurring for each counterparty, as derived from
observed or estimated CDS spreads; and (iii) estimated
recovery rates implied by CDS, adjusted to consider the
differences in recovery rates as a derivative creditor
relative to those reflected in CDS spreads, which
generally reflect senior unsecured creditor risk. As such,
the Firm estimates derivatives CVA relative to the
relevant benchmark interest rate.
DVA is taken to reflect the credit quality of the Firm in
the valuation of liabilities measured at fair value. The
DVA calculation methodology is generally consistent
with the CVA methodology described above and
incorporates JPMorgan Chase's credit spreads as
observed through the CDS market to estimate the
probability of default and loss given default as a result of
a systemic event affecting the Firm. Structured notes
DVA is estimated using the current fair value of the
structured note as the exposure amount, and is
otherwise consistent with the derivative DVA
methodology.
Derivatives DVA and FVA (a)
(322) $ 1,886
$
$ 620
Derivatives CVA
2013
2014
$1.8 billion of losses on MSRs. For further discussion of
the change, refer to Note 17
2015
Year ended December 31,
(in millions)
The following table provides the impact of credit and
funding adjustments on principal transactions revenue in
the respective periods, excluding the effect of any
associated hedging activities. The DVA and FVA reported
below include the impact of the Firm's own credit quality on
the inception value of liabilities as well as the impact of
changes in the Firm's own credit quality over time.
Upon the implementation of the FVA framework in 2013,
the Firm recorded a one-time $1.5 billion loss in principal
transactions revenue that was recorded in the CIB. While the
FVA framework applies to both assets and liabilities, the
loss on implementation largely related to uncollateralized
derivative receivables given that the impact of the Firm's
own credit risk, which is a significant component of funding
costs, was already incorporated in the valuation of liabilities
through the application of DVA.
participant with a similar credit standing as the Firm.
valuation estimates. The Firm's FVA framework
leverages its existing CVA and DVA calculation
methodologies, and considers the fact that the Firm's
own credit risk is a significant component of funding
costs. The key inputs to FVA are: (i) the expected funding
requirements arising from the Firm's positions with each
counterparty and collateral arrangements; (ii) for
assets, the estimated market funding cost in the
principal market; and (iii) for liabilities, the hypothetical
market funding cost for a transfer to a market
FVA is taken to incorporate the impact of funding in the
Firm's valuation estimates where there is evidence that a
market participant in the principal market would
incorporate it in a transfer of the instrument. For
collateralized derivatives, the fair value is estimated by
discounting expected future cash flows at the relevant
overnight indexed swap ("OIS") rate given the
underlying collateral agreement with the counterparty.
For uncollateralized (including partially collateralized)
over-the-counter ("OTC") derivatives and structured
notes, effective in 2013, the Firm implemented a FVA
framework to incorporate the impact of funding into its
200
Credit adjustments:
Accounts payable and other liabilities
2014
2015
(a) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.
JPMorgan Chase & Co./2015 Annual Report
198
Note: Effective April 1, 2015, the Firm adopted new accounting guidance for certain investments where the Firm measures fair value using the net asset value per share (or its
equivalent) as a practical expedient and excluded such investments from the fair value hierarchy. The guidance was required to be applied retrospectively, and accordingly, prior
period amounts have been revised to conform with the current period presentation. For further information, see page 190.
(85) (c)
167 (c)
1,240
10,008
(501)
(4,362)
6,830
(212)
353
174 (c)
(435) (c)
925
8,476
Long-term debt
(b) Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis) were 13%, 15% and
18% at December 31, 2015, 2014 and 2013, respectively.
(c) Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans, lending-related commitments originated with the intent to
sell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income.
(d) Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment losses that are recorded in earnings, are reported in securities gains. Unrealized gains/
(losses) are reported in OCI. Realized gains/(losses) and foreign exchange remeasurement adjustments recorded in income on AFS securities were $(7) million, $(43) million,
and $17 million for the years ended December 31, 2015, 2014 and 2013, respectively. Unrealized gains/(losses) recorded on AFS securities in OCI were $(25) million, $(16)
million and $13 million for the years ended December 31, 2015, 2014 and 2013, respectively.
(e) Changes in fair value for CCB MSRS are reported in mortgage fees and related income.
The following describes significant components of total
realized/unrealized gains/(losses) for instruments
measured at fair value on a recurring basis for the years
ended December 31, 2015, 2014 and 2013. For further
information on these instruments, see Changes in level 3
recurring fair value measurements rollforward tables on
pages 195-199.
Gains and losses
•
$4.6 billion decrease in gross derivative receivables was
driven by a $3.9 billion decrease in equity, interest rate
and foreign exchange derivative receivables due to
market movements and transfers from level 3 to level 2
as a result of an increase in observability of certain
valuation inputs
to transfers from level 3 to level 2 as a result of an
increase in observability of certain valuation inputs
$10.6 billion decrease in trading assets - debt and
equity instruments was driven by a decrease of $6.7
billion in trading loans due to sales, maturities and
transfers from level 3 to level 2 as a result of an
increase in observability of certain valuation inputs and
a $2.3 billion decrease in corporate debt securities due
•
$1.6 billion of net gains in interest rate, foreign
exchange and equity derivative receivables largely due
to market movements; partially offset by loss in
commodity derivatives due to market movements
$1.3 billion of net gains in liabilities due to market
movements
Level 3 assets were $31.2 billion at December 31, 2015,
reflecting a decrease of $18.0 billion from December 31,
2014. This decrease was driven by settlements (including
repayments and restructurings) and transfers to Level 2
due to an increase in observability and a decrease in the
significance of unobservable inputs. In particular:
Level 3 assets (including assets measured at fair value on a
nonrecurring basis) were 1.4% of total Firm assets at
December 31, 2015. The following describes significant
changes to level 3 assets since December 31, 2014, for
those items measured at fair value on a recurring basis. For
further information on changes impacting items measured
at fair value on a nonrecurring basis, see Assets and
liabilities measured at fair value on a nonrecurring basis on
pages 200-201.
Consolidated balance sheets changes
Level 3 analysis
(i) All transfers into and/or out of level 3 are assumed to occur at the beginning of the quarterly reporting period in which they occur.
(h) Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, and deconsolidations associated with beneficial interests in
VIES.
(g) Loan originations are included in purchases.
(f) Predominantly reported in other income.
For the year ended December 31, 2015
Corporate debt securities
EBITDA multiple
74
Market comparables
Option pricing
Price
$
$168
$89
Interest rate correlation
(52)%
99%
Interest rate spread volatility
3%
38%
Net equity derivatives
Collateralized loan obligations
759
Net credit derivatives (b)(c)
876
Net foreign exchange derivatives
Net interest rate derivatives
5%
Loss severity
40%
40%
Corporate debt securities, obligations
3,277
Discounted cash flows
Credit spread
60 bps
225 bps
146 bps
of U.S. states and municipalities, and
other(c)
Yield
1%
-
20%
2,740
Net commodity derivatives
(725) Option pricing
(1,514) Option pricing
(935)
Discounted cash flows
Discounted cash flows
20%
20%
Conditional default rate
2%
2%
180
Loss severity
Price
40%
40%
$
$99
$69
Mortgage servicing rights
6,608
Private equity investments
Prepayment speed
396 bps
550 bps
354 bps
549
Discounted cash flows
Credit correlation
35%
90%
Foreign exchange correlation
0%
29%
60%
20%
65%
Forward commodity price
$
22
$46 per barrel
Credit spread
Equity volatility
91%
-
0%
All transfers are assumed to occur at the beginning of the
quarterly reporting period in which they occur.
Level 3 valuations
The Firm has established well-documented processes for
determining fair value, including for instruments where fair
value is estimated using significant unobservable inputs
(level 3). For further information on the Firm's valuation
process and a detailed discussion of the determination of
fair value for individual financial instruments, see pages
185-188 of this Note.
Estimating fair value requires the application of judgment.
The type and level of judgment required is largely
dependent on the amount of observable market information
available to the Firm. For instruments valued using
internally developed models that use significant
unobservable inputs and are therefore classified within
level 3 of the fair value hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate model to use. Second, due to the lack of
observability of significant inputs, management must assess
all relevant empirical data in deriving valuation inputs
including, but not limited to, transaction details, yield
191
Notes to consolidated financial statements
curves, interest rates, prepayment speed, default rates,
volatilities, correlations, equity or debt prices, valuations of
comparable instruments, foreign exchange rates and credit
curves.
The following table presents the Firm's primary level 3
financial instruments, the valuation techniques used to
measure the fair value of those financial instruments, the
significant unobservable inputs, the range of values for
those inputs and, for certain instruments, the weighted
averages of such inputs. While the determination to classify
an instrument within level 3 is based on the significance of
the unobservable inputs to the overall fair value
measurement, level 3 financial instruments typically include
observable components (that is, components that are
actively quoted and can be validated to external sources)
addition to the unobservable components. The level 1 and/
or level 2 inputs are not included in the table. In addition,
the Firm manages the risk of the observable components of
level 3 financial instruments using securities and derivative
positions that are classified within levels 1 or 2 of the fair
value hierarchy.
The range of values presented in the table is representative
of the highest and lowest level input used to value the
significant groups of instruments within a product/
instrument classification. Where provided, the weighted
averages of the input values presented in the table are
calculated based on the fair value of the instruments that
the input is being used to value.
In the Firm's view, the input range and the weighted
average value do not reflect the degree of input uncertainty
or an assessment of the reasonableness of the Firm's
estimates and assumptions. Rather, they reflect the
characteristics of the various instruments held by the Firm
and the relative distribution of instruments within the range
of characteristics. For example, two option contracts may
have similar levels of market risk exposure and valuation
uncertainty, but may have significantly different implied
volatility levels because the option contracts have different
underlyings, tenors, or strike prices. The input range and
weighted average values will therefore vary from period-to-
period and parameter-to-parameter based on the
characteristics of the instruments held by the Firm at each
balance sheet date.
For the Firm's derivatives and structured notes positions
classified within level 3 at December 31, 2015, interest
rate correlation inputs used in estimating fair value were
concentrated towards the upper end of the range
presented; equities correlation inputs were concentrated at
the lower end of the range; the credit correlation inputs
were distributed across the range presented; and the
foreign exchange correlation inputs were concentrated at
the top end of the range presented. In addition, the interest
rate volatility inputs and the foreign exchange correlation
inputs used in estimating fair value were each concentrated
at the upper end of the range presented. The equity
volatilities are concentrated in the lower half end of the
range. The forward commodity prices used in estimating the
fair value of commodity derivatives were concentrated
within the lower end of the range presented.
192
JPMorgan Chase & Co./2015 Annual Report
Transfers from level 2 to level 3 included $1.4 billion of
corporate debt securities in the trading portfolio largely
driven by a decrease in observability for certain credit
instruments.
$1.3 billion of long-term debt, largely driven by an
increase in observability of certain equity structured
notes.
Certain highly rated CLOS, including $27.4 billion held in
the Firm's available-for-sale ("AFS") securities portfolio
and $1.4 billion held in the trading portfolio, based on
increased liquidity and price transparency;
During the year ended December 31, 2013, transfers from
level 3 to level 2 included the following:
1,087
(a) At December 31, 2015 and 2014, included total U.S. government-sponsored enterprise obligations of $67.0 billion and $84.1 billion, respectively, which were predominantly
mortgage-related.
(b) At December 31, 2015 and 2014, included within trading loans were $11.8 billion and $17.0 billion, respectively, of residential first-lien mortgages, and $4.3 billion and $5.8
billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell to U.S. government
agencies of $5.3 billion and $7.7 billion, respectively, and reverse mortgages of $2.5 billion and $3.4 billion, respectively.
(c) Physical commodities inventories are generally accounted for at the lower of cost or market. "Market" is a term defined in U.S. GAAP as not exceeding fair value less costs to sell
("transaction costs"). Transaction costs for the Firm's physical commodities inventories are either not applicable or immaterial to the value of the inventory. Therefore, market
approximates fair value for the Firm's physical commodities inventories. When fair value hedging has been applied (or when market is below cost), the carrying value of physical
commodities approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. For a further discussion of the Firm's hedge
accounting relationships, see Note 6. To provide consistent fair value disclosure information, all physical commodities inventories have been included in each period presented.
(d) Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).
(e) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally
enforceable master netting agreement exists. For purposes of the tables above, the Firm does not reduce derivative receivables and derivative payables balances for this netting
adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to a presentation based on the transparency of inputs to the valuation of
an asset or liability. However, if the Firm were to net such balances within level 3, the reduction in the level 3 derivative receivables and payables balances would be $546
million and $2.5 billion at December 31, 2015 and 2014, respectively; this is exclusive of the netting benefit associated with cash collateral, which would further reduce the
level 3 balances.
(f) Private equity instruments represent investments within the Corporate line of business. The cost basis of the private equity investment portfolio totaled $3.5 billion and $6.0
billion at December 31, 2015 and 2014, respectively.
(g) Certain prior period amounts (including the corresponding fair value parenthetical disclosure for accounts payable and other liabilities on the Consolidated balance sheets) were
revised to conform with the current period presentation.
Product/Instrument
Transfers between levels for instruments carried at fair
value on a recurring basis
During the year ended December 31, 2015, transfers from
level 3 to level 2 and from level 2 to level 3 included the
following:
$3.1 billion of long-term debt and $1.0 billion of
deposits driven by an increase in observability on
certain structured notes with embedded interest rate
and FX derivatives and a reduction of the significance in
the unobservable inputs for certain structured notes
with embedded equity derivatives
$2.1 billion of gross equity derivatives for both
receivables and payables as a result of an increase in
observability and a decrease in the significance in
unobservable inputs; partially offset by transfers into
level 3 resulting in net transfers of approximately $1.2
billion for both receivables and payables
$2.8 billion of trading loans driven by an increase in
observability of certain collateralized financing
transactions; and $2.4 billion of corporate debt driven
by a decrease in the significance in the unobservable
inputs and an increase in observability for certain
structured products
During the year ended December 31, 2014, transfers from
level 3 to level 2 included the following:
$4.3 billion and $4.4 billion of gross equity derivative
receivables and payables, respectively, due to increased
observability of certain equity option valuation inputs
$2.7 billion of trading loans, $2.6 billion of margin
loans, $2.3 billion of private equity investments, $2.0
billion of corporate debt, and $1.3 billion of long-term
debt, based on increased liquidity and price
transparency
Transfers from level 2 into level 3 included $1.1 billion of
other borrowed funds, $1.1 billion of trading loans and
$1.0 billion of long-term debt, based on a decrease in
observability of valuation inputs and price transparency.
JPMorgan Chase & Co./2015 Annual Report
For the years ended December 31, 2015 and 2014, there
were no significant transfers between levels 1 and 2.
1,657
Level 3 inputs(a)
Principal valuation
technique
-
33%
2%
Commercial mortgage-backed
2,844
Discounted cash flows
Loss severity
Yield
0%
100%
28%
1%
25%
6%
securities and loans (b)
Conditional default rate
0%
Conditional default rate
6%
20%
Fair
value
Weighted
Unobservable inputs
Range of input values
average
Residential mortgage-backed
$ 5,212
December 31, 2015 (in millions, except for ratios and basis points)
Discounted cash flows
3%
26%
6%
securities and loans
Prepayment speed
0%
-
Yield
(16)
Discounted cash flows
Market comparables
7.2x
(28)
$
327 $
(303)
$
(132) $
(71) $
715
$
Residential nonagency
663
130
253
(611)
(23)
922 $
(218)
$
Mortgage-backed securities:
December 31, 2015
at January
(in millions)
1, 2015
realized/
unrealized
gains/
(losses)
Purchases(g)
Sales
Settlements(h)
Transfers into
and/or out of
level 3(i)
Fair value
at Dec.
31, 2015
Change in
unrealized gains/
(losses) related
to financial
instruments held
at Dec. 31, 2015
Assets:
Trading assets:
Debt instruments:
U.S. government agencies
194
Commercial nonagency
306
(27)
(828)
651
སྐྱེ་ ཙེ
(27)
(28)
(1)
Non-U.S. government debt
securities
302
9
205
(123)
(64)
(255)
(133)
352
14
1,273
(14)
246
(262)
(22)
(139)
115
Total mortgage-backed securities
Fair value
1,891
826
(1,176)
(177)
(428)
1,024
Obligations of U.S. states and
municipalities
88
Year ended
Total
Fair value measurements using significant unobservable inputs
Equity correlation
(50)% 80%
-
495
Beneficial interests issued by
consolidated VIES(e)
Discounted cash flows.
Discounted cash flows
Credit correlation
Yield
35%
90%
549
Prepayment Speed
Conditional default rate
Loss severity
4%
28%
4%
1%
60%
-
0%
Foreign exchange correlation
10.4x
8.5x
Liquidity adjustment
0%
13%
8%
Long-term debt, other borrowed funds,
and deposits(d)
-
14,707
Interest rate correlation
(52)%
99%
Interest rate spread volatility
3%
-
38%
Option pricing
Refer to Note 17
12%
2%
Prepayment speed - The prepayment speed is a measure of
the voluntary unscheduled principal repayments of a
prepayable obligation in a collateralized pool. Prepayment
speeds generally decline as borrower delinquencies rise. An
increase in prepayment speeds, in isolation, would result in
a decrease in a fair value measurement of assets valued at
a premium to par and an increase in a fair value
measurement of assets valued at a discount to par.
Prepayment speeds may vary from collateral pool to
collateral pool, and are driven by the type and location of
the underlying borrower, the remaining tenor of the
obligation as well as the level and type (e.g., fixed or
floating) of interest rate being paid by the borrower.
Typically collateral pools with higher borrower credit quality
have a higher prepayment rate than those with lower
borrower credit quality, all other factors being equal.
Conditional default rate - The conditional default rate is a
measure of the reduction in the outstanding collateral
balance underlying a collateralized obligation as a result of
defaults. While there is typically no direct relationship
between conditional default rates and prepayment speeds,
collateralized obligations for which the underlying collateral
has high prepayment speeds will tend to have lower
conditional default rates. An increase in conditional default
rates would generally be accompanied by an increase in loss
severity and an increase in credit spreads. An increase in
the conditional default rate, in isolation, would result in a
decrease in a fair value measurement. Conditional default
rates reflect the quality of the collateral underlying a
securitization and the structure of the securitization itself.
Based on the types of securities owned in the Firm's market-
making portfolios, conditional default rates are most
typically at the lower end of the range presented.
Loss severity - The loss severity (the inverse concept is the
recovery rate) is the expected amount of future realized
losses resulting from the ultimate liquidation of a particular
loan, expressed as the net amount of loss relative to the
outstanding loan balance. An increase in loss severity is
generally accompanied by an increase in conditional default
rates. An increase in the loss severity, in isolation, would
result in a decrease in a fair value measurement.
The loss severity applied in valuing a mortgage-backed
security investment depends on factors relating to the
underlying mortgages, including the loan-to-value ratio, the
nature of the lender's lien on the property and other
instrument-specific factors.
194
JPMorgan Chase & Co./2015 Annual Report
Correlation - Correlation is a measure of the relationship
between the movements of two variables (e.g., how the
change in one variable influences the change in the other).
Correlation is a pricing input for a derivative product where
the payoff is driven by one or more underlying risks.
Correlation inputs are related to the type of derivative (e.g.,
interest rate, credit, equity and foreign exchange) due to
the nature of the underlying risks. When parameters are
positively correlated, an increase in one parameter will
result in an increase in the other parameter. When
parameters are negatively correlated, an increase in one
parameter will result in a decrease in the other parameter.
An increase in correlation can result in an increase or a
decrease in a fair value measurement. Given a short
correlation position, an increase in correlation, in isolation,
would generally result in a decrease in a fair value
measurement. The range of correlation inputs between
risks within the same asset class are generally narrower
than those between underlying risks across asset classes. In
addition, the ranges of credit correlation inputs tend to be
narrower than those affecting other asset classes.
The level of correlation used in the valuation of derivatives
with multiple underlying risks depends on a number of
factors including the nature of those risks. For example, the
correlation between two credit risk exposures would be
different than that between two interest rate risk
exposures. Similarly, the tenor of the transaction may also
impact the correlation input as the relationship between the
underlying risks may be different over different time
periods. Furthermore, correlation levels are very much
dependent on market conditions and could have a relatively
wide range of levels within or across asset classes over
time, particularly in volatile market conditions.
Volatility Volatility is a measure of the variability in
possible returns for an instrument, parameter or market
index given how much the particular instrument, parameter
or index changes in value over time. Volatility is a pricing
input for options, including equity options, commodity
options, and interest rate options. Generally, the higher the
volatility of the underlying, the riskier the instrument. Given
a long position in an option, an increase in volatility, in
isolation, would generally result in an increase in a fair
value measurement.
The level of volatility used in the valuation of a particular
option-based derivative depends on a number of factors,
including the nature of the risk underlying the option (e.g.,
the volatility of a particular equity security may be
significantly different from that of a particular commodity
index), the tenor of the derivative as well as the strike price
of the option.
EBITDA multiple - EBITDA multiples refer to the input (often
derived from the value of a comparable company) that is
multiplied by the historic and/or expected earnings before
interest, taxes, depreciation and amortization ("EBITDA") of
a company in order to estimate the company's value. An
increase in the EBITDA multiple, in isolation, net of
adjustments, would result in an increase in a fair value
measurement.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the
Consolidated balance sheets amounts (including changes in
fair value) for financial instruments classified by the Firm
within level 3 of the fair value hierarchy for the years ended
December 31, 2015, 2014 and 2013. When a
determination is made to classify a financial instrument
within level 3, the determination is based on the
significance of the unobservable parameters to the overall
fair value measurement. However, level 3 financial
instruments typically include, in addition to the
unobservable or level 3 components, observable
components (that is, components that are actively quoted
and can be validated to external sources); accordingly, the
gains and losses in the table below include changes in fair
value due in part to observable factors that are part of the
valuation methodology. Also, the Firm risk-manages the
observable components of level 3 financial instruments
using securities and derivative positions that are classified
within level 1 or 2 of the fair value hierarchy; as these level
1 and level 2 risk management instruments are not
included below, the gains or losses in the following tables
do not reflect the effect of the Firm's risk management
activities related to such level 3 instruments.
JPMorgan Chase & Co./2015 Annual Report
195
Notes to consolidated financial statements
The yield and the credit spread of a particular mortgage-
backed security primarily reflect the risk inherent in the
instrument. The yield is also impacted by the absolute level
of the coupon paid by the instrument (which may not
correspond directly to the level of inherent risk). Therefore,
the range of yield and credit spreads reflects the range of
risk inherent in various instruments owned by the Firm. The
risk inherent in mortgage-backed securities is driven by the
subordination of the security being valued and the
characteristics of the underlying mortgages within the
collateralized pool, including borrower FICO scores, loan-to-
value ratios for residential mortgages and the nature of the
property and/or any tenants for commercial mortgages. For
corporate debt securities, obligations of U.S. states and
municipalities and other similar instruments, credit spreads
reflect the credit quality of the obligor and the tenor of the
obligation.
Credit spread - The credit spread is the amount of
additional annualized return over the market interest rate
that a market participant would demand for taking
exposure to the credit risk of an instrument. The credit
spread for an instrument forms part of the discount rate
used in a discounted cash flow calculation. Generally, an
increase in the credit spread would result in a decrease in a
fair value measurement.
Yield The yield of an asset is the interest rate used to
discount future cash flows in a discounted cash flow
calculation. An increase in the yield, in isolation, would
result in a decrease in a fair value measurement.
-
-
15%
2%
30%
100%
31%
(a) The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated
balance sheets.
6%
(b) The unobservable inputs and associated input ranges for approximately $349 million of credit derivative receivables and $310 million of credit derivative
payables with underlying commercial mortgage risk have been included in the inputs and ranges provided for commercial mortgage-backed securities and
loans.
(d) Long-term debt, other borrowed funds and deposits include structured notes issued by the Firm that are predominantly financial instruments containing
embedded derivatives. The estimation of the fair value of structured notes is predominantly based on the derivative features embedded within the
instruments. The significant unobservable inputs are broadly consistent with those presented for derivative receivables.
(e) The parameters are related to residential mortgage-backed securities.
JPMorgan Chase & Co./2015 Annual Report
193
Notes to consolidated financial statements
Changes in and ranges of unobservable inputs
The following discussion provides a description of the
impact on a fair value measurement of a change in each
unobservable input in isolation, and the interrelationship
between unobservable inputs, where relevant and
significant. The impact of changes in inputs may not be
independent as a change in one unobservable input may
give rise to a change another unobservable input; where
relationships exist between two unobservable inputs, those
relationships are discussed below. Relationships may also
exist between observable and unobservable inputs (for
example, as observable interest rates rise, unobservable
prepayment rates decline); such relationships have not
been included in the discussion below. In addition, for each
of the individual relationships described below, the inverse
relationship would also generally apply.
In addition, the following discussion provides a description
of attributes of the underlying instruments and external
market factors that affect the range of inputs used in the
valuation of the Firm's positions.
(c) The unobservable inputs and associated input ranges for approximately $434 million of credit derivative receivables and $401 million of credit derivative
payables with underlying asset-backed securities risk have been included in the inputs and ranges provided for corporate debt securities, obligations of
U.S. states and municipalities and other.
(d)
(f)
28,916
(41)
(154)
663
(15)
Commercial nonagency
432
17
980
(914)
(60)
(149)
306
(12)
Total mortgage-backed
securities
(761)
2,163
827
726
Mortgage-backed securities:
U.S. government agencies
$
1,005 $ (97)
$
351
$
(186)
$
(121) $
(30) $
922
$
(92)
Residential nonagency
66
(14)
2,158
(1,861)
302
10
Corporate debt securities
5,920
210
5,854
(3,372)
(4,531)
(1,092)
2,989
379
Loans
13,455
387
13,551
36
(3)
(617)
719
(222)
(333)
1,891
(119)
Obligations of U.S. states and
municipalities
1,382
Debt instruments:
90
(358)
(139)
1,273
(27)
Non-U.S. government debt
securities
143
24
298
Trading assets:
Assets:
Change in
unrealized gains/
(losses) related
to financial
instruments held
at Dec. 31, 2014
2,859 $ (39) (c)
1,453
(697) (c)
$
$
-
- $ 1,993 $
3,334
(850) $
(2,963)
(1,013) $ 2,950
(488)
$
(29) (c)
639
(57) (c)
72
15(c)
(163)
160
$
Trading liabilities - debt and equity
instruments
Other borrowed funds
Deposits
Fair value measurements using significant unobservable inputs
Year ended
(in millions)
Liabilities:(b)
Fair value
December 31, 2015
at January
(17)
1, 2015
Purchases(B)
Sales
Issuances Settlements(h)
Transfers into
and/or out of
level 3()
Fair value
at Dec.
31, 2015
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31, 2015
Total
realized/
unrealized
(gains)/
losses
(7,917)
(4)
(4) (c)
Fair value measurements using significant unobservable inputs
Year ended
Fair value
Total
realized/
unrealized
December 31, 2014
at January
(in millions)
1, 2014
gains/
(losses)
Transfers into
and/or out of
Purchases(g)
Sales
Settlements(h)
level 3 (i)
Fair value at
Dec. 31,
2014
JPMorgan Chase & Co./2015 Annual Report
196
385 (c)
11,613
Accounts payable and other liabilities
26
(7)
19
Beneficial interests issued by
consolidated VIES
Long-term debt
63
1,146
11,877
(58)
286
9,359
(574)
(6,299)
(227)
(2,786)
549
(63) (c)
(82) (c)
(480) (c)
(304) (c)
15
Asset-backed securities
19
(212)
(2,061)
(625) (c)
Available-for-sale securities:
Asset-backed securities
1,088
(41)
275
(2)
(101)
(311)
908
(40)
Other
1,234
(1,110)
(19)
(3,306)
(413) (c)
(2,863)
10
(67)
(1,785)
583
Commodity
115 (465)
1
(113)
(109)
6
(565)
(186)
Total net derivative receivables
326
2,654
122
(223)
(985)
9,614 (1,826) (e)
768
(209)
(911)
7,436
(1,826) (e)
Other assets:
Private equity investments
All other
5,816
400 (c)
145
1,382
83 (f)
10
(1,967)
(357)
Mortgage servicing rights
(234) (c)
2,541
(1,549)
129
(2)
Total available-for-sale securities
2,322
(60) (d)
397
(2)
2,044
(324)
1,037
(42) (d)
Loans
1,931
(254) (c)
3,258
(845)
(1,296)
(1,063) 154
Equity
(62)
(259)
(286)
(252)
431
46
Physical commodities
4
(1)
(1)
2
Other
2,000
239
1,426
(276)
248
113
867
Equity securities
2,240
(2,126)
(4,623)
(283)
(1,566) 13,287
142
123
1,264
(30)
(201)
Total debt instruments
716
24,820
(16,251)
(9,801)
(2,813)
21,006
336
24,335
1,272
(2,138)
329
Credit
95 (149)
272
(47)
92
(74)
189
(107)
Foreign exchange
(1,200) (137)
139
(27)
668
31
(526)
(853)
626
(108)
(1,771)
Total trading assets - debt and
equity instruments
27,206
1,067 (c)
26,494
(16,786)
(10,289)
(5,203)
1,050
22,489
(c)
Net derivative receivables: (a)
Interest rate
2,379
184
198
(256)
711
1,657
744
(224)
(147)
1,304
24,335
(1,279)
(3,612)
(20,446)
24,286
105
1,272
(1,856)
(292)
(2,379)
1,912
191
3,696
23,662 1,724
(37)
1,092
328
Equity securities
(266)
(115)
135
(120)
(95)
659
558
863
Other
(4)
4
16
(8)
(4)
Physical commodities
46
867
(135)
Total debt instruments
Asset-backed securities
315
(8)
(1,479)
1,449
4
67
securities
Non-U.S. government debt
18
1,382
(346)
(251)
472
71
1,436
municipalities
110
143
(1)
Corporate debt securities
13,455
(292)
(685)
(7,431)
10,411
665
10,787
2,000
Loans
5,920
764
(1,882)
(5,975)
7,602
103
5,308
466
1,074
Total trading assets - debt and
equity instruments
25,617
(170) (c)
326
532
(4,525)
410
115
50
(1,107)
(3)
(2,350)
1,872
105
816
2,904 (c)
1,893
Total net derivative receivables
254
Available-for-sale securities:
Asset-backed securities
28,024
4
Total available-for-sale securities
25
1,234
30
(6)
(216)
508
Commodity
26
Other
4
1,088
(27,405)
(57)
(57)
579
892
Obligations of U.S. states and
872
374
(220)
344
1,358
1,873 (1,697)
(1,750) (101)
Foreign exchange
Credit
3,322
Interest rate
Net derivative receivables: (a)
2,420 (c)
27,206
(1,243)
(3,867)
(20,815)
25,273
2,241 (c)
(2,391)
(34)
2,379
115
(1,353)
(2,111)
1,305
(1,806) 2,528
Equity
(110)
(1,200)
(1,063)
(31)
(4)
3
107
(1,449)
95
173
(357)
(12)
683
30
401
(5)
(5)
130 (c)
(415) (c)
$
2,859
1,453
(926) $
725
(197) $
(6,127)
1,578 $
5,377
$
$
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31, 2014
Fair value at
Dec. 31,
2014
Liabilities:(b)
Transfers into
and/or out of
level 3 (i)
Issuances Settlements(h)
Sales
(49)
72
2 (c)
(1)
(596) (c)
2,255 $ 149 (c) $
2,074
Other borrowed funds
$
Deposits
(9) (c)
11,877
Purchases(g)
(281)
7,421
(22) (c)
1,146
(102)
(763)
775
26
(5,231)
Trading liabilities - debt and equity
(gains)/
losses
December 31, 2014
(in millions)
(922)
6,608
(405) (e)
Other assets:
Private equity investments
2,225
(120) (c)
281
(362)
(187)
(180)
All other
959
91 (f)
65
(486)
985
(405) (e)
7,436
Fair value unrealized
Year ended
Fair value measurements using significant unobservable inputs
Total
realized/
59 (f)
959
33 (c)
at January
1, 2014
2,225
(197)
(159)
(92)
(1,241)
(847)
1,518
(32) (c)
Mortgage servicing rights
(1,972)
2,163
instruments
(5) (c)
780
407
663
nonagency
Residential
200
$
1,005
$
(100) $
$
(381)
$
819
$
(1,028)
(91)
(5)
726
(399)
(2,931)
2,440
690
2,368
securities
Total mortgage-backed
498 $ 169
(4)
(208)
(1,522)
841
114
1,207
Commercial nonagency
205
432
113
$
to financial
instruments held
at Dec. 31, 2013
Fair value measurements using significant unobservable inputs
Notes to consolidated financial statements
197
JPMorgan Chase & Co./2015 Annual Report
(4) (c)
(40) (c)
10,008
Long-term debt
1,240
consolidated VIES
Beneficial interests issued by
27 (c)
liabilities
Accounts payable and other
323
(305)
Total
U.S. government agencies
Year ended
December 31, 2013
Change in
unrealized gains/
(losses) related
Fair value at
Dec. 31,
2013
Mortgage-backed securities:
Debt instruments:
Trading assets:
Assets:
level 3 (i)
Fair value
Settlements(h)
Sales
Purchases(g)
Transfers into
and/or out of
realized/
unrealized
gains/
(losses)
1, 2013
(in millions)
at January
Market comparables
210
JPMorgan Chase & Co./2015 Annual Report
8
$
(38) $
(6)
Securities borrowed
$
agreements
purchased under resale
Federal funds sold and securities
in fair
value
recorded
All other
income
recorded transactions
Principal
value
All other
income
Principal
in fair
(38) $
Total
changes
(15) $
(454) $
582
639
639
746
(10) (d)
756
excluding loans
Debt and equity instruments,
Trading assets:
10
10
(10)
(10)
(6)
(454)
(15) $
2013
Total
changes
Total
changes
in fair
value
recorded transactions
.
•
•
The Firm's election of fair value includes the following
instruments:
Better reflect those instruments that are managed on a
fair value basis.
accounting models (e.g., hedge accounting or bifurcation
accounting for hybrid instruments); and/or
Eliminate the complexities of applying certain
Mitigate income statement volatility caused by the
differences in the measurement basis of elected
instruments (e.g. certain instruments elected were
previously accounted for on an accrual basis) while the
associated risk management arrangements are
accounted for on a fair value basis;
The Firm has elected to measure certain instruments at fair
value in order to:
as an alternative measurement for selected financial assets,
financial liabilities, unrecognized firm commitments, and
written loan commitments.
The fair value option provides an option to elect fair value
Note 4 - Fair value option
The Firm does not estimate the fair value of consumer lending-related commitments. In many cases, the Firm can reduce or
cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without notice. For a further
discussion of the valuation of lending-related commitments, see page 186 of this Note.
(a) Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which are recognized at fair value at the inception of
guarantees.
0.6 $ $ - $ 1.6 $ 1.6
.
•
Loans purchased or originated as part of securitization
warehousing activity, subject to bifurcation accounting,
or managed on a fair value basis.
Certain securities financing arrangements with an
embedded derivative and/or a maturity of greater than
one year.
2014
All other
income
Principal
transactions
December 31, (in millions)
2015
The following table presents the changes in fair value included in the Consolidated statements of income for the years ended
December 31, 2015, 2014 and 2013, for items for which the fair value option was elected. The profit and loss information
presented below only includes the financial instruments that were elected to be measured at fair value; related risk
management instruments, which are required to be measured at fair value, are not included in the table.
Changes in fair value under the fair value option election
7 (c)
Notes to consolidated financial statements
JPMorgan Chase & Co./2015 Annual Report
consolidated securitization trusts where the underlying
assets are carried at fair value.
Certain long-term beneficial interests issued by CIB's
instruments that contain embedded derivatives.)
Structured notes issued as part of CIB's client-driven
activities. (Structured notes are predominantly financial
Certain investments that receive tax credits and other
equity investments acquired as part of the Washington
Mutual transaction.
Owned beneficial interests in securitized financial assets
that contain embedded credit derivatives, which would
otherwise be required to be separately accounted for as
a derivative instrument.
203
589
Loans reported as trading
assets:
93
93
Deposits (a)
118
86 (d)
32
30
6
24
78
(d)
(d)
(1)
79
Other assets
(287)
|
(287)
260
(399)
(891)
(891)
1,996
1,996
Other borrowed funds (a)
73
17
73
(33)
8
10,381
repurchase agreements
securities loaned or sold under
Federal funds purchased and
260
(33)
$
17
34
352
1,050
818
(c)
(c)
232
Other changes in fair value
914
29 (c)
885
179
41 (c)
138
specific credit risk
Changes in instrument-
1,353
1,705
1,161
(133) 1,833
23 (c)
4
4
Other changes in fair value
36
36
40
40
34
35
35
credit risk
Changes in instrument-specific
Loans:
1,700
(c)
1,184
I
(399)
3.0
- $ - $
56.3
0.1
66.0
Other
25.4
820.8
loan losses (b)
Loans, net of allowance for
51.2
109.4
187.2
51.2
49.3
50.6
109.4
802.7
14.3
109.4
828.1
70.7
2,247
1.2 $ 1,354.8
$ 1,353.6 $
1.2 $1,267.3 $ 1,354.6 $
$ 1,266.1 $
$ 1,267.2 $
Deposits
Financial liabilities
69.0
13.3
55.7
744.9
723.1
21.8
64.7
740.5
98.3
187.2
187.2
Accrued interest and accounts
receivable
27.8
484.5
4.1
$
$
-
27.8 $
480.4
27.8 $
484.5
$
20.5
340.0
4.1
$ - $ - $
20.5 $
335.9
20.5 $
340.0
Deposits with banks
46.6
46.4
0.2
46.6
189.5
50.6
49.1
Securities, held-to-maturity (a)
98.3
98.3
Securities borrowed
Federal funds purchased and
189.5
resale agreements
securities purchased under
Federal funds sold and
70.1
0.1
70.0
70.1
189.5
securities loaned or sold
under repurchase agreements
149.2
(c)
(b) Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal,
contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and
primary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The
difference between the estimated fair value and carrying value of a financial asset or liability is the result of the different methodologies used to
determine fair value as compared with carrying value. For example, credit losses are estimated for a financial asset's remaining life in a fair value
calculation but are estimated for a loss emergence period in the allowance for loan loss calculation; future loan income (interest and fees) is
incorporated in a fair value calculation but is generally not considered in the allowance for loan losses. For a further discussion of the Firm's
methodologies for estimating the fair value of loans and lending-related commitments, see Valuation hierarchy on pages 185-188.
Certain prior period amounts have been revised to conform with the current presentation.
Carrying value reflects unamortized discount or premium.
(a)
255.0
3.8
251.2
246.2
261.7
4.3
257.4
255.6
interest debentures (e)
subordinated deferrable
Long-term debt and junior
(d) Carrying value reflects unamortized issuance costs.
(e) Carrying value reflects unamortized premiums and discounts, issuance costs, and other valuation adjustments.
202
JPMorgan Chase & Co./2015 Annual Report
related commitments $ 0.8 $
Wholesale lending-
Total
estimated
fair value
Level 3
Level 2
Level 1
Carrying
value(a)
50.2
Total
estimated
fair value
Level 2
Level 1
Carrying
value(a)
(in billions)
December 31, 2014
Estimated fair value hierarchy
December 31, 2015
Estimated fair value hierarchy
The majority of the Firm's lending-related commitments are not carried at fair value on a recurring basis on the Consolidated
balance sheets, nor are they actively traded. The carrying value of the allowance and the estimated fair value of the Firm's
wholesale lending-related commitments were as follows for the periods indicated.
Level 3
3.0 $
2.0
50.2
15.5
11.2
66.3
66.3
15.6
189.1
189.1
149.2
11.2
11.2
Other borrowed funds
15.6
15.6
Commercial paper
149.2
15.5
189.1
66.3
15.5
41.1
0.9
40.2
41.1
consolidated VIES(d)
Beneficial interests issued by
172.5
48.2
2.9
172.6
144.5
2.8
141.7
144.6
liabilities(c)
Accounts payable and other
169.6
$
Trading liabilities
(20)
$ 58,153
525,963
295,374 $
131,048
$ 58,478 $ 353,635 $
515,518
657,011
573,996 1,010,646
476,284
131,463
646,981
1,050,405
Total consumer
Total credit card
344,821 $
$ 403,424 $
Total consumer, excluding credit card
sheet(f)(g)
Derivatives
Loans
Off-balance
426,422
On-balance sheet
584,116
Real Estate
25,094
83,663
56,712
1,573
27,175
85,460
Consumer & Retail
26,535
327
79,113
105,975
23,725
312
92,820
116,857
Wholesale-related (a)
Credit
exposure
Off-balance
sheet(f)
2014
29,175
4,415
12,412
12,348
27,733
4,993
8,447
14,293
2,378
17
211
4,473
460 $ 2,119 $ 13,437
450
4,023
2,150
1,853
640
50
1,981
2,671
2015
On-balance sheet
Derivatives
Loans
Credit
exposure
December 31, (in millions).
JPMorgan Chase regularly monitors various segments of its
credit portfolios to assess potential credit risk
concentrations and to obtain collateral when deemed
necessary. Senior management is significantly involved in
the credit approval and review process, and risk levels are
adjusted as needed to reflect the Firm's risk appetite.
In the Firm's consumer portfolio, concentrations are
evaluated primarily by product and by U.S. geographic
region, with a key focus on trends and concentrations at the
portfolio level, where potential credit risk concentrations
can be remedied through changes in underwriting policies
The table below presents both on-balance sheet and off-balance sheet consumer and wholesale-related credit exposure by the
Firm's three credit portfolio segments as of December 31, 2015 and 2014.
The Firm does not believe that its exposure to any
particular loan product (e.g., option adjustable rate
mortgages ("ARMS")), or industry segment (e.g.,
commercial real estate), or its exposure to residential real
estate loans with high loan-to-value ratios, results in a
significant concentration of credit risk. Terms of loan
products and collateral coverage are included in the Firm's
assessment when extending credit and establishing its
allowance for loan losses.
and portfolio guidelines. In the wholesale portfolio, credit
risk concentrations are evaluated primarily by industry and
monitored regularly on both an aggregate portfolio level
and on an individual customer basis. The Firm's wholesale
exposure is managed through loan syndications and
participations, loan sales, securitizations, credit derivatives,
master netting agreements, and collateral and other risk-
reduction techniques. For additional information on loans,
see Note 14.
1,845
Concentrations of credit risk arise when a number of
customers are engaged in similar business activities or
activities in the same geographic region, or when they have
similar economic features that would cause their ability to
meet contractual obligations to be similarly affected by
changes in economic conditions.
JPMorgan Chase & Co./2015 Annual Report
206
$ 32,424 $ 9,179 $ 10,325 $ 51,928 $ 30,089 $ 14,177 $ 8,563 $ 52,829
3,366
2,012
644
710
Note 5 - Credit risk concentrations
56,724
Technology, Media & Telecommunications
57,382
29,114
State & Municipal Govt
20,325
2,272
4,844
27,441
23,870
1,689
5,294
30,853
Utilities
25,696
1,836
15,616
43,148
9,626
3,287
16,201
31,068
1,575
9,157
19,227
Transportation
10,059
9,386
8,043
26,832
27,488
7,733
6,703
23,815
Asset Managers
19,473
4,002
7,593
9,379
11
1,902
42,077
1,303
16,040
47,859
36,167
1,428
16,791
54,386
Industrials
33,103
2,190
11,362
46,655
45,271
1,032
11,079
30,516
Healthcare
46,053
16,965
Oil & Gas
16,025
15,706
23,367
55,098
12,779
10,218
13,343
20,401
Banks & Finance Cos
38,180
4,542
13,794
56,516
26,337
2,751
43,398
(20)
77
$ 10,858 $
$
Loans reported as trading assets
Nonaccrual loans
Fair value outstanding
over/
(under)
contractual
principal
contractual Contractual
principal principal
Fair value outstanding outstanding
Contractual
principal
outstanding
Fair value
2014
Fair value
over/
(under)
2015
Loans (a)
December 31, (in millions)
Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal
balance outstanding as of December 31, 2015 and 2014, for loans, long-term debt and long-term beneficial interests for
which the fair value option has been elected.
Long-term debt: Changes in value attributable to
instrument-specific credit risk were derived principally
from observable changes in the Firm's credit spread.
Resale and repurchase agreements, securities borrowed
agreements and securities lending agreements:
Generally, for these types of agreements, there is a
requirement that collateral be maintained with a market
value equal to or in excess of the principal amount
loaned; as a result, there would be no adjustment or an
immaterial adjustment for instrument-specific credit risk
related to these agreements.
3,484
instruments, an allocation of the changes in value for the
period is made between those changes in value that are
interest rate-related and changes in value that are
credit-related. Allocations are generally based on an
analysis of borrower-specific credit spread and recovery
information, where available, or benchmarking to similar
entities or industries.
$
$
30,780
Loans reported as trading assets
All other performing loans
(2,942)
7
912
3,854
(2,853)
638
3,491
Subtotal
7
7
7
Loans
905 $ (2,942)
631 $ (2,853) $ 3,847
Loans and lending-related commitments: For floating-
rate instruments, all changes in value are attributed to
instrument-specific credit risk. For fixed-rate
The following describes how the gains and losses included in
earnings that are attributable to changes in instrument-
specific credit risk, were determined.
Determination of instrument-specific credit risk for items
for which a fair value election was made
(27)
(27)
Other liabilities
(278)
(278)
(233)
(233)
49
49
consolidated VIES
Beneficial interests issued by
(46)
(46)
(17)
(17)
Long-term debt:
Changes in instrument-specific
credit risk (a)
Other changes in fair value (b)
JPMorgan Chase & Co./2015 Annual Report
204
(d) Reported in other income.
(c) Reported in mortgage fees and related income.
(b) Structured notes are predominantly financial instruments containing embedded derivatives. Where present, the embedded derivative is the primary driver of risk.
Although the risk associated with the structured notes is actively managed, the gains/(losses) reported in this table do not include the income statement impact of
the risk management instruments used to manage such risk.
(a) Total changes in instrument-specific credit risk (DVA) related to structured notes were $171 million, $20 million and $(337) million for the years ended
December 31, 2015, 2014 and 2013, respectively. These totals include such changes for structured notes classified within deposits and other borrowed funds, as
well as long-term debt.
1,280
Loans
(271)
(615)
(271)
101
101
(615)
1,088
300
300
1,088
1,280
2,771
Total loans
$
205
JPMorgan Chase & Co./2015 Annual Report
$4.6 billion and $4.5 billion, respectively, with a corresponding fair value of $(94) million and $(147) million, respectively. For
further information regarding off-balance sheet lending-related financial instruments, see Note 29.
At December 31, 2015 and 2014, the contractual amount of letters of credit for which the fair value option was elected was
(a) There were no performing loans that were ninety days or more past due as of December 31, 2015 and 2014, respectively.
(b) Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is
obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return a
stated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in the
note. However, investors are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal protected notes.
(c) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if
applicable, the contractual principal payment at the Firm's next call date.
ΝΑ
2,162
ΝΑ $
ΝΑ
787
ΝΑ
2,162
$
ΝΑ
ΝΑ
Notes to consolidated financial statements
Structured note products by balance sheet classification and risk component
The table below presents the fair value of the structured notes issued by the Firm, by balance sheet classification and the
primary risk to which the structured notes' embedded derivative relates.
(in millions)
58 $ 3,340 $ 15,929
547
3,742
3,195
$ 12,531 $
Deposits Total
Long-term borrowed
debt
funds
funds Deposits Total
Long-term borrowed
debt
787
December 31, 2014
Other
Total structured notes
Commodity
Equity
Foreign exchange
Credit
Interest rate
Risk exposure
December 31, 2015
Other
1,765
$
$
NA
ΝΑ
Nonprincipal-protected debt (b)
(c)
17,910
$
Principal-protected debt
Long-term debt
(2,146)
(8)
(5,096)
35,462
2,389
38,763 $
$
37,608
2,397
43,859
(2,596)
(19)
(5,468) $
28,184
2,752
31,574 $
$
37,042
16,611 $
16,454
(1,299) $
14,660 (c)
15,484 $
Total long-term beneficial interests
Nonprincipal-protected debt
Long-term beneficial interests
ΝΑ
30,226
$
NA
ΝΑ
ΝΑ
NA
Total long-term debt
NA
14,742
ΝΑ
ΝΑ
824
$ 33,065
8,495
Cash and due from banks
Total
estimated
fair value
Derivative Clearing Services
The Firm provides clearing services for clients where the
Firm acts as a clearing member with respect to certain
derivative exchanges and clearing houses. The Firm does
not reflect the clients' derivative contracts in its
Consolidated Financial Statements. For further information
on the Firm's clearing services, see Note 29.
208
JPMorgan Chase & Co./2015 Annual Report
Accounting for derivatives
All free-standing derivatives that the Firm executes for its
own account are required to be recorded on the
Consolidated balance sheets at fair value.
As permitted under U.S. GAAP, the Firm nets derivative
assets and liabilities, and the related cash collateral
receivables and payables, when a legally enforceable
master netting agreement exists between the Firm and the
derivative counterparty. For further discussion of the
offsetting of assets and liabilities, see Note 1. The
accounting for changes in value of a derivative depends on
whether or not the transaction has been designated and
qualifies for hedge accounting. Derivatives that are not
designated as hedges are reported and measured at fair
value through earnings. The tabular disclosures on pages
212-218 of this Note provide additional information on the
amount of, and reporting for, derivative assets, liabilities,
gains and losses. For further discussion of derivatives
embedded in structured notes, see Notes 3 and 4.
Derivatives designated as hedges
The Firm applies hedge accounting to certain derivatives
executed for risk management purposes - generally interest
rate, foreign exchange and commodity derivatives.
However, JPMorgan Chase does not seek to apply hedge
accounting to all of the derivatives involved in the Firm's
risk management activities. For example, the Firm does not
apply hedge accounting to purchased credit default swaps
used to manage the credit risk of loans and lending-related
commitments, because of the difficulties in qualifying such
contracts as hedges. For the same reason, the Firm does not
apply hedge accounting to certain interest rate, foreign
exchange, and commodity derivatives used for risk
management purposes.
To qualify for hedge accounting, a derivative must be highly
effective at reducing the risk associated with the exposure
being hedged. In addition, for a derivative to be designated
as a hedge, the risk management objective and strategy
must be documented. Hedge documentation must identify
the derivative hedging instrument, the asset or liability or
forecasted transaction and type of risk to be hedged, and
how the effectiveness of the derivative is assessed
prospectively and retrospectively. To assess effectiveness,
the Firm uses statistical methods such as regression
analysis, as well as nonstatistical methods including dollar-
value comparisons of the change in the fair value of the
derivative to the change in the fair value or cash flows of
the hedged item. The extent to which a derivative has been,
and is expected to continue to be, effective at offsetting
changes in the fair value or cash flows of the hedged item
must be assessed and documented at least quarterly. Any
hedge ineffectiveness (i.e., the amount by which the gain or
loss on the designated derivative instrument does not
exactly offset the change in the hedged item attributable to
the hedged risk) must be reported in current-period
earnings. If it is determined that a derivative is not highly
effective at hedging the designated exposure, hedge
accounting is discontinued.
JPMorgan Chase & Co./2015 Annual Report
There are three types of hedge accounting designations: fair
value hedges, cash flow hedges and net investment hedges.
JPMorgan Chase uses fair value hedges primarily to hedge
fixed-rate long-term debt, AFS securities and certain
commodities inventories. For qualifying fair value hedges,
the changes in the fair value of the derivative, and in the
value of the hedged item for the risk being hedged, are
recognized in earnings. If the hedge relationship is
terminated, then the adjustment to the hedged item
continues to be reported as part of the basis of the hedged
item, and for benchmark interest rate hedges is amortized
to earnings as a yield adjustment. Derivative amounts
affecting earnings are recognized consistent with the
classification of the hedged item - primarily net interest
income and principal transactions revenue.
JPMorgan Chase uses cash flow hedges primarily to hedge
the exposure to variability in forecasted cash flows from
floating-rate assets and liabilities and foreign currency-
denominated revenue and expense. For qualifying cash flow
hedges, the effective portion of the change in the fair value
of the derivative is recorded in OCI and recognized in the
Consolidated statements of income when the hedged cash
flows affect earnings. Derivative amounts affecting earnings
are recognized consistent with the classification of the
hedged item primarily interest income, interest expense,
noninterest revenue and compensation expense. The
ineffective portions of cash flow hedges are immediately
recognized in earnings. If the hedge relationship is
terminated, then the value of the derivative recorded in
accumulated other comprehensive income/(loss) ("AOCI") is
recognized in earnings when the cash flows that were
hedged affect earnings. For hedge relationships that are
discontinued because a forecasted transaction is not
expected to occur according to the original hedge forecast,
any related derivative values recorded in AOCI are
immediately recognized in earnings.
JPMorgan Chase uses foreign currency hedges to protect
the value of the Firm's net investments in certain non-U.S.
subsidiaries or branches whose functional currencies are
not the U.S. dollar. For foreign currency qualifying net
investment hedges, changes in the fair value of the
derivatives are recorded in the translation adjustments
account within AOCI.
209
Notes to consolidated financial statements
The following table outlines the Firm's primary uses of derivatives and the related hedge accounting designation or disclosure
category.
Affected
Page
Type of Derivative
Use of Derivative
Designation and disclosure | segment or unit
reference
The Firm enters into OTC derivatives, which are negotiated
and settled bilaterally with the derivative counterparty. The
Firm also enters into, as principal, certain exchange-traded
derivatives ("ETD") such as futures and options, and
"cleared" over-the-counter ("OTC-cleared") derivative
contracts with central counterparties ("CCPS"). ETD
contracts are generally standardized contracts traded on an
exchange and cleared by the CCP, which is the counterparty
from the inception of the transactions. OTC-cleared
derivatives are traded on a bilateral basis and then novated
to the CCP for clearing.
Derivative counterparties and settlement types
For more information about risk management derivatives,
see the risk management derivatives gains and losses table
on page 218 of this Note, and the hedge accounting gains
and losses tables on pages 216-218 of this Note.
Commodities contracts are used to manage the price risk of
certain commodities inventories. Gains or losses on these
derivative instruments are expected to substantially offset
the depreciation or appreciation of the related inventory.
Credit derivatives are used to manage the counterparty
credit risk associated with loans and lending-related
commitments. Credit derivatives compensate the purchaser
when the entity referenced in the contract experiences a
credit event, such as bankruptcy or a failure to pay an
obligation when due. Credit derivatives primarily consist of
credit default swaps. For a further discussion of credit
derivatives, see the discussion in the Credit derivatives
section on pages 218-220 of this Note.
37,532
78,975
366,881
330,914
757,336 $
78,975
366,881
78,975 $ 950,997
(a) Effective in the fourth quarter 2015, the Firm realigned its wholesale industry divisions in order to better monitor and manage industry concentrations. Prior period amounts have
been revised to conform with current period presentation. For additional information, see Wholesale credit portfolio on pages 122-129.
(b) All other includes: individuals; SPES; holding companies; and private education and civic organizations. For more information on exposures to SPES, see Note 16.
(c) Primarily consists of margin loans to prime brokerage customers that are generally over-collateralized through a pledge of assets maintained in clients' brokerage accounts and
are subject to daily minimum collateral requirements. As a result of the Firm's credit risk mitigation practices, the Firm did not hold any reserves for credit impairment on these
receivables.
(d) For further information regarding on-balance sheet credit concentrations by major product and/or geography, see Note 6 and Note 14. For information regarding concentrations
of off-balance sheet lending-related financial instruments by major product, see Note 29.
• Interest rate
(e) Excludes cash placed with banks of $351.0 billion and $501.5 billion, at December 31, 2015 and 2014, respectively, placed with various central banks, predominantly Federal
Reserve Banks.
(g) Effective January 1, 2015, the Firm no longer includes within its disclosure of wholesale lending-related commitments the unused amount of advised uncommitted lines of credit
as it is within the Firm's discretion whether or not to make a loan under these lines, and the Firm's approval is generally required prior to funding. Prior period amounts have been
revised to conform with the current period presentation.
JPMorgan Chase & Co./2015 Annual Report
207
Notes to consolidated financial statements
Note 6 - Derivative instruments
Derivative instruments enable end-users to modify or
mitigate exposure to credit or market risks. Counterparties
to a derivative contract seek to obtain risks and rewards
similar to those that could be obtained from purchasing or
selling a related cash instrument without having to
exchange upfront the full purchase or sales price. JPMorgan
Chase makes markets in derivatives for clients and also uses
derivatives to hedge or manage its own risk exposures.
Predominantly all of the Firm's derivatives are entered into
for market-making or risk management purposes.
Market-making derivatives
The majority of the Firm's derivatives are entered into for
market-making purposes. Clients use derivatives to mitigate
or modify interest rate, credit, foreign exchange, equity and
commodity risks. The Firm actively manages the risks from
its exposure to these derivatives by entering into other
derivative transactions or by purchasing or selling other
financial instruments that partially or fully offset the
exposure from client derivatives. The Firm also seeks to
earn a spread between the client derivatives and offsetting
positions, and from the remaining open risk positions.
Risk management derivatives
The Firm manages its market risk exposures using various
derivative instruments.
Interest rate contracts are used to minimize fluctuations in
earnings that are caused by changes in interest rates. Fixed-
rate assets and liabilities appreciate or depreciate in market
value as interest rates change. Similarly, interest income
and expense increases or decreases as a result of variable-
rate assets and liabilities resetting to current market rates,
and as a result of the repayment and subsequent
origination or issuance of fixed-rate assets and liabilities at
current market rates. Gains or losses on the derivative
instruments that are related to such assets and liabilities
are expected to substantially offset this variability in
earnings. The Firm generally uses interest rate swaps,
forwards and futures to manage the impact of interest rate
fluctuations on earnings.
Foreign currency forward contracts are used to manage the
foreign exchange risk associated with certain foreign
currency-denominated (i.e., non-U.S. dollar) assets and
liabilities and forecasted transactions, as well as the Firm's
net investments in certain non-U.S. subsidiaries or branches
whose functional currencies are not the U.S. dollar. As a
result of fluctuations in foreign currencies, the U.S. dollar-
equivalent values of the foreign currency-denominated
assets and liabilities or the forecasted revenues or expenses
increase or decrease. Gains or losses on the derivative
instruments related to these foreign currency-denominated
assets or liabilities, or forecasted transactions, are expected
to substantially offset this variability.
(f) Represents lending-related financial instruments.
Hedge fixed rate assets and liabilities
• Interest rate
Manage specifically identified risk exposures in qualifying hedge accounting relationships:
• Credit
Manage the risk of the mortgage pipeline, warehouse loans and MSRS Specified risk management CCB
Manage the credit risk of wholesale lending exposures
218
• Commodity
Manage the risk of certain commodities-related contracts and
investments
Specified risk management
Specified risk management
CIB
CIB
218
218
• Interest rate and
foreign exchange
Manage the risk of certain other specified assets and liabilities
• Interest rate
Specified risk management
218
Market-making derivatives and other activities:
• Various
• Various
Market-making and related risk management
Other derivatives
Market-making and other
Market-making and other
CIB
CIB, Corporate
218
218
Financial assets
Corporate
4,413
Manage specifically identified risk exposures not designated in qualifying hedge accounting
relationships:
CIB
Hedge floating-rate assets and liabilities
Fair value hedge
Corporate
216
Cash flow hedge
Corporate
217
• Foreign exchange
Hedge foreign currency-denominated assets and liabilities
Fair value hedge
Corporate
216
216
Hedge forecasted revenue and expense
Cash flow hedge
Corporate
217
• Foreign exchange
• Commodity
Hedge the value of the Firm's investments in non-U.S. subsidiaries
Hedge commodity inventory
Net investment hedge
Corporate
218
Fair value hedge
• Foreign exchange
92,530
324,502
6,412
20,619
59,677 366,399
59,677 $ 940,395
Central Govt
17,968
2,000
13,240
2,728
19,881
1,103
15,527
3,251
Chemicals & Plastics
15,232
7,991
4,033
10,830
12,612
3,087
410
9,115
Metals & Mining
14,049
4,622
607
8,820
14,969
369
5,628
Assets and liabilities measured at fair value on a
nonrecurring basis
Of the $959 million in level 3 assets measured at fair value
on a nonrecurring basis as of December 31, 2015:
Level 3
134,475
770,358
6,412
28,972
805,742
$ 1,816,388 $
Level 2
Level 1
Carrying
value
Total
estimated
fair value
Level 2
Level 1
Carrying
value
(in billions)
Estimated fair value hierarchy
At December 31, 2015 and 2014, assets measured at fair
value on a nonrecurring basis were $1.7 billion and $4.5
billion, respectively, consisting predominantly of loans that
had fair value adjustments for the years ended December
31, 2015 and 2014. At December 31, 2015, $696 million
and $959 million of these assets were classified in levels 2
and 3 of the fair value hierarchy, respectively. At December
31, 2014, $1.3 billion and $3.2 billion of these assets were
classified in levels 2 and 3 of the fair value hierarchy,
respectively. Liabilities measured at fair value on a
nonrecurring basis were not significant at December 31,
2015 and 2014. For the years ended December 31, 2015,
2014 and 2013, there were no significant transfers
between levels 1, 2 and 3 related to assets held at the
balance sheet date.
December 31, 2014
December 31, 2015
The following table presents by fair value hierarchy classification the carrying values and estimated fair values at
December 31, 2015 and 2014, of financial assets and liabilities, excluding financial instruments which are carried at fair value
on a recurring basis. For additional information regarding the financial instruments within the scope of this disclosure, and the
methods and significant assumptions used to estimate their fair value, see pages 185-188 of this Note.
Notes to consolidated financial statements
201
JPMorgan Chase & Co./2015 Annual Report
Certain financial instruments that are not carried at fair
value on the Consolidated balance sheets are carried at
amounts that approximate fair value, due to their short-
term nature and generally negligible credit risk. These
instruments include cash and due from banks, deposits with
banks, federal funds sold, securities purchased under resale
agreements and securities borrowed, short-term
receivables and accrued interest receivable, commercial
paper, federal funds purchased, securities loaned and sold
under repurchase agreements, other borrowed funds,
accounts payable, and accrued liabilities. In addition, U.S.
GAAP requires that the fair value of deposit liabilities with
no stated maturity (i.e., demand, savings and certain money
market deposits) be equal to their carrying value;
recognition of the inherent funding value of these
instruments is not permitted.
Financial instruments for which carrying value approximates
fair value
U.S. GAAP requires disclosure of the estimated fair value of
certain financial instruments, and the methods and
significant assumptions used to estimate their fair value.
Financial instruments within the scope of these disclosure
requirements are included in the following table. However,
certain financial instruments and all nonfinancial
instruments are excluded from the scope of these disclosure
requirements. Accordingly, the fair value disclosures
provided in the following table include only a partial
estimate of the fair value of JPMorgan Chase's assets and
liabilities. For example, the Firm has developed long-term
relationships with its customers through its deposit base
and credit card accounts, commonly referred to as core
deposit intangibles and credit card relationships. In the
opinion of management, these items, in the aggregate, add
significant value to JPMorgan Chase, but their fair value is
not disclosed in this Note.
Additional disclosures about the fair value of financial
instruments that are not carried on the Consolidated
balance sheets at fair value
The total change in the recorded value of assets and
liabilities for which a fair value adjustment has been
included in the Consolidated statements of income for the
years ended December 31, 2015, 2014 and 2013, related
to financial instruments held at those dates, were losses of
$294 million, $992 million and $789 million, respectively;
these reductions were predominantly associated with loans.
For further information about the measurement of impaired
collateral-dependent loans, and other loans where the
carrying value is based on the fair value of the underlying
collateral (e.g., residential mortgage loans charged off in
accordance with regulatory guidance), see Note 14.
$556 million related to residential real estate loans
carried at the net realizable value of the underlying
collateral (i.e., collateral-dependent loans and other
loans charged off in accordance with regulatory
guidance). These amounts are classified as level 3, as
they are valued using a broker's price opinion and
discounted based upon the Firm's experience with actual
liquidation values. These discounts to the broker price
opinions ranged from 4% to 59%, with a weighted
average of 22%.
Estimated fair value hierarchy
589
Level 3
Automotive
861
1,424
2,127
4,801
1,025
1,351
2,425
All other(b)
149,117
109,889
Subtotal
4,412
783,126
3,965
357,050
3,965
4,593
59,677
34,635
366,399
Receivables from customers and other (c)
13,372
800,463
361,015
$ 1,850,868 $ 837,299 $
8,752
Total exposure (d)(e)
Loans held-for-sale and loans at fair value
Securities Firms
Total wholesale-related
6,789
4,269
1,350
12,754
13,864
3,779
766
8,209
Insurance
11,889
1,094
1,992
8,041
13,350
928
8,803
4,647
2,602
724
11,986
7,973
1,175
3,474
4,473
Financial Markets Infrastructure
8,701
1,352
25,065
9,185
38,663
27,653
38,663
9,183
1
27,654
12,076
Gross derivative payables
Total fair value of trading
Not
$ 955,643
$ 6,235 $ 961,878
59,677
$ 939,170
$ 3,742 $ 942,912
$ 52,790
Gross derivative receivables
23,713
assets and liabilities
2,238 $635,166
5,529
51,468
December 31, 2014
$ 669,611
51,468
$
26,363
1,423
Foreign exchange
179,072
803
179,875
17,177
$ 632,928
50,529
189,397
$
$ 10,221
50,529
1,541
1,503
190,900
19,769
Equity
35,859
35,859
Commodity
designated
$ 915,368 (c) $
75,895
223,988
46,262 (c)
45,455
as hedges
168
75,895
224,614 (c)
46,262 (c)
45,623
1,593
22,970
11,740
17,068
Total fair value of trading
assets and liabilities
$1,318,904
(c) $ 9,524
$1,328,428 (c)
$
78,975
$1,306,968 (c) $
3,805 $1,310,773
(c)
$
71,116
(a) Balances exclude structured notes for which the fair value option has been elected. See Note 4 for further information.
(b) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and
payables when a legally enforceable master netting agreement exists.
(c) The prior period amounts have been revised to conform with the current period presentation. These revisions had no impact on Firm's Consolidated
balance sheets or its results of operations.
Credit
626
(c)
3,011 $ 918,379 (c) $ 17,745
33,725
1,838
21,253
8,177
13,982
Designated
as hedges
Total
derivative
receivables
Net
derivative
receivables(b)
Not
designated
as hedges
Designated
as hedges
Total
derivative
payables
Net
derivative
payables(b)
Trading assets and liabilities
Interest rate
$ 944,885
(in millions)
(c) $ 5,372
Credit
Foreign exchange
Equity
Commodity
76,842
211,537
42,489
43,151
(c)
3,650
(c)
502
76,842
215,187 (c)
42,489 (c)
43,653
$ 950,257 (c) $
$ 4,080
50
Interest rate
3,199
3,346
Spot, futures and forwards
5,028
4,669
Written options
690
790
Purchased options
706
780
Total foreign exchange contracts
9,623
9,585
Equity contracts
Swaps
Futures and forwards
232
206
43
212
Cross-currency swaps
395
Foreign exchange contracts
2,900
December 31, (in billions)
Interest rate contracts
Notional amounts (b)
2015
2014
Swaps
$ 24,162
$ 29,734
Futures and forwards
5,167
10,189
Written options
3,506
3,903
Purchased options
3,896
4,259
Total interest rate contracts
36,731
48,085
Credit derivatives(a)
4,249
432
326
375
While the notional amounts disclosed above give an
indication of the volume of the Firm's derivatives activity,
the notional amounts significantly exceed, in the Firm's
view, the possible losses that could arise from such
transactions. For most derivative transactions, the notional
amount is not exchanged; it is used simply as a reference to
calculate payments.
JPMorgan Chase & Co./2015 Annual Report
211
Notes to consolidated financial statements
Impact of derivatives on the Consolidated balance sheets
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that
are reflected on the Firm's Consolidated balance sheets as of December 31, 2015 and 2014, by accounting designation (e.g.,
whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Free-standing derivative receivables and payables (a)
Gross derivative receivables
Gross derivative payables
December 31, 2015
(in millions)
Not
designated
as hedges
Designated
as hedges
Total
derivative
receivables
Net
derivative
receivables(b)
Not
designated
as hedges
Designated
as hedges
Total
derivative
payables
Net
derivative
payables(b)
Trading assets and liabilities
(b) Represents the sum of gross long and gross short third-party notional
derivative contracts.
contracts, see the Credit derivatives discussion on pages 218-220 of
this Note.
(a) For more information on volumes and types of credit derivative
$ 50,659 $ 63,662
996
1,063
Written options
Purchased options
Total equity contracts
Commodity contracts
Swaps
Spot, futures and forwards
Written options
Purchased options
$ 665,531
Total commodity contracts
83
126
99
193
115
181
112
180
409
680
Total derivative notional amounts
JPMorgan Chase & Co./2015 Annual Report
portion
December 31, (in millions)
(1,096)
485
1,514
$
(132)
1,382 $
$ (3,469) $ 4,851 $
Excluded
components (e)
Hedge
ineffectiveness(d)
Total income
statement
impact
Derivatives Hedged items
Income statement impact due to:
Gains/(losses) recorded in income
$ 10,434 $ (9,188) $
1,073
$
173
$
1,246
152
42
(253)
864
(1,304)
1,174
(232)
(819)
38
recorded directly in
Total change
Derivatives -
effective
Hedge
ineffectiveness
Gains/(losses) recorded in income and other comprehensive income/(loss)
Derivatives -
effective portion
reclassified from
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and
the pretax gains/(losses) recorded on such derivatives, for the years ended December 31, 2015, 2014 and 2013, respectively.
The Firm includes the gain/(loss) on the hedging derivative and the change in cash flows on the hedged item in the same line
item in the Consolidated statements of income.
Cash flow hedge gains and losses
(e) The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward
points on foreign exchange forward contracts and time values.
(d) Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on the
hedged item attributable to the hedged risk.
(c) Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or market (market approximates
fair value). Gains and losses were recorded in principal transactions revenue.
JPMorgan Chase & Co./2015 Annual Report
216
(b) Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses
related to the derivatives and the hedged items, due to changes in foreign currency rates, were recorded primarily in principal transactions revenue and
net interest income.
(a) Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate ("LIBOR")) interest rate risk of fixed-rate long-term debt and AFS
securities. Gains and losses were recorded in net interest income.
$ (4,080) $ 4,411 $
Total
425
(94) $
331 $
(857)
(232)
Total income
$
1,305 $
(253)
194
24
(6,006)
(1,142)
1,153
6,030
946
$
3
949 $
$
911
$
38
$
Excluded
components(e)
Hedge
ineffectiveness(d)
Income statement impact due to:
impact
Hedged items
Derivatives
Total income
statement
Gains/(losses) recorded in income
24
131
11
24
$
(801)
(8,532)
145
49
8,279
$
2,106
$
Excluded
components (e)
Hedge
ineffectiveness (d)
impact
Derivatives Hedged items
statement
Total income
Income statement impact due to:
Gains/(losses) recorded in income
994
(10) $
$
984
7,221 $ (6,237) $
$
(13)
The following table presents, as of December 31, 2015 and 2014, the gross and net derivative receivables by contract and
settlement type. Derivative receivables have been netted on the Consolidated balance sheets against derivative payables and
cash collateral payables to the same counterparty with respect to derivative contracts for which the Firm has obtained an
appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought
or obtained, the receivables are not eligible under U.S. GAAP for netting on the Consolidated balance sheets, and are shown
separately in the table below.
portion
Contract type
Derivatives -
Gains/(losses) recorded in income and other comprehensive income/(loss)
Derivatives -
Hedge
ineffectiveness
effective portion
74
$
98
$
24
$
(169)
(91)
243
$
189
$
(54)
78
$
$
24
effective
$
Total change
(in millions)
U.S. GAAP nettable derivative receivables
Interest rate contracts:
OTC
$
(108)
7
$
$
$
(108)
7
(101)
$
$
Total
Foreign exchange(b)
Interest rate (a)
Contract type
in OCI
for period
portion
recorded in OCI
Total income
statement impact
in income(c)
recorded directly
reclassified from
AOCI to income
Year ended December 31, 2013
(in millions)
$
$
$
(44)
$
(99)
$
$
(99)
$
Total
Foreign exchange (b)
Interest rate (a)
Contract type
(in millions)
Year ended December 31, 2014
Total
Foreign exchange (b)
Interest rate (a)
in OCI
for period
statement impact recorded in OCI
income(c)
AOCI to income
55
(54)
78
(81)
(53)
in OCI
for period
recorded in OCI
Total income
statement impact
in income (c)
recorded directly
Total change
effective
Derivatives -
Hedge
ineffectiveness
Derivatives -
effective portion
reclassified from
AOCI to income
Gains/(losses) recorded in income and other comprehensive income/(loss)
83
$
(97)
$
(180)
$
$
(180)
$
28
(81)
Year ended December 31, 2015
75,956
The following table summarizes the notional amount of
derivative contracts outstanding as of December 31, 2015
and 2014.
OTC
Equity contracts:
14,905
(193,934) (c)
208,839 (c)
12,685
20,690
(162,698)
Total foreign exchange contracts
Exchange-traded (a)
2
14,903
(193,900) (c)
(34)
36
175,383
(20,439)
251
23,258
2,354
(11,486) (c)
13,840 (c)
37,098 (c)
2,645
(30,330)
32,975
Total equity contracts
2,394
(9,891)
12,285
Exchange-traded(a)
-
OTC-cleared
432
(22,826)
2
(34,312) (c)
208,803 (c)
(162,377)
(321)
$
$ (1,053,408)
(375,431)
$ (699,227) $ (46,970)
(245,151)
(21,085)
$ (944,378) $ (68,055)
$ (416,406)
Total
$ (307,211)
(109,195)
$ (1,428,839)
Noninvestment-grade
Risk rating of reference entity
Net fair
value
Fair value of
payables(b)
Fair value of
receivables(b)
Total notional
amount
>5 years
Investment-grade
$
13,539
10,823
24,362
$
323
OTC-cleared
175,060
OTC
Foreign exchange contracts:
952
$773
$(383)
portion
recorded in OCI
directly in
income (a)
recorded in OCI
$1,698
$(448)
$1,885
$ 6,703
(8,068)
(6,836)
(18,891)
$ (25,727)
12,683
1-5 years
2,786
OTC
Total interest rate contracts
Exchange-traded(a)
OTC-cleared
OTC
Interest rate contracts:
U.S. GAAP nettable derivative payables
Credit contracts:
December 31, (in millions)
Notes to consolidated financial statements
213
JPMorgan Chase & Co./2015 Annual Report
(a) Exchange-traded derivative amounts that relate to futures contracts are settled daily.
(b) Included cash collateral netted of $73.7 billion and $74.0 billion at December 31, 2015, and 2014, respectively.
(c) The prior period amounts have been revised to conform with the current period presentation. These revisions had no impact on Firm's Consolidated
balance sheets or its results of operations.
78,975
$
The following table presents, as of December 31, 2015 and 2014, the gross and net derivative payables by contract and
settlement type. Derivative payables have been netted on the Consolidated balance sheets against derivative receivables and
cash collateral receivables from the same counterparty with respect to derivative contracts for which the Firm has obtained an
appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought
or obtained, the payables are not eligible under U.S. GAAP for netting on the Consolidated balance sheets, and are shown
separately in the table below.
OTC
OTC-cleared
2015
398,518
29
$ 12,520
(c)
9,133 $ 515,904 $ (503,384) (c)
$
$ 393,709 $ (384,576)
240,398 (240,369)
derivative
payables
Net
Amounts netted
on the
Consolidated
balance sheets
Gross
derivative
payables
Net
derivative
payables
Amounts netted
on the
Consolidated
balance sheets
Gross
derivative
payables
2014
$ 1,328,428 (c)
Commodity contracts:
59,677
20,717
Derivative receivables where an appropriate legal
opinion has not been either sought or obtained
Derivative receivables with appropriate legal opinion $ 947,642 $ (902,201)
24,200
9,199
Total commodity contracts
Exchange-traded (a)
14,236
-
8,228
(14,327)
22,555
8,229
(6,772)
15,001
OTC-cleared
Total derivative receivables recognized on the
Consolidated balance sheets
$ 961,878
(9,108)
20,717
14,236
58,258
(b)(c)
(c) $ (1,249,453) $
12,384
(29,671)
4,156
(15,344)
19,500
42,055
$ 1,307,711
8,320
45,441
$
(b)
(15,880)
91
$
(397,250)
<1 year
December 31, 2015
(12)
Commodity(d)
617
(142)
1
(7)
25
Foreign exchange (c)
156
2,308 $
(58)
Credit (b)
853 $
OTC-cleared
Exchange-traded(a)
Total interest rate contracts
Credit contracts:
70
178
Total
$
For both single-name CDS contracts and index CDS
contracts, upon the occurrence of a credit event, under the
terms of a CDS contract neither party to the CDS contract
has recourse to the reference entity. The protection
purchaser has recourse to the protection seller for the
difference between the face value of the CDS contract and
the fair value of the reference obligation at settlement of
the credit derivative contract, also known as the recovery
value. The protection purchaser does not need to hold the
debt instrument of the underlying reference entity in order
to receive amounts due under the CDS contract when a
credit event occurs.
Credit derivatives may reference the credit of either a single
reference entity ("single-name") or a broad-based index.
The Firm purchases and sells protection on both single-
name and index-reference obligations. Single-name CDS and
index CDS contracts are either OTC or OTC-cleared
derivative contracts. Single-name CDS are used to manage
the default risk of a single reference entity, while index CDS
contracts are used to manage the credit risk associated with
the broader credit markets or credit market segments. Like
the S&P 500 and other market indices, a CDS index consists
of a portfolio of CDS across many reference entities. New
series of CDS indices are periodically established with a new
underlying portfolio of reference entities to reflect changes
in the credit markets. If one of the reference entities in the
index experiences a credit event, then the reference entity
that defaulted is removed from the index. CDS can also be
referenced against specific portfolios of reference names or
against customized exposure levels based on specific client
demands: for example, to provide protection against the
first $1 million of realized credit losses in a $10 million
portfolio of exposure. Such structures are commonly known
as tranche CDS.
Credit default swaps
The Firm is both a purchaser and seller of protection in the
credit derivatives market and uses these derivatives for two
primary purposes. First, in its capacity as a market-maker,
the Firm actively manages a portfolio of credit derivatives
by purchasing and selling credit protection, predominantly
on corporate debt obligations, to meet the needs of
customers. Second, as an end-user, the Firm uses credit
derivatives to manage credit risk associated with lending
exposures (loans and unfunded commitments) and
derivatives counterparty exposures in the Firm's wholesale
businesses, and to manage the credit risk arising from
certain financial instruments in the Firm's market-making
businesses. Following is a summary of various types of
credit derivatives.
Credit derivatives are financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) and which allow
one party (the protection purchaser) to transfer that risk to
another party (the protection seller). Credit derivatives
expose the protection purchaser to the creditworthiness of
the protection seller, as the protection seller is required to
make payments under the contract when the reference
entity experiences a credit event, such as a bankruptcy, a
failure to pay its obligation or a restructuring. The seller of
credit protection receives a premium for providing
protection but has the risk that the underlying instrument
referenced in the contract will be subject to a credit event.
Credit derivatives
JPMorgan Chase & Co./2015 Annual Report
218
(b) Relates to credit derivatives used to mitigate credit risk associated
with lending exposures in the Firm's wholesale businesses. These
derivatives do not include credit derivatives used to mitigate
counterparty credit risk arising from derivative receivables, which is
included in gains and losses on derivatives related to market-making
activities and other derivatives. Gains and losses were recorded in
principal transactions revenue.
(a) Primarily represents interest rate derivatives used to hedge the
interest rate risk inherent in the mortgage pipeline, warehouse loans
and MSRs, as well as written commitments to originate warehouse
loans. Gains and losses were recorded predominantly in mortgage fees
and related income.
The Firm makes markets in derivatives in order to meet the
needs of customers and uses derivatives to manage certain
risks associated with net open risk positions from the Firm's
market-making activities, including the counterparty credit
risk arising from derivative receivables. All derivatives not
included in the hedge accounting or specified risk
management categories above are included in this category.
Gains and losses on these derivatives are primarily recorded
in principal transactions revenue. See Note 7 for
information on principal transactions revenue.
(d) Primarily relates to commodity derivatives used to mitigate energy
price risk associated with energy-related contracts and investments.
Gains and losses were recorded in principal transactions revenue.
Gains and losses on derivatives related to market-making
activities and other derivatives
(c) Primarily relates to hedges of the foreign exchange risk of specified
foreign currency-denominated assets and liabilities. Gains and losses
were recorded in principal transactions revenue.
654
936 $ 2,399 $
OTC
Credit-related notes
OTC-cleared
Gross
derivative
receivables
27,231
44,082
6,866
Total credit contracts
50,948
(43,182)
(6,863)
(50,045)
900
(916,532) (c)
66,636
916
3
9,320
(9,284)
36
903
(65,720)
943,763 (c)
20,888
(643,248)
Amounts netted
on the
Consolidated
balance sheets
Net
derivative
receivables
Gross
derivative
receivables
2014
Amounts netted
on the
Consolidated
balance sheets
Net
derivative
receivables
$ 417,386 $ (396,506)
246,750 (246,742)
$ 20,880 $ 542,107 $ (514,914) (c)
(c)
$ 27,193
8
401,656
(401,618)
38
664,136
2015
(in millions)
A credit-related note is a funded credit derivative where the
issuer of the credit-related note purchases from the note
investor credit protection on a reference entity or an index.
Under the contract, the investor pays the issuer the par
value of the note at the inception of the transaction, and in
return, the issuer pays periodic payments to the investor,
based on the credit risk of the referenced entity. The issuer
also repays the investor the par value of the note at
maturity unless the reference entity (or one of the entities
that makes up a reference index) experiences a specified
credit event. If a credit event occurs, the issuer is not
obligated to repay the par value of the note, but rather, the
issuer pays the investor the difference between the par
value of the note and the fair value of the defaulted
reference obligation at the time of settlement. Neither party
to the credit-related note has recourse to the defaulting
reference entity.
JPMorgan Chase & Co./2015 Annual Report
$ 2,078,096
$ (2,056,982)
(43,281)
(2,100,263)
(40)
purchased (d)
Other
protection
(sold)/
purchased (c)
underlyings (b)
$
Protection sold
Net
protection
Protection purchased
Maximum payout/Notional amount
35,518
11,520 $
$
with identical
32,048
2,110,144
21,114 $
(11,233)
18,631
Protection sold - credit derivatives and credit-related notes ratings (a)/maturity profile
The following tables summarize the notional amounts by the ratings and maturity profile, and the total fair value, of credit
derivatives and credit-related notes as of December 31, 2015 and 2014, where JPMorgan Chase is the seller of protection. The
maturity profile is based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based
on the rating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit
derivatives and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile
reflected below.
(d) Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on the identical reference
instrument.
(a) Other credit derivatives predominantly consists of credit swap options.
(b) Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on protection sold; the notional
amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold.
(c) Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to the
buyer of protection in determining settlement value.
Total
41,810
9,841 $
$
$ 2,110,144
$ (2,100,303)
3,704
(40)
38,106
9,881
19,475
$ 1,440,359
The following tables present a summary of the notional
amounts of credit derivatives and credit-related notes the
Firm sold and purchased as of December 31, 2015 and
2014. Upon a credit event, the Firm as a seller of protection
would typically pay out only a percentage of the full
notional amount of net protection sold, as the amount
actually required to be paid on the contracts takes into
account the recovery value of the reference obligation at
the time of settlement. The Firm manages the credit risk on
contracts to sell protection by purchasing protection with
identical or similar underlying reference entities. Other
purchased protection referenced in the following tables
includes credit derivatives bought on related, but not
identical, reference positions (including indices, portfolio
coverage and other reference points) as well as protection
purchased through credit-related notes.
4,715
30,803
Credit default swaps
Credit derivatives
December 31, 2014 (in millions)
Total
Credit-related notes
Total credit derivatives
Other credit derivatives (a)
Other credit derivatives (a)
Credit derivatives
December 31, 2015 (in millions)
Total credit derivatives and credit-related notes
The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives,
because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value
of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm's view, the
risks associated with such derivatives.
Notes to consolidated financial statements
219
Credit default swaps
Total credit derivatives
Credit-related notes
Maximum payout/Notional amount
11,550
1,440,359
18,792
(4,580)
38,158
16,130 $ 12,011
$
$ 1,402,201
$ (1,428,839)
$ (1,386,071)
(42,738)
(1,428,809)
(30)
purchased (d)
Other
protection
Net
protection
(sold)/
purchased (c)
Protection purchased
with identical
underlyings (b)
Protection sold
(30)
1,268
-
634,107
Interest rate (a)
Contract type
Year ended December 31, 2014 (in millions)
Total
Commodity (c)
Foreign exchange (b)
Foreign exchange (b)
Interest rate (a)
Year ended December 31, 2015 (in millions)
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well
as pretax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 2015,
2014 and 2013, respectively. The Firm includes gains/(losses) on the hedging derivative and the related hedged item in the
same line item in the Consolidated statements of income.
Fair value hedge gains and losses
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting
designation or purpose.
In certain instances the Firm enters into transactions in which it transfers financial assets but maintains the economic exposure
to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The
Firm generally accounts for such transfers as collateralized financing transactions as described in Note 13, but in limited
circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. The amount of such transfers
accounted for as a sale where the associated derivative was outstanding at December 31, 2015 was not material.
Impact of derivatives on the Consolidated statements of income
1,388
Contract type
Commodity(c)
Total
Year ended December 31, 2013 (in millions)
Excluded
components
Excluded
components
recorded
directly in
income (a)
Effective
portion
recorded in OCI
recorded
directly in
income(a)
Effective
portion
recorded
Effective
$(379)
Commodity(c)
Foreign exchange (b)
Interest rate (a)
Contract type
366
components
1,093
1,046 $
32,303
27,585
22,328 $
18,942
Collateral posted
$
Aggregate fair value of net derivative
payables
December 31, (in millions)
The following table shows the impact of a single-notch and
two-notch downgrade of the long-term issuer ratings of
JPMorgan Chase & Co. and its subsidiaries, predominantly
JPMorgan Chase Bank, National Association ("JPMorgan
Chase Bank, N.A."), at December 31, 2015 and 2014,
related to OTC and OTC-cleared derivative contracts with
contingent collateral or termination features that may be
triggered upon a ratings downgrade. Derivatives contracts
generally require additional collateral to be posted or
terminations to be triggered when the predefined threshold
rating is breached. A downgrade by a single rating agency
that does not result in a rating lower than a preexisting
corresponding rating provided by another major rating
agency will generally not result in additional collateral
(except in certain instances in which additional initial
margin may be required upon a ratings downgrade), nor in
termination payments requirements. The liquidity impact in
the table is calculated based upon a downgrade below the
lowest current rating by the rating agencies referred to in
the derivative contract.
2014
OTC and OTC-cleared derivative payables containing
downgrade triggers
Liquidity risk and credit-related contingent features
In addition to the specific market risks introduced by each
derivative contract type, derivatives expose JPMorgan
Chase to credit risk - the risk that derivative counterparties
may fail to meet their payment obligations under the
derivative contracts and the collateral, if any, held by the
Firm proves to be of insufficient value to cover the payment
obligation. It is the policy of JPMorgan Chase to actively
pursue, where possible, the use of legally enforceable
master netting arrangements and collateral agreements to
mitigate derivative counterparty credit risk. The amount of
derivative receivables reported on the Consolidated balance
sheets is the fair value of the derivative contracts after
giving effect to legally enforceable master netting
agreements and cash collateral held by the Firm.
While derivative receivables expose the Firm to credit risk,
derivative payables expose the Firm to liquidity risk, as the
derivative contracts typically require the Firm to post cash
or securities collateral with counterparties as the fair value
of the contracts moves in the counterparties' favor or upon
specified downgrades in the Firm's and its subsidiaries'
respective credit ratings. Certain derivative contracts also
provide for termination of the contract, generally upon a
downgrade of either the Firm or the counterparty, at the
fair value of the derivative contracts. The following table
shows the aggregate fair value of net derivative payables
related to OTC and OTC-cleared derivatives that contain
contingent collateral or termination features that may be
triggered upon a ratings downgrade, and the associated
collateral the Firm has posted in the normal course of
business, at December 31, 2015 and 2014.
(c) Net amount represents exposure of counterparties to the Firm.
(b) Derivative payables collateral relates only to OTC and OTC-cleared derivative instruments. Amounts exclude collateral transferred related to exchange-
traded derivative instruments.
(a) Represents liquid security collateral as well as cash collateral held at third party custodians. For some counterparties, the collateral amounts of financial
instruments may exceed the derivative receivables and derivative payables balances. Where this is the case, the total amount reported is limited to the net
derivative receivables and net derivative payables balances with that counterparty.
(10,505) $ 41,541
2015
JPMorgan Chase & Co./2015 Annual Report
215
Notes to consolidated financial statements
3,028 $
Single-notch Two-notch
downgrade downgrade
2014
271
807 $
Derivatives executed in contemplation of a sale of the underlying financial asset
(b) Amounts represent fair values of derivative payables, and do not reflect collateral posted.
(a) Includes the additional collateral to be posted for initial margin.
Amount required to settle contracts with termination triggers upon downgrade (b)
$
Amount of additional collateral to be posted upon downgrade (a)
December 31, (in millions)
Single-notch Two-notch
downgrade downgrade
2015
Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives
3,331
Net
amount(c)
Excluded
2014
$ (323,398)
(157,281)
Noninvestment-grade
Investment-grade
Risk rating of reference entity
Net fair
value
Fair value of
payables(b)
$ (1,118,293)
(396,798)
Fair value of
receivables (b)
>5 years
1-5 years
<1 year
(in millions)
December 31, 2014
$ (1,365)
Total notional
amount
$ (79,486)
(25,047)
$ (1,521,177)
(579,126)
$
JPMorgan Chase & Co./2015 Annual Report
220
$ 17,675
$ (104,533)
(b) Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm.
(a) The ratings scale is primarily based on external credit ratings defined by S&P and Moody's Investors Service ("Moody's").
$ (2,100,303) $ 46,444 $ (28,769)
$ (1,515,091)
$ (480,679)
Total
(1,778)
$19,453
(6,314)
(22,455)
$
25,767
20,677
$
2013
Interest rate (a)
(in millions)
(c) Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the
cumulative expected change in cash flows on the hedged item attributable to the hedged risk.
JPMorgan Chase & Co./2015 Annual Report
217
Notes to consolidated financial statements
In 2015, the Firm reclassified approximately $150 million of net losses from AOCI to other income because the Firm
determined that it was probable that the forecasted interest payment cash flows would not occur as a result of the planned
reduction in wholesale non-operating deposits. The Firm did not experience any forecasted transactions that failed to occur for
the years ended December 31, 2014 or 2013.
Over the next 12 months, the Firm expects that approximately $95 million (after-tax) of net losses recorded in AOCI at
December 31, 2015, related to cash flow hedges, will be recognized in income. For terminated cash flow hedges, the maximum
length of time over which forecasted transactions are remaining is approximately 7 years. For open cash flow hedges, the
maximum length of time over which forecasted transactions are hedged is approximately 2 years. The Firm's longer-dated
forecasted transactions relate to core lending and borrowing activities.
(b) Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of
gains and losses follows the hedged item - primarily noninterest revenue and compensation expense.
Net investment hedge gains and losses
2013.
Gains/(losses) recorded in income and other comprehensive income/(loss)
Year ended December 31,
(in millions)
Foreign exchange derivatives
2015
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting
relationships, and the pretax gains/(losses) recorded on such instruments for the years ended December 31, 2015, 2014 and
(a) Primarily consists of benchmark interest rate hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in
net interest income, and for the forecasted transactions that the Firm determined during the year ended December 31, 2015, were probable of not
occurring, in other income.
(424)
$
2013
2014
2015
Derivatives gains/(losses)
recorded in income
Year ended December 31,
The following table presents pretax gains/(losses) recorded
on a limited number of derivatives, not designated in hedge
accounting relationships, that are used to manage risks
associated with certain specified assets and liabilities,
including certain risks arising from the mortgage pipeline,
warehouse loans, MSRs, wholesale lending exposures, AFS
securities, foreign currency-denominated assets and
liabilities, and commodities-related contracts and
investments.
Gains and losses on derivatives used for specified risk
management purposes
(a) Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign
exchange forward contracts. Amounts related to excluded components are recorded in other income. The Firm measures the ineffectiveness of net
investment hedge accounting relationships based on changes in spot foreign currency rates and, therefore, there was no significant ineffectiveness for net
investment hedge accounting relationships during 2015, 2014 and 2013.
(565)
40
$
(457)
33
$
(101)
$
(525)
Contract type
(a)
Collateral not
nettable on the
Consolidated
balance sheets
2014
-
OTC-cleared
4,872
(23,036)
27,908
3,869
Exchange-traded(a)
(19,589)
OTC
Equity contracts:
16,420
(c)
(201,644)
(c)
23,458
10,998
(9,891)
1,107
25,129
10,697
(6,256)
16,953
OTC
Commodity contracts:
6,250
(34,522) (c)
1,378
(11,486) (c)
12,864 (c)
40,772 (c)
4,976
(29,480)
34,456
Total equity contracts
218,064
(13,211)
14,348
185,479
(64,904)
74,830
1,360
65,432
1,360
(43,019)
(5,969)
(48,988)
528
50,348
44,379
5,969
13,788
(900,634) (c)
914,422 (c)
9,162
(624,945)
Total credit contracts
-
9,398
(9,398)
Total foreign exchange contracts
Exchange-traded (a)
16,420
(201,578) (c)
(66)
66
217,998 (c)
14,348
(170,830)
(301)
301
OTC-cleared
185,178
OTC
Foreign exchange contracts:
528
(74,302)
(171,131)
11,918
OTC-cleared
-
$
(13,543) (a) $ 31,898
45,441 $
Net derivative
receivables
exposure
Net
58,258 $
Collateral not
nettable on the
Consolidated
balance sheets
2015
Derivative payable collateral (b)
Derivative receivables with appropriate legal opinions $
December 31, (in millions)
Derivative receivable collateral
The following tables present information regarding certain financial instrument collateral received and transferred as of
December 31, 2015 and 2014, that is not eligible for net presentation under U.S. GAAP. The collateral included in these tables
relates only to the derivative instruments for which appropriate legal opinions have been obtained; excluded are (i) additional
collateral that exceeds the fair value exposure and (ii) all collateral related to derivative instruments where an appropriate
legal opinion has not been either sought or obtained.
Net derivative
receivables
2014
Collateral not
nettable on the
Consolidated
balance sheets
Net
exposure
(16,194)
52,046 $
$
Net derivative
payables
Net
amount(c)
(7,957) $ 32,638
(a)
40,595 $
$
Derivative payables with appropriate legal opinions
nettable on the
Consolidated
balance sheets
Net derivative
payables
December 31, (in millions)
Collateral not
2015
$ 42,064
(a)
JPMorgan Chase & Co./2015 Annual Report
214
agency securities and other Group of Seven Nations ("G7")
government bonds), (b) the amount of collateral held or
transferred exceeds the fair value exposure, at the
individual counterparty level, as of the date presented, or
(c) the collateral relates to derivative receivables or
payables where an appropriate legal opinion has not been
either sought or obtained.
In addition to the cash collateral received and transferred
that is presented on a net basis with net derivative
receivables and payables, the Firm receives and transfers
additional collateral (financial instruments and cash). These
amounts mitigate counterparty credit risk associated with
the Firm's derivative instruments but are not eligible for net
presentation, because (a) the collateral consists of non-cash
financial instruments (generally U.S. government and
10,749
40,595
$
(b)
(15,578)
52
(9,322)
$ 942,912
Total derivative payables recognized on the
Consolidated balance sheets
12,195
Derivative payables where an appropriate legal
opinion has not been either sought or obtained
Derivative payables with appropriate legal opinions $ 930,717 $ (890,122)
26,327
9,374
Total commodity contracts
Exchange-traded (a)
18,486
43,615
$ 1,291,703 (c)
(75,004)
(15,344)
(28,555)
(c) The prior period amounts have been revised to conform with the current period presentation. These revisions had no impact on Firm's Consolidated
balance sheets or its results of operations.
(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b) Included cash collateral netted of $61.6 billion and $64.2 billion related to OTC and OTC-cleared derivatives at December 31, 2015, and 2014,
respectively.
71,116
$
$ 1,310,773 (c)
52,790
$
19,070
19,070
12,195
52,046
$
(b)(c)
$(1,239,657)
15,060
3,142
Notional amount of derivative contracts
Asset category
6,550
U.S.
Non-U.S.
$
231 $
23 $
$
(34)
(2)
$
197 $
Non-U.S.
21 $
The following table presents the actual rate of return on plan assets for the U.S. and non-U.S. defined benefit pension and
OPEB plans.
Year ended December 31,
Actual rate of return:
Defined benefit pension plans
OPEB plans
U.S.
2015
2014
2013
Non-U.S.
2015
$
2014
U.S.
Defined benefit pension plans
$ (216) $ 1,714 $ (2,047)
$ (113)
$ (27)
$
(14)
$
21 $
(4) $ (258)
$
(94) $1,528 $ (2,012) $ (80)
OPEB plans
$ 16
50
$ (53) $ (68) $ (313)
(a) Includes various defined benefit pension plans which are individually immaterial.
JPMorgan Chase & Co./2015 Annual Report
225
Notes to consolidated financial statements
The estimated pretax amounts that will be amortized from AOCI into net periodic benefit cost in 2016 are as follows.
(in millions)
Net loss/(gain)
Prior service cost/(credit)
Total
$
Total recognized in other comprehensive income
Total recognized in net periodic benefit cost and
other comprehensive income
2013
7.29%
9.84
2015
2014
4.50%
4.00%
0.80 -3.70%
1.00 -3.60%
4.40
4.10
3.50
3.50
Non-U.S.
2.25 -4.30
Year ended December 31,
Ultimate
Year when rate will reach ultimate
Weighted-average assumptions used to determine net periodic benefit costs
U.S.
2015
2014
2013
5.50
6.00
2.75 -4.20
0.88%
1.16
2014
U.S.
15.95% (0.48) 4.92% 5.62 17.69%
13.88
ΝΑ
3.74 23.80%
NA
ΝΑ
Plan assumptions
JPMorgan Chase's expected long-term rate of return for U.S.
defined benefit pension and OPEB plan assets is a blended
average of the investment advisor's projected long-term
(10 years or more) returns for the various asset classes,
weighted by the asset allocation. Returns on asset classes
are developed using a forward-looking approach and are
not strictly based on historical returns. Equity returns are
generally developed as the sum of inflation, expected real
earnings growth and expected long-term dividend yield.
Bond returns are generally developed as the sum of
inflation, real bond yield and risk spread (as appropriate),
adjusted for the expected effect on returns from changing
yields. Other asset-class returns are derived from their
relationship to the equity and bond markets. Consideration
is also given to current market conditions and the short-
term portfolio mix of each plan.
For the U.K. defined benefit pension plans, which represent
the most significant of the non-U.S. defined benefit pension
plans, procedures similar to those in the U.S. are used to
develop the expected long-term rate of return on plan
assets, taking into consideration local market conditions
and the specific allocation of plan assets. The expected
long-term rate of return on U.K. plan assets is an average of
projected long-term returns for each asset class. The return
on equities has been selected by reference to the yield on
long-term U.K. government bonds plus an equity risk
premium above the risk-free rate. The expected return on
"AA" rated long-term corporate bonds is based on an
implied yield for similar bonds.
The discount rate used in determining the benefit obligation
under the U.S. defined benefit pension and OPEB plans was
provided by our actuaries. This rate was selected by
reference to the yields on portfolios of bonds with maturity
dates and coupons that closely match each of the plan's
projected cash flows; such portfolios are derived from a
broad-based universe of high-quality corporate bonds as of
the measurement date. In years in which these hypothetical
bond portfolios generate excess cash, such excess is
assumed to be reinvested at the one-year forward rates
implied by the Citigroup Pension Discount Curve published
as of the measurement date. The discount rate for the U.K.
defined benefit pension plan represents a rate of
appropriate duration from the analysis of yield curves
provided by our actuaries.
In 2014, the Society of Actuaries ("SOA") completed a
comprehensive review of mortality experience of uninsured
private retirement plans in the U.S. In October 2014, the
SOA published new mortality tables and a new mortality
improvement scale that reflects improved life expectancies
and an expectation that this trend will continue. In 2014,
the Firm adopted the SOA's tables and projection scale,
resulting in an estimated increase in PBO of $533 million.
In 2015, the SOA updated the projection scale to reflect two
additional years of historical data. The Firm has adopted the
updated projection scale resulting in an estimated decrease
in PBO in 2015 of $112 million.
2015
At December 31, 2015, the Firm increased the discount
rates used to determine its benefit obligations for the U.S.
defined benefit pension and OPEB plans in light of current
market interest rates, which will result in a decrease in
expense of approximately $63 million for 2016. The 2016
expected long-term rate of return on U.S. defined benefit
pension plan assets and U.S. OPEB plan assets are 6.50%
and 5.75%, respectively. For 2016, the initial health care
benefit obligation trend assumption has been set at 5.50%,
and the ultimate health care trend assumption and the year
to reach the ultimate rate remains at 5.00% and 2017,
respectively, unchanged from 2015. As of December 31,
2015, the interest crediting rate assumption and the
assumed rate of compensation increase remained at 5.00%
and 3.50%, respectively.
226
JPMorgan Chase & Co./2015 Annual Report
Weighted-average assumptions used to determine benefit obligations
December 31,
Discount rate:
Defined benefit pension plans
OPEB plans
Rate of compensation increase
Health care cost trend rate:
Assumed for next year
The following tables present the weighted-average
annualized actuarial assumptions for the projected and
accumulated postretirement benefit obligations, and the
components of net periodic benefit costs, for the Firm's
significant U.S. and non-U.S. defined benefit pension and
OPEB plans, as of and for the periods indicated.
5.00
-
(39) (a)
Net periodic defined benefit cost
122
(186)
35
33
43
64
(74) (64)
Other defined benefit pension plans(a)
14
1
14
10
6
14
ΝΑ
ΝΑ
Total defined benefit plans
136
(172)
50
43
15
49
-
(1)
(929) (985)
(956)
(150)
(172)
(142)
1 $
31
(106)
$ 1
38
(101)
35
(92)
Special termination benefits
247
271
35
47
49
(34)
(41)
(41)
(2)
(2)
(2)
25
14 (a)
78
(55)
ΝΑ
(64) (55)
-
53
Amortization of net loss
Amortization of prior service (cost)/credit
(247)
34
41
(25) (271)
41
(35)
(47)
2
Prior service credit arising during the year
2
$ 57
$
19
$
21 $
(5) $ (257)
(1)
1
Foreign exchange impact and other
(33) (a)
(49)
2
(74)
(3) $ 1,645 $ (1,817) $ (47)
Net (gain)/loss arising during the year
Total defined contribution plans
449
438
447
320
329
321
NA
ΝΑ
ΝΑ
$
Total pension and OPEB cost included in
$
585 $
266 $
497
$ 363
$ 378
$
399
$ (74) $ (64) $ (55)
Changes in plan assets and benefit obligations
recognized in other comprehensive income
compensation expense
5.00
2017
2017
Total fair
Level 1
Level 2
Level 3
value
Level 1
Level 2
value
$
112 $
Total fair
-
-
$
112
$
114
$
1
$
115
4,826
$
339
Corporate debt securities (c)
Common/collective trust funds (a)
100%
100%
100%
100%
100%
100%
100%
100%
100%
(a) Debt securities primarily include corporate debt, U.S. federal, state, local and non-U.S. government, and mortgage-backed securities.
(b) Alternatives primarily include limited partnerships.
Limited partnerships (b)
(c) Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded.
JPMorgan Chase & Co./2015 Annual Report
Fair value measurement of the plans' assets and liabilities
For information on fair value measurements, including descriptions of level 1, 2, and 3 of the fair value hierarchy and the
valuation methods employed by the Firm, see Note 3.
Pension and OPEB plan assets and liabilities measured at fair value
U.S. defined benefit pension plans
Non-U.S. defined benefit pension plans(s)
December 31, 2015
(in millions)
Cash and cash equivalents
Equity securities
228
Total
51
4,833
28
Derivative receivables
104
104
-
209
209
Other(d)
1,760
27
26
534
257
53
310
Total assets measured at fair value
$ 7,670
$ 1,930 $
539
$ 10,139 (e)
$
1,722
2,321
2
2
1
1,002
157
1,159
339
135
135
53
53
1,619
2
68
1,621
758
U.S. federal, state, local and non-U.S. government debt
securities
580
108
688
212
504
716
Mortgage-backed securities
67
758
1
1
1
3.50
3.50
4.00
0.90 - 4.80
ΝΑ
2.75 -4.20
1.20 5.30
ΝΑ
2.75 -4.60
2.40 -4.90
ΝΑ
2.75 -4.10
Health care cost trend rate:
Assumed for next year
Ultimate
Rate of compensation increase
Year when rate will reach ultimate
6.50
7.00
5.00
5.00
2017
2017
2017
The following table presents the effect of a one-percentage-
point change in the assumed health care cost trend rate on
JPMorgan Chase's accumulated postretirement benefit
obligation. As of December 31, 2015, there was no material
effect on total service and interest cost.
Year ended December 31, 2015
(in millions)
Effect on accumulated postretirement
benefit obligation
6.00
1-Percentage 1-Percentage
point
point
increase
decrease
6.25
6.00
Non-U.S.
2015
2014
2013
Discount rate:
Defined benefit pension plans
4.00%
5.00%
3.90%
1.00 3.60%
6.25
1.10 4.40%
OPEB plans
4.10
4.90
3.90
Expected long-term rate of return on plan assets:
Defined benefit pension plans
6.50
7.00
7.50
OPEB plans
1.40 - 4.40%
$
8 $
(7)
59%
60%
Equity securities
0-85
48
46
40
38
61%
38
30-70%
30-70
31%
50%
50
50
Real estate
0-10
4
4
1
Alternatives (b)
0-35
16
19
50%
32%
0-80%
Debt securities(a)
JPMorgan Chase's U.S. defined benefit pension and OPEB
plan expense is sensitive to the expected long-term rate of
return on plan assets and the discount rate. With all other
assumptions held constant, a 25-basis point decline in the
expected long-term rate of return on U.S. plan assets would
result in an aggregate increase of approximately $39
million in 2016 U.S. defined benefit pension and OPEB plan
expense. A 25-basis point decline in the discount rate for
the U.S. plans would result in an increase in 2016 U.S.
defined benefit pension and OPEB plan expense of
approximately an aggregate $31 million and an increase in
the related benefit obligations of approximately an
aggregate $296 million. A 25-basis point decrease in the
interest crediting rate for the U.S. defined benefit pension
plan would result in a decrease in 2016 U.S. defined benefit
pension expense of approximately $35 million and a
decrease in the related PBO of approximately $145 million.
A 25-basis point decline in the discount rates for the non-
U.S. plans would result in an increase in the 2016 non-U.S.
defined benefit pension plan expense of approximately $17
million.
JPMorgan Chase & Co./2015 Annual Report
227
Notes to consolidated financial statements
Investment strategy and asset allocation
The Firm's U.S. defined benefit pension plan assets are held
in trust and are invested in a well-diversified portfolio of
equity and fixed income securities, cash and cash
equivalents, and alternative investments (e.g., hedge funds,
private equity, real estate and real assets). Non-U.S. defined
benefit pension plan assets are held in various trusts and
are also invested in well-diversified portfolios of equity,
fixed income and other securities. Assets of the Firm's COLI
policies, which are used to partially fund the U.S. OPEB
plan, are held in separate accounts of an insurance
company and are allocated to investments intended to
replicate equity and fixed income indices.
The investment policy for the Firm's U.S. defined benefit
pension plan assets is to optimize the risk-return
relationship as appropriate to the needs and goals of the
plan using a global portfolio of various asset classes
diversified by market segment, economic sector, and issuer.
Assets are managed by a combination of internal and
external investment managers. Periodically the Firm
performs a comprehensive analysis on the U.S. defined
benefit pension plan asset allocations, incorporating
projected asset and liability data, which focuses on the
short- and long-term impact of the asset allocation on
cumulative pension expense, economic cost, present value
of contributions and funded status. As the U.S. defined
benefit pension plan is overfunded, the investment strategy
for this plan was adjusted in 2013 to provide for greater
liquidity. Currently, approved asset allocation ranges are:
U.S. equity 0% to 45%, international equity 0% to 40%,
debt securities 0% to 80%, hedge funds 0% to 5%, real
estate 0% to 10%, real assets 0% to 10% and private
equity 0% to 20%. Asset allocations are not managed to a
specific target but seek to shift asset class allocations within
these stated ranges. Investment strategies incorporate the
economic outlook and the anticipated implications of the
macroeconomic environment on the various asset classes
while maintaining an appropriate level of liquidity for the
plan. The Firm regularly reviews the asset allocations and
asset managers, as well as other factors that impact the
portfolio, which is rebalanced when deemed necessary.
For the U.K. defined benefit pension plans, which represent
the most significant of the non-U.S. defined benefit pension
plans, the assets are invested to maximize returns subject
to an appropriate level of risk relative to the plans'
liabilities. In order to reduce the volatility in returns relative
to the plans' liability profiles, the U.K. defined benefit
pension plans' largest asset allocations are to debt
securities of appropriate durations. Other assets, mainly
equity securities, are then invested for capital appreciation,
to provide long-term investment growth. Similar to the U.S.
defined benefit pension plan, asset allocations and asset
managers for the U.K. plans are reviewed regularly and the
portfolios are rebalanced when deemed necessary.
Investments held by the Plans include financial instruments
which are exposed to various risks such as interest rate,
market and credit risks. Exposure to a concentration of
credit risk is mitigated by the broad diversification of both
U.S. and non-U.S. investment instruments. Additionally, the
investments in each of the common/collective trust funds
and registered investment companies are further diversified
into various financial instruments. As of December 31,
2015, assets held by the Firm's U.S. and non-U.S. defined
benefit pension and OPEB plans do not include JPMorgan
Chase common stock, except through indirect exposures
through investments in third-party stock-index funds. The
plans hold investments in funds that are sponsored or
managed by affiliates of JPMorgan Chase in the amount of
$3.2 billion and $3.7 billion for U.S. plans and $1.2 billion
and $1.4 billion for non-U.S. plans, as of December 31,
2015 and 2014, respectively.
The following table presents the weighted-average asset allocation of the fair values of total plan assets at December 31 for
the years indicated, as well as the respective approved range/target allocation by asset category, for the Firm's U.S. and non-
U.S. defined benefit pension and OPEB plans.
Defined benefit pension plans
U.S.
Non-U.S.
OPEB plans(c)
December 31,
Target
Allocation
% of plan assets
2015
Target
2014 Allocation
% of plan assets
2015
2014
Target
Allocation
% of plan assets
2015
2014
125
$
$
$ 33
137
$ 2,081
2014
$ 1,699
2013
$ 1,472
1,310
222
JPMorgan Chase & Co./2015 Annual Report
Note 8 - Interest income and Interest expense
Interest income and interest expense are recorded in the
Consolidated statements of income and classified based on
the nature of the underlying asset or liability. Interest
income and interest expense includes the current-period
interest accruals for financial instruments measured at fair
value, except for financial instruments containing
embedded derivatives that would be separately accounted
for in accordance with U.S. GAAP absent the fair value
option election; for those instruments, all changes in fair
value, including any interest elements, are reported in
principal transactions revenue. For financial instruments
that are not measured at fair value, the related interest is
included within interest income or interest expense, as
applicable.
Details of interest income and interest expense were as
follows.
Year ended December 31,
(in millions)
2015
Interest Income
2015
2014
2013
$ 33,134 $ 32,218 $ 33,489
6,916
896
8,099
Taxable securities
7,617
Non taxable securities (a)
Loans
1,706
Gain from sale of Visa B shares
Other income on the Firm's Consolidated statements of
income included the following:
2.135
Total commissions and fees
3,739
4,106
4,456
Total asset management,
administration and
commissions
(a)
(b)
Year ended December 31, (in millions)
Operating lease income
(c)
$ 15,931 $ 15,106
Represents fees earned from managing assets on behalf of the Firm's
clients, including investors in Firm-sponsored funds and owners of
separately managed investment accounts.
Represents fees for services that are ancillary to investment management
services, such as commissions earned on the sales or distribution of
mutual funds to clients.
Predominantly includes fees for custody, securities lending, funds services
and securities clearance.
Mortgage fees and related income
This revenue category primarily reflects CCB's Mortgage
Banking production and servicing revenue, including fees
and income derived from mortgages originated with the
intent to sell; mortgage sales and servicing including losses
related to the repurchase of previously sold loans; the
impact of risk-management activities associated with the
mortgage pipeline, warehouse loans and MSRs; and revenue
related to any residual interests held from mortgage
securitizations. This revenue category also includes gains
and losses on sales and lower of cost or fair value
adjustments for mortgage loans held-for-sale, as well as
changes in fair value for mortgage loans originated with the
intent to sell and measured at fair value under the fair value
option. Changes in the fair value of CCB MSRS are reported
in mortgage fees and related income. Net interest income
from mortgage loans is recorded in interest income. For a
further discussion of MSRs, see Note 17.
Card income
This revenue category includes interchange income from
credit and debit cards and net fees earned from processing
credit card transactions for merchants. Card income is
recognized as earned. Cost related to rewards programs is
recorded when the rewards are earned by the customer and
presented as a reduction to interchange income. Annual
fees and direct loan origination costs are deferred and
recognized on a straight-line basis over a 12-month period.
Credit card revenue sharing agreements
The Firm has contractual agreements with numerous co-
brand partners and affinity organizations (collectively,
"partners"), which grant the Firm exclusive rights to market
to the customers or members of such partners. These
partners endorse the credit card programs and provide
their customer and member lists to the Firm, and they may
also conduct marketing activities and provide awards under
the various credit card programs. The terms of these
agreements generally range from three to ten years.
The Firm typically makes incentive payments to the
partners based on new account originations, sales volumes
and the cost of the partners' marketing activities and
awards. Payments based on new account originations are
accounted for as direct loan origination costs. Payments to
partners based on sales volumes are deducted from
interchange income as the related revenue is earned.
Payments based on marketing efforts undertaken by the
partners are expensed by the Firm as incurred and reported
as noninterest expense.
Other income
$ 15,509
1,836
1,423
8,256
$
1,252 $ 1,633 $
2,067
Federal funds purchased and
securities loaned or sold under
repurchase agreements
609
604
Commercial paper
110
$ 50,973 $ 51,531 $ 52,669
134
Trading liabilities debt, short-
term and other liabilities
622
712
1,104
Long-term debt
4,435
4,409
5,007
Beneficial interest issued by
582
112
Total securities
Interest bearing deposits
Total interest income
9,040
7,812
Trading assets
6,621
7,312
Federal funds sold and securities
purchased under resale
agreements
1,592
1,642
Interest expense
1,940
(532)
(501)
(127)
1,250
1,157
652
663
918
538
Deposits with banks
Other assets(c)
Securities borrowed (b)
consolidated VIES
1,435
2,321
Advisory
2,111
1,631
1,318
type
Total investment banking fees
$ 6,751
$ 6,542
$ 6,354
Interest rate
Trading revenue by instrument
$ 1,933
$ 284
Credit
1,735
1,880
2,654
Foreign exchange
2,557
1,556
1,801
2,990
$ 1,362
2,563
5,036
4,640
Note 7 - Noninterest revenue
Investment banking fees
This revenue category includes equity and debt
underwriting and advisory fees. Underwriting fees are
recognized as revenue when the Firm has rendered all
services to the issuer and is entitled to collect the fee from
the issuer, as long as there are no other contingencies
associated with the fee. Underwriting fees are net of
syndicate expense; the Firm recognizes credit arrangement
and syndication fees as revenue after satisfying certain
retention, timing and yield criteria. Advisory fees are
recognized as revenue when the related services have been
performed and the fee has been earned.
The following table presents the components of investment
banking fees.
Year ended December 31,
(in millions)
2015
2014
2013
Physical commodities inventories are generally carried at
the lower of cost or market (market approximates fair
value) subject to any applicable fair value hedge accounting
adjustments, with realized gains and losses and unrealized
losses recorded in principal transactions revenue.
The following table presents all realized and unrealized
gains and losses recorded in principal transactions revenue.
This table excludes interest income and interest expense on
trading assets and liabilities, which are an integral part of
the overall performance of the Firm's client-driven market-
making activities. See Note 8 for further information on
interest income and interest expense. Trading revenue is
presented primarily by instrument type. The Firm's client-
driven market-making businesses generally utilize a variety
of instrument types in connection with their market-making
and related risk-management activities; accordingly, the
trading revenue presented in the table below is not
representative of the total revenue of any individual line of
business.
4,911
Year ended December 31,
(in millions)
Equity
$ 1,408 $ 1,571 $ 1,499
Debt
3,232
3,340
3,537
2015
2014
2013
Total underwriting
Underwriting
All other commissions and fees
2,517
1,663
(in millions)
2015
2014
2013
Asset management fees
Investment management fees (a)
$ 9,403
All other asset management fees (b)
352
477
Year ended December 31,
Total asset management fees
9,646
$ 9,169 $ 8,044
505
8,549
Total administration fees (c)
2,015
2,179
2,101
Commissions and other fees
Brokerage commissions
2,304
2,270
9,755
842
The following table presents Firmwide asset management,
administration and commissions.
Notes to consolidated financial statements
2,083
10,057
9,024
9,339
351
$ 10,408
1,507
802
$ 10,531
$ 10,141
Principal transactions
party service providers are predominantly expensed, such
that asset management fees are recorded gross of
payments made to third parties.
Principal transactions revenue consists of realized and
unrealized gains and losses on derivatives and other
instruments (including those accounted for under the fair
value option) primarily used in client-driven market-making
activities and on private equity investments. In connection
with its client-driven market-making activities, the Firm
transacts in debt and equity instruments, derivatives and
commodities (including physical commodities inventories
and financial instruments that reference commodities).
Principal transactions revenue also includes realized and
unrealized gains and losses related to hedge accounting and
specified risk-management activities, including: (a) certain
derivatives designated in qualifying hedge accounting
relationships (primarily fair value hedges of commodity and
foreign exchange risk), (b) certain derivatives used for
specific risk management purposes, primarily to mitigate
credit risk, foreign exchange risk and commodity risk, and
(c) other derivatives. For further information on the income
statement classification of gains and losses from derivatives
activities, see Note 6.
Equity
Commodity (a)
Total trading revenue
Private equity gains(b)
Principal transactions
(a) Commodity derivatives are frequently used to manage the Firm's risk
exposure to its physical commodities inventories. For gains/(losses) related
to commodity fair value hedges, see Note 6.
(b) Includes revenue on private equity investments held in the Private Equity
business within Corporate, as well as those held in other business
segments.
Lending- and deposit-related fees
This revenue category includes fees from loan
commitments, standby letters of credit, financial
guarantees, deposit-related fees in lieu of compensating
balances, cash management-related activities or
transactions, deposit accounts and other loan-servicing
activities. These fees are recognized over the period in
which the related service is provided.
Asset management, administration and commissions
This revenue category includes fees from investment
management and related services, custody, brokerage
services, insurance premiums and commissions, and other
products. These fees are recognized over the period in
which the related service is provided. Performance-based
fees, which are earned based on exceeding certain
benchmarks or other performance targets, are accrued and
recognized at the end of the performance period in which
the target is met. The Firm has contractual arrangements
with third parties to provide certain services in connection
with its asset management activities. Amounts paid to third-
JPMorgan Chase & Co./2015 Annual Report
221
In the financial commodity markets, the Firm transacts in
OTC derivatives (e.g., swaps, forwards, options) and
exchange-traded derivatives that reference a wide range of
underlying commodities. In the physical commodity
markets, the Firm primarily purchases and sells precious
and base metals and may hold other commodities
inventories under financing and other arrangements with
clients. Prior to the 2014 sale of certain parts of its physical
commodity business, the Firm also engaged in the
purchase, sale, transport and storage of power, gas,
liquefied natural gas, coal, crude oil and refined products.
Total interest expense
$
435
7,463 $
(760)
(777)
(120)
(119)
(63)
(16)
(191)
(266)
$ 14,125
$ 14,623
-
(b)(c)
3,511 $
$ 2,213
$ (11,774)
$ 2,087
$(12,375)
$
164 $
3,718
78
$ 1,855 $ 1,903
$ (3,322) $ (3,615)
Fair value of plan assets, end of year
$
Net funded status(a)
7
3
2
$ (11,912) $(12,536)
$
(3,347)
$
(3,640) $ (744) $ (842)
$ 14,623
$ 14,354
$
3,718 $
7
231
31
52
3,532
518
$ 1,903
$ 1,757
13
159
36
45
46
2
1,010
2
Accumulated benefit obligation, end of year
(a) Represents plans with an aggregate overfunded balance of $4.1 billion and $3.9 billion at December 31, 2015 and 2014, respectively, and plans with an
aggregate underfunded balance of $636 million and $708 million at December 31, 2015 and 2014, respectively.
130
(617) $ 109 $
The following table presents the components of net periodic benefit costs reported in the Consolidated statements of income
and other comprehensive income for the Firm's U.S. and non-U.S. defined benefit pension, defined contribution and OPEB
plans.
Year ended December 31, (in millions)
Components of net periodic benefit cost
Benefits earned during the year
Interest cost on benefit obligations
Expected return on plan assets
Amortization:
Net (gain)/loss
Prior service cost/(credit)
Pension plans
2015
U.S.
2014
-
2013
Non-U.S.
2014
OPEB plans
2013
2015 2014 2013
$ 340 $
498
281 $
534
314
447
$ 37
112
2015
$ 1,111 $ 1,061
NA
ΝΑ
109 $ 130
2015
(b) At December 31, 2015 and 2014, approximately $533 million and $336 million, respectively, of U.S. plan assets included participation rights under
participating annuity contracts.
(c) At December 31, 2015 and 2014, defined benefit pension plan amounts not measured at fair value included $74 million and $106 million, respectively, of
accrued receivables, and $123 million and $257 million, respectively, of accrued liabilities, for U.S. plans.
(d) Includes an unfunded accumulated postretirement benefit obligation of $32 million and $37 million at December 31, 2015 and 2014, respectively, for the
U.K. plan.
224
JPMorgan Chase & Co./2015 Annual Report
Gains and losses
For the Firm's defined benefit pension plans, fair value is
used to determine the expected return on plan assets.
Amortization of net gains and losses is included in annual
net periodic benefit cost if, as of the beginning of the year,
the net gain or loss exceeds 10% of the greater of the PBO
or the fair value of the plan assets. Any excess is amortized
over the average future service period of defined benefit
pension plan participants, which for the U.S. defined benefit
pension plan is currently seven years and for the non-U.S.
defined benefit pension plans is the period appropriate for
the affected plan. In addition, prior service costs are
amortized over the average remaining service period of
active employees expected to receive benefits under the
plan when the prior service cost is first recognized.
The average remaining amortization period for the U.S.
defined benefit pension plan for current prior service costs
is four years.
For the Firm's OPEB plans, a calculated value that
recognizes changes in fair value over a five-year period is
used to determine the expected return on plan assets. This
value is referred to as the market related value of assets.
Amortization of net gains and losses, adjusted for gains and
losses not yet recognized, is included in annual net periodic
benefit cost if, as of the beginning of the year, the net gain
or loss exceeds 10% of the greater of the accumulated
postretirement benefit obligation or the market related
value of assets. Any excess net gain or loss is amortized
over the average expected lifetime of retired participants,
which is currently thirteen years; however, prior service
costs resulting from plan changes are amortized over the
average years of service remaining to full eligibility age,
which is currently two years.
The following table presents pretax pension and OPEB amounts recorded in AOCI.
December 31,
2014
Defined benefit pension plans
U.S.
OPEB plans
(in millions)
Net gain/(loss)
$
Prior service credit/(cost)
Accumulated other comprehensive income/(loss), pretax, end of year
$
2015
2014
(3,096) $ (3,346) $
68
102
(3,028) $ (3,244) $
2015
(513) $
9
(504) $
2014
(628) $
11
Non-U.S.
260
184
(2)
OPEB plans
JPMorgan Chase offers postretirement medical and life
insurance benefits to certain retirees and postretirement
medical benefits to qualifying U.S. employees. These
benefits vary with the length of service and the date of hire
and provide for limits on the Firm's share of covered
medical benefits. The medical and life insurance benefits
are both contributory. Effective January 1, 2015, there was
a transition of certain Medicare eligible retirees from JPMC
group sponsored coverage to Medicare exchanges. As a
result of this change, eligible retirees will receive a
Healthcare Reimbursement Account amount each year if
they enroll through the Medicare exchange. The impact of
this change was not material. Postretirement medical
benefits also are offered to qualifying United Kingdom
("U.K.") employees.
JPMorgan Chase's U.S. OPEB obligation is funded with
corporate-owned life insurance ("COLI") purchased on the
lives of eligible employees and retirees. While the Firm
owns the COLI policies, COLI proceeds (death benefits,
withdrawals and other distributions) may be used only to
reimburse the Firm for its net postretirement benefit claim
payments and related administrative expense. The U.K.
OPEB plan is unfunded.
The following table presents the changes in benefit obligations, plan assets and funded status amounts reported on the
Consolidated balance sheets for the Firm's U.S. and non-U.S. defined benefit pension and OPEB plans.
As of or for the year ended December 31,
(in millions)
Change in benefit obligation
Benefit obligation, beginning of year
Benefits earned during the year
Employees begin to receive matching contributions after
completing a one-year-of-service requirement. Employees
with total annual cash compensation of $250,000 or more
are not eligible for matching contributions. Matching
contributions vest after three years of service. The 401(k)
Savings Plan also permits discretionary profit-sharing
contributions by participating companies for certain
employees, subject to a specified vesting schedule.
Interest cost on benefit obligations
Special termination benefits
Curtailments
Employee contributions
Net gain/(loss)
Benefits paid
Expected Medicare Part D subsidy receipts
Foreign exchange impact and other
Benefit obligation, end of year
Change in plan assets
Fair value of plan assets, beginning of year
Plan amendments
Actual return on plan assets
Notes to consolidated financial statements
JPMorgan Chase & Co./2015 Annual Report
405
478
7,897 $ 9,350
Net interest income
Provision for credit losses
Net interest income after
provision for credit losses
$ 43,510 $ 43,634 $ 43,319
3,827
3,139
225
$ 39,683 $ 40,495 $ 43,094
(a) Represents securities which are tax exempt for U.S. federal income tax
purposes.
223
(b) Negative interest income for the years ended December 31, 2015,
2014 and 2013, is a result of increased client-driven demand for
certain securities combined with the impact of low interest rates; this
is matched book activity and the negative interest expense on the
corresponding securities loaned is recognized in interest expense.
(c) Largely margin loans.
Note 9 - Pension and other postretirement
employee benefit plans
The Firm has various defined benefit pension plans and
other postretirement employee benefit ("OPEB") plans that
provide benefits to its employees. These plans are discussed
below.
Defined benefit pension plans
The Firm has a qualified noncontributory U.S. defined
benefit pension plan that provides benefits to substantially
all U.S. employees. The U.S. plan employs a cash balance
formula in the form of pay and interest credits to determine
the benefits to be provided at retirement, based on years of
service and eligible compensation (generally base salary/
regular pay and variable incentive compensation capped at
$100,000 annually). Employees begin to accrue plan
benefits after completing one year of service, and benefits
generally vest after three years of service. The Firm also
offers benefits through defined benefit pension plans to
qualifying employees in certain non-U.S. locations based on
factors such as eligible compensation, age and/or years of
service.
It is the Firm's policy to fund the pension plans in amounts
sufficient to meet the requirements under applicable laws.
The Firm does not anticipate at this time any contribution to
the U.S. defined benefit pension plan in 2016. The 2016
contributions to the non-U.S. defined benefit pension plans
are expected to be $47 million of which $31 million are
contractually required.
JPMorgan Chase also has a number of defined benefit
pension plans that are not subject to Title IV of the
Employee Retirement Income Security Act. The most
significant of these plans is the Excess Retirement Plan,
pursuant to which certain employees previously earned pay
credits on compensation amounts above the maximum
stipulated by law under a qualified plan; no further pay
credits are allocated under this plan. The Excess Retirement
Plan had an unfunded projected benefit obligation ("PBO")
in the amount of $237 million and $257 million, at
December 31, 2015 and 2014, respectively.
Defined contribution plans
JPMorgan Chase currently provides two qualified defined
contribution plans in the U.S. and other similar
arrangements in certain non-U.S. locations, all of which are
administered in accordance with applicable local laws and
regulations. The most significant of these plans is the
JPMorgan Chase 401(k) Savings Plan (the “401(k) Savings
Plan"), which covers substantially all U.S. employees.
Employees can contribute to the 401(k) Savings Plan on a
pretax and/or Roth 401(k) after-tax basis. The JPMorgan
Chase Common Stock Fund, which is an investment option
under the 401(k) Savings Plan, is a nonleveraged employee
stock ownership plan.
The Firm matches eligible employee contributions up to 5%
of eligible compensation (generally base salary/regular pay
and variable incentive compensation) on an annual basis.
(d) Includes brokerage customer payables.
Firm contributions
Employee contributions
Benefits paid
ΝΑ
(7)
(7)
(25)
(62)
702
(1,669)
146
(408)
71
NA
(58)
777
120
119
88
145
NA
ΝΑ
ΝΑ
ΝΑ
(6)
760
(3)
(1)
(1)
Foreign exchange impact and other
Defined benefit pension plans
U.S.
Non-U.S.
2015
2014
2015
2014
OPEB plans (d)
2015
2014
$ (12,536)
(340)
$(10,776)
(281)
$ (3,640) $ (3,433) $ (842) $ (826)
(37)
(33)
(1)
(498)
(534)
(112)
(137)
(31)
(38)
(53)
$ 34
1,708 $
5.00
Derivative payables
154
$
1,749 $
$
Total OPEB plans
COLI
OPEB plans
$
351
$
5
(91) $
(2) $
$
441
$
(2) $
$
$
1.903
net
Purchases, sales
and settlements,
Unrealized
gains/(losses)
Realized
gains/(losses)
Fair value,
January 1,
2013
(in millions)
Year ended December 31, 2013
Actual return on plan assets
1,903
$
$
$
154
$
$
1,749
$
Total U.S. defined benefit pension plans
337
(93)
430
net
Purchases, sales
and settlements,
Unrealized
gains/(losses)
Realized
gains/(losses)
January 1,
2014
Fair value,
Actual return on plan assets
1,855
1,855
(48) $ $ - $ - $ 1,
(48) $
$
$
$
1,903 $
$
Total OPEB plans
$
1,903 $
$
COLI
Transfers in
and/or out
of level 3
Transfers in
and/or out
of level 3
Fair value,
December 31,
Year ended December 31, 2014
Other
1
9
(2)
1
4
Mortgage-backed securities
2
(2)
7
Corporate debt securities
4
4 $ - $ - $ - $ - $
$
Equities
U.S. defined benefit pension plans
(in millions)
2014
OPEB plans
Fair value,
December 31,
U.S. defined benefit pension plans
798
1
$
68
$
107
$
110
762
Medicare Part D
subsidy
OPEB before Medicare
Part D subsidy
Non-U.S. defined
benefit pension plans
pension plans
U.S. defined benefit
230
Years 2021-2025
$
66
1
927
3,430
JPMorgan Chase & Co./2015 Annual Report
4
259
722
4,409
1
59
129
1,009
1
61
123
966
1
63
119
2020
2019
2018
2017
$
430
10 $
$
425 $
$
Total U.S. defined benefit pension plans
10
420
Other
Mortgage-backed securities
4 $ - $ - $ - $ - $
1.-6;
7
4
Corporate debt securities
$
Equities
441
2013
OPEB plans
Total OPEB plans
2016
(in millions)
Year ended December 31,
The following table presents benefit payments expected to be paid, which include the effect of expected future service, for the
years indicated. The OPEB medical and life insurance payments are net of expected retiree contributions.
Estimated future benefit payments
1,749
$
-
$
195 ; - $ - $ 1,749
$
$
195
$
1,554 $
$
$
1,554 $
$
COLI
539
6 $
$
9
1,454
70
70
112
112
345
1,463
1,188
1,019
5,310
4
20
5,286
345
129
$
169
724
724
U.S. federal, state, local and non-U.S. government debt
securities
2,031
Other(d)
Derivative receivables
79
77
2
75
1
73
1
Mortgage-backed securities
775
540
235
607
161
446
1
$
128
$
(153) $ (153)
$
$
(35) (f)
$
-
(35) $
$
$
Total liabilities measured at fair value
(153)
(153) $
$
$ (35) $
(35) $
$
$
December 31, 2014
114
27
(in millions)
Equity securities
87
$
$
87 $
$
value
Level 1
Total fair
Total fair
value
Level 3
Level 2
Level 1
Non-U.S. defined benefit pension plans (g)
U.S. defined benefit pension plans
Corporate debt securities (c)
Limited partnerships(b)
Common/collective trust funds (a)
Cash and cash equivalents
114
Level 2
258
$
4 $
$
Equities
U.S. defined benefit pension plans
2015
Fair value,
December 31,
and/or out
of level 3
Transfers in
Purchases, sales
and settlements,
net
Unrealized
gains/(losses)
Realized
gains/(losses)
Fair value,
January 1,
2015
Actual return on plan assets
Changes in level 3 fair value measurements using significant unobservable inputs
Notes to consolidated financial statements
(in millions)
(2) $
Year ended December 31, 2015
$
2
(7) $
258
$
195
$
$
351
$
Total U.S. defined benefit pension plans
- 534
197
337
Other
1
1
Mortgage-backed securities
9 (7) 2
$
229
Corporate debt securities
The Firm's U.S. OPEB plan was partially funded with COLI policies of $1.9 billion at both December 31, 2015 and 2014, which
were classified in level 3 of the valuation hierarchy.
$
$
$
Total liabilities measured at fair value
Derivative payables
3,606
1,827 $
1,779
$
$ 10,466 (e)
$ 8,266 $ 1,849 $ 351
Total assets measured at fair value
341
58
283
337
JPMorgan Chase & Co./2015 Annual Report
2,395
(23) $
$
$
(e) At December 31, 2015 and 2014, excluded U.S. defined benefit pension plan receivables for investments sold and dividends and interest receivables of $74 million
and $106 million, respectively.
(f) At December 31, 2015 and 2014, excluded $106 million and $241 million, respectively, of U.S. defined benefit pension plan payables for investments purchased;
and $17 million and $16 million, respectively, of other liabilities.
(23)
(d) Other consists of money markets funds, exchange-traded funds and participating and non-participating annuity contracts. Money markets funds and exchange-
traded funds are primarily classified within level 1 of the fair value hierarchy given they are valued using market observable prices. Participating and non-
participating annuity contracts are classified within level 3 of the fair value hierarchy due to lack of market mechanisms for transferring each policy and surrender
restrictions.
(b) Unfunded commitments to purchase limited partnership investments for the plans were $895 million and $1.2 billion for 2015 and 2014, respectively.
(c) Corporate debt securities include debt securities of U.S. and non-U.S. corporations.
Note: Effective April 1, 2015, the Firm adopted new accounting guidance for certain investments where the Firm measures fair value using the net asset value per share
(or its equivalent) as a practical expedient and excluded them from the fair value hierarchy. Accordingly, such investments are not included within these tables. At
December 31, 2015 and 2014, the fair values of these investments, which include certain limited partnerships and common/collective trust funds, were $4.1 billion and
$4.3 billion, respectively, of U.S. defined benefit pension plan investments, and $234 million and $251 million, respectively, of non-U.S. defined benefit pension plan
investments. Of these investments $1.3 billion and $3.0 billion, respectively, of U.S. defined benefit pension plan investments had been previously classified in level 2
and level 3, respectively, and $251 million of non-U.S. defined benefit pension plan investments had been previously classified in level 2 at December 31, 2014. The
guidance was required to be applied retrospectively, and accordingly, prior period amounts have been revised to conform with the current period presentation.
(a) At December 31, 2015 and 2014, common/collective trust funds primarily included a mix of short-term investment funds, domestic and international equity
investments (including index) and real estate funds.
$
$
(23) (f)
(139) $ (139)
$
$
$
(139) $
(139)
(g) There were zero assets or liabilities classified as level 3 for the non-U.S. defined benefit pension plans as of December 31, 2015 and 2014.
$
(23) $
Newly credit-impaired securities
(20)
$ (4) $ (21)
(2)
(a) Excludes realized losses on securities sold of $5 million, $3 million and $12
million for the years ended December 31, 2015, 2014 and 2013,
respectively that had been previously reported as an OTTI loss due to the
intention to sell the securities.
Changes in the credit loss component of credit-impaired
debt securities
The following table presents a rollforward for the years
ended December 31, 2015, 2014 and 2013, of the credit
loss component of OTTI losses that have been recognized in
income, related to AFS debt securities that the Firm does
not intend to sell.
Year ended December 31, (in millions)
Balance, beginning of period
Additions:
$
(22)
1
Reductions:
Sales and redemptions of credit-
impaired securities
Balance, end of period
$
2015
3 $
2014
2013
2
(21)
1 $ 522
Losses reclassified from other
comprehensive income on previously
credit-impaired securities
(1)
$ 351
(1)
The following table presents realized gains and losses and
OTTI from AFS securities that were recognized in income.
Securities gains and losses
1
Year ended December 31,
(in millions)
Realized gains
Realized losses
OTTI losses
2015
2014
$ 314
2013
$ 1,302
(127)
(233)
(614)
(22)
(4)
(21)
202
77
667
Net securities gains
OTTI losses
Credit losses recognized in income
Securities the Firm intends to sell(a)
Total OTTI losses recognized in
income
(2)
(522)
10,069 $
4 $
$
103,980
105,582
1.48%
1.86%
3.15%
3.08%
2.93%
Amortized cost
U.S. Treasury and government agencies (a)
Fair value
85,275
86,519
1,133
11,202
9,932
1,104
11,036
Average yield (b)
-%
-%
0.31%
For equity securities, OTTI losses are recognized in earnings
if the Firm intends to sell the security. In other cases the
Firm considers the relevant factors noted above, as well as
the Firm's intent and ability to retain its investment for a
period of time sufficient to allow for any anticipated
recovery in market value, and whether evidence exists to
support a realizable value equal to or greater than the cost
basis. Any impairment loss on an equity security is equal to
the full difference between the cost basis and the fair value
of the security.
0.48%
$
$
6,756
9,728 $
9,886
3 $
1
236
JPMorgan Chase & Co./2015 Annual Report
Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at December 31, 2015, of JPMorgan Chase's
investment securities portfolio by contractual maturity.
By remaining maturity
December 31, 2015
(in millions)
Available-for-sale debt securities
6,562 $
Mortgage-backed securities (a)
Due after one
year through
five years
Due after five years
through 10 years
Due after
10 years(c)
Total
Amortized cost
$
Fair value
Average yield (b)
2,415
2.421
$
Due in one
year or less
against the level of credit enhancement in the securitization
structure to determine whether these features are sufficient
to absorb the pool losses, or whether a credit loss exists.
The Firm also performs other analyses to support its cash
flow projections, such as first-loss analyses or stress
scenarios.
The total fair value of RSUs that vested during the years ended December 31, 2015, 2014 and 2013, was $2.8 billion, $3.2
billion and $2.9 billion, respectively. The weighted-average grant date per share fair value of stock options and SARS granted
during the year ended December 31, 2013, was $9.58. The total intrinsic value of options exercised during the years ended
December 31, 2015, 2014 and 2013, was $335 million, $539 million and $507 million, respectively.
For AFS debt securities, the Firm recognizes OTTI losses in
earnings if the Firm has the intent to sell the debt security,
or if it is more likely than not that the Firm will be required
to sell the debt security before recovery of its amortized
cost basis. In these circumstances the impairment loss is
equal to the full difference between the amortized cost
basis and the fair value of the securities. For debt securities
in an unrealized loss position that the Firm has the intent
and ability to hold, the expected cash flows to be received
from the securities are evaluated to determine if a credit
loss exists. In the event of a credit loss, only the amount of
impairment associated with the credit loss is recognized in
income. Amounts relating to factors other than credit losses
are recorded in OCI.
43.85
43.51
43,466 $
31,853
ΝΑ
54.60
85,307 $
ΝΑ
Exercisable, December 31
Outstanding, December 31
278.93
(580)
4.6 $1,109,411
ΝΑ
43.04
(943)
40.44
(14,313)
41.64
54.17
(3,648)
Canceled
Forfeited
(47,709)
Exercised or vested
ΝΑ
64.41
4.0
$ 166
42
0.33%
104
64
63
$
20
$
2013
2014
2015
832,929
Year ended December 31, (in millions)
Cash received for options exercised
Tax benefit realized(a)
$ 1,440
$ 1,371
$ 1,109
2013
2014
2015
Year ended December 31, (in millions)
Cost of prior grants of RSUs and SARS
that are amortized over their
applicable vesting periods
The following table sets forth the cash received from the
exercise of stock options under all stock-based incentive
arrangements, and the actual income tax benefit realized
related to tax deductions from the exercise of the stock
options.
The Firm recognized the following noncash compensation
expense related to its various employee stock-based
incentive plans in its Consolidated statements of income.
Compensation expense
Accrual of estimated costs of stock-
based awards to be granted in future
periods including those to full-career
eligible employees
107
56.31
36,096
In January 2008, the Firm awarded to its Chairman and
Chief Executive Officer up to 2 million SARS. The terms of
this award are distinct from, and more restrictive than,
other equity grants regularly awarded by the Firm. On July
15, 2014, the Compensation & Management Development
Committee and Board of Directors determined that all
requirements for the vesting of the 2 million SAR awards
had been met and thus, the awards became exercisable. The
SARS, which will expire in January 2018, have an exercise
price of $39.83 (the price of JPMorgan Chase common
stock on the date of grant). The expense related to this
award was dependent on changes in fair value of the SARS
through July 15, 2014 (the date when the vested number of
SARS were determined), and the cumulative expense was
recognized ratably over the service period, which was
initially assumed to be five years but, effective in the first
quarter of 2013, had been extended to six and one-half
years. The Firm recognized $3 million and $14 million in
compensation expense in 2014 and 2013, respectively, for
this award.
The Firm's policy for issuing shares upon settlement of
employee stock-based incentive awards is to issue either
new shares of common stock or treasury shares. During
2015, 2014 and 2013, the Firm settled all of its employee
stock-based awards by issuing treasury shares.
The Firm separately recognizes compensation expense for
each tranche of each award as if it were a separate award
with its own vesting date. Generally, for each tranche
granted, compensation expense is recognized on a straight-
line basis from the grant date until the vesting date of the
respective tranche, provided that the employees will not
become full-career eligible during the vesting period. For
awards with full-career eligibility provisions and awards
granted with no future substantive service requirement, the
Firm accrues the estimated value of awards expected to be
awarded to employees as of the grant date without giving
consideration to the impact of post-employment
restrictions. For each tranche granted to employees who
will become full-career eligible during the vesting period,
compensation expense is recognized on a straight-line basis
from the grant date until the earlier of the employee's full-
career eligibility date or the vesting date of the respective
tranche.
Restricted stock units ("RSUS”) are awarded at no cost to
the recipient upon their grant. Generally, RSUs are granted
annually and vest at a rate of 50% after two years and
50% after three years and are converted into shares of
common stock as of the vesting date. In addition, RSUs
typically include full-career eligibility provisions, which
allow employees to continue to vest upon voluntary
termination, subject to post-employment and other
restrictions based on age or service-related requirements.
All RSUs awards are subject to forfeiture until vested and
contain clawback provisions that may result in cancellation
under certain specified circumstances. RSUs entitle the
recipient to receive cash payments equivalent to any
dividends paid on the underlying common stock during the
period the RSUs are outstanding and, as such, are
considered participating securities as discussed in Note 24.
Under the LTI Plans, stock options and stock appreciation
rights ("SARS") have generally been granted with an
exercise price equal to the fair value of JPMorgan Chase's
common stock on the grant date. The Firm periodically
grants employee stock options to individual employees.
There were no material grants of stock options or SARS
in 2015 and 2014. Grants of SARS in 2013 become
exercisable ratably over five years (i.e., 20% per year) and
contain clawback provisions similar to RSUs. The 2013
grants of SARS contain full-career eligibility provisions.
SARS generally expire ten years after the grant date.
In 2015, 2014 and 2013, JPMorgan Chase granted long-
term stock-based awards to certain employees under its
Long-Term Incentive Plan, as amended and restated
effective May 19, 2015 (“LTIP”). Under the terms of the
LTIP, as of December 31, 2015, 93 million shares of
common stock were available for issuance through
May 2019. The LTIP is the only active plan under which the
Firm is currently granting stock-based incentive awards. In
the following discussion, the LTIP, plus prior Firm plans and
plans assumed as the result of acquisitions, are referred to
collectively as the “LTI Plans,” and such plans constitute the
Firm's stock-based incentive plans.
Employee stock-based awards
Held-to-maturity securities
Total securities with gross unrealized losses $
41,720 $
173
JPMorgan Chase & Co./2015 Annual Report
$ 15,614 $
57,334 $
387
JPMorgan Chase & Co./2015 Annual Report
235
Notes to consolidated financial statements
Gross unrealized losses
The Firm has recognized the unrealized losses on securities
it intends to sell. As of December 31, 2015, the Firm does
not intend to sell any securities with a loss position in AOCI,
and it is not likely that the Firm will be required to sell these
securities before recovery of their amortized cost basis.
Except for the securities for which credit losses have been
recognized in income, the Firm believes that the securities
with an unrealized loss in AOCI are not other-than-
temporarily impaired as of December 31, 2015.
Other-than-temporary impairment
AFS debt and equity securities and HTM debt securities in
unrealized loss positions are analyzed as part of the Firm's
ongoing assessment of other-than-temporary impairment
("OTTI"). For most types of debt securities, the Firm
considers a decline in fair value to be other-than-temporary
when the Firm does not expect to recover the entire
amortized cost basis of the security. For beneficial interests
in securitizations that are rated below "AA" at their
acquisition, or that can be contractually prepaid or
otherwise settled in such a way that the Firm would not
recover substantially all of its recorded investment, the Firm
considers an impairment to be other than temporary when
there is an adverse change in expected cash flows. For AFS
equity securities, the Firm considers a decline in fair value
to be other-than-temporary if it is probable that the Firm
will not recover its cost basis.
Potential OTTI is considered using a variety of factors,
including the length of time and extent to which the market
value has been less than cost; adverse conditions
specifically related to the industry, geographic area or
financial condition of the issuer or underlying collateral of a
security; payment structure of the security; changes to the
rating of the security by a rating agency; the volatility of the
fair value changes; and the Firm's intent and ability to hold
the security until recovery.
214 $
231
Notes to consolidated financial statements
RSUs, employee stock options and SARS activity
Granted
45.00
59,195 $
47.81
Outstanding, January 1
value
intrinsic
Aggregate
remaining
contractual life
(in years)
price
awards
exercise
Number of
average
Weighted-
average grant
date fair value
Number of
shares
(in thousands, except weighted-average data, and
where otherwise stated)
Weighted-average
Weighted-
Year ended December 31, 2015
Options/SARS
RSUS
Compensation expense for RSUs is measured based on the number of shares granted multiplied by the stock price at the grant
date, and for employee stock options and SARS, is measured at the grant date using the Black-Scholes valuation model.
Compensation expense for these awards is recognized in net income as described previously. The following table summarizes
JPMorgan Chase's RSUs, employee stock options and SARS activity for 2015.
The Firm's cash flow evaluations take into account the
factors noted above and expectations of relevant market
and economic data as of the end of the reporting period.
For securities issued in a securitization, the Firm estimates
cash flows considering underlying loan-level data and
structural features of the securitization, such as
subordination, excess spread, overcollateralization or other
forms of credit enhancement, and compares the losses
projected for the underlying collateral ("pool losses")
Obligations of U.S. states and municipalities
$
$
2,067
$
2,067
2,087
2,087
-%
0.30%
0.30%
Total available-for-sale securities
Amortized cost
$
$
11,755 $
12,077
29,328
29,769
$
57,612 $
57,803
138,763 $
237,458
142,105
241,754
Average yield(b)
2.85%
Fair value
2.00%
$
$
11,755 $
29,328
$
12,077
29,769
57,612
57,803
$
136,696 $
235,391
140,018
-%
239,667
2.00%
1.63%
3.61%
2.89%
Available-for-sale equity securities
Amortized cost
$
Fair value
Average yield (b)
-%
2.85%
1.63%
3.56%
2.87%
In resale agreements and securities borrowed transactions,
the Firm is exposed to credit risk to the extent that the
value of the securities received is less than initial cash
principal advanced and any collateral amounts exchanged.
In repurchase agreements and securities loaned
transactions, credit risk exposure arises to the extent that
the value of underlying securities exceeds the value of the
initial cash principal advanced, and any collateral amounts
exchanged.
Additionally, the Firm typically enters into master netting
agreements and other similar arrangements with its
counterparties, which provide for the right to liquidate the
underlying securities and any collateral amounts exchanged
in the event of a counterparty default. It is also the Firm's
policy to take possession, where possible, of the securities
underlying resale agreements and securities borrowed
transactions. For further information regarding assets
pledged and collateral received in securities financing
agreements, see Note 30.
As a result of the Firm's credit risk mitigation practices with
respect to resale and securities borrowed agreements as
described above, the Firm did not hold any reserves for
credit impairment with respect to these agreements as of
December 31, 2015 and 2014.
Certain prior period amounts for securities purchased under
resale agreements and securities borrowed, as well as
securities sold under repurchase agreements and securities
loaned, have been revised to conform with the current
period presentation. These revisions had no impact on the
Firm's Consolidated balance sheets or its results of
operations.
238
JPMorgan Chase & Co./2015 Annual Report
The following table presents as of December 31, 2015 and 2014, the gross and net securities purchased under resale
agreements and securities borrowed. Securities purchased under resale agreements have been presented on the Consolidated
balance sheets net of securities sold under repurchase agreements where the Firm has obtained an appropriate legal opinion
with respect to the master netting agreement, and where the other relevant criteria have been met. Where such a legal opinion
has not been either sought or obtained, the securities purchased under resale agreements are not eligible for netting and are
shown separately in the table below. Securities borrowed are presented on a gross basis on the Consolidated balance sheets.
December 31, (in millions)
2015
Amounts
netted on the
Consolidated
Gross asset
balance
The Firm has elected the fair value option for certain
securities financing agreements. For further information
regarding the fair value option, see Note 4. The securities
financing agreements for which the fair value option has
been elected are reported within securities purchased
under resale agreements, securities loaned or sold under
repurchase agreements, and securities borrowed on the
Consolidated balance sheets. Generally, for agreements
carried at fair value, current-period interest accruals are
recorded within interest income and interest expense, with
changes in fair value reported in principal transactions
revenue. However, for financial instruments containing
embedded derivatives that would be separately accounted
for in accordance with accounting guidance for hybrid
instruments, all changes in fair value, including any interest
elements, are reported in principal transactions revenue.
Secured financing transactions expose the Firm to credit
and liquidity risk. To manage these risks, the Firm monitors
the value of the underlying securities (predominantly high-
quality securities collateral, including government-issued
debt and agency MBS) that it has received from or provided
to its counterparties compared to the value of cash
proceeds and exchanged collateral, and either requests
additional collateral or returns securities or collateral when
appropriate. Margin levels are initially established based
upon the counterparty, the type of underlying securities,
and the permissible collateral, and are monitored on an
ongoing basis.
balance
sheets
Amounts
netted on the
Consolidated
Net asset
balance
Gross asset
balance
balance
sheets
Net asset
balance
Securities purchased under resale agreements
Securities purchased under resale agreements with
an appropriate legal opinion
$
2014
collateralized financings on the Firm's Consolidated balance
sheets. Resale and repurchase agreements are generally
carried at the amounts at which the securities will be
subsequently sold or repurchased. Securities borrowed and
securities loaned transactions are generally carried at the
amount of cash collateral advanced or received. Where
appropriate under applicable accounting guidance, resale
and repurchase agreements with the same counterparty are
reported on a net basis. For further discussion of the
offsetting of assets and liabilities, see Note 1. Fees received
and paid in connection with securities financing agreements
are recorded in interest income and interest expense on the
Consolidated statements of income.
Securities financing agreements are treated as
Note 13 - Securities financing activities
JPMorgan Chase enters into resale agreements, repurchase
agreements, securities borrowed transactions and securities
loaned transactions (collectively, “securities financing
agreements") primarily to finance the Firm's inventory
positions, acquire securities to cover short positions,
accommodate customers' financing needs, and settle other
securities obligations.
Total held-to-maturity securities
Amortized cost
Fair value
Average yield (b)
878
51 $
50
4.42%
-%
$
931
$
976
48,091 $
49,561
49,073
5.01%
3.98%
(a) U.S.government-sponsored enterprises were the only issuers whose securities exceeded 10% of JPMorgan Chase's total stockholders' equity at
December 31, 2015.
50,587
4.00%
(b) Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each
security. The effective yield considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging
derivatives. Taxable-equivalent amounts are used where applicable. The effective yield excludes unscheduled principal prepayments; and accordingly,
actual maturities of securities may differ from their contractual or expected maturities as certain securities may be prepaid.
(c) Includes securities with no stated maturity. Substantially all of the Firm's residential mortgage-backed securities and collateralized mortgage obligations
are due in 10 years or more, based on contractual maturity. The estimated weighted-average life, which reflects anticipated future prepayments, is
approximately five years for agency residential mortgage-backed securities, two years for agency residential collateralized mortgage obligations and four
years for nonagency residential collateralized mortgage obligations.
JPMorgan Chase & Co./2015 Annual Report
237
Notes to consolidated financial statements
Average yield (b)
Amortized cost
Fair value
Total available-for-sale debt securities
282
Fair value
231
52
283
Average yield (b)
8.66%
3.28%
-%
-%
- $ - $
7.68%
Amortized cost
$
6,126 $
11,177
$
Fair value
6,422
11,429
16,575 $
16,747
1,986 $
Non-U.S. government debt securities
35,864
52 $
$
184
$
754
$
1,520
$
28,870
$
31,328
Fair value
230 $
187
1,600
Average yield (b)
Certificates of deposit
5.21%
3.50%
5.57%
30,989
6.68%
33,550
6.54%
Amortized cost
774
2,078
36,676
Average yield (b)
2.61%
$
39
$
442
$
20,501
$
19,289 $
40,271
4.46%
40
0.71%
1.72%
20,421
1.79%
19,194
40,104
1.84%
1.81%
Amortized cost
Fair value
Average yield (b)
449
3.09%
2.32%
2.87%
3.11%
1.84%
1.06%
0.67%
1.63%
Corporate debt securities
Amortized cost
Fair value
Average yield (b)
Asset-backed securities
$
2,761
2,776
$
7,175 $
2,385
$
143
$
12,464
7,179
2,347
134
12,436
Amortized cost
819
30,194
Total noncash compensation expense
related to employee stock-based
incentive plans
23
ཀླ ་ ཝ Ş
14
4,046
45
848
3,634
15
367
26
170
225
3,198
3,267
Corporate debt securities
Non-U.S. government debt securities
-
Certificates of deposit
1,881
5
166
10,998
125
G I
Asset-backed securities:
Other
Held-to-maturity securities
-
1,110
87,589
251
14,877
859
72,712
100
5,289
Collateralized loan obligations
40
60
4,284
191
26,032
124
10,692
67
15,340
Available-for-sale equity securities
Total available-for-sale debt securities
1,005
Total securities with gross unrealized losses $
205
1,676
-
Non-U.S.
Subprime
57
5,385
6
238
51
5,147
106
-
13,699 $
697 $
$
95
13,002 $
$
Prime and Alt-A
Residential:
U.S. government agencies
Total gross
unrealized losses
Total fair
value
11 $
18
-
12
Obligations of U.S. states and municipalities
166
10,998
U.S. Treasury and government agencies
419
35,709
22
1,760
397
33,949
2,021
Total mortgage-backed securities
14,437
4
658
239
13,779
Commercial
13
2,188
1
167
243
3,763
76,475 $
46
905
2,492
Corporate debt securities
21
5,339
17
906
4
4,433
Non-U.S. government debt securities
1
22
1,050
1,050
Certificates of deposit
16
1,535
1
130
15
1,405
Obligations of U.S. states and municipalities
14
1
8,412
80
2,572
365,805 $ (156,258) $
387
57,334
214
15,614
173
41,720
Total available-for-sale debt securities
11
2,258
2
11
Other
182
22,921
106
9,012
76
13,909
Collateralized loan obligations
Asset-backed securities:
24
2,258
14
8,412
U.S. Treasury and government agencies
$
Total gross
unrealized losses
Total fair
value
Gross unrealized
losses
Fair value
Gross unrealized
losses
Fair value
12 months or more
Less than 12 months
Securities with gross unrealized losses
1,118 $
46
1,156
251 $
Non-U.S.
Subprime
Prime and Alt-A
U.S. government agencies
Residential:
Mortgage-backed securities:
Available-for-sale debt securities
December 31, 2014 (in millions)
14,877 $
$
3,763
91,352 $
5
$
4,989 $
118
13,247
88
5,486
30
7,761
Total mortgage-backed securities
17
4,895
2
92
15
4,803
Commercial
29
2,245
19
405
10
1,840
72
6,107 $
67 $
Gross unrealized
losses
Fair value
Gross unrealized
losses
Fair value
Subprime
5,644
29
78
5,595
7,445
57
40
7,462
Prime and Alt-A
210
Residential:
72
Available-for-sale equity securities
2,302 $
$ 55,066 $ 63,089 $
106
1,483 $
$ 53,689 $
U.S. government agencies (a)
Mortgage-backed securities:
Fair
value
$ 65,319
Gross
unrealized
losses
7
217
Total mortgage-backed securities
21,108
17
438
20,687
22,897
243
150
22,990
Commercial
-
44,560
1,010
43,550
19,957
13
341
19,629
Non-U.S.
691
14
677
-
Amortized unrealized
cost
gains
Fair
value
Gross
For details on noninterest expense, see Consolidated
statements of income on page 176. Included within other
expense is the following:
Note 11 - Noninterest expense
JPMorgan Chase & Co./2015 Annual Report
232
The expected dividend yield is determined using forward-
looking assumptions. The expected volatility assumption is
derived from the implied volatility of JPMorgan Chase's
stock options. The expected life assumption is an estimate
of the length of time that an employee might hold an option
or SAR before it is exercised or canceled, and the
assumption is based on the Firm's historical experience.
6.6
28
2.66
1.18%
2013
Year ended December 31,
Expected common stock price volatility
Expected life (in years)
Risk-free interest rate
Weighted-average annualized valuation assumptions
Year ended December 31,
The following table presents the assumptions used to value
employee stock options and SARS granted during the year
ended December 31, 2013, under the Black-Scholes
valuation model. There were no material grants of stock
options or SARS for the years ended December 31, 2015
and 2014.
Valuation assumptions
(a) The tax benefit realized from dividends or dividend equivalents paid on equity-
classified share-based payment awards that are charged to retained earnings are
recorded as an increase to additional paid-in capital and included in the pool of excess
tax benefits available to absorb tax deficiencies on share-based payment awards.
Income tax benefits related to stock-based incentive
arrangements recognized in the Firm's Consolidated
statements of income for the years ended December 31,
2015, 2014 and 2013, were $746 million, $854 million
and $865 million, respectively.
Cash flows and tax benefits
At December 31, 2015, approximately $688 million
(pretax) of compensation expense related to unvested
awards had not yet been charged to net income. That cost is
expected to be amortized into compensation expense over a
weighted-average period of 0.9 years. The Firm does not
capitalize any compensation expense related to share-based
compensation awards to employees.
$1,987 $ 2,190 $ 2,219
Expected dividend yield
(in millions)
Legal expense
Federal Deposit Insurance
Gross
unrealized
losses
gains
Amortized unrealized
cost
Gross
2014
2015
December 31, (in millions)
Available-for-sale debt securities
The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
Notes to consolidated financial statements
233
JPMorgan Chase & Co./2015 Annual Report
Securities are classified as trading, AFS or held-to-maturity
("HTM"). Securities classified as trading assets are
discussed in Note 3. Predominantly all of the Firm's AFS and
HTM investment securities (the "investment securities
portfolio") are held by Treasury and CIO in connection with
its asset-liability management objectives. At December 31,
2015, the investment securities portfolio consisted of debt
securities with an average credit rating of AA+ (based upon
external ratings where available, and where not available,
based primarily upon internal ratings which correspond to
ratings as defined by S&P and Moody's). AFS securities are
carried at fair value on the Consolidated balance sheets.
Unrealized gains and losses, after any applicable hedge
accounting adjustments, are reported as net increases or
decreases to accumulated other comprehensive income/
(loss). The specific identification method is used to
determine realized gains and losses on AFS securities,
which are included in securities gains/(losses) on the
Consolidated statements of income. HTM debt securities,
which management has the intent and ability to hold until
maturity, are carried at amortized cost on the Consolidated
balance sheets. For both AFS and HTM debt securities,
purchase discounts or premiums are generally amortized
into interest income over the contractual life of the security.
During 2014, the Firm transferred U.S. government agency
mortgage-backed securities and obligations of U.S. states
and municipalities with a fair value of $19.3 billion from
AFS to HTM. These securities were transferred at fair value,
and the transfer was a non-cash transaction. AOCI included
net pretax unrealized losses of $9 million on the securities
at the date of transfer. The transfer reflected the Firm's
intent to hold the securities to maturity in order to reduce
the impact of price volatility on AOCI and certain capital
measures under Basel III.
Note 12 - Securities
1,496
1,037
1,227
2,969 $ 2,883 $ 11,143
2013
2014
2015
$
expense
Corporation-related ("FDIC")
103,980
779
2,021
105,582
296,222
387
8,143
288,466
239,667
1,110
5,386
235,391
Total available-for-sale debt securities
12,615
Available-for-sale equity securities
11
12,442
9,097
100
72
9,125
Other
182
147
30,229
31,007
184
191
Total available-for-sale securities
Total held-to-maturity securities (b)
20
December 31, 2015 (in millions)
Available-for-sale debt securities
Mortgage-backed securities:
12 months or more
Less than 12 months
Securities with gross unrealized losses
The following tables present the fair value and gross unrealized losses for the investment securities portfolio by aging category
at December 31, 2015 and 2014.
Securities impairment
JPMorgan Chase & Co./2015 Annual Report
234
(b) As of December 31, 2015, consists of mortgage backed securities ("MBS") issued by U.S. government-sponsored enterprises with an amortized cost of $30.8 billion,
MBS issued by U.S. government agencies with an amortized cost of $5.5 billion and obligations of U.S. states and municipalities with an amortized cost of $12.8
billion. As of December 31, 2014, consists of MBS issued by U.S. government-sponsored enterprises with an amortized cost of $35.3 billion, MBS issued by U.S.
government agencies with an amortized cost of $3.7 billion and obligations of U.S. states and municipalities with an amortized cost of $10.2 billion.
(a) Includes total U.S. government-sponsored enterprise obligations with fair values of $42.3 billion and $59.3 billion at December 31, 2015 and 2014, respectively,
which were predominantly mortgage-related.
2,067
237,458
$ 49,073 $
$ 51,154
298,752
387
8,160
2,530
17
2,513
290,979
$ 49,252 $
$ 50,587
2,087
241,754
1,110
46
5,406
1,560 $
1,902 $
52
31,146
Collateralized loan obligations
Certificates of deposit
30,068
16
2,243
27,841
33,550
23
2,245
31,328
Obligations of U.S. states and municipalities
282
13,645
56
13,603
11,036
166
11,202
U.S. Treasury and government agencies (a)
137,322
118
3,842
133,598
14
1
-
283
18,532
24
398
18,158
12,436
170
142
12,464
Asset-backed securities:
Corporate debt securities
52,743
21
1,272
51,492
36,676
41
853
35,864
Non-U.S. government debt securities
1,103
1
1
1,103
419
209,547
100,568 $
347,142 $ (142,719) $
Financial
instruments (b)
Net liability
balance
December 31, (in millions)
Amounts not nettable on
the Consolidated balance
sheets(a)
2014
Amounts not nettable on
the Consolidated balance
sheets(a)
2015
The following table presents information as of December 31, 2015 and 2014, regarding the securities sold under repurchase
agreements and securities loaned for which an appropriate legal opinion has been obtained with respect to the master netting
agreement. The below table excludes information related to repurchase agreements and securities loaned where such a legal
opinion has not been either sought or obtained.
(e) Included $45 million and $271 million at December 31, 2015 and 2014, respectively, of securities loaned where an appropriate legal opinion has not
been either sought or obtained with respect to the master netting agreement.
(d) There were no securities loaned accounted for at fair value at December 31, 2015 and 2014, respectively.
(a) Includes repurchase agreements that are not subject to a master netting agreement but do provide rights to collateral.
(b) Included securities-for-securities lending transactions of $4.4 billion and $4.1 billion at December 31, 2015 and 2014, respectively, accounted for at fair
value, where the Firm is acting as lender. These amounts are presented within other liabilities in the Consolidated balance sheets.
(c) At December 31, 2015 and 2014, included securities sold under repurchase agreements of $3.5 billion and $3.0 billion, respectively, accounted for at fair
value.
25,927 (d)(e)
Cash
collateral
NA $
21,996
$ 312,525
21,996
12,629
133,786
22,556 (d)(e) $ 25,927
NA $
(c)
$ 290,044 $ (156,258) $
$ 22,556
12,629
$ (142,719) $ 147,810
$ 290,529
$ 277,415 $ (156,258) $ 121,157
Total securities sold under repurchase agreements
Securities loaned (b)
$ (142,719) $ 169,806 (c)
Securities sold under repurchase agreements where
an appropriate legal opinion has not been either
sought or obtained(a)
Net amount(c)
Financial
instruments(b)
$
-
JPMorgan Chase & Co./2015 Annual Report
240
(c) Net amount represents exposure of counterparties to the Firm.
(b) Includes financial instrument collateral transferred, reverse repurchase assets and securities borrowed assets with an appropriate legal opinion with
respect to the master netting agreement; these amounts are not presented net on the Consolidated balance sheets because other U.S. GAAP netting
criteria are not met.
(a) For some counterparties the sum of the financial instruments and cash collateral not nettable on the Consolidated balance sheets may exceed the net
liability balance. Where this is the case the total amounts reported in these two columns are limited to the balance of the net repurchase agreement or
securities loaned liability with that counterparty.
369
$
-
1,581
$ (497) $
Net liability
balance
$ (145,732)
$ (25,287) $
2,325
266
-
(1,007) $
$
$ (117,825) $
$ (22,245) $
$ 22,511
$ 121,157
Securities loaned
with an appropriate legal
opinion
Net amount(c)
Cash
collateral
repurchase agreements
Securities sold under
$ 147,810
$ 25,656
Securities sold under repurchase agreements with an
appropriate legal opinion
Note 10 Employee stock-based incentives
balance
sheets
Financial
Cash
instruments(b) collateral
Net asset
balance
December 31, (in millions)
Securities purchased under
resale agreements with an
appropriate legal opinion
Securities borrowed
Amounts not nettable on
the Consolidated balance
sheets(a)
2014
Amounts not nettable on
the Consolidated balance
sheets(a)
2015
The following table presents information as of December 31, 2015 and 2014, regarding the securities purchased under resale
agreements and securities borrowed for which an appropriate legal opinion has been obtained with respect to the master
netting agreement. The below table excludes information related to resale agreements and securities borrowed where such a
legal opinion has not been either sought or obtained.
(c) Included $31.3 billion and $35.3 billion at December 31, 2015 and 2014, respectively, of securities borrowed where an appropriate legal opinion has not been
either sought or obtained with respect to the master netting agreement.
(a) At December 31, 2015 and 2014, included securities purchased under resale agreements of $23.1 billion and $28.6 billion, respectively, accounted for at fair value.
(b) At December 31, 2015 and 2014, included securities borrowed of $395 million and $992 million, respectively, accounted for at fair value.
110,435 (b)(c)
(a)
Net exposure
10,598
215,021
10,598
357,740 $
110,435
98,721 (b)(c) $
$
(a)
2,343
211,890
(156,258) $
NA $
98,721
$
2,343
368,148 $
Total securities purchased under resale agreements $
Securities borrowed
Securities purchased under resale agreements where
an appropriate legal opinion has not been either
sought or obtained
Net liability
balance
(142,719) $
NA $
Net asset
balance
204,423
Net exposure
2014
Amounts
netted on the
Consolidated
Gross
liability
balance
Net liability
balance
balance
sheets
Gross
liability
balance
2015
Amounts
netted on the
Consolidated
Financial
Cash
instruments(b) collateral
December 31, (in millions)
The following table presents as of December 31, 2015 and 2014, the gross and net securities sold under repurchase
agreements and securities loaned. Securities sold under repurchase agreements have been presented on the Consolidated
balance sheets net of securities purchased under resale agreements where the Firm has obtained an appropriate legal opinion
with respect to the master netting agreement, and where the other relevant criteria have been met. Where such a legal opinion
has not been either sought or obtained, the securities sold under repurchase agreements are not eligible for netting and are
shown separately in the table below. Securities loaned are presented on a gross basis on the Consolidated balance sheets.
Notes to consolidated financial statements
239
JPMorgan Chase & Co./2015 Annual Report
Securities sold under repurchase agreements
(a) For some counterparties, the sum of the financial instruments and cash collateral not nettable on the Consolidated balance sheets may exceed the net
asset balance. Where this is the case the total amounts reported in these two columns are limited to the balance of the net reverse repurchase agreement
or securities borrowed asset with that counterparty. As a result a net exposure amount is reported even though the Firm, on an aggregate basis for its
securities purchased under resale agreements and securities borrowed, has received securities collateral with a total fair value that is greater than the
funds provided to counterparties.
$ 209,547
(b) Includes financial instrument collateral received, repurchase liabilities and securities loaned liabilities with an appropriate legal opinion with respect to the
master netting agreement; these amounts are not presented net on the Consolidated balance sheets because other U.S. GAAP netting criteria are not met.
$ (206,423) $
$ 67,453
(65,081) $
$
2,773 $ 204,423
2,372 $ 75,113
$ (201,375) $ (246) $
$ (72,730) $
2,802
$
2,383
(351) $
$
82
50
82
77
$
1,313
1,292
37 $ 40
35 $
1,297
53
280
55
Mortgages
Prime, including option ARMS
5,397
Subprime
2,300
6,730
3,444
7,214
217
262
59
46
45
55 $
(in millions)
$
54
249
Notes to consolidated financial statements
The following table presents average impaired loans and the related interest income reported by the Firm.
Average impaired loans
Interest income on impaired
loans on a cash basis (a)
Interest income on
impaired loans (a)
2013
2015
2014
51 $
2013
Year ended December 31,
2015
2014
2014
2013
Home equity
Senior lien
Junior lien
$ 1,077 $
1,122 $
1,151
2015
JPMorgan Chase & Co./2015 Annual Report
211
3,798
209
287
770
58
124
319
Total residential real estate -
excluding PCI
$
668 $ 732 $1,687
250
Prime, including option ARMS
Subprime
JPMorgan Chase & Co./2015 Annual Report
For residential real estate loans, including both non-PCI
and PCI portfolios, the current estimated LTV ratio, or
the combined LTV ratio in the case of junior lien loans, is
an indicator of the potential loss severity in the event of
default. Additionally, LTV or combined LTV can provide
•
insight into a borrower's continued willingness to pay, as
the delinquency rate of high-LTV loans tends to be
greater than that for loans where the borrower has
equity in the collateral. The geographic distribution of
the loan collateral also provides insight as to the credit
quality of the portfolio, as factors such as the regional
economy, home price changes and specific events such
as natural disasters, will affect credit quality. The
borrower's current or “refreshed" FICO score is a
secondary credit-quality indicator for certain loans, as
FICO scores are an indication of the borrower's credit
payment history. Thus, a loan to a borrower with a low
FICO score (660 or below) is considered to be of higher
risk than a loan to a borrower with a high FICO score.
Further, a loan to a borrower with a high LTV ratio and a
low FICO score is at greater risk of default than a loan to
a borrower that has both a high LTV ratio and a high
FICO score.
For scored auto, scored business banking and student
loans, geographic distribution is an indicator of the
credit performance of the portfolio. Similar to
residential real estate loans, geographic distribution
provides insights into the portfolio performance based
on regional economic activity and events.
Risk-rated business banking and auto loans are similar
to wholesale loans in that the primary credit quality
indicators are the risk rating that is assigned to the loan
and whether the loans are considered to be criticized
and/or nonaccrual. Risk ratings are reviewed on a
regular and ongoing basis by Credit Risk Management
and are adjusted as necessary for updated information
about borrowers' ability to fulfill their obligations. For
further information about risk-rated wholesale loan
credit quality indicators, see pages 259-260 of this
Note.
Residential real estate - excluding PCI loans
The following table provides information by class for
residential real estate - excluding retained PCI loans in the
consumer, excluding credit card, portfolio segment.
The following factors should be considered in analyzing
certain credit statistics applicable to the Firm's residential
real estate - excluding PCI loans portfolio: (i) junior lien
home equity loans may be fully charged off when the loan
becomes 180 days past due, and the value of the collateral
does not support the repayment of the loan, resulting in
relatively high charge-off rates for this product class; and
(ii) the lengthening of loss-mitigation timelines may result
in higher delinquency rates for loans carried at the net
realizable value of the collateral that remain on the Firm's
Consolidated balance sheets.
JPMorgan Chase & Co./2015 Annual Report
247
Notes to consolidated financial statements
Residential real estate - excluding PCI loans
•
Mortgages:
388
(e) As of December 31, 2015 and 2014, nonaccrual loans included $2.5 billion and $2.9 billion, respectively, of TDRS for which the borrowers were less than 90 days
past due. For additional information about loans modified in a TDR that are on nonaccrual status refer to the Loan accounting framework on pages 242-244 of this
Note.
131
182
200
41
51
55
Total residential real estate - excluding PCI $ 10,066 $ 12,609 $ 13,460 $
476 $
581 $ 621 $
172 $ 195 $ 209
(a) Generally, interest income on loans modified in TDRS is recognized on a cash basis until such time as the borrower has made a minimum of six payments
under the new terms.
Loan modifications
Modifications of residential real estate loans, excluding PCI
loans, are generally accounted for and reported as TDRs.
There were no additional commitments to lend to
borrowers whose residential real estate loans, excluding PCI
loans, have been modified in TDRS.
The following table presents new TDRs reported by the
Firm.
Year ended December 31,
(in millions)
2015
2014
2013
Home equity:
Senior lien
Junior lien
$
108 $
110 $ 210
293
59
(d) Represents the contractual amount of principal owed at December 31, 2015 and 2014. The unpaid principal balance differs from the impaired loan balances due to
various factors, including charge-offs, net deferred loan fees or costs; and unamortized discounts or premiums on purchased loans.
246 $
(b) At December 31, 2015 and 2014, $3.8 billion and $4.9 billion, respectively, of loans modified subsequent to repurchase from Government National Mortgage
Association ("Ginnie Mae") in accordance with the standards of the appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When
such loans perform subsequent to modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans
that do not re-perform become subject to foreclosure.
(a) These HELOCs are predominantly revolving loans for a 10-year period, after which time the HELOC converts to a loan with a 20-year amortization period, but also
include HELOCS originated by Washington Mutual that allow interest-only payments beyond the revolving period.
(b) The Firm manages the risk of HELOCS during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are
experiencing financial difficulty or when the collateral does not support the loan amount.
Home equity lines of credit ("HELOCS") beyond the
revolving period and home equity loans ("HELOANS") have
higher delinquency rates than do HELOCS within the
revolving period. That is primarily because the fully-
amortizing payment that is generally required for those
products is higher than the minimum payment options
Impaired loans
available for HELOCS within the revolving period. The higher
delinquency rates associated with amortizing HELOCs and
HELOANS are factored into the loss estimates produced by
the Firm's delinquency roll-rate methodology, which
estimates defaults based on the current delinquency status
of a portfolio.
The table below sets forth information about the Firm's residential real estate impaired loans, excluding PCI loans. These loans
are considered to be impaired as they have been modified in a TDR. All impaired loans are evaluated for an asset-specific
allowance as described in Note 15.
December 31,
(in millions)
Impaired loans
Home equity
Senior lien
Junior lien
2.20%
Prime, including
option ARMS
2014
2015
2014
2015
Mortgages
Subprime
2014
2015
2014
Total residential
real estate
- excluding PCI
2015
2014
2015
2.25%
36,375
3.34
Student and other
10,096
10,970
Residential real estate - PCI
Home equity
14,989
Prime mortgage
8,893
3,263
13,853
17,095
10,220
3,673
15,708
Subprime mortgage
Option ARMS
Total retained loans
$ 344,355 $ 294,979
Delinquency rates are a primary credit quality indicator for
consumer loans. Loans that are more than 30 days past due
provide an early warning of borrowers who may be
experiencing financial difficulties and/or who may be
unable or unwilling to repay the loan. As the loan continues
to age, it becomes more clear that the borrower is likely
either unable or unwilling to pay. In the case of residential
real estate loans, late-stage delinquencies (greater than
150 days past due) are a strong indicator of loans that will
ultimately result in a foreclosure or similar liquidation
transaction. In addition to delinquency rates, other credit
quality indicators for consumer loans vary based on the
class of loan, as follows:
1.75%
11,252
7,979
3.10
3.16
$
2,409
30,711 $
3,144
3.03
With an allowance
$
Without an allowance(a)
557 $ 552
549
Unpaid principal balance of
impaired loans(d)
1,370
1,451
2,590
2,603
6,225
7,813
2,857
4,200
13,042
16,067
Impaired loans on
nonaccrual status(e)
581
628
639
632
1,287
1,559
670
931
3,177
3,750
(a) Represents collateral-dependent residential mortgage loans that are charged off to the fair value of the underlying collateral less cost to sell. The Firm reports, in
accordance with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower
(“Chapter 7 loans”) as collateral-dependent nonaccrual TDRs, regardless of their delinquency status. At December 31, 2015, Chapter 7 residential real estate loans
included approximately 17% of senior lien home equity, 9% of junior lien home equity, 18% of prime mortgages, including option ARMS, and 15% of subprime
mortgages that were 30 days or more past due.
422
(c) Predominantly all residential real estate impaired loans, excluding PCI loans, are in the U.S.
Mortgages
64
$
Total impaired loans (b)(c)
$
491
1,048 $ 1,101 $
736 $ 722
574
1,310 $
$
582
1,304 $
3,850 $ 4,949 $
976
1,196
4,826 $ 6,145 $
1,393 $
471
1,864 $
2,239
639
2,878
$
$ 6,536 $ 8,462
2,512 2,966
9,048 $ 11,428
Allowance for loan losses
related to impaired loans
$
53 $
84
$
85 $
147
$
93 $
127
$
15 $
$
Prime, including option
ARMS (i)
$ 35,575
Senior lien
Equal to or greater than 660
311
466
4,226
5,849
3,013
2,686
146
382
7,696
9,383
scores:
Less than 660
206
1,267
1,647
597
838
399
703
2,405
3,394
Less than 80% and refreshed FICO
scores:
142
80% to 100% and refreshed FICO
1,180
725
$
390
109
171
101% to 125% and refreshed FICO
scores:
Equal to or greater than 660
50
83
1,294
2,105
249
478
25
76
1,618
2,742
Less than 660
23
40
411
651
190
282
101
207
Equal to or greater than 660
Less than 660
11,721
No FICO/LTV available
$ 162,719
Geographic region
California
New York
Illinois
$ 2,072 $ 2,232
$ 6,873 $ 8,144
$ 46,745
2,583
2,805
6,564
7,685
20,941
$ 28,133
16,550
$ 518
$ 718
$ 56,208
$ 39,227
521
677
30,609
27,717
1,189
1,306
2,231
$ 211,798
223
$ 5,056
5,175
12,110
1,942
614
12,588
2,184
757
17,927
2,992
2,442
19,435
3,326
140,942
82,350
1,299
5,280
4,872
1,517
3,045
1,469
1,136
189
1,624
1,795
237
U.S. government-guaranteed
10,688
Total retained loans
$ 14,848
$ 16,367
$ 30,711 $ 36,375
$ 162,549
12,110
$104,921
171,889
11,731
4,714
10,688
115,997
12,177
$ 3,690
$
4
+
$ 200,762
$ 149,552
470
220
533
3,666
267
5,560
4,091
6,879
376
489
174
271
4,750
6,286
5,388
7,779
Total retained loans
$ 14,848
$ 16,367
$ 30,711
$ 36,375
$ 162,549
$104,921
$ 3,690
$ 5,056
$ 211,798
$ 4,296
$ 162,719
$ 3,140
$ 153,323
Junior lien
December 31,
(in millions, except ratios)
2015
2014
2015
2014
2015
Loan delinquency(a)
Current
2014
2015
Subprime
Total residential real estate
- excluding PCI
2014
2015
2014
$14,278
30-149 days past due
150 or more days past due
238
332
$ 15,730
275
362
$ 30,021
20,058
$ 93,951
Home equity()
% of 30+ days past due to total
retained loans (b)
3.89%
$
Less than 660
23
42 $
37
36
$
123
$
252
$
29
65
655
56
+A
65
22
72
$
97 $
12
2 2
$
28
Equal to or greater than 660
3.84%
FICO scores:
Current estimated LTV ratios (d)(e)(f)(g)
2.25%
2.20%
0.71%
1.42%
14.91%
15.03%
1.40%
2.27%
90 or more days past due and
government guaranteed (c)
Nonaccrual loans
6,056
7,544
6,056
7,544
867
938
1,324
1,590
1,752
2,190
751
1,036
4,694
5,754
Greater than 125% and refreshed
21,208
$
54,536
3,295
121
79
1,203
1,866
848
700
736
650
Michigan
4,439
2,908
5,298
74
1,805
3,081
1,595
1,328
927
815
Arizona
4,241
5,627
109
112
Ohio
All other(h)
1,014
3,058
(a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $2.6 billion and $2.6 billion; 30-149 days past
due included $3.2 billion and $3.5 billion; and 150 or more days past due included $4.9 billion and $6.0 billion at December 31, 2015 and 2014, respectively.
(b) At December 31, 2015 and 2014, Prime, including option ARMS loans excluded mortgage loans insured by U.S. government agencies of $8.1 billion and $9.5 billion,
respectively. These amounts have been excluded from nonaccrual loans based upon the government guarantee.
$ 162,719
$ 211,798
47,719
63,515
1,964
$ 3,690 $ 5,056
1,465
2,655
2,899
112
81
615
34,149
$104,921
$ 162,549
$ 36,375
$ 30,711
$ 14,848 $ 16,367
Total retained loans
52,130
8,261
6,862
3,345
1,166
778
638
1,150
79
(c) These balances, which are 90 days or more past due, were excluded from nonaccrual loans as the loans are guaranteed by U.S government agencies. Typically the principal
balance of the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. At December 31, 2015 and
2014, these balances included $3.4 billion and $4.2 billion, respectively, of loans that are no longer accruing interest based on the agreed-upon servicing guidelines. For the
remaining balance, interest is being accrued at the guaranteed reimbursement rate. There were no loans not guaranteed by U.S. government agencies that are 90 or more days
past due and still accruing at December 31, 2015 and 2014.
2,410
1,216
142
4,935
8,986
1,087
951
1,845
1,581
Texas
10,772
14,944
207
177
145
Loan origination fees or costs and purchase price discounts
or premiums are deferred in a contra loan account until the
related loan is sold. The deferred fees and discounts or
premiums are an adjustment to the basis of the loan and
therefore are included in the periodic determination of the
lower of cost or fair value adjustments and/or the gain or
loss recognized at the time of sale.
Held-for-sale loans are subject to the nonaccrual policies
described above.
Because held-for-sale loans are recognized at the lower of
cost or fair value, the Firm's allowance for loan losses and
charge-off policies do not apply to these loans.
Loans at fair value
Loans used in a market-making strategy or risk managed on
a fair value basis are measured at fair value, with changes
in fair value recorded in noninterest revenue.
For these loans, the earned current contractual interest
payment is recognized in interest income. Changes in fair
value are recognized in noninterest revenue. Loan
origination fees are recognized upfront in noninterest
revenue. Loan origination costs are recognized in the
associated expense category as incurred.
Because these loans are recognized at fair value, the Firm's
allowance for loan losses and charge-off policies do not
apply to these loans.
See Note 4 for further information on the Firm's elections of
fair value accounting under the fair value option. See Note 3
and Note 4 for further information on loans carried at fair
value and classified as trading assets.
PCI loans
PCI loans held-for-investment are initially measured at fair
value. PCI loans have evidence of credit deterioration since
the loan's origination date and therefore it is probable, at
acquisition, that all contractually required payments will not
be collected. Because PCI loans are initially measured at fair
value, which includes an estimate of future credit losses, no
allowance for loan losses related to PCI loans is recorded at
the acquisition date. See page 255 of this Note for
information on accounting for PCI loans subsequent to their
acquisition.
243
6,654
11,660
8,044
Florida
1,009
506
442
Washington
6,475
8,157
227
172
3,361
5,395
2,233
1,943
654
647
New Jersey
8,522
9,586
632
414
5,106
6,763
1,923
1,612
861
797
4,097
(d) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly,
based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where
actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and
should be viewed as estimates. Effective December 31, 2015, the current estimated LTV ratios reflect updates to the nationally recognized home price index valuation estimates
incorporated into the Firm's home valuation models. The prior period ratios have been revised to conform with these updates in the home price index.
(e) Junior lien represents combined LTV, which considers all available lien positions, as well as unused lines, related to the property. All other products are presented without
consideration of subordinate liens on the property.
(f) Refreshed FICO scores represent each borrower's most recent credit score, which is obtained by the Firm on at least a quarterly basis.
Overnight and
continuous
Up to 30 days
30 - 90 days
Greater than
90 days
Total
Total securities sold under repurchase agreements
Total securities loaned
$
114,595 $
100,082 $
8,320
708
December 31, 2015 (in millions)
29,955 $
793
290,044
22,556
Transfers not qualifying for sale accounting
At December 31, 2015 and 2014, the Firm held $7.5 billion
and $13.8 billion, respectively, of financial assets for which
the rights have been transferred to third parties; however,
the transfers did not qualify as a sale in accordance with
U.S. GAAP. These transfers have been recognized as
collateralized financing transactions. The transferred assets
are recorded in trading assets and loans, and the
corresponding liabilities are predominantly recorded in
other borrowed funds on the Consolidated balance sheets.
JPMorgan Chase & Co./2015 Annual Report
241
Notes to consolidated financial statements
Note 14
Loans
Loan accounting framework
The accounting for a loan depends on management's
strategy for the loan, and on whether the loan was credit-
impaired at the date of acquisition. The Firm accounts for
loans based on the following categories:
45,412 $
12,735
Remaining contractual maturity of the agreements
22,556
290,044 $
Effective April 1, 2015, the Firm adopted new accounting guidance, which requires enhanced disclosures with respect to the
types of financial assets pledged in secured financing transactions and the remaining contractual maturity of the secured
financing transactions; the following tables present this information as of December 31, 2015.
Gross liability balance
December 31, 2015 (in millions)
Mortgage-backed securities
U.S. Treasury and government agencies
Obligations of U.S. states and municipalities
Non-U.S. government debt
Corporate debt securities
Asset-backed securities
Equity securities
Total
Securities sold under
repurchase agreements
Securities loaned
$
12,790 $
154,377
5
1,316
80,162
21,286
4,426
78
4,394
15,719
18,047
$
•
Originated or purchased loans held-for-investment (i.e.,
"retained"), other than purchased credit-impaired
("PCI") loans
Loans held-for-sale
Loans at fair value
Loans held-for-sale
Held-for-sale loans are measured at the lower of cost or fair
value, with valuation changes recorded in noninterest
revenue. For consumer loans, the valuation is performed on
a portfolio basis. For wholesale loans, the valuation is
performed on an individual loan basis.
Interest income on loans held-for-sale is accrued and
recognized based on the contractual rate of interest.
1.57%
25,252
17,050 $
$
2014
2015
Total 30+ day delinquency rate
2014
Total loans
2015
Total
HELOANS
Beyond the revolving period
Within the revolving period (b)
(in millions, except ratios)
HELOCS:(a)
December 31,
The following table represent the Firm's delinquency statistics for junior lien home equity loans and lines as of December 31,
2015 and 2014.
JPMorgan Chase & Co./2015 Annual Report
248
(i) Includes residential real estate loans to private banking clients in AM, for which the primary credit quality indicators are the borrower's financial position and LTV.
(h) At December 31, 2015 and 2014, included mortgage loans insured by U.S. government agencies of $10.7 billion and $12.1 billion, respectively.
(g) The current period current estimated LTV ratios disclosures have been updated to reflect where either the FICO score or estimated property value is unavailable. The prior
period amounts have been revised to conform with the current presentation.
JPMorgan Chase & Co./2015 Annual Report
Notes to consolidated financial statements
For residential real estate loans, collateral values are based
upon external valuation sources. When it becomes likely
that a borrower is either unable or unwilling to pay, the
Firm obtains a broker's price opinion of the home based on
an exterior-only valuation (“exterior opinions"), which is
then updated at least every six months thereafter. As soon
as practicable after the Firm receives the property in
satisfaction of a debt (e.g., by taking legal title or physical
possession), generally, either through foreclosure or upon
the execution of a deed in lieu of foreclosure transaction
with the borrower, the Firm obtains an appraisal based on
an inspection that includes the interior of the home
(“interior appraisals”). Exterior opinions and interior
appraisals are discounted based upon the Firm's experience
with actual liquidation values as compared with the
estimated values provided by exterior opinions and interior
appraisals, considering state- and product-specific factors.
For commercial real estate loans, collateral values are
generally based on appraisals from internal and external
valuation sources. Collateral values are typically updated
every six to twelve months, either by obtaining a new
appraisal or by performing an internal analysis, in
accordance with the Firm's policies. The Firm also considers
both borrower- and market-specific factors, which may
result in obtaining appraisal updates or broker price
opinions at more frequent intervals.
Wholesale loans, risk-rated business banking loans and risk-
rated auto loans are charged off when it is highly certain
that a loss has been realized, including situations where a
loan is determined to be both impaired and collateral-
dependent. The determination of whether to recognize a
charge-off includes many factors, including the
prioritization of the Firm's claim in bankruptcy, expectations
of the workout/restructuring of the loan and valuation of
the borrower's equity or the loan collateral.
PCI loans held-for-investment
The following provides a detailed accounting discussion of
these loan categories:
Loans held-for-investment (other than PCI loans)
Originated or purchased loans held-for-investment, other
than PCI loans, are measured at the principal amount
outstanding, net of the following: allowance for loan losses;
charge-offs; interest applied to principal (for loans
accounted for on the cost recovery method); unamortized
discounts and premiums; and net deferred loan fees or
costs. Credit card loans also include billed finance charges
and fees net of an allowance for uncollectible amounts.
Interest income
Interest income on performing loans held-for-investment,
other than PCI loans, is accrued and recognized as interest
income at the contractual rate of interest. Purchase price
discounts or premiums, as well as net deferred loan fees or
costs, are amortized into interest income over the life of the
loan to produce a level rate of return.
Nonaccrual loans
Nonaccrual loans are those on which the accrual of interest
has been suspended. Loans (other than credit card loans
and certain consumer loans insured by U.S. government
agencies) are placed on nonaccrual status and considered
nonperforming when full payment of principal and interest
is in doubt, or when principal and interest has been in
default for a period of 90 days or more, unless the loan is
both well-secured and in the process of collection. A loan is
determined to be past due when the minimum payment is
not received from the borrower by the contractually
specified due date or for certain loans (e.g., residential real
estate loans), when a monthly payment is due and unpaid
for 30 days or more. Finally, collateral-dependent loans are
typically maintained on nonaccrual status.
On the date a loan is placed on nonaccrual status, all
interest accrued but not collected is reversed against
interest income. In addition, the amortization of deferred
amounts is suspended. Interest income on nonaccrual loans
may be recognized as cash interest payments are received
(i.e., on a cash basis) if the recorded loan balance is
deemed fully collectible; however, if there is doubt
regarding the ultimate collectibility of the recorded loan
balance, all interest cash receipts are applied to reduce the
242
carrying value of the loan (the cost recovery method). For
consumer loans, application of this policy typically results in
the Firm recognizing interest income on nonaccrual
consumer loans on a cash basis.
A loan may be returned to accrual status when repayment is
reasonably assured and there has been demonstrated
performance under the terms of the loan or, if applicable,
the terms of the restructured loan.
As permitted by regulatory guidance, credit card loans are
generally exempt from being placed on nonaccrual status;
accordingly, interest and fees related to credit card loans
continue to accrue until the loan is charged off or paid in
full. However, the Firm separately establishes an allowance
for the estimated uncollectible portion of accrued interest
and fee income on credit card loans. The allowance is
established with a charge to interest income and is reported
as an offset to loans.
Allowance for loan losses
The allowance for loan losses represents the estimated
probable credit losses inherent in the held-for-investment
loan portfolio at the balance sheet date. Changes in the
allowance for loan losses are recorded in the provision for
credit losses on the Firm's Consolidated statements of
income. See Note 15 for further information on the Firm's
accounting policies for the allowance for loan losses.
Charge-offs
Consumer loans, other than risk-rated business banking,
risk-rated auto and PCI loans, are generally charged off or
charged down to the net realizable value of the underlying
collateral (i.e., fair value less costs to sell), with an offset to
the allowance for loan losses, upon reaching specified
stages of delinquency in accordance with standards
established by the Federal Financial Institutions
Examination Council ("FFIEC"). Residential real estate loans,
non-modified credit card loans and scored business banking
loans are generally charged off at 180 days past due. Auto
and student loans are charged off no later than 120 days
past due, and modified credit card loans are charged off at
120 days past due.
Certain consumer loans will be charged off earlier than the
FFIEC charge-off standards in certain circumstances as
follows:
•
A charge-off is recognized when a loan is modified in a
troubled debt restructuring ("TDR") if the loan is
determined to be collateral-dependent. A loan is
considered to be collateral-dependent when repayment
of the loan is expected to be provided solely by the
underlying collateral, rather than by cash flows from the
borrower's operations, income or other resources.
Loans to borrowers who have experienced an event
(e.g., bankruptcy) that suggests a loss is either known or
highly certain are subject to accelerated charge-off
standards. Residential real estate and auto loans are
charged off when the loan becomes 60 days past due, or
sooner if the loan is determined to be collateral-
JPMorgan Chase & Co./2015 Annual Report
dependent. Credit card and scored business banking
loans are charged off within 60 days of receiving
notification of the bankruptcy filing or other event.
Student loans are generally charged off when the loan
becomes 60 days past due after receiving notification of
a bankruptcy.
Auto loans are written down to net realizable value upon
repossession of the automobile and after a redemption
period (i.e., the period during which a borrower may
cure the loan) has passed.
Other than in certain limited circumstances, the Firm
typically does not recognize charge-offs on government-
guaranteed loans.
When a loan is charged down to the estimated net realizable
value, the determination of the fair value of the collateral
depends on the type of collateral (e.g., securities, real
estate). In cases where the collateral is in the form of liquid
securities, the fair value is based on quoted market prices
or broker quotes. For illiquid securities or other financial
assets, the fair value of the collateral is estimated using a
discounted cash flow model.
Loan classification changes
Loans in the held-for-investment portfolio that management
decides to sell are transferred to the held-for-sale portfolio
at the lower of cost or fair value on the date of transfer.
Credit-related losses are charged against the allowance for
loan losses; non-credit related losses such as those due to
changes in interest rates or foreign currency exchange rates
are recognized in noninterest revenue.
In the event that management decides to retain a loan in
the held-for-sale portfolio, the loan is transferred to the
held-for-investment portfolio at the lower of cost or fair
value on the date of transfer. These loans are subsequently
assessed for impairment based on the Firm's allowance
methodology. For a further discussion of the methodologies
used in establishing the Firm's allowance for loan losses,
see Note 15.
Consumer, excluding
credit card
Credit card
Wholesale
Total
(a)(b)
$
7,434
$
$
(c)
6,655
2014
1,190
885
7,381
581
$
8,319
14,036
4,810
2013
Consumer, excluding
credit card
Credit card
Wholesale
Total
(a)(b)
3,039
Sales
Purchases
(in millions)
Wholesale
Total
(a)(b)
Purchases
Sales
$
5,279
$
$
5,099
2,154
9,188
$
7,433
14,287
Retained loans reclassified to held-for-sale
1,514
79
642
2,235
Year ended December 31,
(in millions)
Purchases
Sales
Retained loans reclassified to held-for-sale
Year ended December 31,
$
7,616
$
$
201 $
240
246
JPMorgan Chase & Co./2015 Annual Report
Consumer, excluding credit card, loan portfolio
Consumer loans, excluding credit card loans, consist
primarily of residential mortgages, home equity loans and
lines of credit, auto loans, business banking loans, and
student and other loans, with a focus on serving the prime
consumer credit market. The portfolio also includes home
equity loans secured by junior liens, prime mortgage loans
with an interest-only payment period, and certain payment-
option loans originated by Washington Mutual that may
result in negative amortization.
The table below provides information about retained
consumer loans, excluding credit card, by class.
$
14,848 $ 16,367
30,711 36,375
December 31, (in millions)
2015
2014
Residential real estate - excluding PCI
Home equity:
Senior lien
Junior lien
Mortgages:
Prime, including option ARMS
162,549
104,921
Subprime
3,690
5,056
Other consumer loans
Auto
60,255
340 $
Credit card
Total net gains on sales of loans (including lower of cost or fair value adjustments)
(a) Excludes sales related to loans accounted for at fair value.
3
4,845
1,261
697
4,232
$
8,641
9,077
309
5,641
Retained loans reclassified to held-for-sale
7,211
(a) Purchases predominantly represent the Firm's voluntary repurchase of certain delinquent loans from loan pools as permitted by Ginnie Mae guidelines.
The Firm typically elects to repurchase these delinquent loans as it continues to service them and/or manage the foreclosure process in accordance with
applicable requirements of Ginnie Mae, the Federal Housing Administration ("FHA"), Rural Housing Services ("RHS") and/or the U.S. Department of
Veterans Affairs ("VA").
(b) Excludes purchases of retained loans sourced through the correspondent origination channel and underwritten in accordance with the Firm's standards.
Such purchases were $50.3 billion, $15.1 billion and $5.7 billion for the years ended December 31, 2015, 2014 and 2013, respectively.
(c) Prior period amounts have been revised to conform with current period presentation.
The following table provides information about gains and losses, including lower of cost or fair value adjustments, on loan sales
by portfolio segment.
Year ended December 31, (in millions)
2015
2014
2013
Net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a)
Consumer, excluding credit card
$
305 $
Credit card
1
Wholesale
34
341 $
(241)
101
313
(76)
Business banking
credit card
Year ended December 31,
(in millions)
Business banking(b)
•
Student and other
Residential real estate - PCI
• Home equity
• Prime mortgage
• Subprime mortgage
•
Option ARMS
(a) Includes loans held in CCB, prime mortgage and home equity loans held in AM and prime mortgage loans held in Corporate.
(b) Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses;
these loans are managed by CCB, and therefore, for consistency in presentation, are included with the other consumer loan classes.
•
(c) Includes loans held in CIB, CB, AM and Corporate. Excludes prime mortgage and home equity loans held in AM and prime mortgage loans held in
Corporate. Classes are internally defined and may not align with regulatory definitions.
The following tables summarize the Firm's loan balances by portfolio segment.
December 31, 2015
(in millions)
Retained
Held-for-sale
At fair value
Total
December 31, 2014
(in millions)
Retained
Consumer, excluding
(d) Includes loans to: individuals; SPES; holding companies; and private education and civic organizations. For more information on exposures to SPES, see
Note 16.
• Other(d)
• Government agencies
• Financial institutions
Loan modifications
The Firm seeks to modify certain loans in conjunction with
its loss-mitigation activities. Through the modification,
JPMorgan Chase grants one or more concessions to a
borrower who is experiencing financial difficulty in order to
minimize the Firm's economic loss, avoid foreclosure or
repossession of the collateral, and to ultimately maximize
payments received by the Firm from the borrower. The
concessions granted vary by program and by borrower-
specific characteristics, and may include interest rate
reductions, term extensions, payment deferrals, principal
forgiveness, or the acceptance of equity or other assets in
lieu of payments.
Such modifications are accounted for and reported as TDRs.
A loan that has been modified in a TDR is generally
considered to be impaired until it matures, is repaid, or is
otherwise liquidated, regardless of whether the borrower
performs under the modified terms. In certain limited
cases, the effective interest rate applicable to the modified
loan is at or above the current market rate at the time of
the restructuring. In such circumstances, and assuming that
the loan subsequently performs under its modified terms
and the Firm expects to collect all contractual principal and
interest cash flows, the loan is disclosed as impaired and as
a TDR only during the year of the modification; in
subsequent years, the loan is not disclosed as an impaired
loan or as a TDR so long as repayment of the restructured
loan under its modified terms is reasonably assured.
Loans, except for credit card loans, modified in a TDR are
generally placed on nonaccrual status, although in many
cases such loans were already on nonaccrual status prior to
modification. These loans may be returned to performing
status (the accrual of interest is resumed) if the following
criteria are met: (a) the borrower has performed under the
modified terms for a minimum of six months and/or six
payments, and (b) the Firm has an expectation that
repayment of the modified loan is reasonably assured based
on, for example, the borrower's debt capacity and level of
future earnings, collateral values, loan-to-value ("LTV")
ratios, and other current market considerations. In certain
limited and well-defined circumstances in which the loan is
current at the modification date, such loans are not placed
on nonaccrual status at the time of modification.
Because loans modified in TDRs are considered to be
impaired, these loans are measured for impairment using
the Firm's established asset-specific allowance
methodology, which considers the expected re-default rates
for the modified loans. A loan modified in a TDR generally
remains subject to the asset-specific allowance
methodology throughout its remaining life, regardless of
whether the loan is performing and has been returned to
accrual status and/or the loan has been removed from the
impaired loans disclosures (i.e., loans restructured at
market rates). For further discussion of the methodology
used to estimate the Firm's asset-specific allowance, see
Note 15.
Foreclosed property
The Firm acquires property from borrowers through loan
restructurings, workouts, and foreclosures. Property
acquired may include real property (e.g., residential real
estate, land, and buildings) and commercial and personal
property (e.g., automobiles, aircraft, railcars, and ships).
The Firm recognizes foreclosed property upon receiving
assets in satisfaction of a loan (e.g., by taking legal title or
physical possession). For loans collateralized by real
property, the Firm generally recognizes the asset received
at foreclosure sale or upon the execution of a deed in lieu of
foreclosure transaction with the borrower. Foreclosed
assets are reported in other assets on the Consolidated
balance sheets and initially recognized at fair value less
costs to sell. Each quarter the fair value of the acquired
property is reviewed and adjusted, if necessary, to the lower
of cost or fair value. Subsequent adjustments to fair value
are charged/credited to noninterest revenue. Operating
expense, such as real estate taxes and maintenance, are
charged to other expense.
244
JPMorgan Chase & Co./2015 Annual Report
Loan portfolio
The Firm's loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine
the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment, the
Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class:
Consumer, excluding
credit card (a)
Residential real estate - excluding PCI
• Home equity – senior lien
• Home equity - junior lien
• Prime mortgage, including
•
option ARMS
Subprime mortgage
Other consumer loans
• Autob
Credit card
• Credit card loans
Wholesale(c)
• Commercial and industrial
• Real estate
credit card
$
344,355
$
credit card
Credit card (a)
Wholesale
Total
294,979
$
395
128,027
3,021
$
324,502
$
747,508 (b)
3,801
2,611
7,217
2,611
$
330,914
$
757,336
(a) Includes billed finance charges and fees net of an allowance for uncollectible amounts.
(b) Loans (other than PCI loans and those for which the fair value option has been elected) are presented net of unearned income, unamortized discounts and
premiums, and net deferred loan costs. These amounts were not material as of December 31, 2015 and 2014.
JPMorgan Chase & Co./2015 Annual Report
245
Notes to consolidated financial statements
The following tables provide information about the carrying value of retained loans purchased, sold and reclassified to held-
for-sale during the periods indicated. These tables exclude loans recorded at fair value. The Firm manages its exposure to
credit risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures.
2015
Consumer, excluding
Consumer, excluding
131,048
295,374
Credit card(a)
131,387
Wholesale
Total
$
357,050
$
832,792 (b)
466
76
1,104
1,646
2,861
2,861
$ 344,821
$
131,463
$
361,015
$
837,299
$
Held-for-sale
At fair value
Total
$
$
328
11,379
2,605
$ 1,788
9,838
2.55
2.14
2.00
2.17
3.03 3.23
2.70
contractual term
remaining
Weighted-average
before TDR
extensions -
or payment
loans with term
(in years) of
contractual term
remaining
Weighted-average
TDR
2.69
2.77
3.15
3.37
22
24
24
24
24
25
25
25
reductions - after
20
18
19
17
17
2.92
2.78
2.64
3.52
19
interest rate
loans with
interest rate of
Junior lien
Senior lien
weighted-average
Mortgages
Home equity
(in millions, except
Year ended
December 31,
The following table provides information about the financial effects of the various concessions granted in modifications of
residential real estate loans, excluding PCI, under the Firm's loss mitigation programs and about redefaults of certain loans
modified in TDRs for the periods presented. Because the specific types and amounts of concessions offered to borrowers
frequently change between the trial modification and the permanent modification, the following table presents only the
financial effects of permanent modifications. This table also excludes Chapter 7 loans where the sole concession granted is the
discharge of debt.
Prime, including
option ARMS
Financial effects of modifications and redefaults
251
JPMorgan Chase & Co./2015 Annual Report
11
6
5
14
10
13
Notes to consolidated financial statements
22
Subprime
data and number
of loans)
Weighted-average
5.51% 5.61% 5.88%
5.03% 4.82% 5.28% 6.67% 7.16% 7.33%
5.05%
4.93% 4.81%
5.69% 6.38% 6.35%
before TDR
reductions -
Total residential real estate
excluding PCI
interest rate
interest rate of
Weighted-average
2015 2014 2013
2015 2014 2013
2015 2014 2013
2014 2013
2015
2015 2014 2013
loans with
23
23
(in years) of
30
14
2
Principal forgiven
74
$ 15 $ 39 $ 98
203
85
43
4
19
129
39
41
24
11
14
7
5
17
21
51
34
$ 106 $ 154
$ 93
$ 58
$ 164
$121
$ 75
$ 10 $ 20
$ 7
$ 14 $ 19 $ 26
that redefaulted
within one year of
permanent
modification(a)
Balance of loans
505
207
72
218
89
32
206
83
13
23
Principal deferred
$
36
36
35
36
36
37
37
37
36
34
36
31
30
32
TDR
extensions - after
or payment
loans with term
35
Charge-offs
recognized upon
permanent
3
$
2
$
$ 16
9
$
9
$
$ 70
$ 25
3
$
$ 7
2
$
1
$
modification
5
10
9
(b) Represents variable interest rate to fixed interest rate modifications.
Nature and extent of modifications
199
401
101% to 125% and refreshed FICO scores:
Equal to or greater than 660
942
1,448
120
The U.S. Treasury's Making Home Affordable ("MHA”) programs, as well as the Firm's proprietary modification programs,
generally provide various concessions to financially troubled borrowers including, but not limited to, interest rate reductions,
term or payment extensions and deferral of principal and/or interest payments that would otherwise have been required
under the terms of the original agreement.
268
444
728
152
284
220
1729
77
144
Less than 660
The following table provides information about how residential real estate loans, excluding PCI loans, were modified under the
Firm's loss mitigation programs during the periods presented. This table excludes Chapter 7 loans where the sole concession
granted is the discharge of debt.
Home equity
Mortgages
2014
2015
2014 2013
2015
2014 2013
2015
2013
2014
2015
2013
2014
2015
Dec. 31,
Year ended
Total residential real estate
- excluding PCI
Subprime
Prime, including
option ARMS
Junior lien
Senior lien
166
2013
330
2,190
911
1,050
1,610
3,443
4,975
Lower than 80% and refreshed FICO scores:
Equal to or greater than 660
6,724
643
6,626
4,211
863
787
7,073
7,053
18,903 18,677
Less than 660
2,265
4,243
969
614
1,485
390
239
448
1,055
1,850
80% to 100% and refreshed FICO scores:
Equal to or greater than 660
2,709
3,591
816
1,405
331
451
977
1,695
4,833
7,142
Less than 660
1,136
1,305
$ 243 $ 316
Number of
approved for
Principal
70
63
86
56
53
82
73
and/or
51
80
83
90
76
67
86
extension
payment
80
interest
deferred
32
(a) Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages exceeds
100% because predominantly all of the modifications include more than one type of concession. A significant portion of trial modifications include interest rate
reductions and/or term or payment extensions.
4 36 38 8 22 32 24 51 38 31 53 48 16 41 39
Other(b)
Principal
forgiveness
21
18
24
13
12
21
30
19
34
24
23
19
12
16
16
Term or
loans
77%
68%
1,096 1,171 1,765
modified
permanently
Number of
loans
9,682
4,673
6,644
2,056 4,233
3,200
1,608
884
626
2,588
1,719
939
1,345
modification
a trial
1,103 1,052 2,846
2,813
5,040
1,495 2,507 4,356
72%
47%
71%
72% 43% 73%
88%
84%
63%
70%
53%
75%
reduction
Interest rate
granted:(a)
Concession
16,525
9,632
7,441
3,141 5,364
1,650
58%
2,308
(a) Represents loans permanently modified in TDRS that experienced a payment default in the periods presented, and for which the payment default occurred within
one year of the modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such loans defaulted. For
residential real estate loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments past due. In the event that a
modified loan redefaults, it is probable that the loan will ultimately be liquidated through foreclosure or another similar type of liquidation transaction. Redefaults of
loans modified within the last 12 months may not be representative of ultimate redefault levels.
Active and suspended foreclosure
275
TDRs on nonaccrual status
117
118 $
impaired loans
442
384 $
$
306
Loans modified in TDRS(a)(b)
2014
2015
December 31, (in millions)
592
558 $
$
Total impaired loans (b)(c)
35
Allowance for loan losses related to
557
Unpaid principal balance of impaired
loans(d)
668
JPMorgan Chase & Co./2015 Annual Report
The liquidation of PCI loans, which may include sales of
loans, receipt of payment in full from the borrower, or
foreclosure, results in removal of the loans from the
underlying PCI pool. When the amount of the liquidation
proceeds (e.g., cash, real estate), if any, is less than the
unpaid principal balance of the loan, the difference is first
applied against the PCI pool's nonaccretable difference for
principal losses (i.e., the lifetime credit loss estimate
established as a purchase accounting adjustment at the
acquisition date). When the nonaccretable difference for a
particular loan pool has been fully depleted, any excess of
the unpaid principal balance of the loan over the liquidation
proceeds is written off against the PCI pool's allowance for
loan losses. Beginning in 2014, write-offs of PCI loans also
include other adjustments, primarily related to interest
forgiveness modifications. Because the Firm's PCI loans are
accounted for at a pool level, the Firm does not recognize
charge-offs of PCI loans when they reach specified stages of
delinquency (i.e., unlike non-PCI consumer loans, these
loans are not charged off based on FFIEC standards).
The PCI portfolio affects the Firm's results of operations
primarily through: (i) contribution to net interest margin;
(ii) expense related to defaults and servicing resulting from
the liquidation of the loans; and (iii) any provision for loan
losses. The PCI loans acquired in the Washington Mutual
transaction were funded based on the interest rate
characteristics of the loans. For example, variable-rate
loans were funded with variable-rate liabilities and fixed-
rate loans were funded with fixed-rate liabilities with a
similar maturity profile. A net spread will be earned on the
declining balance of the portfolio, which is estimated as of
December 31, 2015, to have a remaining weighted-average
life of 9 years.
If the timing and/or amounts of expected cash flows on PCI
loans were determined not to be reasonably estimable, no
interest would be accreted and the loans would be reported
as nonaccrual loans; however, since the timing and amounts
of expected cash flows for the Firm's PCI consumer loans
are reasonably estimable, interest is being accreted and the
loans are being reported as performing loans.
The excess of cash flows expected to be collected over the
carrying value of the underlying loans is referred to as the
accretable yield. This amount is not reported on the Firm's
Consolidated balance sheets but is accreted into interest
income at a level rate of return over the remaining
estimated lives of the underlying pools of loans.
The Firm continues to modify certain PCI loans. The impact
of these modifications is incorporated into the Firm's
quarterly assessment of whether a probable and significant
change in expected cash flows has occurred, and the loans
continue to be accounted for and reported as PCI loans. In
evaluating the effect of modifications on expected cash
flows, the Firm incorporates the effect of any foregone
interest and also considers the potential for redefault. The
Firm develops product-specific probability of default
estimates, which are used to compute expected credit
losses. In developing these probabilities of default, the Firm
considers the relationship between the credit quality
characteristics of the underlying loans and certain
assumptions about home prices and unemployment based
upon industry-wide data. The Firm also considers its own
historical loss experience to-date based on actual
redefaulted modified PCI loans.
On a quarterly basis, the Firm estimates the total cash flows
(both principal and interest) expected to be collected over
the remaining life of each pool. These estimates incorporate
assumptions regarding default rates, loss severities, the
amounts and timing of prepayments and other factors that
reflect then-current market conditions. Probable decreases
in expected cash flows (i.e., increased credit losses) trigger
the recognition of impairment, which is then measured as
the present value of the expected principal loss plus any
related foregone interest cash flows, discounted at the
pool's effective interest rate. Impairments are recognized
through the provision for credit losses and an increase in
the allowance for loan losses. Probable and significant
increases in expected cash flows (e.g., decreased credit
losses, the net benefit of modifications) would first reverse
any previously recorded allowance for loan losses with any
remaining increases recognized prospectively as a yield
adjustment over the remaining estimated lives of the
underlying loans. The impacts of (i) prepayments, (ii)
changes in variable interest rates, and (iii) any other
changes in the timing of expected cash flows are recognized
prospectively as adjustments to interest income.
PCI loans are initially recorded at fair value at acquisition.
PCI loans acquired in the same fiscal quarter may be
aggregated into one or more pools, provided that the loans
have common risk characteristics. A pool is then accounted
for as a single asset with a single composite interest rate
and an aggregate expectation of cash flows. With respect to
the Washington Mutual transaction, all of the consumer PCI
loans were aggregated into pools of loans with common risk
characteristics.
Purchased credit-impaired loans
Impaired loans on nonaccrual status
JPMorgan Chase & Co./2015 Annual Report
(b) Additional commitments to lend to borrowers whose loans have been
modified in TDRS as of December 31, 2015 and 2014 were immaterial.
(a) The impact of these modifications was not material to the Firm for the
years ended December 31, 2015 and 2014.
(d) Represents the contractual amount of principal owed at December 31,
2015 and 2014. The unpaid principal balance differs from the impaired
loan balances due to various factors, including charge-offs; interest
payments received and applied to the principal balance; net deferred loan
fees or costs; and unamortized discounts or premiums on purchased loans.
(b) Predominantly all other consumer impaired loans are in the U.S.
(c) Other consumer average impaired loans were $566 million, $599 million
and $648 million for the years ended December 31, 2015, 2014 and
2013, respectively. The related interest income on impaired loans,
including those on a cash basis, was not material for the years ended
December 31, 2015, 2014 and 2013.
(a) When discounted cash flows, collateral value or market price equals or
exceeds the recorded investment in the loan, the loan does not require an
allowance. This typically occurs when the impaired loans have been
partially charged off and/or there have been interest payments received
and applied to the loan balance.
456
719
449
254
527 $
31
Without an allowance(a)
$
$ 19 $ 50
$
192 $ 395
36
84
Criticized performing
$11,277
Noncriticized
22
Loans by risk ratings(c)
$ 91,559
$10,970
$10,096
$20,058
$54,536 $21,208
$60,255
Total retained loans
33,758
$85,564
106
ΝΑ
210
With an allowance
Impaired loans
The following table provides information about the Firm's
other consumer loans modified in TDRs. New TDRs were not
material for the years ended December 31, 2015 and
2014.
Certain other consumer loan modifications are considered
to be TDRS as they provide various concessions to
borrowers who are experiencing financial difficulty. All of
these TDRs are reported as impaired loans in the table
above.
Loan modifications
2014
2015
December 31, (in millions).
The table below sets forth information about the Firm's
other consumer impaired loans, including risk-rated
business banking and auto loans that have been placed on
nonaccrual status, and loans that have been modified in
TDRS.
modifications
Other consumer impaired loans and loan
Notes to consolidated financial statements
253
JPMorgan Chase & Co./2015 Annual Report
(d) December 31, 2015 and 2014, excluded loans 30 days or more past due and still accruing, which are insured by U.S. government agencies under the FFELP, of $526 million
and $654 million, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.
(c) For risk-rated business banking and auto loans, the primary credit quality indicator is the risk rating of the loan, including whether the loans are considered to be criticized
and/or nonaccrual.
(b) These amounts represent student loans, which are insured by U.S. government agencies under the FFELP. These amounts were accruing as reimbursement of insured amounts
is proceeding normally.
(a) Student loan delinquency classifications included loans insured by U.S. government agencies under the Federal Family Education Loan Program ("FFELP") as follows: current
included $3.8 billion and $4.3 billion; 30-119 days past due included $299 million and $364 million; and 120 or more days past due included $227 million and $290 million
at December 31, 2015 and 2014, respectively.
213
255
Notes to consolidated financial statements
Residential real estate - PCI loans
The table below sets forth information about the Firm's consumer, excluding credit card, PCI loans.
8.15%
6.22%
% of 30+ days past due to total loans
1,272
$14,353
$ 4,652
$ 4,051
$10,249
$ 8,919
11.49%
$17,740
Total loans
711
536
551
380
837
601
1,000
439
$15,342
13.05%
20.22%
23.37%
52
28
159
10 $
$
$ 22
10
$
153 $ 301
80
Less than 660
$
Equal to or greater than 660
Greater than 125% and refreshed FICO scores:
Current estimated LTV ratios (based on unpaid
principal balance) (c)(d)(e)
11.21% 13.33%
$42,665 $49,137
2,339
4,212
1,896
2,886
858
1,824
$16,496
13.82% 16.26%
500
35,764
424
322
633
$ 3,263
$10,220
1,193
$ 8,893
985
$17,095
1,758
1,708
Related allowance for loan losses (b)
$14,989
Carrying value(a)
2014
$ 3,673
180
2014
2015
(in millions, except ratios)
Total PCI
Option ARMS
Home equity
Subprime mortgage
2015
Prime mortgage
2015
December 31,
2014
2015
$13,853
2014
$15,708
2015
$40,998 $46,696
150 or more days past due
30-149 days past due
$37,883 $42,586
$13,814
$12,370
$ 3,565
$ 3,232
$ 8,912
$ 7,894
$16,295
$14,387
Current
balance)
Loan delinquency (based on unpaid principal
3,325
2,742
194
49
2014
445
4,503
3,999
4,516
$
(b)
accruing
90 or more days past due and still
1.47% (d)
1.42% (d)
2.15% (d)
1.63% (d)
$
1.73%
1.23%
1.35%
% of 30+ days past due to total
retained loans
$85,564
$ 91,559
$10,970
$10,096
461
1.51%
$
$
$
New York
$ 7,186
California
Geographic region
664
621
270
367
$
290
$
367
$
290
242
279
263
115
116
Nonaccrual loans
1,447
3,874
1,464
361
246
2014
Total other consumer
2015
2014
2015
2014
Student and other
2015
2014
Loan delinquency(a)
2015
December 31,
Business banking
Auto
The table below provides information for other consumer retained loan classes, including auto, business banking and student
loans.
Other consumer loans
JPMorgan Chase & Co./2015 Annual Report
252
At December 31, 2015 and 2014, the Firm had non-PCI
residential real estate loans, excluding those insured by U.S.
government agencies, with a carrying value of $1.2 billion
and $1.5 billion, respectively, that were not included in
REO, but were in the process of active or suspended
foreclosure.
(in millions, except ratios)
Current
$59,442
$53,866
140
$20,058
$21,208
$54,536
$60,255
Total retained loans
106
576
$83,656
$ 89,734
$ 10,080
$ 9,405
445
$19,710
208
215
663
7
9
120 or more days past due
804
30-119 days past due
$20,887
314
At December 31, 2015, the weighted-average estimated
remaining lives of residential real estate loans, excluding
PCI loans, permanently modified in TDRs were 10 years for
senior lien home equity, 9 years for junior lien home equity,
10 years for prime mortgages, including option ARMS, and
8 years for subprime mortgage. The estimated remaining
lives of these loans reflect estimated prepayments, both
voluntary and involuntary (i.e., foreclosures and other
forced liquidations).
$ 6,294
3,662
$ 3,008
3,474
239
236
(d)
1,083
1,205
2,003
2,033
3,325
Arizona
1,611
235
212
258
264
1,019
1,135
Washington
1,512
Michigan
1,550
1,633
4,604
24,739
27,161
All other
4,140
4,262
629
559
1,354
1,363
2,157
2,340
Ohio
3,474
3,326
466
415
1,375
1,361
2,774
$ 3,530
2,864
366
5,277
5,816
729
679
1,373
1,459
3,175
3,678
Texas
Illinois
8,457
1,259
$10,445
$ 11,767
$ 1,143
$ 1,051
1,224
3,187
3,359
8,108
6,457
5,608
2,622
451
500
1,945
1,998
New Jersey
3,649
4,300
521
516
827
941
2,301
2,843
Florida
9,102
9,918
868
839
2,626
378
2,438
2,427
1,642
2014
2015
2014
2015
2014
2015
2014
Loans by risk
2015
ratings
$74,330 $61,006
$21,786
$ 27,111
$11,363
$8,393
$ 98,107
$ 82,087
$267,736
Investment grade $ 62,150 $ 63,069
$241,666
2014
2014
Notes to consolidated financial statements
are classified as noncriticized ("BB+/Ba1 and B-/B3") and
criticized ("CCC+"/"Caal and below"), and the criticized
portion is further subdivided into performing and
nonaccrual loans, representing management's assessment
of the collectibility of principal and interest. Criticized loans
have a higher probability of default than noncriticized
loans.
Risk ratings are reviewed on a regular and ongoing basis by
Credit Risk Management and are adjusted as necessary for
updated information affecting the obligor's ability to fulfill
its obligations.
As noted above, the risk rating of a loan considers the
industry in which the obligor conducts its operations. As
part of the overall credit risk management framework, the
Firm focuses on the management and diversification of its
industry and client exposures, with particular attention paid
to industries with actual or potential credit concern. See
Note 5 for further detail on industry concentrations.
The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment.
As of or for the
December 31,
Commercial
2015
and industrial
Financial
institutions
Other(e)
Total
retained loans
year ended
Government agencies
(in millions,
except ratios)
2015
Real estate
Noninvestment
grade:
Noncriticized
3
253
236
6,373
4,119
Criticized
nonaccrual
608
7
188
253
10
18
139
140
988
599
Total
231
316
320
1,313
45,632
(d)
(d)
44,117
17,008
16,541
7,667
7,093
256
300
11,390
10,067
81,953
78,118
Criticized
performing
4,542
2,251
1,251
259
The primary credit quality indicator for wholesale loans is
the risk rating assigned each loan. Risk ratings are used to
identify the credit quality of loans and differentiate risk
within the portfolio. Risk ratings on loans consider the
probability of default ("PD”) and the loss given default
("LGD"). The PD is the likelihood that a loan will default and
not be fully repaid by the borrower. The LGD is the
estimated loss on the loan that would be realized upon the
default of the borrower and takes into consideration
collateral and structural support for each credit facility.
Management considers several factors to determine an
appropriate risk rating, including the obligor's debt capacity
and financial flexibility, the level of the obligor's earnings,
the amount and sources for repayment, the level and nature
of contingencies, management strength, and the industry
and geography in which the obligor operates. The Firm's
definition of criticized aligns with the banking regulatory
definition of criticized exposures, which consist of special
mention, substandard and doubtful categories. Risk ratings
generally represent ratings profiles similar to those defined
by S&P and Moody's. Investment-grade ratings range from
"AAA/Aaa" to "BBB-/Baa3." Noninvestment-grade ratings
Wholesale loans include loans made to a variety of
customers, ranging from large corporate and institutional
clients to high-net-worth individuals.
Wholesale loan portfolio
JPMorgan Chase & Co./2015 Annual Report
Credit card loans with modified payment
terms(c)
$
1,286 $ 1,775
Modified credit card loans that have
reverted to pre-modification payment
terms(d)
Total impaired credit card loans (e)
$
258
179
1,465 $
December 31, (in millions)
Impaired credit card loans with an
allowance(a)(b)
2015
2014
254
then the loan reverts back to its pre-modification payment
terms. However, in most cases, the Firm does not reinstate
the borrower's line of credit.
New enrollments in these loan modification programs for
the years ended December 31, 2015, 2014 and 2013, were
$638 million, $807 million and $1.2 billion, respectively.
Financial effects of modifications and redefaults
The following table provides information about the financial
effects of the concessions granted on credit card loans
modified in TDRs and redefaults for the periods presented.
2,029
Credit card impaired loans and loan modifications
The table below sets forth information about the Firm's
impaired credit card loans. All of these loans are considered
to be impaired as they have been modified in TDRS.
85.7%
14.3
15.6
84.4%
10,940
7,806
7,398
7,655
7,497
5,879
5,750
4,700
4,707
4,533
4,489
3,562
3,552
3,399
3,226
51,844
51,440
$131,387
$128,027
Allowance for loan losses related to
impaired credit card loans
noninvestment
Year ended December 31,
(in millions, except
460 $
The following table presents average balances of impaired
credit card loans and interest income recognized on those
loans.
Year ended December 31,
(in millions)
Average impaired credit card loans
Interest income on
impaired credit card loans
Loan modifications
2015
(e) Predominantly all impaired credit card loans are in the U.S.
2014
$ 1,710 $2,503 $ 3,882
82
123
198
JPMorgan Chase may offer one of a number of loan
modification programs to credit card borrowers who are
experiencing financial difficulty. Most of the credit card
loans have been modified under long-term programs for
borrowers who are experiencing financial difficulties.
Modifications under long-term programs involve placing the
customer on a fixed payment plan, generally for 60 months.
The Firm may also offer short-term programs for borrowers
who may be in need of temporary relief; however, none are
currently being offered. Modifications under all short- and
long-term programs typically include reducing the interest
rate on the credit card. Substantially all modifications are
considered to be TDRs.
If the cardholder does not comply with the modified
payment terms, then the credit card loan agreement reverts
back to its pre-modification payment terms. Assuming that
the cardholder does not begin to perform in accordance
with those payment terms, the loan continues to age and
will ultimately be charged-off in accordance with the Firm's
standard charge-off policy. In addition, if a borrower
successfully completes a short-term modification program,
JPMorgan Chase & Co./2015 Annual Report
(a) Represents loans modified in TDRs that experienced a payment default in
the periods presented, and for which the payment default occurred within
one year of the modification. The amounts presented represent the balance
of such loans as of the end of the quarter in which they defaulted.
For credit card loans modified in TDRs, payment default is
deemed to have occurred when the loans become two
payments past due. A substantial portion of these loans is
expected to be charged-off in accordance with the Firm's
standard charge-off policy. Based on historical experience,
the estimated weighted-average default rate for credit card
loans modified was expected to be 25.61%, 27.91% and
30.72% as of December 31, 2015, 2014 and 2013,
respectively.
2013
(d) Represents credit card loans that were modified in TDRS but that have
subsequently reverted back to the loans' pre-modification payment terms.
At December 31, 2015 and 2014, $113 million and $159 million,
respectively, of loans have reverted back to the pre-modification payment
terms of the loans due to noncompliance with the terms of the modified
loans. The remaining $66 million and $95 million at December 31, 2015
and 2014, respectively, of these loans are to borrowers who have
successfully completed a short-term modification program. The Firm
continues to report these loans as TDRS since the borrowers' credit lines
remain closed.
card modification program as of the date presented.
(c) Represents credit card loans outstanding to borrowers enrolled in a credit
500
weighted-average data)
2015
2014
2013
Weighted-average interest rate
(a) The carrying value and the unpaid principal balance are the same for credit
card impaired loans.
of loans - before TDR
15.08%
14.96%
15.37%
Weighted-average interest rate
of loans after TDR
4.40
4.40
4.38
Loans that redefaulted within
one year of modification(a)
$
85 $ 119 $ 167
(b) There were no impaired loans without an allowance.
$
11,360
grade
46,556
2,215
1,544
1,201
988
69
55
104
49
90 or more days
275
566
259
accruing
due and still
30-89 days past
$354,451 $321,612
(d)
$ 91,160
193
$108,734
past due and
7
Total retained
18
10
253
231
188
608
nonaccrual
still accruing (c)
Criticized
67
29
28
6
11
33
15
14
76
$8,627
$11,565
(d)
$ 34,416
$ 26 $ 22 $ (14) $ (9) $ (5) $ (12) $ (8) $ 25 $ 11 $ (14) $ 10 $ 12
(recoveries)
Net charge-offs/
$357,050 $324,502
(d)
$ 92,530
$109,889
$8,696
% of net
$11,626
$29,783 $ 34,538
$112,932 $109,625 $92,820 $79,113
Total retained
loans
$ 94,051 $100,865
262,999 223,637
(d)
$ 42,961
49,569
$ 42,031
67,858
$1,122
7,574
(d)
charge-offs/
(recoveries) to
end-of-period
$29,713
$108,857 $92,381 $78,552
$112,058
still accruing
past due and
than 30 days
Current and less
delinquency(b)
Loan
-%
-%
(0.02) %
0.01%
(0.04) % (0.07)% 0.29%
(0.02)%
(0.02)% (0.01)%
0.02%
0.02%
retained loans
loans
$112,932
$109,625
$92,820
4.56%
2.22%
1.60 %
1.98 %
1.11 %
0.97 %
0.06% 0.03%
0.36%
loans
0.41 %
1.45%
% of nonaccrual
loans to total
retained loans
0.54
76
$ 9,822
35
Criticized nonaccrual
2.06%
total retained
criticized to
% of total
18,490
18,107
7,997
7,427 (d)
263
303
11,782
Total retained
loans
$112,932
$109,625
$92,820 $79,113
$29,783
$ 34,538
(d)
$11,626 $8,696
$109,889
10,443 (d) 89,314
$ 92,530 (d) $357,050
82,836
$324,502
$15,505
815
210
50,782
$14,619
ΝΑ
$ 33,739
75,886
$ 3,003
89,817
$ 2,099
77,014
$17,166 $ 20,944
12,617
13,594
JPMorgan Chase & Co./2015 Annual Report
260
(e) Other includes: individuals; SPES; holding companies; and private education and civic organizations. For more information on exposures to SPES, see Note 16.
(d) Effective in the fourth quarter 2015, the Firm realigned its wholesale industry divisions in order to better monitor and manage industry concentrations. Prior period amounts
have been revised to conform with current period presentation. For additional information, see Wholesale credit portfolio on pages 122-129.
82,869
(c) Represents loans that are considered well-collateralized and therefore still accruing interest.
140
139
$ 92,530 (d) $357,050 $324,502
$109,889
$29,783 $ 34,538 (d) $11,626 $8,696
599
988
$79,113
(a) The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
(b) The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor's ability to meet contractual obligations rather than relying on
the past due status, which is generally a lagging indicator of credit quality.
Total U.S.
$ 30,063
Total non-U.S.
708
ΝΑ
ΝΑ
$ 26,782
891
$24,441
743
213
ΝΑ
0.17
0.25
0.32
0.03
0.05
Loans by
geographic
distribution (a)
0.13
0.15
0.28
0.18
ΝΑ
11,088
11,847
$ 17,940
1,674
1,433
395
339
95
81
225
194
959
819
Washington
1,345
1,157
553
Arizona
470
139
279
238
348
310
New Jersey
4,257
3,621
1,440
1,183
432
373
689
586
165
1,696
281
143
209
185
69
61
72
62
48
45
20
17
531
448
182
150
323
130
166
141
53
44
Ohio
55
Michigan
802
703
227
203
85
76
167
113
1,479
Florida
731
$ 1,138
$ 1,005
$ 5,965
$ 5,172
$10,671
$ 9,205
California
balance)
Geographic region (based on unpaid principal
10,611
10,410
2,325 2,896
$42,665 $49,137
$16,496
$14,353
$ 4,652
$ 8,108
$ 4,051
935
728
256
210
611
498
1,094
$17,740
$15,342
Total unpaid principal balance
889
No FICO/LTV available
4,291
4,065
1,585
$ 8,919 $10,249
$ 9,190
$23,490 $26,964
New York
636
85
75
281
243
92
94
273
224
Texas
1,332
1,150
397
333
229
196
301
788
876
580
672
400
463
All other
813
2,581
2,944
Illinois
358
405
263
933
Total unpaid principal balance
283
2,116
$17,740
Balance at December 31
Total PCI
2015
2014
2013
$
14,592
(1,700)
$
16,167
(1,934)
$
18,457
279
(174)
(2,201)
(287)
230
533
198
90
$
13,491
4.20%
$
14,592
$
Reclassification from nonaccretable difference (b)
Other changes in expected cash flows (a)
Changes in interest rates on variable-rate loans
Accretion into interest income
2014
$
5,000 $
6,252
8,972
4,143
$
582
11,834 $
736
13,851
Total 30+ day delinquency rate
2015
2014
16,167
4.10%
6.42%
6.42
5.33
8.83
4.35%
6.55%
(a) In general, these HELOCS are revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at the end of
the loan's term.
(b) Substantially all undrawn HELOCS within the revolving period have been closed.
(c) Includes loans modified into fixed-rate amortizing loans.
The table below sets forth the accretable yield activity for the Firm's PCI consumer loans for the years ended December 31,
2015, 2014 and 2013, and represents the Firm's estimate of gross interest income expected to be earned over the remaining
life of the PCI loan portfolios. The table excludes the cost to fund the PCI portfolios, and therefore the accretable yield does not
represent net interest income expected to be earned on these portfolios.
Year ended December 31,
(in millions, except ratios)
Beginning balance
4.46
4.19%
Accretable yield percentage
4.31%
Colorado
All other
Total retained credit card loans
Percentage of portfolio based on carrying
value with estimated refreshed FICO
scores
Equal to or greater than 660
Less than 660
2015
2014
$
3,122 $ 3,429
2.51%
2.75%
Michigan
$129,502
941
943
944
895
$131,387
$128,027
1.43%
1.44%
0.72
0.70
$ 18,802
$ 126,189
Total loans
Pennsylvania
New Jersey
(a) Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model and periodically updates model
assumptions. For the years ended December 31, 2015 and December 31, 2014, other changes in expected cash flows were driven by changes in prepayment
assumptions. For the year ended December 31, 2013, other changes in expected cash flows were due to refining the expected interest cash flows on HELOCS with
balloon payments, partially offset by changes in prepayment assumptions.
(b) Reclassifications from the nonaccretable difference in the year ended December 31, 2015 were driven by continued improvement in home prices and delinquencies,
as well as increased granularity in the impairment estimates.
The factors that most significantly affect estimates of gross
cash flows expected to be collected, and accordingly the
accretable yield balance, include: (i) changes in the
benchmark interest rate indices for variable-rate products
such as option ARM and home equity loans; and (ii) changes
in prepayment assumptions.
Active and suspended foreclosure
At December 31, 2015 and 2014, the Firm had PCI
residential real estate loans with an unpaid principal
balance of $2.3 billion and $3.2 billion, respectively, that
were not included in REO, but were in the process of active
or suspended foreclosure.
JPMorgan Chase & Co./2015 Annual Report
257
Notes to consolidated financial statements
Credit card loan portfolio
The credit card portfolio segment includes credit card loans
originated and purchased by the Firm. Delinquency rates
are the primary credit quality indicator for credit card loans
as they provide an early warning that borrowers may be
experiencing difficulties (30 days past due); information on
those borrowers that have been delinquent for a longer
period of time (90 days past due) is also considered. In
addition to delinquency rates, the geographic distribution of
the loans provides insight as to the credit quality of the
portfolio based on the regional economy.
While the borrower's credit score is another general
indicator of credit quality, the Firm does not view credit
scores as a primary indicator of credit quality because the
borrower's credit score tends to be a lagging indicator.
However, the distribution of such scores provides a general
indicator of credit quality trends within the portfolio.
Refreshed FICO score information, which is obtained at least
quarterly, for a statistically significant random sample of
the credit card portfolio is indicated in the table below; FICO
is considered to be the industry benchmark for credit
Ohio
scores.
The table below sets forth information about the Firm's
credit card loans.
As of or for the year
ended December 31,
(in millions, except ratios)
Net charge-offs
% of net charge-offs to retained loans
Loan delinquency
Current and less than 30 days past due
and still accruing
30-89 days past due and still accruing
90 or more days past due and still accruing
Total retained credit card loans
Loan delinquency ratios
% of 30+ days past due to total retained
loans
% of 90+ days past due to total retained
loans
Credit card loans by geographic region
California
Texas
New York
Florida
Illinois
The Firm generally originates new card accounts to prime
consumer borrowers. However, certain cardholders' FICO
scores may decrease over time, depending on the
performance of the cardholder and changes in credit score
technology.
1,817
$15,342
2015
HELOANS
Beyond the revolving period (c)
Within the revolving period (b)
HELOCS:(a)
(in millions, except ratios)
December 31,
Approximately 23% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANS or
HELOCS. The following table sets forth delinquency statistics for PCI junior lien home equity loans and lines of credit based on
the unpaid principal balance as of December 31, 2015 and 2014.
JPMorgan Chase & Co./2015 Annual Report
256
(e) The current period current estimated LTV ratios disclosures have been updated to reflect where either the FICO score or estimated property value is unavailable. The prior
period amounts have been revised to conform with the current presentation.
(d) Refreshed FICO scores represent each borrower's most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(c) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly,
based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where
actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and
should be viewed as estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as unused lines, related to the
property. Effective December 31, 2015, the current estimated LTV ratios reflect updates to the nationally recognized home price index valuation estimates incorporated into
the Firm's home valuation models. The prior period ratios have been revised to conform with these updates in the home price index.
Total
$16,496 $42,665 $49,137
$14,353
$ 4,051 $ 4,652
8,348
7,261
3,025
2,618
1,562
1,363
1,645
$10,249
1,463
$ 8,919
(a) Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition.
(b) Management concluded as part of the Firm's regular assessment of the PCI loan pools that it was probable that higher expected credit losses would result in a decrease in
expected cash flows. As a result, an allowance for loan losses for impairment of these pools has been recognized.
AAA to
ААА-
(in billions, except where otherwise noted)
December 31,
Noninvestment-
grade
3.1 $
5.2
Ratings profile of VIE assets (b)
6.3
3.8
$
3.8 $
6.3
6.9 $
11.5
Investment-grade
2014
Fair value of
assets held
by VIES
8.4
AA+ to AA- A+ to A-
4.6 $ 0.5 $
0.4
BBB+ to
BBB-
BB+ and below
$
0.1 $
6.9
Wt. avg.
expected life
of assets
(years)
exposure
$
11.5
4.9
(a) Represents the excess of the fair values of municipal bond assets available to repay the liquidity facilities, if drawn.
(b) The ratings scale is presented on an S&P-equivalent basis.
1.7 $
2.7
4.0
Excess (a)
held by VIES
JPMorgan Chase & Co./2015 Annual Report
Additionally, the Firm may invest in beneficial interests of
third-party re-securitizations and generally purchases these
interests in the secondary market. In these circumstances,
the Firm does not have the unilateral ability to direct the
most significant activities of the re-securitization trust,
either because it was not involved in the initial design of the
trust, or the Firm is involved with an independent third-
party sponsor and demonstrates shared power over the
creation of the trust; therefore, the Firm does not
consolidate the re-securitization VIE.
In more limited circumstances, the Firm creates a re-
securitization trust independently and not in conjunction
with specific clients. In these circumstances, the Firm is
deemed to have the unilateral ability to direct the most
significant activities of the re-securitization trust because of
the decisions made during the establishment and design of
the trust; therefore, the Firm consolidates the re-
securitization VIE if the Firm holds an interest that could
potentially be significant.
Most re-securitizations with which the Firm is involved are
client-driven transactions in which a specific client or group
of clients is seeking a specific return or risk profile. For
these transactions, the Firm has concluded that the
decision-making power of the entity is shared between the
Firm and its clients, considering the joint effort and
decisions in establishing the re-securitization trust and its
assets, as well as the significant economic interest the client
holds in the re-securitization trust; therefore the Firm does
not consolidate the re-securitization VIE.
The Firm engages in certain re-securitization transactions in
which debt securities are transferred to a VIE in exchange
for new beneficial interests. These transfers occur in
connection with both agency (Federal National Mortgage
Association ("Fannie Mae"), Federal Home Loan Mortgage
Company ("Freddie Mac") and Ginnie Mae) and nonagency
(private-label) sponsored VIES, which may be backed by
either residential or commercial mortgages. The Firm's
consolidation analysis is largely dependent on the Firm's
role and interest in the re-securitization trusts. During the
years ended December 31, 2015, 2014 and 2013, the Firm
transferred $21.9 billion, $22.7 billion and $25.3 billion,
respectively, of securities to agency VIES, and $777 million,
$1.1 billion and $55 million, respectively, of securities to
private-label VIES.
Re-securitizations
The Firm retains servicing responsibilities for certain
student loan securitizations. The Firm has the power to
direct the activities of these VIES through these servicing
responsibilities. See the table on page 271 of this Note for
more information on the consolidated student loan
securitizations, and the table on the previous page of this
Note for further information on interests held in
nonconsolidated securitizations.
268
The Firm does not consolidate a residential mortgage
securitization (Firm-sponsored or third-party-sponsored)
when it is not the servicer (and therefore does not have the
power to direct the most significant activities of the trust)
or does not hold a beneficial interest in the trust that could
potentially be significant to the trust. At December 31,
2015 and 2014, the Firm did not consolidate the assets of
certain Firm-sponsored residential mortgage securitization
VIES, in which the Firm had continuing involvement,
primarily due to the fact that the Firm did not hold an
interest in these trusts that could potentially be significant
to the trusts. See the table on page 271 of this Note for
more information on the consolidated residential mortgage
securitizations, and the table on the previous page of this
Note for further information on interests held in
nonconsolidated residential mortgage securitizations.
Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans,
and engages in underwriting and trading activities involving
the securities issued by securitization trusts. CIB may retain
unsold senior and/or subordinated interests in commercial
mortgage securitizations at the time of securitization but,
generally, the Firm does not service commercial loan
securitizations. For commercial mortgage securitizations
the power to direct the significant activities of the VIE
generally is held by the servicer or investors in a specified
class of securities ("controlling class"). See the table on
page 271 of this Note for more information on the
consolidated commercial mortgage securitizations, and the
table on the previous page of this Note for further
information on interests held in nonconsolidated
securitizations.
In addition, CIB engages in underwriting and trading
activities involving securities issued by Firm-sponsored
securitization trusts. As a result, CIB at times retains senior
and/or subordinated interests (including residual interests)
in residential mortgage securitizations at the time of
securitization, and/or reacquires positions in the secondary
market in the normal course of business. In certain
instances, as a result of the positions retained or reacquired
by CIB or held by CCB, when considered together with the
servicing arrangements entered into by CCB, the Firm is
deemed to be the primary beneficiary of certain
securitization trusts. See the table on page 271 of this Note
for more information on consolidated residential mortgage
securitizations.
The Firm securitizes residential mortgage loans originated
by CCB, as well as residential mortgage loans purchased
from third parties by either CCB or CIB. CCB generally
retains servicing for all residential mortgage loans
originated or purchased by CCB, and for certain mortgage
loans purchased by CIB. For securitizations holding loans
serviced by CCB, the Firm has the power to direct the
significant activities of the VIE because it is responsible for
decisions related to loan modifications and workouts. CCB
may also retain an interest upon securitization.
Residential mortgage
Notes to consolidated financial statements
267
JPMorgan Chase & Co./2015 Annual Report
(e) As of December 31, 2015 and 2014, 76% and 77%, respectively, of the Firm's retained securitization interests, which are carried at fair value, were risk-
rated "A" or better, on an S&P-equivalent basis. The retained interests in prime residential mortgages consisted of $1.9 billion and $1.1 billion of
investment-grade and $93 million and $185 million of noninvestment-grade retained interests at December 31, 2015 and 2014, respectively. The
retained interests in commercial and other securitizations trusts consisted of $3.7 billion and $3.7 billion of investment-grade and $198 million and $194
million of noninvestment-grade retained interests at December 31, 2015 and 2014, respectively.
(d) Includes interests held in re-securitization transactions.
(c) The table above excludes the following: retained servicing (see Note 17 for a discussion of MSRS); securities retained from loan sales to U.S. government
agencies; interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities (See
Note 6 for further information on derivatives); senior and subordinated securities of $163 million and $73 million, respectively, at December 31, 2015,
and $136 million and $34 million, respectively, at December 31, 2014, which the Firm purchased in connection with CIB's secondary market-making
activities.
(a) Excludes U.S. government agency securitizations. See pages 272-273 of this Note for information on the Firm's loan sales to U.S. government agencies.
(b) Consists of securities backed by commercial loans (predominantly real estate) and non-mortgage-related consumer receivables purchased from third
parties. The Firm generally does not retain a residual interest in its sponsored commercial mortgage securitization transactions.
5.2
4.2 $
1.0 $
$
As of December 31, 2015 and 2014, total assets (including
the notional amount of interest-only securities) of
nonconsolidated Firm-sponsored private-label re-
securitization entities in which the Firm has continuing
involvement were $2.2 billion and $2.9 billion, respectively.
At December 31, 2015 and 2014, the Firm held $4.6 billion
and $2.4 billion, respectively, of interests in
nonconsolidated agency re-securitization entities. The
Firm's exposure to non-consolidated private-label re-
securitization entities as of December 31, 2015 and 2014
was not material. As of December 31, 2015 and 2014, the
Firm did not consolidate any agency re-securitizations. As of
December 31, 2015 and 2014, the Firm consolidated an
insignificant amount of assets and liabilities of Firm-
sponsored private-label re-securitizations.
Multi-seller conduits
Multi-seller conduit entities are separate bankruptcy
remote entities that provide secured financing,
collateralized by pools of receivables and other financial
assets, to customers of the Firm. The conduits fund their
financing facilities through the issuance of highly rated
commercial paper. The primary source of repayment of the
commercial paper is the cash flows from the pools of assets.
In most instances, the assets are structured with deal-
specific credit enhancements provided to the conduits by
the customers (i.e., sellers) or other third parties. Deal-
specific credit enhancements are generally structured to
cover a multiple of historical losses expected on the pool of
assets, and are typically in the form of overcollateralization
provided by the seller. The deal-specific credit
enhancements mitigate the Firm's potential losses on its
agreements with the conduits.
Maximum
Fair value of assets
2014
2015
Nonconsolidated municipal bond vehicles
(in billions)
December 31,
The Firm's exposure to nonconsolidated municipal bond VIES at December 31, 2015 and 2014, including the ratings profile of
the VIES' assets, was as follows.
TOB trusts are considered to be variable interest entities.
The Firm consolidates Non-Customer TOB trusts because as
the Residual holder, the Firm has the right to make
decisions that significantly impact the economic
performance of the municipal bond vehicle, and have the
right to receive benefits and bear losses that could
potentially be significant to the municipal bond vehicle. The
Firm does not consolidate Customer TOB trusts, since the
Firm does not have the power to make decisions that
significantly impact the economic performance of the
municipal bond vehicle. Certain non-consolidated Customer
TOB trusts are sponsored by a third party, and not the Firm.
See page 271 of this Note for further information on
consolidated municipal bond vehicles.
Holders of the Floaters may "put," or tender, their Floaters
to the TOB trust. If the remarketing agent cannot
successfully remarket the Floaters to another investor, the
liquidity provider either provides a loan to the TOB trust for
the purchase of or directly purchases the tendered Floaters.
In certain Customer TOB transactions, the Firm, as liquidity
provider, has entered into a reimbursement agreement with
the Residual holder. In those transactions, upon the
termination of the vehicle, if the proceeds from the sale of
the underlying municipal bonds are not sufficient to repay
amounts owed to the Firm, as liquidity or tender option
provider, the Firm has recourse to the third party Residual
holders for any shortfall. Residual holders with
reimbursement agreements are required to post collateral
with the Firm to support such reimbursement obligations
should the market value of the underlying municipal bonds
decline. The Firm does not have any intent to protect
Residual holders from potential losses on any of the
underlying municipal bonds.
JPMorgan Chase Bank, N.A. or J.P. Morgan Securities LLC
often serves as the sole liquidity or tender option provider
for the TOB trusts. The liquidity provider's obligation to
perform is conditional and is limited by certain events
("Termination Events"), which include bankruptcy or failure
to pay by the municipal bond issuer or credit enhancement
provider, an event of taxability on the municipal bonds or
the immediate downgrade of the municipal bond to below
investment grade. In addition, the liquidity provider's
exposure is typically further limited by the high credit
quality of the underlying municipal bonds, the excess
collateralization in the vehicle, or, in certain transactions,
the reimbursement agreements with the Residual holders.
Liquidity facilities
J.P. Morgan Securities LLC may serve as a remarketing
agent on the Floaters for TOB trusts. The remarketing agent
is responsible for establishing the periodic variable rate on
the Floaters, conducting the initial placement and
remarketing tendered Floaters. The remarketing agent may,
but is not obligated to make markets in Floaters. At
December 31, 2015 and 2014, the Firm held an
insignificant amount of these Floaters on its Consolidated
balance sheets and did not hold any significant amounts
during 2015.
269
Municipal bond vehicles or tender option bond ("TOB")
trusts allow investors to finance their municipal bond
investments at short-term rates. In a typical TOB
transaction, the trust purchases highly rated municipal
bond(s) of a single issuer and funds the purchase by issuing
two types of securities: (1) puttable floating-rate
certificates ("Floaters") and (2) inverse floating-rate
residual interests ("Residuals"). The Floaters are typically
purchased by money market funds or other short-term
investors and may be tendered, with requisite notice, to the
TOB trust. The Residuals are retained by the investor
seeking to finance its municipal bond investment. TOB
transactions where the Residual is held by a third party
investor are typically known as Customer TOB trusts, and
Non-Customer TOB trusts are transactions where the
Residual is retained by the Firm. The Firm serves as sponsor
for all Non-Customer TOB transactions and certain
Customer TOB transactions established prior to 2014. The
Firm may provide various services to a TOB trust, including
remarketing agent, liquidity or tender option provider, and/
or sponsor.
Municipal bond vehicles
VIES associated with investor intermediation activities
As a financial intermediary, the Firm creates certain types
of VIES and also structures transactions with these VIES,
typically using derivatives, to meet investor needs. The Firm
may also provide liquidity and other support. The risks
inherent in the derivative instruments or liquidity
commitments are managed similarly to other credit, market
or liquidity risks to which the Firm is exposed. The principal
types of VIES for which the Firm is engaged in on behalf of
clients are municipal bond vehicles.
multi-seller conduits. The unfunded portion of these
commitments was $5.6 billion and $9.9 billion at
December 31, 2015 and 2014, respectively, and are
reported as off-balance sheet lending-related commitments.
For more information on off-balance sheet lending-related
commitments, see Note 29.
Deal-specific liquidity facilities, program-wide liquidity and
credit enhancement provided by the Firm have been
eliminated in consolidation. The Firm or the Firm-
administered multi-seller conduits provide lending-related
commitments to certain clients of the Firm-administered
In the normal course of business, JPMorgan Chase makes
markets in and invests in commercial paper issued by the
Firm-administered multi-seller conduits. The Firm held
$15.7 billion and $5.7 billion of the commercial paper
issued by the Firm-administered multi-seller conduits at
December 31, 2015 and 2014, respectively. The Firm's
investments reflect the Firm's funding needs and capacity
and were not driven by market illiquidity. The Firm is not
obligated under any agreement to purchase the commercial
paper issued by the Firm-administered multi-seller
conduits.
enhancement facilities provided to the conduits. See page
271 of this Note for further information on consolidated VIE
assets and liabilities.
JPMorgan Chase & Co./2015 Annual Report
The Firm consolidates its Firm-administered multi-seller
conduits, as the Firm has both the power to direct the
significant activities of the conduits and a potentially
significant economic interest in the conduits. As
administrative agent and in its role in structuring
transactions, the Firm makes decisions regarding asset
types and credit quality, and manages the commercial
paper funding needs of the conduits. The Firm's interests
that could potentially be significant to the VIES include the
fees received as administrative agent and liquidity and
program-wide credit enhancement provider, as well as the
potential exposure created by the liquidity and credit
To ensure timely repayment of the commercial paper, and
to provide the conduits with funding to provide financing to
customers in the event that the conduits do not obtain
funding in the commercial paper market, each asset pool
financed by the conduits has a minimum 100% deal-
specific liquidity facility associated with it provided by
JPMorgan Chase Bank, N.A. JPMorgan Chase Bank, N.A. also
provides the multi-seller conduit vehicles with uncommitted
program-wide liquidity facilities and program-wide credit
enhancement in the form of standby letters of credit. The
amount of program-wide credit enhancement required is
based upon commercial paper issuance and approximates
10% of the outstanding balance.
Notes to consolidated financial statements
2015
60
3.7 $
1,098
$
274
$
460 (c)
$
364
$
Asset-specific (b)
Allowance for loan losses by impairment methodology
13,555
$
4,315
$
3,434
$
5,806
$
Ending balance at December 31,
Formula-based
2,700
2,974
4,041
$
PCI
Formula-based
Asset-specific
Loans by impairment methodology
13,555
$
4,315
$
1
3,434
5,806
$
Total allowance for loan losses
2,742
-
-
2,742
PCI
9,715
$
9,606
6
Other
3,696
$
3,439
$
7,050
$
Beginning balance at January 1,
Allowance for loan losses
Total
Wholesale
2015
Credit card
Consumer,
excluding
credit card
Year ended December 31,
(in millions)
The table below summarizes information about the allowances for loan losses, and lending-relating commitments, and includes
a breakdown of loans and lending-related commitments by impairment methodology.
Allowance for credit losses and related information
Notes to consolidated financial statements
263
JPMorgan Chase & Co./2015 Annual Report
$
Gross charge-offs
1,658
3,488
3,663
623
3,122
(82)
Provision for loan losses
208
208
4,086
10
(5)
3,122
(1,155)
(85)
(366)
(704)
Write-offs of PCI loans (a)
Net charge-offs/(recoveries)
Gross recoveries
14,185
5,241
95
954
$
293,751
1,465
129,922
$
$ - $ - $ 193
$
Lending-related commitments by impairment methodology
Asset-specific
786
$
772
$
14
$
Total allowance for lending-related commitments
713
73
$
14 $ $ 6739
Formula-based
$
Asset-specific
Allowance for lending-related commitments by impairment methodology
193
Formula-based
Total lending-related commitments
$
excluding
Consumer,
2014
(table continued from previous page)
JPMorgan Chase & Co./2015 Annual Report
264
(d) Effective January 1, 2015, the Firm no longer includes within its disclosure of wholesale lending-related commitments the unused amount of advised uncommitted lines of
credit as it is within the Firm's discretion whether or not to make a loan under these lines, and the Firm's approval is generally required prior to funding. Prior period
amounts have been revised to conform with the current period presentation.
(c) The asset-specific credit card allowance for loan losses is related to loans that have been modified in a TDR; such allowance is calculated based on the loans' original contractual
interest rates and does not consider any incremental penalty rates.
(b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
786
(a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting
adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g., upon liquidation). During the fourth quarter
of 2014, the Firm recorded a $291 million adjustment to reduce the PCI allowance and the recorded investment in the Firm's PCI loan portfolio, primarily reflecting the
cumulative effect of interest forgiveness modifications. This adjustment had no impact to the Firm's Consolidated statements of income.
$
366,399
$
515,518
$
940,202
366,206
515,518
58,478
58,478
940,395
$
772
$
104
$
Net charge-offs
Impaired collateral-dependent loans
Total retained loans
832,792
$
357,050
$
$ - $
$ 131,387
$
41,002
4
40,998
779,695
12,095
$
1,024
356,022
$
344,355
Determining the appropriateness of the allowance is
complex and requires judgment by management about the
effect of matters that are inherently uncertain. Subsequent
evaluations of the loan portfolio, in light of the factors then
prevailing, may result in significant changes in the
allowances for loan losses and lending-related
commitments in future periods. At least quarterly, the
allowance for credit losses is reviewed by the Chief Risk
Officer, the Chief Financial Officer and the Controller of the
Firm and discussed with the Risk Policy and Audit
Committees of the Board of Directors of the Firm. As of
December 31, 2015, JPMorgan Chase deemed the
allowance for credit losses to be appropriate (i.e., sufficient
to absorb probable credit losses inherent in the portfolio).
16
120
$
14
$
Ending balance at December 31,
Other
164
163
1
622
$
$
13
$
Provision for lending-related commitments
Beginning balance at January 1,
Allowance for lending-related commitments
2,849
283
2,566
Loans measured at fair value of collateral less cost to sell
$ - $ 609
Management establishes an asset-specific allowance for
lending-related commitments that are considered impaired
and computes a formula-based allowance for performing
consumer and wholesale lending-related commitments.
These are computed using a methodology similar to that
used for the wholesale loan portfolio, modified for expected
maturities and probabilities of drawdown.
Management applies judgment within an established
framework to adjust the results of applying the statistical
calculation described above. The determination of the
appropriate adjustment is based on management's view of
loss events that have occurred but that are not yet reflected
in the loss factors and that relate to current macroeconomic
and political conditions, the quality of underwriting
standards and other relevant internal and external factors
affecting the credit quality of the portfolio. For the scored
loan portfolios, adjustments to the statistical calculation are
made in part by analyzing the historical loss experience for
each major product segment. Factors related to
unemployment, home prices, borrower behavior and lien
position, the estimated effects of the mortgage foreclosure-
related settlement with federal and state officials and
uncertainties regarding the ultimate success of loan
modifications are incorporated into the calculation, as
appropriate. For junior lien products, management
considers the delinquency and/or modification status of any
senior liens in determining the adjustment. In addition, for
the risk-rated portfolios, any adjustments made to the
statistical calculation take into consideration model
imprecision, deteriorating conditions within an industry,
product or portfolio type, geographic location, credit
concentration, and current economic events that have
occurred but that are not yet reflected in the factors used to
derive the statistical calculation.
A nationally recognized home price index measure is used
to estimate both the PD and the loss severity on residential
real estate loans at the metropolitan statistical areas
("MSA") level. Loss severity estimates are regularly
validated by comparison to actual losses recognized on
defaulted loans, market-specific real estate appraisals and
property sales activity. The economic impact of potential
modifications of residential real estate loans is not included
in the statistical calculation because of the uncertainty
regarding the type and results of such modifications.
For risk-rated loans, the statistical calculation is the product
of an estimated PD and an estimated LGD. These factors are
determined based on the credit quality and specific
attributes of the Firm's loans and lending-related
commitments to each obligor. In assessing the risk rating of
a particular loan, among the factors considered are the
obligor's debt capacity and financial flexibility, the level of
the obligor's earnings, the amount and sources for
repayment, the level and nature of contingencies,
management strength, and the industry and geography in
which the obligor operates. These factors are based on an
evaluation of historical and current information, and involve
subjective assessment and interpretation. Emphasizing one
factor over another or considering additional factors could
impact the risk rating assigned by the Firm. PD estimates
are based on observable external through-the-cycle data,
using credit-rating agency default statistics. LGD estimates
are based on the Firm's history of actual credit losses over
more than one credit cycle. Estimates of PD and LGD are
subject to periodic refinement based on changes to
underlying external and Firm-specific historical data.
Wholesale impaired loans consist of loans that have been placed on nonaccrual status and/or that have been modified in a TDR.
All impaired loans are evaluated for an asset-specific allowance as described in Note 15.
0.32%
0.25%
$ 231 $ 253
1.98%
1.60%
Wholesale impaired loans and loan modifications
0.27%
0.60%
-%
0.02%
0.63%
0.50%
0.25%
0.14%
% of criticized nonaccrual to total
real estate retained loans
17
45 $
$
The table below sets forth information about the Firm's wholesale impaired loans.
December 31,
(in millions)
Commercial
Impaired loans
2014
2015
2014
2015
2014
2015
2014
2015
0.49%
2014
2014
2015
Total
retained loans
Other
agencies
Government
Financial
institutions
Real estate
and industrial
2015
0.99%
0.98%
0.87%
1 $
520
$ 60,290
Real estate retained loans
Criticized
2015
2014
2015
2014
2015
2014
$ 51,049
652
2015
2015
(in millions, except ratios)
December 31,
Other
Commercial lessors
Multifamily
Total real estate loans
Commercial construction
and development
The following table presents additional information on the real estate class of loans within the Wholesale portfolio segment
for the periods indicated. The real estate class primarily consists of secured commercial loans mainly to borrowers for multi-
family and commercial lessor properties. Multifamily lending specifically finances apartment buildings. Commercial lessors
receive financing specifically for real estate leased to retail, office and industrial tenants. Commercial construction and
development loans represent financing for the construction of apartments, office and professional buildings and malls. Other
real estate loans include lodging, real estate investment trusts (“REITs”), single-family, homebuilders and other real estate.
2014
With an allowance
$ 20,062
$ 17,438
841
4.82%
110 $
100 $
$
126
85 $
$
Criticized nonaccrual
4.21%
1.28%
844
0.86%
1,566
2014
$ 79,113
$ 92,820
1,482
31
75
42
43
$ 7,548 $ 6,362
$ 4,920 $ 4,264
% of criticized to total real estate
retained loans
credit card Credit card
$
98
20
13
Financial institutions
484
412
243 $
297
453 $
250
Real estate
$
Commercial and industrial
2013
2014
2015
Year ended December 31, (in millions)
The following table presents the Firm's average impaired
loans for the years ended 2015, 2014 and 2013.
(c) Based upon the domicile of the borrower, largely consists of loans in the U.S.
(b) Represents the contractual amount of principal owed at December 31, 2015 and 2014. The unpaid principal balance differs from the impaired loan balances due to various
factors, including charge-offs; interest payments received and applied to the carrying value; net deferred loan fees or costs; and unamortized discount or premiums on
purchased loans.
(a) When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typically
occurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied to the loan balance.
835
17
Government agencies
-
Other
Loss factors are statistically derived and sensitive to
changes in delinquency status, credit scores, collateral
values and other risk factors. The Firm uses a number of
different forecasting models to estimate both the PD and
the loss severity, including delinquency roll rate models and
credit loss severity models. In developing PD and loss
severity assumptions, the Firm also considers known and
anticipated changes in the economic environment, including
changes in home prices, unemployment rates and other risk
indicators.
JPMorgan Chase & Co./2015 Annual Report
262
For scored loans, the statistical calculation is performed on
pools of loans with similar risk characteristics (e.g., product
type) and generally computed by applying loss factors to
outstanding principal balances over an estimated loss
emergence period. The loss emergence period represents
the time period between the date at which the loss is
estimated to have been incurred and the ultimate
realization of that loss (through a charge-off). Estimated
loss emergence periods may vary by product and may
change over time; management applies judgment in
estimating loss emergence periods, using available credit
information and trends.
The asset-specific component of the allowance for impaired
loans that have been modified in TDRS incorporates the
effects of foregone interest, if any, in the present value
calculation and also incorporates the effect of the
modification on the loan's expected cash flows, which
considers the potential for redefault. For residential real
estate loans modified in TDRs, the Firm develops product-
specific probability of default estimates, which are applied
at a loan level to compute expected losses. In developing
these probabilities of default, the Firm considers the
relationship between the credit quality characteristics of
the underlying loans and certain assumptions about home
prices and unemployment, based upon industry-wide data.
The Firm also considers its own historical loss experience to
date based on actual redefaulted modified loans. For credit
card loans modified in TDRs, expected losses incorporate
projected redefaults based on the Firm's historical
experience by type of modification program. For wholesale
loans modified in TDRs, expected losses incorporate
redefaults based on management's expectation of the
borrower's ability to repay under the modified terms.
The formula-based component is based on a statistical
calculation to provide for incurred credit losses in
performing risk-rated loans and all consumer loans, except
for any loans restructured in TDRS and PCI loans. See Note
14 for more information on PCI loans.
The Firm generally measures the asset-specific allowance as
the difference between the recorded investment in the loan
and the present value of the cash flows expected to be
collected, discounted at the loan's original effective interest
rate. Subsequent changes in impairment are reported as an
adjustment to the provision for loan losses. In certain cases,
the asset-specific allowance is determined using an
observable market price, and the allowance is measured as
the difference between the recorded investment in the loan
and the loan's fair value. Impaired collateral-dependent
loans are charged down to the fair value of collateral less
costs to sell and therefore may not be subject to an asset-
specific reserve as are other impaired loans. See Note 14
for more information about charge-offs and collateral-
dependent loans.
Note 15 - Allowance for credit losses
JPMorgan Chase's allowance for loan losses covers the
consumer, including credit card, portfolio segments
(primarily scored); and wholesale (risk-rated) portfolio, and
represents management's estimate of probable credit losses
inherent in the Firm's loan portfolio. The allowance for loan
losses includes an asset-specific component, a formula-
based component and a component related to PCI loans, as
described below. Management also estimates an allowance
for wholesale and consumer lending-related commitments
using methodologies similar to those used to estimate the
allowance on the underlying loans. During 2015, the Firm
did not make any significant changes to the methodologies
or policies used to determine its allowance for credit losses;
such policies are described in the following paragraphs.
The asset-specific component of the allowance relates to
loans considered to be impaired, which includes loans that
have been modified in TDRs as well as risk-rated loans that
have been placed on nonaccrual status. To determine the
asset-specific component of the allowance, larger loans are
evaluated individually, while smaller loans are evaluated as
pools using historical loss experience for the respective
class of assets. Scored loans (i.e., consumer loans) are
pooled by product type, while risk-rated loans (primarily
wholesale loans) are segmented by risk rating.
Notes to consolidated financial statements
261
1,209
JPMorgan Chase & Co./2015 Annual Report
Certain loan modifications are considered to be TDRs as
they provide various concessions to borrowers who are
experiencing financial difficulty. All TDRs are reported as
impaired loans in the tables above. TDRs were not material
as of December 31, 2015 and 2014.
1,124
715 $
211
155
845 $
$
129
Total(a)
(a) The related interest income on accruing impaired loans and interest income
recognized on a cash basis were not material for the years ended December 31,
2015, 2014 and 2013.
202
13 22 - - 164
345
$
4
3 $
$
36
27 $
34 $
220 $
$
$ 10 $ 15 $ - $ - $ 46 $ 89
Allowance for loan losses related
to impaired loans
Total impaired loans
3
-
87
106
193
148 $
$
522 $ 174
24
$
Without an allowance(a)
94
$ 726
363
266
669
impaired loans (b)
Unpaid principal balance of
- $
-
620 $ 198 $ 254 $ 280 $ 10 $ 18 $ - $ - $ 140 $ 141 $ 1,024
$ 87
52
$ 274
24 $
$
637 (c)
$
(c)
166
298
471
$
13
Wholesale
Consumer,
2013
Credit card securitization trusts
CIB
CCB
•
Line-of-Business Transaction Type
The following table summarizes the most significant types of Firm-sponsored VIES by business segment. The Firm considers a
"sponsored" VIE to include any entity where: (1) JPMorgan Chase is the primary beneficiary of the structure; (2) the VIE is
used by JPMorgan Chase to securitize Firm assets; (3) the VIE issues financial instruments with the JPMorgan Chase name; or
(4) the entity is a JPMorgan Chase-administered asset-backed commercial paper conduit.
For a further description of JPMorgan Chase's accounting policies regarding consolidation of VIES, see Note 1.
Note 16 - Variable interest entities
Notes to consolidated financial statements
265
JPMorgan Chase & Co./2015 Annual Report
929,472
929,678
344,032 (d)
344,238 $
$
529,383
529,383
56,057
56,057 $
950,894
950,997 $
$
$ 366,881
Mortgage securitization trusts
Mortgage and other securitization trusts
Multi-seller conduits
Investor intermediation activities:
Municipal bond vehicles
The Card business securitizes both originated and
purchased credit card loans, primarily through the Chase
Issuance Trust (the “Trust”). The Firm's continuing
involvement in credit card securitizations includes servicing
the receivables, retaining an undivided seller's interest in
the receivables, retaining certain senior and subordinated
securities and maintaining escrow accounts.
Credit card securitizations
Significant Firm-sponsored variable interest entities
The Firm also invests in and provides financing and other services to VIES sponsored by third parties, as described on page 271
of this Note.
Corporate: The Private Equity business, within Corporate, is involved with entities that may meet the definition of VIES.
However, the Firm's Private Equity business is generally subject to specialized investment company accounting, which does
not require the consolidation of investments, including VIES.
Commercial Banking: CB makes investments in and provides lending to community development entities that may meet the
definition of a VIE. In addition, CB provides financing and lending-related services to certain client-sponsored VIES. In
general, CB does not control the activities of these entities and does not consolidate these entities.
Asset Management: AM sponsors and manages certain funds that are deemed VIES. As asset manager of the funds, AM
earns a fee based on assets managed; the fee varies with each fund's investment objective and is competitively priced. For
fund entities that qualify as VIES, AM's interests are, in certain cases, considered to be significant variable interests that
result in consolidation of the financial results of these entities.
•
The Firm's other business segments are also involved with VIES, but to a lesser extent, as follows:
366,778 (d)
269-270
Assist clients in accessing the financial markets in a
cost-efficient manner and structures transactions to
meet investor needs
267-269
Securitization of both originated and purchased
residential and commercial mortgages and student
loans
267-269
Servicing and securitization of both originated and
purchased residential mortgages
266
Securitization of both originated and purchased
credit card receivables
Annual Report
page references
Activity
269-271
525,963
525,963
$
58,153
$
645
637
8
562
549
13
60
60
13 $
$
270
$
$
$
60
$
60
$
$
+A
The Firm is considered to be the primary beneficiary of
these Firm-sponsored credit card securitization trusts based
on the Firm's ability to direct the activities of these VIES
through its servicing responsibilities and other duties,
including making decisions as to the receivables that are
transferred into those trusts and as to any related
modifications and workouts. Additionally, the nature and
extent of the Firm's other continuing involvement with the
trusts, as indicated above, obligates the Firm to absorb
losses and gives the Firm the right to receive certain
benefits from these VIES that could potentially be
significant.
$
$
$
58,153
206
$
206
$
$
103 $
$
609
103
$
$
705
$
697
$
$
8
622 $
$
$
The underlying securitized credit card receivables and other
assets of the securitization trusts are available only for
payment of the beneficial interests issued by the
securitization trusts; they are not available to pay the Firm's
other obligations or the claims of the Firm's other creditors.
266
Residential mortgage:
Securitization-related
December 31, 2014 (a) (in billions)
Chase
Total
interests held
by JPMorgan
AFS
securities
Trading
assets
securitization
VIES with
continuing
involvement
VIES
VIES
nonconsolidated
Assets held
in
consolidated
held by
securitization securitization
Total assets
Assets held in
JPMorgan Chase interest in securitized
assets in nonconsolidated VIES (c)(d)(e)
Principal amount outstanding
6.0
5.1 $
Prime/Alt-A and option ARMS
$
96.3 $
2.7 $
254.3 $
$
Total
3.9
3.5
0.4
94.4
0.2
0.1
0.9 $
0.1
0.8
28.4
129.6
Commercial and other(b)
Subprime
1.2
0.7 $
0.5 $
$
78.3
25.7
$
169.6
1.6 $
Prime/Alt-A and option ARMS
Residential mortgage:
Securitization-related
VIES
VIES
December 31, 2015 (a) (in billions)
by JPMorgan
Chase
AFS
securities
Trading
assets
$
Total
interests held
Assets held in
nonconsolidated
JPMorgan Chase interest in securitized
assets in nonconsolidated VIES (c)(d)(e)
Assets held
in
held by
consolidated
securitization securitization
Total assets
Principal amount outstanding
The following table presents the total unpaid principal amount of assets held in Firm-sponsored private-label securitization
entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing
involvement includes servicing the loans; holding senior interests or subordinated interests; recourse or guarantee
arrangements; and derivative transactions. In certain instances, the Firm's only continuing involvement is servicing the loans.
See Securitization activity on page 272 of this Note for further information regarding the Firm's cash flows with and interests
retained in nonconsolidated VIES, and pages 272-273 of this Note for information on the Firm's loan sales to U.S. government
agencies.
Depending on the particular transaction, as well as the
respective business involved, the Firm may act as the
servicer of the loans and/or retain certain beneficial
interests in the securitization trusts.
Firm-sponsored mortgage and other securitization trusts
The Firm securitizes (or has securitized) originated and
purchased residential mortgages, commercial mortgages
and other consumer loans (including student loans)
primarily in its CCB and CIB businesses.
JPMorgan Chase & Co./2015 Annual Report
securitization
VIES with
continuing
involvement
The agreements with the credit card securitization trusts
require the Firm to maintain a minimum undivided interest
in the credit card trusts (which is generally 4%). As of
December 31, 2015 and 2014, the Firm held undivided
interests in Firm-sponsored credit card securitization trusts
of $13.6 billion and $10.9 billion, respectively. The Firm
maintained an average undivided interest in principal
receivables owned by those trusts of approximately 22%
for both the years ended December 31, 2015 and 2014. As
of December 31, 2015 and 2014, the Firm also retained $0
million and $40 million of senior securities, and as of both
December 31, 2015 and 2014, retained $5.3 billion of
subordinated securities in certain of its credit card
securitization trusts. The Firm's undivided interests in the
credit card trusts and securities retained are eliminated in
consolidation.
85.7 $
66.7
233.6 $
$
Total
3.9
3.5
0.4
80.3
0.1
123.5
1.4 $
Commercial and other (b)
0.1
22.6
0.1
24.4
Subprime
2.0
1.6 $
0.4 $
$
0.1
198.4
705
697
$
3,439
$
7,050
$
(5)
5
(6)
(4)
(11)
(36)
(6)
31
188
(119)
2,179
(1,872)
3,224
(269)
3,696
$
14,185 $
8,456
3,697
4,158
3,325
3.325
9,734
3,609
2,939
3,186
601 $
1,126 $
3,079
$
500 (c) $
539 $
$
16,264
$
4,013
$
3,795
$
87
414
53
53
5,501
$
12,292
2,754
6,114
151
3,831
2,132
$
16,264
$
$
$
3,795
$
8,456
Total
Wholesale
Credit card
excluding
credit card
Total
4,013
971 (c) $
2,824
4,143 $
4,472
533
533
5,802
16
3,879
1,907
4,759
12
3,429
21,936
1,318
(225)
(593)
(847)
(1,355)
(139)
(402)
(814)
7,467
241
(1,665)
$
181
1,753
8 $ - $ 697
$
3,467
362
272
$
37
$
235 $
3,105
3,351
326
154 $
$
21
$
133 $
3,025
$
724,177
$
$
705
$
7 $-$ 661
$
8 $
$
622
$
609
$
$
13
308,263
$
- 2
37
36
1
(85)
(90)
5
668
$
2
$
288,449 $ 127,465
747,508 $
$
2,029
12,020 $
$
16,264
$
4,013
$
3,795
637
8,456 $
$
3,696
$
3,439
7,050 $
$
4,158
10,353
3,832
14,185 $
$
$
236,263
$
324,502
$
$ 294,979 $ 128,027
53,061
6
53,055
46,700
4
14,686 $
46,696
307,412
17,745
845 $
$
3,115
124,350
13,785 $
221,609
686,122
323,861
125,998
653,371
JPMorgan Chase & Co./2015 Annual Report
$
(a) For 2014 and 2013, predominantly represents excess MSRs transferred to agency-sponsored trusts in exchange for stripped mortgage backed securities ("SMBS").
In each transaction, a portion of the SMBS was acquired by third parties at the transaction date; the Firm acquired and has retained the remaining balance of those
SMBS as trading securities. Also includes sales of MSRs.
Third-party mortgage loans serviced at December 31, (in billions)
Servicer advances, net of an allowance
for uncollectible amounts, at December 31, (in billions) (d)
(112)
133
109
(10)
(459) (e)
(78)
(123)
108
(541)
(245)
(218)
(510)
$
(405) $
(1,826) $
1,612
$
6,608
$
7,436
$
9,614
$
(405) $
(1,826) $
1,612
Contractual service fees, late fees and other ancillary fees included in income
$
held at December 31,
Fair value at December 31,
757
2,214
Purchase of MSRS
435
11
1
Disposition of MSRs (a)
(486)
(209)
(725)
Net additions
499
559
1,490
Changes due to collection/realization of expected cash flows
(922)
(911)
(1,102)
Changes in valuation due to inputs and assumptions:
Changes due to market interest rates and other(b)
(160)
(1,608)
2,122
Changes in valuation due to other inputs and assumptions:
Projected cash flows (e.g., cost to service)
Discount rates
Prepayment model changes and other (c)
Total changes in valuation due to other inputs and assumptions
Total changes in valuation due to inputs and assumptions
Change in unrealized gains/(losses) included in income related to MSRS
2,533
$
2,884
2015
2014
9.81%
9.80%
Impact on fair value of 10% adverse
change
$ (275)
$ (337)
Operating revenue:
Loan servicing revenue
2,776
3,303
3,552
Impact on fair value of 20% adverse
change
(529)
(652)
Changes in MSR asset fair value
due to collection/realization of
expected cash flows
(917)
Total operating revenue
1,859
(905) (1,094)
2,398 2,458
Weighted-average option adjusted spread
Impact on fair value of 100 basis points
adverse change
9.02%
9.43%
$ (258)
$
(300)
Risk management:
(in millions, except rates)
Weighted-average prepayment speed
assumption ("CPR")
December 31,
The table below outlines the key economic assumptions
used to determine the fair value of the Firm's MSRS at
December 31, 2015 and 2014, and outlines the
sensitivities of those fair values to immediate adverse
changes in those assumptions, as defined below.
Net mortgage servicing revenue:
$
3,309
$
677
$
756
$
822
$
6.5
$
8.5
$
9.6
550
1,732
(c) Represents changes in prepayments other than those attributable to changes in market interest rates.
(d) Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest, taxes and insurance), which will generally be reimbursed within a short
period of time after the advance from future cash flows from the trust or the underlying loans. The Firm's credit risk associated with these servicer advances is
minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right to stop payment to
investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if they were not made in
accordance with applicable rules and agreements.
(e) For the year ending December 31, 2014, the negative impact was primarily related to higher capital allocated to the Mortgage Servicing business, which, in turn,
resulted in an increase in the OAS. The resulting OAS assumption was consistent with capital and return requirements the Firm believed a market participant would
consider, taking into account factors such as the operating risk environment and regulatory and economic capital requirements.
276
JPMorgan Chase & Co./2015 Annual Report
2015
2014
2013
$ 769 $ 1,190
$ 3,004
The following table presents the components of mortgage
fees and related income (including the impact of MSR risk
management activities) for the years ended December 31,
2015, 2014 and 2013.
Year ended December 31,
(in millions)
CCB mortgage fees and related
income
Net production revenue
(b) Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected
prepayments.
Originations of MSRS
MSR activity:
7,614
90 days past due
2015
2014
Liquidation losses
2015
2014
Subprime
Commercial and other
Total loans securitized (b)
$ 66,708 $ 78,294
$
22,549 25,659
80,319
94,438
8,325 $ 11,363 $
5,448
6,473
1,808 1,522
1,946 $ 2,166
1,431
1,931
375
1,267
3,752 $ 5,364
$ 169,576 $ 198,391 $ 15,581 $ 19,358 $
(a) Total assets held in securitization-related SPES were $233.6 billion and $254.3 billion, respectively, at December 31, 2015 and 2014. The $169.6 billion
and $198.4 billion, respectively, of loans securitized at December 31, 2015 and 2014, excludes: $62.4 billion and $52.2 billion, respectively, of
securitized loans in which the Firm has no continuing involvement, and $1.6 billion and $3.7 billion, respectively, of loan securitizations consolidated on
the Firm's Consolidated balance sheets at December 31, 2015 and 2014.
(b) Includes securitized loans that were previously recorded at fair value and classified as trading assets.
JPMorgan Chase & Co./2015 Annual Report
273
Notes to consolidated financial statements
Note 17 - Goodwill and other intangible assets
Goodwill
Goodwill is recorded upon completion of a business
combination as the difference between the purchase price
and the fair value of the net assets acquired. Subsequent to
initial recognition, goodwill is not amortized but is tested
for impairment during the fourth quarter of each fiscal
year, or more often if events or circumstances, such as
adverse changes in the business climate, indicate there may
be impairment.
The goodwill associated with each business combination is
allocated to the related reporting units, which are
determined based on how the Firm's businesses are
managed and how they are reviewed by the Firm's
Operating Committee. The following table presents goodwill
attributed to the business segments.
December 31, (in millions)
Commercial Banking
Consumer & Community Banking
Corporate & Investment Bank
Asset Management
Corporate
Total goodwill
Securitized assets
2014
2015
Prime/ Alt-A & option ARMS
Residential mortgage:
2015
2014
2013
$ 42,161 $ 55,802 $166,028
782
Carrying value of loans sold
Proceeds received from loan
sales as cash
313 $
260 $
Proceeds from loans sales as
securities(a)
41,615
55,117
163,373
117
2015
Total proceeds received from
loan sales (b)
Gains on loan sales(c)
$
41,928 $
299 $
55,377 $164,155
316 $
302
(a) Predominantly includes securities from U.S. GSES and Ginnie Mae that
are generally sold shortly after receipt.
(b) Excludes the value of MSRS retained upon the sale of loans. Gains on
loan sales include the value of MSRs.
(c) The carrying value of the loans accounted for at fair value
approximated the proceeds received upon loan sale.
Options to repurchase delinquent loans
In addition to the Firm's obligation to repurchase certain
loans due to material breaches of representations and
warranties as discussed in Note 29, the Firm also has the
option to repurchase delinquent loans that it services for
Ginnie Mae loan pools, as well as for other U.S. government
agencies under certain arrangements. The Firm typically
elects to repurchase delinquent loans from Ginnie Mae loan
pools as it continues to service them and/or manage the
foreclosure process in accordance with the applicable
requirements, and such loans continue to be insured or
guaranteed. When the Firm's repurchase option becomes
exercisable, such loans must be reported on the
Consolidated balance sheets as a loan with a corresponding
liability. As of December 31, 2015 and 2014, the Firm had
recorded on its Consolidated balance sheets $11.1 billion
and $12.4 billion, respectively, of loans that either had
been repurchased or for which the Firm had an option to
repurchase. Predominantly all of these amounts relate to
loans that have been repurchased from Ginnie Mae loan
pools. Additionally, real estate owned resulting from
voluntary repurchases of loans was $343 million and $464
million as of December 31, 2015 and 2014, respectively.
Substantially all of these loans and real estate owned are
insured or guaranteed by U.S. government agencies. For
additional information, refer to Note 14.
Loan delinquencies and liquidation losses
The table below includes information about components of nonconsolidated securitized financial assets, in which the Firm has
continuing involvement, and delinquencies as of December 31, 2015 and 2014.
As of or for the year ended December 31, (in millions)
Securitized loans (a)
$
Impact on fair value of 200 basis points
adverse change
2014
$ 30,769 $ 30,941 $30,985
6,888
(a) Includes foreign currency translation adjustments, other tax-related
adjustments, and, during 2014, goodwill impairment associated with
the Firm's Private Equity business of $276 million.
(b) Includes $101 million of Private Equity goodwill, which was disposed
of as part of the Private Equity sale completed in January 2015.
Impairment testing
The Firm's goodwill was not impaired at December 31,
2015. Further, except for the goodwill related to its Private
Equity business, the Firm's goodwill was not impaired at
December 31, 2014. $276 million of goodwill was written
off during 2014 related to the goodwill impairment
associated with the Firm's Private Equity business. No
goodwill was written off due to impairment during 2013.
The goodwill impairment test is performed in two steps. In
the first step, the current fair value of each reporting unit is
compared with its carrying value, including goodwill. If the
fair value is in excess of the carrying value (including
goodwill), then the reporting unit's goodwill is considered
not to be impaired. If the fair value is less than the carrying
value (including goodwill), then a second step is performed.
In the second step, the implied current fair value of the
274
reporting unit's goodwill is determined by comparing the
fair value of the reporting unit (as determined in step one)
to the fair value of the net assets of the reporting unit, as if
the reporting unit were being acquired in a business
combination. The resulting implied current fair value of
goodwill is then compared with the carrying value of the
reporting unit's goodwill. If the carrying value of the
goodwill exceeds its implied current fair value, then an
impairment charge is recognized for the excess. If the
carrying value of goodwill is less than its implied current
fair value, then no goodwill impairment is recognized.
The Firm uses the reporting units' allocated equity plus
goodwill capital as a proxy for the carrying amounts of
equity for the reporting units in the goodwill impairment
testing. Reporting unit equity is determined on a similar
basis as the allocation of equity to the Firm's lines of
business, which takes into consideration the capital the
business segment would require if it were operating
independently, incorporating sufficient capital to address
regulatory capital requirements (including Basel III),
economic risk measures and capital levels for similarly
rated peers. Proposed line of business equity levels are
incorporated into the Firm's annual budget process, which
is reviewed by the Firm's Board of Directors. Allocated
equity is further reviewed on a periodic basis and updated
as needed.
The primary method the Firm uses to estimate the fair
value of its reporting units is the income approach. The
models project cash flows for the forecast period and use
the perpetuity growth method to calculate terminal values.
These cash flows and terminal values are then discounted
using an appropriate discount rate. Projections of cash
flows are based on the reporting units' earnings forecasts,
which include the estimated effects of regulatory and
legislative changes (including, but not limited to the Dodd-
Frank Wall Street Reform and Consumer Protection Act (the
"Dodd-Frank Act")), and which are reviewed with the senior
management of the Firm. The discount rate used for each
reporting unit represents an estimate of the cost of equity
for that reporting unit and is determined considering the
Firm's overall estimated cost of equity (estimated using the
Capital Asset Pricing Model), as adjusted for the risk
characteristics specific to each reporting unit (for example,
for higher levels of risk or uncertainty associated with the
business or management's forecasts and assumptions). To
assess the reasonableness of the discount rates used for
each reporting unit management compares the discount
rate to the estimated cost of equity for publicly traded
institutions with similar businesses and risk characteristics.
In addition, the weighted average cost of equity
(aggregating the various reporting units) is compared with
the Firms' overall estimated cost of equity to ensure
reasonableness.
The valuations derived from the discounted cash flow
models are then compared with market-based trading and
transaction multiples for relevant competitors. Trading and
transaction comparables are used as general indicators to
JPMorgan Chase & Co./2015 Annual Report
assess the general reasonableness of the estimated fair
values, although precise conclusions generally cannot be
drawn due to the differences that naturally exist between
the Firm's businesses and competitor institutions.
Management also takes into consideration a comparison
between the aggregate fair value of the Firm's reporting
units and JPMorgan Chase's market capitalization. In
evaluating this comparison, management considers several
factors, including (a) a control premium that would exist in
a market transaction, (b) factors related to the level of
execution risk that would exist at the firmwide level that do
not exist at the reporting unit level and (c) short-term
market volatility and other factors that do not directly
affect the value of individual reporting units.
Declines in business performance, increases in credit losses,
increases in equity capital requirements, as well as
deterioration in economic or market conditions, adverse
estimates of regulatory or legislative changes or increases
in the estimated cost of equity, could cause the estimated
fair values of the Firm's reporting units or their associated
goodwill to decline in the future, which could result in a
material impairment charge to earnings in a future period
related to some portion of the associated goodwill.
Mortgage servicing rights
Mortgage servicing rights represent the fair value of
expected future cash flows for performing servicing
activities for others. The fair value considers estimated
future servicing fees and ancillary revenue, offset by
estimated costs to service the loans, and generally declines
over time as net servicing cash flows are received,
effectively amortizing the MSR asset against contractual
servicing and ancillary fee income. MSRs are either
purchased from third parties or recognized upon sale or
securitization of mortgage loans if servicing is retained.
As permitted by U.S. GAAP, the Firm has elected to account
for its MSRS at fair value. The Firm treats its MSRs as a
single class of servicing assets based on the availability of
market inputs used to measure the fair value of its MSR
asset and its treatment of MSRS as one aggregate pool for
risk management purposes. The Firm estimates the fair
value of MSRS using an option-adjusted spread ("OAS")
model, which projects MSR cash flows over multiple interest
rate scenarios in conjunction with the Firm's prepayment
model, and then discounts these cash flows at risk-adjusted
rates. The model considers portfolio characteristics,
contractually specified servicing fees, prepayment
assumptions, delinquency rates, costs to service, late
charges and other ancillary revenue, and other economic
factors. The Firm compares fair value estimates and
assumptions to observable market data where available,
and also considers recent market activity and actual
portfolio experience.
JPMorgan Chase & Co./2015 Annual Report
275
Notes to consolidated financial statements
The fair value of MSRs is sensitive to changes in interest
rates, including their effect on prepayment speeds. MSRS
typically decrease in value when interest rates decline
because declining interest rates tend to increase
prepayments and therefore reduce the expected life of the
net servicing cash flows that consist of the MSR asset.
Conversely, securities (e.g., mortgage-backed securities),
principal-only certificates and certain derivatives (i.e.,
those for which the Firm receives fixed-rate interest
payments) increase in value when interest rates decline.
JPMorgan Chase uses combinations of derivatives and
securities to manage changes in the fair value of MSRs. The
intent is to offset any interest-rate related changes in the
fair value of MSRs with changes in the fair value of the
related risk management instruments.
The following table summarizes MSR activity for the years ended December 31, 2015, 2014 and 2013.
As of or for the year ended December 31, (in millions, except where otherwise noted)
Fair value at beginning of period
2015
2014
2013
$
7,436
$
9,614
$
$ 47,647 $ 48,081
(5)
(153)
64
43
(80)
(397)
6,772
6,780
2,861
2,861
2,862
6,923
6,964
6,969
101
-
377
$ 47,325 $ 47,647 $48,081
The following table presents changes in the carrying
amount of goodwill.
2013
Year ended December 31,
(in millions)
Balance at beginning of period $ 47,647
2014
$ 48,081
2013
$ 48,175
Changes during the period
from:
Business combinations
28
Dispositions
Other(a)
Balance at December 31,
(160) (b)
(190)
$ 47,325
2015
(498)
(578)
Changes in MSR asset fair value
191
71,390
0.17-0.72%
Senior debt:
Fixed rate
$
631
$ 1,288
$
Variable rate
Interest rates (a)
Subordinated debt:
Fixed rate
Variable rate
Interest rates (a)
10,493
0.47-1.00%
$ 1,472
7,456
0.53-4.61%
3,631
2,639
1.30-7.28%
$ 5,550
$ 3,647
$
1,461
1,150
0.83-5.88%
6.00%
4.38-8.25%
Junior subordinated debt:
Fixed rate
Variable rate
Interest rates (a)
Subtotal $ 23,451
$
$ 69,111
$ 12,887
$
$
$
156
5,000
0.50-0.70%
56,690
0.17-0.72%
9,700
0.37-0.65%
$
$ 2,292
$ 13,958
$
Variable rate
Interest rates (a)
-%
1,038
1.06-8.53%
9
3.38-8.00%
16,250
1,047
1.06-8.53%
$ 16,645
3,452
0.48-8.53%
Subtotal $
Subtotal $
27,172
$
71,277
$ 179,233
$ 170,827
Subsidiaries
Federal Home Loan Banks
("FHLB") advances:
Fixed rate
$
5
$
30
$
Variable rate
Interest rates (a)
$ 80,784
Fixed rate
Total long-term debt (b)(c)(d)
$ 50,623
Interest rates 0.45-5.16%
10,642
0.37-5.23%
1,594
2,323
0.00-15.94%
$ 14,199
16,358
0.00-15.94%
$ 5,067
$
21,573
$
3,917
$
30,557
$ 13,949
21,418
0.05-15.93%
$ 35,367
(a) The interest rates shown are the range of contractual rates in effect at year-end, including non-U.S. dollar fixed- and variable-rate issuances, which excludes the
effects of the associated derivative instruments used in hedge accounting relationships, if applicable. The use of these derivative instruments modifies the Firm's
exposure to the contractual interest rates disclosed in the table above. Including the effects of the hedge accounting derivatives, the range of modified rates in effect
at December 31, 2015, for total long-term debt was (0.19)% to 8.88%, versus the contractual range of 0.16% to 8.75% presented in the table above. The interest
rate ranges shown exclude structured notes accounted for at fair value.
(b) Included long-term debt of $76.6 billion and $69.2 billion secured by assets totaling $171.6 billion and $156.7 billion at December 31, 2015 and 2014,
respectively. The amount of long-term debt secured by assets does not include amounts related to hybrid instruments.
JPMorgan Chase & Co./2015 Annual Report
279
Notes to consolidated financial statements
(c) Included $33.1 billion and $30.2 billion of long-term debt accounted for at fair value at December 31, 2015 and 2014, respectively.
(d) Included $5.5 billion and $2.9 billion of outstanding zero-coupon notes at December 31, 2015 and 2014, respectively. The aggregate principal amount of these
notes at their respective maturities is $16.2 billion and $7.5 billion, respectively. The aggregate principal amount reflects the contractual principal payment at
maturity, which may exceed the contractual principal payment at the Firm's next call date, if applicable.
(e) Included on the Consolidated balance sheets in beneficial interests issued by consolidated VIES. Also included $787 million and $2.2 billion accounted for at fair
value at December 31, 2015 and 2014, respectively. Excluded short-term commercial paper and other short-term beneficial interests of $11.3 billion and $17.0
billion at December 31, 2015 and 2014, respectively.
(f) At December 31, 2015, long-term debt in the aggregate of $39.1 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior to maturity,
based on the terms specified in the respective instruments.
(g) The aggregate carrying values of debt that matures in each of the five years subsequent to 2015 is $50.6 billion in 2016, $49.5 billion in 2017, $39.2 billion in
2018, $30.4 billion in 2019 and $30.7 billion in 2020.
The weighted-average contractual interest rates for total
long-term debt excluding structured notes accounted for at
fair value were 2.34% and 2.42% as of December 31,
2015 and 2014, respectively. In order to modify exposure
to interest rate and currency exchange rate movements,
JPMorgan Chase utilizes derivative instruments, primarily
interest rate and cross-currency interest rate swaps, in
conjunction with some of its debt issues. The use of these
instruments modifies the Firm's interest expense on the
associated debt. The modified weighted-average interest
rates for total long-term debt, including the effects of
related derivative instruments, were 1.64% and 1.50% as
of December 31, 2015 and 2014, respectively.
JPMorgan Chase & Co. has guaranteed certain long-term
debt of its subsidiaries, including both long-term debt and
structured notes. These guarantees rank on parity with the
Firm's other unsecured and unsubordinated indebtedness.
The amount of such guaranteed long-term debt was $152
million and $352 million at December 31, 2015 and 2014,
respectively.
The Firm's unsecured debt does not contain requirements
that would call for an acceleration of payments, maturities
or changes in the structure of the existing debt, provide any
limitations on future borrowings or require additional
collateral, based on unfavorable changes in the Firm's credit
ratings, financial ratios, earnings or stock price.
Junior subordinated deferrable interest debentures held
by trusts that issued guaranteed capital debt securities
At December 31, 2015, the Firm had outstanding eight
wholly owned Delaware statutory business trusts ("issuer
trusts") that had issued trust preferred securities.
The junior subordinated deferrable interest debentures
issued by the Firm to the issuer trusts, totaling $4.0 billion
and $5.4 billion at December 31, 2015 and 2014,
respectively, were reflected on the Firm's Consolidated
balance sheets in long-term debt, and in the table on the
preceding page under the caption "Junior subordinated
debt." The Firm also records the common capital securities
issued by the issuer trusts in other assets in its Consolidated
balance sheets at December 31, 2015 and 2014. Beginning
in 2014, the debentures issued to the issuer trusts by the
Firm, less the common capital securities of the issuer trusts,
began being phased out from inclusion as Tier 1 capital
under Basel III. As of December 31, 2015 and 2014, $992
million and $2.7 billion of these debentures qualified as
Tier 1 capital, while $3.0 billion and $2.7 billion qualified
as Tier 2 capital.
280
JPMorgan Chase & Co./2015 Annual Report
$
$ 10,931
1,674
3,393
Variable rate
-%
-
$
$ 149,895
-%
717
3,252
0.83-8.75%
$
717
3,252
0.83-8.75%
-
$
$
3,969
88,133
$ 3,969
$ 288,651
Long-term beneficial interests:
20,588
0.47-7.28%
$ 105,449
$ 2,204
62,790
0.11-2.04%
$ 5,751
20,082
0.26-8.00%
$ 6,928
2,362
0.57-8.25%
$ 100,117
$ 2,185
$
3,250
0.73-8.75%
5,435
(f)(g) $276,379
Total long-term beneficial
interests (e)
Fixed rate $
$ 6,580
1,150
0.83-8.25%
Year ended December 31,
(in millions)
Subordinated debt:
44,178
0.16-7.25%
JPMorgan Chase & Co./2015 Annual Report
277
Notes to consolidated financial statements
-
Note 18 Premises and equipment
Premises and equipment, including leasehold
improvements, are carried at cost less accumulated
depreciation and amortization. JPMorgan Chase computes
depreciation using the straight-line method over the
estimated useful life of an asset. For leasehold
improvements, the Firm uses the straight-line method
computed over the lesser of the remaining term of the
leased facility or the estimated useful life of the leased
asset.
JPMorgan Chase capitalizes certain costs associated with
the acquisition or development of internal-use software.
Once the software is ready for its intended use, these costs
are amortized on a straight-line basis over the software's
expected useful life and reviewed for impairment on an
ongoing basis.
-
Note 19 Deposits
At December 31, 2015 and 2014, noninterest-bearing and
interest-bearing deposits were as follows.
December 31, (in millions)
U.S. offices
Noninterest-bearing
Interest-bearing
Demand(a)
Savings (b)
2015
2014
$ 392,721 $ 437,558
84,088
486,043
90,319
466,730
Time (included $10,916 and $7,501
at fair value) (c)
92,873
86,301
Total interest-bearing deposits
663,004
643,350
Total deposits in U.S. offices
(a) Represents both the impact of changes in estimated future
prepayments due to changes in market interest rates, and the
difference between actual and expected prepayments.
(b) Represents the aggregate impact of changes in model inputs and
assumptions such as projected cash flows (e.g., cost to service),
discount rates and changes in prepayments other than those
attributable to changes in market interest rates (e.g., changes in
prepayments due to changes in home prices).
$ 5,205
$2,513 $ 3,563
Mortgage fees and related income
CPR: Constant prepayment rate.
due to market interest rates
and other(a)
(160)
(1,606)
2,119
Other changes in MSR asset fair
value due to other inputs and
assumptions in model (b)
(245)
(218)
(511)
Change in derivative fair value
and other
288
Total risk management
1,055,725
(117)
revenue
1,742
2,370
2,191
Total CCB mortgage fees and
related income
2,511
3,560
5.195
All other
2
3
1,796 (1,875)
(28) (267)
10
The sensitivity analysis in the preceding table is
hypothetical and should be used with caution. Changes in
fair value based on variation in assumptions generally
cannot be easily extrapolated, because the relationship of
the change in the assumptions to the change in fair value
are often highly interrelated and may not be linear. In this
table, the effect that a change in a particular assumption
may have on the fair value is calculated without changing
any other assumption. In reality, changes in one factor may
result in changes in another, which would either magnify or
counteract the impact of the initial change.
Total net mortgage servicing
42,201
0.18-7.25%
1,080,908
Noninterest-bearing
2014
2015
$ 107,632
$ 134,467
70,006
72,472
$ 177,638 $ 206,939
(a) Includes payables to customers, brokers, dealers and clearing
organizations, and payables from security purchases that did not settle.
JPMorgan Chase issues long-term debt denominated in various currencies, although predominantly U.S. dollars, with both fixed
and variable interest rates. Included in senior and subordinated debt below are various equity-linked or other indexed
instruments, which the Firm has elected to measure at fair value. Changes in fair value are recorded in principal transactions
revenue in the Consolidated statements of income. The following table is a summary of long-term debt carrying values
(including unamortized premiums and discounts, issuance costs, valuation adjustments and fair value adjustments, where
applicable) by remaining contractual maturity as of December 31, 2015.
By remaining maturity at
December 31,
(in millions, except rates)
Parent company
Senior debt:
Total
2014
Total
2015
Under 1 year
1-5 years
After 5 years
Fixed rate
$
Variable rate
Interest rates (a)
12,014
15,158
0.16-7.00%
$
54,200
23,254
0.24-7.25%
$ 51,544
$ 117,758
$ 108,529
5,766
0.31-6.40%
Accounts payable and other liabilities
Total
Brokerage payables(a)
December 31, (in millions)
The following table details the components of accounts
payable and other liabilities.
Interest-bearing
Demand
18,921
19,078
278
154,773
Savings
2,157
217,011
2,673
Time (included $1,600 and $1,306 at
fair value) (c)
48,139
43,757
Total interest-bearing deposits
205,069
Non-U.S. offices
263,441
223,990
282,519
Total deposits
$1,279,715
$1,363,427
(a) Includes Negotiable Order of Withdrawal ("NOW") accounts, and
certain trust accounts.
(b) Includes Money Market Deposit Accounts ("MMDAS").
6,336
6,336
$ 92,873 $ 48,139 $ 141,012
JPMorgan Chase & Co./2015 Annual Report
Note 20 - Accounts payable and other liabilities
Accounts payable and other liabilities consist of payables to
customers; payables to brokers, dealers and clearing
organizations; payables from security purchases that did
not settle; income taxes payables; accrued expense,
including interest-bearing liabilities; and all other liabilities,
including litigation reserves and obligations to return
securities received as collateral.
Note 21 - Long-term debt
Total deposits in non-U.S. offices
The following table summarizes the activities related to
loans sold to the U.S. GSES, loans in securitization
transactions pursuant to Ginnie Mae guidelines, and other
third-party-sponsored securitization entities.
$
with the purchaser. See Note 29 for additional information
about the Firm's loan sales- and securitization-related
indemnifications.
1.8
-
1.8
2.0
0.1
1.9
Student loan securitization entities
1.5
0.7
0.8
2.2
See Note 17 for additional information about the impact of
the Firm's sale of certain excess MSRs.
0.8
Mortgage securitization entities(b)
2.6
2.6
2.7
2.7
Municipal bond vehicles
8.7
8.7
24.4
24.4
Firm-administered multi-seller conduits
27.9
Other
$
0.2
2.2
Firm-sponsored credit card trusts
VIE program type
Total
liabilities
Other(f)
Beneficial
interests in
VIE assets(e)
Total
assets(d)
Other(c)
Loans
Trading
assets
December 31, 2014 (in billions) (a)
Liabilities
Assets
42.7
0.8 $
41.9 $
$
81.6
2.8 $
75.1 $
3.7 $
$
Total
0.2
0.1
0.1
2.0
27.9 $
$
48.1
145
126,037
Total
Non-U.S.
47,791
U.S.
78,246
2,940
Total
After 5 years
2020
2019
2018
2017
2016
(in millions)
December 31, 2015
At December 31, 2015, the maturities of interest-bearing
time deposits were as follows.
43,719
$ 64,519 $ 56,983
48,091
$112,610 $ 100,702
2014
2015
Total
Non-U.S. offices
U.S. offices
December 31, (in millions)
At December 31, 2015 and 2014, time deposits in
denominations of $250,000 or more were as follows.
(c) Includes structured notes classified as deposits for which the fair value
option has been elected. For further discussion, see Note 4.
3,085
2,172
39
2,211
0.7 $
47.4 $
$
-
$
Firm-sponsored credit card trusts
VIE program type
December 31, 2015 (in billions) (a)
Total
liabilities
Other(f)
Beneficial
interests in
VIE assets(e)
Total
assets(d)
$
Other(c)
Trading
assets
Liabilities
Assets
The following table presents information on assets and liabilities related to VIES consolidated by the Firm as of December 31,
2015 and 2014.
quality of the underlying assets. Where the Firm does not
have the power to direct the activities of the VIE that most
significantly impact the VIE's economic performance, or a
variable interest that could potentially be significant, the
Firm records and reports these positions on its Consolidated
balance sheets similarly to the way it would record and
report positions in respect of any other third-party
transaction.
Consolidated VIE assets and liabilities
The Firm enters into transactions with VIES structured by
other parties. These include, for example, acting as a
derivative counterparty, liquidity provider, investor,
underwriter, placement agent, remarketing agent, trustee
or custodian. These transactions are conducted at arm's-
length, and individual credit decisions are based on the
analysis of the specific VIE, taking into consideration the
VIES sponsored by third parties
1,615
1,611
47
1,564
Loans
$
1.4
48.3 $
17.7
holder can pledge or exchange the transferred financial
assets; and (3) the Firm does not maintain effective control
over the transferred financial assets (e.g., the Firm cannot
repurchase the transferred assets before their maturity and
it does not have the ability to unilaterally cause the holder
to return the transferred assets).
For loan securitizations accounted for as a sale, the Firm
recognizes a gain or loss based on the difference between
the value of proceeds received (including cash, beneficial
interests, or servicing assets received) and the carrying
value of the assets sold. Gains and losses on securitizations
are reported in noninterest revenue.
The following table provides information related to the Firm's securitization activities for the years ended December 31, 2015,
2014 and 2013, related to assets held in JPMorgan Chase-sponsored securitization entities that were not consolidated by the
Firm, and where sale accounting was achieved based on the accounting rules in effect at the time of the securitization.
2015
2014
2013
Residential
mortgage(d)(e)
Securitization activity
Commercial
and other(e)(f)
$
3,008 $
11,933
$
Commercial
mortgage(d
(d
)(e) and other(e)(f)
2,558 $ 11,911
(d)(e)
$
Residential
Residential Commercial
mortgaged and other(e)(f)
1,404 $ 11,318
For loan securitizations in which the Firm is not required to
consolidate the trust, the Firm records the transfer of the
loan receivable to the trust as a sale when all of the
following accounting criteria for a sale are met: (1) the
transferred financial assets are legally isolated from the
Firm's creditors; (2) the transferee or beneficial interest
Loan securitizations
9.1 $
68.9 $
1.8 $
79.8
$
52.3 $
1.0 $
The Firm has securitized and sold a variety of loans,
including residential mortgage, credit card, student and
commercial (primarily related to real estate) loans, as well
as debt securities. The purposes of these securitization
transactions were to satisfy investor demand and to
generate liquidity for the Firm.
53.3
(b) Includes residential and commercial mortgage securitizations as well as re-securitizations.
(c) Includes assets classified as cash, AFS securities, and other assets within the Consolidated balance sheets.
(d) The assets of the consolidated VIES included in the program types above are used to settle the liabilities of those entities. The difference between total
assets and total liabilities recognized for consolidated VIES represents the Firm's interest in the consolidated VIES for each program type.
(e) The interest-bearing beneficial interest liabilities issued by consolidated VIES are classified in the line item on the Consolidated balance sheets titled,
"Beneficial interests issued by consolidated variable interest entities." The holders of these beneficial interests do not have recourse to the general credit
of JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $30.6 billion and $35.4 billion at December 31,
2015 and 2014, respectively. The maturities of the long-term beneficial interests as of December 31, 2015, were as follows: $5.1 billion under one year,
$21.6 billion between one and five years, and $3.9 billion over five years, all respectively.
(f) Includes liabilities classified as accounts payable and other liabilities in the Consolidated balance sheets.
JPMorgan Chase & Co./2015 Annual Report
271
Notes to consolidated financial statements
(a) Excludes intercompany transactions, which were eliminated in consolidation.
$
$
12,011
(a) Excludes re-securitization transactions.
121
Firm-administered multi-seller conduits
179
578
156
325
597
(b) Proceeds from residential mortgage securitizations were received in the form of securities. During 2015, $3.0 billion of residential mortgage
securitizations were received as securities and classified in level 2, and $59 million were classified in level 3 of the fair value hierarchy. During 2014, $2.4
billion of residential mortgage securitizations were received as securities and classified in level 2, and $185 million were classified in level 3 of the fair
value hierarchy. During 2013, $1.4 billion of residential mortgage securitizations were received as securities and classified in level 2. Proceeds from
commercial mortgage securitizations were received as securities and cash. During 2015, $12.0 billion of proceeds from commercial mortgage
securitizations were received as securities and classified in level 2, and $43 million of proceeds were classified in level 3 of the fair value hierarchy; and
zero of proceeds from commercial mortgage securitizations were received as cash. During 2014, $11.4 billion of proceeds from commercial mortgage
securitizations were received as securities and classified in level 2, and $130 million of proceeds were classified in level 3 of the fair value hierarchy: and
$568 million of proceeds from commercial mortgage securitizations were received as cash. During 2013, $11.3 billion of commercial mortgage
securitizations were classified in level 2 of the fair value hierarchy, and $207 million of proceeds from commercial mortgage securitizations were received
as cash.
(d) Includes prime, Alt-A, subprime, and option ARMs. Excludes certain loan securitization transactions entered into with Ginnie Mae, Fannie Mae and Freddie
Mac.
(e) Key assumptions used to measure residential mortgage retained interests originated during the year included weighted-average life (in years) of 4.2, 5.9
and 3.9 for the years ended December 31, 2015, 2014 and 2013, respectively, and weighted-average discount rate of 2.9%, 3.4% and 2.5% for the
years ended December 31, 2015, 2014 and 2013, respectively. Key assumptions used to measure commercial and other retained interests originated
during the year included weighted-average life (in years) of 6.2, 6.5 and 8.3 for the years ended December 31, 2015, 2014, and 2013, respectively, and
weighted-average discount rate of 4.1%, 4.8% and 3.2% for the years ended December 31, 2015, 2014 and 2013, respectively.
(f) Includes commercial and student loan securitizations.
Loans and excess MSRS sold to U.S. government-
sponsored enterprises ("U.S. GSES"), loans in
securitization transactions pursuant to Ginnie Mae
guidelines, and other third-party-sponsored
securitization entities
In addition to the amounts reported in the securitization
activity tables above, the Firm, in the normal course of
business, sells originated and purchased mortgage loans
and certain originated excess MSRS on a nonrecourse basis,
predominantly to U.S. GSES. These loans and excess MSRS
272
are sold primarily for the purpose of securitization by the
U.S. GSES, who provide certain guarantee provisions (e.g.,
credit enhancement of the loans). The Firm also sells loans
into securitization transactions pursuant to Ginnie Mae
guidelines; these loans are typically insured or guaranteed
by another U.S. government agency. The Firm does not
consolidate the securitization vehicles underlying these
transactions as it is not the primary beneficiary. For a
limited number of loan sales, the Firm is obligated to share
a portion of the credit risk associated with the sold loans
JPMorgan Chase & Co./2015 Annual Report
(c) Includes cash paid by the Firm to reacquire assets from off-balance sheet, nonconsolidated entities - for example, loan repurchases due to representation
and warranties and servicer clean-up calls.
3,022 $
528
407
3
$
3
2,569 $
557
12,079
$
4
1,410 $
576
Cash flows received on interests
11,507
Year ended December 31,
(in millions, except rates) (a)
Principal securitized
All cash flows during the period:
Proceeds from new securitizations (b)
Servicing fees collected
Purchases of previously transferred financial assets
(or the underlying collateral)(c)
5
Total
294
2.4
2.1
0.8
2.9
Student loan securitization entities
0.2
2.2
4.0
2.1
0.3
-
1.0
1.3
0.2
0.2
Other
0.7
2.1
Mortgage securitization entities (b)
3.3
0.7 $
0.1
49.0
$
$
31.2
17.8
31.2 $
12.0
12.0
Municipal bond vehicles
5.3
5.3
4.9
4.9
Very often, in our desire to exceed regulatory
requirements and to avoid making a mistake,
We have maintained high morale. Our people
have embraced the new regulations and are
working hard to become the gold standard
in how we operate. We don't spend any time
finger-pointing or scapegoating our own
eliminate frivolous conversation, force the
right questions to get to a decision, read the
riot act to someone behaving badly, maintain
a detailed follow-up list specifying who is
responsible for what and when, and ensure
the committee meets its obligations and time
commitments. And last, we encourage each
chair to ask the internal customers if he or
she is doing a good job for them.
actually have read the pre-read documents,
-
We have asked that each chair of every
committee take charge – start meetings on
time, make sure people arrive prepared and
rarely should the group exceed 12 people.
An issue should not be presented to multiple
committees when it could be dealt with in
just one committee (remember, we have new
business initiative approval committees,
credit committees, reputational risk commit-
tees, capital governance committees, global
technology architecture committees and
hundreds of others).
people, looking for someone to blame purely
for the sake of doing so when we make a
mistake. And importantly, we have main-
tained a culture that allows for mistakes.
Obviously, if someone violates our core prin-
ciples, that person should not be here. But as
you know, there are all types of mistakes.
People should not just accept bureaucracy – they
have the right to question processes and the
interpretation of rules. We have given all our
people the license to question whether what
we are doing is the right thing, including
the interpretation of rules and regulations.
In the reality of our new world, centraliza-
tion of many critical functions is an abso-
lute requirement so that we can maintain
common standards across the company.
Of course, extreme centralization can lead
to stifling bureaucracy, less innovation
and, counterintuitively, sometimes a lack
of accountability on the part of those who
should have it. Our preference is to decen-
tralize when we can, but when we have
to centralize, we need to ensure we set
up a process that's efficient, works for the
or that rules are not misapplied. For example,
Processes need to be re-engineered to be
efficient. So far, our managers have done a
great job adjusting to their new roles and,
in effect, getting the best of centralization
without its shortcomings. When, on occa-
sion, new procedures have slowed down our
response rate to the client, we quickly set
about re-engineering the process to make
it better. While we are going to meet and
exceed all rules and requirements, we need
to ensure that the process is not duplicative
who may have lost some local control.
customer and respects the internal colleagues right people need to be in the room and very
Committees need to be properly run - the chair-
person needs to take charge. We have asked all
our committees to become more efficient. For
example, we should ensure that pre-reading
materials are accurate and succinct. The
we have inaccurately interpreted a rule or
regulation and created our own excessive
bureaucracy. This is no one's fault but our
own. Everyone should look to simplify and
seek out best practices, including asking our
regulators for guidance.
With all the new rules, committees and centralization, how can you fight bureaucracy
and complacency and keep morale high?
26
adhering to the new KYC rules took us up
to 10 days to onboard a client to our Private
Bank. But today, after re-engineering the
process, we are back down to three days,
incorporating enhanced controls. We all need
to recognize that good processes generally
are faster, cheaper and safer for all involved,
including the client.
We don't want to be known as a company
that doesn't give people a second chance
regardless of the circumstances. I remind all
our managers that some of these mistakes
will be made by our children, our spouses
Consumer digital. We are intently focused
on delivering differentiated digital experi-
ences across our consumer businesses.
For example, we added new functionality
to our mobile app with account preview
and check viewing, and we redesigned
chase.com with simpler navigation and
more personalized experiences, making
it easier for our customers to bank and
interact with us when and how they want
- via smartphones, laptops and other
mobile devices. We now have nearly 23
million active Chase Mobile customers,
-
We want JPMorgan Chase to be considered the best place to
work - period. Below are some meaningful new programs
that will help us both attract talent and keep our best people.
Our ReEntry program. Our ReEntry program, now in its third
year, has been incredibly successful in helping individuals
who have taken a five- to 10-year or longer voluntary break
get back into the workforce. These are highly accomplished
professionals who have prior financial services experience
at or above the vice president level but who may need
help re-entering the corporate work environment. We offer
participants an 18-week fellowship to refresh their skills and
rebuild their network. It is a great way to bring outstanding,
experienced workers - who often are women to JPMorgan
Chase to begin the second phase of their career. In three
years, 63 fellows have been brought into the program, and
50 of those fellows have been placed in full-time roles.
28
a 20% increase over the prior year.
25
We have thousands of such projects, but I
just want to give you a sample of some of
our current initiatives (I will talk extensively
later about investments in payments, in big
data and in our Investment Bank):
One of our growing teams is our digital
group, including more than 400 profes-
sionals focused on product and platform
design and innovation. In addition, the digital
technology organization has over 1,200
technologists that deliver digital solutions,
including frameworks, development and
architecture. This is an exceptional group,
but you can judge for yourself when you
read about some of the great projects being
rolled out.
of people across Legal, Finance, Technology
and Client Coverage & Support working
together to understand, simplify and auto-
mate processes.
We need to innovate in both big and small ways.
Technology often comes in big waves such
as computerization, the Internet and mobile
devices. However, plenty of important
innovation involves lots of little things that
are additive over time and make a product
or a service better or faster; for example,
simplifying online applications, improving
ATMs to do more (e.g., depositing checks)
and speeding up credit underwriting. Many
of these improvements were not just the
result of technology but the result of teams
How are you doing retaining key people?
=
How do you view innovation, technology and FinTech? And have banks been good innovators?
Do you have economies of scale, and how are they benefiting your clients?
vating to serve our clients better, faster and
cheaper year after year.
Many of the new and exciting things we are
doing center on technology, including big
data and FinTech. We are continually inno-
IV. WE ARE HERE TO SERVE OUR CLIENTS
27
Our company has stood the test of time
because we are building a strong culture and
are embedding our principles in everything
we do. Nothing is more important. That is
the pillar upon which all things rest – and it
is the foundation for a successful future.
or our parents. Having a brutal, uncompro-
mising and unforgiving company will create
a terrible culture over time - and it will lead
to worse conduct not better.
Quite well, thank you. The Board of Directors
and I feel we have one of the best manage-
ment teams we have ever had. Many of our
investors who have spent a considerable
amount of time with our leaders – not just
with my direct reports but with the layer
of management below them - will tell you
how impressed they are with the depth and
breadth of our management team. Of course,
we have lost some people, but we wish them
well - we are proud of our alumni. One of
the negatives of being a good company is
that you do become a breeding ground for
talent and a recruiting target for competitors.
It is the job of our management team to keep
our key talent educated, engaged, motivated
and happy. Our people are so good that we
should say thank you every day.
We have to be innovating all the time to
succeed. Investing in the future is critical
to our business and crucial for our growth.
Every year we ask, "Are we doing enough?
And should we be spending more?" We do
not cut back on “good spending” to meet
budget or earnings targets. We view this type
of cost cutting like an airline scaling back
on maintenance - it's a bad idea. We spent
more than $9 billion last year on technology.
Importantly, 30% of this total amount was
spent on new investments for the future.
Today, we have more than 40,000 technolo-
gists, from programmers and analysts to
systems engineers and application designers.
In addition, our resources include 31 data
centers, 67,000 physical servers globally,
27,920 databases and a global network that
operates smoothly for all our clients. There
are many new technologies that I will not
discuss here (think cloud, containerization
and virtualization) but which will make
every single part of this ecosystem increas-
ingly more efficient over time.
Work-life balance. We speak consistently about the need for our
employees to take care of their minds, their bodies and their
souls. This is the responsibility of each and every employee, but
there are also ways the firm can help. People frequently think
work-life balance refers to working parents; however, having an
effective balance is important for everyone's well-being, including
our junior investment bankers. In the Investment Bank, we have
reduced weekend work to only essential execution work for all
employees. And the protected weekend program for analysts
and associates will remain in place and now is mandatory for all
at this level globally.
WE HAVE IMPLEMENTED A NUMBER OF POLICIES AND PROGRAMS TO MAKE JPMORGAN CHASE AN EVEN BETTER PLACE TO WORK
Maternity mentors. A common reason for taking a prolonged
break from work is the birth of a child. Becoming a parent is
both joyful and stressful so we want to do everything we can
to support our employees through this life-changing event.
Last year, we extended primary caregiver parental leave to
16 weeks, up from 12, and, this year, we are introducing a
firmwide maternity mentorship program. The program will
pair senior employees who have gone through the parental
leave process with those who are doing so for the first time.
It was piloted last year to overwhelmingly positive feedback,
with participants expressing deep appreciation for having a
colleague they could turn to for advice on everything from
That said, we acknowledge that we, at times,
have fallen short of the standards we have
set for ourselves. This year, the company
pleaded guilty to a single antitrust viola-
tion as part of a settlement with the U.S.
Department of Justice related to foreign
exchange activities. The conduct underlying
the antitrust charge is principally attribut-
able to a single trader (who has since been
dismissed) and his coordination with traders
at other firms. As we said at the time, one
We reinforce our culture every chance we get.
Our Business Principles are at the forefront
of everything we do, and we need to make
these principles part of every major conver-
sation at the company – from the hiring,
onboarding and training of new recruits to
town halls and management meetings to how
we reward and incentivize our people. To
get better at this, last year we met with more
than 16,000 employees in 1,400 focus groups
around the world to get their feedback on
some of our challenges and what we can do
to strengthen and improve our culture.
-
How are you ensuring you have the right conduct and culture?
Even though we believe that we have excel-
lent people and a strong, positive corporate
culture, we are always examining new ways
to improve.
Traveling with me, you would see our senior
leadership team's exceptional character,
culture and capability. You also would
probably notice that 20% of this leadership
group, over 250 teammates who manage
our businesses worldwide, is ethnically
diverse, and more than 30% are women.
to virtually all major cities and coun-
tries, you would see firsthand your company
in action and the high quality and character
of our people. JPMorgan Chase and all its
predecessor companies have prided them-
selves on doing "only first-class business and
in a first-class way." Much of the capability
of this company resides in the knowledge,
expertise and relationships of our people. And
while we always try to bring in fresh talent
and new perspectives, we are proud that our
senior bankers have an average tenure of 15
years. This is testament to their experience,
and it means they know who to call anywhere
around the world to bring the full resources of
JPMorgan Chase to bear for our clients.
me,
If you were able to travel the world with
III. WE ACTIVELY DEVELOP AND SUPPORT OUR EMPLOYEES
21
Privacy is of the utmost importance. We
need to protect our customers and their data.
We are now actively working with all third
parties who are willing to work with us to set
up data sharing the right way.
Pushing specific information has another
benefit: Customers do not need to provide
their bank passcode. When customers
give out their bank passcode, they may
not realize that if a rogue employee at
an aggregator uses this passcode to steal
money from the customer's account, the
customer, not the bank, is responsible for
any loss. You can rest assured that when
the bank is responsible for the loss, the
customer will be fully reimbursed. That
is not quite clear with many third parties.
This lack of clarity and transparency isn't
fair or right.
We simply are asking third parties to limit
themselves to what they need in order to
serve the customer and to let the customer
know exactly what information is being used
and why and how. In the future, instead
of giving a third party unlimited access to
information in any bank account, we hope to
build systems that allow us to "push" infor-
mation and only that information agreed to
by the customer - to that third party.
longer be using.
lesson is that the conduct of a small group of
employees, or of even a single employee, can
reflect badly on all of us and can have signifi-
cant ramifications for the entire firm. That's
why we must be ever vigilant in our commit-
ment to fortify our controls and enhance
our historically strong culture, continuing
to underscore that doing the right thing is
the responsibility of every employee at the
company. We all have an obligation to treat
our customers and clients fairly, to raise our
hand when we see something wrong or to
speak up
about something that we should
improve - rather than just complain about it
or ignore it.
for years after the customer signed up
for the services, which they may no
We have intensified training and development.
We are committed to properly training and
developing our people to enable them to
grow and succeed throughout their careers.
Our intent is to create effective leaders who
embody our Business Principles.
WE ARE HELPING OUR EMPLOYEES STAY HEALTHY
24
how to balance work with their new home dynamic to nursing
room protocol. Importantly, these senior mentors also provide
peace of mind around job security and how to manage the
entire transition, from preparing to leave, managing mother-
hood during the leave and returning to work. In addition, this
program not only supports the employee going out on mater-
nity leave, but it also helps educate the employee's manager
- on how to stay connected with the employee and ensure that
the leave is being handled with flexibility and sensitivity in order
to give the employee comfort that her role will be there upon
her return.
But there is one area where we simply have
not met the standards that JPMorgan Chase
sets for itself and that is in increasing
African-American talent at the firm. While
we think our effort to attract and retain
African-American talent is as good as at
most other companies, it simply is not good
enough. Therefore, we set up a devoted effort
- as we did for hiring veterans (we've hired
10,000+ veterans) – to dramatically step up
our effort. We have launched Advancing
Black Leaders
- a separately staffed and
managed initiative to better attract and
hire more African-American talent while
retaining, developing and advancing the
African-American talent we already have.
We are taking definitive steps to ensure
a successful outcome, including an incre-
mental $5 million investment, identifying a
full-time senior executive to drive the initia-
tive, tripling the number of scholarships
we offer to students in this community, and
launching bias-awareness training for all
executive directors and managing directors.
We hope that, over the years, this concerted
action will make a huge difference.
20,000 members globally, and we have seen a
direct correlation between BRG membership
and increased promotion, mobility and reten-
tion for those participants. On the facing page,
you can read more about some of the inter-
esting new programs we have rolled out for
employees in specific situations.
To encourage diversity and inclusion in the
workplace, we have a number of Business
Resource Groups (BRG) across the company
to bring together members around common
interests, as well as foster networking and
camaraderie. Groups are defined by shared
affinities, including race and cultural heritage,
generation, gender, sexual orientation, mili-
tary status and professional role. For example,
some of our largest BRGs are Adelante for
Hispanic and Latino employees, Access Ability
for employees affected by a disability, ASPIRE
for Asian and Pacific Islander employees,
NextGen for early career professionals and
WIN, which focuses on women and their
career development. WIN has more than
Our women leaders represent more than
30% of our company's senior leadership,
and they run major businesses – several
units on their own would be among Fortune
1000 companies. In addition to having three
women on our Operating Committee –
who run Asset Management, Finance and
Legal - some of our other businesses and
functions headed by women include Auto
Finance, Business Banking, U.S. Private Bank,
U.S. Mergers & Acquisitions, Global Equity
Capital Markets, Global Research, Regulatory
Affairs, Global Philanthropy, our U.S. branch
network and firmwide Marketing. I believe
that we have some of the best women leaders
in the corporate world globally.
We are proud of our diversity ... but we have more
to do.
How are you doing in your diversity efforts?
about business issues we have confronted
and mistakes we have made. In its inaugural
year, more than 4,500 managers attended
programs with 156 sessions held at 20+
global locations. During 2016, over 13,000
managers are expected to attend. I person-
ally take part in many of these sessions,
which are now being held next to our New
York City headquarters at The Pierpont
Leadership Center, a state-of-the-art flagship
training center that opened in January 2016.
JPMorgan Chase has 3,000 training
programs, but we realized that we lacked a
very important one: new manager develop-
ment. Prior to 2015, when our employees
became managers at the firm for the first
time, we basically left them on their own to
figure out their new responsibilities. In 2015,
we launched JPMorgan Chase's Leadership
Edge, a firmwide program to train leaders
and develop management skills. These
training programs inculcate our leadership
with our values, teaching from case studies
23
Maintaining a healthy lifestyle shouldn't be a chore - it
should be fun. Last year, we held our second StepUp
challenge, a global competition that not only kept our
employees active, it supported five charities that feed the
hungry. More than 11,000 teams – a total of over 83,000
employees added up their daily steps to take a virtual walk
around the world. They began their journey in New York City
and made virtual stops at seven of our office locations before
finishing in Sydney. Together, they logged a total of 28.2
billion steps, which resulted in the firm donating more than
$2 million to the five designated charities - enough to fund
millions of meals around the world.
One of the flagships of our Wellness Program is our Health
& Wellness Center network. Twenty-seven of our 29 centers
in the United States are staffed with at least one doctor.
Nearly half of our employees have access to a local center,
and 56% of those with access walked in for a visit last year.
These facilities are vitally important to our people. In 2015,
these centers handled nearly 800 emergencies - including
the 100 potentially life-saving interventions, which I
mentioned above.
Our benefits offering is supported by an extensive Wellness
Program, which is designed to empower employees to take charge
of their health. This includes health and wellness centers, health
assessments and screenings, health advocates, employee assis-
tance and emotional well-being programs, and physical activity
events. In the first year, only 36% of employees participated in
health assessments and wellness screenings, but in 2015, 74% of
our employees enrolled in the medical plan completed an assess-
ment and screening. Last year, our on-site wellness screenings
helped almost 14,000 employees detect a health risk or poten-
tially serious condition and directed them to see a physician for
follow-up. On another subject, we all know the value of eating lots
of vegetables, so we've made it a priority to offer an abundance
of healthy meal and snack options in our on-site cafeterias and
vending machines.
For us, having healthy employees is about more than improving
the firm's bottom line; it's about improving our employees' lives
- and sometimes even saving lives. In 2015, we estimate that our
Health & Wellness Centers intervened in more than 100 poten-
tially life-threatening situations (e.g., urgent cardiac or respiratory
issues), and many more lives have been positively impacted by our
numerous wellness initiatives. We believe that healthy employees
are happy employees and that happy employees have more
rewarding lives both inside and outside the office.
22
Often this is being done on a daily basis
Our commitment starts with offering comprehensive benefits
programs and policies that support our employees and their
families. To do this, JPMorgan Chase spent $1.1 billion in 2015
on medical benefits for employees based in the United States,
where our medical plan covers more than 190,000 employees,
spouses and partners. We tier our insurance subsidies so our
higher earners pay more, and our lower earners pay less - making
coverage appropriately affordable for all. We also contributed
nearly $100 million in 2015 for employees' Medical Reimbursement
Accounts. And we have structured the plan in a way that preventa-
tive care and screenings are paid for by the company.
When we all readily click “I agree” online
or on our mobile devices, allowing third-
party access to our bank accounts and
financial information, it is fairly clear
that most of us have no idea what we
are agreeing to or how that informa-
tion might be used by a third party. We
have analyzed many of the contracts of
these third parties and have come to the
following conclusions:
Market-makers hold less inventory - prob-
ably due to the higher capital and liquidity
required to be held against trading assets.
There are multiple reasons why this volatility may
be happening:
•
•
One of the surprises is that these markets are
some of the most actively traded, liquid and
standardized in the world. The good news is
that the system is resilient enough to handle
the volatility. The bad news is that we don't
completely understand why this is happening.
In the last year or two, we have seen
extreme volatility in the U.S. Treasury
market, the Gio foreign exchange markets
and the U.S. equity markets. We have also
seen more than normal volatility in global
credit markets. These violent market swings
are usually an indication of poor liquidity.
Another peculiar event in the market is tech-
nical but important: U.S. Treasuries have
been selling at a discount to their maturity-
related interest rate swaps.
Liquidity has gotten worse and we have seen
extreme volatility and distortions in several
markets.
It is good to have healthy markets - it
sounds obvious, but it's worth repeating.
There are markets in virtually everything
- from corn, soybeans and wheat to eggs,
chicken and pork to cotton, commodities
and even the weather. For some reason,
the debate about having healthy financial
markets has become less civil and rational.
Healthy financial markets allow investors
to buy cheaper and issuers to issue cheaper.
It is important to have liquidity in difficult
times in the financial markets because
investors and corporations often have a
greater and unexpected need for cash.
Are you worried about liquidity in the marketplace? What does it mean for JPMorgan Chase,
its clients and the broader economy?
adding to their foreign exchange reserve
(such as China) and U.S. commercial banks
(in order to meet liquidity requirements).
These three buyers of U.S. Treasuries will not
be there in the future. If we ever get a little
more consumer and business confidence,
that would increase the demand for credit,
as well as reduce the incentive and desire
of certain investors to buy U.S. Treasuries
because Treasuries are the "safe haven." If
this scenario were to happen with interest
rates on 10-year Treasuries on the rise, the
result is unlikely to be as smooth as we all
might hope for.
I am a little more concerned about the
site: seeing interest rates rise faster than
people expect. We hope rates will rise for a
good reason; i.e., strong growth in the United
States. Deflationary forces are receding -
the deflationary effects of a stronger U.S.
dollar plus low commodity and oil prices
will disappear. Wages appear to be going up,
and China seems to be stabilizing. Finally,
on a technical basis, the largest buyers of
U.S. Treasuries since the Great Recession
have been the U.S. Federal Reserve, countries
oppo-
growth rates and varying monetary and fiscal
policies will have different interest rates and
currency movements.
Far more information is taken than the
third party needs in order to do its job.
Many third parties sell or trade infor-
mation in a way customers may not
understand, and the third parties,
quite often, are doing it for their own
economic benefit - not for the custom-
er's benefit.
is also natural that countries with different
Smaller sizes of trades being offered. It
is true that the bid-ask spreads are still
narrow but only if you are buying or selling
a small amount of securities.
Lower availability and higher cost of securi-
ties financing (securities financing is very
short-term borrowing, fully and safely collat-
eralized by Treasuries and agency securi-
ties), which often is used for normal money
market operations - movement of collat-
eral, short-term money market investing
and legitimate hedging activities. This is
clearly due to the higher cost of capital and
liquidity under the new capital rules.
There are fewer market-makers in many
markets.
•
•
We necessarily have a huge amount of data
about our customers because of under-
writing, credit card transactions and other
activities, and we use some of this data to
help serve our customers better (I'll speak
more about big data later in this letter).
And we do extensive work to protect our
customers and their data - think cyber-
security, fraud protection, etc. We always
start from the position that we want to be
customer friendly. One item that I think
warrants special attention is when our
customers want to allow outside parties to
have access to their bank accounts and their
bank account information. Our customers
have done this with payment companies,
aggregators, financial planners and others.
We want to be helpful, but we have a respon-
sibility to each of our customers, and we are
extremely concerned. Let me explain why:
We need to protect our customers, their data and
our company.
Why are you making such a big deal about protecting customers' data in your bank?
20
JPMorgan Chase is well-positioned regardless.
It is important for you to know that we
are not overly worried about these issues
for JPMorgan Chase. We always try to be
prepared to handle violent markets. Our
actual trading businesses are very strong
(and it should give you some comfort to
know that in all the trading days over the last
three years, we only had losses on fewer than
20 days, which is extraordinary). Sometimes
wider spreads actually help market-makers,
and some repricing of balance sheet posi-
tions, like repo, already have helped the
consistency of our results. As usual, we try to
be there for our clients – in good times and,
more important, in tough times.
19
In bad markets, liquidity normally dries up
a bit - the risk is that it will disappear more
quickly. Many of the new rules are even
more procyclical than they were in the 2008
financial crisis. In addition, psychologically,
the Great Recession is still front and center in
people's minds, and the instinct to run for the
exit may continue to be strong. The real risk
is that high volatility, rapidly dropping prices,
and the inability of certain investors and
issuers to raise money may not be isolated to
the financial markets. These may feed back
into the real economy as they did in 2008.
The trading markets are adjusting to the new
world. There are many non-bank participants
that are starting to fill in some of the gaps.
Even corporations are holding more cash and
liquidity to be more prepared for tough times.
So this is something to keep an eye on - - but
not something to panic about.
We really need to be prepared for the effects of
illiquidity when we have bad markets.
In a capitalistic and competitive system,
we are completely supportive of competi-
tors trying to fill marketplace needs. One
warning, however: Non-bank lenders that
borrow from individuals and hedge funds
or that rely on asset-backed securities will be
unable to get all the funding they need in a
crisis. This is not a systemic issue because
they are still small in size, but it will affect
funding to individuals, small businesses and
some middle market companies.
One could reasonably argue that lower
liquidity and higher volatility are not neces-
sarily a bad thing. We may have had artifi-
cially higher liquidity in the past, and we are
experiencing a return closer to normal. You
certainly could argue that if this is a cost of
a stronger financial system, it is a reason-
able tradeoff. Remember, the real cost is that
purchasers and issuers of securities will, over
time, simply pay more to buy or sell. In any
event, lower liquidity and higher volatility
are probably here to stay, and everyone will
just have to learn to live with them.
-
In our opinion, lower liquidity and higher
volatility are here to stay.
All trading positions have capital, liquidity,
disclosure and Volcker Rule requirements -
and they cause high GSIB capital surcharges
and CCAR losses. It is virtually impossible
to figure out the cumulative effect of all the
requirements or what contributes to what.
Possible structural issues; e.g., high-
frequency trading. High-frequency
trading usually takes place in small incre-
ments with most high-frequency traders
beginning and ending the day with very
little inventory. It appears that traders add
liquidity during the day in liquid markets,
but they mostly disappear in illiquid
markets. (I should point out that many
dealers also disappear in illiquid markets.)
The requirement to report all trades.
This makes it much more difficult to buy
securities in quantity, particularly illiquid
securities, because the whole world knows
your positions. This has led to a greater
discount for almost all off-the-run securi-
ties (these are the securities of an issuer
that are less regularly traded).
Incomplete and sometimes confusing
rules around securitizations and mort-
gages. We still have not finished all
the rules around securitizations and in
conjunction with far higher capital costs
against certain types of securitizations.
We have not had a healthy return to the
securitization market.
Earnings per share ("EPS") is calculated under the two-class
method under which all earnings (distributed and
undistributed) are allocated to each class of common stock
and participating securities based on their respective rights
to receive dividends. JPMorgan Chase grants restricted
stock and RSUs to certain employees under its stock-based
compensation programs, which entitle recipients to receive
nonforfeitable dividends during the vesting period on a
basis equivalent to the dividends paid to holders of common
stock; these unvested awards meet the definition of
participating securities. Options issued under employee
benefit plans that have an antidilutive effect are excluded
from the computation of diluted EPS.
282
As of December 31, 2015, approximately 195 million
unissued shares of common stock were reserved for
issuance under various employee incentive, compensation,
option and stock purchase plans, director compensation
plans, and the Warrants, as discussed above.
The following table sets forth the Firm's repurchases of
common equity for the years ended December 31, 2015,
2014 and 2013, on a settlement-date basis. There were no
warrants repurchased during the years ended
December 31, 2015, 2014 and 2013.
On March 11, 2015, in conjunction with the Federal
Reserve's release of its 2015 Comprehensive Capital
Analysis and Review ("CCAR") results, the Firm's Board of
Directors has authorized a $6.4 billion common equity (i.e.,
common stock and warrants) repurchase program. As of
December 31, 2015, $2.7 billion (on a settlement-date
basis) of authorized repurchase capacity remained under
the program. This authorization includes shares
repurchased to offset issuances under the Firm's equity-
based compensation plans.
At December 31, 2015, 2014, and 2013, respectively, the
Firm had 47.4 million, 59.8 million and 59.8 million
warrants outstanding to purchase shares of common stock
(the "Warrants"). The Warrants are currently traded on the
New York Stock Exchange, and they are exercisable, in
whole or in part, at any time and from time to time until
October 28, 2018. The original warrant exercise price was
$42.42 per share. The number of shares issuable upon the
exercise of each warrant and the warrant exercise price is
subject to adjustment upon the occurrence of certain
events, including, but not limited to, the extent to which
regular quarterly cash dividends exceed $0.38 per share.
As a result of the Firm's quarterly common stock dividend
exceeding $0.38 per share commencing with the second
quarter of 2014, the exercise price of the Warrants has
been adjusted each subsequent quarter, and was $42.284
as of December 31, 2015. There has been no change in the
number of shares issuable upon exercise.
JPMorgan Chase & Co./2015 Annual Report
Note 24 - Earnings per share
3,714.8 3,756.1
1.0
Outstanding at December 31
Total treasury - balance at
December 31
48.2
41.0
38.5
Total issued from treasury
1.1
1.2
The following table presents the calculation of basic and
diluted EPS for the years ended December 31, 2015, 2014
and 2013.
Employee stock purchase plans
4.7
(441.4) (390.1) (348.8)
3,663.5
Year ended December 31,
(in millions,
2014
Basic earnings per share
Net income
$ 22,406 $ 20,077 $ 16,557
exercise
Net income applicable to common
stockholders
96.1
82.3
89.8
Total number of shares of common stock
repurchased
2013
2015
Year ended December 31, (in millions)
except per share amounts)
524
521
Less: Dividends and undistributed
earnings allocated to participating
securities
20,620 17,081
22,927
$ 24,442 $ 21,745 $ 17,886
1,515 1,125
805
2013
2014
2015
Net income applicable to common
equity
Less: Preferred stock dividends
543
Issuance of shares for warrant
Tax
effect
39.8
7.900% 4/30/2018 4/30/2018 LIBOR + 3.47 %
5.150
6.000
6.750
6.125
5/1/2023 5/1/2023
8/1/2023 8/1/2023
2/1/2024 2/1/2024
4/30/2024 4/30/2024
7/1/2019 7/1/2019
10/1/2024 10/1/2024
5/1/2020 5/1/2020
5.000
6.100
5.300
1,000 3/10/2014
2,500 6/9/2014
1,600 9/23/2014
4/21/2015
Tax
Pretax effect
After-
tax
Pretax
After-
tax
Unrealized gains/(losses) on investment
LIBOR + 3.25
securities:
$(3,315) $ 1,297 $(2,018) $3,193 $(1,170) $2,023
$(5,987) $2,323 $(3,664)
Reclassification adjustment for realized (gains)/
losses included in net income (a)
(202)
76
Net change
(3,517)
(126)
(77)
1,373 (2,144) 3,116
29
(1,141)
Aggregate purchase price of common
stock repurchases
Net unrealized gains/(losses) arising during the
period
47.1
LIBOR + 3.30
LIBOR + 3.33
32.8
compensation plans
Employee benefits and
4,104.9 4,104.9 4,104.9
(390.1) (348.8) (300.9)
(89.8) (82.3) (96.1)
2013
2014
2015
Total issued - balance at
January 1 and December 31
Treasury - balance at January 1
Purchase of treasury stock
Issued from treasury:
Year ended December 31,
(in millions)
Common shares issued (newly issued or distributed from
treasury) by JPMorgan Chase during the years ended
December 31, 2015, 2014 and 2013 were as follows.
LIBOR + 3.78
At December 31, 2015 and 2014, JPMorgan Chase was
authorized to issue 9.0 billion shares of common stock with
a par value of $1 per share.
Each series of the Firm's preferred stock may be redeemed
on any dividend payment date on or after the earliest
redemption date for that series. All outstanding preferred
stock series except Series I may also be redeemed following
a “capital treatment event", as described in the terms of
each series. Any redemption of the Firm's preferred stock is
subject to non-objection from the Board of Governors of the
Federal Reserve System (the "Federal Reserve").
Redemption rights
On September 1, 2013, the Firm redeemed all of the
outstanding shares of its 8.625% Non-Cumulative Preferred
Stock, Series J at their stated redemption value.
Dividends on fixed-rate preferred stock are payable
quarterly. Dividends on fixed-to-floating-rate preferred
stock are payable semiannually while at a fixed rate, and
will become payable quarterly after converting to a floating
rate.
Each series of preferred stock has a liquidation value and
redemption price per share of $10,000, plus any accrued
but unpaid dividends.
(a) Represented by depositary shares.
2,606,750 2,006,250 $ 26,068 $ 20,063
Total preferred stock
LIBOR + 3.33
LIBOR + 3.80
LIBOR + 3.32
Note 23 - Common stock
$ 5,616 $ 4,760 $ 4,789
$
Total weighted-average basic
shares outstanding
(95)
$
(147)
$
$ 4,773
Balance at December 31, 2014
990
(1,018)
44
(11)
1,975
Net change
$ 1,199
(1,324)
$
(139)
Basel III Advanced
$
(136)
$
$ 2,798
(2,342)
$
2,189
Net change
(48) (667) 261 (406)
1,975 (6,654) 2,584 (4,070)
After-
tax
2013
2014
2015
Tax
effect
Pretax
Year ended December 31, (in millions)
The following table presents the before- and after-tax changes in the components of other comprehensive income/(loss).
(a) Represents the after-tax difference between the fair value and amortized cost of securities accounted for as AFS including, as of the date of transfer during
2014, $9 million of net unrealized losses related to AFS securities that were transferred to HTM. Subsequent to transfer, includes any net unamortized
unrealized gains and losses related to the transferred securities.
$ 192
Balance at December 31, 2013
$ (2,231)
$
(162)
$
$ 2,629
Balance at December 31, 2015
(1,997)
111
51
(15)
(2,144)
(44)
(2,903)
1,467
(259)
283
JPMorgan Chase & Co./2015 Annual Report
(b) Participating securities were included in the calculation of diluted EPS using the
two-class method, as this computation was more dilutive than the calculation
using the treasury stock method.
(a) Excluded from the computation of diluted EPS (due to the antidilutive effect)
were certain options issued under employee benefit plans. The aggregate
number of shares issuable upon the exercise of such options was not material for
the year ended December 31, 2015, and 1 million and 6 million for the years
ended December 31, 2014 and 2013, respectively.
3,814.9
4.34
3,732.8 3,797.5
6.00 $ 5.29 $
$
32.5
34.0
32.4
Notes to consolidated financial statements
3,763.5 3,782.4
$ 22,406 $ 20,077 $ 16,557
$ 6.05 $ 5.33 $ 4.38
3,700.4 3,763.5 3,782.4
Net income per share
Total weighted-average diluted
shares outstanding (b)
Add: Employee stock options, SARS
and warrants (a)
Total weighted-average basic shares
outstanding
Net income applicable to common
stockholders
Diluted earnings per share
Net income per share
3,700.4
The Firm may, from time to time, enter into written trading
plans under Rule 10b5-1 of the Securities Exchange Act of
1934 to facilitate repurchases in accordance with the
common equity repurchase program. A Rule 10b5-1
repurchase plan allows the Firm to repurchase its equity
during periods when it would not otherwise be repurchasing
common equity - for example, during internal trading
"blackout periods." All purchases under a Rule 10b5-1 plan
must be made according to a predefined plan established
when the Firm is not aware of material nonpublic
information. For additional information regarding
repurchases of the Firm's equity securities, see Part II,
Item 5: Market for registrant's common equity, related
stockholder matters and issuer purchases of equity
securities, on page 20.
Note 25 - Accumulated other comprehensive income/(loss)
Year ended December 31,
(41)
(4,070)
$ 4,102
(2,791)
$
120
$
(95)
$
$ 6,868
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation
adjustments (including the impact of related derivatives), cash flow hedging activities, and net loss and prior service costs/
(credit) related to the Firm's defined benefit pension and OPEB plans.
and OPEB plans
Cash flow
hedges
net of hedges
Translation
adjustments,
investment
Unrealized gains/
(losses) on
other
comprehensive
income/(loss)
Accumulated
securities(a)
Balance at December 31, 2012
Net change
(in millions)
Defined benefit pension
Translation adjustments:
Basel III Standardized
Hedges (b)
Assets
Risk-weighted (b)
1,465,262
1,472,602
1,485,336
1,608,240
CET1
Tier 1 (a)
Total
14.6%
2,965 $
$
20,937
19,881
Gross deferred tax liabilities
Net deferred tax assets
5,392
4,419
4,444
4,285
2,495
3,042
5,533
4,968
Capital ratios (d)
210,576
128,111
134,152
15,419
20,069
14,556
19,206
Assets
CET1 capital
$ 175,398
$ 164,426
$ 175,398
$ 164,426
Risk-weighted (b)
105,807
Mortgage servicing rights, net of
hedges
103,468
157,565
Tier 1 capital(a)
Total capital
200,482
234,413
186,263
221,117
200,482
224,616
186,263
Adjusted
average(c)
134,152
128,111
181,775
3,073
3,167 $
$
December 31, (in millions)
Deferred tax assets
Allowance for loan losses
Employee benefits
Accrued expenses and other
Non-U.S. operations
Deferred income tax expense/(benefit) results from
differences between assets and liabilities measured for
financial reporting purposes versus income tax return
purposes. Deferred tax assets are recognized if, in
management's judgment, their realizability is determined to
be more likely than not. If a deferred tax asset is
determined to be unrealizable, a valuation allowance is
established. The significant components of deferred tax
assets and liabilities are reflected in the following table as
of December 31, 2015 and 2014.
Deferred taxes
The Firm recognized $1.6 billion, $1.6 billion and $1.5
billion of tax credits and other tax benefits associated with
investments in affordable housing projects within income
tax expense for the years 2015, 2014 and 2013,
respectively. The amount of amortization of such
investments reported in income tax expense under the
current period presentation during these years was $1.1
billion, $1.1 billion and $989 million, respectively. The
carrying value of these investments, which are reported in
other assets on the Firm's Consolidated balance sheets, was
$7.7 billion and $7.3 billion at December 31, 2015 and
2014, respectively. The amount of commitments related to
these investments, which are reported in accounts payable
and other liabilities on the Firm's Consolidated balance
sheets, was $2.0 billion and $1.8 billion at December 31,
2015 and 2014, respectively.
Affordable housing tax credits
These undistributed earnings are related to subsidiaries
located predominantly in the U.K. where the 2015 statutory
tax rate was 20.25%.
these requirements and needs, the Firm has determined
that the undistributed earnings of certain of its subsidiaries
would be indefinitely reinvested to fund current and future
growth of the related businesses. As management does not
intend to use the earnings of these subsidiaries as a source
of funding for its U.S. operations, such earnings will not be
distributed to the U.S. in the foreseeable future. For 2015,
pretax earnings of $3.5 billion were generated and will be
indefinitely reinvested in these subsidiaries. At
December 31, 2015, the cumulative amount of
undistributed pretax earnings in these subsidiaries were
$34.6 billion. If the Firm were to record a deferred tax
liability associated with these undistributed earnings, the
amount would be $8.2 billion at December 31, 2015.
285
JPMorgan Chase & Co./2015 Annual Report
U.S. federal income taxes have not been provided on the
undistributed earnings of certain non-U.S. subsidiaries, to
the extent that such earnings have been reinvested abroad
for an indefinite period of time. Based on JPMorgan Chase's
ongoing review of the business requirements and capital
needs of its non-U.S. subsidiaries, combined with the
formation of specific strategies and steps taken to fulfill
Tax attribute carryforwards
Gross deferred tax assets
(a) For purposes of this table, non-U.S. income is defined as income
generated from operations located outside the U.S.
$26,675
8,685
$17,990
2013
2014
$23,422
7,277
$30,699
2015
$23,191
7,511
to be reinvested indefinitely.
(a) Predominantly includes earnings of U.K. subsidiaries that are deemed
32.9%
29.2%
Income before income tax expense $ 30,702
14,556
20,517
2015
$
Depreciation and amortization
Deferred tax liabilities
22,627
$
22,846
$
Deferred tax assets, net of valuation
allowance
(820)
(735)
Valuation allowance
2014
23,447
570
2,602
5,106
5,365
8,637
7,299
3,378
2,972
5,756
5,343 $
23,581
21,418
Total capital
Dec 31,
2014
2006-2012
certain select entities
JPMorgan Chase -
California
Year ended December 31,
(in millions)
Balance at January 1,
Increases based on tax positions
related to the current period
2015
2014
2013
JPMorgan Chase - U.K.
$ 4,911
408
810
542
Increases based on tax positions
related to prior periods
1,028
477
88
Decreases based on tax positions
related to prior periods
(2,646) (1,902)
$ 5,535 $ 7,158
(2,200)
Field examination of
2011-2012
JPMorgan Chase has recorded deferred tax assets of $2.6
billion at December 31, 2015, in connection with U.S.
federal, state and local, and non-U.S. net operating loss
(“NOL”) carryforwards and foreign tax credit carryforwards.
At December 31, 2015, total U.S. federal NOL
carryforwards were approximately $5.2 billion, state and
local NOL carryforwards were $509 million, and non-U.S.
NOL carryforwards were $288 million. If not utilized, the
U.S. federal NOLS will expire between 2025 and 2034 and
the state and local and non-U.S. NOL carryforwards will
expire between 2016 and 2017. Non-U.S. tax credit
carryforwards were $704 million and will expire by 2023.
The valuation allowance at December 31, 2015, was due to
losses associated with non-U.S. subsidiaries.
286
JPMorgan Chase & Co./2015 Annual Report
Unrecognized tax benefits
At December 31, 2015, 2014 and 2013, JPMorgan Chase's
unrecognized tax benefits, excluding related interest
expense and penalties, were $3.5 billion, $4.9 billion and
$5.5 billion, respectively, of which $2.1 billion, $3.5 billion
and $3.7 billion, respectively, if recognized, would reduce
the annual effective tax rate. Included in the amount of
unrecognized tax benefits are certain items that would not
affect the effective tax rate if they were recognized in the
Consolidated statements of income. These unrecognized
items include the tax effect of certain temporary
differences, the portion of gross state and local
unrecognized tax benefits that would be offset by the
benefit from associated U.S. federal income tax deductions,
and the portion of gross non-U.S. unrecognized tax benefits
that would have offsets in other jurisdictions. JPMorgan
Chase is presently under audit by a number of taxing
authorities, most notably by the Internal Revenue Service as
summarized in the Tax examination status table below. As
JPMorgan Chase is presently under audit by a number of
taxing authorities, it is reasonably possible that over the
next 12 months the resolution of these examinations may
increase or decrease the gross balance of unrecognized tax
benefits by as much as approximately $800 million. Upon
settlement of an audit, the change in the unrecognized tax
benefit balance would result from payment or income
statement recognition.
The following table presents a reconciliation of the
beginning and ending amount of unrecognized tax benefits
for the years ended December 31, 2015, 2014 and 2013.
Tax examination status
JPMorgan Chase is continually under examination by the
Internal Revenue Service, by taxing authorities throughout
the world, and by many states throughout the U.S. The
following table summarizes the status of significant income
tax examinations of JPMorgan Chase and its consolidated
subsidiaries as of December 31, 2015.
December 31, 2015
Field Examination
Periods under
examination
2003-2005
Status
Field examination
completed; at
Appellate level
Field examination
completed, JPMorgan
Chase filed amended
returns and intends
to appeal
Field Examination
JPMorgan Chase - U.S.
JPMorgan Chase - U.S.
2006-2010
2011-2013
JPMorgan Chase - New
York State
2008 - 2011
Field Examination
JPMorgan Chase - U.S.
20.4%
Decreases related to cash
(204)
Regulatory
capital
Chase Bank USA, N.A. (f)
Basel III Standardized
Transitional
Basel III Advanced
Transitional
Dec 31,
2015
Dec 31,
2014
Dec 31,
2015
Dec 31,
2014
CET1 capital
(in millions,
except ratios)
$
$ 15,419
$ 14,556
Basel III Standardized
Transitional
Basel III Advanced
Transitional
Tier 1 capital(a)
15,419
Dec 31,
2015
Dec 31,
2014
Dec 31,
2015
15,419 $ 14,556
settlements with taxing authorities
Regulatory
capital
JPMorgan Chase & Co. (f)
(9)
(53)
$ 3,497 $ 4,911 $ 5,535
Balance at December 31,
After-tax interest expense/(benefit) and penalties related to
income tax liabilities recognized in income tax expense were
$(156) million, $17 million and $(184) million in 2015,
2014 and 2013, respectively.
At December 31, 2015 and 2014, in addition to the liability
for unrecognized tax benefits, the Firm had accrued $578
million and $1.2 billion, respectively, for income tax-related
interest and penalties.
JPMorgan Chase & Co./2015 Annual Report
287
Notes to consolidated financial statements
Note 27 - Restrictions on cash and
intercompany funds transfers
(in millions,
except ratios)
The business of JPMorgan Chase Bank, National Association
("JPMorgan Chase Bank, N.A.") is subject to examination
and regulation by the Office of the Comptroller of the
Currency. The Bank is a member of the U.S. Federal Reserve
System, and its deposits in the U.S. are insured by the FDIC.
The Federal Reserve requires depository institutions to
maintain cash reserves with a Federal Reserve Bank. The
average required amount of reserve balances deposited by
the Firm's bank subsidiaries with various Federal Reserve
Banks was approximately $14.4 billion and $10.6 billion in
2015 and 2014, respectively.
The principal sources of JPMorgan Chase's income (on a
parent company-only basis) are dividends and interest from
JPMorgan Chase Bank, N.A., and the other banking and
nonbanking subsidiaries of JPMorgan Chase. In addition to
dividend restrictions set forth in statutes and regulations,
the Federal Reserve, the Office of the Comptroller of the
Currency ("OCC") and the FDIC have authority under the
Financial Institutions Supervisory Act to prohibit or to limit
the payment of dividends by the banking organizations they
supervise, including JPMorgan Chase and its subsidiaries
that are banks or bank holding companies, if, in the banking
regulator's opinion, payment of a dividend would constitute
an unsafe or unsound practice in light of the financial
condition of the banking organization.
At January 1, 2016, JPMorgan Chase's banking subsidiaries
could pay, in the aggregate, approximately $25 billion in
dividends to their respective bank holding companies
without the prior approval of their relevant banking
regulators. The capacity to pay dividends in 2016 will be
supplemented by the banking subsidiaries' earnings during
the year.
In compliance with rules and regulations established by U.S.
and non-U.S. regulators, as of December 31, 2015 and
2014, cash in the amount of $12.6 billion and $16.8
billion, respectively, were segregated in special bank
accounts for the benefit of securities and futures brokerage
customers. Also, as of December 31, 2015 and 2014, the
Firm had receivables within other assets of $16.2 billion
and $14.9 billion, respectively, consisting of cash deposited
with clearing organizations for the benefit of customers.
Securities with a fair value of $20.0 billion and $10.1
billion, respectively, were also restricted in relation to
customer activity. In addition, as of December 31, 2015 and
2014, the Firm had other restricted cash of $3.7 billion and
$3.3 billion, respectively, primarily representing cash
reserves held at non-U.S. central banks and held for other
general purposes.
Note 28 - Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
capital requirements and standards for the Firm's national
banks, including JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A.
Basel III capital rules, for large and internationally active
U.S. bank holding companies and banks, including the Firm
and its insured depository institution (“IDI”) subsidiaries,
revised, among other things, the definition of capital and
introduced a new common equity tier 1 capital ("CET1
capital") requirement. Basel III presents two comprehensive
methodologies for calculating risk-weighted assets ("RWA”),
a general (Standardized) approach, which replaced Basel I
RWA effective January 1, 2015 (“Basel III Standardized")
and an advanced approach, which replaced Basel II RWA
("Basel III Advanced"); and sets out minimum capital ratios
and overall capital adequacy standards. Certain of the
requirements of Basel III are subject to phase-in periods
that began on January 1, 2014 and continue through the
end of 2018 ("transitional period").
There are three categories of risk-based capital under the
Basel III Transitional rules: CET1 capital, as well as Tier 1
capital and Tier 2 capital. CET1 capital predominantly
includes common stockholders' equity (including capital for
AOCI related to debt and equity securities classified as AFS
as well as for defined benefit pension and OPEB plans), less
certain deductions for goodwill, MSRS and deferred tax
assets that arise from NOL and tax credit carryforwards.
Tier 1 capital predominantly consists of CET1 capital as well
as perpetual preferred stock. Tier 2 capital includes long-
term debt qualifying as Tier 2 and qualifying allowance for
credit losses. Total capital is Tier 1 capital plus Tier 2
capital.
288
JPMorgan Chase & Co./2015 Annual Report
The following tables present the regulatory capital, assets
and risk-based capital ratios for JPMorgan Chase and its
significant national bank subsidiaries under both Basel III
Standardized Transitional and Basel III Advanced
Transitional at December 31, 2015 and 2014.
Restrictions imposed by U.S. federal law prohibit JPMorgan
Chase & Co. ("Parent Company") and certain of its affiliates
from borrowing from banking subsidiaries unless the loans
are secured in specified amounts. Such secured loans
provided by any banking subsidiary to the Parent Company
or to any particular affiliate, together with certain other
transactions with such affiliate, (collectively referred to as
"covered transactions"), are generally limited to 10% of the
banking subsidiary's total capital, as determined by the risk-
based capital guidelines; the aggregate amount of covered
transactions between any banking subsidiary and all of its
affiliates is limited to 20% of the banking subsidiary's total
capital.
Effective tax rate
Non-U.S.(a)
(0.3)
(106)
282
Total other comprehensive income/(loss)
Net change
Foreign exchange and other
Prior service costs/(credits)
Amortization of net loss
Reclassification adjustments included in
net income (d):
1,305
(750)
176
2,055
688
(1,697)
(18)
(47)
29
Net gains/(losses) arising during the period
(32)
21
(53)
Prior service credits arising during the period
(1,009)
Defined benefit pension and OPEB plans:
72
43
308
(9)
5
(14)
7
(32)
39
(25)
(58)
33
(29)
(26)
(43)
(27)
17
(44)
(22)
14
(36)
197
(124)
321
17
(197)
(259)
(424)
Net unrealized gains/(losses) arising during the
period
Cash flow hedges:
Net change
(41)
(7)
(34)
(11)
(71)
60
(15)
(97)
471
(512)
295
(807)
773
1,039
(1,050)
588
(659)
(1,194) (1,638)
1,179 1,698
682
(706)
(24)
9
(1,876)
1,885
(302)
165
35
98
44
(30)
74
51
(32)
83
Net change
60
(41)
101
(62)
(15)
(24)
113
(67)
180
Reclassification adjustment for realized (gains)/
losses included in net income (c)(e)
(319)
206
(525)
59
(39)
9
Translation (b)
111 (1,683)
2,319
Tax-exempt income
2.2
2.7
1.5
income tax benefit
taxes, net of U.S. federal
U.S. state and local income
The following table presents the U.S. and non-U.S.
components of income before income tax expense for the
years ended December 31, 2015, 2014 and 2013.
Results from Non-U.S. earnings
Tax effect of items recorded in stockholders' equity
The preceding table does not reflect the tax effect of certain
items that are recorded each period directly in
stockholders' equity and certain tax benefits associated
with the Firm's employee stock-based compensation plans.
The tax effect of all items recorded directly to stockholders'
equity resulted in a increase of $1.5 billion in 2015, a
decrease of $140 million in 2014, and an increase of $2.1
billion in 2013.
(3.3)
Total income tax expense includes $2.4 billion, $451
million and $531 million of tax benefits recorded in 2015,
2014, and 2013, respectively, as a result of tax audit
resolutions. In 2013, the relationship between current and
deferred income tax expense was largely driven by the
reversal of significant deferred tax assets as well as prior-
year tax adjustments and audit resolutions.
8,139
4,362
1,333
Total income tax expense
Total deferred income tax
expense/(benefit)
U.S. state and local
913
401
215
10
$ 6,260 $ 8,954 $ 8,789
71
(3.1)
Non-U.S. subsidiary earnings(a)
(1.0)
(0.3)
Other, net
U.S.
(0.6)
(1.4)
(5.7)
Tax audit resolutions
(in millions)
7.8
(3.0)
2.3
0.8
Nondeductible legal expense
Year ended December 31,
(3.4)
(3.3)
(3.7)
Business tax credits
(4.8)
(2.0)
(3.9)
2,000
665 (1,018)
(95)
7,216
2013
35.0%
2014
35.0%
35.0%
2015
Increase/(decrease) in tax rate
resulting from:
Year ended December 31,
Statutory U.S. federal tax rate
Effective tax rate
A reconciliation of the applicable statutory U.S. income tax
rate to the effective tax rate for each of the years ended
December 31, 2015, 2014 and 2013, is presented in the
following table.
Effective tax rate and expense
Due to the inherent complexities arising from the nature of
the Firm's businesses, and from conducting business and
being taxed in a substantial number of jurisdictions,
significant judgments and estimates are required to be
made. Agreement of tax liabilities between JPMorgan Chase
and the many tax jurisdictions in which the Firm files tax
returns may not be finalized for several years. Thus, the
Firm's final tax-related assets and liabilities may ultimately
be different from those currently reported.
The components of income tax expense/(benefit) included
in the Consolidated statements of income were as follows
for each of the years ended December 31, 2015, 2014, and
2013.
JPMorgan Chase and its eligible subsidiaries file a
consolidated U.S. federal income tax return. JPMorgan
Chase uses the asset and liability method to provide income
taxes on all transactions recorded in the Consolidated
Financial Statements. This method requires that income
taxes reflect the expected future tax consequences of
temporary differences between the carrying amounts of
assets or liabilities for book and tax purposes. Accordingly,
a deferred tax asset or liability for each temporary
difference is determined based on the tax rates that the
Firm expects to be in effect when the underlying items of
income and expense are realized. JPMorgan Chase's
expense for income taxes includes the current and deferred
portions of that expense. A valuation allowance is
established to reduce deferred tax assets to the amount the
Firm expects to realize.
JPMorgan Chase & Co./2015 Annual Report
284
(e) In 2015, the Firm reclassified approximately $150 million of net losses from AOCI to other income because the Firm determined that it is probable that
the forecasted interest payment cash flows will not occur. For additional information, see Note 6.
(d) The pretax amount is reported in compensation expense in the Consolidated statements of income.
(c) The pretax amounts are predominantly recorded in net interest income in the Consolidated statements of income.
(a) The pretax amount is reported in securities gains in the Consolidated statements of income.
(b) Reclassifications of pretax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in the Consolidated
statements of income. The amounts were not material for the periods presented.
$(4,793) $1,890 $ (2,903)
$(3,117) $ 1,120 $(1,997) $ 1,567 $ (577) $ 990
1,467
(852)
Note 26 - Income taxes
Non-U.S.
Income tax expense/(benefit)
2014
3,890
1,213
U.S. federal
Deferred income tax expense/(benefit)
650
4,592
4,927
Total current income tax expense/
(benefit)
U.S. state and local
Non-U.S.
2015
(4)
1,353
857
547
1,220
$ 2,382 $ (654)
$ 3,160
U.S. federal
Current income tax expense/(benefit)
(in millions)
Year ended December 31,
2013
1,308
200,000
1,690
1,600
2,361,177
2,464,915
2,361,177
2,464,915
Tier 1 leverage (e)
11.5
11.4
average(c)
11.5
Capital ratios (d)
(a)
CET1
12.0%
11.2%
11.8%
10.2%
11.4
Tier 1 (a)
Adjusted
11.0
Dec 31,
2014
2015
Dec 31,
(d)
Transitional
Transitional
14.1%
12.2
8.5%
9.2%
14.6
14.1
8.5
9.2
20.2
19.8
Leasing transactions
Non-U.S. operations
Other, net
13.7
12.6
13.5
of trust
preferred
securities and
Earliest
redemption
date
debentures
BANK ONE Capital III
$
474
Issue
$
2000
2030
date
Any time
Interest rate of
trust preferred
securities and
debentures
Interest
payment/
distribution
Chase Capital II
717
Principal
amount of
debenture
issued to trust (b)
Amount of trust
preferred
securities
issued by trust(a)
December 31, 2015
(in millions)
Total
16.0
15.0
15.1
13.1
(b)
Tier 1 leverage (e)
8.5
7.6
8.5
7.6
(c)
(in millions,
except ratios)
Regulatory
capital
CET1 capital
JPMorgan Chase Bank, N.A. (f)
The following is a summary of the outstanding trust preferred securities, including unamortized original issue discount, issued
by each trust, and the junior subordinated deferrable interest debenture issued to each trust, as of December 31, 2015.
Stated maturity
Dec 31,
2015
Dec 31,
2014
(e)
Tier 1
4.5%
CET1
Capital ratios
Well-capitalized ratios
BHC(b)
IDI (c)
Minimum
capital ratios (a)
Under the risk-based capital guidelines of the Federal
Reserve, JPMorgan Chase is required to maintain minimum
ratios of CET1, Tier 1 and Total capital to risk-weighted
assets, as well as minimum leverage ratios (which are
defined as Tier 1 capital divided by adjusted quarterly
average assets). Failure to meet these minimum
requirements could cause the Federal Reserve to take
action. Bank subsidiaries also are subject to these capital
requirements by their respective primary regulators. The
following table presents the minimum ratios to which the
Firm and its national bank subsidiaries are subject as of
December 31, 2015.
6.0
Notes to consolidated financial statements
JPMorgan Chase & Co./2015 Annual Report
The Tier 1 leverage ratio is not a risk-based measure of capital. This ratio
is calculated by dividing Tier 1 capital by adjusted average assets.
Asset and capital amounts for JPMorgan Chase's banking subsidiaries
reflect intercompany transactions; whereas the respective amounts for
JPMorgan Chase reflect the elimination of intercompany transactions.
Note: Rating agencies allow measures of capital to be adjusted upward for
deferred tax liabilities, which have resulted from both non-taxable
business combinations and from tax-deductible goodwill. The Firm had
deferred tax liabilities resulting from non-taxable business combinations
of $105 million and $130 million at December 31, 2015, and 2014,
respectively; and deferred tax liabilities resulting from tax-deductible
goodwill of $3.0 billion and $2.7 billion at December 31, 2015, and
2014, respectively.
Act.
For each of the risk-based capital ratios, the capital adequacy of the Firm
and its national bank subsidiaries are evaluated against the Basel III
approach, Standardized or Advanced, resulting in the lower ratio (the
"Collins Floor"), as required by the Collins Amendment of the Dodd-Frank
Adjusted average assets, for purposes of calculating the Tier 1 leverage
ratio, includes total quarterly average assets adjusted for unrealized
gains/(losses) on securities, less deductions for goodwill and other
intangible assets, defined benefit pension plan assets, and deferred tax
assets related to net operating loss carryforwards.
Effective January 1, 2015, the Basel III Standardized RWA is calculated
under the Basel III definition of the Standardized approach. Prior periods
were based on Basel I (inclusive of Basel 2.5).
At December 31, 2015, trust preferred securities included in Basel III Tier
1 capital were $992 million and $420 million for JPMorgan Chase and
JPMorgan Chase Bank, N.A., respectively. At December 31, 2015 Chase
Bank USA, N.A. had no trust preferred securities.
289
-%
6.0
6.5%
8.0
JPMorgan Chase & Co./2015 Annual Report
290
To provide for probable credit losses inherent in wholesale
and certain consumer lending-commitments, an allowance
for credit losses on lending-related commitments is
maintained. See Note 15 for further information regarding
the allowance for credit losses on lending-related
commitments. The following table summarizes the
contractual amounts and carrying values of off-balance
sheet lending-related financial instruments, guarantees and
other commitments at December 31, 2015 and 2014. The
amounts in the table below for credit card and home equity
lending-related commitments represent the total available
credit for these products. The Firm has not experienced,
and does not anticipate, that all available lines of credit for
these products will be utilized at the same time. The Firm
can reduce or cancel credit card lines of credit by providing
the borrower notice or, in some cases as permitted by law,
without notice. In addition, the Firm typically closes credit
card lines when the borrower is 60 days or more past due.
The Firm may reduce or close home equity lines of credit
when there are significant decreases in the value of the
underlying property, or when there has been a
demonstrable decline in the creditworthiness of the
borrower.
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to meet
the financing needs of its customers. The contractual
amount of these financial instruments represents the
maximum possible credit risk to the Firm should the
counterparty draw upon the commitment or the Firm be
required to fulfill its obligation under the guarantee, and
should the counterparty subsequently fail to perform
according to the terms of the contract. Most of these
commitments and guarantees expire without being drawn
or a default occurring. As a result, the total contractual
amount of these instruments is not, in the Firm's view,
representative of its actual future credit exposure or
funding requirements.
Note 29-Off-balance sheet lending-related
financial instruments, guarantees, and other
commitments
As of December 31, 2015 and 2014, JPMorgan Chase and
all of its banking subsidiaries were well-capitalized and met
all capital requirements to which each was subject.
(c) Represents requirements for bank subsidiaries pursuant to regulations
issued under the FDIC Improvement Act.
(b) Represents requirements for bank holding companies pursuant to
regulations issued by the Federal Reserve.
(a) As defined by the regulations issued by the Federal Reserve, OCC and FDIC
and to which the Firm and its national bank subsidiaries are subject.
5.0
4.0
Tier 1 leverage
10.0
10.0
Series Z
8.0
Total
8.0
483
8.8
8.8
Adjusted
1,330,175
1,249,607
1,230,358
1,264,056
Risk-weighted (b)
Assets
average(c)
156,891
166,326
(f)
$ 156,567
$ 168,857
$ 156,567
156,891
173,322
169,222
183,262
Tier 1 capital(a)
Total capital
$ 168,857
169,222
176,423
1,913,448
1,968,131
1,913,448
Tier 1 leverage(e)
12.5
14.1
14.1
14.5
Total
11.8%
11.8
13.5
12.8
13.4
Tier 1 (a)
13.5%
12.7%
13.4%
CET1
Capital ratios (d)
1,968,131
8.0
496
11.6
2027
ΝΑ
Series W
88,000
88,000
880
880
Series Y
ΝΑ
143,000
Series AA
142,500
1,425
Series BB
115,000
1,150
1997
1,430
6.700 3/1/2019
925 1/30/2014
925
125,750 $
1,258 $ 1,258
8/27/2012
5.500% 9/1/2017
ΝΑ
NA
Series P
90,000
90,000
900
900 2/5/2013
5.450 3/1/2018
ΝΑ
ΝΑ
Series T
92,500
92,500
6.300 9/1/2019
6.125
6.100 9/1/2020
6.150 9/1/2020
125,750
ΝΑ
3/1/2020
Series S
200,000
200,000
2,000
2,000 1/22/2014
Series U
100,000
1,500 4/23/2013
1,500 7/29/2013
100,000
Series V
250,000
250,000
2,500
Series X
160,000
160,000
1,000
1,500
150,000
150,000
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
Fixed-to-floating-rate:
Series I
600,000
600,000
6,000
6,000 4/23/2008
Series Q
150,000
150,000
1,500
Series R
ΝΑ
Series O
6/23/2014
2/12/2015
6/4/2015
7/29/2015
Floating annual
First Chicago NBD Capital I
249
256
1997
2027
Any time
LIBOR + 0.55%
Quarterly
Quarterly
466
477
2004
2034
Any time
LIBOR + 0.95%
Quarterly
J.P. Morgan Chase Capital XIII
JPMorgan Chase Capital XXI
LIBOR + 0.625%
2028
rate of
three-month
LIBOR plus:
8.75%
LIBOR + 0.50%
dates
Semiannually
Quarterly
Chase Capital III
296
304
Any time
1997
Any time
LIBOR + 0.55%
Quarterly
Chase Capital VI
242
248
1998
2027
836
Any time
2007
281
Notes to consolidated financial statements
Note 22 - Preferred stock
At December 31, 2015 and 2014, JPMorgan Chase was
authorized to issue 200 million shares of preferred stock, in
one or more series, with a par value of $1 per share.
In the event of a liquidation or dissolution of the Firm,
JPMorgan Chase's preferred stock then outstanding takes
precedence over the Firm's common stock for the payment
of dividends and the distribution of assets.
The following is a summary of JPMorgan Chase's non-cumulative preferred stock outstanding as of December 31, 2015 and
2014.
Fixed-rate:
Carrying value
Contractual
rate
(in millions)
Shares at December 31, (a)
2015
2014
at December 31,
2015
2014
Issue date
in effect at Earliest
December 31, redemption
2015
date
832
JPMorgan Chase & Co./2015 Annual Report
On April 2, 2015, the Firm redeemed $1.5 billion, or 100%
of the liquidation amount, of the guaranteed capital debt
securities ("trust preferred securities") of JPMorgan Chase
Capital XXIX trust preferred securities. On May 8, 2013, the
Firm redeemed approximately $5.0 billion, or 100% of the
liquidation amount, of the following eight series of trust
preferred securities: JPMorgan Chase Capital X, XI, XII, XIV,
XVI, XIX and XXIV, and BANK ONE Capital VI. Other income
for the year ended December 31, 2013, reflected a modest
loss related to the redemption of trust preferred securities.
Date at
which
dividend
rate
becomes
floating
(b)
2037
Any time
LIBOR + 0.95%
Quarterly
(a) Represents the amount of trust preferred securities issued to the public by each trust, including unamortized original-issue discount.
Represents the principal amount of JPMorgan Chase debentures issued to each trust, including unamortized original-issue discount. The principal amount
of debentures issued to the trusts includes the impact of hedging and purchase accounting fair value adjustments that were recorded on the Firm's
Consolidated Financial Statements.
Total
$
644
3,690
JPMorgan Chase Capital XXIII
2007
2047
Any time
LIBOR + 1.00%
Quarterly
$
3,969
639
Loan sales-and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm's mortgage loan sale and
securitization activities with U.S. GSES, as described in Note
16, the Firm has made representations and warranties that
the loans sold meet certain requirements. The Firm has
been, and may be, required to repurchase loans and/or
indemnify U.S. GSEs (e.g., with “make-whole” payments to
reimburse U.S. GSES for their realized losses on liquidated
loans). To the extent that repurchase demands that are
received relate to loans that the Firm purchased from third
parties that remain viable, the Firm typically will have the
right to seek a recovery of related repurchase losses from
the third party. Generally, the maximum amount of future
payments the Firm would be required to make for breaches
of these representations and warranties would be equal to
the unpaid principal balance of such loans that are deemed
to have defects that were sold to purchasers (including
securitization-related SPES) plus, in certain circumstances,
accrued interest on such loans and certain expense. The
carrying values of the repurchase liabilities were $148
million and $275 million at December 31, 2015 and 2014,
respectively.
Private label securitizations
The liability related to repurchase demands associated with
private label securitizations is separately evaluated by the
Firm in establishing its litigation reserves.
293
Notes to consolidated financial statements
On November 15, 2013, the Firm announced that it had
reached a $4.5 billion agreement with 21 major
institutional investors to make a binding offer to the
trustees of 330 residential mortgage-backed securities
trusts issued by J.P.Morgan, Chase, and Bear Stearns
("RMBS Trust Settlement") to resolve all representation and
warranty claims, as well as all servicing claims, on all trusts
issued by J.P. Morgan, Chase, and Bear Stearns between
2005 and 2008. For further information see Note 31.
Card charge-backs
For additional information regarding litigation, see Note 31.
Loans sold with recourse
The Firm provides servicing for mortgages and certain
commercial lending products on both a recourse and
nonrecourse basis. In nonrecourse servicing, the principal
credit risk to the Firm is the cost of temporary servicing
advances of funds (i.e., normal servicing advances). In
recourse servicing, the servicer agrees to share credit risk
with the owner of the mortgage loans, such as Fannie Mae
or Freddie Mac or a private investor, insurer or guarantor.
Losses on recourse servicing predominantly occur when
foreclosure sales proceeds of the property underlying a
defaulted loan are less than the sum of the outstanding
principal balance, plus accrued interest on the loan and the
cost of holding and disposing of the underlying property.
The Firm's securitizations are predominantly nonrecourse,
thereby effectively transferring the risk of future credit
losses to the purchaser of the mortgage-backed securities
issued by the trust. At December 31, 2015 and 2014, the
unpaid principal balance of loans sold with recourse totaled
$4.3 billion and $6.1 billion, respectively. The carrying
value of the related liability that the Firm has recorded,
which is representative of the Firm's view of the likelihood it
will have to perform under its recourse obligations, was
$82 million and $102 million at December 31, 2015 and
2014, respectively.
Other off-balance sheet arrangements
Indemnification agreements - general
In connection with issuing securities to investors, the Firm
may enter into contractual arrangements with third parties
that require the Firm to make a payment to them in the
event of a change in tax law or an adverse interpretation of
tax law. In certain cases, the contract also may include a
termination clause, which would allow the Firm to settle the
contract at its fair value in lieu of making a payment under
the indemnification clause. The Firm may also enter into
294
indemnification clauses in connection with the licensing of
software to clients ("software licensees") or when it sells a
business or assets to a third party ("third-party
purchasers"), pursuant to which it indemnifies software
licensees for claims of liability or damages that may occur
subsequent to the licensing of the software, or third-party
purchasers for losses they may incur due to actions taken
by the Firm prior to the sale of the business or assets. It is
difficult to estimate the Firm's maximum exposure under
these indemnification arrangements, since this would
require an assessment of future changes in tax law and
future claims that may be made against the Firm that have
not yet occurred. However, based on historical experience,
management expects the risk of loss to be remote.
2
In addition, from 2005 to 2008, Washington Mutual made
certain loan level representations and warranties in
connection with approximately $165 billion of residential
mortgage loans that were originally sold or deposited into
private-label securitizations by Washington Mutual. Of the
$165 billion, approximately $81 billion has been repaid. In
addition, approximately $50 billion of the principal amount
of such loans has liquidated with an average loss severity of
59%. Accordingly, the remaining outstanding principal
balance of these loans as of December 31, 2015, was
approximately $33 billion, of which $6 billion was 60 days
or more past due. The Firm believes that any repurchase
obligations related to these loans remain with the FDIC
receivership.
In the normal course of business, the Firm enters into
reverse repurchase agreements and securities borrowing
agreements, which are secured financing agreements. Such
agreements settle at a future date. At settlement, these
commitments result in the Firm advancing cash to and
receiving securities collateral from the counterparty. The
Firm also enters into repurchase agreements and securities
lending agreements. At settlement, these commitments
result in the Firm receiving cash from and providing
securities collateral to the counterparty. These agreements
generally do not meet the definition of a derivative, and
therefore, are not recorded on the Consolidated balance
sheets until settlement date. These agreements
predominantly consist of agreements with regular-way
settlement periods. For a further discussion of securities
purchased under resale agreements and securities
borrowed, and securities sold under repurchase agreements
and securities loaned, see Note 13.
JPMorgan Chase & Co./2015 Annual Report
In addition to derivative contracts that meet the
characteristics of a guarantee, the Firm is both a purchaser
and seller of credit protection in the credit derivatives
market. For a further discussion of credit derivatives, see
Note 6.
Commerce Solutions, Card's merchant services
business, is a global leader in payment processing and
merchant acquiring.
$
117
$
1
996
20,750
Unsettled reverse repurchase and securities borrowing
agreements, and unsettled repurchase and securities
lending agreements
1,509
292
Securities lending indemnifications
Through the Firm's securities lending program, customers'
securities, via custodial and non-custodial arrangements,
may be lent to third parties. As part of this program, the
Firm provides an indemnification in the lending agreements
which protects the lender against the failure of the
borrower to return the lent securities. To minimize its
liability under these indemnification agreements, the Firm
obtains cash or other highly liquid collateral with a market
value exceeding 100% of the value of the securities on loan
from the borrower. Collateral is marked to market daily to
help assure that collateralization is adequate. Additional
collateral is called from the borrower if a shortfall exists, or
collateral may be released to the borrower in the event of
overcollateralization. If a borrower defaults, the Firm would
use the collateral held to purchase replacement securities in
the market or to credit the lending customer with the cash
equivalent thereof.
Derivatives qualifying as guarantees
In addition to the contracts described above, the Firm
transacts certain derivative contracts that have the
characteristics of a guarantee under U.S. GAAP. These
contracts include written put options that require the Firm
to purchase assets upon exercise by the option holder at a
specified price by a specified date in the future. The Firm
may enter into written put option contracts in order to meet
client needs, or for other trading purposes. The terms of
written put options are typically five years or less.
Derivatives deemed to be guarantees also include contracts
such as stable value derivatives that require the Firm to
make a payment of the difference between the market
value and the book value of a counterparty's reference
portfolio of assets in the event that market value is less
than book value and certain other conditions have been
met. Stable value derivatives, commonly referred to as
❝stable value wraps", are transacted in order to allow
investors to realize investment returns with less volatility
than an unprotected portfolio and are typically longer-term
or may have no stated maturity, but allow the Firm to
terminate the contract under certain conditions.
Derivatives deemed to be guarantees are recorded on the
Consolidated balance sheets at fair value in trading assets
and trading liabilities. The total notional value of the
derivatives that the Firm deems to be guarantees was
$53.8 billion and $53.6 billion at December 31, 2015 and
2014, respectively. The notional amount generally
represents the Firm's maximum exposure to derivatives
qualifying as guarantees. However, exposure to certain
stable value contracts is contractually limited to a
substantially lower percentage of the notional amount; the
notional amount on these stable value contracts was $28.4
billion and $27.5 billion at December 31, 2015 and 2014,
respectively, and the maximum exposure to loss was $3.0
billion and $2.9 billion at December 31, 2015 and 2014,
respectively. The fair values of the contracts reflect the
probability of whether the Firm will be required to perform
under the contract. The fair value of derivatives that the
Firm deems to be guarantees were derivative payables of
$236 million and $102 million and derivative receivables of
$14 million and $22 million at December 31, 2015 and
JPMorgan Chase & Co./2015 Annual Report
2014, respectively. The Firm reduces exposures to these
contracts by entering into offsetting transactions, or by
entering into contracts that hedge the market risk related to
the derivative guarantees.
(a) The ratings scale is based on the Firm's internal ratings, which generally correspond to ratings as defined by S&P and Moody's.
(b) Effective in 2015, commitments to issue standby letters of credit, including those that could be issued under multipurpose facilities, are presented as other unfunded
commitments to extend credit. Previously, such commitments were presented as standby letters of credit and other financial guarantees. At December 31, 2014, these
commitments were $45.6 billion. Prior period amounts have been revised to conform with current period presentation.
Under the rules of Visa USA, Inc., and MasterCard
International, JPMorgan Chase Bank, N.A., is primarily liable
for the amount of each processed card sales transaction
that is the subject of a dispute between a cardmember and
a merchant. If a dispute is resolved in the cardmember's
favor, Commerce Solutions will (through the cardmember's
issuing bank) credit or refund the amount to the
cardmember and will charge back the transaction to the
merchant. If Commerce Solutions is unable to collect the
amount from the merchant, Commerce Solutions will bear
the loss for the amount credited or refunded to the
cardmember. Commerce Solutions mitigates this risk by
withholding future settlements, retaining cash reserve
accounts or by obtaining other security. However, in the
unlikely event that: (1) a merchant ceases operations and is
unable to deliver products, services or a refund; (2)
Commerce Solutions does not have sufficient collateral from
the merchant to provide customer refunds; and (3)
Commerce Solutions does not have sufficient financial
resources to provide customer refunds, JPMorgan Chase
Bank, N.A., would recognize the loss.
At December 31, 2015, JPMorgan Chase and its
subsidiaries were obligated under a number of
noncancelable operating leases for premises and equipment
used primarily for banking purposes, and for energy-related
tolling service agreements. Certain leases contain renewal
options or escalation clauses providing for increased rental
payments based on maintenance, utility and tax increases,
or they require the Firm to perform restoration work on
leased premises. No lease agreement imposes restrictions
on the Firm's ability to pay dividends, engage in debt or
equity financing transactions or enter into further lease
agreements.
JPMorgan Chase & Co./2015 Annual Report
December 31, (in billions)
Securities
2016
$ 1,668
2017
1,647
2018
1,447
The Firm may pledge financial assets that it owns to
maintain potential borrowing capacity with central banks
and for other purposes, including to secure borrowings and
public deposits, and to collateralize repurchase and other
securities financing agreements. Certain of these pledged
assets may be sold or repledged by the secured parties and
are identified as financial instruments owned (pledged to
various parties) on the Consolidated balance sheets. At
December 31, 2015 and 2014, the Firm had pledged assets
of $385.6 billion and $324.5 billion, respectively, at
Federal Reserve Banks and FHLBs. In addition, as of
December 31, 2015 and 2014, the Firm had pledged $50.7
billion and $60.1 billion, respectively, of financial assets
that may not be sold or repledged by the secured parties.
Total assets pledged do not include assets of consolidated
VIES; these assets are used to settle the liabilities of those
entities. See Note 16 for additional information on assets
and liabilities of consolidated VIES. For additional
information on the Firm's securities financing activities and
long-term debt, see Note 13 and Note 21, respectively. The
significant components of the Firm's pledged assets were as
follows.
2019
2020
1,125
After 2020
4,679
Loans
Total minimum payments required
4,331
1,263
Pledged assets
Year ended December 31, (in millions)
The following table presents required future minimum
rental payments under operating leases with noncancelable
lease terms that expire after December 31, 2015.
Clearing Services - Client Credit Risk
The Firm provides clearing services for clients by entering
into securities purchases and sales and derivative
transactions, with CCPS, including ETDs such as futures and
options, as well as OTC-cleared derivative contracts. As a
clearing member, the Firm stands behind the performance
of its clients, collects cash and securities collateral (margin)
as well as any settlement amounts due from or to clients,
and remits them to the relevant CCP or client in whole or
part. There are two types of margin. Variation margin is
posted on a daily basis based on the value of clients'
derivative contracts. Initial margin is posted at inception of
a derivative contract, generally on the basis of the potential
changes in the variation margin requirement for the
contract.
As clearing member, the Firm is exposed to the risk of
nonperformance by its clients, but is not liable to clients for
the performance of the CCPs. Where possible, the Firm
seeks to mitigate its risk to the client through the collection
of appropriate amounts of margin at inception and
throughout the life of the transactions. The Firm can also
cease providing clearing services if clients do not adhere to
their obligations under the clearing agreement. In the event
of non-performance by a client, the Firm would close out
the client's positions and access available margin. The CCP
would utilize any margin it holds to make itself whole, with
any remaining shortfalls required to be paid by the Firm as
a clearing member.
The Firm reflects its exposure to nonperformance risk of the
client through the recognition of margin payables or
receivables to clients and CCPs, but does not reflect the
clients' underlying securities or derivative contracts on its
Consolidated Financial Statements.
It is difficult to estimate the Firm's maximum possible
exposure through its role as a clearing member, as this
would require an assessment of transactions that clients
may execute in the future. However, based upon historical
experience, and the credit risk mitigants available to the
Firm, management believes it is unlikely that the Firm will
have to make any material payments under these
arrangements and the risk of loss expected to be remote.
For information on the derivatives that the Firm executes
for its own account and records in its Consolidated Financial
Statements, see Note 6.
Exchange & Clearing House Memberships
The Firm is a member of several securities and derivative
exchanges and clearing houses, both in the U.S. and other
countries, and it provides clearing services. Membership in
some of these organizations requires the Firm to pay a pro
rata share of the losses incurred by the organization as a
result of the default of another member. Such obligations
vary with different organizations. These obligations may be
limited to members who dealt with the defaulting member
or to the amount (or a multiple of the amount) of the Firm's
contribution to the guarantee fund maintained by a clearing
house or exchange as part of the resources available to
cover any losses in the event of a member default.
Alternatively, these obligations may be a full pro-rata share
JPMorgan Chase & Co./2015 Annual Report
of the residual losses after applying the guarantee fund.
Additionally, certain clearing houses require the Firm as a
member to pay a pro rata share of losses resulting from the
clearing house's investment of guarantee fund contributions
and initial margin, unrelated to and independent of the
default of another member. Generally a payment would only
be required should such losses exceed the resources of the
clearing house or exchange that are contractually required
to absorb the losses in the first instance. It is difficult to
estimate the Firm's maximum possible exposure under
these membership agreements, since this would require an
assessment of future claims that may be made against the
Firm that have not yet occurred. However, based on
historical experience, management expects the risk of loss
to be remote.
Guarantees of subsidiaries
In the normal course of business, JPMorgan Chase & Co.
("Parent Company") may provide counterparties with
guarantees of certain of the trading and other obligations of
its subsidiaries on a contract-by-contract basis, as
negotiated with the Firm's counterparties. The obligations
of the subsidiaries are included on the Firm's Consolidated
balance sheets or are reflected as off-balance sheet
commitments; therefore, the Parent Company has not
recognized a separate liability for these guarantees. The
Firm believes that the occurrence of any event that would
trigger payments by the Parent Company under these
guarantees is remote.
The Parent Company has guaranteed certain debt of its
subsidiaries, including both long-term debt and structured
notes. These guarantees are not included in the table on
page 291 of this Note. For additional information, see Note
21.
JPMorgan Chase Financial Company LLC ("JPMFC"), a direct,
100%-owned finance subsidiary of the Parent Company,
was formed on September 30, 2015, for the purpose of
issuing debt and other securities in offerings to investors.
Any securities issued by JPMFC will be fully and
unconditionally guaranteed by the Parent Company, and
these guarantees will rank on a parity with the Firm's
unsecured and unsubordinated indebtedness. As of
December 31, 2015, no securities had been issued by
JPMFC.
295
Notes to consolidated financial statements
Note 30 - Commitments, pledged assets and
collateral
Lease commitments
Commerce Solutions incurred aggregate losses of $12
million, $10 million, and $14 million on $949.3 billion,
$847.9 billion, and $750.1 billion of aggregate volume
processed for the years ended December 31, 2015, 2014
and 2013, respectively. Incurred losses from merchant
charge-backs are charged to other expense, with the offset
recorded in a valuation allowance against accrued interest
and accounts receivable on the Consolidated balance
sheets. The carrying value of the valuation allowance was
$20 million and $4 million at December 31, 2015 and
2014, respectively, which the Firm believes, based on
historical experience and the collateral held by Commerce
Solutions of $136 million and $174 million at
December 31, 2015 and 2014, respectively, is
representative of the payment or performance risk to the
Firm related to charge-backs.
44,272 $
$ 183,329 $
3,476
855
Total consumer(b)
-
-
525,963
515,518
-
515,518
Credit card
13
14
58,153
58,478
9,981
1,555
10,033
36,909
Total consumer, excluding credit card
552
142
135
3
4
Student and other
552,427
11
10,033
9,981
304
104,516 146,526
105,514
3,570
Total lending-related
Total wholesale (f) (g)
Other letters of credit(c)
14,287
16,083
Standby letters of credit and other financial
guarantees (c)(d)(e)
491
649
318,278
323,325
6,899
140,640
89,925
85,861
Other unfunded commitments to extend credit (c)(d)(e)
Wholesale:
13
14
584,116
573,996
1,555
39,133
3,941
9,843 366,399
12
12,351
Subprime mortgage
Prime mortgage (a)
Home equity - junior lien
Home equity senior lien
Consumer, excluding credit card:
Lending-related
Total
Total
Expires
after 5
years
5 years
through
3 years
Expires
after
Expires
after
1 year
through
3 years
1 year or
less
By remaining maturity at December 31,
(in millions)
Expires in
2015
2014
Carrying value(i)
2015
2014
Contractual amount
Off-balance sheet lending-related financial instruments, guarantees and other commitments
Auto
11,894
$
2,375
475
92
699
Business banking
2
2
10,462
10,237
90
80
1,160
8,907
-
8,579
12,992
12,992
14,859
11,924
$
$ 11,807 $
4,743 $ 10,832
4,538
726 $
657
3,817 $
4,354
1,546 $
$ 657,941 $ 114,549 $ 148,081 $ 19,824 $ 940,395
5,819
67
2,944
As required by U.S. GAAP, the Firm initially records
guarantees at the inception date fair value of the obligation
assumed (e.g., the amount of consideration received or the
net present value of the premium receivable). For certain
types of guarantees, the Firm records this fair value amount
in other liabilities with an offsetting entry recorded in cash
(for premiums received), or other assets (for premiums
receivable). Any premium receivable recorded in other
assets is reduced as cash is received under the contract, and
the fair value of the liability recorded at inception is
amortized into income as lending and deposit-related fees
over the life of the guarantee contract. For indemnifications
provided in sales agreements, a portion of the sale
proceeds is allocated to the guarantee, which adjusts the
gain or loss that would otherwise result from the
transaction. For these indemnifications, the initial liability is
amortized to income as the Firm's risk is reduced (i.e., over
time or when the indemnification expires). Any contingent
liability that exists as a result of issuing the guarantee or
indemnification is recognized when it becomes probable
and reasonably estimable. The contingent portion of the
liability is not recognized if the estimated amount is less
than the carrying amount of the liability recognized at
inception (adjusted for any amortization). The recorded
amounts of the liabilities related to guarantees and
indemnifications at December 31, 2015 and 2014,
excluding the allowance for credit losses on lending-related
commitments, are discussed below.
U.S. GAAP requires that a guarantor recognize, at the
inception of a guarantee, a liability in an amount equal to
the fair value of the obligation undertaken in issuing the
guarantee. U.S. GAAP defines a guarantee as a contract that
contingently requires the guarantor to pay a guaranteed
party based upon: (a) changes in an underlying asset,
liability or equity security of the guaranteed party; or (b) a
third party's failure to perform under a specified
agreement. The Firm considers the following off-balance
sheet lending-related arrangements to be guarantees under
U.S. GAAP: standby letters of credit and financial
guarantees, securities lending indemnifications, certain
indemnification agreements included within third-party
contractual arrangements and certain derivative contracts.
The Firm acts as a settlement and custody bank in the U.S.
tri-party repurchase transaction market. In its role as
settlement and custody bank, the Firm is exposed to the
intra-day credit risk of its cash borrower clients, usually
broker-dealers. This exposure arises under secured
clearance advance facilities that the Firm extends to its
clients (i.e. cash borrowers); these facilities contractually
limit the Firm's intra-day credit risk to the facility amount
and must be repaid by the end of the day. As of
December 31, 2015 and 2014, the secured clearance
advance facility maximum outstanding commitment amount
was $2.9 billion and $12.6 billion, respectively.
Guarantees
Also included in other unfunded commitments to extend
credit are commitments to noninvestment-grade
counterparties in connection with leveraged finance
activities, which were $32.1 billion and $23.4 billion at
December 31, 2015 and 2014, respectively. For further
information, see Note 3 and Note 4.
Other unfunded commitments to extend credit generally
consist of commitments for working capital and general
corporate purposes, extensions of credit to support
commercial paper facilities and bond financings in the event
that those obligations cannot be remarketed to new
investors, as well as committed liquidity facilities to clearing
organizations. The Firm also issues commitments under
multipurpose facilities which could be drawn upon in
several forms, including the issuance of a standby letter of
credit.
Other unfunded commitments to extend credit
Notes to consolidated financial statements
291
JPMorgan Chase & Co./2015 Annual Report
(j) For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-related products, the
carrying value represents the fair value.
(i) At December 31, 2015 and 2014, included unfunded commitments of $50 million and $147 million, respectively, to third-party private equity funds; and $871 million
and $961 million, respectively, to other equity investments. These commitments included $73 million and $150 million, respectively, related to investments that are
generally fair valued at net asset value as discussed in Note 3. In addition, at December 31, 2015 and 2014, included letters of credit hedged by derivative transactions
and managed on a market risk basis of $4.6 billion and $4.5 billion, respectively.
(h) At December 31, 2015 and 2014, collateral held by the Firm in support of securities lending indemnification agreements was $190.6 billion and $177.1 billion,
respectively. Securities lending collateral consist of primarily cash and securities issued by governments that are members of the Organisation for Economic Co-operation
and Development (“OECD") and U.S. government agencies.
(f) At December 31, 2015 and 2014, the U.S. portion of the contractual amount of total wholesale lending-related commitments was 77% and 73%, respectively.
(g) Effective January 1, 2015, the Firm no longer includes within its disclosure of wholesale lending-related commitments the unused amount of advised uncommitted lines of
credit as it is within the Firm's discretion whether or not to make a loan under these lines, and the Firm's approval is generally required prior to funding. Prior period
amounts have been revised to conform with the current period presentation.
(e) Effective in 2015, commitments to issue standby letters of credit, including those that could be issued under multipurpose facilities, are presented as other unfunded
commitments to extend credit. Previously, such commitments were presented as standby letters of credit and other financial guarantees. At December 31, 2014, these
commitments were $45.6 billion. Prior period amounts have been revised to conform with current period presentation.
(d) At December 31, 2015 and 2014, included credit enhancements and bond and commercial paper liquidity commitments to U.S. states and municipalities, hospitals and
other nonprofit entities of $12.3 billion and $14.8 billion, respectively, within other unfunded commitments to extend credit; and $9.6 billion and $13.3 billion,
respectively, within standby letters of credit and other financial guarantees. Other unfunded commitments to extend credit also include liquidity facilities to
nonconsolidated municipal bond VIES; see Note 16.
(a) Includes certain commitments to purchase loans from correspondents.
(b) Predominantly all consumer lending-related commitments are in the U.S.
(c) At December 31, 2015 and 2014, reflects the contractual amount net of risk participations totaling $385 million and $243 million, respectively, for other unfunded
commitments to extend credit; $11.2 billion and $13.0 billion, respectively, for standby letters of credit and other financial guarantees; and $341 million and $469
million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk participations.
(121)
(94)
5,720
5,580
1,533
1,075
2,603
Standby letters of credit and other financial guarantees
Standby letters of credit ("SBLC") and other financial
guarantees are conditional lending commitments issued by
the Firm to guarantee the performance of a customer to a
third party under certain arrangements, such as
commercial paper facilities, bond financings, acquisition
financings, trade and similar transactions. The carrying
values of standby and other letters of credit were $550
million and $672 million at December 31, 2015 and 2014,
respectively, which were classified in accounts payable and
other liabilities on the Consolidated balance sheets; these
carrying values included $123 million and $118 million,
respectively, for the allowance for lending-related
commitments, and $427 million and $554 million,
respectively, for the guarantee liability and corresponding
asset.
369
The following table summarizes the types of facilities under which standby letters of credit and other letters of credit
arrangements are outstanding by the ratings profiles of the Firm's customers, as of December 31, 2015 and 2014.
2015
6,563
$
37,709
$
3,290
651
3,941
$
31,751
7,382
39,133 $
121 $
18,825
$
$
$
Other letters
of credit
credit and other
financial guarantees (b)
Other letters
of credit
credit and other
financial guarantees (b)
Standby letters of
Standby letters of
Commitments with collateral
Allowance for lending-related commitments
Total contractual amount
Noninvestment-grade (a)
Investment-grade (a)
(in millions)
December 31,
2014
Standby letters of credit, other financial guarantees and other letters of credit
Other guarantees and commitments()
102
82
$
$ 171,059
53,589
$ 183,329
53,784
39,145
11,160
285
3,194
Derivatives qualifying as guarantees
$
Securities lending indemnification agreements and
guarantees (h)
Other guarantees and commitments
$ 1,213 $ 1,176
$ 950,997
1,163
1,199
366,881
1
2
4,331
-
671
548
44,272
$
222
80
Unsettled reverse repurchase and securities borrowing
agreements
6,063
4,274
NA
ΝΑ
275
148
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
$
ΝΑ
ΝΑ
Mortgage repurchase liability
Loan sale and securitization-related indemnifications:
42,578
--- 21,798
21,798
agreements
Unsettled repurchase and securities lending
40,993
--- 42,482
42,482
Loans sold with recourse
11,085
11,829
248.2
169.0
$
2014
2013
2,015 $ 2,255 $ 2,187
(411)
(383)
(341)
1,604 $
1,846
1,872 $
At December 31, 2015 and 2014, the Firm had accepted
assets as collateral that it could sell or repledge, deliver or
otherwise use with a fair value of approximately $748.5
billion and $761.7 billion, respectively. This collateral was
generally obtained under resale agreements, securities
borrowing agreements, customer margin loans and
derivative agreements. Of the collateral received,
approximately $580.9 billion and $596.8 billion,
respectively, were sold or repledged, generally as collateral
under repurchase agreements, securities lending
agreements or to cover short sales and to collateralize
deposits and derivative agreements.
296
JPMorgan Chase & Co./2015 Annual Report
Note 31 Litigation
-
Contingencies
As of December 31, 2015, the Firm and its subsidiaries and
affiliates are defendants or putative defendants in
numerous legal proceedings, including private, civil
litigations and regulatory/government investigations. The
litigations range from individual actions involving a single
plaintiff to class action lawsuits with potentially millions of
class members. Investigations involve both formal and
informal proceedings, by both governmental agencies and
self-regulatory organizations. These legal proceedings are
at varying stages of adjudication, arbitration or
investigation, and involve each of the Firm's lines of
business and geographies and a wide variety of claims
(including common law tort and contract claims and
statutory antitrust, securities and consumer protection
claims), some of which present novel legal theories.
The Firm believes the estimate of the aggregate range of
reasonably possible losses, in excess of reserves
established, for its legal proceedings is from $0 to
approximately $3.6 billion at December 31, 2015. This
estimated aggregate range of reasonably possible losses is
based upon currently available information for those
proceedings in which the Firm believes that an estimate of
reasonably possible loss can be made. For certain matters,
the Firm does not believe that such an estimate can be
made. The Firm's estimate of the aggregate range of
reasonably possible losses involves significant judgment,
given the number, variety and varying stages of the
proceedings (including the fact that many are in preliminary
stages), the existence in many such proceedings of multiple
defendants (including the Firm) whose share of liability has
yet to be determined, the numerous yet-unresolved issues
in many of the proceedings (including issues regarding class
certification and the scope of many of the claims) and the
attendant uncertainty of the various potential outcomes of
such proceedings, particularly proceedings that could result
from government investigations. Accordingly, the Firm's
estimate will change from time to time, and actual losses
may vary significantly.
Set forth below are descriptions of the Firm's material legal
proceedings.
Auto Dealer Regulatory Matter. The U.S. Department of
Justice ("DOJ") is investigating potential statistical
disparities in markups charged to borrowers of different
races and ethnicities by automobile dealers on loans
originated by those dealers and purchased by the Firm.
CIO Litigation. The Firm has been sued in a consolidated
shareholder class action, a consolidated putative class
action brought under the Employee Retirement Income
Security Act ("ERISA") and seven shareholder derivative
actions brought in Delaware state court and in New York
federal and state courts relating to 2012 losses in the
synthetic credit portfolio managed by the Firm's Chief
Investment Office ("CIO"). A settlement of the shareholder
class action, under which the Firm will pay $150 million,
Net rental expense
JPMorgan Chase & Co./2015 Annual Report
Sublease rental income
Gross rental expense
Trading assets and other
Less: Sublease rentals under noncancelable subleases
(1,889)
Total assets pledged
Net minimum payment required
$
9,940
2015
2014
$ 124.3 $ 118.7
298.6
144.9
$ 567.8
$ 535.9
Total rental expense was as follows.
Year ended December 31,
(in millions)
2015
$
has been preliminarily approved by the court. The putative
ERISA class action has been dismissed, and plaintiffs have
filed a notice of appeal. Six of the seven shareholder
derivative actions have been dismissed.
Collateral
Separately, the Firm and other defendants have entered
separate agreements to settle a consolidated putative class
action filed in the United States District Court for the
Southern District of New York on behalf of purchasers and
sellers of CDS. The complaint in this action had alleged that
the defendant investment banks and dealers, including the
Firm, as well as Markit and/or ISDA, collectively prevented
new entrants into the market for exchange-traded CDS
products. These settlements are subject to Court approval.
Custody Assets Investigation. The U.K. Financial Conduct
Authority ("FCA") has closed its previously-reported
investigation concerning compliance by JPMorgan Chase
Bank, N.A., London branch and J.P. Morgan Europe Limited
with the FCA's rules regarding the provision of custody
services relating to the administration of client assets.
In addition, the Firm has been named as a defendant along
with other banks in a series of individual and putative class
actions filed in various United States District Courts, in
which plaintiffs make varying allegations that in various
periods, starting in 2000 or later, defendants either
individually or collectively manipulated the U.S. dollar
LIBOR, Yen LIBOR, Swiss franc LIBOR, Euroyen TIBOR and/or
EURIBOR rates by submitting rates that were artificially low
or high. Plaintiffs allege that they transacted in loans,
derivatives or other financial instruments whose values are
affected by changes in U.S. dollar LIBOR, Yen LIBOR, Swiss
franc LIBOR, Euroyen TIBOR or EURIBOR and assert a
variety of claims including antitrust claims seeking treble
damages. These matters are in various stages of litigation.
The U.S. dollar LIBOR-related putative class actions and
most U.S. dollar LIBOR-related individual actions were
consolidated for pre-trial purposes in the United States
District Court for the Southern District of New York. The
Court dismissed certain claims, including the antitrust
claims, and permitted other claims under the Commodity
Exchange Act and common law to proceed. Certain plaintiffs
appealed the dismissal of the antitrust claims, and the
United States Court of Appeals for the Second Circuit
dismissed the appeal for lack of jurisdiction. In January
2015, the United States Supreme Court reversed the
decision of the Court of Appeals, holding that plaintiffs have
the jurisdictional right to appeal, and remanded the case to
the Court of Appeals for further proceedings. The Court of
Appeals heard oral argument on remand in November
2015.
The Firm is one of the defendants in a number of putative
class actions alleging that defendant banks and ICAP
conspired to manipulate the U.S. dollar ISDAFIX rates.
Plaintiffs primarily assert claims under the federal antitrust
laws and Commodities Exchange Act.
Madoff Litigation. Various subsidiaries of the Firm, including
J.P. Morgan Securities plc, have been named as defendants
in lawsuits filed in Bankruptcy Court in New York arising out
of the liquidation proceedings of Fairfield Sentry Limited
and Fairfield Sigma Limited, so-called Madoff feeder funds.
299
Notes to consolidated financial statements
These actions seek to recover payments made by the funds
to defendants totaling approximately $155 million. All but
two of these actions have been dismissed.
In addition, a putative class action was brought by investors
in certain feeder funds against JPMorgan Chase in the
United States District Court for the Southern District of New
York, as was a motion by separate potential class plaintiffs
to add claims against the Firm and certain subsidiaries to an
already pending putative class action in the same court. The
allegations in these complaints largely track those
previously raised -- and resolved as to the Firm -- by the
court-appointed trustee for Bernard L. Madoff Investment
Securities LLC. The District Court dismissed these
complaints and the United States Court of Appeals for the
Second Circuit affirmed the District Court's decision. The
United States Supreme Court denied plaintiffs' petition for a
writ of certiorari in March 2015. Plaintiffs subsequently
served a motion in the Court of Appeals seeking to have the
Court reconsider its prior decision in light of another recent
appellate decision. That motion was denied in June 2015.
The Firm is a defendant in five other Madoff-related
individual investor actions pending in New York state court.
The allegations in all of these actions are essentially
identical, and involve claims against the Firm for, among
other things, aiding and abetting breach of fiduciary duty,
conversion and unjust enrichment. In August 2014, the
Court dismissed all claims against the Firm. In January
2016, the Appellate Court affirmed the dismissal.
A putative class action was filed in the United States District
Court for the District of New Jersey by investors who were
net winners (i.e., Madoff customers who had taken more
money out of their accounts than had been invested) in
Madoff's Ponzi scheme and were not included in a prior
class action settlement. These plaintiffs allege violations of
the federal securities law, federal and state racketeering
statutes and multiple common law and statutory claims
including breach of trust, aiding and abetting
embezzlement, unjust enrichment, conversion and
commercial bad faith. A similar action was filed in the
United States District Court for the Middle District of
Florida, although it was not styled as a class action, and
included claims pursuant to Florida statutes. The Firm
moved to transfer both the Florida and New Jersey actions
to the United States District Court for the Southern District
of New York. The Florida court denied the transfer motion,
but subsequently granted the Firm's motion to dismiss the
case in September 2015. Plaintiffs have filed a notice of
appeal, which is pending. In addition, the same plaintiffs
have re-filed their dismissed state claims in Florida state
court. The New Jersey court granted the transfer motion to
the Southern District of New York, and the Firm has moved
to dismiss the case pending in New York.
Three shareholder derivative actions have also been filed in
New York federal and state court against the Firm, as
nominal defendant, and certain of its current and former
Board members, alleging breach of fiduciary duty in
300
Credit Default Swaps Investigations and Litigation. In July
2013, the European Commission (the "EC") filed a
Statement of Objections against the Firm (including various
subsidiaries) and other industry members in connection
with its ongoing investigation into the credit default swaps
("CDS") marketplace. The EC asserted that between 2006
and 2009, a number of investment banks acted collectively
through the International Swaps and Derivatives Association
("ISDA") and Markit Group Limited ("Markit") to foreclose
exchanges from the potential market for exchange-traded
credit derivatives. In December 2015, the EC announced the
closure of its investigation as to the Firm and other
investment banks.
Mortgage-Backed Securities and Repurchase Litigation and
Related Regulatory Investigations. The Firm and affiliates
(together, "JPMC"), Bear Stearns and affiliates (together,
"Bear Stearns") and certain Washington Mutual affiliates
(together, "Washington Mutual") have been named as
defendants in a number of cases in their various roles in
offerings of mortgage-backed securities ("MBS"). These
cases include actions by individual MBS purchasers and
actions by monoline insurance companies that guaranteed
payments of principal and interest for particular tranches of
MBS offerings. Following the settlements referred to below,
there are currently pending and tolled investor claims
involving MBS with an original principal balance of
approximately $4.2 billion, of which $2.6 billion involves
JPMC, Bear Stearns or Washington Mutual as issuer and
$1.6 billion involves JPMC, Bear Stearns or Washington
Mutual solely as underwriter. The Firm and certain of its
current and former officers and Board members have also
been sued in shareholder derivative actions relating to the
Firm's MBS activities, and trustees have asserted or have
threatened to assert claims that loans in securitization
trusts should be repurchased.
Issuer Litigation - Class Actions. JPMC has fully resolved all
pending putative class actions on behalf of purchasers of
MBS.
Issuer Litigation - Individual Purchaser Actions. The Firm is
defending individual actions brought against JPMC, Bear
Stearns and Washington Mutual as MBS issuers (and, in
some cases, also as underwriters of their own MBS
offerings). The Firm has settled a number of these actions.
Several actions remain pending in federal and state courts
across the U.S. and are in various stages of litigation.
Monoline Insurer Litigation. The Firm has settled two
pending actions relating to a monoline insurer's guarantees
of principal and interest on certain classes of 11 different
Bear Stearns MBS offerings. This settlement fully resolves
all pending actions by monoline insurers against the Firm
relating to RMBS issued and/or sponsored by the Firm.
Underwriter Actions. In actions against the Firm involving
offerings where the Firm was solely an underwriter of other
issuers' MBS offerings, the Firm has contractual rights to
indemnification from the issuers. However, those indemnity
rights may prove effectively unenforceable in various
situations, such as where the issuers are now defunct.
Currently there is one such action pending against the Firm
relating to a single offering of another issuer.
Repurchase Litigation. The Firm is defending a number of
actions brought by trustees, securities administrators or
JPMorgan Chase & Co./2015 Annual Report
European Banking Federation ("EBF") in connection with
the setting of the EBF's Euro Interbank Offered Rates
("EURIBOR") and to the Japanese Bankers' Association for
the setting of Tokyo Interbank Offered Rates ("TIBOR”), as
well as processes for the setting of U.S. dollar ISDAFIX rates
and other reference rates in various parts of the world
during similar time periods. The Firm is responding to and
continuing to cooperate with these inquiries. As previously
reported, the Firm has resolved EC inquiries relating to Yen
LIBOR and Swiss Franc LIBOR. In May 2014, the EC issued a
Statement of Objections outlining its case against the Firm
(and others) as to EURIBOR, to which the Firm has filed a
response and made oral representations. Other inquiries
have been discontinued without any action against
JPMorgan Chase, including by the FCA and the Canadian
Competition Bureau.
JPMorgan Chase & Co./2015 Annual Report
connection with the Firm's relationship with Bernard Madoff
and the alleged failure to maintain effective internal
controls to detect fraudulent transactions. The actions seek
declaratory relief and damages. All three actions have been
dismissed. The plaintiff in one action did not appeal, the
dismissal has been affirmed on appeal in another action,
and one appeal remains pending.
The settlement did not resolve the following remaining
matters: In the Bankruptcy Court proceedings, LBHI and the
Committee filed an objection to the claims asserted by
JPMorgan Chase Bank, N.A. against LBHI with respect to
clearing advances made to LBI, principally on the grounds
that the Firm had not conducted the sale of the securities
collateral held for its claims in a commercially reasonable
manner. In January 2015, LBHI brought two claims
objections relating to securities lending claims and a group
of other smaller claims. Discovery with respect to these
objections is ongoing.
LIBOR and Other Benchmark Rate Investigations and
Litigation. JPMorgan Chase has received subpoenas and
requests for documents and, in some cases, interviews,
from federal and state agencies and entities, including the
DOJ, the U.S. Commodity Futures Trading Commission
("CFTC"), the U.S. Securities and Exchange Commission
("SEC") and various state attorneys general, as well as the
EC, the FCA, the Canadian Competition Bureau, the Swiss
Competition Commission and other regulatory authorities
and banking associations around the world relating
primarily to the process by which interest rates were
submitted to the British Bankers Association ("BBA”) in
connection with the setting of the BBA's London Interbank
Offered Rate ("LIBOR") for various currencies, principally in
2007 and 2008. Some of the inquiries also relate to similar
processes by which information on rates is submitted to the
Foreign Exchange Investigations and Litigation. The Firm
previously reported settlements with certain government
authorities relating to its foreign exchange ("FX") sales and
trading activities and controls related to those activities. FX-
related investigations and inquiries by other, non-U.S.
government authorities, including competition authorities,
remain ongoing, and the Firm is cooperating with those
matters.
The Firm is also one of a number of foreign exchange
dealers defending a class action filed in the United States
District Court for the Southern District of New York by U.S.-
based plaintiffs, principally alleging violations of federal
antitrust laws based on an alleged conspiracy to manipulate
foreign exchange rates (the "U.S. class action"). In January
2015, the Firm entered into a settlement agreement in the
U.S. class action. Following this settlement, a number of
additional putative class actions were filed seeking damages
for persons who transacted FX futures and options on
futures (the "exchanged-based actions"), consumers who
purchased foreign currencies at allegedly inflated rates (the
"consumer actions"), and participants or beneficiaries of
qualified ERISA plans (the "ERISA actions"). In July 2015,
the plaintiffs in the U.S. class action filed an amended
complaint, and the Court consolidated the exchange-based
297
actions into the U.S. class action. The Firm has entered into
a revised settlement agreement to resolve the consolidated
U.S. class action, including the exchange-based actions, and
that agreement is subject to Court approval. The consumer
actions and ERISA actions remain pending.
In September 2015, two class actions were filed in Canada
against the Firm as well as a number of other FX dealers,
principally for alleged violations of the Canadian
Competition Act based on an alleged conspiracy to fix the
prices of currency purchased in the FX market. The first
action was filed in the province of Ontario, and seeks to
represent all persons in Canada who transacted any FX
instrument. The second action seeks to represent only those
persons in Quebec who engaged in FX transactions.
General Motors Litigation. JPMorgan Chase Bank, N.A.
participated in, and was the Administrative Agent on behalf
of a syndicate of lenders on, a $1.5 billion syndicated Term
Loan facility ("Term Loan") for General Motors Corporation
("GM"). In July 2009, in connection with the GM bankruptcy
proceedings, the Official Committee of Unsecured Creditors
of Motors Liquidation Company ("Creditors Committee")
filed a lawsuit against JPMorgan Chase Bank, N.A., in its
individual capacity and as Administrative Agent for other
lenders on the Term Loan, seeking to hold the underlying
lien invalid based on the filing of a UCC-3 termination
statement relating to the Term Loan. In March 2013, the
Bankruptcy Court granted JPMorgan Chase Bank, N.A.'s
motion for summary judgment and dismissed the Creditors
Committee's complaint on the grounds that JPMorgan Chase
Bank, N.A. did not authorize the filing of the UCC-3
termination statement at issue. The Creditors Committee
appealed the Bankruptcy Court's dismissal of its claim to
the United States Court of Appeals for the Second Circuit. In
January 2015, the Court of Appeals reversed the
Bankruptcy Court's dismissal of the Creditors Committee's
claim and remanded the case to the Bankruptcy Court with
instructions to enter partial summary judgment for the
Creditors Committee as to the termination statement. The
proceedings in the Bankruptcy Court continue with respect
to, among other things, additional defenses asserted by
JPMorgan Chase Bank, N.A. and the value of additional
collateral on the Term Loan that was unaffected by the filing
of the termination statement at issue. In addition, certain
Term Loan lenders filed cross-claims against JPMorgan
Chase Bank, N.A. in the Bankruptcy Court seeking
indemnification and asserting various claims.
Interchange Litigation. A group of merchants and retail
associations filed a series of class action complaints alleging
that Visa and MasterCard, as well as certain banks,
conspired to set the price of credit and debit card
interchange fees, enacted respective rules in violation of
antitrust laws, and engaged in tying/bundling and exclusive
dealing. The parties have entered into an agreement to
settle the cases for a cash payment of $6.1 billion to the
class plaintiffs (of which the Firm's share is approximately
20%) and an amount equal to ten basis points of credit
card interchange for a period of eight months to be
298
Notes to consolidated financial statements
communications between one of MasterCard's former
outside counsel and one of plaintiffs' outside counsel. That
motion remains pending. Certain merchants that opted out
of the class settlement have filed actions against Visa and
MasterCard, as well as against the Firm and other banks.
Defendants' motion to dismiss those actions was denied in
July 2014.
Investment Management Litigation. The Firm is defending
two pending cases that are being coordinated for pre-trial
purposes, alleging that investment portfolios managed by
J.P. Morgan Investment Management ("JPMIM") were
inappropriately invested in securities backed by residential
real estate collateral. Plaintiffs Assured Guaranty (U.K.) and
Ambac Assurance UK Limited claim that JPMIM is liable for
total losses of more than $1 billion in market value of these
securities. Discovery has been completed. In January 2016,
plaintiffs filed a joint partial motion for summary judgment
in the coordinated actions.
Lehman Brothers Bankruptcy Proceedings. In May 2010,
Lehman Brothers Holdings Inc. ("LBHI") and its Official
Committee of Unsecured Creditors (the "Committee”) filed a
complaint (and later an amended complaint) against
JPMorgan Chase Bank, N.A. in the United States Bankruptcy
Court for the Southern District of New York that asserted
both federal bankruptcy law and state common law claims,
and sought, among other relief, to recover $7.9 billion in
collateral (after deducting $700 million of returned
collateral) that was transferred to JPMorgan Chase Bank,
N.A. in the weeks preceding LBHI's bankruptcy. The
amended complaint also sought unspecified damages on
the grounds that JPMorgan Chase Bank, N.A.'s collateral
requests hastened LBHI's bankruptcy. The Bankruptcy Court
dismissed the claims in the amended complaint that sought
to void the allegedly constructively fraudulent and
preferential transfers made to the Firm during September
2008, but did not dismiss the other claims, including claims
for duress and fraud. The Firm filed counterclaims against
LBHI, including alleging that LBHI fraudulently induced the
Firm to make large extensions of credit against
inappropriate collateral in connection with the Firm's role
as the clearing bank for Lehman Brothers Inc. ("LBI”),
LBHI's broker-dealer subsidiary. These extensions of credit
left the Firm with more than $25 billion in claims against
the estate of LBI, which was repaid principally through
collateral posted by LBHI and LBI. In September 2015, the
District Court, to which the case had been transferred from
the Bankruptcy Court, granted summary judgment in favor
JPMorgan Chase & Co./2015 Annual Report
of JPMorgan Chase Bank, N.A. on most of the claims against
it that the Bankruptcy Court had not previously dismissed,
including the claims for duress and fraud. The District Court
also denied LBHI's motion for summary judgment on certain
of its claims and for dismissal of the Firm's counterclaims.
The claims that remained following the District Court's
ruling challenged the propriety of the Firm's post-petition
payment, from collateral posted by LBHI, of approximately
$1.9 billion of derivatives, repo and securities lending
claims.
In the Bankruptcy Court proceedings, LBHI and several of its
subsidiaries that had been Chapter 11 debtors had filed a
separate complaint and objection to derivatives claims
asserted by the Firm alleging that the amount of the
derivatives claims had been overstated and challenging
certain set-offs taken by JPMorgan Chase entities to recover
on the claims. In January 2015, LBHI filed claims objections
with respect to guaranty claims asserted by the Firm arising
from close-outs of derivatives transactions with LBI and one
of its affiliates, and a claim objection with respect to
derivatives close-out claims acquired by the Firm in the
Washington Mutual transaction.
measured from a date within 60 days of the end of the opt-
out period. The agreement also provides for modifications
to each credit card network's rules, including those that
prohibit surcharging credit card transactions. In December
2013, the Court issued a decision granting final approval of
the settlement. A number of merchants appealed, and oral
argument was held in September 2015. Certain merchants
and trade associations have also filed a motion with the
District Court seeking to set aside the approval of the class
settlement on the basis of alleged improper
In January 2016, the parties reached an agreement,
approved by the Bankruptcy Court, under which the Firm
will pay $1.42 billion to settle all of the claims,
counterclaims and claims objections, including all appeal
rights, except for the claims specified in the following
paragraph. One pro se objector is seeking to appeal the
settlement.
$
Basic
Net income:
Per common share data
5,269
5,980 $
4,931 $
5,565
$
1.34 $
6,290 $
5,914
$
Diluted
1.46
1.45
Average shares:
Basic
Diluted
3,674.2
3,704.6
1.70 $
1.68
3,694.4
3,725.6
1.56 $
1.54
$
1.20
$
1.37
$
6,804 $
1.32
5,434 $
purchasers of securities issued by those trusts. These cases
generally allege breaches of various representations and
warranties regarding securitized loans and seek repurchase
of those loans or equivalent monetary relief, as well as
indemnification of attorneys' fees and costs and other
remedies. Deutsche Bank National Trust Company, acting as
trustee for various MBS trusts, has filed such a suit against
JPMorgan Chase Bank, N.A. and the Federal Deposit
Insurance Corporation (the "FDIC") in connection with a
significant number of MBS issued by Washington Mutual;
that case is described in the Washington Mutual Litigations
section below. Other repurchase actions, each specific to
one or more MBS transactions issued by JPMC and/or Bear
Stearns, are in various stages of litigation.
2,460
1.47 $
7,341
8,671
9,247
8,579
1,251
682
935
959
840
757
692
850
$
7,371
8,377
8,224
6,501
7,914
8,555
7,729
1,937
(74)
2,087
2,310
1,570
2,349
2.575
6,730
1.29
54.20
1.35
50.07
59.65
54.27
54.26
54.96
52.97
9,183
Close
66.03
60.97
67.76
60.58
62.58
60.24
57.62
60.71
Book value per share
60.46
59.67
58.49
57.77
56.98
56.41
55.44
53.97
Tangible book value per share ("TBVPS")(b)
48.13
58.53
Low
$ 61.29 $ 61.48
63.49 $ 61.85
1.46
1.28
3,707.8
3,743.6
3,725.3
3,757.5
3,730.9
3,755.4
3,780.6
3,787.2
3,765.2
3,788.7
3,812.5
3,823.6
Market and per common share data
1.19
Market capitalization
3,681.1
$ 241,899 $ 224,438 $ 250,581 $ 224,818
3,663.5
3,698.1
3,711.1
$ 232,472
3,714.8
$ 225,188
3,738.2
$ 216,725
3,761.3
$ 229,770
3,784.7
Share price(a):
High
$
69.03 $ 70.61 $ 69.82 $ 62.96
$
Common shares at period-end
9,312
JPMorgan Chase & Co./2015 Annual Report
8,622
Nonbank
58,674
52,626
All other financing activities, net
Net cash provided by/(used in)
financing activities
(840)
(921)
(994)
(47,937)
4,086
(9,985)
Investments (at equity) in subsidiaries and
affiliates:
Net increase/(decrease) in cash
and due from banks
(137)
(53)
48
Bank and bank holding company
225,613
Nonbank(a)
Other assets
34,205
18,088
215,732
41,173
18,200
Cash and due from banks at the
beginning of the year, primarily
with bank subsidiaries
211
264
216
Total assets
$ 453,778 $ 481,439
33,810
32,454
Bank and bank holding company
Advances to, and receivables from,
subsidiaries:
211
Proceeds from issuance of
preferred stock
5,893
8,847
3,873
Deposits with banking subsidiaries
65,799
Trading assets
13,830
95,884
18,222
Redemption of preferred stock
(1,800)
Liabilities and stockholders' equity
Treasury stock and warrants
3,154
3,321
repurchased
(5,616)
(4,760)
(4,789)
Loans
1,887
2,260
Dividends paid
(7,873)
(6,990)
(6,056)
Available-for-sale securities
7,412
Cash and due from banks at the
end of the year, primarily with
bank subsidiaries
74
Income before income tax expense
Income tax expense
Net income
2015
2014
4th quarter
3rd quarter
2nd quarter
1st quarter
4th quarter
3rd quarter
2nd quarter 1st quarter
$ 22,885 $
22,780
$
23,812
$ 24,066
$
22,750 $ 24,469 $ 24,678 $ 23,215
14,263
15,368
14,500
14,883
15,409
15,798
15,431
14,636
Provision for credit losses.
Pre-provision profit
Total noninterest expense
Total net revenue
$ 211 $ 264
paper
Borrowings from, and payables to,
subsidiaries and affiliates (a)
Other borrowed funds, primarily commercial
Other liabilities
Long-term debt (b)(c)
Total liabilities(c)
Total stockholders' equity
Cash interest paid
$ 11,310 $ 17,381
Cash income taxes paid, net
3,722 49,586
11,940
11,918
179,233 170,827
206,205 249,712
247,573 231,727
Total liabilities and stockholders' equity
$
$ 453,778 $ 481,439
(a) Affiliates include trusts that issued guaranteed capital debt securities ("issuer trusts").
The Parent received dividends of $2 million, $2 million and $5 million from the issuer
trusts in 2015, 2014 and 2013, respectively. For further discussion on these issuer
trusts, see Note 21.
(b) At December 31, 2015, long-term debt that contractually matures in 2016 through
2020 totaled $27.2 billion, $26.0 billion, $21.1 billion, $11.5 billion and $22.2
billion, respectively.
(c) For information regarding the Parent's guarantees of its subsidiaries' obligations, see
Notes 21 and 29.
8,251
308
47.36
Supplementary information
Selected quarterly financial data (unaudited)
(Table continued on next page)
As of or for the period ended
(in millions, except per share, ratio, headcount
data and where otherwise noted)
Selected income statement data
$ 3,873 $ 3,921 $ 4,409
200
2,390
46.13
0.99
44.60
210,876
208,520
204,246
Total stockholders' equity
247,573
245,728
241,205
235,864
231,727
230,939
226,983
219,329
Headcount
234,598
235,678
237,459
241,145
241,359
242,388
245,192
246,994
JPMorgan Chase & Co./2015 Annual Report
309
Supplementary information
(Table continued from previous page)
As of or for the period ended
(in millions, except ratio data)
211,664
214,371
216,287
219,660
809,457
791,247
764,185
757,336
743,257
746,983
730,971
Total assets
Deposits
1,279,715
732,093
2,351,698 2,416,635
1,273,106
698,988
Long-term debt(e)
Credit quality metrics
288,651
674,767
2,449,098
1,287,332
286,240
641,285
2,576,619
1,367,887
280,123
628,785
2,572,274 2,526,158
607,617
603,440
582,206
2,519,494 2,476,152
1,363,427 1,334,534 1,319,751
276,379
268,265
1,282,705
269,472
274,053
Common stockholders' equity
221,505
292,503
837,299
2015
4th quarter
Net charge-offs
Net charge-off rate
1,064
0.52%
7,294
963
0.49%
$
1.52
7,588 $ 7,714
1,007
1,052
0.53%
0.57%
1.55
1.63
$ 7,967 $ 8,390
1,218
1,114
0.65%
1.69
1.75
$
9,017 $
9,473
1,158
1,269
0.60%
0.71%
0.64%
Note: Effective October 1, 2015, and January 1, 2015, JPMorgan Chase & Co. ("JPMorgan Chase" or the "Firm") adopted new accounting guidance, retrospectively, related to (1) the presentation of debt issuance
costs, and (2) investments in affordable housing projects that qualify for the low-income housing tax credit, respectively. For additional information, see Explanation and Reconciliation of the Firm's Use of Non-
GAAP Financial Measures on pages 80-82, Accounting and Reporting Developments on page 170, and Note 1.
(a) Share prices shown for JPMorgan Chase's common stock are from the New York Stock Exchange.
(b)
TBVPS and ROTCE are non-GAAP financial measures. For further discussion of these measures, see Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures on pages 80-82.
(c) HQLA represents the amount of assets that qualify for inclusion in the liquidity coverage ratio under the final U.S. rule ("U.S. LCR") for 4Q15, 3015, 2015 and 1Q15 and the estimated amounts for 4Q14 and
3Q14 prior to the effective date of the final rule and under the Basel III liquidity coverage ratio ("Basel III LCR") for 2Q14 and 1Q14. For additional information, see HQLA on page 160.
(d) As of December 31, 2015, September 30, 2015, June 30, 2015, March 31, 2015, December 31, 2014, September 30, 2014, and June 30, 2014, the ratios presented are calculated under the U.S. Basel III
transitional rules. As of March 31, 2015 the ratio presented is calculated under Basel III Standardized Transitional rules. All periods shown represent the Collins Floor. See Capital Management on pages 149-
158 for additional information on Basel III and non-GAAP financial measures of regulatory capital.
(e)
Included unsecured long-term debt of $211.8 billion, $214.6 billion, $209.1 billion, $209.0 billion, $207.0 billion, $204.2 billion, $205.1 billion and $205.6 respectively, for the periods presented.
(f) Excludes the impact of residential real estate PCI loans, a non-GAAP financial measure. For further discussion of these measures, see Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial
Measures on pages 80-82. For further discussion, see Allowance for credit losses on pages 130-132.
310
JPMorgan Chase & Co./2015 Annual Report
$
7,034
$
Nonperforming assets
3rd quarter
2nd quarter 1st quarter
4th quarter
3rd quarter
2nd quarter
1st quarter
Allowance for credit losses
$
14,341
$ 14,201
$ 14,535 $
14,658
$ 14,807
2014
$ 15,526 $ 15,974 $
Allowance for loan losses to total retained
loans
1.63%
1.67%
1.78%
1.86%
1.90%
2.02%
2.08%
2.20%
Allowance for loan losses to retained loans
excluding purchased credit-impaired loans (f)
1.37
1.40
1.45
16,485
45.45
Core Loans
351,850
0.90
1.11
1.01
0.94
0.78
0.90
74 $
0.89
Overhead ratio
62
67
61
62
68
65
63
63
Loans-to-deposits ratio
65
64
61
56
56
56
57
57
HQLA (in billions)(c)
Return on assets ("ROA")
13
14
13
44.04
43.08
41.65
Cash dividends declared per share
0.44
0.44
0.44
0.40
0.40
0.40
0.40
0.38
Selected ratios and metrics
$
Return on common equity ("ROE")
12%
11%
11%
9%
10%
11%
10%
Return on tangible common equity ("ROTCE")(b)
11
15
14
14
11
9%
Loans
496
$
15.1
14.9
14.4
13.6
13.1
12.8
12.5
14.5
8.5
8.4
8.0
7.5
7.6
7.6
7.6
7.3
$ 343,839 $ 361,708 $ 377,870 $ 398,981
$ 398,988
290,827
306,660
317,795
331,136
348,004
$ 410,657
366,358
$ 392,543
$ 375,204
361,918
Securities
Trading assets
Selected balance sheet data (period-end)
Tier 1 leverage ratio
505 $
532 $
614
$
600 $
572 $
576
$
538
CET1 capital ratio (d)
Tier 1 capital ratio(d)
11.8%
11.5%
+A
11.2%
10.2%
10.2%
9.8%
10.9%
13.5
13.3
12.8
12.1
11.6
11.5
11.0
12.0
Total capital ratio (d)
10.7%
master servicers of various MBS trusts on behalf of
$
31,303
(21,510)
4,520
10,976
11.175
9,849
$ 2,365 $ 2,349 $ 2,298
$ 23,736
4,533
$ 23,420
$ 17,552
28,985
28,431
28,228
$ 15,937
$ 15,592
2013
$ 23,693
2014
4,794
43,820
(161)
332
335
3,520
3,059
Provision for credit losses
Total net revenue
7,092
6,885
34,712
34,595
33,542
46,537
44,368
6,882
2015
2013
2014
Segment results
Notes to consolidated financial statements
305
The Corporate segment consists of Treasury and Chief
Investment Office ("CIO") and Other Corporate, which
includes corporate staff units and expense that is centrally
managed. Treasury and CIO are predominantly responsible
for measuring, monitoring, reporting and managing the
Firm's liquidity, funding and structural interest rate and
foreign exchange risks, as well as executing the Firm's
capital plan. The major Other Corporate units include Real
Estate, Enterprise Technology, Legal, Compliance, Finance,
Human Resources, Internal Audit, Risk Management,
Oversight & Control, Corporate Responsibility and various
Other Corporate groups. Other centrally managed expense
includes the Firm's occupancy and pension-related expenses
that are subject to allocation to the businesses.
Corporate
Asset Management ("AM"), with client assets of $2.4
trillion, is a global leader in investment and wealth
management. AM clients include institutions, high-net-
worth individuals and retail investors in many major
markets throughout the world. AM offers investment
management across most major asset classes including
equities, fixed income, alternatives and money market
funds. AM also offers multi-asset investment management,
providing solutions for a broad range of clients' investment
needs. For Global Wealth Management clients, AM also
provides retirement products and services, brokerage and
banking services including trusts and estates, loans,
mortgages and deposits. The majority of AM's client assets
are in actively managed portfolios.
The following tables provide a summary of the Firm's
segment results as of or for the years ended December 31,
2015, 2014 and 2013 on a managed basis. Total net
revenue (noninterest revenue and net interest income) for
each of the segments is presented on a fully taxable-
equivalent ("FTE") basis. Accordingly, revenue from
investments that receive tax credits and tax-exempt
securities is presented in the managed results on a basis
comparable to taxable investments and securities. This non-
GAAP financial measure allows management to assess the
comparability of revenue arising from both taxable and tax-
exempt sources. The corresponding income tax impact
related to tax-exempt items is recorded within income tax
expense/(benefit).
Asset Management
Commercial Banking
securities lending products principally for asset managers,
insurance companies and public and private investment
funds.
JPMorgan Chase & Co./2015 Annual Report
The Corporate & Investment Bank ("CIB"), which consists of
Banking and Markets & Investor Services, offers a broad
suite of investment banking, market-making, prime
brokerage, and treasury and securities products and
services to a global client base of corporations, investors,
financial institutions, government and municipal
entities. Banking offers a full range of investment banking
products and services in all major capital markets, including
advising on corporate strategy and structure, capital-raising
in equity and debt markets, as well as loan origination and
syndication. Banking also includes Treasury Services, which
provides transaction services, consisting of cash
management and liquidity solutions. Markets & Investor
Services is a global market-maker in cash securities and
derivative instruments, and also offers sophisticated risk
management solutions, prime brokerage, and
research. Markets & Investor Services also includes
Securities Services, a leading global custodian which
provides custody, fund accounting and administration, and
Corporate & Investment Bank
Consumer & Community Banking ("CCB") serves consumers
and businesses through personal service at bank branches
and through ATMs, online, mobile and telephone banking.
CCB is organized into Consumer & Business Banking
(including Consumer Banking/Chase Wealth Management
and Business Banking), Mortgage Banking (including
Mortgage Production, Mortgage Servicing and Real Estate
Portfolios) and Card, Commerce Solutions & Auto ("Card").
Consumer & Business Banking offers deposit and
investment products and services to consumers, and
lending, deposit, and cash management and payment
solutions to small businesses. Mortgage Banking includes
mortgage origination and servicing activities, as well as
portfolios consisting of residential mortgages and home
equity loans. Card issues credit cards to consumers and
small businesses, offers payment processing services to
merchants, and provides auto loans and leases and student
loan services.
Commercial Banking ("CB") delivers extensive industry
knowledge, local expertise and dedicated service to U.S.
and U.S. multinational clients, including corporations,
municipalities, financial institutions and nonprofit entities
with annual revenue generally ranging from $20 million to
$2 billion. In addition, CB provides financing to real estate
investors and owners. Partnering with the Firm's other
businesses, CB provides comprehensive financial solutions,
including lending, treasury services, investment banking
and asset management to meet its clients' domestic and
international financial needs.
Preferred stock dividend allocation
As part of its funds transfer pricing process, the Firm
allocates substantially all of the cost of its outstanding
Segment results and reconciliation
2015
2013
2014
2015
Net interest income
Noninterest revenue
(in millions, except ratios)
December 31,
As of or for the year ended
Commercial Banking
Corporate & Investment Bank
Consumer & Community Banking
On at least an annual basis, the Firm assesses the level of
capital required for each line of business as well as the
assumptions and methodologies used to allocate capital to
its lines of business, and updates the equity allocations to
its lines of business as refinements are implemented. Each
business segment is allocated capital by taking into
consideration stand-alone peer comparisons, regulatory
capital requirements (as estimated under Basel III Advanced
Fully Phased-In rules) and economic risk. The amount of
capital assigned to each business is referred to as equity.
Business segment capital allocation changes
preferred stock to its reportable business segments, while
retaining the balance of the cost in Corporate. This cost is
included as a reduction to net income applicable to common
equity to be consistent with the presentation of firmwide
results.
(232)
Consumer & Community Banking
442
85
Return on common equity
190,782
195,267
200,700
843,248
861,466
18%
$ 14,000 $ 13,500
2,648
$ 2,191 $ 2,635
$ 6,908 $ 8,850
$ 61,000 $ 56,500
8,090
62,000
748,691
452,929
$ 46,000
$ 14,000
$ 51,000 $ 51,000
455,634
18%
12%
39
42
63
67
64
60
23%
58
Overhead ratio
19%
18%
15%
15%
10%
57
502,652
Total assets
Average common equity
18,360
15,239
15,852
Income/(loss) before income tax expense/(benefit)
2,610
2,695
11,849
2,881
23,273
21,361
27,842
25,609
24,909
Noninterest expense
21,744
11,483
13,200
3,562
$ 11,061
$ 9,789 $ 9,185
Net income/(loss)
1,749
1,741
1,371
4,350
4,575
3,759
7,299
6,054
6,063
Income tax expense/(benefit)
4,397
4,376
(189)
The Firm is managed on a line of business basis. There are
four major reportable business segments - Consumer &
Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset Management. In addition,
there is a Corporate segment. The business segments are
determined based on the products and services provided, or
the type of customer served, and they reflect the manner in
which financial information is currently evaluated by
management. Results of these lines of business are
presented on a managed basis. For a definition of managed
basis, see Explanation and Reconciliation of the Firm's use
of non-GAAP financial measures, on pages 80-82. For a
further discussion concerning JPMorgan Chase's business
segments, see Business Segment Results on pages 83-84.
The following is a description of each of the Firm's business
segments, and the products and services they provide to
their respective client bases.
Note 33 - Business segments
JPMorgan Chase & Co./2015 Annual Report
$
Total assets
Net income
expense
Expense(c)
Revenue (b)
14,206 $
Income before
income tax
Total
North America (a)
Total international
Latin America and the Caribbean
Asia and Pacific
Europe/Middle East and Africa
2014
As of or for the year ended December 31, (in millions)
2015
8,871
6,151
$
48,221
71,263
14,620
22,280
48,185
$
347,647 (d)
138,747
4,158
1,285
253
415
1,508
1,923
5,335 $
1,910
4,241
$
The Firm's long-lived assets for the periods presented are
not considered by management to be significant in relation
to total assets. The majority of the Firm's long-lived assets
are located in the U.S.
As the Firm's operations are highly integrated, estimates
and subjective assumptions have been made to apportion
revenue and expense between U.S. and international
operations. These estimates and assumptions are consistent
with the allocations used for the Firm's segment reporting
as set forth in Note 33.
The following table presents income statement- and balance
sheet-related information for JPMorgan Chase by major
international geographic area. The Firm defines
international activities for purposes of this footnote
presentation as business transactions that involve clients
residing outside of the U.S., and the information presented
below is based predominantly on the domicile of the client,
the location from which the client relationship is managed,
or the location of the trading desk. However, many of the
Firm's U.S. operations serve international businesses.
entered into by JPMorgan Chase Bank, N.A. and the OCC (as
amended in 2013 and 2015), and assessed a $48 million
civil money penalty. The OCC concurrently terminated that
consent order.
Notes to consolidated financial statements
301
JPMorgan Chase & Co./2015 Annual Report
In March 2015, JPMorgan Chase Bank, N.A entered into a
settlement agreement with the Executive Office for United
States Bankruptcy Trustees and the United States Trustee
Program (collectively, the "Bankruptcy Trustee") to resolve
issues relating to mortgage payment change notices and
escrow statements in bankruptcy proceedings. In January
2016, the OCC determined that, among other things, the
mortgage payment change notices issues that were the
subject of the settlement with the Bankruptcy Trustee
violated the 2011 mortgage servicing-related consent order
The Civil Division of the United States Attorney's Office for
the Southern District of New York is conducting an
investigation concerning the Firm's compliance with the Fair
Housing Act and Equal Credit Opportunity Act in connection
with its mortgage lending practices. In addition, three
municipalities have commenced litigation against the Firm
alleging violations of an unfair competition law or the Fair
Housing Act. The municipalities seek, among other things,
civil penalties for the unfair competition claim, and, for the
Fair Housing Act claims, damages resulting from lost tax
revenue and increased municipal costs associated with
foreclosed properties. Two of the municipal actions are
stayed, and a motion to dismiss is pending in the remaining
action.
Municipal Derivatives Litigation. Several civil actions were
commenced in New York and Alabama courts against the
Firm relating to certain Jefferson County, Alabama (the
"County") warrant underwritings and swap transactions.
The claims in the civil actions generally alleged that the
Firm made payments to certain third parties in exchange for
being chosen to underwrite more than $3 billion in
warrants issued by the County and to act as the
counterparty for certain swaps executed by the County. The
County filed for bankruptcy in November 2011. In June
2013, the County filed a Chapter 9 Plan of Adjustment, as
amended (the "Plan of Adjustment"), which provided that
all the above-described actions against the Firm would be
released and dismissed with prejudice. In November 2013,
the Bankruptcy Court confirmed the Plan of Adjustment,
and in December 2013, certain sewer rate payers filed an
appeal challenging the confirmation of the Plan of
Adjustment. All conditions to the Plan of Adjustment's
effectiveness, including the dismissal of the actions against
the Firm, were satisfied or waived and the transactions
contemplated by the Plan of Adjustment occurred in
December 2013. Accordingly, all the above-described
actions against the Firm have been dismissed pursuant to
the terms of the Plan of Adjustment. The appeal of the
Bankruptcy Court's order confirming the Plan of Adjustment
remains pending.
Mortgage-Related Investigations and Litigation. One
shareholder derivative action has been filed in New York
Supreme Court against the Firm's Board of Directors
alleging that the Board failed to exercise adequate
oversight as to wrongful conduct by the Firm regarding
mortgage servicing. In December 2014, the court granted
defendants' motion to dismiss the complaint and in January
2016, the dismissal was affirmed on appeal.
In addition, the Firm continues to cooperate with
investigations by the DOJ, including the United States
Attorney's Office for the District of Connecticut, and by the
SEC Division of Enforcement and the Office of the Special
Inspector General for the Troubled Asset Relief Program, all
of which relate to, among other matters, communications
with counterparties in connection with certain secondary
market trading in residential and commercial MBS.
Firm is responding to an ongoing investigation being
conducted by the DOJ's Criminal Division and two United
States Attorney's Offices relating to MBS offerings
securitized and sold by the Firm and its subsidiaries. The
Firm has also received subpoenas and informal requests for
information from state authorities concerning the issuance
and underwriting of MBS-related matters. The Firm
continues to respond to these MBS-related regulatory
inquiries.
Government Enforcement Investigations and Litigation. The
Derivative Actions. Shareholder derivative actions relating
to the Firm's MBS activities have been filed against the Firm,
as nominal defendant, and certain of its current and former
officers and members of its Board of Directors, in New York
state court and California federal court. Two of the New
York actions have been dismissed, one of which is on
appeal. A consolidated action in California federal court has
been dismissed without prejudice for lack of personal
jurisdiction and plaintiffs are pursuing discovery relating to
jurisdiction.
Additional actions have been filed against third-party
trustees that relate to loan repurchase and servicing claims
involving trusts sponsored by JPMC, Bear Stearns and
Washington Mutual.
In addition, the Firm and a group of 21 institutional MBS
investors made a binding offer to the trustees of MBS issued
by JPMC and Bear Stearns providing for the payment of
$4.5 billion and the implementation of certain servicing
changes by JPMC, to resolve all repurchase and servicing
claims that have been asserted or could have been asserted
with respect to 330 MBS trusts created between 2005 and
2008. The offer does not resolve claims relating to
Washington Mutual MBS. The trustees (or separate and
successor trustees) for this group of 330 trusts have
accepted the settlement for 319 trusts in whole or in part
and excluded from the settlement 16 trusts in whole or in
part. The trustees' acceptance is subject to a judicial
approval proceeding initiated by the trustees and pending
in New York state court. The judicial approval hearing was
held in January 2016, and the parties are awaiting a
decision. An investor in some of the trusts for which the
settlement has been accepted has intervened in the judicial
approval proceeding to challenge the trustees' allocation of
the settlement among the trusts. Separately, in October
2015, JPMC reached agreements to resolve repurchase and
servicing claims for four trusts among the 16 that were
previously excluded from the trustee settlement. In
December 2015, the court approved the trustees' decision
to accept these separate settlements. The trustees are
seeking to obtain certain remaining approvals necessary to
effectuate these settlements.
The Firm has entered into agreements with a number of
entities that purchased MBS that toll applicable limitations
periods with respect to their claims, and has settled, and in
the future may settle, tolled claims. There is no assurance
that the Firm will not be named as a defendant in additional
MBS-related litigation.
Petters Bankruptcy and Related Matters. JPMorgan Chase
and certain of its affiliates, including One Equity Partners
("OEP"), have been named as defendants in several actions
filed in connection with the receivership and bankruptcy
proceedings pertaining to Thomas J. Petters and certain
affiliated entities (collectively, "Petters”) and the Polaroid
Corporation. The principal actions against JPMorgan Chase
and its affiliates have been brought by a court-appointed
receiver for Petters and the trustees in bankruptcy
proceedings for three Petters entities. These actions
generally seek to avoid certain putative transfers in
connection with (i) the 2005 acquisition by Petters of
Polaroid, which at the time was majority-owned by OEP; (ii)
two credit facilities that JPMorgan Chase and other financial
institutions entered into with Polaroid; and (iii) a credit line
and investment accounts held by Petters. The actions
collectively seek recovery of approximately $450 million.
Defendants have moved to dismiss the complaints in the
actions filed by the Petters bankruptcy trustees.
Proprietary Products Investigations and Litigation. In
December 2015, JPMorgan Chase Bank, N.A. and J.P.
Morgan Securities LLC agreed to a settlement with the SEC,
and JPMorgan Chase Bank, N.A. agreed to a settlement with
the CFTC, regarding disclosures to clients concerning
conflicts associated with the Firm's sale and use of
proprietary products, such as J.P. Morgan mutual funds, in
the Firm's wealth management businesses, and the U.S.
302
Private Bank's disclosures concerning the use of hedge
funds that pay placement agent fees to JPMorgan Chase
broker-dealer affiliates. As part of the settlements,
JPMorgan Chase Bank, N.A. and J.P. Morgan Securities LLC
paid penalties, disgorgement and interest totaling
approximately $307 million. The Firm continues to
cooperate with inquiries from other government authorities
concerning disclosure of conflicts associated with the Firm's
sale and use of proprietary products. A putative class action
filed in the United States District Court for the Northern
District of Illinois on behalf of financial advisory clients from
2007 to the present whose funds were invested in
proprietary funds and who were charged investment
management fees, was dismissed by the Court. Plaintiffs'
appeal of the dismissal is pending.
Note 32 - International operations
Notes to consolidated financial statements
303
JPMorgan Chase & Co./2015 Annual Report
The Firm has established reserves for several hundred of its
currently outstanding legal proceedings. In accordance with
the provisions of U.S. GAAP for contingencies, the Firm
accrues for a litigation-related liability when it is probable
that such a liability has been incurred and the amount of
the loss can be reasonably estimated. The Firm evaluates its
outstanding legal proceedings each quarter to assess its
litigation reserves, and makes adjustments in such reserves,
upwards or downward, as appropriate, based on
management's best judgment after consultation with
counsel. During the years ended December 31, 2015, 2014
and 2013, the Firm incurred legal expense of $3.0 billion,
$2.9 billion and $11.1 billion, respectively. There is no
assurance that the Firm's litigation reserves will not need to
be adjusted in the future.
In addition to the various legal proceedings discussed
above, JPMorgan Chase and its subsidiaries are named as
defendants or are otherwise involved in a substantial
number of other legal proceedings and inquiries. The Firm
believes it has meritorious defenses to the claims asserted
against it in its currently outstanding legal proceedings and
inquiries, and it intends to defend itself vigorously in all
such matters. Additional legal proceedings and inquiries
may be initiated from time to time in the future.
*
*
*
In view of the inherent difficulty of predicting the outcome
of legal proceedings, particularly where the claimants seek
very large or indeterminate damages, or where the matters
present novel legal theories, involve a large number of
parties or are in early stages of discovery, the Firm cannot
state with confidence what will be the eventual outcomes of
the currently pending matters, the timing of their ultimate
resolution or the eventual losses, fines, penalties or impact
related to those matters. JPMorgan Chase believes, based
upon its current knowledge, after consultation with counsel
and after taking into account its current litigation reserves,
that the legal proceedings currently pending against it
should not have a material adverse effect on the Firm's
consolidated financial condition. The Firm notes, however,
that in light of the uncertainties involved in such
proceedings, there is no assurance the ultimate resolution
of these matters will not significantly exceed the reserves it
has currently accrued; as a result, the outcome of a
particular matter may be material to JPMorgan Chase's
operating results for a particular period, depending on,
among other factors, the size of the loss or liability imposed
and the level of JPMorgan Chase's income for that period.
been stayed pending a decision on JPMorgan Chase's
motion to dismiss the plaintiffs' remaining claim.
JPMorgan Chase has also filed complaints in the United
States District Court for the District of Columbia against the
FDIC, in its corporate capacity as well as in its capacity as
receiver for Washington Mutual Bank, asserting multiple
claims for indemnification under the terms of the Purchase
& Assumption Agreement between JPMorgan Chase and the
FDIC relating to JPMorgan Chase's purchase of most of the
assets and certain liabilities of Washington Mutual Bank.
Wendel. Since 2012, the French criminal authorities have
been investigating a series of transactions entered into by
senior managers of Wendel Investissement ("Wendel")
during the period from 2004 through 2007 to restructure
their shareholdings in Wendel. JPMorgan Chase Bank, N.A.,
Paris branch provided financing for the transactions to a
number of managers of Wendel in 2007. In April 2015,
JPMorgan Chase Bank, N.A. was notified that the authorities
were formally investigating the role of its Paris branch in
the transactions, including alleged criminal tax abuse.
JPMorgan Chase is responding to and cooperating with the
investigation. In addition, civil proceedings have been
commenced against JPMorgan Chase Bank, N.A. by a
number of the managers. The claims are separate, involve
different allegations and are at various stages of
proceedings.
JPMorgan Chase & Co./2015 Annual Report
Certain holders of Washington Mutual Bank debt filed an
action against JPMorgan Chase which alleged that by
acquiring substantially all of the assets of Washington
Mutual Bank from the FDIC, JPMorgan Chase Bank, N.A.
caused Washington Mutual Bank to default on its bond
obligations. JPMorgan Chase and the FDIC moved to dismiss
this action and the District Court dismissed the case except
as to the plaintiffs' claim that JPMorgan Chase tortiously
interfered with the plaintiffs' bond contracts with
Washington Mutual Bank prior to its closure. The action has
Washington Mutual Litigations. Proceedings related to
Washington Mutual's failure are pending before the United
States District Court for the District of Columbia and include
a lawsuit brought by Deutsche Bank National Trust
Company, initially against the FDIC and amended to include
JPMorgan Chase Bank, N.A. as a defendant, asserting an
estimated $6 billion to $10 billion in damages based upon
alleged breaches of certain representations and warranties
given by certain Washington Mutual affiliates in connection
with mortgage securitization agreements. The case includes
assertions that JPMorgan Chase Bank, N.A. may have
assumed liabilities for the alleged breaches of
representations and warranties in the mortgage
securitization agreements. In June 2015, the court ruled in
favor of JPMorgan Chase Bank, N.A. on the question of
whether the Firm or the FDIC bears responsibility for
Washington Mutual Bank's repurchase obligations, holding
that JPMorgan Chase Bank, N.A. assumed only those
liabilities that were reflected on Washington Mutual Bank's
financial accounting records as of September 25, 2008, and
only up to the amount of the book value reflected therein.
The FDIC is appealing that ruling and the case has otherwise
been stayed pending the outcome of that appeal.
Referral Hiring Practices Investigations. Various regulators
are investigating, among other things, the Firm's
compliance with the Foreign Corrupt Practices Act and other
laws with respect to the Firm's hiring practices related to
candidates referred by clients, potential clients and
government officials, and its engagement of consultants in
the Asia Pacific region. The Firm is responding to and
cooperating with these investigations.
93,543 $
62,841 $
7,660
23,042
30,702 $
5,696
18,746
14,943
24,004
Total international
6,516 $
1,920
625
1,626
2,251
North America (a)
Latin America and the Caribbean
6,168
Asia and Pacific
15,585 $
$
Europe/Middle East and Africa
2013
9,069 $
4,248
73,363
55,749
Total
304
(d) Total assets for the U.K. were approximately $306 billion, $434 billion, and $451 billion at December 31, 2015, 2014 and 2013, respectively.
(c) Expense is composed of noninterest expense and the provision for credit losses.
(b) Revenue is composed of net interest income and noninterest revenue.
(a) Substantially reflects the U.S.
17,886 $ 2,414,879
145,999
41,473
702,219
1,712,660
(d)
4,842 $ 514,747
1,254
381
6,477
11,409
9,061
17,614
26,675 $
$
70,692
$
97,367
$
21,745 $ 2,572,274
37
$
16,490
5,890 $
1,605
421
1,626
2,047
Latin America and the Caribbean
4,478
6,083
3,935 $
Asia and Pacific
16,013 $
$
Europe/Middle East and Africa
24,442 $ 2,351,698
1,817,119
534,579
10,123 $
481,328 (d)
1,051
147,357
673,252
5,255
7,916
22,783
30,699
64,413 $
95,112 $
$
Total
48,186
70,969
North America (a)
16,227
24,143
Total international
44,567
269
1,899,022
Cash and due from banks
(a) Segment managed results reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/(benefit). These adjustments are
eliminated in reconciling items to arrive at the Firm's reported U.S. GAAP results.
JPMorgan Chase & Co./2015 Annual Report
primarily fees:
Net cash provided by/(used in)
Other income from subsidiaries,
3,217
(1,681)
2,483
operating activities
Other operating adjustments
284
234
Other interest income
757
378
443
303
Interest income from subsidiaries
17,203
(2,476)
Deposits with banking
(1,380)
508
3,316
Other income/(loss)
Net change in:
11,806
2,065
(2,945)
Investing activities
318
779
1,438
Bank and bank holding company
Nonbank
52
1,917
14,714
17,023
Net income
2013
Operating activities
2014
2015
Dividends from subsidiaries and
affiliates:
$ 24,442
Income
Year ended December 31,
2013
2014
2015
(in millions)
Year ended December 31,
(in millions)
$ 21,745 $ 17,886
Less: Net income of subsidiaries
and affiliates (a)
26,745
and affiliates (a)
Cash dividends from subsidiaries
876
14,716
8,172
(7,610)
(1,227)
(2,303)
Parent company net loss
$ 1,175
-
$
$ 10,653
Bank and bank holding company
Nonbank(a)
22,972 25,496
Total income
Parent company - Statements of cash flows
21,311
4,114
Other comprehensive income, net
$ 24,442
Net income
Financing activities
23,408
8,239
Comprehensive income
7,920
Equity in undistributed net income
12,509
(15,945)
30,598
14,469
22
32
of subsidiaries
153
(1,997)
$22,445
$ 17,886
(2,903)
40,284
(31,050)
42,121
(30,077)
Payments of long-term debt
Assets
Proceeds from the issuance of
long-term debt
2014
$ 21,745
990
$22,735
2015
Parent company - Balance sheets
(4,062) 4,454 (2,715)
(47,483) (5,778) (7,297)
Other borrowed funds
$ 14,983
Borrowings from subsidiaries and
affiliates (a)
Net change in:
December 31, (in millions)
3,306
(81)
Advances to and investments in
subsidiaries and affiliates, net
All other investing activities, net
Net cash provided by/(used in)
investing activities
169
3,645
827
4,641
6,429
Total expense
2,611
Other noninterest expense
3,720
309
4,031
9,597
13,937
Other interest expense
Interest expense to subsidiaries and
affiliates (a)
Available-for-sale securities:
Expense
(31,040) 10,679
30,085
subsidiaries
98
Proceeds from paydowns and
maturities
120
12,076
(9,823)
4,301
1,430
1,640
Income tax benefit
12,076
14,882
income of subsidiaries
benefit and undistributed net
Income (loss) before income tax
(12,009)
(713)
(319)
321
Other changes in loans, net
Purchases
61
16,717
Parent company - Statements of income and comprehensive income
Note 34 - Parent company
Notes to consolidated financial statements
(35)
(10)
65
4
4
97,367
(28)
95,112
(2,357)
(2,773)
43,634
43,510
(697)
(985)
93,543
(1,110)
(3,090)
3,827
225
1,294
(700)
3,324
3,486
3,229
70,467
3,139
61,274
10,255
1,159
977
8,016
8,538
8,886
59,014
(22)
12
267
2013
2014
2015
2013
2014
2015
2015
2013
2015
Total
Reconciling Items(a)
Corporate
Asset Management
(table continued from previous page)
2014
2014
2013
$
11,405
12,028
12,119
(3,115)
(1,960)
(533)
2,376
2,440
2,556
(1,980) $ (1,788) $ (1,660) $ 50,033 $ 51,478 $ 54,048
$
3,093
800 $ 1,972 $
$
9,563 $ 9,588 $ 9,029
1,333
1,241
(3,137)
(1,112)
(1,976)
NM
NM
NM
NM
23%
23%
NM
21%
2,572,274
2,351,698
NA
ΝΑ
NA
W
2,414,879
NM
11%
10%
307
JPMorgan Chase & Co./2015 Annual Report
72
64
63
NM
NM
NM
NM
NM
NM
70
71
73
9%
805,506
306
931,206
122,414
79,690 $
$
$ 9,000 $ 9,000 $ 9,000
2,437 $
$
1,935 $ 2,153 $ 2,083
864 $
72,400 $
$
30,699
30,702
(2,357)
(2,773)
(3,090)
(10,249)
26,675
(3,493)
(6,756)
(3,090)
(2,773)
128,701
131,451
$ 215,690 $ 207,400 $ 196,409
24,442 $ 21,745 $ 17,886
-
$
-
$
71,409 $
$ - $ - $ __________$
$
8,789
8,954
6,260
(2,357)
768,204
43,319
Over-the-counter cleared (“OTC-cleared”) derivatives:
Derivative contracts that are negotiated and executed
bilaterally, but subsequently settled via a central clearing
house, such that each derivative counterparty is only
exposed to the default of that clearing house.
Overhead ratio: Noninterest expense as a percentage of
total net revenue.
Corporate headquarters
270 Park Avenue
Other Corporate Officers
Chief Operating Officer
Matthew E. Zames
CEO, Consumer & Community Banking
Gordon A. Smith
and CEO, EMEA
CEO, Corporate & Investment Bank
Daniel E. Pinto
Douglas B. Petno
CEO, Commercial Banking
Marianne Lake
Chief Financial Officer
Stacey Friedman
General Counsel
CEO, Asset Management
Mary Callahan Erdoes
Head of Human Resources
John L. Donnelly
Chief Risk Officer
Ashley Bacon
Chief Executive Officer
Chairman and
James Dimon
Operating Committee
5 Directors' Risk Policy Committee
4 Public Responsibility
Committee
3 Corporate Governance &
Nominating Committee
2 Compensation &
Management Development
Committee
1 Audit Committee
Member of:
Joseph M. Evangelisti
Corporate Communications
William C. Weldon 2, 3
Retired Chairman and
Chief Executive Officer
Johnson & Johnson
(Health care products)
Anthony J. Horan
Secretary
James R. Vallone
General Auditor
Japan
Haryanto T. Budiman
Indonesia
Kalpana Morparia
India, Bangladesh and Sri Lanka
Kam Shing Kwang
Hong Kong
David Li
China
EMEA
Robert C. Priestley
Australia and New Zealand
Asia Pacific
Senior Country Officers
Viswas Raghavan, Deputy CEO
Martin G. Marron
Daniel E. Pinto
Nicolas Aguzin
Latin America/Canada
Europe/Middle East/Africa
Asia Pacific
Regional Chief Executive Officers
JPMorgan Chase & Co./2015 Annual Report
318
Sarah M. Youngwood
Investor Relations
Corporate Responsibility
Peter L. Scher
Mark W. O'Donovan
Controller
Steve Teru Rinoie
Lee R. Raymond 2,3
Lead Director,
JPMorgan Chase & Co.
Retired Chairman and
Chief Executive Officer
Exxon Mobil Corporation
(Oil and gas)
Retired Vice Chairman
General Electric Company
and Retired Chairman
and Chief Executive Officer
GE Capital
Lenovo
Chairman and Chief Executive Officer
Yang Yuanqing
San Ramon, California
Chevron Corporation
Chief Executive Officer
Chairman of the Board and
John S. Watson
Former Chairman of the Board
JPMorgan Chase & Co.
New York, New York
Douglas A. Warner III
Amsterdam, The Netherlands
Akzo Nobel
Officer, Board of Management
Former Chairman and Chief Executive
Cees J.A. van Lede
Hong Kong, The People's Republic
of China
People's Political Consultative Conference
National Committee of the Chinese
Vice Chairman
Hon. Tung Chee Hwa GBM
Mumbai, India
Tata Trusts
Ratan Naval Tata
Chairman
RiceHadleyGates LLC
Stanford, California
Hon. Condoleezza Rice
Partner
Michael Pram Rasmussen
Chairman of the Board
A.P. Møller-Maersk Group
Copenhagen, Denmark
Dhahran, Saudi Arabia
Beijing, China
(Industrial and financial services)
Jaime Augusto Zobel de Ayala
Chairman and Chief Executive Officer
1 Ex-officio
Michael A. Neal 5
(Real estate development)
Chairman and Chief Executive Officer
Clear Creek Properties, Inc.
Laban P. Jackson, Jr. 1
(Professional services)
Retired Chairman and
Chief Executive Officer
KPMG
Timothy P. Flynn 4.5
Chief Executive Officer
JPMorgan Chase & Co.
James Dimon
Chairman and
Henry Crown and Company
(Diversified investments)
James S. Crown 5
President
(Television and entertainment)
Chief Executive Officer
NBCUniversal, LLC
Stephen B. Burke 2,3
The Springs Company
(Diversified investments)
Chairman Emeritus
Crandall C. Bowles 1,4
The Boeing Company
(Aerospace)
Retired Executive Vice President
James A. Bell 1
(Financial services)
JPMorgan Chase & Co.
Retired Deputy Head of Risk
Management
Linda B. Bammann 4.5
Board of Directors
317
JPMorgan Chase & Co./2015 Annual Report
Ayala Corporation
Makati City, Philippines
Korea
Tae Jin Park
Malaysia
Independent registered public
accounting firm
PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY 10017-6204
320
JPMorgan Chase & Co./2015 Annual Report
Investor Relations
JPMorgan Chase & Co.
Financial information about JPMorgan
Chase & Co. can be accessed by visiting
the Investor Relations website at
jpmorganchase.com. Additional
questions should be addressed to:
The New York Stock Exchange ticker
symbol for the common stock of
JPMorgan Chase & Co. is JPM.
New York Stock Exchange
London Stock Exchange
Stock listing
New York, NY 10017-2070
270 Park Avenue
Office of the Secretary
JPMorgan Chase & Co.
The Annual Report on Form 10-K of
JPMorgan Chase & Co. as filed with the
U.S. Securities and Exchange Commission
will be made available without charge
upon request to:
Annual Report on Form 10-K
J.P. Morgan Securities plc
National Association
J.P. Morgan Securities LLC
National Association
Chase Bank USA,
Principal subsidiaries
JPMorgan Chase Bank,
New York, NY 10017-2070
Telephone: 212-270-6000
jpmorganchase.com
JPMorgan Chase & Co.
319
JPMorgan Chase & Co./2015 Annual Report
Mel R. Martinez
Peter L. Scher
David Mayhew
Emilio Saracho
S. Todd Maclin
If you receive duplicate mailings because
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Duplicate mailings
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Directors
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Director or the non-management directors
as a group, please mail correspondence to:
JPMorgan Chase & Co.
Attention (Board member(s))
Office of the Secretary
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New York, NY 10017-2070
The Corporate Governance Principles of
the Board, the charters of the principal
Board committees, the Code of Conduct,
the Code of Ethics for Finance Professionals
and other governance information can
be accessed by visiting our website at
jpmorganchase.com and clicking on
"Governance" under the "About us" tab.
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Melissa L. Bean
Phyllis J. Campbell
Stephen M. Cutler
JPMorgan Chase Vice Chairmen
Russia/Central Asia
Yan L. Tavrovsky
Sub-Saharan Africa
Marc J. Hussey
Tosin T. Adewuyi
Nigeria
Ali Moosa
Bahrain/Egypt/Lebanon
Middle East, Turkey and Africa
Sjoerd Leenart
Philippines
Iberia
Muhammad Aurangzeb
Pakistan
Steve R. Clayton
Italy
Ignacio de la Colina
Enrique Casanueva
and Israel
Eastern Europe, Nordics
Iberia, Italy, Greece, Central &
Nick Bossart
Switzerland
Anton J. Ulmer
Austria
Germany, Austria and Switzerland
Dorothee Blessing
Peter A. Kerckhoffs
Netherlands
Tanguy A. Piret
Belgium
France and Benelux
Kyril Courboin
Turkey/Azerbaijan
Mustafa Bagriacik
Latin America
Andean/Central America/
Caribbean
Carin Bryans
Ireland
Roy Navon
Israel
Van Bich Phan
Vietnam
M.L. Chayotid Kridakon
Thailand
Carl K. Chien
Taiwan
Edmund Y. Lee
Guido M. Nola
Camillo Greco
President and Chief Executive Officer
Saudi Aramco
Singapore
David E. Rawlings
Canada
North America
Eduardo F. Cepeda
Mexico
Alfonso Eyzaguirre
Chile
José Berenguer
Brazil
Facundo D. Gomez Minujin
Paraguay
Argentina/Uruguay/Bolivia/
Moises Mainster
Roberto L. Panlilio
New York, NY 10017-2070
Telephone: 212-270-6000
270 Park Avenue
Joe Kaeser
JPMorgan Chase & Co./2015 Annual Report
J.P. Morgan International Council
Amin H. Nasser
Founder and Executive Chairman
African Rainbow Minerals Limited
Chislehurston, Sandton, South Africa
Patrice Motsepe
Tokyo, Japan
Corporation
316
Senior Advisor and Honorary Chairman
Nippon Steel & Sumitomo Metal
Paris la Défense, France
Chairman and Chief Executive Officer
ENGIE
Gérard Mestrallet
Auburn Hills, Michigan
Fiat Chrysler Automobiles N.V.
Sergio Marchionne
Chief Executive Officer
H.J. Heinz Company
Pittsburgh, Pennsylvania
Akio Mimura
315
JPMorgan Chase & Co./2015 Annual Report
("Washington Mutual") from the FDIC.
Sales specialists: Retail branch office and field personnel,
including relationship managers and loan officers, who
specialize in marketing and sales of various business
banking products (i.e., business loans, letters of credit,
deposit accounts, Commerce Solutions, etc.) and mortgage
products to existing and new clients.
Seed capital: Initial JPMorgan capital invested in products,
such as mutual funds, with the intention of ensuring the
fund is of sufficient size to represent a viable offering to
clients, enabling pricing of its shares, and allowing the
manager to develop a track record. After these goals are
achieved, the intent is to remove the Firm's capital from the
investment.
Short sale: A short sale is a sale of real estate in which
proceeds from selling the underlying property are less than
the amount owed the Firm under the terms of the related
mortgage and the related lien is released upon receipt of
such proceeds.
Structural interest rate risk: Represents interest rate risk
of the non-trading assets and liabilities of the Firm.
Structured notes: Structured notes are predominantly
financial instruments containing embedded derivatives.
Where present, the embedded derivative is the primary
driver of risk.
314
JPMorgan Chase & Co./2015 Annual Report
Glossary of Terms
Chairman of the Council
Troubled debt restructuring ("TDR”): A TDR is deemed to
occur when the Firm modifies the original terms of a loan
agreement by granting a concession to a borrower that is
experiencing financial difficulty.
Unaudited: Financial statements and information that have
not been subjected to auditing procedures sufficient to
permit an independent certified public accountant to
express an opinion.
U.S. GAAP: Accounting principles generally accepted in the
U.S.
U.S. government-sponsored enterprises ("U.S. GSES") and
U.S. GSE obligations: In the U.S., GSEs are quasi-
governmental, privately-held entities established by
Congress to improve the flow of credit to specific sectors of
the economy and provide certain essential services to the
public. U.S. GSEs include Fannie Mae and Freddie Mac, but
do not include Ginnie Mae, which is directly owned by the
U.S. Department of Housing and Urban Development. U.S.
GSE obligations are not explicitly guaranteed as to the
timely payment of principal and interest by the full faith and
credit of the U.S. government.
U.S. Treasury: U.S. Department of the Treasury.
Value-at-risk ("VaR"): A measure of the dollar amount of
potential loss from adverse market moves in an ordinary
market environment.
Warehouse loans: Consist of prime mortgages originated
with the intent to sell that are accounted for at fair value
and classified as trading assets.
Washington Mutual transaction: On September 25, 2008,
JPMorgan Chase acquired certain of the assets of the
banking operations of Washington Mutual Bank
Jorge Paulo Lemann
Director
Kissinger Associates, Inc.
New York, New York
Hon. Henry A. Kissinger
Chairman
Munich, Germany
Armando Garza Sada
Chairman of the Board
ALPHA
Martin Feldstein
Professor of Economics
Harvard University
Cambridge, Massachusetts
New York, New York
JPMorgan Chase & Co.
Chairman and Chief Executive Officer
Jamie Dimon¹
Vevey, Switzerland
Nestlé S.A.
Chief Executive Officer
Paul Bulcke
México D.F., Mexico
Grupo Bal
Presidente del Consejo de Administración
Alberto Baillères
London, United Kingdom
and Northern Ireland
Former Prime Minister of Great Britain
San Pedro Garza García, Mexico
Revenue wallet: Proportion of fee revenue based on
estimates of investment banking fees generated across the
industry (i.e., the revenue wallet) from investment banking
transactions in M&A, equity and debt underwriting, and
loan syndications. Source: Dealogic, a third party provider
of investment banking competitive analysis and volume-
based league tables for the above noted industry products.
Risk-weighted assets ("RWA"): Basel III establishes two
comprehensive methodologies for calculating RWA (a
Standardized approach and an Advanced approach) which
include capital requirements for credit risk, market risk, and
in the case of Basel III Advanced, also operational risk. Key
differences in the calculation of credit risk RWA between the
Standardized and Advanced approaches are that for Basel
III Advanced, credit risk RWA is based on risk-sensitive
approaches which largely rely on the use of internal credit
models and parameters, whereas for Basel III Standardized,
credit risk RWA is generally based on supervisory risk-
weightings which vary primarily by counterparty type and
asset class. Market risk RWA is calculated on a generally
consistent basis between Basel III Standardized and Basel III
Advanced, both of which incorporate the requirements set
forth in Basel 2.5.
Hon. Robert M. Gates
Partner
Washington, District of Columbia
President and Chief Executive Officer
Siemens AG
As of January 31, 2016.
Hon. John Howard OM AC
Former Prime Minister of Australia
Sydney, Australia
Washington, District of Columbia
Chairman and Chief Executive Officer
Hills & Company International
Consultants
Hon. Carla A. Hills
JPMorgan Chase & Co.
New York, New York
Chief Executive Officer
Former Chairman and
William B. Harrison, Jr.
Hamburg, Germany
Georgsmarienhütte Holding GmbH
Jürgen Grossmann
Owner
Moscow, Russia
Chairman of the Executive Board
Sberbank
Chief Executive Officer,
Herman Gref
RiceHadleyGates LLC
Retained loans: Loans that are held-for-investment (i.e.,
excludes loans held-for-sale and loans at fair value).
Suspended foreclosures: Loans referred to foreclosure
where formal foreclosure proceedings have started but are
currently on hold, which could be due to bankruptcy or loss
mitigation. Includes both judicial and non-judicial states.
Taxable-equivalent basis: In presenting managed results,
the total net revenue for each of the business segments and
the Firm is presented on a tax-equivalent basis. Accordingly,
revenue from investments that receive tax credits and tax-
exempt securities is presented in the managed results on a
basis comparable to taxable investments and securities; the
corresponding income tax impact related to tax-exempt
items is recorded within income tax expense.
Receivables from customers: Primarily represents margin
loans to prime and retail brokerage customers which are
included in accrued interest and accounts receivable on the
Consolidated balance sheets.
Home equity - senior lien: Represents loans and
commitments where JPMorgan Chase holds the first
security interest on the property.
Home equity-junior lien: Represents loans and
commitments where JPMorgan Chase holds a security
interest that is subordinate in rank to other liens.
Impaired loan: Impaired loans are loans measured at
amortized cost, for which it is probable that the Firm will be
unable to collect all amounts due, including principal and
interest, according to the contractual terms of the
agreement. Impaired loans include the following:
All wholesale nonaccrual loans
All TDRS (both wholesale and consumer), including ones
that have returned to accrual status
Interchange income: A fee paid to a credit card issuer in
the clearing and settlement of a sales or cash advance
transaction.
Investment-grade: An indication of credit quality based on
JPMorgan Chase's internal risk assessment system.
"Investment grade" generally represents a risk profile
similar to a rating of a “BBB-”/“Baa3” or better, as defined
by independent rating agencies.
LLC: Limited Liability Company.
Loan-to-value ("LTV") ratio: For residential real estate
loans, the relationship, expressed as a percentage, between
the principal amount of a loan and the appraised value of
the collateral (i.e., residential real estate) securing the loan.
Origination date LTV ratio
The LTV ratio at the origination date of the loan. Origination
date LTV ratios are calculated based on the actual appraised
values of collateral (i.e., loan-level data) at the origination
date.
Headcount-related expense: Includes salary and benefits
(excluding performance-based incentives), and other
noncompensation costs related to employees.
Current estimated LTV ratio
312
Combined LTV ratio
The LTV ratio considering all available lien positions, as well
as unused lines, related to the property. Combined LTV
ratios are used for junior lien home equity products.
Managed basis: A non-GAAP presentation of financial
results that includes reclassifications to present revenue on
a fully taxable-equivalent basis. Management uses this non-
GAAP financial measure at the segment level, because it
believes this provides information to enable investors to
understand the underlying operational performance and
trends of the particular business segment and facilitates a
comparison of the business segment with the performance
of competitors.
Master netting agreement: An agreement between two
counterparties who have multiple contracts with each other
that provides for the net settlement of all contracts, as well
as cash collateral, through a single payment, in a single
currency, in the event of default on or termination of any
one contract.
Mortgage origination channels:
Retail - Borrowers who buy or refinance a home through
direct contact with a mortgage banker employed by the
Firm using a branch office, the Internet or by phone.
Borrowers are frequently referred to a mortgage banker by
a banker in a Chase branch, real estate brokers, home
builders or other third parties.
Correspondent - Banks, thrifts, other mortgage banks and
other financial institutions that sell closed loans to the Firm.
Mortgage product types:
Alt-A
Alt-A loans are generally higher in credit quality than
subprime loans but have characteristics that would
disqualify the borrower from a traditional prime loan. Alt-A
lending characteristics may include one or more of the
following: (i) limited documentation; (ii) a high combined
loan-to-value (“CLTV”) ratio; (iii) loans secured by non-
owner occupied properties; or (iv) a debt-to-income ratio
above normal limits. A substantial proportion of the Firm's
Alt-A loans are those where a borrower does not provide
complete documentation of his or her assets or the amount
or source of his or her income.
Option ARMS
An estimate of the LTV as of a certain date. The current
estimated LTV ratios are calculated using estimated
collateral values derived from a nationally recognized home
price index measured at the metropolitan statistical area
("MSA") level. These MSA-level home price indices consist of
actual data to the extent available and forecasted data
where actual data is not available. As a result, the estimated
collateral values used to calculate these ratios do not
represent actual appraised loan-level collateral values; as
such, the resulting LTV ratios are necessarily imprecise and
should therefore be viewed as estimates.
The option ARM real estate loan product is an adjustable-
rate mortgage loan that provides the borrower with the
option each month to make a fully amortizing, interest-only
or minimum payment. The minimum payment on an option
ARM loan is based on the interest rate charged during the
introductory period. This introductory rate is usually
significantly below the fully indexed rate. The fully indexed
rate is calculated using an index rate plus a margin. Once
the introductory period ends, the contractual interest rate
charged on the loan increases to the fully indexed rate and
adjusts monthly to reflect movements in the index. The
minimum payment is typically insufficient to cover interest
accrued in the prior month, and any unpaid interest is
G7 government bonds: Bonds issued by the government of
one of the G7 nations.
Glossary of Terms
Glossary of Terms
Active foreclosures: Loans referred to foreclosure where
formal foreclosure proceedings are ongoing. Includes both
judicial and non-judicial states.
Allowance for loan losses to total loans: Represents
period-end allowance for loan losses divided by retained
loans.
Alternative assets: The following types of assets constitute
alternative investments - hedge funds, currency, real estate,
private equity and other investment funds designed to focus
on nontraditional strategies.
Assets under management: Represent assets actively
managed by AM on behalf of its Private Banking,
Institutional and Retail clients. Includes "Committed capital
not Called," on which AM earns fees.
Beneficial interests issued by consolidated VIES:
Represents the interest of third-party holders of debt,
equity securities, or other obligations, issued by VIES that
JPMorgan Chase consolidates.
Benefit obligation: Refers to the projected benefit
obligation for pension plans and the accumulated
postretirement benefit obligation for OPEB plans.
Central counterparty (“CCP”): A CCP is a clearing house
that interposes itself between counterparties to contracts
traded in one or more financial markets, becoming the
buyer to every seller and the seller to every buyer and
thereby ensuring the future performance of open contracts.
A CCP becomes counterparty to trades with market
participants through novation, an open offer system, or
another legally binding arrangement.
Chase LiquidSM cards: Refers to a prepaid, reloadable card
product.
Client advisors: Investment product specialists, including
private client advisors, financial advisors, financial advisor
associates, senior financial advisors, independent financial
advisors and financial advisor associate trainees, who
advise clients on investment options, including annuities,
mutual funds, stock trading services, etc., sold by the Firm
or by third-party vendors through retail branches, Chase
Private Client locations and other channels.
Group of Seven ("G7") nations: Countries in the G7 are
Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
Client assets: Represent assets under management as well
as custody, brokerage, administration and deposit accounts.
Client deposits and other third party liabilities: Deposits,
as well as deposits that are swept to on-balance sheet
liabilities (e.g., commercial paper, federal funds purchased
and securities loaned or sold under repurchase
agreements) as part of client cash management programs.
During the third quarter 2015 the Firm completed the
discontinuation of its commercial paper customer sweep
cash management program.
JPMorgan Chase & Co./2015 Annual Report
Commercial Card provides a wide range of payment
services to corporate and public sector clients worldwide
through the commercial card products. Services include
procurement, corporate travel and entertainment, expense
management services, and business-to-business payment
solutions.
Core loans: Loans considered central to the Firm's ongoing
businesses; core loans exclude loans classified as trading
assets, runoff portfolios, discontinued portfolios and
portfolios the Firm has an intent to exit.
Credit cycle: A period of time over which credit quality
improves, deteriorates and then improves again (or vice
versa). The duration of a credit cycle can vary from a couple
of years to several years.
Credit derivatives: Financial instruments whose value is
derived from the credit risk associated with the debt of a
third party issuer (the reference entity) which allow one
party (the protection purchaser) to transfer that risk to
another party (the protection seller). Upon the occurrence
of a credit event by the reference entity, which may include,
among other events, the bankruptcy or failure to pay its
obligations, or certain restructurings of the debt of the
reference entity, neither party has recourse to the reference
entity. The protection purchaser has recourse to the
protection seller for the difference between the face value
of the CDS contract and the fair value at the time of settling
the credit derivative contract. The determination as to
whether a credit event has occurred is generally made by
the relevant International Swaps and Derivatives
Association ("ISDA") Determinations Committee.
Deposit margin/deposit spread: Represents net interest
income expressed as a percentage of average deposits.
Distributed denial-of-service attack: The use of a large
number of remote computer systems to electronically send
a high volume of traffic to a target website to create a
service outage at the target. This is a form of cyberattack.
Exchange-traded derivatives: Derivative contracts that are
executed on an exchange and settled via a central clearing
house.
Fee share: Proportion of fee revenue based on estimates of
investment banking fees generated across the industry from
investment banking transactions in M&A, equity and debt
underwriting, and loan syndications. Source: Dealogic, a
third party provider of investment banking fee competitive
analysis and volume-based league tables for the above
noted industry products.
FICO score: A measure of consumer credit risk provided by
credit bureaus, typically produced from statistical models
by Fair Isaac Corporation utilizing data collected by the
credit bureaus.
Forward points: Represents the interest rate differential
between two currencies, which is either added to or
subtracted from the current exchange rate (i.e., "spot rate")
to determine the forward exchange rate.
311
Client investment managed accounts: Assets actively
managed by Chase Wealth Management on behalf of clients.
The percentage of managed accounts is calculated by
dividing managed account assets by total client investment
assets.
Reported basis: Financial statements prepared under U.S.
GAAP, which excludes the impact of taxable-equivalent
adjustments.
JPMorgan Chase & Co./2015 Annual Report
deferred and added to the principal balance of the loan.
Option ARM loans are subject to payment recast, which
converts the loan to a variable-rate fully amortizing loan
upon meeting specified loan balance and anniversary date
triggers.
Real estate investment trust ("REIT"): A special purpose
investment vehicle that provides investors with the ability to
participate directly in the ownership or financing of real-
estate related assets by pooling their capital to purchase
and manage income property (i.e., equity REIT) and/or
mortgage loans (i.e., mortgage REIT). REITs can be publicly-
or privately-held and they also qualify for certain favorable
tax considerations.
Real assets: Real assets include investments in productive
assets such as agriculture, energy rights, mining and timber
properties and exclude raw land to be developed for real
estate purposes.
Purchased credit-impaired ("PCI") loans: Represents loans
that were acquired in the Washington Mutual transaction
and deemed to be credit-impaired on the acquisition date in
accordance with the guidance of the Financial Accounting
Standards Board ("FASB"). The guidance allows purchasers
to aggregate credit-impaired loans acquired in the same
fiscal quarter into one or more pools, provided that the
loans have common risk characteristics (e.g., product type,
LTV ratios, FICO scores, past due status, geographic
location). A pool is then accounted for as a single asset with
a single composite interest rate and an aggregate
expectation of cash flows.
Principal transactions revenue: Principal transactions
revenue includes realized and unrealized gains and losses
recorded on derivatives, other financial instruments, private
equity investments, and physical commodities used in
market making and client-driven activities. In addition,
Principal transactions revenue also includes certain realized
and unrealized gains and losses related to hedge accounting
and specified risk management activities including: (a)
certain derivatives designated in qualifying hedge
accounting relationships (primarily fair value hedges of
commodity and foreign exchange risk), (b) certain
derivatives used for specified risk management purposes,
primarily to mitigate credit risk, foreign exchange risk and
commodity risk, and (c) other derivatives.
Pretax margin: Represents income before income tax
expense divided by total net revenue, which is, in
management's view, a comprehensive measure of pretax
performance derived by measuring earnings after all costs
are taken into consideration. It is one basis upon which
management evaluates the performance of AM against the
performance of their respective competitors.
Pre-provision profit/(loss): Represents total net revenue
less noninterest expense. The Firm believes that this
financial measure is useful in assessing the ability of a
lending institution to generate income in excess of its
provision for credit losses.
Glossary of Terms
313
JPMorgan Chase & Co./2015 Annual Report
Personal bankers: Retail branch office personnel who
acquire, retain and expand new and existing customer
relationships by assessing customer needs and
recommending and selling appropriate banking products
and services.
Participating securities: Represents unvested stock-based
compensation awards containing nonforfeitable rights to
dividends or dividend equivalents (collectively, "dividends"),
which are included in the earnings per share calculation
using the two-class method. JPMorgan Chase grants
restricted stock and RSUs to certain employees under its
stock-based compensation programs, which entitle the
recipients to receive nonforfeitable dividends during the
vesting period on a basis equivalent to the dividends paid to
holders of common stock. These unvested awards meet the
definition of participating securities. Under the two-class
method, all earnings (distributed and undistributed) are
allocated to each class of common stock and participating
securities, based on their respective rights to receive
dividends.
Glossary of Terms
Nonperforming assets: Nonperforming assets include
nonaccrual loans, nonperforming derivatives and certain
assets acquired in loan satisfaction, predominantly real
estate owned and other commercial and personal property.
Over-the-counter ("OTC") derivatives: Derivative contracts
that are negotiated, executed and settled bilaterally
between two derivative counterparties, where one or both
counterparties is a derivatives dealer.
Nonaccrual loans: Loans for which interest income is not
recognized on an accrual basis. Loans (other than credit
card loans and certain consumer loans insured by U.S.
government agencies) are placed on nonaccrual status
when full payment of principal and interest is not expected
or when principal and interest has been in default for a
period of 90 days or more unless the loan is both well-
secured and in the process of collection. Collateral-
dependent loans are typically maintained on nonaccrual
status.
Rt. Hon. Tony Blair
Net yield on interest-earning assets: The average rate for
interest-earning assets less the average rate paid for all
sources of funds.
-The change in the fair value of the MSR asset due to
the collection or realization of expected cash flows.
-Actual gross income earned from servicing third-party
mortgage loans, such as contractually specified
servicing fees and ancillary income; and
Operating revenue predominantly represents the return on
Mortgage Servicing's MSR asset and includes:
Risk management represents the components of
Mortgage Servicing's MSR asset that are subject to ongoing
risk management activities, together with derivatives and
other instruments used in those risk management activities.
Net production revenue: Includes net gains or losses on
originations and sales of mortgage loans, other production-
related fees and losses related to the repurchase of
previously-sold loans.
Net mortgage servicing revenue includes the following
components:
N/A: Data is not applicable or available for the period
presented.
Subprime loans are loans that, prior to mid-2008, were
offered to certain customers with one or more high risk
characteristics, including but not limited to: (i) unreliable or
poor payment histories; (ii) a high LTV ratio of greater than
80% (without borrower-paid mortgage insurance); (iii) a
high debt-to-income ratio; (iv) an occupancy type for the
loan is other than the borrower's primary residence; or (v) a
history of delinquencies or late payments on the loan.
Multi-asset: Any fund or account that allocates assets under
management to more than one asset class.
Subprime
Prime mortgage loans are made to borrowers with good
credit records who meet specific underwriting
requirements, including prescriptive requirements related
to income and overall debt levels. New prime mortgage
borrowers provide full documentation and generally have
reliable payment histories.
Prime
Net charge-off/(recovery) rate: Represents net charge-
offs/(recoveries) (annualized) divided by average retained
loans for the reporting period.
NM: Not meaningful.
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the Octagon symbol and other words
or symbols in this report that identify
JPMorgan Chase services are service marks
of JPMorgan Chase & Co. Other words or
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The paper is independently certified by BVQI to the
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CHASE O
2015
WESTERN UNUNTAIN
Trading is an absolutely critical function
•
Since our founding in New York more than
200 years ago, JPMorgan Chase and its
predecessor banks have been leaders in their
communities. This is nothing new. For
example, in April 1906, J.P. Morgan & Co.
made Wall Street's largest contribution
- $25,000 - to, as The New York Times
described it at the time, “extend practical
sympathy to the stricken people of San
Francisco." This was two days after the
earthquake that destroyed 80% of the city
and killed 3,000 people. In February 2016, we
played much the same role when the firm
and our employees contributed hundreds of
thousands of dollars to pay for medical
services for children exposed to lead in the
Flint, Michigan, water crisis. And over the
last several years, we have given more than
$20 million to help in the aftermath of
natural disasters, from tsunamis in Asia to
Superstorm Sandy in the northeast United
States (and it was gratifying to see how
employees rallied with their time and with
the full resources of the firm to help).
how and why?
In addition to our annual philanthropic
giving - which now totals over $200 million
a year we are putting our resources, the
expertise of our business leaders, our data,
relationships and knowledge of global
markets into significant efforts aimed at
boosting economic growth and expanding
opportunity for those being left behind in
today's economy. We have made long-term
global commitments to workforce readi-
ness, getting small businesses the capital
and support they need to grow, improving
consumer financial health and supporting
strong urban economies. You can read more
detail about these programs on pages 71-72.
And in the sidebars in this section, you can
hear directly from some of our partners
about our efforts. We think these initia-
tives will make a significant contribution
to creating more economic opportunity for
more people around the world.
-
about an
In particular, I want to tell you
exciting new community service program
we have developed that is capitalizing on our
most important resource the talent of our
people. The Service Corps program recruits
top-performing employees from around the
world to put their skills and expertise to
work on behalf of nonprofit partners that
are helping to build stronger communities.
This program, combining leadership devel-
opment with philanthropic purpose, started
small in Brazil, grew into the Detroit Service
Corps as part of our investment there, and
has now spread across the globe, with proj-
ects in Africa, Asia, and North and South
37
America. Service Corps employees work
on-site with nonprofits on projects that last
three weeks. In total, 64 people have been
involved in 22 projects. And this program
will continue to grow in the coming years
to other domestic and international loca-
tions. While supporting our nonprofit
partners to deliver on their mission, our
employees also gain enormous satisfaction
and sense of purpose from the opportunity
to help. In addition, as they travel across
the globe and interact with their peers,
they develop a great, permanent camara-
derie that helps unite our employees from
around the world in a commitment to
make a difference in our communities.
PARTNERSHIP IN DETROIT
by Mayor Mike Duggan
Detroit is coming back. After years of challenges, we are
seeing signs of real progress in our neighborhoods and
business districts.
Two years into our administration, we've brought back fiscal
discipline and have balanced the city's budget for the first time
in more than a decade. We've installed 61,000 new LED street-
lights in our neighborhoods. Buses are running on schedule
for the first time in 20 years and are serving 100,000 more
riders each week. We've taken down nearly 8,000 blighted
homes and, as a result, are seeing double-digit property value
increases across the majority of the city. Perhaps most impor-
tant, 8,000 more Detroiters are working today than two years
ago, thanks to efforts to attract new investment and develop
our workforce.
None of these positive steps would have been possible without
the partnerships we've established in Washington, D.C., in
our state capital of Lansing, with the Detroit City Council, and
especially with our residents and partners in the business and
philanthropic communities.
-
When our friends at JPMorgan Chase started thinking about
making a $100 million investment in Detroit, they started off
by asking about our priorities for the city's recovery – not just
mine but those of our community and philanthropic leaders
as well. Today, we can see the impact of JPMorgan Chase's
commitment to Detroit in many places – in the opening of a
new grocery store in the Westside's Harmony Village neigh-
borhood, in the minority-led small businesses that are getting
much-needed capital from the new Entrepreneurs of Color Fund
and in the map of Detroit's workforce system that is helping
us prepare Detroiters for the new jobs coming to the city.
JPMorgan Chase is bringing its data, expertise and talent to this
town in so many ways assets that are just as important as
money in boosting our recovery.
-
The partnerships JPMorgan Chase saw at work in Detroit helped
give the firm confidence to invest so significantly in our city.
And because we have this fine company at the table, we now
have other companies coming to our city looking to contribute
and invest in Detroit and its residents.
We still have a long way to go. But with great partners like
JPMorgan Chase, we are creating a turnaround that is bene-
fiting all Detroiters and can be a model for other large cities
facing similar challenges.
38
gain valuable operational intelligence. This
information helps support the stability
and resiliency of our systems - enabling
us to identify little problems before they
become big problems.
amount of machine data from which we
Operational intelligence. Our technology
infrastructure creates an enormous
Operational efficiencies. In the Corporate &
Investment Bank, big data is being used
to analyze errors, thereby improving
operational efficiencies. In one example, in
our Custody business, big data is helping
identify and explain the breaks and vari-
ances in the calculation of net asset values
of funds, thereby reducing the operational
burden and improving client service.
You seem to be doing more and more to support your communities
workforce, hiring veterans and effectively
training people for jobs. They, like all institu-
tions, are not perfect, but they try their best
to obey the spirit and the letter of the laws of
the land in which they operate.
Most large companies are outstanding corpo-
rate citizens - and they have been for a long
time. They compensate their people fairly,
they provide critical medical and retirement
plans, and they're in the forefront of social
policy; for example, in staffing a diverse
V. WE HAVE ALWAYS SUPPORTED OUR COMMUNITIES
in modern society – for investors large and
small and for corporations and governments.
As the world grows, the absolute need for
trading will increase globally as assets under
management, trade, corporate clients and
economies grow. We disclosed on Investor
Day that we continue to make a fair profit in
almost all our trading businesses despite the
higher costs and what is probably a perma-
nent reduction in volumes. While the busi-
ness will always be cyclical, we are convinced
that our clients will continue to need broad
services in all asset classes and that we have
the scale to be profitable through the cycle.
Sales and trading educates the world about
companies, securities and economies. Clients
will always need advice and the ability to
transact. This education also makes it easier
for corporations to sell their securities so
they can invest and grow. Much of the invest-
ment we are making in sales and trading is
in technology, both to adjust to new regula-
tions and to make access to trading faster,
cheaper and safer than it has been in the
past. Across electronic trading, we have seen
a doubling of users and significant volume
increases of 175% across products in just the
last
year. Below are a few examples:
Foreign exchange (FX). We continue to make
significant investments in FX e-trading and
our single-dealer platform. More than 95%
of our FX spot transactions are now done
electronically as the market has increasingly
shifted to electronic execution over the years.
We were also first to deliver FX trading on
mobile devices through our award-winning
execute application on the J.P. Morgan
Markets platform. Our continued investment
in the FX business, in which we process an
average of nearly 500,000 trades each day,
has propelled us to be a leader in the market.
Equities. In the last five years, on the back
of our investments in both technology
and people, our U.S. electronic cash equity
market share has nearly quadrupled. We
have also witnessed an increased straight-
through processing rate – going from 70%
two years ago to 97% today.
-
Prime Brokerage. Our Prime Brokerage plat-
form, which was once a predominantly U.S.
operation, is now a top-tier global business
that continues to grow clients and balances.
Our international and DMA (direct market
access) electronic footprint has expanded
rapidly since 2012. Financing balances
are at all-time highs, with international
balances up more than 60% and synthetic
balances up more than 350%, simultane-
ously reducing balance sheet consumption
and enhancing returns.
34
Rates trading. With the adoption of new
regulations, we anticipate that this market
will also continue to see increased volumes of
e-trading. As a result, we have developed auto-
mated pricing systems that can price swaps in
a fraction of a second on electronic platforms.
Our SEF (swap execution facility) aggregator
allows clients to see the best price available to
them across the global market of interest rate
swaps and "click to trade” via our platform on
an agency basis. This helps our clients execute
transactions via any channel they desire, on
a principal or agent basis. Today, over 50% of
our U.S. dollar swaps volume is traded and
processed electronically.
Commodities. Leveraging our FX capabilities,
we have developed a complete electronic
offering in precious and base metals. We
are also extending the same capabilities to
energy products, where we have executed
our first electronic trade in oil. We plan to
further extend our e-trading capabilities
across the commodities markets, including
agricultural products.
Derivatives processing. The implementation
of our strategic over-the-counter derivatives
processing platform has promoted a 30%
increase in portfolio volume and a more
than 50% decrease in cost per trade in four
years. The platform now settles $2.2 trillion
of derivative notionals each day and has
been instrumental in improving operational
delivery, control and client service, as demon-
strated by a more than 60% reduction in
cash settlement breaks and a 50% increase in
straight-through processing of equity deriva-
tives confirmations.
33
In all these cases, greater operational efficien-
cies and higher straight-through processing
drive lower costs and lead to happy clients.
Research platform. We continue our research
investments both in the quality of our
people and in the number of companies
and sectors we cover. In 2015, we expanded
our global equity research coverage to
more than 3,700 companies, the broadest
equity company coverage platform among
our competitors. With material increases
in the United States - we expanded sector
coverage in energy, banks, insurance and
industrials and in China, we doubled our
A-share coverage.
Increased Investment Banking coverage. We are
actively recruiting and hiring senior bankers
in areas where we were either underpen-
etrated or where there has been incremental
secular growth, such as energy, technology,
healthcare and Greater China.
Why are you still in the mortgage business?
That is a valid question. The mortgage busi-
ness can be volatile and has experienced
increasingly lower returns as new regula-
tions add both sizable costs and higher
capital requirements. In addition, it is not
just the cost of the new rules in origination
and servicing, it is the enormous complexity
of those new requirements that can lead
to problems and errors. It is now virtually
impossible not to make some mistakes - and
as you know, the price for making an error is
very high. So why do we want to stay in this
business? Here's why:
Mortgages are important to our customers.
For most of our customers, their home is
the single largest purchase they will make
in their lifetime. More than that, it is an
emotional purchase – it is where they
are getting their start, raising a family or
maybe spending their retirement years.
As a bank that wants to build lifelong
relationships with its customers, we want
to be there for them at life's most critical
junctures. Mortgages are important to our
customers, and we still believe that we
have the brand and scale to build a higher-
quality and less volatile mortgage business.
35
36
Originations. We reduced our product set
from 37 to 15, we will complete the rollout
of a new originations system, and we will
continue to leverage digital channels to
make the application process easier for
our customers and more efficient for us.
In addition, we have dramatically reduced
Federal Housing Administration (FHA)
originations. Currently, it simply is too
costly and too risky to originate these
kinds of mortgages. Part of the risk comes
from the penalties that the government
charges if you make a mistake - and
part of the risk is because these types of
mortgages default frequently. And in the
new world, the cost of default servicing is
extraordinarily high.
Servicing. If we had our druthers, we
would never service a defaulted mortgage
again. We do not want to be in the busi-
ness of foreclosure because it is exceed-
Fraud security and surveillance. Needless to
say, these big data capabilities are being
used to decrease fraud, reduce risk in the
cyber world, and even monitor internal
systems to detect employee fraud and
bad behavior.
Community Reinvestment Act and Fair
Lending. Finally, while making fewer FHA
loans can make it more difficult to meet
our Community Reinvestment Act and
Fair Lending obligations, we believe we
have solutions in place to responsibly
meet these obligations – both the more
subjective requirements and the quantita-
tive components - without unduly jeopar-
dizing our company.
We also continue to make investments in
research and the coverage of clients. A couple
of examples will suffice:
Why are you investing in sales and trading, as well as in your Investment Bank, when others
seem to be cutting back?
Consumer Banking. Within the Consumer
Bank, we use big data to improve under-
writing, deliver more targeted marketing
and analyze the root causes of customer
attrition. This will lead to more accounts,
higher marketing efficiencies, reduced
costs and happy customers.
To best utilize our data assets and
spur
innovation, we have built our own extraor-
dinary in-house big data capabilities – we
think as good as any in Silicon Valley -
populated with more than 200 analysts and
data scientists, which we call Intelligent
Solutions. And we are starting to use these
capabilities across all our businesses. I want
to give you a sample of what we are doing
and it is just the beginning:
30
It is unquestionable that FinTech will force
financial institutions to move more quickly,
and banks, regulators and government policy
will need to keep pace. Services will be rolled
out faster, and more of them will be executed
on a mobile device. FinTech has been great at
making it easier and often less expensive for
customers and will likely lead to many more
people, including more lower-income people,
joining the banking system in the United
States and abroad.
you look at the banking business over
decades, it has always been a huge user of
new technologies. This has been going on
my entire career, though it does appear to be
accelerating and coming at us from many
different angles. While many FinTech firms
are good at utilizing new technologies, we
should recognize that they are very good
at analyzing and fixing business problems
and improving the customer experience (i.e.,
reducing pain points). Sometimes they find a
way to provide these services more efficiently
and in a less costly manner; for example,
cloud services. And sometimes these services
are not less expensive but provide a faster and
simplified experience that customers value
and are willing to pay for. You see this in
some FinTech lending and payment services.
If
FinTech and innovation have been going on my
entire career - it's just faster today.
Cash management capabilities for corpora-
tions. It is impossible to describe in a few
sentences what companies had to do to
move money around the world 40 years
ago. Today, people can move money glob-
ally on mobile devices and immediately
convert it into almost any currency they
want. They have instant access to informa-
tion, and the cost is a fraction of what it
used to be.
for both us and our clients. These capa-
bilities have dramatically reduced costs
to investors and issuers for capital raising
and securities transactions.
The cost and ability to raise capital and buy
and sell securities. Thirty years ago, it cost,
on average, 15 cents to trade a share of
stock, 100 basis points to buy or sell a
corporate single-A bond and $200,000
to do a $100 million interest rate swap.
Today, it costs, on average, 1.5 cents to
trade a share of stock, 10 basis points to
buy a corporate single-A bond and $10,000
to do a $100 million interest rate swap.
And much can be done electronically,
increasingly on a mobile device and with
mostly straight-through processing, which
reduces error rates and operational costs
ATMs. Today, ATMs are ubiquitous (we
have almost 18,000 ATMs, and our
customers love them). These ATMs have
gone from simple cash dispensers to
state-of-the-art service centers, allowing
customers to receive different denomina-
tions of bills, accept deposited checks, pay
certain bills and access all their accounts.
Consumer and small business banking
accounts. Many decades ago, bank accounts
meant checks and a monthly statement,
with few additional benefits provided to
customers (other than maybe a toaster).
Today, most checking accounts come with
many benefits: debit cards, online bill pay,
24-hour access to online account informa-
tion, fraud alerts, mobile banking, relevant
rewards and ATM access.
We commonly hear the comment that a bank
of our size cannot generate economies of
scale that benefit the client. And we often
hear people say that banks don't innovate.
Neither of these comments is accurate. Below
I give a few examples of the large and small
innovations that we are working on:
Yes, we are always improving our economies
of scale (to the ultimate benefit of our clients).
And yes, over time, banks have been enormous
innovators.
origination system that will set a new
industry standard for closure speed and
customer service.
29
Commercial Term Lending. In our Commer-
cial Term Lending business, our competi-
tive advantage is our process - we strive
to close commercial real estate loans
faster and more efficiently than the
industry average. That has allowed us
to drive $25 billion of loan growth since
2010, representing a five-year compound
average growth rate (CAGR) of 11%
and outpacing the industry CAGR of
4% while maintaining credit discipline.
Technological innovation will continue to
improve our process – later in the year,
we will be rolling out a proprietary loan
Chase Business Quick Capital. Working
with a FinTech company called OnDeck,
we will be piloting a new working
capital product. The process will be
entirely digital, with approval and
funding generally received within one
day vs. the current process that can
take up to one month or more. The
loans will be Chase branded, retained
on our balance sheet, and subject to our
pricing and risk parameters.
Our new brand "Chase for Business"
is not just a brand. Over time, we will
simplify forms, speed applications and
dramatically improve the customer
experience. This year or next, we
will roll out an online digital applica-
tion that allows a Business Banking
customer to sign up for the “triple
play" with one signature and in one
day. "Triple play" stands for a deposit
account, a business credit card and
Chase merchant processing - all at
once. Now that's customer service!
Small business digital. Small businesses are
important to Chase and to the communi-
ties we serve. Small businesses have a
variety of banking needs, with approxi-
mately 60% of our customers using our
checking accounts or business credit cards.
And like our consumer client base, they
depend heavily on the technology that
already is offered in our Consumer busi-
ness. But we are very excited about two
new initiatives this year:
While we make a huge effort to protect
our own company in terms of cybersecu-
rity, we try to help protect our clients from
cyber threats as well. We have extensive
fraud and malware detection capabilities
that significantly reduce wire fraud on
our customers. We've increased our client
cybersecurity education and awareness
programs, having communicated with
more than 11,000 corporate customers on
this topic and hosting nearly 50 cybersecu-
rity client events in 2015.
Digital Commercial Banking. In Commercial
Banking, J.P. Morgan ACCESS delivers a
platform for clients to manage and pull
together all their Treasury activities in a
single, secure portal, which was ranked as
the #1 cash management portal in North
America by Greenwich Associates in 2014.
We continue to invest in digital enhance-
ments, releasing in 2015 our proprietary
and integrated mobile solution for remote
check deposits to help clients further
streamline their back-office reconciliations.
We are also investing in improving the
overall user experience around key items
such as entitlements (designating who can
make payments) and workflow, bringing
to our commercial digital platforms some
of the same enhancements we've brought
to our Consumer Banking sites.
We will be investing approximately
$300 million over the next three years
in digital initiatives for Asset Manage-
ment. In Global Wealth Management, we
have modernized the online experience
for clients, enabled mobile access, and
launched a digital portal for access to our
research and analysis across all channels.
In addition, we are rolling out a user-
friendly and powerful planning tool that
our advisors can use with clients in real
time. We are also working on some great
new initiatives around digital wealth
management, which we will disclose
later this year.
Digital and Global Wealth Management.
•
You can rest assured that we continually
and vigorously analyze the marketplace,
including FinTech companies. We want to
stay up to date and be extremely informed,
and we are always looking for ways to
improve what we do. We are perfectly
willing to compete by building capabilities
(we have large capabilities in-house) or to
collaborate by partnering.
Whether we compete or collaborate, we
try to do what is in the best interest of
the customer. We also partner with more
than 100 FinTech companies - just as we
have partnered over the past decade with
hundreds of other technology providers. We
need to be very technologically competent
because we know that some of our competi-
tors will be very good. All businesses have
clear weak spots, and those weaknesses will
be and should be - exploited by competi-
tors. This is how competitive markets work.
One of the areas we spend a lot of time
thinking and worrying about is payments.
Part of the payments system is based on
archaic, legacy architecture that is often
unfriendly to the customer.
How do you intend to win in payments, particularly with so many strong competitors - many
from Silicon Valley?
We have enormous quantities of data, and
we have always been data fanatics, using
big data responsibly in loan underwriting,
market-making, client selection, credit under-
writing and risk management, among other
areas. But comparing today's big data with
yesterday's old-style data is like the differ-
ence between a mobile phone and a rotary
phone. Big data truly is powerful and can be
used extensively to improve our company.
How and why do you use big data?
In Asset Management, we have dedicated
groups that cover highly specialized segments.
Some of these segments are: Defined Benefit
Pension Plans, Defined Contribution Pension
Plans, Endowments & Foundations, Family
Offices and Insurance Companies.
this model, we can provide investment
banking services, comprehensive payment
capabilities and international products to
address the needs of technology clients
through every stage of growth.
Technology industry group. To serve our
technology clients, we have expanded
our coverage to include 30 bankers in
11 key markets, all highly aligned with
our Investment Banking team. With
delivering access to capital and other
financial services, we can help our
healthcare clients manage the constantly
changing regulatory environment and
adjust their businesses to comply with the
Patient Protection and Affordable Care
Act and other new regulations. In addi-
tion, our web-based tools are making it
easier for healthcare providers to migrate
payments from expensive paper checks to
efficient electronic transactions.
Healthcare industry group. In addition to
•
32
Agricultural industry group. Not only do we
have specialized underwriting for clients
within this group, but we also can help
our clients navigate commodity price
cycles and seasonality, as well as provide
industry-specific credit and risk manage-
ment tools, such as interest rate and
commodity hedging.
In Commercial Banking, we continue to develop
and enhance our Specialized Industries
coverage, which now serves a total of 15
distinct industries and approximately 9,000
clients across the United States, with eight
industries launched in the last five years.
Below are a few service examples taken from
these new industries:
Commercial Banking. We are using big data
in many ways in Commercial Banking.
One area is responsible prospecting. It
always was hard to get a proper list of
client prospects (i.e., get the prospect's
working telephone number or email
address, get an accurate description of the
business and maybe get an introduction
to the decision maker at the company).
Using big data, we have uncovered and
qualified twice as many high-quality pros-
pects, and we are significantly more effec-
tive in assuring that the best banker is
calling on the highest-potential prospects.
This has given us confidence in knowing
that if we hire more bankers, they can be
profitably deployed.
out an "Always On Offers" section for our
customers on chase.com, where they can
access all the products they qualify for at
any given time.
We will always be segmenting our busi-
nesses to become more knowledgeable about
and closer to the client. This segmentation
allows us to tailor our products and services
to better serve their needs. Below are some
examples of how and why we do this.
You always seem to be segmenting your businesses - how and why are you doing this?
I hope you can see why we are so excited.
Corporate QuickPay. Leveraging tremendous
investment in our retail payment capa-
bilities, our wholesale businesses launched
Corporate QuickPay in 2015. This mobile and
web-based solution provides our clients with
a low-cost alternative to expensive paper
checks, reducing their expenses by almost
two-thirds. In addition, the platform dramati-
cally improves security, increases payment-
processing speed, eases reporting and signifi-
cantly enhances the customer experience.
investment in Chase Pay is not as certain. But
we think that the investment will be worth
it and that it will help drive more merchants
wanting to do business with us and more
customers wanting to open checking
accounts with us and use our credit cards.
I also want to mention one more payment
capability, this one for our corporate clients:
We are absolutely convinced that the trifecta
Chase Paymentech, ChaseNet and Chase
Pay - will be dramatically better, cheaper and
safer for our customers and our merchants.
We also are convinced that the investments
we are making in Chase Paymentech and
ChaseNet will pay off handsomely. The
than 7,500 company-operated Starbucks loca-
tions in the United States and to reload a Star-
bucks Card within the Starbucks mobile app
and on starbucks.com. Finally, to make Chase
Pay even more attractive, we are building ...
real-time person-to-person (P2P) payments.
Real-time P2P payments. In conjunction with
six partner banks, Chase is launching a P2P
solution with real-time funds availability. The
new P2P solution will securely make real-time
funds available through a single consumer-
facing brand. Chase and the partner banks
represent 60% of all U.S. consumers with
mobile banking apps. We intend to keep P2P
free for consumers, and the network consor-
tium is
open for all banks to join.
31
ChaseNet. Chase Net, through Visa, allows us
to offer a merchant different and cheaper
pricing, a streamlined contract and rules, and
enhanced data sharing, which can facilitate
sales and authorization rates. Again, these
are all things merchants want. (You can
see that we are trying hard to improve the
relationship between banks and merchants.)
We expect volume in ChaseNet to reach
approximately $50 billion in 2016 (up 100%
from 2015), as we have signed up and are
starting to onboard clients such as Starbucks,
Chevron, Marriott and Rite Aid. In conjunc-
tion with Chase Paymentech and ChaseNet,
both of which allow us to offer merchants
great deals, we also can offer ... Chase Pay.
Chase Pay. Chase Pay, our Chase-branded
digital wallet, is the digital equivalent to
using your debit or credit card. It will allow
you to pay online with a "Chase Pay" button
or in-store with your mobile phone. We also
hope to get the Chase Pay button inside
merchant apps. Chase Pay will offer lower
cost of payment, loyalty programs and fraud
liability protection to merchants, as well
as simple checkout, loyalty rewards and
account protection to consumers. As one great
example, Chase has signed a payments agree-
ment with Starbucks, which, we hope, will
drive Chase Pay adoption. Customers will be
able to use the Chase Pay mobile app at more
Chase Paymentech. We already are one of the
largest merchant processors in the United
States (merchant processors provide those
little machines that you swipe your card
through at the point of sale in a store or
that process online payments). We are
quickly signing up large and medium-sized
merchants this year alone, we signed
up some names that you all recognize,
including Starbucks, Chevron, Marriott,
Rite Aid and Cinemark. And I've already
described how the partnership with Busi-
ness Banking makes it easier for small busi-
nesses to connect with Chase Paymentech.
In all these instances, we have simplified,
and, in some cases, offered better pricing,
as well as made signup easier - exactly
what the merchants want. And very often it
comes with... ChaseNet.
Right now, we are one of the biggest
payments companies in the world (across
credit and debit cards, merchant payments,
global wire transfers, etc.). But that has not
lulled us into a false sense of security - and
we know we need to continue to innovate
aggressively to grow and win in this area.
The trifecta of Chase Paymentech, ChaseNet
and Chase Pay, supported by significant
investment in innovation, has us very excited
and gives us a great opportunity to continue
to be one of the leading companies in the
payments business. Let me explain why.
In Consumer Banking, we have the benefit of
really knowing our customers. We know
about their financial stability, interests,
where they live and their families. That data
can be a tremendous force in serving them.
By understanding customers well beyond a
demographic profile, we can better antici-
pate what they need. Historically, we used
demographics and behavior to segment our
customers, but we increasingly take attitudes,
values and aspirations into consideration
to offer each customer more relevant and
personalized products, services and rewards.
As one important example, we hope to roll
ingly painful for our customers, and it is
difficult, costly and painful to us and our
reputation. In part, by making fewer FHA
loans, we have helped reduce our foreclo-
sure inventory by more than 80%, and
we are negotiating arrangements with
Fannie Mae and Freddie Mac to have any
delinquent mortgages insured by them be
serviced by them.
1Q07 2007 3Q07 4Q07 1Q08 2008 3Q08 4Q08 1Q09
So yes, public policy is critical to a healthy
and functioning economy. Now I'd like to
turn my attention to a more forward-looking
view of some of the potential risks out there
today that are driven by public policy:
$1.5
$474
$92
$116
■Small business
18%
(8)%
5%
11%
$1.4
$1.3
$1.4
$17
$82
$108
$19
$91
$1.6
7%
at December 31,
Corporate clients
($ in trillions)
Consumer and Commercial Banking
($ in billions)
Year-over-year change
$583
$601
$22
'11 to '12
'12 to '13 '13 to '14 '14 to '15
$556 $18
$20
$523
Corporate clients
(9)%
20%
(11)%
$131
$122
Card & Auto
management
■Mortgage/
22%
(7)% (53)%
34%
Home equity
$163
Total Consumer and 17%
36
48
(10)%
15%
$127
Commercial Banking
$191 $177
$100
$141 $165
$185
$110
(10)%
12%
18%
7%
■Commercial/
11%
8%
New and Renewed Credit and Capital for Our Clients
41%
Middle market
$188
Asset
41%
17%
(23)%
29%
1%
$156
43
Banks were there for their clients, particularly
when the capital markets were not - we need this
to continue.
at the core of the system. They educate the
world about companies and markets, they
syndicate credit and market risk, they hold
and move money and assets, and they neces-
sarily create discipline among borrowers and
transparency in the market. To do this well,
America needs all different kinds of financial
institutions and all different kinds of banks –
large and small.
Does the United States really need large banks?
There is a great need for the services of all
banks, from large global banks to smaller
regional and community banks. That said,
our large, global Corporate & Investment
Bank does things that regional and commu-
nity banks simply cannot do. We offer
unique capabilities to large corporations,
large investors and governments, including
federal institutions, states and cities.
Only large banks can bank large institutions.
Of the 26 million businesses in the United
States, only 4,000 are public companies.
While accounting for less than 0.02% of all
firms, these companies represent one-third
of private sector employment and almost
half of the total $2.3 trillion of business
capital expenditures. And most are multi-
nationals doing business in many countries
around the world. In addition to corpora-
tions, governments and government insti-
tutions such as central banks and sover-
eign wealth funds – need financial services.
The financial needs of all these institutions
are extraordinary. We provide many of
the services they require. For example, we
essentially maintain checking accounts for
these institutions in many countries and
currencies. We provide extensive credit lines
or raise capital for these clients, often in
multiple jurisdictions and in multiple curren-
cies. On an average day, JPMorgan Chase
-
moves approximately $5 trillion for these
types of institutions, raises or lends $6 billion
of capital for these institutions, and buys or
sells approximately $1.5 trillion of securities
to serve investors and issuers. We do all this
efficiently and safely for our clients. In addi-
tion, as a firm, we spend approximately $700
million a year on research so that we can
educate investors, institutions and govern-
ments about economies, markets and compa-
nies. For countries, we raised $60 billion
of capital in 2015. We help these nations
develop their capital markets, get ratings
from ratings agencies and, in general, expand
their knowledge. The fact is that almost
everything we do is because clients want and
need our various services.
Put "large" in context.
While we are a large bank, it might surprise
you to know two facts: (1) The assets of all
banks in the United States are a much smaller
part of the country's economy, relatively, than
in most other large, developed countries; and
(2) America's top five banks by assets are
smaller, relatively, to total banking assets in
America than in most other large, developed
countries. As shown in the following charts,
this framework means banks in the United
States are less consolidated.
40
Total Bank Assets as a % of GDP
by Country¹
120%
250%
220% 220% 220%
350%
350%
For the people of a country to thrive, you
need a successful economy and markets. For
an economy to be successful, it is an absolute
necessity to have a healthy and successful
banking system. The United States has a
large, vibrant financial system, from asset
managers and private equity sponsors to
hedge funds, non-banks, venture capital-
ists, public and private market participants,
small to large investors and banks. Banks are
United Germany Canada Japan China France United
States²
CRITICAL TO A COUNTRY'S SUCCESS - BANKS' ROLES
HAVE CHANGED, BUT THEY WILL NEVER BE A UTILITY
39
COMMITMENT TO OUR VETS
by Stan McChrystal, Retired General, U.S. Army
-
In early 2011, two employees of JPMorgan Chase came to
wintry New Haven, Connecticut, to talk about veterans.
Specifically, they told me that Jamie Dimon felt the bank
could, and should, do more to help the many veterans
returning from service many who were in Iraq and
Afghanistan - take their rightful place in civilian society.
Since 9/11, the military had enjoyed tremendous support
from the American people, but seemingly intractable
problems of reintegration, particularly challenges with
meaningful employment, haunted an embarrassingly large
number of former warriors and their families.
I listened with interest and no small amount of cautious
skepticism. I was aware of countless programs initiated
with the best of intentions that soon became more talk
than action and was worried this might be the same. The
JPMorgan Chase people asked if I thought the bank should
create a program to help veterans find employment and if
the bank did start such a program, would I join the advisory
council for it.
I thought for a moment and then responded: “If Jamie
is seriously willing to commit the bank to the effort," I
replied, "it's the right thing to do, and I'm in. If not, there
are other, far less ambitious ways to offer the bank's help
for veterans." As we talked further, they convinced me that
Jamie, and the full energy that JPMorgan Chase could bring,
would be behind the effort.
That was almost five years ago, and JPMorgan Chase has
surpassed my every hope and expectation. By committing
full-time talent and including the personal involvement of
senior leadership, the firm has been the strongest force
in veterans' employment in America. The Veteran Jobs
Mission program has not only implemented truly cutting-
edge programs inside the bank to recruit, train, mentor
and develop veterans – resulting in an increase of more
than 10,000 veterans within the bank since 2011 – but the
program also has demonstrated the power of commitment.
An impressive number of American businesses have set and
met employment goals (to date, over 300,000 veterans have
been hired collectively, with a goal of hiring 1 million) that
would have been considered unattainable at the start.
CREATING CAREER-FOCUSED EDUCATION
by Freeman A. Hrabowski III, President of the University of
Maryland, Baltimore County
Too many people are left out of work or are stuck in low-wage,
low-skill jobs without a path to meaningful employment and the
chance to get ahead. Among young people, this truly is a national
tragedy: More than 5 million young Americans, including one in
five African-American and one in six Latino youths, are neither
attending school nor working. JPMorgan Chase's New Skills for
Youth initiative is an important example of educators and busi-
ness leaders partnering to equip young people with the skills and
experience to be career ready.
The social and economic hurdles faced by young people of color and
those who come from low-income families have been exacerbated
by the growing crisis of high inner city unemployment and low high
school graduation rates. With too many young people marginalized,
economic growth slows, and social challenges increase. The public
and private sectors must work together to change this.
-
Educators need to emphasize both college and career readiness.
They need to recognize that there is growing demand for technically
trained, middle-skill workers – from robotics technicians to licensed
practical nurses - and better align what they teach with the talent
needs of employers. At the same time, business leaders need to
support the education system as it strives to teach today's skills and
help students develop into critical thinkers.
A bachelor's degree is as important as ever, and universities must
do more to support students of all backgrounds who arrive on our
campuses. However, we need to recognize that not all college and
career pathways include pursuing a four-year degree immediately,
and we need to eliminate the stigma attached to alternate paths.
High-quality, rigorous career and technical education programs
can connect people to high-skill, well-paying jobs - and they
don't preclude earning a four-year degree down the road. Classes
dedicated to robotics, medical science, mechanics and coding build
skills that employers desperately need. They also prepare students
to land great jobs.
Recent education reforms are making progress, but we still need
greater focus on preparing young people, from all income levels,
with the skills and experiences to be college and career ready.
The public and private sectors need to forge deeper relation-
ships and make greater investments in developing and expanding
effective models of career-focused education that are aligned
with the needs of emerging industries. This is an investment
not only in growing our economy but also in providing more of
our young people with a tangible path out of poverty and a real
chance at economic success.
VI. A SAFE, STRONG BANKING INDUSTRY IS ABSOLUTELY
Kingdom
1 Approximate percentages based on 2014 data.
2 Excludes the estimated impact of certain derivatives netting.
year, provided $5.3 billion in secured repo
financing, extended $1.4 billion in trading
line financing and provided $7 billion in
other unsecured financing to hundreds of
banks nationwide.
This is a story of symbiosis among our banks
rather than a binary choice between big and
small. Yes, all banks are competitors in the
marketplace. But marketplace competition
is not zero-sum. In banking, your compet-
itor can also be your customer. Large banks
ultimately would be diminished if regional
and community banks were weakened, and,
just as surely, those smaller institutions
would lose out if America's large banks were
hobbled. We require a system that serves
the needs of all Americans, from customers
getting their first mortgage to farmers and
small business owners to our largest multina-
tional companies.
America faces enough real challenges
without inventing conflict where none
need exist. Rather, banks of all sizes do
themselves and their stakeholders better
service by acknowledging the specific value
different types of institutions offer. Then we
all can get on with the business of serving
our distinctive roles in strengthening the
economy, our communities and our country.
Banks cannot be utilities.
Utilities are monopolies; i.e., generally only
one company is operating in a market. And
because of that, prices and returns are regu-
lated. Banks do not have the same relation-
ship with their clients as most other compa-
nies do. When a customer walks into a store
and wants to buy an item, the store sells it.
By contrast, very often a bank needs to turn
a customer down; for example, in connec-
tion with a credit card or a loan. Responsible
lending is good, but irresponsible lending
is bad for the economy and for the client
(we clearly experienced this in the Great
Recession). Banks are more like partners
with their clients - and they are often active
participants in their clients' financial affairs.
They frequently are in the position where
they have to insist that clients operate with
discipline – by asking for collateral, putting
42
covenants in place or forcing the sale of
assets. This does not always create friends,
but it is critical for appropriate lending and
the proper functioning of markets. Banks
have to continuously make judgments on
risk, and appropriately price for it, and they
have to do this while competing for a client's
business. There is nothing about banking
that remotely resembles a utility.
America's financial system is the finest the world
has ever seen - let's ensure it stays that way.
The position of America's leading banks
is like many other U.S. industries - they
are among the global leaders. If we are not
allowed to compete, we will become less
diversified and less efficient. I do not want
any American to look back in 20 years and
try to figure out how and why America's
banks lost the leadership position in finan-
cial services. If not us, it will be someone
else and likely a Chinese bank. Today, many
Chinese banks already are larger than we
are, and they continue to grow rapidly. They
are ambitious, they are supported by their
government and they have a competitive
reason to go global – the Chinese banks
are following and supporting their Chinese
companies with the financial services that
are required to expand abroad.
Not only are America's largest banks global
leaders, but they help set global standards for
financial markets, companies, and even coun-
tries and controls (such as anti-money laun-
dering). Finally, banks bring huge resources
- financial and knowledge – to America's
major flagship companies and investors,
thereby helping them maintain their global
leadership positions.
Why do you say that banks need to be steadfast and always there for their clients - doesn't
that always put you in the middle of the storm?
Yes, to an extent. When an economy
weakens, banks will see it in lower busi-
ness volumes and higher credit losses. Of
course, we want to manage this carefully,
but it is part of the cost of doing business.
Building a banking business takes decades
of training bankers, nurturing relation-
ships, opening branches and developing
the proper technology. It is not like buying
or selling a stock. Clients, from consumers
to countries, expect you to be there in both
good times and the toughest of times. Banks
and their services are often the essential
lifeblood to their clients. Therefore, it is part
of the cost of doing business to manage
through the cycles.
JPMorgan Chase consistently supports
consumers, businesses and communities in
both good times and the toughest of times. In
2015, the firm provided $22 billion of credit
to U.S. small businesses, which allowed them
to develop new products, expand operations
and hire more workers; $168 billion of credit
to Commercial and Middle Market clients;
$233 billion of credit to consumers; more
than $68 billion of credit or capital raised for
nonprofit and government entities, including
states, municipalities, hospitals and universi-
ties; and $1.4 trillion of credit or capital raised
for corporations. In total, we extended credit
and raised capital of more than $2 trillion for
our clients.
In addition to these correspondent banking
services, large banks deliver mission-critical
investment banking services. This includes
helping smaller banks access debt and equity
capital, supporting them through strategic
combinations, enabling them to manage
their securities portfolios, providing valuable
risk management tools (such as interest rate
swaps and foreign exchange), creating syndi-
cated credit facilities that smaller banks'
clients can participate in and offering direct
financing. JPMorgan Chase has raised $16.2
billion in growth equity capital for smaller
banks since 2014; advised on strategic
combinations among regional and commu-
nity banks valued at $52 billion; and, last
Large banks also enable community banks to
provide traditional mortgages by purchasing
the mortgages that smaller banks originate,
selling the loans to the agencies (e.g., Fannie
Mae) or capital markets and continuing to
service the borrower. In 2015, JPMorgan
Chase purchased $10.4 billion in such resi-
dential loans from 165 banks nationwide.
Having said that, these very same regional
and community banks depend on large
banks such as ours to make their service
offerings possible. First, large banks offer
vital correspondent banking services for
smaller institutions. These services include
distributing and collecting physical cash,
processing checks and clearing international
payments. JPMorgan Chase alone extends
such services to 339 small banks and 10
corporate credit unions across the country.
Last year, we provided these institutions with
$4.7 billion in intraday credit to facilitate
cash management activities and processed
$7.6 trillion in payments/receivables.
Large banks such as JPMorgan Chase also
have a strong local presence. We are proud
to have branches and offices all across
the country and to have the privilege of
being woven into communities large and
small. But we respect the fact that for
some customers, there is no substitute
for a locally based bank and that in some
markets, a locally based lender is the best
fit for the needs of the community.
Top 5 Bank Assets as a % of Total Bank Assets
by Country¹
55%
50%
45%
90%
80%
75%
The public markets, even though they are
populated with a lot of very bright and
talented people, are surprisingly fickle. The
psychology and wisdom of crowds are not
always rational, and they are very imper-
sonal. People who buy and sell securities
do not have a moral obligation to provide
credit to clients. This is when banks' long-
term relationships and fairly consistent
70%
Our size and our diversification make us stronger.
Our large and diversified earnings streams
and good margins create a strong base of
earnings that can withstand many different
crises. Stock analysts have pointed out that
JPMorgan Chase has among the lowest
earnings volatility and revenue volatility
among all banks. This strength is what
allows us to invest in countries to support
our clients and to have the staying power to
survive tough times. We are a port of safety
in almost any storm.
Finally, our size gives us the ability to make
large and innovative investments that are
often needed to create new products and
services or to improve our efficiency. The
ultimate beneficiary of all this is our clients.
Community banks are critical to the country -
large banks provide essential services to them.
(I prepared this section initially as an op-ed
article, but I'd like you to see it in total.)
Not long ago, I read some commentary
excoriating big banks written by the CEO
of a regional bank. The grievances weren't
new or surprising - in the current climate,
one doesn't have to look far to find someone
attacking large financial institutions. But I
recognized this particular bank as a client
of ours. So I did some digging. It turns out
that our firms have a relationship that goes
back many years and spans a broad range of
services. And it struck me how powerful the
incentive is, in today's heated public dialogue,
to frame issues as a winner-take-all fight
between opposing interests: big vs. small.
Main Street vs. Wall Street. It is a simple
narrative, and while banks of all sizes make
mistakes, certainly a key lesson of the crisis
is that mistakes at the largest institutions can
impact the broader financial system.
But, as is often the case, reality tells a deeper
story, and the U.S. financial services industry
does not conform to simple narratives. It is a
complex ecosystem that depends on diverse
business models co-existing because there
is no other way to effectively serve Ameri-
ca's vast array of customers and clients. A
healthy banking system depends on institu-
tions of all sizes to drive innovation, build
and support our financial infrastructure, and
provide the essential services that support
the U.S. economy and allow it to thrive.
In our system, smaller regional and commu-
nity banks play an indispensable role. These
institutions sit close to the communities
they serve. Their highest-ranking corporate
officers live in the same neighborhoods as
their clients. They are able to forge deep and
long-standing relationships and bring a keen
knowledge of the local economy and culture.
They frequently are able to provide high-
touch and specialized banking services, given
their unique connection to their communities.
41
China Germany United Japan United France Canada
States²
Kingdom
$112
5%
2011 2012 2013 2014 2015
Will banks ever regain a position of trust? How will this be done?
Most banks actually are trusted by their
clients, but generically, they are not. This
dichotomy also is true with politicians,
lawyers and the media – people trust the
individuals they know, but when it comes
to whether people trust them as a group,
they do not. We believe that the only way to
be restored to a position of trust is to earn
it every day in every community and with
every client.
The reality is that banks, because of the disci-
plined role they sometimes have to play and
the need to say no in some instances, will not
always be the best of friends with some of
their clients. But banks still need to discharge
that responsibility while continuing to regain
a position of trust in society. There is no easy,
simple answer other than:
•
•
•
Maintain steadfast, consistent and trans-
parent behavior wherever they operate.
Communicate honestly, clearly and
consistently.
Deliver great products and services.
Admitting to mistakes is good, fixing
them is better and learning from them is
essential.
•
Make it
easy
for customers to deal with you
- particularly when they have problems.
45
Focus on the customer and treat all clients
the way you would want to be treated.
3 Includes initial public offerings (IPOS) and secondary market offerings.
1 Includes high-yield and investment-grade bonds.
$0.0
$0.0
2009
3Q09
4Q09 1Q10 2Q10 3Q10 4Q10
$84
$2.0 $2.1 $1.9 $1.8 $1.8 $1.7 $1.6 $1.7 $1.5
$1.2 $1.3
$1.1 $1.1 $1.0 $1.1 $1.0
$4.0 $4.0 $2.3 $1.9 $1.4 $2.0 $0.7
$0.8 $1.2 $1.8 $1.2
$1.1 $1.2 $0.8 $1.3 $1.5
$(3.3)
Capital markets issuances (left scale)
Corporate bonds¹ ABS² Equity³
2 Includes collateralized loan obligations and excludes mortgage-backed issuances.
$1.0
Be great citizens in the community.
Establish strong relationships with govern-
ments and civic society.
move on.
Increased coordination among regulators.
Having five, six or seven regulators
involved in every issue does make things
more complicated, expensive and inef-
ficient, not just for banks but for regula-
tors, too. This slows policymaking and
rulemaking and is one reason why many
of the rules still have not been completed.
One of the lessons we have all learned is
that policymakers need to move quickly
in a crisis. While everyone has worked
hard to be more coordinated, far more
can be done.
Be more forward looking. This is already
happening. As banks are catching up on
regulatory demands, the pace of change,
while still rapid, is slowing. This sets the
stage for both banks and regulators to be
able to devote more resources to increas-
ingly critical issues, including cyberse-
curity, digital services, data protection,
FinTech and emerging risks.
As the financial system reaches the level of
strength that regulations require, we hope
banks can begin to expand slightly more
rapidly (and, of course, responsibly) – both
geographically and in terms of products and
services - with the support and confidence
of their regulators. This will also foster
healthy economic growth, which we all so
desperately want.
47
VII. GOOD PUBLIC POLICY IS CRITICALLY IMPORTANT
Are you worried about bad public policy?
Yes, bad public policy, and I'm not looking
at this in a partisan way, creates risk for
the economies of the world and the living
standards of the people on this planet - and,
therefore, for the future of JPMorgan Chase -
more so than credit or market risks. We have
many real-life examples that demonstrate
how essential good public policy is to the
health and welfare of a country.
East Germany vs. West Germany. After World
War II, East Germany and West Germany
were in equal positions, both having been
devastated by the war. After the war, West
Germany flourished, creating a vibrant
and healthy country for its citizens. East
Germany (and, in fact, most of Eastern
Europe), operating under different gover-
nance and policies, was a complete disaster.
This did not have to be the case. East
Germany could have been just as successful
as West Germany. This is a perfect example
of how important policy is and also of how
economics is not a zero-sum game.
Argentina, Venezuela, Cuba, North Korea vs.
Singapore, South Korea, Mexico. These coun-
tries also provide us with some pretty strong
contrasts. The first four countries mentioned
above have performed poorly economically.
The last three mentioned above have done
rather well in the last several decades. You
cannot credit this failure or success to the
existence of great natural resources because,
on both sides, some had these resources,
and some did not. It would take too long
to articulate it fully here, but strong public
policy - fiscal, monetary, social, etc. - made
all the difference. The countries that did
not perform well had many reasons to be
successful, but, they were not. In almost all
these cases, their government took ineffec-
tive actions in the name of the people.
Detroit. Detroit is an example of failure at the
city level. In the last 20 years, most American
cities had a renaissance - Detroit did not.
Detroit was a train wreck in slow motion
for 20 years. The city had unsustainable
-
finances, corrupt government and a declining
population that went from 2 million resi-
dents to just over 750,000. It is tragic that
this catastrophe had to happen before
government started to rectify the situation.
We have reported that we are making a huge
investment in Detroit, and we are doing
this because the leadership the Demo-
cratic mayor and the Republican governor,
working with business and nonprofit orga-
nizations is taking rational and practical
action in Detroit to fix the city's problems.
These leaders talk about strengthening the
police, improving schools, bringing jobs
back, creating affordable housing, fixing
streetlights and rehabilitating neighborhoods
real things that actually matter and will
help the people of Detroit. They do not couch
their agenda in sanctimonious ideology.
Fannie Mae and Freddie Mac. These are examples
of poor policy at the industry and company
level. Under government auspices and with
federal government urging, Fannie and
Freddie became the largest, most lever-
aged and most speculative vehicles that the
world had ever seen. And when they finally
collapsed, they cost the U.S. government
$189 billion. Their actions were a critical
part of the failure of the mortgage market,
which was at the heart of the Great Reces-
sion. Many people spent time trying to figure
out who was to blame more - the banks and
mortgage brokers involved or Fannie and
Freddie. Here is a better course - each should
have acknowledged its mistakes and deter-
mined what could have been done better.
Finally, finishing the capital rules for
banks will remove one additional drag on
the banks and allow for more consistent
capital planning. This would also help to
improve confidence in the banks and, by
extension, investor confidence.
Treat regulators like full partners – and
accept that you will not always agree.
When they make a change in regulations,
even ones you don't like, accept them and
•
Capital rules. Without reducing total
capital levels, capital rules could be
modified to be less procyclical, which
could serve to both dampen a bubble and
soften a bust. This alone could boost the
economy and reduce overall economic
risk. There are also some rules – for
example, requiring that capital be held
against a deposit at the Federal Reserve -
that distort the normal functioning of the
market. These could be eliminated with
no risk to safety and soundness unless
you think the Fed is a risky investment.
As an industry, make fewer mistakes and
behave better - the bad behavior of one
individual reverberates and affects the
entire industry.
Finally, strong regulators and stronger
standards for banks must ultimately mean
that banks are meeting more rigorous stan-
dards. Every bank is doing everything in its
power to meet regulatory standards. It has
been eight years since the financial crisis
and six years since Dodd-Frank. Regulators
should take more credit for the extraordi-
nary amount that has been accomplished
and should state this clearly to the American
public. This should help improve consumer
confidence in the banking system - and
in the economy in general. Consumer and
business confidence is the secret sauce for a
healthy economy. It is free, and it would be
good to sprinkle a bit more of it around.
•
Work with customers who are struggling -
both individuals and companies.
Are you and your regulators thinking more comprehensively and in a forward-looking way to
play a role in helping to accelerate global growth?
By any reasonable measure, the financial
system is unquestionably stronger, and regu-
lators deserve a lot of credit for this. But it
also is true that thousands of rules, regula-
tions and requirements were made - and
needed to be made - quickly. The political
and regulatory side wanted it done swiftly
to ensure that events that happened in the
Great Recession would never happen again.
But now is the time when we can and should
look at everything more deliberately and
assess whether recent reforms have generated
unintended consequences that merit attention.
Some people speak of regulation like it is a
simple, binary tradeoff - a stronger system
or slower growth or vice versa. We believe
that many times you can come up with
regulations that do both - create a stronger
system and enhance growth.
46
There will be a time to comprehensively review,
coordinate and modify regulations to ensure
maximum safety, create more efficiency and
accelerate economic growth.
Every major piece of legislation in the United
States that was large and complex has been
revisited at some point with the intention of
making it better. The political time for this
is not now, but we should do so for banking
regulations someday. We are not looking
to rewrite or to start over at all - just some
modifications that make sense. Here are a
few specific examples:
•
Liquidity. Regulators could give them-
selves more tools for adjusting liquidity
to accommodate market needs. This could
be done with modest changes that could
actually ameliorate the procyclical nature
of the current rules and, in my opinion,
enhance safety and soundness and
improve the economy.
Mortgages. Finishing and simplifying mort-
gage rules around origination, servicing,
capital requirements and securitizations
would help create a more active mortgage
market at a lower cost to customers and,
again, at no risk to safety and soundness
if done right. This, too, would be a plus to
consumers and the economy.
•
$2.0
Commercial paper
outstanding
Total capital
markets issuances
▼ Commercial paper outstanding (right scale)
10%
6%
8%
11%
3%
9%
4%
(16)%
$3.0
$824
$861
$722+
$755
Client assets¹ 10%
13%
Consumer
Wholesale
$439
$3,163
Deposits
2011 2012 2013
2014
2015
Assets Entrusted to us by Our Clients
at December 31,
Deposits and client assets
($ in billions)
3%
Year-over-year change
$3,973
$3,883
$3,822
$503
$3,438
$464
$558
'11 to '12 '12 to '13 '13 to '14 '14 to '15
- %
$398
$2,534
2 Represents activities associated with the safekeeping
and servicing of assets.
pricing and credit offerings are needed the
most. The chart below shows how banks
continued to be there for their clients as the
markets were not.
Corporations get the vital credit they need
by issuing securities, including commercial
paper, or by borrowing from banks. You can
see in the chart below the dramatic drop in
the issuance of securities and commercial
paper once the financial crisis hit. Commer-
cial paper outstanding alone dropped by
$1 trillion, starving companies in desperate
need of cash. You can see that bank loans
outstanding, for the most part, were steady
and consistent. This means that banks
continued to renew or roll over credit to their
clients - small, medium and large - when it
was needed the most.
This will be a little bit harder to do in
the future because capital, liquidity and
accounting rules are essentially more procy-
clical than they were in the past. We esti-
mate that if we were to enter a very difficult
market, such as 2008, our capital needs could
increase by 10%. Despite the market need for
credit, banks would be in a position where,
all things being equal, they would need to
reduce the credit extended to maintain their
own strong capital positions.
$730
($ in trillions)
$7.0
$6.0
$5.0
$4.0
$3.0
$2.0-
$1.0
→ U.S. bank loans outstanding (left scale)
1 Represents assets under management, as well as custody,
brokerage, administration and deposit accounts.
$19,943
Quarterly Capital Markets Issuances and U.S. Bank Loans Outstanding
2007-2010
$20,485
$20,549
$2,603
Including non-operating deposits
reduction of $200 billion
$2,244
$2,035
2011
2012
2013
$2,609
2015
Assets under custody²
($ in billions)
$16,870
44
$18,835
2014
are paperless within 30 days of open-
ing an account, up dramatically from
roughly 25% two years ago. Many
customers prefer the convenience,
and it's a more efficient option for
the bank. Sending a customer an
electronic statement costs about a
penny vs. approximately 50 cents for
a paper one. Even more important,
we save a lot of trees in the process.
58
We also are participating in other
consumer-to-business payments
options, including Apple PayTM and
Samsung Pay, to give our custom-
ers choices in their payments - and
to encourage them to make their
Chase card their first choice. In addi-
tion, we issued more than 80 million
chip-enabled credit and debit cards
to keep payments safe and secure.
Payments is another significant area
of opportunity. We're unique in the
market because we are a complete
payments system with an unmatched
combination of scale and reach.
Chase customers make approxi-
mately 36 million credit and debit
card payments every day on more
than 90 million credit, debit and pre-
paid card accounts. Our Commerce
Solutions business processed almost
$1 trillion of payments volume
in 2015 alone. And our ChaseNetSM
proprietary closed-loop network
allows us to complete the entire
payments transaction between
cardholder and merchant. With that
combination, we've built a world-class
payments franchise, and it's become
a significant differentiator for us.
Last fall, we announced Chase PayS
our proprietary digital payment solu-
tion that will connect merchants and
consumers through a simple, secure
payment experience. It will address
both the merchant experience and
consumer-to-business payments.
Payments
ments not only drive revenue and
deposits but represent new house-
holds that we can deepen relation-
ships with over time. That said, if the
market turns or we see a change in
how these investments perform, we
can pull them back quickly.
~300,000 new households and -$2.6
billion in deposits. These invest-
For example, a $100 million invest-
ment in Credit Card marketing typi-
cally generates on average ~400,000
new accounts, ~$3 billion in annual
customer spend and -$600 million in
outstanding balances. And the same
investment in Consumer Banking
marketing will generate on average
Expense discipline
Along with credit discipline, we have
been
expenses.
very disciplined with
Since 2012, we've made significant
progress in reducing our noninterest
expense by nearly $4 billion. We did
this by making tough decisions across
the firm to cut structural expenses.
Our disciplined strategy may result
in lower revenue growth in the short
term compared with some of our
competitors, but we believe our
approach builds a more stable busi-
ness for the long term. We want to
establish sustainable credit for our
customers in good times and bad
and ensure that our company and
our shareholders are protected from
a bubble mentality that may come
back to haunt us later.
In Auto, we've seen certain competi-
tors get more aggressive in lending
to customers with riskier credit, but
we've maintained our discipline by
focusing on customers with high
credit scores and responsible loan-to-
value ratios.
Nowhere has this been more true
than in our Mortgage Banking busi-
ness. We've evolved into a higher-
quality, less volatile business with
fewer products. We continue to
improve the quality of our servicing
portfolio both by managing down
our defaulted units and increasing
the quality of our new originations.
We've also continued to simplify by
eliminating complex products that
few of our customers were using.
And we are seeing results. Our net
charge-off rates in Mortgage Banking
are down from a high of 4.31% in
2009. And approximately 90% of our
Mortgage Banking losses from 2008
to 2015 were from products we no
longer offer today.
We are experiencing one of the most
benign credit environments we have
ever seen. While low interest rates
have been a headwind for Consumer
Banking, low credit losses have been
a significant tailwind. Net charge-off
rates are very low across CCB at
0.99%. We know it won't last forever.
We have seen these cycles turn
quickly, and we won't forget the hard-
fought lessons of 2008. We are very
focused on maintaining our highly
disciplined approach to credit and
running a high-quality lending busi-
ness that should have relative stability
throughout the economic cycle.
57
Credit - the best of times
However, it's important to distin-
guish what expenses need to be cut
and which investments can generate
value for our customers and future
revenue for our shareholders. There
are two key areas where we have
been steadfast in funding: technol-
ogy and marketing. We've invested
to upgrade our systems, making them
more automated and easier to use for
customers and employees. And we
know continued investment in mar-
keting provides proven returns.
Today's ATMs have come a long way
since they were first installed in 1969
- they now are another important
digital option for customers. Nearly
90% of transactions that historically
were performed in branches by a
teller soon will be possible at our
new ATMs. That's a huge conven-
ience for our customers who want to
self-serve we have nearly 18,000
ATMs around the country. Digital
also is a significantly less expensive
way to serve customers - it costs
us about half as much to serve a
digitally centric customer than all
other primary relationships. As
an example, the cost to deposit a
check with a teller is about 65 cents,
whereas a check deposited with mobile
QuickDeposit costs pennies. And in
2016, our customers will be able to
withdraw cash using a PIN from
their phone rather than a debit card.
We've also made it easier than ever
for customers who prefer electronic
statements to receive them. Customers
now can easily access their state-
ments online on their desktops, on
their phones or other mobile devices
at their convenience. Today, more
than 60% of new checking accounts
9%
2%
that used to be done in branches are
increasingly migrating to faster and
easier digital channels. Of the 3.7
million new checking accounts we
acquired in 2015, almost 60% of
these were for millennial customers,
who often choose Chase because of
our digital capabilities. While millen-
nials clearly are a digital-first genera-
tion, research shows that approxi-
mately 60% of all consumers rate
mobile banking as an important or
extremely important factor when
switching banks. In fact, for new cus-
tomers of Consumer Banking, 65%
actively use mobile banking after six
months, up from 53% in 2014.
2015 Performance Highlights
Key business drivers
$ in billions, except ratios and where otherwise noted; all balances are average
2015
ΥΟΥ
Consumer &
Households (in millions)
-
Community Banking
Active mobile users (in millions)
22.8
1%
20%
New accounts opened¹ (in millions)
Sales volume¹
8.7
$496
Loans
$126
Net charge-off rate²
2.51%
In short, scale matters. Scale matters
to our shareholders because it allows
us to use our strong operating lever-
age to invest and grow in good times
and bad. And scale matters to our
customers because we can provide
them with leading products that
meet all of their financial needs at
every stage of their lives. But we
know customers don't care about
scale unless it's relevant to them.
(1%)
7%
1%
(24 bps)
We also continue to lead the industry
in digital adoption. Chase.com is the
#1 most visited banking portal in the
United States, with nearly 40 million
active online customers. Our Chase
Mobile app has nearly 23 million
active mobile customers, up 20%
since
2014, the highest mobile
growth rate among large banks.
Scale matters
Looking ahead
We are at the forefront of change in the
industry, and we continue to grow our
core and strategic capabilities to sustain
our competitiveness. Our sophisticated
interest rate and liquidity risk manage-
ment frameworks prepare us for a
range of market scenarios and ongoing
regulatory changes. Our focus on tech-
nology, be it developing innovative solu-
tions, capitalizing on big data or invest-
ing in cyber defenses, underscores the
firm's commitment to leadership and
excellence and to being the most effec-
tive provider of financial services across
all categories. We continue to invest in
our most important asset, our people.
We look forward to serving the needs of
the next as well as the current genera-
tion of customers, clients and employ-
ees. We will continue to advance and
protect the firm's position as a world-
class financial institution - in a culture
rooted in both ingenuity and integrity.
Matt
Matt Zames
Chief Operating Officer
55
Consumer & Community Banking
2015 financial results
Consumer & Community Banking
(CCB) had another strong year in
2015. For the full year, we achieved
a return on equity of 18% on net
income of $9.8 billion and revenue
of $43.8 billion.
All of our CCB businesses performed
well. We continued our strategy of
delivering an outstanding customer
experience and developing stronger
relationships with customers. In
2015, we added approximately
600,000 households to Chase; and
today, we have consumer relation-
ships with nearly 50% of U.S. house-
holds and over 90 million credit,
debit and prepaid accounts.
In 2015, we also stepped up our
focus on growing engaged customers
- people who choose Chase as their
primary bank and have a Chase debit
or credit card at the top of their wal-
let. In doing so, we grew our CCB
average deposits 9% to more than
$530 billion and are #1 in primary
bank relationships within our Chase
footprint. And we remain the #1
56
Gordon Smith
credit card issuer in the United
States based on loans outstanding.
When I look back over the last three
years, the people in CCB have made
remarkable progress. It felt like only
a short time ago when we were faced
with considerable headwinds -
several regulatory actions, inconsis-
tent customer experiences across
Chase and an expense base growing
faster than revenue. And all this
was happening during a period of
formidable economic headwinds -
an extremely challenged Mortgage
Banking market and flat interest
rates compressed our net interest
income in Consumer Banking.
We worked through that rough eco-
nomic period by relentlessly focus-
ing on three priorities: 1) strengthen-
ing our controls, 2) delivering a great
customer experience and 3) reducing
expenses. These three priorities have
become a core part of our DNA and
how we run the business.
We had to make some very tough
decisions around simplifying our
business, reducing the number of
people and prioritizing investments
to focus on our strategy. We had to
stop doing things we liked and dis-
continue some products that just
weren't core to how we serve custom-
ers. And we are very glad we did.
We will not lose our intense focus on
those priorities, but with several key
milestones behind us, we now can
of innovation at
Chase. We are excited about what's
coming in 2016 - new product
launches, digital features, technology
and innovative marketing investments.
accelerate the pace
In my nine years at Chase, I've never
been more optimistic about where
we are and where we are headed. In
short, I wouldn't trade our hand for
anyone else's. We have a set of busi-
nesses with leadership positions that
would be very difficult to replicate.
In 2015, Chase was #1 in total U.S.
credit and debit payments volume,
the #1 wholly owned merchant
acquirer, the #2 mortgage originator
and servicer, and the #3 bank auto
lender. We also grew our deposit
volumes at nearly twice the industry
growth rate. And we continue to
deepen relationships across Chase.
Commerce Solutions
Merchant processing volume
$949
Loan originations
Deposits
Consumer Banking
Business Banking
1 Excludes Commercial Card
2 Excludes held-for-sale loans
Client investment assets (end of period)
3 Excludes write-offs of purchased credit-impaired loans
bps = basis points
Scale does not mean acting like a
"big bank." Today's customers expect
a great customer experience every-
where they do business, and banking
is no exception. We have been
intensely focused on delivering an
outstanding customer experience –
customer by customer across every
interaction branches, call centers,
chase.com and mobile banking.
-
We measure customers' satisfaction in
many ways. One key source is J.D.
Power, where Chase has made signifi-
cant progress since 2010. Our Credit
Card business now is #3, up from
#5 in 2010, and our score jumped 81
points over the same time frame. In
addition, Chase has been recognized
nationally as having the strongest per-
formance in attracting new customers,
satisfying and retaining customers,
and winning a larger share of its cus-
tomers' total retail banking business
by TNS for the third year in a row.
$101
11%
$20
6%
$7
3%
$414
$219
Loans
Deposits
(41%)
$0.3
12%
Credit Card
Auto Finance
Loan and lease originations
$32
18%
Loan and lease portfolio
$64
9%
to bring servicemen and women with
unique leadership skills and experience
– for example, in cybersecurity – to the
private sector. The more than 10,000
veterans hired by the firm have made a
demonstrable impact on our culture.
Our Business Principles laid the foun-
dation for the firm's new Leadership
Edge training program to develop out-
standing leaders and managers. This
year, senior leaders across the COO
organization were major participants
and will be going forward. We will con-
tinue to reinforce a strong sense of per-
sonal accountability and ownership for
everything we do among all employees
in all locations and at all levels.
Total mortgage originations
36%
Third-party mortgage loans serviced
$715
(9%)
Mortgage Banking
Loans
$204
11%
Mortgage Banking net charge-offs³
$106
-
57.8
The COO drove the global initiative to
establish a Culture and Conduct pro-
gram to reinforce the firm's Business
Principles across all businesses and
functions. We put it front and center
on the agenda and met with more
than 16,000 employees to hear first-
hand what drives their behavior and
to better understand how to motivate
people to do the right thing. We
implemented a comprehensive gover-
nance structure and reporting that
will allow us to monitor progress
against action plans. Our efforts are
reviewed at all levels of the organiza-
tion, up to our Board of Directors'
Compensation & Management Devel-
opment Committee, and will incorpo-
rate the development of additional
metrics, which will reflect, over time
and in aggregate, trends in the state
of our firm's culture.
I am honored to work at this company and with its outstanding
people. What they have accomplished during these often difficult
circumstances has been extraordinary. I know that if you could see
our people up close in action, you would join me in expressing deep
gratitude to them. I am proud to be their partner.
Jane Pon
Jamie Dimon
Chairman and Chief Executive Officer
April 6, 2016
51
Investing in Our Future
As one of the largest, most systemi-
cally important financial institu-
tions in the world, we are not only
a benchmark for safety and sound-
ness, we have a responsibility to
play a leadership role in advancing
the industry and its business prac-
tices. To meet the evolving needs of
our customers and clients, as well as
the global financial system more
broadly, we are committed to con-
tinually developing new solutions
while maintaining a robust and
secure infrastructure.
As the firm's Chief Operating Officer,
I am responsible for many critical
functions across the firm, including
Treasury, the Chief Investment
Office, Global Technology, Opera-
tions, Corporate Strategy, Global Real
Estate, Oversight & Control, Compli-
ance, Global Security & Military
Affairs and Regulatory Affairs,
among others. The Chief Operating
Office (COO) drives progress on ini-
tiatives that are vital to the firm's
long-term success.
Matt Zames
Creating new tools to manage our
balance sheet, liquidity and interest
rate risk
Treasury and the Chief Investment
Office are central to managing the
firm's balance sheet. Together with
our lines of business, we achieved a
tremendous amount in 2015; most
notably, we overdelivered on our
strategic efforts to decrease non-
operating deposits and meaningfully
reduce the firm's GSIB capital sur-
charge from 4.5% to an estimated
3.5% with no material impact to
our firm or our clients and, impor-
tantly, securing a new grounding
point for the firm.
-
We devoted significant attention to
studying our current business mix to
respond strategically to evolving regu-
latory requirements and to maximize
shareholder value. We introduced a
comprehensive firmwide balance
sheet framework designed to objec-
tively analyze and consider our busi-
ness activities relative to some 20 con-
straints, ranging from liquidity and
regulatory capital to GSIB and CCAR.
This framework now is being lever-
aged in strategic review and planning
sessions across the firm.
2015 featured the first rate hike by the
Federal Reserve in nearly a decade, an
event for which we have been prepar-
ing; and, while the future is never cer-
tain, we are increasingly smarter and
better prepared to manage against
whatever scenario plays out. We
expanded our capacity to run interest
rate scenarios and further industrial-
ized our processes and risk engines,
securing the foundation of our risk
management practices. In a continuing
effort to evolve our deposit pricing
framework, we completed a series of
granular reviews of our deposit models
and recalibrated to better capture
interest rate sensitivities and potential
migration outcomes as rates normalize.
In 2015, we implemented our firmwide
intraday liquidity framework, a pro-
gram that was launched last year. We
have substantially improved our ability
to manage real-time liquidity risk and
reduced the amount of intraday liquid-
ity facilities by nearly $1 trillion. We
can now, quite literally with the click of
a button, view, monitor and manage in
real time cash payments coming in or
leaving the firm. More broadly, we
remain compliant with all regulatory
required and internally measured
liquidity risk scenarios, with appropri-
ately conservative liquidity buffers.
We are a technology company
Technology is the lifeblood of our
organization, and it drives the deliv-
ery of the secure products, platforms
and services our customers and
clients value and trust. We serve
nearly 40 million digital customers
and process $1 trillion in merchant
transactions annually. Each day, we
process $5 trillion of payments, as
well as trade and settle $1.5 trillion of
securities. We see technology as an
essential core competency and a key
differentiator to drive future growth
in all of our businesses.
52
Last
year, I outlined our major tech-
nology investment areas in support of
the firm's strategy; since then, these
strategic priorities have become even
more embedded into our technology
DNA and are the focus of our invest-
ment spend. In 2015, approximately
30% of the firm's more than $9 billion
technology budget went toward new
investment. As we continue to drive
efficiency and prioritize innovation,
we intend to shift even more dollars
from "run the bank" operational activi-
ties to "change the bank” investments.
Protecting the firm
In the first eight months of 2015,
the Federal Bureau of Investigation
reported a 270% increase in fraudu-
lent wire transfers as a result of
targeted business email compromise
scams. At JPMorgan Chase, we typi-
cally identify over 200 million mali-
cious emails each month. To defend
against these and other types of
attacks, we continue to make signifi-
cant investments in building a world-
class cybersecurity operation. Globally,
thousands of employees are focused
on cybersecurity - working across the
firm and with many partners to main-
tain our defenses and enhance our
resilience to threats. We continue to
uplift standards and controls for our
third-party providers, as well as for
systems access across the firm. Three
global Security Operations Centers
monitor our systems 24 hours a day,
seven days a week, in a true "follow
the sun" model. We are embracing a
proactive, intelligence-driven approach
to detecting and preventing malicious
activity as early as possible, ideally
before the firm is even targeted. We
also are taking a prominent role in the
industry by leading a set of simulated
cybersecurity exercises with our peer
banks and other payment platforms
to ensure that we, and the broader
industry, are increasingly prepared for
new cyberattack scenarios.
IN CLOSING
Innovation successes
50
Listening carefully to each other. Make
an effort to understand when someone
is right and acknowledge it. Each of us
should read and listen to great thinkers
who have an alternative point of view.
Digital is a core part of our customer
experience. We know digitally cen-
tric customers are happier with
Chase and stay with us longer. Since
2012, nearly 100 million transactions
Digital
Similarly, our Net Promotor Score
(NPS), which tracks how many cus-
tomers would refer a friend to Chase
minus those who would not, has
increased across most businesses
most notably in Mortgage Banking
originations, where NPS has gone up
by 38 points since 2010. Finally, our
Chase Mobile app is the #1 rated
mobile banking app. However, we
will never declare "victory" in provid-
ing a great customer experience.
There always will be work to do and
areas where we aren't getting it totally
right. But we feel extremely proud of
the significant progress we've made
and our upward momentum.
Our current inability to work together in
addressing important, long-term issues. We
have spoken many times about the extraor-
dinarily positive and resilient American
economy. Today, it is growing stronger, and it
is far better than you hear in the current polit-
ical discourse. But we have serious issues that
we need to address - even the United States
does not have a divine right to success. I won't
go
into a lot of detail but will list only some
key concerns: the long-term fiscal and tax
issues (driven mostly by healthcare and Social
Security costs, as well as complex and poorly
designed corporate and individual taxes),
immigration, education (especially in inner
city schools) and the need for good, long-
term infrastructure plans. I am not pointing
fingers at the government in particular for our
inability to act because it is all of us, as U.S.
citizens, who need to face these problems.
I do not believe that these issues will cause a
crisis in the next five to 10 years, and, unfor-
tunately, this may lull us into a false sense
of security. But after 10 years, it will become
clear that action will need to be taken. The
problem is not that the U.S. economy won't
be able to take care of its citizens - it is that
taking away benefits, creating intergenera-
tional warfare and scapegoating will make
for very difficult and bad politics. This is a
tragedy that we can see coming. Early action
would be relatively painless.
The potential exit of Britain from the European
Union (Brexit). One can reasonably argue that
Britain is better untethered to the bureau-
cratic and sometimes dysfunctional European
Union. This may be true in the long run, but
let's analyze the risks. We mostly know what
it looks like if Britain stays in the European
Union - effectively, a continuation of a more
predictable environment. But the range of
outcomes of a Brexit is large and potentially
unknown. The best case is that Britain can
quickly renegotiate hundreds of trade and
other contracts with countries around the
world including the European Union. Even
this scenario will result in years of uncer-
tainty, and this uncertainty will hurt the
economies of both Britain and the European
Union. In a bad scenario, and this is not the
worst-case scenario, trade retaliation against
Britain by countries in the European Union
is possible, even though this would not be
in their own self-interest. Retaliation would
make things even worse for the British and
European economies. And it is hard to deter-
mine if the long-run impact would strengthen
the European Union or cause it to break
apart. The European Union began with a
collective resolve to establish a political union
and peace after centuries of devastating wars
and to create a common market that would
result in a better economy and greater pros-
perity for its citizens. These two goals still
exist, and they are still worth striving for.
We need a proper public policy response to
technology, trade and globalization. Technology
and globalization are the best things that ever
happened to mankind, but we need to help
those left behind. Technology is what has
driven progress for all mankind. Without
it, we all would be living in tents, hunting
buffalo and hoping to live to age 40. From
printing, which resulted in the dissemina-
tion of information, to agriculture and to
today's computers and healthcare - it's an
astounding phenomenon - and the next
100 years will be just as astounding.
The world and most people benefit enor-
mously from innovative ideas; however,
some people, some communities and
some sectors in our economy do not. As
we embrace progress, we need to recog-
nize that technology and globalization can
impact labor markets negatively, create job
displacement, and contribute to the pay
disparity between the skilled and unskilled.
Political and business leaders have fallen
short in not only acknowledging these chal-
lenges but in dealing with them head on.
We need to support solutions that address
the displacement of workers and communi-
ties through better job training, relocation
support and income assistance. Some have
suggested that dramatically expanding the
earned income tax credit (effectively, paying
people to work) may create a healthy and
more egalitarian society. Also, we must
address an education system that fails
millions of young people who live in poor
communities throughout the United States.
49
The answer to these challenges is not to
hold back progress and the magic of tech-
nology; the answer is to deal with the facts
and ensure that public policy and public
and private enterprise contribute to a
healthy, functioning and inclusive economy.
At JPMorgan Chase, we are trying to
contribute to the debate on public policy.
One new way we are doing this is through
the development of our JPMorgan Chase
Institute, which aims to support sounder
economic and public policy through better
facts, timely data and thoughtful analysis.
Our work at the Institute, whether analyzing
income and consumption volatility, small
businesses, local spending by consumers or
the impact of low gas prices, aims to inform
policymakers, businesses and nonprofit
leaders and help them make smarter deci-
sions to advance global prosperity.
What works and what doesn't work.
We are deeply focused on recruiting
top talent and training our next gen-
eration of leaders across the firm. In
addition to our efforts to source
tomorrow's technologists, our veter-
ans' recruitment program continues
What doesn't work:
Treating every decision like it is binary -
my way or your way. Most decisions are
not binary, and there are usually better
answers waiting to be found if
you do the
analysis and involve the right people.
Drawing straw men or creating scape-
goats. These generally are subtle attempts
to oversimplify someone's position in
order to attack it, resulting in anger,
misunderstanding and mistrust.
Denigrating a whole class of people or
society. This is always wrong and just
another form of prejudice. One of the
greatest men in America's history, Presi-
dent Abraham Lincoln, never drew straw
men, never scapegoated and never deni-
grated any class of society - even though
he probably had more reason to do so
than many. In the same breath, some of
our politicians can extol his virtues
while violating them.
Equating perception with reality. This is a
tough one because you have to deal with
both perceptions and reality. However,
perceptions that are real are completely
different from perceptions that are false.
And how you deal with each of them prob-
ably should differ.
Treating someone's comments as if
they were complaints. When someone's
response to an issue raised is "here they
go complaining again," that reaction
diminishes the point of view and also
diminishes the person. When a person
complains, you need to ask the question:
"Are they right or are they wrong?" (If you
don't like the person's attitude, that is a
different matter.)
What does work:
Collaborating and compromising. They
are a necessity in a democracy. Also, you
can compromise without violating your
principles, but it is nearly impossible to
compromise when you turn principles
into ideology.
Constantly, openly and thoroughly
reviewing institutions, programs and
policies. Analyze what is working and
what is not working, and then figure out
together - how we can make it better.
We strive to be at the forefront of
our industry and invest tremendous
resources in new technologies. Here
are a few examples of the impact of
innovation in our major technology
In my job, I am fortunate to be able to travel
around the world and to meet presidents,
prime ministers, chief executive officers,
nonprofit directors and other influential civic
leaders. All of them want a better future for
their country and their people. What I have
learned from them is that while politics is
hard (in my view, much harder than busi-
ness), breeding mistrust and misunder-
standing makes the political environment far
worse. Nearly always, collaboration, rational
thinking and analysis make the situation
better. Solutions are not always easy to find,
but they almost always are there.
DIGITAL LEADERSHIP
Digital payments
the way we do business for the better.
These relationships often develop into
strategic partnerships, and, where we
think it makes sense, we are making
capital investments in these companies
to drive our mutual success. An exam-
ple of this is our recent investment in a
new blockchain startup, where we are
partnering to explore opportunities for
distributed ledger technology. We are
developing solutions for multiple block-
chain use cases, including single-name
credit default swap settlement and
internal network payments. We are
founding members of the open source
Hyperledger Project, collaborating
across the industry to enhance distrib-
uted ledger capabilities globally.
We continue to do business in
smarter ways
In 2015, we realized savings by effec-
tively leveraging, streamlining and
optimizing our platforms, resources
and real estate assets. Doing business
in smarter ways often means simplify-
ing the environment so that we can
focus our attention and spending on
new investments.
Some of our key initiatives to increase
efficiencies and reduce costs include:
.
•
Location strategy: We are driving
the co-location of our technology
professionals into 13 strategic hubs
to optimize our real estate footprint
and reduce costs. The hubs are
adopting cutting-edge, open work-
that resemble Silicon Valley,
spaces
equipped with state-of-the-art tech-
nology to promote collaboration
and creativity, resulting in our firm
being rated among the top employ-
ers of choice for technology talent
in financial services.
Vendor rationalization: We are
progressing our preferred vendor
program across technology - last
year, we reduced the number of
vendors we use for core technology
project services by 40%.
54
•
•
Legacy applications: We simplified
our technology environment and
decreased operational risk through
our Kill the Tail initiative to reduce
applications across the firm. In 2015,
we decommissioned 13% of our
legacy applications and expect to
decrease this population by a total
of 25% by the end of 2018.
Stability: In 2015, we continued to
achieve more resilient and stable
applications, resulting in a 65%
reduction of technology production
incidents over the last two years.
Our businesses function independently
but with greater connectivity, transpar-
ency and consistency than ever before.
The significant improvements to our
control environment over the past
three years have become part of our
everyday operating model. By the end
of April, we will have completed work
on all 19 enterprise-wide programs
established to tackle our top control
issues and integrated them into stan-
dard business operations. We are work-
ing hard to deliver on milestones to get
more of our outstanding consent orders
lifted by our regulators.
The Risk & Control Self-Assessment
(RCSA) program, a key component of
the firm's Operational Risk Manage-
ment Framework, is completing its
third cycle and has become fundamen-
tal to how our businesses identify and
manage operational risks and assess the
adequacy of their controls. This year, we
integrated conduct risk measures into
the RCSA, taking a disciplined approach
to how we build and evaluate controls
around employee conduct. During 2016,
we will begin to replace the current plat-
form used to support operational risk
management with a new system called
FORCE. FORCE will increase opera-
tional efficiency by driving a simpler
and more effective user experience, as
well as introducing a more agile tech-
nology infrastructure.
In Compliance, we enhanced our sur-
veillance to detect potential employee,
client or counterparty market miscon-
duct by implementing e-communica-
tions surveillance in seven languages
across 39 communications channels.
We also extended our transaction sur-
veillance across all asset classes in our
Markets businesses. We broadened
our strategic Anti-Money Laundering
transaction monitoring platform to
transactions in cash, checks, wires,
ACH and prepaid cards across 35
booking locations globally, enabling us
to decommission 12 legacy monitoring
tools and systems.
We will continue to invest in our
people and our culture
investment areas:
We also partner with some of the
brightest minds in the industry on
developing solutions. In 2015, we
engaged with more than 300 technol-
ogy startups and piloted over 100
technologies, 50% of which now are
in production. Many potential solu-
tions will fail, but we recognize the
value of experimentation and know
that even if only a handful are suc-
cessful, we can dramatically change
two years.
Our control environment remains
paramount
How we innovate
We are leading the future of pay-
ments. Chase QuickPay® offers conve-
nient and nimble person-to-person
payment solutions for consumers.
In addition, this year, we will launch
Chase PaySM to create a new digital
wallet and mobile payment experi-
ence in partnership with many of the
largest retail merchants in the coun-
try. For corporate clients, J.P. Morgan
ACCESS® now provides the ability to
execute international payments in
more than 120 currencies any time of
the day through multiple channels.
We are firmly committed to develop-
ing our 40,000 technologists around
the world. In 2015, our technology
workforce consumed more than
1 million hours of training to further
advance their technical, management,
leadership and business skills. We rec-
ognize that sustained technology lead-
ership comes from a robust, diverse
talent pipeline. To build this pipeline,
we engage extensively with high school
and college students through on-
campus visits, as well as by hosting
coding and design challenges at our
sites. In 2015, we selected 650 technol-
ogy analysts to join our two-year pro-
gram from an applicant pool of more
than 7,000. The program starts with a
six-week boot camp, with nearly 250
hours of training, and is augmented
with 65 additional hours over the next
Digital platforms
We are in the process of rolling out a
brand new chase.com platform that
will enable us to increase the pace of
innovation and deliver simple, person-
alized customer experiences. We con-
tinue to improve our industry-leading
Chase Mobile app with new features
and functionality to allow our custom-
ers to bank with us anytime and from
anywhere. We have continued to en-
hance our award-winning J.P. Morgan
MarketsⓇ platform to differentiate
our Corporate & Investment Bank
for example, trading volume on the
execute foreign exchange (FX) trad-
ing app increased by more than 80%
last year, helping the firm grow its
share of the electronic FX market.
Our new Chase ATMs will be able
to perform roughly 90% of teller
transactions and are being rolled out
across our branch network. They will
include innovations such as cardless
authentication at an ATM using the
Chase Mobile app - that means more
transaction flexibility and simpler
customer experiences that work seam-
lessly with our other digital channels.
DATA AND ANALYTICS
Our customers, clients and communi-
ties - as well as the firm - significantly
benefit from big data technologies
and improved data management
practices across our businesses.
Enabling customers and clients
Last year, in our Custody and Fund
Services business, we introduced NAV-
Explain, an industry-first solution that
puts key insights about underlying
fund activity and asset holdings at the
fingertips of fund accountants. This
solution reduces errors and expense,
improves productivity and provides
a far superior client experience.
Digitally enabled branches
Expert insights for the public good
Our unique proprietary data, expertise
and market access position the firm to
help solve issues in the broader econ-
omy. The JPMorgan Chase Institute
offers decision makers across the pub-
lic and private sectors access to the
firm's real-time data and analytics to
tackle economic problems, from the
effect of income and consumer spend-
ing volatility on individual Americans
to the impact of local consumer
trends on neighborhoods.
53
CLOUD INFRASTRUCTURE
-
Over the last few years, we have built
an efficient private cloud environ-
ment within our data centers to run
the firm's diverse portfolio of applica-
tions. Today, approximately 90% of
new infrastructure demand is hosted
within our cloud environment
streamlining support, improving utili-
zation and accelerating delivery. To
further drive value for our businesses,
we conducted an initial public cloud
pilot and identified several target use
cases to complement our private
cloud. One use case addresses busi-
ness-driven fluctuations in computing
demand with a virtually limitless sup-
ply of infrastructure made available
when we need it, reducing long-term
capital investments. To lower storage
costs, we are evaluating the potential
to store infrequently accessed data
securely in the cloud. Our strategic
vision is to embrace a hybrid cloud
model in which internal and external
resources are made available on
demand. We are partnering with lead-
ing providers to create a world-class
environment without compromising
our standards for security.
Providing the optimal environment
for our developers to concentrate on
creating new products and solutions
is a priority. We are defining best-in-
class development practices for the
thousands of men and women writ-
ing code at the firm – to accelerate
delivery, improve quality and drive
efficiency. We also have equipped our
high-performance development envi-
ronments with industry-leading capa-
bilities, including continuous integra-
tion, automated deployment and
security scanning. The vitality of our
developer community has never been
so important to ensuring our future.
UNIFIED COMMUNICATIONS
We are bringing the look, feel and
experience of consumer technology
into the enterprise environment to
transform the way our 235,000
employees work. More than 100,000
employees now use their personal
mobile devices to securely access
business applications, offering them
the freedom and flexibility to be pro-
ductive on the go. In addition, invest-
ments in real-time collaboration tools
allow teams to communicate seam-
lessly across the globe. For example,
this year, we engaged in more than
90 million minutes of video confer-
encing across 125,000 video-enabled
endpoints making JPMorgan Chase
one of the largest users of enterprise
video collaboration in the world.
Identifying new business opportunities
Innovative analytics capabilities are
helping us uncover new business
opportunities. For example, we are
analyzing broad sets of publicly avail-
able and proprietary data to better
predict the financing needs of our
clients. In Commercial Banking, our
sales teams have begun using a new
data-driven tool to more effectively
engage prospective clients - we expect
this tool to identify more than 10,000
new prospects in the United States.
DEVELOPER PRODUCTIVITY
82%
81%
87%
Fixed Income
78%
68%
72%
Multi-Asset Solutions
94%
84%
Total¹
Equity
78%
77%
10-Year
Our longevity has helped us earn a
level of client trust and a depth of
investment experience and expertise
that are difficult to replicate. Our
advisors have stood side by side with
clients during their most promising
and most trying times. That's why the
relationships we have built endure.
In fact, in 2016, we have 260 families
celebrating their 75th or greater anni-
versary of working with us.
3-Year
80%
66
2 Through-the-cycle (TTC), 2008-2015 average.
bps = basis points
Asset Management
Success as an asset manager begins
with two characteristics: longevity
and consistency. Clients want to
know that you are committed to the
business for the long term, and
they expect a proven track record
for outperformance.
5-Year
At J.P. Morgan Asset Management, we
have been building a client-first, fidu-
ciary culture for more than 180 years,
working with an increasingly diverse
group of institutions and individuals
in more than 130 countries to help
them manage their money.
Mary Callahan Erdoes
with the firm for at least 15 years,
including nearly 1,000 who have
been with the firm for 25 years or
more. We also have had tremendous
consistency among our top senior
% of 2015 AUM Over Peer Median¹
(net of fees)
portfolio management talent, with a
retention rate greater than 95%.
These portfolio managers have
managed through market peaks and
valleys - and all the volatility that
comes in between. They understand
what it means to invest for the long
term and are able to look past market
noise to make smart investment
decisions that are grounded in deep
research and local insights and that
generate alpha for our clients.
Superior investment performance
driving strong financial results
A global team with a proven track record
and commitment to innovation
Our more than 600 portfolio manag-
ers work closely with our 250
research analysts and 30 market strat-
egists in Global Investment Manage-
ment (GIM) to form the foundation of
our investments platform. Each of
them wakes up every day thinking
In addition to long-standing clients,
we have many long-tenured employ-
ees: More than 3,300 of our Asset
Management colleagues have been
84%
10-year average alpha 27 bps (28th percentile)
67
KEY, PNC, USB, WFC.
68
For additional important information, please refer to the Investor Day presentation's notes appendix beginning on slide 23.
Data as of 12/31/15. Percentage outperformance vs. benchmark based on rolling 5-year monthly periods going back 10 years (or since fund inception in 2006 for SmartRetirement 2030). All excess returns
calculated vs. primary prospectus benchmarks. Category percentile ranks are calculated vs. respective Morningstar categories. Institutional share classes used for Disciplined Equity and SmartRetirement 2030.
Select share class used for Core Bond. All performance is net of fees.
2011-2015 rolling 5-year periods ▸
2010-2015 rolling 5-year periods ▸
2010-2015 rolling 5-year periods ▸
Outperformed benchmark 100% of the time
Outperformed benchmark 98% of the time
Outperformed benchmark 97% of the time
Average alpha 83 bps since inception (1st percentile)
SmartRetirement 2030 Fund
Core Bond Fund
10-year average alpha 40 bps (11th percentile)
Disciplined Equity Fund
Investment Process Has Led to Strong Results vs. Benchmark and Peers
Technology also enables us to be
more efficient across our business,
about how to capitalize on market
opportunities for our clients – a group
that includes 60% of the world's larg-
est pension funds, sovereign wealth
funds and central banks.
At the end of 2015, 84% of our
10-year, long-term mutual fund assets
under management (AUM) ranked in
the top two quartiles. That collective
performance is complemented by
equally strong asset class performance
in Equity (87%), Fixed Income (77%)
and Multi-Asset Solutions (84%),
resulting in a record 231 of our mutual
funds earning a four- or five-star rat-
ing and positive client asset flows
every year since 2004.
In addition to our existing suite of
mutual funds, we remain focused on
product innovation. In 2015, we intro-
duced 40 new funds. At the same
time, we closed down or merged 37 to
help ensure that we are offering an
optimized portfolio of products to our
clients and that they are benefiting
from our best performance.
Strong financial performance
Our consistently strong investment
performance is one of the primary
reasons we have been able to con-
tinue to produce strong financial
results for shareholders. In 2015,
Asset Management generated
record revenue of $12.1 billion in
a challenging environment.
For footnoted information, refer to slide 25 in the 2016 Asset Management Investor Day presentation, which is
available on JPMorgan Chase & Co.'s website at https://www.jpmorganchase.com/corporate/investor-relations/
event-calendar.htm, under the heading JPMorgan Chase 2016 Investor Day, Asset Management, and on Form 8-K
as furnished to the SEC on February 24, 2016, which is available on the SEC's website at www.sec.gov.
It also is the reason we have been
able to grow our AUM and client
assets consistently. Since 2010, our
assets under management have
increased by an annual rate of 6% to
$1.7 trillion, and our client assets have
grown 5% annually to $2.4 trillion.
Investing in talent and technology
Talent and technology continue to be
at the center of our success, both
today and in the future. We need to
have the best people on the ground
and ready to work with clients
wherever they need our solutions
and expertise. And those people need
to be armed with technology tools
that enable them to serve clients
efficiently and effectively.
Training top advisors
As a business, we are constantly edu-
cating our advisors to ensure that
they are at the forefront of industry
trends and important compliance
and controls issues. Last year, over
850,000 hours of training were com-
pleted across more than 750 Asset
Management programs. This compre-
hensive curriculum covers topics rang-
ing from markets and economy to
product innovation to understanding
cybersecurity to regulatory changes
and additional advisory skills.
Improving the client experience
Technology is playing a critical role in
improving the client experience. For
example, Global Wealth Management
(GWM) is developing a digital strat-
egy that will enable clients to engage
with us how and when they want,
using the channels they want. Our
goal is to complement the advice and
solutions our people offer with tools
for clients that want to interact or
consume our thought leadership in
new ways.
Increasing efficiency
The credit side of our business con-
tinues to be an important driver of
our growth, with both loan balances
(excluding mortgages) and mortgage
balances reaching record levels of
$84 billion and $27 billion, respec-
tively, in 2015.
1 Peer averages include CB-equivalent segments or wholesale portfolios at BAC, CMA, FITB,
$469 million in Card Services
revenue³
2015
0.15%
Building on our capital strength, the
CIB is focused on optimizing capital
across multiple regulatory con-
straints in order to deploy our
resources profitably. We have a
proven track record of being able to
execute on capital optimization but
in
relationships by being attuned to
the various ways they want to work
with us.
A forward-looking approach
Looking ahead, we have been invest-
ing in the technology and infra-
structure that will ensure we retain,
expand and improve on our client
J.P. Morgan to be our clients' safe
haven, whether in times of volatility
or stability. While this is an impor-
tant and essential role, our culture
also demands we serve our clients
with integrity and provide the best
advice, talent and appropriate portfo-
lio of products. To that end, we
discuss our culture openly in various
forums and regularly ask employees
for feedback to understand what we
do well and ways we can do better.
Thousands of employees have
participated in focus groups, and
we conduct training to ensure we
consistently instill best practices and
stay true to our principles in all of
our dealings.
The CIB's scale, completeness
and global network have enabled
62
The Equities business was strong in
2015 despite increased competition.
According to Coalition, our revenue
growth of 13.5% last year and 28.4%
since 2011 exceeded the overall
market's growth in both periods.
Over the past five years, our Equi-
ties business has outperformed the
#1 competitor in revenue growth,
according to Coalition. To accelerate
this progress, we strengthened the
relationship between the Prime
Brokerage and Equities businesses,
integrating the leadership and its
offerings. Equities also is making a
great deal of progress on the optimi-
zation front by investing in a client
profitability engine and other ana-
lytical tools that improve our ability
to monitor and utilize the CIB's
balance sheet.
We intend to strengthen our #1 posi-
tion in Fixed Income by closing the
few regional and product gaps that
exist. We're sometimes asked: "Why
not reduce the Fixed Income busi-
ness?" The answer: The business
delivers a solid 15% return to share-
holders. Additionally, our ability to
serve the needs of our Fixed Income
clients helps ensure a broad-based
relationship that earns business
across products.
Merger and acquisition activity, a
highlight in 2015, is expected to
remain strong. Despite the challeng-
ing year for Fixed Income, we
were able to increase our market
share by 170 basis points, according
to Coalition.
grew Investment Banking revenue
from $1 billion to $2 billion, and last
year, we gained another 10%, gener-
ating $2.2 billion.
Sustaining our strength in Global
Investment Banking has enabled us
to deliver the entire firm. J.P. Morgan
has distinguished itself with its
clients by integrating our product
and coverage teams to deliver seam-
less solutions. In just one example,
the CIB and Commercial Banking
have continued to collaborate so that
midsized firms can benefit from the
differentiated services offered within
the Investment Bank. As a result of
that collaboration with Commercial
Banking, between 2008 and 2014, we
We will continue to invest strategi-
cally in talent to cover key growth
sectors, such as technology, media and
telecommunications, and healthcare.
In addition, we are investing in
countries, such as Germany, the
United Kingdom and China, build-
ing a talent base where we see the
greatest long-term opportunities.
Another focus will be to effectively
deploy capital by undertaking a
comprehensive view of our clients,
taking into account capital and
liquidity utilization, pricing terms
and overall profitability.
We are in a competitive business. We
must be willing to adapt to changing
environments and not be content to
rest on the laurels earned in previous
years. We intend to target sectors
and countries where we see expan-
sion opportunities.
2016 strategies
build on our world-class capabilities
in Emerging Markets, which already
encompasses more than 75 emerging
and frontier markets worldwide.
Additionally, we are focused on
driving process automation and
standardization across the operating
model while investing in analytical
tools and capabilities to meet increas-
ing demands for data transparency
and integration across products.
As clients expand their product
ranges, asset classes and distribution
channels, we will be able to drive
future growth through investments
in high-growth areas, such as
exchange-traded funds, alternatives
and derivatives. We will continue to
With nearly $20 trillion in assets
under custody, Custody and Fund
Services is strategically important to
the CIB. According to consulting
firms and our internal analysis, the
Custody and Fund Services revenue
pool is expected to grow from $38
billion as of 2014 to $54 billion by
about 2020. The business generates
significant, sustainable revenue; pro-
duces a through-the-cycle operating
margin of more than 25%; and pro-
vides about $100 billion in operating
deposits, which supports the firm's
liquidity and balance sheet positions.
The Custody and Fund Services
business provides custody, fund
accounting and post-trade services.
The long-term prospects for the busi-
ness are strong, driven by growth
in institutional assets under manage-
ment, globalization of asset flows,
desire for higher efficiencies and
innovation across the value chain.
Investing in Custody and Fund
Services to build on strong market
position
Treasury Services has a platform that
is difficult to replicate and offers
holistic client coverage. Our unique
capabilities in advisory and account
structuring position J.P. Morgan
well to serve the growing number
of global multinationals that have
complex needs across regions,
countries and currencies.
61
According to consulting firms and
our internal analysis, the Treasury
Services revenue pool is expected to
grow from $144 billion as of 2014 to
around $280 billion by about 2024.
The cross-border business has
grown
13% in the past three years and,
while we have a strong existing
franchise, significant opportunities
still remain. As global commerce
becomes increasingly intercon-
nected, multinational clients will
extend their operations across more
borders. Our ability to scale our
services to their needs for efficient
payment systems, additional hedging
solutions and foreign exchange
products will help drive solid growth
in our Treasury Services business.
A noteworthy success last year
was our rigorous effort to reduce
non-operating deposits by $75
billion out of the CIB's overall
$130 billion reduction.
In all, Treasury Services has about
14,000 wholesale clients, including
Commercial Banking's roster, and
handles $5 trillion in payments per
day. Treasury Services also ranks #1
in global U.S. dollar wire transfers.
The business landscape, fragmented
by multiple players, creates an
opportunity for the consolidation
of market share as clients look for
global solutions.
Treasury Services: An integral
contributor to the CIB's growth
Global multinational companies
require an international bank, partic-
ularly as the growth in cross-border
trade requires a sophisticated roster
of services. J.P. Morgan's Treasury
Services business ranks #2 globally
and supports about 80% of the
global Fortune 500, including the
world's top 25 banks.
We launched a technology platform
for chief financial officers and corpo-
rate treasurers, J.P. Morgan Corporate
Finance Dashboard, to provide mobile
access to customizable market infor-
mation and live desk commentary
through J.P. Morgan Markets. In
addition, we have introduced a
version of J.P. Morgan QuickPay to
speed electronic payment capabili-
ties for corporate clients.
ways that carefully consider the
impact on clients. Long term, the
approach is to identify ways to maxi-
mize returns while adhering to the
risk, liquidity and leverage standards
governing the CIB.
The CIB has maintained its strength
while adjusting to the inevitable
market shifts and by remaining true
to its overriding model. We were
able to withstand the headwinds of
2015 on the strength of a business
model that takes advantage of scale,
completeness and the reach of a
global network. Last year's chal-
lenges consisting of market volatil-
ity, geopolitical events, uncertain
moves in commodity prices and a
slowdown in emerging markets,
among others - have carried over
into 2016.
We are confident that our business
model will continue to be successful
in the coming year and beyond. We
are committed to remaining a global
investment bank with a complete
range of products. And by embracing
technology, we intend to mine the
efficiencies of digital capabilities
while improving the services we can
provide to clients.
Above all, we know that our leader-
ship is only one way to measure how
well we serve our clients. As was the
case last year, our top priority is to
help our clients achieve their objec-
tives backed by the best products
and services we can provide. In the
end, our clients' success is the true
measure of ours.
Our partnership with the Corporate &
Investment Bank (CIB) is a fantastic
example of where our broad-based
capabilities differentiate us with our
clients. With dedicated investment
banking (IB) coverage, we've deepened
our client relationships by providing
important strategic advice and capital
market access. This successful partner-
ship has consistently delivered record
IB revenue for CB clients, growing
to $2.2 billion in 2015. Notably, we
achieved this even while overall indus-
try IB revenue contracted last year.
Being a part of JPMorgan Chase gives
us unmatched capabilities to serve our
clients. No other commercial bank has
both our strong client franchise and the
ability to offer the number one invest-
ment bank, a leading asset management
franchise, comprehensive payments
solutions and an extensive branch net-
work. Bringing these robust services to
all of our clients, as we did with Shake
Shack, provides us with unique competi-
tive advantages and the opportunity to
build deep, enduring relationships.
Franchise strength
To set the standard in the industry, we
continued to enhance our regulatory and
control capabilities. While we have more
to do, we are quite proud of the tremen-
dous progress we have made in further
safeguarding our clients and our busi-
ness. Our fortress risk and compliance
principles serve to guide us every day.
feel very well-positioned as we closely
monitor market conditions.
With our disciplined underwriting
and proven credit model, CB's credit
performance remained exceptional
in 2015, marking the fourth straight
year of net charge-offs less than 10
basis points. While certain areas of
the economy are facing challenges,
such as the energy and commodities
sectors, CB's overall loan portfolio
remains in excellent shape, and we
For the year, Commercial Banking
(CB) produced strong results, with
$6.9 billion of revenue, $2.2 billion of
net income and a return on equity of
15%. Loan growth across the business
was robust, ending 2015 with record
loan balances of $168 billion, up $19
billion from the prior year. Our Mid-
dle Market business grew loans for
the sixth consecutive year, and our
Commercial Real Estate businesses
continued to deliver record results.
2015 performance
addressed significant changes in our
industry, we remained focused on our
clients and worked hard to bring value
to our relationships. This continues
to guide our strategy and how we do
business, and I'm excited to share our
2015 results and our plans for 2016.
Douglas Petno
Danny Meyer's vision to update the
classic burger and milk shake stand
began in 2001 with a humble hot dog
cart built to raise funds for a public
park in New York City. In 2009,
amidst a turbulent market and an
uncertain economy, Meyer needed a
partner to help grow Shake Shack, his
fine-casual dining concept. Recogniz-
ing their team's passion, track record
and management talent, our bankers
supported CEO Randy Garutti and the
growing company with a loan at a
critical time. Marking another impor-
tant milestone, Shake Shack selected
our firm to lead its successful initial
public offering on the New York
Stock Exchange in January 2015.
Today Meyer, Garutti and the entire
Shake Shack team are bringing this
community-gathering experience to
devoted fans across the globe. We are
incredibly proud of our client's suc-
cess and deeply appreciate the trust
and confidence they placed in us.
Building the best commercial bank
has one principle at its core: standing
by all of our clients, like Shake Shack,
and providing unwavering support
even in difficult times. While we have
Commercial Banking
Technology already is benefiting our
businesses: In Rates, electronic client
revenue was up 47% year-over-year;
in Equities, the gain was 27%. And
the cost trade has shrunk
per
between 30% and 50% since 2011,
depending upon the asset class.
63
Treasury Services handles $5
trillion in payments per day.
The Treasury Services business
supports approximately 80% of
the global Fortune 500, includ-
ing the world's top 25 banks.
Reduced non-operating deposits,
level 3 assets and over-the-
counter derivative notionals,
which helped reduce our esti-
mated GSIB capital surcharge
from 4.5% to 3.5%.
The CIB's leadership and role as
a trusted partner to our clients
helped drive the firm's total
merger and acquisition volume
to $1.5 trillion.
Raised $1.4 trillion of capital
for clients. Of that amount,
$55 billion was on behalf of
nonprofits and government
entities, such as state and local
agencies and institutions.
The CIB has embarked on a major
effort to embrace technology in order
to offer clients a broader array of
trading platforms in which to transact
with J.P. Morgan.
Banking fees with a 7.9% market
share, according to Dealogic, and
ranked in top-tier positions in 16 out
of 17 product areas across the CIB,
according to Coalition.
Ranked #1 in Global Investment
2015 HIGHLIGHTS AND ACCOMPLISHMENTS
CEO, Corporate & Investment Bank
Daniel Pinto
Jenny
Custody and Fund Services
has nearly $20 trillion in
assets under custody.
Executing our disciplined growth
strategy
In addition, we are embedding tech-
nologists within our product groups
and strengthening our partnerships
with in-house teams to explore ways
to broaden our use of newer technol-
ogies, such as distributed ledgers,
machine learning, big data and cloud
infrastructure. We are also building
Financial Technology Innovation
Centers, as well as launching a resi-
dency program and inviting startup
firms to work with us on break-
through, scalable technologies.
Our clients count on us to deliver
immediate access to strategic advice,
markets and solutions using the
most efficient means possible. To
meet their expectations, we are
embracing structural market changes
and developing state-of-the-art elec-
tronic trading capabilities across a
broad range of products.
Across CCB, we feel very well-
positioned for the future. The CCB
leadership team and I are so proud
to serve our customers and share-
holders and to lead this exceptional
business. Thank you for your invest-
ment in our company.
Conclusion
We always are evaluating other
potential partners, and where it
makes sense to collaborate, white
label or directly acquire, we will do
so if we think it gives our customers
a better experience and makes Chase
stronger for the future. We can't get
complacent for a minute, but with
our loyal customer base of nearly
58 million households and the ability
to invest, partner and innovate, we
will be very hard to truly disrupt.
real-time approvals for small dollar
loans. Once approved, our business
customers will get next-day - or, in
many cases, same-day - funding to
run and grow their businesses. We'll
still apply our same strong credit
standards but will give our custom-
ers a disruptively easy experience
and working capital product they
have been asking for.
#1 credit card issuer in the U.S.
based on loans outstanding
#1 rated mobile banking app
#1 most visited banking portal in
the U.S. - chase.com
twice the industry rate
Deposit volume growing at nearly
#1 in primary bank relationships
in our Chase footprint
almost half of U.S. households
•
.
• Consumer relationships with
2015 HIGHLIGHTS AND ACCOMPLISHMENTS
In addition, we explored partner-
ships and have found that many of
these new companies are excited to
work with us. Often there is a great
fit for both sides - we can quickly
apply their technology to benefit our
customers, and these companies
strengthen and grow from working
with Chase. As an example, we
announced a collaboration with an
online business lender to help us cre-
ate a new small business solution for
quick access to working capital. This
new, entirely digital offering, Chase
Business Quick CapitalSM, will provide
Our strategy is to take that customer
insight to heart and strive to create
simple, largely digital experiences.
Last year alone, we introduced sev-
eral innovations. We were one of the
first U.S. banks to introduce touch
ID log-in for customers using the
Chase Mobile app on their iPhone.
We posted credit score information
online for our Slate® customers and
created a mobile app for our popular
Chase Freedom® rewards card. We
began to move customers to a new
chase.com site, which is easier and
faster for customers to use, and we
started using a digital token instead
of a customer's account number to
more securely authorize transactions.
exceptional experience or user inter-
face that customers like. Across indus-
tries, whether retail, transportation or
banking, companies have excelled at
removing customer pain points with
simple experiences. The experience
itself has created loyalty.
Competition is changing. We not
only have to compete with the large
and formidable competitors we
always have but also with new market
entrants both big and small. Large
technology companies, like Apple and
Google, are getting into the payments
space, and every day, new companies
are emerging to compete with subseg-
ments of our businesses. Many of
these disruptors are tapping into an
Build, partner or buy
The economics on most partner
relationships in the industry are com-
pressing, but they still are significant
revenue generators for us and are a
strong component of our growth. Co-
brand new account volumes increased
almost 40% from 2012 to 2015. In
Auto Finance, we renewed a core part-
nership with Mazda North American
Operations, the U.S. sales arm for
Mazda vehicles, where we have been
its finance partner since 2008. We
also began a multi-year relationship
with Enterprise Car Sales to finance
consumers purchasing rental-fleet
vehicles, as well as other vehicles,
from more than 130 U.S.-based loca-
tions around the country.
- Amazon, United Airlines and South-
west Airlines. All have been longtime
partners, and our customers continue
to highly value these cards.
Over the past year, we announced or
renewed several significant partner-
ships. In our Credit Card business, we
renewed three key co-brand partners
Partnerships
0.01%
Garden
Gordon Smith
CEO, Consumer & Community Banking
•
Technology and innovation are
embedded in all of our businesses
The CIB accounts for a significant
portion of the firm's more than
$9 billion technology budget.
During 2015, we helped clients raise
$1.4 trillion of capital. Of that amount,
$55 billion was for nonprofits and
government entities, such as state and
local agencies and institutions.
While making these business adjust-
ments, we never lost our client focus.
Once again, J.P. Morgan ranked #1
in Global Investment Banking fees,
according to Dealogic, with a 7.9%
market share. In addition, the CIB
ranked in top-tier positions in 16 out
of 17 product areas, according to
Coalition, another industry analytics
firm. For example, Equity Capital
Markets ranked #1, up from #2 in
2014. In Fixed Income Markets,
Securitization and Foreign Exchange
also moved up, garnering top-tier
positions last year. In Equity Markets,
we are making progress in Cash
Equities, having gained 90 basis
points in market share compared
with 2014. Our consistently high
rankings and progress are a result
of the trust our clients place in us
year after year.
60
Throughout the year, we identified
ways to redeploy resources in order
to maximize shareholder returns.
For example, we reduced non-
operating deposits, level 3 assets and
over-the-counter derivative notion-
als, all while minimizing the impact
to clients. These actions helped to
lower the firm's estimated global
systemically important bank (GSIB)
capital surcharge from 4.5% to an
estimated 3.5%. This was a signifi-
cant undertaking and demonstrated
our ability to adapt nimbly to the
changing regulatory landscape.
Our ability to maintain expense
discipline, while absorbing
increased regulatory and control
costs, was demonstrated by our
success this year in achieving a
reduction of $1.6 billion in expenses
toward our previously stated
$2.8 billion target by 2017.
The Fed's long-awaited move
to tighten interest rates.
Geopolitical challenges.
•
⚫ Persistently low global interest
rates, weakening credit markets
and liquidity challenges.
Slower emerging markets growth,
particularly in natural resource-
driven economies.
over:
Our technology commitment is
unwavering and is aimed at decreas-
ing costs, which makes our opera-
tions more efficient and improves
our clients' experience. Technology
is enabling us to shorten client
onboarding times, speed transaction
execution and reduce trading errors.
Clients are using J.P. Morgan Markets
to access research, analytics and
reports on their mobile devices.
Our strong performance was
achieved despite external concerns
We delivered solid results in 2015
and made progress on multiple
priorities. The CIB reported net
income of $8.1 billion on net reve-
nue of $33.5 billion with a reported
return on equity (ROE) of 12%.
Excluding legal expense and busi-
ness simplification, the CIB earned
$9.2 billion with an ROE of 14%.
This reflects an increase of 110
basis points, compared with 2014,
on capital of $62 billion.
2015 accomplishments
The CIB's business model continues
to deliver for its clients, demon-
strating its worth and resilience.
We strengthened our market-
leading positions across products
and geographies, but we know that
our top rankings cannot be taken
for granted and must be continually
earned through our work and our
dedication to doing right by our cli-
ents. Our firm's leadership is due to
several factors, but, above all, our
success is a testament to our employ-
ees based in 60 countries and their
focus on client service.
Daniel Pinto
With a solid foundation built on
scale, completeness and the reach of
a global network, the Corporate &
Investment Bank (CIB) is well-situated
to sustain its leadership in 2016.
Among the steps we've taken to
secure our position, we have commit-
ted to being at the forefront of the
technology evolution. We are
embracing the innovations that will
raise the level of our client service
and are identifying ways to increase
productivity in our own operations.
Our clients major corporations
with operations around the world -
turn to J.P. Morgan for the inte-
grated services and financial capa-
bilities of an investment bank that
can help them implement strategic
solutions. Whether it's to raise
capital, advise on a merger or acqui-
sition, provide hedging or liquidity
solutions, or help with payments
across borders and currencies,
the CIB has the complete range
of
services to fulfill client needs.
Corporate & Investment Bank
59
⚫ #3 bank auto lender
#2 mortgage originator
and servicer
• #1 wholly owned merchant
acquirer
⚫ #1 in total U.S. credit and debit
payments volume
#1 U.S. co-brand credit card
issuer
•
Across CB, we continue to make great
progress in executing our long-term
growth strategy. We are building with
patience and discipline, hiring great
bankers, picking the best clients and
selectively expanding our loan portfolios.
• A slowdown in China's gross
domestic product growth rate
and currency volatility.
Commercial & Industrial
Business segment highlights
•
•
•
Recognized in 2015 by Greenwich
Associates as a Best Brand for
Middle Market Banking overall and
in loans or lines of credit, cash
management, trade finance and
investment banking
Top 3 in overall Middle Market,
large Middle Market and Asset
Based Lending bookrunner²
#1 Customer Satisfaction, CFO
Magazine Commercial Banking
Survey, 2015
#1 U.S. multifamily lender¹
Leadership positions
Continued superior credit quality
- net charge-off ratio of 0.01%
Generated return on equity of 15%
on $14 billion of allocated capital
Grew end-of-period loans 13%;
22 consecutive quarters of
loan growth
.
Delivered revenue of $6.9 billion
Performance highlights
2015 HIGHLIGHTS AND ACCOMPLISHMENTS
•
•
.
CEO, Commercial Banking
Douglas Petno
Ding
Looking forward, I'm incredibly opti-
mistic about the future of Commer-
cial Banking. We are maintaining our
long-term focus and making the
right strategic investments to build
upon our enduring business. I'm
confident our team will seize the
opportunities in front of us and
continue to deliver for our clients
and shareholders.
Our business takes great pride in the
outstanding clients we serve, and we
are grateful every day for the confi-
dence they place in us. I want to
thank our extremely talented team
for making that confidence possible
and building true partnerships with
our clients. Our success depends on
our people, and your Commercial
Banking team shows unwavering
dedication to the clients and commu-
nities they serve.
Looking forward
•
Middle Market Banking - Added
more than 600 new clients
Corporate Client Banking - Record
gross investment banking revenue³
Commercial Term Lending - Record
originations of over $19 billion
2013 2014
0.11% 0.08%
64
2008 2009 2010 2011 2012
Peers 1.35% 2.23% 2.00% 0.75% 0.33%
CB 0.35% 1.02% 0.94% 0.18% 0.03% 0.03% 0.00%
CB target: < 50 bps
CB: 32 bps
TTC average²
Peer average¹
Commercial Banking
6 Overseas revenue from U.S. multinational
clients
5 Compound annual growth rate
4 Calculated based on gross domestic
investment banking revenue for syndicated
and leveraged finance, M&A, equity
underwriting and bond underwriting
1 SNL Financial based on Federal Deposit
Insurance Corporation data as of 3Q 2015
2 Thomson Reuters as of year-end 2015
3 Investment banking and Card Services
revenue represents gross revenue
generated by CB clients
risk and shape product develop-
ment. We've also been developing
analytical tools to help our bankers
better identify and target new clients
in markets across the United States.
International banking - Revenue
of $288 million; 16% CAGR5 since
2010
Net charge-offs
Investment banking - Record
gross revenue of $2.2 billion;
10% CAGR5 since 2010
Middle Market expansion
Record revenue of $351 million;
46% CAGR5 since 2010
-
Progress in key growth areas
$2.6 billion in Treasury Services
revenue
•
•
Over $120 billion in assets under
management from Commercial
Banking clients, generating more
than $445 million in Investment
Management revenue
Commercial Banking clients
accounted for 36% of total North
American investment banking fees4
Community Development Banking
- Originated over $1 billion in
new construction loans, building
more than 10,000 units of afford-
able housing in over 70 cities
Real Estate Banking - Completed
its best year ever with record
originations over $11 billion
•
age
Firmwide contribution
One exciting example is the work
we're doing alongside Consumer &
Community Banking to upgrade our
digital and online platforms. Our
enhanced capabilities will expand
functionality and allow clients to
execute transactions more quickly
and easily. In addition, we recently
partnered with the CIB to launch a
new corporate QuickPay capability,
which will help our clients migrate
business-to-business payments from
expensive paper checks to simple
email transactions.
2014
2013
2012
32%
31%
Utilization (%)
2011
$62
$85
$78
$74
$74
CB YOY: 9%
2015
Industry² CAGR: 11%
Commercial & Industrial Loan Portfolio -
Disciplined C&I Growth¹
While our business model is proven,
we are in no way standing still. We
are driving our business forward
through investments in technology
and innovation. We see real opportu-
nity to enhance our business proc-
esses, improve our customer experi-
ence, and increase the speed and
security of our clients' transactions.
Investing in our future
A real source of pride across our com-
pany is our Community Development
Banking (CDB) business. In 2015, the
CDB team financed nearly 100 proj-
ects that created more than 10,000
units of affordable housing. One in
particular, the Alice Griffith Commu-
nity, located on Candlestick Point in
San Francisco, started its fourth phase
of construction that will bring much-
needed affordable housing and ameni-
ties to the area. The effort not only
replaces a troubled public housing
complex but also creates new afford-
able units that will be linked with
services, schools and access to jobs.
As the industry moves through the
real estate cycle, we believe we can
continue to grow our portfolio safely
by adding high-quality clients in large,
established markets. In the next three
years, there will be over $1 trillion of
commercial real estate maturities that
will drive future originations. We
see real opportunities to capture addi-
tional market share in targeted geo-
graphic areas while maintaining our
credit and pricing discipline.
franchise consists of three well-
coordinated businesses: Commercial
Term Lending, Real Estate Banking
and Community Development Bank-
ing. Together, our real estate teams
originated $32 billion in loans in
2015, up 28% from the prior year.
2015 marked the sixth year of our
Middle Market expansion strategy.
Through this effort, we've added
nearly 2,000 clients, and in 2015, we
generated record revenue of $351
million across our expansion mar-
kets. In these new regions, we are
building organically - banker by
banker, client by client - essentially
creating a nice-sized bank from
scratch, ending 2015 with nearly $11
billion of loans and over $8 billion
in deposits. Last year, we opened
new offices in Fresno, California;
Greenville, South Carolina; Hartford,
To bring clients deeper sector exper-
tise and to better manage our risk,
we've expanded our specialized
industry model. Today, we have 15
key dedicated industry teams work-
ing with more than 9,000 clients and
covering 12,000 prospects. Our clients
clearly benefit from our sector-specific entiated from our competitors. Our
knowledge and focused coverage.
As a result, we've seen meaningful
gains in market share across these
important segments.
With continued focus and discipline,
we believe we're building a commer-
cial real estate business that is differ-
Lastly, with expanded data and ana-
lytical capabilities, we are focusing on
transforming information into intel-
ligence and insights to help us man-
Commercial Real Estate
Connecticut; and Wilmington,
Delaware. We expect to further
expand our footprint in 2016.
C&I loans outstanding ($ in billions, EOP)
30%
CB CAGR: 8%
32%
CAGR = Compound annual growth rate YoY Year-over-year EOP End of period
4 Industry data from FRB H.8 Assets and Liabilities of Commercial Banks in the United States - Real estate loans: Commercial real estate loans; includes all commercial banks, not seasonally adjusted.
5 Prior years' originations have been revised to conform to current presentation.
32%
1 CB's C&I grouping is internally defined to include certain client segments (Middle Market, which includes nonprofit clients, and Corporate Client Banking) and will not align with regulatory definitions.
2 Industry data from FRB H.8 Assets and Liabilities of Commercial Banks in the United States - Commercial and industrial loans; includes all commercial banks, not seasonally adjusted.
3 CB's Commercial Real Estate (CRE) grouping is internally defined to include certain client segments (REB, CTL, CDB) and will not align with regulatory definitions.
$32
$25
$24
$22
2015
2014
2013
2012
2011
Originations ($B)5 $15
65
$55
Community Development Banking (CDB)
Industry CAGR: 6%
CB CAGR: 14%
Commercial Real Estate Loan Portfolio -
Executing Prudent Growth Strategy³
CRE loans outstanding ($ in billions, EOP)
CB YOY: 18%
$83
$71
$63
$50
Commercial Term Lending (CTL)
Real Estate Banking (REB)
733,796
583,751
723,720
732,093
628,785
738,418
2,264,976
518,095
1,363,427
2,351,698
2,414,879
1,279,715
757,336
2,358,323
555,351
2,572,274
7.1
364,793
15.2
15.3
1,287,765
14.3
8.5
7.6
837,299
7.1
$
343,839
290,827
$ 398,988 $ 374,664
348,004
354,003
$ 450,028 $ 443,963
371,152
6.8
1,193,593
Allowance for loan losses to retained loans excluding purchased credit-impaired loans (f)
288,651
259,940
Credit quality metrics
Allowance for credit losses
$
Allowance for loan losses to total retained loans
Nonperforming assets
258,753
$
Net charge-off rate
14,341 $
1.63%
1.37
7,034 $
4,086
0.52%
14,807 $
1.90%
1.55
7,967 $
4,759
0.65%
16,969
2.25%
1.80
9,706 $
5,802
0.81%
13.1
$
Net charge-offs
1,127,806
251,196
234,598
276,379
267,446
248,521
255,962
221,505
211,664
241,359
199,699
175,514
247,573
231,727
210,857
203,785
183,314
194,727
15.1
High quality liquid assets ("HQLA") (in billions) (c)
12.6
Trading assets
Securities
Loans
Core Loans
Total assets
Deposits
Selected balance sheet data (period-end)
Long-term debt(e)
Total stockholders' equity
Headcount
11%
10%
9%
11%
Common stockholders' equity
11%
Tier 1 leverage ratio(d)
Common equity tier 1 ("CET1") capital ratio (d)
22,604 $
3.02%
2.43
44.60
40.72
38.68
33.62
1.72
Tier 1 capital ratio(d)
1.58
1.20
1.00
Return on tangible common equity ("ROTCE") (b)
Return on assets ("ROA")
Overhead ratio
Loans-to-deposits ratio
1.44
12.3
13
11
496 $
600
$
522
341
NA
$
11.8%
10.7%
11.0%
10.0%
13.5
11.6
11.9
10.2%
13
64
57
15
15
0.99
0.89
0.75
0.94
61
0.86
64
72
66
64
65
56
63
28,282
13
3.35
Change
Selected income statement data
Total net revenue
$ 93,543 $ 95,112
Total noninterest expense
59,014
2014
61,274
Pre-provision profit
34,529
33,838
Provision for credit losses
3,827
3,139
(2)%
(4)
2
22
2015
(in millions, except per share
67
Management's discussion and analysis
This section of JPMorgan Chase's Annual Report for the year ended December 31, 2015 ("Annual Report"), provides Management's
discussion and analysis of the financial condition and results of operations ("MD&A”) of JPMorgan Chase. See the Glossary of Terms
on pages 311-315 for definitions of terms used throughout this Annual Report. The MD&A included in this Annual Report contains
statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements
are based on the current beliefs and expectations of JPMorgan Chase's management and are subject to significant risks and
uncertainties. These risks and uncertainties could cause the Firm's actual results to differ materially from those set forth in such
forward-looking statements. Certain of such risks and uncertainties are described herein (see Forward-looking Statements on page
173) and in JPMorgan Chase's Annual Report on Form 10-K for the year ended December 31, 2015 ("2015 Form 10-K"), in Part I,
Item 1A: Risk factors; reference is hereby made to both.
INTRODUCTION
JPMorgan Chase & Co., a financial holding company
incorporated under Delaware law in 1968, is a leading
global financial services firm and one of the largest banking
institutions in the U.S., with operations worldwide; the Firm
had $2.4 trillion in assets and $247.6 billion in
stockholders' equity as of December 31, 2015. The Firm is
a leader in investment banking, financial services for
consumers and small businesses, commercial banking,
financial transaction processing and asset management.
Under the J.P. Morgan and Chase brands, the Firm serves
millions of customers in the U.S. and many of the world's
most prominent corporate, institutional and government
clients.
JPMorgan Chase's principal bank subsidiaries are JPMorgan
Chase Bank, National Association ("JPMorgan Chase Bank,
N.A."), a national banking association with U.S. branches in
23 states, and Chase Bank USA, National Association
("Chase Bank USA, N.A."), a national banking association
that is the Firm's credit card-issuing bank. JPMorgan Chase's
principal nonbank subsidiary is J.P. Morgan Securities LLC
("JPMorgan Securities"), the Firm's U.S. investment banking
firm. The bank and nonbank subsidiaries of JPMorgan Chase
operate nationally as well as through overseas branches
and subsidiaries, representative offices and subsidiary
foreign banks. One of the Firm's principal operating
subsidiaries in the United Kingdom ("U.K.") is J.P. Morgan
Securities plc, a subsidiary of JPMorgan Chase Bank, N.A.
data and ratios)
For management reporting purposes, the Firm's activities
68
JPMorgan Chase & Co./2015 Annual Report
EXECUTIVE OVERVIEW
This executive overview of the MD&A highlights selected
information and may not contain all of the information that is
important to readers of this Annual Report. For a complete
description of the trends and uncertainties, as well as the
risks and critical accounting estimates affecting the Firm and
its various lines of business, this Annual Report should be
read in its entirety.
Financial performance of JPMorgan Chase
Year ended December 31,
are organized into four major reportable business
segments, as well as a Corporate segment. The Firm's
consumer business is the Consumer & Community Banking
("CCB") segment. The Firm's wholesale business segments
are Corporate & Investment Bank ("CIB"), Commercial
Banking ("CB"), and Asset Management ("AM"). For a
description of the Firm's business segments, and the
products and services they provide to their respective client
bases, refer to Business Segment Results on pages 83-106,
and Note 33.
JPMorgan Chase & Co./2015 Annual Report
Net income
21,745
Total firmwide allowance for credit losses in 2015 was $14.3
billion, resulting in a loan loss coverage ratio of 1.37%,
excluding the PCI portfolio, compared with 1.55% in the
prior year. The Firm's allowance for loan losses to retained
nonaccrual loans, excluding the PCI portfolio and credit card,
was 117% compared with 106% in 2014. Firmwide, net
charge-offs were $4.1 billion for the year, down $673 million
from 2014. Nonperforming assets at year-end were $7.0
billion, down $933 million.
The Firm's results reflected solid underlying performance
across its four major reportable business segments, with
continued strong lending and consumer deposit growth.
Firmwide average core loans increased by 12% compared
with the prior year. Within CCB, Consumer & Business Banking
average deposits increased 9% over the prior year. The Firm
had nearly 23 million active mobile customers at year end,
an increase of 20% over the prior year. Credit card sales
volume (excluding Commercial Card) was up 7% for the year
and merchant processing volume was up 12%. The CIB
maintained its #1 ranking in Global Investment Banking Fees
according to Dealogic. CB had record average loans, with an
11% increase compared with the prior year. CB also had
record gross investment banking revenue of $2.2 billion, up
10% from the prior year. AM had positive net long-term
JPMorgan Chase & Co./2015 Annual Report
69
Management's discussion and analysis
client inflows and continued to deliver strong investment
performance with 80% of mutual fund assets under
management ("AUM") ranked in the 1st or 2nd quartiles over
the past five years. AM also increased average loan balances
by 8% in 2015.
The decrease in noninterest expense was driven by lower CIB
expense, reflecting the impact of business simplification, and
lower CCB expense as a result of efficiencies, predominantly
reflecting declines in headcount-related expense and lower
professional fees, partially offset by investments in the
business. As a result of these changes, the Firm's overhead
ratio in 2015 was lower compared with the prior year.
The provision for credit losses increased from the prior year
as a result of an increase in the wholesale provision,
reflecting the impact of downgrades, including in the Oil &
Gas portfolio. The consumer provision declined, reflecting
lower net charge-offs due to continued discipline in credit
underwriting, as well as improvement in the economy driven
by increasing home prices and lower unemployment levels.
This was partially offset by a lower reduction in the allowance
for loan losses.
In 2015, the Firm continued to adapt its strategy and
financial architecture toward meeting regulatory and capital
requirements and the changing banking landscape, while
serving its clients and customers, investing in its businesses,
and delivering strong returns to its shareholders.
Importantly, the Firm exceeded all of its 2015 financial
targets including those related to balance sheet optimization
and managing its capital, its GSIB surcharge and expense. On
capital, the Firm exceeded its capital target of reaching Basel
III Fully Phased-In Advanced and Standardized CET1 ratios of
approximately 11%, ending the year with estimated Basel III
Advanced Fully Phased-in CET1 capital and ratio of $173.2
billion and 11.6%, respectively. The Firm also exceeded its
target of reducing its GSIB capital surcharge, ending the year
at an estimated 3.5% GSIB surcharge, achieved through a
combination of reducing wholesale non-operating deposits,
level 3 assets and derivative notionals.
The Firm's tangible book value per share was $48.13, an
increase of 8% from the prior year. Total stockholders' equity
was $247.6 billion at December 31, 2015.
Tangible book value per share and each of these Basel III
Advanced Fully Phased-In measures are non-GAAP financial
measures; they are used by management, bank regulators,
investors and analysts to assess and monitor the Firm's
capital position and liquidity. For further discussion of Basel
III Advanced Fully Phased-in measures and the SLR under the
U.S. final SLR rule, see Capital Management on pages 149-
158, and for further discussion of LCR and HQLA, see
Liquidity Risk Management on pages 159-164.
The Firm provided credit to and raised capital of $2.0 trillion
for its clients during 2015. This included $705 billion of
credit to corporations, $233 billion of credit to consumers,
and $22 billion to U.S. small businesses. During 2015, the
Firm also raised $1.0 trillion of capital for clients.
Additionally, $68 billion of credit was provided to, and capital
was raised for, nonprofit and government entities, including
states, municipalities, hospitals and universities.
The Firm has substantially completed its business
simplification agenda, exiting businesses, products or clients
that were non-core, not at scale or not returning the
appropriate level of return in order to focus on core activities
for its core clients and reduce risk to the Firm. While the
business simplification initiative impacted revenue growth in
2015, it did not have a meaningful impact on the Firm's
profitability. The Firm continues to focus on streamlining,
simplifying and centralizing operational functions and
processes in order to attain more consistencies and
efficiencies across the Firm. To that end, the Firm continues
to make progress on simplifying its legal entity structure,
streamlining its Global Technology function, rationalizing its
use of vendors, and optimizing its real estate location
strategy.
70
JPMorgan Chase & Co./2015 Annual Report
The Firm's fully phased-in supplementary leverage ratio
("SLR") was 6.5% and JPMorgan Chase Bank, N.A.'s fully
phased-in SLR was 6.6%. The Firm was also compliant with
the fully phased-in U.S. liquidity coverage ratio ("LCR") and
had $496 billion of HQLA as of year-end 2015.
24,442
JPMorgan Chase reported record full-year 2015 net income
of $24.4 billion, and record earnings per share of $6.00, on
net revenue of $93.5 billion. Net income increased by $2.7
billion compared with net income of $21.7 billion in 2014.
ROE for the year was 11%, up from 10% in the prior year.
The increase in net income in 2015 was driven by lower taxes
and lower noninterest expense, partially offset by lower net
revenue and a higher provision for credit losses. The decline
in net revenue was predominantly driven by lower Corporate
private equity gains, lower CIB revenue reflecting the impact
of business simplification, and lower CCB Mortgage Banking
revenue. These decreases were partially offset by a benefit
from a legal settlement in Corporate and higher operating
lease income, predominantly in CCB.
(a) Ratios presented are calculated under the transitional Basel III rules
and represent the Collins Floor. See Capital Management on pages
149-158 for additional information on Basel III.
12
Diluted earnings per share
6.00
5.29
48.13
Return on common equity
Summary of 2015 Results
11%
Capital ratios (a)
CET1
Tier 1 capital
11.8
13.5
10.2
11.6
10%
2015
2014
2013
December 31,
(in dollars)
JPMorgan Chase
KBW Bank Index
S&P Financial Index
S&P 500 Index
The following table and graph assume simultaneous investments of $100 on December 31, 2010, in JPMorgan Chase common
stock and in each of the above indices. The comparison assumes that all dividends are reinvested.
200
150
125
100
75
December 31,
(in dollars)
2010
175
2011
The following table and graph compare the five-year cumulative total return for JPMorgan Chase & Co. ("JPMorgan Chase" or
the "Firm") common stock with the cumulative return of the S&P 500 Index, the KBW Bank Index and the S&P Financial Index.
The S&P 500 Index is a commonly referenced United States of America (“U.S.”) equity benchmark consisting of leading
companies from different economic sectors. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are
publicly traded in the U.S. and is composed of 24 leading national money center and regional banks and thrifts. The S&P
Financial Index is an index of 87 financial companies, all of which are components of the S&P 500. The Firm is a component of
all three industry indices.
JPMorgan Chase & Co./2015 Annual Report
11,906 $
9,063
11,315
1.26%
12,237
1.78%
Note: Effective October 1, 2015, and January 1, 2015, JPMorgan Chase & Co. adopted new accounting guidance, retrospectively, related to (1) the presentation of debt issuance costs, and (2) investments in
affordable housing projects that qualify for the low-income housing tax credit, respectively. For additional information, see Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures on
pages 80-82, Accounting and Reporting Developments on page 170, and Note 1.
FIVE-YEAR STOCK PERFORMANCE
(a) Share prices shown for JPMorgan Chase's common stock are from the New York Stock Exchange.
TBVPS and ROTCE are non-GAAP financial measures. For further discussion of these measures, see Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures on pages 80-82.
(c) HQLA represents the amount of assets that qualify for inclusion in the liquidity coverage ratio under the final U.S. rule ("U.S. LCR") for December 31, 2015 and the Firm's estimated amount for December 31,
2014 prior to the effective date of the final rule, and under the Basel III liquidity coverage ratio ("Basel III LCR") for prior periods. The Firm did not begin estimating HQLA until December 31, 2012. For
additional information, see HQLA on page 160.
(d) Basel III Transitional rules became effective on January 1, 2014; prior period data is based on Basel I rules. As of December 31, 2014 the ratios presented are calculated under the Basel III
Advanced Transitional Approach. CET1 capital under Basel III replaced Tier 1 common capital under Basel I. Prior to Basel III becoming effective on January 1, 2014, Tier 1 common capital
under Basel I was a non-GAAP financial measure. See Capital Management on pages 149-158 for additional information on Basel III and non-GAAP financial measures of regulatory capital.
(e) Included unsecured long-term debt of $211.8 billion, $207.0 billion, $198.9 billion, $200.1 billion and $230.5 billion respectively, as of December 31, of each year presented.
(f)
Excluded the impact of residential real estate purchased credit-impaired ("PCI") loans, a non-GAAP financial measure. For further discussion of these measures, see Explanation and Reconciliation of the
Firm's Use of Non-GAAP Financial Measures on pages 80-82. For further discussion, see Allowance for credit losses on pages 130-132.
66
(b)
2012
2013
2014
100.00
102.11
118.44
156.78
178.22
180.67
164.15
JPMorgan Chase
S&P Financial
S&P 500
50
2010
2011
2012
KBW Bank
166.76
144.79
106.78
2015
$ 100.00
$ 80.03
$ 108.98
$ 148.98
$ 163.71
$ 177.40
100.00
76.82
102.19
140.77
153.96
154.71
100.00
82.94
3.84%
46.52
Total capital ratio (d)
53.17
Announced nine winners of the
Financial Solutions Lab
competition to identify financial
technology products that help
U.S. households manage cash
flow challenges. Winners received
$3 million in capital, technical
assistance and mentorship to
accelerate their development.
The Lab is a $30 million program
launched with the Center for
Financial Services Innovation to
identify and scale promising
innovations to improve consumer
financial health.
Committed $7.5 million to the
Accion Frontier Inclusion Fund to
promote innovations in financial
services in emerging markets.
JPMorgan Chase has deployed
$68 million to impact invest-
ments that have helped improve
the livelihoods of more than 58
million people.
Supported the new BankOn 2.0
national account standards to
provide "safe" accounts for
consumers just entering the bank-
ing mainstream. Chase LiquidⓇ
has been identified as a model
account that meets these
important new standards.
•
Supporting service members,
veterans and their families
Announced the evolution of the
100,000 Jobs Mission - an
employer coalition founded by
JPMorgan Chase and 10 other
companies in 2011 to hire veter-
ans. The newly named Veteran
Jobs Mission reflects the coalition's
growth to 220 employers commit-
ted to hiring 1 million veterans.
Since 2011, members have hired
more than 314,000 veterans -
over 10,000 of those hires were
made by JPMorgan Chase.
Launched the Catalyst Fund with
the Bill & Melinda Gates Founda-
tion to provide $2 million in
funding and mentorship to social
entrepreneurs in emerging
markets focused on breakthrough
technology innovations for
consumers globally.
Donated more than $7.5 million
in the second year of a $20 million
commitment to the Philanthropy-
Joining Forces Impact Pledge
in support of veterans and their
families.
Supported military families in
need by donating more than 800
mortgage-free homes, valued at
nearly $150 million, through the
firm's nonprofit partners.
Engaging local communities
Engaged more than 47,000
employees in volunteer service and
sent 32 top managers to Detroit and
Mumbai to apply their expertise full
time to help our nonprofit partners
expand their capacity to serve local
communities.
Provided more than 31,000 hours
of skilled volunteerism through
Technology for Social Good, a pro-
gram that harnesses the technical
experience of our employees to
develop innovative technology
.
•
Renewed support to Syracuse
University's Institute for Veterans
and Military Families through a
$14 million contribution through
2020. In addition to other proj-
ects, this contribution will con-
tinue to wholly fund the Veterans
Career Transition Program through
which more than 3,400 post-9/11
veterans and military spouses
have earned 4,600 certificates
since 2011.
solutions for nonprofits. Technol-
ogy for Social Good delivered
$3.3 million in social value to
over 100 nonprofits globally.
Committed $45 million since
2014 to nonprofits, helping more
than 1 million low-income individ-
uals in 11 countries acquire the
knowledge and tools needed to
promote their financial health.
•
The Institute released three reports in
2015 that shed new light on the behavior
of U.S. consumers:
The inaugural report analyzed anonymized
transaction-level consumer data, focusing
on fluctuations in income and consumption.
The Institute's study revealed that while
U.S. households across the income spectrum
experience financial volatility, most lack an
appropriate financial buffer to weather
these shocks.
The Institute then analyzed consumer
behavior in response to the dramatic decline
in gas prices. Although prior research
suggested American consumers saved more
than half of their additional discretionary
income resulting from the gas price
decrease, the Institute research revealed
that, in reality, consumers spent roughly
80% of this extra income, primarily on
goods and services.
• In December, the Institute offered unprec-
edented insight into consumer commercial
spending within local communities, enabling
researchers to identify spending patterns by
consumer age, income and residence or by
the size and type of merchant.
Harnessing the unique assets of the firm and
the power of big data, the Institute is explain-
ing the global economy in a way that provides
decision makers with the necessary informa-
tion to frame and address critical issues.
71
Increasing financial capability
.
Developing local economies and
communities
Provided $3.1 billion to low- and
moderate-income communities
through community development
lending and equity investments.
Awarded $48 million since 2014
to networks of community
development financial institutions
(CDFI), providing capital to small
businesses and community
projects unable to qualify for
traditional loans. The initial $33
million investment with 42 CDFIS
leveraged an additional $226
million of capital to preserve
affordable housing and support
small business growth in low-
income communities.
Provided $3 million to support
the launch of a $30 million
National African American Small
Business Loan Fund managed by
the Valley Economic Development
Centers to provide entrepreneurs
in Chicago, Los Angeles and New
York with flexible capital to grow
their businesses.
Committed nearly $6 million since
2014 to support skills-based
summer employment opportuni-
ties for young people, including
more than 3,200 jobs and work-
related opportunities in 2015.
Provided $2.2 million to support
implementation of global engage-
ment strategies in cities across
the United States and released
profiles on the economic competi-
tiveness of Stockholm and
Johannesburg through the Global
Cities Initiative, a joint project
of the Brookings Institution and
JPMorgan Chase that promotes
sustainable economic growth.
2015 HIGHLIGHTS AND ACCOMPLISHMENTS
In 2015, we launched the JPMorgan Chase
Institute, a global think tank dedicated to
delivering data-rich analyses for the public
good. The Institute utilizes our proprietary
data, augmented by firmwide expertise and
market access, to provide insights on the
global economy and offer innovative analyses
to advance economic prosperity.
Completed the first year of the
expansion of The Fellowship
Initiative, a JPMorgan Chase
program that prepares 120 young
men of color to succeed in high
school, college and beyond.
Fellows participated in more than
30 days of extracurricular aca-
demic and leadership programs,
including an All Star Code tech-
nology development workshop.
Continued support for Nature-
Vest, which structured the first-
ever climate adaptation debt
swap to protect 30% of the
marine territories of the Seychelles.
In 2014, JPMorgan Chase was the
founding sponsor of Nature Vest,
The Nature Conservancy's
conservation finance unit.
181
Notes to Consolidated Financial Statements
69
Executive Overview
72 Consolidated Results of Operations
75 Consolidated Balance Sheets Analysis
60
27
79
Consolidated Cash Flows Analysis
80
Explanation and Reconciliation of the Firm's Use of
Non-GAAP Financial Measures
83
77 Off-Balance Sheet Arrangements and Contractual Cash
Obligations
Promoting innovation in
sustainable investment
Consolidated Financial Statements
Introduction
Underwrote more than $4 billion
in green and sustainability-
themed bonds and committed and
arranged approximately $2 billion
of capital for renewable energy
projects in the United States.
Launched the Dementia Discovery
Fund in partnership with the U.K.
government, which has attracted
more than $100 million from
leading pharmaceutical companies
for investments into new treat-
ments for dementia.
72
Table of contents
Financial Information:
66
176
Five-Year Summary of Consolidated Financial Highlights Audited financial statements:
174
Management's Report on Internal Control Over
Financial Reporting
175
Management's discussion and analysis:
Report of Independent Registered Public Accounting
Firm
68
67 Five-Year Stock Performance
JPMorgan Chase Institute
By fostering effective partnerships, utilizing
data to drive better outcomes and providing
workers with the skills needed to land middle-
skill jobs connected to career pathways,
we are supporting some of the most powerful
strategies available to expand opportunity.
In early 2016, we announced New Skills for
Youth, a $75 million global commitment to
improve career readiness for young people by
investing in career readiness programs that
align with the needs of local industries.
Fiduciary mindset ingrained since
mid-1800s
Positive client asset flows every
year since 2004
$2.4 trillion in client assets
Record revenue of $12.1 billion
Record loan balances of $84 billion
•
Business highlights
Record mortgage balances of
$27 billion
#3 cumulative long-term active +
passive mutual fund/ETF flows
(2010-2015)
Retention rate of over 95% for top
senior portfolio management talent
• 250 research analysts, 30+ market
strategists, 5,000+ annual company
visits
#2 global money market fund
•
Leadership positions
#1 cumulative long-term active
mutual fund flows (2010-2015)
#1 Institutional Money Market
Fund Manager Worldwide
(iMoneyNet, September 2015)
•
.
from sales support to controls. In
GIM, we continue to enhance our
application toolset for our sales
teams, which helps our advisors
access information and materials
on our entire product range,
investment capabilities and market
insights and more quickly respond
to client requests. On the controls
side, we continue to introduce new
technology tools that automate
previously manual processes, such
as our client onboarding processes,
which creates a more seamless
client experience and improves the
integrity of our data and how we
capture the information.
Maximizing analytics
Big data is one of the tools that is dra-
matically improving our analytics.
Using big data and our innovative
visualization tools, our portfolio
managers can take historical data and
combine it with predictive analytics
to inform how to model their next
moves. Big data also helps us identify
areas where we can collaborate across
the firm to serve clients that would
benefit from Asset Management's
offerings and vice versa.
Value of being part of JPMorgan Chase
The ability to partner across the
broader 235,000-person JPMorgan
Chase global franchise is one of our
business's truly unique characteris-
tics. It gives us the opportunity to
help clients with more of their
financial needs and enables us to
benefit from a world-class global
platform and infrastructure.
Working together across businesses
Asset Management is uniquely posi-
tioned as a hub that connects the dif-
ferent businesses of JPMorgan Chase.
Consumer & Community Banking
intersects with GWM on credit cards,
banking and mortgages. GWM pro-
vides the solutions for Chase Wealth
Management's investments offering.
And the Corporate & Investment
Bank works with both GIM and
GWM on custody services, as well as
when clients have transition events
and need cash management or
individual wealth management.
Benefiting from shared infrastructure
The JPMorgan Chase platform offers
a significant competitive advantage
for us. We are able to leverage many
•
core infrastructure capabilities -
from cybersecurity to digital capabil-
ities to shared real estate - rather
than having to build our own from
scratch. Consider this: Forty percent
of our GWM clients also use Chase
retail branches on a monthly basis.
We both benefit from and contribute
to the strength of the JPMorgan
Chase brand.
We are proud of the performance
we have delivered to our clients and
shareholders and are excited about
the opportunities that are in front of
us. And we know that if we remain
focused on doing first-class business
in a first-class way and continue
to deliver strong investment perfor-
mance and product innovation,
supported by robust controls, our
success will follow.
Wany
Mary Callahan Erdoes
CEO, Asset Management
2015 HIGHLIGHTS AND ACCOMPLISHMENTS
•
•
51.19
#1 Private Bank in the World
(Global Finance, October 2015)
#1 Private Bank Overall in
North America (Euromoney,
February 2016)
#1 Private Bank Overall in
Latin America (Euromoney,
February 2016)
Peter Scher
Head of Corporate Responsibility
•
Investing $100 million in
Detroit's future
JPMorgan Chase's roots in Detroit date back
to an early and successful public-private partner-
ship: the creation of the National Bank of
Detroit in the 1930s as part of the government's
plan to restart the nation's banking system.
Building on our record of commitment to the
city - and once again collaborating with the
public, nonprofit and private sectors - we are
in the second year of our $100 million, five-
year program to accelerate Detroit's recovery:
• Financed more than $35 million in aggregate
loans to finance housing and mixed-use real
estate projects and to help small businesses
in the city expand and create new jobs
through the $50 million in two new funds
we seeded with our community development
lending partners.
All of these efforts are driven by the
conviction that creating more widely
shared prosperity - and giving more
people the opportunity to move up
the economic ladder - is not only
good for our communities, it's good
for our company. We are very proud
of what we have accomplished in
2015 and look forward to continuing
and expanding this important work
in the year ahead.
Provided critical financial support to
the Detroit Land Bank as it expanded its
capacity to address blight in the city's
neighborhoods.
Grew Focus: HOPE's nationally recognized
training program to prepare more than 250
Detroit residents for jobs in manufacturing
and information technology over four years.
Expanded access to capital for Detroit's
minority-owned small businesses by creat-
ing the $6.5 million Entrepreneurs of Color
Fund along with the W.K. Kellogg Foundation.
Managed by the Detroit Development Fund,
the fund will provide loans and technical
assistance, with a unique focus on the small
contractors that are critical to meeting the
demand for home renovation in the city.
Boosted the growth of 10 Detroit-area start-
ups to stimulate economic development and
job growth through the $2.7 million Innova-
tion Fund launched by JPMorgan Chase and
Macomb Community College in 2014.
Sent 36 JPMorgan Chase employees from
around the world to work intensively with
11 Detroit nonprofits to help them solve
specific operational challenges and plan for
future sustainability since 2014.
New Skills at Work
While unemployment rates are falling in many
communities around the world, they remain
stubbornly high among young people, people
of color and those with multiple barriers to
employment. The reasons for this are complex
and so are the solutions. Our $250 million
New Skills at Work initiative supports data-
driven approaches to creating pathways to
middle-skill jobs, helping employers who are
struggling to fill openings and job seekers
looking for the education and training opportu-
nities needed in the 21st century economy.
The data-driven approach to this challenge is
compelling because it is achievable. In 2015,
we released reports analyzing labor market
data and trends in the United Kingdom, France,
Spain, Germany and in seven U.S. cities. These
reports provide the intelligence that employers,
training programs, policymakers and job seekers
need in order to assess supply and demand
accurately and to create workforce programs
that develop a pipeline of skilled talent. In
addition, we approved our first program-
related investment, a $5 million, 10-year
low-interest loan to Vital Healthcare Capital to
finance healthcare services and quality front-
line healthcare jobs in low-income communi-
ties in the United States.
FA
Developed first-of-its-kind research that pro-
vides a comprehensive picture of Detroit's
workforce system - the demographics and
skills of residents, labor market data on job
opportunities in the city and the existing
infrastructure of training providers - equip-
ping the city's workforce leaders with critical
insights to inform their new vision and strat-
egy for Detroit's businesses and workers.
Through Small Business Forward,
we are opening the doors that have
too often been shut to minority and
community-based small business
owners by creating programs and
investments that provide the capital
and support these entrepreneurs
need in order to succeed. Through
the JPMorgan Chase Institute and
the Financial Solutions Lab, we are
applying our unrivaled data and
insights into consumers' finances and
deep technological expertise to help
low- and moderate-income house-
holds become more financially secure.
The Global Cities Initiative continues
to help cities around the world gener-
ate the economic growth that will fuel
greater opportunity. And through
Invested in Detroit, we are bringing
all these pieces together to support
and accelerate the turnaround of one
of America's iconic cities.
those most at risk of winding up
out of school, unemployed or stuck in
low-wage jobs with the skills and
training needed to get on the road to
a well-paying, long-term career.
Our efforts are focused on areas
where we can best put our firm's
capabilities to work and where we
can most effectively drive change.
Millions of jobs in the United States
and Europe are being created that
require a high school degree but not
a four-year college degree. Through
our New Skills at Work initiative,
we are connecting job seekers to
tangible opportunities by helping
them gain the right skills for today's
high-quality jobs. We are expanding
on this work with an ambitious
new program, New Skills for Youth,
to arm young people - particularly
•
#1 U.S. Private Equity Money
Manager (Pensions & Investments,
May 2015)
Top Pan-European Fund
Management Firm (Thomson
Reuters Extel, June 2015)
Best Asset Management Company
for Asia (The Asset, May 2015)
#2 Hedge Fund Manager (Absolute
Return, September 2015)
69
Corporate Responsibility
In today's economy, too many people
- particularly too many young
people are being left behind. More
than 5 million young Americans
are out of school and out of work,
including more than one in five
young black adults. Reliable path-
ways to the middle class have dis-
solved. Lower-income families,
already struggling to make ends
meet, are falling even further behind.
This is not sustainable. Creating
more opportunity for more people
to participate in and share the
rewards of economic growth is a
moral and an economic imperative.
But government cannot solve this
challenge - certainly not on its own.
The private sector needs to step up
and be part of the solution.
-
JPMorgan Chase & Co. is leveraging
the assets of our firm our people,
expertise and technology - to help
address these trends. Each year, we
deploy more than $200 million in
philanthropic capital toward pro-
aimed at expanding access
grams
to opportunity and advancing eco-
nomic mobility around the world.
70
Peter Scher
We are applying the same rigor and
analysis to these efforts as we do to
other aspects of our business. Unlike
traditional models of corporate
philanthropy, our strategic invest-
ments are driven by robust data and
research. We are supporting innova-
tive research from our proprietary
data on the finances of nearly 50
million U.S. households to real-time
labor market dynamics in countries
throughout Europe and Asia.
Putting our firm's capabilities
to work
Business Segment Results
107
Well-positioned for the future
Supplementary information:
3,139
225
3,385
7,574
30,702
30,699
3,827
6,260
24,442 $
8,954
21,745 $
26,675
29,566
8,789
8,307
17,886 $ 21,259 $
27,358
8,402
18,956
$
$
34,932
26,900
2013
2012
2011
$
93,543 $
95,112 $ 97,367 $ 97,680 $
32,951
97,843
61,274
70,467
64,729
62,911
34,529
33,838
59,014
2014
6.05 $
3,700.4
3,732.8
46.49 $
48.36
50.07
52.97
44.20
30.83
58.55 $
27.85
62.58
58.48
33.25
60.46
56.98
Enterprise-wide Risk Management
66.03
6.00
63.49 $
$
5.33
5.29
3,763.5
$
3,797.5
4.38
4.34
3,782.4
3,814.9
$
5.21 $
5.19
70.61 $
4.50
4.48
3,900.4
3,920.3
$ 241,899 $
3,663.5
3,756.1
232,472 $ 219,657 $ 167,260 $ 125,442
3,714.8
3,804.0
3,772.7
3,809.4
3,822.2
2015
43.97
Selected ratios and metrics
Note:
The following pages from JPMorgan Chase & Co.'s 2015
Form 10-K are not included herein: 1-64, 316-332
147
Compliance Risk Management
148
Reputation Risk Management
Legal Risk Management
149
159
Liquidity Risk Management
165
170
172
173
Capital Management
Critical Accounting Estimates Used by the Firm
Operational Risk Management
144
309
Return on common equity ("ROE")
311
Glossary of Terms
112
Credit Risk Management
146
133
140
Country Risk Management
142
Model Risk Management
143
Principal Risk Management
Market Risk Management
Accounting and Reporting Developments
Selected quarterly financial data
at Fair Value
Diluted
Average shares:
Basic
Diluted
Market and per common share data
Market capitalization
Basic
Common shares at period-end
High
Low
Cash dividends declared per share
Close
Book value per share
Nonexchange-Traded Commodity Derivative Contracts
Share price(a)
Net income:
Tangible book value per share ("TBVPS")(b)
Net income
Earnings per share data
Forward-Looking Statements
65
Financial
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS
(unaudited)
As of or for the year ended December 31,
JPMorgan Chase & Co./2015 Annual Report
Selected income statement data
Total net revenue
Total noninterest expense
Pre-provision profit
Provision for credit losses
Income before income tax expense
(in millions, except per share, ratio, headcount data and where otherwise noted)
Income tax expense
Trading assets:
215,803 (1)
110,435 (11)
98,721
Securities borrowed
212,575
Deposits with banks
purchased under resale
Federal funds sold and securities
$
Cash and due from banks
Assets
December 31, (in millions)
agreements
Debt and equity instruments
Allowance for loan losses
Derivative receivables
59,677
Securities
290,827
Loans
837,299
(13,555)
320,013 (11)
78,975 (24)
348,004 (16)
757,336 11
(14,185) (4)
Loans, net of allowance for loan
losses
823,744
743,151 11
Accrued interest and accounts
20,490 $ 27,831 (26)%
340,015
484,477 (30)
284,162
receivable
$30,702
6,260
20.4%
2014
29,264
$59,014
46,605
31,114
$61,274
39,657
$70,467
(a) Included legal expense of $3.0 billion, $2.9 billion and $11.1 billion
for the years ended December 31, 2015, 2014 and 2013,
respectively.
(b) Included Federal Deposit Insurance Corporation ("FDIC")-related
expense of $1.2 billion, $1.0 billion and $1.5 billion for the years
ended December 31, 2015, 2014 and 2013, respectively.
2015 compared with 2014
Total noninterest expense decreased by 4% from the prior
year, as a result of lower CIB expense, predominantly
reflecting the impact of business simplification; and lower
CCB expense resulting from efficiencies related to declines
in headcount-related expense and lower professional fees.
These decreases were partially offset by investment in the
businesses, including for infrastructure and controls.
Compensation expense decreased compared with the prior
year, predominantly driven by lower performance-based
incentives and reduced headcount, partially offset by higher
postretirement benefit costs and investment in the
businesses, including for infrastructure and controls.
Noncompensation expense decreased from the prior year,
reflecting benefits from business simplification in CIB; lower
professional and outside services expense, reflecting lower
legal services expense and a reduced number of contractors
in the businesses; lower amortization of intangibles; and the
absence of a goodwill impairment in Corporate. These
factors were partially offset by higher depreciation expense,
largely associated with higher auto operating lease assets in
CCB; higher marketing expense in CCB; and higher FDIC-
related assessments. Legal expense was relatively flat
compared with the prior year. For a further discussion of
legal expense, see Note 31.
2014 compared with 2013
Total noninterest expense decreased by $9.2 billion, or
13%, from the prior year, as a result of lower other expense
(in particular, legal expense) and lower compensation
expense.
Compensation expense decreased compared with the prior
year, predominantly driven by lower headcount in CCB
Mortgage Banking, lower performance-based compensation
expense in CIB, and lower postretirement benefit costs. The
decrease was partially offset by investments in the
businesses, including headcount for controls.
Noncompensation expense decreased compared with the
prior year, due to lower other expense, predominantly
reflecting lower legal expense. Lower expense for
foreclosure-related matters and production and servicing-
related expense in CCB Mortgage Banking, lower FDIC-
related assessments, and lower amortization due to certain
fully amortized intangibles, also contributed to the decline.
The decrease was offset partially by investments in the
businesses, including for controls, and costs related to
business simplification initiatives across the Firm.
Income tax expense
Year ended December 31,
(in millions, except rate)
Income before income tax
expense
Income tax expense
Effective tax rate
2015
2014
2015
Selected Consolidated balance sheets data
CONSOLIDATED BALANCE SHEETS ANALYSIS
JPMorgan Chase & Co./2015 Annual Report
74
The decrease in the effective tax rate from the prior year
was largely attributable to the effect of the lower level of
nondeductible legal-related penalties, partially offset by
higher 2014 pretax income in combination with changes in
the mix of income and expense subject to U.S. federal, state
and local income taxes, and lower tax benefits associated
with tax adjustments and the settlement of tax audits.
Change
2014 compared with 2013
32.9%
29.2%
$26,675
8,789
8,954
$30,699
2013
2015 compared with 2014
The effective tax rate decreased compared with the prior
year, predominantly due to the recognition in 2015 of tax
benefits of $2.9 billion and other changes in the mix of
income and expense subject to U.S. federal, state and local
income taxes, partially offset by prior-year tax adjustments.
The recognition of tax benefits in 2015 was due to the
resolution of various tax audits, as well as the release of
U.S. deferred taxes associated with the restructuring of
certain non-U.S. entities. For further information see
Note 26.
70,079 (33)
Accounts payable and other
14,362
Beneficial interests issued by
41,879
288,651
2,104,125
247,573
52,320 (20)
276,379 4
2,340,547 (10)
231,727
7
consolidated variable interest
entities ("VIES")
Long-term debt
Total liabilities
Stockholders' equity
Total liabilities and
stockholders' equity
$ 2,351,698 $2,572,274 (9)%
The following is a discussion of the significant changes
between December 31, 2015 and 2014.
Cash and due from banks and deposits with banks
The Firm's excess cash is placed with various central banks,
predominantly Federal Reserve Banks. The net decrease in
cash and due from banks and deposits with banks was
primarily due to the Firm's actions to reduce wholesale non-
operating deposits.
Securities borrowed
The decrease was largely driven by a lower demand for
securities to cover short positions in CIB. For additional
information, refer to Notes 3 and 13.
206,939 (14)
Trading assets-debt and equity instruments
Trading assets and liabilities-derivative receivables and
payables
The decrease in both receivables and payables was
predominantly driven by declines in interest rate
derivatives, commodity derivatives, foreign exchange
derivatives and equity derivatives due to market
movements, maturities and settlements related to client-
driven market-making activities in CIB. For additional
information, refer to Derivative contracts on pages 127-
129, and Notes 3 and 6.
Securities
The decrease was largely due to paydowns and sales of
non-U.S. residential mortgage-backed securities, non-U.S.
government debt securities, and non-U.S. corporate debt
securities reflecting a shift to loans. For additional
information related to securities, refer to the discussion
in the Corporate segment on pages 105-106, and Notes 3
and 12.
Loans and allowance for loan losses
The increase in loans was attributable to an increase in
consumer loans due to higher originations and retention of
prime mortgages in Mortgage Banking ("MB") and AM, and
higher originations of auto loans in CCB, as well as an
increase in wholesale loans driven by increased client
activity, notably in commercial real estate.
The decrease in the allowance for loan losses was
attributable to a lower consumer, excluding credit card,
allowance for loan losses, driven by a reduction in the
residential real estate portfolio allowance as a result of
continued improvement in home prices and delinquencies
and increased granularity in the impairment estimates. The
wholesale allowance increased, largely reflecting the impact
of downgrades in the Oil & Gas portfolio. For a more
detailed discussion of loans and the allowance for loan
losses, refer to Credit Risk Management on pages 112-132,
and Notes 3, 4, 14 and 15.
JPMorgan Chase & Co./2015 Annual Report
75
Management's discussion and analysis
Accrued interest and accounts receivable
The decrease was due to lower customer receivables related
to client activity in CIB, and a reduction in unsettled
securities transactions.
Total noninterest expense
The decrease was predominantly related to client-driven
market-making activities in CIB, which resulted in lower
levels of both debt and equity instruments. For additional
information, refer to Note 3.
Premises and equipment
177,638
81,699 (9)
71,116 (26)
15,133 (5)
Goodwill
47,325
47,647 (1)
Mortgage servicing rights
6,608
7,436 (11)
Other intangible assets
1,015
1,192 (15)
102,098 3
Other assets
Total assets
Liabilities
Deposits
liabilities
Federal funds purchased and
securities loaned or sold under
repurchase agreements
$ 2,351,698 $ 2,572,274 (9)%
$ 1,279,715 $1,363,427 (6)
152,678
Commercial paper
15,562
192,101 (21)
66,344 (77)
Other borrowed funds
21,105
30,222 (30)
Trading liabilities:
Debt and equity instruments
74,107
Derivative payables
52,790
105,572
Total noncompensation expense
Net interest income was relatively flat compared with the
prior year, as lower loan yields, lower investment securities
net interest income, and lower trading asset balance and
yields were offset by higher average loan balances and
lower interest expense on deposits. The Firm's average
interest-earning assets were $2.1 trillion in 2015, and the
net interest yield on these assets, on a fully taxable-
equivalent ("FTE") basis, was 2.14%, a decrease of 4 basis
points from the prior year.
7,641
2,500
9,593 11,146 20,398
15,509
Securities gains
202
15,931
77
15,106
667
Mortgage fees and related
income
2,513
3,563
Card income
5,924
6,020
Other income(a)
3,032
commissions
3,013
50,033
51,478
Net interest income
43,510
43,634
Total net revenue
5,205
6,022
4,608
54,048
43,319
$ 93,543 $ 95,112 $ 97,367
(a) Included operating lease income of $2.1 billion, $1.7 billion and $1.5
billion for the years ended December 31, 2015, 2014 and 2013,
respectively.
2015 compared with 2014
Total net revenue for 2015 was down by 2% compared with
the prior year, predominantly driven by lower Corporate
private equity gains, lower CIB revenue reflecting the
impact of business simplification initiatives, and lower CCB
Mortgage Banking revenue. These decreases were partially
offset by a benefit from a legal settlement in Corporate, and
higher operating lease income, predominantly in CCB.
Investment banking fees increased from the prior year,
reflecting higher advisory fees, partially offset by lower
equity and debt underwriting fees. The increase in advisory
fees was driven by a greater share of fees for completed
transactions as well as growth in industry-wide fee levels.
The decrease in equity underwriting fees resulted from
lower industry-wide issuance, and the decrease in debt
underwriting fees resulted primarily from lower loan
syndication and bond underwriting fees on lower industry-
wide fee levels. For additional information on investment
banking fees, see CIB segment results on pages 94-98 and
Note 7.
Principal transactions revenue decreased from the prior
year, reflecting lower private equity gains in Corporate
driven by lower valuation gains and lower net gains on sales
as the Firm exits this non-core business. The decrease was
partially offset by higher client-driven market-making
revenue, particularly in foreign exchange, interest rate and
72
equity-related products in CIB, as well as a gain of
approximately $160 million on CCB's investment in Square,
Inc. upon its initial public offering. For additional
information, see CIB and Corporate segment results on
pages 94-98 and pages 105-106, respectively, and Note 7.
Asset management, administration and commissions
revenue decreased compared with the prior year, largely as
a result of lower fees in CIB and lower performance fees in
AM. The decrease was partially offset by higher asset
management fees as a result of net client inflows into assets
under management and the impact of higher average
market levels in AM and CCB. For additional information,
see the segment discussions of CIB and AM on pages 94-98
and pages 102-104, respectively, and Note 7.
Mortgage fees and related income decreased compared
with the prior year, reflecting lower servicing revenue
largely as a result of lower average third-party loans
serviced, and lower net production revenue reflecting a
lower repurchase benefit. For further information on
mortgage fees and related income, see the segment
discussion of CCB on pages 85-93 and Notes 7 and 17.
For information on lending- and deposit-related fees, see
the segment results for CCB on pages 85-93, CIB on pages
94-98, and CB on pages 99-101 and Note 7; securities
gains, see the Corporate segment discussion on pages 105-
106; and card income, see CCB segment results on pages
85-93.
Other income was relatively flat compared with the prior
year, reflecting a $514 million benefit from a legal
settlement in Corporate, higher operating lease income as a
result of growth in auto operating lease assets in CCB, and
the absence of losses related to the exit of non-core
portfolios in Card. These increases were offset by the
impact of business simplification in CIB; the absence of a
benefit recognized in 2014 from a franchise tax settlement;
and losses related to the accelerated amortization of cash
flow hedges associated with the exit of certain non-
operating deposits.
Noninterest revenue
2014 compared with 2013
administration and
5,945
Mortgage servicing rights
Business outlook
These current expectations are forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are based on
the current beliefs and expectations of JPMorgan Chase's
management and are subject to significant risks and
uncertainties. These risks and uncertainties could cause the
Firm's actual results to differ materially from those set forth in
such forward-looking statements. See Forward-Looking
Statements on page 173 and the Risk Factors section on pages
8-18.
Business Outlook
JPMorgan Chase's outlook for the full-year 2016 should be
viewed against the backdrop of the global and U.S.
economies, financial markets activity, the geopolitical
environment, the competitive environment, client activity
levels, and regulatory and legislative developments in the
U.S. and other countries where the Firm does business. Each
of these inter-related factors will affect the performance of
the Firm and its lines of business. The Firm expects it will
continue to make appropriate adjustments to its businesses
and operations in response to ongoing developments in the
legal and regulatory, as well as business and economic,
environment in which it operates.
In the first quarter of 2016, management expects net
interest income and net interest margin to be relatively flat
when compared with the fourth quarter of 2015. During
2016, if there are no changes in interest rates, management
expects net interest income could be approximately $2 billion
higher than in 2015, reflecting the Federal Reserve's rate
increase in December 2015 and loan growth.
Management expects core loan growth of approximately
10%-15% in 2016 as well as continued growth in retail
deposits which are anticipated to lead to the Firm's balance
sheet growing to approximately $2.45 trillion in 2016.
Management also expects managed noninterest revenue of
approximately $50 billion in 2016, a decrease from 2015,
primarily driven by lower Card revenue reflecting
renegotiated co-brand partnership agreements and lower
revenue in Mortgage Banking.
The Firm continues to experience charge-offs at levels lower
than its through-the-cycle expectations reflecting favorable
credit trends across the consumer and wholesale portfolios,
excluding Oil & Gas. Management expects total net charge-
offs of up to approximately $4.75 billion in 2016. Based on
the changes in market expectations for oil prices since year-
end 2015, management believes reserves during the first
quarter of 2016 could increase by approximately $500
million for Oil & Gas, and by approximately $100 million for
Metals & Mining.
The Firm continues to take a disciplined approach to
managing its expenses, while investing in growth and
innovation. The Firm intends to leverage its scale and
improve its operating efficiencies, in order to reinvest its
expense savings in additional technology and marketing
investments and fund other growth initiatives. As a result,
Firmwide adjusted expense in 2016 is expected to be
approximately $56 billion (excluding Firmwide legal
expense).
Additionally, the Firm will continue to adapt its capital
assessment framework to review businesses and client
relationships against multiple binding constraints, including
GSIB and other applicable capital requirements, imposing
internal limits on business activities to align or optimize the
Firm's balance sheet and risk-weighted assets ("RWA") with
regulatory requirements in order to ensure that business
activities generate appropriate levels of shareholder value.
During 2016, the Firm expects the CET1 capital ratio
calculated under the Basel III Standardized Approach to
become its binding constraint. As a result of the anticipated
growth in the balance sheet, management anticipates that
the Firm will have, over time, $1.55 trillion in Standardized
risk weighted assets, and is expecting that, over the next
several years, its Basel III CET1 capital ratio will be between
11% and 12.5%. In the longer term, management expects to
maintain a minimum Basel III CET1 ratio of 11%. It is the
Firm's current intention that the Firm's capital ratios continue
to exceed regulatory minimums as they are fully
implemented in 2019 and thereafter. Likewise, the Firm will
be evolving its funding framework to ensure it meets the
current and proposed more stringent regulatory liquidity
rules, including those relating to the availability of adequate
Total Loss Absorbing Capacity (“TLAC”).
In Mortgage Banking within CCB, management expects
noninterest revenue to decline by approximately $700
million in 2016 as servicing balances continue to decline
from year-end 2015 levels. The Card net charge-off rate is
expected to be approximately 2.5% in 2016.
In CIB, management expects Investment Banking revenue in
the first quarter of 2016 to be approximately 25% lower
than the prior year first quarter, driven by current market
conditions in the underwriting businesses. In addition,
Markets revenue to date in the first quarter of 2016 is down
approximately 20%, when compared to a particularly strong
period in the prior year and reflecting the current challenging
market conditions. Prior year Markets revenue was positively
impacted by macroeconomic events, including the Swiss franc
decoupling from the Euro. Actual Markets revenue results for
the first quarter will continue to be affected by market
conditions, which can be volatile. In Securities Services,
management expects revenue of approximately $875 million
in the first quarter of 2016.
JPMorgan Chase & Co./2015 Annual Report
71
Asset management,
1
CONSOLIDATED RESULTS OF OPERATIONS
The following section of the MD&A provides a comparative
discussion of JPMorgan Chase's Consolidated Results of
Operations on a reported basis for the three-year period
ended December 31, 2015. Factors that relate primarily to a
single business segment are discussed in more detail within
that business segment. For a discussion of the Critical
Accounting Estimates Used by the Firm that affect the
Consolidated Results of Operations, see pages 165-169.
Revenue
Year ended December 31,
(in millions)
2015
2014
Investment banking fees
Principal transactions
$ 6,751 $ 6,542 $
10,408
10,531
2013
6,354
10,141
Lending- and deposit-related
fees
5,694
5,801
Management's discussion and analysis
Total net revenue for 2014 was down by 2% compared with
the prior year, predominantly due to lower mortgage fees
and related income and lower other income. The decrease
was partially offset by higher asset management,
administration and commissions revenue.
Investment banking fees increased compared with the prior
year, due to higher advisory and equity underwriting fees,
largely offset by lower debt underwriting fees. The increase
JPMorgan Chase & Co./2015 Annual Report
2014 compared with 2013
The provision for credit losses increased by $2.9 billion
from the prior year as result of a lower benefit from
reductions in the consumer allowance for loan losses,
partially offset by lower net charge-offs. The consumer
allowance reduction in 2014 was primarily related to the
consumer, excluding credit card, portfolio and reflected the
continued improvement in home prices and delinquencies in
the residential real estate portfolio. The wholesale provision
reflected a continued favorable credit environment.
JPMorgan Chase & Co./2015 Annual Report
73
Management's discussion and analysis
Noninterest expense
Year ended December 31,
2015
2014
$29,750
$30,160
2013
$30,810
(in millions)
Compensation expense
The provision for credit losses increased from the prior year
as a result of an increase in the wholesale provision, largely
reflecting the impact of downgrades in the Oil & Gas
portfolio. The increase was partially offset by a decrease in
the consumer provision, reflecting lower net charge-offs
due to continued discipline in credit underwriting, as well as
improvement in the economy driven by increasing home
prices and lower unemployment levels. The increase was
partially offset by a lower reduction in the allowance for
loan losses. For a more detailed discussion of the credit
portfolio and the allowance for credit losses, see the
segment discussions of CCB on pages 85-93, CB on pages
99-101, and the Allowance For Credit Losses on pages
130-132.
Noncompensation expense:
3,768
3,909
3,693
Technology, communications and
equipment
6,193
5,804
5,425
Professional and outside services
7,002
7,705
Marketing
2,708
Other(a)(b)
Occupancy
2015 compared with 2014
Total provision for credit losses $ 3,827 $ 3,139 $
225
in advisory fees was driven by the combined impact of a
greater share of fees for completed transactions, and
growth in industry-wide fees. The increase in equity
underwriting fees was driven by higher industry-wide
issuance. The decrease in debt underwriting fees was
primarily related to lower bond underwriting fees compared
with the prior year, and lower loan syndication fees on
lower industry-wide fees.
Principal transactions revenue increased as the prior year
included a $1.5 billion loss related to the implementation of
the funding valuation adjustment ("FVA") framework for
over-the-counter ("OTC") derivatives and structured notes.
Private equity gains increased as a result of higher net gains
on sales. These increases were partially offset by lower
fixed income markets revenue in CIB, primarily driven by
credit-related and rates products, as well as the impact of
business simplification initiatives.
Lending- and deposit-related fees decreased compared
with the prior year, reflecting the impact of business
simplification initiatives and lower trade finance revenue
in CIB.
Asset management, administration and commissions
revenue increased compared with the prior year, reflecting
higher asset management fees driven by net client inflows
and higher market levels in AM and CCB. The increase was
offset partially by lower commissions and other fee revenue
in CCB as a result of the exit of a non-core product in 2013.
Securities gains decreased compared with the prior year,
reflecting lower repositioning activity related to the Firm's
investment securities portfolio.
Mortgage fees and related income decreased compared
with the prior year, predominantly due to lower net
production revenue driven by lower volumes due to higher
mortgage interest rates, and tighter margins. The decline in
net production revenue was partially offset by a lower loss
on the risk management of mortgage servicing rights
("MSRS").
Card income was relatively flat compared with the prior
year, but included higher net interchange income due to
growth in credit and debit card sales volume, offset by
higher amortization of new account origination costs.
Other income decreased from the prior year, predominantly
from the absence of two significant items recorded in
Corporate in 2013: gains of $1.3 billion and $493 million
from sales of Visa shares and One Chase Manhattan Plaza,
respectively. Lower valuations of seed capital investments in
AM and losses related to the exit of non-core portfolios in
Card also contributed to the decrease. These items were
partially offset by higher auto lease income as a result of
growth in auto lease volume, and a benefit from a tax
settlement.
Net interest income increased slightly from the prior year,
predominantly reflecting higher yields on investment
securities, the impact of lower interest expense from lower
rates, and higher average loan balances. The increase was
partially offset by lower yields on loans due to the run-off of
higher-yielding loans and new originations of lower-yielding
loans, and lower average interest-earning trading asset
balances. The Firm's average interest-earning assets were
$2.0 trillion, and the net interest yield on these assets, on a
FTE basis, was 2.18%, a decrease of 5 basis points from the
prior year.
Provision for credit losses
Year ended December 31,
(in millions)
2015
2014
2013
Consumer, excluding credit card
$
(81) $
419
(83)
(359)
786
Wholesale
308
3,498
2,550
3,041
2,179
3,079
3,122
Credit card
(1,871)
$
Total consumer
For information on MSRs, see Note 17.
(b) Primarily includes dividends declared on preferred and common stock, deferred annuity contracts, pension and postretirement obligations and insurance
liabilities.
Other assets increased modestly as a result of an increase
in income tax receivables, largely associated with the
resolution of certain tax audits, and higher auto operating
lease assets from growth in business volume. These factors
were mostly offset by lower private equity investments
driven by the sale of a portion of the Private Equity business
and other portfolio sales.
Year ended
2013
2015
2014
The following summary table provides a reconciliation from the Firm's reported U.S. GAAP results to managed basis.
Management also uses certain non-GAAP financial
measures at the business-segment level, because it believes
these other non-GAAP financial measures provide
information to investors about the underlying operational
performance and trends of the particular business segment
and, therefore, facilitate a comparison of the business
segment with the performance of its competitors. Non-
GAAP financial measures used by the Firm may not be
comparable to similarly named non-GAAP financial
measures used by other companies.
December 31,
Effective January 1, 2015, the Firm adopted new
accounting guidance for investments in affordable housing
projects that qualify for the low-income housing tax credit,
which impacted the CIB. As a result of the adoption of this
new guidance, the Firm made an accounting policy election
to amortize the initial cost of qualifying investments in
proportion to the tax credits and other benefits received,
and to present the amortization as a component of income
tax expense; previously such amounts were predominantly
presented in other income. The guidance was required to be
applied retrospectively and, accordingly, certain prior
period amounts have been revised to conform with the
current period presentation. The adoption of the guidance
did not materially change the Firm's results of operations on
a managed basis as the Firm had previously presented and
will continue to present the revenue from such investments
on an FTE basis in other income for the purposes of
managed basis reporting.
The Firm prepares its Consolidated Financial Statements
using U.S. GAAP; these financial statements appear on
pages 176-180. That presentation, which is referred to as
"reported" basis, provides the reader with an
understanding of the Firm's results that can be tracked
consistently from year to year and enables a comparison of
the Firm's performance with other companies' U.S. GAAP
financial statements.
EXPLANATION AND RECONCILIATION OF THE FIRM'S USE OF NON-GAAP FINANCIAL MEASURES
Management's discussion and analysis
79
JPMorgan Chase & Co./2015 Annual Report
For a further discussion of the activities affecting the Firm's
cash flows, see Consolidated Balance Sheets Analysis on
pages 75-76, Capital Management on pages 149-158, and
Liquidity Risk Management on pages 159-164.
In addition to analyzing the Firm's results on a reported
basis, management reviews the Firm's results, including the
overhead ratio, and the results of the lines of business, on a
"managed" basis, which are non-GAAP financial measures.
The Firm's definition of managed basis starts with the
reported U.S. GAAP results and includes certain
reclassifications to present total net revenue for the Firm
(and each of the reportable business segments) on an FTE
basis. Accordingly, revenue from investments that receive
tax credits and tax-exempt securities is presented in the
managed results on a basis comparable to taxable
investments and securities. This non-GAAP financial
measure allows management to assess the comparability of
revenue arising from both taxable and tax-exempt sources.
The corresponding income tax impact related to tax-exempt
items is recorded within income tax expense. These
adjustments have no impact on net income as reported by
the Firm as a whole or by the lines of business.
*
Fully taxable-
Reported
Results
1,980
50,033
Net interest income
Total noninterest revenue
$
$ 3,013
(in millions, except ratios)
1,980 $ 5,012
$ 3,032
Other income
Managed
basis
Fully taxable-
equivalent
adjustments (a)
Managed Reported
basis
Results
equivalent
adjustments (a)
$
*
*
The Firm's financing activities includes cash related to
customer deposits, long-term debt, and preferred and
common stock. Cash used in financing activities in 2015
resulted from lower wholesale deposits partially offset by
higher consumer deposits. Additionally, in 2015 cash
outflows were attributable to lower levels of commercial
paper due to the discontinuation of a cash management
product that offered customers the option of sweeping their
deposits into commercial paper; lower commercial paper
issuances in the wholesale markets; and a decrease in
securities loaned or sold under repurchase agreements due
to a decline in secured financings. Cash provided by
financing activities in 2014 and 2013 predominantly
resulted from higher consumer and wholesale deposits;
partially offset in 2013 by a decrease in securities loaned
or sold under repurchase agreements, predominantly due
to changes in the mix of the Firm's funding sources. For all
periods, cash was provided by net proceeds from long-term
borrowings and issuances of preferred stock; and cash was
used for repurchases of common stock and cash dividends
on common and preferred stock.
Investing activities
$ 73,466 $ 36,593
Operating activities
2014
Year ended December 31,
2015
106,980
Net cash provided by/(used in)
CONSOLIDATED CASH FLOWS ANALYSIS
JPMorgan Chase & Co./2015 Annual Report
78
(f) At December 31, 2015 and 2014, included unfunded commitments of $50 million and $147 million, respectively, to third-party private equity funds, and
$871 million and $961 million of unfunded commitments, respectively, to other equity investments.
agreements. Excludes the benefit of noncancelable sublease rentals of $1.9 billion and $2.2 billion at December 31, 2015 and 2014, respectively.
(e) Includes noncancelable operating leases for premises and equipment used primarily for banking purposes and for energy-related tolling service
(in millions)
(165,636)
Financing activities
(187,511)
Financing activities
used in investing activities during 2014 and 2013 resulted
from increases in deposits with banks, attributable to higher
levels of excess funds; cash was also used for growth in
wholesale and consumer loans in 2014, while in 2013 cash
used reflected growth only in wholesale loans. Partially
offsetting these cash outflows in 2014 and 2013 was a net
decline in securities purchased under resale agreements
due to a shift in the deployment of the Firm's excess cash by
Treasury, and a net decline in consumer loans in 2013
resulting from paydowns and portfolio runoff or liquidation
of delinquent loans. Investing activities in 2014 and 2013
also reflected net proceeds from paydowns, maturities,
sales and purchases of investment securities.
The Firm's investing activities predominantly include loans
originated to be held for investment, the investment
securities portfolio and other short-term interest-earning
assets. Cash provided by investing activities during 2015
predominantly resulted from lower deposits with banks due
to the Firm's actions to reduce wholesale non-operating
deposits; and net proceeds from paydowns, maturities,
sales and purchases of investment securities. Partially
offsetting these net inflows was cash used for net
originations of consumer and wholesale loans, a portion of
which reflected a shift from investment securities. Cash
Cash provided by operating activities in 2015 resulted from
a decrease in trading assets, predominantly due to client-
driven market-making activities in CIB, resulting in lower
levels of debt and equity securities. Additionally, cash was
provided by a decrease in accounts receivable due to lower
client receivables and higher net proceeds from loan sales
activities. This was partially offset by cash used due to a
decrease in accounts payable and other liabilities, resulting
from lower brokerage customer payables related to client
activity in CIB. In 2014 cash provided reflected higher net
proceeds from loan securitizations and sales activities when
compared with 2013. In 2013 cash provided reflected a
decrease in trading assets from client-driven market-making
activities in CIB, resulting in lower levels of debt securities,
partially offset by net cash used in connection with loans
originated or purchased for sale. Cash provided by
operating activities for all periods also reflected net income
after noncash operating adjustments.
Investing activities
JPMorgan Chase's operating assets and liabilities support
the Firm's lending and capital markets activities, including
the origination or purchase of loans initially designated as
held-for-sale. Operating assets and liabilities can vary
significantly in the normal course of business due to the
amount and timing of cash flows, which are affected by
client-driven and risk management activities and market
conditions. The Firm believes cash flows from operations,
available cash balances and its capacity to generate cash
through secured and unsecured sources are sufficient to
meet the Firm's operating liquidity needs.
$ (7,341) $ (11,940) $ (13,952)
272
$ 107,953
(150,501)
28,324
2013
Operating activities
Net decrease in cash and due
from banks
(1,125)
(276)
Effect of exchange rate
changes on cash
118,228
52,013
51,478
1,788
1,788
Reported
Results
$4,608
9,350
3,090
6,260
Income tax expense
29,032
2,357
8,954
26,675
2,773
30,699
33,792
3,090
30,702
Income before income tax expense
33,472
2,773
11,727
8,789
80
Other assets
(a) Predominantly recognized in CIB and CB business segments and Corporate
71%
NM
72%
63%
NM
64%
61%
NM
63%
Overhead ratio
11,146
2,357
29,257
(d) Includes accrued interest and future contractual interest obligations. Excludes interest related to structured notes for which the Firm's payment obligation
is based on the performance of certain benchmarks.
2,357
36,611
44,619
985
43,634
44,620
1,110
43,510
43,319
55,708
54,048
$6,268
$1,660
basis
Managed
Fully taxable-
equivalent
adjustments(a)
1,660
697
44,016
Total net revenue
2,773
33,838
37,619
3,090
34,529
Pre-provision profit
99,724
2,357
97,367
97,885
2,773
95,112
96,633
3,090
93,543
26,900
(c) For further information, refer to unsettled reverse repurchase and securities borrowing agreements in Note 29.
$ 4,801
53,266
(a) Excludes structured notes on which the Firm is not obligated to return a stated amount of principal at the maturity of the notes, but is obligated to return
an amount based on the performance of the structured notes.
sold under repurchase agreements
Federal funds purchased and securities loaned or
1,361,597
1,276,139 $
4,555 $
3,553 $
151,433
5,166 $
$
Deposits (a)
On-balance sheet obligations
2016
(in millions)
2014
Total
1,262,865 $
Total
811
491
3,093
18,480
16,389
Beneficial interests issued by consolidated VIEs
15,734
11,331
3
11,331
66,344
15,562
15,562
Commercial paper
192,128
152,738
Other borrowed funds (a)
2015
2019-2020
2017-2018
The carrying amount of on-balance sheet obligations on the
Consolidated balance sheets may differ from the minimum
contractual amount of the obligations reported below. For a
discussion of mortgage repurchase liabilities and other
obligations, see Note 29.
76
The increase was due to net income and preferred stock
issuances, partially offset by the declaration of cash
dividends on common and preferred stock, and repurchases
of common stock. For additional information on
accumulated other comprehensive income/(loss) ("AOCI"),
see Note 25; for the Firm's capital actions, see Capital
Management on page 157 and Notes 22, 23 and 25.
The increase was due to net issuances, consistent with
Treasury's long-term funding plans. For additional
information on the Firm's long-term debt activities, see
Liquidity Risk Management on pages 159-164 and Note 21.
Stockholders' equity
Long-term debt
Beneficial interests issued by consolidated VIES
The decrease was predominantly due to a reduction in
commercial paper issued by conduits to third parties and to
maturities of certain municipal bond vehicles in CIB, as well
as net maturities of credit card securitizations. For further
information on Firm-sponsored VIES and loan securitization
trusts, see Off-Balance Sheet Arrangements on pages 77-
78 and Note 16.
The decrease was due to lower brokerage customer
payables related to client activity in CIB.
JPMorgan Chase & Co./2015 Annual Report
Accounts payable and other liabilities
Commercial paper
The decrease was due to a decline in secured financing of
trading assets-debt and equity instruments in CIB and of
investment securities in the Chief Investment Office ("CIO").
For additional information on the Firm's Liquidity Risk
Management, see pages 159-164.
Federal funds purchased and securities loaned or sold
under repurchase agreements
The decrease was attributable to lower wholesale deposits,
partially offset by higher consumer deposits. The decrease
in wholesale deposits reflected the impact of the Firm's
actions to reduce non-operating deposits. The increase in
consumer deposits reflected continuing positive growth
from strong customer retention. For more information,
refer to the Liquidity Risk Management discussion on pages
159-164; and Notes 3 and 19.
Deposits
JPMorgan Chase & Co./2015 Annual Report
The decrease was associated with the discontinuation of a
cash management product that offered customers the
option of sweeping their deposits into commercial paper
("customer sweeps"), and lower issuances in the wholesale
markets, consistent with Treasury's short-term funding
plans. For additional information, see Liquidity Risk
Management on pages 159-164.
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
In the normal course of business, the Firm enters into
various contractual obligations that may require future cash
payments. Certain obligations are recognized on-balance
sheet, while others are off-balance sheet under accounting
principles generally accepted in the U.S (“U.S. GAAP"). The
Firm is involved with several types of off-balance sheet
arrangements, including through nonconsolidated special-
purpose entities ("SPES"), which are a type of VIE, and
through lending-related financial instruments (e.g.,
commitments and guarantees).
Special-purpose entities
By remaining maturity at December 31,
Contractual cash obligations
The accompanying table summarizes, by remaining
maturity, JPMorgan Chase's significant contractual cash
obligations at December 31, 2015. The contractual cash
obligations included in the table below reflect the minimum
contractual obligation under legally enforceable contracts
with terms that are both fixed and determinable. Excluded
from the below table are certain liabilities with variable
cash flows and/or no obligation to return a stated amount
of principal at maturity.
Contractual cash obligations
Management's discussion and analysis
77
JPMorgan Chase & Co./2015 Annual Report
The Firm also acts as liquidity provider for certain municipal
bond vehicles. The Firm's obligation to perform as liquidity
provider is conditional and is limited by certain termination
events, which include bankruptcy or failure to pay by the
municipal bond issuer and any credit enhancement
provider, an event of taxability on the municipal bonds or
the immediate downgrade of the municipal bond to below
investment grade. See Note 16 for additional information.
Off-balance sheet lending-related financial
instruments, guarantees, and other commitments
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to meet
the financing needs of its customers. The contractual
amount of these financial instruments represents the
maximum possible credit risk to the Firm should the
counterparty draw upon the commitment or the Firm be
required to fulfill its obligation under the guarantee, and
should the counterparty subsequently fail to perform
according to the terms of the contract. Most of these
commitments and guarantees expire without being drawn
or a default occurring. As a result, the total contractual
amount of these instruments is not, in the Firm's view,
representative of its actual future credit exposure or
funding requirements. For further discussion of lending-
related financial instruments, guarantees and other
commitments, and the Firm's accounting for them, see
Lending-related commitments on page 127 and Note 29.
For a discussion of liabilities associated with loan sales and
securitization-related indemnifications, see Note 29.
December 31, 2015 and 2014, respectively. The Firm could
facilitate the refinancing of some of the clients' assets in
order to reduce the funding obligation. For further
information, see the discussion of Firm-administered multi-
seller conduits in Note 16.
primarily "P-1", "A-1" and "F1" for Moody's Investors
Service ("Moody's"), Standard & Poor's and Fitch,
respectively. These liquidity commitments support the
issuance of asset-backed commercial paper by Firm-
administered consolidated SPES. In the event of a short-
term credit rating downgrade, JPMorgan Chase Bank, N.A.,
absent other solutions, would be required to provide
funding to the SPE if the commercial paper could not be
reissued as it matured. The aggregate amounts of
commercial paper outstanding held by third parties as of
December 31, 2015 and 2014, was $8.7 billion and $12.1
billion, respectively. The aggregate amounts of commercial
paper issued by these SPES could increase in future periods
should clients of the Firm-administered consolidated SPES
draw down on certain unfunded lending-related
commitments. These unfunded lending-related
commitments were $5.6 billion and $9.9 billion at
For certain liquidity commitments to SPES, JPMorgan Chase
Bank, N.A. could be required to provide funding if its short-
term credit rating were downgraded below specific levels,
Implications of a credit rating downgrade to JPMorgan Chase
Bank, N.A.
The Firm has no commitments to issue its own stock to
support any SPE transaction, and its policies require that
transactions with SPEs be conducted at arm's length and
reflect market pricing. Consistent with this policy, no
JPMorgan Chase employee is permitted to invest in SPES
with which the Firm is involved where such investment
would violate the Firm's Code of Conduct. These rules
prohibit employees from self-dealing and acting on behalf
of the Firm in transactions with which they or their family
have any significant financial interest.
The Firm holds capital, as deemed appropriate, against all
SPE-related transactions and related exposures, such as
derivative transactions and lending-related commitments
and guarantees.
The most common type of VIE is an SPE. SPES are commonly
used in securitization transactions in order to isolate certain
assets and distribute the cash flows from those assets to
investors. SPEs are an important part of the financial
markets, including the mortgage- and asset-backed
securities and commercial paper markets, as they provide
market liquidity by facilitating investors' access to specific
portfolios of assets and risks. SPES may be organized as
trusts, partnerships or corporations and are typically
established for a single, discrete purpose. SPES are not
typically operating entities and usually have a limited life
and no employees. The basic SPE structure involves a
company selling assets to the SPE; the SPE funds the
purchase of those assets by issuing securities to investors.
JPMorgan Chase uses SPEs as a source of liquidity for itself
and its clients by securitizing financial assets, and by
creating investment products for clients. The Firm is
involved with SPES through multi-seller conduits, investor
intermediation activities, and loan securitizations. See Note
16 for further information on these types of SPES.
3,130
41,092
After 2020
107,715
170
276
886
1,266
Contractual purchases and capital expenditures
1,108
2,832
921
75
387
Equity investment commitments (f)
12,441
11,829
4,679
459
Obligations under affinity and co-brand programs
98
275
104,475
1,889,915 $ 2,064,961
50,200
26,559
129,495 $
76,854 $
121,667 $
$ 1,561,899 $
9,512
13,716
54,688
Total contractual cash obligations
Total off-balance sheet obligations
2,303
496
43
80
2,388
3,094
2,598
1,668
1,507,211
Total on-balance sheet obligations
8,355
8,372
2,488
1,024
1,201
3,659
Other(b)
262,888
280,206
92,272
59,669
82,293
Long-term debt(a)
107,951
67,342
45,972
6,693
48,038
46,149
21,208
102,936
9,461
8,787
Contractual interest payments (d)
42,482
42,482
Unsettled reverse repurchase and securities
borrowing agreements (c)
Off-balance sheet obligations
1,957,246
1,785,440
40,993
Operating leases (e)
2006
2005
$4.34
2008
2009
2007
2004
6%
$1.35
$4.5
$5.6
$2.35
$3.96
2010
$8.5 $4.00 $4.33
$1.52
2011
investments drive the future prospects of our company and position it to grow and
prosper for decades. Whether looking back over five years, 10 years or since the Bank
One/JPMorgan Chase merger (approximately 12 years ago), our stock has significantly
outperformed the Standard & Poor's (S&P) 500 and the S&P Financials Index. And this
is during a time of unprecedented challenges for banks - both the Great Recession and
2013
Overall gain
Performance for the period ended
Compounded annual gain
(7/1/2004-12/31/2016)
and JPMorgan Chase & Co. merger
Performance since the Bank One
Compounded annual gain
Overall gain
Performance since becoming CEO of Bank One
(3/27/2000-12/31/2016)¹
Stock total return analysis
Return on tangible common equity
Diluted earnings per share
Net income
2016
2015
2014
2012
$5.29
business owners
13%
managed revenue
¹Represents
Jamie Dimon,
Chairman and
Chief Executive Officer
2
Our stock price is a measure of the progress we have made over the years. This
progress is a function of continually making important investments, in good times and
not so good times, to build our capabilities – people, systems and products. These
2016 was another breakthrough year for our company. We earned a record $24.7 billion
in net income on revenue¹ of $99.1 billion, reflecting strong underlying performance
across our businesses. We have delivered record results in six out of the last seven
years, and we hope to continue to deliver in the future.
Throughout a period of profound political and economic change around the world,
our company has been steadfast in our dedication to the clients, communities and
countries we serve while earning a fair return for our shareholders.
I begin this letter with a sense of gratitude and pride about JPMorgan Chase that
has only grown stronger over the course of the last decade. Ours is an exceptional
company with an extraordinary heritage and a promising future.
Dear Fellow Shareholders,
JPMORGAN CHASE & Co.
the
local governments
hospitals
schools
December 31, 2016
Earnings, Diluted Earnings per Share and Return on Tangible Common Equity
2004-2016
13%
($ in billions, except per share and ratio data)
$21.7
13% $6.00 $6.19
13%
$4.48
$11.7
10%
$5.19
15% $17.9
11%
$21.3
$19.0
10%
$17.4
15% 15%
$14.4
15%
$15.4
24%
22%
$24.4 $24.7
Compounded annual gain/(loss)
Compounded annual gain
Five years
2004
$15.35 $16.45
$18.88
$21.96 $22.52
$27.09
$30.12
$33.62
$38.68
$40.72
$35.49
$44.60
$40.36 $39.36 $39.22
$36.07
$38.70
$39.83
2005
$48.13
Tangible book value
2008
nonprofits
Performance since the Bank One
Overall gain
(3/27/2000-12/31/2016)¹
Performance since becoming CEO of Bank One
Bank One/JPMorgan Chase & Co. tangible book value per share performance vs. S&P 500
2007
Average stock price
2016
2015
2014
2013
2012
2011
2010
2009
2006
One year
$51.44
$65.62
12.0%
34.6%
2.3%
32.3%
7.8%
154.8%
211.0%
9.5%
S&P Financials Index
S&P 500
JPMorgan Chase & Co.
3.1%
65.9%
4.3%
103.0%
11.5%
524.6%
S&P 500 S&P Financials Index
Bank One
Ten years
22.7%
$63.83
24.4%
19.4%
$58.17
$51.88
$43.93
$47.75
Tangible Book Value and Average Stock Price per Share
2004-2016
In the last five years, we have bought back $25.7 billion in stock. In prior years, I have
explained why buying back our stock at tangible book value per share was a no-
brainer. While the first and most important use of capital is to invest in growth, buying
back stock should also be considered when you are generating excess capital. We do
As you know, we believe tangible book value per share is a good measure of the value
we have created for our shareholders. If we believe our asset and liability values are
appropriate - and we do - and if we believe we can continue to deploy this capital at
an approximate 15% return on tangible equity, which we do, then our company should
ultimately be worth considerably more than tangible book value. If you look at the
chart below, you'll see that tangible book value "anchors” the stock price.
the extraordinarily difficult legal, regulatory and political environments that followed.
We have long contended that these factors explained why bank stock price/earnings
ratios were appropriately depressed. And we believe the anticipated reversal of many
negatives and the expectation of a more business-friendly environment, coupled with
our sustained, strong business results, are among the reasons our stock price has done
so well this past year.
3
On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.
1
These charts show actual returns of the stock, with dividends included, for heritage shareholders of Bank One and JPMorgan Chase & Co.
vs. the Standard & Poor's 500 Index (S&P 500) and the Standard & Poor's Financials Index (S&P Financials Index).
(0.4)%
6.9%
8.6%
14.7%
veterans
JPMORGAN CHASE & Co.
customers
6.19
5.33
6.05
6.24
$
Basic
Net income per share:
Per common share data
21,745
24,442
$
24,733
$
Net income
3,139
6.00
3,827
5.29
1.72
13
13
Return on tangible common equity (ROTCE)(b)
10%
11%
10%
Return on common equity
Selected ratios
44.60
48.13
51.44
56.98
60.46
64.06
1.58
1.88
13
5,361
33,838
Reported basis (a)
(in millions, except per share, ratio data and headcount)
As of or for the year ended December 31,
Financial Highlights
&
JPMORGAN CHASE & CO.
ANNUAL REPORT 2016
GoodTERS
JPMORGAN CHASE & Co
and JPMorgan Chase & Co. merger
81 is
CHASE
JP. Morgan
Women on the Move
5 Source: Thomson Reuters Extel, 2016
Total net revenue
Provision for credit losses
2016
2014
34,529
39,897
Pre-provision profit
61,274
59,014
55,771
Total noninterest expense
95,112
93,543
$
95,668
Tangible book value (TBVPS) (b)
Book value
Cash dividends declared
Diluted
2015
Common equity Tier 1 capital ratio (c)
12.2
11.6
Here's
You
Here's
to You
Information about J.P. Morgan's capabilities can be found at jpmorgan.com and about
Chase's capabilities at chase.com. Information about JPMorgan Chase & Co. is available
at jpmorganchase.com.
JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets
of $2.5 trillion and operations worldwide. The firm is a leader in investment banking,
financial services for consumers and small businesses, commercial banking, financial
transaction processing, and asset management. A component of the Dow Jones Industrial
Average, JPMorgan Chase & Co. serves millions of consumers in the United States and
many of the world's most prominent corporate, institutional and government clients
under its J.P. Morgan and Chase brands.
(b) TBVPS and ROTCE are each non-GAAP financial measures. For further discussion of these measures, see Explanation and
Reconciliation of the Firm's Use of Non-GAAP Financial Measures and Key Financial Performance Measures on pages 48-50.
(c) The ratios presented are calculated under the Basel III Advanced Fully Phased-In Approach, and they are key regulatory capital
measures. For further discussion, see “Capital Risk Management" on pages 76-85.
(a) Results are presented in accordance with accounting principles generally accepted in the United States of America, except where
otherwise noted.
241,359
234,598
243,355
Headcount
3,714.8
3,663.5
3,561.2
Common shares at period-end
re's THANK YOU
232,472
You
You
clients
communities
&
4
Write
Apprec
JPMOR
Here's to
to You
Here's
You
re's
Cate
ARK You
Here's
THE CCBQQU
241,899
307,295
Market capitalization
$ 837,299
2,351,698
2,490,972
Total assets
$ 894,765
Loans
Selected balance sheet data (period-end)
12.7
14.7
15.2
Total capital ratio (c)
11.4
13.3
14.0
Tier 1 capital ratio (c)
10.2
$ 757,336
2,572,274
Deposits
1,375,179
62.58
66.03
86.29
$
Closing share price
Market data
Total stockholders' equity
employees
231,727
254,190
211,664
221,505
228,122
Common stockholders' equity
1,363,427
1,279,715
247,573
(7/1/2004-12/31/2016)
$2.26
Overall gain
$949
$661
($ in billions)
16.0% ■#1 rated mobile banking app¹5
21.5% ■#1 U.S. credit and debit payments volume¹6
■#2 merchant acquirer¹7
Merchant processing volume³
21.1%
15.9%
Credit card sales market share²
20.0%
■■■#1 U.S. co-brand credit card issuer¹4
10.0%
9.0%
8.0%
NM
Active mobile customers growth rate
Average deposits growth rate
$1,063
Community
Banking
Global Investment Banking fees
Market share4
Equities5
7.0%
Market share5
#7
FICC5
Investment
Bank
#1
9.7%
6.3%
Market share5
Corporate &
#8
Total Markets revenue
#1
8.1%
#1
7.9%
8.7%
#2
■■■#1 U.S. credit card issuer¹³
14 (38)
12 (40)
Best-in-class overhead ratio represents comparable JPMorgan Chase (JPM) peer segments: Wells Fargo Community Banking
(WFC-CB), Bank of America Global Banking and Global Markets (BAC-GB & BAC-GM), PNC Corporate and Institutional Banking
(PNC), Credit Suisse Private Banking (CS-PB) and BlackRock (BLK).
3
2
1
9%
MS
74%
MS
10%
GS
66%
GS
SS
8%
с
JPM 2016 ROE reflects allocation of common equity to each business. JPM target ROTCE reflects the 2017 change in capital
allocation methodology from common equity to tangible common equity, resulting in LOB equity being more in line with peers.
Best-in-class ROTCE is based on net income minus preferred stock dividends of comparable JPM peers and peer segments
when available: Wells Fargo & Company (WFC), BAC-GB & BAC-GM, Fifth Third Bank (FITB), Bank of America Global Wealth
and Investment Management (BAC-GWIM) and T. Rowe Price (TROW).
11 (25)
where we are #1 (top 3)
Consumer &
■Industry leading deposit growth¹2
■Relationships with ~50% of U.S. households
8.3%
7.9%
#8
3.6%
Deposits market share¹
2016
2015
2006
Client Franchises Built Over the Long Term
7
4 WFC, Bank of America Corporation (BAC), Citigroup Inc. (C), Goldman Sachs Group, Inc. (GS), Morgan Stanley (MS).
ROTCE Return on tangible common equity
# of top 50 Chase markets
58%
#1
10.3%
#3
5.0%
Regional banks
Big banks²
Industry average
Chase
U.S. retail banking satisfaction¹
Increasing Customer Satisfaction
NA = Not available
NM = Not meaningful
For footnoted information, refer to slide 39 in the 2017 Firm Overview Investor Day presentation, which is available on JPMorgan Chase & Co.'s website
(http://investor.shareholder.com/jpmorganchase/presentations.cfm), under the heading Investor Relations, Events & Presentations, JPMorgan Chase 2017 Investor Day,
Firm Overview, and on Form 8-K as furnished to the SEC on February 28, 2017, which is available on the SEC's website (www.sec.gov).
■■83% of 10-year long-term mutual fund AUM in top 2 quartiles24
■Positive client asset flows every year since 2004
■Industry-leading credit performance - 5th straight year of net
recoveries or single digit NCO rate
■Top 3 in overall Middle Market, large Middle Market
and Asset Based Lending Bookrunner23
■Unparalleled platform capabilities - competitive advantage
■■■#1 in perceived customer satisfaction²²
4.4%
4.4%
Midsized banks
3.0%
Other important metrics
■Chase grew its Business Banking primary bank market share from ~6% in 2012 to ~9%
in 2016
4 Source: Euromoney, 2017
Compounded annual gain
3 Market share and rank is based on Coalition FY 16 results and reflects J.P. Morgan's share of Coalition's Global
Industry Revenue Pool. Total industry pool is based on J.P. Morgan's internal business structure.
2 Big banks defined as top six U.S. banks.
¹ Source: J.D. Power U.S. Retail Banking Satisfaction Study
2016
2015
2014
2013
2012
2011
■J.P. Morgan ranks as the Leading Pan-European Fund Management Firm for seven
consecutive years5
■J.P. Morgan ranks as the #1 private bank in the U.S. for eight consecutive years and #1 in
Latin America for four consecutive years4
■ Overall client satisfaction for CB clients has increased from 87% to 91% from 2010 to
2016, according to our proprietary client survey
■Chase improved its performance in the J.D. Power Primary Mortgage Origination and Servicer
Satisfaction Studies – ranking #5 in originations and #6 in servicing. Chase originations and
servicing rankings went up by 2 and 4 spots, respectively, compared to the 2015 rankings
■In Total Markets, J.P. Morgan ranked #1; in Fixed Income, #1, continuously since 2010; and
in Equities, #2, having increased its share to 10.1% from 8.8% last year³
■Institutional Investor magazine surveys large investors every year. In 2016, J.P. Morgan
Research team rankings were: #1 for All-America Equity; #1 for All-America Fixed Income;
and #1 for All-Europe Fixed Income. With the future focus on emerging markets, J.P. Morgan
Research ranked #2 in the survey for Emerging Markets EMEA Research
Increasing market share is a sign of increasing customer satisfaction
#2
2.5%
#1
#1
#1
Gross Investment Banking
Commercial
Banking
#1
#1
#28
Multifamily lending
47
45
26
Middle Market banking presence
# of Metropolitan Statistical Areas with
■Top 3 Custodian globally with AUC of $20.5 trillion20
■#1 in USD clearing volumes with 19.0% share in 201621
■>80% of Fortune 500 companies do business with us
■#1 in both N.A. and EMEA Investment Banking fees¹8
■#1 in Global Debt, Equity and Equity-related 18
■#1 in Global Long-Term Debt and Loan Syndications18
■■■#1 in FICC productivity¹9
#1
11.4%
#1
12.0%
#2
10.1%
8.8%
revenue ($ in billions)
$0.7
$2.2
$2.3
North America Private Bank (Euromoney)
Client assets market share¹¹
Management
#4
2.6%
1.8%
ΝΑ
Ranking of long-term client asset flows
Active AUM market share10
Asset & Wealth
Market share5
220
119
Mutual funds with a 4/5 star rating³
40%
36%
16%
Investment Banking fees
% of North America
214
с
■#2 Global Private Bank and #1 LatAm Private Bank25
■Revenue and long-term AUM growth ~80% since 2006
■Doubled WM client assets (1.6x industry rate) since 200610
BAC
Page 24
growth of the economy?
How has regulation affected monetary policy, the flow of bank credit and the
4.
Page 23
How do certain regulatory policies impact money markets?
3.
Page 20
How and why should capital rules be changed?
2.
Page 18
Talk about the strength and safety of the financial system and whether Too Big
to Fail has been solved.
1.
Page 17
Regulatory reform
5.
II.
How can we reform mortgage markets to give qualified borrowers access to the
Page 25
How can we start investing in our people to help them be more productive and
share in the opportunities and rewards of our economy?
3.
Page 32
But it is clear that something is wrong - and it's holding us back.
2.
Page 32
The United States of America is truly an exceptional country.
1.
Page 32
III. Public policy
Page 31
Page 30
How can we reduce complexity and create a more coherent regulatory system?
How can we harmonize regulations across the globe?
7.
6.
credit they need?
Page 12
6. Although banks and other large companies remain unpopular with some people,
you often say how proud you are of JPMorgan Chase. Why?
Page 11
5.4%
154.8%
7.8%
13.2%
373.6%
Relative Results
(A) - (B)
S&P 500
(B)
(A)
JPMorgan Chase & Co.
7.9%
425.1%
4.3%
103.0%
12.2%
528.1%
Bank One
(A)
10%
Relative Results
(A) (B)
S&P 500
(B)
218.8%
1 On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.
currently have excess capital. Five years ago, we offered the example of our buying
back stock at tangible book value and having earnings per share and tangible book
value per share substantially higher than they otherwise would have been just four
years later. While we prefer buying our stock at tangible book value, we think it makes
sense to do so at or around two times tangible book value for reasons similar to those
we've expressed in the past. If we buy back a big block of stock this year (using analyst
earnings estimates for the next five years), we would expect earnings per share in five
years to be 3%-4% higher, and tangible book value would be virtually unchanged.
In this letter, I discuss the issues highlighted on the next page – which describe many
of our successes and opportunities, as well as our challenges and responses. Like last
year's letter, we have organized much of the content around some of the key questions
we have received from shareholders and other interested parties.
What are your biggest geopolitical risks?
5.
Page 10
Page 9
What are some technology and fintech initiatives that you're most excited about?
How do we protect customers and their sensitive information while enabling them
to share data?
4.
3.
Page 39
Page 9
2.
Page 7
1. Why do we consider our four major business franchises strong and market leading?
Page 7
The JPMorgan Chase franchise
I.
5
Why are we optimistic about our future growth opportunities?
4. What should our country be doing to invest in its infrastructure? How does the lack
of a plan and investment hurt our economy?
Tangible book value over time captures the company's use of capital, balance sheet and profitability. In this chart, we are looking at
heritage Bank One shareholders and JPMorgan Chase & Co. shareholders. The chart shows the increase in tangible book value per share;
it is an after-tax number assuming all dividends were retained vs. the Standard & Poor's 500 Index (S&P 500), which is a pre-tax number
with dividends reinvested.
5.
65%
CS-PB & BLK
Management
70%
Asset & Wealth
15%
12%
FITB
16%
35%
39%
PNC
Banking
39%
Commercial
Bank
BAC-GB & BAC-GM
14%
70%
13%
24%
25%
BAC
14%
Page 40
65%
WFC
59%
~15%
13%
JPM
56%
Target
Target
55%+/-
ROTCE
Overhead ratios
JPMorgan Chase compared with peers4
24%
BAC-GWIM & TROW
16%
JPM
WFC
54%
BAC-GB & BAC-GM
How should the U.S. legal and regulatory systems be reformed to incentivize
investment and job creation?
overhead
JPM 2016
Returns
Efficiency
JPMorgan Chase Is in Line with Best-in-Class Peers in Both Efficiency and Returns
products and services relative to the competi-
tion. And each business continues to inno-
vate, from customer-facing apps, to straight-
through processing, to digitized trading
services or payment systems. Our business
leaders do a great job describing their busi-
nesses, and I strongly encourage you to read
their letters following this year's Letter to
Shareholders. Each will give you a feel for
why we are optimistic about our future.
ratios
The chart below and those on page 8 speak
for themselves. Looking closely at the actual
numbers, it's clear that every business is
among the top performers financially-
whether you look at efficiency (overhead
ratios) or return on equity (ROE) vs. the best
in that business. More important, customer
satisfaction is at the center of everything
we do. Each business has gained market
share - which is possible only when
you are
improving customer satisfaction and your
Page 45
Strong collaboration is needed between business and government.
7.
Page 41
55%+/-
Page 42
6. What price are we paying for the lack of understanding about business and
free enterprise?
1. Why do we consider our four major business franchises strong and market leading?
Best-in-class
peer overhead
ratios¹
I. THE JPMORGAN CHASE FRANCHISE
JPM 2016
ROE²
JPM target
overhead
ratios
54%
Banking
20%
Investment
18%
14%
WFC
Corporate &
56%
WFC-CB
Community
55%
Best-in-class
peer ROTCE³
~50%
JPM target
ROTCE² (+/-)
Consumer &
Deposit margin
1.81%
1.90%
$ 472.3
2.21%
Debit and credit card sales
volume
Client investment assets
7.3
234.5
$ 515.2
$ 6.8
218.6
$ 6.6
213.5
Business banking origination
volume
$
$ 817.9
Average deposits
Consumer & Business Banking
$ 707.0
$ 753.8
19,084
22,810
26,536
36,396
39,242
5,602
Mortgage Banking
Active digital customers
43,836
$ 570.8
Mortgage origination volume by
78.0
channel
7.4
6.6
6.1
5,413
(period-end)
MSR carrying value
751.5
674.0
591.5
serviced (period-end)
Third-party mortgage loans
$ 948.8
$ 910.1
56
$ 846.6
Total loans serviced
$
$ 106.4
$ 103.6
Total mortgage origination
volume(c)
48.5
70.3
$ 29.5
$ 36.1
44.3
59.3
Correspondent
$
Retail
(period-end)
5,258
Auto
57.2
3.434
4,034
3,325
2,742
2,311
Mortgage Banking - PCI loans (c)
Credit Card
2,188
1,588
1,328
PCI loans
Mortgage Banking, excluding
132,802 127,094 137,186
Headcount
$ 703
$ 703
753
$
Consumer & Business Banking
Allowance for loan losses
0.70
0.72
0.81
90+ day delinquency rate -
Credit Card (h)
2.35
Ratio of MSR carrying value
1.81
1.60
3,439
474
399
350
57.8
60.0
CCB households (in millions)
Business Metrics
2014
2015
2016
Active mobile customers
(in thousands) (b)
(in thousands) (a)
(in billions, except ratios and
where otherwise noted)
As of or for the year ended
December 31,
Selected metrics
(i) Excluded student loans insured by U.S. government agencies under
FFELP of $468 million, $526 million and $654 million at December 31,
2016, 2015 and 2014, respectively, that are 30 or more days past due.
These amounts have been excluded based upon the government
guarantee.
Number of branches
(h) Period-end credit card loans included loans held-for-sale of $105 million,
$76 million and $3.0 billion at December 31, 2016, 2015 and 2014,
respectively. These amounts are excluded when calculating delinquency
rates.
(e) Average credit card loans included loans held-for-sale of $84 million,
$1.6 billion and $509 million for the years ended December 31, 2016,
2015 and 2014, respectively. These amounts are excluded when
calculating the net charge-off rate.
(d) Excludes the impact of PCI loans. For the years ended December 31,
2016, 2015 and 2014, the net charge-off rates including the impact of
PCI loans were as follows: (1) home equity of 0.34%, 0.45% and 0.65%,
respectively; (2) residential mortgage and other of 0.01%, -% and
0.01%, respectively; (3) Mortgage Banking of 0.09%, 0.14% and
0.27%, respectively; and (4) total CCB of 0.95%, 0.99% and 1.22%,
respectively.
Management's discussion and analysis
55
(b) At December 31, 2016, 2015 and 2014, nonaccrual loans excluded
loans 90 or more days past due as follows: (1) mortgage loans insured
by U.S. government agencies of $5.0 billion, $6.3 billion and $7.8 billion
respectively; and (2) student loans insured by U.S. government agencies
under the Federal Family Education Loan Program ("FFELP") of $263
million, $290 million and $367 million, respectively. These amounts
have been excluded based upon the government guarantee.
(c) Net charge-offs and the net charge-off rates for the years ended
December 31, 2016, 2015 and 2014, excluded $156 million, $208
million, and $533 million, respectively, of write-offs in the PCI portfolio.
These write-offs decreased the allowance for loan losses for PCI loans.
For further information on PCI write-offs, see summary of changes in the
allowance on page 106.
(a) Excludes PCI loans. The Firm is recognizing interest income on each pool
of PCI loans as they are all performing.
$ 9,149 $ 9,165 $ 10,404
JPMorgan Chase & Co./2016 Annual Report
Total allowance for loan
losses(c)
399
299
249
Student
(f) At December 31, 2016, 2015 and 2014, excluded mortgage loans
insured by U.S.government agencies of $7.0 billion, $8.4 billion and
$9.7 billion, respectively, that are 30 or more days past due. These
amounts have been excluded based upon the government guarantee.
(g) Excludes PCI loans. The 30+ day delinquency rate for PCI loans was
9.82%, 11.21% and 13.33% at December 31, 2016, 2015 and 2014,
respectively.
(period-end) to third-party
All other income(a)
(period-end)
18,992
Total noninterest expense
9,973
11,388
9,446
Noncompensation expense
9,546
Compensation expense
Noninterest expense
332
563
Provision for credit losses
4,687
1,474
23,420
11,175
34,595
9,849
33,542
35,216
Total net revenue
10,891
Net interest income(a)
23,693
24,325
1,012
1,169
4,467
4,062
administration and commissions
Asset management,
1,742
1,573
21,361
10,449
12,824
23,273
Income before income tax
expense
Revenue by business
Investment Banking
Treasury Services
Student(i)
30
30
27
percentage of total net
revenue
Compensation expense as
67
64
54
10%
12%
16%
1,581
2014
2016
Return on common equity
Overhead ratio
Year ended December 31,
(in millions, except ratios)
Financial ratios
Selected income statement data
(a) Included tax-equivalent adjustments, predominantly due to income tax
credits related to alternative energy investments; income tax credits and
amortization of the cost of investments in affordable housing projects; and
tax-exempt income from municipal bonds of $2.0 billion, $1.7 billion and
$1.6 billion for the years ended December 31, 2016, 2015 and 2014,
respectively.
$ 10,815 $ 8,090 $ 6,908
(161)
Net income
11,483
4,575
11,849
3,759
4,846
Income tax expense
15,661
2015
Lending- and deposit-related fees
8,947
9,905
$ 35.4
Loan and lease origination
volume
Auto
$ 847.9
$ 949.3
$1,063.4
Merchant processing volume
Commerce Solutions
12.03%
12.33%
11.29%
Net revenue rate
8.8
$ 32.4
8.7
$ 465.6
$ 495.9
$ 545.4
Card Services
Credit card sales volume
New accounts opened
(in millions)
Credit Card, excluding
Commercial Card
2.72x
2.80x
2.94x
MSR revenue multiple(d)
0.98%
0.98%
1.03%
10.4
mortgage loans serviced
$
Average Auto operating lease
assets
11,089
Principal transactions
$ 6,424 $ 6,736 $ 6,570
Investment banking fees
Revenue
(in millions)
Year ended December 31,
2014
2015
2016
Noninterest revenue
Selected income statement data
The Corporate & Investment Bank, which consists of
Banking and Markets & Investor Services, offers a
broad suite of investment banking, market-making,
prime brokerage, and treasury and securities products
and services to a global client base of corporations,
investors, financial institutions, government and
municipal entities. Banking offers a full range of
investment banking products and services in all major
capital markets, including advising on corporate
strategy and structure, capital-raising in equity and
debt markets, as well as loan origination and
syndication. Banking also includes Treasury Services,
which provides transaction services, consisting of cash
management and liquidity solutions. Markets &
Investor Services is a global market-maker in cash
securities and derivative instruments, and also offers
sophisticated risk management solutions, prime
brokerage, and research. Markets & Investor Services
also includes Securities Services, a leading global
custodian which provides custody, fund accounting and
administration, and securities lending products
principally for asset managers, insurance companies
and public and private investment funds.
27.5
CORPORATE & INVESTMENT BANK
57
57
The Federal Reserve Consent Order and other obligations
under certain mortgage-related settlements are the subject
of ongoing reporting to various regulators and independent
overseers. The Firm's compliance with certain of these
settlements is detailed in periodic reports published by the
independent overseers. The Firm is committed to fulfilling its
commitments with appropriate diligence.
The Firm has resolved the majority of the consent orders and
settlements into which it entered with federal and state
governmental agencies and private parties related to
mortgage servicing, origination, and residential mortgage-
backed securities activities. However, among those
obligations, the mortgage servicing-related Consent Order
entered into with the Federal Reserve on April 13, 2011, as
amended on February 28, 2013, and certain other
settlements remain outstanding. The Audit Committee of the
Board of Directors provides governance and oversight of the
Federal Reserve Consent Order.
Selected income statement data
JPMorgan Chase & Co./2016 Annual Report
JPMorgan Chase & Co./2016 Annual Report
(d) Represents the ratio of MSR carrying value (period-end) to third-party
mortgage loans serviced (period-end) divided by the ratio of loan servicing-
related revenue to third-party mortgage loans serviced (average).
(b) Users of all mobile platforms who have logged in within the past 90 days.
(c) Firmwide mortgage origination volume was $117.4 billion, $115.2 billion
and $83.3 billion for the years ended December 31, 2016, 2015 and
2014, respectively.
(a) Users of all web and/or mobile platforms who have logged in within the
past 90 days.
6.1
7.8
11.0
Management's discussion and analysis
1.23
(b) Included MSR risk management of $217 million, $(117) million and $(28)
million for the years ended December 31, 2016, 2015 and 2014,
respectively.
1.19
$ 2,511
$ 2,490
Mortgage fees and related
income
2,370
1,742
1,637
revenue(b)
Net mortgage servicing
1,190
769
853
Net production revenue
Mortgage fees and related
income details:
18,316
19,020
18,895
Card, Commerce Solutions &
Auto
$18,226
7,826
$17,983
6,817
7,361
Mortgage Banking
$18,659
Consumer & Business Banking
Revenue by line of business
$ 9,185
$ 9,789
$ 9,714
$ 3,560
Financial ratios
Return on common equity
Overhead ratio
As of or for the year ended
December 31,
Selected metrics
JPMorgan Chase & Co./2016 Annual Report
54
44
Noninterest expense was $24.9 billion, a decrease of 3%
from the prior year, driven by lower headcount-related
expense and lower professional fees, partially offset by
higher auto lease depreciation.
The provision for credit losses was $3.1 billion, a decrease
of 13% from the prior year, reflecting lower net charge-
offs, partially offset by a lower reduction in the allowance
for loan losses. The current-year provision reflected a $1.0
billion reduction in the allowance for loan losses due to
continued improvement in home prices and lower
delinquencies as well as increased granularity in the
impairment estimates in the residential real estate portfolio
and runoff in the student loan portfolio. The prior-year
provision reflected a $1.3 billion reduction in the allowance
for loan losses due to continued improvement in home
prices and lower delinquencies in the residential real estate
portfolio, a decrease in the Credit Card asset-specific
allowance resulting from increased granularity of the
impairment estimates and lower balances related to credit
card loans modified in troubled debt restructurings
("TDRS"), runoff in the student loan portfolio and lower
estimated losses in auto loans.
Net revenue was $43.8 billion, a decrease of 1% compared
with the prior year. Net interest income was $28.2 billion,
down 1%, driven by spread compression, predominantly
offset by higher deposit balances, higher loan balances
largely resulting from originations of high-quality mortgage
loans that have been retained, and improved credit quality
including lower reversals of interest and fees due to lower
net charge-offs in Credit Card. Noninterest revenue was
$15.6 billion, down 2%, driven by lower mortgage servicing
revenue largely as a result of lower average third-party
loans serviced, lower net mortgage production revenue
reflecting a lower repurchase benefit and the impact of
renegotiated co-brand partnership agreements in Credit
Card, largely offset by higher auto lease and card sales
volume, the impact of non-core portfolio exits in Credit Card
in the prior year, and a gain on the investment in Square,
Inc. upon its initial public offering.
Consumer & Community Banking net income was $9.8
billion, an increase of 7% compared with the prior year,
driven by lower noninterest expense and lower provision for
credit losses, partially offset by lower net revenue.
2015 compared with 2014
Noninterest expense of $24.9 billion was flat compared
with the prior year, driven by lower legal expense and
branch efficiencies offset by higher auto lease depreciation
and higher investment in marketing.
a $150 million increase related to the auto and business
banking portfolio, due to additions to the allowance for
loan losses and higher net charge-offs, reflecting loan
growth in the portfolios.
and
Net income
a $450 million lower benefit related to the residential
real estate portfolio, as the current year reduction in the
allowance for loan losses was lower than the prior year.
The reduction in both periods reflected continued
improvements in home prices and lower delinquencies
■
The provision for credit losses was $4.5 billion, an increase
of 47% from the prior year. The increase in the provision
was driven by:
Net revenue was $44.9 billion, an increase of 2% compared
with the prior year. Net interest income was $29.7 billion,
up 5%, driven by higher deposit balances and higher loan
balances, partially offset by deposit spread compression
and an increase in the reserve for uncollectible interest and
fees in Credit Card. Noninterest revenue was $15.3 billion,
down 2%, driven by higher new account origination costs
and the impact of renegotiated co-brand partnership
agreements in Credit Card and lower mortgage servicing
revenue predominantly as a result of a lower level of third-
party loans serviced; these factors were predominantly
offset by higher auto lease and card sales volume, higher
card- and deposit-related fees, higher MSR risk
management results and a gain on the sale of Visa Europe
interests. See Note 17 for further information regarding
changes in value of the MSR asset and related hedges, and
mortgage fees and related income.
Consumer & Community Banking net income was $9.7
billion, a decrease of 1% compared with the prior year,
driven by higher provision for credit losses predominantly
offset by higher net revenue.
2016 compared with 2015
Management's discussion and analysis
53
(a) Included operating lease depreciation expense of $1.9 billion, $1.4 billion
and $1.2 billion for the years ended December 31, 2016, 2015 and 2014,
respectively.
Note: In the discussion and the tables which follow, CCB presents certain
financial measures which exclude the impact of PCI loans; these are non-GAAP
financial measures.
JPMorgan Chase & Co./2016 Annual Report
18%
58
18%
57
18%
55
■ a $920 million increase related to the credit card
portfolio, due to a $600 million addition in the allowance
for loan losses, as well as $320 million of higher net
charge-offs, driven by loan growth, including growth in
newer vintages which, as anticipated, have higher loss
rates compared to the overall portfolio,
6,054
6,063
5,802
Noninterest revenue
1,463
2,281
3,077
All other income
5,779
5,491
4,364
Card income
3,560
2,511
2,490
income
15,255
Mortgage fees and related
2,172
2,093
commissions
Asset management,
administration and
$ 3,137 $ 3,039
Lending- and deposit-related fees $ 3,231
Revenue
2014
2015
2016
(in millions, except ratios)
Year ended December 31,
$ 5,950
2,096
Selected metrics
15,592
Net interest income
Income tax expense
15,239
15,852
15,516
expense
Income before income tax
25,609
24,909
24,905
Total noninterest expense
15,071
15,139
15,182
15,937
Noncompensation expense (a)
9,770
9,723
Noninterest expense
Compensation expense
3,520
3,059
4,494
44,368
43,820
44,915
Total net revenue
Provision for credit losses
28,431
28,228
29,660
10,538
1.35
As of or for the year ended
December 31,
2016
0.34
0.38
0.45
Auto
Loans:
2.75
2.51
2.63
Credit Card(e)
$516,354 $472,972 $447,750
Total assets
0.37
0.18
0.10
Mortgage Banking (d)
0.01
0.01
Residential mortgage and other(d)
Selected balance sheet data
(average)
0.87
0.60
0.45
Home equity(d)
1.51%
1.16%
1.10%
Consumer & Business Banking
Consumer & Business Banking
Home equity
Residential mortgage and other
Mortgage Banking
Credit Card
Auto
1.44
1.43
1.61
2.61%
1.57 %
1.23%
Mortgage Banking (f)(g)
Credit Card (h)
30+ day delinquency rate
1.40
1.10
1.04
Total net charge-offs rate (d)
Net charge-off rate (c)
3.75
2.13
Student
23,431 21,894 20,152
54,545 63,261 72,440
177,010 140,294 110,231
231,555 203,555 182,671
131,165 125,881 125,113
63,573 56,487 52,961
7,623
8,763
9,987
416,580 390,884
301,700 253,803
530,938 486,919
51,000 51,000
51,000
Common equity
586,637
Deposits
361,316
Core loans
457,347
Total loans
Student
Auto
2.40
$ 4,773
$ 4,084
$ 4,344
Student
Auto
Credit Card
Mortgage Banking
50,296
181,196
Residential mortgage and other
Home equity
24,307
Consumer & Business Banking
305
253
257
Consumer & Business Banking
Total loans
Loans:
$535,310 $502,652 $455,634
Total assets
$ 6,401
$ 5,313
$ 4,708
Nonaccrual loans (a)(b)
2014
2015
2016
(in millions, except ratio data)
Credit data and quality statistics
Selected balance sheet data
(period-end)
2014
2015
Net charge-offs (c)
(in millions, except headcount)
Core loans
Common equity
Total net charge-offs
375
210
162
Student
181
214
285
Auto
3,429
3,122
3,442
Credit Card
Deposits
483
198
Mortgage Banking
10
2
14
Residential mortgage and other
473
283
184
Home equity
21,200
22,730
58,734 67,994
164,500 115,575
231,492 223,234 183,569
141,816 131,463 131,048
65,814 60,255 54,536
7,057
8,176
9,351
470,486 445,858 399,704
382,608 341,881 273,494
557,645 502,520
51,000 51,000
618,337
51,000
285
$ 6,376
16,891
3,643
Income
Markets
Total
Markets
Equity
Markets
Fixed
Fixed
Income
Markets
Total
Markets
Equity
Markets
Markets
otherwise noted)
Income
(in millions, except where
Fixed
Year ended December 31,
2014
2015
2016
For the periods presented below, the predominant source of principal transactions revenue was the amounts recognized upon
executing new transactions.
The following table summarizes select income statement data for the Markets businesses. Markets includes both Fixed Income
Markets and Equity Markets. Markets revenue comprises principal transactions, fees, commissions and other income, as well as
net interest income. For a description of the composition of these income statement line items, see Notes 7 and 8.
Principal transactions reflects revenue on financial instruments and commodities transactions that arise from client-driven
market making activity. Principal transactions revenue includes amounts recognized upon executing new transactions with
market participants, as well as “inventory-related revenue”, which is revenue recognized from gains and losses on derivatives
and other instruments that the Firm has been holding in anticipation of, or in response to, client demand, and changes in the
fair value of instruments used by the Firm to actively manage the risk exposure arising from such inventory. Principal
transactions revenue recognized upon executing new transactions with market participants is driven by many factors including
the level of client activity, the bid-offer spread (which is the difference between the price at which a market participant is
willing to sell an instrument to the Firm and the price at which another market participant is willing to buy it from the Firm,
and vice versa), market liquidity and volatility. These factors are interrelated and sensitive to the same factors that drive
inventory-related revenue, which include general market conditions, such as interest rates, foreign exchange rates, credit
spreads, and equity and commodity prices, as well as other macroeconomic conditions.
Markets Revenue
(d) Global M&A reflect the removal of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S.
(e) Global investment banking fees exclude money market, short-term debt and shelf deals.
(c) Global equity and equity-related ranking includes rights offerings and Chinese A-Shares.
(a) Source: Dealogic as of January 3, 2017. Reflects the ranking of revenue wallet and market share.
(b) Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, ABS and MBS; and exclude money market, short-term debt, and U.S.
municipal securities.
#1
8.0%
#1
7.9%
#1
Principal transactions
Lending- and deposit-related fees
8,347 $ 3,130 $ 11,477
220
2
222
$
4,262
$ 12,592 $
8,330
14,665
1,044
6,334
5,740 $ 20,999
$ 15,259 $
Total net revenue
5,290
Net interest income
4,696
9,969
Noninterest revenue
345
2,087
1,704
(84)
8.1%
854
1,939
1,027
13
1,014
All other income
1,551
388
administration and commissions
Asset management,
Markets
Total
Equity
Markets
7,014 $ 2,362 $ 9,376
222
2
224
194
6,899 $ 3,038 $ 9,937 $
194
383
1
13.0
2
2
11.1
1
7.9
1
8.3
1
6.9
1
10.7
1
11.7
1
11.9
11.9
7.6%
#1
7.7%
#1
7.2%
Share Rank
Share Rank
Rank
Share
2014
2015
2016
Global investment banking fees (e)
#1
4,658
1,036
5,694 $
1
1
10.8
2
11.9
1
9.3
1
7.5
1
9.4
2
9.7
2
9.9
11.7
2
2
8.0
2
8.4
2
8.6
3
9.6
3
7.2
111
13.4
7.6
10.1
U.S.
770
12,988
5,298
18,286
8,980
Total loans retained
40,312
56,569
63,061
North America
8,950
56,097
50,339
48,811
Total international loans
8,609
7,607
Latin America/Caribbean
19,992
17,108
14,508
Asia/Pacific
$ 26,696 $ 24,622 $ 27,155
Europe/Middle East/Africa
Loans retained (period-end) (a)
$ 35,216 $ 33,542 $ 34,595
Total net revenue
17,120
16,651
18,290
North America
17,475
16,926
$111,872
$106,908 $ 96,409
Client deposits and other third-
party liabilities (average)(a)(b)
Europe/Middle East/Africa
Consumer & Community Banking offers services to
consumers and businesses through bank branches,
ATMs, online, mobile and telephone banking. CCB is
organized into Consumer & Business Banking (including
Consumer Banking/Chase Wealth Management and
Business Banking), Mortgage Banking (including
Mortgage Production, Mortgage Servicing and Real
Estate Portfolios) and Card, Commerce Solutions &
Auto. Consumer & Business Banking offers deposit and
investment products and services to consumers, and
lending, deposit, and cash management and payment
solutions to small businesses. Mortgage Banking
includes mortgage origination and servicing activities,
as well as portfolios consisting of residential
mortgages and home equity loans. Card, Commerce
Solutions & Auto issues credit cards to consumers and
small businesses, offers payment processing services
to merchants, originates and services auto loans and
leases, and services student loans.
JPMorgan Chase & Co./2016 Annual Report
42
62
(b) Client deposits and other third party liabilities pertain to the Treasury
Services and Securities Services businesses.
(a) Total net revenue is based predominantly on the domicile of the client or
location of the trading desk, as applicable. Loans outstanding (excluding
loans held-for-sale and loans at fair value), client deposits and other third-
party liabilities, and AUC are based predominantly on the domicile of the
client.
$ 20,520 $ 19,943 $ 20,549
7,909
$ 12,290 $ 12,034 $ 11,987
8,230
8,562
$376,287 $395,297 $ 417,369
175,364
149,284 164,054
$231,243 $ 242,005
Total international net revenue
$227,003
23,070
66,933
67,111
68,110
22,914
$141,062 $ 152,712
$135,979
All other regions
Total AUC
AUC (period-end) (in billions) (a)
North America
Total client deposits and other
third-party liabilities
North America
Total international
Latin America/Caribbean
Asia/Pacific
22,360
1,179
1,096
1,225
12,166 $
2014
2015
2016
Trade finance loans (period-end)
Client deposits and other third party liabilities (average) (b)
Total AUC
Other(a)
Equity
Fixed Income
Assets under custody ("AUC") by asset class (period-end) (in billions):
(in millions, except where otherwise noted)
December 31,
12,042 $
As of or for the year ended
Management's discussion and analysis
61
JPMorgan Chase & Co./2016 Annual Report
(a) Loss days represent the number of days for which Markets posted losses. The loss days determined under this measure differ from the loss days that are determined based on the disclosure
of market risk-related gains and losses for the Firm in the value-at-risk ("VaR") back-testing discussion on pages 118-120.
6,032
13,087
1,458
2,029
1,684
59
4,107
5,095
937
14,075 $ 5,044 $ 19,119
0
2
0
Loss days(a)
$
Selected metrics
1,399
12,328
6,194
Latin America/Caribbean
4,698
4,901
$ 10,894 $ 11,598
$ 10,786
4,915
Asia/Pacific
Europe/Middle East/Africa
Total net revenue(a)
2014
2015
2016
(in millions, except where
otherwise noted)
Year ended December 31,
6,428
International metrics
25,713
19,255
15,923
417,369
20,549
$
19,943
395,297 $
20,520 $
376,287 $
$
$
1,697
1,707
1,926
6,524
(a) Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts.
(b) Client deposits and other third party liabilities pertain to the Treasury Services and Securities Services businesses.
$ 6,122
Global
U.S.
110,606
115,653
Total loans
110
428
467
retained(a)
Nonaccrual loans
5,567
3,698
3,781
loans at fair value
Loans held-for-sale and
Nonaccrual loans:
96,409
106,908
111,872
Loans retained(a)
Nonperforming assets:
Loans:
(12)
$
(19)
$
168
$
(recoveries)
101,976
Nonaccrual loans held-
Core Loans
115,243
317,535
300,606 302,514
67
62
79
Assets acquired in loan
satisfactions
Trading assets-debt and equity
instruments
$ 815,321 $824,208 $ 854,712
Assets
275
204
223
Derivative receivables
Net charge-offs/
121
576
Total nonaccrual loans
Selected balance sheet data
(average)
11
10
109
for-sale and loans at
fair value
61,000
62,000
64,000
Common equity
100,772
110,084
438
$ 748,691 $ 861,466
$803,511
Assets
24,415
$35,216
Total Markets & Investor
Service
(272)
11
(175)
Credit Adjustments & Other (a)
4,351
3,777
3,591
Securities Services
5,044
5,694
5,740
22,074 23,198
$33,542 $34,595
Equity Markets
12,592
15,259
Fixed Income Markets
11,397
11,468
10,801
Total Banking
1,547
1,461
1,208
Lending
3,728
3,631
14,075
Total nonperforming
Total net revenue
2016 compared with 2015
2014
2015
2016
(in millions, except ratios)
Credit data and quality
statistics
Selected balance sheet data
(period-end)
2014
2015
2016
As of or for the year ended
December 31,
Selected metrics
(in millions, except headcount)
As of or for the year ended
December 31,
Selected metrics
(a) Effective January 1, 2016, consists primarily of credit valuation
adjustments ("CVA") managed by the Credit Portfolio Group, Funding
valuation adjustment ("FVA") and DVA on derivatives. Results are primarily
reported in Principal transactions. Prior periods also include DVA on fair
value option elected liabilities. Results are presented net of associated
hedging activities and net of CVA and FVA amounts allocated to Fixed
Income Markets and Equity Markets. Effective January 1, 2016, changes
in DVA on fair value option elected liabilities is recognized in OCI. For
additional information, see Accounting and Reporting Developments
on page 135 and Notes 3, 4 and 25.
Management's discussion and analysis
JPMorgan Chase & Co./2016 Annual Report
The provision for credit losses was $332 million, compared
to a benefit of $161 million in the prior year, reflecting a
higher allowance for credit losses, including the impact of
select downgrades within the Oil & Gas portfolio.
Noninterest expense was $21.4 billion, down 8% compared
with the prior year, driven by the impact of business
simplification as well as lower legal and compensation
expenses.
Markets & Investor Services revenue was $22.1 billion,
down 5% from the prior year. Fixed Income Markets
revenue was $12.6 billion, down 11% from the prior year,
primarily driven by the impact of business simplification as
well as lower revenue in credit-related products on an
industry-wide slowdown, partially offset by increased
revenue in Rates and Currencies & Emerging Markets on
higher client activity. The lower Fixed Income revenue also
reflected higher interest costs on higher long-term debt.
Equity Markets revenue was $5.7 billion, up 13%, primarily
driven by higher equity derivatives revenue across all
regions. Securities Services revenue was $3.8 billion, down
13% from the prior year, driven by lower fees as well as
lower net interest income.
Banking revenue was $11.5 billion, up 1% versus the prior
year. Investment banking revenue was $6.4 billion, up 4%
from the prior year, driven by higher advisory fees, partially
offset by lower debt and equity underwriting fees. Advisory
fees were $2.1 billion, up 31% on a greater share of fees
for completed transactions as well as growth in the
industry-wide fee levels. The Firm maintained its #2 ranking
for M&A, according to Dealogic. Debt underwriting fees
were $3.2 billion, down 6%, primarily related to lower
bond underwriting and loan syndication fees on lower
industry-wide fee levels. The Firm ranked #1 globally in fee
share across high grade, high yield and loan products.
Equity underwriting fees were $1.4 billion, down 9%,
driven by lower industry-wide fee levels. The Firm was #1 in
equity underwriting fees in 2015, up from #3 in 2014.
Treasury Services revenue was $3.6 billion, down 3%
compared with the prior year, primarily driven by lower net
interest income. Lending revenue was $1.5 billion, down
6% from the prior year, driven by lower trade finance
revenue on lower loan balances.
Net income was $8.1 billion, up 17% compared with $6.9
billion in the prior year. The increase primarily reflected
lower income tax expenses largely reflecting the release in
2015 of U.S. deferred taxes associated with the
restructuring of certain non-U.S. entities and lower
noninterest expense partially offset by lower net revenue,
both driven by business simplification, as well as higher
provisions for credit losses.
2015 compared with 2014
Noninterest expense was $19.0 billion, down 11%
compared with the prior year, driven by lower legal and
compensation expenses.
The provision for credit losses was $563 million, compared
to $332 million in the prior year, reflecting a higher
allowance for credit losses, including the impact of select
downgrades within the Oil & Gas portfolio.
Markets & Investor Services revenue was $24.4 billion, up
11% from the prior year. Fixed Income Markets revenue
was $15.3 billion, up 21% from the prior year, driven by
broad strength across products. Rates performance was
strong, with increased client activity driven by high
issuance-based flows, global political developments, and
central bank actions. Credit and Securitized Products
revenue improved driven by higher market-making revenue
from the secondary market as clients' risk appetite
recovered, and due to increased financing activity. Equity
Markets revenue was $5.7 billion, up 1%, compared to a
strong prior-year. Securities Services revenue was $3.6
billion, down 5% from the prior year, largely driven by
lower fees and commissions. Credit Adjustments and Other
was a loss of $175 million driven by valuation adjustments,
compared with an $11 million gain in prior-year, which
included funding spread gains on fair value option elected
liabilities.
JPMorgan Chase & Co./2016 Annual Report
58
Banking revenue was $10.8 billion, down 6% compared
with the prior year. Investment banking revenue was $6.0
billion, down 7% from the prior year, largely driven by
lower equity underwriting fees. The Firm maintained its #1
ranking for Global Investment Banking fees, according to
Dealogic. Equity underwriting fees were $1.2 billion, down
19% driven by lower industry-wide fee levels; however, the
Firm improved its market share and maintained its #1
ranking in equity underwriting fees globally as well as in
both North America and Europe and its #1 ranking by
volumes across all products, according to Dealogic. Advisory
fees were $2.1 billion, down 1%; the Firm maintained its
#2 ranking for M&A, according to Dealogic. Debt
underwriting fees were $3.2 billion; the Firm maintained its
#1 ranking globally in fees across high grade, high yield,
and loan products, according to Dealogic. Treasury Services
revenue was $3.6 billion. Lending revenue was $1.2 billion,
down 17% from the prior year, reflecting fair value losses
on hedges of accrual loans.
Net income was $10.8 billion, up 34% compared with the
prior year, driven by lower noninterest expense and higher
net revenue, partially offset by a higher provision for credit
losses.
59
Loan syndications
Trading assets-derivative
878
1,159
Equity underwriting
1,627
2,133 $
2,110 $
$
2014
2015
2016
Year ended December 31,
Advisory
(in millions)
Investment banking fees
(b) Management uses allowance for loan losses to period-end loans retained,
excluding trade finance and conduits, a non-GAAP financial measure, to
provide a more meaningful assessment of CIB's allowance coverage ratio.
(a) Allowance for loan losses of $113 million, $177 million and $18 million
were held against these nonaccrual loans at December 31, 2016, 2015
and 2014, respectively.
0.12
0.40
0.50
period-end loans
Nonaccrual loans to total
940
294
304
retained(a)
nonaccrual loans
Allowance for loan losses to
1.82
1,434
1,571
Debt underwriting(a)
3,155
Global
M&A(d)
U.S.
Global(c)
Equity and equity-related
U.S.
Global
Long-term debt (b)
U.S.
Global
Debt, equity and equity-related
Based on fees (a)
December 31,
1.88
Year ended
JPMorgan Chase & Co./2016 Annual Report
60
60
(a) Includes loans syndication
6,570
$
6,736
$
6,424
$
Total investment banking fees
3,372
3,169
League table results - wallet share
1.86
and conduits (b)
excluding trade finance
569
801
related commitments
7,599
103,363
4,572
102,903
114,894
Total loans
3,812
loans at fair value
Allowance for lending-
Loans held-for-sale and
1,034
1,258
439
1,420
95,764
98,331
111,082
Loans retained(a)
Allowance for loan
Loans:
Allowance for credit losses:
64,833
67,263
63,387
receivables
463
704
losses
assets
Total allowance for credit
2,221
period-end loans retained,
Allowance for loan losses to
1.07
1.18
1.27
retained
(b) Prior period amounts were revised to conform with current period
presentation.
(a) Loans retained includes credit portfolio loans, loans held by consolidated
Firm-administered multi-seller conduits, trade finance loans, other held-for-
investment loans and overdrafts.
Allowance for loan losses to
period-end loans
50,965
49,067
48,748
Headcount
losses
(0.01)%
0.15%
rate
61,000
62,000
64,000
Common equity
Net charge-off/(recovery)
99,500
102,142
114,455
Core Loans (b)
1,473
1,827
(0.02)%
CONSUMER & COMMUNITY BANKING
Mortgage servicing-related matters
JPMorgan Chase & Co./2016 Annual Report
362
$7,453
$6,885
$6,882
Total Commercial Banking net
revenue
Financial ratios
Return on common equity
Overhead ratio
16%
39
15%
42
18%
39
CB is divided into four primary client segments: Middle
Market Banking, Corporate Client Banking, Commercial
Term Lending, and Real Estate Banking.
362
Middle Market Banking covers corporate, municipal and
nonprofit clients, with annual revenue generally ranging
between $20 million and $500 million.
Commercial Term Lending primarily provides term
financing to real estate investors/owners for multifamily
properties as well as office, retail and industrial properties.
Real Estate Banking provides full-service banking to
investors and developers of institutional-grade real estate
investment properties.
Other primarily includes lending and investment-related
activities within the Community Development Banking
business.
(a) Includes total Firm revenue from investment banking products sold to CB
clients, net of revenue sharing with the CIB.
(b) Represents total Firm revenue from investment banking products sold to CB
clients.
(c) Certain clients were transferred from Middle Market Banking to Corporate
Client Banking and from Real Estate Banking to Corporate Client Banking
during 2016. Prior period client segment amounts were revised to conform
with the current period presentation.
+
64
JPMorgan Chase & Co./2016 Annual Report
Selected metrics (continued)
As of or for the year ended
December 31, (in millions,
except headcount)
Selected metrics (continued)
Corporate Client Banking covers clients with annual
revenue generally ranging between $500 million and $2
billion and focuses on clients that have broader investment
banking needs.
312
Other
369
2014
$3,795
2,797
785
$3,429 $3,358
2,581
2,681
730
684
76
145
159
$7,453
$ 6,885
$6,882
Investment banking revenue, gross (b) $2,286
Revenue by client segment (c)
$ 2,179
$1,986
Middle Market Banking
$2,885
$ 2,706
$2,765
Corporate Client Banking
Commercial Term Lending
Real Estate Banking
2,392
2,184
2,134
1,408
1,275
1,252
456
358
2016
2015
2014
As of or for the year ended
December 31, (in millions, except
ratios)
72
62
54
51%
2014
8
1 year
quartile:(c)
ranked in 1st or 2nd
% of JPM mutual fund assets
52%
63%
2015
2016
% of JPM mutual fund assets
rated as 4- or 5-star (a)(b)
(in millions, except ranking
data and ratios)
As of or for the year ended
December 31,
Selected metrics
JPMorgan Chase & Co./2016 Annual Report
• Percentage of mutual fund assets under management in funds
rated 4- or 5-star: Mutual fund rating services rank funds based on
their risk-adjusted performance over various periods. A 5-star rating
is the best rating and represents the top 10% of industry-wide ranked
funds. A 4-star rating represents the next 22.5% of industry-wide
ranked funds. A 3-star rating represents the next 35% of industry-
wide ranked funds. A 2-star rating represents the next 22.5% of
industry-wide ranked funds. A 1-star rating is the worst rating and
represents the bottom 10% of industry-wide ranked funds. The
"overall Morningstar rating" is derived from a weighted average of the
performance associated with a fund's three-, five- and ten-year (if
applicable) Morningstar Rating metrics. For U.S. domiciled funds,
separate star ratings are given at the individual share class level. The
Nomura "star rating" is based on three-year risk-adjusted
performance only. Funds with fewer than three years of history are
not rated and hence excluded from this analysis. All ratings, the
assigned peer categories and the asset values used to derive this
analysis are sourced from these fund rating providers mentioned in
footnote (a). The data providers re-denominate the asset values into
U.S. dollars. This % of AUM is based on star ratings at the share class
level for U.S. domiciled funds, and at a "primary share class" level to
represent the star rating of all other funds except for Japan where
Nomura provides ratings at the fund level. The “primary share class",
as defined by Morningstar, denotes the share class recommended as
being the best proxy for the portfolio and in most cases will be the
most retail version (based upon annual management charge,
minimum investment, currency and other factors). The performance
data could have been different if all funds/accounts would have been
included. Past performance is not indicative of future results.
Percentage of mutual fund assets under management in funds
ranked in the 1st or 2nd quartile (one, three and five years): All
quartile rankings, the assigned peer categories and the asset values
used to derive this analysis are sourced from the fund ranking
providers mentioned in footnote (b). Quartile rankings are done on
the net-of-fee absolute return of each fund. The data providers re-
denominate the asset values into U.S. dollars. This % of AUM is based
on fund performance and associated peer rankings at the share class
level for U.S. domiciled funds, at a "primary share class" level to
represent the quartile ranking of the U.K., Luxembourg and Hong Kong
funds and at the fund level for all other funds. The “primary share
class”, as defined by Morningstar, denotes the share class
recommended as being the best proxy for the portfolio and in most
cases will be the most retail version (based upon annual management
charge, minimum investment, currency and other factors). Where
peer group rankings given for a fund are in more than one "primary
share class" territory both rankings are included to reflect local
market competitiveness (applies to "Offshore Territories" and "HK SFC
Authorized" funds only). The performance data could have been
different if all funds/accounts would have been included. Past
performance is not indicative of future results.
Asset Management has two high-level measures of its
overall fund performance.
Retail clients include financial intermediaries and individual investors.
Institutional clients include both corporate and public institutions,
endowments, foundations, nonprofit organizations and governments
worldwide.
Private Banking clients include high- and ultra-high-net-worth
individuals, families, money managers, business owners and small
corporations worldwide.
AWM's client segments consist of the following:
Wealth Management offers investment advice and wealth
management, including investment management, capital markets and
risk management, tax and estate planning, banking, lending and
specialty-wealth advisory services.
Asset Management provides comprehensive global investment
services, including asset management, pension analytics, asset-liability
management and active risk-budgeting strategies.
AWM's lines of business consist of the following:
JPMorgan Chase & Co./2016 Annual Report
72
2015
78
79
2016
2015
2014
Selected balance sheet data
(period-end)
Credit data and quality statistics
Net charge-offs/(recoveries)
Common equity
Core loans
Deposits
Loans (d)
9,000
9,000
9,000
155,247
146,766
161,577
104,279
111,007
118,039
$ 128,701
104,279
$ 131,451
111,007
118,039
$ 138,384
Total assets
Selected balance sheet data
(period-end)
5 years (b)
3 years
76
30,564
72
66
2016
Treasury services
Investment banking (a)
Other
112,876
99,805
$ 126,440
$ 129,743
107,418
112,876
$ 132,875
Common equity
Core loans
Deposits
Loans
Total assets
Selected balance sheet data
(average)
COMMERCIAL BANKING
Commercial Banking delivers extensive industry
knowledge, local expertise and dedicated service to
U.S. and U.S. multinational clients, including
corporations, municipalities, financial institutions and
nonprofit entities with annual revenue generally
ranging from $20 million to $2 billion. In addition, CB
provides financing to real estate investors and owners.
Partnering with the Firm's other businesses, CB
provides comprehensive financial solutions, including
lending, treasury services, investment banking and
asset management to meet its clients' domestic and
international financial needs.
107,418
Selected income statement data
All other income(a)
Noninterest revenue
2016
2015
2014
Year ended December 31,
(in millions)
Revenue
Lending- and deposit-related fees
$ 917
$ 944
$ 978
Asset management, administration
and commissions
99,805
153,334
149,525
0.01%
Net charge-off rate
276
271
278
related commitments
Total allowance for credit
losses
Allowance for lending-
271
266
274
Allowance for credit losses:
Allowance for loan losses
218
218
390
Nonaccrual loans
6
12 $
$
16
$
Net charge-offs
Credit data and quality
statistics
5
5
4
9,000
9,000
9,000
150,121
69
88
1,334
1,333
1,371
4,376
1,741
Net income
$ 2,657 $ 2,191 $ 2,635
(a) Includes revenue from investment banking products and commercial card
transactions.
(b) Total net revenue included tax-equivalent adjustments from income tax
credits related to equity investments in designated community
development entities that provide loans to qualified businesses in low-
income communities, as well as tax-exempt income related to municipal
financing activities of $505 million, $493 million and $462 million for the
years ended December 31, 2016, 2015 and 2014, respectively.
2016 compared with 2015
Net income was $2.7 billion, an increase of 21% compared
with the prior year, driven by higher net revenue and a
lower provision for credit losses, partially offset by higher
noninterest expense.
Net revenue was $7.5 billion, an increase of 8% compared
with the prior year. Net interest income was $5.1 billion, an
increase of 14% compared with the prior year, driven by
higher loan balances and deposit spreads. Noninterest
revenue was $2.3 billion, a decrease of 2% compared with
the prior year, largely driven by lower lending-and-deposit-
related fees and other revenue, partially offset by higher
investment banking revenue.
Noninterest expense was $2.9 billion, an increase of 2%
compared with the prior year, reflecting increased hiring of
bankers and business-related support staff and investments
in technology.
The provision for credit losses was $282 million and $442
million for 2016 and 2015, respectively, with both periods
driven by downgrades in the Oil & Gas portfolio and select
client downgrades in other industries.
2015 compared with 2014
Net income was $2.2 billion, a decrease of 17% compared
with the prior year, driven by a higher provision for credit
losses and higher noninterest expense.
Net revenue was $6.9 billion, flat compared with the prior
year. Net interest income was $4.5 billion, flat compared
with the prior year, with interest income from higher loan
balances offset by spread compression. Noninterest revenue
was $2.4 billion, flat compared with the prior year, with
higher investment banking revenue offset by lower lending-
related fees.
Noninterest expense was $2.9 billion, an increase of 7%
compared with the prior year, reflecting investment in
controls.
The provision for credit losses was $442 million, reflecting
an increase in the allowance for credit losses for Oil & Gas
exposure and select client downgrades in other industries.
The prior year was a benefit of $189 million.
JPMorgan Chase & Co./2016 Annual Report
63
33
Management's discussion and analysis
CB product revenue consists of the following:
Lending includes a variety of financing alternatives, which
are primarily provided on a secured basis; collateral
includes receivables, inventory, equipment, real estate or
other assets. Products include term loans, revolving lines of
credit, bridge financing, asset-based structures, leases, and
standby letters of credit.
Treasury services includes revenue from a broad range of
products and services that enable CB clients to manage
payments and receipts, as well as invest and manage funds.
Investment banking includes revenue from a range of
products providing CB clients with sophisticated capital-
raising alternatives, as well as balance sheet and risk
management tools through advisory, equity underwriting,
and loan syndications. Revenue from Fixed Income and
Equity Markets products used by CB clients is also included.
Investment banking revenue, gross, represents total
revenue related to investment banking products sold to CB
clients.
Other product revenue primarily includes tax-equivalent
adjustments generated from Community Development
Banking activities and certain income derived from principal
transactions.
Selected income statement data (continued)
Year ended December 31,
(in millions, except ratios)
Revenue by product
Lending
1,580
Total Commercial Banking net
revenue
Income tax expense
4,237
92
1,279
2,320
2,365
2,349
Net interest income
5,133
4,520
4,533
Total net revenue (b)
7,453
6,885
6,882
Provision for credit losses
282
442
(189)
Noninterest expense
Compensation expense
1,332
1,238
1,203
Noncompensation expense
1,602
1,643
Total noninterest expense
2,934
2,881
1,492
2,695
Income before income tax expense
3,562
0.01%
66
Revenue from Asset Management was $6.3 billion, flat from
the prior year as the sale of RPS in 2014 and lower
performance fees were largely offset by net client inflows.
Revenue from Wealth Management was $5.8 billion, up 2%
from the prior year due to higher net interest income from
higher loan balances and spreads and net client inflows,
partially offset by lower brokerage revenue.
Nonaccrual loans to period-end
total loans
778
761
255
nonaccrual loans retained(a)
Allowance for loan losses to
72
1.67
1.71
1.55
period-end loans retained
Allowance for loan losses to
-%
0.61
0.01%
Net charge-off/(recovery) rate (b)
4,840
5,337
6,068
2,631
3,053
3,173
Total allowance for credit losses
9,024
11,234
14,722
165
198
0.09%
0.23
0.22
Selected balance sheet data
(average)
14,000
14,000
16,000
Common equity
204,017
191,529
174,396
third-party liabilities
Client deposits and other
140,390
156,975
178,875
Core loans
(b) Loans held-for-sale and loans at fair value were excluded when calculating
the net charge-off/(recovery) rate.
782
$ 141,764
$ 179,393 $ 157,881
Total loans
492
723
loans at fair value
(a) An allowance for loan losses of $155 million, $64 million and $45 million
was held against nonaccrual loans retained at December 31, 2016, 2015
and 2014, respectively.
Loans held-for-sale and
140,982
157,389
178,670
Loans retained
Loans:
$ 207,532 $ 198,076 $ 191,857
Total assets
248
commitments
54,038
62,860
14
1,149
393
331
147,392
14,000
Assets acquired in loan
satisfactions
1
8
10
Middle Market Banking
Corporate Client Banking
Period-end loans by client
segment(a)
Commercial Term Lending
Real Estate Banking
Other
Total Commercial Banking
loans
$ 53,931 $ 50,502 $ 50,040
$ 188,995 $ 167,641 $ 148,506
Total nonperforming assets
1,150
401
341
Allowance for credit losses:
Allowance for loan losses
2,925
2,855
2,466
43,025
37,708
18
Average loans by client
segment(a)
Nonaccrual loans held-for-sale
and loans at fair value
Total nonaccrual loans
$ 167,641
166,939
14,000
71,249
$ 163
$
21
$
(7)
Total assets
$ 214,341 $ 200,700 $ 195,267
Nonperforming assets
Loans:
Nonaccrual loans:
Loans retained
188,261
167,374
147,661
Nonaccrual loans retained(a)
1,149
375
317
Loans held-for-sale and
loans at fair value
734
267
845
Total loans
$ 188,995
Core loans
Common equity
188,673
16,000
$ 148,506
Noninterest expense was $8.9 billion, an increase of 4%,
predominantly due to higher legal expense and investment
in both infrastructure and controls.
Middle Market Banking
Corporate Client Banking
24%
Return on common equity
Financial ratios
$ 12,028
$ 6,327
5,701
$ 6,301
5,818
$ 12,119
$12,045
Total net revenue
6,075
Wealth Management
$ 5,970
Asset Management
Revenue by line of business
21%
3.486
1,333
$ 2,153
Net income
1,294
1,290
Income tax expense
3,229
3,541
Income before income tax expense
8,538
8,886
8,478
Total noninterest expense
5,082
3,456
3,773
$ 2,251 $ 1,935
Overhead ratio
70
73
Net revenue was $12.1 billion, an increase of 1%. Net
interest income was $2.6 billion, up 5%, driven by higher
loan balances and spreads. Noninterest revenue was $9.6
billion, flat from last year, as net client inflows into assets
under management and the impact of higher average
market levels were predominantly offset by lower
performance fees and the sale of Retirement Plan Services
("RPS") in 2014.
Net income was $1.9 billion, a decrease of 10% compared
with the prior year, reflecting higher noninterest expense,
predominantly offset by higher net revenue.
2015 compared with 2014
Noninterest expense was $8.5 billion, a decrease of 5%,
predominantly due to a reduction in expense related to the
disposal of assets at the beginning of 2016 and lower legal
expense.
Net revenue was $12.0 billion, a decrease of 1%. Net
interest income was $3.0 billion, up 19%, driven by higher
deposit and loan spreads and loan growth. Noninterest
revenue was $9.0 billion, a decrease of 6%, reflecting the
impact of lower average equity market levels, a reduction in
revenue related to the disposal of assets at the beginning of
2016, and lower performance fees and placement fees.
Revenue from Asset Management was $6.0 billion, down
5% from the prior year, driven by a reduction in revenue
related to the disposal of assets at the beginning of 2016,
the impact of lower average equity market levels and lower
performance fees. Revenue from Wealth Management was
$6.1 billion, up 4% from the prior year, reflecting higher
net interest income from higher deposit and loan spreads
and continued loan growth, partially offset by the impact of
lower average equity market levels and lower placement
fees.
Net income was $2.3 billion, an increase of 16% compared
with the prior year, reflecting lower noninterest expense,
partially offset by lower net revenue.
2016 compared with 2015
2,836
2,778
2,504
Number of client advisors
19,735
20,975
21,082
Headcount
29
27
29
Asset & Wealth Management
27
22
28
Wealth Management
31
31
31
Asset Management
Pre-tax margin ratio:
23%
71
3,413
Noncompensation expense
5,113
5,065
Asset & Wealth Management, with client assets of $2.5
trillion, is a global leader in investment and wealth
management. AWM clients include institutions, high-
net-worth individuals and retail investors in many
major markets throughout the world. AWM offers
investment management across most major asset
classes including equities, fixed income, alternatives
and money market funds. AWM also offers multi-asset
investment management, providing solutions for a
broad range of clients' investment needs. For Wealth
Management clients, AWM also provides retirement
products and services, brokerage and banking services
including trusts and estates, loans, mortgages and
deposits. The majority of AWM's client assets are in
actively managed portfolios.
ASSET & WEALTH MANAGEMENT
Management's discussion and analysis
59
65
JPMorgan Chase & Co./2016 Annual Report
(a) Certain clients were transferred from Middle Market Banking to Corporate
Client Banking and from Real Estate Banking to Corporate Client Banking
during 2016. Prior period client segment amounts were revised to conform
with the current period presentation.
7,426
7,845
8,365
Headcount
$ 141,764
$ 157,881
$ 179,393
Total Commercial Banking
loans
4,512
4,995
5,632
8,324
9,917
13,063
Real Estate Banking
Other
51,120
58,138
66,700
Commercial Term Lending
27,732
34,495
41,754
Selected income statement data
$ 52,244 $ 50,336 $ 50,076
Year ended December 31,
and headcount)
Compensation expense
Noninterest expense
4
4
26
Provision for credit losses
2,440
12,028
12,119
12,045
Total net revenue
2,556
3,033
Net interest income
9,588
9,563
9,012
Noninterest revenue
388
598
All other income
$ 9,175
$ 8,414
and commissions
Asset management, administration
$ 9,024
564
2014
2015
2016
Revenue
(in millions, except ratios
0.01%
79
0.23
1,592
$ 768,204 $ 931,206
$799,426
Headcount
Core loans (c)
Loans
Total assets (period-end)
Selected balance sheet data
(period-end)
(1,165)
2,029
864
(235)
2,672
(704) $ 2,437 $
$
2,187
Total net income/(loss)
Other Corporate
(715)
Treasury and CIO
Net income/(loss)
(1,317)
1,329
12
(493)
760
267 $
(487) $
$
Total net revenue
300
Other Corporate
11
(787)
2,871
2,182
See Note 12 for further information on the details of the
Firm's investment securities portfolio.
Treasury and CIO achieve the Firm's asset-liability
management objectives generally by investing in high-
quality securities that are managed for the longer-term as
part of the Firm's investment securities portfolio. Treasury
and CIO also use derivatives to meet the Firm's asset-
liability management objectives. For further information on
derivatives, see Note 6. The investment securities portfolio
primarily consists of U.S. and non-U.S. government
securities, agency and nonagency mortgage-backed
securities, other ABS, corporate debt securities and
obligations of U.S. states and municipalities. At
December 31, 2016, the investment securities portfolio was
$286.8 billion, and the average credit rating of the
securities comprising the portfolio was AA+ (based upon
external ratings where available and where not available,
based primarily upon internal ratings that correspond to
ratings as defined by S&P and Moody's). During 2016, the
Firm transferred commercial mortgage-backed securities
and obligations of U.S. states and municipalities with a fair
value of $7.5 billion from available-for-sale ("AFS") to held-
to maturity ("HTM"). These securities were transferred at
fair value. The transfers reflect the Firm's intent to hold the
securities to maturity in order to reduce the impact of price
volatility on accumulated other comprehensive income
("AOCI").
Treasury and CIO are predominantly responsible for
measuring, monitoring, reporting and managing the Firm's
liquidity, funding and structural interest rate and foreign
exchange risks, as well as executing the Firm's capital plan.
The risks managed by Treasury and CIO arise from the
activities undertaken by the Firm's four major reportable
business segments to serve their respective client bases,
which generate both on- and off-balance sheet assets and
liabilities.
Treasury and CIO overview
Management's discussion and analysis
60
69
JPMorgan Chase & Co./2016 Annual Report
(c) Average core loans were $1.9 billion, $2.5 billion and $3.3 billion for the
years ended December 31, 2016, 2015 and 2014, respectively.
(b) Included legal expense/(benefit) of $(385) million, $832 million and $821
million for the years ended December 31, 2016, 2015 and 2014,
respectively.
(a) Included tax-equivalent adjustments, predominantly due to tax-exempt
income from municipal bond investments of $885 million, $839 million
and $730 million for the years ended December 31, 2016, 2015 and
2014, respectively.
1,589
The current year reflected tax benefits of $2.6 billion
predominantly from the resolution of various tax audits
compared with tax benefits of $1.1 billion in the prior year.
Net revenue was $267 million, compared with $12 million
in the prior year. The current year included a $514 million
benefit from a legal settlement. Treasury and CIO included a
benefit of approximately $178 million associated with
recognizing the unamortized discount on certain debt
securities which were called at par and a $173 million
pretax loss primarily related to accelerated amortization of
cash flow hedges associated with the exit of certain non-
operating deposits. Private Equity gains were $1.2 billion
lower compared with the prior year, reflecting lower
valuation gains and lower net gains on sales as the Firm
exits this non-core business.
Net income was $2.4 billion, compared with net income of
$864 million in the prior year.
The prior year reflected tax benefits of $2.6 billion
predominantly from the resolution of various tax audits.
2015 compared with 2014
Net interest income was a loss of $1.4 billion, compared
with a loss of $533 million in the prior year. The loss in the
current year was primarily driven by higher interest
expense on long-term debt and lower investment securities
balances during the year, partially offset by higher interest
income on deposits with banks and securities purchased
under resale agreements as a result of higher rates.
Noninterest expense was $462 million, a decrease of $515
million from the prior year driven by lower legal expense,
partially offset by higher compensation expense.
Net revenue was a loss of $487 million, compared with a
gain of $267 million in the prior year. The prior year
included a $514 million benefit from a legal settlement.
Net loss was $704 million, compared with net income of
$2.4 billion in the prior year.
2016 compared with 2015
26,047
29,617
32,358
2,848
Noninterest expense was $977 million, a decrease of $182
million from the prior year which had included a $276
million goodwill impairment related to the sale of a portion
of the Private Equity business.
Treasury and CIO
Total net revenue
(1,112)
(1,976)
864
All other income
71
190
140
Securities gains
41 $ 1,197
$
210
$
Principal transactions
Revenue
588
2014
2016
(in millions, except headcount)
704
Noninterest revenue
Year ended December 31,
Selected income statement data
The Corporate segment consists of Treasury and Chief
Investment Office and Other Corporate, which includes
corporate staff units and expense that is centrally
managed. Treasury and CIO are predominantly
responsible for measuring, monitoring, reporting and
managing the Firm's liquidity, funding and structural
interest rate and foreign exchange risks, as well as
executing the Firm's capital plan. The major Other
Corporate units include Real Estate, Enterprise
Technology, Legal, Compliance, Finance, Human
Resources, Internal Audit, Risk Management, Oversight
& Control, Corporate Responsibility and various Other
Corporate groups.
CORPORATE
JPMorgan Chase & Co./2016 Annual Report
(a) Regional revenue is based on the domicile of the client.
68
2015
569
938
800
(3,137)
(704) $ 2,437 $
$
Net income/(loss)
(241)
Income tax benefit
(700)
(945)
Loss before income tax benefit
1,159
977
462
Noninterest expense (b)
(35)
(10)
(4)
Provision for credit losses
12
267
(487)
Total net revenue(a)
(1,960)
(533)
(1,425)
Net interest income
1,972
For further information on liquidity and funding risk, see
Liquidity Risk Management on pages 110-115. For
information on interest rate, foreign exchange and other
risks, Treasury and CIO VAR and the Firm's earnings-at-risk,
see Market Risk Management on pages 116-123.
Selected income statement and balance sheet data
As of or for the year ended
December 31, (in millions)
Securities gains
2016
LCR; stress by material legal entity
Default exposure at 0% recovery; stress; risk
ratings; ratings based capital limits
The risk of loss arising from potential adverse changes in the value of the Firm's
assets and liabilities or future results, resulting from changes in market
variables such as interest rates, foreign exchange rates, equity prices,
commodity prices, implied volatilities or credit spreads; this includes the
structural interest rate and foreign exchange risks managed on a firmwide basis
in Treasury and CIO.
The risk that the Firm will be unable to meet its contractual and contingent
obligations or that it does not have the appropriate amount, composition and
tenor of funding and liquidity to support its assets and liabilities.
The risk that a sovereign event or action alters the value or terms of contractual
obligations of obligors, counterparties and issuers, or adversely affects markets
related to a particular country.
The risk of loss arising from the default of a client or counterparty.
(vii) Principal risk
(vi) Market risk
(v) Liquidity risk
(iv) Country risk
(iii) Wholesale
Credit risk
VAR; P&L drawdown; economic stress testing;
sensitivities; earnings-at-risk; and foreign
exchange ("FX") net open position
96-104
89-95
Total exposure; geographic and customer
concentrations; delinquencies; loss experience;
stressed credit performance
76-85
Risk-based capital ratios and leverage ratios;
stress
Page
references
Select risk management metrics
The risk of loss arising from the default of a customer.
(ii) Consumer
Credit risk
The risk that the Firm has an insufficient level and composition of capital to
support its business activities and associated risks during both normal
economic environments and under stressed conditions.
Definition
(i) Capital risk
Total exposure; industry, geographic and client
concentrations; risk ratings; loss experience;
stressed credit performance
The risk of an adverse change in the value of privately-held financial assets and Carrying value, stress
instruments, typically representing an ownership or junior capital positions that
have unique risks due to their illiquidity or for which there is less observable
market or valuation data.
108-109
110-115
131
129-130
128
127
Not applicable
Risk and control self-assessment results, firm-
specific loss experience; industry loss
experience; business environment and internal
control factors; key risk indicators; key control
indicators; operating metrics
Model status, model tier
Not applicable
126
Relevant risk and control self-assessment
results, employee compliance information, code
of conduct case information
125
Risk based monitoring and testing for timely
compliance with financial obligations
(vi) Reputation risk The risk that an action, transaction, investment or event will reduce trust in the
Firm's integrity or competence by its various constituents, including clients,
counterparties, investors, regulators, employees and the broader public.
(v) Operational risk The risk of loss resulting from inadequate or failed processes or systems,
human factors, or due to external events that are neither market- nor credit-
related such as cyber and technology related events.
The risk of the potential for adverse consequences from decisions based on
incorrect or misused model outputs.
The risk of loss or imposition of damages, fines, penalties or other liability
arising from the failure to comply with a contractual obligation or to comply
with laws, rules or regulations to which the Firm is subject.
The risk that an employee's action or inaction causes undue harm to the Firm's
clients, damages market integrity, undermines the Firm's reputation, or
negatively impacts the Firm's culture.
The risk of failure to comply with applicable laws, rules, and regulations.
(iv) Model risk
(iii) Legal risk
(ii) Conduct risk
(i) Compliance risk
II. Other core risks
124
116-123
I. Economic risks
2,387
Risk
Management's discussion and analysis
(b) Period-end investment securities included HTM securities of $50.2 billion,
$49.1 billion, $49.3 billion at December 31, 2016, 2015 and 2014,
respectively.
(a) Average investment securities included HTM balances of $51.4 billion,
$50.0 billion and $47.2 billion for the years ended December 31, 2016,
2015 and 2014, respectively.
Mortgage loans (period-end)
Allowance for loan losses to
period-end loans
2,834
2,136
1,513
3,308
2,501
1,790
Mortgage loans (average)
Private equity portfolio information(a)
343,146
286,838
Investment securities portfolio
(period-end)(b)
349,285
314,802
278,250
Investment securities portfolio
(average) (a)
71
132 $ 190 $
$
2014
2015
287,777
December 31, (in millions)
Carrying value
2016
2015
71
JPMorgan Chase & Co./2016 Annual Report
The Firm strives for continual improvement through efforts
to enhance controls, ongoing employee training and
development, talent retention, and other measures. The
Firm follows a disciplined and balanced compensation
framework with strong internal governance and
independent Board oversight. The impact of risk and control
issues are carefully considered in the Firm's performance
evaluation and incentive compensation processes.
The Firm's Operating Committee, which consists of the
Firm's Chief Executive Officer ("CEO"), Chief Risk Officer
("CRO"), Chief Operating Officer ("COO"), Chief Financial
Officer ("CFO") and other senior executives, is the ultimate
management escalation point in the Firm, and may refer
matters to the Firm's Board of Directors. The Operating
Committee is responsible and accountable to the Firm's
Board of Directors.
Firmwide structures for risk governance.
Ownership of risk identification, assessment, data and
management within each of the lines of business and
corporate functions; and
Acceptance of responsibility, including identification and
escalation of risk issues, by all individuals within the
Firm;
•
•
The Firm believes that effective risk management requires:
Firmwide Risk Management is overseen and managed on an
enterprise-wide basis. The Firm's approach to risk
management covers a broad spectrum of economic and
other core risk areas, such as credit, market, liquidity,
model, principal, country, operational, compliance, conduct,
legal, capital and reputation risk, with controls and
governance established for each area, as appropriate.
•
Risk is an inherent part of JPMorgan Chase's business
activities. When the Firm extends a consumer or wholesale
loan, advises customers on their investment decisions,
makes markets in securities, or offers other products or
services, the Firm takes on some degree of risk. The Firm's
overall objective is to manage its businesses, and the
associated risks, in a manner that balances serving the
interests of its clients, customers and investors and protects
the safety and soundness of the Firm.
ENTERPRISE-WIDE RISK MANAGEMENT
JPMorgan Chase & Co./2016 Annual Report
70
The carrying value of the private equity portfolio at
December 31, 2015 was $2.1 billion, down from $5.9
billion at December 31, 2014, driven by the sale of a
portion of the Private Equity business and porfolio sales.
The carrying value of the private equity portfolio at
December 31, 2016 was $1.8 billion, down from $2.1
billion at December 31, 2015, driven by portfolio sales.
2015 compared with 2014
2016 compared with 2015
(a) For more information on the Firm's methodologies regarding the valuation
of the Private Equity portfolio, see Note 3.
$ 2,103 $ 5,866
3,798
6,281
1,797
2,649
Cost
$
2014
The following sections outline the key risks that are inherent in the Firm's business activities:
2,350 $
Allowance for lending-related
Total client assets
1
5
Multi-asset and alternatives
Market/performance/other impacts
Ending balance, December 31
22
22
42
1
(36)
48
$
1,771 $
(29)
1,723 $
Client assets rollforward
Beginning balance
Client assets
December 31,
(in billions)
Net asset flows
2016
2015
2014
Market/performance/other impacts
Ending balance, December 31
$
1,744
2,350 $
37
30
0.21
(a) Represents the "overall star rating" derived from Morningstar for the U.S.,
the U.K., Luxembourg, Hong Kong and Taiwan domiciled funds; and Nomura
"star rating" for Japan domiciled funds. Includes only Asset Management
retail open-ended mutual funds that have a rating. Excludes money market
funds, Undiscovered Managers Fund, and Brazil and India domiciled funds.
(b) Prior period amounts were revised to conform with current period
presentation.
(c) Quartile ranking sourced from: Lipper for the U.S. and Taiwan domiciled
funds; Morningstar for the U.K., Luxembourg and Hong Kong domiciled
funds; Nomura for Japan domiciled funds and Fund Doctor for South Korea
domiciled funds. Includes only Asset Management retail open-ended mutual
funds that are ranked by the aforementioned sources. Excludes money
market funds, Undiscovered Managers Fund, and Brazil and India domiciled
funds.
(d) Included $32.8 billion, $26.6 billion and $22.1 billion of prime mortgage
loans reported in the Consumer, excluding credit card, loan portfolio at
December 31, 2016, 2015 and 2014, respectively.
10
67
Management's discussion and analysis
Client assets
2016 compared with 2015
Client assets were $2.5 trillion, an increase of 4%
compared with the prior year. Assets under management
were $1.8 trillion, an increase of 3% from the prior year
reflecting inflows into both liquidity and long-term products
and the effect of higher market levels, partially offset by
asset sales at the beginning of 2016.
2015 compared with 2014
(8)
Client assets were $2.4 trillion, a decrease of 2% compared
with the prior year. Assets under management were $1.7
trillion, a decrease of 1% from the prior year reflecting the
effect of lower market levels, partially offset by net inflows
to long-term products.
Year ended December 31,
(in billions)
Assets under management
rollforward
Beginning balance
Net asset flows:
Liquidity(a)
Fixed income(a)
Equity
2016
2015
2014
$ 1,723 $ 1,744 $ 1,598
24
14
Client assets (continued)
2,387 $
2,343
63
Total assets under management
Year ended December 31,
International metrics
presentation.
(a) Prior period amounts were revised to conform with current period
549
2,387
Assets by asset class
Liquidity(a)
$
436 $
1,771
430 $
Fixed income(a)
420
376
395
Equity
351
353
Multi-asset and alternatives
564
564
$ 2,453 $
425
1,723
1,744
(in billions, except where otherwise
noted)
27
118
40
(64)
(74)
$
2,453 $ 2,350 $
1,849 $
1,077
Asia/Pacific
2,387
2,350 $
2,453 $
$
Total client assets
$
Europe/Middle East/Africa
643
627
682
administration/deposits
Total net revenue (in millions)(a)
Custody/brokerage/
2014
2015
2016
0.20
0.33
375
124
(a) Prior period amounts were revised to conform with current period
presentation.
North America
2,387
2,453 $ 2,350 $
$
Total client assets
501
470
477
Total international assets under
management
495
(b) Represents assets under management, as well as client balances in
brokerage accounts.
476
Retail
835
824
886
Institutional
46
45
45
Latin America/Caribbean
1,057
1,050 $
469
Total assets under management
$
1,294
1,771 $
1,707
Nonaccrual loans to period-
end loans
1,716
North America
680
634
650
Total international client assets
115
110
114
Latin America/Caribbean
174
173
177
Asia/Pacific
391
351 $
359 $
$
Europe/Middle East/Africa
Client assets
1,744
1,243
1,253
1,723 $
1,098 $
$
1,803
126
8,393
North America
Assets by client segment
4,120
3,871
3,652
Total international net revenue
166
172 $
154 $
$
8,248
Alternatives client assets (b)
795
726
Latin America/Caribbean
Memo:
1,199
1,946 $ 2,080
1,130
0.24
0.26
Private Banking
Allowance for loan losses to
nonaccrual loans
122
841
7,908
70
$
123
Private Banking
1,744
Asia/Pacific
1,723 $
1,771 $
Total assets under management $
329
309 $
$
Europe/Middle East/Africa
489
302 $
467
435 $
Institutional
470
869
437 $
816
428
123
$ 12,045 $ 12,119 $ 12,028
827
Assets under management
Retail
Total net revenue
Fully Phased-In CET1 capital
$
2016
2016
Year Ended December 31, (in millions)
December 31,
Changes in additional paid-in capital
Net purchase of treasury stock
182,967
80
Intangible assets deduction phase-in (c)
CET1 capital deduction phase-in (b)
AOCI phase-in (a)
Transitional CET1 capital
(in millions)
The following table presents the changes in Basel III Fully
Phased-In CET1 capital, Tier 1 capital and Tier 2 capital for
the year ended December 31, 2016.
Capital rollforward
The following table presents a reconciliation of the Firm's
Basel III Transitional CET1 capital to the Firm's estimated
Basel III Fully Phased-In CET1 capital as of December 31,
2016.
JPMorgan Chase & Co./2016 Annual Report
(156)
(b) Includes the deduction associated with the permissible holdings of
covered funds (as defined by the Volcker Rule) acquired after
December 31, 2013. The deduction was not material as of December
31, 2016.
Other adjustments to CET1 capital (d)
Standardized/Advanced CET1 capital at December 31, 2015 $ 173,189
Net income applicable to common equity
Dividends declared on common stock
733
8,545
(6,912)
Net issuance of noncumulative perpetual preferred stock
Other
(a) Represents deferred tax liabilities related to tax-deductible goodwill
and to identifiable intangibles created in nontaxable transactions,
which are netted against goodwill and other intangibles when
calculating TCE.
December 31, 2015
Standardized/Advanced Tier 1 capital at
December 31, 2016
Standardized/Advanced CET1 capital at
Increase in Standardized/Advanced CET1 capital
Other
Adjustment related to DVA (a)
Changes related to AOCI (a)
(d) Includes minority interest and the Firm's investments in its own CET1
capital instruments.
23,086
(c) Relates to intangible assets, other than goodwill and MSRs, that are
required to be deducted from CET1 capital upon full phase-in.
(a) Includes the remaining balance of AOCI related to AFS debt securities
and defined benefit pension and other postretirement employee
benefit ("OPEB") plans that will qualify as Basel III CET1 capital upon
full phase-in.
$ 181,734
954
181,734
$
(1,280)
(70)
(873)
(312)
(7,163)
(695)
(b) Predominantly includes regulatory adjustments related to changes in
DVA, as well as CET1 deductions for defined benefit pension plan
assets and deferred tax assets related to net operating loss ("NOL")
and tax credit carryforwards.
Change in CET1 capital
26,068
$
26,068
228,122
254,190
$
2016
December 31,
Other
Less:
Less: Other CET1 capital adjustments
Standardized/Advanced CET1 capital
Preferred stock
Deferred tax liabilities (a)
Other intangible assets
Goodwill
47,288
Add:
Common stockholders' equity
Less: Preferred stock
Total stockholders' equity
(in millions)
Capital components
A reconciliation of total stockholders' equity to Basel III
Fully Phased-In CET1 capital, Tier 1 capital and Basel III
Advanced and Standardized Fully Phased-In Total capital is
presented in the table below. For additional information on
the components of regulatory capital, see Note 28.
Capital
The Firm continues to believe that over the next several
years, it will operate with a Basel III CET1 capital ratio
between 11% and 12.5%. It is the Firm's intention that the
Firm's capital ratios continue to meet regulatory minimums
as they are fully implemented in 2019 and thereafter.
Each of the Firm's IDI subsidiaries must maintain a
minimum 6.5% CET1, 8% Tier 1 capital, 10% Total capital
and 5% Tier 1 leverage requirement to meet the definition
of "well-capitalized" under the Prompt Corrective Action
("PCA") requirements of the FDIC Improvement Act
("FDICIA") for IDI subsidiaries.
The countercyclical capital buffer takes into account the
macro financial environment in which large, internationally
active banks function. On September 8, 2016 the Federal
Reserve published the framework that will apply to the
setting of the countercyclical capital buffer. As of October
24, 2016 the Federal Reserve reaffirmed setting the U.S.
countercyclical capital buffer at 0%, and stated that it will
review the amount at least annually. The countercyclical
capital buffer can be increased if the Federal Reserve, FDIC
and OCC determine that credit growth in the economy has
become excessive and can be set at up to an additional
2.5% of RWA subject to a 12-month implementation period.
Based on the Firm's most recent estimate of its GSIB
surcharge and the current countercyclical buffer being set
at 0%, the Firm estimates its Fully Phased-In CET1 capital
requirement, at January 1, 2019, would be 10.5%
(reflecting the 4.5% CET1 capital requirement, the Fully
Phased-In 2.5% capital conservation buffer and the GSIB
surcharge of 3.5%). As well as meeting the capital ratio
requirements of Basel III, the Firm must, in order to be
"well-capitalized”, maintain a minimum 6% Tier 1 capital
and a 10% Total capital requirement. At December 31,
2016 and 2015, JPMorgan Chase maintained Basel III
Standardized Transitional and Basel III Advanced
Transitional ratios in excess of the well-capitalized
standards established by the Federal Reserve.
Increase in Standardized/Advanced Tier 1 capital
The Firm's Fully Phased-In GSIB surcharge for 2016 was
calculated to be 2.5% under Method 1 and 4.5% under
Method 2. Accordingly, the Firm's minimum capital ratios
applicable in 2016 include a GSIB surcharge of 1.125%,
resulting from the application of the transition provisions to
the 4.5% fully phased-in GSIB surcharge. For 2017, the
Firm has calculated its Fully Phased-In GSIB surcharge to be
2.5% under Method 1 and 3.5% under Method 2 resulting
in the inclusion of a GSIB surcharge of 1.75% in the Firm's
minimum capital ratios after application of the transition
provisions.
Less:
226,526
862
1,468
Advanced Fully Phased-In Total capital
19,052
$
Advanced Fully Phased-In Tier 2 capital
(10,961)
Adjustment in qualifying allowance for credit losses for
Advanced Tier 2 capital
237,487
$
Standardized Fully Phased-in Total capital
30,013
$
3,230
Standardized Fully Phased-In Tier 2 capital
14,854
Qualifying allowance for credit losses
15,253
$
Long-term debt and other instruments qualifying as
Tier 2 capital
207,474
$
Standardized/Advanced Tier 1 capital
328
Other Tier 1 adjustments(b)
181,734
(94)
Standardized/Advanced Tier 1 capital at
December 31, 2016
(14)
Change in long-term debt and other instruments qualifying
as Tier 2
1,475 $
(9)
(14)
20
2
18
5
(14)
128 $
14
1,347 $
$
December 31, 2016
Changes in RWA
29
2
27
Movement in portfolio levels(c)
(17)
(2)
(15)
(15)
(2)
(13)
Portfolio runoff (b)
(12)
959 $
128 $
400 $
1,487
Management's discussion and analysis
JPMorgan Chase & Co./2016 Annual Report
82
22
(b) Off-balance sheet exposures are calculated as the average of the three
month-end spot balances in the reporting quarter.
(a) Adjusted average assets, for purposes of calculating the SLR, includes
total quarterly average assets adjusted for on-balance sheet assets
that are subject to deduction from Tier 1 capital, predominantly
goodwill and other intangible assets.
6.5%
$ 3,192,839
46,977
2,485,480
707,359
$ 207,474
2,532,457
December 31,
2016
(14)
Off-balance sheet exposures (b)
SLR leverage exposure
SLR
Less: amounts deducted from Tier 1 capital
Total average assets
Fully Phased-in Tier 1 Capital
(in millions, except ratio)
The following table presents the components of the Firm's
Fully Phased-In SLR as of December 31, 2016.
Chase Bank USA, N.A., are required to have a minimum SLR
of 6%, both beginning January 1, 2018. As of December
31, 2016, the Firm estimates that JPMorgan Chase Bank,
N.A.'s and Chase Bank USA, N.A.'s Fully Phased-In SLRs are
approximately 6.6% and 9.6%, respectively.
U.S. bank holding companies, including the Firm, are
required to have a minimum SLR of 5% and IDI subsidiaries,
including JPMorgan Chase Bank, N.A. and
The SLR is defined as Tier 1 capital under Basel III divided
by the Firm's total leverage exposure. Total leverage
exposure is calculated by taking the Firm's total average on-
balance sheet assets, less amounts permitted to be
deducted for Tier 1 capital, and adding certain off-balance
sheet exposures, such as undrawn commitments and
derivatives potential future exposure.
Supplementary leverage ratio
(b) Portfolio runoff for credit risk RWA reflects reduced risk from position rolloffs in legacy portfolios in Mortgage Banking (under both the Standardized and Advanced
framework), and for market risk RWA reflects reduced risk from position rolloffs in legacy portfolios in the wholesale businesses.
(c) Movement in portfolio levels for credit risk RWA refers to changes in book size, composition, credit quality, and market movements; and for market risk RWA refers to
changes in position and market movements.
(a) Model & data changes refer to movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance (exclusive of rule
changes).
Total adjusted average assets (a)
Standardized Tier 2 capital at December 31, 2015
2
Model & data changes(a)
(3)
(2,080)
(1,426)
(651)
$ 21,132
$ 237,487
$ 30,013
(916)
(3)
(1,426)
513
$ 30,929
$ 207,474
8,427
(118)
$ 199,047
8,545
Advanced Total capital at December 31, 2016
Advanced Tier 2 capital at December 31, 2016
Increase in Advanced Tier 2 capital
Other
Change in qualifying allowance for credit losses
Change in long-term debt and other instruments qualifying
as Tier 2
Standardized Tier 2 capital at December 31, 2016
Standardized Total capital at December 31, 2016
Advanced Tier 2 capital at December 31, 2015
Increase in Standardized Tier 2 capital
Other
Change in qualifying allowance for credit losses
$ 19,052
$ 226,526
JPMorgan Chase & Co./2016 Annual Report
(a) Effective January 1, 2016, the adjustment reflects the impact of the
adoption of DVA through OCI. For further discussion of the accounting
change refer to Note 25.
1,496
400 $
142 $
954 $
$
1,475
142 $
1,333 $
$
December 31, 2015
Total RWA
(14)
Operational risk
RWA
Credit risk
RWA
Total RWA
Advanced
Standardized
Market risk
RWA
Credit risk
RWA
(in billions)
Year ended December 31, 2016
The following table presents changes in the components of RWA under Basel III Standardized and Advanced Fully Phased-In for
the year ended December 31, 2016. The amounts in the rollforward categories are estimates, based on the predominant
driver of the change.
RWA rollforward
Management's discussion and analysis
81
Market risk
RWA
79
(c) Represents the Transitional minimum capital ratios applicable to the Firm under Basel III as of December 31, 2016 and 2015. At December 31, 2016, the CET1 minimum
capital ratio includes 0.625% resulting from the phase-in of the Firm's 2.5% capital conservation buffer and 1.125%, resulting from the phase-in of the Firm's 4.5%
global systemically important banks ("GSIB") surcharge.
As an expansion of the capital conservation buffer, the Firm
is also required to hold additional levels of capital in the
form of a GSIB surcharge and a countercyclical capital
buffer.
Fully Phased-In
Standardized
Advanced
Minimum
capital ratios (c)
Minimum
Standardized
Advanced
capital ratios (d)
$ 182,967
$ 182,967
$
181,734 $ 181,734
208,112
239,553
208,112
228,592
Transitional
207,474
237,487
CET1 capital ratio
Total capital
These objectives are achieved through the establishment of
minimum capital targets and a strong capital governance
framework. Capital management is intended to be flexible
in order to react to a range of potential events. The Firm's
minimum capital targets are based on the most binding of
three pillars: an internal assessment of the Firm's capital
needs; an estimate of required capital under the CCAR and
Dodd-Frank Act stress testing requirements; and Basel III
Fully Phased-In regulatory minimums. Where necessary,
each pillar may include a management-established buffer.
The capital governance framework requires regular
monitoring of the Firm's capital positions, stress testing and
defining escalation protocols, both at the Firm and material
legal entity levels.
Meet capital distribution objectives; and
•
Serve as a source of strength to its subsidiaries;
•
Maintain sufficient capital resources to operate
throughout a resolution period in accordance with the
Firm's preferred resolution strategy.
76
JPMorgan Chase & Co./2016 Annual Report
The following tables present the Firm's Transitional and Fully Phased-In risk-based and leverage-based capital metrics under
both the Basel III Standardized and Advanced Approaches. The Firm's Basel III ratios exceed both the current and Fully Phased-
In regulatory minimums as of December 31, 2016 and 2015. For further discussion of these capital metrics and the
Standardized and Advanced approaches, refer to Monitoring and management of capital on pages 78-82.
December 31, 2016
(in millions, except ratios)
Risk-based capital metrics:
CET1 capital
Tier 1 capital
Risk-weighted assets
Retain flexibility to take advantage of future investment
opportunities;
207,474
1,464,981
14.0
Tier 1 capital ratio
Total capital ratio
Leverage-based capital metrics:
Adjusted average assets
2,484,631
2,484,631
2,485,480
2,485,480
Tier 1 leverage ratio(a)
8.4%
8.4%
4.0
8.3%
8.3%
15.2
226,526
16.1
15.5
1,476,915
1,474,665
1,487,180
12.5%
12.4%
6.25%
12.3%
12.2%
10.5%
14.2
14.1
14.1
14.0
12.0
16.4
9.75
stressed environments;
and invest in its businesses through the cycle and in
Maintain sufficient capital in order to continue to build
The Firmwide Control Committee ("FCC") provides a forum
for senior management to review and discuss firmwide
operational risks including existing and emerging issues,
and operational risk metrics, and to review operational risk
management execution in the context of the Operational
Risk Management Framework ("ORMF") which provides the
framework for the governance, assessment, measurement,
and monitoring and reporting of operational risk. The FCC is
co-chaired by the Chief Control Officer and the Firmwide
Risk Executive for Operational Risk Governance. The
committee relies upon the prompt escalation of issues from
businesses and functions as the primary owners of the
operational risk. Operational risk issues may be escalated
by business or function control committees to the FCC,
which may, in turn, escalate to the FRC, as appropriate.
The Firmwide Fiduciary Risk Governance Committee is a
forum for risk matters related to the Firm's fiduciary
activities. The Committee oversees the firmwide fiduciary
risk governance framework, which supports the consistent
identification and escalation of fiduciary risk issues by the
relevant lines of business; establishes policies and best
practices to effectuate the Committee's oversight
responsibility; and creates metrics reporting to track
fiduciary activity and issue resolution Firmwide. The
Committee escalates significant fiduciary issues to the FRC,
the DRPC and the Audit Committee, as appropriate.
Committees, Firmwide Control Committee, Firmwide
Fiduciary Risk Governance Committee, and regional Risk
Committees, as appropriate. The Committee escalates
significant issues to the DRPC, as appropriate.
JPMorgan Chase & Co./2016 Annual Report
The Compensation & Management Development Committee
("CMDC") assists the Board in its oversight of the Firm's
compensation programs and reviews and approves the
Firm's overall compensation philosophy, incentive
compensation pools, and compensation practices consistent
with key business objectives and safety and soundness. The
Committee reviews Operating Committee members'
performance against their goals, and approves their
compensation awards. The Committee also periodically
reviews the Firm's diversity programs and management
development and succession planning, and provides
oversight of the Firm's culture and conduct programs.
Among the Firm's senior management-level committees that
are primarily responsible for key risk-related functions are:
The Firmwide Risk Committee ("FRC") is the Firm's highest
management-level risk committee. It provides oversight of
the risks inherent in the Firm's businesses. The Committee is
co-chaired by the Firm's CEO and CRO. This Committee
serves as an escalation point for risk topics and issues
raised by its members, the Line of Business Risk
74
The Audit Committee of the Board assists the Board in its
oversight of management's responsibilities to assure that
there is an effective system of controls reasonably designed
to safeguard the assets and income of the Firm, assure the
integrity of the Firm's financial statements and maintain
compliance with the Firm's ethical standards, policies, plans
and procedures, and with laws and regulations. In addition,
the Audit Committee assists the Board in its oversight of the
Firm's independent registered public accounting firm's
qualifications, independence and performance, and of the
performance of the Firm's Internal Audit function.
The Directors' Risk Policy Committee of the Board oversees
the Firm's global risk management framework and approves
the primary risk management policies of the Firm. The
Committee's responsibilities include oversight of
management's exercise of its responsibility to assess and
manage the Firm's risks, and its capital and liquidity
planning and analysis. Breaches in risk appetite, liquidity
issues that may have a material adverse impact on the Firm
and other significant risk-related matters are escalated to
the Committee.
The Board of Directors provides oversight of risk principally through the DRPC, Audit Committee and, with respect to
compensation and other management-related matters, the Compensation & Management Development Committee. Each
committee of the Board oversees reputation risk issues within its scope of responsibility.
1 Other Board Committees include the Compensation & Management Development Committee, Corporate Governance & Nominating Committee and Public Responsibility Committee.
2 As applicable.
Firmwide Control
Committee (FCC)
Line of Business, Corporate Function and Regional Control Committees
Internal
Audit
Firmwide Fiduciary
Risk Governance
Committee (FFRGC)
Regional Risk
Committees
CIO, Treasury &
Corporate
Risk Committee
Line of Business and Regional Risk Committees review the
ways in which the particular line of business or the business
operating in a particular region could be exposed to adverse
outcomes with a focus on identifying, accepting, escalating
and/or requiring remediation of matters brought to these
committees. These committees may escalate to the FRC, as
appropriate. LOB risk committees are co-chaired by the LOB
CEO and the LOB CRO. Each LOB risk committee may create
sub-committees with requirements for escalation. The
regional committees are established similarly, as
appropriate, for the region.
Firmwide Risk
Committee (FRC)
In addition, each line of business and function is required to
have a Control Committee. These control committees
oversee the control environment of their respective
business or function. As part of that mandate, they are
responsible for reviewing data which indicates the quality
and stability of the processes in a business or function,
reviewing key operational risk issues and focusing on
processes with shortcomings and overseeing process
remediation. These committees escalate to the FCC, as
appropriate.
JPMorgan Chase & Co./2016 Annual Report
•
•
•
•
The Firm's capital management objectives are to hold
capital sufficient to:
A strong capital position is essential to the Firm's business
strategy and competitive position. Maintaining a strong
balance sheet to manage through economic volatility is
considered a strategic imperative of the Firm's Board of
Directors, CEO and Operating Committee. The Firm's
balance sheet philosophy focuses on risk-adjusted returns,
strong capital and robust liquidity. The Firm's capital
management strategy focuses on maintaining long-term
stability to enable it to build and invest in market-leading
businesses, even in a highly stressed environment. Prior to
making any decisions on future business activities, senior
management considers the implications on the Firm's
capital. In addition to considering the Firm's earnings
outlook, senior management evaluates all sources and uses
of capital with a view to preserving the Firm's capital
strength.
Capital risk is the risk the Firm has an insufficient level and
composition of capital to support its business activities and
associated risks during both normal economic environments
and under stressed conditions.
CAPITAL RISK MANAGEMENT
Management's discussion and analysis
75
The Firm has a broad spectrum of risk management
metrics, as appropriate for each risk category. For further
information on risk management metrics, see table on key
risks on page 72. Additionally, the Firm is exposed to
certain potential low-probability, but plausible and material,
idiosyncratic risks that are not well-captured by its other
existing risk analysis and reporting metrics. These
idiosyncratic risks may arise in a number of ways, such as
changes in legislation, an unusual combination of market
events, or specific counterparty events. The Firm has a
process intended to identify these risks in order to allow the
Firm to monitor vulnerabilities that are not adequately
covered by its other standard risk measurements.
Risk measurement
The Firmwide Valuation Governance Forum ("VGF") is
composed of senior finance and risk executives and is
responsible for overseeing the management of risks arising
from valuation activities conducted across the Firm. The
VGF is chaired by the firmwide head of the Valuation Control
Group ("VCG") (under the direction of the Firm's Controller),
and includes sub-forums covering the Corporate &
Investment Bank, Consumer & Community Banking,
Commercial Banking, Asset & Wealth Management and
certain corporate functions, including Treasury and CIO.
In addition, the JPMorgan Chase Bank, N.A. Board of
Directors is responsible for the oversight of management of
the Bank. The JPMorgan Chase Bank, N.A. Board
accomplishes this function acting directly and through the
principal standing committees of the Firm's Board of
Directors. Risk oversight on behalf of JPMorgan Chase Bank
N.A. is primarily the responsibility of the DRPC and Audit
Committee of the Firm's Board of Directors and, with
respect to compensation and other management-related
matters, the Compensation & Management Development
Committee of the Firm's Board of Directors.
The Firmwide Capital Governance Committee, chaired by the
Head of the Regulatory Capital Management Office is
responsible for reviewing the Firm's Capital Management
Policy and the principles underlying capital issuance and
distribution alternatives and decisions. The Committee
oversees the capital adequacy assessment process,
including the overall design, scenario development and
macro assumptions and ensures that capital stress test
programs are designed to adequately capture the risks
specific to the Firm's businesses.
funding requirements and strategy, and securitization
programs (and any required liquidity support by the Firm of
such programs). ALCO is responsible for reviewing and
approving the Firm's Funds Transfer Pricing Policy (through
which lines of business "transfer" interest rate risk to
Treasury and CIO) and the Firm's Intercompany Funding and
Liquidity Policy. ALCO is also responsible for reviewing the
Firm's Contingency Funding Plan.
The Firmwide Asset Liability Committee ("ALCO"), chaired by
the Firm's Treasurer and Chief Investment Officer under the
direction of the COO, monitors the Firm's balance sheet,
liquidity risk and structural interest rate risk. ALCO reviews
the Firm's overall structural interest rate risk position,
Line of Business Reputation Risk Committees²
Line of Business Fiduciary Risk Committees²
Corporate &
Investment Bank
Risk Committee
The chart below illustrates the key senior management level committees in the Firm's risk governance structure. Other
committees, forums and paths of escalation are in place that are responsible for management and oversight of risk, although
they are not shown in the chart below.
Management's discussion and analysis
73
JPMorgan Chase & Co./2016 Annual Report
The independent status of the IRM function is supported by
a governance structure that provides for escalation of risk
issues to senior management, the Firmwide Risk
Committee, or the Board of Directors.
Internal Audit, a function independent of the businesses
and the IRM function, tests and evaluates the Firm's risk
governance and management, as well as its internal control
processes. This function, the "third line of defense" in the
risk governance framework, brings a systematic and
disciplined approach to evaluating and improving the
effectiveness of the Firm's governance, risk management
and internal control processes. The Internal Audit Function
is headed by the General Auditor, who reports to the Audit
Committee.
As the "second line of defense", the IRM function provides
oversight and independent challenge, consistent with its
policies and framework, to the risk-creating LOBs and
functional areas.
The Firmwide Oversight and Control Group consists of
dedicated control officers within each of the lines of
business and corporate functions, as well as having a
central oversight function. The group is charged with
enhancing the Firm's control environment by looking within
and across the lines of business and corporate functions to
help identify and remediate control issues. The group
enables the Firm to detect control problems more quickly,
escalate issues promptly and engage other stakeholders to
understand common themes and interdependencies among
the various parts of the Firm.
The Firm places key reliance on each of its LOBS and other
functional areas giving rise to risk. Each LOB or other
functional area giving rise to risk is expected to operate its
activities within the parameters identified by the IRM
function, and within their own management-identified risk
and control standards. Because these LOBS and functional
areas are accountable for identifying and addressing the
risks in their respective businesses and for operating within
a sound control environment, they are considered the "first
line of defense" within the Firm's risk governance
framework.
The IRM function, comprised of Risk Management and
Compliance Organizations, is independent of the businesses.
The IRM function sets various standards for the risk
management governance framework, including risk policy,
identification, measurement, assessment, testing, limit
setting (e.g., risk appetite, thresholds, etc.), monitoring and
reporting. Various groups within the IRM function are
aligned to the LOBS and to corporate functions, regions and
core areas of risk such as credit, market, country and
liquidity risks, as well as operational, model and
reputational risk governance.
The Firm's CRO is the head of the Independent Risk
Management ("IRM") function and reports to the CEO and
the DRPC. The CEO appoints the CRO to create the Risk
Management Framework subject to approval by the DRPC in
the form of the Primary Risk Policies. The Chief Compliance
Officer ("CCO"), who reports to the CRO, is also responsible
for reporting to the Audit Committee for the Global
Compliance Program. The Firm's Global Compliance
Program focuses on overseeing compliance with laws, rules
and regulations applicable to the Firm's products and
services to clients and counterparties.
The Firm's overall appetite for risk is governed by a "Risk
Appetite" framework. The framework and the Firm's risk
appetite are set and approved by the Firm's CEO, CFO, CRO
and COO. LOB-level risk appetite is set by the respective LOB
CEO, CFO and CRO and is approved by the Firm's CEO, CFO,
CRO and COO. Quantitative parameters and qualitative
factors are used to monitor and measure the Firm's capacity
to take risk against stated risk appetite. Quantitative
parameters have been established to assess stressed net
income, capital, credit risk, market risk, structural interest
rate risk and liquidity risk. Qualitative factors have been
established for select risks. Risk Appetite results are
reported quarterly to the Board of Directors' Risk Policy
Committee ("DRPC").
Governance and oversight
Maintain "well-capitalized" status for the Firm and its
principal bank subsidiaries;
Support risks underlying business activities;
Other Board Committees¹
Board of Directors (BOD)
Directors' Risk Policy Committee (DRPC)
Audit Committee
Chief Risk Officer
Head of Human
Resources
General Counsel
Consumer &
Community Banking
Risk Committee
Commercial Banking
Risk Committee
Firmwide Valuation
Governance Forum
(VGF)
Governance
Committee (CGC)
4.0
Firmwide Capital
Asset & Wealth
Management
Risk Committee
Chief Financial
Officer
Chief Operating
Officer
Business CEOs
Line of
Chief Executive Officer
Operating Committee
Firmwide Asset
Liability Committee
(ALCO)
Under the Federal Reserve's final rule, GSIBS, including the
Firm, are required to calculate their GSIB surcharge on an
annual basis under two separately prescribed methods, and
are subject to the higher of the two. The first ("Method 1"),
reflects the GSIB surcharge as prescribed by the Basel
Committee's assessment methodology, and is calculated
across five criteria: size, cross-jurisdictional activity,
interconnectedness, complexity and substitutability. The
second ("Method 2"), modifies the Method 1 requirements
to include a measure of short-term wholesale funding in
place of substitutability, and introduces a GSIB score
"multiplication factor".
SLR leverage exposure
SLR(b)
$ 3,191,990
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
minimum capital requirements for the Firm's national
banks, including JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A. The U.S. capital requirements
generally follow the Capital Accord of the Basel Committee,
as amended from time to time.
Basel III overview
Capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. bank holding companies and
banks, including the Firm and its insured depository
institution ("IDI") subsidiaries. Basel III presents two
comprehensive methodologies for calculating RWA: a
general (standardized) approach ("Basel III Standardized"),
and an advanced approach ("Basel III Advanced"). Certain
of the requirements of Basel III are subject to phase-in
periods that began on January 1, 2014 and continue
through the end of 2018 ("transitional period").
Basel III establishes capital requirements for calculating
credit risk and market risk RWA, and in the case of Basel III
Advanced, operational risk RWA. Key differences in the
calculation of credit risk RWA between the Standardized
and Advanced approaches are that for Basel III Advanced,
credit risk RWA is based on risk-sensitive approaches which
largely rely on the use of internal credit models and
parameters, whereas for Basel III Standardized, credit risk
RWA is generally based on supervisory risk-weightings
which vary primarily by counterparty type and asset class.
Market risk RWA is calculated on a generally consistent
basis between Basel III Standardized and Basel III
Advanced. In addition to the RWA calculated under these
methodologies, the Firm may supplement such amounts to
incorporate management judgment and feedback from its
bank regulators.
Basel III also includes a requirement for Advanced
Approach banking organizations, including the Firm, to
calculate SLR. For additional information on SLR, see
page 82.
Basel III Fully Phased-In
Basel III capital rules will become fully phased-in on January
1, 2019, at which point the Firm will continue to calculate
its capital ratios under both the Basel III Standardized and
Advanced Approaches. The Firm manages each of the
businesses, as well as the corporate functions, primarily on
a Basel III Fully Phased-In basis. For additional information
on the Firm, JPMorgan Chase Bank, N.A. and Chase Bank
USA, N.A.'s capital, RWA and capital ratios under Basel III
Standardized and Advanced Fully Phased-In rules and SLRs
calculated under the Basel III Advanced Fully Phased-In
rules, all of which are considered key regulatory capital
measures, see Explanation and Reconciliation of the Firm's
Use of Non-GAAP Financial Measures and Key Performance
Measures on pages 48-50.
78
JPMorgan Chase & Co./2016 Annual Report
The Firm's estimates of its Basel III Standardized and
Advanced Fully Phased-In capital, RWA and capital ratios
and SLRs for the Firm, JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A. are based on the current published
U.S. Basel III rules and on the application of such rules to
the Firm's businesses as currently conducted. The actual
impact on the Firm's capital ratios and SLR as of the
Risk-based capital regulatory minimums
effective date of the rules may differ from the Firm's current
estimates depending on changes the Firm may make to its
businesses in the future, further implementation guidance
from the regulators, and regulatory approval of certain of
the Firm's internal risk models (or, alternatively, regulatory
disapproval of the Firm's internal risk models that have
previously been conditionally approved).
The following chart presents the Basel III minimum CET1 capital ratio during the transitional periods and on a fully phased-in
basis under the Basel III rules currently in effect.
14
12
Regulatory capital
10.50%
In its monitoring and management of capital, the Firm takes
into consideration an assessment of economic risk and all
regulatory capital requirements to determine the level of
capital needed to meet and maintain the objectives
discussed above, as well as to support the framework for
allocating capital to its business segments. While economic
risk is considered prior to making decisions on future
business activities, in most cases, the Firm considers risk-
based regulatory capital to be a proxy for economic risk
capital.
The Firm's CEO, in conjunction with the Board of Directors,
establishes principles and guidelines for capital planning,
issuance, usage and distributions, and minimum capital
targets for the level and composition of capital in both
business-as-usual and highly stressed environments. The
DRPC assesses and approves the capital management and
governance processes of the Firm. The Firm's Audit
Committee is responsible for reviewing and approving the
capital stress testing end-to-end control framework.
4.0
$ 3,079,119
6.5%
(e)
5.0
Note: As of December 31, 2016 and 2015, the lower of the Standardized or Advanced capital ratios under each of the Transitional and Fully Phased-In approaches in the table above
represents the Firm's Collins Floor, as discussed in Monitoring and management of Capital on page 78.
(a) The Tier 1 leverage ratio is calculated by dividing Tier 1 capital by adjusted average assets.
(b) The SLR leverage ratio is calculated by dividing Tier 1 capital by SLR leverage exposure.
(d) Represents the minimum capital ratios applicable to the Firm on a Fully Phased-In Basel III basis. At December 31, 2016, the ratios include the Firm's estimate of its Fully
Phased-In U.S. GSIB surcharge of 3.5%. The minimum capital ratios will be fully phased-in effective January 1, 2019. For additional information on the GSIB surcharge, see page
79.
(e) In the case of the SLR, the Fully Phased-In minimum ratio is effective beginning January 1, 2018.
JPMorgan Chase & Co./2016 Annual Report
77
72
Management's discussion and analysis
Strategy and governance
The Capital Governance Committee and the Regulatory
Capital Management Office ("RCMO") support the Firm's
strategic capital decision-making. The Capital Governance
Committee oversees the capital adequacy assessment
process, including the overall design, scenario development
and macro assumptions and ensures that capital stress test
programs are designed to adequately capture the risks
specific to the Firm's businesses. RCMO, which reports to
the Firm's CFO, is responsible for designing and monitoring
the Firm's execution of its capital policies and strategies
once approved by the Board, as well as reviewing and
monitoring the execution of its capital adequacy assessment
process. The Basel Independent Review function ("BIR"),
which reports to the RCMO and has direct access to both the
DRPC and Capital Governance Committee, conducts
independent assessments of the Firm's regulatory capital
framework to ensure compliance with the applicable U.S.
Basel rules in support of senior management's
responsibility for assessing and managing capital and for
the DRPC's oversight of management in executing that
responsibility. For additional discussion on the DRPC, see
Enterprise-wide Risk Management on pages 71-75.
Monitoring and management of capital
12/31/16 CET1
10
Estimate: 12.2%
4.50%
4.50%
4.50%
4.50%
Minimum
requirement
0
2015
2016
2017
2018
2019
The Basel III rules include minimum capital ratio
requirements that are subject to phase-in periods through
the end of 2018. The capital adequacy of the Firm and its
national bank subsidiaries, both during the transitional
period and upon full-phase in, is evaluated against the Basel
III approach (Standardized or Advanced) which results for
each quarter in the lower ratio as required by the Collins
Amendment of the Dodd-Frank Act (the "Collins Floor").
Additional information regarding the Firm's capital ratios, as
well as the U.S. federal regulatory capital standards to
which the Firm is subject, is presented in Note 28. For
further information on the Firm's Basel III measures, see the
Firm's Pillar 3 Regulatory Capital Disclosures reports, which
are available on the Firm's website (http://
investor.shareholder.com/jpmorganchase/basel.cfm).
All banking institutions are currently required to have a
minimum capital ratio of 4.5% of CET1 capital. Certain
banking organizations, including the Firm, are required to
hold additional amounts of capital to serve as a "capital
conservation buffer". The capital conservation buffer is
intended to be used to absorb potential losses in times of
financial or economic stress. If not maintained, the Firm
could be limited in the amount of capital that may be
JPMorgan Chase & Co./2016 Annual Report
distributed, including dividends and common equity
repurchases. The capital conservation buffer is subject to a
phase-in period that began January 1, 2016 and continues
through the end of 2018.
4.50%
2
Capital
conservation
buffer
4
9.00%
3.50%
Capital
conservation
buffer incl. GSIB
8
7.50%
2.625%
6.25%
8.4%
1.750%
6
1.125%
2.50%
1.875%
4.50%
1.250%
0.625%
GSIB surcharge
ΝΑ
8.4%
ΝΑ
ΝΑ
6.5%
Fully Phased-In
Advanced
Minimum
capital ratios (c)
Standardized
Advanced
Minimum
capital ratios (d)
$ 175,398
$
175,398
$
200,482
200,482
234,413
224,616
173,189
199,047
229,976
Transitional
$ 173,189
Standardized
Risk-weighted assets
ΝΑ
$ 3,192,839
(e)
NA
6.5%
ΝΑ
ΝΑ
6.5%
5.0
December 31, 2015
(in millions, except ratios)
Risk-based capital metrics:
CET1 capital
Tier 1 capital
Total capital
CET1 capital ratio
ΝΑ
199,047
220,179
1,485,336
Tier 1 capital ratio
Total capital ratio
Leverage-based capital metrics:
Adjusted average assets
2,358,471
2,358,471
2,360,499
2,360,499
Tier 1 leverage ratio(a)
SLR leverage exposure
SLR (b)
8.5%
NA
ΝΑ
8.5%
4.0
3,079,797
14.0
1,465,262
14.7
8.0
1,474,870
1,495,520
12.0%
11.8%
4.5%
11.7%
11.6%
15.6
10.5%
13.5
6.0
13.5
13.3
12.0
16.0
15.1
13.7
7.75
06
90
2015
822,973
residential real estate PCI loans
Loans - reported, excluding
780,293
861,345
Loans reported
Average retained loans
4,086
$
4,692
$
2016
Net charge-offs
(in millions, except ratios)
Year ended December 31,
88
(9)
506
193
7,227
Lending-related
commitments
Total credit portfolio
Credit derivatives used in
credit portfolio
736,543
management activities(a)
Liquid securities and other
cash collateral held
against derivatives
$ (22,114) $ (20,681) $
-
(22,705) (16,580)
NA
ΝΑ
$
$1,953,105 $1,850,868 $ 8,041 $
Net charge-off rates
Loans reported
Loans - reported, excluding PCI
2016
2015
Average annual net
charge-off rate (i)(k)
2016
2015
Consumer, excluding credit card
Loans, excluding PCI loans and loans held-for-sale
Net charge-offs/
(recoveries)(i)
Home equity
39,063
Residential mortgage
Auto(a)
192,163
65,814
$ 45,559
166,239
$ 1,845 $ 2,191
$
940,395
Nonaccrual loans(h)(i)
2016
2015
2016
0.54%
0.57
0.52%
0.55
(a) Represents the net notional amount of protection purchased and sold through
credit derivatives used to manage both performing and nonperforming wholesale
credit exposures; these derivatives do not qualify for hedge accounting under
U.S. GAAP. For additional information, see Credit derivatives on pages 103-104
and Note 6.
(b) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as each of the pools is performing.
(c) At December 31, 2016 and 2015, nonperforming assets excluded: (1) mortgage
loans insured by U.S. government agencies of $5.0 billion and $6.3 billion,
respectively, that are 90 or more days past due; (2) student loans insured by U.S.
government agencies under the FFELP of $263 million and $290 million,
respectively, that are 90 or more days past due; and (3) Real estate owned
("REO") insured by U.S. government agencies of $142 million and $343 million,
respectively. These amounts have been excluded based upon the government
guarantee. In addition, the Firm's policy is generally to exempt credit card loans
from being placed on nonaccrual status as permitted by regulatory guidance
issued by the Federal Financial Institutions Examination Council ("FFIEC").
JPMorgan Chase & Co./2016 Annual Report
2015
CONSUMER CREDIT PORTFOLIO
prices and lower unemployment. Both early-stage
delinquencies (30-89 days delinquent) and late-stage
delinquencies (150+ days delinquent) for residential real
estate, excluding government guaranteed loans, declined
from December 31, 2015 levels. The Credit Card 30+ day
delinquency rate and the net charge-off rate increased from
the prior year but remain near record lows. For further
information on consumer loans, see Note 14.
The following table presents consumer credit-related information with respect to the credit portfolio held by CCB, prime
mortgage and home equity loans held by AWM, and prime mortgage loans held by Corporate. For further information about the
Firm's nonaccrual and charge-off accounting policies, see Note 14.
Consumer credit portfolio
As of or for the year ended December 31,
(in millions, except ratios)
Credit exposure
The Firm's consumer portfolio consists primarily of
residential real estate loans, credit card loans, auto loans,
business banking loans and student loans, and associated
lending-related commitments. The Firm's focus is on serving
primarily the prime segment of the consumer credit market.
The credit performance of the consumer portfolio continues
to benefit from discipline in credit underwriting as well as
improvement in the economy driven by increasing home
$
976,702
7,535
2,230
101
162
1,646
6,721 $ 6,303
$
2015
2016
Nonperforming (b)(c)
$ 889,907 $ 832,792
2,628
2015
2016
Credit exposure
December 31,
(in millions)
Loans retained
Loans held-for-sale
Loans at fair value
Total loans - reported
Derivative receivables
Total credit portfolio
For discussion of the consumer credit environment and
consumer loans, see Consumer Credit Portfolio on pages
89-95 and Note 14. For discussion of wholesale credit
environment and wholesale loans, see Wholesale Credit
Portfolio on pages 96-104 and Note 14.
In the following tables, reported loans include loans
retained (i.e., held-for-investment); loans held-for-sale; and
certain loans accounted for at fair value. In addition, the
Firm records certain loans accounted for at fair value in
trading assets. For further information regarding these
loans, see Note 3 and Note 4. For additional information on
the Firm's loans, lending-related commitments, and
derivative receivables, including the Firm's accounting
policies, see Note 14, Note 29, and Note 6, respectively. For
further information regarding the credit risk inherent in the
Firm's cash placed with banks, investment securities
portfolio, and securities financing portfolio, see Note 5,
Note 12, and Note 13, respectively.
Master netting agreements
•
Collateral and other risk-reduction techniques
In addition to Credit Risk Management, an independent
Credit Review function, is responsible for:
Independently validating or changing the risk grades
assigned to exposures in the Firm's wholesale and
commercial-oriented retail credit portfolios, and
assessing the timeliness of risk grade changes initiated
by responsible business units; and
• Evaluating the effectiveness of business units' credit
management processes, including the adequacy of credit
analyses and risk grading/LGD rationales, proper
monitoring and management of credit exposures, and
compliance with applicable grading policies and
underwriting guidelines.
2,861
For further discussion of consumer and wholesale loans, see
Note 14.
To enable monitoring of credit risk and effective decision-
making, aggregate credit exposure, credit quality forecasts,
concentration levels and risk profile changes are reported
regularly to senior members of Credit Risk Management.
Detailed portfolio reporting of industry, customer, product
and geographic concentrations occurs monthly, and the
appropriateness of the allowance for credit losses is
reviewed by senior management at least on a quarterly
basis. Through the risk reporting and governance structure,
credit risk trends and limit exceptions are provided
regularly to, and discussed with, risk committees, senior
management and the Board of Directors as appropriate.
JPMorgan Chase & Co./2016 Annual Report
88
87
Management's discussion and analysis
CREDIT PORTFOLIO
Risk reporting
25
894,765
837,299
NA
NA
59
54
Total assets acquired in
loan satisfactions
347
NA
3,122
429
401
Total assets
976,403
910,473
ΝΑ
7,034
370
NA
64,078
59,677
6,883
223
6,429
204
Receivables from
NA
customers and other
Total credit-related
assets
976,403
910,473
7,106
6,633
Assets acquired in loan
satisfactions
Real estate owned
Other
17,560
189 $ 291
0.45%
0.59%
Total consumer, excluding credit card loans
-
-
98
53
466 (g)
238 (g)
Loans held-for-sale
0.30
0.25
954
909
5,315
4,767
344,355
364,406
Total loans - retained
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
Total loans - PCI
364,644
35,679
ΝΑ
NA
NA
NA
ΝΑ
ΝΑ
40,998
344,821
4,820
5,413
2.51
Loans held-for-sale
Total credit card loans
Lending-related commitments (d)
Total credit card exposure
Total consumer credit portfolio
2.63
Memo: Total consumer credit portfolio, excluding PCI
131,387
105
76
141,816
131,463
3,442
141,711
ΝΑ
3,122
Loans retained(f)
909
954
0.25
0.30
Lending-related commitments(d)
54,797
3,442
58,478
120
125
Total consumer exposure, excluding credit card
419,561
403,424
Credit Card
Receivables from customers(e)
NA
ΝΑ
ΝΑ
253
1.17
1.23
Student and other
8,989
10,096
257
175
166
200
1.74
1.89
Total loans, excluding PCI loans and loans held-for-sale
328,727
242
303,357
263
21,208
2,247
2,503
12
(4)
0.01
60,255
286
214
285
214
0.45
0.38
Business banking (b)
22,698
116
•
4,767
909
3,263
ΝΑ
ΝΑ
12,234
13,853
NA
2,941
NA
ΝΑ
NA
금금금금
NA
ΝΑ
ΝΑ
금금금금
5,315
ΝΑ
8,893
954
0.28
0.35
Loans - PCI
Home equity
NA
NA
12,902
NA
ΝΑ
Prime mortgage
Subprime mortgage
Option ARMS (c)
7,602
14,989
Credit derivatives
13,497
Loan sales and securitizations
91
JPMorgan Chase & Co./2016 Annual Report
Student and other: Student and other loans decreased from
December 31, 2015 primarily as a result of the run-off of
the student loan portfolio as the Firm ceased originations of
student loans during the fourth quarter of 2013.
Nonaccrual loans and net charge-offs also declined as a
result of the run-off of the student loan portfolio.
Purchased credit-impaired loans: PCI loans decreased as
the portfolio continues to run off. As of December 31,
2016, approximately 12% of the option ARM PCI loans
were delinquent and approximately 66% of the portfolio
had been modified into fixed-rate, fully amortizing loans.
Substantially all of the remaining loans are making
amortizing payments, although such payments are not
necessarily fully amortizing. This latter group of loans is
subject to the risk of payment shock due to future payment
recast. Default rates generally increase on option ARM loans
when payment recast results in a payment increase. The
expected increase in default rates is considered in the
Firm's quarterly impairment assessment.
Business banking: Business banking loans increased
compared with December 31, 2015 as a result of growth in
loan originations. Nonaccrual loans at December 31, 2016
and net charge-offs for the year ended December 31, 2016
increased from the prior year as a result of growth in the
portfolio.
Auto: Auto loans increased from December 31, 2015, as a
result of growth in new originations. Nonaccrual loans
increased compared with December 31, 2015, primarily
due to downgrades of select auto dealer risk-rated loans.
Net charge-offs for the year ended December 31, 2016
increased compared with the prior year, as a result of
higher retail auto loan balances and a moderate increase in
loss severity. The auto portfolio predominantly consists of
prime-quality loans.
At December 31, 2016 and 2015, the Firm's residential
mortgage portfolio included $19.1 billion and $17.8 billion,
respectively, of interest-only loans. These loans have an
interest-only payment period generally followed by an
adjustable-rate or fixed-rate fully amortizing payment
period to maturity and are typically originated as higher-
balance loans to higher-income borrowers. To date, losses
on this portfolio generally have been consistent with the
broader residential mortgage portfolio and the Firm's
expectations. The Firm continues to monitor the risks
associated with these loans.
Management's discussion and analysis
.•
Junior lien loans where the borrower has a senior lien loan
that is either delinquent or has been modified are
considered high-risk seconds. Such loans are considered to
pose a higher risk of default than junior lien loans for which
the senior lien loan is neither delinquent nor modified. At
December 31, 2016, the Firm estimated that the carrying
value of its home equity portfolio contained approximately
$1.1 billion of current junior lien loans that were
considered high risk seconds, compared with $1.4 billion at
December 31, 2015. The Firm estimates the balance of its
total exposure to high-risk seconds on a quarterly basis
using internal data and loan level credit bureau data (which
typically provides the delinquency status of the senior lien
loan). The Firm considers the increased PD associated with
these high-risk seconds in estimating the allowance for loan
losses and classifies those loans that are subordinated to a
first lien loan that is more than 90 days delinquent as
nonaccrual loans. The estimated balance of these high-risk
seconds may vary from quarter to quarter for reasons such
as the movement of related senior lien loans into and out of
the 30+ day delinquency bucket. The Firm continues to
monitor the risks associated with these loans. For further
information, see Note 14.
JPMorgan Chase & Co./2016 Annual Report
The Firm has considered this payment recast risk in its
allowance for loan losses based upon the estimated amount
of payment shock (i.e., the excess of the fully-amortizing
payment over the interest-only payment in effect prior to
recast) expected to occur at the payment recast date, along
with the corresponding estimated PD and loss severity
assumptions. As part of its allowance estimate, the Firm
also expects, based on observed activity in recent years,
that approximately 30% of the carrying value of HELOCS
scheduled to recast will voluntarily prepay prior to or after
the recast. The HELOCS that have previously recast to fully
amortizing payments generally have higher delinquency
rates than the HELOCS within the revolving period, primarily
as a result of the payment shock at the time of recast.
Certain other factors, such as future developments in both
unemployment rates and home prices, could also have a
significant impact on the performance of these loans.
The Firm manages the risk of HELOCS during their revolving
period by closing or reducing the undrawn line to the extent
permitted by law when borrowers are exhibiting a material
deterioration in their credit risk profile. The Firm will
continue to evaluate both the near-term and longer-term
recast risks inherent in its HELOC portfolio to ensure that
changes in the Firm's estimate of incurred losses are
appropriately considered in the allowance for loan losses
and that the Firm's account management practices are
appropriate given the portfolio's risk profile.
Recast in 2018
14%
Recast in 2019 and
beyond
33%
24%
Residential mortgage: The residential mortgage portfolio
predominantly consists of high-quality prime mortgage
loans with a small component (approximately 2%) of the
residential mortgage portfolio in subprime mortgage loans.
These subprime mortgage loans continue to run-off and are
performing in line with expectations. The residential
mortgage portfolio, including loans held-for-sale, increased
from December 31, 2015 due to retained originations of
primarily high-quality fixed rate prime mortgage loans
partially offset by paydowns. Both early-stage and late-
stage delinquencies showed improvement from
December 31, 2015. Nonaccrual loans decreased from the
prior year primarily as a result of loss mitigation activities.
Net charge-offs for the year ended December 31, 2016
remain low, reflecting continued improvement in home
prices and delinquencies.
29%
The following table provides a summary of lifetime principal loss estimates included in either the nonaccretable difference or
the allowance for loan losses.
December 31, (in billions)
14.5
14.4 $
$
2015
2016
2015
Summary of PCI loans lifetime principal loss estimates
2016
Lifetime loss estimates(a)
Total
Option ARMS
Subprime mortgage
Prime mortgage
Home equity
Life-to-date liquidation losses (b)
$
Recast in 2017
(at December 31, 2016)
Line of business equity
The Firm's framework for allocating capital to its business
segments (line of business equity) is based on the following
objectives:
•
•
•
Integrate firmwide and line of business capital
management activities;
Management's discussion and analysis
Measure performance consistently across all lines of
business; and
Each business segment is allocated capital by taking into
consideration stand-alone peer comparisons and regulatory
capital requirements (as estimated under Basel III Advanced
Fully Phased-In). For 2016, capital was allocated to each
business segment for, among other things, goodwill and
other intangibles associated with acquisitions effected by
the line of business. ROE is measured and internal targets
for expected returns are established as key measures of a
business segment's performance.
Line of business common equity
Year ended December 31,
(in billions)
Consumer & Community Banking
2016
Yearly average
Provide comparability with peer firms for each of the
lines of business.
Balloon primarily
beyond 2030
(j) Net charge-offs and net charge-off rates excluded write-offs in the PCI portfolio of $156 million and $208 million for the years ended December 31, 2016 and 2015. These write-
offs decreased the allowance for loan losses for PCI loans. See Allowance for Credit Losses on pages 105-107 for further details.
Consumer, excluding credit card
HELOCS scheduled to recast
The following chart illustrates the payment recast
composition of the approximately $21 billion of HELOCS
scheduled to recast in the future, based upon their current
contractual terms.
$6 billion are interest-only balloon HELOCS, which
primarily mature after 2030.
$15 billion are scheduled to recast from interest-only to
fully amortizing payments in future periods, and
$13 billion have recast from interest-only to fully
amortizing payments or have been modified,
•
(k) Average consumer loans held-for-sale were $496 million and $2.1 billion for the years ended December 31, 2016 and 2015, respectively. These amounts were excluded when
calculating net charge-off rates.
•
•
At December 31, 2016, approximately 90% of the Firm's
home equity portfolio consists of home equity lines of credit
("HELOCS") and the remainder consists of home equity
loans ("HELOANS"). HELOANS are generally fixed-rate,
closed-end, amortizing loans, with terms ranging from 3-30
years. In general, HELOCS originated by the Firm are
revolving loans for a 10-year period, after which time the
HELOC recasts into a loan with a 20-year amortization
period. At the time of origination, the borrower typically
selects one of two minimum payment options that will
generally remain in effect during the revolving period: a
monthly payment of 1% of the outstanding balance, or
interest-only payments based on a variable index (typically
Prime). HELOCs originated by Washington Mutual were
generally revolving loans for a 10-year period, after which
time the HELOC converts to an interest-only loan with a
balloon payment at the end of the loan's term.
Home equity: The home equity portfolio declined from
December 31, 2015 primarily reflecting loan paydowns and
charge-offs. Both early-stage and late-stage delinquencies
declined from December 31, 2015. Nonaccrual loans
improved from December 31, 2015 primarily as a result of
loss mitigation activities. Net charge-offs for the year ended
December 31, 2016, declined when compared with the
prior year as a result of improvement in home prices and
delinquencies.
PCI loans are excluded from the following discussions of
individual loan products and are addressed separately
below. For further information about the Firm's consumer
portfolio, including information about delinquencies, loan
modifications and other credit quality indicators, see
Note 14.
Consumer loan balances increased during the year ended
December 31, 2016, predominantly due to originations of
high-quality prime mortgage and auto loans that have been
retained on the balance sheet, partially offset by paydowns
and the charge-off or liquidation of delinquent loans. The
credit environment remained favorable as the economy
strengthened and home prices increased.
Portfolio analysis
The carrying value of HELOCS outstanding was $34 billion at
December 31, 2016. Of such amounts, approximately:
2015
12.8 $
4.0
$ 1,050,405
$ 1,115,268
515,518
646,981
553,891
695,707
2.51
2.63
$ 4,820 $ 5,413
JPMorgan Chase & Co./2016 Annual Report
5.8%
5.8%
Illinois
7.4%
Texas
7.2%
Texas
92
4.8%
$ 1,079,589
$ 4,820 $ 5,413
89
JPMorgan Chase & Co./2016 Annual Report
(i) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as they are all performing.
(h) At December 31, 2016 and 2015, nonaccrual loans excluded loans 90 or more days past due as follows: (1) mortgage loans insured by U.S. government agencies of $5.0 billion
and $6.3 billion, respectively; and (2) student loans insured by U.S. government agencies under the FFELP of $263 million and $290 million, respectively. These amounts have
been excluded from nonaccrual loans based upon the government guarantee. In addition, the Firm's policy is generally to exempt credit card loans from being placed on nonaccrual
status, as permitted by regulatory guidance issued by the FFIEC.
(g) Predominantly represents prime mortgage loans held-for-sale.
(e) Receivables from customers represent margin loans to brokerage customers that are collateralized through assets maintained in the clients' brokerage accounts, as such no
allowance is held against these receivables. These receivables are reported within accrued interest and accounts receivable on the Firm's Consolidated balance sheets.
(f) Includes billed interest and fees net of an allowance for uncollectible interest and fees.
$ 1,009,407
(d) Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and does not anticipate,
that all available lines of credit would be used at the same time. For credit card and home equity commitments (if certain conditions are met), the Firm can reduce or cancel these
lines of credit by providing the borrower notice or, in some cases as permitted by law, without notice.
(a) At December 31, 2016 and 2015, excluded operating lease assets of $13.2 billion and $9.2 billion, respectively.
(b) Predominantly includes Business Banking loans as well as deposit overdrafts.
1.02%
0.96%
0.92%
0.89%
$ 4,351 $ 4,076
$ 4,351 $ 4,076
(c) At December 31, 2016 and 2015, approximately 66% and 64%, respectively, of the PCI option adjustable rate mortgages ("ARMS") portfolio has been modified into fixed-rate,
fully amortizing loans.
12.7
Illinois
15.2%
$
31.6
$
9.5
9.7
10.0
31.8 $
10.0
3.1
3.3
3.2
3.7
3.7
4.0
3.0
4.7%
29.3 $
(a) Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses plus additional principal losses recognized subsequent to
acquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses was $1.1 billion and $1.5 billion at December 31,
2016 and 2015, respectively.
Florida
New York
14.8%
Florida
New York
California
28.0%
All Other
38.8%
28.9
California
30.4%
37.1%
All Other
Top 5 States - Residential real estate, excluding PCI loans
(at December 31, 2016)
At December 31, 2016, $139.7 billion, or 63% of total retained residential real estate loan portfolio, excluding mortgage
loans insured by U.S. government agencies and PCI loans, were concentrated in California, New York, Illinois, Texas and Florida,
compared with $123.0 billion, or 61%, at December 31, 2015. California had the greatest concentration of retained
residential loans with 30% at December 31, 2016, compared with 28% at December 31, 2015. The unpaid principal balance
of PCI loans concentrated in California represented 55% of total PCI loans at both December 31, 2016 and 2015. The
following charts illustrate the percentages of the total retained residential real estate portfolio held in the top 5 states,
excluding mortgage loans insured by U.S. government agencies and PCI loans. For further information on the geographic
composition of the Firm's residential real estate loans, see Note 14.
Geographic composition of residential real estate loans
(b) Life-to-date liquidation losses represent both realization of loss upon loan resolution and any principal forgiven upon modification.
For further information on the Firm's PCI loans, including write-offs, see Note 14.
Top 5 States - Residential real estate, excluding PCI loans
(at December 31, 2015)
2014
At December 31, 2016 and 2015, the Firm's residential
mortgage portfolio, including loans held-for-sale, included
$9.5 billion and $11.1 billion, respectively, of mortgage
loans insured and/or guaranteed by U.S. government
agencies, of which $7.0 billion and $8.4 billion,
respectively, were 30 days or more past due (of these past
due loans, $5.0 billion and $6.3 billion, respectively, were
90 days or more past due). The Firm monitors its exposure
to certain potential unrecoverable claim payments related
to government insured loans and considers this exposure in
estimating the allowance for loan losses.
Corporate & Investment Bank
Credit risk management is an independent risk
management function that monitors and measures credit
risk throughout the Firm and defines credit risk policies and
procedures. The credit risk function reports to the Firm's
CRO. The Firm's credit risk management governance
includes the following activities:
Credit risk management
Credit risk is the risk of loss arising from the default of a
customer, client or counterparty. The Firm provides credit
to a variety of customers, ranging from large corporate and
institutional clients to individual consumers and small
businesses. In its consumer businesses, the Firm is exposed
to credit risk primarily through its mortgage banking, credit
card, auto, business banking and student lending
businesses. Originated mortgage loans are retained in the
mortgage portfolio, securitized or sold to U.S. government
agencies and U.S. government-sponsored enterprises; other
types of consumer loans are typically retained on the
balance sheet. In its wholesale businesses, the Firm is
exposed to credit risk through its underwriting, lending,
market-making, and hedging activities with and for clients
and counterparties, as well as through its operating services
activities (such as cash management and clearing
activities), securities financing activities, investment
securities portfolio, and cash placed with banks. A portion
of the loans originated or acquired by the Firm's wholesale
businesses are generally retained on the balance sheet; the
Firm's syndicated loan business distributes a significant
percentage of originations into the market and is an
important component of portfolio management.
CREDIT RISK MANAGEMENT
Management's discussion and analysis
85
JPMorgan Chase & Co./2016 Annual Report
At December 31, 2016, J.P. Morgan Securities plc had
estimated total capital of $34.5 billion, its estimated CET1
capital ratio was 13.8% and its estimated total capital ratio
was 17.4%. Both ratios exceeded the minimum standards
of 4.5% and 8.0%, respectively, under the transitional
requirements of the European Union's ("EU") Basel III
Capital Requirements Directive and Regulation, as well as
the additional capital requirements specified by the PRA.
J.P. Morgan Securities plc is a wholly owned subsidiary of
JPMorgan Chase Bank, N.A. and is the Firm's principal
operating subsidiary in the U.K. It has authority to engage in
banking, investment banking and broker-dealer activities.
J.P. Morgan Securities plc is jointly regulated by the U.K.
PRA and the FCA. J.P. Morgan Securities plc is subject to the
European Union Capital Requirements Regulation and the
U.K. PRA capital rules, under which it has implemented
Basel III.
JPMorgan Securities has elected to compute its minimum
net capital requirements in accordance with the "Alternative
Net Capital Requirements" of the Net Capital Rule. At
December 31, 2016, JPMorgan Securities' net capital, as
defined by the Net Capital Rule, was $14.7 billion,
exceeding the minimum requirement by $11.9 billion.
In addition to its minimum net capital requirement,
JPMorgan Securities is required to hold tentative net capital
in excess of $1.0 billion and is also required to notify the
SEC in the event that tentative net capital is less than
$5.0 billion, in accordance with the market and credit risk
standards of Appendix E of the Net Capital Rule. As of
December 31, 2016, JPMorgan Securities had tentative net
capital in excess of the minimum and notification
requirements.
JPMorgan Securities is subject to Rule 15c3-1 under the
Securities Exchange Act of 1934 (the "Net Capital Rule").
JPMorgan Securities is also registered as futures
commission merchants and subject to Rule 1.17 of the
CFTC.
JPMorgan Chase's principal U.S. broker-dealer subsidiary is
JPMorgan Securities. Prior to October 1, 2016 the Firm had
two principal U.S. broker-dealer subsidiaries. Effective
October 1, 2016 JPMorgan Clearing merged with JPMorgan
Securities. JPMorgan Securities is the surviving entity in the
merger and its name remain unchanged.
Broker-dealer regulatory capital
On December 15, 2016, the Federal Reserve issued its final
TLAC rule which requires the top-tier holding companies of
eight U.S. global systemically important bank holding
companies, including the Firm, among other things, to
maintain minimum levels of external TLAC and external
long-term debt that satisfies certain eligibility criteria
("eligible LTD") by January 1, 2019. The minimum external
TLAC requirement is the greater of (A) 18% of the financial
institution's RWA plus applicable buffers, including its GSIB
surcharge as calculated under Method 1 and (B) 7.5% of its
total leverage exposure plus a buffer equal to 2.0%. The
required minimum level of eligible long-term debt is equal
to the greater of (A) 6% of the financial institution's RWA,
plus its U.S. Method 2 GSIB surcharge and (B) 4.5% of the
Firm's total leverage exposure. The final rule permanently
grandfathered all long-term debt issued before December
31, 2016, to the extent these securities would be ineligible
only due to containing impermissible acceleration rights or
being governed by foreign law. While the Firm may have to
raise long-term debt to be in full compliance with the rule,
management estimates the net amount to be raised is not
material and the timing for raising such funds is
manageable.
TLAC
Other capital requirements
JPMorgan Chase & Co./2016 Annual Report
Aggregate purchase price of common
stock repurchases
2016
2015
2014
140.4
89.8
•
82.3
The Firm may, from time to time, enter into written trading
plans under Rule 10b5-1 of the Securities Exchange Act of
1934 to facilitate repurchases in accordance with the
common equity repurchase program. A Rule 10b5-1
repurchase plan allows the Firm to repurchase its equity
during periods when it would not otherwise be repurchasing
common equity - for example, during internal trading
blackout periods. All purchases under a Rule 10b5-1 plan
must be made according to a predefined plan established
when the Firm is not aware of material nonpublic
information.
The authorization to repurchase common equity will be
utilized at management's discretion, and the timing of
purchases and the exact amount of common equity that
may be repurchased is subject to various factors, including
market conditions; legal and regulatory considerations
affecting the amount and timing of repurchase activity; the
Firm's capital position (taking into account goodwill and
intangibles); internal capital generation; and alternative
investment opportunities. The repurchase program does not
include specific price targets or timetables; may be
executed through open market purchases or privately
negotiated transactions, or utilize Rule 10b5-1 programs;
and may be suspended at any time.
For additional information regarding repurchases of the
Firm's equity securities, see Part II, Item 5: Market for
Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities on page 22.
Preferred stock
Preferred stock dividends declared were $1.6 billion for the
year ended December 31, 2016. For additional information
on the Firm's preferred stock, see Note 22.
Redemption of outstanding trust preferred securities
The Firm redeemed $1.6 billion and $1.5 billion of trust
preferred securities in the years ended December 31, 2016
and 2015, respectively.
84
$ 9,082 $ 5,616 $ 4,760
•
•
•
JPMorgan Chase & Co./2016 Annual Report
borrower's current financial position, risk profile and
related collateral. The calculations and assumptions are
based on both internal and external historical experience
and management judgment and are reviewed regularly.
Stress testing
Stress testing is important in measuring and managing
credit risk in the Firm's credit portfolio. The process
assesses the potential impact of alternative economic and
business scenarios on estimated credit losses for the Firm.
Economic scenarios and the underlying parameters are
defined centrally, articulated in terms of macroeconomic
factors and applied across the businesses. The stress test
results may indicate credit migration, changes in
delinquency trends and potential losses in the credit
portfolio. In addition to the periodic stress testing
processes, management also considers additional stresses
outside these scenarios, including industry and country-
specific stress scenarios, as necessary. The Firm uses stress
testing to inform decisions on setting risk appetite both at a
Firm and LOB level, as well as to assess the impact of stress
on individual counterparties.
Risk monitoring and management
The Firm has developed policies and practices that are
designed to preserve the independence and integrity of the
approval and decision-making process of extending credit to
ensure credit risks are assessed accurately, approved
properly, monitored regularly and managed actively at both
the transaction and portfolio levels. The policy framework
establishes credit approval authorities, concentration limits,
risk-rating methodologies, portfolio review parameters and
guidelines for management of distressed exposures. In
addition, certain models, assumptions and inputs used in
evaluating and monitoring credit risk are independently
validated by groups that are separate from the line of
businesses.
Risk-rated portfolios are generally held in CIB, CB and AWM,
but also include certain business banking and auto dealer
loans held in CCB that are risk-rated because they have
characteristics similar to commercial loans. For the risk-
rated portfolio, credit loss estimates are based on estimates
of the probability of default ("PD") and loss severity given a
default. The probability of default is the likelihood that a
borrower will default on its obligation; the loss given default
("LGD") is the estimated loss on the loan that would be
realized upon the default and takes into consideration
collateral and structural support for each credit facility. The
estimation process includes assigning risk ratings to each
borrower and credit facility to differentiate risk within the
portfolio. These risk ratings are reviewed regularly by Credit
Risk Management and revised as needed to reflect the
Consumer credit risk is monitored for delinquency and other
trends, including any concentrations at the portfolio level,
as certain of these trends can be modified through changes
in underwriting policies and portfolio guidelines. Consumer
Risk Management evaluates delinquency and other trends
against business expectations, current and forecasted
economic conditions, and industry benchmarks. Historical
and forecasted trends are incorporated into the modeling of
estimated consumer credit losses and are part of the
monitoring of the credit risk profile of the portfolio.
Management of the Firm's wholesale credit risk exposure is
accomplished through a number of means, including:
.•
•
Loan underwriting and credit approval process
Loan syndications and participations
•
Wholesale credit risk is monitored regularly at an aggregate
portfolio, industry, and individual client and counterparty
level with established concentration limits that are reviewed
and revised as deemed appropriate by management,
typically on an annual basis. Industry and counterparty
limits, as measured in terms of exposure and economic risk
appetite, are subject to stress-based loss constraints. In
addition, wrong-way risk - the risk that exposure to a
counterparty is positively correlated with the impact of a
default by the same counterparty, which could cause
exposure to increase at the same time as the counterparty's
capacity to meet its obligations is decreasing - is actively
monitored as this risk could result in greater exposure at
default compared with a transaction with another
counterparty that does not have this risk.
Year ended December 31, (in millions)
Total number of shares of common stock
repurchased
Risk-rated exposure
Scored exposure
•
•
Establishing a comprehensive credit risk policy
framework
Monitoring and managing credit risk across all portfolio
segments, including transaction and exposure approval
Setting industry concentration limits and establishing
underwriting guidelines
Assigning and managing credit authorities in connection
The scored portfolio is generally held in CCB and
predominantly includes residential real estate loans, credit
card loans, certain auto and business banking loans, and
student loans. For the scored portfolio, credit loss estimates
are based on statistical analysis of credit losses over
discrete periods of time. The statistical analysis uses
portfolio modeling, credit scoring, and decision-support
tools, which consider loan-level factors such as delinquency
status, credit scores, collateral values, and other risk
factors. Credit loss analyses also consider, as appropriate,
uncertainties and other factors, including those related to
current macroeconomic and political conditions, the quality
of underwriting standards, and other internal and external
factors. The factors and analysis are updated on a quarterly
basis or more frequently as market conditions dictate.
with the approval of all credit exposure
Estimating credit losses and ensuring appropriate credit
risk-based capital management
Risk identification and measurement
The Credit Risk Management function measures, limits,
manages and monitors credit risk across the Firm's
businesses. To measure credit risk, the Firm employs
several methodologies for estimating the likelihood of
obligor or counterparty default. Methodologies for
measuring credit risk vary depending on several factors,
including type of asset (e.g., consumer versus wholesale),
risk measurement parameters (e.g., delinquency status and
borrower's credit score versus wholesale risk-rating) and
risk management and collection processes (e.g., retail
collection center versus centrally managed workout
groups). Credit risk measurement is based on the
86
probability of default of an obligor or counterparty, the loss
severity given a default event and the exposure at default.
Based on these factors and related market-based inputs,
the Firm estimates credit losses for its exposures. Probable
credit losses inherent in the consumer and wholesale held-
for-investment loan portfolios are reflected in the allowance
for loan losses, and probable credit losses inherent in
lending-related commitments are reflected in the allowance
for lending-related commitments. These losses are
estimated using statistical analyses and other factors as
described in Note 15. In addition, potential and unexpected
credit losses are reflected in the allocation of credit risk
capital and represent the potential volatility of actual losses
relative to the established allowances for loan losses and
lending-related commitments. The analyses for these losses
include stress testing that considers alternative economic
scenarios as described in the Stress testing section below.
For further information, see Critical Accounting Estimates
used by the Firm on pages 132-134.
The methodologies used to estimate credit losses depend
on the characteristics of the credit exposure, as described
below.
$ 51.0 $ 51.0 $ 51.0
61.0
14.0
The following table sets forth the Firm's repurchases of
common equity for the years ended December 31, 2016,
2015 and 2014. There were no warrants repurchased
during the years ended December 31, 2016, 2015 and
2014.
Managing criticized exposures and delinquent loans
On March 17, 2016, the Firm announced that its Board of
Directors had authorized the repurchase of up to an
additional $1.9 billion of common equity (common stock
and warrants) through June 30, 2016 under its equity
repurchase program. This amount is in addition to the $6.4
billion of common equity that was previously authorized for
repurchase between April 1, 2015 and June 30, 2016.
Following receipt in June 2016 of the Federal Reserve's
non-objection to the Firm's 2016 capital plan, the Firm's
Board of Directors authorized the repurchase of up to
$10.6 billion of common equity (common stock and
warrants) between July 1, 2016 and June 30, 2017.
This authorization includes shares repurchased to offset
issuances under the Firm's equity-based compensation
plans.
Asset & Wealth Management
Corporate
Total common stockholders'
equity
Planning and stress testing
December 31,
January 1,
2017
2016
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
2015
$ 51.0 $ 51.0
70.0
64.0
62.0
20.0
16.0
$ 51.0
14.0
(in billions)
The table below reflects the Firm's assessed level of capital
required for each line of business as of the dates indicated.
As of December 31, 2016, $6.1 billion of authorized
repurchase capacity remained under the program.
64.0
62.0
Commercial Banking
16.0
14.0
Line of business common equity
Asset & Wealth Management
Corporate
84.6
9.0
79.7
9.0
72.4
Total common stockholders' equity $ 224.6
$ 215.7 $ 207.4
9.0
9.0
On at least an annual basis, the Firm assesses the level of
capital required for each line of business as well as the
assumptions and methodologies used to allocate capital.
Through the end of 2016, capital was allocated to the lines
of business based on a single measure, Basel III Advanced
Fully Phased-In RWA. Effective January 1, 2017, the Firm's
methodology used to allocate capital to the Firm's business
segments was updated. The new methodology incorporates
Basel III Standardized Fully Phased-In RWA (as well as Basel
III Advanced Fully Phased-In RWA), leverage, the GSIB
surcharge, and a simulation of capital in a severe stress
environment. The methodology will continue to be weighted
towards Basel III Advanced Fully Phased-In RWA because
the Firm believes it to be the best proxy for economic risk.
The Firm will consider further changes to its capital
allocation methodology as the regulatory framework
evolves. In addition, under the new methodology, capital is
no longer allocated to each line of business for goodwill and
other intangibles associated with acquisitions effected by
the line of business. The Firm will continue to establish
internal ROE targets for its business segments, against
which they will be measured, as a key performance
indicator.
9.0
Dividends
The Firm's common stock dividend policy reflects JPMorgan
Chase's earnings outlook, desired dividend payout ratio,
capital objectives, and alternative investment opportunities.
On May 17, 2016, the Firm announced that its Board of
Directors increased the quarterly common stock dividend to
$0.48 per share, effective with the dividend paid on July
31, 2016. The Firm's dividends are subject to the Board of
Directors' approval at the customary times those dividends
are to be declared.
For information regarding dividend restrictions, see Note 22
and Note 27.
The following table shows the common dividend payout
ratio based on net income applicable to common equity.
Year ended December 31,
Common equity
Capital actions
2016
2014
30%
28%
29%
9.0
During the year ended December 31, 2016, warrant
holders exercised their right to purchase 22.5 million
shares of the Firm's common stock. The Firm issued from
treasury stock 11.1 million shares of its common stock as a
result of these exercises. As of December 31, 2016, 24.9
million warrants remained outstanding, compared with
47.4 million outstanding as of December 31, 2015.
2015
management considers additional stresses outside these
scenarios, as necessary. ICAAP results are reviewed by
management and the Board of Directors.
Common dividend payout ratio
83
78.1
88.1
Management's discussion and analysis
$
228.1
$ 228.1 $ 221.5
Comprehensive Capital Analysis and Review
The Federal Reserve requires large bank holding
companies, including the Firm, to submit a capital plan on
an annual basis. The Federal Reserve uses the CCAR and
Dodd-Frank Act stress test processes to ensure that large
BHCs have sufficient capital during periods of economic and
financial stress, and have robust, forward-looking capital
assessment and planning processes in place that address
each BHC's unique risks to enable them to absorb losses
under certain stress scenarios. Through the CCAR, the
Federal Reserve evaluates each BHC's capital adequacy and
internal capital adequacy assessment processes ("ICAAP”),
as well as its plans to make capital distributions, such as
dividend payments or stock repurchases.
85.5
On June 29, 2016, the Federal Reserve informed the Firm
that it did not object, on either a quantitative or qualitative
basis, to the Firm's 2016 capital plan. For information on
actions taken by the Firm's Board of Directors following the
2016 CCAR results, see Capital actions on page 84.
The Firm's CCAR process is integrated into and employs the
same methodologies utilized in the Firm's ICAAP process, as
discussed below.
Internal Capital Adequacy Assessment Process
Semiannually, the Firm completes the ICAAP, which provides
management with a view of the impact of severe and
unexpected events on earnings, balance sheet positions,
reserves and capital. The Firm's ICAAP integrates stress
testing protocols with capital planning.
The process assesses the potential impact of alternative
economic and business scenarios on the Firm's earnings and
capital. Economic scenarios, and the parameters underlying
those scenarios, are defined centrally and applied uniformly
across the businesses. These scenarios are articulated in
terms of macroeconomic factors, which are key drivers of
business results; global market shocks, which generate
short-term but severe trading losses; and idiosyncratic
operational risk events. The scenarios are intended to
capture and stress key vulnerabilities and idiosyncratic risks
facing the Firm. However, when defining a broad range of
scenarios, realized events can always be worse. Accordingly,
JPMorgan Chase & Co./2016 Annual Report
JPMorgan Chase & Co./2016 Annual Report
Credit card
Total credit card loans increased from December 31, 2015
due to strong new account growth and higher sales volume.
The December 31, 2016 30+ day delinquency rate
increased to 1.61% from 1.43% at December 31, 2015.
For the years ended December 31, 2016 and 2015, the net
charge-off rates were 2.63% and 2.51%, respectively. The
credit card portfolio continues to reflect a largely well-
seasoned, rewards-based portfolio that has good U.S.
geographic diversification. New originations continue to
grow as a percentage of the total portfolio, in line with the
Firm's credit parameters; these originations have generated
higher loss rates, as anticipated, than the more seasoned
portion of the portfolio, given the higher mix of near-prime
accounts being originated. These near-prime accounts have
net revenue rates and returns on equity that are higher
than the portfolio average.
Loans outstanding in the top five states of California, Texas,
New York, Florida and Illinois consisted of $62.8 billion in
receivables, or 44% of the retained loan portfolio, at
December 31, 2016, compared with $57.5 billion, or 44%,
at December 31, 2015. The greatest geographic
concentration of credit card retained loans is in California,
which represented 15% and 14% of total retained loans at
December 31, 2016 and 2015, respectively. For further
information on the geographic and FICO composition of the
Firm's credit card loans, see Note 14.
All Other
55.7%
Top 5 States Credit Card - Retained
(at December 31, 2016)
All Other
Texas 9.3%
New York 8.6%
New York 8.6%
California
14.3%
56.4%
Florida 6.1%
Illinois 5.8%
Top 5 States Credit Card - Retained
(at December 31, 2015)
Texas 9.0%
California
14.5%
94
843
Net changes
Ending balance
5,413 $
3,858
$
Florida 5.9%
Illinois 5.8%
6,509
3,662
1,437
1,668
800
1,589
(a) Other reductions includes loan sales.
1,725
4,451
565
4,758
(593)
$
4,820 $
(1,096)
5,413
(a) At December 31, 2016 and 2015, nonperforming assets excluded: (1) mortgage
loans insured by U.S. government agencies of $5.0 billion and $6.3 billion,
respectively, that are 90 or more days past due; (2) student loans insured by U.S.
government agencies under the FFELP of $263 million and $290 million,
respectively, that are 90 or more days past due; and (3) real estate owned
insured by U.S. government agencies of $142 million and $343 million,
respectively. These amounts have been excluded based upon the government
guarantee.
(b) Excludes PCI loans which are accounted for on a pool basis. Since each pool is
accounted for as a single asset with a single composite interest rate and an
aggregate expectation of cash flows, the past-due status of the pools, or that of
individual loans within the pools, is not meaningful. The Firm is recognizing
interest income on each pool of loans as they are all performing.
Nonaccrual loans in the residential real estate portfolio
decreased to $4.1 billion from $4.8 billion at December 31,
2016, and 2015, respectively, of which 29% and 31% were
greater than 150 days past due, respectively. In the
aggregate, the unpaid principal balance of residential real
estate loans greater than 150 days past due was charged
down by approximately 43% and 44% to the estimated net
realizable value of the collateral at December 31, 2016 and
2015, respectively.
582
Modifications of credit card loans
2,286 1,220
Consistent with the Firm's policy, all credit card loans
typically remain on accrual status until charged off.
However, the Firm establishes an allowance, which is offset
against loans and charged to interest income, for the
estimated uncollectible portion of accrued and billed
interest and fee income.
2,230
2,861
361,015
59,677
-
25
2,063 1,016
223
204
17,440 13,372
469,823
434,064
368,014 366,399
3
506
$837,837 $800,463 $2,792 $ 1,413
management activities (b) $ (22,114) $ (20,681) $
Liquid securities and
other cash collateral
held against derivatives
(22,705)
(16,580)
-
2015
$ (9)
193
At December 31, 2016 and 2015, the Firm had $1.2 billion
and $1.5 billion, respectively, of credit card loans
outstanding that have been modified in TDRs. These
balances included both credit card loans with modified
payment terms and credit card loans that reverted back to
their pre-modification payment terms because the
cardholder did not comply with the modified payment
terms. The decrease in modified credit card loans
outstanding from December 31, 2015, was attributable to a
reduction in new modifications as well as ongoing payments
and charge-offs on previously modified credit card loans.
109
2015
For additional information about loan modification
programs to borrowers, see Note 14.
JPMorgan Chase & Co./2016 Annual Report
95
95
Management's discussion and analysis
WHOLESALE CREDIT PORTFOLIO
The Firm's wholesale businesses are exposed to credit risk
through underwriting, lending, market-making, and hedging
activities with and for clients and counterparties, as well as
through various operating services such as cash
management and clearing activities. A portion of the loans
originated or acquired by the Firm's wholesale businesses is
generally retained on the balance sheet. The Firm
distributes a significant percentage of the loans it originates
into the market as part of its syndicated loan business and
to manage portfolio concentrations and credit risk.
The wholesale credit portfolio, excluding the Oil & Gas,
Natural Gas Pipelines, and Metals & Mining portfolios,
continued to be generally stable for the year ended
December 31, 2016, characterized by low levels of
criticized exposure, nonaccrual loans and charge-offs. See
industry discussion on pages 97-101 for further
information. Growth in retained loans was predominantly
driven within the commercial real estate portfolio in
Commercial Banking, and across multiple commercial and
industrial industries in Commercial Banking and the
Corporate & Investment Bank. Discipline in underwriting
across all areas of lending continues to remain a key point
of focus. The wholesale portfolio is actively managed, in
part by conducting ongoing, in-depth reviews of client credit
quality and transaction structure, inclusive of collateral
where applicable; and of industry, product and client
concentrations.
Wholesale credit portfolio
$ 1,954 $ 988
December 31,
(in millions)
Loans retained
Derivative receivables
Receivables from
customers and other (a)
Total wholesale credit-
related assets
Lending-related
commitments
Total wholesale credit
exposure
Credit derivatives used
in credit portfolio
Nonperforming (c)
2015
2016
Credit exposure
2,285
2016
$383,790 $357,050
1,104
Loans held-for-sale
Loans at fair value
Loans - reported
2016
Oil & Gas
Foreclosures and other liquidations
Total modified
residential real estate
loans, excluding PCI
loans
$ 8,296 $
2,871
$ 9,048 $
3,177
Modified PCI loans (c)
$ 2,447
ΝΑ
1,957
$ 2,526
5,052
ΝΑ
5,686
ΝΑ
2,951
ΝΑ
3,242
ΝΑ
9,295
ΝΑ
ΝΑ
$ 2,358 $ 1,220
6,690
$ 2,264 $
6,032
ΝΑ
Current estimated loan-to-values of residential real
estate loans
The current estimated average loan-to-value ("LTV") ratio
for residential real estate loans retained, excluding
mortgage loans insured by U.S. government agencies and
PCI loans, was 58% at December 31, 2016 compared with
59% at December 31, 2015.
Although the delinquency rate for loans with high LTV ratios
is generally greater than the delinquency rate for loans in
which the borrower has greater equity in the collateral, the
average LTV ratios have declined consistent with
improvements in home prices, reducing the number of loans
with a current estimated LTV ratio greater than 100%.
The current estimated average LTV ratio for residential real
estate PCI loans, based on the unpaid principal balances,
was 64% at December 31, 2016, compared with 69% at
December 31, 2015. Of the total PCI portfolio, 4% of the
loans had a current estimated LTV ratio greater than 100%,
and 1% had a current LTV ratio greater than 125% at
December 31, 2016, compared with 6% and 1%,
respectively, at December 31, 2015.
While the current estimated collateral value is greater than
the net carrying value of PCI loans, the ultimate
performance of this portfolio is highly dependent on
borrowers' behavior and ongoing ability and willingness to
continue to make payments on homes with negative equity,
as well as on the cost of alternative housing.
For further information on current estimated LTVS of
residential real estate loans, see Note 14.
Loan modification activities - residential real estate loans
The performance of modified loans generally differs by
product type due to differences in both the credit quality
and the types of modifications provided. Performance
metrics for modifications to the residential real estate
portfolio, excluding PCI loans, that have been seasoned
more than six months show weighted-average redefault
rates of 21% for home equity and 22% for residential
mortgages. The cumulative performance metrics for
modifications to the PCI residential real estate portfolio that
have been seasoned more than six months show weighted
average redefault rates of 20% for home equity, 19% for
prime mortgages, 16% for option ARMS and 32% for
subprime mortgages. The cumulative redefault rates reflect
the performance of modifications completed under both the
U.S. Government's Home Affordable Modification Program
("HAMP") and the Firm's proprietary modification programs
(primarily the Firm's modification program that was
modeled after HAMP) from October 1, 2009, through
December 31, 2016.
Certain loans that were modified under HAMP and the
Firm's proprietary modification programs have interest rate
reset provisions (“step-rate modifications"). Interest rates
on these loans generally began to increase commencing in
2014 by 1% per year, and continue to do so, until the rate
reaches a specified cap, typically at a prevailing market
interest rate for a fixed-rate loan as of the modification
date. At December 31, 2016, the carrying value of non-PCI
loans and the unpaid principal balance of PCI loans
1,116
1,755
JPMorgan Chase & Co./2016 Annual Report
The following table presents information as of
December 31, 2016 and 2015, relating to modified
retained residential real estate loans for which concessions
have been granted to borrowers experiencing financial
difficulty. Modifications of PCI loans continue to be
accounted for and reported as PCI loans, and the impact of
the modification is incorporated into the Firm's quarterly
assessment of estimated future cash flows. Modifications of
consumer loans other than PCI loans are generally
accounted for and reported as TDRs. For further
information on modifications for the years ended
December 31, 2016 and 2015, see Note 14.
Modified residential real estate loans
December 31,
(in millions)
2016
2015
Retained
loans
Nonaccrual
retained
loans (d)
Nonaccrual
Retained retained
loans loans(d)
Modified residential
real estate loans,
excluding PCI loans (a)(b)
Home equity
Residential mortgage
modified in active step-rate modifications were $3 billion
and $9 billion, respectively. The Firm continues to monitor
this risk exposure and the impact of these potential interest
rate increases is considered in the Firm's allowance for loan
losses.
10,427
ΝΑ
ΝΑ $21,881
Nonaccrual loans: The following table presents changes in
the consumer, excluding credit card, nonaccrual loans for
the years ended December 31, 2016 and 2015.
Nonaccrual loans
Year ended December 31,
675
621
(in millions)
4,820
5,413
Beginning balance
Active and suspended foreclosure: For information on
loans that were in the process of active or suspended
foreclosure, see Note 14.
Reductions:
Additions
292
277
Total assets acquired in loan satisfactions
Total nonperforming assets
57
349
48
325
Returned to performing status
$ 5,169 $ 5,738
Principal payments and other (a)
Charge-offs
$ 4,145 $ 4,792
2015
2016
ΝΑ
Home equity
Prime mortgage
Subprime mortgage
Option ARMS
Total modified PCI loans $19,745
(a) Amounts represent the carrying value of modified residential real estate loans.
(b) At December 31, 2016 and 2015, $3.4 billion and $3.8 billion, respectively, of
loans modified subsequent to repurchase from Ginnie Mae in accordance with
the standards of the appropriate government agency (i.e., Federal Housing
Administration ("FHA"), U.S. Department of Veterans Affairs ("VA"), Rural
Housing Service of the U.S. Department of Agriculture ("RHS")) are not included
in the table above. When such loans perform subsequent to modification in
accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie
Mae loan pools. Modified loans that do not re-perform become subject to
foreclosure. For additional information about sales of loans in securitization
transactions with Ginnie Mae, see Note 16.
(c) Amounts represent the unpaid principal balance of modified PCI loans.
(d) As of December 31, 2016 and 2015, nonaccrual loans included $2.3 billion and
$2.5 billion, respectively, of TDRS for which the borrowers were less than 90
days past due. For additional information about loans modified in a TDR that are
on nonaccrual status, see Note 14.
93
Management's discussion and analysis
Nonperforming assets
The following table presents information as of
December 31, 2016 and 2015, about consumer, excluding
credit card, nonperforming assets.
Nonperforming assets (a)
December 31, (in millions)
Nonaccrual loans (b)
Residential real estate
Other consumer
Total nonaccrual loans
Assets acquired in loan satisfactions
Real estate owned
Other
Total reductions
ΝΑ
388,305
64,078
96
1,008
85
1
(449)
(4)
Insurance
11,889
9,812
6,434
1,958
93
23
(157)
(1,410)
Financial Markets Infrastructure
7,973
7,304
669
26
6,522
14,049
Metals & Mining
(243)
Automotive
13,864
9,182
4,580
101
1
4
(2)
(487)
(1)
Chemicals & Plastics
15,232
10,910
4,017
274
31
9
(17)
(167)
Securities Firms
4,412
1,505
3,965
13,372
$ 800,463
(a) The industry rankings presented in the table as of December 31, 2015, are based on the industry rankings of the corresponding exposures at
December 31, 2016, not actual rankings of such exposures at December 31, 2015.
(b) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2016 and 2015, noted above, the
Firm held: $9.1 billion and $7.6 billion, respectively, of trading securities; $31.6 billion and $33.6 billion, respectively, of AFS securities; and $14.5 billion
and $12.8 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 3 and Note 12.
(c) All other includes: individuals; SPES; holding companies; and private education and civic organizations, representing approximately 56%, 36%, 4% and
4%, respectively, at December 31, 2016, and 54%, 37%, 5% and 4%, respectively, at December 31, 2015.
(d) Excludes cash placed with banks of $380.2 billion and $351.0 billion, at December 31, 2016 and 2015, respectively, which is predominantly placed with
various central banks, primarily Federal Reserve Banks.
(e) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against
derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(f) Represents the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives
do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain credit indices.
JPMorgan Chase & Co./2016 Annual Report
99
Management's discussion and analysis
Presented below is a discussion of certain industries to
which the Firm has significant exposures and/or which
present actual or potential credit concerns.
Real Estate
Exposure to the Real Estate industry was approximately
16.1% and 14.6% of the Firm's total wholesale exposure as
of December 31, 2016 and 2015, respectively. Exposure to
this industry increased by $18.2 billion, or 16%, in 2016 to
$135.0 billion primarily driven by Commercial Banking. The
investment-grade percentage of the portfolio increased to
77% in 2016, up from 75% in 2015. As of December 31,
2016, $106.3 billion of the exposure was drawn, of which
83% was investment-grade, and 83% of the $135.0 billion
exposure was secured. As of December 31, 2016, $80.1
billion of the $135.0 billion was multifamily, largely in
California; of the $80.1 billion, 82% was investment-grade
and 98% was secured. For further information on
commercial real estate loans, see Note 14.
Oil & Gas and Natural Gas Pipelines
The following table presents Oil & Gas and Natural Gas
Pipeline exposures as of December 31, 2016, and
December 31, 2015.
December 31, 2016
Loans and
Lending-related
(in millions, except ratios)
Receivables from customers and other
Total(d)
(51)
Loans held-for-sale and loans at fair
value
10 $ (20,681) $
2,907
3
(102)
(256)
All other(c)
149,117
130,488
18,095
370
164
1,015
10
(6,655)
(1,291)
Subtotal
$ 783,126 $ 585,111 $ 183,429 $
13,201 $
1,385 $
1,611 $
(16,580)
3
15
1
(386)
(39)
129
(7)
(24)
(245)
Banks & Finance Cos
43,398
(a) Receivables from customers and other include $17.3 billion and $13.3
billion of margin loans at December 31, 2016 and 2015, respectively,
to prime brokerage customers; these are classified in accrued interest
and accounts receivable on the Consolidated balance sheets.
(b) Represents the net notional amount of protection purchased and sold
through credit derivatives used to manage both performing and
nonperforming wholesale credit exposures; these derivatives do not
qualify for hedge accounting under U.S. GAAP. For additional
information, see Credit derivatives on pages 103-104, and Note 6.
(c) Excludes assets acquired in loan satisfactions.
7,654
610
63
17
(5)
(974)
(5,509)
42,077
24,379
13,158
8
4,263
59
46
26,925
1,208
44
5
(1)
(806)
(21)
Industrials
54,386
36,519
16,663
1,164
40
Healthcare
46,053
37,858
7,755
394
445
ཙཤྩ
Commitments
277
13
7
55
55
(8)
(146)
(81)
Central Govt
17,968
17,871
97
7
1
(9,359)
(2,393)
Transportation
19,227
13,258
5,801
167
745
22
28,307
State & Municipal Govt(b)
(530)
(37)
Asset Managers
23,815
20,214
3,570
31
18
(6)
(4,453)
Utilities
30,853
24,983
5,655
168
47
3
(190)
(289)
29,114
Derivative
Receivables
Credit
exposure
%
Investment-
grade
1,047
Ending balance
392
$ 2,063 $ 1,016
(a) Loans are placed on nonaccrual status when management believes full
payment of principal or interest is not expected, regardless of delinquency
status, or when principal or interest have been in default for a period of 90
days or more unless the loan is both well-secured and in the process of
collection.
The following table presents net charge-offs/recoveries,
which are defined as gross charge-offs less recoveries, for
the years ended December 31, 2016 and 2015. The
amounts in the table below do not include gains or losses
from sales of nonaccrual loans.
Wholesale net charge-offs/(recoveries)
Year ended December 31,
(in millions, except ratios)
Loans - reported
Average loans retained
Gross charge-offs
Gross recoveries
Net charge-offs
Net charge-off rate
Lending-related commitments
2016
2015
$ 371,778
$ 337,407
398
95
(57)
Net changes
(85)
915
Total reductions
2015
$ 1,016 $
2,981
624
1,307
Year ended December 31, (in millions)
Beginning balance
Additions
Reductions:
Paydowns and other
1,148
534
Gross charge-offs
385
87
Returned to performing status
242
286
Sales
159
8
1,934
2016
341
0.09%
64,078
59,677
$
(22,705) (16,580)
41,373 $ 43,097
Equity
Commodity
Total, net of cash collateral
Liquid securities and other cash collateral
held against derivative receivables (a)
Total, net of all collateral
(a) Includes collateral related to derivative instruments where an appropriate
legal opinion has not been either sought or obtained.
Derivative receivables reported on the Consolidated balance
sheets were $64.1 billion and $59.7 billion at
December 31, 2016 and 2015, respectively. These amounts
represent the fair value of the derivative contracts after
giving effect to legally enforceable master netting
agreements and cash collateral held by the Firm. However,
in management's view, the appropriate measure of current
credit risk should also take into consideration additional
liquid securities (primarily U.S. government and agency
securities and other group of seven nations (“G7")
government bonds) and other cash collateral held by the
Firm aggregating $22.7 billion and $16.6 billion at
December 31, 2016 and 2015, respectively, that may be
used as security when the fair value of the client's exposure
is in the Firm's favor. The change in derivative receivables
was predominantly related to client-driven market-making
activities in CIB. The increase in derivative receivables
reflected the impact of market movements, which increased
foreign exchange receivables, partially offset by reduced
commodity derivative receivables.
In addition to the collateral described in the preceding
paragraph, the Firm also holds additional collateral
(primarily cash, G7 government securities, other liquid
government-agency and guaranteed securities, and
corporate debt and equity securities) delivered by clients at
the initiation of transactions, as well as collateral related to
contracts that have a non-daily call frequency and collateral
that the Firm has agreed to return but has not yet settled as
of the reporting date. Although this collateral does not
reduce the balances and is not included in the table above,
it is available as security against potential exposure that
could arise should the fair value of the client's derivative
transactions move in the Firm's favor. The derivative
receivables fair value, net of all collateral, also does not
include other credit enhancements, such as letters of credit.
For additional information on the Firm's use of collateral
agreements, see Note 6.
While useful as a current view of credit exposure, the net
fair value of the derivative receivables does not capture the
potential future variability of that credit exposure. To
capture the potential future variability of credit exposure,
the Firm calculates, on a client-by-client basis, three
measures of potential derivatives-related credit loss: Peak,
Derivative Risk Equivalent ("DRE"), and Average exposure
("AVG"). These measures all incorporate netting and
collateral benefits, where applicable.
Peak represents a conservative measure of potential
exposure to a counterparty calculated in a manner that is
broadly equivalent to a 97.5% confidence level over the life
of the transaction. Peak the primary measure used by the
Firm for setting of credit limits for derivative transactions,
senior management reporting and derivatives exposure
management. DRE exposure is a measure that expresses the
risk of derivative exposure on a basis intended to be
equivalent to the risk of loan exposures. DRE is a less
extreme measure of potential credit loss than Peak and is
used for aggregating derivative credit risk exposures with
loans and other credit risk.
Finally, AVG is a measure of the expected fair value of the
Firm's derivative receivables at future time periods,
including the benefit of collateral. AVG exposure over the
total life of the derivative contract is used as the primary
metric for pricing purposes and is used to calculate credit
capital and the CVA, as further described below. The three
year AVG exposure was $31.1 billion and $32.4 billion at
December 31, 2016 and 2015, respectively, compared with
derivative receivables, net of all collateral, of $41.4 billion
and $43.1 billion at December 31, 2016 and 2015,
respectively.
The fair value of the Firm's derivative receivables
incorporates an adjustment, the CVA, to reflect the credit
quality of counterparties. The CVA is based on the Firm's
AVG to a counterparty and the counterparty's credit spread
in the credit derivatives market. The primary components of
changes in CVA are credit spreads, new deal activity or
unwinds, and changes in the underlying market
environment. The Firm believes that active risk
management is essential to controlling the dynamic credit
102
JPMorgan Chase & Co./2016 Annual Report
2015
26,363
1,423
17,177
5,529
9,185
10
6,272
23,271
-%
The Firm uses lending-related financial instruments, such as
commitments (including revolving credit facilities) and
guarantees, to meet the financing needs of its customers.
The contractual amounts of these financial instruments
represent the maximum possible credit risk should the
counterparties draw down on these commitments or the
Firm fulfill its obligations under these guarantees, and the
counterparties subsequently fail to perform according to
the terms of these contracts.
In the Firm's view, the total contractual amount of these
wholesale lending-related commitments is not
representative of the Firm's future credit exposure or
funding requirements. In determining the amount of credit
risk exposure the Firm has to wholesale lending-related
commitments, the Firm has estimated a loan-equivalent
amount for each commitment. The loan-equivalent amount
of the Firm's lending-related commitments was $204.6
billion and $212.4 billion as of December 31, 2016 and
2015, respectively.
Clearing services
The Firm provides clearing services for clients entering into
securities and derivative transactions. Through the
provision of these services the Firm is exposed to the risk of
non-performance by its clients and may be required to
share in losses incurred by central counterparties. Where
possible, the Firm seeks to mitigate its credit risk to its
clients through the collection of adequate margin at
inception and throughout the life of the transactions and
can also cease provision of clearing services if clients do not
adhere to their obligations under the clearing agreement.
For further discussion of clearing services, see Note 29.
JPMorgan Chase & Co./2016 Annual Report
101
Management's discussion and analysis
Derivative contracts
In the normal course of business, the Firm uses derivative
instruments predominantly for market-making activities.
Derivatives enable customers to manage exposures to
fluctuations in interest rates, currencies and other markets.
The Firm also uses derivative instruments to manage its
own credit and other market risk exposure. The nature of
the counterparty and the settlement mechanism of the
derivative affect the credit risk to which the Firm is
exposed. For OTC derivatives the Firm is exposed to the
credit risk of the derivative counterparty. For exchange-
traded derivatives ("ETD"), such as futures and options and
"cleared" over-the-counter ("OTC-cleared") derivatives, the
Firm is generally exposed to the credit risk of the relevant
CCP. Where possible, the Firm seeks to mitigate its credit
risk exposures arising from derivative transactions through
the use of legally enforceable master netting arrangements
and collateral agreements. For further discussion of
derivative contracts, counterparties and settlement types,
see Note 6.
The following table summarizes the net derivative
receivables for the periods presented.
Foreign exchange
Derivative receivables
December 31, (in millions)
Interest rate
$
2016
28,302 $
Credit derivatives
1,294
4,939
29,205
Wholesale nonaccrual loan activity(a)
In the normal course of its wholesale business, the Firm
provides loans to a variety of customers, ranging from large
corporate and institutional clients to high-net-worth
individuals. For further discussion on loans, including
information on credit quality indicators and sales of loans,
see Note 14.
106
4,359
66
30
Total Oil & Gas and Natural Gas Pipelines
$
42,474
$
1,984
$
44,458
48
32
December 31, 2015
Loans and
Lending-related
(in millions, except ratios)
Commitments
Derivative
Receivables
4,253
Credit
exposure
Natural Gas Pipelines(c)
46
% Drawn
Exploration & Production ("E&P") and Oilfield Services (a)
$
20,829
$
1,256
$
22,085
26%
34%
Other Oil & Gas (b)
17,392
Total Oil & Gas
38,221
622
1,878
18,014
71
30
40,099
33
The following table presents the change in the nonaccrual
loan portfolio for the years ended December 31, 2016 and
2015. Wholesale nonaccrual loans increased primarily
driven by downgrades in the Oil & Gas portfolio.
%
Investment-
grade
E&P and Oilfield Services(a)
4,251
64
21
Total Oil & Gas and Natural Gas Pipelines
$
44,268
$
2,060
$
46,328
59
31
(a) Noninvestment-grade exposure to E&P and Oilfield Services is largely secured.
(b) Other Oil & Gas includes Integrated Oil & Gas companies, Midstream/Oil Pipeline companies and refineries.
(c) Natural Gas Pipelines is reported within the Utilities Industry.
Exposure to the Oil & Gas and Natural Gas Pipelines portfolios was approximately 5.3% and 5.8% of the Firm's total wholesale
exposure as of December 31, 2016 and 2015, respectively. Exposure to these industries decreased by $1.9 billion in 2016 to
$44.5 billion; of the $44.5 billion, $14.4 billion was drawn at year-end. As of December 31, 2016, approximately $21.4 billion
of the exposure was investment-grade, of which approximately $5.3 billion was drawn, and approximately $23.1 billion of the
exposure was noninvestment grade, of which approximately $9.0 billion was drawn; 21% of the total exposure to the Oil & Gas
and Natural Gas Pipelines industries was criticized. Secured lending, of which approximately half is reserve-based lending to
the Exploration & Production sub-sector of the Oil & Gas industry, was $14.3 billion as of December 31, 2016; 44% of the
secured lending exposure was drawn. Exposure to commercial real estate, which is reported within the Real Estate industry, in
certain areas of Texas, California and Colorado that are deemed sensitive to the Oil & Gas industry, was $4.5 billion as of
December 31, 2016. While the overall trends and sentiment have been stabilizing, the Firm continues to actively monitor and
manage its exposure to these portfolios.
100
JPMorgan Chase & Co./2016 Annual Report
Metals & Mining
Exposure to the Metals & Mining industry was
approximately 1.6% and 1.8% of the Firm's total wholesale
exposure as of December 31, 2016 and 2015, respectively.
Exposure to the Metals & Mining industry decreased by
$630 million in 2016 to $13.4 billion, of which $4.4 billion
was drawn. The portfolio largely consisted of exposure in
North America, and was concentrated in the Steel and
Diversified Mining sub-sectors. Approximately 41% and
46% of the exposure in the Metals & Mining portfolio was
investment-grade as of December 31, 2016 and
December 31, 2015, respectively. While the overall trends
and sentiment have been stabilizing, the Firm continues to
actively monitor and manage its exposure to this industry.
Loans
158
% Drawn
4,093
32
$
23,055
$
400
$
23,455
44%
36%
Other Oil & Gas (b)
17,120
1,502
18,622
76
27
Total Oil & Gas
40,175
1,902
42,077
58
Natural Gas Pipelines (c)
57,382
35,071
(288)
(d) The maturity profile of retained loans, lending-related commitments and derivative receivables is based on remaining contractual maturity. Derivative contracts that are in a
receivable position at December 31, 2016, may become a payable prior to maturity based on their cash flow profile or changes in market conditions.
Wholesale credit exposure - industry exposures
The Firm focuses on the management and diversification of
its industry exposures, paying particular attention to
industries with actual or potential credit concerns.
Exposures deemed criticized align with the U.S. banking
regulators' definition of criticized exposures, which consist
of the special mention, substandard and doubtful
categories. The total criticized component of the portfolio,
excluding loans held-for-sale and loans at fair value, was
$19.8 billion at December 31, 2016, compared with $14.6
billion at December 31, 2015, driven by downgrades,
including within the Oil & Gas, Natural Gas Pipelines, and
Metals & Mining portfolios.
JPMorgan Chase & Co./2016 Annual Report
97
57
Management's discussion and analysis
(c) The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference entity on which
protection has been purchased. Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection for credit portfolio management activities
are executed with investment-grade counterparties.
Below are summaries of the Firm's exposures as of December 31, 2016 and 2015. For additional information on industry
concentrations, see Note 5.
Selected metrics
Liquid
securities
Noninvestment-grade
As of or for the year ended
December 31, 2016
(in millions)
Real Estate
Consumer & Retail
Wholesale credit exposure - industries(a)
(a) Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value.
(b) These derivatives do not qualify for hedge accounting under U.S. GAAP.
86%
$ (20,681)
227,261
12,836
251,042
419,780
18,862
9,843
119,505
43,097
366,399
766,546
34,773
267,922
570,431
8,324
98,477
196,115
Loans held-for-sale and loans at fair value(a)
Receivables from customers and other
3,965
13,372
43,097
366,399
766,546
3,965
13,372
81
73
74
Total exposure - net of liquid securities and
other cash collateral held against derivatives
$ 783,883
$ 783,883
Credit derivatives used in credit portfolio
management activities (b)(c)
$
(808) $ (14,427) $ (5,446) $ (20,681) $ (17,754) $
(2,927)
Technology, Media &
Telecommunications
$ 135,041 $ 104,575 $ 29,295 $
Credit
exposure(e)
Investment-
grade
(424)
(69)
62,950
39,756
21,619
1,559
16
16
9
2
(589)
(30)
Industrials
55,449
36,597
17,690
1,026
136
128
24
Subtotal
75
1,554
Noncriticized
Criticized
performing
Criticized
nonperforming
30 days or
more past
due and
accruing
and other
cash
collateral
loans
Net charge-
offs/
(recoveries)
Credit
derivative
hedges(f)
held against
derivative
receivables
(94)
200 $
157 $
(7) $
(54) $
(27)
85,435
55,495
28,146
240
105,514
11,399
Total derivative receivables, net of all collateral
Lending-related commitments
$
93,867
$ 383,790
76%
64,078
(22,705)
(22,705)
Total derivative receivables, net of all collateral
Lending-related commitments
14,019
8,510
88,399
Subtotal
219,656
271,825
447,570
18,844
7,790
125,951
41,373
368,014
793,177
33,081
269,820
592,824
8,292
$ 289,923
98,194
200,353
99,317 $ 383,790
64,078
of IG
JPMorgan Chase & Co./2016 Annual Report
The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of December 31, 2016 and
2015. The ratings scale is based on the Firm's internal risk ratings, which generally correspond to the ratings defined by S&P
and Moody's. For additional information on wholesale loan portfolio risk ratings, see Note 14.
Wholesale credit exposure - maturity and ratings profile
Maturity profile(d)
December 31, 2016
(in millions, except ratios)
Loans retained
Derivative receivables
Less: Liquid securities and other cash collateral
held against derivatives
Due in 1
year or less
Due after
1 year
through
5 years
Investment-
grade
Due after 5
years
Total
AAA/Aaa to
BBB-/Baa3
Ratings profile
Noninvestment-
grade
BB+/Bal &
below
Total %
Total
$ 117,238 $ 167,235 $
3
Loans held-for-sale and loans at fair value(a)
Receivables from customers and other
17,440
1 year
through
5 years
Due after 5
years
$ 110,348 $ 155,902 $
Total
90,800 $ 357,050
59,677
Investment-
grade
AAA/Aaa to
BBB-/Baa3
$ 267,736
$
Ratings profile
Noninvestment-
grade
BB+/Bal &
below
Total
Total %
of IG
89,314
$ 357,050
75%
59,677
Less: Liquid securities and other cash collateral
held against derivatives
(16,580)
(16,580)
Due in 1
year or less
4,515
Due after
Loans retained
41,373
368,014
793,177
4,515
17,440
80
73
75
Total exposure - net of liquid securities and
other cash collateral held against derivatives
$ 815,132
$ 815,132
Credit derivatives used in credit portfolio
management activities(b)(c)
$
(1,354) $
(16,537) $
(4,223) $
(22,114) $ (18,710)
$
(3,404)
$ (22,114)
85%
Maturity profile(d)
December 31, 2015
(in millions, except ratios)
Derivative receivables
(434)
971 $
Healthcare
All other(c)
144,428
128,456
15,305
373
294
650
17
(3,634)
(40)
Subtotal
$ 815,882 $ 613,400 $
182,633 $
17,166 $
2,683 $
1,318 $
341 $ (22,114) $
(22,705)
Loans held-for-sale and loans at fair
value
(491)
Receivables from customers and other
Total(d)
(273)
1,543
(14)
30
3
(35)
(3)
19
36
(621)
(62)
9
(275)
(2,538)
Financial Markets Infrastructure
8,732
7,980
752
(390)
Securities Firms
3,867
2,324
(401)
4,515
17,440
98
Credit
derivative
held against
derivative
hedges(f)
receivables
$ 116,857 $
88,076 $ 27,087 $
1,463 $
231 $
208 $
(14) $
(54) $
(47)
85,460
53,647
29,659
1,947
207
18
13
Net charge-
offs/
(recoveries)
$ 837,837
loans
Criticized
nonperforming
JPMorgan Chase & Co./2016 Annual Report
Noninvestment-grade
30 days or
As of or for the year ended
December 31, 2015
(in millions)
Real Estate
Consumer & Retail
Technology, Media &
Telecommunications
more past
due and
Selected metrics
Liquid
securities
and other
cash
collateral
Credit
exposure (e)
Investment-
Criticized
grade
Noncriticized
performing
accruing
7
(1,787)
(93)
1,395
31
222
(1,532)
(18)
Asset Managers
31,886
27,378
4,507
1
14
(5,737)
Utilities
29,622
24,184
4,960
392
State & Municipal Govt(b)
28,263
8,069
27,603
12,138
40,099
47,866
37,852
9,092
882
40
86
37
(286)
(246)
Banks & Finance Cos
(188)
35,308
8,892
404
10
21
(2) (1,336)
(7,319)
Oil & Gas
18,497
624
44,614
Central Govt
1,133
Insurance
13,151
10,766
2,252
133
 ྂ ཋ ┴ ལྒ ཌ ལྐཋ ླ
8
(306)
39
107
(1)
(130)
4
(11,691)
(4,183)
9
10
6
6,744
5,523
398
Metals & Mining
20,408
13,419
20,123
276
9
19,029
12,170
6,362
444
Automotive
Transportation
9,229
7,204
201
Chemicals & Plastics
14,988
10,365
4,451
16,635
142
10,595
CCC+/Caal and below
17
7,500
18
7,308
32
32
13,807
13,127
BBB+/Baal to BBB-/Baa3
984
25
BB+/Bal to B-/B3
2
As previously noted, the Firm uses collateral agreements to
mitigate counterparty credit risk. The percentage of the
Firm's derivatives transactions subject to collateral
agreements - excluding foreign exchange spot trades,
which are not typically covered by collateral agreements
due to their short maturity - was 90% as of December 31,
2016, largely unchanged compared with 87% as of
December 31, 2015.
2
JPMorgan Chase & Co./2016 Annual Report
20
The Firm also uses credit derivatives as an end-user to
manage other exposures, including credit risk arising from
certain securities held in the Firm's market-making
businesses. These credit derivatives are not included in
credit portfolio management activities; for further
information on these credit derivatives as well as credit
derivatives used in the Firm's capacity as a market-maker in
credit derivatives, see Credit derivatives in Note 6.
Included in the Firm's end-user activities are credit
derivatives used to mitigate the credit risk associated with
traditional lending activities (loans and unfunded
commitments) and derivatives counterparty exposure in the
Firm's wholesale businesses (collectively, “credit portfolio
management” activities). Information on credit portfolio
management activities is provided in the table below. For
further information on derivatives used in credit portfolio
management activities, see Credit derivatives in Note 6.
Credit portfolio management activities
The Firm uses credit derivatives for two primary purposes:
first, in its capacity as a market-maker, and second, as an
end-user to manage the Firm's own credit risk associated
with various exposures. For a detailed description of credit
derivatives, see Credit derivatives in Note 6.
824
Credit derivatives
100%
43,097
100% $
41,373
$
Total
(a) Prior period amounts have been revised to conform with the current period presentation.
8,505
1 year 2 years
10,371
5 years
°
20
40
60
80
AVG
100
140
(in billions)
Exposure profile of derivatives measures
December 31, 2016
The accompanying graph shows exposure profiles to the
Firm's current derivatives portfolio over the next 10 years
as calculated by the Peak, DRE and AVG metrics. The three
measures generally show that exposure will decline after
the first year, if no new trades are added to the portfolio.
risk in the derivatives portfolio. In addition, the Firm's risk
management process takes into consideration the potential
impact of wrong-way risk, which is broadly defined as the
potential for increased correlation between the Firm's
exposure to a counterparty (AVG) and the counterparty's
credit quality. Many factors may influence the nature and
magnitude of these correlations over time. To the extent
that these correlations are identified, the Firm may adjust
the CVA associated with that counterparty's AVG. The Firm
risk manages exposure to changes in CVA by entering into
credit derivative transactions, as well as interest rate,
foreign exchange, equity and commodity derivative
transactions.
103
120
24%
DRE
10 years
28% $
11,449
$
Exposure net of % of exposure net
all collateral of all collateral
Exposure net of % of exposure net
all collateral of all collateral
2015(a)
Peak
2016
AAA/Aaa to AA-/Aa3
(in millions, except ratios)
December 31,
Rating equivalent
Ratings profile of derivative receivables
The following table summarizes the ratings profile by derivative counterparty of the Firm's derivative receivables, including credit
derivatives, net of all collateral, at the dates indicated. The ratings scale is based on the Firm's internal ratings, which generally
correspond to the ratings as defined by S&P and Moody's.
A+/A1 to A-/A3
Management's discussion and analysis
112
activities
The Country Risk Management group establishes guidelines
for sovereign ratings reviews and limit management.
Country stress and nominal exposures are measured under
a comprehensive country limit framework. Country ratings
and limits are actively monitored and reported on a regular
basis. Country limit requirements are reviewed and
approved by senior management as often as necessary, but
at least annually. In addition, the Country Risk Management
group uses surveillance tools, such as signaling models and
ratings indicators, for early identification of potential
country risk concerns.
Country risk reporting
The following table presents the Firm's top 20 exposures by
country (excluding the U.S.) as of December 31, 2016. The
selection of countries is based solely on the Firm's largest
total exposures by country, based on the Firm's internal
country risk management approach, and does not represent
the Firm's view of any actual or potentially adverse credit
conditions. Country exposures may fluctuate from period to
period due to client activity and market flows.
The increase in exposure to Germany, Japan and
Luxembourg since December 31, 2015 largely reflects
higher Euro and Yen balances, predominantly placed on
deposit at the central banks of these countries, driven by
changing client positions and prevailing market and liquidity
conditions.
Top 20 country exposures
(in billions)
Germany
JPMorgan Chase & Co./2016 Annual Report
The country risk stress framework aims to estimate losses
arising from a country crisis by capturing the impact of
large asset price movements in a country based on market
shocks combined with counterparty specific assumptions.
Country Risk Management periodically defines and runs ad
hoc stress scenarios for individual countries in response to
specific market events and sector performance concerns.
Country risk monitoring and control
December 31, 2016
Trading and
investing (b)(c)
Other(d)
Total
exposure
$
46.9 $
15.2 $
Lending and
deposits(a)
$ 62.1
Country risk stress testing
108
Country risk identification and measurement
The Firm is exposed to country risk through its lending and
deposits, investing, and market-making activities, whether
cross-border or locally funded. Country exposure includes
activity with both government and private-sector entities in
a country. Under the Firm's internal country risk
management approach, country exposure is reported based
on the country where the majority of the assets of the
obligor, counterparty, issuer or guarantor are located or
where the majority of its revenue is derived, which may be
different than the domicile (legal residence) or country of
incorporation of the obligor, counterparty, issuer or
guarantor. Country exposures are generally measured by
considering the Firm's risk to an immediate default of the
counterparty or obligor, with zero recovery. Assumptions
are sometimes required in determining the measurement
and allocation of country exposure, particularly in the case
of certain tranched credit derivatives. Different
measurement approaches or assumptions would affect the
amount of reported country exposure.
Under the Firm's internal country risk measurement
framework:
•
•
•
•
JPMorgan Chase & Co./2016 Annual Report
•
Deposits are measured as the cash balances placed with
central and commercial banks
Securities financing exposures are measured at their
receivable balance, net of collateral received
Debt and equity securities are measured at the fair value
of all positions, including both long and short positions
Counterparty exposure on derivative receivables is
measured at the derivative's fair value, net of the fair
value of the related collateral. Counterparty exposure on
derivatives can change significantly because of market
movements
Credit derivatives protection purchased and sold is
reported based on the underlying reference entity and is
measured at the notional amount of protection
purchased or sold, net of the fair value of the recognized
derivative receivable or payable. Credit derivatives
protection purchased and sold in the Firm's market-
making activities is measured on a net basis, as such
activities often result in selling and purchasing
protection related to the same underlying reference
entity; this reflects the manner in which the Firm
manages these exposures
Some activities may create contingent or indirect exposure
related to a country (for example, providing clearing
services or secondary exposure to collateral on securities
financing receivables). These exposures are managed in the
normal course of business through the Firm's credit,
market, and operational risk governance, rather than
through Country Risk Management.
The Firm's internal country risk reporting differs from the
reporting provided under the FFIEC bank regulatory
requirements. For further information on the FFIEC's
reporting methodology, see Cross-border outstandings on
page 292.
Lending exposures are measured at the total committed
amount (funded and unfunded), net of the allowance for
credit losses and cash and marketable securities
collateral received
Providing country risk scenario analysis
United Kingdom
15.8
0.1
13.6
Australia
6.8
5.6
12.4
Netherlands
2.6
6.3
1.1
10.5
Luxembourg
10.0
0.2
10.2
Brazil
3.1
25.0
JPMorgan Chase & Co./2016 Annual Report
17.1
0.6
41.4
Japan
33.9
4.0
0.1
38.0
Canada
France
12.0
0.2
25.2
China
9.8
6.5
0.8
13.0
5.0
Developing surveillance tools for early identification of
potential country risk concerns
Assigning sovereign ratings and assessing country risks
Measuring and monitoring country risk exposure and
stress across the Firm
4,042
3,122
3,079
$
---
1 $
5
-
$
(81) $
419
4,042
3,122
3,079
4,509
3,040
467 $
3,493
$
(82) $
Total
Provision for
Provision for loan losses
lending-related commitments
Total provision for credit losses
2016
2015
414
2014
2015
2014
2016
2015
2014
$
467 $
2016
Managing country limits and reporting trends and limit
breaches to senior management
-
5
3,139
JPMorgan Chase & Co./2016 Annual Report
107
Management's discussion and analysis
COUNTRY RISK MANAGEMENT
Country risk is the risk that a sovereign event or action
alters the value or terms of contractual obligations of
obligors, counterparties and issuers or adversely affects
markets related to a particular country. The Firm has a
comprehensive country risk management framework for
assessing country risks, determining risk tolerance, and
measuring and monitoring direct country exposures in the
Firm. The Country Risk Management group is responsible
for developing guidelines and policies for managing country
risk in both emerging and developed countries. The Country
Risk Management group actively monitors the various
portfolios giving rise to country risk to ensure the Firm's
country risk exposures are diversified and that exposure
levels are appropriate given the Firm's strategy and risk
tolerance relative to a country.
Country risk organization
5,361 $ 3,827 $
The Country Risk Management group, part of the
independent risk management function, works in close
partnership with other risk functions to assess and monitor
country risk within the Firm. The Firmwide Risk Executive
for Country Risk reports to the Firm's CRO.
•
•
•
•
•
•
Developing guidelines and policies consistent with a
comprehensive country risk framework
Country Risk Management is responsible for the following
functions:
1
(85) $
281 $
4,509
3,041
3,498
571
623
(269)
281
164 $
163
852
786
(359)
$
5,080 $ 3,663 $
3,224
$
(90)
Wholesale
5.0
Switzerland
(b) Predominantly includes U.S. agency MBS, U.S. Treasuries, and
sovereign bonds net of applicable haircuts under U.S. LCR rules.
(c) Excludes excess HQLA at JPMorgan Chase Bank, N.A. and Chase Bank
USA, N.A.
As of December 31, 2016, in addition to HQLA reported
above, the Firm had approximately $262 billion of
unencumbered marketable securities, such as equity
securities and fixed income debt securities, available to
raise liquidity, if required. This includes HQLA-eligible
securities included as part of the excess liquidity at
JPMorgan Chase Bank, N.A. The Firm also maintains
borrowing capacity at various Federal Home Loan Banks
("FHLBS"), the Federal Reserve Bank discount window and
various other central banks as a result of collateral pledged
by the Firm to such banks. Although available, the Firm
does not view the borrowing capacity at the Federal
Reserve Bank discount window and the various other
central banks as a primary source of liquidity. As of
December 31, 2016, the Firm's remaining borrowing
capacity at various FHLBS and the Federal Reserve Bank
discount window was approximately $221 billion. This
remaining borrowing capacity excludes the benefit of
securities included in HQLA or other unencumbered
securities that are currently held at the Federal Reserve
Bank discount window, but for which the Firm has not
drawn liquidity.
Funding
Sources of funds
Management believes that the Firm's unsecured and
secured funding capacity is sufficient to meet its on- and
off-balance sheet obligations.
The Firm funds its global balance sheet through diverse
sources of funding including a stable deposit franchise as
well as secured and unsecured funding in the capital
markets. The Firm's loan portfolio ($894.8 billion at
December 31, 2016), is funded with a portion of the Firm's
deposits ($1,375.2 billion at December 31, 2016)
and through securitizations and, with respect to a portion of
the Firm's real estate-related loans, with secured
borrowings from the FHLBS. Deposits in excess of the
amount utilized to fund loans are primarily invested in the
Firm's investment securities portfolio or deployed in cash or
other short-term liquid investments based on their interest
rate and liquidity risk characteristics. Securities borrowed
or purchased under resale agreements and trading assets-
JPMorgan Chase & Co./2016 Annual Report
524
111
debt and equity instruments are primarily funded by the
Firm's securities loaned or sold under agreements to
repurchase, trading liabilities-debt and equity instruments,
and a portion of the Firm's long-term debt and
stockholders' equity. In addition to funding securities
borrowed or purchased under resale agreements and
trading assets-debt and equity instruments, proceeds from
Deposits
the Firm's debt and equity issuances are used to fund
certain loans and other financial and non-financial assets,
or may be invested in the Firm's investment securities
portfolio. See the discussion below for additional
information relating to Deposits, Short-term funding, and
Long-term funding and issuance.
The table below summarizes, by line of business, the period-end and average deposit balances as of and for the years ended
December 31, 2016 and 2015.
Deposits
As of or for the year ended December 31,
(in millions)
Management's discussion and analysis
Consumer & Community Banking
$
323
The U.S. LCR rule requires the Firm to measure the amount
of HQLA held by the Firm in relation to estimated net cash
outflows within a 30-day period during an acute stress
event. The LCR was required to be 90% at January 1, 2016,
increased to a minimum of 100% commencing January 1,
2017. At December 31, 2016, the Firm was compliant with
the Fully Phased-In U.S. LCR.
On December 19, 2016 the Federal Reserve published final
U.S. LCR public disclosure requirements for certain bank
holding companies and nonbank financial companies.
Starting with the second quarter of 2017, the Firm will be
required to disclose quarterly its consolidated LCR pursuant
to the U.S. LCR rule, including the Firm's average LCR for the
quarter and the key quantitative components of the average
LCR in a standardized template, along with a qualitative
discussion of material drivers of the ratio, changes over
time, and causes of such changes.
The Basel Committee final standard for the net stable
funding ratio ("Basel NSFR") is intended to measure the
adequacy of "available" and "required" amounts of stable
funding over a one-year horizon. Basel NSFR will become a
minimum standard by January 1, 2018 and requires that
this ratio be equal to at least 100% on an ongoing basis.
On April 26, 2016, the U.S. NSFR proposal was released for
large banks and bank holding companies and was largely
consistent with Basel NSFR. The proposed requirement
would apply beginning on January 1, 2018, consistent with
the Basel NSFR timeline.
The Firm estimates it was compliant with the proposed U.S.
NSFR as of December 31, 2016 based on its current
understanding of the proposed rule.
HQLA
HQLA is the amount of assets that qualify for inclusion in
the U.S. LCR. HQLA primarily consists of cash and certain
unencumbered high quality liquid assets as defined in the
final rule.
As of December 31, 2016, the Firm's HQLA was $524
billion, compared with $496 billion as of December 31,
2015. The increase in HQLA primarily reflects the impact of
sales, maturities and paydowns in non-HQLA-eligible
securities, as well as deposit growth in excess of loan
growth. Certain of these actions resulted in increased
excess liquidity at JPMorgan Chase Bank, N.A. and Chase
Bank USA, N.A. which is excluded from the Firm's HQLA as
required under the U.S. LCR rules. The Firm's HQLA may
fluctuate from period to period primarily due to normal
flows from client activity.
201
The following table presents the Firm's estimated HQLA
included in the U.S. LCR broken out by HQLA-eligible cash
and securities as of December 31, 2016.
HQLA
Eligible cash (a)
Eligible securities (b)
Total HQLA (c)
(a) Cash on deposit at central banks.
2016
$
December 31,
(in billions)
LCR and NSFR
Corporate & Investment Bank
Asset & Wealth Management
184,132
161,577
146,766
153,334
149,525
$
3,299
1,375,179 $
172,835
7,606
1,279,715 $
17,129
1,327,968 $
1,295,788
A key strength of the Firm is its diversified deposit franchise, through each of its lines of business, which provides a stable
source of funding and limits reliance on the wholesale funding markets. A significant portion of the Firm's deposits are
consumer deposits, which are considered a stable source of liquidity. Additionally, the majority of the Firm's wholesale
operating deposits are also considered to be stable sources of liquidity because they are generated from customers that
maintain operating service relationships with the Firm.
The Firm's loans-to-deposits ratio was 65% at both December 31, 2016 and 2015.
As of December 31, 2016, total deposits for the Firm were $1,375.2 billion, compared with $1,279.7 billion at December 31,
2015 (61% of total liabilities at each of December 31, 2016 and 2015). The increase was attributable to higher consumer and
wholesale deposits. The increase in consumer deposits reflected continuing strong growth from existing and new customers,
and the impact of low attrition rates. The wholesale increase was driven by growth in operating deposits related to client
activity in CIB's Treasury Services business, and inflows in AWM primarily from business growth and the impact of new rules
governing money market funds.
The Firm believes average deposit balances are generally more representative of deposit trends. The increase in average
deposits for the year ended December 31, 2016 compared with the year ended December 31, 2015, was predominantly
driven by an increase in consumer deposits, partially offset by a reduction in wholesale non-operating deposits, driven by the
Firm's actions in 2015 to reduce such deposits. For further discussions of deposit and liability balance trends, see the
discussion of the Firm's business segments results and the Consolidated Balance Sheet Analysis on pages 51-70 and pages 43-
44, respectively.
5,482
Commercial Banking
172,470
414,064
Corporate
Total Firm
Year ended December 31,
Average
2016
2015
2016
179,532
2015
618,337 $
557,645 $
586,637 $
530,938
412,434
395,228
409,680
$
10.0
JPMorgan Chase & Co./2016 Annual Report
The Firm's contingency funding plan ("CFP"), which is
reviewed by ALCO and approved by the DRPC, is a
compilation of procedures and action plans for managing
liquidity through stress events. The CFP incorporates the
limits and indicators set by the Liquidity Risk Oversight
group. These limits and indicators are reviewed regularly to
identify the emergence of risks or vulnerabilities in the
Firm's liquidity position. The CFP identifies the alternative
contingent liquidity resources available to the Firm in a
stress event.
1.4
1.9
5.4
Singapore
2.5
1.3
1.2
2.1
5.0
3.1
1.4
4.5
Saudi Arabia
3.5
0.8
4.3
Mexico
United Arab
Hong Kong
0.8
7.5
0.6
1.6
9.7
India
3.8
4.5
7.0
0.4
Italy
3.3
3.7
7.0
Korea
3.9
2.3
8.7
110
Emirates
3.2
•
Monitoring and reporting liquidity positions, balance
sheet variances and funding activities;
Conducting ad hoc analysis to identify potential
emerging liquidity risks.
Risk governance and measurement
Specific committees responsible for liquidity governance
include firmwide ALCO as well as line of business and
regional ALCOs, and the CTC Risk Committee. In addition,
the DRPC reviews and recommends to the Board of
Directors, for formal approval, the Firm's liquidity risk
tolerances, liquidity strategy, and liquidity policy at least
annually. For further discussion of ALCO and other risk-
related committees, see Enterprise-wide Risk Management
on pages 71-75.
Internal Stress testing
Liquidity stress tests are intended to ensure the Firm has
sufficient liquidity under a variety of adverse scenarios,
including scenarios analyzed as part of the Firm's resolution
and recovery planning. Stress scenarios are produced for
JPMorgan Chase & Co. ("Parent Company") and the Firm's
material legal entities on a regular basis and ad hoc stress
tests are performed, as needed, in response to specific
market events or concerns. Liquidity stress tests assume all
of the Firm's contractual obligations are met and take into
consideration varying levels of access to unsecured and
secured funding markets, estimated non-contractual and
contingent outflows and potential impediments to the
availability and transferability of liquidity between
jurisdictions and material legal entities such as regulatory,
legal or other restrictions. Liquidity outflow assumptions
are modeled across a range of time horizons and
contemplate both market and idiosyncratic stress.
•
Results of stress tests are considered in the formulation of
the Firm's funding plan and assessment of its liquidity
position. The Parent Company acts as a source of funding
for the Firm through stock and long-term debt issuances,
and the IHC provides funding support to the ongoing
operations of the Parent Company and its subsidiaries, as
necessary. The Firm maintains liquidity at the Parent
Company and the IHC, in addition to liquidity held at the
operating subsidiaries, at levels sufficient to comply with
liquidity risk tolerances and minimum liquidity
requirements, to manage through periods of stress where
access to normal funding sources is disrupted.
Treasury and CIO is responsible for liquidity management.
The primary objectives of effective liquidity management
are to ensure that the Firm's core businesses and material
legal entities are able to operate in support of client needs,
meet contractual and contingent obligations through
normal economic cycles as well as during stress events, and
to manage an optimal funding mix, and availability of
liquidity sources. The Firm manages liquidity and funding
using a centralized, global approach across its entities,
taking into consideration both their current liquidity profile
and any potential changes over time, in order to optimize
liquidity sources and uses.
In the context of the Firm's liquidity management, Treasury
and CIO is responsible for:
Analyzing and understanding the liquidity characteristics
of the Firm, lines of business and legal entities' assets
and liabilities, taking into account legal, regulatory, and
operational restrictions;
Defining and monitoring firmwide and legal entity-
specific liquidity strategies, policies, guidelines, and
contingency funding plans;
Managing liquidity within approved liquidity risk
appetite tolerances and limits;
Setting transfer pricing in accordance with underlying
liquidity characteristics of balance sheet assets and
liabilities as well as certain off-balance sheet items.
Contingency funding plan
Liquidity management
Ireland
• Defining, monitoring, and reporting internal firmwide
and material legal entity liquidity stress tests, and
monitoring and reporting regulatory defined liquidity
stress testing;
•
1.1
4.3
1.6
0.3
2.3
4.2
(a) Lending and deposits includes loans and accrued interest receivable
(net of collateral and the allowance for loan losses), deposits with
banks (including central banks), acceptances, other monetary assets,
issued letters of credit net of participations, and unused commitments
to extend credit. Excludes intra-day and operating exposures, such as
from settlement and clearing activities.
Establishing and monitoring limits, indicators, and
thresholds, including liquidity appetite tolerances;
(b) Includes market-making inventory, AFS securities, counterparty
exposure on derivative and securities financings net of collateral and
hedging.
(d) Includes capital invested in local entities and physical commodity
inventory.
109
Management's discussion and analysis
LIQUIDITY RISK MANAGEMENT
Liquidity risk is the risk that the Firm will be unable to meet
its contractual and contingent obligations or that it does not
have the appropriate amount, composition and tenor of
funding and liquidity to support its assets and liabilities.
Liquidity risk oversight
The Firm has a liquidity risk oversight function whose
primary objective is to provide assessment, measurement,
monitoring, and control of liquidity risk across the Firm.
Liquidity risk oversight is managed through a dedicated
firmwide Liquidity Risk Oversight group. The CIO, Treasury
and Corporate ("CTC") CRO, who reports to the CRO, as part
of the independent risk management function, has
responsibility for firmwide Liquidity Risk Oversight.
Liquidity Risk Oversight's responsibilities include but are
not limited to:
(c) Includes single reference entity ("single-name"), index and tranched
credit derivatives for which one or more of the underlying reference
entities is in a country listed in the above table.
Credit derivatives used in credit portfolio management
Total consumer
Consumer, excluding credit card
3,434
$
4,315
$ 13,555
Impairment methodology
Asset-specific (b)
$
$
308 $
$
Formula-based
2,579
3,676
342
4,202
$
1,008
358
$
5,806
$ 13,776
3,122
623
3,663
Other
(10)
(1)
(11)
$
(5)
1
Ending balance at December 31,
$
5,198 $
4,034
$
4,544
6
(82)
364
10,457
4,315
$ 13,555
Allowance for lending-related commitments
Beginning balance at January 1,
$
Provision for lending-related commitments
14 $ - $ 772 $
--281
3,434 $
786
13 $
$
609 $
622
281
1
163
$
$
5,806 $
$ 13,776
2,700
460
2,974
$
274
4,041
$
1,098
9,715
$
PCI
2,311
2,742
2,742
Total allowance for loan losses
$
5,198 $ 4,034 $
4,544
2,311
164
5,080
4,042
The wholesale allowance for credit losses increased from
December 31, 2015, reflecting the impact of downgrades in
the Oil & Gas and Natural Gas Pipelines portfolios. For
additional information on the wholesale portfolio, see
Wholesale Credit Portfolio on pages 96-104 and Note 14.
JPMorgan Chase & Co./2016 Annual Report
105
Management's discussion and analysis
Summary of changes in the allowance for credit losses
2016
2015
The consumer allowance for loan losses remained relatively
unchanged from December 31, 2015. Changes to the
allowance for loan losses included reductions in the
residential real estate portfolio, reflecting continued
improvements in home prices and lower delinquencies, as
well as runoff in the student loan portfolio. These
reductions were offset by increases in the allowance for
loan losses reflecting loan growth in the credit card
portfolio (including newer vintages which, as anticipated,
have higher loss rates compared to the overall portfolio), as
well as loan growth in the auto and business banking loan
portfolios. For additional information about delinquencies
and nonaccrual loans in the consumer, excluding credit
card, loan portfolio, see Consumer Credit Portfolio on pages
89-95 and Note 14.
Year ended December 31,
Consumer,
excluding
credit card
Consumer,
excluding
Credit card Wholesale
Total
credit card
Credit card Wholesale
Total
(in millions, except ratios)
Allowance for loan losses
At least quarterly, the allowance for credit losses is
reviewed by the CRO, the CFO and the Controller of the
Firm, and discussed with the DRPC and the Audit
Committee. As of December 31, 2016, JPMorgan Chase
deemed the allowance for credit losses to be appropriate
and sufficient to absorb probable credit losses inherent in
the portfolio.
JPMorgan Chase's allowance for loan losses covers both the
consumer (primarily scored) portfolio and wholesale (risk-
rated) portfolio. The allowance represents management's
estimate of probable credit losses inherent in the Firm's
loan portfolio. Management also determines an allowance
for wholesale and certain consumer lending-related
commitments.
December 31, (in millions)
Credit derivatives used to manage:
Loans and lending-related commitments
Derivative receivables
Credit derivatives used in credit portfolio
management activities
Notional amount of
protection
purchased (a)
2016
2015
For a further discussion of the components of the allowance
for credit losses and related management judgments, see
Critical Accounting Estimates Used by the Firm on pages
132-134 and Note 15.
$ 2,430 $ 2,289
19,684
18,392
(a) Amounts are presented net, considering the Firm's net protection
purchased or sold with respect to each underlying reference entity or
index.
The credit derivatives used in credit portfolio management
activities do not qualify for hedge accounting under U.S.
GAAP; these derivatives are reported at fair value, with
gains and losses recognized in principal transactions
revenue. In contrast, the loans and lending-related
commitments being risk-managed are accounted for on an
accrual basis. This asymmetry in accounting treatment,
between loans and lending-related commitments and the
credit derivatives used in credit portfolio management
activities, causes earnings volatility that is not
representative, in the Firm's view, of the true changes in
value of the Firm's overall credit exposure.
The effectiveness of credit default swaps ("CDS") as a hedge
against the Firm's exposures may vary depending on a
number of factors, including the named reference entity
(i.e., the Firm may experience losses on specific exposures
that are different than the named reference entities in the
purchased CDS); the contractual terms of the CDS (which
may have a defined credit event that does not align with an
actual loss realized by the Firm); and the maturity of the
Firm's CDS protection (which in some cases may be shorter
than the Firm's exposures). However, the Firm generally
seeks to purchase credit protection with a maturity date
that is the same or similar to the maturity date of the
exposure for which the protection was purchased, and
remaining differences in maturity are actively monitored
and managed by the Firm.
104
JPMorgan Chase & Co./2016 Annual Report
ALLOWANCE FOR CREDIT LOSSES
$ 22,114 $ 20,681
571
Beginning balance at January 1,
$
Net charge-offs
909
3,442
341
4,692
954
3,122
(1,155)
10
Write-offs of PCI loans (a)
156
156
208
208
Provision for loan losses
467
4,086
$ 5,806
(85)
(704)
Gross charge-offs
1,500
3,434 $ 4,315 $ 13,555
3,799
5,697
$
7,050
$ 3,439 $ 3,696 $ 14,185
398
(366)
1,658
95
5,241
Gross recoveries
(591)
(357)
(57)
(1,005)
3,488
Credit card
Other
$
retained loans
0.88
2.85
1.18
1.34
1.01
2.61
Allowance for loan losses to
1.21
Allowance for loan losses to retained
nonaccrual loans (d)
61
NM
233
171
58
1.37
NM
Credit ratios, excluding residential real estate
PCI loans
2.51
215
Allowance for loan losses to retained nonaccrual
loans excluding credit card
109
NM
233
145
109
0.52
NM
161
Net charge-off rates
0.25
2.63
0.09
0.54
0.30
437
437
437
Allowance for loan losses to retained nonaccrual
(d) The Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.
106
JPMorgan Chase & Co./2016 Annual Report
Provision for credit losses
For the year ended December 31, 2016, the provision for
credit losses was $5.4 billion, compared with $3.8 billion
for the year ended December 31, 2015.
•
The total consumer provision for credit losses increased for
the year ended December 31, 2016 when compared with
the prior year. The increase in the provision was driven by:
(b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. The asset-specific credit card allowance
for loan losses modified in a TDR is calculated based on the loans' original contractual interest rates and does not consider any incremental penalty rates.
(c) The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets.
•
a $450 million lower benefit related to the residential
real estate portfolio, as the current year reduction in the
•
allowance for loan losses was lower than the prior year.
The reduction in both periods reflected continued
improvements in home prices and lower delinquencies
and
a $150 million increase related to the auto and business
banking portfolio, due to additions to the allowance for
loan losses and higher net charge-offs, reflecting loan
growth in the portfolios.
The wholesale provision for credit losses increased for the
year ended December 31, 2016 reflecting the impact of
downgrades in the Oil & Gas and Natural Gas Pipelines
portfolios.
Year ended December 31,
(in millions)
a $920 million increase related to the credit card
portfolio, due to a $600 million addition in the
allowance for loan losses, as well as $320 million of
higher net charge-offs, driven by loan growth, including
growth in newer vintages which, as anticipated, have
higher loss rates compared to the overall portfolio,
172
Note: In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures.
(a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as
purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g.,
upon liquidation).
-%
loans excluding credit card
61
NM
233
111
58
NM
0.55%
437
Net charge-off rates
0.28%
2.63%
0.09%
0.57%
0.35%
2.51%
117
Ending balance at December 31,
NM
205
169
$
-
$
$
73
$
169 $
883
73
14
699
713
$
26 $
$ 1,052 $ 1,078 $
$ 5,224 $ 4,034
909
$ 5,596
26
Retained loans, end of period
12
26 $
(1)
11
$
1,052 $
1,078
$
$ - $ - $
14
$
772 $
786
Impairment methodology
Asset-specific
Formula-based
Total allowance for lending-related
commitments(c)
Total allowance for credit losses
Memo:
$
109
$ 14,854
14 $
5,820
Retained loans, average
PCI loans, end of period
Credit ratios
Allowance for loan losses to retained loans
1.43%
2.85%
1.18%
780,293
41,002
1.55%
2.61%
1.21%
1.63%
Allowance for loan losses to retained nonaccrual
loans(d)
109
NM
233
1.69%
$
4
$ 357,050
337,407
$
772 $
786
$ 3.434
$
5,087
$ 14,341
$ 832,792
$ 364,406 $ 141,711
358,486
35,679
131,081
371,778
3
$ 889,907
861,345
35,682
$ 344,355
318,612
40,998
$ 131,387
124,274
$ 383,790
10.9
$ 5,025 $ 10,130
Total securities loaned or sold under agreements to repurchase (b)(c)(d)(e)
Third Quarter
2016
Fourth Quarter
2016
For the year ended December 31, 2016, there were 5 back-testing exceptions. The two exceptions that occurred towards the end of June 2016, subsequent to the U.K.
referendum on membership in the European Union, reflect the elevated market volatility observed across multiple asset classes following the outcome of the vote.
JPMorgan Chase & Co./2016 Annual Report
Other risk measures
Economic-value stress testing
Along with VaR, stress testing is an important tool in
measuring and controlling risk. While VaR reflects the risk
of loss due to adverse changes in markets using recent
historical market behavior as an indicator of losses, stress
testing is intended to capture the Firm's exposure to
unlikely but plausible events in abnormal markets. The Firm
runs weekly stress tests on market-related risks across the
lines of business using multiple scenarios that assume
significant changes in risk factors such as credit spreads,
equity prices, interest rates, currency rates and commodity
prices.
The Firm uses a number of standard scenarios that capture
different risk factors across asset classes including
geographical factors, specific idiosyncratic factors and
extreme tail events. The stress framework calculates
multiple magnitudes of potential stress for both market
rallies and market sell-offs for each risk factor and
combines them in multiple ways to capture different market
scenarios. For example, certain scenarios assess the
potential loss arising from current exposures held by the
Firm due to a broad sell off in bond markets or an extreme
widening in corporate credit spreads. The flexibility of the
stress testing framework allows risk managers to construct
new, specific scenarios that can be used to form decisions
about future possible stress events.
Stress testing complements VaR by allowing risk managers
to shock current market prices to more extreme levels
relative to those historically realized, and to stress test the
relationships between market prices under extreme
scenarios. Stress scenarios are defined and reviewed by
Market Risk Management, and significant changes are
reviewed by the relevant LOB Risk Committees and may be
redefined on a periodic basis to reflect current market
conditions.
Stress-test results, trends and qualitative explanations
based on current market risk positions are reported to the
respective LOBS and the Firm's senior management to allow
them to better understand the sensitivity of positions to
certain defined events and to enable them to manage their
risks with more transparency. Results are also reported to
the Board of Directors.
The Firm's stress testing framework is utilized in calculating
results under scenarios mandated by the Federal Reserve's
CCAR and ICAAP processes. In addition, the results are
incorporated into the quarterly assessment of the Firm's
Risk Appetite Framework and are also presented to the
DRPC.
Nonstatistical risk measures
Nonstatistical risk measures include sensitivities to
variables used to value positions, such as credit spread
sensitivities, interest rate basis point values and market
values. These measures provide granular information on the
Firm's market risk exposure. They are aggregated by line of
business and by risk type, and are also used for monitoring
internal market risk limits.
|
Second Quarter
2016
First Quarter
2016
-160
JPMorgan Chase & Co./2016 Annual Report
119
120
Management's discussion and analysis
The following chart compares the daily market risk-related gains and losses with the Firm's Risk Management VaR for the year
ended December 31, 2016. As the chart presents market risk-related gains and losses related to those positions included in
the Firm's Risk Management VaR, the results in the table below differ from the results of back-testing disclosed in the Market
Risk section of the Firm's Basel III Pillar 3 Regulatory Capital Disclosures reports, which are based on Regulatory VaR applied to
covered positions. The chart shows that for the year ended December 31, 2016 the Firm observed 5 VaR back-testing
exceptions and posted Market-risk related gains on 151 of the 260 days in this period.
Daily Market Risk-Related Gains and Losses
vs. Risk Management VaR (1-day, 95% Confidence level)
Loss advisories and profit and loss drawdowns
Year ended December 31, 2016
Risk Management VaR
$ (Millions)
90
40
-10
-60
-110
Market Risk-Related Gains and Losses
The Firm's definition of market risk-related gains and losses
is consistent with the definition used by the banking
regulators under Basel III. Under this definition market risk-
related gains and losses are defined as: gains and losses on
the positions included in the Firm's Risk Management VaR,
excluding fees, commissions, certain valuation adjustments
(e.g., liquidity and DVA), net interest income, and gains and
losses arising from intraday trading.
Loss advisories and profit and loss drawdowns are tools
used to highlight trading losses above certain levels of risk
tolerance. Profit and loss drawdowns are defined as the
decline in net profit and loss since the year-to-date peak
revenue level.
The VaR and sensitivity measures described above illustrate
the economic sensitivity of the Firm's Consolidated balance
sheets to changes in market variables. The effect of interest
rate exposure on the Firm's reported net income is also
important as interest rate risk represents one of the Firm's
significant market risks. Interest rate risk arises not only
from trading activities but also from the Firm's traditional
banking activities, which include extension of loans and
credit facilities, taking deposits and issuing debt. The Firm
evaluates its structural interest rate risk exposure through
earnings-at-risk, which measures the extent to which
changes in interest rates will affect the Firm's net interest
income and certain interest rate-sensitive fees. For a
summary by line of business, identifying positions included
in earnings-at-risk, see the table on page 117.
(a)
(a)
2.4
NM
NM
(a)
(a)
NM
NM
$ 4.0 $
$ 5.2 $ 3.1
(a) Given the current level of market interest rates, downward parallel
100 and 200 basis point earnings-at-risk scenarios are not considered
to be meaningful.
The Firm's benefit to rising rates on U.S. dollar assets and
liabilities is largely a result of reinvesting at higher yields
and assets repricing at a faster pace than deposits.
The Firm's net U.S. dollar sensitivity to a 200 bps and
100 bps instantaneous increase in rates decreased by
approximately $1.2 billion and $700 million, respectively,
when compared to December 31, 2015. The primary driver
of that decrease was the updating of the Firm's baseline to
reflect higher interest rates. As higher interest rates are
reflected in the Firm's baselines, the magnitude of the
sensitivity to further increases in rates would be expected
to be less significant. The net change in mix in the Firm's
spot and forecasted balance sheet also contributed to a
decrease in the net U.S. dollar sensitivity when compared to
December 31, 2015.
Separately, another U.S. dollar interest rate scenario used
by the Firm - involving a steeper yield curve with long-term
rates rising by 100 basis points and short-term rates
staying at current levels - results in a 12-month benefit to
net interest income of approximately $800 million. The
increase under this scenario reflects the Firm reinvesting at
the higher long-term rates, with funding costs remaining
unchanged. The result of the comparable non-U.S. dollar
scenario was not material to the Firm.
Non-U.S. dollar foreign exchange risk
Non-U.S. dollar FX risk is the risk that changes in foreign
exchange rates affect the value of the Firm's assets or
liabilities or future results. The Firm has structural non-U.S.
dollar FX exposures arising from capital investments,
forecasted expense and revenue, the investment securities
portfolio and non-U.S. dollar-denominated debt issuance.
Treasury and CIO, working in partnership with the lines of
business, primarily manage these risks on behalf of the
Firm. Treasury and CIO may hedge certain of these risks
using derivatives within risk limits governed by the CTC Risk
-200 bps
+100 bps -100 bps
+200 bps
Instantaneous change in rates
The CTC Risk Committee establishes the Firm's structural
interest rate risk policies and market risk limits, which are
subject to approval by the DRPC. Treasury and CIO, working
in partnership with the lines of business, calculates the
Firm's structural interest rate risk profile and reviews it with
senior management including the CTC Risk Committee and
the Firm's ALCO. In addition, oversight of structural interest
rate risk is managed through a dedicated risk function
reporting to the CTC CRO. This risk function is responsible
for providing independent oversight and governance around
assumptions and establishing and monitoring limits for
structural interest rate risk. The Firm manages structural
interest rate risk generally through its investment securities
portfolio and interest rate derivatives.
Structural interest rate risk can occur due to a variety of
factors, including:
•
Differences in the timing among the maturity or
repricing of assets, liabilities and off-balance sheet
instruments
Differences in the amounts of assets, liabilities and off-
balance sheet instruments that are repricing at the same
time
Differences in the amounts by which short-term and
long-term market interest rates change (for example,
changes in the slope of the yield curve)
The impact of changes in the maturity of various assets,
liabilities or off-balance sheet instruments as interest
rates change
Earnings-at-risk
JPMorgan Chase & Co./2016 Annual Report
Management's discussion and analysis
The Firm manages interest rate exposure related to its
assets and liabilities on a consolidated, firmwide basis.
Business units transfer their interest rate risk to Treasury
and CIO through a transfer-pricing system, which takes into
account the elements of interest rate exposure that can be
risk-managed in financial markets. These elements include
asset and liability balances and contractual rates of interest,
contractual principal payment schedules, expected
prepayment experience, interest rate reset dates and
maturities, rate indices used for repricing, and any interest
rate ceilings or floors for adjustable rate products. All
transfer-pricing assumptions are dynamically reviewed.
The Firm generates a baseline for net interest income and
certain interest rate sensitive fees, and then conducts
simulations of changes for interest rate-sensitive assets and
liabilities denominated in U.S. dollar and other currencies
("non-U.S. dollar" currencies). Earnings-at-risk scenarios
estimate the potential change in this baseline, over the
following 12 months utilizing multiple assumptions. These
scenarios consider the impact on exposures as a result of
changes in interest rates from baseline rates, as well as
pricing sensitivities of deposits, optionality and changes in
product mix. The scenarios include forecasted balance sheet
changes, as well as modeled prepayment and reinvestment
behavior, but do not include assumptions about actions that
could be taken by the Firm in response to any such
instantaneous rate changes. Mortgage prepayment
assumptions are based on scenario interest rates compared
with underlying contractual rates, the time since
origination, and other factors which are updated
periodically based on historical experience. The Firm's
earnings-at-risk scenarios are periodically evaluated and
enhanced in response to changes in the composition of the
Firm's balance sheet, changes in market conditions,
improvements in the Firm's simulation and other factors.
The Firm's U.S. dollar sensitivities are presented in the table
below. The non-U.S. dollar sensitivity scenarios are not
material to the Firm's earnings-at-risk at December 31,
2016 and 2015.
JPMorgan Chase's 12-month earnings-at-risk sensitivity
profiles
U.S. dollar
(in billions)
December 31, 2016
December 31, 2015
121
Committee.
The Firm evaluates the effectiveness of its VaR methodology
by back-testing, which compares the daily Risk Management
VaR results with the daily gains and losses recognized on
market-risk related revenue.
The Firm continues to enhance its VaR model calculations
and the time series inputs related to certain asset-backed
products.
(a)
(b)
NM
NM
(3)
(b)
NM
NM
(2)
33 12
453
(a)
(4)
(a)
4
(b)
(b)
(a)
8
2
8
3
13
4
3
7
16
-
3
2
4
-
Diversification benefit to other VaR
Other VaR
(3)
4
VaR can vary significantly as positions change, market
volatility fluctuates, and diversification benefits change.
VaR back-testing
8
12
$ 33
$ 78
$ 47
$
34
$
67
$ 38
$
45
(a) Average portfolio VaR and period-end portfolio VaR were less than the sum of the VaR of the components described above, which is due to portfolio diversification.
The diversification effect reflects the fact that risks are not perfectly correlated.
(b) Designated as NM, because the minimum and maximum may occur on different days for distinct risk components, and hence it is not meaningful to compute a
portfolio-diversification effect.
As discussed on page 117, during the third quarter of 2016
the Firm refined the scope of positions included in Risk
Management VaR. In the absence of these refinements, the
average VaR, without diversification, for each of the
following reported components would have been higher by
the following amounts for the full year 2016: CIB Equities
VaR by $3 million; CIB trading VaR by $2 million; CIB VaR by
$3 million; Corporate VaR by $4 million; AWM VaR by $2
million; Other VaR by $4 million; and Total VaR by $3
million. Additionally, the Total VaR at December 31, 2016
would have been higher by $7 million in the absence of
these refinements.
Average Total VaR decreased $2 million for the full year
ending December 31, 2016 as compared with the
respective prior year period. The reduction in average
Total VaR is due to the aforementioned scope changes as
well as a lower risk profile in the Equities risk type. This
was offset by changes in the risk profiles of the Foreign
exchange and Fixed Income risk types. Additionally,
average Credit portfolio VaR declined as a result of lower
exposures arising from select positions.
The Firm's average Total VaR diversification benefit was $8
million or 18% of the sum for 2016, compared with $10
million or 21% of the sum for 2015.
45
$
Total VaR
(9) (a)
4
8
Diversification benefit to CIB and other VaR
(8)
(a)
(b)
(b)
5
NM
(10)
(a)
NM (b)
(b)
(a)
NM
(4)
NM
122
JPMorgan Chase & Co./2016 Annual Report
2015
Total long-term unsecured funding
Structured notes
Subordinated debt
Trust preferred securities
Senior notes
186,796
173,653 $
18,633
13,195
168,163
160,458 $
$
149,826 $ 129,598
12,137
16,877
161,963 $ 146,475 $
$
Securities loaned (b)
Credit card securitization (a)
Other securitizations ((a)(f)
FHLB advances
Other long-term secured funding(s)
35,978
32,813
37,292
27,310
24,224
25,027
21,940
$
4,341
3,969
2,345
147,498
153,768 $
151,042 $ 149,964 $
$
Total long-term secured funding
3,724
31,309
Securities sold under agreements to repurchase
21,139 $
15,001 $
11,738 $ 15,562 $
$
2015
2016
Average
2015
2016
Wholesale funding
Commercial paper:
(in millions)
As of or for the year ended December 31,
Sources of funds (excluding deposits)
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2016 and 2015,
and average balances for the years ended December 31, 2016 and 2015. For additional information, see the Consolidated
Balance Sheet Analysis on pages 43-44 and Note 21.
$ 8,277 $ 6,807
19,340
Client cash management
18,800 (i)
Total commercial paper
11,961
5,153 $
8,724 $
21,105 $
22,705 $
$
Securities loaned or sold under agreements to repurchase:
Other borrowed funds
28,816
2,719 $
Obligations of Firm-administered multi-seller conduits (a)
38,140
15,001 $
$
15,562
11,738 $
$
$
$
212,619 $ 211,773 $
217,694 $
3,210
1,093
29,400
32,702
10,188
7,063
$ 25,639 $ 19,212
2015
2016
Total long-term unsecured funding -
maturities/redemptions
Trust preferred securities
Subordinated debt
Structured notes
Maturities/redemptions
Senior notes
Total long-term unsecured funding-
issuance
Senior notes issued in the U.S. market
Senior notes issued in non-U.S. markets
Total senior notes
Subordinated debt
Structured notes
Issuance
22,865
22,165
$ 56,660 $ 54,775
$ 29,989 $ 18,454
1,630
2016
2015
2016
Maturities/Redemptions
Issuance
Credit card
securitization
(in millions)
Year ended December 31,
(in millions)
Long-term secured funding
The Firm raises secured long-term funding through
securitization of consumer credit card loans and advances
from the FHLBS.
$ 51,140 $ 44,961
18,099
15,925
6,908
3,596
1,500
The following table summarizes the securitization issuance
and FHLB advances and their respective maturities or
redemption for the years ended December 31, 2016 and
2015.
Long-term unsecured funding
The significant majority of the Firm's long-term unsecured
funding is issued by the Parent Company to provide
maximum flexibility in support of both bank and nonbank
subsidiary funding needs. The Parent Company advances
substantially all net funding proceeds to the IHC. The IHC
does not issue debt to external counterparties. The
following table summarizes long-term unsecured issuance
and maturities or redemptions for the years ended
December 31, 2016 and 2015. For additional information,
see Note 21.
Long-term funding provides additional sources of stable
funding and liquidity for the Firm. The Firm's long-term
funding plan is driven by expected client activity, liquidity
considerations, and regulatory requirements, including
TLAC requirements. Long-term funding objectives include
maintaining diversification, maximizing market access and
optimizing funding costs. The Firm evaluates various
funding markets, tenors and currencies in creating its
optimal long-term funding plan.
4,619
108,976 $ 106,773
$
73,260
71,581
5,297
3,107
115,334 $ 106,544
$
79,519
70,150
4,332
1,909
1,760
1,527
30,382
29,428
27,906
31,181
210,458
1,669
4
Preferred stock (h)
$
The Firm's sources of short-term secured funding primarily
consist of securities loaned or sold under agreements to
repurchase. Securities loaned or sold under agreements to
repurchase are secured predominantly by high-quality
securities collateral, including government-issued debt and
agency MBS, and constitute a significant portion of the
federal funds purchased and securities loaned or sold under
repurchase agreements on the Consolidated balance sheets.
The decrease in the average balance of securities loaned or
sold under agreements to repurchase for the year ended
December 31, 2016, compared with the balance at
December 31, 2015, was largely due to lower secured
financing of trading assets-debt and equity instruments in
the CIB related to client-driven market-making activities.
The balances associated with securities loaned or sold
under agreements to repurchase fluctuate over time due to
customers' investment and financing activities; the Firm's
demand for financing; the ongoing management of the mix
of the Firm's liabilities, including its secured and unsecured
financing (for both the investment securities and market-
making portfolios); and other market and portfolio factors.
Long-term funding and issuance
Short-term funding
Management's discussion and analysis
113
JPMorgan Chase & Co./2016 Annual Report
(i) During 2015 the Firm discontinued its commercial paper customer sweep cash management program.
(h) For additional information on preferred stock and common stockholders' equity see Capital Risk Management on pages 76-85, Consolidated statements of
changes in stockholders' equity, Note 22 and Note 23.
Common stockholders' equity(h)
(g) Includes long-term structured notes which are secured.
(e) Excludes long-term securities loaned of $1.2 billion and $1.3 billion as of December 31, 2016, and December 31, 2015, respectively, and average
balances of $1.3 billion and $0.9 billion for the years ended December 31, 2016 and 2015, respectively.
(d) Excludes long-term structured repurchase agreements of $1.8 billion and $4.2 billion as of December 31, 2016 and 2015, respectively, and average
balances of $2.9 billion and $3.9 billion for the years ended December 31, 2016 and 2015, respectively.
(a) Included in beneficial interest issued by consolidated variable interest entities on the Firm's Consolidated balance sheets.
(b) Prior period amounts have been revised to conform with current period presentation.
(c) Excludes federal funds purchased.
26,068 $ 24,040
224,631 $ 215,690
228,122 $ 221,505
$
26,068 $ 26,068
(f) Other securitizations includes securitizations of student loans. The Firm's wholesale businesses also securitize loans for client-driven transactions, which
are not considered to be a source of funding for the Firm and are not included in the table.
6
Year ended
December 31,
362
•
Profit and loss drawdowns
Earnings-at-risk
•
Other sensitivities
116
JPMorgan Chase & Co./2016 Annual Report
The following table summarizes by line of business the predominant business activities that give rise to market risk, and the
primary market risk management tools utilized to manage those risks.
Risk identification and classification by line of business
Line of
Business
CCB
Predominant business activities
and related market risks
Services mortgage loans which
give rise to complex, non-linear
interest rate and basis risk
•
Non-linear risk arises primarily
from prepayment options
embedded in mortgages and
changes in the probability of
newly originated mortgage
commitments actually closing
Basis risk results from
differences in the relative
movements of the rate indices
underlying mortgage exposure
and other interest rates
Originates loans and takes
deposits
•
Limit breaches are required to be reported in a timely
manner to limit approvers, Market Risk Management and
senior management. In the event of a breach, Market Risk
Management consults with Firm senior management and
the line of business senior management to determine the
appropriate course of action required to return to
compliance, which may include a reduction in risk in order
to remedy the breach. Certain Firm or line of business-level
limits that have been breached for three business days or
longer, or by more than 30%, are escalated to senior
management and the Firmwide Risk Committee.
Market risk exposure is managed primarily through a series
of limits set in the context of the market environment and
business strategy. In setting limits, the Firm takes into
consideration factors such as market volatility, product
liquidity and accommodation of client business and
management experience. The Firm maintains different
levels of limits. Corporate level limits include VaR and stress
limits. Similarly, line of business limits include VaR and
stress limits and may be supplemented by loss advisories,
nonstatistical measurements and profit and loss
drawdowns. Limits may also be set within the lines of
business, as well at the portfolio or legal entity level.
Market Risk Management sets limits and regularly reviews
and updates them as appropriate, with any changes
approved by line of business management and Market Risk
Management. Senior management, including the Firm's CEO
and CRO, are responsible for reviewing and approving
certain of these risk limits on an ongoing basis. All limits
that have not been reviewed within specified time periods
by Market Risk Management are escalated to senior
management. The lines of business are responsible for
adhering to established limits against which exposures are
monitored and reported.
Risk monitoring and control
Long-term
•
Establishment of a market risk policy framework
Independent measurement, monitoring and control of
line of business and firmwide market risk
Definition, approval and monitoring of limits
Performance of stress testing and qualitative risk
assessments
Risk measurement
Tools used to measure risk
CIB
Because no single measure can reflect all aspects of market
risk, the Firm uses various metrics, both statistical and
nonstatistical, to assess risk including:
VaR
•
•
Economic-value stress testing
Nonstatistical risk measures
•
Loss advisories
•
•
Makes markets and services
foreign exchange, equities and
commodities
Retained loan portfolio
Deposits
.
Retained loan portfolio
Deposits
•
.
Private-equity investments
measured at fair value
Derivatives DVA/FVA and fair
value option elected liabilities
DVA
CB
AWM
Engages in traditional wholesale
banking activities which include
extensions of loans and credit
facilities and taking deposits
Risk arises from changes in
interest rates and prepayment
risk with potential for adverse
impact on net interest income and
interest-rate sensitive fees
Provides initial capital
investments in products such as
mutual funds, which give rise to
market risk arising from changes
in market prices in such products
Debt securities held in advance of
distribution to clients, classified as
trading assets - debt and equity
instruments
.
sensitivity-based measurements
Positions included in other
Positions included in
earnings-at-risk
Market risk arises from changes in
market prices (e.g., rates and
credit spreads) resulting in a
potential decline in net income
Positions included in Risk Management
VaR
•
.
•
•
•
clients across fixed income,
Mortgage pipeline loans, classified as
derivatives
Hedges of pipeline loans,
warehouse loans and MSRs, classified
as derivatives
Interest-only securities, classified as
trading assets - debt instruments, and
related hedges, classified as
derivatives
Marketable equity investments
measured at fair value through
earnings
Trading assets/liabilities - debt and
marketable equity instruments, and
derivatives, including hedges of the
retained loan portfolio
Certain securities purchased, loaned or
sold under resale agreements and
securities borrowed
Fair value option elected liabilities
Derivative CVA and associated hedges
Warehouse loans, classified as trading
assets - debt instruments
MSRS
Corporate
•
Market Risk Management monitors market risks throughout
the Firm and defines market risk policies and procedures.
The Market Risk Management function reports to the Firm's
CRO.
Aa3(a)
P-1
Stable
Standard & Poor's
A-
Fitch Ratings
A+
A-2
F1
Stable
A+
A-1
Stable
JPMorgan Chase & Co.
The credit ratings of the Parent Company and the Firm's principal bank and nonbank subsidiaries as of December 31, 2016,
were as follows.
party commitments may be adversely affected by a decline
in credit ratings. For additional information on the impact of
a credit ratings downgrade on the funding requirements for
VIES, and on derivatives and collateral agreements, see
SPES on page 45, and credit risk, liquidity risk and credit-
related contingent features in Note 6 on page 181.
Stable
P-1
JPMorgan Chase Bank, N.A.
Chase Bank USA, N.A.
Aa3
December 31, 2016
issuer
Short-term
issuer
Outlook
Long-term
issuer
Short-term
issuer
Long-term
The cost and availability of financing are influenced by
credit ratings. Reductions in these ratings could have an
adverse effect on the Firm's access to liquidity sources,
increase the cost of funds, trigger additional collateral or
funding requirements and decrease the number of investors
and counterparties willing to lend to the Firm. Additionally,
the Firm's funding requirements for VIES and other third-
Short-term
issuer
issuer
Outlook
Moody's Investors Service
A3
P-2
Stable
Outlook
Market Risk Management seeks to manage risk, facilitate
efficient risk/return decisions, reduce volatility in operating
performance and provide transparency into the Firm's
market risk profile for senior management, the Board of
Directors and regulators. Market Risk Management is
responsible for the following functions:
Credit ratings
114
Stable
AA-
F1+
Stable
(a) On February 22, 2017, Moody's published its updated rating methodologies for securities firms. Subsequently, as a result of this action, J.P. Morgan
Securities LLC's long-term issuer rating was downgraded by one notch from Aa3 to A1. The short-term issuer rating was unchanged and the outlook
remained stable.
Downgrades of the Firm's long-term ratings by one or two
notches could result in an increase in its cost of funds, and
access to certain funding markets could be reduced as
noted above. The nature and magnitude of the impact of
ratings downgrades depends on numerous contractual and
behavioral factors (which the Firm believes are
incorporated in its liquidity risk and stress testing metrics).
The Firm believes that it maintains sufficient liquidity to
withstand a potential decrease in funding capacity due to
ratings downgrades.
JPMorgan Chase's unsecured debt does not contain
requirements that would call for an acceleration of
payments, maturities or changes in the structure of the
existing debt, provide any limitations on future borrowings
or require additional collateral, based on unfavorable
changes in the Firm's credit ratings, financial ratios,
earnings, or stock price.
Critical factors in maintaining high credit ratings include a
stable and diverse earnings stream, strong capital ratios,
strong credit quality and risk management controls, diverse
funding sources, and disciplined liquidity monitoring
procedures. Rating agencies continue to evaluate economic
and geopolitical trends, regulatory developments, future
profitability, risk management practices, and litigation
matters, as well as their broader ratings methodologies.
Changes in any of these factors could lead to changes in the
Firm's credit ratings.
Although the Firm closely monitors and endeavors to
manage, to the extent it is able, factors influencing its credit
ratings, there is no assurance that its credit ratings will not
be changed in the future.
JPMorgan Chase & Co./2016 Annual Report
115
Management's discussion and analysis
MARKET RISK MANAGEMENT
Market risk is the risk of loss arising from potential adverse
changes in the value of the Firm's assets and liabilities
resulting from changes in market variables such as interest
rates, foreign exchange rates, equity prices, commodity
prices, implied volatilities or credit spreads.
Market Risk Management
F1+
AA-
Stable
Stable
The Firm's wholesale businesses also securitize loans for
client-driven transactions; those client-driven loan
securitizations are not considered to be a source of funding
for the Firm and are not included in the table above. For
further description of the client-driven loan securitizations,
see Note 16.
(a) Other securitizations includes securitizations of student loans.
(b) Includes long-term structured notes which are secured.
$25,882 $24,462 $ 17,112 $ 20,721
383
Other securitizations (a)
FHLB advances
Other long-term
secured funding (b)
Total long-term
secured funding
2,645
1,105
JPMorgan Chase & Co./2016 Annual Report
455
9,209
17,150 16,550
248
233
1
A+
A-1
9,960
Manages the Firm's liquidity,
funding, structural interest rate
and foreign exchange risks arising
from activities undertaken by the
Firm's four major reportable
business segments
•
Marketable equity investments
measured at fair value through
earnings
NM (b)
Derivative positions measured at fair
value through noninterest revenue in
earnings
NM (b)
(35) (a)
NM (b)
NM (b)
(38) (a)
(28) (a)
CIB trading VaR
43
28
79
44
27
Credit portfolio VaR
(36) (a)
Diversification benefit to CIB trading VaR
10
9
16
14
6
5
32
18
11
Diversification benefit to CIB VaR
26
21
9
7
11
10
6
14
12
12
10
16
(a)
NM
(7)
(10)
CIB VaR
45
32
(a)
81
34
71
38
46
Consumer & Community Banking VaR
Corporate VaR
Asset & Wealth Management VaR
49
6
(b)
11
14
10
(a)
(b)
(b)
(10)
NM
10
NM
(a)
(b)
NM
8200
68
34
46
(9)
9
J.P. Morgan Securities LLC
7
JPMorgan Chase & Co./2016 Annual Report
118
The Firm calculates separately a daily aggregated VaR in
accordance with regulatory rules ("Regulatory VaR"), which
is used to derive the Firm's regulatory VaR-based capital
requirements under Basel III. This Regulatory VaR model
framework currently assumes a ten business-day holding
period and an expected tail loss methodology which
approximates a 99% confidence level. Regulatory VaR is
applied to "covered" positions as defined by Basel III, which
may be different than the positions included in the Firm's
Risk Management VaR. For example, credit derivative
hedges of accrual loans are included in the Firm's Risk
Management VaR, while Regulatory VaR excludes these
credit derivative hedges. In addition, in contrast to the
Firm's Risk Management VaR, Regulatory VaR currently
excludes the diversification benefit for certain Var models.
The Firm's VaR model calculations are periodically
evaluated and enhanced in response to changes in the
composition of the Firm's portfolios, changes in market
conditions, improvements in the Firm's modeling techniques
and measurements, and other factors. Such changes may
affect historical comparisons of VaR results. For information
regarding model reviews and approvals, see Model Risk
Management on page 128.
The daily market data used in VaR models may be different
than the independent third-party data collected for VCG
price testing in its monthly valuation process. For example,
in cases where market prices are not observable, or where
proxies are used in VaR historical time series, the data
sources may differ (see Valuation process in Note 3 for
further information on the Firm's valuation process).
Because VaR model calculations require daily data and a
consistent source for valuation, it may not be practical to
use the data collected in the VCG monthly valuation process
for VaR model calculations.
For certain products, specific risk parameters are not
captured in Var due to the lack of inherent liquidity and
availability of appropriate historical data. The Firm uses
proxies to estimate the VaR for these and other products
when daily time series are not available. It is likely that
using an actual price-based time series for these products,
if available, would affect the VaR results presented. The
Firm therefore considers other measures such as stress
testing, in addition to VaR, to capture and manage its
market risk positions.
Since VaR is based on historical data, it is an imperfect
measure of market risk exposure and potential losses, and
it is not used to estimate the impact of stressed market
conditions or to manage any impact from potential stress
events. In addition, based on their reliance on available
historical data, limited time horizons, and other factors, VaR
measures are inherently limited in their ability to measure
certain risks and to predict losses, particularly those
associated with market illiquidity and sudden or severe
shifts in market conditions.
Underlying the overall VaR model framework are individual
VaR models that simulate historical market returns for
individual products and/or risk factors. To capture material
market risks as part of the Firm's risk management
framework, comprehensive VaR model calculations are
performed daily for businesses whose activities give rise to
market risk. These VaR models are granular and incorporate
numerous risk factors and inputs to simulate daily changes
in market values over the historical period; inputs are
selected based on the risk profile of each portfolio, as
sensitivities and historical time series used to generate daily
market values may be different across product types or risk
management systems. The VaR model results across all
portfolios are aggregated at the Firm level.
Under the Firm's Risk Management VaR methodology,
assuming current changes in market values are consistent
with the historical changes used in the simulation, the Firm
would expect to incur VaR “back-testing exceptions,"
defined as losses greater than that predicted by VaR
estimates, on average five times every 100 trading days.
The number of VaR back-testing exceptions observed can
differ from the statistically expected number of back-testing
exceptions if the current level of market volatility is
materially different from the level of market volatility
during the 12 months of historical data used in the VaR
calculation.
The Firm's Risk Management VaR is calculated assuming a
one-day holding period and an expected tail-loss
methodology which approximates a 95% confidence level.
Risk Management VaR provides a consistent framework to
measure risk profiles and levels of diversification across
product types and is used for aggregating risks and
monitoring limits across businesses. Those VaR results are
reported to senior management, the Board of Directors and
regulators.
The framework is employed across the Firm using historical
simulation based on data for the previous 12 months. The
framework's approach assumes that historical changes in
market values are representative of the distribution of
potential outcomes in the immediate future. The Firm
believes the use of Risk Management VaR provides a stable
measure of VaR that is closely aligned to the day-to-day risk
management decisions made by the lines of business, and
provides the appropriate information needed to respond to
risk events on a daily basis.
JPMorgan Chase utilizes VaR, a statistical risk measure, to
estimate the potential loss from adverse market moves in a
normal market environment. The Firm has a single VaR
framework used as a basis for calculating Risk Management
VaR and Regulatory VaR.
Value-at-risk
Management's discussion and analysis
117
For additional information on Regulatory VaR and the other
components of market risk regulatory capital for the Firm
(e.g. VaR-based measure, stressed VaR-based measure and
the respective backtesting), see JPMorgan Chase's Basel III
Pillar 3 Regulatory Capital Disclosures reports, which are
available on the Firm's website at: (http://
investor.shareholder.com/jpmorganchase/basel.cfm).
The table below shows the results of the Firm's Risk Management VaR measure using a 95% confidence level.
Total VaR
27
$
+A
$
+A
12
45
JPMorgan Chase & Co./2016 Annual Report
$
Fixed income
CIB trading VaR by risk type
Max
Min
(in millions)
2016
As of or for the year ended December 31,
Foreign exchange
As part of the Firm's evaluation and periodic enhancement of its market risk measures, during the third quarter of 2016 the
Firm refined the scope of positions included in risk management VaR. In particular, certain private equity positions in the CIB,
exposure arising from non-U.S. dollar denominated funding activities in Corporate, as well as seed capital investments in AWM
were removed from the VaR calculation. Commencing with the third quarter of 2016, exposure arising from these positions is
captured using other sensitivity-based measures, such as a 10% decline in market value or a 1 basis point parallel shift in
spreads, as appropriate. For more information, see Other sensitivity-based measures at page 123. The Firm believes this
refinement to its reported VaR measures more appropriately captures the risk of its market risk sensitive instruments. This
change did not impact Regulatory VaR as these positions are not included in the calculation of Regulatory VaR. Regulatory VaR
is used to derive the Firm's regulatory VaR-based capital requirements under Basel III.
Avg.
Foreign exchange exposure
Min
Max
At December 31,
2016
2015
33
65
+A
42
$ 31
$
60
related to Firm-issued non-USD
long-term debt ("LTD") and
related hedges
$ 37
$
37
Avg.
2015
$
Commodities and other
Private equity investments
measured at fair value
Capital invested alongside third-
party investors, typically in
privately distributed collective
vehicles managed by AWM (i.e.,
co-investments)
and related hedges, classified as
derivatives
39
•
Long-term debt and
related interest rate
hedges
Investment securities
portfolio and related
interest rate hedges
Deposits
•
.
•
Retained loan portfolio
Deposits
•
13
Equities
•
Retained loan portfolio
Deposits
Initial seed capital investments
Model risk is the potential for adverse consequences from
decisions based on incorrect or misused model outputs.
The Firm uses models across various businesses and
functions. The models are of varying levels of sophistication
and are used for many purposes including, for example, the
valuation of positions and the measurement of risk, such as
assessing regulatory capital requirements, conducting
stress testing, and making business decisions.
MODEL RISK MANAGEMENT
JPMorgan Chase & Co./2016 Annual Report
127
Legal works with various committees (including new
business initiative and reputation risk committees) and the
Firm's businesses to protect the Firm's reputation beyond
any particular legal requirements.
The Firm's General Counsel reports to the CEO and is a
member of the Operating Committee, the Firmwide Risk
Committee and the FCC. The General Counsel's leadership
team includes a General Counsel for each line of business,
the heads of the Litigation and Corporate & Regulatory
practices, as well as the Firm's Corporate Secretary. Each
region (e.g., Latin America, Asia Pacific) has a General
Counsel who is responsible for managing legal risk across
all lines of business and functions in the region.
Governance and oversight
Model risks are owned by the users of the models within the
various businesses and functions in the Firm based on the
specific purposes of such models. Users and developers of
models are responsible for developing, implementing and
testing their models, as well as referring models to the
Model Risk function for review and approval. Once models
have been approved, model users and developers are
responsible for maintaining a robust operating
environment, and must monitor and evaluate the
performance of the models on an ongoing basis. Model
users and developers may seek to enhance models in
response to changes in the portfolios and in product and
market developments, as well as to capture improvements
in available modeling techniques and systems capabilities.
The Model Risk function reviews and approves a wide range
of models, including risk management, valuation and
regulatory capital models used by the Firm. The Model Risk
function is independent of model users and developers. The
Firmwide Model Risk Executive reports to the Firm's CRO.
In addition to providing legal services and advice to the
Firm, and communicating and helping the lines of business
adjust to the legal and regulatory changes they face,
including the heightened scrutiny and expectations of the
Firm's regulators, the global Legal function is responsible
for working with the businesses and corporate functions to
fully understand and assess their adherence to laws, rules
and regulations. In particular, Legal assists Oversight &
Control, Risk, Finance, Compliance and Internal Audit in
their efforts to ensure compliance with all applicable laws
and regulations and the Firm's corporate standards for
doing business. The Firm's lawyers also advise the Firm on
potential legal exposures on key litigation and transactional
matters, and perform a significant defense and advocacy
role by defending the Firm against claims and potential
claims and, when needed, pursuing claims against others. In
addition, they advise the Firm's Conflicts Office which
reviews the Firm's wholesale transactions that may have the
potential to create conflicts of interest for the Firm.
Models are tiered based on an internal standard according
to their complexity, the exposure associated with the model
and the Firm's reliance on the model. This tiering is subject
to the approval of the Model Risk function. A model review
conducted by the Model Risk function considers the model's
suitability for the specific uses to which it will be put. The
factors considered in reviewing a model include whether the
model accurately reflects the characteristics of the product
and its significant risks, the selection and reliability of
model inputs, consistency with models for similar products,
the appropriateness of any model-related adjustments, and
sensitivity to input parameters and assumptions that cannot
be observed from the market. When reviewing a model, the
Model Risk function analyzes and challenges the model
methodology and the reasonableness of model assumptions
and may perform or require additional testing, including
back-testing of model outcomes. Model reviews are
approved by the appropriate level of management within
the Model Risk function based on the relevant model tier.
Under the Firm's Model Risk Policy, the Model Risk function
reviews and approves new models, as well as material
changes to existing models, prior to implementation in the
operating environment. In certain circumstances, the head
of the Model Risk function may grant exceptions to the
Firm's model risk policy to allow a model to be used prior to
review or approval. The Model Risk function may also
require the user to take appropriate actions to mitigate the
model risk if it is to be used in the interim. These actions
will depend on the model and may include, for example,
limitation of trading activity.
Operational risk is the risk of loss resulting from inadequate
or failed processes or systems, human factors or due to
external events that are neither market- nor credit-related.
Operational risk is inherent in the Firm's activities and can
manifest itself in various ways, including fraudulent acts,
business interruptions, inappropriate employee behavior,
failure to comply with applicable laws and regulations or
failure of vendors to perform in accordance with their
arrangements. These events could result in financial losses,
litigation and regulatory fines, as well as other damages to
the Firm. The goal is to keep operational risk at appropriate
levels in light of the Firm's financial strength, the
characteristics of its businesses, and the markets and
regulatory environments in which it operates.
128
JPMorgan Chase & Co./2016 Annual Report
OPERATIONAL RISK MANAGEMENT
Operational Risk Management Framework
To monitor and control operational risk, the Firm has an
Operational Risk Management Framework which is designed
to enable the Firm to maintain a sound and well-controlled
operational environment. The ORMF is comprised of four
main components: Governance, Risk Assessment,
Measurement, and Monitoring and Reporting.
Governance
The lines of business and corporate functions are
responsible for owning and managing their operational
risks. The Firmwide Oversight and Control Group, which
consists of control officers within each line of business and
corporate function, is responsible for the day-to-day
execution of the ORMF.
Line of business and corporate function control committees
oversee the operational risk and control environments of
their respective businesses and functions. These
committees escalate operational risk issues to the FCC, as
appropriate. For additional information on the FCC, see
Enterprise Risk Management on pages 71-75.
Overview
The Firmwide Risk Executive for Operational Risk
Governance ("ORG"), a direct report to the CRO, is
responsible for defining the ORMF and establishing
minimum standards for its execution. Operational Risk
Officers report to both the line of business CROS and to the
Firmwide Risk Executive for ORG, and are independent of
the respective businesses or corporate functions they
For a summary of valuations based on models, see Critical
Accounting Estimates Used by the Firm on pages 132-134
and Note 3.
Legal risk is the risk of loss or imposition of damages, fines,
penalties or other liability arising from the failure to comply
with a contractual obligation or to comply with laws, rules
or regulations to which the Firm is subject.
In recent years, the Firm has experienced heightened
scrutiny by its regulators of its compliance with regulations,
and with respect to its controls and operational processes.
In certain instances, the Firm has entered into Consent
Orders with its regulators requiring the Firm to take certain
specified actions to remediate compliance with regulations
and improve its controls. The Firm expects that such
regulatory scrutiny will continue.
JPMorgan Chase & Co./2016 Annual Report
oversee.
124
JPMorgan Chase & Co./2016 Annual Report
COMPLIANCE RISK MANAGEMENT
Compliance risk is the risk of failure to comply with
applicable laws, rules and regulations.
Overview
Each line of business is accountable for managing its
compliance risk. The Firm's Compliance Organization
("Compliance"), which is independent of the lines of
business, works closely with senior management to provide
independent review, monitoring and oversight of business
operations with a focus on compliance with the legal and
regulatory obligations applicable to the offering of the
Firm's products and services to clients and customers.
These compliance risks relate to a wide variety of legal and
regulatory obligations, depending on the line of business
and the jurisdiction, and include those related to products
and services, relationships and interactions with clients and
customers, and employee activities. For example,
compliance risks include those associated with anti-money
laundering compliance, trading activities, market conduct,
and complying with the rules and regulations related to the
offering of products and services across jurisdictional
borders, among others.
Other Functions such as Finance (including Tax), Technology
and Human Resources provide oversight of significant
regulatory obligations that are specific to their respective
areas of responsibility.
Compliance implements various practices designed to
identify and mitigate compliance risk by establishing
policies, testing, monitoring, training and providing
guidance.
Governance and oversight
LEGAL RISK MANAGEMENT
Compliance is led by the Firms' CCO who reports, effective
September 2016, to the Firm's CRO.
The Firm has in place a Code of Conduct (the "Code"), and
each employee is given annual training in respect of the
Code and is required annually to affirm his or her
compliance with the Code. The Code sets forth the Firm's
core principles and fundamental values, including that no
employee should ever sacrifice integrity - or give the
impression that he or she has. The Code requires prompt
reporting of any known or suspected violation of the Code,
any internal Firm policy, or any law or regulation applicable
to the Firm's business. It also requires the reporting of any
illegal conduct, or conduct that violates the underlying
principles of the Code, by any of the Firm's employees,
customers, suppliers, contract workers, business partners,
or agents. Specified employees are specially trained and
designated as "code specialists" who act as a resource to
employees on Code matters. In addition, concerns may be
reported anonymously and the Firm prohibits retaliation
against employees for the good faith reporting of any actual
or suspected violations of the Code. The Code and the
associated employee compliance program are focused on
the regular assessment of certain key aspects of the Firm's
culture and conduct initiatives.
JPMorgan Chase & Co./2016 Annual Report
125
CONDUCT RISK MANAGEMENT
Conduct risk is the risk that an employee's action or inaction
causes undue harm to the Firm's clients and customers,
damages market integrity, undermines the Firm's
reputation, or negatively impacts the Firm's culture.
Overview
Each line of business or function is accountable for
identifying and managing its conduct risk to provide
appropriate engagement, ownership and sustainability of a
culture consistent with the Firm's How We Do Business
Principles ("Principles"). The Principles serve as a guide for
how employees are expected to conduct themselves. With
the Principles serving as a guide, the Firm's Code sets out
the Firm's expectations for each employee and provides
certain information and the resources to help employees
conduct business ethically and in compliance with the law
everywhere the Firm operates. For further discussion of the
Code, see Compliance Risk Management on page 125.
Governance and oversight
The CMDC is the primary Board-level Committee that
oversees the Firm's culture and conduct programs. The
Audit Committee has responsibility to review the program
established by management that monitors compliance with
the Code. Additionally, the DRPC reviews, at least annually,
the Firm's qualitative factors included in the Risk Appetite
Framework, including conduct risk. The DRPC also meets
annually with the CMDC to review and discuss aspects of the
Firm's compensation practices.
Conduct risk management is incorporated into various
aspects of people management practices throughout the
employee life cycle, including recruiting, onboarding,
training and development, performance management,
promotion and compensation processes. Businesses
undertake annual Risk and Control Self-Assessment
("RCSA") assessments; and, as part of these RCSA reviews,
they identify their respective key inherent operational risks
(including conduct risks), evaluate the design and
effectiveness of their controls, identify control gaps and
develop associated action plans. The Firm's Know Your
Employee framework generally addresses how the Firm
manages, oversees and responds to workforce conduct
related matters that may otherwise expose the Firm to
financial, reputational, compliance and other operating
risks. The Firm also has a HR Control Forum, the primary
purpose of which is to discuss conduct and accountability
for more significant risk and control issues and review,
when appropriate, employee actions including but not
limited to promotion and compensation actions.
126
The Firm maintains oversight and coordination of its
Compliance Risk Management practices through the Firm's
CCO, lines of business CCOS and regional CCOS to implement
the Compliance program globally across the lines of
business and regions. The Firm's CCO is a member of the
FCC and the FRC. The Firm's CCO also provides regular
updates to the Audit Committee and DRPC. In addition, from
time to time, special committees of the Board have been
established to oversee the Firm's compliance with
regulatory Consent Orders.
The Firm's Operational Risk Appetite Policy is approved by
the DRPC. This policy establishes the Operational Risk
Management Framework for the Firm. The assessments of
operational risk using this framework are reviewed with the
DRPC.
Management's discussion and analysis
The Firm utilizes several tools to identify, assess, mitigate
and manage its operational risk. One such tool is the RCSA
program which is executed by LOBS and corporate functions
in accordance with the minimum standards established by
ORG. As part of the RCSA program, lines of business and
corporate functions identify key operational risks inherent
in their activities, evaluate the effectiveness of relevant
JPMorgan Chase & Co./2016 Annual Report
One of the ways operational loss may be mitigated is
through insurance maintained by the Firm. The Firm
purchases insurance to be in compliance with local laws and
regulations (e.g., workers compensation), as well as to
serve other needs (e.g., property loss and public liability).
Insurance may also be required by third parties with whom
the Firm does business. The insurance purchased is
reviewed and approved by senior management.
Insurance
The strength and proficiency of the Firm's global resiliency
program has played an integral role in maintaining the
Firm's business operations during and quickly after various
events.
Business disruptions can occur due to forces beyond the
Firm's control such as severe weather, power or
telecommunications loss, flooding, transit strikes, terrorist
threats or infectious disease. The safety of the Firm's
employees and customers is of the highest priority. The
Firm's global resiliency program is intended to ensure that
the Firm has the ability to recover its critical business
functions and supporting assets (i.e., staff, technology and
facilities) in the event of a business interruption. The
program includes corporate governance, awareness and
training, as well as strategic and tactical initiatives to
identify, assess, and manage business interruption and
public safety risks.
Business and technology resilience risk
onboarding, monitoring and managing their supplier
relationships. The objective of the TPO framework is to hold
third parties to the same high level of operational
performance as is expected of the Firm's internal
operations. The Third-Party Oversight group is responsible
for Firmwide TPO training, monitoring, reporting and
standards.
To identify and manage the operational risk inherent in its
outsourcing activities, the Firm has a Third-Party Oversight
("TPO") framework to assist lines of business and corporate
functions in selecting, documenting,
Third-party outsourcing risk
attempts hitting record highs. The complexities of these
attacks along with perpetrators' strategies continue to
evolve. A Payments Control Program has been established
that includes Cybersecurity, Operations, Technology, Risk
and the lines of business to manage the risk, implement
controls and provide client education and awareness
training. The program monitors and measures payment
fraud activity, evaluates the Firm's cybersecurity defenses,
limits access to sensitive data, and provides training to both
employees and clients.
130
The Firm's principal investments are managed under
various lines of business and are reflected within the
respective LOBS financial results. The Firm's approach to
managing principal risk is consistent with the Firm's general
risk governance structure. A Firmwide risk policy framework
exists for all principal investing activities. All investments
are approved by investment committees that include
executives who are independent from the investing
businesses. The Firm's independent control functions are
responsible for reviewing the appropriateness of the
carrying value of principal investments in accordance with
relevant policies. Approved levels for such investments are
established for each relevant business in order to manage
the overall size of the portfolios. Industry, geographic and
position level concentration limits are in place and are
intended to ensure diversification of the portfolios. The
Firm also conducts stress testing on these portfolios using
specific scenarios that estimate losses based on significant
market moves and/or other risk events.
initiatives.
Principal investments are predominantly privately-held
financial assets and instruments, typically representing
ownership or junior capital positions, that have unique risks
due to their illiquidity or for which there is less observable
market or valuation data. Such positions are typically
intended to be held over extended investment periods and,
accordingly, the Firm has no expectation for short-term gain
with respect to these investments. Principal investments
cover multiple asset classes and are made either in stand-
alone investing businesses or as part of a broader business
platform. Asset classes include tax-oriented investments
(e.g., affordable housing and alternative energy
investments), private equity and various debt investments.
Increasingly, new principal investment activity seeks to
enhance or accelerate line of business strategic business
PRINCIPAL RISK MANAGEMENT
Management's discussion and analysis
123
JPMorgan Chase & Co./2016 Annual Report
17
1 basis point parallel increase in
spread
(4)
REPUTATION RISK MANAGEMENT
$
Reputation risk is the risk that an action, transaction,
investment or event will reduce trust in the Firm's integrity
or competence by its various constituents, including clients,
counterparties, investors, regulators, employees and the
broader public. Maintaining the Firm's reputation is the
responsibility of each individual employee of the Firm. The
Firm's Reputation Risk Governance policy explicitly vests
each employee with the responsibility to consider the
reputation of the Firm when engaging in any activity. Since
the types of events that could harm the Firm's reputation
are so varied across the Firm's lines of business, each line of
business has a separate reputation risk governance
elements: clear, documented escalation criteria appropriate
to the business; a designated primary discussion forum - in
most cases, one or more dedicated reputation risk
committees; and a list of designated contacts, to whom
questions relating to reputation risk should be referred.
Line of business reputation risk governance is overseen by a
Firmwide Reputation Risk Governance function which
provides oversight of the governance infrastructure and
process to support the consistent identification, escalation,
management and monitoring of reputation risk issues
firmwide.
JPMorgan Chase & Co./2016 Annual Report
It is difficult to estimate how potential changes in specific
factors might affect the overall allowance for credit losses
because management considers a variety of factors and
inputs in estimating the allowance for credit losses.
Changes in these factors and inputs may not occur at the
same rate and may not be consistent across all geographies
or product types, and changes in factors may be
directionally inconsistent, such that improvement in one
factor may offset deterioration in other factors. In addition,
it is difficult to predict how changes in specific economic
conditions or assumptions could affect borrower behavior
or other factors considered by management in estimating
the allowance for credit losses. Given the process the Firm
The purpose of these sensitivity analyses is to provide an
indication of the isolated impacts of hypothetical
alternative assumptions on modeled loss estimates. The
changes in the inputs presented above are not intended to
imply management's expectation of future deterioration of
those risk factors. In addition, these analyses are not
intended to estimate changes in the overall allowance for
loan losses, which would also be influenced by the judgment
management applies to the modeled loss estimates to
reflect the uncertainty and imprecision of these modeled
loss estimates based on then-current circumstances and
conditions.
A 100 basis point increase in estimated LGD for the
Firm's entire wholesale loan portfolio could imply an
increase in the Firm's modeled credit loss estimates of
approximately $175 million.
An increase in PD factors consistent with a one-notch
downgrade in the Firm's internal risk ratings for its
entire wholesale loan portfolio could imply an increase
in the Firm's modeled loss estimates of approximately
$2.3 billion.
For PCI loans, a combined 5% decline in housing prices
and a 100 basis point increase in unemployment rates
from current levels could imply an increase to modeled
credit loss estimates of approximately $600 million.
For the residential real estate portfolio, excluding PCI
loans, a combined 5% decline in housing prices and a
100 basis point increase in unemployment rates from
current levels could imply an increase to modeled
annual loss estimates of approximately $125 million.
For credit card loans, a 100 basis point increase in
unemployment rates from current levels could imply an
increase to modeled annual loss estimates of
approximately $900 million.
•
•
•
To illustrate the potential magnitude of certain alternate
judgments, the Firm estimates that changes in the following
inputs would have the following effects on the Firm's
modeled credit loss estimates as of December 31, 2016,
without consideration of any offsetting or correlated effects
of other inputs in the Firm's allowance for loan losses:
132
The Firm's allowance for credit losses is sensitive to
numerous factors, which may differ depending on the
portfolio. Changes in economic conditions or in the Firm's
assumptions and estimates could affect its estimate of
probable credit losses inherent in the portfolio at the
balance sheet date. The Firm uses its best judgment to
assess these economic conditions and loss data in
estimating the allowance for credit losses and these
estimates are subject to periodic refinement based on
changes to underlying external or Firm-specific historical
data. The use of alternate estimates, data sources,
adjustments to modeled loss estimates for model
imprecision and other factors would result in a different
estimated allowance for credit losses.
Allowance for credit losses sensitivity
The allowance for credit losses includes a formula-based
component, an asset-specific component, and a component
related to PCI loans. The determination of each of these
components involves significant judgment on a number of
matters. For further discussion of these components, areas
of judgment and methodologies used in establishing the
Firm's allowance for credit losses, see Note 15.
JPMorgan Chase's allowance for credit losses covers the
retained consumer and wholesale loan portfolios, as well as
the Firm's wholesale and certain consumer lending-related
commitments. The allowance for loan losses is intended to
adjust the carrying value of the Firm's loan assets to reflect
probable credit losses inherent in the loan portfolio as of
the balance sheet date. Similarly, the allowance for lending-
related commitments is established to cover probable credit
losses inherent in the lending-related commitments
portfolio as of the balance sheet date.
Allowance for credit losses
JPMorgan Chase's accounting policies and use of estimates
are integral to understanding its reported results. The
Firm's most complex accounting estimates require
management's judgment to ascertain the appropriate
carrying value of assets and liabilities. The Firm has
established policies and control procedures intended to
ensure that estimation methods, including any judgments
made as part of such methods, are well-controlled,
independently reviewed and applied consistently from
period to period. The methods used and judgments made
reflect, among other factors, the nature of the assets or
liabilities and the related business and risk management
strategies, which may vary across the Firm's businesses and
portfolios. In addition, the policies and procedures are
intended to ensure that the process for changing
methodologies occurs in an appropriate manner. The Firm
believes its estimates for determining the carrying value of
its assets and liabilities are appropriate. The following is a
brief description of the Firm's critical accounting estimates
involving significant judgments.
CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM
Management's discussion and analysis
131
JPMorgan Chase & Co./2016 Annual Report
infrastructure in place, which consists of three key
Risk assessment
1 basis point parallel increase in
spread
$
(in millions)
The table below represents the potential impact to net revenue or OCI for market risk sensitive instruments that are not
included in VaR or earnings-at-risk. Where appropriate, instruments used for hedging purposes are reported along with the
positions being hedged. The sensitivities disclosed in the table below may not be representative of the actual gain or loss that
would have been realized at December 31, 2016, as the movement in market parameters across maturities may vary and are
not intended to imply management's expectation of future deterioration in these sensitivities.
The Firm quantifies the market risk of certain investment and funding activities by assessing the potential impact on net
revenue and OCI due to changes in relevant market variables. For additional information on the positions captured in other
sensitivity-based measures, please refer to the Risk identification and classification table on page 117.
Other sensitivity-based measures
Payment fraud risk is the risk of external and internal
parties unlawfully obtaining personal benefit at the expense
of the Firm. Over the past year, the risk of payment fraud
has increased across the industry, with the number of
To protect the confidentiality, integrity and availability of
the Firm's infrastructure, resources and information, the
Firm leverages the ORMF to ensure risks are identified and
managed within defined corporate tolerances. The Firm's
Board of Directors and the Audit Committee are regularly
briefed on the Firm's cybersecurity policies and practices as
well as its efforts regarding significant cybersecurity events.
Payment fraud risk
The Firm devotes significant resources to protect the
security of the Firm's computer systems, software, networks
and other technology assets. The Firm's security efforts are
intended to protect against cybersecurity attacks by
unauthorized parties to obtain access to confidential
information, destroy data, disrupt or degrade service,
sabotage systems or cause other damage. The Firm
continues to make significant investments in enhancing its
cyber defense capabilities and to strengthen its
partnerships with the appropriate government and law
enforcement agencies and other businesses in order to
understand the full spectrum of cybersecurity risks in the
environment, enhance defenses and improve resiliency
against cybersecurity threats. Third parties with which the
Firm does business or that facilitate the Firm's business
activities (e.g., vendors, exchanges, clearing houses, central
depositories, and financial intermediaries) could also be
sources of cybersecurity risk to the Firm. Third party
cybersecurity incidents such as system breakdowns or
failures, misconduct by the employees of such parties, or
cyberattacks could affect their ability to deliver a product or
service to the Firm or result in lost or compromised
information of the Firm or its clients. Clients can also be
sources of cybersecurity risk to the Firm, particularly when
their activities and systems are beyond the Firm's own
security and control systems. However, where cybersecurity
incidents are due to client failure to maintain the security of
their own systems and processes, clients will generally be
responsible for losses incurred.
Cybersecurity risk
As mentioned previously, operational risk can manifest itself
in various ways. Risks such as Compliance risk, Conduct risk,
Legal risk and Model risk as well as other operational risks,
can lead to losses which are captured through the Firm's
operational risk measurement processes. More information
on Compliance risk, Conduct risk, Legal risk and Model risk
are discussed on pages 125, 126, 127 and 128,
respectively. Details on other select operational risks are
provided below.
Other operational risks
ORG has established standards for consistent operational
risk reporting. The standards also reinforce escalation
protocols to senior management and to the Board of
Directors. Operational risk reports are produced on a
firmwide basis as well as by line of business and corporate
function.
Monitoring and reporting
129
JPMorgan Chase & Co./2016 Annual Report
For information related to operational risk RWA, CCAR or
ICAAP, see Capital Risk Management section, pages 76-85.
The Firm considers the impact of stressed economic
conditions on operational risk losses and develops a
forward looking view of material operational risk events
that may occur in a stressed environment. The Firm's
operational risk stress testing framework is utilized in
calculating results for the Firm's CCAR and ICAAP processes.
The primary component of the operational risk capital
estimate is the Loss Distribution Approach ("LDA")
statistical model, which simulates the frequency and
severity of future operational risk loss projections based on
historical data. The LDA model is used to estimate an
aggregate operational risk loss over a one-year time
horizon, at a 99.9% confidence level. The LDA model
incorporates actual internal operational risk losses in the
quarter following the period in which those losses were
realized, and the calculation generally continues to reflect
such losses even after the issues or business activities
giving rise to the losses have been remediated or reduced.
As required under the Basel III capital framework, the Firm's
operational risk-based capital methodology, which uses the
Advanced Measurement Approach, incorporates internal
and external losses as well as management's view of tail risk
captured through operational risk scenario analysis, and
evaluation of key business environment and internal control
metrics.
In addition to the level of actual operational risk losses,
operational risk measurement includes operational risk-
based capital and operational risk losses under both
baseline and stressed conditions.
Measurement
In addition to the RCSA program, the Firm tracks and
monitors events that have or could lead to actual
operational risk losses, including litigation-related events.
Responsible businesses and corporate functions analyze
their losses to evaluate the efficacy of their control
environment to assess where controls have failed, and to
determine where targeted remediation efforts may be
required. ORG provides oversight of these activities and may
also perform independent assessments of significant
operational risk events and areas of concentrated or
emerging risk.
controls in place to mitigate identified risks, and define
actions to reduce residual risk. Action plans are developed
for identified control issues and businesses are held
accountable for tracking and resolving issues in a timely
manner. Operational Risk Officers independently challenge
the execution of the RCSA program and evaluate the
appropriateness of the residual risk results.
December 31, 2016
Activity
(23)
Investment Activities
Other investments
10% depreciation of currency
$
1 basis point parallel tightening of
cross currency basis
(358)
10% decline in market value
(166)
$
10% decline in market value
Gain/(Loss)
Investment management activities
Impact of changes in the spread related to
fair value option elected liabilities DVA
Sensitivity measure
Primarily represents the foreign exchange
revaluation on the fair value of the
derivative hedges
Represents the basis risk on derivatives
used to hedge the foreign exchange risk on
the non-USD LTD
(a) Impact recognized through OCI.
Funding Spread Risk - Fair value option
elected liabilities(a)
Funding Spread Risk - Derivatives
Non-USD LTD hedges FX exposure
Non-USD LTD Cross-currency basis
Consists of seed capital and related
hedges; and fund co-investments
Consists of private equity and other
investments held at fair value
Description
Funding Activities
Impact of changes in the spread related to
derivatives DVA/FVA
(7)
Investment banking fees
Principal transactions
30,160
JPMorgan Chase & Co./2016 Annual Report
29,979
Compensation expense
Noninterest expense
3,139
3,827
5,361
95,112
93,543
95,668
43,634
43,510
46,083
7,897
7,463
9,818
51,531
50,973
29,750
Occupancy expense
3,638
3,768
11,146
9,593
5,756
Total noninterest expense
Other expense
2,550
2,708
2,897
55,901
Marketing
7,002
6,655
Professional and outside services
5,804
6,193
6,846
Technology, communications and equipment expense
3,909
7,705
51,478
50,033
49,585
$
6,751
$
6,448
$
2014
2015
2016
6,542
Provision for credit losses
Net interest income
Interest expense
Interest income
Noninterest revenue
Other income
Card income
Mortgage fees and related income
Revenue
Total net revenue
55,771
11,566
10,531
3,013
3,032
3,795
6,020
5,924
4,779
3,563
2,513
10,408
2,491
202
141
15,931
15,509
14,591
5,801
5,694
5,774
77
59,014
61,274
Income before income tax expense
1,975
(2,144)
(1,105)
21,745
24,442 $
24,733 $
$
2014
(2)
2015
Defined benefit pension and OPEB plans
Cash flow hedges
Translation adjustments, net of hedges
Other comprehensive income/(loss), after-tax
Unrealized gains/(losses) on investment securities
Net income
Year ended December 31, (in millions)
Consolidated statements of comprehensive income
141
2016
JPMorgan Chase & Co./2016 Annual Report
(15)
(56)
142
The Notes to Consolidated Financial Statements are an integral part of these statements.
Total other comprehensive income/(loss), after-tax
Comprehensive income
DVA on fair value option elected liabilities
22,735
22,445 $
$
23,212
(11)
$
(1,997)
(1,521)
(330)
(1,018)
111
(28)
44
51
990
Lending- and deposit-related fees
The Notes to Consolidated Financial Statements are an integral part of these statements.
1.72 $
Net income per common share data
20,077
21,745
$
24,442
22,406 $
22,583 $
$
Net income applicable to common stockholders
Basic earnings per share
24,733 $
Net income
8,954
6,260
9,803
Income tax expense
30,699
30,702
34,536
$
1.58
Diluted earnings per share
Weighted-average diluted shares
$
1.88
$
3,797.5
3,732.8
3,649.8
3,763.5
3,700.4
Weighted-average basic shares
3,618.5
6.00
6.19
5.33
6.05 $
$
6.24
$
Cash dividends declared per common share
5.29
Year ended December 31, (in millions, except per share data)
134
JPMorgan Chase & Co./2016 Annual Report
• For further information, see Note 1.
•
•
.
Adopted January 1, 2016.
There was no material impact on the Firm's
Consolidated Financial Statements.
Adopted January 1, 2016.
• There was no material impact on the Firm's
Consolidated Financial Statements as the Firm has
historically measured the financial assets and
liabilities using the more observable fair value.
•
Adopted January 1, 2016.
There was no material impact on the Firm's
Consolidated Financial Statements.
• For additional information about the impact of the
adoption of the new accounting guidance, see
Notes 3, 4 and 25.
JPMorgan Chase & Co./2016 Annual Report
135
Management's discussion and analysis
FASB Standards issued but not yet adopted
Standard
There was no material impact on the Firm's
Consolidated Financial Statements.
Revenue recognition -
revenue from
Adopted January 1, 2016.
•
Improvements to
employee share-based
payment accounting
Measuring the
financial assets and
financial liabilities of a
consolidated
collateralized
financing entity
Recognition and
measurement of
financial assets and
financial liabilities
DVA to OCI
Summary of guidance
•
Eliminates the deferral issued by the FASB in February 2010 of
VIE-related accounting requirements for certain investment funds,
including mutual funds, private equity funds and hedge funds.
• Amends the evaluation of fees paid to a decision-maker or a service
provider, and exempts certain money market funds from
consolidation.
Requires that all excess tax benefits and tax deficiencies that
pertain to employee stock-based incentive payments be recognized
within income tax expense in the Consolidated statements of
income, rather than within additional paid-in capital.
Provides an alternative for consolidated financing VIES to elect: (1)
to measure their financial assets and liabilities separately under
existing U.S. GAAP for fair value measurement with any differences
in such fair values reflected in earnings; or (2) to measure both
their financial assets and liabilities using the more observable of
the fair value of the financial assets or the fair value of the financial
liabilities.
⚫ For financial liabilities where the fair value option has been elected,
the portion of the total change in fair value caused by changes in
the Firm's own credit risk (i.e., DVA) is required to be presented
separately in OCI.
•
Requires a cumulative-effect adjustment to retained earnings as of
the beginning of the period of adoption.
Effects on financial statements
•
Amendments to the
consolidation analysis
contracts with
Issued May 2014
Requires that certain equity instruments be measured at fair value,
with changes in fair value recognized in earnings.
Generally requires a cumulative-effect adjustment to retained
earnings as of the beginning of the reporting period of adoption.
•
Required effective date: January 1, 2018.
• The Firm is currently evaluating the potential impact
on the Consolidated Financial Statements. The Firm's
implementation efforts include the identification of
securities within the scope of the guidance, the
evaluation of the measurement alternative available
for equity securities without a readily determinable
fair value, and the related impact to accounting
policies, presentation, and disclosures.
•
.
Requires lessees to recognize all leases longer than twelve months
on the Consolidated balance sheets as lease liabilities with
corresponding right-of-use assets.
Requires lessees and lessors to classify most leases using principles
similar to existing lease accounting, but eliminates the "bright line"
classification tests.
Expands qualitative and quantitative disclosures regarding leasing
arrangements.
• Requires adoption using a modified cumulative effect approach
wherein the guidance is applied to all periods presented.
•
Required effective date: January 1, 2019. (a)
.
The Firm is currently evaluating the potential impact
on the Consolidated Financial Statements by
reviewing its existing lease contracts and service
contracts that may include embedded leases. The
Firm expects to recognize lease liabilities and
corresponding right-of-use assets (at their present
value) related to predominantly all of the $10 billion
of future minimum payments required under
operating leases as disclosed in Note 30. However,
the population of contracts subject to balance sheet
recognition and their initial measurement remains
under evaluation. The Firm does not expect material
changes to the recognition of operating lease
expense in its Consolidated statements of income.
136
•
customers
•
Leases
Summary of guidance
•
•
•
Requires that revenue from contracts with customers be recognized
upon transfer of control of a good or service in the amount of
consideration expected to be received.
Changes the accounting for certain contract costs, including
whether they may be offset against revenue in the Consolidated
statements of income, and requires additional disclosures about
revenue and contract costs.
May be adopted using a full retrospective approach or a modified,
cumulative effect approach wherein the guidance is applied only to
existing contracts as of the date of initial application, and to new
contracts transacted after that date.
Effects on financial statements
•
•
Required effective date: January 1, 2018. (a)
Because the guidance does not apply to revenue
associated with financial instruments, including
loans and securities that are accounted for under
other U.S. GAAP, the Firm does not expect the new
revenue recognition guidance to have a material
impact on the elements of its Consolidated
statements of income most closely associated with
financial instruments, including securities gains,
interest income and interest expense.
• The Firm plans to adopt the revenue recognition
guidance in the first quarter of 2018. The Firm's
implementation efforts include the identification of
revenue within the scope of the guidance, as well as
the evaluation of revenue contracts and related
accounting policies. While the Firm has not yet
identified any material changes in the timing of
revenue recognition, the Firm's review is ongoing,
and it continues to evaluate the presentation of
certain contract costs (whether presented gross or
offset against noninterest revenue).
Recognition and
measurement of
financial assets and
financial liabilities
Issued January 2016
Issued February 2016
JPMorgan Chase & Co./2016 Annual Report
Standard
ACCOUNTING AND REPORTING DEVELOPMENTS
AFS securities
238.9
0.7
Loans
2.2
0.6
MSRS
6.1
6.1
Private equity investments (b)
1.7
1.6
Other
26.4
0.5
Total assets measured at fair value on
a recurring basis
647.4
13.7
23.2
372.1
64.1
follows and the judgments made in evaluating the risk
factors related to its loss estimates, management believes
that its current estimate of the allowance for credit losses is
appropriate.
Fair value of financial instruments, MSRs and commodities
inventory
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. The majority of such assets and liabilities are
measured at fair value on a recurring basis. Certain assets
and liabilities are measured at fair value on a nonrecurring
basis, including certain mortgage, home equity and other
loans, where the carrying value is based on the fair value of
the underlying collateral.
Assets measured at fair value
The following table includes the Firm's assets measured at
fair value and the portion of such assets that are classified
within level 3 of the valuation hierarchy. For further
Trading assets
information, see Note 3.
December 31, 2016
(in billions, except ratio data)
Total assets at
fair value
Total level
3 assets
Trading debt and equity instruments
$
308.0
$
7.9
Derivative receivables(a)
5.8
Financial Accounting Standards Board ("FASB") Standards adopted during 2016
Total assets measured at fair value on a
nonrecurring basis
Total assets measured at fair value
Based upon the updated valuations for all of its reporting
units, the Firm concluded that the goodwill allocated to its
reporting units was not impaired at December 31, 2016.
The fair values of these reporting units exceeded their
carrying values by approximately 10%-130% for all
JPMorgan Chase & Co./2016 Annual Report
133
Management's discussion and analysis
reporting units and did not indicate a significant risk of
goodwill impairment based on current projections and
valuations.
The projections for all of the Firm's reporting units are
consistent with management's current short-term business
outlook assumptions, and in the longer term, incorporate a
set of macroeconomic assumptions and the Firm's best
estimates of long-term growth and returns on equity of its
businesses. Where possible, the Firm uses third-party and
peer data to benchmark its assumptions and estimates.
Declines in business performance, increases in credit losses,
increases in equity capital requirements, as well as
deterioration in economic or market conditions, adverse
estimates of regulatory or legislative changes or increases
in the estimated market cost of equity, could cause the
estimated fair values of the Firm's reporting units or their
associated goodwill to decline in the future, which could
result in a material impairment charge to earnings in a
future period related to some portion of the associated
goodwill.
For additional information on goodwill, see Note 17.
Income taxes
JPMorgan Chase is subject to the income tax laws of the
various jurisdictions in which it operates, including U.S.
federal, state and local, and non-U.S. jurisdictions. These
laws are often complex and may be subject to different
interpretations. To determine the financial statement
impact of accounting for income taxes, including the
provision for income tax expense and unrecognized tax
benefits, JPMorgan Chase must make assumptions and
judgments about how to interpret and apply these complex
tax laws to numerous transactions and business events, as
well as make judgments regarding the timing of when
certain items may affect taxable income in the U.S. and
non-U.S. tax jurisdictions.
JPMorgan Chase's interpretations of tax laws around the
world are subject to review and examination by the various
taxing authorities in the jurisdictions where the Firm
operates, and disputes may occur regarding its view on a
tax position. These disputes over interpretations with the
various taxing authorities may be settled by audit,
administrative appeals or adjudication in the court systems
of the tax jurisdictions in which the Firm operates.
JPMorgan Chase regularly reviews whether it may be
assessed additional income taxes as a result of the
resolution of these matters, and the Firm records additional
reserves as appropriate. In addition, the Firm may revise its
estimate of income taxes due to changes in income tax
laws, legal interpretations, and business strategies. It is
possible that revisions in the Firm's estimate of income
taxes may materially affect the Firm's results of operations
in any reporting period.
The Firm's provision for income taxes is composed of
current and deferred taxes. Deferred taxes arise from
differences between assets and liabilities measured for
financial reporting versus income tax return purposes.
Deferred tax assets are recognized if, in management's
judgment, their realizability is determined to be more likely
than not. The Firm has also recognized deferred tax assets
in connection with certain NOLs and tax credits. The Firm
Securities gains
performs regular reviews to ascertain whether its deferred
tax assets are realizable. These reviews include
management's estimates and assumptions regarding future
taxable income, which also incorporates various tax
planning strategies, including strategies that may be
available to utilize NOLS before they expire. In connection
with these reviews, if it is determined that a deferred tax
asset is not realizable, a valuation allowance is established.
The valuation allowance may be reversed in a subsequent
reporting period if the Firm determines that, based on
revised estimates of future taxable income or changes in
tax planning strategies, it is more likely than not that all or
part of the deferred tax asset will become realizable. As of
December 31, 2016, management has determined it is
more likely than not that the Firm will realize its deferred
tax assets, net of the existing valuation allowance.
JPMorgan Chase does not record U.S. federal income taxes
on the undistributed earnings of certain non-U.S.
subsidiaries, to the extent management has determined
such earnings have been reinvested abroad for an indefinite
period of time. Changes to the income tax rates applicable
to these non-U.S. subsidiaries may have a material impact
on the effective tax rate in a future period if such changes
were to occur.
The Firm adjusts its unrecognized tax benefits as necessary
when additional information becomes available. Uncertain
tax positions that meet the more-likely-than-not recognition
threshold are measured to determine the amount of benefit
to recognize. An uncertain tax position is measured at the
largest amount of benefit that management believes is
more likely than not to be realized upon settlement. It is
possible that the reassessment of JPMorgan Chase's
unrecognized tax benefits may have a material impact on its
effective income tax rate in the period in which the
reassessment occurs.
For additional information on income taxes, see Note 26.
Litigation reserves
For a description of the significant estimates and judgments
associated with establishing litigation reserves, see
Note 31.
JPMorgan Chase & Co./2016 Annual Report
Management applies significant judgment when estimating
the fair value of its reporting units. Estimates of fair value
are dependent upon estimates of (a) the future earnings
potential of the Firm's reporting units, including the
estimated effects of regulatory and legislative changes, (b)
long-term growth rates and (c) the estimated market cost
of equity. Imprecision in estimating these factors can affect
the estimated fair value of the reporting units.
1.6
Under U.S. GAAP, goodwill must be allocated to reporting
units and tested for impairment at least annually. The Firm's
process and methodology used to conduct goodwill
impairment testing is described in Note 17.
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of methodologies
or assumptions different than those used by the Firm could
result in a different estimate of fair value at the reporting
date. For a detailed discussion of the Firm's valuation
process and hierarchy, and its determination of fair value
for individual financial instruments, see Note 3.
$
Total Firm assets
$
649.0
2,491.0
$
0.8
24.0
Level 3 assets as a percentage of total
Firm assets(a)
Level 3 assets as a percentage of total
Firm assets at fair value(a)
1.0%
3.7%
(a) For purposes of table above, the derivative receivables total reflects the
impact of netting adjustments; however, the $5.8 billion of derivative
receivables classified as level 3 does not reflect the netting adjustment as
such netting is not relevant to a presentation based on the transparency
of inputs to the valuation of an asset. The level 3 balances would be
reduced if netting were applied, including the netting benefit associated
with cash collateral.
(b) Private equity instruments represent investments within Corporate.
Valuation
Details of the Firm's processes for determining fair value
are set out in Note 3. Estimating fair value requires the
application of judgment. The type and level of judgment
required is largely dependent on the amount of observable
market information available to the Firm. For instruments
valued using internally developed models that use
significant unobservable inputs and are therefore classified
within level 3 of the valuation hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate model to use. Second, the lack of observability
of certain significant inputs requires management to assess
all relevant empirical data in deriving valuation inputs
including, for example, transaction details, yield curves,
interest rates, prepayment rates, default rates, volatilities,
correlations, equity or debt prices, valuations of
comparable instruments, foreign exchange rates and credit
curves. For further discussion of the valuation of level 3
instruments, including unobservable inputs used, see
Note 3.
For instruments classified in levels 2 and 3, management
judgment must be applied to assess the appropriate level of
valuation adjustments to reflect counterparty credit quality,
the Firm's creditworthiness, market funding rates, liquidity
considerations, unobservable parameters, and for
portfolios that meet specified criteria, the size of the net
open risk position. The judgments made are typically
affected by the type of product and its specific contractual
terms, and the level of liquidity for the product or within the
market as a whole. For further discussion of valuation
adjustments applied by the Firm see Note 3.
Imprecision in estimating unobservable market inputs or
other factors can affect the amount of gain or loss recorded
for a particular position. Furthermore, while the Firm
believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
Goodwill impairment
FASB Standards issued but not yet adopted (continued)
Standard
Summary of guidance
The success of the Firm's business simplification
initiatives and the effectiveness of its control agenda;
•
•
•
•
•
•
•
•
•
•
•
Ability of the Firm to develop new products and services,
and the extent to which products or services previously
sold by the Firm (including but not limited to mortgages
and asset-backed securities) require the Firm to incur
liabilities or absorb losses not contemplated at their
initiation or origination;
Acceptance of the Firm's new and existing products and
services by the marketplace and the ability of the Firm
to innovate and to increase market share;
counterparties or competitors;
Ability of the Firm to attract and retain qualified
employees;
Technology changes instituted by the Firm, its
Ability of the Firm to deal effectively with an economic
Changes in trade, monetary and fiscal policies and laws;
•
Changes in income tax laws and regulations;
•
Securities and capital markets behavior, including
changes in market liquidity and volatility;
•
•
•
Changes in investor sentiment or consumer spending or
savings behavior;
Ability of the Firm to manage effectively its capital and
liquidity, including approval of its capital plans by
banking regulators;
Changes in credit ratings assigned to the Firm or its
subsidiaries;
•
Damage to the Firm's reputation;
•
•
•
slowdown or other economic or market disruption;
Heightened regulatory and governmental oversight and
scrutiny of JPMorgan Chase's business practices,
including dealings with retail customers;
Ability of the Firm to control expense;
Changes in the credit quality of the Firm's customers
and counterparties;
Mamull
Marianne Lake
Executive Vice President and Chief Financial Officer
February 28, 2017
JPMorgan Chase & Co./2016 Annual Report
139
Report of independent registered public accounting firm
pwc
To the Board of Directors and Stockholders of JPMorgan
Chase & Co.:
In our opinion, the accompanying consolidated balance
sheets and the related consolidated statements of income,
comprehensive income, changes in stockholders' equity and
cash flows present fairly, in all material respects, the
financial position of JPMorgan Chase & Co. and its
subsidiaries (the "Firm") at December 31, 2016 and 2015
and the results of their operations and their cash flows for
each of the three years in the period ended December 31,
2016 in conformity with accounting principles generally
accepted in the United States of America. Also in our
opinion, the Firm maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2016 based on criteria established in
Internal Control - Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). The Firm's management is responsible
for these financial statements, for maintaining effective
internal control over financial reporting and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
"Management's report on internal control over financial
reporting". Our responsibility is to express opinions on
these financial statements and on the Firm's internal control
over financial reporting based on our integrated audits. We
conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether
the financial statements are free of material misstatement
and whether effective internal control over financial
reporting was maintained in all material respects. Our
audits of the financial statements included examining, on a
test basis, evidence supporting the amounts and disclosures
in the financial statements, assessing the accounting
principles used and significant estimates made by
management, and evaluating the overall financial statement
presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the
design and operating effectiveness of internal control based
on the assessed risk. Our audits also included performing
such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a
reasonable basis for our opinions.
A company's internal control over financial reporting is a
process designed to provide reasonable assurance
regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A
company's internal control over financial reporting includes
those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are
being made only in accordance with authorizations of
management and directors of the company; and (iii) provide
reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of
the company's assets that could have a material effect on
the financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
PricewaterhouseCoopers LLP
February 28, 2017
PricewaterhouseCoopers LLP • 300 Madison Avenue • New York, NY 10017
140
Chairman and Chief Executive Officer
Competitive pressures;
спие
Jone Dinin
Adequacy of the Firm's risk management framework,
disclosure controls and procedures and internal control
over financial reporting;
Adverse judicial or regulatory proceedings;
Changes in applicable accounting policies, including the
introduction of new accounting standards;
Ability of the Firm to determine accurate values of
certain assets and liabilities;
Occurrence of natural or man-made disasters or
calamities or conflicts and the Firm's ability to deal
effectively with disruptions caused by the foregoing;
Ability of the Firm to maintain the security of its
financial, accounting, technology, data processing and
other operational systems and facilities;
Ability of the Firm to effectively defend itself against
cyberattacks and other attempts by unauthorized
parties to access information of the Firm or its
customers or to disrupt the Firm's systems; and
The other risks and uncertainties detailed in Part I, Item
1A: Risk Factors in the Firm's Annual Report on Form
10-K for the year ended December 31, 2016.
Any forward-looking statements made by or on behalf of
the Firm speak only as of the date they are made, and
JPMorgan Chase does not undertake to update forward-
looking statements to reflect the impact of circumstances or
events that arise after the date the forward-looking
statements were made. The reader should, however, consult
any further disclosures of a forward-looking nature the
Firm may make in any subsequent Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, or Current Reports
on Form 8-K.
138
JPMorgan Chase & Co./2016 Annual Report
Management's report on internal control over financial reporting
Management of JPMorgan Chase & Co. ("JPMorgan Chase"
or the "Firm") is responsible for establishing and
maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a
process designed by, or under the supervision of, the Firm's
principal executive and principal financial officers, or
persons performing similar functions, and effected by
JPMorgan Chase's Board of Directors, management and
other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with accounting principles generally accepted in the United
States of America.
JPMorgan Chase's internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records, that, in reasonable detail,
accurately and fairly reflect the transactions and
dispositions of the Firm's assets; (2) provide reasonable
assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance
with generally accepted accounting principles, and that
receipts and expenditures of the Firm are being made only
in accordance with authorizations of JPMorgan Chase's
management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Firm's
assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Management has
completed an assessment of the effectiveness of the Firm's
internal control over financial reporting as of December 31,
2016. In making the assessment, management used the
"Internal Control - Integrated Framework" ("COSO 2013")
promulgated by the Committee of Sponsoring Organizations
of the Treadway Commission ("COSO").
Based upon the assessment performed, management
concluded that as of December 31, 2016, JPMorgan Chase's
internal control over financial reporting was effective based
upon the COSO 2013 framework. Additionally, based upon
management's assessment, the Firm determined that there
were no material weaknesses in its internal control over
financial reporting as of December 31, 2016.
The effectiveness of the Firm's internal control over
financial reporting as of December 31, 2016, has been
audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report
which appears herein.
James Dimon
capital and liquidity requirements affecting the Firm's
businesses, and the ability of the Firm to address those
requirements;
Changes in laws and regulatory requirements, including
Local, regional and global business, economic and
political conditions and geopolitical events;
The Firm has begun its implementation efforts by
establishing a firmwide, cross-discipline governance
structure. The Firm is currently identifying key
interpretive issues, and is assessing existing credit
loss forecasting models and processes against the
new guidance to determine what modifications may
be required.
The Firm expects that the new guidance will result in
an increase in its allowance for credit losses due to
several factors, including:
1. The allowance related to the Firm's loans and
commitments will increase to cover credit losses
over the full remaining expected life of the
portfolio, and will consider expected future
changes in macroeconomic conditions
2. The nonaccretable difference on PCI loans will be
recognized as an allowance, offset by an increase
in the carrying value of the related loans
3. An allowance will be established for estimated
credit losses on HTM securities
• The extent of the increase is under evaluation, but
will depend upon the nature and characteristics of
the Firm's portfolio at the adoption date, and the
macroeconomic conditions and forecasts at that date.
.
•
Required effective date: January 1, 2018. (a)
The Firm is currently evaluating the potential impact
on the Consolidated Financial Statements.
•
Required effective date: January 1, 2018. (a)
•
Requires inclusion of restricted cash in the cash and cash
restricted cash on the
statement of cash
flows
Required effective date: January 1, 2020. (b)
•
•
•
Financial instruments -
credit losses
•
Issued June 2016
Classification of
certain cash receipts
and cash payments in
the statement of cash
flows
Issued August 2016
Treatment of
.
Replaces existing incurred loss impairment guidance and
establishes a single allowance framework for financial assets
carried at amortized cost (including HTM securities), which will
reflect management's estimate of credit losses over the full
remaining expected life of the financial assets.
Eliminates existing guidance for PCI loans, and requires recognition
of an allowance for expected credit losses on financial assets
purchased with more than insignificant credit deterioration since
origination.
⚫ Amends existing impairment guidance for AFS securities to
incorporate an allowance, which will allow for reversals of
impairment losses in the event that the credit of an issuer
improves.
•
•
Requires a cumulative-effect adjustment to retained earnings as of
the beginning of the reporting period of adoption.
Provides targeted amendments to the classification of certain cash
flows, including treatment of cash payments for settlement of zero-
coupon debt instruments and distributions received from equity
method investments.
Requires retrospective application to all periods presented.
Effects on financial statements
•
equivalents balances in the Consolidated statements of cash flows.
Requires additional disclosures to supplement the Consolidated
statements of cash flows.
•
Based on current impairment test results, the Firm
does not expect a material effect on the Consolidated
Financial Statements.
After adoption, the guidance may result in more
frequent goodwill impairment losses due to the
•
(a) Early adoption is permitted.
(b) Early adoption is permitted on January 1, 2019.
JPMorgan Chase & Co./2016 Annual Report
removal of the second condition.
137
Management's discussion and analysis
FORWARD-LOOKING STATEMENTS
From time to time, the Firm has made and will make
forward-looking statements. These statements can be
identified by the fact that they do not relate strictly to
historical or current facts. Forward-looking statements
often use words such as “anticipate,” “target,” “expect,”
"estimate," "intend,” “plan,” “goal," "believe," or other
words of similar meaning. Forward-looking statements
provide JPMorgan Chase's current expectations or forecasts
of future events, circumstances, results or aspirations.
JPMorgan Chase's disclosures in this Annual Report contain
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The Firm
also may make forward-looking statements in its other
documents filed or furnished with the SEC. In addition, the
Firm's senior management may make forward-looking
statements orally to investors, analysts, representatives of
the media and others.
All forward-looking statements are, by their nature, subject
to risks and uncertainties, many of which are beyond the
Firm's control. JPMorgan Chase's actual future results may
differ materially from those set forth in its forward-looking
statements. While there is no assurance that any list of risks
and uncertainties or risk factors is complete, below are
certain factors which could cause actual results to differ
from those in the forward-looking statements:
•
•
•
•
•
Required effective date: January 1, 2020. (a)
•
No material impact is expected because the guidance
is to be applied prospectively, although it is
anticipated that after adoption, fewer transactions
will be treated as acquisitions or dispositions of a
business.
Requires retrospective application to all periods presented.
•
The Firm is currently evaluating the potential impact
on the Consolidated Financial Statements.
Issued November 2016
Definition of a
business
Issued January 2017
Goodwill
Consolidated statements of income
Narrows the definition of a business and clarifies that, to be
considered a business, the fair value of the gross assets acquired
(or disposed of) may not be substantially all concentrated in a
single identifiable asset or a group of similar assets.
•
Issued January 2017
•
Requires an impairment loss to be recognized when the estimated
fair value of a reporting unit falls below its carrying value.
Eliminates the second condition in the current guidance that
requires an impairment loss to be recognized only if the estimated
implied fair value of the goodwill is below its carrying value.
•
Required effective date: January 1, 2018. (a)
• In addition, in order to be considered a business, a set of activities
and assets must include, at a minimum, an input and a substantive
process that together significantly contribute to the ability to create
outputs.
Asset management, administration and commissions
(1,175)
Consolidated balance sheets
Significant accounting policies
The following table identifies JPMorgan Chase's other
significant accounting policies and the Note and page where
a detailed description of each policy can be found.
Fair value measurement
Note 2 - Business changes and developments
None
For JPMorgan Chase's Consolidated statements of cash
flows, cash is defined as those amounts included in cash
and due from banks.
Note 3
Fair value option
Note 4
Page 168
Derivative instruments
Note 6
Page 174
Noninterest revenue
Page 149
Note 7
Statements of cash flows
Typical master netting agreements for these types of
transactions also often contain a collateral/margin
agreement that provides for a security interest in, or title
transfer of, securities or cash collateral/margin to the party
that has the right to demand margin (the "demanding
party"). The collateral/margin agreement typically requires
a party to transfer collateral/margin to the demanding
party with a value equal to the amount of the margin deficit
on a net basis across all transactions governed by the
master netting agreement, less any threshold. The
collateral/margin agreement grants to the demanding
party, upon default by the counterparty, the right to set-off
any amounts payable by the counterparty against any
posted collateral or the cash equivalent of any posted
collateral/margin. It also grants to the demanding party the
right to liquidate collateral/margin and to apply the
proceeds to an amount payable by the counterparty.
146
JPMorgan Chase & Co./2016 Annual Report
The most common type of VIE is an SPE. SPES are commonly
used in securitization transactions in order to isolate certain
assets and distribute the cash flows from those assets to
investors. The basic SPE structure involves a company
selling assets to the SPE; the SPE funds the purchase of
those assets by issuing securities to investors. The legal
documents that govern the transaction specify how the cash
earned on the assets must be allocated to the SPE's
investors and other parties that have rights to those cash
flows. SPEs are generally structured to insulate investors
from claims on the SPE's assets by creditors of other
entities, including the creditors of the seller of the assets.
The primary beneficiary of a VIE (i.e., the party that has a
controlling financial interest) is required to consolidate the
assets and liabilities of the VIE. The primary beneficiary is
the party that has both (1) the power to direct the activities
of the VIE that most significantly impact the VIE's economic
performance; and (2) through its interests in the VIE, the
obligation to absorb losses or the right to receive benefits
from the VIE that could potentially be significant to the VIE.
To assess whether the Firm has the power to direct the
activities of a VIE that most significantly impact the VIE's
economic performance, the Firm considers all the facts and
circumstances, including its role in establishing the VIE and
its ongoing rights and responsibilities. This assessment
includes, first, identifying the activities that most
significantly impact the VIE's economic performance; and
second, identifying which party, if any, has power over those
activities. In general, the parties that make the most
significant decisions affecting the VIE (such as asset
managers, collateral managers, servicers, or owners of call
options or liquidation rights over the VIE's assets) or have
the right to unilaterally remove those decision-makers are
deemed to have the power to direct the activities of a VIE.
To assess whether the Firm has the obligation to absorb
losses of the VIE or the right to receive benefits from the
VIE that could potentially be significant to the VIE, the Firm
considers all of its economic interests, including debt and
equity investments, servicing fees, and derivatives or other
arrangements deemed to be variable interests in the VIE.
This assessment requires that the Firm apply judgment in
determining whether these interests, in the aggregate, are
considered potentially significant to the VIE. Factors
considered in assessing significance include: the design of
the VIE, including its capitalization structure; subordination
of interests; payment priority; relative share of interests
held across various classes within the VIE's capital
structure; and the reasons why the interests are held by the
Firm.
The Firm performs on-going reassessments of: (1) whether
entities previously evaluated under the majority voting-
interest framework have become VIES, based on certain
events, and therefore subject to the VIE consolidation
framework; and (2) whether changes in the facts and
circumstances regarding the Firm's involvement with a VIE
cause the Firm's consolidation conclusion to change.
Use of estimates in the preparation of consolidated
financial statements
For further discussion of the Firm's derivative instruments,
see Note 6. For further discussion of the Firm's repurchase
and reverse repurchase agreements, and securities
borrowing and lending agreements, see Note 13.
The preparation of the Consolidated Financial Statements
requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
revenue and expense, and disclosures of contingent assets
and liabilities. Actual results could be different from these
estimates.
JPMorgan Chase revalues assets, liabilities, revenue and
expense denominated in non-U.S. currencies into U.S.
dollars using applicable exchange rates.
Gains and losses relating to translating functional currency
financial statements for U.S. reporting are included in OCI
within stockholders' equity. Gains and losses relating to
nonfunctional currency transactions, including non-U.S.
operations where the functional currency is the U.S. dollar,
are reported in the Consolidated statements of income.
Offsetting assets and liabilities
U.S. GAAP permits entities to present derivative receivables
and derivative payables with the same counterparty and the
related cash collateral receivables and payables on a net
basis on the Consolidated balance sheets when a legally
enforceable master netting agreement exists. U.S. GAAP
also permits securities sold and purchased under
repurchase agreements to be presented net when specified
conditions are met, including the existence of a legally
enforceable master netting agreement. The Firm has
elected to net such balances when the specified conditions
are met.
The Firm uses master netting agreements to mitigate
counterparty credit risk in certain transactions, including
derivatives transactions, repurchase and reverse
repurchase agreements, and securities borrowed and
loaned agreements. A master netting agreement is a single
contract with a counterparty that permits multiple
transactions governed by that contract to be terminated
and settled through a single payment in a single currency in
the event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due after expiration of any grace period).
Upon the exercise of termination rights by the non-
defaulting party (i) all transactions are terminated, (ii) all
transactions are valued and the positive value or "in the
money" transactions are netted against the negative value
or "out of the money" transactions and (iii) the only
remaining payment obligation is of one of the parties to pay
the netted termination amount. Upon exercise of
repurchase agreement and securities loan default rights in
general (i) all transactions are terminated and accelerated,
(ii) all values of securities or cash held or to be delivered
are calculated, and all such sums are netted against each
other and (iii) the only remaining payment obligation is of
one of the parties to pay the netted termination amount.
JPMorgan Chase & Co./2016 Annual Report
147
Notes to consolidated financial statements
Foreign currency translation
Page 187
Interest income and interest expense
Note 8
Page 232
Goodwill and Mortgage servicing rights
Note 17
Page 240
Premises and equipment
Note 18
Page 244
Note 16
Long-term debt
Page 245
Income taxes
Note 26
Page 250
Off-balance sheet lending-related
financial instruments, guarantees and
other commitments
Note 21
Variable interest entities
Page 227
Note 15
Page 189
Pension and other postretirement
employee benefit plans
Note 9
Employee stock-based incentives
Note 10
Page 197
Securities
Note 12
Page 199
Securities financing activities
Note 13
Page 205
Loans
Note 14
Page 208
Allowance for credit losses
VIES are entities that, by design, either (1) lack sufficient
equity to permit the entity to finance its activities without
additional subordinated financial support from other
parties, or (2) have equity investors that do not have the
ability to make significant decisions relating to the entity's
operations through voting rights, or do not have the
obligation to absorb the expected losses, or do not have the
right to receive the residual returns of the entity.
Variable Interest Entities
The Firm's investment companies have investments in both
publicly-held and privately-held entities, including
investments in buyouts, growth equity and venture
opportunities. These investments are accounted for under
investment company guidelines and accordingly,
irrespective of the percentage of equity ownership interests
held, are carried on the Consolidated balance sheets at fair
value, and are recorded in other assets.
Certain Firm-sponsored asset management funds are
structured as limited partnerships or limited liability
companies. For many of these entities, the Firm is the
general partner or managing member, but the non-affiliated
partners or members have the ability to remove the Firm as
the general partner or managing member without cause
(i.e., kick-out rights), based on a simple majority vote, or
the non-affiliated partners or members have rights to
participate in important decisions. Accordingly, the Firm
does not consolidate these funds. In the limited cases where
the nonaffiliated partners or members do not have
substantive kick-out or participating rights, the Firm
consolidates the funds.
Beneficial interests issued by consolidated VIES
(5,707)
(5,632)
(834)
Proceeds from long-term borrowings
83,070
79,611
9,242
78,515
Proceeds from issuance of preferred stock
Treasury stock and warrants repurchased
Dividends paid
All other financing activities, net
Net cash provided by/(used in) financing activities
Effect of exchange rate changes on cash and due from banks
Net increase/(decrease) in cash and due from banks
Payments of long-term borrowings
(57,828)
(2,461)
Commercial paper and other borrowed funds
38,411
20,115
(51,749)
(2,825)
(114,949)
3,703
106,980
2,181
(165,636)
Net cash provided by/(used in) investing activities
Financing activities
Net change in:
Deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
97,336
13,007
(88,678)
89,346
(39,415)
10,905
Cash and due from banks at the beginning of the period
Note 29
Cash and due from banks at the end of the period
Cash interest paid
(67,247)
1,392
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2016 Annual Report
145
Notes to consolidated financial statements
Note 1 - Basis of presentation
JPMorgan Chase & Co. ("JPMorgan Chase" or the "Firm"), a
financial holding company incorporated under Delaware law
in 1968, is a leading global financial services firm and one
of the largest banking institutions in the U.S., with
operations worldwide. The Firm is a leader in investment
banking, financial services for consumers and small
business, commercial banking, financial transaction
processing and asset management. For a discussion of the
Firm's business segments, see Note 33.
9,423
The accounting and financial reporting policies of JPMorgan
Chase and its subsidiaries conform to U.S. GAAP.
Additionally, where applicable, the policies conform to the
accounting and reporting guidelines prescribed by
regulatory authorities.
The Consolidated Financial Statements include the accounts
of JPMorgan Chase and other entities in which the Firm has
a controlling financial interest. All material intercompany
balances and transactions have been eliminated.
Assets held for clients in an agency or fiduciary capacity by
the Firm are not assets of JPMorgan Chase and are not
included on the Consolidated balance sheets.
The Firm determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity is
a voting interest entity or a variable interest entity.
Effective January 1, 2016, the Firm adopted new
accounting guidance related to the consolidation of legal
entities such as limited partnerships, limited liability
corporations, and securitization structures. The guidance
eliminated the deferral issued by the FASB in February
2010 of the accounting guidance for VIES for certain
investment funds, including mutual funds, private equity
funds and hedge funds. In addition, the guidance amends
the evaluation of fees paid to a decision-maker or a service
provider, and exempts certain money market funds from
consolidation. Furthermore, asset management funds
structured as limited partnerships or certain limited liability
companies are now evaluated for consolidation as voting
interest entities if the non-managing partners or members
have the ability to remove the Firm as the general partner
or managing member without cause (i.e., kick-out rights)
based on a simple majority vote, or the non-affiliated
partners or members have rights to participate in
important decisions. Accordingly, the Firm does not
consolidate these voting interest entities. However, in the
limited cases where the non-managing partners or
members do not have substantive kick-out or participating
rights, the Firm evaluates the funds as VIES and
consolidates if it is the general partner or managing
member and has a potentially significant variable interest.
There was no material impact on the Firm's Consolidated
Financial Statements upon adoption of this accounting
guidance.
Voting Interest Entities
Voting interest entities are entities that have sufficient
equity and provide the equity investors voting rights that
enable them to make significant decisions relating to the
entity's operations. For these types of entities, the Firm's
determination of whether it has a controlling interest is
primarily based on the amount of voting equity interests
held. Entities in which the Firm has a controlling financial
interest, through ownership of the majority of the entities'
voting equity interests, or through other contractual rights
that give the Firm control, are consolidated by the Firm.
Investments in companies in which the Firm has significant
influence over operating and financing decisions (but does
not own a majority of the voting equity interests) are
accounted for (i) in accordance with the equity method of
accounting (which requires the Firm to recognize its
proportionate share of the entity's net earnings), or (ii) at
fair value if the fair value option was elected. These
investments are generally included in other assets, with
income or loss included in other income.
Certain amounts reported in prior periods have been
reclassified to conform with the current presentation.
Consolidation
2,405
Cash income taxes paid, net
7,220 $ 8,194
(65,275)
5,893
8,847
(9,082)
(5,616)
(4,760)
(8,476)
(7,873)
(6,990)
(467)
$
98,271
(135)
3,383
20,490
23,873 $
$ 9,508 $
(726)
(187,511)
(276)
(7,341)
27,831
(768)
118,228
(1,125)
(11,940)
39,771
20,490 $ 27,831
(68,949)
Page 255
Litigation
Note 31
.
•
Collateral characteristics
• Deal-specific payment and loss allocations
• Current market assumptions related to yield, prepayment speed,
conditional default rates and loss severity
Collateralized loan obligations ("CLOS") specific inputs:
•
Mortgage- and asset-backed securities specific inputs:
.
Deal-specific payment and loss allocations
• Expected prepayment speed, conditional default rates, loss severity
.
Credit spreads
•
Credit rating data
Physical commodities
Derivatives
Collateral characteristics
In addition, the following inputs to discounted cash flows are used for
the following products:
Discounted cash flows
.
• Discount rates
Servicing costs
Fair value is based on observable prices for mortgage-backed
securities with similar collateral and incorporates adjustments to
these prices to account for differences between the securities and the
value of the underlying loans, which include credit characteristics,
portfolio composition, and liquidity.
JPMorgan Chase & Co./2016 Annual Report
Predominantly level 2
151
Notes to consolidated financial statements
Product/instrument
Investment and trading
securities
Valuation methodology, inputs and assumptions
Quoted market prices are used where available.
In the absence of quoted market prices, securities are valued based on:
Classifications in the valuation
hierarchy
Level 1
Level 2 or 3
• Observable market prices for similar securities
•
Relevant broker quotes
Valued using observable market prices or data
• Projected interest income, late-fee revenue and loan repayment
rates
Exchange-traded derivatives that are actively traded and valued using
the exchange price.
.
Certain interest rate and FX exotic options specific inputs include:
.
Interest rate correlation
• Interest rate spread volatility
Foreign exchange correlation
•
Correlation between interest rates and foreign exchange rates
Long-dated equity volatilities
.
Certain commodity derivatives specific inputs include:
Commodity volatility
•
Forward commodity price
Additionally, adjustments are made to reflect counterparty credit quality
(CVA), the Firm's own creditworthiness (DVA), and the impact of funding
(FVA). See pages 164-165 of this Note.
JPMorgan Chase & Co./2016 Annual Report
Parameters describing the evolution of underlying interest rates
•
Certain long-dated equity option specific inputs include:
• Actual transactions, where available, are used to regularly
recalibrate unobservable parameters
Contractual terms including the period to maturity
• Readily observable parameters including interest rates and volatility
• Credit quality of the counterparty and of the Firm
Predominantly level 1 and 2
Level 1
Level 2 or 3
152
•
Market funding levels
• Correlation levels
In addition, specific inputs used for derivatives that are valued based on
models with significant unobservable inputs are as follows:
Structured credit derivatives specific inputs include:
.
•
.
CDS spreads and recovery rates
Credit correlation between the underlying debt instruments (levels
are modeled on a transaction basis and calibrated to liquid
benchmark tranche indices)
Derivatives that are valued using models such as the Black-Scholes
option pricing model, simulation models, or a combination of models,
that use observable or unobservable valuation inputs (e.g., plain vanilla
options and interest rate and CDS). Inputs include:
48,592
40,444
(123,959) (70,804) (121,504)
15,429
18,604
(80,996) (108,962)
residential mortgage loans
expected to be sold
Trading loans
Where appropriate, the Firm also applies adjustments to
its estimates of fair value in order to appropriately
reflect counterparty credit quality (CVA), the Firm's own
creditworthiness (DVA) and the impact of funding (FVA),
using a consistent framework across the Firm. For more
information on such adjustments see Credit and funding
adjustments on page 164 of this Note.
Valuation model review and approval
If prices or quotes are not available for an instrument or a
similar instrument, fair value is generally determined using
valuation models that consider relevant transaction data
such as maturity and use as inputs market-based or
independently sourced parameters. Where this is the case
the price verification process described above is applied to
the inputs to those models.
The Model Risk function reviews and approves a wide range
of models, including risk management, valuation, and
regulatory capital models used by the Firm. The Model Risk
function is independent of model users and developers. The
Firmwide Model Risk Executive reports to the Firm's CRO.
When reviewing a model, the Model Risk function analyzes
and challenges the model methodology, and the
reasonableness of model assumptions and may perform or
require additional testing, including back-testing of model
outcomes.
The Model Risk function reviews and approves new models,
as well as material changes to existing models, prior to
implementation in the operating environment. In certain
circumstances, the head of the Model Risk function may
grant exceptions to the Firm's model risk policy to allow a
model to be used prior to review or approval. The Model
Risk function may also require the user to take appropriate
actions to mitigate the model risk if it is to be used in the
interim.
Valuation hierarchy
A three-level valuation hierarchy has been established
under U.S. GAAP for disclosure of fair value measurements.
The valuation hierarchy is based on the transparency of
inputs to the valuation of an asset or liability as of the
measurement date. The three levels are defined as follows.
be implied from observable market data. Such prices or
parameters must be estimated and are, therefore,
subject to management judgment. Unobservable
parameter valuation adjustments are applied to reflect
the uncertainty inherent in the resulting valuation
estimate.
•
Level 1 - inputs to the valuation methodology are
quoted prices (unadjusted) for identical assets or
liabilities in active markets.
Level 2-inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument.
Level 3 - one or more inputs to the valuation
methodology are unobservable and significant to the fair
value measurement.
A financial instrument's categorization within the valuation
hierarchy is based on the lowest level of input that is
significant to the fair value measurement.
150
JPMorgan Chase & Co./2016 Annual Report
•
Notes to consolidated financial statements
•
149
Page 262
148
JPMorgan Chase & Co./2016 Annual Report
Note 3 - Fair value measurement
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. These assets and liabilities are predominantly
carried at fair value on a recurring basis (i.e., assets and
liabilities that are measured and reported at fair value on
the Firm's Consolidated balance sheets). Certain assets
(e.g., certain mortgage, home equity and other loans where
the carrying value is based on the fair value of the
underlying collateral), liabilities and unfunded lending-
related commitments are measured at fair value on a
nonrecurring basis; that is, they are not measured at fair
value on an ongoing basis but are subject to fair value
adjustments only in certain circumstances (for example,
when there is evidence of impairment).
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date. Fair value is based on quoted market
prices or inputs, where available. If prices or quotes are not
available, fair value is based on models that consider
relevant transaction characteristics (such as maturity) and
use as inputs observable or unobservable market
parameters, including but not limited to yield curves,
interest rates, volatilities, equity or debt prices, foreign
exchange rates and credit curves. Valuation adjustments
may be made to ensure that financial instruments are
recorded at fair value, as described below.
The level of precision in estimating unobservable market
inputs or other factors can affect the amount of gain or loss
recorded for a particular position. Furthermore, while the
Firm believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of different
methodologies or assumptions by other market participants
compared with those used by the Firm could result in a
different estimate of fair value at the reporting date.
Valuation process
Risk-taking functions are responsible for providing fair value
estimates for assets and liabilities carried on the
Consolidated balance sheets at fair value. The Firm's VCG,
which is part of the Firm's Finance function and
independent of the risk-taking functions, is responsible for
verifying these estimates and determining any fair value
adjustments that may be required to ensure that the Firm's
positions are recorded at fair value. The VGF is composed of
senior finance and risk executives and is responsible for
overseeing the management of risks arising from valuation
activities conducted across the Firm. The VGF is chaired by
the Firmwide head of the VCG (under the direction of the
Firm's Controller), and includes sub-forums covering the
CIB, CCB, CB, AWM and certain corporate functions including
Treasury and CIO.
JPMorgan Chase & Co./2016 Annual Report
Price verification process
The VCG verifies fair value estimates provided by the risk-
taking functions by leveraging independently derived prices,
valuation inputs and other market data, where available.
Where independent prices or inputs are not available, the
VCG performs additional review to ensure the
reasonableness of the estimates. The additional review may
include evaluating the limited market activity including
client unwinds, benchmarking valuation inputs to those
used for similar instruments, decomposing the valuation of
structured instruments into individual components,
comparing expected to actual cash flows, reviewing profit
and loss trends, and reviewing trends in collateral valuation.
There are also additional levels of management review for
more significant or complex positions.
The VCG determines any valuation adjustments that may be
required to the estimates provided by the risk-taking
functions. No adjustments are applied for instruments
classified within level 1 of the fair value hierarchy (see
below for further information on the fair value hierarchy).
For other positions, judgment is required to assess the need
for valuation adjustments to appropriately reflect liquidity
considerations, unobservable parameters, and, for certain
portfolios that meet specified criteria, the size of the net
open risk position. The determination of such adjustments
follows a consistent framework across the Firm:
Liquidity valuation adjustments are considered where an
observable external price or valuation parameter exists
but is of lower reliability, potentially due to lower market
activity. Liquidity valuation adjustments are applied and
determined based on current market conditions. Factors
that may be considered in determining the liquidity
adjustment include analysis of: (1) the estimated bid-
offer spread for the instrument being traded; (2)
alternative pricing points for similar instruments in
active markets; and (3) the range of reasonable values
that the price or parameter could take.
The Firm manages certain portfolios of financial
instruments on the basis of net open risk exposure and,
as permitted by U.S. GAAP, has elected to estimate the
fair value of such portfolios on the basis of a transfer of
the entire net open risk position in an orderly
transaction. Where this is the case, valuation
adjustments may be necessary to reflect the cost of
exiting a larger-than-normal market-size net open risk
position. Where applied, such adjustments are based on
factors that a relevant market participant would
consider in the transfer of the net open risk position,
including the size of the adverse market move that is
likely to occur during the period required to reduce the
net open risk position to a normal market-size.
Unobservable parameter valuation adjustments may be
made when positions are valued using prices or input
parameters to valuation models that are unobservable
due to a lack of market activity or because they cannot
The following table describes the valuation methodologies generally used by the Firm to measure its significant products/
instruments at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.
conforming
Product/instrument
Valuation methodology
•
Lending-related commitments are valued similar to loans and reflect
the portion of an unused commitment expected, based on the Firm's
average portfolio historical experience, to become funded prior to an
obligor default
For information regarding the valuation of loans measured at
collateral value, see Note 14.
Valuations are based on discounted cash flows, which consider:
•
Credit losses which consider expected and current default rates,
and loss severity
Prepayment speed
Valuations are based on discounted cash flows, which consider:
Credit spreads, derived from the cost of CDS; or benchmark credit
curves developed by the Firm, by industry and credit rating
Prepayment speed
• Discount rates
For information regarding the valuation of loans measured at
collateral value, see Note 14.
Held for investment credit card Valuations are based on discounted cash flows, which consider:
receivables
Predominantly level 3
Predominantly level 3
Level 3
.
Credit costs the allowance for loan losses is considered a
reasonable proxy for the credit cost
Servicing costs
•
Where observable market data is unavailable or limited, valuations
are based on discounted cash flows, which consider the following:
Credit spreads derived from the cost of CDS; or benchmark credit
curves developed by the Firm, by industry and credit rating
Prepayment speed
Held for investment consumer
loans, excluding credit card
Valuations are based on discounted cash flows, which consider:
•
Derivative features: for further information refer to the discussion
of derivatives below.
Classifications in the valuation
hierarchy
Predominantly level 2
•
Market rates for the respective maturity
• Collateral
Loans and lending-related commitments - wholesale
Loans carried at fair value (e.g.
trading loans and non-trading
loans)
Where observable market data is available, valuations are based on:
• Observed market prices (circumstances are infrequent)
Level 2 or 3
• Relevant broker quotes
•
Observed market prices for similar instruments
Loans held for investment and
associated lending-related
commitments
Loans consumer
Securities financing agreements
90,664
Page 189
65,950
December 31, (in millions)
2016
2015
Assets
Trading assets
Loans
All other assets
(a) The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at December 31, 2016 and 2015. The difference between total
VIE assets and liabilities represents the Firm's interests in those entities, which were eliminated in consolidation.
Total assets
Beneficial interests issued by consolidated VIES
All other liabilities
Total liabilities
$
3,185 $
75,614
$
3,321
82,120 $
Liabilities
$ 2,490,972 $ 2,351,698
Total liabilities and stockholders' equity
247,573
4,105
4,105
Additional paid-in capital
91,627
92,500
Retained earnings
162,440
146,420
Accumulated other comprehensive income
192
Shares held in restricted stock units ("RSU”) trust, at cost (472,953 shares)
Treasury stock, at cost (543,744,003 and 441,459,392 shares)
(21)
(21)
(28,854)
(21,691)
Total stockholders' equity
254,190
3,736
75,104
2,765
26,068
81,605
39,047 $
6,005
8,905
26,068
26,068
20,063
Common stock
Balance at January 1 and December 31
-
4,105
4,105
Additional paid-in capital
Balance at January 1
92,500
93,270
93,828
Shares issued and commitments to issue common stock for employee stock-based compensation awards, and
related tax effects
4,105
26,068 $ 20,063 $ 11,158
$
2014
490
41,879
809
$
39,537 $
42,688
The assets of the consolidated VIES are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general credit of JPMorgan
Chase. At December 31, 2016 and 2015, the Firm provided limited program-wide credit enhancement of $2.4 billion and $2.0 billion, respectively, related to its Firm-administered
multi-seller conduits, which are eliminated in consolidation. For further discussion, see Note 16.
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2016 Annual Report
143
Consolidated statements of changes in stockholders' equity
Year ended December 31, (in millions, except per share data)
Preferred stock
Balance at January 1
Issuance of preferred stock
Balance at December 31
2016
2015
$
(334)
26,068
Stockholders' equity
Commercial paper
Other borrowed funds (included $9,105 and $9,911 at fair value)
Trading liabilities
Accounts payable and other liabilities (included $9,120 and $4,401 at fair value)
$
23,873 $
20,490
Federal funds purchased and securities loaned or sold under repurchase agreements (included $687 and $3,526 at fair
value)
365,762
229,967
212,575
96,409
76,448
372,130
343,839
289,059
340,015
Deposits (included $13,912 and $12,516 at fair value)
Liabilities
Other assets (included $7,557 and $7,604 at fair value and assets pledged of $1,603 and $1,286)
Total assets (a)
December 31, (in millions, except share data)
Assets
Cash and due from banks
Deposits with banks
2016
2015
Federal funds sold and securities purchased under resale agreements (included $21,506 and $23,141 at fair value)
Securities borrowed (included $0 and $395 at fair value)
Trading assets (included assets pledged of $115,847 and $115,284)
Securities (included $238,891 and $241,754 at fair value and assets pledged of $16,115 and $14,883)
Loans (included $2,230 and $2,861 at fair value)
Allowance for loan losses
Loans, net of allowance for loan losses
Accrued interest and accounts receivable
Premises and equipment
Goodwill
Mortgage servicing rights
Other intangible assets
290,827
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,606,750 shares)
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
894,765
(13,776)
152,678
11,738
15,562
22,705
21,105
136,659
126,897
165,666
190,543
39,047
41,879
295,245
288,651
2,236,782
2,104,125
Commitments and contingencies (see Notes 29, 30 and 31)
177,638
$ 1,375,179 $ 1,279,715
Total liabilities(a)
Long-term debt (included $37,686 and $33,065 at fair value)
(13,555)
880,989
823,744
52,330
46,605
14,131
14,362
47,288
47,325
6,096
6,608
862
1,015
112,076
$ 2,490,972 $ 2,351,698
105,572
Beneficial interests issued by consolidated VIES (included $120 and $787 at fair value)
837,299
(436)
98,721
Other
1,799
1,785
2,113
(61,107)
(48,109)
(67,525)
60,196
4,362
49,363
(20,007)
62,212
(24,814)
2,313
12,165
1,020
(5,815)
71,407
1,333
4,651
4,759
Other assets
Trading liabilities
Accounts payable and other liabilities
Other operating adjustments
Net cash provided by operating activities
Investing activities
Net change in:
2016
2015
2014
$
24,733 $ 24,442 $ 21,745
5,361
3,827
3,139
5,478
4,940
22,664
Accrued interest and accounts receivable
(3,637)
(3,701)
Proceeds from paydowns and maturities
Purchases
6,218
6,099
4,169
(143)
(6,204)
Held-to-maturity securities:
(10,345)
Proceeds from paydowns and maturities
Proceeds from sales
Purchases
Proceeds from sales and securitizations of loans held-for-investment
Other changes in loans, net
All other investing activities, net
(508)
Available-for-sale securities:
3,190
(17,468)
Federal funds sold and securities purchased under resale agreements
(9,166)
5,198
(28,972)
26,818
3,740
(23,361)
6,058
(1,827)
(5,122)
314
20,196
73.466
36,593
Deposits with banks
(25,747)
144,462
(168,426)
(4,517)
Securities borrowed
30,848
Net change in:
(1,647)
(1,515)
(1,125)
Common stock ($1.88, $1.72 and $1.58 per share for 2016, 2015 and 2014, respectively)
(6,912)
(6,484)
(6,078)
Preferred stock
Balance at December 31
146,420
129,977
Accumulated other comprehensive income
Balance at January 1
Cumulative effect of change in accounting principle
Other comprehensive income/(loss)
Balance at December 31
162,440
Shares held in RSU Trust, at cost
Dividends declared:
24,442
(539)
Trading assets
(334)
(50)
Balance at December 31
91,627
92,500
21,745
93,270
Balance at January 1
Net income
146,420
129,977
115,435
(154)
24,733
Retained earnings
Balance at January 1 and December 31
Cumulative effect of change in accounting principle
Balance at January 1
1,751
(17,856)
$ 254,190 $ 247,573 $ 231,727
The Notes to Consolidated Financial Statements are an integral part of these statements.
144
JPMorgan Chase & Co./2016 Annual Report
Consolidated statements of cash flows
Year ended December 31, (in millions)
Operating activities
Net income
Provision for credit losses
Depreciation and amortization
Deferred tax expense
Other
Proceeds from sales, securitizations and paydowns of loans held-for-sale
Treasury stock, at cost
Originations and purchases of loans held-for-sale
1,781
(21,691)
(4,760)
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
(17,856)
(5,616)
Balance at December 31
(14,847)
Total stockholders' equity
Purchase of treasury stock
Reissuance from treasury stock
2,189
1,199
154
(1,521)
(1,175)
192
(1,997)
192
990
2,189
(21)
(21)
(21)
(21,691)
(9,082)
1,919
(28,854)
($ in trillions)
cybersecurity and the protection of intel-
lectual property to tariffs, non-tariff trade
barriers and non-fulfillment of World Trade
Organization obligations. However, there
is no inevitable or compelling reason that
China and America have to clash – in fact,
improving political and economic relation-
ships can be good for both parties. So while
the issues here are not easy, I am hopeful
they can be resolved in a way that is fair and
constructive for the two countries.
Corporate clients
I. THE JPMORGAN CHASE FRANCHISE
at December 31,
In the toughest of times, we maintained
a healthy and vibrant company that was
able to do its job - we did not need govern-
ment support and, in fact, we consistently
provided credit and capital to our clients and
assistance to our government throughout
the crisis. I want to remind our shareholders
that we continued to lend not at the much
higher prevailing market rates at that time
but at existing bank rates. These were far
below market rates because our clients relied
on us - we were their lender of last resort.
JPMorgan Chase was and will be a Rock of
Gibraltar in the best and worst of times for
our clients around the world.
12
-
We are strong and steadfast and are there for our
clients in good times and bad.
I firmly believe the qualities embedded in
JPMorgan Chase today – the knowledge and
cohesiveness of our people, our deep client
relationships, our technology, our strategic
thinking and our global presence – cannot
be replicated. While we take nothing for
granted, as long as we continue to do our
jobs well and continue to drive our company
forward, we think we can be a leader for our
industry and the communities we serve for
decades to come. There are times when I
am bursting with pride with what we have
accomplished for our clients, communities
and countries around the world - let me
count (some of) the ways:
6. Although banks and other large companies remain unpopular with some people, you often
say how proud you are of JPMorgan Chase. Why?
New and Renewed Credit and Capital for Our Clients
$1.6
$1.1
$1.4
$1.4
$1.3
$1.2
$1.1
$1.7
2008
2009
2010
2011
2014
China is far more complex. (Again, in full
disclosure, we have a major international
presence in China, with revenue of approxi-
mately $700 million, serving Chinese,
American and international clients who do
business in that country.) The United States
has some serious trade issues with China,
which have grown over the years – from
2012
2013
$1.5
going back to Mexico than coming into the
United States). Our trade agreement with
Mexico helps ensure that the young democ-
racy in Mexico is not hijacked by populist
and anti-American leaders (like Chavez did
in Venezuela). While there are some clear,
identifiable problems with NAFTA, I believe
they will be worked out in a way that is fair
and beneficial for both sides. The logic to do
so is completely compelling.
4. How do we protect customers and their sensitive information while enabling them to share data?
11
End-to-end digital banking – The ability to
open an account and complete the majority
of transactions on a mobile phone.
Investment advice and self-directed
investing - Online vehicles for both indi-
vidual retirement and non-retirement
accounts, providing easy-to-use (and
inexpensive) automated advice, as well as
enabling our customers to buy and sell
stocks and bonds, etc. (again inexpensively).
2015
Electronic trading and other online services
(e.g., cash management) in our Corporate
& Investment Bank and Asset & Wealth
Management businesses - Offering our
clients a more robust digital platform.
9
I. THE JPMORGAN CHASE FRANCHISE
We are investing in data and technology to
improve the financial health of low-income
households.
Over the last two years, the JPMorgan Chase
Institute has helped identify some of the
most pressing financial challenges facing
American households, such as their difficulty
managing income and expense volatility.
We are using that data to select and support
innovative fintech companies and nonprofits
that are designing solutions to address these
challenges. One example of these efforts
is JPMorgan Chase's Financial Solutions
Lab, which, in partnership with the Center
for Financial Services Innovation, seeks to
facilitate the next generation of fintech prod-
ucts to help consumers manage their daily
finances and meet their long-term goals.
Highlights of the initiative include:
To date, the Lab has helped support more
than 18 fintech companies working to
improve the financial health of more than
1 million Americans. One example is Digit,
an automated savings tool that identi-
fies small amounts of money that can be
moved into savings based on spending
and income. To date, it has helped Ameri-
cans save more than $350 million.
Lab winners have raised more than $100
million in follow-on capital.
In 2017, we launched a new competition
seeking innovative fintech solutions to
promote the financial health of popula-
tions often overlooked, such as people of
color, individuals with disabilities and low-
income women.
We are successfully collaborating with other
companies to deliver fintech solutions.
Whether it is consumer payment systems
(Zelle), mortgages (Roostify), auto finance
(TrueCar), small business lending (OnDeck
Capital) or communications systems
(Symphony), we are successfully collabo-
rating with some excellent fintech companies
to dramatically improve our digital and other
customer offerings. I'd like to highlight just
two new exciting areas:
Developer Services API store - By
providing direct interfaces with our appli-
cations (fully controlled, of course), we are
enabling entrepreneurs, partners, fintech
companies and clients to build new prod-
ucts or services dedicated to specific needs.
Bill payment and business services -
While I can't reveal much at the moment,
suffice it to say there are some interesting
developments coming as we integrate our
capabilities with those of other companies.
-
For
years, we have been describing the risks
- to banks and customers - that arise when
customers freely give away their bank pass-
codes to third-party services, allowing virtu-
ally unlimited access to their data. Customers
often do not know the liability this may
create for them, if their passcode is misused,
and, in many cases, they do not realize how
their data are being used. For example, access
to the data may continue for years after
customers have stopped using the third-party
services.
We recently completed a new arrangement
with Intuit, which we think represents
an important step forward. In addition to
protecting the bank, the customers and
even the third party (in this case, Intuit), it
allows customers to share data - how and
when they want. Under this arrangement,
customers can choose whatever they would
like to share and opting to turn these selec-
tions on or off as they see fit. The data will
be "pushed" to Intuit, eliminating the need
for sharing bank passcodes, which protects
the bank and our customers and reduces
potential liabilities on Intuit's part as well.
We are hoping this sets a new standard for
data-sharing relationships.
10
I. THE JPMORGAN CHASE FRANCHISE
5. What are your biggest geopolitical risks?
Banks have to manage a lot of risks - from
credit and trading risks to technological,
operational, conduct and cybersecurity risks.
But in addition to those, we have exposures
around the world, which are subject to
normal cyclical and recession risks, as well
as to complex geopolitical risks.
There are always geopolitical risks, and
you can rest assured we are continuously
reviewing, analyzing and stress testing them
to ensure that our company can endure them.
We always try to make certain that we can
handle the worst of all cases - importantly,
without disrupting the effective operation of
the company and its service to our clients. We
think these geopolitical risks currently are in
a heightened state – that is, beyond what we
might consider normal. There are two specific
risks I want to point out:
-
Brexit and the increasing risk to the European
Union (EU).
Regarding Brexit, a key concern is to make
sure our company is prepared to support our
clients on day one - 1 the first day after the
actual Brexit occurs, approximately two years
from now. We are confident we will be able
to develop and expand the capabilities that
our EU subsidiaries and branches will need
to serve our clients properly in Europe under
EU law. This will require acquiring regulatory
approvals, transferring certain technologies
and moving some people. On day one, we
need to perform all of our critical functions
at our standards. For example, underwriting
debt and equity, moving money and accepting
deposits, and safeguarding the custody assets
for all of our European clients, including
many sovereigns themselves. We must be
prepared to do this assuming a hard exit by
the United Kingdom - it would be irrespon-
sible to presume otherwise. While this does
not entail moving many people in the next
two years, we do suspect that following Brexit,
there will be constant pressure by the EU not
to "outsource" services to the United Kingdom
but to continue to move people and capabili-
ties into EU subsidiaries.
We hope that the advent of Brexit would lead
the EU to focus on fixing its issues – immi-
gration, bureaucracy, the ongoing loss of
sovereign rights and labor inflexibility - and
thereby pulling the EU and the monetary
union closer together. Our fear, however, is
that it could instead result in political unrest
that would force the EU to split apart. The
unraveling of the EU and the monetary union
could have devastating economic and political
effects. While we are not predicting this will
happen, the probabilities have certainly gone
up - and we will keep a close eye on the situa-
tion in Europe over the next several years.
De-globalization, Mexico and China.
Anti-globalization sentiment is growing in
parts of the world today, usually expressing
itself in anti-trade and anti-immigration posi-
tions. (I'm not going to write about immigra-
tion in this letter - we have always supported
proper immigration - it is a vital part of the
strength of America, and, properly done, it
enhances the economy and the vitality of
the country.) We do not believe globalization
will reverse course - we believe trade has
been absolutely critical for growth around
the world and has benefited billions of
people. While there are some issues with our
trade policies that need to be fixed, poorly
conceived anti-trade policies could be quite
disruptive, particularly with two of our key
trading partners: Mexico and China.
The trade deal with Mexico through NAFTA
is simpler than the one with China. (In full
disclosure, JPMorgan Chase is a major inter-
national bank in Mexico, with revenue of
more than $400 million, serving Mexican,
American and international clients who do
business there.) Mexico is a long-standing
peaceful neighbor, and it is wholly in our
country's interest that Mexico be a pros-
perous nation. This actually reduces immi-
gration issues (there are now more Mexicans
I. THE JPMORGAN CHASE FRANCHISE
2016
116
Consumer and Commercial Banking
($ in billions)
92
108
149
Commercial/Middle market
104
77
93
110
122
131
185
188
207
82
Asset management
56
67
100
141
165
127
163
173
■Mortgage/Home equity
187
156
We are developing great new products.
We are currently developing some exciting
new products and services, which we will be
adding to our suite and rolling out later this
year, including:
165
51
91
83
83
$601
$583
$556
$523
$479
$474
$419
$379
2008
2009
2010
2011
2012
2013
2014
2015
2016
Small business
$ 16
$ 7
$ 11
$ 17
$ 20
$ 18
$ 19
$ 22
$ 24
■Card & Auto
121
$664
-
We have a diverse workforce. We have
more than 243,000 employees globally with
over 167,000 in the United States. Women
represent 50% of our employees. Recently,
Oliver Wyman, a leading global manage-
ment consulting firm, issued a report
stating that it would be 30 years before
women reach 30% Executive Committee
representation within global financial
services. So you might be surprised to find
out that women already represent 30% of
my direct reports and approximately 30%
of our company's senior leadership globally.
They run major businesses - several units
on their own would be among Fortune
1000 companies. In addition to having
three women on our Operating Committee
- who run Asset & Wealth Management,
Finance and Legal - some of our other busi-
nesses and functions headed by women
include Consumer Banking, Credit Card,
U.S. Private Bank, U.S. Mergers & Acquisi-
tions, Global Equity Capital Markets,
Global Research, Regulatory Affairs, Global
Philanthropy, our U.S. branch network,
our Controller and firmwide Marketing.
I believe we have some of the best women
leaders in the corporate world globally. In
addition to gender diversity, 48% of our
firm's population is ethnically diverse in
the United States, and we are in more than
60 countries around the world. Diversity
means running a company where people
3. What are some technology and fintech initiatives that you're most excited about?
-
And more broadly, we created solutions
for one of our country's biggest chal-
lenges - training the world's work-
force in the skills needed to compete
in today's economy. Through several
targeted initiatives, JPMorgan Chase is
investing over $325 million in demand-
driven workforce development initia-
tives around the world. Our programs
build stronger labor markets that
create economic opportunity, focusing
on middle-skill jobs - positions that
require a high school education, and
often specialized training or certifica-
tions, but not a college degree. These
jobs-surgical technologists, diesel
mechanics, help desk technicians
and more
also putting our talented employees
to work in Detroit through the Detroit
Service Corps. Since 2014, 68 JPMorgan
Chase employees from 10 countries
dedicated three intensive weeks to
16 Detroit nonprofits, helping them
analyze challenges, solve problems
and improve their chances for success.
Detroit is making incredible progress
as a result of the unprecedented spirit
of engagement and cooperation among
the city's leaders, business commu-
nity and nonprofit sectors. JPMorgan
Chase is proud to be part of Detroit's
resurgence, and we believe a thriving
Detroit economy will become a shining
example of American resilience and
ingenuity at work.
We are making strategic, coordinated
investments focused on creating
economically inclusive and revital-
ized neighborhoods, preparing people
with the skills needed for today's
high-quality jobs and providing small
businesses with the capital they need
to grow and succeed. This includes our
investment in the Strategic Neighbor-
hoods Fund, which brings together
community developers and dedicated
resources to create and maintain afford-
able housing and deliver services to
targeted communities. We also seeded
the city's first nonprofit real estate
development firm focused exclusively
on creating and preserving affordable
housing in Detroit's neighborhoods. In
2015, we helped create the $6.5 million
Entrepreneurs of Color Fund with the
Kellogg Foundation and Detroit Devel-
opment Fund to bring critical financing
and technical assistance to underserved
minority- and community-based small
businesses. In its first year, the Fund
deployed almost $3 million in capital
through more than 30 loans. We are
to cities and communities - espe-
cially those left behind - and the
best example is our work in Detroit.
JPMorgan Chase has been doing busi-
ness in Detroit for more than 80 years,
and we watched as this iconic American
city was engulfed in economic turmoil
after years of decline. Just as Detroit
was declaring bankruptcy, our company
redoubled its efforts to help and, in
2014, announced our most comprehen-
sive initiative to date - a $100 million
investment in Detroit to help accelerate
the city's recovery.
We provide tremendous support
-
$100 million to approximately $250
million in 2016, but we have dramati-
cally increased our support with human
capital, collaboration, data and manage-
ment expertise. Our head of Corporate
Responsibility talks about our significant
measures in more detail in his letter, but
I will highlight two initiatives below:
16
I. THE JPMORGAN CHASE FRANCHISE
15
We have accomplished an extraordinary
amount in our Corporate Responsibility
efforts. We take this responsibility very
seriously, and, over the last decade, not
only have we more than doubled our
philanthropic giving from approximately
We are proud of how we are helping
veterans. We want to continue to update
you on how JPMorgan Chase has helped
position military members, veterans and
their families. Our program is centered on
facilitating success in their post-service
lives primarily through employment and
retention. In 2011, JPMorgan Chase and
10 other companies launched the 100,000
Jobs Mission, setting a goal of collectively
hiring 100,000 veterans. The initiative
now includes more than 200 companies,
has collectively hired nearly 400,000
veterans, and is focused on collectively
hiring 1 million people. JPMorgan Chase
alone has hired more than 11,000 veterans
since 2011. We hope you feel as good
about this initiative as we do.
offer good wages and the
chance to move up the economic ladder.
Our goal is to increase the number of
workers who have access to career path-
ways, whether they are adults looking
to develop new skills or younger
workers starting to prepare for careers
during high school and ending with
postsecondary degrees or credentials
aligned with good-paying, high-demand
jobs. We are very proud that we can be
a bridge between businesses and job
seekers to support an economy that
creates opportunity for everyone.
But there is one area in particular where
we simply have not met the standards
JPMorgan Chase has set for itself - and that
is in increasing African-American talent
at the firm. While we think our effort to
attract and retain black talent is as good
as at most other companies, it simply is
not good enough. Therefore, in 2016, we
introduced a new firmwide initiative called
Advancing Black Leaders. This initiative is
dedicated to helping us better attract and
recruit external black talent while retaining
and developing the talent within the
company. And we are proud of our efforts
this past year we increased the number of
black employees at the officer level (through
both internal promotions and external new
hires), we focused on the pipeline of junior
talent, and we increased the number at the
senior officer and vice president level. We
plan to continue to make progress on this
front in the years to come.
•
We will also continue to invest in
employee benefits and training opportu-
nities so that our workers can continue
to increase their skills and advance their
careers. Our comprehensive benefits
package, including healthcare and retire-
ment savings, on average, is valued at
$11,000 per year. Our total investment in
training and development is approximately
$325 million a year. Together, these efforts
help our employees support their fami-
lies, advance their careers and promote
economic growth in our communities.
of our success. Remember, many of these
employees soon move on to even higher
paying jobs.
•
I. THE JPMORGAN CHASE FRANCHISE
14
-
We compensate our employees fairly
and provide extraordinary benefits and
training. We value our employees at
JPMorgan Chase, and we are committed
to helping them succeed. This past year,
we announced that we will increase our
minimum wages - mostly for entry-level
bank tellers and customer service repre-
sentatives to between $12.00 and $16.50
an hour (depending on where these
employees live). This will increase wages
for approximately 18,000 employees.
We believe this pay increase is the right
thing to do, and, above all, it enables more
people to begin to share in the rewards
We try to be outstanding corporate citizens.
We believe in being great corporate citizens
- in how we treat our employees and care
for our clients and communities. Let me give
some examples to illustrate this point:
to facilitate, as much as possible, an orderly
unwind of its assets. In those dark days, we
were the only bank willing to commit to
lending $4 billion to the state of California,
$2 billion to the state of New Jersey and $1
billion to the state of Illinois to keep those
states strong. None of these actions had to
be taken, and they were made at some risk
to JPMorgan Chase. We simply were acting
to do our part to try to stop the crisis from
getting worse.
to acquire and assimilate Bear Stearns and
Washington Mutual - thereby saving 30,000
jobs and avoiding the devastation of commu-
nities that would have happened if those
companies had been allowed to fail. Our
company went above and beyond the call of
duty during the height of the crisis, including
lending $87 billion to a bankrupt Lehman
1 Represents assets under management, as well as custody, brokerage, administration and deposit accounts.
² Represents activities associated with the safekeeping and servicing of assets.
$20,520
are respected, trusted and given equal
opportunity to contribute and raise their
ideas and voices.
REGULATORY REFORM
We had a severe financial crisis followed
by needed reform, and our financial system
is now stronger and more resilient as a
result. During and since the crisis, we've
always supported thoughtful, effective
regulation, not simply more or less. But it
is an understatement to say improvements
could be made. The regulatory environ-
ment is unnecessarily complex, costly and
sometimes confusing. No rational person
could think that everything that was done
was good, fair, sensible and effective, or
coherent and consistent in creating a safer
and stronger system. We believe (and many
studies show) that poorly conceived and
uncoordinated regulations have damaged
our economy, inhibiting growth and jobs -
and this has hurt the average American. We
are not looking to throw out the entirety of
Dodd-Frank or other rules (many of which
were not specifically prescribed in Dodd-
Frank). It is, however, appropriate to open
up the rulebook in the light of day and
rework the rules and regulations that don't
work well or are unnecessary. Rest assured,
we will be responsibly and reasonably
engaged on this front. We believe changes
can and should be made that preserve
the safety and soundness of the financial
system and lead to a more healthy and
vibrant economy for the benefit of all.
•
191
18
It is instructive to look at what would
happen if Lehman were to fail in today's
regulatory regime. First of all, it is highly
unlikely the firm would fail because the new
requirements would mean that instead of
Lehman's equity capital being $23 billion,
which it was in 2007, it would be approxi-
mately $45 billion under today's capital rules.
In addition, Lehman would have far stronger
On the second count, a regulatory takeover
of a major bank would be orderly because
regulators have the tools to manage it in the
right way.
On the first count, if a bank fails, taxpayers
do not pay. Shareholders and debtholders,
now due to total loss absorbing capacity
(TLAC) rules, are at risk for all losses. To add
belts and suspenders, if all that capital is not
enough, the next and final line of defense is
the industry itself, which is legally liable to
pay any excess losses. (Notably, since 2007,
JPMorgan Chase alone has contributed $11.7
billion to the industry deposit fund.)
Essentially, Too Big to Fail has been solved
taxpayers will not pay if a bank fails.
The American public has the right to
demand that if a major bank fails, they, as
taxpayers, would not have to pay for it, and
the failure wouldn't unduly harm the U.S.
economy. In my view, these demands have
now both been met.
-
These changes taken together not only
largely eliminate the chance of a major
bank failing today but also prevent such
failure from having a threatening domino
effect on other banks and the economy as a
whole. And if a major bank does fail, regula-
tors have the necessary tools to manage it
in an orderly way. Moreover, the banking
industry itself has an inherent interest in
the safety and soundness of the financial
system because if there is a failure, the entire
industry will be liable for that cost (more on
that below).
Stress testing that monitors banks' balance
sheets and capital ratios under severely
adverse scenarios (more on this below)
Requirements for banks and investment
banks to prepare corporate recovery plans
in the event of a crisis to prevent bank-
ruptcy (these plans did not exist before
the financial crisis)
New rules that prohibit derivatives
contracts from being voided at bankruptcy
this allows derivatives contracts to stay
in place, creating an orderly transition to
bankruptcy
The creation of “bail-inable” unsecured
debt - this converts debt into equity at the
time of failure, immediately recapitalizing
the failed bank
Laws that allow regulators to step in to
unwind not only failing banks but invest-
ment banks (this did not exist for invest-
ment banks prior to the financial crisis)
Far stronger compliance and control
systems
More coordinated oversight within the
United States and abroad
More disclosure and transparency - both
to investors and regulators
Far higher liquidity for almost all banks
(again, we'll provide more details later in
this section)
Dramatically higher capital for almost all
banks (we'll talk later about how much
capital is the appropriate amount)
There is no question that the system is safer
and stronger today, and this is mostly due to
the following factors:
1. Talk about the strength and safety of the financial system and whether Too Big to Fail has
been solved.
II. REGULATORY REFORM
17
Since the financial crisis, thousands of new
rules and regulations have been put into
place by multiple regulators in the United
States and around the world. An already
complex system of financial oversight and
supervision has grown even more complex
- and this complexity can sometimes create
even more risk. Many of these rules and
regulations should be examined and possibly
modified, but I will focus on the few that are
critical in response to some of the questions
and topics that follow.
Adhering to these principles will maximize
safety and soundness, increase competition
and improve economic health.
Regular and rigorous regulatory review,
including consideration of costs vs. bene-
fits, efficiencies, competitiveness, reduc-
tion of redundant costs and assessment of
impact on economic growth
Consistent and transparent capital and
liquidity rules
Simplified and proper risk-based capital
standards
Global harmonization of regulation to
enhance fair trade and competition while
helping eliminate any weak links in the
global system
Coherence of rules to be coordinated both
within and across regulatory agencies
There are some basic principles that should guide
responsible regulation:
$19,943
One of the reasons we're performing well as
a company is we never stopped investing in
technology - this should never change. In
2016, we spent more than $9.5 billion in
technology firmwide, of which approxi-
mately $3 billion is dedicated toward new
initiatives. Of that amount, approximately
$600 million is spent on emerging fintech
solutions which include building and
improving digital and mobile services and
partnering with fintech companies. The
reasons we invest so much in technology
(whether it's digital, big data or machine
learning) are simple: to benefit customers
with better, faster and often cheaper prod-
ucts and services, to reduce errors and to
make the firm more efficient.
$20,549
$18,835
$3,255
$618
$3,633
$3,617
$3,802
$3,740
Deposits and client assets¹
($ in billions)
at December 31,
Assets Entrusted to us by Our Clients
I. THE JPMORGAN CHASE FRANCHISE
13
Our fortress balance sheet and the strength
of our people were never more vividly
evident than during the darkest hours of the
financial crisis. I was in awe of the tremen-
dous effort our people made (thousands
of people, seven days a week for months)
$503
clients and within our communities. We all
owe them an enormous debt. They are the
ones accomplishing all the things you are
reading about in this Annual Report.
-
We have extraordinary capabilities - both our
people and our technology.
111
112
84
177
I. THE JPMORGAN CHASE FRANCHISE
2. Why are we optimistic about our future growth opportunities?
We believe we have substantial opportuni-
ties in the decades ahead to drive organic
growth in our company. We have confidence
in the underlying growth in the U.S. and
global economies, which will fuel the growth
in our customer base - consumer deposits,
assets under management and small to large
clients globally. This growth will obviously
be faster in emerging markets than in devel-
oped markets and we are well-positioned
to serve both. In addition, we believe we
can continue to gain share in many markets
and, over time, add new, relevant products.
This can drive organic growth for years.
Capturing this growth is very basic:
.
Selectively adding investment bankers
and private bankers around the world
Bringing consumer and commercial
banking branches and capabilities to more
places in the United States
Adding wholesale branches overseas and
carefully expanding into new countries
Adding wholesale and Private Bank clients
as they grow into our target space
Equally important is using technology and
fintech to do a better job serving clients and
to grow our businesses – with better products
and services. You can read more about our
big data, machine learning, payment systems,
cybersecurity and electronic trading on pages
47-68 described by our senior executives. But
I do want to highlight a few items in the next
question that pertain to these topics.
Ultimately, our people are our most impor-
tant assets and they are exceptional. Their
knowledge, their capabilities and their
relationships are what drive everything else,
including our technology and our innovation.
They partner well with each other around
the world, and they are deeply trusted by our
$464
$558
$3,011
2016
2015
2014
2013
2012
2011
$16,870
■Consumer deposits
2016
2015
2014
2013
Assets under custody²
Client assets Wholesale deposits
2012
2011
$1,883
$2,353
$2,376
$2,061
$2,329
$2,427
$730
$755
$722
$757
$861
$824
$398
$439
$20,485
156
30%
(c)
756
193
(57)
(713)
208
1,263
(144)
Credit
876
Foreign exchange
(742)
10
(2)
211
72
98
(622)
(725)
549
67
Interest rate
(172) (c)
10
1
(935) 194
Commodity
(86)
(287)
(360)
(64)
Net derivative receivables: (a)
761
Total trading assets - debt and
equity instruments
11,930
(235) (c)
4,763
(4,936)
(3,051)
(577)
7,894
28
645
64
(649)
Equity securities
(207)
6,902
(537)
(2,651)
(4,541)
4,024
(314)
265
10,921
19
302
(544)
(968)
(712)
655
39
1,832
Total debt instruments
(124)
90
(40)
(17)
(1,384)
(350)
Equity
(1,514) (145)
277
(852)
213
(108)
(231)
(181)
649
79
744
Other
7
231
24
(2,252)
-
(85)
(36)
at January
December 31, 2016
Fair value
Year ended
Fair value measurements using significant unobservable inputs
1 (c)
47 (f)
1,606
617
(196)
(in millions)
(103)
30
50 (f)
744
All other
(485)
457
80 (c)
1,657
(11)
Private equity investments
1, 2016
Purchases(8) Sales
23 (c)
$
(869) $ 2,117
(1,283) $
1,375 $
$
-
$
Total
realized/
unrealized
(gains)/
losses
$
2,950 $
$
Deposits
Liabilities:(b)
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31, 2016
Fair value
at Dec.
31, 2016
Transfers into
and/or out of
level 3 (i)
Issuances Settlements(h)
(56) (c)
Other assets:
(163) (e)
6,096
1
1
Other
1
663
1 -- (119) (42)
823
Asset-backed securities
Total available-for-sale securities
Available-for-sale securities:
(2,360)
32
(293)
(1,025)
545
130 (c)
(1,749)
Total net derivative receivables
(1,238) (c)
824
1
(d)
(919)
(109)
679
-
(c)
570
(313)
(838)
(7)
259
(49) (c)
(163) (e)
6,608
Mortgage servicing rights
1,518
Loans
1 (d)
664
(42)
(119)
Asset-backed securities
(169)
4,837
257
(b) The unobservable inputs and associated input ranges for approximately $394 million of credit derivative receivables and $226 million of credit derivative
payables with underlying commercial mortgage risk have been included in the inputs and ranges provided for commercial mortgage-backed securities and
loans.
(a) The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated
balance sheets. Furthermore, the inputs presented for each valuation technique in the table are, in some cases, not applicable to every instrument valued
using the technique as the characteristics of the instruments can differ.
85%
80%
-
(50)%
65%
(30)%
(c) The unobservable inputs and associated input ranges for approximately $362 million of credit derivative receivables and $333 million of credit derivative
payables with underlying ABS risk have been included in the inputs and ranges provided for corporate debt securities, obligations of U.S. states and
municipalities and other.
38%
Interest rate spread volatility
Foreign exchange correlation
Equity correlation
Credit correlation
Discounted cash flows
476
100%
(30)%
Interest rate correlation
7.9x
11.5x
3%
6.4x
(d) Long-term debt, other borrowed funds and deposits include structured notes issued by the Firm that are predominantly financial instruments containing
embedded derivatives. The estimation of the fair value of structured notes includes the derivative features embedded within the instrument. The
significant unobservable inputs are broadly consistent with those presented for derivative receivables.
JPMorgan Chase & Co./2016 Annual Report
The level of volatility used in the valuation of a particular
option-based derivative depends on a number of factors,
including the nature of the risk underlying the option (e.g.,
the volatility of a particular equity security may be
significantly different from that of a particular commodity
index), the tenor of the derivative as well as the strike price
of the option.
Volatility Volatility is a measure of the variability in
possible returns for an instrument, parameter or market
index given how much the particular instrument, parameter
or index changes in value over time. Volatility is a pricing
input for options, including equity options, commodity
options, and interest rate options. Generally, the higher the
volatility of the underlying, the riskier the instrument. Given
a long position in an option, an increase in volatility, in
isolation, would generally result in an increase in a fair
value measurement.
The level of correlation used in the valuation of derivatives
with multiple underlying risks depends on a number of
factors including the nature of those risks. For example, the
correlation between two credit risk exposures would be
different than that between two interest rate risk
exposures. Similarly, the tenor of the transaction may also
impact the correlation input, as the relationship between
the underlying risks may be different over different time
periods. Furthermore, correlation levels are very much
dependent on market conditions and could have a relatively
wide range of levels within or across asset classes over
time, particularly in volatile market conditions.
Correlation - Correlation is a measure of the relationship
between the movements of two variables (e.g., how the
change in one variable influences the change in the other).
Correlation is a pricing input for a derivative product where
the payoff is driven by one or more underlying risks.
Correlation inputs are related to the type of derivative (e.g.,
interest rate, credit, equity and foreign exchange) due to
the nature of the underlying risks. When parameters are
positively correlated, an increase in one parameter will
result in an increase in the other parameter. When
parameters are negatively correlated, an increase in one
parameter will result in a decrease in the other parameter.
An increase in correlation can result in an increase or a
decrease in a fair value measurement. Given a short
correlation position, an increase in correlation, in isolation,
would generally result in a decrease in a fair value
measurement. The range of correlation inputs between
risks within the same asset class are generally narrower
than those between underlying risks across asset classes. In
addition, the ranges of credit correlation inputs tend to be
narrower than those affecting other asset classes.
Notes to consolidated financial statements
159
JPMorgan Chase & Co./2016 Annual Report
The loss severity applied in valuing a mortgage-backed
security investment depends on factors relating to the
underlying mortgages, including the LTV ratio, the nature of
the lender's lien on the property and other instrument-
specific factors.
158
Loss severity - The loss severity (the inverse concept is the
recovery rate) is the expected amount of future realized
losses resulting from the ultimate liquidation of a particular
loan, expressed as the net amount of loss relative to the
outstanding loan balance. An increase in loss severity is
generally accompanied by an increase in conditional default
rates. An increase in the loss severity, in isolation, would
result in a decrease in a fair value measurement.
Prepayment speed - The prepayment speed is a measure of
the voluntary unscheduled principal repayments of a
prepayable obligation in a collateralized pool. Prepayment
speeds generally decline as borrower delinquencies rise. An
increase in prepayment speeds, in isolation, would result in
a decrease in a fair value measurement of assets valued at
a premium to par and an increase in a fair value
measurement of assets valued at a discount to par.
The yield and the credit spread of a particular mortgage-
backed security primarily reflect the risk inherent in the
instrument. The yield is also impacted by the absolute level
of the coupon paid by the instrument (which may not
correspond directly to the level of inherent risk). Therefore,
the range of yield and credit spreads reflects the range of
risk inherent in various instruments owned by the Firm. The
risk inherent in mortgage-backed securities is driven by the
subordination of the security being valued and the
characteristics of the underlying mortgages within the
collateralized pool, including borrower FICO scores, LTV
ratios for residential mortgages and the nature of the
property and/or any tenants for commercial mortgages. For
corporate debt securities, obligations of U.S. states and
municipalities and other similar instruments, credit spreads
reflect the credit quality of the obligor and the tenor of the
obligation.
Credit spread - The credit spread is the amount of
additional annualized return over the market interest rate
that a market participant would demand for taking
exposure to the credit risk of an instrument. The credit
spread for an instrument forms part of the discount rate
used in a discounted cash flow calculation. Generally, an
increase in the credit spread would result in a decrease in a
fair value measurement.
Yield The yield of an asset is the interest rate used to
discount future cash flows in a discounted cash flow
calculation. An increase in the yield, in isolation, would
result in a decrease in a fair value measurement.
-
The following discussion also provides a description of
attributes of the underlying instruments and external
market factors that affect the range of inputs used in the
valuation of the Firm's positions.
The following discussion provides a description of the
impact on a fair value measurement of a change in each
unobservable input in isolation, and the interrelationship
between unobservable inputs, where relevant and
significant. The impact of changes in inputs may not be
independent, as a change in one unobservable input may
give rise to a change in another unobservable input. Where
relationships do exist between two unobservable inputs,
those relationships are discussed below. Relationships may
also exist between observable and unobservable inputs (for
example, as observable interest rates rise, unobservable
prepayment rates decline); such relationships have not
been included in the discussion below. In addition, for each
of the individual relationships described below, the inverse
relationship would also generally apply.
Changes in and ranges of unobservable inputs
Prepayment speeds may vary from collateral pool to
collateral pool, and are driven by the type and location of
the underlying borrower, and the remaining tenor of the
obligation as well as the level and type (e.g., fixed or
floating) of interest rate being paid by the borrower.
Typically collateral pools with higher borrower credit quality
have a higher prepayment rate than those with lower
borrower credit quality, all other factors being equal.
Conditional default rate - The conditional default rate is a
measure of the reduction in the outstanding collateral
balance underlying a collateralized obligation as a result of
defaults. While there is typically no direct relationship
between conditional default rates and prepayment speeds,
collateralized obligations for which the underlying collateral
has high prepayment speeds will tend to have lower
conditional default rates. An increase in conditional default
rates would generally be accompanied by an increase in loss
severity and an increase in credit spreads. An increase in
the conditional default rate, in isolation, would result in a
decrease in a fair value measurement. Conditional default
rates reflect the quality of the collateral underlying a
securitization and the structure of the securitization itself.
Based on the types of securities owned in the Firm's market-
making portfolios, conditional default rates are most
typically at the lower end of the range presented.
EBITDA multiple
Refer to Note 17
Discounted cash flows
1,606 Market comparables
16,669 Option pricing
-
$ 46
Forward commodity price
60%
20%
Equity volatility
65%
(30)%
$59 per barrel
Foreign exchange correlation
Collateralized loan obligations
Net equity derivatives
Net commodity derivatives
Net foreign exchange derivatives
85%
30%
Credit correlation
Discounted cash flows
98
(1,384) Option pricing
(2,252) Option pricing
(85) Discounted cash flows
663 Discounted cash flows
Credit spread
303bps
475bps
Long-term debt, other borrowed funds,
and deposits (d)
Private equity investments
6,096
MSRS
$73
$111
$ 0
30%
30%
Loss severity
Price
Market comparables
158
2%
2%
Conditional default rate
20%
20%
Prepayment speed
339bps
EBITDA multiple - EBITDA multiples refer to the input (often
derived from the value of a comparable company) that is
multiplied by the historic and/or expected earnings before
interest, taxes, depreciation and amortization ("EBITDA") of
a company in order to estimate the company's value. An
increase in the EBITDA multiple, in isolation, net of
adjustments, would result in an increase in a fair value
measurement.
Federal funds purchased and securities
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the
Consolidated balance sheets amounts (including changes in
fair value) for financial instruments classified by the Firm
within level 3 of the fair value hierarchy for the years ended
December 31, 2016, 2015 and 2014. When a
determination is made to classify a financial instrument
within level 3, the determination is based on the
significance of the unobservable parameters to the overall
fair value measurement. However, level 3 financial
instruments typically include, in addition to the
unobservable or level 3 components, observable
components (that is, components that are actively quoted
and can be validated to external sources); accordingly, the
gains and losses in the table below include changes in fair
value due in part to observable factors that are part of the
valuation methodology. Also, the Firm risk-manages the
observable components of level 3 financial instruments
using securities and derivative positions that are classified
within level 1 or 2 of the fair value hierarchy; as these level
1 and level 2 risk management instruments are not
included below, the gains or losses in the following tables
do not reflect the effect of the Firm's risk management
activities related to such level 3 instruments.
JPMorgan Chase & Co./2016 Annual Report
Corporate debt securities
74
securities
Non-U.S.government debt
649
(38)
(132)
149
ཙས
651
Obligations of U.S. states and
(28)
492
(180)
(138)
(643)
456
(27)
municipalities
1,024
(4)
(97)
(1,311)
(2,598)
2,228
(343)
6,604
Loans
(22)
576
91
(59)
(359)
445
2
736
(7)
46
(11)
(7)
(189)
Total mortgage-backed securities
3
17
U.S. government agencies
Mortgage-backed securities:
Debt instruments:
Trading assets:
Assets:
Change in
unrealized gains/
(losses) related
to financial
instruments held
at Dec. 31, 2016
Fair value
at Dec.
31, 2016
Transfers into
and/or out of
level 3 (i)
$
Settlements(h)
Fair value measurements using significant unobservable inputs
Total
realized/
unrealized
gains/
(losses)
1, 2016
(in millions)
at January
December 31, 2016
Fair value
Year ended
Purchases(g) Sales
715 $ (20)
$
Residential nonagency
(124)
(3)
(29)
69
(11)
115
Commercial nonagency
ཨ
83
(28)
(20)
(36)
$
(28) $ 392
(115) $
$
135 $ (295)
252
(319)
་
194
160
loaned or sold under repurchase
agreements
Other borrowed funds
824
(28) (d)
Loans
2,541
(133) (c)
1,290
(92)
(1,241)
(99)
(847)
(32) (c)
Mortgage servicing rights
7,436
(405) (e)
985
(486)
(922)
6,608
1,518
(405) (e)
(90)
51
536 (c)
Available-for-sale securities:
Asset-backed securities
908
(32)
51
(43)
(61)
(43)
823
Other
129
(29)
(99)
1
Total available-for-sale securities
1,037
(32) (d)
(28)
Other assets:
Private equity investments
2,225
Purchases(g)
Sales
Issuances Settlements(h)
Transfers into
and/or out of
level 3 (i)
Fair value
at Dec.
31, 2015
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31, 2015
Total
realized/
unrealized
(gains)/
losses
Deposits
Other borrowed funds
2,859 $ (39) (c)
1,453
(697) (c)
$
$
$ 1,993 $
3,334
(850) $
(2,963)
(1,013) $ 2,950
(488)
$
$
1, 2015
at January
Fair value
(120) (c)
281
(362)
(187)
(180)
1,657
(304) (c)
All other
959
91 (f)
65
(147)
(224)
744
15 (f)
Fair value measurements using significant unobservable inputs
Year ended
December 31, 2015
(in millions)
Liabilities:(b)
(1,749)
(29) (c)
(599)
(1,744)
(1,313)
192
(885)
744
85
Total trading assets - debt and
equity instruments
22,489
1,581
32 (c)
(9,866)
(3,374)
(7,027)
11,930
(89) (c)
Net derivative receivables: (a)
Interest rate
626
9,676
962
119
Other
8,006
(8,360)
(3,540)
(6,010)
10,921
(256)
Equity securities
431
1,050
96
(193)
(26)
(132)
265
82
Physical commodities
2
(2)
89
513
(173)
(732)
890
(1,262)
(158)
70
(1,514)
5
Commodity
(565) (856)
(1,785) 731
1
512
(3)
(935)
(41)
Total net derivative receivables
(2,061)
1,612 (c)
1,552
(24)
Equity
49
(725)
(320)
876
263
Credit
189
118
129
(136)
165
84
549
260
Foreign exchange
(526)
657
19
(149)
(296)
(430)
(509)
Net credit derivatives (b)(c)
639
Trading liabilities - debt and equity
327 $
$
922 $ (28)
$
U.S. government agencies
Mortgage-backed securities:
Debt instruments:
Trading assets:
(303)
Assets:
Change in
unrealized gains/
(losses) related
to financial
instruments held
at Dec.
31, 2015
Fair value
Transfers into
and/or out of
level 3 (i)
Settlements(h)
Purchases(g) Sales
Fair value measurements using significant unobservable inputs
realized/
unrealized
gains/
(losses)
at Dec. 31, 2015
Total
$
(71) $
(22)
(262)
246
(14)
306
Commercial - nonagency
4
194
(132) $
(218)
(611)
253
130
663
Residential nonagency
(27)
$
715
(23)
at January
1, 2015
(in millions)
December 31, 2015
JPMorgan Chase & Co./2016 Annual Report
11,613
(31) (c)
549
Long-term debt
consolidated VIES
Beneficial interests issued by
|
-
3 1
Accounts payable and other liabilities
23
(15)
(12) (c)
63
Trading liabilities - debt and equity
instruments
(230) (c)
639
19
1,876
(2)
(1,210)
2
Fair value
Year ended
Notes to consolidated financial statements
161
6(c)
540 (c)
- 13 .
(70) (c)
(18) (c)
13,894
(1,074)
48
(613)
(5,810)
143
8,949
8,
(6)
43
6
(22)
1,134
59
(139)
(57) (c)
115
Total mortgage-backed securities
(227)
549
(63) (c)
(2,786) 11,613
385
Total debt instruments
162
JPMorgan Chase & Co./2016 Annual Report
(574)
(6,299)
(32)
(47)
(35)
(1,229)
1,920
(41)
1,264
Asset-backed securities
(181)
1,832
6,604
286
9,359
(82) (c)
(480) (c)
instruments
72
15 (c)
(163)
160
(17)
(4)
63
(58)
Accounts payable and other liabilities
(7)
19
གྱི།
(4) (c)
Beneficial interests issued by
consolidated VIES
Long-term debt
1,146
11,877
26
(2,268)
(3,112)
(4,661)
(1)
651
(828)
(27)
(133)
352
14
1,273
Non-U.S. government debt
municipalities
(28)
1,024
(428)
(177)
(1,176)
826
88
1,891
Obligations of U.S. states and
securities
302
9
3,532
(174)
13,287
Loans
2
736
(2,184)
(125)
(1,038)
1,171
(77)
2,989
Corporate debt securities
(16)
74
(255)
(64)
(123)
205
(5)
38%
21,006
Interest rate spread volatility
43
Derivative payables:
Interest rate
539
569,001
1,238
(559,963)
10,815
19,081
Credit
Equity
Commodity
Total derivative payables(e)
Total trading liabilities
27,375
1,291
(27,255)
1,411
Foreign exchange
902
68,304
Debt and equity instruments(d)
6,580
(g)
(g)
2,861
Federal funds purchased and securities loaned or sold under repurchase agreements
Other borrowed funds
1,258,736
11,795
687
7,971
$
23,240
87,428
$
$
(858,538) $
$
647,381
13,912
687
1,134
9,105
Trading liabilities:
2,117
231,815
2,254
(214,463)
Beneficial interests issued by consolidated VIES
72
48
Long-term debt
Total liabilities measured at fair value on a recurring basis
$
79,025 $
23,792
946,870
9,120
$
120
37,686
$
(844,008) $
207,289
154
JPMorgan Chase & Co./2016 Annual Report
Fair value hierarchy
December 31, 2015 (in millions)
13,894
25,402
13
9,107
Accounts payable and other liabilities
20,508
35,202
3,160
(30,222)
8,140
173
20,079
210
(12,105)
8,357
1,614
883,472
8,153
69,918
902,553
8,196
(844,008)
(844,008)
49,231
136,659
2,223
Level 1
4,357
223,943 $
$
Deposits
1,065,134
13,687
(858,538)
372,078
64,005
64,005
14,442
1
151,795
14,443
9,104
Total mortgage-backed securities
87,551
1
87,552
U.S. Treasury and government agencies(a)
44,072
29
9,104
44,101
64,078
5,793
(28,351)
1,294
812
231,743
870
(210,154)
23,271
34,032
(858,538)
908
4,939
158
18,360
125
(12,371)
6,272
1,685
915,138
(30,001)
Obligations of U.S. states and municipalities
31,592
31,592
6,096
ུ' 'ཙྩཾ
27,401
6,967
926
238,891
2,230
6,096
Private equity investments(e)
1,660
68
1,674
All other
4,289
617
4,906
Total other assets(f)
Total assets measured at fair value on a recurring basis
$
1,606
170,436
926
67,791
6,967
Certificates of deposit
106
106
Non-U.S.government debt securities
22,793
12,495
35,288
Corporate debt securities
4,958
4,958
Collateralized loan obligations
Asset-backed securities:
Other
Equity securities
Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets:
26,738
$
1,389
Level 2
Federal funds sold and securities purchased under resale agreements
237
(15,880)
9,185
1,196
952,736
7,946
(902,201)
59,677
24,720
138,864
19,876
(902,201)
343,778
55,066
27,618
1
22,897
Total mortgage-backed securities
1,087,239
105,581
108
(30,330)
11,930
284,101
354
666,491
2,766
(643,248)
26,363
48,850
5,529
2,618
1,423
734
177,525
1,616
(162,698)
17,177
35,150
709
(50,045)
1
U.S. Treasury and government agencies(a)
10,998
Total available-for-sale securities
Loans
Mortgage servicing rights
Other assets:
30,248
759
31,007
9,033
Equity securities
64
2,087
36,284
2,087
204,646
824
241,754
1,343
1,518
3%
9,097
Other
12,436
36,676
38
Obligations of U.S. states and municipalities
33,550
Certificates of deposit
283
Non-U.S. government debt securities
23,199
13,477
Corporate debt securities
12,436
Asset-backed securities:
Collateralized loan obligations
55,066
27,619
22,897
105,582
11,036
33,550
283
11,896
Level 3
744
137,668
1,299
194
1,493
1,080
115
1,195
6
34,194
32,536
1,024
U.S. Treasury and government agencies(a)
12,036
6,985
19,021
Obligations of U.S. states and municipalities
6,986
651
7,637
35,224
Certificates of deposit, bankers' acceptances and commercial paper
715
6
$
$
Securities borrowed
23,141
395
$
$
Derivative
netting
adjustments
$
31,815
Total fair value
395
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies(a)
Residential nonagency
Commercial - nonagency
Total mortgage-backed securities
23,141
1,042
1,042
Non-U.S. government debt securities
Credit
Foreign exchange
Equity
Commodity
Total derivative receivables(e)
Total trading assets(f)
Available-for-sale securities:
Mortgage-backed securities:
U.S.government agencies(a)
Residential nonagency
Commercial nonagency
Interest rate
40,016
94,059
10,921
172,618
606
265
94,930
3,593
1,064
4,657
121,681
Derivative receivables:
Total debt and equity instruments(d)
Other
27,974
25,064
74
53,112
Corporate debt securities
22,807
736
23,543
Loans (b)
22,211
6,604
28,815
Asset-backed securities
2,392
1,832
4,224
Total debt instruments
Equity securities
Physical commodities(c)
11,152
134,503
28,256
$
(577,661)
$
(890,122)
$
787
33,065
4,401
19
549
11,613
25,528
$
238
21,452
996,533
191,103
59,164 $
Total liabilities measured at fair value on a recurring basis
Long-term debt
Beneficial interests issued by consolidated VIES
126,897
(890,122)
9,758
52,790
(890,122)
$
9,695
JPMorgan Chase & Co./2016 Annual Report
Notes to consolidated financial statements
$3.1 billion of long-term debt and $1.0 billion of
deposits driven by an increase in observability on
certain structured notes with embedded interest rate
and FX derivatives and a reduction of the significance in
the unobservable inputs for certain structured notes
with embedded equity derivatives.
During the year ended December 31, 2015, transfers from
level 3 to level 2 included the following:
$1.0 billion of trading loans driven by a decrease in
observability.
$1.1 billion of gross equity derivative receivables and
$1.0 billion of gross equity derivative payables as a
result of a decrease in observability and an increase in
the significance in unobservable inputs.
•
During the year ended December 31, 2016, transfers from
level 2 to level 3 included the following:
$1.4 billion of long-term debt driven by an increase in
observability and a reduction of the significance in the
unobservable inputs for certain structured notes.
•
155
•
For the years ended December 31, 2016 and 2015, there
were no significant transfers between levels 1 and 2.
Transfers between levels for instruments carried at
fair value on a recurring basis
(g) Private equity instruments represent investments within Corporate. The portion of the private equity investment portfolio carried at fair value on a recurring basis had a cost
basis of $2.5 billion and $3.5 billion at December 31, 2016 and 2015, respectively.
(f) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be classified in the fair
value hierarchy. At December 31, 2016 and 2015, the fair values of these investments, which include certain hedge funds, private equity funds, real estate and other funds,
were $1.0 billion and $1.2 billion, respectively. Included in the balances at December 31, 2016 and 2015, were trading assets of $52 million and $61 million, respectively, and
other assets of $1.0 billion and $1.2 billion, respectively.
(e) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally
enforceable master netting agreement exists. For purposes of the tables above, the Firm does not reduce derivative receivables and derivative payables balances for this netting
adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to a presentation based on the transparency of inputs to the valuation of
an asset or liability. The level 3 balances would be reduced if netting were applied, including the netting benefit associated with cash collateral.
(c) Physical commodities inventories are generally accounted for at the lower of cost or market. "Market" is a term defined in U.S. GAAP as not exceeding fair value less costs to sell
("transaction costs"). Transaction costs for the Firm's physical commodities inventories are either not applicable or immaterial to the value of the inventory. Therefore, market
approximates fair value for the Firm's physical commodities inventories. When fair value hedging has been applied (or when market is below cost), the carrying value of physical
commodities approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. For a further discussion of the Firm's hedge
accounting relationships, see Note 6. To provide consistent fair value disclosure information, all physical commodities inventories have been included in each period presented.
(d) Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).
(b) At December 31, 2016 and 2015, included within trading loans were $16.5 billion and $11.8 billion, respectively, of residential first-lien mortgages, and $3.3 billion and $4.3
billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell to U.S. government
agencies of $11.0 billion and $5.3 billion, respectively, and reverse mortgages of $2.0 billion and $2.5 billion, respectively.
(a) At December 31, 2016 and 2015, included total U.S. government-sponsored enterprise obligations of $80.6 billion and $67.0 billion, respectively, which were predominantly
mortgage-related.
During the year ended December 31, 2016, transfers from
level 3 to level 2 included the following:
932,280
952,479
937
54,782
4,382
12,076
Credit
10,221
(624,945)
1,890
633,060
216
Interest rate
Derivative payables:
Foreign exchange
74,107
20,199
53,845
Debt and equity instruments(d)
Trading liabilities:
9,911
639
9,272
3,526
63
Equity
Commodity
Total derivative payables(e)
(15,578)
1,172
26,430
52
9,183
(29,480)
2,223
36,440
19,769
(171,131)
2,341
187,890
669
1,541
(48,988)
2,069
48,460
Accounts payable and other liabilities
Total trading liabilities
$2.1 billion of gross equity derivatives for both
receivables and payables as a result of an increase in
observability and a decrease in the significance in
unobservable inputs; partially offset by transfers into
level 3 resulting in net transfers of approximately $1.2
billion for both receivables and payables.
3,526
$2.8 billion of trading loans driven by an increase in
observability of certain collateralized financing
transactions.
level 2 to level 3 included the following:
764
Corporate debt securities, obligations
40%
40%
Loss severity
69%
100%
0%
Discounted cash flows
Conditional default rate
32%
1%
Yield
Discounted cash flows
1,555
Commercial mortgage-backed
securities and loans (b)
37%
90%
8%
0%
Credit spread
375bps
100%
(30)%
Interest rate correlation
$91
$121
0
$
Price
40bps
Market comparables
Option pricing
Net interest rate derivatives
3,744
9%
17%
1%
Yield
of U.S. states and municipalities, and
other(c)
96bps
1,263
Loss severity
15%
34%
157
JPMorgan Chase & Co./2016 Annual Report
For the Firm's derivatives and structured notes positions
classified within level 3 at December 31, 2016, interest
rate correlation inputs used in estimating fair value were
concentrated towards the upper end of the range
presented; equity correlation inputs were concentrated at
the upper end of the range; the credit correlation inputs
were distributed across the range presented; and the
foreign exchange correlation inputs were concentrated at
the upper end of the range presented. In addition, the
interest rate volatility inputs used in estimating fair value
were distributed across the range presented; equity
volatilities were concentrated in the lower half end of the
range; and forward commodity prices used in estimating the
fair value of commodity derivatives were concentrated in
the middle of the range presented.
In the Firm's view, the input range and the weighted
average value do not reflect the degree of input uncertainty
or an assessment of the reasonableness of the Firm's
estimates and assumptions. Rather, they reflect the
characteristics of the various instruments held by the Firm
and the relative distribution of instruments within the range
of characteristics. For example, two option contracts may
have similar levels of market risk exposure and valuation
uncertainty, but may have significantly different implied
volatility levels because the option contracts have different
underlyings, tenors, or strike prices. The input range and
weighted average values will therefore vary from period-to-
period and parameter-to-parameter based on the
characteristics of the instruments held by the Firm at each
balance sheet date.
The range of values presented in the table is representative
of the highest and lowest level input used to value the
significant groups of instruments within a product/
instrument classification. Where provided, the weighted
averages of the input values presented in the table are
calculated based on the fair value of the instruments that
the input is being used to value.
The following table presents the Firm's primary level 3
financial instruments, the valuation techniques used to
measure the fair value of those financial instruments, the
significant unobservable inputs, the range of values for
those inputs and, for certain instruments, the weighted
averages of such inputs. While the determination to classify
an instrument within level 3 is based on the significance of
the unobservable inputs to the overall fair value
measurement, level 3 financial instruments typically include
observable components (that is, components that are
actively quoted and can be validated to external sources) in
addition to the unobservable components. The level 1 and/
or level 2 inputs are not included in the table. In addition,
the Firm manages the risk of the observable components of
level 3 financial instruments using securities and derivative
positions that are classified within levels 1 or 2 of the fair
value hierarchy.
curves.
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate model to use. Second, due to the lack of
observability of significant inputs, management must assess
all relevant empirical data in deriving valuation inputs
including, but not limited to, transaction details, yield
curves, interest rates, prepayment speed, default rates,
volatilities, correlations, equity or debt prices, valuations of
comparable instruments, foreign exchange rates and credit
Notes to consolidated financial statements
Estimating fair value requires the application of judgment.
The type and level of judgment required is largely
dependent on the amount of observable market information
available to the Firm. For instruments valued using
internally developed models that use significant
unobservable inputs and are therefore classified within
level 3 of the fair value hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
28,302
JPMorgan Chase & Co./2016 Annual Report
156
All transfers are assumed to occur at the beginning of the
quarterly reporting period in which they occur.
Transfers from level 2 into level 3 included $1.1 billion
of other borrowed funds, $1.1 billion of trading loans
and $1.0 billion of long-term debt, based on a decrease
in observability of valuation inputs and price
transparency.
$4.3 billion and $4.4 billion of gross equity derivative
receivables and payables, respectively, due to increased
observability of certain equity option valuation inputs
$2.7 billion of trading loans, $2.6 billion of margin
loans, $2.3 billion of private equity investments, $2.0
billion of corporate debt, and $1.3 billion of long-term
debt, based on increased liquidity and price
transparency
$2.4 billion of corporate debt driven by a decrease in
the significance in the unobservable inputs and an
increase in observability for certain structured products
During the year ended December 31, 2014, transfers from
level 3 to level 2 included the following:
•
The Firm has established well-structured processes for
determining fair value, including for instruments where fair
value is estimated using significant unobservable inputs
(level 3). For further information on the Firm's valuation
process and a detailed discussion of the determination of
fair value for individual financial instruments, see pages
150-153 of this Note.
Product/Instrument
Level 3 inputs(a)
December 31, 2016 (in millions, except for ratios and basis points)
0%
Conditional default rate
8%
20%
0%
Prepayment speed
securities and loans
5%
18%
4%
Yield
Discounted cash flows
$ 2,861
Residential mortgage-backed
Weighted
average
Range of input values
Unobservable inputs
Fair
value
Principal valuation
technique
During the year ended December 31, 2015, transfers from
Federal funds purchased and securities loaned or sold under repurchase agreements
Other borrowed funds
Level 3 valuations
$
19,554
5,201
24,755
Obligations of U.S. states and municipalities
8,403
649
9,052
Certificates of deposit, bankers' acceptances and commercial paper
U.S. Treasury and government agencies(a)
1,649
Non-U.S. government debt securities
28,443
23,076
46
51,565
Corporate debt securities
22,751
576
1,649
23,327
43,964
43,459
Debt instruments:
Mortgage-backed securities:
U.S. government agencies(a)
Residential nonagency
Commercial nonagency
Total mortgage-backed securities
13
40,586
492
392
1
1,552
83
1,635
1,321
17
1,338
13
40,991
Loans (b)
28,965
4,837
96,759
281
231
97,271
5,341
1,620
6,961
9,341
193,666
761
150,110
149,996
7,894
308,000
715
602,747
12,516
2,501
10,102
6,902
138,754
48,010
33,802
Asset-backed securities
302
5,552
Total debt instruments
Equity securities
Physical commodities(c)
Other
Total debt and equity instruments(d)
Derivative receivables:
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total derivative receivables(e)
Total trading assets (f)
Available-for-sale securities:
Mortgage-backed securities:
U.S.government agencies(a)
Residential nonagency
Commercial nonagency
Trading assets:
Securities borrowed
5,250
$
1,657
101
102
Private equity investments(e)
6,608
6,608
Product/instrument
Mortgage servicing rights
1,860
Valuation methodology, inputs and assumptions
Private equity direct investments Private equity direct investments
Fair value is estimated using all available information; the range of
potential inputs include:
Classification in the valuation
hierarchy
Level 3
Level 2 or 3
624,984
•
Transaction prices
See Mortgage servicing rights in Note 17.
All other
3,815
Total other assets(f)
$
Total fair value
21,506
(902,201)
$
$
2,950
$
9,566
31,227
$
1,316,893
6,447
4,587
744
2,401
129
3,917
179,065 $
$
$
Deposits
$
Total assets measured at fair value on a recurring basis
•
Trading multiples of comparable public companies
28
Beneficial interests issued by
consolidated VIES
(a) Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient.
JPMorgan Chase & Co./2016 Annual Report
153
Notes to consolidated financial statements
The following table presents the assets and liabilities reported at fair value as of December 31, 2016 and 2015, by major
product category and fair value hierarchy.
Assets and liabilities measured at fair value on a recurring basis
Fair value hierarchy
Derivative
Level 2 or 3
Level 1
Level 3
netting
adjustments
Federal funds sold and securities purchased under resale agreements
$
$
Fund investments (e.g. mutual/
collective investment funds,
private equity funds, hedge
funds, and real estate funds)
21,506
$
Level 2
Predominantly level 2
December 31, 2016 (in millions)
• Additional available inputs relevant to the investment
Structured notes (included in
deposits, other borrowed funds
and long-term debt)
.
Level 2 or 3
.
Operating performance of the underlying portfolio company
Adjustments as required, since comparable public companies are
not identical to the company being valued, and for company-
specific issues and lack of liquidity
Net asset value
.
Long-term debt, not carried at
fair value
.
NAV is supported by the ability to redeem and purchase at the NAV Level 1
level.
Adjustments to the NAV as required, for restrictions on redemption
(e.g., lock-up periods or withdrawal limitations) or where
observable activity is limited
Valued using observable market information, where available
In the absence of observable market information, valuations are
based on the fair value of the underlying assets held by the VIE
Valuations are based on discounted cash flows, which consider:
Market rates for respective maturity
•
•
Level 2 or 3(a)
Valuations are based on discounted cash flow analyses that
consider the embedded derivative and the terms and payment
structure of the note.
The embedded derivative features are considered using models
such as the Black-Scholes option pricing model, simulation
models, or a combination of models that use observable or
unobservable valuation inputs, depending on the embedded
derivative. The specific inputs used vary according to the nature of
the embedded derivative features, as described in the discussion
above regarding derivatives valuation. Adjustments are then made
to this base valuation to reflect the Firm's own creditworthiness
(DVA) and to incorporate the impact of funding (FVA). See pages
164-165 of this Note.
(276)
1,426
239
Other
(1)
2
(201)
(1)
2,000
711
(16,786)
1,050
329
Total trading assets - debt and
equity instruments
27,206
1,067 (c)
26,494
(10,289)
(5,203)
22,489
4
(2,138)
Physical commodities
(30)
431
(c)
(2,126)
(283)
142
1,264
Total debt instruments
24,335
716
24,820
(16,251)
(9,801)
(2,813)
21,006
336
Equity securities
867
113
248
(259)
(286)
(252)
46
Net derivative receivables: (a)
Total net derivative receivables
2,379
(2,863)
10
(67)
(1,785)
583
Commodity
115 (465)
1
(113)
(109)
6
(565)
(186)
326
(413) (c)
2,654
(3,306)
(1,110)
(212)
2,240
(2,061)
2,044
(1,063) 154
Equity
(62)
184
198
(256)
(1,771)
(108)
626
(853)
Credit
95 (149)
272
Interest rate
(47)
(74)
189
(107)
Foreign exchange
(1,200) (137)
139
(27)
668
31
(526)
92
19
Settlements(h)
Asset-backed securities
351
$ (186)
$
(121) $
(30) $
922
$
(92)
Residential nonagency
726
66
827
(761)
(41)
(154)
663
(15)
Commercial nonagency
432
17
980
$
(914)
(97)
U.S. government agencies
(625) (c)
Total
realized/
unrealized
Fair value measurements using significant unobservable inputs
Year ended
Fair value
December 31, 2014
at January
(in millions)
1, 2014
gains/
(losses)
Purchases(g)
Sales
Transfers into
and/or out of
level 3 (i)
Assets:
Trading assets:
Debt instruments:
Fair value at
Dec. 31,
2014
Change in
unrealized gains/
(losses) related
to financial
instruments held
at Dec. 31, 2014
Mortgage-backed securities:
$ 1,005 $
(60)
(149)
306
36
302
10
Corporate debt securities
5,920
210
5,854
(3,372)
(4,531)
(1,092)
2,989
379
Loans
13,455
387
13,551
(7,917)
(4,623)
(1,566)
13,287
123
(3)
(617)
719
24
(12)
Total mortgage-backed securities
2,163
(14)
2,158
(1,861)
(222)
(333)
1,891
(119)
1,272
Obligations of U.S. states and
1,382
90
298
(358)
(139)
1,273
(27)
Non-U.S. government debt
securities
143
municipalities
Available-for-sale securities:
(4) (c)
1,088
34
Other assets
(d)
(d)
20
62
82
79
(1)
78
24
(0)
30
Deposits(a)
(134)
(134)
93
34
40
49
4
232
818
1,050
352
1,353
(c)
1,705
Loans:
93
Changes in instrument-specific
credit risk
|
13
35
35
40
Other changes in fair value
(7)
(7)
13
(287)
(287)
Federal funds purchased and
Beneficial interests issued by
consolidated VIES
23
23
49
49
(233)
(233)
(17)
Other liabilities
(27)
Long-term debt:
DVA on fair value option elected
liabilities (a)
Other changes in fair value(b)
(773)
(773)
300
1,088
300
(27)
763
(17)
(20)
securities loaned or sold under
repurchase agreements (a)
19
19
8
8
(33)
(33)
(20)
Other borrowed funds (a)
(236)
1,996
1,996
(891)
(891)
Trading liabilities
6
6
(236)
(c)
684
79
Structured notes, which are predominantly financial
instruments that contain embedded derivatives, that are
issued as part of CIB's client-driven activities
Certain long-term beneficial interests issued by CIB's
consolidated securitization trusts where the underlying
assets are carried at fair value
168
JPMorgan Chase & Co./2016 Annual Report
Changes in fair value under the fair value option election
The following table presents the changes in fair value included in the Consolidated statements of income for the years ended
December 31, 2016, 2015 and 2014, for items for which the fair value option was elected. The profit and loss information
presented below only includes the financial instruments that were elected to be measured at fair value; related risk
management instruments, which are required to be measured at fair value, are not included in the table.
2016
2015
Owned beneficial interests in securitized financial assets
that contain embedded credit derivatives, which would
otherwise be required to be separately accounted for as
a derivative instrument
2014
All other
income
Total
changes
in fair
value
recorded
Principal
transactions
All other
income
Total
changes
in fair
value
recorded
Principal
transactions
All other
income
Total
changes
in fair
value
recorded
Principal
transactions
December 31, (in millions)
Certain securities financing arrangements with an
embedded derivative and/or a maturity of greater than
one year
.
Wholesale lending-
related commitments $ 1.1 $ - $ - $ 2.1 $
2.1
$
0.8 $
$
$
3.0 $
Loans purchased or originated as part of securitization
warehousing activity, subject to bifurcation accounting,
or managed on a fair value basis
3.0
The Firm does not estimate the fair value of consumer lending-related commitments. In many cases, the Firm can reduce or
cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without notice. For a further
discussion of the valuation of lending-related commitments, see page 151 of this Note.
JPMorgan Chase & Co./2016 Annual Report
167
Notes to consolidated financial statements
Note 4 - Fair value option
The fair value option provides an option to elect fair value
as an alternative measurement for selected financial assets,
financial liabilities, unrecognized firm commitments, and
written loan commitments.
The Firm has elected to measure certain instruments at fair
value for several reasons including to mitigate income
statement volatility caused by the differences between the
measurement basis of elected instruments (e.g. certain
instruments elected were previously accounted for on an
accrual basis) and the associated risk management
arrangements that are accounted for on a fair value basis,
as well as to better reflect those instruments that are
managed on a fair value basis.
The Firm's election of fair value includes the following
instruments:
(a) Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which is recognized at fair value at the inception of the
guarantees.
101
Federal funds sold and securities
agreements
639
639
Loans reported as trading
assets:
Changes in instrument-
specific credit risk
Other changes in fair value
461
746
523
504
138
41 (c)
179
885
29 (c)
914
(c)
43 (c)
purchased under resale
(10) (c)
119
$
Securities borrowed
(76) $
1
$
(76) $
1
$
(38) $
(15) $
756
$
(6)
(6)
(10)
(10)
Trading assets:
Debt and equity instruments,
excluding loans
120
(1) (c)
(15)
Total
estimated
fair value
1,088
101
170
JPMorgan Chase & Co./2016 Annual Report
Structured note products by balance sheet classification and risk component
The table below presents the fair value of the structured notes issued by the Firm, by balance sheet classification and the
primary risk type.
(in millions)
Risk exposure
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total structured notes
December 31, 2016
Other
December 31, 2015
Other
Long-term borrowed
debt
funds Deposits
Total
Long-term borrowed
debt
funds
At December 31, 2016 and 2015, the contractual amount of lending-related commitments for which the fair value option was
elected was $4.6 billion for both years, with a corresponding fair value of $(118) million and $(94) million, respectively. For
further information regarding off-balance sheet lending-related financial instruments, see Note 29.
(a) There were no performing loans that were ninety days or more past due as of December 31, 2016 and 2015, respectively.
(b) Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is
obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return a
stated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in the
note. However, investors are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal protected notes.
(c) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if
applicable, the contractual principal payment at the Firm's next call date.
ΝΑ
787
ΝΑ
Long-term beneficial interests
Nonprincipal-protected debt
Total long-term beneficial interests
ΝΑ
$
120
ΝΑ
Deposits Total
NA
787
ΝΑ
NA
$
120
NA
ΝΑ
$
$
$ 16,296 $ 184 $ 4,296 $ 20,776
$ 12,531 $
3,267
27,733
2,336
640
50
1,981
2,671
$ 37,247 $ 8,815 $ 11,594 $ 57,656 $ 32,424 $ 9,179 $10,325 $ 51,928
JPMorgan Chase & Co./2016 Annual Report
4,993
171
Note 5 - Credit risk concentrations
Concentrations of credit risk arise when a number of
customers are engaged in similar business activities or
activities in the same geographic region, or when they have
similar economic features that would cause their ability to
meet contractual obligations to be similarly affected by
changes in economic conditions.
JPMorgan Chase regularly monitors various segments of its
credit portfolios to assess potential credit risk
concentrations and to obtain collateral when deemed
necessary. Senior management is significantly involved in
the credit approval and review process, and risk levels are
adjusted as needed to reflect the Firm's risk appetite.
In the Firm's consumer portfolio, concentrations are
evaluated primarily by product and by U.S. geographic
region, with a key focus on trends and concentrations at the
portfolio level, where potential credit risk concentrations
can be remedied through changes in underwriting policies
and portfolio guidelines. In the wholesale portfolio, credit
risk concentrations are evaluated primarily by industry and
monitored regularly on both an aggregate portfolio level
and on an individual customer basis. The Firm's wholesale
exposure is managed through loan syndications and
participations, loan sales, securitizations, credit derivatives,
master netting agreements, and collateral and other risk-
reduction techniques. For additional information on loans,
see Note 14.
The Firm does not believe that its exposure to any
particular loan product (e.g., option ARMs), or industry
segment (e.g., commercial real estate), or its exposure to
residential real estate loans with high LTV ratios, results in a
significant concentration of credit risk.
Terms of loan products and collateral coverage are included
in the Firm's assessment when extending credit and
establishing its allowance for loan losses.
172
JPMorgan Chase & Co./2016 Annual Report
Notes to consolidated financial statements
33,065
8,447
28,546
225
3,492
3,195
58 $ 3,340 $ 15,929
547
3,742
2,365
135
6
14,293
2,506
77
11
1,853
14,831
8,234
488
37
5,481
1,811
1,765
$
ΝΑ
NA
over/
(under)
contractual
Fair value
principal
outstanding
Nonaccrual loans
Loans reported as trading assets
$
3,338
$
contractual Contractual
principal principal
Fair value outstanding outstanding
748 $ (2,590) $ 3,484
Loans
7
631 $
7
(2,853)
Subtotal
3,338
748
(2,590)
$
3,491
Contractual
principal
outstanding
2015
(615)
(a) Effective January 1, 2016, unrealized gains/(losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected is
recorded in OCI, while realized gains/(losses) are recorded in principal transactions revenue. DVA for 2015 and 2014 was included in principal transactions revenue,
and includes the impact of the Firm's own credit quality on the inception value of liabilities as well as the impact of changes in the Firm's own credit quality
subsequent to issuance. See Notes 3 and 25 for further information.
(b) Long-term debt measured at fair value predominantly relates to structured notes containing embedded derivatives. Although the risk associated with the structured
notes is actively managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage
such risk.
(c) Reported in mortgage fees and related income.
(d) Reported in other income.
JPMorgan Chase & Co./2016 Annual Report
169
Notes to consolidated financial statements
Fair value
Determination of instrument-specific credit risk for items
for which a fair value election was made
•
Loans and lending-related commitments: For floating-
rate instruments, all changes in value are attributed to
instrument-specific credit risk. For fixed-rate
instruments, an allocation of the changes in value for the
period is made between those changes in value that are
interest rate-related and changes in value that are
credit-related. Allocations are generally based on an
analysis of borrower-specific credit spread and recovery
information, where available, or benchmarking to similar
entities or industries.
Long-term debt: Changes in value attributable to
instrument-specific credit risk were derived principally
from observable changes in the Firm's credit spread.
Resale and repurchase agreements, securities borrowed
agreements and securities lending agreements:
Generally, for these types of agreements, there is a
requirement that collateral be maintained with a market
value equal to or in excess of the principal amount
loaned; as a result, there would be no adjustment or an
immaterial adjustment for instrument-specific credit risk
related to these agreements.
Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal
balance outstanding as of December 31, 2016 and 2015, for loans, long-term debt and long-term beneficial interests for
which the fair value option has been elected.
December 31, (in millions)
Loans (a)
2016
Fair value
over/
(under)
The following describes how the gains and losses that are
attributable to changes in instrument-specific credit risk,
were determined.
(615)
638
All other performing loans
(c)
Nonprincipal-protected debt (b)
ΝΑ
19,195 $
18,491
(2,407) $
17,910
(c)
$
21,602
16,611 $
ΝΑ
ΝΑ
16,454
NA
Total long-term debt
ΝΑ
$
37,686
(1,299)
(2,853)
$
Long-term debt
Loans reported as trading assets
35,477
Loans
Total loans
$
2,259
41,074
33,054
2,228
$ 36,030 $
(2,423)
(31)
(5,044) $
Principal-protected debt
30,780
(2,596)
2,771
2,752
(19)
37,042
$
31,574 $
(5,468)
28,184
Level 3
Level 2
Level 1
(281)
11,877
(9) (c)
(a) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.
(b) Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis) were 12%, 13% and 15% at
December 31, 2016, 2015 and 2014, respectively.
JPMorgan Chase & Co./2016 Annual Report
163
Notes to consolidated financial statements
(c) Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans, and lending-related commitments originated with the intent to sell,
and mortgage loan purchase commitments, which are reported in mortgage fees and related income.
(d) Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment ("OTTI") losses that are recorded in earnings, are reported in securities gains. Unrealized gains/
(losses) are reported in OCI. Realized gains/(losses) and foreign exchange hedge accounting adjustments recorded in income on AFS securities were zero, $(7) million, and $(43)
million for the years ended December 31, 2016, 2015 and 2014, respectively. Unrealized gains/(losses) recorded on AFS securities in OCI were $1 million, $(25) million and $(16)
million for the years ended December 31, 2016, 2015 and 2014, respectively.
(e) Changes in fair value for CCB MSRS are reported in mortgage fees and related income.
(f) Predominantly reported in other income.
(g) Loan originations are included in purchases.
(h) Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, and deconsolidation associated with beneficial interests in VIES.
(i) All transfers into and/or out of level 3 are assumed to occur at the beginning of the quarterly reporting period in which they occur.
Level 3 analysis
Consolidated balance sheets changes
Level 3 assets (including assets measured at fair value on a
nonrecurring basis) were 1.0% of total Firm assets at
December 31, 2016. The following describes significant
changes to level 3 assets since December 31, 2015, for
those items measured at fair value on a recurring basis. For
further information on changes impacting items measured
at fair value on a nonrecurring basis, see Assets and
liabilities measured at fair value on a nonrecurring basis on
page 165.
For the year ended December 31, 2016
(5,231)
7,421
(40) (c)
(22) (c)
(305)
323
(5)
(49)
72
2 (c)
Accounts payable and other liabilities
27 (c)
Level 3 assets were $23.2 billion at December 31, 2016,
reflecting a decrease of $8.0 billion from December 31,
2015. This decrease was driven by settlements (including
repayments and restructurings) and transfers to Level 2
due to an increase in observability and a decrease in the
significance of unobservable inputs. In particular:
(1)
Beneficial interests issued by
consolidated VIES
Long-term debt
1,240
10,008
-- 775
(763)
(102)
1,146
26
•
•
$4.0 billion decrease in trading assets - debt and equity
instruments was predominantly driven by a decrease of
$1.8 billion in trading loans largely due to settlements,
and a $1.5 billion decrease in asset-backed securities
due to settlements and transfers from level 3 to level 2
as a result of increased observability of certain valuation
inputs
The following table provides the impact of credit and
funding adjustments on principal transactions revenue in
the respective periods, excluding the effect of any
associated hedging activities. The DVA and FVA reported
below include the impact of the Firm's own credit quality on
the inception value of liabilities as well as the impact of
changes in the Firm's own credit quality over time.
2016
2015
2014
Year ended December 31,
(in millions)
Credit adjustments:
Derivatives CVA
The key inputs to FVA are: (i) the expected funding
requirements arising from the Firm's positions with each
counterparty and collateral arrangements; (ii) for assets,
the estimated market funding cost in the principal market;
and (iii) for liabilities, the hypothetical market funding cost
for a transfer to a market participant with a similar credit
standing as the Firm. For collateralized derivatives, the fair
value is estimated by discounting expected future cash
flows at the relevant overnight indexed swap rate given the
underlying collateral agreement with the counterparty, and
therefore a separate FVA is not necessary.
$
$
Derivatives DVA and FVA
7
73
(322)
(58)
Valuation adjustments on fair value option elected
liabilities
The valuation of the Firm's liabilities for which the fair value
option has been elected requires consideration of the Firm's
own credit risk. DVA on fair value option elected liabilities is
measured using (i) the current fair value of the liability and
(ii) changes (subsequent to the issuance of the liability) in
the Firm's probability of default and LGD, which are
estimated based on changes in the Firm's credit spread
observed in the bond market. Effective January 1, 2016,
the effect of DVA on fair value option elected liabilities is
recognized in OCI. See Note 25 for further information.
Assets and liabilities measured at fair value on a
nonrecurring basis
At December 31, 2016 and 2015, assets measured at fair
value on a nonrecurring basis were $1.6 billion and $1.7
billion, respectively, consisting predominantly of loans that
had fair value adjustments for the years ended
December 31, 2016 and 2015. At December 31, 2016,
$735 million and $822 million of these assets were
classified in levels 2 and 3 of the fair value hierarchy,
respectively. At December 31, 2015, $696 million and
$959 million of these assets were classified in levels 2 and
3 of the fair value hierarchy, respectively. Liabilities
measured at fair value on a nonrecurring basis were not
significant at December 31, 2016 and 2015. For the years
ended December 31, 2016, 2015 and 2014, there were no
significant transfers between levels 1, 2 and 3 related to
assets held at the balance sheet date.
(84) $ 620
(5) (c)
JPMorgan Chase & Co./2016 Annual Report
DVA represents the adjustment, relative to the relevant
benchmark interest rate, necessary to reflect the credit
quality of the Firm. The derivative DVA calculation
methodology is generally consistent with the CVA
methodology described above and incorporates JPMorgan
Chase's credit spread as observed through the CDS market
to estimate the PD and LGD as a result of a systemic event
affecting the Firm.
$2.1 billion decrease in gross derivative receivables was
driven by a decrease in credit and foreign exchange
derivative receivables due to market movements and
transfers from level 3 to level 2 as a result of increased
observability of certain valuation inputs
Gains and losses
The following describes significant components of total
realized/unrealized gains/(losses) for instruments
measured at fair value on a recurring basis for the years
ended December 31, 2016, 2015 and 2014. For further
information on these instruments, see Changes in level 3
recurring fair value measurements rollforward tables on
pages 160-164.
2016
•
•
There were no individually significant movements for the
year ended December 31, 2016.
2015
FVA represents the adjustment to reflect the impact of
funding and is recognized where there is evidence that a
market participant in the principal market would
incorporate it in a transfer of the instrument. The Firm's
FVA framework, applied to uncollateralized (including
partially collateralized) OTC derivatives, leverages its
existing CVA and DVA calculation methodologies, and
considers the fact that the Firm's own credit risk is a
significant component of funding costs.
• $1.6 billion of net gains in interest rate, foreign exchange
and equity derivative receivables largely due to market
movements; partially offset by losses on commodity
derivatives due to market movements
164
2014
•
$1.8 billion of losses on MSRs. For further discussion of
the change, refer to Note 17
.
• $1.1 billion of net gains on trading assets - debt and
equity instruments, largely driven by market movements
and client-driven financing transactions
Credit and funding adjustments - derivatives
Derivatives are generally valued using models that use as
their basis observable market parameters. These market
parameters generally do not consider factors such as
counterparty nonperformance risk, the Firm's own credit
quality, and funding costs. Therefore, it is generally
necessary to make adjustments to the base estimate of fair
value to reflect these factors.
CVA represents the adjustment, relative to the relevant
benchmark interest rate, necessary to reflect counterparty
nonperformance risk. The Firm estimates CVA using a
scenario analysis to estimate the expected credit exposure
across all of the Firm's positions with each counterparty,
and then estimates losses as a result of a counterparty
credit event. The key inputs to this methodology are (i) the
expected positive exposure to each counterparty based on a
simulation that assumes the current population of existing
derivatives with each counterparty remains unchanged and
considers contractual factors designed to mitigate the
Firm's credit exposure, such as collateral and legal rights of
offset; (ii) the probability of a default event occurring for
each counterparty, as derived from observed or estimated
CDS spreads; and (iii) estimated recovery rates implied by
CDS spreads, adjusted to consider the differences in
recovery rates as a derivative creditor relative to those
reflected in CDS spreads, which generally reflect senior
unsecured creditor risk.
$1.3 billion of net gains in liabilities due to market
movements
113
Trading liabilities - debt and equity
instruments
(415) (c)
1,037
(42) (d)
Loans
1,931
(254) (c)
3,258
(845)
(1,549)
(1,296)
2,541
9,614 (1,826) (e)
768
(209)
(911)
7,436
(234) (c)
(1,826) (e)
Other assets:
Private equity investments
Mortgage servicing rights
5,816
(324)
397
(41)
275
(2)
(101)
(311)
908
(40)
Other
(2)
1,234
122
(223)
(985)
129
(2)
Total available-for-sale securities
2,322
(60) (d)
(19)
Of the $822 million in level 3 assets measured at fair value
on a nonrecurring basis as of December 31, 2016:
400
145
Transfers into
and/or out of
level 3 (i)
Fair value at
Dec. 31,
2014
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31, 2014
Liabilities:(b)
Deposits
$
Other borrowed funds
Issuances Settlements(h)
2,255 $149 (c) $
2,074
(596) (c)
$ 1,578 $
5,377
(197) $
(6,127)
(926) $
2,859
$
130 (c)
725
1,453
$
(c)
Sales
Total
realized/
unrealized
(gains)/
losses
All other
1,382
83 (f)
10
(1,967)
(357)
(197)
(159)
(1,972)
2,225
Purchases(g)
33 (c)
59 (f)
Fair value measurements using significant unobservable inputs
Year ended
Fair value
December 31, 2014
at January
(in millions)
1, 2014
959
•
$462 million related to residential real estate loans
carried at the net realizable value of the underlying
collateral (i.e., collateral-dependent loans and other
loans charged off in accordance with regulatory
JPMorgan Chase & Co./2016 Annual Report
165.0
149.2
149.2
Commercial paper
11.7
11.7
11.7
15.6
165.0
15.6
13.6
13.6
13.6
11.2
11.2
149.2
15.6
11.2
Other borrowed funds
Accounts payable and other
165.0
securities loaned or sold
0.1
60.8
14.3
75.2
66.0
0.1
56.3
14.3
under repurchase agreements
70.7
Deposits
$ 1,361.3 $
$ 1,361.3 $
$ 1,361.3
$ 1,267.2 $
$ 1,266.1 $
1.2 $1,267.3
Federal funds purchased and
Financial liabilities
71.4
liabilities
144.8
255.6
257.4
4.3
261.7
(a) Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal,
contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and
primary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The
difference between the estimated fair value and carrying value of a financial asset or liability is the result of the different methodologies used to
determine fair value as compared with carrying value. For example, credit losses are estimated for a financial asset's remaining life in a fair value
calculation but are estimated for a loss emergence period in the allowance for loan loss calculation; future loan income (interest and fees) is
incorporated in a fair value calculation but is generally not considered in the allowance for loan losses. For a further discussion of the Firm's
methodologies for estimating the fair value of loans and lending-related commitments, see Valuation hierarchy on pages 150-153.
166
JPMorgan Chase & Co./2016 Annual Report
The majority of the Firm's lending-related commitments are not carried at fair value on a recurring basis on the Consolidated
balance sheets, nor are they actively traded. The carrying value of the wholesale allowance for lending-related commitments
and the estimated fair value of these wholesale lending-related commitments were as follows for the periods indicated.
262.0
December 31, 2016
December 31, 2015
Estimated fair value hierarchy
(in billions)
Carrying
value(a)
Level 1
Level 2
Level 3
Total
estimated
fair value
Carrying
value(a)
Estimated fair value hierarchy
148.0
2.0
257.5
3.4
148.2
144.6
141.7
2.8
144.5
Beneficial interests issued by
consolidated VIES
260.0
38.9
38.9
41.1
40.2
0.9
41.1
Long-term debt and junior
subordinated deferrable
interest debentures
38.9
Asset-backed securities
Other
802.7
Total
estimated
fair value
Financial assets
Cash and due from banks
$
23.9 $
23.9 $
-
$
Level 3
$
$
Deposits with banks
365.8
362.0
3.8
365.8
20.5 $
340.0
20.5 $
335.9
23.9
$ - $ - $
4.1
Level 2
Carrying
value
guidance). These amounts are classified as level 3, as
they are valued using a broker's price opinion and
discounted based upon the Firm's experience with actual
liquidation values. These discounts to the broker price
opinions ranged from 12% to 47%, with a weighted
average of 25%.
The total change in the recorded value of assets and
liabilities for which a fair value adjustment has been
included in the Consolidated statements of income for the
years ended December 31, 2016, 2015 and 2014, related
to financial instruments held at those dates, were losses of
$172 million, $294 million and $992 million respectively;
these reductions were predominantly associated with loans.
For further information about the measurement of impaired
collateral-dependent loans, and other loans where the
carrying value is based on the fair value of the underlying
collateral (e.g., residential mortgage loans charged off in
accordance with regulatory guidance), see Note 14.
Additional disclosures about the fair value of financial
instruments that are not carried on the Consolidated
balance sheets at fair value
U.S. GAAP requires disclosure of the estimated fair value of
certain financial instruments, and the methods and
significant assumptions used to estimate their fair value.
Financial instruments within the scope of these disclosure
requirements are included in the following table. However,
certain financial instruments and all nonfinancial
instruments are excluded from the scope of these disclosure
requirements. Accordingly, the fair value disclosures
provided in the following table include only a partial
estimate of the fair value of JPMorgan Chase's assets and
liabilities. For example, the Firm has developed long-term
relationships with its customers through its deposit base
and credit card accounts, commonly referred to as core
deposit intangibles and credit card relationships. In the
opinion of management, these items, in the aggregate, add
significant value to JPMorgan Chase, but their fair value is
not disclosed in this Note.
Financial instruments for which carrying value approximates
fair value
Certain financial instruments that are not carried at fair
value on the Consolidated balance sheets are carried at
amounts that approximate fair value, due to their short-
term nature and generally negligible credit risk. These
instruments include cash and due from banks, deposits with
banks, federal funds sold, securities purchased under resale
agreements and securities borrowed, short-term
receivables and accrued interest receivable, commercial
paper, federal funds purchased, securities loaned and sold
under repurchase agreements, other borrowed funds,
accounts payable, and accrued liabilities. In addition, U.S.
GAAP requires that the fair value of deposit liabilities with
no stated maturity (i.e., demand, savings and certain money
market deposits) be equal to their carrying value;
recognition of the inherent funding value of these
instruments is not permitted.
165
Notes to consolidated financial statements
Level 1
The following table presents by fair value hierarchy classification the carrying values and estimated fair values at
December 31, 2016 and 2015, of financial assets and liabilities, excluding financial instruments that are carried at fair value
on a recurring basis, and their classification within the fair value hierarchy. For additional information regarding the financial
instruments within the scope of this disclosure, and the methods and significant assumptions used to estimate their fair value,
see pages 150-153 of this Note.
December 31, 2015
Estimated fair value hierarchy
(in billions)
Carrying
value
Total
estimated
Level 1
Level 2
Level 3
fair value
December 31, 2016
Estimated fair value hierarchy
828.1
20.5
Accrued interest and accounts
receivable
98.3
Securities, held-to-maturity
50.2
50.9
50.9
49.1
50.6
189.5
98.3
98.3
Loans, net of allowance for
loan losses (a)
878.8
24.1
851.0
875.1
820.8
25.4
50.6
340.0
96.4
96.4
52.3
52.2
0.1
52.3
46.6
46.4
0.2
46.6
96.4
Federal funds sold and
resale agreements
208.5
208.3
0.2
208.5
189.5
189.5
Securities borrowed
securities purchased under
4
(38) $
Use of Derivative
17,459
77
2
12,683
(162,377)
(321)
175,060
323
73
17,309
(208,962)
(1,165)
(27)
(210,154)
227,613
Total foreign exchange contracts
1,238
104
Exchange-traded (a)
OTC-cleared
226,271
OTC
Foreign exchange contracts:
903
3
900
(43,182)
(6,863)
(50,045)
44,082
6,866
50,948
525
7
518
(22,612)
(5,739)
(28,351)
28,876
175,383
Total credit contracts
(162,698)
Equity contracts:
15,001
5,966
(5,605)
11,571
OTC
Commodity contracts:
2,645
2,394
(9,891)
(30,330)
12,285
32,975
2,306
(30,001)
32,307
Total equity contracts
2,008
(9,431)
11,439
Exchange-traded(a)
-
OTC-cleared
251
(20,439)
20,690
298
(20,570)
20,868
OTC
12,685
23,130
5,746
20,888
(643,248)
collateral held or transferred that relates to derivative receivables or payables where an appropriate legal opinion has not
been either sought or obtained with respect to the master netting agreement, which is excluded from the tables below.
the amount of collateral held or transferred that exceeds the fair value exposure at the individual counterparty level, as of
the date presented, which is excluded from the tables below; and
collateral that consists of non-cash financial instruments (generally U.S. government and agency securities and other G7
government bonds) and cash collateral held at third party custodians, which are shown separately as "Collateral not nettable
on the Consolidated balance sheets" in the tables below, up to the fair value exposure amount.
.
•
counterparty credit risk associated with the Firm's derivative instruments, but are not eligible for net presentation:
In addition to the cash collateral received and transferred that is presented on a net basis with derivative receivables and
payables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate
The following tables present, as of December 31, 2016 and 2015, gross and net derivative receivables and payables by
contract and settlement type. Derivative receivables and payables, as well as the related cash collateral from the same
counterparty, have been netted on the Consolidated balance sheets where the Firm has obtained an appropriate legal opinion
with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, amounts are
not eligible for netting on the Consolidated balance sheets, and those derivative receivables and payables are shown separately
in the tables below.
Derivatives netting
JPMorgan Chase & Co./2016 Annual Report
178
(a) Balances exclude structured notes for which the fair value option has been elected. See Note 4 for further information.
(b) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and
payables when a legally enforceable master netting agreement exists.
$ 52,790
$ 939,170 $ 3,742 $942,912
59,677
$
$ 961,878
$ 6,235
$ 955,643
assets and liabilities
Total fair value of trading
12,076
27,654
1
27,653
9,185
9,183
December 31, (in millions)
U.S. GAAP nettable derivative receivables
Interest rate contracts:
OTC
664,136
23,206
8
20,880
$
$ (396,506)
(246,742)
417,386
246,750
138
14
(235,261)
(227)
(577,661)
600,867
$
$ 23,054
$ 365,227 $ (342,173)
235,399
241
(6,772)
derivative
receivables
2015
Amounts netted
on the
Consolidated
balance sheets
Gross
derivative
receivables
Net
derivative
receivables
Amounts netted
on the
Consolidated
balance sheets
receivables
Gross
derivative
2016
OTC-cleared
OTC
Credit contracts:
Total interest rate contracts
Exchange-traded (a)
OTC-cleared
Net
8,229
OTC-cleared
Exchange-traded(a)
1,158
OTC-cleared
15,004
(213,296)
228,300
OTC
Foreign exchange contracts:
1,360
(48,988)
(5,969)
5,969
50,348
752
1,360
(43,019)
44,379
752
(21,614)
(5,641)
(27,255)
28,007
Total credit contracts
22,366
5,641
9,162
(624,945)
634,107
9,199
21
(175)
(559,963)
569,162
(1,158)
-
185,178
301
10,998
590
(9,414)
10,004
Exchange-traded(a)
OTC-cleared
3,869
(19,589)
23,458
3,880
(20,808)
24,688
OTC
196
Equity contracts:
(171,131)
185,479
15,323
(214,463)
229,786
Total foreign exchange contracts
-
319
(9)
328
Exchange-traded (a)
14,348
(170,830)
(301)
14,348
38,663
29
$ 9,133
(18,638)
64,078 $ 961,878
$
$ 922,616
14,236
14,236
14,588
14,588
45,441
(902,201) (b)
947,642
49,490
(858,538) (b)
908,028
91
8,320
(9,108)
(15,880)
9,199
24,200
28
5,994
(6,766)
(12,371)
6,794
18,365
JPMorgan Chase & Co./2016 Annual Report
Net amounts
Collateral not nettable on the Consolidated balance
sheets(c)(d)
Total derivative receivables recognized on the
Consolidated balance sheets
Derivative receivables where an appropriate legal
opinion has not been either sought or obtained
Derivative receivables with appropriate legal
opinions
Total commodity contracts
$ 45,440
$
59,677
(13,543)
$ (384,576)
$ 9,177 $ 393,709
240,398
1
338,502 $ (329,325)
230,464 (230,463)
$
OTC-cleared
OTC
Credit contracts:
Total interest rate contracts
Exchange-traded (a)
OTC-cleared
OTC
Interest rate contracts:
(240,369)
U.S. GAAP nettable derivative payables
Net
derivative
payables
on the
Consolidated
balance sheets
Gross
derivative
payables
Net
derivative
payables
on the
Consolidated
balance sheets
Gross
derivative
payables
2015
Amounts netted
Amounts netted
2016
Notes to consolidated financial statements
179
46,134
$
December 31, (in millions)
38,663
5,529
35,859
25,065
258
232
59
43
417
395
345
326
1,079
996
Total equity contracts
Commodity contracts
Swaps
102
83
Spot, futures and forwards
130
99
Written options
83
115
Purchased options
94
112
Total commodity contracts
409
409
Purchased options
Written options
Futures and forwards
Swaps
3,091
3,506
Purchased options
3,482
3,896
Total interest rate contracts
33,862
36,731
Credit derivatives(a)
2,032
2,900
Foreign exchange contracts
Cross-currency swaps
Total derivative notional amounts
3,359
Spot, futures and forwards
5,341
5,028
Written options
734
690
Purchased options
721
706
Total foreign exchange contracts
10,155
9,623
Equity contracts
3,199
Written options
$ 47,537 $ 50,659
contracts, see the Credit derivatives discussion on pages 184-186.
(b) Represents the sum of gross long and gross short third-party notional
derivative contracts.
28,302
1,294
$ 567,894
$
2,884 $ 570,778
$ 10,815
28,666
28,666
1,411
Foreign exchange
232,137
1,289
233,426
23,271
233,823
1,148
234,971
20,508
Equity
Commodity
34,940
18,505
-
137
34,940
18,642
4,939
38,362
-
38,362
$
$ 605,963
29,645
29,645
Credit
While the notional amounts disclosed above give an
indication of the volume of the Firm's derivatives activity,
the notional amounts significantly exceed, in the Firm's
view, the possible losses that could arise from such
transactions. For most derivative transactions, the notional
amount is not exchanged; it is used simply as a reference to
calculate payments.
JPMorgan Chase & Co./2016 Annual Report
177
Notes to consolidated financial statements
Impact of derivatives on the Consolidated balance sheets
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that
are reflected on the Firm's Consolidated balance sheets as of December 31, 2016 and 2015, by accounting designation (e.g.,
whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Free-standing derivative receivables and payables(a)
Gross derivative receivables
Gross derivative payables
Not
December 31, 2016
(in millions)
designated
as hedges
(a) For more information on volumes and types of credit derivative
Designated
as hedges
Net
derivative
receivables(b)
Not
designated
as hedges
Designated
as hedges
Total
derivative
payables
Net
derivative
payables(b)
Trading assets and
liabilities
Interest rate
$ 601,557
$
4,406
Total
derivative
receivables
(9,891)
5,167
$ 24,162
Not
designated
Gross derivative payables
Gross derivative receivables
Trading assets and
liabilities
(in millions)
December 31, 2015
$ 49,231
$ 889,028 $ 4,211 $ 893,239
$ 64,078
$ 922,616
$ 916,784 $ 5,832
Total fair value of trading
assets and liabilities
8,357
20,462
179
20,283
8,140
Designation and disclosure segment or unit reference
Manage specifically identified risk exposures in qualifying hedge accounting relationships:
• Interest rate
Hedge fixed rate assets and liabilities
Fair value hedge
Corporate
182
• Interest rate
Hedge floating-rate assets and liabilities
Cash flow hedge
as hedges
Designated
as hedges
Total
derivative
receivables
Net
derivative
receivables(b)
1,352
35,859
23,713
Commodity
Equity
19,769
1,541
$ 10,221
2,238 $635,166
50,529
190,900
1,503
50,529
189,397
17,177
1,423
$
Corporate
$ 632,928
$ 669,611
51,468
179,875
803
179,072
Foreign exchange
51,468
Credit
4,080
$
$ 665,531
Interest rate
Net
derivative
payables(b)
Total
Designated derivative
as hedges payables
Not
designated
as hedges
$ 26,363
5,289
183
Hedge foreign currency-denominated assets and liabilities
CIB
184
Manage the risk of certain other specified assets and liabilities
Specified risk management
Corporate
184
• Various
> Various
Market-making and related risk management
Other derivatives
Market-making and other
Market-making and other
CIB
184
CIB, Corporate
184
176
JPMorgan Chase & Co./2016 Annual Report
Notional amount of derivative contracts
The following table summarizes the notional amount of
derivative contracts outstanding as of December 31, 2016
and 2015.
December 31, (in billions)
Interest rate contracts
Notional amounts (b)
2016
2015
Swaps
Futures and forwards
$ 22,000
Specified risk management
Manage the risk of certain commodities-related contracts and
investments
Market-making derivatives and other activities:
• Interest rate and
foreign exchange
Fair value hedge
Corporate
182
Foreign exchange
Hedge forecasted revenue and expense
Cash flow hedge
Corporate
183
Foreign exchange
Hedge the value of the Firm's investments in non-U.S. dollar
functional currency entities
Net investment hedge
Corporate
184
Foreign exchange
• Commodity
Fair value hedge
CIB
182
Manage specifically identified risk exposures not designated in qualifying hedge accounting
relationships:
• Interest rate
• Credit
Manage the risk of the mortgage pipeline, warehouse loans and MSRS Specified risk management
Manage the credit risk of wholesale lending exposures
CCB
184
Specified risk management
CIB
184
• Commodity
Hedge commodity inventory
1,107
6,272
34,692
388,305
64,078
368,014
Total exposure (e)(f)
800,463 361,015
$1,850,868 $ 837,299 $
59,677
59,677 $ 940,395
366,399
$1,953,105 $ 894,765 $ 64,078 $ 976,702
(a) Receivables from customers primarily represent margin loans to brokerage customers that are collateralized through assets maintained in the clients' brokerage
accounts, as such no allowance is held against these receivables. These receivables are reported within accrued interest and accounts receivable on the Firm's
Consolidated balance sheets.
(b) The industry rankings presented in the table as of December 31, 2015, are based on the industry rankings of the corresponding exposures at December 31, 2016,
not actual rankings of such exposures at December 31, 2015.
(c) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2016 and 2015, noted above, the Firm held:
$9.1 billion and 7.6 billion, respectively, of trading securities; $31.6 billion and $33.6 billion, respectively, of AFS securities; and $14.5 billion and $12.8 billion,
respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 3 and Note 12.
(d) All other includes: individuals; SPES; holding companies; and private education and civic organizations. For more information on exposures to SPES, see Note 16.
(e) For further information regarding on-balance sheet credit concentrations by major product and/or geography, see Note 6 and Note 14. For information regarding
concentrations of off-balance sheet lending-related financial instruments by major product, see Note 29.
837,837
(f) Excludes cash placed with banks of $380.2 billion and $351.0 billion, at December 31, 2016 and 2015, respectively, which is predominantly placed with various
central banks, primarily Federal Reserve Banks
JPMorgan Chase & Co./2016 Annual Report
173
Notes to consolidated financial statements
Note 6 - Derivative instruments
Derivative contracts derive their value from underlying
asset prices, indices, reference rates, other inputs or a
combination of these factors and may expose
counterparties to risks and rewards of an underlying asset
or liability without having to initially invest in, own or
exchange the asset or liability. JPMorgan Chase makes
markets in derivatives for clients and also uses derivatives
to hedge or manage its own risk exposures. Predominantly
all of the Firm's derivatives are entered into for market-
making or risk management purposes.
Market-making derivatives
The majority of the Firm's derivatives are entered into for
market-making purposes. Clients use derivatives to mitigate
or modify interest rate, credit, foreign exchange, equity and
commodity risks. The Firm actively manages the risks from
its exposure to these derivatives by entering into other
derivative transactions or by purchasing or selling other
financial instruments that partially or fully offset the
exposure from client derivatives.
Risk management derivatives
The Firm manages certain market and credit risk exposures
using derivative instruments, including derivatives in hedge
accounting relationships and other derivatives that are used
to manage risks associated with specified assets and
liabilities.
Interest rate contracts are used to minimize fluctuations in
earnings that are caused by changes in interest rates. Fixed-
rate assets and liabilities appreciate or depreciate in market
value as interest rates change. Similarly, interest income
and expense increases or decreases as a result of variable-
rate assets and liabilities resetting to current market rates,
and as a result of the repayment and subsequent
origination or issuance of fixed-rate assets and liabilities at
current market rates. Gains or losses on the derivative
instruments that are related to such assets and liabilities
are expected to substantially offset this variability in
earnings. The Firm generally uses interest rate swaps,
forwards and futures to manage the impact of interest rate
fluctuations on earnings.
Foreign currency forward contracts are used to manage the
foreign exchange risk associated with certain foreign
currency-denominated (i.e., non-U.S. dollar) assets and
liabilities and forecasted transactions, as well as the Firm's
net investments in certain non-U.S. subsidiaries or branches
whose functional currencies are not the U.S. dollar. As a
result of fluctuations in foreign currencies, the U.S. dollar-
equivalent values of the foreign currency-denominated
assets and liabilities or the forecasted revenues or expenses
increase or decrease. Gains or losses on the derivative
instruments related to these foreign currency-denominated
assets or liabilities, or forecasted transactions, are expected
to substantially offset this variability.
Commodities contracts are used to manage the price risk of
certain commodities inventories. Gains or losses on these
derivative instruments are expected to substantially offset
the depreciation or appreciation of the related inventory.
Credit derivatives are used to manage the counterparty
credit risk associated with loans and lending-related
commitments. Credit derivatives compensate the purchaser
when the entity referenced in the contract experiences a
credit event, such as bankruptcy or a failure to pay an
obligation when due. Credit derivatives primarily consist of
CDS. For a further discussion of credit derivatives, see the
discussion in the Credit derivatives section on pages 184-
186 of this Note.
(g) Represents lending-related financial instruments.
13,372
17,440
366,399
1,160
4,412
861
1,424
2,127
All other(d)
144,428
109,267
3,682
31,479
149,117
109,889
4,593
34,635
Subtotal
815,882
383,790
64,078
368,014
783,126
Loans held-for-sale and loans at fair value
Receivables from customers and other (a)
Total wholesale-related
4,515
4,515
3,965
357,050
3,965
59,677
For more information about risk management derivatives,
see the risk management derivatives gains and losses table
on page 184 of this Note, and the hedge accounting gains
and losses tables on pages 182-184 of this Note.
Derivative counterparties and settlement types
The Firm enters into OTC derivatives, which are negotiated
and settled bilaterally with the derivative counterparty. The
Firm also enters into, as principal, certain ETD such as
futures and options, and OTC-cleared derivative contracts
with CCPS. ETD contracts are generally standardized
contracts traded on an exchange and cleared by the CCP,
which is the Firm's counterparty from the inception of the
transactions. OTC-cleared derivatives are traded on a
bilateral basis and then novated to the CCP for clearing.
Derivative clearing services
The Firm provides clearing services for clients where the
Firm acts as a clearing member with respect to certain
derivative exchanges and clearing houses. The Firm does
not reflect the clients' derivative contracts in its
Consolidated Financial Statements. For further information
on the Firm's clearing services, see Note 29.
Accounting for derivatives
All free-standing derivatives that the Firm executes for its
own account are required to be recorded on the
Consolidated balance sheets at fair value.
92,820
116,857
28,504
222
106,315
135,041
Real Estate
Wholesale-related (b)
573,996
515,518
58,478
476,284
1,050,405
608,688
131,463
646,981
553,891
344,821
403,424
54,797
125
-
506,460
1,115,268
141,816
695,707
364,644
312
1,913
23,725
85,435
As permitted under U.S. GAAP, the Firm nets derivative
assets and liabilities, and the related cash collateral
receivables and payables, when a legally enforceable
master netting agreement exists between the Firm and the
derivative counterparty. For further discussion of the
offsetting of assets and liabilities, see Note 1. The
accounting for changes in value of a derivative depends on
whether or not the transaction has been designated and
qualifies for hedge accounting. Derivatives that are not
designated as hedges are reported and measured at fair
value through earnings. The tabular disclosures on pages
178-184 of this Note provide additional information on the
amount of, and reporting for, derivative assets, liabilities,
gains and losses. For further discussion of derivatives
embedded in structured notes, see Notes 3 and 4.
174
JPMorgan Chase & Co./2016 Annual Report
Derivatives designated as hedges
16,791
54,386
36,684
1,615
17,150
55,449
Industrials
45,271
1,032
11,079
57,382
47,878
1,227
13,845
62,950
Technology, Media & Telecommunications
56,712
1,573
27,175
85,460
54,511
1,082
29,842
Consumer & Retail
419,561
794
Securities Firms
10,539
10,819
10,528
23,815
6,703
7,733
9,379
Utilities
29,622
1,428
7,183
883
31,886
21,556
5,294
1,689
23,870
State & Municipal Govt(c)
28,263
12,416
2,096
13,751
29,114
9,626
3,287
16,201
30,853
Asset Managers
26,832
1,902
36,167
Total equity contracts
Healthcare
47,866
15,120
2,277
30,469
46,053
16,965
2,751
26,337
Banks & Finance Cos
44,614
19,460
12,232
12,922
43,398
20,401
10,218
12,779
Oil & Gas
40,099
13,079
1,878
25,142
42,077
13,343
Central Govt
20,408
3,964
14,235
Metals & Mining
13,419
4,350
439
8,630
14,049
4,622
607
8,820
Insurance
13,151
947
3,382
8,822
11,889
1,094
1,992
8,803
Financial Markets Infrastructure
8,732
347
3,884
4,501
7,973
724
2,602
4,647
10,830
3,867
369
15,232
2,209
17,968
2,000
13,240
2,728
Transportation
8,942
751
9,336
19,227
9,157
1,575
8,495
Automotive
16,635
4,943
1,190
10,502
13,864
4,473
1,350
8,041
Chemicals & Plastics
14,988
5,287
271
9,430
4,033
120
19,029
$
271
3,028
807 $
$
2,497
1,049
606
Amount required to settle contracts with termination triggers upon downgrade (b)
560 $
$
Amount of additional collateral to be posted upon downgrade (a)
Single-notch Two-notch
downgrade downgrade
Two-notch
downgrade downgrade
1,093
December 31, (in millions)
2015
2016
Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives
The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan
Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, National Association ("JPMorgan Chase Bank, N.A."), at
December 31, 2016 and 2015, related to OTC and OTC-cleared derivative contracts with contingent collateral or termination
features that may be triggered upon a ratings downgrade. Derivatives contracts generally require additional collateral to be
posted or terminations to be triggered when the predefined threshold rating is breached. A downgrade by a single rating
agency that does not result in a rating lower than a preexisting corresponding rating provided by another major rating agency
will generally not result in additional collateral (except in certain instances in which additional initial margin may be required
upon a ratings downgrade), nor in termination payments requirements. The liquidity impact in the table is calculated based
upon a downgrade below the lowest current rating of the rating agencies referred to in the derivative contract.
Aggregate fair value of net derivative payables $ 21,550 $ 22,328
Collateral posted
19,383 18,942
2015
2016
December 31, (in millions)
OTC and OTC-cleared derivative payables containing
downgrade triggers
of the contracts moves in the counterparties' favor or upon
specified downgrades in the Firm's and its subsidiaries'
respective credit ratings. Certain derivative contracts also
provide for termination of the contract, generally upon a
downgrade of either the Firm or the counterparty, at the
fair value of the derivative contracts. The following table
shows the aggregate fair value of net derivative payables
related to OTC and OTC-cleared derivatives that contain
contingent collateral or termination features that may be
triggered upon a ratings downgrade, and the associated
collateral the Firm has posted in the normal course of
business, at December 31, 2016 and 2015.
While derivative receivables expose the Firm to credit risk,
derivative payables expose the Firm to liquidity risk, as the
derivative contracts typically require the Firm to post cash
or securities collateral with counterparties as the fair value
Liquidity risk and credit-related contingent features
In addition to the specific market risks introduced by each
derivative contract type, derivatives expose JPMorgan
Chase to credit risk - the risk that derivative counterparties
may fail to meet their payment obligations under the
derivative contracts and the collateral, if any, held by the
Firm proves to be of insufficient value to cover the payment
obligation. It is the policy of JPMorgan Chase to actively
pursue, where possible, the use of legally enforceable
master netting arrangements and collateral agreements to
mitigate derivative counterparty credit risk. The amount of
derivative receivables reported on the Consolidated balance
sheets is the fair value of the derivative contracts after
giving effect to legally enforceable master netting
agreements and cash collateral held by the Firm.
Single-notch
(a) Includes the additional collateral to be posted for initial margin.
(b) Amounts represent fair values of derivative payables, and do not reflect collateral posted.
Derivatives executed in contemplation of a sale of the underlying financial asset
In certain instances the Firm enters into transactions in which it transfers financial assets but maintains the economic exposure
to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The
Firm generally accounts for such transfers as collateralized financing transactions as described in Note 13, but in limited
circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. The amount of such transfers
accounted for as a sale where the associated derivative was outstanding at December 31, 2016 was not material.
Income statement impact due to:
Gains/(losses) recorded in income
Total
Commodity(d)
Foreign exchange (c)
Interest rate (a)(b)
Contract type
Year ended December 31, 2014 (in millions)
Total
Commodity(d)
Foreign exchange (c)
Interest rate (a)(b)
Contract type
Year ended December 31, 2015 (in millions)
Total
Commodity(d)
Foreign exchange(c)
Interest rate (a)(b)
Contract type
Year ended December 31, 2016 (in millions)
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well
as pre-tax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 2016,
2015 and 2014, respectively. The Firm includes gains/(losses) on the hedging derivative and the related hedged item in the
same line item in the Consolidated statements of income.
Fair value hedge gains and losses
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting
designation or purpose.
Impact of derivatives on the Consolidated statements of income
Notes to consolidated financial statements
181
JPMorgan Chase & Co./2016 Annual Report
JPMorgan Chase & Co./2016 Annual Report
180
(e) Derivative payables collateral relates only to OTC and OTC-cleared derivative instruments. Amounts exclude collateral transferred related to exchange-
traded derivative instruments.
(d) Represents liquid security collateral as well as cash collateral held at third-party custodians related to derivative instruments where an appropriate legal
opinion has been obtained. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative
payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with
that counterparty.
19,984
Total commodity contracts
52
(9,322)
9,374
246
(6,853)
7,099
Exchange-traded (a)
-
-
-
OTC-cleared
10,697
(6,256)
16,953
7,633
(5,252)
12,885
OTC
Commodity contracts:
4,976
(29,480)
34,456
(30,222)
58,478
4,470
(12,105)
Total income
statement
7,879
881,631
(c) Excludes all collateral related to derivative instruments where an appropriate legal opinion has not been either sought or obtained.
(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b) Net derivatives receivable included cash collateral netted of $71.9 billion and $73.7 billion at December 31, 2016 and 2015, respectively. Net derivatives
payable included cash collateral netted of $57.3 billion and $61.6 billion related to OTC and OTC-cleared derivatives at December 31, 2016 and 2015,
respectively.
44,833
$
40,306
$
Net amounts
(7,957)
(8,925)
Collateral not nettable on the Consolidated balance
sheets(c)(d)(e)
52,790
$
49,231 $ 942,912
$
$ 893,239
Total derivative payables recognized on the
Consolidated balance sheets
12,195
12,195
11,608
11,608
Derivative payables where an appropriate legal
opinion has not been either sought or obtained
40,595
(890,122) (b)
(15,578)
26,327
930,717
37,623
(844,008) (b)
Derivative payables with appropriate legal opinions
Derivatives
10,749
impact
Type of Derivative
JPMorgan Chase & Co./2016 Annual Report
182
(f) The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward
points on foreign exchange forward contracts and time values.
(e) Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on the
hedged item attributable to the hedged risk.
(d) Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or market (market approximates
fair value). Gains and losses were recorded in principal transactions revenue.
(c) Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses
related to the derivatives and the hedged items, due to changes in foreign currency rates, were recorded primarily in principal transactions revenue and
net interest income.
(b) Excludes the amortization expense associated with the inception hedge accounting adjustment applied to the hedged item. This expense is recorded in net
interest income and substantially offsets the income statement impact of the excluded components.
(a) Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate ("LIBOR")) interest rate risk of fixed-rate long-term debt and AFS
securities. Gains and losses were recorded in net interest income.
$ (9,188) $ 1,246 $
1,073
152
$
173
42
$ 10,434
(253)
1,174
$
131
1,305 $
(253)
194
$
(801)
(8,532)
145
49
$
2,106
8,279
$
Page
Excluded
components(f)
Affected
Notes to consolidated financial statements
$ 54,797
$ 419,441 $ 364,644 $
$ 403,299 $ 344,821 $
Hedged items
Off-balance
Derivatives sheet(g)
Loans
Credit
exposure
Off-balance
sheet(g)
On-balance sheet
On-balance sheet
Derivatives
Loans
2015
2016
Total consumer-related
Credit Card
Total Consumer, excluding credit card
Receivables from customers(a)
Consumer, excluding credit card
Credit
exposure
The table below presents both on-balance sheet and off-balance sheet consumer and wholesale-related credit exposure by the
Firm's three credit portfolio segments as of December 31, 2016 and 2015.
The Firm applies hedge accounting to certain derivatives
executed for risk management purposes - generally interest
rate, foreign exchange and commodity derivatives.
However, JPMorgan Chase does not seek to apply hedge
accounting to all of the derivatives involved in the Firm's
risk management activities. For example, the Firm does not
apply hedge accounting to purchased CDS used to manage
the credit risk of loans and lending-related commitments,
because of the difficulties in qualifying such contracts as
hedges. For the same reason, the Firm does not apply
hedge accounting to certain interest rate, foreign exchange,
and commodity derivatives used for risk management
purposes.
To qualify for hedge accounting, a derivative must be highly
effective at reducing the risk associated with the exposure
being hedged. In addition, for a derivative to be designated
as a hedge, the risk management objective and strategy
must be documented. Hedge documentation must identify
the derivative hedging instrument, the asset or liability or
forecasted transaction and type of risk to be hedged, and
how the effectiveness of the derivative is assessed
prospectively and retrospectively. To assess effectiveness,
the Firm uses statistical methods such as regression
analysis, as well as nonstatistical methods including dollar-
value comparisons of the change in the fair value of the
derivative to the change in the fair value or cash flows of
the hedged item. The extent to which a derivative has been,
and is expected to continue to be, effective at offsetting
changes in the fair value or cash flows of the hedged item
must be assessed and documented at least quarterly. Any
hedge ineffectiveness (i.e., the amount by which the gain or
loss on the designated derivative instrument does not
exactly offset the change in the hedged item attributable to
the hedged risk) must be reported in current-period
earnings. If it is determined that a derivative is not highly
effective at hedging the designated exposure, hedge
accounting is discontinued.
There are three types of hedge accounting designations: fair
value hedges, cash flow hedges and net investment hedges.
JPMorgan Chase uses fair value hedges primarily to hedge
fixed-rate long-term debt, AFS securities and certain
commodities inventories. For qualifying fair value hedges,
the changes in the fair value of the derivative, and in the
value of the hedged item for the risk being hedged, are
recognized in earnings. If the hedge relationship is
terminated, then the adjustment to the hedged item
continues to be reported as part of the basis of the hedged
item, and for benchmark interest rate hedges, is amortized
to earnings as a yield adjustment. Derivative amounts
affecting earnings are recognized consistent with the
classification of the hedged item - primarily net interest
income and principal transactions revenue.
JPMorgan Chase uses cash flow hedges primarily to hedge
the exposure to variability in forecasted cash flows from
floating-rate assets and liabilities and foreign currency-
denominated revenue and expense. For qualifying cash flow
hedges, the effective portion of the change in the fair value
of the derivative is recorded in OCI and recognized in the
Consolidated statements of income when the hedged cash
flows affect earnings. Derivative amounts affecting earnings
are recognized consistent with the classification of the
hedged item - primarily interest income, interest expense,
noninterest revenue and compensation expense. The
ineffective portions of cash flow hedges are immediately
recognized in earnings. If the hedge relationship is
terminated, then the value of the derivative recorded in
AOCI is recognized in earnings when the cash flows that
were hedged affect earnings. For hedge relationships that
are discontinued because a forecasted transaction is not
expected to occur according to the original hedge forecast,
any related derivative values recorded in AOCI are
immediately recognized in earnings.
JPMorgan Chase uses net investment hedges to protect the
value of the Firm's net investments in certain non-U.S.
subsidiaries or branches whose functional currencies are
not the U.S. dollar. For foreign currency qualifying net
investment hedges, changes in the fair value of the
derivatives are recorded in the translation adjustments
account within AOCI.
JPMorgan Chase & Co./2016 Annual Report
175
The following table outlines the Firm's primary uses of derivatives and the related hedge accounting designation or disclosure
category.
Hedge
ineffectiveness(e)
December 31, (in millions)
Derivatives Hedged items
Income statement impact due to:
Gains/(losses) recorded in income
1,083
$
(3)
$
1,080
59
(9)
50
586
(337) $
1,417 $
$
(536)
174
(2,261)
2,435
850
$
6
856 $
1,338
impact
Hedge
ineffectiveness(e)
Excluded
components (f)
(482) $
$
Total income
statement
Derivatives Hedged items
174
Hedge
ineffectiveness(e)
994
Gains/(losses) recorded in income
Income statement impact due to:
impact
Total income
statement
$
(10)
24
946
$
3
949
24 -
11
(13)
984
$
24
7,221 $ (6,237) $
Excluded
components(f)
$
38
$
$
$
911
$
1,153
(6,006)
(1,142)
6,030
(12)
Total
$
919 $
936 $
184
(7)
156
2,399
JPMorgan Chase & Co./2016 Annual Report
(a) Primarily represents interest rate derivatives used to hedge the
interest rate risk inherent in the mortgage pipeline, warehouse loans
and MSRs, as well as written commitments to originate warehouse
loans. Gains and losses were recorded predominantly in mortgage fees
and related income.
(b) Relates to credit derivatives used to mitigate credit risk associated
with lending exposures in the Firm's wholesale businesses. These
derivatives do not include credit derivatives used to mitigate
counterparty credit risk arising from derivative receivables, which is
included in gains and losses on derivatives related to market-making
activities and other derivatives. Gains and losses were recorded in
principal transactions revenue.
(c) Primarily relates to derivatives used to mitigate foreign exchange risk
of specified foreign currency-denominated assets and liabilities. Gains
and losses were recorded in principal transactions revenue.
(d) Primarily relates to commodity derivatives used to mitigate energy
price risk associated with energy-related contracts and investments.
Gains and losses were recorded in principal transactions revenue.
Gains and losses on derivatives related to market-making
activities and other derivatives
The Firm makes markets in derivatives in order to meet the
needs of customers and uses derivatives to manage certain
risks associated with net open risk positions from its
market-making activities, including the counterparty credit
risk arising from derivative receivables. All derivatives not
included in the hedge accounting or specified risk
management categories above are included in this category.
Gains and losses on these derivatives are primarily recorded
in principal transactions revenue. See Note 7 for
information on principal transactions revenue.
Credit derivatives
Credit derivatives are financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) and which allow
one party (the protection purchaser) to transfer that risk to
another party (the protection seller). Credit derivatives
expose the protection purchaser to the creditworthiness of
the protection seller, as the protection seller is required to
make payments under the contract when the reference
entity experiences a credit event, such as a bankruptcy, a
failure to pay its obligation or a restructuring. The seller of
credit protection receives a premium for providing
protection but has the risk that the underlying instrument
referenced in the contract will be subject to a credit event.
The Firm is both a purchaser and seller of protection in the
credit derivatives market and uses these derivatives for two
primary purposes. First, in its capacity as a market-maker,
the Firm actively manages a portfolio of credit derivatives
by purchasing and selling credit protection, predominantly
on corporate debt obligations, to meet the needs of
customers. Second, as an end-user, the Firm uses credit
derivatives to manage credit risk associated with lending
exposures (loans and unfunded commitments) and
derivatives counterparty exposures in the Firm's wholesale
businesses, and to manage the credit risk arising from
certain financial instruments in the Firm's market-making
businesses. Following is a summary of various types of
credit derivatives.
Credit default swaps
Commodity (d)
(in millions)
27
$(448)
$1,698
Credit derivatives may reference the credit of either a single
reference entity (“single-name") or a broad-based index.
The Firm purchases and sells protection on both single-
name and index-reference obligations. Single-name CDS and
index CDS contracts are either OTC or OTC-cleared
derivative contracts. Single-name CDS are used to manage
the default risk of a single reference entity, while index CDS
contracts are used to manage the credit risk associated with
the broader credit markets or credit market segments. Like
the S&P 500 and other market indices, a CDS index consists
of a portfolio of CDS across many reference entities. New
series of CDS indices are periodically established with a new
underlying portfolio of reference entities to reflect changes
in the credit markets. If one of the reference entities in the
index experiences a credit event, then the reference entity
that defaulted is removed from the index. CDS can also be
referenced against specific portfolios of reference names or
against customized exposure levels based on specific client
demands: for example, to provide protection against the
first $1 million of realized credit losses in a $10 million
portfolio of exposure. Such structures are commonly known
as tranche CDS.
Foreign exchange derivatives
(a) Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign
exchange forward contracts. Amounts related to excluded components are recorded in other income. The Firm measures the ineffectiveness of net
investment hedge accounting relationships based on changes in spot foreign currency rates and, therefore, there was no significant ineffectiveness for net
investment hedge accounting relationships during 2016, 2015 and 2014.
Gains and losses on derivatives used for specified risk
management purposes
The following table presents pre-tax gains/(losses) recorded
on a limited number of derivatives, not designated in hedge
accounting relationships, that are used to manage risks
associated with certain specified assets and liabilities,
including certain risks arising from the mortgage pipeline,
warehouse loans, MSRS, wholesale lending exposures,
foreign currency denominated assets and liabilities, and
commodities-related contracts and investments.
Year ended December 31,
Derivatives gains/(losses)
recorded in income
25
2016
2014
Contract type
Interest rate (a)
$
1,174 $
Credit (b)
(282)
853 $ 2,308
70
(58)
Foreign exchange (c)
2015
For both single-name CDS contracts and index CDS
contracts, upon the occurrence of a credit event, under the
terms of a CDS contract neither party to the CDS contract
has recourse to the reference entity. The protection
purchaser has recourse to the protection seller for the
difference between the face value of the CDS contract and
the fair value of the reference obligation at settlement of
the credit derivative contract, also known as the recovery
value. The protection purchaser does not need to hold the
debt instrument of the underlying reference entity in order
to receive amounts due under the CDS contract when a
credit event occurs.
Protection
sold
A credit-related note is a funded credit derivative where the
issuer of the credit-related note purchases from the note
investor credit protection on a reference entity or an index.
Under the contract, the investor pays the issuer the par
value of the note at the inception of the transaction, and in
return, the issuer pays periodic payments to the investor,
based on the credit risk of the referenced entity. The issuer
also repays the investor the par value of the note at
maturity unless the reference entity (or one of the entities
that makes up a reference index) experiences a specified
credit event. If a credit event occurs, the issuer is not
obligated to repay the par value of the note, but rather, the
issuer pays the investor the difference between the par
value of the note and the fair value of the defaulted
reference obligation at the time of settlement. Neither party
to the credit-related note has recourse to the defaulting
reference entity.
with identical
underlyings (b)
(sold)/
purchased (c)
Other
protection
purchased (d)
$
(961,003)
(36,829)
(997,832)
$
974,252
Net protection
13,249 $
31,859
1,006,111
(4,970)
19,991
8,279
27,926
$1,885
(41)
(41)
7,935
Protection purchased
Maximum payout/Notional amount
Total
The following tables present a summary of the notional
amounts of credit derivatives and credit-related notes the
Firm sold and purchased as of December 31, 2016 and
2015. Upon a credit event, the Firm as a seller of protection
would typically pay out only a percentage of the full
notional amount of net protection sold, as the amount
actually required to be paid on the contracts takes into
account the recovery value of the reference obligation at
the time of settlement. The Firm manages the credit risk on
contracts to sell protection by purchasing protection with
identical or similar underlying reference entities. Other
purchased protection referenced in the following tables
includes credit derivatives bought on related, but not
identical, reference positions (including indices, portfolio
coverage and other reference points) as well as protection
purchased through credit-related notes.
JPMorgan Chase & Co./2016 Annual Report
185
Notes to consolidated financial statements
The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives,
because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value
of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm's view, the
risks associated with such derivatives.
Total credit derivatives and credit-related notes
December 31, 2016 (in millions)
Credit derivatives
Credit default swaps
Other credit derivatives (a)
Total credit derivatives
Credit-related notes
Total
December 31, 2015 (in millions)
Credit derivatives
Credit default swaps
Other credit derivatives (a)
Total credit derivatives
Credit-related notes
Credit-related notes
$(379)
Hedge
ineffectiveness
directly in
income (a)
55
28
$
(180) $
(97) $
83
Gains/(losses) recorded in income and other comprehensive income/(loss)
Derivatives -
effective portion
reclassified from
AOCI to income
$
Derivatives-
recorded directly
in income (c)
Total income
statement impact
portion
recorded in OCI
Total change
in OCI
for period
$
(54)
$
effective
(44)
(53)
$
(99)
(81)
Hedge
ineffectiveness
4,505
Derivatives -
effective
reclassified from
recorded directly
AOCI to income
in income(c)
Total income
statement impact
portion
recorded in OCI
Total change
in OCI
for period
$
(99)
$
(81)
$
(180)
$
$
78
portion
recorded in OCI
$
$
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting
relationships, and the pre-tax gains/(losses) recorded on such instruments for the years ended December 31, 2016, 2015 and
2014.
Year ended December 31,
(in millions)
Gains/(losses) recorded in income and other comprehensive income/(loss)
2016
2015
2014
Excluded
Net investment hedge gains and losses
components
recorded
directly in
income (a)
Excluded
components
$(282)
Effective
portion
recorded in OCI
$262
recorded
directly in
income (a)
Effective
portion
recorded in OCI
recorded
Effective
Excluded
components
Notes to consolidated financial statements
183
JPMorgan Chase & Co./2016 Annual Report
(54)
$
189
$
243
78
(91)
(169)
$
24
$
98
$
74
(a) Primarily consists of benchmark interest rate hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in
net interest income, and for the forecasted transactions that the Firm determined during the year ended December 31, 2015, were probable of not
occurring, in other income.
(b) Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of
gains and losses follows the hedged item - primarily noninterest revenue and compensation expense.
(c) Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the
cumulative expected change in cash flows on the hedged item attributable to the hedged risk.
The Firm did not experience any forecasted transactions that failed to occur for the years ended 2016 and 2014. In 2015, the
Firm reclassified approximately $150 million of net losses from AOCI to other income because the Firm determined that it was
probable that the forecasted interest payment cash flows would not occur as a result of the planned reduction in wholesale
non-operating deposits.
Over the next 12 months, the Firm expects that approximately $151 million (after-tax) of net losses recorded in AOCI at
December 31, 2016, related to cash flow hedges will be recognized in income. For terminated cash flow hedges, the maximum
length of time over which forecasted transactions are remaining is approximately six years. For open cash flow hedges, the
maximum length of time over which forecasted transactions are hedged is approximately one year. The Firm's longer-dated
forecasted transactions relate to core lending and borrowing activities.
24
$ (997,873)
Foreign exchange
Equity
Commodity
1,006,111
The following table presents all realized and unrealized
gains and losses recorded in principal transactions revenue.
This table excludes interest income and interest expense on
trading assets and liabilities, which are an integral part of
the overall performance of the Firm's client-driven market-
making activities. See Note 8 for further information on
interest income and interest expense. Trading revenue is
presented primarily by instrument type. The Firm's client-
driven market-making businesses generally utilize a variety
of instrument types in connection with their market-making
and related risk-management activities; accordingly, the
trading revenue presented in the table below is not
representative of the total revenue of any individual line of
business.
Year ended December 31,
(in millions)
Trading revenue by instrument
type
Interest rate
Credit
Total trading revenue
Private equity gains (a)
Principal transactions
2016
In the financial commodity markets, the Firm transacts in
OTC derivatives (e.g., swaps, forwards, options) and ETD
that reference a wide range of underlying commodities. In
the physical commodity markets, the Firm primarily
purchases and sells precious and base metals and may hold
other commodities inventories under financing and other
arrangements with clients.
2015
$ 2,325
$ 1,933
$ 1,362
2,096
1,735
1,880
2,827
2,557
2014
Principal transactions revenue also includes certain realized
and unrealized gains and losses related to hedge accounting
and specified risk-management activities, including: (a)
certain derivatives designated in qualifying hedge
accounting relationships (primarily fair value hedges of
commodity and foreign exchange risk), (b) certain
derivatives used for specific risk management purposes,
primarily to mitigate credit risk, foreign exchange risk and
commodity risk, and (c) other derivatives. For further
information on the income statement classification of gains
and losses from derivatives activities, see Note 6.
Principal transactions revenue is driven by many factors,
including the bid-offer spread, which is the difference
between the price at which the Firm is willing to buy a
financial or other instrument and the price at which the
Firm is willing to sell that instrument. It also consists of the
realized (as a result of closing out or termination of
transactions, or interim cash payments) and unrealized (as
a result of changes in valuation) gains and losses on
financial and other instruments (including those accounted
for under the fair value option) primarily used in client-
driven market-making activities and on private equity
investments. In connection with its client-driven market-
making activities, the Firm transacts in debt and equity
instruments, derivatives and commodities (including
physical commodities inventories and financial instruments
that reference commodities).
Principal transactions
2016
2015
2014
Underwriting
Equity
Debt
Total underwriting
Advisory
$ 1,146
$ 1,408 $
3,207
3,232
4,353
4,640
2,095
2,111
1,571
3,340
4,911
1,631
Total investment banking fees $ 6,448 $ 6,751 $ 6,542
Underwriting fees are recognized as revenue when the Firm
has rendered all services to, and is entitled to collect the fee
from, the issuer, and there are no other contingencies
associated with the fee. Underwriting fees are net of
syndicate expense; the Firm recognizes credit arrangement
and syndication fees as revenue after satisfying certain
retention, timing and yield criteria. Advisory fees are
recognized as revenue when the related services have been
performed and the fee has been earned.
1,556
(in millions)
2,994
2,563
Total lending- and deposit-related fees $5,774
$ 5,694
4,494
$ 5,801
Lending-related fees include fees earned from loan
commitments, standby letters of credit, financial
guarantees, and other loan-servicing activities. Deposit-
related fees include fees earned in lieu of compensating
balances, and fees earned from performing cash
management activities and other deposit account services.
Lending- and deposit-related fees in this revenue category
are recognized over the period in which the related service
is provided.
JPMorgan Chase & Co./2016 Annual Report
187
Notes to consolidated financial statements
4,546
Asset management, administration and commissions
The following table presents Firmwide asset management,
administration and commissions income:
(in millions)
Asset management fees
Investment management fees(a)
All other asset management fees(b)
2016
2015
2014
effective portion
Year ended December 31,
$ 1,307
$ 1,148
2014
1,067
842
1,663
11,309
10,057
9,024
257
351
1,507
$ 11,566
$ 10,408
$ 10,531
(a) Includes revenue on private equity investments held in the Private Equity
business within Corporate, as well as those held in other business
segments.
Lending- and deposit-related fees
The following table presents the components of lending-
and deposit-related fees.
Year ended December 31, (in millions)
Lending-related fees
Deposit-related fees
2016
$ 1,114
4,660
2015
2,990
$
Year ended December 31,
Investment banking fees
11,520 $
35,518
(a) Other credit derivatives largely consists of credit swap options.
(b) Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on protection sold; the notional
amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold.
(c) Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to the
buyer of protection in determining settlement value.
(d) Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on the identical reference
instrument.
The following tables summarize the notional amounts by the ratings, maturity profile, and total fair value, of credit derivatives
and credit-related notes as of December 31, 2016 and 2015, where JPMorgan Chase is the seller of protection. The maturity
profile is based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the
rating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit
derivatives and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile
reflected below.
Protection sold - credit derivatives and credit-related notes ratings (a)/maturity profile
Total notional
amount
$
Fair value of
receivables(b)
<1 year
1-5 years
>5 years
Fair value of
payables(b)
Net fair
value
Risk rating of reference entity
Investment-grade
Noninvestment-grade
December 31, 2016
(in millions)
1,440,359
$
4,715
$
8,238 $
32,431
Protection
sold
$ (1,386,071)
(42,738)
(1,428,809)
(30)
$ (1,428,839)
Maximum payout/Notional amount
Protection purchased Net protection
with identical
underlyings(b)
(sold)/
purchased(c)
Other
protection
purchased (d)
$ 1,402,201
38,158
1,440,359
$
16,130 $ 12,011
(4,580)
18,792
11,550
30,803
(30)
$ (273,688)
(107,955)
The following table presents the components of investment
banking fees.
Total
$ (383,586) $ (39,281)
(170,046)
(23,317)
$ (553,632) $ (62,598)
$ (46,970)
(21,085)
$ (1,053,408)
(375,431)
$
13,539
10,823
$
(6,836)
(18,891)
Total
$ (416,406)
$ (699,227)
(245,151)
$ (944,378)
$ (25,727)
$ 6,703
(8,068)
$ (1,365)
(a) The ratings scale is primarily based on external credit ratings defined by S&P and Moody's.
$ (1,428,839) $ 24,362
(b) Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm.
186
JPMorgan Chase & Co./2016 Annual Report
Note 7 - Noninterest revenue
$ (68,055)
$ (307,211)
(109,195)
Noninvestment-grade
Investment-grade
$ (696,555)
(301,318)
$
7,841
8,184
$ (3,055)
(8,570)
$ 4,786
(386)
$ (997,873)
$ 16,025
$ (11,625)
December 31, 2015
(in millions)
<1 year
1-5 years
>5 years
Total notional
amount
Fair value of
receivables(b)
Fair value of
payables(b)
$ 4,400
Net fair
value
Risk rating of reference entity
$ (381,643)
Gains/(losses) recorded in income and other comprehensive income/(loss)
$ 55,901 $ 50,973 $ 51,531
Total
1 $
$
-
$
$ 33
$ 37
$ 36
281
340 $
498
(929)
(891)
$ 296 $
530
2014
OPEB plans
2015
2016
-
2014
2016
2014
U.S.
2015
2016
Pension plans
Prior service cost/(credit)
Net (gain)/loss
Year ended December 31, (in millions)
Components of net periodic benefit cost
Benefits earned during the year
Interest cost on benefit obligations
Expected return on plan assets
Amortization:
plans.
The following table presents the components of net periodic benefit costs reported in the Consolidated statements of income
and other comprehensive income for the Firm's U.S. and non-U.S. defined benefit pension, defined contribution and OPEB
(504) $ 138 $ 109
(543) $
(3,082) $ (3,028) $
$
Non-U.S.
2015
534
99
112
122
136
Net periodic defined benefit cost
4
Settlement loss
1
-
Special termination benefits
(1)
(2)
(2)
(2)
(41)
(34)
(34)
47
35
137
31
31
38
(985)
(139)
Accumulated other comprehensive income/(loss), pretax, end of year
(150)
(105)
(106)
235
247
25
22
(172)
138 $ 109
2015
OPEB plans
2016
(760)
(725)
7
7
2
2
45
52
31
34
13
131
$ 1,903
$ 1,855
3,718
52
537
231
504
184
$ (12,216) $(11,912)
$
(3,378)
(3,347)
(126)
6
2
$ 14,125
$ 14,623
$
3,511 $
838
$ (708) $ (744)
(186)
(120)
(63)
2015
(513) $
9
2016
(551) $
8
2015
(3,096) $
68
2016
(3,116) $
34
Prior service credit/(cost)
$
Net gain/(loss)
(in millions)
Non-U.S.
Defined benefit pension plans
U.S.
December 31,
The following table presents pretax pension and OPEB amounts recorded in AOCI.
For the Firm's OPEB plans, a calculated value that
recognizes changes in fair value over a five-year period is
used to determine the expected return on plan assets. This
value is referred to as the market related value of assets.
Amortization of net gains and losses, adjusted for gains and
losses not yet recognized, is included in annual net periodic
benefit cost if, as of the beginning of the year, the net gain
or loss exceeds 10% of the greater of the accumulated
postretirement benefit obligation or the market related
value of assets. Any excess net gain or loss is amortized
over the average expected lifetime of retired participants,
which is currently twelve years; however, prior service costs
resulting from plan changes are amortized over the average
years of service remaining to full eligibility age, which is
currently two years.
For the Firm's defined benefit pension plans, fair value is
used to determine the expected return on plan assets.
Amortization of net gains and losses is included in annual
net periodic benefit cost if, as of the beginning of the year,
the net gain or loss exceeds 10% of the greater of the PBO
or the fair value of the plan assets. Any excess is amortized
over the average future service period of defined benefit
pension plan participants, which for the U.S. defined benefit
pension plan is currently seven years and for the non-U.S.
defined benefit pension plans is the period appropriate for
the affected plan. In addition, prior service costs are
amortized over the average remaining service period of
active employees expected to receive benefits under the
plan when the prior service cost is first recognized. The
average remaining amortization period for the U.S. defined
benefit pension plan for current prior service costs is three
years.
Gains and losses
JPMorgan Chase & Co./2016 Annual Report
190
(21)
(529)
(191)
$ 14,272
$ 14,125 (b)(c) $
$ 2,056
$ (12,062)
(32)
$ 2,213
$(11,774)
$
3,431 $ 3,511 $ 1,956 $ 1,855
53 $
164 $ 1,248 $ 1,111
(3,359) $ (3,322)
ΝΑ
ΝΑ
(a) Represents plans with an aggregate overfunded balance of $4.0 billion and $4.1 billion at December 31, 2016 and 2015, respectively, and plans with an
aggregate underfunded balance of $639 million and $636 million at December 31, 2016 and 2015, respectively.
(b) At December 31, 2016 and 2015, approximately $390 million and $533 million, respectively, of U.S. plan assets included participation rights under
participating annuity contracts.
(c) At December 31, 2016 and 2015, defined benefit pension plan amounts that were not measured at fair value included $130 million and $74 million,
respectively, of accrued receivables, and $224 million and $123 million, respectively, of accrued liabilities, for U.S. plans.
(d) Includes an unfunded accumulated postretirement benefit obligation of $35 million and $32 million at December 31, 2016 and 2015, respectively, for the
U.K. plan.
$
(6)
20
43
$
Non-U.S.
U.S.
Non-U.S.
U.S.
OPEB plans
Defined benefit pension plans
Prior service cost/(credit)
Total
Net loss/(gain)
(in millions)
The estimated pretax amounts that will be amortized from AOCI into net periodic benefit cost in 2017 are as follows.
Notes to consolidated financial statements
191
JPMorgan Chase & Co./2016 Annual Report
216 $
(a) Includes various defined benefit pension plans which are individually immaterial.
$ (103) $ (53) $
16
$
$ (80)
$ 59
190 $ (94) $1,528
$
other comprehensive income
Total recognized in net periodic benefit cost and
$ (29) $ 21 $ (4)
(27)
$
$ (113)
$ 39
(68)
28 $
$
(34)
1.07 - 20.60%
ΝΑ
(0.48) 4.92%
ΝΑ
5.62 17.69%
ΝΑ
Plan assumptions
JPMorgan Chase's expected long-term rate of return for U.S.
defined benefit pension and OPEB plan assets is a blended
average of the investment advisor's projected long-term
(10 or more years) returns for the various asset classes,
weighted by the asset allocation. Returns on asset classes
are developed using a forward-looking approach and are
not strictly based on historical returns. Equity returns are
generally developed as the sum of inflation, expected real
earnings growth and expected long-term dividend yield.
Bond returns are generally developed as the sum of
inflation, real bond yield and risk spread (as appropriate),
adjusted for the expected effect on returns from changing
yields. Other asset-class returns are derived from their
relationship to the equity and bond markets. Consideration
is also given to current market conditions and the short-
term portfolio mix of each plan.
For the U.K. defined benefit pension plans, which represent
the most significant of the non-U.S. defined benefit pension
plans, procedures similar to those in the U.S. are used to
develop the expected long-term rate of return on plan
assets, taking into consideration local market conditions
and the specific allocation of plan assets. The expected
long-term rate of return on U.K. plan assets is an average of
projected long-term returns for each asset class. The return
on equities has been selected by reference to the yield on
long-term U.K. government bonds plus an equity risk
premium above the risk-free rate. The expected return on
"AA" rated long-term corporate bonds is based on an
implied yield for similar bonds.
The discount rate used in determining the benefit obligation
under the U.S. defined benefit pension and OPEB plans was
provided by the Firm's actuaries. This rate was selected by
reference to the yields on portfolios of bonds with maturity
dates and coupons that closely match each of the plan's
projected cash flows; such portfolios are derived from a
broad-based universe of high-quality corporate bonds as of
the measurement date. In years in which these hypothetical
bond portfolios generate excess cash, such excess is
assumed to be reinvested at the one-year forward rates
implied by the Mercer Yield Curve published as of the
measurement date. The discount rate for the U.K. defined
benefit pension plan represents a rate of appropriate
duration from the analysis of yield curves provided by the
Firm's actuaries.
At December 31, 2016, the Firm decreased the discount
rates used to determine its benefit obligations for the U.S.
defined benefit pension and OPEB plans in light of current
market interest rates, which will increase expense by
approximately $45 million in 2017. The 2017 expected
long-term rate of return on U.S. defined benefit pension
plan assets and U.S. OPEB plan assets are 6.00% and
5.00%, respectively. For 2017, the initial health care
benefit obligation trend assumption has been set at 5.00%,
while the ultimate health care trend assumption and the
year to reach the ultimate rate remain at 5.00% and 2017,
respectively, unchanged from 2016. As of December 31,
2016, the interest crediting rate assumption remained at
5.00% and the assumed rate of compensation increase was
reduced to 2.30%.
192
JPMorgan Chase & Co./2016 Annual Report
7.29%
9.84
0.88%
1.16
6.12%
7.29
2014
2015
(2)
$
182 $
26 $ - $
The following table presents the actual rate of return on plan assets for the U.S. and non-U.S. defined benefit pension and
OPEB plans.
Year ended December 31,
54 $ (216) $ 1,714
Actual rate of return:
U.S.
2016
2015
2014
Non-U.S.
2016
Defined benefit pension plans
OPEB plans
$
Total recognized in other comprehensive income
(39) (a)
ΝΑ
ΝΑ
329
320
316
438
449
473
Total defined contribution plans
(74) (64)
(74)
49
43
31
(172)
136
150
(74)
(74)
(64)
Other defined benefit pension plans (a)
14
14
ΝΑ
14
10
6
NA
ΝΑ
ΝΑ
Total defined benefit plans
11
33
Total pension and OPEB cost included in
compensation expense
585 $
(33) (a)
(77) (a)
Foreign exchange impact and other
(4)
Settlement loss
2--1
2
2
41
(47)
(35)
(22)
-
$ (29) $ 21 $ (5)
$ 57
$ (47)
$ 140
266
$ 347
$ 363
$
378
$ (74) $ (74) $ (64)
$ 623 $
Changes in plan assets and benefit obligations
recognized in other comprehensive income
$ 255 $
Amortization of net loss
Amortization of prior service (cost)/credit
(235)
34
(247)
34
(3) $ 1,645
53
(25)
Net (gain)/loss arising during the year
Prior service credit arising during the year
-
ΝΑ
NA
(in millions)
Year ended December 31,
The following table presents the components of interest
income and interest expense:
Interest income and interest expense are recorded in the
Consolidated statements of income and classified based on
the nature of the underlying asset or liability.
Note 8 - Interest income and Interest expense
JPMorgan Chase & Co./2016 Annual Report
188
Operating lease income is recognized on a straight-line
basis over the lease term.
$ 2,724 $ 2,081 $ 1,699
2014
2015
2016
Year ended December 31, (in millions)
Operating lease income
Other income on the Firm's Consolidated statements of
income included the following:
Interest Income
Other income
This revenue category includes interchange income from
credit and debit cards and net fees earned from processing
card transactions for merchants. Card income is recognized
as earned. Costs related to rewards programs are recorded
when the rewards are earned by the customer and
presented as a reduction to interchange income. Annual
fees and direct loan origination costs are deferred and
recognized on a straight-line basis over a 12-month period.
Credit card revenue sharing agreements
Card income
This revenue category primarily reflects CCB's Mortgage
Banking production and servicing revenue, including fees
and income derived from mortgages originated with the
intent to sell; mortgage sales and servicing including losses
related to the repurchase of previously sold loans; the
impact of risk-management activities associated with the
mortgage pipeline, warehouse loans and MSRs; and revenue
related to any residual interests held from mortgage
securitizations. This revenue category also includes gains
and losses on sales and lower of cost or fair value
adjustments for mortgage loans held-for-sale, as well as
changes in fair value for mortgage loans originated with the
intent to sell and measured at fair value under the fair value
option. Changes in the fair value of MSRS are reported in
mortgage fees and related income. For a further discussion
of MSRs, see Note 17. Net interest income from mortgage
loans is recorded in interest income.
Mortgage fees and related income
This revenue category includes fees from investment
management and related services, custody and brokerage
services, insurance premiums and commissions, and fees
from other products and services. These fees are recognized
over the period in which the related product or service is
provided. Performance-based fees, which are earned based
on exceeding certain benchmarks or other performance
targets, are accrued and recognized at the end of the
performance period in which the target is met. The Firm has
contractual arrangements with third parties to provide
certain services in connection with its asset management
activities. Amounts paid to third-party service providers are
predominantly expensed, such that asset management fees
are recorded gross of payments made to third parties.
(c) Predominantly includes fees for custody, securities lending, funds services
and securities clearance.
(b) Represents fees for services that are ancillary to investment management
services, such as commissions earned on the sales or distribution of mutual
funds to clients.
separately managed investment accounts.
(a) Represents fees earned from managing assets on behalf of the Firm's
clients, including investors in Firm-sponsored funds and owners of
$ 14,591 $ 15,509 $ 15,931
commissions
Total asset management,
administration and
2,270
1,836
4,106
3,739
The Firm has contractual agreements with numerous co-
brand partners which grant the Firm exclusive rights to
market to the customers or members of such partners.
These partners endorse the credit card programs and
provide their customer or member lists to the Firm, and
they may also conduct marketing activities and provide
awards under the various credit card programs. The terms
of these agreements generally range from five to ten years.
The Firm typically makes incentive payments to the
partners based on new account originations, sales volumes
and the cost of the partners' marketing activities and
awards. Payments based on new account originations are
accounted for as direct loan origination costs. Payments to
partners based on sales volumes are deducted from
interchange income as the related revenue is earned.
Payments based on marketing efforts undertaken by the
partners are expensed by the Firm as incurred and reported
as noninterest expense.
Loans (a)
2016
2015
1,157
1,250
1,863
(501)
(532)
(332)
Securities borrowed (c)
1,642
1,592
2,265
agreements
purchased under resale
Federal funds sold and securities
7,312
6,621
7,292
Trading assets
2014
$ 36,634 $ 33,134 $ 32,218
Taxable securities
5,538
6,550
7,617
3,475
Non taxable securities (b)
1,706
1,423
Total securities
7,304
8,256
9,040
1,766
Total commissions and fees
1,435
1,324
$
(74)
$
(286)
(55)
(395)
$
19
(109)
$
(360)
$
(450) $
(90)
$
(74)
$
(286)
Foreign exchange (b)
Interest rate (a)
Contract type
(in millions)
Year ended December 31, 2014
Total
Total change
in OCI
for period
Foreign exchange (b)
Contract type
(in millions)
Year ended December 31, 2015
$
(360)
$
Interest rate (a)
875
portion
recorded in OCI
in income (c)
All other commissions and fees
2,304
2,151
Brokerage commissions
Commissions and other fees
2,179
2,015
1,915
Total administration fees (c)
477
9,646
9,755
9,201
Total asset management fees
352
336
Cash flow hedge gains and losses
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and
the pre-tax gains/(losses) recorded on such derivatives, for the years ended December 31, 2016, 2015 and 2014,
respectively. The Firm includes the gain/(loss) on the hedging derivative and the change in cash flows on the hedged item in
the same line item in the Consolidated statements of income.
recorded directly
effective
Derivatives -
Hedge
ineffectiveness
Total
Foreign exchange (b)
Total income
statement impact
Interest rate (a)
Contract type
(in millions)
Year ended December 31, 2016
effective portion
reclassified from
Gains/(losses) recorded in income and other comprehensive income/(loss)
Derivatives -
AOCI to income
652
663
Deposits with banks
$
$(12,536)
$ (11,912)
2015
2016
2015
2016
2015
2016
OPEB plans(d)
Non-U.S.
U.S.
Defined benefit pension plans
Accumulated benefit obligation, end of year
Net funded status (a)
Fair value of plan assets, end of year
Foreign exchange impact and other
Employee contributions
Net gain/(loss)
Benefits paid
Plan settlements
Expected Medicare Part D subsidy receipts
Foreign exchange impact and other
(3,347) $ (3,640) $ (744) $ (842)
Benefit obligation, end of year
Fair value of plan assets, beginning of year
Actual return on plan assets
Firm contributions
Employee contributions
Benefits paid
Plan settlements
Change in plan assets
Special termination benefits
(296)
(36)
ΝΑ
ΝΑ
21
88
76
120
126
760
725
71
4
146
(540)
702
(203)
(25)
(19)
(37)
(1)
(530)
(498)
(99)
(112)
(340)
(31)
-
(1)
ΝΑ
ΝΑ
(7)
(7)
(31)
Derivatives -
Interest cost on benefit obligations
Benefit obligation, beginning of year
405
7,897
435
7,463 $
504
9,818 $
$
consolidated VIES
Beneficial interest issued by
712
4,409
4,435
5,564
Long-term debt
622
1,170
term and other liabilities (e)
Trading liabilities - debt, short-
134
110
135
Other assets (d)
Total interest income
Interest expense
1,252 $ 1,633
Interest bearing deposits
$
Total interest expense
1,356 $
securities loaned or sold under
repurchase agreements
1,089
609
604
Commercial paper
Federal funds purchased and
Benefits earned during the year
Net interest income
Net interest income after
provision for credit losses
Change in benefit obligation
(in millions)
As of or for the year ended December 31,
The following table presents the changes in benefit obligations, plan assets and funded status amounts reported on the
Consolidated balance sheets for the Firm's U.S. and non-U.S. defined benefit pension and OPEB plans.
JPMorgan Chase's U.S. OPEB obligation is funded with
corporate-owned life insurance (“COLI”) purchased on the
lives of eligible employees and retirees. While the Firm
owns the COLI policies, COLI proceeds (death benefits,
withdrawals and other distributions) may be used only to
reimburse the Firm for its net postretirement benefit claim
payments and related administrative expense. The U.K.
OPEB plan is unfunded.
a transition of certain Medicare eligible retirees from
JPMorgan Chase group sponsored coverage to Medicare
exchanges. As a result of this change, eligible retirees will
receive a Healthcare Reimbursement Account amount each
year if they enroll through the Medicare exchange. The
impact of this change was not material. Postretirement
medical benefits also are offered to qualifying U.K.
employees.
JPMorgan Chase offers postretirement medical and life
insurance benefits to certain retirees and postretirement
medical benefits to qualifying U.S. employees. These
benefits vary with the length of service and the date of hire
and provide for limits on the Firm's share of covered
medical benefits. The medical and life insurance benefits
are both contributory. Effective January 1, 2015, there was
OPEB plans
after completing a one-year-of-service requirement.
Employees with total annual cash compensation of
$250,000 or more are not eligible for matching
contributions. Matching contributions vest after three years
of service. The 401(k) Savings Plan also permits
discretionary profit-sharing contributions by participating
companies for certain employees, subject to a specified
vesting schedule.
Notes to consolidated financial statements
189
JPMorgan Chase & Co./2016 Annual Report
The Firm matches eligible employee contributions up to 5%
of eligible compensation (generally base salary/regular pay
and variable cash incentive compensation) on an annual
basis. Employees begin to receive matching contributions
JPMorgan Chase currently provides two qualified defined
contribution plans in the U.S. and other similar
arrangements in certain non-U.S. locations, all of which are
administered in accordance with applicable local laws and
regulations. The most significant of these plans is the
JPMorgan Chase 401(k) Savings Plan (the "401(k) Savings
Plan"), which covers substantially all U.S. employees.
Employees can contribute to the 401(k) Savings Plan on a
pretax and/or Roth 401(k) after-tax basis. The JPMorgan
Chase Common Stock Fund, which is an investment option
under the 401(k) Savings Plan, is a nonleveraged employee
stock ownership plan.
Defined contribution plans
JPMorgan Chase also has a number of defined benefit
pension plans that are not subject to Title IV of the
Employee Retirement Income Security Act. The most
significant of these plans is the Excess Retirement Plan,
pursuant to which certain employees previously earned pay
credits on compensation amounts above the maximum
stipulated by law under a qualified plan; no further pay
credits are allocated under this plan. The Excess Retirement
Plan had an unfunded projected benefit obligation ("PBO")
in the amount of $215 million and $237 million, at
December 31, 2016 and 2015, respectively.
It is the Firm's policy to fund the pension plans in amounts
sufficient to meet the requirements under applicable laws.
The Firm does not anticipate at this time any contribution to
the U.S. defined benefit pension plan in 2017. The 2017
contributions to the non-U.S. defined benefit pension plans
are expected to be $44 million of which $28 million are
contractually required.
$ 46,083 $ 43,510 $ 43,634
5,361
3,827
3,139
$ 40,722 $ 39,683 $ 40,495
(a) Includes the amortization of purchase price discounts or premiums, as
well as net deferred loan fees or costs.
Provision for credit losses
(b) Represents securities that are tax exempt for U.S. federal income tax
purposes.
(e) Includes brokerage customer payables.
Interest income and interest expense includes the current-
period interest accruals for financial instruments measured
at fair value, except for derivatives and financial
instruments containing embedded derivatives that would be
separately accounted for in accordance with U.S. GAAP,
absent the fair value option election; for those instruments,
all changes in fair value including any interest elements, are
reported in principal transactions revenue. For financial
instruments that are not measured at fair value, the related
interest is included within interest income or interest
expense, as applicable.
Note 9 - Pension and other postretirement
employee benefit plans
The Firm has various defined benefit pension plans and
OPEB plans that provide benefits to its employees. These
plans are discussed below.
Defined benefit pension plans
The Firm has a qualified noncontributory U.S. defined
benefit pension plan that provides benefits to substantially
all U.S. employees. The U.S. plan employs a cash balance
formula in the form of pay and interest credits to determine
the benefits to be provided at retirement, based on years of
service and eligible compensation (generally base salary/
regular pay and variable cash incentive compensation
capped at $100,000 annually). Employees begin to accrue
plan benefits after completing one year of service, and
benefits generally vest after three years of service. The Firm
also offers benefits through defined benefit pension plans
to qualifying employees in certain non-U.S. locations based
on factors such as eligible compensation, age and/or years
of service.
(c) Securities borrowed's negative interest income, for the years ended
December 31, 2016, 2015 and 2014, is a result of client-driven demand
for certain securities combined with the impact of low interest rates; this
is matched book activity and the negative interest expense on the
corresponding securities loaned is recognized in interest expense.
(d) Largely margin loans.
(101)
$ 9,403 $ 9,169
$ 8,865
1,492
31,592
31,328
2,245
23
33,550
Certificates of deposit
106
184
106
1
-
283
Non-U.S. government debt securities
34,497
836
Corporate debt securities
Asset-backed securities:
282
4,916
1,492
Obligations of U.S. states and municipalities
22,897
Total mortgage-backed securities
86,589
4,833
529
87,552
103,980
2,021
30,284
419
U.S. Treasury and government agencies (a)
44,822
75
796
44,101
11,202
166
11,036
105,582
64
425
45
62
45
6,967
9,125
72
100
9,097
Total available-for-sale debt securities
235,516
4,096
1,647
Available-for-sale equity securities
914
12
Total available-for-sale securities
236,430
4,108
6,950
Other
31,007
191
35,288
35,864
853
41
36,676
22
4,958
12,464
243
142
12,436
Collateralized loan obligations
27,352
75
26
27,401
31,146
52
170
1,647
150
9,104
2015
$
(317) $ 2,969 $
1,296
1,227
2014
2,883
1,037
Note 12 - Securities
Securities are classified as trading, AFS or HTM. Securities
classified as trading assets are discussed in Note 3.
Predominantly all of the Firm's AFS and HTM investment
securities (the "investment securities portfolio") are held by
Treasury and CIO in connection with its asset-liability
management objectives. At December 31, 2016, the
investment securities portfolio consisted of debt securities
with an average credit rating of AA+ (based upon external
ratings where available, and where not available, based
primarily upon internal ratings which correspond to ratings
as defined by S&P and Moody's). AFS securities are carried
at fair value on the Consolidated balance sheets. Unrealized
gains and losses, after any applicable hedge accounting
adjustments, are reported as net increases or decreases to
AOCI. The specific identification method is used to
determine realized gains and losses on AFS securities,
which are included in securities gains/(losses) on the
Consolidated statements of income. HTM debt securities,
which management has the intent and ability to hold until
maturity, are carried at amortized cost on the Consolidated
balance sheets. For both AFS and HTM debt securities,
purchase discounts or premiums are generally amortized
into interest income over the contractual life of the security.
During 2016, the Firm transferred commercial MBS and
obligations of U.S. states and municipalities with a fair value
of $7.5 billion from AFS to HTM. These securities were
transferred at fair value. AOCI included net pretax
unrealized gains of $78 million on the securities at the date
of transfer. The transfers reflect the Firm's intent to hold the
securities to maturity in order to reduce the impact of price
volatility on AOCI. This transfer was a non-cash transaction.
JPMorgan Chase & Co./2016 Annual Report
199
Notes to consolidated financial statements
The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
December 31, (in millions)
Available-for-sale debt securities
Mortgage-backed securities:
2016
2015
Gross
2016
FDIC-related expense
Legal (benefit)/expense
(in millions)
819
$ 1,940 $1,987
$ 2,190
At December 31, 2016, approximately $700 million
(pretax) of compensation expense related to unvested
awards had not yet been charged to net income. That cost is
expected to be amortized into compensation expense over a
weighted-average period of 1.0 year. The Firm does not
capitalize any compensation expense related to share-based
compensation awards to employees.
Cash flows and tax benefits
Effective January 1, 2016, the Firm adopted new
accounting guidance related to employee share-based
payments. As a result of the adoption of this new guidance,
all excess tax benefits (including tax benefits from dividends
or dividend equivalents) on share-based payment awards
are recognized within income tax expense in the
Consolidated statements of income. In prior years these tax
benefits were recorded as increases to additional paid-in
capital. Income tax benefits related to stock-based incentive
arrangements recognized in the Firm's Consolidated
statements of income for the years ended December 31,
2016, 2015 and 2014, were $916 million, $746 million
and $854 million, respectively.
The following table sets forth the cash received from the
exercise of stock options under all stock-based incentive
arrangements, and the actual income tax benefit related to
tax deductions from the exercise of the stock options.
Year ended December 31, (in millions)
Cash received for options exercised
Tax benefit
Amortized unrealized
cost
gains
2016
$ 26 $ 20
70
64
2014
$ 63
104
198
JPMorgan Chase & Co./2016 Annual Report
Note 11 - Noninterest expense
For details on noninterest expense, see Consolidated
statements of income on page 141. Included within other
expense are the following:
Year ended December 31,
2015
Gross
unrealized
losses
Gross
Fair
value
6
3,971
1,078
9
8
1,079
6,049
158
62
7
19,629
341
13
19,957
Commercial
9,002
122
20
6,200
22,990
3,915
49
Amortized unrealized
cost
gains
Gross
unrealized
losses
Fair
value
U.S. government agencies (a)
Residential:
Prime and Alt-A(b)
Subprime (b)
Non-U.S.
$ 63,367 $ 1,112 $ 474 $ 64,005 $ 53,689 $
6,583
1,483 $
$ 55,066
4,256
38
22
22
4,272
6,594
38
106
237,965
926
238,891
235,391
5,386
2672
33,557
486
3,543
43
37,100
529
U.S. Treasury and government agencies
23,543
796
Obligations of U.S. states and municipalities
7,215
181
Certificates of deposit
Non-U.S. government debt securities
Corporate debt securities
4,436
20
3,406
3
1,078
11 $
30,362 $
474
977
396
2 4
1,018
20
36
1,995
2
451
-
886
7
886
2,328
17
55
421
9
4,857
5,263
24
6,029
26
26
Other
739
6
2
1,992
2,731
45
Total available-for-sale debt securities
71,053
1,509
12,103
138
83,156
39
506 $
766
Asset-backed securities:
797
2
829
20
1,626
|  ྴ 'ཊྛམྨིཾ
-
-
Collateralized loan obligations
23,543
55
3
7,270
184
86
425
45
22
796
$
463
29,856 $
5,654
-
-
Total mortgage-backed securities
35,693
638
166
36,165
129
36,271
42
37,081
Obligations of U.S. states and municipalities
14,475
374
125
14,724
12,802
852
708
-
Commercial
1,110
239,667
2,067
237,458
20
5,406
1,110
2,087
241,754
Held-to-maturity debt securities
5,783
Mortgage-backed securities
29,910
638
37
30,511
36,271
852
42
37,081
U.S. government agencies (c)
878
4
Total held-to-maturity debt securities
12 months or more
December 31, 2016 (in millions)
Available-for-sale debt securities
Fair value
Gross unrealized
losses
Fair value
Gross unrealized
losses
Total fair
value
Total gross
Less than 12 months
unrealized losses
U.S.government agencies
Residential:
Prime and Alt-A
Subprime
Non-U.S.
Commercial
Total mortgage-backed securities
$
Mortgage-backed securities:
13,506
Securities with gross unrealized losses
Securities impairment
50,168
1,012
291
50,889
49,073
Total securities
$ 286,598 $ 5,120 $ 1,938
$ 289,780
The following tables present the fair value and gross unrealized losses for the investment securities portfolio by aging category
at December 31, 2016 and 2015.
$ 286,531 $
46
50,587
$ 292,341
(a) Includes total U.S. government-sponsored enterprise obligations with fair values of $45.8 billion and $42.3 billion at December 31, 2016 and 2015, respectively,
which were predominantly mortgage-related.
(b) Prior period amounts have been revised to conform with current period presentation.
(c) Included total U.S. government-sponsored enterprise obligations with amortized cost of $25.6 billion and $30.8 billion at December 31, 2016 and 2015,
respectively, which were mortgage-related.
200
JPMorgan Chase & Co./2016 Annual Report
1,560
6,966 $ 1,156
894
Total noncash compensation expense
related to employee stock-based
incentive plans
Accrual of estimated costs of stock-
based awards to be granted in future
periods including those to full-career
eligible employees
OPEB plans
COLI
Total OPEB plans
$
1,855 $
$
1,855
$
102
$ - $ - $
1,957
102
$
-
$
1,957
Actual return on plan assets
396
$
14
$
Fair value,
December 31,
2016
U.S. defined benefit pension plans
Equity securities
$
2 $ - $ - $ - $ - $ 2
Corporate debt securities
² 1 1 4
Mortgage-backed securities
Fair value,
January 1,
2015
1
Other
534
Total U.S. defined benefit pension plans
$
539 $
(157)
(157) $
13
390
(1)
Purchases, sales
Realized
gains/(losses)
Unrealized
gains/(losses)
Total U.S. defined benefit pension plans
$
351
$
OPEB plans
COLI
Total OPEB plans
1
337
197
195 $
(7) $
$
539
$
1,903 $
$
$
1,903
534
Transfers in
and/or out
of level 3
Other
Mortgage-backed securities
and settlements,
Transfers in
and/or out
net
of level 3
(2) $
Fair value,
December 31,
2015
$
1
2
Year ended December 31, 2015
(in millions)
U.S. defined benefit pension plans
Equity securities
$
4
$
Corporate debt securities
9--(7) - 2
$
Purchases, sales
and settlements,
net
Realized
gains/(losses)
1
68
2
26
28
Derivative receivables
104
104
209
209
Other(d)
1,760
27
534
2,321
257
53
67
Mortgage-backed securities
716
504
1,159
339
135
135
Limited partnerships(b)
53
53
Corporate debt securities(c)
310
1,619
1,621
758
758
U.S. federal, state, local and non-U.S. government debt
securities
580
108
688
212
2
Total assets measured at fair value(e)
$ 7,670 $ 1,930 $
539
$
(153) $
(153)
(a) At December 31, 2016 and 2015, common/collective trust funds primarily included a mix of short-term investment funds, domestic and international equity
investments (including index) and real estate funds.
(b) Unfunded commitments to purchase limited partnership investments for the plans were $735 million and $895 million for 2016 and 2015, respectively.
(c) Corporate debt securities include debt securities of U.S. and non-U.S. corporations.
(d) Other consists primarily of money market funds and participating and non-participating annuity contracts. Money market funds are primarily classified within level 1
of the fair value hierarchy given they are valued using market observable prices. Participating and non-participating annuity contracts are classified within level 3 of
the fair value hierarchy due to a lack of market mechanisms for transferring each policy and surrender restrictions.
(e) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be classified in
the fair value hierarchy. At December 31, 2016 and 2015, the fair values of these investments, which include certain limited partnerships and common/collective
trust funds, were $4.0 billion and $4.1 billion, respectively, of U.S. defined benefit pension plan investments, and $243 million and $234 million, respectively, of
non-U.S. defined benefit pension plan investments.
(f) At December 31, 2016 and 2015, excluded U.S. defined benefit pension plan receivables for investments sold and dividends and interest receivables of $130 million
and $74 million, respectively.
-
(g) At December 31, 2016 and 2015, excluded $203 million and $106 million, respectively, of U.S. defined benefit pension plan payables for investments purchased;
and $21 million and $17 million, respectively, of other liabilities.
The Firm's U.S. OPEB plan was partially funded with COLI policies of $2.0 billion and $1.9 billion at December 31, 2016 and
2015, which were classified in level 3 of the valuation hierarchy.
JPMorgan Chase & Co./2016 Annual Report
195
Notes to consolidated financial statements
Changes in level 3 fair value measurements using significant unobservable inputs
Year ended December 31, 2016
(in millions)
Actual return on plan assets
Fair value,
January 1,
2016
(h) There were zero assets or liabilities classified as level 3 for the non-U.S. defined benefit pension plans as of December 31, 2016 and 2015.
Unrealized
gains/(losses)
$
$
$ 10,139 (f)
$
1,722 $
1,708 $
3,430
Derivative payables
Total liabilities measured at fair value
$
$
(35) (g)
$
$
(35)
$
$
(153) $
(153)
$
(35) $
(35) $
1,647
$
1,
RSUS/PSUS
Options/SARS
Year ended December 31, 2016
Weighted-
(in thousands, except weighted-average data, and
where otherwise stated)
Number of
units
Weighted-
average grant
date fair value
average
Number of
awards
exercise
price
Weighted-average
remaining
contractual life
(in years)
Aggregate
intrinsic
value
Outstanding, January 1
85,307 $
54.60
Compensation expense for RSUs and PSUs is measured based on the number of units granted multiplied by the stock price at
the grant date, and for employee stock options and SARs, is measured at the grant date using the Black-Scholes valuation
model. Compensation expense for these awards is recognized in net income as described previously. The following table
summarizes JPMorgan Chase's RSUs, PSUs, employee stock options and SARS activity for 2016.
RSUS, PSUs, employee stock options and SARS activity
Notes to consolidated financial statements
197
60
1
775
117
58
1
3,961
646
43,466 $
250
JPMorgan Chase & Co./2016 Annual Report
Note 10 - Employee stock-based incentives
Employee stock-based awards
In 2016, 2015 and 2014, JPMorgan Chase granted long-
term stock-based awards to certain employees under its
LTIP, as amended and restated effective May 19, 2015.
Under the terms of the LTIP, as of December 31, 2016, 78
million shares of common stock were available for issuance
through May 2019. The LTIP is the only active plan under
which the Firm is currently granting stock-based incentive
awards. In the following discussion, the LTIP, plus prior Firm
plans and plans assumed as the result of acquisitions, are
referred to collectively as the "LTI Plans," and such plans
constitute the Firm's stock-based incentive plans.
RSUS are awarded at no cost to the recipient upon their
grant. Generally, RSUs are granted annually and vest at a
rate of 50% after two years and 50% after three years and
are converted into shares of common stock as of the vesting
date. In addition, RSUs typically include full-career eligibility
provisions, which allow employees to continue to vest upon
voluntary termination, subject to post-employment and
other restrictions based on age or service-related
requirements. All RSU awards are subject to forfeiture until
vested and contain clawback provisions that may result in
cancellation under certain specified circumstances. RSUs
entitle the recipient to receive cash payments equivalent to
any dividends paid on the underlying common stock during
the period the RSUs are outstanding and, as such, are
considered participating securities as discussed in Note 24.
In January 2016, the Firm's Board of Directors approved
the grant of performance share units ("PSUs”) to members
of the Firm's Operating Committee under the variable
compensation program for performance year 2015. PSUs
are subject to the Firm's achievement of specified
performance criteria over a three-year period. The number
of awards that vest can range from zero to 150% of the
grant amount. The awards vest and are converted into
shares of common stock in the quarter after the end of the
three-year performance period. In addition, dividends are
notionally reinvested in the Firm's common stock and will
be delivered only in respect of any earned shares.
Once the PSUs have vested, the shares of common stock
that are delivered, after applicable tax withholding, must be
held for an additional two-year period, for a total combined
vesting and holding period of five years from the grant date.
Under the LTI Plans, stock options and stock appreciation
rights ("SARS") have generally been granted with an
exercise price equal to the fair value of JPMorgan Chase's
common stock on the grant date. The Firm periodically
grants employee stock options to individual employees.
There were no material grants of stock options or SARS
in 2016, 2015 and 2014. SARS generally expire ten years
after the grant date.
The Firm separately recognizes compensation expense for
each tranche of each award, net of estimated forfeitures, as
if it were a separate award with its own vesting date.
Generally, for each tranche granted, compensation expense
is recognized on a straight-line basis from the grant date
until the vesting date of the respective tranche, provided
that the employees will not become full-career eligible
during the vesting period. For awards with full-career
eligibility provisions and awards granted with no future
substantive service requirement, the Firm accrues the
estimated value of awards expected to be awarded to
employees as of the grant date without giving consideration
to the impact of post-employment restrictions. For each
tranche granted to employees who will become full-career
eligible during the vesting period, compensation expense is
recognized on a straight-line basis from the grant date until
the earlier of the employee's full-career eligibility date or
the vesting date of the respective tranche.
The Firm's policy for issuing shares upon settlement of
employee stock-based incentive awards is to issue either
new shares of common stock or treasury shares. During
2016, 2015 and 2014, the Firm settled all of its employee
stock-based awards by issuing treasury shares.
In January 2008, the Firm awarded to its Chairman and
Chief Executive Officer up to 2 million SARS. The terms of
this award are distinct from, and more restrictive than,
other equity grants regularly awarded by the Firm. On July
15, 2014, the Compensation & Management Development
Committee and Board of Directors determined that all
requirements for the vesting of the 2 million SAR awards
had been met and thus, the awards became exercisable. The
SARS, which will expire in January 2018, have an exercise
price of $39.83 (the price of JPMorgan Chase common
stock on the date of grant). The expense related to this
award was dependent on changes in fair value of the SARS
through July 15, 2014 (the date when the vested number of
SARS were determined), and the cumulative expense was
recognized ratably over the service period, which was
initially assumed to be five years but, effective in the first
quarter of 2013, was extended to six and one-half years.
The Firm recognized $3 million in compensation expense in
2014 for this award.
JPMorgan Chase & Co./2016 Annual Report
2
43.51
Granted
36,775
30,267 $
40.65
ΝΑ
24,815
40.08
3.9 $1,378,254
3.6 1,144,937
The total fair value of RSUs that vested during the years ended December 31, 2016, 2015 and 2014, was $2.2 billion, $2.8
billion and $3.2 billion, respectively. The total intrinsic value of options exercised during the years ended December 31, 2016,
2015 and 2014, was $338 million, $335 million and $539 million, respectively.
57.15
Compensation expense
Year ended December 31, (in millions)
2016
2015
2014
Cost of prior grants of RSUs, PSUs and
SARS that are amortized over their
applicable vesting periods
$ 1,046
$ 1,109
$ 1,371
The Firm recognized the following noncash compensation
expense related to its various employee stock-based
incentive plans in its Consolidated statements of income.
113
81,707 $
ΝΑ
Outstanding, December 31
57.80
77
72.63
Exercised or vested
(37,121)
52.09
(12,836)
41.55
Exercisable, December 31
Forfeited
(3,254)
56.45
(240)
44.28
ΝΑ
ΝΑ
(200)
612.18
Canceled
(48) $ $ - $ - $
(48) $
765
63
Corporate debt securities
7 (2) 24 (2)
9
Mortgage-backed securities
1-
1
Other
Total U.S. defined benefit pension plans
$
430
441 $
(2) $
(93)
(91) $
337
5 $
(2) $
351
OPEB plans
4
$
$
$
1,855
$
$
1,855
Year ended December 31, 2014
(in millions)
Actual return on plan assets
Fair value,
January 1,
2014
COLI
Realized
gains/(losses)
Purchases, sales
and settlements,
net
Transfers in
and/or out
of level 3
Fair value,
December 31,
2014
U.S. defined benefit pension plans
Equity securities
$
4
Unrealized
gains/(losses)
$
1,749 $
$
Non-U.S. defined
benefit pension plans
OPEB before Medicare
Part D subsidy
Medicare Part D
subsidy
$
766
$
103
pension plans
$
$
1
768
104
65
1
758
107
68
1
U.S. defined benefit
Years 2022-2026
Total OPEB plans
$
1,749 $
$
154 $
154 $
- $ - $
$
1,903
$
196
1,903
The following table presents benefit payments expected to be paid, which include the effect of expected future service, for the
years indicated. The OPEB medical and life insurance payments are net of expected retiree contributions.
Year ended December 31,
(in millions)
2017
2018
2019
2020
2021
Estimated future benefit payments
Available-for-sale equity securities
Held-to-maturity securities
Mortgage-backed securities
100%
100%
100%
100%
100%
100%
100%
(a) Debt securities primarily include corporate debt, U.S. federal, state, local and non-U.S. government, and mortgage-backed securities.
(b) Alternatives primarily include limited partnerships.
(c) Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded.
194
JPMorgan Chase & Co./2016 Annual Report
Fair value measurement of the plans' assets and liabilities
For information on fair value measurements, including descriptions of level 1, 2, and 3 of the fair value hierarchy and the
valuation methods employed by the Firm, see Note 3.
Pension and OPEB plan assets and liabilities measured at fair value
U.S. defined benefit pension plans
Non-U.S. defined benefit pension plans (h)
December 31, 2016
(in millions)
Cash and cash equivalents
Equity securities
Common/collective trust funds (a)
Limited partnerships(b)
Corporate debt securities(c)
Total fair
Total fair
Level 1
Level 2
100%
Level 3
100%
1
0-80%
35%
32%
59%
60%
Equity securities
0-85
47
48
40
39
60%
38
30-70%
30-70
50%
50
50%
50
Real estate
0-10
4
4
1
Alternatives (b)
157
14
16
1
1
Total
Debt securities(a)
value
Level 2
715
715
U.S. federal, state, local and non-U.S. government debt
securities
926
234
1,160
213
570
783
Mortgage-backed securities
39
65
104
3
10
13
Derivative receivables
-
24
24
-
219
219
Other(d)
1,274
-
390
1,795
Level 1
4
-
value
$
74 $
$
$
74
$
122
$
2
$
124
5,178
12
2
5,192
980
154
1,134
266
-
266
118
118
62
-
62
1,791
1,664
Asset category
% of plan assets
2016
Year ended December 31,
Ultimate
Year when rate will reach ultimate
Weighted-average assumptions used to determine net periodic benefit costs
U.S.
2016
2015
2014
Non-U.S.
2016
2015
2014
Discount rate:
Defined benefit pension plans
4.50%
4.00%
5.00%
0.90 -3.70%
1.00 -3.60%
1.10 4.40%
OPEB plans
4.40
4.10
4.90
Expected long-term rate of return on plan assets:
Defined benefit pension plans
6.50
2017
6.50
2017
5.00
The following tables present the weighted-average annualized actuarial assumptions for the projected and accumulated
postretirement benefit obligations, and the components of net periodic benefit costs, for the Firm's significant U.S. and non-
U.S. defined benefit pension and OPEB plans, as of and for the periods indicated.
Weighted-average assumptions used to determine benefit obligations
December 31,
Discount rate:
Defined benefit pension plans
OPEB plans
Rate of compensation increase
Health care cost trend rate:
Assumed for next year
U.S.
2016
2015
Non-U.S.
2016
2015
4.30%
4.50%
0.60 2.60%
0.80 -3.70%
4.20
4.40
2.30
3.50
2.25 -3.00
2.25 -4.30
5.00
5.50
5.00
2015
7.00
5.75
benefit obligation
$
8 $
(7)
JPMorgan Chase's U.S. defined benefit pension and OPEB
plan expense is sensitive to the expected long-term rate of
return on plan assets and the discount rate. With all other
assumptions held constant, a 25-basis point decline in the
expected long-term rate of return on U.S. plan assets would
result in an aggregate increase of approximately $40
million in 2017 U.S. defined benefit pension and OPEB plan
expense. A 25-basis point decline in the discount rate for
the U.S. plans would result in an increase in 2017 U.S.
defined benefit pension and OPEB plan expense of
approximately an aggregate $31 million and an increase in
the related benefit obligations of approximately an
aggregate $316 million. A 25-basis point decrease in the
interest crediting rate for the U.S. defined benefit pension
plan would result in a decrease in 2017 U.S. defined benefit
pension expense of approximately $36 million and a
decrease in the related PBO of approximately $160 million.
A 25-basis point decline in the discount rates for the non-
U.S. plans would result in an increase in the 2017 non-U.S.
defined benefit pension plan expense of approximately $12
million.
JPMorgan Chase & Co./2016 Annual Report
193
Notes to consolidated financial statements
Investment strategy and asset allocation
The Firm's U.S. defined benefit pension plan assets are held
in trust and are invested in a well-diversified portfolio of
equity and fixed income securities, cash and cash
equivalents, and alternative investments (e.g., hedge funds,
private equity, real estate and real assets). Non-U.S. defined
benefit pension plan assets are held in various trusts and
are also invested in well-diversified portfolios of equity,
fixed income and other securities. Assets of the Firm's COLI
policies, which are used to partially fund the U.S. OPEB
plan, are held in separate accounts of an insurance
company and are allocated to investments intended to
replicate equity and fixed income indices.
The investment policy for the Firm's U.S. defined benefit
pension plan assets is to optimize the risk-return
relationship as appropriate to the needs and goals of the
plan using a global portfolio of various asset classes
diversified by market segment, economic sector, and issuer.
Assets are managed by a combination of internal and
external investment managers. Periodically the Firm
performs a comprehensive analysis on the U.S. defined
benefit pension plan asset allocations, incorporating
projected asset and liability data, which focuses on the
short- and long-term impact of the asset allocation on
cumulative pension expense, economic cost, present value
of contributions and funded status. Currently, approved
asset allocation ranges are: U.S. equity 0% to 45%,
international equity 0% to 40%, debt securities 0% to
80%, hedge funds 0% to 5%, real estate 0% to 10%, real
assets 0% to 10% and private equity 0% to 20%. Asset
allocations are not managed to a specific target but seek to
shift asset class allocations within these stated ranges.
Investment strategies incorporate the economic outlook and
the anticipated implications of the macroeconomic
environment on the various asset classes while maintaining
an appropriate level of liquidity for the plan. The Firm
regularly reviews the asset allocations and asset managers,
as well as other factors that impact the portfolio, which is
rebalanced when deemed necessary.
For the U.K. defined benefit pension plans, which represent
the most significant of the non-U.S. defined benefit pension
plans, the assets are invested to maximize returns subject
to an appropriate level of risk relative to the plans'
liabilities. To reduce the volatility in returns relative to the
plans' liability profiles, the U.K. defined benefit pension
plans' largest asset allocations are to debt securities of
appropriate durations. Other assets, mainly equity
securities, are then invested for capital appreciation, to
provide long-term investment growth. Similar to the U.S.
defined benefit pension plan, asset allocations and asset
managers for the U.K. plans are reviewed regularly and the
portfolios are rebalanced when deemed necessary.
Investments held by the U.S. and non-U.S. defined benefit
pension and OPEB plans include financial instruments that
are exposed to various risks such as market, credit, liquidity
and country risks. Exposure to a concentration of credit risk
is mitigated by the broad diversification of both U.S. and
non-U.S. investment instruments. Additionally, the
investments in each of the common/collective trust funds
and registered investment companies are further diversified
into various financial instruments. As of December 31,
2016, assets held by the Firm's U.S. and non-U.S. defined
benefit pension and OPEB plans do not include JPMorgan
Chase common stock, except through indirect exposures
through investments in third-party stock-index funds. The
plans hold investments in funds that are sponsored or
managed by affiliates of JPMorgan Chase in the amount of
$3.4 billion and $3.2 billion for U.S. plans and $1.2 billion
and $1.2 billion for non-U.S. plans, as of December 31,
2016 and 2015, respectively.
The following table presents the weighted-average asset allocation of the fair values of total plan assets at December 31 for
the years indicated, as well as the respective approved range/target allocation by asset category, for the Firm's U.S. and non-
U.S. defined benefit pension and OPEB plans.
Defined benefit pension plans
U.S.
Non-U.S.
OPEB plans(c)
December 31,
Target
Allocation
% of plan assets
2016
2015
Target
Allocation
% of plan assets
2016
2015
Target
Allocation
Effect on accumulated postretirement
OPEB plans
1-Percentage
point
decrease
Year ended December 31, 2016
(in millions)
6.00
6.25
0.80 -4.60
ΝΑ
0.90 -4.80
1.20 -5.30
ΝΑ
Rate of compensation increase
3.50
3.50
3.50
2.25 -4.30
2.75 -4.20
ΝΑ
2.75 -4.60
Health care cost trend rate:
Assumed for next year
Ultimate
Year when rate will reach ultimate
5.50
6.00
6.50
5.00
5.00
5.00
2017
2017
2017
The following table presents the effect of a one-percentage-
point change in the assumed health care cost trend rate on
JPMorgan Chase's accumulated postretirement benefit
obligation. As of December 31, 2016, there was no material
effect on total service and interest cost.
1-Percentage
point
increase
223
0-35
276
13,779
13
2,188
1
167
12
2,021
8
692
-
8
692
49
4,693
6
238
43
4,455
106
13,699 $
11 $
697 $
$
95
13,002 $
$
Total mortgage-backed securities
239
Commercial
658
14,437
848
125
3,198
3,634
15
367
26
3,267
Corporate debt securities
Non-U.S.government debt securities
Certificates of deposit
205
18
1,676
Obligations of U.S. states and municipalities
10,998
1
166
10,998
U.S. Treasury and government agencies
419
35,709
22
1,760
397
33,949
243
4
45
Non-U.S.
Residential:
4,702
-
-
53
4,702
Obligations of U.S. states and municipalities
166
8,733
15
441
151
8,292
Total mortgage-backed securities
129
5,604
15
441
114
5,163
37
3,129
-
-
37
3,129
Commercial
U.S. government securities
125
Prime and Alt-A (a)
Subprime (a)
Total held-to-maturity securities
276
U.S. government agencies
Total gross
unrealized losses
Total fair
value
Gross unrealized
losses
Mortgage-backed securities:
Fair value
Gross unrealized
losses
Fair value
December 31, 2015 (in millions)
Available-for-sale debt securities
Less than 12 months
12 months or more
Securities with gross unrealized losses
Notes to consolidated financial statements
201
JPMorgan Chase & Co./2016 Annual Report
1,938
96,591 $
153 $
12,544 $
$
1,785
84,047 $
Total securities with gross unrealized losses $
291
13,435
15
441
12,994
4,046
125
555
U.S. defined benefit pension plans
Non-U.S. defined benefit pension plans(h)
December 31, 2015
Total fair
Total fair
(in millions)
Level 1
Level 2
Level 3
value
Level 1
Level 2
value
Cash and cash equivalents
$ 112 $
$
-
$
112
$
114
$
1
$
115
Equity securities
Common/collective trust funds (a)
(194)
(194) $
$
$
170
Total assets measured at fair value(e)
$ 7,819
$ 2,126 $
396
$ 10,341 (f) $
1,659
$
1,723 $
3,382
Derivative payables
$
-
4,826
339
$
-
$
(14) $
$
(194) $
(194)
Total liabilities measured at fair value
$
-
$
(14) $
$
(14) (g)
(14) $
5
1,002
JPMorgan Chase & Co./2016 Annual Report
Held-to-maturity debt securities
Available-for-sale equity securities
1,110
87,589
251
14,877
859
72,712
Total available-for-sale debt securities
100
5,289
40
1,005
Mortgage-backed securities
60
Other
191
26,032
124
10,692
15,340
Collateralized loan obligations
Asset-backed securities:
23
166
ཤྰཀླུ 'ཝཎྜ
2
1,881
4,284
U.S. government agencies
67
Total mortgage-backed securities
(a) Prior period amounts have been revised to conform with current period presentation.
Commercial
202
1,156
91,352 $
251 $
905 $
76,475 $
Total securities with gross unrealized losses $
46
3,763
46
3,763
4
14,877 $
4
469
3,294
3,294
Obligations of U.S. states and municipalities
42
42
42
3,294
42
469
3,294
Total held-to-maturity securities
Average yield(b)
12,345
2.21%
1.78%
-%
-%
-%
Total available-for-sale debt securities
2.26%
34,368
34,302
0.49%
446
$
$
12,307
$
21,551
106
444 $
21,577
2.33%
Amortized cost
1,148
$
752
-%
$
1,096
$
28,302
$
30,284
Fair value
135
Fair value
767
5.85%
3.58%
6.29%
29,542
6.63%
31,592
6.54%
Certificates of deposit
Amortized cost
$
106 $
Average yield (b)
Average yield (b)
1.51%
$
134 $
0.58%
0.93%
1.55%
2.92%
Average yield (b)
35,288
1,062
34,497
1,054 $
13,503 $
13,944
$
14,109
14,444
5,838
Fair value
5,831 $
$
Amortized cost
Non-U.S. government debt securities
1.78%
106
Corporate debt securities
Amortized cost
Fair value
Average yield (b)
Amortized cost
3.06%
3.52%
3.24%
3.11%
2.88%
4,958
123
1,433
1,332
Fair value
2,070
$
121
$
1,424
$
1,312
$
2,059
$
Asset-backed securities
4,916
$
87,552
Obligations of U.S. states and municipalities
77
Net securities gains
OTTI losses
Credit losses recognized in income
Securities the Firm intends to sell(a)
Total OTTI losses recognized in
income
(1)
(1)
(2)
(27)
(21)
(2)
$
(28)
$
(22) $ (4)
Changes in the credit loss component of credit-impaired
debt securities
The cumulative credit loss component, including any
changes therein, of OTTI losses that have been recognized in
income related to AFS debt securities was not material as of
and during the years ended December 31, 2016, 2015 and
2014.
JPMorgan Chase & Co./2016 Annual Report
203
Notes to consolidated financial statements
Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at December 31, 2016, of JPMorgan Chase's
investment securities portfolio by contractual maturity.
202
By remaining maturity
141
(22)
$
Gross unrealized losses
The Firm has recognized unrealized losses on securities it
intends to sell as OTTI. The Firm does not intend to sell any
of the remaining securities with an unrealized loss in AOCI
as of December 31, 2016, and it is not likely that the Firm
will be required to sell these securities before recovery of
their amortized cost basis. Except for the securities for
which credit losses have been recognized in income, the
Firm believes that the securities with an unrealized loss in
AOCI are not other-than-temporarily impaired as of
December 31, 2016.
Other-than-temporary impairment
AFS debt and equity securities and HTM debt securities in
unrealized loss positions are analyzed as part of the Firm's
ongoing assessment of OTTI. For most types of debt
securities, the Firm considers a decline in fair value to be
other-than-temporary when the Firm does not expect to
recover the entire amortized cost basis of the security. For
beneficial interests in securitizations that are rated below
"AA" at their acquisition, or that can be contractually
prepaid or otherwise settled in such a way that the Firm
would not recover substantially all of its recorded
investment, the Firm considers an impairment to be other-
than-temporary when there is an adverse change in
expected cash flows. For AFS equity securities, the Firm
considers a decline in fair value to be other-than-temporary
if it is probable that the Firm will not recover its cost basis.
Potential OTTI is considered using a variety of factors,
including the length of time and extent to which the market
value has been less than cost; adverse conditions
specifically related to the industry, geographic area or
financial condition of the issuer or underlying collateral of a
security; payment structure of the security; changes to the
rating of the security by a rating agency; the volatility of the
fair value changes; and the Firm's intent and ability to hold
the security until recovery.
For AFS debt securities, the Firm recognizes OTTI losses in
earnings if the Firm has the intent to sell the debt security,
or if it is more likely than not that the Firm will be required
to sell the debt security before recovery of its amortized
cost basis. In these circumstances the impairment loss is
equal to the full difference between the amortized cost
basis and the fair value of the securities. For debt securities
in an unrealized loss position that the Firm has the intent
and ability to hold, the expected cash flows to be received
from the securities are evaluated to determine if a credit
loss exists. In the event of a credit loss, only the amount of
impairment associated with the credit loss is recognized in
income. Amounts relating to factors other than credit losses
are recorded in OCI.
The Firm's cash flow evaluations take into account the
factors noted above and expectations of relevant market
and economic data as of the end of the reporting period.
For securities issued in a securitization, the Firm estimates
cash flows considering underlying loan-level data and
structural features of the securitization, such as
subordination, excess spread, overcollateralization or other
forms of credit enhancement, and compares the losses
projected for the underlying collateral ("pool losses")
against the level of credit enhancement in the securitization
structure to determine whether these features are sufficient
to absorb the pool losses, or whether a credit loss exists.
The Firm also performs other analyses to support its cash
flow projections, such as first-loss analyses or stress
scenarios.
For equity securities, OTTI losses are recognized in earnings
if the Firm intends to sell the security. In other cases the
Firm considers the relevant factors noted above, as well as
the Firm's intent and ability to retain its investment for a
period of time sufficient to allow for any anticipated
recovery in market value, and whether evidence exists to
support a realizable value equal to or greater than the cost
basis. Any impairment loss on an equity security is equal to
the full difference between the cost basis and the fair value
of the security.
Securities gains and losses
The following table presents realized gains and losses and
OTTI from AFS securities that were recognized in income.
Year ended December 31,
(in millions)
Realized gains
Realized losses
OTTI losses
2016
2015
$ 401 $ 351
2014
$ 314
(232)
(127)
(233)
(28)
(4)
December 31, 2016 (in millions)
Available-for-sale debt securities
Due in one
year or less
$
132 $
4,573
$
38,976
$
1,141
$
44,822
Fair value
132
4,561
38,317
1,091
44,101
Average yield (b)
0.42%
0.86%
1.27%
1.13%
1.22%
Amortized cost
U.S. Treasury and government agencies (a)
3.19%
3.26%
Due after one year
through five years
Due after five years
through 10 years
Due after
10 years(c)
Total
Mortgage-backed securities (a)
Amortized cost
Fair value
Average yield(b)
$
2,012
Amortized cost
$
$
2,022
2,449
7,574 $
7,756
74,610
75,325
$
86,589
2.04%
2.36%
3.03%
2,393
(a) Excludes realized losses on securities sold of $24 million, $5 million and $3
million for the years ended December 31, 2016, 2015 and 2014,
respectively that had been previously reported as an OTTI loss due to the
intention to sell the securities.
10,274 $
JPMorgan Chase & Co./2016 Annual Report
Securities purchased under resale agreements
$
Securities borrowed
368,148 $
98,721
(156,258) $
211,890 $
98,721
(207,958) $
(65,081)
3,932 (e)
33,640
Liabilities
Securities sold under repurchase agreements
$
Securities loaned and other(a)
290,044 $
22,556
Assets
(156,258) $
(119,332) $
(22,245)
14,454 (e)
311
(a) Includes securities-for-securities lending transactions of $9.1 billion and $4.4 billion at December 31, 2016 and 2015, respectively, accounted for at fair
value, where the Firm is acting as lender. These amounts are presented within other liabilities in the Consolidated balance sheets.
(b) Includes securities financing agreements accounted for at fair value. At December 31, 2016 and 2015, included securities purchased under resale
agreements of $21.5 billion and $23.1 billion, respectively, and securities sold under agreements to repurchase of $687 million and $3.5 billion,
respectively. There were no securities borrowed at December 31, 2016 and $395 million at December 31, 2015. There were no securities loaned
accounted for at fair value in either period.
(c) In some cases, collateral exchanged with a counterparty exceeds the net asset or liability balance with that counterparty. In such cases, the amounts
reported in this column are limited to the related asset or liability with that counterparty.
(d) Includes securities financing agreements that provide collateral rights, but where an appropriate legal opinion with respect to the master netting
agreement has not been either sought or obtained. At December 31, 2016 and 2015, included $4.8 billion and $2.3 billion, respectively, of securities
purchased under resale agreements; $27.1 billion and $31.3 billion, respectively, of securities borrowed; $15.9 billion and $12.6 billion, respectively, of
securities sold under agreements to repurchase; and $90 million and $45 million, respectively, of securities loaned and other.
(e) Prior period amounts have been revised to conform with the current presentation.
206
JPMorgan Chase & Co./2016 Annual Report
The tables below present as of December 31, 2016 and 2015 the types of financial assets pledged in securities financing
agreements and the remaining contractual maturity of the securities financing agreements.
December 31, (in millions)
Mortgage-backed securities
133,786 $
22,556
U.S. Treasury and government agencies
Net amounts(d)
Amounts
presented on the
Consolidated
balance sheets(b)
December 31, (in millions)
Gross amounts
on the
Consolidated
balance sheets
Amounts
presented on the
Consolidated
balance sheets (b)
Amounts not
nettable on the
Consolidated
balance sheets(c)
Net amounts(d)
Assets
Securities purchased under resale agreements
Securities borrowed
$
480,735 $
96,409
(250,832) $
229,903 $
96,409
(222,413) $
(66,822)
Amounts not
nettable on the
Consolidated
balance sheets(c)
7,490
29,587
Securities sold under repurchase agreements
$
Securities loaned and other(a)
402,465 $
22,451
(250,832) $
151,633 $
22,451
(133,300) $
(22,177)
18,333
274
December 31, (in millions).
Gross amounts
Amounts netted
on the
Consolidated
balance sheets
2015
Liabilities
Amounts netted
Obligations of U.S. states and municipalities
Corporate debt securities
15,529
21,064
15,719
18,047
$
402,465 $
22,451 $
290,044 $
22,556
Remaining contractual maturity of the agreements
2016 (in millions)
Overnight and
continuous
Total securities sold under repurchase agreements
4,394
$
140,318 $
13,586
Up to 30 days
157,860 $
1,371
30 - 90 days
55,621 $
2,877
Greater than
90 days
48,666 $
4,617
Total
402,465
22,451
Remaining contractual maturity of the agreements
2015 (in millions)
Overnight and
continuous
Total securities sold under repurchase agreements
Total securities loaned and other(a)
$
Total securities loaned and other (a)
Non-U.S. government debt
-
78
Asset-backed securities
Equity securities
Total
Gross liability balance
2016
Securities sold
under repurchase
agreements
Securities loaned
and other(a)
$
10,546 $
$
199,030
2015
7,721
Securities sold
under repurchase
12,790 $
154,377
Securities loaned
and other(a)
5
2,491
1,316
149,008
1,279
80,162
4,426
18,140
108
21,286
agreements
114,595 $
8,320
2016
Notes to consolidated financial statements
926
0.58%
0.58%
Total available-for-sale securities
Amortized cost
$
10,274 $
Fair value
10,303
23,583
23,999
$
84,124 $
84,175
118,449 $
120,414
926
236,430
Average yield(b)
2.73%
1.63%
1.74%
3.89%
2.85%
Held-to-maturity debt securities
Mortgage-backed securities (a)
Amortized Cost
$
LA
$
$
238,891
Fair value
914
914
23,583
$
Fair value
10,303
23,999
84,124
84,175
$
117,535 $
235,516
119,488
237,965
Average yield(b)
2.73%
$
1.63%
3.92%
2.86%
Available-for-sale equity securities
Amortized cost
$
$
$
Fair value
Average yield(b)
-%
-%
-%
$
1.74%
The table below summarizes the gross and net amounts of the Firm's securities financing agreements, as of December 31,
2016, and 2015. When the Firm has obtained an appropriate legal opinion with respect to the master netting agreement with
a counterparty and where other relevant netting criteria under U.S. GAAP are met, the Firm nets, on the Consolidated balance
sheets, the balances outstanding under its securities financing agreements with the same counterparty. In addition, the Firm
exchanges securities and/or cash collateral with its counterparties; this collateral also reduces, in the Firm's view, the economic
exposure with the counterparty. Such collateral, along with securities financing balances that do not meet all these relevant
netting criteria under U.S. GAAP, is presented as “Amounts not nettable on the Consolidated balance sheets," and reduces the
"Net amounts" presented below, if the Firm has an appropriate legal opinion with respect to the master netting agreement with
the counterparty. Where a legal opinion has not been either sought or obtained, the securities financing balances are
presented gross in the “Net amounts" below, and related collateral does not reduce the amounts presented.
Average yield(b)
-%
$
29
1,439 $
1,467
48,700
$
50,168
49,393
50,889
-%
6.61%
5.11%
3.94%
3.97%
29
(a) U.S.government-sponsored enterprises were the only issuers whose securities exceeded 10% of JPMorgan Chase's total stockholders' equity at December 31, 2016.
(b) Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each security. The effective yield
considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives. Taxable-equivalent amounts are used
JPMorgan Chase & Co./2016 Annual Report
where applicable. The effective yield excludes unscheduled principal prepayments; and accordingly, actual maturities of securities may differ from their contractual or expected
maturities as certain securities may be prepaid.
(c) Includes securities with no stated maturity. Substantially all of the Firm's residential MBS and collateralized mortgage obligations are due in 10 years or more, based on
contractual maturity. The estimated weighted-average life, which reflects anticipated future prepayments, is approximately seven years for agency residential MBS, three years
for agency residential collateralized mortgage obligations and three years for nonagency residential collateralized mortgage obligations.
Note 13 - Securities financing activities
JPMorgan Chase enters into resale agreements, repurchase
agreements, securities borrowed transactions and securities
loaned transactions (collectively, "securities financing
agreements") primarily to finance the Firm's inventory
positions, acquire securities to cover short positions,
accommodate customers' financing needs, and settle other
securities obligations.
Securities financing agreements are treated as
collateralized financings on the Firm's Consolidated balance
sheets. Resale and repurchase agreements are generally
carried at the amounts at which the securities will be
subsequently sold or repurchased. Securities borrowed and
securities loaned transactions are generally carried at the
amount of cash collateral advanced or received. Where
appropriate under applicable accounting guidance, resale
and repurchase agreements with the same counterparty are
reported on a net basis. For further discussion of the
offsetting of assets and liabilities, see Note 1. Fees received
and paid in connection with securities financing agreements
are recorded in interest income and interest expense on the
Consolidated statements of income.
The Firm has elected the fair value option for certain
securities financing agreements. For further information
regarding the fair value option, see Note 4. The securities
financing agreements for which the fair value option has
been elected are reported within securities purchased
under resale agreements, securities loaned or sold under
repurchase agreements, and securities borrowed on the
Consolidated balance sheets. Generally, for agreements
carried at fair value, current-period interest accruals are
recorded within interest income and interest expense, with
changes in fair value reported in principal transactions
revenue. However, for financial instruments containing
embedded derivatives that would be separately accounted
for in accordance with accounting guidance for hybrid
instruments, all changes in fair value, including any interest
elements, are reported in principal transactions revenue.
Securities financing transactions expose the Firm to credit
and liquidity risk. To manage these risks, the Firm monitors
the value of the underlying securities (predominantly high-
quality securities collateral, including government-issued
debt and agency MBS) that it has received from or provided
to its counterparties compared to the value of cash
proceeds and exchanged collateral, and either requests
additional collateral or returns securities or collateral when
appropriate. Margin levels are initially established based
upon the counterparty, the type of underlying securities,
and the permissible collateral, and are monitored on an
ongoing basis.
In resale agreements and securities borrowed transactions,
the Firm is exposed to credit risk to the extent that the
value of the securities received is less than initial cash
principal advanced and any collateral amounts exchanged.
In repurchase agreements and securities loaned
transactions, credit risk exposure arises to the extent that
the value of underlying securities exceeds the value of the
initial cash principal advanced, and any collateral amounts
exchanged.
Additionally, the Firm typically enters into master netting
agreements and other similar arrangements with its
counterparties, which provide for the right to liquidate the
underlying securities and any collateral amounts exchanged
in the event of a counterparty default. It is also the Firm's
policy to take possession, where possible, of the securities
underlying resale agreements and securities borrowed
transactions. For further information regarding assets
pledged and collateral received in securities financing
agreements, see Note 30.
As a result of the Firm's credit risk mitigation practices with
respect to resale and securities borrowed agreements as
described above, the Firm did not hold any reserves for
credit impairment with respect to these agreements as of
December 31, 2016 and 2015.
JPMorgan Chase & Co./2016 Annual Report
205
204
Obligations of U.S. states and municipalities
$ - $
5.68%
-%
-%
$
35,693
36,165
$
35,693
36,165
3.30%
3.30%
Amortized cost
Fair value
Average yield (b)
Total held-to-maturity securities
5.63%
Amortized cost
Average yield (b)
$$
29
$
29
1,439 $
1,467
13,007 $
14,475
13,228
14,724
-%
6.61%
5.11%
Fair value
106
Up to 30 days
100,082 $
708
29,955 $
JPMorgan Chase & Co./2016 Annual Report
211
Notes to consolidated financial statements
The following tables provide information about the carrying value of retained loans purchased, sold and reclassified to held-
for-sale during the periods indicated. These tables exclude loans recorded at fair value. The Firm manages its exposure to
credit risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures.
Year ended December 31,
(in millions)
Purchases
Sales
Retained loans reclassified to held-for-sale
Year ended December 31,
(in millions)
Purchases
Sales
Retained loans reclassified to held-for-sale
(a) Includes billed interest and fees net of an allowance for uncollectible interest and fees.
(b) Loans (other than PCI loans and those for which the fair value option has been elected) are presented net of unearned income, unamortized discounts and
premiums, and net deferred loan costs. These amounts were not material as of December 31, 2016 and 2015.
2016
Credit card
Wholesale
Total
4,116
6,368
321
(a) (b) $ - $
1,448
5,564
8,739
15,107
2,381
2,702
2015
Consumer, excluding
credit card
Consumer, excluding
credit card
Credit card
837,299
$ 361,015
141,816
$ 388,305
$
894,765
December 31, 2015
(in millions)
Retained
$ 364,644
Consumer, excluding
Held-for-sale
At fair value
Total
credit card
$
$ 344,355
Credit card (a)
131,387
Wholesale
$ 357,050
Total
$
832,792 (b)
466
76
1,104
2,861
1,646
2,861
$ 344,821
$
131,463
$
$
Wholesale
(a)(b)
14,036
581
4,810
(a) Purchases predominantly represent the Firm's voluntary repurchase of certain delinquent loans from loan pools as permitted by Government National
Mortgage Association ("Ginnie Mae") guidelines. The Firm typically elects to repurchase these delinquent loans as it continues to service them and/or
manage the foreclosure process in accordance with applicable requirements of Ginnie Mae, FHA, RHS, and/or VA.
(b) Excludes purchases of retained loans sourced through the correspondent origination channel and underwritten in accordance with the Firm's standards.
Such purchases were $30.4 billion, $50.3 billion and $15.1 billion for the years ended December 31, 2016, 2015 and 2014, respectively.
The following table provides information about gains and losses, including lower of cost or fair value adjustments, on loan sales
by portfolio segment.
Year ended December 31, (in millions)
2016
2015
2014
Net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a)
Consumer, excluding credit card
$
231 $
8,319
305 $
Credit card
Wholesale
(12)
26
1
(241)
34
101
Total net gains on sales of loans (including lower of cost or fair value adjustments)
(a) Excludes sales related to loans accounted for at fair value.
$
245 $
340 $
201
212
341
Total
$
$
$
5,279
$
$
5,099
1,514
79
2,154
9,188
642
$
7,433
14,287
2,235
Year ended December 31,
885
7,381
(in millions)
Sales
Retained loans reclassified to held-for-sale
2014
Consumer, excluding
credit card
Credit card
(a)(b)
$
7,434
$
6,655
1,190
3,039
Wholesale
Total
Purchases
30 - 90 days
2,230
2,285
2,230
Allowance for loan losses
The allowance for loan losses represents the estimated
probable credit losses inherent in the held-for-investment
loan portfolio at the balance sheet date and is recognized
on the balance sheet as a contra asset, which brings the
recorded investment to the net carrying value. Changes in
the allowance for loan losses are recorded in the provision
for credit losses on the Firm's Consolidated statements of
income. See Note 15 for further information on the Firm's
accounting policies for the allowance for loan losses.
Charge-offs
Consumer loans, other than risk-rated business banking,
risk-rated auto and PCI loans, are generally charged off or
charged down to the net realizable value of the underlying
collateral (i.e., fair value less costs to sell), with an offset to
the allowance for loan losses, upon reaching specified
stages of delinquency in accordance with standards
established by the FFIEC. Residential real estate loans, non-
modified credit card loans and scored business banking
loans are generally charged off no later than 180 days past
due. Auto, student and modified credit card loans are
charged off no later than 120 days past due.
Certain consumer loans will be charged off earlier than the
FFIEC charge-off standards in certain circumstances as
follows:
•
A charge-off is recognized when a loan is modified in a
TDR if the loan is determined to be collateral-dependent.
Loans to borrowers who have experienced an event
(e.g., bankruptcy) that suggests a loss is either known or
highly certain are subject to accelerated charge-off
standards. Residential real estate and auto loans are
charged off when the loan becomes 60 days past due, or
sooner if the loan is determined to be collateral-
dependent. Credit card, student and scored business
banking loans are charged off within 60 days of
208
JPMorgan Chase & Co./2016 Annual Report
•
receiving notification of the bankruptcy filing or other
event.
Auto loans are written down to net realizable value upon
repossession of the automobile and after a redemption
period (i.e., the period during which a borrower may
cure the loan) has passed.
Other than in certain limited circumstances, the Firm
typically does not recognize charge-offs on government-
guaranteed loans.
As permitted by regulatory guidance, credit card loans are
generally exempt from being placed on nonaccrual status;
accordingly, interest and fees related to credit card loans
continue to accrue until the loan is charged off or paid in
full. However, the Firm separately establishes an allowance,
which is offset against loans and charged to interest
income, for the estimated uncollectible portion of accrued
and billed interest and fee income on credit card loans. The
allowance is established with a charge to interest income
and is reported as an offset to loans.
Wholesale loans, risk-rated business banking loans and risk-
rated auto loans are charged off when it is highly certain
that a loss has been realized, including situations where a
loan is determined to be both impaired and collateral-
dependent. The determination of whether to recognize a
charge-off includes many factors, including the
prioritization of the Firm's claim in bankruptcy, expectations
of the workout/restructuring of the loan and valuation of
the borrower's equity or the loan collateral.
For residential real estate loans, collateral values are based
upon external valuation sources. When it becomes likely
that a borrower is either unable or unwilling to pay, the
Firm obtains a broker's price opinion of the home based on
an exterior-only valuation (“exterior opinions”), which is
then updated at least every six months thereafter. As soon
as practicable after the Firm receives the property in
satisfaction of a debt (e.g., by taking legal title or physical
possession), generally, either through foreclosure or upon
the execution of a deed in lieu of foreclosure transaction
with the borrower, the Firm obtains an appraisal based on
an inspection that includes the interior of the home
("interior appraisals"). Exterior opinions and interior
appraisals are discounted based upon the Firm's experience
with actual liquidation values as compared with the
estimated values provided by exterior opinions and interior
appraisals, considering state- and product-specific factors.
For commercial real estate loans, collateral values are
generally based on appraisals from internal and external
valuation sources. Collateral values are typically updated
every six to twelve months, either by obtaining a new
appraisal or by performing an internal analysis, in
accordance with the Firm's policies. The Firm also considers
both borrower- and market-specific factors, which may
result in obtaining appraisal updates or broker price
opinions at more frequent intervals.
Loans held-for-sale
Held-for-sale loans are measured at the lower of cost or fair
value, with valuation changes recorded in noninterest
revenue. For consumer loans, the valuation is performed on
a portfolio basis. For wholesale loans, the valuation is
performed on an individual loan basis.
Interest income on loans held-for-sale is accrued and
recognized based on the contractual rate of interest.
Loan origination fees or costs and purchase price discounts
or premiums are deferred in a contra loan account until the
related loan is sold. The deferred fees and discounts or
premiums are an adjustment to the basis of the loan and
therefore are included in the periodic determination of the
lower of cost or fair value adjustments and/or the gain or
loss recognized at the time of sale.
Held-for-sale loans are subject to the nonaccrual policies
described above.
Because held-for-sale loans are recognized at the lower of
cost or fair value, the Firm's allowance for loan losses and
charge-off policies do not apply to these loans.
Loans at fair value
Loans used in a market-making strategy or risk managed on
a fair value basis are measured at fair value, with changes
in fair value recorded in noninterest revenue.
Interest income on loans is accrued and recognized based
on the contractual rate of interest. Changes in fair value are
recognized in noninterest revenue. Loan origination fees are
recognized upfront in noninterest revenue. Loan origination
costs are recognized in the associated expense category as
incurred.
Because these loans are recognized at fair value, the Firm's
allowance for loan losses and charge-off policies do not
apply to these loans.
See Note 4 for further information on the Firm's elections of
fair value accounting under the fair value option. See Note 3
and Note 4 for further information on loans carried at fair
value and classified as trading assets.
PCI loans
When a loan is charged down to the estimated net realizable
value, the determination of the fair value of the collateral
depends on the type of collateral (e.g., securities, real
estate). In cases where the collateral is in the form of liquid
securities, the fair value is based on quoted market prices
or broker quotes. For illiquid securities or other financial
assets, the fair value of the collateral is estimated using a
discounted cash flow model.
PCI loans held-for-investment are initially measured at fair
value. PCI loans have evidence of credit deterioration since
the loan's origination date and therefore it is probable, at
acquisition, that all contractually required payments will not
be collected. Because PCI loans are initially measured at fair
value, which includes an estimate of future credit losses, no
allowance for loan losses related to PCI loans is recorded at
the acquisition date. See page 219 of this Note for
information on accounting for PCI loans subsequent to their
acquisition.
A loan may be returned to accrual status when repayment is
reasonably assured and there has been demonstrated
performance under the terms of the loan or, if applicable,
the terms of the restructured loan.
On the date a loan is placed on nonaccrual status, all
interest accrued but not collected is reversed against
interest income. In addition, the amortization of deferred
amounts is suspended. Interest income on nonaccrual loans
may be recognized as cash interest payments are received
(i.e., on a cash basis) if the recorded loan balance is
deemed fully collectible; however, if there is doubt
regarding the ultimate collectibility of the recorded loan
balance, all interest cash receipts are applied to reduce the
793
Greater than
90 days
45,412 $
12,735
Total
290,044
22,556
(a) Includes securities-for-securities lending transactions of $9.1 billion and $4.4 billion at December 31, 2016 and 2015, respectively, accounted for at fair
value, where the Firm is acting as lender. These amounts are presented within other liabilities on the Consolidated balance sheets.
Transfers not qualifying for sale accounting
At December 31, 2016 and 2015, the Firm held $5.9 billion and $7.5 billion, respectively, of financial assets for which the
rights have been transferred to third parties; however, the transfers did not qualify as a sale in accordance with U.S. GAAP.
These transfers have been recognized as collateralized financing transactions. The transferred assets are recorded in trading
assets and loans, and the corresponding liabilities are recorded predominantly in other borrowed funds on the Consolidated
balance sheets.
JPMorgan Chase & Co./2016 Annual Report
207
Notes to consolidated financial statements
Note 14 - Loans
Loan accounting framework
carrying value of the loan (the cost recovery method). For
consumer loans, application of this policy typically results in
the Firm recognizing interest income on nonaccrual
consumer loans on a cash basis.
The accounting for a loan depends on management's
strategy for the loan, and on whether the loan was credit-
impaired at the date of acquisition. The Firm accounts for
loans based on the following categories:
Originated or purchased loans held-for-investment (i.e.,
"retained"), other than PCI loans
•
Loans held-for-sale
•
Loans at fair value
•
PCI loans held-for-investment
The following provides a detailed accounting discussion of
these loan categories:
Loans held-for-investment (other than PCI loans)
Originated or purchased loans held-for-investment, other
than PCI loans, are recorded at the principal amount
outstanding, net of the following: charge-offs; interest
applied to principal (for loans accounted for on the cost
recovery method); unamortized discounts and premiums;
and net deferred loan fees or costs. Credit card loans also
include billed finance charges and fees net of an allowance
for uncollectible amounts.
Interest income
Interest income on performing loans held-for-investment,
other than PCI loans, is accrued and recognized as interest
income at the contractual rate of interest. Purchase price
discounts or premiums, as well as net deferred loan fees or
costs, are amortized into interest income over the
contractual life of the loan to produce a level rate of return.
Nonaccrual loans
Nonaccrual loans are those on which the accrual of interest
has been suspended. Loans (other than credit card loans
and certain consumer loans insured by U.S. government
agencies) are placed on nonaccrual status and considered
nonperforming when full payment of principal and interest
is not expected, regardless of delinquency status, or when
principal and interest has been in default for a period of 90
days or more, unless the loan is both well-secured and in
the process of collection. A loan is determined to be past
due when the minimum payment is not received from the
borrower by the contractually specified due date or for
certain loans (e.g., residential real estate loans), when a
monthly payment is due and unpaid for 30 days or more.
Finally, collateral-dependent loans are typically maintained
on nonaccrual status.
•
889,907 (b)
2,628
JPMorgan Chase & Co./2016 Annual Report
Notes to consolidated financial statements
•
•
Real estate
Financial institutions
• Government agencies
• Other(g)
(a) Includes loans held in CCB, prime mortgage and home equity loans held in AWM and prime mortgage loans held in Corporate.
(b) Includes senior and junior lien home equity loans.
(c) Includes prime (including option ARMs) and subprime loans.
(d) Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses;
these loans are managed by CCB, and therefore, for consistency in presentation, are included with the other consumer loan classes.
(e) Predominantly includes Business Banking loans as well as deposit overdrafts.
(f) Includes loans held in CIB, CB, AWM and Corporate. Excludes prime mortgage and home equity loans held in AWM and prime mortgage loans held in
Corporate. Classes are internally defined and may not align with regulatory definitions.
(g) Includes loans to: individuals; SPEs; holding companies; and private education and civic organizations. For more information on exposures to SPES, see
Note 16.
The following tables summarize the Firm's loan balances by portfolio segment.
December 31, 2016
• Commercial and industrial
(in millions)
Held-for-sale
At fair value
Total
Consumer, excluding
credit card
$ 364,406
$
Credit card (a)
141,711
Wholesale
$ 383,790
Total
$
238
105
-
Retained
209
Wholesale(f)
Credit card
Loan classification changes
Loans in the held-for-investment portfolio that management
decides to sell are transferred to the held-for-sale portfolio
at the lower of cost or fair value on the date of transfer.
Credit-related losses are charged against the allowance for
loan losses; non-credit related losses such as those due to
changes in interest rates or foreign currency exchange rates
are recognized in noninterest revenue.
In the event that management decides to retain a loan in
the held-for-sale portfolio, the loan is transferred to the
held-for-investment portfolio at the lower of cost or fair
value on the date of transfer. These loans are subsequently
assessed for impairment based on the Firm's allowance
methodology. For a further discussion of the methodologies
used in establishing the Firm's allowance for loan losses,
see Note 15.
Loan modifications
The Firm seeks to modify certain loans in conjunction with
its loss-mitigation activities. Through the modification,
JPMorgan Chase grants one or more concessions to a
borrower who is experiencing financial difficulty in order to
minimize the Firm's economic loss, avoid foreclosure or
repossession of the collateral, and to ultimately maximize
payments received by the Firm from the borrower. The
concessions granted vary by program and by borrower-
specific characteristics, and may include interest rate
reductions, term extensions, payment deferrals, principal
forgiveness, or the acceptance of equity or other assets in
lieu of payments.
Such modifications are accounted for and reported as TDRs.
A loan that has been modified in a TDR is generally
considered to be impaired until it matures, is repaid, or is
otherwise liquidated, regardless of whether the borrower
performs under the modified terms. In certain limited
cases, the effective interest rate applicable to the modified
loan is at or above the current market rate at the time of
the restructuring. In such circumstances, and assuming that
the loan subsequently performs under its modified terms
and the Firm expects to collect all contractual principal and
interest cash flows, the loan is disclosed as impaired and as
a TDR only during the year of the modification; in
subsequent years, the loan is not disclosed as an impaired
loan or as a TDR so long as repayment of the restructured
loan under its modified terms is reasonably assured.
Loans, except for credit card loans, modified in a TDR are
generally placed on nonaccrual status, although in many
cases such loans were already on nonaccrual status prior to
modification. These loans may be returned to performing
status (the accrual of interest is resumed) if the following
criteria are met: (i) the borrower has performed under the
modified terms for a minimum of six months and/or six
payments, and (ii) the Firm has an expectation that
repayment of the modified loan is reasonably assured based
on, for example, the borrower's debt capacity and level of
future earnings, collateral values, LTV ratios, and other
current market considerations. In certain limited and well-
defined circumstances in which the loan is current at the
modification date, such loans are not placed on nonaccrual
status at the time of modification.
Because loans modified in TDRs are considered to be
impaired, these loans are measured for impairment using
the Firm's established asset-specific allowance
methodology, which considers the expected re-default rates
for the modified loans. A loan modified in a TDR generally
remains subject to the asset-specific allowance
methodology throughout its remaining life, regardless of
whether the loan is performing and has been returned to
accrual status and/or the loan has been removed from the
impaired loans disclosures (i.e., loans restructured at
market rates). For further discussion of the methodology
used to estimate the Firm's asset-specific allowance, see
Note 15.
Foreclosed property
The Firm acquires property from borrowers through loan
restructurings, workouts, and foreclosures. Property
acquired may include real property (e.g., residential real
estate, land, and buildings) and commercial and personal
property (e.g., automobiles, aircraft, railcars, and ships).
The Firm recognizes foreclosed property upon receiving
assets in satisfaction of a loan (e.g., by taking legal title or
physical possession). For loans collateralized by real
property, the Firm generally recognizes the asset received
at foreclosure sale or upon the execution of a deed in lieu of
foreclosure transaction with the borrower. Foreclosed
assets are reported in other assets on the Consolidated
balance sheets and initially recognized at fair value less
costs to sell. Each quarter the fair value of the acquired
property is reviewed and adjusted, if necessary, to the lower
of cost or fair value. Subsequent adjustments to fair value
are charged/credited to noninterest revenue. Operating
expense, such as real estate taxes and maintenance, are
charged to other expense.
210
JPMorgan Chase & Co./2016 Annual Report
Loan portfolio
• Credit card loans
The Firm's loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine
the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment the
Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class.
Residential real estate - excluding PCI
• Home equity(b)
•
Residential mortgage (c)
Other consumer loans
• Auto(d)
⚫ Business banking (d)(e)
• Student and other
Residential real estate – PCI
Home equity
• Prime mortgage
Subprime mortgage
Option ARMS
Consumer, excluding
credit card(a)
$
280
222
4,824
4,296
3,984
3,338
3,145
5,648
8,162
Number of loans permanently modified
7,441
Concession granted:(a)
Interest rate reduction
75%
66%
75%
76%
71%
9,632
4,673
6,644
5,705
Year ended December 31,
2016
2015
2014
2016
2015
2014
2016
2015
2014
Number of loans approved for a trial
modification
3,760
3,933
1,565
1,945
2,711
3,108
45%
Total residential real estate
- excluding PCI
76%
58%
9
7
26
26
28
52
16
Principal forgiveness
16
Other(b)
6
25
11
10
14
5
41
18
24
18
Term or payment extension
83
89
78
90
81
52
86
86
63
Principal and/or interest deferred
19
23
21
16
27
15
68%
Residential mortgage
Home equity
The following table provides information about how residential real estate loans, excluding PCI loans, were modified under the
Firm's loss mitigation programs described above during the periods presented. This table excludes Chapter 7 loans where the
sole concession granted is the discharge of debt.
2015
2014
2016
2015
2014
2016
2015
2016
2014
$
Residential mortgage
2,311 $ 2,369 $ 2,435
6,376
10,174
$
125 $
128 $
137
Home equity
(in millions)
Interest income on
impaired loans (a)
Average impaired loans
9,082
12,132
13,042
1,957
2,871
3,177
(a) Represents collateral-dependent residential real estate loans that are charged off to the fair value of the underlying collateral less cost to sell. The Firm reports, in accordance
with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower ("Chapter 7 loans") as
collateral-dependent nonaccrual TDRs, regardless of their delinquency status. At December 31, 2016, Chapter 7 residential real estate loans included approximately 12% home
equity and 16% of residential mortgages that were 30 days or more past due.
(b) At December 31, 2016 and 2015, $3.4 billion and $3.8 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae in accordance with the standards of
the appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie
Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure.
(c) Predominantly all residential real estate impaired loans, excluding PCI loans, are in the U.S.
(d) Represents the contractual amount of principal owed at December 31, 2016 and 2015. The unpaid principal balance differs from the impaired loan balances due to various
factors including charge-offs, net deferred loan fees or costs, and unamortized discounts or premiums on purchased loans.
(e) As of December 31, 2016 and 2015, nonaccrual loans included $2.3 billion and $2.5 billion, respectively, of TDRS for which the borrowers were less than 90 days past due. For
additional information about loans modified in a TDR that are on nonaccrual status refer, to the Loan accounting framework on pages 208-210 of this Note.
JPMorgan Chase & Co./2016 Annual Report
215
Notes to consolidated financial statements
The following table presents average impaired loans and the related interest income reported by the Firm.
Interest income on impaired
loans on a cash basis(a)
Year ended December 31,
$
80 $
85 $
90
(in millions)
2016
2015
2014
Home equity
$
Residential mortgage
385 $
254
401 $
267
321
411
Total residential real estate - excluding
PCI
$
639 $
668 $
732
Nature and extent of modifications
The U.S. Treasury's Making Home Affordable programs, as well as the Firm's proprietary modification programs, generally
provide various concessions to financially troubled borrowers including, but not limited to, interest rate reductions, term or
payment extensions and deferral of principal and/or interest payments that would otherwise have been required under the
terms of the original agreement.
Year ended December 31,
6
The following table presents new TDRS reported by the Firm.
Loan modifications
7,697
305
348
444
77
87
105
Total residential real estate - excluding PCI
$
8,687 $ 10,066 $ 12,609 $
430 $
476 $
581 $
157 $
172 $
195
(a) Generally, interest income on loans modified in TDRS is recognized on a cash basis until such time as the borrower has made a minimum of six payments under the new terms,
unless the loan is deemed to be collateral-dependent.
Modifications of residential real estate loans, excluding PCI loans, are generally accounted for and reported as TDRs. There
were no additional commitments to lend to borrowers whose residential real estate loans, excluding PCI loans, have been
modified in TDRs.
(a) Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages exceeds 100% because
predominantly all of the modifications include more than one type of concession. A significant portion of trial modifications include interest rate reductions and/or term or
payment extensions.
(b) Represents variable interest rate to fixed interest rate modifications.
216
At December 31, 2016 and 2015, the Firm had non-PCI
residential real estate loans, excluding those insured by U.S.
government agencies, with a carrying value of $932 million
and $1.2 billion, respectively, that were not included in
REO, but were in the process of active or suspended
foreclosure.
JPMorgan Chase & Co./2016 Annual Report
217
Notes to consolidated financial statements
Other consumer loans
The table below provides information for other consumer retained loan classes, including auto, business banking and student
loans.
December 31,
Active and suspended foreclosure
(in millions, except ratios)
Business banking
Student and other
Total other consumer
2016
2015
2016
2015
Auto
At December 31, 2016, the weighted-average estimated
remaining lives of residential real estate loans, excluding
PCI loans, permanently modified in TDRs were 9 years for
home equity and 10 years for residential mortgage. The
estimated remaining lives of these loans reflect estimated
prepayments, both voluntary and involuntary (i.e.,
foreclosures and other forced liquidations).
(a) Represents loans permanently modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within one year of the
modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such loans defaulted. For residential real estate
loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments past due. In the event that a modified loan redefaults, it is
probable that the loan will ultimately be liquidated through foreclosure or another similar type of liquidation transaction. Redefaults of loans modified within the last 12 months
may not be representative of ultimate redefault levels.
243
Balance of loans that redefaulted within one
year of permanent modification(a)
$
40
$
21
$
29
$
98
$
133
$
214
$
138 $ 154
$
2016
2015
2016
2015
$ 8,989
$ 10,096
$95,738
1,394
369
$97,501
$ 89,734
1,464
361
$ 91,559
% of 30+ days past due to total retained
loans
1.19%
1.35%
1.70%
1.51%
1.38% (d)
1.63% (d)
1.33% (d)
1.42% (d)
90 or more days past due and still accruing (b)
$
$
$ 21,208
172
$ 22,698
$65,814
Loan delinquency(a)
Current
$65,029
30-119 days past due
120 or more days past due
773
12
$ 59,442
804
$ 22,312
247
9
139
$ 20,887
215
106
$8,397
374
$ 9,405
445
218
246
Total retained loans
$ 60,255
8,285
1,755
66
58
2014
4.99%
5.20%
5.27%
5.59%
5.67%
5.74%
2015
5.36%
5.61%
2.34
2.35
2.30
2.93
2.79
2.96
5.51%
2016
2014
2015
JPMorgan Chase & Co./2016 Annual Report
Financial effects of modifications and redefaults
The following table provides information about the financial effects of the various concessions granted in modifications of
residential real estate loans, excluding PCI, under the loss mitigation programs described above and about redefaults of
certain loans modified in TDRs for the periods presented. Because the specific types and amounts of concessions offered to
borrowers frequently change between the trial modification and the permanent modification, the following table presents only
the financial effects of permanent modifications. This table also excludes Chapter 7 loans where the sole concession granted is
the discharge of debt.
Year ended
December 31,
(in millions, except weighted-average data
and number of loans)
Weighted-average interest rate of loans with
interest rate reductions - before TDR
Weighted-average interest rate of loans with
interest rate reductions - after TDR
Weighted-average remaining contractual term
(in years) of loans with term or payment
extensions - before TDR
Weighted-average remaining contractual term
(in years) of loans with term or payment
extensions after TDR
Charge-offs recognized upon permanent
modification
Principal deferred
Home equity
Residential mortgage
Total residential real estate -
excluding PCI
2016
2015
2014
2016
2.70
2.64
2.78
25
23
27
16
7
6
35
30
44
53
51
36
39
85
74
72
207
58
$ 1$ 4$ 27 $ 4 $ 11 $ 12 $ 5 $15 $
Principal forgiven
36
22
18
18
19
24
25
38
35
33
24
38
37
36
22
22
38
22
23
36
246
189 $
$
32
48
100
63
$ 223
109
57
77
58 $
101% to 125% and refreshed FICO scores:
Less than 660
668
1,344
135
274
803
1,618
Equal to or greater than 660
30 $
165
70 $
6,286
$231,226 $211,798
2.87%
2.77%
$
$
1,845
2,191
0.75% 1.03%
$ 4,858 $ 6,056
2,247
2,503
1.11%
1.40%
$ 4,858 $ 6,056
4,092
4,694
Equal to or greater than 660
Less than 660
715
15
$
221
434
177
291
169,579
142,241
196,896
171,889
Less than 660
NO FICO/LTV available
U.S. government-guaranteed
Total retained loans
Geographic region
California
New York
Illinois
4,380
4,934
6,759
6,797
11,139
29,648
4,996
27,317
Less than 80% and refreshed FICO scores:
398
725
80% to 100% and refreshed FICO scores:
Equal to or greater than 660
2,961
4,537
4,026
3,159
6,987
7,696
Less than 660
945
1,409
718
996
1,663
2,405
Equal to or greater than 660
11,731
4,750
$ 200,762
8,989
10,096
Residential real estate - PCI
Home equity
12,902
14,989
Prime mortgage
Student and other
7,602
2,941
12,234
8,893
3,263
13,853
Option ARMS
Total retained loans
$ 364,406 $ 344,355
Delinquency rates are a primary credit quality indicator for
consumer loans. Loans that are more than 30 days past due
provide an early warning of borrowers who may be
experiencing financial difficulties and/or who may be
unable or unwilling to repay the loan. As the loan continues
to age, it becomes more clear that the borrower is likely
either unable or unwilling to pay. In the case of residential
real estate loans, late-stage delinquencies (greater than
150 days past due) are a strong indicator of loans that will
ultimately result in a foreclosure or similar liquidation
transaction. In addition to delinquency rates, other credit
quality indicators for consumer loans vary based on the
class of loan, as follows:
Subprime mortgage
21,208
22,698
Business banking
Consumer, excluding credit card, loan portfolio
Consumer loans, excluding credit card loans, consist
primarily of residential mortgages, home equity loans and
lines of credit, auto loans, business banking loans, and
student and other loans, with a focus on serving the prime
consumer credit market. The portfolio also includes home
equity loans secured by junior liens, prime mortgage loans
with an interest-only payment period, and certain payment-
option loans that may result in negative amortization.
The table below provides information about retained
consumer loans, excluding credit card, by class.
2016
2015
December 31, (in millions)
Residential real estate - excluding PCI
Home equity
$
39,063 $
Residential mortgage
192,163
45,559
166,239
•
Other consumer loans
Auto
65,814
60,255
•
For residential real estate loans, including both non-PCI
and PCI portfolios, the current estimated LTV ratio, or
the combined LTV ratio in the case of junior lien loans, is
an indicator of the potential loss severity in the event of
default. Additionally, LTV or combined LTV ratios can
provide insight into a borrower's continued willingness
to pay, as the delinquency rate of high-LTV loans tends
to be greater than that for loans where the borrower has
equity in the collateral. The geographic distribution of
the loan collateral also provides insight as to the credit
quality of the portfolio, as factors such as the regional
economy, home price changes and specific events such
as natural disasters, will affect credit quality. The
borrower's current or "refreshed" FICO score is a
secondary credit-quality indicator for certain loans, as
FICO scores are an indication of the borrower's credit
payment history. Thus, a loan to a borrower with a low
FICO score (660 or below) is considered to be of higher
risk than a loan to a borrower with a high FICO score.
Further, a loan to a borrower with a high LTV ratio and a
low FICO score is at greater risk of default than a loan to
a borrower that has both a high LTV ratio and a high
FICO score.
For scored auto, scored business banking and student
loans, geographic distribution is an indicator of the
credit performance of the portfolio. Similar to
residential real estate loans, geographic distribution
provides insights into the portfolio performance based
on regional economic activity and events.
2016
2015
Residential mortgage(s)
2016
2015
Total residential real
estate excluding PCI
2016
2015
$ 37,941
646
$ 44,299
$183,819
708
476
552
$ 39,063
$ 45,559
3,824
4,520
$192,163
$ 156,463
4,042
5,734
$166,239
$221,760
Home equity(s)
4,470
Greater than 125% and refreshed FICO scores:
Nonaccrual loans
Risk-rated business banking and auto loans are similar
to wholesale loans in that the primary credit quality
indicators are the risk rating that is assigned to the loan
and whether the loans are considered to be criticized
and/or nonaccrual. Risk ratings are reviewed on a
regular and ongoing basis by Credit Risk Management
and are adjusted as necessary for updated information
about borrowers' ability to fulfill their obligations. For
further information about risk-rated wholesale loan
credit quality indicators, see pages 224-225 of this
Note.
Residential real estate - excluding PCI loans
The following table provides information by class for
residential real estate - excluding retained PCI loans in the
consumer, excluding credit card, portfolio segment.
The following factors should be considered in analyzing
certain credit statistics applicable to the Firm's residential
real estate - excluding PCI loans portfolio: (i) junior lien
home equity loans may be fully charged off when the loan
becomes 180 days past due, and the value of the collateral
does not support the repayment of the loan, resulting in
relatively high charge-off rates for this product class; and
(ii) the lengthening of loss-mitigation timelines may result
in higher delinquency rates for loans carried at the net
realizable value of the collateral that remain on the Firm's
Consolidated balance sheets.
JPMorgan Chase & Co./2016 Annual Report
213
Notes to consolidated financial statements
Residential real estate - excluding PCI loans
December 31,
(in millions, except ratios)
Loan delinquency(a)
Current
30-149 days past due
150 or more days past due
Total retained loans
% of 30+ days past due to total retained loans (b)
90 or more days past due and government guaranteed(c)
Current estimated LTV ratios (d)(e)
$
2,486
1,327
2016
2015
$
$
10,304 $
13,272
1,861
25,437 $
17,050
1.27%
2015
1.57%
3.05
3.10
2,409
30,711
2.85
3.03
2.32%
2.25%
11,252
2016
Total 30+ day delinquency rate
Total loans
$ 192,163 $166,239
$231,226 $211,798
(a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $2.5 billion and $2.6 billion; 30-149 days past
due included $3.1 billion and $3.2 billion; and 150 or more days past due included $3.8 billion and $4.9 billion at December 31, 2016 and 2015, respectively.
(b) At December 31, 2016 and 2015, residential mortgage loans excluded mortgage loans insured by U.S. government agencies of $6.9 billion and $8.1 billion, respectively, that
are 30 or more days past due. These amounts have been excluded based upon the government guarantee.
(c) These balances, which are 90 days or more past due, were excluded from nonaccrual loans as the loans are guaranteed by U.S government agencies. Typically the principal
balance of the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. At December 31, 2016 and
2015, these balances included $2.2 billion and $3.4 billion, respectively, of loans that are no longer accruing interest based on the agreed-upon servicing guidelines. For the
remaining balance, interest is being accrued at the guaranteed reimbursement rate. There were no loans that were not guaranteed by U.S. government agencies that are 90 or
more days past due and still accruing interest at December 31, 2016 and 2015.
(d) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly,
based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where
actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and
should be viewed as estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as unused lines, related to the
property.
(e) Refreshed FICO scores represent each borrower's most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(f) At December 31, 2016 and 2015, included mortgage loans insured by U.S. government agencies of $9.4 billion and $10.7 billion, respectively.
(g) Includes residential real estate loans to private banking clients in AWM, for which the primary credit quality indicators are the borrower's financial position and LTV.
214
JPMorgan Chase & Co./2016 Annual Report
The following table represents the Firm's delinquency statistics for junior lien home equity loans and lines as of December 31,
2016 and 2015.
December 31, (in millions except ratios)
HELOCS:(a)
Within the revolving period (b)
Beyond the revolving period
HELOANS
Total
(a) These HELOCs are predominantly revolving loans for a 10-year period, after which time the HELOC converts to a loan with a 20-year amortization period, but also include HELOCS
that allow interest-only payments beyond the revolving period.
(b) The Firm manages the risk of HELOCS during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are experiencing
financial difficulty or when the collateral does not support the loan amount.
HELOCS beyond the revolving period and HELOANS have higher delinquency rates than HELOCS within the revolving period.
That is primarily because the fully-amortizing payment that is generally required for those products is higher than the
minimum payment options available for HELOCS within the revolving period. The higher delinquency rates associated with
amortizing HELOCS and HELOANS are factored into the Firm's allowance for loan losses.
Impaired loans
998
2,264 $
121 $
1,293 $
1,065
2,358 $
Unpaid principal balance of impaired loans (d)
Impaired loans on nonaccrual status(e)
3,847
1,116
138
3,960
1,220
$
4,689 $
1,343
6,032 $
68 $
5,243
1,447
6,690 $
$
5,955 $
2,341
6,536
2,512
8,296 $
9,048
108
$
$ 39,063 $ 45,559
Allowance for loan losses related to impaired loans
Total impaired loans (b)(c)
The table below sets forth information about the Firm's residential real estate impaired loans, excluding PCI loans. These loans
are considered to be impaired as they have been modified in a TDR. All impaired loans are evaluated for an asset-specific
allowance as described in Note 15.
December 31,
(in millions)
Impaired loans
With an allowance
Home equity
2016
2015
Residential mortgage
2016
2015
Total residential real estate
-excluding PCI
2016
2015
$
1,266 $
Without an allowance(a)
$
3,056
57,694
46,038
2,947
3,420
13,115
11,524
16,062
14,944
Texas
30,609
2,225
10,717
9,128
12,942
11,660
Florida
New Jersey
Colorado
2,532
32,791
21,462
24,813
1,658
3,813
4,714
$ 39,063 $ 45,559
9,364
$192,163 $166,239
10,688
9,364
10,688
$231,226
$211,798
$ 7,644 $ 8,945
$ 59,785
$ 47,263
$ 67,429
$ 56,208
7,978
9,147
Washington
Massachusetts
2,133
2,409
5,627
371
459
5,833
5,340
6,204
5,799
Arizona
All other(f)
Total retained loans
1,772
9,834
2,143
11,656
3,577
3,155
5,349
5,298
47,818
6,672
57,652
4,176
1,451
8,387
7,177
10,520
9,586
2,253
2,590
6,371
5,567
8,624
8,157
677
807
6,304
5,409
6,981
6,216
1,229
5,443
$ 263
$
290
68
81
290
339
1,198
1,433
310
194
210
125
139
401
470
1,016
1,157
314
238
167
819
673
586
332
373
1,026
1,183
3,165
3,621
697
788
515
580
363
400
711
813
2,286
2,581
358
226
263
178
267
297
620
690
241
281
124
143
68
76
181
203
614
703
77
88
142
161
501
145
144
196
282
333
1,000
1,150
94
112
173
199
110
125
346
398
723
834
64
73
159
170
1,479
$20,322 $23,490
863
6,754
7,073
18,316
18,903
Less than 660
2,183
919
2,265
2,438
1,645
1,642
3,783
4,065
9,898
10,410
2,287
4,243
3,967
6,724
977
3,074
4,833
Less than 660
804
1,136
381
614
439
643
609
1,050
2,233
3,443
Lower than 80% and refreshed FICO scores:
Equal to or greater than 660
6,676
No FICO/LTV available
750
889
391
New Jersey
Illinois
Massachusetts
Maryland
Arizona
Virginia
All other
Total unpaid principal balance
$ 7,899
$ 9,205
$ 4,396
$ 5,172
$
899
$ 1,005
$ 7,128
$ 8,108
Washington
1,306
New York
California
498
177
210
585
728
1,903
Total unpaid principal balance
$13,192
$15,342
$ 7,627
$ 8,919
$ 3,606
$ 4,051
$12,546
$14,353
2,325
$36,971 $42,665
Geographic region (based on unpaid principal balance)
Florida
558
56
314
% of net charge-offs to retained loans
Loan delinquency
Current and less than 30 days past due
and still accruing
30-89 days past due and still accruing
90 or more days past due and still accruing
Total retained credit card loans
Loan delinquency ratios
% of 30+ days past due to total retained loans
% of 90+ days past due to total retained loans
Credit card loans by geographic region
California
Texas
New York
Florida
Illinois
New Jersey
As of or for the year ended December 31,
(in millions, except ratios)
Net charge-offs
Ohio
Colorado
All other
Total retained credit card loans
2016
2015
$
3,442
2.63%
Pennsylvania
Michigan
The table below sets forth information about the Firm's
credit card loans.
The Firm generally originates new card accounts to prime
consumer borrowers. However, certain cardholders' FICO
scores may decrease over time, depending on the
performance of the cardholder and changes in credit score
technology.
scores.
$
13,491
$
14,592
4.35%
4.20%
4.19%
(a) Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model, for example cash flows expected to be
collected due to the impact of modifications and changes in prepayment assumptions.
(b) Reclassifications from the nonaccretable difference in the year ended December 31, 2015 were driven by continued improvement in home prices and delinquencies,
as well as increased granularity in the impairment estimates.
Active and suspended foreclosure
At December 31, 2016 and 2015, the Firm had PCI residential real estate loans with an unpaid principal balance of $1.7
billion and $2.3 billion, respectively, that were not included in REO, but were in the process of active or suspended foreclosure.
JPMorgan Chase & Co./2016 Annual Report
221
Notes to consolidated financial statements
Credit card loan portfolio
The credit card portfolio segment includes credit card loans
originated and purchased by the Firm. Delinquency rates
are the primary credit quality indicator for credit card loans
as they provide an early warning that borrowers may be
experiencing difficulties (30 days past due); information on
those borrowers that have been delinquent for a longer
period of time (90 days past due) is also considered. In
addition to delinquency rates, the geographic distribution of
the loans provides insight as to the credit quality of the
portfolio based on the regional economy.
While the borrower's credit score is another general
indicator of credit quality, the Firm does not view credit
scores as a primary indicator of credit quality because the
borrower's credit score tends to be a lagging indicator.
However, the distribution of such scores provides a general
indicator of credit quality trends within the portfolio.
Refreshed FICO score information, which is obtained at least
quarterly, for a statistically significant random sample of
the credit card portfolio is indicated in the following table;
FICO is considered to be the industry benchmark for credit
$ 3,122
2.51%
$ 139,434 $ 129,502
1,134
1,143
941
4,533
3,741
3,562
3,699
3,399
55,493
51,844
$ 141,711
$ 131,387
Percentage of portfolio based on carrying
value with estimated refreshed FICO scores (a)
Equal to or greater than 660
Less than 660
No FICO available
84.4%
13.1
1.4
2.5
(a) The current period percentage of portfolio based on carrying value with
estimated refreshed FICO scores disclosures have been updated to reflect where
the FICO score is unavailable. The prior period amounts have been revised to
conform with the current presentation.
4,787
11,768
4,700
5,879
944
$ 141,711
$ 131,387
1.61%
0.81
1.43%
0.72
$ 20,571
13,220
$
18,802
11,847
12,249
11,360
8,585
7,806
8,189
7,655
6,271
4,906
62
$
533
JPMorgan Chase & Co./2016 Annual Report
Approximately 24% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANS or
HELOCS. The following table sets forth delinquency statistics for PCI junior lien home equity loans and lines of credit based on
the unpaid principal balance as of December 31, 2016 and 2015.
December 31,
(in millions, except ratios)
HELOCS:(a)
Within the revolving period (b)
Beyond the revolving period (c)
220
HELOANS
Total loans
2016
2015
Total 30+ day delinquency rate
2016
2015
$
2,126 $
7,452
Total
(c) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on
home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not
available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as
estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as unused lines, related to the property.
(d) Refreshed FICO scores represent each borrower's most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(a) Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition.
(b) Management concluded as part of the Firm's regular assessment of the PCI loan pools that it was probable that higher expected credit losses would result in a decrease in expected
cash flows. As a result, an allowance for loan losses for impairment of these pools has been recognized.
$14,353 $36,971 $42,665
354
589
674
1,547
1,829
1,029
1,215
1,262
1,433
1,600
1,855
5,438
6,332
$13,192 $ 15,342
$ 7,627 $ 8,919
$ 3,606
$ 4,051 $12,546
5,000
3.67%
4.10%
6,252
Accretable yield percentage
Total PCI
2016
2015
2014
$
13,491
(1,555)
$
14,592
(1,700)
$
16,167
(1,934)
260
279
(174)
(428)
230
Balance at December 31
90
Reclassification from nonaccretable difference(b)
Changes in interest rates on variable-rate loans
4.03
4.46
$
465
10,043 $
582
5.38
5.33
11,834
4.01%
4.35%
(a) In general, these HELOCs are revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at the end of
the loan's term.
(b) Substantially all undrawn HELOCS within the revolving period have been closed.
(c) Includes loans modified into fixed rate amortizing loans.
The table below sets forth the accretable yield activity for the Firm's PCI consumer loans for the years ended December 31,
2016, 2015 and 2014, and represents the Firm's estimate of gross interest income expected to be earned over the remaining
life of the PCI loan portfolios. The table excludes the cost to fund the PCI portfolios, and therefore the accretable yield does not
represent net interest income expected to be earned on these portfolios.
Year ended December 31,
(in millions, except ratios)
Beginning balance
Accretion into interest income
Other changes in expected cash flows (a)
JPMorgan Chase & Co./2016 Annual Report
331
816
26,583
4,115
3,871
3,584
4,077
37,246
34,531
29,547
Total retained loans
$ 60,255
$ 22,698
$ 21,208
$ 8,989
$ 10,096
$97,501
$ 91,559
$65,814
All other
2,844
2,895
415
3,230
3,326
2,031
1,998
546
500
320
366
2,897
2,864
1,814
1,713
961
997
120
134
Loans by risk ratings(c)
Noncriticized
Criticized performing
Criticized nonaccrual
210
(d) December 31, 2016 and 2015, excluded loans 30 days or more past due and still accruing, that are insured by U.S. government agencies under the FFELP, of $468 million and
$526 million, respectively. These amounts were excluded as reimbursement of insured amounts is proceeding normally.
Other consumer impaired loans and loan
modifications
The following table sets forth information about the Firm's
other consumer impaired loans, including risk-rated
business banking and auto loans that have been placed on
nonaccrual status, and loans that have been modified in
TDRs.
December 31, (in millions)
Impaired loans
With an allowance
Without an allowance(a)
2016
2015
$
614 $
30
527
31
Total impaired loans (b)(c)
$
644 $
558
Allowance for loan losses related to impaired loans
Unpaid principal balance of impaired loans (d)
891
355
(c) For risk-rated business banking and auto loans, the primary credit quality indicator is the risk rating of the loan, including whether the loans are considered to be criticized
and/or nonaccrual.
(a) Student loan delinquency classifications included loans insured by U.S. government agencies under the FFELP as follows: current included $3.3 billion and $3.8 billion;
30-119 days past due included $257 million and $299 million; and 120 or more days past due included $211 million and $227 million at December 31, 2016 and 2015,
respectively.
$13,899
201
94
$ 11,277
$ 16,858
$ 15,505
ΝΑ
NA
76
816
217
815
ΝΑ
ΝΑ
$30,757
1,017
$ 26,782
210
ΝΑ
ΝΑ
311
(b) These amounts represent student loans, insured by U.S. government agencies under the FFELP. These amounts were accruing as reimbursement of insured amounts is
proceeding normally.
$
1,361
1,550
7,041
6,457
2,769
2,622
739
1,051
839
$13,068
10,549
Texas
$ 11,767
New York
Illinois
Florida
Ohio
Arizona
4,078
3,874
9,918
$
$ 935
$ 3,530
$ 263
$
290
Nonaccrual loans
214
116
286
263
175
242
675
621
Geographic region
California
$ 7,975
$ 7,186
$ 4,158
3,510
3,359
1,187
1,224
1,363
490
559
4,050
4,262
2,209
2,033
1,270
1,205
202
236
3,681
3,474
Michigan
New Jersey
Louisiana
1,567
1,366
1,308
2,340
4,300
8,775
8,457
3,984
3,678
1,627
1,459
582
679
6,193
5,816
3,374
2,843
1,068
941
475
516
4,917
2,194
214
119 $
753
20.22%
11.73%
$14,353
13.82%
$36,971 $42,665
9.82% 11.21%
Current estimated LTV ratios (based on unpaid principal balance) (c)(d)
Greater than 125% and refreshed FICO scores:
16.67%
Equal to or greater than 660
$
Less than 660
39
80
17
6 7
6 $ 10
$ 69 $ 153
11.49%
10.32%
6.22%
380
555
917
711
1,272
$33,342
1,543
2,086
$37,883
1,896
2,886
Total loans
$13,192
$ 15,342
$ 7,627
$ 8,919
$ 3,606
$ 4,051
$12,546
% of 30+ days past due to total loans
5.83%
$
7 $
10
$
152
135
220
144
184
83
166
729
1,305
239
619
1,055
80% to 100% and refreshed FICO scores:
Equal to or greater than 660
1,860
2,709
442
84
240
444
Less than 660
12 $ 19
$ 94
28
31
55
18
36
105
$ 192
199
101% to 125% and refreshed FICO scores:
Equal to or greater than 660
555
942
52
120
39
77
256
118
601
$12,370
Purchased credit-impaired loans
PCI loans are initially recorded at fair value at acquisition.
PCI loans acquired in the same fiscal quarter may be
aggregated into one or more pools, provided that the loans
have common risk characteristics. A pool is then accounted
for as a single asset with a single composite interest rate
and an aggregate expectation of cash flows. With respect to
the Washington Mutual transaction, all of the consumer PCI
loans were aggregated into pools of loans with common risk
characteristics.
On a quarterly basis, the Firm estimates the total cash flows
(both principal and interest) expected to be collected over
the remaining life of each pool. These estimates incorporate
assumptions regarding default rates, loss severities, the
amounts and timing of prepayments and other factors that
reflect then-current market conditions. Probable decreases
in expected cash flows (i.e., increased credit losses) trigger
the recognition of impairment, which is then measured as
the present value of the expected principal loss plus any
related forgone interest cash flows, discounted at the pool's
effective interest rate. Impairments are recognized through
the provision for credit losses and an increase in the
allowance for loan losses. Probable and significant
increases in expected cash flows (e.g., decreased credit
losses, the net benefit of modifications) would first reverse
any previously recorded allowance for loan losses with any
remaining increases recognized prospectively as a yield
adjustment over the remaining estimated lives of the
underlying loans. The impacts of (i) prepayments, (ii)
changes in variable interest rates, and (iii) any other
changes in the timing of expected cash flows are recognized
prospectively as adjustments to interest income.
The Firm continues to modify certain PCI loans. The impact
of these modifications is incorporated into the Firm's
quarterly assessment of whether a probable and significant
change in expected cash flows has occurred, and the loans
continue to be accounted for and reported as PCI loans. In
evaluating the effect of modifications on expected cash
flows, the Firm incorporates the effect of any forgone
interest and also considers the potential for redefault. The
Firm develops product-specific probability of default
estimates, which are used to compute expected credit
losses. In developing these probabilities of default, the Firm
JPMorgan Chase & Co./2016 Annual Report
considers the relationship between the credit quality
characteristics of the underlying loans and certain
assumptions about home prices and unemployment based
upon industry-wide data. The Firm also considers its own
historical loss experience to-date based on actual
redefaulted modified PCI loans.
The excess of cash flows expected to be collected over the
carrying value of the underlying loans is referred to as the
accretable yield. This amount is not reported on the Firm's
Consolidated balance sheets but is accreted into interest
income at a level rate of return over the remaining
estimated lives of the underlying pools of loans.
(b) Additional commitments to lend to borrowers whose loans have been modified in
TDRS as of December 31, 2016 and 2015 were immaterial.
If the timing and/or amounts of expected cash flows on PCI
loan pools were determined not to be reasonably estimable,
no interest would be accreted and the loan pools would be
reported as nonaccrual loans; however, since the timing and
amounts of expected cash flows for the Firm's PCI consumer
loan pools are reasonably estimable, interest is being
accreted and the loan pools are being reported as
performing loans.
219
Notes to consolidated financial statements
Home equity
December 31,
(in millions, except ratios)
2016
Carrying value(a)
The liquidation of PCI loans, which may include sales of
loans, receipt of payment in full from the borrower, or
foreclosure, results in removal of the loans from the
underlying PCI pool. When the amount of the liquidation
proceeds (e.g., cash, real estate), if any, is less than the
unpaid principal balance of the loan, the difference is first
applied against the PCI pool's nonaccretable difference for
principal losses (i.e., the lifetime credit loss estimate
established as a purchase accounting adjustment at the
acquisition date). When the nonaccretable difference for a
particular loan pool has been fully depleted, any excess of
the unpaid principal balance of the loan over the liquidation
proceeds is written off against the PCI pool's allowance for
loan losses. Beginning in 2014, write-offs of PCI loans also
include other adjustments, primarily related to interest
forgiveness modifications. Because the Firm's PCI loans are
accounted for at a pool level, the Firm does not recognize
charge-offs of PCI loans when they reach specified stages of
delinquency (i.e., unlike non-PCI consumer loans, these
loans are not charged off based on FFIEC standards).
The PCI portfolio affects the Firm's results of operations
primarily through: (i) contribution to net interest margin;
(ii) expense related to defaults and servicing resulting from
the liquidation of the loans; and (iii) any provision for loan
losses. The PCI loans acquired in the Washington Mutual
transaction were funded based on the interest rate
characteristics of the loans. For example, variable-rate
loans were funded with variable-rate liabilities and fixed-
rate loans were funded with fixed-rate liabilities with a
similar maturity profile. A net spread will be earned on the
declining balance of the portfolio, which is estimated as of
December 31, 2016, to have a remaining weighted-average
life of 8 years.
(a) The impact of these modifications was not material to the Firm for the years
ended December 31, 2016 and 2015.
275
226
668
Impaired loans on nonaccrual status
508
449
218
(a) When discounted cash flows, collateral value or market price equals or exceeds
the recorded investment in the loan, the loan does not require an allowance. This
typically occurs when the impaired loans have been partially charged off and/or
there have been interest payments received and applied to the loan balance.
(b) Predominantly all other consumer impaired loans are in the U.S.
(c) Other consumer average impaired loans were $635 million, $566 million and
$599 million for the years ended December 31, 2016, 2015 and 2014,
respectively. The related interest income on impaired loans, including those on a
cash basis, was not material for the years ended December 31, 2016, 2015 and
2014.
(d) Represents the contractual amount of principal owed at December 31, 2016 and
2015. The unpaid principal balance differs from the impaired loan balances due
to various factors, including charge-offs, interest payments received and applied
to the principal balance, net deferred loan fees or costs and unamortized
discounts or premiums on purchased loans.
JPMorgan Chase & Co./2016 Annual Report
Loan modifications
Certain other consumer loan modifications are considered
to be TDRS as they provide various concessions to
borrowers who are experiencing financial difficulty. All of
these TDRs are reported as impaired loans in the table
above.The following table provides information about the
Firm's other consumer loans modified in TDRs. New TDRS
were not material for the years ended December 31, 2016
and 2015.
December 31, (in millions)
Loans modified in TDRS(a)(b)
TDRS on nonaccrual status
2016
2015
$
362 $
384
$ 12,902
Related allowance for loan losses (b)
1,433
2015
$14,989
1,708
Loan delinquency (based on unpaid principal balance)
Current
$12,423
$14,387
$ 6,840
$ 7,894
$ 3,005
30-149 days past due
291
150 or more days past due
478
322
633
336
424
361
$ 3,232
439
$11,074
2,742
451
2,311
49
Residential real estate - PCI loans
The table below sets forth information about the Firm's consumer, excluding credit card, PCI loans.
Prime mortgage
2016
Subprime mortgage
2016
Option ARMS
Total PCI
2015
$ 7,602
$ 8,893
$ 2,941
2015
$ 3,263
2016
$12,234
2015
$13,853
2016
$35,679 $40,998
2015
829
985
49
84.4%
14.2
2016
232
$
0.87%
71,978 $ 64,271 $
562
539
0.75%
$
2015
Total real estate loans
2016
2015
2016
2015
2016
Criticized nonaccrual
% of criticized nonaccrual to total real estate retained loans
% of criticized to total real estate retained loans
Real estate retained loans
(in millions, except ratios)
December 31,
Other Commercial
Multifamily
The following table presents additional information on the real estate class of loans within the Wholesale portfolio for the
periods indicated. Exposure consists primarily of secured commercial loans, of which multifamily is the largest segment.
Multifamily lending finances acquisition, leasing and construction of apartment buildings, and includes exposure to real
estate investment trusts (“REITs”). Other commercial lending largely includes financing for acquisition, leasing and
construction, largely for office, retail and industrial real estate, and includes exposure to REITs. Included in real estate loans is
$9.2 billion and $7.3 billion as of December 31, 2016 and 2015, respectively, of construction and development exposure
consisting of loans originally purposed for construction and development, general purpose loans for builders, as well as loans
for land subdivision and pre-development.
Notes to consolidated financial statements
225
JPMorgan Chase & Co./2016 Annual Report
(d) Other includes individuals, SPES, holding companies, and private education and civic organizations. For more information on exposures to SPEs, see Note 16.
(c) Represents loans that are considered well-collateralized and therefore still accruing interest.
(a) The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
(b) The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor's ability to meet contractual obligations rather than relying on
the past due status, which is generally a lagging indicator of credit quality.
Criticized
57 $
0.08%
85 $
0.13%
34,337 $ 28,549
459
920
1.34%
3.22%
143 $
146 $
0.42%
0.51%
2016
2015
2016
2015
Total
retained loans
Other
agencies
Government
Financial
institutions
Real estate
and industrial
2016
Commercial
Impaired loans
(in millions)
December 31,
The table below sets forth information about the Firm's wholesale impaired loans.
Wholesale impaired loans consist of loans that have been placed on nonaccrual status and/or that have been modified in a TDR.
All impaired loans are evaluated for an asset-specific allowance as described in Note 15.
Wholesale impaired loans and loan modifications
0.25%
0.19%
231
200 $
1.60%
1,482
998
0.94%
92,820
$ 106,315 $
$357,050
$383,790
$ 11,626 $109,266 $109,889
$16,380
still accruing (c)
past due and
90 or more days
1,544
1,186
988
634
55
107
49
22
193
155
259
268
due and still
accruing
30-89 days past
$354,451
$380,518
$108,734
$108,350
$ 11,565
$16,269
$29,713
$32,036
$ 92,381
$105,958
86
2015
7
15
$29,783
$32,088
$106,315 $ 92,820
$112,932
$119,741
loans
Total retained
988
1,954
139
263
10
9
231
200
608
1,482
nonaccrual
Criticized
67
132
28
19
6
4
11
21
2
$112,058
2016
2016
13
Financial institutions
453 $
250
1,480 $
217
Real estate
$
Commercial and industrial
2014
2015
2016
Year ended December 31, (in millions)
The following table presents the Firm's average impaired
loans for the years ended 2016, 2015 and 2014.
13
(c) Based upon the domicile of the borrower, largely consists of loans in the U.S.
(a) When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typically
occurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied to the loan balance.
13 - 284
1,209
2,345
164
12
363
295
669
1,754
impaired loans(b)
Unpaid principal balance of
(b) Represents the contractual amount of principal owed at December 31, 2016 and 2015. The unpaid principal balance differs from the impaired loan balances due to various
factors, including charge-offs; interest payments received and applied to the carrying value; net deferred loan fees or costs; and unamortized discount or premiums on
purchased loans.
243
297
20
Government agencies
-
227
JPMorgan Chase & Co./2016 Annual Report
Overall, the allowance for credit losses for the consumer
portfolio, including credit card, is sensitive to changes in the
economic environment (e.g., unemployment rates),
delinquency rates, the realizable value of collateral (e.g.,
housing prices), FICO scores, borrower behavior and other
risk factors. While all of these factors are important
determinants of overall allowance levels, changes in the
various factors may not occur at the same time or at the
same rate, or changes may be directionally inconsistent
such that improvement in one factor may offset
deterioration in the other. In addition, changes in these
factors would not necessarily be consistent across all
geographies or product types. Finally, it is difficult to
predict the extent to which changes in these factors would
ultimately affect the frequency of losses, the severity of
losses or both.
The statistical calculation is then adjusted to take into
consideration model imprecision, external factors and
current economic events that have occurred but that are not
yet reflected in the factors used to derive the statistical
calculation; these adjustments are accomplished in part by
analyzing the historical loss experience for each major
product segment. However, it is difficult to predict whether
historical loss experience is indicative of future loss levels.
Management applies judgment in making this adjustment,
taking into account uncertainties associated with current
macroeconomic and political conditions, quality of
underwriting standards, borrower behavior, the potential
impact of payment recasts within the HELOC portfolio, and
other relevant internal and external factors affecting the
credit quality of the portfolio. In certain instances, the
interrelationships between these factors create further
uncertainties. For example, the performance of a HELOC
that experiences a payment recast may be affected by both
the quality of underwriting standards applied in originating
the loan and the general economic conditions in effect at
the time of the payment recast. For junior lien products,
management considers the delinquency and/or modification
status of any senior liens in determining the adjustment.
The application of different inputs into the statistical
calculation, and the assumptions used by management to
adjust the statistical calculation, are subject to management
judgment, and emphasizing one input or assumption over
another, or considering other inputs or assumptions, could
affect the estimate of the allowance for credit losses for the
consumer credit portfolio.
losses recognized on defaulted loans and collateral
valuation trends, to review the appropriateness of the
primary statistical loss estimate. The economic impact of
potential modifications of residential real estate loans is not
included in the statistical calculation because of the
uncertainty regarding the type and results of such
modifications.
The formula-based allowance for credit losses for the
consumer portfolio segments is calculated by applying
statistical credit loss factors (estimated PD and loss
severities) to the recorded investment balances or loan-
equivalent amounts of pools of loan exposures with similar
risk characteristics over a loss emergence period to arrive
at an estimate of incurred credit losses. Estimated loss
emergence periods may vary by product and may change
over time; management applies judgment in estimating loss
emergence periods, using available credit information and
trends. In addition, management applies judgment to the
statistical loss estimates for each loan portfolio category,
using delinquency trends and other risk characteristics to
estimate the total incurred credit losses in the portfolio.
Management uses additional statistical methods and
considers actual portfolio performance, including actual
Formula-based component - Consumer loans and certain
lending-related commitments
The formula-based component is based on a statistical
calculation to provide for incurred credit losses in all
consumer loans and performing risk-rated loans, except for
any loans restructured in TDRs and PCI loans, which are
calculated as a part of the asset-specific and PCI
components, respectively, and are discussed later in this
Note. See Note 14 for more information on TDRs and PCI
loans.
Formula-based component
complex and requires judgment by management about the
effect of matters that are inherently uncertain. Subsequent
evaluations of the loan portfolio, in light of the factors then
prevailing, may result in significant changes in the
allowances for loan losses and lending-related
commitments in future periods. At least quarterly, the
allowance for credit losses is reviewed by the CRO, the CFO
and the Controller of the Firm and discussed with the DRPC
and the Audit Committee. As of December 31, 2016,
JPMorgan Chase deemed the allowance for credit losses to
be appropriate (i.e., sufficient to absorb probable credit
losses inherent in the portfolio).
Determining the appropriateness of the allowance is
JPMorgan Chase's allowance for loan losses covers the
consumer, including credit card, portfolio segments
(primarily scored) and wholesale (risk-rated) portfolio, and
represents management's estimate of probable credit losses
inherent in the Firm's retained loan portfolio. The allowance
for loan losses includes a formula-based component, an
asset-specific component, and a component related to PCI
loans, as described below. Management also estimates an
allowance for wholesale and certain consumer lending-
related commitments using methodologies similar to those
used to estimate the allowance on the underlying loans.
During 2016, the Firm did not make any significant changes
to the methodologies or policies used to determine its
allowance for credit losses; such policies are described in
the following paragraphs.
Note 15 - Allowance for credit losses
JPMorgan Chase & Co./2016 Annual Report
226
(a) The related interest income on accruing impaired loans and interest income
recognized on a cash basis were not material for the years ended December 31,
2016, 2015 and 2014.
Certain loan modifications are considered to be TDRs as
they provide various concessions to borrowers who are
experiencing financial difficulty. All TDRs are reported as
impaired loans in the tables above. TDRs were $733 million
and $208 million as of December 31, 2016 and 2015.
715
155
845 $
1,923 $
$
129
213
Total(a)
Other
-
$ 274
$ 342
24
63 $
298
577
94
76
106
87
98
414
Without an allowance(a)
$ 726
$ 1,440
46
187 $
$
$
$
10
9 $
$
148
125 $
$
$ 1,119 $ 522
With an allowance
2015
2016
2015
Total impaired loans
2015
$ 1,533 $
$
$
$
$
3
3 $
$
27
18 $
$
220
258 $
$
Allowance for loan losses related
to impaired loans
$ 1,024 (c)
(c)
$ 2,017
140
263 $
$
$
-
$
10
9 $
$
254
212 $
620
Notes to consolidated financial statements
$117,905
past due and
2015
2016
except ratios)
(in millions,
December 31,
Other(d)
Total
retained loans
Government agencies
Financial
institutions
Real estate
The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment.
and industrial
2016
Commercial
JPMorgan Chase & Co./2016 Annual Report
224
As noted above, the risk rating of a loan considers the
industry in which the obligor conducts its operations. As
part of the overall credit risk management framework, the
Firm focuses on the management and diversification of its
industry and client exposures, with particular attention paid
to industries with actual or potential credit concern. See
Note 5 for further detail on industry concentrations.
Risk ratings are reviewed on a regular and ongoing basis by
Credit Risk Management and are adjusted as necessary for
updated information affecting the obligor's ability to fulfill
its obligations.
Management considers several factors to determine an
appropriate risk rating, including the obligor's debt capacity
and financial flexibility, the level of the obligor's earnings,
the amount and sources for repayment, the level and nature
of contingencies, management strength, and the industry
and geography in which the obligor operates. The Firm's
definition of criticized aligns with the banking regulatory
definition of criticized exposures, which consist of special
mention, substandard and doubtful categories. Risk ratings
generally represent ratings profiles similar to those defined
by S&P and Moody's. Investment-grade ratings range from
"AAA/Aaa" to "BBB-/Baa3." Noninvestment-grade ratings
are classified as noncriticized ("BB+/Ba1 and B-/B3") and
criticized ("CCC+"/"Caal and below"), and the criticized
portion is further subdivided into performing and
nonaccrual loans, representing management's assessment
of the collectibility of principal and interest. Criticized loans
have a higher probability of default than noncriticized
loans.
The primary credit quality indicator for wholesale loans is
the risk rating assigned to each loan. Risk ratings are used
to identify the credit quality of loans and differentiate risk
within the portfolio. Risk ratings on loans consider the PD
and the LGD. The PD is the likelihood that a loan will
default. The LGD is the estimated loss on the loan that
would be realized upon the default of the borrower and
takes into consideration collateral and structural support
for each credit facility.
Wholesale loans include loans made to a variety of
customers, ranging from large corporate and institutional
clients to high-net-worth individuals.
Wholesale loan portfolio
Notes to consolidated financial statements
223
JPMorgan Chase & Co./2016 Annual Report
For credit card loans modified in TDRs, payment default is
deemed to have occurred when the loans become two
payments past due. A substantial portion of these loans is
expected to be charged-off in accordance with the Firm's
standard charge-off policy. Based on historical experience,
the estimated weighted-average default rate for modified
credit card loans was expected to be 28.87%, 25.61% and
27.91% as of December 31, 2016, 2015 and 2014,
respectively.
As of or for the
year ended
2015
2016
2015
11,390
11,772
256
439
7,667
8,317
17,008
16,883
45,632
47,149
Noncriticized
Noninvestment
grade:
$289,923 $267,736
$ 98,107
$ 97,043
$ 11,363
$15,935
$ 23,562 $21,786
$ 64,949 $ 62,150 $ 88,434 $ 74,330
Investment
grade
Loans by risk
ratings
2015
2016
2015
2016
2015
2016
(a) Represents loans modified in TDRs that experienced a payment default in
the periods presented, and for which the payment default occurred within
one year of the modification. The amounts presented represent the balance
of such loans as of the end of the quarter in which they defaulted.
4.40
4.40
85 $ 119
The following table presents average balances of impaired
credit card loans and interest income recognized on those
loans.
(e) Predominantly all impaired credit card loans are in the U.S.
(d) Represents credit card loans that were modified in TDRS but that have
subsequently reverted back to the loans' pre-modification payment terms.
At December 31, 2016 and 2015, $94 million and $113 million,
respectively, of loans have reverted back to the pre-modification payment
terms of the loans due to noncompliance with the terms of the modified
loans. The remaining $48 million and $66 million at December 31, 2016
and 2015, respectively, of these loans are to borrowers who have
successfully completed a short-term modification program. The Firm
continues to report these loans as TDRS since the borrowers' credit lines
remain closed.
(c) Represents credit card loans outstanding to borrowers enrolled in a credit
card modification program as of the date presented.
(b) There were no impaired loans without an allowance.
(a) The carrying value and the unpaid principal balance are the same for credit
card impaired loans.
460
358 $
$
Allowance for loan losses related to
impaired credit card loans
179
1,465
1,240 $
$
Total impaired credit card loans(e)
142
reverted to pre-modification payment
terms(d)
Modified credit card loans that have
1,286
1,098 $
$
Credit card loans with modified payment
terms(c)
Impaired credit card loans with an
allowance(a)(b)
2015
2016
December 31, (in millions)
Credit card impaired loans and loan modifications
The table below sets forth information about the Firm's
impaired credit card loans. All of these loans are considered
to be impaired as they have been modified in TDRs.
JPMorgan Chase & Co./2016 Annual Report
Year ended December 31,
84,560
(in millions)
2015
$
79
$
Loans that redefaulted within
one year of modification(a)
4.76
Weighted-average interest rate
of loans after TDR
14.96%
15.08%
15.56%
of loans before TDR
Weighted-average interest rate
2014
2015
Year ended December 31,
(in millions, except
weighted-average data)
The following table provides information about the financial
effects of the concessions granted on credit card loans
modified in TDRs and redefaults for the periods presented.
New enrollments in these loan modification programs for
the years ended December 31, 2016, 2015 and 2014, were
$636 million, $638 million and $807 million, respectively.
Financial effects of modifications and redefaults
If the cardholder does not comply with the modified
payment terms, then the credit card loan agreement reverts
back to its pre-modification payment terms. Assuming that
the cardholder does not begin to perform in accordance
with those payment terms, the loan continues to age and
will ultimately be charged-off in accordance with the Firm's
standard charge-off policy. In addition, if a borrower
successfully completes a short-term modification program,
then the loan reverts back to its pre-modification payment
terms. However, in most cases, the Firm does not reinstate
the borrower's line of credit.
JPMorgan Chase may offer one of a number of loan
modification programs to credit card borrowers who are
experiencing financial difficulty. Most of the credit card
loans have been modified under long-term programs for
borrowers who are experiencing financial difficulties.
Modifications under long-term programs involve placing the
customer on a fixed payment plan, generally for 60 months.
The Firm may also offer short-term programs for borrowers
who may be in need of temporary relief; however, none are
currently being offered. Modifications under all short- and
long-term programs typically include reducing the interest
rate on the credit card. Substantially all modifications are
considered to be TDRs.
Loan modifications
123
82
63
impaired credit card loans
Interest income on
$ 1,325 $ 1,710 $ 2,503
Average impaired credit card loans
2014
2016
still accruing
81,953
6,161
$17,166
12,617
$ 14,741
17,347
$ 3,003
89,817
$ 3,292
103,023
$ 30,063
82,869
$ 30,259
89,482
Total U.S.
Total retained
loans
Total non-U.S.
geographic
distribution(a)
Loans by
0.28
0.51
$ 3,726
12,654
0.13
0.03
0.25
0.19
0.54
1.24
loans to total
retained loans
% of nonaccrual
2.06%
2.43%
0.36%
0.41%
0.06%
0.24
$ 1,788
9,838
$ 39,496
69,770
$ 42,031
67,858
than 30 days
Current and less
delinquency(b)
Loan
-%
0.09%
0.01%
0.01%
(0.01)% (0.07)%
(0.01)% (0.02)%
(0.01)% (0.02)%
0.02%
0.28%
retained loans
10
charge-offs/
(recoveries) to
end-of-period
fs/ $ 335 $ 26 $ ) $ (14) $ (2) $ (5) $ (1) $ (8) $ 16 $ 11 $ 341 $
$383,790 $357,050
% of net
Net charge-offs/
(recoveries)
$ 11,626 $109,266 $109,889
$16,380
$32,088 $29,783
$ 92,820
$112,932 $106,315
$119,741
$ 91,514 $ 94,051
292,276 262,999
0.04%
1.11%
0.65%
1.60%
54,792
grade
noninvestment
Total
988
1,954
139
263
10
9
231
200
608
1,482
nonaccrual
Criticized
6,373
7,353
253
188
7
6
320
200
1,251
798
4,542
50,782
Criticized
performing
17,881
8,526
0.94%
4.56%
6.38%
loans
total retained
criticized to
% of total
$383,790 $357,050
$109,889
$109,266
$ 11,626
$16,380
$29,783
$32,088
$ 92,820
$106,315
$112,932
$119,741
loans
Total retained
89,314
93,867
11,782
12,223
263
445
7,997
18,490
Formula-based component - Wholesale loans and lending-
related commitments
0.03
PD estimates are based on observable external through-
the-cycle data, using credit rating agency default statistics.
An LGD estimate is assigned to each loan or lending-related
commitment. The estimate represents the amount of
economic loss if the obligor were to default. The type of
obligor, quality of collateral, and the seniority of the Firm's
lending exposure in the obligor's capital structure affect
LGD. LGD estimates are based on the Firm's history of actual
credit losses over more than one credit cycle. Changes to
the time period used for PD and LGD estimates (for
example, point-in-time loss versus longer-term views of the
credit cycle) could also affect the allowance for credit
losses.
357,050
$
131,387
344,355 $
$
4
40,998
356,022
129,922
293,751
1,024 $
$
$
1,465
9,606
$
14,185
3,696 $
$
3,439
7,050 $
$
13,555
$
4,315
$
$
12,095
779,695
41,002
832,792
$
12,020 $
236,263
46,696
294,979 $ 128,027
$ 13 $ - $ 60
$
3,351
326
154
$
21
133 $
3,025
120
2,849
283
$
$ - $ ________16
104
2,566
$
747,508
$
324,502
$
46,700
4
686,122
323,861
14,686
$
637
$
2,029
125,998
3,434
$
5,806
$
7,050
13,555 $
$
4,315
$
3,434
5,806 $
$
(11)
(36)
(6)
31
1
6
(5)
3,224
(269)
3,079
414
3,663
623
3,122
(82)
533
533
208
208
$
609
3,439
3,696
3,325
3,325
2,742
2,742
9,734
3,609
2,939
3,186
9,715
4,041
2,974
2,700
1,126
$
87
$
(c)
500
539 $
1,098 $
$
274
460 (c) $
364 $
$
14,185
$
$
4,759
$
$ 8 $ - $ 697
Mortgage securitization trusts
CCB
Credit card securitization trusts
Transaction Type
Line of Business
The following table summarizes the most significant types of Firm-sponsored VIES by business segment. The Firm considers a
"sponsored" VIE to include any entity where: (1) JPMorgan Chase is the primary beneficiary of the structure; (2) the VIE is
used by JPMorgan Chase to securitize Firm assets; (3) the VIE issues financial instruments with the JPMorgan Chase name; or
(4) the entity is a JPMorgan Chase-administered asset-backed commercial paper conduit.
For a further description of JPMorgan Chase's accounting policies regarding consolidation of VIES, see Note 1.
Note 16 - Variable interest entities
Notes to consolidated financial statements
231
JPMorgan Chase & Co./2016 Annual Report
950,997
Mortgage and other securitization trusts
$
366,778 (d)
366,881
$
525,963
525,963
58,153
58,153 $
940,202
940,395 $
$
$ 366,399
103
$
103
$
$
950,894
CIB
Multi-seller conduits
Investor intermediation activities:
The agreements with the credit card securitization trusts
require the Firm to maintain a minimum undivided interest
in the credit card trusts (generally 5%). As of December 31,
2016 and 2015, the Firm held undivided interests in Firm-
sponsored credit card securitization trusts of $8.9 billion
and $13.6 billion, respectively. The Firm maintained an
average undivided interest in principal receivables owned
by those trusts of approximately 16% and 22% for the
years ended December 31, 2016 and 2015. As of both
December 31, 2016 and 2015, the Firm did not retain any
senior securities and retained $5.3 billion of subordinated
securities in certain of its credit card securitization trusts.
The Firm's undivided interests in the credit card trusts and
securities retained are eliminated in consolidation.
The Firm's methodology for determining the allowance for
loan losses and the allowance for lending-related
commitments involves the early identification of credits that
are deteriorating. The formula-based component of the
allowance for wholesale loans and lending-related
commitments is calculated by applying statistical credit loss
factors (estimated PD and LGD) to the recorded investment
balances or loan-equivalent amount over a loss emergence
period to arrive at an estimate of incurred credit losses.
The Firm assesses the credit quality of its borrower or
counterparty and assigns a risk rating. Risk ratings are
assigned at origination or acquisition, and if necessary,
adjusted for changes in credit quality over the life of the
exposure. In assessing the risk rating of a particular loan or
lending-related commitment, among the factors considered
are the obligor's debt capacity and financial flexibility, the
level of the obligor's earnings, the amount and sources for
repayment, the level and nature of contingencies,
management strength, and the industry and geography in
which the obligor operates. These factors are based on an
evaluation of historical and current information and involve
subjective assessment and interpretation. Determining risk
ratings involves significant judgment; emphasizing one
factor over another or considering additional factors could
affect the risk rating assigned by the Firm.
The underlying securitized credit card receivables and other
assets of the securitization trusts are available only for
payment of the beneficial interests issued by the
securitization trusts; they are not available to pay the Firm's
other obligations or the claims of the Firm's creditors.
The Firm is considered to be the primary beneficiary of
these Firm-sponsored credit card securitization trusts based
on the Firm's ability to direct the activities of these VIES
through its servicing responsibilities and other duties,
including making decisions as to the receivables that are
transferred into those trusts and as to any related
modifications and workouts. Additionally, the nature and
extent of the Firm's other continuing involvement with the
trusts, as indicated above, obligates the Firm to absorb
losses and gives the Firm the right to receive certain
benefits from these VIES that could potentially be
significant.
The Card business securitizes both originated and
purchased credit card loans, primarily through the Chase
Issuance Trust (the “Trust”). The Firm's continuing
involvement in credit card securitizations includes servicing
the receivables, retaining an undivided seller's interest in
the receivables, retaining certain senior and subordinated
securities and maintaining escrow accounts.
Credit card securitizations
Significant Firm-sponsored variable interest entities
The Firm also invests in and provides financing and other services to VIES sponsored by third parties, as described on page 237
of this Note.
Corporate: Corporate is involved with entities that may meet the definition of VIES; however these entities are generally
subject to specialized investment company accounting, which does not require the consolidation of investments, including
VIES.
Commercial Banking: CB makes investments in and provides lending to community development entities that may meet the
definition of a VIE. In addition, CB provides financing and lending-related services to certain client-sponsored VIES. In
general, CB does not control the activities of these entities and does not consolidate these entities.
Asset & Wealth Management: AWM sponsors and manages certain funds that are deemed VIES. As asset manager of the
funds, AWM earns a fee based on assets managed; the fee varies with each fund's investment objective and is competitively
priced. For fund entities that qualify as VIES, AWM's interests are, in certain cases, considered to be significant variable
interests that result in consolidation of the financial results of these entities.
•
•
•
The Firm's other business segments are also involved with VIES, but to a lesser extent, as follows:
235-236
235-237
Assist clients in accessing the financial markets in a
cost-efficient manner and structures transactions to
meet investor needs
233-235
Securitization of both originated and purchased
residential and commercial mortgages and student
loans
233-235
Servicing and securitization of both originated and
purchased residential mortgages
232
Securitization of both originated and purchased
credit card receivables
Annual Report
page references
Activity
Municipal bond vehicles
-
193 $
$
193
366,206 (d)
$
73
$
73
$
$
$
$
609
$
$
13
$
786
$
772
$
$
14
$
2
2
(85)
705
$
| | |
1163 164 5 (90)
$
622
$
60
515,518
515,518
$
58,478
$
58,478
$
$
$
622
$
609
$
13 $
786 $
$
772
$
14 $
$
562
549
13
713
14 - 699
60
50
$
60
12
622
1,318
$
Loans by impairment methodology
Total allowance for loan losses
2,311
2,311
PCI
10,457
4,202
3,676
2,579
Formula-based
1,008
5,198
$
358 (c)
$
308
$
Asset-specific (b)
Allowance for loan losses by impairment methodology
13,776
$
4,544
$
4,034
$
342
$
4,034
$
889,907
$
383,790
$
$ 141,711
364,406
$
35,682
3
35,679
842,028
381,770
140,471
319,787
12,197
$
2,017
$
1,240
8,940 $
$
PCI
Formula-based
Asset-specific
13,776
$
4,544
5,198
$
Ending balance at December 31,
(11)
$
Beginning balance at January 1,
Allowance for loan losses
Total
Wholesale
2016
Credit card
Consumer,
excluding
credit card
Year ended December 31,
(in millions)
The table below summarizes information about the allowances for loan losses, and lending-relating commitments, and includes
a breakdown of loans and lending-related commitments by impairment methodology.
Allowance for credit losses and related information
Notes to consolidated financial statements
229
JPMorgan Chase & Co./2016 Annual Report
These cash flow projections are based on estimates
regarding default rates (including redefault rates on
modified loans), loss severities, the amounts and timing of
prepayments and other factors that are reflective of current
and expected future market conditions. These estimates are
dependent on assumptions regarding the level of future
home prices, and the duration of current overall economic
conditions, among other factors. These estimates and
assumptions require significant management judgment and
certain assumptions are highly subjective.
In connection with the Washington Mutual transaction,
JPMorgan Chase acquired certain PCI loans, which are
accounted for as described in Note 14. The allowance for
loan losses for the PCI portfolio is based on quarterly
estimates of the amount of principal and interest cash flows
expected to be collected over the estimated remaining lives
of the loans.
PCI loans
Estimating the timing and amounts of future cash flows is
highly judgmental as these cash flow projections rely upon
estimates such as loss severities, asset valuations, default
rates (including redefault rates on modified loans), the
amounts and timing of interest or principal payments
(including any expected prepayments) or other factors that
are reflective of current and expected market conditions.
These estimates are, in turn, dependent on factors such as
the duration of current overall economic conditions,
industry-, portfolio-, or borrower-specific factors, the
expected outcome of insolvency proceedings as well as, in
certain circumstances, other economic factors, including
the level of future home prices. All of these estimates and
assumptions require significant management judgment and
certain assumptions are highly subjective.
card loans modified in TDRs, expected losses incorporate
projected redefaults based on the Firm's historical
experience by type of modification program. For wholesale
loans modified in TDRs, expected losses incorporate
management's expectation of the borrower's ability to
repay under the modified terms.
JPMorgan Chase & Co./2016 Annual Report
The asset-specific component of the allowance for impaired
loans that have been modified in TDRS incorporates the
effects of forgone interest, if any, in the present value
calculation and also incorporates the effect of the
modification on the loan's expected cash flows, which
considers the potential for redefault. For residential real
estate loans modified in TDRs, the Firm develops product-
specific probability of default estimates, which are applied
at a loan level to compute expected losses. In developing
these probabilities of default, the Firm considers the
relationship between the credit quality characteristics of
the underlying loans and certain assumptions about home
prices and unemployment, based upon industry-wide data.
The Firm also considers its own historical loss experience to
date based on actual redefaulted modified loans. For credit
The Firm generally measures the asset-specific allowance as
the difference between the recorded investment in the loan
and the present value of the cash flows expected to be
collected, discounted at the loan's original effective interest
rate. Subsequent changes in impairment are reported as an
adjustment to the allowance for loan losses. In certain
cases, the asset-specific allowance is determined using an
observable market price, and the allowance is measured as
the difference between the recorded investment in the loan
and the loan's fair value. Impaired collateral-dependent
loans are charged down to the fair value of collateral less
costs to sell. For any of these impaired loans, the amount of
the asset-specific allowance required to be recorded, if any,
is dependent upon the recorded investment in the loan
(including prior charge-offs), expected cash flows and/or
fair value of assets. See Note 14 for more information about
charge-offs and collateral-dependent loans.
The asset-specific component of the allowance relates to
loans considered to be impaired, which includes loans that
have been modified in TDRs as well as risk-rated loans that
have been placed on nonaccrual status. To determine the
asset-specific component of the allowance, larger loans are
evaluated individually, while smaller loans are evaluated as
pools using historical loss experience for the respective
class of assets. Scored loans (i.e., consumer loans) are
pooled by product type, while risk-rated loans (primarily
wholesale loans) are segmented by risk rating.
In addition to the modeled loss estimates applied to
wholesale loans and lending-related commitments,
management applies its judgment to adjust the modeled
loss estimates for wholesale loans, taking into consideration
model imprecision, external factors and economic events
that have occurred but are not yet reflected in the loss
factors. Historical experience of both LGD and PD are
considered when estimating these adjustments. Factors
related to concentrated and deteriorating industries also
are incorporated where relevant. These estimates are based
on management's view of uncertainties that relate to
current macroeconomic, quality of underwriting standards
and other relevant internal and external factors affecting
the credit quality of the current portfolio.
Asset-specific component
3,429
228
The Firm applies judgment in estimating PD, LGD, loss
emergence period and loan-equivalent amounts used in
calculating the allowance for credit losses. Wherever
possible, the Firm uses independent, verifiable data or the
Firm's own historical loss experience in its models for
estimating the allowances, but differences in characteristics
between the Firm's specific loans or lending-related
commitments and those reflected in external and Firm-
specific historical data could affect loss estimates.
Estimates of PD, LGD, loss emergence period and loan-
equivalent used are subject to periodic refinement based on
any changes to underlying external or Firm-specific
historical data. The use of different inputs, estimates or
methodologies could change the amount of the allowance
for credit losses determined appropriate by the Firm.
5,806
Total retained loans
$
4,315
(1)
(10)
Other
5,080
571
4,042
467
156
156
4,692
341
3,442
909
(1,005)
(57)
(357)
(591)
Write-offs of PCI loans (a)
Net charge-offs/(recoveries)
Gross recoveries
5,697
398
3,799
1,500
Gross charge-offs
13,555
$
3,434
Impaired collateral-dependent loans
Provision for loan losses
Loans measured at fair value of collateral less cost to sell
3,439
$
7,050
$
Total
Wholesale
2014
Credit card
excluding
credit card
Total
Consumer,
Wholesale
2015
Credit card
credit card
excluding
Consumer,
(table continued from previous page)
JPMorgan Chase & Co./2016 Annual Report
230
(d) Effective January 1, 2015, the Firm no longer includes within its disclosure of wholesale lending-related commitments the unused amount of advised uncommitted lines of credit
as it is within the Firm's discretion whether or not to make a loan under these lines, and the Firm's approval is generally required prior to funding. Prior period amounts have
been revised to conform with the current period presentation.
(c) The asset-specific credit card allowance for loan losses is related to loans that have been modified in a TDR; such allowance is calculated based on the loans' original contractual
interest rates and does not consider any incremental penalty rates.
(b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
(a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting
adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g., upon liquidation). During the fourth quarter
of 2014, the Firm recorded a $291 million adjustment to reduce the PCI allowance and the recorded investment in the Firm's PCI loan portfolio, primarily reflecting the
cumulative effect of interest forgiveness modifications. This adjustment had no impact to the Firm's Consolidated statements of income.
976,702
$
976,196
$
506
3,696
$
10
3,122
4,086
Net charge-offs
954
(1,355)
(139)
(402)
(814)
(1,155)
(85)
(366)
(704)
6,114
16,264
$
4,013
151
3,831
2,132
5,241
95
3,488
1,658
$
3,795
$
8,456
14,185
$
$
$
1,078
$
$
11
(1)
12 - (
1,052
$
26
$
Ending balance at December 31,
Other
281
Provision for lending-related commitments
Allowance for lending-related commitments by impairment methodology
786
14 $ - $ 772
$
Beginning balance at January 1,
Allowance for lending-related commitments
2,691
300
2,391
105
506
367,508
368,014
$
98
7
$ - $
$
Asset-specific
281
- $ - $ 1
Total lending-related commitments
$
Formula-based
$
553,891
553,891
- $ - $
$
$
Asset-specific
Lending-related commitments by impairment methodology
54,797
54,797
$
1,052
$
1,078
$
169
$
169
26
883
909
Formula-based
Total allowance for lending-related commitments
$
26
Total
Student loan securitization entities
Other
2,719
23,803
43
18 $ 31,199
45,919 $
23,760
790 $
31,181 $
$
$ 3,185 $ 75,614 $
46,709
$ - $ 45,
33
4,492
2,897
143
1,689
-
Mortgage securitization entities (b)
59
1,748
1,527
781
2,752
313
103
4,246
2,971
2
2,969
2,905
8
468
Firm-administered multi-seller conduits
Municipal bond vehicles
448
Total
liabilities
4.0
6,937
91 $
24
1.6
(years)
(a) Represents the excess/(deficit) of the fair values of municipal bond assets available to repay the liquidity facilities, if drawn.
(b) The ratings scale is presented on an S&P-equivalent basis.
of assets
1,096
24
4
Fair value of
assets held
by VIES
65 $
$
Wt. avg.
expected life
(c) These security positions have been defeased by the municipality and no longer carry credit ratings, but are backed by high-quality assets such as U.S. treasuries
and cash.
236
JPMorgan Chase & Co./2016 Annual Report
Other(f)
Beneficial
interests in
VIE assets(e)
Total
assets(d)
Other(c)
Loans
Trading
assets
VIE program type(a)
December 31, 2016 (in millions)
Liabilities
Assets
The following table presents information on assets and liabilities related to VIES consolidated by the Firm as of December 31,
2016 and 2015.
quality of the underlying assets. Where the Firm does not
have the power to direct the activities of the VIE that most
significantly impact the VIE's economic performance, or a
variable interest that could potentially be significant, the
Firm records and reports these positions on its Consolidated
balance sheets in the same manner it would record and
report positions in respect of any other third-party
transaction.
Consolidated VIE assets and liabilities
The Firm enters into transactions with VIES structured by
other parties. These include, for example, acting as a
derivative counterparty, liquidity provider, investor,
underwriter, placement agent, remarketing agent, trustee
or custodian. These transactions are conducted at arm's-
length, and individual credit decisions are based on the
analysis of the specific VIE, taking into consideration the
VIES sponsored by third parties
Firm-sponsored credit card trusts
1,531
1,916
2,318
1,760
1,987
62
1,925
Student loan securitization entities
1,420
5
643
2,300
27
1,433
840
Mortgage securitization entities (b)
1
777
1,765
Other
210
(a) Excludes intercompany transactions, which are eliminated in consolidation.
43 $
42,688
(b) Includes residential and commercial mortgage securitizations as well as re-securitizations.
809 $
41,879 $
81,605 $
2,765 $
3,736 $ 75,104 $
$
Total
241
126
115
2,126
2,597
145
2,691
2,686
Other(c)
Loans
Trading
assets
Liabilities
Assets
December 31, 2015 (in millions)
Total
assets(d)
39,537
120
490 $
39,047 $
$
3,321 $ 82,120
183
2,463
303
Beneficial
interests in
VIE assets(e)
Other(f)
Total
liabilities
Municipal bond vehicles
8,743
19
27,921
15 $
27,906 $
8,724
$
718 $ 48,076
24,425
37
47,358 $
24,388
Firm-administered multi-seller conduits
$
$
Firm-sponsored credit card trusts
VIE program type(a)
5
700 $
4,631
Subprime
2015
Assets held in
JPMorgan Chase interest in securitized
assets in nonconsolidated VIES(c)(d)(e)
VIES
VIES
Assets
held in
held by
consolidated
securitization securitization
Total assets
nonconsolidated
Principal amount outstanding
4,209
2,573
2,064
3,398 $
811 $
$
509
December 31, 2015 (in millions)
securitization
VIES with
continuing
involvement
Trading
assets
Total
2,013
1,619 $
394 $
$
66,708
1,400 $
85,687 $
24,389
123,474
Commercial and other(b)
$
Prime/Alt-A and option ARMS
Subprime
Residential mortgage:
Securitization-related(a)
Total
interests held
by JPMorgan
Chase
AFS
securities
76
$ 233,550 $
76
107
4,316 $
December 31, 2016 (in millions)
Chase
Total
interests held
by JPMorgan
AFS
securities
Trading
assets
securitization
VIES with
continuing
involvement
VIES
Assets held in
nonconsolidated
Assets
held in
held by
consolidated
securitization securitization
Total assets
Principal amount outstanding
The following table presents the total unpaid principal amount of assets held in Firm-sponsored private-label securitization
entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing
involvement includes servicing the loans, holding senior interests or subordinated interests, recourse or guarantee
arrangements, and derivative transactions. In certain instances, the Firm's only continuing involvement is servicing the loans.
See Securitization activity on page 238 of this Note for further information regarding the Firm's cash flows with and interests
retained in nonconsolidated VIES, and pages 238-239 of this Note for information on the Firm's loan sales to U.S. government
agencies.
(c) Includes assets classified as cash, AFS securities, and other assets on the Consolidated balance sheets.
(d) The assets of the consolidated VIES included in the program types above are used to settle the liabilities of those entities. The difference between total
assets and total liabilities recognized for consolidated VIES represents the Firm's interest in the consolidated VIES for each program type.
or retain certain beneficial interests in the securitization
trusts.
JPMorgan Chase interest in securitized
assets in nonconsolidated VIES(c)(d)(e)
VIES
Securitization-related (a)
Residential mortgage:
199,596 $
$
Total
101,265
Commercial and other(b)
21,542
1,560
1,334 $
226 $
$
57,543
4,209 $
76,789 $
$
Prime/Alt-A and option ARMs
19,903
71,464
148,910
64
107
1,571 $
22,549
80,319
Fair value of assets
2015
2016
Nonconsolidated municipal bond vehicles
(in millions)
December 31,
held by VIES
The Firm's exposure to nonconsolidated municipal bond VIES at December 31, 2016 and 2015, including the ratings profile of
the VIES' assets, was as follows.
Holders of the Floaters may “put," or tender, their Floaters
to the TOB trust. If the remarketing agent cannot
successfully remarket the Floaters to another investor, the
liquidity provider either provides a loan to the TOB trust for
the TOB trust's purchase of the Floaters, or it directly
purchases the tendered Floaters. In certain Customer TOB
transactions, the Firm, as liquidity provider, has entered
into a reimbursement agreement with the Residual holder.
In those transactions, upon the termination of the vehicle, if
the proceeds from the sale of the underlying municipal
bonds are not sufficient to repay amounts owed to the Firm,
as liquidity or tender option provider, the Firm has recourse
to the third party Residual holders for any shortfall.
Residual holders with reimbursement agreements are
required to post collateral with the Firm to support such
reimbursement obligations should the market value of the
underlying municipal bonds decline. The Firm does not have
any intent to protect Residual holders from potential losses
on any of the underlying municipal bonds.
JPMorgan Chase Bank, N.A. or J.P. Morgan Securities LLC
often serves as the sole liquidity or tender option provider
for the TOB trusts. The liquidity provider's obligation to
perform is conditional and is limited by certain events
("Termination Events"), which include bankruptcy or failure
to pay by the municipal bond issuer or credit enhancement
provider, an event of taxability on the municipal bonds or
the immediate downgrade of the municipal bond to below
investment grade. In addition, the liquidity provider's
exposure is typically further limited by the high credit
quality of the underlying municipal bonds, the excess
collateralization in the vehicle, or, in certain transactions,
the reimbursement agreements with the Residual holders.
J.P. Morgan Securities LLC may serve as a remarketing
agent on the Floaters for TOB trusts. The remarketing agent
is responsible for establishing the periodic variable rate on
the Floaters, conducting the initial placement and
remarketing tendered Floaters. The remarketing agent may,
but is not obligated to, make markets in Floaters. At
December 31, 2016 and 2015, the Firm held an
insignificant amount of Floaters on its Consolidated balance
sheets and did not hold any significant amounts during
2016 and 2015.
Notes to consolidated financial statements
235
Municipal bond vehicles or tender option bond ("TOB")
trusts allow investors to finance their municipal bond
investments at short-term rates. In a typical TOB
transaction, the trust purchases highly rated municipal
bond(s) of a single issuer and funds the purchase by issuing
two types of securities: (1) puttable floating-rate
certificates ("Floaters") and (2) inverse floating-rate
residual interests ("Residuals"). The Floaters are typically
purchased by money market funds or other short-term
investors and may be tendered, with requisite notice, to the
TOB trust. The Residuals are retained by the investor
seeking to finance its municipal bond investment. TOB
transactions where the Residual is held by a third party
investor are typically known as Customer TOB trusts, and
Non-Customer TOB trusts are transactions where the
Residual is retained by the Firm. The Firm serves as sponsor
for all Non-Customer TOB transactions and certain
Customer TOB transactions established prior to 2014. The
Firm may provide various services to a TOB trust, including
remarketing agent, liquidity or tender option provider, and/
or sponsor.
TOB trusts are considered to be variable interest entities.
The Firm consolidates Non-Customer TOB trusts because as
the Residual holder, the Firm has the right to make
decisions that significantly impact the economic
performance of the municipal bond vehicle, and it has the
right to receive benefits and bear losses that could
potentially be significant to the municipal bond vehicle. The
Firm does not consolidate Customer TOB trusts, since the
Firm does not have the power to make decisions that
significantly impact the economic performance of the
municipal bond vehicle. Certain non-consolidated Customer
TOB trusts are sponsored by a third party, and not the Firm.
See page 237 of this Note for further information on
consolidated municipal bond vehicles.
Liquidity facilities
Excess/(deficit)(a)
Maximum
$
2016
Unrated (c)
BBB+ to
BBB-
AA+ to AA- A+ to A-
AAA to
ААА-
(in millions, except where otherwise noted)
December 31,
Investment-grade
Ratings profile of VIE assets (b)
662
3,794
434 $
3,143
662 $
3,794
1,096 $
6,937
exposure
Municipal bond vehicles
Deal-specific liquidity facilities, program-wide liquidity and
credit enhancement provided by the Firm have been
eliminated in consolidation. The Firm or the Firm-
administered multi-seller conduits provide lending-related
commitments to certain clients of the Firm-administered
multi-seller conduits. The unfunded commitments were
$7.4 billion and $5.6 billion at December 31, 2016 and
2015, respectively, and are reported as off-balance sheet
lending-related commitments. For more information on off-
balance sheet lending-related commitments, see Note 29.
VIES associated with investor intermediation activities
As a financial intermediary, the Firm creates certain types
of VIES and also structures transactions with these VIES,
typically using derivatives, to meet investor needs. The Firm
may also provide liquidity and other support. The risks
inherent in the derivative instruments or liquidity
commitments are managed similarly to other credit, market
or liquidity risks to which the Firm is exposed. The principal
types of VIES for which the Firm is engaged in on behalf of
clients are municipal bond vehicles.
In the normal course of business, JPMorgan Chase makes
markets in and invests in commercial paper issued by the
Firm-administered multi-seller conduits. The Firm held
$21.2 billion and $15.7 billion of the commercial paper
issued by the Firm-administered multi-seller conduits at
December 31, 2016 and 2015, respectively. The Firm's
investments reflect the Firm's funding needs and capacity
and were not driven by market illiquidity. The Firm is not
obligated under any agreement to purchase the commercial
paper issued by the Firm-administered multi-seller
conduits.
enhancement facilities provided to the conduits. See page
237 of this Note for further information on consolidated VIE
assets and liabilities.
233
JPMorgan Chase & Co./2016 Annual Report
(e) As of December 31, 2016 and 2015, 61% and 76%, respectively, of the Firm's retained securitization interests, which are carried at fair value, were risk-
rated "A" or better, on an S&P-equivalent basis. The retained interests in prime residential mortgages consisted of $1.5 billion and $1.9 billion of
investment-grade and $77 million and $93 million of noninvestment-grade retained interests at December 31, 2016 and 2015, respectively. The retained
interests in commercial and other securitizations trusts consisted of $2.4 billion and $3.7 billion of investment-grade and $210 million and $198 million
of noninvestment-grade retained interests at December 31, 2016 and 2015, respectively.
(c) Excludes the following: retained servicing (see Note 17 for a discussion of MSRS); securities retained from loan sales to U.S. government agencies; interest
rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities (See Note 6 for further
information on derivatives); senior and subordinated securities of $180 million and $49 million, respectively, at December 31, 2016, and $163 million
and $73 million, respectively, at December 31, 2015, which the Firm purchased in connection with CIB's secondary market-making activities.
(d) Includes interests held in re-securitization transactions.
(b) Consists of securities backed by commercial loans (predominantly real estate) and non-mortgage-related consumer receivables purchased from third
parties.
(a) Excludes U.S. government agency securitizations and re-securitizations, which are not Firm-sponsored. See pages 238-239 of this Note for information on
the Firm's loan sales to U.S. government agencies.
6,020
5,070 $
950 $
$
169,576
3,898
3,451
109
109
447
Notes to consolidated financial statements
264 $
1,743
Residential mortgage
In addition, CIB engages in underwriting and trading
activities involving securities issued by Firm-sponsored
securitization trusts. As a result, CIB at times retains senior
and/or subordinated interests (including residual interests)
in residential mortgage securitizations at the time of
securitization, and/or reacquires positions in the secondary
market in the normal course of business. In certain
instances, as a result of the positions retained or reacquired
by CIB or held by CCB, when considered together with the
servicing arrangements entered into by CCB, the Firm is
deemed to be the primary beneficiary of certain
securitization trusts. See the table on page 237 of this Note
for more information on consolidated residential mortgage
securitizations.
JPMorgan Chase & Co./2016 Annual Report
To ensure timely repayment of the commercial paper, and
to provide the conduits with funding to provide financing to
customers in the event that the conduits do not obtain
funding in the commercial paper market, each asset pool
financed by the conduits has a minimum 100% deal-
specific liquidity facility associated with it provided by
JPMorgan Chase Bank, N.A. JPMorgan Chase Bank, N.A. also
provides the multi-seller conduit vehicles with uncommitted
program-wide liquidity facilities and program-wide credit
enhancement in the form of standby letters of credit. The
amount of program-wide credit enhancement required is
based upon commercial paper issuance and approximates
10% of the outstanding balance of commercial paper.
The Firm consolidates its Firm-administered multi-seller
conduits, as the Firm has both the power to direct the
significant activities of the conduits and a potentially
significant economic interest in the conduits. As
administrative agent and in its role in structuring
transactions, the Firm makes decisions regarding asset
types and credit quality, and manages the commercial
paper funding needs of the conduits. The Firm's interests
that could potentially be significant to the VIES include the
fees received as administrative agent and liquidity and
program-wide credit enhancement provider, as well as the
potential exposure created by the liquidity and credit
Multi-seller conduit entities are separate bankruptcy
remote entities that provide secured financing,
collateralized by pools of receivables and other financial
assets, to customers of the Firm. The conduits fund their
financing facilities through the issuance of highly rated
commercial paper. The primary source of repayment of the
commercial paper is the cash flows from the pools of assets.
In most instances, the assets are structured with deal-
specific credit enhancements provided to the conduits by
the customers (i.e., sellers) or other third parties. Deal-
specific credit enhancements are generally structured to
cover a multiple of historical losses expected on the pool of
assets, and are typically in the form of overcollateralization
provided by the seller. The deal-specific credit
enhancements mitigate the Firm's potential losses on its
agreements with the conduits.
Multi-seller conduits
As of December 31, 2016 and 2015, total assets (including
the notional amount of interest-only securities) of
nonconsolidated Firm-sponsored private-label re-
securitization entities in which the Firm has continuing
involvement were $875 million and $2.2 billion,
respectively. At December 31, 2016 and 2015, the Firm
held $2.0 billion and $4.6 billion, respectively, of interests
in nonconsolidated agency re-securitization entities. The
Firm's exposure to non-consolidated private-label re-
securitization entities as of December 31, 2016 and 2015
was not material. As of December 31, 2016 and 2015, the
Firm did not consolidate any agency re-securitizations. As of
December 31, 2016 and 2015, the Firm consolidated an
insignificant amount of assets and liabilities of Firm-
sponsored private-label re-securitizations.
JPMorgan Chase & Co./2016 Annual Report
Additionally, the Firm may invest in beneficial interests of
third-party re-securitizations and generally purchases these
interests in the secondary market. In these circumstances,
the Firm does not have the unilateral ability to direct the
most significant activities of the re-securitization trust,
either because it was not involved in the initial design of the
trust, or the Firm is involved with an independent third-
party sponsor and demonstrates shared power over the
creation of the trust; therefore, the Firm does not
consolidate the re-securitization VIE.
In more limited circumstances, the Firm creates a
nonagency re-securitization trust independently and not in
conjunction with specific clients. In these circumstances, the
Firm is deemed to have the unilateral ability to direct the
most significant activities of the re-securitization trust
because of the decisions made during the establishment
and design of the trust; therefore, the Firm consolidates the
re-securitization VIE if the Firm holds an interest that could
potentially be significant.
Most re-securitizations with which the Firm is involved are
client-driven transactions in which a specific client or group
of clients is seeking a specific return or risk profile. For
these transactions, the Firm has concluded that the
decision-making power of the entity is shared between the
Firm and its clients, considering the joint effort and
decisions in establishing the re-securitization trust and its
assets, as well as the significant economic interest the client
holds in the re-securitization trust; therefore the Firm does
not consolidate the re-securitization VIE.
The Firm engages in certain re-securitization transactions in
which debt securities are transferred to a VIE in exchange
for new beneficial interests. These transfers occur in
connection with both agency (Federal National Mortgage
Association ("Fannie Mae"), Federal Home Loan Mortgage
Corporation ("Freddie Mac") and Government National
Mortgage Association ("Ginnie Mae")) and nonagency
(private-label) sponsored VIES, which may be backed by
either residential or commercial mortgages. The Firm's
consolidation analysis is largely dependent on the Firm's
role and interest in the re-securitization trusts. During the
years ended December 31, 2016, 2015 and 2014, the Firm
transferred $11.2 billion, $21.9 billion and $22.7 billion,
respectively, of securities to agency VIES, and $647 million,
$777 million and $1.1 billion, respectively, of securities to
private-label VIES.
Re-securitizations
The Firm retains servicing responsibilities for certain
student loan securitizations. The Firm has the power to
direct the activities of these VIES through these servicing
responsibilities. See the table on page 237 of this Note for
more information on the consolidated student loan
securitizations, and the table on the previous page of this
Note for further information on interests held in
nonconsolidated securitizations.
page of this Note for further information on interests held
in nonconsolidated securitizations.
234
The Firm does not consolidate a residential mortgage
securitization (Firm-sponsored or third-party-sponsored)
when it is not the servicer (and therefore does not have the
power to direct the most significant activities of the trust)
or does not hold a beneficial interest in the trust that could
potentially be significant to the trust. At December 31,
2016 and 2015, the Firm did not consolidate the assets of
certain Firm-sponsored residential mortgage securitization
VIES, in which the Firm had continuing involvement,
primarily due to the fact that the Firm did not hold an
interest in these trusts that could potentially be significant
to the trusts. See the table on page 237 of this Note for
more information on the consolidated residential mortgage
securitizations, and the table on the previous page of this
Note for further information on interests held in
nonconsolidated residential mortgage securitizations.
Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans,
and engages in underwriting and trading activities involving
the securities issued by securitization trusts. CIB may retain
unsold senior and/or subordinated interests in commercial
mortgage securitizations at the time of securitization but,
generally, the Firm does not service commercial loan
securitizations. For commercial mortgage securitizations
the power to direct the significant activities of the VIE
generally is held by the servicer or investors in a specified
class of securities ("controlling class"). The Firm generally
does not retain an interest in the controlling class in its
sponsored commercial mortgage securitization
transactions. See the table on page 237 of this Note for
more information on the consolidated commercial
mortgage securitizations, and the table on the previous
The Firm securitizes residential mortgage loans originated
by CCB, as well as residential mortgage loans purchased
from third parties by either CCB or CIB. CCB generally
retains servicing for all residential mortgage loans it
originated or purchased, and for certain mortgage loans
purchased by CIB. For securitizations of loans serviced by
CCB, the Firm has the power to direct the significant
activities of the VIE because it is responsible for decisions
related to loan modifications and workouts. CCB may also
retain an interest upon securitization.
(e) The interest-bearing beneficial interest liabilities issued by consolidated VIES are classified in the line item on the Consolidated balance sheets titled,
"Beneficial interests issued by consolidated variable interest entities." The holders of these beneficial interests do not have recourse to the general credit
of JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $33.4 billion and $30.6 billion at December 31,
2016 and 2015, respectively. The maturities of the long-term beneficial interests as of December 31, 2016, were as follows: $11.6 billion under one year,
$19.1 billion between one and five years, and $2.7 billion over five years.
(1,608)
JPMorgan Chase & Co./2016 Annual Report
Notes to consolidated financial statements
241
JPMorgan Chase & Co./2016 Annual Report
As permitted by U.S. GAAP, the Firm has elected to account
for its MSRS at fair value. The Firm treats its MSRs as a
single class of servicing assets based on the availability of
market inputs used to measure the fair value of its MSR
asset and its treatment of MSRS as one aggregate pool for
risk management purposes. The Firm estimates the fair
value of MSRS using an option-adjusted spread ("OAS")
model, which projects MSR cash flows over multiple interest
rate scenarios in conjunction with the Firm's prepayment
model, and then discounts these cash flows at risk-adjusted
rates. The model considers portfolio characteristics,
contractually specified servicing fees, prepayment
assumptions, delinquency rates, costs to service, late
charges and other ancillary revenue, and other economic
factors. The Firm compares fair value estimates and
assumptions to observable market data where available,
and also considers recent market activity and actual
portfolio experience.
MSRS represent the fair value of expected future cash flows
for performing servicing activities for others. The fair value
considers estimated future servicing fees and ancillary
revenue, offset by estimated costs to service the loans, and
generally declines over time as net servicing cash flows are
received, effectively amortizing the MSR asset against
contractual servicing and ancillary fee income. MSRs are
either purchased from third parties or recognized upon sale
or securitization of mortgage loans if servicing is retained.
Mortgage servicing rights
The fair value of MSRs is sensitive to changes in interest
rates, including their effect on prepayment speeds. MSRS
typically decrease in value when interest rates decline
because declining interest rates tend to increase
prepayments and therefore reduce the expected life of the
net servicing cash flows that comprise the MSR asset.
Conversely, securities (e.g., mortgage-backed securities),
principal-only certificates and certain derivatives (i.e.,
Declines in business performance, increases in credit losses,
increases in equity capital requirements, as well as
deterioration in economic or market conditions, estimates
of adverse regulatory or legislative changes or increases in
the estimated market cost of equity, could cause the
estimated fair values of the Firm's reporting units or their
associated goodwill to decline in the future, which could
result in a material impairment charge to earnings in a
future period related to some portion of the associated
goodwill.
The primary method the Firm uses to estimate the fair
value of its reporting units is the income approach. This
approach projects cash flows for the forecast period and
uses the perpetuity growth method to calculate terminal
values. These cash flows and terminal values are then
discounted using an appropriate discount rate. Projections
of cash flows are based on the reporting units' earnings
forecasts, which include the estimated effects of regulatory
and legislative changes, and which are reviewed with the
senior management of the Firm. The discount rate used for
each reporting unit represents an estimate of the cost of
equity for that reporting unit and is determined considering
the Firm's overall estimated cost of equity (estimated using
the Capital Asset Pricing Model), as adjusted for the risk
characteristics specific to each reporting unit (for example,
for higher levels of risk or uncertainty associated with the
business or management's forecasts and assumptions). To
assess the reasonableness of the discount rates used for
each reporting unit management compares the discount
rate to the estimated cost of equity for publicly traded
institutions with similar businesses and risk characteristics.
In addition, the weighted average cost of equity
(aggregating the various reporting units) is compared with
the Firms' overall estimated cost of equity to ensure
reasonableness.
JPMorgan Chase & Co./2016 Annual Report
240
The goodwill impairment test is performed in two steps. In
the first step, the current fair value of each reporting unit is
compared with its carrying value, including goodwill. If the
fair value is in excess of the carrying value (including
goodwill), then the reporting unit's goodwill is considered
not to be impaired. If the fair value is less than the carrying
value (including goodwill), then a second step is performed.
In the second step, the implied current fair value of the
reporting unit's goodwill is determined by comparing the
fair value of the reporting unit (as determined in step one)
to the fair value of the net assets of the reporting unit, as if
the reporting unit were being acquired in a business
combination. The resulting implied current fair value of
goodwill is then compared with the carrying value of the
reporting unit's goodwill. If the carrying value of the
goodwill exceeds its implied current fair value, then an
impairment charge is recognized for the excess. If the
carrying value of goodwill is less than its implied current
fair value, then no goodwill impairment is recognized.
The Firm uses the reporting units' allocated equity plus
goodwill capital as a proxy for the carrying amounts of
equity for the reporting units in the goodwill impairment
testing. Reporting unit equity is determined on a similar
basis as the allocation of equity to the Firm's lines of
business, which takes into consideration the capital the
business segment would require if it were operating
independently, incorporating sufficient capital to address
regulatory capital requirements (including Basel III) and
capital levels for similarly rated peers. Proposed line of
business equity levels are incorporated into the Firm's
annual budget process, which is reviewed by the Firm's
Board of Directors. Allocated equity is further reviewed on
a periodic basis and updated as needed.
The Firm's goodwill was not impaired at December 31,
2016 and 2015. Further, except for goodwill related to its
heritage Private Equity business of $276 million, the Firm's
goodwill was not impaired at December 31, 2014.
Impairment testing
The valuations derived from the discounted cash flow
analysis are then compared with market-based trading and
transaction multiples for relevant competitors. Trading and
transaction comparables are used as general indicators to
assess the general reasonableness of the estimated fair
values, although precise conclusions generally cannot be
drawn due to the differences that naturally exist between
the Firm's businesses and competitor institutions.
Management also takes into consideration a comparison
between the aggregate fair values of the Firm's reporting
units and JPMorgan Chase's market capitalization. In
evaluating this comparison, management considers several
factors, including (i) a control premium that would exist in a
market transaction, (ii) factors related to the level of
execution risk that would exist at the firmwide level that do
not exist at the reporting unit level and (iii) short-term
market volatility and other factors that do not directly
affect the value of individual reporting units.
those for which the Firm receives fixed-rate interest
payments) increase in value when interest rates decline.
JPMorgan Chase uses combinations of derivatives and
securities to manage the risk of changes in the fair value of
MSRs. The intent is to offset any interest-rate related
changes in the fair value of MSRs with changes in the fair
value of the related risk management instruments.
The following table summarizes MSR activity for the years ended December 31, 2016, 2015 and 2014.
As of or for the year ended December 31, (in millions, except where otherwise noted)
Changes due to collection/realization of expected cash flows
Net additions
Disposition of MSRs (a)
Purchase of MSRS
Originations of MSRs
MSR activity:
9,614
$
$ 7,436
6,608
$
Fair value at beginning of period
2014
2015
2016
(b) Includes foreign currency translation adjustments, other tax-related
adjustments, and, for 2014, goodwill impairment associated with the
Firm's Private Equity business of $276 million.
Changes in valuation due to inputs and assumptions:
(a) For 2016, represents AWM goodwill, which was disposed of as part of
AWM sales completed in March 2016. For 2015 includes $101 million
of Private Equity goodwill, which was disposed of as part of the Private
Equity sale completed in January 2015.
43
(80)
(397)
The following table presents changes in the carrying
$ 47,288 $47,325 $47,647
101
-
6,923
2015
amount of goodwill.
2014
$ 30,797 $30,769 $30,941
6,772 6,772 6,780
2,861 2,861
6,964
2,861
2016
Total goodwill
Asset & Wealth Management
Corporate
Commercial Banking
Consumer & Community Banking
Corporate & Investment Bank
6,858
Year ended December 31,
(in millions)
Balance at beginning of period
$ 48,081
2014
$ 47,288
(190)
28
(160)
(72)
35
$ 47,647
$ 47,325
2015
2016
Balance at December 31,
Other(b)
Dispositions (a)
Business combinations
Changes during the period from:
$ 47,325 $ 47,647
December 31, (in millions)
Changes due to market interest rates and other(b)
Projected cash flows (e.g., cost to service)
(1,826)
$
(405)
$
(163)
$
2,124
Change in unrealized gains/(losses) included in income related to MSRs held at December 31,
Contractual service fees, late fees and other ancillary fees included in income
$
6,608
$
6,096
$
Fair value at December 31,
7,436
2,533
2,884
Third-party mortgage loans serviced at December 31, (in billions)
particular transaction, as well as the respective business
involved, the Firm may act as the servicer of the loans and/
JPMorgan Chase & Co./2016 Annual Report
242
(e) For the year ending December 31, 2014, the negative impact was primarily related to higher capital allocated to the Mortgage Servicing business, which, in turn,
resulted in an increase in the OAS. The resulting OAS assumption was consistent with capital and return requirements the Firm believed a market participant would
consider, taking into account factors such as the operating risk environment and regulatory and economic capital requirements.
(d) Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest, taxes and insurance), which will generally be reimbursed within a short
period of time after the advance from future cash flows from the trust or the underlying loans. The Firm's credit risk associated with these servicer advances is
minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right to stop payment to
investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if they were not made in
accordance with applicable rules and agreements.
(c) Represents changes in prepayments other than those attributable to changes in market interest rates.
(b) Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected
prepayments.
(a) Includes excess MSRS transferred to agency-sponsored trusts in exchange for stripped mortgage backed securities ("SMBS"). In each transaction, a portion of the
SMBS was acquired by third parties at the transaction date; the Firm acquired the remaining balance of those SMBS as trading securities.
8.5
6.5
4.7
Servicer advances, net of an allowance for uncollectible amounts, at December 31, (in billions) (d)
756.1
677.0
593.3
(1,826)
Changes in valuation due to other inputs and assumptions:
(405)
Total changes in valuation due to inputs and assumptions
559
499
570
(209)
(486)
(109)
(919)
11
-
757
550
679
Prepayment model changes and other (c)
Discount rates
435
(922)
(911)
(72)
(218)
(245)
(91)
Total changes in valuation due to other inputs and assumptions
108
(123)
(63)
(e)
(459)
(10)
7
133
(112)
(35)
(160)
(163)
(f) Includes liabilities classified as accounts payable and other liabilities on the Consolidated balance sheets.
The goodwill associated with each business combination is
allocated to the related reporting units, which are
determined based on how the Firm's businesses are
managed and how they are reviewed by the Firm's
Operating Committee. The following table presents goodwill
attributed to the business segments.
Goodwill
$
9,094
1,831 $
477
Servicing fees collected
$
Total proceeds received from loan sales
2,963
59
3,022 $
2
9,092
1,831
Level 2
Proceeds received from loan sales as securities
568
$
Level 3
11,968
43
12,011
407
3
1,441
482
Cash flows received on interests
37
Purchases of previously transferred financial assets
(or the underlying collateral)(b)
4
557
3
528
3
11,381
130
12,079
2,384
185
2,569 $
$
$
597
$
$
2015
2016
Principal securitized
(in millions, except rates)
Year ended December 31,
The following table provides information related to the Firm's securitization activities for the years ended December 31, 2016,
2015 and 2014, related to assets held in Firm-sponsored securitization entities that were not consolidated by the Firm, and
where sale accounting was achieved based on the accounting rules in effect at the time of the securitization.
2014
For loan securitizations accounted for as a sale, the Firm
recognizes a gain or loss based on the difference between
the value of proceeds received (including cash, beneficial
interests, or servicing assets received) and the carrying
value of the assets sold. Gains and losses on securitizations
are reported in noninterest revenue.
Securitization activity
For loan securitizations in which the Firm is not required to
consolidate the trust, the Firm records the transfer of the
loan receivable to the trust as a sale when all of the
following accounting criteria for a sale are met: (1) the
transferred financial assets are legally isolated from the
Firm's creditors; (2) the transferee or beneficial interest
The Firm has securitized and sold a variety of loans,
including residential mortgage, credit card, student and
commercial (primarily related to real estate) loans, as well
as debt securities. The purposes of these securitization
transactions were to satisfy investor demand and to
generate liquidity for the Firm.
Loan securitizations
Notes to consolidated financial statements
237
holder can pledge or exchange the transferred financial
assets; and (3) the Firm does not maintain effective control
over the transferred financial assets (e.g., the Firm cannot
repurchase the transferred assets before their maturity and
it does not have the ability to unilaterally cause the holder
to return the transferred assets).
Residential
mortgage(c)(d)
Commercial
and other(d)(e)
Residential
$
Proceeds received from loan sales as cash
All cash flows during the period: (a)
2,558 $ 11,911
$
11,933
3,008 $
$
8,964
1,817 $
$
Commercial
mortgage(c)(d) and other(d)(e)
mortgage (c)(d) and other (d)(e)
Residential
Commercial
$
Goodwill is recorded upon completion of a business
combination as the difference between the purchase price
and the fair value of the net assets acquired. Subsequent to
initial recognition, goodwill is not amortized but is tested
for impairment during the fourth quarter of each fiscal
year, or more often if events or circumstances, such as
adverse changes in the business climate, indicate there may
be impairment.
121
578
2015
2016
Securitized assets
Total loans securitized
Commercial and other
Subprime
90 days past due
2016
2015
Prime/ Alt-A & option ARMS
Securitized loans (a)
As of or for the year ended December 31, (in millions)
The table below includes information about components of nonconsolidated securitized financial assets held in Firm-sponsored
private-label securitization entities, in which the Firm has continuing involvement, and delinquencies as of December 31, 2016
and 2015.
Loan delinquencies and liquidation losses
In addition to the Firm's obligation to repurchase certain
loans due to material breaches of representations and
warranties as discussed in Note 29, the Firm also has the
option to repurchase delinquent loans that it services for
Ginnie Mae loan pools, as well as for other U.S. government
agencies under certain arrangements. The Firm typically
elects to repurchase delinquent loans from Ginnie Mae loan
pools as it continues to service them and/or manage the
foreclosure process in accordance with the applicable
requirements, and such loans continue to be insured or
guaranteed. When the Firm's repurchase option becomes
exercisable, such loans must be reported on the
Consolidated balance sheets as a loan with a corresponding
liability. As of December 31, 2016 and 2015, the Firm had
recorded on its Consolidated balance sheets $9.6 billion
and $11.1 billion, respectively, of loans that either had
been repurchased or for which the Firm had an option to
repurchase. Predominantly all of these amounts relate to
loans that have been repurchased from Ginnie Mae loan
pools. Additionally, at December 31, 2016 and 2015, the
Firm had real estate owned of $142 million and $343
million, respectively, and certain foreclosed government-
guaranteed residential mortgage loans included in accrued
interest and accounts receivable of $1.0 billion and $1.1
billion, respectively, resulting from voluntary repurchases of
loans. Substantially all of these loans and real estate are
insured or guaranteed by U.S. government agencies. For
additional information, refer to Note 14.
Options to repurchase delinquent loans
Residential mortgage:
Liquidation losses
2016
2015
$ 57,543 $ 66,708
$
Note 17 - Goodwill and Mortgage servicing rights
Notes to consolidated financial statements
239
JPMorgan Chase & Co./2016 Annual Report
(a) Total assets held in securitization-related SPES were $199.6 billion and $233.6 billion, respectively, at December 31, 2016 and 2015. The $148.9 billion
and $169.6 billion, respectively, of loans securitized at December 31, 2016 and 2015, excludes: $46.4 billion and $62.4 billion, respectively, of
securitized loans in which the Firm has no continuing involvement, and $4.3 billion and $1.6 billion, respectively, of loan securitizations consolidated on
the Firm's Consolidated balance sheets at December 31, 2016 and 2015.
$ 148,910 $ 169,576 $ 12,110 $ 15,581 $
3,752
1,160 $ 1,946
1,087
1,431
643
375
2,890 $
1,808
8,325 $
5,448
6,169 $
4,186
1,755
80,319
71,464
22,549
19,903
(d) The carrying value of the loans accounted for at fair value
approximated the proceeds received upon loan sale.
179
(b) Excludes the value of MSRS retained upon the sale of loans.
(c) Gains on loan sales include the value of MSRs.
41,928 $ 55,377
299 $
316
2015
Year ended December 31,
(in millions)
The following table summarizes the activities related to
loans sold to the U.S. GSES, loans in securitization
transactions pursuant to Ginnie Mae guidelines, and other
third-party-sponsored securitization entities.
JPMorgan Chase & Co./2016 Annual Report
238
See Note 17 for additional information about the impact of
the Firm's sale of certain excess MSRs.
2014
guidelines; these loans are typically insured or guaranteed
by another U.S. government agency. The Firm does not
consolidate the securitization vehicles underlying these
transactions as it is not the primary beneficiary. For a
limited number of loan sales, the Firm is obligated to share
a portion of the credit risk associated with the sold loans
with the purchaser. See Note 29 for additional information
about the Firm's loan sales- and securitization-related
indemnifications.
transactions pursuant to Ginnie Mae guidelines, and other
third-party-sponsored securitization entities
Loans and excess MSRS sold to U.S. government-
sponsored enterprises, loans in securitization
(d) Key assumptions used to measure residential mortgage retained interests originated during the year included weighted-average life (in years) of 4.5, 4.2
and 5.9 for the years ended December 31, 2016, 2015 and 2014, respectively, and weighted-average discount rate of 4.2%, 2.9% and 3.4% for the
years ended December 31, 2016, 2015 and 2014, respectively. Key assumptions used to measure commercial and other retained interests originated
during the year included weighted-average life (in years) of 6.2, 6.2 and 6.5 for the years ended December 31, 2016, 2015 and 2014, respectively, and
weighted-average discount rate of 5.8%, 4.1% and 4.8% for the years ended December 31, 2016, 2015 and 2014, respectively.
(e) Includes commercial mortgage and student loan securitizations.
(c) Includes prime/Alt-A, subprime, and option ARMS. Excludes certain loan securitization transactions entered into with Ginnie Mae, Fannie Mae and Freddie
Mac.
(b) Includes cash paid by the Firm to reacquire assets from off-balance sheet, nonconsolidated entities - for example, loan repurchases due to representation
and warranties and servicer "clean-up" calls.
(a) Excludes re-securitization transactions.
In addition to the amounts reported in the securitization
activity tables above, the Firm, in the normal course of
business, sells originated and purchased mortgage loans
and certain originated excess MSRs on a nonrecourse basis,
predominantly to U.S. government sponsored enterprises
("U.S. GSES”). These loans and excess MSRs are sold
primarily for the purpose of securitization by the U.S. GSES,
who provide certain guarantee provisions (e.g., credit
enhancement of the loans). The Firm also sells loans into
securitization transactions pursuant to Ginnie Mae
52,869 $ 42,161 $ 55,802
2016
Carrying value of loans sold
52,444 $
222 $
$
Gains on loan sales(c)(d)
$
Total proceeds received from
loan sales(b)
55,117
41,615
51,852
Proceeds from loans sales as
securities(a)
260
313 $
592 $
sales as cash
Proceeds received from loan
$
(a) Predominantly includes securities from U.S. GSES and Ginnie Mae that
are generally sold shortly after receipt.
primarily in its CCB and CIB businesses. Depending on the
2,598
Firm-sponsored mortgage and other securitization trusts
The Firm securitizes (or has securitized) originated and
purchased residential mortgages, commercial mortgages
and other consumer loans (including student loans)
35
(62)
98
(39)
59
Reclassification adjustment for realized (gains)/losses
included in net income (c)(d)
360
(134)
226
180
(67)
(97)
113
9
(15)
Net change
(90)
34
(56)
83
(32)
51
74
(30)
(24)
(282)
168
(450)
99
(102)
(162)
160
(1,876)
1,885
682
(706)
(1,194)
(1,638)
588
(1,050)
1,179
1,698
(659)
1,039
1
(3)
(2)
9
(24)
(15)
60
(71)
(11)
Net change
Cash flow hedges:
Net unrealized gains/(losses) arising during the period
44
Defined benefit pension and OPEB plans:
Prior service credits arising during the period
(53)
(22)
(44)
17
(27)
Settlement loss/(gain)
4
(1)
3
Foreign exchange and other
77
(25)
52
33
(58)
(25)
39
(32)
7
Net change
(64)
36
(28)
308
(197)
111
14
262
(36)
14
21
(32)
Net gains/(losses) arising during the period
(366)
145
(221)
29
(47)
(18)
(1,697)
688
(1,009)
Reclassification adjustments included in net income(e):
Amortization of net loss
257
(97)
160
282
(106)
176
72
(29)
43
Prior service costs/(credits)
(36)
(22)
(1,683)
(261)
29
(1,141)
$
1,199
(11)
44
(1,018)
ΝΑ
990
Balance at December 31, 2014
Net change
$ 4,773
$
(147)
ΝΑ
$
$
(2,342)
ΝΑ
$
2,189
(2,144)
(15)
51
111
ΝΑ
(1,997)
(95)
(1,324)
$
(139)
3,797.5
5.29
(a) Excluded from the computation of diluted EPS (due to the antidilutive effect)
were certain options issued under employee benefit plans. The aggregate
number of shares issuable upon the exercise of such options was not material for
the years ended December 31, 2016 and 2015 and were 1 million for the year
ended December 31, 2014.
(b) Participating securities were included in the calculation of diluted EPS using the
two-class method, as this computation was more dilutive than the calculation
using the treasury stock method.
248
JPMorgan Chase & Co./2016 Annual Report
Note 25 - Accumulated other comprehensive income/(loss)
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation
adjustments (including the impact of related derivatives), cash flow hedging activities, and net loss and prior service costs/(credit)
related to the Firm's defined benefit pension and OPEB plans.
Effective January 1, 2016, the Firm adopted new accounting guidance related to the recognition and measurement of financial
liabilities where the fair value option has been elected. This guidance requires the portion of the total change in fair value caused
by changes in the Firm's own credit risk ("DVA") to be presented separately in OCI; previously these amounts were recognized in
net income. The guidance was required to be applied as of the beginning of the fiscal year of adoption by means of a cumulative
effect adjustment to the Consolidated balance sheets, which resulted in a reclassification from retained earnings to AOCI.
Unrealized
gains/(losses)
Accumulated
Year ended December 31,
(in millions)
on investment
securities(a)
Translation
adjustments,
net of hedges
Cash flow
hedges
Defined benefit pension
DVA on fair value
option elected
and OPEB plans
liabilities
other
comprehensive
income/(loss)
Balance at December 31, 2013
Net change
$ 2,798
1,975
$ (136)
$
Balance at December 31, 2015
Cumulative effect of change in
accounting principle
$ 2,629
$
(162)
2015
2014
Year ended December 31, (in millions)
Pre-tax
Tax
effect
After-tax Pre-tax
Tax
effect
Tax
After-tax Pre-tax
effect After-tax
Unrealized gains/(losses) on investment securities:
Net unrealized gains/(losses) arising during the period
Reclassification adjustment for realized (gains)/losses
included in net income(a)
Net change
Translation adjustments:
Translation (b)
Hedges(b)
$ (1,628) $ 611
$ (1,017) $ (3,315) $ 1,297
$ (2,018) $ 3,193
$ (1,170) $ 2,023
(141)
(1,769)
53
664
(88)
(1,105)
(202)
(3,517)
76
1,373
(126)
(2,144)
(77)
3,116
2016
(48)
1,975
The following table presents the pre-tax and after-tax changes in the components of OCI.
(1,175)
$
(44)
$
(2,231)
ΝΑ
$
192
154
154
Net change
(1,105)
Balance at December 31, 2016
$ 1,524
$
(2)
(164)
(56)
$
(100)
(28)
$
(2,259)
(330)
(1,521)
(176)
$
(a) Represents the after-tax difference between the fair value and amortized cost of securities accounted for as AFS, including net unamortized unrealized gains and losses related
to AFS securities transferred to HTM.
3,732.8
6.00 $
665
DVA on fair value option elected liabilities, net change: $ (529) $
Total other comprehensive income/(loss)
(785)
(735)
Deferred tax assets, net of valuation
allowance
$
22,014
$
22,846
Deferred tax liabilities
Depreciation and amortization
$
3,294 $
Valuation allowance
3,167
4,807
8.55%
(529)
(445)
$ (275)
Impact on fair value of 10% adverse change $ (231)
Impact on fair value of 20% adverse change
Weighted-average option adjusted spread
Impact on fair value of 100 basis points
adverse change
The sensitivity analysis in the preceding table is
hypothetical and should be used with caution. Changes in
fair value based on variation in assumptions generally
cannot be easily extrapolated, because the relationship of
the change in the assumptions to the change in fair value
are often highly interrelated and may not be linear. In this
table, the effect that a change in a particular assumption
may have on the fair value is calculated without changing
any other assumption. In reality, changes in one factor may
result in changes in another, which would either magnify or
counteract the impact of the initial change.
$ (248) $ (258)
CPR: Constant prepayment rate.
Impact on fair value of 200 basis points
adverse change
(28)
Mortgage servicing rights, net of
hedges
23.581
22,799
2,602
Income before income tax expense
(a) For purposes of this table, non-U.S. income is defined as income
generated from operations located outside the U.S.
U.S. federal income taxes have not been provided on the
undistributed earnings of certain non-U.S. subsidiaries, to
the extent that such earnings have been reinvested abroad
for an indefinite period of time. Based on JPMorgan Chase's
JPMorgan Chase & Co./2016 Annual Report
ongoing review of the business requirements and capital
needs of its non-U.S. subsidiaries, combined with the
formation of specific strategies and steps taken to fulfill
these requirements and needs, the Firm has determined
that the undistributed earnings of certain of its subsidiaries
would be indefinitely reinvested to fund current and future
growth of the related businesses. As management does not
intend to use the earnings of these subsidiaries as a source
of funding for its U.S. operations, such earnings will not be
distributed to the U.S. in the foreseeable future. For 2016,
pretax earnings of $3.8 billion were generated and will be
indefinitely reinvested in these subsidiaries. At
December 31, 2016, the cumulative amount of
undistributed pretax earnings in these subsidiaries were
$38.4 billion. If the Firm were to record a deferred tax
liability associated with these undistributed earnings, the
amount would be $8.8 billion at December 31, 2016.
These undistributed earnings are related to subsidiaries
located predominantly in the U.K. where the 2016 tax rate
was 28%.
Affordable housing tax credits
The Firm recognized $1.7 billion, $1.6 billion and $1.6
billion of tax credits and other tax benefits associated with
investments in affordable housing projects within income
tax expense for the years 2016, 2015 and 2014,
respectively. The amount of amortization of such
investments reported in income tax expense under the
current period presentation during these years was $1.2
billion, $1.1 billion and $1.1 billion, respectively. The
carrying value of these investments, which are reported in
other assets on the Firm's Consolidated balance sheets, was
$8.8 billion and $7.7 billion at December 31, 2016 and
2015, respectively. The amount of commitments related to
these investments, which are reported in accounts payable
and other liabilities on the Firm's Consolidated balance
sheets, was $2.8 billion and $2.0 billion at December 31,
2016 and 2015, respectively.
Deferred taxes
Deferred income tax expense/(benefit) results from
differences between assets and liabilities measured for
financial reporting purposes versus income tax return
purposes. Deferred tax assets are recognized if, in
management's judgment, their realizability is determined to
be more likely than not. If a deferred tax asset is
determined to be unrealizable, a valuation allowance is
established. The significant components of deferred tax
assets and liabilities are reflected in the following table as
of December 31, 2016 and 2015.
December 31, (in millions)
Deferred tax assets
Allowance for loan losses
Employee benefits
Accrued expenses and other
Non-U.S. operations
Tax attribute carryforwards
Gross deferred tax assets
2016
2015
$
5,534
$
5,343
2,911
2,972
6,831
7,299
5,368
5,365
2,155
3,560
2,511
2,490
Total CCB mortgage fees and
related income
(916)
expected cash flows
due to collection/realization of
Changes in MSR asset fair value
2,776 3,303
2,336
Loan servicing revenue
Operating revenue:
Net mortgage servicing revenue:
9.81%
9.41%
Weighted-average prepayment speed
assumption ("CPR")
$ 853 $ 769 $1,190
Net production revenue
CCB mortgage fees and related
income
2014
2015
2016
2015
2016
(in millions, except rates)
December 31,
The table below outlines the key economic assumptions
used to determine the fair value of the Firm's MSRs at
December 31, 2016 and 2015, and outlines the
sensitivities of those fair values to immediate adverse
changes in those assumptions, as defined below.
Year ended December 31,
(in millions)
The following table presents the components of mortgage
fees and related income (including the impact of MSR risk
management activities) for the years ended December 31,
2016, 2015 and 2014.
Total operating revenue
250
1,420
(905)
2,370
1,742
1,637
revenue
Total net mortgage servicing
(117)
217
Total risk management
1,796
288
380
and other
Change in derivative fair value
(245) (218)
(91)
assumptions in model(b)
value due to other inputs and
Other changes in MSR asset fair
(160) (1,606)
(72)
and other(a)
due to market interest rates
Changes in MSR asset fair value
Risk management:
2,398
(917)
1,859
(1,018)
2014
$23,422
$ 26,651
7,885
$34,536
Income tax expense/(benefit)
Year ended December 31,
(in millions)
U.S. federal
Non-U.S.
U.S. state and local
2016
2015
2014
Current income tax expense/(benefit)
$ 2,488
1,760
The components of income tax expense/(benefit) included
in the Consolidated statements of income were as follows
for each of the years ended December 31, 2016, 2015, and
2014.
$ 3,160
1,220
1,353
904
547
857
Total current income tax expense/
(benefit)
5,152
4,927
4,592
Deferred income tax expense/(benefit)
4,364
1,213
$ 2,382
Increase/(decrease) in tax rate
resulting from:
2014
35.0%
2015
35.0%
199
$ (330) $
$
$
-
$
$
$
$ (2,451) $ 930 $ (1,521) $ (3,117) $ 1,120 $ (1,997) $ 1,567 $ (577) $ 990
(a) The pre-tax amount is reported in securities gains in the Consolidated statements of income.
(b) Reclassifications of pre-tax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in the Consolidated statements of
income. The amounts were not material for the periods presented.
(c) The pre-tax amounts are predominantly recorded in net interest income in the Consolidated statements of income.
(d) In 2015, the Firm reclassified approximately $150 million of net losses from AOCI to other income because the Firm determined that it is probable that the forecasted interest
payment cash flows will not occur. For additional information, see Note 6.
(e) The pre-tax amount is reported in compensation expense in the Consolidated statements of income.
JPMorgan Chase & Co./2016 Annual Report
249
Notes to consolidated financial statements
Note 26 - Income taxes
JPMorgan Chase and its eligible subsidiaries file a
consolidated U.S. federal income tax return. JPMorgan
Chase uses the asset and liability method to provide income
taxes on all transactions recorded in the Consolidated
Financial Statements. This method requires that income
taxes reflect the expected future tax consequences of
temporary differences between the carrying amounts of
assets or liabilities for book and tax purposes. Accordingly,
a deferred tax asset or liability for each temporary
difference is determined based on the tax rates that the
Firm expects to be in effect when the underlying items of
income and expense are realized. JPMorgan Chase's
expense for income taxes includes the current and deferred
portions of that expense. A valuation allowance is
established to reduce deferred tax assets to the amount the
Firm expects to realize.
Due to the inherent complexities arising from the nature of
the Firm's businesses, and from conducting business and
being taxed in a substantial number of jurisdictions,
significant judgments and estimates are required to be
made. Agreement of tax liabilities between JPMorgan Chase
and the many tax jurisdictions in which the Firm files tax
returns may not be finalized for several years. Thus, the
Firm's final tax-related assets and liabilities may ultimately
be different from those currently reported.
Effective tax rate and expense
A reconciliation of the applicable statutory U.S. income tax
rate to the effective tax rate for each of the years ended
December 31, 2016, 2015 and 2014, is presented in the
following table.
Effective tax rate
Year ended December 31,
Statutory U.S. federal tax rate
2016
35.0%
3,890
(73)
(95)
71
Business tax credits
(3.9)
(3.7)
(3.3)
Nondeductible legal expense
0.3
0.8
2.3
Tax audit resolutions
-
(5.7)
(1.4)
Other, net
(0.6)
(0.3)
(1.0)
Effective tax rate
28.4%
20.4%
29.2%
Year ended December 31,
(in millions)
2016
(a) Predominantly includes earnings of U.K. subsidiaries that are deemed
to be reinvested indefinitely.
U.S.
Non-U.S.(a)
(2.0)
2015
$23,191
7,511 7,277
$ 30,702 $ 30,699
(3.9)
Non-U.S. subsidiary earnings (a)
360
215
401
U.S. federal
Non-U.S.
U.S. state and local
Total deferred income tax
expense/(benefit)
Total income tax expense
4,651
1,333
4,362
$ 9,803 $ 6,260 $ 8,954
Total income tax expense includes $55 million, $2.4 billion
and $451 million of tax benefits recorded in 2016, 2015,
and 2014, respectively, as a result of tax audit resolutions.
Tax effect of items recorded in stockholders' equity
The preceding table does not reflect the tax effect of certain
items that are recorded each period directly in
stockholders' equity. The tax effect of all items recorded
directly to stockholders' equity resulted in an increase of
$925 million in 2016, an increase of $1.5 billion in 2015,
and a decrease of $140 million in 2014. Effective January
1, 2016, the Firm adopted new accounting guidance related
to employee share-based payments. As a result of the
adoption of this new guidance, all excess tax benefits
(including tax benefits from dividends or dividend
equivalents) on share-based payment awards are
recognized within income tax expense in the Consolidated
statements of income. In prior years these tax benefits were
recorded as increases to additional paid-in capital.
Results from Non-U.S. earnings
The following table presents the U.S. and non-U.S.
components of income before income tax expense for the
years ended December 31, 2016, 2015 and 2014.
U.S. state and local income
taxes, net of U.S. federal
income tax benefit
2.4
1.5
2.7
Tax-exempt income
(3.1)
(3.3)
(3.1)
(1.7)
3,649.8
6.19 $
applicable statute of limitations
Balance at December 31,
Net income per share
$ 181,789
$ 179,233
Subsidiaries
Federal Home Loan Banks
advances:
Fixed rate
$
5
$
31
$
143
$ 80,891
$
$
191
Variable rate
Interest rates(a)
11,340
0.84-1.01%
57,000
0.83-1.21%
11,000
0.41-0.67%
79,340
0.41-1.21%
Senior debt:
Fixed rate
$
179
$ 73,959
26,939
$
$ 58,920
$ 128,967
15,497
0.17-7.25%
7,399
0.45-6.40%
Subordinated debt:
Fixed rate
Variable rate
$ 2,096
864
$
152
372
$
14,563
$ 16,811
9
Interest rates (a)
0.82-6.13%
1.93-8.53%
3.38-8.00%
34,766
0.09-7.25%
1,245
0.82-8.53%
$ 117,758
44,178
0.16-7.25%
$ 16,250
1,047
1.06-8.53%
Subtotal
Variable rate
Interest rates(a)
339
4,520
1.29-1.49%
$ 3,100
11,860
0.00-7.50%
$ 4,890
2,999
1.30-7.50%
$
71,991
8.25%
$ 19,354
6.00-8.25%
$ 111,111
$
$
706
$
706
$
-%
-%
1,639
1.39-8.75%
-
$
$ 2,345
$ 2,345
$ 145,950
$ 102,590
$ 295,245
$ 12,766
6,281
0.98-7.87%
$
748
$ 18,678
14,681
0.39-7.87%
-%
$ 57,938
6.00%
Total long-term beneficial
interests(e)
$ 8,329
19,379
0.00-7.50%
Subordinated debt:
Fixed rate
$ 3,562
$
$
322
$ 3,884
Variable rate
Interest rates(a)
Subtotal $ 19,766
Junior subordinated debt:
Fixed rate
$
Variable rate
Interest rates (a)
Subtotal
$
Total long-term debt (b)(c)(d)
$ 46,705
Long-term beneficial interests: Fixed rate
$
Variable rate
Interest rates
5,164
6,438
0.74-5.23%
$ 11,602
$ 19,047
12,109
11,870
0.09-6.40%
$
Noninterest-bearing
$ 400,831
$ 392,721
Interest-bearing (included $12,245 and
$10,916 at fair value) (a)
737,949
Total deposits in U.S. offices
1,138,780
663,004
1,055,725
Non-U.S. offices
Noninterest-bearing
2015
(b)
14,489
Interest-bearing (included $1,667 and
$1,600 at fair value)(a)
221,635
209,501 (b)
Total deposits in non-U.S. offices
236,399
223,990
Total deposits
$ 1,375,179
$1,279,715
14,764
2016
U.S. offices
December 31, (in millions)
(498)
All other
1
2
3
Mortgage fees and related income
$2,491 $ 2,513
$3,563
(a) Represents both the impact of changes in estimated future
prepayments due to changes in market interest rates, and the
difference between actual and expected prepayments.
(b) Represents the aggregate impact of changes in model inputs and
assumptions such as projected cash flows (e.g., cost to service),
discount rates and changes in prepayments other than those
attributable to changes in market interest rates (e.g., changes in
prepayments due to changes in home prices).
JPMorgan Chase & Co./2016 Annual Report
243
Notes to consolidated financial statements
Note 18 - Premises and equipment
Premises and equipment, including leasehold
improvements, are carried at cost less accumulated
depreciation and amortization. JPMorgan Chase computes
depreciation using the straight-line method over the
estimated useful life of an asset. For leasehold
improvements, the Firm uses the straight-line method
computed over the lesser of the remaining term of the
leased facility or the estimated useful life of the leased
asset.
JPMorgan Chase capitalizes certain costs associated with
the acquisition or development of internal-use software.
Once the software is ready for its intended use, these costs
are amortized on a straight-line basis over the software's
expected useful life and reviewed for impairment on an
ongoing basis.
Note 19 - Deposits
At December 31, 2016 and 2015, noninterest-bearing and
interest-bearing deposits were as follows.
Note 20 - Accounts payable and other liabilities
Accounts payable and other liabilities consist of brokerage
payables, which includes payables to customers, dealers
and clearing organizations, and payables from security
purchases that did not settle; income taxes payables;
accrued expense, including interest-bearing liabilities; and
all other liabilities, including litigation reserves and
obligations to return securities received as collateral.
The following table details the components of accounts
payable and other liabilities.
December 31, (in millions)
Brokerage payables
2015
2016
$ 109,842 $ 107,632
80,701
70,006
$ 177,638
Accounts payable and other liabilities
Total
$ 190,543
(a) Includes structured notes classified as deposits for which the fair value
option has been elected. For further discussion, see Note 4.
(b) Prior periods have been revised to conform with current period
presentation.
At December 31, 2016 and 2015, time deposits in
denominations of $250,000 or more were as follows.
2,044
2021
3,988
188
4,176
After 5 years
Total
3,889
3,889
$ 47,912 $ 55,317 $ 103,229
244
JPMorgan Chase & Co./2016 Annual Report
Note 21 - Long-term debt
JPMorgan Chase issues long-term debt denominated in various currencies, predominantly U.S. dollars, with both fixed and
variable interest rates. Included in senior and subordinated debt below are various equity-linked or other indexed instruments,
which the Firm has elected to measure at fair value. Changes in fair value are recorded in principal transactions revenue in the
Consolidated statements of income. The following table is a summary of long-term debt carrying values (including unamortized
premiums and discounts, issuance costs, valuation adjustments and fair value adjustments, where applicable) by remaining
contractual maturity as of December 31, 2016.
By remaining maturity at
December 31,
(in millions, except rates)
Parent company
Senior debt:
2015
Total
Total
2016
Under 1 year
1-5 years
After 5 years
Fixed rate
39
Variable rate
Interest rates (a)
2,005
2,134
December 31, (in millions)
U.S. offices
Non-U.S. offices
Total
2016
2015
$ 26,180 $ 64,519
55,249
48,091
$ 81,429 $ 112,610
At December 31, 2016, the maturities of interest-bearing
time deposits were as follows.
December 31, 2016
(in millions)
U.S.
Non-U.S.
Total
2017
$ 31,531
$ 54,846 $ 86,377
2018
4,433
176
4,609
2019
2,066
68
2020
$
33,359
1,639
1.39-8.75%
Each series of the Firm's preferred stock may be redeemed
on any dividend payment date on or after the earliest
redemption date for that series. All outstanding preferred
stock series except Series I may also be redeemed following
a "capital treatment event", as described in the terms of
each series. Any redemption of the Firm's preferred stock is
subject to non-objection from the Board of Governors of the
Federal Reserve System (the "Federal Reserve").
Note 23 - Common stock
At December 31, 2016 and 2015, JPMorgan Chase was
authorized to issue 9.0 billion shares of common stock with
a par value of $1 per share.
Common shares issued (newly issued or distributed from
treasury) by JPMorgan Chase during the years ended
December 31, 2016, 2015 and 2014 were as follows.
Year ended December 31,
(in millions)
Total issued - balance at
January 1
Treasury - balance at January 1
Purchase of treasury stock
Issued from treasury:
Employee benefits and
2016
2015
2014
4,104.9 4,104.9 4,104.9
(441.4) (390.1) (348.8)
(140.4) (89.8) (82.3)
Redemption rights
compensation plans
32.8
39.8
Warrant exercise
11.1
4.7
Employee stock purchase plans
1.0
1.0
1.2
Total issued from treasury
Total treasury - balance at
December 31
38.1
26.0
Dividends on fixed-rate preferred stock are payable
quarterly. Dividends on fixed-to-floating-rate preferred
stock are payable semiannually while at a fixed rate, and
become payable quarterly after converting to a floating
rate.
Each series of preferred stock has a liquidation value and
redemption price per share of $10,000, plus accrued but
unpaid dividends.
(a) Represented by depositary shares.
200,000
2,000
1/22/2014
6.750
Series U
100,000
1,000
3/10/2014
6.125
Series V
250,000
2,500
Series X
160,000
1,600
Series Z
200,000
2,000
6/9/2014
9/23/2014
4/21/2015
5.000
6.100
5.300
5/1/2023 5/1/2023 LIBOR + 3.25
8/1/2023 8/1/2023 LIBOR + 3.30
2/1/2024 2/1/2024 LIBOR + 3.78
4/30/2024 4/30/2024 LIBOR + 3.33
7/1/2019 7/1/2019 LIBOR + 3.32
10/1/2024 10/1/2024 LIBOR + 3.33
5/1/2020 5/1/2020 LIBOR + 3.80
Total preferred stock
2,606,750
$
26,068
38.5
41.0
Outstanding at December 31
(543.7) (441.4) (390.1)
3,561.2 3,663.5 3,714.8
3,618.5 3,700.4 3,763.5
6.24 $ 6.05 $ 5.33
Diluted earnings per share
Year ended December 31, (in millions)
2016
2015
2014
Total number of shares of common stock
repurchased
Net income applicable to common
stockholders
$ 22,583 $ 22,406 $ 20,077
140.4
89.8
82.3
Aggregate purchase price of common
stock repurchases
$ 9,082
$ 5,616 $ 4,760
Total weighted-average basic shares
outstanding
3,618.5
3,700.4 3,763.5
The Firm may, from time to time, enter into written trading
plans under Rule 10b5-1 of the Securities Exchange Act of
1934 to facilitate repurchases in accordance with the
common equity repurchase program. A Rule 10b5-1
repurchase plan allows the Firm to repurchase its equity
during periods when it would not otherwise be repurchasing
common equity - for example, during internal trading
"blackout periods." All purchases under a Rule 10b5-1 plan
must be made according to a predefined plan established
when the Firm is not aware of material nonpublic
information. For additional information regarding
repurchases of the Firm's equity securities, see Part II,
Item 5: Market for registrant's common equity, related
stockholder matters and issuer purchases of equity
securities, on page 22.
As of December 31, 2016, approximately 154 million
shares of common stock were reserved for issuance under
various employee incentive, compensation, option and stock
purchase plans, director compensation plans, and the
Warrants.
Add: Employee stock options, SARS,
warrants and PSUs(a)
31.3
32.4
34.0
Total weighted-average diluted
shares outstanding (b)
$
Series S
$ 22,583 $ 22,406 $ 20,077
521
JPMorgan Chase & Co./2016 Annual Report
247
Notes to consolidated financial statements
At December 31, 2016, 2015, and 2014, respectively, the
Firm had 24.9 million, 47.4 million and 59.8 million
warrants outstanding to purchase shares of common stock
(the "Warrants"). The Warrants are currently traded on the
New York Stock Exchange, and they are exercisable, in
whole or in part, at any time and from time to time until
October 28, 2018. The original warrant exercise price was
$42.42 per share. The number of shares issuable upon the
exercise of each warrant and the warrant exercise price is
subject to adjustment upon the occurrence of certain
events, including, but not limited to, the extent to which
regular quarterly cash dividends exceed $0.38 per share.
As a result of the Firm's quarterly common stock dividend
exceeding $0.38 per share commencing with the second
quarter of 2014, the exercise price of the Warrants has
been adjusted each subsequent quarter. As of
December 31, 2016 the exercise price was $42.073 and
the Warrant share number was 1.01.
On June 29, 2016, in conjunction with the Federal Reserve's
release of its 2016 CCAR results, the Firm's Board of
Directors authorized a $10.6 billion common equity (i.e.,
common stock and warrants) repurchase program. As of
December 31, 2016, $6.1 billion (on a settlement-date
basis) of authorized repurchase capacity remained under
the program. This authorization includes shares
repurchased to offset issuances under the Firm's equity-
based compensation plans.
The following table sets forth the Firm's repurchases of
common equity for the years ended December 31, 2016,
2015 and 2014, on a settlement-date basis. There were no
warrants repurchased during the years ended
December 31, 2016, 2015 and 2014.
Note 24 - Earnings per share
Earnings per share ("EPS") is calculated under the two-class
method under which all earnings (distributed and
undistributed) are allocated to each class of common stock
and participating securities based on their respective rights
to receive dividends. JPMorgan Chase grants restricted
stock and RSUs to certain employees under its stock-based
compensation programs, which entitle recipients to receive
nonforfeitable dividends during the vesting period on a
basis equivalent to the dividends paid to holders of common
stock; these unvested awards meet the definition of
participating securities.
The following table presents the calculation of basic and
diluted EPS for the years ended December 31, 2016, 2015
and 2014.
Year ended December 31,
(in millions,
except per share amounts)
2016
2015
2014
Basic earnings per share
Net income
Less: Preferred stock dividends
Net income applicable to common
equity
Less: Dividends and undistributed
earnings allocated to participating
securities
Net income applicable to common
stockholders
Total weighted-average basic
shares outstanding
Net income per share
$ 24,733 $ 24,442 $ 21,745
1,647 1,515 1,125
23,086
22,927
20,620
503
543
5.150
6.000
7/29/2013
1,500
JPMorgan Chase & Co./2016 Annual Report
Note 22 - Preferred stock
At December 31, 2016 and 2015, JPMorgan Chase was
authorized to issue 200 million shares of preferred stock, in
one or more series, with a par value of $1 per share.
In the event of a liquidation or dissolution of the Firm,
JPMorgan Chase's preferred stock then outstanding takes
precedence over the Firm's common stock with respect to
the payment of dividends and the distribution of assets.
The following is a summary of JPMorgan Chase's non-cumulative preferred stock outstanding as of December 31, 2016 and 2015.
Fixed-rate:
Shares at
December 31,
2016 and 2015(a)
Carrying value at
December 31,
2016 and 2015
(in millions)
Issue date
Contractual rate
in effect at
Earliest
December 31, redemption
2016
date
Date at
which
dividend
Floating
annual
rate
becomes
floating
rate of
three-month
LIBOR plus:
Series O
125,750
$
1,258
8/27/2012
5.500%
9/1/2017
ΝΑ
ΝΑ
Series P
246
90,000
The Firm redeemed $1.6 billion and $1.5 billion of trust
preferred securities in the years ended December 31, 2016
and 2015, respectively.
Junior subordinated deferrable interest debentures held
by trusts that issued guaranteed capital debt securities
At December 31, 2016, the Firm had outstanding eight
wholly-owned Delaware statutory business trusts ("issuer
trusts") that had issued trust preferred securities.
71,390
0.17-0.72%
$ 5,550
20,588
0.47-7.28%
$ 6,580
1,150
0.83-8.25%
$ 105,449
717
3,252
0.83-8.75%
$ 3,969
(f)(g) $288,651
$
14,199
16,358
0.00-15.94%
1,962
0.39-5.94%
$ 2,710
$
30,557
(a) The interest rates shown are the range of contractual rates in effect at December 31, 2016 and 2015, respectively, including non-U.S. dollar fixed- and
variable-rate issuances, which excludes the effects of the associated derivative instruments used in hedge accounting relationships, if applicable. The use
of these derivative instruments modifies the Firm's exposure to the contractual interest rates disclosed in the table above. Including the effects of the
hedge accounting derivatives, the range of modified rates in effect at December 31, 2016, for total long-term debt was (0.18)% to 8.88%, versus the
contractual range of 0.00% to 8.75% presented in the table above. The interest rate ranges shown exclude structured notes accounted for at fair value.
(b) Included long-term debt of $82.2 billion and $76.6 billion secured by assets totaling $205.6 billion and $171.6 billion at December 31, 2016 and 2015,
respectively. The amount of long-term debt secured by assets does not include amounts related to hybrid instruments.
(c) Included $37.7 billion and $33.1 billion of long-term debt accounted for at fair value at December 31, 2016 and 2015, respectively.
(d) Included $7.5 billion and $5.5 billion of outstanding zero-coupon notes at December 31, 2016 and 2015, respectively. The aggregate principal amount of
these notes at their respective maturities is $25.1 billion and $16.2 billion, respectively. The aggregate principal amount reflects the contractual principal
payment at maturity, which may exceed the contractual principal payment at the Firm's next call date, if applicable.
(e) Included on the Consolidated balance sheets in beneficial interests issued by consolidated VIES. Also included $120 million and $787 million accounted for
at fair value at December 31, 2016 and 2015, respectively. Excluded short-term commercial paper and other short-term beneficial interests of $5.7
billion and $11.3 billion at December 31, 2016 and 2015, respectively.
(f) At December 31, 2016, long-term debt in the aggregate of $81.8 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior to
maturity, based on the terms specified in the respective instruments.
(g) The aggregate carrying values of debt that matures in each of the five years subsequent to 2016 is $46.7 billion in 2017, $49.4 billion in 2018, $32.2
billion in 2019, $33.8 billion in 2020 and $30.6 billion in 2021.
JPMorgan Chase & Co./2016 Annual Report
245
Notes to consolidated financial statements
The weighted-average contractual interest rates for total
long-term debt excluding structured notes accounted for at
fair value were 2.49% and 2.34% as of December 31,
2016 and 2015, respectively. In order to modify exposure
to interest rate and currency exchange rate movements,
JPMorgan Chase utilizes derivative instruments, primarily
interest rate and cross-currency interest rate swaps, in
conjunction with some of its debt issues. The use of these
instruments modifies the Firm's interest expense on the
associated debt. The modified weighted-average interest
rates for total long-term debt, including the effects of
related derivative instruments, were 2.01% and 1.64% as
of December 31, 2016 and 2015, respectively.
JPMorgan Chase & Co. has guaranteed certain long-term
debt of its subsidiaries, including both long-term debt and
structured notes. These guarantees rank on parity with the
Firm's other unsecured and unsubordinated indebtedness.
The amount of such guaranteed long-term debt and
structured notes was $3.9 billion and $152 million at
December 31, 2016 and 2015, respectively.
The Firm's unsecured debt does not contain requirements
that would call for an acceleration of payments, maturities
or changes in the structure of the existing debt, provide any
limitations on future borrowings or require additional
collateral, based on unfavorable changes in the Firm's credit
ratings, financial ratios, earnings or stock price.
The junior subordinated deferrable interest debentures
issued by the Firm to the issuer trusts, totaling $2.3 billion
and $4.0 billion at December 31, 2016 and 2015,
respectively, were reflected on the Firm's Consolidated
balance sheets in long-term debt, and in the table on the
preceding page under the caption “Junior subordinated
debt." The Firm also records the common capital securities
issued by the issuer trusts in other assets in its Consolidated
balance sheets at December 31, 2016 and 2015. Beginning
in 2014, the debentures issued to the issuer trusts by the
Firm, less the common capital securities of the issuer trusts,
began being phased out from inclusion as Tier 1 capital
under Basel III and they were fully phased out as of
December 31, 2016. As of December 31, 2015, $992
million of these debentures qualified as Tier 1 capital. As of
December 31, 2016 and 2015, $1.4 billion and $3.0
billion, respectively, qualified as Tier 2 capital.
Decreases related to a lapse of
900
5.450
1,425
Series BB
115,000
1,150
6/4/2015
7/29/2015
6.100
9/1/2020
ΝΑ
ΝΑ
6.150
9/1/2020
NA
ΝΑ
Fixed-to-floating-rate:
Series I
600,000
6,000
4/23/2008
7.900% 4/30/2018 4/30/2018 LIBOR + 3.47%
Series Q
150,000
1,500
4/23/2013
Series R
150,000
142,500
2/5/2013
Series AA
ΝΑ
3/1/2018
ΝΑ
ΝΑ
Series T
92,500
925
1/30/2014
6.700
3/1/2019
ΝΑ
ΝΑ
Series W
88,000
880
6/23/2014
6.300
9/1/2019
NA
ΝΑ
Series Y
143,000
1,430
2/12/2015
6.125
3/1/2020
ΝΑ
$
9.54%
19,881
Unrecognized tax benefits
At December 31, 2016, 2015 and 2014, JPMorgan Chase's
unrecognized tax benefits, excluding related interest
expense and penalties, were $3.5 billion, $3.5 billion and
$4.9 billion, respectively, of which $2.6 billion, $2.1 billion
and $3.5 billion, respectively, if recognized, would reduce
the annual effective tax rate. Included in the amount of
unrecognized tax benefits are certain items that would not
affect the effective tax rate if they were recognized in the
Consolidated statements of income. These unrecognized
items include the tax effect of certain temporary
differences, the portion of gross state and local
unrecognized tax benefits that would be offset by the
benefit from associated U.S. federal income tax deductions,
and the portion of gross non-U.S. unrecognized tax benefits
that would have offsets in other jurisdictions. JPMorgan
Chase is presently under audit by a number of taxing
authorities, most notably by the Internal Revenue Service as
summarized in the Tax examination status table below. As
JPMorgan Chase is presently under audit by a number of
taxing authorities, it is reasonably possible that over the
next 12 months the resolution of these examinations may
increase or decrease the gross balance of unrecognized tax
benefits by as much as $800 million. Upon settlement of an
audit, the change in the unrecognized tax benefit would
result from payment or income statement recognition.
The following table presents a reconciliation of the
beginning and ending amount of unrecognized tax benefits
for the years ended December 31, 2016, 2015 and 2014.
Year ended December 31,
(in millions)
2016
2014
$ 3,497
$ 4,911
$ 5,535
Tax examination status
JPMorgan Chase is continually under examination by the
Internal Revenue Service, by taxing authorities throughout
the world, and by many state and local jurisdictions
throughout the U.S. The following table summarizes the
status of significant income tax examinations of JPMorgan
Chase and its consolidated subsidiaries as of December 31,
2016.
Periods under
examination
December 31, 2016
JPMorgan Chase - U.S.
2003 - 2005
JPMorgan Chase - U.S.
2006-2010
2011-2013
Notes to consolidated financial statements
Status
251
The valuation allowance at December 31, 2016, was due to
losses associated with non-U.S. subsidiaries.
(477)
4,968
Leasing transactions
4,053
3,042
4,572
4,285
5,493
4,419
22,219
$
(205) $
2,965
Non-U.S. operations
Other, net
Gross deferred tax liabilities
Net deferred tax (liabilities)/assets
JPMorgan Chase has recorded deferred tax assets of $2.2
billion at December 31, 2016, in connection with U.S.
federal and non-U.S. NOL carryforwards and foreign tax
credit carryforwards. At December 31, 2016, total U.S.
federal NOL carryforwards were approximately $3.8 billion
and non-U.S. NOL carryforwards were $142 million. If not
utilized, the U.S. federal NOL carryforwards will expire
between 2025 and 2036 and the non-U.S. NOL
carryforwards will expire in 2017. Foreign tax credit
carryforwards were $776 million and will expire between
2022 and 2026.
JPMorgan Chase & Co./2016 Annual Report
At Appellate level
2015
JPMorgan Chase - U.S.
JPMorgan Chase - New
York State
1,028
477
Decreases based on tax positions
related to prior periods
(785)
(2,646)
(1,902)
Decreases related to cash
583
settlements with taxing authorities
(204)
Field examination of
amended returns;
certain matters at
Appellate level
JPMorgan Chase & Co./2016 Annual Report
252
At December 31, 2016 and 2015, in addition to the liability
for unrecognized tax benefits, the Firm had accrued $687
million and $578 million, respectively, for income tax-
related interest and penalties.
After-tax interest expense/(benefit) and penalties related to
income tax liabilities recognized in income tax expense were
$86 million, $(156) million and $17 million in 2016, 2015
and 2014, respectively.
$ 3,450 $ 3,497 $ 4,911
(51)
(56)
related to prior periods
(9)
810
Field Examination
Increases based on tax positions
2008 - 2011
Field Examination
Field Examination
2011-2012
Field Examination
Field examination of
certain select entities
2008-2011
JPMorgan Chase - U.K.
2006 - 2014
Balance at January 1,
Increases based on tax positions
related to the current period
JPMorgan Chase - New
York City
JPMorgan Chase -
California
408
262
Jan. '06
"Mortgage-backed securities (MBS)
Dec. '16
Mar. '14
Jun. '11
Sep. '08
Mar. '14
Dec. '16
Jun. '11
Sep. '08
Source: Haver; Federal Reserve Bank of New York
$100
$2,000
Jan. '06
4. How has regulation affected monetary policy, the flow of bank credit and the growth of the
economy?
24
Think of additional bankers, bank branches
and geographies, which likely would have
led to additional lending. (On the following
pages, we make it clear that this would have
been the case in mortgage lending.)
I would like to focus on how liquidity policies
may have impacted the effectiveness of mone-
tary policy and lending. The chart on page
25 shows bank loans vs. bank deposits from
2006 to 2016. During the last several decades,
deposits and loans were mostly balanced.
You can see that stopped being true after the
start of the Great Recession. Today, loans are
approximately $2 trillion less than deposits.
24
Bank Loans and Bank Deposits
2006-2016
($ in trillions)
$14.0
$12.0
$10.0
$8.0
$2,500-
It is extremely important that we analyze
how new capital and liquidity rules affect the
creation of credit; i.e., lending. We have yet
to see thorough, thoughtful analysis on this
subject by economists - because in this case,
it is very hard to calculate what might have
been counterfactual. However, it seems clear
that if banks had been able to use more of
their capital and liquidity, they would have
been more aggressive in terms of expanding:
$200
at December 31,
$3,500
$6.0
Finally, America should eliminate its "gold
plating" of international standards.
American regulators took the new Basel
standards across a wide variety of calcula-
tions and asked for more. If JPMorgan Chase
could use the same international standards
as other international banks, it would free up
a material amount of capital. The removal of
the GSIB surcharge “gold plating” alone would
free up $15 billion of equity capital – an
amount that could support almost $190 billion
of loans. In addition, America gold plated
operational risk capital, liquidity rules, SLR
rules and TLAC rules. Later in this letter, we
will discuss international standards.
Properly done and improved, modifying
many of these regulatory standards could
help finance the growth of the American
economy without damaging the safety and
soundness of the system.
4Match-funding ensures that
the risk characteristics -
e.g., interest rate, maturity
- of the asset (e.g., loan)
are offset by the liability
(e.g., deposit) funding it.
3. How do certain regulatory policies impact money markets?
Different from most banks, money center
banks help large institutions - including
governments, investors and large money
market funds - move short-term funds
around the system to where those funds are
needed most. The recipients of these funds
include financial institutions (including non-
money center banks) and corporations that
can have large daily needs to invest or borrow.
The products that money center banks offer
large institutions are predominantly deposits,
securities, money market funds and short-
term overnight investments called repurchase
agreements. These involve enormous flows
of funds, which money center banks handle
easily, carefully and securely. They are gener-
ally match-funded 4, almost no credit risk is
taken, and most lending is done wholly and
properly secured by Treasuries or govern-
ment-guaranteed securities. These transac-
tions represent a large part of JPMorgan
Chase's balance sheet. Because of new rules,
capital in many cases must be held on these
short-term, virtually riskless activities, and
we believe this has caused distortions in the
marketplace. For example:
23
II. REGULATORY REFORM
•
Swap spreads, for the first time in history,
turned negative, which means that corpo-
rations need to pay a lot more to hedge
their interest rate exposure.
Reduction in broker-dealer inventories has
impacted liquidity.
$3,000-
Many banks reject certain types of large
deposits from some of their large institu-
tional clients. In a peculiar twist of fate
- and something difficult for our clients
to understand through 2016, JPMorgan
Chase turned away 3,200 large clients
and $200 billion of their deposits even
($ in billions)
though we could have taken them without
incurring any risk whatsoever (we simply
would have deposited the $200 billion at
the central bank).
The charts below shows some of the reduc-
tion in banks' market-making abilities.
We need to work closely with regulators to
assess the impact of the new rules on specific
markets, the cost and volatility of liquidity,
and the potential cost of credit. We should
be able to make some modest changes that
in no way impact safety and soundness but
improve markets.
Total Repurchase Agreements Outstanding
2006-2016
($ in billions)
$600
$5,500
$5,000-
$500
$4,500
$400
$4,000
$300
Dealer Positions across Treasuries,
Agencies, MBS¹ and Corporates
2006-2016
$4.0
30%-
$0.0
80%
70%
60%
50%
40%-
approximately $200 billion in operational risk
capital. For us, we hold excess operational risk
capital which is not being utilized to support
our economy. It was an unnecessarily large
add-on. If you are going to have operational
risk capital, it should be forward looking, fairly
calculated, coordinated with other capital rules
and consistent with reality. (Currently, if you
exit a business that created operational risk
capital, you are still, most likely, required to
hold the operational risk capital.)
20%
10%
26
0%
2001
FICO scores >700
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
FICO scores between 660-700
2012
2013
2014
2015
FICO scores <660
Source: Urban Institute Housing Finance Policy Center
II. REGULATORY REFORM
Average FICO of Newly Originated 30-Year Purchase Loans, for the GSES and FHA
775
750
725
700
675
650
40 point
increase
70 point
increase
90%
100%
Share of Borrowers with Strong Credit Has Increased Dramatically
The chart below and the top chart on page 27
show the decline in lending to individuals
with lower credit scores. The bottom chart on
page 27 shows what is likely a related decline
in the sales of new but lower priced homes.
2006
2007
II. REGULATORY REFORM
2008
2009
2010
2011
2012
2013
2014
2015
2016
Bank loans Bank deposits
Source: Haver; Federal Reserve Bank
$2.0
Many factors may influence this scenario,
but there are two arguments at the bookends
about why this happened:
It is evident that banks reduced certain types
of lending legitimately - think of some of the
inappropriate subprime mortgage lending -
but banks cut back on other types of lending
as well because of the new rules; for example,
small business lending due to CCAR and
cross-border lending because of GSIB. The
ensuing discussion shows how other regula-
tory rules dramatically decreased mortgage
lending, again slowing down the economy.
It is clear that the transmission of monetary
policy is different today from what it was in
the past because of new capital and liquidity
rules. What is not clear is how much these
rules reduced lending. Again, working
together, we should be able to figure it out and
make appropriate improvements that enhance
economic growth without damaging the safety
of the system.
5. How can we reform mortgage markets to give qualified borrowers access to the credit they need?
Much of what we consider good in America
- a good job, stability and community
involvement - is represented in the achieve-
ment of homeownership. Owning a home is
still the embodiment of the American Dream,
and it is commonly the most important asset
that most families have.
So it is no surprise the financial crisis, which
was caused in part by poor mortgage lending
practices and which caused so much pain
for American families and businesses, led
to new regulations and enhanced supervi-
sion. We needed to create a safer and better
functioning mortgage industry. However, our
25
II. REGULATORY REFORM
housing sector has been unusually slow to
recover, and that may be partly due to restric-
tions in mortgage credit.
Seven major federal regulators and a long list
of state and local regulators have overlapping
jurisdiction on mortgage laws and wrote a
plethora of new rules and regulations appro-
priately focused on educating and protecting
customers. While some of the rules are
beneficial, many were hastily developed and
layered upon existing rules without coordina-
tion or calibration as to the potential effects.
The result is a complex, highly risky and
unpredictable operating environment that
exposes lenders and servicers to dispropor-
tionate legal liability and materially increases
operational risks and costs. These actions
resulted in:
Mortgages that cost the consumer more
A tightening credit box; i.e., mortgage
lenders are less likely to extend credit to
borrowers without a strong credit history
An inhibition of the return of private
capital to the housing industry
The crowding out of resources to improve
technology and the customer experience
There was simply not enough loan
demand due to a slow-growing economy.
The new liquidity rules require banks
to hold approximately $2 trillion at the
Federal Reserve, whether or not there is
loan demand.
No one could credibly argue that there is no
such thing as operational risk, separate and
distinct from credit and market risk. All busi-
nesses have operational risk (trucks crash,
computers fail, lawsuits happen, etc.), but
almost all businesses successfully manage it
through their operating earnings and general
resources. Basel standards required banks
to hold capital for operational risk, and the
United States "gold plated" this calculation.
Banks in the United States in total now hold
Finally, when you include long-term debt
and preferred stock as loss absorbing
capital, our total capital² is approximately
$500 billion vs. true risk-weighted assets
of $1.1 trillion.³ Essentially, since 2008, our
total capital has gone from $387 billion
to $500 billion, while actual risk-weighted
assets have declined to $1.1 trillion.
The GSIB capital surcharge forces large banks
to add even more capital, based on some
very complex calculations that are highly
flawed and not risk based. In fact, the rules
often penalize fairly risk-free activity, such as
deposits held at the Fed and short-term secured
financing. Likewise, the SLR rules force capital
to be held on deposit at the Fed in Treasury
securities and in other liquid securities. Neither
calculation gives credit for operating margins,
diversification or annuity streams of business.
These calculations should, at a minimum,
be significantly modified and balanced to
promote lending and other policy goals,
including maintaining deep and liquid capital
markets, clearing derivatives and directing
more private capital in the mortgage market.
II. REGULATORY REFORM
Total assets
$2.2T
+$300B
$2.5T
RWA
$1.2T³
+$300B
$1.5T4
Operational risk RWA
$0
+$400B
$400B
Reported HQLA
Liquidity
~$300B
+~$486B
$786B
is $524 billion
Fed funds purchased and securities loaned
$193B
-$27B
or sold under repurchase agreements
$166B
Long-term debt and
$172 billion
$303B
+$18B
$321B
liquidity and "bail-inable” debt. And finally,
the firm would be forced to raise capital
much earlier in the process.
preferred stock²
If Lehman failed anyway, regulators would
now have the legal authority to put the
firm in receivership (they did not have that
ability back in 2007-2008). The moment that
happened, unsecured debt of approximately
$120 billion would be immediately converted
to equity. Derivatives contracts would not be
triggered, and cash would continue to move
through the pipes of the financial system. In
other words, due to the living wills, Too Big
to Fail was solved before any additional rules
were put in place. (I'm not going to go into
detail on the living wills but will say that
while they have some positive elements, they
have become unnecessarily complex and
costly, and they need to be simplified.)
-
$84B
Tangible
Total assets¹
7.5%
+350 bps
4.0%
Basel III Advanced
excluding operational
risk RWA
TCE/
12.2%4
+520 bps
7.0%³
CET1
16.7% adjusted
2016
2008
common equity
Our Fortress Balance Sheet
There are more than 20 different major
capital and liquidity requirements – and
they often are inconsistent. For example,
certain liquidity rules force a bank to hold
an increasing amount of cash, essentially
deposited at the Fed, but other rules require
the bank to hold capital against this risk-free
cash. An extraordinary number of calcula-
tions need to be made as companies try to
manage to avoid inadvertently violating one
of the standards - a violation that rarely
affects safety and soundness. To protect
themselves, banks build enormous buffers -
and buffers on top of buffers - or otherwise
take unnecessary actions to ensure that they
don't step over the line. And finally, if we
We need consistent, transparent, simplified and
more risk-based capital standards.
A healthy banking system needs consistent
and transparent capital and liquidity rules
that are based on simplified and proper
risk-based standards. This allows banks to
use capital intelligently and to properly plan
capital levels over the years. Any rules that
are capricious or that cause an arbitrary
reduction in the value of a bank's capital -
and the value of the bank overall - can cause
improper or inefficient risk taking. Finally,
proper capital rules will allow a bank to do
its job: to consistently finance the economy,
in good times and, importantly, in bad times.
2. How and why should capital rules be changed?
II. REGULATORY REFORM
19
Going back to the principles above, putting
safety and soundness first is clearly correct,
but regulators also need the ability to take
into consideration the costs and impact on
our economy in various scenarios.
It is in this environment that regulators need
certain authorities to stop the situation from
getting worse. One important point: Under
both Chapter 14 and Title II, there might be
a short-term need for the Federal Deposit
Insurance Corporation or the Fed to lend
money, in the short run with proper collat-
eral, to a failing or failed institution. This is
because panic can cause a run on the bank,
and it is far less painful to the economy if
that bank's assets are not sold in fire sales.
This lending is effectively fully secured, and
no loss should ever be incurred. Again, any
loss that did occur would be charged back to
all the banks. This also gives banks an enor-
mous incentive to be in favor of a properly
designed, safe and sound system.
may
-
But market panic will never disappear entirely,
and regulations must be flexible enough to allow
banks to act as a bulwark against it rather than
forcing financial institutions into a defensive
crouch that will only make things worse.
There will be market panic again, and it
won't affect just banks – it will affect the
entire financial marketplace. Remember,
banks were consistent providers of credit at
existing prices into the crisis - the market
was not. During the crisis, many companies
could not raise money in the public markets,
many securities did not trade, securities issu-
ances dropped dramatically and many asset
prices fell to valuation levels that virtually
anticipated a Great Depression. Last time
around, banks – in particular (and I say with
pride) our bank - stood by their customers
to provide capital and liquidity that helped
them survive. However, today's capital and
liquidity rules have created rigidity that will
actually hurt banks' ability to stand against
the tide as they did during the Great Reces-
sion. This will mean that banks will survive
the next market panic with plenty of cushion
that could have been but not have
been used to help customers, companies
and communities.
-
This would provide specialized rules to
quickly handle bankruptcy for banks.
Whether a failed bank goes through Chapter
14, called "bankruptcy," or Title II, called
"resolution" - these are essentially the same
thing we should make the following point
perfectly clear to the American people: A
failed bank means the bank's board and
management are discharged, its equity is
worthless, compensation is clawed back to
the extent of the law and the bank's name
will forever be buried in the Hall of Shame.
In addition, we should change the term “reso-
lution" - as it sounds as if we are bailing out
a failing bank (which couldn't be further
from the truth). Whatever the term is called,
it should be made clear that the process
is the same as bankruptcy in any other
industry. One lesson from the prior crisis is
that the American public will not be satisfied
without "Old Testament Justice."
Last, there is a new push for Chapter 14
bankruptcy for banks, which we at JPMorgan
Chase support.
eligible for
external TLAC
1 Excludes goodwill and intangible assets.
B = billions
We don't completely understand the Fed's
assumptions and models - the Fed does not
share them with us (we hope there will be
more transparency and clarity in the future).
But we do understand that the Fed's stress
test shows results far worse than our own
test because the Fed's stress test is not a fore-
cast of what you actually think will happen.
Instead, it appropriately makes additional
assumptions about a company's likelihood
to fail - that its trading losses will be far
worse than expected, etc. The Fed wants to
make sure the bank has enough capital if just
about everything goes wrong.
Finally, while we firmly believe banks should
have a proper assessment of their qualitative
abilities, this should not be part of a once-a-
year stress test. Instead, it should be part of
the Fed's regular exam process. The Fed and
the banks should work together to continu-
ously improve the quality of their processes
while creating a consistent, safe and econ-
omy-growing use of capital.
It is clear that the banks have too much capital.
Here is another critical point: The Fed's stress
test of the 33 major banks estimates what
each bank would lose assuming it were the
worst bank in the crisis, which, of course, will
not be true in the real world. But even if that
happened, the chart below shows that if you
combine all the banks' extreme losses, the total
losses add up to less than 10% of the banks'
combined capital. This definitively proves that
there is excess capital in the system.
And more of that capital can be safely used to
finance the economy.
Proper calibration of capital is critical to
ensure not only that the system is safe and
sound but that banks can use their capital to
finance the economy. And we think it's clear
that banks can use more of their capital to
finance the economy without sacrificing safety
and soundness. Had they been less afraid of
potential CCAR stress losses, banks probably
would have been more aggressive in making
some small business loans, lower rated middle
market loans and near-prime mortgages.
Loss Absorbing Resources of U.S. SIFI Banks Combined
($ in billions)
$1,749
$1,274
$475
2007¹
-2x
$2,192
$1,173
$1,019
2016¹
~10%
Loan loss reserves, preferred stock
and long-term debt
■Tangible common equity
1 Includes 2013's 18 participating CCAR banks as well as Bear Stearns,
Countrywide, Merrill Lynch, National City, Wachovia and Washington Mutual.
SIFI Systemically Important Financial Institution
CCAR Comprehensive Capital Analysis and Review
Source: SNL Financial; Federal Reserve Bank
22
22
$195
33 CCAR banks 2016
projected pre-tax net losses
(severely adverse scenario)
II. REGULATORY REFORM
The global systemically important bank (GSIB)
and supplementary leverage ratio (SLR) rules
need to be modified.
II. REGULATORY REFORM
21
The Federal Reserve's Comprehensive
Capital Analysis and Review (CCAR)
stress test estimates what our losses
would be through a severely adverse
event lasting over nine quarters, which
approximates the severity and time of
the Great Recession; e.g., high unem-
ployment, counterparty failures, etc. The
Fed estimates that in such a scenario, we
would lose $31 billion over the ensuing
nine quarters, which is easily manageable
by JPMorgan Chase's capital base. My
own view is that we would make money
in almost every quarter in that type of
environment, and this is supported by
our having earned approximately $30
billion pre-tax over the course of the nine
quarters during the real financial crisis.
Our shareholders should know that we
don't rely on one stress test a year - we
conduct more than 200 each week across all
of our riskiest exposures. We meet weekly;
we analyze each exposure in multiple ways;
we are extremely risk conscious.
T = trillions
bps = basis points
2 Includes trust preferred securities.
3 Reflects Basel I measure; CET1 reflects Tier 1 common.
4 Reflects Basel III Advanced Fully Phased-in measure.
CET1 = Common equity Tier 1 ratio. CET1 ratios reflect the capital rule the firm was subject to at each reporting period
TCE = Tangible common equity
RWA = Risk-weighted assets
HQLA = High quality liquid assets predominantly includes cash on deposit at central banks and unencumbered U.S. agency
mortgage-backed securities, U.S. Treasuries and sovereign bonds
Liquidity = HQLA plus unencumbered marketable securities and trapped liquidity not included in HQLA
TLAC = Total loss absorbing capacity
20
2 Tangible common
equity, long-term debt
and preferred stock.
3 RWA less operational
risk RWA.
Operational risk capital should be significantly
modified, if not eliminated.
II. REGULATORY REFORM
We have a fortress balance sheet - far more than
the numbers imply.
The chart on page 20 shows the dramatic
improvement in our capital and liquidity
numbers since 2008. Remember, we had
enough capital and liquidity in 2008 to easily
handle the crisis that ensued.
The numbers are even better than they look
on the chart for the following reasons:
•
•
In 2008, there was no such thing as
operational risk capital (not to say there
wasn't operational risk but just that
capital was not applied to it). If you
measured our capital ratio on the same
basis as in 2008 (that is, on an apples
to apples basis), we wouldn't have just
12.2% today vs. 7% in 2008 - we would
have 16.7% today vs. 7% in 2008.
Since 2008, the regulatory definition of
liquidity has been prescribed. Now, only
deposits at a central bank, Treasuries and
government-guaranteed mortgage-backed
securities (plus a limited amount of
sovereign and corporate bonds) count as
liquidity. Many securities are not allowed
to count as liquidity today - on the theory
that they can sustain losses and occasion-
ally become illiquid. While maybe not all
100% of the current value of these securi-
ties should apply toward liquidity require-
ments, they should count for something. If
you did combine all of these categories as
liquidity, our liquidity at JPMorgan Chase
would have gone from $300 billion in
2008 to $786 billion today. And remember,
our deposits - theoretically subject to “run
on the bank" risk – total $1.4 trillion. Even
in the Great Recession, the worst case for a
bank was only a 30% loss of its deposits.
-
625
In addition to our fortress balance sheet,
we are well-diversified, and we have healthy
margins and strong controls. These are all
factors that dramatically improve safety
and soundness, but they are not included in
any measures. As you will see below, we can
handle almost any stress.
We believe in stress testing, but it could be
improved and simplified.
As
you
know, the Fed puts our company
through one "severely adverse" stress test
annually, which determines how we can use
our capital, pay dividends, buy back stock and
expand. We are great believers in stress testing
but would like to make the following points:
.
enter another Great Recession, the need for
these buffers increases, which inevitably will
force a bank to reduce its lending.
2007
50%
2009
100%
90%
80%
70%
60%
+$99B
40%
30%
20%
10%
0%
2011
Nonbank
Source: Ginnie Mae
Nonbank Share of New 30-Year FHA Originations
2012
2014
2015
2016
have kept returns on capital solidly below
our target. This has led us to scale back our
participation in the FHA lending program in
favor of less burdensome lending programs
that serve the same consumer base – and we
are not alone. The chart above shows that
nonbanks have gone from 20% to 80% of
FHA originations.
A first step to increasing participation in the
FHA program could be the communication of
support for only using the FCA, as originally
intended, to penalize intentional fraud rather
than immaterial or unintentional errors. Other
changes that would help would be:
•
Improve and fully implement the
Housing and Urban Development's (HUD)
proposed defect taxonomy, clarifying
liability for fraudulent activity.
Revise certification requirements to make
them more commercially reasonable.
Simplify loss mitigation by allowing
streamlined programs and aligning with
industry standards.
Eliminate costly, unnecessary and
outdated requirements that make the cost
of servicing an FHA loan significantly
more expensive than a conventional loan.
Mortgage servicing is too complex: National
servicing standards would help.
Mortgage servicing is a particularly complex
business in which the cumulative impact
of regulations has dramatically increased
operational and compliance risk and costs
(remember that costs are usually passed
on to the customer). Mortgage servicing
starts immediately after loan origination
(loan origination also has become signifi-
cantly more expensive and complex as a
result of regulatory changes) and involves a
continuing and dynamic relationship among
a servicer, customer and investor or guar-
antor, such as Fannie Mae, Freddie Mac or
FHA, to name a few.
New mortgage rules and regulations total
more than 14,000 pages and stand about six
feet tall. In servicing alone, there are thou-
sands of pages of federal and state servicing
rules now clearly driving up complexity
and cost. The Mortgage Bankers Associa-
tion estimated the fully loaded annual cost
of industry servicing, as of 2015, to be $181
for a performing mortgage and $2,386 for a
mortgage in default. The cost of servicing a
defaulted loan is so high that many servicers
avoid underwriting loans that have even a
modest probability of default. This is another
28
2008
2013
II. REGULATORY REFORM
$183B
Federal Housing Administration (FHA) reform can
bring banks back and expand access to credit.
The FHA plays a significant role in providing
credit for first-time, low- to moderate-income
and minority homebuyers. However, aggres-
sive use of the False Claims Act (FCA) (a
Civil War act passed to protect the govern-
ment from intentional fraud) and overly
complex regulations have made FHA lending
risky and cost prohibitive for many banks.
In fact, FCA settlements wiped out a decade
of FHA profitability, and subsequent losses
2010
27
2011
2012
2013
2015
2016
■GSE
FHA
GSE = Government-sponsored enterprise
FHA = Federal Housing Administration
Source: Freddie Mac, The Federal Housing Administration
Comparison of New Home Sales by Price Range
Benchmark (1x = January 2010 sales levels)
6x
2014
4x-
5x
There are significant opportunities to make
simple changes that can have a dramatic
impact on improving the current state of the
home lending industry – this will make access
to good and affordable mortgages much more
achievable for far more Americans. And it's
noteworthy that those who lost access to
mortgage credit are the very ones who so
many people profess to want to help – e.g.,
lower income buyers, first-time homebuyers,
the self-employed and individuals with prior
defaults who deserve another chance.
Source: Haver; U.S. Census Bureau
_
Over $300,000
2000
Under $300,000
2010
2005
Ox
1x -
2x-
3x
2015
15.5
16.0
16.4
Total
11.5
14.0
11.5
14.0
Tier 1 leverage (d)
11.8%
14.1
13.7
14.2
Tier 1 (a)
12.4%
12.0%
12.5%
CET1
11.0
15.1
13.5
(a)
Transitional
8.4
$ 179,319
179,341
191,662
Total capital
Regulatory
capital
CET1 capital
Tier 1 capital(a)
The Tier 1 leverage ratio is not a risk-based measure of capital. This ratio
is calculated by dividing Tier 1 capital by adjusted average assets.
Note: Rating agencies allow measures of capital to be adjusted upward for
deferred tax liabilities, which have resulted from both non-taxable
business combinations and from tax-deductible goodwill. The Firm had
deferred tax liabilities resulting from non-taxable business combinations
of $83 million and $105 million at December 31, 2016, and 2015,
respectively; and deferred tax liabilities resulting from tax-deductible
goodwill of $3.1 billion and $3.0 billion at December 31, 2016, and
2015, respectively.
For each of the risk-based capital ratios, the capital adequacy of the Firm
and its national bank subsidiaries are evaluated against the Basel III
approach, Standardized or Advanced, resulting in the lower ratio (the
"Collins Floor"), as required by the Collins Amendment of the Dodd-Frank
Act.
(c)
Dec 31,
2015
Dec 31,
2016
Dec 31,
2015
11.5
Includes the deduction associated with the permissible holdings of
covered funds (as defined by the Volcker Rule) acquired after December
31, 2013. The deduction was not material as of December 31, 2016.
(b) Adjusted average assets, for purposes of calculating the Tier 1 leverage
ratio, includes total quarterly average assets adjusted for unrealized
gains/(losses) on AFS securities, less deductions for goodwill and other
intangible assets, defined benefit pension plan assets, and deferred tax
assets related to NOL and tax credit carryforwards.
2016
Dec 31,
Basel III Advanced
Transitional
Basel III Standardized
JPMorgan Chase Bank, N.A.
(in millions,
except ratios)
8.5
8.4
8.5
Tier 1 leverage (d)
20.2
2,484,631
Total
120,304
Adjusted
average (b)
224,616
181,775
186,378
105,807
112,297
Risk-weighted
200,482
$ 175,398
$ 182,967
208,112
228,592
$ 175,398
200,482
234,413
239,553
Total capital
208,112
$ 182,967
Assets
Regulatory
capital
CET1 capital
Tier 1 capital(a)
15,419
20,069
21,434
21,418
134,152
120,304
134,152
Assets
8.5
9.0
14.6
14.9
Tier 1 (a)
Capital ratios (c)
8.5%
9.0%
14.6%
14.9%
20.4
CET1
$ 168,857
169,222
183,262
2,358,471
2,484,631
average(b)
Adjusted
Capital ratios(c)
1,485,336
1,476,915
1,465,262
Risk-weighted 1,464,981
2,358,471
$ 179,319
179,341
184,637
CET1
(d)
2015
Carrying value(g)
2016
2015
Contractual amount
Off-balance sheet lending-related financial instruments, guarantees and other commitments
Notes to consolidated financial statements
255
JPMorgan Chase & Co./2016 Annual Report
To provide for probable credit losses inherent in wholesale
and certain consumer lending-commitments, an allowance
for credit losses on lending-related commitments is
maintained. See Note 15 for further information regarding
the allowance for credit losses on lending-related
commitments. The following table summarizes the
contractual amounts and carrying values of off-balance
sheet lending-related financial instruments, guarantees and
other commitments at December 31, 2016 and 2015. The
amounts in the table below for credit card and home equity
lending-related commitments represent the total available
credit for these products. The Firm has not experienced,
and does not anticipate, that all available lines of credit for
these products will be utilized at the same time. The Firm
can reduce or cancel credit card lines of credit by providing
the borrower notice or, in some cases as permitted by law,
without notice. In addition, the Firm typically closes credit
card lines when the borrower is 60 days or more past due.
The Firm may reduce or close HELOCS when there are
significant decreases in the value of the underlying
property, or when there has been a demonstrable decline in
the creditworthiness of the borrower.
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to meet
the financing needs of its customers. The contractual
amount of these financial instruments represents the
maximum possible credit risk to the Firm should the
counterparty draw upon the commitment or the Firm be
required to fulfill its obligation under the guarantee, and
should the counterparty subsequently fail to perform
according to the terms of the contract. Most of these
commitments and guarantees are refinanced, extended,
cancelled, or expire without being drawn or a default
occurring. As a result, the total contractual amount of these
instruments is not, in the Firm's view, representative of its
actual future credit exposure or funding requirements.
Note 29 - Off-balance sheet lending-related
financial instruments, guarantees, and other
commitments
As of December 31, 2016 and 2015, JPMorgan Chase and
all of its banking subsidiaries were well-capitalized and met
all capital requirements to which each was subject.
(d) Represents requirements for bank subsidiaries pursuant to regulations
issued under the FDIC Improvement Act.
(c) Represents requirements for bank holding companies pursuant to
regulations issued by the Federal Reserve.
(a) Represents the transitional minimum capital ratios applicable to the Firm
under Basel III at December 31, 2016. Commencing in the first quarter of
2016, the CET1 minimum capital ratio includes 0.625% resulting from the
phase in of the Firm's 2.5% capital conservation buffer, and 1.125%
resulting from the phase in of the Firm's 4.5% GSIB surcharge.
(b) Represents requirements for JPMorgan Chase's banking subsidiaries. The
CET1 minimum capital ratio includes 0.625% resulting from the phase in of
the 2.5% capital conservation buffer that is applicable to the banking
subsidiaries. The banking subsidiaries are not subject to the GSIB
surcharge.
Note: The ratios presented in the table above are as defined by the regulations
issued by the Federal Reserve, OCC and FDIC and to which the Firm and its
national bank subsidiaries are subject.
5.0
4.0
4.0
Tier 1 leverage
10.0
2016
10.0
Expires in
1 year or
less
Standby letters of credit and other financial
guarantees(c)
Other unfunded commitments to extend credit (c)
Wholesale:
Total consumer(b)
Credit card
Total consumer, excluding credit card
Student and other
Business banking
Auto
Residential mortgage (a)
Home equity
Consumer, excluding credit card:
Lending-related
Total
Total
Expires
after 5
years
5 years
through
3 years
Expires
after
Expires
after
1 year
through
3 years
By remaining maturity at December 31,
(in millions)
8.625
9.75
Total
Total
13.5%
13.5
14.2%
14.2
13.4
13.9
Tier 1 (a)
13.4%
13.9%
Capital ratios (c)
1,910,934
2,088,851
1,910,934
2,088,851
average(b)
Adjusted
1,249,607
1,262,613
1,264,056
1,293,203
Risk-weighted
Assets
14.8
14.5
14.6
14.1
6.5%
8.0
6.0
6.625
7.75
Tier 1
-%
5.125%
6.25%
CET1
Capital ratios
$ 168,857
169,222
176,423
BHC(c)
IDI(d)
Well-capitalized ratios
The following table presents the minimum ratios to which
the Firm and its national bank subsidiaries are subject as of
December 31, 2016.
JPMorgan Chase & Co./2016 Annual Report
254
Under the risk-based capital guidelines of the Federal
Reserve, JPMorgan Chase is required to maintain minimum
ratios of CET1, Tier 1 and Total capital to RWA, as well as a
minimum leverage ratio (which is defined as Tier 1 capital
divided by adjusted quarterly average assets). Failure to
meet these minimum requirements could cause the Federal
Reserve to take action. National bank subsidiaries also are
subject to these capital requirements by their respective
primary regulators.
8.6
8.9
8.6
Tier 1 leverage (d)
Minimum capital ratios
BHC(a)
IDI (b)
8.9
Set forth below are descriptions of the Firm's material legal
proceedings.
Other letters of credit (c)
Capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. bank holding companies and
banks, including the Firm and its IDI subsidiaries. Basel III
presents two comprehensive methodologies for calculating
RWA: a general (standardized) approach ("Basel III
Standardized") and an advanced approach ("Basel III
Advanced"). Certain of the requirements of Basel III are
subject to phase-in periods that began on January 1, 2014
and continue through the end of 2018 ("transitional
period").
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
minimum capital requirements and standards for the Firm's
national banks, including JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A.
Note 28 - Regulatory capital
and $15.6 billion, respectively, consisting of cash deposited
with clearing organizations for the benefit of customers.
Securities with a fair value of $19.3 billion and $20.0
billion, respectively, were also restricted in relation to
customer activity. In addition, as of December 31, 2016 and
2015, the Firm had other restricted cash of $3.6 billion and
$3.1 billion, respectively, primarily representing cash
reserves held at non-U.S. central banks and held for other
general purposes. Prior period amounts for segregated
cash, receivables within other assets, and other restricted
cash have been revised to conform with the current period
presentation.
In compliance with rules and regulations established by U.S.
and non-U.S. regulators, as of December 31, 2016 and
2015, cash in the amount of $13.4 billion and $13.2
billion, respectively, were segregated in special bank
accounts for the benefit of securities and futures brokerage
customers. Also, as of December 31, 2016 and 2015, the
Firm had receivables within other assets of $16.1 billion
At January 1, 2017, JPMorgan Chase's banking subsidiaries
could pay, in the aggregate, approximately $20 billion in
dividends to their respective bank holding companies
without the prior approval of their relevant banking
regulators. The capacity to pay dividends in 2017 will be
supplemented by the banking subsidiaries' earnings during
the year.
Prior to the establishment of the IHC in the fourth quarter
of 2016, the principal sources of the Parent Company's
income were dividends and interest from the various bank
and non-bank subsidiaries of the Firm; the principal source
of the Parent Company's income, commencing with the
fourth quarter, will be dividends from the IHC and JPMorgan
Chase Bank, N.A., the two principal subsidiaries of the
Parent Company. In addition to dividend restrictions set
forth in statutes and regulations, the Federal Reserve, the
OCC and the FDIC have authority under the Financial
Institutions Supervisory Act to prohibit or to limit the
payment of dividends by the banking organizations they
supervise, including JPMorgan Chase and its subsidiaries
that are banks or bank holding companies, if, in the banking
regulator's opinion, payment of a dividend would constitute
an unsafe or unsound practice in light of the financial
condition of the banking organization.
Restrictions imposed by U.S. federal law prohibit JPMorgan
Chase & Co. ("Parent Company") and certain of its affiliates
from borrowing from banking subsidiaries unless the loans
are secured in specified amounts. Such secured loans
provided by any banking subsidiary to the Parent Company
or to any particular affiliate, together with certain other
transactions with such affiliate, (collectively referred to as
"covered transactions"), are generally limited to 10% of the
banking subsidiary's total capital, as determined by the risk-
based capital guidelines; the aggregate amount of covered
transactions between any banking subsidiary and all of its
affiliates is limited to 20% of the banking subsidiary's total
capital.
There are three categories of risk-based capital under the
Basel III Transitional rules: CET1 capital, as well as Tier 1
capital and Tier 2 capital. CET1 capital predominantly
includes common stockholders' equity (including capital for
AOCI related to debt and equity securities classified as AFS
as well as for defined-benefit pension and OPEB plans), less
certain deductions for goodwill, MSRS and deferred tax
assets that arise from NOL and tax credit carryforwards.
Tier 1 capital predominantly consists of CET1 capital as well
as perpetual preferred stock. Tier 2 capital includes long-
term debt qualifying as Tier 2 and qualifying allowance for
credit losses. Total capital is Tier 1 capital plus Tier 2
capital.
The Federal Reserve requires depository institutions to
maintain cash reserves with a Federal Reserve Bank. The
average required amount of reserve balances deposited by
the Firm's bank subsidiaries with various Federal Reserve
Banks was approximately $19.3 billion and $14.4 billion in
2016 and 2015, respectively.
Note 27 - Restrictions on cash and
intercompany funds transfers
Commerce Solutions incurred aggregate losses of $85
million, $12 million, and $10 million on $1,063.4 billion,
$949.3 billion, and $847.9 billion of aggregate volume
processed for the years ended December 31, 2016, 2015
and 2014, respectively. Incurred losses from merchant
charge-backs are charged to other expense, with the offset
recorded in a valuation allowance against accrued interest
and accounts receivable on the Consolidated balance
sheets. The carrying value of the valuation allowance was
$45 million and $20 million at December 31, 2016 and
2015, respectively, which the Firm believes, based on
historical experience and the collateral held by Commerce
Solutions of $125 million and $136 million at
December 31, 2016 and 2015, respectively, is
representative of the payment or performance risk to the
Firm related to charge-backs.
issuing bank) credit or refund the amount to the
cardmember and will charge back the transaction to the
merchant. If Commerce Solutions is unable to collect the
amount from the merchant, Commerce Solutions will bear
the loss for the amount credited or refunded to the
cardmember. Commerce Solutions mitigates this risk by
withholding future settlements, retaining cash reserve
accounts or by obtaining other security. However, in the
unlikely event that: (1) a merchant ceases operations and is
unable to deliver products, services or a refund; (2)
Commerce Solutions does not have sufficient collateral from
the merchant to provide customer refunds; and (3)
Commerce Solutions does not have sufficient financial
resources to provide customer refunds, JPMorgan Chase
Bank, N.A., would recognize the loss.
JPMorgan Chase & Co./2016 Annual Report
Under the rules of Visa USA, Inc., and MasterCard
International, JPMorgan Chase Bank, N.A., is primarily liable
for the amount of each processed card sales transaction
that is the subject of a dispute between a cardmember and
a merchant. If a dispute is resolved in the cardmember's
favor, Commerce Solutions will (through the cardmember's
Commerce Solutions, Card's merchant services
business, is a global leader in payment processing and
merchant acquiring.
Card charge-backs
In connection with issuing securities to investors, the Firm
may enter into contractual arrangements with third parties
that require the Firm to make a payment to them in the
event of a change in tax law or an adverse interpretation of
tax law. In certain cases, the contract also may include a
termination clause, which would allow the Firm to settle the
contract at its fair value in lieu of making a payment under
the indemnification clause. The Firm may also enter into
indemnification clauses in connection with the licensing of
software to clients ("software licensees") or when it sells a
business or assets to a third party ("third-party
purchasers"), pursuant to which it indemnifies software
licensees for claims of liability or damages that may occur
subsequent to the licensing of the software, or third-party
purchasers for losses they may incur due to actions taken
by the Firm prior to the sale of the business or assets. It is
difficult to estimate the Firm's maximum exposure under
these indemnification arrangements, since this would
require an assessment of future changes in tax law and
future claims that may be made against the Firm that have
not yet occurred. However, based on historical experience,
management expects the risk of loss to be remote.
The business of JPMorgan Chase Bank, National Association
("JPMorgan Chase Bank, N.A.") is subject to examination
and regulation by the OCC. The Bank is a member of the U.S.
Federal Reserve System, and its deposits in the U.S. are
insured by the FDIC, subject to applicable limits.
JPMorgan Chase & Co./2016 Annual Report
253
Notes to consolidated financial statements
16,784
$
CET1 capital
Basel III Advanced
Transitional
Dec 31,
2015
Dec 31,
2016
Dec 31,
2015
Basel III Advanced
Transitional
2016
Dec 31,
Transitional
Basel III Standardized
Chase Bank USA, N.A.
Regulatory
capital
(in millions,
except ratios)
Transitional
Basel III Standardized
JPMorgan Chase & Co.
The following tables present the regulatory capital, assets
and risk-based capital ratios for JPMorgan Chase and its
significant national bank subsidiaries under both Basel III
Standardized Transitional and Basel III Advanced
Transitional at December 31, 2016 and 2015.
Other off-balance sheet arrangements
Indemnification agreements - general
The Firm provides servicing for mortgages and certain
commercial lending products on both a recourse and
nonrecourse basis. In nonrecourse servicing, the principal
credit risk to the Firm is the cost of temporary servicing
advances of funds (i.e., normal servicing advances). In
recourse servicing, the servicer agrees to share credit risk
with the owner of the mortgage loans, such as Fannie Mae
or Freddie Mac or a private investor, insurer or guarantor.
Losses on recourse servicing predominantly occur when
foreclosure sales proceeds of the property underlying a
defaulted loan are less than the sum of the outstanding
principal balance, plus accrued interest on the loan and the
cost of holding and disposing of the underlying property.
The Firm's securitizations are predominantly nonrecourse,
thereby effectively transferring the risk of future credit
losses to the purchaser of the mortgage-backed securities
issued by the trust. At December 31, 2016 and 2015, the
unpaid principal balance of loans sold with recourse totaled
$2.7 billion and $4.3 billion, respectively. The carrying
value of the related liability that the Firm has recorded,
which is representative of the Firm's view of the likelihood it
will have to perform under its recourse obligations, was
$64 million and $82 million at December 31, 2016 and
2015, respectively.
Loans sold with recourse
JPMorgan Chase & Co./2016 Annual Report
$
19,346
$
Commitments with collateral
2
$
548
$
2
$
586
$
Total carrying value
427
441
Guarantee liability
2
$
121
940
$ 15,419
$
$
For additional information regarding litigation, see Note 31.
The liability related to repurchase demands associated with
private label securitizations is separately evaluated by the
Firm in establishing its litigation reserves.
Private label securitizations
In connection with the Firm's mortgage loan sale and
securitization activities with GSES, as described in Note 16,
the Firm has made representations and warranties that the
loans sold meet certain requirements that may require the
Firm to repurchase mortgage loans and/or indemnify the
loan purchaser. Further, although the Firm's securitizations
are predominantly nonrecourse, the Firm does provide
recourse servicing in certain limited cases where it agrees
to share credit risk with the owner of the mortgage loans.
To the extent that repurchase demands that are received
relate to loans that the Firm purchased from third parties
that remain viable, the Firm typically will have the right to
seek a recovery of related repurchase losses from the third
party. Generally, the maximum amount of future payments
the Firm would be required to make for breaches of these
representations and warranties would be equal to the
unpaid principal balance of such loans that are deemed to
have defects that were sold to purchasers (including
securitization-related SPES) plus, in certain circumstances,
accrued interest on such loans and certain expense.
Loan sales-and securitization-related indemnifications
Mortgage repurchase liability
In the normal course of business, the Firm enters into
reverse repurchase agreements and securities borrowing
agreements, which are secured financing agreements. Such
agreements settle at a future date. At settlement, these
commitments result in the Firm advancing cash to and
receiving securities collateral from the counterparty. The
Firm also enters into repurchase agreements and securities
lending agreements. At settlement, these commitments
result in the Firm receiving cash from and providing
securities collateral to the counterparty. These agreements
generally do not meet the definition of a derivative, and
therefore, are not recorded on the Consolidated balance
sheets until settlement date. These agreements
predominantly consist of agreements with regular-way
settlement periods. For a further discussion of securities
purchased under resale agreements and securities
borrowed, and securities sold under repurchase agreements
and securities loaned, see Note 13.
Unsettled reverse repurchase and securities borrowing
agreements, and unsettled repurchase and securities
lending agreements
In addition to derivative contracts that meet the
characteristics of a guarantee, the Firm is both a purchaser
and seller of credit protection in the credit derivatives
market. For a further discussion of credit derivatives, see
Note 6.
into offsetting transactions, or by entering into contracts
that hedge the market risk related to the derivative
guarantees.
258
The Firm transacts certain derivative contracts that have
the characteristics of a guarantee under U.S. GAAP. These
contracts include written put options that require the Firm
to purchase assets upon exercise by the option holder at a
specified price by a specified date in the future. The Firm
may enter into written put option contracts in order to meet
client needs, or for other trading purposes. The terms of
written put options are typically five years or less.
Derivatives deemed to be guarantees also include contracts
such as stable value derivatives that require the Firm to
make a payment of the difference between the market
value and the book value of a counterparty's reference
portfolio of assets in the event that market value is less
than book value and certain other conditions have been
met. Stable value derivatives, commonly referred to as
“stable value wraps," are transacted in order to allow
investors to realize investment returns with less volatility
than an unprotected portfolio and are typically longer-term
or may have no stated maturity, but allow the Firm to elect
to terminate the contract under certain conditions.
Derivatives deemed to be guarantees are recorded on the
Consolidated balance sheets at fair value in trading assets
and trading liabilities. The total notional value of the
derivatives that the Firm deems to be guarantees was
$52.0 billion and $53.8 billion at December 31, 2016 and
2015, respectively. The notional amount generally
represents the Firm's maximum exposure to derivatives
qualifying as guarantees. However, exposure to certain
stable value contracts is contractually limited to a
substantially lower percentage of the notional amount; the
notional amount on these stable value contracts was $28.7
billion and $28.4 billion at December 31, 2016 and 2015,
respectively, and the maximum exposure to loss was $3.0
billion at both December 31, 2016 and 2015. The fair
values of the contracts reflect the probability of whether the
Firm will be required to perform under the contract. The
fair value related to derivatives that the Firm deems to be
guarantees were derivative payables of $96 million and
$236 million and derivative receivables of $16 million and
$14 million at December 31, 2016 and 2015, respectively.
The Firm reduces exposures to these contracts by entering
Derivatives qualifying as guarantees
Through the Firm's securities lending program, customers'
securities, via custodial and non-custodial arrangements,
may be lent to third parties. As part of this program, the
Firm provides an indemnification in the lending agreements
which protects the lender against the failure of the
borrower to return the lent securities. To minimize its
liability under these indemnification agreements, the Firm
obtains cash or other highly liquid collateral with a market
value exceeding 100% of the value of the securities on loan
from the borrower. Collateral is marked to market daily to
help assure that collateralization is adequate. Additional
collateral is called from the borrower if a shortfall exists, or
collateral may be released to the borrower in the event of
overcollateralization. If a borrower defaults, the Firm would
use the collateral held to purchase replacement securities in
the market or to credit the lending customer with the cash
equivalent thereof.
Securities lending indemnifications
Notes to consolidated financial statements
257
JPMorgan Chase & Co./2016 Annual Report
(a) The ratings scale is based on the Firm's internal ratings, which generally correspond to ratings as defined by S&P and Moody's.
996
18,825
$
$ 16,784
(in millions,
except ratios)
2015
2016
(in millions)
Year ended December 31,
$ 567.8
$ 629.0
298.6
144.9
$ 101.1 $ 124.3
374.9
153.0
2014
2015
Trading assets and other
Loans
8,736
$
Total rental expense was as follows.
Net minimum payment required
Securities
(1,379)
2016
Gross rental expense
$
Sublease rental income
CIO Litigation. The Firm has been sued in a consolidated
shareholder class action, and in a consolidated putative
class action brought under the Employee Retirement
Income Security Act ("ERISA”), relating to 2012 losses in
the synthetic credit portfolio formerly managed by the
Firm's Chief Investment Office ("CIO"). A settlement of the
shareholder class action, under which the Firm paid $150
million, has received full and final approval from the Court.
The putative ERISA class action has been dismissed. That
dismissal was affirmed by the appellate court, and a
request by the plaintiffs for rehearing by the full appellate
court was denied.
Foreign Exchange Investigations and Litigation. The Firm
previously reported settlements with certain government
authorities relating to its foreign exchange ("FX") sales and
trading activities and controls related to those activities. FX-
related investigations and inquiries by government
authorities, including competition authorities, are ongoing,
and the Firm is cooperating with those matters. In May
2015, the Firm pleaded guilty to a single violation of
federal antitrust law, and in January 2017, the Firm was
sentenced, with judgment entered shortly thereafter. The
Department of Labor granted the Firm a temporary one-
year waiver, which was effective upon entry of judgment, to
allow the Firm and its affiliates to continue to qualify for the
Qualified Professional Asset Manager exemption under
ERISA. The Firm's application for a lengthier exemption is
pending. Separately, in February 2017 the South Africa
Competition Commission announced that it had referred its
FX investigation of the Firm and other banks to the South
Africa Competition Tribunal to commence civil proceedings.
The Firm is also one of a number of foreign exchange
dealers defending a class action filed in the United States
District Court for the Southern District of New York by U.S.-
based plaintiffs, principally alleging violations of federal
antitrust laws based on an alleged conspiracy to manipulate
foreign exchange rates (the “U.S. class action”). In January
2015, the Firm entered into a settlement agreement in the
U.S. class action. Following this settlement, a number of
additional putative class actions were filed seeking damages
for persons who transacted FX futures and options on
futures (the "exchanged-based actions"), consumers who
purchased foreign currencies at allegedly inflated rates (the
"consumer action"), participants or beneficiaries of
qualified ERISA plans (the "ERISA actions"), and purported
indirect purchasers of FX instruments (the "indirect
purchaser action"). Since then, the Firm has entered into a
revised settlement agreement to resolve the consolidated
U.S. class action, including the exchange-based actions, and
that agreement has been preliminarily approved by the
Court. The District Court has dismissed one of the ERISA
actions, and the plaintiffs have filed an appeal. The
consumer action, a second ERISA action and the indirect
purchaser action remain pending in the District Court.
In September 2015, two class actions were filed in Canada
against the Firm as well as a number of other FX dealers,
principally for alleged violations of the Canadian
Competition Act based on an alleged conspiracy to fix the
prices of currency purchased in the FX market. The first
action was filed in the province of Ontario, and seeks to
represent all persons in Canada who transacted any FX
262
JPMorgan Chase & Co./2016 Annual Report
As of December 31, 2016, the Firm and its subsidiaries and
affiliates are defendants or putative defendants in
numerous legal proceedings, including private, civil
litigations and regulatory/government investigations. The
litigations range from individual actions involving a single
plaintiff to class action lawsuits with potentially millions of
class members. Investigations involve both formal and
informal proceedings, by both governmental agencies and
self-regulatory organizations. These legal proceedings are
at varying stages of adjudication, arbitration or
investigation, and involve each of the Firm's lines of
business and geographies and a wide variety of claims
(including common law tort and contract claims and
statutory antitrust, securities and consumer protection
claims), some of which present novel legal theories.
Contingencies
Note 31 - Litigation
Notes to consolidated financial statements
261
At December 31, 2016 and 2015, the Firm had accepted
financial assets as collateral that it could sell or repledge,
deliver or otherwise use with a fair value of approximately
$914.1 billion and $748.5 billion, respectively. This
collateral was generally obtained under resale agreements,
securities borrowing agreements, customer margin loans
and derivative agreements. Of the collateral received,
approximately $746.6 billion and $580.9 billion,
respectively, were sold, repledged, delivered or otherwise
used. Collateral was generally used under repurchase
agreements, securities lending agreements or to cover
customer short sales and to collateralize deposits and
derivative agreements.
Collateral
Total assets pledged
JPMorgan Chase & Co./2016 Annual Report
1,604 $
1,860 $ 2,015 $ 2,255
(241)
(411)
(383)
1,619 $
1,872
$
Net rental expense
Less: Sublease rentals under noncancelable subleases
885
3,701
10,115
Total minimum payments required
December 31, (in billions)
For information on the derivatives that the Firm executes
for its own account and records in its Consolidated Financial
Statements, see Note 6.
It is difficult to estimate the Firm's maximum possible
exposure through its role as a clearing member, as this
would require an assessment of transactions that clients
may execute in the future. However, based upon historical
experience, and the credit risk mitigants available to the
Firm, management believes it is unlikely that the Firm will
have to make any material payments under these
arrangements and the risk of loss is expected to be remote.
The Firm reflects its exposure to nonperformance risk of the
client through the recognition of margin payables or
receivables to clients and CCPs; the clients' underlying
securities or derivative contracts are not reflected in the
Firm's Consolidated Financial Statements.
Notes to consolidated financial statements
The Firm believes the estimate of the aggregate range of
reasonably possible losses, in excess of reserves
established, for its legal proceedings is from $0 to
approximately $3.0 billion at December 31, 2016. This
estimated aggregate range of reasonably possible losses
was based upon currently available information for those
proceedings in which the Firm believes that an estimate of
reasonably possible loss can be made. For certain matters,
the Firm does not believe that such an estimate can be
made, as of that date. The Firm's estimate of the aggregate
range of reasonably possible losses involves significant
judgment, given the number, variety and varying stages of
the proceedings (including the fact that many are in
preliminary stages), the existence in many such
proceedings of multiple defendants (including the Firm)
whose share of liability has yet to be determined, the
numerous yet-unresolved issues in many of the proceedings
(including issues regarding class certification and the scope
of many of the claims) and the attendant uncertainty of the
various potential outcomes of such proceedings, including
where the Firm has made assumptions concerning future
rulings by the court or other adjudicator, or about the
behavior or incentives of adverse parties or regulatory
authorities, and those assumptions prove to be incorrect. In
addition, the outcome of a particular proceeding may be a
result which the Firm did not take into account in its
estimate because the Firm had deemed the likelihood of
that outcome to be remote. Accordingly, the Firm's estimate
of the aggregate range of reasonably possible losses will
change from time to time, and actual losses may vary
significantly.
As clearing member, the Firm is exposed to the risk of
nonperformance by its clients, but is not liable to clients for
the performance of the CCPs. Where possible, the Firm
seeks to mitigate its risk to the client through the collection
of appropriate amounts of margin at inception and
throughout the life of the transactions. The Firm can also
cease providing clearing services if clients do not adhere to
their obligations under the clearing agreement. In the event
of nonperformance by a client, the Firm would close out the
client's positions and access available margin. The CCP
would utilize any margin it holds to make itself whole, with
any remaining shortfalls required to be paid by the Firm as
a clearing member.
The Firm provides clearing services for clients by entering
into securities purchases and sales and derivative
transactions with CCPS, including ETDs such as futures and
options, as well as OTC-cleared derivative contracts. As a
clearing member, the Firm stands behind the performance
of its clients, collects cash and securities collateral (margin)
as well as any settlement amounts due from or to clients,
and remits them to the relevant CCP or client in whole or
part. There are two types of margin: variation margin is
posted on a daily basis based on the value of clients'
derivative contracts and initial margin is posted at inception
of a derivative contract, generally on the basis of the
potential changes in the variation margin requirement for
the contract.
Clearing Services - Client Credit Risk
22,862
Total capital
16,784
15,419
16,784
Tier 1 capital(a)
Dec 31,
2015
Dec 31,
2016
Dec 31,
2015
2016
Dec 31,
Exchange & Clearing House Memberships
$ 15,419
The Firm is a member of several securities and derivative
exchanges and clearing houses, both in the U.S. and other
countries, and it provides clearing services. Membership in
some of these organizations requires the Firm to pay a pro
rata share of the losses incurred by the organization as a
result of the default of another member. Such obligations
vary with different organizations. These obligations may be
limited to members who dealt with the defaulting member
or to the amount (or a multiple of the amount) of the Firm's
contribution to the guarantee fund maintained by a clearing
house or exchange as part of the resources available to
cover any losses in the event of a member default.
Alternatively, these obligations may include a pro rata share
of the residual losses after applying the guarantee fund.
Additionally, certain clearing houses require the Firm as a
member to pay a pro rata share of losses that may result
from the clearing house's investment of guarantee fund
contributions and initial margin, unrelated to and
independent of the default of another member. Generally a
payment would only be required should such losses exceed
the resources of the clearing house or exchange that are
contractually required to absorb the losses in the first
instance. It is difficult to estimate the Firm's maximum
possible exposure under these membership agreements,
since this would require an assessment of future claims that
may be made against the Firm that have not yet occurred.
However, based on historical experience, management
expects the risk of loss to be remote.
In the normal course of business, JPMorgan Chase & Co.
("Parent Company") may provide counterparties with
guarantees of certain of the trading and other obligations of
its subsidiaries on a contract-by-contract basis, as
negotiated with the Firm's counterparties. The obligations
of the subsidiaries are included on the Firm's Consolidated
balance sheets or are reflected as off-balance sheet
commitments; therefore, the Parent Company has not
recognized a separate liability for these guarantees. The
Firm believes that the occurrence of any event that would
trigger payments by the Parent Company under these
guarantees is remote.
The Firm may pledge financial assets that it owns to
maintain potential borrowing capacity with central banks
and for other purposes, including to secure borrowings and
public deposits, and to collateralize repurchase and other
securities financing agreements, and to cover customer
short sales. Certain of these pledged assets may be sold or
repledged or otherwise used by the secured parties and are
identified as financial instruments owned (pledged to
various parties) on the Consolidated balance sheets. At
December 31, 2016 and 2015, the Firm had pledged assets
of $441.9 billion and $385.6 billion, respectively, at
Federal Reserve banks and FHLBs. In addition, as of
December 31, 2016 and 2015, the Firm had pledged $53.5
billion and $50.7 billion, respectively, of financial assets
that may not be sold or repledged or otherwise used by the
secured parties. Total assets pledged do not include assets
of consolidated VIES; these assets are used to settle the
liabilities of those entities. See Note 16 for additional
information on assets and liabilities of consolidated VIES.
For additional information on the Firm's securities financing
activities and long-term debt, see Note 13 and Note 21,
respectively. The significant components of the Firm's
pledged assets were as follows.
Pledged assets
$ 1,598
1,479
1,301
1,151
After 2021
2021
2020
2019
2018
2017
Year ended December 31, (in millions)
The following table presents required future minimum
rental payments under operating leases with noncancelable
lease terms that expire after December 31, 2016.
noncancelable operating leases for premises and equipment
used primarily for banking purposes, and for energy-related
tolling service agreements. Certain leases contain renewal
options or escalation clauses providing for increased rental
payments based on maintenance, utility and tax increases,
or they require the Firm to perform restoration work on
leased premises. No lease agreement imposes restrictions
on the Firm's ability to pay dividends, engage in debt or
equity financing transactions or enter into further lease
agreements.
At December 31, 2016, JPMorgan Chase and its
subsidiaries were obligated under a number of
Lease commitments
Note 30 Commitments, pledged assets and
collateral
-
JPMorgan Chase & Co./2016 Annual Report
260
The Parent Company has guaranteed certain long-term debt
and structured notes of its subsidiaries, including JPMorgan
Chase Financial Company LLC ("JPMFC"), a 100%-owned
finance subsidiary. All securities issued by JPMFC are fully
and unconditionally guaranteed by the Parent Company.
These guarantees, which rank on a parity with the Firm's
unsecured and unsubordinated indebtedness, are not
included in the table on page 256 of this Note. For
additional information, see Note 21.
Guarantees of subsidiaries
2
259
145
548
586
39,133
35,947
3,570
7,790 368,014
978
1
6,577
129
86
12,654
3,941
15,738
3,354
905
323,325
328,497
6,811
135,663
69,307 116,716
14
26
649
2
2
366,399
Unsettled reverse repurchase and securities borrowing
agreements
39,525
10,930
450
1,061
Derivatives qualifying as guarantees
$
$
$ 137,209 $
$ 677,681 $ 134,169 $ 143,699 $ 21,153 $ 976,702
88,399 129,456 142,369
Securities lending indemnification agreements and
guarantees(e)
Other guarantees and commitments
Total lending-related
Total wholesale (d)
$ 1,519 $1,213
$ 940,395
1,199
1,493
573,996
-
515,518
553,891
608,688
673
11,485
2
2
10,237
8,468
27
173
461
7,807
$
4,247 $ 3,578 $
1,035 $ 12,854 $ 21,714 $ 22,756
$
12 $
11,745
11,745
$
12,992
122
50,722
453
12,351
13,363
1,330
4,713
589,282
14
26
58,478
54,797
13,363
1,330
4,713
35,391
142
137
29
1
107
12
12
12,733
Unsettled repurchase and securities lending
553,891
26,948
$
28,245
$
Investment-grade (a)
Other letters
of credit
Standby letters of credit and
other financial guarantees
(in millions)
December 31,
2,781
2015
Standby letters of credit, other financial guarantees and other letters of credit
The following table summarizes the types of facilities under which standby letters of credit and other letters of credit
arrangements are outstanding by the ratings profiles of the Firm's customers, as of December 31, 2016 and 2015.
Standby letters of credit and other financial guarantees
Standby letters of credit and other financial guarantees are
conditional lending commitments issued by the Firm to
guarantee the performance of a customer to a third party
under certain arrangements, such as commercial paper
facilities, bond financings, acquisition financings, trade and
similar transactions. The carrying values of standby and
other letters of credit were $588 million and $550 million
at December 31, 2016 and 2015, respectively, which were
classified in accounts payable and other liabilities on the
Consolidated balance sheets; these carrying values included
$147 million and $123 million, respectively, for the
allowance for lending-related commitments, and $441
million and $427 million, respectively, for the guarantee
liability and corresponding asset.
assumed (e.g., the amount of consideration received or the
net present value of the premium receivable). For certain
types of guarantees, the Firm records this fair value amount
in other liabilities with an offsetting entry recorded in cash
(for premiums received), or other assets (for premiums
receivable). Any premium receivable recorded in other
assets is reduced as cash is received under the contract, and
the fair value of the liability recorded at inception is
amortized into income as lending and deposit-related fees
over the life of the guarantee contract. For indemnifications
provided in sales agreements, a portion of the sale
proceeds is allocated to the guarantee, which adjusts the
gain or loss that would otherwise result from the
transaction. For these indemnifications, the initial liability is
amortized to income as the Firm's risk is reduced (i.e., over
time or when the indemnification expires). Any contingent
liability that exists as a result of issuing the guarantee or
indemnification is recognized when it becomes probable
and reasonably estimable. The contingent portion of the
liability is not recognized if the estimated amount is less
than the carrying amount of the liability recognized at
inception (adjusted for any amortization). The recorded
amounts of the liabilities related to guarantees and
indemnifications at December 31, 2016 and 2015,
excluding the allowance for credit losses on lending-related
commitments, are discussed below.
As required by U.S. GAAP, the Firm initially records
guarantees at the inception date fair value of the obligation
U.S. GAAP requires that a guarantor recognize, at the
inception of a guarantee, a liability in an amount equal to
the fair value of the obligation undertaken in issuing the
guarantee. U.S. GAAP defines a guarantee as a contract that
contingently requires the guarantor to pay a guaranteed
party based upon: (a) changes in an underlying asset,
liability or equity security of the guaranteed party; or (b) a
third party's failure to perform under a specified
agreement. The Firm considers the following off-balance
sheet lending-related arrangements to be guarantees under
U.S. GAAP: standby letters of credit and other financial
guarantees, securities lending indemnifications, certain
indemnification agreements included within third-party
contractual arrangements and certain derivative contracts.
Guarantees
The Firm acts as a settlement and custody bank in the U.S.
tri-party repurchase transaction market. In its role as
settlement and custody bank, the Firm is exposed to the
intra-day credit risk of its cash borrower clients, usually
broker-dealers. This exposure arises under secured
clearance advance facilities that the Firm extends to its
clients (i.e. cash borrowers); these facilities contractually
limit the Firm's intra-day credit risk to the facility amount
and must be repaid by the end of the day. As of
December 31, 2016 and 2015, the secured clearance
advance facility maximum outstanding commitment amount
was $2.4 billion and $2.9 billion, respectively.
2016
Standby letters of credit and
other financial guarantees
$
Other letters
31,751
$
Allowance for lending-related commitments
agreements
3,941
$
39,133
$
3,570
$
35,947
$
Total contractual amount
651
7,382
789
7,702
Noninvestment-grade (a)
3,290
$
Other unfunded commitments to extend credit generally
consist of commitments for working capital and general
corporate purposes, extensions of credit to support
commercial paper facilities and bond financings in the event
that those obligations cannot be remarketed to new
investors, as well as committed liquidity facilities to clearing
organizations. The Firm also issues commitments under
multipurpose facilities which could be drawn upon in
several forms, including the issuance of a standby letter of
credit.
Other unfunded commitments to extend credit
of credit
256
NA
383
ΝΑ
Other guarantees and commitments (f)
Loans sold with recourse
Mortgage repurchase liability
Loan sale and securitization-related indemnifications:
21,798
--
42,482
50,722
222
80
53,784
$
$
JPMorgan Chase & Co./2016 Annual Report
$ 183,329
$ 137,209
51,966
-
2,662
금금
26,948
ΝΑ
(a) Includes certain commitments to purchase loans from correspondents.
(b) Predominantly all consumer lending-related commitments are in the U.S.
(c) At December 31, 2016 and 2015, reflected the contractual amount net of risk participations totaling $328 million and $385 million, respectively, for other unfunded
commitments to extend credit; $11.1 billion and $11.2 billion, respectively, for standby letters of credit and other financial guarantees; and $265 million and $341
million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk participations.
(d) At December 31, 2016 and 2015, the U.S. portion of the contractual amount of total wholesale lending-related commitments was 79% and 77%, respectively.
(e) At December 31, 2016 and 2015, collateral held by the Firm in support of securities lending indemnification agreements was $143.2 billion and $190.6 billion,
respectively. Securities lending collateral consist of primarily cash and securities issued by governments that are members of the Organisation for Economic Co-operation
and Development ("OECD") and U.S. government agencies.
(94)
ΝΑ
(f) At December 31, 2016 and 2015, included unfunded commitments of $48 million and $50 million, respectively, to third-party private equity funds; and $1.0 billion and
$871 million, respectively, to other equity investments. These commitments included $34 million and $73 million, respectively, related to investments that are generally
fair valued at net asset value as discussed in Note 3. In addition, at December 31, 2016 and 2015, included letters of credit hedged by derivative transactions and
managed on a market risk basis of $4.6 billion and $4.6 billion, respectively.
(118)
5,580
1,653
82
64
4,274
5,715
148
133
ΝΑ
NA
2,730
ΝΑ
ΝΑ
1,017
(g) For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-related products, the
carrying value represents the fair value.
ΝΑ
ΝΑ
Return on tangible common equity ("ROTCE") (b)
10%
11%
11%
9%
9%
10%
14
12%
13
Return on assets ("ROA")
12
11
15
14
14
1.06
1.01
1.02
0.90
11%
0.93
13
Return on common equity ("ROE")
Tangible book value per share ("TBVPS")(b)
0.40
61.28
1.11
60.46
59.67
58.49
57.77
51.44
51.23
50.21
48.96
Selected ratios and metrics
48.13
46.13
45.45
Cash dividends declared per share
0.48
0.48
0.48
0.44
0.44
0.44
0.44
47.36
1.01
10.7%
Overhead ratio
496 $
505 $
532 $
614
CET1 capital ratio(d)
Tier 1 capital ratio(d)
12.4%
12.0%
12.0%
11.9%
$
11.8%
11.2%
14.1
13.6
13.6
13.5
13.5
13.3
12.8
12.1
62.67
11.5%
+A
505
$
59
59
56
60
62
67
61
62
Loans-to-deposits ratio
65
65
66
64
65
64
61
56
HQLA (in billions) (c)
$
524
$
539 $
516
0.94
63.79
228,263
Book value per share
280,123
286,240
1,367,887
1,287,332
1,273,106
292,503
288,651
290,754
295,627
309,418
295,245
Long-term debt(e)
Common stockholders' equity
2,576,619
2,351,698
1,279,715
631,955
654,551
680,224
715,282
737,297
760,721
799,698 779,383
2,490,972 2,521,029 2,466,096 2,423,808
1,375,179 1,376,138 1,330,958 1,321,816
Deposits
Total assets
Average core loans
2,416,635 2,449,098
641,285
228,122
224,089
JPMorgan Chase & Co./2016 Annual Report
272
241,145
237,459
235,678
234,598
237,420
240,046
242,315
243,355
Headcount
226,355
235,864
245,728
247,573
250,157
252,423
254,331
254,190
Total stockholders' equity
214,371
216,287
219,660
221,505
241,205
674,767
698,988
732,093
Selected balance sheet data (period-end)
Tier 1 leverage ratio
7.5
8.0
8.4
8.5
8.6
8.5
8.5
8.4
13.6
Trading assets
14.4
15.1
15.1
15.2
15.1
15.5
62.14
59.22
66.03
60.97
67.76
60.58
14.9
$ 372,130 $ 374,837 $ 380,793 $ 366,153
$ 343,839
$ 361,708
746,196
775,813
795,077
806,152
Core loans
764,185
791,247
809,457
837,299
847,313
872,804
888,054
894,765
Loans
331,136
317,795
306,660
290,827
285,323
278,610
272,401
289,059
Securities
$ 398,981
$ 377,870
64.06
Total capital ratio(d)
Income tax expense/(benefit)
86.29
1,741
1,371
1,580
4,575
3,759
4,846
6,054
3,486
3,229
3,541
4,376
3,562
4,237
11,483
11,849
15,661
15,239
15,852
6,063
5,802
Income tax expense/(benefit)
15,516
Income/(loss) before income
tax expense/(benefit)
8,538
1,290
8,886
1,294
Net income/(loss)
Average common equity
195,267
$ 9,000 $ 9,000 $ 9,000
$ 2,251 $ 1,935 $ 2,153
$ 14,000
$ 14,000
200,700
214,341
$ 16,000
$ 61,000
861,466
$ 2,635
$ 2,191
$ 2,657
$ 6,908
$ 8,090
$ 62,000
748,691
803,511
455,634
502,652
535,310
Total assets
$ 10,815
$ 64,000
$ 51,000
$ 51,000 $ 51.000
$ 9,185
$ 9,714 $ 9,789
1,333
8,478
2,695
2,881
35,216
44,368
43,820
44,915
Total net revenue
2,440
2,556
3,033
4,533
4,520
5,133
11,175
9,849
10,891
28,431
28,228
29,660
Net interest income
$ 9,012 $ 9,563 $ 9,588
$ 2,320 $ 2,365 $ 2,349
$ 23,420
$ 23,693
$ 24,325
33,542
34,595
7,453
6,885
2,934
23,273
21,361
18,992
25,609
24,909
24,905
Noninterest expense
4
26
(189)
138,384
442
(161)
332
563
3,520
3,059
4,494
Provision for credit losses
12,028
12,119
12,045
6,882
282
131,451
128,701
Return on common equity
59,014
55,771
1,159
977
462
3,139
3,827
5,361
(35)
(10)
(4)
95,112
93,543
95,668
(2,773)
(3,090)
43,634
43,510
46,083
66.59
(1,788) $ 49,585 $ 50,033 $ 51,478
(1,980) $
(1,110)
(2,265) $
(1,209)
(3,474)
61,274
Income/(loss) before income
tax expense/(benefit)
(945)
$
864 $
8,954
6,260
9,803
(2,773)
(3,090)
(3,474)
(1,976)
(3,137)
2,437 $
79,690 $
(704) $
84,631 $
12
$
$
Net income/(loss)
(241)
30,699
30,702
34,536
(2,773)
(3,090)
(3,474)
(1,112)
(700)
Average common equity
$ 15,937
267
1,972 $
(1,960)
70
39
42
39
67
64
54
58
57
55
Overhead ratio
23%
21%
24%
18%
15%
16%
10%
12%
16%
18%
18%
18%
73
71
(table continued from above)
Corporate
(533)
(1,425)
Net interest income
800 $
938 $
$
Noninterest revenue
2014
2015
2016
2014
(487)
2015
2014
2015
2016
(in millions, except ratios)
December 31,
As of or for the year ended
Noninterest expense
Provision for credit losses
Total net revenue
Total
Reconciling Items(a)
2016
$
$ 15,592
Noninterest revenue
394,134 (d)
$
3,783
1,212
5,292 $
1,899
327
1,632
1,959
$
8,550
4,213
6,112
13,842 $
$
Total assets
Net income
expense
Expense (c)
Revenue (b)
Income before
income tax
Total
North America (a)
Total international
Latin America and the Caribbean
Asia and Pacific
Europe/Middle East and Africa
156,946
2016
208
21,913
$
5,335
$
8,871
14,206 $
$
Europe/Middle East and Africa
2015
24,733 $ 2,490,972
$
34,536
61,132 $
95,668 $
$
1,896,921
19,530
27,018
46,737
73,755
594,051
5,203
7,518
14,395
42,971
As of or for the year ended December 31, (in millions)
The Firm's long-lived assets for the periods presented are
not considered by management to be significant in relation
to total assets. The majority of the Firm's long-lived assets
are located in the U.S.
As the Firm's operations are highly integrated, estimates
and subjective assumptions have been made to apportion
revenue and expense between U.S. and international
operations. These estimates and assumptions are consistent
with the allocations used for the Firm's segment reporting
as set forth in Note 33.
In addition, the Firm and a group of 21 institutional MBS
investors made a binding offer to the trustees of MBS issued
by JPMC and Bear Stearns providing for the payment of
$4.5 billion and the implementation of certain servicing
changes by JPMC, to resolve all repurchase and servicing
claims that have been asserted or could have been asserted
with respect to 330 MBS trusts created between 2005 and
2008. The offer does not resolve claims relating to
Washington Mutual MBS. The trustees (or separate and
successor trustees) for this group of 330 trusts have
accepted the settlement for 319 trusts in whole or in part
and excluded from the settlement 16 trusts in whole or in
part. The trustees' acceptance has received final approval
from the court.
Repurchase Litigation. The Firm is defending a number of
actions brought by trustees, securities administrators and/
or master servicers of various MBS trusts on behalf of
purchasers of securities issued by those trusts. These cases
generally allege breaches of various representations and
warranties regarding securitized loans and seek repurchase
of those loans or equivalent monetary relief, as well as
indemnification of attorneys' fees and costs and other
remedies. The Firm has reached a settlement with Deutsche
Bank National Trust Company, acting as trustee for various
MBS trusts, and the Federal Deposit Insurance Corporation
(the "FDIC") in connection with the litigation related to a
significant number of MBS issued by Washington Mutual;
that case is described in the Washington Mutual Litigations
section below. Other repurchase actions, each specific to
one or more MBS transactions issued by JPMC and/or Bear
Stearns, are in various stages of litigation.
JPMorgan Chase & Co./2016 Annual Report
264
Underwriter Actions. The Firm is defending one remaining
action by a monoline insurer relating to Bear Stearns' role
solely as underwriter for another issuer's MBS offering. The
issuer is defunct.
Issuer Litigation - Individual Purchaser Actions. With the
exception of one remaining action, the Firm has settled all
of the individual actions brought against JPMC, Bear Stearns
and Washington Mutual as MBS issuers (and, in some cases,
also as underwriters of their own MBS offerings).
Mortgage-Backed Securities and Repurchase Litigation and
Related Regulatory Investigations. The Firm and affiliates
(together, "JPMC"), Bear Stearns and affiliates (together,
"Bear Stearns") and certain Washington Mutual affiliates
(together, "Washington Mutual") have been named as
defendants in a number of cases in their various roles in
offerings of mortgage-backed securities ("MBS"). Following
the settlements referred to below, the remaining civil cases
include one investor action, one action by a monoline
insurer relating to Bear Stearns' role solely as underwriter,
and actions for repurchase of mortgage loans. The Firm and
certain of its current and former officers and Board
members have also been sued in shareholder derivative
actions relating to the Firm's MBS activities, and one action
remains pending.
Madoff Litigation. A putative class action was filed in the
United States District Court for the District of New Jersey by
investors who were net winners (i.e., Madoff customers who
had taken more money out of their accounts than had been
invested) in Madoff's Ponzi scheme and were not included
in a prior class action settlement. These plaintiffs allege
violations of the federal securities law, as well as other state
and federal claims. A similar action was filed in the United
States District Court for the Middle District of Florida,
although it was not styled as a class action, and included
claims pursuant to Florida statutes. The Florida court
granted the Firm's motion to dismiss the case, and in August
2016, the United States Court of Appeals for the Eleventh
Circuit affirmed the dismissal. The plaintiffs have filed a
petition for writ of certiorari with the United States
Supreme Court. In addition, the same plaintiffs have re-filed
their dismissed state claims in Florida state court, where
the Firm's motion to dismiss is pending. The New Jersey
court granted a transfer motion to the United States District
Court for the Southern District of New York, which granted
the Firm's motion to dismiss, and the plaintiffs have filed an
appeal of that dismissal.
The Firm is one of the defendants in a number of putative
class actions alleging that defendant banks and ICAP
conspired to manipulate the U.S. dollar ISDAFIX rates.
Plaintiffs primarily assert claims under the federal antitrust
laws and Commodity Exchange Act. In April 2016, the Firm
settled the ISDAFIX litigation, along with certain other
banks. Those settlements have been preliminarily approved
by the Court.
the dismissal of plaintiffs' antitrust claims. That petition was
denied.
In the U.S. dollar LIBOR-related actions, the District Court
dismissed certain claims, including the antitrust claims, and
permitted other claims under the Commodity Exchange Act
and common law to proceed. In May 2016, the United
States Court of Appeals for the Second Circuit vacated the
dismissal of the antitrust claims and remanded the case to
the District Court to consider, among other things, whether
the plaintiffs have standing to assert antitrust claims. In July
2016, JPMorgan Chase and other defendants again moved
in the District Court to dismiss the antitrust claims, and in
December 2016, the District Court granted in part and
denied in part defendants' motion, finding that certain
plaintiffs lacked standing to assert antitrust claims.
Separately, in October 2016, JPMorgan Chase and other
defendants filed a petition to the U.S. Supreme Court
seeking review of the Second Circuit's decision that vacated
In addition, the Firm has been named as a defendant along
with other banks in a series of individual and putative class
actions filed in various United States District Courts. These
actions have been filed, or consolidated for pre-trial
purposes, in the United States District Court for the
Southern District of New York. In these actions, plaintiffs
make varying allegations that in various periods, starting in
2000 or later, defendants either individually or collectively
manipulated the U.S. dollar LIBOR, Yen LIBOR, Swiss franc
LIBOR, Euroyen TIBOR, EURIBOR, Singapore Interbank
Offered Rate ("SIBOR"), Singapore Swap Offer Rate ("SOR")
and/or the Bank Bill Swap Reference Rate ("BBSW") by
submitting rates that were artificially low or high. Plaintiffs
allege that they transacted in loans, derivatives or other
financial instruments whose values are affected by changes
in U.S. dollar LIBOR, Yen LIBOR, Swiss franc LIBOR, Euroyen
TIBOR, EURIBOR, SIBOR, SOR or BBSW and assert a variety
of claims including antitrust claims seeking treble damages.
These matters are in various stages of litigation.
Banking Federation ("EBF") in connection with the setting
of the EBF's Euro Interbank Offered Rates (“EURIBOR") and
to the Japanese Bankers' Association for the setting of
Tokyo Interbank Offered Rates ("TIBOR”), as well as
processes for the setting of U.S. dollar ISDAFIX rates and
other reference rates in various parts of the world during
similar time periods. The Firm is responding to and
continuing to cooperate with these inquiries. As previously
reported, the Firm has resolved EC inquiries relating to Yen
LIBOR and Swiss Franc LIBOR. In December 2016, the Firm
resolved ComCo inquiries relating to these same rates.
ComCo's investigation relating to EURIBOR, to which the
Firm and other banks are subject, continues. In December
2016, the EC issued a decision against the Firm and other
banks finding an infringement of European antitrust rules
relating to EURIBOR. The Firm has filed an appeal with the
European General Court. In June 2016, the DOJ informed
the Firm that the DOJ had closed its inquiry into LIBOR and
other benchmark rates with respect to the Firm without
taking action. Other inquiries have been discontinued
without any action against JPMorgan Chase, including by
the SEC, FCA and the Canadian Competition Bureau.
Notes to consolidated financial statements
263
JPMorgan Chase & Co./2016 Annual Report
Lehman Brothers Bankruptcy Proceedings. In January 2016,
JPMorgan Chase Bank, N.A. and Lehman Brothers Holdings
Inc. ("LBHI") and several of LBHI's subsidiaries reached an
agreement, approved by the Bankruptcy Court, resolving
several disputes between the parties. The January 2016
settlement did not resolve the following remaining
matters: In the Bankruptcy Court proceedings, LBHI and its
Official Committee of Unsecured Creditors filed an objection
to the claims asserted by JPMorgan Chase Bank, N.A.
against LBHI with respect to clearing advances made to
Lehman Brothers Inc., principally on the grounds that the
Firm had not conducted the sale of the securities collateral
held for its claims in a commercially reasonable
manner. LBHI also brought two claims objections relating to
securities lending claims and a group of other smaller
claims. In January 2017, the Firm entered into an
agreement to settle all of these remaining claims, and this
settlement has been approved by the Bankruptcy Court.
LIBOR and Other Benchmark Rate Investigations and
Litigation. JPMorgan Chase has received subpoenas and
requests for documents and, in some cases, interviews,
from federal and state agencies and entities, including the
U.S. Department of Justice ("DOJ"), the U.S. Commodity
Futures Trading Commission ("CFTC"), the U.S. Securities
and Exchange Commission ("SEC") and various state
attorneys general, as well as the European Commission
("EC"), the U.K. Financial Conduct Authority ("FCA"), the
Canadian Competition Bureau, the Swiss Competition
Commission ("ComCo") and other regulatory authorities and
banking associations around the world relating primarily to
the process by which interest rates were submitted to the
British Bankers Association ("BBA") in connection with the
setting of the BBA's London Interbank Offered Rate
("LIBOR") for various currencies, principally in 2007 and
2008. Some of the inquiries also relate to similar processes
by which information on rates is submitted to the European
2017.
Investment Management Litigation. The Firm is defending
two pending cases that are coordinated for pre-trial and
trial purposes, alleging that investment portfolios managed
by J.P. Morgan Investment Management (“JPMIM") were
inappropriately invested in securities backed by residential
real estate collateral. Plaintiffs Assured Guaranty (U.K.) and
Ambac Assurance UK Limited claim that JPMIM is liable for
total losses of more than $1 billion in market value of these
securities. Discovery has been completed. In January 2016,
plaintiffs filed a joint partial motion for summary judgment
in the coordinated actions. In February 2017, the Court
ruled in plaintiffs' favor as to the interpretation of an
applicable statutory provision and the rejection of a certain
defense, but otherwise preserved for trial the determination
of whether JPMIM breached the governing contract and is
liable for plaintiffs' claimed losses under the standard of
gross negligence. The trial is scheduled to begin in March
In addition, certain merchants have filed individual actions
against Visa and MasterCard, as well as against the Firm
and other banks, and those actions are proceeding.
Interchange Litigation. A group of merchants and retail
associations filed a series of class action complaints alleging
that Visa and MasterCard, as well as certain banks,
conspired to set the price of credit and debit card
interchange fees, enacted respective rules in violation of
antitrust laws, and engaged in tying/bundling and exclusive
dealing. The parties entered into an agreement to settle the
cases for a cash payment of $6.1 billion to the class
plaintiffs (of which the Firm's share is approximately 20%)
and an amount equal to ten basis points of credit card
interchange for a period of eight months to be measured
from a date within 60 days of the end of the opt-out period.
The agreement also provided for modifications to each
credit card network's rules, including those that prohibit
surcharging credit card transactions. In December 2013,
the District Court granted final approval of the settlement.
A number of merchants appealed to the United States Court
of Appeals for the Second Circuit, which, in June 2016,
vacated the District Court's certification of the class action
and reversed the approval of the class settlement. The case
has been remanded to the District Court for further
proceedings consistent with the appellate decision. Both the
plaintiffs and the defendants have filed petitions seeking
review by the U.S. Supreme Court of the Second Circuit's
decision.
General Motors Litigation. JPMorgan Chase Bank, N.A.
participated in, and was the Administrative Agent on behalf
of a syndicate of lenders on, a $1.5 billion syndicated Term
Loan facility ("Term Loan") for General Motors Corporation
("GM"). In July 2009, in connection with the GM bankruptcy
proceedings, the Official Committee of Unsecured Creditors
of Motors Liquidation Company ("Creditors Committee")
filed a lawsuit against JPMorgan Chase Bank, N.A., in its
individual capacity and as Administrative Agent for other
lenders on the Term Loan, seeking to hold the underlying
lien invalid based on the filing of a UCC-3 termination
statement relating to the Term Loan. In January 2015,
following several court proceedings, the United States Court
of Appeals for the Second Circuit reversed the Bankruptcy
Court's dismissal of the Creditors Committee's claim and
remanded the case to the Bankruptcy Court with
instructions to enter partial summary judgment for the
Creditors Committee as to the termination statement. The
proceedings in the Bankruptcy Court continue with respect
to, among other things, additional defenses asserted by
JPMorgan Chase Bank, N.A. and the value of additional
collateral on the Term Loan that was unaffected by the filing
of the termination statement at issue. In addition, certain
Term Loan lenders filed cross-claims against JPMorgan
Chase Bank, N.A. in the Bankruptcy Court seeking
indemnification and asserting various claims.
instrument. The second action was filed in the province of
Quebec, and seeks authorization to represent only those
persons in Quebec who engaged in FX transactions. In late
2016, the Firm settled the Canadian class actions; those
settlements are subject to Court approval.
Additional actions have been filed against third-party
trustees that relate to loan repurchase and servicing claims
involving trusts sponsored by JPMC, Bear Stearns and
Washington Mutual.
The Firm has entered into agreements with a number of
MBS trustees or entities that purchased MBS that toll
applicable statute of limitations periods with respect to
their claims, and has settled, and in the future may settle,
tolled claims. There is no assurance that the Firm will not be
named as a defendant in additional MBS-related litigation.
Derivative Actions. A shareholder derivative action against
the Firm, as nominal defendant, and certain of its current
and former officers and members of its Board of Directors
relating to the Firm's MBS activities is pending in California
federal court. Defendants have filed a motion to dismiss the
action.
Government Enforcement Investigations and Litigation. The
Firm is responding to an ongoing investigation being
conducted by the DOJ's Criminal Division and two United
States Attorney's Offices relating to MBS offerings
securitized and sold by the Firm and its subsidiaries.
Mortgage-Related Investigations and Litigation. In January
2017, a Consent Judgment was entered by the United
States District Court for the Southern District of New York
resolving allegations by the Civil Division of the United
States Attorney's Office for the Southern District of New
York that the Firm violated the Fair Housing Act and Equal
Credit Opportunity Act by giving pricing discretion to
independent mortgage brokers in its wholesale lending
distribution channel which, according to the government's
model, may have charged higher fees and interest rates to
African-American and Hispanic borrowers than non-
Hispanic White borrowers during the period between 2006
and 2009. The Firm denied liability but agreed to pay a
total of approximately $55 million to resolve this matter. In
addition, three municipalities have commenced litigation
against the Firm alleging violations of an unfair competition
law or the Fair Housing Act. The municipalities seek, among
other things, civil penalties for the unfair competition claim,
and, for the Fair Housing Act claims, damages resulting
from lost tax revenue and increased municipal costs
associated with foreclosed properties. The municipal
actions are stayed pending an appeal by the City of Los
Angeles to the United States Court of Appeals for the Ninth
Circuit, as well as the United States Supreme Court's review
of decisions of the United States Court of Appeals for the
Eleventh Circuit which held, among other things, that the
City of Miami has standing under the Fair Housing Act to
pursue similar claims against other banks.
The following table presents income statement- and balance
sheet-related information for JPMorgan Chase by major
international geographic area. The Firm defines
international activities for purposes of this footnote
presentation as business transactions that involve clients
residing outside of the U.S., and the information presented
below is based predominantly on the domicile of the client,
the location from which the client relationship is managed,
or the location of the trading desk. However, many of the
Firm's U.S. operations serve international businesses.
Note 32 - International operations
Notes to consolidated financial statements
JPMorgan Chase & Co./2016 Annual Report
267
In view of the inherent difficulty of predicting the outcome
of legal proceedings, particularly where the claimants seek
very large or indeterminate damages, or where the matters
present novel legal theories, involve a large number of
parties or are in early stages of discovery, the Firm cannot
state with confidence what will be the eventual outcomes of
the currently pending matters, the timing of their ultimate
resolution or the eventual losses, fines, penalties or impact
related to those matters. JPMorgan Chase believes, based
upon its current knowledge, after consultation with counsel
and after taking into account its current litigation reserves,
that the legal proceedings currently pending against
should not have a material adverse effect on the Firm's
consolidated financial condition. The Firm notes, however,
that in light of the uncertainties involved in such
proceedings, there is no assurance that the ultimate
resolution of these matters will not significantly exceed the
reserves it has currently accrued or that a matter will not
have material reputational consequences. As a result, the
outcome of a particular matter may be material to
JPMorgan Chase's operating results for a particular period,
depending on, among other factors, the size of the loss or
liability imposed and the level of JPMorgan Chase's income
for that period.
The Firm has established reserves for several hundred of its
currently outstanding legal proceedings. In accordance with
the provisions of U.S. GAAP for contingencies, the Firm
accrues for a litigation-related liability when it is probable
that such a liability has been incurred and the amount of
the loss can be reasonably estimated. The Firm evaluates its
outstanding legal proceedings each quarter to assess its
litigation reserves, and makes adjustments in such reserves,
upwards or downward, as appropriate, based on
management's best judgment after consultation with
counsel. During the years ended December 31, 2016, 2015
and 2014, the Firm's legal expense was a benefit of $(317)
million and an expense of $3.0 billion and $2.9 billion,
respectively. There is no assurance that the Firm's litigation
reserves will not need to be adjusted in the future.
defend itself vigorously in all such matters. Additional legal
proceedings may be initiated from time to time in the
future.
JPMorgan Chase & Co./2016 Annual Report
In addition to the various legal proceedings discussed
above, JPMorgan Chase and its subsidiaries are named as
defendants or are otherwise involved in a substantial
number of other legal proceedings. The Firm believes it has
meritorious defenses to the claims asserted against it in its
currently outstanding legal proceedings and it intends to
*
4,158 $ 347,647
The Firm, Deutsche Bank National Trust Company and the
FDIC have signed a settlement agreement to resolve (i)
pending litigation brought by Deutsche Bank National Trust
Company against the FDIC and JPMorgan Chase Bank, N.A.,
as defendants, relating to alleged breaches of certain
representations and warranties given by certain Washington
Mutual affiliates in connection with mortgage securitization
agreements and (ii) JPMorgan Chase Bank, N.A.'s
outstanding indemnification claims pursuant to the terms of
the Purchase & Assumption Agreement. The settlement is
subject to certain judicial approval procedures, and both
matters are stayed pending approval of the settlement.
Wendel. Since 2012, the French criminal authorities have
been investigating a series of transactions entered into by
senior managers of Wendel Investissement ("Wendel")
during the period from 2004 through 2007 to restructure
their shareholdings in Wendel. JPMorgan Chase Bank, N.A.,
Paris branch provided financing for the transactions to a
number of managers of Wendel in 2007. JPMorgan Chase
has cooperated with the investigation. The investigating
judges issued an ordonnance de renvoi on November 30,
2016, referring JPMorgan Chase Bank, N.A. to the French
tribunal correctionnel for alleged complicity in tax fraud. No
date for trial has been set by the court. The Firm has been
successful in legal challenges made to the Court of
Cassation, France's highest court, which have been referred
back to and remain pending before the Paris Court of
Appeal. In addition, civil proceedings have been commenced
against JPMorgan Chase Bank, N.A. by a number of the
managers. The claims are separate, involve different
allegations and are at various stages of proceedings.
favor of JPMorgan Chase Bank, N.A. on the question of
whether the Firm or the FDIC bears responsibility for
Washington Mutual Bank's repurchase obligations, holding
that JPMorgan Chase Bank, N.A. assumed only those
liabilities that were reflected on Washington Mutual Bank's
financial accounting records as of September 25, 2008, and
only up to the amount of the book value reflected therein.
The FDIC has appealed that ruling.
266
Washington Mutual Litigations. Proceedings related to
Washington Mutual's failure are pending before the United
States District Court for the District of Columbia and include
a lawsuit brought by Deutsche Bank National Trust
Company, initially against the FDIC and amended to include
JPMorgan Chase Bank, N.A. as a defendant, asserting an
estimated $6 billion to $10 billion in damages based upon
alleged breaches of certain representations and warranties
given by certain Washington Mutual affiliates in connection
with mortgage securitization agreements. The case includes
assertions that JPMorgan Chase Bank, N.A. may have
assumed liabilities for the alleged breaches of
representations and warranties in the mortgage
securitization agreements. In June 2015, the court ruled in
Referral Hiring Practices Investigations. In November 2016,
the Firm entered into settlements with DOJ, the SEC and the
Board of Governors of the Federal Reserve System (the
"Federal Reserve") to resolve those agencies' respective
investigations relating to a former hiring program for
candidates referred by clients, potential clients and
government officials in the Asia Pacific region. Other related
investigations are ongoing, and the Firm continues to
cooperate with these investigations.
Proprietary Products Investigations and Litigation. In
December 2015, JPMorgan Chase Bank, N.A. and J.P.
Morgan Securities LLC agreed to a settlement with the SEC,
and JPMorgan Chase Bank, N.A. agreed to a settlement with
the CFTC, regarding disclosures to clients concerning
conflicts associated with the Firm's sale and use of
proprietary products, such as J.P. Morgan mutual funds, in
the Firm's CCB and AWM wealth management businesses,
and the U.S. Private Bank's disclosures concerning the use
of hedge funds that pay placement agent fees to JPMorgan
Chase broker-dealer affiliates. The Firm settled with an
additional government authority in July 2016, and
continues to cooperate with inquiries from other
government authorities concerning disclosure of conflicts
associated with the Firm's sale and use of proprietary
products. A putative class action, which was filed in the
United States District Court for the Northern District of
Illinois on behalf of financial advisory clients from 2007 to
the present whose funds were invested in proprietary funds
and who were charged investment management fees, was
dismissed by the Court. The dismissal has been affirmed on
appeal.
Corporation. The principal actions against JPMorgan Chase
and its affiliates have been brought by a court-appointed
receiver for Petters and the trustees in bankruptcy
proceedings for three Petters entities. These actions
generally seek to avoid certain putative transfers in
connection with (i) the 2005 acquisition by Petters of
Polaroid, which at the time was majority-owned by OEP; (ii)
two credit facilities that JPMorgan Chase and other financial
institutions entered into with Polaroid; and (iii) a credit line
and investment accounts held by Petters. In January 2017,
the Court denied the defendants' motion to dismiss an
amended complaint filed by the plaintiffs.
Notes to consolidated financial statements
265
JPMorgan Chase & Co./2016 Annual Report
Petters Bankruptcy and Related Matters. JPMorgan Chase
and certain of its affiliates, including One Equity Partners
("OEP"), have been named as defendants in several actions
filed in connection with the receivership and bankruptcy
proceedings pertaining to Thomas J. Petters and certain
affiliated entities (collectively, "Petters") and the Polaroid
Municipal Derivatives Litigation. Several civil actions were
commenced in New York and Alabama courts against the
Firm relating to certain Jefferson County, Alabama (the
"County") warrant underwritings and swap transactions.
The claims in the civil actions generally alleged that the
Firm made payments to certain third parties in exchange for
being chosen to underwrite more than $3 billion in
warrants issued by the County and to act as the
counterparty for certain swaps executed by the County. The
County filed for bankruptcy in November 2011. In June
2013, the County filed a Chapter 9 Plan of Adjustment, as
amended (the "Plan of Adjustment”), which provided that
all the above-described actions against the Firm would be
released and dismissed with prejudice. In November 2013,
the Bankruptcy Court confirmed the Plan of Adjustment,
and in December 2013, certain sewer rate payers filed an
appeal challenging the confirmation of the Plan of
Adjustment. All conditions to the Plan of Adjustment's
effectiveness, including the dismissal of the actions against
the Firm, were satisfied or waived and the transactions
contemplated by the Plan of Adjustment occurred in
December 2013. Accordingly, all the above-described
actions against the Firm have been dismissed pursuant to
the terms of the Plan of Adjustment. The appeal of the
Bankruptcy Court's order confirming the Plan of Adjustment
remains pending.
JPMorgan Chase has also filed complaints in the United
States District Court for the District of Columbia against the
FDIC, in its corporate capacity as well as in its capacity as
receiver for Washington Mutual Bank, asserting multiple
claims for indemnification under the terms of the Purchase
& Assumption Agreement between JPMorgan Chase Bank,
N.A. and the FDIC relating to JPMorgan Chase Bank, N.A.'s
purchase of substantially all of the assets and certain
liabilities of Washington Mutual Bank (the "Purchase &
Assumption Agreement").
(d)
Asia and Pacific
6,151
CB delivers extensive industry knowledge, local expertise
and dedicated service to U.S. and U.S. multinational clients,
including corporations, municipalities, financial institutions
and nonprofit entities with annual revenue generally
ranging from $20 million to $2 billion. In addition, CB
provides financing to real estate investors and owners.
Partnering with the Firm's other businesses, CB provides
comprehensive financial solutions, including lending,
treasury services, investment banking and asset
management to meet its clients' domestic and international
financial needs.
Commercial Banking
maker in cash securities and derivative instruments, and
also offers sophisticated risk management solutions, prime
brokerage, and research. Markets & Investor Services also
includes Securities Services, a leading global custodian that
provides custody, fund accounting and administration, and
securities lending products principally for asset managers,
insurance companies and public and private investment
funds.
The CIB, which consists of Banking and Markets & Investor
Services, offers a broad suite of investment banking,
market-making, prime brokerage, and treasury and
securities products and services to a global client base of
corporations, investors, financial institutions, government
and municipal entities. Banking offers a full range of
investment banking products and services in all major
capital markets, including advising on corporate strategy
and structure, capital-raising in equity and debt markets, as
well as loan origination and syndication. Banking also
includes Treasury Services, which provides transaction
services, consisting of cash management and liquidity
solutions. Markets & Investor Services is a global market-
CCB offers services to consumers and businesses through
bank branches, ATMs, online, mobile and telephone
banking. CCB is organized into Consumer & Business
Banking (including Consumer Banking/Chase Wealth
Management and Business Banking), Mortgage Banking
(including Mortgage Production, Mortgage Servicing and
Real Estate Portfolios) and Card, Commerce Solutions &
Auto. Consumer & Business Banking offers deposit and
investment products and services to consumers, and
lending, deposit, and cash management and payment
solutions to small businesses. Mortgage Banking includes
mortgage origination and servicing activities, as well as
portfolios consisting of residential mortgages and home
equity loans. Card, Commerce Solutions & Auto issues credit
cards to consumers and small businesses, offers payment
processing services to merchants, originates and services
auto loans and leases, and services student loans.
Corporate & Investment Bank
Consumer & Community Banking
The following is a description of each of the Firm's business
segments, and the products and services they provide to
their respective client bases.
The Firm is managed on a line of business basis. There are
four major reportable business segments - Consumer &
Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset & Wealth Management. In
addition, there is a Corporate segment. The business
segments are determined based on the products and
services provided, or the type of customer served, and they
reflect the manner in which financial information is
currently evaluated by management. Results of these lines
of business are presented on a managed basis. For a further
discussion concerning JPMorgan Chase's business segments,
see Segment results of this footnote.
-
Note 33 Business segments
JPMorgan Chase & Co./2016 Annual Report
268
(d) Total assets for the U.K. were approximately $310 billion, $306 billion, and $434 billion at December 31, 2016, 2015 and 2014, respectively.
(c) Expense is composed of noninterest expense and the provision for credit losses.
(b) Revenue is composed of net interest income and noninterest revenue.
(a) Substantially reflects the U.S.
Total
673,252
1,899,022
5,255
16,490
21,745 $ 2,572,274
7,916
22,783
30,699 $
$
64,413
95,112 $
Asset & Wealth Management
AWM, with client assets of $2.5 trillion, is a global leader in
investment and wealth management. AWM clients include
institutions, high-net-worth individuals and retail investors
in many major markets throughout the world. AWM offers
investment management across most major asset classes
including equities, fixed income, alternatives and money
market funds. AWM also offers multi-asset investment
management, providing solutions for a broad range of
clients' investment needs. For Wealth Management clients,
AWM also provides retirement products and services,
brokerage and banking services, including trusts and
estates, loans, mortgages and deposits. The majority of
AWM's client assets are in actively managed portfolios.
Corporate
The Corporate segment consists of Treasury and CIO and
Other Corporate, which includes corporate staff units and
expense that is centrally managed. Treasury and CIO are
predominantly responsible for measuring, monitoring,
reporting and managing the Firm's liquidity, funding and
structural interest rate and foreign exchange risks, as well
as executing the Firm's capital plan. The major Other
Corporate units include Real Estate, Enterprise Technology,
Legal, Compliance, Finance, Human Resources, Internal
Audit, Risk Management, Oversight & Control, Corporate
Responsibility and various Other Corporate groups.
JPMorgan Chase & Co./2016 Annual Report
2014
2015
2016
2014
2015
2016
2014
2015
2016
2014
2015
$
2016
Asset & Wealth Management
Commercial Banking
Corporate & Investment Bank
Consumer & Community Banking
As of or for the year ended
December 31,
investments receiving tax credits and tax-exempt securities
is presented in the managed results on a basis comparable
to taxable investments and securities. This allows
management to assess the comparability of revenue from
year-to-year arising from both taxable and tax-exempt
sources. The corresponding income tax impact related to
tax-exempt items is recorded within income tax expense/
(benefit).
Segment results and reconciliation
The following tables provide a summary of the Firm's
segment results as of or for the years ended December 31,
2016, 2015 and 2014 on a managed basis. The Firm's
definition of managed basis starts with the reported U.S.
GAAP results and includes certain reclassifications to
present total net revenue (noninterest revenue and net
interest income) for each of the reportable business
segments on a FTE basis. Accordingly, revenue from
Segment results
Notes to consolidated financial statements
269
(in millions, except ratios)
$ 15,255
48,186
North America (a)
62,841
93,543 $
$
Total
138,747
48,185
534,579
1,817,119
18,746
23,042
48,221
71,263
North America (a)
5,696
7,660
14,620
22,280
Total international
253
415
1,508
1,923
Latin America and the Caribbean
1,285
1,910
4,241
$
30,702
$
24,442
16,227
24,143
Total international
44,567
147,357
1,051
269
421
1,626
2,047
Latin America and the Caribbean
1,605
70,969
4,478
Asia and Pacific
481,328 (d)
3,935 $
$
5,890
10,123 $
16,013 $
$
Europe/Middle East and Africa
2014
2,351,698
6,083
72,400 $
(985)
$
(in millions, except per share, ratio, headcount
data and where otherwise noted)
2015
2016
As of or for the period ended
(Table continued on next page)
Selected quarterly financial data (unaudited)
Supplementary information
271
(d) For information regarding the Parent Company's guarantees of its subsidiaries'
obligations, see Notes 21 and 29.
(c) At December 31, 2016, long-term debt that contractually matures in 2017
through 2021 totaled $26.9 billion, $21.2 billion, $13.0 billion, $21.9 billion
and $17.9 billion, respectively.
(b) Affiliates include trusts that issued guaranteed capital debt securities ("issuer
trusts"). For further discussion on these issuer trusts, see Note 21.
(a) On September 1, 2016, in connection with the Firm's 2016 Resolution
Submission, the Parent Company established the IHC, and during the fourth
quarter of 2016 contributed substantially all of its direct subsidiaries, other than
JPMorgan Chase Bank, N.A. (totaling $55.4 billion), as well as most of its other
assets (totaling $160.5 billion) and intercompany indebtedness to the IHC. Total
noncash assets contributed were $62.3 billion.
JPMorgan Chase & Co./2016 Annual Report
$ 464,618 $ 453,778
Total liabilities and stockholders' equity
3,722
11,940
179,233
206,205
247,573
3,831
11,224
181,789
210,428
254,190
Total stockholders' equity
Total liabilities(d)
Long-term debt (c)(d)
Other liabilities
$ 13,584 $ 11,310
Other borrowed funds
4th quarter 3rd quarter
Borrowings from, and payables to, subsidiaries
and affiliates(b)
2nd quarter 1st quarter
2nd quarter 1st quarter
9,183
9,312
7,412
8,622
9,402
10,742
10,210
9,543
14,883
14,500
15,368
14,263
13,837
13,638
24,066
$ 22,885 $ 22,780 $ 23,812 $
24,673 $ 24,380 $ 23,239
14,463
23,376 $
13,833
$
Pre-provision profit
Total noninterest expense
Total net revenue
Selected income statement data
4th quarter 3rd quarter
Liabilities and stockholders' equity
$ 464,618 $ 453,778
Total assets
74
Cash and due from banks at the
beginning of the year
58,674
46
Nonbank
32,454
524
(53)
(137)
39
Net increase/(decrease) in cash
and due from banks
Bank and bank holding company
Advances to, and receivables from, subsidiaries:
4,086
(47,937)
(3,197)
Net cash provided by/(used in)
financing activities
1,887
77
Loans
3,154
2,694
Available-for-sale securities
211
264
Investments (at equity) in subsidiaries and
affiliates:
Bank and bank holding company
200
8,251
1,053
$
18,088
34,205
3,921
$
3,873
$
4,550
Provision for credit losses
$
211
$
74
$
113
$
Cash and due from banks at the
end of the year
225,613
422,028
13,103
10,257
Other assets
Nonbank(b)
Cash interest paid
864
1,271
1,402
3,757.5
3,743.6
3,725.6
3,704.6
3,696.9
3,666.5
3,629.6
3,606.0
3,725.3
3,707.8
3,694.4
3,674.2
3,669.9
3,635.8
3,597.4
3,570.7
Average shares: Basic
1.45
1.54
1.68
1.32
1.35
1.55
Diluted
Market and per common share data
Market capitalization
Common shares at period-end
Close
54.27
59.65
50.07
58.53
52.50
57.05
58.76
66.10
Low
62.96
1.58
87.39 $ 67.90 $ 66.20 $ 64.13 $ 69.03 $ 70.61 $ 69.82 $
High
Share price:(a)
3,711.1
$ 224,818
$ 250,581
3,698.1
$ 224,438
3,681.1
$ 241,899
3,663.5
3,656.7
3,612.0
$ 307,295 $ 238,277 $ 224,449 $ 216,547
3,561.2
3,578.3
$
(921)
1.71
1.46
Net income
2,310
2,087
(74)
1,937
2,058
3,140
2,653
1,952
8,224
8,377
6,730
7,371
7,578
9,340
8,939
8,679
Income before income tax expense
959
935
682
1,251
1,824
$
6,727 $
6,286 $
6,200
$
1.56
$
1.70
1.34 $
$
1.36
1.56 $
1.60 $
1.73 $
$
Diluted
Basic
Per common share data
Income tax expense
5,914
6,290 $
$
6,804
$
5,434
$
5,520
$
Net income:
(840)
Cash income taxes paid, net
All other financing activities, net
(1,681)
2,483
(18,166)
Other operating adjustments
3,873
$ 10,653 $
$ 10,000
Bank and bank holding company
Nonbank(b)
14,714
17,023
13,873
and affiliates (b)
Cash dividends from subsidiaries
affiliates:
(1,227)
(2,303)
(3,113)
Parent company net loss
22,972
(905)
27,846
Less: Net income of subsidiaries
and affiliates (b)
2014
8,172
2015
14,716
794
(1,402)
1,165
Nonbank
Deposits with banking
779
1,438
852
Bank and bank holding company
Net change in:
primarily fees:
Investing activities
Other income from subsidiaries,
284
234
207
Other interest income
11,806
17,203
(7,406)
activities
Net cash provided by operating
378
443
Interest income from subsidiaries
2016
Dividends from subsidiaries and
Income
NM
NM
NM
NM
NM
Overhead ratio
NM
NM
NM
NM
NM
NM
Return on common equity
NA
NA
NA
931,206
768,204
799,426
Total assets
$ 224,631 $ 215,690 $ 207,400
$ 24,733 $ 24,442 $ 21,745
-
NM
2,490,972
2,351,698
2,572,274
(in millions)
Year ended December 31,
$ 24,442 $ 21,745
$ 24,733
Net income
Operating activities
2014
2015
2016
(in millions)
Year ended December 31,
52
Statements of cash flows(a)
The following tables present Parent Company-only financial
statements.
Note 34 - Parent Company
JPMorgan Chase & Co./2016 Annual Report
270
(a) Segment managed results reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/(benefit). These adjustments are
eliminated in reconciling items to arrive at the Firm's reported U.S. GAAP results.
64
63
58
10%
11%
10%
Statements of income and comprehensive income (a)
subsidiaries
26,745
30,085
$ 22,445 $ 22,735
$ 23,212
Comprehensive income
4,454
(5,778)
(4,062)
(47,483)
2,957
109
Other borrowed funds
990
(1,997)
(1,521)
Other comprehensive income, net
$ 24,442 $ 21,745
$ 24,733
Net income
Borrowings from subsidiaries
and affiliates(b)
8,239
7,920
13,973
of subsidiaries
Equity in undistributed net income
Net change in:
1,430
1,640
Proceeds from the issuance of
long-term debt
Payments of long-term debt
41,498
42,121
40,284
(29,298) (30,077) (31,050)
Balance sheets(a)
(6,990)
(7,873)
(8,476)
60,349
65,799
13,830
10,326
Trading assets
(4,760)
(5,616)
(9,082)
repurchased
876
74
Deposits with banking subsidiaries
$
Cash and due from banks
Treasury stock and warrants
Assets
8,847
5,893
Proceeds from issuance of
preferred stock
2015
2016
December 31, (in millions)
113 $
5,450
Income tax benefit
Dividends paid
12,076
321
1,793
Other changes in loans, net
169
98
105
affiliates(b)
Interest expense to subsidiaries and
12,076
120
353
Proceeds from paydowns and
maturities
Expense
16,717
21,311
16,045
Total income
Available-for-sale securities:
508
1,773
(846)
(31,040)
Financing activities
(319)
Other interest expense
Other income
3,720
4,413
subsidiaries
(15,945)
30,598
10,642
32
153
114
All other investing activities, net
Net cash provided by/(used in)
investing activities
and undistributed net income of
Income before income tax benefit
9,884
6,429
3,645
827
4,641
Advances to and investments in
subsidiaries and affiliates, net
(51,967)
(81)
14,882
Noninterest expense
1,643
2,611
Total expense
3,306
6,161
Collateral-dependent: A loan is considered to be collateral-
dependent when repayment of the loan is expected to be
provided solely by the underlying collateral, rather than by
cash flows from the borrower's operations, income or other
CLTV: Combined loan-to-value
CLO: Collateralized loan obligations
(231)
Client assets: Represent assets under management as well
as custody, brokerage, administration and deposit accounts.
Client deposits and other third-party liabilities: Deposits,
as well as deposits that are swept to on-balance sheet
liabilities (e.g., commercial paper, federal funds purchased
and securities loaned or sold under repurchase
agreements) as part of client cash management programs.
During the third quarter 2015 the Firm completed the
discontinuation of its commercial paper customer sweep
cash management program.
CIO: Chief Investment Office
CIB: Corporate & Investment Bank
Chase Bank USA, N.A.: Chase Bank USA, National
Association
CFTC: Commodity Futures Trading Commission
CFO: Chief Financial Officer
CET1 Capital: Common Equity Tier 1 Capital
CDS: Credit default swaps
through novation, an open offer system, or another legally
binding arrangement.
CCP: "Central counterparty" is a clearing house that
interposes itself between counterparties to contracts traded
in one or more financial markets, becoming the buyer to
every seller and the seller to every buyer and thereby
ensuring the future performance of open contracts. A CCP
becomes counterparty to trades with market participants
CCAR: Comprehensive Capital Analysis and Review
CCB: Consumer & Community Banking
CCO: Chief Compliance Officer
CB: Commercial Banking
Card Services includes the Credit Card and Commerce
Solutions businesses.
BHC: Bank holding company
Benefit obligation: Refers to the projected benefit
obligation for pension plans and the accumulated
postretirement benefit obligation for OPEB plans.
Beneficial interests issued by consolidated VIES:
Represents the interest of third-party holders of debt,
equity securities, or other obligations, issued by VIES that
JPMorgan Chase consolidates.
resources.
Auto loan and lease origination volume: Dollar amount of
auto loans and leases originated.
CEO: Chief Executive Officer
CBB: Consumer & Business Banking
CTC: CIO, Treasury and Corporate
Commercial Card: provides a wide range of payment
services to corporate and public sector clients worldwide
through the commercial card products. Services include
procurement, corporate travel and entertainment, expense
management services, and business-to-business payment
solutions.
AUM: "Assets under management": Represent assets
managed by AWM on behalf of its Private Banking,
Institutional and Retail clients. Includes "Committed capital
not Called," on which AWM earns fees.
Eligible LTD: Long-term debt satisfying certain eligibility
criteria
EC: European Commission
E&P: Exploration & Production
DVA: Debit valuation adjustment
DRPC: Directors' Risk Policy Committee
DOL: U.S. Department of Labor
DOJ: U.S. Department of Justice
Dodd-Frank Act: Wall Street Reform and Consumer
Protection Act
Deposit margin/deposit spread: Represents net interest
income expressed as a percentage of average deposits.
Distributed denial-of-service attack: The use of a large
number of remote computer systems to electronically send
a high volume of traffic to a target website to create a
service outage at the target. This is a form of cyberattack.
DFAST: Dodd-Frank Act Stress Test
Debit and credit card sales volume: Dollar amount of card
member purchases, net of returns.
CVA: Credit valuation adjustments
CRO: Chief Risk Officer
Criticized: Criticized loans, lending-related commitments
and derivative receivables that are classified as special
mention, substandard and doubtful categories for
regulatory purposes and are generally consistent with a
rating of CCC+/Caal and below, as defined by S&P and
Moody's.
another party (the protection seller). Upon the occurrence
of a credit event by the reference entity, which may include,
among other events, the bankruptcy or failure to pay its
obligations, or certain restructurings of the debt of the
reference entity, neither party has recourse to the reference
entity. The protection purchaser has recourse to the
protection seller for the difference between the face value
of the CDS contract and the fair value at the time of settling
the credit derivative contract. The determination as to
whether a credit event has occurred is generally made by
the relevant International Swaps and Derivatives
Association ("ISDA") Determinations Committee.
Glossary of Terms and Acronyms
279
JPMorgan Chase & Co./2016 Annual Report
Credit derivatives: Financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) which allow one
party (the protection purchaser) to transfer that risk to
Core loans: Represents loans considered central to the
Firm's ongoing businesses; core loans exclude loans
classified as trading assets, runoff portfolios, discontinued
portfolios and portfolios the Firm has an intent to exit.
Credit cycle: A period of time over which credit quality
improves, deteriorates and then improves again (or vice
versa). The duration of a credit cycle can vary from a couple
of years to several years.
COO: Chief Operating Officer
Commerce Solutions is a business that primarily processes
transactions for merchants.
AUC: Assets under custody
(184)
AOCI: Accumulated other comprehensive income/(loss)
(20)
17
183
184
(1)
3
20
(17)
278
Change in interest expense
Change in net interest income
(a) Includes commercial paper.
Non-U.S.
U.S.
Intercompany funding:
6
10
(4)
(18)
(19)
1
20
Embedded derivatives: are implicit or explicit terms or
features of a financial instrument that affect some or all of
the cash flows or the value of the instrument in a manner
similar to a derivative. An instrument containing such terms
or features is referred to as a "hybrid." The component of
the hybrid that is the non-derivative instrument is referred
to as the "host." For example, callable debt is a hybrid
instrument that contains a plain vanilla debt instrument
(i.e., the host) and an embedded option that allows the
issuer to redeem the debt issue at a specified date for a
(3)
1
(183)
65
AWM: Asset & Wealth Management
Alternative assets: The following types of assets constitute
alternative investments - hedge funds, currency, real estate,
private equity and other investment funds designed to focus
on nontraditional strategies.
Allowance for loan losses to total loans: Represents
period-end allowance for loan losses divided by retained
loans.
ALCO: Asset Liability Committee
AFS: Available-for-sale
Active foreclosures: Loans referred to foreclosure where
formal foreclosure proceedings are ongoing. Includes both
judicial and non-judicial states.
ABS: Asset-backed securities
2016 Annual Report or 2016 Form 10-K: Annual report on
Form 10-K for year ended December 31, 2016, filed with
the U.S. Securities and Exchange Commission.
Glossary of Terms and Acronyms
JPMorgan Chase & Co./2016 Annual Report
ARM: Adjustable rate mortgage(s)
1
$
1,480
$
2,672
(434)
(599)
165
2,355
2,290
(573) $
$ 3,245 $
(1,479) $
280
(d)
a floating rate instrument is not a hybrid composed of a
fixed-rate instrument and an interest rate swap.
MMDA: Money Market Deposit Accounts
MD&A: Management's discussion and analysis
MBS: Mortgage-backed securities
Master netting agreement: An agreement between two
counterparties who have multiple contracts with each other
that provides for the net settlement of all contracts, as well
as cash collateral, through a single payment, in a single
currency, in the event of default on or termination of any
one contract.
believes this provides information to enable investors to
understand the underlying operational performance and
trends of the particular business segment and facilitates a
comparison of the business segment with the performance
of competitors.
Glossary of Terms and Acronyms
281
JPMorgan Chase & Co./2016 Annual Report
The LTV ratio considering all available lien positions, as well
as unused lines, related to the property. Combined LTV
ratios are used for junior lien home equity products.
Managed basis: A non-GAAP presentation of financial
results that includes reclassifications to present revenue on
a fully taxable-equivalent basis. Management uses this non-
GAAP financial measure at the segment level, because it
Combined LTV ratio
An estimate of the LTV as of a certain date. The current
estimated LTV ratios are calculated using estimated
collateral values derived from a nationally recognized home
price index measured at the metropolitan statistical area
("MSA") level. These MSA-level home price indices consist of
actual data to the extent available and forecasted data
where actual data is not available. As a result, the estimated
collateral values used to calculate these ratios do not
represent actual appraised loan-level collateral values; as
such, the resulting LTV ratios are necessarily imprecise and
should therefore be viewed as estimates.
Current estimated LTV ratio
The LTV ratio at the origination date of the loan. Origination
date LTV ratios are calculated based on the actual appraised
values of collateral (i.e., loan-level data) at the origination
date.
LTV: "Loan-to-value": For residential real estate loans, the
relationship, expressed as a percentage, between the
principal amount of a loan and the appraised value of the
collateral (i.e., residential real estate) securing the loan.
Origination date LTV ratio
LTIP: Long-term incentive plan
Loss emergence period: Represents the time period
between the date at which the loss is estimated to have
been incurred and the realization of that loss.
LOB: Line of business
LLC: Limited Liability Company
LIBOR: London Interbank Offered Rate
LGD: Loss given default
LDA: Loss Distribution Approach
Moody's: Moody's Investor Services
Mortgage origination channels:
Retail - Borrowers who buy or refinance a home through
direct contact with a mortgage banker employed by the
Firm using a branch office, the Internet or by phone.
Borrowers are frequently referred to a mortgage banker by
a banker in a Chase branch, real estate brokers, home
builders or other third parties.
Correspondent - Banks, thrifts, other mortgage banks and
other financial institutions that sell closed loans to the Firm.
Mortgage product types:
251
JPMorgan Chase & Co./2016 Annual Report
-The change in the fair value of the MSR asset due to
the collection or realization of expected cash flows.
Risk management represents the components of
Mortgage Servicing's MSR asset that are subject to ongoing
risk management activities, together with derivatives and
other instruments used in those risk management activities.
Net production revenue: Includes net gains or losses on
originations and sales of mortgage loans, other production-
related fees and losses related to the repurchase of
previously sold loans.
· Actual gross income earned from servicing third-party
mortgage loans, such as contractually specified
servicing fees and ancillary income; and
-
Operating revenue predominantly represents the return on
Mortgage Servicing's MSR asset and includes:
Net mortgage servicing revenue includes the following
components:
Net charge-off/(recovery) rate: Represents net charge-
offs/(recoveries) (annualized) divided by average retained
loans for the reporting period.
Net Capital Rule: Rule 15c3-1 under the Securities
Exchange Act of 1934.
NAV: Net Asset Value
LCR: Liquidity coverage ratio
NA: Data is not applicable or available for the period
presented.
MSR: Mortgage servicing rights
Subprime loans are loans that, prior to mid-2008, were
offered to certain customers with one or more high risk
characteristics, including but not limited to: (i) unreliable or
poor payment histories; (ii) a high LTV ratio of greater than
80% (without borrower-paid mortgage insurance); (iii) a
high debt-to-income ratio; (iv) an occupancy type for the
loan is other than the borrower's primary residence; or (v) a
history of delinquencies or late payments on the loan.
MSA: Metropolitan statistical areas
Subprime
Prime mortgage loans are made to borrowers with good
credit records who meet specific underwriting
requirements, including prescriptive requirements related
to income and overall debt levels. New prime mortgage
borrowers provide full documentation and generally have
reliable payment histories.
Prime
converts the loan to a variable-rate fully amortizing loan
upon meeting specified loan balance and anniversary date
triggers.
282
The option ARM real estate loan product is an adjustable-
rate mortgage loan that provides the borrower with the
option each month to make a fully amortizing, interest-only
or minimum payment. The minimum payment on an option
ARM loan is based on the interest rate charged during the
introductory period. This introductory rate is usually
significantly below the fully indexed rate. The fully indexed
rate is calculated using an index rate plus a margin. Once
the introductory period ends, the contractual interest rate
charged on the loan increases to the fully indexed rate and
adjusts monthly to reflect movements in the index. The
minimum payment is typically insufficient to cover interest
accrued in the prior month, and any unpaid interest is
deferred and added to the principal balance of the loan.
Option ARM loans are subject to payment recast, which
Alt-A loans are generally higher in credit quality than
subprime loans but have characteristics that would
disqualify the borrower from a traditional prime loan. Alt-A
lending characteristics may include one or more of the
following: (i) limited documentation; (ii) a high CLTV ratio;
(iii) loans secured by non-owner occupied properties; or (iv)
a debt-to-income ratio above normal limits. A substantial
proportion of the Firm's Alt-A loans are those where a
borrower does not provide complete documentation of his
or her assets or the amount or source of his or her income.
Option ARMS
Alt-A
Multi-asset: Any fund or account that allocates assets under
management to more than one asset class.
specified amount (i.e., the embedded derivative). However,
JPMorgan Securities: J.P. Morgan Securities LLC
Loan-equivalent: Represents the portion of the unused
commitment or other contingent exposure that is expected,
based on average portfolio historical experience, to become
drawn prior to an event of a default by an obligor.
JPMorgan Chase Bank, N.A.: JPMorgan Chase Bank,
National Association
FSB: Financial Stability Board
Free standing derivatives: a derivative contract entered
into either separate and apart from any of the Firms other
financial instruments or equity transactions. Or, in
conjunction with some other transaction and is legally
detachable and separately exercisable.
FRC: Firmwide Risk Committee
Forward points: Represents the interest rate differential
between two currencies, which is either added to or
subtracted from the current exchange rate (i.e., “spot rate")
to determine the forward exchange rate.
Firm: JPMorgan Chase & Co.
FICO score: A measure of consumer credit risk provided by
credit bureaus, typically produced from statistical models
by Fair Isaac Corporation utilizing data collected by the
credit bureaus.
FHLB: Federal Home Loan Bank
FHA: Federal Housing Administration
FFIEC: Federal Financial Institutions Examination Council
FFELP: Federal Family Education Loan Program
Fee share: Proportion of fee revenue based on estimates of
investment banking fees generated across the industry from
investment banking transactions in M&A, equity and debt
underwriting, and loan syndications. Source: Dealogic, a
third-party provider of investment banking fee competitive
analysis and volume-based league tables for the above
noted industry products.
Federal Reserve: The Board of the Governors of the Federal
Reserve System
FDIC: Federal Deposit Insurance Corporation
FDIA: Federal Depository Insurance Act
FCC: Firmwide Control Committee
FCA: Financial Conduct Authority
FASB: Financial Accounting Standards Board
Fannie Mae: Federal National Mortgage Association
EU: European Union
ETD: "Exchange-traded derivatives": Derivative contracts
that are executed on an exchange and settled via a central
clearing house.
ERISA: Employee Retirement Income Security Act of 1974
EPS: Earnings per share
FTE: Fully taxable equivalent
FVA: Funding valuation adjustment
JPMorgan Chase & Co./2016 Annual Report
Glossary of Terms and Acronyms
JPMorgan Chase: JPMorgan Chase & Co.
ISDA: International Swaps and Derivatives Association
Investment-grade: An indication of credit quality based on
JPMorgan Chase's internal risk assessment system.
"Investment grade" generally represents a risk profile
similar to a rating of a "BBB-"/"Baa3" or better, as defined
by independent rating agencies.
Interchange income: A fee paid to a credit card issuer in
the clearing and settlement of a sales or cash advance
transaction.
All TDRS (both wholesale and consumer), including ones
that have returned to accrual status
All wholesale nonaccrual loans
•
•
Impaired loan: Impaired loans are loans measured at
amortized cost, for which it is probable that the Firm will be
unable to collect all amounts due, including principal and
interest, according to the contractual terms of the
agreement. Impaired loans include the following:
IHC: JPMorgan Chase Holdings LLC, an intermediate holding
company
JPMorgan Clearing: J.P. Morgan Clearing Corp.
ICAAP: Internal capital adequacy assessment process
IDI: Insured depository institutions
Home equity - junior lien: Represents loans and
commitments where JPMorgan Chase holds a security
interest that is subordinate in rank to other liens.
Households: A household is a collection of individuals or
entities aggregated together by name, address, tax
identifier and phone. Reported on a one-month lag.
HQLA: High quality liquid assets
Home equity-senior lien: Represents loans and
commitments where JPMorgan Chase holds the first
security interest on the property.
HELOC: Home equity line of credit
HELOAN: Home equity loan
Headcount-related expense: Includes salary and benefits
(excluding performance-based incentives), and other
noncompensation costs related to employees.
HAMP: Home affordable modification program
GSIB: Global systemically important banks
G7 government bonds: Bonds issued by the government of
one of the G7 nations.
G7: Group of Seven nations: Countries in the G7 are
Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
FX: Foreign exchange
HTM: Held-to-maturity
1,147
Ginnie Mae: Government National Mortgage Association
GSE: Fannie Mae and Freddie Mac
219
0.19%
1,633
$
872,893
$
0.14%
1,252
$
876,840
$
2,447,235
(i)
$
1,316
62
2,469,409
$
138,792
1,067
25
8,387
6,902
48,029
47,445
146,343
67,123
(i)
609
4,435
284,940
0.84
405
47,974
0.88
435
49,200
0.32
712
220,137
192,510
0.30
207,810
0.22
134
59,916
0.29
110
38,140
0.29
604
208,560
0.32
622
73,290
116,650
105,489
9,106
315,855
(h)
6.28
2,158
34,359
6.07
2,556
42,125
2.39
7,617
(h)
318,970
6,550
273,730
3.51
7,386
210,609
3.24
6,694
206,385
(0.43)
(f)
(501)
2.39
2.88
353,329
9,775
25,650
22,042
(15,418)
(13,885)
2.56
52,516
2,049,093
2.49
52,083
2,088,242
1.62
663
40,879
1.68
652
38,811
4.38
(g)
32,394
739,175
4.23
33,321
(g)
787,318
2.77
1.56
116,540
269,814
1.63
99,354
3.29
3,825
116,211
0.03
9
29,667
(0.46)
(341)
73,297
(c)
3,548
1.19
92,466
Securities:
Non-U.S.
U.S.
Trading assets - debt instruments:
Non-U.S.
U.S.
Securities borrowed:
Non-U.S.
1.03
1,166
1,099
112,902
3.57
Non-U.S.
Interest-bearing liabilities
2.72
57,110
2,101,604
2.20
875
39,782
2.25
1,756
78,165
4.45
U.S.
35,110
Total interest-earning assets
Other assets, predominantly U.S.
Non-U.S.
U.S.
Loans:
1.97
1,229
62,661
3.22
6,971
216,726
788,213
Federal funds sold and securities purchased under resale agreements:
U.S.
0.25
155
207,400
17,018
2,469,409
$
239,730
928
215,690
24,040
2,222,817
2,229,679
81,111
(d)
79,293
64,716
16,246
17,282
391,408
418,948
0.47
7,897
1,679,294
0.45
7,463
1,649,440
54,758
$
224,418
2,447,235
$
0.52%
1,708
328,831 $
63,329
$
Non-U.S.
U.S.
Deposits with banks:
Average rate
Interest
Average balance
2016
Interest-earning assets
(Taxable-equivalent interest and rates; in millions, except rates)
Year ended December 31,
(Table continued on next page)
the location of the office recording the transaction.
Intercompany funding generally consists of dollar-
denominated deposits originated in various locations that
are centrally managed by Treasury and CIO.
Presented below is a summary of interest rates and interest
differentials segregated between U.S. and non-U.S.
operations for the years 2014 through 2016. The
segregation of U.S. and non-U.S. components is based on
Interest rates and interest differential analysis of net interest income - U.S. and non-U.S.
275
JPMorgan Chase & Co./2016 Annual Report
2.09%
2.18
44,619
$
2.04%
2.14
44.620
4,409
Interest-bearing deposits:
(0.50)
(532)
(332)
102,964
Securities borrowed
(f)
0.48%
1.10
2,265
205,368
Federal funds sold and securities purchased under resale agreements
1,863
$
392,160
(0.32)
$
Average
rate
Interest(e)
2016
balance
Average
Assets
(Taxable-equivalent interest and rates; in millions, except rates)
Year ended December 31,
statements of income, adjusted to present interest income
and average rates earned on assets exempt from income
taxes (primarily federal taxes) on a basis comparable with
other taxable investments. The incremental tax rate used
for calculating the taxable-equivalent adjustment was
approximately 38% in 2016, 2015 and 2014.
(Table continued on next page)
Consolidated average balance sheet, interest and rates
Provided below is a summary of JPMorgan Chase's
consolidated average balances, interest rates and interest
differentials on a taxable-equivalent basis for the years
2014 through 2016. Income computed on a taxable-
equivalent basis is the income reported in the Consolidated
Deposits with banks
Distribution of assets, liabilities and stockholders' equity; interest rates and interest differentials
Trading assets
7,373
Mortgage servicing rights
Goodwill
Trading assets derivative receivables
Trading assets - equity instruments
Cash and due from banks
Allowance for loan losses
Total interest-earning assets
Other assets(b)
Loans
(g)
2.94
215,565
8,200
Total securities
(h)
6.03
2,662
44,176
Non-taxable securities (a)
2.35
5,538
235,211
Taxable securities
3.42
279,387
273
JPMorgan Chase & Co./2016 Annual Report
(f)
14,535 $
1.78%
14,341 $ 14,201 $
1.63%
1.67%
1.66%
1.64%
1.61%
$
15,304 $ 15,187 $ 15,008
$
14,854
1.55%
Allowance for loan losses to total retained loans
$
14,658
Allowance for credit losses
4th quarter 3rd quarter
2nd quarter 1st quarter
3rd quarter
4th quarter
2015
2016
Credit quality metrics
(in millions, except ratio data)
As of or for the period ended
(Table continued from previous page)
Supplementary information
2nd quarter 1st quarter
1.86%
Allowance for loan losses to retained loans
excluding purchased credit-impaired loans(f)
(d) Ratios presented are calculated under the Basel III Transitional rules and for the capital ratios represent the Collins Floor. See Capital Risk Management on pages 76-85 for additional information on Basel III.
Included unsecured long-term debt of $212.6 billion, $226.8 billion, $220.6 billion, $216.1 billion, $211.8 billion, $214.6 billion, $209.1 billion, $209.0 billion respectively, for the periods presented.
Excludes the impact of residential real estate PCI loans, a non-GAAP financial measure. For further discussion of these measures, see Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial
Measures and Key Performance Measures on pages 48-50. For further discussion, see Allowance for credit losses on pages 105-107.
(e)
(c) HQLA represents the amount of assets that qualify for inclusion in the liquidity coverage ratio under the U.S. rule ("U.S. LCR"). For additional information, see HQLA on page 111.
(b) TBVPS and ROTCE are non-GAAP financial measures. For further discussion of these measures, see Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures and Key Financial
Performance Measures on pages 48-50.
Note: Effective January 1, 2016, the Firm adopted new accounting guidance related to (1) the recognition and measurement of DVA on financial liabilities where the fair value option has been
elected, and (2) the accounting for employee stock-based incentive payments. For additional information, see Accounting and Reporting Developments on pages 135-137 and Notes 3, 4, and 25.
(a) Share prices are from the New York Stock Exchange.
0.53%
0.57%
0.49%
0.52%
0.53%
1,052
1,007
7,714
7,588 $
1.52
1.45
1.37
1.40
7,034 $ 7,294 $
1,064
963
$ 7,779 $ 7,757 $ 8,023 $
1,121
1,181
1,110
0.51%
0.56%
1.40
1.37
1.34
7,535
1,280
0.58%
Net charge-off rate
Net charge-offs
$
Nonperforming assets
Other intangible assets:
(f)
866,378
4.26
(i) Reflects a benefit from the favorable market environments for dollar-roll financings.
(h) The annualized rate for securities based on amortized cost was 2.99% in 2016, 2.94% in 2015, and 2.82% in 2014, and does not give effect to changes in fair value that are
reflected in AOCI.
(f) Securities borrowed's negative interest income and yield, for the years ended December 31, 2016, 2015 and 2014, are a result of client-driven demand for certain securities
combined with the impact of low interest rates; the offset of this stock borrow activity is reflected as lower net interest expense reported within short-term and other liabilities.
(g) Fees and commissions on loans included in loan interest amounted to $808 million in 2016, $936 million in 2015, and $1.1 billion in 2014.
(e) Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(d) The ratio of average stockholders' equity to average assets was 10.2% for 2016, 9.7% for 2015, and 9.2% for 2014. The return on average stockholders' equity, based on net
income, was 9.9% for 2016, 10.2% for 2015, and 9.7% for 2014.
2.25
47,292
$
2.13%
(d)
26,068
224,631
250,699
2,461,619
274
$
77,910
55,927
20,737
402,698
0.59
9,818
1,653,648
1.88
5,564
295,573
1.25
2,210,920
504
JPMorgan Chase & Co./2016 Annual Report
(Table continued from previous page)
105,273
0.32%
0.71
1,642
230,489
0.77
1,592
206,637
1,157
$
358,072
$
Within the Consolidated average balance sheets, interest and rates summary, the principal amounts of nonaccrual loans have
been included in the average loan balances used to determine the average interest rate earned on loans. For additional
information on nonaccrual loans, including interest accrued, see Note 14.
0.29%
$
427,963
$
Average
rate
Interest(e)
Average
balance
2014
Average
rate
Interest(e)
2015
Average
balance
1,250
40,180
0.59
1,170
Noninterest-bearing deposits
Total interest-bearing liabilities
Long-term debt
Beneficial interests issued by consolidated VIES
Trading liabilities - debt, short-term and other liabilities(c)
Federal funds purchased and securities loaned or sold under repurchase agreements
Commercial paper
Interest-bearing deposits
Liabilities
Total assets
Other assets
Other intangibles
Trading liabilities - equity instruments
Purchased credit card relationships
47,310
70,897
95,528
18,660
(13,965)
2.72
57,110
2,101,604
2.20
875
39,782
5,520
Trading liabilities - derivative payables
All other liabilities, including the allowance for lending-related commitments
Total liabilities
198,904
0.90
135
0.61
1,089
178,720
15,001
0.15%
1,356
$
925,270
+A
$
$ 2,461,619
905
135,143
17
(c) Includes brokerage customer payables.
(b) Includes margin loans.
(a) Represents securities that are tax exempt for U.S. Federal income tax purposes.
Net interest income and net yield on interest-earning assets
Interest rate spread
Total liabilities and stockholders' equity
Total stockholders' equity
Common stockholders' equity
Preferred stock
Stockholders' equity
36,866
U.S.
1.40
1,029
266
321
(55)
Non-U.S.
U.S.
agreements:
196
(103)
33 $
(156)
53
(74)
(133)
(58)
163 $
687
$
1,011
(324) $
59
Net
change
Rate
Volume
Net
change
Rate
Volume
to change in:
$
2015 versus 2014
Increase/(decrease) due
239
56
(64)
317
U.S.
Trading assets - debt instruments:
(42)
(28)
(14)
(21)
(21)
11
23
181
(12)
197
24
21
Non-U.S.
U.S.
Securities borrowed:
(231)
(94)
(137)
407
351
221
to change in:
Increase/(decrease) due
2016 versus 2015
0.39%
7,897
2,049,093 $
$
0.36%
7,463
2,088,242 $
$
369,799
438,802
0.47
$
7,897
0.45
7,463
1,649,440
176
122,467
(7)
50,517
(176)
(122,467)
7
(50,517)
1,679,294
44,620
2.14%
$
Federal funds sold and securities purchased under resale
Non-U.S.
U.S.
Deposits with banks:
Interest-earning assets
(On a taxable-equivalent basis; in millions)
Year ended December 31,
The table below presents an analysis of the effect on net interest income from volume and rate changes for the periods 2016
versus 2015 and 2015 versus 2014. In this analysis, when the change cannot be isolated to either volume or rate, it has been
allocated to volume.
Changes in net interest income, volume and rate analysis
277
22.6
28.9
21.1
24.7
JPMorgan Chase & Co./2016 Annual Report
1.39
7,601
1.42
6,587
2.46
37,018
2.34
38,033
2.18%
44,619
253
0.33
(100)
Non-U.S.
Change in interest income
3,992
(350)
3,642
2,829
(1,526)
1,303
(220)
123
(97)
(324)
Other assets, predominantly U.S.
(52)
21
202
223
(36)
25
(11)
3,310
1,717
5,027
1,645
(2,078)
(376)
(433)
Non-U.S.
Loans:
703,738
(473)
Non-U.S.
(24)
450
426
(27)
(192)
(219)
Securities:
U.S.
U.S.
Non-U.S.
(220)
295
226
(136)
90
(1,051)
(150)
(1,201)
(918)
159
(759)
515
Interest-bearing liabilities
Interest-bearing deposits:
U.S.
U.S.
(24)
504
480
66
(176)
(110)
Non-U.S.
14
79
93
Trading liabilities - debt, short-term and other liabilities: (a)
(81)
(4)
Beneficial interests issued by consolidated VIES, predominantly
U.S.
(113)
182
69
69
11
19
30
Long-term debt:
U.S.
77
(231)
(181)
(50)
76
192
268
10
(62)
(52)
Non-U.S.
(21)
(143)
(164)
(26)
(303)
(329)
Federal funds purchased and securities loaned or sold under
repurchase agreements:
U.S.
(113)
520
407
(12)
248
236
Non-U.S.
26
47
73
(373)
43
$
0.41
Average rate
Interest
Average balance
2014
2015
(Table continued from previous page)
For further information, see the “Net interest income” discussion in Consolidated Results of Operations on pages 40-42.
JPMorgan Chase & Co./2016 Annual Report
276
(d) Reflects a benefit from the favorable market environments for dollar-roll financings.
(c) Securities borrowed's negative interest income and yield, for the years ended December 31, 2016, 2015 and 2014, are a result of client-driven demand for certain
securities combined with the impact of low interest rates; the offset of this stock borrow activity is reflected as lower net interest expense reported within trading
liabilities debt, short-term and other liabilities.
Average balance
(b) Represents the amount of noninterest-bearing liabilities funding interest-earning assets.
(a) Includes commercial paper.
Liabilities
Assets
Percentage of total assets and liabilities attributable to non-U.S. operations:
1.42
6,587
2.49
40,705
2.25%
47,292
0.47%
23.1
20.7
Interest
Average rate
$
(562) (c
78,815
0.88
923
104,677
0.79
692
87,692
0.57
719
125,812
0.76
900
118,945
1.11
332
0.25%
825
328,145 $
29,927
0.59
229
$
0.26%
1,021
388,833 $
39,130
9,818
(0.71)
2,101,604 $
$
447,956
1.52
1,219
80,117
Non-U.S.
0.06
86
133,788
U.S.
(c)
Trading liabilities - debt, short-term and other liabilities:(a)
0.56
Beneficial interests issued by consolidated VIES, predominantly U.S.
316
Non-U.S.
0.63
773
121,945
U.S.
Federal funds purchased and securities loaned or sold under repurchase agreements:
0.15
327
221,532
Non-U.S.
0.15
56,775
40,180
504
1.25
Non-U.S.
U.S.
Net interest income and net yield:
Total investable funds
Noninterest-bearing liabilities (b)
0.59
9,818
1,653,648
Total interest-bearing liabilities
(10)
20,405
Non-U.S.
10
(20,405)
U.S.
Intercompany funding:
0.25
31
12,404
Non-U.S.
1.95
5,533
283,169
U.S.
Long-term debt:
13,088
77,228
$
(c)
62,535
0.47
51,901
0.09
130
146,025
0.26
366
140,609
(d)
(d)
0.33
474
820
0.21
491
238,084
0.13
813
620,708
0.12
761
638,756
2.56
52,516
2,049,093
252,185
0.76
(c)
(c)
49
(573)
11,907
1.70
4,366
256,726
1.61
4,386
273,033
0.84
405
47,974
0.88
435
49,200
1.33
1,130
85,282
1.42
1,126
79,112
(0.15)
(284)
194,771
(0.24)
(394)
166,838
2.49
52,083
243
1.62
193,856
3.33
6,676
200,240
3.31
3,341
100,931
3.12
3,122
99,920
3.69
109,678
3.35
3,572
106,465
0.18
72
39,312
0.11
30
26,458
(0.74)
2,088,242
6,586
3.40
4,045
115,615
663
40,879
1.68
652
38,811
2.16
103,329
2.11
1,853
87,654
4.74
2,229
2.10
635,846
4.50
31,468
699,664
2.00
3,189
159,473
30,165
2,430
CEO, Corporate & Investment Bank
and CEO, EMEA
Gordon A. Smith
CEO, Consumer & Community Banking
Matthew E. Zames
Chief Operating Officer
286
Other Corporate Officers
Molly Carpenter
Secretary
Joseph M. Evangelisti
Corporate Communications
Daniel E. Pinto
Nicole Giles
Controller
Philippines
CEO, Commercial Banking
Chairman and
Marianne Lake
Chief Financial Officer
Stacey Friedman
General Counsel
CEO, Asset & Wealth Management
Mary Callahan Erdoes
Head of Human Resources
John L. Donnelly
Chief Risk Officer
Ashley Bacon
Chief Executive Officer
Operating Committee
James Dimon
4 Public Responsibility
Committee
Peter L. Scher
5 Directors' Risk Policy Committee
Douglas B. Petno
Corporate Responsibility
Pakistan
Investor Relations
Haryanto T. Budiman
Japan
3 Corporate Governance &
Nominating Committee
Steve Teru Rinoie
Korea
Tae Jin Park
Malaysia
Steve R. Clayton
Indonesia
Kalpana Morparia
India, Bangladesh and Sri Lanka
Muhammad Aurangzeb
Kam Shing Kwang
Hong Kong
Jason R. Scott
David Li
Robert C. Priestley
Australia and New Zealand
Asia Pacific
Senior Country Officers
Viswas Raghavan, Deputy CEO
Martin G. Marron
Daniel E. Pinto
Nicolas Aguzin
Latin America/Canada
Europe/Middle East/Africa
Asia Pacific
Regional Chief Executive Officers
JPMorgan Chase & Co./2016 Annual Report
James R. Vallone
General Auditor
China
Management Development
Committee
Glossary of Terms and Acronyms
1 Audit Committee
VGF: Valuation Governance Forum
VCG: Valuation Control Group
VaR: "Value-at-risk" is a measure of the dollar amount of
potential loss from adverse market moves in an ordinary
market environment.
VA: U.S. Department of Veterans Affairs
U.S. Treasury: U.S. Department of the Treasury
U.S. LCR: Liquidity coverage ratio under the final U.S. rule.
U.S.government-sponsored enterprises ("U.S. GSES") and
U.S. GSE obligations: In the U.S., GSEs are quasi-
governmental, privately held entities established by
Congress to improve the flow of credit to specific sectors of
the economy and provide certain essential services to the
public. U.S. GSEs include Fannie Mae and Freddie Mac, but
do not include Ginnie Mae, which is directly owned by the
U.S. Department of Housing and Urban Development. U.S.
GSE obligations are not explicitly guaranteed as to the
timely payment of principal and interest by the full faith and
credit of the U.S. government.
U.S. GAAP: Accounting principles generally accepted in the
U.S.
U.S.: United States of America
not been subjected to auditing procedures sufficient to
permit an independent certified public accountant to
express an opinion.
Unaudited: Financial statements and information that have
U.K.: United Kingdom
TLAC: Total Loss Absorbing Capacity
TDR: "Troubled debt restructuring" is deemed to occur
when the Firm modifies the original terms of a loan
agreement by granting a concession to a borrower that is
experiencing financial difficulty.
VIES: Variable interest entities
TCE: Tangible common equity
corresponding income tax impact related to tax-exempt
items is recorded within income tax expense.
JPMorgan Chase & Co./2016 Annual Report
Structural interest rate risk: Represents interest rate risk
of the non-trading assets and liabilities of the Firm.
Structured notes: Structured notes are predominantly
financial instruments containing embedded derivatives.
Suspended foreclosures: Loans referred to foreclosure
where formal foreclosure proceedings have started but are
currently on hold, which could be due to bankruptcy or loss
mitigation. Includes both judicial and non-judicial states.
Taxable-equivalent basis: In presenting managed results,
the total net revenue for each of the business segments and
the Firm is presented on a tax-equivalent basis. Accordingly,
revenue from investments that receive tax credits and tax-
exempt securities is presented in the managed results on a
basis comparable to taxable investments and securities; the
SPES: Special purpose entities
Roberto L. Panlilio
SOA: Society of Actuaries
SMBS: Stripped mortgage-backed securities
SLR: Supplementary leverage ratio
Single-name: Single reference-entities
Short sale: A short sale is a sale of real estate in which
proceeds from selling the underlying property are less than
the amount owed the Firm under the terms of the related
mortgage, and the related lien is released upon receipt of
such proceeds.
Seed capital: Initial JPMorgan capital invested in products,
such as mutual funds, with the intention of ensuring the
fund is of sufficient size to represent a viable offering to
clients, enabling pricing of its shares, and allowing the
manager to develop a track record. After these goals are
achieved, the intent is to remove the Firm's capital from the
investment.
SEC: Securities and Exchange Commission
SCCL: single-counterparty credit limits
S&P: Standard and Poor's 500 Index
SAR(S): Stock appreciation rights
TBVPS: Tangible book value per share
Warehouse loans: Consist of prime mortgages originated
with the intent to sell that are accounted for at fair value
and classified as trading assets.
Washington Mutual transaction: On September 25, 2008,
JPMorgan Chase acquired certain of the assets of the
banking operations of Washington Mutual Bank
("Washington Mutual") from the FDIC.
Member of:
Retired Chairman and
Chief Executive Officer
Johnson & Johnson
(Health care products)
William C. Weldon 2,3
Lee R. Raymond 2,3
Lead Director,
JPMorgan Chase & Co.
Retired Chairman and
Chief Executive Officer
Exxon Mobil Corporation
(Oil and gas)
(Industrial and financial services)
and Chief Executive Officer
GE Capital
and Retired Chairman
Michael A. Neal 5
Retired Vice Chairman
General Electric Company
Laban P. Jackson, Jr. 1
Chairman and Chief Executive Officer
Clear Creek Properties, Inc.
(Real estate development)
(Professional services)
Timothy P. Flynn 1,4
Retired Chairman and
Chief Executive Officer
KPMG
Chief Executive Officer
JPMorgan Chase & Co.
James Dimon
Chairman and
Henry Crown and Company
(Diversified investments)
James S. Crown 5
President
Todd A. Combs 4,5
Investment Officer
Berkshire Hathaway, Inc.
(Conglomerate)
(Television and entertainment)
JPMorgan Chase & Co./2016 Annual Report
285
Board of Directors
Linda B. Bammann 5
Retired Deputy Head of Risk
Management
JPMorgan Chase & Co.
(Financial services)
2 Compensation &
James A. Bell 1
The Boeing Company
(Aerospace)
Crandall C. Bowles 1,4
Chairman Emeritus
The Springs Company
(Diversified investments)
Stephen B. Burke 2,3
Chief Executive Officer
NBCUniversal, LLC
Retired Executive Vice President
EMEA
Investor Services Program
Kyril Courboin
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Chairman
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Buenos Aires, Argentina
Tenaris
Chairman and Chief Executive Officer
Paolo Rocca
Stanford, California
RiceHadleyGates LLC
The Hon. Condoleezza Rice
Partner
Copenhagen, Denmark
A.P. Møller-Maersk A/S
Michael Pram Rasmussen
Chairman of the Board
Dhahran, Saudi Arabia
President and Chief Executive Officer
Saudi Aramco
Amin H. Nasser
Founder and Executive Chairman
African Rainbow Minerals Limited
Johannesburg, South Africa
Patrice Motsepe
Tokyo, Japan
Corporation
Nippon Steel & Sumitomo Metal
Senior Advisor and Honorary Chairman
Akio Mimura
Paris la Défense, France
ENGIE
Chairman of the Board
Gérard Mestrallet
Mumbai, India
gar
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National Committee of the Chinese
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Annual Report on Form 10-K
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National Association
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New York, NY 10017-2070
Telephone: 212-270-6000
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Corporate headquarters
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JPMORGAN CHASE & Co.
JPMorgan Chase & Co./2016 Annual Report
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* Ex-officio
Makati City, Philippines
Ayala Corporation
Chairman and Chief Executive Officer
Jaime Augusto Zobel de Ayala
Beijing, China
Chairman and Chief Executive Officer
Lenovo
Yang Yuanqing
Douglas A. Warner III
Former Chairman of the Board
JPMorgan Chase & Co.
New York, New York
Amsterdam, The Netherlands
Former Chairman and Chief Executive
Officer, Board of Management
Akzo Nobel
Cees J.A. van Lede
Hong Kong, The People's Republic
of China
People's Political Consultative Conference
Vice Chairman
Belgium, France, Luxembourg and
Netherlands
lep
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Canada
David E. Rawlings
Singapore
Carin Bryans
Edmund Y. Lee
Taiwan
Carl K. Chien
Thailand
M.L. Chayotid Kridakon
Vietnam
Van Bich Phan
Israel
North America
Roy Navon
Guido M. Nola
Russia/Central Asia
Yan L. Tavrovsky
JPMorgan Chase Vice Chairmen
Melissa L. Bean
Phyllis J. Campbell
Stephen M. Cutler
Jacob A. Frenkel
Walter A. Gubert
Mel R. Martinez
David Mayhew
Peter L. Scher
JPMorgan Chase & Co./2016 Annual Report
287
J.P. Morgan International Council
Rt. Hon. Tony Blair
Chairman of the Council
Italy
Eduardo F. Cepeda
Mexico
Alfonso Eyzaguirre
Belgium
Tanguy A. Piret
Netherlands
Peter A. Kerckhoffs
Germany, Austria and Switzerland
Dorothee Blessing
Austria
Anton J. Ulmer
Switzerland
Nick Bossart
Central & Eastern Europe, Greece,
Iberia, Ireland, Israel, Italy and
Nordics
Enrique Casanueva
Iberia
Ignacio de la Colina
Ireland
Middle East, Turkey and Africa
Sjoerd Leenart
Bahrain/Egypt/Lebanon
Ali Moosa
Saudi Arabia
Bader A. Alamoudi
Turkey/Azerbaijan
Mustafa Bagriacik
Sub-Saharan Africa
Marc J. Hussey
Kevin G. Latter
Latin America
Andean, Central America, and
Caribbean
Moises Mainster
Argentina, Uruguay, Bolivia, and
Paraguay
Facundo D. Gomez Minujin
Brazil
José Berenguer
Chile
Former Prime Minister of Great Britain
and Northern Ireland
London, United Kingdom
The Hon. Robert M. Gates
Jorge Paulo Lemann
Director
H.J. Heinz Company
Pittsburgh, Pennsylvania
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Partner
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Washington, District of Columbia
Bernard Arnault
Chairman and Chief Executive Officer
LVMH Moët Hennessy - Louis Vuitton
Paris, France
Paul Bulcke
Member of the Board of Directors
Nestlé S.A.
Vevey, Switzerland
Jamie Dimon*
Chairman and Chief Executive Officer
JPMorgan Chase & Co.
New York, New York
Martin Feldstein
Professor of Economics
Harvard University
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Armando Garza Sada
Chairman of the Board
ALFA
Nuevo León, Mexico
Herman Gref
Chief Executive Officer,
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Sberbank of Russia
Moscow, Russia
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Former Chairman and
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JPMorgan Chase & Co.
New York, New York
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Hills & Company International Consultants
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Former Prime Minister of Australia
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284
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ROE: Return on equity
Parent Company: JPMorgan Chase & Co.
Overhead ratio: Noninterest expense as a percentage of
total net revenue.
Over-the-counter cleared ("OTC-cleared") derivatives:
Derivative contracts that are negotiated and executed
bilaterally, but subsequently settled via a central clearing
house, such that each derivative counterparty is only
exposed to the default of that clearing house.
Over-the-counter ("OTC") derivatives: Derivative contracts
that are negotiated, executed and settled bilaterally
between two derivative counterparties, where one or both
counterparties is a derivatives dealer.
OPEB: Other postretirement employee benefit
ORMF: Operational Risk Management Framework
OTTI: Other-than-temporary impairment
OIS: Overnight index swap
OEP: One Equity Partners
OCI: Other comprehensive income/(loss)
OCC: Office of the Comptroller of the Currency
OAS: Option-adjusted spread
NSFR: Net stable funding ratio
Nonperforming assets: Nonperforming assets include
nonaccrual loans, nonperforming derivatives and certain
assets acquired in loan satisfaction, predominantly real
estate owned and other commercial and personal property.
NOW: Negotiable Order of Withdrawal
Nonaccrual loans: Loans for which interest income is not
recognized on an accrual basis. Loans (other than credit
card loans and certain consumer loans insured by U.S.
government agencies) are placed on nonaccrual status
when full payment of principal and interest is not expected,
regardless of delinquency status, or when principal and
interest have been in default for a period of 90 days or
more unless the loan is both well-secured and in the
process of collection. Collateral-dependent loans are
typically maintained on nonaccrual status.
NOL: Net operating loss
NM: Not meaningful
Net yield on interest-earning assets: The average rate for
interest-earning assets less the average rate paid for all
sources of funds.
Net revenue rate: Represents Card Services net revenue
(annualized) expressed as a percentage of average loans for
the period.
Auburn Hills, Michigan
ROTCE: Return on tangible common equity
RSU(s): Restricted stock units
Participating securities: Represents unvested stock-based
compensation awards containing nonforfeitable rights to
dividends or dividend equivalents (collectively, "dividends"),
which are included in the earnings per share calculation
using the two-class method. JPMorgan Chase grants
restricted stock and RSUs to certain employees under its
stock-based compensation programs, which entitle the
recipients to receive nonforfeitable dividends during the
vesting period on a basis equivalent to the dividends paid to
holders of common stock. These unvested awards meet the
definition of participating securities. Under the two-class
method, all earnings (distributed and undistributed) are
allocated to each class of common stock and participating
securities, based on their respective rights to receive
dividends.
Glossary of Terms and Acronyms
PCI: "Purchased credit-impaired" loans represents loans
that were acquired in the Washington Mutual transaction
and deemed to be credit-impaired on the acquisition date in
accordance with the guidance of the FASB. The guidance
allows purchasers to aggregate credit-impaired loans
acquired in the same fiscal quarter into one or more pools,
provided that the loans have common risk characteristics
(e.g., product type, LTV ratios, FICO scores, past due status,
geographic location). A pool is then accounted for as a
single asset with a single composite interest rate and an
aggregate expectation of cash flows.
PCA: Prompt corrective action
Retained loans: Loans that are held-for-investment (i.e.,
excludes loans held-for-sale and loans at fair value).
Revenue wallet: Proportion of fee revenue based on
estimates of investment banking fees generated across the
industry (i.e., the revenue wallet) from investment banking
transactions in M&A, equity and debt underwriting, and
loan syndications. Source: Dealogic, a third-party provider
of investment banking competitive analysis and volume-
based league tables for the above noted industry products.
RHS: Rural Housing Service of the U.S. Department of
Agriculture
Reported basis: Financial statements prepared under U.S.
GAAP, which excludes the impact of taxable-equivalent
adjustments.
REO: Real estate owned
Regulatory VaR: Daily aggregated VaR calculated in
accordance with regulatory rules.
Receivables from customers: Primarily represents margin
loans to brokerage customers that are collateralized
through assets maintained in the clients' brokerage
accounts, as such no allowance is held against these
receivables. These receivables are reported within accrued
interest and accounts receivable on the Firm's Consolidated
balance sheets.
REIT: "Real estate investment trust”: A special purpose
investment vehicle that provides investors with the ability to
participate directly in the ownership or financing of real-
estate related assets by pooling their capital to purchase
and manage income property (i.e., equity REIT) and/or
mortgage loans (i.e., mortgage REIT). REITS can be publicly
or privately held and they also qualify for certain favorable
tax considerations.
Real assets: Real assets include investments in productive
assets such as agriculture, energy rights, mining and timber
properties and exclude raw land to be developed for real
estate purposes.
RCSA: Risk and Control Self-Assessment
ROA: Return on assets
and unrealized gains and losses related to hedge accounting
and specified risk-management activities, including: (a)
certain derivatives designated in qualifying hedge
accounting relationships (primarily fair value hedges of
commodity and foreign exchange risk), (b) certain
derivatives used for specific risk management purposes,
primarily to mitigate credit risk, foreign exchange risk and
commodity risk, and (c) other derivatives.
PSU(s): Performance share units
PD: Probability of default
Pre-provision profit/(loss): Represents total net revenue
less noninterest expense. The Firm believes that this
financial measure is useful in assessing the ability of a
lending institution to generate income in excess of its
provision for credit losses.
Pretax margin: Represents income before income tax
expense divided by total net revenue, which is, in
management's view, a comprehensive measure of pretax
performance derived by measuring earnings after all costs
are taken into consideration. It is one basis upon which
management evaluates the performance of AWM against
the performance of their respective competitors.
Principal transactions revenue: Principal transactions
revenue is driven by many factors, including the bid-offer
spread, which is the difference between the price at which
the Firm is willing to buy a financial or other instrument and
the price at which the Firm is willing to sell that instrument.
It also consists of realized (as a result of closing out or
termination of transactions, or interim cash payments) and
unrealized (as a result of changes in valuation) gains and
losses on financial and other instruments (including those
accounted for under the fair value option) primarily used in
client-driven market-making activities and on private equity
investments. In connection with its client-driven market-
making activities, the Firm transacts in debt and equity
instruments, derivatives and commodities (including
physical commodities inventories and financial instruments
that reference commodities).
PRA: Prudential Regulatory Authority
JPMorgan Chase & Co./2016 Annual Report
283
Glossary of Terms and Acronyms
Principal transactions revenue also includes certain realized
2001
2011
2016
Source: Bureau of Economic Analysis; Bureau of Labor Statistics
Business Fixed Investment below Trend
Quarterly data from 1947 to 3rd quarter 2016
($ in billions)
2006
$1,000
$3,000
$2,000
$0
1947
1953
1959
1996
1971
$4,000
1965
-6%
1986
1977
-10%
www
→ Private employment (right scale)
-20%
.4%
-2%
0%
-2%
--4%
-30%
-8%
1961
1966
1971
1976
1981
1991
1983
Source: Haver; Bureau of Economic Analysis
1995
5Crews, Clyde Wayne, Jr.
(2016). Ten Thousand
Commandments - An
Annual Snapshot of the
Federal Regulatory State.
And counterintuitively, reducing corporate
taxes would also improve wages. One of the
unintended consequences of high corporate
taxes is that they actually depress wages in
the United States. A 2007 Treasury Depart-
ment review finds that labor “may bear a
substantial portion of the burden from the
corporate income tax." A study by Kevin
Hassett from the American Enterprise
Institute finds that each $1 increase in U.S.
corporate income tax collections leads to a $2
decrease in wages in the short run and a $4
decrease in aggregate wages in the long run.
And analysis of the U.S. corporate income tax
by the Congressional Budget Office finds that
labor bears more than 70% of the burden of
the corporate income tax, with the remaining
30% borne by domestic savers through a
reduced return on their savings. We must fix
this for the benefit of American competitive-
ness and all Americans.
Excessive regulations reduce growth and business
formation.
Everyone agrees we should have proper regu-
lation - and, of course, good regulations have
many positive effects. But anyone in business
understands the damaging effects of over-
complicated and inefficient regulations. There
are many ways to look at regulations, and the
chart below and the two on page 38 provide
some insight. The one below shows the total
pages
of federal regulations, which is a simple
way to illustrate additional reporting and
compliance requirements. The second records
how we compare with the rest of the world on
the ease of starting a new business - we used
to be among the best, and now we are not.
The bottom chart on page 38 shows that small
businesses now report that one of their largest
problems is regulations.
By some estimates, approximately $2 tril-
lion is spent on regulations annually (which
is approximately $15,000 per U.S. household
annually).5 And even if this number is exag-
Code of Federal Regulation 1975-2015
Number of pages
180,000
160,000
140,000 -
120,000 -
100,000-
80,000 -
60,000-
40,000 -
20,000 -
0
III. PUBLIC POLICY
36
0%
1999 2003 2007 2011 2016
2001
2007
2013
Non-residential fixed investment
■Non-residential fixed investment trend
Source: Haver; Bureau of Economic Analysis
U.S. Public Gross Fixed Capital Formation as % of GDP
8%
1989
7%-
5%
4%
3%
2%
1%
0%
1947 1951 1955 1959 1963 1967 1971 1975 1979 1983 1987
1991 1995
6%-
10%
III. PUBLIC POLICY
6%
93.0
92.0
91.0
90.0
89.0
88.0+
1960
Australia
France
34
Japan
■Spain
1965
Austria
Germany
1970
Luxembourg
■Sweden
94.0-
95.0-
96.0
97.0
We will describe in the rest of this section
many factors that are rarely considered in
economic models although they can have an
enormous effect on growth and productivity.
Making this list was an upsetting exercise,
especially since many of our problems have
been self-inflicted. That said, it was also a
good reminder of how much of this is in our
control and how critical it is that we focus
on all the levers that could be pulled to help
the U.S. economy. We must do this because it
will help all Americans.
Many other, often non-economic, factors impact
growth and productivity.
Following is a list of some non-economic
items that must have had a significant
impact on America's growth:
Over the last 16 years, we have spent tril-
lions of dollars on wars when we could
have been investing that money produc-
tively. (I'm not saying that money didn't
need to be spent; but every dollar spent
on battle is a dollar that can't be put to
use elsewhere.)
Since 2010, when the government took
over student lending, direct government
lending to students has gone from approx-
imately $200 billion to more than $900
billion creating dramatically increased
student defaults and a population that is
rightfully angry about how much money
they owe, particularly since it reduces
their ability to get other credit.
33
III. PUBLIC POLICY
1975
Our nation's healthcare costs are essen-
tially twice as much per person vs. most
other developed nations.
Felony convictions for even minor
offenses have led, in part, to 20 million
American citizens having a criminal
record and this means they often have
a hard time getting a job. (There are six
times more felons in the United States
than in Canada.)
-
The inability to reform mortgage markets
has dramatically reduced mortgage avail-
ability. We estimate that mortgages alone
would have been more than $1 trillion
higher had we had healthier mortgage
markets. Greater mortgage access would
have led to more homebuilding and addi-
tional jobs and investments, which also
would have driven additional growth.
Any one of these non-economic factors is
fairly material in damaging America's effort
to achieve healthy growth. Let's dig a little bit
deeper into six additional unsettling issues
that have also limited our growth rate.
Labor force participation is too low.
Labor force participation in the United
States has gone from 66% to 63% between
2008 and today. Some of the reasons for this
decline are understandable and aren't too
worrisome - for example, an aging popula-
tion. But if you examine the data more closely
and focus just on labor force participation for
one key segment; i.e., men ages 25-54, you'll
see that we have a serious problem. The chart
below shows that in America, the participa-
tion rate for that cohort has gone from 96%
in 1968 to a little over 88% today. This is way
below labor force participation in almost
every other developed nation.
Labor Force Participation Rates for Men Ages 25-54: U.S. vs. 22 Original OECD Member States, 1960-2015
98.0
It is alarming that approximately 40%
(this is an astounding 300,000 students
each year) of those who receive advanced
degrees in science, technology, engi-
neering and math at American universi-
ties are foreign nationals with no legal
way of staying here even when many
would choose to do so. We are forcing
great talent overseas by not allowing these
young people to build their dreams here.
20%
1980
1990
Education is leaving too many behind.
Many high schools and vocational schools
do not provide the education our students
need – the goal should be to graduate and
get a decent job. We should be ringing the
national alarm bell that inner city schools are
failing our children – often minorities and
children from lower income households. In
many inner city schools, fewer than 60% of
students graduate, and many of those who
do graduate are not prepared for employ-
ment. We are creating generations of citizens
who will never have a chance in this land of
dreams and opportunity. Unfortunately, it's
self-perpetuating, and we all pay the price.
The subpar academic outcomes of America's
minority and low-income children resulted
in yearly GDP losses of trillions of dollars,
according to McKinsey & Company.
Infrastructure needs planning and investment.
In the early 1960s, America was considered
by most to have the best infrastructure
(highways, ports, water supply, electrical
grid, airports, tunnels, etc.). The World
Economic Forum now ranks the United
States #27 on its Basic Requirements index,
reflecting infrastructure along with other
criteria, among 138 countries. On infrastruc-
ture, the United States is behind most major
developed countries, including the United
Kingdom, France and Korea. The American
Society of Civil Engineers releases a report
every four years examining current infra-
structure conditions and needs - the 2017
report
card I gave us a grade of D+. Another
interesting and distressing fact: The United
States has not built a major airport in more
than 20 years. China, on the other hand, has
built 75 new civilian airports in the last 10
years alone.
Our corporate tax system is driving capital and
brains overseas.
America now has the highest corporate tax
rates among developed nations. Most other
developed nations have reduced their tax
rates substantially over the past 10 years
(and this is true whether looking at statu-
tory or effective tax rates). This is causing
considerable damage. American corpora-
tions are generally better off investing
their capital overseas, where they can earn
a higher return because of lower taxes. In
addition, foreign companies are advantaged
when they buy American companies - often
they are able to reduce the overall tax rate
of the combined company. Because of this,
American companies have been making
substantial investments in human capital,
as well as in plants, facilities, research
and development (R&D) and acquisitions
overseas. Also, American corporations hold
more than $2 trillion in cash abroad to
avoid the additional taxes. The only ques-
tion is how much damage will be done
before we fix this.
•
Reducing corporate taxes would incent busi-
ness investment and job creation. The charts
on page 36 show the following:
That job growth is highly correlated to
business investment (this also makes
intuitive sense).
That fixed investments by businesses
and capital formation have gone down
substantially and are far below what we
would consider normal.
35
III. PUBLIC POLICY
Jobs Growth Clearly Linked to Business Investment
Year-over-year % change
30%
8%
▾ Real equipment and software spending (left scale)
If the work participation rate for this group
went back to just 93% - the current average
for the other developed nations - approxi-
mately 10 million more people would be
working in the United States. Some other
highly disturbing facts include: Fifty-seven
percent of these non-working males are on
disability, and fully 71% of today's youth
(ages 17-24) are ineligible for the military
due to a lack of proper education (basic
reading or writing skills) or health issues
(often obesity or diabetes).
Source: The National Archives
Source: Organisation for Economic
Co-operation and Development (OECD)
United States
1995
2000
2005
2010
2015
Belgium
■Canada
Denmark
1985
Finland
Netherlands
Iceland
New Zealand
Ireland
Italy
Norway
Portugal
Switzerland
United Kingdom
Greece
1986
2003
1988
we are.
Very few countries, if any, are as blessed as
The United States has the widest, deepest,
most transparent and best financial
markets in the world. And I'm not talking
about just Wall Street and banks - I
include the whole mosaic: venture capital,
private equity, asset managers, individual
and corporate investors, and public and
private capital markets. Our financial
markets have been an essential part of the
great American business machine.
The United States is home to many of
the best, most vibrant businesses on the
planet - from small and midsized compa-
nies to large, global multinationals.
floors to geniuses like the late Steve
Jobs. Improving “things” and increasing
productivity are American pastimes. And
America still fosters an entrepreneurial
culture, which allows risk taking – and
acknowledges that it can result in success
or failure.
neurial and innovative people in the world
from those who work on the factory
Americans are among the most entrepre-
The people of the United States have a
great work ethic and can-do attitude.
The government of the United States is the
world's longest surviving democracy, which
has been steadfast, resilient and enduring
through some very difficult times.
The United States has a generally reliable
rule of law and low corruption.
The United States has among the world's
best universities and hospitals.
As a nation, we have essentially all the
food, water and energy we need.
The United States has the world's stron-
gest military, and this will be the case for
decades. We are fortunate to be at peace
with our neighbors and to have the protec-
tion of the Atlantic and Pacific oceans.
•
America today is probably stronger than ever
before. For example:
1. The United States of America is truly an exceptional country.
Before we address some of the critical issues confronting our country, it would be good to
count our blessings. Let's start with a serious assessment of our strengths.
2. But it is clear that something is wrong - and it's holding us back.
III. PUBLIC POLICY
Our economy has been growing much more
slowly in the last decade or two than in the
50 years before then. From 1948 to 2000,
real per capita GDP grew 2.3%; from 2000
to 2016, it grew 1%. Had it grown at 2.3%
instead of 1% in those 17 years, our GDP per
capita would be 24%, or more than $12,500
per person higher than it is. U.S. productivity
growth tells much the same story, as shown
in the chart on page 33.
Our nation's lower growth has been accom-
panied by and may be one of the reasons
why - real median household incomes in
2015 were actually 2.5% lower than they
were in 1999. In addition, the percentage of
middle class households has actually shrunk
over time. In 1971, 61% of households were
considered middle class, but that percentage
was only 50% in 2015. And for those in
the bottom 20% of earners - mainly lower
skilled workers - the story may be even
III. PUBLIC POLICY
Source: Haver; Bureau of Labor Statistics
1965
1955
0.0%
0.5%
1.0%
1.5%
2.0%
3.0%
3.5%
4.0%
4.5%
5-year % change, annualized
U.S. Productivity Growth
32
32
-
31
We are completely convinced that if we can
rationally change and coordinate many of
these rules, banks can do even more to help
the economy thrive.
We can acknowledge that the state of
affairs in different countries, including
in their banks and their economies,
may differ and that these differences
might warrant idiosyncratic regulatory
responses. For example, European banks
for eight years have consistently been put
in the position of having to raise more
and more capital and liquidity or having
to reduce their lending capacity. While
their capital standards may have been
low compared with American standards
(particularly in how they calculate risk-
weighted assets), this deleveraging has to
have hurt the growth of European econo-
mies and opportunities for their people.
These banks started from a different posi-
tion (which had been sanctioned by both
their regulators and governments years
ago), and we agree that these banks should
be allowed to do their job. Most of these
banks have plenty of total capital. While
it might be true that one day they should
have more, the moral imperative now is to
help their economies grow and to help the
people of those countries.
Dodd-Frank appropriately established the
Financial Services Oversight Committee
(FSOC) and assigned to it the responsibility
of general oversight across the entire finan-
cial system. Unfortunately, the FSOC was
not given the ability to adjudicate issues or
assign responsibility. Therefore, the FSOC is
unable to fully resolve some of the problems
that we have detailed in this letter. Finally,
another flaw is that some of the laws were
written in a way that left them open to broad
interpretation and novel enforcement.
We created a massively complex system
in which multiple regulators have overlap-
ping responsibilities on virtually every issue,
including rulemaking, examination, auditing
and enforcement. This is extremely taxing,
complex and overly burdensome for banks,
customers of banks and regulators.
6. How can we reduce complexity and create a more coherent regulatory system?
II. REGULATORY REFORM
29
If this is true, it may explain why our housing
sector has been unusually slow to recover:
$1 trillion of new mortgage loans is approxi-
mately 3 million loans. Of these, typically
more than 20% would go to purchase new
homes that would need to be built. By any
estimate, this could have had a significant
impact on the growth of jobs and gross
domestic product (GDP). Our economists think
that $1 trillion of loans could have increased
GDP, in each of those five years, by 0.5%. In
the next section, we will talk about how this is
just one of the many things we did to damage
our nation's economy.
Taken in total, we believe the issues identi-
fied above have reduced mortgage lending by
more than $300 billion purchased mortgages
annually (our analysis deliberately excludes
underwriting the subprime and Alt-A mort-
gages that caused so many problems in the
Great Recession). Had we been able to fix
these issues five years ago (i.e., three years
after the crisis), our analysis shows that,
conservatively, more than $1 trillion in mort-
gage loans might have been made.
If we take the actions mentioned above, we
believe that the cost to a customer would
be 20 basis points lower and that mortgage
underwriters would be willing to take more
- but appropriate – risk on loans (again, this
would be for first-time, young and lower
income buyers, those with prior delinquen-
cies but who are now in good financial
standing and those who are self-employed).
If we do this right, we believe the mortgage
market could add more than $300 billion a year
in new purchased loans.
Clarify and define materiality standards
associated with compliance with laws and
regulations, as well as underwriting stan-
dards, to allow for reasonable protections
from litigation and to enable standardized
due diligence practices.
Reduce the complexity of data delivery
requirements.
Rationalize capital requirements on securi-
tizations to effectively transfer risk to the
market while leaving “skin in the game"
with the originator.
•
Private capital needs to return in order to make
the market less taxpayer dependent - we need
to complete the securitization standards.
Private capital in the mortgage industry,
particularly in the form of securitizations,
dried up as a result of the financial crisis.
Eight years later, we still have not opened up
a healthy securitization market because of
our inability to finalize the rules. Not only
does this reduce the share of private capital
in the U.S. housing sector (an action that
would significantly reduce taxpayer expo-
sure), it also significantly increases the cost
to the customer. Taking a few actions would
fix this, including:
The most promising opportunity in mort-
gage servicing is to adopt uniform national
servicing standards across guarantors,
federal and state regulators, and investors.
Importantly, there is no need for legislation
to implement the necessary coordination to
get this done. In particular, the U.S. Treasury
is well-positioned to lead key players in the
mortgage industry (the Consumer Finan-
cial Protection Bureau, Fannie Mae, Freddie
Mac, the Federal Housing Finance Agency,
HUD, the FHA, the Veterans Administra-
tion, Ginnie Mae and the U.S. Department
of Agriculture) to establish national service
standards that would simplify mortgage
origination and servicing. Treasury played a
similarly pivotal leadership role during the
crisis when it helped develop the various
mortgage assistance initiatives, such as the
loan modification and streamlined refinance
programs that allowed many Americans to
stay in their homes and communities.
reason why mortgage companies avoid under-
writing certain types of mortgages today than
they would have underwritten in the past.
II. REGULATORY REFORM
There is too much complexity in the system - it
could be fixed, and that would make the system
stronger.
Nearly everyone agrees there is too much
complexity in the current construct of the
financial system. A few examples will suffice:
•
There are multiple calculations of capital,
living wills, the Volcker Rule, etc.
Cross-border financial rules need to be
part of trade negotiations like any other
product or service. We know we will be
increasingly competing with Chinese
banks, and, eventually, we need the U.S.
government to make that part of our
trade agreement.
We should recognize where there are legit-
imate reasons to do something different.
For example, certain types of loans legiti-
mately could draw different risk weighting
in various countries based on historical
performance, collateral and bankruptcy
laws or even culture.
International regulations should be
coherent and generally harmonized
around the world - but they don't need to
be exactly the same.
•
•
Currently, American regulators have been
pushing the Basel Committee – the interna-
tional forum that is supposed to set inter-
national financial regulatory guidelines - to
meet the even higher American standards
around capital requirements, derivatives
rules, risk-weight calculations, stress testing
and other requirements. Many other coun-
tries around the world are telling Basel that
it has gone too far and that it's time to let
the banks focus on healthy lending and
growth of the economy. Following are a few
principles that we think should guide global
regulations and international coordination
to increase safety and soundness and foster
global growth:
7. How can we harmonize regulations across the globe?
II. REGULATORY REFORM
1975
30
It makes sense for regulators to be continu-
ously reviewing the entire financial system
in an effort to make it as safe and sound as
possible (think of this as a well-functioning
risk committee of a major bank). But the
FSOC should be given some authority to
assign responsibility, adjudicate disagree-
ments, set deadlines and force the reso-
lution of critical issues. The FSOC could
also enforce due consideration of regula-
tions' costs vs. benefits and the impact on
economic growth.
The FSOC is a good idea but needs to be modified
to be more effective.
Everything in the regulatory landscape
should be reviewed in the context of
safety and soundness, cost-benefit analysis
and economic growth.
The primary regulator should establish
the rules, the reporting requirements, the
audit plans and the enforcement action.
Other regulators should get involved only
if they believe the primary person did a
particularly poor job.
The system should be simplified. There
should be one primary regulator on any
issue, and we should always strive to make
things as simple as possible.
This is clearly a dysfunctional structure.
The fix is simple – though getting it done
may not be:
Each agency makes separate audit and
reporting demands and can indepen-
dently take enforcement action on the
same subject.
There are multiple regulators involved
independently in rulemaking – just two
examples: Seven regulators are involved
in setting mortgage regulations, and five
regulators oversee the Volcker Rule. This
leads to slow rulemaking (e.g., as noted
above, we still have not finished the mort-
gage rules eight years after the crisis),
excessive reporting and varied interpreta-
tions on what the actual rules are.
We have great sympathy for, and agree with,
the complaints of the community banks. They
are struggling to deal with the complexity
and cost of meeting these requirements -
and we agree these smaller banks should be
relieved of many of the requirements.
Enhancing the functionality of the FSOC and
providing regulatory relief where appro-
priate should not be a political issue. The
administration is currently conducting a
review of the rules and regulations, which
are burdensome and duplicative and which
may impede economic growth. That process
should be as de-politicized as possible.
Everyone stands to gain when growth is
enabled in a safe and sound manner.
1987
1985
2005
2006
2007
2008
2009
2010
37
31
III. PUBLIC POLICY
"Ease of Starting a New Business": In the U.S., Getting Less Easy
U.S. percentile rank relative to world and OECD
100%
90%
80%
70%
60%
50%
Harder
Easier 1
2005
40%
2004
2001
1989
1989
2661
1661
0661
cool
1993
1904
1994
1005
1995
༢༠༠;
1996
1997
1998
1999
2000
2002
2005
2006
2007
1990
1994
1998
2002
2006
2010
2014
Taxes
Quality of labor
Poor sales
Regulation
Source: Haver; National Federation of Independent Business
gerated, it highlights a disturbing problem.
Particularly troubling is that this
may be one
of the reasons why small business creation
has slowed alarmingly in recent years.
According to the U.S. Chamber of Commerce,
the rising burdens of federal regulations alone
may be a main reason for a falling pace in
new business formation. In 1980, Americans
were creating some 450,000 new companies a
year. In 2013, they formed 400,000 new busi-
nesses despite a 40% increase in population
from 1980 to 2013. Our three-decade slump
in company formation fell to its lowest point
with the onset of the Great Recession; even
with more businesses being established today,
America's startup activity remains below pre-
recession levels.
38
worse. For this group, real incomes declined
by more than 8% between 1999 and 2015.
In 1984, 60% of families could afford a
modestly priced home. By 2009, that figure
fell to about 50%. This drop occurred even
though the percentage of U.S. citizens with a
high school degree or higher increased from
30% to 50% from 1980 to 2013. Low-skilled
labor just doesn't earn what it used to, which
understandably is a source of real frustration
for a very meaningful group of people. The
income gap between lower skilled and skilled
workers has been growing and may be the
inevitable consequence of an increasingly
sophisticated economy.
2015
1986
0%
5%
10%
2008 2009
2010
2011
2012
2013
2014
2015
2016
1995
2017
U.S. vs. OECD
Source: World Bank Doing Business; J.P. Morgan Asset Management, October 2016. N = 189
What's the Largest Problem Facing Small Businesses?
% of respondents, 6-month average
35%
30%
25%
20%
15%
U.S. vs. World
2.5%
Regarding reduced social mobility,
researchers have found that the likelihood
of workers moving to the top-earning decile
from starting positions in the middle of the
earnings distribution has declined by approx-
imately 20% since the early 1980s.
Many economists believe we are now permanently
relegated to slower growth and lower productivity
(they say that secular stagnation is the new
normal), but I strongly disagree.
8,000
Bill Mihell
Bill McNabb
Vanguard
Larry Fink
BlackRock
War & Buffet.
Warren Buffett
Berkshire Hathaway Inc.
ду Анест
Rd. V. Harley
Ronald O'Hanley
State Street Global Advisors
Jeff Immelt
GE
Prin
сват
Brian Rogers
T. Rowe Price
Mark Machin
CPP Investment Board
Jhen
Jane Por
Jamie Dimon
JPMorgan Chase
Sewell Meldan
Langfal.
Mary Barra
General Motors Company
Жаз ти
J.P. Morgan Asset Management
Source: World Bank; World Federation of Exchanges database
43
COMMONSENSE CORPORATE GOVERNANCE PRINCIPLES
The health of America's public corporations and financial markets
financial future for American workers, retirees and investors.
-
and public trust in both is critical to economic growth and a better
Millions of American families depend on these companies for work - our nearly 5,000 public companies account for a third of the nation's
private sector jobs. And these same families and millions more also rely on public companies to help improve their financial future - they
are heavily invested in these companies through mutual funds, 401(k) and pension plans, college savings plans and other accounts to buy a
home, send their children to college and save for retirement.
Our future depends on these companies being managed effectively for long-term prosperity, which is why the governance of American companies
is so important to every American. Corporate governance in recent years has often been an area of intense debate among investors, corporate
leaders and other stakeholders. Yet, too often, that debate has generated more heat than light.
We represent some of America's largest corporations, as well as investment managers, that, as fiduciaries, represent millions of individual savers
and pension beneficiaries. We include corporate CEOs, the head of the Canadian public pension fund and an activist investor, and the heads of a
number of institutional investors who manage money on behalf of a broad range of Americans.
шина
■ Diverse boards make better decisions, so every board should have members with complementary and diverse skills, backgrounds and experi-
ences. It's also important to balance wisdom and judgment that accompany experience and tenure with the need for fresh thinking and
perspectives of new board members;
■ Our financial markets have become too obsessed with quarterly earnings forecasts. Companies should not feel obligated to provide earnings
guidance and should do so only if they believe that providing such guidance is beneficial to shareholders;
■ A common accounting standard is critical for corporate transparency, so while companies may use non-Generally Accepted Accounting
Principles ("GAAP") to explain and clarify their results, they never should do so in such a way as to obscure GAAP-reported results; and
in particular, since stock- or options-based compensation is plainly a cost of doing business, it always should be reflected in non-GAAP
measurements of earnings; and
■ Effective governance requires constructive engagement between a company and its shareholders. So the company's institutional investors
making decisions on proxy issues important to long-term value creation should have access to the company, its management and, in some
circumstances, the board; similarly, a company, its management and board should have access to institutional investors' ultimate decision
makers on those issues.
These recommendations are not meant to be absolute. We know that there is significant variation among our public companies and that their
approach to corporate governance will inevitably (and appropriately) reflect those differences. But we do hope our effort will be the beginning
of a continuing dialogue that will benefit millions of Americans by promoting trust in our nation's public companies.
We encourage others to join in that dialogue. Our country, our economy and the future of our citizens depend on getting corporate governance right.
Inimothy & Announ
Tim Armour
Capital Group
Many Erden
Mary Erdoes
■ Every board needs a strong leader who is independent of management. The board's independent directors usually are in the best posi-
tion to evaluate whether the roles of chairman and CEO should be separate or combined; and if the board decides on a combined role,
it is essential that the board have a strong lead independent director with clearly defined authorities and responsibilities;
Jeff Ubben
ValueAct Capital
Lowell McAdam
Verizon
Our more than $9.5 billion technol-
ogy budget demonstrates our signif-
icant, ongoing commitment to tech-
nology investment. The scale and
diversity of our businesses enable
us to invest wherever we see oppor-
tunity or competitive advantage to
do so effectively. We will continue
to grow the share of our technology
budget allocated to new investment
and innovation by optimizing our
existing technology environment.
We will also maintain a relentless
focus and significant spend on
cybersecurity, protecting the firm
and enabling the secure introduc-
tion of new capabilities.
Optimize to innovate
2016 was a year of mobilizing a port-
folio of optimization programs that
increased the pace and quality of tech-
nology delivery while decreasing cost.
Improving software development
productivity and adopting cloud infra-
structure are core elements of that
strategy. We continued to improve
developer productivity by enabling an
agile technology workforce and auto-
mating the software development life
cycle. We are also defining design
standards to provide a common tech-
nical framework for development of
applications of a particular type, for
example, big data analytics. This will
significantly reduce rework and dupli-
cation in the software development
life cycle where, previously, applica-
tion developers have had to create
their own one-off frameworks. We
anticipate that these steps ultimately
will lead to a 20% efficiency gain in
the development process.
Historically, we have followed a
traditional "waterfall" approach to
software development, with separate
teams and processes for development,
testing and operations. The agile
approach, by contrast, is characterized
by multifunctional and collaborative
teams and allows frequent readjust-
ment to project plans in response to
changing requirements. Adopting this
approach vastly improves software
quality through its iterative nature
and accelerates our ability to deliver
incremental value. To put that into
perspective, we are moving from soft-
ware release cycles measured in
quar-
ters to cycles measured in days.
We have also made great progress
toward fully automating develop-
ment life cycle processes and stan-
dardizing developer toolkits. In 2016,
automated code scanning and
deployment tools resulted in savings
of nearly 120,000 developer hours -
47
and, over the next few years, we
expect to be able to deliver more
than 90% of our software through
end-to-end automation.
Attracting, retaining and developing
top technology talent is paramount,
and we cast a net far and wide to find
the best and the brightest. In 2016,
32% of our senior hires in technology
came from non-financial services
firms. We had a 10:1 applicant-to-
position ratio for our Technology Ana-
lyst Program, which targets graduates
of global universities that have strong
technology programs. Our employee
training programs cover new skill sets,
such as cloud and agile development.
We also reinforce a strong innovation
culture and atmosphere to spark new
solutions through open source proj-
ects and "hackathons” in which tech-
nologists collaboratively code to solve
business problems. In 2016, we hosted
a firmwide global hackathon across 20
cities with over 2,500 developer partic-
ipants. This led to 400 new product
ideas, of which 130 were potential
opportunities for patents.
We continued to pursue a hybrid
cloud strategy - leveraging a next-
generation internal, private cloud, as
well as external, public cloud services
- to further enable our developers
through on-demand availability, pay-
for-use and elastic scalability. In 2016,
we launched a new private cloud plat-
form called Gaia, designed to provide
developers with rapid agility – so that
they spend more time developing and
less time provisioning infrastructure
and application services. Over 5,000
developers already have begun to use
Gaia. By the end of 2017, we expect to
more than double the number of
applications hosted on the platform.
Technology continues to fuel
everything we do
Technology is at the core of what we
do. Advances in technology make us
faster and safer and drive a more
engaging customer experience, differ-
entiating our businesses today and for
the future. The pace of technology
change is always increasing, and we
challenge ourselves to think, innovate
and deliver like a technology company.
Over the last year, we established a
new Cloud Services function within
Global Technology to accelerate our
In 2016, we invested in a new global
data center strategy to consolidate our
existing facilities into fewer, larger,
more modular sites. In early 2017, we
opened our first new state-of-the-art
data center, which is the strategic
model for all future builds globally.
The new data centers will house our
next-generation optimized infrastruc-
ture, enabling significant cost benefits.
For example, hardware commoditiza-
tion already has reduced our server
costs by 25%. We also have intro-
duced innovative storage offerings,
decreasing the price of our lowest tier
storage by 75%. We are driving addi-
tional efficiency by reducing waste
and becoming smarter around tech-
nology consumption - for example,
reducing over-provisioned storage and
automating manual operational tasks.
Our applications are also changing.
We are designing and developing
applications to take full advantage of
the cloud's benefits. In addition, there
is growing internal and external
demand for simple, self-service inter-
faces to our data and applications. To
meet this demand, we are leveraging
application programming interfaces
(API) and launched an internal API
store to provide access to a market-
place of secure application services to
developers throughout the firm. The
old world of developing and writing
unique code is rapidly being replaced
by reusable component pieces
("microservices") that can communi-
cate seamlessly, dramatically reducing
integration development time and
driving developer efficiency. We also
are expanding the APIs we offer exter-
nally to enable direct client integration
and secure solutions by third-party
developers - for example, the partner-
ship with Intuit that we recently
announced. By the end of 2017, we
estimate our applications will generate
more than 100 million internal and
external API calls each day.
Advancing innovation and
partnerships
As a firm, innovation is our top stra-
tegic priority. We take pride in our
ability to differentiate ourselves
through the development of new
solutions and the adoption of emerg-
ing technology at scale.
Demand for digital-centric experiences
is transforming our businesses faster
than ever. Most of our digital solutions
will continue to be built in-house due
to competitive and strategic impor-
tance. However, we have realized the
complementary benefit of partnering
with fintech companies to enhance
select digital products and services. As
a result, our strategy is a combination
of build, buy and partner in order to
continue delivering the best digital
products and services at scale.
We have formalized a firmwide fin-
tech strategy and ecosystem engage-
ment model to identify and leverage
partner relationships across all of
our business areas. In their letters,
each of our CEOs highlights exam-
ples of how technological innovation
is delivering value to their business.
Our relationships with the external
technology ecosystem helped drive
value across our technology focus
areas, including next-generation data
48
hybrid cloud strategy, which includes
running our first applications in the
public cloud in 2017. Working collab-
oratively with public cloud providers,
we have made significant progress
developing a set of solutions that
meets our rigorous risk and security
standards. The public cloud reduces
our peak infrastructure requirements
by providing compute services
during temporary fluctuations in
demand. The public cloud also helps
reduce long-term storage costs and
accelerates developer access to new
cloud services.
Matt Zames
As the firm's Chief Operating Officer,
I manage a diverse group of critical
firmwide operations and functions,
as well as certain markets-intensive
activities that are integral to our
success. These include Global
Technology, the Intelligent Solutions
group (which drives innovation
across the firm by leveraging big
data and advanced analytics such as
machine learning), Treasury and the
Chief Investment Office, Mortgage
Banking Capital Markets, Oversight
& Control, Regulatory Affairs and
the Chief Administrative Office, which
includes Real Estate, Procurement,
Military & Veteran Affairs, Compli-
ance Operations and Strategy &
Process Improvement, among others.
The Chief Operating Office (COO) has
a broad and deep mandate, but this
year, I want to highlight (i) our invest-
ment in technology; (ii) our approach
to managing a $2.5 trillion balance
sheet; and (iii) our ongoing commit-
ment to a best-in-class culture.
Redefining the Financial Services Industry
www.governanceprinciples.org
III. PUBLIC POLICY
Small businesses and large businesses are
symbiotic they are substantial customers of
each other, and they help drive each other's
growth and are integral to our large busi-
ness ecosystem. At JPMorgan Chase, for
example, we support more than 4 million
small business clients, 15,000 middle market
companies, and approximately 7,000 corpo-
rations and investor clients. We also rely on
services from nearly 30,000 vendors, many
of which are small and midsized companies.
Business, taken as a whole, is the source of
almost all job creation.
Approximately 150 million people work
in the United States; 130 million work in
private enterprise. We hold in high regard
the 20 million people who work in govern-
ment teachers, policemen, firemen and
others. But we could not pay for those jobs
if the other 130 million were not actively
producing the GDP of America.
Something has gone awry in the public's
understanding of business and free enter-
prise. Whether it is the current environ-
ment or the deficiency of education in
general, the lack of understanding around
free enterprise is astounding. When busi-
nesses or individuals in business do some-
thing wrong (problems that all institutions
have, including schools, churches, govern-
ments, small businesses, etc.), they should
be appropriately punished - but not demon-
ized. We need trust and confidence in our
institutions confidence is the "secret sauce"
that, without spending any money, helps the
economy grow. A strong and vibrant private
sector (including big companies) is good for
the average American. Entrepreneurship
and free enterprise, with strong ethics and
high standards, are worth rooting for, not
attacking.
7. Strong collaboration is needed between
business and government.
We all can agree that a general dissatisfaction
with the lack of true collaboration and will-
ingness to address our most pressing policy
issues has contributed to the existing divisive
and polarized environment. Certainly there
is plenty of blame to go around on this front.
However, rather than looking back, it is
now more important than ever for the busi-
ness community and government to come
together and collaborate to find meaningful
solutions and develop thoughtful policies
that create economic growth and opportunity
for all. This cannot be done by government
alone or by business alone. We all must work
together in ways that put aside our “business-
as-usual" approaches. The lack of economic
opportunity is a moral and economic crisis
that affects everyone. There are too many
people who are not getting a fair chance to
get ahead and move up the economic ladder.
This runs contrary to the fundamental idea
that America is a country where everyone
has an opportunity to improve their lives
and that future generations of Americans
know they can be just as successful as those
who came before them.
By working together and applying some
good old American can-do ingenuity, there is
nothing that we can't accomplish. By working
together, the business community, govern-
ment and the nonprofit sector can ensure
and maintain a healthy and vibrant economy
today and into the future, creating jobs,
fostering economic mobility and maintaining
sustainable economic growth. Ultimately, this
translates to an improved quality of life and
greater financial security for those who are
struggling to make ends meet. It also would
be a significant step in restoring public faith
in two of our greatest democratic institutions
- U.S. business and government - and would
allow us to move forward toward a pros-
perous future for all Americans.
45
IN CLOSING
We know we have to earn the trust and respect of our shareholders,
employees, customers and the communities we serve every single
day. You can rest assured that we are devoted to doing this.
I want to thank our management team. If you could see them in
action like I do, you would know that they have remarkable capa-
bilities, character, culture, experience and wisdom.
In closing, I can't emphasize enough how honored I am to work at
this company and with its people. What they have accomplished
during these turbulent times has been extraordinary. On behalf of
JPMorgan Chase and its management, I want to express my deepest
gratitude to our people – I am proud to be their partner.
-
Jane Pon
Jamie Dimon
Chairman and Chief Executive Officer
April 4, 2017
46
46
2015
2010
This diverse group certainly holds varied opinions on corporate governance. But we share the view that constructive dialogue requires find-
ing common ground - a starting point to foster the economic growth that benefits shareholders, employees and the economy as a whole.
To that end, we have worked to find commonsense principles. We offer these principles, which can be found at www.governanceprinciples.
org, in the hope that they will promote further conversation on corporate governance. These principles include the following, among others:
■Truly independent corporate boards are vital to effective governance, so no board should be beholden to the CEO or management. Every
board should meet regularly without the CEO present, and every board should have active and direct engagement with executives below
the CEO level;
2000
ments are made continuously. And the plan
could also be sped up if necessary to help a
weakening economy.
Infrastructure, which could have a life of
five to 50 years, should not be expensed as
a government debt but should be accounted
for as an investment that could be financed
separately. Borrowing money for consump-
tion is completely different from borrowing
for something that has value for a long
period of time.
It's important to streamline the approval
process, and approvals should run simultane-
ously and not sequentially.
Last, we need to assure that we have good
infrastructure and not bridges to nowhere.
Good infrastructure serving real needs is not
only conducive to jobs in the short run but
to growth in the long run. Projects should be
specifically identified, with budgets and calen-
dars and with responsible parties named.
5. How should the U.S. legal and regulatory systems be reformed to incentivize investment
and job creation?
There are many reasons to be proud of our
system of government. The U.S. Constitution
is the bedrock of the greatest democracy in
the world. The checks and balances put in
place by the framers are still powerful limits
on each branch's powers. And this year, we
witnessed one of the hallmarks of our great
nation - the peaceful transition of power
following a democratic election.
Our legal system, including our nation's
commitment to the rule of law, has long
been a particular source of strength for our
economy. When people, communities and
companies are confident in the stability and
fairness of a country's legal system, they want
to do business in that country and invest
there (and come from overseas to do so).
Knowing that you will have access to courts
for a fair and timely hearing on matters and
that there are checks against abuses of power
is important. As the discussion about areas
for potential reform continues, it is critical
that these long-term U.S. advantages are kept
in mind and preserved.
In regulation, for example, I worry that the
distribution of power has shifted. Congress,
through the Administrative Procedures Act
(APA), set out how regulators should publish
draft rules. The APA allows for comments
on draft rules, including comments on how
a proposed rule will impact lending, jobs
and the economy. Today, however, agencies
often regulate through supervisory guidance
that isn't subject to the same commentary or
checks. The function of interpretive guid-
ance is to clarify or explain existing law and
should not be used to impose new, substan-
tive requirements. Now is a good time to
discuss how to reset this balance.
III. PUBLIC POLICY
There also is an opportunity to have a similar
conversation around enforcement and litiga-
tion. On the civil side, we should look closely
at whether statutory damages provisions
work as intended. I read recently about
a settlement under the Fair and Accurate
Credit Transactions Act in which plaintiffs
received in excess of $30 million from a
business that printed credit card receipts
with the customer's card expiration date. Is
that fair and proportionate – or is the result
driven by a statutory damages framework
that should be reconsidered?
2005
41
III. PUBLIC POLICY
"The so-called 'trial penalty' has virtually
annihilated the constitutional right to a trial.
What are the consequences of a system in
which the government is only rarely required
to prove its case? What are the implications
of this on businesses, both large and small?
Ultimately, what are the long-term prospects
for entrepreneurship in an environment
where even the most minor, unintentional
misstep may result in criminal investigation,
prosecution and loss of liberty?"
When you combine this with the fact that
businesses have no “penalty-free" way to
challenge a new interpretation of the law, the
net-net result is a system that fosters legislation
by enforcement actions and settlements. Said
differently, rather than Congress expanding a
law or a court testing a novel interpretation,
regulators and prosecutors make those deci-
sions and companies acquiesce.
The impact of these issues is further exacer-
bated by a system that allows for “multiple
jeopardy,” where federal, state, prudential
and foreign agencies can “pile on" to any
matter, each seeking its own penalty without
any mechanism to ensure that the multiple
punishments are proportionate and fair. It
would be like getting pulled over by a local
police officer and getting fined by your local
town, then by your county, then by your
state, then by the federal government and
then having the U.N. weigh in since the car
was made overseas.
To be clear, we need regulators focused on
the safety and soundness of all institutions.
We need enforcement bodies focused on
compliance with the law. But we also need to
preserve the system of checks and balances
- when you cannot get your day in court on
some really important issues, we all suffer.
We need to improve and reform our legal
system because it is having a chilling
impact on business formation, risk taking
and entrepreneurship.
-
40
the federal government can also plan around
their somewhat predictable needs for main-
tenance, new roads and bridges, increasing
electrical requirements and other necessities
to serve a growing population. Infrastruc-
ture should not be a stop-start process but an
ongoing endeavor whereby intelligent invest-
Similar to companies planning for capacity
needs, it is quite clear that cities, states and
III. PUBLIC POLICY
While some regulations quite clearly create
a common good (e.g., clean air and water),
it is clear that excessive regulation does not
help productivity, growth of the economy
or job creation. And even regulations that
once may have made sense may no longer
be fit for the purpose. I am not going to
outline specific recommendations about
non-financial regulatory reform here, other
than to say that we should have a perma-
nent and systematic review of the costs
and benefits of regulations, including their
intended vs. unintended consequences.
The lack of economic growth and opportunity
has led to deep and understandable frustration
among so many Americans.
Low job growth, a lack of opportunity for
many, declining wages, students and low-
wage workers being left behind, economic
and job uncertainty, high healthcare costs
and growing income inequality all have
created deep frustration. It is understand-
able why so many are angry at the leaders of
America's institutions, including businesses,
schools and governments - they are right to
expect us to do a better job. Collectively, we
are the ones responsible. Additionally, this
can understandably lead to disenchantment
with trade, globalization and even our free
enterprise system, which for so many people
seems not to have worked.
Our problems are significant, and they are
not the singular purview of either political
party. We need coherent, consistent, compre-
hensive and coordinated policies that help fix
these problems. The solutions are not binary
- they are not either/or, and they are not
about Democrats or Republicans. They are
about facts, analysis, ideas and best practices
(including what we can learn from others
around the world).
3. How can we start investing in our people to help them be more productive and share in the
opportunities and rewards of our economy?
We need to work together to improve work skills.
I cannot in this letter tackle the complex set
of issues confronting our inner city schools,
but I do know that if we don't acknowledge
these problems, we will never fix them.
Whether they graduate from high school,
vocational or training school or go on to
college, our students can and should be
adequately prepared for good, decent-paying
jobs. And whether a student graduates from
high school, vocational school or training
school, the graduate should have a sense of
pride and accomplishment – and meaningful
employment opportunities, without forgoing
the chance to go to college later on. Career
and technical education specifically can give
young people the skills they need for decent-
paying roles in hundreds of fields, including
aviation, robotics, medical science, welding,
accounting and coding - all jobs that are in
demand today.
In New York City, not far from where I grew
up in Jackson Heights, Queens, there's a
school called Aviation High School. Students
travel from all over the city to go to the school
(with a 97% student attendance rate), where
they are trained in many facets of aviation,
from how to maintain an aircraft to the
details of the plane's electronics, hydraulics
and electrical systems. And when the students
graduate (93% graduated in the normal four
years), they get a job, often earning an annual
starting salary of approximately $60,000.
It's a great example of what we should be
promoting in our educational system.
Businesses must be involved in this process.
They need to partner with schools to let
them know what skills are needed, help
develop the appropriate curricula, help
train teachers and be prepared to hire the
students. In addition, this has to be done
locally because that is where the actual jobs
are. Germany does this well. Germany has
39
III. PUBLIC POLICY
one of the strongest education and training
systems in the world, with about 1.5 million
young people every year participating in
apprenticeship programs that are paid oppor-
tunities to gain in-demand skills along with
an education. The vocational schools and
apprenticeship programs work directly with
local businesses to ensure the students are
connected to available jobs upon graduation.
As a result of this market-driven vocational
training, Germany's youth unemployment
rate is also one of the lowest in the world.
There is nothing wrong with learning from
other countries.
Proper skills training also can be used to
continuously re-educate American workers.
Many people are afraid that automation is
taking away jobs. Let's be clear. Technology
is the best thing that ever happened to
mankind, and it is the reason the world is
getting progressively better. But we should
acknowledge that though technology helps
everyone generally, it does cause some job
loss, dislocation and disruption in specific
areas. Retraining is the best way to help those
disrupted by advancements in technology.
We need to help lower skilled workers earn a
living wage while helping small businesses.
Business should support an expanded EITC.
There is a tax credit in the United States
called the Earned Income Tax Credit (EITC),
which supplements low-paid workers'
incomes. For example, a single mother with
two children earning $9 an hour (approxi-
mately $20,000 a year) could get a tax credit
of more than $5,000 at the end of the year.
A single man without children could get a
tax credit under this program of only about
$500. This program has flaws (which we
believe could be fixed), but it has lifted an
estimated 9 million people above the poverty
line. (The federal poverty guideline is deter-
mined by household size. For a four-person
household, the poverty level is $24,600 or
approximately $11 an hour.) Last year, the
EITC program cost the United States about
$67 billion, and there were 27 million indi-
viduals who received the credit.
Approximately 20.6 million American
workers earn between $7.25 an hour (the
prevailing federal minimum wage) and
$10.10 an hour. Approximately 42% of Amer-
ican workers make less than $15 an hour. I
believe we should dramatically expand the
EITC to help more low-paid individuals, with
and without children, earn a living wage.
I have no doubt that this will entice more
workers back into the workforce. Jobs bring
dignity. That first job is often the first rung
on the ladder. And studies show that once
people start working, they continue working.
In addition, living wages lead to less crime,
more household formation and, it is hoped,
better social outcomes, including more
marriages and children and better health and
overall well-being.
It is important to note that large companies
generally pay well above the minimum wage
and provide health insurance and retire-
ment benefits to all their employees. They
also extensively train their employees and
help them move along in their careers. While
this would help small businesses far more
than big businesses, large companies should
support the expansion of this program
because it would foster growth and be great
for lower paid American workers.
4. What should our country be doing to invest in its infrastructure? How does the lack of a plan
and investment hurt our economy?
Infrastructure in America is a very broad and
complex subject. However, we do have a few
suggestions on how to make it better.
6. What price are we paying for the lack of understanding about business and free enterprise?
The United States needs to ensure that we
maintain a healthy and vibrant economy.
This is what fuels job creation, raises the
standard of living for those who are hurting,
and positions us to invest in education,
technology and infrastructure in a program-
matic and sustainable way to build a better
and safer future for our country and its
people. America's military will be the best in
the world only as long as we have the best
economy in the world.
And simply because the company agreed to
the settlement does not mean it was the right
result. Here is the fact: The current dynamics
make it very hard for companies to get their
day in court - as the consequences of a loss
at trial can be disproportionately severe. This
is particularly true in a government-initiated
case. The collateral consequences of standing
up to a regulator or losing at trial can be
disproportionately negative when compared
with the underlying issue or proposed settle-
ment, and it can lead to the decision not to
fight at all, no matter what the merits of the
case may be. The Institute for Legal Reform,
for the Chamber of Commerce has framed
this issue as follows:
of the roughly $2.3 trillion spent annually
on capital expenditures. Capital expendi-
tures and R&D spending drive productivity
and innovation, which ultimately drive job
creation across the entire economy.
Shareholder meetings that are hijacked by special interest
groups and become a complete farce
4,000
Too much short-termism; i.e., quarterly earnings, at the
expense of making good, long-term investments
3,000
2,000
•
Constant and frequent negative media scrutiny - some
deserved and some not
1,000
•
Business plays a critical role as an engine of
economic growth, particularly our largest,
globally competitive American businesses.
As an example, the thousand largest compa-
nies in America (out of approximately 29
million) employ nearly 30 million people
in the United States, and almost all of their
employees get full medical and retirement
benefits and extensive training. In addition,
these companies account for more than 30%
legal and regulatory demands as opposed to the most
important role of boards - management, strategy,
major risks, etc.
1996: 8,090
45% decline
2015: 4,381
0-
1980
1985
1990
1995
Boards spending more and more time on check-the-box
5,000
•
6,000
to benefit the company
To support this, we need a pro-growth policy
environment from the government that
provides a degree of certainty around long-
standing issues that have proved frustrat-
ingly elusive to solve. The most pressing
areas in which government, business and
other stakeholders can find common ground
should include tax reform, infrastructure
investment, education reform, more favor-
able trade agreements and a sensible immi-
gration policy, among others.
When read that small businesses and big
you
businesses are pitted against each other or
are not good for each other, don't believe it.
42
Why are America's public equity markets so important?
How do we sustain them and strengthen corporate governance?
For more than two centuries, the American free enterprise
system has led to enormous prosperity for our country: the
creation of jobs, increases in wages and savings, and the
emergence and growth of dynamic companies. Because well-
managed and well-governed businesses are the engines of our
economy, good corporate governance must be more than just
a catchphrase or fad. It's an imperative - especially when it
comes to our publicly owned companies.
There may very well be some logical and good explanations for
why this is so; e.g., companies can get capital more easily in the
private markets, and the private markets can be more efficient
than they used to be.
I suspect there are other less-constructive reasons, which could
be greatly expanded upon, but I will merely list them below:
Many private equity companies often stress that it is better to
be owned by them because they operate with commonsense
corporate governance; i.e., less check-the-box corporate
governance - whether addressing board membership, how a
board spends its time, management compensation or long-term
results vs. just quarterly earnings. The following page exhibits a
letter drafted by a diverse group of financial leaders that outlines
recommendations for commonsense corporate governance
principles that would foster the health of our public companies.
The chart on the right should be a cause for concern. It notes
that the number of public companies in the United States has
declined 45% since 1996.
Public Companies Disappearing
Self-serving shareholder activity and proposals not intended
It is hard to estimate the cause and effect of all these factors,
but they are reasons for concern. America's public markets have
been a key to America's success, and I suspect that years from
now, we may regret the damage we have done to them.
7,000
Excessive and expensive reporting requirements
•
•
Excessive litigation, including shareholder class action
lawsuits
•
9,000
We feel very good about our Markets
business. Global scale and a complete
platform have never been more
critical. We have many competitive
advantages in Markets, but it is
essential we continue to invest and
proactively think about disruption
best-in-class, profitable franchise. In
2016, our Markets business (Fixed
Income and Equities) finished the year
with a combined $21.0 billion in rev-
enue, a year-over-year increase of 15%.
We have always believed that provid-
ing clients with a global and diverse
Markets business leads to a higher
and more resilient ROE. In 2016, each
one of our major Fixed Income busi-
nesses produced a ROE above the cost
of capital. More important, the mar-
ginal contribution that each business
provides to the larger Fixed Income
franchise is much greater. The costs to
run our Markets business are mostly
fixed so operating leverage gives us
upside when market growth occurs,
which is what we saw last year. Even
Commodities, which didn't meet its
cost of capital in 2015, in part because
of ongoing simplification efforts, pro-
duced a good return in 2016.
Since 2010,
try revenue pool has contracted from
$157 billion to $114 billion. However,
because of our scale, continuous
investments and risk discipline, we
were able to increase our market
share over the seven-year period
from 8.6% to 12.0%.
the Fixed Income indus-
Our Equities and Prime Services
businesses, major areas of focus for
us, also gained share during that
seven-year period. Our market share
increased from 6.9% to 10.1%, and
we are now ranked #2, even as the
global wallet declined by $6 billion
during that stretch. We had record
revenue and balances in prime bro-
kerage last year. It's an area where
we committed to invest in order to
complete our platform, and the prog-
ress is evident across all segments.
In fact, since 2014, we have grown
synthetic revenue by 48% and cash
revenue by 12% within our prime
brokerage business, bringing the two
segments more into balance. Our
57
leading equity derivatives franchise
grew revenue by 26% even while the
industry revenue pool shrunk by 5%.
We've also made great strides in cash
equities. No doubt about it, we were
late to the game when it came to
investing in low-touch, electronic
trading about a decade ago. But by
taking advantage of our profitability
and committing ourselves to signifi-
cant, ongoing technology invest-
ments, we now are a leading equities
franchise and are driving the changes
of tomorrow. Between 2014 and 2016,
the overall cash equities industry rev-
enue pool fell by 18%, yet our revenue
decreased by only 4%, helped by a
31% jump in low-touch revenue. The
technology investments we made
helped preserve our share in a declin-
ing market and positioned us for
growth as we continue to onboard
clients faster and build best-in-class
electronic trading tools.
We are proud to be a perennial leader
in Fixed Income and pleased with the
progress we've made in Equities, but
there is still more to do. Across the
Markets businesses, we track 31 sub-
product and geographic categories. In
2012, we held a top three leadership
position in 61% of those categories.
In 2016, we improved our standing by
having a top three leadership position
in 77% of those same categories.
The bulk of those leadership improve-
ments came from investments we
made in Asia, where we have com-
pleted or enhanced some pieces of
our global platform.
We believe that having global scale, a
complete platform and operational
excellence are essential to having a
on our own terms.
There's more to do, but our efforts
haven't gone unnoticed. Greenwich
Associates recently named
Adapting to the new market structure
Technology is rapidly reshaping the
Markets landscape, positively alter-
ing how our clients trade and how
we communicate with them. As the
technology advances, we have the
resources and the will to embrace
behavioral shifts and build offerings
around them. We fundamentally
believe that clients should have the
ability to choose how they want to
trade with us rather than be con-
strained by the technologies we, or
they, happen to have. Our Markets
Execution group is dedicated to mak-
ing sure clients can seamlessly and
confidently engage with us anytime,
anywhere, now and in the future.
Whether it was the U.K.'s referendum
to exit the EU, the results of the U.S.
presidential election or the uncer-
tainty of China's growth rate, the
CIB's technology, our scale and opera-
tional excellence enabled clients to
trade through turbulent markets.
In the case of the U.K. referendum,
as results were tallied, J.P. Morgan
smoothly handled record volume in
currency trading, at one point pro-
cessing 1,000 tickets per second as
investors scrambled and adjusted
their positions around the world.
While impressive, years of technol-
ogy investments and proper risk dis-
cipline prepared us for an event such
as the U.K. referendum. Our profit-
able Markets business, which gener-
ated an overall ROE of 17% last year,
enables us to invest in innovation
and the client experience. Eighty-
three percent of notional FX trading
is now done electronically. We have
seen a $100 million trade done on a
mobile phone, and on peak days in
2016, $200 billion in FX was traded
through our electronic channels,
including our own J.P. Morgan
Markets platform, which provides
a range of services from research to
pre- and post-trade reporting.
The electronic evolution is advanc-
ing, and the investments we've made,
and will continue to make, already
are proving their merit to our clients.
Transforming transaction banking
Our commitment to technological
advancement also has helped us make
significant progress in Treasury
Services (TS) and Custody & Fund
Services (CFS). As businesses that
provide vital services to clients, both
have benefited from the extensive
resources we've allocated to them.
To give a sense of the scale and
importance of these two franchises,
we hold and protect more than $20
trillion in assets under custody and
securely process $5 trillion in pay-
ments every day.
Global companies know how vital
these functions are in terms of safe-
guarding their financial operations
and enabling their businesses to
run smoothly.
Clients of both Treasury Services and
Custody & Fund Services increas-
ingly demand real-time access to
their balances, intraday liquidity and
ever faster processing capabilities.
They are turning to us to deliver
innovative products, alert them to
fraudulent transactions, and track
their finances across multiple curren-
cies and countries. The goal is to give
clients real-time information on their
complex, global portfolios with easy-
to-use, seamless technology.
Clients look to these critical services
to be faster and more accessible
than ever before, which is why we
have invested so heavily in these
businesses.
Investments and scale in the global
markets
and analytics platforms, such as
Hadoop and Spark. To maximize the
impact of these new data platforms,
we have doubled our big data infra-
structure consistently year-over-year.
We now can access and analyze data
in ways that we could not have done
before. For example, last year, we
re-engineered our Market Risk plat-
form, one of the largest in-memory
risk analytics platforms in the world.
The platform now manages over
1 billion risk sensitivities and pro-
vides visibility 17 times faster than
the prior system while delivering a
more granular and holistic view of
the firm's risk exposure.
58
In 2016, the CIB led more than 800
capital markets transactions for CB
clients and generated a record $2.3
billion of gross investment banking
revenue. Despite that already impres-
sive pipeline of shared client business,
we think the potential magnitude
over time could reach $3 billion.
Another developing partnership for
the CIB is the potential to work with
J.P. Morgan Asset & Wealth Manage-
ment and its client base of family
offices. We think there is more oppor-
tunity to offer these large investors
participation in CIB transactions
relevant to their investment goals.
Within our global payments strategy,
we have developed a new payments
platform based on similar cutting-
edge technologies. It will replace nine
monolithic platforms and enhance
client value through real-time cross-
border payment execution and end-
to-end payment status transparency.
In addition, the platform will enable
us to bring new products to market
more quickly and offer a more config-
urable, flexible client experience
through reusable APIs and microser-
vices for event processing.
Having top franchises across M&A,
debt and equity gives us real-time,
global market insights. Windows
of opportunity in both M&A and
capital markets can open and close
quickly. Having expertise across
product areas allows us to be timely
and provide our clients with the best
solutions to further their growth
strategies. That's how we build trust.
Loan originations
7%
$22
Average loans²
Business Banking
9%
$110
Average deposits
11%
7%
$235
Client investment assets (end of period)
Consumer Banking
$461
Average deposits
Active mobile customers (millions)
Community Banking
Households¹ (millions)
Consumer &
(3)%
4%
16%
26.5
60.0
ΥΟΥΔ
2016
$ in billions, except ratios and where otherwise noted
Key business drivers
2016 Performance Highlights
$7
8%
Net charge-off rate
0.61%
3 Excludes the impact of purchased credit-impaired loans
4 Excludes Commercial Card
2 Includes predominantly Business Banking loans as well as deposit overdrafts
1 Reflects data as of November 2016
Auto Finance
0.45%
$75
$35
Loan and lease originations
Average loan and leased assets
Net charge-off rate
12%
$1,063
Merchant processing volume
Commerce Solutions
Net charge-off rate
52
Average loans
Sales volume4
New accounts opened (millions)
(8) bps
0.10%
Net charge-off rate³
(36)%
14%
$232
47
Foreclosure units (thousands, end of period)
Average loans
Mortgage Banking
$104
Total mortgage origination volume
(5) bps
Credit Card
a decade, and our foreclosure inven-
tory is down 85% since 2012. That's
important because a nonperforming
loan is 25 to 30 times more expen-
sive for us to service than one that is
performing. We are continuing to
evolve Mortgage Banking into a less
volatile and more profitable busi-
ness. In our Card business, we have
been very consistent in terms of our
modest exposure to the less than 660
FICO segment. And when you look
at the mid-prime space, characterized
as FICO scores between 640 and 720,
we have the lowest share among the
players in the industry. Our credit
card losses remain at very low levels.
In Mortgage Banking, we've
increased our loan balances while
improving the quality of our servic-
ing portfolio. Today, our delinquency
rate is approaching its lowest level in
Building a strong business for the
future
Market expectations have shifted as
well. At the end of the second quar-
ter of 2016, the market was expecting
the Fed's interest rate on reserves to
remain below 1% through the end of
2019. With recent and anticipated
Fed interest rate hikes, industry
expectations are now for the rate on
reserves to reach 2% during 2019.
And, as indicated by our $2.4 billion
of "earnings-at-risk," our firm bene-
fits greatly when rates rise, particu-
larly short rates, which allow us to
capture the full value of our signifi-
cant deposit franchise.
50
2016 also saw a move higher in U.S.
dollar interest rates and featured a sec-
ond rate hike by the Fed in December.
During the second half of 2016, three-
month LIBOR increased basis
35
points to 1%, while 10-year Treasury
yields increased nearly 100 basis
points to 2.43%. Staying true to our
disciplined risk management frame-
work, we opportunistically added
duration through our investment secu-
rities portfolio as long-end rates rose.
firm's liquidity position, raising more
than $50 billion of liquidity to meet
the requirements of the new frame-
work. While deposit growth in excess
of loan growth drove some of this
improvement, the liquidity benefit
came mainly from a reduction in non-
high quality liquid assets in our invest-
ment securities portfolio and an
increase in Treasury-originated short-
and long-term secured funding.
Our focus on optimizing the firm's
balance sheet continued with rigor
through 2016. We extended our opti-
mization framework to analyze the
maturity structure of our long-term
debt, and we introduced the indus-
try's first total loss absorbing capacity
(TLAC) efficient callable debt struc-
ture, resulting in a larger proportion
of our outstanding long-term debt
being TLAC eligible. More broadly,
our optimization framework helped
to inform our new multi-factor
equity allocation approach to better
align incentives with the broader set
of constraints we face. Our firmwide
Asset Strategy group together with
our Deposit Strategy group provide
strategic cross-business focus on
our deposit, lending and investment
activities. These forums have and
will continue to evolve our analytical
frameworks and monitoring capabili-
ties, as well as continually assess
market opportunities and associated
resources and risks.
Most notable in 2016 was our work
related to liquidity and funding in
response to U.S. regulator feedback on
our 2015 Resolution Plan. We intro-
duced a comprehensive new liquidity
framework to estimate available
resources and liquidity needs during a
resolution event - and, as part of this
work, rolled out two enhanced liquid-
ity models across our material legal
entities. We further strengthened the
The firm's Treasury and Chief Invest-
ment Office are integral to delivering
on our strategic objectives, playing a
primary role in overseeing our $2.5
trillion balance sheet and providing
both governance and risk manage-
ment expertise around interest rate
and liquidity risk. We meet our
objectives through our nearly $300
billion high-quality investment secu-
rities portfolio, as well as the $300+
billion of funding and liquidity
sources directed by Treasury.
Liquidity and interest rate risk
Increasingly, our customers and
clients view our cyber posture, like
our fortress balance sheet, as a
source of strength. We will continue
to work tirelessly to identify oppor-
tunities in which the firm can lever-
age our cybersecurity expertise to
strengthen our controls, protect our
client relationships and improve the
posture of the broader industry.
embrace our cybersecurity leadership
responsibility to the industry. In
2016, we led the creation of the
Financial Systemic Analysis & Resil-
ience Center (FSARC) in partnership
with seven of our peer banks and the
U.S. government. FSARC's mission is
to proactively identify, analyze,
assess and coordinate activities to
mitigate systemic risk to the U.S.
financial system from cybersecurity
threats through focused operations
and enhanced collaboration.
Through robust employee awareness
and readiness programs, we continue
to reinforce the idea that cybersecu-
rity is everyone's job. We also edu-
cate our customers and clients on
how to protect their assets and
business from cyber threats. We
broadly distribute awareness com-
munications and conduct both in-
person and web-based training in
which more than 7,000 clients in
Asset & Wealth Management, more
than 3,000 Commercial Banking
clients and over 1,900 Corporate &
Investment Bank clients participated
in 2016 alone. As one of the largest
global financial institutions, we
The firm continues to make signifi-
cant investments in cybersecurity to
enhance these defensive controls and
our resilience to threats. For exam-
ple, we have deployed web browser
isolation technology to reduce the
risk of employee compromise
through phishing. Investments in
security analytics, data science and
automation technology will enable
analysts within our Security Opera-
tions Centers to efficiently detect and
respond to anomalous activity. We
have adopted and continue to evolve
leading-edge technology to prevent
client fraud across lines of business,
including risk-decisioning engines
that help distinguish between good
and bad activity in real time.
threats. Our defensive philosophy fol-
lows a "kill chain" approach – layers
of controls aligned to the multiple
stages of the cyber threat life cycle
(from early warning, to inbound/
outbound prevention and detection,
to response and recovery). We have
aligned our security technology and
processes to this life cycle, with a
focus on a "shift left” approach -
increasing our effectiveness in detect-
ing and preventing malicious activity
at the earliest points in the life cycle.
49
Securing a changing landscape
Our cybersecurity strategy is focused
on securely enabling new technology
and business initiatives while main-
taining a relentless focus on protect-
ing the firm from cybersecurity
We also are excited about the pros-
pects of cognitive automation, which
combines both robotics and machine
learning technologies to mimic
human judgment. Cognitive automa-
tion has the potential to automate
more complex, human-like processes,
such as perceiving, hypothesizing and
reasoning. In 2016, we successfully
piloted a virtual assistant technology
to respond to employee technology
service desk requests through a natu-
ral language interface. We are rolling
out this technology in 2017 to help us
initially triage over 120,000 service
tickets, with plans to expand the capa-
bility to address even more of the
1.7 million annual employee requests.
We are initiating pilots for a broad
of machine learning use cases
- from detecting anomalies for fraud
and cybersecurity, to generating
targeted trading strategies to share
with clients, to optimizing our client-
servicing channels. We are only at the
very beginning of tapping the poten-
tial capabilities of machine learning
and its benefits to our business.
range
for Investment Banking. Last year,
we introduced the Emerging Oppor-
tunities Engine, which helps identify
clients best positioned for follow-on
equity offerings through automated
analysis of current financial positions,
market conditions and historical
data. Given the initial success of the
Emerging Opportunities Engine in
Equity Capital Markets, we are
expanding it to other areas, like Debt
Capital Markets, similarly basing
predictions on client financial data,
issuance history and market activity.
As an example, we recently intro-
duced COIN, a contract intelligence
platform that uses unsupervised
machine learning to analyze legal doc-
uments and to extract important data
points and clauses. In an initial imple-
mentation of this technology, we can
extract 150 relevant attributes from
12,000 annual commercial credit
agreements in seconds compared
with as many as 360,000 hours per
year under manual review. This capa-
bility has far-reaching implications
considering that approximately 80%
of loan servicing errors today are due
to contract interpretation errors.
We also use machine learning to
drive predictive recommendations
Machine learning offers another excit-
ing opportunity to drive new capabili-
ties for the firm and our customers
and clients. Machine learning technol-
ogy provides insights about data
without needing to pre-program algo-
rithms. Machine learning technology
actively learns from data with the goal
of predicting outcomes. The more
these learning algorithms are engaged,
the more effective they become at
identifying patterns and relationships.
In 2016, we established a center of
excellence within Intelligent Solutions
to explore and implement a growing
number of use cases for machine
learning applications across the firm.
Machine learning
to automate 1.7 million requests in
2017. We have line of sight into more
than $30 million run rate saves from
robotic process automation in 2017,
a savings that, coupled with other
optimization efforts, will continue to
increase substantially in the years to
come. This technology has the oppor-
tunity to deliver immediate benefit in
several areas across the firm, helping
us to position our workforce around
higher value tasks and functions.
administration, for which we expect
Robotic process automation is soft-
ware that automates routine, repeti-
tive activity that otherwise would be
performed manually. Virtual “bots"
are available 24/7 to efficiently exe-
cute simple processes without the risk
of human error. In 2016, we estab-
lished an internal center of excellence
to drive best practices around a grow-
ing pipeline of robotic process auto-
mation, including systems access
Robotics
As we look forward, two emerging
areas of innovation - robotics and
machine learning - offer promising
opportunities to drive new value
through automation and insight.
Our Investment Banking franchise
also enjoys a strong partnership with
Commercial Banking (CB) that sets
us apart from all other competitors.
Its Commercial and Industrial fran-
chise is a leading bank to nearly
18,000 clients. As those businesses
grow and flourish, many need capi-
tal and advisory services from the
Corporate & Investment Bank.
We continue to build on the great
work started in 2015 on our intraday
liquidity program, with technology at
the core of our advancements. We are
able to monitor, in real time, the
liquidity impact of over $6 trillion of
transactions daily and the credit expo-
sure across tens of thousands of intra-
day credit facilities, consuming up to
5,500 updates per second. This year,
we introduced big data analytics,
which has substantially improved our
predictive capabilities around intra-
day drivers. We store 90 million data
points covering in excess of 18
months of daily history, adding over
500,000 data points per day. We are
now realizing the benefits of harness-
ing this vast amount of data, inform-
ing decisions internally and improv-
ing the quality of our dialogue with
clients. Additionally, we are leverag-
ing technology to further optimize
approximately $1 trillion of collateral
the firm has received, as well as the
firm's own collateral, to provide a
more integrated and dynamic operat-
ing model for collateral firmwide.
A culture of accountability
Having fortress controls remains a
critical priority, but controls alone
are not sufficient without the right
culture. The COO will continue its
leadership to reinforce our Business
Principles and cultural values
throughout the firm and maintain an
appropriate governance framework to
effectively manage our approach to
conduct risk. Confirming we are get-
ting it right requires a comprehensive
set of metrics, and, over the past year,
we have introduced a series of con-
duct measures to do just that.
Today, we have a relationship with
almost half of all households in the
U.S. We grew our customer base in
2016 by 4% to 60 million U.S. house-
holds. We are the primary bank for
more than 70% of our consumer
households and nearly 50% of our
small businesses. Our household
attrition is at record lows. And
according to our 2016 Brand Health
Survey, the Chase brand is at the
strongest levels we have seen, rank-
ing #1 in key categories, including
consideration, which measures if
survey participants would consider
doing business with Chase and have
a positive perception of Chase.
While we are extremely pleased with
where we are, we know we have
plenty of work to do. There is tre-
mendous opportunity literally on our
own doorstep. More than 80% of
Chase households with a mortgage
got it somewhere else. Only one-third
of our customers are engaged with
more than one product across Chase.
And only 10% of our small business
customers who have a Chase banker
use us for business banking, credit
card and merchant services, while
43% of small businesses need all
three. We can continue to grow sim-
ply by serving our existing customers
exceptionally well and earning their
trust to do more business with us.
Simply put, our commitment to cus-
tomers is at the heart of everything
we do. It's what drives our work and
our strong results. We know that
happy customers will do more busi-
ness with us and stick with us
throughout their lives. For us, our
goal is not only to acquire customers
- it's to acquire customers who view
Chase as their primary bank or credit
card. We want to be our customers'
first call when they are seeking
financial advice.
• Attract, train, develop and retain
the best talent and strengthen our
diversity
Execute structural expense manage-
ment strategies while continuing to
invest for the future
Continue our unwavering commit-
ment to build and maintain an
effective and efficient control
environment
Protect the firm and its clients/
customers, investors and employ-
ees from cyberattacks, as well as
protect the privacy of their data
and transactions
•
•
.
Lead payments innovation by
delivering solutions that address
merchant and consumer needs
Increase digital engagement by
delivering differentiated
experiences
Deepen relationships with our
customers and simplify and
improve the customer experience
•
•
We have been fortunate to be in an
extended, historically benign credit
environment. Despite that, we have
not forgotten the painful lessons of
2008 and have maintained an
extremely disciplined approach to
credit throughout the cycle.
We made meaningful progress on
our 2016 priorities - a strategy we
have been following consistently
since we unified our Consumer busi-
nesses in 2012 under CCB:
2016 financial results
Consumer & Community Banking
51
Chief Operating Officer
Matt Zames
Matt
I have never been more excited
about the opportunities ahead. Our
focus on innovation and aggressive
optimization to meet new challenges
will continue to result in dynamic
changes to our operating model as
we best position our businesses for
the future. In so doing, we will main-
tain a relentless commitment to the
highest standards of conduct and
safety and soundness to protect the
integrity and security of the markets
in which we operate and the assets
of our customers and clients.
Looking ahead
In 2017, we will continue to connect
key programs, metrics and policies
across the firm to identify additional
opportunities and our Board of
Directors will continue to hold us
accountable for this important work.
Our approach is iterative, driven by
our commitment to our firmwide
values and ongoing communication
of our standards to our employees.
We engage in ongoing dialogue with
our regulators, industry peers and
other experts to identify and adopt
best practices.
tors and senior management. The
Dashboard is a qualitative and quan-
titative assessment that includes key
metrics and commentary related to
how well-controlled we are and how
well we manage risk, compliance
results for our businesses and
employees, Code of Conduct matters,
employee survey results, and cus-
tomer and client feedback/com-
plaints for each of our businesses.
We continue to develop our Culture
and Conduct Risk Dashboard, which
is reviewed with our Board of Direc-
We use increasingly sophisticated
detective controls to help us identify
broad, as well as individual, trends in
employee conduct. For example, we
now have in production a Front Office
Supervisory monthly report across
our markets businesses globally. This
tool consolidates key sales and trad-
ing metrics, such as number of can-
celed and amended trades and credit
and market risk limit breaches, with
compliance metrics, such as an
employee's compliance with manda-
tory training and consecutive leave
requirements, to give supervisors a
view of their employees' behavior. We
also surveil certain electronic commu-
nications and trades to identify poten-
tial misconduct, and we have imple-
mented controls designed to prevent
and detect abuses related to collusion,
market misconduct or manipulation
and corruption, among others.
Culture and Conduct Risk was reaf-
firmed as a strategic priority at our
Operating Committee annual strategy
off-site meeting in July. We recently
appointed a Chief Culture and Con-
duct Officer for the firm to reinforce
ownership of conduct risk and a con-
sistent firmwide approach in the first
line of defense. We also established a
separate risk stripe for Conduct Risk
so that we have disciplined and con-
sistent oversight and a clear conduct
risk management framework.
2016 was another strong year for
Consumer & Community Banking
(CCB). All our businesses performed
well and delivered very strong
results. We gained market share in
each of our six business units. For
the full year, we achieved a return on
equity of 18% on net income of $9.7
billion and revenue of $44.9 billion.
Along with credit discipline, we
remain fiercely devoted to expense
discipline. We reversed a trend of ris-
Gordon Smith
20%
10.4
#2 mortgage originator and
servicer
#2 merchant acquirer
#1 in total U.S. credit and debit
payments volume
#1 ATM network in the U.S.
#1 rated mobile banking app
# 1 U.S. co-brand credit card
issuer
#1 credit card issuer in the U.S.
.
#1 most visited banking portal in
the U.S.chase.com
•
Consumer deposit volume has
grown at more than twice the
industry average since 2012
#1 in primary bank relationships
within our Chase footprint
Consumer relationship with
almost half of U.S. households
2016 HIGHLIGHTS AND ACCOMPLISHMENTS
CEO, Consumer & Community Banking
Gordon Smith
Garden
On behalf of the more than 130,000
employees in Consumer & Commu-
nity Banking, thank you for
your
investment in us.
overall activity was down in 2016, but
J.P. Morgan advised on more deals
than any other bank and ranked #2 in
wallet share globally. The firm's North
America M&A wallet share grew by
60 basis points since the end of 2015.
2016 West Coast Bus Tour
Every summer, we go out on the road to meet with our employees and
ask for their feedback. They tell us what they are hearing from our
customers and give us ideas on how we can make our Chase customer
experience even better. We've made many customer improvements as
a result of our bus tours, and we have a lot of fun along the way.
55
In order to grow, clients have often
searched for merger and acquisition
(M&A) opportunities to transform
their companies. They look to trusted
advisors who understand their compa-
nies and sectors and can provide the
strategic insights to help them expand.
Our global team of M&A bankers
works together to coordinate quickly
and often, enabling J.P. Morgan to
identify timely trends and opportuni-
ties across industries and borders.
After record M&A volume in 2015,
In 2016, we also were the top equity
underwriter. Despite a difficult envi-
ronment for initial public offerings
(IPO) and a significantly smaller
industry wallet, J.P. Morgan was the
only global bank to gain share last
year. Our bankers led 343 deals, more
than any other bank. J.P. Morgan was
a global coordinator and sponsor on
the Postal Savings Bank of China's
$7.6 billion IPO, the largest equity
deal of the year and the largest IPO
since the 2014 deal for Alibaba, in
which J.P. Morgan acted as global
coordinator. That 2016 deal under-
scored once again our ability to exe-
cute large transactions around the
world by connecting regional issuers
with global investors.
We also remain a leading source of
debt capital for U.S. nonprofit and
governmental entities, specifically
states, municipalities, hospitals and
universities. Last year, J.P. Morgan
raised $90 billion of credit and capital
for these important clients.
One standout deal of the year was evi-
dent in J.P. Morgan's role as the lead
financial advisor to Dell Inc. and Sil-
ver Lake Partners on Dell's $67 billion
acquisition of EMC Corporation, the
largest technology transaction in his-
tory. In addition, J.P. Morgan served as
global financing coordinator on Dell's
$49.5 billion of committed financing
associated with this transaction.
Our bankers represent a franchise
that has a full range of global capa-
bilities. Our Debt Capital Markets
team retained its hold at the top of
the global debt league tables. Its
expertise and the firm's ability to
deliver capital in scale for complex
financings set us apart.
We take immense pride in our peo-
ple and the talent at J.P. Morgan, and
our #1 standing is mainly due to the
fact that we have the industry's best
bankers. Still, there are sectors and
geographies in which we can always
improve. Since 2014, we have hired
approximately 60 investment bank-
ers, about 40 of whom were manag-
ing directors, who brought experi-
ence and relationships that will help
bring J.P. Morgan's full suite of solu-
tions to even more clients.
Investment banking has always been
about deep, long-standing relation-
ships and solutions. Clients want
consistent coverage, good ideas and
global capabilities. We have an excep-
tional Investment Banking franchise
that consistently ranks #1 globally.
That success continued in 2016 with
an 8.1% share of the global fee wallet.
Strengthening investment banking
leadership
By continually improving, adapting
and being prepared, we are better
able to respond. That's what our
clients have come to expect, and we
know that their success is the foun-
dation for ours.
At Chase, we take very seriously the
role our business plays in helping
customers make the most of their
money. Our goal is to offer products,
advice and tools to help them make
the best choices. It's such a privilege
to be in the business of banking and
payments. We are honored to be part
of our customers' lives in a way that
few businesses are.
is the ultimate outcome of negotia-
tions between the U.K. and the EU.
We are fortunate to have options in
terms of locations and legal entities
that will allow us to serve clients
seamlessly during the transition. We
will need to make adjustments, but
our commitment to clients in the
U.K. and the EU is as strong as ever.
We don't take our leadership for
granted, though. Despite our leading
franchises, we continue to look
beneath the surface of our businesses,
ask the critical questions and make
improvements where necessary. We
are committed to staying ahead of
the curve and embracing the techno-
logical changes affecting our industry
in the face of competitors, both new
and traditional.
driving wallet share increases across
our already top-ranked businesses.
Daniel Pinto
56
Providing clients with capital and
liquidity during volatile market condi-
tions has become even more essential
in recent years. As some competitors
retrenched and signs of decreasing
liquidity emerged, we remained
supportive and accessible. Our global
scale, complete product set and the
strength of our balance sheet, under-
pinned by our sound risk manage-
ment practices, enabled us to con-
sistently serve clients, a factor in
By adhering to those principles, the
CIB achieved impressive results in
2016. Record earnings of $10.8 billion
were up 34% compared with 2015,
and our $35.2 billion in total revenue
reflects a gain of 5% over the previ-
ous year. That performance produced
a superior return on equity (ROE) of
16% on a capital base of $64 billion.
During a year of significant volatility,
the Corporate & Investment Bank
(CIB) consistently delivered for its
clients. Throughout 2016, we
increased or maintained our leading
positions by avoiding complacency,
reinforcing our culture of meeting
the highest standards and attracting
the best talent in the industry.
FILT
Corporate & Investment Bank
By investing in scalable platforms and
innovative trading tools and improv-
ing the overall experience, we are
serving clients better, faster and more
efficiently than ever before. More
important, while we drove annual
expenses down to $19 billion by stay-
ing disciplined, we still kept investing
for the future. The market share gains
we experienced in 2016 were sup-
ported by the CIB's profitability and
our willingness to make strategic
investments in innovation that will
bolster our growth for years to come.
The past year demonstrated once
again that there will always be unpre-
dictable global events. One unknown
many of our 4 million small busi-
nesses. There are few things more
gratifying than watching a small
business owner turn an idea into a
sale and then sales into a business.
Since 2012, our share of business cus-
tomers who use Chase as their pri-
mary bank grew from 6% to 9%. We
improved our Net Promoter Score by
38%. And since 2014, average depos-
its are up by 21% and loans by 13%.
#3 bank auto lender
And as transaction volumes come
down, we will rationalize our branch
footprint. We have been opening
branches in higher growth areas and
consolidating those with less foot
traffic. As a result, we reduced our
net branches by about 150 in the past
year. However, by being smart about
where we open branches, even in
markets where we consolidated, we
still grew share.
New card launches – While receiv-
ing less hype than Sapphire Reserve,
we've also introduced several other
popular cards. Chase Freedom
Unlimited SM simplified our cash-back
proposition by offering customers
1.5% cash back on everything they
buy. And not to be outdone, Ink
Business Preferred SM and our Amazon
Prime SM card also earned a very
10%
$131
4%
2.63%
12 bps
9%
16%
7 bps
YoY year-over-year bps = basis points
ing expenses with relatively flat rev-
enue. Since 2014, we achieved $2.4
billion in structural expense reduc-
tions and improved our overhead
ratio from 58% in 2014 to 55% in
2016. Importantly, during that same
time period, we continued to
pru-
dently invest in our core businesses
to deliver value for the long term. In
particular, we've invested heavily in
technology and marketing associated
with new product launches, digital
and payments innovation, and cyber-
security. Our investments have also
improved our control environment,
leading to more automated processes
and better customer and employee
experiences. Expense discipline is
part of how we do business every
day, and the work to reduce our
structural expenses will continue.
Payments innovation
$545
Payments are at the very core of
what our business does for customers.
We are one of the few companies
that can deliver the full payment
chain from merchant to consumer.
The payments industry is one that is
evolving rapidly with innovation and
new entrants. Our strategy has been
consistent:
Build our own proprietary wallet
with Chase PayS
• Be top of wallet in other wallets,
whether that is Apple Pay™,
Android PayTM, Samsung Pay™, or
other embedded payment systems
such as Amazon or Uber
• Have the best person-to-person
(P2P) payments experience
anywhere
Create card products that our
customers love, with rich reward
offerings to make them top of the
physical and digital wallet
The future here is still unknown as
customers adopt new capabilities. But
we know payments are core to what
we do, and we are investing across
multiple fronts to create the best pay-
ments experience for our consumer
and merchant customers as technol-
ogy evolves. In 2016, we achieved
some key milestones in payments:
Commerce Solutions - Our Chase
Commerce Solutions business has
earned double-digit growth since
2012 and in 2016 surpassed a stagger-
ing $1 trillion in processing volume.
Chase Pay-We introduced Chase
Pay, our payment solution that pro-
vides benefits to both customers and
merchants. Chase Pay has unique fea-
tures other payment methods don't
and has the Chase brand and security
behind it. Several large retailers,
wealth is expected to grow at the
fastest rate of all generations over
the next 15 years. Since we are more
than a credit card company and
given our new customers' strong sat-
isfaction and engagement with their
Sapphire Reserve cards, we are confi-
dent they will also choose Chase to
do more of their banking, invest-
ments and loans.
Person-to-person payments - Chase
QuickPaySM has been an industry
leader with 94 million transactions
in 2016. The number of households
using QuickPay has gone up 30% in
just the past year. As strong as it is,
we took an important step to make
it even better. We worked with 20+
other financial institutions on a solu-
tion called Zelle that speeds up P2P
real-time payments between banks.
Sapphire Reserve SM - This past year,
our team noticed an important
insight from our customers: People
are traveling differently. They want
to feel more like locals than tourists,
and the shared economy has revolu-
tionized the travel industry. When
choosing a credit card, customers
want a card that rewards them more
for doing what they love to do and
helps them discover the future of
travel. We created Sapphire Reserve
with one of the strongest point pro-
grams in the industry. And while we
knew we had designed a superb card,
frankly, even we were surprised by
the sensation it became. We
exceeded our annual target of cus-
tomers in less than two weeks.
Sapphire Reserve has introduced
Chase to an exciting and passionate
customer base with average FICO
scores above 785 and an average
deposit and investment wallet of
over $800,000. Even more exciting,
the majority of our new Sapphire
Reserve customers are millennials.
That is significant because millenni-
als make
up the majority of our new
deposit accounts today, and their
Our branches also are advice centers
for
including WalMart, Starbucks and
Best Buy, have partnered with us to
offer Chase Pay to their customers. It's
early, but we're already seeing promis-
ing results and expect 2017 to show
continued strong momentum.
53
⋅
Chase Digital Mortgage SM-
Chase Business Quick Capital® -
A partnership with OnDeck to pro-
vide fast funding to small businesses
using Chase underwriting standards
simply pick it up at the dealership
.
•
Advancing our digital and technol-
ogy capabilities is job #1, but we are
also paying close attention to the
emerging technologies in our indus-
try. Many new fintech companies are
mastering ways to simplify the cus-
tomer experience. Those we meet
with have huge respect for the Chase
brand, and they envy our scale and
distribution. In cases where we think
their solutions will improve the cus-
tomer experience quickly, we partner
with them. A few of those 2016 part-
nerships have worked out very well:
We think we can confidently say
that Chase is the digital leader in
the industry. We have the #1 rated
mobile banking app, #1 ATM network
and #1 most visited banking portal
in the U.S. This is important because,
increasingly, digital is a critical driver
in why customers choose to do busi-
ness with Chase. Banking no longer
is a sometimes activity - customers
engage with us every day. More than
26 million customers are active on
our mobile app today. Digital also
drives tremendous loyalty. House-
holds that use our digital channels
have credit and debit spend levels
over 90% higher than those that
don't. Customers who are digitally
engaged have higher satisfaction and
retention rates, spend more and have
far lower transaction costs.
Digital
strong customer reception. Together,
these cards have contributed to our
momentum. In 2016, we saw new
accounts up 20%, card sales volume
up 10% and outstandings up 8%.
We continue to study and meet with
new players to evaluate which part-
nerships could benefit our customers.
Chase in the community
Chase's 5,258 branches are the face
of our firm to local communities.
Roughly two-thirds of our custom-
ers visit a Chase branch four times a
quarter on average. Our branches
are located in the fastest growing
markets in the country, and we are
outpacing our competitors wherever
we compete.
If you visit our branches regularly,
you will see how they have changed.
There are fewer teller lines and more
54
•
options for customers who choose to
self-serve. There are more private
spaces and conference rooms for
customers to meet with a banker and
privately discuss transactions. And
the branches just look better. Most
branches are refreshed roughly every
six to seven years to update the tech-
nology and brand experience.
We know one thing that will drive a
customer crazy is a long teller line.
Since 2014, we've reduced total teller
transactions by ~130 million and
increased self-service/digital transac-
tions by -180 million. That's great
progress, but we still can do more. In
2016, 70% of our 400 million teller
transactions could have been per-
formed through a self-service chan-
nel. We continue to work with our
customers to help them understand
how to complete transactions on
their own if they so choose.
A partnership with Roostify that
helps our customers manage the
mortgage process online or on
mobile
Chase Auto Direct SM - A partner-
ship with TrueCar that allows cus-
tomers to shop for and finance the
specific car they want online and
Recognized in 2016 by Greenwich
Associates as #1 cash manage-
ment overall satisfaction and #1
cash management market pene-
tration in the $20 million-$500
million footprint
Record originations of more than
$20 billion
Commercial Term Lending -
Corporate Client Banking - Record
gross investment banking revenue³
#1 U.S. multifamily lender¹
#1 in Perceived Customer Satisfac-
tion, CFO magazine's Commercial
Banking Survey, 2016
Top 3 in Overall Middle Market,
Large Middle Market and Asset
Based Lending Bookrunner²
Middle Market Banking - Added
more than 700 new clients
•
Business segment highlights
• Winner of Greenwich Associates'
Best Brand Awards in Middle Market
Banking overall, loans or lines of
credit, cash management, trade
finance and investment banking,
2016
2016 HIGHLIGHTS AND ACCOMPLISHMENTS
Continued superior credit quality
- net charge-off ratio of 0.09%
2016 Long-term
target
2010-2016
CAGR
Clients (#) 820 1,100 1,360 1,470 1,670 1,970 2,220
Loans EOP ($B) $1.6 $4.4 $6.8 $8.2 $8.8 $10.7 $12.6
Deposits ($B) $1.3 $3.0 $4.7 $6.0 $7.8 $8.2 $8.2
18%
41%
36%
1 Prior years' financials have been revised to conform to current presentation
Analysis based on Dun & Bradstreet data for companies headquartered in Metropolitan Statistical Areas with revenue between $20 million and $500 million; excludes high-risk industries
and industries not aligned to Middle Market
3 Represents total firm revenue from investment banking products provided to CB clients
Does not include fees from Fixed Income and Equity Markets products, which are included in Commercial Banking gross investment banking revenue
CAGR = Compound annual growth rate EOP = End of period N.A. IB = North America Investment Banking
61
Francisco, Boston, Miami and Wash-
ington, D.C. We are in 48 of the top
50 markets in the U.S., and by the
end of 2017, we will be in all 50.
Through these efforts, we have
organically built a nice-sized bank
with over 2,200 clients, $13 billion of
loans and $8 billion of deposits. Our
Middle Market expansion strategy is
a significant growth opportunity –
one in which we believe will reach
$1 billion in revenue over time.
Leadership positions
Our opportunity
the best team in all of our markets to
serve our clients. We remain commit-
ted to growing with discipline and
will continue to take a long-term view
with our business and our clients,
investing for their success and ours.
With these priorities guiding us, I'm
excited by the future and the poten-
tial of our business. We see enormous
opportunity across our franchise as
the investments we have made over
the last several years have set a solid
foundation. Expanding our footprint
and adding new bankers puts us in
front of a tremendous number of
potential clients. Moreover, the en-
hancements we are making in our
platform and capabilities give us con-
fidence in our ability to compete and
add differential value to our clients.
Our success depends completely on
our people. They are knowledgeable,
dedicated and deeply embedded in
the communities they serve. I'm
excited by the enthusiasm they show
every day and am proud to work
with such an incredible team. As
always, we are optimistic about the
U.S. economy and our clients' role in
driving growth and opportunity for
CB. If we stay true to our proven
strategy, we believe this team will
continue to deliver strong results for
our shareholders.
Ding
Douglas Petno
CEO, Commercial Banking
•
Performance highlights
Delivered record revenue of
$7.5 billion
• Grew end-of-period loans 13%;
26 consecutive quarters of
loan growth
.
•
Generated return on equity of
16% on $16 billion of allocated
capital
As we look forward, our strategic
priorities are clear. We are going to
continue to drive innovation and
strengthen our business processes to
improve the client experience, oper-
ate with fortress principles and have
•
The major geopolitical events of
2016, namely the U.S. presidential
election and Brexit, surprised many
as the outcome of these two major
votes had been deemed improbable.
As such, market reactions were vola-
tile and unsettling to many.
Real Estate Banking - Completed
its best year ever with record
originations over $10 billion
asset classes helps clients avoid
overexposure to a particular region
or asset class, protecting their port-
folios from significant drawdowns
and enabling them to be nimble
and take advantage of market
opportunities when they arise.
When investors make emotional
decisions related to current events,
the benefits of long-term investing
and properly diversified portfolios
can be eroded.
Instead of focusing on proper long-
term, diversified investment portfo-
lios, today's debate is centered more
on how to invest. Questions relating
to "active vs. passive" investing and
"humans vs. computers” have taken
over the headlines.
We believe proper portfolio construc-
tion should include both active and
passive strategies, depending on a
client's time horizon and risk profile.
We also believe advisors and technol-
ogy need to work together. Clients
want to choose how, when and from
whether
where they interact with us -
it's through online platforms, on the
phone or face to face. The person-to-
person interaction becomes even
more important as our clients' lives
grow more complex and they require
more comprehensive advice.
20-Year Annualized Returns by Asset Class (1996-2015)
12%
10.9%
10%
8%
6%
4%
2%
0%
8.2%
7.2%
6.7%
5.3%
5.2%
4.8%
3.4%
Perhaps the two most important
investment lessons passed on
through these centuries are around
long-term focus and diversification.
Diversification across and within
Wealth Management (AWM) has
brought its fiduciary mindset to
help clients navigate portfolios.
Over these many decades, we have
institutionalized our insights and
passed on the cumulative wisdom
and knowledge of those before us
to incoming generations.
Mary Callahan Erdoes
The emotional response to such
events often makes it difficult to
objectively reassess and position
portfolios. For 180 years - through
countless political challenges and
conflicts - J.P. Morgan Asset &
Community Development Banking
- Originated over $1 billion in
new construction commitments,
financing more than 10,000 units
of affordable housing in 90+ cities
Firmwide contribution
Commercial Banking clients
accounted for 40% of total North
American investment banking fees
Over $130 billion in assets under
management from Commercial
Banking clients, generating more
than $460 million in Investment
Management revenue
$475 million in Card Services
revenue³
• $2.8 billion in Treasury Services
revenue
•
•
•
Progress in key growth areas
Investment banking - Record gross
revenue of $2.3 billion; 10%
CAGR since 2011
International Banking - Revenue
of $285 million; 8% CAGR since
2011
1 SNL Financial based on Federal Deposit
Insurance Corporation data as of 12/31/16
2 Thomson Reuters as of year-end 2016
3 Investment banking and Card Services
revenue represents gross revenue
generated by CB clients
4 Calculated based on gross domestic invest-
ment banking revenue for syndicated and
leveraged finance, M&A, equity underwrit-
ing and bond underwriting
5 Overseas revenue from U.S. multinational
clients
CAGR = Compound annual growth rate
62
Asset & Wealth Management
target
Middle Market expansion - Record
revenue of $411 million; 24% CAGR
since 2011
2015
60
2013
In our Markets business, despite
a significantly smaller industry
revenue pool compared with 2010,
the CIB's Fixed Income
market share rose to 12.0% in
2016, up from 8.6% during the
same time frame.
The Treasury Services business
supports approximately 80% of
the global Fortune 500, including
the world's top 25 banks, and
handles $5 trillion in payments
per day.
•
Custody & Fund Services has
more than $20 trillion in
assets under custody; during
the past year, it increased
business with existing clients
by 10%.
59
Commercial Banking
Across our company, our clients are at
the center of everything we do. In
2016, this meant supporting our
energy clients as they weathered one
of the worst sector downturns in 30
years. With oil prices down almost
75%, the industry has felt tremendous
stress. During this time, we stood by
our clients and have provided mean-
ingful advice and much-needed capi-
tal. As many banks stepped away, we
continued to demonstrate leadership
in the industry, adding over 30 clients
to our energy portfolio and extending
more than $1 billion in new loan com-
mitments last year.
It was our disciplined client selection
and deep sector expertise that gave us
the confidence and resolve to provide
unwavering support during this signif-
icant downturn. I'm incredibly proud
of our entire energy team for their
relentless focus, leadership and hard
work. We believe it is this enduring
client commitment and our long-term
view that set us apart in the industry.
2016 was a terrific year for Commer-
cial Banking (CB) in so many ways,
and our performance highlighted
the strength and potential of our
8886
Doug Petno
franchise. I'm excited to share our
2016 results, the investments we
are making and our expectations
for the future.
2016 performance
For the year, Commercial Banking
delivered strong financial results,
with record revenue of $7.5 billion,
$2.7 billion of net income and a
return on equity of 16%. Notably, we
absorbed incrementally higher capi-
tal and substantial investments in
our platform and capabilities while
maintaining strong returns and
oper-
ating efficiency in the business.
Our partnership with the Corporate
& Investment Bank (CIB) continues
to thrive and is a key differentiator
for our business. Being able to provide
strategic insights and leading capital
markets and advisory capabilities dis-
tinguishes us from every other com-
mercial bank. In 2016, we delivered
record gross investment banking rev-
enue of $2.3 billion, up 5% from the
prior year. This outstanding partner-
ship accounted for 40% of the firm's
North American investment banking
fees, and we believe there is tremen-
dous opportunity to grow.
Loan growth across our business was
also outstanding, ending the year
with record loan balances of $189 bil-
lion, up $21 billion from the prior
year. Loans in our Commercial &
Industrial franchise reached a new
record, up 9% from the prior year,
and loans in our Commercial Real
Estate businesses completed another
with record origina-
fantastic year,
tions of $37 billion.
of
•
•
The CIB's leadership and role as a
trusted partner to our clients helped
drive the firm's total merger and
acquisition share to 8.6%, up from
6.4% in 2012, a gain of more than
200 basis points.
to embrace technology in order to
offer clients a broader array of
trading platforms in which to transact
with J.P. Morgan.
.
J.P. Morgan's ACCESS OnlineSM the
top-ranking cash management portal
globally, as well as in North America.
Our commitment to technology and
delivery of innovative solutions were
also important factors behind Black-
Rock's decision to award us a CFS
mandate with $1.3 trillion in assets
under management last
the big-
year,
gest custody transaction in history.
Clients are rewarding us with new
and incremental business; the bank
has increased business with existing
custody clients by 10% in 2016, and
the forward pipeline is strong. Over-
all, the bank serves about 2,500 cus-
tody clients in more than 100 markets.
The faith that clients have in our
capabilities is a validation of our
investments and reflects our ability to
collaborate across areas, such as Sales,
Products, Technology and Operations.
By 2017, TS is expected to increase
its technology budget by 12% vs.
2014 with investments that include
automating and streamlining the
account opening process, digitizing
document exchanges and expand-
ing virtual branches. We're also
continually investing in cybersecu-
rity capabilities to guard against
fraud, malevolent attacks on our
operations and other intrusions. We
believe that by 2017, these improve-
ments will help reduce operating
expenses by 13% vs. 2014, while
client operating balances jumped
by 15% in just the last two years.
Similarly, Custody & Fund Services
will increase its technology budget
by 30% vs. 2014 while driving
down operating expenses by 12%.
Using technology-driven solutions,
CFS is enhancing its stability and
enabling the business to grow in a
more scalable way.
After a few years of tightening con-
trols and upgrading systems, we are
now winning more business and
attracting talented bankers and tech-
nologists who are excited about our
willingness to invest in and build
new technologies.
Building for the future
We view last year as a transitional
period in the financial markets. If the
global economy continues improving,
that should have a positive impact on
client activity and gross domestic
product (GDP) growth in the U.S. and
in many of the developed and emerg-
ing market economies.
Staying true to our proven underwrit-
ing standards, we have remained
highly selective in growing our loan
portfolio. Despite pressures in the
energy and commodities sectors,
2016 marked the fifth straight year
net charge-offs of less than 10 basis
points. As we begin 2017, credit fun-
damentals across CB are quite strong,
but we remain disciplined and
focused. We are monitoring all new
activity carefully and know that this
will serve us well over time.
Estimates are that emerging markets
ultimately will account for 70% of
future GDP growth compared with
its present share of worldwide GDP
of 40%. If and when that shift
occurs, J.P. Morgan will be prepared
to serve the next generation of multi-
nationals and to foster their develop-
ment through the financing capabili-
ties that we are uniquely able to offer.
Daniel Pinto
CEO, Corporate & Investment Bank
2016 HIGHLIGHTS AND ACCOMPLISHMENTS
The CIB had record earnings of
$10.8 billion on $35.2 billion of
revenue, producing an ROE of 16%
on a capital base of $64 billion.
We retained our #1 ranking in global
Investment Banking fees with an
8.1% market share, according to
Dealogic.
The CIB had $19 billion of expenses,
down $2.8 billion since 2014.
•
The CIB continued investing
•
We will continue to build new prod-
ucts and make it easier for clients to
work with us, from onboarding to
day-to-day trading and through the
simplification of our processes. We
have great assets, and no other bank
is better positioned to deliver them
to the global corporations of today or
the ones sure to come into being in
the next decades. But whether
they're long-established multination-
als or startups looking to gain their
own foothold in the global markets,
we will never forget that they are at
the center of what we do.
2014
What's not in our financial results
also tells a great story. We have
made significant investments to
build a fortress risk and compliance
framework for our business. More-
over, we have executed a significant
portion of our regulatory and con-
trol priorities and are committed to
set the standard in the industry. This
progress has allowed us to focus on
improving our processes to deliver
a better client experience. It is an
ongoing priority, and we will con-
tinue to invest in safeguarding our
clients and our business.
As strong as our business is, we are
certainly not standing still. We are
executing a multi-year transforma-
tion across CB, with a clear focus on
bringing greater value to our clients.
$2.2
$2.3
$2.0
$1.6
$1.7
$1.3
$1.4
$411
$328
$352
$297
19
$232
$139
$53
2010
2011 2012 2013 2014 2015
2016 Long-term
2010 2011 2012
CAGR: 9%
$3.0
CB clients represented 40%
$ in billions
3.3%
Last year, we invested more than
we ever have on technology, data and
our key product capabilities. Looking
forward, we will direct even more
resources in 2017 to enhance our
wholesale payments platforms, build
upon our market-leading digital capa-
bilities, use data to better manage
risks, and drive improvements across
critical processes like credit delivery
and client onboarding. This is an
effort with no finish line - through
continuous innovation, we will seek
better ways to serve our clients and
extend our competitive advantages.
Improving the client experience through
enhanced digital delivery
Given the rapidly increasing consumer
and wholesale client expectations, we
are focused on leading the industry
in our digital and mobile capabilities.
Our mission is to deliver greater
speed, convenience, simplification,
transparency and mobile access. We
are working hand in hand with our
partners in Consumer & Community
Banking (CCB) and CIB to leverage
their experience and technology
investment in this area.
In 2016, we joined CCB to launch a
new digital platform that is specifically
tailored to meet the needs of small and
midsized companies. It works across
desktops, tablets and mobile devices to
provide an integrated experience
across all of our products and services.
We are excited that this new platform
will help us bring innovative function-
ality to our clients.
Expanding our footprint to reach more clients
Expanding our client base and build-
ing deeper client relationships
remain top priorities for CB. During
2016, we made significant progress
in executing our long-term growth
strategy opening offices in eight
new markets and hiring over 100
bankers across our business. These
long-term investments are bringing
us much closer to our clients. We
made 20,000 more client calls last
year than we did in 2015, and this
focus will continue to drive opportu-
nity for us in the coming years.
Investing in our franchise to better
serve our clients
Our Middle Market business in Cali-
fornia is a great example of the prog-
ress we've made so far and the tre-
mendous potential we see in our
expansion markets. It's an extremely
exciting market for us as it represents
the sixth largest global economy. Our
team entered California following the
Washington Mutual acquisition in
2008, and we now have 13 offices
across the state. We are delighted
with our progress as we have added
more than 450 clients, and we are
growing with discipline, maintaining
fantastic credit performance with
essentially zero net charge-offs.
Total Expansion Market Revenue¹
$ in millions
Expansion efforts have
doubled Middle Market
addressable client universe²
Revenue CAGR: 41%
Locations
45
$1,000
of CIB's N.A. IB fees in 20164
Commercial Banking Gross Investment Banking Revenue³
Since 2010, our Middle Market team
has opened 45 offices in major mar-
kets, including Los Angeles, San
2.2%
Missed 50
best days
REITS
applied to the JPMorgan Chase Ser-
vice Corps, our highly selective pro-
gram that embeds top-performing
employees with many of our non-
profit partners. That so many of our
people eagerly throw their hats in the
ring to leave their jobs, families and,
in some cases, their countries for
three weeks to lend their skills to our
communities speaks volumes about
who we are as a firm.
Underpinning this ethos is a convic-
tion that firms like ours have not
only a responsibility and a vested
interest in helping solve the chal-
lenges facing our communities but
also a vital contribution to make. The
private sector's capabilities, ingenu-
ity and assets have time and again
demonstrated their capacity to drive
transformative change.
JPMorgan Chase has answered this
call by reimagining our approach to
corporate responsibility. Based on our
experience around the world, we have
developed and refined a model that is
informed by data and based on evi-
dence about what's most effective at
driving inclusive growth. Our conclu-
sion: Arm people with the skills
needed for today's high-quality jobs;
provide small businesses – particu-
larly minority-owned and community-
based ones with capital and
-
resources; invest in community devel-
opment that revitalizes not only urban
cores but also surrounding neighbor-
hoods; and give households the tools
and resources to manage their finan-
cial health. Taken together, these are
four fundamental pillars of opportu-
nity and the focus of our efforts.
Our model also reflects what we have
learned are the essential ingredients
for creating lasting impact. Critically,
it must include a deliberate focus on
strengthening the underlying organi-
zations and systems that are needed to
empower communities to deliver on -
and sustain - change. Equally, it
depends on forging meaningful part-
nerships across the public, private and
nonprofit sectors - and then actively
leveraging our unique capabilities.
Of course, every company has differ-
ent assets and experiences to contrib-
ute from Google's initiatives that
harness its employees' passion for
technology to give back to their com-
munities to IBM's pioneering skilled
volunteerism program that demon-
strates what can be achieved when
firms lend their people's expertise.
Regardless of what we bring to the
and must-
table, all of us can -
embrace the obligation to be a posi-
tive force for progress and opportu-
nity in our communities.
Peter Scher
Head of Corporate Responsibility
and Chairman of the
Greater Washington Region
66
A MODEL FOR IMPACT
Driving inclusive growth
More people must have access to opportunity
and the chance to move up the economic
ladder, particularly in the world's cities, where
the benefits of revitalization are not reaching
everyone. To achieve this mission, we have
reimagined our approach to corporate respon-
sibility. We are leveraging our firm's data,
global scale, talent and resources to invest
in key drivers of inclusive growth: financial
health, jobs and skills, neighborhood revitaliza-
tion and small business expansion.
We continually test, learn and iterate in order
to create more widely shared prosperity and to
strengthen the underlying systems needed to
deliver sustainable change.
A MODEL IN ACTION
Jobs and skills
Helping people get the skills they need to
compete in today's labor market is critical for
expanding access to opportunity and promot-
ing economic mobility. Yet even as the global
economy improves, people around the world
are being left behind.
To help address this challenge, JPMorgan
Chase is investing $325 million over five years
to provide adults and young people around the
world with critical support, education and
training to build in-demand skills while provid-
ing employers with the workforce they need to
grow and compete in today's economy. As part
of these efforts, JPMorgan Chase launched
New Skills for Youth in 2016, a $75 million
global initiative to expand high-quality, career-
focused education programs that lead to well-
paying jobs and long-term careers.
Peter Scher
New Skills for Youth is expanding opportunity
for young people through two approaches: a
multimillion dollar competition, in collabora-
Bolstering these investments is the
tremendous dedication of our people
to serve our communities, including
the hundreds of employees who
At JPMorgan Chase, we understand
that the success of our firm is directly
linked to the success of our commu-
nities. For us, corporate responsibility
is a strategic imperative. By giving
more people the opportunity to share
in the rewards of a growing economy,
we help build the foundation for
more prosperous communities - and,
in the process, help secure our firm's
long-term future.
Record pre-tax income of
$3.5 billion
•
Retention rate of over 95%
for top senior portfolio
management talent
Leadership positions
#1 Global Asset Management
(Euromoney, February 2017)
•
# 1 Institutional Money Market
Fund Manager Worldwide
(iMoneyNet, December 2016)
#1 Private Bank Overall in
North America (Euromoney,
February 2017)
#1 Private Bank Overall in
Latin America (Euromoney,
February 2017)
Best Asset Management Company
for Asia (The Asset, May 2016)
•
•
Top Pan-European Fund Manage-
ment Firm (Thomson Reuters Extel,
June 2016)
Best Large-Cap Core Equity
Manager of the Year (Institutional
Investor, May 2016)
# 3 Hedge Fund Manager
(Absolute Return, September 2016)
65
Corporate Responsibility
The importance of corporate respon-
sibility is reflected in its integration
throughout our operations. Our
long-term initiatives and programs
- backed by significant human and
financial capital and informed by
our firm's expertise - are among the
most externally visible indicators of
the seriousness of our intent. So, too,
are the ways in which we actively
leverage our core business in service
to our communities, deploying the
capital and the credit that fuel eco-
nomic growth.
IN THURMILY
tion with the Council of Chief State School Offi-
cers, which seeks to incentivize U.S. states to
grow and strengthen their career and technical
education systems; and, through global innova-
tion sites, the development of career-focused
education programs in cities and school dis-
tricts around the world.
Communities engaged in 2016:
Nearly a full year of the Local Consumer
Commerce Index, measuring consumer
spending growth in 15 U.S. cities and
in aggregate.
The role of unemployment insurance and
the financial decisions households make
after receiving it;
The economic impact of Daylight Savings
Time;
Small business cash flow and cash reserves
("cash buffer days") they have on hand to
weather financial volatility;
Consumers' response to the sustained drop
in the price of fuel;
•
•
•
The impact of the online platform economy
as a way for consumers to manage this vola-
tility and the slowing participation growth
within the online platform economy;
Household income volatility, particularly in
the wake of extraordinary payments;
•
In 2016, the Institute uncovered fresh
insights on:
Almost two years ago, we established the
JPMorgan Chase Institute: a global economic
think tank dedicated to delivering data-rich
analyses for the public good. The Institute utilizes
our proprietary data, augmented by firmwide
expertise and market access, to provide
insights on the global economy and offer inno-
vative analyses to advance economic prosperity.
Data and analysis
As part of these efforts, JPMorgan Chase part-
nered with LiftFund and committed $4.6 million
to support the launch of LiftUP, a new web-
based small business lending program to
increase access to capital for underserved
minority- and women-owned small businesses
in the southern U.S. LiftUP will provide small
businesses faster access to affordable small
business loans, reducing lending approval time
from an average of five weeks to four days.
Additionally, JPMorgan Chase partnered with
the Association for Enterprise Opportunity
and committed $1.9 million to support the
advancement of a new technology-enabled
platform that will serve as an industry utility
connecting small businesses with CDFI lend-
ers when the owners are unable to qualify for
traditional loans.
•
67
In October 2016, JPMorgan Chase more than
doubled the size of the global Small Business
Forward program, committing $75 million over
the next three years to connect underserved
small businesses with capital, targeted techni-
cal assistance and support networks to help
them grow faster, create jobs and strengthen
local economies.
Through our efforts in Detroit, we have learned
that supporting underserved entrepreneurs is
essential to the city's transformation. These
insights led us to refine and sharpen our focus
on helping underserved entrepreneurs connect
with capital to drive sustainable, widespread
and inclusive growth.
2016 HIGHLIGHTS AND ACCOMPLISHMENTS
JPMorgan Chase received Euromoney's 2016 World's Best Bank for Corporate Social Responsibility award
for our commitment and innovative approach to addressing economic opportunity around the world.
JPMorgan Chase's $100 million
commitment to Detroit announced
•
.
•
Forty-three states and the District of Colum-
bia submitted proposals to participate in
the first phase of the competitive program.
Of these 44 submissions, we selected 24
states and the District of Columbia and then
committed a total of $2.5 million to help
them plan and implement long-term career-
readiness programs. These states represent
half of all K-12 enrollments in the U.S.
In the second phase of the program in Janu-
ary 2017, we selected 10 states and commit-
ted a total of $20 million to help them exe-
cute the career-readiness plans they
developed during phase one of the initia-
tive. Through ongoing engagement by
JPMorgan Chase, these 10 states will have
the opportunity to collaborate and learn
from each other, receive targeted technical
assistance to address their specific chal-
lenges, and access lessons, best practices
and other research drawn from the initiative.
Additionally, we have committed a total of
$10.5 million to Denver, Detroit and New
Orleans to develop and expand innovative
apprenticeship models and career-focused
programs that equip high school students
with the skills and education they need to
pursue well-paying, long-term careers.
Neighborhood revitalization
Our community development efforts focus on
creating vibrant communities and neighbor-
hoods that offer residents access to opportunity
through partnerships, innovative financing and
data to address the key drivers of inequality.
Launched in 2016, PRO Neighborhoods, our
$125 million, five-year initiative, seeks to identify
and support solutions for creating economic
opportunity in disadvantaged neighborhoods
around the country. PRO Neighborhoods pro-
motes collaboration across sectors and commu-
nity-based innovators to ensure that economic
growth does not stop at commercial corridors
but extends into a city's neighborhoods.
This initiative focuses on three key areas:
convening and supporting Community Devel-
opment Financial Institution (CDFI) collabora-
tives to work together to address specific
community development challenges; providing
seed capital that enables partners to develop
and preserve affordable housing; and funding
research on land use, housing trends and shift-
ing demographics to identify data-driven
neighborhood solutions.
In October 2016, JPMorgan Chase announced
$20 million for five community development
organizations working to create economic
opportunity in five U.S. cities: Atlanta, Chicago,
Detroit, Miami and New York.
•
Small business expansion
Small businesses are vital engines of job
growth and economic stability in the neighbor-
hoods they serve.
68
The talent and expertise of our
people are key components of our
model for impact and are central
to all of our efforts. In 2016,
50,000 of our employees volun-
teered more than 325,000 hours
of their time. And through the
JPMorgan Chase Service Corps,
64 employees applied their skills
and expertise to help our non-
profit partners expand their
capacity, contributing more than
9,600 hours with an approximate
market value of $1.4 million.
•
Committed to strengthening appren-
ticeship systems around the world
through a $9 million investment by
supporting the development of inno-
vative apprenticeship models in
high-growth fields; expanding exist-
ing high-quality programs to serve
young people from disadvantaged
backgrounds; and bolstering the
case for private investment in
apprenticeship through first-of-
its-kind research measuring the
employer return on investment for
apprenticeship programs.
Underwrote more than $5 billion
in green, social and sustainability
themed bonds and facilitated over
$1.9 billion of capital for renew-
able energy projects in the U.S.
Engaged over 1,800 young people
in summer jobs and other work-
related experiences in 21 cities
across the U.S.
70 of our employees leveraged
their expertise and networks to
help the Lab winners improve
their products and increase their
reach. To date, the Financial Solu-
tions Lab has supported 18 fintech
companies offering innovative
financial products to help more
than 1 million Americans improve
their financial health.
Announced nine financial services
innovators as winners of the sec-
ond competition of the Financial
Solutions Lab aimed at identifying
solutions that help consumers
prepare for, and weather, financial
shocks. Each winner received
$250,000 in capital to enhance
and scale the availability of their
products and services. More than
in 2014, half of which we are
investing in two CDFIS - to fund
and catalyze further investment
in housing, commercial and man-
ufacturing - has supported more
than $270 million in such projects,
created or preserved over 800
units of housing and created
nearly 800 jobs.
They also have the potential to play a major
role in lowering unemployment rates in dis-
tressed neighborhoods. Yet many low- and
moderate-income small businesses lack access
to vital resources needed for success.
2.1%
•
Revenue of $12 billion
-0.51%
$13,662
return
-2.42%
-4.16%
return
-5.76%
$9,025
return
return
$6,132
$4,275
$3,050
Fully
invested
Missed 10
best days
Missed 20
best days
Missed 30
Missed 40
best days
return
best days
1.57%
4.00%
return
S&P 500
60/40
40/60
Bonds
Gold
EAFE
Homes
Oil
Inflation
Average
investor
Source: J.P. Morgan Asset Management; Dalbar Inc.
Indexes used are as follows: REITS: NAREIT Equity REIT Index; EAFE: MSCI EAFE; Oil: WTI Index; Bonds: Barclays U.S. Aggregate Index; Homes: median sale price of existing single-family homes; Gold: USD/
troy oz; Inflation: CPI; 60/40: A balanced portfolio with 60% invested in S&P 500 Index and 40% invested in high-quality U.S. fixed income, represented by the Barclays U.S. Aggregate Index. The portfolio
is rebalanced annually. Average asset allocation investor return is based on an analysis by Dalbar Inc., which utilizes the net of aggregate mutual fund sales, redemptions and exchanges each month as a
measure of investor behavior. Returns are annualized (and total return where applicable) and represent the 20-year period ending 12/31/15 to match Dalbar's most recent analysis.
Source: "Guide to the Markets" - U.S. data are as of December 31, 2016
63
Returns of S&P 500
Performance of a $10,000 investment between
January 2, 1997 and December 31, 2016
7.68%
return
$43,933
Six of the 10 best days
occurred within two weeks
of the 10 worst days
$21,925
Missed 60
best days
Source: Prepared by J.P. Morgan Asset Management
using data from Morningstar Direct. Returns based on
the S&P 500 Total Return Index. For illustrative
purposes only. Past performance is not indicative of
future returns
As stewards of our clients' wealth,
our mission at J.P. Morgan is to help
clients of all types get, and stay,
properly invested. Our clients span
the entire spectrum – from retail
investors working with our Chase
branch network, to wealthy individ-
uals or families working with our
Private Bank, to sophisticated insti-
tutional investors working with our
Asset Management business.
One of the best ways we can invest in
our people is by also investing in our
technology. Our emphasis is on hav-
ing a technology platform that allows
us to automate and improve processes
while, at the same time, helps our
advisors to serve clients more quickly
and efficiently, as well as focus on
the value-added client work.
We have successfully reduced our
legacy technology footprint and
error rates and significantly
increased our spend on forward-
looking initiatives. These efforts
include building out an enhanced
digital wealth management plat-
form that will launch later this year
and introducing new client man-
agement systems for our advisors.
Asset & Wealth Management -
difficult to replicate
One of the keys to our success has
been our ability to bring to the
table a unique combination of a
two-century heritage and a focus on
continuous investment, innovation
and improvement. That means
clients can have confidence that we
will be there for them over the long
term and also know that we have
the foresight to adapt and innovate
to help them through whatever the
future brings.
The long-term focus of this business
is part of what makes AWM so dif-
ficult to replicate. A franchise with
a 10-year investment performance
track record, a 50-year relationship
with a state pension fund and a
100-year relationship with a multi-
generational family cannot be built
overnight. The culture of our firm
both what we do and how we do it -
is equally special and one of our
greatest competitive advantages.
When you combine our AWM capa-
bilities with the world's leading
investment, consumer and commer-
cial banks, our story is even more
powerful and enables us to bring the
best the firm has to offer to help solve
our clients' most important issues.
I am so proud to be part of this great
firm and our AWM business. Our
commitment to you, our sharehold-
ers, is that we will continue to do
first-class business in a first-class way
so that we can create even more
value for you and for our clients.
Hlavy
Mary Callahan Erdoes
CEO, Asset & Wealth Management
2016 HIGHLIGHTS AND ACCOMPLISHMENTS
Record average mortgage
balances of $29 billion
Business highlights
Record average loan balances
of $113 billion
•
Fiduciary mindset ingrained since
mid-1800s
•
Positive client asset flows every
year since 2004
•
Over the past five years, we've
increased our front-office spend by
14% to ensure we have the right
people with the right skills in the
right roles. As a result of this com-
mitment to developing our talent,
we proudly maintained a top talent
retention rate of over 95%.
We work hard to make J.P. Morgan
a place where our people can have
long and successful careers. We
have a history of investing in our
people at every level, from the thou-
sands of training sessions and lead-
ership development courses to our
continuous work on talent mobility.
Never stop investing in people and
technology
64
We have direct relationships with
60% of the world's largest pension
funds, sovereign wealth funds and
central banks and 50% of the
world's wealthiest individuals and
families. We also deliver our
insights and advice to more than
1 million U.S. families through
Chase Wealth Management.
These clients can choose to work
with any firm they wish. They turn
to J.P. Morgan because they know
we will be there for them when
they need us most and that we will
always put their interests first.
World-class investment performance
While trust is the primary reason
clients choose J.P. Morgan, our supe-
rior investment performance is also
critically important to the compound-
ing of clients' wealth. In 2016, 83% of
our 10-year, long-term mutual fund
assets under management (AUM)
ranked in the top two quartiles.
Our market-leading performance
spans asset classes - 90% of assets
for multi-asset solutions and alterna-
tives, 84% for equity and 77% for
fixed income ranked in the top two
quartiles over the 10-year period.
This outstanding track record has
resulted in 140 of our equity strate-
gies and 41 of our fixed income
strategies receiving a four- or five-
star ranking from Morningstar.
This consistent performance also has
led to clients entrusting J.P. Morgan
with more of their assets. Over the
past five years, we ranked #2 in total
inflows among our large public peers,
with an average of $82 billion annu-
ally and $408 billion cumulatively.
A diverse and balanced business
mix driving strong financial
performance
Much like the portfolios we manage,
our business is diversified across asset
classes, regions and client types. That
diversity, coupled with our proven
track record, has led to strong finan-
cial performance for AWM.
In 2016, we delivered $12 billion in
revenue and record pre-tax income
of $3.5 billion. We also reached a
record $2.5 trillion in total client
assets. These numbers have consis-
tently grown over the past five
years, with a 5% compound annual
growth rate (CAGR) for revenue and
client assets and a 7% rate for pre-
tax income.
its
In addition, clients are increasingly
using us for their primary banking
services. Wealth Management depos-
grew to $290 billion in 2016 and
recorded an impressive 19% CAGR
over the past decade. In credit, our
$121 billion in loan balances, includ-
ing mortgages, represent a 15%
CAGR over the past 10 years. Our
focus on strong risk management
has helped us do that while main-
taining charge-off rates that are
among
the lowest in the industry.
% of 2016 J.P. Morgan Asset Management
AUM Over Peer Median¹
(net of fees)
Record $2.5 trillion in client assets
Total J.P. Morgan
Asset Management
83%
Equity
84%
Fixed Income
77%
Multi-Asset Solutions
& Alternatives
90%
For footnoted information, refer to slide 17 in the 2017 Asset &
Wealth Management Investor Day presentation, which is available on
JPMorgan Chase & Co.'s website at jpmorganchase.com/corporate/
investor-relations/event-calendar.htm, under the heading JPMorgan
Chase 2017 Investor Day, Asset & Wealth Management, and on Form
8-K as furnished to the SEC on February 28, 2017, which is available
on the SEC's website at www.sec.gov
10-Year
Best Infrastructure Manager of
the Year (Institutional Investor,
May 2016)
ROTCE and TBVPS are non-GAAP financial measures. Core
loans are considered a key performance measure. Each of
the Fully Phased-In capital and leverage measures is
considered a key regulatory capital measure. For a further
discussion of these measures, see Explanation and
Reconciliation of the Firm's Use of Non-GAAP Financial
Measures and Key Performance Measures on pages 48-50,
and Capital Risk Management on pages 76-85.
Financial:
Year ended December 31,
2%
(in millions, except per share data
and ratios)
2016
2015
Change
Selected income statement data
Total net revenue
$ 95,668
$ 93,543
Total noninterest expense
55,771
59,014
(5)
Pre-provision profit
39,897
34,529
16
Provision for credit losses
5,361
Financial performance of JPMorgan Chase
3,827
This executive overview of the MD&A highlights selected
information and may not contain all of the information that is
important to readers of this Annual Report. For a complete
description of the trends and uncertainties, as well as the
risks and critical accounting estimates affecting the Firm and
its various lines of business, this Annual Report should be
read in its entirety.
JPMorgan Chase & Co./2016 Annual Report
198.10
JPMorgan Chase
KBW Bank
S&P Financial
S&P 500
50
2011
2012
2013
2014
2015
2016
JPMorgan Chase & Co./2016 Annual Report
35
Management's discussion and analysis
This section of JPMorgan Chase's Annual Report for the year ended December 31, 2016 ("Annual Report"), provides Management's
discussion and analysis of the financial condition and results of operations (“MD&A”) of JPMorgan Chase. See the Glossary of Terms
and Acronyms on pages 279-285 for definitions of terms used throughout this Annual Report. The MD&A included in this Annual
Report contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements are based on the current beliefs and expectations of JPMorgan Chase's management and are subject to significant
risks and uncertainties. These risks and uncertainties could cause the Firm's actual results to differ materially from those set forth
in such forward-looking statements. Certain of such risks and uncertainties are described herein (see Forward-looking Statements
on page 138) and in JPMorgan Chase's Annual Report on Form 10-K for the year ended December 31, 2016 ("2016 Form 10-K"),
in Part I, Item 1A: Risk factors; reference is hereby made to both.
INTRODUCTION
JPMorgan Chase & Co., a financial holding company
incorporated under Delaware law in 1968, is a leading
global financial services firm and one of the largest banking
institutions in the United States of America (“U.S.”), with
operations worldwide; the Firm had $2.5 trillion in assets
and $254.2 billion in stockholders' equity as of
December 31, 2016. The Firm is a leader in investment
banking, financial services for consumers and small
businesses, commercial banking, financial transaction
processing and asset management. Under the J.P. Morgan
and Chase brands, the Firm serves millions of customers in
the U.S. and many of the world's most prominent corporate,
institutional and government clients.
JPMorgan Chase's principal bank subsidiaries are JPMorgan
Chase Bank, National Association ("JPMorgan Chase Bank,
N.A."), a national banking association with U.S. branches in
23 states, and Chase Bank USA, National Association
("Chase Bank USA, N.A."), a national banking association
that is the Firm's credit card-issuing bank. JPMorgan Chase's
principal nonbank subsidiary is J.P. Morgan Securities LLC
("JPMorgan Securities”), the Firm's U.S. investment banking
firm. The bank and nonbank subsidiaries of JPMorgan Chase
operate nationally as well as through overseas branches
and subsidiaries, representative offices and subsidiary
foreign banks. One of the Firm's principal operating
subsidiaries in the U.K. is J.P. Morgan Securities plc, a
subsidiary of JPMorgan Chase Bank, N.A.
For management reporting purposes, the Firm's activities
are organized into four major reportable business
segments, as well as a Corporate segment. The Firm's
consumer business is the Consumer & Community Banking
("CCB") segment. The Firm's wholesale business segments
are Corporate & Investment Bank ("CIB"), Commercial
Banking (“CB”), and Asset & Wealth Management (“AWM")
(formerly Asset Management or "AM"). For a description of
the Firm's business segments, and the products and
services they provide to their respective client bases, refer
to Business Segment Results on pages 51-70, and Note 33.
36
EXECUTIVE OVERVIEW
176.95
40
24,733
14.1
11.8%
13.5
15.5
15.1
(a) Ratios presented are calculated under the Basel III Transitional rules and
represent the Collins Floor. See Capital Risk Management on pages 76-85
for additional information on Basel III.
Summary of 2016 results
JPMorgan Chase reported strong results for full year 2016
with net income of $24.7 billion, or $6.19 per share, on net
revenue of $95.7 billion. The Firm reported ROE of 10%
and ROTCE of 13%.
Net income increased 1% compared with the prior year
driven by lower noninterest expense and higher net
revenue, predominantly offset by higher income tax
expense and provision for credit losses.
Total net revenue increased by 2% primarily reflecting
higher net interest income across all the Firm's business
segments and higher Markets noninterest revenue in CIB,
partially offset by lower card income in CCB and lower asset
management fees in AWM.
Noninterest expense was $55.8 billion, down 5% compared
with the prior year, driven by lower legal expense.
The provision for credit losses was $5.4 billion, an increase
of $1.5 billion, reflecting an increase in the total consumer
provision related to additions in the allowance for loan
losses and higher net charge-offs in the credit card
portfolio, and a lower benefit in the residential real estate
portfolio driven by a lower reduction in the allowance for
loan losses compared with the prior year. The wholesale
provision had a modest increase, largely driven by the
impact of downgrades in the Oil & Gas and Natural Gas
Pipelines portfolios.
The total allowance for credit losses was $14.9 billion at
December 31, 2016, and the Firm had a loan loss coverage
ratio, excluding the PCI portfolio, of 1.34%, compared with
1.37% in the prior year. The Firm's nonperforming assets
totaled $7.5 billion, an increase from the prior-year level of
$7.0 billion.
Firmwide average core loans increased 15% compared with
the prior year.
Within CCB, average core loans increased 20% from the
prior year. CCB had record growth in average deposits, with
a 10% increase from the prior year. Credit card sales
volume increased 10%, and merchant processing volume
increased 12%, from the prior year. CCB had nearly 27
million active mobile customers at year-end 2016, an
increase of 16% from the prior year.
CIB maintained its #1 ranking for Global Investment
Banking fees with a 8.1% wallet share for the full-year
ended December 31, 2016. Within CB, record average loans
increased 14% from the prior year as loans in the
commercial and industrial client segment increased 9% and
loans in the wholesale commercial real estate client
segment increased 18%. AWM had record average loans, an
increase of 5% over the prior year, and 79% of AWM's
mutual fund assets under management ranked in the 1st or
2nd quartiles over the past 5 years.
For a detailed discussion of results by line of business
("LOB"), refer to the Business Segment Results on
pages 51-52.
The Firm added to its capital, ending the full-year of 2016
with a TBVPS of $51.44, up 7% over the prior year. The
Firm's estimated Basel III Advanced Fully Phased-In CET1
capital and ratio were $182 billion and 12.2%,
respectively. The Fully Phased-In supplementary leverage
ratio ("SLR") for the Firm and for JPMorgan Chase Bank,
N.A. was 6.5% and 6.6%, respectively, at December 31,
2016. The Firm also was compliant with the Fully Phased-In
U.S. LCR and had $524 billion of HQLA as of December 31,
2016. For further discussion of the LCR and HQLA, see
Liquidity Risk Management on pages 110-115.
JPMorgan Chase & Co./2016 Annual Report
37
Management's discussion and analysis
12.4%
Net income
Total capital
CET1
24,442
1
Diluted earnings per share
6.19
6.00
3
Selected ratios and metrics
Return on common equity
Return on tangible common equity
10%
13
11%
13
Book value per share
$ 64.06
$ 60.46
6
Tangible book value per share
51.44
48.13
7
Capital ratios(a)
Tier 1 capital
174.55
153.55
115.99
234,598
241,359
251,196
258,753
Allowance for credit losses
$
14,854 $
Allowance for loan losses to total retained loans
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(f)
1.55%
1.34
Nonperforming assets
$
Net charge-offs
7,535 $
4,692
Net charge-off rate
0.54%
14,341 $
1.63%
1.37
7,034 $
4,086
0.52%
14,807 $
16,969 $
22,604
1.90%
1.55
7,967 $
4,759
0.65%
243,355
2.25%
1.80
203,785
231,727
2,351,698
2,572,274
2,414,879
2,358,323
1,375,179
1,279,715
1,363,427
1,287,765
1,193,593
295,245
288,651
276,379
267,446
248,521
228,122
221,505
211,664
199,699
194,727
254,190
247,573
210,857
3.02%
2.43
9,706 $
5,802
100
December 31,
(in dollars)
2011
2012
Table of contents
$ 100.00
$ 136.18
100.00
100.00
133.03
128.75
$ 186.17
183.26
174.57
2014
$ 204.57
200.42
201.06
2015
2016
$ 221.68
201.40
$ 298.31
258.82
197.92
242.94
100.00
150
200
250
300
11,906
9,063
0.81%
1.26%
Note: Effective January 1, 2016, the Firm adopted new accounting guidance related to (1) the recognition and measurement of debit valuation adjustments ("DVA") on financial liabilities where
the fair value option has been elected, and (2) the accounting for employee stock-based incentive payments. For additional information, see Accounting and Reporting Developments on pages
135-137 and Notes 3, 4 and 25.
(a) Share prices are from the New York Stock Exchange.
(b) TBVPS and ROTCE are non-GAAP financial measures. For further discussion of these measures, see Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures and Key Financial
Performance Measures on pages 48-50.
(c) HQLA represents the amount of assets that qualify for inclusion in the liquidity coverage ratio under the final U.S. rule ("U.S. LCR") for December 31, 2016 and 2015, and the Firm's estimated amount for
December 31, 2014 prior to the effective date of the final rule, and under the Basel III liquidity coverage ratio ("Basel III LCR") for prior periods. For additional information, see HQLA on page 111.
(d) Ratios presented are calculated under the Basel III Transitional rules, which became effective on January 1, 2014, and for the capital ratios, represent the Collins Floor. Prior to 2014, the ratios were
calculated under the Basel I rules. See Capital Risk Management on pages 76-85 for additional information on Basel III.
(e) Included unsecured long-term debt of $212.6 billion, $211.8 billion, $207.0 billion, $198.9 billion and $200.1 billion respectively, as of December 31, of each year presented.
(f)
JPMorgan Chase continues to support consumers,
businesses and communities around the globe. The Firm
provided credit and raised capital of $2.4 trillion for
commercial and consumer clients during the full-year of
2016:
Excluded the impact of residential real estate purchased credit-impaired ("PCI") loans, a non-GAAP financial measure. For further discussion of these measures, see Explanation and Reconciliation of the
Firm's Use of Non-GAAP Financial Measures and Key Performance Measures on pages 48-50. For further discussion, see Allowance for credit losses on pages 105-107.
JPMorgan Chase & Co./2016 Annual Report
FIVE-YEAR STOCK PERFORMANCE
The following table and graph compare the five-year cumulative total return for JPMorgan Chase & Co. ("JPMorgan Chase" or
the "Firm") common stock with the cumulative return of the S&P 500 Index, the KBW Bank Index and the S&P Financial Index.
The S&P 500 Index is a commonly referenced United States of America ("U.S.") equity benchmark consisting of leading
companies from different economic sectors. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are
publicly traded in the U.S. and is composed of leading national money center and regional banks and thrifts. The S&P Financial
Index is an index of financial companies, all of which are components of the S&P 500. The Firm is a component of all three
industry indices.
The following table and graph assume simultaneous investments of $100 on December 31, 2011, in JPMorgan Chase common
stock and in each of the above indices. The comparison assumes that all dividends are reinvested.
December 31,
(in dollars)
JPMorgan Chase
KBW Bank Index
S&P Financial Index
S&P 500 Index
34
•
.
•
■ a $470 million lower benefit related to the residential
real estate portfolio, as the current year reduction in the
allowance for loan losses was lower than the prior year.
The reduction in both periods reflected continued
improvements in home prices and lower delinquencies.
The increase in the wholesale provision was largely driven
by the impact of downgrades in the Oil & Gas and Natural
Gas Pipelines portfolios. For a more detailed discussion of
the credit portfolio and the allowance for credit losses, see
the segment discussions of CCB on pages 53-57, CIB on
pages 58-62, CB on pages 63-65, the Allowance For Credit
Losses on pages 105-107 and Note 15.
2015 compared with 2014
The provision for credit losses increased as a result of an
increase in the wholesale provision, largely reflecting the
impact of downgrades in the Oil & Gas portfolio. The
increase was partially offset by a decrease in the consumer
provision, reflecting lower net charge-offs due to continued
discipline in credit underwriting, as well as improvement in
the economy driven by increasing home prices and lower
unemployment levels. The decrease in the consumer
provision was partially offset by a lower reduction in the
allowance for loan losses.
JPMorgan Chase & Co./2016 Annual Report
41
Management's discussion and analysis
Noninterest expense
Year ended December 31,
(in millions)
2016
Compensation expense
$29,979
2015
$29,750
2014
$30,160
Noncompensation expense:
Occupancy
3,638
3,768
3,909
Technology, communications and
equipment
a $920 million increase related to the credit card
portfolio, due to a $600 million addition in the allowance
for loan losses, as well as $320 million of higher net
charge-offs, driven by loan growth (including growth in
newer vintages which, as anticipated, have higher loss
rates compared to the overall portfolio), and
6,846
The provision for credit losses reflected an increase in the
total consumer provision and, to a lesser extent, the
wholesale provision. The increase in the total consumer
provision was predominantly driven by:
Total provision for credit losses $ 5,361 $ 3,827 $ 3,139
Net interest income was relatively flat as lower loan yields,
lower investment securities net interest income, and lower
trading asset balance and yields were offset by higher
average loan balances and lower interest expense on
deposits. The Firm's average interest-earning assets were
$2.1 trillion in 2015, and the net interest yield on these
assets, on a FTE basis, was 2.14%, a decrease of 4 basis
points from the prior year.
Provision for credit losses
Year ended December 31,
(in millions)
2016
2015
2014
Consumer, excluding credit card $ 467 $
(81) $
419
Credit card
4,042
3,122
3,079
Total consumer
Wholesale
4,509
3,041
3,498
852
786
(359)
2016 compared with 2015
6,193
5,804
Professional and outside services
Total noninterest expense decreased by 4% as a result of
lower CIB expense, predominantly reflecting the impact of
business simplification; and lower CCB expense resulting
from efficiencies related to declines in headcount-related
expense and lower professional fees. These decreases were
partially offset by investment in the businesses, including
for infrastructure and controls.
Compensation expense decreased predominantly driven by
lower performance-based incentives and reduced
headcount, partially offset by higher postretirement benefit
costs and investment in the businesses, including for
infrastructure and controls.
(in millions, except rate)
Year ended December 31,
2016
2015
2014
Income before income tax
expense
$34,536
9,803
28.4%
$30,702
6,260
20.4%
$30,699
8,954
29.2%
Income tax expense
Effective tax rate
2016 compared with 2015
The effective tax rate in 2016 was affected by changes in
the mix of income and expense subject to U.S. federal and
state and local taxes, tax benefits related to the utilization
of certain deferred tax assets, as well as the adoption of
new accounting guidance related to employee stock-based
incentive payments. These tax benefits were partially offset
by higher income tax expense from tax audits. The lower
effective tax rate in 2015 was predominantly driven by
$2.9 billion of tax benefits, which reduced the Firm's
effective tax rate by 9.4 percentage points. The recognition
of tax benefits in 2015 resulted from the resolution of
various tax audits, as well as the release of U.S. deferred
taxes associated with the restructuring of certain non-U.S.
entities. For additional details on the impact of the new
accounting guidance, see Accounting and Reporting
Developments on page 135 and for further information see
Note 26.
2015 compared with 2014
The effective tax rate decreased predominantly due to the
recognition in 2015 of tax benefits of $2.9 billion and other
changes in the mix of income and expense subject to U.S.
federal, state and local income taxes, partially offset by
prior-year tax adjustments. See above for details on the
$2.9 billion of tax benefits.
42
22
JPMorgan Chase & Co./2016 Annual Report
2015 compared with 2014
Noncompensation expense decreased as a result of lower
legal expense (including lower legal professional services
expense), the impact of efficiencies, and reduced non-U.S.
tax surcharges. These factors were partially offset by higher
depreciation expense from growth in auto operating lease
assets and higher investments in marketing. For a further
discussion of legal expense, see Note 31.
Compensation expense was relatively flat predominantly
driven by higher performance-based compensation expense
and investments in several businesses, offset by the impact
of continued expense reduction initiatives, including lower
headcount in certain businesses.
Total noninterest expense decreased by 5% driven by lower
legal expense.
6,655
7,002
7,705
Marketing
2,897
2,708
2,550
Other(a)(b)
5,756
9,593 11,146
Other income was relatively flat reflecting a $514 million
benefit from a legal settlement in Corporate, higher
operating lease income as a result of growth in auto
operating lease assets in CCB, and the absence of losses
related to the exit of non-core portfolios in Card. These
increases were offset by the impact of business
simplification in CIB; the absence of a benefit recognized in
2014 from a franchise tax settlement; and losses related to
the accelerated amortization of cash flow hedges associated
with the exit of certain non-operating deposits.
Total noncompensation expense
29,264 31,114
$55,771
$59,014
$61,274
Noncompensation expense decreased reflecting benefits
from business simplification in CIB; lower professional and
outside services expense, reflecting lower legal services
expense and a reduced number of contractors in the
businesses; lower amortization of intangibles; and the
absence of a goodwill impairment in Corporate. These
factors were partially offset by higher depreciation expense,
largely associated with higher auto operating lease assets in
CCB; higher marketing expense in CCB; and higher FDIC-
related assessments. Legal expense was relatively flat
compared with the prior year.
Income tax expense
Total noninterest expense
(a) Included legal (benefit)/expense of $(317) million, $3.0 billion and $2.9
billion for the years ended December 31, 2016, 2015 and 2014,
respectively.
(b) Included FDIC-related expense of $1.3 billion, $1.2 billion and $1.0 billion
for the years ended December 31, 2016, 2015 and 2014, respectively.
2016 compared with 2015
25,792
2,490,972
For information on lending- and deposit-related fees, see
the segment results for CCB on pages 53-57, CIB on pages
58-62, and CB on pages 63-65 and Note 7; on securities
gains, see the Corporate segment discussion on pages 69-
70; and card income, see CCB segment results on pages 53-
57.
Principal transactions revenue decreased reflecting lower
private equity gains in Corporate driven by lower valuation
gains and lower net gains on sales as the Firm exits this
non-core business. The decrease was partially offset by
higher client-driven market-making revenue, particularly in
foreign exchange, interest rate and equity-related products
in CIB, as well as a gain of approximately $160 million on
CCB's investment in Square, Inc. upon its initial public
offering.
CONSOLIDATED RESULTS OF OPERATIONS
This section provides a comparative discussion of JPMorgan
Chase's Consolidated Results of Operations on a reported
basis for the three-year period ended December 31, 2016,
unless otherwise specified. Factors that relate primarily to a
single business segment are discussed in more detail within
that business segment. For a discussion of the Critical
Accounting Estimates Used by the Firm that affect the
Consolidated Results of Operations, see pages 132-134.
Revenue
Year ended December 31,
(in millions)
Investment banking fees
2016
2015
$ 6,448 $ 6,751
Principal transactions (a)
Lending- and deposit-related fees
11,566
5,774
10,408
5,694
2014
$ 6,542
10,531
5,801
Asset management,
administration and commissions
14,591
15,509
15,931
Securities gains
141
Management's discussion and analysis
202
39
In AWM, management expects revenue to be approximately
$3 billion in the first quarter of 2017.
$265 billion of credit for consumers
$24 billion of credit for U.S. small businesses
• $772 billion of credit for corporations
$1.2 trillion of capital raised for corporate clients and
non-U.S. government entities
$90 billion of credit and capital raised for nonprofit and
U.S. government entities, including states, municipalities,
hospitals and universities
On October 1, 2016, the Firm filed with the Federal Reserve
and the FDIC its submission (the “2016 Resolution
Submission") describing how the Firm remediated certain
deficiencies, and providing a status report on its actions to
address certain shortcomings, that had been identified by
the Federal Reserve and the FDIC in April 2016 when those
agencies provided feedback to the Firm as well as to
seven other systemically important domestic banking
institutions on their respective 2015 Resolution Plans.
Among the steps taken by the Firm to address the identified
deficiencies and shortcomings were: (i) establishing a new
subsidiary that has become an "intermediate holding
company" and to which JPMorgan Chase & Co. has
contributed the stock of substantially all of its direct
subsidiaries (other than JPMorgan Chase Bank, N.A.), as
well as other assets and intercompany indebtedness owing
to JPMorgan Chase & Co.; (ii) increasing the Firm's liquidity
reserves and pre-positioning significant amounts of capital
and liquidity at the Firm's “material legal entities" (as
defined in the 2016 Resolution Submission); (iii) refining
the Firm's liquidity and capital governance frameworks,
including establishing a Firmwide "trigger framework" that
identifies key actions and escalations that would need to be
taken, as well as decisions that would need to be made, at
critical points in time if certain defined liquidity and/or
capital metrics were to fall below defined thresholds; (iv)
establishing clear, actionable legal entity rationalization
criteria and related governance procedures; and (v)
improving divestiture readiness, including determining and
analyzing divestiture options in a crisis. On December 13,
2016, the Federal Reserve and the FDIC informed the Firm
that they had determined that the Firm's 2016 Resolution
Submission adequately remediated the identified
deficiencies in the Firm's 2015 Resolution Plan. For more
information, see the Federal Reserve and FDIC websites,
and the Firm's website for the public portion of the 2016
Resolution Submission.
Business outlook
These current expectations are forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are based on
the current beliefs and expectations of JPMorgan Chase's
management and are subject to significant risks and
uncertainties. These risks and uncertainties could cause the
Firm's actual results to differ materially from those set forth in
such forward-looking statements. See Forward-Looking
Statements on page 138 and the Risk Factors section on pages
8-21.
Business outlook
JPMorgan Chase's outlook for the full-year 2017 should be
viewed against the backdrop of the global and U.S.
economies, financial markets activity, the geopolitical
environment, the competitive environment, client activity
levels, and regulatory and legislative developments in the
U.S. and other countries where the Firm does business. Each
of these inter-related factors will affect the performance of
the Firm and its lines of business. The Firm expects it will
continue to make appropriate adjustments to its businesses
and operations in response to ongoing developments in the
legal and regulatory, as well as business and economic,
environment in which it operates.
In the first quarter of 2017, management expects net
interest income to increase modestly compared with the
fourth quarter of 2016. During 2017, assuming no change in
interest rates since December 31, 2016, management
expects net interest income could be approximately $3 billion
higher than in 2016, reflecting the Federal Reserve's rate
increase in December 2016 and expected loan growth.
Management expects average core loan growth of
approximately 10% in 2017.
The Firm continues to experience charge-off rates at or near
historically low levels, reflecting favorable credit trends
across the consumer and wholesale portfolios. Management
expects total net charge-offs of approximately $5 billion in
2017. In Card, management expects the portfolio average
net charge-off rate to increase in 2017, but remain below
3.00%, reflecting continued loan growth and the seasoning
of newer vintages, with quarterly net-charge offs reflecting
normal seasonal trends.
Management believes that the consumer allowance for credit
losses could increase by approximately $300 million in 2017,
reflecting growth across businesses, offset by reductions in
the allowance for the residential real estate portfolio.
Excluding the allowance related to the Oil & Gas and Natural
Gas Pipelines and Metals & Mining portfolios, management
expects that the wholesale allowance for credit losses could
increase modestly in 2017 reflecting growth across
businesses. Continued stability in the energy sector could
result in a reduction in the allowance for credit losses in
future periods. As management continually looks to enhance
its credit loss estimation methodologies, the outlook for the
allowance for credit losses does not take into consideration
any such potential refinements.
38
JPMorgan Chase & Co./2016 Annual Report
The Firm continues to take a disciplined approach to
managing its expenses, while investing in growth and
innovation. As a result, Firmwide adjusted expense in 2017 is
expected to be approximately $58 billion (excluding
Firmwide legal expense).
In CCB, management expects Mortgage noninterest revenue
to decrease approximately $700 million in 2017, driven by
margin compression in a smaller mortgage market and
continued run-off of the Servicing portfolio, as well as
approximately $200 million of MSR gains in 2016 which are
not expected to recur in 2017. Management expects Card
Services noninterest revenue to decrease approximately
$600 million in 2017, reflecting the amortization of
premiums on strong new product originations and the
absence in 2017 of a gain on the sale of Visa Europe interests
in 2016, although total Card Services revenue is expected to
increase due to strong growth in net interest income.
In the first quarter of 2017, management expects CCB
expense to increase by approximately $150 million,
compared to the prior quarter.
In CIB, Investment Banking revenue in the first quarter of
2017 is expected to be approximately in line with the fourth
quarter of 2016, dependent on the timing of the closing of a
number of transactions. Treasury Services revenue is
expected to be approximately $950 million in the first
quarter of 2017. In addition, management currently expects
Markets revenue in the first quarter of 2017 to increase
modestly compared to the prior year quarter, with results
sensitive to market conditions in March in light of particularly
strong revenue in March 2016. In Securities Services,
management expects revenue of approximately $900 million
in the first quarter of 2017.
In CB, management expects expense of approximately $775
million in the first quarter of 2017.
JPMorgan Chase & Co./2016 Annual Report
Mortgage fees and related income
2,491
2,513
40
fees, as well as due to lower brokerage commissions and
other fees in CIB and AWM. For additional information, see
the segment discussions of CIB and AWM on pages 58-62
and pages 66-68, respectively, and Note 7.
For information on lending- and deposit-related fees, see
the segment results for CCB on pages 53-57, CIB on pages
58-62, and CB on pages 63-65 and Note 7; on securities
gains, see the Corporate segment discussion on pages 69-
70.
Mortgage fees and related income were relatively flat, as
lower mortgage servicing revenue related to lower average
third-party loans serviced was predominantly offset by
higher MSR risk management results. For further
information on mortgage fees and related income, see the
segment discussion of CCB on pages 53-57 and Notes 7 and
17.
Card income decreased predominantly driven by higher new
account origination costs and the impact of renegotiated co-
brand partnership agreements, partially offset by higher
card sales volume and other card-related fees. For further
information, see CCB segment results on pages 53-57 and
Note 7.
Other income increased primarily reflecting:
higher operating lease income from growth in auto
operating lease assets in CCB
■ a gain on the sale of Visa Europe interests in CCB
■ a gain related to the redemption of guaranteed capital
debt securities ("trust preferred securities")
■ the absence of losses recognized in 2015 related to the
accelerated amortization of cash flow hedges associated
with the exit of certain non-operating deposits
■ a gain on disposal of an asset in AWM at the beginning of
■
2016
partially offset by
a $514 million benefit recorded in the prior year from a
legal settlement in Corporate.
For further information on other income, see Note 7.
Net interest income increased primarily driven by loan
growth across the businesses and the net impact of higher
rates, partially offset by lower investment securities
balances and higher interest expense on long-term debt.
The Firm's average interest-earning assets were $2.1 trillion
in 2016, and the net interest yield on these assets, on a
fully taxable equivalent (“FTE”) basis, was 2.25%, an
increase of 11 basis points from the prior year.
2015 compared with 2014
Total net revenue for 2015 was down by 2%,
predominantly driven by lower Corporate private equity
gains, lower CIB revenue reflecting the impact of business
simplification initiatives, and lower CCB Mortgage Banking
revenue. These decreases were partially offset by a benefit
from a legal settlement in Corporate, and higher operating
lease income, predominantly in CCB.
JPMorgan Chase & Co./2016 Annual Report
Investment banking fees increased reflecting higher
advisory fees, partially offset by lower equity and debt
underwriting fees. The increase in advisory fees was driven
by a greater share of fees for completed transactions as
well as growth in industry-wide fee levels. The decrease in
equity underwriting fees resulted from lower industry-wide
issuance, and the decrease in debt underwriting fees
resulted primarily from lower loan syndication and bond
underwriting fees on lower industry-wide fee levels.
Asset management, administration and commissions
revenue decreased reflecting lower asset management fees
in AWM driven by a reduction in revenue related to the
disposal of assets at the beginning of 2016, the impact of
lower average equity market levels and lower performance
Principal transactions revenue increased reflecting broad-
based strength across products in CIB's Fixed Income
Markets business. Rates performance was strong, with
increased client activity driven by high issuance-based
flows, global political developments, and central bank
actions. Credit revenue improved driven by higher market-
making revenue from the secondary market as clients'
appetite for risk recovered. For additional information, see
CIB and Corporate segment results on pages 58-62 and
pages 69-70, respectively, and Note 7.
Investment banking fees decreased predominantly due to
lower equity underwriting fees driven by declines in
industry-wide fee levels. For additional information on
investment banking fees, see CIB segment results on pages
58-62 and Note 7.
Total net revenue increased by 2% primarily reflecting
higher net interest income across all the Firm's business
segments and higher Markets noninterest revenue in CIB,
partially offset by lower card income in CCB and lower asset
management fees in AWM.
3,563
Card income
4,779
5,924
6,020
Other income (b)
3,795
3,032
Noninterest revenue
49,585
Asset management, administration and commissions
revenue decreased largely as a result of lower fees in CIB
and lower performance fees in AWM. The decrease was
partially offset by higher asset management fees as a result
of net client inflows into assets under management and the
impact of higher average market levels in AWM and CCB.
Mortgage fees and related income decreased reflecting
lower servicing revenue, largely as a result of lower average
third-party loans serviced, and lower net production
revenue reflecting a lower repurchase benefit.
50,033
46,083
43,510
43,634
Net interest income
Total net revenue
77
$ 95,668 $ 93,543 $ 95,112
(a) Effective January 1, 2016, changes in DVA on fair value option elected
liabilities previously recorded in principal transactions revenue are
recorded in other comprehensive income ("OCI"). For additional
information, see the segment results of CIB and Accounting and Reporting
Developments on pages 58-62 and page 135, respectively.
(b) Included operating lease income of $2.7 billion, $2.1 billion and $1.7
billion for the years ended December 31, 2016, 2015 and 2014,
respectively.
2016 compared with 2015
3,013
51,478
534,615
2013
596,823
97,680
61,274
64,729
39,897
34,529
33,838
95,668 $ 93,543 $ 95,112 $ 97,367 $
55,771
59,014
70,467
26,900
5,361
3,827
3,139
34,536
30,702
30,699
32,951
$
Earnings per share data
Net income
36
Management's discussion and analysis:
140
139
Five-Year Stock Performance
35
Audited financial statements:
Five-Year Summary of Consolidated Financial
Highlights
34
Total net revenue
Total noninterest expense
Pre-provision profit
Provision for credit losses
Income before income tax expense
Income tax expense
9,803
$
24,733 $
6,260
24,442 $
5.21
5.19
Average shares: Basic
33
Diluted
3,649.8
3,700.4
3,732.8
3,763.5
3,782.4
3,809.4
3,797.5
3.814.9
3,822.2
Market and per common share data
Market capitalization
$
Introduction
4.38
4.34
$
8,954
21,745 $
225
26,675
8,789
17,886 $
3,385
29,566
8,307
21,259
Net income:
Basic
$
6.24
$
Diluted
6.19
6.05
6.00
5.33 $
5.29
141
Management's Report on Internal Control Over
Financial Reporting
Report of Independent Registered Public Accounting
Firm
131
Operational Risk Management
129
Model Risk Management
128
Legal Risk Management
127
The following pages from JPMorgan Chase & Co.'s 2016
Form 10-K are not included herein: 1-32, 286-298
Note:
Conduct Risk Management
126
Compliance Risk Management
125
Principal Risk Management
124
Reputation Risk Management
Market Risk Management
132
135
33
Financial
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS
(unaudited)
As of or for the year ended December 31,
(in millions, except per share, ratio, headcount data and where otherwise noted)
2016
2015
2014
2013
2012
Selected income statement data
Forward-Looking Statements
138
Accounting and Reporting Developments
Critical Accounting Estimates Used by the Firm
$
116
110
Explanation and Reconciliation of the Firm's Use of
48
Consolidated Cash Flows Analysis
47
Off-Balance Sheet Arrangements and Contractual
Cash Obligations
45
Consolidated Balance Sheets Analysis
43
Consolidated Results of Operations
40
Notes to Consolidated Financial Statements
146
Executive Overview
37
Consolidated Financial Statements
Non-GAAP Financial Measures and Key Performance
Liquidity Risk Management
Measures
51
Country Risk Management
108
Credit Risk Management
86
Distribution of assets, liabilities and stockholders'
equity; interest rates and interest differentials
Glossary of Terms and Acronyms
279
563,809
Capital Risk Management
76
274
Selected quarterly financial data (unaudited)
272
Enterprise-wide Risk Management
71
Business Segment Results
Supplementary information:
307,295 $ 241,899 $
3,618.5
3,561.2
$
341
Common equity tier 1 ("CET1") capital ratio (d)
12.4%
11.8%
10.2%
10.7%
11.0%
Tier 1 capital ratio(d)
14.1
13.5
11.6
11.9
12.6
15.5
15.1
13.1
522
$
600
$
0.75
0.94
Overhead ratio
58
63
64
72
66
14.3
Loans-to-deposits ratio
65
56
57
61
High quality liquid assets ("HQLA") (in billions) (c)
$
524 $
496
65
15.2
8.4
8.5
450,028
289,059
290,827
348,004
354,003
371,152
894,765
837,299
$
757,336
733,796
806,152
732,093
628,785
583,751
555,351
769,385
670,757
738,418
0.89
374,664
$
7.6
7.1
7.1
Total capital ratio(d)
Tier 1 leverage ratio(d)
Selected balance sheet data (period-end)
Trading assets
Securities
372,130 $ 343,839 $ 398,988 $
Loans
Average core loans
Total assets
Deposits
Long-term debt(e)
Common stockholders' equity
Total stockholders' equity
Headcount
Credit quality metrics
Core Loans
Common shares at period-end
JPMorgan Chase & Co./2016 Annual Report
1.88
11%
9%
10%
11%
10%
Return on common equity ("ROE")
1.20
1.44
1.58
1.72
44.20
30.83
Selected ratios and metrics
Return on tangible common equity ("ROTCE") (b)
Cash dividends declared per share
40.72
44.60
48.13
51.44
Tangible book value per share ("TBVPS”)(b)
51.19
53.17
56.98
60.46
64.06
43.97
58.48
62.58
38.68
13
13
13
3,663.5
232,472 $ 219,657 $
3,714.8
167,260
3,756.1
3.804.0
Share price:(a)
High
$
87.39
$
70.61
$
63.49
$
58.55
$
46.49
Low
Close
Book value per share
52.50
50.07
52.97
0.99
1.00
Return on assets ("ROA")
15
11
66.03
86.29
Management (b)
Servicing
Management(a)
⚫ Mortgage
• Card
• Mortgage
Production
• Investment
Banking
-
Services
Credit Card
- Commerce
Solutions
• Auto &
Student
• Real Estate
Portfolios
• Treasury
Services
Markets &
Investor Services
• Fixed
Income
Markets
Equity
Markets
• Securities
Services
• Credit
Adjustments
& Other
⚫ Middle
Market
Banking
⚫ Asset
⚫ Lending
•
$ 40,958 $ 39,322 $ 38,587
Mortgage
Banking
2.53%
(a) Interest includes the effect of related hedges. Taxable-equivalent amounts are
used where applicable.
(b) For a reconciliation of net interest income on a reported and managed basis, see
reconciliation from the Firm's reported U.S. GAAP results to managed basis on
page 48.
(c) Prior period amounts were revised to align with CIB's Markets businesses. For
further information on CIB's Markets businesses, see page 61.
JPMorgan Chase & Co./2016 Annual Report
49
Management's discussion and analysis
Tangible common equity, ROTCE and TBVPS
Tangible common equity ("TCE”), ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm's common
stockholders' equity (i.e., total stockholders' equity less preferred stock) less goodwill and identifiable intangible assets (other
than MSRS), net of related deferred tax liabilities. ROTCE measures the Firm's net income applicable to common equity as a
percentage of average TCE. TBVPS represents the Firm's TCE at period-end divided by common shares at period-end. TCE,
ROTCE, and TBVPS are utilized by the Firm, as well as investors and analysts, in assessing the Firm's use of equity. The following
summary table provides a reconciliation from the Firm's common stockholders' equity to TCE.
(in millions, except per share and ratio data)
Common stockholders' equity
Less: Goodwill
Less: Certain identifiable intangible assets
Add: Deferred tax liabilities(ª)
Tangible common equity
Return on tangible common equity
Tangible book value per share
Period-end
Average
Year ended December 31,
Dec 31,
2016
2.49%
2.59%
excluding CIB Markets
interest-earning assets
5,298
6,032
Corporate
Client
Banking
$ 2,101,604 $ 2,088,242 $ 2,049,093
520,307
510,292
522,989
$ 1,581,297
$1,577,950 $ 1,526,104
Net interest yield on
Dec 31,
2015
average interest-earning
2.25%
2.14%
2.18%
Net interest yield on average
CIB Markets interest-
earning assets(c)
1.22
1.04
1.15
Net interest yield on average
assets - managed basis
2016
2015
$
The Firm's capital, RWA, and capital and leverage ratios that
are presented under Basel III Standardized and Advanced
Fully Phased-In rules and the Firm's, JPMorgan Chase Bank,
N.A.'s and Chase Bank USA, N.A.'s SLRs calculated under the
Basel III Advanced Fully Phased-In rules are considered key
regulatory capital measures. Such measures are used by
banking regulators, investors and analysts to assess the
Firm's regulatory capital position and to compare the Firm's
regulatory capital to that of other financial services
companies.
For additional information on these measures, see Capital
Risk Management on pages 76-85.
Core loans are also considered a key performance measure.
Core loans represent loans considered central to the Firm's
ongoing businesses; and exclude loans classified as trading
assets, runoff portfolios, discontinued portfolios and
portfolios the Firm has an intent to exit. Core loans are
utilized by the Firm and its investors and analysts in
assessing actual growth in the loan portfolio.
50
JPMorgan Chase & Co./2016 Annual Report
BUSINESS SEGMENT RESULTS
The Firm is managed on a line of business basis. There are
four major reportable business segments - Consumer &
Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset & Wealth Management
(formerly Asset Management). In addition, there is a
Corporate segment.
The business segments are determined based on the
products and services provided, or the type of customer
served, and they reflect the manner in which financial
information is currently evaluated by management. Results
of these lines of business are presented on a managed
basis. For a definition of managed basis, see Explanation
and Reconciliation of the Firm's use of Non-GAAP Financial
Measures, on pages 48-50.
Consumer Businesses
Key performance measures
Consumer & Community Banking
Wholesale Businesses
Corporate & Investment Bank
Commercial
Banking
Asset & Wealth
Management
Consumer &
Business
Banking
Consumer
Banking/
Chase Wealth
Management
⚫ Business
Banking
Banking
JPMorgan Chase
Card, Commerce
Solutions & Auto
(a) Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted against goodwill and
other intangibles when calculating TCE.
NA
228,122 $
47,288
$
221,505 $ 224,631 $ 215,690
47,325
47,310
47,445
862
1,015
3,230
3,148
183,202 $ 176,313
2014
$ 207,400
48,029
922
1,092
1,378
3,212
2,964
NA
2,950
$ 170,117
$ 160,943
ΝΑ
$
51.44 $
ΝΑ
48.13
13%
13%
13%
NA
$ 179,611
• Wealth
2,635
• Real Estate
Banking
$ 55,771 $ 59,014 $ 61,274
$ 43,371 $ 37,619 $ 36,611
Year ended December 31,
(in millions, except ratios)
Provision for credit losses
2016
2015
2014
2016
Consumer & Community Banking
Corporate & Investment Bank
$
4,494 $
563
332
3,059 $ 3,520 $ 9,714 $
(161)
Net income/(loss)
2015
9,789 $ 9,185
Return on common equity
2014
2016
2015
2014
18%
18%
18%
10,815
8,090
6,908
16
12
10
$ 99,142 $ 96,633 $ 97,885
(1,147)
(710)
(949)
2014
6,334
2016
2015
2014
7,453
12,045
$ 44,915 $ 43,820 $ 44,368
35,216
34,595
6,882
12,028
33,542
18,992
$ 24,905 $ 24,909 $ 25,609
21,361 23,273
$ 20,010 $ 18,911 $ 18,759
16,224 12,181 11,322
(487)
6,885
12,119
267
Commercial Banking
2,934
2,695
4,519
4,004
4,187
8,478
8,886
8,538
3,567
3,233
3,490
12
462
977
1,159
2,881
282
442
(189)
2015
2014
Total net revenue
2015
2016
Pre-provision profit/(loss)
Total noninterest expense
2016
Asset & Wealth Management
Corporate
Total
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Year ended December 31,
(in millions)
The following tables summarize the business segment results for the periods indicated.
The following provides a comparative discussion of business
segment results as of or for the years ended December 31,
2016, 2015 and 2014.
allocated based on actual cost and use of services provided.
In contrast, certain other costs related to corporate support
units, or to certain technology and operations, are not
allocated to the business segments and are retained in
Corporate. Expense retained in Corporate generally includes
parent company costs that would not be incurred if the
segments were stand-alone businesses; adjustments to
align corporate support units; and other items not aligned
with a particular business segment.
Segment Results - Managed Basis
Where business segments use services provided by
corporate support units, or another business segment, the
costs of those services are allocated to the respective
business segments. The expense is generally
42
Expense allocation
Management's discussion and analysis
51
The amount of capital assigned to each business is referred
to as common equity. On at least an annual basis, the Firm
assesses the level of capital required for each line of
business as well as the assumptions and methodologies
used to allocate capital. Through the end of 2016, capital
was allocated to the lines of business based on a single
measure, Basel III Advanced Fully Phased-In RWA. Effective
January 1, 2017, the Firm's methodology used to allocate
capital to the Firm's business segments was updated. The
new methodology incorporates Basel III Standardized Fully
Phased-In RWA (as well as Basel III Advanced Fully Phased-
In RWA), leverage, the GSIB surcharge, and a simulation of
Debt expense and preferred stock dividend allocation
As part of the funds transfer pricing process, largely all of
the cost of the credit spread component of outstanding
unsecured long-term debt and preferred stock dividends is
allocated to the reportable business segments, while the
balance of the cost is retained in Corporate. The
methodology to allocate the cost of unsecured long-term
debt and preferred stock dividend to the business segments
is aligned with the Firm's process to allocate capital. The
allocated cost of unsecured long-term debt is included in a
business segment's net interest income, and net income is
reduced by preferred stock dividends to arrive at a business
segment's net income applicable to common equity.
Business segment capital allocation changes
senior management and reviewed by the Firm's Asset-
Liability Committee ("ALCO").
JPMorgan Chase & Co./2016 Annual Report
Funds transfer pricing is used to allocate interest income
and expense to each business segment and to transfer the
primary interest rate risk and liquidity risk exposures to
Treasury and CIO within Corporate. The funds transfer
pricing process considers the interest rate risk, liquidity risk
and regulatory requirements of a business segment as if it
were operating independently. This process is overseen by
Funds transfer pricing
When business segments join efforts to sell products and
services to the Firm's clients, the participating business
segments agree to share revenue from those transactions.
The segment results reflect these revenue-sharing
agreements.
Revenue sharing
The Firm periodically assesses the assumptions,
methodologies and reporting classifications used for
segment reporting, and further refinements may be
implemented in future periods.
Description of business segment reporting methodology
Results of the business segments are intended to reflect
each segment as if it were essentially a stand-alone
business. The management reporting process that derives
business segment results includes the allocation of certain
income and expense items described in more detail below.
The Firm also assesses the level of capital required for each
line of business on at least an annual basis. For further
information about line of business capital, see Line of
business equity on page 83.
(b) Formerly Global Wealth Management
(a) Formerly Global Investment Management
capital in a severe stress environment. The methodology
will continue to be weighted towards Basel III Advanced
Fully Phased-In RWA because the Firm believes it to be the
best proxy for economic risk. The Firm will consider further
changes to its capital allocation methodology as the
regulatory framework evolves. In addition, under the new
methodology, capital is no longer allocated to each line of
business for goodwill and other intangibles associated with
acquisitions effected by the line of business.
• Commercial
Term
Lending
10%
10%
2,657
2,191
16
15
18
Asset & Wealth Management
26
4
4
2,251
1,935
2,153
24
21
11%
23
(4)
(10)
(35)
(704)
2,437
864
NM
NM
NM
Total
$
5,361 $
3,827 $ 3,139
$ 24,733 $ 24,442 $ 21,745
Corporate
47,292 $ 44,620 $ 44,619
52
2015
254,190
$ 2,490,972 $
247,573
2,351,698
3
6%
Accounts payable and other liabilities
The increase was largely driven by higher client-driven
activity in CIB.
Beneficial interests issued by consolidated VIES
The decrease was predominantly due to a reduction in
commercial paper issued by conduits to third parties,
partially offset by net new credit card securitizations. For
further information on Firm-sponsored VIES and loan
securitization trusts, see Off-Balance Sheet Arrangements
on pages 45-46 and Note 16.
Long-term debt
The increase was due to net issuance of structured notes
driven by client demand in CIB, and other net issuance
consistent with Treasury and CIO's long-term funding plans,
including liquidity actions related to the 2016 Resolution
Submission. For additional information on the Firm's long-
term debt activities, see Liquidity Risk Management on
pages 110-115 and Note 21.
Stockholders' equity
The increase was due to net income offset partially by cash
dividends on common and preferred stock, and repurchases
of common stock. For additional information on changes in
stockholders' equity, see page 144, and on the Firm's
capital actions, see Capital actions on page 84.
6
44
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
In the normal course of business, the Firm enters into
various contractual obligations that may require future cash
payments. Certain obligations are recognized on-balance
sheet, while others are off-balance sheet under accounting
principles generally accepted in the U.S. ("U.S. GAAP"). The
Firm is involved with several types of off-balance sheet
arrangements, including through nonconsolidated SPES,
which are a type of VIE, and through lending-related
financial instruments (e.g., commitments and guarantees).
Special-purpose entities
The most common type of VIE is an SPE. SPEs are
commonly used in securitization transactions in order to
isolate certain assets and distribute the cash flows from
those assets to investors. SPEs are an important part of the
financial markets, including the mortgage- and asset-
backed securities and commercial paper markets, as they
provide market liquidity by facilitating investors' access to
specific portfolios of assets and risks. SPEs may be
organized as trusts, partnerships or corporations and are
typically established for a single, discrete purpose. SPEs are
not typically operating entities and usually have a limited
life and no employees. The basic SPE structure involves a
company selling assets to the SPE; the SPE funds the
purchase of those assets by issuing securities to investors.
JPMorgan Chase uses SPEs as a source of liquidity for itself
and its clients by securitizing financial assets, and by
creating investment products for clients. The Firm is
involved with SPEs through multi-seller conduits, investor
intermediation activities, and loan securitizations. See Note
16 for further information on these types of SPES.
The Firm holds capital, as deemed appropriate, against all
SPE-related transactions and related exposures, such as
derivative transactions and lending-related commitments
and guarantees.
The Firm has no commitments to issue its own stock to
support any SPE transaction, and its policies require that
transactions with SPES be conducted at arm's length and
reflect market pricing. Consistent with this policy, no
JPMorgan Chase employee is permitted to invest in SPES
with which the Firm is involved where such investment
would violate the Firm's Code of Conduct. These rules
prohibit employees from self-dealing and acting on behalf
of the Firm in transactions with which they or their family
have any significant financial interest.
Implications of a credit rating downgrade to JPMorgan Chase
Bank, N.A.
For certain liquidity commitments to SPES, JPMorgan Chase
Bank, N.A. could be required to provide funding if its short-
term credit rating were downgraded below specific levels,
primarily "P-1", "A-1” and “F1” for Moody's Investors
Service ("Moody's"), Standard & Poor's and Fitch,
respectively. These liquidity commitments support the
issuance of asset-backed commercial paper by Firm-
administered consolidated SPES. In the event of a short-
term credit rating downgrade, JPMorgan Chase Bank, N.A.,
absent other solutions, would be required to provide
funding to the SPE if the commercial paper could not be
reissued as it matured. The aggregate amounts of
commercial paper outstanding held by third parties as of
December 31, 2016 and 2015, was $2.7 billion and $8.7
billion, respectively. The aggregate amounts of commercial
paper issued by these SPES could increase in future periods
should clients of the Firm-administered consolidated SPES
draw down on certain unfunded lending-related
commitments. These unfunded lending-related
commitments were $7.4 billion and $5.6 billion at
December 31, 2016 and 2015, respectively. The Firm could
facilitate the refinancing of some of the clients' assets in
order to reduce the funding obligation. For further
information, see the discussion of Firm-administered multi-
seller conduits in Note 16.
The Firm also acts as liquidity provider for certain municipal
bond vehicles. The Firm's obligation to perform as liquidity
provider is conditional and is limited by certain termination
events, which include bankruptcy or failure to pay by the
municipal bond issuer and any credit enhancement
provider, an event of taxability on the municipal bonds or
the immediate downgrade of the municipal bond to below
investment grade. See Note 16 for additional information.
Off-balance sheet lending-related financial
instruments, guarantees, and other commitments
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to meet
the financing needs of its customers. The contractual
amount of these financial instruments represents the
maximum possible credit risk to the Firm should the
counterparty draw upon the commitment or the Firm be
required to fulfill its obligation under the guarantee, and
should the counterparty subsequently fail to perform
according to the terms of the contract. Most of these
commitments and guarantees are refinanced, extended,
cancelled, or expire without being drawn or a default
occurring. As a result, the total contractual amount of these
instruments is not, in the Firm's view, representative of its
actual future credit exposure or funding requirements. For
further discussion of lending-related financial instruments,
guarantees and other commitments, and the Firm's
accounting for them, see Lending-related commitments on
page 101 and Note 29. For a discussion of liabilities
associated with loan sales and securitization-related
indemnifications, see Note 29.
JPMorgan Chase & Co./2016 Annual Report
49
JPMorgan Chase & Co./2016 Annual Report
2
(7)
41,879
288,651
2,104,125
Debt and equity instruments
Derivative payables
Accounts payable and other liabilities
Beneficial interests issued by consolidated variable interest entities (“VIES”)
Long-term debt
Total liabilities
Stockholders' equity
Total liabilities and stockholders' equity
Deposits
The increase was attributable to higher consumer and
wholesale deposits. The consumer increase reflected
continuing strong growth from existing and new customers,
and the impact of low attrition rates. The wholesale
increase was driven by growth in operating deposits related
to client activity in CIB's Treasury Services business, and
inflows in AWM primarily from business growth and the
impact of new rules governing money market funds. For
more information on deposits, refer to the Liquidity Risk
Management discussion on pages 110-115; and Notes 3
and 19.
Federal funds purchased and securities loaned or sold
under repurchase agreements
The increase was predominantly due to higher client-driven
market-making activities in CIB. For additional information
on the Firm's Liquidity Risk Management, see pages 110-
115.
Commercial paper
The decrease reflected lower issuance in the wholesale
markets consistent with Treasury and CIO's short-term
funding plans. For additional information, see Liquidity Risk
Management on pages 110-115.
% ETENOM
87,428
74,107
18
49,231
52,790
(7)
190,543
177,638
7
39,047
295,245
2,236,782
45
Management's discussion and analysis
Contractual cash obligations
The accompanying table summarizes, by remaining
maturity, JPMorgan Chase's significant contractual cash
obligations at December 31, 2016. The contractual cash
obligations included in the table below reflect the minimum
contractual obligation under legally enforceable contracts
with terms that are both fixed and determinable. Excluded
from the below table are certain liabilities with variable
cash flows and/or no obligation to return a stated amount
of principal at maturity.
15,562
Other borrowed funds (a)
14,759
14,759
11,331
Beneficial interests issued by consolidated VIES
17,290
16,240
2,767
2,630
38,927
41,092
Long-term debt(a)
44,380
78,676
61,772
103,487
288,315
280,206
Other(b)
4,172
1,328
984
Total on-balance sheet obligations
1,612,958
11,738
Trading liabilities:
11,738
152,738
Contractual cash obligations
By remaining maturity at December 31,
The carrying amount of on-balance sheet obligations on the
Consolidated balance sheets may differ from the minimum
contractual amount of the obligations reported below. For a
discussion of mortgage repurchase liabilities and other
obligations, see Note 29.
2016
2020-2021
2015
After 2021
Total
Total
(in millions)
2017
2018-2019
On-balance sheet obligations
Deposits(a)
$ 1,356,641 $
5,512 $
3,542 $
3,171 $
1,368,866 $ 1,276,139
Federal funds purchased and securities loaned or
sold under repurchase agreements
163,978
1,307
2
379
165,666
Commercial paper
8
21,105
22,705
23,873 $
365,762
20,490
340,015
17%
8
229,967
212,575
8
96,409
98,721
(2)
308,052
284,162
8
64,078
59,677
7
289,059
290,827
(1)
894,765
837,299
(13,776)
(13,555)
880,989
823,744
$
52,330
Change
2016
JPMorgan Chase & Co./2016 Annual Report
2014
CONSOLIDATED BALANCE SHEETS ANALYSIS
The following is a discussion of the significant changes between December 31, 2016 and 2015.
Selected Consolidated balance sheets data
December 31, (in millions)
Assets
Cash and due from banks
Deposits with banks
Federal funds sold and securities purchased under resale agreements
Securities borrowed
Trading assets:
Debt and equity instruments
Derivative receivables
Securities
Loans
Allowance for loan losses
Loans, net of allowance for loan losses
Accrued interest and accounts receivable
Premises and equipment
Goodwill
Mortgage servicing rights
Other intangible assets
Other assets
Total assets
2015
103,063
46,605
7272
43
Management's discussion and analysis
to loan growth in the auto and business banking loan
portfolios. For a more detailed discussion of loans and the
allowance for loan losses, refer to Credit Risk Management
on pages 86-107, and Notes 3, 4, 14 and 15.
Accrued interest and accounts receivable
The increase reflected higher receivables from merchants in
CCB and higher client receivables related to client-driven
activity in CIB.
Selected Consolidated balance sheets data
December 31, (in millions)
Liabilities
Deposits
Mortgage servicing rights
For additional information on MSRs, see Note 17.
Other assets
The increase reflected higher auto operating lease assets
from growth in business volume in CCB and higher cash
collateral pledged in CIB.
Commercial paper
Other borrowed funds
2016
2015
Change
$
1,375,179 $ 1,279,715
7
165,666
152,678
9
11,738
15,562
(25)
JPMorgan Chase & Co./2016 Annual Report
12
The increase in the allowance for loan losses was
attributable to additions to the wholesale allowance driven
by downgrades in the Oil & Gas and Natural Gas Pipelines
portfolios. The consumer allowance was flat from the prior
year and reflected reductions in the allowance for loan
losses in the residential real estate portfolio reflecting
continued improvement in home prices and delinquencies,
and due to runoff in the student loan portfolio; these
factors were offset by additions to the allowance reflecting
the impact of loan growth in the credit card portfolio
(including newer vintages which, as anticipated, have higher
loss rates compared to the overall portfolio), as well as due
Loans and allowance for loan losses
14,131
14,362
(2)
47,288
47,325
6,096
6,608
(8)
862
1,015
(15)
112,076
$ 2,490,972
105,572
6
$ 2,351,698
6%
Cash and due from banks and deposits with banks
The increase was primarily driven by deposit growth in
excess of loan growth. The Firm's excess cash is placed with
various central banks, predominantly Federal Reserve
Banks.
Federal funds sold and securities purchased under resale
agreements
The increase was due to higher demand for securities to
cover short positions related to client-driven market-making
activities in CIB, and the deployment of excess cash by
Treasury and Chief Investment Office ("CIO"). For additional
information on the Firm's Liquidity Risk Management, see
pages 110-115.
Trading assets and liabilities-debt and equity instruments
The increase in trading assets and liabilities was
predominantly related to client-driven market-making
activities in CIB. The increase in trading assets reflected
higher debt and, to a lesser extent, equity instrument
inventory levels to facilitate client demand. The increase in
trading liabilities reflected higher levels of client-driven
short positions in both debt and equity instruments. For
additional information, refer to Note 3.
Trading assets and liabilities-derivative receivables and
payables
The change in derivative receivables and payables was
predominantly related to client-driven market-making
activities in CIB. The increase in derivative receivables
reflected the impact of market movements, which increased
foreign exchange receivables, partially offset by reduced
commodity derivative receivables. The decrease in
derivative payables reflected the impact of market
movements, which reduced commodity payables. For
additional information, refer to Derivative contracts on
pages 102-103, and Notes 3 and 6.
Securities
The decrease was predominantly due to net sales,
maturities and paydowns during the year of non-agency
mortgage-backed securities ("MBS"), corporate debt
securities and asset-backed securities ("ABS"), offset by
purchases of U.S. Treasuries. For additional information, see
Notes 3 and 12.
The increase in loans was driven by higher consumer and
wholesale loans. The increase in consumer loans was due to
retention of originated high-quality prime mortgages in CCB
and AWM, and growth in credit card and auto loans in CCB.
The increase in wholesale loans was predominantly driven
by originations of commercial real estate loans in CB and
commercial and industrial loans across multiple industries
in CB and CIB.
69,067
Federal funds purchased and securities loaned or sold under repurchase agreements
8,980
53,266
Net interest income
46,083
1,209
47,292
43,510
1,110
44,620
43,634
985
44,619
Total net revenue
95,668
3,474
99,142
93,543
3,090
96,633
95,112
2,773
97,885
Pre-provision profit
39,897
3,474
43,371
1,788
34,529
51,478
1,980
Managed
basis
Reported
Results
Fully taxable-
equivalent
adjustments(a)
Fully taxable-
Managed Reported
basis
Results
Other income
$ 3,795
$
2,265
$ 6,060
$ 3,032
$
1,980 $ 5,012
$ 3,013
$
equivalent
adjustments(a)
1,788 $ 4,801
Managed
basis
Total noninterest revenue
49,585
2,265
51,850
50,033
52,013
equivalent
adjustments (a)
3,090
33,838
NM
63%
(a) Predominantly recognized in CIB and CB business segments and Corporate.
JPMorgan Chase & Co./2016 Annual Report
Net interest income excluding CIB's Markets businesses
In addition to reviewing net interest income on a managed
basis, management also reviews net interest income
excluding net interest income arising from CIB's Markets
businesses to assess the performance of the Firm's lending,
investing (including asset-liability management) and
deposit-raising activities. CIB's Markets businesses
represent both Fixed Income Markets and Equity Markets.
The data presented below are non-GAAP financial measures
due to the exclusion of net interest income from CIB's
Markets businesses ("CIB Markets").
Management believes this exclusion provides investors and
analysts with another measure by which to analyze the non-
markets-related business trends of the Firm and provides a
comparable measure to other financial institutions that are
primarily focused on lending, investing and deposit-raising
activities.
Calculation of certain U.S. GAAP and non-GAAP financial measures
Certain U.S. GAAP and non-GAAP financial measures are calculated as
follows:
Book value per share ("BVPS")
Common stockholders' equity at period-end /
Common shares at period-end
Overhead ratio
Total noninterest expense / Total net revenue
Return on assets ("ROA")
Reported net income / Total average assets
Return on common equity ("ROE")
Net income* / Average common stockholders' equity
Return on tangible common equity ("ROTCE")
Net income* / Average tangible common equity
Tangible book value per share ("TBVPS")
Tangible common equity at period-end / Common shares at period-end
* Represents net income applicable to common equity
Year ended December 31,
(in millions, except rates)
Net interest income -
managed basis(a)(b)
Less: CIB Markets net
interest income (c)
Net interest income
excluding CIB Markets(a)
Average interest-earning
assets
Less: Average CIB Markets
interest-earning assets(c)
Average interest-earning
assets excluding CIB
Markets
$
2,496
112,163
2016
64%
37,619
61%
63%
2,773
36,611
Income before income tax expense
34,536
38,010
30,702
3.090
33,792
30,699
2,773
33,472
Income tax expense
9,803
3,474
13,277
6,260
3,090
9,350
8,954
2,773
11,727
Overhead ratio
58%
NM
56%
NM
Reported
Results
3,474
Fully taxable-
Contractual purchases and capital expenditures
1,382
723
236
225
2,566
2,598
Obligations under co-brand programs
Total off-balance sheet obligations
187
63,885
233
201
247
868
496
14,156
10,141
26,019
Total contractual cash obligations
$ 1,676,843 $
117,219 $
79,208 $
138,182 $
114,201
104,475
2,011,452 $ 1,889,915
(a) Excludes structured notes on which the Firm is not obligated to return a stated amount of principal at the maturity of the notes, but is obligated to return
an amount based on the performance of the structured notes.
921
(b) Primarily includes dividends declared on preferred and common stock, deferred annuity contracts, pension and other postretirement employee benefit
obligations and insurance liabilities.
1,068
103
8,372
1,897,251
(in millions, except ratios)
1,785,440
Off-balance sheet obligations
Unsettled reverse repurchase and securities
borrowing agreements (c)
50,722
50,722
42,482
Contractual interest payments (d)
9,640
10,317
7,638
21,267
48,862
46,149
Operating leases(e)
1,598
2,780
2,036
3,701
10,115
11,829
Equity investment commitments (f)
356
30
(c) For further information, refer to unsettled reverse repurchase and securities borrowing agreements in Note 29.
579
(e) Includes noncancelable operating leases for premises and equipment used primarily for banking purposes and for energy-related tolling service
The Firm's investing activities predominantly include
originating loans for investment, depositing cash at banks,
and investing in the securities portfolio and other short-
term interest-earning assets. Cash used in investing
activities in 2016 resulted from net originations of
consumer and wholesale loans. The increase in consumer
loans was due to retention of originated high-quality prime
JPMorgan Chase & Co./2016 Annual Report
mortgages in CCB and AWM, and growth of credit card and
auto loans in CCB. The increase in wholesale loans was
predominantly driven by originations of commercial real
estate loans in CB and commercial and industrial loans
across multiple industries in CB and CIB. Additionally, in
2016, cash outflows reflected an increase in deposits with
banks primarily due to growth in deposits in excess of
growth in loans; an increase in securities purchased under
resale agreements due to higher demand for securities to
cover short positions related to client-driven market-making
activities in CIB and the deployment of excess cash by
Treasury and CIO. Cash provided by investing activities
during 2015 predominantly resulted from lower deposits
with banks due to the Firm's actions to reduce wholesale
non-operating deposits; and net proceeds from paydowns,
maturities, sales and purchases of investment securities.
Partially offsetting these net inflows was cash used for net
originations of consumer and wholesale loans, a portion of
which reflected a shift from investment securities. Cash
used in investing activities during 2014 resulted from
increases in deposits with banks attributable to higher
levels of excess funds; cash was also used for growth in
wholesale and consumer loans in 2014. Partially offsetting
these cash outflows in 2014 was a net decline in securities
purchased under resale agreements due to a shift in the
deployment of the Firm's excess cash by Treasury and CIO.
Investing activities in 2014 also reflected net proceeds from
paydowns, maturities, sales and purchases of investment
securities.
Financing activities
The Firm's financing activities includes acquiring customer
deposits, issuing long-term debt, as well as preferred and
common stock. Cash provided by financing activities in
2016 resulted from higher consumer and wholesale
deposits, and an increase in securities loaned or sold under
repurchase agreements, predominantly due to higher client-
driven market-making activities in CIB. Cash used in
financing activities in 2015 resulted from lower wholesale
deposits partially offset by higher consumer deposits.
Additionally, in 2015 cash outflows were attributable to
lower levels of commercial paper due to the discontinuation
of a cash management product that offered customers the
option of sweeping their deposits into commercial paper;
lower commercial paper issuances in the wholesale
markets; and a decrease in securities loaned or sold under
repurchase agreements due to a decline in secured
financings. Cash provided by financing activities in 2014
predominantly resulted from higher consumer and
wholesale deposits. For all periods, cash was provided by
net proceeds from long-term borrowings; and cash was
used for repurchases of common stock and cash dividends
on common and preferred stock.
*
*
For a further discussion of the activities affecting the Firm's
cash flows, see Consolidated Balance Sheets Analysis on
pages 43-44, Capital Risk Management on pages 76-85,
and Liquidity Risk Management on pages 110-115.
47
48
88
EXPLANATION AND RECONCILIATION OF THE FIRM'S USE OF NON-GAAP FINANCIAL MEASURES AND KEY
PERFORMANCE MEASURES
Non-GAAP financial measures
The Firm prepares its Consolidated Financial Statements
using U.S. GAAP; these financial statements appear on
pages 141-145. That presentation, which is referred to as
"reported" basis, provides the reader with an
understanding of the Firm's results that can be tracked
consistently from year to year and enables a comparison of
the Firm's performance with other companies' U.S. GAAP
financial statements.
In addition to analyzing the Firm's results on a reported
basis, management reviews the Firm's results, including the
overhead ratio, and the results of the lines of business, on a
"managed" basis, which are non-GAAP financial measures.
The Firm's definition of managed basis starts with the
reported U.S. GAAP results and includes certain
reclassifications to present total net revenue for the Firm
(and each of the reportable business segments) on an FTE
basis. Accordingly, revenue from investments that receive
tax credits and tax-exempt securities is presented in the
managed results on a basis comparable to taxable
investments and securities. These non-GAAP financial
measures allow management to assess the comparability of
revenue from year-to-year arising from both taxable and
tax-exempt sources. The corresponding income tax impact
related to tax-exempt items is recorded within income tax
expense. These adjustments have no impact on net income
as reported by the Firm as a whole or by the lines of
business.
Management also uses certain non-GAAP financial
measures at the Firm and business-segment level, because
these other non-GAAP financial measures provide
information to investors about the underlying operational
performance and trends of the Firm or of the particular
business segment, as the case may be, and, therefore,
facilitate a comparison of the Firm or the business segment
with the performance of its relevant competitors. For
additional information on these non-GAAP measures, see
Business Segment Results on pages 51-70.
Additionally, certain credit metrics and ratios disclosed by
the Firm exclude PCI loans, and are therefore non-GAAP
measures. For additional information on these non-GAAP
measures, see Credit Risk Management on pages 86-107.
Non-GAAP financial measures used by the Firm may not be
comparable to similarly named non-GAAP financial
measures used by other companies.
The following summary table provides a reconciliation from the Firm's reported U.S. GAAP results to managed basis.
2016
2015
(d) Includes accrued interest and future contractual interest obligations. Excludes interest related to structured notes for which the Firm's payment obligation
is based on the performance of certain benchmarks.
2014
Year ended
December 31,
Investing activities
Management's discussion and analysis
JPMorgan Chase's operating assets and liabilities support
the Firm's lending and capital markets activities, including
the origination or purchase of loans initially designated as
held-for-sale. Operating assets and liabilities can vary
significantly in the normal course of business due to the
amount and timing of cash flows, which are affected by
client-driven and risk management activities and market
conditions. The Firm believes cash flows from operations,
available cash balances and its capacity to generate cash
through secured and unsecured sources are sufficient to
meet the Firm's operating liquidity needs.
agreements. Excludes the benefit of noncancelable sublease rentals of $1.4 billion and $1.9 billion at December 31, 2016 and 2015, respectively. See
Note 30 for more information on lease commitments.
(f) At December 31, 2016 and 2015, included unfunded commitments of $48 million and $50 million, respectively, to third-party private equity funds, and
$1.0 billion and $871 million of unfunded commitments, respectively, to other equity investments.
46
Cash provided by operating activities in 2016, 2015 and
2014 reflected net income after noncash operating
adjustments. Additionally, in 2016 cash provided reflected
increases in accounts payable and trading liabilities related
to client-driven market-making activities in CIB. The
increase in trading liabilities reflected higher levels of
client-driven short positions in both debt and equity
instruments. Cash used in 2016 reflected an increase in
trading assets, an increase in accounts receivable from
merchants in CCB and higher client receivables related to
client-driven activities in CIB; and higher net originations
and purchases from loan held-for-sale activities. The
increase in trading assets reflected higher debt and, to a
lesser extent, equity instrument inventory levels to facilitate
client demand. Cash provided in 2015 resulted from a
decrease in trading assets, predominantly due to client-
driven market-making activities in CIB, resulting in lower
levels of debt and equity securities. Additionally, cash
provided reflected a decrease in accounts receivable due to
lower client receivables and higher net proceeds from loan
sales activities. This was partially offset by cash used due to
a decrease in accounts payable and other liabilities,
resulting from lower brokerage customer payables related
to client activity in CIB. In 2014, cash provided reflected
higher net proceeds from loan securitizations and sales
activities.
46
JPMorgan Chase & Co./2016 Annual Report
CONSOLIDATED CASH FLOWS ANALYSIS
(in millions)
Net cash provided by/(used in)
Investing activities
2016
Year ended December 31,
2015
Operating activities
3,383 $ (7,341) $ (11,940)
$ 20,196 $ 73,466
(114,949)
98,271
106,980
(187,511)
Effect of exchange rate
changes on cash
(135)
(276)
Financing activities
$ 36,593
(165,636)
118,228
Net increase/(decrease) in
cash and due from banks
Operating activities
(1,125)
2014
22%
We continue to make excellent progress around technology, risk and controls,
innovation, diversity and reduced bureaucracy. We've helped communities large
and small - by doing what we do best (lending, investing and serving our clients);
by creatively expanding certain flagship Corporate Responsibility programs,
including the Entrepreneurs of Color Fund, The Fellowship Initiative and our Service
Corps; and by applying our successful Detroit investment model to neighborhood
revitalization efforts in the Bronx in New York City, Chicago and Washington, D.C.
Throughout a period of profound political and economic change around the world,
our company has been steadfast in our dedication to the clients, communities and
countries we serve while earning a fair return for our shareholders.
$26.9
24%
($in billions, except per share and ratio data)
revenue
2017 was another record year across many measures for our company as we added
clients and customers and delivered record earnings per share. We earned $24.4
billion in net income on revenue¹ of $103.6 billion (if we exclude the tax charge
at year-end, 2017 net income would have been a record $26.9 billion), reflecting
strong underlying performance across our businesses. We now have delivered
record results in seven of the last eight years, and we have confidence that we will
continue to deliver in the future.
2
1Represents
managed
Jamie Dimon,
Chairman and
Chief Executive Officer
Adjusted net income¹
Earnings, Diluted Earnings per Share and Return on Tangible Common Equity
2004-2017
$24.4 $24.7
11%
$21.3
$21.7
$19.0
$17.4 15% $17.9 13% $6.00 56.19
$6.31
$15.4
15% $14.4
10%
15%
15%
13% 13%
$11.7
10%
Once again, I begin this letter with a sense of pride about JPMorgan Chase. As I
look back on last year – in fact, the last decade – it is remarkable how well our
company has performed. And I'm not only talking about our strong financial
performance - but also about how much we have accomplished to help our clients,
customers and communities all around the world. Ours is an exceptional company
with an extraordinary heritage and a promising future.
$24.4 Reported net income
Dear Fellow Shareholders,
$1.75
86%
MILLION DIGITAL CUSTOMERS
$5.19
46.7
46.7 million digital customers
make us the #1 most visited
bank website with the most
mobile banking customers
$900+
BILLION
$900+ billion in debit
and credit card sales
volume
BILLION
$1.75 billion in
philanthropic investments
over the next five years
$200
BILLION
$200 billion in clean
energy financing
by 2025
TOP
EMPLOYER
Named a top company by
LinkedIn for where people
want to work
86% of long-term mutual
fund assets under
management ranked in
top two quartiles over
10-year period
#1
400
Opening 400 new branches
in 15-20 markets over the
next five years
100%
Renewable energy for
100% of the firm's global
power by 2020
$5
TRILLION
$5 trillion daily value
of wholesale payments
across 120 currencies
$1.3
TRILLION
$1.3 trillion in assets under
management shifted to
J.P. Morgan by BlackRock as
part of the largest custody
mandate in history
TOP 50
Top 50 metro areas covered
by Commercial Banking
following expansion into
new locations
#1 on Fortune's
Change the World list
$5.29
(7/1/2004-12/31/2017)
13.6% Adjusted ROTCE¹
$48.13
$44.60
$40.72
$38.68
$33.62
$30.12
$1535 $16.45 $18.8 $21.96 $22.52 $27.0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
■Tangible book value
Average stock price
3
As you know, we believe tangible book value per share is a good measure of the
value we have created for our shareholders. If our asset and liability values are
appropriate – and we believe they are – and if we can continue to deploy this
capital profitably, we now think that it can earn approximately 17% return on
tangible equity for the foreseeable future. Then, in our view, our company should
ultimately be worth considerably more than tangible book value. The chart on the
bottom of page 3 shows that tangible book value "anchors" the stock price.
Bank One/JPMorgan Chase & Co. tangible book value per share performance vs. S&P 500
Performance since becoming CEO of Bank One
(3/27/2000-12/31/2017)¹
Compounded annual gain
Overall gain
Performance since the Bank One
and JPMorgan Chase & Co. merger
Compounded annual gain
Overall gain
Bank One
(A)
S&P 500
(B)
Relative Results
(A) - (B)
11.8%
566.3%
5.2%
147.3%
6.6%
419.0%
Information about J.P. Morgan's capabilities can be found at jpmorgan.com and about
Chase's capabilities at chase.com. Information about JPMorgan Chase & Co. is available
at jpmorganchase.com.
JPMorgan Chase & Co.
$35.49
$53.56
$51.44
$40.36 $39.36 $39.22
$4.48
$4.34
$8.5 $4.00
6%
$4.33
$3.96
$2.35
$5.6
$45 $135
1
2004
2005 2006 2007
2008
Diluted earnings per share
2009 2010 2011 2012 2013 2014
12%
2015 2016 2017
■Net income
Adjusted results exclude a $2.4 billion decrease to net income as a result of the enactment of the Tax Cuts and Jobs Act (TCJA)
Tangible Book Value and Average Stock Price per Share
2004-2017
High: $108.46
➜ $92.01
Low: $ 81.64
$63.83 $65.62
$58.17
$51.88
$47.75
$43.93
$38.70
$39.83
$36.07
Return on tangible common equity (ROTCE)
JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets
of $2.5 trillion and operations worldwide. The firm is a leader in investment banking,
financial services for consumers and small businesses, commercial banking, financial
transaction processing, and asset management. A component of the Dow Jones Industrial
Average, JPMorgan Chase & Co. serves millions of customers in the United States and
many of the world's most prominent corporate, institutional and government clients
under its J.P. Morgan and Chase brands.
(in millions, except per share, ratio data and headcount)
(c) The ratios presented are calculated under the Basel III Advanced Fully Phased-In Approach, and they are key regulatory capital
measures. For further discussion, see “Capital Risk Management” on pages 82-91.
95,668
93,543
58,434
55,771
59,014
41,190
39,897
34,529
5,290
5,361
3,827
24,441
24,733
24,442
Diluted
Cash dividends declared
Book value
Tangible book value (TBVPS)(b)
+A
$
6.35
6.24
6.05
6.31
6.19
6.00
2.12
1.72
67.04
$
99,624
$
2015
(A)
TOKYO
SY
08:31 15:31 16:31 17
ANNUAL REPORT
2017
J.P.Morgan
Start on the auto marketing page
Welcome to the new age of car buying
Find and finance your car with Chase
JPMORGAN CHASE & CO.
good works
de for
000
64.06
2017
JPMORGAN CHASE & Co.
Financial Highlights
As of or for the year ended December 31,
Total net revenue
Reported basis (a)
Total noninterest expense
Pre-provision profit
Provision for credit losses
Net income
Per common share data
Net income per share:
Basic
2017
2016
&
(d) The prior period ratio has been revised to conform with the current period presentation.
60.46
51.44
1,279,715
Common stockholders' equity
229,625
228,122
221,505
255,693
254,190
247,573
Total stockholders' equity
Market data
Closing share price
$
106.94
$
86.29
66.03
Market capitalization
Common shares at period-end
366,301
3,425.3
307,295
241,899
3,561.2
3,663.5
Headcount
252,539
243,355
234,598
(a) Results are presented in accordance with accounting principles generally accepted in the United States of America, except where
otherwise noted.
(b) TBVPS and ROTCE are each non-GAAP financial measures. For further discussion of these measures, see Explanation and
Reconciliation of the Firm's Use of Non-GAAP Financial Measures and Key Financial Performance Measures on pages 52-54.
1,375,176
1,443,982
Deposits
2,351,698
48.13
Selected ratios
Return on common equity
10%
10%
11%
Return on tangible common equity (ROTCE)(b)
12
13
13
Common equity Tier 1 capital ratio (c)
12.1
12.2
11.6
53.56
Tier 1 capital ratio (c)
13.9(d)
13.3
Total capital ratio (c)
15.7
15.2
14.7
Selected balance sheet data (period-end)
Loans
$ 930,697
894,765
837,299
Total assets
2,533,600
2,490,972
13.8
S&P 500
(B)
Asset & Wealth North America Private Bank (Euromoney)
Management
(A) - (B)
Equities
€ 500
Market share5
Assets under custody (AUC)($T)
#2
8.7%
#1
7.9%
#8
6.3%
#1
11.2%
#1
8.1%
#1
11.0%
#7
#1
#1
7.0%
11.7%
11.4%
#8
#2
Co-#1
5.0%
10.1%
$13.9
$20.5
10.3%
$23.5
# of top 50 MSAS with dedicated teams
26
Bankers
1,203
Market share
Investment
Bank
FICC5
Corporate &
Active mobile customers growth rate
NM
10%
16%
9%
13%
Banking
Credit card sales market share²
15.9%
21.5%
22.4%
Merchant processing volume³ ($B)
$661
$1,063
$1,192
47
1,642
# of branches
5,258
5,130
Client investment assets ($B)
~$80
$235
$273
Business Banking primary market share24
5.1%
8.5%
8.7%
Global Investment Banking fees4
Market share4
Market share5
Total Markets revenue
3,079
Community
50
1,766
ΝΑ
4%
4%
Average loans ($B)
$26.5
# of Wealth Management client advisors
1,506
$112.9
2,504
$123.5
2,605
■>80% of Fortune 500 companies do business with us
■#1 in both N.A. and EMEA Investment Banking fees¹7
■#1 in Global Long-Term Debt and Loan Syndications¹7
■#1 in FICC productivity18
■Top 3 Custodian globally with AUC of $23.5T19
■#1 in USD payment volumes with 20% share in 201720
■In Total Markets, J.P. Morgan has ranked #1 in each
year since 201225
Equities and Prime are now ranked co-#125
■J.P. Morgan Research ranked as the #1 Global
Research Firm26
■Top 3 in overall Middle Market, large Middle Market
and Asset Based Lending Bookrunner21
■Industry-leading credit performance - 6th straight
year of net recoveries or single digit NCO rate
■86% of 10-year long-term mutual fund assets under
management (AUM) in top 2 quartiles²²
■#2 in 5-year cumulative long-term client asset flows
among publicly traded peers
■ #1 Private Bank in N.A. and LatAm23
■Revenue and long-term AUM growth >90% since 2006
For information on footnotes 1-23, refer to slides 105-106 in the 2018 JPMorgan Chase Strategic Update presentation, which is available on JPMorgan Chase & Co.'s website
(https://www.jpmorganchase.com/corporate/investor-relations/document/3cea4108_strategic_update.pdf), under the heading Investor Relations, Events & Presentations,
JPMorgan Chase 2018 Investor Day, and on Form 8-K as furnished to the U.S. Securities and Exchange Commission (SEC) on February 27, 2018, which is available on the SEC's
website (www.sec.gov).
24 Source: Barlow Research Associates, Primary Bank Market Share Database as of 4Q17. Rolling eight quarter average of small businesses with revenues of $100,000 - <$25 million
25 Source: Preliminary Coalition Global Industry Revenue Pool based on internal business structure, 2017
26 Source: Institutional Investor magazine survey of large investors, 2017
NM Not meaningful
EMEA Europe/Middle East/Africa
B = Billions
NA Not available
North America
FICC = Fixed Income, Currencies and Commodities
N.A.
MSAS = Metropolitan Statistical Areas
LatAm
T = Trillions
Latin America/Caribbean
8
3%
Client assets market share¹¹
#1
$2.8
235
#2
2.4%
911
1,062
Commercial
Banking
Gross Investment Banking revenue ($B)
$0.7
$2.3
$2.3
Average loans ($B)
$53.6
$179.4
$198.1
Average deposits ($B)
$73.6
$174.4
New relationships (gross)
Multifamily lending
#1
$177.0
#1
Mutual funds with a 4/5 star ratings
119
220
Ranking of long-term client asset flows⁹
ΝΑ
Active AUM market share¹0
1.8%
Client assets ($T)
LONDON SINGAPORE
#1
$1.3
#2
2.5%
#1
$2.5
#28
Relative Results
8%
Consumer &
26.7%
21.8%
22.1%
22.7%
12.0%
15.8%
18.2%
8.5%
3.7%
Ten years
These charts show actual returns of the stock, with dividends reinvested, for heritage shareholders of Bank One and JPMorgan Chase & Co.
vs. the Standard & Poor's 500 Index (S&P 500) and the Standard & Poor's Financials Index (S&P Financials Index).
1 On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.
Our stock price is a measure of the progress we have made over the years. This
progress is a function of continually making important investments, in good
times and not-so-good times, to build our capabilities – people, systems and
products. These investments drive the future prospects of our company and
position it to grow and prosper for decades. Whether looking back over five
years, 10 years or since the Bank One/JPMorgan Chase merger (approximately 13
years ago), our stock has significantly outperformed the Standard & Poor's 500
Index (S&P 500) and the S&P Financials Index. And this growth came during a
time of unprecedented challenges for banks – both the Great Recession and the
5
extraordinarily difficult legal, regulatory and political environment that followed.
We have long contended that these factors explained why bank stock price/
earnings ratios were appropriately depressed. And we believe the anticipated
reversal of many negatives and an increasingly more favorable business
environment, coupled with our sustained, strong business results, are among the
reasons our stock price has done so well this past year.
We do not worry about the stock price in the short run, and we do not worry about
quarterly earnings. Our mindset is that we consistently build the company – if
you do the right things, the stock price will take care of itself. In the next section,
I discuss in more detail how we think about building shareholder value for the long
run while also taking care of customers, employees and communities.
JPMorgan Chase stock is owned by large institutions, pension plans, mutual funds
and directly by individual investors. However, it is important to remember that
in almost all cases, the ultimate owner is an individual. Well over 100 million
people in the United States own stocks, and a large percentage of them, in one
way or another, own JPMorgan Chase stock. Many of these people are veterans,
teachers, police officers, firefighters, retirees, or those saving for a home, school
or retirement. Your management team goes to work every day recognizing the
enormous responsibility that we have to perform for our shareholders.
In this letter, I discuss the issues highlighted below - which describe many of our
successes and opportunities, as well as our challenges and responses.
I. JPMorgan Chase Business Strategies
1.
How has the company grown?
Page 8
Page 8
2.
How will the company continue to grow? What are the organic growth
opportunities?
Page 10
3.
Why is organic growth a better way to grow - and why is it sometimes difficult?
Page 12
Five years
One year
Compounded annual gain
December 31, 2017
12.7%
403.5%
8.8%
210.4%
3.9%
193.1%
Tangible book value over time captures the company's use of capital, balance sheet and profitability. In this chart, we are looking at
heritage Bank One shareholders and JPMorgan Chase & Co. shareholders. The chart shows the increase in tangible book value per share;
it is an after-tax number assuming all dividends were retained vs. the Standard & Poor's 500 Index (S&P 500), which is a pre-tax number
with dividends reinvested.
1 On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.
In the last five years, we have bought back nearly $40 billion in stock. In prior
years, I explained why buying back our stock at tangible book value per share was
a no-brainer. Six years ago, we offered an example of this, with earnings per share
and tangible book value per share being substantially higher than they otherwise
would have been just four years later. While we prefer buying back our stock at
tangible book value, we think it makes sense to do so even at or above two times
tangible book value for reasons similar to those we've expressed in the past. If we
buy back a big block of stock this year, we would expect (using analyst earnings
estimates for the next five years) earnings per share in five years to be 2%-3%
higher and tangible book value to be virtually unchanged.
We want to remind our shareholders that we much prefer to use our capital to grow
than to buy back stock. Buying back stock should only be considered when we either
cannot invest (sometimes that's a function of regulatory policies) or when we are
generating excess, unusable capital. We currently have excess capital, but due to
recent tax reform and a more constructive regulatory environment, we hope, in the
future, to use more of our excess capital to grow our businesses, expand into new
markets and support our employees.
Stock total return analysis
Performance since becoming CEO of Bank One
(3/27/2000-12/31/2017)¹
Compounded annual gain
Overall gain
Performance since the Bank One
and JPMorgan Chase & Co. merger
4.
(7/1/2004-12/31/2017)
S&P 500 S&P Financials Index
12.4%
691.5%
5.2%
147.3%
4.1%
102.8%
JPMorgan Chase & Co.
S&P 500
S&P Financials Index
10.7%
Compounded annual gain
294.2%
8.8%
210.4%
3.6%
61.6%
Overall gain
Performance for the period ended
Bank One
Average deposits growth rate
Is there a conflict between building shareholder value vs. serving customers,
taking care of employees and lifting up communities?
5.
9.
Public company corporate governance – how would you change it? And
the case against earnings guidance.
Page 43
10. Global engagement, trade and immigration – America's role in the world
-
is critical.
Page 44
7
I. JPMORGAN CHASE BUSINESS STRATEGIES
Since our business leaders describe their businesses later in this report, I am not going to be
repetitive within this section. I encourage you to read their letters following this Letter to
Shareholders. Instead, in this section, I deal with some critical themes around how we run
this company - in good times and in bad times – and how we are continuing to build for
what we think will be a bright future.
1. How has the company grown?
Below is a powerful representation of how
we have grown and built client franchises
over time.
Client Franchises Built Over the Long Term
You can see from the numbers circled within
the chart below that we have grown our
market share fairly substantially in most of
our businesses. In some cases, these market
8.7%
■Relationships with ~50% of U.S. households
■Industry-leading deposit growth¹²
#1 U.S. credit card issuer 13
■#1 U.S. co-brand credit card issuer¹4
■#1 U.S. credit and debit payments volume15
■#2 merchant acquirer¹6
Deposits market share¹
# of top 50 Chase markets
where we are #1 (top 3).
2006
2016
2017
3.6%
8.3%
11 (25)
14 (38)
16 (40)
Page 41
Why is smart regulation vs. just more regulation so important?
8.
Page 39
Transparency, financial discipline and a fortress balance sheet. Why is this
discipline so important?
Page 18
6.
What risks worry us the most? And what could go wrong?
Page 21
7.
How is the company dealing with bureaucracy and complacency that often
infect large companies?
Page 26
8. What are the firm's views on succession?
Page 28
II. Public Policy
Page 29
1. What has gone wrong in public policy?
Page 30
Page 13
2.
Page 32
3.
We can fix this problem through intelligent, thoughtful, analytical and
comprehensive policy.
Page 33
4.
5.
The need for solutions through collaborative, competent government.
A competitive business tax system is a key pillar of a growth strategy.
Page 34
Page 35
6.
We should reform and expand the Earned Income Tax Credit and invest
in the workforce of the future.
Page 37
7.
America's growing fiscal deficit and fixing our entitlement programs.
Poor public policy – how has this happened?
CHASES
1.88
617
2017 compared with 2016
Net income was $3.5 billion, an increase of 33% compared
with the prior year, driven by higher net revenue and a
lower provision for credit losses, partially offset by higher
noninterest expense.
Net revenue was $8.6 billion, an increase of 15% compared
with the prior year. Net interest income was $6.1 billion, an
increase of 19% compared with the prior year, driven by
higher deposit spreads and loan growth. Noninterest
revenue was $2.5 billion, an increase of 9% compared with
the prior year, predominantly driven by higher Community
Development Banking revenue, including a $115 million
benefit for the impact of the TCJA on certain investments,
and higher investment banking revenue.
Noninterest expense was $3.3 billion, an increase of 13%
driven by hiring of bankers and business-related support
staff, investments in technology, and an impairment of
approximately $130 million on certain leased equipment,
the majority of which was sold subsequent to year-end.
The provision for credit losses was a benefit of $276
million, driven by net reductions in the allowance for credit
losses, including in the Oil & Gas, Natural Gas Pipelines and
Metals & Mining portfolios. The prior year provision for
credit losses was $282 million driven by downgrades in the
Oil & Gas portfolio and select client downgrades in other
industries.
2016 compared with 2015
Net income was $2.7 billion, an increase of 21% compared
with the prior year, driven by higher net revenue and a
lower provision for credit losses, partially offset by higher
noninterest expense.
Net revenue was $7.5 billion, an increase of 8% compared
with the prior year. Net interest income was $5.1 billion, an
increase of 14% compared with the prior year, driven by
higher loan balances and deposit spreads. Noninterest
revenue was $2.3 billion, a decrease of 2% compared with
the prior year, largely driven by lower lending-and-deposit-
related fees and other revenue, partially offset by higher
investment banking revenue.
Noninterest expense was $2.9 billion, an increase of 2%
compared with the prior year, reflecting increased hiring of
bankers and business-related support staff and investments
in technology.
The provision for credit losses was $282 million and $442
million for 2016 and 2015, respectively, with both periods
driven by downgrades in the Oil & Gas portfolio and select
client downgrades in other industries.
JPMorgan Chase & Co./2017 Annual Report
67
62
68
88
Management's discussion and analysis
CB product revenue consists of the following:
Lending includes a variety of financing alternatives, which
are primarily provided on a secured basis; collateral
includes receivables, inventory, equipment, real estate or
other assets. Products include term loans, revolving lines of
credit, bridge financing, asset-based structures, leases, and
standby letters of credit.
Treasury services includes revenue from a broad range of
products and services that enable CB clients to manage
payments and receipts, as well as invest and manage funds.
Investment banking includes revenue from a range of
products providing CB clients with sophisticated capital-
raising alternatives, as well as balance sheet and risk
management tools through advisory, equity underwriting,
and loan syndications. Revenue from Fixed Income and
Equity Markets products used by CB clients is also included.
Other product revenue primarily includes tax-equivalent
adjustments generated from Community Development
Banking activities and certain income derived from principal
transactions.
Selected income statement data (continued)
Year ended December 31,
(in millions, except ratios)
Revenue by product
Lending
Treasury services
Investment banking(a)
Other(b)
Total Commercial Banking net
revenue
2017
2016
2015
$4,094
$3,795
(b) Total net revenue included tax-equivalent adjustments from income tax
credits related to equity investments in designated community
development entities that provide loans to qualified businesses in low-
income communities, as well as tax-exempt income related to municipal
financing activities of $699 million, $505 million and $493 million for the
years ended December 31, 2017, 2016 and 2015, respectively. The 2017
results reflect the impact of the enactment of the TCJA including a benefit
to all other income of $115 million on certain investments in the
Community Development Banking business. For additional information
related to the impact of the TCJA, see Note 24.
$ 3,429
(a) Includes revenue from investment banking products and commercial card
transactions.
Net income
Total net revenue (b)
8,605
7,453
6,885
Provision for credit losses
(276)
282
442
Noninterest expense
Compensation expense
1,470
1,332
1,238
Noncompensation expense
1,857
1,602
1,643
Total noninterest expense
3,327
2,934
2,881
Income before income tax expense
5,554
4,237
3,562
Income tax expense
2,015
1,580
1,371
$ 3,539 $ 2,657 $ 2,191
5,133
3,444
2,581
$ 7,453
$6,885
CB is divided into four primary client segments: Middle
Market Banking, Corporate Client Banking, Commercial
Term Lending, and Real Estate Banking.
Middle Market Banking covers corporate, municipal and
nonprofit clients, with annual revenue generally ranging
between $20 million and $500 million.
Corporate Client Banking covers clients with annual
revenue generally ranging between $500 million and $2
billion and focuses on clients that have broader investment
banking needs.
Commercial Term Lending primarily provides term
financing to real estate investors/owners for multifamily
properties as well as office, retail and industrial properties.
Real Estate Banking provides full-service banking to
investors and developers of institutional-grade real estate
investment properties.
Other primarily includes lending and investment-related
activities within the Community Development Banking
business.
Financial ratios
Return on equity
Overhead ratio
17%
39
16%
39
15%
42
(a) Includes total Firm revenue from investment banking products sold to CB
clients, net of revenue sharing with the CIB.
(b) The 2017 results reflect the impact of the enactment of the TCJA including
a benefit of $115 million on certain investments in the Community
Development Banking business. For additional information related to the
impact of the TCJA, see Note 24.
(c) Represents total Firm revenue from investment banking products sold to CB
clients.
(d) Certain clients were transferred from Middle Market Banking to Corporate
Client Banking in the second quarter of 2017. The prior period amounts
have been revised to conform with the current period presentation.
JPMorgan Chase & Co./2017 Annual Report
Selected metrics
As of or for the year ended
Selected metrics
December 31, (in millions,
except headcount)
2017
2016
2015
As of or for the year ended
December 31, (in millions, except
ratios)
$8,605
2,797
revenue
362
805
785
730
262
76
145
$8,605
$7,453
$6,885
$2,286
$ 2,179
Investment banking revenue, gross (c) $2,327
Revenue by client segment
Middle Market Banking(d)
$3,341
$ 2,848
$ 2,685
Corporate Client Banking(d)
Commercial Term Lending
2,727
2,429
2,205
1,454
1,408
1,275
Real Estate Banking
Other(b)
604
456
358
479
312
Total Commercial Banking net
6,083
Net interest income
2,365
Europe/Middle East/Africa
Asia/Pacific
$ 11,328 $ 10,786 $ 10,894
4,525
4,915
4,901
Latin America/Caribbean
1,125
1,225
1,096
Total international net revenue
North America
16,978
16,926
16,891
17,515
18,290
16,651
Total net revenue
Loans retained (period-end) (a)
Europe/Middle East/Africa
$ 34,493 $ 35,216 $ 33,542
$ 25,931 $ 26,696 $ 24,622
Asia/Pacific
15,248
14,508
17,108
Latin America/Caribbean
6,546
7,607
Total international loans
2015
47,725
2016
Total net revenue (a)
Trade finance loans (period-end)
2017
2016
2015
$
13,043 $
12,166 $
12,042
7,863
6,428
6,194
2,563
1,926
1,707
$
23,469 $
$
408,911 $
20,520
376,287 $
$
19,943
395,297
17,947
15,923
19,255
(a) Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts.
(b) Client deposits and other third party liabilities pertain to the Treasury Services and Securities Services businesses.
International metrics
Year ended December 31,
(in millions, except where
otherwise noted)
2017
48,811
8,609
50,339
North America
(b) Client deposits and other third party liabilities pertain to the Treasury
Services and Securities Services businesses.
99
66
JPMorgan Chase & Co./2017 Annual Report
COMMERCIAL BANKING
Commercial Banking delivers extensive industry
knowledge, local expertise and dedicated service to
U.S. and U.S. multinational clients, including
corporations, municipalities, financial institutions and
nonprofit entities with annual revenue generally
ranging from $20 million to $2 billion. In addition, CB
provides financing to real estate investors and owners.
Partnering with the Firm's other businesses, CB
provides comprehensive financial solutions, including
lending, treasury services, investment banking and
asset management to meet its clients' domestic and
international financial needs.
Selected income statement data
Asset management, administration
and commissions
All other income(a)
2017
2016
2015
$ 944
Year ended December 31,
(in millions)
Revenue
Lending- and deposit-related fees
919
$ 917
68
69
88
1,535
1,334
1,333
Noninterest revenue
2,522
2,320
(a) Total net revenue is based predominantly on the domicile of the client or
location of the trading desk, as applicable. Loans outstanding (excluding
loans held-for-sale and loans at fair value), client deposits and other third-
party liabilities, and AUC are based predominantly on the domicile of the
client.
$ 23,469 $ 20,520 $ 19,943
8,230
$ 13,971 $ 12,290 $ 12,034
9,498
7,909
61,040
63,061
56,569
Total loans retained
$108,765
$111,872 $ 106,908
Client deposits and other third-
party liabilities (average)(a)(b)
Europe/Middle East/Africa
Asia/Pacific
Latin America/Caribbean
$154,582
$135,979 $ 141,062
76,744
2017
68,110
25,419
22,914
23,070
Total international
North America
Total client deposits and other
third-party liabilities
AUC (period-end) (in billions) (a)
North America
All other regions
Total AUC
$256,745 $227,003 $ 231,243
152,166 149,284
164,054
$408,911 $376,287 $ 395,297
67,111
2016
2015
Selected balance sheet data
Noninterest revenue
2017
2016
2015
$ 8,946 $ 8,414
$ 9,175
593
598
9,539
9,012
Net interest income
3,379
3,033
Total net revenue
12,918
12,045
388
9,563
2,556
12,119
Provision for credit losses
39
26
4
Noninterest expense
Compensation expense
5,318
5,065
5,113
Noncompensation expense
3,983
3,413
All other income
3,773
and commissions
Revenue
34,497
73,428
66,700
58,138
16,525
13,063
9,917
Other
6,648
5,632
4,995
Total Commercial Banking
loans
$ 198,112
$ 179,393 $ 157,881
Headcount
9,005
8,365
7,845
(a) Certain clients were transferred from Middle Market Banking to Corporate
Client Banking in the second quarter of 2017. The prior period amounts
have been revised to conform with the current period presentation.
JPMorgan Chase & Co./2017 Annual Report
69
69
Management's discussion and analysis
ASSET & WEALTH MANAGEMENT
Asset & Wealth Management, with client assets of $2.8
trillion, is a global leader in investment and wealth
management. AWM clients include institutions, high-
net-worth individuals and retail investors in many
major markets throughout the world. AWM offers
investment management across most major asset
classes including equities, fixed income, alternatives
and money market funds. AWM also offers multi-asset
investment management, providing solutions for a
broad range of clients' investment needs. For Wealth
Management clients, AWM also provides retirement
products and services, brokerage and banking services
including trusts and estates, loans, mortgages and
deposits. The majority of AWM's client assets are in
actively managed portfolios.
Selected income statement data
Year ended December 31,
(in millions, except ratios
and headcount)
Asset management, administration
Total noninterest expense
9,301
8,478
Wealth Management
30
28
22
Asset & Wealth Management
28
29
27
Headcount
22,975
21,082 20,975
Number of Wealth Management
client advisors
2,605
2,504
2,778
$ 12,045 $12,119
2017 compared with 2016
Net income was $2.3 billion, an increase of 4% compared
with the prior year, reflecting higher revenue and a tax
benefit resulting from the vesting of employee share-based
awards, offset by higher noninterest expense.
Net revenue was $12.9 billion, an increase of 7%. Net
interest income was $3.4 billion, up 11%, driven by higher
deposit spreads. Noninterest revenue was $9.5 billion, up
6%, driven by higher market levels, partially offset by the
absence of a gain in the prior year on the disposal of an
asset.
Revenue from Asset Management was $6.3 billion, up 6%
from the prior year, driven by higher market levels, partially
offset by the absence of a gain in prior year on the disposal
of an asset. Revenue from Wealth Management was $6.6
billion, up 8% from the prior year, reflecting higher net
interest income from higher deposit spreads.
Noninterest expense was $9.3 billion, an increase of 10%,
predominantly driven by higher legal expense and
compensation expense on higher revenue and headcount.
2016 compared with 2015
Net income was $2.3 billion, a decrease of 16% compared
with the prior year, reflecting lower noninterest expense,
predominantly offset by lower net revenue.
Net revenue was $12.0 billion, a decrease of 1%. Net
interest income was $3.0 billion, up 19%, driven by higher
loan balances and spreads. Noninterest revenue was $9.0
billion, a decrease of 6%, reflecting the impact of lower
average equity market levels, a reduction in revenue related
to the disposal of assets at the beginning of 2016, and
lower performance fees and placement fees.
Revenue from Asset Management was $6.0 billion, down
5% from the prior year, driven by a reduction in revenue
related to the disposal of assets at the beginning of 2016,
the impact of lower average equity market levels and lower
performance fees. Revenue from Wealth Management was
$6.1 billion, up 4% from the prior year, reflecting higher
net interest income from higher deposit and loan spreads
and continued loan growth, partially offset by the impact of
lower average equity market levels and lower placement
fees.
Noninterest expense was $8.5 billion, a decrease of 5%,
predominantly due to a reduction in expense related to the
disposal of assets at the beginning of 2016 and lower legal
expense.
70
JPMorgan Chase & Co./2017 Annual Report
31
31
25
Asset Management
8,886
Income before income tax expense
3,578
3,541
Income tax expense
1,241
1,290
3,229
1,294
Net income
$ 2,337
$ 2,251
$ 1,935
Revenue by line of business
Asset Management
41,756
Wealth Management
6,075
$ 6,301
5,818
Total net revenue
$12,918
Financial ratios
Return on common equity
25%
24%
21%
Overhead ratio
72
70
73
Pre-tax margin ratio:
$ 6,340 $ 5,970
6,578
Client deposits and other third party liabilities (average)(b)
46,037
Commercial Term Lending
Real Estate Banking
1,149
393
Core loans
Equity
203,469
20,000
188,673
16,000
166,939
14,000
Assets acquired in loan
satisfactions
3
1
8
Period-end loans by client
segment
Total nonperforming assets
Allowance for credit losses:
620
1,150
401
Middle Market Banking (a)
$ 56,965
$ 53,929 $ 50,501
Corporate Client Banking (a)
46,963
43,027
37,709
Commercial Term Lending
74,901
71,249
62,860
Allowance for loan losses
Allowance for lending-related
commitments
617
2,558
-- 18
$ 167,641
Credit data and quality statistics
(period-end)
Net charge-offs/(recoveries)
$
39
$ 163
$
21
Total assets
$ 221,228 $ 214,341 $ 200,700
Nonperforming assets
Loans:
Nonaccrual loans:
Loans retained
202,400
188,261
167,374
Nonaccrual loans retained(a)
1,149
375
Loans held-for-sale and
Nonaccrual loans held-for-sale
loans at fair value
1,286
734
267
Total loans
$ 203,686
$ 188,995
and loans at fair value
Total nonaccrual loans
2,925
2,855
300
Loans:
Loans retained
197,203
178,670
157,389
Loans held-for-sale and
(a) Allowance for loan losses of $92 million, $155 million and $64 million was
held against nonaccrual loans retained at December 31, 2017, 2016 and
2015, respectively.
loans at fair value
909
Total loans
$ 198,112
Core loans
197,846
723
$ 179,393
178,875
492
$ 157,881
156,975
(b) Loans held-for-sale and loans at fair value were excluded when calculating
the net charge-off/(recovery) rate.
Client deposits and other
third-party liabilities
177,018
174,396
191,529
Equity
20,000
16,000
14,000
Average loans by client
segment
Middle Market Banking (a)
Corporate Client Banking(a)
Total assets
0.23
0.61
0.30
248
198
Real Estate Banking
Other
17,796
14,722
11,234
Total allowance for credit losses
2,858
3,173
3,053
7,061
6,068
5,337
Total Commercial Banking
loans
$ 55,474 $ 52,242 $ 50,334
Selected balance sheet data
(average)
Net charge-off/(recovery) rate (b)
Allowance for loan losses to
period-end loans retained
0.02%
0.09%
0.01%
1.26
1.55
1.71
Allowance for loan losses to
nonaccrual loans retained(a)
415
255
761
$ 217,047 $ 207,532 $ 198,076
Nonaccrual loans to period-end
total loans
$ 203,686 $ 188,995 $ 167,641
Total AUC
4,520
Equity
Credit data and quality
statistics
Assets
$ 826,384 $803,511
$ 748,691
Net charge-offs/
(recoveries)
$
71
$
168
$
(19)
Loans:
Nonperforming assets:
Loans retained(a)
108,765
111,872
106,908
Nonaccrual loans:
Loans held-for-sale and
loans at fair value
4,321
Total loans
113,086
3,781
115,653
3,698
Nonaccrual loans
2015
2016
2017
(in millions, except ratios)
Net revenue was $34.5 billion, down 2%.
Banking revenue was $12.3 billion, up 14% compared with
the prior year. Investment banking revenue was $6.7 billion,
up 12% from the prior year, driven by higher debt and
equity underwriting fees. The Firm maintained its #1
ranking for Global Investment Banking fees, according to
Dealogic. Debt underwriting fees were $3.6 billion, up 16%
driven by a higher share of fees and an overall increase in
industry-wide fees; the Firm maintained its #1 ranking
globally in fees across high-grade, high-yield, and loan
products. Equity underwriting fees were $1.4 billion, up
20% driven by growth in industry-wide issuance including a
strong IPO market; the Firm ranked #2 in equity
underwriting fees globally. Advisory fees were $2.2 billion,
up 2%; the Firm maintained its #2 ranking for M&A.
Treasury Services revenue was $4.2 billion, up 15%, driven
by the impact of higher interest rates and growth in
operating deposits. Lending revenue was $1.4 billion, up
62
62
JPMorgan Chase & Co./2017 Annual Report
18% from the prior year, reflecting lower fair value losses
on hedges of accrual loans.
Markets & Investor Services revenue was $22.2 billion,
down 9% from the prior year. Fixed Income Markets
revenue was $12.8 billion, down 16%, as lower revenue
across products was driven by sustained low volatility,
tighter credit spreads, and the impact from the TCJA on tax-
oriented investments of $259 million, against a strong prior
year. Equity Markets revenue was $5.7 billion, down 1%
from the prior year, and included a fair value loss of $143
million on a margin loan to a single client. Excluding the fair
value loss, Equity Markets revenue was higher driven by
higher revenue in Prime Services and Cash Equities,
partially offset by lower revenue in derivatives. Securities
Services revenue was $3.9 billion, up 9%, driven by the
impact of higher interest rates and deposit growth, as well
as higher asset-based fees driven by higher market levels.
Credit Adjustments & Other was a loss of $228 million,
driven by valuation adjustments.
The provision for credit losses was a benefit of $45 million,
which included a net reduction in the allowance for credit
losses driven by the Oil & Gas and Metals & Mining
portfolios partially offset by a net increase in the allowance
for credit losses for a single client. The prior year was an
expense of $563 million, which included an addition to the
allowance for credit losses driven by the Oil & Gas and
Metals & Mining portfolios.
Noninterest expense was $19.2 billion, up 1% compared
with the prior year.
2016 compared with 2015
Net income was $10.8 billion, up 34% compared with the
prior year, driven by lower noninterest expense and higher
net revenue, partially offset by a higher provision for credit
losses.
Banking revenue was $10.8 billion, down 6% compared
with the prior year. Investment banking revenue was $6.0
billion, down 7% from the prior year, largely driven by
lower equity underwriting fees. The Firm maintained its #1
ranking for Global Investment Banking fees, according to
Dealogic. Equity underwriting fees were $1.2 billion, down
19% driven by lower industry-wide fee levels; however, the
Firm improved its market share and maintained its #1
ranking in equity underwriting fees globally as well as in
both North America and Europe and its #1 ranking by
volumes across all products, according to Dealogic. Advisory
fees were $2.1 billion, down 1%; the Firm maintained its
#2 ranking for M&A, according to Dealogic. Debt
underwriting fees were $3.2 billion; the Firm maintained its
#1 ranking globally in fees across high grade, high yield,
and loan products, according to Dealogic. Treasury Services
revenue was $3.6 billion. Lending revenue was $1.2 billion,
down 17% from the prior year, reflecting fair value losses
on hedges of accrual loans.
retained(a)
Markets & Investor Services revenue was $24.4 billion, up
11% from the prior year. Fixed Income Markets revenue
was $15.3 billion, up 21% from the prior year, driven by
broad strength across products. Rates performance was
strong, with increased client activity driven by high
issuance-based flows, global political developments, and
central bank actions. Credit and Securitized Products
revenue improved driven by higher market-making revenue
from the secondary market as clients' risk appetite
recovered, and due to increased financing activity. Equity
Markets revenue was $5.7 billion, up 1%, compared to a
strong prior-year. Securities Services revenue was $3.6
billion, down 5% from the prior year, largely driven by
lower fees and commissions. Credit Adjustments and Other
was a loss of $175 million driven by valuation adjustments,
compared with an $11 million gain in the prior-year, which
included funding spread gains on fair value option elected
liabilities.
Noninterest expense was $19.0 billion, down 11%
compared with the prior year, driven by lower legal and
compensation expenses.
JPMorgan Chase & Co./2017 Annual Report
63
Management's discussion and analysis
Selected metrics
As of or for the year ended
December 31,
(in millions, except headcount)
Selected balance sheet data
(period-end)
Selected metrics
As of or for the year ended
December 31,
2017
2016
2015
The provision for credit losses was $563 million, compared
to $332 million in the prior year, reflecting a higher
allowance for credit losses, including the impact of select
downgrades within the Oil & Gas portfolio.
Net income was $10.8 billion, flat compared with the prior
year, reflecting lower net revenue and higher noninterest
expense, offset by a lower provision for credit losses, and a
tax benefit resulting from the vesting of employee share-
based awards. The current year included a $141 million
benefit to net income as a result of the enactment of the
TCJA.
812
428
Total nonperforming
Trading assets-derivative
assets
1,027
878
704
receivables
56,466
63,387
67,263
Allowance for credit losses:
Loans:
Allowance for loan
Loans retained(a)
108,368
111,082
98,331
losses
1,379
1,420
1,258
Loans held-for-sale and
Allowance for lending-
loans at fair value
4,995
3,812
Total loans
302,514
300,606
342,124
62
110,606
Nonaccrual loans held-
Core loans
112,754
115,243
Equity
70,000
64,000
110,084
62,000
for-sale and loans at
fair value
109
10
Selected balance sheet data
(average)
467
Total nonaccrual loans
576
438
Derivative receivables
130
223
204
Assets
$857,060
$ 815,321 $824,208
Trading assets-debt and equity
instruments
Assets acquired in loan
satisfactions
85
79
812
113,363
2017 compared with 2016
Total net revenue
Noninterest revenue
24,375
24,325
4,467
1,012
23,693
Net interest income
10,118
10,891
Total net revenue (a)(b)
34,493
35,216
9,849
33,542
Provision for credit losses
(45)
563
332
Noninterest expense
Compensation expense
9,535
9,546
Noncompensation expense
9,708
9,446
Total noninterest expense
19,243
18,992
9,973
11,388
21,361
Income before income tax
1,169
572
All other income
4,062
Mortgage servicing-related matters
The Firm has resolved the majority of the consent orders and
settlements into which it entered with federal and state
governmental agencies and private parties related to
mortgage servicing, origination, and residential mortgage-
backed securities activities. On January 12, 2018, the Board
of Governors of the Federal Reserve System terminated its
mortgage servicing-related Consent Order with the Firm,
which had been outstanding since April 2011.
Some of the remaining obligations are overseen by an
independent reviewer, who publishes periodic reports
detailing the Firm's compliance with the obligations.
JPMorgan Chase & Co./2017 Annual Report
61
52
Management's discussion and analysis
CORPORATE & INVESTMENT BANK
The Corporate & Investment Bank, which consists of
Banking and Markets & Investor Services, offers a
broad suite of investment banking, market-making,
prime brokerage, and treasury and securities products
and services to a global client base of corporations,
investors, financial institutions, government and
municipal entities. Banking offers a full range of
investment banking products and services in all major
capital markets, including advising on corporate
strategy and structure, capital-raising in equity and
debt markets, as well as loan origination and
syndication. Banking also includes Treasury Services,
which provides transaction services, consisting of cash
management and liquidity solutions. Markets &
Investor Services is a global market-maker in cash
securities and derivative instruments, and also offers
sophisticated risk management solutions, prime
brokerage, and research. Markets & Investor Services
also includes Securities Services, a leading global
custodian which provides custody, fund accounting and
administration, and securities lending products
principally for asset managers, insurance companies
and public and private investment funds.
Selected income statement data
2017
2016
2015
expense
Year ended December 31,
Revenue
Investment banking fees
$ 7,192
Principal transactions
10,873
11,089
Lending- and deposit-related fees
1,531
1,581
$ 6,424 $ 6,736
9,905
1,573
Asset management,
administration and commissions
4,207
(in millions)
(a) Consists primarily of credit valuation adjustments ("CVA") managed
centrally within CIB, funding valuation adjustments ("FVA”) and debit
valuation adjustments ("DVA") on derivatives. Results are primarily
reported in principal transactions revenue. Results are presented net of
associated hedging activities and net of CVA and FVA amounts allocated to
Fixed Income Markets and Equity Markets. For additional information, see
Accounting and Reporting Developments on pages 141-144 and Notes
2, 3 and 23.
15,295
4,482
1,208
1,461
Total Banking
12,289
10,801
11,468
Other(a)
12,812
15,259
12,592
Equity Markets
5,703
5,740
5,694
Securities Services
3,917
3,591
3,777
Credit Adjustments & Other(a)
(228)
(175)
11
Total Markets & Investor
Services
22,204
$34,493
24,415
$35,216 $33,542
22,074
1,429
Lending
3,631
3,643
15,661
4,846
11,849
3,759
Net income(a)
$ 10,813 $ 10,815 $ 8,090
(a) The full year 2017 results reflect the impact of the enactment of the TCJA
including a decrease to net revenue of $259 million and a benefit to net
income of $141 million. For additional information related to the impact of
the TCJA, see Note 24.
(b) Included tax-equivalent adjustments, predominantly due to income tax
credits related to alternative energy investments; income tax credits and
amortization of the cost of investments in affordable housing projects; and
tax-exempt income from municipal bonds of $2.4 billion, $2.0 billion and
$1.7 billion for the years ended December 31, 2017, 2016 and 2015,
respectively.
Selected income statement data
Year ended December 31,
(in millions, except ratios)
Financial ratios
Return on equity
Overhead ratio
2017
2016
2015
14%
Income tax expense
16%
56
54
64
Compensation expense as
percentage of total net
28
27
30
revenue
Revenue by business
Investment Banking
Treasury Services
$ 6,688
$ 5,950
$ 6,376
4,172
12%
114,894
Fixed Income Markets
113,006
8.1%
#1
7.9%
#1
7.8%
(a) Source: Dealogic as of January 1, 2018. Reflects the ranking of revenue wallet and market share.
(b) Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities ("ABS") and mortgage-backed securities ("MBS");
and exclude money market, short-term debt, and U.S. municipal securities.
(c) Global equity and equity-related ranking includes rights offerings and Chinese A-Shares.
(d) Global M&A reflect the removal of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S.
(e) Global investment banking fees exclude money market, short-term debt and shelf deals.
Markets revenue
The following table summarizes select income statement
data for the Markets businesses. Markets includes both
Fixed Income Markets and Equity Markets. Markets revenue
consists of principal transactions, fees, commissions and
other income, as well as net interest income. The Firm
assesses its Markets business performance on a total
revenue basis, as offsets may occur across revenue line
items. For example, securities that generate net interest
income may be risk-managed by derivatives that are
recorded in principal transactions. For a description of the
composition of these income statement line items, see
Notes 6 and 7.
Principal transactions reflects revenue on financial
instruments and commodities transactions that arise from
client-driven market making activity. Principal transactions
revenue includes amounts recognized upon executing new
transactions with market participants, as well as "inventory-
related revenue", which is revenue recognized from gains
and losses on derivatives and other instruments that the
Firm has been holding in anticipation of, or in response to,
client demand, and changes in the fair value of instruments
used by the Firm to actively manage the risk exposure
arising from such inventory. Principal transactions revenue
recognized upon executing new transactions with market
participants is driven by many factors including the level of
client activity, the bid-offer spread (which is the difference
between the price at which a market participant is willing to
sell an instrument to the Firm and the price at which
another market participant is willing to buy it from the
Firm, and vice versa), market liquidity and volatility. These
factors are interrelated and sensitive to the same factors
that drive inventory-related revenue, which include general
market conditions, such as interest rates, foreign exchange
rates, credit spreads, and equity and commodity prices, as
well as other macroeconomic conditions.
For the periods presented below, the predominant source of
principal transactions revenue was the amount recognized
upon executing new transactions.
2017
2016
2015
Year ended December 31,
Fixed
(in millions, except where
otherwise noted)
Income
Markets
Principal transactions
$
Lending- and deposit-related fees
Equity
Markets
7,393 $ 3,855 $ 11,248 $
191
6
197
Total
Markets
Fixed
Income
Markets
#1
10.8
2
11.9
1
11.7
2
7.1
1
11.7
2
8.6
2
9.2
2 2
6.9
11.3
Equity
Markets
8.3
8.4
9.8
2
9.9
1
9.5
1
9.3
1
7.5
1
11.3
2
2
11.1
Total
Markets
Markets
9,969
5,290
$ 15,259 $
4,696
1,044
5,740 $
14,665
6,334
8,330
4,658
12,988
20,999
$
4,262
1,036
12,592 $ 5,694 $
5,298
18,286
Loss days (b)
4
0
2
(a) Declines in Markets net interest income in 2017 were driven by higher funding costs.
(b) Loss days represent the number of days for which Markets posted losses. The loss days determined under this measure differ from the disclosure of daily market risk-related gains and losses
for the Firm in the value-at-risk ("VaR") back-testing discussion on pages 123-125.
JPMorgan Chase & Co./2017 Annual Report
65
Management's discussion and analysis
Selected metrics
As of or for the year ended
December 31,
(in millions, except where otherwise noted)
Assets under custody ("AUC") by asset class (period-end) (in billions):
Fixed Income
Core loans
770
(84)
854
1,027
Equity
Markets
Total
Markets
8,347 $ 3,130 $ 11,477
220
222
$ 6,899 $ 3,038 $ 9,937
2
194
194
administration and commissions
390
All other income
436
Noninterest revenue
8,410
Fixed
Income
1,635
(21)
5,475
388
1,551
1,939
383
1,704
2,087
Net interest income (a)
4,402
Total net revenue
$ 12,812 $
415
13,885
228
4,630
5,703 $ 18,515
1,014
13
2,025
2
Asset management,
2
excluding trade finance
and conduits (c)
1.92
1.86
1.88
Allowance for loan losses to
nonaccrual loans
retained(a)
170
304
294
Nonaccrual loans to total
period-end loans
0.72
0.50
0.40
Investment banking fees
(a) Allowance for loan losses of $316 million, $113 million and $177
million were held against these nonaccrual loans at December 31,
2017, 2016 and 2015, respectively.
(b) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
(c) Management uses allowance for loan losses to period-end loans
retained, excluding trade finance and conduits, a non-GAAP financial
measure, to provide a more meaningful assessment of CIB's allowance
coverage ratio.
Year ended December 31,
(in millions)
Advisory
Equity underwriting
2017
2016
2015
period-end loans retained,
Allowance for loan losses to
1.18
1.27
114,455
10.9
4,572
102,903
102,142
related commitments
727
801
569
Total allowance for credit
losses
2,106
2,221
1,827
Net charge-off/(recovery)
$
Equity
64,000
62,000
rate(b)
0.07%
0.15%
(0.02)%
Headcount
51,181
48,748
49,067
Allowance for loan losses to
period-end loans
(a) Loans retained includes credit portfolio loans, loans held by consolidated
Firm-administered multi-seller conduits, trade finance loans, other held-for-
investment loans and overdrafts.
retained
70,000
2,150 $
1.27
2,110 $
1,159
Loan syndications
Global
U.S.
Global investment banking fees (e)
2017
2016
2015
Rank Share
Rank Share
Rank Share
#1
7.4%
#1
U.S.
#1
1
11.2
1
11.9
1
11.5
1
7.6
1
6.7
1,396
1
8.1
7.6%
Global
7.0%
7,192 $
M&A(d)
3,646
3,155
3,169
Total investment banking fees
(a) Includes loans syndication.
$
6,424
$
6,736
64
Debt underwriting (a)
1,434
JPMorgan Chase & Co./2017 Annual Report
442
Year ended
December 31,
U.S.
Global(c)
Equity and equity-related
U.S.
League table results - wallet share
Global
Long-term debt(b)
U.S.
Global
Debt, equity and equity-related
Based on fees(a)
2,133
1,589
2,182
Headcount
35,261
32,358
1,653
$
(493)
760
267
2017 compared with 2016
Net loss was $1.6 billion, compared with a net loss of $704
million in the prior year. The current year net loss included
a $2.7 billion increase to income tax expense related to the
impact of the TCJA.
Net revenue was $1.1 billion, compared with a loss of $487
million in the prior year. The increase in current year net
revenue was driven by a $645 million benefit from a legal
settlement with the FDIC receivership for Washington
Mutual and with Deutsche Bank as trustee of certain
Washington Mutual trusts and by the net impact of higher
interest rates.
Core loans(d)
Net interest income was $55 million, compared with a loss
of $1.4 billion in the prior year. The gain in the current year
was primarily driven by higher interest income on deposits
with banks due to higher interest rates and balances,
partially offset by higher interest expense on long-term
debt primarily driven by higher interest rates.
2016 compared with 2015
29,617
2,187
(715)
11
1,653
1,140
Net loss was $704 million, compared with net income of
$2.4 billion in the prior year.
Total net revenue
Net income/(loss)
Treasury and CIO
Other Corporate
$
(787)
300
(487) $
60
(1,703)
(235)
2,672
Total net income/(loss)
$ (1,643) $ (704) $
2,437
Total assets (period-end)
$781,478
$ 799,426 $ 768,204
Loans (period-end)
1,592
Net revenue was a loss of $487 million, compared with a
gain of $267 million in the prior year. The prior year
included a $514 million benefit from a legal settlement.
50,044
The prior year reflected tax benefits of $2.6 billion
predominantly from the resolution of various tax audits.
132 $
190
219,345
226,892 264,758
47,927
51,358
Investment securities portfolio
(average)
267,272
278,250 314,802
200,247
236,670
50,168
574
238,704
47,733
(78) $
Net interest income was a loss of $1.4 billion, compared
with a loss of $533 million in the prior year. The loss in the
current year was primarily driven by higher interest
expense on long-term debt and lower investment securities
balances during the year, partially offset by higher interest
income on deposits with banks and securities purchased
under resale agreements as a result of higher interest rates.
Noninterest expense was $462 million, a decrease of $515
million from the prior year driven by lower legal expense,
partially offset by higher compensation expense.
$
2016
(a) Included revenue related to a legal settlement of $645 million for the year
ended December 31, 2017.
(b) Included tax-equivalent adjustments, predominantly due to tax-exempt
income from municipal bond investments of $905 million, $885 million
and $839 million for the years ended December 31, 2017, 2016 and
2015, respectively.
(c) Included legal expense/(benefit) of $(593) million, $(385) million and
$832 million for the years ended December 31, 2017, 2016 and 2015,
respectively.
(d) Average core loans were $1.6 billion, $1.9 billion and $2.5 billion for the
years ended December 31, 2017, 2016 and 2015, respectively.
JPMorgan Chase & Co./2017 Annual Report
73
Management's discussion and analysis
Treasury and CIO overview
Treasury and CIO is predominantly responsible for
measuring, monitoring, reporting and managing the Firm's
liquidity, funding and structural interest rate and foreign
exchange risks, as well as executing the Firm's capital plan.
The risks managed by Treasury and CIO arise from the
activities undertaken by the Firm's four major reportable
business segments to serve their respective client bases,
which generate both on- and off-balance sheet assets and
liabilities.
Treasury and CIO seek to achieve the Firm's asset-liability
management objectives generally by investing in high-
quality securities that are managed for the longer-term as
part of the Firm's investment securities portfolio. Treasury
and CIO also use derivatives to meet the Firm's asset-
liability management objectives. For further information on
derivatives, see Note 5. The investment securities portfolio
primarily consists of agency and nonagency mortgage-
backed securities, U.S. and non-U.S. government securities,
obligations of U.S. states and municipalities, other ABS and
corporate debt securities. At December 31, 2017, the
investment securities portfolio was $248.0 billion, and the
average credit rating of the securities comprising the
portfolio was AA+ (based upon external ratings where
available and where not available, based primarily upon
internal ratings that correspond to ratings as defined by
S&P and Moody's). See Note 10 for further information on
the details of the Firm's investment securities portfolio.
For further information on liquidity and funding risk, see
Liquidity Risk Management on pages 92-97. For
information on interest rate, foreign exchange and other
risks, see Market Risk Management on pages 121-128.
Selected income statement and balance sheet data
As of or for the year ended
December 31, (in millions)
Securities gains/(losses)
AFS investment securities
(average)
HTM investment securities
(average)
2017
2015
Other Corporate
1,803
Treasury and CIO
12
(a) Regional revenue is based on the domicile of the client.
JPMorgan Chase & Co./2017 Annual Report
CORPORATE
The Corporate segment consists of Treasury and Chief
Investment Office and Other Corporate, which includes
corporate staff units and expense that is centrally
managed. Treasury and CIO is predominantly
responsible for measuring, monitoring, reporting and
managing the Firm's liquidity, funding and structural
interest rate and foreign exchange risks, as well as
executing the Firm's capital plan. The major Other
Corporate units include Real Estate, Enterprise
Technology, Legal, Finance, Human Resources, Internal
Audit, Risk Management, Compliance, Oversight &
Controls, Corporate Responsibility and various Other
Corporate groups.
Selected income statement data
Year ended December 31,
(in millions, except headcount)
2017
2016
2015
Revenue
Principal transactions
284 $
210 $
72
Securities gains/(losses)
2,350
$
173
49,073
177
Latin America/Caribbean
154
114
110
Total international client assets
820
650
634
North America
Total client assets
1,969
1,716
2,789 $ 2,453 $
566
(66)
41
190
501
462
977
Income/(loss) before income
tax benefit
639
(945)
Income tax expense/(benefit)
2,282
(241)
Net income/(loss)
$ (1,643) $
(704) $
(700)
(3,137)
2,437
Total net revenue
Noninterest expense (c)
140
(10)
Provision for credit losses
All other income/(loss) (a)
867
588
569
Noninterest revenue
1,085
938
Net interest income
55
(1,425)
800
(533)
Total net revenue (b)
1,140
(487)
267
(4)
Investment securities portfolio
(period-end)
Risk Identification
286,838
Chief Risk
Officer
Asset & Wealth
Management
Risk Committee
Firmwide Capital
Governance
Committee
Firmwide
Head of Human
Resources
Valuation
Firmwide
Asset Liability
Committee
Commercial Banking
Risk Committee
Consumer &
Community Banking
Risk Committee
Corporate &
Investment Bank
Risk Committee
Line of Business Fiduciary Risk Committees (c)
Line of Business Estimations Risk Committees (c)
Governance Forum
Head of
Corporate
Responsibility
Chief Information
Officer
General
Counsel
In addition, there are other functions that contribute to the
firmwide control environment including Finance, Human
Resources, Legal, and Corporate Oversight & Control.
JPMorgan Chase & Co./2017 Annual Report
77
77
Management's discussion and analysis
The independent status of the IRM function is supported by a governance structure that provides for escalation of risk issues to
senior management, the Firmwide Risk Committee, and the Board of Directors, as appropriate.
The chart below illustrates the Board of Directors and key senior management level committees in the Firm's risk governance
structure. In addition, there are other committees, forums and paths of escalation that support the oversight of risk, not shown
in the chart below.
Other Board Committees (a)
Board of Directors
Directors' Risk Policy Committee
Audit Committee
Operating Committee
Chief Executive Officer
Line of
Business CEOs (b)
Chief Financial
Officer
Line of Business Reputation Risk Committees (c)
Line of Business, Corporate Function and Regional Control Committees
Firmwide Risk
Committee
CIO, Treasury &
Corporate
The Firmwide Control Committee ("FCC") provides a forum
for senior management to review and discuss firmwide
operational risks, including existing and emerging issues
and operational risk metrics, and to review operational risk
management execution in the context of the Operational
Risk Management Framework ("ORMF"). The ORMF provides
the framework for the governance, risk identification and
assessment, measurement, monitoring and reporting of
operational risk. The FCC is co-chaired by the Chief Control
Officer and the Firmwide Risk Executive for Operational Risk
Governance. The FCC relies on the prompt escalation of
operational risk and control issues from businesses and
functions as the primary owners of the operational risk.
Operational risk and control issues may be escalated by
business or function control committees to the FCC, which in
turn, may escalate to the FRC, as appropriate.
Among the Firm's senior management-level committees that
are primarily responsible for key risk-related functions are:
The Firmwide Risk Committee ("FRC") is the Firm's highest
management-level risk committee. It provides oversight of
the risks inherent in the Firm's businesses. The FRC is co-
chaired by the Firm's CEO and CRO. The FRC serves as an
escalation point for risk topics and issues raised by its
members, the Line of Business Risk Committees, Firmwide
Control Committee, Firmwide Fiduciary Risk Governance
Committee, Firmwide Estimations Risk Committee, Culture
and Conduct Risk Committee and regional Risk Committees,
as appropriate. The FRC escalates significant issues to the
DRPC, as appropriate.
The Compensation & Management Development Committee
("CMDC") assists the Board in its oversight of the Firm's
compensation programs and reviews and approves the
Firm's overall compensation philosophy, incentive
compensation pools, and compensation practices consistent
with key business objectives and safety and soundness. The
CMDC reviews Operating Committee members' performance
against their goals, and approves their compensation
awards. The CMDC also periodically reviews the Firm's
diversity programs and management development and
succession planning, and provides oversight of the Firm's
culture and conduct programs.
The Audit Committee of the Board assists the Board in its
oversight of management's responsibilities to assure that
there is an effective system of controls reasonably designed
to safeguard the assets and income of the Firm, assure the
integrity of the Firm's financial statements and maintain
compliance with the Firm's ethical standards, policies, plans
and procedures, and with laws and regulations. In addition,
the Audit Committee assists the Board in its oversight of the
Firm's independent registered public accounting firm's
qualifications, independence and performance, and of the
performance of the Firm's Internal Audit function.
JPMorgan Chase & Co./2017 Annual Report
78
The Directors' Risk Policy Committee of the Board oversees
the Firm's global risk management framework and approves
the primary risk management policies of the Firm. The
Committee's responsibilities include oversight of
management's exercise of its responsibility to assess and
manage the Firm's risks, and its capital and liquidity
planning and analysis. Breaches in risk appetite, liquidity
issues that may have a material adverse impact on the Firm
and other significant risk-related matters are escalated to
the DRPC.
The Board of Directors provides oversight of risk principally
through the DRPC, the Audit Committee and, with respect to
compensation and other management-related matters, the
Compensation & Management Development Committee.
Each committee of the Board oversees reputation risk and
conduct risk issues within its scope of responsibility.
The Firm's Operating Committee, which consists of the
Firm's CEO, CRO, CFO and other senior executives, is the
ultimate management escalation point in the Firm and may
refer matters to the Firm's Board of Directors. The
Operating Committee is accountable to the Firm's Board of
Directors.
(d) Each Board committee oversees conduct risk within the scope of its responsibilities.
(a) Other Board Committees include the Compensation & Management Development Committee, Corporate Governance & Nominating Committee and Public Responsibility Committee.
(b) The Line of Business CEOS for CIB and CCB are also the Firm's Co-Presidents and Co-Chief Operating Officers.
(c) As applicable.
Culture and Conduct
Risk Committee (d)
Internal
Audit
225
Committee
The Firmwide Fiduciary Risk Governance Committee
("FFRGC") is a forum for risk matters related to the Firm's
fiduciary activities. The FFRGC oversees the firmwide
fiduciary risk governance framework, which supports the
consistent identification and escalation of fiduciary risk
issues by the relevant lines of business; approves risk or
compliance policy exceptions requiring FFRGC approval;
approves the scope and/or expansion of the Firm's fiduciary
framework; and reviews metrics to track fiduciary activity
and issue resolution Firmwide. The FFRGC is co-chaired by
the Asset Management CEO and the Asset & Wealth
Management CRO. The FFRGC escalates significant fiduciary
issues to the FRC, the DRPC and the Audit Committee, as
appropriate.
The Internal Audit function operates independently from
other parts of the Firm and performs independent testing
and evaluation of firmwide processes and controls across
the entire enterprise as the Firm's "third line of defense" in
managing risk. The Internal Audit Function is headed by the
General Auditor, who reports to the Audit Committee.
The Firmwide Estimations Risk Committee ("FERC") reviews
and oversees governance and execution activities related to
models and certain analytical and judgment based
estimations, such as those used in risk management, budget
forecasting and capital planning and analysis. The FERC is
chaired by the Firmwide Risk Executive for Model Risk
Governance and Review. The FERC serves as an escalation
channel for relevant topics and issues raised by its members
and the Line of Business Estimation Risk Committees. The
FERC escalates significant issues to the FRC, as appropriate.
The Culture and Conduct Risk Committee ("CCRC") provides
oversight of culture and conduct initiatives to develop a
more holistic view of conduct risks and to connect key
programs across the Firm to identify opportunities and
emerging areas for focus. The CCRC is co-chaired by the
Chief Culture & Conduct Officer and the Conduct Risk
Compliance Executive. The CCRC escalates significant issues
to the FRC, as appropriate.
In addition, each line of business and function is required to
have a Control Committee. These control committees
oversee the control environment of their respective
business or function. As part of that mandate, they are
responsible for reviewing data which indicates the quality
and stability of the processes in a business or function,
reviewing key operational risk issues and focusing on
processes with shortcomings and overseeing process
remediation. These committees escalate issues to the FCC,
as appropriate.
Risk Committee
Regional Risk
Committees
Firmwide Fiduciary
Risk Governance
Committee
Firmwide
Estimations Risk
Committee
Firmwide Control
maintains the central repository and reviews and challenges
the first line's identification of risks.
defense, at a firmwide level, establishes the risk
identification framework, coordinates the process,
The Firm has a Risk Identification process in which the first
line of defense identifies material risks inherent to the Firm,
catalogs them in a central repository and reviews the most
material risks on a regular basis. The second line of
In addition, the JPMorgan Chase Bank, N.A. Board of
Directors is responsible for the oversight of management of
the Bank. The JPMorgan Chase Bank, N.A. Board
accomplishes this function acting directly and through the
principal standing committees of the Firm's Board of
Directors. Risk and control oversight on behalf of JPMorgan
Chase Bank N.A. is primarily the responsibility of the DRPC
and the Audit Committee of the Firm's Board of Directors,
respectively, and, with respect to compensation and other
management-related matters, the Compensation &
Management Development Committee of the Firm's Board
of Directors.
The Firmwide Valuation Governance Forum ("VGF") is
composed of senior finance and risk executives and is
responsible for overseeing the management of risks arising
from valuation activities conducted across the Firm. The
VGF is chaired by the Firmwide head of the Valuation
Control Group ("VCG") under the direction of the Firm's
Controller, and includes sub-forums covering the Corporate
& Investment Bank, Consumer & Community Banking,
Commercial Banking, Asset & Wealth Management and
certain corporate functions, including Treasury and CIO.
The Firmwide Capital Governance Committee, chaired by the
Head of the Regulatory Capital Management Office, is
responsible for reviewing the Firm's Capital Management
Policy and the principles underlying capital issuance and
distribution alternatives and decisions. The Committee
oversees the capital adequacy assessment process,
including the overall design, scenario development and
macro assumptions, and ensures that capital stress test
programs are designed to adequately capture the risks
specific to the Firm's businesses.
The Firmwide Asset Liability Committee ("ALCO"), chaired by
the Firm's Treasurer and Chief Investment Officer under the
direction of the CFO, monitors the Firm's balance sheet,
liquidity risk and structural interest rate risk. ALCO reviews
the Firm's overall structural interest rate risk position, and
the Firm's funding requirements and strategy. ALCO is
responsible for reviewing and approving the Firm's Funds
Transfer Pricing Policy (through which lines of business
"transfer" interest rate risk and liquidity risk to Treasury
and CIO), the Firm's Intercompany Funding and Liquidity
Policy and the Firm's Contingency Funding Plan.
Management's discussion and analysis
79
JPMorgan Chase & Co./2017 Annual Report
Line of Business and Regional Risk Committees review the
ways in which the particular line of business or the business
operating in a particular region could be exposed to adverse
outcomes with a focus on identifying, accepting, escalating
and/or requiring remediation of matters brought to these
committees. These committees may escalate to the FRC, as
appropriate. LOB risk committees are co-chaired by the LOB
CEO and the LOB CRO. Each LOB risk committee may create
sub-committees with requirements for escalation. The
regional committees are established similarly, as
appropriate, for the region.
The IRM function is independent of the businesses and
forms "the second line of defense". The IRM function sets
and oversees various standards for the risk governance
framework, including risk policy, identification,
measurement, assessment, testing, limit setting, monitoring
and reporting, and conducts independent challenge of
adherence to such standards.
The Firm places reliance on each of its LOBS and other
functional areas giving rise to risk. Each LOB and other
functional area giving rise to risk is expected to operate
within the parameters identified by the IRM function, and
within its own management-identified risk and control
standards. The LOBS, inclusive of LOB aligned Operations,
Technology and Oversight & Controls, are the "first line of
defense" in identifying and managing the risk in their
activities, including but not limited to applicable laws, rules
and regulations.
The Firm has an Independent Risk Management (“IRM”)
function, which consists of the Risk Management and
Compliance organizations. The CEO appoints, subject to
DRPC approval, the Firm's CRO to lead the IRM organization
and manage the risk governance framework of the Firm.
The framework is subject to approval by the DRPC in the
form of the primary risk management policies. The Chief
Compliance Officer ("CCO"), who reports to the CRO, is also
responsible for reporting to the Audit Committee for the
Global Compliance Program. The Firm's Global Compliance
Program focuses on overseeing compliance with laws, rules
and regulations applicable to the Firm's products and
services to clients and counterparties.
investment portfolio risk.
Market risk is the risk associated with the effect of
changes in market factors, such as interest and foreign
exchange rates, equity and commodity prices, credit
spreads or implied volatilities, on the value of assets and
liabilities held for both the short and long term.
Operational risk is the risk associated with inadequate or
failed internal processes, people and systems, or from
external events and includes compliance risk, conduct
risk, legal risk, and estimations and model risk.
There may be many consequences of risks manifesting,
including quantitative impacts such as reduction in earnings
and capital, liquidity outflows, and fines or penalties, or
qualitative impacts, such as reputation damage, loss of
clients, and regulatory and enforcement actions.
JPMorgan Chase & Co./2017 Annual Report
75
15
Management's discussion and analysis
The Firm has established Firmwide risk management functions to manage different risk types. The scope of a particular risk
management function may include multiple risk types. For example, the Firm's Country Risk Management function oversees
country risk which may be a driver of risk or an aggregation of exposures that could give rise to multiple risk types such as
credit or market risk. The following sections discuss how the Firm manages the key risks that are inherent in its business
activities.
Risk Oversight
Strategic risk
Definition
The risk associated with the Firm's current and future business plans and objectives.
Page
references
81
Capital risk
The risk that the Firm has an insufficient level and composition of capital to support the Firm's business activities and
associated risks during normal economic environments and under stressed conditions.
82-91
Credit and investment risk is the risk associated with the
default or change in credit profile of a client,
counterparty or customer; or loss of principal or a
reduction in expected returns on investments, including
consumer credit risk, wholesale credit risk, and
Liquidity risk
Strategic risk is the risk associated with the Firm's
current and future business plans and objectives,
including capital risk, liquidity risk, and the impact to
the Firm's reputation.
The Firm's risks are generally categorized in the following
four risk types:
287,777
AFS investment securities
(period-end)
HTM investment securities
(period-end)
74
JPMorgan Chase & Co./2017 Annual Report
ENTERPRISE-WIDE RISK MANAGEMENT
Risk is an inherent part of JPMorgan Chase's business
activities. When the Firm extends a consumer or wholesale
loan, advises customers on their investment decisions,
makes markets in securities, or offers other products or
services, the Firm takes on some degree of risk. The Firm's
overall objective is to manage its businesses, and the
associated risks, in a manner that balances serving the
interests of its clients, customers and investors and protects
the safety and soundness of the Firm.
•
The Firm believes that effective risk management requires:
Acceptance of responsibility, including identification and
escalation of risk issues, by all individuals within the
Firm;
•
Ownership of risk identification, assessment, data and
management within each of the lines of business and
corporate functions; and
Firmwide structures for risk governance.
The Firm strives for continual improvement through efforts
to enhance controls, ongoing employee training and
development, talent retention, and other measures. The
Firm follows a disciplined and balanced compensation
framework with strong internal governance and
independent Board oversight. The impact of risk and control
issues are carefully considered in the Firm's performance
evaluation and incentive compensation processes.
Firmwide Risk Management is overseen and managed on an
enterprise-wide basis. The Firm's approach to risk
management involves understanding drivers of risks, risk
types, and impacts of risks.
Drivers of risk include, but are not limited to, the economic
environment, regulatory or government policy, competitor
or market evolution, business decisions, process or
judgment error, deliberate wrongdoing, dysfunctional
markets, and natural disasters.
•
247,980
Reputation risk
92-97
Compliance risk
The risk of failure to comply with applicable laws, rules, and regulations.
134
Conduct risk
The risk that any action or inaction by an employee of the Firm could lead to unfair client/customer outcomes,
compromise the Firm's reputation, impact the integrity of the markets in which the Firm operates, or reflect poorly on
the Firm's culture.
135
Legal risk
The risk of loss primarily caused by the actual or alleged failure to meet legal obligations that arise from the rule of law
in jurisdictions in which the Firm operates, agreements with clients and customers, and products and services offered by
the Firm.
136
Estimations and Model The risk of the potential for adverse consequences from decisions based on incorrect or misused estimation outputs.
risk
137
76
JPMorgan Chase & Co./2017 Annual Report
Governance and oversight
The Firm's overall appetite for risk is governed by a “Risk
Appetite" framework. The framework and the Firm's risk
appetite are set and approved by the Firm's Chief Executive
Officer ("CEO"), Chief Financial Officer ("CFO") and Chief
Risk Officer ("CRO"). LOB-level risk appetite is set by the
respective LOB CEO, CFO and CRO and is approved by the
Firm's CEO, CFO and CRO. Quantitative parameters and
qualitative factors are used to monitor and measure the
Firm's capacity to take risk consistent with its stated risk
appetite. Quantitative parameters have been established to
assess select strategic risks, credit risks and market risks.
Qualitative factors have been established for select
operational risks, and for reputation risks. Risk Appetite
results are reported quarterly to the Board of Directors'
Risk Policy Committee ("DRPC").
131-133
The risk that the Firm will be unable to meet its contractual and contingent financial obligations as they arise or that it
does not have the appropriate amount, composition and tenor of funding and liquidity to support its assets and liabilities.
The potential that an action, inaction, transaction, investment or event will reduce trust in the Firm's integrity or
competence by its various constituents, including clients, counterparties, investors, regulators, employees and the
broader public.
The risk associated with inadequate or failed internal processes, people and systems, or from external events.
129-130
98
Consumer credit risk
The risk associated with the default or change in credit profile of a customer.
Wholesale credit risk
The risk associated with the default or change in credit profile of a client or counterparty.
Investment portfolio
risk
Market risk
The risk associated with the loss of principal or a reduction in expected returns on investments arising from the
investment securities portfolio held by Treasury and CIO in connection with the Firm's balance sheet or asset-liability
management objectives or from principal investments managed in various lines of business in predominantly privately-
held financial assets and instruments.
The risk associated with the effect of changes in market factors, such as interest and foreign exchange rates, equity and
commodity prices, credit spreads or implied volatilities, on the value of assets and liabilities held for both the short and
long term.
102-107
108-116
120
121-128
Country risk
The framework for monitoring and assessing how financial, economic, political or other significant developments
adversely affect the value of the Firm's exposures related to a particular country or set of countries.
Operational risk
351
1,771
441 $
10
4
5
Total allowance for credit
losses
300
278
Allowance for lending-
related commitments
271
0.01%
0.01%
0.01%
Allowance for loan losses to
period-end loans
0.22
0.23
Net charge-off rate
266
274
290
Equity
Credit data and quality
statistics
Net charge-offs
$
14
$
16
$
12
Nonaccrual loans
375
390
218
Allowance for credit losses:
Allowance for loan losses
0.24
Allowance for loan losses to
nonaccrual loans
77
70
Client assets (continued)
Year ended December 31,
(in billions)
2017
2016
2015
Assets under management
rollforward
Beginning balance
Net asset flows:
Liquidity
Fixed income
Equity
Multi-asset and alternatives
Market/performance/other impacts
Ending balance, December 31
Client assets rollforward
Beginning balance
Net asset flows
Market/performance/other impacts
$ 1,771 $
2015
Deposits
2016
Client assets
122
Nonaccrual loans to period-
end loans
0.29
0.33
0.20
(a) Represents the "overall star rating" derived from Morningstar for the U.S.,
the U.K., Luxembourg, Hong Kong and Taiwan domiciled funds; and Nomura
"star rating" for Japan domiciled funds. Includes only Asset Management
retail open-ended mutual funds that have a rating. Excludes money market
funds, Undiscovered Managers Fund, and Brazil domiciled funds.
(b) The prior period amounts have been revised to conform with the current
period presentation.
(c) Quartile ranking sourced from: Lipper for the U.S. and Taiwan domiciled
funds; Morningstar for the U.K., Luxembourg and Hong Kong domiciled
funds; Nomura for Japan domiciled funds and Fund Doctor for South Korea
domiciled funds. Includes only Asset Management retail open-ended mutual
funds that are ranked by the aforementioned sources. Excludes money
market funds, Undiscovered Managers Fund, and Brazil domiciled funds.
71
Management's discussion and analysis
Client assets
2017 compared with 2016
Client assets were $2.8 trillion, an increase of 14%
compared with the prior year. Assets under management
were $2.0 trillion, an increase of 15% from the prior year
reflecting higher market levels, and net inflows into long-
term and liquidity products.
2016 compared with 2015
Client assets were $2.5 trillion, an increase of 4%
compared with the prior year. Assets under management
were $1.8 trillion, an increase of 3% from the prior year
reflecting inflows into both liquidity and long-term products
and the effect of higher market levels, partially offset by
asset sales at the beginning of 2016.
2017
Core loans
Loans
Equity
3 years
Loans
Core loans
Deposits
60%
875
63%
2015
52%
287
80
64
54
62
75
72
1 year
78
quartile:(c)
% of JPM mutual fund assets
rated as 4- or 5-star (a)(b)
Wealth Management offers investment advice and wealth
management, including investment management, capital markets and
risk management, tax and estate planning, banking, lending and
specialty-wealth advisory services.
AWM's client segments consist of the following:
Private Banking clients include high- and ultra-high-net-worth
individuals, families, money managers, business owners and small
corporations worldwide.
Institutional clients include both corporate and public institutions,
endowments, foundations, nonprofit organizations and governments
worldwide.
Retail clients include financial intermediaries and individual investors.
Asset Management has two high-level measures of its
overall fund performance.
•
Percentage of mutual fund assets under management in funds
rated 4- or 5-star: Mutual fund rating services rank funds based on
their risk-adjusted performance over various periods. A 5-star rating
is the best rating and represents the top 10% of industry-wide ranked
funds. A 4-star rating represents the next 22.5% of industry-wide
ranked funds. A 3-star rating represents the next 35% of industry-
wide ranked funds. A 2-star rating represents the next 22.5% of
industry-wide ranked funds. A 1-star rating is the worst rating and
represents the bottom 10% of industry-wide ranked funds. The
"overall Morningstar rating" is derived from a weighted average of the
performance associated with a fund's three-, five- and ten-year (if
applicable) Morningstar Rating metrics. For U.S. domiciled funds,
separate star ratings are given at the individual share class level. The
Nomura "star rating" is based on three-year risk-adjusted
performance only. Funds with fewer than three years of history are
not rated and hence excluded from this analysis. All ratings, the
assigned peer categories and the asset values used to derive this
analysis are sourced from these fund rating providers mentioned in
footnote (a). The data providers re-denominate the asset values into
U.S. dollars. This % of AUM is based on star ratings at the share class
level for U.S. domiciled funds, and at a "primary share class" level to
represent the star rating of all other funds except for Japan where
Nomura provides ratings at the fund level. The "primary share class",
as defined by Morningstar, denotes the share class recommended as
being the best proxy for the portfolio and in most cases will be the
most retail version (based upon annual management charge,
minimum investment, currency and other factors). The performance
data could have been different if all funds/accounts would have been
included. Past performance is not indicative of future results.
• Percentage of mutual fund assets under management in funds
ranked in the 1st or 2nd quartile (one, three and five years): All
quartile rankings, the assigned peer categories and the asset values
used to derive this analysis are sourced from the fund ranking
providers mentioned in footnote (c). Quartile rankings are done on
the net-of-fee absolute return of each fund. The data providers re-
denominate the asset values into U.S. dollars. This % of AUM is based
on fund performance and associated peer rankings at the share class
level for U.S. domiciled funds, at a "primary share class" level to
represent the quartile ranking of the U.K., Luxembourg and Hong Kong
funds and at the fund level for all other funds. The "primary share
class", as defined by Morningstar, denotes the share class
recommended as being the best proxy for the portfolio and in most
cases will be the most retail version (based upon annual management
charge, minimum investment, currency and other factors). Where
peer group rankings given for a fund are in more than one "primary
share class" territory both rankings are included to reflect local
market competitiveness (applies to "Offshore Territories" and "HK SFC
Authorized" funds only). The performance data could have been
different if all funds/accounts would have been included. Past
performance is not indicative of future results.
JPMorgan Chase & Co./2017 Annual Report
Selected metrics
As of or for the year ended
December 31,
(in millions, except ranking
data and ratios)
2017
2016
% of JPM mutual fund assets
ranked in 1st or 2nd
1,723 $ 1,744
5 years(b)
79
Total assets
$144,206
123,464
$ 132,875
$ 129,743
112,876
107,418
123,464
112,876
107,418
148,982
153,334
149,525
9,000
9,000
9,000
Selected balance sheet data
(average)
83
9,000
9,000
79
Selected balance sheet data
(period-end)
Total assets
$151,909
$ 138,384
$ 131,451
130,640
118,039
111,007
130,640
118,039
111,007
146,407
161,577
146,766
9,000
359 $
9
36
816
Assets under management
Retail
540
467
470
869
Total assets under management $
1,771 $
1,723
Europe/Middle East/Africa
Asia/Pacific
$
384 $ 309 $ 302
160
2,034 $
968
Institutional
437
$
166 $
154 $
172
North America
8,891
8,393
8,248
Assets by client segment
Total net revenue
$ 12,918 $ 12,045 $ 12,119
Private Banking
$
526 $
435 $
123
123
Latin America/Caribbean
61
North America
2,350
1,429
1,294
1,253
Total assets under management
$
2,034 $
1,771 $
1,723
(a) The prior period amounts have been revised to conform with the current
period presentation.
Client assets
(b) Represents assets under management, as well as client balances in
brokerage accounts.
Europe/Middle East/Africa
Asia/Pacific
$
476
Alternatives client assets (b)
470
605
45
45
Private Banking
$
1,256 $
1,098 $ 1,050
Institutional
990
Retail
Total client assets
$
543
2,789 $
886
469
2,453 $
824
Total international assets under
management
477
3,871
3,652
4,027
27
243
40
(64)
December 31,
(in billions)
Assets by asset class
Ending balance, December 31
$
2,789 $ 2,453 $ 2,350
Liquidity(a)
$
459 $
436 $ 430
Fixed income(a)
2,387
474
2,350 $
63
$ 2,453 $
30
(8)
(11)
(29)
1
43
22
22
186
1
(36)
$
2,034 $
1,771 $
1,723
93
24
420
International metrics
682
627
Total net revenue (in millions) (a)
Europe/Middle East/Africa
$ 2,021 $
Total client assets
$ 2,789 $
2,453 $ 2,350
Asia/Pacific
Latin America/Caribbean
1,162
844
1,849 $ 1,946
1,077 1,130
726
795
Memo:
Total international net revenue
755
376
administration/deposits
2015
Equity
428
351
353
Year ended December 31,
Multi-asset and alternatives
673
564
564
Total assets under management
2,034
1,723
(in billions, except where otherwise
noted)
2017
2016
Custody/brokerage/
JPMorgan Chase & Co./2017 Annual Report
AWM's lines of business consist of the following:
Asset Management provides comprehensive global investment
services, including asset management, pension analytics, asset-liability
management and active risk-budgeting strategies.
and invest in its businesses through the cycle and in
stressed environments;
Increase in Standardized/Advanced Tier 1 capital
(420)
1,090
Standardized/Advanced Tier 1 capital at
December 31, 2017
Standardized Tier 2 capital at December 31, 2016
Change in long-term debt and other instruments qualifying
as Tier 2
Change in qualifying allowance for credit losses
Other
$ 208,564
$ 30,013
(426)
(182)
(9)
Decrease in Standardized Tier 2 capital
(617)
JPMorgan Chase & Co./2017 Annual Report
1,510
$ 207,474
Change in CET1 capital
183,244 $ 181,734
Changes related to AOCI
536
(a) Includes the remaining balance of accumulated other comprehensive
income ("AOCI") related to AFS debt securities and defined benefit
pension and other postretirement employee benefit ("OPEB") plans
that will qualify as Basel III CET1 capital upon full phase-in.
(b) Predominantly includes regulatory adjustments related to changes in
DVA, as well as CET1 deductions for defined benefit pension plan
assets and deferred tax assets related to tax attributes, including
NOLS.
(c) Relates to intangible assets, other than goodwill and MSRs, that are
required to be deducted from CET1 capital upon full phase-in.
(d) Includes minority interest and the Firm's investments in its own CET1
capital instruments.
Net issuance of noncumulative perpetual preferred stock
Other
$ 29,396
Adjustment related to DVA (b)
Changes related to other CET1 capital adjustments(c)
Increase in Standardized/Advanced CET1 capital
59
1,510
Standardized/Advanced CET1 capital at
December 31, 2017
$ 183,244
Standardized/Advanced Tier 1 capital at
December 31, 2016
468
Standardized Tier 2 capital at December 31, 2017
Standardized Total capital at December 31, 2017
Advanced Tier 2 capital at December 31, 2016
Change in long-term debt and other instruments qualifying
as Tier 2
Change in qualifying allowance for credit losses
Standardized
Advanced
Year ended December 31, 2017
(in millions)
Credit risk
RWA
Market risk
RWA
Total RWA
The following table presents changes in the components of RWA under Basel III Standardized and Advanced Fully Phased-In for
the year ended December 31, 2017. The amounts in the rollforward categories are estimates, based on the predominant
driver of the change.
Credit risk
RWA
Operational
risk
December 31, 2016
(d)
(d)
$
1,365,137
$
Market risk
RWA
$
RWA rollforward
88
$ 237,960
$ 19,052
(426)
317
Other
Decrease in Advanced Tier 2 capital
(9)
(118)
Advanced Tier 2 capital at December 31, 2017
Management's discussion and analysis
$ 18,934
$ 227,498
(a) Includes a $2.4 billion decrease to net income as a result of the
enactment of the TCJA. For additional information related to the
impact of the TCJA, see Note 24.
(b) Includes DVA related to structured notes recorded in AOCI.
(c) Includes the effect from the revaluation of the Firm's net deferred tax
liability as a result of the enactment of the TCJA.
86
87
88
Advanced Total capital at December 31, 2017
(1,048)
Changes in additional paid-in capital
(70)
237,960 $
237,487
6.5%
Tier 1 capital
6.0
8.0
Total capital
$
10.0
Tier 1 leverage
5.0
SLR(a)
5.0
6.0
(a) In the case of the SLR, the Fully Phased-In well-capitalized ratio is
effective January 1, 2018.
Adjustment in qualifying allowance for
credit losses for Advanced Tier 2 capital
Advanced Fully Phased-In Tier 2 capital $
Advanced Fully Phased-In Total capital $
10.0
(a) Represents deferred tax liabilities related to tax-deductible goodwill
and identifiable intangibles created in nontaxable transactions, which
are netted against goodwill and other intangibles when calculating
TCE.
Standardized Fully Phased-in Total
capital
CET1
14,827 $
15,253
Qualifying allowance for credit losses
14,672
14,854
Other
(103)
-%
(94)
BHC
IDI
Standardized Fully Phased-In Tier 2
capital
$
29,396 $
30,013
Capital ratios
Well-capitalized ratios
127,679 $ 1,492,816 $
(b) Includes the effect from the revaluation of the Firm's net deferred tax
liability as a result of the enactment of the TCJA.
(10,462)
(156)
Net income applicable to common equity(a)
22,778
CET1 capital deduction phase-in (b)
Intangible assets deduction phase-in (c)
Other adjustments to CET1 capital(d)
Fully Phased-In CET1 capital
128
(20)
Dividends declared on common stock
(7,542)
(160)
(312)
Net purchase of treasury stock
(13,741)
(4)
(695)
(c) Includes the deduction associated with the permissible holdings of
covered funds (as defined by the Volcker Rule). The deduction was not
material as of December 31, 2017 and 2016.
Standardized/Advanced CET1 capital at December 31, 2016 $ 181,734
Year Ended December 31, (in millions)
(10,961)
18,934 $
227,498 $
19,052
226,526
98
86
JPMorgan Chase & Co./2017 Annual Report
2017
The following table presents reconciliations of the Firm's
Basel III Transitional CET1 capital to the Firm's Basel III Fully
Phased-In CET1 capital as of December 31, 2017 and 2016.
The following table presents the changes in Basel III Fully
Phased-In CET1 capital, Tier 1 capital and Tier 2 capital for
the year ended December 31, 2017.
(in millions)
Transitional CET1 capital
AOCI phase-in (a)
$
183,300 $
December 31, December 31,
2017
2016
182,967
Capital rollforward
959,523 $
Model & data changes (a)
(8,214)
Common stock dividends
The Firm's common stock dividend policy reflects JPMorgan
Chase's earnings outlook, desired dividend payout ratio,
capital objectives, and alternative investment opportunities.
On September 19, 2017, the Firm announced that its Board
of Directors increased the quarterly common stock dividend
to $0.56 per share, effective with the dividend paid on
October 31, 2017. The Firm's dividends are subject to the
Board of Directors' approval on a quarterly basis.
For information regarding dividend restrictions, see Note 20
and Note 25.
JPMorgan Chase & Co./2017 Annual Report
89
Management's discussion and analysis
The following table shows the common dividend payout
ratio based on net income applicable to common equity.
Year ended December 31,
Common dividend payout ratio
Common equity
2017
2016
2015
33%
30%
The Firm redeemed $1.6 billion of trust preferred securities
in the year ended December 31, 2016.
On December 18, 2017, the Delaware trusts that issued
seven series of outstanding trust preferred securities were
liquidated, $1.6 billion of trust preferred and $56 million of
common securities originally issued by those trusts were
cancelled, and the junior subordinated debentures
previously held by each trust issuer were distributed pro
rata to the holders of the corresponding series of trust
preferred and common securities.
Trust preferred securities
For additional information on the Firm's preferred stock,
see Note 20.
Corporate
79.6
79.6
Total common stockholders' equity $
229.6
16.0
9.0
88.1
$229.6 $228.1
Planning and stress testing
28%
Comprehensive Capital Analysis and Review
On June 28, 2017, the Federal Reserve informed the Firm
that it did not object, on either a quantitative or qualitative
basis, to the Firm's 2017 capital plan. For information on
actions taken by the Firm's Board of Directors following the
2017 CCAR results, see Capital actions on pages 89-90.
The Firm's CCAR process is integrated into and employs the
same methodologies utilized in the Firm's ICAAP process, as
discussed below.
Internal Capital Adequacy Assessment Process
Semiannually, the Firm completes the ICAAP, which provides
management with a view of the impact of severe and
unexpected events on earnings, balance sheet positions,
reserves and capital. The Firm's ICAAP integrates stress
testing protocols with capital planning.
The process assesses the potential impact of alternative
economic and business scenarios on the Firm's earnings and
capital. Economic scenarios, and the parameters underlying
those scenarios, are defined centrally and applied uniformly
across the businesses. These scenarios are articulated in
terms of macroeconomic factors, which are key drivers of
business results; global market shocks, which generate
short-term but severe trading losses; and idiosyncratic
operational risk events. The scenarios are intended to
capture and stress key vulnerabilities and idiosyncratic risks
facing the Firm. However, when defining a broad range of
scenarios, actual events can always be worse. Accordingly,
management considers additional stresses outside these
scenarios, as necessary. ICAAP results are reviewed by
management and the Audit Committee.
Capital actions
Preferred stock
Preferred stock dividends declared were $1.7 billion for the
year ended December 31, 2017.
On October 20, 2017, the Firm issued $1.3 billion of fixed-
to-floating rate non-cumulative preferred stock, Series CC,
with an initial dividend rate of 4.625%. On December 1,
2017, the Firm redeemed all $1.3 billion of its outstanding
5.50% non-cumulative preferred stock, Series O.
The Federal Reserve requires large bank holding
companies, including the Firm, to submit a capital plan on
an annual basis. The Federal Reserve uses the CCAR and
Dodd-Frank Act stress test processes to ensure that large
BHCs have sufficient capital during periods of economic and
financial stress, and have robust, forward-looking capital
assessment and planning processes in place that address
each BHC's unique risks to enable it to absorb losses under
certain stress scenarios. Through the CCAR, the Federal
Reserve evaluates each BHC's capital adequacy and internal
capital adequacy assessment processes ("ICAAP"), as well
as its plans to make capital distributions, such as dividend
payments or stock repurchases.
During the year ended December 31, 2017, warrant
holders exercised their right to purchase 9.9 million shares
of the Firm's common stock. The Firm issued from treasury
stock 5.4 million shares of its common stock as a result of
these exercises. As of December 31, 2017, 15.0 million
warrants remained outstanding, compared with 24.9
million outstanding as of December 31, 2016.
Effective June 28, 2017, the Firm's Board of Directors
authorized the repurchase of up to $19.4 billion of common
equity (common stock and warrants) between July 1, 2017
and June 30, 2018, as part of its annual capital plan.
As of December 31, 2017, $9.8 billion of authorized
repurchase capacity remained under the common equity
repurchase program.
The following table sets forth the Firm's repurchases of
common equity for the years ended December 31, 2017,
2016 and 2015. There were no repurchases of warrants
during the years ended December 31, 2017, 2016 and
2015.
7.5%
of total
leverage
exposure
+
2.0% buffer
Aggregate purchase price of common
stock repurchases
$15,410 $ 9,082 $ 5,616
The Firm may, from time to time, enter into written trading
plans under Rule 10b5-1 of the Securities Exchange Act of
1934 to facilitate repurchases in accordance with the
common equity repurchase program. A Rule 10b5-1
repurchase plan allows the Firm to repurchase its equity
during periods when it would not otherwise be repurchasing
common equity - for example, during internal trading
blackout periods. All purchases under Rule 10b5-1 plans
must be made according to predefined schedules
established when the Firm is not aware of material
nonpublic information.
The authorization to repurchase common equity will be
utilized at management's discretion, and the timing of
purchases and the exact amount of common equity that
may be repurchased is subject to various factors, including
market conditions; legal and regulatory considerations
affecting the amount and timing of repurchase activity; the
Firm's capital position (taking into account goodwill and
intangibles); internal capital generation; and alternative
investment opportunities. The repurchase program does not
include specific price targets or timetables; may be
executed through open market purchases or privately
negotiated transactions, or utilizing Rule 10b5-1 plans; and
may be suspended by management at any time.
long-term debt
6% of RWA (a)
Greater
of
4.5%
of total
leverage
exposure
Method 2 GSIB
surcharge
(a) RWA is the greater of Standardized and Advanced.
The final TLAC rule permanently grandfathered all long-
term debt issued before December 31, 2016, to the extent
these securities would be ineligible because they contained
impermissible acceleration rights or were governed by non-
U.S. law. As of December 31, 2017, the Firm was compliant
with the requirements under the current rule to which it will
be subject on January 1, 2019.
90
JPMorgan Chase & Co./2017 Annual Report
+
9.0
Minimum level of eligible
Minimum external TLAC
Year ended December 31, (in millions)
Total number of shares of common stock
repurchased
2017
2016
2015
166.6
140.4
Greater
of
89.8
TLAC
On December 15, 2016, the Federal Reserve issued its final
TLAC rule which requires the top-tier holding companies of
eight U.S. GSIB holding companies, including the Firm, to
maintain minimum levels of external TLAC and external
long-term debt that satisfies certain eligibility criteria
("eligible LTD"), effective January 1, 2019.
The minimum external TLAC and the minimum level of
eligible long-term debt requirements are shown below:
18% of RWA (a)
+
applicable
buffers, including
Method 1 GSIB
surcharge
For additional information regarding repurchases of the
Firm's equity securities, see Part II, Item 5: Market for
Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities on page 28.
Other capital requirements
9.0
Asset & Wealth Management
20.0
(3,977)
16,946
(36,618)
(3,866)
(40,484)
December 31, 2017
$ 1,386,060
20,923
$
922,905 $ 123,791 $
400,000 $ 1,446,696
(a) Model & data changes refer to material movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance (exclusive of rule
changes).
(b) Portfolio runoff for credit risk RWA primarily reflects (under both the Standardized and Advanced approaches) reduced risk from position rolloffs in legacy portfolios
in Home Lending, the sale of the student loan portfolio during the second quarter of 2017, and the sale of reverse mortgages in CIB during the third quarter of
2017.
(c) Movement in portfolio levels for credit risk RWA refers to changes primarily in book size, composition, credit quality, and market movements; and for market risk
RWA refers to changes in position and market movements.
(d) The prior period amounts have been revised to conform with the current period presentation.
123,702 $ 1,509,762 $
Supplementary leverage ratio
Changes in RWA
(5,605)
1,739
(6,475)
(14,189)
127,657 $
1,739
Total RWA
400,000 $ 1,487,180
(12,450)
Portfolio runoff(b)
(11,934)
(13,600)
(16,100)
(16,100)
Movement in portfolio levels(c)
42,737
(5,716)
37,021
(6,329)
(13,600)
$
The SLR is defined as Tier 1 capital under Basel III divided
by the Firm's total leverage exposure. Total leverage
exposure is calculated by taking the Firm's total average on-
balance sheet assets, less amounts permitted to be
deducted for Tier 1 capital, and adding certain off-balance
sheet exposures, such as undrawn commitments and
derivatives potential future exposure.
Total average assets
Each business segment is allocated capital by taking into
consideration stand-alone peer comparisons and regulatory
capital requirements. For 2016, capital was allocated to
each business segment for, among other things, goodwill
and other intangibles associated with acquisitions effected
by the line of business. ROE is measured and internal
targets for expected returns are established as key
measures of a business segment's performance.
On at least an annual basis, the Firm assesses the level of
capital required for each line of business as well as the
assumptions and methodologies used to allocate capital.
Through the end of 2016, capital was allocated to the lines
of business based on a single measure, Basel III Advanced
Fully Phased-In RWA. Effective January 1, 2017, the Firm's
methodology used to allocate capital to the Firm's business
segments was updated. The new methodology incorporates
Basel III Standardized Fully Phased-In RWA (as well as Basel
III Advanced Fully Phased-In RWA), leverage, the GSIB
surcharge, and a simulation of capital in a severe stress
environment. The methodology will continue to be weighted
towards Basel III Advanced Fully Phased-In RWA because
the Firm believes it to be the best proxy for economic risk.
The Firm will consider further changes to its capital
allocation methodology as the regulatory framework
evolves. In addition, under the new methodology, capital is
no longer allocated to each line of business for goodwill and
other intangibles associated with acquisitions effected by
the line of business. The Firm will continue to establish
internal ROE targets for its business segments, against
which they will be measured, as a key performance
indicator.
JPMorgan Chase & Co./2017 Annual Report
The table below reflects the Firm's assessed level of capital
allocated to each line of business as of the dates indicated.
Line of business equity (Allocated capital)
December 31,
(in billions)
Line of business equity
January 1,
2018
$
Corporate & Investment Bank
51.0
70.0
70.0
2017 2016
$ 51.0 $51.0
64.0
Commercial Banking
20.0
Consumer & Community Banking
The following table presents the components of the Firm's
Fully Phased-In SLR as of December 31, 2017 and 2016.
As of December 31, 2017, JPMorgan Chase Bank, N.A.'s and
Chase Bank USA, N.A.'s Fully Phased-In SLRs are
approximately 6.7% and 11.8%, respectively.
(a) Adjusted average assets, for purposes of calculating the SLR, includes
total quarterly average assets adjusted for on-balance sheet assets
that are subject to deduction from Tier 1 capital, predominantly
goodwill and other intangible assets.
from Tier 1 capital
December 31, December 31,
2017
2016
(in millions, except ratio)
Tier 1 capital
$ 208,564 $
2,562,155
207,474
2,532,457
Less: Adjustments for deductions
(b) Off-balance sheet exposures are calculated as the average of the three
month-end spot balances during the reporting quarter.
47,333
2,514,822
Off-balance sheet exposures (b)
Total leverage exposure
$
46,977
2,485,480
690,193
707,359
3,205,015 $ 3,192,839
6.5%
6.5%
Total adjusted average assets (a)
Retain flexibility to take advantage of future investment
opportunities;
Long-term debt and other instruments
qualifying as Tier 2 capital
208,564 $
8.3%
8.3%
4.0%
8.3%
8.3%
4.0%
NA
$ 3,204,463
NA
$ 3,205,015
ΝΑ
6.5%
ΝΑ
ΝΑ
6.5%
Total leverage exposure
SLR(c)
Tier 1 leverage ratio (b)
$ 2,514,822
$ 2,514,822
12.1%
13.8
12.7%
10.5%
14.4
12.0
15.9
15.9
5.0% (e)
11.0
15.7
14.0
Tier 1 capital ratio
Leverage-based capital metrics:
Adjusted average assets(a)
$ 2,514,270
$ 2,514,270
15.8
December 31, 2016
(in millions, except ratios)
Risk-based capital metrics:
181,734
207,474
$ 181,734
237,487
207,474
226,526
(d)
(d)
1,483,132
208,112
228,592
1,476,915
1,487,180
(d)
(d)
12.3%
12.4%
(d)
14.0
1,492,816
9.0
208,112
239,553
$ 182,967
CET1 capital
Tier 1 capital
Standardized
Transitional
Fully Phased-In
Advanced
Minimum
capital ratios
$
Standardized
Minimum
capital ratios
Total capital
Risk-weighted assets
CET1 capital ratio
Tier 1 capital ratio
Total capital ratio
$ 182,967
Advanced
14.5
13.9
7.5%
Governance and oversight
For further information on reputation risk, see Reputation
Risk Management on page 98.
The Firm's balance sheet strategy, which focuses on risk-
adjusted returns, strong capital and robust liquidity, is key
to management of strategic risk. For further information on
capital risk, see Capital Risk Management on pages 82-91.
For further information on liquidity risk see, Liquidity Risk
Management on pages 92-97
In the process of developing the strategic initiatives, line of
business leadership identify the strategic risks associated
with their strategic initiatives and those risks are
incorporated into the Firmwide Risk Identification process
and monitored and assessed as part of the Firmwide Risk
Appetite framework. For further information on Risk
Identification, see Enterprise-Wide Risk Management on
page 75. For further information on the Risk Appetite
framework see, Enterprise-Wide Risk Management on
page 77.
incorporated in the Firm's budget, and are reviewed by the
Board of Directors.
These strategic priorities and initiatives are then
The Firm's strategic planning process, which includes the
development and execution of strategic priorities and
initiatives by the Operating Committee and the
management teams of the lines of business, is an important
process for managing the Firm's strategic risk. Guided by
the Firm's How We Do Business ("HWDB") principles, the
strategic priorities and initiatives are updated annually and
include evaluating performance against prior year
initiatives, assessment of the operating environment,
refinement of existing strategies and development of new
strategies.
The Firm's Operating Committee defines the most
significant strategic priorities and initiatives, including
those of the Firm, the LOBS and the Corporate functions, for
the coming year and evaluates performance against the
prior year. As part of the strategic planning process, IRM
conducts a qualitative assessment of those significant
initiatives to determine the impact on the risk profile of the
Firm. The Firm's priorities, initiatives and IRM's assessment
are provided to the Board for its review.
The Operating Committee and the senior leadership of each
LOB are responsible for managing the Firm's most
significant strategic risks. Strategic risks are overseen by
IRM through participation in business reviews, LOB senior
management committees, ongoing management of the
Firm's risk appetite and limit framework, and other relevant
governance forums. The Board of Directors oversees
management's strategic decisions, and the DRPC oversees
IRM and the Firm's risk management framework.
Strategic risk is the risk associated with the Firm's current
and future business plans and objectives. Strategic risk
includes the risk to current or anticipated earnings, capital,
liquidity, enterprise value, or the Firm's reputation arising
from adverse business decisions, poor implementation of
business decisions, or lack of responsiveness to changes in
the industry or external environment.
STRATEGIC RISK MANAGEMENT
Serve as a source of strength to its subsidiaries;
Meet capital distribution objectives; and
Maintain sufficient capital resources to operate
throughout a resolution period in accordance with the
Firm's preferred resolution strategy.
These objectives are achieved through the establishment of
minimum capital targets and a strong capital governance
framework. Capital risk management is intended to be
flexible in order to react to a range of potential events. The
Firm's minimum capital targets are based on the most
binding of three pillars: an internal assessment of the Firm's
capital needs; an estimate of required capital under the
CCAR and Dodd-Frank Act stress testing requirements; and
Basel III Fully Phased-In regulatory minimums. Where
necessary, each pillar may include a management-
established buffer. The capital governance framework
requires regular monitoring of the Firm's capital positions,
stress testing and defining escalation protocols, both at the
Firm and material legal entity levels.
Overview
82
As part of its ongoing oversight and management of risk
across the Firm, IRM is regularly engaged in significant
discussions and decision-making across the Firm, including
decisions to pursue new business opportunities or modify
or exit existing businesses.
81
Maintain sufficient capital in order to continue to build
Support risks underlying business activities;
Maintain "well-capitalized" status for the Firm and its
insured depository institution (“IDI") subsidiaries;
•
•
•
•
JPMorgan Chase & Co./2017 Annual Report
•
The Firm's capital risk management objectives are to hold
capital sufficient to:
management evaluates all sources and uses of capital with
a view to preserving the Firm's capital strength.
implications on the Firm's capital prior to making decisions
that could impact future business activities. In addition to
considering the Firm's earnings outlook, senior
A strong capital position is essential to the Firm's business
strategy and competitive position. Maintaining a strong
balance sheet to manage through economic volatility is
considered a strategic imperative of the Firm's Board of
Directors, CEO and Operating Committee. The Firm's
fortress balance sheet philosophy focuses on risk-adjusted
returns, strong capital and robust liquidity. The Firm's
capital risk management strategy focuses on maintaining
long-term stability to enable it to build and invest in
market-leading businesses, even in a highly stressed
environment. Senior management considers the
Capital risk is the risk the Firm has an insufficient level and
composition of capital to support the Firm's business
activities and associated risks during normal economic
environments and under stressed conditions.
CAPITAL RISK MANAGEMENT
Management's discussion and analysis
•
14.1
32
The following tables present the Firm's Transitional and Fully Phased-In risk-based and leverage-based capital metrics under
both the Basel III Standardized and Advanced Approaches. The Firm's Basel III ratios exceed both the Transitional and Fully
Phased-In regulatory minimums as of December 31, 2017 and 2016. For further discussion of these capital metrics, including
regulatory minimums, and the Standardized and Advanced Approaches, refer to Strategy and Governance on pages 84-88.
$
183,244
$ 183,244
208,644
238,395
208,644
208,564
208,564
183,300
227,933
227,498
1,499,506
1,435,825
1,509,762
1,446,696
12.2%
12.8%
237,960
JPMorgan Chase & Co./2017 Annual Report
$
capital ratios
December 31, 2017
(in millions, except ratios)
Risk-based capital metrics:
CET1 capital
Tier 1 capital
Total capital
Risk-weighted assets
$ 183,300
CET1 capital ratio
Transitional
Fully Phased-In
Advanced
Minimum
capital ratios
Minimum
Standardized
Advanced
Standardized
207,474
6.25%
7.75
12.2%
phase-in period that began January 1, 2016 and continues
through the end of 2018.
As an expansion of the capital conservation buffer, the Firm
is also required to hold additional levels of capital in the
form of a GSIB surcharge and a countercyclical capital
buffer.
Under the Federal Reserve's final rule, the Firm is required
to calculate its GSIB surcharge on an annual basis under two
separately prescribed methods, and is subject to the higher
of the two. The first ("Method 1"), reflects the GSIB
surcharge as prescribed by the Basel Committee's
assessment methodology, and is calculated across five
criteria: size, cross-jurisdictional activity,
interconnectedness, complexity and substitutability. The
second ("Method 2"), modifies the Method 1 requirements
to include a measure of short-term wholesale funding in
place of substitutability, and introduces a GSIB score
"multiplication factor". The following table represents the
Firm's GSIB surcharge.
Fully Phased-In:
Method 1
Method 2
Transitional(a)
2017
2016
2.50%
2.50%
3.50%
4.50%
1.75%
1.125%
(a) The GSIB surcharge is subject to transition provisions (in 25% increments)
through the end of 2018.
2019
All banking institutions are currently required to have a
minimum capital ratio of 4.5% of risk weighted assets.
Certain banking organizations, including the Firm, are
required to hold additional amounts of capital to serve as a
"capital conservation buffer". The capital conservation
buffer is intended to be used to absorb potential losses in
times of financial or economic stress. If not maintained, the
Firm could be limited in the amount of capital that may be
distributed, including dividends and common equity
repurchases. The capital conservation buffer is subject to a
JPMorgan Chase & Co./2017 Annual Report
Additional information regarding the Firm's capital ratios, as
well as the U.S. federal regulatory capital standards to
which the Firm is subject, is presented in Note 26. For
further information on the Firm's Basel III measures, see the
Firm's Pillar 3 Regulatory Capital Disclosures reports, which
are available on the Firm's website (http://
investor.shareholder.com/jpmorganchase/basel.cfm).
The Basel III rules include minimum capital ratio
requirements that are subject to phase-in periods through
the end of 2018. The capital adequacy of the Firm and its
IDI subsidiaries, both during the transitional period and
upon full phase-in, is evaluated against the Basel III
approach (Standardized or Advanced) which, for each
quarter, results in the lower ratio as required by the Collins
Amendment of the Dodd-Frank Act (the "Collins Floor"). The
Basel III Standardized Fully Phased-In CET1 ratio is the
Firm's current binding constraint, and the Firm expects that
this will remain its binding constraint for the foreseeable
future.
2.50%
1.875%
1.250%
0.625%
4
Capital
conservation
buffer
2
85
4.50%
4.50%
4.50%
0
Minimum
requirement
2016
2017
2018
4.50%
Management's discussion and analysis
The Firm's effective GSIB surcharge for 2018 is anticipated
to be 3.5%.
The countercyclical capital buffer takes into account the
macro financial environment in which large, internationally
active banks function. On September 8, 2016 the Federal
Reserve published the framework that will apply to the
setting of the countercyclical capital buffer. As of December
1, 2017, the Federal Reserve reaffirmed setting the U.S.
countercyclical capital buffer at 0%, and stated that it will
review the amount at least annually. The countercyclical
capital buffer can be increased if the Federal Reserve, FDIC
and OCC determine that credit growth in the economy has
become excessive and can be set at up to an additional
2.5% of RWA subject to a 12-month implementation period.
The Firm believes that it will operate with a Basel III CET1
capital ratio between 11% and 12% over the medium term.
It is the Firm's intention that its capital ratios will continue
to meet regulatory minimums as they are fully phased in
2019 and thereafter.
Add:
Certain Deferred tax liabilities (a)(b)
Less: Other CET1 capital adjustments (b)
Standardized/Advanced Fully Phased-In
CET1 capital
Preferred stock
2,204
3,230
223
1,468
183,244
Other intangible assets
181,734
26,068
Less:
748
328
Other Tier 1 adjustments(c)
Standardized/Advanced Fully Phased-In
Tier 1 capital
$
26,068
1.125%
Goodwill
855
In addition to meeting the capital ratio requirements of
Basel III, the Firm also must maintain minimum capital and
leverage ratios in order to be "well-capitalized." The
following table represents the ratios that the Firm and its
IDI subsidiaries must maintain in order to meet the
definition of "well-capitalized" under the regulations issued
by the Federal Reserve and the Prompt Corrective Action
("PCA") requirements of the FDIC Improvement Act
("FDICIA"), respectively.
Capital
The following table presents reconciliations of total
stockholders' equity to Basel III Fully Phased-In CET1
capital, Tier 1 capital and Basel III Advanced and
Standardized Fully Phased-In Total capital as of December
31, 2017 and 2016. For additional information on the
components of regulatory capital, see Note 26.
Capital components
(in millions)
December 31, December 31,
2017
255,693 $
26,068
Total stockholders' equity
Less: Preferred stock
862
$
Less:
2016
254,190
26,068
229,625
228,122
47,507
47,288
Common stockholders' equity
6
10
GSIB surcharge
8.4%
8.4%
4.0%
Total leverage exposure
SLR(c)
ΝΑ
ΝΑ
$ 3,191,990
Tier 1 leverage ratio(b)
6.5%
8.3%
ΝΑ
ΝΑ
8.3%
4.0%
$ 3,192,839
6.5%
5.0% (e)
Note: As of December 31, 2017 and 2016, the lower of the Standardized or Advanced capital ratios under each of the Transitional and Fully Phased-In Approaches in the
table above represents the Firm's Collins Floor, as discussed in Risk-based capital regulatory minimums on page 85.
ΝΑ
(a) Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for unrealized gains/(losses) on
available-for-sale ("AFS") securities, less deductions for goodwill and other intangible assets, defined benefit pension plan assets, and deferred tax assets related to
tax attributes, including net operating losses ("NOLS").
$ 2,485,480
$ 2,484,631
10.5%
(d)
13.9
14.0
12.0
(d)
(d)
$ 2,485,480
16.2
9.75
15.9
15.2
14.0
Leverage-based capital metrics:
Adjusted average assets (a)
$ 2,484,631
15.5
12.2%
(b) The Tier 1 leverage ratio is calculated by dividing Tier 1 capital by adjusted total average assets.
(e) In the case of the SLR, the Fully Phased-In minimum ratio is effective January 1, 2018.
Risk-based capital regulatory minimums
The following chart presents the Basel III minimum CET1 capital ratio during the transitional periods and on a fully phased-in
basis under the Basel III rules currently in effect.
14
12
10.50%
12/31/17
10
The Basel III Standardized and Advanced Fully Phased-In capital, RWA and capital ratios, and SLRs for the Firm, JPMorgan
Chase Bank, N.A. and Chase Bank USA, N.A. are based on the current published U.S. Basel III rules.
CET1: 12.1%
3.50%
□ Capital
conservation
buffer incl. GSIB
8
7.50%
2.625%
6.25%
1.750%
9.00%
(c) The SLR leverage ratio is calculated by dividing Tier 1 capital by total leverage exposure. For additional information on total leverage exposure, see SLR on page 88.
(d) The prior period amounts have been revised to conform with the current period presentation.
JPMorgan Chase & Co./2017 Annual Report
84
JPMorgan Chase & Co./2017 Annual Report
83
Management's discussion and analysis
Strategy and governance
The Firm's CEO, together with the Board of Directors and
the Operating Committee, establishes principles and
guidelines for capital planning, issuance, usage and
distributions, and minimum capital targets for the level and
composition of capital in business-as-usual and highly
stressed environments. The DRPC reviews and approves the
capital management and governance policy of the Firm. The
Firm's Audit Committee is responsible for reviewing and
approving the capital stress testing control framework.
The Capital Governance Committee and the Regulatory
Capital Management Office ("RCMO") support the Firm's
strategic capital decision-making. The Capital Governance
Committee oversees the capital adequacy assessment
process, including the overall design, scenario development
and macro assumptions, and ensures that capital stress test
programs are designed to adequately capture the risks
specific to the Firm's businesses. RCMO, which reports to
the Firm's CFO, is responsible for designing and monitoring
the Firm's execution of its capital policies and strategies
once approved by the Board, as well as reviewing and
monitoring the execution of its capital adequacy assessment
process. The Basel Independent Review function ("BIR"),
which reports to the RCMO, conducts independent
assessments of the Firm's regulatory capital framework to
ensure compliance with the applicable U.S. Basel rules in
support of senior management's responsibility for assessing
and managing capital and for the DRPC's oversight of
management in executing that responsibility. For additional
discussion on the DRPC, see Enterprise-wide Risk
Management on pages 75-137.
Monitoring and management of capital
In its monitoring and management of capital, the Firm takes
into consideration an assessment of economic risk and all
regulatory capital requirements to determine the level of
capital needed to meet and maintain the objectives
discussed above, as well as to support the framework for
allocating capital to its business segments. While economic
risk is considered prior to making decisions on future
business activities, in most cases the Firm considers risk-
based regulatory capital to be a proxy for economic risk
capital.
==
Regulatory capital
Basel III overview
Capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. bank holding companies (“BHC”)
and banks, including the Firm and its IDI subsidiaries. Basel
III sets forth two comprehensive approaches for calculating
RWA: a standardized approach ("Basel III Standardized"),
and an advanced approach ("Basel III Advanced"). Certain
of the requirements of Basel III are subject to phase-in
periods that began on January 1, 2014 and continue
through the end of 2018 (“transitional period").
Basel III establishes capital requirements for calculating
credit risk RWA and market risk RWA, and in the case of
Basel III Advanced, operational risk RWA. Key differences in
the calculation of credit risk RWA between the Standardized
and Advanced approaches are that for Basel III Advanced,
credit risk RWA is based on risk-sensitive approaches which
largely rely on the use of internal credit models and
parameters, whereas for Basel III Standardized, credit risk
RWA is generally based on supervisory risk-weightings
which vary primarily by counterparty type and asset class.
Market risk RWA is calculated on a generally consistent
basis between Basel III Standardized and Basel III
Advanced. In addition to the RWA calculated under these
methodologies, the Firm may supplement such amounts to
incorporate management judgment and feedback from its
regulators.
Basel III also includes a requirement for Advanced
Approach banking organizations, including the Firm, to
calculate the SLR. For additional information on the SLR,
see page 88.
On December 7, 2017, the Basel Committee issued the
Basel III Reforms. Potential changes to the requirements for
U.S. financial institutions are being considered by the U.S.
banking regulators. For additional information on Basel III
reforms, refer to Supervision & Regulation on pages 1-8.
Basel III Fully Phased-In
The Basel III transitional period will end on December 31,
2018, at which point the Firm will calculate its capital ratios
under both the Basel III Standardized and Advanced
Approaches on a Fully Phased-In basis. In the case of the
SLR, the Fully Phased-In well-capitalized ratio is effective
January 1, 2018. The Firm manages each of its lines of
business, as well as the corporate functions, primarily on a
Basel III Fully Phased-In basis.
For additional information on the Firm, JPMorgan Chase
Bank, N.A. and Chase Bank USA, N.A.'s capital, RWA and
capital ratios under Basel III Standardized and Advanced
Fully Phased-In rules and the SLR calculated under the
Basel III Advanced Fully Phased-In rules, all of which are
considered key regulatory capital measures, see
Explanation and Reconciliation of the Firm's Use of Non-
GAAP Financial Measures and Key Performance Measures
on pages 52-54.
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
minimum capital requirements for the Firm's national
banks, including JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A. The U.S. capital requirements
generally follow the Capital Accord of the Basel Committee,
as amended from time to time.
SLR
Total capital ratio
The credit ratings of the Parent Company and the Firm's principal bank and non-bank subsidiaries as of December 31, 2017,
were as follows.
27,616
$
51,802 $
22,705
34,443
26,612
21,139
$
46,532 $
36,140
15,001
$
2,719
$
3,206 $
5,153
$
146,432 $
7,910
$
154,342 $
3,045 $
19,920 $
11,738 $
24,186 $
Total short-term borrowings
Obligations of Firm-administered multi-seller conduits (a)
Securities loaned or sold under agreements to repurchase:
Securities sold under agreements to repurchase (b)
Securities loaned (c)
Total securities loaned or sold under agreements to repurchase (d)
Senior notes
Trust preferred securities(e)
Subordinated debt(e)
Structured notes
Total long-term unsecured funding
Credit card securitization (a)
Other securitizations (a)(f)
FHLB advances
Other long-term secured funding(s)
Total long-term secured funding
Average
2017
2016
2017
2016
$
149,826 $
12,137
161,963
Other borrowed funds
$
160,458
JPMorgan Chase & Co./2017 Annual Report
To enable monitoring of credit risk and effective decision-
making, aggregate credit exposure, credit quality forecasts,
concentration levels and risk profile changes are reported
regularly to senior members of Credit Risk Management.
Detailed portfolio reporting of industry; clients,
counterparties and customers; product and geographic
concentrations occurs monthly, and the appropriateness of
the allowance for credit losses is reviewed by senior
management at least on a quarterly basis. Through the risk
reporting and governance structure, credit risk trends and
limit exceptions are provided regularly to, and discussed
with, risk committees, senior management and the Board of
Directors as appropriate.
Risk reporting
For further discussion of consumer and wholesale loans, see
Note 12.
Evaluating the effectiveness of business units' credit
management processes, including the adequacy of credit
analyses and risk grading/LGD rationales, proper
monitoring and management of credit exposures, and
compliance with applicable grading policies and
underwriting guidelines.
Independently validating or changing the risk grades
assigned to exposures in the Firm's wholesale and
commercial-oriented retail credit portfolios, and
assessing the timeliness of risk grade changes initiated by
responsible business units; and
•
In addition to Credit Risk Management, an independent
Credit Review function is responsible for:
Collateral and other risk-reduction techniques
$
•
21,278 $
Credit derivatives
•
• Loan sales and securitizations
• Loan syndications and participations
• Loan underwriting and credit approval process
Management of the Firm's wholesale credit risk exposure is
accomplished through a number of means, including:
monitored as this risk could result in greater exposure at
default compared with a transaction with another
counterparty that does not have this risk.
100
• Master netting agreements
217,694
218,378 $
212,619 $
13,195
173,653
$
155,852 $
690
151,042
2,345
$
154,352 $
153,768
2,276
3,724
16,553
21,940
18,832
24,224
45,727
37,292
42,918
35,978
$
218,822 $
171,973 $
11,526
183,499 $
Wholesale credit risk is monitored regularly at an aggregate
portfolio, industry, and individual client and counterparty
level with established concentration limits that are reviewed
and revised as deemed appropriate by management,
typically on an annual basis. Industry and counterparty
limits, as measured in terms of exposure and economic risk
appetite, are subject to stress-based loss constraints. In
addition, wrong-way risk – the risk that exposure to a
counterparty is positively correlated with the impact of a
default by the same counterparty, which could cause
exposure to increase at the same time as the counterparty's
capacity to meet its obligations is decreasing - is actively
Commercial paper
As of or for the year ended December 31,
Management believes that the Firm's unsecured and
secured funding capacity is sufficient to meet its on- and
off-balance sheet obligations.
The Firm funds its global balance sheet through diverse
sources of funding including a stable deposit franchise as
well as secured and unsecured funding in the capital
markets. The Firm's loan portfolio is funded with a portion
of the Firm's deposits, through securitizations and, with
respect to a portion of the Firm's real estate-related loans,
with secured borrowings from the FHLBs. Deposits in excess
of the amount utilized to fund loans are primarily invested
in the Firm's investment securities portfolio or deployed in
cash or other short-term liquid investments based on their
interest rate and liquidity risk characteristics. Securities
Deposits
borrowed or purchased under resale agreements and
trading assets-debt and equity instruments are primarily
funded by the Firm's securities loaned or sold under
agreements to repurchase, trading liabilities-debt and
equity instruments, and a portion of the Firm's long-term
debt and stockholders' equity. In addition to funding
securities borrowed or purchased under resale agreements
and trading assets-debt and equity instruments, proceeds
from the Firm's debt and equity issuances are used to fund
certain loans and other financial and non-financial assets,
or may be invested in the Firm's investment securities
portfolio. See the discussion below for additional
information relating to Deposits, Short-term funding, and
Long-term funding and issuance.
The table below summarizes, by line of business, the period-end and average deposit balances as of and for the years ended
December 31, 2017 and 2016.
Deposits
As of or for the year ended December 31,
(in millions)
Consumer & Community Banking
Sources of funds
Corporate & Investment Bank
Asset & Wealth Management
Corporate
Total Firm
Year ended December 31,
Average
2017
2016
2017
2016
Commercial Banking
Funding
Management's discussion and analysis
93
$
370,126
Eligible securities (b)(c)
189,955
Total HQLA(d)
$
560,081
Net cash outflows
$
472,078
LCR
119%
Net excess HQLA
(d)
$
88,003
(a) Represents cash on deposit at central banks, primarily Federal Reserve
Banks.
(b) Predominantly U.S. Agency MBS, U.S. Treasuries, and sovereign bonds net
of applicable haircuts under the LCR rules
(c) HQLA eligible securities may be reported in securities borrowed or
purchased under resale agreements, trading assets, or securities on the
Firm's Consolidated balance sheets.
(d) Excludes average excess HQLA at JPMorgan Chase Bank, N.A. and Chase
Bank USA, N.A. that are not transferable to non-bank affiliates.
JPMorgan Chase & Co./2017 Annual Report
$
(in millions)
659,885 $
640,219 $
Loans
Loans-to-deposits ratio
2017
$
1,444.0
$
2016
1,375.2
63%
930.7
Deposits as a % of total liabilities
894.8
65%
61%
Deposits increased due to both higher consumer and
wholesale deposits. The higher consumer deposits reflect
the continuation of strong growth from new and existing
customers, and low attrition rates. The higher wholesale
deposits largely were driven by growth in client cash
management activity in CIB's Securities Services business,
partially offset by lower balances in AWM reflecting balance
migration predominantly into the Firm's investment-related
products.
The Firm believes average deposit balances are generally
more representative of deposit trends than period-end
deposit balances. The increase in average deposits for the
year ended December 31, 2017 compared with the year
ended December 31, 2016, was driven by an increase in
both consumer and wholesale deposits. For further
discussions of deposit and liability balance trends, see the
discussion of the Firm's business segments results and the
Consolidated Balance Sheet Analysis on pages 55-74 and
pages 47-48, respectively.
94
44
JPMorgan Chase & Co./2017 Annual Report
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2017 and 2016,
and average balances for the years ended December 31, 2017 and 2016. For additional information, see the Consolidated
Balance Sheets Analysis on pages 47-48 and Note 19.
Sources of funds (excluding deposits)
64%
Deposits
(in billions except ratios)
As of December 31,
586,637
455,883
412,434
447,697
409,680
181,512
179,532
176,884
172,835
146,407
161,577
148,982
153,334
295
3,299
3,604
5,482
$
1,443,982 $ 1,375,179 $ 1,417,386 $ 1,327,968
A key strength of the Firm is its diversified deposit
franchise, through each of its lines of business, which
provides a stable source of funding and limits reliance on
the wholesale funding markets. A significant portion of the
Firm's deposits are consumer and wholesale operating
deposits, which are both considered to be stable sources of
liquidity. Wholesale operating deposits are considered to be
stable sources of liquidity because they are generated from
customers that maintain operating service relationships
with the Firm.
The table below shows the loan and deposit balances, the
loans-to-deposits ratios, and deposits as a percentage of
total liabilities, as of December 31, 2017 and 2016.
618,337 $
Consumer credit risk is monitored for delinquency and other
trends, including any concentrations at the portfolio level,
as certain of these trends can be modified through changes
in underwriting policies and portfolio guidelines. Consumer
Risk Management evaluates delinquency and other trends
against business expectations, current and forecasted
economic conditions, and industry benchmarks. Historical
and forecasted economic performance and trends are
incorporated into the modeling of estimated consumer
credit losses and are part of the monitoring of the credit
risk profile of the portfolio.
The Firm has developed policies and practices that are
designed to preserve the independence and integrity of the
approval and decision-making process of extending credit to
ensure credit risks are assessed accurately, approved
properly, monitored regularly and managed actively at both
the transaction and portfolio levels. The policy framework
establishes credit approval authorities, concentration limits,
risk-rating methodologies, portfolio review parameters and
guidelines for management of distressed exposures. In
addition, certain models, assumptions and inputs used in
evaluating and monitoring credit risk are independently
validated by groups that are separate from the line of
businesses.
Risk monitoring and management
731
455
2,354
secured funding(b)
Other long-term
9,209
18,900
17,150
233
2,645
$ 11,470 $ 5,025
55
2017
2016
2017
Issuance
Year ended
December 31,
2016
Maturities/Redemptions
(in millions)
Credit card
securitization
Long-term secured funding
$ 1,545 $ 8,277
Total long-term
secured funding
$ 3,899 $25,882
Structured notes
Subordinated debt
1,630
Trust preferred securities
$ 22,337 $ 29,989
Senior notes
The Firm's wholesale businesses also securitize loans for
client-driven transactions; those client-driven loan
securitizations are not considered to be a source of funding
for the Firm and are not included in the table above. For
further description of the client-driven loan securitizations,
see Note 14.
(b) Includes long-term structured notes which are secured.
(a) Other securitizations includes securitizations of student loans. The
Firm deconsolidated the student loan securitization entities in the
second quarter of 2017 as it no longer had a controlling financial
interest in these entities as a result of the sale of the student loan
portfolio.
$ 52,442 $ 56,660
29,040
Maturities/redemptions
Total long-term unsecured funding –
issuance
7,063
32,702
1,093
22,865
$ 21,192 $ 25,639
2,210
23,402
Structured notes
Total senior notes
Subordinated debt
Senior notes issued in the U.S. market
Senior notes issued in non-U.S. markets
Other securitizations (a)
FHLB advances
17,112
$ 31,156 $
The following table summarizes the securitization issuance
and FHLB advances and their respective maturities or
redemption for the years ended December 31, 2017 and
2016.
6,901
22,581
2016
Issuance
26,068
26,068 $ 26,068
229,625 $ 228,122
$
$
108,976
99,670 $
115,334 $
86,536 $
$
Preferred stock(h)
4,619
3,107
4,641
73,260
69,916
1,669
626
29,428
25,933 $
$
3,195
Common stockholders' equity(h)
26,212 $
230,350 $ 224,631
(a) Included in beneficial interest issued by consolidated variable interest entities on the Firm's Consolidated balance sheets.
(b) Excludes long-term structured repurchase agreements of $1.3 billion and $1.8 billion as of December 31, 2017 and 2016, respectively, and average balances of $1.5 billion
and $2.9 billion for the years ended December 31, 2017 and 2016, respectively.
(in millions)
Year ended December 31,
Long-term unsecured funding
The significant majority of the Firm's long-term unsecured
funding is issued by the Parent Company to provide
maximum flexibility in support of both bank and non-bank
subsidiary funding needs. The Parent Company advances
substantially all net funding proceeds to its subsidiary, the
IHC. The IHC does not issue debt to external counterparties.
The following table summarizes long-term unsecured
issuance and maturities or redemptions for the years ended
December 31, 2017 and 2016. For additional information,
see Note 19.
optimizing funding costs. The Firm evaluates various
funding markets, tenors and currencies in creating its
optimal long-term funding plan.
Management's discussion and analysis
95
Long-term funding provides additional sources of stable
funding and liquidity for the Firm. The Firm's long-term
funding plan is driven primarily by expected client activity,
liquidity considerations, and regulatory requirements,
including TLAC. Long-term funding objectives include
maintaining diversification, maximizing market access and
Long-term funding and issuance
The Firm's sources of short-term unsecured funding
primarily consist of issuances of wholesale commercial
paper. The increase in short-term unsecured funding was
primarily due to higher issuance of commercial paper
reflecting in part a change in the mix of funding from
securities sold under repurchase agreements for CIB
Markets activities.
securities and market-making portfolios); and other market
and portfolio factors.
JPMorgan Chase & Co./2017 Annual Report
The Firm's sources of short-term secured funding primarily
consist of securities loaned or sold under agreements to
repurchase. These instruments are secured predominantly
by high-quality securities collateral, including government-
issued debt and agency MBS, and constitute a significant
portion of the federal funds purchased and securities
loaned or sold under repurchase agreements on the
Consolidated balance sheets. The increase in the average
balance of securities loaned or sold under agreements to
repurchase for the year ended December 31, 2017,
compared to December 31, 2016, was largely due to client
activities in CIB. The balances associated with securities
loaned or sold under agreements to repurchase fluctuate
over time due to customers' investment and financing
activities; the Firm's demand for financing; the ongoing
management of the mix of the Firm's liabilities, including its
secured and unsecured financing (for both the investment
Short-term funding
(h) For additional information on preferred stock and common stockholders' equity see Capital Risk Management on pages 82-91, Consolidated statements of changes in
stockholders' equity, Note 20 and Note 21.
(g) Includes long-term structured notes which are secured.
a controlling financial interest in these entities as a result of the sale of the student loan portfolio. The Firm's wholesale businesses also securitize loans for client-driven
transactions, which are not considered to be a source of funding for the Firm and are not included in the table.
(f) Other securitizations includes securitizations of student loans. The Firm deconsolidated the student loan securitization entities in the second quarter of 2017 as it no longer had
(e) Subordinated debt includes $1.6 billion of junior subordinated debentures distributed pro rata to the holders of the $1.6 billion of trust preferred securities which were
cancelled on December 18, 2017. For further information see Note 19.
(d) Excludes federal funds purchased.
(c) Excludes long-term securities loaned of $1.3 billion and $1.2 billion as of December 31, 2017 and 2016, respectively, and average balances of $1.3 billion for both the years
ended December 31, 2017 and 2016.
2017
3,596
15,925
Total long-term unsecured funding-
maturities/redemptions
CREDIT AND INVESTMENT RISK MANAGEMENT
JPMorgan Chase & Co./2017 Annual Report
98
three key elements: clear, documented escalation criteria
appropriate to the business; a designated primary
discussion forum - in most cases, one or more dedicated
reputation risk committees; and a list of designated
contacts to whom questions relating to reputation risk
should be referred. Any matter giving rise to reputation risk
that originates in a corporate function is required to be
escalated directly to Firmwide Reputation Risk Governance
("FRRG") or to the relevant Risk Committee. Reputation risk
governance is overseen by FRRG, which provides oversight
of the governance infrastructure and process to support the
consistent identification, escalation, management and
monitoring of reputation risk issues firmwide.
Reputation risk is the potential that an action, inaction,
transaction, investment or event will reduce trust in the
Firm's integrity or competence by its various constituents,
including clients, counterparties, investors, regulators,
employees and the broader public. Maintaining the Firm's
reputation is the responsibility of each individual employee
of the Firm. The Firm's Reputation Risk Governance policy
explicitly vests each employee with the responsibility to
consider the reputation of the Firm when engaging in any
activity. Because the types of events that could harm the
Firm's reputation are so varied across the Firm's lines of
business, each line of business has a separate reputation
risk governance infrastructure in place, which consists of
REPUTATION RISK MANAGEMENT
JPMorgan Chase & Co./2017 Annual Report
97
Critical factors in maintaining high credit ratings include a
stable and diverse earnings stream, strong capital ratios,
strong credit quality and risk management controls, diverse
funding sources, and disciplined liquidity monitoring
procedures. Rating agencies continue to evaluate economic
and geopolitical trends, regulatory developments, future
profitability, risk management practices, and litigation
matters, as well as their broader ratings methodologies.
Changes in any of these factors could lead to changes in the
Firm's credit ratings.
Credit and investment risk is the risk associated with the
default or change in credit profile of a client, counterparty
or customer; or loss of principal or a reduction in expected
returns on investments.
JPMorgan Chase's unsecured debt does not contain
requirements that would call for an acceleration of
payments, maturities or changes in the structure of the
existing debt, provide any limitations on future borrowings
or require additional collateral, based on unfavorable
changes in the Firm's credit ratings, financial ratios,
earnings, or stock price.
Downgrades of the Firm's long-term ratings by one or two
notches could result in an increase in its cost of funds, and
access to certain funding markets could be reduced as
noted above. The nature and magnitude of the impact of
ratings downgrades depends on numerous contractual and
behavioral factors which the Firm believes are incorporated
in its liquidity risk and stress testing metrics. The Firm
believes that it maintains sufficient liquidity to withstand a
On June 1, 2017, JPMorgan Chase Bank, N.A. terminated its
guarantee of the payment of all obligations of J.P. Morgan
Securities plc arising after such termination. J.P. Morgan
Securities plc, whose credit ratings previously reflected the
benefit of this guarantee, is now rated on a stand-alone,
non-guaranteed basis.
On February 22, 2017, Moody's published its updated
rating methodologies for securities firms. As a result of this
methodology change, J.P. Morgan Securities LLC's long-term
issuer rating was downgraded by one notch from Aa3 to A1;
the short-term issuer rating was unchanged and the outlook
remained stable.
Stable
F1+
AA-
Stable
F1+
AA-
potential decrease in funding capacity due to ratings
downgrades.
Credit risk management
Credit risk is the risk associated with the default or change
in credit profile of a client, counterparty or customer. The
Firm provides credit to a variety of customers, ranging from
large corporate and institutional clients to individual
consumers and small businesses. In its consumer
businesses, the Firm is exposed to credit risk primarily
through its home lending, credit card, auto, and business
banking businesses. In its wholesale businesses, the Firm is
exposed to credit risk through its underwriting, lending,
market-making, and hedging activities with and for clients
and counterparties, as well as through its operating services
activities (such as cash management and clearing
activities), securities financing activities, investment
securities portfolio, and cash placed with banks.
Credit risk management is an independent risk
management function that monitors, measures and
manages credit risk throughout the Firm and defines credit
risk policies and procedures. The credit risk function reports
to the Firm's CRO. The Firm's credit risk management
governance includes the following activities:
Stress testing is important in measuring and managing
credit risk in the Firm's credit portfolio. The process
assesses the potential impact of alternative economic and
business scenarios on estimated credit losses for the Firm.
Economic scenarios and the underlying parameters are
defined centrally, articulated in terms of macroeconomic
factors and applied across the businesses. The stress test
results may indicate credit migration, changes in
delinquency trends and potential losses in the credit
portfolio. In addition to the periodic stress testing
processes, management also considers additional stresses
outside these scenarios, including industry and country-
specific stress scenarios, as necessary. The Firm uses stress
testing to inform decisions on setting risk appetite both at a
Firm and LOB level, as well as to assess the impact of stress
on individual counterparties.
Stress testing
based on both internal and external historical experience
and management judgment and are reviewed regularly.
Management's discussion and analysis
99
JPMorgan Chase & Co./2017 Annual Report
Risk-rated portfolios are generally held in CIB, CB and AWM,
but also include certain business banking and auto dealer
loans held in CCB that are risk-rated because they have
characteristics similar to commercial loans. For the risk-
rated portfolio, credit loss estimates are based on estimates
of the probability of default ("PD") and loss severity given a
default. The probability of default is the likelihood that a
borrower will default on its obligation; the loss given default
("LGD") is the estimated loss on the loan that would be
realized upon the default and takes into consideration
collateral and structural support for each credit facility. The
estimation process includes assigning risk ratings to each
borrower and credit facility to differentiate risk within the
portfolio. These risk ratings are reviewed regularly by Credit
Risk Management and revised as needed to reflect the
borrower's current financial position, risk profile and
related collateral. The calculations and assumptions are
Risk-rated exposure
The scored portfolio is generally held in CCB and
predominantly includes residential real estate loans, credit
card loans, and certain auto and business banking loans.
For the scored portfolio, credit loss estimates are based on
statistical analysis of credit losses over discrete periods of
time. The statistical analysis uses portfolio modeling, credit
scoring, and decision-support tools, which consider loan-
level factors such as delinquency status, credit scores,
collateral values, and other risk factors. Credit loss analyses
also consider, as appropriate, uncertainties and other
factors, including those related to current macroeconomic
and political conditions, the quality of underwriting
standards, and other internal and external factors. The
factors and analysis are updated on a quarterly basis or
more frequently as market conditions dictate.
Scored exposure
The methodologies used to estimate credit losses depend
on the characteristics of the credit exposure, as described
below.
Based on these factors and related market-based inputs,
the Firm estimates credit losses for its exposures. Probable
credit losses inherent in the consumer and wholesale held-
for-investment loan portfolios are reflected in the allowance
for loan losses, and probable credit losses inherent in
lending-related commitments are reflected in the allowance
for lending-related commitments. These losses are
estimated using statistical analyses and other factors as
described in Note 13. In addition, potential and unexpected
credit losses are reflected in the allocation of credit risk
capital and represent the potential volatility of actual losses
relative to the established allowances for loan losses and
lending-related commitments. The analyses for these losses
include stress testing that considers alternative economic
scenarios as described in the Stress testing section below.
For further information, see Critical Accounting Estimates
used by the Firm on pages 138-140.
The Credit Risk Management function monitors, measures,
manages and limits credit risk across the Firm's businesses.
To measure credit risk, the Firm employs several
methodologies for estimating the likelihood of obligor or
counterparty default. Methodologies for measuring credit
risk vary depending on several factors, including type of
asset (e.g., consumer versus wholesale), risk measurement
parameters (e.g., delinquency status and borrower's credit
score versus wholesale risk-rating) and risk management
and collection processes (e.g., retail collection center versus
centrally managed workout groups). Credit risk
measurement is based on the probability of default of an
obligor or counterparty, the loss severity given a default
event and the exposure at default.
Risk identification and measurement
Managing criticized exposures and delinquent loans
Estimating credit losses and ensuring appropriate credit
risk-based capital management
Assigning and managing credit authorities in connection
with the approval of all credit exposure
Setting industry concentration limits and establishing
underwriting guidelines
Monitoring, measuring and managing credit risk across all
portfolio segments, including transaction and exposure
approval
Establishing a comprehensive credit risk policy
framework
•
•
Stable
F1
A+
Fitch Ratings
Long-term
Short-term
issuer
issuer
Outlook
Long-term
Short-term
issuer
issuer
December 31, 2017
Long-term
J.P. Morgan Securities LLC
J.P. Morgan Securities plc
JPMorgan Chase Bank, N.A.
Chase Bank USA, N.A.
JPMorgan Chase & Co.
-
party commitments may be adversely affected by a decline
in credit ratings. For additional information on the impact of
a credit ratings downgrade on the funding requirements for
VIES, and on derivatives and collateral agreements, see
SPES on page 50, and credit risk, liquidity risk and credit-
related contingent features in Note 5 on page 186.
The cost and availability of financing are influenced by
credit ratings. Reductions in these ratings could have an
adverse effect on the Firm's access to liquidity sources,
increase the cost of funds, trigger additional collateral or
funding requirements and decrease the number of investors
and counterparties willing to lend to the Firm. Additionally,
the Firm's funding requirements for VIES and other third-
Credit ratings
JPMorgan Chase & Co./2017 Annual Report
96
46
The Firm raises secured long-term funding through
securitization of consumer credit card loans and advances
from the FHLBS.
$ 51,819 $ 51,140
Short-term
Eligible cash (a)
Outlook
issuer
Stable
A-1
A+
Stable
A-1
A+
Stable
A-2
A-
Standard & Poor's
Stable
P-1
A1
Stable
P-1
Aa3
Stable
P-2
A3
Moody's Investors Service
Outlook
issuer
31,181
1,527
79,519
HQLA
While the final U.S. NSFR rule has yet to be released, as of
December 31, 2017 the Firm estimates that it was
compliant with the proposed 100% minimum NSFR based
on its current understanding of the proposed rule.
Total capital ratio
Estimated
Minimum
39.6
15.9%
4.5%
15.9%
8.0%
Total capital
Estimated
91
93
•
Management's discussion and analysis
LIQUIDITY RISK MANAGEMENT
Liquidity risk is the risk that the Firm will be unable to meet
its contractual and contingent financial obligations as they
arise or that it does not have the appropriate amount,
composition and tenor of funding and liquidity to support
its assets and liabilities.
Liquidity risk oversight
The Firm has a liquidity risk oversight function whose
primary objective is to provide assessment, measurement,
monitoring, and control of liquidity risk across the Firm.
Liquidity risk oversight is managed through a dedicated
firmwide Liquidity Risk Oversight group. The CIO, Treasury
and Corporate ("CTC") CRO, who reports to the Firm's CRO,
as part of the IRM function, is responsible for firmwide
Liquidity Risk Oversight. Liquidity Risk Oversight's
responsibilities include:
•
•
Minimum
Estimated
CET1 ratio
$
(in millions)
Broker-dealer regulatory capital
JPMorgan Securities
JPMorgan Chase's principal U.S. broker-dealer subsidiary is
JPMorgan Securities. JPMorgan Securities is subject to Rule
15c3-1 under the Securities Exchange Act of 1934 (the
"Net Capital Rule"). JPMorgan Securities is also registered
as a futures commission merchant and subject to Rule 1.17
of the CFTC.
JPMorgan Securities has elected to compute its minimum
net capital requirements in accordance with the "Alternative
Net Capital Requirements" of the Net Capital Rule.
In accordance with the market and credit risk standards of
Appendix E of the Net Capital Rule, JPMorgan Securities is
eligible to use the alternative method of computing net
capital if, in addition to meeting its minimum net capital
requirements, it maintains tentative net capital of at least
$1.0 billion and is also required to notify the SEC in the
event that tentative net capital is less than $5.0 billion. As
of December 31, 2017, JPMorgan Securities had tentative
net capital in excess of the minimum and notification
requirements. The following table presents
JPMorgan Securities' net capital information:
December 31, 2017
(in billions)
JPMorgan Securities
Net capital
•
Actual Minimum
13.6 $ 2.8
J.P. Morgan Securities plc
J.P. Morgan Securities plc is a wholly owned subsidiary of JPMorgan Chase Bank, N.A. and is the Firm's principal operating
subsidiary in the U.K. It has authority to engage in banking, investment banking and broker-dealer activities.
J.P. Morgan Securities plc is jointly regulated by the U.K. PRA and the FCA. J.P. Morgan Securities plc is subject to the European
Union Capital Requirements Regulation and the U.K. PRA capital rules, each of which implemented Basel III and thereby subject
J.P. Morgan Securities plc to its requirements.
The following table presents J.P. Morgan Securities plc's capital information:
December 31, 2017
(in billions, except ratios)
J.P. Morgan Securities plc
JPMorgan Chase & Co./2017 Annual Report
$
•
60,617
Approving or escalating for review liquidity stress
assumptions;
Liquidity outflow assumptions are modeled across a range
of time horizons and currency dimensions and contemplate
both market and idiosyncratic stresses.
Results of stress tests are considered in the formulation of
the Firm's funding plan and assessment of its liquidity
position. The Parent Company acts as a source of funding
for the Firm through equity and long-term debt issuances,
and the IHC provides funding support to the ongoing
operations of the Parent Company and its subsidiaries, as
necessary. The Firm maintains liquidity at the Parent
Company and the IHC, in addition to liquidity held at the
operating subsidiaries, at levels sufficient to comply with
liquidity risk tolerances and minimum liquidity
requirements, and to manage through periods of stress
where access to normal funding sources is disrupted.
22
92
JPMorgan Chase & Co./2017 Annual Report
Contingency funding plan
The Firm's contingency funding plan (“CFP”), which is
approved by the firmwide ALCO and the DRPC, is a
compilation of procedures and action plans for managing
liquidity through stress events. The CFP incorporates the
limits and indicators set by the Liquidity Risk Oversight
group. These limits and indicators are reviewed regularly to
identify the emergence of risks or vulnerabilities in the
Firm's liquidity position. The CFP identifies the alternative
contingent funding and liquidity resources available to the
Firm and its legal entities in a period of stress.
LCR and HQLA
The LCR rule requires the Firm to maintain an amount of
unencumbered HQLA that is sufficient to meet its estimated
total net cash outflows over a prospective 30 calendar-day
period of significant stress. HQLA is the amount of liquid
assets that qualify for inclusion in the LCR. HQLA primarily
consist of unencumbered cash and certain high quality
liquid securities as defined in the LCR rule.
Under the LCR rule, the amount of HQLA held by JPMorgan
Chase Bank N.A. and Chase Bank USA, N.A that are in excess
of each entity's standalone 100% minimum LCR
requirement, and that are not transferable to non-bank
affiliates, must be excluded from the Firm's reported HQLA.
Effective January 1, 2017, the LCR is required to be a
minimum of 100%.
On December 19, 2016, the Federal Reserve published final
LCR public disclosure requirements for certain BHCs and
non-bank financial companies. Beginning with the second
quarter of 2017, the Firm disclosed its average LCR for the
quarter and the key quantitative components of the average
LCR, along with a qualitative discussion of material drivers
of the ratio, changes over time, and causes of such changes.
The Firm will continue to make available its U.S. LCR
Disclosure report on a quarterly basis on the Firm's website
at: (https://investor.shareholder.com/jpmorganchase/
basel.cfm)
The following table summarizes the Firm's average LCR for
the three months ended December 31, 2017 based on the
Firm's current interpretation of the finalized LCR
framework.
Average amount
Three months ended
December 31, 2017
As of December 31, 2017, in addition to assets reported in
the Firm's HQLA under the LCR rule, the Firm had
approximately $208 billion of unencumbered marketable
securities, such as equity securities and fixed income debt
securities, available to raise liquidity, if required. This
includes HQLA-eligible securities included as part of the
excess liquidity at JPMorgan Chase Bank, N.A. that are not
transferable to non-bank affiliates.
As of December 31, 2017, the Firm also had approximately
$277 billion of available borrowing capacity at various
Federal Home Loan Banks ("FHLBS"), discount windows at
Federal Reserve Banks and various other central banks as a
result of collateral pledged by the Firm to such banks. This
borrowing capacity excludes the benefit of securities
reported in the Firm's HQLA or other unencumbered
securities that are currently pledged at Federal Reserve
Bank discount windows. Although available, the Firm does
not view the borrowing capacity at Federal Reserve Bank
discount windows and the various other central banks as a
primary source of liquidity.
NSFR
Establishing and monitoring limits, indicators, and
thresholds, including liquidity risk appetite tolerances;
Monitoring internal firmwide and material legal entity
liquidity stress tests, and monitoring and reporting
regulatory defined liquidity stress testing;
The net stable funding ratio ("NSFR") is intended to
measure the adequacy of "available" and "required"
amounts of stable funding over a one-year horizon. On April
26, 2016, the U.S. NSFR proposal was released for large
banks and BHCs and was largely consistent with the Basel
Committee's final standard.
Potential impediments to the availability and
transferability of liquidity between jurisdictions and
material legal entities such as regulatory, legal or other
restrictions.
Estimated non-contractual and contingent cash outflows,
and
For the three months ended December 31, 2017, the Firm's
average LCR was 119%, compared with an average of
120% for the three months ended September 30, 2017.
The decrease in the ratio was largely attributable to a
decrease in average HQLA, driven primarily by long-term
debt maturities. The Firm's average LCR may fluctuate from
period to period, due to changes in its HQLA and estimated
net cash outflows under the LCR as a result of ongoing
business activity. The Firm's HQLA are expected to be
available to meet its liquidity needs in a time of stress.
Other liquidity sources
Liquidity stress tests are intended to ensure that the Firm
has sufficient liquidity under a variety of adverse scenarios,
including scenarios analyzed as part of the Firm's resolution
and recovery planning. Stress scenarios are produced for
JPMorgan Chase & Co. ("Parent Company") and the Firm's
material legal entities on a regular basis, and ad hoc stress
tests are performed, as needed, in response to specific
market events or concerns. Liquidity stress tests assume all
of the Firm's contractual financial obligations are met and
take into consideration:
Conducting ad hoc analysis to identify potential
Varying levels of access to unsecured and secured
funding markets,
Monitoring liquidity positions, balance sheet variances
and funding activities, and
emerging liquidity risks.
Treasury and CIO is responsible for liquidity management.
The primary objectives of effective liquidity management
are to:
•
•
Ensure that the Firm's core businesses and material legal
entities are able to operate in support of client needs
and meet contractual and contingent financial
obligations through normal economic cycles as well as
during stress events, and
Manage an optimal funding mix and availability of
liquidity sources.
The Firm manages liquidity and funding using a centralized,
global approach across its entities, taking into consideration
both their current liquidity profile and any potential
changes over time, in order to optimize liquidity sources
and uses.
Liquidity management
•
Analyzing and understanding the liquidity characteristics
of the assets and liabilities of the Firm, lines of business
and legal entities, taking into account legal, regulatory,
and operational restrictions;
Developing internal liquidity stress testing assumptions;
Defining and monitoring firmwide and legal entity-
specific liquidity strategies, policies, guidelines,
reporting and contingency funding plans;
Managing liquidity within the Firm's approved liquidity
risk appetite tolerances and limits;
Internal stress testing
Managing compliance with regulatory requirements
related to funding and liquidity risk, and
Setting transfer pricing in accordance with underlying
liquidity characteristics of balance sheet assets and
liabilities as well as certain off-balance sheet items.
Risk governance and measurement
In the context of the Firm's liquidity management, Treasury
and CIO is responsible for:
Specific committees responsible for liquidity governance
include the firmwide ALCO as well as line of business and
regional ALCOS, and the CTC Risk Committee. In addition,
the DRPC reviews and recommends to the Board of
Directors, for formal approval, the Firm's liquidity risk
tolerances, liquidity strategy, and liquidity policy at least
annually. For further discussion of ALCO and other risk-
related committees, see Enterprise-wide Risk Management
on pages 75-137.
4,383
24,486
29,317
Utilities
(5,290)
-
4
14
4,484
28,029
32,531
227
Asset Managers
27
221
(130)
(160)
(1)
4
65
376
18,741
19,182
Central Govt
(524)
5
12
656
27,977
28,633
State & Municipal Govt(b)
(56)
11
(747)
(1)
22
150
145
1,159
16,770
37,198
55,272
Industrials
(207)
(1)
82
38
585
12,731
42,643
55,997
(10,095)
71
(196)
Banks & Finance Cos
987
4,046
14,854
21,430
41,317
Oil & Gas
(3,174)
(1,216)
6
1
4
612
13,767
34,654
49,037
(21)
(2,520)
221
15,945
All other(c)
(335)
(274)
1
1,553
2,559
4,113
Securities Firms
(23)
261
4,775
5,036
Financial Markets Infrastructure
(2,195)
(157)
147,900
1
134,110
$
$ 861,265
5,607
26,139
Receivables from customers and other
Total(d)
Loans held-for-sale and loans at fair
value
(16,108)
(1,600)
(2,817)
119 $ (17,609) $
2,595 $ 1,524 $
13,010 $
8
901
247
260
13,283
181,349 $
829,519 $ 632,565 $
Subtotal
80
2,981
11,028
(131)
(32)
14
9
98
527
5,302
9,870
15,797
Transportation
-
4
74
4,764
11,107
Automotive
14,820
9,321
5,278
14,089
Insurance
(1)
(316)
(13)
3
39
Chemicals & Plastics
321
6,989
14,171
Metals & Mining
(284)
1
10
Healthcare
6,822
(19)
137 $
(12)
ΝΑ
353
429
Lending-related
commitments
991,482 975,152 (d)
$2,004,974 $1,951,555
731
NA
506
$ 7,157 $ 8,041
Total credit portfolio
Credit derivatives used in
credit portfolio
management
activities (b)
JPMorgan Chase & Co./2017 Annual Report
$ (17,609) $ (22,114)
$
$
(d)
Total assets acquired in
loan satisfactions
59
42
Total credit-related
assets
1,013,492
976,403
6,073
7,106
Assets acquired in loan
satisfactions
Real estate owned
ΝΑ
ΝΑ
311
370
Other
NA
ΝΑ
Liquid securities and
other cash collateral
held against
derivatives(c)
865,887
822,973
Net charge-off rates(g)
Loans
Loans excluding PCI
0.60%
0.62
0.54%
0.57
margin loans to brokerage customers.
(a) Receivables from customers and other primarily represents held-for-investment
(b) Represents the net notional amount of protection purchased and sold through
credit derivatives used to manage both performing and nonperforming wholesale
credit exposures; these derivatives do not qualify for hedge accounting under
U.S. GAAP. For additional information, see Credit derivatives on pages 115-116
and Note 5.
(c) Includes collateral related to derivative instruments where an appropriate legal
opinion has not been either sought or obtained.
(d) The prior period amounts have been revised to conform with the current period
presentation.
(e) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as each of the pools is performing.
residential real estate PCI loans
17,560
Loans reported, excluding
898,979
Year ended December 31,
(16,108)
(22,705)
ΝΑ
ΝΑ
(in millions, except ratios)
2017
2016
Net charge-offs (g)
$
5,387
$
4,692
Average retained loans
Loans
861,345
26,272
223
6,883
859 $
23,012 $
115,401 $
$ 139,409 $
receivables
derivative
and other
cash
collateral
held against
Credit
derivative
hedges(f)
Net charge-
offs/
(recoveries)
30 days or
more past
due and
accruing
loans
Criticized
nonperforming
Criticized
performing
Noncriticized
Investment-
grade
Credit
exposure(e)
254 $
Telecommunications
(4) $
(2)
14
53
2,258
20,453
36,510
59,274
(9)
(275)
34
30
532
1,791
29,619
55,737
87,679
$
(910)
Technology, Media &
Real Estate
2016
$ 924,838 $ 889,907
3,351
Nonperforming(e)(f)
2017
2016
$ 5,943 $ 6,721
2,628
162
2,508
2,230
930,697
894,765
56,523
64,078
5,943
130
2017
Consumer & Retail
Credit exposure
December 31,
(in millions)
Loans retained
(in millions)
December 31, 2017
As of or for the year ended
Noninvestment-grade
Liquid
Selected metrics
Wholesale credit exposure - industries (a)
Below are summaries of the Firm's exposures as of December 31, 2017 and 2016. For additional information on industry
concentrations, see Note 4.
In 2017, the Firm revised its methodology for the assignment of industry classifications, to better monitor and manage
concentrations. This largely resulted in the re-assignment of holding companies from All other to the industry of risk category
based on the primary business activity of the holding company's underlying entities. In the tables and industry discussions
below, the prior period amounts have been revised to conform with the current period presentation.
CREDIT PORTFOLIO
In the following tables, reported loans include loans
retained (i.e., held-for-investment); loans held-for-sale; and
certain loans accounted for at fair value. The following
tables do not include certain loans the Firm accounts for at
fair value and classifies as trading assets. For further
information regarding these loans, see Note 2 and Note 3.
For additional information on the Firm's loans, lending-
related commitments, and derivative receivables, including
the Firm's accounting policies, see Note 12, Note 27, and
Note 5, respectively.
For further information regarding the credit risk inherent in
the Firm's cash placed with banks, investment securities
portfolio, and securities financing portfolio, see Note 4,
Note 10, and Note 11, respectively.
For discussion of the consumer credit environment and
consumer loans, see Consumer Credit Portfolio on pages
102-107 and Note 12. For discussion of the wholesale
credit environment and wholesale loans, see Wholesale
Credit Portfolio on pages 108-116 and Note 12.
Total credit portfolio
Loans held-for-sale
Loans at fair value
Total loans-reported
Derivative receivables
Receivables from
customers and other (a)
securities
$ 845,157
(f) At December 31, 2017 and 2016, nonperforming assets excluded: (1) mortgage
loans insured by U.S. government agencies of $4.3 billion and $5.0 billion,
respectively, that are 90 or more days past due; (2) student loans insured by U.S.
government agencies under the FFELP of zero and $263 million, respectively,
that are 90 or more days past due; and (3) Real estate owned ("REO") insured by
U.S. government agencies of $95 million and $142 million, respectively. These
amounts have been excluded based upon the government guarantee. In addition,
the Firm's policy is generally to exempt credit card loans from being placed on
nonaccrual status as permitted by regulatory guidance issued by the Federal
Financial Institutions Examination Council ("FFIEC").
Consistent with the Firm's policy, all credit card loans
typically remain on accrual status until charged off.
However, the Firm establishes an allowance, which is offset
against loans and charged to interest income, for the
estimated uncollectible portion of accrued and billed
interest and fee income.
At both December 31, 2017 and 2016, the Firm had $1.2
billion of credit card loans outstanding that have been
modified in TDRs. These balances included both credit card
loans with modified payment terms and credit card loans
that reverted back to their pre-modification payment terms
because the cardholder did not comply with the modified
payment terms.
Modifications of credit card loans
Total credit card loans increased from December 31, 2016
due to strong new account growth and higher sales volume.
The December 31, 2017 30+ day delinquency rate
increased to 1.80% from 1.61% at December 31, 2016,
while the December 31, 2017 90+ day delinquency rate
increased to 0.92% from 0.81% at December 31, 2016, in
line with expectations. Net charge-offs increased for the
year ended December 31, 2017 primarily due to growth in
newer vintages which, as anticipated, have higher loss rates
than the more seasoned portion of the portfolio. The credit
card portfolio continues to reflect a largely well-seasoned
portfolio that has strong U.S. geographic diversification.
Loans outstanding in the top five states of California, Texas,
New York, Florida and Illinois consisted of $67.2 billion in
receivables, or 45% of the retained loan portfolio, at
December 31, 2017, compared with $62.8 billion, or 44%,
at December 31, 2016. For more information on the
geographic and FICO composition of the Firm's credit card
loans, see Note 12.
Credit card
JPMorgan Chase & Co./2017 Annual Report
106
Net changes
Total reductions
Returned to performing status
Foreclosures and other liquidations
(a) Other reductions includes loan sales.
4,820
4,209 $
$
Ending balance
(593)
(611)
$
4,820 $
3,525
5,413
3,858
1,577
1,437
For additional information about loan modification
programs to borrowers, see Note 12.
699
1,509
1,589
351
582
4,136
4,451
843
JPMorgan Chase & Co./2017 Annual Report
107
Management's discussion and analysis
2016
2017
$ 1,734 $ 1,954
109
1,734 2,063
130
223
26,139
17,440
2017
$402,898 $383,790
2,285
2,230
388,305
64,078
491,167 469,823
370,098 368,014
731
506
$861,265 $837,837 $ 2,595 $2,792
management activities (b) $ (17,609) $ (22,114) $
$
1,864 2,286
2016
56,523
2,508
WHOLESALE CREDIT PORTFOLIO
In its wholesale businesses, the Firm is exposed to credit
risk through its underwriting, lending, market-making, and
hedging activities with and for clients and counterparties,
as well as through its operating services activities (such as
cash management and clearing activities), securities
financing activities, investment securities portfolio, and
cash placed with banks. A portion of the loans originated or
acquired by the Firm's wholesale businesses is generally
retained on the balance sheet. The Firm distributes a
significant percentage of the loans it originates into the
market as part of its syndicated loan business and to
manage portfolio concentrations and credit risk.
The wholesale credit portfolio was stable for the year ended
December 31, 2017, characterized by low levels of
criticized exposure, nonaccrual loans and charge-offs. See
industry discussion on pages 109-112 for further
information. The increase in retained loans was driven by
new originations in CB and higher loans to Private Banking
clients in AWM, which was partially offset by paydowns in
CIB. Discipline in underwriting across all areas of lending
continues to be a key point of focus. The wholesale portfolio
is actively managed, in part by conducting ongoing, in-
depth reviews of client credit quality and transaction
structure inclusive of collateral where applicable, and of
industry, product and client concentrations.
In the following tables, the Firm's wholesale credit portfolio
includes exposure held in CIB, CB, AWM and Corporate, and
excludes all exposure managed by CCB.
Wholesale credit portfolio
December 31,
(in millions)
Loans retained
408,505
Loans held-for-sale
Lending-related
commitments
Total wholesale credit
exposure
Credit derivatives used
in credit portfolio
Credit exposure
Nonperforming (c)
2016
3,099
Loans at fair value
Loans - reported
Derivative receivables
Receivables from
customers and other (a)
Total wholesale credit-
related assets
Liquid securities and
2017
Reductions:
Total modified PCI loans $17,721
ΝΑ
ΝΑ 9,295
8,276
Option ARMS
ΝΑ
ΝΑ 2,951
2,678
Subprime mortgage
ΝΑ
NA
NA $ 2,447
ΝΑ 5,052
4,490
Prime mortgage
$ 2,277
Home equity
Modified PCI loans (c)
Nonaccrual
retained Retained
loans(d) loans
Nonaccrual
retained
loans (d)
6,032
1,743
1,755
1,032 $ 2,264 $ 1,116
Residential mortgage
5,620
NA $19,745
Home equity
Total modified
residential real estate
loans, excluding PCI
loans
$ 7,738 $
2,775 $ 8,296 $
2,871
$ 2,118 $
ΝΑ
Nonperforming assets
The following table presents information as of
December 31, 2017 and 2016, about consumer, excluding
credit card, nonperforming assets.
$ 4,474 $
5,169
(a) At December 31, 2017 and 2016, nonperforming assets excluded: (1) mortgage
loans insured by U.S. government agencies of $4.3 billion and $5.0 billion,
respectively, that are 90 or more days past due; (2) student loans insured by U.S.
government agencies under the FFELP of zero and $263 million, respectively,
that are 90 or more days past due; and (3) real estate owned insured by U.S.
government agencies of $95 million and $142 million, respectively. These
amounts have been excluded based upon the government guarantee.
(b) Excludes PCI loans which are accounted for on a pool basis. Since each pool is
accounted for as a single asset with a single composite interest rate and an
aggregate expectation of cash flows, the past-due status of the pools, or that of
individual loans within the pools, is not meaningful. The Firm is recognizing
interest income on each pool of loans as each of the pools is performing.
(c) Certain loan portfolios have been reclassified. The prior period amounts have
been revised to conform with the current period presentation.
Nonaccrual loans in the residential real estate portfolio at
December 31, 2017 decreased to $3.8 billion from $4.2
billion at December 31, 2016, of which 26% and 29% were
greater than 150 days past due, respectively. In the
aggregate, the unpaid principal balance of residential real
estate loans greater than 150 days past due was charged
down by approximately 40% and 43% to the estimated net
realizable value of the collateral at December 31, 2017 and
2016, respectively.
Active and suspended foreclosure: For information on
loans that were in the process of active or suspended
foreclosure, see Note 12.
349
Nonaccrual loans: The following table presents changes in
the consumer, excluding credit card, nonaccrual loans for
the years ended December 31, 2017 and 2016.
(a) Amounts represent the carrying value of modified residential real estate loans.
(b) At December 31, 2017 and 2016, $3.8 billion and $3.4 billion, respectively, of
loans modified subsequent to repurchase from Ginnie Mae in accordance with
the standards of the appropriate government agency (i.e., Federal Housing
Administration ("FHA"), U.S. Department of Veterans Affairs ("VA"), Rural
Housing Service of the U.S. Department of Agriculture ("RHS")) are not included
in the table above. When such loans perform subsequent to modification in
accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie
Mae loan pools. Modified loans that do not re-perform become subject to
foreclosure. For additional information about sales of loans in securitization
transactions with Ginnie Mae, see Note 14.
(c) Amounts represent the unpaid principal balance of modified PCI loans.
(d) As of December 31, 2017 and 2016, nonaccrual loans included $2.2 billion and
$2.3 billion, respectively, of troubled debt restructuring ("TDRS") for which the
borrowers were less than 90 days past due. For additional information about
loans modified in a TDR that are on nonaccrual status, see Note 12.
Year ended December 31,
(in millions)
Beginning balance
Additions
Nonaccrual loan activity
Principal payments and other(a)
Charge-offs
265
40
Nonperforming assets (a)
December 31, (in millions)
Nonaccrual loans(b)
Residential real estate (c)
Other consumer(c)
Total nonaccrual loans
Assets acquired in loan satisfactions
Real estate owned
Other
Total assets acquired in loan satisfactions
Total nonperforming assets
2017
57
2016
4,154
666
4,209
4,820
225
292
$ 3,785 $
424
Retained
loans
other cash collateral
(16,108)
64,078
76%
$ 383,790
93,867
$
$ 289,923
99,317 $ 383,790
64.078
Total %
of IG
Total
BB+/Ba1 &
below
AAA/Aaa to
BBB-/Baa3
Total
Due after 5
years
5 years
167,235 $
$ 117,238 $
1 year
through
Due in 1
year or less
(14,984)
$
(2,625)
$ (17,609)
85%
Maturity profile(d)
Less: Liquid securities and other cash collateral
held against derivatives
December 31, 2016
Loans retained
Derivative receivables
Due after
Investment-
grade
Ratings profile
Noninvestment-
grade
(in millions, except ratios)
(22,705)
(22,705)
Total derivative receivables, net of all collateral
Lending-related commitments
$
(1,354) $ (16,537) $ (4,223) $ (22,114) $ (18,710)
$
$ 815,132
(3,404)
$
$ 815,132
(22,114)
(a) Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value.
(b) These derivatives do not qualify for hedge accounting under U.S. GAAP.
(c) The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference entity on which
protection has been purchased. Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection used in credit portfolio management
activities, are executed with investment-grade counterparties.
(d) The maturity profile of retained loans, lending-related commitments and derivative receivables is based on remaining contractual maturity. Derivative contracts that are in a
receivable position at December 31, 2017, may become payable prior to maturity based on their cash flow profile or changes in market conditions.
Wholesale credit exposure - industry exposures
The Firm focuses on the management and diversification of
its industry exposures, and pays particular attention to
industries with actual or potential credit concerns.
Exposures deemed criticized align with the U.S. banking
regulators' definition of criticized exposures, which consist
of the special mention, substandard and doubtful
categories. The total criticized component of the portfolio,
excluding loans held-for-sale and loans at fair value, was
$15.6 billion at December 31, 2017, compared with $19.8
billion at December 31, 2016, driven by a 47% decrease in
the Oil & Gas portfolio.
85%
(11,011) $ (4,791) $ (17,609) $
Credit derivatives used in credit portfolio
management activities (b)(c)
75
14,019
Subtotal
88,399
219,656
8,510
271,825
447,570
18,844
7,790
125,951
41,373
368,014
793,177
Total exposure - net of liquid securities and other
cash collateral held against derivatives
33,081
269,820
592,824
Loans held-for-sale and loans at fair value (a)
Receivables from customers and other
4,515
17,440
41,373
368,014
793,177
4,515
17,440
80
73
8,292
98,194
200,353
held against derivatives
$ (1,807) $
Management's discussion and analysis
$ 402,898
91,217
$
$ 311,681
$ 121,643 $ 177,033 $ 104,222 $ 402,898
Total %
of IG
Total
BB+/Ba1 &
below
AAA/Aaa to
BBB-/Baa3
Noninvestment-
grade
Investment-
grade
Ratings profile
Total
Due after 5
years
Due after
1 year
through
5 years
Due in 1
year or less
Maturity profile(d)
(22,705)
ΝΑ
ΝΑ
(a) Receivables from customers and other include $26.0 billion and $17.3
billion of held-for-investment margin loans at December 31, 2017 and
2016, respectively, to brokerage customers in CIB Prime Services and
in AWM; these are classified in accrued interest and accounts
receivable on the Consolidated balance sheets.
(b) Represents the net notional amount of protection purchased and sold
through credit derivatives used to manage both performing and
nonperforming wholesale credit exposures; these derivatives do not
qualify for hedge accounting under U.S. GAAP. For additional
information, see Credit derivatives on pages 115-116, and Note 5.
(c) Excludes assets acquired in loan satisfactions.
108
77%
JPMorgan Chase & Co./2017 Annual Report
Wholesale credit exposure - maturity and ratings profile
December 31, 2017
(in millions, except ratios)
Loans retained
Derivative receivables
Less: Liquid securities and other cash collateral
held against derivatives
The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of December 31, 2017 and
2016. The ratings scale is based on the Firm's internal risk ratings, which generally correspond to the ratings assigned by S&P
and Moody's. For additional information on wholesale loan portfolio risk ratings, see Note 12.
56,523
56,523
(16,108)
74
138,800
813,411
618,181
195,230
813,411
370,098
76
Receivables from customers and other
5,607
26,139
5,607
26,139
Total exposure - net of liquid securities and other
cash collateral held against derivatives
$ 845,157
Loans held-for-sale and loans at fair value(a)
Credit derivatives used in credit portfolio
management activities (b)(c)
95,971
370,098
(16,108)
Total derivative receivables, net of all collateral
Lending-related commitments
9,882
80,273
Subtotal
211,798
274,127
10,463
275,317
462,813
40,415
32,373
8,042
40,415
80
14,508
20,070
2016
2017
excluding PCI loans (a)(b)
10,689
NA
NA
NA
NA
2,941
2,609
NA
ΝΑ
NA
ΝΑ
7,602
6,479
Option ARMs(f)
Subprime mortgage
Prime mortgage
ΝΑ
1,145
909
0.34
0.28
Student(a)(e)
Total loans, excluding PCI loans and loans held-for-sale
12,234
341,977
Home equity
10,799
12,902
ΝΑ
ΝΑ
ΝΑ
Loans - PCI
ΝΑ
ΝΑ
ΝΑ
NA
Total loans - retained
372,553
364,406
4,209
4,767
NA
1,145
0.31
0.25
Loans held-for-sale
128
238
53
909
4,767
ΝΑ
ΝΑ
ΝΑ
Total loans - PCI
30,576
35,679
NA
ΝΑ
NA
ΝΑ
금금금금금
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
-
4,209
2.13
33,450
$
$ 216,496
2016
2017
2016
2017
Average annual net
charge-off rate(e)(m)(n)
Net charge-offs/
(recoveries) (e)(m)(n)
Nonaccrual loans (k)(I)
2016
2017
2016
2017
Credit exposure
Consumer & Business Banking(a)(c)(d)
Auto(b)(c)
Home equity
(g) For the year ended December 31, 2017, excluding net charge-offs of $467
million related to the student loan portfolio sale, the net charge-off rate for loans
would have been 0.55% and for loans - excluding PCI would have been 0.57%.
101
Management's discussion and analysis
CONSUMER CREDIT PORTFOLIO
The Firm's retained consumer portfolio consists primarily of
residential real estate loans, credit card loans, auto loans,
and business banking loans, as well as associated lending-
related commitments. The Firm's focus is on serving
primarily the prime segment of the consumer credit market.
Originated mortgage loans are retained in the mortgage
portfolio, securitized or sold to U.S. government agencies
and U.S. government-sponsored enterprises; other types of
consumer loans are typically retained on the balance sheet.
The credit performance of the consumer portfolio continues
to benefit from discipline in credit underwriting as well as
improvement in the economy driven by increasing home
prices and low unemployment. The total amount of
residential real estate loans delinquent 30+ days, excluding
government guaranteed and purchased credit impaired
loans, increased from December 31, 2016 due to the impact
of recent hurricanes; however, the 30+ day delinquency rate
decreased due to growth in the portfolio. The Credit Card
30+ day delinquency rate and the net charge-off rate
increased from the prior year, in line with expectations. For
further information on consumer loans, see Note 12. For
further information on lending-related commitments, see
Note 27.
102
192,486
39,063
JPMorgan Chase & Co./2017 Annual Report
Consumer credit portfolio
As of or for the year ended December 31,
(in millions, except ratios)
Consumer, excluding credit card
Loans, excluding PCI loans and loans held-for-sale
Residential mortgage(a)
The following table presents consumer credit-related information with respect to the credit portfolio held by CCB, prime
mortgage and home equity loans held by AWM, and prime mortgage loans held by Corporate. For further information about the
Firm's nonaccrual and charge-off accounting policies, see Note 12.
$ 2,175 $ 2,256
$
(10) $
24,307
283
287
257
257
1.03
25,789
1.10
7,057
-
165
498
162
NM
-
328,727
0.45
285
16
-%
0.01%
1,610
1,845
69
0.51
189
0.45
66,242
65,814
141
214
331
0.19
Total consumer, excluding credit card loans
372,681
364,644
3.8
4.0
4.0
Prime mortgage
12.8
12.9 $
$
14.4
14.2 $
$
2016
2017
2016
Life-to-date liquidation losses (b)
Lifetime loss estimates(a)
2017
Home equity
December 31, (in billions)
At December 31, 2017 and 2016, the Firm's residential
mortgage portfolio, including loans held-for-sale, included
$8.6 billion and $9.5 billion, respectively, of mortgage
loans insured and/or guaranteed by U.S. government
agencies, of which $6.2 billion and $7.0 billion,
respectively, were 30 days or more past due (of these past
due loans, $4.3 billion and $5.0 billion, respectively, were
90 days or more past due). The Firm monitors its exposure
to certain potential unrecoverable claim payments related
to government insured loans and considers this exposure in
estimating the allowance for loan losses.
At December 31, 2017 and 2016, the Firm's residential
mortgage portfolio included $20.2 billion and $19.1 billion,
respectively, of interest-only loans. These loans have an
interest-only payment period generally followed by an
adjustable-rate or fixed-rate fully amortizing payment
period to maturity and are typically originated as higher-
balance loans to higher-income borrowers. To date, losses
on this portfolio generally have been consistent with the
broader residential mortgage portfolio. The Firm continues
to monitor the risks associated with these loans.
Home equity: The home equity portfolio declined from
December 31, 2016 primarily reflecting loan paydowns.
The amount of 30+ day delinquencies decreased from
December 31, 2016 but was impacted by recent hurricanes.
Nonaccrual loans decreased from December 31, 2016
primarily as a result of loss mitigation activities. Net charge-
offs for the year ended December 31, 2017 declined when
compared with the prior year, partially as a result of lower
loan balances.
At December 31, 2017, approximately 90% of the Firm's
home equity portfolio consists of home equity lines of credit
("HELOCS") and the remainder consists of home equity
loans ("HELOANS"). HELOANS are generally fixed-rate,
closed-end, amortizing loans, with terms ranging from 3-30
years. In general, HELOCS originated by the Firm are
revolving loans for a 10-year period, after which time the
HELOC recasts into a loan with a 20-year amortization
period.
The carrying value of HELOCS outstanding was $30 billion at
December 31, 2017. Of such amounts, $14 billion have
recast from interest-only to fully amortizing payments or
have been modified and $5 billion are interest-only balloon
HELOCS, which primarily mature after 2030. The Firm
manages the risk of HELOCS during their revolving period by
closing or reducing the undrawn line to the extent
permitted by law when borrowers are exhibiting a material
deterioration in their credit risk profile.
104
3.7
JPMorgan Chase & Co./2017 Annual Report
Auto: The auto loan portfolio, which predominantly consists
of prime-quality loans, was relatively flat compared with
December 31, 2016, as new originations were largely offset
by paydowns and the charge-off or liquidation of delinquent
loans. Nonaccrual loans decreased compared with
December 31, 2016. Net charge-offs for the year ended
December 31, 2017 increased compared with the prior
year, primarily as a result of an incremental adjustment
recorded in accordance with regulatory guidance regarding
the timing of loss recognition for certain loans in
bankruptcy and loans where assets were acquired in loan
satisfaction.
Consumer & Business banking: Consumer & Business
Banking loans increased compared with December 31,
2016 as growth due to loan originations was partially offset
by paydowns and the charge-off or liquidation of delinquent
loans. Nonaccrual loans and net charge-offs were relatively
flat compared with prior year.
Student: The Firm wrote down and subsequently sold the
student loan portfolio during 2017. Net charge-offs for the
year ended December 31, 2017 increased as a result of the
write-down.
Purchased credit-impaired loans: PCI loans decreased as
the portfolio continues to run off. As of December 31,
2017, approximately 11% of the option ARM PCI loans
were delinquent and approximately 68% of the portfolio
had been modified into fixed-rate, fully amortizing loans.
The borrowers for substantially all of the remaining loans
are making amortizing payments, although such payments
are not necessarily fully amortizing. This latter group of
loans is subject to the risk of payment shock due to future
payment recast. Default rates generally increase on option
ARM loans when payment recast results in a payment
increase. The expected increase in default rates is
considered in the Firm's quarterly impairment assessment.
The following table provides a summary of lifetime principal loss estimates included in either the nonaccretable difference or
the allowance for loan losses.
Summary of PCI loans lifetime principal loss estimates
The Firm monitors risks associated with junior lien loans
where the borrower has a senior lien loan that is more than
90 days delinquent or has been modified. These loans are
considered "high-risk seconds" and are classified as
nonaccrual as they are considered to pose a higher risk of
default than other junior lien loans. At December 31, 2017,
the Firm estimated that the carrying value of its home
equity portfolio contained approximately $725 million of
current junior lien loans that were considered high-risk
seconds, compared with $1.1 billion at December 31,
2016. For further information, see Note 12.
Subprime mortgage
3.3
3.2
Average current estimated loan-to-value ("LTV") ratios have
declined consistent with improvements in home prices,
customer pay downs, and charge-offs or liquidations of
higher LTV loans. For further information on current
estimated LTVs of residential real estate loans, see Note 12.
JPMorgan Chase & Co./2017 Annual Report
Loan modification activities for residential real estate
loans
The performance of modified loans generally differs by
product type due to differences in both the credit quality
and the types of modifications provided. Performance
metrics for modifications to the residential real estate
portfolio, excluding PCI loans, that have been seasoned
more than six months show weighted-average redefault
rates of 24% for residential mortgages and 21% for home
equity. The cumulative performance metrics for
modifications to the PCI residential real estate portfolio that
have been seasoned more than six months show weighted
average redefault rates of 20% for home equity, 19% for
prime mortgages, 16% for option ARMS and 34% for
subprime mortgages. The cumulative redefault rates reflect
the performance of modifications completed under both the
U.S. Government's Home Affordable Modification Program
("HAMP") and the Firm's proprietary modification programs
105
Management's discussion and analysis
Current estimated loan-to-values of residential real
estate loans
(primarily the Firm's modification program that was
modeled after HAMP) from October 1, 2009, through
December 31, 2017.
The following table presents information as of
December 31, 2017 and 2016, relating to modified
retained residential real estate loans for which concessions
have been granted to borrowers experiencing financial
difficulty. For further information on modifications for the
years ended December 31, 2017 and 2016, see Note 12.
Modified residential real estate loans
December 31,
(in millions)
Modified residential
real estate loans,
Certain loans that were modified under HAMP and the
Firm's proprietary modification programs have interest rate
reset provisions (“step-rate modifications"). Interest rates
on these loans generally began to increase commencing in
2014 by 1% per year, and will continue to do so until the
rate reaches a specified cap. The cap on these loans is
typically at a prevailing market interest rate for a fixed-rate
mortgage loan as of the modification date. At December 31,
2017, the carrying value of non-PCI loans and the unpaid
principal balance of PCI loans modified in step-rate
modifications, which have not yet met their specified caps,
were $3 billion and $7 billion, respectively. The Firm
continues to monitor this risk exposure and the impact of
these potential interest rate increases is considered in the
Firm's allowance for loan losses.
Residential mortgage: The residential mortgage portfolio
predominantly consists of high-quality prime mortgage
loans with a small component (approximately 1%) of
subprime mortgage loans. These subprime mortgage loans
continue to run-off and are performing in line with
expectations. The residential mortgage portfolio, including
loans held-for-sale, increased from December 31, 2016 due
to retained originations of primarily high-quality fixed rate
prime mortgage loans partially offset by paydowns.
Residential mortgage 30+ day delinquencies increased from
December 31, 2016 due to the impact of recent hurricanes.
Nonaccrual loans decreased from the prior year primarily as
a result of loss mitigation activities. There was a net
recovery for the year ended December 31, 2017 compared
to a net charge-off for the year ended December 31, 2016,
reflecting continued improvement in home prices and
delinquencies.
At December 31, 2017, $152.8 billion, or 63% of the total
retained residential real estate loan portfolio, excluding
mortgage loans insured by U.S. government agencies and
PCI loans, were concentrated in California, New York,
Illinois, Texas and Florida, compared with $139.9 billion, or
63%, at December 31, 2016. For additional information on
the geographic composition of the Firm's residential real
estate loans, see Note 12.
For further information on the Firm's PCI loans, including write-offs, see Note 12.
3.1
3.1
Option ARMS
10.0
Total
$
Geographic composition of residential real estate loans
31.5 $
9.7
9.7
29.5 $
29.3
(a) Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses plus additional principal losses recognized subsequent to
acquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses was $842 million and $1.1 billion at December 31,
2017 and 2016, respectively.
(b) Represents both realization of loss upon loan resolution and any principal forgiven upon modification.
10.0
31.6 $
PCI loans are excluded from the following discussions of
individual loan products and are addressed separately
below. For further information about the Firm's consumer
portfolio, including information about delinquencies, loan
modifications and other credit quality indicators, see
Note 12.
Consumer loan balances increased from December 31,
2016 predominantly due to originations of high-quality
prime mortgage loans that have been retained on the
balance sheet, partially offset by the sale of the student
loan portfolio as well as paydowns and the charge-off or
liquidation of delinquent loans.
Portfolio analysis
Loans retained(i)
4,123
3,442
2.95
2.63
Loans held-for-sale
Credit Card
Total credit card loans
Total credit card exposure
Total consumer credit portfolio
Memo: Total consumer credit portfolio, excluding PCI
149,387
141,711
124
Lending-related commitments(g)
105
418,011 (1)
Total consumer exposure, excluding credit card
4,209
4,820
1,145
'8
-
909
421,367
0.31
Lending-related commitments(g)
48,553
53,247 (i)
Receivables from customers(h)
133
120
0.25
110
149,511
4,123
(e) For the year ended December 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for Total consumer, excluding
credit card and PCI loans and loans held-for-sale would have been 0.20%; Total consumer - retained excluding credit card loans would have been 0.18%; Total consumer credit
portfolio would have been 0.95%; and Total consumer credit portfolio, excluding PCI loans would have been 1.01%.
(f) At December 31, 2017 and 2016, approximately 68% and 66%, respectively, of the PCI option adjustable rate mortgages ("ARMS") portfolio has been modified into fixed-rate,
fully amortizing loans.
(g) Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and does not anticipate,
that all available lines of credit would be used at the same time. For credit card and home equity commitments (if certain conditions are met), the Firm can reduce or cancel these
lines of credit by providing the borrower notice or, in some cases as permitted by law, without notice. For further information, see Note 27.
(h) Receivables from customers represent held-for-investment margin loans to brokerage customers that are collateralized through assets maintained in the clients' brokerage
accounts. These receivables are reported within accrued interest and accounts receivable on the Firm's Consolidated balance sheets.
Includes billed interest and fees net of an allowance for uncollectible interest and fees.
(i)
(j) The prior period amounts have been revised to conform with the current period presentation.
(c) Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses; these loans are managed by
CCB, and therefore, for consistency in presentation, are included within the consumer portfolio.
(d) Predominantly includes Business Banking loans.
(k) At December 31, 2017 and 2016, nonaccrual loans excluded loans 90 or more days past due as follows: (1) mortgage loans insured by U.S. government agencies of $4.3 billion
and $5.0 billion, respectively; and (2) student loans insured by U.S. government agencies under the FFELP of zero and $263 million, respectively. These amounts have been
excluded from nonaccrual loans based upon the government guarantee. In addition, the Firm's policy is generally to exempt credit card loans from being placed on nonaccrual
status, as permitted by regulatory guidance issued by the FFIEC.
(m) Net charge-offs and net charge-off rates excluded write-offs in the PCI portfolio of $86 million and $156 million for the years ended December 31, 2017 and 2016. These write-
offs decreased the allowance for loan losses for PCI loans. See Allowance for Credit Losses on pages 117-119 for further details.
(n) Average consumer loans held-for-sale were $1.5 billion and $496 million for the years ended December 31, 2017 and 2016, respectively. These amounts were excluded when
calculating net charge-off rates.
JPMorgan Chase & Co./2017 Annual Report
103
Management's discussion and analysis
Consumer, excluding credit card
(I) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as each of the pools is performing.
141,816
(a) Certain loan portfolios have been reclassified. The prior period amounts have been revised to conform with the current period presentation.
(b) At December 31, 2017 and 2016, excluded operating lease assets of $17.1 billion and $13.2 billion, respectively. These operating lease assets are included in other assets on the
Firm's Consolidated balance sheets. The risk of loss on these assets relates to the residual value of the leased vehicles, which is managed through projection of the lease residual
value at lease origination, periodic review of residual values, and through arrangements with certain auto manufacturers that mitigates this risk.
1.11%
3,442
2.95
2.63
572,831
722,342
553,891
695,707
0.96%
$ 1,143,709
$ 5,268 $ 4,351
1.04%
0.89%
$ 1,113,133
$ 1,078,039 (i) $ 4,209 $ 4,820
$ 5,268 $ 4,351
$ 1,113,718 (1) $ 4,209 $ 4,820
JPMorgan Chase & Co./2017 Annual Report
109
JPMorgan Chase & Co./2017 Annual Report
Industrials
571
5,080
Other
(1)
2
1
(10)
(1)
(11)
Ending balance at December 31,
$
4,579 $
4,884
$
4,141
$ 13,604
$
5,198 $
4,034
$
4,544 $ 13,776
Impairment methodology
Asset-specific (c)
$
4,042
246 $
467
(286)
3,799
398
5,697
(93)
(591)
(357)
(57)
(1,005)
Net charge-offs (a)
1,145
4,123
119
5,387
909
3,442
341
4,692
Write-offs of PCI loans (b)
86
86
156
156
Provision for loan losses
613
4,973
5,300
383
$
461
5,198 $ 4,034 $
4,544 $ 13,776
Allowance for lending-related commitments
Beginning balance at January 1,
$
26 $ - $ 1,052 $
1,078
$
Provision for lending-related commitments
7
(17)
(10)
14 $
--
$
772
$
786
281
281
Other
12 -
(1)
11
Ending balance at December 31,
$
$
$ 3,434 $ 4,315 $ 13,555
2,311
2,311
$
1,090
$
308
$
358
$
Formula-based
PCI
2,108
4,501
3,680
2,225
-
Total allowance for loan losses
$
4,579 $
4,884 $
10,289
2,225
4,141 $ 13,604
2,579
3,676
342
4,202
$
1,008
10,457
-
33
5,806
1,500
$
20
13,925
34
13,127
32
7,397
18
7,308
18
645
40,415
2
984
2
100% $
41,373
100%
As previously noted, the Firm uses collateral agreements to
mitigate counterparty credit risk. The percentage of the
Firm's over-the-counter derivatives transactions subject to
collateral agreements – excluding foreign exchange spot
trades, which are not typically covered by collateral
agreements due to their short maturity and centrally
cleared trades that are settled daily – was approximately
90% as of December 31, 2017, largely unchanged
compared with December 31, 2016.
Credit derivatives
The Firm uses credit derivatives for two primary purposes:
first, in its capacity as a market-maker, and second, as an
end-user to manage the Firm's own credit risk associated
with various exposures. For a detailed description of credit
derivatives, see Credit derivatives in Note 5.
Credit portfolio management activities
Included in the Firm's end-user activities are credit
derivatives used to mitigate the credit risk associated with
traditional lending activities (loans and unfunded
commitments) and derivatives counterparty exposure in the
Firm's wholesale businesses (collectively, "credit portfolio
management” activities). Information on credit portfolio
management activities is provided in the table below. For
further information on derivatives used in credit portfolio
management activities, see Credit derivatives in Note 5.
The Firm also uses credit derivatives as an end-user to
manage other exposures, including credit risk arising from
certain securities held in the Firm's market-making
businesses. These credit derivatives are not included in
credit portfolio management activities; for further
information on these credit derivatives as well as credit
derivatives used in the Firm's capacity as a market-maker in
credit derivatives, see Credit derivatives in Note 5.
JPMorgan Chase & Co./2017 Annual Report
115
Management's discussion and analysis
Credit derivatives used in credit portfolio management
8,505
activities
17
28%
20
0
1 year 2 years
AVG
DRE
5 years
Peak
10 years
The following table summarizes the ratings profile by derivative counterparty of the Firm's derivative receivables, including credit
derivatives, net of all collateral, at the dates indicated. The ratings scale is based on the Firm's internal ratings, which generally
correspond to the ratings as assigned by S&P and Moody's.
Ratings profile of derivative receivables
Rating equivalent
December 31,
(in millions, except ratios)
AAA/Aaa to AA-/Aa3
A+/A1 to A-/A3
BBB+/Baal to BBB-/Baa3
BB+/Bal to B-/B3
CCC+/Caal and below
Total
2017
2016
Exposure net of % of exposure net
all collateral of all collateral
Exposure net of % of exposure net
all collateral of all collateral
11,529
29% $
11,449
6,919
212
Notional amount of
protection
purchased (a)
December 31, (in millions)
117
Management's discussion and analysis
Summary of changes in the allowance for credit losses
2017
2016
Year ended December 31,
(in millions, except ratios)
Consumer,
excluding
Consumer,
excluding
credit card Credit card Wholesale
Total
credit card
Credit card Wholesale
Total
Allowance for loan losses
Beginning balance at January 1,
$
5,198 $
Gross charge-offs
1,779
4,521
Gross recoveries
(634)
(398)
4,034 $ 4,544 $ 13,776
6,512
(1,125)
JPMorgan Chase & Co./2017 Annual Report
2017
For additional information on the consumer and wholesale
credit portfolios, see Consumer Credit Portfolio on pages
102-107, Wholesale Credit Portfolio on pages 108-116 and
Note 12.
a reduction in the allowance for the residential real
estate portfolio, predominantly driven by continued
improvement in home prices and delinquencies, and
Credit derivatives used to manage:
Loans and lending-related commitments $
1,867
Derivative receivables
15,742
Credit derivatives used in credit portfolio
management activities
2016
$ 2,430
19,684
$ 17,609 $ 22,114
(a) Amounts are presented net, considering the Firm's net protection
purchased or sold with respect to each underlying reference entity or
index.
The credit derivatives used in credit portfolio management
activities do not qualify for hedge accounting under U.S.
GAAP; these derivatives are reported at fair value, with
gains and losses recognized in principal transactions
revenue. In contrast, the loans and lending-related
commitments being risk-managed are accounted for on an
accrual basis. This asymmetry in accounting treatment,
between loans and lending-related commitments and the
credit derivatives used in credit portfolio management
activities, causes earnings volatility that is not
representative, in the Firm's view, of the true changes in
value of the Firm's overall credit exposure.
The effectiveness of credit default swaps ("CDS") as a hedge
against the Firm's exposures may vary depending on a
number of factors, including the named reference entity
(i.e., the Firm may experience losses on specific exposures
that are different than the named reference entities in the
purchased CDS); the contractual terms of the CDS (which
may have a defined credit event that does not align with an
actual loss realized by the Firm); and the maturity of the
Firm's CDS protection (which in some cases may be shorter
than the Firm's exposures). However, the Firm generally
seeks to purchase credit protection with a maturity date
that is the same or similar to the maturity date of the
exposure for which the protection was purchased, and
remaining differences in maturity are actively monitored
and managed by the Firm.
116
JPMorgan Chase & Co./2017 Annual Report
ALLOWANCE FOR CREDIT LOSSES
JPMorgan Chase's allowance for credit losses covers the
retained consumer and wholesale loan portfolios, as well as
the Firm's wholesale and certain consumer lending-related
commitments.
For a further discussion of the components of the allowance
for credit losses and related management judgments, see
Critical Accounting Estimates Used by the Firm on pages
138-140 and Note 13.
At least quarterly, the allowance for credit losses is
reviewed by the CRO, the CFO and the Controller of the
Firm, and discussed with the Board of Directors' Risk Policy
Committee ("DRPC") and the Audit Committee. As of
December 31, 2017, JPMorgan Chase deemed the
allowance for credit losses to be appropriate and sufficient
to absorb probable credit losses inherent in the portfolio.
The allowance for credit losses decreased as of December
31, 2017, driven by:
a net reduction in the wholesale allowance, reflecting
credit quality improvements in the Oil & Gas, Natural Gas
Pipelines, and Metals & Mining portfolios (compared with
additions to the allowance in the prior year driven by
downgrades in the same portfolios)
largely offset by
a net increase in the consumer allowance, reflecting
additions to the allowance for the credit card and
business banking portfolios, driven by loan growth in
both of these portfolios and higher loss rates in the
credit card portfolio,
largely offset by
-
- the utilization of the allowance in connection with the
sale of the student loan portfolio.
$
$
1,035 $
$
613 $
467 $
(82) $
2017
7 $
2016
2015
2017
2016
2015
$
1
$
620 $
467 $
(81)
Credit card
4,973
4,042
3,122
4,973
4,042
3,122
Total consumer
Wholesale
Consumer, excluding credit card
Total
2015
2017
NM
233
111
Net charge-off rate (a)
0.34%
2.95%
0.03%
0.62%
0.28%
2.63%
0.09%
0.57%
Note: In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures.
(a) For the year ended December 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for
Consumer, excluding credit card would have been 0.18%; total Firm would have been 0.55%; Consumer, excluding credit card and PCI loans would have
been 0.20%; and total Firm, excluding PCI would have been 0.57%.
(b) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as
purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool (e.g.,
upon liquidation).
(c) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. The asset-specific credit card allowance
for loan losses modified in a TDR is calculated based on the loans' original contractual interest rates and does not consider any incremental penalty rates.
(d) The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets.
(e) The Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.
118
JPMorgan Chase & Co./2017 Annual Report
Provision for credit losses
The following table presents the components of the Firm's provision for credit losses:
Provision for
Provision for loan losses
lending-related commitments
Total provision for credit losses
Year ended December 31,
(in millions)
2016
61
5,586
3,040
- a $218 million impact in connection with the sale of
the student loan portfolio, and
· a $416 million higher addition to the allowance for
credit losses.
Current year additions to the consumer allowance
included:
。 an $850 million addition to the allowance for credit
losses in the credit card portfolio, compared to a
$600 million addition in the prior year, due to higher
loss rates and loan growth in both years, and
。 a $50 million addition to the allowance for credit
losses in the business banking portfolio, driven by
loan growth
the additions were partially offset by
°
a $316 million net reduction in the allowance for
credit losses in the residential real estate portfolio,
compared to a $517 million net reduction in the
prior year, reflecting continued improvement in home
prices and delinquencies in both years.
JPMorgan Chase & Co./2017 Annual Report
119
Management's discussion and analysis
INVESTMENT PORTFOLIO RISK MANAGEMENT
Investment portfolio risk is the risk associated with the loss
of principal or a reduction in expected returns on
investments arising from the investment securities portfolio
held by Treasury and CIO in connection with the Firm's
balance sheet or asset-liability management objectives or
from principal investments managed in various LOBS in
predominantly privately-held financial assets and
instruments. Investments are typically intended to be held
over extended periods and, accordingly, the Firm has no
expectation for short-term realized gains with respect to
these investments.
Investment securities risk
Investment securities risk includes the exposure associated
with the default of principal plus coupon payments. This risk
is minimized given that Treasury and CIO generally invest in
high-quality securities. At December 31, 2017, the
investment securities portfolio was $248.0 billion, and the
average credit rating of the securities comprising the
portfolio was AA+ (based upon external ratings where
available and where not available, based primarily upon
internal ratings that correspond to ratings as defined by
S&P and Moody's). For further information on the
investment securities portfolio, see Note 10 on pages
203-208. For further information on the market risk
inherent in the portfolio, see Market Risk Management on
pages 121-128. For further information on related liquidity
risk, see Liquidity Risk on pages 92-97.
Governance and oversight
Investment securities risks are governed by the Firm's Risk
Appetite framework, and discussed at the CIO, Treasury and
Corporate (CTC) Risk Committee with regular updates to the
DRPC.
The Firm's independent control functions are responsible
for reviewing the appropriateness of the carrying value of
investment securities in accordance with relevant policies.
Approved levels for investment securities are established
for each risk category, including capital and credit risks.
Principal investment risk
Principal investments are typically private non-traded
financial instruments representing ownership or other
forms of junior capital. Principal investments cover multiple
asset classes and are made either in stand-alone investing
businesses or as part of a broader business platform. As of
December 31, 2017, the carrying value of the principal
investment portfolios included tax-oriented investments
(e.g., affordable housing and alternative energy
investments) of $14.0 billion and private equity and various
debt and equity instruments of $5.5 billion. Increasingly,
new principal investment activity seeks to enhance or
accelerate LOB strategic business initiatives. The Firm's
principal investments are managed under various LOBS and
are reflected within the respective LOB financial results.
Governance and oversight
The Firm's approach to managing principal risk is consistent
with the Firm's general risk governance structure. A
Firmwide risk policy framework exists for all principal
investing activities. All investments are approved by
investment committees that include executives who are
independent from the investing businesses.
The Firm's independent control functions are responsible
for reviewing the appropriateness of the carrying value of
investments in accordance with relevant policies. Approved
levels for investments are established for each relevant
business in order to manage the overall size of the
portfolios.
Industry, geographic and position level concentration limits
have been set and are intended to ensure diversification of
the portfolios. The Firm also conducts stress testing on
these portfolios using specific scenarios that estimate losses
based on significant market moves and/or other risk events.
120
JPMorgan Chase & Co./2017 Annual Report
- $450 million of higher net charge-offs, primarily in the
credit card portfolio due to growth in newer vintages
which, as anticipated, have higher loss rates than the
more seasoned portion of the portfolio, partially offset
by a decrease in net charge-offs in the residential real
estate portfolio reflecting continued improvement in
home prices and delinquencies,
4,509
a higher consumer provision driven by
• a net $422 million reduction in the wholesale allowance
for credit losses, reflecting credit quality improvements in
the Oil & Gas, Natural Gas Pipelines, and Metals & Mining
portfolios, compared with an addition of $511 million in
the prior year driven by downgrades in the same
portfolios.
7
1
5,593
4,509
3,041
(286)
571
623
(17)
281
163
(303)
852
786
$
5,300 $ 5,080 $ 3,663
$
(10) $
281 $
164
$ 5,290 $
5,361 $
3,827
Provision for credit losses
The provision for credit losses decreased as of December
31, 2017 as a result of:
The decrease was predominantly offset by
109
239
NM
33 $
$
Total allowance for credit losses
Memo:
$ 4,612 $ 4,884
1,035 $ 1,068
$ 5,176 $ 14,672
$
26 $
$ 1,052 $ 1,078
$ 5,224 $ 4,034
$ 5,596 $ 14,854
Retained loans, end of period
$ 372,553 $ 149,387
366,798
30,576
139,918
$ 402,898 $ 924,838
392,263
898,979
3
30,579
$ 364,406
358,486
35,679
$ 141,711
131,081
$ 383,790
371,778
3
$ 889,907
861,345
35,682
Credit ratios
Allowance for loan losses to retained loans
$
1.23%
PCI loans, end of period
909
1,068
$
26
$
$ 1,052
$
1,078
Impairment methodology
Asset-specific
Formula-based
Total allowance for lending-related
commitments (d)
$ - $ - $
33
187 $
848
187
$
-
$
$
169
$
169
881
26
883
Retained loans, average
3.27%
1.03%
1.47%
0.54
Credit ratios, excluding residential real estate
PCI loans
Allowance for loan losses to
retained loans
0.69
3.27
1.03
1.27
0.88
2.85
1.18
1.34
Allowance for loan losses to retained
nonaccrual loans(e)
56
NM
239
191
61
NM
233
171
Allowance for loan losses to retained nonaccrual
loans excluding credit card
56
0.09
2.63
0.25
0.60
1.43%
2.85%
1.18%
1.55%
Allowance for loan losses to retained nonaccrual
loans(e)
109
NM
239
229
109
NM
233
40
205
109
NM
239
147
109
NM
233
145
Net charge-off rate (a)
0.31
2.95
0.03
Allowance for loan losses to retained nonaccrual
loans excluding credit card
60
80
100
(14)
Metals & Mining
13,419
5,523
6,744
1,133
19
36
(621)
(62)
Insurance
13,510
10,918
2,459
133
9
(275)
(2,538)
Financial Markets Infrastructure
8,732
7,980
752
(390)
Securities Firms
4,211
(401)
1,812
1
1
(4,183)
Chemicals & Plastics
15,043
10,405
4,452
156
30
3
(35)
(3)
Transportation
19,096
12,178
6,421
444
53
9
10
(93)
(188)
Automotive
16,736
9,235
7,299
201
7
(11,691)
2,399
(491)
Presented below is additional detail on certain industries to which the Firm has exposure.
Real Estate
Exposure to the Real Estate industry increased $5.1 billion during the year ended December 31, 2017, to $139.4 billion
predominantly driven by multifamily lending within CB. For the year ended December 31, 2017, the investment-grade
percentage of the portfolio was 83%, up from 78% for the year ended December 31, 2016. For further information on Real
Estate loans, see Note 12.
(in millions, except ratios)
Multifamily(a)
Other
Total Real Estate Exposure (b)
(in millions, except ratios)
Multifamily(a)
Other
Total Real Estate Exposure (b)
(a) Multifamily exposure is largely in California.
December 31, 2017
Loans and
Lending-related
%
Commitments
Derivative
Receivables
Credit
exposure
$
84,635
$
34
$
84,669
Management's discussion and analysis
(273)
111
(f) Represents the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives
do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain credit indices.
(g) Prior period amounts have been revised to conform with the current period presentation.
All other(c)
137,238
124,661
11,988
303
286
598
6
(3,634)
(1,348)
Subtotal
$ 815,882 $ 613,400 $ 182,633 $
17,166 $
2,683 $
1,318 $
341 $ (22,114) $
(22,705)
Loans held-for-sale and loans at fair
value
Receivables from customers and other
Total(d)
4,515
17,440
$ 837,837
(a) The industry rankings presented in the table as of December 31, 2016, are based on the industry rankings of the corresponding exposures at
December 31, 2017, not actual rankings of such exposures at December 31, 2016.
(b) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2017 and 2016, noted above, the
Firm held: $9.8 billion and $9.1 billion, respectively, of trading securities; $32.3 billion and $31.6 billion, respectively, of AFS securities; and $14.4 billion
and $14.5 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 2 and Note 10.
(c) All other includes: individuals; SPEs; and private education and civic organizations, representing approximately 59%, 37% and 4%, respectively, at both
December 31, 2017 and December 31, 2016.
(d) Excludes cash placed with banks of $421.0 billion and $380.2 billion, at December 31, 2017 and 2016, respectively, which is predominantly placed with
various central banks, primarily Federal Reserve Banks.
(e) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against
derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables.
JPMorgan Chase & Co./2017 Annual Report
Investment-
grade
89%
1
9
(11)
(54) $
(7) $
206 $
200 $
937 $
104,869 $ 28,281 $
$ 134,287 $
and other
cash
collateral
held against
derivative
receivables(g)
Liquid
securities
Selected metrics
Credit
derivative
hedges (f)
Net charge-
offs/
(recoveries)
loans
30 days or
more past
due and
accruing
Criticized
nonperforming
performing
Noncriticized
Criticized
Investment-
grade
Credit
exposure(e)
Technology, Media &
Consumer & Retail
Real Estate
(in millions)
84,804
December 31, 2016
54,730
1,571
(246)
(286)
37
86
40
882
9,279
39,244
49,445
Healthcare
(30)
(589)
2
9
16
1,559
21,751
39,998
63,324
Telecommunications
(69)
(424)
24
75
248
28,255
4
As of or for the year ended
36,710
4,006
1
17
(5,737)
Utilities
29,672
24,203
4,959
424
86
8
(306)
State & Municipal Govt (b)
28,263
27,603
624
6
30
107
(1)
(130)
Central Govt
20,408
20,123
276
29,194
Noninvestment-grade
33,201
(18)
17,854
1,033
136
128
3
(434)
(40)
Banks & Finance Cos
48,393
35,385
12,560
438
10
21
(2) (1,336)
(7,337)
Oil & Gas
40,367
18,629
12,274
8,069
1,395
31
233
(1,532)
Asset Managers
55,733
% Drawn (c)
54,620
2016
Gross recoveries
(93)
(57)
Beginning balance
$
2,063 $ 1,016
Net charge-offs
119
341
Additions
1,482
2,981
Net charge-off rate
0.03%
0.09%
Reductions:
Paydowns and other
1,137
1,148
Gross charge-offs
200
385
Returned to performing status
189
2017
242
Year ended December 31, (in millions)
212
$
1,984
$
44,726
48
33
(a) Other Oil & Gas includes Integrated Oil & Gas companies, Midstream/Oil Pipeline companies and refineries.
(b) Natural Gas Pipelines is reported within the Utilities Industry.
(c) Secured lending is $14.0 billion and $14.3 billion at December 31, 2017 and December 31, 2016, respectively, approximately half of which is reserve-
based lending to the Exploration & Production sub-sector; unsecured exposure is largely investment-grade.
(d) Represents drawn exposure as a percentage of credit exposure.
112
JPMorgan Chase & Co./2017 Annual Report
Loans
In the normal course of its wholesale business, the Firm
provides loans to a variety of clients, ranging from large
corporate and institutional clients to high-net-worth
individuals. For further discussion on loans, including
information on credit quality indicators and sales of loans,
see Note 12.
The following table presents the change in the nonaccrual
loan portfolio for the years ended December 31, 2017 and
2016.
Wholesale nonaccrual loan activity(a)
The following table presents net charge-offs/recoveries,
which are defined as gross charge-offs less recoveries, for
the years ended December 31, 2017 and 2016. The
amounts in the table below do not include gains or losses
from sales of nonaccrual loans.
Wholesale net charge-offs/(recoveries)
Year ended December 31,
(in millions, except ratios)
Loans
2017
2016
reported
Average loans retained
$ 392,263
$ 371,778
Gross charge-offs
398
42,742
Sales
Total reductions
7,882
Commodity
6,948
Total, net of cash collateral
56,523
4,939
6,272
64,078
(16,108)
(22,705)
40,415 $ 41,373
Liquid securities and other cash collateral
held against derivative receivables(a)
Total, net of all collateral
(a) Includes collateral related to derivative instruments where an appropriate
legal opinion has not been either sought or obtained.
Derivative receivables reported on the Consolidated balance
sheets were $56.5 billion and $64.1 billion at
December 31, 2017 and 2016, respectively. Derivative
receivables decreased predominantly as a result of client-
driven market-making activities in CIB Markets, which
reduced foreign exchange and interest rate derivative
receivables, and increased equity derivative receivables,
driven by market movements.
Derivative receivables amounts represent the fair value of
the derivative contracts after giving effect to legally
enforceable master netting agreements and cash collateral
held by the Firm. However, in management's view, the
appropriate measure of current credit risk should also take
into consideration additional liquid securities (primarily U.S.
government and agency securities and other group of seven
nations ("G7") government bonds) and other cash collateral
held by the Firm aggregating $16.1 billion and $22.7 billion
at December 31, 2017 and 2016, respectively, that may be
used as security when the fair value of the client's exposure
is in the Firm's favor.
In addition to the collateral described in the preceding
paragraph, the Firm also holds additional collateral
(primarily cash, G7 government securities, other liquid
government-agency and guaranteed securities, and
corporate debt and equity securities) delivered by clients at
the initiation of transactions, as well as collateral related to
contracts that have a non-daily call frequency and collateral
that the Firm has agreed to return but has not yet settled as
of the reporting date. Although this collateral does not
reduce the balances and is not included in the table above,
it is available as security against potential exposure that
could arise should the fair value of the client's derivative
transactions move in the Firm's favor. The derivative
receivables fair value, net of all collateral, also does not
include other credit enhancements, such as letters of credit.
For additional information on the Firm's use of collateral
agreements, see Note 5.
While useful as a current view of credit exposure, the net
fair value of the derivative receivables does not capture the
potential future variability of that credit exposure. To
capture the potential future variability of credit exposure,
the Firm calculates, on a client-by-client basis, three
measures of potential derivatives-related credit loss: Peak,
Derivative Risk Equivalent ("DRE"), and Average exposure
("AVG"). These measures all incorporate netting and
collateral benefits, where applicable.
Peak represents a conservative measure of potential
exposure to a counterparty calculated in a manner that is
broadly equivalent to a 97.5% confidence level over the life
of the transaction. Peak is the primary measure used by the
Firm for setting of credit limits for derivative transactions,
senior management reporting and derivatives exposure
management. DRE exposure is a measure that expresses the
risk of derivative exposure on a basis intended to be
equivalent to the risk of loan exposures. DRE is a less
extreme measure of potential credit loss than Peak and is
used for aggregating derivative credit risk exposures with
loans and other credit risk.
Finally, AVG is a measure of the expected fair value of the
Firm's derivative receivables at future time periods,
including the benefit of collateral. AVG exposure over the
total life of the derivative contract is used as the primary
metric for pricing purposes and is used to calculate credit
risk capital and the CVA, as further described below. The
three year AVG exposure was $29.0 billion and $31.1
billion at December 31, 2017 and 2016, respectively,
compared with derivative receivables, net of all collateral,
of $40.4 billion and $41.4 billion at December 31, 2017
and 2016, respectively.
The fair value of the Firm's derivative receivables
incorporates CVA to reflect the credit quality of
counterparties. CVA is based on the Firm's AVG to a
counterparty and the counterparty's credit spread in the
credit derivatives market. The Firm believes that active risk
management is essential to controlling the dynamic credit
risk in the derivatives portfolio. In addition, the Firm's risk
management process takes into consideration the potential
114
JPMorgan Chase & Co./2017 Annual Report
impact of wrong-way risk, which is broadly defined as the
potential for increased correlation between the Firm's
exposure to a counterparty (AVG) and the counterparty's
credit quality. Many factors may influence the nature and
magnitude of these correlations over time. To the extent
that these correlations are identified, the Firm may adjust
the CVA associated with that counterparty's AVG. The Firm
risk manages exposure to changes in CVA by entering into
credit derivative transactions, as well as interest rate,
foreign exchange, equity and commodity derivative
transactions.
The accompanying graph shows exposure profiles to the
Firm's current derivatives portfolio over the next 10 years
as calculated by the Peak, DRE and AVG metrics. The three
measures generally show that exposure will decline after
the first year, if no new trades are added to the portfolio.
Exposure profile of derivatives measures
December 31, 2017
(in billions)
140
120
Equity
285
28,302
1,294
23,271
Foreign exchange
1,811
Net changes
Ending balance
$
159
1,934
(329) 1,047
1,734 $ 2,063
(a) Loans are placed on nonaccrual status when management believes full
payment of principal or interest is not expected, regardless of delinquency
status, or when principal or interest have been in default for a period of 90
days or more unless the loan is both well-secured and in the process of
collection.
Lending-related commitments
The Firm uses lending-related financial instruments, such as
commitments (including revolving credit facilities) and
guarantees, to meet the financing needs of its clients. The
contractual amounts of these financial instruments
represent the maximum possible credit risk should the
counterparties draw down on these commitments or the
Firm fulfill its obligations under these guarantees, and the
counterparties subsequently fail to perform according to
the terms of these contracts. Most of these commitments
and guarantees are refinanced, extended, cancelled, or
expire without being drawn upon or a default occurring. In
the Firm's view, the total contractual amount of these
wholesale lending-related commitments is not
representative of the Firm's expected future credit exposure
or funding requirements. For further information on
wholesale lending-related commitments, see Note 27.
Clearing services
The Firm provides clearing services for clients entering into
securities and derivative transactions. Through the
provision of these services the Firm is exposed to the risk of
non-performance by its clients and may be required to
share in losses incurred by central counterparties. Where
possible, the Firm seeks to mitigate its credit risk to its
clients through the collection of adequate margin at
inception and throughout the life of the transactions and
can also cease provision of clearing services if clients do not
adhere to their obligations under the clearing agreement.
For further discussion of clearing services, see Note 27.
JPMorgan Chase & Co./2017 Annual Report
113
Management's discussion and analysis
Derivative contracts
In the normal course of business, the Firm uses derivative
instruments predominantly for market-making activities.
Derivatives enable counterparties to manage exposures to
fluctuations in interest rates, currencies and other markets.
The Firm also uses derivative instruments to manage its
own credit and other market risk exposure. The nature of
the counterparty and the settlement mechanism of the
derivative affect the credit risk to which the Firm is
exposed. For OTC derivatives the Firm is exposed to the
credit risk of the derivative counterparty. For exchange-
traded derivatives ("ETD"), such as futures and options, and
"cleared" over-the-counter ("OTC-cleared") derivatives, the
Firm is generally exposed to the credit risk of the relevant
CCP. Where possible, the Firm seeks to mitigate its credit
risk exposures arising from derivative transactions through
the use of legally enforceable master netting arrangements
and collateral agreements. For further discussion of
derivative contracts, counterparties and settlement types,
see Note 5.
The following table summarizes the net derivative
receivables for the periods presented.
Derivative receivables
2016
December 31, (in millions)
2017
Interest rate
$
24,673 $
Credit derivatives
869
16,151
92%
$
66
72
62
134,081
207
134,287
78
79
(b) Real Estate exposure is predominantly secured; unsecured exposure is largely investment-grade.
(c) Represents drawn exposure as a percentage of credit exposure.
Exposure to the Oil & Gas and Natural Gas Pipeline portfolios increased by $1.1 billion during the year ended December 31,
2017 to $45.9 billion. During the year ended December 31, 2017, the credit quality of this exposure continued to improve,
with the investment-grade percentage increasing from 48% to 53% and criticized exposure decreasing by $4.5 billion.
December 31, 2017
(in millions, except ratios)
Loans and
Lending-related
Commitments
Derivative
Receivables
Credit
exposure
%
Investment-
grade
% Drawn(d)
Exploration & Production (“E&P") and Oilfield Services
20,558
$
Other Oil & Gas (a)
19,032
Total Oil & Gas
39,590
1,175
552
1,727
$
53,973
21,733
90%
80,314
120
54,740
74
66
139,255
154
139,409
83
82
December 31, 2016
Loans and
Lending-related
Derivative
Credit
Commitments
Receivables
exposure
%
Investment-
grade
% Drawn (c)
$
80,280
$
53,801
34
172
$
82%
30
34%
19,584
Credit
exposure
%
Investment-
grade
% Drawn(d)
$
20,971
$
17,518
1,256
622
$
22,227
27%
35%
18,140
70
31
38,489
1,878
40,367
46
33
Natural Gas Pipelines (b)
Total Oil & Gas and Natural Gas Pipelines(c)
4,253
106
4,359
Derivative
Receivables
33%
Commitments
Other Oil & Gas (a)
72
28
41,317
52
31
Natural Gas Pipelines (b)
4,507
38
4,545
66
14
Total Oil & Gas and Natural Gas Pipelines (c)
$
44,097
$
1,765
$
45,862
53
29
December 31, 2016
Loans and
Lending-related
(in millions, except ratios)
E&P and Oilfield Services
Total Oil & Gas
Oil & Gas and Natural Gas Pipelines
Mexico
4.0
(4) (a)
16
4
(b)
8
16
(b)
2
(b)
(b)
NM
NM
(b)
(b)
(3)
NM
(a)
NM
(b)
(b)
NM
NM
(c) Maximum Corporate VaR was higher than the prior year, due to a Private Equity position that became publicly traded in the fourth quarter of 2017. Previously, this
position was included in other sensitivity-based measures.
(b) Diversification benefit represents the difference between the total VaR and each reported level and the sum of its individual components. Diversification benefit
reflects the non-additive nature of VaR due to imperfect correlation across lines of business and risk types. The maximum and minimum VaR for each portfolio may
have occurred on different trading days than the components and consequently diversification benefit is not meaningful.
(a) Average portfolio VaR is less than the sum of the VaR of the components described above, which is due to portfolio diversification. The diversification effect reflects
that the risks are not perfectly correlated.
33 (b) $ 78 (b)
$
$ 45
(b)
42
$
17 (b)
$
29
$
NM
(b)
(b)
NM
(a)
(8)
(b)
Average Total VaR decreased $16 million for the year-ended
December 31, 2017 as compared with the prior year. The
reduction is a result of refinements made to VaR models for
certain asset-backed products, changes made to the scope
of positions included in VaR in the third quarter of 2016,
and lower volatility in the one-year historical look-back
period.
(b)
4
NM
(10)
(b)
(b)
(a)
NM
NM
(b)
NM
2
(a)
(6)
16
10
12
12
3
7
(b)
(b)
(b)
(b)
2
13 (c)
6
1 3
6
16 (c)
1
3
4
1
241
-
81
(b)
32
45
39
17
28
(1) (a)
In addition, Credit Portfolio VaR declined by $5 million
reflecting the sale of select positions and lower volatility in
the one-year historical look-back period.
In the first quarter of 2017, the Firm refined the historical
proxy time series inputs to certain VaR models. These
refinements are intended to more appropriately reflect the
risk exposure from certain asset-backed products. In the
absence of this refinement, the average Total VaR, CIB fixed
income VaR, CIB trading VaR and CIB VaR would have each
been higher by $4 million for the year ended December 31,
2017.
VaR can vary significantly as positions change, market
volatility fluctuates, and diversification benefits change.
The Firm's U.S. dollar sensitivities are presented in the table
below.
Earnings-at-risk scenarios estimate the potential change in
this baseline, over the following 12 months utilizing
multiple assumptions. These scenarios consider the impact
on exposures as a result of changes in interest rates from
baseline rates, as well as pricing sensitivities of deposits,
optionality and changes in product mix. The scenarios
include forecasted balance sheet changes, as well as
modeled prepayment and reinvestment behavior, but do not
include assumptions about actions that could be taken by
the Firm in response to any such instantaneous rate
changes. Mortgage prepayment assumptions are based on
scenario interest rates compared with underlying
contractual rates, the time since origination, and other
factors which are updated periodically based on historical
experience. The pricing sensitivity of deposits in the
baseline and scenarios use assumed rates paid which may
differ from actual rates paid due to timing lags and other
factors. The Firm's earnings-at-risk scenarios are
periodically evaluated and enhanced in response to changes
in the composition of the Firm's balance sheet, changes in
market conditions, improvements in the Firm's simulation
and other factors.
The Firm manages interest rate exposure related to its
assets and liabilities on a consolidated, firmwide basis.
Business units transfer their interest rate risk to Treasury
and CIO through funds transfer pricing, which takes into
account the elements of interest rate exposure that can be
risk-managed in financial markets. These elements include
asset and liability balances and contractual rates of interest,
contractual principal payment schedules, expected
prepayment experience, interest rate reset dates and
maturities, rate indices used for repricing, and any interest
rate ceilings or floors for adjustable rate products. All
transfer-pricing assumptions are dynamically reviewed.
The Firm generates a baseline for net interest income and
certain interest rate-sensitive fees, and then conducts
simulations of changes for interest rate-sensitive assets and
liabilities denominated in U.S. dollars and other currencies
(“non-U.S. dollar” currencies). This simulation primarily
includes, retained loans, deposits, deposits with banks,
investment securities, long term debt and any related
interest rate hedges, and excludes other positions in risk
management VaR and other sensitivity-based measures as
described on page 122.
The impact of changes in the maturity of various assets,
liabilities or off-balance sheet instruments as interest
rates change
Differences in the amounts by which short-term and long-
term market interest rates change (for example, changes
in the slope of the yield curve)
Differences in the timing among the maturity or repricing
of assets, liabilities and off-balance sheet instruments
Differences in the amounts of assets, liabilities and off-
balance sheet instruments that are repricing at the same
time
•
•
JPMorgan Chase's 12-month earnings-at-risk sensitivity
•
Structural interest rate risk can occur due to a variety of
factors, including:
JPMorgan Chase & Co./2017 Annual Report
126
The effect of interest rate exposure on the Firm's reported
net income is also important as interest rate risk represents
one of the Firm's significant market risks. Interest rate risk
arises not only from trading activities but also from the
Firm's traditional banking activities, which include extension
of loans and credit facilities, taking deposits and issuing
debt. The Firm evaluates its structural interest rate risk
exposure through earnings-at-risk, which measures the
extent to which changes in interest rates will affect the
Firm's net interest income and interest rate-sensitive fees.
For a summary by line of business, identifying positions
included in earnings-at-risk, see the table on page 122.
The CTC Risk Committee establishes the Firm's structural
interest rate risk policies and market risk limits, which are
subject to approval by the DRPC. Treasury and CIO, working
in partnership with the lines of business, calculates the
Firm's structural interest rate risk profile and reviews it with
senior management including the CTC Risk Committee and
the Firm's ALCO. In addition, oversight of structural interest
rate risk is managed through a dedicated risk function
reporting to the CTC CRO. This risk function is responsible
for providing independent oversight and governance around
assumptions and establishing and monitoring limits for
structural interest rate risk. The Firm manages structural
interest rate risk generally through its investment securities
portfolio and interest rate derivatives.
The VaR and sensitivity measures illustrate the economic
sensitivity of the Firm's Consolidated balance sheets to
changes in market variables.
Earnings-at-risk
Loss advisories and profit and loss drawdowns
Loss advisories and profit and loss drawdowns are tools
used to highlight trading losses above certain levels of risk
tolerance. Profit and loss drawdowns are defined as the
decline in net profit and loss since the year-to-date peak
revenue level.
Nonstatistical risk measures include sensitivities to
variables used to value positions, such as credit spread
sensitivities, interest rate basis point values and market
values. These measures provide granular information on the
Firm's market risk exposure. They are aggregated by line of
business and by risk type, and are also used for monitoring
internal market risk limits.
•
profiles
U.S. dollar
(in billions)
The Firm's net U.S. dollar sensitivities for an instantaneous
increase in rates by 200 and 100 basis points decreased by
approximately $1.6 billion and $700 million, respectively,
when compared to December 31, 2016. The primary driver
of that decrease was the updating of the Firm's baseline to
reflect higher interest rates. As higher interest rates are
reflected in the Firm's baselines, the magnitude of the
sensitivity to further increases in rates would be expected
to be less significant.
The Firm's sensitivity to rates is largely a result of assets
repricing at a faster pace than deposits.
The non-U.S. dollar sensitivities for an instantaneous
increase in rates by 200 and 100 basis points results in a
12-month benefit to net interest income of approximately
$800 million and $500 million, respectively, at December
31, 2017 and were not material at December 31, 2016.
The non-U.S. dollar sensitivities for an instantaneous
decrease in rates by 200 and 100 basis points were not
material to the Firm's earnings-at-risk at December 31,
2017 and 2016.
(b) Given the level of market interest rates, these downward parallel
earnings-at-risk scenarios are not considered to be meaningful.
(a) As a result of the 2017 increase in the Fed Funds target rate to
between 1.25% and 1.50%, the -100 bps sensitivity has been
included.
NM
NM
(b)
(b)
NM
(b)
(a)
(3.6)
$ 2.4 $ 1.7
$ 4.0 $ 2.4
December 31, 2017
December 31, 2016
-200 bps
+100 bps -100 bps
+200 bps
Instantaneous change in rates
Nonstatistical risk measures
The Firm's stress testing framework is utilized in calculating
results for the Firm's CCAR and ICAAP processes. In
addition, the results are incorporated into the quarterly
assessment of the Firm's Risk Appetite Framework and are
also presented to the DRPC.
Stress-test results, trends and qualitative explanations
based on current market risk positions are reported to the
respective LOBS and the Firm's senior management to allow
them to better understand the sensitivity of positions to
certain defined events and to enable them to manage their
risks with more transparency. Results are also reported to
the Board of Directors.
Stress testing complements VaR by allowing risk managers
to shock current market prices to more extreme levels
relative to those historically realized, and to stress test the
relationships between market prices under extreme
scenarios. Stress scenarios are defined and reviewed by
Market Risk Management, and significant changes are
reviewed by the relevant LOB Risk Committees and may be
redefined on a periodic basis to reflect current market
conditions.
0
25
25
50
50
$ (Millions)
75
15
100
125
Year ended December 31, 2017
vs. Risk Management VaR (1-day, 95% Confidence level)
Daily Market Risk-Related Gains and Losses
The following chart compares actual daily market risk-related gains and losses with the Firm's Risk Management VaR for the
year ended December 31, 2017. As the chart presents market risk-related gains and losses related to those positions included
in the Firm's Risk Management VaR, the results in the table below differ from the results of back-testing disclosed in the Market
Risk section of the Firm's Basel III Pillar 3 Regulatory Capital Disclosures reports, which are based on Regulatory VaR applied to
covered positions. The chart shows that for the year ended December 31, 2017 the Firm observed 15 VaR back-testing
exceptions and posted gains on 145 of the 258 days.
JPMorgan Chase & Co./2017 Annual Report
124
The Firm's definition of market risk-related gains and losses
is consistent with the definition used by the banking
regulators under Basel III. Under this definition market risk-
related gains and losses are defined as: gains and losses on
the positions included in the Firm's Risk Management VaR,
excluding fees, commissions, certain valuation adjustments
(e.g., liquidity and FVA), net interest income, and gains and
losses arising from intraday trading.
The Firm evaluates the effectiveness of its VaR methodology
by back-testing, which compares the daily Risk Management
VaR results with the daily gains and losses actually
recognized on market-risk related revenue.
VaR back-testing
T
79
-25
-75
The Firm uses a number of standard scenarios that capture
different risk factors across asset classes including
geographical factors, specific idiosyncratic factors and
extreme tail events. The stress framework calculates
multiple magnitudes of potential stress for both market
rallies and market sell-offs for each risk factor and
combines them in multiple ways to capture different market
scenarios. For example, certain scenarios assess the
potential loss arising from current exposures held by the
Firm due to a broad sell-off in bond markets or an extreme
widening in corporate credit spreads. The flexibility of the
stress testing framework allows risk managers to construct
new, specific scenarios that can be used to form decisions
about future possible stress events.
Along with VaR, stress testing is an important tool in
measuring and controlling risk. While VaR reflects the risk
of loss due to adverse changes in markets using recent
historical market behavior as an indicator of losses, stress
testing is intended to capture the Firm's exposure to
unlikely but plausible events in abnormal markets. The Firm
runs weekly stress tests on market-related risks across the
lines of business using multiple scenarios that assume
significant changes in risk factors such as credit spreads,
equity prices, interest rates, currency rates and commodity
prices.
Economic-value stress testing
Other risk measures
Management's discussion and analysis
125
JPMorgan Chase & Co./2017 Annual Report
2017
2017
2017
2017
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
-125
Risk Management VaR
Market Risk-Related Gains and Losses
-100
-50
28
43
38
Warehouse loans, classified as trading
Mortgage pipeline loans, classified as
derivatives
.
.
•
.
•
Positions included in Risk Management
VaR
assets debt instruments
funding, structural interest rate
and foreign exchange risks arising
from activities undertaken by the
Firm's four major reportable
business segments
•
Corporate
Provides initial capital
investments in products such as
mutual funds, which give rise to
market risk arising from changes
in market prices in such products
Originates loans and takes
deposits
Risk arises from changes in
interest rates and prepayment
risk with potential for adverse
impact on net interest income and
interest-rate sensitive fees
Engages in traditional wholesale
banking activities which include
extensions of loans and credit
facilities and taking deposits
Market risk arises from changes in
market prices (e.g., rates and
credit spreads) resulting in a
potential decline in net income
Originates loans and takes
deposits
clients across fixed income,
foreign exchange, equities and
commodities
Makes markets and services
Manages the Firm's liquidity,
MSRS
Hedges of pipeline loans,
warehouse loans and MSRs, classified
as derivatives
Initial seed capital investments
and related hedges, classified as
derivatives
Deposits with banks
Investment securities
portfolio and related
interest rate hedges
Long-term debt and
related interest rate
hedges
Marketable equity investments
measured at fair value through
noninterest revenue in earnings
.
Derivative positions measured at fair
value through noninterest revenue in
earnings
• Derivatives FVA and fair value
option elected liabilities DVA
Private equity investments
measured at fair value
Retained loan portfolio
Deposits
Retained loan portfolio
Deposits
Deposits
Retained loan portfolio
Retained loan portfolio
Deposits
Positions included in other
sensitivity-based measures
Positions included in
earnings-at-risk
Debt securities held in advance of
distribution to clients, classified as
trading assets - debt instruments
Fair value option elected liabilities
Derivative CVA and associated hedges
Certain securities purchased, loaned or
sold under resale agreements and
securities borrowed
Trading assets/liabilities - debt and
marketable equity instruments, and
derivatives, including hedges of the
retained loan portfolio
Interest-only securities, classified as
trading assets - debt instruments, and
related hedges, classified as
derivatives
Non-linear risk arises primarily
from prepayment options
embedded in mortgages and
changes in the probability of
newly originated mortgage
commitments actually closing
Basis risk results from
differences in the relative
movements of the rate indices
underlying mortgage exposure
and other interest rates
Originates loans and takes
deposits
Services mortgage loans which
give rise to complex, non-linear
interest rate and basis risk
•
•
•
⚫ Loss advisories
• Nonstatistical risk measures
Economic-value stress testing
•
• VaR
There is no single measure to capture market risk and
therefore the Firm uses various metrics, both statistical and
nonstatistical, to assess risk including:
Tools used to measure risk
Risk measurement
Definition, approval and monitoring of limits
Performance of stress testing and qualitative risk
assessments
Independent measurement, monitoring and control of
line of business and firmwide market risk
Establishment of a market risk policy framework
•
•
Market Risk Management seeks to manage risk, facilitate
efficient risk/return decisions, reduce volatility in operating
performance and provide transparency into the Firm's
market risk profile for senior management, the Board of
Directors and regulators. Market Risk Management is
responsible for the following functions:
Market Risk Management monitors market risks throughout
the Firm and defines market risk policies and procedures.
The Market Risk Management function reports to the Firm's
CRO.
Market Risk Management
Market risk is the risk associated with the effect of changes
in market factors, such as interest and foreign exchange
rates, equity and commodity prices, credit spreads or
implied volatilities, on the value of assets and liabilities held
for both the short and long term.
MARKET RISK MANAGEMENT
•
Capital invested alongside third-
party investors, typically in
privately distributed collective
vehicles managed by AWM (i.e.,
co-investments)
Profit and loss drawdowns
Risk monitoring and control
•
•
and related market risks
Predominant business activities
AWM
CB
CIB
CCB
Line of
Business
Risk identification and classification by line of business
The following table summarizes by line of business the predominant business activities that give rise to market risk, and
certain market risk tools used to measure those risks.
Management's discussion and analysis
121
JPMorgan Chase & Co./2017 Annual Report
Other sensitivities
•
Limit breaches are required to be reported in a timely
manner to limit approvers, Market Risk Management and
senior management. In the event of a breach, Market Risk
Management consults with senior management of the Firm
and the line of business senior management to determine
the appropriate course of action required to return the
applicable positions to compliance, which may include a
reduction in risk in order to remedy the breach. Certain
Firm or line of business-level limits that have been breached
for three business days or longer, or by more than 30%, are
escalated to senior management and the Firmwide Risk
Committee.
Market risk exposure is managed primarily through a series
of limits set in the context of the market environment and
business strategy. In setting limits, the Firm takes into
consideration factors such as market volatility, product
liquidity and accommodation of client business, and
management experience. The Firm maintains different
levels of limits. Corporate level limits include VaR and stress
limits. Similarly, line of business limits include VaR and
stress limits and may be supplemented by loss advisories,
nonstatistical measurements and profit and loss
drawdowns. Limits may also be set within the lines of
business, as well at the portfolio or legal entity level.
Market Risk Management sets limits and regularly reviews
and updates them as appropriate, with any changes
approved by line of business management and Market Risk
Management. Senior management, including the Firm's CEO
and CRO, are responsible for reviewing and approving
certain of these risk limits on an ongoing basis. All limits
that have not been reviewed within specified time periods
by Market Risk Management are escalated to senior
management. The lines of business are responsible for
adhering to established limits against which exposures are
monitored and reported.
6.3
Earnings-at-risk
Separately, another U.S. dollar interest rate scenario used
by the Firm involving a steeper yield curve with long-term
rates rising by 100 basis points and short-term rates
staying at current levels - results in a 12-month benefit to
net interest income of approximately $700 million and
$800 million at December 31, 2017 and 2016,
respectively. The increase in net interest income under this
scenario reflects the Firm reinvesting at the higher long-
term rates, with funding costs remaining unchanged. The
results of the comparable non-U.S. dollar scenarios were
not material to the Firm at December 31, 2017 and 2016.
Private equity investments
measured at fair value
.
19
12
20
484
7
12
10
LA
13
33
45
$
40
$
+A
$ 20
$ 28
Max
$
7 5
$
65
(b)
བ་
14
27
(b)
(b)
(b)
NM (b)
NM (b)
(36) (a)
NM (b)
NM (b)
(30) (a)
11
7
9
10
32
27
Min
Avg.
Max
Min
The table below shows the results of the Firm's Risk Management VaR measure using a 95% confidence level.
Pillar 3 Regulatory Capital Disclosures reports, which are
available on the Firm's website at: (http://
investor.shareholder.com/jpmorganchase/basel.cfm).
For additional information on Regulatory VaR and the other
components of market risk regulatory capital for the Firm
(e.g., VaR-based measure, stressed VaR-based measure and
the respective backtesting), see JPMorgan Chase's Basel III
Management's discussion and analysis
123
JPMorgan Chase & Co./2017 Annual Report
The Firm calculates separately a daily aggregated VaR in
accordance with regulatory rules ("Regulatory VaR"), which
is used to derive the Firm's regulatory VaR-based capital
requirements under Basel III. This Regulatory VaR model
framework currently assumes a ten business-day holding
period and an expected tail loss methodology which
approximates a 99% confidence level. Regulatory VaR is
applied to "covered" positions as defined by Basel III, which
may be different than the positions included in the Firm's
Risk Management VaR. For example, credit derivative
hedges of accrual loans are included in the Firm's Risk
Management VaR, while Regulatory VaR excludes these
credit derivative hedges. In addition, in contrast to the
Firm's Risk Management VaR, Regulatory VaR currently
excludes the diversification benefit for certain Var models.
The Firm's VaR model calculations are periodically
evaluated and enhanced in response to changes in the
composition of the Firm's portfolios, changes in market
conditions, improvements in the Firm's modeling techniques
and measurements, and other factors. Such changes may
affect historical comparisons of VaR results. For information
regarding model reviews and approvals, see Model Risk
Management on page 137.
The daily market data used in VaR models may be different
than the independent third-party data collected for VCG
price testing in its monthly valuation process. For example,
in cases where market prices are not observable, or where
proxies are used in VaR historical time series, the data
sources may differ (see Valuation process in Note 2 for
further information on the Firm's valuation process).
Because VaR model calculations require daily data and a
consistent source for valuation, it may not be practical to
use the data collected in the VCG monthly valuation process
for VaR model calculations.
For certain products, specific risk parameters are not
captured in Var due to the lack of inherent liquidity and
availability of appropriate historical data. The Firm uses
proxies to estimate the VaR for these and other products
when daily time series are not available. It is likely that
using an actual price-based time series for these products,
if available, would affect the VaR results presented. The
Firm therefore considers other measures such as stress
testing and nonstatistical measures, in addition to VaR, to
capture and manage its market risk positions.
As VaR is based on historical data, it is an imperfect
measure of market risk exposure and potential losses, and
it is not used to estimate the impact of stressed market
conditions or to manage any impact from potential stress
events. In addition, based on their reliance on available
historical data, limited time horizons, and other factors, VaR
measures are inherently limited in their ability to measure
certain risks and to predict losses, particularly those
associated with market illiquidity and sudden or severe
shifts in market conditions.
Underlying the overall VaR model framework are individual
VaR models that simulate historical market returns for
individual products and/or risk factors. To capture material
market risks as part of the Firm's risk management
framework, comprehensive VaR model calculations are
performed daily for businesses whose activities give rise to
market risk. These VaR models are granular and incorporate
numerous risk factors and inputs to simulate daily changes
in market values over the historical period; inputs are
selected based on the risk profile of each portfolio, as
sensitivities and historical time series used to generate daily
market values may be different across product types or risk
management systems. The VaR model results across all
portfolios are aggregated at the Firm level.
Under the Firm's Risk Management VaR methodology,
assuming current changes in market values are consistent
with the historical changes used in the simulation, the Firm
would expect to incur VaR “back-testing exceptions,"
defined as losses greater than that predicted by VaR
estimates, an average of five times every 100 trading days.
The number of VaR back-testing exceptions observed can
differ from the statistically expected number of back-testing
exceptions if the current level of market volatility is
materially different from the level of market volatility
during the 12 months of historical data used in the VaR
calculation.
The Firm's Risk Management VaR is calculated assuming a
one-day holding period and an expected tail-loss
methodology which approximates a 95% confidence level.
Risk Management VaR provides a consistent framework to
measure risk profiles and levels of diversification across
product types and is used for aggregating risks and
monitoring limits across businesses. VaR results are
reported to senior management, the Board of Directors and
regulators.
The framework is employed across the Firm using historical
simulation based on data for the previous 12 months. The
framework's approach assumes that historical changes in
market values are representative of the distribution of
potential outcomes in the immediate future. The Firm
believes the use of Risk Management VaR provides a stable
measure of VaR that is closely aligned to the day-to-day risk
management decisions made by the lines of business, and
provides the appropriate information needed to respond to
risk events on a daily basis.
JPMorgan Chase utilizes VaR, a statistical risk measure, to
estimate the potential loss from adverse market moves in a
normal market environment. The Firm has a single VaR
framework used as a basis for calculating Risk Management
VaR and Regulatory VaR.
Value-at-risk
JPMorgan Chase & Co./2017 Annual Report
122
Total VaR
Foreign exchange exposure
related to Firm-issued non-USD
long-term debt ("LTD") and
related hedges
As of or for the year ended December 31,
CIB trading VaR by risk type
Avg.
2016
2017
Total VaR
Diversification benefit to CIB and other VaR
Other VaR
Diversification benefit to other VaR
AWM VAR
Corporate VaR
CCB VaR
CIB VaR
Diversification benefit to CIB VaR
Credit portfolio VaR
CIB trading VaR
Diversification benefit to CIB trading VaR
Commodities and other
Equities
Foreign exchange
Fixed income
(in millions)
JPMorgan Chase & Co./2017 Annual Report
5
11.4
•
•
•
Under the Firm's internal country risk measurement
framework:
The Firm is exposed to country risk through its lending and
deposits, investing, and market-making activities, whether
cross-border or locally funded. Country exposure includes
activity with both government and private-sector entities in
a country. Under the Firm's internal country risk
management approach, country exposure is reported based
on the country where the majority of the assets of the
obligor, counterparty, issuer or guarantor are located or
where the majority of its revenue is derived, which may be
different than the domicile (legal residence) or country of
incorporation of the obligor, counterparty, issuer or
guarantor. Country exposures are generally measured by
considering the Firm's risk to an immediate default of the
counterparty or obligor, with zero recovery. Assumptions
are sometimes required in determining the measurement
and allocation of country exposure, particularly in the case
of certain non-linear or index exposures. The use of
different measurement approaches or assumptions could
affect the amount of reported country exposure.
Sources and measurement
• Providing country risk scenario analysis
Managing and approving country limits and reporting
trends and limit breaches to senior management
Developing surveillance tools, such as signaling models
and ratings indicators, for early identification of
potential country risk concerns
Establishing policies, procedures and standards
consistent with a comprehensive country risk framework
Assigning sovereign ratings, and assessing country risks
and establishing risk tolerance relative to a country
Measuring and monitoring country risk exposure and
stress across the Firm
•
•
•
•
•
The Firm's country risk management function includes the
following activities:
management function that assesses, manages and monitors
country risk originated across the Firm. The Firmwide Risk
Executive for Country Risk reports to the Firm's CRO.
Country Risk Management is an independent risk
Organization and management
The Firm has a country risk management framework for
monitoring and assessing how financial, economic, political
or other significant developments adversely affect the value
of the Firm's exposures related to a particular country or
set of countries. The Country Risk Management group
actively monitors the various portfolios which may be
impacted by these developments to ensure the Firm's
exposures are diversified and that exposure levels are
appropriate given the Firm's strategy and risk tolerance
relative to a country.
COUNTRY RISK MANAGEMENT
JPMorgan Chase & Co./2017 Annual Report
•
128
•
Deposits are measured as the cash balances placed with
central and commercial banks
investing (c)(d)
deposits (b)
(in billions)
Trading and
Lending and
December 31, 2017
Top 20 country exposures (excluding the U.S.) (a)
The following table presents the Firm's top 20 exposures by
country (excluding the U.S.) as of December 31, 2017. The
selection of countries represents the Firm's largest total
exposures by country, based on the Firm's internal country
risk management approach, and does not represent the
Firm's view of any actual or potentially adverse credit
conditions. Country exposures may fluctuate from period to
period due to client activity and market flows.
Management to identify trends, and monitor high usages
and breaches against limits.
To enable effective risk management of country risk to the
Firm, country nominal exposure and stress are measured
and reported weekly, and used by Country Risk
Risk Reporting
Management's discussion and analysis
129
JPMorgan Chase & Co./2017 Annual Report
Stress testing is an important component of the Firm's
country risk management framework, which aims to
estimate and limit losses arising from a country crisis by
measuring the impact of adverse asset price movements to
a country based on market shocks combined with
counterparty specific assumptions. Country Risk
Management periodically designs and runs tailored stress
scenarios to test vulnerabilities to individual countries, or
groups of countries, in response to specific or potential
market events, sector performance concerns and
geopolitical risks. These tailored stress results are used to
assess potential risk reduction across the Firm, as
necessary.
Stress testing
The Firm's internal country risk reporting differs from the
reporting provided under the FFIEC bank regulatory
requirements. For further information on the FFIEC's
reporting methodology, see Cross-border outstandings on
page 296 of the 2017 Form 10-K.
Some activities may create contingent or indirect exposure
related to a country (for example, providing clearing
services or secondary exposure to collateral on securities
financing receivables). These exposures are managed in the
normal course of business through the Firm's credit,
market, and operational risk governance, rather than
through Country Risk Management.
Credit derivatives protection purchased and sold is
reported based on the underlying reference entity and is
measured at the notional amount of protection
purchased or sold, net of the fair value of the recognized
derivative receivable or payable. Credit derivatives
protection purchased and sold in the Firm's market-
making activities is measured on a net basis, as such
activities often result in selling and purchasing
protection related to the same underlying reference
entity; this reflects the manner in which the Firm
manages these exposures
Debt and equity securities are measured at the fair value
of all positions, including both long and short positions
Counterparty exposure on derivative receivables is
measured at the derivative's fair value, net of the fair
value of the related collateral. Counterparty exposure on
derivatives can change significantly because of market
movements
Securities financing exposures are measured at their
receivable balance, net of collateral received
Lending exposures are measured at the total committed
amount (funded and unfunded), net of the allowance for
credit losses and cash and marketable securities
collateral received
ΝΑ
(1)
1 basis point parallel
increase in spread
(358)
(338)
10% decline in market
value
Consists of private equity and other
investments held at fair value
(166)
(110) $
$
10% decline in market
value
Consists of seed capital and related hedges;
and fund co-investments
December 31, December 31,
2017
2016
Sensitivity measure
Description
Other investments
127
Non-U.S. dollar foreign exchange risk
Non-U.S. dollar FX risk is the risk that changes in foreign
exchange rates affect the value of the Firm's assets or
liabilities or future results. The Firm has structural non-U.S.
dollar FX exposures arising from capital investments,
forecasted expense and revenue, the investment securities
Other sensitivity-based measures
portfolio and non-U.S. dollar-denominated debt issuance.
Treasury and CIO, working in partnership with the lines of
business, primarily manage these risks on behalf of the
Firm. Treasury and CIO may hedge certain of these risks
using derivatives within risk limits governed by the CTC Risk
Committee.
The Firm quantifies the market risk of certain investment and funding activities by assessing the potential impact on net
revenue and OCI due to changes in relevant market variables. For additional information on the positions captured in other
sensitivity-based measures, please refer to the Risk identification and classification table on page 122.
The table below represents the potential impact to net revenue or OCI for market risk sensitive instruments that are not
included in VaR or earnings-at-risk. Where appropriate, instruments used for hedging purposes are reported along with the
positions being hedged. The sensitivities disclosed in the table below may not be representative of the actual gain or loss that
would have been realized at December 31, 2017, as the movement in market parameters across maturities may vary and are
not intended to imply management's expectation of future deterioration in these sensitivities.
Gain/(loss) (in millions)
Activity
Funding activities
Non-USD LTD cross-currency basis
Non-USD LTD hedges foreign currency
("FX") exposure
Derivatives funding spread risk
17
22
1 basis point parallel
increase in spread
(4)
(6)
1 basis point parallel
increase in spread
(23)
(13)
10% depreciation of
currency
basis
Other(e)
tightening of cross currency
(10)
1 basis point parallel
Interest rate sensitivity on fair value option
liabilities resulting from a change in the
Firm's own credit spread(a)
Impact of changes in the spread related to
fair value option elected liabilities DVA (a)
Impact of changes in the spread related to
derivatives FVA
Primarily represents the foreign exchange
revaluation on the fair value of the
derivative hedges
Represents the basis risk on derivatives
used to hedge the foreign exchange risk on
the non-USD LTD
(a) Impact recognized through OCI.
Fair value option elected liabilities –
interest rate sensitivity
Fair value option elected liabilities –
funding spread risk
(7)
Total
exposure
Germany
$
JPMorgan Chase & Co./2017 Annual Report
1.1
1.2
4.0
Singapore
6.7
0.1
3.1
3.5
Italy
6.8
0.3
1.9
4.6
South Korea
6.9
0.1
2.1
4.7
Spain
8.0
130
(d) Includes single reference entity ("single-name"), index and other
multiple reference entity transactions for which one or more of the
underlying reference entities is in a country listed in the above table.
(e) Includes capital invested in local entities and physical commodity
inventory.
(c) Includes market-making inventory, AFS securities, counterparty
exposure on derivative and securities financings net of collateral and
hedging.
(b) Lending and deposits includes loans and accrued interest receivable
(net of collateral and the allowance for loan losses), deposits with
banks (including central banks), acceptances, other monetary assets,
issued letters of credit net of participations, and unused commitments
to extend credit. Excludes intra-day and operating exposures, such as
from settlement and clearing activities.
1.2
5.2
Brazil
3.2
1.4
0.5
5.1
Hong Kong
2.3
0.9
0.6
1.6
Saudi Arabia
3.8
0.7
4.5
Belgium
2.7
1.5
4.2
(a) Country exposures above reflect 86% of total firmwide non U.S.
exposure.
4.8
Investment activities
0.8
Netherlands
9.6
China
19.4
0.3
6.6
12.5
France
30.8
0.4
5.7
24.7
Japan
46.3
2.8
11.5
32.0
United Kingdom
57.4
0.3 $
13.8 $
43.3 $
5.5
1.2
16.3
Canada
9.5
0.8
8.7
Luxembourg
5.6
5.8
Australia
12.3
0.9
6.6
6.1
India
13.9
3.9
1.5
8.5
Switzerland
14.9
0.2
2.5
12.2
5.3
Investment management activities
0.8%
3.2%
Operational risk is the risk associated with inadequate or
failed internal processes, people and systems, or from
external events; operational risk includes cybersecurity risk,
business and technology resiliency risk, payment fraud risk,
and third-party outsourcing risk. Operational risk is
inherent in the Firm's activities and can manifest itself in
various ways, including fraudulent acts, business
interruptions, inappropriate employee behavior, failure to
comply with applicable laws and regulations or failure of
vendors to perform in accordance with their arrangements.
These events could result in financial losses, litigation and
regulatory fines, as well as other damages to the Firm. The
goal is to keep operational risk at appropriate levels in light
of the Firm's financial position, the characteristics of its
businesses, and the markets and regulatory environments
in which it operates.
Total level
3 assets
Trading debt and equity instruments
$
Derivative receivables(a)
325.3
56.5
$
5.4
6.0
Trading assets
381.8
Total assets at
fair value
11.4
202.2
0.3
Loans
2.5
0.3
MSRS
6.0
6.0
Other
AFS securities
33.2
(in billions, except ratio data)
information, see Note 2.
Allowance for credit losses sensitivity
The Firm's allowance for credit losses is sensitive to
numerous factors, which may differ depending on the
portfolio. Changes in economic conditions or in the Firm's
assumptions and estimates could affect its estimate of
probable credit losses inherent in the portfolio at the
balance sheet date. The Firm uses its best judgment to
assess these economic conditions and loss data in
estimating the allowance for credit losses and these
estimates are subject to periodic refinement based on
changes to underlying external or Firm-specific historical
data. The use of alternate estimates, data sources,
adjustments to modeled loss estimates for model
imprecision and other factors would result in a different
estimated allowance for credit losses, as well as impact any
related sensitivities described below. During the second
quarter of 2017, the Firm refined its loss estimates relating
to the wholesale credit portfolio. See Note 13 for further
discussion.
To illustrate the potential magnitude of certain alternate
judgments, the Firm estimates that changes in the following
inputs would have the following effects on the Firm's
modeled credit loss estimates as of December 31, 2017,
without consideration of any offsetting or correlated effects
of other inputs in the Firm's allowance for loan losses:
•
A combined 5% decline in housing prices and a 100
basis point increase in unemployment rates from current
levels could imply:
°
°
an increase to modeled credit loss estimates of
approximately $525 million for PCI loans.
an increase to modeled annual credit loss estimates
December 31, 2017
of approximately $100 million for residential real
estate, excluding PCI loans.
An increase in PD factors consistent with a one-notch
downgrade in the Firm's internal risk ratings for its
entire wholesale loan portfolio could imply an increase
in the Firm's modeled credit loss estimates of
approximately $1.4 billion.
A 100 basis point increase in estimated loss given
default ("LGD") for the Firm's entire wholesale loan
portfolio could imply an increase in the Firm's modeled
credit loss estimates of approximately $175 million.
The purpose of these sensitivity analyses is to provide an
indication of the isolated impacts of hypothetical
alternative assumptions on modeled loss estimates. The
changes in the inputs presented above are not intended to
imply management's expectation of future deterioration of
those risk factors. In addition, these analyses are not
intended to estimate changes in the overall allowance for
loan losses, which would also be influenced by the judgment
management applies to the modeled loss estimates to
reflect the uncertainty and imprecision of these modeled
loss estimates based on then-current circumstances and
conditions.
It is difficult to estimate how potential changes in specific
factors might affect the overall allowance for credit losses
because management considers a variety of factors and
inputs in estimating the allowance for credit losses.
Changes in these factors and inputs may not occur at the
same rate and may not be consistent across all geographies
or product types, and changes in factors may be
directionally inconsistent, such that improvement in one
factor may offset deterioration in other factors. In addition,
it is difficult to predict how changes in specific economic
conditions or assumptions could affect borrower behavior
or other factors considered by management in estimating
the allowance for credit losses. Given the process the Firm
follows and the judgments made in evaluating the risk
factors related to its loss estimates, management believes
that its current estimate of the allowance for credit losses is
appropriate.
138
JPMorgan Chase & Co./2017 Annual Report
Fair value of financial instruments, MSRs and commodities
inventory
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. The majority of such assets and liabilities are
measured at fair value on a recurring basis. Certain assets
and liabilities are measured at fair value on a nonrecurring
basis, including certain mortgage, home equity and other
loans, where the carrying value is based on the fair value of
the underlying collateral.
Assets measured at fair value
The following table includes the Firm's assets measured at
fair value and the portion of such assets that are classified
within level 3 of the valuation hierarchy. For further
For credit card loans, a 100 basis point increase in
unemployment rates from current levels could imply an
increase to modeled annual loss estimates of
approximately $1.0 billion.
The allowance for credit losses includes a formula-based
component, an asset-specific component, and a component
related to PCI loans. The determination of each of these
components involves significant judgment on a number of
matters. For further discussion of these components, areas
of judgment and methodologies used in establishing the
Firm's allowance for credit losses, see Note 13.
1.2
a recurring basis
JPMorgan Chase offers credit cards with various reward
programs which allow cardholders to earn reward points
based on their account activity and the terms and
For additional information on goodwill, see Note 15.
Credit card rewards liability
businesses. Where possible, the Firm uses third-party and
peer data to benchmark its assumptions and estimates.
Declines in business performance, increases in credit losses,
increases in capital requirements, as well as deterioration in
economic or market conditions, adverse estimates of
regulatory or legislative changes or increases in the
estimated market cost of equity, could cause the estimated
fair values of the Firm's reporting units or their associated
goodwill to decline in the future, which could result in a
material impairment charge to earnings in a future period
related to some portion of the associated goodwill.
Management's discussion and analysis
139
JPMorgan Chase & Co./2017 Annual Report
The projections for all of the Firm's reporting units are
consistent with management's current short-term business
outlook assumptions, and in the longer term, incorporate a
set of macroeconomic assumptions and the Firm's best
estimates of long-term growth and returns on equity of its
Based upon the updated valuations for all of its reporting
units, the Firm concluded that the goodwill allocated to its
reporting units was not impaired at December 31, 2017.
The fair values of these reporting units exceeded their
carrying values by approximately 15% or higher and did
not indicate a significant risk of goodwill impairment based
on current projections and valuations. Such valuations do
not reflect the impact of the TCJA that was enacted in
December 2017 as such impact would not alter the
conclusion that goodwill is not impaired.
Management applies significant judgment when estimating
the fair value of its reporting units. Estimates of fair value
are dependent upon estimates of the future earnings
potential of the Firm's reporting units, long-term growth
rates and the estimated market cost of equity. Imprecision
in estimating these factors can affect the estimated fair
value of the reporting units.
conditions of the rewards program. Generally, there are no
limits on the points that an eligible cardholder can earn, nor
do they expire, and these points can be redeemed for a
variety of rewards, including cash (predominantly in the
form of account credits), gift cards and travel.
Under U.S. GAAP, goodwill must be allocated to reporting
units and tested for impairment at least annually. The Firm's
process and methodology used to conduct goodwill
impairment testing is described in Note 15.
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of methodologies
or assumptions different than those used by the Firm could
result in a different estimate of fair value at the reporting
date. For a detailed discussion of the Firm's valuation
process and hierarchy, and its determination of fair value
for individual financial instruments, see Note 2.
Imprecision in estimating unobservable market inputs or
other factors can affect the amount of gain or loss recorded
for a particular position. Furthermore, while the Firm
believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
For instruments classified in levels 2 and 3, management
judgment must be applied to assess the appropriate level of
valuation adjustments to reflect counterparty credit quality,
the Firm's creditworthiness, market funding rates, liquidity
considerations, unobservable parameters, and for
portfolios that meet specified criteria, the size of the net
open risk position. The judgments made are typically
affected by the type of product and its specific contractual
terms, and the level of liquidity for the product or within the
market as a whole. For further discussion of valuation
adjustments applied by the Firm see Note 2.
valuations of comparable instruments, foreign exchange
rates and credit curves. For further discussion of the
valuation of level 3 instruments, including unobservable
inputs used, see Note 2.
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate valuation technique to use. Second, the lack of
observability of certain significant inputs requires
management to assess all relevant empirical data in
deriving valuation inputs including, for example, transaction
details, yield curves, interest rates, prepayment rates,
default rates, volatilities, correlations, equity or debt prices,
Details of the Firm's processes for determining fair value
are set out in Note 2. Estimating fair value requires the
application of judgment. The type and level of judgment
required is largely dependent on the amount of observable
market information available to the Firm. For instruments
valued using internally developed valuation models and
other valuation techniques that use significant
unobservable inputs and are therefore classified within
level 3 of the valuation hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
Valuation
(a) For purposes of the table above, the derivative receivables total reflects the impact
of netting adjustments; however, the $6.0 billion of derivative receivables classified
as level 3 does not reflect the netting adjustment as such netting is not relevant to
a presentation based on the transparency of inputs to the valuation of an asset.
The level 3 balances would be reduced if netting were applied, including the netting
benefit associated with cash collateral.
OPERATIONAL RISK MANAGEMENT
Goodwill impairment
Total assets measured at fair value on
The Firm maintains a rewards liability which represents the
estimated cost of reward points earned and expected to be
redeemed by cardholders. The rewards liability is sensitive
to various assumptions, including cost per point and
redemption rates for each of the various reward programs,
which are evaluated periodically. The liability is accrued as
the cardholder earns the benefit and is reduced when the
cardholder redeems points. This liability was $4.9 billion
and $3.8 billion at December 31, 2017 and 2016,
respectively, and is recorded in accounts payable and other
liabilities on the Consolidated balance sheets.
JPMorgan Chase is subject to the income tax laws of the
various jurisdictions in which it operates, including U.S.
federal, state and local, and non-U.S. jurisdictions. These
laws are often complex and may be subject to different
interpretations. To determine the financial statement
impact of accounting for income taxes, including the
provision for income tax expense and unrecognized tax
benefits, JPMorgan Chase must make assumptions and
judgments about how to interpret and apply these complex
tax laws to numerous transactions and business events, as
well as make judgments regarding the timing of when
certain items may affect taxable income in the U.S. and
non-U.S. tax jurisdictions.
625.7
19.2
Total assets measured at fair value on a
nonrecurring basis
1.3
Total assets measured at fair value
$
627.0
$
0.8
20.0
Income taxes
Total Firm assets
2,533.6
Level 3 assets as a percentage of total
Firm assets (a)
Level 3 assets as a percentage of total
Firm assets at fair value(a)
JPMorgan Chase & Co./2017 Annual Report
For a description of the significant estimates and judgments
associated with establishing litigation reserves, see
Note 29.
The income tax expense for the current year includes a
reasonable estimate recorded under SEC Staff Accounting
Bulletin No. 118 resulting from the enactment of the TCJA.
For additional information on income taxes, see Note 24.
Litigation reserves
The Firm's provision for income taxes is composed of
current and deferred taxes. Deferred taxes arise from
differences between assets and liabilities measured for
financial reporting versus income tax return purposes.
Deferred tax assets are recognized if, in management's
judgment, their realizability is determined to be more likely
than not. The Firm has also recognized deferred tax assets
in connection with certain tax attributes, including NOLS.
The Firm performs regular reviews to ascertain whether its
deferred tax assets are realizable. These reviews include
management's estimates and assumptions regarding future
taxable income, which also incorporates various tax
planning strategies, including strategies that may be
available to utilize NOLS before they expire. In connection
with these reviews, if it is determined that a deferred tax
asset is not realizable, a valuation allowance is established.
The valuation allowance may be reversed in a subsequent
reporting period if the Firm determines that, based on
revised estimates of future taxable income or changes in
tax planning strategies, it is more likely than not that all or
part of the deferred tax asset will become realizable. As of
December 31, 2017, management has determined it is
more likely than not that the Firm will realize its deferred
tax assets, net of the existing valuation allowance.
Prior to December 31, 2017, U.S. federal income taxes had
not been provided on the undistributed earnings of certain
non-U.S. subsidiaries, to the extent that such earnings had
been reinvested abroad for an indefinite period of time. The
Firm will no longer maintain the indefinite reinvestment
assertion on the undistributed earnings of those non-U.S.
subsidiaries in light of the enactment of the TCJA. The U.S.
federal and state and local income taxes associated with the
undistributed and previously untaxed earnings of those
non-U.S. subsidiaries was included in the deemed
repatriation charge recorded as of December 31, 2017.
The Firm adjusts its unrecognized tax benefits as necessary
when additional information becomes available. Uncertain
tax positions that meet the more-likely-than-not recognition
threshold are measured to determine the amount of benefit
to recognize. An uncertain tax position is measured at the
largest amount of benefit that management believes is
more likely than not to be realized upon settlement. It is
possible that the reassessment of JPMorgan Chase's
unrecognized tax benefits may have a material impact on its
effective income tax rate in the period in which the
reassessment occurs.
140
JPMorgan Chase's interpretations of tax laws around the
world are subject to review and examination by the various
taxing authorities in the jurisdictions where the Firm
operates, and disputes may occur regarding its view on a
tax position. These disputes over interpretations with the
various taxing authorities may be settled by audit,
administrative appeals or adjudication in the court systems
of the tax jurisdictions in which the Firm operates.
JPMorgan Chase regularly reviews whether it may be
assessed additional income taxes as a result of the
resolution of these matters, and the Firm records additional
reserves as appropriate. In addition, the Firm may revise its
estimate of income taxes due to changes in income tax
$
JPMorgan Chase's allowance for credit losses covers the
retained consumer and wholesale loan portfolios, as well as
the Firm's wholesale and certain consumer lending-related
commitments. The allowance for loan losses is intended to
adjust the carrying value of the Firm's loan assets to reflect
probable credit losses inherent in the loan portfolio as of
the balance sheet date. Similarly, the allowance for lending-
related commitments is established to cover probable credit
losses inherent in the lending-related commitments
portfolio as of the balance sheet date.
laws, legal interpretations, and business strategies. It is
possible that revisions in the Firm's estimate of income
taxes may materially affect the Firm's results of operations
in any reporting period.
JPMorgan Chase's accounting policies and use of estimates
are integral to understanding its reported results. The
Firm's most complex accounting estimates require
management's judgment to ascertain the appropriate
carrying value of assets and liabilities. The Firm has
established policies and control procedures intended to
ensure that estimation methods, including any judgments
made as part of such methods, are well-controlled,
independently reviewed and applied consistently from
period to period. The methods used and judgments made
reflect, among other factors, the nature of the assets or
liabilities and the related business and risk management
strategies, which may vary across the Firm's businesses and
portfolios. In addition, the policies and procedures are
intended to ensure that the process for changing
methodologies occurs in an appropriate manner. The Firm
believes its estimates for determining the carrying value of
its assets and liabilities are appropriate. The following is a
brief description of the Firm's critical accounting estimates
involving significant judgments.
Business disruptions can occur due to forces beyond the
Firm's control such as severe weather, power or
telecommunications loss, flooding, transit strikes, terrorist
threats or infectious disease. The safety of the Firm's
employees and customers is of the highest priority. The
Firm's global resiliency program is intended to enable the
Firm to recover its critical business functions and
supporting assets (i.e., staff, technology and facilities) in
the event of a business interruption. The program includes
corporate governance, awareness and training, as well as
strategic and tactical initiatives to identify, assess, and
manage business interruption and public safety risks.
The strength and proficiency of the Firm's global resiliency
program has played an integral role in maintaining the
Firm's business operations during and after various events.
Payment fraud risk
Payment fraud risk is the risk of external and internal
parties unlawfully obtaining personal monetary benefit
through misdirected or otherwise improper payment, and
exposing the Firm to financial or reputational harm. Over
the past year, the risk of payment fraud remained at a
heightened level across the industry. The complexities of
these attacks along with perpetrators' strategies continue
to evolve. A Payments Control Program has been
established that includes Cybersecurity, Operations,
Technology, Risk and the lines of business to manage the
risk, implement controls and provide employee and client
education and awareness training. In addition, a new
wholesale fraud detection solution has been introduced
which monitors high value payments for certain anomalies.
The Firm's monitoring of customer behavior is periodically
evaluated and enhanced, and attempts to detect and
mitigate new strategies implemented by fraud perpetrators.
The Firm's consumer and wholesale businesses collaborate
closely to deploy risk mitigation controls across their
businesses.
132
JPMorgan Chase & Co./2017 Annual Report
Third-party outsourcing risk
To identify and manage the operational risk inherent in its
outsourcing activities, the Firm has a Third-Party Oversight
("TPO") framework to assist lines of business and corporate
functions in selecting, documenting, onboarding,
monitoring and managing their supplier relationships. The
objective of the TPO framework is to hold third parties to
the same high level of operational performance as is
expected of the Firm's internal operations. The Corporate
Third-Party Oversight group is responsible for Firmwide TPO
training, monitoring, reporting and standards.
To protect the confidentiality, integrity and availability of
the Firm's infrastructure, resources and information, the
Firm leverages the ORMF to ensure risks are identified and
managed within defined corporate tolerances. The Firm's
Board of Directors and the Audit Committee are regularly
briefed on the Firm's cybersecurity policies and practices
and ongoing efforts to improve security, as well as its
efforts regarding significant cybersecurity events.
Business and technology resiliency risk
Insurance
JPMorgan Chase & Co./2017 Annual Report
133
COMPLIANCE RISK MANAGEMENT
Compliance risk, a subcategory of operational risk, is the
risk of failure to comply with applicable laws, rules and
regulations.
Overview
Each line of business and function is accountable for
managing its compliance risk. The Firm's Compliance
Organization ("Compliance"), which is independent of the
lines of business, works closely with senior management to
provide independent review, monitoring and oversight of
business operations with a focus on compliance with the
legal and regulatory obligations applicable to the delivery
of the Firm's products and services to clients and
customers.
These compliance risks relate to a wide variety of legal and
regulatory obligations, depending on the line of business
and the jurisdiction, and include those related to financial
products and services, relationships and interactions with
clients and customers, and employee activities. For
example, compliance risks include those associated with
anti-money laundering compliance, trading activities,
market conduct, and complying with the rules and
regulations related to the offering of products and services
across jurisdictional borders, among others. Compliance
risk is also inherent in the Firm's fiduciary activities,
including the failure to exercise the applicable high
standard of care (such as the duties of loyalty or care), to
act in the best interest of clients and customers or to treat
clients and customers fairly.
Other Functions provide oversight of significant regulatory
obligations that are specific to their respective areas of
responsibility.
Compliance implements various practices designed to
identify and mitigate compliance risk by establishing
policies, testing, monitoring, training and providing
guidance.
One of the ways in which operational risk may be mitigated
is through insurance maintained by the Firm. The Firm
purchases insurance from commercial insurers and utilizes
a wholly-owned captive insurer, Park Assurance Company,
to ensure compliance with local laws and regulations (e.g.,
workers compensation), as well as to serve other needs
(e.g., property loss and public liability). Insurance may also
be required by third parties with whom the Firm does
business. The insurance purchased is reviewed and
approved by senior management.
Governance and oversight
sources of cybersecurity risk to the Firm, particularly when
their activities and systems are beyond the Firm's own
security and control systems. As a result, the Firm engages
in regular and ongoing discussions with certain vendors and
clients regarding cybersecurity risks and opportunities to
improve security. However, where cybersecurity incidents
are due to client failure to maintain the security of their
own systems and processes, clients will generally be
responsible for losses incurred.
Cybersecurity risk
Operational Risk Management Framework
Allowance for credit losses
To monitor and control operational risk, the Firm has an
Operational Risk Management Framework ("ORMF") which
is designed to enable the Firm to maintain a sound and
well-controlled operational environment. The ORMF has
four main components: Governance, Risk Identification and
Assessment, Measurement, and Monitoring and Reporting.
Governance
The lines of business and corporate functions are
responsible for owning and managing their operational
risks. The Firmwide Oversight and Control Group, which
consists of control officers within each line of business and
corporate function, is responsible for the day-to-day
execution of the ORMF.
Line of business and corporate function control committees
oversee the operational risk and control environments of
their respective businesses and functions. These
committees escalate operational risk issues to the FCC, as
appropriate. For additional information on the FCC, see
Enterprise-wide Risk Management on pages 75-137.
The Firmwide Risk Executive for Operational Risk
Governance ("ORG”), a direct report to the CRO, is
responsible for defining the ORMF and establishing
minimum standards for its execution. Operational Risk
Officers report to both the line of business CROS and to the
Firmwide Risk Executive for ORG, and are independent of
the respective businesses or corporate functions they
oversee.
The Firm's Operational Risk Governance Policy is approved
by the DRPC. This policy establishes the Operational Risk
Management Framework for the Firm.
Risk identification and assessment
The Firm utilizes several tools to identify, assess, mitigate
and manage its operational risk. One such tool is the Risk
and Control Self-Assessment ("RCSA") program which is
executed by LOBS and corporate functions in accordance
with the minimum standards established by ORG. As part of
the RCSA program, lines of business and corporate
functions identify key operational risks inherent in their
activities, evaluate the effectiveness of relevant controls in
place to mitigate identified risks, and define actions to
reduce residual risk. Action plans are developed for
identified control issues and businesses and corporate
functions are held accountable for tracking and resolving
issues in a timely manner. Operational Risk Officers
independently challenge the execution of the RCSA program
and evaluate the appropriateness of the residual risk
results.
Cybersecurity risk is an important, continuous and evolving
focus for the Firm. The Firm devotes significant resources to
protecting and continuing to improve the security of the
Firm's computer systems, software, networks and other
technology assets. The Firm's security efforts are intended
to protect against, among other things, cybersecurity
attacks by unauthorized parties to obtain access to
confidential information, destroy data, disrupt or degrade
service, sabotage systems or cause other damage. The Firm
continues to make significant investments in enhancing its
cyberdefense capabilities and to strengthen its partnerships
with the appropriate government and law enforcement
agencies and other businesses in order to understand the
full spectrum of cybersecurity risks in the operating
environment, enhance defenses and improve resiliency
against cybersecurity threats. The Firm actively participates
in discussions of cybersecurity risks with law enforcement,
government officials, peer and industry groups, and has
significantly increased efforts to educate employees and
certain clients on the topic. Third parties with which the
Firm does business or that facilitate the Firm's business
activities (e.g., vendors, exchanges, clearing houses, central
depositories, and financial intermediaries) could also be
sources of cybersecurity risk to the Firm. Third party
cybersecurity incidents such as system breakdowns or
failures, misconduct by the employees of such parties, or
cyberattacks could affect their ability to deliver a product or
service to the Firm or result in lost or compromised
information of the Firm or its clients. Clients can also be
In addition to the RCSA program, the Firm tracks and
monitors events that have led to or could lead to actual
operational risk losses, including litigation-related events.
Responsible businesses and corporate functions analyze
their losses to evaluate the effectiveness of their control
environment to assess where controls have failed, and to
determine where targeted remediation efforts may be
required. ORG provides oversight of these activities and may
also perform independent assessments of significant
operational risk events and areas of concentrated or
emerging risk.
In addition to the level of actual operational risk losses,
operational risk measurement includes operational risk-
based capital and operational risk loss projections under
both baseline and stressed conditions.
The primary component of the operational risk capital
estimate is the Loss Distribution Approach (“LDA”)
statistical model, which simulates the frequency and
severity of future operational risk loss projections based on
historical data. The LDA model is used to estimate an
aggregate operational risk loss over a one-year time
horizon, at a 99.9% confidence level. The LDA model
incorporates actual internal operational risk losses in the
quarter following the period in which those losses were
realized, and the calculation generally continues to reflect
such losses even after the issues or business activities
giving rise to the losses have been remediated or reduced.
As required under the Basel III capital framework, the Firm's
operational risk-based capital methodology, which uses the
Advanced Measurement Approach, incorporates internal
and external losses as well as management's view of tail risk
captured through operational risk scenario analysis, and
evaluation of key business environment and internal control
metrics.
JPMorgan Chase & Co./2017 Annual Report
Management's discussion and analysis
The Firm considers the impact of stressed economic
conditions on operational risk losses and develops a
forward looking view of material operational risk events
that may occur in a stressed environment. The Firm's
operational risk stress testing framework is utilized in
calculating results for the Firm's CCAR and ICAAP processes.
For information related to operational risk RWA, CCAR or
ICAAP, see Capital Risk Management section, pages 82-91.
Monitoring and reporting
ORG has established standards for consistent operational
risk monitoring and reporting. The standards also reinforce
escalation protocols to senior management and to the
Board of Directors. Operational risk reports are produced
on a firmwide basis as well as by line of business and
corporate function.
Subcategories and examples of operational risks
As mentioned previously, operational risk can manifest itself
in various ways. Operational risk subcategories such as
Compliance risk, Conduct risk, Legal risk and Estimations
and Model risk, as well as other operational risks, can lead
to losses which are captured through the Firm's operational
risk measurement processes. More information on
Compliance risk, Conduct risk, Legal risk and Estimations
and Model risk subcategories are discussed on pages 134,
135, 136 and 137, respectively. Details on other select
examples of operational risks are provided below.
Measurement
Compliance is led by the Firms' CCO who reports to the
Firm's CRO.
131
The Firm has a Code of Conduct (the "Code"). Each
employee is given annual training on the Code and is
required annually to affirm his or her compliance with the
Code. All new hires must complete Code training shortly
after their start date with the Firm. The Code sets forth the
Firm's expectation that employees will conduct themselves
with integrity at all times and provides the principles that
govern employee conduct with clients, customers,
shareholders and one another, as well as with the markets
and communities in which the Firm does business. The Code
requires employees to promptly report any known or
suspected violation of the Code, any internal Firm policy, or
any law or regulation applicable to the Firm's business. It
also requires employees to report any illegal conduct, or
conduct that violates the underlying principles of the Code,
by any of the Firm's employees, customers, suppliers,
contract workers, business partners, or agents. The Code
prohibits retaliation against anyone who raises an issue or
concern in good faith. Specified compliance officers are
specially trained and designated as "code specialists" who
act as a resource to employees on questions related to the
Code. Employees can report any known or suspected
violations of the Code through the Code Reporting Hotline
by phone or the internet. The Hotline is anonymous, except
in certain non-U.S. jurisdictions where laws prohibit
anonymous reporting, and is available 24/7 globally, with
translation services. It is maintained by an outside service
provider. Annually, the Chief Compliance Office and Human
Resources report to the Audit Committee on the Code of
Conduct program and provide an update on the employee
completion rate for Code of Conduct training and
advising on offering and marketing documents and new
business initiatives
managing dispute resolution
interpreting existing laws, rules and regulations, and
advising on changes thereto
advising on advocacy in connection with contemplated
and proposed laws, rules and regulations, and
providing legal advice to the LOBS and corporate
functions, in alignment with the lines of defense
described under Enterprise-wide Risk Management.
Legal selects, engages and manages outside counsel for the
Firm on all matters in which outside counsel is engaged. In
addition, Legal advises the Firm's Conflicts Office which
reviews the Firm's wholesale transactions that may have the
potential to create conflicts of interest for the Firm.
Governance and oversight
The Firm's General Counsel reports to the CEO and is a
member of the Operating Committee, the Firmwide Risk
Committee and the Firmwide Control Committee. The
General Counsel's leadership team includes a General
Counsel for each line of business, the heads of the Litigation
and Corporate & Regulatory practices, as well as the Firm's
Corporate Secretary. Each region (e.g., Latin America, Asia
Pacific) has a General Counsel who is responsible for
managing legal risk across all lines of business and
functions in the region.
The Firm's General Counsel and other members of Legal
report on significant legal matters at each meeting of the
Firm's Board of Directors, at least quarterly to the Audit
Committee, and periodically to the DRPC.
Legal serves on and advises various committees (including
new business initiative and reputation risk committees) and
advises the Firm's businesses to protect the Firm's
reputation beyond any particular legal requirements.
136
JPMorgan Chase & Co./2017 Annual Report
ESTIMATIONS AND MODEL RISK MANAGEMENT
Model risks are owned by the users of the models within the
various businesses and functions in the Firm based on the
specific purposes of such models. Users and developers of
models are responsible for developing, implementing and
testing their models, as well as referring models to the
Model Risk function for review and approval. Once models
have been approved, model users and developers are
responsible for maintaining a robust operating
environment, and must monitor and evaluate the
performance of the models on an ongoing basis. Model
users and developers may seek to enhance models in
response to changes in the portfolios and in product and
market developments, as well as to capture improvements
in available modeling techniques and systems capabilities.
Models are tiered based on an internal standard according
to their complexity, the exposure associated with the model
and the Firm's reliance on the model. This tiering is subject
to the approval of the Model Risk function. A model review
conducted by the Model Risk function considers the model's
suitability for the specific uses to which it will be put. The
factors considered in reviewing a model include whether the
model accurately reflects the characteristics of the product
and its significant risks, the selection and reliability of
model inputs, consistency with models for similar products,
the appropriateness of any model-related adjustments, and
sensitivity to input parameters and assumptions that cannot
be observed from the market. When reviewing a model, the
Model Risk function analyzes and challenges the model
methodology and the reasonableness of model assumptions
and may perform or require additional testing, including
back-testing of model outcomes. Model reviews are
approved by the appropriate level of management within
the Model Risk function based on the relevant model tier.
Under the Firm's Estimations and Model Risk Management
Policy, the Model Risk function reviews and approves new
models, as well as material changes to existing models,
prior to implementation in the operating environment. In
certain circumstances, the head of the Model Risk function
may grant exceptions to the Firm's policy to allow a model
to be used prior to review or approval. The Model Risk
function may also require the user to take appropriate
actions to mitigate the model risk if it is to be used in the
interim. These actions will depend on the model and may
include, for example, limitation of trading activity.
The governance of analytical and judgment-based
estimations, such as those used in risk management, budget
forecasting, and capital planning and analysis, within
MRGR's scope, follows a consistent approach to the
governance of models.
For a summary of valuations based on valuation models and
other valuation techniques, see Critical Accounting
Estimates Used by the Firm on pages 138-140 and Note 2.
JPMorgan Chase & Co./2017 Annual Report
137
The Firm maintains oversight and coordination of its
Compliance Risk Management practices through the Firm's
CCO, lines of business CCOS and regional CCOS to implement
the Compliance program globally across the lines of
business and regions. The Firm's CCO is a member of the
FCC and the FRC. The Firm's CCO also provides regular
updates to the Audit Committee and DRPC. In addition,
certain Special Purpose Committees of the Board have been
established to oversee the Firm's compliance with
regulatory Consent Orders.
CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM
Management's discussion and analysis
advising on products and services, including contract
negotiation and documentation
enforcement matters, including internal reviews and
investigations related to such matters
Estimations and Model risk, a subcategory of operational
risk, is the potential for adverse consequences from
decisions based on incorrect or misused estimation outputs.
The Firm uses models and other analytical and judgment-
based estimations across various businesses and functions.
The estimation methods are of varying levels of
sophistication and are used for many purposes, such as the
valuation of positions and measurement of risk, assessing
regulatory capital requirements, conducting stress testing,
and making business decisions. A dedicated independent
function, Model Risk Governance and Review ("MRGR"),
defines and governs the Firm's model risk management
policies and certain analytical and judgment-based
estimations, such as those used in risk management, budget
forecasting and capital planning and analysis. MRGR reports
to the Firm's CRO.
•
JPMorgan Chase & Co./2017 Annual Report
134
managing actual and potential litigation and
affirmation.
CONDUCT RISK MANAGEMENT
Conduct risk, a subcategory of operational risk, is the risk
that any action or inaction by an employee of the Firm could
lead to unfair client/customer outcomes, compromise the
Firm's reputation, impact the integrity of the markets in
which the Firm operates, or reflect poorly on the Firm's
culture.
Overview
Governance and oversight
The CMDC is the Board-level Committee with primary
oversight of the firm's Culture and Conduct Program. The
Audit Committee is responsible for reviewing the program
established by management to monitor compliance with the
Code. Additionally, the DRPC reviews, at least annually, the
Firm's qualitative factors included in the Risk Appetite
Framework, including conduct risk. The DRPC also meets
annually with the CMDC to review and discuss aspects of the
Firm's compensation practices. Finally, the Culture &
Conduct Risk Committee provides oversight of certain
culture and conduct risk initiatives at the Firm.
Each line of business or function is accountable for
identifying and managing its conduct risk to provide
appropriate engagement, ownership and sustainability of a
culture consistent with the Firm's How We Do Business
Principles (“Principles”). The Principles serve as a guide for
how employees are expected to conduct themselves. With
the Principles serving as a guide, the Firm's Code sets out
the Firm's expectations for each employee and provides
information and resources to help employees conduct
business ethically and in compliance with the law
everywhere the Firm operates. For further discussion of the
Code, see Compliance Risk Management on page 134.
The Firm's Know Your Employee framework generally
addresses how the Firm manages, oversees and responds to
workforce conduct related matters that may otherwise
expose the Firm to financial, reputational, compliance and
other operating risks. The Firm also has a HR Control
Forum, the primary purpose of which is to discuss conduct
and accountability for more significant risk and control
issues and review, when appropriate, employee actions
including but not limited to promotion and compensation
actions.
The global Legal function (“Legal") provides legal services
and advice to the Firm. Legal is responsible for managing
the Firm's exposure to Legal risk by:
JPMorgan Chase & Co./2017 Annual Report
135
Management's discussion and analysis
LEGAL RISK MANAGEMENT
Conduct risk management is incorporated into various
aspects of people management practices throughout the
employee life cycle, including recruiting, onboarding,
training and development, performance management,
promotion and compensation processes. Businesses
undertake annual RCSA assessments, and, as part of these
reviews, identify their respective key inherent operational
risks (including conduct risks), evaluate the design and
effectiveness of their controls, identify control gaps and
develop associated action plans. Each LOB and designated
corporate function completes an assessment of conduct risk
quarterly, reviews metrics and issues which may involve
conduct risk, and provides business conduct training as
appropriate.
Legal risk, a subcategory of operational risk, is the risk of
loss primarily caused by the actual or alleged failure to
meet legal obligations that arise from the rule of law in
jurisdictions in which the Firm operates, agreements with
clients and customers, and products and services offered by
the Firm.
Overview
$
Cash dividends declared per common share
Weighted-average diluted shares (a)
24,442
Weighted-average basic shares (a)
Diluted earnings per share
Net income per common share data
22,651
22,834 $
6.35
Net income applicable to common stockholders (a)
22,567 $
Basic earnings per share
6.24
3,741.2
6.05
(a) The prior period amounts have been revised to conform with the current period presentation. The revision had no impact on the Firm's reported earnings
per share.
1.72
148
$
$
1.88
2.12 $
$
3,773.6
3,658.8
3,690.0
3,576.8
3,551.6
6.00
6.19
6.31
$
24,733
2,897
$
2,900
Marketing
7,002
6,655
6,840
Professional and outside services
2,708
6,193
7,706
Technology, communications and equipment expense
3,768
The Notes to Consolidated Financial Statements are an integral part of these statements.
3,638
3,723
6,846
24,441 $
Other expense
Income before income tax expense
Net income
6,260
9,803
11,459
30,702
34,536
Total noninterest expense
35,900
55,771
58,434
9,593
5,756
6,256
Income tax expense
59,014
JPMorgan Chase & Co./2017 Annual Report
2016
Year ended December 31, (in millions)
Comprehensive income
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2017 Annual Report
•
Consolidated balance sheets
December 31, (in millions, except share data)
2017
Assets
Cash and due from banks
Deposits with banks
Federal funds sold and securities purchased under resale agreements (included $14,732 and $21,506 at fair value)
Securities borrowed (included $3,049 and $0 at fair value)
Trading assets (included assets pledged of $110,061 and $115,847)
Securities (included $202,225 and $238,891 at fair value and assets pledged of $17,969 and $16,115)
Loans (included $2,508 and $2,230 at fair value)
Allowance for loan losses
Loans, net of allowance for loan losses
Accrued interest and accounts receivable
Premises and equipment
$
Occupancy expense
Total liabilities(a)
Long-term debt (included $47,519 and $37,686 at fair value)
Beneficial interests issued by consolidated VIES (included $45 and $120 at fair value)
Accounts payable and other liabilities (included $9,208 and $9,120 at fair value)
Total other comprehensive income/(loss), after-tax
Trading liabilities
Federal funds purchased and securities loaned or sold under repurchase agreements (included $697 and $687 at fair
value)
Deposits (included $21,321 and $13,912 at fair value)
Liabilities
Total assets (a)
Other assets (included $16,128 and $7,557 at fair value and assets pledged of $1,526 and $1,603)
Goodwill, MSRs and other intangible assets
Short-term borrowings (included $9,191 and $9,105 at fair value)
DVA on fair value option elected liabilities
22,445
23,212 $
640
24,442
24,733 $
$
24,441
$
(1,105)
2015
2017
Defined benefit pension and OPEB plans
Cash flow hedges
Translation adjustments, net of hedges
Other comprehensive income/(loss), after-tax
Unrealized gains/(losses) on investment securities
Net income
2016
Consolidated statements of comprehensive income
(2,144)
(2)
25,497 $
$
(1,997)
(1,521)
1,056
(330)
(306)
(192)
(28)
738
51
(56)
176
(15)
111
29,750
Maml
31,009
145
Management's report on internal control over financial reporting
Management of JPMorgan Chase & Co. ("JPMorgan Chase"
or the "Firm") is responsible for establishing and
maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a
process designed by, or under the supervision of, the Firm's
principal executive and principal financial officers, or
persons performing similar functions, and effected by
JPMorgan Chase's Board of Directors, management and
other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with accounting principles generally accepted in the United
States of America.
JPMorgan Chase's internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records, that, in reasonable detail,
accurately and fairly reflect the transactions and
dispositions of the Firm's assets; (2) provide reasonable
assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance
with generally accepted accounting principles, and that
receipts and expenditures of the Firm are being made only
in accordance with authorizations of JPMorgan Chase's
management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Firm's
assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Management has
completed an assessment of the effectiveness of the Firm's
internal control over financial reporting as of December 31,
2017. In making the assessment, management used the
"Internal Control - Integrated Framework" ("COSO 2013")
promulgated by the Committee of Sponsoring Organizations
of the Treadway Commission ("COSO”).
Based upon the assessment performed, management
concluded that as of December 31, 2017, JPMorgan Chase's
internal control over financial reporting was effective based
upon the COSO 2013 framework. Additionally, based upon
management's assessment, the Firm determined that there
were no material weaknesses in its internal control over
financial reporting as of December 31, 2017.
The effectiveness of the Firm's internal control over
financial reporting as of December 31, 2017, has been
audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report
which appears herein.
Jance Divin
спие
James Dimon
Chairman and Chief Executive Officer
Marianne Lake
Executive Vice President and Chief Financial Officer
February 27, 2018
146
JPMorgan Chase & Co./2017 Annual Report
Report of independent registered public accounting firm
pwc
PricewaterhouseCoopers LLP
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company's
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the
company are being made only in accordance with
authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a
material effect on the financial statements.
Definition and Limitations of Internal Control over Financial
Reporting
Our audits of the consolidated financial statements included
performing procedures to assess the risks of material
misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used
and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over
financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included
performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
•
JPMorgan Chase & Co./2017 Annual Report
PricewaterhouseCoopers LLP
The Firm's management is responsible for these consolidated
financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Management's report on
internal control over financial reporting. Our responsibility is
to express opinions on the Firm's consolidated financial
statements and on the Firm's internal control over financial
reporting based on our audits. We are a public accounting
firm registered with the Public Company Accounting
Oversight Board (United States) ("PCAOB") and are required
to be independent with respect to the Firm in accordance
with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission
and the PCAOB.
Basis for Opinions
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Firm as of December 31, 2017 and 2016, and
the results of their operations and their cash flows for each of
the three years in the period ended December 31, 2017 in
conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the Firm
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2017, based on
criteria established in Internal Control - Integrated Framework
(2013) issued by the COSO.
We have audited the accompanying consolidated balance
sheets of JPMorgan Chase & Co. and its subsidiaries (the
"Firm") as of December 31, 2017 and 2016, and the related
consolidated statements of income, comprehensive income,
changes in stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2017,
including the related notes (collectively referred to as the
"consolidated financial statements"). We also have audited
the Firm's internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal
Control-Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
Opinions on the Financial Statements and Internal Control
over Financial Reporting
To the Board of Directors and Stockholders of JPMorgan
Chase & Co.:
We conducted our audits in accordance with the standards of
the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and
whether effective internal control over financial reporting
was maintained in all material respects.
The success of the Firm's business simplification
initiatives and the effectiveness of its control agenda;
counterparties or competitors;
Any forward-looking statements made by or on behalf of
the Firm speak only as of the date they are made, and
JPMorgan Chase does not undertake to update forward-
looking statements. The reader should, however, consult
any further disclosures of a forward-looking nature the
Firm may make in any subsequent Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, or Current Reports
on Form 8-K.
•
•
•
•
Technology changes instituted by the Firm, its
slowdown or other economic or market disruption;
•
Ability of the Firm to deal effectively with an economic
Changes in credit ratings assigned to the Firm or its
subsidiaries;
Ability of the Firm to manage effectively its capital and
liquidity, including approval of its capital plans by
banking regulators;
Changes in investor sentiment or consumer spending or
savings behavior;
•
•
25,827 $
Damage to the Firm's reputation;
February 27, 2018
•
Ability of the Firm to develop new products and services,
and the extent to which products or services previously
sold by the Firm (including but not limited to mortgages
and asset-backed securities) require the Firm to incur
liabilities or absorb losses not contemplated at their
initiation or origination;
The other risks and uncertainties detailed in Part I, Item
1A: Risk Factors in the Firm's Annual Report on Form
10-K for the year ended December 31, 2017.
Ability of the Firm to effectively defend itself against
cyberattacks and other attempts by unauthorized
parties to access information of the Firm or its
customers or to disrupt the Firm's systems; and
Ability of the Firm to withstand disruptions that may be
caused by any failure of its operational systems or those
of third parties;
Occurrence of natural or man-made disasters or
calamities or conflicts and the Firm's ability to deal
effectively with disruptions caused by the foregoing;
Ability of the Firm to maintain the security of its
financial, accounting, technology, data processing and
other operational systems and facilities;
Ability of the Firm to determine accurate values of
certain assets and liabilities;
Changes in applicable accounting policies, including the
introduction of new accounting standards;
•
Adverse judicial or regulatory proceedings;
Changes in the credit quality of the Firm's customers
and counterparties;
Competitive pressures;
Ability of the Firm to control expenses;
Ability of the Firm to attract and retain qualified
employees;
to innovate and to increase market share;
Acceptance of the Firm's new and existing products and
services by the marketplace and the ability of the Firm
Adequacy of the Firm's risk management framework,
disclosure controls and procedures and internal control
over financial reporting;
29,979
We have served as the Firm's auditor since 1965.
JPMorgan Chase & Co./2017 Annual Report
141
202
1,616
2,491
2,513
4,433
4,779
5,924
3,639
3,795
3,032
49,527
49,585
50,033
64,372
55,901
50,973
Compensation expense
Noninterest expense
3,827
5,361
5,290
93,543
(66)
95,668
43,510
46,083
50,097
7,463
9,818
14,275
99,624
15,509
14,591
15,377
Interest income
Noninterest revenue
Other income
Card income
Mortgage fees and related income
Securities gains/(losses)
Interest expense
Asset management, administration and commissions
Principal transactions
Investment banking fees
Revenue
Year ended December 31, (in millions, except per share data)
Consolidated statements of income
147
Lending- and deposit-related fees
300 Madison Avenue • New York, NY 10017
Net interest income
Provision for credit losses
5,694
5,774
5,933
10,408
11,566
11,347
Total net revenue
6,751
6,448
7,248
$
2015
2016
2017
$
23,873
149
365,762
Issued August 2017
Hedge accounting
Standard
FASB Standards issued but not adopted as of December 31, 2017 (continued)
JPMorgan Chase & Co./2017 Annual Report
142
Subsequent to adoption, although the guidance will reduce the interest income
recognized prior to the earliest call date for callable debt securities held at a
premium, the effect of this guidance on the Firm's net interest income is not
expected to be material.
The adoption of this guidance resulted in a cumulative-effect adjustment that
reduced retained earnings by approximately $505 million as of January 1, 2018,
with a corresponding increase of $261 million (after tax) in AOCI and related
adjustments to securities and tax liabilities.
The new guidance primarily impacts obligations of U.S. states and municipalities
held in the Firm's investment securities portfolio.
•
• The Firm early adopted the new guidance on January 1, 2018.
The adoption of the guidance in the first quarter of 2018 will result in an increase
in compensation expense and a reduction in other expense of $223 million and
$250 million for the years ended December 31, 2017 and 2016, respectively.
Adopted January 1, 2018.
• No impact upon adoption because the guidance is to be applied prospectively.
Subsequent to adoption, fewer transactions will be treated as acquisitions or
dispositions of a business.
Adopted January 1, 2018.
• In addition, to align with the presentation of Cash and restricted cash on the
Consolidated statements of cash flows, the Firm will reclassify restricted cash
balances to Cash and due from banks and to Deposits with banks from Other
assets and disclose the total for Cash and restricted cash on the Firm's
Consolidated balance sheets in the first quarter of 2018.
⚫ The adoption of the guidance will result in reclassification of restricted cash
balances into Cash and restricted cash on the Consolidated statements of cash
flows in the first quarter of 2018. The Firm will include Cash and due from banks
and Deposits with banks in Cash and restricted cash in the Consolidated
statements of cash flows, resulting in Deposits with banks no longer being
reflected in Investing activities.
statements of cash flows.
Requires retrospective application to all
periods presented.
• Narrows the definition of a business and
clarifies that, to be considered a
business, the fair value of the gross
assets acquired (or disposed of) may
not be substantially all concentrated in
a single identifiable asset or a group of
similar assets.
• In addition, in order to be considered a
business, a set of activities and assets
must include, at a minimum, an input
and a substantive process that together
significantly contribute to the ability to
create outputs.
•
•
Summary of guidance
Requires the service cost component of
net periodic pension and
postretirement benefit cost to be
reported separately in the consolidated
results of operations from the other
components (e.g., expected return on
assets, interest costs, amortization of
gains/losses and prior service costs).
Requires retrospective application and
presentation in the consolidated results
of operations of the service cost
component in the same line item as
other employee compensation costs
and presentation of the other
components in a different line item
from the service cost component.
⚫ Does not impact securities held at a
discount; the discount continues to be
amortized to the contractual maturity.
Requires adoption on a modified
retrospective basis through a
cumulative-effect adjustment directly
to retained earnings as of the beginning
of the period of adoption.
Effects on financial statements
Adopted January 1, 2018.
No material impact upon adoption as the Firm was either in compliance with the
amendments or the amounts to which it is applied are immaterial.
Adopted January 1, 2018.
Requires amortization of premiums to
the earliest call date on debt securities
with call features that are explicit,
noncontingent and callable at fixed
prices and on preset dates.
Reduces earnings volatility by better
aligning the accounting with the
economics of the risk management
activities.
• Expands the ability for certain hedges
of interest rate risk to qualify for hedge
accounting.
• Allows recognition of ineffectiveness in
cash flow hedges and net investment
hedges in OCI.
Requires additional disclosures related
to the Firm's election to reclassify
amounts from AOCI to retained
earnings and the Firm's policy for
releasing income tax effects from AOCI.
The guidance may be applied on a
modified retrospective basis through a
cumulative-effect adjustment directly
to retained earnings as of the beginning
of the period of adoption.
Requires lessees to recognize all leases
longer than twelve months on the
Consolidated balance sheets as lease
liabilities with corresponding right-of-
use assets.
Requires lessees and lessors to classify
most leases using principles similar to
existing lease accounting, but
eliminates the "bright line"
classification tests.
• Permits the Firm to generally account
for its existing leases consistent with
current guidance, except for the
incremental balance sheet recognition.
Expands qualitative and quantitative
disclosures regarding leasing
arrangements.
•
May be adopted using a modified
deferred tax assets and liabilities as a
result of changes in applicable tax rates
under the TCJA.
cumulative effect approach wherein the
.
The Firm early adopted the new guidance on January 1, 2018.
The adoption of the guidance resulted in a cumulative-effect adjustment that
increased retained earnings in the amount of $288 million in the first quarter of
2018. This amount is an estimate that may be refined in accordance with SEC
Staff Accounting Bulletin No. 118, and represents the removal of the stranded tax
effects from AOCI, thereby allowing the tax effects within AOCI to reflect the new
respective corporate income tax rates.
Refer to Note 24 for additional information related to the impacts of the TCJA.
Required effective date: January 1, 2019. (a)
The Firm is in the process of its implementation which has included an initial
evaluation of its leasing contracts and activities. As a lessee, the Firm is
developing its methodology to estimate the right-of-use assets and lease
liabilities, which is based on the present value of lease payments. The Firm
expects to recognize lease liabilities and corresponding right-of-use assets (at
their present value) related to predominantly all of the $10 billion of future
minimum payments required under operating leases as disclosed in Note 28.
However, the population of contracts subject to balance sheet recognition and
their initial measurement remains under evaluation. The Firm does not expect
material changes to the recognition of operating lease expense in its Consolidated
statements of income.
guidance is applied only to existing
Requires additional disclosures to
supplement the Consolidated
Provides an election to reclassify from
AOCI to retained earnings stranded tax
effects due to the revaluation of
•
• Allows a one-time election at adoption
to transfer certain securities classified
as held-to-maturity to available-for-
sale.
Simplifies hedge documentation
requirements.
Effects on financial statements
•
•
.
•
The Firm early adopted the new guidance on January 1, 2018.
The Firm will also amend its qualitative and quantitative disclosures within its
derivative instruments note to the Consolidated Financial Statements in the first
quarter of 2018.
In accordance with the new guidance, the Firm elected to transfer certain
securities from HTM to AFS. The amendments provide the Firm with
additional hedge accounting alternatives for its AFS securities (including those
transferred under the election) to be considered as the Firm manages it structural
interest rate risk and regulatory capital. The Firm is currently evaluating those
risk management alternatives and intends to manage the transferred securities in
a manner consistent with its existing AFS securities. This transfer is a non-cash
transaction at fair value.
Reclassification of
Certain Tax Effects
from AOCI
Issued February 2018
Leases
Issued February 2016
The adoption of the guidance resulted in a cumulative-effect adjustment that
increased retained earnings in the amount of $34 million, with related
adjustments to debt carrying values and AOCI.
Requires inclusion of restricted cash in
the cash and cash equivalents balances
in the Consolidated statements of cash
flows.
Requires retrospective application to all
periods presented.
Provides targeted amendments to the
classification of certain cash flows,
including treatment of cash payments
for settlement of zero-coupon debt
instruments and distributions received
from equity method investments.
Standard
Summary of guidance
Revenue recognition
-
•
revenue from
FASB Standards issued but not adopted as of December 31, 2017
contracts with
Issued May 2014
Requires that revenue from contracts
with customers be recognized upon
transfer of control of a good or service
in the amount of consideration
expected to be received.
Changes the accounting for certain
contract costs, including whether they
may be offset against revenue in the
Consolidated statements of income, and
requires additional disclosures about
revenue and contract costs.
• May be adopted using a full
retrospective approach or a modified,
cumulative effect approach wherein the
guidance is applied only to existing
contracts as of the date of initial
application, and to new contracts
customers
transacted after that date.
• Refer to Note 24 for additional information related to the impacts of the TCJA.
•
404,294
ACCOUNTING AND REPORTING DEVELOPMENTS
SEC Staff Accounting Bulletin adopted during 2017
Bulletin
Application of U.S.
GAAP related to the
Tax Cuts and Jobs Act
("TCJA") (SEC Staff
Accounting Bulletin
No. 118)
The TCJA resulted in a $2.4 billion decrease in net income driven by a deemed
repatriation charge and adjustments to the value of the Firm's tax oriented
investments, partially offset by a benefit from the revaluation of the Firm's net
deferred tax liability. Certain of these amounts may be refined in accordance with
SEC Staff Accounting Bulletin No. 118.
Issued December 2017
•
.
•
Provides guidance on the accounting for
income taxes in the context of the TCJA.
For impacts of the tax law changes that
are reasonably estimable, requires the
recognition of provisional amounts in
year-end 2017 financial statements.
Provides a 1-year measurement period
in which to refine previously recorded
provisional amounts based on new
information or interpretations.
Effects on financial statements
Summary of guidance
• The Firm plans to adopt the new guidance in the first quarter of 2019.
Effects on financial statements
The Firm adopted the revenue recognition guidance using the full retrospective
method of adoption.
Issued August 2016
Treatment of
restricted cash on the
statement of cash
flows
Issued November 2016
Definition of a
business
Issued January 2017
Classification of
certain cash receipts
and cash payments in
the statement of cash
flows
Presentation of net
periodic pension cost
and net periodic
postretirement benefit
Issued March 2017
Premium amortization
on purchased callable
debt securities
Issued March 2017
Summary of guidance
•
cost
Adopted January 1, 2018.
Standard
Management's discussion and analysis
The adoption of the guidance did not result in any material changes in the timing
of the Firm's revenue recognition, but will require gross presentation of certain
costs currently offset against revenue. This change in presentation will be
reflected in the first quarter of 2018 and will increase both noninterest revenue
and noninterest expense for the Firm by $1.1 billion and $900 million for the
years ended December 31, 2017 and 2016, respectively. The increase is
predominantly associated with certain distribution costs in AWM (currently offset
against Asset management, administration and commissions), with the remainder
of the increase associated with certain underwriting costs in CIB (currently offset
against Investment banking fees).
The Firm's Note 6 qualitative disclosures are consistent with the guidance.
Recognition and
measurement of
financial assets and
financial liabilities
Issued January 2016
Requires that certain equity
instruments be measured at fair value,
with changes in fair value recognized in
earnings.
• Provides a measurement alternative
for equity securities without readily
determinable fair values to be
measured at cost less impairment (if
any), plus or minus observable price
changes from an identical or similar
investment of the same issuer. Any such
price changes will be reflected in
FASB Standards issued but not adopted as of December 31, 2017 (continued)
earnings beginning in the period of
adoption.
adjustment to retained earnings as of
the beginning of the reporting period of
adoption, except for those equity
securities that are eligible for the
measurement alternative.
The Firm early adopted the provisions of this guidance related to presenting DVA
in OCI for financial liabilities where the fair value option has been elected,
effective January 1, 2016. The Firm adopted the portions of the guidance that
were not eligible for early adoption on January 1, 2018.
• Upon adoption, the Firm elected the measurement alternative for its equity
securities that do not have readily determinable fair values, and the Firm did not
record a cumulative-effect adjustment related to the adoption of this guidance.
JPMorgan Chase & Co./2017 Annual Report
141
Generally requires a cumulative-effect
contracts as of the date of initial
•
JPMorgan Chase & Co./2017 Annual Report
Commitments and contingencies (see Notes 27, 28 and 29)
Stockholders' equity
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,606,750 shares)
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
Additional paid-in capital
26,068
26,068
4,105
4,105
90,579
91,627
Retained earnings
177,676
162,440
Accumulated other comprehensive income
(119)
(1,175)
Shares held in restricted stock units ("RSU”) trust, at cost (472,953 shares)
Treasury stock, at cost (679,635,064 and 543,744,003 shares)
(21)
Trading assets
Assets
2016
2017
December 31, (in millions)
(a) The following table presents information on assets and liabilities related to VIES that are consolidated by the Firm at December 31, 2017 and 2016. The difference between total
VIE assets and liabilities represents the Firm's interests in those entities, which were eliminated in consolidation.
2,236,782
$ 2,533,600 $ 2,490,972
254,190
255,693
Total stockholders' equity
(28,854)
(42,595)
(21)
Total liabilities and stockholders' equity
2,277,907
295,245
284,080
917,093
(13,776)
(13,604)
894,765
930,697
289,059
880,989
249,958
381,844
96,409
105,112
229,967
198,422
application, and to new contracts
transacted after that date.
372,130
Loans
67,729
14,159
39,047
26,081
190,543
189,383
136,659
123,663
52,330
165,666
34,443
$ 1,443,982 $ 1,375,179
$ 2,533,600 $ 2,490,972
112,076
54,246
54,392
14,131
158,916
51,802
All other assets
114,770
Liabilities
Effects on financial statements
•
Required effective date: January 1, 2020. (a)
The Firm has begun its implementation efforts by establishing a Firmwide, cross-
discipline governance structure. The Firm is currently identifying key interpretive
issues, and is assessing existing credit loss forecasting models and processes
against the new guidance to determine what modifications may be required.
The Firm expects that the new guidance will result in an increase in its allowance
for credit losses due to several factors, including:
1. The allowance related to the Firm's loans and commitments will increase to
cover credit losses over the full remaining expected life of the portfolio, and
will consider expected future changes in macroeconomic conditions
2. The nonaccretable difference on PCI loans will be recognized as an allowance,
offset by an increase in the carrying value of the related loans
(a) Early adoption is permitted.
3. An allowance will be established for estimated credit losses on HTM securities
The extent of the increase is under evaluation, but will depend upon the nature
and characteristics of the Firm's portfolio at the adoption date, and the
macroeconomic conditions and forecasts at that date.
Based on current impairment test results, the Firm does not expect a material
effect on the Consolidated Financial Statements.
After adoption, the guidance may result in more frequent goodwill impairment
losses due to the removal of the second condition.
• The Firm is evaluating the timing of adoption.
144
JPMorgan Chase & Co./2017 Annual Report
FORWARD-LOOKING STATEMENTS
Required effective date: January 1, 2020. (a)
From time to time, the Firm has made and will make
forward-looking statements. These statements can be
identified by the fact that they do not relate strictly to
historical or current facts. Forward-looking statements
often use words such as “anticipate,” “target,” “expect,”
"estimate," "intend,” “plan,” “goal," "believe," or other
words of similar meaning. Forward-looking statements
provide JPMorgan Chase's current expectations or forecasts
of future events, circumstances, results or aspirations.
JPMorgan Chase's disclosures in this Annual Report contain
forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. The Firm
also may make forward-looking statements in its other
documents filed or furnished with the SEC. In addition, the
Firm's senior management may make forward-looking
statements orally to investors, analysts, representatives of
the media and others.
• Eliminates the second condition in the
current guidance that requires an
impairment loss to be recognized only if
the estimated implied fair value of the
goodwill is below its carrying value.
the beginning of the reporting period of
adoption.
Management's discussion and analysis
143
Total assets
FASB Standards issued but not adopted as of December 31, 2017 (continued)
Standard
Financial instruments
- credit losses
Requires an impairment loss to be
recognized when the estimated fair
value of a reporting unit falls below its
carrying value.
Issued June 2016
Issued January 2017
Summary of guidance
Replaces existing incurred loss
impairment guidance and establishes a
single allowance framework for
financial assets carried at amortized
cost (including HTM securities), which
will reflect management's estimate of
credit losses over the full remaining
expected life of the financial assets.
• Eliminates existing guidance for PCI
loans, and requires recognition of an
allowance for expected credit losses on
financial assets purchased with more
than insignificant credit deterioration
since origination.
• Amends existing impairment guidance
for AFS securities to incorporate an
allowance, which will allow for reversals
of impairment losses in the event that
the credit of an issuer improves.
Requires a cumulative-effect
adjustment to retained earnings as of
Goodwill
All forward-looking statements are, by their nature, subject
to risks and uncertainties, many of which are beyond the
Firm's control. JPMorgan Chase's actual future results may
differ materially from those set forth in its forward-looking
statements. While there is no assurance that any list of risks
and uncertainties or risk factors is complete, below are
certain factors which could cause actual results to differ
from those in the forward-looking statements:
•
•
$
490
349
39,047
26,081 $
$
26,430 $
$
$
$
Beneficial interests issued by consolidated VIES
•
All other liabilities
Total liabilities
1,449 $
68,995
2,674
73,118
39,537
3,185
75,614
3,321
82,120
150
Changes in laws and regulatory requirements, including
capital and liquidity requirements affecting the Firm's
businesses, and the ability of the Firm to address those
requirements;
The assets of the consolidated VIES are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general credit of JPMorgan
Chase. At December 31, 2017 and 2016, the Firm provided limited program-wide credit enhancement of $2.7 billion and $2.4 billion, respectively, related to its Firm-administered
multi-seller conduits, which are eliminated in consolidation. For further discussion, see Note 14.
•
•
Heightened regulatory and governmental oversight and
scrutiny of JPMorgan Chase's business practices,
including dealings with retail customers;
Changes in trade, monetary and fiscal policies and laws;
Local, regional and global business, economic and
political conditions and geopolitical events;
Changes in income tax laws and regulations;
•
•
Securities and capital markets behavior, including
changes in market liquidity and volatility;
•
JPMorgan Chase & Co./2017 Annual Report
The Notes to Consolidated Financial Statements are an integral part of these statements.
157
JPMorgan Chase & Co./2017 Annual Report
Notes to consolidated financial statements
Fair value is based on observable prices for mortgage-backed
securities with similar collateral and incorporates adjustments to
these prices to account for differences between the securities and the
value of the underlying loans, which include credit characteristics,
portfolio composition, and liquidity.
residential mortgage loans
expected to be sold (CCB, CIB)
conforming
Predominantly level 2
Trading loans
• Projected interest income, late-fee revenue and loan repayment
rates
•
Discount rates
•
Credit costs the allowance for loan losses is considered a
reasonable proxy for the credit cost
•
Level 3
Held-for-investment credit card Valuations are based on discounted cash flows, which consider:
receivables
Product/instrument
⚫ Servicing costs
For information regarding the valuation of loans measured at
collateral value, see Note 12.
⚫ Servicing costs
Investment and trading
securities
Mortgage- and asset-backed securities specific inputs:
In the absence of quoted market prices, securities are valued based on:
•
Discount rates
• Deal-specific payment and loss allocations
Collateral characteristics
•
Collateralized loan obligations ("CLOS") specific inputs:
• Current market assumptions related to yield, prepayment speed,
conditional default rates and loss severity
• Deal-specific payment and loss allocations
Collateral characteristics
•
Valuation methodology, inputs and assumptions
Quoted market prices are used where available.
In addition, the following inputs to discounted cash flows are used for
the following products:
Physical commodities
Discounted cash flows
•
Relevant broker quotes
•
Observable market prices for similar securities
.
Level 2 or 3
Level 1
Classifications in the valuation
hierarchy
Derivatives
•
Loans carried at fair value
(e.g., trading loans and non-
trading loans) and associated
lending-related commitments
Credit losses - which consider expected and current default rates,
and loss severity
Relevant broker quotes
•
Observed market prices (circumstances are infrequent)
•
Where observable market data is available, valuations are based on:
Loans and lending-related commitments - wholesale
Market rates for the respective maturity
Collateral characteristics
Derivative features: for further information refer to the discussion
of derivatives below.
•
•
Classifications in the valuation
hierarchy
Valuations are based on discounted cash flows, which consider:
Securities financing agreements
Product/instrument
The following table describes the valuation methodologies generally used by the Firm to measure its significant products/
instruments at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.
JPMorgan Chase & Co./2017 Annual Report
156
A financial instrument's categorization within the valuation
hierarchy is based on the lowest level of input that is
significant to the fair value measurement.
methodology are unobservable and significant to the fair
value measurement.
Level 3 - one or more inputs to the valuation
Level 2 - inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument.
Expected prepayment speed, conditional default rates, loss severity
Valuation methodology
• Prepayment speed
Predominantly level 2
Loans held-for-investment and
associated lending-related
commitments
Predominantly level 2
Predominantly level 3
•
Held-for-investment consumer
loans, excluding credit card
-
Loans consumer
Valuations are based on discounted cash flows, which consider:
For information regarding the valuation of loans measured at
collateral value, see Note 12.
Lending-related commitments are valued similarly to loans and reflect
the portion of an unused commitment expected, based on the Firm's
average portfolio historical experience, to become funded prior to an
obligor default.
Prepayment speed
Level 2 or 3
Credit spreads, derived from the cost of CDS; or benchmark credit
curves developed by the Firm, by industry and credit rating
•
Valuations are based on discounted cash flows, which consider:
Collateral characteristics
•
• Prepayment speed
Credit spreads derived from the cost of CDS; or benchmark credit
curves developed by the Firm, by industry and credit rating
•
•
Where observable market data is unavailable or limited, valuations
are based on discounted cash flows, which consider the following:
• Observed market prices for similar instruments
•
•
Level 2 or 3
• Credit rating data
The following table presents the assets and liabilities reported at fair value as of December 31, 2017 and 2016, by major
product category and fair value hierarchy.
Notes to consolidated financial statements
159
JPMorgan Chase & Co./2017 Annual Report
(a) Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient.
A three-level valuation hierarchy has been established
under U.S. GAAP for disclosure of fair value measurements.
The valuation hierarchy is based on the transparency of
inputs to the valuation of an asset or liability as of the
measurement date. The three levels are defined as follows.
Level 1 - inputs to the valuation methodology are
quoted prices (unadjusted) for identical assets or
liabilities in active markets.
Predominantly level 2
Level 2 or 3
Level 2 or 3 (a)
The embedded derivative features are considered using models
such as the Black-Scholes option pricing model, simulation
models, or a combination of models that may use observable or
unobservable valuation inputs, depending on the embedded
derivative. The specific inputs used vary according to the nature of
the embedded derivative features, as described in the discussion
above regarding derivatives valuation. Adjustments are then made
to this base valuation to reflect the Firm's own credit risk (DVA).
See page 171 of this Note.
Valuations are based on discounted cash flow analyses that
consider the embedded derivative and the terms and payment
structure of the note.
.
•
Valued using observable market information, where available.
In the absence of observable market information, valuations are
based on the fair value of the underlying assets held by the VIE.
Valuations are based on discounted cash flows, which consider:
Market rates for respective maturity
• Adjustments to the NAV as required, for restrictions on redemption
(e.g., lock-up periods or withdrawal limitations) or where
observable activity is limited.
NAV is supported by the ability to redeem and purchase at the NAV Level 1
level.
•
Net asset value
Additional available inputs relevant to the investment.
•
specific issues and lack of liquidity.
Assets and liabilities measured at fair value on a recurring basis
Fair value hierarchy
December 31, 2017 (in millions)
Level 1
41,515
3,049
Total mortgage-backed securities
Commercial nonagency
Residential nonagency
U.S. government agencies (a)
Mortgage-backed securities:
Debt instruments:
Trading assets:
Securities borrowed
not identical to the company being valued, and for company-
$ - $ 14,71
Total fair value
Derivative
netting
adjustments
3,049
$
14,732
$
$
Federal funds sold and securities purchased under resale agreements
Level 3
Level 2
14,732
Credit spreads
Adjustments as required, since comparable public companies are
Structured notes (included in
deposits, short-term borrowings
and long-term debt)
• Interest rate spread volatility
Interest rate and FX exotic options specific inputs include:
Equity-IR correlation
Equity-FX correlation
•
Equity correlation
.
158
Level 2 or 3
Predominantly level 1 and 2
Level 1
• Equity volatilities
Equity option specific inputs include:
Credit correlation between the underlying debt instruments
CDS spreads and recovery rates
•
•
Structured credit derivatives specific inputs include:
In addition, specific inputs used for derivatives that are valued based on
models with significant unobservable inputs are as follows:
The key valuation inputs used will depend on the type of derivative and
the nature of the underlying instruments and may include equity prices,
commodity prices, interest rate yield curves, foreign exchange rates,
volatilities, correlations, CDS spreads and recovery rates. Additionally,
the credit quality of the counterparty and of the Firm as well as market
funding levels may also be considered.
Derivatives that are valued using models such as the Black-Scholes
option pricing model, simulation models, or a combination of models
that may use observable or unobservable valuation inputs as well as
considering the contractual terms.
Valued using observable market prices or data.
Exchange-traded derivatives that are actively traded and valued using
the exchange price.
• Interest rate correlation
Foreign exchange correlation
• Interest rate-FX correlation
Commodity derivatives specific inputs include:
Long-term debt, not carried at
fair value
Beneficial interests issued by
consolidated VIES
Fund investments (e.g., mutual/
collective investment funds,
private equity funds, hedge
funds, and real estate funds)
• Operating performance of the underlying portfolio company
•
• Trading multiples of comparable public companies
Transaction prices
•
Level 2 or 3
Level 3
•
Classification in the valuation
hierarchy
Private equity direct investments Fair value is estimated using all available information; the range of
See Mortgage servicing rights in Note 15.
Valuation methodology, inputs and assumptions
Mortgage servicing rights
Product/instrument
JPMorgan Chase & Co./2017 Annual Report
Additionally, adjustments are made to reflect counterparty credit quality
(CVA) and the impact of funding (FVA). See page 171 of this Note.
Forward commodity price
Commodity volatility
•
potential inputs include:
Under the Firm's Estimations and Model Risk Management
Policy, the Model Risk function reviews and approves new
models, as well as material changes to existing models,
prior to implementation in the operating environment. In
certain circumstances, the head of the Model Risk function
may grant exceptions to the Firm's policy to allow a model
to be used prior to review or approval. The Model Risk
function may also require the user to take appropriate
actions to mitigate the model risk if it is to be used in the
interim. These actions will depend on the model and may
include, for example, limitation of trading activity.
Valuation hierarchy
Typical master netting agreements for these types of
transactions also often contain a collateral/margin
agreement that provides for a security interest in, or title
transfer of, securities or cash collateral/margin to the party
that has the right to demand margin (the “demanding
party"). The collateral/margin agreement typically requires
a party to transfer collateral/margin to the demanding
party with a value equal to the amount of the margin deficit
on a net basis across all transactions governed by the
master netting agreement, less any threshold. The
collateral/margin agreement grants to the demanding
party, upon default by the counterparty, the right to set-off
any amounts payable by the counterparty against any
posted collateral or the cash equivalent of any posted
collateral/margin. It also grants to the demanding party the
right to liquidate collateral/margin and to apply the
proceeds to an amount payable by the counterparty.
Valuation model review and approval
Treasury stock repurchased
Redemption of preferred stock
5,893
1,258
Proceeds from issuance of preferred stock
(67,247)
(68,949)
(83,079)
Payments of long-term borrowings
79,611
83,070
56,271
Proceeds from long-term borrowings
(5,632)
(5,707)
(1,377)
Beneficial interests issued by consolidated VIES
(57,828)
(2,461)
16,540
Short-term borrowings
Dividends paid
All other financing activities, net
Net cash provided by/(used in) financing activities
Effect of exchange rate changes on cash and due from banks
25,827 $ 23,873 $ 20,490
$
(276)
(7,341)
27,831
(187,511)
98,271
(135)
3,383
20,490
23,873
1,954
96
14,642
(726)
(39,415)
(467)
(7,873)
(8,476)
(8,993)
(5,616)
(9,082)
(15,410)
(1,258)
Cash and due from banks at the end of the period
Cash interest paid
Cash and due from banks at the beginning of the period
Net increase/(decrease) in cash and due from banks
407
$
13,007
Federal funds purchased and securities loaned or sold under repurchase agreements
Purchases
Proceeds from sales
Proceeds from paydowns and maturities
Available-for-sale securities:
(6,204)
(143)
(2,349)
6,099
6,218
4,563
Purchases
Proceeds from paydowns and maturities
Held-to-maturity securities:
3,190
(17,468)
31,448
Federal funds sold and securities purchased under resale agreements
144,462
(25,747)
(38,532)
Deposits with banks
Proceeds from sales and securitizations of loans held-for-investment
Other changes in loans, net
All other investing activities, net
56,117
(88,678)
97,336
57,022
Deposits
Net change in:
Financing activities
Net cash provided by/(used in) investing activities
106,980
3,703
(2,825)
(114,949)
(6,739)
(563)
(10,283)
(80,996)
18,604
15,429
15,791
(61,650)
(70,804)
40,444
48,592
90,201
(105,309) (123,959)
76,448
65,950
(108,962)
Cash income taxes paid, net
4,325
14,153 $ 9,508 $ 7,220
2,405
Income taxes
Note 19
Long-term debt
Note 16
Premises and equipment
Note 15
Goodwill and Mortgage servicing rights
Note 13
Note 14
Variable interest entities
Allowance for credit losses
Note 12
Loans
Note 11
Securities financing activities
Page 203
Note 10
Securities
Page 201
Page 195
Note 8
Note 9
Employee share-based incentives
Note 24
Page 208
Page 211
Page 231
Page 236
page 244
page 248
page 249
page 255
Off-balance sheet lending-related
financial instruments, guarantees and
other commitments
Where appropriate, the Firm also applies adjustments to
its estimates of fair value in order to appropriately
reflect counterparty credit quality (CVA), the Firm's own
creditworthiness (DVA) and the impact of funding (FVA),
using a consistent framework across the Firm. For more
information on such adjustments see Credit and funding
adjustments on page 171 of this Note.
parameter valuation adjustments are applied to reflect
the uncertainty inherent in the resulting valuation
estimate.
Unobservable parameter valuation adjustments may be
made when positions are valued using prices or input
parameters to valuation models that are unobservable
due to a lack of market activity or because they cannot
be implied from observable market data. Such prices or
parameters must be estimated and are, therefore,
subject to management judgment. Unobservable
The Firm manages certain portfolios of financial
instruments on the basis of net open risk exposure and,
as permitted by U.S. GAAP, has elected to estimate the
fair value of such portfolios on the basis of a transfer of
the entire net open risk position in an orderly
transaction. Where this is the case, valuation
adjustments may be necessary to reflect the cost of
exiting a larger-than-normal market-size net open risk
position. Where applied, such adjustments are based on
factors that a relevant market participant would
consider in the transfer of the net open risk position,
including the size of the adverse market move that is
likely to occur during the period required to reduce the
net open risk position to a normal market-size.
Liquidity valuation adjustments are considered where an
observable external price or valuation parameter exists
but is of lower reliability, potentially due to lower market
activity. Liquidity valuation adjustments are applied and
determined based on current market conditions. Factors
that may be considered in determining the liquidity
adjustment include analysis of: (1) the estimated bid-
offer spread for the instrument being traded; (2)
alternative pricing points for similar instruments in
active markets; and (3) the range of reasonable values
that the price or parameter could take.
The VCG determines any valuation adjustments that may be
required to the estimates provided by the risk-taking
functions. No adjustments to quoted prices are applied for
instruments classified within level 1 of the fair value
hierarchy (see below for further information on the fair
value hierarchy). For other positions, judgment is required
to assess the need for valuation adjustments to
appropriately reflect liquidity considerations, unobservable
parameters, and, for certain portfolios that meet specified
criteria, the size of the net open risk position. The
determination of such adjustments follows a consistent
framework across the Firm:
The VCG verifies fair value estimates provided by the risk-
taking functions by leveraging independently derived prices,
valuation inputs and other market data, where available.
Where independent prices or inputs are not available, the
VCG performs additional review to ensure the
reasonableness of the estimates. The additional review may
include evaluating the limited market activity including
client unwinds, benchmarking valuation inputs to those
used for similar instruments, decomposing the valuation of
structured instruments into individual components,
comparing expected to actual cash flows, reviewing profit
and loss trends, and reviewing trends in collateral valuation.
There are also additional levels of management review for
more significant or complex positions.
Price verification process
Notes to consolidated financial statements
155
employee benefit plans
JPMorgan Chase & Co./2017 Annual Report
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date. Fair value is based on quoted market
prices or inputs, where available. If prices or quotes are not
available, fair value is based on valuation models and other
valuation techniques that consider relevant transaction
characteristics (such as maturity) and use as inputs
observable or unobservable market parameters, including
yield curves, interest rates, volatilities, equity or debt
prices, foreign exchange rates and credit curves. Valuation
adjustments may be made to ensure that financial
instruments are recorded at fair value, as described below.
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. These assets and liabilities are predominantly
carried at fair value on a recurring basis (i.e., assets and
liabilities that are measured and reported at fair value on
the Firm's Consolidated balance sheets). Certain assets
(e.g., held-for-sale loans), liabilities and unfunded lending-
related commitments are measured at fair value on a
nonrecurring basis; that is, they are not measured at fair
value on an ongoing basis but are subject to fair value
adjustments only in certain circumstances (for example,
when there is evidence of impairment).
Note 2 - Fair value measurement
Risk-taking functions are responsible for providing fair value
estimates for assets and liabilities carried on the
Consolidated balance sheets at fair value. The Firm's VCG,
which is part of the Firm's Finance function and
independent of the risk-taking functions, is responsible for
verifying these estimates and determining any fair value
adjustments that may be required to ensure that the Firm's
positions are recorded at fair value. The VGF is composed of
senior finance and risk executives and is responsible for
overseeing the management of risks arising from valuation
activities conducted across the Firm. The VGF is chaired by
the Firmwide head of the VCG (under the direction of the
Firm's Controller), and includes sub-forums covering the
CIB, CCB, CB, AWM and certain corporate functions including
Treasury and CIO.
Valuation process
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of different
methodologies or assumptions by other market participants
compared with those used by the Firm could result in the
Firm deriving a different estimate of fair value at the
reporting date.
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
page 261
page 268
Note 27
Note 29
Litigation
The level of precision in estimating unobservable market
inputs or other factors can affect the amount of gain or loss
recorded for a particular position. Furthermore, while the
Firm believes its valuation methods are appropriate and
Pension and other postretirement
Page 195
Note 7
second, identifying which party, if any, has power over those
activities. In general, the parties that make the most
significant decisions affecting the VIE (such as asset
managers, collateral managers, servicers, or owners of call
options or liquidation rights over the VIE's assets) or have
the right to unilaterally remove those decision-makers are
deemed to have the power to direct the activities of a VIE.
To assess whether the Firm has the obligation to absorb
losses of the VIE or the right to receive benefits from the
VIE that could potentially be significant to the VIE, the Firm
considers all of its economic interests, including debt and
equity investments, servicing fees, and derivatives or other
arrangements deemed to be variable interests in the VIE.
This assessment requires that the Firm apply judgment in
determining whether these interests, in the aggregate, are
considered potentially significant to the VIE. Factors
considered in assessing significance include: the design of
the VIE, including its capitalization structure; subordination
of interests; payment priority; relative share of interests
held across various classes within the VIE's capital
structure; and the reasons why the interests are held by the
Firm.
Notes to consolidated financial statements
153
The most common type of VIE is an SPE. SPES are commonly
used in securitization transactions in order to isolate certain
assets and distribute the cash flows from those assets to
investors. The basic SPE structure involves a company
selling assets to the SPE; the SPE funds the purchase of
those assets by issuing securities to investors. The legal
documents that govern the transaction specify how the cash
earned on the assets must be allocated to the SPE'S
investors and other parties that have rights to those cash
flows. SPES are generally structured to insulate investors
from claims on the SPE's assets by creditors of other
entities, including the creditors of the seller of the assets.
The primary beneficiary of a VIE (i.e., the party that has a
controlling financial interest) is required to consolidate the
assets and liabilities of the VIE. The primary beneficiary is
the party that has both (1) the power to direct the activities
of the VIE that most significantly impact the VIE's economic
performance; and (2) through its interests in the VIE, the
obligation to absorb losses or the right to receive benefits
from the VIE that could potentially be significant to the VIE.
To assess whether the Firm has the power to direct the
activities of a VIE that most significantly impact the VIE'S
economic performance, the Firm considers all the facts and
circumstances, including its role in establishing the VIE and
its ongoing rights and responsibilities. This assessment
includes, first, identifying the activities that most
significantly impact the VIE's economic performance; and
VIES are entities that, by design, either (1) lack sufficient
equity to permit the entity to finance its activities without
additional subordinated financial support from other
parties, or (2) have equity investors that do not have the
ability to make significant decisions relating to the entity's
operations through voting rights, or do not have the
obligation to absorb the expected losses, or do not have the
right to receive the residual returns of the entity.
Variable Interest Entities
The Firm's investment companies have investments in both
publicly-held and privately-held entities, including
investments in buyouts, growth equity and venture
opportunities. These investments are accounted for under
investment company guidelines and accordingly,
irrespective of the percentage of equity ownership interests
held, are carried on the Consolidated balance sheets at fair
value, and are recorded in other assets, with income or loss
included in noninterest revenue.
(i.e., kick-out rights), based on a simple majority vote, or
the non-affiliated partners or members have rights to
participate in important decisions. Accordingly, the Firm
does not consolidate these voting interest entities. However,
in the limited cases where the non-managing partners or
members do not have substantive kick-out or participating
rights, the Firm evaluates the funds as VIES and
consolidates if it is the general partner or managing
member and has a potentially significant interest.
JPMorgan Chase & Co./2017 Annual Report
Certain Firm-sponsored asset management funds are
structured as limited partnerships or certain limited liability
companies. For many of these entities, the Firm is the
general partner or managing member, but the non-affiliated
partners or members have the ability to remove the Firm as
the general partner or managing member without cause
The Firm performs on-going reassessments of: (1) whether
entities previously evaluated under the majority voting-
interest framework have become VIES, based on certain
events, and are therefore subject to the VIE consolidation
framework; and (2) whether changes in the facts and
circumstances regarding the Firm's involvement with a VIE
cause the Firm's consolidation conclusion to change.
Voting interest entities are entities that have sufficient
equity and provide the equity investors voting rights that
enable them to make significant decisions relating to the
entity's operations. For these types of entities, the Firm's
determination of whether it has a controlling interest is
primarily based on the amount of voting equity interests
held. Entities in which the Firm has a controlling financial
interest, through ownership of the majority of the entities'
voting equity interests, or through other contractual rights
that give the Firm control, are consolidated by the Firm.
Investments in companies in which the Firm has significant
influence over operating and financing decisions (but does
not own a majority of the voting equity interests) are
accounted for (i) in accordance with the equity method of
accounting (which requires the Firm to recognize its
proportionate share of the entity's net earnings), or (ii) at
fair value if the fair value option was elected. These
investments are generally included in other assets, with
income or loss included in other income.
Assets held for clients in an agency or fiduciary capacity by
the Firm are not assets of JPMorgan Chase and are not
included on the Consolidated balance sheets.
The Consolidated Financial Statements include the accounts
of JPMorgan Chase and other entities in which the Firm has
a controlling financial interest. All material intercompany
balances and transactions have been eliminated.
Certain amounts reported in prior periods have been
reclassified to conform with the current presentation.
Consolidation
The accounting and financial reporting policies of JPMorgan
Chase and its subsidiaries conform to U.S. GAAP.
Additionally, where applicable, the policies conform to the
accounting and reporting guidelines prescribed by
regulatory authorities.
JPMorgan Chase & Co. ("JPMorgan Chase" or the "Firm"), a
financial holding company incorporated under Delaware law
in 1968, is a leading global financial services firm and one
of the largest banking institutions in the U.S., with
operations worldwide. The Firm is a leader in investment
banking, financial services for consumers and small
business, commercial banking, financial transaction
processing and asset management. For a discussion of the
Firm's business segments, see Note 31.
Note 1 - Basis of presentation
JPMorgan Chase & Co./2017 Annual Report
152
The Notes to Consolidated Financial Statements are an integral part of these statements.
9,423
The Firm determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity is
a voting interest entity or a variable interest entity.
Voting Interest Entities
If prices or quotes are not available for an instrument or a
similar instrument, fair value is generally determined using
valuation models that consider relevant transaction data
such as maturity and use as inputs market-based or
independently sourced parameters. Where this is the case
the price verification process described above is applied to
the inputs to those models.
Use of estimates in the preparation of consolidated
financial statements
Foreign currency translation
Interest income and interest expense
Page 192
Page 155
Page 174
Page 179
Note 2
Note 3
Note 5
Note 6
Noninterest revenue
Derivative instruments
Fair value option
Fair value measurement
The following table identifies JPMorgan Chase's other
significant accounting policies and the Note and page where
a detailed description of each policy can be found.
Significant accounting policies
The preparation of the Consolidated Financial Statements
requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
revenue and expense, and disclosures of contingent assets
and liabilities. Actual results could be different from these
estimates.
JPMorgan Chase & Co./2017 Annual Report
For JPMorgan Chase's Consolidated statements of cash
flows, cash is defined as those amounts included in cash
and due from banks.
Statements of cash flows
For further discussion of the Firm's derivative instruments,
see Note 5. For further discussion of the Firm's repurchase
and reverse repurchase agreements, and securities
borrowing and lending agreements, see Note 11.
307
The Firm uses master netting agreements to mitigate
counterparty credit risk in certain transactions, including
derivative, securities repurchase and reverse repurchase,
and securities loaned and borrow transactions. A master
netting agreement is a single agreement with a
counterparty that permits multiple transactions governed
by that agreement to be terminated or accelerated and
settled through a single payment in a single currency in the
event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due). Upon the exercise of derivatives
termination rights by the non-defaulting party (i) all
transactions are terminated, (ii) all transactions are valued
and the positive values of “in the money" transactions are
netted against the negative values of “out of the money"
transactions and (iii) the only remaining payment obligation
is of one of the parties to pay the netted termination
amount. Upon exercise of default rights under repurchase
agreements and securities loan agreements in general (i) all
transactions are terminated and accelerated, (ii) all values
of securities or cash held or to be delivered are calculated,
and all such sums are netted against each other and (iii) the
only remaining payment obligation is of one of the parties
to pay the netted termination amount.
under securities loan agreements to be presented net when
specified conditions are met, including the existence of a
legally enforceable master netting agreement. The Firm has
elected to net such balances when the specified conditions
are met.
U.S. GAAP permits entities to present derivative receivables
and derivative payables with the same counterparty and the
related cash collateral receivables and payables on a net
basis on the Consolidated balance sheets when a legally
enforceable master netting agreement exists. U.S. GAAP
also permits securities sold and purchased under
repurchase agreements and securities borrowed or loaned
Offsetting assets and liabilities
Gains and losses relating to translating functional currency
financial statements for U.S. reporting are included in OCI
within stockholders' equity. Gains and losses relating to
nonfunctional currency transactions, including non-U.S.
operations where the functional currency is the U.S. dollar,
are reported in the Consolidated statements of income.
JPMorgan Chase revalues assets, liabilities, revenue and
expense denominated in non-U.S. currencies into U.S.
dollars using applicable exchange rates.
154
1,835
14,887
44,995
3,827
6,179
5,478
4,940
2,312
4,651
1,333
2,136
1,799
1,785
(94,628)
(61,107)
(48,109)
93,270
60,196
49,363
5,673
(20,007)
62,212
(8,653)
2,313
5,361
5,290
24,441 $ 24,733 $ 24,442
$
Net income
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Provision for credit losses
Depreciation and amortization
Deferred tax expense
Other
Originations and purchases of loans held-for-sale
Proceeds from sales, securitizations and paydowns of loans held-for-sale
Net change in:
Trading assets
12,165
Securities borrowed
Other assets
Trading liabilities
Accounts payable and other liabilities
Other operating adjustments
Net cash provided by/(used in) operating activities
Investing activities
Net change in:
2017
2016
2015
Accrued interest and accounts receivable
Operating activities
(15,868)
22,664
45
9,208
123,663
(493,029)
37,777
(493,029)
10,248
10,287
13
39
121
6
Beneficial interests issued by consolidated VIES
540,777
519,594
964
65,628
9,074
Accounts payable and other liabilities
7,684
(14,217)
884
21,017
9,192
(36,203)
5,727
39,668
Long-term debt
Total liabilities measured at fair value on a recurring basis
$
74,702 $
4,318
(4,517)
(3,701)
(26,256)
5,198
(28,972)
(8,518)
3,740
(23,361)
7,803
(5,815)
(1,827)
(2,501)
JPMorgan Chase & Co./2017 Annual Report
160
211,644
(493,029) $
$
47,519
16,125
32,271
$
31,394
597,700
(5,122)
12,473
Year ended December 31, (in millions)
151
92,500
93,270
Shares issued and commitments to issue common stock for employee share-based compensation awards
Other
(734)
(334)
(436)
(314)
(539)
(334)
Balance at December 31
90,579
91,627
92,500
Retained earnings
Balance at January 1
Cumulative effect of change in accounting principle
Net income
162,440
146,420
129,977
(154)
91,627
Balance at January 1
Additional paid-in capital
4,105
Consolidated statements of changes in stockholders' equity
Year ended December 31, (in millions, except per share data)
Preferred stock
Balance at January 1
Issuance
Redemption
Balance at December 31
Common stock
2017
2016
24,441
2015
26,068 $ 26,068 $ 20,063
1,258
6,005
(1,258)
26,068
26,068
26,068
Balance at January 1 and December 31
4,105
4,105
$
Consolidated statements of cash flows
24,733
Dividends declared:
2,189
-
154
1,056
(119)
(1,521)
(1,175)
(1,997)
192
(21)
(21)
(21)
(28,854)
(15,410)
1,669
(42,595)
(21,691)
(9,082)
(17,856)
(5,616)
1,919
(28,854)
1,781
(21,691)
Total stockholders' equity
$ 255,693 $ 254,190 $ 247,573
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2017 Annual Report
192
(1,175)
Balance at December 31
Reissuance
Preferred stock
(1,663)
(1,647)
(1,515)
Common stock ($2.12, $1.88 and $1.72 per share for 2017, 2016 and 2015, respectively)
(7,542)
(6,912)
(6,484)
Balance at December 31
177,676
24,442
162,440
Accumulated other comprehensive income
Balance at January 1
Cumulative effect of change in accounting principle
Other comprehensive income/(loss)
Balance at December 31
Shares held in RSU Trust, at cost
Balance at January 1 and December 31
Treasury stock, at cost
Balance at January 1
Repurchase
146,420
1,645
(143,349)
154,075
181
325,267
5,370
167,982
151,915
690
14,197
6,246
-
1,322
4,924
87,838
216,296
4,385
295
197
87,346
152,266
59,645
Residential nonagency
U.S.government agencies (a)
Mortgage-backed securities:
314,107
1,704
(291,319)
24,673
720,515
152,937
5,998
552,533
1,022
6,948
(13,137)
210
19,875
7,882
Available-for-sale securities:
(32,158)
37,722
16,151
(144,081)
557
158,834
841
869
(22,335)
1,209
21,995
2,318
11,368
Total trading assets(g)
Commodity
744
37,234
1
45,373
378
1,656
1,895
11
60
41,822
ཥྛཿ ཋ ཌ - ༄ | e
28,831
28,887
Non-U.S.government debt securities
226
Certificates of deposit, bankers' acceptances and commercial paper
9,067
Obligations of U.S. states and municipalities
6,475
30,758
U.S. Treasury and government agencies(a)
9,811
226
78
57,796
Equity
Foreign exchange
Credit
Interest rate
Derivative receivables:
Total debt and equity instruments(d)
Other
Physical commodities(c)
Equity securities
Total debt instruments
Total derivative receivables(e)(f)
3,437
3,284
Asset-backed securities
37,961
2,719
35,242
Loans(b)
24,458
312
24,146
Corporate debt securities
153
953
(503,030)
(503,030)
381,790
697
697
21,321
$
625,737
(503,030) $
$
$
4,142
$
17,179
19,216
$
901,387
15,403
1,265
343
13,795
208,164 $
$
$
$
6,030
6,030
7,526
1,665
9,191
Debt and equity instruments(d)
794
1,299
(21,954)
1,244
22,009
Total trading liabilities
Total derivative payables(e)(f)
Commodity
Equity
Foreign exchange
2,508
Credit
(277,306)
1,440
282,825
170
Interest rate
Derivative payables:
85,886
39
21,183
64,664
7,129
56,523
276
277
59
59
Certificates of deposit
32,338
32,338
Obligations of U.S. states and municipalities
22,745
22,745
U.S. Treasury and government agencies(a)
86,672
1
86,671
Total mortgage-backed securities
5,025
5,025
Commercial - nonagency
11,367
1
11,366
70,280
70,280
Non-U.S. government debt securities
18,140
9,154
27,294
160,516
2,232
547
547
41,432
8,817
8,817
20,996
276
20,720
Trading liabilities:
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
202,225
Deposits
Mortgage servicing rights
Loans
Total available-for-sale securities
Equity securities
Other
Collateralized loan obligations
Asset-backed securities:
2,757
2,757
Corporate debt securities
Other assets(g)
Total assets measured at fair value on a recurring basis
20,196
73,466
($ in trillions)
Assets under custody²
Wholesale deposits Consumer deposits
2014
2013
Client assets
2012
2011
$1,883
$2,061
$2,353
$2,376
$2,329
$2,427
$2,783
$730
$755
2015
2016
1 Source: J.D. Power 2018 U.S. Retail Banking Advice Study & 2017 National Bank Satisfaction Study
2017
We have to be there for our clients in good times
and bad. And we have to continuously improve
the products and services we provide to them.
If you are a bank, your clients rely on you to
always be there, regardless of the environ-
I. JPMORGAN CHASE BUSINESS STRATEGIES
2017
¹ Represents assets under management, as well as custody, brokerage, administration and deposit accounts
2 Represents activities associated with the safekeeping and servicing of assets
14
2016
2015
2014
$757
2013
2011
$16.9
$18.8
$20.5
$19.9
$20.5
$20.5
$23.5
2012
$722
$861
$824
84
177
191
156
165
156
187
195
173
163
127
165
141
100
67
56
51
112
111
105
Assets Entrusted to us by Our Clients
$398
$439
$784
$558
$3,011
$464
$618
$503
ment banks are the lender of last resort.
$3,255
$3,633
$3,617
$3,802
$3,740
($ in billions)
$4,227
Deposits and client assets¹
at December 31,
$660
Asset & Wealth management
Mortgage/Home equity
-
We simply cannot deliver to our shareholders
what they deserve if we do not have high-quality,
motivated, committed employees.
Corporate &
Banking
25%+
20%+/-
22%
BAC-CB
17%
50%+/-
52%
BAC-CB
Community
56%
Consumer &
JPM medium-term target ROTCE
Current4
Year-ago
Best-in-class
peer ROTCE²,3
JPM 2017
ROTCE
JPM medium-term
target overhead
ratio
Best-in-class
peer overhead
ratios¹
56%
Investment
53%
BAC-GB & GM
54%+/-
63%
CS-PB & TROW
Management
72%
Asset & Wealth
~18%
15%+/-
16%
FITB
17%
ratios
35%+/-
Banking
39%
Commercial
Bank
~17%
14%+/-
14%
BAC-GB & GM
14%
42%
PNC
Contrary to public opinion, most banks
consistently extended credit to their clients
(without dramatically raising lending rates)
throughout the Great Recession. The charts
on page 14 show how we have consistently
been there for our clients and that they trust
us to hold their assets.
overhead
Returns
safety. New research from The Brookings
Institution shows that, not surprisingly,
joblessness and incarceration are related.
Barriers to hiring returning citizens come
in different forms, and some are imposed
from the outside. This year, we welcomed
the Federal Deposit Insurance Corpora-
tion's proposed changes to allow banks
more flexibility in hiring returning citi-
zens. Our responsibility to recruit, hire,
retain and train talented workers extends
to this population. Earlier this year, I
visited one of our partnering organiza-
tions, the North Lawndale Employment
Network in Chicago, which gives formerly
incarcerated Americans a path to well-
paying jobs. The network also builds a
pipeline of trained mechanics for Chica-
go's growing transportation sector. This is
a win-win for workers, employers and the
economy as a whole.
Supporting re-entry programs is an important
part of our effort to create opportunity that
strengthens communities and results in a
stronger economy. The overwhelming
majority of Americans who are incar-
cerated return to their communities
after they are released. Reducing recidi-
vism is not only important to returning
citizens and their families – it can also
have profound implications for public
The path to opportunity begins at an early
age, but too many young people, particularly
from disadvantaged backgrounds, do not get
a fair shot at economic opportunity. High
school graduation rates for young men of
color are dangerously low, and many who
do graduate lack the skills they need to
be successful in college or their careers.
Through programs like The Fellowship
Initiative (TFI), we are working to address
barriers to opportunity. TFI engages
young men of color in a comprehensive
program that includes academic support,
leadership development and mentoring
during their critical high school years.
This past year, we expanded this program
to Dallas and recruited new classes of
Fellows in Chicago, Los Angeles and
New York. One hundred percent of these
students are graduating from high school,
and, combined, they have been accepted
into more than 200 colleges and universi-
ties across the country.
Helping people develop the skills they need
to compete for today's jobs can transform
lives and strengthen economies. JPMorgan
Chase is investing more than $350 million
to support demand-driven skills training
around the world. Through New Skills for
Youth, we launched additional innovation
sites to expand high-quality, career-focused
education programs in cities across the
United States and around the world.
expanded, and for the first time in 17 years,
property values are on the rise. Our work
in Detroit has taught us many important
lessons, and this past year, we extended our
model for impact to communities in need
in Chicago and Washington, D.C.
16
I. JPMORGAN CHASE BUSINESS STRATEGIES
15
We are helping communities realize their
potential as engines of growth and shared
prosperity. In 2014, we launched our most
comprehensive corporate responsibility
initiative to date to try to help Detroit,
an iconic city that was long engulfed in
economic turmoil and then bankruptcy. We
view our initiative in Detroit as validation
of our firm's model for driving inclusive
growth. Three years in, we exceeded our
initial $100 million commitment, and we
now expect to invest $150 million in the
city by 2019. We see the results on the
ground people are moving back into the
city, small businesses are being created and
-
We continue to step up our efforts to help
communities. In 2017, we were honored to
be ranked by Fortune magazine as the #1
company changing the world in recognition of
our work in Detroit and other communities.
We do extensive investing to help our
communities, such as providing affordable
housing, lending to lower income households
and helping advise governments in economic
development. Our philanthropic efforts
are only a part of what we do – but a very
important part. This year, we announced we
will increase our philanthropic investments
by 40%. Over the next five years, we will
spend $1.75 billion to help drive inclusive
growth in communities around the world.
Our head of Corporate Responsibility talks
about our significant progress and specific
measures in more detail in his letter, but I
would like to highlight a few initiatives:
even more for our communities to help lift
them up. We have broad and unique knowl-
edge around how communities can develop,
how work skills can be successfully imple-
mented, how businesses can be started, how
inequality can be addressed, how financial
health can be secured, and how more fami-
lies can find jobs and affordable housing.
Using our unique capabilities, we can do
of our communities are inextricably linked.
We believe that making the economy work
for more people is not simply a moral obliga-
tion - it's a business imperative.
As the primary engine of economic growth,
the private sector has an important role to
play in making sure the benefits are widely
shared. The future of business and the health
While keeping JPMorgan Chase a healthy and
vibrant company is the best thing we can do for
our communities, there's a lot more we can do.
It is important to explain both what we do and
why it is so important for our communities.
Talented, diverse employees deliver lifelong
- and satisfied customers. They also deliver
innovative products, excellent training and
outstanding ideas. Basically, everything we
do emanates from our employees. And all
of this creates shareholder value. We do
not try to get the last dollar of profit off of
our employees' or customers' backs. We
want long-tenured employees and satisfied
customers who stay with us year
after year.
We would rather earn a fair return and grow
our businesses long term than try to maxi-
mize our profit over any one time period.
Great employees are the result of a healthy,
open and respectful environment and
continual investment in training. And great
employees are the result of management
teams that are humble enough to recog-
nize that they don't know everything their
employees do and, therefore, are always
seeking out constructive feedback.
We are expanding innovative models that
enable more people to share in the rewards
of a growing economy. Small businesses are
growing fastest among people of color,
yet, despite their critical role in boosting
economic growth, these businesses
receive only a fraction of traditional loans
compared with non-minority entrepre-
neurs. In Detroit, a city with the fourth-
largest number of minority-owned small
businesses, we quickly saw the need to
address the challenges facing minority
entrepreneurs. Therefore, in 2015, we
helped launch the Entrepreneurs of Color
Fund in Detroit to provide underserved
entrepreneurs with greater access to the
capital and assistance they needed. Seeing
the tremendous success this program has
had in Detroit, we decided to scale this
model to the South Bronx in New York
City, as well as San Francisco - cities that
are experiencing similar challenges.
Our Diverse Workforce
I believe the door to diversity opens when you
run a great company where everyone feels they
are treated fairly and with respect - this is what
we strive to create at JPMorgan Chase. We are
devoted to diversity for three reasons, and each
reason stands on its own - combined, they are
powerful. First, it is the right thing to do from a
moral perspective. Second, it is better for busi-
ness to include a group of people who represent
the various communities where we operate. And
third, if I can pick my team from among all diverse
people, I will have the best team.
We have more than 252,000 employees globally,
with over 170,000 in the United States. Women
represent 50% of our employees. Recently, Oliver
Wyman, a leading global management consulting
firm, issued a report stating that it would be
30 years before women reach 30% executive
committee representation within global financial
services companies. So you might be surprised to
learn that, today, 50% of the Operating Committee
members reporting to me are women as are
approximately 30% of our firm's senior leader-
Efficiency
18
JPMorgan Chase is in Line with Best-in-Class Peers in Both Efficiency and Returns
These targets are what we hope to achieve
over the medium term and after making
proper investments for the future, such as
adding bankers and enhancing technology.
The chart below shows that we generally
compare well with our best-in-class peers (we
never expect to be best-in-class every year
We are fanatical about measuring our results
- financial and operational. We set targets for
ourselves, and we always compare ourselves with
our competitors.
Our bank operates in a complex and some-
times volatile world. We must maintain a
fortress balance sheet if we want to contin-
ually invest and support our clients through
thick and thin. A fortress balance sheet
also means clear, comprehensive, accurate
financial and operational reporting so we can
properly manage the company, particularly
through difficult times.
5. Transparency, financial discipline and a fortress balance sheet. Why is this discipline
so important?
I. JPMORGAN CHASE BUSINESS STRATEGIES
JPM 2017
17
for mid-level managers over the last two years,
with executive director representation up 30%,
emerging talent with vice president representation
up 17% and student talent up 7%. To encourage
dialogue and engage our people, more than 85,000
employees were invited to participate in ABL
Dialogues - a series of interactive panel discus-
sions facilitated by local leaders in 10 U.S. strategic
hubs.
Two years into this initiative, we are seeing
encouraging results. At executive levels, we closed
2017 with a noticeable increase in headcount (97
black managing directors globally, up from 83 a
year earlier), driven by recruiting new talent and
promoting existing talent. In addition, we are
seeing positive headcount gains in our pipeline
we should and could do more. We set up a
separate group whose sole purpose is to help do
this better. From training to retention to recruiting
and hiring new employees, our intensified efforts
are starting to pay off.
-
In 2016, we introduced Advancing Black Leaders
(ABL), an expanded diversity strategy focused
on increased hiring, retention and development
of talent from within the black community. This
specifically recognized that - with this popula-
tion
Advancing Black Leaders
We are proud of JPMorgan Chase's industry recog-
nition for its diversity and inclusion efforts. In 2017,
we received more than 50 awards that recog-
nize the firm and represent the diversity of our
employees.
ship globally. They run major businesses - several
units on their own would be among Fortune 1000
companies. In addition to having five women on
our Operating Committee - who run Asset & Wealth
Management, Finance, Global Technology, Legal
and Human Resources - some of our other busi-
nesses and functions headed by women include
Consumer Banking, Credit Card, U.S. Private Bank,
U.S. Mergers & Acquisitions, Global Equity Capital
Markets, Global Research, Global Custody, Regula-
tory Affairs, Global Philanthropy, our U.S. branch
network, our Controller and firmwide Marketing.
I believe we have some of the best women leaders
in the corporate world globally. In addition to
gender diversity, 48% of our firm's population is
ethnically diverse in the United States.
We recently developed a few additional plans and
goals for this effort, which we believe will improve
these results dramatically.
218
207
188
ways. For the most part, we have seen a rise
in these scores as well. It is a given that you
will not grow your share - unless you are
satisfying your customers - and we know
they can always walk across the street to be
served by another bank.
U.S. retail banking satisfaction¹
Chase
Big banks²
Industry average
Regional banks
Midsized banks
2011
2012
2013
1 Source: J.D. Power U.S. Retail Banking Satisfaction Study, 2017
2 Big banks defined as top six U.S. banks
2014
2015
2016
2017
Other important metrics
Increasing market share is a sign of increasing customer satisfaction
Increasing Customer Satisfaction
share increases were due to our acquisitions
of Bear Stearns and Washington Mutual. But
in all cases, this growth is driven by consis-
tent and disciplined investment in our busi-
nesses. The chart below shows how we try
to measure customer satisfaction in multiple
I. JPMORGAN CHASE BUSINESS STRATEGIES
On the consumer side, we have intro-
duced Chase Pay, the digital equivalent
to using a debit or credit card, which
allows customers to pay online or in-store
with their mobile phone. We also intro-
duced Zelle, a real-time consumer-to-
consumer payments system, which
allows customers to easily, safely and
immediately send money to their friends
and family. We expect these products
to drive lots of customer interactions
and make our payments offerings
compelling, even as some very smart
fintech competitors emerge.
12
efforts require huge team coordination. So
it's no surprise that it's sometimes easier
not to push organic growth. However, if you
build the right culture, where management
teams are intensely analytical and critical of
their own business' strengths, weaknesses
and opportunities, you can create great
clarity about what those opportunities are. If
you have strong leaders, they have the disci-
pline and fortitude to develop and execute a
forward-looking growth plan.
Organic growth is all about hiring and
training bankers, opening branches,
improving or innovating new products and
building new technology. It is hard work.
In fact, institutionally, there is often a lot
of resistance to it. It's easier not to add
expenses, even when they are good for the
business. And growing any sales force is
usually met by some opposition from – guess
who? - the existing sales force. Sometimes
people are afraid the change will take away
from their compensation pool or their client
base. And it's hard work to properly recruit
and train salespeople. Building new products
and services is sometimes in conflict with
existing products and services. All of these
3. Why is organic growth a better way to grow - and why is it sometimes difficult?
Events from the past year underscore the
importance of efforts like this. As questions
are raised about how consumers' infor-
mation is shared and protected, I strongly
believe that data privacy and security should
be a way in which we and other businesses
compete to serve customers.
We recently completed a new
arrangement with Intuit, which we think
represents an important step forward.
In addition to protecting the bank, the
customers and even the third party (in
this case, Intuit), it allows customers to
share data-how and when they want.
Under this arrangement, customers can
choose whatever they would like to share
and opt to turn these selections on or off
as they see fit. The data will be "pushed"
to Intuit, eliminating the need for sharing
bank passcodes, which protects the bank
and our customers and reduces potential
liabilities on Intuit's part as well. We are
hoping this sets a new standard for data-
sharing relationships.
the data may continue for years after
customers have stopped using the third-
party services.
For years, we have been describing the
risks to banks and customers - that arise
when customers freely give away their
bank passcodes to third-party services,
allowing virtually unlimited access to
their data. Customers often do not know
the liability this may create for them if
their passcode is misused, and, in many
cases, they do not realize how their data
are being used. For example, access to
Consumer & Community Banking
_
I. JPMORGAN CHASE BUSINESS STRATEGIES
11
Increasingly, the management teams
of Consumer & Community Banking,
Corporate & Investment Bank,
Commercial Banking and Asset & Wealth
Management share ideas, share platforms
and serve each other's customers. The
success of any one business almost always
helps the other three.
Our shared technology infrastructure
- our networks, data centers, and the
public and private cloud - decreases costs,
enhances efficiency and makes all our
businesses more productive. In addition,
this allows us to embrace the fact that
every business and merchant has its own
software and also wants easy, integrated
access to our products and services. We
are delivering on that through the creation
of a common JPMorgan Chase API (appli-
cation programming interface) store that
allows customers to add simple, secure
payments to their software. And we are
building everything digital – both for indi-
vidual customers and large corporations
from onboarding to idea generation.
Artificial intelligence, big data and machine
learning are helping us reduce risk and
fraud, upgrade service, improve under-
writing and enhance marketing across the
firm. And this is just the beginning.
nology - we have thousands of employees
who are data scientists or have advanced
degrees in science, technology, engi-
neering and math. Of the nearly 50,000
people in technology at the company,
more than 31,000 are in development and
engineering jobs, and more than 2,500
are in digital technology. Think of these
talented individuals as driving change
across the company.
-
Across the company – not just in tech-
Privacy and safety - we spend an enor-
mous amount of resources to protect
all of our clients and customers from
fraud, cybersecurity risk and invasion
of their privacy. These capabilities are
extraordinary, and we will continue to
relentlessly build them. As part of this, we
have consistently warned our customers
about privacy issues, which will become
increasingly critical for all industries
as consumers realize the severity of
the problem. Last year, we wrote about
a new arrangement with Intuit that
bears repeating – it briefly described
the problem and presented a solution,
which we hope might set a standard for
protecting customers while giving them
control of their data.
I. JPMORGAN CHASE BUSINESS STRATEGIES
■Chase continues to lead the big banks and the industry average in U.S. Consumer Bank Customer Satisfaction studies including
being ranked #1 in retail banking advice in the U.S. and ranked #2 in the first ever National Bank study¹
Digitally-engaged customers who bank with Chase are more satisfied than all other households, with higher NPS (+19%),
higher retention rates (+10 percentage points), and higher card spend (+118%)
We also are adding many tools that will
help our customers manage their financial
affairs. For example, in the credit card busi-
ness, we will be allowing our customers
to review and decide how and where they
want their cards and credit lines to be used.
In Consumer Banking, we are adding finan-
cial planning tools and insights that help
customers make the most of their money -
and there's more coming.
Corporate & Investment Bank
We see growth opportunities even in
Fixed Income, Currencies and Commodi-
ties, where we already have the #1 market
share at 11.4%. There may be some under-
lying growth as the capital markets of the
world grow, even though this is partially
offset by declining margins like we
have experienced over the last 30 years.
However, we see opportunities to gain
share in various products and in certain
regions where we have low share.
This opportunity would be true for Invest-
ment Banking, too. Country by country
and industry by industry, there are still
plenty of opportunities to increase our low
market share. For example, we have 10%
share in the United States but less than
5% share in Asia.
In Treasury Services and Custody, where
our market shares are 4.7% and 8.0%,
respectively, we believe we can grow
significantly by adding bankers, building
better technology, entering new countries,
building better products and continuing to
do a great job for clients. In this business,
while you make large initial investments
in order to grow, when you gain clients,
they usually stick with you for a long time.
Over time, we do expect to expand our
Corporate & Investment Bank into new
countries, which will benefit all the busi-
nesses within this franchise.
Commercial Banking
This past year, Commercial Banking has
completed its expansion into the top 50
markets in the United States - this will
drive growth for decades. And remember,
when Commercial Banking opens its
doors, it also helps drive the growth of
our Private Bank and the Corporate &
Investment Bank businesses.
Commercial Banking has added many
specialized industry bankers to better
serve those specific segments.
I. JPMORGAN CHASE BUSINESS STRATEGIES
Asset & Wealth Management
•
In the United States, our share of the
ultra-high-net-worth market ($10 million
or greater) is 8%. We believe we have a
superior business and that we can grow
our share by essentially adding bankers,
branches and better products.
In the high-net-worth business ($3 million
to $10 million) and the Chase affluent
business ($500,000 to $5 million), our
market shares are only 1% and 4%, respec-
tively. We have no doubt that we can grow
by adding bankers and locations, particu-
larly because we have some exciting new
products coming soon. There is no reason
we can't more than double our share over
the next 10 years.
We are also adding new products, like
index funds and exchange-traded funds
(ETF), that we believe will help drive
growth.
Across the company
In addition, we are undertaking many
initiatives across the company that will help
grow our businesses and better serve our
In addition, this year we are rolling out
many new exciting products and have
made several improvements around the
customer's experience, including a fully
mobile bank pilot (Finn), digital account
openings, facial recognition in our app,
the Amazon Prime Rewards Visa card and
a simpler online application for Business
Banking customers.
We recently announced that we will start
to expand the consumer branch business
into cities like Boston, Philadelphia and
Washington, D.C. Over the next five years,
we hope to expand to another 15-20 new
markets. We know the competition is
tough, but we have much to offer. When
JPMorgan Chase comes to town, we come
not just with our consumer branches but
also with mortgages, investments, credit
cards, private banking, small and midsized
business banking, government business
and corporate responsibility initiatives to
support our communities.
10
Consumer & Community Banking
■Digitally-engaged established customers who use Chase as their primary bank also have 40% more deposits and investments
with us
Corporate & Investment Bank
■Highest ever client satisfaction and retention levels for Custody & Fund Services
Commercial Banking
■NPS for Commercial Banking Middle Market clients increased from 35 to 45 from 2011 to 2017²
■#1 in overall satisfaction, perceived satisfaction, customer relationships and transactions/payments processing³
Asset & Wealth Management
■J.P. Morgan has ranked as the #1 private bank in the U.S. for nine consecutive years and #1 in Latin America for five
consecutive years4
■Customer satisfaction, measured by Net Promoter Scores ("NPS"), has continued to increase across most of our businesses
since we brought CCB together five years ago. NPS increased year over year in Merchant Services, Business Banking, Home
Lending, and Auto
■J.P. Morgan has ranked as the Leading Pan-European Fund Management Firm for eight consecutive years
2 Source: Greenwich Associates Commercial Banking Study, 2017
3 Source: CFO magazine's Commercial Banking Survey, 2017
4 Source: Euromoney, 2018
5 Source: Thomson Reuters, 2017
9
I. JPMORGAN CHASE BUSINESS STRATEGIES
2. How will the company continue to grow? What are the organic growth opportunities?
We have good market share in most busi-
nesses, but we see organic growth opportu-
nities almost everywhere - some large and
some small. Following are a few examples:
On the payments front, we have devel-
oped multiple products to make wholesale
payments better, easier and faster. We
are rolling out these products across our
platforms, and they should help us solidify
and grow our position.
70%+/-
4. Is there a conflict between building shareholder value vs. serving customers, taking care
of employees and lifting up communities?
We cannot be a healthy and vibrant company if
we are not both delivering financial success and
investing for the future.
$ 19
$ 18
$ 20
$ 17
$ 11
$ 7
$ 16
Small business
2017
2016
2015
2014
2013
2012
2011
2010
2009
$ 22
$ 24
$ 22
Card & Auto
185
131
122
110
93
77
104
Commercial/Middle market
2008
148
116
108
92
82
91
83
83
121
149
Keeping JPMorgan Chase a healthy and
vibrant company is the best thing we can
do for our shareholders, our customers, our
employees and our communities. Building
shareholder value is the primary goal of a
business, but it is simply not possible to do
well if a company is not properly treating
and serving its customers, training and
motivating its employees, and being a good
citizen in the community. If they are all
done well, it enhances shareholder value.
Let me explain.
$379
$474
$1.3
$1.4
$1.4
$1.5
$1.6
$1.6
$1.7
($ in trillions)
Corporate clients
at December 31,
New and Renewed Credit and Capital for Our Clients
13
A bank cannot simply stop serving its clients
or halt investing because of quarterly or
annual earnings pressures. It does not work
when long-term investing is changed because
of short-term pressures - you cannot stop-
start training programs and the development
of new products, among other investments.
You need to serve your clients and make
investments while explaining to shareholders
why certain decisions are appropriate at that
time. Earnings results for any one quarter or
even the next few years are fundamentally
the result of decisions that were made years
and even decades earlier.
capital. Diligent management teams
understand the difference between the
two scenarios and invest in a way that will
make the company financially successful
over time. You need to invest continually
for better products and services so you can
serve your customers in the future.
Do not confuse financial success with profits
in a quarter or even in a year. All businesses
have a different customer and investment
life cycle, which can be anywhere from one
year to 30 years – think of building new
restaurants to developing new airplanes or
building electrical grids. Generally, anything
our business does to grow will cost money
in the short term (whether it's opening
branches or conducting research and devel-
opment (R&D) or launching products), but
it does not mean that it is not the right
financial decision. A company could be
losing money on its way to bankruptcy or
on its way to a very high return on invested
-
Show me a company that is not financially
successful (in the long run), and I will
show you an unsuccessful company. This is
particularly true for a bank, where confi-
dence in its stability is critical. I should
caution, however, that financial success is a
little more complex than short-term profits
- and many investors are completely aware
of this.
$1.2
$1.1
$1.1
2008
$479
$523
$556
$583
$601
($ in billions)
Consumer and Commercial Banking
$664
$419
$688
2016
2015
2014
2013
2012
2011
2010
2009
2017
25%
24%
BAC-GWIM & TROW
25%+/-
S5
GS
65%
GS
73%
MS
11.3%
11.2%
1 Best-in-class overhead ratio represents comparable JPMorgan Chase (JPM) peer business segments: Bank of America Consumer Banking (BAC-CB),
Bank of America Global Banking and Global Markets (BAC-GB & GM), PNC Corporate and Institutional Banking (PNC), Credit Suisse Private
Banking (CS-PB) and T. Rowe Price (TROW)
MS
2 Best-in-class ROTCE represents implied net income minus preferred stock dividends of comparable JPM peers and peer business segments when
available: BAC-CB, BAC-GB & GM, Fifth Third Bank (FITB), Bank of America Global Wealth and Investment Management (BAC-GWIM), and TROW
Given comparisons are at the business segment level, where available, allocation methodologies across peers may be inconsistent with JPM's
4 Each of our businesses has revised its medium-term return targets up, reflecting the benefit of tax reform and growth. We also increased our Firmwide
5
ROTCE target to 17%, up from 15% last year. While competitive dynamics will impact our ultimate results, we believe this target is achievable in the
medium-term, reflecting higher revenue in a normalized rate environment and our disciplined investment agenda
Bank of America Corporation (BAC), Wells Fargo & Company (WFC), Citigroup Inc. (C), Goldman Sachs Group, Inc. (GS), Morgan Stanley (MS)
6 ROTCE is a non-GAAP financial measure and has been adjusted for the impact of the enactment of the TCJA
•
3
8.1%
customers.
57%
с
Overhead ratios
ROTCE6
Target
~55%
JPM
56%
JPM
13.6%
JPMorgan Chase compared with peers5
BAC
C
Target4
~17%
11.1%
11.3%
WFC
~35%
WFC
65%
BAC
62%
8,006
(8,360)
21,006
1,236
(7,246) 10,921
(183) 265
(256)
Equity securities
431
96
89
(193)
(26)
51
(181)
(3,540)
(1,313)
Physical commodities
9,676
32 (c)
22,489
Total trading assets - debt and
equity instruments
85
(918) 744
33
192
Total debt instruments
1,581
119
1,050
Other
(2)
2
82
(32)
(2,777) 6,604
205
(1,038)
1,171
(77)
2,989
Corporate debt securities
(16)
(125)
74
16
(64)
(123)
205
9
302
(271)
179
(2,363) 736
2
(35)
(1,229)
1,920
(41)
1,264
Asset-backed securities
(181)
(9,866)
509
(3,112)
(4,661)
3,532
(174)
13,287
Loans
(252) 1,832
(3,374)
(173)
(8,347) 11,930
Asset-backed securities
Available-for-sale securities:
536 (c)
(41)
27 (935)
(657) (1,749)
58
(509)
(1,744)
1,552
(30)
512
(24)
1
(565) (856)
(2,061) 1,612 (c)
Total net derivative receivables
Other
Commodity
-
51
(90)
(43)
51
(32) (d)
1,037
2,541 (133) (c)
7,436 (405) (e)
Mortgage servicing rights
Loans
Total available-for-sale securities
1
(99)
(29)
(28)
823
(61)
(43)
908 (32)
129
5
53 (1,514)
17
129
118
189
Credit
263
(326) 876
6
(732)
securities
513
962
626
Interest rate
Net derivative receivables: (a)
(89) (c)
(136)
165
29
55
(158)
(1,262)
890
(1,785) 731
Equity
49
(725)
1,320
(466)
(296)
(149)
19
(526) 657
Foreign exchange
260
549
36
(50)%
(a) The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated
balance sheets. Furthermore, the inputs presented for each valuation technique in the table are, in some cases, not applicable to every instrument valued
using the technique as the characteristics of the instruments can differ.
0%
241
(245)
(147)
245
(225)
378
17
(8)
1
Obligations of U.S. states and
municipalities
649
18
152
(70)
U.S. Treasury and government
agencies
492
securities
Total mortgage-backed
(64)
132
(133)
60
11
Commercial nonagency
17
9
27
(44)
(13)
64
(49)
11
1
(5)
-
-
744
(195)
312
18
Loans
4,837
333
2,389
(2,832)
(1,323)
806
(1,491)
2,719
43
Asset-backed securities
302
157
(30)
(497)
872
15
Non-U.S. government debt
securities
46
46
-
559
(518)
62
(71)
78
-
Corporate debt securities
576
11
(612)
53
19
83
The yield and the credit spread of a particular mortgage-
backed security primarily reflect the risk inherent in the
instrument. The yield is also impacted by the absolute level of
the coupon paid by the instrument (which may not
correspond directly to the level of inherent risk). Therefore,
the range of yield and credit spreads reflects the range of risk
inherent in various instruments owned by the Firm. The risk
inherent in mortgage-backed securities is driven by the
subordination of the security being valued and the
characteristics of the underlying mortgages within the
collateralized pool, including borrower FICO scores, LTV ratios
for residential mortgages and the nature of the property and/
or any tenants for commercial mortgages. For corporate debt
securities, obligations of U.S. states and municipalities and
other similar instruments, credit spreads reflect the credit
quality of the obligor and the tenor of the obligation.
Prepayment speed - The prepayment speed is a measure of
the voluntary unscheduled principal repayments of a
prepayable obligation in a collateralized pool. Prepayment
speeds generally decline as borrower delinquencies rise. An
increase in prepayment speeds, in isolation, would result in a
decrease in a fair value measurement of assets valued at a
premium to par and an increase in a fair value measurement
of assets valued at a discount to par.
Prepayment speeds may vary from collateral pool to
collateral pool, and are driven by the type and location of the
underlying borrower, and the remaining tenor of the
obligation as well as the level and type (e.g., fixed or floating)
of interest rate being paid by the borrower. Typically
collateral pools with higher borrower credit quality have a
higher prepayment rate than those with lower borrower
credit quality, all other factors being equal.
Conditional default rate - The conditional default rate is a
measure of the reduction in the outstanding collateral
balance underlying a collateralized obligation as a result of
defaults. While there is typically no direct relationship
between conditional default rates and prepayment speeds,
collateralized obligations for which the underlying collateral
has high prepayment speeds will tend to have lower
conditional default rates. An increase in conditional default
rates would generally be accompanied by an increase in loss
severity and an increase in credit spreads. An increase in the
conditional default rate, in isolation, would result in a
decrease in a fair value measurement. Conditional default
rates reflect the quality of the collateral underlying a
securitization and the structure of the securitization itself.
Based on the types of securities owned in the Firm's market-
making portfolios, conditional default rates are most typically
at the lower end of the range presented.
Loss severity - The loss severity (the inverse concept is the
recovery rate) is the expected amount of future realized
losses resulting from the ultimate liquidation of a particular
loan, expressed as the net amount of loss relative to the
outstanding loan balance. An increase in loss severity is
generally accompanied by an increase in conditional default
rates. An increase in the loss severity, in isolation, would
result in a decrease in a fair value measurement.
The loss severity applied in valuing a mortgage-backed
security investment depends on factors relating to the
underlying mortgages, including the LTV ratio, the nature of
the lender's lien on the property and other instrument-
specific factors.
JPMorgan Chase & Co./2017 Annual Report
165
Notes to consolidated financial statements
Correlation - Correlation is a measure of the relationship
between the movements of two variables (e.g., how the
change in one variable influences the change in the other).
Correlation is a pricing input for a derivative product where
the payoff is driven by one or more underlying risks.
Correlation inputs are related to the type of derivative (e.g.,
interest rate, credit, equity and foreign exchange) due to the
nature of the underlying risks. When parameters are
positively correlated, an increase in one parameter will result
in an increase in the other parameter. When parameters are
negatively correlated, an increase in one parameter will
result in a decrease in the other parameter. An increase in
correlation can result in an increase or a decrease in a fair
value measurement. Given a short correlation position, an
increase in correlation, in isolation, would generally result in
a decrease in a fair value measurement. The range of
correlation inputs between risks within the same asset class
are generally narrower than those between underlying risks
across asset classes. In addition, the ranges of credit
correlation inputs tend to be narrower than those affecting
other asset classes.
The level of correlation used in the valuation of derivatives
with multiple underlying risks depends on a number of
factors including the nature of those risks. For example, the
correlation between two credit risk exposures would be
different than that between two interest rate risk exposures.
Similarly, the tenor of the transaction may also impact the
correlation input, as the relationship between the underlying
risks may be different over different time periods.
Furthermore, correlation levels are very much dependent on
market conditions and could have a relatively wide range of
levels within or across asset classes over time, particularly in
volatile market conditions.
-
Volatility Volatility is a measure of the variability in possible
returns for an instrument, parameter or market index given
how much the particular instrument, parameter or index
changes in value over time. Volatility is a pricing input for
options, including equity options, commodity options, and
interest rate options. Generally, the higher the volatility of
the underlying, the riskier the instrument. Given a long
position in an option, an increase in volatility, in isolation,
would generally result in an increase in a fair value
measurement.
The level of volatility used in the valuation of a particular
option-based derivative depends on a number of factors,
including the nature of the risk underlying the option (e.g.,
the volatility of a particular equity security may be
significantly different from that of a particular commodity
index), the tenor of the derivative as well as the strike price
of the option.
Credit spread - The credit spread is the amount of additional
annualized return over the market interest rate that a market
participant would demand for taking exposure to the credit
risk of an instrument. The credit spread for an instrument
forms part of the discount rate used in a discounted cash flow
calculation. Generally, an increase in the credit spread would
result in a decrease in a fair value measurement.
EBITDA multiple - EBITDA multiples refer to the input (often
derived from the value of a comparable company) that is
multiplied by the historic and/or expected earnings before
interest, taxes, depreciation and amortization ("EBITDA”) of a
company in order to estimate the company's value. An
increase in the EBITDA multiple, in isolation, net of
adjustments, would result in an increase in a fair value
measurement.
Yield - The yield of an asset is the interest rate used to
discount future cash flows in a discounted cash flow
calculation. An increase in the yield, in isolation, would result
in a decrease in a fair value measurement.
Changes in and ranges of unobservable inputs
85%
(50)%
30%
10%
40%
Other level 3 assets and liabilities, net(f)
283
164
JPMorgan Chase & Co./2017 Annual Report
(b) Includes U.S. government agency securities of $297 million, nonagency securities of $61 million and trading loans of $1.1 billion.
(c) Includes U.S. government agency securities of $10 million, nonagency securities of $11 million, trading loans of $417 million and non-trading loans of $276
million.
(d) Includes trading loans of $1.2 billion.
(e) Long-term debt, short-term borrowings and deposits include structured notes issued by the Firm that are predominantly financial instruments containing
embedded derivatives. The estimation of the fair value of structured notes includes the derivative features embedded within the instrument. The significant
unobservable inputs are broadly consistent with those presented for derivative receivables.
(f) Includes level 3 assets and liabilities that are insignificant both individually and in aggregate.
(g) Price is a significant unobservable input for certain instruments. When quoted market prices are not readily available, reliance is generally placed on price-
based internal valuation techniques. The price input is expressed assuming a par value of $100.
The following discussion provides a description of the impact
on a fair value measurement of a change in each
unobservable input in isolation, and the interrelationship
between unobservable inputs, where relevant and significant.
The impact of changes in inputs may not be independent, as a
change in one unobservable input may give rise to a change
in another unobservable input. Where relationships do exist
between two unobservable inputs, those relationships are
discussed below. Relationships may also exist between
observable and unobservable inputs (for example, as
observable interest rates rise, unobservable prepayment
rates decline); such relationships have not been included in
the discussion below. In addition, for each of the individual
relationships described below, the inverse relationship would
also generally apply.
70%
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the Consolidated
balance sheets amounts (including changes in fair value) for
financial instruments classified by the Firm within level 3 of
the fair value hierarchy for the years ended December 31,
2017, 2016 and 2015. When a determination is made to
classify a financial instrument within level 3, the
determination is based on the significance of the
unobservable parameters to the overall fair value
measurement. However, level 3 financial instruments
typically include, in addition to the unobservable or level 3
components, observable components (that is, components
that are actively quoted and can be validated to external
sources); accordingly, the gains and losses in the table below
include changes in fair value due in part to observable factors
that are part of the valuation methodology. Also, the Firm
risk-manages the observable components of level 3 financial
instruments using securities and derivative positions that are
classified within level 1 or 2 of the fair value hierarchy; as
these level 1 and level 2 risk management instruments are
not included below, the gains or losses in the following tables
do not reflect the effect of the Firm's risk management
activities related to such level 3 instruments.
JPMorgan Chase & Co./2017 Annual Report
2017
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2017
Mortgage-backed securities:
U.S. government agencies
$
392 $ (11)
161 $
(171)
$
(70) $
49 $
(43) $
307
$ (20)
Residential nonagency
Fair
value at
Dec. 31,
166
Transfers (out
of) level 3(h)
Settlements(g)
Year ended
December 31, 2017
(in millions)
Assets:
Trading assets:
Debt instruments:
Fair
Total
realized/
Fair value measurements using significant unobservable inputs
value at
unrealized
January
1, 2017
gains/
(losses)
Purchases(f) Sales
Transfers into
level 3(h)
The following discussion also provides a description of
attributes of the underlying instruments and external market
factors that affect the range of inputs used in the valuation of
the Firm's positions.
(28) (d)
32
(8)
(85)
(36)
Total net derivative receivables
(1,749)
130 (c)
545
(1,025)
(293)
76
(44) (2,360)
(1,238) (c)
Available-for-sale securities:
Asset-backed securities
823
8
1
645
1
(48)
31 (1,384)
(350)
Equity
(1,514)
(145)
277
(852)
213
94
(325) (2,252)
(86)
Commodity
(935)
194
10
(119)
(42) 663
1
487
(496)
(119)
(42) 664
1
(d)
(838)
(313)
570
(c)
(919)
(299)
6,096
2,223
(163) (e)
48 (c)
130 (c)
2,401
Other assets
(109)
Other
1
----1
Total available-for-sale securities
824
1
(d)
(649)
Loans
(49) (c)
259
(7)
Mortgage servicing rights
6,608
(163) (e)
679
1,518
(124)
64
67
265
90
(108)
(40)
29
(787) 4,837
(832) 302
(2,387) 6,902
(5) 231
(169)
19
(207)
7
Other
744
79
649
(287)
Equity securities
1,850
(2,651)
(4,541)
(343)
2,228
(2,598)
(1,311)
1,044
Asset-backed securities
1,832
(360)
39
(712)
(968)
288
Total debt instruments
10,921
(314)
4,024
655
Fair value measurements using significant unobservable inputs
26
761
222
1,263
(144)
Credit
549
(742)
10
(2)
211
36
36
98
(622)
Foreign exchange
(725)
(14)
(713)
(57)
193
28
Total trading assets - debt and
equity instruments
11,930
(235) (c)
4,763
(4,936)
(90)
(3,051)
(2,482)
7,894
(172) (c)
Net derivative receivables: (a)
Interest rate
876
756
1,905
Fair
value at
Change in
unrealized
(gains)/losses
related to
financial
instruments held
$
327
$ (303)
$
(132)
$
25 $
(96) $ 715
$
(27)
Residential nonagency
663
130
253
(611)
$ 922 $ (28)
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2015
2015
at
Dec. 31,
Mortgage-backed securities:
U.S. government agencies
Fair value measurements using significant unobservable inputs
Fair
Total
realized/
Fair value
value at
(23)
unrealized
gains/
1, 2015 (losses)
Purchases(f)
Sales
Settlements(g)
Transfers
into
level 3(h)
Transfers
(out of)
level 3(h)
January
Debt instruments:
180
194
1,024
(28)
Obligations of U.S. states and
municipalities
1,273
14
352
(133)
(27)
5
(833)
651
(1)
Non-U.S. government debt
1,290
(750)
322
(177)
(1,176)
4
Commercial nonagency
306
(14)
246
(262)
(22)
(398)
117
115
(5)
Total mortgage-backed
securities
1,891
88
826
(256)
6,604
Trading assets:
December 31, 2015
(in millions)
value at
January
1, 2016
Total
realized/
unrealized
(gains)/
losses
Purchases Sales Issuances
Liabilities:(b)
Deposits
$ 2,950
$ (56) (c) $
$
-
Federal funds purchased and
securities loaned or sold under
repurchase agreements
Short-term borrowings
639
(230) (c)
(in millions)
December 31, 2016
Year ended
Fair
at Dec. 31,
Settlements(g)
Transfers
into
level 3(h)
Transfers
Dec.
(out of)
level 3(h)
31,
Trading liabilities - debt and equity
instruments
2016
$ 1,375
$
(1,283) $
$
(869) $ 2,117
$
23 (c)
2016
Assets:
63
(15)
13
(7)
43
(18) (c)
(6)
13
143
(613)
(5,810)
48
6 (c)
315
(1,389) 12,850 (i)
639 (c)(j)
JPMorgan Chase & Co./2017 Annual Report
Year ended
(22)
(70) (c)
1,134
-
23
Accounts payable and other
19
liabilities
Beneficial interests issued by
consolidated VIES
549
(12) (c)
(31) (c)
11,447 (i) 147 (c)(j)
168
1,876
(2)
(1,210)
6
114
(4)
(55)
Long-term debt
Loans
(22)
576
528
(4,250)
(1,278) (c)
Available-for-sale securities:
Asset-backed securities
663
15
(50)
(352)
Other
1
-
-
Total available-for-sale securities
664
(1,480)
(864)
(649)
1,190
(551)
(245)
(1,482)
422
(3,409)
(161)
Commodity
15 (d)
(85) (149)
(6)
(1)
(674)
(718)
Total net derivative receivables
(2,360)
(615) (c)
(433)
1,116
(50)
Loans
3 (c)
6,030
(232) (e)
(221)
1,265
74 (c)
14 (d)
Fair value measurements using significant unobservable inputs
Year ended
Fair
value at
Total
realized/
December 31, 2017
(in millions)
January
1, 2017
unrealized
(gains)/
losses
276
277
-
1
570
35 (c)
(26)
(303)
Mortgage servicing rights
Other assets
6,096
2,223
(352)
(232) (e)
244 (c)
(140)
(797)
66
(177)
(870)
276
14
1,103
Purchases
(2,252) (417)
42
Other
761
100
176
30
(148)
(4)
59
(58)
295
21
(46)
(162)
17
(10)
690
39
231
Equity securities
68
354
(356)
(56)
75
(198)
153
-
39
Total debt instruments
411
4,567
(4,633)
(2,028)
1,346
(2,180)
4,385
6,902
Equity
Total trading assets - debt and
7,894
Foreign exchange
98 (164)
(1,384) 43
1
(6)
-
77
(41)
(35)
32
13
(10)
854
(61)
149
(396)
Credit
(473)
264
(1)
550 (c)
4,773
(4,827)
(2,194)
1,422
(2,248)
5,370
equity instruments
128 (c)
Interest rate
1,263
72
60
(82)
(1,040)
(8)
Net derivative receivables:(a)
(99)
Sales
Transfers into
level 3(h)
252
(319)
(20)
67
(95)
83
5
Commercial nonagency
115
(11)
69
(29)
(3)
173
(297)
4
194
Residential - nonagency
$ (36)
Assets:
Trading assets:
Debt instruments:
Mortgage-backed securities:
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2016
U.S.government agencies
17
$ 715
$
135 $ (295)
$
(115) $
111 $
(139) $
392
$ (20)
2016
3
securities
91
(97)
(7)
19
(30)
46
(7)
Corporate debt securities
736
2
445
(359)
(189)
148
(207)
(4)
74
Non-U.S. government debt
securities
649
1,024
(27)
456
(643)
(138)
351
(531)
Total mortgage-backed
492
Obligations of U.S. states and
municipalities
651
19
149
(132)
(38)
(28)
Issuances Settlements()
level 3(h)
Dec.
Trading liabilities - debt and equity
instruments
43
(3) (c)
(46)
48
3,289
(2,748)
150
(202) 1,665
7 (c)(i)
3
3
(9)
39
-
42 (c)(i)
1,134
Short-term borrowings
repurchase agreements
Transfers (out
of) level 3(h)
Fair
value at
Dec. 31,
2017
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31,
2017
Liabilities:(b)
(c)
Deposits
$
$ 3,027 $
(291) $
11 $
(874) $ 4,142
$ 198 (c)(i)
Federal funds purchased and
securities loaned or sold under
$ 2,117 $ 152 (c)(i) $
31,
Accounts payable and other liabilities
(2)
JPMorgan Chase & Co./2017 Annual Report
167
Notes to consolidated financial statements
Fair value measurements using significant unobservable inputs
Year ended
(in millions)
December 31, 2016
Fair value
at January
Total
realized/
unrealized
gains/
1, 2016 (losses)
Fair
value at
Purchases(f) Sales
Settlements(g)
Transfers
into
level 3(h)
Transfers
(out of)
552 (c)(i)
(925) 16,125
1,660
(10,985)
(1) --3
13
(2)
Beneficial interests issued by
consolidated VIES
Long-term debt
48
13
2 (c)
39
(6)
78
39
- (c)
12,850 1,067 (c)(i)
12,458
(122)
824
$
28,443
(227) 549
(574)
(6,465) (i)
9,359
286
19
(7)
(4) (c)
63
(16)
12
(17)
(57) (c)
(731) 639
243
(29) (c)
$
(1,013) $2,950
$
$
(850)
(2,963)
1,993 $
3,334
$
2015
at Dec. 31,
Change in
unrealized
(gains)/losses
related to
financial
instruments held
(63) (c)
315
(3,101) 11,447 (1)
385 (c)(j)
2016
$1.3 billion of net losses on liabilities largely driven by
market movements in long-term debt
•
2017
The following describes significant components of total
realized/unrealized gains/(losses) for instruments measured
at fair value on a recurring basis for the years ended
December 31, 2017, 2016 and 2015. For further
information on these instruments, see Changes in level 3
recurring fair value measurements rollforward tables on
pages 166-170.
Gains and losses
$2.5 billion decrease in trading assets - debt and equity
instruments was predominantly driven by a decrease of
$2.1 billion in trading loans largely due to settlements,
and a $1.0 billion decrease in other assets due to
settlements and transfers from level 3 to level 2 as a
result of increased observability in certain valuation
inputs
Level 3 assets were $19.2 billion at December 31, 2017,
reflecting a decrease of $4.0 billion from December 31,
2016, largely due to the following:
For the year ended December 31, 2017
•
Level 3 assets (including assets measured at fair value on a
nonrecurring basis) were 0.8% of total Firm assets at
December 31, 2017. The following describes significant
changes to level 3 assets since December 31, 2016, for those
items measured at fair value on a recurring basis. For further
information on changes impacting items measured at fair
value on a nonrecurring basis, see Assets and liabilities
measured at fair value on a nonrecurring basis on page 172.
Consolidated balance sheets changes
at Dec. 31,
2015
Level 3 analysis
(i) Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue. Unrealized (gains)/losses are reported in OCI. Unrealized gains
were $48 million for the year ended December 31, 2017. There were no realized gains for the year ended December 31, 2017.
(h) All transfers into and/or out of level 3 are based on changes in the observability of the valuation inputs and are assumed to occur at the beginning of the quarterly reporting period in which
they occur.
(g) Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, and deconsolidation associated with beneficial interests in VIES and other
items.
(f) Loan originations are included in purchases
(e) Changes in fair value for CCB MSRS are reported in mortgage fees and related income.
(d) Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment ("OTTI") losses that are recorded in earnings, are reported in securities gains. Unrealized gains/
(losses) are reported in OCI. Realized gains/(losses) and foreign exchange hedge accounting adjustments recorded in income on AFS securities were zero, zero, and $(7) million for the
years ended December 31, 2017, 2016 and 2015, respectively. Unrealized gains/(losses) recorded on AFS securities in OCI were $15 million, $1 million and $(25) million for the years
ended December 31, 2017, 2016 and 2015, respectively.
(c) Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans, and lending-related commitments originated with the intent to sell, and
mortgage loan purchase commitments, which are reported in mortgage fees and related income.
(b) Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis) were 15%, 12% and 13% at
December 31, 2017, 2016 and 2015, respectively.
Notes to consolidated financial statements
169
JPMorgan Chase & Co./2017 Annual Report
(a) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.
(j) The prior period amounts have been revised to conform with the current period presentation.
•
Fair value
Transfers
into
level 3(h)
2,401
(180)
(411)
(509)
346
(29) (c)
3,184
Other assets
(405) (e)
6,608
(922)
(486)
985
(32) (c)
(847) 1,518
(1,241)
(92)
IR-FX correlation
Equity correlation
Equity-FX correlation
Equity-IR correlation
98%
-
(50)%
Interest rate correlation
38bps
27bps
volatility
(289) (c)
Fair value measurements using significant unobservable inputs
Year ended
December 31, 2015
Sales Issuances Settlements(g)
Purchases
(58)
(82) (c)
(480) (c)
1,146
11,877
Long-term debt
consolidated VIES
Beneficial interests issued by
26
Accounts payable and other liabilities
160
(163)
Transfers
(out of)
level 3(h)
15 (c)
Trading liabilities - debt and equity
instruments
-
$
$ 2,859 $ (39) (c) $
1,453 (697) (c)
Short-term borrowings
Deposits
Liabilities:(b)
Total
realized/
unrealized
(gains)/
losses
value at
January
Fair
1, 2015
(in millions)
72
Option pricing
There were no individually significant movements for the
year ended December 31, 2016.
•
Other assets(g)
Total assets measured at fair value on a recurring basis
$
Deposits
$
4,357
223,943 $
$
2,223
6,580
1,258,736
11,795
$
23,240
$
(858,538)
$
647,381
$
2,117
$
$
13,912
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
687
687
7,971
1,134
6,096
6,096
2,230
238,891
Asset-backed securities:
Collateralized loan obligations
64,005
14,443
9,104
87,552
44,101
31,592
106
35,288
4,958
Other
9,105
Equity securities
Loans
Mortgage servicing rights
664
570
26,738
663
27,401
6,967
6,967
926
67,791
926
170,436
1,660
Total available-for-sale securities
2015
Trading liabilities:
Derivative payables:
35,202
3,160
(30,222)
8,140
173
20,079
210
(12,105)
8,357
1,614
883,472
8,153
69,918
902,553
8,196
(844,008)
(844,008)
49,231
136,659
9,107
13
9,120
JPMorgan Chase & Co./2017 Annual Report
170
$1.3 billion of net gains in liabilities due to market
movements
$1.6 billion of net gains in interest rate, foreign exchange
and equity derivative receivables largely due to market
movements; partially offset by losses on commodity
derivatives due to market movements
20,508
(214,463)
2,254
231,815
68,304
19,081
43
43
87,428
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total derivative payables(e)
Total trading liabilities
Debt and equity instruments(d)
Accounts payable and other liabilities
Long-term debt
Total liabilities measured at fair value on a recurring basis
539
569,001
1,238
(559,963)
10,815
27,375
1,291
(27,255)
1,411
902
Beneficial interests issued by consolidated VIES
21,932
Interest rate spread
Long-term debt, short-term borrowings,
and deposits (e)
0%
Prepayment speed
6%
16%
3%
Yield
Discounted cash flows
average
Range of input values
Unobservable inputs(g)
Weighted
Principal valuation
technique
(in millions)
Fair value
Residential mortgage-backed securities $ 1,418
and loans (b)
Product/Instrument
December 31, 2017
Level 3 inputs(a)
Notes to consolidated financial statements
163
JPMorgan Chase & Co./2017 Annual Report
For the Firm's derivatives and structured notes positions
classified within level 3 at December 31, 2017, interest rate
correlation inputs used in estimating fair value were
concentrated towards the upper end of the range; equity
correlation, equity-FX and equity-IR correlation inputs were
concentrated in the middle of the range; commodity
correlation inputs were concentrated in the middle of the
range; credit correlation inputs were concentrated towards
the lower end of the range; and the interest rate-foreign
exchange ("IR-FX") correlation inputs were concentrated
towards the lower end of the range. In addition, the interest
rate spread volatility inputs used in estimating fair value were
distributed across the range; equity volatilities and
commodity volatilities were concentrated towards the lower
end of the range; and forward commodity prices used in
estimating the fair value of commodity derivatives were
concentrated towards the lower end of the range. Recovery
rate, yield, prepayment speed, conditional default rate, loss
severity and price inputs used in estimating the fair value of
credit derivatives were distributed across the range; and
credit spreads were concentrated towards the lower end of
the range.
In the Firm's view, the input range and the weighted average
value do not reflect the degree of input uncertainty or an
assessment of the reasonableness of the Firm's estimates and
assumptions. Rather, they reflect the characteristics of the
various instruments held by the Firm and the relative
distribution of instruments within the range of
characteristics. For example, two option contracts may have
similar levels of market risk exposure and valuation
uncertainty, but may have significantly different implied
volatility levels because the option contracts have different
underlyings, tenors, or strike prices. The input range and
weighted average values will therefore vary from period-to-
period and parameter-to-parameter based on the
characteristics of the instruments held by the Firm at each
balance sheet date.
The range of values presented in the table is representative
of the highest and lowest level input used to value the
significant groups of instruments within a product/instrument
classification. Where provided, the weighted averages of the
input values presented in the table are calculated based on
the fair value of the instruments that the input is being used
to value.
The following table presents the Firm's primary level 3
financial instruments, the valuation techniques used to
measure the fair value of those financial instruments, the
significant unobservable inputs, the range of values for those
inputs and, for certain instruments, the weighted averages of
such inputs. While the determination to classify an
instrument within level 3 is based on the significance of the
unobservable inputs to the overall fair value measurement,
level 3 financial instruments typically include observable
components (that is, components that are actively quoted
and can be validated to external sources) in addition to the
unobservable components. The level 1 and/or level 2 inputs
are not included in the table. In addition, the Firm manages
the risk of the observable components of level 3 financial
instruments using securities and derivative positions that are
classified within levels 1 or 2 of the fair value hierarchy.
13%
9%
Conditional default rate
0%
$100
-
$ 59
Price
Market comparables
744
$94
$100
-
0
$
Price
curves.
Market comparables
Loans(d)
Corporate debt securities
municipalities
Obligations of U.S. states and
and loans(c)
Commercial mortgage-backed securities
3%
84%
0%
Loss severity
1%
5%
714
$98
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate valuation model or other valuation technique to
use. Second, due to the lack of observability of significant
inputs, management must assess all relevant empirical data
in deriving valuation inputs including transaction details,
yield curves, interest rates, prepayment speed, default rates,
volatilities, correlations, equity or debt prices, valuations of
comparable instruments, foreign exchange rates and credit
The Firm has established well-structured processes for
determining fair value, including for instruments where fair
value is estimated using significant unobservable inputs
(level 3). For further information on the Firm's valuation
process and a detailed discussion of the determination of fair
value for individual financial instruments, see pages 155-159
of this Note.
(f) Reflects the Firm's adoption of rulebook changes made by two CCPS that require or allow the Firm to treat certain OTC-cleared derivative transactions as daily settled. For
further information, see Note 5.
(e) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally
enforceable master netting agreement exists. For purposes of the tables above, the Firm does not reduce derivative receivables and derivative payables balances for this netting
adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to a presentation based on the transparency of inputs to the valuation of
an asset or liability. The level 3 balances would be reduced if netting were applied, including the netting benefit associated with cash collateral.
(d) Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).
realizable value is below cost), the carrying value of physical commodities approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for
changes in fair value. For a further discussion of the Firm's hedge accounting relationships, see Note 5. To provide consistent fair value disclosure information, all physical
commodities inventories have been included in each period presented.
Notes to consolidated financial statements
161
JPMorgan Chase & Co./2017 Annual Report
(c) Physical commodities inventories are generally accounted for at the lower of cost or net realizable value. "Net realizable value" is a term defined in U.S. GAAP as not exceeding
fair value less costs to sell ("transaction costs"). Transaction costs for the Firm's physical commodities inventories are either not applicable or immaterial to the value of the
inventory. Therefore, net realizable value approximates fair value for the Firm's physical commodities inventories. When fair value hedging has been applied (or when net
(b) At December 31, 2017 and 2016, included within trading loans were $11.4 billion and $16.5 billion, respectively, of residential first-lien mortgages, and $4.2 billion and $3.3
billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell to U.S. government
agencies of $5.7 billion and $11.0 billion, respectively, and reverse mortgages of $836 million and $2.0 billion, respectively.
(a) At December 31, 2017 and 2016, included total U.S. government-sponsored enterprise obligations of $78.0 billion and $80.6 billion, respectively, which were predominantly
mortgage-related.
37,686
207,289
$
(844,008)
$
24,358
(h)
12,850
(h)
120
48
$
(h)
24,836
947,914
(h)
72
(g) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be classified in the fair
value hierarchy. At December 31, 2017 and 2016, the fair values of these investments, which include certain hedge funds, private equity funds, real estate and other funds,
were $779 million and $1.0 billion, respectively. Included in these balances at December 31, 2017 and 2016, were trading assets of $54 million and $52 million, respectively,
and other assets of $725 million and $977 million, respectively.
(h) The prior period amounts have been revised to conform with the current period presentation.
Transfers between levels for instruments carried at
fair value on a recurring basis
For the years ended December 31, 2017 and 2016, there
were no significant transfers between levels 1 and 2.
Level 3 valuations
JPMorgan Chase & Co./2017 Annual Report
162
All transfers are assumed to occur at the beginning of the
quarterly reporting period in which they occur.
During the year ended December 31, 2015, there were no
significant transfers from level 2 to level 3.
$2.4 billion of corporate debt driven by a decrease in
the significance of unobservable inputs and an increase
in observability for certain structured products.
$2.8 billion of trading loans driven by an increase in
observability of certain collateralized financing
transactions.
$2.1 billion of gross equity derivatives for both
receivables and payables as a result of an increase in
observability and a decrease in the significance of
unobservable inputs; partially offset by transfers into
level 3 resulting in net transfers of approximately $1.2
billion for both receivables and payables.
$3.1 billion of long-term debt and $1.0 billion of
deposits driven by an increase in observability on
certain structured notes with embedded interest rate
and FX derivatives and a reduction in the significance of
unobservable inputs for certain structured notes with
embedded equity derivatives.
•
During the year ended December 31, 2015, transfers from
level 3 to level 2 included the following:
$1.0 billion of trading loans driven by a decrease in
observability.
Estimating fair value requires the application of judgment.
The type and level of judgment required is largely dependent
on the amount of observable market information available to
the Firm. For instruments valued using internally developed
valuation models and other valuation techniques that use
significant unobservable inputs and are therefore classified
within level 3 of the fair value hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
$1.1 billion of gross equity derivative receivables and
$1.0 billion of gross equity derivative payables as a
result of an decrease in observability and an increase in
the significance of unobservable inputs.
During the year ended December 31, 2016, transfers from
level 2 to level 3 included the following:
$1.4 billion of long-term debt driven by an increase in
observability and a reduction in the significance of
unobservable inputs for certain structured notes.
•
During the year ended December 31, 2016, transfers from
level 3 to level 2 included the following:
$1.7 billion of long-term debt driven by a decrease in
observability and an increase in the significance of
unobservable inputs for certain structured notes.
$1.0 billion of gross equity derivative receivables and
$2.5 billion of gross equity derivative payables as a
result of a decrease in observability and an increase in
the significance of unobservable inputs.
•
•
During the year ended December 31, 2017, transfers from
level 2 to level 3 included the following:
$1.2 billion of gross equity derivative payables as a
result of an increase in observability and a decrease in
the significance of unobservable inputs.
$1.5 billion of trading loans driven by an increase in
observability.
During the year ended December 31, 2017, transfers from
level 3 to level 2 included the following:
•
312
Market comparables
Price
Equity-FX correlation
Equity-IR correlation
85%
0 %
55%
20%
7%
70%
(50)%
IR-FX correlation
Prepayment speed
Equity volatility
Equity correlation
$98
$ 10
Price
Market comparables
(200) Option pricing
(196) Discounted cash flows
(3,409) Option pricing
Net equity derivatives
Net foreign exchange derivatives
2
100%
4%
Loss severity
100%
0%
Conditional default rate
21%
4%
Prepayment speed
(50)%
30%
10 %
40%
8.9x
10.6x
4.7x
EBITDA multiple
Market comparables
971
47%
60%
8%
Yield
55bps
70bps
20%
40bps
(40)%
46%
5 %
Commodity volatility
Commodity correlation
Refer to Note 15
Credit spread
6,030 Discounted cash flows
984 Discounted cash flows
Other assets
MSRS
$68 per barrel
$ 54
Forward commodity price
(674) Option pricing
Net commodity derivatives
70%
1%
Yield
70%
153
30%
30%
Loss severity
2%
2%
Conditional default rate
20%
20%
Prepayment speed
205bps
205bps
Market comparables
204bps
276 Discounted cash flows
Asset-backed securities
$84
$103
4
$
Price
Market comparables
1,242
$82
$111
$ 3
Credit spread
4,958
Price
-
20%
Recovery rate
1,489bps
6bps
Credit spread
75%
40 % -
Credit correlation
30%
0%
70%
60%
$ 2
98%
Interest rate correlation
IR-FX correlation
Prepayment speed
Discounted cash flows
(37) Discounted cash flows
Net credit derivatives
236
38bps
27bps
Interest rate spread
volatility
Option pricing
28
Net interest rate derivatives
$79
$160
(50)%
Corporate debt securities
12,495
22,793
23,076
Non-U.S.government debt securities
1,649
-
1,649
Certificates of deposit, bankers' acceptances and commercial paper
46
9,052
8,403
Obligations of U.S. states and municipalities
24,755
5,201
19,554
U.S. Treasury and government agencies(a)
649
51,565
Corporate debt securities
22,751
Total debt and equity instruments(d)
Other
Physical commodities(c)
Equity securities
Total debt instruments
5,552
302
5,250
Asset-backed securities
33,802
4,837
28,965
Loans(b)
23,327
576
43,964
Derivative receivables:
492
13
$
$
21,506
$
$
Federal funds sold and securities purchased under resale agreements
Securities borrowed
$
Derivative
netting
adjustments
Level 2
Level 1
December 31, 2016 (in millions)
Total fair value
Fair value hierarchy
79,025 $
Level 3
21,506
Trading assets:
Debt instruments:
1,338
17
1,321
1,635
83
1,552
40,991
392
40,586
13
Total mortgage-backed securities
Commercial - nonagency
Residential nonagency
U.S. government agencies(a)
Mortgage-backed securities:
43,459
Interest rate
$
Foreign exchange
(858,538)
5,793
915,138
1,685
6,272
(12,371)
125
18,360
158
4,939
(30,001)
908
34,032
23,271
(210,154)
64,078
870
1,065,134
(858,538)
Credit
Non-U.S.government debt securities
106
Certificates of deposit
29
31,592
Obligations of U.S. states and municipalities
44,072
U.S. Treasury and government agencies(a)
87,551
Total mortgage-backed securities
9,104
1
14,442
64,005
372,078
13,687
231,743
151,795
1,294
97,271
231
281
96,759
6,902
138,754
48,010
Residential nonagency
Commercial nonagency
Mortgage-backed securities:
U.S.government agencies(a)
Available-for-sale securities:
Total trading assets(g)
Total derivative receivables(e)
812
Equity
Commodity
5,341
1,620
193,666
602,747
6,961
28,302
(577,661)
2,501
(28,351)
715
28,256
308,000
7,894
149,996
150,110
761
9,341
10,102
1,389
13,665
2,265
59,274
16,273
53,793
1,082
Technology, Media & Telecommunications
43,344
Healthcare
14,063
1,293
47,968
55,997
29,929
2,191
63,324
84,804
607,138 (h)
1,114
141,816
506,460
37,533
53,247 (h)
553,891
Wholesale-related (b)
Real Estate
139,409
113,648
153
25,608
134,287
105,802
207
28,278
Consumer & Retail
87,679
31,044
55,521
49,445
13,053
2,280
12,621
1,727
26,969
40,367
13,253
1,878
25,236
41,317
Asset Managers
11,480
7,998
695,707
1,113,718
33,201
10,339
10,820
12,042
32,531
Oil & Gas
13,422
12,257
31,620
Industrials
55,272
18,161
1,163
35,948
55,733
17,295
1,658
36,780
Banks & Finance Cos
49,037
25,879
6,816
16,342
48,393
22,714
15,545
364,644
JPMorgan Chase & Co./2017 Annual Report
48,553
572,831
621,384
6
2,506
Equity
17,581
7,106
Commodity
Total structured notes
135
230
$ 47,037 $
6,548
4,468 4,713
8,649 $ 19,112 $ 74,798 $ 37,247 $
31,235
14,831
8,234
5,481
28,546
15
2,365
3,026
38
Total
term debt borrowings Deposits Total
Risk exposure
Interest rate
$ 22,056 $
Credit
4,329
69 $ 8,058
1,312
30,183
5,641
$ 16,296 $
184 $ 4,296 $ 20,776
3,267
225
3,492
Foreign exchange
2,841
147
488
37
1,811
2,336
Credit
exposure
Loans
Derivatives
Off-balance
sheet(g)
$ 421,234 $ 372,681 $
$ 48,553
$ 417,891 $ 364,644 $
$
53,247 (h)
133
421,367
372,681
722,342
149,511
1,143,709
522,192
120
Off-balance
sheet(g)
418,011
2016
On-balance sheet
Credit
exposure(f) Loans
8,815 $ 11,594 $ 57,656
Note 4 - Credit risk concentrations
Concentrations of credit risk arise when a number of clients,
counterparties or customers are engaged in similar
business activities or activities in the same geographic
region, or when they have similar economic features that
would cause their ability to meet contractual obligations to
be similarly affected by changes in economic conditions.
JPMorgan Chase regularly monitors various segments of its
credit portfolios to assess potential credit risk
concentrations and to obtain additional collateral when
deemed necessary and permitted under the Firm's
agreements. Senior management is significantly involved in
the credit approval and review process, and risk levels are
adjusted as needed to reflect the Firm's risk appetite.
In the Firm's consumer portfolio, concentrations are
evaluated primarily by product and by U.S. geographic
region, with a key focus on trends and concentrations at the
portfolio level, where potential credit risk concentrations
can be remedied through changes in underwriting policies
and portfolio guidelines. In the wholesale portfolio, credit
risk concentrations are evaluated primarily by industry and
monitored regularly on both an aggregate portfolio level
and on an individual client or counterparty basis. The Firm's
wholesale exposure is managed through loan syndications
and participations, loan sales, securitizations, credit
derivatives, master netting agreements, collateral and other
risk-reduction techniques. For additional information on
loans, see Note 12.
The Firm does not believe that its exposure to any
particular loan product (e.g., option ARMS), or industry
segment (e.g., real estate), or its exposure to residential
real estate loans with high LTV ratios, results in a significant
concentration of credit risk.
Terms of loan products and collateral coverage are included
in the Firm's assessment when extending credit and
establishing its allowance for loan losses.
Utilities
177
Notes to consolidated financial statements
The table below presents both on-balance sheet and off-balance sheet consumer and wholesale-related credit exposure by the
Firm's three credit portfolio segments as of December 31, 2017 and 2016.
In 2017 the Firm revised its methodology for the assignment of industry classifications, to better monitor and manage
concentrations. This largely resulted in the re-assignment of holding companies from Other to the industry of risk category
based on the primary business activity of the holding company's underlying entities. In the tables and industry discussions
below, the prior period amounts have been revised to conform with the current period presentation.
December 31, (in millions)
Consumer, excluding credit card
Receivables from customers(a)
Total Consumer, excluding credit card
Credit Card
Total consumer-related
2017
On-balance sheet
Derivatives
29,317
15,797
2,084
5,607
5,607
4,515
4,515
Total wholesale-related
Receivables from customers and other(a)
Total exposure (e)(f)
Loans held-for-sale and loans at fair value
26,139
861,265
408,505
56,523
370,098
837,837
388,305
64,078
17,440
368,014
64,078
383,790
1,913
1,239
All other(d)
147,900
113,699
3,963
30,238
137,238
105,135
3,548
28,555
Subtotal
829,519
402,898
56,523
370,098
815,882
368,014
1,059
$2,004,974 $ 930,697 $ 56,523 $ 991,482 $1,951,555 $ 894,765 $ 64,078 $ 975,152 (h)
(b) The industry rankings presented in the table as of December 31, 2016, are based on the industry rankings of the corresponding exposures at December 31, 2017,
not actual rankings of such exposures at December 31, 2016.
Accounting for derivatives
All free-standing derivatives that the Firm executes for its
own account are required to be recorded on the
Consolidated balance sheets at fair value.
As permitted under U.S. GAAP, the Firm nets derivative
assets and liabilities, and the related cash collateral
receivables and payables, when a legally enforceable
master netting agreement exists between the Firm and the
derivative counterparty. For further discussion of the
offsetting of assets and liabilities, see Note 1. The
accounting for changes in value of a derivative depends on
whether or not the transaction has been designated and
qualifies for hedge accounting. Derivatives that are not
designated as hedges are reported and measured at fair
value through earnings. The tabular disclosures on pages
183-189 of this Note provide additional information on the
amount of, and reporting for, derivative assets, liabilities,
gains and losses. For further discussion of derivatives
embedded in structured notes, see Notes 2 and 3.
JPMorgan Chase & Co./2017 Annual Report
179
Notes to consolidated financial statements
Derivatives designated as hedges
The Firm provides clearing services for clients in which the
Firm acts as a clearing member at certain derivative
exchanges and clearing houses. The Firm does not reflect
the clients' derivative contracts in its Consolidated Financial
Statements. For further information on the Firm's clearing
services, see Note 27.
The Firm applies hedge accounting to certain derivatives
executed for risk management purposes - generally interest
rate, foreign exchange and commodity derivatives.
However, JPMorgan Chase does not seek to apply hedge
accounting to all of the derivatives involved in the Firm's
risk management activities. For example, the Firm does not
apply hedge accounting to purchased CDS used to manage
the credit risk of loans and lending-related commitments,
because of the difficulties in qualifying such contracts as
hedges. For the same reason, the Firm does not apply
hedge accounting to certain interest rate, foreign exchange,
and commodity derivatives used for risk management
purposes.
There are three types of hedge accounting designations: fair
value hedges, cash flow hedges and net investment hedges.
JPMorgan Chase uses fair value hedges primarily to hedge
fixed-rate long-term debt, AFS securities and certain
commodities inventories. For qualifying fair value hedges,
the changes in the fair value of the derivative, and in the
value of the hedged item for the risk being hedged, are
recognized in earnings. If the hedge relationship is
terminated, then the adjustment to the hedged item
continues to be reported as part of the basis of the hedged
item, and for benchmark interest rate hedges, is amortized
to earnings as a yield adjustment. Derivative amounts
affecting earnings are recognized consistent with the
classification of the hedged item - primarily net interest
income and principal transactions revenue.
-
JPMorgan Chase uses cash flow hedges primarily to hedge
the exposure to variability in forecasted cash flows from
floating-rate assets and liabilities and foreign currency-
denominated revenue and expense. For qualifying cash flow
hedges, the effective portion of the change in the fair value
of the derivative is recorded in OCI and recognized in the
Consolidated statements of income when the hedged cash
flows affect earnings. Derivative amounts affecting earnings
are recognized consistent with the classification of the
hedged item primarily interest income, interest expense,
noninterest revenue and compensation expense. The
ineffective portions of cash flow hedges are immediately
recognized in earnings. If the hedge relationship is
terminated, then the value of the derivative recorded in
AOCI is recognized in earnings when the cash flows that
were hedged affect earnings. For hedge relationships that
are discontinued because a forecasted transaction is not
expected to occur according to the original hedge forecast,
any related derivative values recorded in AOCI are
immediately recognized in earnings.
JPMorgan Chase uses net investment hedges to protect the
value of the Firm's net investments in certain non-U.S.
subsidiaries or branches whose functional currencies are
not the U.S. dollar. For foreign currency qualifying net
investment hedges, changes in the fair value of the
derivatives are recorded in the translation adjustments
account within AOCI.
180
JPMorgan Chase & Co./2017 Annual Report
(1) (c)
To qualify for hedge accounting, a derivative must be highly
effective at reducing the risk associated with the exposure
being hedged. In addition, for a derivative to be designated
as a hedge, the risk management objective and strategy
must be documented. Hedge documentation must identify
the derivative hedging instrument, the asset or liability or
forecasted transaction and type of risk to be hedged, and
how the effectiveness of the derivative is assessed
prospectively and retrospectively. To assess effectiveness,
the Firm uses statistical methods such as regression
analysis, as well as nonstatistical methods including dollar-
value comparisons of the change in the fair value of the
derivative to the change in the fair value or cash flows of
the hedged item. The extent to which a derivative has been,
and is expected to continue to be, effective at offsetting
changes in the fair value or cash flows of the hedged item
must be assessed and documented at least quarterly. Any
hedge ineffectiveness (i.e., the amount by which the gain or
loss on the designated derivative instrument does not
exactly offset the change in the hedged item attributable to
the hedged risk) must be reported in current-period
earnings. If it is determined that a derivative is not highly
effective at hedging the designated exposure, hedge
accounting is discontinued.
Derivative clearing services
Derivative counterparties and settlement types
The Firm enters into OTC derivatives, which are negotiated
and settled bilaterally with the derivative counterparty. The
Firm also enters into, as principal, certain ETD such as
futures and options, and OTC-cleared derivative contracts
with CCPS. ETD contracts are generally standardized
contracts traded on an exchange and cleared by the CCP,
which is the Firm's counterparty from the inception of the
transactions. OTC-cleared derivatives are traded on a
bilateral basis and then novated to the CCP for clearing.
For more information about risk management derivatives,
see the risk management derivatives gains and losses table
on page 189 of this Note, and the hedge accounting gains
and losses tables on pages 187-189 of this Note.
(c) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2017 and 2016, noted above, the Firm held:
$9.8 billion and $9.1 billion, respectively, of trading securities; $32.3 billion and $31.6 billion, respectively, of AFS securities; and $14.4 billion and $14.5 billion,
respectively, of HTM securities, issued by U.S. state and municipal governments. For further information, see Note 2 and Note 10.
(d) All other includes: individuals; SPES; and private education and civic organizations. For more information on exposures to SPES, see Note 14.
(e) Excludes cash placed with banks of $421.0 billion and $380.2 billion, at December 31, 2017 and 2016, respectively, which is predominantly placed with various
central banks, primarily Federal Reserve Banks.
(f) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against derivative
receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(g) Represents lending-related financial instruments.
(h) The prior period amounts have been revised to conform with the current period presentation.
178
JPMorgan Chase & Co./2017 Annual Report
Note 5 - Derivative instruments
Derivative contracts derive their value from underlying
asset prices, indices, reference rates, other inputs or a
combination of these factors and may expose
counterparties to risks and rewards of an underlying asset
or liability without having to initially invest in, own or
exchange the asset or liability. JPMorgan Chase makes
markets in derivatives for clients and also uses derivatives
to hedge or manage its own risk exposures. Predominantly
all of the Firm's derivatives are entered into for market-
making or risk management purposes.
Market-making derivatives
The majority of the Firm's derivatives are entered into for
market-making purposes. Clients use derivatives to mitigate
or modify interest rate, credit, foreign exchange, equity and
commodity risks. The Firm actively manages the risks from
its exposure to these derivatives by entering into other
derivative transactions or by purchasing or selling other
financial instruments that partially or fully offset the
exposure from client derivatives.
Risk management derivatives
The Firm manages certain market and credit risk exposures
using derivative instruments, including derivatives in hedge
accounting relationships and other derivatives that are used
to manage risks associated with specified assets and
liabilities.
Interest rate contracts are used to minimize fluctuations in
earnings that are caused by changes in interest rates. Fixed-
rate assets and liabilities appreciate or depreciate in market
value as interest rates change. Similarly, interest income
and expense increases or decreases as a result of variable-
rate assets and liabilities resetting to current market rates,
and as a result of the repayment and subsequent
origination or issuance of fixed-rate assets and liabilities at
current market rates. Gains or losses on the derivative
instruments that are related to such assets and liabilities
are expected to substantially offset this variability in
earnings. The Firm generally uses interest rate swaps,
forwards and futures to manage the impact of interest rate
fluctuations on earnings.
Foreign currency forward contracts are used to manage the
foreign exchange risk associated with certain foreign
currency-denominated (i.e., non-U.S. dollar) assets and
liabilities and forecasted transactions, as well as the Firm's
net investments in certain non-U.S. subsidiaries or branches
whose functional currencies are not the U.S. dollar. As a
result of fluctuations in foreign currencies, the U.S. dollar-
equivalent values of the foreign currency-denominated
assets and liabilities or the forecasted revenues or expenses
increase or decrease. Gains or losses on the derivative
instruments related to these foreign currency-denominated
assets or liabilities, or forecasted transactions, are expected
to substantially offset this variability.
Commodities contracts are used to manage the price risk of
certain commodities inventories. Gains or losses on these
derivative instruments are expected to substantially offset
the depreciation or appreciation of the related inventory.
Credit derivatives are used to manage the counterparty
credit risk associated with loans and lending-related
commitments. Credit derivatives compensate the purchaser
when the entity referenced in the contract experiences a
credit event, such as bankruptcy or a failure to pay an
obligation when due. Credit derivatives primarily consist of
CDS. For a further discussion of credit derivatives, see the
discussion in the Credit derivatives section on pages 189-
191 of this Note.
(a) Receivables from customers primarily represent held-for-investment margin loans to brokerage customers (Prime Services in CIB, AWM and CCB) that are
collateralized through assets maintained in the clients' brokerage accounts, as such no allowance is held against these receivables. These receivables are reported
within accrued interest and accounts receivable on the Firm's Consolidated balance sheets.
6,187
4,211
1,692
14,235
2,209
Chemicals & Plastics
15,945
5,654
208
10,083
3,964
15,043
271
9,480
Transportation
6,733
977
8,087
19,096
5,292
20,408
1,870
13,937
21,046
29,672
7,208
888
21,576
State & Municipal Govt(c)
28,633
12,134
2,888
13,611
28,263
12,416
2,096
13,751
Central Govt
19,182
3,375
8,996
1,469
751
Automotive
9,874
13,510
1,119
3,382
9,009
Financial Markets Infrastructure
5,036
2,804
3,499
8,732
347
3,884
4,501
Securities Firms
4,113
952
1,186
1,411
14,089
Insurance
14,820
4,903
342
9,575
16,736
4,964
1,196
10,576
Metals & Mining
14,171
4,728
702
8,741
13,419
4,350
439
8,630
9,349
351
119
CVA represents the adjustment, relative to the relevant
benchmark interest rate, necessary to reflect counterparty
nonperformance risk. The Firm estimates CVA using a
scenario analysis to estimate the expected positive credit
exposure across all of the Firm's existing positions with each
counterparty, and then estimates losses based on the
probability of default and estimated recovery rate as a
result of a counterparty credit event considering
contractual factors designed to mitigate the Firm's credit
exposure, such as collateral and legal rights of offset. The
key inputs to this methodology are (i) the probability of a
default event occurring for each counterparty, as derived
from observed or estimated CDS spreads; and (ii) estimated
recovery rates implied by CDS spreads, adjusted to consider
the differences in recovery rates as a derivative creditor
relative to those reflected in CDS spreads, which generally
reflect senior unsecured creditor risk.
35,477
(1,567)
(31)
(4,485) $
36,590
2,508
40,469 $
$
44,954
$
2,539
Total loans
Loans
38,157
Loans reported as trading assets
All other performing loans
(2,590)
748
3,338
748 $ (2,590)
$
(under)
contractual
principal
Fair value outstanding
Nonaccrual loans
Loans reported as trading assets
$
2,259
41,074
4,219
Loans
39
Subtotal
4,258
1,371
1,371 $ (2,848) $ 3,338
(39)
(2,887)
$
Contractual
principal
outstanding
$
(2,423)
(31)
$
ΝΑ
Total long-term beneficial interests
Nonprincipal-protected debt
Long-term beneficial interests
ΝΑ
37,686
$
ΝΑ
ΝΑ
47,519
$
ΝΑ
Total long-term debt
ΝΑ
18,491
ΝΑ
Long-term debt
Principal-protected debt
$
26,297 (c) $
23,848 $
(2,449) $
33,054
2,228
36,030 $
21,602 (c)
19,195 $
(2,407)
Nonprincipal-protected debt (b)
ΝΑ
23,671
ΝΑ
$
45
over/
2016
6
6
(1)
(1)
Trading liabilities
1,996
(236)
(236)
(747)
(747)
Short-term borrowings (a)
8
19
19
11
11
repurchase agreements
20
62
82
79
78
Deposits(a)
(20)
(533)
(134)
(134)
93
93
Federal funds purchased and
securities loaned or sold under
(533)
Fair value
| | |
consolidated VIES
Fair value
over/
(under)
contractual
principal
outstanding
Fair value
Contractual
principal
outstanding
2017
Loans (a)
December 31, (in millions)
Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal
balance outstanding as of December 31, 2017 and 2016, for loans, long-term debt and long-term beneficial interests for
which the fair value option has been elected.
Notes to consolidated financial statements
175
JPMorgan Chase & Co./2017 Annual Report
Long-term debt: Changes in value attributable to
instrument-specific credit risk were derived principally
from observable changes in the Firm's credit spread.
Resale and repurchase agreements, securities borrowed
agreements and securities lending agreements:
Generally, for these types of agreements, there is a
requirement that collateral be maintained with a market
value equal to or in excess of the principal amount
loaned; as a result, there would be no adjustment or an
immaterial adjustment for instrument-specific credit risk
related to these agreements.
Loans and lending-related commitments: For floating-
rate instruments, all changes in value are attributed to
instrument-specific credit risk. For fixed-rate
instruments, an allocation of the changes in value for the
period is made between those changes in value that are
interest rate-related and changes in value that are
credit-related. Allocations are generally based on an
analysis of borrower-specific credit spread and recovery
information, where available, or benchmarking to similar
entities or industries.
•
The following describes how the gains and losses that are
attributable to changes in instrument-specific credit risk,
were determined.
Determination of instrument-specific credit risk for items
for which a fair value election was made
(b) Long-term debt measured at fair value predominantly relates to structured notes. Although the risk associated with the structured notes is actively managed, the
gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such risk.
(c) Reported in mortgage fees and related income.
(d) Reported in other income.
(a) Unrealized gains/(losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected is recorded in OCI, while realized
gains/(losses) are recorded in principal transactions revenue. DVA for 2015 was included in principal transactions revenue, and includes the impact of the Firm's
own credit quality on the inception value of liabilities as well as the impact of changes in the Firm's own credit quality subsequent to issuance. See Notes 2 and 23 for
further information. Realized gains/(losses) due to instrument-specific credit risk recorded in principal transaction revenue were not material for the years ended
December 31, 2017 and 2016.
23
23
49
Long-term debt(a)(b)
(2,022)
(2,022)
Beneficial interests issued by
(773)
1,388
8
1,996
(20)
49
1,388
(773)
(44)
NA
$
262.0
(a) Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal, contractual
interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and primary origination or
secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The difference between the estimated fair
value and carrying value of a financial asset or liability is the result of the different methodologies used to determine fair value as compared with carrying value. For
example, credit losses are estimated for a financial asset's remaining life in a fair value calculation but are estimated for a loss emergence period in the allowance for
loan loss calculation; future loan income (interest and fees) is incorporated in a fair value calculation but is generally not considered in the allowance for loan losses.
For a further discussion of the Firm's methodologies for estimating the fair value of loans and lending-related commitments, see Valuation hierarchy on pages 156-
159.
(b) For the year ended December 31, 2017, the Firm transferred certain residential mortgage loans from Level 3 to Level 2 as a result of an increase in observability.
The majority of the Firm's lending-related commitments are not carried at fair value on a recurring basis on the Consolidated
balance sheets. The carrying value of the wholesale allowance for lending-related commitments and the estimated fair value of
these wholesale lending-related commitments were as follows for the periods indicated.
December 31, 2017
Estimated fair value hierarchy
December 31, 2016
Estimated fair value hierarchy
(in billions)
Carrying
value(a)
Level 1
Level 2
Level 3
Total
estimated
fair value
Carrying
value(a)
Level 1
Level 2
Level 3
Total
estimated
fair value
Wholesale lending-
related commitments $ 1.1 $ - $ - $ 1.6 $
The Firm's election of fair value includes the following
instruments:
•
The Firm has elected to measure certain instruments at fair
value for several reasons including to mitigate income
statement volatility caused by the differences between the
measurement basis of elected instruments (e.g., certain
instruments elected were previously accounted for on an
accrual basis) and the associated risk management
arrangements that are accounted for on a fair value basis,
as well as to better reflect those instruments that are
managed on a fair value basis.
The fair value option provides an option to elect fair value
as an alternative measurement for selected financial assets,
financial liabilities, unrecognized firm commitments, and
written loan commitments.
Note 3 - Fair value option
Notes to consolidated financial statements
2.0
173
The Firm does not estimate the fair value of consumer lending-related commitments. In many cases, the Firm can reduce or
cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without notice. For a further
discussion of the valuation of lending-related commitments, see page 157 of this Note.
(a) Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which is recognized at fair value at the inception of the
guarantees.
2.1
1.1 $-$$ 2.1 $ 2
$
1.6
JPMorgan Chase & Co./2017 Annual Report
•
260.0
243.5
42.4
Credit and funding adjustments - derivatives
Derivatives are generally valued using models that use as
their basis observable market parameters. These market
parameters generally do not consider factors such as
counterparty nonperformance risk, the Firm's own credit
quality, and funding costs. Therefore, it is generally
necessary to make adjustments to the base estimate of fair
value to reflect these factors.
0.2
42.6
25.3
25.3
165.0
25.3
Accounts payable and other
liabilities
152.0
148.9
2.9
151.8
148.0
144.8
3.4
148.2
3.2
240.3
236.6
interest debentures
subordinated deferrable
Long-term debt and junior
257.5
38.9
38.9
26.0
26.0
26.0
consolidated VIES
Beneficial interests issued by
38.9
ΝΑ
Loans purchased or originated as part of securitization
warehousing activity, subject to bifurcation accounting,
or managed on a fair value basis, including lending-
related commitments
Owned beneficial interests in securitized financial assets
that contain embedded credit derivatives, which would
otherwise be required to be separately accounted for as
a derivative instrument
(6)
Trading assets:
Debt and equity instruments,
excluding loans
1,943
2 (c)
1,945
120
Short-term
Long-
Short-term
debt borrowings Deposits
(in millions)
Long-term
December 31, 2016
December 31, 2017
The following table presents the fair value of the structured notes issued by the Firm, by balance sheet classification and the
primary risk type.
Structured note products by balance sheet classification and risk component
120
ΝΑ
ΝΑ
$
45
ΝΑ
(6)
ΝΑ
120
ΝΑ
(a) There were no performing loans that were ninety days or more past due as of December 31, 2017 and 2016.
(b) Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is
obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return a
stated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in the
note. However, investors are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal protected notes.
(c) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if
applicable, the contractual principal payment at the Firm's next call date.
At December 31, 2017 and 2016, the contractual amount of lending-related commitments for which the fair value option was
elected was $7.4 billion and $4.6 billion respectively, with a corresponding fair value of $(76) million and $(118) million,
respectively. For further information regarding off-balance sheet lending-related financial instruments, see Note 27.
176
JPMorgan Chase & Co./2017 Annual Report
$
Certain securities financing arrangements with an
embedded derivative and/or a maturity of greater than
one year
1
(38) $
Structured notes, which are predominantly financial
instruments that contain embedded derivatives, that are
issued as part of CIB's client-driven activities
Certain long-term beneficial interests issued by CIB's
consolidated securitization trusts where the underlying
assets are carried at fair value
174
JPMorgan Chase & Co./2017 Annual Report
Changes in fair value under the fair value option election
The following table presents the changes in fair value included in the Consolidated statements of income for the years ended
December 31, 2017, 2016 and 2015, for items for which the fair value option was elected. The profit and loss information
presented below only includes the financial instruments that were elected to be measured at fair value; related risk
management instruments, which are required to be measured at fair value, are not included in the table.
2017
December 31, (in millions)
Principal
transactions
All other
income
2016
2015
Total
changes
in fair
value
recorded transactions
Total
changes
in fair
Principal
All other
income
value
recorded transactions
Principal
(76) $
$
(76) $
1
50
(97) $
$
(38)
(97) $
50
$
agreements
purchased under resale
Federal funds sold and securities
Total
changes
in fair
value
recorded
All other
income
Securities borrowed
(d)
(5,044)
(55) (d)
$
$
25.8 $
25.8 $
$
Cash and due from banks
Financial assets
fair value
Level 3
Level 2
Level 1
Total
estimated
Carrying
value
Total
estimated
fair value
Level 3
Level 2
Level 1
(8)
$ (308) $ (172) $ (294)
For further information about the measurement of impaired
collateral-dependent loans, and other loans where the
carrying value is based on the fair value of the underlying
collateral (e.g., residential mortgage loans charged off in
accordance with regulatory guidance), see Note 12.
Additional disclosures about the fair value of financial
instruments that are not carried on the Consolidated
balance sheets at fair value
U.S. GAAP requires disclosure of the estimated fair value of
certain financial instruments, and the methods and
significant assumptions used to estimate their fair value.
Financial instruments within the scope of these disclosure
requirements are included in the following table. However,
certain financial instruments and all nonfinancial
instruments are excluded from the scope of these disclosure
requirements. Accordingly, the fair value disclosures
provided in the following table include only a partial
estimate of the fair value of JPMorgan Chase's assets and
liabilities. For example, the Firm has developed long-term
relationships with its customers through its deposit base
and credit card accounts, commonly referred to as core
deposit intangibles and credit card relationships. In the
opinion of management, these items, in the aggregate, add
significant value to JPMorgan Chase, but their fair value is
not disclosed in this Note.
Financial instruments for which carrying value approximates
fair value
25.8
Certain financial instruments that are not carried at fair
value on the Consolidated balance sheets are carried at
amounts that approximate fair value, due to their short-
term nature and generally negligible credit risk. These
instruments include cash and due from banks, deposits with
banks, federal funds sold, securities purchased under resale
agreements and securities borrowed, short-term
receivables and accrued interest receivable, short-term
borrowings, federal funds purchased, securities loaned and
sold under repurchase agreements, accounts payable, and
accrued liabilities. In addition, U.S. GAAP requires that the
fair value of deposit liabilities with no stated maturity (i.e.,
demand, savings and certain money market deposits) be
equal to their carrying value; recognition of the inherent
funding value of these instruments is not permitted.
JPMorgan Chase & Co./2017 Annual Report
The following table presents by fair value hierarchy classification the carrying values and estimated fair values at
December 31, 2017 and 2016, of financial assets and liabilities, excluding financial instruments that are carried at fair value
on a recurring basis, and their classification within the fair value hierarchy. For additional information regarding the financial
instruments within the scope of this disclosure, and the methods and significant assumptions used to estimate their fair value,
see pages 156-159 of this Note.
(in billions)
December 31, 2017
Estimated fair value hierarchy
December 31, 2016
Estimated fair value hierarchy
Carrying
value
172
$ (159) $ (209) $ (226)
(148)
37
(60)
(1)
$
23.9 $
Securities borrowed
208.5
0.2
208.3
208.5
183.7
183.7
183.7
resale agreements
securities purchased under
Federal funds sold and
52.3
0.1
52.2
52.3
67.0
67.0
$
$
23.9
Deposits with banks
404.3
401.8
23.9 $
2.5
365.8
362.0
3.8
365.8
Accrued interest and accounts
receivable
67.0
404.3
102.1
2015
2017
183
- 283
834
596 (a)
$
238
Total fair
value
Level 3
Level 2
Level 1
Other assets
Loans
December 31, 2017 (in millions)
Fair value hierarchy
The following tables present the assets reported on a nonrecurring basis at fair value as of December 31, 2017 and 2016, by
major product category and fair value hierarchy.
Assets and liabilities measured at fair value on a nonrecurring basis
Notes to consolidated financial statements
FVA represents the adjustment to reflect the impact of
funding and is recognized where there is evidence that a
market participant in the principal market would
incorporate it in a transfer of the instrument. The Firm's
FVA framework, applied to uncollateralized (including
partially collateralized) over-the-counter ("OTC")
derivatives incorporates key inputs such as: (i) the expected
funding requirements arising from the Firm's positions with
each counterparty and collateral arrangements; and (ii) the
estimated market funding cost in the principal market
which, for derivative liabilities, considers the Firm's credit
risk (DVA). For collateralized derivatives, the fair value is
estimated by discounting expected future cash flows at the
relevant overnight indexed swap rate given the underlying
collateral agreement with the counterparty, and therefore a
separate FVA is not necessary.
The following table provides the impact of credit and
funding adjustments on principal transactions revenue in
the respective periods, excluding the effect of any
associated hedging activities. The FVA reported below
include the impact of the Firm's own credit quality on the
inception value of liabilities as well as the impact of changes
in the Firm's own credit quality over time.
Year ended December 31,
(in millions)
Credit and funding adjustments:
Derivatives CVA
Derivatives FVA
(d)
2017
2015
$ 802 $ (84) $ 620
(295)
7
73
Valuation adjustments on fair value option elected
liabilities
The valuation of the Firm's liabilities for which the fair value
option has been elected requires consideration of the Firm's
own credit risk. DVA on fair value option elected liabilities
reflects changes (subsequent to the issuance of the liability)
in the Firm's probability of default and LGD, which are
estimated based on changes in the Firm's credit spread
observed in the bond market. Effective January 1, 2016,
the effect of DVA on fair value option elected liabilities is
recognized in OCI. See Note 23 for further information.
JPMorgan Chase & Co./2017 Annual Report
171
2016
2016
Total assets measured at fair value on a nonrecurring basis
$
Accounts payable and other liabilities
Total nonrecurring fair value gains/
(losses)
Other Assets
December 31, (in millions)
Loans
The following table presents the total change in value of
assets and liabilities for which a fair value adjustment has
been recognized for the years ended December 31, 2017
2016 and 2015, related to financial instruments held at
those dates.
Nonrecurring fair value changes
There were no material liabilities measured at fair value on a nonrecurring basis at December 31, 2017 and 2016.
(a) of the $779 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2017, $442 million related to residential real estate loans carried at the
net realizable value of the underlying collateral (e.g., collateral-dependent loans and other loans charged off in accordance with regulatory guidance). These amounts are
classified as level 3 as they are valued using a broker's price opinion and discounted based upon the Firm's experience with actual liquidation values. These discounts to the
broker price opinions ranged from 13% to 48% with a weighted average of 27%.
$ - $ 735 $
1,557
$
822
Total assets measured at fair value on a nonrecurring basis
237
232
5
1,320
$
521
$
779 (a)
1,300
Fair value hierarchy
Total fair
$
December 31, 2016 (in millions)
Other assets
Level 1
Level 2
$ - $ 730 $
Level 3
590
value
Loans
102.1
466
96.4
$ 1,422.7 $
-
$ 1,422.7 $
Deposits
Financial liabilities
75.2
14.3
60.8
0.1
71.4
69.4
16.5
52.9
62.9
Other
875.1
851.0
747 (c)
964
79
684 (c)
763
232
-
818 (c)
914.6
213.2
707.1
920.3
878.8
24.1
loan losses (a)(b)
217
$ 1,422.7
-
Other assets
102.1
4
4
(7)
|
(7)
(9)
3 (c)
(12)
Other changes in fair value
35
35
13
13
(1)
(1)
$ 1,361.3 $
$ 1,361.3
Federal funds purchased and
securities loaned or sold
under repurchase agreements
Short-term borrowings
42.6
$ 1,361.3 $
158.2
165.0
165.0
1,050
Loans:
Changes in instrument-specific
credit risk
158.2
Other changes in fair value
158.2
41 (c)
Loans, net of allowance for
50.9
50.9
50.2
48.7
48.7
47.7
Securities, held-to-maturity
96.4
11
179
756
(10) (c)
96.4
Loans reported as trading
specific credit risk
330
14 (c)
assets:
344
461
43 (c)
746
Changes in instrument-
138
504
Excluded
components (f)
$
38
$
911
$
174
impact
Derivatives Hedged items
statement
Total income
Income statement impact due to:
Gains/(losses) recorded in income
949 $
$
(3)
$
1,080
59
(9)
50
174
Hedge
ineffectiveness(e)
1,083
24
$
(e) Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on the
hedged item attributable to the hedged risk.
(f) The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward
points on foreign exchange forward contracts and time values.
JPMorgan Chase & Co./2017 Annual Report
187
Notes to consolidated financial statements
Cash flow hedge gains and losses
(d) Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or net realizable value (net
realizable value approximates fair value). Gains and losses were recorded in principal transactions revenue.
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and
the pre-tax gains/(losses) recorded on such derivatives, for the years ended December 31, 2017, 2016 and 2015,
respectively. The Firm includes the gain/(loss) on the hedging derivative and the change in cash flows on the hedged item in
the same line item in the Consolidated statements of income.
Gains/(losses) recorded in income and other comprehensive income/(loss)
Derivatives -
effective portion
reclassified from
AOCI to income
Hedge
ineffectiveness
Derivatives -
effective
recorded directly
in income(c)
Year ended December 31, 2017
(in millions)
(c) Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses
related to the derivatives and the hedged items, due to changes in foreign currency rates, were recorded primarily in principal transactions revenue and
net interest income.
(b) Excludes the amortization expense associated with the inception hedge accounting adjustment applied to the hedged item. This expense is recorded in net
interest income and substantially offsets the income statement impact of the excluded components.
(a) Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate ("LIBOR")) interest rate risk of fixed-rate long-term debt and AFS
securities. Gains and losses were recorded in net interest income.
946
6,030
1,153
$
7,221 $
(6,006)
(1,142)
(6,237) $
850
24
11
(13)
24
984
$
(10)
$
994
3
$
Hedge
ineffectiveness(e)
856
Gains/(losses) recorded in income
Income statement impact due to:
Total income
statement
Total income
statement impact
Derivatives
Hedged items
impact
Hedge
ineffectiveness(e)
Excluded
components(f)
$
(481) $
1,359
$
878 $
(18)
896
3,507
(2)
-
(2)
(1,275)
1,348
73
29
44
(5,265) $
6,214
$
949
Total
6
Commodity (d)
Interest rate (a)(b)
$
1,338
(2,261)
586
(337) $
$
1,417
$
(536)
2,435
(482) $
$
Excluded
components (f)
Income statement impact due to:
impact
Derivatives Hedged items
statement
Total income
Gains/(losses) recorded in income
938
$
11
Commodity (d)
Total
Year ended December 31, 2016 (in millions)
Contract type
Interest rate (a)(b)
Foreign exchange(c)
Commodity(d)
Total
Year ended December 31, 2015 (in millions)
Contract type
Foreign exchange(c)
portion
recorded in OCI
(74)
(286)
Contract type
$
(180)
$
28
(53)
(81)
55
$
(44)
$(379)
$
(99)
$
$
(180)
$
(81)
$
(99)
$
Total change
in OCI
for period
portion
recorded in OCI
Total income
statement impact
in income(c)
AOCI to income
recorded directly
reclassified from
Derivatives -
effective
(97)
effective portion
$
(a) Primarily consists of benchmark interest rate hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in
net interest income.
$262
portion
recorded in OCI
directly in
income(a)
Effective
Excluded
components
recorded
Effective
portion
recorded in OCI
directly in
income (a)
$(282)
$(1,294)
$(172)
recorded
Effective
portion
recorded in OCI
components
components
recorded
directly in
income(a)
Excluded
Excluded
2015
2016
2017
Gains/(losses) recorded in income and other comprehensive income/(loss)
Year ended December 31,
(in millions)
Foreign exchange (c)
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting
relationships, and the pre-tax gains/(losses) recorded on such instruments for the years ended December 31, 2017, 2016 and
2015.
Net investment hedge gains and losses
JPMorgan Chase & Co./2017 Annual Report
188
Over the next 12 months, the Firm expects that approximately $96 million (after-tax) of net gains recorded in AOCI at
December 31, 2017, related to cash flow hedges will be recognized in income. For terminated cash flow hedges, the maximum
length of time over which forecasted transactions are remaining is approximately five years. For open cash flow hedges, the
maximum length of time over which forecasted transactions are hedged is approximately seven years. The Firm's longer-dated
forecasted transactions relate to core lending and borrowing activities.
The Firm did not experience any forecasted transactions that failed to occur for the years ended 2017 and 2016. In 2015, the
Firm reclassified approximately $150 million of net losses from AOCI to other income because the Firm determined that it was
probable that the forecasted interest payment cash flows would not occur as a result of the planned reduction in wholesale
non-operating deposits.
(c) Hedge ineffectiveness is the amount by which the cumulative gain or loss on the designated derivative instrument exceeds the present value of the
cumulative expected change in cash flows on the hedged item attributable to the hedged risk.
(b) Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of gains
and losses follows the hedged item - primarily noninterest revenue and compensation expense.
83
Total change
in OCI
for period
Gains/(losses) recorded in income and other comprehensive income/(loss)
Hedge
ineffectiveness
(134) $
$
252
135
29
$
12
(17) $
(117)
$
$
$ (134)
$
(17)
(117)
$
Total
Foreign exchange (b)
Interest rate (a)
Contract type
(in millions)
Year ended December 31, 2015
Total
Foreign exchange (b)
Interest rate (a)
Contract type
(in millions)
Year ended December 31, 2016
Total
Foreign exchange (b)
Interest rate (a)
147
Derivatives -
$
Hedge
ineffectiveness
(90)
$
(450)
$
(360)
$
(109)
(395)
(286)
19
$
(55)
(74) $
$
$
$ (360)
$
$
Total change
in OCI
for period
recorded in OCI
portion
Total income
statement impact
in income(c)
recorded directly
reclassified from
AOCI to income
Derivatives -
effective
Derivatives -
effective portion
Gains/(losses) recorded in income and other comprehensive income/(loss)
281
Interest rate (a)(b)
40,913
Year ended December 31, 2017 (in millions)
45,395
7,882
40,040
-
40,040
20,066
Commodity
-
Equity
155,822
1,221
154,601
16,151
1,299
23,252
12,473
23,252
45,395
19
Gross derivative payables
Gross derivative receivables
$ 37,777
$ 527,838 $ 2,968 $ 530,806
$ 56,523
$ 559,553
9,192
$ 556,327 $ 3,226
7,684
21,901
403
21,498
6,948
20,085
Total fair value of trading
assets and liabilities
869
$ 7,129
1,344 $284,436
Not
designated
as hedges
Net
derivative
receivables(b)
Total
derivative
receivables
Designated
as hedges
Not
designated
as hedges
December 31, 2017
(in millions)
Designated
as hedges
Gross derivative payables
Free-standing derivative receivables and payables(a)
Gross derivative balances as of December 31, 2017, reflect the Firm's adoption of rulebook changes made by two CCPs, that
require or allow the Firm to treat certain OTC-cleared derivative transactions with that CCP as settled each day. If such rulebook
changes had been in effect as of December 31, 2016, the impact would have been a reduction in gross derivative receivables
and payables of $227.1 billion and $224.7 billion, respectively, and a corresponding decrease in amounts netted, with no
impact to the Consolidated balance sheets.
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that
are reflected on the Firm's Consolidated balance sheets as of December 31, 2017 and 2016, by accounting designation (e.g.,
whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Impact of derivatives on the Consolidated balance sheets
JPMorgan Chase & Co./2017 Annual Report
182
Gross derivative receivables
Total
derivative
payables
Net
derivative
payables(b)
$
$ 283,092
$ 24,673
$ 315,992
23,205
160,231
491
159,740
Foreign exchange
23,205
Credit
2,716
$
$ 313,276
Interest rate
liabilities
Trading assets and
December 31, 2016
(in millions)
Not
designated
as hedges
Designated
as hedges
Total
derivative
receivables
Derivatives netting
Notes to consolidated financial statements
183
JPMorgan Chase & Co./2017 Annual Report
(a) Balances exclude structured notes for which the fair value option has been elected. See Note 3 for further information.
(b) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and
payables when a legally enforceable master netting agreement exists.
$ 49,231
The following tables present, as of December 31, 2017 and 2016, gross and net derivative receivables and payables by
contract and settlement type. Derivative receivables and payables, as well as the related cash collateral from the same
counterparty, have been netted on the Consolidated balance sheets where the Firm has obtained an appropriate legal opinion
with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, amounts are
not eligible for netting on the Consolidated balance sheets, and those derivative receivables and payables are shown separately
in the tables below.
$ 889,028 $ 4,211 $ 893,239
$ 922,616
5,832
$
$ 916,784
assets and liabilities
Total fair value of trading
$ 64,078
In addition to the cash collateral received and transferred that is presented on a net basis with derivative receivables and
payables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate
counterparty credit risk associated with the Firm's derivative instruments, but are not eligible for net presentation:
collateral that consists of non-cash financial instruments (generally U.S. government and agency securities and other G7
government securities) and cash collateral held at third party custodians, which are shown separately as "Collateral not
nettable on the Consolidated balance sheets" in the tables below, up to the fair value exposure amount.
•
the amount of collateral held or transferred that exceeds the fair value exposure at the individual counterparty level, as of
the date presented, which is excluded from the tables below; and
Over-the-counter ("OTC")
Interest rate contracts:
U.S. GAAP nettable derivative receivables
December 31, (in millions)
derivative
receivables
Net
on the
Consolidated
balance sheets
Gross
derivative
receivables
Net
derivative
receivables
2016
Amounts netted
Amounts netted
on the
Consolidated
balance sheets
receivables
Gross
derivative
2017
collateral held or transferred that relates to derivative receivables or payables where an appropriate legal opinion has not
been either sought or obtained with respect to the master netting agreement, which is excluded from the tables below.
8,357
While the notional amounts disclosed above give an
indication of the volume of the Firm's derivatives activity,
the notional amounts significantly exceed, in the Firm's
view, the possible losses that could arise from such
transactions. For most derivative transactions, the notional
amount is not exchanged; it is used simply as a reference to
calculate payments.
20,462
20,283
Equity
Foreign exchange
Credit
$ 4,406
$ 601,557
Interest rate
Commodity
Trading assets and
liabilities
as hedges payables
as hedges
Total
derivative
Designated
Not
designated
Net
derivative
receivables(b)
Net
derivative
payables(b)
29,645
232,137
34,940
18,505
1,289
$ 605,963
29,645
233,426
8,140
38,362
38,362
4,939
6,272
34,940
18,642
137
1,411
20,508
$ 10,815
2,884 $ 570,778
28,666
234,971
1,148
$
$ 567,894
28,666
233,823
23,271
28,302
1,294
$
179
OTC-cleared
contracts, see the Credit derivatives discussion on pages 189-191.
(b) Represents the sum of gross long and gross short third-party notional
derivative contracts.
$ 48,386 $ 47,537
188
• Foreign exchange
• Foreign exchange
Hedge foreign currency-denominated assets and liabilities
Hedge foreign currency-denominated forecasted revenue and
expense
Fair value hedge
Corporate
Corporate
187
Corporate
188
• Foreign exchange
Hedge the value of the Firm's investments in non-U.S. dollar
functional currency entities
Net investment hedge
Corporate
Cash flow hedge
189
Cash flow hedge
187
Notes to consolidated financial statements
JPMorgan Chase & Co./2017 Annual Report
The following table outlines the Firm's primary uses of derivatives and the related hedge accounting designation or disclosure
category.
Affected
Page
Type of Derivative
Hedge floating-rate assets and liabilities
Use of Derivative
Manage specifically identified risk exposures in qualifying hedge accounting relationships:
• Interest rate
• Interest rate
Hedge fixed rate assets and liabilities
Fair value hedge
Corporate
Designation and disclosure segment or unit reference
•
Commodity
Hedge commodity inventory
Specified risk management
Corporate
189
• Various
Various
Market-making and related risk management
Manage the risk of certain other specified assets and liabilities
Other derivatives
CIB
189
CIB, Corporate
189
181
Foreign exchange derivatives
Market-making and other
Market-making and other
189
CIB
189
Fair value hedge
CIB
187
Manage specifically identified risk exposures not designated in qualifying hedge accounting
relationships:
• Interest rate
• Credit
Commodity
• Interest rate and
foreign exchange
Market-making derivatives and other activities:
Manage the risk of the mortgage pipeline, warehouse loans and MSRS Specified risk management
Manage the credit risk of wholesale lending exposures
CCB
189
Manage the risk of certain commodities-related contracts and
investments
Specified risk management
Specified risk management
CIB
Notional amount of derivative contracts
The following table summarizes the notional amount of
derivative contracts outstanding as of December 31, 2017
and 2016.
December 31, (in billions)
Interest rate contracts
1,441
345
453
417
531
59
1,079
90
367
Purchased options
Written options
Futures and forwards
Swaps
Equity contracts
258
Total equity contracts
Commodity contracts
Swaps
Total derivative notional amounts
409
475
Total commodity contracts
94
93
Purchased options
83
98
Written options
130
168
Spot, futures and forwards
102
116
10,155
(a) For more information on volumes and types of credit derivative
11,438
721
3,987
Purchased options
3,091
3,576
Written options
5,289
3,482
4,904
$ 21,043
Futures and forwards
Swaps
2016
2017
Notional amounts (b)
$ 22,000
Total interest rate contracts
33,510
33,862
776
Purchased options
734
786
Written options
5,341
5,923
Spot, futures and forwards
3,359
3,953
Cross-currency swaps
Foreign exchange contracts
2,032
1,522
Credit derivatives (a)
Total foreign exchange contracts
Contract type
Exchange-traded (a)
Credit contracts:
(36,203)
10,004
486
(12,234)
12,720
3,880
4,710
(20,808)
4,224
(23,969)
28,193
Total equity contracts
Exchange-traded (a)
OTC
24,688
Equity contracts:
34,692
590
21,515
Total commodity contracts
(8,709)
8,870
Exchange-traded (a)
7,633
(9,414)
(30,222)
(5,252)
7,137
(5,508)
12,645
OTC
Commodity contracts:
4,470
12,885
319
15,323
(214,463)
(9)
Foreign exchange contracts:
752
(5,641)
(27,255)
752
(21,614)
22,366
5,641
28,007
OTC
1,041
22,995
Total credit contracts
17
(6,784)
1,024
(15,170)
(21,954)
150,966
(141,789)
9,177
15,004
(213,296)
(1,158)
228,300
1,158
328
229,786
9,270
(143,349)
152,619
Total foreign exchange contracts
91
(7)
98
Exchange-traded (a)
2
(1,553)
1,555
OTC-cleared
(14,217)
Derivative payables with appropriate legal opinion
521,133
(493,029) (b)
Amount of additional collateral to be posted upon downgrade (a)
Single-notch Two-notch
downgrade downgrade
Two-notch
downgrade
Single-notch
downgrade
December 31, (in millions)
2016
79 $
2017
The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan
Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, National Association ("JPMorgan Chase Bank, N.A."), at
December 31, 2017 and 2016, related to OTC and OTC-cleared derivative contracts with contingent collateral or termination
features that may be triggered upon a ratings downgrade. Derivatives contracts generally require additional collateral to be
posted or terminations to be triggered when the predefined threshold rating is breached. A downgrade by a single rating
agency that does not result in a rating lower than a preexisting corresponding rating provided by another major rating agency
will generally not result in additional collateral (except in certain instances in which additional initial margin may be required
upon a ratings downgrade), nor in termination payments requirements. The liquidity impact in the table is calculated based
upon a downgrade below the lowest current rating of the rating agencies referred to in the derivative contract.
Aggregate fair value of net derivative payables $ 11,916 $ 21,550
Collateral posted
9,973 19,383
2016
2017
December 31, (in millions)
OTC and OTC-cleared derivative payables containing
downgrade triggers
Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives
Amount required to settle contracts with termination triggers upon downgrade (b)
320
1,989
650
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well
as pre-tax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 2017,
2016 and 2015, respectively. The Firm includes gains/(losses) on the hedging derivative and the related hedged item in the
same line item in the Consolidated statements of income.
Fair value hedge gains and losses
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting
designation or purpose.
Impact of derivatives on the Consolidated statements of income
JPMorgan Chase & Co./2017 Annual Report
186
In certain instances the Firm enters into transactions in which it transfers financial assets but maintains the economic exposure
to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The
Firm generally accounts for such transfers as collateralized financing transactions as described in Note 11, but in limited
circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. There were no such transfers
accounted for as a sale where the associated derivative was outstanding at December 31, 2017, and such transfers at
December 31, 2016 were not material.
Derivatives executed in contemplation of a sale of the underlying financial asset
(b) Amounts represent fair values of derivative payables, and do not reflect collateral posted.
(a) Includes the additional collateral to be posted for initial margin.
1,049
606
2,497
560 $
$
of the contracts moves in the counterparties' favor or upon
specified downgrades in the Firm's and its subsidiaries'
respective credit ratings. Certain derivative contracts also
provide for termination of the contract, generally upon a
downgrade of either the Firm or the counterparty, at the
fair value of the derivative contracts. The following table
shows the aggregate fair value of net derivative payables
related to OTC and OTC-cleared derivatives that contain
contingent collateral or termination features that may be
triggered upon a ratings downgrade, and the associated
collateral the Firm has posted in the normal course of
business, at December 31, 2017 and 2016.
16,194
6,801
Liquidity risk and credit-related contingent features
In addition to the specific market risks introduced by each
derivative contract type, derivatives expose JPMorgan
Chase to credit risk - the risk that derivative counterparties
may fail to meet their payment obligations under the
derivative contracts and the collateral, if any, held by the
Firm proves to be of insufficient value to cover the payment
obligation. It is the policy of JPMorgan Chase to actively
pursue, where possible, the use of legally enforceable
master netting arrangements and collateral agreements to
mitigate derivative counterparty credit risk. The amount of
derivative receivables reported on the Consolidated balance
sheets is the fair value of the derivative contracts after
giving effect to legally enforceable master netting
agreements and cash collateral held by the Firm.
While derivative receivables expose the Firm to credit risk,
derivative payables expose the Firm to liquidity risk, as the
derivative contracts typically require the Firm to post cash
or securities collateral with counterparties as the fair value
185
11,608
11,608
9,673
9,673
Derivative payables where an appropriate legal
opinion has not been either sought or obtained
37,623
Total derivative payables recognized on the
(844,008) (b)
(12,105)
19,984
881,631
246
(6,853)
7,099
161
7,298
28,104
7,879
Consolidated balance sheets
$
530,806
JPMorgan Chase & Co./2017 Annual Report
(d) Derivative collateral relates only to OTC and OTC-cleared derivative instruments.
(c) Represents liquid security collateral as well as cash collateral held at third-party custodians related to derivative instruments where an appropriate legal
opinion has been obtained. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative
payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with
that counterparty.
(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b) Net derivatives receivable included cash collateral netted of $55.5 billion and $71.9 billion at December 31, 2017 and 2016, respectively. Net derivatives
payable included cash collateral netted of $45.5 billion and $57.3 billion related to OTC and OTC-cleared derivatives at December 31, 2017 and 2016,
respectively.
$ 40,306
33,597
$
Net amounts
(8,925)
(4,180)
Collateral not nettable on the Consolidated balance
sheets(c)(d)
49,231
$
37,777 $ 893,239
$
Notes to consolidated financial statements
Total interest rate contracts
9,199
(175)
(559,963)
Total equity contracts
Exchange-traded (a)
OTC
Equity contracts:
17,459
77
22,024
14,188
36,212
73
(208,962)
(1,165)
(27)
(210,154)
227,613
13,045
226,271
1,238
104
42
134
12,869
17,309
(142,420)
(1,654)
(7)
(144,081)
(19,917)
(12,241)
(32,158)
1,947
Derivative receivables with appropriate legal
opinion
Total commodity contracts
Exchange-traded (a)
OTC
Commodity contracts:
2,306
2,107
(30,001)
4,054
2,008
(9,431)
298
(20,570)
20,868
11,439
32,307
157,126
Total foreign exchange contracts
1,696
141
(235,261)
(227)
(577,661)
$
$ (342,173)
$ 365,227
235,399
241
600,867
20,966
213
101
23,054
138
14
(84)
(291,319)
(6,318)
6,531
185
$ 20,652
$ 305,569 $ (284,917)
OTC-cleared
OTC
312,285
23,206
15,390
7,225
Total credit contracts
Exchange-traded (a)
OTC-cleared
155,289
OTC
Foreign exchange contracts:
525
7
518
(22,612)
(5,739)
(28,351)
23,130
5,746
28,876
280
55
225
(15,165)
(7,170)
(22,335)
22,615
Derivative receivables where an appropriate legal
opinion has not been either sought or obtained
Total derivative receivables recognized on the
Consolidated balance sheets
Collateral not nettable on the Consolidated balance
sheets(c)(d)
Net amounts
payables
Net
derivative
on the
Consolidated
Gross
derivative
2016
Amounts netted
Amounts netted
balance sheets
2017
OTC
Credit contracts:
Total interest rate contracts
Exchange-traded(a)
OTC-cleared
OTC
OTC-cleared
payables
Gross
derivative
payables
on the
Consolidated
balance sheets
569,162
5,785
196
43
1
(230,463)
9,177
$
$ (329,325)
$ 5,666 $ 338,502
230,464
76
276,960 $ (271,294)
6,004
(5,928)
127
(84)
(277,306)
283,091
$
Net
derivative
payables
Interest rate contracts:
21
U.S. GAAP nettable derivative payables
JPMorgan Chase & Co./2017 Annual Report
5,994
(12,371)
28
(6,766)
6,794
18,365
153
6,620
547,995
(8,701)
(13,137)
(5,605)
11,571
6,467
(4,436)
10,903
8,854
19,757
184
5,966
(503,030) (b)
44,965
908,028
45,440
$
$ 43,160
(18,638)
(13,363)
64,078
$
$ 56,523 $ 922,616
$ 559,553
14,588
14,588
11,558
11,558
49,490
(858,538) (b)
December 31, (in millions)
$1,885
(3,509)
Gains and losses on derivatives used for specified risk
management purposes
936
(12)
(a) Primarily represents interest rate derivatives used to hedge the
interest rate risk inherent in the mortgage pipeline, warehouse loans
and MSRS, as well as written commitments to originate warehouse
loans. Gains and losses were recorded predominantly in mortgage fees
and related income.
(b) Relates to credit derivatives used to mitigate credit risk associated
with lending exposures in the Firm's wholesale businesses. These
derivatives do not include credit derivatives used to mitigate
counterparty credit risk arising from derivative receivables, which is
included in gains and losses on derivatives related to market-making
activities and other derivatives. Gains and losses were recorded in
principal transactions revenue.
(c) Primarily relates to derivatives used to mitigate foreign exchange risk
of specified foreign currency-denominated assets and liabilities. Gains
and losses were recorded in principal transactions revenue.
(d) Primarily relates to commodity derivatives used to mitigate energy
price risk associated with energy-related contracts and investments.
Gains and losses were recorded in principal transactions revenue.
Gains and losses on derivatives related to market-making
activities and other derivatives
The Firm makes markets in derivatives in order to meet the
needs of customers and uses derivatives to manage certain
risks associated with net open risk positions from its
market-making activities, including the counterparty credit
risk arising from derivative receivables. All derivatives not
included in the hedge accounting or specified risk
management categories above are included in this category.
Gains and losses on these derivatives are primarily recorded
in principal transactions revenue. See Note 6 for
information on principal transactions revenue.
Credit derivatives
Credit derivatives are financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) and which allow
one party (the protection purchaser) to transfer that risk to
another party (the protection seller). Credit derivatives
expose the protection purchaser to the creditworthiness of
the protection seller, as the protection seller is required to
make payments under the contract when the reference
entity experiences a credit event, such as a bankruptcy, a
failure to pay its obligation or a restructuring. The seller of
credit protection receives a premium for providing
protection but has the risk that the underlying instrument
referenced in the contract will be subject to a credit event.
The Firm is both a purchaser and seller of protection in the
credit derivatives market and uses these derivatives for two
primary purposes. First, in its capacity as a market-maker,
the Firm actively manages a portfolio of credit derivatives
by purchasing and selling credit protection, predominantly
on corporate debt obligations, to meet the needs of
customers. Second, as an end-user, the Firm uses credit
derivatives to manage credit risk associated with lending
exposures (loans and unfunded commitments) and
derivatives counterparty exposures in the Firm's wholesale
businesses, and to manage the credit risk arising from
certain financial instruments in the Firm's market-making
businesses. Following is a summary of various types of
credit derivatives.
JPMorgan Chase & Co./2017 Annual Report
189
Credit default swaps
Credit derivatives may reference the credit of either a single
reference entity ("single-name") or a broad-based index.
The Firm purchases and sells protection on both single-
name and index-reference obligations. Single-name CDS and
index CDS contracts are either OTC or OTC-cleared
derivative contracts. Single-name CDS are used to manage
the default risk of a single reference entity, while index CDS
contracts are used to manage the credit risk associated with
the broader credit markets or credit market segments. Like
the S&P 500 and other market indices, a CDS index consists
of a portfolio of CDS across many reference entities. New
series of CDS indices are periodically established with a new
underlying portfolio of reference entities to reflect changes
in the credit markets. If one of the reference entities in the
index experiences a credit event, then the reference entity
that defaulted is removed from the index. CDS can also be
referenced against specific portfolios of reference names or
against customized exposure levels based on specific client
demands: for example, to provide protection against the
first $1 million of realized credit losses in a $10 million
portfolio of exposure. Such structures are commonly known
as tranche CDS.
For both single-name CDS contracts and index CDS
contracts, upon the occurrence of a credit event, under the
terms of a CDS contract neither party to the CDS contract
has recourse to the reference entity. The protection
purchaser has recourse to the protection seller for the
difference between the face value of the CDS contract and
the fair value of the reference obligation at settlement of
the credit derivative contract, also known as the recovery
value. The protection purchaser does not need to hold the
debt instrument of the underlying reference entity in order
to receive amounts due under the CDS contract when a
credit event occurs.
Credit-related notes
A credit-related note is a funded credit derivative where the
issuer of the credit-related note purchases from the note
investor credit protection on a reference entity or an index.
Under the contract, the investor pays the issuer the par
value of the note at the inception of the transaction, and in
return, the issuer pays periodic payments to the investor,
based on the credit risk of the referenced entity. The issuer
also repays the investor the par value of the note at
maturity unless the reference entity (or one of the entities
that makes up a reference index) experiences a specified
credit event. If a credit event occurs, the issuer is not
obligated to repay the par value of the note, but rather, the
issuer pays the investor the difference between the par
value of the note and the fair value of the defaulted
reference obligation at the time of settlement. Neither party
to the credit-related note has recourse to the defaulting
reference entity.
The following tables present a summary of the notional
amounts of credit derivatives and credit-related notes the
Firm sold and purchased as of December 31, 2017 and
2016. Upon a credit event, the Firm as a seller of protection
would typically pay out only a percentage of the full
notional amount of net protection sold, as the amount
actually required to be paid on the contracts takes into
account the recovery value of the reference obligation at
the time of settlement. The Firm manages the credit risk on
contracts to sell protection by purchasing protection with
identical or similar underlying reference entities. Other
purchased protection referenced in the following tables
includes credit derivatives bought on related, but not
identical, reference positions (including indices, portfolio
coverage and other reference points) as well as protection
purchased through credit-related notes.
190
JPMorgan Chase & Co./2017 Annual Report
(a) Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign
exchange forward contracts. Amounts related to excluded components are recorded in other income. The Firm measures the ineffectiveness of net
investment hedge accounting relationships based on changes in spot foreign currency rates and, therefore, there was no significant ineffectiveness for net
investment hedge accounting relationships during 2017, 2016 and 2015.
919 $
224 $
Notes to consolidated financial statements
Total
$
The following table presents pre-tax gains/(losses) recorded
on a limited number of derivatives, not designated in hedge
accounting relationships, that are used to manage risks
associated with certain specified assets and liabilities,
including certain risks arising from the mortgage pipeline,
warehouse loans, MSRs, wholesale lending exposures,
foreign currency denominated assets and liabilities, and
commodities-related contracts and investments.
Year ended December 31,
Derivatives gains/(losses)
recorded in income
2017
2015
(in millions)
Contract type
Interest rate (a)
2016
331 $
Credit (b)
(74)
Foreign exchange (c)
(33)
1,174 $
(282)
27
853
70
25
$
Commodity (d)
24
181 $
$
200
$
ΝΑ
ΝΑ
(74)
(74) $
ΝΑ
179
Total defined benefit plans
$
ΝΑ
(74) $
(74)
Total defined contribution plans
814
789
769
ΝΑ
ΝΑ
Total pension and OPEB cost included in compensation expense
$ 1,014 $
25
(69) $
24
(1,030)
$
598
(968)
629
610
28
970
(1,079)
(97)
31
(105)
31
(106)
250
257
(69) $
282
(36)
(36)
1
2
4
$
176
$
156
$
155
(36)
$
36
$
$
(831)
$
93 $
(329)
$
(133) $
(29) $
21
Total recognized in net periodic benefit cost and other
comprehensive income
$
Total recognized in other comprehensive income
(655) $
$
(174)
$
(202) $
(103) $
(53)
Weighted-average assumptions used to determine net periodic benefit costs
Discount rate (b)
Expected long-term rate of return on plan assets (b)
0.70 - 6.00
0.60 -4.30% 0.90 4.50%
0.80 -6.50
249
(33)
(77)
54
(69) $
(74) $
(74)
Changes in plan assets and benefit obligations recognized in other comprehensive income
Net (gain)/loss arising during the year
$
Amortization of net loss
(669) $
(250)
395
$
(50)
$
(133) $
(29) $
21
(257)
(282)
Amortization of prior service (cost)/credit
36
$ - $ - $ 1
36
Settlement loss
(2)
(4)
Foreign exchange impact and other
948
377
Year ended December 31, (in millions)
Components of net periodic benefit cost
332
1,956
$
2,903 $
$ (16,530) $
2,109 $ 2,073
(15,421)
$
1,248
ΝΑ
ΝΑ
$
(2,800) $
6
$
(3,667) $
42
$
138
Accumulated other comprehensive income/(loss), pretax, end of year
$
(2,794)
$
(3,625)
$
271
$
138
271
$ 17,703 $ 2,757
19,603
$
(684) $
(708)
$
17,703
2,356
$ 17,636
1,375
$ 1,956
$
1,855
233
131
78
86
602
2
7
7
-
(841)
(851)
(34)
(32)
(30)
(21)
330
(529)
Weighted-average actuarial assumptions used to determine benefit obligations
$
Discount Rate (e)
Health care cost trend rate:
Gains and losses
For the Firm's defined benefit pension plans, fair value is
used to determine the expected return on plan assets.
Amortization of net gains and losses is included in annual
net periodic benefit cost if, as of the beginning of the year,
the net gain or loss exceeds 10% of the greater of the PBO
or the fair value of the plan assets. Any excess is amortized
over the average future service period of defined benefit
pension plan participants, which for the U.S. defined benefit
pension plan is currently eight years and for the non-U.S.
defined benefit pension plans is the period appropriate for
the affected plan. In addition, prior service costs are
amortized over the average remaining service period of
active employees expected to receive benefits under the
plan when the prior service cost is first recognized. The
average remaining amortization period for the U.S. defined
benefit pension plan for current prior service costs is three
years.
For the Firm's OPEB plans, a calculated value that
recognizes changes in fair value over a five-year period is
used to determine the expected return on plan assets. This
value is referred to as the market-related value of assets.
Amortization of net gains and losses, adjusted for gains and
losses not yet recognized, is included in annual net periodic
benefit cost if, as of the beginning of the year, the net gain
or loss exceeds 10% of the greater of the accumulated
postretirement benefit obligation or the market-related
value of assets. Any excess net gain or loss is amortized
over the average expected lifetime of retired participants,
which is currently eleven years; however, prior service costs
resulting from plan changes are amortized over the average
years of service remaining to full eligibility age, which is
currently two years.
The following table presents the components of net periodic benefit costs reported in the Consolidated statements of income
for the Firm's defined benefit pension, defined contribution and OPEB plans, and in other comprehensive income for the
defined benefit pension and OPEB plans, and the weighted-average annualized actuarial assumptions for the net periodic
benefit cost.
1.00 -4.00%
0.90 6.50
Pension plans
2017
2016
2015
2017
OPEB plans
2016
JPMorgan Chase & Co./2017 Annual Report
2015
Expected return on plan assets
Amortization:
Net (gain)/loss
Prior service cost/(credit)
Special termination benefits
Settlement loss
Net periodic defined benefit cost
Other defined benefit pension plans(a)
$
330
$
Benefits earned during the year
Interest cost on benefit obligations
196
(f) Includes an unfunded postretirement benefit obligation of $32 million and $35 million at December 31, 2017 and 2016, respectively, for the U.K. plan.
(e) For the U.S. defined benefit pension plans, the discount rate assumption is 3.70% and 4.30%, and the rate of compensation increase is 2.30% and 2.30%, for 2017 and 2016
respectively.
0.60 -3.70%
2.25 -3.00
0.60 -4.30%
2.25 -3.00
3.70%
4.20%
ΝΑ
ΝΑ
Assumed for next year
ΝΑ
ΝΑ
5.00
5.00
Ultimate
NA
ΝΑ
5.00
5.00
Year when rate will reach ultimate
NA
ΝΑ
2018
2017
(a) At December 31, 2017 and 2016, included non-U.S. benefit obligations of $(3.8) billion and $(3.4) billion, and plan assets of $3.9 billion and $3.4 billion, respectively,
predominantly in the U.K.
(b) At December 31, 2017 and 2016, approximately $302 million and $390 million, respectively, of U.S. defined benefit pension plan assets included participation rights under
participating annuity contracts.
(c) At December 31, 2017 and 2016, defined benefit pension plan amounts that were not measured at fair value included $377 million and $130 million, respectively, of accrued
receivables, and $587 million and $224 million, respectively, of accrued liabilities, for U.S. plans.
(d) Represents plans with an aggregate overfunded balance of $5.6 billion and $4.0 billion at December 31, 2017 and 2016, respectively, and plans with an aggregate
underfunded balance of $612 million and $639 million at December 31, 2017 and 2016, respectively.
Rate of compensation increase (e)
4.20%
금금금
5.00
$
$
174 $
196
$
2
$
$
198
Equity securities
6,407
1
194
6,603
6,158
166
2
6,326
Mutual funds
325
325
Common/collective trust funds (a)
778
778
2
$
$ 173
Cash and cash equivalents
100%
100%
100%
100%
100%
(a) Debt securities primarily include cash, corporate debt, U.S. federal, state, local and non-U.S. government, and mortgage-backed securities.
(b) Alternatives primarily include limited partnerships.
(c) Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded.
(d) Change in percentage of plan assets due to the contribution to the U.S. OPEB plan.
Fair value measurement of the plans' assets and liabilities
For information on fair value measurements, including descriptions of level 1, 2, and 3 of the fair value hierarchy and the
valuation methods employed by the Firm, see Note 2.
Pension and OPEB plan assets and liabilities measured at fair value
Defined benefit pension plans
2017
2016
December 31,
(in millions)
Level 1
Level 2
Level 3
Total fair
value
Total fair
Level 1
Level 2
Level 3
value
384
100%
384
60
2,353
203
60
-
203
-
243
243
302
2,715
1,497
53
Other(d)
390
Total assets measured at fair value(e)
$ 11,284 $ 3,986 $
310
$ 15,580 $
Derivative payables
$
-
Total liabilities measured at fair value (e) $
-
$
$
(141) $
(141) $
1,940
-
Derivative receivables
117
60
62
62
Corporate debt securities (c)
2,644
4
2,648
2,506
4
2,510
U.S. federal, state, local and non-U.S.
government debt securities
1,096
784
1,880
1,139
804
1,943
Mortgage-backed securities
92
100
2
194
42
75
Limited partnerships (b)
4.40%
Total
13
5.00
5.00
5.00
ΝΑ
2017
2017
2017
(b) The rate assumptions for the U.S. defined benefit pension plans are at the upper end of the range, except for the rate of compensation increase, which is 2.30% for 2017 and
3.50% for 2016 and 2015, respectively.
197
Notes to consolidated financial statements
The estimated pretax amounts that will be amortized from
AOCI into net periodic benefit cost in 2018 are as follows.
NA
(in millions)
Prior service cost/(credit)
Total
Plan assumptions
106
Defined benefit
pension plans
$
$
$
(25)
81
Net loss/(gain)
6.00
5.50
5.00
5.75
4.10%
6.00
Rate of compensation increase (b)
2.25 -3.00
2.25 -4.30
2.75 -4.20
ΝΑ
ΝΑ
ΝΑ
Health care cost trend rate
Assumed for next year
Ultimate
Year when rate will reach ultimate
(a) Includes various defined benefit pension plans which are individually immaterial.
JPMorgan Chase & Co./2017 Annual Report
ΝΑ
금금금
ΝΑ
ΝΑ
$
ΝΑ
ΝΑ
ΝΑ
30 ≤ 3/1/2013
ΝΑ
JPMorgan Chase's expected long-term rate of return for
defined benefit pension and OPEB plan assets is a blended
weighted average, by asset allocation of the projected long-
term returns for the various asset classes, taking into
consideration local market conditions and the specific
allocation of plan assets. Returns on asset classes are
developed using a forward-looking approach and are not
strictly based on historical returns. Consideration is also
given to current market conditions and the short-term
portfolio mix of each plan.
14
The discount rate used in determining the benefit obligation
under the U.S. defined benefit pension and OPEB plans was
provided by the Firm's actuaries. This rate was selected by
reference to the yields on portfolios of bonds with maturity
dates and coupons that closely match each of the plan's
projected cash flows. The discount rate for the U.K. defined
benefit pension plan represents a rate of appropriate
duration from the analysis of yield curves provided by the
Firm's actuaries.
As of December 31, 2017, the effect of a one-percentage-
point increase or decrease in the assumed health care cost
trend rate is not material to the accumulated
postretirement benefit obligation or total service and
interest cost.
2016
Allocation
% of plan assets
2017(d)
2016
Asset class
Debt securities(a)
0-80%
42%
35%
Equity securities
0-85
2017
42
30-70%
30-70
61%
50%
39
50
Real estate
0-10
3
4
Alternatives (b)
0-35
47
Allocation
Asset
% of plan assets
The following table represents the effect of a 25-basis point
decline in the three listed rates below on estimated 2018
defined benefit pension and OPEB plan expense, as well as
the effect on the postretirement benefit obligations.
Investment strategy and asset allocation
The assets of the Firm's defined benefit pension plans are
held in various trusts and are invested in well-diversified
portfolios of equity and fixed income securities, cash and
cash equivalents, and alternative investments (e.g., hedge
funds, private equity, real estate and real assets). The trust-
owned assets of the Firm's U.S. OPEB plan are invested in
cash and cash equivalents. COLI policies used to defray the
cost of the Firm's U.S. OPEB plan are invested in separate
accounts of an insurance company and are allocated to
investments intended to replicate equity and fixed income
indices.
The investment policies for the assets of the Firm's defined
benefit pension plans are to optimize the risk-return
relationship as appropriate to the needs and goals of each
plan using a global portfolio of various asset classes
diversified by market segment, economic sector, and issuer.
Assets are managed by a combination of internal and
external investment managers. The Firm regularly reviews
the asset allocations and asset managers, as well as other
factors that impact the portfolios, which are rebalanced
when deemed necessary.
Investments held by the plans include financial instruments
which are exposed to various risks such as interest rate,
market and credit risks. Exposure to a concentration of
credit risk is mitigated by the broad diversification of both
U.S. and non-U.S. investment instruments. Additionally, the
investments in each of the common/collective trust funds
and/or registered investment companies are further
diversified into various financial instruments. As of
December 31, 2017, assets held by the Firm's defined
benefit pension and OPEB plans do not include JPMorgan
Chase common stock, except through indirect exposures
through investments in third-party stock-index funds. The
plans hold investments in funds that are sponsored or
managed by affiliates of JPMorgan Chase in the amount of
$6.0 billion and $4.6 billion, as of December 31, 2017 and
2016, respectively.
(in millions)
Defined benefit
pension and OPEB
plan expense
Benefit
obligation
Expected long-term rate of return
$
54
ΝΑ
Discount rate
$
59 $
583
Interest crediting rate for U.S. plans $
(41) $ (193)
198
JPMorgan Chase & Co./2017 Annual Report
The following table presents the weighted-average asset allocation of the fair values of total plan assets at December 31 for
the years indicated, as well as the respective approved asset allocation ranges by asset class.
December 31,
Defined benefit pension plans
OPEB plan(c)
Asset
At December 31, 2017, the Firm decreased the discount
rates used to determine its benefit obligations for the U.S.
defined benefit pension and OPEB plans in light of current
market interest rates, which will increase expense by
approximately $66 million in 2018. The 2018 expected
long-term rate of return on U.S. defined benefit pension
plan assets and U.S. OPEB plan assets are 5.50% and
4.00%, respectively. As of December 31, 2017, the interest
crediting rate assumption remained at 5.00%.
$ (15,594)
(7)
6
In the financial commodity markets, the Firm transacts in
OTC derivatives (e.g., swaps, forwards, options) and ETD
that reference a wide range of underlying commodities. In
the physical commodity markets, the Firm primarily
purchases and sells precious and base metals and may hold
other commodities inventories under financing and other
arrangements with clients.
The following table presents all realized and unrealized
gains and losses recorded in principal transactions revenue.
This table excludes interest income and interest expense on
trading assets and liabilities, which are an integral part of
the overall performance of the Firm's client-driven market-
making activities. See Note 7 for further information on
interest income and interest expense. Trading revenue is
presented primarily by instrument type. The Firm's client-
driven market-making businesses generally utilize a variety
of instrument types in connection with their market-making
and related risk-management activities; accordingly, the
trading revenue presented in the table below is not
representative of the total revenue of any individual line of
business.
Year ended December 31,
(in millions)
$ 1,394 $ 1,146 $
1,408
2017
2016
2015
3,710
3,207
3,232
2015
Trading revenue by instrument
4,353
4,640
type
2,144
2,095
2,111
Interest rate
$ 2,479 $ 2,325 $ 1,933
Credit
1,329
2,096
5,104
2016
2017
Advisory
$ (39,281)
(23,317)
$ (696,555)
$
(301,318)
7,841
8,184
$ (3,055)
(8,570)
$ 4,786
(386)
Total
$ (381,643) $ (553,632)
(a) The ratings scale is primarily based on external credit ratings defined by S&P and Moody's.
(b) Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm.
$ (62,598) $ (997,873) $
16,025
$ (11,625)
$ 4,400
JPMorgan Chase & Co./2017 Annual Report
191
Notes to consolidated financial statements
Note 6 - Noninterest revenue and noninterest expense
Investment banking fees
This revenue category includes debt and equity
underwriting and advisory fees. As an underwriter, the Firm
helps clients raise capital via public offering and private
placement of various types of debt instruments and equity
securities. Underwriting fees are primarily based on the
issuance price and quantity of the underlying instruments,
and are recognized as revenue typically upon execution of
the client's transaction. The Firm also manages and
syndicates loan arrangements. Credit arrangement and
syndication fees, included within debt underwriting fees,
are recorded as revenue after satisfying certain retention,
timing and yield criteria.
The Firm also provides advisory services, assisting its clients
with mergers and acquisitions, divestitures, restructuring
and other complex transactions. Advisory fees are
recognized as revenue typically upon execution of the
client's transaction.
Year ended December 31,
(in millions)
Underwriting
Equity
Debt
Total underwriting
1,735
$ (383,586)
(170,046)
2,746
2,557
$ 5,774
$ 5,694
Lending- and deposit-related fees are earned by CCB, CIB,
CB, and AWM. See Note 31 for segment results.
192
JPMorgan Chase & Co./2017 Annual Report
Asset management, administration and commissions
This revenue category includes fees from investment
management and related services, custody, brokerage
services and other products. The Firm manages assets on
behalf of its clients, including investors in Firm-sponsored
funds and owners of separately managed investment
accounts. Management fees are typically based on the value
of assets under management and are collected and
recognized at the end of each period over which the
management services are provided and the value of the
managed assets is known. The Firm also receives
performance-based management fees, which are earned
based on exceeding certain benchmarks or other
performance targets and are accrued and recognized when
the probability of reversal is remote, typically at the end of
the related billing period. The Firm has contractual
arrangements with third parties to provide distribution and
other services in connection with its asset management
activities. Amounts paid to third-party service providers are
recorded in professional and outside services expense.
2017
2016
2015
Year ended December 31,
(in millions)
Asset management fees
4,546
Investment management fees
All other asset management fees (a)
294
Total asset management fees
9,820
9,201
$ 8,865 $ 9,403
336
352
9,755
Total administration fees (b)
2,029
1,915
2,015
Commissions and other fees
$ 9,526
4,660
2015
$ 1,148
2016
$ 1,114
3,873
2,994
2,990
661
1,067
842
11,088
259
11,309
257
10,057
351
Total investment banking fees $ 7,248 $ 6,448 $ 6,751
Investment banking fees are earned primarily by CIB. See
Note 31 for segment results.
Principal transactions
Principal transactions revenue is driven by many factors,
including the bid-offer spread, which is the difference
between the price at which the Firm is willing to buy a
financial or other instrument and the price at which the
Firm is willing to sell that instrument. It also consists of the
realized (as a result of the sale of instruments, closing out
or termination of transactions, or interim cash payments)
and unrealized (as a result of changes in valuation) gains
and losses on financial and other instruments (including
those accounted for under the fair value option) primarily
used in client-driven market-making activities and on
private equity investments. In connection with its client-
driven market-making activities, the Firm transacts in debt
and equity instruments, derivatives and commodities
(including physical commodities inventories and financial
instruments that reference commodities).
Principal transactions revenue also includes certain realized
and unrealized gains and losses related to hedge accounting
and specified risk-management activities, including: (a)
certain derivatives designated in qualifying hedge
accounting relationships (primarily fair value hedges of
commodity and foreign exchange risk), (b) certain
derivatives used for specific risk management purposes,
primarily to mitigate credit risk, foreign exchange risk and
commodity risk, and (c) other derivatives. For further
information on the income statement classification of gains
and losses from derivatives activities, see Note 5.
Foreign exchange
Equity
Commodity
Total trading revenue
Private equity gains
Principal transactions
$ 11,347 $ 11,566 $ 10,408
Principal transactions revenue is earned primarily by CIB.
See Note 31 for segment results.
Lending- and deposit-related fees
Lending-related fees include fees earned from loan
commitments, standby letters of credit, financial
guarantees, and other loan-servicing activities. Deposit-
related fees include fees earned in lieu of compensating
balances, and fees earned from performing cash
management activities and other deposit account services.
Lending- and deposit-related fees in this revenue category
are recognized over the period in which the related service
is provided.
Year ended December 31, (in millions)
Lending-related fees
Deposit-related fees
Total lending- and deposit-related fees
2017
$ 1,110
4,823
$ 5,933
2,827
Brokerage commissions (c)
$ (273,688)
(107,955)
Investment-grade
702,098
(18)
$
761,256
11,874 $
5,045
59,158
761,256
5,001
11,747
16,875
16,792
$
-
7,915
$
16,857 $
24,707
Maximum payout/Notional amount
Protection purchased
Net protection
Protection
sold
with identical
underlyings (b)
(sold)/
purchased (c)
Other
protection
(18)
(690,224)
(54,157)
(744,381)
$
$ (744,399)
The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives,
because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value
of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm's view, the
risks associated with such derivatives.
Total credit derivatives and credit-related notes
December 31, 2017 (in millions)
Credit derivatives
Credit default swaps
Other credit derivatives (a)
Total credit derivatives
Credit-related notes
Total
December 31, 2016 (in millions)
Credit derivatives
Credit default swaps
Other credit derivatives(a)
Total credit derivatives
Credit-related notes
Total
(a) Other credit derivatives largely consists of credit swap options.
Maximum payout/Notional amount
Protection purchased
Net protection
Protection
sold
with identical
underlyings (b)
(sold)/
purchased (c)
Other
protection
purchased (d)
purchased (d)
Noninvestment-grade
$
$ 974,252
31,859
1,006,111
Net fair
value
Risk rating of reference entity
Investment-grade
Noninvestment-grade
Total
$ (159,286)
(73,394)
$ (232,680)
$ (319,726) $ (39,429)
(134,125)
(18,439)
$ (453,851) $ (57,868)
$
(518,441) $
(225,958)
$ (744,399)
8,516
7,407
$ 15,923
Fair value of
payables(b)
$
$ 7,382
2,094
$ 9,476
December 31, 2016
(in millions)
<1 year
1-5 years
>5 years
Total notional
amount
Fair value of
receivables(b)
Fair value of
payables(b)
Net fair
value
Risk rating of reference entity
$ (1,134)
(5,313)
(6,447)
Fair value of
receivables (b)
Total notional
amount
>5 years
$
13,249 $
7,935
(4,970)
19,991
8,279
27,926
(41)
(41)
4,505
$
(997,873)
$
1,006,111
$
8,238 $
32,431
(b) Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on protection sold; the notional
amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold.
(c) Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to the
buyer of protection in determining settlement value.
(d) Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on the identical reference
instrument.
The following tables summarize the notional amounts by the ratings, maturity profile, and total fair value, of credit derivatives
and credit-related notes as of December 31, 2017 and 2016, where JPMorgan Chase is the seller of protection. The maturity
profile is based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the
rating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit
derivatives and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile
reflected below.
Protection sold - credit derivatives and credit-related notes ratings(a)/maturity profile
December 31, 2017
(in millions)
<1 year
1-5 years
(961,003)
(36,829)
(997,832)
$ (16,700)
2,239
2,304
JPMorgan Chase & Co./2017 Annual Report
accounting for interest income and interest expense related
to loans, securities, securities financing (i.e. securities
purchased or sold under resale or repurchase agreements;
securities borrowed; and securities loaned) and long-term
debt, see Notes 12, 10, 11 and 19, respectively.
Note 8 - Pension and other postretirement
employee benefit plans
The Firm has various defined benefit pension plans and
OPEB plans that provide benefits to its employees. The Firm
has a qualified noncontributory U.S. defined benefit pension
plan that provides benefits to substantially all U.S.
employees. The Firm also has defined benefit pension plans
that are offered in certain non-U.S. locations based on
factors such as eligible compensation, age and/or years of
service. It is the Firm's policy to fund the pension plans in
amounts sufficient to meet the requirements under
applicable laws. The Firm does not anticipate at this time
any contribution to the U.S. defined benefit pension plan in
2018. The 2018 contributions to the non-U.S. defined
benefit pension plans are expected to be $46 million of
which $30 million are contractually required.
The Firm also has a number of nonqualified
noncontributory defined benefit pension plans that are
unfunded. These plans provide supplemental defined
pension benefits to certain employees.
The Firm currently provides two qualified defined
contribution plans in the U.S. and maintains other similar
arrangements in certain non-U.S. locations.
The Firm offers postretirement medical and life insurance
benefits to certain U.S. retirees and postretirement medical
benefits to qualifying U.S. and U.K. employees.
The Firm defrays the cost of its U.S. OPEB obligation
through corporate-owned life insurance (“COLI”) purchased
on the lives of eligible employees and retirees. While the
Firm owns the COLI policies, COLI proceeds (death benefits,
withdrawals and other distributions) may be used only to
reimburse the Firm for its net postretirement benefit claim
payments and related administrative expense. The Firm has
generally funded its postretirement benefit obligations
through contributions to the relevant trust on a pay-as-you
go basis. On December 21, 2017, the Firm contributed
$600 million of cash to the trust as a prefunding of a
portion of its postretirement benefit obligations. The U.K.
OPEB plan is unfunded.
Pension and OPEB accounting generally requires that the
difference between plan assets at fair value and the benefit
obligation be measured and recorded on the balance sheet.
Plans that are overfunded (excess of plan assets over
benefit obligation) are recorded in other assets and plans
that are underfunded (excess benefit obligation over plan
assets) are recorded within other liabilities. Gains or losses
resulting from changes in the benefit obligation and the
value of plan assets are recorded in other comprehensive
income ("OCI") and recognized as part of the net periodic
195
Notes to consolidated financial statements
Interest income and interest expense includes the current-
period interest accruals for financial instruments measured
at fair value, except for derivatives and financial
instruments containing embedded derivatives that would be
separately accounted for in accordance with U.S. GAAP,
absent the fair value option election; for those instruments,
all changes in fair value including any interest elements, are
reported in principal transactions revenue. For financial
instruments that are not measured at fair value, the related
interest is included within interest income or interest
expense, as applicable. For further information on
benefit cost over subsequent periods as discussed in the
Gains and losses section of this Note. Additionally, service
cost, interest cost, and investment returns that would
The following table presents the changes in benefit obligations, plan assets, the net funded status, and the pretax pension and
OPEB amounts recorded in AOCI on the Consolidated balance sheets for the Firm's defined benefit pension and OPEB plans, and
the weighted-average actuarial annualized assumptions for the projected and accumulated postretirement benefit obligations.
As of or for the year ended December 31,
(in millions)
Change in benefit obligation
Benefit obligation, beginning of year
Benefits earned during the year
Interest cost on benefit obligations
Employee contributions
Net gain/(loss)
Benefits paid
Plan settlements
otherwise be classified separately are aggregated and
reported net within compensation expense.
(e) Other interest-bearing liabilities include brokerage customer payables.
(d) Includes commercial paper.
(c) Includes held-for-investment margin loans, which are classified in
accrued interest and accounts receivable, and all other interest-earning
assets included in other assets.
Trading liabilities - debt and all
other interest-bearing liabilities (e)
2,070
1,102
557
Long-term debt
6,753
5,564
4,435
Beneficial interest issued by
consolidated VIES
Total interest expense
Net interest income
Provision for credit losses
Net interest income after
provision for credit losses
503
504
435
$ 14,275 $ 9,818 $ 7,463
$ 50,097 $ 46,083 $ 43,510
5,290
5,361
3,827
$ 44,807 $ 40,722 $ 39,683
(a) Represents securities that are tax-exempt for U.S. federal income tax
purposes.
(b) Negative interest income is related to client-driven demand for certain
securities combined with the impact of low interest rates. This is matched
book activity and the negative interest expense on the corresponding
securities loaned is recognized in interest expense.
Expected Medicare Part D subsidy receipts
175
Foreign exchange impact and other
Change in plan assets
(629)
(28)
(31)
(7)
$
(16)
(721)
(743)
(4)
4
841
(598)
851
30
21
ΝΑ
ΝΑ
(321)
504
➢| ཌུཀྱེེ
76
-
(1)
(3)
76
(332)
(330)
$ (744)
Fair value of plan assets, beginning of year
Actual return on plan assets
Firm contributions
Employee contributions
Benefits paid
Plan settlements
Foreign exchange impact and other
Fair value of plan assets, end of year
Net funded status (d)
(a)(b)(c)
Accumulated benefit obligation, end of year
Pretax pension and OPEB amounts recorded in AOCI
Net gain/(loss)
Prior service credit/(loss)
Defined benefit
pension plans
OPEB plans(f)
2017
2016
2017
2016
$ (15,594)
$ (15,259)
$
(708)
Benefit obligation, end of year (a)
2,151
203
Short-term borrowings (d)
Other income on the Firm's Consolidated statements of
income included the following:
Year ended December 31, (in millions)
Operating lease income
2015
2017
2016
$ 3,613
$ 2,724
$ 2,081
Operating lease income is recognized on a straight-line
basis over the lease term.
Noninterest expense
Other expense
Other income
Other expense on the Firm's Consolidated statements of
income included the following:
Legal expense/(benefit)
FDIC-related expense
2017
2016
2015
$
(35) $
(317) $
2,969
1,492
1,296
Year ended December 31,
(in millions)
Card income is earned primarily by CCB and CB. See Note
31 for segment results.
The Firm typically makes payments to the co-brand credit
card partners based on the cost of partners' marketing
activities and loyalty program rewards provided to credit
cardholders, new account originations and sales volumes.
Payments to partners based on marketing efforts
undertaken by the partners are expensed by the Firm as
incurred and reported as noninterest expense. Payments for
partner rewards are reported as a reduction of card income
when incurred. Payments to partners based on new credit
card account originations are accounted for as direct loan
origination costs and are deferred and recognized as a
reduction of card income on a straight-line basis over a 12-
month period. Payments to partners based on sales
volumes are reported as a reduction of card income when
the related interchange income is earned.
Notes to consolidated financial statements
All other commissions and fees
1,289
1,324
1,435
Total commissions and fees
3,528
3,475
3,739
Total asset management,
administration and
commissions
$ 15,377 $ 14,591 $ 15,509
(a) The Firm receives other asset management fees for services that are
ancillary to investment management services, including commissions
earned on sales or distribution of mutual funds to clients. These fees are
recorded as revenue at the time the service is rendered or, in the case of
certain distribution fees based on the underlying fund's asset value and/or
investor redemption, recorded over time as the investor remains in the fund
or upon investor redemption.
(b) The Firm receives administrative fees predominantly from custody,
securities lending, fund services and securities clearance fees. These fees
are recorded as revenue over the period in which the related service is
provided.
(c) The Firm acts as a broker, facilitating its clients' purchase and sale of
securities and other financial instruments. It collects and recognizes
brokerage commissions as revenue upon occurrence of the client
transaction. The Firm reports certain costs paid to third-party clearing
houses and exchanges net against commission revenue.
Asset management, administration and commissions are
earned primarily by AWM, CIB, CCB, and CB. See Note 31 for
segment results.
Mortgage fees and related income
This revenue category primarily reflects CCB's Home
Lending production and servicing revenue, including fees
and income derived from mortgages originated with the
intent to sell; mortgage sales and servicing including losses
related to the repurchase of previously sold loans; the
impact of risk-management activities associated with the
mortgage pipeline, warehouse loans and MSRs; and revenue
related to any residual interests held from mortgage
securitizations. This revenue category also includes gains
and losses on sales and lower of cost or fair value
adjustments for mortgage loans held-for-sale, as well as
changes in fair value for mortgage loans originated with the
intent to sell and measured at fair value under the fair value
option. Changes in the fair value of MSRS are reported in
mortgage fees and related income. For a further discussion
of MSRs, see Note 15. Net interest income from mortgage
loans is recorded in interest income.
Card income
This revenue category includes interchange income from
credit and debit cards and fees earned from processing card
transactions for merchants, both of which are recognized
when purchases are made by a cardholder. Card income
also includes annual and other lending fees and costs, which
are deferred and recognized on a straight-line basis over a
12-month period.
Certain Chase credit card products offer the cardholder the
ability to earn points based on account activity, which the
cardholder can choose to redeem for cash and non-cash
rewards. The cost to the Firm related to these proprietary
rewards programs varies based on multiple factors
including the terms and conditions of the rewards
programs, cardholder activity, cardholder reward
redemption rates and cardholder reward selections. The
Firm maintains a liability for its obligations under its
rewards programs and reports the current-period cost as a
reduction of card income.
Credit card revenue sharing agreements
The Firm has contractual agreements with numerous co-
brand partners that grant the Firm exclusive rights to issue
co-branded credit card products and market them to the
customers of such partners. These partners endorse the co-
brand credit card programs and provide their customer or
member lists to the Firm. The partners may also conduct
marketing activities and provide rewards redeemable under
their own loyalty programs that the Firm will grant to co-
brand credit cardholders based on account activity. The
terms of these agreements generally range from five to ten
years.
JPMorgan Chase & Co./2017 Annual Report
193
1,227
481
194
Note 7 Interest income and Interest expense
2,265
Securities borrowed (b)
(37)
(332)
4,219
All other interest-earning assets(c)
1,863
1,863
875
1,250
652
Deposits with banks
Total interest income
2,327
1,592
(532)
Interest expense
Interest bearing deposits
$
2,857 $
1,356 $ 1,252
Federal funds purchased and
securities loaned or sold under
repurchase agreements
1,611
1,089
609
$ 64,372 $ 55,901 $ 50,973
agreements
purchased under resale
Federal funds sold and securities
Interest income and interest expense are recorded in the
Consolidated statements of income and classified based on
the nature of the underlying asset or liability.
The following table presents the components of interest
income and interest expense:
Year ended December 31,
(in millions)
Interest Income
Loans
2017
2016
2015
$ 41,008 $ 36,634 $ 33,134
Taxable securities
5,535
5,538
Non-taxable securities (a)
1,847
1,766
6,550
1,706
Total securities
7,382
7,304
8,256
Trading assets
7,610
7,292
6,621
JPMorgan Chase & Co./2017 Annual Report
$
(19)
-
Part D
subsidy
subsidy
plans
(in millions)
Part D
pension
Year ended December 31,
Medicare
Medicare
benefit
Defined
OPEB
before
The following table presents benefit payments expected to
be paid, which include the effect of expected future service,
for the years indicated. The OPEB medical and life insurance
payments are net of expected retiree contributions.
Estimated future benefit payments
(a) Substantially all are participating and non-participating annuity contracts.
1,957
- $
- $
102 $
$
1,855 $
$
COLI policies
2018
U.S. OPEB plan
$
$
(141) $
(141) $
JPMorgan Chase & Co./2017 Annual Report
200
2
235
4,925
Years 2023-2027
55
960
2022
57
944
2021
1
60
927
2020
1
63
922
2019
1
65
926
396
$
- $
U.S. OPEB plan
Year ended December 31, 2017
U.S. defined benefit pension plan
Annuity contracts and other (a)
(in millions)
Changes in level 3 fair value measurements using significant unobservable inputs
Notes to consolidated financial statements
199
JPMorgan Chase & Co./2017 Annual Report
The assets of the U.S. OPEB plan consisted of $600 million and $0 million in cash and cash equivalents classified in level
1 of the valuation hierarchy and $2.2 billion and $2.0 billion of COLI policies classified in level 3 of the valuation
hierarchy at December 31, 2017 and 2016, respectively.
(e) At December 31, 2017 and 2016, excludes $4.4 billion and $4.2 billion of certain investments that are measured at fair value using the net asset value per
share (or its equivalent) as a practical expedient, which are not required to be classified in the fair value hierarchy, $377 million and $130 million of defined
benefit pension plan receivables for investments sold and dividends and interest receivables, $561 million and $203 million of defined benefit pension plan
payables for investments purchased, and $26 million and $21 million of other liabilities, respectively.
(d) Other consists primarily of money market funds and participating and non-participating annuity contracts. Money market funds are primarily classified within
level 1 of the fair value hierarchy given they are valued using market observable prices. Participating and non-participating annuity contracts are classified
within level 3 of the fair value hierarchy due to a lack of market mechanisms for transferring each policy and surrender restrictions.
(b) Unfunded commitments to purchase limited partnership investments for the plans were $605 million and $735 million for 2017 and 2016, respectively.
(c) Corporate debt securities include debt securities of U.S. and non-U.S. corporations.
$ (208)
(208) $
$
-
$ (208)
(208) $
$ 13,723
396
$
3,849
9,478 $
$
14 $
Actual return on plan assets
Fair value,
(a) At December 31, 2017 and 2016, common/collective trust funds primarily included a mix of short-term investment funds, domestic and international equity
investments (including index) and real estate funds.
balance
$ - $ (157) $
Beginning
539
$
U.S. defined benefit pension plan
Annuity contracts and other (a)
Year ended December 31, 2016
2,157
$ - $ - $
$ - $ 200 $
1,957
$
COLI policies
-
310
$ - $ 1 $ (87) $ - $ 3:
396
$
Ending
balance
Fair value,
Transfers in
and/or out
of level 3
net
Purchases, sales
and settlements,
Unrealized
gains/(losses)
Realized
gains/(losses)
811
17
7,311
52
1
Asset-backed securities:
32
1
1
15
Collateralized loan obligations
52
6,500
2,601
Non-U.S. government debt securities
-
Certificates of deposit
33
276
26
31
2,207
20
20
949
1,652
7
Corporate debt securities
1
2
1
373
1,882
41
3,706
40
4,275
205
38
4,070
Commercial
U.S. government securities
Mortgage-backed securities
Held-to-maturity securities
276
Available-for-sale equity securities
63,273
276
12,792
201
50,481
Total available-for-sale debt securities
24
4,241
4
720
20
3,521
Other
477
11
203
355
Non-U.S.
Commercial
U.S
U.S. government agencies
Residential:
Mortgage-backed securities:
Total gross
unrealized losses
Total fair
value
Gross unrealized
losses
Fair value
Gross unrealized
losses
Fair value
December 31, 2017 (in millions)
Available-for-sale debt securities
12 months or more
Less than 12 months
Securities with gross unrealized losses
The following tables present the fair value and gross unrealized losses for the investment securities portfolio by aging category
at December 31, 2017 and 2016.
Securities impairment
Notes to consolidated financial statements
33
JPMorgan Chase & Co./2017 Annual Report
(c) Included total U.S. government-sponsored enterprise obligations with amortized cost of $22.0 billion and $25.6 billion at December 31, 2017 and 2016,
respectively, which were mortgage-related.
(b) Prior period amounts have been revised to conform with the current period presentation.
(a) Includes total U.S. government-sponsored enterprise obligations with a fair value of $45.8 billion for the years ended December 31, 2017 and 2016, which were
predominantly mortgage-related.
$ 289,780
5,120 $ 1,938
$ 286,598 $
$ 250,877
671
Total mortgage-backed securities
U.S. Treasury and government agencies
Obligations of U.S. states and municipalities
$
46,585
207
8,908
148
37,677
5
863
1
335
4
528
1
266
1,834
1
-
14
1,708
9
596
5
1,112
335
43,748 $
196 $
7,711 $
139 $
36,037 $
266
5,588
474
Total mortgage-backed securities
Non-U.S. government debt securities
-
Certificates of deposit
184
7,270
3
55
181
7,215
Obligations of U.S. states and municipalities
796
23,543
796
23,543
U.S. Treasury and government agencies
529
37,100
43
3,543
486
33,557
Total mortgage-backed securities
20
3,406
3
1,078
17
Corporate debt securities
4,436
36
421
1,509
71,053
Total available-for-sale debt securities
45
2,731
39
1,992
6
739
Other
26
6,029
24
2,328
5,263
766
Collateralized loan obligations
Asset-backed securities:
152
22
1,626
20
829
2
797
45
4,857
9
2
74
Commercial
886
75,851 $
382 $
17,010 $
$
289
58,841 $
Total securities with gross unrealized losses $
194
12,578
106
4,218
88
8,360
Total held-to-maturity securities
80
2,715
71
2,131
9
584
Obligations of U.S. states and municipalities
114
9,863
35
2,087
79
7,776
671
204
JPMorgan Chase & Co./2017 Annual Report
December 31, 2016 (in millions)
Available-for-sale debt securities
Mortgage-backed securities:
7
886
28
2,446
22
1,073
6
1,373
$ 246,474 $ 5,074 $
30,362 $
11 $
506 $
$
7
463
$
Total gross
unrealized losses
Total fair
value
Gross unrealized
losses
Fair value
Gross unrealized
losses
12 months or more
Securities with gross unrealized losses
Fair value
Less than 12 months
Non-U.S.
U.S.(a)
U.S. government agencies
Residential:
29,856 $
Total securities
477
291
8,193
U.S(b)
Residential:
$ 64,005
474
1,112 $
$ 70,280 $ 63,367 $
335
736 $
$ 69,879 $
U.S. government agencies (a)
Mortgage-backed securities:
Available-for-sale debt securities
December 31, (in millions)
value
Fair
Gross
Gross
unrealized unrealized
gains
losses
Amortized
cost
Fair
value
Gross
unrealized
losses
Gross
unrealized
gains
Amortized
cost
2016
2017
The amortized cost and estimated fair value of the investment securities portfolio were as follows for the dates indicated.
gains and losses, after any applicable hedge accounting
adjustments, are reported as net increases or decreases to
AOCI. The specific identification method is used to
determine realized gains and losses on AFS securities,
which are included in securities gains/(losses) on the
Consolidated statements of income. HTM debt securities,
which management has the intent and ability to hold until
maturity, are carried at amortized cost on the Consolidated
balance sheets. For both AFS and HTM debt securities,
purchase discounts or premiums are generally amortized
into interest income over the contractual life of the security.
Securities are classified as trading, AFS or HTM. Securities
classified as trading assets are discussed in Note 2.
Predominantly all of the Firm's AFS and HTM securities are
held by Treasury and CIO in connection with its asset-
liability management activities. At December 31, 2017, the
investment securities portfolio consisted of debt securities
with an average credit rating of AA+ (based upon external
ratings where available, and where not available, based
primarily upon internal ratings which correspond to ratings
as defined by S&P and Moody's). AFS securities are carried
at fair value on the Consolidated balance sheets. Unrealized
185
14
8,364
8,171
1,492
86,589
86,672
355
1,141
85,886
Total mortgage-backed securities
9,104
20
122
9,002
5,025
5
-
98
Commercial
6,200
7
158
6,049
3,003
1
122
2,882
Non-U.S.
8,243
28
100
4,932
529
Note 10 Securities
202
15,828
ΝΑ
40.76
17,493 $
66.36
72,733 $
ΝΑ
Exercisable, December 31
Outstanding, December 31
405.47
(13)
ΝΑ
ΝΑ
55.82
(54)
63.34
(2,030)
Canceled
Forfeited
40.50
(12,816)
57.80
(32,961)
Exercised or vested
90.94
109
84.30
26,017
40.00
3.4 $1,169,470
3.3 1,070,212
The total fair value of RSUs that vested during the years ended December 31, 2017, 2016 and 2015, was $2.9 billion, $2.2
billion and $2.8 billion, respectively. The total intrinsic value of options exercised during the years ended December 31, 2017,
2016 and 2015, was $651 million, $338 million and $335 million, respectively.
64
70
190
$ 26 $ 20
$ 18
2015
2016
2017
Year ended December 31, (in millions)
Cash received for options exercised
Tax benefit
The following table sets forth the cash received from the
exercise of stock options under all share-based incentive
arrangements, and the actual income tax benefit related to
tax deductions from the exercise of the stock options.
Effective January 1, 2016, the Firm adopted new
accounting guidance related to employee share-based
payments. As a result of the adoption of this new guidance,
all excess tax benefits (including tax benefits from dividends
or dividend equivalents) on share-based payment awards
are recognized within income tax expense in the
Consolidated statements of income. In prior years these tax
benefits were recorded as increases to additional paid-in
capital. Income tax benefits related to share-based
incentive arrangements recognized in the Firm's
Consolidated statements of income for the years ended
December 31, 2017, 2016 and 2015, were $1.0 billion,
$916 million and $746 million, respectively.
Cash flows and tax benefits
At December 31, 2017, approximately $704 million
(pretax) of compensation expense related to unvested
awards had not yet been charged to net income. That cost is
expected to be amortized into compensation expense over a
weighted-average period of 1 year. The Firm does not
capitalize any compensation expense related to share-based
compensation awards to employees.
JPMorgan Chase & Co./2017 Annual Report
$ 2,070 $ 1,940 $1,987
894
945
Total noncash compensation expense
related to employee share-based
incentive plans
Accrual of estimated costs of share-
based awards to be granted in future
periods including those to full-career
eligible employees
$ 1,046 $ 1,109
$ 1,125
Cost of prior grants of RSUs, PSUs and
SARS that are amortized over their
applicable vesting periods
2015
2016
2017
Year ended December 31, (in millions)
The Firm recognized the following noncash compensation
expense related to its various employee share-based
incentive plans in its Consolidated statements of income.
Compensation expense
878
87,552
U.S. Treasury and government agencies (a)
22,510
Commercial
30,511
37
638
29,910
28,095
40
558
27,577
U.S. government agencies (c)
Mortgage-backed securities
Held-to-maturity debt securities
926
238,891
1,647
12
4,108
236,430
202,225
12,103
3,961
198,741
Total available-for-sale securities
914
547
-
547
Available-for-sale equity securities
237,965
5,783
1
74
5,710
1,012
50,168
48,652
194
1,113
47,733
Total held-to-maturity debt securities
14,724
125
374
14,475
14,847
80
1,647
554
Obligations of U.S. states and municipalities
36,165
166
638
35,693
33,805
114
559
33,360
Total mortgage-backed securities
5,654
129
5,783
14,373
4,096
235,516
6,967
836
34,497
27,294
32
426
26,900
Non-U.S. government debt securities
106
106
59
59
Certificates of deposit
31,592
45
184
30,284
32,338
33
1,881
30,490
Obligations of U.S. states and municipalities
44,101
796
75
44,822
22,745
31
266
1,492
50,889
35,288
Asset-backed securities:
45
62
6,950
27,401
26
75
27,352
20,996
8,817
201,678
477
3,961
198,194
Total available-for-sale debt securities
24
Corporate debt securities
77
Other
1
69
20,928
Collateralized loan obligations
4,958
22
64
4,916
2,757
1
101
2,657
8,764
138
than-temporary when there is an adverse change in
expected cash flows. For AFS equity securities, the Firm
considers a decline in fair value to be other-than-temporary
if it is probable that the Firm will not recover its cost basis.
Potential OTTI is considered using a variety of factors,
including the length of time and extent to which the market
value has been less than cost; adverse conditions
specifically related to the industry, geographic area or
financial condition of the issuer or underlying collateral of a
security; payment structure of the security; changes to the
rating of the security by a rating agency; the volatility of the
fair value changes; and the Firm's intent and ability to hold
the security until recovery.
1,647
(a) Prior period amounts were revised to conform with the current period presentation.
(b) Includes securities-for-securities lending transactions of $9.2 billion and $9.1 billion at December 31, 2017 and 2016, respectively, accounted for at fair
value, where the Firm is acting as lender. These amounts are presented within accounts payable and other liabilities on the Consolidated balance sheets.
Transfers not qualifying for sale accounting
At December 31, 2017 and 2016, the Firm held $1.5 billion and $5.9 billion, respectively, of financial assets for which the
rights have been transferred to third parties; however, the transfers did not qualify as a sale in accordance with U.S. GAAP.
These transfers have been recognized as collateralized financing transactions. The transferred assets are recorded in trading
assets and loans, and the corresponding liabilities are recorded predominantly in short-term borrowings on the Consolidated
balance sheets.
210
JPMorgan Chase & Co./2017 Annual Report
45,599 $
46,471
2,068 $
2,116
4.26%
4.75%
-%
Average yield(b)
65
Fair value
$
66
$ - $
Amortized cost
Total held-to-maturity securities
4.66%
4.72%
14,847
12,715
14,373
12,288 $
2,019 $
2,067
4.30%
4.74%
-%
Average yield (b)
22,451
4,617
2,877
402,465
21,064
402,465 $
22,451
Remaining contractual maturity of the agreements
2017 (in millions)
Overnight and
continuous
Total securities sold under repurchase agreements
$
Total securities loaned and other(b)
166,425 $
22,876
Up to 30 days
156,434 $
30 - 90 days
Greater than
90 days
65
Total
41,611 $
2,328
33,748 $
1,649
398,218
27,228
Remaining contractual maturity of the agreements
2016 (in millions)
Overnight and
continuous
Total securities sold under repurchase agreements
Total securities loaned and other(b)
$
Up to 30 days
140,318 $
157,860 $
13,586
1,371
30 - 90 days
55,621 $
Greater than
90 days
48,666 $
Total
375
15,529
Fair value
66
19,644
$
5,365
5,367
3.03%
Average yield (b)
Fair value
$
Amortized cost
Total available-for-sale securities
0.71%
547
547
0.71%
-%
547
$
547
$
-%
$
-%
Average yield(b)
Fair value
$
Amortized cost
Available-for-sale equity securities
3.14%
3.66%
2.28%
$
19,868
47,300
47,922
$
Amortized cost
Obligations of U.S. states and municipalities
3.27%
33,805
33,360
$
33,311
33,756
3.27%
2.88%
49
$
49
$
-%
$
-%
Fair value
$
$
Amortized Cost
Mortgage-backed securities(a)
Held-to-maturity debt securities
3.13%
3.65%
2.28%
1.86%
202,225
198,741
126,432 $
129,068
Average yield (b)
24,442
27,228 $
398,218 $
$
(250,505) $
(8,814)
198,103 $
105,112
(188,502) $
(76,805)
9,601
28,307
Liabilities
Securities sold under repurchase agreements
$
Securities loaned and other(a)
398,218 $
27,228
(250,505) $
(8,814)
147,713 $
18,414
(129,178) $
(18,151)
18,535
263
December 31, (in millions)
Gross amounts
Amounts netted
on the
Consolidated
balance sheets
2016
Amounts
presented on the
Consolidated
balance sheets (b)
Amounts not
nettable on the
Consolidated
balance sheets(c)
Net amounts (d)
Assets
Securities purchased under resale agreements
$
Securities borrowed
480,735 $
96,409
(250,832) $
229,903 $
96,409
448,608 $
113,926
$
Securities purchased under resale agreements
Securities borrowed
Assets
3.66%
3.69%
(a) As of December 31, 2017, mortgage-backed securities issued by Fannie Mae exceeded 10% of JPMorgan Chase's total stockholders' equity; the amortized cost and
fair value of such securities was $55.1 billion and $56.0 billion, respectively.
(b) Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each security. The effective yield
considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives. Taxable-equivalent amounts are used
JPMorgan Chase & Co./2017 Annual Report
207
Notes to consolidated financial statements
where applicable and reflect the estimated impact of the enactment of the Tax Cuts and Jobs Act ("TCJA"). The effective yield excludes unscheduled principal prepayments; and
accordingly, actual maturities of securities may differ from their contractual or expected maturities as certain securities may be prepaid.
(c) Includes securities with no stated maturity. Substantially all of the Firm's U.S. residential MBS and collateralized mortgage obligations are due in 10 years or more, based on
contractual maturity. The estimated weighted-average life, which reflects anticipated future prepayments, is approximately six years for agency residential MBS, three years for
agency residential collateralized mortgage obligations and three years for nonagency residential collateralized mortgage obligations.
Note 11 - Securities financing activities
JPMorgan Chase enters into resale agreements, repurchase
agreements, securities borrowed transactions and securities
loaned transactions (collectively, “securities financing
agreements") primarily to finance the Firm's inventory
positions, acquire securities to cover short positions,
accommodate customers' financing needs, and settle other
securities obligations.
Securities financing agreements are treated as
collateralized financings on the Firm's Consolidated balance
sheets. Resale and repurchase agreements are generally
carried at the amounts at which the securities will be
subsequently sold or repurchased. Securities borrowed and
securities loaned transactions are generally carried at the
amount of cash collateral advanced or received. Where
appropriate under applicable accounting guidance, resale
and repurchase agreements with the same counterparty are
reported on a net basis. For further discussion of the
offsetting of assets and liabilities, see Note 1. Fees received
and paid in connection with securities financing agreements
are recorded in interest income and interest expense on the
Consolidated statements of income.
(222,413) $
(66,822)
The Firm has elected the fair value option for certain
securities financing agreements. For further information
regarding the fair value option, see Note 3. The securities
financing agreements for which the fair value option has
been elected are reported within securities purchased
under resale agreements, securities loaned or sold under
repurchase agreements, and securities borrowed on the
Consolidated balance sheets. Generally, for agreements
carried at fair value, current-period interest accruals are
recorded within interest income and interest expense, with
changes in fair value reported in principal transactions
revenue. However, for financial instruments containing
embedded derivatives that would be separately accounted
for in accordance with accounting guidance for hybrid
instruments, all changes in fair value, including any interest
elements, are reported in principal transactions revenue.
to credit and liquidity risk. To manage these risks, the Firm
monitors the value of the underlying securities
(predominantly high-quality securities collateral, including
government-issued debt and agency MBS) that it has
received from or provided to its counterparties compared to
the value of cash proceeds and exchanged collateral, and
either requests additional collateral or returns securities or
collateral when appropriate. Margin levels are initially
established based upon the counterparty, the type of
underlying securities, and the permissible collateral, and
are monitored on an ongoing basis.
In resale agreements and securities borrowed transactions,
the Firm is exposed to credit risk to the extent that the
value of the securities received is less than initial cash
principal advanced and any collateral amounts exchanged.
In repurchase agreements and securities loaned
transactions, credit risk exposure arises to the extent that
the value of underlying securities exceeds the value of the
initial cash principal advanced, and any collateral amounts
exchanged.
Additionally, the Firm typically enters into master netting
agreements and other similar arrangements with its
counterparties, which provide for the right to liquidate the
underlying securities and any collateral amounts exchanged
in the event of a counterparty default. It is also the Firm's
policy to take possession, where possible, of the securities
underlying resale agreements and securities borrowed
transactions. For further information regarding assets
pledged and collateral received in securities financing
agreements, see Note 28.
As a result of the Firm's credit risk mitigation practices with
respect to resale and securities borrowed agreements as
described above, the Firm did not hold any reserves for
credit impairment with respect to these agreements as of
December 31, 2017 and 2016.
208
JPMorgan Chase & Co./2017 Annual Report
The table below summarizes the gross and net amounts of the Firm's securities financing agreements, as of December 31,
2017, and 2016. When the Firm has obtained an appropriate legal opinion with respect to the master netting agreement with
a counterparty and where other relevant netting criteria under U.S. GAAP are met, the Firm nets, on the Consolidated balance
sheets, the balances outstanding under its securities financing agreements with the same counterparty. In addition, the Firm
exchanges securities and/or cash collateral with its counterparties; this collateral also reduces the economic exposure with the
counterparty. Such collateral, along with securities financing balances that do not meet all these relevant netting criteria under
U.S. GAAP, is presented as “Amounts not nettable on the Consolidated balance sheets," and reduces the "Net amounts"
presented below, if the Firm has an appropriate legal opinion with respect to the master netting agreement with the
counterparty. Where a legal opinion has not been either sought or obtained, the securities financing balances are presented
gross in the "Net amounts" below, and related collateral does not reduce the amounts presented.
December 31, (in millions)
Gross amounts
Amounts netted
on the
Consolidated
balance sheets
2017
Amounts
presented on the
Consolidated
balance sheets(b)
Amounts not
nettable on the
Consolidated
balance sheets(c)
Net amounts (d)
Securities financing transactions expose the Firm primarily
7,490
29,587
Liabilities
Securities sold under repurchase agreements
Securities sold
Securities loaned
and other(b)
under repurchase
agreements
Securities loaned
and other(b)
$
13,100 $
$
14,034 $
2,972
6,224
1,594
4,173
agreements
177,581
185,145
1,557
170,196
2,485
2,491
149,008
1,279
14,231
287
18,140
108
3,508
7,721
13,479
14
201,678
Securities sold
under repurchase
2017
Securities loaned and other (a)
$
402,465 $
22,451
(250,832) $
151,633 $
22,451
(133,300) $
(22,177)
18,333
274
(a) Includes securities-for-securities lending transactions of $9.2 billion and $9.1 billion at December 31, 2017 and 2016, respectively, accounted for at fair
value, where the Firm is acting as lender. These amounts are presented within accounts payable and other liabilities in the Consolidated balance sheets.
(b) Includes securities financing agreements accounted for at fair value. At December 31, 2017 and 2016, included securities purchased under resale
agreements of $14.7 billion and $21.5 billion, respectively, and securities sold under agreements to repurchase of $697 million and $687 million,
respectively. There were $3.0 billion of securities borrowed at December 31, 2017 and there were no securities borrowed at December 31, 2016. There
were no securities loaned accounted for at fair value in either period.
(c) In some cases, collateral exchanged with a counterparty exceeds the net asset or liability balance with that counterparty. In such cases, the amounts
reported in this column are limited to the related asset or liability with that counterparty.
(d) Includes securities financing agreements that provide collateral rights, but where an appropriate legal opinion with respect to the master netting
agreement has not been either sought or obtained. At December 31, 2017 and 2016, included $7.5 billion and $4.8 billion, respectively, of securities
purchased under resale agreements; $25.5 billion and $27.1 billion, respectively, of securities borrowed; $16.5 billion and $15.9 billion, respectively, of
securities sold under agreements to repurchase; and $29 million and $90 million, respectively, of securities loaned and other.
JPMorgan Chase & Co./2017 Annual Report
209
2016
Notes to consolidated financial statements
December 31, (in millions)
Mortgage-backed securities:
U.S. government agencies (a)
Residential nonagency
Commercial - nonagency
U.S. Treasury and government agencies (a)
Obligations of U.S. states and municipalities
Non-U.S.government debt
Corporate debt securities
Asset-backed securities
Equity securities
Total
Gross liability balance
The tables below present as of December 31, 2017 and 2016 the types of financial assets pledged in securities financing
agreements and the remaining contractual maturity of the securities financing agreements.
128,521
198,194
125,885 $
Changes in the credit loss component of credit-impaired
debt securities
(a) Excludes realized losses on securities sold of $6 million, $24 million and $5
million for the years ended December 31, 2017, 2016 and 2015,
respectively that had been previously reported as an OTTI loss due to the
intention to sell the securities.
(28) $ (22)
$
(7)
$
(21)
(27)
(7)
(1)
(1)
Credit losses recognized in income
Securities the Firm intends to sell(a)
Total OTTI losses recognized in
income
202
141
(66)
(22)
(28)
(7)
(127)
(232)
(1,072)
$ 401 $ 351
$ 1,013
2015
2016
2017
OTTI losses
The cumulative credit loss component, including any
changes therein, of OTTI losses that have been recognized in
income related to AFS debt securities was not material as of
and during the years ended December 31, 2017, 2016 and
2015.
206
JPMorgan Chase & Co./2017 Annual Report
Contractual maturities and yields
86,672
85,886
$
79,051
79,667
6,294
708
3
$
6,134
$
698
$
3
Net securities gains/(losses)
$
Due after
10 years(c)
Due after five years
through 10 years
Due after one year
through five years
Due in one
year or less
Fair value
U.S. Treasury and government agencies
Average yield (b)
Fair value
Amortized cost
Mortgage-backed securities (a)
Available-for-sale debt securities
By remaining maturity
December 31, 2017 (in millions)
The following table presents the amortized cost and estimated fair value at December 31, 2017, of JPMorgan Chase's
investment securities portfolio by contractual maturity.
Total
OTTI losses(a)
Realized losses
Realized gains
125
4,702
166
8,733
15
441
151
8,292
129
5,604
15
441
114
-
5,163
3,129
-
37
3,129
Total securities with gross unrealized losses $
Total held-to-maturity securities
Obligations of U.S. states and municipalities
Total mortgage-backed securities
Commercial
U.S. government agencies
Mortgage-backed securities
Held-to-maturity debt securities
Available-for-sale equity securities
37
4.76%
-
125
Year ended December 31,
(in millions)
The following table presents realized gains and losses and
OTTI from AFS securities that were recognized in income.
Securities gains and losses
For equity securities, OTTI losses are recognized in earnings
if the Firm intends to sell the security. In other cases the
Firm considers the relevant factors noted above, as well as
the Firm's intent and ability to retain its investment for a
period of time sufficient to allow for any anticipated
recovery in market value, and whether evidence exists to
support a realizable value equal to or greater than the cost
basis. Any impairment loss on an equity security is equal to
the full difference between the cost basis and the fair value
of the security.
The Firm's cash flow evaluations take into account the
factors noted above and expectations of relevant market
and economic data as of the end of the reporting period.
For securities issued in a securitization, the Firm estimates
cash flows considering underlying loan-level data and
structural features of the securitization, such as
subordination, excess spread, overcollateralization or other
forms of credit enhancement, and compares the losses
projected for the underlying collateral ("pool losses")
against the level of credit enhancement in the securitization
structure to determine whether these features are sufficient
to absorb the pool losses, or whether a credit loss exists.
The Firm also performs other analyses to support its cash
flow projections, such as first-loss analyses or stress
scenarios.
from the securities are evaluated to determine if a credit
loss exists. In the event of a credit loss, only the amount of
impairment associated with the credit loss is recognized in
income. Amounts relating to factors other than credit losses
are recorded in OCI.
Notes to consolidated financial statements
205
For AFS debt securities, the Firm recognizes OTTI losses in
earnings if the Firm has the intent to sell the debt security,
or if it is more likely than not that the Firm will be required
to sell the debt security before recovery of its amortized
cost basis. In these circumstances the impairment loss is
equal to the full difference between the amortized cost
basis and the fair value of the securities. For debt securities
in an unrealized loss position that the Firm has the intent
and ability to hold, the expected cash flows to be received
Granted
JPMorgan Chase & Co./2017 Annual Report
AFS debt and equity securities and HTM debt securities in
unrealized loss positions are analyzed as part of the Firm's
ongoing assessment of OTTI. For most types of debt
securities, the Firm considers a decline in fair value to be
other-than-temporary when the Firm does not expect to
recover the entire amortized cost basis of the security. For
beneficial interests in securitizations that are rated below
"AA" at their acquisition, or that can be contractually
prepaid or otherwise settled in such a way that the Firm
would not recover substantially all of its recorded
investment, the Firm considers an impairment to be other-
Other-than-temporary impairment
4,702
The Firm has recognized unrealized losses on securities that
it intends to sell as OTTI. The Firm does not intend to sell
any of the remaining securities with an unrealized loss in
AOCI as of December 31, 2017, and it is not likely that the
Firm will be required to sell these securities before recovery
of their amortized cost basis. Except for the securities for
which credit losses have been recognized in income, the
Firm believes that the securities with an unrealized loss in
AOCI are not other-than-temporarily impaired as of
December 31, 2017.
(a) Prior period amounts have been revised to conform with the current period presentation.
1,938
291
13,435
96,591 $
153 $
12,544 $
$
1,785
84,047 $
15
441
276
12,994
Gross unrealized losses
83,156
2.10%
3.35%
3.60%
3.07%
2,757
154
1,255
1,197
151
2,657
145
1,203 $
$
1,159
150 $
Asset-backed securities
Average yield (b)
Fair value
Amortized cost
Corporate debt securities
1.73%
-%
1.19%
1.55%
27,294
8,427
26,900
8,215 $ - $
13,665 $
13,845
3.58%
3.22%
3.54%
$
47,300 $
47,922
19,644 $
19,868
1.86%
3.03%
Average yield (b)
$
5,365
5,367
Fair value
$
Amortized cost
Total available-for-sale debt securities
Average yield(b)
Fair value
Amortized cost
5,022
3.09%
2.43%
2.58%
29,813
13,380
13,080
3,353
2.14%
-%
29,692
$
13,274
13,046 $
$
3,372
$
2.36%
Average yield (b)
Fair value
$
$
1,265
$
750
$
73
$
Amortized cost
Obligations of U.S. states and municipalities
Average yield (b)
Amortized cost
1.91%
1.76%
28,402 $
1.96%
5,143
17,542
22,510
$
5,013
$
17,437
-%
1.72%
60
$
60
3.32%
22,745
3.10%
30,490
72
5,020
$
Amortized cost
Non-U.S. government debt securities
0.50%
59
59
-%
-%
-%
59 $ - $ - $ - $
0.50%
59
Fair value
$
Fair value
Amortized cost
Certificates of deposit
5.43%
5.50%
5.40%
3.28%
1.78%
Average yield (b)
32,338
30,177
1,324
765
Average yield (b)
40.65
47,733
57.15
Generally, compensation expense for RSUs and PSUs is measured based on the number of units granted multiplied by the stock
price at the grant date, and for employee stock options and SARS, is measured at the grant date using the Black-Scholes
valuation model. Compensation expense for these awards is recognized in net income as described previously. The following
table summarizes JPMorgan Chase's RSUs, PSUs, employee stock options and SARS activity for 2017.
RSUS, PSUs, employee stock options and SARS activity
Notes to consolidated financial statements
201
JPMorgan Chase & Co./2017 Annual Report
In January 2008, the Firm awarded to its Chairman and
Chief Executive Officer up to 2 million SARS. The terms of
this award are distinct from, and more restrictive than,
other equity grants regularly awarded by the Firm. On July
15, 2014, the Compensation & Management Development
Committee and Board of Directors determined that all
requirements for the vesting of the 2 million SAR awards
had been met and thus, the awards became exercisable. The
SARS, which had an expiration date of January 2018, were
exercised by Mr. Dimon in October 2017 at the exercise
price of $39.83 per share (the price of JPMorgan Chase
common stock on the date of grant).
The Firm's policy for issuing shares upon settlement of
employee share-based incentive awards is to issue either
new shares of common stock or treasury shares. During
2017, 2016 and 2015, the Firm settled all of its employee
share-based awards by issuing treasury shares.
The Firm separately recognizes compensation expense for
each tranche of each award, net of estimated forfeitures, as
if it were a separate award with its own vesting date.
Generally, for each tranche granted, compensation expense
is recognized on a straight-line basis from the grant date
until the vesting date of the respective tranche, provided
that the employees will not become full-career eligible
during the vesting period. For awards with full-career
eligibility provisions and awards granted with no future
substantive service requirement, the Firm accrues the
estimated value of awards expected to be awarded to
employees as of the grant date without giving consideration
to the impact of post-employment restrictions. For each
tranche granted to employees who will become full-career
eligible during the vesting period, compensation expense is
recognized on a straight-line basis from the grant date until
the earlier of the employee's full-career eligibility date or
the vesting date of the respective tranche.
Under the LTI Plans, stock options and stock appreciation
rights ("SARS") have generally been granted with an
exercise price equal to the fair value of JPMorgan Chase's
common stock on the grant date. The Firm periodically
grants employee stock options to individual employees.
There were no material grants of stock options or SARS
in 2017, 2016 and 2015. SARS generally expire ten years
after the grant date.
Once the PSUs have vested, the shares of common stock
that are delivered, after applicable tax withholding, must be
held for an additional two-year period, typically for a total
combined vesting and holding period of five years from the
grant date.
In 2017, 2016 and 2015, JPMorgan Chase granted long-
term share-based awards to certain employees under its
LTIP, as amended and restated effective May 19, 2015.
Under the terms of the LTIP, as of December 31, 2017, 67
million shares of common stock were available for issuance
through May 2019. The LTIP is the only active plan under
which the Firm is currently granting share-based incentive
awards. In the following discussion, the LTIP, plus prior Firm
plans and plans assumed as the result of acquisitions, are
referred to collectively as the “LTI Plans,” and such plans
constitute the Firm's share-based incentive plans.
RSUs are awarded at no cost to the recipient upon their
grant. Generally, RSUs are granted annually and vest at a
rate of 50% after two years and 50% after three years and
are converted into shares of common stock as of the vesting
date. In addition, RSUs typically include full-career eligibility
provisions, which allow employees to continue to vest upon
voluntary termination based on age or service-related
requirements, subject to post-employment and other
restrictions. All RSU awards are subject to forfeiture until
vested and contain clawback provisions that may result in
cancellation under certain specified circumstances.
Generally, RSUs entitle the recipient to receive cash
payments equivalent to any dividends paid on the
underlying common stock during the period the RSUs are
outstanding and, as such, are considered participating
securities as discussed in Note 22.
Employee share-based awards
Note 9 Employee share-based incentives
48,652
30,267 $
RSUS/PSUS
Options/SARS
In January 2017 and 2016, the Firm's Board of Directors
approved the grant of performance share units ("PSUs") to
members of the Firm's Operating Committee under the
variable compensation program for performance years
2016 and 2015. PSUs are subject to the Firm's achievement
of specified performance criteria over a three-year period.
The number of awards that vest can range from zero to
150% of the grant amount. The awards vest and are
converted into shares of common stock in the quarter after
the end of the performance period, which is generally three
years. In addition, dividends are notionally reinvested in the
Firm's common stock and will be delivered only in respect of
any earned shares.
Weighted-
81,707 $
Year ended December 31, 2017
value
(in years)
Outstanding, January 1
intrinsic
contractual life
exercise
price
Number of
awards
Aggregate
remaining
Weighted-average
average
Weighted-
average grant
date fair value
Number of
units
(in thousands, except weighted-average data, and
where otherwise stated)
6,205
6,618
371
295
6,983
6,323
6,306
7,967
677
632
5,834
4,109
51,690
$216,496 $ 192,486
1,439
1,772
5,548
5,367
All other(f)
Total retained loans
47,915
8,264
9,834
59,954
57,749
7,335
$ 33,450 $ 39,063
3,595
6,680
8,395
1,229
10,772
2,021
2,225
14,529
12,997
Florida
New Jersey
Washington
Colorado
Massachusetts
Arizona
9,598
7,988
$249,946
2,133
11,445
10,528
7,142
6,374
1,957
2,253
9,099
8,627
6,962
5,451
1,026
1,847
$231,549
Total 30+ day delinquency rate
2017
(c) These balances, which are 90 days or more past due, were excluded from nonaccrual loans as the loans are guaranteed by U.S government agencies. Typically the principal
balance of the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. At December 31, 2017 and
2016, these balances included $1.5 billion and $2.2 billion, respectively, of loans that are no longer accruing interest based on the agreed-upon servicing guidelines. For the
remaining balance, interest is being accrued at the guaranteed reimbursement rate. There were no loans that were not guaranteed by U.S. government agencies that are 90 or
more days past due and still accruing interest at December 31, 2017 and 2016.
(b) The Firm manages the risk of HELOCS during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers are experiencing financial
difficulty.
HELOCS beyond the revolving period and HELOANS have higher delinquency rates than HELOCS within the revolving period.
That is primarily because the fully-amortizing payment that is generally required for those products is higher than the
minimum payment options available for HELOCS within the revolving period. The higher delinquency rates associated with
amortizing HELOCS and HELOANS are factored into the Firm's allowance for loan losses.
Impaired loans
The table below sets forth information about the Firm's residential real estate impaired loans, excluding PCI loans. These loans
are considered to be impaired as they have been modified in a TDR. All impaired loans are evaluated for an asset-specific
allowance as described in Note 13.
December 31,
(in millions)
Impaired loans
Residential mortgage
2017
2016
Home equity
2017
(a) These HELOCs are predominantly revolving loans for a 10-year period, after which time the HELOC converts to a loan with a 20-year amortization period, but also include HELOCS that
allow interest-only payments beyond the revolving period.
2016
2017
2016
With an allowance
$
Without an allowance (a)
4,407 $
1,213
Total impaired loans (b)(c)
$
5,620 $
Allowance for loan losses related to impaired loans
$
62 $
Total residential real estate
- excluding PCI
2.32%
2.64%
2.85
(d) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly,
based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where
actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and
should be viewed as estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as unused lines, related to the
property.
(e) Refreshed FICO scores represent each borrower's most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(f) At December 31, 2017 and 2016, included mortgage loans insured by U.S. government agencies of $8.5 billion and $9.4 billion, respectively.
(g) Certain loan portfolios have been reclassified. The prior period amounts have been revised to conform with the current period presentation.
JPMorgan Chase & Co./2017 Annual Report
217
Notes to consolidated financial statements
The following table represents the Firm's delinquency statistics for junior lien home equity loans and lines as of December 31,
2017 and 2016.
December 31, (in millions except ratios)
HELOCS:(a)
Within the revolving period (b)
Beyond the revolving period
HELOANS
Total
Total loans
2017
2016
12,508
2016
$
$
6,363 $
13,532
1,371
21,266 $
10,304
13,272
1,861
25,437
0.50%
1.27%
3.56
3.05
3.50
(a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $2.4 billion and $2.5 billion; 30-149 days past
due included $3.2 billion and $3.1 billion; and 150 or more days past due included $2.9 billion and $3.8 billion at December 31, 2017 and 2016, respectively.
(b) At December 31, 2017 and 2016, residential mortgage loans excluded mortgage loans insured by U.S. government agencies of $6.1 billion and $6.9 billion, respectively, that
are 30 or more days past due. These amounts have been excluded based upon the government guarantee.
Texas
$ 249,946
17,022
3
15
+A
47 $
100
22
63
Equal to or greater than 660
Less than 660
888
36
135
48
296
332
803
177
95
221
183
398
80% to 100% and refreshed FICO scores:
Equal to or greater than 660
4,369
4,026
1,676
668
19
70
+A
$ 33,450
$ 39,063
$241,104
4,905
3,937
$249,946
$222,074
4,474
5,001
$231,549
0.77%
0.75%
3.17%
2.87%
1.09%
1.11%
$
4,172 $ 4,858
2,175
2,256
1,610
1,845
$ 4,172 $ 4,858
3,785
4,101
$
37
$
30
$
10 $
2,961
16,073
6,045
Less than 660
4,136
8,495
9,364
8,495
9,364
$216,496
$192,486
$ 33,450
$ 39,063
4,689 $
1,343
6,032 $
68 $
$231,549
$ 68,855
2,948
27,473
$ 6,582 $ 7,644
$ 75,437
$ 67,446
6,866
7,978
34,339
32,894
14,501
$
13,126
2,521
2,947
$ 59,802
24,916
11,139
10,802
196,896
483
718
569
945
1,052
1,663
Less than 80% and refreshed FICO scores:
Equal to or greater than 660
194,758
169,579
25,262
Less than 660
No FICO/LTV available
U.S. government-guaranteed
Total retained loans
Geographic region
California
New York
Illinois
6,952
6,759
3,850
1,259
1,650
1,689
27,317
4,380
2,486
220,020
6,987
1,236 $
882
2,118 $
111 $
11,442
$
18
24
Principal forgiveness
16
26
28
13
9
7
14
16
16
12
Other(b)
25
11
31
6
32
14
5
(a) Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages exceeds 100% because
predominantly all of the modifications include more than one type of concession. A significant portion of trial modifications include interest rate reductions and/or term or
payment extensions.
(b) Predominantly represents variable interest rate to fixed interest rate modifications.
JPMorgan Chase & Co./2017 Annual Report
219
Notes to consolidated financial statements
33
23
19
10
8,162
7,441
Concession granted:(a)
Interest rate reduction
63%
76%
71%
59%
75%
66%
60%
76%
68%
Term or payment extension
72
90
81
69
83
89
70
86
86
Principal and/or interest deferred
15
16
27
Financial effects of modifications and redefaults
8,252
The following table provides information about the financial effects of the various concessions granted in modifications of
residential real estate loans, excluding PCI, under the loss mitigation programs described above and about redefaults of
certain loans modified in TDRs for the periods presented. The following table presents only the final financial effects of
permanent modifications and does not include temporary concessions offered through trial modifications. This table also
excludes Chapter 7 loans where the sole concession granted is the discharge of debt.
December 31,
2.70
2.64
24
24
25
21
18
18
23
22
22
38
2.83
38
39
38
35
38
38
36
Charge-offs recognized upon permanent
modification
$
2
+A
$
4
37
2.35
2.34
2.64
Residential mortgage
Home equity
Total residential real estate -
excluding PCI
(in millions, except weighted-average data and
number of loans)
2017
2016
2015
2017
2016
2015
2017
2016
2015
Weighted-average interest rate of loans with
interest rate reductions - before TDR
Weighted-average interest rate of loans with
interest rate reductions - after TDR
Weighted-average remaining contractual term
(in years) of loans with term or payment
extensions - before TDR
Weighted-average remaining contractual term
(in years) of loans with term or payment
extensions - after TDR
5.15%
5.59%
5.67%
4.94%
4.99%
5.20%
5.06%
5.36%
5.51%
2.99
2.93
2.79
Year ended
4,296
4,824
5,624
Interest income on impaired
loans on a cash basis(a)
Year ended December 31,
(in millions)
2017
2016
2015
2017
2016
2015
2017
2016
2015
Interest income on
impaired loans(a)
Residential mortgage
Home equity
5,797 $
2,189
6,376 $ 7,697 $
2,311
2,369
287 $
305 $
127
125
348 $
128
75 $
77 $
87
80
$
Average impaired loans
The following table presents average impaired loans and the related interest income reported by the Firm.
JPMorgan Chase & Co./2017 Annual Report
5,643 $
2,095
5,955
2,341
7,738 $
8,296
121
$
173 $
189
Unpaid principal balance of impaired loans (d)
Impaired loans on nonaccrual status(e)
7,741
1,743
8,285
1,755
3,701
3,847
$216,496 $ 192,486
12,132
1,032
1,116
2,775
2,871
(a) Represents collateral-dependent residential real estate loans that are charged off to the fair value of the underlying collateral less costs to sell. The Firm reports, in accordance with
regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower ("Chapter 7 loans") as collateral-
dependent nonaccrual TDRs, regardless of their delinquency status. At December 31, 2017, Chapter 7 residential real estate loans included approximately 12% of home equity and
15% of residential mortgages that were 30 days or more past due.
(b) At December 31, 2017 and 2016, $3.8 billion and $3.4 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae in accordance with the standards of the
appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to modification in accordance with Ginnie Mae
guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform become subject to foreclosure.
(c) Predominantly all residential real estate impaired loans, excluding PCI loans, are in the U.S.
(d) Represents the contractual amount of principal owed at December 31, 2017 and 2016. The unpaid principal balance differs from the impaired loan balances due to various factors
including charge-offs, net deferred loan fees or costs, and unamortized discounts or premiums on purchased loans.
(e) As of December 31, 2017 and 2016, nonaccrual loans included $2.2 billion and $2.3 billion, respectively, of TDRS for which the borrowers were less than 90 days past due. For
additional information about loans modified in a TDR that are on nonaccrual status refer to the Loan accounting framework on pages 211-213 of this Note.
218
80
85
Total residential real estate - excluding PCI
$
Residential mortgage
Home equity
Total residential real estate
excluding PCI
Year ended December 31,
2017
2016
2015
2017
2016
2015
2017
2016
2015
Number of loans approved for a trial
modification
1,283
1,945
2,711
2,321
3,760
3,933
3,604
5,705
6,644
Number of loans permanently modified
2,628
3,338
3,145
The following table provides information about how residential real estate loans, excluding PCI loans, were modified under the
Firm's loss mitigation programs described above during the periods presented. This table excludes Chapter 7 loans where the
sole concession granted is the discharge of debt.
1,266
998
2,264 $
The U.S. Treasury's Making Home Affordable programs, as well as the Firm's proprietary modification programs, generally
provide various concessions to financially troubled borrowers including, but not limited to, interest rate reductions, term or
payment extensions and deferral of principal and/or interest payments that would otherwise have been required under the
terms of the original agreement.
668
7,986 $ 8,687 $ 10,066 $
414 $
430 $
476 $
155 $
157 $
172
(a) Generally, interest income on loans modified in TDRS is recognized on a cash basis until such time as the borrower has made a minimum of six payments under the new terms,
unless the loan is deemed to be collateral-dependent.
Loan modifications
Modifications of residential real estate loans, excluding PCI
loans, are generally accounted for and reported as TDRs.
There were no additional commitments to lend to
borrowers whose residential real estate loans, excluding PCI
loans, have been modified in TDRs.
The following table presents new TDRs reported by the
Firm.
Year ended December 31,
(in millions)
2017
2016
2015
Residential mortgage
$
Home equity
373 $
321
254 $
385
267
401
Total residential real estate - excluding
PCI
$
694 $
639 $
Nature and extent of modifications
646
476
Total residential real
estate - excluding PCI
4,525
Notes to consolidated financial statements
Loan portfolio
The Firm's loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine
the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment the
Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class.
Consumer, excluding
credit card(a)
Residential real estate - excluding PCI
• Residential mortgage (b)
Home equity(c)
Other consumer loans
Auto(d)
• Consumer & Business Banking (d)(e)
• Student
388
• Home equity
Credit card
• Credit card loans
•
Wholesale(f)
Commercial and industrial
Real estate
• Financial institutions
213
JPMorgan Chase & Co./2017 Annual Report
The Firm recognizes foreclosed property upon receiving
assets in satisfaction of a loan (e.g., by taking legal title or
physical possession). For loans collateralized by real
property, the Firm generally recognizes the asset received
at foreclosure sale or upon the execution of a deed in lieu of
foreclosure transaction with the borrower. Foreclosed
assets are reported in other assets on the Consolidated
balance sheets and initially recognized at fair value less
costs to sell. Each quarter the fair value of the acquired
property is reviewed and adjusted, if necessary, to the lower
of cost or fair value. Subsequent adjustments to fair value
are charged/credited to noninterest revenue. Operating
expense, such as real estate taxes and maintenance, are
charged to other expense.
The Firm acquires property from borrowers through loan
restructurings, workouts, and foreclosures. Property
acquired may include real property (e.g., residential real
estate, land, and buildings) and commercial and personal
property (e.g., automobiles, aircraft, railcars, and ships).
Loan origination fees or costs and purchase price discounts
or premiums are deferred in a contra loan account until the
related loan is sold. The deferred fees or costs and
discounts or premiums are an adjustment to the basis of the
loan and therefore are included in the periodic
determination of the lower of cost or fair value adjustments
and/or the gain or loss recognized at the time of sale.
Held-for-sale loans are subject to the nonaccrual policies
described above.
Because held-for-sale loans are recognized at the lower of
cost or fair value, the Firm's allowance for loan losses and
charge-off policies do not apply to these loans.
Loans at fair value
Loans used in a market-making strategy or risk managed on
a fair value basis are measured at fair value, with changes
in fair value recorded in noninterest revenue.
Interest income on these loans is accrued and recognized
based on the contractual rate of interest. Changes in fair
value are recognized in noninterest revenue. Loan
origination fees are recognized upfront in noninterest
revenue. Loan origination costs are recognized in the
associated expense category as incurred.
Because these loans are recognized at fair value, the Firm's
allowance for loan losses and charge-off policies do not
apply to these loans.
See Note 3 for further information on the Firm's elections of
fair value accounting under the fair value option. See Note 2
and Note 3 for further information on loans carried at fair
value and classified as trading assets.
PCI loans
PCI loans held-for-investment are initially measured at fair
value. PCI loans have evidence of credit deterioration since
the loan's origination date and therefore it is probable, at
acquisition, that all contractually required payments will not
be collected. Because PCI loans are initially measured at fair
value, which includes an estimate of future credit losses, no
allowance for loan losses related to PCI loans is recorded at
the acquisition date. See page 223 of this Note for
information on accounting for PCI loans subsequent to their
acquisition.
•
212
Loan classification changes
Loans in the held-for-investment portfolio that management
decides to sell are transferred to the held-for-sale portfolio
at the lower of cost or fair value on the date of transfer.
Credit-related losses are charged against the allowance for
loan losses; non-credit related losses such as those due to
changes in interest rates or foreign currency exchange rates
are recognized in noninterest revenue.
In the event that management decides to retain a loan in
the held-for-sale portfolio, the loan is transferred to the
held-for-investment portfolio at the lower of cost or fair
value on the date of transfer. These loans are subsequently
assessed for impairment based on the Firm's allowance
methodology. For a further discussion of the methodologies
used in establishing the Firm's allowance for loan losses,
see Note 13.
Loan modifications
The Firm seeks to modify certain loans in conjunction with
its loss-mitigation activities. Through the modification,
JPMorgan Chase grants one or more concessions to a
borrower who is experiencing financial difficulty in order to
minimize the Firm's economic loss and avoid foreclosure or
repossession of the collateral, and to ultimately maximize
payments received by the Firm from the borrower. The
concessions granted vary by program and by borrower-
specific characteristics, and may include interest rate
reductions, term extensions, payment deferrals, principal
forgiveness, or the acceptance of equity or other assets in
lieu of payments.
Such modifications are accounted for and reported as TDRs.
A loan that has been modified in a TDR is generally
considered to be impaired until it matures, is repaid, or is
otherwise liquidated, regardless of whether the borrower
performs under the modified terms. In certain limited
cases, the effective interest rate applicable to the modified
loan is at or above the current market rate at the time of
the restructuring. In such circumstances, and assuming that
the loan subsequently performs under its modified terms
and the Firm expects to collect all contractual principal and
interest cash flows, the loan is disclosed as impaired and as
a TDR only during the year of the modification; in
subsequent years, the loan is not disclosed as an impaired
loan or as a TDR so long as repayment of the restructured
loan under its modified terms is reasonably assured.
Loans, except for credit card loans, modified in a TDR are
generally placed on nonaccrual status, although in many
cases such loans were already on nonaccrual status prior to
modification. These loans may be returned to performing
status (the accrual of interest is resumed) if the following
criteria are met: (i) the borrower has performed under the
modified terms for a minimum of six months and/or six
payments, and (ii) the Firm has an expectation that
repayment of the modified loan is reasonably assured based
on, for example, the borrower's debt capacity and level of
future earnings, collateral values, LTV ratios, and other
current market considerations. In certain limited and well-
defined circumstances in which the loan is current at the
modification date, such loans are not placed on nonaccrual
status at the time of modification.
Because loans modified in TDRs are considered to be
impaired, these loans are measured for impairment using
the Firm's established asset-specific allowance
methodology, which considers the expected re-default rates
for the modified loans. A loan modified in a TDR generally
remains subject to the asset-specific allowance
methodology throughout its remaining life, regardless of
whether the loan is performing and has been returned to
accrual status and/or the loan has been removed from the
impaired loans disclosures (i.e., loans restructured at
market rates). For further discussion of the methodology
used to estimate the Firm's asset-specific allowance, see
Note 13.
Foreclosed property
JPMorgan Chase & Co./2017 Annual Report
Interest income on loans held-for-sale is accrued and
recognized based on the contractual rate of interest.
Government agencies
• Other(g)
Prime mortgage
924,838 (b)
124
-
3,099
2,508
3,351
2,508
$
149,511
$ 408,505
$
930,697
December 31, 2016
(in millions)
Retained
$ 372,681
Consumer, excluding
credit card
$ 364,406
Held-for-sale
$
Total
Wholesale
$ 402,898
Credit card (a)
149,387
Subprime mortgage
• Option ARMS
(a) Includes loans held in CCB, prime mortgage and home equity loans held in AWM and prime mortgage loans held in Corporate.
(b) Predominantly includes prime (including option ARMS) and subprime loans.
(c) Includes senior and junior lien home equity loans.
(d) Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses;
these loans are managed by CCB, and therefore, for consistency in presentation, are included with the other consumer loan classes.
(e) Predominantly includes Business Banking loans.
(f) Includes loans held in CIB, CB, AWM and Corporate. Excludes prime mortgage and home equity loans held in AWM and prime mortgage loans held in
Corporate. Classes are internally defined and may not align with regulatory definitions.
(g) Includes loans to: individuals; SPEs; and private education and civic organizations. For more information on SPES, see Note 14.
•
The following tables summarize the Firm's loan balances by portfolio segment.
(in millions)
Retained
Held-for-sale
At fair value
Total
Consumer, excluding
credit card
$ 372,553
128
$
December 31, 2017
At fair value
Held-for-sale loans are measured at the lower of cost or fair
value, with valuation changes recorded in noninterest
revenue. For consumer loans, the valuation is performed on
a portfolio basis. For wholesale loans, the valuation is
performed on an individual loan basis.
For commercial real estate loans, collateral values are
generally based on appraisals from internal and external
valuation sources. Collateral values are typically updated
every six to twelve months, either by obtaining a new
appraisal or by performing an internal analysis, in
accordance with the Firm's policies. The Firm also considers
both borrower- and market-specific factors, which may
result in obtaining appraisal updates or broker price
opinions at more frequent intervals.
72
51
33
6
7
13
66
44
20
Principal forgiven
85
53
22
27
23
10
58
30
12
Balance of loans that redefaulted within one
year of permanent modification(a)
$
124
Note 12 - Loans
JPMorgan Chase & Co./2017 Annual Report
220
At December 31, 2017 and 2016, the Firm had non-PCI
residential real estate loans, excluding those insured by U.S.
government agencies, with a carrying value of $787 million
and $932 million, respectively, that were not included in
REO, but were in the process of active or suspended
foreclosure.
Active and suspended foreclosure
At December 31, 2017, the weighted-average estimated
remaining lives of residential real estate loans, excluding
PCI loans, permanently modified in TDRs were 14 years for
residential mortgage and 10 years for home equity. The
estimated remaining lives of these loans reflect estimated
prepayments, both voluntary and involuntary (i.e.,
foreclosures and other forced liquidations).
(a) Represents loans permanently modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred within one year of the
modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such loans defaulted. For residential real estate loans
modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments past due. In the event that a modified loan redefaults, it is probable that the
loan will ultimately be liquidated through foreclosure or another similar type of liquidation transaction. Redefaults of loans modified within the last 12 months may not be
representative of ultimate redefault levels.
154
$
Principal deferred
138
$ 180
21
$
40
56 $
$
133
98 $
$
$
Loans held-for-sale
15
5
Nonaccrual loans are those on which the accrual of interest
has been suspended. Loans (other than credit card loans
and certain consumer loans insured by U.S. government
agencies) are placed on nonaccrual status and considered
nonperforming when full payment of principal and interest
is not expected, regardless of delinquency status, or when
principal and interest has been in default for a period of 90
days or more, unless the loan is both well-secured and in
the process of collection. A loan is determined to be past
due when the minimum payment is not received from the
borrower by the contractually specified due date or for
certain loans (e.g., residential real estate loans), when a
monthly payment is due and unpaid for 30 days or more.
Finally, collateral-dependent loans are typically maintained
on nonaccrual status.
On the date a loan is placed on nonaccrual status, all
interest accrued but not collected is reversed against
interest income. In addition, the amortization of deferred
amounts is suspended. Interest income on nonaccrual loans
may be recognized as cash interest payments are received
(i.e., on a cash basis) if the recorded loan balance is
deemed fully collectible; however, if there is doubt
regarding the ultimate collectibility of the recorded loan
balance, all interest cash receipts are applied to reduce the
carrying value of the loan (the cost recovery method). For
consumer loans, application of this policy typically results in
the Firm recognizing interest income on nonaccrual
consumer loans on a cash basis.
A loan may be returned to accrual status when repayment is
reasonably assured and there has been demonstrated
performance under the terms of the loan or, if applicable,
the terms of the restructured loan.
As permitted by regulatory guidance, credit card loans are
generally exempt from being placed on nonaccrual status;
accordingly, interest and fees related to credit card loans
continue to accrue until the loan is charged off or paid in
full. However, the Firm separately establishes an allowance,
which is offset against loans and charged to interest
income, for the estimated uncollectible portion of accrued
and billed interest and fee income on credit card loans. The
allowance is established with a charge to interest income
and is reported as an offset to loans.
Allowance for loan losses
The allowance for loan losses represents the estimated
probable credit losses inherent in the held-for-investment
loan portfolio at the balance sheet date and is recognized
on the balance sheet as a contra asset, which brings the
recorded investment to the net carrying value. Changes in
the allowance for loan losses are recorded in the provision
for credit losses on the Firm's Consolidated statements of
income. See Note 13 for further information on the Firm's
accounting policies for the allowance for loan losses.
Charge-offs
Consumer loans, other than risk-rated business banking and
auto loans, and PCI loans, are generally charged off or
charged down to the net realizable value of the underlying
collateral (i.e., fair value less costs to sell), with an offset to
the allowance for loan losses, upon reaching specified
stages of delinquency in accordance with standards
established by the FFIEC. Residential real estate loans and
non-modified credit card loans are generally charged off no
later than 180 days past due. Scored auto, student and
modified credit card loans are charged off no later than 120
days past due.
Certain consumer loans will be charged off or charged down
to their net realizable value earlier than the FFIEC charge-
off standards in certain circumstances as follows:
Loans modified in a TDR that are determined to be
collateral-dependent.
Loans to borrowers who have experienced an event that
suggests a loss is either known or highly certain are
subject to accelerated charge-off standards (e.g.,
residential real estate and auto loans are charged off
within 60 days of receiving notification of a bankruptcy
filing).
Auto loans upon repossession of the automobile.
JPMorgan Chase & Co./2017 Annual Report
211
Notes to consolidated financial statements
Other than in certain limited circumstances, the Firm
typically does not recognize charge-offs on government-
guaranteed loans.
Wholesale loans, risk-rated business banking loans and risk-
rated auto loans are charged off when it is highly certain
that a loss has been realized, including situations where a
loan is determined to be both impaired and collateral-
dependent. The determination of whether to recognize a
charge-off includes many factors, including the
prioritization of the Firm's claim in bankruptcy, expectations
of the workout/restructuring of the loan and valuation of
the borrower's equity or the loan collateral.
When a loan is charged down to the estimated net realizable
value, the determination of the fair value of the collateral
depends on the type of collateral (e.g., securities, real
estate). In cases where the collateral is in the form of liquid
securities, the fair value is based on quoted market prices
or broker quotes. For illiquid securities or other financial
assets, the fair value of the collateral is estimated using a
discounted cash flow model.
For residential real estate loans, collateral values are based
upon external valuation sources. When it becomes likely
that a borrower is either unable or unwilling to pay, the
Firm obtains a broker's price opinion of the home based on
an exterior-only valuation ("exterior opinions"), which is
then updated at least every six months thereafter. As soon
as practicable after the Firm receives the property in
satisfaction of a debt (e.g., by taking legal title or physical
possession), the Firm generally obtains an appraisal based
on an inspection that includes the interior of the home
("interior appraisals"). Exterior opinions and interior
appraisals are discounted based upon the Firm's experience
with actual liquidation values as compared with the
estimated values provided by exterior opinions and interior
appraisals, considering state-specific factors.
Nonaccrual loans
Interest income on performing loans held-for-investment,
other than PCI loans, is accrued and recognized as interest
income at the contractual rate of interest. Purchase price
discounts or premiums, as well as net deferred loan fees or
costs, are amortized into interest income over the
contractual life of the loan to produce a level rate of return.
Interest income
Loans held-for-investment (other than PCI loans)
Originated or purchased loans held-for-investment, other
than PCI loans, are recorded at the principal amount
outstanding, net of the following: charge-offs; interest
applied to principal (for loans accounted for on the cost
recovery method); unamortized discounts and premiums;
and net deferred loan fees or costs. Credit card loans also
include billed finance charges and fees net of an allowance
for uncollectible amounts.
$
3
$
4
$
1
$
1
$
$
11
The accounting for a loan depends on management's
strategy for the loan, and on whether the loan was credit-
impaired at the date of acquisition. The Firm accounts for
loans based on the following categories:
•
•
•
Originated or purchased loans held-for-investment (i.e.,
"retained"), other than PCI loans
Loans held-for-sale
Loans at fair value
PCI loans held-for-investment
The following provides a detailed accounting discussion of
these loan categories:
Loan accounting framework
Total
Residential real estate - PCI
238
33,450
39,063
Other consumer loans
Auto
66,242
65,814
Consumer & Business Banking (a)
25,789
24,307
Student(a)
7,057
Residential real estate - PCI
Home equity
10,799
Prime mortgage
6,479
2,609
10,689
12,902
7,602
2,941
12,234
Subprime mortgage
Home equity
$ 216,496 $ 192,486
Residential mortgage (a)
Residential real estate - excluding PCI
305
(8)
(12)
1
41
26
34
$
(93)
Option ARMS
$
$
340
JPMorgan Chase & Co./2017 Annual Report
215
Notes to consolidated financial statements
Consumer, excluding credit card, loan portfolio
Consumer loans, excluding credit card loans, consist
primarily of residential mortgages, home equity loans and
lines of credit, auto loans, consumer and business banking
loans and student loans, with a focus on serving the prime
consumer credit market. The portfolio also includes home
equity loans secured by junior liens, prime mortgage loans
with an interest-only payment period, and certain payment-
option loans that may result in negative amortization.
The table below provides information about retained
consumer loans, excluding credit card, by class. In 2017,
the Firm sold its student loan portfolio.
December 31, (in millions)
2017
2016
245
231
Total retained loans
(a) Certain loan portfolios have been reclassified. The prior period amounts have
been revised to conform with the current period presentation.
Equal to or greater than 660
Less than 660
101% to 125% and refreshed FICO scores:
Residential mortgage (g)
Home equity
2017
2016
2017
2016
2017
2016
$208,713
$184,133
$ 32,391
$ 37,941
4,234
3,828
671
3,549
Greater than 125% and refreshed FICO scores:
Current estimated LTV ratios (d)(e)
Nonaccrual loans
90 or more days past due and government guaranteed (c)
Delinquency rates are a primary credit quality indicator for
consumer loans. Loans that are more than 30 days past due
provide an early warning of borrowers who may be
experiencing financial difficulties and/or who may be
unable or unwilling to repay the loan. As the loan continues
to age, it becomes more clear whether the borrower is
likely either unable or unwilling to pay. In the case of
residential real estate loans, late-stage delinquencies
(greater than 150 days past due) are a strong indicator of
loans that will ultimately result in a foreclosure or similar
liquidation transaction. In addition to delinquency rates,
other credit quality indicators for consumer loans vary
based on the class of loan, as follows:
•
•
•
For residential real estate loans, including both non-PCI
and PCI portfolios, the current estimated LTV ratio, or
the combined LTV ratio in the case of junior lien loans, is
an indicator of the potential loss severity in the event of
default. Additionally, LTV or combined LTV ratios can
provide insight into a borrower's continued willingness
to pay, as the delinquency rate of high-LTV loans tends
to be greater than that for loans where the borrower has
equity in the collateral. The geographic distribution of
the loan collateral also provides insight as to the credit
quality of the portfolio, as factors such as the regional
economy, home price changes and specific events such
as natural disasters, will affect credit quality. The
borrower's current or “refreshed" FICO score is a
secondary credit-quality indicator for certain loans, as
FICO scores are an indication of the borrower's credit
payment history. Thus, a loan to a borrower with a low
FICO score (less than 660 ) is considered to be of higher
risk than a loan to a borrower with a higher FICO score.
Further, a loan to a borrower with a high LTV ratio and a
low FICO score is at greater risk of default than a loan to
a borrower that has both a high LTV ratio and a high
FICO score.
For scored auto and scored business banking loans,
geographic distribution is an indicator of the credit
performance of the portfolio. Similar to residential real
estate loans, geographic distribution provides insights
into the portfolio performance based on regional
economic activity and events.
Risk-rated business banking and auto loans are similar
to wholesale loans in that the primary credit quality
indicators are the risk rating that is assigned to the loan
and whether the loans are considered to be criticized
and/or nonaccrual. Risk ratings are reviewed on a
regular and ongoing basis by Credit Risk Management
and are adjusted as necessary for updated information
about borrowers' ability to fulfill their obligations. For
further information about risk-rated wholesale loan
credit quality indicators, see page 228 of this Note.
$
JPMorgan Chase & Co./2017 Annual Report
$ 372,553 $ 364,406
Residential real estate - excluding PCI loans
Residential real estate - excluding PCI loans
December 31,
(in millions, except ratios)
Loan delinquency(a)
Current
30-149 days past due
150 or more days past due
Total retained loans
% of 30+ days past due to total retained loans (b)
The following table provides information by class for residential real estate - excluding retained PCI loans.
(126) $
216
2016
(in millions)
Purchases
Sales
Retained loans reclassified to held-for-sale
2017
Consumer, excluding
credit card
Credit card
Wholesale
Total
3,461 (a)(b)
1,799
$
5,260
3,405
11,063
14,468
6,340 (c)
1,229
7,569
Year ended December 31,
Retained loans reclassified to held-for-sale
Sales
Purchases
2015
Credit card(a)
141,711
105
Wholesale
$ 383,790
Total
$
889,907 (b)
2,285
2,628
2,230
2016
2,230
$
141,816
$ 388,305
$
894,765
(a) Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income.
(b) Loans (other than PCI loans and those for which the fair value option has been elected) are presented net of unamortized discounts and premiums and net
deferred loan fees or costs. These amounts were not material as of December 31, 2017 and 2016.
214
The following table provides information about the carrying value of retained loans purchased, sold and reclassified to held-
for-sale during the periods indicated. This table excludes loans recorded at fair value. The Firm manages its exposure to credit
risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures.
Year ended December 31,
(in millions)
$ 364,644
Consumer, excluding
credit card
JPMorgan Chase & Co./2017 Annual Report
Wholesale
Total
$
2,154
9,188
$
7,433
642
14,287
2,235
(a) Purchases predominantly represent the Firm's voluntary repurchase of certain delinquent loans from loan pools as permitted by Government National
Mortgage Association ("Ginnie Mae") guidelines. The Firm typically elects to repurchase these delinquent loans as it continues to service them and/or
manage the foreclosure process in accordance with applicable requirements of Ginnie Mae, FHA, RHS, and/or VA.
The following table provides information about gains and losses on loan sales, including lower of cost or fair value adjustments,
on loan sales by portfolio segment.
Year ended December 31, (in millions)
2017
Net gains/(losses) on sales of loans (including lower of cost or fair value adjustments)(a)
Consumer, excluding credit card (b)
Credit card
Wholesale
Total net gains/(losses) on sales of loans (including lower of cost or fair value
adjustments)
(a) Excludes sales related to loans accounted for at fair value.
Credit card
(b) Includes amounts related to the Firm's student loan portfolio which was sold in 2017.
Wholesale
79
(b) Excludes purchases of retained loans sourced through the correspondent origination channel and underwritten in accordance with the Firm's standards.
Such purchases were $23.5 billion, $30.4 billion and $50.3 billion for the years ended December 31, 2017, 2016 and 2015, respectively.
(c) Includes the Firm's student loan portfolio which was sold in 2017.
5,279 (a)(b)
5,099
1,514
$
$
4,116 (a)(b)
6,368
321
$
$
1,448
Total
5,564
8,739
2,381
15,107
$
Year ended December 31,
(in millions)
Purchases
Sales
Retained loans reclassified to held-for-sale
2015
Consumer, excluding
credit card
2,702
Credit card
$
$
228
Without an allowance(a)
$
$
$
9
93 $
78 $ 124
$ 1,170 $ 1,127
$
414
$
$ 1,398 $ 1,541 $
60
138 $
87
211
$
93 $
9
$
$
With an allowance
168 $ 180
70
76
238 $ 256
Total impaired loans
2016
Wholesale impaired loans and loan modifications
2016
$ 1,509
358
143 $
0.42%
136 $
998
0.94%
200
0.12%
0.19%
Wholesale impaired loans consist of loans that have been placed on nonaccrual status and/or that have been modified in a TDR.
All impaired loans are evaluated for an asset-specific allowance as described in Note 13.
The table below sets forth information about the Firm's wholesale impaired loans.
December 31,
(in millions)
Impaired loans
Commercial
and industrial
2017
Real estate
Financial
institutions
agencies
Other
Total
retained loans
2016
2017
2016
2017
2016
2017
2016
2017
2017
$ 1,440
577
$ 1,867 (c) $ 2,017 (c)
Certain loan modifications are considered to be TDRS as
they provide various concessions to borrowers who are
experiencing financial difficulty. All TDRs are reported as
impaired loans in the tables above. TDRs were $614 million
and $733 million as of December 31, 2017 and 2016.
$
2017
2016
2015
Commercial and industrial
$
Real estate
1,145 $
164
1,480 $
217
453
250
20
13
13
Financial institutions
Government agencies
Other
Total(a)
$
231
1,560 $
213
1,923 $
129
845
(a) The related interest income on accruing impaired loans and interest income
recognized on a cash basis were not material for the years ended December 31,
2017, 2016 and 2015.
230
JPMorgan Chase & Co./2017 Annual Report
Year ended December 31, (in millions)
The following table presents the Firm's average impaired
loans for the years ended 2017, 2016 and 2015.
(c) Based upon the domicile of the borrower, largely consists of loans in the U.S.
(b) Represents the contractual amount of principal owed at December 31, 2017 and 2016. The unpaid principal balance differs from the impaired loan balances due to various
factors, including charge-offs; interest payments received and applied to the carrying value; net deferred loan fees or costs; and unamortized discount or premiums on
purchased loans.
404 $ 258
$
11 $
18
$
4 $
3
$
$
$
42 $
63
Allowance for loan losses related
to impaired loans
$ 461
Unpaid principal balance of
impaired loans(b)
1,604
1,754
201
295
94
284
2,154
12 - 255
2,345
(a) When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an allowance. This typically
occurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied to the loan balance.
$ 342
Government
Current and less than 30 days past due
and still accruing
92
0.26%
609
371
439
309
381
230
804
559
Less than 660
3,074
1,851
558
316
214
119
442
221
1,860
1,195
Equal to or greater than 660
80% to 100% and refreshed FICO scores:
619
320
144
71
729
353
1,469
83
2,233
Equal to or greater than 660
149
391
319
750
577
NO FICO/LTV available
9,898
9,305
3,783
3,499
1,645
1,608
2,287
2,103
2,183
2,095
Less than 660
18,316
16,693
6,754
6,113
919
895
3,967
3,551
6,676
6,134
Lower than 80% and refreshed FICO scores:
177
43
3335
$
6
$
4
$
$ 69
33
$
Equal to or greater than 660
Greater than 125% and refreshed FICO scores:
Current estimated LTV ratios (based on unpaid principal balance) (c) (d)
9.82%
10.13%
11.73%
11.34%
$36,971
$31,617
2,086
1,584
917
689
$10,898 $12,546
$ 3,606
16.67%
17.42%
10.32%
10.20%
5.83%
6.79%
2 $
3
7
6 $ 12
135
75
84
20
52
12
42
256
132
Less than 660
16
555
274
Equal to or greater than 660
101% to 125% and refreshed FICO scores:
105
66
18
9
31
20
17
16
39
21
Less than 660
$ 45 $ 94
$
470
585
1,515
57
Maryland
723
633
346
307
110
98
173
149
94
79
Massachusetts
1,016
866
401
336
125
110
210
178
280
242
New Jersey
1,000
883
282
64
249
129
132
589
520
314
280
56
51
142
123
77
66
Virginia
614
525
181
156
68
60
124
106
241
203
Arizona
620
550
267
232
145
144
178
161
226
501
428
1,306
1,137
Florida
$17,293 $20,322
$ 7,128
$ 6,225
$ 899
$ 797
$ 4,396
$ 3,716
$ 7,899
$ 6,555
California
Geographic region (based on unpaid principal balance)
$31,617 $36,971
$12,546
$10,898
$ 3,606
$ 3,197
$ 7,627
$ 6,502
$13,192
$11,020
Total unpaid principal balance
1,903
296
332
878
1,026
200
314
273
Illinois
1,198
966
290
238
68
61
167
135
673
% of 30+ days past due to total loans
532
2,286
2,022
711
628
363
330
515
457
697
607
New York
3,165
2,739
Washington
$ 3,197
$ 7,627
$ 6,502
2,209
2,221
1,195
1,424
3,374
3,350
1,758
2,017
3,984
3,916
3,979
4,195
4,078
4,023
2,954
2,916
7,041
7,013
4,426
$
5,032
$
7,975
$
8,445
$
Criticized nonaccrual
1,383
Criticized performing
1,307
2,194
$
24,307
$
25,789
$
65,814
$
66,242
$
4,341
4,515
29,547
30,051
979
849
1,814
1,656
623
721
2,031
2,044
1,343
1,357
1,567
1,418
1,402
1,380
2,105
Noncriticized
Loans by risk ratings (b)
Total retained loans
12
7
120 or more days past due
23,920
247
213
773
584
30-119 days past due
$
25,454
$
65,029
$
65,651
$
2016
2017
Consumer & Business Banking(c)
2016
2017
Auto
Current
Loan delinquency
(in millions, except ratios)
December 31,
The table below provides information for other consumer retained loan classes, including auto and business banking loans.
This table excludes student loans that were sold in 2017.
Other consumer loans
122
140
Total retained loans
$
All other
Louisiana
New Jersey
Michigan
Ohio
Arizona
Florida
Illinois
New York
Texas
California
Geographic region
287
$
283
141
Nonaccrual loans(a)
1.59%
1.30%
1.19%
0.89%
% of 30+ days past due to total retained loans
24,307
$
25,789
65,814 $
$
66,242
214
All other
13,899
201
17,938
49
79
150
829
2016
$12,234
2017
$10,689
$ 2,941
2016
Total PCI
Option ARMS
Subprime mortgage
2017
$ 2,609
$ 7,602
$ 6,479
863
$10,799 $12,902
1,433
1,133
Related allowance for loan losses (b)
Carrying value(a)
2016
Prime mortgage
2017
December 31,
The table below sets forth information about the Firm's consumer, excluding credit card, PCI loans.
-
Residential real estate – PCI loans
Home equity
2016
2017
(in millions, except ratios)
Notes to consolidated financial statements
2017
$30,576
2,225
223
2016
$35,679
2,311
Current
$11,020 $13,192
Total loans
240
176
451
1,543
1,620
555
547
$33,342
$28,413
$11,074
$ 9,662
$ 3,005
361
381
336
336
327
291
478
392
150 or more days past due
356
30-149 days past due
$ 2,640
$ 6,840
$ 5,839
$12,423
$10,272
Loan delinquency (based on unpaid principal balance)
JPMorgan Chase & Co./2017 Annual Report
The liquidation of PCI loans, which may include sales of
loans, receipt of payment in full from the borrower, or
foreclosure, results in removal of the loans from the
underlying PCI pool. When the amount of the liquidation
proceeds (e.g., cash, real estate), if any, is less than the
unpaid principal balance of the loan, the difference is first
applied against the PCI pool's nonaccretable difference for
principal losses (i.e., the lifetime credit loss estimate
established as a purchase accounting adjustment at the
acquisition date). When the nonaccretable difference for a
particular loan pool has been fully depleted, any excess of
the unpaid principal balance of the loan over the liquidation
proceeds is written off against the PCI pool's allowance for
loan losses. Write-offs of PCI loans also include other
adjustments, primarily related to interest forgiveness
modifications. Because the Firm's PCI loans are accounted
for at a pool level, the Firm does not recognize charge-offs
of PCI loans when they reach specified stages of
delinquency (i.e., unlike non-PCI consumer loans, these
loans are not charged off based on FFIEC standards).
The PCI portfolio affects the Firm's results of operations
primarily through: (i) contribution to net interest margin;
(ii) expense related to defaults and servicing resulting from
the liquidation of the loans; and (iii) any provision for loan
losses. The PCI loans acquired in the Washington Mutual
transaction were funded based on the interest rate
characteristics of the loans. For example, variable-rate
loans were funded with variable-rate liabilities and fixed-
rate loans were funded with fixed-rate liabilities with a
similar maturity profile. A net spread will be earned on the
declining balance of the portfolio, which is estimated as of
December 31, 2017, to have a remaining weighted-average
life of 9 years.
If the timing and/or amounts of expected cash flows on PCI
loan pools were determined not to be reasonably estimable,
no interest would be accreted and the loan pools would be
reported as nonaccrual loans; however, since the timing and
amounts of expected cash flows for the Firm's PCI consumer
loan pools are reasonably estimable, interest is being
accreted and the loan pools are being reported as
performing loans.
298 $
$
Total impaired loans (b)(c)
26
Without an allowance(a)
614
272 $
$
2016
2017
With an allowance
Impaired loans
December 31, (in millions)
The following table sets forth information about the Firm's other consumer impaired loans, including risk-rated business
banking and auto loans that have been placed on nonaccrual status, and loans that have been modified in TDRS.
Other consumer impaired loans and loan modifications
Notes to consolidated financial statements
221
JPMorgan Chase & Co./2017 Annual Report
(a) There were no loans that were 90 or more days past due and still accruing interest at December 31, 2017, and December 31, 2016.
(b) For risk-rated business banking and auto loans, the primary credit quality indicator is the risk rating of the loan, including whether the loans are considered to be criticized and/or
nonaccrual.
(c) Certain loan portfolios have been reclassified. The prior period amounts have been revised to conform with the current period presentation.
217
213
94
9
816
791
16,858
$
30
644
Allowance for loan losses related to impaired loans
$
73 $
The excess of cash flows expected to be collected over the
carrying value of the underlying loans is referred to as the
accretable yield. This amount is not reported on the Firm's
Consolidated balance sheets but is accreted into interest
income at a level rate of return over the remaining
estimated lives of the underlying pools of loans.
On a quarterly basis, the Firm estimates the total cash flows
(both principal and interest) expected to be collected over
the remaining life of each pool. These estimates incorporate
assumptions regarding default rates, loss severities, the
amounts and timing of prepayments and other factors that
reflect then-current market conditions. Probable decreases
in expected cash flows (i.e., increased credit losses) trigger
the recognition of impairment, which is then measured as
the present value of the expected principal loss plus any
related forgone interest cash flows, discounted at the pool's
effective interest rate. Impairments are recognized through
the provision for credit losses and an increase in the
allowance for loan losses. Probable and significant
increases in expected cash flows (e.g., decreased credit
losses, the net benefit of modifications) would first reverse
any previously recorded allowance for loan losses with any
remaining increases recognized prospectively as a yield
adjustment over the remaining estimated lives of the
underlying loans. The impacts of (i) prepayments, (ii)
changes in variable interest rates, and (iii) any other
changes in the timing of expected cash flows are generally
recognized prospectively as adjustments to interest income.
The Firm continues to modify certain PCI loans. The impact
of these modifications is incorporated into the Firm's
quarterly assessment of whether a probable and significant
change in expected cash flows has occurred, and the loans
continue to be accounted for and reported as PCI loans. In
evaluating the effect of modifications on expected cash
flows, the Firm incorporates the effect of any forgone
interest and also considers the potential for redefault. The
Firm develops product-specific probability of default
estimates, which are used to compute expected credit
losses. In developing these probabilities of default, the Firm
considers the relationship between the credit quality
characteristics of the underlying loans and certain
assumptions about home prices and unemployment based
upon industry-wide data. The Firm also considers its own
historical loss experience to-date based on actual
redefaulted modified PCI loans.
PCI loans are initially recorded at fair value at acquisition.
PCI loans acquired in the same fiscal quarter may be
aggregated into one or more pools, provided that the loans
have common risk characteristics. A pool is then accounted
for as a single asset with a single composite interest rate
and an aggregate expectation of cash flows. With respect to
the Washington Mutual transaction, all of the consumer PCI
loans were aggregated into pools of loans with common risk
characteristics.
Purchased credit-impaired loans
JPMorgan Chase & Co./2017 Annual Report
222
(b) Additional commitments to lend to borrowers whose loans have been modified in
TDRS as of December 31, 2017 and 2016 were immaterial.
(a) The impact of these modifications was not material to the Firm for the years
ended December 31, 2017 and 2016.
226
72
362
102 $
$
$
2016
TDRS on nonaccrual status
December 31, (in millions)
Loans modified in TDRs (a)(b)
Certain other consumer loan modifications are considered
to be TDRS as they provide various concessions to
borrowers who are experiencing financial difficulty. All of
these TDRs are reported as impaired loans. The following
table provides information about the Firm's other
consumer loans modified in TDRs. New TDRs were not
material for the years ended December 31, 2017 and
2016.
Loan modifications
(d) Represents the contractual amount of principal owed at December 31, 2017 and
2016. The unpaid principal balance differs from the impaired loan balances due
to various factors, including charge-offs, interest payments received and applied
to the principal balance, net deferred loan fees or costs and unamortized
discounts or premiums on purchased loans.
(a) When discounted cash flows, collateral value or market price equals or exceeds
the recorded investment in the loan, the loan does not require an allowance. This
typically occurs when the impaired loans have been partially charged off and/or
there have been interest payments received and applied to the loan balance.
(b) Predominantly all other consumer impaired loans are in the U.S.
(c) Other consumer average impaired loans were $427 million, $635 million and
$566 million for the years ended December 31, 2017, 2016 and 2015,
respectively. The related interest income on impaired loans, including those on a
cash basis, was not material for the years ended December 31, 2017, 2016 and
2015.
508
268
Impaired loans on nonaccrual status
753
402
Unpaid principal balance of impaired loans (d)
119
2017
$
Total unpaid principal balance
1,547
-%
0.53% 0.59%
0.94%
0.74%
6.35%
4.45%
loans
total retained
criticized to
% of total
$105,135 $402,898 $383,790
$113,698
$ 16,380
$ 15,509
$ 40,074 $35,578
$105,802
$ 113,648
$120,895
$119,969
loans
Total retained
93,867
91,217
9,777
10,486
445
369
0.04%
13,283 11,284
0.44%
1.71%
$ 44,112
69,586
$ 3,726
12,654
12,603
$ 2,906
$ 16,790 $15,147
23,284 20,431
$ 3,302
102,500
$ 3,101
110,547
90,332
$ 28,470 $ 30,563
91,499
Total U.S.
Total non-U.S.
distribution (a)
geographic
Loans by
0.51
0.43
0.24
0.21
0.03
0.19
0.12
1.23
1.13
retained loans
loans to total
% of nonaccrual
2.43%
0.40%
$ 38,776
66,359
17,153
55,208
369
11,075
13,071
16,155
14,335
47,531
46,558
Noncriticized
grade:
Noninvestment-
$311,681 $289,923
$ 95,358
$103,212
$ 15,935
$ 15,140
$24,294
$ 26,791
$ 98,467 $ 88,649
$ 68,071 $ 65,687
Investment-
grade
Loans by risk
ratings
2016
2017
2016
2017
2016
2017
439
15,181
9,988
84,321
51,898
grade
noninvestment-
Total
1,954
1,734
254
239
9
2
200
136
1,491
1,357
nonaccrual
Criticized
7,353
5,162
163
259
798 210 200 - 6
710
6,186
3,983
performing
Criticized
84,560
9,360
$ 95,379
307,519
$ 91,514
292,276
Total retained
loans
$105,135 $402,898 $383,790
$113,698
$ 15,509 $ 16,380
$ 40,074 $35,578
$105,802
$120,895 $ 113,648
$119,969
1,954
1,734
254
239
9
2
200
136
1,491
1,357
Total retained
loans
nonaccrual
Criticized
132
141
19
2
4
4
21
(a) The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
(b) The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor's ability to meet contractual obligations rather than relying on
the past due status, which is generally a lagging indicator of credit quality.
15
(c) Represents loans that are considered well-collateralized and therefore still accruing interest.
JPMorgan Chase & Co./2017 Annual Report
57 $
0.08%
44 $
0.06%
% of criticized nonaccrual to total real estate retained loans
$
0.74%
846
36,051 $ 33,659 $ 113,648 $ 105,802
355
0.98%
459
1.36%
0.75%
0.63%
$ 77,597 $ 72,143 $
491
539
Total real estate loans
2017
2016
2016
2017
2016
2017
Criticized nonaccrual
% of criticized to total real estate retained loans
Criticized
Real estate retained loans
(in millions, except ratios)
December 31,
Other Commercial
Multifamily
The following table presents additional information on the real estate class of loans within the Wholesale portfolio for the
periods indicated. Exposure consists primarily of secured commercial loans, of which multifamily is the largest segment.
Multifamily lending finances acquisition, leasing and construction of apartment buildings, and includes exposure to real
estate investment trusts ("REITs"). Other commercial lending largely includes financing for acquisition, leasing and
construction, largely for office, retail and industrial real estate, and includes exposure to REITs. Included in real estate loans is
$10.8 billion and $9.2 billion as of December 31, 2017 and 2016, respectively, of construction and development exposure
consisting of loans originally purposed for construction and development, general purpose loans for builders, as well as loans
for land subdivision and pre-development.
Notes to consolidated financial statements
229
(d) Other includes individuals, SPES, holding companies, and private education and civic organizations. For more information on exposures to SPES, see Note 14.
2
12
86
delinquency(b)
Loan
0.09%
0.03%
0.01%
-%
0.03% (0.01)%
0.01% (0.01)%
(0.01)%
-%
0.28%
0.10%
retained loans
end-of-period
(recoveries) to
charge-offs/
$ 16,380
$ 15,509
$ 117 $ 345 $ (4) $ (7) $ 6 $ (1) $ 5 $ (1) $ (5) $ 5 $ 119 $ 341
$402,898 $383,790
$113,698 $105,135
% of net
(recoveries)
Net charge-offs/
$ 40,074 $35,578
$ 113,648 $105,802
$119,969 $120,895
Current and less
than 30 days
past due and
still accruing
108
still accruing(c)
past due and
90 or more days
1,186
1,383
582
898
107
12
25
15
204
2016
242
216
accruing
due and still
30-89 days past
$399,640 $380,518
$104,280
$112,559
$ 16,269
$ 15,493
$ 40,042 $35,523
$ 113,258 $105,396
$119,050
$118,288
268
2017
2016
2017
JPMorgan Chase & Co./2017 Annual Report
At December 31, 2017 and 2016, the Firm had PCI residential real estate loans with an unpaid principal balance of $1.3
billion and $1.7 billion, respectively, that were not included REO, but were in the process of active or suspended foreclosure.
Active and suspended foreclosure
(b) Reclassifications from the nonaccretable difference in the year ended December 31, 2015 were driven by continued improvement in home prices and delinquencies,
as well as increased granularity in the impairment estimates.
(a) Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model, for example cash flows expected to be
collected due to the impact of modifications and changes in prepayment assumptions.
4.20%
4.35%
13,491
$
11,768
$
11,159
4.53%
90
-
230
(428)
284
279
260
(1,700)
14,592
$
13,491
(1,555)
(1,396)
503
$
11,768
2015
225
2016
Notes to consolidated financial statements
The credit card portfolio segment includes credit card loans
originated and purchased by the Firm. Delinquency rates
are the primary credit quality indicator for credit card loans
as they provide an early warning that borrowers may be
experiencing difficulties (30 days past due); information on
those borrowers that have been delinquent for a longer
period of time (90 days past due) is also considered. In
addition to delinquency rates, the geographic distribution of
the loans provides insight as to the credit quality of the
portfolio based on the regional economy.
1,134
1,305
1,378
$ 139,434
$ 146,704
2.63%
4,123 $ 3,442
2.95%
$
2016
2017
Total retained credit card loans
All other
Michigan
Colorado
Pennsylvania
Ohio
New Jersey
Illinois
Florida
New York
Texas
California
% of 30+ days past due to total retained loans
% of 90+ days past due to total retained loans
Credit card loans by geographic region
30-89 days past due and still accruing
90 or more days past due and still accruing
Total retained credit card loans
Loan delinquency ratios
% of net charge-offs to retained loans
Loan delinquency
As of or for the year ended December 31,
(in millions, except ratios)
Net charge-offs
The table below sets forth information about the Firm's
credit card loans.
While the borrower's credit score is another general
indicator of credit quality, the Firm does not view credit
scores as a primary indicator of credit quality because the
borrower's credit score tends to be a lagging indicator. The
distribution of such scores provides a general indicator of
credit quality trends within the portfolio; however, the score
does not capture all factors that would be predictive of
future credit performance. Refreshed FICO score
information, which is obtained at least quarterly, for a
statistically significant random sample of the credit card
portfolio is indicated in the following table. FICO is
considered to be the industry benchmark for credit scores.
The Firm generally originates new card accounts to prime
consumer borrowers. However, certain cardholders' FICO
scores may decrease over time, depending on the
performance of the cardholder and changes in credit score
calculation.
Credit card loan portfolio
2017
Total PCI
Accretable yield percentage
Total 30+ day delinquency rate
Total loans
Total
HELOANS
Beyond the revolving period (c)
Within the revolving period (b)
HELOCS:(a)
(in millions, except ratios)
December 31,
Approximately 25% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANS or
HELOCS. The following table sets forth delinquency statistics for PCI junior lien home equity loans and lines of credit based on
the unpaid principal balance as of December 31, 2017 and 2016.
JPMorgan Chase & Co./2017 Annual Report
224
(c) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum, quarterly, based on
home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and forecasted data where actual data is not
available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios are necessarily imprecise and should be viewed as
estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as unused lines, related to the property.
(d) Refreshed FICO scores represent each borrower's most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(a) Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition.
(b) Management concluded, as part of the Firm's regular assessment of the PCI loan pools, that it was probable that higher expected credit losses would result in a decrease in expected
cash flows. As a result, an allowance for loan losses for impairment of these pools has been recognized.
$31,617 $36,971
$12,546
$ 3,606 $10,898
$ 3,197
$13,192 $ 6,502 $ 7,627
5,438
4,620
1,600
1,369
1,262
1,101
1,029
881
2017
2016
2017
2016
Balance at December 31
Reclassification from nonaccretable difference (b)
Other changes in expected cash flows (a)
Changes in interest rates on variable-rate loans
Accretion into interest income
Beginning balance
(in millions, except ratios)
Year ended December 31,
The table below sets forth the accretable yield activity for the Firm's PCI consumer loans for the years ended December 31,
2017, 2016 and 2015, and represents the Firm's estimate of gross interest income expected to be earned over the remaining
life of the PCI loan portfolios. The table excludes the cost to fund the PCI portfolios, and therefore the accretable yield does not
represent net interest income expected to be earned on these portfolios.
(c) Includes loans modified into fixed rate amortizing loans.
(b) Substantially all undrawn HELOCS within the revolving period have been closed.
(a) In general, these HELOCS are revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at the end of
the loan's term.
4.01%
1,143
4.65%
5.28
465
10,043
360
8,286 $
$
4.03
4.63
7,452
7,875
3.67%
1.96%
2,126
51 $
$
5.38
1,269
$11,020
$ 149,387
1.80%
0.92
79 $
75 $
$
4.88
15.08%
15.56%
16.58%
of loans - before TDR
Weighted-average interest rate
of loans after TDR
Loans that redefaulted within
one year of modification(a)
Weighted-average interest rate
2015
2016
2017
weighted-average data)
Year ended December 31,
(in millions, except
Loan modifications
82
63
59
impaired credit card loans
Interest income on
$ 1,214 $ 1,325 $ 1,710
Average impaired credit card loans
2015
2016
2017
(in millions)
Year ended December 31,
85
The following table presents average balances of impaired
credit card loans and interest income recognized on those
loans.
4.76
(a) Represents loans modified in TDRs that experienced a payment default in
the periods presented, and for which the payment default occurred within
one year of the modification. The amounts presented represent the balance
of such loans as of the end of the quarter in which they defaulted.
2016
2017
except ratios)
(in millions,
December 31,
Total
retained loans
Other(d)
Government agencies
Financial
institutions
Real estate
Commercial
and industrial
As of or for the
year ended
Below are summaries of the Firm's exposures as of December 31, 2017 and 2016. For additional information on industry
concentrations, see Note 4.
The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment.
In 2017 the Firm revised its methodology for the assignment of industry classifications, to better monitor and manage
concentrations. This largely resulted in the re-assignment of holding companies from Other to the industry of risk category
based on the primary business activity of the holding company's underlying entities. In the tables and industry discussions
below, the prior period amounts have been revised to conform with the current period presentation.
JPMorgan Chase & Co./2017 Annual Report
228
As noted above, the risk rating of a loan considers the
industry in which the obligor conducts its operations. As
part of the overall credit risk management framework, the
Firm focuses on the management and diversification of its
industry and client exposures, with particular attention paid
to industries with actual or potential credit concern. See
Note 4 for further detail on industry concentrations.
Risk ratings are reviewed on a regular and ongoing basis by
Credit Risk Management and are adjusted as necessary for
updated information affecting the obligor's ability to fulfill
its obligations.
Management considers several factors to determine an
appropriate risk rating, including the obligor's debt capacity
and financial flexibility, the level of the obligor's earnings,
the amount and sources for repayment, the level and nature
of contingencies, management strength, and the industry
and geography in which the obligor operates. The Firm's
definition of criticized aligns with the banking regulatory
definition of criticized exposures, which consist of special
mention, substandard and doubtful categories. Risk ratings
generally represent ratings profiles similar to those defined
by S&P and Moody's. Investment-grade ratings range from
"AAA/Aaa" to "BBB-/Baa3.” Noninvestment-grade ratings
are classified as noncriticized ("BB+/Ba1 and B-/B3") and
criticized ("CCC+"/"Caal and below"), and the criticized
portion is further subdivided into performing and
nonaccrual loans, representing management's assessment
of the collectibility of principal and interest. Criticized loans
have a higher probability of default than noncriticized
loans.
The primary credit quality indicator for wholesale loans is
the risk rating assigned to each loan. Risk ratings are used
to identify the credit quality of loans and differentiate risk
within the portfolio. Risk ratings on loans consider the PD
and the LGD. The PD is the likelihood that a loan will
default. The LGD is the estimated loss on the loan that
would be realized upon the default of the borrower and
takes into consideration collateral and structural support
for each credit facility.
Wholesale loans include loans made to a variety of clients,
ranging from large corporate and institutional clients to
high-net-worth individuals.
Wholesale loan portfolio
Notes to consolidated financial statements
227
JPMorgan Chase & Co./2017 Annual Report
JPMorgan Chase may offer one of a number of loan
modification programs to credit card borrowers who are
experiencing financial difficulty. Most of the credit card
loans have been modified under long-term programs for
borrowers who are experiencing financial difficulties.
Modifications under long-term programs involve placing the
customer on a fixed payment plan, generally for 60 months.
The Firm may also offer short-term programs for borrowers
who may be in need of temporary relief; however, none are
currently being offered. Modifications under all short- and
long-term programs typically include reducing the interest
rate on the credit card. Substantially all modifications are
considered to be TDRs.
For credit card loans modified in TDRs, a substantial portion
of these loans are expected to be charged-off in accordance
with the Firm's standard charge-off policy. Based on
historical experience, the estimated weighted-average
default rate for modified credit card loans was expected to
be 31.54%, 28.87% and 25.61% as of December 31,
2017, 2016 and 2015, respectively.
4.40
(e) Predominantly all impaired credit card loans are in the U.S.
(d) Represents credit card loans that were modified in TDRS but that have
subsequently reverted back to the loans' pre-modification payment terms.
At December 31, 2017 and 2016, $43 million and $94 million,
respectively, of loans have reverted back to the pre-modification payment
terms of the loans due to noncompliance with the terms of the modified
loans. The remaining $37 million and $48 million at December 31, 2017
and 2016, respectively, of these loans are to borrowers who have
successfully completed a short-term modification program. The Firm
continues to report these loans as TDRS since the borrowers' credit lines
remain closed.
(c) Represents credit card loans outstanding to borrowers enrolled in a credit
card modification program as of the date presented.
No FICO available
Less than 660
Equal to or greater than 660
Percentage of portfolio based on carrying
value with estimated refreshed FICO scores
$ 149,387 $ 141,711
55,493
57,980
3,741
3,826
3,699
4,006
4,787
4,883
4,906
4,997
6,271
6,506
8,189
8,585
8,585
9,138
12,249
13,021
13,220
14,200
$ 22,245 $ 20,571
1.61%
0.81
84.0%
14.6
84.4%
14.2
1.4
(b) There were no impaired loans without an allowance.
(a) The carrying value and the unpaid principal balance are the same for credit
card impaired loans.
New enrollments in these loan modification programs for
the years ended December 31, 2017, 2016 and 2015, were
$756 million, $636 million and $638 million, respectively.
Financial effects of modifications and redefaults
The following table provides information about the financial
effects of the concessions granted on credit card loans
modified in TDRs and redefaults for the periods presented.
If the cardholder does not comply with the modified
payment terms, then the credit card loan continues to age
and will ultimately be charged-off in accordance with the
Firm's standard charge-off policy. In most cases, the Firm
does not reinstate the borrower's line of credit.
358
383 $
$
impaired credit card loans
Allowance for loan losses related to
142
1,240
1,215 $
$
Total impaired credit card loans (e)
$ 141,711
80
Modified credit card loans that have
1,135 $
$
1,098
2016
2017
Credit card loans with modified payment
terms(c)
Impaired credit card loans with an
allowance(a)(b)
December 31, (in millions)
Credit card impaired loans and loan modifications
The table below sets forth information about the Firm's
impaired credit card loans. All of these loans are considered
to be impaired as they have been modified in TDRS.
JPMorgan Chase & Co./2017 Annual Report
226
1.4
reverted to pre-modification payment
terms(d)
15,604
93
Principal amount outstanding
Assets
held in
held by
consolidated
securitization securitization
$
$
1,035 $
1,068
Allowance for lending-related commitments by impairment methodology
Asset-specific
$
$ - $ 1
187
$
187
Formula-based
33
848
881
Total allowance for lending-related commitments
$
33
$
$
1,035
$
1,068
Lending-related commitments by impairment methodology
Asset-specific
$ - $ - $
731
$
33
$
Ending balance at December 31,
Other
30,576
372,553
3
30,579
$ 149,387
$
402,898
$
924,838
Impaired collateral-dependent loans
Net charge-offs
$
Loans measured at fair value of collateral less cost to sell
64
2,133
731
$
31
$
95
233
2,366
Allowance for lending-related commitments
Beginning balance at January 1,
Provision for lending-related commitments
26 $ - $ 1,052
7-
$
1,078
(17)
(10)
$
Formula-based
Total lending-related commitments
$
3,434
$
4,315 $
13,555
$
7,050
$
3,439
$
3,696 $
14,185
1,500
3,799
$
398
1,658
3,488
95
5,241
(591)
(357)
(57)
(1,005)
(704)
(366)
(85)
(1,155)
909
5,697
$
5,806
Total
48,553
48,553
$
572,831
572,831
369,367
990,751
$
370,098
$
991,482
(a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting
adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool.
(b) Includes risk-rated loans that have been placed on nonaccrual status and all loans that have been modified in a TDR.
(c) The asset-specific credit card allowance for loan losses is related to loans that have been modified in a TDR; such allowance is calculated based on the loans' original contractual
interest rates and does not consider any incremental penalty rates.
(d) The prior period amounts have been revised to conform with the current period presentation.
$
234
(table continued from previous page)
Consumer,
excluding
credit card
Credit card
2016
Wholesale
Consumer,
Total
excluding
credit card
Credit card
2015
Wholesale
JPMorgan Chase & Co./2017 Annual Report
3,442
883,141
11,118
The table below summarizes information about the allowances for loan losses and lending-relating commitments, and includes
a breakdown of loans and lending-related commitments by impairment methodology.
Year ended December 31,
(in millions)
Allowance for loan losses
Beginning balance at January 1,
Gross charge-offs
Gross recoveries
Net charge-offs
Write-offs of PCI loans (a)
Provision for loan losses
Other
Ending balance at December 31,
Allowance for loan losses by impairment methodology
Asset-specific (b)
Formula-based
PCI
Total allowance for loan losses
Loans by impairment methodology
Asset-specific
Formula-based
PCI
Total retained loans
Consumer,
excluding
credit card
Credit card
2017
Wholesale
Allowance for credit losses and related information
Notes to consolidated financial statements
233
JPMorgan Chase & Co./2017 Annual Report
The Firm's policies used to determine its allowance for
credit losses are described in the following paragraphs.
Determining the appropriateness of the allowance is
complex and requires judgment by management about the
effect of matters that are inherently uncertain. Subsequent
evaluations of the loan portfolio, in light of the factors then
prevailing, may result in significant changes in the
allowances for loan losses and lending-related
commitments in future periods. At least quarterly, the
allowance for credit losses is reviewed by the CRO, the CFO
and the Controller of the Firm and discussed with the DRPC
and the Audit Committee. As of December 31, 2017,
JPMorgan Chase deemed the allowance for credit losses to
be appropriate (i.e., sufficient to absorb probable credit
losses inherent in the portfolio).
Formula-based component
The formula-based component is based on a statistical
calculation to provide for incurred credit losses in all
consumer loans and performing risk-rated loans. All loans
restructured in TDRs as well as any impaired risk-rated
loans have an allowance assessed as part of the asset-
specific component, while PCI loans have an allowance
assessed as part of the PCI component. See Note 12 for
more information on TDRs, Impaired loans and PCI loans.
Formula-based component - Consumer loans and certain
lending-related commitments
The formula-based allowance for credit losses for the
consumer portfolio segments is calculated by applying
statistical credit loss factors (estimated PD and loss
severities) to the recorded investment balances or loan-
equivalent amounts of pools of loan exposures with similar
risk characteristics over a loss emergence period to arrive
at an estimate of incurred credit losses. Estimated loss
emergence periods may vary by product and may change
JPMorgan Chase & Co./2017 Annual Report
over time; management applies judgment in estimating loss
emergence periods, using available credit information and
trends. In addition, management applies judgment to the
statistical loss estimates for each loan portfolio category,
using delinquency trends and other risk characteristics to
estimate the total incurred credit losses in the portfolio.
Management uses additional statistical methods and
considers actual portfolio performance, including actual
losses recognized on defaulted loans and collateral
valuation trends, to review the appropriateness of the
primary statistical loss estimate. The economic impact of
potential modifications of residential real estate loans is not
included in the statistical calculation because of the
uncertainty regarding the type and results of such
modifications.
The statistical calculation is then adjusted to take into
consideration model imprecision, external factors and
current economic events that have occurred but that are not
yet reflected in the factors used to derive the statistical
calculation; these adjustments are accomplished in part by
analyzing the historical loss experience for each major
product segment. However, it is difficult to predict whether
historical loss experience is indicative of future loss levels.
Management applies judgment in making this adjustment,
taking into account uncertainties associated with current
macroeconomic and political conditions, quality of
underwriting standards, borrower behavior, and other
relevant internal and external factors affecting the credit
quality of the portfolio. In certain instances, the
interrelationships between these factors create further
uncertainties. The application of different inputs into the
statistical calculation, and the assumptions used by
management to adjust the statistical calculation, are subject
to management judgment, and emphasizing one input or
assumption over another, or considering other inputs or
assumptions, could affect the estimate of the allowance for
credit losses for the consumer credit portfolio.
Overall, the allowance for credit losses for consumer
portfolios is sensitive to changes in the economic
environment (e.g., unemployment rates), delinquency rates,
the realizable value of collateral (e.g., housing prices), FICO
scores, borrower behavior and other risk factors. While all
of these factors are important determinants of overall
allowance levels, changes in the various factors may not
occur at the same time or at the same rate, or changes may
be directionally inconsistent such that improvement in one
factor may offset deterioration in another. In addition,
changes in these factors would not necessarily be consistent
across all geographies or product types. Finally, it is difficult
to predict the extent to which changes in these factors
would ultimately affect the frequency of losses, the severity
of losses or both.
231
Notes to consolidated financial statements
Formula-based component - Wholesale loans and lending-
related commitments
The Firm's methodology for determining the allowance for
loan losses and the allowance for lending-related
commitments involves the early identification of credits that
are deteriorating. The formula-based component of the
allowance for wholesale loans and lending-related
commitments is calculated by applying statistical credit loss
factors (estimated PD and LGD) to the recorded investment
balances or loan-equivalent over a loss emergence period to
arrive at an estimate of incurred credit losses in the
portfolio. Estimated loss emergence periods may vary by
funded versus unfunded status of the instrument and may
change over time.
The Firm assesses the credit quality of its borrower or
counterparty and assigns a risk rating. Risk ratings are
assigned at origination or acquisition, and if necessary,
adjusted for changes in credit quality over the life of the
exposure. In assessing the risk rating of a particular loan or
lending-related commitment, among the factors considered
are the obligor's debt capacity and financial flexibility, the
level of the obligor's earnings, the amount and sources for
repayment, the level and nature of contingencies,
management strength, and the industry and geography in
which the obligor operates. These factors are based on an
evaluation of historical and current information and involve
subjective assessment and interpretation. Determining risk
ratings involves significant judgment; emphasizing one
factor over another or considering additional factors could
affect the risk rating assigned by the Firm.
Total
A PD estimate is determined based on the Firm's history of
defaults over more than one credit cycle.
The Firm applies judgment in estimating PD, LGD, loss
emergence period and loan-equivalent used in calculating
the allowance for credit losses. Estimates of PD, LGD, loss
emergence period and loan-equivalent used are subject to
periodic refinement based on any changes to underlying
external or Firm-specific historical data. Changes to the
time period used for PD and LGD estimates could also affect
the allowance for credit losses. The use of different inputs,
estimates or methodologies could change the amount of the
allowance for credit losses determined appropriate by the
Firm.
In addition to the statistical credit loss estimates applied to
the wholesale portfolio, management applies its judgment
to adjust the statistical estimates for wholesale loans and
lending-related commitments, taking into consideration
model imprecision, external factors and economic events
that have occurred but are not yet reflected in the loss
factors. Historical experience of both LGD and PD are
232
considered when estimating these adjustments. Factors
related to concentrated and deteriorating industries also
are incorporated where relevant. These estimates are based
on management's view of uncertainties that relate to
current macroeconomic conditions, quality of underwriting
standards and other relevant internal and external factors
affecting the credit quality of the current portfolio.
Asset-specific component
The asset-specific component of the allowance relates to
loans considered to be impaired, which includes loans that
have been modified in TDRs as well as risk-rated loans that
have been placed on nonaccrual status. To determine the
asset-specific component of the allowance, larger risk-rated
loans (primarily loans in the wholesale portfolio segment)
are evaluated individually, while smaller loans (both risk-
rated and scored) are evaluated as pools using historical
loss experience for the respective class of assets.
The Firm generally measures the asset-specific allowance as
the difference between the recorded investment in the loan
and the present value of the cash flows expected to be
collected, discounted at the loan's original effective interest
rate. Subsequent changes in impairment are reported as an
adjustment to the allowance for loan losses. In certain
cases, the asset-specific allowance is determined using an
observable market price, and the allowance is measured as
the difference between the recorded investment in the loan
and the loan's fair value. Collateral-dependent loans are
charged down to the fair value of collateral less costs to
sell. For any of these impaired loans, the amount of the
asset-specific allowance required to be recorded, if any, is
dependent upon the recorded investment in the loan
(including prior charge-offs), and either the expected cash
flows or fair value of collateral. See Note 12 for more
information about charge-offs and collateral-dependent
loans.
The asset-specific component of the allowance for impaired
loans that have been modified in TDRS (including forgone
interest, principal forgiveness, as well as other concessions)
incorporates the effect of the modification on the loan's
expected cash flows, which considers the potential for
redefault. For residential real estate loans modified in TDRS,
the Firm develops product-specific probability of default
estimates, which are applied at a loan level to compute
expected losses. In developing these probabilities of
default, the Firm considers the relationship between the
credit quality characteristics of the underlying loans and
certain assumptions about home prices and unemployment,
based upon industry-wide data. The Firm also considers its
own historical loss experience to-date based on actual
redefaulted modified loans. For credit card loans modified
in TDRs, expected losses incorporate projected redefaults
based on the Firm's historical experience by type of
modification program. For wholesale loans modified in
TDRs, expected losses incorporate management's
expectation of the borrower's ability to repay under the
modified terms.
JPMorgan Chase & Co./2017 Annual Report
Estimating the timing and amounts of future cash flows is
highly judgmental as these cash flow projections rely upon
estimates such as loss severities, asset valuations, default
rates (including redefault rates on modified loans), the
amounts and timing of interest or principal payments
(including any expected prepayments) or other factors that
are reflective of current and expected market conditions.
These estimates are, in turn, dependent on factors such as
the duration of current overall economic conditions,
industry-, portfolio-, or borrower-specific factors, the
expected outcome of insolvency proceedings as well as, in
certain circumstances, other economic factors, including
the level of future home prices. All of these estimates and
assumptions require significant management judgment and
certain assumptions are highly subjective.
PCI loans
In connection with the acquisition of certain PCI loans,
which are accounted for as described in Note 12, the
allowance for loan losses for the PCI portfolio is based on
quarterly estimates of the amount of principal and interest
cash flows expected to be collected over the estimated
remaining lives of the loans.
These cash flow projections are based on estimates
regarding default rates (including redefault rates on
modified loans), loss severities, the amounts and timing of
prepayments and other factors that are reflective of current
and expected future market conditions. These estimates are
dependent on assumptions regarding the level of future
home prices, and the duration of current overall economic
conditions, among other factors. These estimates and
assumptions require significant management judgment and
certain assumptions are highly subjective.
LGD estimate is a judgment-based estimate assigned to
each loan or lending-related commitment. The estimate
represents the amount of economic loss if the obligor were
to default. The type of obligor, quality of collateral, and the
seniority of the Firm's lending exposure in the obligor's
capital structure affect LGD.
$
5,198
$
13,604
246
383 (c)
461
$
1,090
2,108
4,501
3,680
10,289
2,225
-
-
$
2,225
4,579
$
4,884
$
4,141 $
13,604
$
8,036
$
333,941
1,215
148,172
$
1,867 $
$
401,028
4,141
4,884
4,034
$
4,544
$
13,776
1,779
4,521
212
6,512
(634)
(398)
(93)
(1,125)
$
1,145
119
5,387
86
86
613
4,973
(286)
5,300
(1)
2
1
4,579
$
4,123
JPMorgan Chase's allowance for loan losses represents
management's estimate of probable credit losses inherent
in the Firm's retained loan portfolio, which consists of the
two consumer portfolio segments (primarily scored) and
the wholesale portfolio segment (risk-rated). The allowance
for loan losses includes a formula-based component, an
asset-specific component, and a component related to PCI
loans, as described below. Management also estimates an
allowance for wholesale and certain consumer lending-
related commitments using methodologies similar to those
used to estimate the allowance on the underlying loans.
During the second quarter of 2017, the Firm refined its
credit loss estimates relating to the wholesale portfolio by
incorporating the use of internal historical data versus
external credit rating agency default statistics to estimate
PD. In addition, an adjustment to the statistical calculation
for wholesale lending-related commitments was
incorporated similar to the adjustment applied for
wholesale loans. The impacts of these refinements were not
material to the allowance for credit losses.
341
954
26
$
26
$
$
169 $
883
1,052 $
169
$
$
73
909
713
1,078
$
14
$
$
772
$
786
$
$
$
506 $
506
$
$
$ - $ - $
164
622
$
14
$ - $ 7
772
$
786
$
281
281
13 $ - $ 609
1
-
12
$
$
26
(1)
11
-
1,052 $
1,078
$
14
$
163
$
772
$
786
$
193 $
193
53,247 (d)
Securitization of both originated and purchased
residential and commercial mortgages and other
consumer loans
237-239
•
CIB
Multi-seller conduits
Municipal bond vehicles
Assist clients in accessing the financial markets in a
cost-efficient manner and structures transactions to
meet investor needs
Financing of municipal bond investments
239
239-240
The Firm's other business segments are also involved with VIES (both third-party and Firm-sponsored), but to a lesser extent,
as follows:
Asset & Wealth Management: AWM sponsors and manages certain funds that are deemed VIES. As asset manager of the
funds, AWM earns a fee based on assets managed; the fee varies with each fund's investment objective and is competitively
priced. For fund entities that qualify as VIES, AWM's interests are, in certain cases, considered to be significant variable
interests that result in consolidation of the financial results of these entities.
Commercial Banking: CB provides financing and lending-related services to a wide spectrum of clients, including certain
third party-sponsored entities that may meet the definition of a VIE. CB does not control the activities of these entities and
does not consolidate these entities. CB's maximum loss exposure, regardless of whether the entity is a VIE, is generally
limited to loans and lending-related commitments which are reported and disclosed in the same manner as any other third-
party transaction.
Corporate: Corporate is involved with entities that may meet the definition of VIES; however these entities are generally
subject to specialized investment company accounting, which does not require the consolidation of investments, including
VIES. In addition, Treasury and CIO invest in securities generally issued by third parties which may meet the definition of
VIES (e.g., issuers of asset-backed securities). In general, the Firm does not have the power to direct the significant
activities of these entities and therefore does not consolidate these entities. See Note 10 for further information on the
Firm's investment securities portfolio.
237-239
In addition, CIB also invests in and provides financing and other services to VIES sponsored by third parties. See pages
241-242 of this Note for more information on the VIES sponsored by third parties.
Credit card securitizations
CCB's Card business securitizes originated credit card loans,
primarily through the Chase Issuance Trust (the “Trust”).
The Firm's continuing involvement in credit card
securitizations includes servicing the receivables, retaining
an undivided seller's interest in the receivables, retaining
certain senior and subordinated securities and maintaining
escrow accounts.
The Firm is considered to be the primary beneficiary of
these Firm-sponsored credit card securitization trusts based
on the Firm's ability to direct the activities of these VIES
through its servicing responsibilities and other duties,
including making decisions as to the receivables that are
transferred into those trusts and as to any related
modifications and workouts. Additionally, the nature and
extent of the Firm's other continuing involvement with the
trusts, as indicated above, obligates the Firm to absorb
236
losses and gives the Firm the right to receive certain
benefits from these VIES that could potentially be
significant.
The underlying securitized credit card receivables and other
assets of the securitization trusts are available only for
payment of the beneficial interests issued by the
securitization trusts; they are not available to pay the Firm's
other obligations or the claims of the Firm's creditors.
The agreements with the credit card securitization trusts
require the Firm to maintain a minimum undivided interest
in the credit card trusts (generally 5%). As of December 31,
2017 and 2016, the Firm held undivided interests in Firm-
sponsored credit card securitization trusts of $15.8 billion
and $8.9 billion, respectively. The Firm maintained an
average undivided interest in principal receivables owned
by those trusts of approximately 26% and 16% for the
years ended December 31, 2017 and 2016. As of both
JPMorgan Chase & Co./2017 Annual Report
December 31, 2017 and 2016, the Firm did not retain any
senior securities and retained $4.5 billion and $5.3 billion
of subordinated securities in certain of its credit card
securitization trusts as of December 31, 2017 and 2016,
respectively. The Firm's undivided interests in the credit
card trusts and securities retained are eliminated in
consolidation.
Firm-sponsored mortgage and other securitization trusts
The Firm securitizes (or has securitized) originated and
purchased residential mortgages, commercial mortgages
and other consumer loans primarily in its CCB and CIB
businesses. Depending on the particular transaction, as well
as the respective business involved, the Firm may act as the
servicer of the loans and/or retain certain beneficial
interests in the securitization trusts.
The following table presents the total unpaid principal amount of assets held in Firm-sponsored private-label securitization
entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing
involvement includes servicing the loans, holding senior interests or subordinated interests (including amounts required to be
held pursuant to credit risk retention rules), recourse or guarantee arrangements, and derivative transactions. In certain
instances, the Firm's only continuing involvement is servicing the loans. See Securitization activity on page 242 of this Note for
further information regarding the Firm's cash flows with and interests retained in nonconsolidated VIES, and page 243 of this
Note for information on the Firm's loan sales to U.S. government agencies.
December 31, 2017 (in millions)
Significant Firm-sponsored variable interest entities
$
Securitization of originated credit card receivables
Servicing and securitization of both originated and
purchased residential mortgages
CCB
553,891
$
53,247
(d)
$
553,891
$
367,508
974,646 (d)
368,014 $ 975,152 (d) $
56,865 (d)
56,865 (d) $
515,518
366,206
515,518
$
Mortgage securitization trusts
Mortgage and other securitization trusts
366,399 $
(d)
JPMorgan Chase & Co./2017 Annual Report
235
Notes to consolidated financial statements
Note 14 - Variable interest entities
For a further description of JPMorgan Chase's accounting policies regarding consolidation of VIES, see Note 1.
The following table summarizes the most significant types of Firm-sponsored VIEs by business segment. The Firm considers a
"sponsored" VIE to include any entity where: (1) JPMorgan Chase is the primary beneficiary of the structure; (2) the VIE is
used by JPMorgan Chase to securitize Firm assets; (3) the VIE issues financial instruments with the JPMorgan Chase name; or
(4) the entity is a JPMorgan Chase-administered asset-backed commercial paper conduit.
Transaction Type
Line of Business
Activity
Annual Report
page references
Credit card securitization trusts
236-237
938,589
938,782 (d)
4,692
2,849
120
3,434
$
4,315
$
13,555
$
308
$
358 (c) $
2,579
3,676
342 $
4,202
1,008
$
364
$
10,457
2,700
460 (c) $
2,974
274
$
1,098
4,041
9,715
2,311
2,311
2,742
$
5,806
$
13,776
3,122
10
4,086
156
156
208
-
208
467
4,042
571
5,080
(82)
2,742
3,122
3,663
(10)
(1)
(11)
(5)
6
Total assets
$
5,198
$
4,034
$
4,544 $
623
$
5,198
$
$
364,406
$ 141,711
$
383,790
$
889,907
$
40,998
344,355
4
41,002
$ 131,387
$
35,682
357,050
832,792
$
98
$
2,391
7
105
$
104
300
2,691
2,566
16 $
$
283
3
779,695
4,034
$
4,544 $
13,776
$
5,806
$
3,434
$
4,315 $
13,555
$
8,940
35,679
$
1,240
140,471
$
2,017 $
381,770
12,197
842,028
$
9,606
$
293,751
1,465
129,922
$
1,024 $
356,022
12,095
319,787
Note 13 - Allowance for credit losses
1
Securitization-related (a)
Re-securitizations
The Firm engages in certain re-securitization transactions in
which debt securities are transferred to a VIE in exchange
for new beneficial interests. These transfers occur in
connection with both agency (Federal National Mortgage
Association ("Fannie Mae"), Federal Home Loan Mortgage
Corporation ("Freddie Mac") and Government National
Mortgage Association ("Ginnie Mae")) and nonagency
(private-label) sponsored VIES, which may be backed by
either residential or commercial mortgages. The Firm's
consolidation analysis is largely dependent on the Firm's
role and interest in the re-securitization trusts.
The following table presents the principal amount of
securities transferred to re-securitization VIES.
Year ended December 31,
(in millions)
2017
2016
2015
Transfers of securities to
VIES
Firm-sponsored private-label
Agency
$
-
$
647 $
777
Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans,
and engages in underwriting and trading activities involving
the securities issued by securitization trusts. CIB may retain
unsold senior and/or subordinated interests (including
amounts required to be held pursuant to credit risk
retention rules) in commercial mortgage securitizations at
the time of securitization but, generally, the Firm does not
service commercial loan securitizations. For commercial
mortgage securitizations the power to direct the significant
activities of the VIE generally is held by the servicer or
investors in a specified class of securities ("controlling
class"). The Firm generally does not retain an interest in the
controlling class in its sponsored commercial mortgage
securitization transactions. See the table on page 241 of
this Note for more information on the consolidated
commercial mortgage securitizations, and the table on the
previous page of this Note for further information on
interests held in nonconsolidated securitizations.
$ 12,617 $ 11,241 $ 21,908
The Firm does not consolidate a residential mortgage
securitization (Firm-sponsored or third-party-sponsored)
when it is not the servicer (and therefore does not have the
power to direct the most significant activities of the trust)
or does not hold a beneficial interest in the trust that could
potentially be significant to the trust. See the table on page
241 of this Note for more information on the consolidated
residential mortgage securitizations, and the table on the
previous page of this Note for further information on
interests held in nonconsolidated residential mortgage
securitizations.
The Firm securitizes residential mortgage loans originated
by CCB, as well as residential mortgage loans purchased
from third parties by either CCB or CIB. CCB generally
retains servicing for all residential mortgage loans it
originated or purchased, and for certain mortgage loans
purchased by CIB. For securitizations of loans serviced by
CCB, the Firm has the power to direct the significant
activities of the VIE because it is responsible for decisions
related to loan modifications and workouts. CCB may also
retain an interest upon securitization.
2,064
2,573
$
811 $
3,398 $
$
4,209
(a) Excludes U.S. government agency securitizations and re-securitizations, which are not Firm-sponsored. See page 243 of this Note for information on the
Firm's loan sales to U.S. government agencies.
(b) Consists of securities backed by commercial loans (predominantly real estate) and non-mortgage-related consumer receivables purchased from third
parties.
(c) Excludes the following: retained servicing (see Note 15 for a discussion of MSRs); securities retained from loan sales to U.S. government agencies; interest
rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities (See Note 5 for further
information on derivatives); senior and subordinated securities of $88 million and $48 million, respectively, at December 31, 2017, and $180 million and
$49 million, respectively, at December 31, 2016, which the Firm purchased in connection with CIB's secondary market-making activities.
(d) Includes interests held in re-securitization transactions.
(e) As of December 31, 2017 and 2016, 61% and 61%, respectively, of the Firm's retained securitization interests, which are predominantly carried at fair
value and include amounts required to be held pursuant to credit risk retention rules, were risk-rated "A" or better, on an S&P-equivalent basis. The
retained interests in prime residential mortgages consisted of $1.3 billion and $1.5 billion of investment-grade and $48 million and $77 million of
noninvestment-grade retained interests at December 31, 2017 and 2016, respectively. The retained interests in commercial and other securitizations
trusts consisted of $1.6 billion and $2.4 billion of investment-grade and $412 million and $210 million of noninvestment-grade retained interests at
December 31, 2017 and 2016, respectively.
JPMorgan Chase & Co./2017 Annual Report
237
Notes to consolidated financial statements
Residential mortgage
In addition, CIB engages in underwriting and trading
activities involving securities issued by Firm-sponsored
securitization trusts. As a result, CIB at times retains senior
and/or subordinated interests (including residual interests
and amounts required to be held pursuant to credit risk
retention rules) in residential mortgage securitizations at
the time of securitization, and/or reacquires positions in the
secondary market in the normal course of business. In
certain instances, as a result of the positions retained or
reacquired by CIB or held by CCB, when considered together
with the servicing arrangements entered into by CCB, the
Firm is deemed to be the primary beneficiary of certain
securitization trusts. See the table on page 241 of this Note
for more information on consolidated residential mortgage
securitizations.
509
In more limited circumstances, the Firm creates a
nonagency re-securitization trust independently and not in
conjunction with specific clients. In these circumstances, the
Firm is deemed to have the unilateral ability to direct the
most significant activities of the re-securitization trust
because of the decisions made during the establishment
and design of the trust; therefore, the Firm consolidates the
re-securitization VIE if the Firm holds an interest that could
potentially be significant.
238
Multi-seller conduits
Multi-seller conduit entities are separate bankruptcy
remote entities that provide secured financing,
collateralized by pools of receivables and other financial
assets, to customers of the Firm. The conduits fund their
financing facilities through the issuance of highly rated
commercial paper. The primary source of repayment of the
commercial paper is the cash flows from the pools of assets.
In most instances, the assets are structured with deal-
specific credit enhancements provided to the conduits by
the customers (i.e., sellers) or other third parties. Deal-
specific credit enhancements are generally structured to
cover a multiple of historical losses expected on the pool of
assets, and are typically in the form of overcollateralization
provided by the seller. The deal-specific credit
enhancements mitigate the Firm's potential losses on its
agreements with the conduits.
To ensure timely repayment of the commercial paper, and
to provide the conduits with funding to provide financing to
customers in the event that the conduits do not obtain
funding in the commercial paper market, each asset pool
financed by the conduits has a minimum 100% deal-
specific liquidity facility associated with it provided by
JPMorgan Chase Bank, N.A. JPMorgan Chase Bank, N.A. also
provides the multi-seller conduit vehicles with uncommitted
program-wide liquidity facilities and program-wide credit
enhancement in the form of standby letters of credit. The
amount of program-wide credit enhancement required is
based upon commercial paper issuance and approximates
10% of the outstanding balance of commercial paper.
The Firm consolidates its Firm-administered multi-seller
conduits, as the Firm has both the power to direct the
significant activities of the conduits and a potentially
significant economic interest in the conduits. As
administrative agent and in its role in structuring
transactions, the Firm makes decisions regarding asset
types and credit quality, and manages the commercial
paper funding needs of the conduits. The Firm's interests
that could potentially be significant to the VIES include the
fees received as administrative agent and liquidity and
program-wide credit enhancement provider, as well as the
potential exposure created by the liquidity and credit
JPMorgan Chase & Co./2017 Annual Report
enhancement facilities provided to the conduits. See page
241 of this Note for further information on consolidated VIE
assets and liabilities.
In the normal course of business, JPMorgan Chase makes
markets in and invests in commercial paper issued by the
Firm-administered multi-seller conduits. The Firm held
$20.4 billion and $21.2 billion of the commercial paper
issued by the Firm-administered multi-seller conduits at
December 31, 2017 and 2016, respectively, which have
been eliminated in consolidation. The Firm's investments
reflect the Firm's funding needs and capacity and were not
driven by market illiquidity. Other than the amounts
required to be held pursuant to credit risk retention rules,
the Firm is not obligated under any agreement to purchase
the commercial paper issued by the Firm-administered
multi-seller conduits.
Deal-specific liquidity facilities, program-wide liquidity and
credit enhancement provided by the Firm have been
eliminated in consolidation. The Firm or the Firm-
administered multi-seller conduits provide lending-related
commitments to certain clients of the Firm-administered
multi-seller conduits. The unfunded commitments were
$8.8 billion and $7.4 billion at December 31, 2017 and
2016, respectively, and are reported as off-balance sheet
lending-related commitments. For more information on off-
balance sheet lending-related commitments, see Note 27.
Municipal bond vehicles
Municipal bond vehicles or tender option bond ("TOB")
trusts allow institutions to finance their municipal bond
investments at short-term rates. In a typical TOB
transaction, the trust purchases highly rated municipal
bond(s) of a single issuer and funds the purchase by issuing
two types of securities: (1) puttable floating-rate
certificates ("Floaters") and (2) inverse floating-rate
residual interests ("Residuals"). The Floaters are typically
purchased by money market funds or other short-term
investors and may be tendered, with requisite notice, to the
TOB trust. The Residuals are retained by the investor
seeking to finance its municipal bond investment. TOB
transactions where the Residual is held by a third party
investor are typically known as Customer TOB trusts, and
Non-Customer TOB trusts are transactions where the
Residual is retained by the Firm. Customer TOB trusts are
sponsored by a third party; see page 242 on this Note for
further information. The Firm serves as sponsor for all Non-
Customer TOB transactions. The Firm may provide various
services to a TOB trust, including remarketing agent,
liquidity or tender option provider, and/or sponsor.
J.P. Morgan Securities LLC may serve as a remarketing
agent on the Floaters for TOB trusts. The remarketing agent
is responsible for establishing the periodic variable rate on
the Floaters, conducting the initial placement and
remarketing tendered Floaters. The remarketing agent may,
but is not obligated to, make markets in Floaters. The Firm
held an insignificant amount of Floaters during 2017 and
2016.
239
Notes to consolidated financial statements
JPMorgan Chase Bank, N.A. or J.P. Morgan Securities LLC
often serves as the sole liquidity or tender option provider
for the TOB trusts. The liquidity provider's obligation to
perform is conditional and is limited by certain events
("Termination Events"), which include bankruptcy or failure
to pay by the municipal bond issuer or credit enhancement
provider, an event of taxability on the municipal bonds or
the immediate downgrade of the municipal bond to below
investment grade. In addition, the liquidity provider's
exposure is typically further limited by the high credit
quality of the underlying municipal bonds, the excess
collateralization in the vehicle, or, in certain transactions,
the reimbursement agreements with the Residual holders.
Holders of the Floaters may "put," or tender, their Floaters
to the TOB trust. If the remarketing agent cannot
successfully remarket the Floaters to another investor, the
liquidity provider either provides a loan to the TOB trust for
the TOB trust's purchase of the Floaters, or it directly
purchases the tendered Floaters.
TOB trusts are considered to be variable interest entities.
The Firm consolidates Non-Customer TOB trusts because as
the Residual holder, the Firm has the right to make
decisions that significantly impact the economic
performance of the municipal bond vehicle, and it has the
right to receive benefits and bear losses that could
potentially be significant to the municipal bond vehicle. See
page 241 of this Note for further information on
consolidated municipal bond vehicles.
240
JPMorgan Chase & Co./2017 Annual Report
As of December 31, 2017 and 2016, the Firm did not
consolidate any agency re-securitizations or any Firm-
sponsored private-label re-securitizations.
Additionally, the Firm may invest in beneficial interests of
third-party re-securitizations and generally purchases these
interests in the secondary market. In these circumstances,
the Firm does not have the unilateral ability to direct the
most significant activities of the re-securitization trust,
either because it was not involved in the initial design of the
trust, or the Firm is involved with an independent third-
party sponsor and demonstrates shared power over the
creation of the trust; therefore, the Firm does not
consolidate the re-securitization VIE.
(a) Represents the principal amount and includes the notional amount of
interest-only securities.
43
JPMorgan Chase & Co./2017 Annual Report
The following table presents information on
nonconsolidated re-securitization VIES.
2017
2016
Year ended December 31,
(in millions)
Firm-sponsored private-label
Assets held in VIES with continuing involvement (a)
783
875
Interest in VIES
29
Agency
Interest in VIES
2,250
1,986
76
Most re-securitizations with which the Firm is involved are
client-driven transactions in which a specific client or group
of clients is seeking a specific return or risk profile. For
these transactions, the Firm has concluded that the
decision-making power of the entity is shared between the
Firm and its clients, considering the joint effort and
decisions in establishing the re-securitization trust and its
assets, as well as the significant economic interest the client
holds in the re-securitization trust; therefore the Firm does
not consolidate the re-securitization VIE.
$
410 $
943 $
$
1,353
7
Commercial and other (b)
94,905
63
Total
$ 182,763 $
3,685 $
17,612
63,411
133,303
93
93
745
52,280
$
3,615 $
Subprime
1,560
VIES
VIES
Assets held in
nonconsolidated
securitization
VIES with
continuing
involvement
JPMorgan Chase interest in securitized assets in
nonconsolidated VIES(c)(d)(e)
Total
interests
held by
JPMorgan
Trading
assets
Securities
Other
financial
assets
Chase
Residential mortgage:
Prime/Alt-A and option ARMS
$
68,874 $
18,984
1,248 $
$
1,133
2,076 $
held by
JPMorgan
Chase
Securitization-related (a)
Residential mortgage:
Prime/Alt-A and option ARMS
Subprime
$
4,209 $
Commercial and other (b)
21,542
101,265
Total
$ 199,596 $
107
4,316 $
57,543
19,903
71,464
148,910
$
226 $
76
1,334 $
-
Other
financial
assets
Securities
76,789 $
Principal amount outstanding
Trading
assets
2,035
157 $
3,481
December 31, 2016 (in millions)
JPMorgan Chase interest in securitized assets in
nonconsolidated VIES (c)(d)(e)
157
Assets held in
nonconsolidated
Total
interests
securitization
VIES with
VIES
VIES
continuing
involvement
Assets
Total assets
held in
held by
consolidated
securitization securitization
4.5
4.2%
4.2
2.9%
Commercial mortgage retained interest:
during the year are shown in the table below.
2.9%
7.1
Weighted-average life (in years)
Weighted-average discount rate
Year ended December 31,
Weighted-average life (in years)
Residential mortgage retained interest:
2015
2016
2017
Weighted-average discount rate
4.8
4.4%
Options to repurchase delinquent loans
6.2
4.1%
Key assumptions used to value retained interests originated
In addition to the Firm's obligation to repurchase certain
loans due to material breaches of representations and
warranties as discussed in Note 27, the Firm also has the
option to repurchase delinquent loans that it services for
Ginnie Mae loan pools, as well as for other U.S. government
agencies under certain arrangements. The Firm typically
elects to repurchase delinquent loans from Ginnie Mae loan
pools as it continues to service them and/or manage the
foreclosure process in accordance with the applicable
requirements, and such loans continue to be insured or
guaranteed. When the Firm's repurchase option becomes
exercisable, such loans must be reported on the
Consolidated balance sheets as a loan with a corresponding
liability.
(d) The carrying value of the loans accounted for at fair value
approximated the proceeds received upon loan sale.
(b) Excludes the value of MSRS retained upon the sale of loans.
(c) Gains on loan sales include the value of MSRs.
64,542 $ 52,869 $ 42,161
2016
2017
6.2
5.8%
Carrying value of loans sold
The following table summarizes the activities related to
loans sold to the U.S. GSES, loans in securitization
transactions pursuant to Ginnie Mae guidelines, and other
third-party-sponsored securitization entities.
See Note 15 for additional information about the impact of
the Firm's sale of certain excess MSRs.
In addition to the amounts reported in the securitization
activity tables above, the Firm, in the normal course of
business, sells originated and purchased mortgage loans
and certain originated excess MSRS on a nonrecourse basis,
predominantly to U.S. government sponsored enterprises
("U.S. GSES"). These loans and excess MSRs are sold
primarily for the purpose of securitization by the U.S. GSES,
who provide certain guarantee provisions (e.g., credit
enhancement of the loans). The Firm also sells loans into
securitization transactions pursuant to Ginnie Mae
guidelines; these loans are typically insured or guaranteed
by another U.S.government agency. The Firm does not
consolidate the securitization vehicles underlying these
transactions as it is not the primary beneficiary. For a
limited number of loan sales, the Firm is obligated to share
a portion of the credit risk associated with the sold loans
with the purchaser. See Note 27 for additional information
about the Firm's loan sales- and securitization-related
indemnifications.
transactions pursuant to Ginnie Mae guidelines, and other
third-party-sponsored securitization entities
Loans and excess MSRS sold to U.S. government-
sponsored enterprises, loans in securitization
JPMorgan Chase & Co./2017 Annual Report
242
Year ended December 31,
(in millions)
(d) Includes prime/Alt-A, subprime, and option ARMs. Excludes certain loan securitization transactions entered into with Ginnie Mae, Fannie Mae and Freddie Mac.
(e) Includes commercial mortgage and other consumer loans.
$
(b) Predominantly includes Level 2 assets.
3
$
10,340
5,661 $
525
Servicing fees collected
$
Proceeds received from loan sales as financial
instruments(b)
All cash flows during the period: (a)
11,933
3,008 $
$
8,964
1,817 $
10,252
The following table presents loans the Firm repurchased or
had an option to repurchase, real estate owned, and
foreclosed government-guaranteed residential mortgage
loans recognized on the Firm's Consolidated balance sheets
as of December 31, 2017 and 2016. Substantially all of
these loans and real estate are insured or guaranteed by
U.S. government agencies. For additional information, refer
to Note 12.
1,831 $
477
9,094
$
3
(a) Excludes re-securitization transactions.
597
407
1,441
482
918
463
(c) Includes cash paid by the Firm to reacquire assets from off-balance sheet, nonconsolidated entities - for example, loan repurchases due to representation and
warranties and servicer "clean-up" calls.
Cash flows received on interests
37
1
the underlying collateral)(c)
Purchases of previously transferred financial assets (or
3
12,011
3,022 $
528
3
December 31,
2016
2017
1,160
790 $
$
4,870 $ 6,169
3,276 4,186
957
1,755
9,103 $ 12,110 $
$ 133,303 $ 148,910 $
19,903
71,464
$ 52,280 $ 57,543 $
17,612
63,411
2016
2017
Liquidation losses
90 days past due
2017
2016
2016
2017
Securitized assets
JPMorgan Chase & Co./2017 Annual Report
719
1,087
114
1,623 $
643
$ 31,013 $ 30,797 $30,769
6,772 6,772
2,861 2,861
6,858 6,923
2015
5,532 $
2017
Total goodwill
Asset & Wealth Management
Commercial Banking
Total loans securitized
Consumer & Community Banking
Corporate & Investment Bank
The goodwill associated with each business combination is
allocated to the related reporting units, which are
determined based on how the Firm's businesses are
managed and how they are reviewed by the Firm's
Operating Committee. The following table presents goodwill
attributed to the business segments.
Goodwill is recorded upon completion of a business
combination as the difference between the purchase price
and the fair value of the net assets acquired. Subsequent to
initial recognition, goodwill is not amortized but is tested
for impairment during the fourth quarter of each fiscal
year, or more often if events or circumstances, such as
adverse changes in the business climate, indicate there may
be impairment.
Goodwill
Note 15 Goodwill and Mortgage servicing rights
Notes to consolidated financial statements
243
2,890
December 31, (in millions)
(in millions)
Commercial and other
Prime/ Alt-A & option ARMS
Proceeds from loans sales as
securities (a)
(a) Predominantly all of these amounts relate to loans that have been
repurchased from Ginnie Mae loan pools.
313
592 $
117 $
Proceeds received from loan
sales as cash
1,007
527
mortgage loans(b)
Foreclosed government-guaranteed residential
2015
2016
9,556
142
8,629 $
95
$
Loans repurchased or option to repurchase (a)
Real estate owned
63,542
51,852
41,615
(b) Relates to voluntary repurchases of loans, which are included in
accrued interest and accounts receivable.
Residential mortgage:
Securitized loans
As of or for the year ended December 31, (in millions)
The table below includes information about components of nonconsolidated securitized financial assets held in Firm-sponsored
private-label securitization entities, in which the Firm has continuing involvement, and delinquencies as of December 31, 2017
and 2016.
Loan delinquencies and liquidation losses
are generally sold shortly after receipt.
(a) Predominantly includes securities from U.S. GSES and Ginnie Mae that
Subprime
299
52,444 $
222 $
163 $
$
Gains on loan sales(c)(d)
63,659 $
$
Total proceeds received from
loan sales(b)
41,928
$
46,709
Residential
mortgage(d)
104
134
2,021
1,916
105
558
199
359
3,782
55
3,661
66
1,267
2
1,265
$
1,449 $
68,995 $
2,674 $
VIE program type(a)
Total
liabilities
Other(g)
Beneficial
interests in
VIE assets(f)
Total
assets(e)
Other(d)
Loans
1,281
Trading
assets
Liabilities
Assets
238
26,430
349 $
26,081 $
$
73,118
December 31, 2016 (in millions)
Firm-sponsored credit card trusts
3
3,073
Liabilities
Assets
Total
Other
Student loan securitization entities(c)
Mortgage securitization entities(b)
Municipal bond vehicles
Firm-administered multi-seller conduits
$
Firm-sponsored credit card trusts
VIE program type(a)
December 31, 2017 (in millions)
The following table presents information on assets and liabilities related to VIES consolidated by the Firm as of December 31,
2017 and 2016.
Consolidated VIE assets and liabilities
$
Trading
assets
Total
Loans
Other(d)
28
3,045
23,459
48
23,411
-
16 $ 21,294
1,278
21,278 $
652 $
41,923 $
$
Total
liabilities
Other(g)
Beneficial
interests in
VIE assets(f)
assets(e)
42,575 $
$
$
Firm-administered multi-seller conduits
241
JPMorgan Chase & Co./2017 Annual Report
The Firm holds investments in unconsolidated tax credit
vehicles, which are limited partnerships and similar entities
that construct, own and operate affordable housing, wind,
solar and other alternative energy projects. These entities
are primarily considered VIES. A third party is typically the
general partner or managing member and has control over
the significant activities of the tax credit vehicles, and
accordingly the Firm does not consolidate tax credit
vehicles. The Firm generally invests in these partnerships as
a limited partner and earns a return primarily through the
receipt of tax credits allocated to the projects. The
maximum loss exposure, represented by equity investments
and funding commitments, was $13.4 billion and $14.8
billion, of which $3.2 billion and $3.8 billion was unfunded
at December 31, 2017 and 2016 respectively. In order to
reduce the risk of loss, the Firm assesses each project and
withholds varying amounts of its capital investment until
qualification of the project for tax credits. See Note 24 for
Tax credit vehicles
The Firm enters into transactions with VIES structured by
other parties. These include, for example, acting as a
derivative counterparty, liquidity provider, investor,
underwriter, placement agent, remarketing agent, trustee
or custodian. These transactions are conducted at arm's-
length, and individual credit decisions are based on the
analysis of the specific VIE, taking into consideration the
quality of the underlying assets. Where the Firm does not
have the power to direct the activities of the VIE that most
significantly impact the VIE's economic performance, or a
variable interest that could potentially be significant, the
Firm generally does not consolidate the VIE, but it records
and reports these positions on its Consolidated balance
sheets in the same manner it would record and report
positions in respect of any other third-party transaction.
VIES sponsored by third parties
(f) The interest-bearing beneficial interest liabilities issued by consolidated VIES are classified in the line item on the Consolidated balance sheets titled,
"Beneficial interests issued by consolidated variable interest entities." The holders of these beneficial interests do not have recourse to the general credit
of JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $21.8 billion and $33.4 billion at December 31,
2017 and 2016, respectively. For additional information on interest bearing long-term beneficial interest, see Note 19.
(g) Includes liabilities classified as accounts payable and other liabilities on the Consolidated balance sheets.
(e) The assets of the consolidated VIES included in the program types above are used to settle the liabilities of those entities. The difference between total
assets and total liabilities recognized for consolidated VIES represents the Firm's interest in the consolidated VIES for each program type.
(d) Includes assets classified as cash and other assets on the Consolidated balance sheets.
(c) The Firm deconsolidated the student loan securitization entities in the second quarter of 2017 as it no longer had a controlling financial interest in these
entities as a result of the sale of the student loan portfolio.
(a) Excludes intercompany transactions, which are eliminated in consolidation.
(b) Includes residential and commercial mortgage securitizations.
303
120
490 $ 39,537
39,047 $
183
Notes to consolidated financial statements
further information on affordable housing tax credits. For
more information on off-balance sheet lending-related
commitments, see Note 27.
Customer municipal bond vehicles (TOB trusts)
The Firm may provide various services to Customer TOB
trusts, including remarketing agent, liquidity or tender
option provider. In certain Customer TOB transactions, the
Firm, as liquidity provider, has entered into a
reimbursement agreement with the Residual holder. In
those transactions, upon the termination of the vehicle, the
Firm has recourse to the third party Residual holders for
any shortfall. The Firm does not have any intent to protect
Residual holders from potential losses on any of the
underlying municipal bonds. The Firm does not consolidate
Customer TOB trusts, since the Firm does not have the
power to make decisions that significantly impact the
economic performance of the municipal bond vehicle. The
Firm's maximum exposure as a liquidity provider to
Customer TOB trusts at December 31, 2017 and 2016, was
$5.3 billion and $5.0 billion, respectively. The fair value of
assets held by such VIES at December 31, 2017 and 2016
was $9.2 billion and $8.9 billion, respectively. For more
information on off-balance sheet lending-related
commitments, see Note 27.
Commercial
and other(e)
Residential
mortgage(d)
Commercial
and other(e)
Residential
mortgage(d)
2015
2016
2017
2,463
82,120 $
Principal securitized
Year ended December 31,
The following table provides information related to the Firm's securitization activities for the years ended December 31, 2017,
2016 and 2015, related to assets held in Firm-sponsored securitization entities that were not consolidated by the Firm, and
where sale accounting was achieved at the time of the securitization.
For loan securitizations accounted for as a sale, the Firm
recognizes a gain or loss based on the difference between
the value of proceeds received (including cash, beneficial
interests, or servicing assets received) and the carrying
value of the assets sold. Gains and losses on securitizations
are reported in noninterest revenue.
For loan securitizations in which the Firm is not required to
consolidate the trust, the Firm records the transfer of the
loan receivable to the trust as a sale when all of the
following accounting criteria for a sale are met: (1) the
transferred financial assets are legally isolated from the
Firm's creditors; (2) the transferee or beneficial interest
holder can pledge or exchange the transferred financial
assets; and (3) the Firm does not maintain effective control
over the transferred financial assets (e.g., the Firm cannot
repurchase the transferred assets before their maturity and
it does not have the ability to unilaterally cause the holder
to return the transferred assets).
The Firm has securitized and sold a variety of loans,
including residential mortgage, credit card, student and
commercial (primarily related to real estate) loans, as well
as debt securities. The purposes of these securitization
transactions were to satisfy investor demand and to
generate liquidity for the Firm.
Loan securitizations
Securitization activity
(in millions, except rates)
2,318
3,321 $
3,185 $ 75,614 $
$
2,969
2,905
8
2,897
Municipal bond vehicles
2,752
33
2
2,719
43
18 $ 31,199
31,181 $
$
6,776
790 $
45,919 $
23,760
23,803
Commercial
and other(e)
2,971
143
Total
145
Other
1,531
4
1,527
1,748
Mortgage securitization entities (b)
59
Student loan securitization entities (c)
781
313
468
4,492
103
4,246
1,689
2,860
6,096
$ 47,507 $ 47,288 $47,325
(221)
$ (231)
(427)
(445)
9.04%
8.55%
$ (250) $ (248)
(481)
(477)
Impact on fair value of 10% adverse change $
Impact on fair value of 20% adverse change
Weighted-average option adjusted spread
Impact on fair value of 100 basis points
adverse change
Impact on fair value of 200 basis points
adverse change
9.41%
CPR: Constant prepayment rate.
2
$2,513
(a) Represents both the impact of changes in estimated future
prepayments due to changes in market interest rates, and the
difference between actual and expected prepayments.
(b) Represents the aggregate impact of changes in model inputs and
assumptions such as projected cash flows (e.g., cost to service),
discount rates and changes in prepayments other than those
attributable to changes in market interest rates (e.g., changes in
prepayments due to changes in home prices).
JPMorgan Chase & Co./2017 Annual Report
247
Notes to consolidated financial statements
Note 16 - Premises and equipment
Premises and equipment, including leasehold
improvements, are carried at cost less accumulated
depreciation and amortization. JPMorgan Chase computes
depreciation using the straight-line method over the
estimated useful life of an asset. For leasehold
improvements, the Firm uses the straight-line method
computed over the lesser of the remaining term of the
leased facility or the estimated useful life of the leased
asset.
JPMorgan Chase capitalizes certain costs associated with
the acquisition or development of internal-use software.
Once the software is ready for its intended use, these costs
are amortized on a straight-line basis over the software's
expected useful life and reviewed for impairment on an
ongoing basis.
Note 17 - Deposits
At December 31, 2017 and 2016, noninterest-bearing and
interest-bearing deposits were as follows.
December 31, (in millions)
Changes in fair value based on variation in assumptions
generally cannot be easily extrapolated, because the
relationship of the change in the assumptions to the change
in fair value are often highly interrelated and may not be
linear. In this table, the effect that a change in a particular
assumption may have on the fair value is calculated without
changing any other assumption. In reality, changes in one
factor may result in changes in another, which would either
magnify or counteract the impact of the initial change.
9.35%
2016
2017
Change in derivative fair value
and other
(10)
380
Total risk management
(242)
217
288
(117)
Total net mortgage servicing
revenue
977
1,637 1,742
Total CCB mortgage fees and
related income
1,613
2,490
2,511
All other
3
1
Mortgage fees and related income
$1,616 $ 2,491
The table below outlines the key economic assumptions
used to determine the fair value of the Firm's MSRs at
December 31, 2017 and 2016, and outlines the
sensitivities of those fair values to immediate adverse
changes in those assumptions, as defined below.
December 31,
(in millions, except rates)
Weighted-average prepayment speed
assumption ("CPR")
U.S. offices
Noninterest-bearing
Interest-bearing (included $14,947, and
$12,245 at fair value)(a)
Total deposits in U.S. offices
$1,375,179
(a) Includes structured notes classified as deposits for which the fair value
option has been elected. For further discussion, see Note 3.
At December 31, 2017 and 2016, time deposits in
denominations of $250,000 or more were as follows.
December 31, (in millions)
U.S. offices
Non-U.S. offices(a)
Total(a)
2017
2016
$ 30,671 $ 26,180
29,049 29,652
$ 59,720 $ 55,832
(a) The prior period amounts have been revised to conform with the
current period presentation.
At December 31, 2017, the maturities of interest-bearing
time deposits were as follows.
December 31, 2017
U.S.
Non-U.S.
Total
$ 37,645 $ 27,621 $ 65,266
(in millions)
2018
2019
2020
2021
2022
After 5 years
Total
$ 1,443,982
(245)
Total deposits
256,719
2017
2016
$ 393,645 $ 400,831
793,618
737,949
1,187,263
1,138,780
Note 18 - Accounts payable and other liabilities
Accounts payable and other liabilities consist of brokerage
payables, which includes payables to customers, dealers
and clearing organizations, and payables from security
purchases that did not settle; accrued expenses, including
income tax payables and credit card rewards liability; and
all other liabilities, including obligations to return securities
received as collateral and litigation reserves.
The following table details the components of accounts
payable and other liabilities.
December 31, (in millions)
Brokerage payables
Other payables and liabilities(a)
Total accounts payable and other
liabilities
2017
2016
$ 102,727 $ 109,842
86,656
80,701
$ 189,383 $ 190,543
(a) Includes credit card rewards liability of $4.9 billion and $3.8 billion at
December 31, 2017 and 2016, respectively.
Non-U.S. offices
Noninterest-bearing
15,576
14,764
Interest-bearing (included $6,374 and
$1,667 at fair value)(a)
241,143
221,635
Total deposits in non-U.S. offices
236,399
(91)
(30)
assumptions in model(b)
Projected cash flows (e.g., cost to service)
Discount rates
Prepayment model changes and other (c)
(102)
(35)
(112)
(19)
7
(10)
91
(63)
(123)
Total changes in valuation due to other inputs and assumptions
(30)
(91)
(245)
Total changes in valuation due to inputs and assumptions
(232)
(163)
(405)
Fair value at December 31,
$
6,030 $
6,096
$
Changes in valuation due to other inputs and assumptions:
6,608
(160)
(202)
6,858
$ 6,608
$
7,436
MSR activity:
Originations of MSRS
1,103
Purchase of MSRS
Disposition of MSRs (a)
Net additions
Changes due to collection/realization of expected cash flows
679
550
435
(140)
(109)
(486)
963
570
499
(797)
(919)
(922)
Changes in valuation due to inputs and assumptions:
Changes due to market interest rates and other (b)
(72)
248
Change in unrealized gains/(losses) included in income related to MSRs held at December 31,
(232)
2015
$ 636 $ 853
$ 769
Operating revenue:
Loan servicing revenue
2,014
2,336
2,776
Changes in MSR asset fair value
due to collection/realization of
expected cash flows
(795)
(916) (917)
Total operating revenue
1,219
1,420
1,859
Risk management:
Changes in MSR asset fair value
due to market interest rates
and other (a)
(202)
(72)
Other changes in MSR asset fair
value due to other inputs and
2016
$
2017
Net production revenue
$
(163)
$
(405)
Contractual service fees, late fees and other ancillary fees included in income
1,886
2,124
2,533
Third-party mortgage loans serviced at December 31, (in billions)
555.0
593.3
677.0
Servicer advances, net of an allowance for uncollectible amounts, at December 31, (in billions)(d)
4.0
4.7
6.5
(a) Includes excess MSRS transferred to agency-sponsored trusts in exchange for stripped mortgage backed securities ("SMBS"). In each transaction, a portion of the
SMBS was acquired by third parties at the transaction date; the Firm acquired the remaining balance of those SMBS as trading securities.
(b) Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and expected
prepayments.
(c) Represents changes in prepayments other than those attributable to changes in market interest rates.
(d) Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest, taxes and insurance), which will generally be reimbursed within a short
period of time after the advance from future cash flows from the trust or the underlying loans. The Firm's credit risk associated with these servicer advances is
minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right to stop payment to
investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if they were not made in
accordance with applicable rules and agreements.
246
JPMorgan Chase & Co./2017 Annual Report
The following table presents the components of mortgage
fees and related income (including the impact of MSR risk
management activities) for the years ended December 31,
2017, 2016 and 2015.
Year ended December 31,
(in millions)
CCB mortgage fees and related
income
Net mortgage servicing revenue:
3,487
(160)
3,836
1.10-2.50%
1.27-6.54%
321
0.00-3.75%
$ 2,275
$ 284,080
$ 13,579
8,192
0.00-6.54%
$
2,345
(g)(h) $295,245
$ 18,678
14,681
0.39-7.87%
Total long-term beneficial
interests(f)
9,326
$
$
12,124
321
$
21,771
$
33,359
(a) The interest rates shown are the range of contractual rates in effect at December 31, 2017 and 2016, respectively, including non-U.S. dollar fixed- and variable-rate issuances,
which excludes the effects of the associated derivative instruments used in hedge accounting relationships, if applicable. The use of these derivative instruments modifies the
Firm's exposure to the contractual interest rates disclosed in the table above. Including the effects of the hedge accounting derivatives, the range of modified rates in effect at
December 31, 2017, for total long-term debt was (0.19)% to 8.88%, versus the contractual range of 0.16% to 8.75% presented in the table above. The interest rate ranges
shown exclude structured notes accounted for at fair value.
(b) As of December 31, 2017, includes $0.7 billion of fixed rate junior subordinated debentures issued to an issuer trust and $1.6 billion of variable rate junior subordinated
debentures distributed pro rata to the holders of the $1.6 billion of trust preferred securities which were cancelled on December 18, 2017.
(c) Included long-term debt of $63.5 billion and $82.2 billion secured by assets totaling $208.4 billion and $205.6 billion at December 31, 2017 and 2016, respectively. The
amount of long-term debt secured by assets does not include amounts related to hybrid instruments.
(d) Included $47.5 billion and $37.7 billion of long-term debt accounted for at fair value at December 31, 2017 and 2016, respectively.
(e) Included $10.3 billion and $7.5 billion of outstanding zero-coupon notes at December 31, 2017 and 2016, respectively. The aggregate principal amount of these notes at their
respective maturities is $33.5 billion and $25.1 billion, respectively. The aggregate principal amount reflects the contractual principal payment at maturity, which may exceed
the contractual principal payment at the Firm's next call date, if applicable.
(f) Included on the Consolidated balance sheets in beneficial interests issued by consolidated VIES. Also included $45 million and $120 million accounted for at fair value at
December 31, 2017 and 2016, respectively. Excluded short-term commercial paper and other short-term beneficial interests of $4.3 billion and $5.7 billion at December 31,
2017 and 2016, respectively.
$
$ 7,652
4,472
5,927
3,399
Variable rate
Interest rates
$ 111,111
Junior subordinated debt (b):
Fixed rate
$
690
$
690
$
706
Variable rate
Interest rates(a)
-%
-%
1,585
1.88-8.75%
1,585
1.88-8.75%
1,639
1.39-8.75%
Subtotal $
$
-
$
Total long-term debt (c)(d)(e)
$ 43,174
$ 121,181
2,275
$ 119,725
Long-term beneficial interests: Fixed rate
(g) At December 31, 2017, long-term debt in the aggregate of $111.2 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior to maturity, based on the
terms specified in the respective instruments.
(h) The aggregate carrying values of debt that matures in each of the five years subsequent to 2017 is $43.2 billion in 2018, $34.7 billion in 2019, $39.3 billion in 2020, $33.8
billion in 2021 and $13.4 billion in 2022.
249
Notes to consolidated financial statements
(c) Includes foreign currency translation adjustments and other tax-
related adjustments.
(a) For 2017, represents CCB goodwill in connection with an acquisition.
(b) For 2016, represents AWM goodwill, which was disposed of as part of
an AWM sales transaction. For 2015 includes $101 million of Private
Equity goodwill, which was disposed of as part of the Private Equity
sale.
$ 47,507 $ 47,288 $ 47,325
(160)
(190)
28
$ 47,647
2015
20
(72)
35
-
199
$ 47,325
$ 47,288
2016
2017
Balance at December 31,
Other(c)
Dispositions(b)
Business combinations(a)
Changes during the period from:
Balance at beginning of period
Year ended December 31, (in
millions)
349
The following table presents changes in the carrying
amount of goodwill.
Impairment testing
$ 99,138
The Firm's goodwill was not impaired at December 31,
2017, 2016, and 2015.
The Firm uses the reporting units' allocated capital plus
goodwill and other intangible assets capital as a proxy for
the carrying values of equity for the reporting units in the
goodwill impairment testing. Reporting unit equity is
determined on a similar basis as the allocation of capital to
the Firm's lines of business, which takes into consideration
the capital the business segment would require if it were
operating independently, incorporating sufficient capital to
address regulatory capital requirements (including Basel
III) and capital levels for similarly rated peers. Proposed
line of business equity levels are incorporated into the
Firm's annual budget process, which is reviewed by the
Firm's Board of Directors. Allocated capital is further
reviewed on a periodic basis and updated as needed.
The weighted-average contractual interest rates for total
long-term debt excluding structured notes accounted for at
fair value were 2.87% and 2.49% as of December 31,
2017 and 2016, respectively. In order to modify exposure
to interest rate and currency exchange rate movements,
JPMorgan Chase utilizes derivative instruments, primarily
interest rate and cross-currency interest rate swaps, in
conjunction with some of its debt issuances. The use of
these instruments modifies the Firm's interest expense on
the associated debt. The modified weighted-average
interest rates for total long-term debt, including the effects
of related derivative instruments, were 2.56% and 2.01%
as of December 31, 2017 and 2016, respectively.
JPMorgan Chase & Co. has guaranteed certain long-term
debt of its subsidiaries, including both long-term debt and
structured notes. These guarantees rank on parity with the
Firm's other unsecured and unsubordinated indebtedness.
The amount of such guaranteed long-term debt and
structured notes was $7.9 billion and $3.9 billion at
December 31, 2017 and 2016, respectively.
The Firm's unsecured debt does not contain requirements
that would call for an acceleration of payments, maturities
or changes in the structure of the existing debt, provide any
limitations on future borrowings or require additional
collateral, based on unfavorable changes in the Firm's credit
ratings, financial ratios, earnings or stock price.
Junior subordinated deferrable interest debentures
At December 31, 2016, the Firm had outstanding eight
wholly-owned Delaware statutory business trusts ("issuer
trusts") that had issued trust preferred securities. On
December 18, 2017, seven of the eight issuer trusts were
liquidated, $1.6 billion of trust preferred and $56 million of
common securities originally issued by those trusts were
cancelled, and the junior subordinated debentures
previously held by each trust issuer were distributed pro
rata to the holders of the corresponding series of trust
preferred and common securities.
Beginning in 2014, the junior subordinated debentures
issued to the issuer trusts by the Firm, less the common
capital securities of the issuer trusts, began being phased
out from inclusion as Tier 1 capital under Basel III and they
were fully phased out as of December 31, 2016. As of
December 31, 2017 and 2016, $300 million and $1.4
billion, respectively, qualified as Tier 2 capital.
The Firm redeemed $1.6 billion of trust preferred securities
in the year ended December 31, 2016.
250
JPMorgan Chase & Co./2017 Annual Report
Fair value at beginning of period
2015
2016
2017
As of or for the year ended December 31, (in millions, except where otherwise noted)
The following table summarizes MSR activity for the years ended December 31, 2017, 2016 and 2015.
those for which the Firm receives fixed-rate interest
payments) increase in value when interest rates decline.
JPMorgan Chase uses combinations of derivatives and
securities to manage the risk of changes in the fair value of
MSRs. The intent is to offset any interest-rate related
changes in the fair value of MSRs with changes in the fair
value of the related risk management instruments.
The fair value of MSRS is sensitive to changes in interest
rates, including their effect on prepayment speeds. MSRs
typically decrease in value when interest rates decline
because declining interest rates tend to increase
prepayments and therefore reduce the expected life of the
net servicing cash flows that comprise the MSR asset.
Conversely, securities (e.g., mortgage-backed securities),
principal-only certificates and certain derivatives (i.e.,
Notes to consolidated financial statements
245
JPMorgan Chase & Co./2017 Annual Report
MSRS represent the fair value of expected future cash flows
for performing servicing activities for others. The fair value
considers estimated future servicing fees and ancillary
revenue, offset by estimated costs to service the loans, and
generally declines over time as net servicing cash flows are
received, effectively amortizing the MSR asset against
contractual servicing and ancillary fee income. MSRs are
either purchased from third parties or recognized upon sale
or securitization of mortgage loans if servicing is retained.
As permitted by U.S. GAAP, the Firm has elected to account
for its MSRS at fair value. The Firm treats its MSRs as a
single class of servicing assets based on the availability of
market inputs used to measure the fair value of its MSR
asset and its treatment of MSRS as one aggregate pool for
risk management purposes. The Firm estimates the fair
value of MSRS using an option-adjusted spread ("OAS”)
model, which projects MSR cash flows over multiple interest
rate scenarios in conjunction with the Firm's prepayment
model, and then discounts these cash flows at risk-adjusted
rates. The model considers portfolio characteristics,
contractually specified servicing fees, prepayment
assumptions, delinquency rates, costs to service, late
charges and other ancillary revenue, and other economic
factors. The Firm compares fair value estimates and
assumptions to observable market data where available,
and also considers recent market activity and actual
portfolio experience.
Mortgage servicing rights
Declines in business performance, increases in credit losses,
increases in capital requirements, as well as deterioration
in economic or market conditions, estimates of adverse
regulatory or legislative changes or increases in the
estimated market cost of equity, could cause the estimated
fair values of the Firm's reporting units or their associated
goodwill to decline in the future, which could result in a
material impairment charge to earnings in a future period
related to some portion of the associated goodwill.
The valuations derived from the discounted cash flow
analysis are then compared with market-based trading and
transaction multiples for relevant competitors. Trading and
transaction comparables are used as general indicators to
assess the general reasonableness of the estimated fair
values, although precise conclusions generally cannot be
drawn due to the differences that naturally exist between
the Firm's businesses and competitor institutions.
Management also takes into consideration a comparison
between the aggregate fair values of the Firm's reporting
units and JPMorgan Chase's market capitalization. In
evaluating this comparison, management considers several
factors, including (i) a control premium that would exist in a
market transaction, (ii) factors related to the level of
execution risk that would exist at the firmwide level that do
not exist at the reporting unit level and (iii) short-term
market volatility and other factors that do not directly
affect the value of individual reporting units.
The primary method the Firm uses to estimate the fair
value of its reporting units is the income approach. This
approach projects cash flows for the forecast period and
uses the perpetuity growth method to calculate terminal
values. These cash flows and terminal values are then
discounted using an appropriate discount rate. Projections
of cash flows are based on the reporting units' earnings
forecasts which are reviewed with senior management of
the Firm. The discount rate used for each reporting unit
represents an estimate of the cost of equity for that
reporting unit and is determined considering the Firm's
overall estimated cost of equity (estimated using the Capital
Asset Pricing Model), as adjusted for the risk characteristics
specific to each reporting unit (for example, for higher
levels of risk or uncertainty associated with the business or
management's forecasts and assumptions). To assess the
reasonableness of the discount rates used for each
reporting unit management compares the discount rate to
the estimated cost of equity for publicly traded institutions
with similar businesses and risk characteristics. In addition,
the weighted average cost of equity (aggregating the
various reporting units) is compared with the Firms' overall
estimated cost of equity to ensure reasonableness.
JPMorgan Chase & Co./2017 Annual Report
244
The goodwill impairment test is performed in two steps. In
the first step, the current fair value of each reporting unit is
compared with its carrying value, including goodwill and
other intangible assets. If the fair value is in excess of the
carrying value, then the reporting unit's goodwill is
considered to be not impaired. If the fair value is less than
the carrying value, then a second step is performed. In the
second step, the implied current fair value of the reporting
unit's goodwill is determined by comparing the fair value of
the reporting unit (as determined in step one) to the fair
value of the net assets of the reporting unit, as if the
reporting unit were being acquired in a business
combination. The resulting implied current fair value of
goodwill is then compared with the carrying value of the
reporting unit's goodwill. If the carrying value of the
goodwill exceeds its implied current fair value, then an
impairment charge is recognized for the excess. If the
carrying value of goodwill is less than its implied current
fair value, then no goodwill impairment is recognized.
22,304
JPMorgan Chase & Co./2017 Annual Report
54,291
$
15,084
5,547
0.38-7.25%
$
53,939
12,802
0.16-6.30%
$ 72,528
$ 141,551
$ 128,967
8,112
0.45-6.40%
26,461
0.16-7.25%
Subordinated debt:
Fixed rate
-
$
149
$ 14,497
$
Variable rate
9
14,646
9
Interest rates (a)
-%
8.53%
3.38-8.00%
3.38-8.53%
34,766
0.09-7.25%
Fixed rate
$ 16,811
After 5 years
Under 1 year
2,332
22
2,354
$
4,275
26
4,301
2,297
443
2,740
3.391
1,697
5,088
$ 53,427 $ 30,158 $ 83,585
JPMorgan Chase & Co./2017 Annual Report
Note 19 - Long-term debt
JPMorgan Chase issues long-term debt denominated in various currencies, predominantly U.S. dollars, with both fixed and
variable interest rates. Included in senior and subordinated debt below are various equity-linked or other indexed instruments,
which the Firm has elected to measure at fair value. Changes in fair value are recorded in principal transactions revenue in the
Consolidated statements of income, except for unrealized gains/(losses) due to DVA which are recorded in OCI. The following
table is a summary of long-term debt carrying values (including unamortized premiums and discounts, issuance costs,
valuation adjustments and fair value adjustments, where applicable) by remaining contractual maturity as of December 31,
2017.
By remaining maturity at
December 31,
(in millions, except rates)
Parent company
Senior debt:
2016
Total
Total
2017
1-5 years
1,245
0.82-8.53%
Variable rate
Interest rates (a)
Fixed rate
Interest rates(a)
0.22-7.50%
Subtotal $ 22,543
$ 6,898
3,964
1.00-7.50%
$ 11,990
79,340
0.41-1.21%
$ 8,329
26,218
0.22-7.50%
19,379
0.00-7.50%
Subordinated debt:
$ -
$ - $ 313
$
313
$
3,884
Variable rate
Interest rates(a)
-%
-%
8.25%
8.25%
$
Subtotal
6.00-8.25%
$ 3,970
1,122
8,967
13,287
1.65-7.50%
Federal Home Loan Banks
advances:
$
20,631
$ 66,890
$
95,146
$ 182,667
$ 181,789
Subsidiaries
Variable rate
Fixed rate
4
$
$
34
37,000
1.46-2.00%
$
167
$
179
Variable rate
Interest rates(a)
12,450
1.58-1.75%
129
11,000
1.18-1.47%
60,450
1.18-2.00%
Fixed rate
Senior debt:
$
(164)
(1,521)
$ 1,524
$
$
$
(2,259)
$
(176)
(100)
(330)
Tax
effect
(56)
(2)
(1,105)
154
154
-
192
$
$
(2,231)
$
(1,175)
(44)
(28)
640
2016
Tax
effect
176
$
After-tax Pre-tax
2015
Pre-tax
effect After-tax
Pre-tax
After-tax
Year ended December 31, (in millions)
2017
Tax
The following table presents the pre-tax and after-tax changes in the components of OCI.
(b) Represents the after-tax difference between the fair value and amortized cost of securities accounted for as AFS, including net unamortized unrealized gains and losses related
to AFS securities transferred to HTM.
(a) Effective January 1, 2016, the Firm adopted new accounting guidance related to the recognition and measurement of financial liabilities where the fair value option has been
elected. This guidance requires the portion of the total change in fair value caused by changes in the Firm's own credit risk (DVA) to be presented separately in OCI; previously
these amounts were recognized in net income.
(306)
(119)
(368)
(1,521)
$
76
$
(470)
$
$ 2,164
Balance at December 31, 2017
1,056
(192)
738
$
(162)
211
$ 2,629
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation
adjustments (including the impact of related derivatives), cash flow hedging activities, and net loss and prior service costs/(credit)
related to the Firm's defined benefit pension and OPEB plans.
Note 23 - Accumulated other comprehensive income/(loss)
Notes to consolidated financial statements
253
JPMorgan Chase & Co./2017 Annual Report
(b) Participating securities were included in the calculation of diluted EPS
using the two-class method, as this computation was more dilutive
than the calculation using the treasury stock method.
(a) The prior period amounts have been revised to conform with the
current period presentation. The revision had no impact on the Firm's
reported earnings per share.
$ 6.31 $ 6.19 $ 6.00
3,773.6
3,576.8 3,690.0
32.4
31.2
Unrealized
gains/(losses)
25.2
$ 22,567 $ 22,834 $ 22,651
$ 6.35 $ 6.24 $ 6.05
3,658.8 3,741.2
3,551.6
$ 22,567 $ 22,834 $ 22,651
276
252
Net income per share
Total weighted-average diluted
shares outstanding(a)(b)
Add: Employee stock options, SARS,
warrants and PSUs (a)
Unrealized gains/(losses) on investment securities:
Net unrealized gains/(losses) arising during the period
Reclassification adjustment for realized (gains)/losses
included in net income (a)
Total weighted-average basic shares
outstanding(a)
3,551.6 3,658.8 3,741.2
$
Translation
Balance at December 31, 2014
Net change
(1,997)
111
51
(15)
(2,144)
2,189
$
$
(2,342)
$
(95)
$
Year ended December 31,
(in millions)
$ (147)
Accumulated
other
comprehensive
income/(loss)
DVA on fair value
option elected
liabilities
Defined benefit pension
and OPEB plans
Cash flow
hedges
net of hedges
securities (b)
adjustments,
on investment
Balance at December 31, 2016
Net change
Net change
Cumulative effect of change in
accounting principle(a)
Balance at December 31, 2015
$ 4,773
$ 944
(22)
(346) $ 598
(221)
145
(366)
642
(160)
802
Net gains/(losses) arising during the period
Defined benefit pension and OPEB plans:
51
(32)
83
(56)
29
34
176
(105)
281
Net change
113
(67)
180
226
(134)
360
84
(50)
(90)
(47)
(18)
Reclassification adjustments included in net income(e):
Net income applicable to common
stockholders (a)
3
(1)
4
1
(1)
2
Settlement loss/(gain)
14
(36)
(22)
14
(36)
(23)
13
(36)
Prior service costs/(credits)
176
(106)
282
160
(97)
257
160
(90)
250
Amortization of net loss
134
$
included in net income(c)(d)
(62)
(1,876)
(162)
99
(261)
512
(801)
1,313
(126)
(2,144)
1,373
76
(202)
(3,517)
(88)
(1,105)
682
53
664
42
640
(370)
1,010
Hedges
Translation
Translation adjustments(b):
Net change
(24)
66
$ (2,018)
$ (1,017) $ (3,315) $ 1,297
$ (1,628) $ 611
(141)
(1,769)
(1,194)
(1,294)
476
35
(97)
(282)
168
(450)
92
(55)
147
Net unrealized gains/(losses) arising during the period
Cash flow hedges:
Net change
(15)
(24)
9
(2)
(3)
1
(306)
(325)
19
1,179
(706)
1,885
160
(102)
262
(818)
Reclassification adjustment for realized (gains)/losses
Diluted earnings per share
2017
Total weighted-average basic
shares outstanding (a)
Fixed-to-floating-rate:
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
Series I
ΝΑ
9/1/2020
9/1/2020
6.100
6.150
6/4/2015
7/29/2015
1,150
1,150
115,000
115,000
Series BB
1,425
1,425
142,500 142,500
Series AA
3 3 3 3 3 3
ΝΑ
600,000
Series Q
LIBOR + 3.25
5/1/2023
5/1/2023
8/1/2023
6.000
7/29/2013
5.150
4/23/2013
4/30/2018 4/30/2018 LIBOR + 3.47%
7.900%
4/23/2008
6,000
6,000
1,500 1,500
1,500 1,500
2,000 2,000
1,000 1,000
2,500 2,500
600,000
250,000 250,000
160,000 160,000
Series V
100,000
100,000
Series U
200,000
200,000
Series S
150,000
150,000
Series R
150,000
150,000
Series X
3/1/2020
6.125
2/12/2015
$
125,750
Series O
Fixed-rate:
LIBOR plus:
three-month
rate of
rate
becomes
floating
Earliest
redemption
date
in effect at
December 31,
2017
Issue date
2016
-
Foreign exchange and other
2017
annual
Floating
Date at
which
dividend
Contractual
rate
at December 31,
Shares at December 31, (a)
Carrying value
(in millions)
The following is a summary of JPMorgan Chase's non-cumulative preferred stock outstanding as of December 31, 2017 and 2016.
In the event of a liquidation or dissolution of the Firm,
JPMorgan Chase's preferred stock then outstanding takes
precedence over the Firm's common stock with respect to
the payment of dividends and the distribution of assets.
At December 31, 2017 and 2016, JPMorgan Chase was
authorized to issue 200 million shares of preferred stock, in
one or more series, with a par value of $1 per share.
Note 20 - Preferred stock
2016
Series P
90,000
90,000
1,430
1,430
143,000
143,000
Series Y
ΝΑ
9/1/2019
6.300
6/23/2014
880
880
88,000
88,000
Series W
3/1/2019
3/1/2018
9/1/2017
N/A
5.450%
6.700
1/30/2014
925
925
92,500
92,500
Series T
8/27/2012
2/5/2013
$ 1,258
900
900
8/1/2023
LIBOR + 3.30
1/22/2014
6.750
Total treasury - balance at
4.7
1.0
38.5
38.1
30.7
Total reissuance
1.0
0.8
Employee stock purchase plans
11.1
5.4
Warrant exercise
32.8
December 31
26.0
compensation plans
Employee benefits and
Reissuance:
4,104.9
(390.1)
(89.8)
(140.4)
(166.6)
Repurchase
(441.4)
(543.7)
Treasury - balance at January 1
4,104.9
4,104.9
24.5
Outstanding at December 31
(679.6) (543.7) (441.4)
3,425.3 3,561.2 3,663.5
At December 31, 2017, 2016, and 2015, respectively, the
Firm had 15.0 million, 24.9 million and 47.4 million
warrants outstanding to purchase shares of common stock
(the "Warrants"). The Warrants are currently traded on the
New York Stock Exchange, and they are exercisable, in
whole or in part, at any time and from time to time until
October 28, 2018. The original warrant exercise price was
$42.42 per share. The number of shares issuable upon the
exercise of each warrant and the warrant exercise price is
subject to adjustment upon the occurrence of certain
events, including, but not limited to, the extent to which
regular quarterly cash dividends exceed $0.38 per share.
As of December 31, 2017 the exercise price was $41.834
and the Warrant share number was 1.01.
Net income applicable to common
stockholders (a)
Less: Dividends and undistributed
earnings allocated to participating
securities (a)
22,927
23,086
22,778
Net income applicable to common
equity
1,515
1,647
1,663
Less: Preferred stock dividends
$ 24,441 $ 24,733 $ 24,442
Net income
Basic earnings per share
2015
2016
2017
except per share amounts)
Year ended December 31,
(in millions,
The following table presents the calculation of basic and
diluted EPS for the years ended December 31, 2017, 2016
and 2015.
undistributed) are allocated to each class of common stock
and participating securities based on their respective rights
to receive dividends. JPMorgan Chase grants RSUs to
certain employees under its share-based compensation
programs, which entitle recipients to receive nonforfeitable
dividends during the vesting period on a basis equivalent to
the dividends paid to holders of common stock; these
unvested awards meet the definition of participating
securities.
Earnings per share ("EPS") is calculated under the two-class
method under which all earnings (distributed and
Note 22 - Earnings per share
JPMorgan Chase & Co./2017 Annual Report
252
As of December 31, 2017, approximately 120 million
shares of common stock were reserved for issuance under
various employee incentive, compensation, option and stock
purchase plans, director compensation plans, and the
Warrants.
$15,410 $ 9,082 $ 5,616
On June 28, 2017, in conjunction with the Federal Reserve's
release of its 2017 CCAR results, the Firm's Board of
Directors authorized a $19.4 billion common equity (i.e.,
common stock and warrants) repurchase program. As of
December 31, 2017, $9.8 billion of authorized repurchase
capacity remained under the program. This authorization
includes shares repurchased to offset issuances under the
Firm's share-based compensation plans.
January 1
Net income per share
Aggregate purchase price of common
stock repurchases
2016
5/1/2020
11/1/2022
4.625
5.300
4/21/2015
10/20/2017
1,258
-
2,000
2,000
200,000
200,000
125,750
Series CC
Series Z
5/1/2020
11/1/2022
LIBOR + 3.33
LIBOR + 3.33
LIBOR + 3.78
2/1/2024
4/30/2024
7/1/2019
4/30/2024
7/1/2019
10/1/2024 10/1/2024
6.100
9/23/2014
1,600 1,600
5.000
6/9/2014
6.125
3/10/2014
2/1/2024
LIBOR + 3.32
LIBOR + 3.80
LIBOR + 2.58
Total preferred stock
2017
Total issued - balance at
(in millions)
Year ended December 31,
89.8
140.4
166.6
2015
2016
2017
Year ended December 31, (in millions)
Total number of shares of common stock
repurchased
The following table sets forth the Firm's repurchases of
common equity for the years ended December 31, 2017,
2016 and 2015. There were no warrants repurchased
during the years ended December 31, 2017, 2016 and
2015.
Common shares issued (newly issued or reissuance from
treasury) by JPMorgan Chase during the years ended
December 31, 2017, 2016 and 2015 were as follows.
At December 31, 2017 and 2016, JPMorgan Chase was
authorized to issue 9.0 billion shares of common stock with
a par value of $1 per share.
Note 21 - Common stock
Notes to consolidated financial statements
251
JPMorgan Chase & Co./2017 Annual Report
Each series of the Firm's preferred stock may be redeemed
on any dividend payment date on or after the earliest
redemption date for that series. All outstanding preferred
stock series except Series I may also be redeemed following
a “capital treatment event," as described in the terms of
each series. Any redemption of the Firm's preferred stock is
subject to non-objection from the Board of Governors of the
Federal Reserve System (the "Federal Reserve").
Redemption rights
On October 20, 2017, the Firm issued $1.3 billion of fixed
to-floating rate non-cumulative preferred stock, Series CC,
with an initial dividend rate of 4.625%. On December 1,
2017, The Firm redeemed all $1.3 billion of its outstanding
5.50% non-cumulative preferred stock, Series O.
Dividends on fixed-rate preferred stock are payable
quarterly. Dividends on fixed-to-floating-rate preferred
stock are payable semiannually while at a fixed rate, and
become payable quarterly after converting to a floating
rate.
Each series of preferred stock has a liquidation value and
redemption price per share of $10,000, plus accrued but
unpaid dividends.
(a) Represented by depositary shares.
$26,068 $26,068
2,606,750
2,606,750
2015
(54)
related to prior periods
(42)
JPMorgan Chase Bank, N.A.
Tier 1
capital
NOL and tax credit carryforwards
• Deferred tax assets that arise from
• MSRS
• Goodwill
Less certain deductions for:
CET1
capital
• Defined benefit pension and OPEB
plans
• AFS debt and equity securities
8.4
8.3
Basel III Standardized
Transitional
8.4
Tier 1 leverage (d)
15.5
15.9
(e)
16.2
15.9
Total
14.1
14.5
12.4%
12.8%
12.3% (e)
14.0 (e)
8.3
13.9
Basel III Advanced
Transitional
Dec 31,
2017
2,116,031 2,088,851
2,088,851
2,116,031
average(b)
credit losses
Adjusted
1,262,613
1,335,809 1,311,240 (e) 1,226,534
Risk-weighted
Assets
Tier 2
capital
• Qualifying allowance for
(in millions,
except ratios)
• Long-term debt qualifying as
Tier 2
179,341
191,662
$ 184,375 $ 179,319
184,375
195,839
Total capital
Tier 1 capital(a)
CET1 capital
Regulatory
capital
Add'l
Tier 1
capital
Perpetual preferred stock
Total
capital
Dec 31,
2016
Dec 31,
2017
Dec 31,
2016
$ 184,375 $ 179,319
184,375
179,341
189,419
184,637
Tier 1 (a)
12.2%
CET1
JPMorgan Chase & Co./2017 Annual Report
258
In addition, as of December 31, 2017 and 2016, the Firm
had other restricted cash of $3.3 billion and $3.6 billion,
respectively, primarily representing cash reserves held at
non-U.S. central banks and held for other general purposes.
Securities with a fair value of $3.5 billion and $19.3
billion, respectively, were also restricted in relation to
customer activity.
Receivables and securities of $18.0 billion and $18.2
billion, respectively, consisting of cash and securities
pledged with clearing organizations for the benefit of
customers.
•
In compliance with rules and regulations established by U.S.
and non-U.S. regulators, as of December 31, 2017 and
2016, cash in the amount of $16.8 billion and $13.4
billion, respectively, were segregated in special bank
accounts for the benefit of securities and futures brokerage
customers. Also, as of December 31, 2017 and 2016, the
Firm had:
At January 1, 2018, JPMorgan Chase's banking subsidiaries
could pay, in the aggregate, approximately $17 billion in
dividends to their respective bank holding companies
without the prior approval of their relevant banking
regulators. The capacity to pay dividends in 2018 will be
supplemented by the banking subsidiaries' earnings during
the year.
The principal sources of income and funding for the Parent
Company are dividends from JPMorgan Chase Bank, N.A.
and dividends and extensions of credit from the IHC.
In addition to dividend restrictions set forth in statutes and
regulations, the Federal Reserve, the OCC and the FDIC have
authority under the Financial Institutions Supervisory Act to
prohibit or to limit the payment of dividends by the banking
organizations they supervise, including JPMorgan Chase and
its subsidiaries that are banks or bank holding companies,
if, in the banking regulator's opinion, payment of a dividend
would constitute an unsafe or unsound practice in light of
the financial condition of the banking organization. The IHC
is prohibited from paying dividends or extending credit to
the Parent Company if certain capital or liquidity
"thresholds" are breached or if limits are otherwise
imposed by JPMorgan Chase's management or Board of
Directors.
The Parent Company's two principal subsidiaries are
JPMorgan Chase Bank, N.A. and JPMorgan Chase Holdings
LLC, an intermediate holding company (the “IHC”). The IHC
holds the stock of substantially all of JPMorgan Chase's
subsidiaries other than JPMorgan Chase Bank, N.A. and its
subsidiaries. The IHC also owns other assets and
intercompany indebtedness owing to the holding company.
The Parent Company is obligated to contribute to the IHC
substantially all the net proceeds received from securities
issuances (including issuances of senior and subordinated
debt securities and of preferred and common stock).
Restrictions imposed by U.S. federal law prohibit JPMorgan
Chase & Co. ("Parent Company") and certain of its affiliates
from borrowing from banking subsidiaries unless the loans
are secured in specified amounts. Such secured loans
provided by any banking subsidiary to the Parent Company
or to any particular affiliate, together with certain other
transactions with such affiliate (collectively referred to as
"covered transactions"), are generally limited to 10% of the
banking subsidiary's total capital, as determined by the risk-
based capital guidelines; the aggregate amount of covered
transactions between any banking subsidiary and all of its
affiliates is limited to 20% of the banking subsidiary's total
capital.
The Federal Reserve requires depository institutions to
maintain cash reserves with a Federal Reserve Bank. The
average required amount of reserve balances deposited by
the Firm's bank subsidiaries with various Federal Reserve
Banks was approximately $24.9 billion and $19.3 billion in
2017 and 2016, respectively.
Note 26 - Regulatory capital
The business of JPMorgan Chase Bank, National Association
("JPMorgan Chase Bank, N.A.") is subject to examination
and regulation by the OCC. The Bank is a member of the U.S.
Federal Reserve System, and its deposits in the U.S. are
insured by the FDIC, subject to applicable limits.
Field examination of
certain select entities
Field Examination
Field Examination
At Appellate level
Field examination of
amended returns;
certain matters at
Appellate level
Status
2006 - 2015
JPMorgan Chase - U.K.
2011-2012
JPMorgan Chase -
California
2011 2013
JPMorgan Chase - U.S.
Periods under
examination
2003-2005
2006-2010
JPMorgan Chase - U.S.
Note 25 - Restrictions on cash and
intercompany funds transfers
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
minimum capital requirements and standards for the Firm's
IDI, including JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A.
Capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. bank holding companies and
banks, including the Firm and its IDI subsidiaries. Basel III
set forth two comprehensive approaches for calculating
RWA: a standardized approach ("Basel III Standardized")
and an advanced approach ("Basel III Advanced"). Certain
of the requirements of Basel III are subject to phase-in
periods that began on January 1, 2014 and continue
through the end of 2018 (“transitional period”).
The three categories of risk-based capital and their
predominant components under the Basel III Transitional
rules are illustrated below:
Capital ratios (c)
2,514,270 2,484,631
2,484,631
2,514,270
Adjusted
average(b)
1,483,132 (e) 1,435,825 1,476,915
1,499,506
Risk-weighted
Assets
$ 182,967
208,112
228,592
$ 183,300
208,644
227,933
$ 182,967
208,112
239,553
238,395
Dec 31,
2016
Dec 31,
2017
Dec 31,
2016
Basel III Advanced
Transitional
$ 183,300
208,644
Dec 31,
2017
Basel III Standardized
Transitional
JPMorgan Chase & Co.
CET1 capital
Tier 1 capital(a)
Total capital
Regulatory
capital
(in millions,
except ratios)
The following tables present the regulatory capital, assets
and risk-based capital ratios for JPMorgan Chase and its
significant IDI subsidiaries under both Basel III Standardized
Transitional and Basel III Advanced Transitional at
December 31, 2017 and 2016.
including capital for AOCI related to:
Common stockholder's equity
Capital ratios(c)
CET1
13.8%
13.7% (e)
19.1
Tier 1
14.9%
19.1%
CET1
Capital ratios(c)
120,304
126,517
120,304
126,517
average(b)
Adjusted
14.9
186,378
112,297
113,108
Risk-weighted
5.00
4.00
4.00
10.00
10.00
9.25
11.00
8.00
6.00
190,523
11.3%
11.3
9.0%
9.0
Total
JPMorgan Chase & Co./2017 Annual Report
260
As of December 31, 2017 and 2016, JPMorgan Chase and
all of its IDI subsidiaries were well-capitalized and met all
capital requirements to which each was subject.
(e) For the period ended December 31, 2016 the CET1, Tier 1, Total and Tier 1
leverage minimum capital ratios applicable to the Firm were 6.25%,
7.75%, 9.75% and 4.0% and the CET1, Tier 1, Total and Tier 1 leverage
minimum capital ratios applicable to the Firm's IDI subsidiaries were
5.125%, 6.625%, 8.625% and 4.0% respectively.
(d) Represents requirements for IDI subsidiaries pursuant to regulations issued
under the FDIC Improvement Act.
(c) Represents requirements for bank holding companies pursuant to
regulations issued by the Federal Reserve.
(b) Represents requirements for JPMorgan Chase's IDI subsidiaries. The CET1
minimum capital ratio includes 1.25% resulting from the phase-in of the
2.5% capital conservation buffer that is applicable to the IDI subsidiaries.
The IDI subsidiaries are not subject to the GSIB surcharge.
Note: The table above is as defined by the regulations issued by the Federal
Reserve, OCC and FDIC and to which the Firm and its IDI subsidiaries are subject.
(a) Represents the Transitional minimum capital ratios applicable to the Firm
under Basel III at December 31, 2017. At December 31, 2017, the CET1
minimum capital ratio includes 1.25% resulting from the phase-in of the
Firm's 2.5% capital conservation buffer, and 1.75% resulting from the
phase-in of the Firm's 3.5% GSIB surcharge.
Under the risk-based capital guidelines of the Federal
Reserve, JPMorgan Chase is required to maintain minimum
ratios of CET1, Tier 1 and Total capital to RWA, as well as a
minimum leverage ratio (which is defined as Tier 1 capital
divided by adjusted quarterly average assets). Failure to
meet these minimum requirements could cause the Federal
Reserve to take action. IDI subsidiaries also are subject to
these capital requirements by their respective primary
regulators.
The prior period amounts have been revised to conform with the current
period presentation.
The Tier 1 leverage ratio is not a risk-based measure of capital. This ratio
is calculated by dividing Tier 1 capital by adjusted average assets.
For each of the risk-based capital ratios, the capital adequacy of the Firm
and its IDI subsidiaries is evaluated against the lower of the two ratios as
calculated under Basel III approaches (Standardized or Advanced) as
required by the Collins Amendment of the Dodd-Frank Act (the "Collins
Floor")
Adjusted average assets, for purposes of calculating the Tier 1 leverage
ratio, includes total quarterly average assets adjusted for unrealized
gains/(losses) on AFS securities, less deductions for goodwill and other
intangible assets, defined benefit pension plan assets, and deferred tax
assets related to tax attributes, including NOLS.
Includes the deduction associated with the permissible holdings of
covered funds (as defined by the Volcker Rule). The deduction was not
material as of December 31, 2017 and 2016.
(e)
(d)
(c)
(b)
(a)
14.0
17.1
14.0
17.1
Tier 1 leverage(d)
11.5
20.4
24.5
7.25
December 31, 2017
JPMorgan Chase - U.S.
9.00
-%
Regulatory
capital
(in millions,
except ratios)
The following table presents the minimum ratios to which
the Firm and its IDI subsidiaries are subject as of
Transitional
Basel III Standardized
Chase Bank USA, N.A.
Notes to consolidated financial statements
259
JPMorgan Chase & Co./2017 Annual Report
8.6
8.7
8.6
Dec 31,
2017
8.7
14.6
15.4
14.6 (e)
14.7
Total
14.2
15.0
13.7 (e)
13.8
Tier 1 (a)
14.2%
15.0%
Tier 1 leverage (d)
Basel III Advanced
Transitional
Dec 31,
2016
Dec 31,
2017
5.75%
7.50%
Tier 1 leverage
Assets
Total
21,434
26,250
22,862
27,691
Tier 1
Total capital
16,784
CET1
$ 16,784
$ 21,600
21,600
$ 16,784
16,784
21,600
$ 21,600
CET1 capital
Tier 1 capital
Capital ratios
IDI (d)
BHC(c)
IDI (b)(e)
Well-capitalized ratios
Minimum capital ratios
BHC (a)(e)
December 31, 2017.
Dec 31,
2016
6.50%
12
JPMorgan Chase is continually under examination by the
Internal Revenue Service, by taxing authorities throughout
the world, and by many state and local jurisdictions
throughout the U.S. The following table summarizes the
status of significant income tax examinations of JPMorgan
Chase and its consolidated subsidiaries as of December 31,
2017.
257
255
JPMorgan Chase & Co./2017 Annual Report
to be reinvested indefinitely through December 31, 2017.
(a) Predominantly includes earnings of U.K. subsidiaries that were deemed
Adjustments were also recorded to income tax expense for
certain tax-oriented investments. These adjustments were
driven by changes to affordable housing proportional
amortization resulting from the reduction of the federal
income tax rate under the TCJA. SEC Staff Accounting
Bulletin No. 118 does not apply to these adjustments.
The deemed repatriation and remeasurement of deferred
taxes were calculated based on all available information
and published legislative guidance. These amounts are
considered to be estimates under SEC Staff Accounting
Bulletin No. 118 as the Firm anticipates refinements to both
calculations. Anticipated refinements will result from the
issuance of future legislative and accounting guidance as
well as those in the normal course of business, including
true-ups to the tax liability on the tax return as filed and the
resolution of tax audits.
The deemed repatriation of the Firm's unremitted non-U.S.
earnings is based on the post-1986 earnings and profits of
each controlled foreign corporation. The calculation
resulted in an estimated income tax expense of $3.7 billion.
Furthermore, accounting for income taxes requires the
remeasurement of certain deferred tax assets and liabilities
based on the rates at which they are expected to reverse in
the future. The Firm remeasured its deferred tax asset and
liability balances in the fourth quarter of 2017 to the new
statutory U.S. federal income tax rate of 21% as well as any
federal benefit associated with state and local deferred
income taxes. The remeasurement resulted in an estimated
income tax benefit of $2.1 billion.
On December 22, 2017, the TCJA was signed into law. The
Firm's effective tax rate increased in 2017 driven by a $1.9
billion income tax expense representing the estimated
impact of the enactment of the TCJA. The $1.9 billion tax
expense was predominantly driven by a deemed
repatriation of the Firm's unremitted non-U.S. earnings and
adjustments to the value of certain tax-oriented
investments partially offset by a benefit from the
revaluation of the Firm's net deferred tax liability.
Impact of the TCJA
20.4%
28.4%
31.9%
The components of income tax expense/(benefit) included
in the Consolidated statements of income were as follows
for each of the years ended December 31, 2017, 2016, and
2015.
Effective tax rate
(0.6)
(0.1)
Other, net
5.4
Impact of the TCJA
(5.7)
Tax audit resolutions
0.8
0.3
Nondeductible legal expense
(3.7)
(3.9)
(0.3)
(4.2)
Income tax expense/(benefit)
(in millions)
(144)
Non-U.S.
1,213
4,364
2,174
U.S. federal
Deferred income tax expense/(benefit)
4,927
5,152
9,147
(benefit)
Total current income tax expense/
Year ended December 31,
547
1,029
U.S. state and local
$ 3,160
1,220
$ 2,488
1,760
2,400
$ 5,718
2015
2016
2017
Non-U.S.
U.S. federal
Current income tax expense/(benefit)
904
Business tax credits
(3.9)
(1.7)
$ (1,521) $ (3,117) $ 1,120
$ 1,971 $ (915) $ 1,056 $ (2,451) $ 930
$
-
$
-
$ (330) $
199
111 $ (192) $ (529) $
DVA on fair value option elected liabilities, net change: $ (303) $
Total other comprehensive income/(loss)
111
(197)
$ (1,997)
308
36
(64)
738
(226)
964
Net change
(25)
(58)
33
52
(25)
77
(28)
(a) The pre-tax amount is reported in securities gains/(losses) in the Consolidated statements of income.
(b) Reclassifications of pre-tax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in the Consolidated statements of
income. The amounts were not material for the periods presented.
(c) The pre-tax amounts are primarily recorded in noninterest revenue, net interest income and compensation expense in the Consolidated statements of income.
(d) In 2015, the Firm reclassified approximately $150 million of net losses from AOCI to other income because the Firm determined that it is probable that the forecasted interest
payment cash flows would not occur. For additional information, see Note 5.
(3.1)
Non-U.S. subsidiary earnings(a)
1.5
(3.3)
(3.1)
(3.3)
Tax-exempt income
2.4
2.2
income tax benefit
taxes, net of U.S. federal
U.S. state and local income
Increase/(decrease) in tax rate
resulting from:
2015
35.0%
2016
35.0%
35.0%
Statutory U.S. federal tax rate
2017
Year ended December 31,
Effective tax rate
A reconciliation of the applicable statutory U.S. federal
income tax rate to the effective tax rate for each of the
years ended December 31, 2017, 2016 and 2015, is
presented in the following table.
Effective tax rate and expense
Due to the inherent complexities arising from the nature of
the Firm's businesses, and from conducting business and
being taxed in a substantial number of jurisdictions,
significant judgments and estimates are required to be
made. Agreement of tax liabilities between JPMorgan Chase
and the many tax jurisdictions in which the Firm files tax
returns may not be finalized for several years. Thus, the
Firm's final tax-related assets and liabilities may ultimately
be different from those currently reported.
JPMorgan Chase and its eligible subsidiaries file a
consolidated U.S. federal income tax return. JPMorgan
Chase uses the asset and liability method to provide income
taxes on all transactions recorded in the Consolidated
Financial Statements. This method requires that income
taxes reflect the expected future tax consequences of
temporary differences between the carrying amounts of
assets or liabilities for book and tax purposes. Accordingly,
a deferred tax asset or liability for each temporary
difference is determined based on the tax rates that the
Firm expects to be in effect when the underlying items of
income and expense are realized. JPMorgan Chase's
expense for income taxes includes the current and deferred
portions of that expense. A valuation allowance is
established to reduce deferred tax assets to the amount the
Firm expects to realize.
Note 24 - Income taxes
JPMorgan Chase & Co./2017 Annual Report
254
(e) The pre-tax amount is reported in compensation expense in the Consolidated statements of income.
(73)
(95)
U.S. state and local
282
(205)
(4,130) $
Net deferred tax (liabilities)/assets $
22,219
12,241
Gross deferred tax liabilities
5,493
3,502
Other, net
4,572
200
Non-U.S. operations
Unrecognized tax benefits
4,807
4,053
Leasing transactions
2,757
hedges
Mortgage servicing rights, net of
3,294
2,299 $
$
Depreciation and amortization
Deferred tax liabilities
22,014
8,111 $
$
3,483
At December 31, 2017, 2016 and 2015, JPMorgan Chase's
unrecognized tax benefits, excluding related interest
expense and penalties, were $4.7 billion, $3.5 billion and
$3.5 billion, respectively, of which $3.5 billion, $2.6 billion
and $2.1 billion, respectively, if recognized, would reduce
the annual effective tax rate. Included in the amount of
unrecognized tax benefits are certain items that would not
affect the effective tax rate if they were recognized in the
Consolidated statements of income. These unrecognized
items include the tax effect of certain temporary
differences, the portion of gross state and local
unrecognized tax benefits that would be offset by the
benefit from associated U.S. federal income tax deductions,
and the portion of gross non-U.S. unrecognized tax benefits
that would have offsets in other jurisdictions. JPMorgan
Chase is presently under audit by a number of taxing
authorities, most notably by the Internal Revenue Service as
summarized in the Tax examination status table below. As
JPMorgan Chase is presently under audit by a number of
taxing authorities, it is reasonably possible that over the
next 12 months the resolution of these examinations may
increase or decrease the gross balance of unrecognized tax
benefits by as much as $1.3 billion. Upon settlement of an
audit, the change in the unrecognized tax benefit would
result from payment or income statement recognition.
The following table presents a reconciliation of the
beginning and ending amount of unrecognized tax benefits
for the years ended December 31, 2017, 2016 and 2015.
Year ended December 31,
(in millions)
JPMorgan Chase has recorded deferred tax assets of $219
million at December 31, 2017, in connection with U.S.
federal and non-U.S. net operating loss ("NOL")
carryforwards and state and local capital loss
carryforwards. At December 31, 2017, total U.S. federal
NOL carryforwards were approximately $769 million, non-
U.S. NOL carryforwards were approximately $142 million
and state and local capital loss carryforwards were $660
million. If not utilized, the U.S. federal NOL carryforwards
will expire between 2025 and 2036 and the state and local
capital loss carryforwards will expire between 2020 and
2021. Certain non-U.S. NOL carryforwards will expire
between 2028 and 2034 whereas others have an unlimited
carryforward period.
JPMorgan Chase & Co./2017 Annual Report
At December 31, 2017 and 2016, in addition to the liability
for unrecognized tax benefits, the Firm had accrued $639
million and $687 million, respectively, for income tax-
related interest and penalties.
After-tax interest expense/(benefit) and penalties related to
income tax liabilities recognized in income tax expense were
$102 million, $86 million and $(156) million in 2017,
2016 and 2015, respectively.
$ 4,747 $ 3,450 $ 3,497
(51)
Decreases related to a lapse of
applicable statute of limitations
Balance at December 31,
(56) (204)
(334)
settlements with taxing authorities
Decreases related to cash
(785) (2,646)
(350)
Decreases based on tax positions
1,028
583
626
Increases based on tax positions
related to prior periods
408
262
1,355
Increases based on tax positions
related to the current period
2015
$ 4,911
2016
$ 3,497
$ 3,450
Balance at January 1,
2017
The valuation allowance at December 31, 2017, was due to
the state and local capital loss carryforwards and certain
non-U.S. NOL carryforwards.
Deferred tax assets, net of valuation
allowance
Tax examination status
(785)
Valuation allowance
2016
2017
$27,103
8,797
Non-U.S.(a)
U.S.
(in millions)
Year ended December 31,
The Firm recognized $1.7 billion, $1.7 billion and $1.6
billion of tax credits and other tax benefits associated with
investments in affordable housing projects within income
tax expense for the years 2017, 2016 and 2015,
respectively. The amount of amortization of such
investments reported in income tax expense under the
current period presentation during these years was $1.7
billion, $1.2 billion and $1.1 billion, respectively. The
carrying value of these investments, which are reported in
other assets on the Firm's Consolidated balance sheets, was
$7.8 billion and $8.8 billion at December 31, 2017 and
2016, respectively. The amount of commitments related to
these investments, which are reported in accounts payable
and other liabilities on the Firm's Consolidated balance
sheets, was $2.4 billion and $2.8 billion at December 31,
2017 and 2016, respectively. The results are inclusive of
any impacts from the TCJA.
Affordable housing tax credits
JPMC will treat any tax it may incur on global intangible low
tax income as a period cost to tax expense when the tax is
incurred.
Prior to December 31, 2017, U.S. federal income taxes had
not been provided on the undistributed earnings of certain
non-U.S. subsidiaries, to the extent that such earnings had
been reinvested abroad for an indefinite period of time. The
Firm will no longer maintain the indefinite reinvestment
assertion on the undistributed earnings of those non-U.S.
subsidiaries in light of the enactment of the TCJA. The U.S.
federal and state and local income taxes associated with the
undistributed and previously untaxed earnings of those
non-U.S. subsidiaries was included in the deemed
repatriation charge recorded as of December 31, 2017.
The following table presents the U.S. and non-U.S.
components of income before income tax expense for the
years ended December 31, 2017, 2016 and 2015.
Results from Non-U.S. earnings
2015
recognized within income tax expense in the Consolidated
statements of income. In prior years these tax benefits were
recorded as increases to additional paid-in capital.
Tax effect of items recorded in stockholders' equity
The preceding table does not reflect the tax effect of certain
items that are recorded each period directly in
stockholders' equity. The tax effect of all items recorded
directly to stockholders' equity resulted in a decrease of
$915 million in 2017, an increase of $925 million in 2016,
and an increase of $1.5 billion in 2015. Effective January 1,
2016, the Firm adopted new accounting guidance related to
employee share-based payments. As a result of the
adoption of this new guidance, all excess tax benefits
(including tax benefits from dividends or dividend
Total income tax expense includes $252 million, $55
million and $2.4 billion of tax benefits recorded in 2017,
2016, and 2015, respectively, as a result of tax audit
resolutions.
$ 9,803 $ 6,260
1,333
4,651
Total income tax expense
$ 11,459
2,312
expense/(benefit)
Total deferred income tax
215
360
equivalents) on share-based payment awards are
$ 26,651 $ 23,191
7,885 7,511
$34,536 $ 30,702
Income before income tax expense $ 35,900
(a) For purposes of this table, non-U.S. income is defined as income
generated from operations located outside the U.S.
22,799
8,157
Gross deferred tax assets
2,155
219
Tax attribute carryforwards
5,368
327
Non-U.S. operations
6,831
3,528
Accrued expenses and other
5,534
2,911
688
Employee benefits
$
3,395
$
Allowance for loan losses
Deferred tax assets
2016
2017
December 31, (in millions)
Deferred income tax expense/(benefit) results from
differences between assets and liabilities measured for
financial reporting purposes versus income tax return
purposes. Deferred tax assets are recognized if, in
management's judgment, their realizability is determined to
be more likely than not. If a deferred tax asset is
determined to be unrealizable, a valuation allowance is
established. The significant components of deferred tax
assets and liabilities are reflected in the following table as
of December 31, 2017 and 2016.
Deferred taxes
JPMorgan Chase & Co./2017 Annual Report
256
(46)
13.8
The Firm may, from time to time, enter into written trading
plans under Rule 10b5-1 of the Securities Exchange Act of
1934 to facilitate repurchases in accordance with the
common equity repurchase program. A Rule 10b5-1
repurchase plan allows the Firm to repurchase its equity
during periods when it would not otherwise be repurchasing
common equity - for example, during internal trading
"blackout periods." All purchases under a Rule 10b5-1 plan
must be made according to a predefined plan established
when the Firm is not aware of material nonpublic
information. For additional information regarding
repurchases of the Firm's equity securities, see Part II,
Item 5: Market for registrant's common equity, related
stockholder matters and issuer purchases of equity
securities, on page 28.
I. JPMORGAN CHASE BUSINESS STRATEGIES
I. JPMORGAN CHASE BUSINESS STRATEGIES
19
11
Liquidity = HQLA plus unencumbered marketable securities, which includes excess liquidity at JPMorgan Chase Bank, N.A.
TLAC Total loss absorbing capacity
HQLA = High quality liquid assets predominantly includes cash on deposit at central banks, U.S. agency mortgage-backed securities,
U.S. Treasuries and sovereign bonds
bps = basis points
T = Trillions
B = Billions
RWA = Risk-weighted assets
Loss Absorbing Resources of U.S. SIFI Banks Combined
TCE = Tangible common equity
For additional information, see LCR and HQLA on page 93.
6 Represents the amount of high quality liquid assets (HQLA) included in the liquidity coverage ratio.
5 Operational risk RWA is a component of RWA.
4 Reflects Basel III Advanced Fully Phased-in measure.
3 Reflects Basel I measure; CET1 reflects Tier 1 common.
2 Includes trust preferred securities.
1 Excludes goodwill and intangible assets.
$186B eligible
for TLAC
$310B
CET1 = Common equity Tier 1 ratio
($ in billions)
$1,749
$1,274
CCAR Comprehensive Capital Analysis and Review
TLAC Total loss absorbing capacity
SIFI Systemically important financial institution
Source: SNL Financial; Federal Reserve Bank, February 2018
Includes only the 18 banks participating in CCAR in 2013, as well as Bear Stearns,
Countrywide, Merrill Lynch, National City, Wachovia and Washington Mutual
■Tangible common equity
2017 JPMorgan Chase only
34 CCAR banks 2017
projected pre-tax net losses
(severely adverse scenario)
2017¹
$183
$203
$111
$386
$1,008
~5%
$1,262
$2,270
and TLAC long-term debt
Loan loss reserves, preferred stock
-2x
2007¹
$475
+$7B
$303B
Long-term debt and
preferred stock²
-$34B
7.4%
+340 bps
4.0%
TCE/
operational risk RWA
17.5% excluding
12.7%4
+570 bps
7.0%³
CET1
2017
2008
at December 31,
Our Fortress Balance Sheet
The Federal Reserve's Comprehensive
Capital Analysis and Review (CCAR) stress
test estimated what our losses would be
through a severely adverse event lasting over
nine quarters
- an event that is worse than
what actually happened during the Great
Recession; e.g., high unemployment and
We have said this before, and it remains
true: JPMorgan Chase has to be prepared to
handle multiple, complex, global and interre-
lated types of risk. We do this in many ways
- let me share a few:
The chart below and the one on page 20
show the extraordinary strength of our
balance sheet. We have always believed
that maintaining a strong balance sheet
(including liquidity and conservative
accounting) is an absolute necessity.
We need a fortress balance sheet so we can
continue to do our job - regardless of the
environment.
in every business). You should assume we
do this internally at a far more detailed level
than what is presented here.
I. JPMORGAN CHASE BUSINESS STRATEGIES
to real decisions. In addition, there should
be clarity around who chairs the meeting.
The chair is responsible for making sure all
issues are properly raised, facilitating effec-
tive and productive discussions and driving
to decisions.
Total assets¹
counterparty failures. The Fed estimated
that in such a scenario, we would lose $18
billion over the ensuing nine quarters, which
is easily manageable by JPMorgan Chase's
capital base. My view is that we would
make money in almost every quarter in that
scenario, and this is supported by our having
earned approximately $30 billion pre-tax
over the course of the nine quarters during
the actual financial crisis of 2009.
Tangible
+$99B
or sold under repurchase agreements
$193B
Fed funds purchased and securities loaned
$556B6
+~$256B
~$300B
Liquidity
$400B5
+$400B
$0
Operational risk RWA
$1.4T4
+$200B
$1.273
RWA
$2.5T
+$300B
$2.2T
Total assets
common equity
$183B
$84B
We are believers in the CCAR stress testing
process, although our view is that it could
be simplified and improved. Our share-
holders should know that the CCAR stress
test is only an annual test. To explain
how serious we are about stress testing,
you should know that we run several
hundred tests a week - including a number
of complicated, potentially disastrous
scenarios to prepare our company for
almost every type of event. While we never
know exactly how and when the next major
crisis will unfold, these rigorous exercises
keep us constantly prepared.
$159B
20
I. JPMORGAN CHASE BUSINESS STRATEGIES
25
When the next crisis begins, regardless of
where or how it starts, multiple actors in the
system will take actions - either out of neces-
sity (i.e., they need cash) or sentiment (i.e.,
they want to reduce risk). This will happen
across passive, index and ETF funds, insur-
ance companies, banks and nonbanks. As
individual actors stop providing credit and
liquidity in the marketplace, we need to do a
better job of understanding how this might
unfold. And all this will be happening under
a different regulatory regime from before.
Banks and regulators need to be more forward
looking and less backward looking - particularly
when examining risks across the system.
One day there will be another crisis, and
financial institutions and central banks will
need to respond. The financial system is far
more safe and sound than in the past. But
in spite of all the regulations put in place,
I worry about whether we have properly
prepared for the next crisis. The Financial
Stability Oversight Council was created to
oversee the whole system (as appropriate),
but we have not yet really worked collabo-
ratively to prepare tabletop exercises about
what would happen across the system under
difficult situations.
If truly negative events started to unfold, we
could expect the Federal Reserve, with its
enormous authority and power, to take strong
action, including changing regulations, if the
Fed thought it necessary. In any event, our
shareholders should rest assured that we will
weather it all. There are a couple of things
we all could do to be more prepared for this
situation and other disruptions, which I will
discuss in the next few paragraphs.
and 2009 are the only real examples in the
United States in the past 100 years when
panic in the markets caused large reduc-
tions in investments and hiring. I wouldn't
give this scenario very high odds - in fact, I
would give it low odds. Most people think of
those events as one-in-a-thousand-year floods.
But because the experience of 2009 is so
recent, there is always a chance that people
may overreact.
Financial markets have a life of their own
and are sometimes barely connected to the
real economy (most people don't pay much
attention to the financial markets nor do the
markets affect them very much). Volatile
markets and/or declining markets gener-
ally have been a reaction to the economic
environment. Most of the major downturns
in the market since the Great Depression
reflect negative future expectations due to a
potential or real recession. In almost all of
these cases, stock markets fell, credit losses
increased and credit spreads rose, among
other disruptions. The biggest negative
effect of volatile markets is that it can create
market panic, which could start to slow the
growth of the real economy. The years 1929
There is a risk that volatile and declining markets
can lead to market panic.
is not the worst case. If growth in America
is accelerating, which it seems to be, and
any remaining slack in the labor markets
is disappearing - and wages start going up,
as do commodity prices - then it is not an
unreasonable possibility that inflation could
go higher than people might expect. As a
result, the Federal Reserve will also need
to raise rates faster and higher than people
might expect. In this case, markets will get
more volatile as all asset prices adjust to
a new and maybe not-so-positive environ-
ment. Remember that former Chairman of
the Federal Reserve Paul Volcker increased
the discount rate by 100 basis points on a
Saturday night back in 1979 in response to a
serious double-digit inflation problem. And
when markets opened the next business
day, the Fed funds rate went up by over 200
basis points. Also remember that the Federal
Reserve is operating with extremely different
monetary transmission mechanisms than
in the past. The old “money multiplier" has
been superseded by the new capital and
liquidity requirements. Today's “excess
reserves" (reserves once considered in
excess of what banks were required to post
in cash at the Federal Reserve - fundamen-
tally reserves that could be lent out) are not
lendable, although we still don't completely
understand the effect of this.
I. JPMORGAN CHASE BUSINESS STRATEGIES
So we could be going into a situation where
the Fed will have to raise rates faster and/
or sell more securities, which certainly could
lead to more uncertainty and market vola-
tility. Whether this would lead to a reces-
sion or not, we don't know - but even that
There are two offsetting factors to the large
sales of Treasuries. One is that as the Federal
Reserve sells, it reduces excess reserves,
which requires banks to buy Treasuries to
meet liquidity requirements. But we do not
fully know the extent of this scenario, and
it certainly won't be dollar for dollar. The
second factor, as some argue, is that the U.S.
trade deficit effectively forces foreign coun-
tries to use their dollars to buy Treasuries,
although this is not completely true - they
can buy other U.S. securities or assets or sell
their dollars.
This situation is completely reversing.
Sometime in the next year or so, many of
the major buyers of U.S. debt, including
the Federal Reserve, will either stop their
buying or reverse their purchases (think
foreign exchange managers or central banks
in Japan or China and Europe). So far, only
one central bank, the Federal Reserve, has
started to reverse QE – and even that in a
minor way. However, by the end of this year,
the Fed has indicated it might reduce its
holding of Treasuries by up to $150 billion
a quarter. And finally, the U.S. government
will need to sell more than $250 billion a
quarter to fund its deficit.
It would be a reasonable expectation
that with normal growth and inflation
approaching 2%, the 10-year bond could
or should be trading at around 4%. And
the short end should be trading at around
22% (these would be fairly normal histor-
ical experiences). And this is still a little
lower than the Fed is forecasting under
these conditions. It is also a reasonable
explanation (and one that many economists
believe) that today's rates of the 10-year
bond trading below 3% are due to the
large purchases of U.S. debt by the Federal
Reserve (and others).
No banks to the rescue this time – banks
got punished for helping in the last
go-round.
The continuous politicization of complex
policy is an issue. No one can believe
that very detailed and complex global
liquidity or capital requirements should
be set by politicians.
Liquidity requirements, while much
higher, now have an element of rigidity
built in that did not exist before. Banks
will be unable to use that liquidity when
they most need to do so - to make loans
or intermediate markets. They have a “red
line" they cannot cross (they are required
to maintain hard and fast liquidity
requirements). As clients demand more
liquidity from their banks, the banks
essentially will be unable to provide it.
There has been an excessive reliance on
models (which I spoke about earlier in
this section).
Market making is dramatically smaller than
in the past (e.g., aggregate primary dealer
positions of bonds - including Treasury
and agency securities, mortgage-backed
securities and corporates - averaged
$530 billion in 2007 vs. an average of
$179 billion today). While in the past that
total may have been too high, virtually
every asset manager says today it is much
harder to buy and sell securities, particu-
larly the less liquid securities.
Even more procyclicality has been built
into the system. Risk-weighted assets will
go up as will collateral requirements - and
this is on top of the procyclicality of loan
loss reserving.
24
I. JPMORGAN CHASE BUSINESS STRATEGIES
Almost all risk and control functions
(think Anti-Money Laundering, Know Your
Customer (KYC) and Compliance) could
be better performed if we worked with the
regulators to streamline what we do and use
advanced techniques, like artificial intelli-
gence and machine learning, to improve the
outcomes. The same is true for fraud preven-
tion and customer service. We must also be
far more aggressive in protecting ourselves
from cybersecurity risks, both within the
banking system and across the financial
system (think of nonbanks, money managers,
clearinghouses, exchanges, etc.)
23
Modest regulatory reform can strengthen the
financial system, improve the functioning of
our markets and enhance economic growth for
all Americans.
Regulators now have begun to simplify, coor-
dinate and reduce overlapping regulations.
I won't repeat the details that I've discussed
in prior letters – many of them were also
discussed in Treasury reports issued by the
government. But suffice it to say, modest
regulatory reform could allow banks to
expand carefully, improve access to credit
(e.g., mortgages and small business loans)
and improve market making and the func-
tioning of the money markets.
War rooms. Just as important, we need to
simplify our processes while accelerating the
pace of change and driving new innovations.
Last year, the Operating Committee created
a number of "war rooms" – spanning lines of
business, geographies, functions and levels
- to make our firm more agile and to put a
laser focus on several hot-button issues, like
client onboarding and vendor and third-
party management. Each war room is staffed
with a dedicated group of employees tasked
with solving specific problems within a set
number of weeks or months. You would be
amazed at how quickly our employees can
come up with new solutions when they are
galvanized around solving a problem in a
concentrated time period. These teams have
been so successful in driving bureaucracy
out of the decision-making process that we
plan to deploy more war rooms when crit-
ical needs arise. These war rooms are very
similar to how we operated when we made
complex acquisitions. Essentially, they cause
better and faster dissemination of infor-
mation to those who need to know – and
faster and more productive decision making
because everyone involved is in the room.
Reimagining. You can take any part of your
business and reimagine it. You can get
all the right people in the room to think
about a certain process and reimagine how
it could be done from the ground up. Our
Know Your Customer problem-solving team
is a good example of the results our reimag-
ining and war rooms can drive. Comprising
all lines of business, the group was given
eight weeks to reimagine our KYC processes
to improve the customer experience without
sacrificing controls. By applying a sharp,
firmwide focus to the KYC protocols, the
The chart above shows just how much
capital is retained by the CCAR banks.
To remind you, CCAR forecasts the losses
of each bank over the next nine quarters as
if all of them went through a crisis worse
than the crisis in 2009 and that each bank
performed as poorly as the worst bank
throughout that crisis. The chart above also
shows that even in the extremely unlikely
event that it could happen this way (i.e.,
that each bank is the worst bank), there is
plenty of capital in the system to absorb
these events. This does not include the
fact that the new regulatory requirements
would appropriately force any bank to take
corrective action long before it gets into
serious trouble.
team identified several KYC questions and
protocols that had become outdated or been
made redundant by recent controls. One
customer could be subjected to multiple
KYC processes depending on the line of
business and channel used. As a result, the
team streamlined KYC questions substan-
tially and identified a number of processes
that could be eliminated, which will allow
for a better customer experience while still
maintaining a strong control environment.
This war room team's results not only
helped disparate lines of business identify
duplicative processes but also enabled the
team to update the firm's priorities.
- nor can
Fighting complacency by being self-critical.
Complacency is another disease. It is usually
borne out of arrogance or success, but it is a
guarantee of future failure. Our competitors
are not resting on their laurels
we. The only way to fight complacency is to
always analyze our own actions and point
out our own weaknesses. It's great to openly
celebrate our successes, but when the door
is closed, management should emphasize
the negatives.
-
Using agile management to create speed.
Agile technology generally means using
new forms of technology – think cloud
computing, for example – to enable small
teams of programmers to build and prop-
erly execute new programs and products
rapidly and effectively. The concept of agile
management goes hand in hand with this
approach. Small teams of people respon-
sible for products and services work with
technologists to improve the customer
experience. To do this, they must be given
the necessary authority and resources. It is
also important they understand that they
can make mistakes without punishment.
27
I. JPMORGAN CHASE BUSINESS STRATEGIES
8. What are the firm's views on succession?
Having a first-rate management team in
place is probably the Board's highest priority.
Therefore, management succession planning
is a key focus of our Board. The Board knows
the firm's senior leaders well, through unfet-
tered access and significant interaction.
While the Board and I have agreed that I
will continue in my current role for approxi-
mately five more years, we both believe that,
under all timing scenarios, the firm has in
place several highly capable successors.
Early in the year, we announced that Daniel
Pinto, CEO of our Corporate & Investment
Bank, and Gordon Smith, CEO of Consumer
& Community Banking, have been appointed
Co-Presidents and Chief Operating Officers
of the company. In addition to their current
roles, Daniel and Gordon will work closely
with me to help drive critical firmwide func-
tions. Our other outstanding CEOs, Mary
Erdoes, Asset & Wealth Management, and
Doug Petno, Commercial Banking, along with
our CFO, Marianne Lake, took on expanded
responsibilities last year and have played
progressively more significant roles part-
nering across the firm in helping to manage
the
company. I also want to say how grateful
I am to our Operating Committee and to all
of the leaders of our organization for the
extraordinary job they do.
28
26
Meetings. Internal meetings can be a giant
waste of time and money. I am a vocal propo-
nent of having fewer of them. If a meeting
is absolutely necessary, the organizer needs
to have a well-planned, focused agenda with
pre-read materials sent in advance. The
right people have to be in the room, and
follow-up actions must be well-documented.
Just as important, each meeting should
only run for as long as it needs to and lead
Below are five examples of how we've set out
to combat this condition:
After years of increasing regulations, there
has been a temptation to blame some of our
bureaucracy and ridiculous processes on
regulations. That, too, is (mostly) hogwash.
It is easy to find excuses not to attempt to
reimagine how things could be done better
and more efficiently.
I was recently at a senior leadership offsite
meeting talking about bureaucracy. We
heard bureaucracy described as "a necessary
outcome of complex businesses operating
in complex international and regulatory
environments." This is hogwash. Bureau-
cracy is a disease. Bureaucracy drives out
good people, slows down decision making,
kills innovation and is often the petri dish of
bad politics. Large organizations, in fact all
organizations, should be thought of as always
slowing down and getting more bureaucratic.
Therefore, leaders must continually drive
for speed and accuracy to eliminate waste
and kill bureaucracy. When you get in great
shape, you don't stop exercising.
7. How is the company dealing with bureaucracy and complacency that often infect
large companies?
While the regulatory environment is appro-
priately much stricter than it once was, we
can simplify it and even strengthen it by
ensuring that it is globally fair and trans-
parent and includes continuous, regular
review and appropriate modification.
Far more money than before (about $9 tril-
lion of assets, which represents about 30%
of total mutual fund long-term assets) is
managed passively in index funds or ETFs
(both of which are very easy to get out
of). Some of these funds provide far more
liquidity to the customer than the under-
lying assets in the fund, and it is reason-
able to worry about what would happen if
these funds went into large liquidation.
We also need to be more forward looking
in many other areas. Doing so will create a
better and stronger system - not doing so
will actually create additional risk. Following
are a few examples:
We try to intelligently, thoughtfully and
analytically make decisions and manage risk
(and not overly rely on models).
Political influence and unexpected litigation
Changes in industrial structure; e.g., new
sources of competition
Emerging competitive threats
Deteriorating international competiveness
(as what happened to our tax code)
Changing technology as it impacts indus-
tries (including the banking industry)
Future changes in the law or even how
the law might be interpreted differently 10
years from now
The character and integrity of those with
whom you are doing business
We rely heavily on detailed and constantly
improving models as a foundational element
of that analysis. But we are cognizant of
the fact that models by their nature are
backward looking and have a difficult time
adjusting to material items, including the
following:
When I hear people talk about banks taking
risks, it often sounds as if we are taking
big bets like you would at a casino or a
racetrack. This is the complete opposite of
reality. Every loan we extend is a proprietary
risk. Every new facility we build is a risk.
Whether we are adding branches or bankers
- or making markets or expanding opera-
tions - we perform extensive analytics and
stress testing to challenge our assumptions.
In short, we look at the best- and worst-case
scenarios before we "take risk." Much of what
we do as a bank is to mitigate or manage
the risk being taken. I think you would be
impressed by the thoroughness and risk-mit-
igating approach demonstrated at our risk
committee meetings. At these meetings,
we have lawyers, compliance, risk manage-
ment, bankers and technologists – folks with
decades of experience who challenge each
other and ensure we have thought about
every possible angle. And since we know we
will be wrong sometimes, we almost always
look at the worst possible case - to ensure
JPMorgan Chase can survive any situation.
This is not risk taking on the order of taking
a guess – it is intelligent, thoughtful, analyt-
ical decision making.
I. JPMORGAN CHASE BUSINESS STRATEGIES
21
In the financial markets, we must be prepared for
the full range of possibilities and probabilities.
We strive to try to understand the possibili-
ties and probabilities of potential outcomes
so as to be prepared for any outcome. We
analyze multiple scenarios (in addition to
the stress testing I wrote about earlier in
this section). So regardless of what you
think about the probabilities, we need to be
prepared for the possibilities, including the
worst case. In essence, we try to manage the
company such that all possibilities, including
the "fat tails" (the worst-case scenarios),
cannot hurt the company.
Our bank is extremely good at cybersecurity
and client protection. However, cyber law
in the United States is inadequate regarding
banks and government entities. We need
to be allowed to work even closer with our
government in real time to properly protect
the financial system. In addition, we need
to have better international cyber laws (and
include them in trade agreements) like we
do in maritime and aviation laws. Countries
should know what they are responsible for
- and what redress companies or countries
have - when either a bad state actor or crimi-
nals in a state cause extreme problems.
I cannot overemphasize the importance of
cybersecurity in America. This is a critical
issue, not just for financial companies but
also for utilities, technology companies, elec-
trical grids and others. It is an arms race, and
we need to do whatever we can to protect the
United States of America.
We cannot do enough as a country when it comes
to cybersecurity.
are complete is what the end state will
look like. Although unlikely, there is the
possibility that we could stay exactly as we
are today. Unfortunately, the worst outcome
would be much of London's financial center
moving to the Continent over time. We hope
for all involved that this outcome will not be
the case.
So far, it has turned out pretty much like we
expected: It's complex and hard to figure
out, and the long-term impact to the United
Kingdom is still uncertain. Last year, we
spoke about whether Brexit would cause the
European Union to unravel or pull together
- and it appears, particularly with the new
leadership in France and the steady hand
in Germany, that the countries might pull
together. As for JPMorgan Chase, fortunately,
we have the resources to be prepared for
a hard Brexit, as we must be. It essentially
means moving 300-400 jobs around Europe
in the short term and modifying some of our
legal entities to be able to conduct business
the day after Brexit. What we do not know
- and will not know until the negotiations
We will be prepared for Brexit.
I will not spend time dwelling on geopolitics
here, which can - but rarely does - upset the
global economy. In the next section, I talk
about serious policy issues that could harm
economic growth, including America's rela-
tionship with China and potential disrup-
tions to global trade. In this section, I focus
on some of the risks in the financial system
and how we go about managing them.
The global economy across Asia and Japan,
Latin America and Europe, and the United
States has been doing well – better than most
would have expected a year ago. The United
States in particular may be strengthening
as we speak. The competitive tax system,
a more constructive regulatory environ-
ment, and very high consumer and business
confidence are increasing indications that
the economy will likely expand. Unemploy-
ment may very well drop to 3.5% this
year,
and there are more and more signals that
business will improve capital expenditures
and raise payrolls. Credit is readily available
(though still not enough in some mort-
gage markets). Wages, jobs and household
formation are increasing. Housing is in short
supply. Underlying consumer and corpo-
rate credit have been relatively strong. All
these signs lead to a positive outlook for the
economy for the next year or so.
And there are some modest negatives or
potentially important differences (than
during the last crisis):
6. What risks worry us the most? And what could go wrong?
Public sector fiscal challenges, demo-
graphic changes and challenges managing
the nation's healthcare resources
There are other items - but you get the point.
Judgment (which will never be perfect all of
the time) cannot be removed from the process.
I. JPMORGAN CHASE BUSINESS STRATEGIES
Healthier consumers in terms of both
employment and disposable income (and
their debt burden is still modest relative
to their disposable income, while debt
service burdens are historically low)
The absence of massive losses in the
mortgage markets. Mortgage underwriting
since 2009 has been rather pristine. And
while losses will go up in a recession, it
will be nothing like what happened in the
Great Recession. In the 2009 crisis, losses
totaled more than $1 trillion. The market-
place realization that financial institutions
and investors were going to experience
massive losses is a primary reason why
there was a devastating loss of confidence
in the financial system.
Volatility and rapidly moving markets should
surprise no one.
Money market funds that are far safer due
to regulatory requirements around credit
standards and liquidation
Less leveraged lending
Less total short-term secured financing,
which is also more properly collateralized
Far more liquidity in the banking system
More collateral in the markets
Far more capital and less leverage in the
banking system
•
•
There are many pluses (things that are better
than during the last crisis in 2009):
think through the possible effects.
•
It is fundamentally the same for stocks,
bonds, and interest rates and currencies.
Changing expectations, whether around
inflation, growth or recession (yes, there will
be another recession - we just don't know
when), supply and demand, sentiment and
other factors, can cause drastic volatility.
Since QE has never been done on this scale
and we don't completely know the myriad
effects it has had on asset prices, confidence,
capital expenditures and other factors, we
cannot possibly know all of the effects of its
reversal. We have to deal with the possibility
that at one point, the Federal Reserve and
other central banks may have to take more
drastic action than they currently antici-
pate-reacting to the markets, not guiding
the markets. A simple scenario under which
this could happen is if inflation and wages
grow more than people expect. I believe that
many people underestimate the possibility
of higher inflation and wages, which means
they might be underestimating the chance
that the Federal Reserve may have to raise
rates faster than we all think. While in the
past, interest rates have been lower and
for longer than people expected, they may
go higher and faster than people expect. If
this happens, it is useful to look at how the
table is set - what are all the things that are
different or better or worse than during prior
crises, particularly the last one and try to
to expect that the reversal of QE will not be
painful. The benefits of a strong economy
are more important than the negative impact
from modest increases in interest rates.
demographic realities. Our growth cumula-
tively in this expansion has been about 20%,
while a more normal recovery would have
seen growth of over 40% by now. However,
with recent reforms, the situation may be
improving. As inflation, wages and growth
seem to be modestly increasing, the Federal
Reserve has started to raise interest rates and
reverse QE. Importantly, as long as rates are
rising because the economy is strengthening
and inflation is contained, it is reasonable
I. JPMORGAN CHASE BUSINESS STRATEGIES
22
The United States has had subpar economic
growth over the last eight years (I believe this
is due to a lot of poor policy decisions that I
discuss in the next section), as well as new
One scenario that we must be prepared for is
the possibility that the reversal of quantitative
easing (QE) by the world's central banks - in a
new regulatory environment - will be different
from what people expect.
-
We are always prepared for volatility and
rapidly moving markets - they should
surprise no one. I am a little perplexed when
people are surprised by large market moves.
Oftentimes, it takes only an unexpected
supply/demand imbalance of a few percent
and changing sentiment to dramatically
move markets. We have seen that condition
occur recently in oil, but I have also seen it
multiple times in my career in cotton, corn,
aluminum, soybeans, chicken, beef, copper,
iron - you get the point. Each industry or
commodity has continually changing supply
and demand, different investment horizons
to add or subtract supply, varying marginal
and fixed costs, and different inventory and
supply lines. In all cases, extreme volatility
can be created by slightly changing factors.
$
878
$
19,346
263
940
(a) The ratings scale is based on the Firm's internal ratings, which generally correspond to ratings as defined by S&P and Moody's.
JPMorgan Chase & Co./2017 Annual Report
17,421
$
$
441
2
$
586
$
3
$
636
$
Total carrying value
Notes to consolidated financial statements
Commitments with collateral
(251)
(411)
Collateral
444
(241)
Net rental expense
$
1,602 $
1,619 $
1,604
JPMorgan Chase & Co./2017 Annual Report
December 31, (in billions)
Securities
Loans
Trading assets and other
2017
2016
$
86.2 $ 101.1
437.7
374.9
167.3
153.0
Total assets pledged
$ 691.2 $ 629.0
Guarantee liability
The Firm acts as a settlement and custody bank in the U.S.
tri-party repurchase transaction market. In its role as
settlement and custody bank, the Firm is exposed to the
intra-day credit risk of its cash borrower clients, usually
broker-dealers. This exposure arises under secured
clearance advance facilities that the Firm extends to its
clients (i.e. cash borrowers); these facilities contractually
limit the Firm's intra-day credit risk to the facility amount
and must be repaid by the end of the day. As of
December 31, 2017 and 2016, the secured clearance
advance facility maximum outstanding commitment amount
was $1.5 billion and $2.4 billion, respectively.
$
28,492
$
Investment-grade (a)
of credit
Other letters
Standby letters of credit and
other financial guarantees
Other letters
of credit
Standby letters of credit and
other financial guarantees
(in millions)
December 31,
$
2016
Standby letters of credit, other financial guarantees and other letters of credit
The following table summarizes the types of facilities under which standby letters of credit and other letters of credit
arrangements are outstanding by the ratings profiles of the Firm's clients, as of December 31, 2017 and 2016.
Standby letters of credit and other financial guarantees
Standby letters of credit and other financial guarantees are
conditional lending commitments issued by the Firm to
guarantee the performance of a client or customer to a
third party under certain arrangements, such as
commercial paper facilities, bond financings, acquisition
financings, trade and similar transactions. The carrying
values of standby and other letters of credit were $639
million and $588 million at December 31, 2017 and 2016,
respectively, which were classified in accounts payable and
other liabilities on the Consolidated balance sheets; these
carrying values included $195 million and $147 million,
respectively, for the allowance for lending-related
commitments, and $444 million and $441 million,
respectively, for the guarantee liability and corresponding
asset.
net present value of the premium receivable). For certain
types of guarantees, the Firm records this fair value amount
in other liabilities with an offsetting entry recorded in cash
(for premiums received), or other assets (for premiums
receivable). Any premium receivable recorded in other
assets is reduced as cash is received under the contract, and
the fair value of the liability recorded at inception is
amortized into income as lending and deposit-related fees
over the life of the guarantee contract. For indemnifications
provided in sales agreements, a portion of the sale
proceeds is allocated to the guarantee, which adjusts the
gain or loss that would otherwise result from the
transaction. For these indemnifications, the initial liability is
amortized to income as the Firm's risk is reduced (i.e., over
time or when the indemnification expires). Any contingent
liability that exists as a result of issuing the guarantee or
indemnification is recognized when it becomes probable
and reasonably estimable. The contingent portion of the
liability is not recognized if the estimated amount is less
than the carrying amount of the liability recognized at
inception (adjusted for any amortization). The recorded
amounts of the liabilities related to guarantees and
indemnifications at December 31, 2017 and 2016,
excluding the allowance for credit losses on lending-related
commitments, are discussed below.
As required by U.S. GAAP, the Firm initially records
guarantees at the inception date fair value of the obligation
assumed (e.g., the amount of consideration received or the
U.S. GAAP requires that a guarantor recognize, at the
inception of a guarantee, a liability in an amount equal to
the fair value of the obligation undertaken in issuing the
guarantee. U.S. GAAP defines a guarantee as a contract that
contingently requires the guarantor to pay a guaranteed
party based upon: (a) changes in an underlying asset,
liability or equity security of the guaranteed party; or (b) a
third party's failure to perform under a specified
agreement. The Firm considers the following off-balance
sheet lending-related arrangements to be guarantees under
U.S. GAAP: standby letters of credit and other financial
guarantees, securities lending indemnifications, certain
indemnification agreements included within third-party
contractual arrangements and certain derivative contracts.
Guarantees
Other unfunded commitments to extend credit generally
consist of commitments for working capital and general
corporate purposes, extensions of credit to support
commercial paper facilities and bond financings in the event
that those obligations cannot be remarketed to new
investors, as well as committed liquidity facilities to clearing
organizations. The Firm also issues commitments under
multipurpose facilities which could be drawn upon in
several forms, including the issuance of a standby letter of
credit.
Other unfunded commitments to extend credit
Sublease rental income
2017
2,646
$
28,245
145
$
3
$
192
$
Allowance for lending-related commitments
3,570
$
35,947
$
3,712
$
35,226
$
Total contractual amount
789
7,702
1,066
6,734
Noninvestment-grade (a)
2,781
$
2
2,015
The following table summarizes the derivatives qualifying as
guarantees as of December 31, 2017, and 2016.
$
Unsettled reverse repurchase and securities borrowing
agreements, and unsettled repurchase and securities
lending agreements
In the normal course of business, the Firm enters into
reverse repurchase agreements and securities borrowing
agreements, which are secured financing agreements. Such
agreements settle at a future date. At settlement, these
commitments result in the Firm advancing cash to and
receiving securities collateral from the counterparty. The
Firm also enters into repurchase agreements and securities
lending agreements. At settlement, these commitments
result in the Firm receiving cash from and providing
securities collateral to the counterparty. These agreements
generally do not meet the definition of a derivative, and
therefore, are not recorded on the Consolidated balance
sheets until settlement date. These agreements
predominantly consist of agreements with regular-way
settlement periods. For a further discussion of securities
purchased under resale agreements and securities
borrowed, and securities sold under repurchase agreements
and securities loaned, see Note 11.
264
JPMorgan Chase & Co./2017 Annual Report
Loan sales-and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm's mortgage loan sale and
securitization activities with GSES, as described in Note 14,
the Firm has made representations and warranties that the
loans sold meet certain requirements that may require the
Firm to repurchase mortgage loans and/or indemnify the
loan purchaser. Further, although the Firm's securitizations
are predominantly nonrecourse, the Firm does provide
recourse servicing in certain limited cases where it agrees
to share credit risk with the owner of the mortgage loans.
To the extent that repurchase demands that are received
relate to loans that the Firm purchased from third parties
that remain viable, the Firm typically will have the right to
seek a recovery of related repurchase losses from the third
party. Generally, the maximum amount of future payments
the Firm would be required to make for breaches of these
representations and warranties would be equal to the
unpaid principal balance of such loans that are deemed to
have defects that were sold to purchasers (including
securitization-related SPES) plus, in certain circumstances,
accrued interest on such loans and certain expenses.
Private label securitizations
The liability related to repurchase demands associated with
private label securitizations is separately evaluated by the
Firm in establishing its litigation reserves.
For additional information regarding litigation, see Note 29.
Loans sold with recourse
In addition to derivative contracts that meet the
characteristics of a guarantee, the Firm is both a purchaser
and seller of credit protection in the credit derivatives
market. For a further discussion of credit derivatives, see
Note 5.
The Firm provides servicing for mortgages and certain
commercial lending products on both a recourse and
nonrecourse basis. In nonrecourse servicing, the principal
credit risk to the Firm is the cost of temporary servicing
advances of funds (i.e., normal servicing advances). In
recourse servicing, the servicer agrees to share credit risk
with the owner of the mortgage loans, such as Fannie Mae
or Freddie Mac or a private investor, insurer or guarantor.
Losses on recourse servicing predominantly occur when
foreclosure sales proceeds of the property underlying a
defaulted loan are less than the sum of the outstanding
principal balance, plus accrued interest on the loan and the
cost of holding and disposing of the underlying property.
The Firm's securitizations are predominantly nonrecourse,
thereby effectively transferring the risk of future credit
losses to the purchaser of the mortgage-backed securities
issued by the trust. At December 31, 2017 and 2016, the
unpaid principal balance of loans sold with recourse totaled
$1.2 billion and $2.7 billion, respectively. The carrying
value of the related liability that the Firm has recorded,
which is representative of the Firm's view of the likelihood it
will have to perform under its recourse obligations, was
$38 million and $64 million at December 31, 2017 and
2016, respectively.
Indemnification agreements - general
In connection with issuing securities to investors outside the
U.S., the Firm may agree to pay additional amounts to the
holders of the securities in the event that, due to a change
in tax law, certain types of withholding taxes are imposed
JPMorgan Chase & Co./2017 Annual Report
on payments on the securities. The terms of the securities
may also give the Firm the right to redeem the securities if
such additional amounts are payable. The enactment of the
TCJA will not cause the Firm to become obligated to pay any
such additional amounts. The Firm may also enter into
indemnification clauses in connection with the licensing of
software to clients ("software licensees") or when it sells a
business or assets to a third party ("third-party
purchasers"), pursuant to which it indemnifies software
licensees for claims of liability or damages that may occur
subsequent to the licensing of the software, or third-party
purchasers for losses they may incur due to actions taken
by the Firm prior to the sale of the business or assets. It is
difficult to estimate the Firm's maximum exposure under
these indemnification arrangements, since this would
require an assessment of future changes in tax law and
future claims that may be made against the Firm that have
not yet occurred. However, based on historical experience,
management expects the risk of loss to be remote.
Card charge-backs.
Under the rules of Visa USA, Inc., and MasterCard
International, JPMorgan Chase Bank, N.A., is primarily liable
for the amount of each processed card sales transaction
that is the subject of a dispute between a cardmember and
a merchant. If a dispute is resolved in the cardmember's
favor, Merchant Services will (through the cardmember's
issuing bank) credit or refund the amount to the
cardmember and will charge back the transaction to the
merchant. If Merchant Services is unable to collect the
amount from the merchant, Merchant Services will bear the
loss for the amount credited or refunded to the
cardmember. Merchant Services mitigates this risk by
withholding future settlements, retaining cash reserve
accounts or by obtaining other security. However, in the
unlikely event that: (1) a merchant ceases operations and is
unable to deliver products, services or a refund; (2)
Merchant Services does not have sufficient collateral from
the merchant to provide cardmember refunds; and (3)
Merchant Services does not have sufficient financial
resources to provide cardmember refunds, JPMorgan Chase
Bank, N.A., would recognize the loss.
Merchant Services incurred aggregate losses of $28 million,
$85 million, and $12 million on $1,191.7 billion, $1,063.4
billion, and $949.3 billion of aggregate volume processed
for the years ended December 31, 2017, 2016 and 2015,
respectively. Incurred losses from merchant charge-backs
are charged to other expense, with the offset recorded in a
valuation allowance against accrued interest and accounts
receivable on the Consolidated balance sheets. The carrying
value of the valuation allowance was $7 million and $45
million at December 31, 2017 and 2016, respectively,
which the Firm believes, based on historical experience and
the collateral held by Merchant Services of $141 million
and $125 million at December 31, 2017 and 2016,
respectively, is representative of the payment or
performance risk to the Firm related to charge-backs.
265
Notes to consolidated financial statements
Clearing Services - Client Credit Risk
Other off-balance sheet arrangements
-16
96
304
Securities lending indemnifications
Through the Firm's securities lending program,
counterparties' securities, via custodial and non-custodial
arrangements, may be lent to third parties. As part of this
program, the Firm provides an indemnification in the
lending agreements which protects the lender against the
failure of the borrower to return the lent securities. To
minimize its liability under these indemnification
agreements, the Firm obtains cash or other highly liquid
collateral with a market value exceeding 100% of the value
of the securities on loan from the borrower. Collateral is
marked to market daily to help assure that collateralization
is adequate. Additional collateral is called from the
borrower if a shortfall exists, or collateral may be released
to the borrower in the event of overcollateralization. If a
borrower defaults, the Firm would use the collateral held to
purchase replacement securities in the market or to credit
the lending client or counterparty with the cash equivalent
thereof.
Derivatives qualifying as guarantees
The Firm transacts certain derivative contracts that have
the characteristics of a guarantee under U.S. GAAP. These
contracts include written put options that require the Firm
to purchase assets upon exercise by the option holder at a
specified price by a specified date in the future. The Firm
may enter into written put option contracts in order to meet
client needs, or for other trading purposes. The terms of
written put options are typically five years or less.
Derivatives deemed to be guarantees also includes stable
value contracts, commonly referred to as “stable value
products", that require the Firm to make a payment of the
difference between the market value and the book value of
a counterparty's reference portfolio of assets in the event
that market value is less than book value and certain other
conditions have been met. Stable value products are
transacted in order to allow investors to realize investment
returns with less volatility than an unprotected portfolio.
These contracts are typically longer-term or may have no
stated maturity, but allow the Firm to elect to terminate the
contract under certain conditions.
The notional value of derivatives guarantees generally
represents the Firm's maximum exposure. However,
exposure to certain stable value products is contractually
limited to a substantially lower percentage of the notional
amount.
The fair value of derivative guarantees reflects the
probability, in the Firm's view, of whether the Firm will be
required to perform under the contract. The Firm reduces
exposures to these contracts by entering into offsetting
transactions, or by entering into contracts that hedge the
market risk related to the derivative guarantees.
JPMorgan Chase & Co./2017 Annual Report
(in millions)
Notional amounts
Derivative guarantees
December 31, December 31,
2017
2016
57,174
51,966
Stable value contracts with
contractually limited exposure
Maximum exposure of stable
29,104
28,665
value contracts with
contractually limited exposure
3,053
3,012
Fair value
Derivative payables
Derivative receivables
The Firm provides clearing services for clients by entering
into securities purchases and sales and derivative
transactions with CCPs, including ETDs such as futures and
options, as well as OTC-cleared derivative contracts. As a
clearing member, the Firm stands behind the performance
of its clients, collects cash and securities collateral (margin)
as well as any settlement amounts due from or to clients,
and remits them to the relevant CCP or client in whole or
part. There are two types of margin: variation margin is
posted on a daily basis based on the value of clients'
derivative contracts and initial margin is posted at inception
of a derivative contract, generally on the basis of the
potential changes in the variation margin requirement for
the contract.
1,853 $ 1,860 $
As a clearing member, the Firm is exposed to the risk of
nonperformance by its clients, but is not liable to clients for
the performance of the CCPs. Where possible, the Firm
seeks to mitigate its risk to the client through the collection
of appropriate amounts of margin at inception and
throughout the life of the transactions. The Firm can also
cease providing clearing services if clients do not adhere to
their obligations under the clearing agreement. In the event
of nonperformance by a client, the Firm would close out the
client's positions and access available margin. The CCP
would utilize any margin it holds to make itself whole, with
any remaining shortfalls required to be paid by the Firm as
a clearing member.
It is difficult to estimate the Firm's maximum possible
exposure through its role as a clearing member, as this
would require an assessment of transactions that clients
may execute in the future. However, based upon historical
experience, and the credit risk mitigants available to the
Firm, management believes it is unlikely that the Firm will
have to make any material payments under these
arrangements and the risk of loss is expected to be remote.
For information on the derivatives that the Firm executes
for its own account and records in its Consolidated Financial
Statements, see Note 5.
Total assets pledged
1,300
Less: Sublease rentals under noncancelable subleases
$
1,029
815
3,757
9,877
(1,034)
8,843
Total minimum payments required
Net minimum payment required
Total rental expense was as follows.
2017
2016
1,526
$ 129.6 $ 133.6
493.7
53.5
441.9
$ 691.2 $ 629.0
Total assets pledged do not include assets of consolidated
VIES; these assets are used to settle the liabilities of those
entities. See Note 14 for additional information on assets
and liabilities of consolidated VIES. For additional
information on the Firm's securities financing activities, see
Note 11. For additional information on the Firm's long-term
debt, see Note 19. The significant components of the Firm's
pledged assets were as follows.
Year ended December 31,
(in millions)
2017
2016
2015
Gross rental expense
67.9
Assets pledged at Federal Reserve banks and
FHLBS
Assets that may not be sold or repledged or
otherwise used by secured parties
Assets that may be sold or repledged or
otherwise used by secured parties
Exchange & Clearing House Memberships
The Firm is a member of several securities and derivative
exchanges and clearing houses, both in the U.S. and other
countries, and it provides clearing services. Membership in
some of these organizations requires the Firm to pay a pro
rata share of the losses incurred by the organization as a
result of the default of another member. Such obligations
vary with different organizations. These obligations may be
limited to members who dealt with the defaulting member
or to the amount (or a multiple of the amount) of the Firm's
contribution to the guarantee fund maintained by a clearing
house or exchange as part of the resources available to
cover any losses in the event of a member default.
Alternatively, these obligations may include a pro rata share
of the residual losses after applying the guarantee fund.
Additionally, certain clearing houses require the Firm as a
member to pay a pro rata share of losses that may result
from the clearing house's investment of guarantee fund
contributions and initial margin, unrelated to and
independent of the default of another member. Generally a
payment would only be required should such losses exceed
the resources of the clearing house or exchange that are
contractually required to absorb the losses in the first
instance. It is difficult to estimate the Firm's maximum
possible exposure under these membership agreements,
since this would require an assessment of future claims that
may be made against the Firm that have not yet occurred.
However, based on historical experience, management
expects the risk of loss to be remote.
Guarantees of subsidiaries
In the normal course of business, the Parent Company may
provide counterparties with guarantees of certain of the
trading and other obligations of its subsidiaries on a
contract-by-contract basis, as negotiated with the Firm's
counterparties. The obligations of the subsidiaries are
included on the Firm's Consolidated balance sheets or are
reflected as off-balance sheet commitments; therefore, the
Parent Company has not recognized a separate liability for
these guarantees. The Firm believes that the occurrence of
any event that would trigger payments by the Parent
Company under these guarantees is remote.
The Parent Company has guaranteed certain long-term debt
and structured notes of its subsidiaries, including JPMorgan
Chase Financial Company LLC ("JPMFC"), a 100%-owned
finance subsidiary. All securities issued by JPMFC are fully
and unconditionally guaranteed by the Parent Company.
These guarantees, which rank on a parity with the Firm's
unsecured and unsubordinated indebtedness, are not
included in the table on page 262 of this Note. For
additional information, see Note 19.
266
JPMorgan Chase & Co./2017 Annual Report
Note 28 - Commitments, pledged assets and
collateral
Lease commitments
At December 31, 2017, JPMorgan Chase and its
subsidiaries were obligated under a number of
noncancelable operating leases for premises and equipment
used primarily for banking purposes. Certain leases contain
renewal options or escalation clauses providing for
increased rental payments based on maintenance, utility
and tax increases, or they require the Firm to perform
restoration work on leased premises. No lease agreement
imposes restrictions on the Firm's ability to pay dividends,
engage in debt or equity financing transactions or enter into
further lease agreements.
The following table presents required future minimum
rental payments under operating leases with noncancelable
lease terms that expire after December 31, 2017.
Year ended December 31, (in millions)
2018
2019
2020
2021
2022
After 2022
Pledged assets
The Firm may pledge financial assets that it owns to
maintain potential borrowing capacity with central banks
and for other purposes, including to secure borrowings and
public deposits, collateralize repurchase and other
securities financing agreements, and cover customer short
sales. Certain of these pledged assets may be sold or
repledged or otherwise used by the secured parties and are
identified as financial instruments owned (pledged to
various parties) on the Consolidated balance sheets.
The following table presents the Firm's pledged assets.
December 31, (in billions)
The Firm reflects its exposure to nonperformance risk of the
client through the recognition of margin receivables from
clients and margin payables to CCPs; the clients' underlying
securities or derivative contracts are not reflected in the
Firm's Consolidated Financial Statements.
262
1,450
(h) The prior period amounts have been revised to conform with the current period presentation.
Carrying value(i)
2016
2017
2016
2017
(i) For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-related products, the
carrying value represents the fair value.
Expires in
By remaining maturity at December 31,
(in millions)
1 year or
less
Expires
after
1 year
through
Contractual amount
Expires
after
through
600,368
(h)
-
553,891
572,831
572,831
26
33
53,247
3 years
Off-balance sheet lending-related financial instruments, guarantees and other commitments
Notes to consolidated financial statements
261
The Firm believes the estimate of the aggregate range of
reasonably possible losses, in excess of reserves
established, for its legal proceedings is from $0 to
approximately $1.7 billion at December 31, 2017. This
estimated aggregate range of reasonably possible losses
was based upon currently available information for those
proceedings in which the Firm believes that an estimate of
reasonably possible loss can be made. For certain matters,
the Firm does not believe that such an estimate can be
made, as of that date. The Firm's estimate of the aggregate
range of reasonably possible losses involves significant
judgment, given the number, variety and varying stages of
the proceedings (including the fact that many are in
preliminary stages), the existence in many such
proceedings of multiple defendants (including the Firm)
whose share of liability has yet to be determined, the
numerous yet-unresolved issues in many of the proceedings
(including issues regarding class certification and the scope
of many of the claims) and the attendant uncertainty of the
various potential outcomes of such proceedings, including
where the Firm has made assumptions concerning future
rulings by the court or other adjudicator, or about the
behavior or incentives of adverse parties or regulatory
authorities, and those assumptions prove to be incorrect. In
addition, the outcome of a particular proceeding may be a
result which the Firm did not take into account in its
estimate because the Firm had deemed the likelihood of
that outcome to be remote. Accordingly, the Firm's estimate
of the aggregate range of reasonably possible losses will
change from time to time, and actual losses may vary
significantly.
As of December 31, 2017, the Firm and its subsidiaries and
affiliates are defendants or putative defendants in
numerous legal proceedings, including private, civil
litigations and regulatory/government investigations. The
litigations range from individual actions involving a single
plaintiff to class action lawsuits with potentially millions of
class members. Investigations involve both formal and
informal proceedings, by both governmental agencies and
self-regulatory organizations. These legal proceedings are
at varying stages of adjudication, arbitration or
investigation, and involve each of the Firm's lines of
business and geographies and a wide variety of claims
(including common law tort and contract claims and
statutory antitrust, securities and consumer protection
claims), some of which present novel legal theories.
Contingencies
Note 29 - Litigation
Notes to consolidated financial statements
267
746.6
775.3
otherwise used
Collateral sold, repledged, delivered or
$ 968.8 $ 914.1
Collateral permitted to be sold or repledged,
delivered, or otherwise used
2016
2017
December 31, (in billions)
The following table presents the fair value of collateral
accepted.
The Firm accepts financial assets as collateral that it is
permitted to sell or repledge, deliver or otherwise use. This
collateral is generally obtained under resale agreements,
securities borrowing agreements, customer margin loans
and derivative agreements. Collateral is generally used
under repurchase agreements, securities lending
agreements or to cover customer short sales and to
collateralize deposits and derivative agreements.
5 years
3,168
Note 27 - Off-balance sheet lending-related
financial instruments, guarantees, and
other commitments
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to meet
the financing needs of its clients or customers. The
contractual amount of these financial instruments
represents the maximum possible credit risk to the Firm
should the counterparty draw upon the commitment or the
Firm be required to fulfill its obligation under the
guarantee, and should the counterparty subsequently fail to
perform according to the terms of the contract. Most of
these commitments and guarantees are refinanced,
extended, cancelled, or expire without being drawn or a
default occurring. As a result, the total contractual amount
of these instruments is not, in the Firm's view,
representative of its expected future credit exposure or
funding requirements.
To provide for probable credit losses inherent in wholesale
and certain consumer lending-commitments, an allowance
for credit losses on lending-related commitments is
maintained. See Note 13 for further information regarding
the allowance for credit losses on lending-related
commitments. The following table summarizes the
contractual amounts and carrying values of off-balance
sheet lending-related financial instruments, guarantees and
other commitments at December 31, 2017 and 2016. The
amounts in the table below for credit card and home equity
lending-related commitments represent the total available
credit for these products. The Firm has not experienced,
and does not anticipate, that all available lines of credit for
these products will be utilized at the same time. The Firm
can reduce or cancel credit card lines of credit by providing
the borrower notice or, in some cases as permitted by law,
without notice. In addition, the Firm typically closes credit
card lines when the borrower is 60 days or more past due.
The Firm may reduce or close HELOCS when there are
significant decreases in the value of the underlying
property, or when there has been a demonstrable decline in
the creditworthiness of the borrower.
JPMorgan Chase & Co./2017 Annual Report
48,553
Set forth below are descriptions of the Firm's material legal
proceedings.
16,065
3,168
$
Derivatives qualifying as guarantees
Securities lending indemnification agreements and
guarantees (f)
Other guarantees and commitments
Total lending-related
Total wholesale(e)
Other letters of credit(d)
Standby letters of credit and other financial
guarantees (d)
Other unfunded commitments to extend credit (d)
Wholesale:
2,165 $ 1,370 $
Total consumer(c)
Total consumer, excluding credit card
Consumer & Business Banking (b)
Auto
Residential mortgage (a) (b)
Home equity
Consumer, excluding credit card:
Lending-related
Total
Total
Expires
after 5
years
Credit card
5,723
1,379 $ 15,446 $ 20,360
5,736
$ 21,714
27,537
(h)
12
19
12,733
13,202
522
112
926
11,642
2
2
8,468
9,255
84
292
872
8,007
-
10,332
13
12 $ 12
$
1,783
Foreign Exchange Investigations and Litigation. The Firm
previously reported settlements with certain government
authorities relating to its foreign exchange ("FX") sales and
trading activities and controls related to those activities. FX-
related investigations and inquiries by government
authorities, including competition authorities, are ongoing,
3 years
and the Firm is cooperating with and working to resolve
those matters. In May 2015, the Firm pleaded guilty to a
single violation of federal antitrust law. In January 2017,
the Firm was sentenced, with judgment entered thereafter.
The Department of Labor has granted the Firm a five-year
exemption of disqualification, effective upon expiration of a
temporary one-year exemption previously granted, that
allows the Firm and its affiliates to continue to rely on the
Qualified Professional Asset Manager exemption under the
Employee Retirement Income Security Act ("ERISA"). The
Firm will need to reapply in due course for a further
exemption to cover the remainder of the ten-year
disqualification period. Separately, in February 2017 the
South Africa Competition Commission referred its FX
investigation of the Firm and other banks to the South
Africa Competition Tribunal, which is conducting civil
proceedings concerning that matter.
3
2
368,014
1,479
1,493
(h)
15,278
35,226
3,459
3,712
80,273 128,926 146,391 14,508 370,098
$ 680,641 $ 132,094 $ 148,174 $ 30,573 $ 991,482
$ 975,152 $ 1,512 $ 1,519
$ 179,490 $ ; - $ - $ -
3,570
4,529
12,479
40,065
$ 179,490
57,174
$ 137,209
51,966
$
-
$
304
80
Unsettled reverse repurchase and securities
borrowing agreements
101
586
636
35,947
Issuer Litigation - Individual Purchaser Actions. With the
exception of one remaining action, the Firm has resolved all
of the individual actions brought against JPMC, Bear Stearns
and Washington Mutual as MBS issuers (and, in some cases,
also as underwriters of their own MBS offerings).
Repurchase Litigation. The Firm is defending a few actions
brought by trustees and/or securities administrators of
various MBS trusts on behalf of purchasers of securities
issued by those trusts. These cases generally allege
breaches of various representations and warranties
regarding securitized loans and seek repurchase of those
loans or equivalent monetary relief, as well as
indemnification of attorneys' fees and costs and other
remedies. The trustees and/or securities administrators
have accepted settlement offers on these MBS transactions,
and these settlements are subject to court approval.
268
In addition, the Firm and a group of 21institutional MBS
investors made a binding offer to the trustees of MBS issued
by JPMC and Bear Stearns providing for the payment of
$4.5 billion and the implementation of certain servicing
changes by JPMC, to resolve all repurchase and servicing
claims that have been asserted or could have been asserted
with respect to 330 MBS trusts created between 2005 and
2008. The offer does not resolve claims relating to
Washington Mutual MBS. The trustees (or separate and
successor trustees) for this group of 330 trusts have
accepted the settlement for 319 trusts in whole or in part
and excluded from the settlement 16 trusts in whole or in
part. The trustees' acceptance received final approval from
the court and the Firm paid the settlement in December
2017.
Additional actions have been filed against third-party
trustees that relate to loan repurchase and servicing claims
involving trusts sponsored by JPMC, Bear Stearns and
Washington Mutual.
In actions against the Firm involving offerings of MBS issued
by the Firm, the Firm has contractual rights to
indemnification from sellers of mortgage loans that were
securitized in such offerings. However, certain of those
indemnity rights may prove effectively unenforceable in
various situations, such as where the loan sellers are now
defunct.
The Firm has entered into agreements with a number of
MBS trustees or entities that purchased MBS that toll
applicable statute of limitations periods with respect to
their claims, and has settled, and in the future may settle,
tolled claims. There is no assurance that the Firm will not be
named as a defendant in additional MBS-related litigation.
Derivative Action. A shareholder derivative action against
the Firm, as nominal defendant, and certain of its current
and former officers and members of its Board of Directors
relating to the Firm's MBS activities was filed in California
federal court in 2013. In June 2017, the court granted
defendants' motion to dismiss the cause of action that
alleged material misrepresentations and omissions in the
270
JPMorgan Chase & Co./2017 Annual Report
1,783
16,065
621,384
607,138
33
61,536 118,907 138,289
12,428
331,160
328,497
840
905
9,905
114
7,963
139
2,080
76,859
76,859
26
Unsettled repurchase and securities lending
agreements
11,867
5,715
(76)
(118)
(a) Includes certain commitments to purchase loans from correspondents.
(b) Certain loan portfolios have been reclassified. The prior period amounts have been revised to conform with the current period presentation.
(c) Predominantly all consumer lending-related commitments are in the U.S.
(d) At December 31, 2017 and 2016, reflected the contractual amount net of risk participations totaling $334 million and $328 million, respectively, for other unfunded
commitments to extend credit; $10.4 billion and $11.1 billion, respectively, for standby letters of credit and other financial guarantees; and $405 million and $265
million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk participations.
(e) At December 31, 2017 and 2016, the U.S. portion of the contractual amount of total wholesale lending-related commitments was 77% and 79%, respectively.
(f) At December 31, 2017 and 2016, collateral held by the Firm in support of securities lending indemnification agreements was $188.7 billion and $143.2 billion,
respectively. Securities lending collateral consist of primarily cash and securities issued by governments that are members of G7 and U.S. government agencies.
(g) At December 31, 2017, primarily includes letters of credit hedged by derivative transactions and managed on a market risk basis, unfunded commitments related to
institutional lending and commitments associated with the Firm's membership in certain clearing houses. Additionally, includes unfunded commitments predominantly
related to certain tax-oriented equity investments.
Mortgage-Backed Securities and Repurchase Litigation and
Related Regulatory Investigations. The Firm and affiliates
(together, "JPMC"), Bear Stearns and affiliates (together,
"Bear Stearns") and certain Washington Mutual affiliates
(together, "Washington Mutual”) have been named as
defendants in a number of cases in their various roles in
offerings of MBS. The remaining civil cases include one
investor action and actions for repurchase of mortgage
loans. The Firm and certain of its current and former
officers and Board members have also been sued in a
shareholder derivative action relating to the Firm's MBS
activities, which remains pending.
The Firm is one of the defendants in a number of putative
class actions alleging that defendant banks and ICAP
conspired to manipulate the U.S. dollar ISDAFIX rates. In
April 2016, the Firm settled this litigation, along with
certain other banks. Those settlements have been
preliminarily approved by the Court.
In an action related to the Singapore Interbank Offered Rate
and the Singapore Swap Offer Rate, the District Court
dismissed without prejudice all claims except a single
antitrust claim, and dismissed without prejudice all
defendants except the Firm, Bank of America and Citibank.
The plaintiffs filed an amended complaint in September
2017, which the Firm and other defendants have moved to
dismiss.
In actions related to U.S. dollar LIBOR, the District Court
dismissed certain claims, including antitrust claims brought
by some plaintiffs whom the District Court found did not
have standing to assert such claims, and permitted antitrust
claims, claims under the Commodity Exchange Act and
common law claims to proceed. The plaintiffs whose
antitrust claims were dismissed for lack of standing have
filed an appeal. In May 2017, plaintiffs in three putative
class actions moved in the District Court for class
certification, and the Firm and other defendants have
opposed that motion. In January 2018, the District Court
heard oral arguments on the class certification motions and
reserved decision.
In an action related to EURIBOR, the District Court
dismissed all claims except a single antitrust claim and two
common law claims, and dismissed all defendants except
the Firm and Citibank.
The Firm has agreed to settle a putative class action related
to Swiss franc LIBOR, and that settlement remains subject
to final court approval.
manipulated various benchmark rates by submitting rates
that were artificially low or high. Plaintiffs allege that they
transacted in loans, derivatives or other financial
instruments whose values are affected by changes in these
rates and assert a variety of claims including antitrust
claims seeking treble damages. These matters are in various
stages of litigation.
Notes to consolidated financial statements
269
In addition, the Firm has been named as a defendant along
with other banks in a series of individual and putative class
actions filed in various United States District Courts. These
actions have been filed, or consolidated for pre-trial
purposes, in the United States District Court for the
Southern District of New York. In these actions, plaintiffs
make varying allegations that in various periods, starting in
2000 or later, defendants either individually or collectively
LIBOR and Other Benchmark Rate Investigations and
Litigation. JPMorgan Chase has received subpoenas and
requests for documents and, in some cases, interviews,
from federal and state agencies and entities, including the
U.S. Commodity Futures Trading Commission ("CFTC") and
various state attorneys general, as well as the European
Commission ("EC"), the Swiss Competition Commission
("ComCo") and other regulatory authorities and banking
associations around the world relating primarily to the
process by which interest rates were submitted to the
British Bankers Association ("BBA”) in connection with the
setting of the BBA's London Interbank Offered Rate
("LIBOR") for various currencies, principally in 2007 and
2008. Some of the inquiries also relate to similar processes
by which information on rates was submitted to the
European Banking Federation ("EBF") in connection with
the setting of the EBF's Euro Interbank Offered Rates
("EURIBOR") and to the Japanese Bankers' Association for
the setting of Tokyo Interbank Offered Rates ("TIBOR")
during similar time periods, as well as processes for the
setting of U.S. dollar ISDAFIX rates and other reference
rates in various parts of the world during similar time
periods, including through 2012. The Firm continues to
cooperate with these ongoing investigations, and is
currently engaged in discussions with the CFTC about
resolving its U.S. dollar ISDAFIX-related investigation with
respect to the Firm. There is no assurance that such
discussions will result in a settlement. As previously
reported, the Firm has resolved EC inquiries relating to Yen
LIBOR and Swiss Franc LIBOR. In December 2016, the Firm
resolved ComCo inquiries relating to these same rates.
ComCo's investigation relating to EURIBOR, to which the
Firm and other banks are subject, continues. In December
2016, the EC issued a decision against the Firm and other
banks finding an infringement of European antitrust rules
relating to EURIBOR. The Firm has filed an appeal with the
European General Court.
In addition, certain merchants have filed individual actions
raising similar allegations against Visa and MasterCard, as
well as against the Firm and other banks, and those actions
are proceeding.
A number of merchants appealed to the United States Court
of Appeals for the Second Circuit, which, in June 2016,
vacated the District Court's certification of the class action
and reversed the approval of the class settlement. In March
2017, the U.S. Supreme Court declined petitions seeking
review of the decision of the Court of Appeals. The case has
been remanded to the District Court for further proceedings
consistent with the appellate decision.
Interchange Litigation. A group of merchants and retail
associations filed a series of class action complaints alleging
that Visa and MasterCard, as well as certain banks,
conspired to set the price of credit and debit card
interchange fees and enacted respective rules in violation of
antitrust laws. The parties settled the cases for a cash
payment of $6.1 billion to the class plaintiffs (of which the
Firm's share is approximately 20%) and an amount equal to
ten basis points of credit card interchange for a period of 8
months to be measured from a date within 60 days of the
end of the opt-out period. The settlement also provided for
modifications to each credit card network's rules, including
those that prohibit surcharging credit card transactions. In
December 2013, the District Court granted final approval of
the settlement.
remanded the case to the Bankruptcy Court with
instructions to enter partial summary judgment for the
Creditors Committee as to the termination statement. The
proceedings in the Bankruptcy Court continue with respect
to, among other things, additional defenses asserted by
JPMorgan Chase Bank, N.A. and the value of additional
collateral on the Term Loan that was unaffected by the filing
of the termination statement at issue. In connection with
that additional collateral, a trial in the Bankruptcy Court
regarding the value of certain representative assets
concluded in May 2017, and a ruling was issued in
September 2017. The Bankruptcy Court found that 33 of
the 40 representative assets are fixtures and that these
fixtures generally should be valued on a “going concern"
basis. The Creditors Committee is seeking leave to appeal
the Bankruptcy Court's ruling that the fixtures should be
valued on a "going concern" basis rather than on a
liquidation basis. In addition, certain Term Loan lenders
filed cross-claims in the Bankruptcy Court against JPMorgan
Chase Bank, N.A. seeking indemnification and asserting
various claims. The parties are engaged in mediation
concerning, among other things, the characterization and
value of the remaining additional collateral, in light of the
Bankruptcy Court's ruling regarding the representative
assets, as well as other issues, including the cross-claims.
Hopper Estate Litigation. The Firm is a defendant in an
action in connection with its role as an independent
administrator of an estate. The plaintiffs sought in excess of
$7 million in compensatory damages, primarily relating to
attorneys' fees incurred by the plaintiffs. After a trial in
probate court in Dallas, Texas that ended in September
2017, the jury returned a verdict against the Firm,
awarding plaintiffs their full compensatory damages and
multiple billions in punitive damages. Notwithstanding the
jury verdict, in light of legal limitations on the availability of
damages, certain of the plaintiffs moved for entry of
judgment in the total amount of approximately $71 million,
including punitive damages, while another plaintiff has not
yet moved for judgment. The court has not yet entered a
judgment in this matter. The parties are engaged in post-
trial briefing.
50,722
The Firm is also one of a number of foreign exchange
dealers defending a class action filed in the United States
District Court for the Southern District of New York by U.S.-
based plaintiffs, principally alleging violations of federal
antitrust laws based on an alleged conspiracy to manipulate
foreign exchange rates (the "U.S. class action"). In January
2015, the Firm entered into a settlement agreement in the
U.S. class action. Following this settlement, a number of
additional putative class actions were filed seeking damages
for persons who transacted FX futures and options on
futures (the "exchanged-based actions"), consumers who
purchased foreign currencies at allegedly inflated rates (the
"consumer action"), participants or beneficiaries of
qualified ERISA plans (the "ERISA actions"), and purported
indirect purchasers of FX instruments (the "indirect
purchaser action"). Since then, the Firm has entered into a
revised settlement agreement to resolve the consolidated
U.S. class action, including the exchange-based actions, and
that agreement has been preliminarily approved by the
Court. The District Court has dismissed one of the ERISA
actions, and the plaintiffs have filed an appeal. The
consumer action, a second ERISA action and the indirect
purchaser action remain pending in the District Court.
General Motors Litigation. JPMorgan Chase Bank, N.A.
participated in, and was the Administrative Agent on behalf
of a syndicate of lenders on, a $1.5 billion syndicated Term
Loan facility ("Term Loan") for General Motors Corporation
("GM"). In July 2009, in connection with the GM bankruptcy
proceedings, the Official Committee of Unsecured Creditors
of Motors Liquidation Company ("Creditors Committee”)
filed a lawsuit against JPMorgan Chase Bank, N.A., in its
individual capacity and as Administrative Agent for other
lenders on the Term Loan, seeking to hold the underlying
lien invalid based on the filing of a UCC-3 termination
statement relating to the Term Loan. In January 2015,
following several court proceedings, the United States Court
of Appeals for the Second Circuit reversed the Bankruptcy
Court's dismissal of the Creditors Committee's claim and
JPMorgan Chase & Co./2017 Annual Report
2,681
434
JPMorgan Chase & Co./2017 Annual Report
7,668
26,948
1,084
Loan sale and securitization-related indemnifications:
44,205
Mortgage repurchase liability
44,205
Other guarantees and commitments(g)
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
Loans sold with recourse
111
1,169
NA
2,730
ΝΑ
NA
64
ΝΑ
133
ΝΑ
38
15,019
10,964
9,656
23,376
13,833
9,543
14,506
14,318
11,008
24,673 $ 24,380 $
23,239
14,463
13,638
13,837
10,210
10,742
9,402
$
9,562
1st quarter
24,675
4th quarter 3rd quarter
Provision for credit losses
2017
2016
2nd quarter
1st quarter
4th quarter
$
3rd quarter
Selected income statement data
Total net revenue
Total noninterest expense
Pre-provision profit
$ 24,153 $ 25,326
14,591
$ 25,470
$
2nd quarter
1,308
2,058
1,215
2,653
3,140
Net income(a)
$
4,232 $
6,732
$
1,952
7,029
6,448
$
6,727
$
6,286 $
6,200
(in millions, except per share, ratio,
headcount data and where otherwise
$
1,452
1,893
2,824
1,315
864
1,271
1,402
1,824
Income before income tax expense
8,254
2,720
9,556
8,341
8,679
8,939
9,340
7,578
Income tax expense
4,022
9,749
As of or for the period ended
As of or for the year ended
December 31,
Supplementary information
2015
2016
2017
(in millions, except ratios)
Asset & Wealth Management
Commercial Banking
Corporate & Investment Bank
2017
Consumer & Community Banking
Effective January 1, 2017, the Firm's methodology used to
allocate capital to the Firm's business segments was
updated. The new methodology incorporates Basel III
Standardized Fully Phased-In RWA (as well as Basel III
Advanced Fully Phased-In RWA), leverage, the GSIB
surcharge, and a simulation of capital in a severe stress
environment. The methodology will continue to be weighted
towards Basel III Advanced Fully Phased-In RWA because
the Firm believes it to be the best proxy for economic risk.
sources. The corresponding income tax impact related to
tax-exempt items is recorded within income tax expense/
(benefit).
Segment results and reconciliation
The following tables provide a summary of the Firm's
segment results as of or for the years ended December 31,
2017, 2016 and 2015 on a managed basis. The Firm's
definition of managed basis starts with the reported U.S.
GAAP results and includes certain reclassifications to
present total net revenue (noninterest revenue and net
interest income) for each of the reportable business
segments on a FTE basis. Accordingly, revenue from
investments receiving tax credits and tax-exempt securities
is presented in the managed results on a basis comparable
to taxable investments and securities. This allows
management to assess the comparability of revenue from
year-to-year arising from both taxable and tax-exempt
Segment results
JPMorgan Chase & Co./2017 Annual Report
274
$
2016
2015
2017
28,228
29,660
31,775
Net interest income
$ 9,539 $ 9,012 $ 9,563
$ 2,522 $ 2,320 $ 2,365
$ 23,693
$ 24,375 $24,325
$ 15,592
$ 15,255
$ 14,710
Noninterest revenue
2015
2016
2017
2015
2016
The Corporate segment consists of Treasury and CIO and
Other Corporate, which includes corporate staff units and
expense that is centrally managed. Treasury and CIO are
predominantly responsible for measuring, monitoring,
reporting and managing the Firm's liquidity, funding and
structural interest rate and foreign exchange risks, as well
as executing the Firm's capital plan. The major Other
Corporate units include Real Estate, Enterprise Technology,
Legal, Compliance, Finance, Human Resources, Internal
Audit, Risk Management, Oversight & Control, Corporate
Responsibility and various Other Corporate groups.
Selected quarterly financial data (unaudited)
AWM, with client assets of $2.8 trillion, is a global leader in
investment and wealth management. AWM clients include
institutions, high-net-worth individuals and retail investors
in many major markets throughout the world. AWM offers
investment management across most major asset classes
including equities, fixed income, alternatives and money
market funds. AWM also offers multi-asset investment
management, providing solutions for a broad range of
clients' investment needs. For Wealth Management clients,
AWM also provides retirement products and services,
brokerage and banking services including trusts and
estates, loans, mortgages and deposits. The majority of
AWM's client assets are in actively managed portfolios.
Corporate
CB delivers extensive industry knowledge, local expertise
and dedicated service to U.S. and U.S. multinational clients,
including corporations, municipalities, financial institutions
and nonprofit entities with annual revenue generally
ranging from $20 million to $2 billion. In addition, CB
provides financing to real estate investors and owners.
Partnering with the Firm's other businesses, CB provides
comprehensive financial solutions, including lending,
treasury services, investment banking and asset
management to meet its clients' domestic and international
financial needs.
Long-term debt (c)(d)
Total liabilities (d)
Total stockholders' equity
$ 23,426 $ 13,584
3,350
8,302
184,252
219,330
255,693
Other liabilities
3,831
11,224
181,789
210,428
254,190
$ 475,023 $ 464,618
276
(a) In 2016, in connection with the Firm's 2016 Resolution Submission, the Parent
Company established the IHC, and contributed substantially all of its direct
subsidiaries (totaling $55.4 billion) other than JPMorgan Chase Bank, N.A., as
well as most of its other assets (totaling $160.5 billion) and intercompany
indebtedness to the IHC. Total noncash assets contributed were $62.3 billion. In
2017, the Parent Company transferred $16.2 billion of noncash assets to the IHC
to complete the contributions to the IHC.
(b) Affiliates include trusts that issued guaranteed capital debt securities ("issuer
trusts"). For further discussion on these issuer trusts, see Note 19.
(c) At December 31, 2017, long-term debt that contractually matures in 2018
through 2022 totaled $20.6 billion, $13.3 billion, $22.4 billion, $20.6 billion
and $10.5 billion, respectively.
(d) For information regarding the Parent Company's guarantees of its subsidiaries'
obligations, see Notes 19 and 27.
JPMorgan Chase & Co./2017 Annual Report
Total liabilities and stockholders' equity
Short-term borrowings
Borrowings from, and payables to, subsidiaries
and affiliates (b)
Liabilities and stockholders' equity
Commercial Banking
maker in cash securities and derivative instruments, and
also offers sophisticated risk management solutions, prime
brokerage, and research. Markets & Investor Services also
includes Securities Services, a leading global custodian
which provides custody, fund accounting and
administration, and securities lending products principally
for asset managers, insurance companies and public and
private investment funds.
The CIB, which consists of Banking and Markets & Investor
Services, offers a broad suite of investment banking,
market-making, prime brokerage, and treasury and
securities products and services to a global client base of
corporations, investors, financial institutions, government
and municipal entities. Banking offers a full range of
investment banking products and services in all major
capital markets, including advising on corporate strategy
and structure, capital-raising in equity and debt markets, as
well as loan origination and syndication. Banking also
includes Treasury Services, which provides transaction
services, consisting of cash management and liquidity
solutions. Markets & Investor Services is a global market-
Corporate & Investment Bank
CCB offers services to consumers and businesses through
bank branches, ATMs, online, mobile and telephone
banking. CCB is organized into Consumer & Business
Banking (including Consumer Banking/Chase Wealth
Management and Business Banking), Home Lending
(including Home Lending Production, Home Lending
Servicing and Real Estate Portfolios) and Card, Merchant
Services & Auto. Consumer & Business Banking offers
deposit and investment products and services to
consumers, and lending, deposit, and cash management
and payment solutions to small businesses. Home Lending
includes mortgage origination and servicing activities, as
well as portfolios consisting of residential mortgages and
home equity loans. Card, Merchant Services & Auto issues
credit cards to consumers and small businesses, offers
payment processing services to merchants, and originates
and services auto loans and leases.
Non-bank(b)
Other assets
451,713
422
10,458
422,028
13,103
10,257
Cash income taxes paid, net
1,775
113 $
4,550 $
1,053
74
3,873
8,251
$ 475,023 $ 464,618
Total assets
Asset & Wealth Management
5,520
$
Net income:
42,971
208
327
1,632
1,959
Latin America/Caribbean
156,946
1,212
1,899
4,213
6,112
Asia/Pacific
Total international
394,134 (d)
5,292
8,550 $
13,842
$
Europe/Middle East/Africa
2016
2,533,600
24,441
$
35,900
63,724 $
99,624 $
3,783 $
21,913
14,395
North America (a)
$
5,335
1,910
415
1,508
1,923
Latin America/Caribbean
4,241
6,151
Asia/Pacific
$
8,871
14,206 $
$
Europe/Middle East/Africa
2015
24,733 $ 2,490,972
34,536 $
61,132 $
95,668 $
$
Total
1,896,921
19,530
594,051
5,203
7,518
27,018
46,737
73,755
$
4,158 $
1,285
253
615,432
1,918,168
28,128
Total assets
Net income
expense
Expense (c)
Revenue (b)
Income before
income tax
As of or for the year ended December 31,
(in millions)
The Firm's long-lived assets for the periods presented are
not considered by management to be significant in relation
to total assets. The majority of the Firm's long-lived assets
are located in the U.S.
As the Firm's operations are highly integrated, estimates
and subjective assumptions have been made to apportion
revenue and expense between U.S. and international
operations. These estimates and assumptions are consistent
with the allocations used for the Firm's segment reporting
as set forth in Note 31.
The following table presents income statement- and balance
sheet-related information for JPMorgan Chase by major
international geographic area. The Firm defines
international activities for purposes of this footnote
presentation as business transactions that involve clients
residing outside of the U.S., and the information presented
below is based predominantly on the domicile of the client,
the location from which the client relationship is managed,
or the location of the trading desk. However, many of the
Firm's U.S. operations serve international businesses.
Note 30 - International operations
JPMorgan Chase & Co./2017 Annual Report
2017
272
Notes to consolidated financial statements
271
JPMorgan Chase & Co./2017 Annual Report
The Firm has established reserves for several hundred of its
currently outstanding legal proceedings. In accordance with
the provisions of U.S. GAAP for contingencies, the Firm
accrues for a litigation-related liability when it is probable
that such a liability has been incurred and the amount of
the loss can be reasonably estimated. The Firm evaluates its
outstanding legal proceedings each quarter to assess its
litigation reserves, and makes adjustments in such reserves,
upwards or downward, as appropriate, based on
management's best judgment after consultation with
counsel. During the years ended December 31, 2017, 2016
and 2015, the Firm's legal expense was a benefit of $(35)
million, a benefit of $(317) million, and an expense of $3.0
billion, respectively. There is no assurance that the Firm's
litigation reserves will not need to be adjusted in the future.
In view of the inherent difficulty of predicting the outcome
of legal proceedings, particularly where the claimants seek
very large or indeterminate damages, or where the matters
present novel legal theories, involve a large number of
parties or are in early stages of discovery, the Firm cannot
state with confidence what will be the eventual outcomes of
the currently pending matters, the timing of their ultimate
resolution or the eventual losses, fines, penalties or
In addition to the various legal proceedings discussed
above, JPMorgan Chase and its subsidiaries are named as
defendants or are otherwise involved in a substantial
number of other legal proceedings. The Firm believes it has
meritorious defenses to the claims asserted against it in its
currently outstanding legal proceedings and it intends to
defend itself vigorously. Additional legal proceedings may
be initiated from time to time in the future.
*
*
*
Wendel. Since 2012, the French criminal authorities have
been investigating a series of transactions entered into by
senior managers of Wendel Investissement ("Wendel❞)
during the period from 2004 through 2007 to restructure
their shareholdings in Wendel. JPMorgan Chase Bank, N.A.,
Paris branch provided financing for the transactions to a
number of managers of Wendel in 2007. JPMorgan Chase
has cooperated with the investigation. The investigating
judges issued an ordonnance de renvoi in November 2016,
referring JPMorgan Chase Bank, N.A. to the French tribunal
correctionnel for alleged complicity in tax fraud. No date for
trial has been set by the court. The Firm has been
successful in legal challenges made to the Court of
Cassation, France's highest court, with respect to the
criminal proceedings. In January 2018, the Paris Court of
Appeal issued a decision cancelling the mise en examen of
JPMorgan Chase Bank, N.A. The Firm is requesting
clarification from the Court of Cassation concerning the
Court of Appeal's decision before seeking direction on next
steps in the criminal proceedings. In addition, a number of
the managers have commenced civil proceedings against
JPMorgan Chase Bank, N.A. The claims are separate, involve
different allegations and are at various stages of
proceedings.
Petters Bankruptcy and Related Matters. JPMorgan Chase
and certain of its affiliates, including One Equity Partners
("OEP"), were named as defendants in several actions filed
in connection with the receivership and bankruptcy
proceedings pertaining to Thomas J. Petters and certain
affiliated entities (collectively, “Petters") and the Polaroid
Corporation. The principal actions against JPMorgan Chase
and its affiliates were brought by a court-appointed receiver
for Petters and the trustees in bankruptcy proceedings for
three Petters entities. These actions generally sought to
avoid certain putative transfers in connection with (i) the
2005 acquisition by Petters of Polaroid, which at the time
was majority-owned by OEP; (ii) two credit facilities that
JPMorgan Chase and other financial institutions entered
into with Polaroid; and (iii) a credit line and investment
accounts held by Petters. In January 2017, the Court
substantially denied the defendants' motion to dismiss an
amended complaint filed by the plaintiffs. In October 2017,
JPMorgan Chase and its affiliates reached an agreement in
principle to settle the litigation brought by the Petters
bankruptcy trustees, or their successors, and the receiver
for Thomas J. Petters. The settlement is subject to final
documentation and Court approval.
Municipal Derivatives Litigation. Several civil actions were
commenced in New York and Alabama courts against the
Firm relating to certain Jefferson County, Alabama (the
"County") warrant underwritings and swap transactions.
The claims in the civil actions generally alleged that the
Firm made payments to certain third parties in exchange for
being chosen to underwrite more than $3.0 billion in
warrants issued by the County and to act as the
counterparty for certain swaps executed by the County. The
County filed for bankruptcy in November 2011. In June
2013, the County filed a Chapter 9 Plan of Adjustment, as
amended (the "Plan of Adjustment"), which provided that
all the above-described actions against the Firm would be
released and dismissed with prejudice. In November 2013,
the Bankruptcy Court confirmed the Plan of Adjustment,
and in December 2013, certain sewer rate payers filed an
appeal challenging the confirmation of the Plan of
Adjustment. All conditions to the Plan of Adjustment's
effectiveness, including the dismissal of the actions against
the Firm, were satisfied or waived and the transactions
contemplated by the Plan of Adjustment occurred in
December 2013. Accordingly, all the above-described
actions against the Firm have been dismissed pursuant to
the terms of the Plan of Adjustment. The appeal of the
Bankruptcy Court's order confirming the Plan of Adjustment
remains pending.
Firm's proxy statement, found that the court did not have
personal jurisdiction over the individual defendants with
respect to the remaining causes of action, and transferred
that remaining portion of the case to the United States
District Court for the Southern District of New York without
ruling on the merits. The motion by the defendants to
dismiss is pending.
consequences related to those matters. JPMorgan Chase
believes, based upon its current knowledge, after
consultation with counsel and after taking into account its
current litigation reserves, that the legal proceedings
currently pending against it should not have a material
adverse effect on the Firm's consolidated financial
condition. The Firm notes, however, that in light of the
uncertainties involved in such proceedings, there is no
assurance that the ultimate resolution of these matters will
not significantly exceed the reserves it has currently
accrued or that a matter will not have material reputational
consequences. As a result, the outcome of a particular
matter may be material to JPMorgan Chase's operating
results for a particular period, depending on, among other
factors, the size of the loss or liability imposed and the level
of JPMorgan Chase's income for that period.
Europe/Middle East/Africa
Asia/Pacific
Latin America/Caribbean
49,271
77,399
5,158
7,772
14,453
22,225
44,569
299
471
1,523
1,994
163,718
(d)
407,145
4,007
852
1,528
$
5,773
$
8,653
4,277
5,805
$
14,426
$
Total
North America (a)
Total international
19,283
Per common share data
347,647 (d)
Total international
3,675.5
3,706.2
3,710.6
3,737.6
Market and per common share data
Market capitalization
Common shares at period-end
$ 366,301 $ 331,393
3,425.3
3,469.7
$ 321,633
3,519.0
$ 312,078
3,552.8
$ 307,295
3,561.2
$ 238,277
3,578.3
$ 224,449 $ 216,547
3,612.0
3,656.7
Share price:(b)
3,637.7
3,669.8
High
Low
108.46 $
94.96
95.88
88.08
$
92.65
$
93.98
$
87.39
$
67.90 $ 66.20 $ 64.13
81.64
$
3,611.3
3,646.6
3,601.7
3,630.4
3,574.1
3,599.0
Basic
$
1.08 $
1.77
$
1.83
$
1.66
1.73
$
Diluted
1.07
1.76
1.82
1.65
1.71
1.60
1.58
$
1.56
$
1.36
1.55
1.35
Average shares: Basic
Diluted
3,489.7
3,512.2
3,534.7
3,559.6
83.03
138,747
66.10
52.50
Consumer & Community Banking
The following is a description of each of the Firm's business
segments, and the products and services they provide to
their respective client bases.
The Firm is managed on a line of business basis. There are
four major reportable business segments - Consumer &
Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset & Wealth Management. In
addition, there is a Corporate segment. The business
segments are determined based on the products and
services provided, or the type of customer served, and they
reflect the manner in which financial information is
currently evaluated by management. Results of these lines
of business are presented on a managed basis. For a further
discussion concerning JPMorgan Chase's business segments,
see Segment results of this footnote.
Note 31 - Business segments
Notes to consolidated financial statements
273
JPMorgan Chase & Co./2017 Annual Report
(d) Total assets for the U.K. were approximately $310 billion, $310 billion, and $306 billion at December 31, 2017, 2016 and 2015, respectively.
(c) Expense is composed of noninterest expense and the provision for credit losses.
(b) Revenue is composed of net interest income and noninterest revenue.
(a) Substantially reflects the U.S.
2,351,698
0.50
24,442
62,841 $
93,543
$
Total
48,185
534,579
1,817,119
5,696
18,746
7,660
23,042
48,221
71,263
North America (a)
14,620
22,280
30,702 $
0.56
0.56
Cash dividends declared per share
Close
106.94
95.51
91.40
87.84
86.29
66.59
62.14
59.22
Book value per share
67.04
66.95
66.05
64.68
64.06
63.79
62.67
61.28
TBVPS(c)
53.56
54.03
53.29
52.04
51.44
51.23
50.21
48.96
57.05
58.76
46
$
$
1,085 $
Net interest income
55
938 $
(1,425)
800
$
(533)
(2,704) (b)
(1,313)
$
(2,265) $ (1,980) $ 49,527 $ 49,585 $ 50,033
(1,209)
(1,110)
50,097
46,083
43,510
Total net revenue
1,140
(487)
267
(4,017)
(3,474)
(3,090)
99,624
95,668
Noninterest revenue
93,543
2015
2017
56
55
57
56
54
64
39
39
42
72
70
73
(table continued from above)
Corporate
Reconciling Items(a)
Total
As of or for the year ended
December 31,
(in millions, except ratios)
2017
2016
2015
2017
2016
2015
2016
Provision for credit losses
(4)
(10)
$
(1,643) $
80,350 $
781,478
(241)
(704) $
(3,137)
(4,017)
(3,474)
(3,090)
11,459
9,803
6,260
2,437 $
$
-
$
$ 24,442
84,631 $
799,426
79,690 $
768,204
$
$
-
NA
NA
NA
NM
$
2,282
(b)
30,702
5,290
5,361
3,827
Noninterest expense
501
462
977
58,434
55,771
59,014
Income/(loss) before income
tax expense/(benefit)
Overhead ratio
Income tax expense/(benefit)
Average equity
Total assets
Return on equity
Overhead ratio
639
(945)
(700)
(4,017)
(3,474)
(3,090)
35,900
34,536
Net income/(loss)
21%
24%
25%
442
39
26
4
Noninterest expense
26,062
24,905
24,909
19,243
18,992
21,361
3,327
2,934
2,881
9,301
8,478
8,886
Income/(loss) before income
tax expense/(benefit)
14,851
15,516
15,852
15,295
15,661
11,849
282
(276)
332
563
10,118
10,891
9,849
6,083
5,133
4,520
3,379
3,033
2,556
Total net revenue
46,485
44,915
5,554
43,820
33,542
8,605
7,453
6,885
12,918
12,045
12,119
Provision for credit losses
5,572
4,494
3,059
(45)
34,493 35,216
NM
4,237
3,578
$ 8,090
$ 62,000
$ 20,000
$ 14,000
$ 3,539 $ 2,657 $ 2,191
$ 16,000
$ 2,337 $ 2,251 $ 1,935
$ 9,000 $ 9,000 $ 9,000
803,511
748,691
221,228
214,341
200,700
151,909
138,384
131,451
Return on equity
17%
18%
18%
14%
16%
12%
17%
16%
15%
$ 10,815
$ 64,000
$ 70,000
826,384
502,652
535,310
3,541
3,229
Income tax expense/(benefit)
5,456
5,802
6,063
4,482
4,846
3,759
2,015
1,580
1,371
3,562
1,241
1,294
Net income/(loss)
$ 9,395
$ 9,714
$ 9,789
$ 10,813
Average equity
$ 51,000
$ 51,000
$ 51,000
Total assets
552,601
1,290
NM
NM
NM
Net change in:
Income tax benefit
1,007
876
1,640
Equity in undistributed net income
of subsidiaries
12,644
13,973
7,920
Borrowings from subsidiaries
and affiliates (b)
Net income
$ 24,441
Other comprehensive income, net
1,056
$ 24,733
(1,521)
$ 24,442
Short-term borrowings
13,862
(481)
2,957
109
(4,062)
(47,483)
(1,997)
Proceeds from long-term
borrowings
25,855
Comprehensive income
14,882
9,884
10,790
subsidiaries
Other interest expense
5,202
4,413
3,720
Advances to and investments in
subsidiaries and affiliates, net
(280)
(51,967)
(81)
Noninterest expense
(1,897)
1,643
2,611
$ 25,497
Total expense
6,161
6,429
Income before income tax benefit
All other investing activities, net
Net cash provided by/(used in)
investing activities
17
114
153
(41)
10,642
30,598
and undistributed net income of
Financing activities
3,705
98
$ 23,212 $ 22,445
(29,812)
(840)
(16,340)
(3,197)
(47,937)
Loans
77
Net increase/(decrease) in cash
and due from banks
50
39
(137)
Advances to, and receivables from, subsidiaries:
Bank and bank holding company
2,106
524
Cash and due from banks at the
beginning of the year
113
74
211
Non-bank
82
Investments (at equity) in subsidiaries and
affiliates:
Cash and due from banks at the
end of the year
$
Bank and bank holding company
Cash interest paid
(905)
(1,361)
All other financing activities, net
Net cash used in financing
activities
2,694
41,498
42,121
(29,298) (30,077)
Balance sheets(a)
preferred stock
1,258
5,893
December 31, (in millions)
2017
2016
Redemption of preferred stock
(1,258)
Assets
Cash and due from banks
Payments of long-term borrowings
Proceeds from issuance of
$
Trading assets
163 $
5,306
4,773
113
5,450
Treasury stock repurchased
Dividends paid
(15,410)
(9,082)
(5,616)
(8,993)
(8,476)
(7,873)
10,326
Available-for-sale securities
Deposits with banking subsidiaries
163 $
5,426 $
105
and affiliates(b)
2016
2015
Operating activities
Net income
$ 24,441
$ 24,733 $ 24,442
Year ended December 31,
Income
(in millions)
Dividends from subsidiaries and
2017
2016
2015
Less: Net income of subsidiaries
and affiliates (b)
26,185
27,846
26,745
Parent company net loss
(1,744)
(3,113)
(2,303)
Cash dividends from subsidiaries
affiliates:
and affiliates (b)
13,540
2017
(in millions)
Year ended December 31,
Statements of cash flows(a)
NM
NM
NM
NM
NM
NM
NM
2,533,600
2,490,972
2,351,698
10%
10%
13,873
11%
58
63
$ 24,441 $ 24,733
$ 230,350 $ 224,631 $ 215,690
(a) Segment results on a managed basis reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/(benefit). These adjustments
are eliminated in reconciling items to arrive at the Firm's reported U.S. GAAP results.
(b) Included $375 million related to tax-oriented investments as a result of the enactment of the TCJA.
JPMorgan Chase & Co./2017 Annual Report
275
-
Note 32 Parent Company
The following tables present Parent Company-only financial
Statements of income and comprehensive income(a)
59
400
17,023
$ 13,000
144
60,349
30,085
Non-bank
(88)
1,165
(1,402)
Available-for-sale securities:
Other income
(623)
(846)
1,773
Total income
14,495
16,045
21,311
Proceeds from paydowns and
maturities
353
120
Expense
Interest expense to subsidiaries
Other changes in loans, net
78
1,793
321
subsidiaries
Deposits with banking
Net change in:
1,438
540
$ 10,000
3,873
$ 10,653
8,172
Other operating adjustments
4,635
(18,166)
2,483
Net cash provided by/(used in)
Interest income from subsidiaries
72
794
443
Bank and bank holding company
Non-bank(b)
operating activities
(7,406)
17,203
Other interest income
41
207
234
Investing activities
Other income from subsidiaries,
primarily fees:
Bank and bank holding company
1,553
852
16,431
statements.
0.48
0.48
Interest(g)
Average
rate
2015
Average
balance
Interest(g)
Average
rate
$
392,160
$
1,863
0.48%
2016
$
$
1,250
205,368
2,265
1.10
206,637
1,592
0.29%
0.77
(h)
102,964
427,963
Average
balance
(Table continued from previous page)
Within the Consolidated average balance sheets, interest and rates summary, the principal amounts of nonaccrual loans have
been included in the average loan balances used to determine the average interest rate earned on loans. For additional
information on nonaccrual loans, including interest accrued, see Note 12.
Preferred stock
Common stockholders' equity
Total stockholders' equity
Total liabilities and stockholders' equity
Interest rate spread
Net interest income and net yield on interest-earning assets
(a) Represents securities that are tax-exempt for U.S. federal income tax purposes.
2,299,500
26,212
230,350
256,562 (f)
$
2,556,062
$
51,410
2.19%
2.36
(b) Includes held-for-investment margin loans, which are classified in accrued interest and accounts receivable, and all other interest-earning assets included in other assets.
(c) Includes commercial paper.
(d) Other interest-bearing liabilities include brokerage customer payables.
(e) Included trading liabilities - debt and equity instruments of $90.7 billion, $92.8 billion and $81.4 billion for the twelve months ended December 31, 2017, 2016 and 2015,
respectively.
(f) The ratio of average stockholders' equity to average assets was 10.0% for 2017, 10.2% for 2016, and 9.7% for 2015. The return on average stockholders' equity, based on net
income, was 9.5% for 2017, 9.9% for 2016, and 10.2% for 2015.
(g) Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(h) Negative interest income and yield is related to client-driven demand for certain securities combined with the impact of low interest rates; this is matched book activity and the
negative interest expense on the corresponding securities loaned is recognized in interest expense and reported within trading liabilities - debt, short-term and other liabilities.
(i) Fees and commissions on loans included in loan interest amounted to $1.0 billion in 2017, $808 million in 2016, and $936 million in 2015.
(j) The annualized rate for securities based on amortized cost was 3.13% in 2017, 2.99% in 2016, and 2.94% in 2015, and does not give effect to changes in fair value that are
reflected in AOCI.
278
JPMorgan Chase & Co./2017 Annual Report
(332)
(0.32)
(h)
105,273
866,378
36,866
(i)
4.26
787,318
33,321
4.23
39,782
2,101,604
(13,965)
875
2.20
57,110
2.72
38,811
2,088,242
(13,885)
652
1.68
52,083
2.49
18,660
95,528
70,897
53,752
(i)
Stockholders' equity
(j)
9,106
(532)
(0.50)
215,565
7,373
3.42
206,385
6,694
3.24
235,211
5,538
2.35
273,730
6,550
2.39
44,176
2,662
6.03
42,125
2,556
6.07
279,387
8,200
2.94
(j)
315,855
2.88
135,143
Total liabilities
All other liabilities, including the allowance for lending-related commitments
95,324
(37)
(0.04)
Trading assets - debt instruments
237,206
7,714
3.25
Taxable securities
Non-taxable securities(a)
Total securities
Loans
(h)
All other interest-earning assets (b)
Cash and due from banks
Trading assets - equity instruments
223,592
5,534
2.48
45,086
2,769
6.14
268,678
8,303
3.09
Total interest-earning assets
Allowance for loan losses
Securities borrowed
0.96%
1.21
2,327
(d) HQLA represents the amount of assets that qualify for inclusion in the liquidity coverage ratio. For December 31, 2017, September 30,2017 and June 30, 2017 the balance represents the average of
quarterly reported results per the U.S. LCR public disclosure requirements effective April 1, 2017 and period-end balances for the remaining periods. For additional information, see HQLA on page 93.
(e) Ratios presented are calculated under the Basel III Transitional rules and for the capital ratios represent the Collins Floor. See Capital Risk Management on pages 82-91 for additional information on Basel III.
(f) Included unsecured long-term debt of $218.8 billion, $221.7 billion, $221.0 billion, $212.0 billion, $212.6 billion, $226.8 billion, $220.6 billion, $216.1 billion respectively, for the periods presented.
(g) Excludes the impact of residential real estate PCI loans, a non-GAAP financial measure. For further discussion of these measures, see Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial
Measures and Key Performance Measures on pages 52-54, and the Allowance for credit losses on pages 117-119.
Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rates for the three months ended March 31, 2017 would have been 0.54%.
(h)
(i)
The prior period ratios have been revised to conform with the current period presentation.
JPMorgan Chase & Co./2017 Annual Report
277
Distribution of assets, liabilities and stockholders' equity; interest rates and interest differentials
Consolidated average balance sheet, interest and rates
Provided below is a summary of JPMorgan Chase's
consolidated average balances, interest rates and interest
differentials on a taxable-equivalent basis for the years
2015 through 2017. Income computed on a taxable-
equivalent basis is the income reported in the Consolidated
(Table continued on next page)
statements of income, adjusted to present interest income
and average rates earned on assets exempt from income
taxes (i.e. federal taxes) on a basis comparable with other
taxable investments. The incremental tax rate used for
calculating the taxable-equivalent adjustment was
approximately 37% in 2017, and 38% in 2016 and 2015.
Year ended December 31,
(Taxable-equivalent interest and rates; in millions, except rates)
Assets
Average
balance
2017
Interest(g)
Average
rate
Deposits with banks
$
438,240
$
4,219
Federal funds sold and securities purchased under resale agreements
191,819
(j)
(i)
906,397
41,296
0.86
481
1.03
Trading liabilities – debt and other interest-bearing liabilities (d)(e)
171,814
2,070
1.21
Beneficial interests issued by consolidated VIES
32,457
503
1.55
Long-term debt
Total interest-bearing liabilities
Noninterest-bearing deposits
291,489
6,753
2.32
1,742,899
14,275
0.82
404,165
Trading liabilities - equity instruments(e)
Trading liabilities - derivative payables
21,022
44,122
1,611
87,292
0.28%
$
4.56
42,928
1,863
4.34
2,180,592
(13,453)
65,685
3.01
20,364
115,913
Trading assets - derivative receivables
59,588
Goodwill, MSRs and other intangible assets
53,999
Other assets
139,059
Total assets
$
2,556,062
Liabilities
Interest-bearing deposits
$
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings(c)
1,013,221
187,386
46,532
2,857
$
2,461,619
22,042
1,863
4.34
2,180,592
65,685
3.01
All other interest-earning assets, predominantly U.S.
Total interest-earning assets
Interest-bearing liabilities
Interest-bearing deposits:
U.S.
776,049
42,928
2,223
Non-U.S.
237,172
634
0.27
Federal funds purchased and securities loaned or sold under repurchase agreements:
U.S.
115,574
1,349
1.17
Non-U.S.
71,812
0.29
2.52
1,857
73,789
100,941
1.50
0.96
68,110
(66) (c)
(0.10)
27,214
29
0.11
967
128,293
4,186
3.26
108,913
3,528
3.24
223,140
7,490
3.36
45,538
813
1.79
832,608
39,439
4.74
262
0.37
Trading liabilities - debt, short-term and all other interest-bearing liabilities:(a)
U.S.
Non-U.S.
14,739
8
0.05
(2,874)
2,874
(25)
25
1,742,899
14,275
0.82
$
437,693
2,180,592 $
$
14,275
0.65%
51,410
2.36%
46,059
2.68
5,351
1.15
22.5
21.1
(b) Represents the amount of noninterest-bearing liabilities funding interest-earning assets.
(c) Negative interest income and yield is related to client-driven demand for certain securities combined with the impact of low interest rates; this is matched book
activity and the negative interest expense on the corresponding securities loaned is recognized in interest expense and reported within trading liabilities - debt,
short-term and other liabilities.
280
JPMorgan Chase & Co./2017 Annual Report
2.44
1,360
6,745
(a) Includes commercial paper.
138,470
1,271
0.92
79,876
1,280
1.60
32,457
503
1.55
Beneficial interests issued by consolidated VIES, predominantly U.S.
Long-term debt:
U.S.
Non-U.S.
Intercompany funding:
U.S.
Non-U.S.
Total interest-bearing liabilities
Noninterest-bearing liabilities (b)
Total investable funds
Net interest income and net yield:
U.S.
Non-U.S.
Percentage of total assets and liabilities attributable to non-U.S. operations:
Assets
Liabilities
276,750
90,878
0.18
128
178,994
0.50
0.31
40,180
504
1.25
49,200
435
0.88
295,573
5,564
1.88
284,940
4,435
1.56
1,653,648
9,818
0.59
1,649,440
7,463
0.45
402,698
418,948
20,737
17,282
0.62
55,927
1,102
0.26
105,489
73,290
55,439
138,792
$
2,469,409
$
925,270
$
1,356
0.15%
$
178,720
1,089
0.61
36,140
203
0.56
876,840
192,510
66,956
$
1,252
0.14%
609
0.32
175
177,765
(c) TBVPS and ROTCE are non-GAAP financial measures. For further discussion of these measures, see Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures and Key Financial
Performance Measures on pages 52-54.
64,716
79,293
U.S.
Non-U.S.
Federal funds sold and securities purchased under resale agreements:
U.S.
Non-U.S.
Securities borrowed:
U.S.
Non-U.S.
Trading assets debt instruments:
U.S.
Non-U.S.
Securities:
U.S.
Non-U.S.
Loans:
U.S.
Non-U.S.
2017
Average balance
Interest
Average rate
$
366,177 $
72,063
4,091
1.12%
Deposits with banks:
77,910
Interest-earning assets
Year ended December 31,
2,210,920
2,229,679
26,068
224,631
250,699 (f)
$
2,461,619
24,040
215,690
239,730 (f)
$
2,469,409
$
47,292
2.13%
2.25
JPMorgan Chase & Co./2017 Annual Report
2.04%
$
44,620
2.14
279
Interest rates and interest differential analysis of net interest income - U.S. and non-U.S.
Presented below is a summary of interest rates and interest
differentials segregated between U.S. and non-U.S.
operations for the years 2015 through 2017. The
segregation of U.S. and non-U.S. components is based on
(Table continued on next page)
the location of the office recording the transaction.
Intercompany funding generally consists of dollar-
denominated deposits originated in various locations that
are centrally managed by Treasury and CIO.
(Taxable-equivalent interest and rates; in millions, except rates)
(b) Based on daily prices reported by the New York Stock Exchange.
557
0.56%
15.5
15.1
15.2
15.1
Tier 1 leverage ratio(e)
8.3
8.4
15.6
8.5
8.4
8.5
8.5
8.6
Selected balance sheet data (period-end)
Trading assets
$ 381,844 $ 420,418
8.4
16.0
16.1
15.9
12.0
12.0
11.9
(i)
(i)
(i)
(i)
Tier 1 capital ratio(e)
13.9
14.1
14.2
14.1
14.0
13.6
13.6
13.5
Total capital ratio(e)
$ 407,064
12.3
Securities
249,958
812,119
806,152
795,077
775,813
746,196
Average core loans
850,166
834,935
837,522
805,382
799,698
779,383
760,721
737,297
Total assets
2,533,600
824,583
843,432
863,683
Core loans
263,288
263,458
930,697
913,761
908,767
$ 402,513
281,850
895,974
$ 372,130
$ 374,837
$ 289,059
272,401
$ 380,793
278,610
$ 366,153
285,323
$ 894,765
888,054
872,804
847,313
Loans
12.4
12.5
12.5
ROA
0.66
1.04
1.10
1.03
1.06
1.01
12
1.02
Overhead ratio
60
40
(a) The Firm's results for the three months ended December 31, 2017, included a $2.4 billion decrease to net income as a result of the enactment of the TCJA. For additional information related to the impact of
the TCJA, see Note 24.
57
61
59
0.93
13
13
14
0.48
0.44
Selected ratios and metrics
ROE
7%
11%
12%
11%
11%
10%
10%
9%
ROTCE(c)
8
13
14
13
59
56
60
Loans-to-deposits ratio
$
505
LCR (average)
119%
120%
115%
NA%
NA%
NA%
NA%
NA%
(i)
(i)
(i)
(i)
CET1 capital ratio(e)
12.2
516
2,563,074
$
$
64
63
63
63
65
65
66
64
HQLA (in billions) (d)
$
560 $
568
541
$
528
$
524
539
2,563,174
57
Net charge-off rate(h)
$ 15,304 $ 15,187 $ 15,008
0.51%
$ 14,854
14,490
$
$ 14,480
14,672 $ 14,648
$
Allowance for credit losses
Credit quality metrics
237,420
240,046
242,315
243,355
246,345
249,257
251,503
252,539
Headcount
250,157
252,423
254,331
254,190
255,863
258,483
258,382
255,693
Total stockholders' equity
224,089
0.53%
226,355
1,110
7,757 $
1,181
1.49%
1.52%
1.55%
1.61%
1.64%
1.66%
Allowance for loan losses to retained
loans excluding purchased credit-
impaired loans(g)
1.27
Nonperforming assets
$
6,426 $
Net charge-offs (h)
loans
1,264
0.55%
1.29
6,154
1,265
0.56%
$
1.28
6,432
1,204
0.54%
1.31
1.34
$
6,826
1,654
0.76%
$
7,535
1,280
0.58%
$
1.37
7,779 $
1,121
Allowance for loan losses to total retained
1.40
1.40
8,023
1.49%
228,263
229,795
228,122
2,546,290
2,490,972
2,521,029
2,466,096
2,423,808
Deposits
1,443,982
1,439,027
1,439,473
1,422,999
1,375,179
1,376,138
1,330,958
1.47%
Long-term debt(f)
232,415
1,321,816
232,314
229,625
290,754
295,627
Common stockholders' equity
295,245
289,492
292,973
288,582
284,080
309,418
307
268
Non-U.S.
41
266
(21)
659
(164)
Federal funds purchased and securities loaned or sold under
repurchase agreements:
U.S.
(83)
192
576
(113)
(143)
76
5,027
985
137
851
988
21
223
Change in interest income
2,865
5,710
8,575
3,310
1,717
Interest-bearing liabilities
Interest-bearing deposits:
U.S.
209
1,194
202
Prime mortgage loans are made to borrowers with good
credit records who meet specific underwriting
requirements, including prescriptive requirements related
to income and overall debt levels. New prime mortgage
borrowers provide full documentation and generally have
reliable payment histories.
All other interest-earning assets, predominantly U.S.
(55)
321
266
81
(213)
(132)
56
351
407
194
Securities borrowed:
Non-U.S.
ཌཝ
11
264
275
24
197
221
(4)
U.S.
531
(337)
Non-U.S.
to change in:
Rate
Net
change
Volume
Rate
Net
change
Non-U.S.
$
410 $
17
1,973
(44)
$ 2,383
(27)
$
(324) $ 1,011 $
687
59
(133)
(74)
Federal funds sold and securities purchased under resale
agreements:
U.S.
24
520
20
(21)
(113)
(416)
(1,051)
(150)
(1,201)
Loans:
U.S.
2,043
2,286
(303)
4,329
(350)
3,642
Non-U.S.
(110)
211
101
(220)
123
(97)
3,992
Non-U.S.
295
(220)
Trading assets debt instruments:
U.S.
396
(35)
361
317
(64)
253
Non-U.S.
308
(328)
(20)
(24)
450
426
Securities:
U.S.
216
303
519
515
(21)
2016 versus 2015
Increase/(decrease) due
407
54
2.20
875
39,782
2.11
1,853
87,654
2.25
1,756
78,165
4.50
31,468
38,811
699,664
35,110
788,213
2.10
2,430
115,615
1.97
1,229
62,661
3.33
6,676
200,240
4.45
652
1.68
2,101,604
316
56,775
0.26
366
140,609
0.63
773
121,945
0.21
491
238,084
0.15
327
221,532
0.12
761
638,756
0.15
1,029
703,738
2.49
52,083
2,088,242
2.72
57,110
3.22
6,971
216,726
3.12
0.76
900
118,945
1.03
1,166
112,902
0.59
229
0.26%
1,021
388,833 $
39,130
$
0.52%
0.25
155
1,708
328,831 $
63,329
$
Average rate
Interest
Average balance
Average rate
Interest
Average balance
2015
2016
92,466
0.56
1,099
87,692
3,122
99,920
3.57
3,548
99,354
3.35
3,572
106,465
3.29
3,825
116,211
0.11
30
26,458
0.03
9
29,667
(0.71)
(562) (c)
78,815
(0.46)
(341) (c)
73,297
0.79
692
1.19
Non-U.S.
51,901
0.47
Lori Beer
Chief Information Officer
Mary Callahan Erdoes
CEO, Asset & Wealth Management
Stacey Friedman
General Counsel
Marianne Lake
Chief Financial Officer
Robin Leopold
Head of Human Resources
Douglas B. Petno
CEO, Commercial Banking
Chief Risk Officer
Peter Scher
Other Corporate Officers
Molly Carpenter
Secretary
Joseph M. Evangelisti
Corporate Communications
290
Nicole Giles
Controller
Jason R. Scott
Investor Relations
Lou Rauchenberger
General Auditor
JPMorgan Chase & Co./2017 Annual Report
Head of Corporate Responsibility;
Chair of the Mid-Atlantic Region
Ashley Bacon
CEO, Consumer & Community Banking
Chief Operating Officer;
(108)
(54)
26
47
لله
73
Trading liabilities - debt, short-term and other interest-bearing
liabilities: (a)
U.S.
45
Member of:
1 Audit Committee
2 Compensation &
Management Development
Committee
3 Corporate Governance &
Nominating Committee
4 Public Responsibility
Committee
5 Directors' Risk Policy Committee
Operating Committee
James Dimon
Chairman and
Chief Executive Officer
Daniel E. Pinto
Co-President and
Chief Operating Officer;
CEO, Corporate & Investment Bank
Gordon A. Smith
Co-President and
$
2.25%
47,292
$
12,404
1.61
4,386
273,033
1.95
5,533
283,169
0.88
435
49,200
1.25
504
40,180
1.42
1,126
79,112
1.52
1,219
80,117
(0.24)
(394) (c)
166,838
0.06
86
133,788
31
243
0.25
49
0.36%
7,463
2,088,242 $
$
0.47%
9,818
2,101,604 $
$
438,802
447,956
0.45
7,463
1,649,440
0.59
9,818
1,653,648
(7)
50,517
(10)
20,405
7
(50,517)
10
(20,405)
0.41
11,907
Volume
1,212
Increase/(decrease) due
James S. Crown 5
President
Henry Crown and Company
(Diversified investments)
James Dimon
Chairman and
Chief Executive Officer
JPMorgan Chase & Co.
(Financial services)
Timothy P. Flynn ¹4
Retired Chairman and
Chief Executive Officer
KPMG
(Professional services)
Mellody Hobson
President
Ariel Investments, LLC
(Investment management)
Berkshire Hathaway Inc.
(Conglomerate)
Laban P. Jackson, Jr.
Clear Creek Properties, Inc.
(Real estate development)
Michael A. Neal 5
Retired Vice Chairman
General Electric Company;
Retired Chairman and
Chief Executive Officer
GE Capital
(Industrial and financial services)
FICO score: A measure of consumer credit risk provided by
credit bureaus, typically produced from statistical models
by Fair Isaac Corporation utilizing data collected by the
credit bureaus.
FHLB: Federal Home Loan Bank
FHA: Federal Housing Administration
Chairman and Chief Executive Officer
Investment Officer
Todd A. Combs 4,5
(Television and entertainment)
VGF: Valuation Governance Forum
VIES: Variable interest entities
Warehouse loans: Consist of prime mortgages originated
with the intent to sell that are accounted for at fair value
and classified as trading assets.
Washington Mutual transaction: On September 25, 2008,
JPMorgan Chase acquired certain of the assets of the
banking operations of Washington Mutual Bank
("Washington Mutual") from the FDIC.
JPMorgan Chase & Co./2017 Annual Report
289
Board of Directors
Linda B. Bammann 5
Retired Deputy Head of Risk
Management
JPMorgan Chase & Co.
(Financial services)
James A. Bell¹
Retired Executive Vice President
The Boeing Company
(Aerospace)
Crandall C. Bowles ¹,4
Chairman Emeritus
The Springs Company
(Diversified investments)
Stephen B. Burke 2, 3
Chief Executive Officer
NBCUniversal, LLC
FFIEC: Federal Financial Institutions Examination Council
FFELP: Federal Family Education Loan Program
Fee share: Proportion of fee revenue based on estimates of
investment banking fees generated across the industry from
investment banking transactions in M&A, equity and debt
underwriting, and loan syndications. Source: Dealogic, a
third-party provider of investment banking fee competitive
analysis and volume-based league tables for the above
noted industry products.
Federal Reserve: The Board of the Governors of the Federal
Reserve System
CRO: Chief Risk Officer
Criticized: Criticized loans, lending-related commitments
and derivative receivables that are classified as special
mention, substandard and doubtful categories for
regulatory purposes and are generally consistent with a
rating of CCC+/Caal and below, as defined by S&P and
Moody's.
obligations, or certain restructurings of the debt of the
reference entity, neither party has recourse to the reference
entity. The protection purchaser has recourse to the
protection seller for the difference between the face value
of the CDS contract and the fair value at the time of settling
the credit derivative contract. The determination as to
whether a credit event has occurred is generally made by
the relevant International Swaps and Derivatives
Association ("ISDA") Determinations Committee.
Glossary of Terms and Acronyms
283
Credit derivatives: Financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) which allow one
party (the protection purchaser) to transfer that risk to
another party (the protection seller). Upon the occurrence
of a credit event by the reference entity, which may include,
among other events, the bankruptcy or failure to pay its
Core loans: Represents loans considered central to the
Firm's ongoing businesses; core loans exclude loans
classified as trading assets, runoff portfolios, discontinued
portfolios and portfolios the Firm has an intent to exit.
Credit cycle: A period of time over which credit quality
improves, deteriorates and then improves again (or vice
versa). The duration of a credit cycle can vary from a couple
of years to several years.
COO: Chief Operating Officer
services to corporate and public sector clients worldwide
through the commercial card products. Services include
procurement, corporate travel and entertainment, expense
management services, and business-to-business payment
solutions.
Commercial Card: provides a wide range of payment
Merchant Services: is a business that primarily processes
transactions for merchants.
Collateral-dependent: A loan is considered to be collateral-
dependent when repayment of the loan is expected to be
provided solely by the underlying collateral, rather than by
cash flows from the borrower's operations, income or other
resources.
CLTV: Combined loan-to-value
Client assets: Represent assets under management as well
as custody, brokerage, administration and deposit accounts.
Client deposits and other third-party liabilities: Deposits,
as well as deposits that are swept to on-balance sheet
liabilities (e.g., commercial paper, federal funds purchased
and securities loaned or sold under repurchase
agreements) as part of client cash management programs.
CLO: Collateralized loan obligations
CIO: Chief Investment Office
CIB: Corporate & Investment Bank
Chase Bank USA, N.A.: Chase Bank USA, National
Association
CFTC: Commodity Futures Trading Commission
CFO: Chief Financial Officer
CET1 Capital: Common equity Tier 1 Capital
CTC: CIO, Treasury and Corporate
VCG: Valuation Control Group
CVA: Credit valuation adjustments
Deposit margin/deposit spread: Represents net interest
income expressed as a percentage of average deposits.
Distributed denial-of-service attack: The use of a large
number of remote computer systems to electronically send
a high volume of traffic to a target website to create a
service outage at the target. This is a form of cyberattack.
DFAST: Dodd-Frank Act Stress Test
FDIC: Federal Deposit Insurance Corporation
FDIA: Federal Depository Insurance Act
FCC: Firmwide Control Committee
FCA: Financial Conduct Authority
FASB: Financial Accounting Standards Board
Fannie Mae: Federal National Mortgage Association
EU: European Union
ETD: "Exchange-traded derivatives": Derivative contracts
that are executed on an exchange and settled via a central
clearing house.
EPS: Earnings per share
ERISA: Employee Retirement Income Security Act of 1974
Embedded derivatives: are implicit or explicit terms or
features of a financial instrument that affect some or all of
the cash flows or the value of the instrument in a manner
similar to a derivative. An instrument containing such terms
or features is referred to as a "hybrid." The component of
the hybrid that is the non-derivative instrument is referred
to as the "host." For example, callable debt is a hybrid
instrument that contains a plain vanilla debt instrument
(i.e., the host) and an embedded option that allows the
issuer to redeem the debt issue at a specified date for a
specified amount (i.e., the embedded derivative). However,
a floating rate instrument is not a hybrid composed of a
fixed-rate instrument and an interest rate swap.
Eligible LTD: Long-term debt satisfying certain eligibility
criteria
EC: European Commission
E&P: Exploration & Production
DVA: Debit valuation adjustment
DRPC: Board of Directors' Risk Policy Committee
DOL: U.S. Department of Labor
DOJ: U.S. Department of Justice
Dodd-Frank Act: Wall Street Reform and Consumer
Protection Act
Debit and credit card sales volume: Dollar amount of card
member purchases, net of returns.
CEO: Chief Executive Officer
VaR: "Value-at-risk" is a measure of the dollar amount of
potential loss from adverse market moves in an ordinary
market environment.
U.S. Treasury: U.S. Department of the Treasury
OCC: Office of the Comptroller of the Currency
OCI: Other comprehensive income/(loss)
OEP: One Equity Partners
OIS: Overnight index swap
OPEB: Other postretirement employee benefit
ORMF: Operational Risk Management Framework
OTTI: Other-than-temporary impairment
Over-the-counter ("OTC") derivatives: Derivative contracts
that are negotiated, executed and settled bilaterally
between two derivative counterparties, where one or both
counterparties is a derivatives dealer.
OAS: Option-adjusted spread
Over-the-counter cleared ("OTC-cleared") derivatives:
Derivative contracts that are negotiated and executed
bilaterally, but subsequently settled via a central clearing
house, such that each derivative counterparty is only
exposed to the default of that clearing house.
Parent Company: JPMorgan Chase & Co.
Participating securities: Represents unvested share-based
compensation awards containing nonforfeitable rights to
dividends or dividend equivalents (collectively, "dividends"),
which are included in the earnings per share calculation
JPMorgan Chase & Co./2017 Annual Report
using the two-class method. JPMorgan Chase grants RSUs to
certain employees under its share-based compensation
programs, which entitle the recipients to receive
nonforfeitable dividends during the vesting period on a
basis equivalent to the dividends paid to holders of common
stock. These unvested awards meet the definition of
participating securities. Under the two-class method, all
earnings (distributed and undistributed) are allocated to
each class of common stock and participating securities,
based on their respective rights to receive dividends.
PCA: Prompt corrective action
PCI: "Purchased credit-impaired" loans represents certain
loans that were acquired and deemed to be credit-impaired
on the acquisition date in accordance with the guidance of
the FASB. The guidance allows purchasers to aggregate
credit-impaired loans acquired in the same fiscal quarter
into one or more pools, provided that the loans have
common risk characteristics(e.g., product type, LTV ratios,
FICO scores, past due status, geographic location). A pool is
then accounted for as a single asset with a single composite
interest rate and an aggregate expectation of cash flows.
PD: Probability of default
PRA: Prudential Regulatory Authority
Pre-provision profit/(loss): Represents total net revenue
less noninterest expense. The Firm believes that this
financial measure is useful in assessing the ability of a
lending institution to generate income in excess of its
provision for credit losses.
Pretax margin: Represents income before income tax
expense divided by total net revenue, which is, in
management's view, a comprehensive measure of pretax
performance derived by measuring earnings after all costs
are taken into consideration. It is one basis upon which
management evaluates the performance of AWM against
the performance of their respective competitors.
Principal transactions revenue: Principal transactions
revenue is driven by many factors, including the bid-offer
spread, which is the difference between the price at which
the Firm is willing to buy a financial or other instrument and
the price at which the Firm is willing to sell that instrument.
It also consists of realized (as a result of closing out or
termination of transactions, or interim cash payments) and
unrealized (as a result of changes in valuation) gains and
losses on financial and other instruments (including those
accounted for under the fair value option) primarily used in
client-driven market-making activities and on private equity
investments. In connection with its client-driven market-
making activities, the Firm transacts in debt and equity
instruments, derivatives and commodities (including
physical commodities inventories and financial instruments
that reference commodities).
Overhead ratio: Noninterest expense as a percentage of
total net revenue.
NSFR: Net stable funding ratio
Nonperforming assets: Nonperforming assets include
nonaccrual loans, nonperforming derivatives and certain
assets acquired in loan satisfaction, predominantly real
estate owned and other commercial and personal property.
NOW: Negotiable Order of Withdrawal
Nonaccrual loans: Loans for which interest income is not
recognized on an accrual basis. Loans (other than credit
card loans and certain consumer loans insured by U.S.
government agencies) are placed on nonaccrual status
when full payment of principal and interest is not expected,
regardless of delinquency status, or when principal and
interest have been in default for a period of 90 days or
more unless the loan is both well-secured and in the
process of collection. Collateral-dependent loans are
typically maintained on nonaccrual status.
Subprime
Subprime loans are loans that, prior to mid-2008, were
offered to certain customers with one or more high risk
characteristics, including but not limited to: (i) unreliable or
poor payment histories; (ii) a high LTV ratio of greater than
80% (without borrower-paid mortgage insurance); (iii) a
high debt-to-income ratio; (iv) an occupancy type for the
loan is other than the borrower's primary residence; or (v) a
history of delinquencies or late payments on the loan.
MSA: Metropolitan statistical areas
MSR: Mortgage servicing rights
Multi-asset: Any fund or account that allocates assets under
management to more than one asset class.
NA: Data is not applicable or available for the period
presented.
NAV: Net Asset Value
Net Capital Rule: Rule 15c3-1 under the Securities
Exchange Act of 1934.
Net charge-off/(recovery) rate: Represents net charge-
offs/(recoveries) (annualized) divided by average retained
loans for the reporting period.
Net mortgage servicing revenue includes the following
components:
Operating revenue predominantly represents the return on
Home Lending Servicing's MSR asset and includes:
- Actual gross income earned from servicing third-party
mortgage loans, such as contractually specified
servicing fees and ancillary income; and
- The change in the fair value of the MSR asset due to
the collection or realization of expected cash flows.
Risk management represents the components of
Home Lending Servicing's MSR asset that are subject to
ongoing risk management activities, together with
derivatives and other instruments used in those risk
management activities.
Net production revenue: Includes net gains or losses on
originations and sales of mortgage loans, other production-
related fees and losses related to the repurchase of
previously sold loans.
JPMorgan Chase & Co./2017 Annual Report
Glossary of Terms and Acronyms
Net revenue rate: Represents Card Services net revenue
(annualized) expressed as a percentage of average loans for
the period.
Net yield on interest-earning assets: The average rate for
interest-earning assets less the average rate paid for all
sources of funds.
NM: Not meaningful
NOL: Net operating loss
Principal transactions revenue also includes certain realized
and unrealized gains and losses related to hedge accounting
and specified risk-management activities, including: (a)
287
Glossary of Terms and Acronyms
certain derivatives designated in qualifying hedge
accounting relationships (primarily fair value hedges of
commodity and foreign exchange risk), (b) certain
derivatives used for specific risk management purposes,
primarily to mitigate credit risk, foreign exchange risk and
commodity risk, and (c) other derivatives.
SLR: Supplementary leverage ratio
SMBS: Stripped mortgage-backed securities
SOA: Society of Actuaries
SPES: Special purpose entities
Structural interest rate risk: Represents interest rate risk
of the non-trading assets and liabilities of the Firm.
288
JPMorgan Chase & Co./2017 Annual Report
Glossary of Terms and Acronyms
Structured notes: Structured notes are predominantly
financial instruments containing embedded derivatives.
Suspended foreclosures: Loans referred to foreclosure
where formal foreclosure proceedings have started but are
currently on hold, which could be due to bankruptcy or loss
mitigation. Includes both judicial and non-judicial states.
Taxable-equivalent basis: In presenting results on a
managed basis, the total net revenue for each of the
business segments and the Firm is presented on a tax-
equivalent basis. Accordingly, revenue from investments
that receive tax credits and tax-exempt securities is
presented in managed basis results on a level comparable
to taxable investments and securities; the corresponding
income tax impact related to tax-exempt items is recorded
within income tax expense.
TBVPS: Tangible book value per share
TCE: Tangible common equity
TDR: "Troubled debt restructuring" is deemed to occur
when the Firm modifies the original terms of a loan
agreement by granting a concession to a borrower that is
experiencing financial difficulty.
TLAC: Total Loss Absorbing Capacity
U.K.: United Kingdom
Unaudited: Financial statements and information that have
not been subjected to auditing procedures sufficient to
permit an independent certified public accountant to
express an opinion.
U.S.: United States of America
U.S. GAAP: Accounting principles generally accepted in the
U.S.
U.S.government-sponsored enterprises ("U.S. GSES") and
U.S. GSE obligations: In the U.S., GSES are quasi-
governmental, privately held entities established by
Congress to improve the flow of credit to specific sectors of
the economy and provide certain essential services to the
public. U.S. GSEs include Fannie Mae and Freddie Mac, but
do not include Ginnie Mae, which is directly owned by the
U.S. Department of Housing and Urban Development. U.S.
GSE obligations are not explicitly guaranteed as to the
timely payment of principal and interest by the full faith and
credit of the U.S. government.
U.S. LCR: Liquidity coverage ratio under the final U.S. rule.
Single-name: Single reference-entities
VA: U.S. Department of Veterans Affairs
Short sale: A short sale is a sale of real estate in which
proceeds from selling the underlying property are less than
the amount owed the Firm under the terms of the related
mortgage, and the related lien is released upon receipt of
such proceeds.
SEC: Securities and Exchange Commission
PSU(s): Performance share units
RCSA: Risk and Control Self-Assessment
Real assets: Real assets include investments in productive
assets such as agriculture, energy rights, mining and timber
properties and exclude raw land to be developed for real
estate purposes.
REIT: "Real estate investment trust”: A special purpose
investment vehicle that provides investors with the ability to
participate directly in the ownership or financing of real-
estate related assets by pooling their capital to purchase
and manage income property (i.e., equity REIT) and/or
mortgage loans (i.e., mortgage REIT). REITS can be publicly
or privately held and they also qualify for certain favorable
tax considerations.
Receivables from customers: Primarily represents margin
loans to brokerage customers that are collateralized
through assets maintained in the clients' brokerage
accounts, as such no allowance is held against these
receivables. These receivables are reported within accrued
interest and accounts receivable on the Firm's Consolidated
balance sheets.
Regulatory VaR: Daily aggregated VaR calculated in
accordance with regulatory rules.
REO: Real estate owned
Reported basis: Financial statements prepared under U.S.
GAAP, which excludes the impact of taxable-equivalent
adjustments.
Retained loans: Loans that are held-for-investment (i.e.,
excludes loans held-for-sale and loans at fair value).
Revenue wallet: Proportion of fee revenue based on
estimates of investment banking fees generated across the
industry (i.e., the revenue wallet) from investment banking
transactions in M&A, equity and debt underwriting, and
loan syndications. Source: Dealogic, a third-party provider
of investment banking competitive analysis and volume-
based league tables for the above noted industry products.
RHS: Rural Housing Service of the U.S. Department of
Agriculture
Risk-rated portfolio: Credit loss estimates are based on
estimates of the probability of default ("PD”) and loss
severity given a default. The probability of default is the
likelihood that a borrower will default on its obligation; the
loss given default ("LGD") is the estimated loss on the loan
that would be realized upon the default and takes into
consideration collateral and structural support for each
credit facility.
ROA: Return on assets
ROE: Return on equity
ROTCE: Return on tangible common equity
RSU(s): Restricted stock units
RWA: "Risk-weighted assets": Basel III establishes two
comprehensive methodologies for calculating RWA (a
Standardized approach and an Advanced approach) which
include capital requirements for credit risk, market risk, and
in the case of Basel III Advanced, also operational risk. Key
differences in the calculation of credit risk RWA between the
Standardized and Advanced approaches are that for Basel
III Advanced, credit risk RWA is based on risk-sensitive
approaches which largely rely on the use of internal credit
models and parameters, whereas for Basel III Standardized,
credit risk RWA is generally based on supervisory risk-
weightings which vary primarily by counterparty type and
asset class. Market risk RWA is calculated on a generally
consistent basis between Basel III Standardized and Basel III
Advanced.
S&P: Standard and Poor's 500 Index
SAR(S): Stock appreciation rights
SCCL: single-counterparty credit limits
Scored portfolio: The scored portfolio predominantly
includes residential real estate loans, credit card loans and
certain auto and business banking loans where credit loss
estimates are based on statistical analysis of credit losses
over discrete periods of time. The statistical analysis uses
portfolio modeling, credit scoring and decision-support
tools.
Seed capital: Initial JPMorgan capital invested in products,
such as mutual funds, with the intention of ensuring the
fund is of sufficient size to represent a viable offering to
clients, enabling pricing of its shares, and allowing the
manager to develop a track record. After these goals are
achieved, the intent is to remove the Firm's capital from the
investment.
CDS: Credit default swaps
through novation, an open offer system, or another legally
binding arrangement.
JPMorgan Chase & Co./2017 Annual Report
20
(17)
(35)
(186)
151
U.S.
Intercompany funding:
(18)
3
(19)
(23)
(25)
2
Non-U.S.
1,147
928
219
Prime
1
Non-U.S.
(151)
Change in interest expense
282
(573) $ 2,672
$
3,245
$
2,355
2,290
65
4,457
1,220 $ 4,118
$
2,898
$
Change in net interest income
(a) Includes commercial paper.
(3)
(20)
17
35
186
4,490
(33)
1,388
(176)
U.S.
Long-term debt:
2.34
6,587
1.42
6,587
1.42
JPMorgan Chase & Co./2017 Annual Report
23.1
20.7
24.7
21.1
281
Changes in net interest income, volume and rate analysis
The table below presents an attribution of net interest income between volume and rate. The attribution between volume and
rate is calculated using annual average balances for each category of assets and liabilities shown in the table and the
corresponding annual average rates (see pages 278-282 for more information on average balances and rates). In this analysis,
when the change cannot be isolated to either volume or rate, it has been allocated to volume. The average annual rates include
the impact of changes in market rates as well as the impact of any change in composition of the various products within each
category of asset or liability. This analysis is calculated separately for each category without consideration of the relationship
between categories (for example, the net spread between the rates earned on assets and the rates paid on liabilities that fund
those assets). As a result, changes in the granularity or groupings considered in this analysis would produce a different
attribution result, and due to the complexities involved, precise allocation of changes in interest rates between volume and
rates is inherently complex and judgmental.
Year ended December 31,
(On a taxable-equivalent basis; in millions)
Interest-earning assets
Deposits with banks:
U.S.
2017 versus 2016
38,033
JPMorgan Chase & Co./2017 Annual Report
2.49
2.14%
69
182
(113)
(1)
121
(122)
Beneficial interests issued by consolidated VIES, predominantly
U.S.
93
93
79
14
61
64
(3)
Non-U.S.
480
504
(24)
44,620
40,705
Glossary of Terms and Acronyms
2017 Annual Report or 2017 Form 10-K: Annual report on
Form 10-K for year ended December 31, 2017, filed with
the U.S. Securities and Exchange Commission.
ABS: Asset-backed securities
Retail Borrowers who buy or refinance a home through
direct contact with a mortgage banker employed by the
Firm using a branch office, the Internet or by phone.
Borrowers are frequently referred to a mortgage banker by
a banker in a Chase branch, real estate brokers, home
builders or other third parties.
-
Mortgage origination channels:
Moody's: Moody's Investor Services
MMDA: Money Market Deposit Accounts
MD&A: Management's discussion and analysis
MBS: Mortgage-backed securities
Master netting agreement: A single agreement with a
counterparty that permits multiple transactions governed
by that agreement to be terminated or accelerated and
settled through a single payment in a single currency in the
event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due).
trends of the particular business segment and facilitates a
comparison of the business segment with the performance
of competitors.
Glossary of Terms and Acronyms
285
JPMorgan Chase & Co./2017 Annual Report
The LTV ratio considering all available lien positions, as well
as unused lines, related to the property. Combined LTV
ratios are used for junior lien home equity products.
Managed basis: A non-GAAP presentation of financial
results that includes reclassifications to present revenue on
a fully taxable-equivalent basis. Management uses this non-
GAAP financial measure at the segment level, because it
believes this provides information to enable investors to
understand the underlying operational performance and
Combined LTV ratio
An estimate of the LTV as of a certain date. The current
estimated LTV ratios are calculated using estimated
collateral values derived from a nationally recognized home
price index measured at the metropolitan statistical area
("MSA") level. These MSA-level home price indices consist of
actual data to the extent available and forecasted data
where actual data is not available. As a result, the estimated
collateral values used to calculate these ratios do not
represent actual appraised loan-level collateral values; as
such, the resulting LTV ratios are necessarily imprecise and
should therefore be viewed as estimates.
Current estimated LTV ratio
The LTV ratio at the origination date of the loan. Origination
date LTV ratios are calculated based on the actual appraised
values of collateral (i.e., loan-level data) at the origination
date.
LTV: "Loan-to-value": For residential real estate loans, the
relationship, expressed as a percentage, between the
principal amount of a loan and the appraised value of the
collateral (i.e., residential real estate) securing the loan.
Origination date LTV ratio
LTIP: Long-term incentive plan
Correspondent - Banks, thrifts, other mortgage banks and
other financial institutions that sell closed loans to the Firm.
Mortgage product types:
Loss emergence period: Represents the time period
between the date at which the loss is estimated to have
been incurred and the ultimate realization of that loss.
Alt-A
The option ARM real estate loan product is an adjustable-
rate mortgage loan that provides the borrower with the
option each month to make a fully amortizing, interest-only
or minimum payment. The minimum payment on an option
ARM loan is based on the interest rate charged during the
introductory period. This introductory rate is usually
significantly below the fully indexed rate. The fully indexed
rate is calculated using an index rate plus a margin. Once
the introductory period ends, the contractual interest rate
charged on the loan increases to the fully indexed rate and
adjusts monthly to reflect movements in the index. The
minimum payment is typically insufficient to cover interest
accrued in the prior month, and any unpaid interest is
deferred and added to the principal balance of the loan.
Option ARM loans are subject to payment recast, which
converts the loan to a variable-rate fully amortizing loan
CCP: “Central counterparty” is a clearing house that
interposes itself between counterparties to contracts traded
in one or more financial markets, becoming the buyer to
every seller and the seller to every buyer and thereby
ensuring the future performance of open contracts. A CCP
becomes counterparty to trades with market participants
CCAR: Comprehensive Capital Analysis and Review
CCB: Consumer & Community Banking
CCO: Chief Compliance Officer
CBB: Consumer & Business Banking
CB: Commercial Banking
Card Services includes the Credit Card and Merchant
Services businesses.
BHC: Bank holding company
Benefit obligation: Refers to the projected benefit
obligation for pension plans and the accumulated
postretirement benefit obligation for OPEB plans.
Beneficial interests issued by consolidated VIES:
Represents the interest of third-party holders of debt,
equity securities, or other obligations, issued by VIES that
JPMorgan Chase consolidates.
Auto loan and lease origination volume: Dollar amount of
auto loans and leases originated.
AUM: "Assets under management": Represent assets
managed by AWM on behalf of its Private Banking,
Institutional and Retail clients. Includes "Committed capital
not Called."
AUC: Assets under custody
ARM: Adjustable rate mortgage(s)
AOCI: Accumulated other comprehensive income/(loss)
AWM: Asset & Wealth Management
Alternative assets: The following types of assets constitute
alternative investments - hedge funds, currency, real estate,
private equity and other investment funds designed to focus
on nontraditional strategies.
Allowance for loan losses to total loans: Represents
period-end allowance for loan losses divided by retained
loans.
Lee R. Raymond 2, 3
Lead Independent Director
JPMorgan Chase & Co.;
Retired Chairman and
Chief Executive Officer
Exxon Mobil Corporation
(Oil and gas)
upon meeting specified loan balance and anniversary date
triggers.
286
Alt-A loans are generally higher in credit quality than
subprime loans but have characteristics that would
disqualify the borrower from a traditional prime loan. Alt-A
lending characteristics may include one or more of the
following: (i) limited documentation; (ii) a high CLTV ratio;
(iii) loans secured by non-owner occupied properties; or (iv)
a debt-to-income ratio above normal limits. A substantial
proportion of the Firm's Alt-A loans are those where a
borrower does not provide complete documentation of his
or her assets or the amount or source of his or her income.
Option ARMS
to change in:
LOB: Line of business
LIBOR: London Interbank Offered Rate
GSIB: Global systemically important banks
Ginnie Mae: Government National Mortgage Association
GSE: Fannie Mae and Freddie Mac
G7 government bonds: Bonds issued by the government of
one of the G7 nations.
G7: Group of Seven nations: Countries in the G7 are
Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
Glossary of Terms and Acronyms
JPMorgan Chase & Co./2017 Annual Report
284
FTE: Fully taxable equivalent
FVA: Funding valuation adjustment
FX: Foreign exchange
FSB: Financial Stability Board
Free standing derivatives: a derivative contract entered
into either separate and apart from any of the Firm's other
financial instruments or equity transactions. Or, in
conjunction with some other transaction and is legally
detachable and separately exercisable.
Freddie Mac: Federal Home Loan Mortgage Corporation
FRC: Firmwide Risk Committee
Forward points: Represents the interest rate differential
between two currencies, which is either added to or
subtracted from the current exchange rate (i.e., “spot rate")
to determine the forward exchange rate.
Firm: JPMorgan Chase & Co.
William C. Weldon 2,3
Retired Chairman and
Chief Executive Officer
Johnson & Johnson
(Healthcare products)
(Table continued from previous page)
ALCO: Asset Liability Committee
AFS: Available-for-sale
Active foreclosures: Loans referred to foreclosure where
formal foreclosure proceedings are ongoing. Includes both
judicial and non-judicial states.
HAMP: Home affordable modification program
LLC: Limited Liability Company
Headcount-related expense: Includes salary and benefits
(excluding performance-based incentives), and other
noncompensation costs related to employees.
HELOC: Home equity line of credit
LGD: Loss given default
LDA: Loss Distribution Approach
LCR: Liquidity coverage ratio
JPMorgan Securities: J.P. Morgan Securities LLC
Loan-equivalent: Represents the portion of the unused
commitment or other contingent exposure that is expected,
based on historical portfolio experience, to become drawn
prior to an event of a default by an obligor.
JPMorgan Clearing: J.P. Morgan Clearing Corp.
JPMorgan Chase Bank, N.A.: JPMorgan Chase Bank,
National Association
ISDA: International Swaps and Derivatives Association
JPMorgan Chase: JPMorgan Chase & Co.
Investment-grade: An indication of credit quality based on
JPMorgan Chase's internal risk assessment system.
"Investment grade" generally represents a risk profile
similar to a rating of a “BBB-”/“Baa3" or better, as defined
by independent rating agencies.
Interchange income: A fee paid to a credit card issuer in
the clearing and settlement of a sales or cash advance
transaction.
All TDRS (both wholesale and consumer), including ones
that have returned to accrual status
All wholesale nonaccrual loans
•
•
Impaired loan: Impaired loans are loans measured at
amortized cost, for which it is probable that the Firm will be
unable to collect all amounts due, including principal and
interest, according to the contractual terms of the
agreement. Impaired loans include the following:
IHC: JPMorgan Chase Holdings LLC, an intermediate holding
company
ICAAP: Internal capital adequacy assessment process
IDI: Insured depository institutions
HTM: Held-to-maturity
Home equity - junior lien: Represents loans and
commitments where JPMorgan Chase holds a security
interest that is subordinate in rank to other liens.
Households: A household is a collection of individuals or
entities aggregated together by name, address, tax
identifier and phone. Reported on a one-month lag.
HQLA: High quality liquid assets
Home equity-senior lien: Represents loans and
commitments where JPMorgan Chase holds the first
security interest on the property.
HELOAN: Home equity loan
For further information, see the "Net interest income" discussion in Consolidated Results of Operations on pages 44-46.
1,185
1,140
wuke
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JPMorgan Chase & Co./2017 Annual Report
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291
J.P. Morgan International Council
Rt. Hon. Tony Blair
Chairman of the Council
Former Prime Minister of Great Britain
Melissa L. Bean
and Northern Ireland
The Hon. Robert M. Gates
Vice Chairman of the Council
Partner
RiceHadleyGates LLC
Washington, District of Columbia
Bernard Arnault
Chairman and Chief Executive Officer
LVMH Moët Hennessy - Louis Vuitton
Paris, France
Paul Bulcke
Member of the Board of Directors
Nestlé S.A.
Vevey, Switzerland
Jamie Dimon*
Chairman and Chief Executive Officer
JPMorgan Chase & Co.
New York, New York
Martin Feldstein
London, United Kingdom
Professor of Economics
JPMorgan Chase Vice Chairs
Vietnam
Israel
Brazil
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National Committee of the Chinese
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Hong Kong, China
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Tenaris
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JPMorgan Chase & Co.
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Washington, District of Columbia
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Munich, Germany
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Paris la Défense, France
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Dhahran, Saudi Arabia
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The chart on the bottom right of page
Our nation's healthcare costs are twice the
amount per person compared with most
developed nations.
Our immigration policies fail us in
numerous ways. Forty percent of foreign
students who receive advanced degrees
in science, technology and math (300,000
students annually) have no legal way of
staying here, although many would choose
to do so. Most students from countries
outside the United States pay full freight
to attend our universities but many are
forced to take the training back home.
From my vantage point, that means one of
our largest exports is brainpower.
Infrastructure is a disaster. It took eight
years to get a man to the moon (from idea
inception to completion), yet it now can
sometimes take a decade to simply get the
permits to build a bridge or a new solar
field. The country that used to have the
best infrastructure on the planet by most
measures is now not even ranked among
the top 20 developed nations according to
the Basic Requirement Index.
Our schools are leaving too many behind.
In some inner city schools, fewer than
60% of students graduate, and of those
who do, a significant number are not
prepared for employment. Additionally,
many of our high schools, vocational
schools and community colleges do not
properly prepare today's younger gener-
ation for the available professional-level
jobs, many of which pay a multiple of the
minimum wage.
•
•
Labor force participation - particularly
among men aged 25-54 - dropped dramat-
ically. An estimated 2 million Americans
are currently addicted to opioids (in
2016, a staggering 42,000 Americans died
because of opioid overdoses), and some
studies show this is one of the major
reasons why men aged 25-54 are perma-
nently out of work. Even worse, 70% of
today's youth (ages 17-24) are not eligible
for military service, essentially due to a
lack of proper education (basic reading
and writing skills) or health issues (often
obesity or diabetes).
30 shows how tepid bank credit growth
was in general during this recovery.
Remember, bank credit growth directly
relates to economic growth, although it's
often difficult to figure out the cause and
effect. But there is no question that the
things that reduce credit availability, in
turn, reduce growth. One area where we
know this happened was in the mortgage
market. Household formation has been
slow because many young adults have had
a difficult time finding work and, with the
help of their families, have gone back for
more schooling. That is slowly reversing.
But the inability to reform mortgage
markets has dramatically reduced mort-
gage availability. In fact, our analysis
shows that, conservatively, more than
$1 trillion in mortgage loans might have
been made over a five-year period.
Excessive regulations for both large and
small companies reduced growth and
business formation. The ease of starting
a business in the United States worsened,
with small business formation dropping to
the lowest rate in 30 years.
1 Adjusted for inflation
•
.
II. PUBLIC POLICY
30
Source: Haver; Federal Reserve Board, March 2018
Our litigation system is increasingly
arbitrary, capricious, wasteful and slow.
Source: Bureau of Economic Analysis (BEA); National Bureau of
Economic Resource (NBER), March 2018
Recovery period in quarters
Adjusted for inflation
1
We had a hugely and increasingly uncom-
petitive tax system driving companies'
capital and brainpower overseas.
31
It is surprising that many younger people in
the United States, who are effectively going
to inherit the wealthiest nation on the planet,
seem to be pessimistic about our future
and capitalism. But falling expectations, the
failure of our economy to lift up everyone,
and the continual deprecation of society
and its leaders have led to huge amounts of
discontent and unrest.
Economic analysis provides a sense of the
costs associated with misguided policies. The
Congressional Budget Office estimates the
cost of failing to pass immigration reform
earlier this decade at 0.3% of GDP a year. An
International Monetary Fund study suggests
that a 1% of GDP rise in infrastructure
investment in 2013 would have delivered a
similar boost to advanced economy GDP over
the subsequent decade. J.P. Morgan analysis
indicates that the cost of not reforming the
mortgage markets could be as high as 0.2%
of GDP a year. Taken together with the costs
of excessive regulation and a depressed
prime age labor participation rate, it is easy
to conclude that corrections in policy could
add more than 1% of GDP annually. And this
does not account for many of the items I
mentioned in the prior list.
-
that politicians sometimes use a crisis to
justify implementing their own agenda.
•
A famous politician once said, “Don't let a
good crisis go to waste." I think he really
meant, "Let's use the crisis to get some
good, important things done." It appears
Rogoff and Reinhart wrote in their book,
This Time Is Different, that it takes a long
time to recover from a financial crisis. But
this was often due to poor policy or over-
reaction to the financial crisis, and while
history teaches us that maybe we should
expect this reaction in the next crisis, it
does not have to be true over and over. We
have a difficult time learning from the past.
late in President George W. Bush's term.
There are many examples of presidents
getting credit or blame for scenarios that
had nothing to do with their governing.
We simply learned the wrong lessons. And
in the short run, we tend to simplistically
look for scapegoats instead of solutions.
•
II. PUBLIC POLICY
32
We focus too much on the short term.
For example, President Bill Clinton (and
I don't mean to pick him out specifically)
usually gets credit for driving a strong
economy. But the excessive mortgage
lending, incented and promulgated by
the federal government (I am in no way
saying that banks and investors didn't
play a part, too), is part of the reason the
economy at that time did well. It blew up
media-saturated environment. Often,
politics misuses facts to justify a position.
We are effectively crippled when it
comes to fixing our problems even when
they are totally predictable. Puerto
Rico's bankruptcy, Detroit's bankruptcy,
unfunded pension plans, the job skills
gap, and crumbling bridges and tunnels
are prime examples.
Critical thinking, analysis of facts and
proper policy formation have become
extremely difficult in a politicized and
The world is getting faster and more
complex, making speed and analytics all
the more important. But the structure of
our political parties and institutions has
barely changed in 100 years. They may not
be set up for success - organized in a way to
enable them to deal with today's challenges.
•
America has been an amazingly resilient
country. And we hope it will reset and get
back on track. But it is hard to look at the
last 20 years and not think that it has been
getting increasingly worse (and we should
not assume that it will get better on its own).
Before we try to address what we can do to
fix it, it is important to look at why it has
gotten worse. Here are my theories:
2. Poor public policy - how has this happened?
All these issues are fixable, but we should
ask ourselves how we got it wrong in the
first place.
Recovery period in quarters
So while the economy has not performed
badly and has done amazingly well for a
handful low-skilled and even middle-skilled
wages have gone down, leaving large swaths
of Americans behind.
ladder a chance for workers to prove them-
selves and develop skills before moving on
to other, better paying jobs. But a growing
number of Americans are left hanging on
this first rung: During the mid-1990s, only
one in five minimum-wage workers was still
at minimum wage a year later. Today, that
number is nearly one in three.
The end result is that our economy is still
leaving many behind. Much of this is
probably self-inflicted. While a job used to
provide a ticket to the middle class, today
more people are getting stuck in low-wage
work. Historically, we've thought of these
jobs as providing the first rung on a career
II. PUBLIC POLICY
40
0%
24
Average expansion
Current expansion
30%
The present expansion relative to average
Cumulative growth since prior trough, percent
Bank Credit¹ Growth
The present expansion relative to average
Cumulative growth since prior trough, percent
GDP¹ Growth
Last year, I laid out in detail an extensive list
of things I thought were holding us back, and
it bears repeating here because, just as it took
many years for these obstacles to develop, it
is going to take sustained effort over many
years to right the course. When you look at
this list in totality, it is significant and fairly
shocking. Most of these areas have become
consistently worse over the last 10 to 20
years, and it is hard to argue that they did not
meaningfully damage the country's economic
growth. It is also important to point out that
I have never seen an economic model that
accounts for the extremely damaging aspects
of these items. (These items don't include the
trillions of dollars we have spent on war-re-
lated expenditures. And whether you were
for or against these wars, they certainly did
not add to American productivity.) This is not
secular stagnation – this represents senseless
and misguided policies.
In the last several years, I have spent a good
amount of time - in both these letters and
elsewhere-talking about public policy.
Some of the policies directly relate to
JPMorgan Chase, while others are more indi-
rect but have a large effect on the future of
the United States of America, on the global
economy and, therefore, on our company.
With all of America's exceptional strengths,
it seems clear to me that something is
holding us back. As we have already pointed
out, our economic growth has been anemic.
Our economy has grown approximately 20%
in the last eight years, but this stands in
contrast with prior average recoveries where
growth would have been more than 40%
over an eight-year period. The chart below
on the left shows this.
1. What has gone wrong in public policy?
II. PUBLIC POLICY
29
Let's take another look at what is holding us
back and some solutions that could make life
better for all Americans.
To support this, we need a pro-growth policy
environment from the government that
provides a degree of certainty around long-
standing issues that have proved frustrat-
ingly elusive to solve. The most pressing
areas where government, business and
other stakeholders can find common ground
should include tax reform, infrastructure
investment, education reform, more favor-
able trade agreements and a sensible immi-
gration policy.
Business, taken as a whole, is the source of
almost all job creation. And we need to main-
tain trust and confidence in our businesses
as in all of our institutions. Confidence is a
"secret sauce" that costs nothing, but it helps
the economy grow. A strong and vibrant
private sector (including big companies) is
good for the average American. Entrepre-
neurship and free enterprise, with strong
ethics and high standards, are something to
root for - not attack.
Small businesses are a critical engine of
economic growth. Small and large busi-
nesses are symbiotic - they are each other's
customers, and they help drive each other's
growth. They are integral to our large busi-
ness ecosystem. At JPMorgan Chase, for
example, we support more than 4 million
small business clients, including hundreds of
small banks, 15,000 middle market compa-
nies, and approximately 7,000 corporations
and investor clients. Additionally, we rely on
services from nearly 30,000 vendors, many
of which are small and midsized companies.
Of the approximately 150 million people
who work in the United States, 130 million
work in private enterprise. We hold in high
regard the 20 million people employed by
the government or in the public sector -
teachers, police officers, firefighters and
others. But we could not pay for those jobs
if the other 130 million workers were not
actively producing America's gross domestic
product (GDP).
Business plays a critical role as an engine of
economic growth - particularly our largest,
globally competitive American businesses.
As an example, the 1,000 largest compa-
nies in America (out of approximately 29
million) employ nearly 30 million people
in the United States, and nearly all of their
full-time employees receive full medical
and retirement benefits, as well as exten-
sive training. In addition, these companies
account for more than 30% of the roughly
$2.3 trillion spent annually on capital expen-
ditures. These expenditures and research and
development spending drive productivity
and innovation, which, ultimately, drive job
creation across the entire economy.
-
The following messages are worth repeating
from last year's letter: The United States
needs to ensure that we maintain a healthy
and vibrant economy. This is what fuels
job creation, raises the standard of living
and creates opportunity for those who are
hurting, while positioning us to invest in
education, technology and infrastructure
- in a programmatic and sustainable way
to build a better and safer future for our
country and its people. And in a world with
so many security threats and challenges, we
need to maintain the best military. Amer-
ica's military will be the best in the world
only as long as we have the best economy
in the world.
II. PUBLIC POLICY
25%
20%
15%
10%
16
8
0
-10%
Here's another example: We all know that
the U.S. healthcare system needs to be
reformed. Many have advocated getting
on the path to universal healthcare for all
Americans. The creation of Obamacare,
while a step in the right moral direc-
tion, was not well done. America has
290 million people who have insurance
180 million through private enterprise
and 110 million through Medicare and
Medicaid. Obamacare slightly expanded
both and created exchanges that insure
10 million people. But it did very little
to fix our broken healthcare system and
has, in fact, torn up the body politic over
10 years - and this tumult may go on for
another 10 years.
-5%
40
32
24
16
32
8
0%
5%
10%
15%
20%
25%
Average expansion
Current expansion
30%
5%
0
3. We can fix this problem through intelligent, thoughtful, analytical and comprehensive policy.
Many examples of business and government
working together already have produced
positive outcomes. Businesses have played
a large role in trying to help Detroit recover.
Businesses started the Veteran Jobs Mission.
With a goal of 1 million jobs, the coalition
of businesses has already helped 400,000
U.S. veterans get work, and the number is
still growing. Many businesses have worked
closely with the education system (mostly
locally) to support charter schools, voca-
tional schools and community colleges to
provide skills training that prepares students
for productive employment. We believe
that collaboration can create even better
outcomes in education, healthcare and job
creation while shoring up pension plans and
rebuilding our cities and communities across
the nation.
First off, we should find it rather easy to
think about their money being misspent.
Therefore, it is critical for Washington to
show the American public that their money
will be used wisely – and that includes
canceling or modifying programs that
don't work and not using money to pay off
special interest groups. If we need to raise
taxes on the more well-off, I would hope the
more affluent would recognize that they
will do better if the country does better.
We should have a progressive tax system
(helping people on the lower end) that
progressively taxes higher incomes, like
mine. And, of course, no one wants to
We should build the infrastructure we
need. (We should consider this table
stakes, too.) There are many reports that
highlight how less expensive it is in the
long run to have better infrastructure. In
fact, some studies show it is even more
expensive to have bad infrastructure.
The business tax system should be
competitive always - and not be traded
off against anything else. I would consider
this table stakes for having a healthy
economy in the long run.
The best long-term tax policy should have
the following attributes:
The need for rational, thoughtful, consistent
tax policy.
•
II. PUBLIC POLICY
36
Today, our company is strong and growing, and
when we grow, so do the communities where we do
business. We're excited to welcome new employees,
new customers and new communities to JPMorgan
Chase and to look forward to a bright future.
We will also help more families live their dream of
owning a home by increasing home lending in low-
and moderate-income communities by 25% - to
$50 billion - over the next five years. To do so,
we will hire up to 500 new Home Lending advisors
across our current markets and in some new ones. In
addition, we will increase lending to finance afford-
able rental housing to $7 billion over five years.
Credit is essential to a healthy economy and
growth, and our new investments include sizable
increases in lending to small businesses and
homeowners. Through Commercial Banking and
Business Banking, we will hire 500 new bankers
and help expand small business lending by 20% -
or $4 billion - over three years while entering new
markets. We're also doubling the investment in our
Small Business Forward initiative to $150 million
over five years to help provide small businesses run
by women, minorities and veterans get both the
capital and technical assistance they need to grow.
This is the right thing to do, and we believe it puts
us well above the average hourly wage for most
markets. These increases are on top of the value
of the firm's full benefits package, which averages
$12,000 for employees in this pay range. But the
improvements won't stop there. We're reducing
medical plan deductibles by $750 per year for
employees making less than $60,000 - this essen-
tially makes the deductible $0 for those employees
who take care of themselves by meeting minimal
wellness and preventative program requirements.
We're also investing in our employees. We want
to have the best people, period. We know happy
customers start with happy employees, and we
want to be the best place to work everywhere we
do business. For the second time in two years,
we're raising wages for 22,000 employees. For
employees making between $12 and $16.50 an
hour, we will raise hourly wages to between $15
and $18, depending on the local cost of living.
Our company has made a significant economic
impact in all the communities in which we operate,
and we're excited to become an even more relevant
part of many others.
The tax policy should be consistent in
the long term for businesses to maximize
their productivity and growth.
This is the best way to permanently drive
growth and become a far wealthier and fairer
society. There are two things I would do
immediately to improve income inequality
and create a much healthier society as
explained below.
6. We should reform and expand the Earned Income Tax Credit and invest in the workforce of
the future.
The Earned Income Tax Credit (EITC)
supplements low- to moderate-income
working individuals and couples, particularly
with children. For example, a single mother
with two children earning $9 an hour (approx-
imately $20,000 a year) could get a tax credit
of more than $5,000 at year's end. A single
male without children (also making approx-
imately $20,000 a year) does not get any
money for a tax credit under this program.
Last year,
the EITC program cost the United
States about $65 billion, and 27 million indi-
viduals received the credit. This program has
lifted an estimated 9 million people above the
poverty line. (The federal poverty guideline
is determined by household size. For a four-
person household, the poverty level is $25,100
or approximately $11 an hour.)
•
We should celebrate the benefits of technology,
and we should also prepare for its challenges.
Overall, technology is the greatest thing
that has ever happened to mankind. It is
the reason why we enjoy our high living
standard. It is staggering how our lives have
changed when compared with 100 years
ago. We live longer and work less; we are
healthier and safer; and during that time
period, billions of people have been pulled
out of poverty. People legitimately worry
that technology will eliminate jobs as artifi-
cial intelligence replaces drivers, call center
We, as a country, must also change the way
we think about education. In less mutable
times, a degree meant that formal learning
was complete. You had acquired what you
needed for a successful career in your field.
A degree in today's world cannot mean the
end of your studies. New discoveries, new
advancements, new technologies and new
terminology all mean that a degree will not
carry you as far into the future as it once
did. We must place a higher premium on
lifelong learning. Corporations can do a lot to
encourage and foster such a shift.
We know that technological advancements are
displacing certain industries. Driverless cars,
for example, are getting closer to mainstream
use every day. Technology will bring innova-
tion, but it will also change the employment
opportunities available to hundreds of thou-
sands - perhaps even millions - of people. We
have the opportunity, now, to start preparing
for and addressing potential future job losses.
Anticipating problems that may arise from
new technologies – and developing plans
to responsibly minimize them - should be
considered the final phase of our R&D process.
to make sure proper apprenticeships and
certifications (including college credits) are
widely available. These students can continue
to work or have the opportunity to go back
to college, if they so choose. Doing this well
will help the lower skilled and middle-income
workers in the new world. The best way to
offset any negatives associated with trade
or technology is through continued educa-
tion and training so that well-paying jobs are
replaced with other well-paying jobs.
38
America used to be one of the best at training
our workforce for good jobs. We know what
to do to regain that mantle. We need to ensure
that our high schools, vocational schools, tech-
nical schools and community colleges work
together with local businesses to properly
train these students so they can get well-
paying jobs upon graduation; then we need
As I previously said, when Chase enters a commu-
nity, it enters with the full force of JPMorgan
Chase behind it. We hire people. We lend to and
support local businesses. We help customers with
banking, lending and saving. And our philanthropic
programs help make these communities stronger.
And we all pay the price. According to an
assessment of math and science scores that
the Organisation for Economic Co-operation
and Development (OECD) conducted in 35
advanced industrialized countries, the United
States ranks, on average, #24. Making the
investment to improve our performance to
the level of the OECD average would increase
the U.S. gross domestic product by 1.7% over
the next 35 years.
-
Jobs are a wonderful thing. Jobs bring dignity.
That first job is often the first rung on the
ladder. People like working, and studies show
that once people start working, they continue
working. Jobs and living wages lead to better
social outcomes – more household formation,
more marriages and children, and less crime,
as well as better health and overall well-being.
As society creates an enormous amount of
wealth, expanding the EITC would be a very
productive way to share it. If a large portion
of the American population cannot earn a
living wage, then we will create a situation of
permanent social turmoil.
II. PUBLIC POLICY
37
Of the 150 million Americans working today,
approximately 21 million earn between $7.25
an hour (the prevailing federal minimum
wage) and $10.10 an hour. Approximately
42% of American workers make less than
$15 an hour. It is hard to argue that you
can live on $7-$10 an hour, particularly for
families (even if two are working in that
household). Decades ago, workers with very
limited skills could earn a living wage to
support themselves and their family. In this
new highly technical world - where work
skills are so greatly valued - the "natural"
wage for unskilled workers may no longer
lead to a living wage. This is an area that
deserves more study.
We should convert the EITC into more of a
negative income payroll tax, which would
spread the benefit, reduce fraud and get it
into more people's hands. (Both Democrats
and Republicans favor a move like this.)
We should also dramatically expand the tax
credit and even make it more available to
workers without children.
There are some problems with the EITC. Paid
as a tax credit at the end of the year, 21% of
the people who are entitled to it don't file for
it mostly because they don't know about it.
Additionally, there is some fraud involved.
Many high schools and vocational schools do
not provide the education our students need
the ability to graduate and get a decent job.
We should be ringing the alarm bell, signaling
that inner city schools are failing our children
- often minorities and mostly lower income
students. In many inner city schools, fewer
than 60% of students graduate, and many of
those who do are not prepared for employ-
ment. We are creating generations of citi-
zens who never had a chance in this land of
dreams and equal opportunity. Unfortunately,
it's self-perpetuating.
JPMorgan Chase plans to build up to 400 Chase
branches in 15-20 new markets and hire up to
4,000 additional employees over the next five
years. These employees will support our branch
growth and more lending to small businesses and
homeowners. Today, Chase has roughly 5,100
branches across 23 U.S. states, and, for a long time,
we have wanted to expand beyond our current foot-
print. The heart of our company is our branches.
We serve 61 million U.S. households - one out of
every two U.S. families is a Chase customer. Nearly
every line of business operates out of our branches
in some way. We are not in some major markets,
including Boston, Philadelphia and Washington,
D.C., but Consumer Banking has started the formal
application process for national expansion.
We need to improve work skills and training that
lead to better jobs - this will help both low- and
middle-income workers. It is also the cure for
rapid technological change.
Here is some news we announced on how JPMorgan Chase is immediately putting
some of the benefits of tax reform to good work.
People don't think about the challenges in
their everyday lives as being Democratic
or Republican issues – and our political
leaders need to stop thinking that way.
We
need a well-performing, competent govern-
ment to thrive as a nation. Clearly, there
are things that only the government can
do and must do well - such as having a
4. The need for solutions through collaborative, competent government.
II. PUBLIC POLICY
33
This way of thinking also applies to institu-
tions. We should not destroy the credibility
or the effectiveness of institutions - public
or private - for the mistakes or misdeeds of
a few. This may feel good in the short term
but will not serve us well over the long term.
We all generally know what a good
decision-making process looks like – and
we applaud it - whether in business or
in Congress.
Trying to create too many zero-tolerance
environments when they are often not
merited. Examples include situations
where people need to be able to commu-
nicate with each other and work through
miscommunications and mistakes of judg-
ment rather than criminal and unethical
behavior, where a zero-tolerance standard
should be applied equally to all.
Not working with experts who know the
most about a subject.
-
Not asking what outcomes you really want
to achieve.
•
Not listening to one another. I tell my
liberal friends to read columnists like
Arthur Brooks and George Will. And I tell
my conservative friends to read writers
like Tom Friedman.
"They complain too much" arguments.
When a point has been made and someone
calls it a complaint, the point is diminished
right away. When someone complains
about something, a better response is to
think about where or how the person
might be right or partially right.
Binary arguments. When people argue as
if there are binary solutions, the argument
is almost always wrong. When people say
you should not do something because it
is like going down a "slippery slope," it
generally is not a good argument. In the
modern world, there are reasons to cali-
brate various parts of policy instead of just
denying the argument altogether.
policymaking. Let me list a few of the culprits:
Along with a more constructive regulatory and
business environment and our strong business
performance, this reform has led our company
to recently announce a $20 billion, five-year
comprehensive investment to help its employees
while supporting job and local economic growth
in the United States.
recognize that bad thinking often leads to bad
.
strong military and ensuring an efficient and
properly functioning justice system. The
federal government maintains most of our
nation's transportation systems, and we need
state and local governments to do a good
job in terms of education, policing and other
important functions. Some argue that the
government should be doing more. But when
many Americans think of the government
delivering services, they think of the endless
bureaucracy and paperwork associated with
the Internal Revenue Service, the U.S. Postal
Service and the Department of Veterans
Affairs none of which would consistently
get high marks.
.
We all can agree that the lack of true collab-
oration and an unwillingness to address our
most pressing policy issues have contributed
to the divisive and polarized environment we
have today. Certainly there is plenty of blame
to go around on this front. However, rather
than looking back, it now is more important
than ever for the business community and
government to come together to find mean-
ingful solutions. This cannot be done by
government or business alone.
=
35
-
There is a reason why it has taken 30 years
for comprehensive tax reform to take place
in this country: It is complicated work, and
navigating competing interests is hard. I
am pleased that we did the right thing – not
the easy thing. Congress took a historic step
in 2017 to reform America's broken and
outdated tax code. Coming together to get
that work done shows that we can take on
tough issues that have been holding us back.
I believe tax reform will have both short-
and long-term benefits. In the short term,
we already are seeing some companies
increasing capital expenditures, hiring and
raising wages. Of course, that will not be
enough to offset all the immediate benefits
associated with tax reform. Some argue that
the added cash flow going to dividends and
buybacks is a negative – it is not. It simply
represents capital finding a higher and better
use than the current owner has with it. And
that higher and better use will be reinvest-
ment in companies, innovation, R&D or
consumption. Thinking this is a bad thing is
just wrong. Tax reform's real benefit will be
the long-term cumulative effect of retained
and reinvested capital in the United States,
which means more companies, innovation
and employment will stay in this country.
The United States should always aim to have
a competitive business tax system. It should
not be traded off against other objectives.
I must confess I don't understand how
anyone could believe an uncompetitive tax
system would be good for the United States
– whether the current economic environ-
ment was good or bad. The damage has
been cumulative. Here is one example: A
recent study by the accounting firm Ernst
& Young found that under a 20% corporate
income tax rate, U.S. companies would
The passage of tax reform is critical because
strong businesses create jobs and higher
wages. Before tax reform was passed, 76%
of the CEOs of leading U.S. companies said
they would increase hiring if tax reform
were enacted, and 82% would increase
capital spending – and we already are seeing
these effects. Hundreds of companies like
ours are stepping up by investing in their
employees and in initiatives to address
challenges facing communities.
middle class.
have acquired $1.2 trillion in cross-border
assets during 2004-2016 instead of losing
$510 billion in such assets to foreign buyers.
Simply put, this means the United States
would have kept 4,700 companies under U.S.
ownership during the past 13 years if they
had paid taxes at a rate competitive with
other countries that have modernized their
corporate tax codes. Today's competitive
U.S. corporate tax rate will reduce incentives
for U.S. companies to relocate abroad or be
purchased by foreign companies.
5. A competitive business tax system is a key pillar of a growth strategy.
II. PUBLIC POLICY
34
Our Founding Fathers studied and worked
hard to design a strong and permanent
democracy. They perfected a Constitution to
protect our basic liberties, building in protec-
tions to temper some of our worst attributes
and incent our best ones. If they were here
with us today, I believe they would recognize
that our government institutions are stuck
in the mud - too slow and inadequate for
the job at hand. Therefore, they would study
and work hard within the Constitution to
redesign and reformulate how government
should function so that it works properly.
We will eventually need to do the same.
restoring public faith in two of our greatest
democratic institutions in the United States:
business and government. Working together
will allow us to move toward a prosperous
future for all Americans.
It isn't easy to stay competitive in an increas-
ingly global marketplace, and national tax
policy was one critical area where we were
falling behind. Over the last 20 years, as
the world reduced its tax rates, America did
not. Our previous tax code was increasingly
uncompetitive, overly complex, and loaded
with special interest provisions that created
winners and losers. This was driving down
capital investment, reducing productivity
and causing wages to remain stagnant. The
good news is that the recent changes in the
U.S. tax system have many of the key ingre-
dients to fuel economic expansion: a busi-
ness tax rate that will make the U.S. compet-
itive around the world; provisions to free
U.S. companies to bring back profits earned
overseas; and, importantly, tax relief for the
By collaborating and applying some good old
American can-do ingenuity, there is nothing
we can't accomplish. By working together,
business, government and the nonprofit
sector can ensure and maintain a healthy and
vibrant economy into the future – creating
jobs, fostering economic mobility and main-
taining sustainable economic growth. Ulti-
mately, this translates to an improved quality
of life and greater financial security for those
in the United States struggling to make ends
meet. It also represents a significant step in
Mr. McGovern, the 1972
Democratic presidential candidate, is
president of the Middle-Eastern
Policy Council in Washington.
(See related letters: "Letters to
the Editor: A Politician's Dream Is a
Businessman's Nightmare" -- WSJ July
2, 1992)
42
II. PUBLIC POLICY
why this is happening, but the main culprits
are probably the cost and difficulties that
unnecessary regulations cause, coupled with
the lack of access to credit for new businesses.
airports with antiquated air traffic control
systems, aging electrical grids and old water
pipes). This could all be costing us more than
$200 billion a year. Philip Howard, who does
some of the best academic work on Ameri-
ca's infrastructure, estimates it would cost
$4 trillion to fix our aging infrastructure –
and this is less than it would cost not to fix it.
9. Public company corporate governance – how would you change it? And the case against
earnings guidance.
Too many private company owners look at
the burdens tied to public company status -
among them, frivolous shareholder litigation,
Fortunately, policymakers are sitting up and
taking notice. In a report issued in October
2017, the U.S. Treasury Department decried the
decline in the number of U.S. public compa-
nies and recommended several measures to
stem the tide. Eliminating duplicative regu-
lations, liberalizing restrictions on pre-initial
public offering communications and removing
non-material disclosure requirements
were some of these measures. Jay Clayton,
Chairman of the U.S. Securities and Exchange
Commission, also has been quite vocal about
the decline: He says it potentially deprives
"Mr. and Ms. 401(k)" of the opportunity to
participate in much of our country's wealthy
creation. I share Chairman Clayton's concern.
Last year, I wrote about the decline in
the number of public companies in the
United States. Unfortunately, that trend has
continued unabated. Indeed, if anything,
it's accelerated. According to one study, the
number of U.S. public companies has fallen
by approximately 50% over two decades
(from 8,090 in 1996 to 4,331 in 2016). And
that decline, it pains me to say, is a uniquely
American phenomenon. Public company
listings in other developed markets have
increased over the same period.
Another study examines the effect poor
infrastructure has on efficiency (for example,
poorly constructed highways, congested
The problem we face as
legislators is: Where do we set the bar
so that it is not too high to clear? I don't
have the answer. I do know that we
need to start raising these questions
more often.
Some of the escalation in the
cost of health care is attributed to
patients suing doctors. While one
cannot assess the merit of all these
claims, I've also witnessed firsthand the
explosion in blame-shifting and
scapegoating for every negative
experience in life.
In services, however, consumers
do have a choice when faced with
higher prices. You may have to stay in
a hotel while on vacation, but you can
stay fewer days. You can eat in
restaurants fewer times per month, or
forgo a number of services from car
washes to shoeshines. Every such
decision eventually results in job losses
for someone. And often these are the
people without the skills to help
themselves the people I've spent a
lifetime trying to help.
It is clear that some businesses
have products that can be priced at
almost any level. The price of raw
materials (e.g., steel and glass) and
life-saving drugs and medical care
are not easily substituted by consumers.
It is only competition or antitrust that
tempers price increases. Consumers
may delay purchases, but they have
little choice when faced with higher
prices.
cause. But that reason masks the
variety of other challenges we faced
that drive operating costs and financing
charges beyond what a small business
can handle.
Our Connecticut hotel, along
with many others, went bankrupt for a
variety of reasons, the general economy
in the Northeast being a significant
Today, despite bankruptcy, we
are still dealing with litigation from
individuals who fell in or near our
restaurant. Despite these injuries, not
every misstep is the fault of someone
else. Not every such incident should be
viewed as a lawsuit instead of an
unfortunate accident. And while the
business owner may prevail in the end,
the endless exposure to frivolous claims
and high legal fees is frightening.
For example, the papers today
are filled with stories about businesses
dropping health coverage for
employees. We provided a substantial
package for our staff at the Stratford
Inn. However, were we operating today,
those costs would exceed $150,000 a year
for health care on top of salaries and
other benefits. There would have been
no reasonable way for us to absorb or
pass on these costs.
been limited to that small hotel and
restaurant in Stratford, Conn., with an
especially difficult lease and a severe
recession. But my business associates
and I also lived with federal, state and
local rules that were all passed with the
objective of helping employees,
protecting the environment, raising tax
dollars for schools, protecting our
customers from fire hazards, etc. While
I never have doubted the worthiness of
any of these goals, the concept that
most often eludes legislators is: "Can
we make consumers pay the higher
prices for the increased operating costs
that accompany public regulation and
government reporting requirements
with reams of red tape." It is a simple
concern that is nonetheless often
ignored by legislators.
My own business perspective has
Today we are much closer to a
general acknowledgment that
government must encourage business to
expand and grow. Bill Clinton, Paul
Tsongas, Bob Kerrey and others have, I
believe, changed the debate of our
party. We intuitively know that to
create job opportunities we need
entrepreneurs who will risk their capital
against an expected payoff. Too often,
however, public policy does not consider
whether we are choking off those
opportunities.
burdensome disclosures that don't get to
the core of investor concerns, an unhealthy
focus on short-term results and shareholder
meetings that often focus on the trivial.
Because of such factors, many private compa-
nies make a rational decision to stay private,
In retrospect, I wish I had known
more about the hazards and difficulties
of such a business, especially during a
recession of the kind that hit New
England just as I was acquiring the
inn's 43-year leasehold. I also wish
that during the years I was in public
office, I had had this firsthand
experience about the difficulties
business people face every day. That
knowledge would have made me a
better U.S. senator and a more
understanding presidential contender.
ww
In short, "one-size-fits-all"
rules for business ignore the reality of
the marketplace. And setting thresholds
for regulatory guidelines at artificial
levelse.g., 50 employees or more,
$500,000 in sales -- takes no account of
other realities, such as profit margins,
labor intensive vs. capital intensive
businesses, and local market
economics.
particularly given rules that increasingly
allow individuals to invest in private compa-
nies. Ultimately, that's not good for America
because public companies are a powerful
economic engine for job and wealth creation.
They are also responsible for one-third of
all private sector employment, with millions
of American families depending on public
companies for retirement, savings for college
and home purchases, and investment.
Retreating from the world is not the solu-
tion, nor is burning down the current system
and starting anew. At the same time, we
cannot and should not turn a blind eye to
the real pressures millions of families face
at the hands of globalization, technolog-
ical advances and other factors. Ultimately,
governments are charged with addressing
the types of issues and popular grievances
that led us to this moment of division and
distrust. But increasingly, the private sector
must also play a role.
43
The United States should lay out a distinct
timeline and determine what the reaction
would be if it is not met.
In 1988, I invested most of the
earnings from this lecture circuit
acquiring the leasehold on Connecticut's
Stratford Inn. Hotels, inns and
restaurants have always held a special
fascination for me. The Stratford Inn
promised the realization of a longtime
dream to own a combination hotel,
restaurant and public conference
facility complete with an experienced
manager and staff.
The United States should define very clearly,
and in detail, what it wants from China.
•
that China understands most of these issues
and wants to properly resolve them. Recently,
the United States threatened unilateral action
against China. Of course, anything that starts
to resemble a trade war creates risk and uncer-
tainty to the global economic system. One of
the administration's best arguments is that
negotiation alone has not worked. But regard-
less of the process, here is my view on what
the best outcomes would look like:
II. PUBLIC POLICY
45
China is far more complex – and the
complaints are more legitimate. China has
realized significant economic and employ-
ment gains since joining the WTO in 2001.
China was expected to continue on an aggres-
sive path of opening up its economy, but this
has happened at a much slower than
pace
most nations expected. Now, more than 16
years later, it has the second-largest economy
in the world and is home to 20% of the
Fortune 500 companies, yet it still considers
itself a “developing” nation that should not
be subject to the same WTO standards as the
United States and other “developed" coun-
tries. The Chinese government is competent
and capable, and it has done an extraordi-
narily good job of managing its emergence as
the world's second-largest economy. I believe
In last year's letter, I spoke about NAFTA
and said that while there are some clear
problems, an updated agreement should be
worked out in a way that is fair and bene-
ficial for all parties. The logic to do so is
completely compelling.
We should acknowledge many of the legitimate
complaints around trade. Tariffs and non-tariff
barriers to trade are often not fair; intellectual
property is frequently stolen; and the rights to
invest in and own companies in some coun-
tries, in many cases, are not equal. Countries
commonly subsidize state-owned enterprises.
When the U.S. administration talks about "free"
and "fair," it essentially means the same on all
counts. This is not what has existed. It is not
unreasonable for the United States to press
ahead for more equivalency.
Proper resolution of serious trade issues is good
for the United States and for the rest of the world.
We have entered a time of uncertainty over
global trade. President Trump has rejected the
Trans-Pacific Partnership (TPP) as not being
in the best interests of the United States and
is renegotiating the North American Free
Trade Agreement (NAFTA). He has begun
to demand material changes in our trade
agreements with many nations and has begun
to demand that nations reduce their trade
surpluses with the United States, probably
most importantly between the United States
and China, the world's two largest economies.
Business in total has a huge amount of
capabilities and knowledge. Business needs
to work with the government to drive good,
long-term solutions. But if it is to play a
helpful role, business must be less paro-
chial about what is good for one's particular
company and more helpful about what is
good for the people of our countries.
shut out of a growing economy's rewards.
Nations with a proud history of welcoming
immigrants - including the United States, a
nation of immigrants – are engaged in hotly
contested debates over whether immigration
is good for one's country or not. Recognizing
our extraordinary accomplishments is one
thing, but we should acknowledge what
has gotten worse. NATO has become less
effective, serious issues surround trade and
the WTO is unprepared to deal with today's
issues and too bureaucratic and slow to fix
them. The associated loss of faith in govern-
ments and institutions has manifested itself
in a wave of political disruptions, none more
surprising than in the United States itself.
We are increasingly divided and unable to
work out our disagreements.
Any system created by humans, however, is
ultimately fallible. Sustaining the current
order and ensuring its longevity mean
acknowledging its flaws. We must have an
honest conversation about its strengths
and, more important, its weaknesses. Global
GDP has more than doubled since 2000,
yet too many people are being left behind
means by which we can continue to improve
people's lives and livelihoods. The system,
built at great sacrifice, continues to serve our
interests. It should be preserved and defended
- ideally under strong U.S. leadership.
II. PUBLIC POLICY
44
Reversing the interconnectedness built by
our post-World War II institutions is neither
desirable nor feasible. As a nation, we cannot
isolate ourselves any more than we can stem
the ocean's tide. The international system
provides agreed-upon rules of the road - and
mechanisms for enforcing them. It serves
as the basis upon which we can insist on
fairer trade practices from competitors and
adequate burden-sharing from allies. It is the
The world has made incredible strides
since most of us were born. We have over-
come challenges once thought insurmount-
able. More than a billion people have been
lifted out of extreme poverty in the last
two decades. Food security is dramatically
improving - a major driver of improving
human health - and the number of under-
nourished people around the world is
continuing to fall. Vaccines have almost
entirely eliminated most infectious diseases
around the globe - polio, smallpox, measles,
mumps, diphtheria, rubella. Malaria has been
eradicated in many parts of the world, and
deaths have declined significantly in Africa
and Southeast Asia over the last decade.
These achievements and numerous others
reinforce the overall positive trend line of
human history.
values such as free speech and equality while
standing firm against dictators and strongmen
who would otherwise insist that “might makes
right." There should be no doubt that these
efforts have made us all more prosperous,
secure and free.
Following the devastation brought on by
two world wars, the United States and other
like-minded nations resolved to shape a new
international order that would ensure a future
unlike the past. In the succeeding years,
America led the creation of a system defined
by the rule of law and supported interna-
tional institutions like the United Nations, the
World Health Organization and the World
Trade Organization (WTO). These institu-
tions offered states a way to work out their
differences around a conference table and
address pressing economic and social chal-
lenges. Organizations like the North Atlantic
Treaty Organization (NATO) were formed to
enable collective action, promote peace and
deter aggression. Treaties and coalitions were
forged to limit the spread of nuclear weapons
and to address threats such as terrorism,
disease and climate change. America under-
took efforts to promote and spread democratic
Today's world is as complex and dynamic
as ever. Things like trade, immigration,
technology and social media, as well as our
ability to move capital and purchase goods
with the click of a button, all are changing
how we live and how we do business. A
natural reaction to this disruption might
be to turn inward, to build walls. Such an
impulse reflects real and justifiable concerns
about whether our rush to change has
outpaced our ability to successfully adapt. At
this moment of uncertainty, however, U.S.
global engagement is needed more than ever.
10. Global engagement, trade and immigration – America's role in the world is critical.
judgment even where they use proxy advi-
sors to inform their judgment. They should
actively engage with company boards and
management, as appropriate, to understand
the company's point of view and to convey
their own. And they should evaluate and
compensate their portfolio managers in a
manner that reflects the investment time
horizon applicable to the portfolio they are
managing. That may mean using perfor-
mance benchmarks over three-, five- and
even 10-year periods, in addition to shorter
period benchmarks.
Of course, shareholders of all stripes – and
particularly institutional shareholders (asset
managers, as well as asset owners) - have
a critical role to play in public company
corporate governance. Among other things,
they should exercise their proxy voting
rights thoughtfully, using independent
With their own sizable investment portfolios,
most public companies could use their power
as shareholders to urge public companies
and asset managers to take a relentlessly
long-term focus.
II. PUBLIC POLICY
So what can public companies do about
these issues? For one, they can continue
to engage policymakers. Second, they can
continue to resist pressures to focus on
the short term at the expense of long-term
strategy, growth and sustainable perfor-
mance. And in my mind, quarterly and
annual earnings per share guidance is a
major contributor to that short-term focus.
It can cause companies to hold back on tech-
nology spending, marketing expenditures
and other investments in their future in
order to meet a prognostication affected by
factors outside the company's control, such
as fluctuations in commodity prices, stock
market volatility and even the weather.
That's why during my time as JPMorgan
Chase's CEO we've never provided quarterly
or annual net earnings guidance and why we
would support any company that considers
dropping such guidance in the future. We
totally support being open and transparent
about our financial and operational numbers
with our shareholders - this includes
providing guidance or expectations around
number of branches, likely expense levels,
"what ifs" and other specific items.
It's been 11 years since I left the
U.S. Senate, after serving 24 years in
high public office. After leaving a
career in politics, I devoted much of my
time to public lectures that took me into
every state in the union and much of
Europe, Asia, the Middle East and Latin
America.
Empowering employees to make better
choices and have the best options available
by owning their own healthcare data with
access to excellent telemedicine options,
where more consumer-driven health initia-
tives can help.
Wisdom too often never comes,
and so one ought not to reject it merely
because it comes late.
To attack these issues, we will be using
top management, big data, virtual tech-
nology, better customer engagement and the
improved creation of customer choice (high
deductibles have barely worked). This effort
is just beginning, and we intend to start
small. We will report on our progress in the
coming years.
Determining why costly and special-
ized medicine and pharmaceuticals are
frequently over- and under-utilized.
Examining the extraordinary amount of
money spent on end-of-life care, often
unwanted.
Developing better wellness programs,
particularly around obesity and smoking
- they account for approximately 25% of
chronic diseases (e.g., cancer, stroke, heart
disease and depression).
The United States should listen closely to
China about any legitimate complaints it
may have.
Studying the extraordinary amount of
money spent on waste, administration and
fraud costs.
Aligning incentives systemwide - the
United States has the highest costs asso-
ciated with the worst outcomes because
we're getting what we incentivize.
JPMorgan Chase, along with our partners
Amazon and Berkshire Hathaway, recently
formed a joint venture that we hope will
help improve the satisfaction of our health-
care services for our employees (that could
be in terms of costs and outcomes) and
possibly help inform public policy for the
country. The effort will start very small, but
there is much to do, and we are optimistic.
We will be hiring a strong management
team to start working on some of these
critical problems and issues:
While we don't know the exact fix to this
problem, we do know the process that will
help us fix it. We need to form a bipartisan
group of experts whose direct charge is to fix
our healthcare system. I am convinced that
this can be done, and if done properly, it will
actually improve the outcomes and satisfac-
tion of all American citizens.
Chronic disease accounts for 75% of
spend concentrated on six conditions,
which, in many cases, are preventable
or reversible.
Administrative and fraud costs are esti-
mated to be 25% to 40% of total health-
care spend.
The United States has some of the best
healthcare in the world, including our
doctors, nurses, hospitals and clinical
research. However, we also have some of
the worst in terms of some outcomes
and costs.
•
40
•
The real problem with our deficit is the
uncontrolled growth of our entitlement programs.
We cannot fix problems if we don't acknowl-
edge them. The extraordinary growth of
Medicare, Medicaid and Social Security is
jeopardizing our fiscal situation. We have to
attack these issues. I am not going to spend
a lot of time talking about Social Security.
I think fixing it is within our grasp - for
example, by changing the qualification age
and means testing, among other things.
When President Franklin Delano Roosevelt
astutely put Social Security in place in 1935,
American citizens would work and pay into
Social Security until they were 65 years
old.
At that time, when someone retired at age
65, the average life span after retirement was
13 years. Today, the average person retires
at age 62, and the average life span after
retiring is just under 25 years.
II. PUBLIC POLICY
39
ppts percentage points
Source: Congressional Budget Office, March 2017
Debt issued in the financial markets, but not held by any U.S. government agency or fund
(% of GDP growth at 2.5%)
126%
100%
83%
77%
Debt held by public
The core issue underpinning the entitle-
ments problem is healthcare in the United
States. Here are just a few places where we
know we can do better:
II. PUBLIC POLICY
8. Why is smart regulation vs. just more regulation so important?
It is absolutely necessary to have proper
regulation. Often, though, we confuse more
regulation with good regulation. What is
really needed is smart regulation. If you
speak with businesses, large or small, they
will give a long list of the time, effort and
documentation it takes to run their business.
They will show you books of red tape, inef-
ficient, outdated systems and extraordinary
delays. To start a small business today, you
need multiple licenses. We have given an
example of this with infrastructure in terms
of needing up to 10 years to get a permit
to build a bridge. Please read the article on
page 42 written by a very liberal Democratic
former U.S. senator and presidential candi-
date about what it was like to run a small
business. The article provides excellent
advice for all of our legislators and regula-
tors. Unfortunately, he learned these lessons
only after leaving his career in government.
By George McGovern
A Politician's Dream Is a Businessman's Nightmare
(Copyright 1992, Dow Jones & Co., Inc.)
Manager's Journal:
JUNE 01, 1992
THE WALL STREET JOURNAL.
41
2001 2003 2005 2007 2009 2011 2013
II.
ין
Source: U.S. Census Bureau, Business Dynamic Statistics, March 2018
1999
1993 1995 1997
1991
1989
1977 1979 1981 1983 1985 1987
-100,000
-50,000
0
50,000
100,000
150,000
200,000
250,000
Annual Net Small Business Formations
Number of businesses
By some estimates, approximately $2 trillion
is spent on regulations annually, which is
about $15,000 per household. While we
believe much of this money is well spent
(leading to cleaner water and air, and safer
highways and hospitals, for example), it is
hard to imagine that all of it is well spent.
Decades of continuously expanding and over-
lapping regulation certainly can be stream-
lined and improved. There is little doubt that
excessive regulation has adversely impacted
innovation, growth and the formation of
small businesses. The chart below shows the
dramatic reduction in the net formation of
small businesses. It is hard to know exactly
The current administration is taking steps to
reduce unnecessary regulation by insisting
that congressional rules around cost-benefit
analysis be properly applied. It is also actively
trying to put regulators in the right roles with
the proper authority to use commonsense
principles to make appropriate changes.
-- Justice Felix Frankfurter
This should be done in partnership with our
largest allies, particularly Japan and Europe.
The United States should revisit the
Trans-Pacific Partnership and fix the parts
considered unfair. The TPP could be an
excellent economic and strategic agreement
between America and its allies, particularly
Asia. This is not against China: The country
could at some point be offered the oppor-
tunity to enter the TPP if it demonstrates
a willingness to meet its standards, which
would improve upon the rules-based global
trading system under American leadership.
While the chance of having an improved trade
deal with both Mexico and Canada, as well
as a more mutually beneficial relationship
with China, is possible and preferable, there
is always a chance that miscalculations on the
part of the various actors could lead to nega-
tive outcomes. This obviously creates higher
risk and more uncertainty until resolved.
55.9
-
12%
$125
$140
Average loans
Credit Card
63%
$381
$622
Sales volume5
25%
6.7
8.4
Net charge-off rate
New accounts opened (millions)5
2.37%
0.02%
Net charge-off rate4
16%
$205
$237
(89)%
312
35
(46)%
$181
$98
(235) bps
2.95% 3.95%
(100) bps
Merchant Services
Loan and lease originations
Average loan and leased assets
Net charge-off rate
$33
$23
43%
$81
$53
53%
0.51%
0.39%
12 bps
bps = basis points
Auto
1 Reflects data as of November 2017
2
Users of all web and/or mobile platforms who have logged in within the past 90 days
3 Users of all mobile platforms who have logged in within the past 90 days
4 Excludes the impact of purchased credit-impaired loans
5 Excludes Commercial Card
The bar for what customers expect
in every industry has grown much
higher. We live in an on-demand
world. Customers can get the service,
content or experience they want when
they want it on nearly any device.
They expect speed and simplicity.
Customer service in banking and
payments has improved greatly in
recent years but lags compared with
certain other industries such as travel
or segments of retail. We are seeing
fintechs have success simply by
removing customer pain points that
banks haven't. Customers are show-
ing us where we need to get better,
and we are paying attention. Getting
this right is important because we
are a part of our customers' every-
day lives. On average, our digitally
active customers log in more than 15
times a month. Our active debit card
customers average 32 purchases a
month, and those who use our
ATMs have an average of five
monthly ATM transactions. Our
active credit card customers average
21 transactions each month.
In 2017, we made several improve-
ments around the customer experi-
ence, including facial recognition in
our app, a fully mobile bank pilot
(Finn), real-time payments using
Chase QuickPaySM with Zelle and a
simpler online application for Busi-
ness Banking customers. For those
who need our business products-
deposits, credit cards and merchant
processing - we collapsed the three
applications into one so customers
provide their information once
instead of multiple times. We didn't
change the products – we just made
it easier for customers to get the ones
they want. The simpler application
reduces the time it takes to apply
82%
$655
$1,192
48
Total mortgage origination volume
Foreclosure units (thousands, end of period)
Average loans
We need to resolve immigration - it is tearing
apart our body politic and damaging our economy.
Immigration reform is important both
morally and economically. Immigration has
been a critical part of America's economic
and cultural vitality. And there are some
basic and key principles that most Americans
seem to agree with:
Home Lending
1.65%
Customer satisfaction is at record
highs across most of our businesses.
We will always have plenty of work
to do, but we are extremely pleased
with how far we've come.
Customers
Here are some of the highlights from
2017 for each.
We delivered these results with a
steady focus on the same four areas:
customers, profitability, controls and
people. There is no substitute for a
consistent strategy well-executed.
We've made progress since we
brought the Chase businesses together
five
years ago, and we have seen
remarkable growth in our business
drivers over that time. In Consumer
and Business Banking, our average
deposits of $626 billion are up 60%,
and our client investment assets are
up 72%, hitting a record $273 billion.
Annual credit card sales rose to $622
billion in 2017, up 63% since five
years ago. Merchant processing vol-
ume reached $1.2 trillion, up 82%.
Home Lending average loans have
grown 16%, and our Auto loans and
leases have grown 53%.
JPMorgan Chase had a strong year in
2017. For Consumer & Community
Banking (CCB), we delivered 17%
return on equity (ROE) on net income
of $9.4 billion and $46.5 billion in
revenue. We grew our customer base
to 61 million U.S. households -
nearly half of all U.S. households do
business with Chase - including 4
million small businesses. Our cus-
tomers have 97 million debit and
credit card accounts and spent over
$900 billion on their cards in 2017.
Our active digital customers grew to
47 million, and 30 million of them
are active on mobile, the largest in
our industry.
2017 financial results
Consumer & Community Banking
47
April 5, 2018
Chairman and Chief Executive Officer
Jamie Dimon
2017 Performance Highlights
Love Love
And we have an outstanding management team
leading this mission - a group of dedicated executives
with exceptional capabilities, character,
experience and wisdom.
We are devoted to earning the trust and respect of
our shareholders, customers, employees
and the communities we serve every single day.
We will never lose sight of this.
IN CLOSING
And, finally, ceding America's leadership role
on the world stage is a bad idea for everyone
- inside and outside our great land. We must
all collaborate and respect each other to
make the world a better place.
It is an absolute necessity that America
maintain a world-class economy, with world-
class companies and a world-class military.
We need to do a significantly better job of
managing our economy if we want it to be
world class.
Closing policy thoughts.
46
Finally, it is unlikely the American public
will feel comfortable with immigration if we
don't revert to some core principles. Immi-
grants should be coming here because
they want to be part of our country and
who we are as a people. America was an
idea borne of freedom, with freedom of
speech, freedom of religion, freedom of
enterprise, and equality and opportunity.
People immigrating to this country should
be taught American history, our language
and our principles. The American public
will not be pro-immigration if we don't
address these issues.
Law-abiding, hardworking undocumented
immigrants should have a path to legal
status or citizenship. The American public
should know this is no easy path. Back
taxes should be paid, and citizenship could
take
up to 15 years.
We need improved merit-based immigra-
tion. Those who get an advanced degree in
the United States should receive a green
card along with their diploma. We need
these skilled individuals in America. We
could also improve on other merit-based
immigration practices.
The "Dreamers" who came to America as
undocumented children (there are approx-
imately 2 million of them) should get a
path to legal status and citizenship.
We need to have - and believe that we
have proper border control. American
citizens have the right to complain that
we have not successfully protected our
borders since the last immigration reform
in 1986. In the 1986 amnesty, 3 million
undocumented immigrants came forward,
and now we estimate there are another 11
million undocumented people domiciled
in our country. If the American public
does not believe we have proper border
control, nothing else can be accomplished.
I am humbled and honored to work at this
company and with its great people. It is an
extraordinary privilege and responsibility.
On behalf of JPMorgan Chase and our management
team, I want to express my deepest gratitude
to all of our people - I am proud to be their partner.
Key business drivers
Consumer &
($ in billions, except ratios and where otherwise noted)
0.57%
28%
$18
$23
72%
$159
$273
Client investment assets (end of period)
Average Business Banking loans
Business Banking net charge-off rate
Consumer and
Business Banking
60%
$392
$626
Average deposits
143%
12.4
30.1
50%
31.1
46.7
Active digital customers (millions)²
Active mobile customers (millions)³
Community Banking
9%
61.0
Households (millions)¹
%A
2012
2017
(108) bps
Merchant processing volume
150%
113%
(% of GDP growth at 2.0%)
operators, etc. And this is no doubt true. But
this has actually been happening for a long
time. For instance, back in 1900, 41% of the
U.S. workforce made their living in agri-
culture. Today, it is under 2%. This is only
one example, but our vibrant economy has
always found a way to adjust to job loss by
creating new jobs and sometimes changing
the way we work by reducing work days and
work hours.
We know technology has been a great force,
and for the benefit of mankind, that force
should be left unleashed. In the event that it
creates change faster in the future than it has
in the past and the economy is unable to
adjust jobs fast enough - the best protection
is continual workforce training, education
and re-education, supplemented by income
assistance and relocation.
-
7. America's growing fiscal deficit and fixing our entitlement programs.
America's net debt currently stands at 77%
of GDP (this is already historically high but
not unprecedented). You can see in the chart
below that the debt level continues to get
worse, but at an accelerated pace over the
ensuing decades. We have time to fix it, so
I am not immediately concerned. But this
problem will not age well, and the sooner we
start to fix it, the better. If we don't fix the
growing deficit situation, it will adjust itself
and in a way we won't like.
The chart below also shows the Congres-
sional Budget Office's estimate of the total
U.S. debt to GDP, assuming a 2% real GDP
growth rate. Hopefully, with the right poli-
cies we can grow faster than 2%. We esti-
mate if we got the growth rate even a little
bit higher (i.e., 2½%), then the debt burden
gets a little lighter but does not disappear.
U.S. Government Public¹ Debt as a Percentage of GDP
160%
140%
120%
100%
80%
60%
40%
II. PUBLIC POLICY
20%
89%
77%
Debt held by public
2047
+12ppts
2027
2037
0%
+17ppts
+26ppts
+24ppts
+37ppts
+6ppts
2017
That financial success is directly tied
to how well the CIB delivers for our
clients across our businesses. Their
success is our success. With the
increasingly competitive environ-
ment we inhabit today, we take pride
in every client assignment and the
number of times they choose us for
repeat business.
We kicked off 2017 announcing that
J.P. Morgan's Custody & Fund Services
business won the largest custody
mandate in history. BlackRock is in
the process of shifting $1.3 trillion in
assets under management over to our
platform, validating the investments
we've made and the resources we've
added to that business. As the only
global custodian with a top Markets
franchise, we're confident that scale,
technology and seamless execution
will continue to draw clients.
Custody & Fund Services built on its
momentum, as evidenced by the $3.9
billion revenue in Securities Services,
which was up 9% for the year. Our
business has record assets under cus-
tody of $23.5 trillion, which increased
by 14% compared with 2016.
Treasury Services, a business that
supports clients in their cash manage-
ment needs and is rolling out its
real-time payments capability, also
continued to perform well through
the
53
Turning to investment banking,
J.P. Morgan set a record in global
Investment Banking fees, $7.2 billion,
including debt underwriting of $3.6
billion. Measured by market share,
in Mergers & Acquisitions (M&A),
Equity Capital Markets (ECM) and
Debt Capital Markets (DCM), the firm
has scored gains since 2015: M&A
share rose to 8.6% from 8.4%; ECM
was up to 7.1% from 6.9%; and
DCM moved to 8.3% from 7.9%.
Our debt underwriting team closed
on the largest number of deals in its
history, up about 16% over last year.
While we witnessed an overall
decline in the number of deals over
$1 billion, J.P. Morgan still played a key
role in the year's biggest transactions.
We served as joint active bookrunner
on AT&T's $22.5 billion bond offer-
ing, the third largest of all time,
and also served as joint active book-
runner on Amazon's $16 billion
offering to support its acquisition
of Whole Foods Market.
J.P. Morgan was also #1 in U.S. initial
public offering (IPO) volume and
managed the largest number of deals
during 2017. Our equity team served
as global coordinator or helped to
lead more than 40% of the IPOs over
$1 billion in size, including Pirelli at
$2.8 billion, Altice at $2.1 billion and
Netmarble at $2.3 billion.
Our Global M&A team completed the
most M&A deals during the year, 354,
and had record post-crisis fees for its
advisory work. The firm advised on
six of the top M&A announced trans-
actions in North America. One of
our more visible roles is our work
serving as advisor to The Walt Disney
Company on its acquisition of por-
tions of 21st Century Fox, including
its film and television studio.
Looking at the Markets business,
after an exceptionally strong 2016,
J.P. Morgan's 2017 share in Fixed
Income, Currencies and Commodities
(FICC) decreased marginally to 11.4%
from 11.7%. However, offsetting that
slight drop, the market share in
Equities and Prime rose to 10.3% from
the previous year's 10.1% and shared
the top ranking for the category.
We are particularly proud of
prog-
ress in Prime Services. We have a
competitive and complete platform,
and we grew global prime balances
by 28% last year while increasing
market share to 13.8% from 11.3%
since 2015.
year, with revenue rising to $4.2
billion, an increase of 15% over 2016.
As it serves the needs of increasingly
global commerce, Treasury Services'
state-of-the-art technology is reducing
to seconds what once took days.
By the numbers: Working for clients
The CIB's revenue was more than
$6 billion higher than its closest
competitor, according to industry
data provider Coalition.
our global footprint
Our efforts to expand our coverage
of global clients over the last eight
years are paying dividends today.
Now, with economic growth taking
hold across the globe, these clients
have turned to us for services, such
as cash management, electronic
payments and fraud detection.
We will continue the prudent expan-
sion of our global footprint. J.P. Morgan
has been doing business in China,
India, Brazil and countries in Africa
for decades. And as global economies
grow, we are making judicious
decisions that will reaffirm our
unique position as the leading global
financial institution.
Looking five to 10 years out, the pace
of technological innovation will
only quicken as artificial intelligence,
robotics, machine learning, distrib-
uted ledgers and big data will all
shape our future.
a period defined as the next two
to three years, and the longer term,
extending 10 years out. The medium-
term investments we're making are
already enhancing our ability to
serve clients and hold the promise of
transforming our business.
Investing in next-
generation capabilities
and expanding
Transforming for
the future
we serve our clients
Improving the way
Optimizing our
current model
Running a best-in-class
business across all
dimensions
Maintaining
day-to-day discipline
62
The CIB's Global Research team also
continued to rank #1 worldwide and
across a broad range of equity and
debt market categories, providing
clients with actionable insights on
the markets. The regularity with
which our analysts top the rankings
is a remarkable achievement. As
Markets in Financial Instruments
Directive regulations take on a
greater impact, quality research will
continue to set us apart.
On the following pages, I will discuss
the CIB's 2017 performance in greater
detail, outlining how we intend to
prepare for the industry changes that
are certain to affect our business over
the foreseeable future.
Our fintech future
systems and are in the process of
retrofitting 4,500 Chase branches with
LED lighting as part of the world's
largest LED lighting installation. We
will also produce power for some
of our own buildings by developing
on-site solar power generation. We
expect that these measures will reduce
total power consumption by 15%.
Using the firm's expertise in the
renewable power sector also enables
us to support the development of
renewable projects - and advances
our goal of 100% reliance on renew-
able power - in other substantive
ways. One example is the Buckthorn
wind farm, a 100-megawatt project in
Texas that came online last December.
More than half of the wind farm's
output will be purchased by our Global
Real Estate team and the remainder
by our Commodities team. This is
good for the environment and good
for business.
Over the last several years, I have
mentioned in my annual letter
J.P. Morgan's commitment to embrac-
ing technology. Being creative
requires a willingness to take risks.
As part of our technology culture,
experimentation and failure are okay
it is encouraged, in fact, in order
to achieve breakthroughs.
•
2017 HIGHLIGHTS AND ACCOMPLISHMENTS
Co-President and Chief Operating
Officer, JPMorgan Chase & Co., and
CEO, Corporate & Investment Bank
year.
Daniel Pinto
Finally, on a personal note, I'd like to
express my gratitude to my partners
on the Operating Committee. The
collaboration that exists throughout
the firm is the foundation that
supports our strength year after
ongoing success. I, along with the
entire CIB management team,
appreciate the dedication, enthusiasm
and intelligence our employees
bring with them every day.
J.P. Morgan is known for being a
place where people want to work,
where we can attract and retain the
best talent, where their work is
recognized and where the culture is
collaborative. That is critical to our
The CIB has had another successful
year, gaining share and generating
healthy profits by remaining intently
focused on serving our clients and
benefiting from our scale, breadth
and global reach.
Closing
In addition, J.P. Morgan led some of
the largest clean energy transactions,
such as serving as financial advisor to
Enbridge on its C$2.1 billion partner-
ship with EnBW on the Hohe See
and Albatros offshore wind farms in
the North Sea. J.P. Morgan also was a
bookrunner for energy company
Iberdrola's first issue of green hybrid
bonds on the euromarket, valued at
€1 billion. The proceeds will be used
to refinance investments in various
renewable projects in the United
Kingdom.
as an underwriter of green bonds.
In 2017, Apple Inc. raised $1 billion
using green bonds - the second
green bond Apple has issued with
J.P. Morgan as an active bookrunner.
We've also continued our leading role
The CIB is an investment bank, but
financial technology forms the
bank's backbone. As part of JPMorgan
Chase, the CIB benefits from being
part of a firm that draws on the
expertise of nearly 50,000 technolo-
gists and a 2017 technology budget
that amounted to $9.5 billion. But
to underscore the firm's overall
commitment, this year's technology
budget totals $10.8 billion, with
more than $5 billion earmarked for
new investments.
In our effort to finance green initia-
tives, we've raised the stakes, com-
mitting $200 billion for such projects
by 2025. From 2016 to year-end 2017,
we reached $60.6 billion cumulatively
toward that goal. The company plans
to increase its recycling efforts and to
pioneer the use of greener materials
in its products and processes.
54
2017, the Operating Committee
ramped up our firmwide sustainability
efforts in a big way. Over the next
three years, JPMorgan Chase intends
to become 100% reliant on renewable
power. In our own workspace, we
are executing several strategies to
increase our energy efficiency. We are
installing building management
In
Before I close, I want to highlight
what the CIB, along with the overall
JPMorgan Chase organization, is
doing to further a sustainable
environment. On behalf of the entire
organization, I have been asked to
champion our sustainability efforts.
It's an issue that is important to me
and is one that our employees care
about deeply as well. Employees
want to work for an organization
they can be proud of and that shares
their values. Through our sustain-
ability initiatives, the firm is demon-
strating its commitment to those
shared concerns and is taking action.
Sustainability
Because our people are our greatest
strength, we value technology as a
tool to enhance their ability to provide
the best-in-class ideas and solutions
that our clients expect from us.
We're piloting several ventures to
test the viability of technology in
real-world situations. Late in 2017,
J.P. Morgan's Treasury Services and
its Blockchain Center of Excellence
launched a payment network pow-
ered by distributed ledger technology
in partnership with the Royal Bank
of Canada and the Australia and New
Zealand Banking Group. Called the
Interbank Information Network, the
pilot's objective is to use blockchain
technology to process bank-to-bank
transactions faster, alleviating situa-
tions where payments get held up due
to mismatched information.
We have assembled talented teams
to drive innovation in artificial intel-
ligence, blockchain technology, big
data, machine learning and bots,
with the objectives of improving our
efficiency and enabling us to serve
more clients with greater effective-
ness, depth and sophistication. As a
result, many of our initiatives are
already showing promise in terms of
charting their future expansion
and application.
On the strength of its scale and tech-
nology, J.P. Morgan processes
$5 trillion in payments and trades
billions of dollars electronically every
day. In equities, nearly 100% of the
tickets are handled electronically,
representing 89% of notional volume.
The macro desk, primarily foreign
exchange, handles 97% of its tickets
electronically, corresponding to 46%
of its volume.
In the age of smartphones, when
people only need an app in order to
trade, our mission is to make it pos-
sible for clients to trade and interact
with us easily and in whatever way
they choose. If they want to access
our top-rated research or conduct
business with us, we want them to
have the freedom to choose the
option they prefer - whether it's in
person or by telephone, website,
mobile арр, online trading platform
or third party.
The divide between the front office
and the back office is no more. Our
technologists and our product people
work side by side, in the same rooms
and at the same tables. They're fully
assimilated. That way, the teams are
able to work in tandem to build the
next-generation systems best targeted
to meet the needs of our clients and
the business.
ing solutions to some of the most
complex issues in the field.
It was only a few years ago that pro-
grammers and technology graduates
seemed reluctant to build their
careers in banks; that's not the case
at J.P. Morgan. Nearly 30% of our
recent senior hires in technology
came from non-financial services
firms, and they're working on find-
52
Sustaining Our Lead Across Three Horizons
Helping Customers in Times of Need
Looking ahead, we are implementing
a set of simultaneous priorities - a
blueprint for investing that runs
in parallel tracks across three time
horizons. In the immediate period,
we are focused on maintaining day-
to-day discipline to support organic
growth while holding firm on costs
and integrating efficiencies.
•
•
• Consumer relationships with
nearly half of U.S. households
2017 HIGHLIGHTS AND ACCOMPLISHMENTS
I'm always an optimist, but I can hon-
estly say I've never been more opti-
mistic to be a part of this company.
We are the largest bank in America,
and I don't think we've ever been
stronger, more disciplined and more
When we enter these markets, we
will do so with the full force of
JPMorgan Chase. We will hire. We
will lend. And we will help custom-
ers achieve milestones, like buying a
home or sending a child to college.
Our JPMorgan Chase Foundation
will support the nonprofits within
that area to drive economic growth.
We have seen the significant impact
we have made in the communities
we are in, and we're excited to
become an even more relevant part
of many more.
15-20 new markets over the next five
years. These markets represent a
$1 trillion deposit opportunity. Our
new branches in these markets will
lead to nearly 3,000 new jobs and
drive economic opportunity for small
businesses in those communities.
And last, we will expand our retail
branches into new communities.
This is perhaps the most exciting
development for 2018. The heart of
our company is our retail branches -
more than 1 million customers visit
our branches each day. For years, we
have been constrained to our current
23-state footprint and unable to
expand into major markets such as
Washington, D.C., Boston, Philadelphia,
Baltimore and the Carolinas. In
January 2018, we announced that we
plan to open up to 400 branches in
as one strain is inoculated, another
appears. In most cases, bureaucracy
is driven by good people thinking
they're doing the right thing. But
when we try to torture a product to
perfection, we sacrifice time to market
and risk losing customers to someone
who can do it better. Jamie has asked
Daniel and me to take this on, and we
have accepted with pleasure. We are
working at cutting unnecessary
committees, making meetings more
efficient and putting accountability on
business owners.
50
To maintain speed and adaptability,
we have to fight the institutional
drag that slows big companies down.
Bureaucracy is like a virus. As soon
The first step will be expanding our
already sizable technology investment.
As a firm, we invest in excess of $10
billion annually in technology. We
have more than 31,000 technologists
at the firm in development and engi-
neering jobs; that number has grown
over time, and we expect to hire
more people in 2018. We have moved
a number of our technology teams to
an agile structure, allowing them to
be closer to the product owners and
speeding up time to market. This
change has enabled our teams to be
100% focused on their products and
on delivering for our customers.
Looking ahead at our ambitions for
the year, we are grateful for our leader-
ship position and are ready to do
more. As large as we are and as much
as we have grown, we know the best
days are still to come. We raised our
medium-term ROE target to 25%+
from 20%+/-, in part due to the impact
of tax reform. With the strength of
our products, distribution and brand,
we know we can get there.
to multinationals. From the begin-
ning, we can offer banking, credit
and merchant services along with a
business banker. We have developed
new products and services that make
it easier for our customers to manage
and grow their business. Chase Busi-
ness Quick Capital®, powered by our
partnership with OnDeck, is a great
example, offering same-day access to
short-term loans. The next step is to
expand into new markets and use
the power of Chase to help our busi-
ness customers grow and thrive.
Growing businesses - Few banks
can help businesses as much as
JPMorgan Chase can, from startups
Growing wealth - Our brand prom-
ise is to help customers make the
most of their money. Our team of
bankers and wealth advisors has
worked with customers for decades.
In 2018, we will introduce new digital
tools to help customers invest and
trade from their phones, as well as
connect them with an advisor when
they need one. Unlike other invest-
ment apps, ours will have the team
of J.P. Morgan advisors and bankers
behind it.
Owning a car - Over 1 million cus-
tomers will buy or lease a car with
Chase in 2018, yet many people still
don't think to call us first if they're
buying one. Like getting a home
loan, the experience of buying a car
can be long and daunting. We think
we can reinvent it – making it easier,
less expensive and a pleasant experi-
ence. Chase Auto Direct, in partner-
ship with TrueCar, is a step in the
right direction.
Owning a home - Buying a home is
one of the most emotional purchases
a family ever makes. But the process
of buying one is anything but joyful.
We want to help the hundreds of
thousands of customers who will buy
a home with Chase in 2018 to do so
with ease and speed. Our partnership
with Roostify has made our digital
mortgage process simpler and has
reduced the time it takes to refinance
by 15%.
Chase QuickPay makes up more
than 50% of Zelle's volume. We want
our customers to decide who to pay
and when, and we make sure it's sim-
ple, safe and seamless.
Paying with Chase - Helping our
customers pay for things is at the
center of everything we do. Whether
a customer pays an individual, pur-
chases a product or settles a bill, it
should be simple, quick and safe.
Forty percent of Chase customers
already move money with us. We
have 48 million active credit and
debit card customers, and more than
70% of our active credit card custom-
ers use those cards in mobile wallets
or for recurring bills and merchant
payments. Zelle has been adding
nearly 100,000 users every day, and
becoming the easiest bank to do
business with. We will do that by
being excellent in six core areas
we deliver for customers: becoming
a customer, paying with Chase, own-
ing a home, owning a car, growing
wealth and growing businesses.
Becoming a customer - No matter
how customers find us – in a branch,
on our app, on chase.com or through
a friend - we want to make it easy for
them to become a customer and stay
with us throughout their lives. We
will continue to invest in having a
simple, fast way to develop this rela-
tionship across Chase. Early in 2018,
we started using a simpler digital
application for our Consumer check-
ing and savings products. Similar to
the Business Banking application I
mentioned earlier, we just stream-
lined the process to make it fast and
easy. Early results have been beyond
our expectations, requiring only a few
minutes for existing customers to add
checking or savings accounts and
only a few minutes longer for custom-
ers who are new to Chase to join us.
During one day in February, we
opened two accounts every minute.
99
- STEPHEN HAWKING
Intelligence is the ability to adapt to change.
66
49
We know we have an extraordinary
leadership position, and we do not
take it for granted for a second.
Across industries, the mighty have
fallen - and we do not think we are
immune. The key for us now is to
invest, innovate and speed up
to serve customers. As we look
ahead, we will be laser focused on
If this organization has proved one
thing, it's that we can move and
adapt quickly for a company of our
size. We are experiencing another
period of extraordinary change. The
pace of technology is accelerating
faster than most businesses can
absorb. Industry after industry is
being disrupted as emerging players
develop better customer experiences,
faster than incumbents can innovate.
API-based platforms allow software
developers to build onto experiences,
and we see services converging.
Looking ahead
#1 in primary bank relationships
within our Chase footprint
At the same time, we are planning
and preparing for the changing
industry conditions that will affect
the business over the medium term,
Consumer deposit volume has
grown at a rate more than twice
the industry average since 2012
Gordon
Providing easy-to-use technology in
order to deliver a great client experi-
ence will continue to be a major
differentiator in the coming years.
That's why we are always exploring
ways to offer our clients faster, better
and simpler ways to do business
with us. The banks that don't invest
will lose ground and will have a long,
difficult catchup process.
cent about them. Each day, our
employees know that J.P. Morgan has
to earn client business with innova-
tive solutions that tap the appropriate
mix of our products. More than ever,
that means delivering best-in-class
ideas and service through cutting-
edge technology.
Maintaining share, and even growing
it, in recent years hasn't been easy.
Having scale and expertise across a
set of businesses enabled us to sus-
tain profitability under various market
conditions. And while we take pride
in our standings, we aren't compla-
To cite some examples, CB's universe
of more than 20,000 clients has access
to the CIB's treasury services and
foreign exchange products as a result
of the close working relationship
they share. On the strength of that
relationship, nearly 40% of North
America Investment Banking fees
were derived from CB clients - a
record. Family office clients served
by AWM are often interested in
investing in the types of transactions
the CIB brings to market, and the
CCB's relationships with major
merchants and businesses generate
opportunities as these businesses
need to raise capital, seek advisory
expertise or require payments services.
Our CIB franchise also benefits from
being part of JPMorgan Chase and
collaborating with our firmwide
partners: Commercial Banking (CB),
Asset & Wealth Management
(AWM) and Consumer & Community
Banking (CCB).
In 2017, the CIB generated earnings
of $10.8 billion on $34.5 billion of
revenue, resulting in a return on
equity (ROE) of 14% that allowed us
to continue our pace of investment
in our people and technology.
Staying true to our character and
reputation, we also knew we had to
be open for business under all market
conditions, not just when markets
were strong. Whether in Europe,
Latin America, Asia or North America,
our teams have worked hard, built
trust and gained share in recent years.
But the seeds of our current strength
were planted years ago. As other banks
retrenched, cutting back on products
and geographies, we chose a different
path. We believed that growth would
come from being global, having scale
and maintaining a complete product
offering for clients. Those elements
anchored the profitability that enabled
us to invest consistently and to sus-
tain our growth, all while improving
the client experience.
During 2017, the Corporate &
Investment Bank (CIB) maintained its
position as the most successful and
profitable institution of its kind.
Corporate & Investment Bank
51
at community branch events where our employees helped our customers and
members of the community.
After Hurricane Harvey in Houston, a city where we have served people and
businesses for 151 years, we provided more than $30 million in immediate
relief, worked with customers on over $1.2 billion in loans and mortgages, and
waived certain fees. After the storm, we hosted 1,400 Houston area neighbors
.
Here to Help
We're Here to Help
2017 Bank Brand of the Year
(The Harris Poll)
•
#3 bank auto lender
#1 wholly-owned merchant
acquirer
#1 in total U.S. credit and debit
payments volume
#1 credit card issuer in the U.S.
#1 ATM network in the U.S.
#1 in Retail Banking for five years
in a row (Kantar TNS)
#2 jumbo mortgage originator
#1 U.S. co-brand credit card
issuer
#1 most visited banking portal in
the U.S.- chase.com
Co-President and Chief Operating Officer,
JPMorgan Chase & Co., and
CEO, Consumer & Community Banking
Gordon Smith
focused on how we can serve our
customers. Thank you for your sup-
port of this great company, and I
look forward to our best days ahead.
The CIB had earnings of $10.8 billion
One such success story is siggi's yogurt
(siggi's), celebrated as the fastest-
growing national yogurt brand in
2017. What started as selling his
unique recipe out of coolers at local
outdoor markets in New York,
founder Siggi Hilmarsson quickly
turned his humble operation into a
thriving business. Up until 2016,
Siggi and his team had fully funded
the company on their own, but when
their growth accelerated, we worked
with them to deliver their first bank
credit facility. As Siggi shaped the
company's plans for the future, we
provided differentiated industry
advice, and in 2017, we were selected
to advise siggi's on the sale of the
company - the capstone transaction
for an incredible brand and business.
At every step, we were delighted to
support Siggi's passion to share his
native Icelandic recipe with house-
holds around the country.
a best-in-class ROE of 14%.
•
•
• Commercial Term Lending -
Record average loans; completed
rollout of Commercial Real
Estate Origination System for
MFL business
Corporate Client Banking - Record
revenue, with average loans up
10% from prior year
revenue³; added eight new offices
Middle Market Banking - Record
gross Investment Banking
Business segment highlights
Winner of 2017 Greenwich
Excellence Awards in Middle Market
Banking: international capabilities,
cash management online banking
functionality, cash management
mobile banking functionality
Winner of 2017 Greenwich Best
Brand Awards in Middle Market
Banking overall, loans/lines
of credit, cash management,
international products/services
and investment banking
•
Top 3 in Overall Middle Market,
Large Middle Market and Asset
Based Lending Bookrunner²
perceived satisfaction, customer
relationships and transactions/
payments processing - CFO
magazine's Commercial Banking
Survey, 2017
#1 in overall satisfaction,
.
#1 U.S. multifamily lender¹
- net charge-off ratio of 0.02%
Continued superior credit quality
Generated return on equity of 17%
on $20 billion of allocated capital
•
•
•
.
• Grew end-of-period loans 8%;
30 consecutive quarters of
loan growth
Delivered record revenue of
$8.6 billion
Performance highlights
2017 HIGHLIGHTS AND ACCOMPLISHMENTS
•
CEO, Commercial Banking
Leadership positions
Real Estate Banking - Record
revenue, with average loans up
27% from the prior year
Community Development Banking
- Record New Market Tax Credit
equity investment production of
$1.2 billion - Financed more than
9,000 units of affordable housing
in 70+ cities through construction
lending commitments of over
$1 billion
Firmwide contribution
for all three products by 45 minutes,
and we saw engagement with new
Business Banking households with
both deposit and credit card accounts
increase 25% with this change.
We also reached many new customers
through important partnerships. In
the Card business, many consumers
want rewards for items they buy. In
2017, we completed co-brand renewals
for partner cards with Disney, Hyatt
and Marriott. We also launched the
popular Amazon Prime Rewards Visa
card and helped drive double-digit
year-over-year sales growth for the
Amazon portfolio. In addition to sign-
ing new, strategic Chase Pay® partner-
ships with PayPal and The Kroger Co.,
we launched acceptance of Chase Pay®
across merchants such as Cinemark,
Wakefern Food Corporation and
Walmart. And in Auto, we renewed
our contract with Subaru of America,
extending our partnership.
Profitability
We always have said short-term
growth is not our goal, but profitable
growth over the long term is. We
never make decisions to drive short-
term earnings and always focus on
investing for long-term results. We
are proud of the work we have done
to bring down our structural expense,
allowing us to invest more in our core
businesses. The CCB overhead ratio
has from 61% in 2011 to 56% in
gone
2017, with a medium-term target of
50%+/-. Delivering on that will allow
us to further increase our investments
in technology and digital, as well as to
move with greater speed to market.
These investments matter: Digital is a
more efficient way to serve our
customers, and our digitally engaged
customers are happier with us and
are more likely to stay with Chase.
Our goal is to be the easiest bank for
customers to do business with.
Controls
Controls are the checks, balances and
safeguards we rely on to do our work
effectively. Controls help us avoid
errors and adhere to all requirements
and regulations. Controls are an ongo-
ing discipline for us, but we believe
the worst is behind us. In 2017, three
of our consent orders were lifted.
Early in 2018, the Federal Reserve
lifted our Home Lending consent
order, recognizing the improvements
we have made since the financial
crisis; the Office of the Comptroller of
the Currency lifted its own foreclosure
consent order in 2016.
People
We think we have the greatest team
on the field with our 134,000 Chase
employees. Our steady focus on creat-
ing a great employee experience and
investing in our people has made us a
stronger business. We promoted more
than 15,000 people in 2017 and filled
over 16,000 roles with internal candi-
dates. During the year, the firm
invested in excess of $300 million on
employee training to keep everyone's
skills current in a changing economy.
Our team reflects the customer base
we serve: More than 58% of our
employees are female, and over 53%
are minorities. Although we are proud
of our progress in increasing diversity
among our senior leadership, we still
have work to do.
We have also made several changes
to help support our people. For the
second time in two years, we raised
wages for 22,000 employees to $15 to
$18 an hour, depending on the local
cost of living. These increases are on
top of our full benefits package,
which averages $12,000 for employees
in this pay range
and a lower medical
deductible to protect families from
sudden medical expense.
Perhaps the proudest moment of
2017 came when this firm and our
people stepped up to help communi-
ties in need, as hurricanes, fires
and mudslides devastated several
communities in the U.S.
58
CAGR = Compound annual growth rate
MFL Multifamily lending
5 Non-U.S. revenue from U.S. multinational
clients
Represents the percentage of CIB's North
America IB fees generated by CB clients,
excluding fees from fixed income and
equity markets, which is included in CB
gross IB revenue
3 Investment Banking and Card Services
revenue represents gross revenue
generated by CB clients
2 Thomson Reuters LPC, FY17
Rank based on S&P Global Market
Intelligence as of 12/31/17
International Banking - Revenue of
$323 million; 8% CAGR since 2012
⚫ Investment Banking - Record gross
revenue of $2.3 billion³; 8% CAGR
since 2012
Middle Market expansion - Record
revenue of $519 million; 18% CAGR
since 2012
Progress in key growth areas
•
revenue
$3.4 billion in Treasury Services
$479 million in Card Services
revenue³
Over $135 billion in assets under
management from Commercial
Banking clients, generating more
than $475 million in investment
management revenue
Commercial Banking clients
accounted for 38% of total North
America Investment Banking fees4
Douglas Petno
Ding
I want to thank all of our great clients,
like siggi's, for the trust and confi-
dence they place in JPMorgan Chase.
I also want to thank the entire CB
team for their continued dedication
to our clients and their communities.
I am excited about the direction of
the business for 2018 and beyond.
granted. We understand that compla-
cency and standing still in any way
will threaten the future success of
our business. As such, we remain
focused on building upon our fran-
chise to provide even more support
to our clients. By combining the core
strength of our business with new
technologies and innovation, we
believe we can further extend our
competitive advantages.
56
Expansion is only one part of our
growth strategy - deepening our rela-
tionships with our clients is equally
important. Given the breadth of our
capabilities, we can support the needs
of businesses of all sizes - fast-growing
companies, like siggi's, as well as
large, multinational corporations.
With the quality of our team, differ-
entiated advice, and ability to deliver
a full range of solutions locally, not
many other banks can serve clients the
way we can. In 2017, our clients had
more than $135 billion in assets man-
aged by our leading Asset & Wealth
Management business, generated
nearly 40% of all North America
Investment Banking (IB) fees for the
Corporate & Investment Bank (CIB),
and made over 13 million transactions
in our branches.
Delivering value to our clients
Our success depends 100% on our
people. As such, we are making sig-
nificant investments in our training
and development capabilities, all
focused on providing our bankers
with the deep expertise they need to
best serve our clients. In 2017, we
hired more than 100 bankers to sup-
port the growth and expansion of our
business, and we expect to add more
great bankers in the coming year.
Investing in our team
Being able to deliver the broad-based
capabilities of JPMorgan Chase at a
very local level is a key competitive
advantage. In 2017, we added client
coverage in six new high-potential
markets and now have dedicated
teams in all of the top 50 metropolitan
statistical areas. We look forward
to growing our business in these
terrific locations and expanding into
additional communities in the future.
Expanding into new markets
Our strategy to grow CB remains
consistent year after year: Add great
clients and work hard to deepen
those relationships over time by
delivering valuable solutions to help
them succeed. We have been steadily
investing in the business, taking a
long-term disciplined approach. Since
2010, we have expanded into 33
new cities and added more than 800
bankers, helping us achieve sustained
organic growth across our business.
Executing our long-term, organic
growth strategy
These record results reflect our
sustained investment, the incredible
effort of the CB team and their con-
tinued focus on our clients. We are
committed to building upon these
great milestones and see tremendous
potential across our franchise.
Higher interest rates, disciplined
loan growth and outstanding credit
quality all contributed to our record
performance. We ended the year
with record loan balances across our
Commercial & Industrial and Com-
mercial Real Estate (CRE) businesses,
up $15 billion or 8% from the prior
year. Staying true to our proven
underwriting standards, we have
remained highly selective in growing
our loan portfolio – 2017 marked
the sixth straight year of net charge-
offs of less than 10 basis points.
This ongoing discipline is especially
important given the late stages of
the current economic cycle and com-
petitive pressures in the market.
equity of 17% and an industry-leading
overhead ratio of 39%, even while
making significant investments
across the business.
CB delivered record financial results
for 2017, earning $3.5 billion of net
income on revenue of $8.6 billion.
We achieved a notable return on
With strong momentum across all of
our businesses and continued focus
on executing our strategic priorities,
2017 performance
Our dedication to clients, like siggi's,
continues to drive our strategy and
how we do business in CB. I'm
excited to share highlights of our
2017 performance, the investments
we are making to deliver more value
to our clients and the steps we are
taking to reach our full potential.
This is when our company is at its
best. We made more loans, extended
loan payments, waived late fees and
made investments to support the
long-term recovery in these commu-
nities. We also reached out to help
the hundreds of our employees who
were affected directly. Our employee-
to-employee giving fund showed the
tremendous generosity of employees
looking out for each other in times
Commercial Banking (CB) is the nexus
of everything we do at JPMorgan
Chase. The hard work of our dedicated
team, along with the unmatched
capabilities across our firm, allows us
to build deep, lasting relationships
with so many great companies. We
are incredibly proud of the role we
play in the success of our clients,
and we are grateful every day for the
confidence they place in us.
Commercial Banking
55
Custody & Fund Services had a
record $23.5 trillion in assets
under custody while also achiev-
ing the highest ever client satis-
faction and retention levels.
Treasury Services revenue rose
to $4.2 billion, an increase of 15%
over 2016, and continued momen-
tum in Custody & Fund Services
drove 9% growth in Securities
Services revenue for the year.
⚫ Institutional Investor magazine's
survey of large investors ranked
J.P. Morgan as the #1 Global
Research Firm. Across individual
categories, J.P. Morgan ranked
#1 in All-America Fixed Income
Research and All-Europe Fixed
Income Research. It also ranked #1
in All-America Equity Research and
ranked #2 in Emerging Markets.
⚫ The CIB continued investing in
technology to offer clients a
broader array of trading platforms
while making it easier and faster
to trade with us.
M&A was #1 in the number of
deals completed: 354.
in U.S. IPO volume and in the
number of deals.
Equity Capital Markets was #1
Debt Capital Markets was #1 in
closing deals, setting a record for
the highest number of deals book-
run in the firm's history.
We retained our #1 ranking in global
Investment Banking fees with an 8.1%
market share, according to Dealogic.
We have been building a CRE busi-
ness that will stand the test of time.
Although we are in the late stages
of the real estate cycle, market condi-
tions for our targeted asset classes
remain strong, and we were able to
grow our CRE loan portfolio by $12
billion in 2017. Importantly, maintain-
ing our strict underwriting standards
and conservative approach, we are
focusing only on the loans and mar-
kets we know best. If we can stay true
to these fundamentals, we believe we
can continue to selectively grow our
real estate loan balances.
on $34.5 billion of revenue, producing
Innovating across CB
have unique behaviors and concerns.
They tell us they don't feel in control.
Small business owners and their
teams can be stretched, and they
struggle with forecasting, collecting
receivables and managing vendors.
To help, this past year we increased
our payments, technology and digital
investments and put more capital
and resources into delivering real
solutions to these challenges.
While we celebrate CB's record 2017,
we do not take our performance for
Looking forward
make it easier for clients to do busi-
ness with us. For example, we are
working to streamline and digitize
the onboarding process to ensure
that our clients' first experience with
JPMorgan Chase is simple and trans-
parent. Through these efforts, clients
will be able to provide information
electronically, e-sign and upload doc-
uments digitally, and receive real-
time support via online chat capabili-
ties. Clients are at the center of
everything we do, and our work to
deliver more value and an excep-
tional experience has no finish line.
57
Earnings
Revenue
B = Billion
2 Based on total count of client-facing employees
1 Number of Metropolitan Statistical Areas (MSAs) with Middle Market Banking presence out of top 50 MSAS
Bankers²
2017
2010
Markets¹
$2.1B
$6.0B
~1,000
35
$3.5B
$8.6B
~1,800
50
Sustained Growth Across Commercial Banking
In addition to offering new capabili-
ties, we are making great progress in
re-engineering our core processes to
Client experience
Recognizing that managing pay-
ments is a major pain point for our
clients, we completed a comprehen-
sive analysis to determine a digital
solution. In 2017, we announced our
investment in and partnership with
Bill.com, the largest digital business-
to-business payments network in the
U.S. Seamlessly integrated into
Chase Connect, this new automated
payments capability will enable our
clients to easily send and receive
electronic invoices and payments,
saving them substantial time and
effort. We are very excited about this
innovative solution and look forward
to bringing this functionality to our
clients in 2018.
Payments
integrated, digital capabilities for
clients and will continue to invest in
enhancing the functionality of this
robust platform.
In 2017, we partnered with Consumer
& Community Banking to launch a
new digital platform, Chase Connect,
that is tailored to meet the needs of
small and midsized companies. This
platform provides our clients with a
simple and convenient experience,
integrating account information, pay-
ables and receivables. Chase Connect
allows clients to see all of their
accounts in one place, stay organized
when paying bills, view payment
history, approve transactions quickly
and easily from one location, and
receive customized account alerts.
We are focused on having the best
Digital
Complementing our investments to
drive growth in our business, we are
working to bring new technologies
and innovation to transform how
we interact with our clients. Our
approach to innovation is anchored
on having a full understanding of
the identified, as well as unidentified,
needs of our clients. Over 99% of
companies in the U.S. are small to
midsized businesses. We know they
of need. And from Houston to South
Florida to the Bay Area, you could
see the blue shirts of our Good Works
volunteers helping out distributing
food and water, clearing debris and
helping however they could. Business
has a broader social role to play, par-
ticularly now, and it's possible that no
company can do as much as ours.
Smart growth in our CRE business
APPLE
CEO
TIM COOK
Best New Active ETF (ETF.com,
March 2017)
IT Team of the Year
(Banking Technology magazine,
December 2017)
Social Media Leader of the Year
(Fund Intelligence, March 2017)
61
Corporate Responsibility
One reason for JPMorgan Chase's
enduring success is that we have
always recognized that businesses
operate within the context of their
communities - and when our com-
munities thrive, our business thrives.
Despite so much progress and so
many economic gains, we know that
many are still struggling. Millions
in our communities and throughout
the world live daily with economic
uncertainty, just one unexpected
expense
from the financial edge.
Best New Alternatives ETF and
66
That is precisely what JPMorgan
Chase is doing. Through our model
for driving inclusive growth, we are
undertaking significant, long-term
initiatives and are making strategic
investments focused in areas where
we can draw on our firm's resources
and capabilities to have the greatest
impact: building skills for today's
high-quality jobs, expanding small
At JPMorgan Chase, we view it as a firmwide
objective to be a positive force in society and to help
solve today's biggest challenges.
Young people entering the labor
market are finding themselves stuck
in low-skill, low-wage jobs or worse,
entirely disconnected from employ-
ment, education or training. When
so many are left behind, we all feel
the consequences: It sows division,
erodes trust in our institutions and
undermines confidence in our sys-
tems. We all have a stake in creating
more widely shared prosperity.
Economic growth fuels economic
opportunity, so the momentum we
are seeing in economies around the
world should be unequivocally
heralded as good news. Yet it is not
preordained that an expanding econ-
omy automatically translates into
greater opportunity for all. Rather, it
requires deliberate action and mean-
ingful collaboration. Government
and the nonprofit sector will continue
to play vital roles, but the private
"
businesses, revitalizing neighbor-
hoods and promoting financial health.
Our firm's model is yielding real
results - so we
- so we 
are scaling it with a
40% increase in our annual commu-
nity investments. Whether times are
good or tough, our firm has always
supported our communities, but the
strong and sustained performance
of our company, recent changes to
the U.S. corporate tax system, and a
more constructive regulatory and
business environment are enabling
us to do even more. The net result is
that JPMorgan Chase will invest a
total of $1.75 billion over the next five
years to help drive inclusive economic
growth in local communities.
In 2017, for example, we announced
comprehensive, multi-year initiatives
to expand opportunity for the
residents of Chicago's South and
West sides and Washington, D.C.'s
underserved neighborhoods. Our
commitments to these cities are
based on the successful approach we
developed and refined through our
firm's $150 million investment in
Detroit's economic recovery, which
Fortune magazine cited in naming
us #1 on its list of companies that
are changing the world.
sector must step up and do more to
ensure that everyone shares in the
rewards of a growing economy.
At JPMorgan Chase, we view it as a
firmwide objective to be a positive
force in society and to help solve
today's biggest challenges. We are
deeply proud of the ways we are
making a real difference in people's
lives through our strategic philan-
thropic investments, but this is just
one example of how we are stepping
up. Across our firm, we are leverag-
ing our resources, capabilities and
core business to, in short, invest in
opportunity-something we know
pay dividends not only for
our communities but for our firm
as well.
Top Pan-European Fund
Management Firm (Thomson
Reuters Extel, June 2017)
Best Private Bank in Asia for
Ultra-High-Net-Worth (The Asset,
July 2017)
Business highlights
•
Fiduciary mindset ingrained since
mid-1800s
Record average loan balances
of $123 billion
•
Positive client asset flows every
year since 2004
Record revenue of $12.9 billion
Best Asset Management Company
in Asia (The Asset, May 2017)
.
Record $2.8 trillion in client assets
•
Record average mortgage
balances of $37 billion
Retention rate of 98%
for top senior portfolio
management talent
Leadership positions
#1 Private Bank Overall in
North America (Euromoney,
February 2018)
#1 Private Bank Overall in
Latin America (Euromoney,
February 2018)
Record pre-tax income of
$3.6 billion
will
Peter L. Scher
Head of Corporate Responsibility and
Chairman of the Mid-Atlantic Region
• The gender gap in financial outcomes and
lasting impacts of major medical payments;
• The burden and dynamics of health
insurance premium payments for small
business owners;
•
The challenges that U.S. small businesses face
in managing payroll growth and volatility;
Resident access to everyday goods and
services in Detroit and New York City;
A full year of the Local Consumer Commerce
Index, measuring consumer spending growth
within and across 14 U.S. cities each month;
How an anticipated drop in mortgage pay-
ments, resulting from lower interest rates,
impacted household consumption; and
The impact of payment and principal reduc-
tion on default and consumption provided
by mortgage modifications.
a high frequency view at the state, metro
and county level;
63
2017 HIGHLIGHTS AND ACCOMPLISHMENTS
FORTUNE RANKS JPMORGAN CHASE #1
ON "CHANGE THE WORLD" LIST
"Thanks to Detroit, the bank is confident that this
full-court-press approach is a blueprint that could
work across the country - and in the next few
months, they'll be taking components of the Motown
model nationwide."
Excerpted from “How JPMorgan Chase Is Fueling Detroit's Revival,"
Fortune (September 15, 2017)
JPMorgan Chase's investment in Detroit is
yielding real results. To date, we have
deployed $117 million in loans and grants
to accelerate the city's economic recovery.
This investment is allowing more than
15,000 adults and young people to receive
skills training for in-demand jobs; supporting
development projects that have created or
preserved over 900 jobs, more than 1,300
housing units and over 177,000 square feet
of commercial space; and providing more
than 2,200 entrepreneurs with technical
assistance and access to capital, creating or
maintaining more than 1,100 jobs.
Scaling innovative, high-impact models to
create opportunity for more people:
Expanded the Entrepreneurs of Color
(EOC) Fund to the South Bronx in New
York City and San Francisco. We first
launched the EOC Fund in Detroit in 2015
to provide underserved entrepreneurs
with greater access to capital and assis-
tance needed to grow and thrive. To date,
the fund has lent or approved nearly $4.7
million to more than 45 minority-owned
small businesses, resulting in over 600
new or preserved jobs.
LIVE PACKL
MAXWEL
Fit4fe
$
A first-of-its-kind look into out-of-pocket
healthcare spending by U.S. consumers with
•
• U.S. household expense volatility, particu-
larly in the wake of extraordinary medical
payments;
62
Investing in opportunity
JPMorgan Chase believes there is a pressing
need to expand access to opportunity and help
more people move up the economic ladder.
Through our proven model for driving inclusive
growth, we are taking a strategic, data-driven
approach to doing just that.
Our efforts are focused on what our experience
has shown are universal pillars of opportunity,
and we are undertaking significant, long-term
global initiatives that directly leverage our firm's
worldwide presence, expertise and resources.
Extending our model for impact
We refined this model through our work in
Detroit, where, in 2014, we launched our most
comprehensive initiative to date. Combining
philanthropic investments and our core
business expertise, we have been working to
address some of Detroit's biggest economic
challenges, from catalyzing commercial
development and boosting small business
growth to revitalizing neighborhoods and
equipping Detroiters with the skills to secure
well-paying jobs.
Meaningful collaboration among the city's
leaders, business community and nonprofit
sector has been the fundamental driver of
the progress we are seeing to date and has
allowed us to accelerate our initial investment.
In just three years, and two years ahead of
schedule, we exceeded our initial $100 million
commitment and now expect to invest $150
million in the city by 2019.
Our comprehensive efforts in Detroit have
yielded important insights, which we are turning
into action in other communities that are facing
similar challenges. In 2017, we extended our
model for impact to Chicago and Washington,
D.C. Our comprehensive, multimillion-dollar
commitment to each city will focus on driving
inclusive growth in underserved neighborhoods,
where economic opportunity is increasingly
out of reach.
Advancing sustainability for our
clients and within our operations
As a company with clients and operations
around the world, JPMorgan Chase is in a
unique position to leverage our expertise to
promote sustainable business practices
and help clients capitalize on opportunities
arising from the transition to a more sustain-
able global economy.
While JPMorgan Chase has a long-standing
commitment to protect the environment and
advance sustainability for our clients and
within our own operations, we recognize that
today's challenges call for an even greater
commitment.
In 2017, we pledged to source renewable
energy for 100% of our global power needs
by 2020. JPMorgan Chase has offices and
operations in over 60 countries across more
than 5,500 properties, covering nearly 75 million
square feet. To increase energy efficiency, we
are retrofitting our branches with the world's
largest LED lighting installation - a total of
1.4 million new lightbulbs. This move is likely
to cut our lighting energy consumption in
half, which is the equivalent of taking 27,000
cars off the road.
We are also developing an on-site solar
installation at the firm's largest single-tenant
office. This will comprise up to 20 megawatts
of capacity, which is enough to power the
equivalent of 3,280 homes. Additionally, we are
supporting the development of new renewable
assets by contracting for long-term power
off-take from wind and solar projects on the
grids from which JPMorgan Chase purchases
power. As a first step, we are purchasing power
from the Buckthorn wind farm, a 100-megawatt
project in Erath County, Texas.
Finally, as one of the largest financiers of
energy in the world, we pledged to facilitate
$200 billion in clean financing through 2025.
Through this commitment, JPMorgan Chase
will help scale the impact of sustainability
efforts among more than 20,000 corporate
and investor clients in the U.S. and across
the world.
The size, scope and global reach of our firm
allow us to take on big challenges and to drive
progress that few can match.
Harnessing the power of data
Delivering data and analyses is central to our
model for impact. The JPMorgan Chase Institute
is harnessing the scale and scope of one of
the world's leading financial firms to better
understand the economy. Its mission is to help
policymakers, businesses and nonprofit leaders
use better facts, timely data and thoughtful
analysis to make smarter decisions to advance
prosperity. Drawing on JPMorgan Chase's unique
proprietary data, expertise and market access,
the Institute frames and provides analysis of the
most critical economic challenges of our time.
In 2017, the Institute shared important insights
and thoughtful analyses on:
2017 HIGHLIGHTS AND ACCOMPLISHMENTS
Mary Callahan Erdoes
CEO, Asset & Wealth Management
Wany
making to position ourselves for
the future. We have been working
for two centuries as stewards of
our clients' wealth to continuously
refine what we do and how we do it.
We remain committed to delivering
first-class business and that in a
first-class way.
of the 10 worst days
• The best day of 2015 -
August 26 - was only
two days after the worst
day - August 24
$20,030
1.15%
return
-0.91%
$12,569
Six of the 10 best days
occurred within two weeks
return
-4.52%
return
-6.11%
$8,331
return
return
$5,669
-2.80%
3.53%
return
$40,135
7.20%
return
CAGR: 5%
$3.5
$3.6
$2.8
2012
2016
2017
2012
2016
2017
2012
2016
2017
CAGR Compound annual growth rate
EOP End of period
59
Returns of S&P 500
Performance of a $10,000 investment between
January 2, 1998 and December 29, 2017
$3,965
Expanded The Fellowship Initiative (TFI) to
Dallas and recruited new classes of Fellows
in Chicago, Los Angeles and New York City.
This program seeks to address barriers to
opportunity for young men of color and
to position them for success by engaging
them in comprehensive training that
Fully
invested
Missed 20
best days
Fixed Income
81%
Multi-Asset Solutions
& Alternatives
90%
1 For footnoted information, refer to slide 98 in the 2018
JPMorgan Chase Strategic Update presentation, which is available
on JPMorgan Chase & Co.'s website (https://www.jpmorganchase.
com/corporate/investor-relations/document/3cea4108 strategic
update.pdf), under the heading Investor Relations, Events &
Presentations, JPMorgan Chase 2018 Investor Day, and on Form 8-K
as furnished to the SEC on February 27, 2018, which is available on
the SEC's website (www.sec.gov)
60
87%
Last year, we formed a new business,
Intelligent Digital Solutions (IDS), to
help drive our efforts around digital
transformation and big data. This
group is unifying and optimizing our
use of data analytics to transform
how we apply these added insights
efficiently and effectively in manag-
ing portfolios. IDS also is helping us
digitize everything we do to make it
easier for clients to gain 24/7 access
to our investment ideas, insights
and execution.
Simplify for growth
Our goal is not to be the biggest asset
manager but rather to be the best at
what we do. Knowing that what has
made us successful in the past will not
necessarily be sustainable or sufficient
for the future, we relentlessly chal-
lenge ourselves to focus on the prod-
ucts and services that are most
important to clients and in which
we have a competitive advantage.
We bring equal parts innovation
and introspection in evaluating
where to place our extra investment
dollars and resources to ensure we
have a differentiated offering. Last
year, we launched more than 70
new fund strategies to our platform,
a third of which are in our Beta
Strategies lineup.
At the same time, if we aren't con-
vinced we have a long-lasting advan-
tage, we realign those resources to
areas in which we do. In 2017, we
liquidated or merged more than 70
funds and implemented significant
fee reductions on 58 different funds
across 235 share classes.
Above all, first-class business in a
first-class way
I am proud of what we have
delivered for our shareholders and
clients and am even more excited
about the investments we are
Additionally, we are building a digital
wealth offering that provides clients
access to proprietary tools that can
complement their personal relation-
ship with an advisor or be used
when they want to interact with us
entirely online. Ultimately, we want to
be at the intersection of human and
digitally enhanced advice.
Equity
86%
10-year
Missed 30
Missed 40
best days
best days
Missed 50
best days
$2,834
Missed 60
best days
Source: Prepared by J.P. Morgan Asset Management
using data from Bloomberg. Returns based on
the S&P 500 Total Return Index. For illustrative
purposes only. Past performance is not indicative of
future returns
The primary reason clients turn
to J.P. Morgan to manage their
assets is because of our strong and
consistent investment performance.
In 2017, 86% of our long-term
mutual fund assets under manage-
ment outperformed the peer
median
in the 10-year period, including
87% for equity, 81% for fixed
income, and 90% for multi-asset
solutions and alternatives.
Covering the full spectrum of
clients
AWM delivers investment
advisory expertise to clients across
the firm, ranging from Chase
customers investing their first
$100 to the world's wealthiest
individuals and families. We also
manage the portfolios of many of
the largest sovereign wealth funds,
pension funds and central banks
in the world.
Across the Wealth Management
business, in addition to invest-
ments, we help clients with their
banking needs. This ranges from
cash deposits to loans across many
areas from real estate to invest-
ment capital for a new business.
The deposit base of these private
clients has grown consistently over
the
past five
years, achieving a 10%
CAGR and reaching nearly $300
billion. On the lending side, year-
end spot balances of $134 billion
represent a 9% CAGR over the past
five
years. This was accomplished
with a well-managed risk profile,
resulting in strong and consistent
credit performance, and low
charge-offs of less than 10 basis
points over a cycle.
In addition to traditional investing
and banking, AWM has developed
a full suite of solutions to meet
the complexity of our clients' needs
- from alternative investments
to trust and estate planning to
philanthropic advice. Our platform
is among the most comprehensive
in the industry, enabling us to
serve clients across both sides of
their balance sheet and to offer
insights and expertise into virtually
every area of their financial life.
As wealth grows around the world,
we continue to hire advisors to
deliver J.P. Morgan's capabilities to
more clients. We expect to hire
in excess of 1,000 advisors over the
coming years to expand in both
new and existing markets. Our
extensive experience in hiring
and training has led our advisor
productivity to rank among the top
in the industry.
An increasingly digital world
Our clients' needs and behaviors
are changing - and we are changing
along with them.
% of J.P. Morgan Asset Management
Long-Term Mutual Fund AUM Over
the Peer Median¹
(net of fees)
Total J.P. Morgan
Asset Management
Missed 10
best days
($ in billions)
•
°
93,543 $ 95,112 $
97,367
58,434
55,771
59,014
61,274
70,467
$
41,190
34,529
33,838
26,900
5,290
5,361
3,827
3,139
39,897
225
99,624 $ 95,668
2013
Income tax expense
Net income (a)
Earnings per share data
Net income:
Basic
Diluted
Average shares:
$
Basic
Market and per common share data
Market capitalization
Common shares at period-end
Share price:(b)
2016
2015
2014
Diluted
35,900
34,536
30,702
4.38
$
5.33
$
6.05
6.00
6.19
3,658.8
3,690.0
3,551.6
3,576.8
5.29
6.31
6.24
6.35 $
$
17,886
$
21,745
24,442 $
$
4.34
3,741.2
3,773.6
3,808.3
30,699
26,675
11,459
9,803
6,260
8,954
8,789
$
Low
High
3,756.1
3,714.8
241,899 $ 232,472 $ 219,657
3,663.5
$
$ 366,301 $ 307,295
3,425.3
3,561.2
3,832.4
3,864.9
3,842.3
Income before income tax expense
Provision for credit losses
Pre-provision profit
Total noninterest expense
Underwrote $13.5 billion in green bonds
and bonds with a sustainable use of proceeds.
⚫ In 2017, provided $1.2 billion for wind and
solar projects in the U.S. Since 2003,
JPMorgan Chase has committed or arranged
over $18 billion in financing for wind, solar
and geothermal energy projects in the U.S.
•
Announced eight financial services innovators
as winners of the third competition of the
Financial Solutions Lab (FinLab), which is
focused on improving the financial health of
overlooked populations. To date, FinLab has
supported 26 fintech companies offering
innovative financial products to help more
than 2.5 million Americans improve their
financial health. Collectively, these companies
have raised over $250 million in capital since
joining the program. More than 100 JPMorgan
Chase employees have provided mentorship
to the companies as part of the Lab.
JPMorgan
lod works
Index, BankingOnMyCareer.com and
Credential Engine.
PMorgan
Engaging our employees:
We are putting the knowledge and
expertise of our people to work for our
communities. In 2017, 56,000 of
our employees volunteered more than
383,000 hours of their time. And
through the JPMorgan Chase Service
Corps, a program that leverages the
energy and skills of top talent to assist
nonprofit partners, nearly 80 employee
volunteers from offices in more than a
dozen countries have contributed over
11,500 hours to help 20 organizations
address critical needs.
We are committed to supporting the
communities where we work and live in
their time of greatest need. In 2017, in
the wake of an unprecedented number of
natural disasters, our firm and employees
donated $7.8 million to assist disaster
relief efforts around the world.
Table of contents
Financial:
38 Five-Year Summary of Consolidated Financial
Highlights
39 Five-Year Stock Performance
od works
pathway tools such as the Good Jobs
launch of innovative workforce and career
•
56 COMPANIES
THAT ARE CHANGING THE WORLD
FOR NE
HEDGE
FUND TITAN
MASS
MASS
CEO
EXODUS
FORD'S
NEW BOSS
BANKING ON
DETROIT
Now JAMIE DIMON AND JPMAN CHASE
100
includes academic support, mentoring
and leadership development at a critical
juncture in their lives. One hundred
percent of TFI Fellows are graduating from
high school, and, collectively, they have
been accepted into more than 200 colleges
and universities across the country.
2141
Expanded innovative apprenticeship
models and career-focused programs
that equip high school students with the
skills and education they need to pursue
well-paying, long-term careers through
the launch of New Skills for Youth
innovation sites in New York City's South
Bronx and across three provinces in
South Africa and four provinces in China.
In the United Kingdom, we received the
Queen's Award for Enterprise for Promoting
Opportunity for the firm's Aspiring Profes-
sionals Program, which exposes young
people from low-income backgrounds in
London to new career opportunities.
Engaged more than 1,800 young people
in summer jobs and other work-related
experiences in 19 cities across the U.S.
Invested more than $43 million in 164 job
training and career education initiatives
in 35 countries around the world - including
in Mexico, the Philippines and the United
Kingdom - to prepare people with the
skills they need to be successful in growing
industries.
Increased labor market transparency and
efficiency through the development and
о
Management's discussion and analysis:
•
40 Introduction
Executive Overview
Notes to Consolidated Financial Statements
Supplementary information:
277 Selected quarterly financial data (unaudited)
278 Distribution of assets, liabilities and stockholders'
equity; interest rates and interest differentials
283 Glossary of Terms and Acronyms
Note:
The following pages from JPMorgan Chase & Co.'s 2017
Form 10-K are not included herein: 1-36, 290-301
37
153
JPMorgan Chase & Co./2017 Annual Report
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS
(unaudited)
As of or for the year ended December 31,
(in millions, except per share, ratio, headcount data and where otherwise noted)
2017
Selected income statement data
Total net revenue
Financial
148 Consolidated Financial Statements
147 Report of Independent Registered Public Accounting
Firm
Management's Report on Internal Control Over
Financial Reporting
44 Consolidated Results of Operations
47 Consolidated Balance Sheets and Cash Flows Analysis
50 Off-Balance Sheet Arrangements and Contractual
Cash Obligations
52 Explanation and Reconciliation of the Firm's Use of
Non-GAAP Financial Measures and Key Performance
Measures
55
Business Segment Results
75 Enterprise-wide Risk Management
81 Strategic Risk Management
99 Credit and Investment Risk Management
121
Market Risk Management
129 Country Risk Management
131 Operational Risk Management
138 Critical Accounting Estimates Used by the Firm
141 Accounting and Reporting Developments
145 Forward-Looking Statements
Audited financial statements:
146
41
Pre-tax income
64
$10.0
$
14,854
1.55%
1.34
1.47%
1.27
Allowance for loan losses to retained loans excluding purchased credit-impaired loans (g)
Allowance for loan losses to total retained loans
14,672 $
$
14,341 $
Allowance for credit losses
251,196
241,359
234,598
243,355
252,539
210,857
231,727
Credit quality metrics
1.63%
14,807 $
1.90%
16,969
9,706
$
7,967
7,034 $
$
7,535
4,692
0.54%
0.60%
Net charge-off rate (h)
5,387
Net charge-offs (h)
$
6,426
Nonperforming assets
1.80
1.55
1.37
2.25%
247,573
4,086
254,190
199,699
670,757
769,385
829,558
583,751
628,785
732,093
806,152
596,823
863,683
757,336
837,299
894,765
930,697
354,003
348,004
290,827
738,418
563,809
2,533,600
2,490,972
211,664
221,505
228,122
229,625
267,446
276,379
288,651
295,245
284,080
1,287,765
1,363,427
1,279,715
1,375,179
1,443,982
2,414,879
2,572,274
2,351,698
255,693
289,059
4,759
0.52%
JPMorgan Chase
208.05
170.78
152.55
150.48
132.37
100.00
KBW Bank
230.47
188.69
153.72
156.17
135.59
100.00
$ 277.62
230.72
$ 219.06
194.55
$12.9
S&P Financial
S&P 500
50
JPMorgan Chase & Co./2017 Annual Report
40
40
For management reporting purposes, the Firm's activities
are organized into four major reportable business
segments, as well as a Corporate segment. The Firm's
consumer business is the Consumer & Community Banking
("CCB") segment. The Firm's wholesale business segments
are Corporate & Investment Bank ("CIB"), Commercial
Banking ("CB"), and Asset & Wealth Management ("AWM").
For a description of the Firm's business segments, and the
products and services they provide to their respective client
bases, refer to Business Segment Results on pages 55-74,
and Note 31.
JPMorgan Chase's principal bank subsidiaries are JPMorgan
Chase Bank, National Association (“JPMorgan Chase Bank,
N.A."), a national banking association with U.S. branches in
23 states, and Chase Bank USA, National Association
("Chase Bank USA, N.A."), a national banking association
that is the Firm's principal credit card-issuing bank.
JPMorgan Chase's principal nonbank subsidiary is J.P.
Morgan Securities LLC ("JPMorgan Securities”), a U.S.
broker-dealer. The bank and non-bank subsidiaries of
JPMorgan Chase operate nationally as well as through
overseas branches and subsidiaries, representative offices
and subsidiary foreign banks. The Firm's principal operating
subsidiary in the U.K. is J.P. Morgan Securities plc, a
subsidiary of JPMorgan Chase Bank, N.A.
JPMorgan Chase & Co., a financial holding company
incorporated under Delaware law in 1968, is a leading
global financial services firm and one of the largest banking
institutions in the United States of America ("U.S."), with
operations worldwide; the Firm had $2.5 trillion in assets
and $255.7 billion in stockholders' equity as of
December 31, 2017. The Firm is a leader in investment
banking, financial services for consumers and small
businesses, commercial banking, financial transaction
processing and asset management. Under the J.P. Morgan
and Chase brands, the Firm serves millions of customers in
the U.S. and many of the world's most prominent corporate,
institutional and government clients.
INTRODUCTION
This section of JPMorgan Chase's Annual Report for the year ended December 31, 2017 ("Annual Report"), provides Management's
discussion and analysis of financial condition and results of operations ("MD&A”) of JPMorgan Chase. See the Glossary of Terms
and Acronyms on pages 283-289 for definitions of terms used throughout this Annual Report. The MD&A included in this Annual
Report contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995.
Such statements are based on the current beliefs and expectations of JPMorgan Chase's management and are subject to significant
risks and uncertainties. These risks and uncertainties could cause the Firm's actual results to differ materially from those set forth
in such forward-looking statements. Certain of such risks and uncertainties are described herein (see Forward-looking Statements
on page 145) and in JPMorgan Chase's Annual Report on Form 10-K for the year ended December 31, 2017 ("2017 Form 10-K"),
in Part I, Item 1A: Risk factors; reference is hereby made to both.
Management's discussion and analysis
39
JPMorgan Chase & Co./2017 Annual Report
2017
2016
2015
2014
2013
2012
2017
5,802
2016
$ 150.22
150.66
JPMorgan Chase & Co./2017 Annual Report
38
The prior period ratios have been revised to conform with the current period presentation.
(i)
(h) Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for the year ended December 31, 2017 would have been 0.55%.
(g) Excluded the impact of residential real estate purchased credit-impaired ("PCI") loans, a non-GAAP financial measure. For further discussion of these measures, see Explanation and Reconciliation of the
Firm's Use of Non-GAAP Financial Measures and Key Performance Measures on pages 52-54, and the Allowance for credit losses on pages 117-119.
Included unsecured long-term debt of $218.8 billion, $212.6 billion, $211.8 billion, $207.0 billion and $198.9 billion respectively, as of December 31, of each year presented.
FIVE-YEAR STOCK PERFORMANCE
(f)
(d) HQLA represents the amount of assets that qualify for inclusion in the liquidity coverage ratio. For December 31, 2017, the balance represents the average of quarterly reported results per the U.S. LCR
public disclosure requirements effective April 1, 2017. Prior periods represent period-end balances under the final U.S. rule ("U.S. LCR") for December 31, 2016 and 2015, and the Firm's estimated amount
for December 31, 2014 prior to the effective date of the final rule, and under the Basel III liquidity coverage ratio ("Basel III LCR") for December 31, 2013. For additional information, see LCR and HQLA on
page 93.
(c) TBVPS and ROTCE are non-GAAP financial measures. For further discussion of these measures, see Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures and Key Financial
Performance Measures on pages 52-54.
(b) Based on daily prices reported by the New York Stock Exchange.
On December 22, 2017, the Tax Cuts and Jobs Act ("TCJA") was signed into law. The Firm's results included a $2.4 billion decrease to net income as a result of the enactment of the TCJA. For additional
information related to the impact of the TCJA, see Note 24.
(a)
0.81%
0.65%
(e) Ratios presented are calculated under the Basel III Transitional rules, which became effective on January 1, 2014, and for the capital ratios, represent the Collins Floor. Prior to 2014, the ratios were
calculated under the Basel I rules. See Capital Risk Management on pages 82-91 for additional information on Basel III.
The following table and graph compare the five-year cumulative total return for JPMorgan Chase & Co. ("JPMorgan Chase" or
the "Firm") common stock with the cumulative return of the S&P 500 Index, the KBW Bank Index and the S&P Financial Index.
The S&P 500 Index is a commonly referenced equity benchmark in the United States of America ("U.S."), consisting of leading
companies from different economic sectors. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are
publicly traded in the U.S. and is composed of leading national money center and regional banks and thrifts. The S&P Financial
Index is an index of financial companies, all of which are components of the S&P 500. The Firm is a component of all three
industry indices.
The following table and graph assume simultaneous investments of $100 on December 31, 2012, in JPMorgan Chase common
stock and in each of the above indices. The comparison assumes that all dividends are reinvested.
December 31,
$ 136.71
137.76
100.00
$ 100.00
2014
2013
2012
December 31,
(in dollars)
100
150
200
250
300
S&P 500 Index
S&P Financial Index
KBW Bank Index
JPMorgan Chase
(in dollars)
2015
$ 162.79
151.39
249,958
24,441 $ 24,733
343,839 $ 398,988
Core Loans
Average core loans
Total assets
Deposits
Long-term debt()
Common stockholders' equity
Total stockholders' equity
Headcount
$ 108.46 $
81.64
87.39
$
70.61
$
63.49 $
Loans
58.55
50.07
52.97
44.20
106.94
86.29
66.03
62.58
58.48
67.04
64.06
60.46
56.98
53.17
53.56
52.50
Securities
Trading assets
Selected balance sheet data (period-end)
$ 374,664
Asset & Wealth Management
J.P. Morgan Asset & Wealth Manage-
ment (AWM) has been a fiduciary
of client assets for nearly two centu-
ries, with our roots dating back to
the earliest cross-border fund man-
agers in the industry. Over these
many decades, we have managed
the assets of institutions, central
banks, sovereign wealth funds and
individuals, helping them navigate
their assets from the beginning
stages of cash management all
the way through complex multi-
generational portfolios.
Our breadth of experience, through
economic and geopolitical cycles,
gives us the insights to help clients
make smart, long-term investment
decisions. It also gives our portfolio
managers and advisors the perspective
and fortitude to remain disciplined
risk managers and opportunistic
risk takers in today's ever-evolving
market environment.
Today, while the fundamentals
of managing money still require
having the best investment minds,
they must be coupled with major
investments in technology. This
enables more comprehensive anal-
ysis of enormous data sets, faster
and more optimal execution in port-
folios, and seamless delivery of all
that we do in both human and digi-
tal form. The global size and scale
of AWM, as well as its connectivity
with JPMorgan Chase's broader
technology expertise, continue to
be competitive advantages for
our teams, our clients and our
shareholders.
A record year for AWM
For investors in JPMorgan Chase,
AWM continues to be a consistent
revenue and earnings growth con-
tributor to the company, with a very
strong return on shareholder capital.
AWM's total client assets in 2017
grew to a record $2.8 trillion, with
revenue of $12.9 billion and pre-tax
income of $3.6 billion also hitting
their highest levels ever. However,
the consistent growth trajectory
those numbers represent is just as
important. From 2012 to 2017, we
achieved a 6% compound annual
growth rate (CAGR) for client
assets and a 5% CAGR for both
revenue and pre-tax income.
Rising client assets is a critical indi-
cator because it tells us that clients
continue to entrust even more of
their capital with us every year. In
2017, clients entrusted us with an
additional $84 billion of long-term
assets or $1 billion to $2 billion of
incoming money every week. We
have increased net new assets every
year since 2004, with $388 billion
coming over the past five years.
Continued Strong Financial Performance in 2017
Client assets
(EOP $ in trillions)
CAGR: 6%
$2.5
$2.1
$2.8
Revenue
Tier 1 leverage ratio(e)
Total capital ratio (e)
High quality liquid assets (“HQLA”) (in billions)(d)
Common equity tier 1 ("CET1") capital ratio(e)
Loans-to-deposits ratio
Overhead ratio
Return on tangible common equity ("ROTCE")(c)
Return on assets ("ROA")
51.44
Return on common equity ("ROE")
Cash dividends declared per share
Tangible book value per share ("TBVPS”) (c)
Book value per share
Close
CAGR: 5%
($ in billions)
Selected ratios and metrics
48.13
Tier 1 capital ratio(e)
40.72
496
$
600
$
522
(i)
12.2%
12.3%
11.8%
10.2%
10.7%
(i)
13.9
14.0
$
11.6
15.9
15.5
15.1
13.1
14.3
8.3
8.4
8.5
7.6
7.1
$ 381,844
$ 372,130
44.60
$
11.9
524
13.5
$
13
13
13
12
10%
11%
11
10%
1.44
1.58
1.72
556 $
1.88
2.12
10%
0.96
9%
1.00
56
65
65
64
72
64
$12.0
57
58
59
0.75
0.89
0.99
63
a $514 million benefit recorded in the prior year from a
legal settlement in Corporate.
2017
Credit card
Year ended December 31,
(in millions)
Provision for credit losses
Net interest income increased primarily driven by loan
growth across the businesses and the net impact of higher
rates, partially offset by lower investment securities
balances and higher interest expense on long-term debt.
The Firm's average interest-earning assets were $2.1 trillion
in 2016, up $13 billion from the prior year, and the net
interest yield on these assets, on a FTE basis, was 2.25%,
an increase of 11 basis points from the prior year.
■
"
■ a gain on disposal of an asset in AWM
the absence of losses recognized in 2015 related to the
accelerated amortization of cash flow hedges associated
with the exit of certain non-operating deposits
a gain related to the redemption of guaranteed capital
debt securities
higher operating lease income from growth in auto
operating lease assets in CCB
■ a gain on the sale of Visa Europe interests in CCB
■
2016
partially offset by
2015
786
$
2017 compared with 2016
■
Total provision for credit losses $ 5,290 $ 5,361 $ 3,827
Total consumer
Wholesale
852
(303)
3,041
Consumer, excluding credit card
4,509
4,042
4,973
(81)
$
467
$
620
3,122
Other income increased primarily reflecting:
lower Fixed Income-related revenue driven by sustained
Mortgage fees and related income were relatively flat, as
lower mortgage servicing revenue related to lower average
third-party loans serviced was predominantly offset by
higher MSR risk management results.
Card income decreased predominantly driven by higher
credit card new account origination costs, largely offset
by higher card-related fees, primarily annual fees. For
further information, see CCB segment results on pages
57-61.
Mortgage fees and related income decreased driven by
lower MSR risk management results, lower net production
revenue on lower margins and volumes, and lower servicing
revenue on lower average third-party loans serviced. For
further information, see CCB segment results on pages
57-61, Note 6 and 15.
For information on lending- and deposit-related fees, see
the segment results for CCB on pages 57-61, CIB on pages
62-66, and CB on pages 67-69 and Note 6; on securities
gains, see the Corporate segment discussion on pages 73-
74.
Asset management, administration and commissions
revenue increased as a result of higher asset management
fees in AWM and CCB, and higher asset-based fees in CIB,
both driven by higher market levels. For additional
information, see AWM, CCB and CIB segment results on
pages 70-72, pages 57-61 and pages 62-66, respectively,
and Note 6.
For additional information, see CIB and Corporate segment
results on pages 62-66 and pages 73-74, respectively, and
Note 6.
higher Lending-related revenue reflecting lower fair value
losses on hedges of accrual loans.
higher Equity-related revenue primarily in Prime
Services, and
Other income decreased primarily due to:
•
partially offset by
•
•
strong prior year in CIB, primarily reflecting:
Principal transactions revenue decreased compared with a
Investment banking fees increased reflecting higher debt
and equity underwriting fees in CIB. The increase in debt
underwriting fees was driven by a higher share of fees and
an overall increase in industry-wide fees; and the increase
in equity underwriting fees was driven by growth in
industry-wide issuance, including a strong initial public
offering ("IPO") market. For additional information, see CIB
segment results on pages 62-66 and Note 6.
The provision for credit losses decreased as a result of:
low volatility and tighter credit spreads
Card income decreased predominantly driven by higher
new account origination costs and the impact of
renegotiated co-brand partnership agreements, partially
offset by higher card sales volume and other card-related
fees.
•
lower other income in CIB largely driven by a $520
million impact related to the enactment of the TCJA,
which reduced the value of certain of CIB's tax-oriented
investments, and
Asset management, administration and commissions
revenue decreased reflecting lower asset management fees
in AWM driven by a reduction in revenue related to the
disposal of assets at the beginning of 2016, the impact of
lower average equity market levels and lower performance
fees, as well as due to lower brokerage commissions and
other fees in CIB and AWM.
Principal transactions revenue increased reflecting broad-
based strength across products in CIB's Fixed Income
Markets business. Rates performance was strong, with
increased client activity driven by high issuance-based
flows, global political developments, and central bank
actions. Credit revenue improved driven by higher market-
making revenue from the secondary market as clients'
appetite for risk recovered.
Investment banking fees decreased predominantly due to
lower equity underwriting fees driven by declines in
industry-wide fee levels.
2016 compared with 2015
JPMorgan Chase & Co./2017 Annual Report
44
Net interest income increased primarily driven by the net
impact of higher rates and loan growth across the
businesses, partially offset by declines in Markets net
interest income in CIB. The Firm's average interest-earning
assets were $2.2 trillion, up $79 billion from the prior year,
and the net interest yield on these assets, on a fully taxable
equivalent ("FTE") basis, was 2.36%, an increase of 11
basis points from the prior year.
•
For further information, see Note 6.
higher operating lease income reflecting growth in auto
operating lease volume in CCB, and
the disposal of an asset in AWM
partially offset by
the redemption of guaranteed capital debt securities
("trust preferred securities"), and
the sale of Visa Europe interests in CCB,
-
-
the absence in the current year of gains from
a legal benefit of $645 million recorded in the second
quarter of 2017 in Corporate related to a settlement with
the FDIC receivership for Washington Mutual and with
Deutsche Bank as trustee of certain Washington Mutual
trusts.
• a net $422 million reduction in the wholesale allowance
for credit losses, reflecting credit quality improvements in
the Oil & Gas, Natural Gas Pipelines, and Metals & Mining
portfolios, compared with an addition of $511 million in
the prior year driven by downgrades in the same
portfolios
28.4%
• a higher consumer provision driven by
11,459
Income tax expense
2,708
2,897
2,900
Marketing
$30,702
9,803
$34,536
Income before income tax
expense
7,002
6,655
6,840
Professional and outside services
6,193
6,846
$35,900
7,706
6,260
6,256
24,733
24,441
Net income
(1)
5,361
5,290
Provision for credit losses
Other(a)(b)
3
41,190
20.4%
2017 compared with 2016
31.9%
Effective tax rate
9,593
5,756
39,897
predominantly offset by
equipment
2016
Year ended December 31,
Noninterest expense
■ a $470 million lower benefit related to the residential
real estate portfolio, as the reduction in the allowance for
loan losses in 2016 was lower than the prior year. The
reduction in both periods reflected continued
improvements in home prices and lower delinquencies.
The increase in the wholesale provision was largely driven
by the impact of downgrades in the Oil & Gas and Natural
Gas Pipelines portfolios.
Management's discussion and analysis
45
45
JPMorgan Chase & Co./2017 Annual Report
2015
▪ a a $920 million increase related to the credit card
portfolio, due to a $600 million addition in the allowance
for loan losses, as well as $320 million of higher net
charge-offs, driven by loan growth (including growth in
newer vintages which, as anticipated, have higher loss
rates compared to the overall portfolio), and
2016 compared with 2015
For a more detailed discussion of the credit portfolio, the
student loan sale and the allowance for credit losses, see
the segment discussions of CCB on pages 57-61, CIB on
pages 62-66, CB on pages 67-69, the Allowance for Credit
Losses on pages 117-119 and Note 13.
- a $218 million impact in connection with the sale of
the student loan portfolio.
a $416 million higher addition to the allowance for
credit losses related to the credit card portfolio driven
by higher loss rates and loan growth, and a lower
reduction in the allowance for the residential real
estate portfolio predominantly driven by continued
improvement in home prices and delinquencies, and
- $450 million of higher net charge-offs, primarily in the
credit card portfolio due to growth in newer vintages
which, as anticipated, have higher loss rates than the
more seasoned portion of the portfolio, partially offset
by a decrease in net charge-offs in the residential real
estate portfolio reflecting continued improvement in
home prices and delinquencies,
-
-
The provision for credit losses reflected an increase in the
consumer provision and, to a lesser extent, the wholesale
provision. The increase in the consumer provision was
predominantly driven by:
2015
2017
$31,009
2017
Year ended December 31,
(in millions, except rate)
Technology, communications and
3,768
3,638
3,723
Occupancy
2016
Noncompensation expense:
(in millions)
Income tax expense
Noncompensation expense decreased as a result of lower
legal expense (including lower legal professional services
expense), the impact of efficiencies, and reduced non-U.S.
tax surcharges. These factors were partially offset by higher
depreciation expense from growth in auto operating lease
assets and higher investments in marketing.
Compensation expense was relatively flat predominantly
driven by higher performance-based compensation expense
and investments in several businesses, offset by the impact
of continued expense reduction initiatives, including lower
headcount in certain businesses.
2016 compared with 2015
$29,750
$29,979
Compensation expense
(a) Included operating lease income of $3.6 billion, $2.7 billion and $2.1
billion for the years ended December 31, 2017, 2016 and 2015,
respectively.
The Firm continues to take a disciplined approach to
managing its expenses, while investing for growth and
innovation. As a result, management expects Firmwide
adjusted expense for full-year 2018 to be less than $62
billion, excluding the impact of the new revenue
recognition accounting standard.
Total net revenue
The Firm continued to grow tangible book value per share
("TBVPS"), ending 2017 at $53.56, up 4%.
The Firm's Fully Phased-In supplementary leverage ratio
("SLR") was 6.5%.
The Firm's Basel III Fully Phased-In CET1 capital was $183
billion, and the Standardized and Advanced CET1 ratios
were 12.1% and 12.7%, respectively.
Selected capital-related metrics
Firmwide average core loans increased 8%.
The total allowance for credit losses was $14.7 billion at
December 31, 2017, and the Firm had a loan loss
coverage ratio, excluding the PCI portfolio, of 1.27%,
compared with 1.34% in the prior year. The Firm's
nonperforming assets totaled $6.4 billion, a decrease
from the prior-year level of $7.5 billion.
The provision for credit losses was $5.3 billion, relatively
flat compared with the prior year, reflecting a decrease in
the wholesale provision driven by credit quality
improvements in the Oil & Gas, Natural Gas Pipelines and
Metals & Mining portfolios, offset by an increase in the
consumer provision. The increase in the consumer
provision was driven by higher net charge-offs and a
higher addition to the allowance for loan losses in the
credit card portfolio, and the impact of the sale of the
student loan portfolio.
Noninterest expense was $58.4 billion, up 5%, driven by
higher compensation expense, auto lease depreciation
expense and continued investments across the
businesses.
ROTCE and TBVPS are non-GAAP financial measures. Core
loans and each of the Fully Phased-In capital and leverage
measures are considered key performance measures. For a
further discussion of each of these measures, see
Explanation and Reconciliation of the Firm's Use of Non-
GAAP Financial Measures and Key Performance Measures on
pages 52-54, and Capital Risk Management on pages 82-
91.
offset by lower Fixed Income Markets and Home Lending
noninterest revenue.
Net income decreased 1% driven by higher noninterest
expense and income tax expense, predominantly offset by
higher net interest income.
•
JPMorgan Chase reported strong results for full year 2017
with net income of $24.4 billion, or $6.31 per share, on net
revenue of $99.6 billion. The Firm reported ROE of 10%
and ROTCE of 12%. The Firm's results included a $2.4
billion decrease to net income as a result of the enactment
of the Tax Cuts and Jobs Act ("TCJA"), driven by a deemed
repatriation charge and adjustments to the value of the
Firm's tax-oriented investments, partially offset by a benefit
from the revaluation of the Firm's net deferred tax liability.
For additional information related to the impact of the TCJA,
refer to Note 24.
Summary of 2017 results
Comparisons noted in the sections below are calculated for
the full year of 2017 versus the full year of 2016, unless
otherwise specified.
(b) The prior period ratios have been revised to conform with the current
period presentation.
(a) Ratios presented are calculated under the Basel III Transitional rules and
represent the Collins Floor. See Capital Risk Management on pages 82-91
for additional information on Basel III.
15.5
Total net revenue increased by 4% driven by higher net
interest income and investment banking fees, partially
15.9
JPMorgan Chase & Co./2017 Annual Report
Management's discussion and analysis
Credit card sales volume up 14% and
Client investment assets of $273 billion, up
17%
Average core loans up 9%; average deposits
of $640 billion, up 9%
•
.
•
•
•
41
.
•
AWM
ROE 25%
ROE 17%
CB
CIB
ROE 14%
CCB
ROE 17%
Selected business metrics for each of the Firm's four lines of
business are presented below for the full year of 2017.
Lines of business highlights
•
14.0 (b)
13.9
12.3% (b)
Diluted earnings per share
•
5
58,434 55,771
Total noninterest expense
$99,624 $95,668
Total net revenue
Selected income statement data
6.31
Change
2017
4%
(in millions, except per share data
and ratios)
Year ended December 31,
Financial performance of JPMorgan Chase
This executive overview of the MD&A highlights selected
information and may not contain all of the information that is
important to readers of this Annual Report. For a complete
description of the trends and uncertainties, as well as the
risks and critical accounting estimates affecting the Firm and
its various lines of business, this Annual Report should be
read in its entirety.
EXECUTIVE OVERVIEW
(1)
2016
6.19
2
Selected ratios and metrics
12.2%
Total capital
Tier 1 capital
Pre-provision profit
Capital ratios (a)
4
51.44
53.56
Tangible book value per share
5
$ 64.06
$ 67.04
Book value per share
13
12
Return on tangible common equity
10%
10%
Return on common equity
merchant processing volume up 12%
Maintained #1 ranking for Global Investment
Banking fees with 8.1% wallet share
Investment Banking revenue up 12%;
Treasury Services revenue up 15%; and
Securities Services revenue up 9%
Record revenue of $8.6 billion, up 15%;
record net income of $3.5 billion, up 33%
Average loan balances of $198 billion, up
10%
Record revenue of $12.9 billion, up 7%;
record net income of $2.3 billion, up 4%
Average loan balances of $123 billion, up 9%
15,509
14,591
15,377
administration and commissions
Asset management,
2015
6,751
10,408
5,694
5,774
5,933
Securities gains/(losses)
Lending- and deposit-related fees
11,347
Principal transactions
$ 7,248 $
Investment banking fees
2016
2017
(in millions)
Year ended December 31,
6,448 $
11,566
(66)
141
Mortgage fees and related income
Net interest income
43,510
46,083
50,097
50,033
49,585
49,527
Noninterest revenue
3,032
3,795
3,639
Other income (a)
5,924
4,779
4,433
Card income
202
2,513
2,491
1,616
Revenue
$ 99,624 $ 95,668 $ 93,543
This section provides a comparative discussion of JPMorgan
Chase's Consolidated Results of Operations on a reported
basis for the three-year period ended December 31, 2017,
unless otherwise specified. Factors that relate primarily to a
single business segment are discussed in more detail within
that business segment. For a discussion of the Critical
Accounting Estimates Used by the Firm that affect the
Consolidated Results of Operations, see pages 138-140.
Management's discussion and analysis
•
• On December 22, 2017, the TCJA was signed into law. The
Firm's results included a $2.4 billion decrease to net
income as a result of the enactment of the TCJA. For
additional information related to the impact of the TCJA,
see Note 24.
• On January 23, 2018, the Firm announced a $20 billion,
five-year comprehensive investment to help its employees
and support job and economic growth in the U.S. Through
these new investments, the Firm plans to develop
hundreds of new branches in several new U.S. markets,
increase wages and benefits for hourly U.S. employees,
make increased small business and mortgage lending
commitments, add approximately 4,000 jobs throughout
the country, and increase philanthropic investments.
• On January 29, 2018, JPMorgan Chase announced that
Daniel Pinto, Chief Executive Officer ("CEO") of CIB, and
Gordon Smith, CEO of CCB, have been appointed Co-
Presidents and Co-Chief Operating Officers ("COO") of the
Firm, effective January 30, 2018, and will continue to
report to Jamie Dimon, Chairman and CEO. In addition to
their current roles, Mr. Pinto and Mr. Smith will work
closely with Mr. Dimon to help drive critical Firmwide
opportunities. Responsibilities for the rest of the Firm's
Operating Committee will remain unchanged, with its
members continuing to report to Mr. Dimon.
• On January 30, 2018, Amazon, Berkshire Hathaway, and
JPMorgan Chase announced that they are partnering on
ways to address healthcare for their U.S. employees, with
the aim of improving employee satisfaction and reducing
costs. Through a new independent company, the initial
focus will be on technology solutions that will provide U.S.
employees and their families with simplified, high-quality
and transparent healthcare at a reasonable cost.
• On February 21, 2018, the Firm announced its intent to
pursue building a new 2.5 million square foot
headquarters at its 270 Park Avenue location in New York
City. The project will be subject to various approvals, and
the Firm will work closely with the New York City Council
and State officials to complete the project in a manner
that benefits all constituencies. Once the project's
approvals are granted, redevelopment and construction
are expected to begin in 2019 and take approximately five
years to complete. The project is not expected to have a
material impact on the company's financial results.
Recent events
• $92 billion of credit and capital raised for U.S.
government and nonprofit entities, including states,
municipalities, hospitals and universities.
During the second half of 2017, natural disasters caused
significant disruptions to individuals and businesses, and
damage to homes and communities in several regions
where the Firm conducts business. The Firm continues to
provide assistance to customers, clients, communities and
employees who have been affected by these disasters.
These events did not have a material impact on the Firm's
2017 financial results.
• $1.1 trillion of capital raised for corporate clients and
non-U.S. government entities
• $22 billion of credit for U.S. small businesses
$258 billion of credit for consumers
.
consumer clients during 2017:
JPMorgan Chase continues to support consumers, businesses
and communities around the globe. The Firm provided credit
and raised capital of $2.3 trillion for wholesale and
Credit provided and capital raised
For a detailed discussion of results by line of business, refer
to the Business Segment Results on pages 55-56.
Record assets under management ("AUM") of
$2.0 trillion, up 15%
• $817 billion of credit for corporations
42
22
JPMorgan Chase & Co./2017 Annual Report
43
43
JPMorgan Chase & Co./2017 Annual Report
Markets revenue in the first-quarter 2018 is expected to
be up by mid to high single digit percentage points when
compared with the prior-year quarter; actual Markets
revenue results will continue to be affected by market
conditions, which can be volatile.
CIB
• In Card, management expects the net charge-off rate to
increase to approximately 3.25% in 2018.
Management expects the full-year 2018 Card Services net
revenue rate to be approximately 11.25%.
•
CCB
Management expects net charge-off rates to remain
relatively flat across the wholesale and consumer
portfolios, with the exception of Card.
Management estimates the full-year 2018 effective
income tax rate to be in the 19% to 20% range,
depending upon several factors, including the geographic
mix of taxable income and refinements to estimates of the
impacts of the TCJA.
Excluding the impact of the new revenue recognition
accounting standard, management expects Firmwide
noninterest revenue for full-year 2018, on a managed
basis, to be up approximately 7%, depending on market
conditions.
Management expects the new revenue recognition
accounting standard to increase both noninterest revenue
and expense for full-year 2018 by approximately $1.2
billion, with most of the impact in the AWM business. For
additional information on the new accounting standard,
see Accounting and Reporting Developments on page 141.
Management expects first-quarter 2018 net interest
income, on a managed basis, to be down modestly
compared with the fourth quarter of 2017, driven by the
impact of the TCJA and a lower day count. For full-year
2018, management expects net interest income, on a
managed basis, to be in the $54 to $55 billion range,
market dependent, and assuming expected core loan
growth. Management expects Firmwide average core loan
growth to be in the 6% to 7% range in 2018, excluding
CIB loans.
As a result of the change in tax rate due to the TCJA,
management expects a reduction in tax-equivalent
adjustments, decreasing both revenue and income tax
expense, on a managed basis, by approximately $1.2
billion on an annual run-rate basis.
Firmwide
•
JPMorgan Chase's outlook for 2018 should be viewed against
the backdrop of the global and U.S. economies, financial
markets activity, the geopolitical environment, the
competitive environment, client and customer activity levels,
and regulatory and legislative developments in the U.S. and
other countries where the Firm does business. Each of these
interrelated factors will affect the performance of the Firm
and its lines of business. The Firm expects that it will
continue to make appropriate adjustments to its businesses
and operations in response to ongoing developments in the
legal, regulatory, business and economic environments in
which it operates.
These current expectations are forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are based on
the current beliefs and expectations of JPMorgan Chase's
management and are subject to significant risks and
uncertainties. These risks and uncertainties could cause the
Firm's actual results to differ materially from those set forth in
such forward-looking statements. See Forward-Looking
Statements on page 145 and the Risk Factors section on
pages 8-26. There is no assurance that actual results for the
full year of 2018 will be in line with the outlook set forth
below, and the Firm does not undertake to update any
forward-looking statements.
2018 outlook
CONSOLIDATED RESULTS OF OPERATIONS
CET1
5,593
JPMorgan Chase & Co./2017 Annual Report
• a net increase in the consumer allowance, reflecting
additions to the allowance for the credit card and
business banking portfolios, driven by loan growth in both
of these portfolios and higher loss rates in the credit card
portfolio, largely offset by a reduction in the allowance
for the residential real estate portfolio, predominantly
driven by continued improvement in home prices and
delinquencies, and the utilization of the allowance in
connection with the sale of the student loan portfolio.
largely offset by
The allowance for loan losses decreased driven by:
⚫ a net reduction in the wholesale allowance, reflecting
credit quality improvements in the Oil & Gas, Natural Gas
Pipelines and Metals & Mining portfolios (compared with
additions to the allowance in the prior year driven by
downgrades in the same portfolios)
higher consumer loans driven by higher retention of
originated high-quality prime mortgages in CCB and AWM,
and higher credit card loans, largely offset by the sale of
the student loan portfolio, lower home equity loans and
the run-off of PCI loans.
higher wholesale loans driven by new originations in CB
and higher loans to Private Banking clients in AWM
•
Securities decreased primarily reflecting net sales,
maturities and paydowns of U.S. Treasuries, non-U.S.
government securities and collateralized loan obligations.
For additional information, see Notes 2 and 10.
Loans increased reflecting:
2%
For a more detailed discussion of loans and the allowance
for loan losses, refer to Credit and Investment Risk
Management on pages 99-120, and Notes 2, 3, 12 and 13.
IIN N
54,246
112,076
2,490,972
$
114,770
2,533,600
$
54,392
14,131
14,159
29
2
52,330
The Firm has no commitments to issue its own stock to
support any SPE transaction, and its policies require that
transactions with SPES be conducted at arm's length and
reflect market pricing. Consistent with this policy, no
JPMorgan Chase employee is permitted to invest in SPEs
with which the Firm is involved where such investment
would violate the Firm's Code of Conduct.
Management's discussion and analysis
Beneficial interests issued by consolidated variable interest entities (“VIES”)
Long-term debt
Accounts payable and other liabilities
Derivative payables
Debt and equity instruments
Trading liabilities:
Short-term borrowings
Federal funds purchased and securities loaned or sold under repurchase agreements
For information on Goodwill and MSRs, see Note 15.
47
CCB.
Deposits
Liabilities
December 31, (in millions)
Selected Consolidated balance sheets data
•
increased primarily reflecting higher held-for-investment
margin loans related to client-driven financing activities in
Prime Services.
•
Accrued interest and accounts receivable
Other assets increased slightly as a result of higher auto
operating lease assets from growth in business volume in
Total liabilities
67,729
880,989
Goodwill, MSRs and other intangible assets
Premises and equipment
Accrued interest and accounts receivable
Loans, net of allowance for loan losses
Allowance for loan losses
Loans
Securities
Derivative receivables
Other assets
Debt and equity instruments
96,409
105,112
(14)
229,967
198,422
11
365,762
404,294
9
4
Total assets
Federal funds sold and securities purchased under resale
agreements decreased primarily due to the shift in the
deployment of excess cash to deposits with banks and lower
client activity in CIB. For additional information on the
Firm's Liquidity Risk Management, see pages 92-97.
Securities borrowed increased driven by higher demand for
securities to cover short positions related to client-driven
market-making activities in CIB.
917,093
(1)
(13,776)
(13,604)
4
894,765
930,697
(14)
Cash and due from banks and deposits with banks
increased primarily driven by deposit growth and a shift in
the deployment of excess cash from securities purchased
under resale agreements and investment securities into
deposits with banks. The Firm's excess cash is placed with
various central banks, predominantly Federal Reserve
Banks.
289,059
(12)
64,078
56,523
6
308,052
325,321
Trading assets and trading liabilities-derivative
receivables and payables decreased predominantly as a
result of client-driven market-making activities in CIB
Markets, which reduced foreign exchange and interest rate
derivative receivables and payables, and increased equity
derivative receivables, driven by market movements. For
additional information, refer to Derivative contracts on
pages 114-115, and Notes 2 and 5.
Trading assets-debt and equity instruments increased
predominantly as a result of client-driven market-making
activities in CIB, primarily in Fixed Income Markets and
Prime Services, partially offset by lower equity instruments
in Equity Markets. For additional information, refer to
Note 2.
249,958
Stockholders' equity
Total liabilities and stockholders' equity
Deposits increased due to:
(276)
(135)
98,271 (187,511)
14,642
$ (2,501) $ 20,196 $ 73,466
(10,283) (114,949) 106,980
2015
2016
2017
96
Operating activities
Effect of exchange rate
changes on cash
Financing activities
Investing activities
Operating activities
Net cash provided by/(used in)
(in millions)
Year ended December 31,
Consolidated Cash Flows Analysis
Net increase/(decrease) in
cash and due from banks
JPMorgan Chase & Co./2017 Annual Report
$ 1,954 $ 3,383 $ (7,341)
• In 2017, cash used reflected an increase in held-for-
investment margin loans in accrued interest and accounts
receivable and a decrease in trading liabilities.
In the normal course of business, the Firm enters into
various contractual obligations that may require future cash
payments. Certain obligations are recognized on-balance
sheet, while others are off-balance sheet under accounting
principles generally accepted in the U.S. ("U.S. GAAP").
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
Management's discussion and analysis
49
JPMorgan Chase & Co./2017 Annual Report
For a further discussion of the activities affecting the Firm's
cash flows, see Consolidated Balance Sheets Analysis on
pages 47-48, Capital Risk Management on pages 82-91,
and Liquidity Risk Management on pages 92-97.
• For all periods, cash was used for repurchases of common
stock and cash dividends on common and preferred stock.
•⚫ In 2015, cash used reflected lower deposits and short-
term borrowings, partially offset by net proceeds from
long-term borrowings. Additionally, in 2015 cash
outflows reflected a decrease in securities loaned or sold
under repurchase agreements.
JPMorgan Chase's operating assets and liabilities support
the Firm's lending and capital markets activities. These
assets and liabilities can vary significantly in the normal
course of business due to the amount and timing of cash
flows, which are affected by client-driven and risk
management activities and market conditions. The Firm
believes cash flows from operations, available cash and
other liquidity sources, and its capacity to generate cash
through secured and unsecured sources are sufficient to
meet operating liquidity needs.
• In 2016, cash provided reflected higher deposits, and an
increase in securities loaned or sold under repurchase
agreements, and net proceeds from long term
borrowings.
The Firm's financing activities include acquiring customer
deposits and issuing long-term debt, as well as preferred
and common stock.
Financing activities
• In 2015, cash provided predominantly reflected lower
short-term interest-earning assets, and net proceeds from
lower investment securities, partially offset by cash used
for net originations of loans.
⚫ In 2017, cash used primarily reflected net originations of
loans and a net increase in short-term interest-earning
assets, partially offset by net proceeds from paydowns,
maturities, sales and purchases of investment securities.
• In 2016, cash used reflected net originations of loans, an
increase in short-term interest-earning assets, an
increase in securities purchased under resale
agreements, and the deployment of excess cash.
The Firm's investing activities predominantly include
originating held-for-investment loans and investing in the
securities portfolio and other short-term interest-earning
assets.
Investing activities
⚫ In 2015, cash provided reflected decreases in trading
assets and in accounts receivable, partially offset by cash
used due to a decrease in accounts payable and other
liabilities.
• In 2016, cash provided reflected increases in accounts
payable and trading liabilities, partially offset by cash
used reflecting an increase in trading assets, an increase
in accounts receivable from merchants and higher client
receivables.
• In 2017, cash provided reflected higher deposits and
short-term borrowings, partially offset by a decrease in
long-term borrowings.
48
Long-term debt decreased reflecting lower Federal Home
Loan Bank ("FHLB") advances, partially offset by the net
issuance of senior debt and the net issuance of structured
notes in CIB driven by client demand. For additional
information on the Firm's long-term debt activities, see
Liquidity Risk Management on pages 92-97 and Note 19.
For information on changes in stockholders' equity, see
page 151, and on the Firm's capital actions, see Capital
actions on pages 89-90.
Beneficial interests issued by consolidated VIES
decreased due to net maturities of credit card
securitizations and the deconsolidation of the student loan
securitization entities in connection with the portfolio's sale.
For further information on Firm-sponsored VIES and loan
securitization trusts, see Off-Balance Sheet Arrangements
on pages 50-51 and Note 14 and 27; and for the sale of the
student loan portfolio, see CCB segment results on pages
57-61.
50
34,443
51,802
(4)
165,666
158,916
5
1,375,179
85,886
1,443,982 $
Change
2016
2017
97.
Short-term borrowings increased primarily due to higher
issuance of commercial paper reflecting in part a change in
the mix of funding from securities sold under repurchase
agreements for CIB Markets activities. For additional
information, see Liquidity Risk Management on pages 92-
For more information, refer to the Liquidity Risk
Management discussion on pages 92-97; and Notes 2
and 17.
higher wholesale deposits largely driven by growth in
client cash management activity in CIB's Securities
Services business, partially offset by lower balances in
AWM reflecting balance migration predominantly into the
Firm's investment-related products.
higher consumer deposits reflecting the continuation of
strong growth from new and existing customers, and low
attrition rates
$
87,428
(2)
37,777
$ 2,533,600 $ 2,490,972
2%
1
254,190
255,693
2
2,236,782
2,277,907
(4)
295,245
284,080
(33)
39,047
26,081
(1)
190,543
189,383
(23)
49,231
8%
The Firm is involved with several types of off-balance sheet
arrangements, including through nonconsolidated SPES,
which are a type of VIE, and through lending-related
financial instruments (e.g., commitments and guarantees).
The Firm holds capital, as deemed appropriate, against all
SPE-related transactions and related exposures, such as
23,873
25,827
higher depreciation expense from growth in auto
operating lease volume in CCB
Noncompensation expense increased as a result of:
•
•
•
•
•
in AWM.
Compensation expense increased predominantly driven by
investments in headcount in most businesses, including
bankers and business-related support staff, and higher
performance-based compensation expense, predominantly
The table below provides an index of where in this Annual Report a discussion of the Firm's various off-balance sheet
arrangements can be found. In addition, see Note 1 for information about the Firm's consolidation policies.
2017 compared with 2016
(b) Included FDIC-related expense of $1.5 billion, $1.3 billion and $1.2 billion
for the years ended December 31, 2017, 2016 and 2015, respectively.
contributions to the Firm's Foundation
(a) Included Firmwide legal expense/(benefit) of $(35) million, $(317) million
and $3.0 billion for the years ended December 31, 2017, 2016 and 2015,
respectively.
27,425 25,792 29,264
$58,434 $55,771 $59,014
Type of off-balance sheet arrangement
Special-purpose entities: variable interests and other
obligations, including contingent obligations, arising
from variable interests in nonconsolidated VIES
Location of disclosure
See Note 14
Page references
236-243
Off-balance sheet lending-related financial instruments,
guarantees, and other commitments
See Note 27
261-266
50
JPMorgan Chase & Co./2017 Annual Report
$
Total noncompensation expense
Total noninterest expense
a lower legal net benefit compared to the prior year
derivative transactions and lending-related commitments
and guarantees.
an impairment in CB on certain leased equipment, the
majority of which was sold subsequent to year-end
partially offset by
higher FDIC-related expense, and
$
Change
2016
2017
Trading assets:
Securities borrowed
Federal funds sold and securities purchased under resale agreements
Cash and due from banks
Assets
December 31, (in millions)
Selected Consolidated balance sheets data
The following is a discussion of the significant changes between December 31, 2017 and 2016.
Deposits with banks
CONSOLIDATED BALANCE SHEETS AND CASH FLOWS ANALYSIS
the absence in the current year of two items totaling
$175 million in CCB related to liabilities from a merchant
in bankruptcy and mortgage servicing reserves.
Consolidated Balance Sheets Analysis
2017 compared with 2016
The effective tax rate increased in 2017 driven by:
a $1.9 billion increase to income tax expense
representing the impact of the enactment of the TCJA.
The increase was driven by the deemed repatriation of
the Firm's unremitted non-U.S. earnings and adjustments
to the value of certain tax-oriented investments, partially
offset by a benefit from the revaluation of the Firm's net
deferred tax liability. The incremental expense resulted in
a 5.4 percentage point increase to the Firm's effective tax
rate
partially offset by
benefits resulting from the vesting of employee share-
based awards related to the appreciation of the Firm's
stock price upon vesting above their original grant price,
and the release of a valuation allowance.
For a discussion of legal expense, see Note 29.
2016 compared with 2015
JPMorgan Chase & Co./2017 Annual Report
The effective tax rate in 2016 was affected by changes in
the mix of income and expense subject to U.S. federal and
state and local taxes, tax benefits related to the utilization
of certain deferred tax assets, as well as the adoption of
new accounting guidance related to employee share-based
incentive payments. These tax benefits were partially offset
by higher income tax expense from tax audits. The lower
effective tax rate in 2015 was predominantly driven by
$2.9 billion of tax benefits, which reduced the Firm's
effective tax rate by 9.4 percentage points. The recognition
of tax benefits in 2015 resulted from the resolution of
various tax audits, as well as the release of U.S. deferred
taxes associated with the restructuring of certain non-U.S.
entities.
46
46
For further information, see Note 24.
Tangible common equity (“TCE”), ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm's common
stockholders' equity (i.e., total stockholders' equity less preferred stock) less goodwill and identifiable intangible assets (other
than MSRS), net of related deferred tax liabilities. ROTCE measures the Firm's net income applicable to common equity as a
percentage of average TCE. TBVPS represents the Firm's TCE at period-end divided by common shares at period-end. TCE,
ROTCE and TBVPS are utilized by the Firm, as well as investors and analysts, in assessing the Firm's use of equity.
The following summary table provides a reconciliation from the Firm's common stockholders' equity to TCE.
Tangible common equity, ROTCE and TBVPS
Management's discussion and analysis
53
(c) The amounts in this table differ from the prior-period presentation to align with
CIB's Markets businesses. For further information on CIB's Markets businesses,
see page 65.
JPMorgan Chase & Co./2017 Annual Report
(b) For a reconciliation of net interest income on a reported and managed basis, see
reconciliation from the Firm's reported U.S. GAAP results to managed basis on
page 52.
(a) Interest includes the effect of related hedges. Taxable-equivalent amounts are
used where applicable.
2.49%
Average
53
(in millions, except per share and ratio data)
$
Less: Goodwill
Less: Other intangible assets
Add: Certain Deferred tax liabilities (a)(b)
Tangible common equity
Return on tangible common equity
Tangible book value per share
Period-end
Year ended December 31,
Dec 31,
2017
Dec 31,
2016
Common stockholders' equity
2.59%
Certain U.S. GAAP and non-GAAP financial measures are calculated as
follows:
Markets
6,334
5,298
46,780 $ 40,958 $ 39,322
$2,180,592 $2,101,604 $2,088,242
540,835
520,307
510,292
$1,639,757 $1,581,297 $ 1,577,950
2.36%
2.25%
2.14%
0.86
1.22
1.04
Calculation of certain U.S. GAAP and non-GAAP financial measures
229,625 $
Book value per share ("BVPS")
Common stockholders' equity at period-end /
Common shares at period-end
Overhead ratio
Total noninterest expense / Total net revenue
Return on assets ("ROA")
Reported net income / Total average assets
Return on common equity ("ROE")
Net income*/ Average common stockholders' equity
Return on tangible common equity ("ROTCE")
Net income* / Average tangible common equity
Tangible book value per share ("TBVPS")
Tangible common equity at period-end / Common shares at period-end
* Represents net income applicable to common equity
average interest-earning
assets excluding CIB
2.85%
47,507
13%
228,122
47,288
862
2,204
3,230
183,467 $ 183,202
JPMorgan Chase
Consumer Businesses
Consumer & Community Banking
Wholesale Businesses
Corporate & Investment Bank
Commercial
Banking
Asset & Wealth
Management
Banking
Middle
Market
Banking
⚫ Asset
Management
Consumer &
The business segments are determined based on the
products and services provided, or the type of customer
served, and they reflect the manner in which financial
information is currently evaluated by management. Results
of these lines of business are presented on a managed
basis. For a definition of managed basis, see Explanation
and Reconciliation of the Firm's use of Non-GAAP Financial
Measures, on pages 52-54.
Business Banking
Consumer
Banking/
Chase
Wealth
Management
⚫ Business
Banking
Home Lending(a)
• Home
Lending
Production
⚫ Home
Lending
Servicing
• Real Estate
Portfolios
•
855
The Firm is managed on a line of business basis. There are
four major reportable business segments - Consumer &
Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset & Wealth Management. In
addition, there is a Corporate segment.
JPMorgan Chase & Co./2017 Annual Report
2017
$ 230,350
47,317
832
3,116
$ 185,317
2016
2015
47,310
922
3,212
$ 224,631 $ 215,690
47,445
1,092
2,964
$ 179,611 $ 170,117
$
ΝΑ
53.56 $
ΝΑ
51.44
12%
BUSINESS SEGMENT RESULTS
13%
ΝΑ
NA
(a) Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted against goodwill and
other intangibles when calculating TCE.
(b) Includes the effect from the revaluation of the Firm's net deferred tax liability as a result of the enactment of the TCJA.
•
Key performance measures
The Firm considers the following to be key regulatory
capital measures:
Capital, risk-weighted assets ("RWA"), and capital and
leverage ratios presented under Basel III Standardized
and Advanced Fully Phased-In rules, and
SLR calculated under Basel III Advanced Fully Phased-In
rules.
The Firm, as well as banking regulators, investors and
analysts, use these measures to assess the Firm's regulatory
capital position and to compare the Firm's regulatory
capital to that of other financial services companies.
For additional information on these measures, see Capital
Risk Management on pages 82-91.
Core loans are also considered a key performance measure.
Core loans represent loans considered central to the Firm's
ongoing businesses; and exclude loans classified as trading
assets, runoff portfolios, discontinued portfolios and
portfolios the Firm has an intent to exit. Core loans is a
measure utilized by the Firm and its investors and analysts
in assessing actual growth in the loan portfolio.
ΝΑ
54
11.29%
Card, Merchant
Services & Auto (b)
$ 45,207 $ 43,371 $ 37,619
$ 58,434 $ 55,771 $ 59,014
(710)
(949)
639
977
462
501
267
(487)
3,233
3,567
3,617
Year ended December 31,
8,886
9,301
12,119
12,045
12,918
1,140
$103,641 $ 99,142 $ 96,633
4,004
4,519
5,278
2,881
2,934
3,327
6,885
7,453
8,605
8,478
(in millions, except ratios)
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
(a) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as each of the pools is performing.
JPMorgan Chase & Co./2017 Annual Report
$ 9,165
$ 9,149
$ 9,372
Total allowance for loan losses (c)
299
249
Student
399
474
18%
17%
9,789
5,572 $ 4,494 $ 3,059 $ 9,395 $ 9,714 $
2015
2016
2017
2015
Return on equity
2016
2017
Net income/(loss)
2015
2016
2017
Provision for credit losses
Total
Corporate
12,181
15,250 16,224
19,243
$ 20,423 $ 20,010 $ 18,911
When business segments join efforts to sell products and
services to the Firm's clients, the participating business
segments agree to share revenue from those transactions.
The segment results reflect these revenue-sharing
agreements.
Revenue sharing
The Firm periodically assesses the assumptions,
methodologies and reporting classifications used for
segment reporting, and further refinements may be
implemented in future periods.
Description of business segment reporting methodology
Results of the business segments are intended to reflect
each segment as if it were essentially a stand-alone
business. The management reporting process that derives
business segment results includes the allocation of certain
income and expense items described in more detail below.
The Firm also assesses the level of capital required for each
line of business on at least an annual basis.
(b) Formerly Card, Commerce Solutions & Auto
(a) Formerly Mortgage Banking
• Wealth
Management
• Real Estate
Banking
Term
Lending
Commercial
Corporate
Client
Banking
•
.
& Other
Adjustments
⚫ Credit
⚫ Securities
Services
• Equity
Markets
Income
Markets
• Fixed
Markets &
Investor Services
• Auto
- Merchant
Services
⚫ Lending
Services
Treasury
• Investment
Banking
Services
Credit Card
• Card
Funds transfer pricing
4,630
Funds transfer pricing is used to assign interest income and
expense to each business segment and to transfer the
primary interest rate risk and liquidity risk exposures to
Treasury and CIO within Corporate. The funds transfer
pricing process considers the interest rate risk, liquidity risk
and regulatory requirements of a business segment as if it
were operating independently. This process is overseen by
senior management and reviewed by the Firm's Asset-
Liability Committee ("ALCO").
55
$ 46,485 $ 44,915 $ 43,820 $ 26,062 $ 24,905 $24,909
18,992 21,361
33,542
35,216
34,493
2015
2016
2017
2015
2016
Total noninterest expense
2017
2015
Total net revenue
2016
2017
Pre-provision profit/(loss)
Corporate
Total
Asset & Wealth Management
Commercial Banking
Corporate & Investment Bank
Consumer & Community Banking
(in millions)
Year ended December 31,
The following tables summarize the business segment results for the periods indicated.
Where business segments use services provided by
corporate support units, or another business segment, the
costs of those services are allocated to the respective
business segments. The expense is generally
allocated based on the actual cost and use of services
provided. In contrast, certain other costs related to
corporate support units, or to certain technology and
operations, are not allocated to the business segments and
are retained in Corporate. Expense retained in Corporate
generally includes parent company costs that would not be
incurred if the segments were stand-alone businesses;
adjustments to align corporate support units; and other
items not aligned with a particular business segment.
capital. For additional information on business segment
capital allocation, see Line of business equity on page 89.
Expense allocation
Segment Results - Managed Basis
The amount of capital assigned to each business is referred
to as equity. On at least an annual basis, the Firm assesses
the level of capital required for each line of business as well
as the assumptions and methodologies used to allocate
Business segment capital allocation
Debt expense and preferred stock dividend allocation
As part of the funds transfer pricing process, almost all of
the cost of the credit spread component of outstanding
unsecured long-term debt and preferred stock dividends is
allocated to the reportable business segments, while the
balance of the cost is retained in Corporate. The
methodology to allocate the cost of unsecured long-term
debt and preferred stock dividends to the business
segments is aligned with the Firm's process to allocate
capital. The allocated cost of unsecured long-term debt is
included in a business segment's net interest income, and
net income is reduced by preferred stock dividends to arrive
at a business segment's net income applicable to common
equity.
Management's discussion and analysis
JPMorgan Chase & Co./2017 Annual Report
51,410 $ 47,292 $ 44,620
Year ended
2015
249
Obligations under co-brand programs
2,566
3,503
204
439
937
1,923
Contractual purchases and capital expenditures
1,068
754
515
19
46
174
Equity investment commitments (f)
10,115
9,877
3,757
1,844
2,750
1,526
Operating leases(e)
48,862
54,103
26,338
7,471
500
11,046
478
1,434
understanding of the Firm's results that can be tracked
consistently from year-to-year and enables a comparison of
the Firm's performance with other companies' U.S. GAAP
financial statements.
The Firm prepares its Consolidated Financial Statements
using U.S. GAAP; these financial statements appear on
pages 148-152. That presentation, which is referred to as
"reported" basis, provides the reader with an
Non-GAAP financial measures
PERFORMANCE MEASURES
EXPLANATION AND RECONCILIATION OF THE FIRM'S USE OF NON-GAAP FINANCIAL MEASURES AND KEY
Management's discussion and analysis
51
JPMorgan Chase & Co./2017 Annual Report
(f) At December 31, 2017 and 2016, included unfunded commitments of $40 million and $48 million, respectively, to third-party private equity funds, and
$714 million and $1.0 billion of unfunded commitments, respectively, to other equity investments.
(e) Includes noncancelable operating leases for premises and equipment used primarily for banking purposes. Excludes the benefit of noncancelable sublease
rentals of $1.0 billion and $1.4 billion at December 31, 2017 and 2016, respectively. See Note 28 for more information on lease commitments.
(d) Includes accrued interest and future contractual interest obligations. Excludes interest related to structured notes for which the Firm's payment obligation
is based on the performance of certain benchmarks.
(c) For further information, refer to unsettled reverse repurchase and securities borrowing agreements in Note 27.
(b) Primarily includes dividends declared on preferred and common stock, deferred annuity contracts, pension and other postretirement employee benefit
obligations, insurance liabilities and income taxes payable associated with the deemed repatriation under the TCJA.
(a) Excludes structured notes on which the Firm is not obligated to return a stated amount of principal at the maturity of the notes, but is obligated to return
an amount based on the performance of the structured notes.
2,086,030 $ 2,011,452
67,823 $
100,126 $
$ 1,743,169 $
Total contractual cash obligations
114,201
146,530
31,021
10,251
15,279
89,979
Total off-balance sheet obligations
868
207
In addition to analyzing the Firm's results on a reported
basis, management reviews Firmwide results, including the
overhead ratio, on a “managed" basis; these Firmwide
managed basis results are non-GAAP financial measures.
The Firm also reviews the results of the lines of business on
a managed basis. The Firm's definition of managed basis
starts, in each case, with the reported U.S. GAAP results and
includes certain reclassifications to present total net
revenue for the Firm (and each of the reportable business
segments) on a FTE basis. Accordingly, revenue from
investments that receive tax credits and tax-exempt
securities is presented in the managed results on a basis
comparable to taxable investments and securities. These
financial measures allow management to assess the
comparability of revenue from year-to-year arising from
both taxable and tax-exempt sources. The corresponding
9,248
50,722
26,497
42,664
42,664
Short-term borrowings (a)
165,666
158,916
15,981
4,958
4,198
133,779
Federal funds purchased and securities loaned or
sold under repurchase agreements
6,204 $ 1,437,464 $ 1,368,866
4,810 $
5,276 $
$ 1,421,174 $
Deposits (a)
On-balance sheet obligations
Total
Total
After 2022
2016
2017
2021-2022
2019-2020
The carrying amount of on-balance sheet obligations on the
Consolidated balance sheets may differ from the minimum
contractual amount of the obligations reported below. For a
discussion of mortgage repurchase liabilities and other
obligations, see Note 27.
2018
By remaining maturity at December 31,
(in millions)
Contractual cash obligations
Beneficial interests issued by consolidated VIES
Contractual interest payments(d)
13,636
2,544
76,859
76,859
Unsettled reverse repurchase and securities
borrowing agreements (c)
Off-balance sheet obligations
1,897,251
8,980
13,525
1,939,500
143,891
57,572
84,847
1,653,190
Total on-balance sheet obligations
4,573
2,080
2,146
4,726
Other(b)
288,315
260,895
116,819
43,180
63,685
37,211
Long-term debt(a)
38,927
26,036
314
9,542
income tax impact related to tax-exempt items is recorded
within income tax expense. These adjustments have no
impact on net income as reported by the Firm as a whole or
by the lines of business.
Management also uses certain non-GAAP financial
measures at the Firm and business-segment level, because
these other non-GAAP financial measures provide
information to investors about the underlying operational
performance and trends of the Firm or of the particular
business segment, as the case may be, and, therefore,
facilitate a comparison of the Firm or the business segment
with the performance of its relevant competitors. For
additional information on these non-GAAP measures, see
Business Segment Results on pages 55-74.
Additionally, certain credit metrics and ratios disclosed by
the Firm exclude PCI loans, and are therefore non-GAAP
measures. For additional information on these non-GAAP
measures, see Credit and Investment Risk Management on
pages 99-120.
9,350
3,090
6,260
13,277
3,474
9,803
15,476
4,017 (b)
11,459
Income tax expense
expense
33,792
3,090
30,702
38,010
3,474
34,536
39,917
4,017
35,900
Income before income tax
37,619
3,090
34,529
43,371
3,474
39,897
Overhead ratio
45,207
59%
56%
2016
2017
Net interest yield on
Net interest yield on
average CIB Markets
interest-earning assets (c)
assets - managed basis
average interest-earning
Net interest yield on
Average interest-earning
assets excluding CIB
Markets
Less: Average CIB Markets
interest-earning assets(c)
Average interest-earning
assets
Net interest income
excluding CIB Markets (a) $
Less: CIB Markets net
interest income(c)
Net interest income
managed basis (a)(b)
-
Year ended December 31,
(in millions, except rates)
The data presented below are non-GAAP financial measures
due to the exclusion of markets related net interest income
arising from CIB.
Net interest income excluding CIB's Markets businesses
In addition to reviewing net interest income on a managed
basis, management also reviews net interest income
excluding net interest income arising from CIB's Markets
businesses to assess the performance of the Firm's lending,
investing (including asset-liability management) and
deposit-raising activities. This net interest income is
referred to as non-markets related net interest income.
CIB's Markets businesses are Fixed Income Markets and
Equity Markets. Management believes that disclosure of
non-markets related net interest income provides investors
and analysts with another measure by which to analyze the
non-markets-related business trends of the Firm and
provides a comparable measure to other financial
institutions that are primarily focused on lending, investing
and deposit-raising activities.
JPMorgan Chase & Co./2017 Annual Report
52
4
(a) Predominantly recognized in CIB and CB business segments and Corporate.
(b) Included $375 million related to tax-oriented investments as a result of the enactment of the TCJA.
61%
NM
63%
56%
NM
58%
NM
4,017
41,190
Pre-provision profit
$ 6,060
2,265
$
$ 3,795
(b) $ 6,343
2,704
$
$ 3,639
Other income
Managed
basis
Fully taxable-
equivalent
adjustments(a)
Reported
Results
Managed
basis
Fully taxable-
equivalent
adjustments(a)
Reported
Results
Managed
basis
equivalent
adjustments(a)
Reported
Results
(in millions, except ratios)
December 31,
Fully taxable-
(b) At December 31, 2017, 2016 and 2015, nonaccrual loans excluded loans 90 or
more days past due as follows: (1) mortgage loans insured by U.S. government
agencies of $4.3 billion, $5.0 billion and $6.3 billion, respectively; and (2)
student loans insured by U.S. government agencies under the Federal Family
Education Loan Program ("FFELP") of zero, $263 million and $290 million,
respectively. These amounts have been excluded based upon the government
guarantee.
2015
2016
2017
The following summary table provides a reconciliation from the Firm's reported U.S. GAAP results to managed basis.
Non-GAAP financial measures used by the Firm may not be
comparable to similarly named non-GAAP financial
measures used by other companies.
Total noninterest revenue
49,527
2,704
52,231
96,633
3,090
93,543
99,142
3,474
95,668
103,641
4,017
99,624
Total net revenue
44,620
1,110
43,510
$
47,292
46,083
51,410
1,313
50,097
Net interest income
52,013
1,980
1,980 $ 5,012
$
$ 3,032
50,033
51,850
2,265
49,585
1,209
(c) Net charge-offs and the net charge-off rates for the years ended December 31,
2017, 2016 and 2015, excluded $86 million, $156 million and $208 million,
respectively, of write-offs in the PCI portfolio. These write-offs decreased the
allowance for loan losses for PCI loans. For further information on PCI write-offs,
see summary of changes in the allowance on page 118.
7,057
4,034
Total noninterest expense
26,062
24,905
24,909
Income before income tax
expense
14,851
15,516
15,852
Income tax expense
5,456
5,802
6,063
Net income
$ 9,395
$ 9,714
$ 9,789
Revenue by line of business
Consumer & Business Banking
$21,104
Home Lending
5,955
$18,659
7,361
$17,983
Card, Merchant Services & Auto
19,426
18,895
15,139
6,817
19,020
15,182
Noncompensation expense (a)
Management's discussion and analysis
59
Auto
(d) Excludes the impact of PCI loans. For the years ended December 31, 2017, 2016
and 2015, the net charge-off rates including the impact of PCI loans were as
follows: (1) home equity of 0.14%, 0.34% and 0.45%, respectively; (2)
residential mortgage of (0.01) %, 0.01% and -%, respectively; (3) Home
Lending of 0.02%, 0.09% and 0.14%, respectively; and (4) total CCB of 1.12%,
0.95% and 0.99%, respectively.
3,077
2,281
Noninterest revenue
14,710
15,255
15,592
Net interest income
31,775
29,660
28,228
Total net revenue
46,485
44,915
43,820
Provision for credit losses
5,572
4,494
3,059
Noninterest expense
Compensation expense
10,159
9,723
9,770
15,903
(e) At December 31, 2017, 2016 and 2015, excluded mortgage loans insured by
U.S. government agencies of $6.2 billion, $7.0 billion and $8.4 billion,
respectively, that are 30 or more days past due. These amounts have been
excluded based upon the government guarantee.
Mortgage fees and related
Net production revenue
•
•
•
•
lower MSR risk management results,
the absence in the current year of a gain on the sale of
Visa Europe interests,
lower net production revenue reflecting lower mortgage
production margins and volumes, and
lower mortgage servicing revenue as a result of a lower
level of third-party loans serviced
largely offset by
•
higher auto lease volume and
higher card- and deposit-related fees.
See Note 15 for further information regarding changes in
value of the MSR asset and related hedges, and mortgage
fees and related income.
Noninterest expense was $26.1 billion, an increase of 5%,
driven by:
•
•
.
•
higher auto lease depreciation, and
continued business growth
partially offset by
two items totaling $175 million included in the prior
year related to liabilities from a merchant bankruptcy
and mortgage servicing reserves.
The provision for credit losses was $5.6 billion, an increase
of 24%, reflecting:
$445 million of higher net charge-offs, primarily in the
credit card portfolio due to growth in newer vintages
which, as anticipated, have higher loss rates than the
more seasoned portion of the portfolio, partially offset
by a decrease in net charge-offs in the residential real
estate portfolio reflecting continued improvement in
home prices and delinquencies,
a $415 million higher addition to the allowance for
credit losses related to the credit card portfolio driven
by higher loss rates and loan growth, and a lower
reduction in the allowance for the residential real estate
portfolio predominantly driven by continued
improvement in home prices and delinquencies, and
a $218 million impact in connection with the sale of the
student loan portfolio.
The sale of the student loan portfolio during 2017 did not
have a material impact on the Firm's Consolidated Financial
Statements.
•
income details:
Net interest income was $31.8 billion, up 7%, driven by
higher deposit balances, deposit margin expansion, and
higher loan balances in Card, partially offset by loan spread
compression from higher rates, including the impact of
higher funding costs in Home Lending and Auto and the
impact of the sale of the student loan portfolio.
Noninterest revenue was $14.7 billion, down 4%, driven by:
higher new account origination costs in Card,
Net income was $9.4 billion, a decrease of 3%, driven by
higher noninterest expense and provision for credit losses,
largely offset by higher net revenue.
636
853
769
Net mortgage servicing
revenue(b)
977
1,637
1,742
Mortgage fees and related
income
$ 1,613
$ 2,490
$ 2,511
Financial ratios
Return on equity
Overhead ratio
17%
56
18%
55
18%
57
Note: In the discussion and the tables which follow, CCB presents certain
financial measures which exclude the impact of PCI loans; these are non-GAAP
financial measures.
(a) Included operating lease depreciation expense of $2.7 billion, $1.9 billion
and $1.4 billion for the years ended December 31, 2017, 2016 and 2015,
respectively.
(b) Included MSR risk management results of $(242) million, $217 million and
$(117) million for the years ended December 31, 2017, 2016 and 2015,
respectively.
57
44
Management's discussion and analysis
2017 compared with 2016
Net revenue was $46.5 billion, an increase of 3%.
(f) Excludes PCI loans. The 30+ day delinquency rate for PCI loans was 10.13%,
9.82% and 11.21% at December 31, 2017, 2016 and 2015, respectively.
(g) Excluded student loans insured by U.S. government agencies under FFELP of
$468 million and $526 million at December 31, 2016 and 2015, respectively,
that are 30 or more days past due. These amounts have been excluded based
upon the government guarantee.
Selected metrics
As of or for the year ended
December 31,
$ 545.4
$ 622.2
Credit card sales volume
Card, excluding Commercial
Card
2.80x
2.94x
3.09x
0.98%
1.03%
1.08%
MSR revenue multiple(e)
(period-end)
mortgage loans serviced
(period-end) to third-party
Ratio of MSR carrying value
6.6
6.1
6.0
(period-end)
MSR carrying value
674.0
591.5
553.5
serviced (period-end)
Third-party mortgage loans
$ 910.1
$ 846.6
$ 495.9
$ 816.1
New accounts opened
Card Services
12.33%
Merchant Services
Merchant processing volume
$1,191.7
$1,063.4
$ 949.3
Auto
Loan and lease origination
volume
$
33.3
$ 35.4
$ 32.4
Average Auto operating lease
assets
15.2
11.0
7.8
(a) The prior period amounts have been revised to conform with the current period
presentation.
(b) Users of all web and/or mobile platforms who have logged in within the past 90
days.
(c) Users of all mobile platforms who have logged in within the past 90 days.
(d) Firmwide mortgage origination volume was $107.6 billion, $117.4 billion and
$115.2 billion for the years ended December 31, 2017, 2016 and 2015,
respectively.
(e) Represents the ratio of MSR carrying value (period-end) to third-party mortgage
loans serviced (period-end) divided by the ratio of loan servicing-related revenue
to third-party mortgage loans serviced (average).
JPMorgan Chase & Co./2017 Annual Report
Net revenue rate
8.7
10.4
8.4
(in millions)
(period-end)
Total loans serviced
$ 106.4
$ 754.1
$ 821.6
$ 916.9
volume (a)
Debit and credit card sales
22,810
26,536
30,056
(in thousands) (c)
Active mobile customers
39,242
43,836
46,694
(in thousands) (b)
Active digital customers
5,413
5,258
5,130
58.1
60.4
61.0
CCB households (in millions) (a)
Number of branches
2015
2016
2017
60
(in billions, except ratios and
where otherwise noted)
Business Metrics
Consumer & Business Banking
Average deposits
$ 625.6
Deposit margin
$ 103.6
97.6
$
Total mortgage origination
volume(d)
70.3
59.3
57.3
36.1
$
$ 44.3
40.3
$
Correspondent
2016 compared with 2015
Retail
Mortgage origination volume by
Home Lending
$ 6.8
218.6
$ 7.3
234.5
273.3
Client investment assets
7.3
$
volume
Business banking origination
$ 515.2
1.90%
$ 570.8
1.81%
1.98%
channel
3,434
Net income was $9.7 billion, a decrease of 1%, driven by
higher provision for credit losses, predominantly offset by
higher net revenue.
Net interest income was $29.7 billion, up 5%, driven by
higher deposit balances and higher loan balances, partially
offset by deposit spread compression and an increase in the
reserve for uncollectible interest and fees in Card.
Noninterest revenue was $15.3 billion, down 2%, driven by
higher new account origination costs and the impact of
renegotiated co-brand partnership agreements in Card and
lower mortgage servicing revenue predominantly as a result
of a lower level of third-party loans serviced; these factors
were predominantly offset by higher auto lease and card
sales volume, higher card- and deposit-related fees, higher
MSR risk management results and a gain on the sale of Visa
Europe interests. See Note 15 for further information
regarding changes in value of the MSR asset and related
hedges, and mortgage fees and related income.
331
285
214
498
162
210
$ 5,256
$ 4,344
$ 4,084
Consumer & Business Banking
Home equity(d)
1.03%
0.18
1.10%
0.45
1.16%
0.60
Selected balance sheet data
(average)
Residential mortgage (d)
(0.01) 0.01
Total assets
$532,756 $516,354 $472,972
Home Lending(d)
0.02
0.10
0.18
Card
2.95
2.63
3,122
2.51
3,442
285
332
563
(45)
18%
10.57%
Total loans
481,632
470,486
8,176
445,858
Core loans
Deposits
Equity
415,167 382,608
659,885 618,337
51,000 51,000
341,881
557,645
51,000
Total net charge-offs/
(recoveries)
Net charge-off/(recovery) rate (c)
257
257
253
63
184
283
(16)
14
2
47
198
4,123
10,813
Loans:
0.51
1.61
1.43
Auto
0.89
1.19
1.35
Student(s)
1.60
1.81
90+ day delinquency rate - Card
0.92
0.81
0.72
Allowance for loan losses
Headcount
134,117 132,802 127,094
Consumer & Business Banking
Home Lending, excluding PCI loans
796 $ 753 $ 703
1,003
1,328
1,588
Home Lending - PCI loans (c)
2,225
2,311
2,742
Card
4,884
1.80
Auto
Card
1.23%
0.45
0.38
Consumer & Business Banking
Home equity
Residential mortgage
Home Lending
Card
Auto
Student
Total loans
Core loans
Deposits
Equity
24,875 23,431 21,894
46,398 54,545 63,261
190,242 177,010 140,294
236,640 231,555 203,555
140,024 131,165 125,881
65,395 63,573 56,487
2,880
7,623
8,763
469,814 457,347 416,580
393,598 361,316 301,700
640,219 586,637 530,938
51,000 51,000 51,000
Student
NM
2.13
2.40
Total net charge-offs/(recovery)
rate
(d)
1.21
1.04
1.10
30+ day delinquency rate
Home Lending (e)(f)
1.19%
1.57%
10,815
8,090
14
$535,310 $502,652
Net charge-offs/(recoveries) (c)
Loans:
Consumer & Business Banking
Consumer & Business Banking
25,789
Home equity
Residential mortgage
Home Lending
Card
Auto
Student
24,307 22,730
42,751 50,296 58,734
197,339 181,196 164,500
240,090 231,492 223,234
149,511 141,816 131,463
66,242
Home equity
Residential mortgage
Home Lending
Card
Auto
65,814
60,255
Student
-
3,430
All other income
5,491
4,364
4,024
$552,601
Card income
Total assets
$ 4,084
Noninterest expense of $24.9 billion was flat, driven by:
lower legal expense and branch efficiencies
offset by
•
higher auto lease depreciation, and
higher investment in marketing.
The provision for credit losses was $4.5 billion, an increase
of 47%, reflecting:
.
•
a $920 million increase related to the credit card
portfolio, due to a $600 million addition in the
allowance for loan losses, as well as $320 million of
higher net charge-offs, driven by loan growth, including
growth in newer vintages which, as anticipated, have
higher loss rates compared to the overall portfolio,
a $450 million lower benefit related to the residential
real estate portfolio, as the current year reduction in the
allowance for loan losses was lower than the prior year.
The reduction in both periods reflected continued
improvements in home prices and lower delinquencies,
and
a $150 million increase related to the auto and business
banking portfolio, due to additions to the allowance for
loan losses and higher net charge-offs, reflecting loan
growth in the portfolios.
58
JPMorgan Chase & Co./2017 Annual Report
Selected metrics
As of or for the year ended
December 31,
Selected metrics
As of or for the year ended
December 31,
(in millions, except headcount)
2017
2016
2015
Selected balance sheet data
(period-end)
(in millions, except ratio data)
Credit data and quality statistics
Nonaccrual loans (a)(b)
2017
2016
2015
$ 4,708 $ 5,313
2,511
2,490
1,613
NM
2,437
(704)
(1,643)
(10)
(4)
-
21
24
25
1,935
2,251
2,337
4
26
39
15
16
17
2,191
2,657
3,539
442
282
(276)
12
16
NM
NM
$
5,290 $
Mortgage fees and related
income
2,172
2,093
2,212
commissions
administration and
$ 3,231 $ 3,137
Lending- and deposit-related fees $ 3,431
JPMorgan Chase & Co./2017 Annual Report
Asset management,
(in millions, except ratios)
Revenue
Year ended December 31,
Selected income statement data
Net revenue was $44.9 billion, an increase of 2%.
Consumer & Community Banking offers services to
consumers and businesses through bank branches,
ATMs, online, mobile and telephone banking. CCB is
organized into Consumer & Business Banking (including
Consumer Banking/Chase Wealth Management and
Business Banking), Home Lending (including Home
Lending Production, Home Lending Servicing and Real
Estate Portfolios) and Card, Merchant Services & Auto.
Consumer & Business Banking offers deposit and
investment products and services to consumers, and
lending, deposit, and cash management and payment
solutions to small businesses. Home Lending includes
mortgage origination and servicing activities, as well as
portfolios consisting of residential mortgages and
home equity loans. Card, Merchant Services & Auto
issues credit cards to consumers and small businesses,
offers payment processing services to merchants, and
originates and services auto loans and leases.
2015
2016
2017
JPMorgan Chase & Co./2017 Annual Report
56
99
The following sections provide a comparative discussion of business segment results as of or for the years ended December 31,
2017, 2016 and 2015.
11%
10%
10%
$ 24,441 $ 24,733 $ 24,442
3,827
5,361 $
CONSUMER & COMMUNITY BANKING
464
174,912 $
Contractual cash obligations
The accompanying table summarizes, by remaining
maturity, JPMorgan Chase's significant contractual cash
obligations at December 31, 2017. The contractual cash
obligations included in the table below reflect the minimum
contractual obligation under legally enforceable contracts
with terms that are both fixed and determinable. Excluded
from the below table are certain liabilities with variable
cash flows and/or no obligation to return a stated amount
of principal at maturity.
#1
YOU INVEST
89% of You Invest customers are
first-time investors with Chase
TOP 10
Ranked Top 10 on Fortune magazine's
World's Most Admired Companies list
關
20,000
FINANCING/AFFORDABLE
PROPERTIES
Financing for 20,000 affordable
properties for low-income individuals
across the U.S.
89%
مه
#1
#1
#1 most visited banking portal in the U.S.
• 49 million active digital customers
• 33 million active mobile customers
#1 U.S.
multifamily lender
OBD
#1 in global investment banking fees
for the 10th consecutive year
$1T OF M&A
AA
#1 in U.S. retail
Closing share price
Market capitalization
Common shares at period-end
Headcount
97.62
106.94
86.29
319,780
366,301
307,295
3,275.8
3,425.3
3,561.2
256,105
252,539
243,355
(a) Results are presented in accordance with accounting principles generally accepted in the United States of America, except where
otherwise noted.
(b) TBVPS and ROTCE are each non-GAAP financial measures. For further discussion of these measures, refer to Explanation and
Reconciliation of the Firm's Use of Non-GAAP Financial Measures and Key Financial Performance Measures on pages 57-59.
(c) The ratios presented are calculated under the Basel III Fully Phased-In Approach, and they are key regulatory capital measures.
For further discussion, refer to "Capital Risk Management" on pages 85-94.
JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets
of $2.6 trillion and operations worldwide. The firm is a leader in investment banking,
financial services for consumers and small businesses, commercial banking, financial
transaction processing and asset management. A component of the Dow Jones Industrial
Average, JPMorgan Chase & Co. serves millions of customers in the United States and
many of the world's most prominent corporate, institutional and government clients
under its J.P. Morgan and Chase brands.
Information about J.P. Morgan's capabilities can be found at jpmorgan.com and about
Chase's capabilities at chase.com. Information about JPMorgan Chase & Co. is available
at jpmorganchase.com.
#1
deposit growth
Advisor on more than
$1 trillion of announced M&A
transactions
FIRST
For JPMorgan Chase, all things being equal (which they are not), the new lower
tax rates added $3.7 billion to net income. For the long term, we expect that
some or eventually most of that increase will be erased as companies compete
for customers on products, capabilities and prices. However, we did take this
opportunity in the short term to massively increase our investments in technology,
new branches and bankers, salaries (we now pay a minimum of $31,000 a year
for full time entry-level jobs in the United States), philanthropy and lending
(specifically in lower income neighborhoods).
3
Earnings, Diluted Earnings per share and Return on Tangible Common Equity
2004-2018
($ in billions, except per share and ratio data)
24%
22%
$21.3
$19.0
$17.9
In last year's letter, we emphasized how important a competitive global tax system
is for America. Over the last 20 years, as the world reduced its tax rates, America
did not. Our previous tax code was increasingly uncompetitive, overly complex, and
loaded with special interest provisions that created winners and losers. This drove
down capital investment in the United States, which reduced domestic productivity
and wage growth. The new tax code establishes a business tax rate that will
make the United States competitive around the world and frees U.S. companies
to bring back profits earned overseas. The cumulative effect of capital retained
and reinvested over many years in the United States will help cultivate strong
businesses and ultimately create jobs and increase wages.
$17.4
$32.5
Adjusted net income¹
$26.9
$9.00
$24.4
$24.7 $24.4
$21.7
$6.19
$6.00
15%
2018 was another strong year for JPMorgan Chase, with the firm generating record
revenue and net income, even without the impact of tax reform. We earned
$32.5 billion in net income on revenue of $111.5 billion, reflecting strong underlying
performance across our businesses. Adjusting for the enactment of the Tax Cuts
and Jobs Act, we now have delivered record results in eight of the last nine years,
and we have confidence that we will continue to deliver in the future. Each line
of business grew revenue and net income for the year while continuing to make
significant investments in products, people and technology. We grew core loans
by 7%, increased deposits in total by 3% and generally grew market share across
our businesses, all while maintaining credit discipline and a fortress balance
sheet. In total, we extended credit and raised capital of $2.5 trillion for businesses,
institutional clients and U.S. customers.
AdvancingCities initiative to support job and wage growth in communities most
in need of capital. While it is too soon to assess the impact of these efforts, we're
seeing terrific results so far.
¹Represents managed revenue.
U.S. BANK
WITH DIGITAL COIN
First U.S. bank with
a
digital coin
晶示。
$500M
ADVANCINGCITIES INITIATIVE
$500 million AdvancingCities initiative
to create economic opportunity in cities
around the world
83%
RANKED IN TOP TWO QUARTILES
83% of long-term mutual fund assets
under management ranked in the
top two quartiles over the 10-year period
10%
WAGE INCREASE
10% wage increase,
on average, to $15-$18 per hour
for 22,000 employees
Dear Fellow Shareholders,
Once again, I begin this annual letter to shareholders with a sense of pride about
our company and our hundreds of thousands of employees around the world. As I
look back on the last decade – a period of profound political and economic change
– it is remarkable how much we have accomplished, not only in terms of financial
performance but in our steadfast dedication to help clients, communities and
countries all around the world.
In 2018, we continued to accelerate investments in products, services and
technology. For example, for the first time in nearly a decade, we extended our
presence in several states with new Chase branches (we plan to open another 400
new branches in the next few years). In addition, we started a new digital investing
platform: You Invest; we launched our partnership with Amazon and Berkshire
Hathaway in healthcare; we broadened our commitment to create opportunities
for jobs and prosperity and reduce the wealth gap for black Americans with
Advancing Black Pathways (announced in February 2019); and we launched our
2
Jamie Dimon,
Chairman and
Chief Executive Officer
254,190
$15.4
255,693
229,625
39,897
Provision for credit losses
4,871
5,290
5,361
Net income
$
32,474
$
41,190
24,441
Per common share data
Net income per share:
Basic
Diluted
Cash dividends declared
Book value
Tangible book value (TBVPS)(b)
9.04
6.35
24,733
45,635
Pre-provision profit
56,672
went on the Move
ANNUAL REPORT 2018
RETT
SAPPHIRE
BANKING
Women on the Move
J.P.Morgan
JPMORGAN CHASE & Co.
Financial Highlights
As of or for the year ended December 31,
(in millions, except per share, ratio data and headcount)
Reported basis (a)
Total net revenue
2018
2017
2016
Total noninterest expense
$ 109,029
63,394
$ 100,705
96,569
59.515
6.24
9.00
6.31
6.19
13.9
Total capital ratio (c)
15.5
15.7
15.2
Selected balance sheet data (period-end)
Loans
$ 984,554
Total assets
Deposits
Common stockholders' equity
Total stockholders' equity
Market data
2,622,532
$ 930,697
2,533,600
$ 894,765
2,490,972
1,470,666
1,443,982
1,375,179
230,447
13.8
256,515
13.7
12.2
2.72
2.12
1.88
70.35
67.04
64.06
56.33
53.56
51.44
Selected ratios
Return on common equity
13%
10%
10%
Return on tangible common equity (ROTCE)(b)
17
12
13
Common equity Tier 1 capital ratio (c)
12.0
12.1
Tier 1 capital ratio (c)
15%
228,122
10%
3.1%
76.3%
JPMorgan Chase & Co.
S&P 500 Index
S&P Financials Index
9.4%
268.0%
7.8%
196.8%
2.4%
40.5%
(6.6)%
13.6%
4.7%
136.4%
14.5%
(13.0)%
8.1%
10.9%
These charts show actual returns of the stock, with dividends reinvested, for heritage shareholders of Bank One and JPMorgan Chase & Co.
vs. the Standard & Poor's 500 Index (S&P 500 Index) and the Standard & Poor's Financials Index (S&P Financials Index).
1 On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.
While we don't run the company worrying about the stock price in the short run, in
the long run our stock price is a measure of the progress we have made over the
years. This progress is a function of continual investments, in good and bad times,
to build our capabilities - our people, systems and products. These important
investments drive the future prospects of our company and position it to grow
and prosper for decades. Whether looking back over five years, 10 years or since
the JPMorgan Chase/Bank One merger (approximately 14 years ago), our stock
has significantly outperformed the Standard & Poor's 500 Index and the Standard
& Poor's Financials Index. And this growth came during a time of unprecedented
challenges for banks – both the Great Recession and the extraordinarily difficult
legal, regulatory and political environment that followed.
JPMorgan Chase stock is owned by large institutions, pension plans, mutual funds
and directly by individual investors. However, it is important to remember that
in almost all cases, the ultimate beneficiaries are individuals in our communities.
Well over 100 million people in the United States own stock, and a large
percentage of these individuals, in one way or another, own JPMorgan Chase
stock. Many of these people are veterans, teachers, police officers, firefighters,
retirees, or those saving for a home, school or retirement. Your management
team goes to work every day recognizing the enormous responsibility that we
have to perform for our shareholders.
In the first section of this letter, I try to give a comprehensive understanding of
how we run our company, including how we think about building shareholder
value for the long run. In that section, I highlight our strong belief that building
shareholder value can only be done in conjunction with taking care of employees,
customers and communities. This is completely different from the commentary
often expressed about the sweeping ills of naked capitalism and institutions only
caring about shareholder value.
In the second section of this letter, I comment on important forward-looking issues.
While we remain optimistic about the long-term growth of the United States and
the world, the near-term economic and political backdrop is increasingly complex
and fraught with risks – both known and unknown. And we face a future with less
overall confidence in virtually all institutions, from corporations to governments
to the media. The extremely volatile global markets in the fourth quarter of 2018
might be a harbinger of things to come - creating both risks for our company and
opportunities to serve our clients.
The third section of this letter is about public policy, specifically American public
policy, which is a major concern for our country and, therefore, our company.
Again, I try to give a comprehensive, multi-year overview of what I see as some of
our problems and suggest a few ways they can be addressed. One consistent theme
is completely clear: Businesses, governments and communities need to work as
partners, collaboratively and constructively, to analyze and solve problems and
help strengthen the economy for everyone's benefit.
(4.4)%
8.5%
13.1%
11.2%
638.9%
S&P Financials Index
S&P 500 Index
4.6%
245.5%
Tangible book value over time captures the company's use of capital, balance sheet and profitability. In this chart, we are looking at
heritage Bank One shareholders and JPMorgan Chase & Co. shareholders. The chart shows the increase in tangible book value per share;
it is an after-tax number that assumes all dividends were retained vs. the Standard & Poor's 500 Index (S&P 500 Index), which is a
pre-tax number that includes reinvested dividends.
On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.
In the last five years, we have bought back almost $55 billion in stock or
approximately 660 million shares, which is nearly 20% of the company's common
shares outstanding. In prior letters, I explained why buying back our stock at
tangible book value per share was a no-brainer. Seven years ago, we offered an
example of this: If we bought back a large block of stock at tangible book value,
earnings and tangible book value per share would be substantially higher just four
years later than without the buyback. While we prefer buying back our stock at
tangible book value, we think it makes sense to do so even at or above two times
tangible book value for reasons similar to those we've expressed in the past. If we
buy back a big block of stock this year, we would expect (using analysts' earnings
5
estimates) earnings per share in five years to be 2%-3% higher and tangible book
value to be virtually unchanged. We want to remind our shareholders that we much
prefer to use our capital to grow than to buy back stock. I discuss stock buybacks
later in this letter.
Stock total return analysis
Performance since becoming CEO of Bank One
(3/27/2000-12/31/2018)¹
Compounded annual gain
Overall gain
Performance since the Bank One
and JPMorgan Chase & Co. merger
(7/1/2004-12/31/2018)
Compounded annual gain
Overall gain
Performance for the period ended
December 31, 2018
Compounded annual gain/(loss)
One year
Five years
Ten years
Bank One
7
Page 10
1.
First and foremost, we look at our business from the point of view of the
customer.
We have to remind ourselves that responsible banking is good and safe banking.
We believe in good regulation - both to help America grow and improve
financial stability.
Page 29
Page 31
4.
We believe stock buybacks are an essential part of proper capital allocation
but secondary to long-term investing.
Page 33
5.
On the importance of the cloud and artificial intelligence, we are all in.
Page 34
6.
We remain devoted and diligent to protect privacy and stay cyber safe -
we will do what it takes.
Page 35
7.
We know there are risks on the horizon that will eventually demand
our attention.
Page 36
8.
-
We are prepared for – though we are not predicting – a recession.
-
Page 40
$14.4
3.
196.8%
2.
We need to continue to restore trust in the strength of the U.S. banking system
and global systemically important financial institutions.
Page 10
2.
We endeavor to be the best at anything and everything we do.
Page 15
3.
We will maintain a fortress balance sheet – and fortress financial principles.
Page 16
4.
We lift up our communities.
Page 18
5.
We take care of our employees.
Page 22
6.
We always strive to learn more about management and leadership.
Page 24
7. We do not worry about some issues.
Page 25
II. Comments on Current Critical Issues
Page 26
1.
Page 26
7.8%
I. JPMorgan Chase Principles and Strategies
2009
2008
Diluted earnings per share
2010 2011
2012 2013
Return on tangible common equity (ROTCE)
2014
2015
2016
2017
2018
1 Adjusted results, a non-GAAP financial measure, exclude a $2.4 billion decrease to net income, for 2017, as a result of the enactment of the Tax Cuts and Jobs Act.
Tangible Book Value and Average Stock Price per Share
2004-2018
High: $119.33
✈ $110.72
$92.01
$63.83
$65.62
$58.17
$51.88
$47.75
$43.93
$56.33
2007
$38.70
Net income
2005
$5.19
12.4%
442.3%
$5.29
10%
$11.7
$4.48
$4.34
15% 15% 11% 13% $6.31 17%
Adjusted
ROTCE¹ was
13.6%,
for 2017
13%
13%
12%
$4.00
$4.33
6%
$8.5
$3.96
$2.35
$4.50 $155.7||||||│
2004
2006
$39.83
Low: $91.11
$40.36 $39.36
As you know, we believe tangible book value per share is a good measure of the
value we have created for our shareholders. If our asset and liability values are
appropriate - and we believe they are - and if we can continue to deploy this
capital profitably, we think we can continue to exceed 15% return on tangible
equity for the next several years (and potentially at or above 17% in the near term),
assuming there is not a significant downturn. If we can earn these types of returns,
our company should ultimately be worth considerably more than tangible book
value. The chart on the bottom of the opposite page shows that tangible book value
"anchors" the stock price.
Bank One/JPMorgan Chase & Co. tangible book value per share performance vs. S&P 500 Index
Performance since becoming CEO of Bank One
(3/27/2000-12/31/2018)¹
Compounded annual gain
Overall gain
Performance since the Bank One
and JPMorgan Chase & Co. merger
Compounded annual gain
Overall gain
Bank One
(A)
S&P 500 Index
(B)
Relative Results
(A) - (B)
11.6%
615.8%
4.7%
136.4%
6.9%
479.4%
JPMorgan Chase & Co.
(A)
S&P 500 Index
(B)
Relative Results
(A) - (B)
Average stock price
■Tangible book value
(7/1/2004-12/31/2018)
2017
$51.44
2018
$53.56
$36.07
$35.49
$48.13
$44.60
$40.72
$38.68
$33.62
$39.22
$30.12
$15.35 $16.45 $18.88 $21.96 52.52▬▬▬▬▬▬▬▬▬▬▬▬
2004 2005 2006 2007 2008
2009
2010
2011
2012 2013 2014
2015
2016
$27.09
20,918
Total noninterest expense
19,407
9,876
Noncompensation expense
9,540
9,576
19,116
9,531
10,215
10,703
Income before income tax
15,661
4,846
$ 10,813 $ 10,815
15,590
15,295
Income tax expense
3,817
4,482
Net income(a)
$ 11,773
Compensation expense
66
66
expense
Noninterest expense
(175)
(60)
Lending- and deposit-related fees
563
1,497
1,531
1,581
Asset management,
administration and commissions
4,488
4,207
All other income
(45)
1,239
Noninterest revenue
26,968
24,539
Net interest income
9,480
Total net revenue(a)(b)
36,448
10,118
34,657
4,062
1,169
24,449
10,891
35,340
Provision for credit losses
572
(a) The full year 2017 results reflect the impact of the enactment of the TCJA
including a decrease to net revenue of $259 million and a benefit to net
income of $141 million. For additional information related to the impact of
the TCJA, refer to Note 24.
(373)
Selected income statement data
3,643
1,298
1,429
1,208
12,982
12,453
10,925
Fixed Income Markets
12,706
12,812
15,259
Equity Markets
6,888
5,703
5,740
Securities Services
Credit Adjustments & Other(a)
Total Markets & Investor
Services
4,245
3,917
3,591
(228)
11,089
4,172
4,697
$ 6,074
$ 6,852
Year ended December 31,
(in millions, except ratios)
Financial ratios
Return on equity
2018
2017
2016
16%
14%
16%
Overhead ratio
(b) Included tax-equivalent adjustments, predominantly due to income tax
credits related to alternative energy investments; income tax credits and
amortization of the cost of investments in affordable housing projects; and
tax-exempt income from municipal bonds of $1.7 billion, $2.4 billion and
$2.0 billion for the years ended December 31, 2018, 2017 and 2016,
respectively.
57
54
Compensation expense as
percentage of total net
revenue
28
28
27
Revenue by business
Investment Banking
Treasury Services
Lending
Total Banking
$ 6,987
56
10,873
Deposit margin
Principal transactions
$ 97.6 $
103.6
Total loans serviced
(period-end)
$ 789.8 $ 816.1 $
846.6
Third-party mortgage loans
serviced (period-end)
519.6
553.5
591.5
MSR carrying value
(period-end)
6.1
6.0
6.1
Ratio of MSR carrying value
(period-end) to third-party
mortgage loans serviced
(period-end)
1.17%
79.4
$
origination volume(d)
Total mortgage
23,466
Consumer & Business Banking
Average deposits
$ 656.5 $
2.38%
625.6 $ 570.8
1.98%
1.81%
Business banking origination
volume
$
Client investment assets
6.7 $
282.5
1.08%
7.3 $
273.3
Home Lending
Mortgage origination volume
by channel
Retail
$
Correspondent
38.3 $
41.1
40.3 $
57.3
44.3
59.3
7.3
234.5
12,271
1.03%
3.34x
15.2
11.0
(a) The prior period amounts have been revised to conform with the current period
presentation.
(b) Users of all web and/or mobile platforms who have logged in within the past 90
days.
(c) Users of all mobile platforms who have logged in within the past 90 days.
(d) Firmwide mortgage origination volume was $86.9 billion, $107.6 billion and
$117.4 billion for the years ended December 31, 2018, 2017 and 2016,
respectively.
(e) Represents the ratio of MSR carrying value (period-end) to third-party mortgage
loans serviced (period-end) divided by the ratio of loan servicing-related revenue
to third-party mortgage loans serviced (average).
65
Management's discussion and analysis
CORPORATE & INVESTMENT BANK
The Corporate & Investment Bank, which consists of
Banking and Markets & Investor Services, offers a
broad suite of investment banking, market-making,
prime brokerage, and treasury and securities products
and services to a global client base of corporations,
investors, financial institutions, government and
municipal entities. Banking offers a full range of
investment banking products and services in all major
capital markets, including advising on corporate
strategy and structure, capital-raising in equity and
debt markets, as well as loan origination and
syndication. Banking also includes Treasury Services,
which provides transaction services, consisting of cash
management and liquidity solutions. Markets &
Investor Services is a global market-maker in cash
securities and derivative instruments, and also offers
sophisticated risk management solutions, prime
brokerage, and research. Markets & Investor Services
also includes Securities Services, a leading global
custodian which provides custody, fund accounting and
administration, and securities lending products
principally for asset managers, insurance companies
and public and private investment funds.
Effective January 1, 2018, the Firm adopted several new
accounting standards; the guidance which had the most
significant impact on the CIB segment results was revenue
recognition, and recognition and measurement of financial
assets. The revenue recognition guidance was applied
retrospectively and, accordingly, prior period amounts were
revised. For additional information, refer to Note 1.
Selected income statement data
Year ended December 31,
2018
2017
2016
(in millions)
Revenue
Investment banking fees
$ 7,473 $ 7,356 $ 6,548
18.8
Average Auto operating lease
assets
$ 35.4
$ 31.8 $ 33.3
3.09x
2.94x
Card, excluding Commercial Card
Credit card sales volume
692.4
$ 622.2
545.4
New accounts opened
(in millions)
Card Services
MSR revenue multiple (e)
Net revenue rate
8.4
10.4
11.27%
10.57%
11.29%
Merchant Services
Merchant processing volume
$ 1,366.1 $ 1,191.7 $ 1,063.4
Auto
Loan and lease origination
volume
7.8
22,204
7,473
Total net revenue
Core loans
Equity
70,000
120,560 113,006
70,000
114,894
114,455
Total allowance for credit
losses
1,953
2,106
2,221
Net charge-off/(recovery)
64,000
rate (b)
0.08%
0.07%
0.15%
Headcount (b)
54,480
51,181
48,748
Allowance for loan losses to
period-end loans
801
727
754
related commitments
receivables
60,552
56,466
63,387
Allowance for credit losses:
Loans:
Allowance for loan
Loans retained(a)
114,417
108,368
(a) Loans retained includes credit portfolio loans, loans held by
111,082
1,199
1,379
1,420
Loans held-for-sale and
Allowance for lending-
loans at fair value
Total loans
6,412
120,829
4,995
113,363
3,812
losses
878
consolidated Firm-administered multi-seller conduits, trade finance
loans, other held-for-investment loans and overdrafts.
(b) During the third quarter of 2018 approximately 1,200 employees
transferred from CCB to CIB as part of the reorganization of the
Commercial Card business.
0.93
Year ended December 31,
2018
2017
2016
$
Debt underwriting (a)
2,509 $
1,684
3,280
2,150 $
1,468
2,110
1,213
3,738
3,225
Total investment banking fees
(a) Includes loan syndications.
$
821.6
$
7,356 $
6,548
68
JPMorgan Chase & Co./2018 Form 10-K
Tangible common equity, ROTCE and TBVPS
Equity underwriting
(in millions)
Advisory
Investment banking fees
(c) Management uses allowance for loan losses to period-end loans
retained, excluding trade finance and conduits, a non-GAAP financial
measure, to provide a more meaningful assessment of CIB's allowance
coverage ratio.
1.27
1.27
Allowance for loan losses to
period-end loans retained,
excluding trade finance
and conduits(c)
1.24
1.92
1.86
Allowance for loan losses to
retained
nonaccrual loans
271
170
304
Nonaccrual loans to total
period-end loans
0.47
0.72
0.50
(a) Allowance for loan losses of $174 million, $316 million and $113
million were held against these nonaccrual loans at December 31,
2018, 2017 and 2016, respectively.
(b) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
retained(a)
1,027
780
assets
Selected balance sheet data
(period-end)
Selected metrics
As of or for the year ended
December 31,
2018
2017
2016
(in millions, except ratios)
Credit data and quality
statistics
2018
2017
2016
Assets
$903,051
$ 826,384 $803,511
Net charge-offs/
(recoveries)
$ 93 $ 71 $
168
Loans:
Nonperforming assets:
Loans retained(a)
129,389
108,765
(in millions, except headcount)
As of or for the year ended
December 31,
Selected metrics
Management's discussion and analysis
$36,448
$34,657
$35,340
(a) Consists primarily of credit valuation adjustments ("CVA") managed
centrally within CIB and funding valuation adjustments ("FVA") on
derivatives. Results are primarily reported in principal transactions
revenue. Results are presented net of associated hedging activities and net
of CVA and FVA amounts allocated to Fixed Income Markets and Equity
Markets. For additional information, refer to Notes 2, 3 and 23.
2018 compared with 2017
Net income was $11.8 billion, up 9%.
Net revenue was $36.4 billion, up 5%.
Banking revenue was $13.0 billion, up 4%. Investment
Banking revenue was $7.0 billion, up 2% compared to a
strong prior year, predominantly driven by higher advisory
and equity underwriting fees, predominantly offset by lower
debt underwriting fees. The Firm maintained its #1 ranking
for Global Investment Banking fees with overall share gains,
according to Dealogic. Advisory fees were $2.5 billion, up
17%, driven by a higher number of large completed
transactions. Equity underwriting fees were $1.7 billion, up
15% driven by a higher share of fees reflecting strong
performance across products. Debt underwriting fees were
$3.3 billion, down 12%, compared to a strong prior year,
primarily driven by declines in industry-wide fee levels.
Treasury Services revenue was $4.7 billion, up 13%, driven
by the impact of higher interest rates and growth in
operating deposits as well as higher fees on increased
payments volume. Lending revenue was $1.3 billion, down
JPMorgan Chase & Co./2018 Form 10-K
9%, driven by lower net interest income primarily reflecting
a change in the portfolio mix and overall spread
compression, and higher gains in the prior year on
securities received from restructurings.
111,872
Markets & Investor Services revenue was $23.5 billion, up
6%. The results included a reduction of approximately
$620 million in tax-equivalent adjustments as a result of
the TCJA, and approximately $500 million of fair value
gains in the first quarter of 2018 related to the adoption of
the new recognition and measurement accounting guidance
for certain equity investments previously held at cost. Prior
year results included a reduction of $259 million resulting
from the enactment of the TCJA. Fixed Income Markets
revenue was $12.7 billion, down 1%. Excluding the impact
of the TCJA and fair value gains mentioned above, Fixed
Income Markets revenue was down 2%. Rates and Credit
revenue declined reflecting challenging market conditions
in the fourth quarter of 2018 while lower revenue in Fixed
Income Financing was driven by compressed margins. This
decline was predominantly offset by strong performance
including higher client activity in Currencies & Emerging
Markets, and higher Commodities revenue compared to a
challenging prior year. Equity Markets revenue was $6.9
billion, up 21%, or up 18% excluding the fair value loss of
$143 million on a margin loan to a single client in the prior
year, driven by strength across derivatives, prime brokerage
and cash equities, reflecting strong client activity. Securities
Services revenue was $4.2 billion, up 8%, driven by fee
growth, higher interest rates and operating deposit growth
partially offset by the impact of a business exit. Credit
Adjustments & Other was a loss of $373 million, largely
driven by higher funding spreads on derivatives.
2017 compared with 2016
Net income was $10.8 billion, flat compared with the prior
year, reflecting lower net revenue and higher noninterest
expense, offset by a lower provision for credit losses, and a
tax benefit resulting from the vesting of employee share-
based awards. The current year included a $141 million
benefit to net income as a result of the enactment of the
TCJA.
Net revenue was $34.7 billion, down 2%.
Banking revenue was $12.5 billion, up 14% compared with
the prior year. Investment banking revenue was $6.9 billion,
up 13% from the prior year, driven by higher debt and
equity underwriting fees. The Firm maintained its #1
ranking for Global Investment Banking fees, according to
Dealogic. Debt underwriting fees were $3.7 billion, up 16%
driven by a higher share of fees and an overall increase in
industry-wide fees; the Firm maintained its #1 ranking
globally in fees across high-grade, high-yield, and loan
products. Equity underwriting fees were $1.5 billion, up
21% driven by growth in industry-wide issuance including a
strong IPO market; the Firm ranked #2 in equity
underwriting fees globally. Advisory fees were $2.2 billion,
up 2%; the Firm maintained its #2 ranking for M&A.
Treasury Services revenue was $4.2 billion, up 15%, driven
by the impact of higher interest rates and growth in
operating deposits. Lending revenue was $1.4 billion, up
18% from the prior year, reflecting lower fair value losses
on hedges of accrual loans.
Markets & Investor Services revenue was $22.2 billion,
down 9% from the prior year. Fixed Income Markets
revenue was $12.8 billion, down 16%, as lower revenue
across products was driven by sustained low volatility,
tighter credit spreads, and the impact from the TCJA on tax-
oriented investments of $259 million, against a strong prior
year. Equity Markets revenue was $5.7 billion, down 1%
from the prior year, and included a fair value loss of $143
million on a margin loan to a single client. Excluding the fair
value loss, Equity Markets revenue was higher driven by
higher revenue in Prime Services and cash equities,
partially offset by lower revenue in derivatives. Securities
Services revenue was $3.9 billion, up 9%, driven by the
impact of higher interest rates and deposit growth, as well
as higher asset-based fees driven by higher market levels.
Credit Adjustments & Other was a loss of $228 million,
driven by valuation adjustments.
The provision for credit losses was a benefit of $45 million,
which included a net reduction in the allowance for credit
losses driven by the Oil & Gas and Metals & Mining
portfolios partially offset by a net increase in the allowance
for credit losses for a single client. The prior year was an
expense of $563 million, which included an addition to the
allowance for credit losses driven by the Oil & Gas and
Metals & Mining portfolios.
Noninterest expense was $19.4 billion, up 2% compared
with the prior year.
JPMorgan Chase & Co./2018 Form 10-K
67
10
The provision for credit losses was a benefit of $60 million,
driven by a reduction in the allowance for credit losses in
the first quarter of 2018 related to a single name in the Oil
& Gas portfolio, predominantly offset by other net portfolio
activity, which includes additions to the allowance for credit
losses from select client downgrades. The prior year was a
benefit of $45 million primarily driven by a net reduction in
the allowance for credit losses in the Oil & Gas and Metals &
Mining portfolios partially offset by a net increase in the
allowance for credit losses for a single client.
Noninterest expense was $20.9 billion, up 8%,
predominantly driven by investments in technology and
bankers, higher performance-related compensation
expense, volume-related transaction costs, and legal
expense.
Nonaccrual loans:
Loans held-for-sale and
loans at fair value
663
812
576
(average)
Derivative receivables
60
130
223
Assets
$ 922,758
Total nonaccrual loans
$ 857,060 $ 815,321
Assets acquired in loan
satisfactions
57
85
79
instruments
349,169
342,124
300,606
Total nonperforming
Trading assets-derivative
Trading assets-debt and equity
24,415
Selected balance sheet data
220
13,050
4,321
3,781
Nonaccrual loans
retained(a)
443
812
467
Total loans
142,439
109
113,086
Nonaccrual loans held-
Core loans
142,122
112,754
115,243
Equity
70,000
70,000
64,000
for-sale and loans at
fair value
115,653
$ 1,016.9 $ 916.9 $
Tangible common equity ("TCE”), ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm's common
stockholders' equity (i.e., total stockholders' equity less preferred stock) less goodwill and identifiable intangible assets (other
than MSRS), net of related deferred tax liabilities. ROTCE measures the Firm's net income applicable to common equity as a
percentage of average TCE. TBVPS represents the Firm's TCE at period-end divided by common shares at period-end. TCE,
ROTCE and TBVPS are utilized by the Firm, as well as investors and analysts, in assessing the Firm's use of equity.
The following summary table provides a reconciliation from the Firm's common stockholders' equity to TCE.
30,056
$ 3,431
Lending- and deposit-related fees $ 3,624
Revenue
62
62
Year ended December 31,
(in millions, except ratios)
Selected income statement data
Consumer & Community Banking offers services to
consumers and businesses through bank branches,
ATMs, digital (including online and mobile) and
telephone banking. CCB is organized into Consumer &
Business Banking (including Consumer Banking/Chase
Wealth Management and Business Banking), Home
Lending (including Home Lending Production, Home
Lending Servicing and Real Estate Portfolios) and Card,
Merchant Services & Auto. Consumer & Business
Banking offers deposit and investment products and
services to consumers, and lending, deposit, and cash
management and payment solutions to small
businesses. Home Lending includes mortgage
origination and servicing activities, as well as
portfolios consisting of residential mortgages and
home equity loans. Card, Merchant Services & Auto
issues credit cards to consumers and small businesses,
offers payment processing services to merchants, and
originates and services auto loans and leases.
CONSUMER & COMMUNITY BANKING
2016
2017
2018
Management's discussion and analysis
61
JPMorgan Chase & Co./2018 Form 10-K
The following sections provide a comparative discussion of the Firms results by segment as of or for the years ended
December 31, 2018, 2017 and 2016.
10%
$ 3,231
Asset management,
administration and
commissions
14,710
16,260
Noninterest revenue
3,077
3,430
4,428
All other income
4,364
10%
4,024
Card income
2,490
1,613
1,252
Mortgage fees and related
income
2,093
2,212
2,402
4,554
13%
NM
24,733
$111,534
(487)
$
$ (128) $ 1,140
$ 12,822
9,255
3,567
26
2,251
24%
2,337
25%
10,218
3,617
39
53
2,853
31%
$104,722
$ 14,076 $ 13,835
10,353
3,723
2017
2018
2016
Total
Corporate
2017
2018
2016
2017
2016
15,255
$100,043
501
24,441
32,474
(704)
(1,643)
NM
5,361
5,290
4,871
(4)
902
(1,030)
(4)
(1,241)
NM
45,207
48,140
(949)
639
56,672
59,515
63,394
462
43,371
2018
Net interest income
Total net revenue
26,536
Overhead ratio
Return on equity
Financial ratios
$ 2,490
$ 1,613
$ 1,252
Mortgage fees and related
income
1,637
977
984
revenue(c)
Net mortgage servicing
853
636
268
Net production revenue
income details:
28%
53
17%
18%
56
Noninterest revenue was $16.3 billion, up 11%, driven by:
higher rates driving loan spread compression in Home
Lending and Auto.
partially offset by
CBB, as well as margin expansion and higher loan balances
in Card,
higher deposit margins and growth in deposit balances in
Net interest income was $35.8 billion, up 13%, driven by:
Net revenue was $52.1 billion, an increase of 12%.
Net income was $14.9 billion, an increase of 58%.
Mortgage fees and related
2018 compared with 2017
•
.
JPMorgan Chase & Co./2018 Form 10-K
(c) Included MSR risk management results of $(111) million, $(242) million
and $217 million for the years ended December 31, 2018, 2017 and
2016, respectively.
(b) Included operating lease depreciation expense of $3.4 billion, $2.7 billion
and $1.9 billion for the years ended December 31, 2018, 2017 and 2016,
respectively.
(a) Effective in the first quarter of 2018, certain operations staff were
transferred from CCB to CB. The prior period amounts have been revised to
conform with the current period presentation. For a further discussion of
this transfer, refer to CB segment results on page 71.
Note: In the discussion and the tables which follow, CCB presents certain
financial measures which exclude the impact of PCI loans; these are non-GAAP
financial measures.
55
•
7,361
18,895
$18,659
$21,104
5,955
19,426
Total noninterest expense
15,208
15,929
17,301
Noncompensation expense (a)(b)
9,697
10,133
10,534
27,835
Compensation expense (a)
4,494
5,572
4,753
Provision for credit losses
44,915
46,485
52,079
29,660
Noninterest expense
35,819
26,062
Income before income tax
5,484
21,790
Card, Merchant Services & Auto
Home Lending
$24,805
Consumer & Business Banking
Revenue by line of business
$ 9,714
$ 9,395
24,905
$14,852
5,802
5,456
4,639
Income tax expense
15,516
14,851
19,491
expense
Net income
•
Asset & Wealth Management
16%
Consumer &
Business Banking
Asset & Wealth
Management
Commercial
Banking
Corporate & Investment Bank
Wholesale Businesses
JPMorgan Chase
The business segments are determined based on the
products and services provided, or the type of customer
served, and they reflect the manner in which financial
information is currently evaluated by the Firm's Operating
Committee. Segment results are presented on a managed
basis. For a definition of managed basis, refer to
Explanation and Reconciliation of the Firm's use of Non-
GAAP Financial Measures and Key Performance Measures,
on pages 57-59.
Consumer & Community Banking
Consumer Businesses
The Firm is managed on a line of business basis. There are
four major reportable business segments - Consumer &
Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset & Wealth Management. In
addition, there is a Corporate segment.
BUSINESS SEGMENT RESULTS
Management's discussion and analysis
59
JPMorgan Chase & Co./2018 Form 10-K
Core loans is also considered a key performance measure.
Core loans represents loans considered central to the Firm's
ongoing businesses, and excludes loans classified as trading
assets, runoff portfolios, discontinued portfolios and
portfolios the Firm has an intent to exit. Core loans is a
measure utilized by the Firm and its investors and analysts
in assessing actual growth in the loan portfolio.
For additional information on these measures, refer to
Capital Risk Management on pages 85-94.
The Firm, as well as banking regulators, investors and
analysts, use these measures to assess the Firm's regulatory
capital position and to compare the Firm's regulatory
capital to that of other financial services companies.
• Consumer
Banking/
Chase
Wealth
Management
•
- Merchant
Services
- Credit Card
Income
Fixed
• Investment
Banking
Services
• Card
Management
SLR calculated under Basel III Advanced Fully Phased-In
rules.
⚫ Asset
Markets &
Investor Services
Banking
Card, Merchant
Services & Auto
Home Lending
Home
Lending
Servicing
Lending
Production
• Home
Business
Middle
Market
Banking
Capital, risk-weighted assets ("RWA"), and capital and
leverage ratios presented under Basel III Standardized
and Advanced Fully Phased-In rules, and
The Firm considers the following to be key regulatory
capital measures:
Key performance measures
47,471
230,447 $
$
2017
2018
Dec 31,
2017
Dec 31,
2018
Year ended December 31,
748
Average
Tangible book value per share
Return on tangible common equity
Tangible common equity
Add: Certain deferred tax liabilities (a)(b)
Less: Other intangible assets
Less: Goodwill
Common stockholders' equity
(in millions, except per share and ratio data)
Period-end
• Treasury
Services
229,625
47,507
855
2,280
2,204
184,508 $ 183,467
47,491
807
2,231
$ 183,155
(b) Amounts presented for December 31, 2017 and later periods include the effect from revaluation of the Firm's net deferred tax liability as a result of the
TCJA.
(a) Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted
against goodwill and other intangibles when calculating TCE.
•
ΝΑ
NA
ΝΑ
13%
12%
$ 229,222
17%
ΝΑ
56.33 $
$
$ 185,317 $ 179,611
3,212
47,310
922
832
3,116
2016
$ 224,631
$ 230,350
47,317
ΝΑ
53.56
Year ended December 31,
(in millions, except ratios)
Total net revenue
Total noninterest expense
Pre-provision profit/(loss)
Provision for credit losses
Net income/(loss)
Return on equity ("ROE")
Markets
• Wealth
Management
(45)
(60)
4,494
5,572
4,753
Provision for credit losses
4,519
5,278
5,673
2,934
3,327
3,386
$ 9,059 $ 8,605 $ 7,453
2016
2017
2018
2016
$ 35,340
19,116
16,224
563
129
(276)
282
17%
20%
16%
2,657
3,539
4,237
10,815
10,813
14%
$ 34,657
19,407
15,250
16%
17%
28%
Return on equity ("ROE")
11,773
9,714
9,395
14,852
Net income/(loss)
18%
15,530
20,010
20,423
As part of the funds transfer pricing process, almost all of
the cost of the credit spread component of outstanding
unsecured long-term debt and preferred stock dividends is
allocated to the reportable business segments, while the
balance of the cost is retained in Corporate. The
methodology to allocate the cost of unsecured long-term
debt and preferred stock dividends to the business
segments is aligned with the Firm's process to allocate
capital. The allocated cost of unsecured long-term debt is
included in a business segment's net interest income, and
net income is reduced by preferred stock dividends to arrive
at a business segment's net income applicable to common
equity.
Debt expense and preferred stock dividend allocation
JPMorgan Chase & Co./2018 Form 10-K
60
Funds transfer pricing is the process by which the Firm
allocates interest income and expense to each business
segment and transfers the primary interest rate risk and
liquidity risk exposures to Treasury and CIO within
Corporate. The funds transfer pricing process considers the
interest rate risk, liquidity risk and regulatory requirements
of a business segment as if it were operating independently.
This process is overseen by senior management and
reviewed by the Firm's Treasurer Committee.
Funds transfer pricing
When business segments join efforts to sell products and
services to the Firm's clients, the participating business
segments may agree to share revenue from those
transactions. Revenue is recognized in the segment
responsible for the related product or service on a gross
basis, with an allocation to the other segment(s) involved in
the transaction. The segment results reflect these revenue-
sharing agreements.
Description of business segment reporting methodology
Results of the business segments are intended to present
each segment as if it were essentially a stand-alone
business. The management reporting process that derives
business segment results includes the allocation of certain
income and expense items described in more detail below.
The Firm also assesses the level of capital required for each
line of business on at least an annual basis. The Firm
periodically assesses the assumptions, methodologies and
reporting classifications used for segment reporting, and
further refinements may be implemented in future periods.
Revenue sharing
Business segment capital allocation
Real Estate
Banking
& Other
Adjustments
• Securities
Services
Credit
Equity
Markets
⚫ Lending
Real Estate
Portfolios
• Auto
Banking
Commercial
Term
Lending
Corporate
Client
Banking
The amount of capital assigned to each business is referred
to as equity. On at least an annual basis, the assumptions
and methodologies used in capital allocation are assessed
and as a result, the capital allocated to lines of business
may change. For additional information on business
segment capital allocation, refer to Line of business equity
on page 91.
Expense allocation
24,244
2017
2018
$ 36,448
20,918
$ 44,915
24,905
$ 46,485
26,062
27,835
Total noninterest expense
Pre-provision profit/(loss)
$ 52,079
Segment Results - Managed Basis
2016
2018
Commercial Banking
Year ended December 31,
(in millions, except ratios)
Total net revenue
Corporate & Investment Bank
Consumer & Community Banking
The following tables summarize the Firm's results by segment for the periods indicated.
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were
applied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.
Net income in 2018 for each of the business segments reflects the favorable impact of the reduction in the U.S. federal
statutory income tax rate as a result of the TCJA.
Where business segments use services provided by
corporate support units, or another business segment, the
costs of those services are allocated to the respective
business segments. The expense is generally
allocated based on the actual cost and use of services
provided. In contrast, certain other costs related to
corporate support units, or to certain technology and
operations, are not allocated to the business segments and
are retained in Corporate. Expense retained in Corporate
generally includes parent company costs that would not be
incurred if the segments were stand-alone businesses;
adjustments to align corporate support units; and other
items not aligned with a particular business segment.
2017
•
31,775
1.83
4,518
4,123
3,442
Auto
63,573
66,242
65,814
Auto
243
331
285
Student
7,057
Student
498
(g)
162
Total loans
486,689
481,632
470,486
Card
141,816
149,511
156,632
50,296
Residential mortgage
Home equity
(7)
63
184
203,859
197,339
181,196
Home Lending
Core loans
239,872
Residential mortgage
(287)
(16)
14
231,492
Home Lending
(294)
47
198
Card
240,090
434,466
415,167
382,608
(0.16)
(0.01)
0.01
Consumer & Business Banking
26,197
24,875
Home Lending(d)
(0.14)
0.02
0.10
Residential mortgage (d)
Home equity
46,398
54,545
Card
3.10
2.95
2.63
Residential mortgage
202,624
190,242
177,010
39,133
42,751
Loans:
0.18
Total net charge-offs/
(recoveries)
$ 4,703
$ 5,256
(g) $ 4,344
Deposits
678,854
659,885
618,337
Equity
51,000
0.45
51,000
Net charge-off/(recovery)
rate(c)
Selected balance sheet data
(average)
Consumer & Business
Banking
0.90%
1.03%
1.10%
Total assets
$ 547,368 $532,756 $ 516,354
Home equity(d)
(0.02)
51,000
Auto
36,013
257
a $300 million addition to the allowance for loan losses,
reflecting loan growth and higher loss rates, as
anticipated; the addition was $550 million lower than the
prior year,
largely offset by
higher net charge-offs due to seasoning of more recent
vintages, as anticipated.
JPMorgan Chase & Co./2018 Form 10-K
2017 compared with 2016
Net income was $9.4 billion, a decrease of 3%.
Net revenue was $46.5 billion, an increase of 3%.
Net interest income was $31.8 billion, up 7%, driven by:
•
•
•
growth in deposit balances and higher deposit margins in
CBB, as well as higher loan balances in Card,
partially offset by
loan spread compression from higher rates, including the
impact of higher funding costs in Home Lending and Auto,
and
the impact of the sale of the student loan portfolio.
Noninterest revenue was $14.7 billion, down 4%, driven by:
•
•
•
•
higher new account origination costs in Card,
lower MSR risk management results,
a decrease in the credit card portfolio due to
the prior year included a net $218 million write-down
recorded in connection with the sale of the student loan
portfolio, and
a $250 million reduction in the allowance for loan losses
in the residential real estate portfolio - PCI, reflecting
continued improvement in home prices and lower
delinquencies; the reduction was $75 million lower than
the prior year for the residential real estate portfolio -
non credit-impaired
lower net charge-offs in the auto portfolio
partially offset by
higher auto lease volume,
higher card income due to
lower new account origination costs, and higher merchant
processing fees on higher volumes,
largely offset by
lower net interchange income reflecting higher rewards
costs and partner payments, largely offset by higher card
sales volumes. The rewards costs included an adjustment
to the credit card rewards liability of approximately $330
million in the second quarter of 2018, driven by an
increase in redemption rate assumptions
higher deposit-related fees, as well as higher asset
management fees reflecting an increase in client investment
assets,
partially offset by
lower net production revenue reflecting lower mortgage
production margins and volumes, as well as the impact of a
loan sale.
Refer to Note 15 for further information regarding changes in
value of the MSR asset and related hedges, and mortgage fees
and related income.
the absence in the current year of a gain on the sale of Visa
Europe interests,
•
•
higher auto lease depreciation.
The provision for credit losses was $4.8 billion, a decrease of
15%, reflecting:
•
•
•
a decrease in the consumer, excluding credit card portfolio
due to
-
lower net charge-offs in the residential real estate
portfolio, largely driven by recoveries from loan sales, and
Noninterest expense was $27.8 billion, up 7%, driven by:
investments in technology and marketing, and
lower net production revenue reflecting lower mortgage
production margins and volumes, and
lower mortgage servicing revenue as a result of a lower level
of third-party loans serviced
largely offset by
Selected balance sheet data
(period-end)
(in millions, except ratio data)
Credit data and quality
2018
2017
2016
statistics
Total assets
$ 557,441 $ 552,601 $ 535,310
Nonaccrual loans (a)(b)
$ 3,339
2016
$ 4,084
Loans:
Net charge-offs/(recoveries) (c)
Consumer & Business Banking
26,612
25,789
24,307
Consumer & Business
Banking
236
257
$ 4,708
Home equity
2017
As of or for the year ended
December 31,
•
• higher auto lease volume and
•
higher card- and deposit-related fees.
Noninterest expense was $26.1 billion, up 5%, driven by:
•
•
higher auto lease depreciation, and
continued business growth
partially offset by
2018
two items totaling $175 million included in the prior year
related to liabilities from a merchant bankruptcy and
mortgage servicing reserves.
$445 million of higher net charge-offs, primarily in the
credit card portfolio due to growth in newer vintages which,
as anticipated, have higher loss rates than the more
seasoned portion of the portfolio, partially offset by a
decrease in net charge-offs in the residential real estate
portfolio reflecting continued improvement in home prices
and delinquencies,
a $415 million higher addition to the allowance for credit
losses related to the credit card portfolio driven by higher
loss rates and loan growth, and a lower reduction in the
allowance for the residential real estate portfolio
predominantly driven by continued improvement in home
prices and delinquencies, and
• a net $218 million impact in connection with the sale of the
student loan portfolio.
The sale of the student loan portfolio during 2017 did not have
a material impact on the Firm's Consolidated Financial
Statements.
63
Management's discussion and analysis
Selected metrics
As of or for the year ended
December 31,
(in millions, except headcount)
Selected metrics
The provision for credit losses was $5.6 billion, an increase of
24%, reflecting:
0.38
23,431
0.45
$ 9,372
$ 9,235
Total allowance for loan
losses(c)
249
Student
474
464
464
Auto
4,034
4,884
5,184
Card
$ 9,149
2,311
1,788
Home Lending - PCI loans (c)
1,328
1,003
1,003
Home Lending, excluding
PCI loans
753
$
$ 796
796
Allowance for loan losses
Consumer & Business
Banking
(b) During the third quarter of 2018, approximately 1,200 employees
transferred from CCB to CIB as part of the reorganization of the Commercial
Card business.
(a) Effective in the first quarter of 2018, certain operations staff were
transferred from CCB to CB. The prior period amounts have been revised to
conform with the current period presentation. For a further discussion of
this transfer, refer to CB segment results on page 71.
2,225
64
(a) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as each of the pools is performing.
(b) At December 31, 2018, 2017 and 2016, nonaccrual loans excluded mortgage
loans 90 or more days past due and insured by U.S. government agencies of $2.6
billion, $4.3 billion and $5.0 billion, respectively. At December 31, 2016,
nonaccrual loans also excluded student loans insured by U.S. government
agencies under the Federal Family Education Loan Program ("FFELP") of $263
million. These amounts have been excluded based upon the government
guarantee.
33,260
43,836
46,694
49,254
(in thousands)(b)
Active digital customers
0.51
5,130
5,036
60.5
61.1
61.7
CCB households (in millions) (a)
Number of branches
2016
2017
2018
JPMorgan Chase & Co./2018 Form 10-K
Debit and credit card sales
volume
Active mobile customers
(in thousands) (c)
(in billions, except ratios and
where otherwise noted)
Business Metrics
As of or for the year ended
December 31,
Selected metrics
(h) Excluded student loans insured by U.S. government agencies under FFELP of
$468 million at December 31, 2016 that are 30 or more days past due. This
amount has been excluded based upon the government guarantee.
(f) Excludes PCI loans. The 30+ day delinquency rate for PCI loans was 9.16%,
10.13% and 9.82% at December 31, 2018, 2017 and 2016, respectively.
(g) Excluding net charge-offs of $467 million related to the student loan portfolio
transfer, the total net charge-off rates for the full year 2017 would have been
1.10%.
(e) At December 31, 2018, 2017 and 2016, excluded mortgage loans insured by
U.S. government agencies of $4.1 billion, $6.2 billion and $7.0 billion,
respectively, that are 30 or more days past due. These amounts have been
excluded based upon the government guarantee.
(d) Excludes the impact of PCI loans. For the years ended December 31, 2018, 2017
and 2016, the net charge-off/(recovery) rates including the impact of PCI loans
were as follows: (1) home equity of (0.02)%, 0.14% and 0.34%, respectively;
(2) residential mortgage of (0.14)%, (0.01)% and 0.01%, respectively; (3)
Home Lending of (0.12) %, 0.02% and 0.09%, respectively; and (4) total CCB of
0.98%, 1.12% and 0.95%, respectively.
information on PCI write-offs, refer to Summary of changes in the allowance for
credit losses on page 121.
JPMorgan Chase & Co./2018 Form 10-K
(c) Net charge-offs/(recoveries) and the net charge-off/(recovery) rates for the
years ended December 31, 2018, 2017 and 2016, excluded $187 million, $86
million and $156 million, respectively, of write-offs in the PCI portfolio. These
write-offs decreased the allowance for loan losses for PCI loans. For further
0.81
0.92
5,258
90+ day delinquency rate-
Card
478,281
Total loans
30+ day delinquency rate
7,623
2,880
-
Student
1.04
(g)
1.21
1.04
(recovery) rate (d)
63,573
469,814
65,395
Auto
Total net charge-offs/
131,165
140,024
145,652
Card
2.13
NM
Student
236,640
241,757
Home Lending
0.92
64,675
457,347
231,555
0.77%
Home Lending (e)(f)
133,721
129,518
(h)
1.60
Student
51,000
51,000
51,000
Equity
1.19
0.89
0.93
Auto
Headcount(a)(b)
640,219
1.19%
586,637
1.23%
Core loans
419,066
393,598
361,316
132,384
1.80
Card
1.61
Deposits
670,388
$ 7,257 $ 6,747
6,578 6,075
$13,835 $ 12,822
Wealth Management offers investment advice and wealth
management, including investment management, capital markets and
risk management, tax and estate planning, banking, lending and
specialty-wealth advisory services.
AWM's client segments consist of the following:
53
Provision for credit losses
3,379
13,835
Asset Management provides comprehensive global investment
services, including asset management, pension analytics, asset-liability
management and active risk-budgeting strategies.
14,076
Total net revenue
3,537
Net interest income
602
9,789
3,033
12,822
2018 compared with 2017
74
JPMorgan Chase & Co./2018 Form 10-K
Noninterest expense was $10.2 billion, an increase of 10%,
predominantly driven by higher legal expense and
compensation expense on higher revenue and headcount.
Revenue from Wealth Management was $6.6 billion, up 8%
from the prior year, reflecting higher net interest income
from higher deposit spreads.
Revenue from Asset Management was $7.3 billion, up 8%
from the prior year, driven by higher market levels, partially
offset by the absence of a gain in prior year on the disposal
of an asset.
Net income was $2.3 billion, an increase of 4% compared
with the prior year, reflecting higher revenue and a tax
benefit resulting from the vesting of employee share-based
awards, offset by higher noninterest expense.
2017 compared with 2016
Noninterest expense was $10.4 billion, an increase of 1%,
driven by investments in advisors and technology and
higher external fees on revenue growth, largely offset by
lower legal expense.
Revenue from Asset Management was $7.2 billion, down
1%, driven by lower investment valuations, fee
compression and lower performance fees, predominantly
offset by higher management fees on higher average
market levels and the cumulative impact of net inflows.
Revenue from Wealth Management was $6.9 billion, up 5%,
reflecting higher management fees on the cumulative
impact of net inflows and higher average market levels as
well as higher net interest income from deposit margin
expansion and continued loan growth, partially offset by fee
compression.
Net revenue was $14.1 billion, an increase of 2%. Net
interest income was $3.5 billion, up 5%, driven by deposit
margin expansion and loan growth. Noninterest revenue
was $10.5 billion, up 1%, driven by higher management
fees on higher average market levels and the cumulative
impact of net inflows, predominantly offset by fee
compression, lower investment valuations and lower
performance fees.
10,456
Net income was $2.9 billion, an increase of 22%.
AWM's lines of business consist of the following:
Net revenue was $13.8 billion, an increase of 8%. Net
interest income was $3.4 billion, up 11%, driven by higher
deposit spreads. Noninterest revenue was $10.5 billion, up
7%, driven by higher market levels, partially offset by the
absence of a gain in the prior year on the disposal of an
asset.
Selected income statement data
$10,171
368
10,539
Total Commercial Banking
loans
$ 205,501 $ 198,112
$ 2,337 $ 2,251
$ 179,393
Headcount(a)
11,042
10,061
9,352
(a) Effective in the first quarter of 2018, certain Operations and
Compliance staff were transferred from CCB and Corporate,
respectively, to CB. The prior period amounts have been revised to
conform with the current period presentation. For a further discussion
of this transfer, refer to page 71, Selected income statement data,
footnote (c).
JPMorgan Chase & Co./2018 Form 10-K
73
Management's discussion and analysis
$ 9,856 $ 9,187
600
ASSET & WEALTH MANAGEMENT
Effective January 1, 2018, the Firm adopted several new
accounting standards; the guidance which had the most
significant impact on the AWM segment results was revenue
recognition. The revenue recognition guidance was applied
retrospectively and, accordingly, prior period amounts were
revised. For additional information, refer to Note 1.
Year ended December 31,
2018
2017
2016
(in millions, except ratios
and headcount)
Revenue
Asset management, administration
and commissions
All other income
Noninterest revenue
Asset & Wealth Management, with client assets of $2.7
trillion, is a global leader in investment and wealth
management. AWM clients include institutions, high-
net-worth individuals and retail investors in many
major markets throughout the world. AWM offers
investment management across most major asset
classes including equities, fixed income, alternatives
and money market funds. AWM also offers multi-asset
investment management, providing solutions for a
broad range of clients' investment needs. For Wealth
Management clients, AWM also provides retirement
products and services, brokerage and banking services
including trusts and estates, loans, mortgages and
deposits. The majority of AWM's client assets are in
actively managed portfolios.
2,504
6,913
2,865
Asset Management
Revenue by line of business
$ 2,853
Net income
1,290
1,241
817
Income tax expense
3,541
3,578
3,670
Income before income tax expense
$ 7,163
5,063
4,192
9,255
10,353
Total noninterest expense
4,901
4,858
Noncompensation expense
5,317
5,495
Compensation expense
Noninterest expense
26
5,632
39
10,218
2,605
Wealth Management
$14,076
Number of Wealth Management
client advisors
22,975 21,082
23,920
Headcount
28
26
26
Asset & Wealth Management
28
30
26
Wealth Management
Total net revenue
27
26
Asset Management
Pre-tax margin ratio:
72
74
74
Overhead ratio
24%
25%
31%
Return on common equity
Financial ratios
22
6,648
7,127
Other
10
70
JPMorgan Chase & Co./2018 Form 10-K
COMMERCIAL BANKING
Commercial Banking delivers extensive industry
knowledge, local expertise and dedicated service to
U.S. and U.S. multinational clients, including
corporations, municipalities, financial institutions and
nonprofit entities with annual revenue generally
ranging from $20 million to $2 billion. In addition, CB
provides financing to real estate investors and owners.
Partnering with the Firm's other businesses, CB
provides comprehensive financial solutions, including
lending, treasury services, investment banking and
asset management to meet its clients' domestic and
international financial needs.
Selected income statement data
and commissions
All other income(a)
Noninterest revenue
2018
2017
(b) Client deposits and other third party liabilities pertain to the Treasury
Services and Securities Services businesses.
2016
69
Year ended December 31,
(in millions)
Revenue
Lending- and deposit-related fees
$
870
$ 919
Asset management, administration
73
68
$ 917
1,400
(a) Total net revenue is based predominantly on the domicile of the client
or location of the trading desk, as applicable. Loans outstanding
(excluding loans held-for-sale and loans at fair value), client deposits
and other third-party liabilities, and AUC are based predominantly on
the domicile of the client.
8,230
Latin America/Caribbean
Total international
North America
Total client deposits and other
third-party liabilities
AUC (period-end)(a)
82,867
76,744
68,110
26,668
25,419
22,914
$ 23,217 $ 23,469 $ 20,520
$272,381
$227,003
149,284
162,041 152,166
$434,422 $408,911 $ 376,287
(in billions)
North America
All other regions
Total AUC
$ 14,359 $ 13,971 $ 12,290
8,858
9,498
$256,745
1,535
1,334
2,343
5,554
Income tax expense
1,307
2,015
4,237
1,580
Net income
$ 4,237 $ 3,539 $ 2,657
(a) Includes revenue from investment banking products and commercial
card transactions.
(b) Total net revenue included tax-equivalent adjustments from income tax
credits related to equity investments in designated community
development entities that provide loans to qualified businesses in low-
income communities, as well as tax-exempt income related to
municipal financing activities of $444 million, $699 million and $505
million for the years ended December 31, 2018, 2017 and 2016,
respectively. The decrease in taxable-equivalent adjustments reflects
the impact of TCJA.
(c) Effective in the first quarter of 2018, certain Operations and
Compliance staff were transferred from CCB and Corporate,
respectively, to CB. As a result, expense for this staff is now reflected in
CB's compensation expense with a corresponding adjustment for
expense allocations reflected in noncompensation expense. CB's,
Corporate's and CCB's previously reported headcount, compensation
expense and noncompensation expense have been revised to reflect
this transfer.
2018 compared with 2017
5,544
Net income was $4.2 billion, an increase of 20%.
Noninterest expense was $3.4 billion, an increase of 2%,
with continued investments in banker coverage and
technology in the current year predominantly offset by the
absence of an impairment on certain leased equipment in
the prior year.
The provision for credit losses was an expense of $129
million, driven by select client downgrades. The prior year
provision for credit losses was a benefit of $276 million.
2017 compared with 2016
Net income was $3.5 billion, an increase of 33%, driven by
higher net revenue and a lower provision for credit losses,
partially offset by higher noninterest expense.
Net revenue was $8.6 billion, an increase of 15%. Net
interest income was $6.1 billion, an increase of 19%,
driven by higher deposit spreads and loan growth.
Noninterest revenue was $2.5 billion, an increase of 9%,
predominantly driven by higher Community Development
Banking revenue, including a $115 million benefit for the
impact of the TCJA on certain investments, and higher
investment banking revenue.
Noninterest expense was $3.3 billion, an increase of 13%
driven by hiring of bankers and business-related support
staff, investments in technology, and an impairment of
approximately $130 million on certain leased equipment,
the majority of which was sold subsequent to year-end.
The provision for credit losses was a benefit of $276
million, driven by net reductions in the allowance for credit
losses, including in the Oil & Gas, Natural Gas Pipelines and
Metals & Mining portfolios. The prior year provision for
credit losses was $282 million driven by downgrades in the
Oil & Gas portfolio and select client downgrades in other
industries.
JPMorgan Chase & Co./2018 Form 10-K
71
Management's discussion and analysis
CB product revenue consists of the following:
Lending includes a variety of financing alternatives, which
are primarily provided on a secured basis; collateral
includes receivables, inventory, equipment, real estate or
other assets. Products include term loans, revolving lines of
credit, bridge financing, asset-based structures, leases, and
standby letters of credit.
Net revenue was $9.1 billion, an increase of 5%. Net
interest income was $6.7 billion, an increase of 10%,
reflecting higher deposit margins and loan growth, partially
offset by lower loan spreads. Noninterest revenue was $2.3
billion, a decrease of 7%, reflecting lower Community
Development Banking revenue, which was also impacted by
the absence of the TCJA benefit in the prior year, and lower
deposit fees, partially offset by higher investment banking
revenue.
Income before income tax expense
2,934
3,327
2,522
2,320
Net interest income
6,716
6,083
5,133
Total net revenue(b)
9,059
8,605
7,453
Provision for credit losses
129
(276)
282
Noninterest expense
Compensation expense (c)
1,694
1,534
1,396
Noncompensation expense (c)
1,692
1,793
1,538
Total noninterest expense
3,386
$162,846 $154,582 $ 135,979
Treasury services includes revenue from a broad range of
products and services that enable CB clients to manage
payments and receipts, as well as invest and manage funds.
Investment banking includes revenue from a range of
products providing CB clients with sophisticated capital-
raising alternatives, as well as balance sheet and risk
management tools through advisory, equity underwriting,
and loan syndications. Revenue from Fixed Income and
Equity Markets products used by CB clients is also included.
Europe/Middle East/Africa
Asia/Pacific
$111,872
69
Management's discussion and analysis
Selected metrics
As of or for the year ended
December 31,
(in millions, except where otherwise noted)
Assets under custody ("AUC") by asset class (period-end) (in billions):
Fixed Income
Equity
Other(a)
Total AUC
JPMorgan Chase & Co./2018 Form 10-K
Client deposits and other third party liabilities (average)(b)
$
$
2018
2017
2016
12,440 $
13,043
12,166
8,078
7,863
6,428
2,699
$
2,563
(b) Loss days represent the number of days for which Markets posted losses. The loss days determined under this measure differ from the disclosure of daily
market risk-related gains and losses for the Firm in the value-at-risk ("VaR") back-testing discussion on pages 126-128.
14,665
6,334
6,888 $
2,204
974
16,507
3,087
19,594
390
436
8,410
1,635
(21)
5,475
2,025
388
415
1,014
1,551
13
(a) Declines in Markets net interest income in 2018 and 2017 were driven by higher funding costs.
1,939
4,402
$ 12,812 $
228
5,703 $
13,885
4,630
18,515
9,969
5,290
$ 15,259 $
Loss days (b)
5
4
4,696
1,044
5,740 $ 20,999
0
1,027
1,926
23,217 $
23,469 $
Total net revenue
Loans retained (period-end)(a)
$ 36,448 $ 34,657 $ 35,340
Europe/Middle East/Africa
$ 26,524
$ 25,931 $ 26,696
Asia/Pacific
16,778
15,248
14,508
Latin America/Caribbean
18,414
5,060
7,607
Total international loans
48,362
47,725
48,811
North America
81,027
61,040
63,061
Total loans retained
$129,389 $108,765
6,546
17,679
17,733
North America
20,520
434,422 $
408,911
$
376,287
(a) Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts.
(b) Client deposits and other third party liabilities pertain to the Treasury Services and Securities Services businesses.
International metrics
Year ended December 31,
(in millions, except where
otherwise noted)
Total net revenue(a)
Europe/Middle East/Africa
Asia/Pacific
2018
2017
2016
$ 12,102 $ 11,328 $ 10,786
5,219
4,525
4,915
Latin America/Caribbean
1,394
1,125
1,225
Total international net revenue
18,715
16,978
16,926
Client deposits and other third-
party liabilities (average)(a)(b)
Private Banking clients include high- and ultra-high-net-worth
individuals, families, money managers, business owners and small
corporations worldwide.
Other product revenue primarily includes tax-equivalent
adjustments generated from Community Development
Banking activities and certain income derived from principal
transactions.
Year ended December 31,
(in millions, except ratios)
74,901
71,249
Allowance for lending-related
commitments
254
300
248
17,563
17,796
14,722
Total allowance for credit losses
2,936
76,720
2,858
6,915
7,061
6,068
Net charge-off/(recovery) rate (b)
0.03%
0.02%
0.09%
Allowance for loan losses to
period-end loans retained
1.31
1.26
3,173
1.55
43,027
48,343
617
1,149
Assets acquired in loan
satisfactions
2
3
1
Period-end loans by client
segment
Total nonperforming assets
513
620
1,150
46,963
Allowance for credit losses:
$ 56,656 $ 56,965 $ 53,929
Allowance for loan losses
2,682
2,558
2,925
Corporate Client Banking
Commercial Term Lending
Real Estate Banking
Other
Total Commercial Banking
loans
Selected balance sheet data
(average)
$ 206,197 $ 203,686 $ 188,995
Middle Market Banking
Allowance for loan losses to
nonaccrual loans retained (a)
525
170,901
177,018
174,396
Equity
20,000
20,000
16,000
Average loans by client
segment
Middle Market Banking
$ 57,092
Client deposits and other
third-party liabilities
$ 55,474 $ 52,242
47,780
46,037
41,756
Commercial Term Lending
75,694
73,428
66,700
Real Estate Banking
17,808
16,525
13,063
Corporate Client Banking
(b) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
$ 198,112 $ 179,393
178,875
197,846
415
255
Total assets
$ 218,259 $ 217,047 $ 207,532
Nonaccrual loans to period-end
total loans
0.25
0.30
0.61
Loans:
Loans retained
204,243
197,203
178,670
(a) Allowance for loan losses of $92 million, $92 million and $155 million
Loans held-for-sale and
loans at fair value
1,258
909
723
was held against nonaccrual loans retained at December 31, 2018,
2017 and 2016, respectively.
Total loans
$ 205,501
Core loans
205,320
511
Selected income statement data (continued)
---
$ 188,995
188,673
16,000
Total Commercial Banking net
revenue
$ 3,708
$ 3,341
$ 2,848
2,984
2,727
2,429
1,366
1,454
1,408
Corporate Client Banking
Commercial Term Lending
Real Estate Banking
Other
681
456
320
479
312
$ 9,059
$ 8,605
$7,453
CB is divided into four primary client segments: Middle
Market Banking, Corporate Client Banking, Commercial
Term Lending, and Real Estate Banking.
Middle Market Banking covers corporate, municipal and
nonprofit clients, with annual revenue generally ranging
between $20 million and $500 million.
Corporate Client Banking covers clients with annual
revenue generally ranging between $500 million and $2
billion and focuses on clients that have broader investment
banking needs.
Commercial Term Lending primarily provides term
financing to real estate investors/owners for multifamily
properties as well as office, retail and industrial properties.
604
Real Estate Banking provides full-service banking to
investors and developers of institutional-grade real estate
investment properties.
Middle Market Banking
Investment banking revenue, gross (b) $2,491
Revenue by product
Lending
Treasury services
Investment banking (a)
Other
Total Commercial Banking net
revenue
2018
2017
2016
$4,049
4,074
$4,094 $3,795
Revenue by client segment
3,444
852
805
785
84
262
76
$ 9,059
$ 8,605
$ 7,453
$2,385
$2,331
2,797
Other primarily includes lending and investment-related
activities within the Community Development Banking
business.
Financial ratios
Return on equity
Overhead ratio
Total assets
$ 220,229 $ 221,228 $ 214,341
Nonperforming assets
Loans:
Nonaccrual loans:
Loans retained
204,219
202,400
188,261
Nonaccrual loans retained(a)
511
$ 163
617
Loans held-for-sale and
loans at fair value
1,978
1,286
734
Total loans
$ 206,197
Core loans
Equity
206,039
20,000
$ 203,686
203,469
20,000
1,149
$ 39
53
$
20%
37
17%
16%
39
39
(a) Includes total Firm revenue from investment banking products sold to
CB clients, net of revenue sharing with the CIB.
(b) Represents total Firm revenue from investment banking products sold
to CB clients. As a result of the adoption of the revenue recognition
guidance, prior period amounts have been revised to conform with the
current period presentation. For additional information, refer to Note
1.
72
JPMorgan Chase & Co./2018 Form 10-K
Selected metrics
As of or for the year ended
Selected metrics
December 31, (in millions,
except headcount)
2018
2017
2016
As of or for the year ended
December 31, (in millions, except
ratios)
2018
2017
2016
Selected balance sheet data
Credit data and quality statistics
(period-end)
Net charge-offs/(recoveries)
Nonaccrual loans held-for-sale
and loans at fair value
Total nonaccrual loans
Institutional clients include both corporate and public institutions,
endowments, foundations, nonprofit organizations and governments
worldwide.
220
Asset Management has two high-level measures of its
overall fund performance.
Securities gains/(losses)
Principal transactions
Revenue
Year ended December 31,
(in millions, except headcount)
Selected income statement and balance sheet data
The Corporate segment consists of Treasury and Chief
Investment Office and Other Corporate, which includes
corporate staff functions and expense that is centrally
managed. Treasury and CIO is predominantly
responsible for measuring, monitoring, reporting and
managing the Firm's liquidity, funding, capital,
structural interest rate and foreign exchange risks. The
major Other Corporate functions include Real Estate,
Technology, Legal, Corporate Finance, Human
Resources, Internal Audit, Risk Management,
Compliance, Control Management, Corporate
Responsibility and various Other Corporate groups.
CORPORATE
JPMorgan Chase & Co./2018 Form 10-K
76
(a) Regional revenue is based on the domicile of the client.
2,453
$ 2,733 $ 2,789 $
Total client assets
1,803
1,969
1,942
North America
441 $
359
Asia/Pacific
222
225
177
Noninterest revenue
Latin America/Caribbean
154
114
Total international client assets
791
820
650
155
Noninterest expense (c)
2018
2017
1,140
(1,425)
(487)
Provision for credit losses
(4)
902
501
(128)
462
(1,026)
Income tax expense/(benefit)
215
639
2,282
Net income/(loss)
$ (1,241) $ (1,643) $
Income/(loss) before income
tax benefit
414 $
Total net revenue (b)
1
2016
(4)
(426) $ 284
(395)
(66)
$
210
140
55
All other income/(loss) (a)
867
588
(263)
1,085
938
Net interest income
558
(945)
(241)
(704)
$
Client assets
$
Private Banking
Assets under management
1,771
2,034 $
1,987 $
Total assets under management $
467
540
509
Retail
$ 14,076 $ 13,835 $ 12,822
Total net revenue
869
968
926
Institutional
Assets by client segment
Total international net revenue
5,143
4,944
4,429
Private Banking
1,274 $
$
526 $
435
North America
8,933
8,891
8,393
552 $
1,256 $
1,098
Europe/Middle East/Africa
Asia/Pacific
$ 2,733 $ 2,789 $ 2,453
Total international assets under
management
580
605
477
(a) Represents assets under management, as well as client balances in
brokerage accounts.
Total client assets
North America
Total assets under management
$
1,987 $
1,429
2,034 $
1,294
1,771
1,407
Europe/Middle East/Africa
469
513
$
355 $
162
384 $ 309
160
123
Institutional
543
946
886
Latin America/Caribbean
63
61
45
Retail
990
Total net revenue
510
(638)
566
574
2
11.0
1
12.1
1
9.3
1
9.3
1
9.5
1
9.8
8.3
2 2
9.1
8.4
13.4
31,434
47,733
50,168
Investment securities portfolio
(period-end)
260,115
247,980
11.9
286,838
As permitted by the new hedge accounting guidance, the Firm elected to
transfer certain investment securities from HTM to AFS in the first quarter
of 2018. For additional information, refer to Notes 1 and 10.
78
JPMorgan Chase & Co./2018 Form 10-K
7.4
11.6
1
HTM investment securities
(period-end)
#1
8.7%
#1
$
7,560 $
Lending- and deposit-related fees
197
Equity
Markets
5,566 $ 13,126 $
6
203
Total
Markets
Principal transactions
Fixed
Income
Markets
Total
Markets
Fixed
Income
Markets
Equity
Markets
Total
Markets
7,393 $ 3,855 $ 11,248
191
6
197
$ 8,347 $ 3,130 $ 11,477
Equity
Markets
236,670
Markets
Income
8.1% #1
7.9%
(a) Source: Dealogic as of January 1, 2019. Reflects the ranking of revenue wallet and market share.
(b) Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities ("ABS") and mortgage-
backed securities ("MBS"); and exclude money market, short-term debt, and U.S. municipal securities.
(c) Global equity and equity-related ranking includes rights offerings and Chinese A-Shares.
(d) Global M&A reflects the removal of any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S.
(e) Global investment banking fees exclude money market, short-term debt and shelf deals.
Markets revenue
The following table summarizes select income statement
data for the Markets businesses. Markets includes both
Fixed Income Markets and Equity Markets. Markets revenue
comprises principal transactions, fees, commissions and
other income, as well as net interest income. The Firm
assesses its Markets business performance on a total
revenue basis, as offsets may occur across revenue line
items. For example, securities that generate net interest
income may be risk-managed by derivatives that are
recorded in principal transactions revenue. For a
description of the composition of these income statement
line items, refer to Notes 6 and 7.
otherwise noted)
Principal transactions reflects revenue on financial
instruments and commodities transactions that arise from
client-driven market making activity. Principal transactions
revenue includes amounts recognized upon executing new
transactions with market participants, as well as "inventory-
related revenue", which is revenue recognized from gains
and losses on derivatives and other instruments that the
For the periods presented below, the predominant source of
principal transactions revenue was the amount recognized
upon executing new transactions.
2018
2017
2016
Year ended December 31,
(in millions, except where
Fixed
Firm has been holding in anticipation of, or in response to,
client demand, and changes in the fair value of instruments
used by the Firm to actively manage the risk exposure
arising from such inventory. Principal transactions revenue
recognized upon executing new transactions with market
participants is driven by many factors including the level of
client activity, the bid-offer spread (which is the difference
between the price at which a market participant is willing to
sell an instrument to the Firm and the price at which
another market participant is willing to buy it from the
Firm, and vice versa), market liquidity and volatility. These
factors are interrelated and sensitive to the same factors
that drive inventory-related revenue, which include general
market conditions, such as interest rates, foreign exchange
rates, credit spreads, and equity and commodity prices, as
well as other macroeconomic conditions.
200,247
228,681
235,197 267,272 278,250
1,653
1,589
Headcount(e)
37,145
34,601
31,789
1,597
Treasury and CIO
Total net revenue
Net income/(loss)
Treasury and CIO
Other Corporate
(a) Included revenue related to a legal settlement of $645 million for the year
ended December 31, 2017.
(b) Included tax-equivalent adjustments, driven by tax-exempt income from
municipal bond investments, of $382 million, $905 million and $885
million for the years ended December 31, 2018, 2017 and 2016,
respectively. The decrease in taxable-equivalent adjustments reflects the
impact of the TCJA.
(c) Included legal expense/(benefit) of $(241) million, $(593) million and
$(385) million for the years ended December 31, 2018, 2017 and 2016,
respectively.
(d) Average core loans were $1.7 billion, $1.6 billion and $1.9 billion for the
years ended December 31, 2018, 2017 and 2016, respectively.
(e) Effective in the first quarter of 2018, certain Compliance staff were
transferred from Corporate to CB. The prior period amounts have been revised
to conform with the current period presentation. For a further discussion of
this transfer, refer to CB segment results on page 71.
Other Corporate
2018 compared with 2017
Core loans (d)
1,653
$
(128) $ 1,140
$
(787)
300
(487)
(69)
(1,172)
Total net income/(loss)
1,592
$ (1,241) $
(715)
Total assets (period-end)
$771,787
$ 781,478 $ 799,426
Loans (period-end)
1,597
60
(1,703)
11
(1,643) $ (704)
726
Net loss was $1.2 billion.
Noninterest expense of $902 million includes a pre-tax loss
of $174 million on the liquidation of a legal entity recorded
in the second quarter of 2018, as well as investments in
technology and real estate.
$ (395) $
(78) $ 132
Available-for-sale ("AFS")
investment securities
(average)
Held-to-maturity ("HTM")
investment securities
Investment securities gains/
(losses)
(average)
AFS investment securities
(period-end)
203,449
219,345 226,892
31,747
47,927
51,358
Investment securities portfolio
(average)
Net revenue was a loss of $128 million, compared with net
revenue of $1.1 billion in the prior year. The current year
includes markdowns on certain legacy private equity
investments and investment securities losses related to the
repositioning of the investment securities portfolio, partially
offset by higher net interest income primarily driven by
higher rates. The prior year included a $645 million benefit
from a legal settlement.
2016
2018
Current period income tax expense reflects a net benefit of
$302 million resulting from changes in estimates under the
TCJA related to the remeasurement of certain deferred
taxes and the deemed repatriation tax on non-U.S. earnings.
This amount was more than offset by changes to certain tax
reserves and other tax adjustments. The prior year income
tax expense included a $2.7 billion expense related to the
impact of the TCJA.
2017 compared with 2016
Net loss was $1.6 billion, compared with a net loss of $704
million in the prior year. The current year net loss included
a $2.7 billion increase to income tax expense related to the
impact of the TCJA.
Net revenue was $1.1 billion, compared with a loss of $487
million in the prior year. The increase in current year net
revenue was driven by a $645 million benefit from a legal
settlement with the FDIC receivership for Washington
Mutual and with Deutsche Bank as trustee of certain
Washington Mutual trusts and by the net impact of higher
interest rates.
Net interest income was $55 million, compared with a loss
of $1.4 billion in the prior year. The gain in the current year
was primarily driven by higher interest income on deposits
with banks due to higher interest rates and balances,
partially offset by higher interest expense on long-term
debt primarily driven by higher interest rates.
JPMorgan Chase & Co./2018 Form 10-K
2017
77
Treasury and CIO overview
Treasury and CIO is predominantly responsible for
measuring, monitoring, reporting and managing the Firm's
liquidity, funding, capital, structural interest rate and
foreign exchange risks. The risks managed by Treasury and
CIO arise from the activities undertaken by the Firm's four
major reportable business segments to serve their
respective client bases, which generate both on- and off-
balance sheet assets and liabilities.
Treasury and CIO seek to achieve the Firm's asset-liability
management objectives generally by investing in high-
quality securities that are managed for the longer-term as
part of the Firm's investment securities portfolio. Treasury
and CIO also use derivatives to meet the Firm's asset-
liability management objectives. For further information on
derivatives, refer to Note 5. In addition, Treasury and CIO
manage the Firm's cash position primarily through
depositing at central banks and investing in short-term
instruments. For further information on liquidity and
funding risk, refer to Liquidity Risk Management on pages
95-100. For information on interest rate, foreign exchange
and other risks, refer to Market Risk Management on pages
124-131.
The investment securities portfolio primarily consists of
agency and nonagency mortgage-backed securities, U.S.
and non-U.S. government securities, obligations of U.S.
states and municipalities, other ABS and corporate debt
securities. At December 31, 2018, the investment securities
portfolio was $260.1 billion, and the average credit rating
of the securities comprising the portfolio was AA+ (based
upon external ratings where available and, where not
available, based primarily upon internal ratings that
correspond to ratings as defined by S&P and Moody's).
Refer to Note 10 for further information on the Firm's
investment securities portfolio.
Selected income statement and balance sheet data
As of or for the year ended
December 31, (in millions)
Management's discussion and analysis
844
1,278
1,385
U.S.
Global
M&A(d)
U.S.
Global(c)
Equity and equity-related
U.S.
Global
Long-term debt (b)
Based on fees(a)
Year ended
December 31,
League table results - wallet share
222
Asset management,
administration and commissions
410
1,794
14 $
16
Nonaccrual loans
263
375
2
Loan syndications
(500)
Net interest income (a)
22
7,388
9,119
Noninterest revenue
952
All other income
3,587
Global
U.S.
Global investment banking fees (e)
1
9.1
1
12.3
2 2
2
11.1
8.9
21
2
~ 2
7.1
390
Allowance for credit losses:
Allowance for loan losses
Allowance for lending-
related commitments
9.1
$
1
2
2018
2017
2016
Rank Share
Rank Share
Rank Share
11.1
#1
#1
7.8%
#1
6.8%
1
11.2
7.3%
10
$
Net charge-offs
54
73
75
72
85
83
64
79
3 years
5 years
Selected balance sheet data
(period-end)
Total assets
$ 170,024
$ 151,909
1
$ 138,384
68
2016
Percentage of mutual fund assets under management in funds
rated 4- or 5-star: Mutual fund rating services rank funds based on
their risk-adjusted performance over various periods. A 5-star rating
is the best rating and represents the top 10% of industry-wide ranked
funds. A 4-star rating represents the next 22.5% of industry-wide
ranked funds. A 3-star rating represents the next 35% of industry-
wide ranked funds. A 2-star rating represents the next 22.5% of
industry-wide ranked funds. A 1-star rating is the worst rating and
represents the bottom 10% of industry-wide ranked funds. The
"overall Morningstar rating" is derived from a weighted average of the
performance associated with a fund's three-, five- and ten-year (if
applicable) Morningstar Rating metrics. For U.S. domiciled funds,
separate star ratings are given at the individual share class level. The
Nomura "star rating" is based on three-year risk-adjusted
performance only. Funds with fewer than three years of history are
not rated and hence excluded from this analysis. All ratings, the
assigned peer categories and the asset values used to derive this
analysis are sourced from these fund rating providers mentioned in
footnote (a). The data providers re-denominate the asset values into
U.S. dollars. This % of AUM is based on star ratings at the share class
level for U.S. domiciled funds, and at a "primary share class" level to
represent the star rating of all other funds except for Japan where
Nomura provides ratings at the fund level. The "primary share class",
as defined by Morningstar, denotes the share class recommended as
being the best proxy for the portfolio and in most cases will be the
most retail version (based upon annual management charge,
minimum investment, currency and other factors). The performance
data could have been different if all funds/accounts would have been
included. Past performance is not indicative of future results.
• Percentage of mutual fund assets under management in funds
ranked in the 1st or 2nd quartile (one, three and five years): All
quartile rankings, the assigned peer categories and the asset values
used to derive this analysis are sourced from the fund ranking
providers mentioned in footnote (b). Quartile rankings are done on
the net-of-fee absolute return of each fund. The data providers re-
denominate the asset values into U.S. dollars. This % of AUM is based
on fund performance and associated peer rankings at the share class
level for U.S. domiciled funds, at a "primary share class" level to
represent the quartile ranking of the U.K., Luxembourg and Hong
Kong funds and at the fund level for all other funds. The "primary
share class", as defined by Morningstar, denotes the share class
recommended as being the best proxy for the portfolio and in most
cases will be the most retail version (based upon annual management
charge, minimum investment, currency and other factors). Where
peer group rankings given for a fund are in more than one "primary
share class" territory both rankings are included to reflect local
market competitiveness (applies to "Offshore Territories" and "HK
SFC Authorized" funds only). The performance data could have been
different if all funds/accounts would have been included. Past
performance is not indicative of future results.
JPMorgan Chase & Co./2018 Form 10-K
Selected metrics
As of or for the year ended
December 31,
(in millions, except ranking
data and ratios)
63%
2018
% of JPM mutual fund assets
rated as 4- or 5-star (a)
58%
60%
% of JPM mutual fund assets
ranked in 1st or 2nd
quartile:(b)
1 year
2017
326
147,632
118,039
123,464
112,876
138,622
123,464
112,876
137,272
138,622
148,982
9,000
9,000
9,000
Deposits
Equity
Credit data and quality
statistics
153,334
130,640
$ 132,875
$ 160,269
147,632
130,640
118,039
138,546
146,407
161,577
$ 144,206
9,000
9,000
Loans
Core loans
Deposits
Equity
Selected balance sheet data
(average)
Total assets
Loans
Core loans
9,000
Retail clients include financial intermediaries and individual investors.
290
16
428
384
Equity
2,453
2,789 $
2,733 $
$
Ending balance, December 31
420
474
464
Fixed income
40
243
(144)
Market/performance/other impacts
459 $ 436
2016
Beginning balance
$
2,789 $
2,453 $
2,350
351
Assets by asset class
88
93
63
Liquidity
$
480 $
Net asset flows
Multi-asset and alternatives
659
673
2017
2016
Europe/Middle East/Africa
$ 2,721 $
2,715 $ 2,425
Memo:
2018
Asia/Pacific
$
171 $
166 $
154
Latin America/Caribbean
1,518
904
Alternatives client assets(a)
2017
Total net revenue (in millions)(a)
682
2,453
564
International metrics
Total assets under management
1,987
2,034
1,771
Year ended December 31,
(in billions, except where otherwise
noted)
Custody/brokerage/
746
755
Total client assets
$
2,733 $
2,789 $
administration/deposits
2018
(in billions)
December 31,
Nonaccrual loans to period-
end loans
0.29
0.18
0.33
(a) Represents the "overall star rating" derived from Morningstar for the
U.S., the U.K., Luxembourg, Hong Kong and Taiwan domiciled funds;
and Nomura "star rating" for Japan domiciled funds. Includes only
Asset Management retail open-ended mutual funds that have a rating.
Excludes money market funds, Undiscovered Managers Fund, and
Brazil domiciled funds.
70
(b) Quartile ranking sourced from: Lipper for the U.S. and Taiwan
domiciled funds; Morningstar for the U.K., Luxembourg and Hong Kong
domiciled funds; Nomura for Japan domiciled funds and Fund Doctor
for South Korea domiciled funds. Includes only Asset Management
retail open-ended mutual funds that are ranked by the aforementioned
sources. Excludes money market funds, Undiscovered Managers Fund,
and Brazil domiciled funds.
Management's discussion and analysis
Client assets
2018 compared with 2017
Client assets were $2.7 trillion, a decrease of 2%. Assets
under management were $2.0 trillion, a decrease of 2%
reflecting lower spot market levels, largely offset by net
inflows into liquidity and long-term products.
2017 compared with 2016
Client assets were $2.8 trillion, an increase of 14%
compared with the prior year. Assets under management
were $2.0 trillion, an increase of 15% from the prior year
reflecting higher market levels, and net inflows into long-
term and liquidity products.
75
Client assets
77
Allowance for loan losses to
nonaccrual loans
10
4
Total allowance for credit
losses
342
300
278
124
Net charge-off rate
0.01%
0.01%
Allowance for loan losses to
period-end loans
0.22
0.22
0.23
0.01%
274
Client assets (continued)
2018
(29)
Multi-asset and alternatives
Market/performance/other impacts
24
43
22
(103)
(11)
186
$
1,987 $
2,034 $
1,771
Ending balance, December 31
Client assets rollforward
1
Year ended December 31,
(in billions)
2
36
2017
2016
Assets under management
rollforward
Beginning balance
Net asset flows:
Liquidity
30
Fixed income
$ 2,034 $
1,771 $ 1,723
31
9
24
(1)
Equity
135
$ 12,706 $
Total net revenue
In addition, the Basel Independent Review function ("BIR"),
which is now a part of the IRM function, conducts
independent assessments of the Firm's regulatory capital
framework. These assessments are intended to ensure
compliance with the applicable regulatory capital rules in
support of senior management's responsibility for
managing capital and for the DRPC's oversight of
management in executing that responsibility.
Risk Identification
In addition, the JPMorgan Chase Bank, N.A. Board of
Directors is responsible for the oversight of management of
the bank. The JPMorgan Chase Bank, N.A. Board
accomplishes this function acting directly and through the
principal standing committees of the Firm's Board of
Directors. Risk and control oversight on behalf of JPMorgan
Chase Bank N.A. is primarily the responsibility of the DRPC
and the Audit Committee of the Firm's Board of Directors,
respectively, and, with respect to compensation and other
management-related matters, the Compensation &
Management Development Committee of the Firm's Board
of Directors.
The Firmwide Valuation Governance Forum ("VGF") is
composed of senior finance and risk executives and is
responsible for overseeing the management of fair value
risks arising from valuation activities conducted across the
Firm. The VGF is chaired by the Firmwide head of the
Valuation Control Group ("VCG") under the direction of the
Firm's Controller, and includes sub-forums covering the
Corporate & Investment Bank, Consumer & Community
Banking, Commercial Banking, Asset & Wealth Management
and Corporate, including Treasury and CIO.
The Firmwide Asset and Liability Committee ("ALCO"), chaired
by the Firm's Treasurer and Chief Investment Officer, is
responsible for overseeing the Firm's asset and liability
management ("ALM") activities and the management of
liquidity risk, balance sheet, interest rate risk, and capital
risk. The ALCO is supported by the Treasurer Committee and
the Capital Governance Committee. The Treasurer
Committee is responsible for monitoring the Firm's overall
balance sheet, liquidity risk and interest rate risk. The
Capital Governance Committee is responsible for overseeing
the Firm's strategic end-to-end capital management and
governance framework, including capital planning, capital
strategy, and the implementation of regulatory capital
requirements.
processes in a business or function, addressing key
operational risk issues, focusing on processes with control
concerns and overseeing control remediation. These
committees escalate issues to the FCC, as appropriate.
JPMorgan Chase & Co./2018 Form 10-K
Line of Business and Corporate Control Committees oversee
the control environment of their respective business or
function. As part of that mandate, they are responsible for
reviewing data that indicates the quality and stability of the
Line of Business and Regional Risk Committees review the
ways in which the particular line of business or the business
operating in a particular region could be exposed to adverse
outcomes with a focus on identifying, accepting, escalating
and/or requiring remediation of matters brought to these
committees. These committees may escalate matters to the
FRC, as appropriate. LOB risk committees are co-chaired by
the LOB CEO and the LOB CRO. Each LOB risk committee
may create sub-committees with requirements for
escalation. The regional committees are established
similarly, as appropriate, for the region.
The Conduct Risk Steering Committee ("CRSC") provides
oversight of the Firm's conduct initiatives to develop a more
holistic view of conduct risks and to connect key programs
across the Firm to identify opportunities and emerging
areas of focus. The CRSC is co-chaired by the Conduct Risk
Compliance Executive and the Human Resources Chief
Administrative Officer. The CRSC may escalate systemic
conduct risk issues to the FRC and as appropriate to the
DRPC.
The Firmwide Estimations Risk Committee ("FERC") reviews
and oversees governance and execution activities related to
quantitative and qualitative estimations, such as those used
in risk management, budget forecasting and capital
planning and analysis. The FERC is chaired by the Firmwide
Risk Executive for Model Risk Governance and Review. The
FERC serves as an escalation channel for relevant topics and
issues raised by its members and the Line of Business
Estimation Risk Committees. The FERC escalates significant
issues to the FRC, as appropriate.
The Firmwide Fiduciary Risk Governance Committee
("FFRGC") is a forum for risk matters related to the Firm's
fiduciary activities. The FFRGC oversees the governance
framework for fiduciary risk inherent in each of the Firm's
LOBS. The governance framework supports the consistent
identification and escalation of fiduciary risk or fiduciary
related conflict of interest risk. The FFRGC approves risk or
compliance policy exceptions and reviews periodic reports
from the LOBS and control functions including fiduciary
metrics and control trends. The FFRGC is co-chaired by the
Wealth Management CEO and the Asset & Wealth
Management CRO. The FFRGC escalates significant fiduciary
issues to the FRC, the DRPC and the Audit Committee, as
appropriate.
operational risk. The FCC is co-chaired by the Chief Control
Manager and the Firmwide Risk Executive for Operational
Risk Management. The FCC relies on the prompt escalation
of operational risk and control issues from businesses and
functions as the primary owners of the operational risk.
Operational risk and control issues may be escalated by
business or function control committees to the FCC, which in
turn, may escalate to the FRC, as appropriate.
82
The Firmwide Control Committee ("FCC") provides a forum
for senior management to review and discuss firmwide
operational risks, including existing and emerging issues
and operational risk metrics, and to review operational risk
management execution in the context of the Operational
Risk Management Framework ("ORMF"). The ORMF provides
the framework for the governance, risk identification and
assessment, measurement, monitoring and reporting of
Among the Firm's senior management-level committees that
are primarily responsible for key risk-related functions are:
The Firmwide Risk Committee ("FRC") is the Firm's highest
management-level risk committee. It provides oversight of
the risks inherent in the Firm's businesses. The FRC is co-
chaired by the Firm's CEO and CRO. The FRC serves as an
escalation point for risk topics and issues raised by its
members, the Line of Business Risk Committees, Firmwide
Control Committee, Firmwide Fiduciary Risk Governance
Committee, Firmwide Estimations Risk Committee, Conduct
Risk Steering Committee and Regional Risk Committees, as
appropriate. The FRC escalates significant issues to the
DRPC, as appropriate.
The Public Responsibility Committee of the Board assists the
Board in its oversight of the Firm's positions and practices
on public responsibility matters such as community
investment, fair lending, sustainability, consumer practices
and other public policy issues that reflect the Firm's values
and character and impact the Firm's reputation among all of
its stakeholders. The Committee also provides guidance on
these matters to management and the Board as
appropriate.
The Compensation & Management Development Committee
("CMDC") of the Board assists the Board in its oversight of
the Firm's compensation programs and reviews and
approves the Firm's overall compensation philosophy,
incentive compensation pools, and compensation practices
consistent with key business objectives and safety and
soundness. The CMDC reviews Operating Committee
members' performance against their goals, and approves
their compensation awards. The CMDC also periodically
reviews the Firm's diversity programs and management
development and succession planning, and provides
oversight of the Firm's culture, including reviewing
management updates regarding significant conduct issues
and any related employee actions, including but not limited
to compensation actions.
The Audit Committee of the Board assists the Board in its
oversight of management's responsibilities to assure that
there is an effective system of controls reasonably designed
to safeguard the assets and income of the Firm, assure the
integrity of the Firm's financial statements and maintain
compliance with the Firm's ethical standards, policies, plans
and procedures, and with laws and regulations. In addition,
the Audit Committee assists the Board in its oversight of the
Firm's independent registered public accounting firm's
qualifications, independence and performance, and of the
performance of the Firm's Internal Audit function.
Management's discussion and analysis
81
JPMorgan Chase & Co./2018 Form 10-K
The Firm has a Risk Identification process designed to
facilitate the first line of defense's responsibility to identify
material risks inherent to the Firm, catalog them in a
central repository and review the most material risks on a
regular basis. The second line of defense reviews and
challenges the first line's identification of risks, maintains
the central repository and provides the consolidated
Firmwide results to the FRC and DRPC.
The Directors' Risk Policy Committee of the Board assists the
board in its oversight of the Firm's global risk management
framework and approves the primary risk management
policies of the Firm. The Committee's responsibilities
include oversight of management's exercise of its
responsibility to assess and manage the Firm's risks, and its
capital and liquidity planning and analysis. Breaches in risk
appetite, capital and liquidity issues that may have a
material adverse impact on the Firm and other significant
risk-related matters are escalated to the DRPC.
JPMorgan Chase & Co./2018 Form 10-K
Management's discussion and analysis
•
•
•
The primary objectives of effective capital management are
to:
Treasury & CIO assumed responsibility for capital
management in March 2018.
Capital management
A strong capital position is essential to the Firm's business
strategy and competitive position. Maintaining a strong
balance sheet to manage through economic volatility is
considered a strategic imperative of the Firm's Board of
Directors, CEO and Operating Committee. The Firm's
fortress balance sheet philosophy focuses on risk-adjusted
returns, strong capital and robust liquidity. The Firm's
capital risk management strategy focuses on maintaining
long-term stability to enable it to build and invest in
market-leading businesses, even in a highly stressed
environment. Senior management considers the
implications on the Firm's capital prior to making any
significant decisions that could impact future business
activities. In addition to considering the Firm's earnings
outlook, senior management evaluates all sources and uses
of capital with a view to ensuring the Firm's capital
strength.
Capital risk is the risk the Firm has an insufficient level and
composition of capital to support the Firm's business
activities and associated risks during normal economic
environments and under stressed conditions.
CAPITAL RISK MANAGEMENT
JPMorgan Chase & Co./2018 Form 10-K
83
84
Governance and oversight
For further information on reputation risk, refer to
Reputation Risk Management on page 101.
The Firm's balance sheet strategy, which focuses on risk-
adjusted returns, strong capital and robust liquidity, is key
to management of strategic risk. For further information on
capital risk, refer to Capital Risk Management on pages
85-94. For further information on liquidity risk, refer to
Liquidity Risk Management on pages 95-100
In the process of developing the strategic initiatives, line of
business and Corporate leadership identify the strategic
risks associated with their strategic initiatives and those
risks are incorporated into the Firmwide Risk Identification
process and monitored and assessed as part of the
Firmwide Risk Appetite framework. For further information
on Risk Identification, refer to Enterprise-Wide Risk
Management on page 79. For further information on the
Risk Appetite framework, refer to Enterprise-Wide Risk
Management on page 80.
These strategic priorities and initiatives are then
incorporated in the Firm's budget, and are reviewed by the
Board of Directors.
The Firm's strategic planning process, which includes the
development and execution of strategic priorities and
initiatives by the Operating Committee and the
management teams of the lines of business and Corporate,
is an important process for managing the Firm's strategic
risk. Guided by the Firm's How We Do Business Principles
(the "Principles"), the strategic priorities and initiatives are
updated annually and include evaluating performance
against prior year initiatives, assessment of the operating
environment, refinement of existing strategies and
development of new strategies.
The Operating Committee and the senior leadership of each
LOB and Corporate are responsible for managing the Firm's
most significant strategic risks. Strategic risks are overseen
by IRM through participation in business reviews, LOB and
Corporate senior management committees, ongoing
management of the Firm's risk appetite and limit
framework, and other relevant governance forums. The
Board of Directors oversees management's strategic
decisions, and the DRPC oversees IRM and the Firm's risk
management framework.
Overview
Strategic risk is the risk associated with the Firm's current
and future business plans and objectives. Strategic risk
includes the risk to current or anticipated earnings, capital,
liquidity, enterprise value, or the Firm's reputation arising
from adverse business decisions, poor implementation of
business decisions, or lack of responsiveness to changes in
the industry or external environment.
STRATEGIC RISK MANAGEMENT
On at least an annual basis, the Firm's Operating Committee
defines the most significant strategic priorities and
initiatives, including those of the Firm, the LOBS and
Corporate, for the coming year and evaluates performance
against the prior year. As part of the strategic planning
process, IRM conducts a qualitative assessment of those
significant initiatives to determine the impact on the risk
profile of the Firm. The Firm's priorities, initiatives and
IRM's assessment are provided to the Board for its review.
As part of its ongoing oversight and management of risk
across the Firm, IRM is regularly engaged in significant
discussions and decision-making across the Firm, including
decisions to pursue new business opportunities or modify
or exit existing businesses.
The Board of Directors provides oversight of risk. The DRPC
is the principal committee that oversees risk matters. The
Audit Committee oversees the control environment, and the
Compensation & Management Development Committee
oversees compensation and other management-related
matters. Each committee of the Board oversees reputation
risk and/or conduct risk issues within its scope of
responsibility.
The Firm's Operating Committee, which consists of the
Firm's CEO, CRO, CFO and other senior executives, is
accountable to and may refer matters to the Firm's Board of
Directors. The Operating Committee is responsible to
escalate to the Board the information necessary to facilitate
the Board's exercise of its duties.
Internal
Audit
Chief Information
Officer
General
Counsel
Chief Financial
Officer
Line of
Business CEOs (b)
Chief Executive Officer
Operating Committee
Other Board Committees (a)
Audit Committee
Directors' Risk Policy Committee
Board of Directors
Head of
Corporate
Responsibility
The chart below illustrates the Board of Directors and key senior management level committees in the Firm's risk governance
structure. In addition, there are other committees, forums and paths of escalation that support the oversight of risk which are
not shown in the chart below.
JPMorgan Chase & Co./2018 Form 10-K
80
In addition, there are other functions that contribute to the
firmwide control environment including Finance, Human
Resources, Legal, and Control Management.
The Internal Audit function operates independently from
other parts of the Firm and performs independent testing
and evaluation of processes and controls across the entire
enterprise as the Firm's "third line of defense". The Internal
Audit Function is headed by the General Auditor, who
reports to the Audit Committee.
The IRM function is independent of the businesses and is
"the second line of defense". The IRM function sets and
oversees the risk management structure for firmwide risk
governance, and independently assesses and challenges the
first line of defense risk management practices. IRM is also
responsible for its own adherence to applicable laws, rules,
regulations and for the implementation of policies and
standards established by IRM with respect to its own
processes.
The Firm places reliance on each of its LOBS and other
functional areas giving rise to risk to operate within the
parameters identified by the IRM function, and within its
own management-identified risk and control standards.
Each LOB and Treasury and CIO, inclusive of their aligned
Operations, Technology and Control Management are
considered the "first line of defense" and owns the
identification of risks, as well as the design and execution of
controls, inclusive of IRM-specified controls, to manage
those risks. The first line of defense is responsible for
adherence to applicable laws, rules, and regulations and for
the implementation of the risk management structure
(which may include policy, standards, limits, thresholds and
controls) established by IRM.
The Firm has an Independent Risk Management (“IRM”)
function, which consists of the Risk Management and
Compliance organizations. The CEO appoints, subject to
DRPC approval, the Firm's CRO to lead the IRM organization
and manage the risk governance structure of the Firm. The
framework is subject to approval by the DRPC in the form of
the primary risk management policies. The Firm's CRO
oversees and delegates authorities to LOB CROS, Firmwide
Risk Executives ("FRES"), and the Firm's Chief Compliance
Officer ("CCO"). The CCO oversees and delegates authorities
to the LOB CCOS, and is responsible for the creation and
effective execution of the Global Compliance Program.
The Firm's overall appetite for risk is governed by a "Risk
Appetite" framework. The framework and the Firm's risk
appetite are set and approved by the Firm's Chief Executive
Officer ("CEO"), Chief Financial Officer ("CFO") and Chief
Risk Officer ("CRO"). LOB-level risk appetite is set by the
respective LOB CEO, CFO and CRO and is approved by the
Firm's CEO, CFO and CRO. Quantitative parameters and
qualitative factors are used to monitor and measure the
Firm's capacity to take risk consistent with its stated risk
appetite. Quantitative parameters have been established to
assess select strategic risks, credit risks and market risks.
Qualitative factors have been established to assess select
operational risks, and impact to the Firm's reputation. Risk
Appetite results are reported quarterly to the Board of
Directors' Risk Policy Committee ("DRPC").
Governance and oversight
Management's discussion and analysis
The independent status of the IRM function is supported by a governance structure that provides for escalation of risk issues to
senior management, the Firmwide Risk Committee, and the Board of Directors, as appropriate.
Head of Human
Resources
Chief Risk
Officer
Management
Risk Committee
(c) The Capital Governance Committee and Treasurer Committee report to the Firmwide Asset and Liability Committee.
(d) As applicable.
(a) Other Board Committees include the Compensation & Management Development Committee, Corporate Governance & Nominating Committee and Public Responsibility Committee.
(b) The Line of Business CEOS for CIB and CCB are also the Firm's Co-Presidents and Co-Chief Operating Officers.
Conduct Risk Steering
Committee
Firmwide Control
Committee
Firmwide
Estimations Risk
Committee
Firmwide Fiduciary
Risk Governance
Committee
Regional Risk
Committees
Risk Committee
CIO, Treasury &
Corporate
Firmwide Risk
Committee
Line of Business, Corporate and Regional Control Committees
Line of Business Reputation Risk Committees (d)
Line of Business Estimations Risk Committees (d)
Line of Business Fiduciary Risk Committees (d)
Corporate &
Investment Bank
Risk Committee
Consumer &
Community Banking
Risk Committee
Commercial Banking
Risk Committee
Governance Forum
Valuation
Firmwide
Committee(c)
Asset and Liability
Firmwide
Maintain sufficient capital in order to continue to build
and invest in the Firm's businesses through the cycle and
in stressed environments;
Retain flexibility to take advantage of future investment
opportunities;
Promote the Firm's ability to serve as a source of
strength to its subsidiaries;
began January 1, 2016 and continued through the end of
2018.
All banking institutions are currently required to have a
minimum CET1 capital ratio of 4.5% of risk weighted
assets. Certain banking organizations, including the Firm,
are required to hold additional amounts of capital to serve
as a "capital conservation buffer". The capital conservation
buffer is intended to be used to absorb potential losses in
times of financial or economic stress. The capital
conservation buffer was subject to a phase-in period that
pillar-3-us-lcr-disclosures).
Additional information regarding the Firm's capital ratios, as
well as the U.S. federal regulatory capital standards to
which the Firm is subject, is presented in Note 26. For
further information on the Firm's Basel III measures, refer
to the Firm's Pillar 3 Regulatory Capital Disclosures reports,
which are available on the Firm's website (https://
jpmorganchaseco.gcs-web.com/financial-information/basel-
The capital adequacy of the Firm and its IDI subsidiaries,
both during the transitional period and upon full phase-in,
is evaluated against the Basel III approach (Standardized or
Advanced) which, for each quarter, results in the lower
ratio. The Firm's Basel III Standardized Fully Phased-In risk-
based ratios are currently more binding than the Basel III
Advanced Fully Phased-In risk-based ratios, and the Firm
expects that this will remain the case for the foreseeable
future.
2019
2018
2017
0
Minimum
requirement
As an expansion of the capital conservation buffer, the Firm
is also required to hold additional levels of capital in the
form of a GSIB surcharge and a countercyclical capital
buffer.
4.50%
2
4.50%
4
Capital
conservation
buffer
2.50%
1.875%
1.250%
6
1.750%
2.625%
4.50%
GSIB surcharge
Under the Federal Reserve's final rule, the Firm is required
to calculate its GSIB surcharge on an annual basis under two
separately prescribed methods, and is subject to the higher
of the two. The first ("Method 1"), reflects the GSIB
surcharge as prescribed by the Basel Committee's
assessment methodology, and is calculated across five
criteria: size, cross-jurisdictional activity,
interconnectedness, complexity and substitutability. The
second ("Method 2"), modifies the Method 1 requirements
to include a measure of short-term wholesale funding in
place of substitutability, and introduces a GSIB score
"multiplication factor". The following table represents the
Firm's GSIB surcharge.
Transitional(a)
JPMorgan Chase & Co./2018 Form 10-K
In addition to meeting the capital ratio requirements of
Basel III, the Firm and its IDI subsidiaries also must
maintain minimum capital and leverage ratios in order to be
"well-capitalized" under the regulations issued by the
Federal Reserve and the Prompt Corrective Action ("PCA")
requirements of the FDIC Improvement Act ("FDICIA”),
respectively. For additional information, refer to Note 26.
Failure to maintain an SLR ratio equal to or greater than the
regulatory minimum may result in limitations on the
amount of capital that the Firm may distribute.
The SLR is defined as Tier 1 capital under Basel III divided
by the Firm's total leverage exposure. Total leverage
exposure is calculated by taking the Firm's total average on
balance sheet assets, less amounts permitted to be
deducted for Tier 1 capital, and adding certain off-balance
sheet exposures, such as undrawn commitments and
derivatives potential future exposure.
Supplementary leverage ratio
Leverage-based Capital Regulatory Minimums
The Federal Reserve's framework for setting the
countercyclical capital buffer takes into account the macro
financial environment in which large, internationally active
banks function. As of December 31, 2018, the U.S.
countercyclical capital buffer remained at 0%. The Federal
Reserve will continue to review the buffer at least annually.
The buffer can be increased if the Federal Reserve, FDIC and
OCC determine that credit growth in the economy has
become excessive and can be calibrated up to an additional
2.5% of RWA subject to a 12-month implementation period.
Failure to maintain regulatory capital equal to or in excess
of the risk-based regulatory capital minimum plus the
capital conservation buffer (inclusive of the GSIB surcharge)
and any countercyclical buffer may result in limitations to
the amount of capital that the Firm may distribute, such as
through dividends and common equity repurchases.
The Firm's effective GSIB surcharge as calculated under
Method 2 for 2019 is anticipated to be 3.5%.
Management's discussion and analysis
888
Fully Phased-In:
Method 1
Method 2
88
JPMorgan Chase & Co./2018 Form 10-K
(a) The GSIB surcharge is subject to transition provisions (in 25% increments)
through the end of 2018.
1.75%
2.625%
3.50%
3.50%
2.50%
2.50%
2017
2018
87
79
3.50%
8
Establishing, calibrating and monitoring capital risk
limits and indicators, including capital risk appetite
tolerances;
With the reorganization of the Capital Management group
into the Treasury and CIO organization, the Firm established
a Capital Management oversight function within the CTC risk
function. The CTC CRO, who reports to the Firm's CRO, is
responsible for Firmwide Capital Management Oversight.
Capital Management's Oversight responsibilities include:
Capital management oversight
businesses. These scenarios are articulated in terms of
macroeconomic factors, which are key drivers of business
results; global market shocks, which generate short-term
but severe trading losses; and idiosyncratic operational risk
events. The scenarios are intended to capture and stress
key vulnerabilities and idiosyncratic risks facing the Firm.
However, when defining a broad range of scenarios, actual
events can always be worse. Accordingly, management
considers additional stresses outside these scenarios, as
necessary. These results are reviewed by management and
the Board of Directors.
Management's discussion and analysis
85
The CCAR and other stress testing processes assess the
potential impact of alternative economic and business
scenarios on the Firm's earnings and capital. Economic
scenarios, and the parameters underlying those scenarios,
are defined centrally and applied uniformly across the
On June 28, 2018, the Federal Reserve informed the Firm
that it did not object, on either a quantitative or qualitative
basis, to the Firm's 2018 capital plan. For information on
actions taken by the Firm's Board of Directors following the
2018 CCAR results, refer to Capital actions on pages 91-92.
Internal Capital Adequacy Assessment Process
Annually, the Firm prepares the ICAAP, which informs the
Board of Directors of the ongoing assessment of the Firm's
processes for managing the sources and uses of capital as
well as compliance with supervisory expectations for capital
planning and capital adequacy. The Firm's ICAAP integrates
stress testing protocols with capital planning. The Firm's
Audit Committee is responsible for reviewing and approving
the capital stress testing control framework.
The Federal Reserve requires large bank holding
companies, including the Firm, to submit on an annual basis
a capital plan that has been reviewed and approved by the
Board of Directors. The Federal Reserve uses the CCAR and
other stress testing processes to ensure that large BHCs
have sufficient capital during periods of economic and
financial stress, and have robust, forward-looking capital
assessment and planning processes in place that address
each BHC's unique risks to enable it to absorb losses under
certain stress scenarios. Through CCAR, the Federal Reserve
evaluates each BHC's capital adequacy and internal capital
adequacy assessment processes ("ICAAP"), as well as its
plans to make capital distributions, such as dividend
payments or stock repurchases.
Comprehensive Capital Analysis and Review
Performing independent assessment of the Firm's capital
management activities; and
Capital planning and stress testing
Contingency capital plan
capital needs; an estimate of required capital under the
CCAR and other stress testing requirements; and Basel III
Fully Phased-In regulatory minimums. Where necessary,
each pillar may include a management-established buffer.
The capital governance framework requires regular
monitoring of the Firm's capital positions, stress testing and
defining escalation protocols, both at the Firm and material
legal entity levels.
The Firm's minimum capital levels are based on the most
binding of three pillars: an internal assessment of the Firm's
JPMorgan Chase & Co./2018 Form 10-K
Capital risk management is intended to be flexible in order
to react to a range of potential events. In its management of
capital, the Firm takes into consideration economic risk and
all applicable regulatory capital requirements to determine
the level of capital needed.
The Firm meets these objectives through the establishment
of internal minimum capital requirements and a strong
capital management governance framework, both in
business as usual conditions and in the event of stress.
Maintain sufficient capital resources to operate
throughout a resolution period in accordance with the
Firm's preferred resolution strategy.
•
Meet capital distribution objectives; and
•
Ensure the Firm operates above the minimum regulatory
capital ratios as well as maintain "well-capitalized"
status for the Firm and its insured depository institution
("IDI") subsidiaries at all times under applicable
regulatory capital requirements;
The Firm's contingency capital plan, which is approved by
the firmwide ALCO and the DRPC, establishes the capital
management framework for the Firm and specifies the
principles underlying the Firm's approach towards capital
management in normal economic times and during stress.
The contingency capital plan defines how the Firm
calibrates its targeted capital levels and meets minimum
capital requirements, monitors the ongoing appropriateness
of planned distributions, and sets out the capital
contingency actions that must be taken or considered at
various levels of capital depletion during a period of stress.
7.50%
Monitoring the Firm's capital position and balance sheet
activities
Committees responsible for overseeing the Firm's capital
management include the Capital Governance Committee,
the Treasurer Committee and the ALCO. Capital
management oversight is governed through the CTC risk
committee. In addition, the DRPC approves the Firm's
capital management oversight policy and reviews and
recommends to the Board of Directors, for formal approval,
the Firm's capital risk tolerances. For additional discussion
on the DRPC and the ALCO, refer to Enterprise-wide Risk
Management on pages 79-140.
Capital
conservation
buffer incl. GSIB
9.00%
CET1: 12.0%
12/31/18
10-
10.50%
12
14
The following chart presents the Basel III minimum CET1 capital ratio during the transitional periods and on a fully phased-in
basis under the Basel III rules currently in effect.
Also in April 2018, the Federal Reserve and the OCC
released a proposal to revise the enhanced supplementary
leverage ratio ("eSLR") requirements applicable to the U.S.
global systemically important banks ("GSIBS") and their IDIS
and to make conforming changes to the rules which are
applicable to U.S. GSIBS relating to TLAC and external long-
term debt that must satisfy certain eligibility criteria.
Governance
Risk-based Capital Regulatory Minimums
JPMorgan Chase & Co./2018 Form 10-K
86
Banking supervisors globally continue to consider
refinements and enhancements to the Basel III capital
framework for financial institutions, and in December 2017,
the Basel Committee issued Basel III: Finalizing post-crisis
reforms ("Basel III Reforms"). The Basel Committee expects
national regulatory authorities to implement the Basel III
Reforms in the laws of their respective jurisdictions and to
require banking organizations subject to such laws to meet
most of the revised requirements by January 1, 2022, with
certain elements being phased in through January 1, 2027.
Key Regulatory Developments
Basel III also includes a requirement for Advanced
Approach banking organizations, including the Firm, to
calculate the SLR. For additional information on the SLR,
refer to page 91.
Basel III establishes capital requirements for calculating
credit risk RWA and market risk RWA, and in the case of
Basel III Advanced, operational risk RWA. Key differences in
the calculation of credit risk RWA between the Standardized
and Advanced approaches are that for Basel III Advanced,
credit risk RWA is based on risk-sensitive approaches which
largely rely on the use of internal credit models and
parameters, whereas for Basel III Standardized, credit risk
RWA is generally based on supervisory risk-weightings
which vary primarily by counterparty type and asset class.
Market risk RWA is calculated on a generally consistent
basis between Basel III Standardized and Basel III
Advanced. In addition to the RWA calculated under these
methodologies, the Firm may supplement such amounts to
incorporate management judgment and feedback from its
regulators.
Capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. bank holding companies ("BHC")
and banks, including the Firm and its IDI subsidiaries. Basel
Ill sets forth two comprehensive approaches for calculating
RWA: a standardized approach ("Basel III Standardized"),
and an advanced approach ("Basel III Advanced"). Certain
of the requirements of Basel III were subject to phase-in
periods that began on January 1, 2014 and continued
through the end of 2018 ("transitional period"). While the
required capital remained subject to the transitional rules
during 2018, the Firm's capital ratios as of December 31,
2018 were equivalent whether calculated on a transitional
or fully phased-in basis.
Basel III Overview
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
minimum capital requirements for the Firm's national
banks, including JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A. The U.S. capital requirements
generally follow the Capital Accord of the Basel Committee,
as amended from time to time.
Regulatory capital
In April 2018, the Federal Reserve proposed the
introduction of a stress buffer framework that would create
a single, integrated set of capital requirements by
combining the supervisory stress test results of the CCAR
assessment and those under the Dodd-Frank Act with
current point-in-time capital requirements. The U.S. banking
regulators will be proposing final requirements applicable
to U.S. financial institutions.
JPMorgan Chase & Co./2018 Form 10-K
Asset & Wealth
Estimations and Model risk
Impacts of Risks
Market risk is the risk associated with the effect of
changes in market factors, such as interest and foreign
exchange rates, equity and commodity prices, credit
spreads or implied volatilities, on the value of assets and
liabilities held for both the short and long term.
Operational risk is the risk associated with inadequate or
failed internal processes, people and systems, or from
external events and includes compliance risk, conduct
risk, legal risk, and estimations and model risk.
Credit and investment risk is the risk associated with the
default or change in credit profile of a client,
counterparty or customer; or loss of principal or a
reduction in expected returns on investments, including
consumer credit risk, wholesale credit risk, and
investment portfolio risk.
Strategic risk is the risk associated with the Firm's
current and future business plans and objectives,
including capital risk, liquidity risk, and the impact to
the Firm's reputation.
The Firm's risks are generally categorized in the following
four risk types:
Types of Risks
Drivers of risks include, but are not limited to, the economic
environment, regulatory or government policy, competitor
or market evolution, business decisions, process or
judgment error, deliberate wrongdoing, dysfunctional
markets, and natural disasters.
Impacts of Risks
Consequences of
risks, both
quantitative and
qualitative
Drivers of Risks
by which risks
manifest themselves
Factors that
cause a risk
to exist
Types of Risks
There may be many consequences of risks manifesting,
including quantitative impacts such as reduction in earnings
and capital, liquidity outflows, and fines or penalties, or
qualitative impacts, such as reputation damage, loss of
clients, and regulatory and enforcement actions.
Categories
The Firm's risk governance and oversight functions align to:
Firmwide Risk Management is overseen and managed on an
enterprise-wide basis. The Firm's risk management
governance and oversight framework involves
understanding drivers of risks, types of risks, and impacts of
risks.
The Firm strives for continual improvement through efforts
to enhance controls, ongoing employee training and
development, talent retention, and other measures. The
Firm follows a disciplined and balanced compensation
framework with strong internal governance and
independent Board oversight. The impact of risk and control
issues are carefully considered in the Firm's performance
evaluation and incentive compensation processes.
Firmwide structures for risk governance.
Ownership of risk identification, assessment, data and
management within each of the lines of business and
Corporate; and
Acceptance of responsibility, including identification and
escalation of risk issues, by all individuals within the
Firm;
•
•
The Firm believes that effective risk management requires:
Risk is an inherent part of JPMorgan Chase's business
activities. When the Firm extends a consumer or wholesale
loan, advises customers on their investment decisions,
makes markets in securities, or offers other products or
services, the Firm takes on some degree of risk. The Firm's
overall objective is to manage its businesses, and the
associated risks, in a manner that balances serving the
interests of its clients, customers and investors and protects
the safety and soundness of the Firm.
ENTERPRISE-WIDE RISK MANAGEMENT
140
Drivers of Risks
Governance and Oversight Functions
•
The following sections discusses the risk governance and
oversight functions in place to manage the risks inherent in
the Firms business activities.
139
The Firm manages its risk through risk governance and
oversight functions. The scope of a particular function may
include one or more drivers, types and/or impacts of risk.
For example, Country Risk Management oversees country
risk which may be a driver of risk or an aggregation of
exposures that could give rise to multiple risk types such as
credit or market risk.
Legal risk
138
137
Compliance risk
134-136
Operational risk
132-133
Country risk
124-131
Market risk
123
Conduct risk
112-119
Investment portfolio risk
Capital risk
Page
Risk governance and oversight functions
Strategic risk
84
85-94
Liquidity risk
Reputation risk
101
Consumer credit risk
106-111
Wholesale credit risk
95-100
24
•
94
JPMorgan Chase & Co./2018 Form 10-K
LIQUIDITY RISK MANAGEMENT
Liquidity risk is the risk that the Firm will be unable to meet
its contractual and contingent financial obligations as they
arise or that it does not have the appropriate amount,
composition and tenor of funding and liquidity to support
its assets and liabilities.
Liquidity risk oversight
The Firm has a liquidity risk oversight function whose
primary objective is to provide assessment, measurement,
monitoring, and control of liquidity risk across the Firm.
Liquidity risk oversight is managed through a dedicated
firmwide Liquidity Risk Oversight group. The CTC CRO, who
reports to the Firm's CRO, is responsible for firmwide
Liquidity Risk Oversight. Liquidity Risk Oversight's
responsibilities include:
.
1,446,696
Monitoring and reporting internal firmwide and legal
entity liquidity stress tests as well as regulatory defined
liquidity stress tests;
•
•
•
Establishing and monitoring limits and indicators,
including liquidity risk appetite tolerances;
Approving or escalating for review new or updated
liquidity stress assumptions;
Monitoring liquidity positions, balance sheet variances
and funding activities;
Conducting ad hoc analysis to identify potential
emerging liquidity risks; and
(a) Includes the tier 2 qualifying subordinated debt securities issued to meet the MREL requirements to which J.P. Morgan Securities plc became subject to on
January 1, 2019. For additional information on MREL, refer to Supervision & Regulation on pages 1-6
Performing independent review of liquidity risk
management processes.
•
8.0%
(in millions, except ratios)
Minimum
Net capital
Actual
12.2%
Minimum
J.P. Morgan Securities
$
16,648 $
3,069
J.P. Morgan Securities plc
J.P. Morgan Securities plc is a wholly-owned subsidiary of JPMorgan Chase Bank, N.A. and is the Firm's principal operating
subsidiary in the U.K. It has authority to engage in banking, investment banking and broker-dealer activities.
J.P. Morgan Securities plc is jointly regulated by the PRA and the FCA. J.P. Morgan Securities plc is subject to the European
Union Capital Requirements Regulation and the PRA capital rules, each of which implemented Basel III and thereby subject J.P.
Morgan Securities plc to its requirements.
22.5%
The following table presents J.P. Morgan Securities plc's capital information:
J.P. Morgan Securities plc
Total capital(a)
Estimated
$
53,086
CET1 ratio
Estimated
Minimum
17.4%
4.5%
Total capital ratio
Estimated
December 31, 2018
12.8%
ΝΑ
ΝΑ
12.1%
$ 3,204,463
8.3%
ΝΑ
8.3%
4.0%
$ 3,205,015
6.5%
ΝΑ
NA
6.5%
(b)
(in millions)
5.0%
(b) Effective January 1, 2018, the SLR was fully phased-in under Basel III. The December 31, 2017 amounts were calculated under the Basel III Transitional rules.
(c) The Firm's capital ratios as of December 31, 2018 were equivalent whether calculated on a transitional or fully phased-in basis.
The Firm believes that it will operate with a Basel III CET1 capital ratio between 11% and 12% over the medium term.
For additional information on the Firm, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A.'s capital, RWA and capital ratios
under Basel III Standardized and Advanced Fully Phased-In rules and the SLR calculated under the Basel III Advanced Fully
Phased-In rules, all of which are considered key regulatory capital measures, refer to Explanation and Reconciliation of the
Firm's Use of Non-GAAP Financial Measures and Key Performance Measures on pages 57-59.
JPMorgan Chase & Co./2018 Form 10-K
89
Management's discussion and analysis
Capital components
The following table presents reconciliations of total
stockholders' equity to Basel III Fully Phased-In CET1
capital, Tier 1 capital and Basel III Advanced and
Standardized Fully Phased-In Total capital as of December
31, 2018 and 2017.
Capital rollforward
The following table presents the changes in Basel III Fully
Phased-In CET1 capital, Tier 1 capital and Tier 2 capital for
the year ended December 31, 2018.
Year Ended December 31, (in millions)
(a) Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for on-balance sheet assets that are
subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets.
7.50%
SLR
4.0%
12.7%
10.5%
13.9
14.5
15.9
15.9
9.00
11.00
13.8
14.4
12.0
Total leverage exposure
15.8
14.0
Total capital ratio
Leverage-based capital metrics:
Adjusted average assets (a)
Tier 1 leverage ratio
$ 2,514,270
$ 2,514,270
$ 2,514,822
$ 2,514,822
8.3%
8.3%
15.7
December 31, 2018
1,509,762
Under the market and credit risk standards of Appendix E of
the Net Capital Rule, J.P. Morgan Securities is eligible to use
the alternative method of computing net capital if, in
addition to meeting its minimum net capital requirements,
it maintains tentative net capital of at least $1.0 billion. J.P.
Morgan Securities is required to notify the SEC in the event
that tentative net capital is less than $5.0 billion. As of
December 31, 2018, J.P. Morgan Securities maintained
tentative net capital in excess of the minimum and
notification requirements.
Tier 1 capital ratio
CET1 capital ratio
Risk-weighted assets
Total capital
Tier 1 capital
CET1 capital
Risk-based capital metrics:
(in millions, except ratios)
December 31, 2017
5.0%
(b)
ΝΑ
6.4%
NA
3,269,988
$
ΝΑ
4.0%
4.0%
8.1%
8.1%
Standardized
Transitional
Fully Phased-In
Advanced
2018
1,435,825
1,499,506
227,498
237,960
227,933
208,564
208,564
208,644
208,644
238,395
Total leverage exposure
SLR(b)
183,244
183,244
$
183,300
$
$ 183,300
capital ratios
Advanced
Standardized
Minimum
Minimum
capital ratios
$
Tier 1 leverage ratio
2,589,887
$
$
Minimum capital ratios
Minimum capital ratios
Fully Phased-In
Transitional
Advanced
Standardized
Transitional/Fully Phased-In (c)
CET1 capital ratio
Risk-weighted assets
183,474
Total capital
CET1 capital
Risk-based capital metrics:
(in millions, except ratios)
December 31, 2018
The following tables present the Firm's Transitional and Fully Phased-In risk-based and leverage-based capital metrics under
both the Basel III Standardized and Advanced Approaches. The Firm's Basel III ratios exceeded both the Transitional and Fully
Phased-In regulatory minimums as of December 31, 2018 and 2017.
Corporate & Investment Bank
70.0
J.P. Morgan Securities
JPMorgan Chase's principal U.S. broker-dealer subsidiary is
J.P. Morgan Securities. J.P. Morgan Securities is subject to
Rule 15c3-1 under the Securities Exchange Act of 1934
(the "Net Capital Rule"). J.P. Morgan Securities is also
registered as a futures commission merchant and subject to
Rule 1.17 of the CFTC.
J.P. Morgan Securities has elected to compute its minimum
net capital requirements in accordance with the "Alternative
Net Capital Requirements" of the Net Capital Rule.
Tier 1 capital
The following table presents J.P.Morgan Securities' net
capital information:
$
209,093
2,589,887
Adjusted average assets (a)
Leverage-based capital metrics:
Total capital ratio
Tier 1 capital ratio
14.0
12.5
16.0
15.5
12.0
183,474
10.5
13.7
10.5%
9.0%
12.9%
12.0%
1,421,205
1,528,916
227,435
237,511
209,093
14.7
(in millions)
70.0
$
Credit risk RWA
Market risk
RWA
December 31, 2017
$
1,386,060 $
123,702 $
1,509,762
$
922,905 $
Model & data changes (a)
Total RWA
(10,431)
(23,622)
3,750
123,791 $
(13,191)
Operational
risk
400,000 $
Total RWA
1,446,696
(9,441)
Portfolio runoff (b)
(8,381)
(8,381)
(13,191)
(10,161)
Advanced
Credit risk RWA
Advanced Fully Phased-In Total capital $
(a) Represents certain deferred tax liabilities related to tax-deductible
goodwill and identifiable intangibles created in nontaxable
transactions, which are netted against goodwill and other intangibles
when calculating TCE.
18,342
18,934
227,435 $ 227,498
Change in long-term debt and other instruments qualifying
as Tier 2
(1,055)
Change in qualifying allowance for credit losses
214
Other
249
Decrease in Advanced Tier 2 capital
Standardized
Market risk
RWA
(592)
18,342
Advanced Total capital at December 31, 2018
(a) Includes DVA related to structured notes recorded in AOCI.
$ 227,435
90
JPMorgan Chase & Co./2018 Form 10-K
RWA rollforward
The following table presents changes in the components of RWA under Basel III Standardized and Advanced Fully Phased-In for
the year ended December 31, 2018. The amounts in the rollforward categories are estimates, based on the predominant
driver of the change.
Year ended December 31, 2018
(in millions)
Advanced Tier 2 capital at December 31, 2018
capital
(10,161)
55,805
Less: Adjustments for deductions
from Tier 1 capital
Total adjusted average assets (a)
Off-balance sheet exposures(b)
Total leverage exposure
SLR
Line of business equity (Allocated capital)
December 31,
2018
$ 209,093 $
2,636,505 $ 2,562,155
December 31,
2017
208,564
Total average assets
December 31,
January 1,
2019
2018
2017
Consumer & Community Banking
$
52.0
51.0 $
51.0
46,618
47,333
(in billions)
Movement in portfolio levels (c)
(in millions, except ratio)
Tier 1 capital
The following table presents the components of the Firm's
Fully Phased-In SLR as of December 31, 2018 and 2017.
(4,648)
Changes in RWA
36,993
(17,839)
December 31, 2018
$
1,423,053 $
105,863 $
51,157
19,154
1,528,916
10,153
3,742
The table below presents the Firm's assessed level of capital
allocated to each line of business as of the dates indicated.
(4,624)
(5,889)
(11,418)
(25,491)
388,582 $
1,421,205
(17,815)
$ 926,647 $ 105,976 $
(a) Model & data changes refer to material movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance (exclusive of rule
changes).
(b) Portfolio runoff for credit risk RWA primarily reflects reduced risk from position rolloffs in legacy portfolios in Home Lending.
(c) Movement in portfolio levels (inclusive of rule changes) refers to: changes in book size, composition, credit quality, and market movements for credit risk RWA;
changes in position and market movements for market risk RWA; and updates to cumulative losses for operational risk RWA.
Supplementary leverage ratio
(11,418)
Total stockholders' equity
18,934
28,418
Other CET1 capital adjustments
1,034
223
Increase in Standardized/Advanced CET1 capital
230
Standardized/Advanced CET1 capital at
Add:
December 31, 2018
183,474
Deferred tax liabilities(a)
855
2,280
Standardized/Advanced Fully Phased-
Standardized/Advanced Tier 1 capital at
In CET1 capital
183,474
183,244
December 31, 2017
Preferred stock
26,068
26,068
Change in CET1 capital
2,204
208,564
748
Changes related to other CET1 capital adjustments
December 31, December 31,
2018
2017
256,515 $ 255,693
Standardized/Advanced CET1 capital at December 31, 2017 $183,244
Net income applicable to common equity
30,923
Dividends declared on common stock
(9,214)
Less: Preferred stock
Common stockholders' equity
26,068
230,447
26,068
229,625
Net purchase of treasury stock
205
(17,899)
(1,417)
Changes related to AOCI
(1,203)
Less:
Goodwill
47,471
47,507
Adjustment related to DVA (a)
(1,165)
Other intangible assets
Changes in additional paid-in capital
237,511
230
Net issuance of noncumulative perpetual preferred stock
(103)
Standardized Fully Phased-In Tier 2
capital
Change in long-term debt and other instruments qualifying
as Tier 2
(1,055)
28,418
29,396
Standardized Fully Phased-in Total
Change in qualifying allowance for credit losses
Other
(172)
249
146
capital
237,960
Decrease in Standardized Tier 2 capital
(978)
Adjustment in qualifying allowance for
credit losses for Advanced Tier 2
capital
(10,076)
(10,462)
Advanced Fully Phased-In Tier 2
Standardized Tier 2 capital at December 31, 2018
Standardized Total capital at December 31, 2018
Advanced Tier 2 capital at December 31, 2017
237,511
Less:
Other
Standardized Tier 2 capital at December 31, 2017
Other Tier 1 adjustments
449
Liquidity management
748
Other
299
Standardized/Advanced Fully Phased-
Increase in Standardized/Advanced Tier 1 capital
529
In Tier 1 capital
29,396
209,093
Standardized/Advanced Tier 1 capital at
Long-term debt and other instruments
December 31, 2018
209,093
qualifying as Tier 2 capital
13,772
14,827
Qualifying allowance for credit losses
14,500
14,672
208,564
Treasury and CIO is responsible for liquidity management.
The primary objectives of effective liquidity management
are to:
80.0
•
15,857
Obligations of Firm-administered multi-seller conduits (d)
4,843
3,045
3,396
3,206
Total short-term secured funding(a)
$
216,727 $176,858 $
216,037 $
205,311
Senior notes
472,078
$
162,733 $155,852
153,162 $
154,352
Trust preferred securities
690
471
2,276
24,320
16,889
30,428
Other borrowed funds (a)(c)
2017
$
30,059 $ 24,186
$
27,834 $
19,920
$
8,789 10,727
38,848 $ 34,913
11,369
10,755
Subordinated debt
$
30,675
$
171,975 $147,713
177,629 $
173,450
Securities loaned (a)(b)
9,481
9,211
10,692
12,798
39,203 $
Structured notes(e)
Total long-term unsecured funding
Credit card securitization(d)
99,670
Preferred stock (h)
$
26,068 $ 26,068
26,249 $
26,212
Common stockholders' equity(h)
$ 230,447 $229,625
$
229,222 $
72,863 $
230,350
(d) Included in beneficial interests issued by consolidated variable interest entities on the Firm's Consolidated balance sheets.
(e) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
(f) Other securitizations includes securitizations of student loans. The Firm deconsolidated the student loan securitization entities in the second quarter of 2017 as it no
longer had a controlling financial interest in these entities as a result of the sale of the student loan portfolio. The Firm's wholesale businesses also securitize loans
for client-driven transactions, which are not considered to be a source of funding for the Firm and are not included in the table.
(g) Includes long-term structured notes which are secured.
(h) For additional information on preferred stock and common stockholders' equity refer to Capital Risk Management on pages 85-94, Consolidated statements of
changes in stockholders' equity, Note 20 and Note 21.
Short-term funding
The Firm's sources of short-term secured funding primarily
consist of securities loaned or sold under agreements to
repurchase. These instruments are secured predominantly
by high-quality securities collateral, including government-
issued debt and agency MBS, and constitute a significant
portion of the federal funds purchased and securities
loaned or sold under repurchase agreements on the
Consolidated balance sheets. The increase at December 31,
2018, compared to December 31, 2017, was primarily due
to higher client-driven market-making activities and higher
secured financing of trading assets-debt and equity
instruments in CIB. The balances associated with securities
loaned or sold under agreements to repurchase fluctuate
over time due to customers' investment and financing
activities; the Firm's demand for financing; the ongoing
management of the mix of the Firm's liabilities, including its
secured and unsecured financing (for both the investment
securities and market-making portfolios); and other market
and portfolio factors.
The Firm's sources of short-term unsecured funding
primarily consist of issuance of wholesale commercial
paper. The increase in commercial paper was due to higher
net issuance primarily for short-term liquidity management.
Long-term funding and issuance
(a) The prior period amounts have been revised to conform with the current period presentation.
(b) Primarily consists of short-term securities loaned or sold under agreements to repurchase.
(c) Includes FHLB advances with original maturities of less than one year of $11.4 billion as of December 31, 2018; there were no FHLB advances with original
maturities of less than one year as of December 31, 2017.
2018
3,195
5,010 4,641
62,869 $86,536 $
Other securitizations (d)(f)
Federal Home Loan Bank ("FHLB") advances
Other long-term secured funding(s)
16,743 16,553
16,178
18,832
53,090 45,727
49,640
42,918
$
4,842
232,566 $218,822
218,378
$
13,404 $ 21,278 $
15,900 $
626
44,455 60,617
52,121
69,916
Total long-term secured funding
$
219,451 $
2017
2018
Average
The table below summarizes, by line of business, the period-end and average deposit balances as of and for the years ended
December 31, 2018 and 2017.
Deposits
As of or for the year ended December 31,
(in millions)
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
Corporate
Total Firm
characteristics. Securities borrowed or purchased under
resale agreements and trading assets-debt and equity
instruments are primarily funded by the Firm's securities
loaned or sold under agreements to repurchase, trading
liabilities-debt and equity instruments, and a portion of the
Firm's long-term debt and stockholders' equity. In addition
to funding securities borrowed or purchased under resale
agreements and trading assets-debt and equity
instruments, proceeds from the Firm's debt and equity
issuances are used to fund certain loans and other financial
and non-financial assets, or may be invested in the Firm's
investment securities portfolio. Refer to the discussion
below for additional information relating to Deposits, Short-
term funding, and Long-term funding and issuance.
Year ended December 31,
2018
2017
2018
2017
$
678,854 $
659,885 $
670,388 $
640,219
482,084
Average
455,883
Deposits
Management believes that the Firm's unsecured and
secured funding capacity is sufficient to meet its on- and
off-balance sheet obligations.
•
LCR
Net excess HQLA (d)
$
113%
61,566 $
115%
68,206 $
119%
88,003
there was a decrease in the amount of HQLA in JPMorgan
Chase Bank, N.A. and Chase Bank USA, N.A. that was
determined to be transferable to non-bank affiliates. This
decrease was based on a change in the Firm's interpretation
of amounts available for transfer.
The Firm's average LCR decreased for the three months
ended December 31, 2018, compared with the prior year
period, due to a reduction in average HQLA primarily driven
by (a) long-term debt maturities and CIB activities, and (b)
a decrease in the amount of HQLA in JPMorgan Chase Bank,
N.A. and Chase Bank USA, N.A that was determined to be
transferable to non-bank affiliates based on a change in the
Firm's interpretation of amounts available for transfer.
The Firm's average LCR may fluctuate from period to period,
due to changes in its HQLA and estimated net cash outflows
under the LCR as a result of ongoing business activity. The
Firm's HQLA are expected to be available to meet its
liquidity needs in a time of stress. For a further discussion
of the Firm's LCR, refer to the Firm's US LCR Disclosure
reports, which are available on the Firm's website at:
(https://jpmorganchaseco.gcs-web.com/financial-
information/basel-pillar-3-us-lcr-disclosures).
The Firm funds its global balance sheet through diverse
sources of funding including a stable deposit franchise as
well as secured and unsecured funding in the capital
markets. The Firm's loan portfolio is funded with a portion
of the Firm's deposits, through securitizations and, with
respect to a portion of the Firm's real estate-related loans,
with secured borrowings from the FHLBs. Deposits in excess
of the amount utilized to fund loans are primarily invested
by Treasury and CIO in the Firm's investment securities
portfolio or deployed in cash or other short-term liquid
investments based on their interest rate and liquidity risk
Other liquidity sources
As of December 31, 2018, the Firm also had approximately
$276 billion of available borrowing capacity at various
FHLBS, discount windows at the Federal Reserve Banks and
various other central banks as a result of collateral pledged
by the Firm to such banks. This borrowing capacity excludes
the benefit of securities reported in the Firm's HQLA or
other unencumbered securities that are currently pledged
at the Federal Reserve Bank discount windows. Although
available, the Firm does not view the borrowing capacity at
Federal Reserve Bank discount windows and the various
other central banks as a primary source of liquidity.
(a) Represents cash on deposit at central banks, primarily Federal Reserve
Banks.
(b) Predominantly U.S. Treasuries, U.S. Agency MBS, and sovereign bonds
net of applicable haircuts under the LCR rules.
(c) HQLA eligible securities may be reported in securities borrowed or
purchased under resale agreements, trading assets, or investment
securities on the Firm's Consolidated balance sheets.
(d) Excludes average excess HQLA at JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A. that are not transferable to non-bank affiliates.
The Firm's average LCR decreased during the three months
ended December 31, 2018, compared with the three month
period ended September 30, 2018 due to a decrease in the
average amount of reportable HQLA. Although HQLA
increased in JPMorgan Chase Bank, N.A. during the period,
96
JPMorgan Chase & Co./2018 Form 10-K
Funding
Sources of funds
As of December 31, 2018, in addition to assets reported in
the Firm's HQLA under the LCR rule, the Firm had
approximately $226 billion of unencumbered marketable
securities, such as equity securities and fixed income debt
securities, available to raise liquidity, if required. This
includes HQLA-eligible securities included as part of the
excess liquidity at JPMorgan Chase Bank, N.A. that are not
transferable to non-bank affiliates.
Long-term funding provides additional sources of stable
funding and liquidity for the Firm. The Firm's long-term
funding plan is driven primarily by expected client activity,
liquidity considerations, and regulatory requirements,
including TLAC. Long-term funding objectives include
maintaining diversification, maximizing market access and
optimizing funding costs. The Firm evaluates various
funding markets, tenors and currencies in creating its
optimal long-term funding plan.
477,250
170,859
Loans
984.6
63%
930.7
Loans-to-deposits ratio
67%
64%
Average deposits increased for the year ended December
31, 2018 in CCB and CIB, partially offset by decreases in
AWM, CB and Corporate.
The increase in CCB reflects the continuation of growth
from new accounts, and in CIB reflects growth in
operating deposits in both Treasury Services and
Securities Services driven by growth in client activity.
The decrease in AWM was driven by balance migration
predominantly into the Firm's investment-related
products. The decrease in CB was driven by a reduction
in non-operating deposits. The decrease in Corporate
was predominantly due to maturities of wholesale non-
operating deposits, consistent with the Firm's efforts to
reduce such deposits.
For further information on deposit and liability balance
trends, refer to the discussion of the Firm's Business
Segment Results and the Consolidated Balance Sheets
Analysis on pages 60-78 and pages 52-53, respectively.
The Firm believes that average deposit balances are
generally more representative of deposit trends than
period-end deposit balances.
62%
JPMorgan Chase & Co./2018 Form 10-K
97
Management's discussion and analysis
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2018 and 2017,
and average balances for the years ended December 31, 2018 and 2017. For additional information, refer to the Consolidated
Balance Sheets Analysis on pages 52-53 and Note 19.
Sources of funds (excluding deposits)
As of or for the year ended December 31,
(in millions)
Commercial paper
Other borrowed funds (a)
Total short-term unsecured funding(a)
Securities sold under agreements to repurchase (a) (b)
46
447,697
Deposits as a % of total liabilities
$
181,512
170,822
176,884
138,546
146,407
137,272
148,982
323
295
729
2017
1,444.0
3,604
1,470,666 $ 1,443,982
$ 1,456,461 $ 1,417,386
A key strength of the Firm is its diversified deposit
franchise, through each of its lines of business, which
provides a stable source of funding and limits reliance on
the wholesale funding markets. A significant portion of the
Firm's deposits are consumer and wholesale operating
deposits, which are both considered to be stable sources of
liquidity. Wholesale operating deposits are considered to be
stable sources of liquidity because they are generated from
customers that maintain operating service relationships
with the Firm.
The table below shows the loan and deposit balances, the
loans-to-deposits ratios, and deposits as a percentage of
total liabilities, as of December 31, 2018 and 2017.
As of December 31,
(in billions except ratios)
2018
Deposits
$
1,470.7
$
98
25,933
80.4
230.4
Total common stockholders' equity $
6.5%
6.4%
79.6
JPMorgan Chase & Co./2018 Form 10-K
65.9
9.0
9.0
10.5
Asset & Wealth Management
Corporate
690,193
3,205,015
$ 3,269,988 $
680,101
20.0
20.0
22.0
Commercial Banking
2,514,822
2,589,887
Net cash outflows
$ 230.4 $ 229.6
(a) Adjusted average assets, for purposes of calculating the SLR, includes
total quarterly average assets adjusted for on-balance sheet assets
that are subject to deduction from Tier 1 capital, predominantly
goodwill and other intangible assets.
(b) Off-balance sheet exposures are calculated as the average of the three
month-end spot balances during the reporting quarter.
For JPMorgan Chase Bank, N.A.'s and Chase Bank USA,
N.A.'s SLR ratios, refer to Note 26.
30%
2017
2018
Year ended December 31,
Common dividend payout ratio
The following table shows the common dividend payout
ratio based on net income applicable to common equity.
For information regarding dividend restrictions, refer to
Note 20 and Note 25.
On September 18, 2018, the Firm announced that its Board
of Directors increased the quarterly common stock dividend
from $0.56 per share to $0.80 per share, effective with the
dividend paid on October 31, 2018. The Firm's dividends
are subject to the Board of Directors' approval on a
quarterly basis.
Common stock dividends
For additional information, refer to Note 19.
On September 10, 2018, the Firm's last remaining issuer of
outstanding trust preferred securities ("issuer trust") was
liquidated, resulting in $475 million of trust preferred
securities and $15 million of trust common securities
originally issued by the issuer trust being cancelled.
On December 18, 2017, the Delaware trusts that issued
seven series of outstanding trust preferred securities were
liquidated, and $1.6 billion of trust preferred and $56
million of trust common securities originally issued by those
trusts were cancelled.
560,081
Trust preferred securities
91
For additional information on the Firm's preferred stock,
refer to Note 20.
On October 20, 2017, the Firm issued $1.3 billion of fixed-
to-floating rate non-cumulative preferred stock, Series CC,
with an initial dividend rate of 4.625%. On December 1,
2017, the Firm redeemed all $1.3 billion of its outstanding
5.50% non-cumulative preferred stock, Series O.
On January 24, 2019, the Firm issued $1.85 billion of
6.00% non-cumulative preferred stock, Series EE, and on
January 30, 2019, the Firm announced that it will redeem
all $925 million of its outstanding 6.70% non-cumulative
preferred stock, Series T, on March 1, 2019. On September
21, 2018, the Firm issued $1.7 billion of 5.75% non-
cumulative preferred stock, Series DD. On October 30,
2018, the Firm redeemed $1.7 billion of its fixed-to-
floating rate non-cumulative perpetual preferred stock,
Series I.
Preferred stock dividends declared were $1.6 billion for the
year ended December 31, 2018.
Preferred stock
Capital actions
The Firm's allocation methodology incorporates Basel III
Standardized RWA, Basel III Advanced RWA, leverage, the
GSIB surcharge, and a simulation of capital in a severe
stress environment. On at least an annual basis, the
assumptions and methodologies used in capital allocation
are assessed and as a result, the capital allocated to lines of
business may change. As of January 1, 2019, line of
business capital allocations have increased due to a
combination of changes in the relative weights toward
Standardized RWA and stress, a higher capitalization rate,
updated stress simulations, and general business growth.
JPMorgan Chase & Co./2018 Form 10-K
Each business segment is allocated capital by taking into
consideration capital levels of similarly rated peers and
applicable regulatory capital requirements. ROE is
measured and internal targets for expected returns are
established as key measures of a business segment's
performance.
Line of business equity
Management's discussion and analysis
$ 529,270 $ 535,009 $
Total HQLA(d)
189,955
Varying levels of access to unsecured and secured
funding markets,
Liquidity stress tests are intended to ensure that the Firm
has sufficient liquidity under a variety of adverse scenarios,
including scenarios analyzed as part of the Firm's resolution
and recovery planning. Stress scenarios are produced for
JPMorgan Chase & Co. ("Parent Company") and the Firm's
material legal entities on a regular basis, and ad hoc stress
tests are performed, as needed, in response to specific
market events or concerns. Liquidity stress tests assume all
of the Firm's contractual financial obligations are met and
take into consideration:
Internal stress testing
Committees responsible for liquidity governance include the
firmwide ALCO as well as line of business and regional
ALCOS, the Treasurer Committee, and the CTC Risk
Committee. In addition, the DRPC reviews and recommends
to the Board of Directors, for formal approval, the Firm's
liquidity risk tolerances, liquidity strategy, and liquidity
policy at least annually. For further discussion of ALCO and
other risk-related committees, refer to Enterprise-wide Risk
Management on pages 79-140.
Setting transfer pricing in accordance with underlying
liquidity characteristics of balance sheet assets and
liabilities as well as certain off-balance sheet items.
Risk governance
Managing compliance with regulatory requirements
related to funding and liquidity risk; and
Managing liquidity within the Firm's approved liquidity
risk appetite tolerances and limits;
Defining and monitoring firmwide and legal entity-
specific liquidity strategies, policies, reporting and
contingency funding plans;
Developing internal liquidity stress testing assumptions;
and legal entities, taking into account legal, regulatory,
and operational restrictions;
Estimated non-contractual and contingent cash outflows,
and
•
Analyzing and understanding the liquidity characteristics
of the assets and liabilities of the Firm, lines of business
In the context of the Firm's liquidity management, Treasury
and CIO is responsible for:
Maintain the appropriate amount of surplus liquidity at
a firmwide and legal entity level, where relevant.
Identify constraints on the transfer of liquidity between
the Firm's legal entities; and
Monitor exposures;
•
Optimize liquidity sources and uses;
•
As part of the Firm's overall liquidity management strategy,
the Firm manages liquidity and funding using a centralized,
global approach in order to:
Manage an optimal funding mix and availability of
liquidity sources.
JPMorgan Chase & Co./2018 Form 10-K
33%
Potential impediments to the availability and
transferability of liquidity between jurisdictions and
Liquidity outflow assumptions are modeled across a range
of time horizons and currency dimensions and contemplate
both market and idiosyncratic stresses.
190,349
232,201
Eligible securities (b)(c)
370,126
$ 297,069 $ 344,660 $
Eligible cash (a)
September
30, 2018
December 31,
2018
Average amount
(in millions)
December 31,
2017
material legal entities such as regulatory, legal or other
restrictions.
Three months ended
The following table summarizes the Firm's average LCR for
the three months ended December 31, 2018, September
30, 2018 and December 31, 2017 based on the Firm's
current interpretation of the finalized LCR framework.
Under the LCR rule, the amounts of HQLA held by JPMorgan
Chase Bank N.A. and Chase Bank USA, N.A that are in excess
of each entity's standalone 100% minimum LCR
requirement, and that are not transferable to non-bank
affiliates, must be excluded from the Firm's reported HQLA.
The LCR is required to be a minimum of 100%.
The LCR rule requires the Firm to maintain an amount of
unencumbered High Quality Liquid Assets ("HQLA") that is
sufficient to meet its estimated total net cash outflows over
a prospective 30 calendar-day period of significant stress.
HQLA is the amount of liquid assets that qualify for
inclusion in the LCR. HQLA primarily consist of
unencumbered cash and certain high quality liquid
securities as defined in the LCR rule.
Liquidity Coverage Ratio
The Firm's contingency funding plan ("CFP"), which is
approved by the firmwide ALCO and the DRPC, is a
compilation of procedures and action plans for managing
liquidity through stress events. The CFP incorporates the
limits and indicators set by the Liquidity Risk Oversight
group. These limits and indicators are reviewed regularly to
identify emerging risks or vulnerabilities in the Firm's
liquidity position. The CFP identifies the alternative
contingent funding and liquidity resources available to the
Firm and its legal entities in a period of stress.
Contingency funding plan
operating subsidiaries, at levels sufficient to comply with
liquidity risk tolerances and minimum liquidity
requirements, and to manage through periods of stress
where access to normal funding sources is disrupted.
Management's discussion and analysis
95
Results of stress tests are considered in the formulation of
the Firm's funding plan and assessment of its liquidity
position. The Parent Company acts as a source of funding
for the Firm through equity and long-term debt issuances,
and the IHC provides funding support to the ongoing
operations of the Parent Company and its subsidiaries, as
necessary. The Firm maintains liquidity at the Parent
Company and the IHC, in addition to liquidity held at the
HQLA
2016
30%
The Firm's common stock dividends are planned as part of
the Capital Management governance framework in line with
the Firm's capital management objectives.
During the year ended December 31, 2018, warrant
holders exercised their right to purchase 14.9 million
shares of the Firm's common stock. The Firm issued from
treasury stock 9.4 million shares of its common stock as a
result of these exercises. There were no warrants
outstanding at December 31, 2018, as any warrants that
were not exercised on or before October 29, 2018, have
expired. At December 31, 2017, the Firm had 15.0 million
warrants outstanding.
long-term debt
Minimum level of eligible
Method 1 GSIB
surcharge
Greater
of
buffers, including
applicable
+
18% of RWA (a)
Minimum requirement
Surplus/(shortfall)
13.4
69.9 $
$
Surplus/(shortfall)
4.5
9.5
7.5%
of total
leverage
exposure
+
Ensure that the Firm's core businesses and material legal
entities are able to operate in support of client needs
and meet contractual and contingent financial
obligations through normal economic cycles as well as
during stress events, and
Broker-dealer regulatory capital
Management's discussion and analysis
93
JPMorgan Chase & Co./2018 Form 10-K
The final TLAC rule permanently grandfathered all long-
term debt issued before December 31, 2016, to the extent
these securities would be ineligible because they contained
impermissible acceleration rights or were governed by non-
U.S. law. As of December 31, 2018, the Firm exceeded the
minimum requirements under the rule to which it became
subject to on January 1, 2019.
Failure to maintain TLAC equal to or in excess of the
regulatory minimum plus applicable buffers may result in
limitations to the amount of capital that the Firm may
distribute, such as through dividends and common equity
repurchases.
4.9%
(a) RWA is the greater of Standardized and Advanced.
4.5%
of total
leverage
Greater
of
Greater of Method 1
and Method 2 GSIB
surcharge
+
6% of RWA (a)
For information on the financial consequences to holders of
the Firm's debt and equity securities in a resolution
scenario, refer to Part I, Item 1A: Risk Factors on pages
7-28 of the Firm's 2018 Form 10-K.
Common equity
exposure
11.6%
2.0% buffer
15.3
22
The Firm from time to time enters into written trading plans
under Rule 10b5-1 of the Securities Exchange Act of 1934
to facilitate repurchases in accordance with the common
equity repurchase program. A Rule 10b5-1 repurchase plan
allows the Firm to repurchase its equity during periods
when it would not otherwise be repurchasing common
equity - for example, during internal trading blackout
periods. All purchases under Rule 10b5-1 plans must be
made according to predefined schedules established when
the Firm is not aware of material nonpublic information.
The authorization to repurchase common equity will be
utilized at management's discretion, and the timing of
purchases and the exact amount of common equity that
may be repurchased is subject to various factors, including
market conditions; legal and regulatory considerations
affecting the amount and timing of repurchase activity; the
Firm's capital position (taking into account goodwill and
intangibles); internal capital generation; and alternative
investment opportunities. The repurchase program does not
include specific price targets or timetables; may be
executed through open market purchases or privately
negotiated transactions, or utilizing Rule 10b5-1 plans; and
may be suspended by management at any time.
$19,983 $15,410 $ 9,082
140.4
467,704 $ 466,803 $
166.6
181.5
2016
2017
2018
Aggregate purchase price of common
stock repurchases
Year ended December 31, (in millions)
Total number of shares of common stock
repurchased
The following table sets forth the Firm's repurchases of
common equity for the years ended December 31, 2018,
2017 and 2016. There were no repurchases of warrants
during the years ended December 31, 2018, 2017 and
2016.
Effective June 28, 2018, the Firm's Board of Directors
authorized the repurchase of up to $20.7 billion of common
equity between July 1, 2018 and June 30, 2019, as part of
its annual capital plan. As of December 31, 2018, $10.4
billion of authorized repurchase capacity remained under
the common equity repurchase program.
% of total leverage exposure
Minimum requirement (a)
92
JPMorgan Chase & Co./2018 Form 10-K
For additional information regarding repurchases of the
Firm's equity securities, refer to Part II, Item 5: Market for
Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities on page 30.
Other capital requirements
28.9 $
$
9.5
23.0
10.5%
24.9%
$
Eligible LTD
160.5
Eligible
External TLAC
380.5 $
On December 15, 2016, the Federal Reserve issued its final
TLAC rule which requires the top-tier holding companies of
eight U.S. GSIB holding companies, including the Firm, to
maintain minimum levels of external TLAC and external
long-term debt that satisfies certain eligibility criteria
("eligible LTD"), effective January 1, 2019.
(in billions, except ratio)
Total eligible TLAC & LTD
% of RWA
December 31, 2018
The following table presents the eligible external TLAC and
LTD amounts, as well as a representation of the amounts as
a percentage of the Firm's total RWA and total leverage
exposure.
Minimum external TLAC
The minimum external TLAC and the minimum level of
eligible long-term debt requirements are shown below:
Total Loss-Absorbing Capacity ("TLAC”)
26,586
Maturities/redemptions
Senior notes
Total long-term unsecured funding - maturities/redemptions
Structured notes
2017
34,972 $
2018
Subordinated debt
$
Structured notes(a)
25,946 $
$
Total long-term unsecured funding - issuance
26,524
25,410
2,516
2,444
Maturities/Redemptions
62
25,986
Issuance
4,466 $
Other long-term secured funding(b)
(a) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
(b) The prior period amounts have been revised to conform with the current period presentation.
9,562
$
$
19,141 $
136
2,678
21,955 $ 29,812 $
20,971 $
1,366
3,401
3,500
5,440
15,049
17,141
19,515 $
22,007
The Firm raises secured long-term funding through securitization of consumer credit card loans and advances from the FHLBS.
The following table summarizes the securitization issuance and FHLB advances and their respective maturities or redemptions
for the years ended December 31, 2018 and 2017.
Long-term secured funding
Year ended December 31,
(in millions)
Credit card securitization
Other securitizations(a)
FHLB advances
Total long-term secured funding
62
Management's discussion and analysis
$
(in millions)
Current
30-89 days past due
90 or more days past due
Total government guaranteed loans
December 31, December 31,
2018
2017
2,884 $
2,401
1,528
1,958
2,600
4,264
$
7,012 $
8,623
Home equity: The home equity portfolio declined from
December 31, 2017 primarily reflecting loan paydowns.
The amount of 30+ day delinquencies decreased from
December 31, 2017. Nonaccrual loans decreased from
December 31, 2017 due to lower delinquencies. There was
a net recovery for the year ended December 31, 2018
compared to a net charge-off for the prior year, as a result
of continued improvement in home prices and lower
delinquencies.
At December 31, 2018, approximately 90% of the Firm's
home equity portfolio consists of home equity lines of credit
("HELOCS") and the remainder consisted of home equity
loans ("HELOANS"). HELOANS are generally fixed-rate,
closed-end, amortizing loans, with terms ranging from 3-30
years. In general, HELOCS originated by the Firm are
revolving loans for a 10-year period, after which time the
HELOC recasts into a loan with a 20-year amortization
period.
The carrying value of HELOCS outstanding was $26 billion at
December 31, 2018. This amount included $12 billion of
HELOCS that have recast from interest-only to fully
amortizing payments or have been modified and $4 billion
of interest-only balloon HELOCS, which primarily mature
after 2030. The Firm manages the risk of HELOCS during
their revolving period by closing or reducing the undrawn
line to the extent permitted by law when borrowers are
exhibiting a material deterioration in their credit risk
profile.
108
JPMorgan Chase & Co./2018 Form 10-K
The following table provides a summary of the Firm's
residential mortgage portfolio insured and/or guaranteed
by U.S. government agencies, including loans held-for-sale.
The Firm monitors its exposure to certain potential
unrecoverable claim payments related to government
insured loans and considers this exposure in estimating the
allowance for loan losses.
At December 31, 2018 and 2017, the Firm's residential
mortgage portfolio included $21.6 billion and $20.2 billion,
respectively, of interest-only loans. These loans have an
interest-only payment period generally followed by an
adjustable-rate or fixed-rate fully amortizing payment
period to maturity and are typically originated as higher-
balance loans to higher-income borrowers. Performance of
this portfolio for the year ended December 31, 2018 was in
line with the performance of the broader residential
mortgage portfolio for the same period. The Firm continues
to monitor the risks associated with these loans.
Residential mortgage: The residential mortgage portfolio,
including loans held-for-sale, predominantly consists of
high-quality prime mortgage loans with approximately 1%
consisting of subprime mortgage loans, which continue to
run off. The residential mortgage portfolio increased from
December 31, 2017 driven by the retention of originated
high-quality prime mortgage loans, which exceeded
paydowns and mortgage loan sales. Residential mortgage
30+ day delinquencies decreased from December 31, 2017.
Nonaccrual loans decreased from December 31, 2017 due
to lower delinquencies. Net recoveries for the year ended
December 31, 2018 improved when compared with the
prior year, reflecting loan sales and continued improvement
in home prices and delinquencies.
PCI loans are excluded from the following discussions of
individual loan products and are addressed separately
below. For further information about the Firm's consumer
portfolio, including information about delinquencies, loan
modifications and other credit quality indicators, refer to
Note 12.
22,000 $ 21,250
2,220
23,470
23,502
Total senior notes
1,502
$
Subsidiaries(b)
Parent Company(b)
2017
2018
2017
9,562 $
2018
Senior notes issued in non-U.S. markets
Senior notes issued in the U.S. market
Issuance
(Notional in millions)
Year ended December 31,
Long-term unsecured funding
The significant majority of the Firm's long-term unsecured funding is issued by the Parent Company to provide maximum
flexibility in support of both bank and non-bank subsidiary funding needs. The Parent Company advances substantially all net
funding proceeds to its subsidiary, the IHC. The IHC does not issue debt to external counterparties. The following table
summarizes long-term unsecured issuance and maturities or redemptions for the years ended December 31, 2018 and 2017.
For additional information, refer to Note 19.
Consumer, excluding credit card
2018
Consumer loan balances increased from December 31,
2017 predominantly due to originations of high-quality
prime mortgage loans that have been retained on the
balance sheet, largely offset by paydowns and the charge-
off or liquidation of delinquent loans.
-
2017
Short-term
1,396 $
257
236
283
245
25,789
26,612
Consumer & Business Banking(b)(c)
0.51
0.38
331
0.90
243
128
66,242
63,573
Auto(a)(b)
0.19
(0.02)
69
(5)
1,610
1,323
141
1.03
Student(d)
498
4,690
Option ARMs(e)
Subprime mortgage
Prime mortgage
ΝΑ
NA
ΝΑ
ΝΑ
10,799
8,963
ΝΑ
Home equity
Loans - PCI
0.34
0.05
1,145
183
4,209
3,461
341,977
349,603
Total loans, excluding PCI loans and loans held-for-sale
NM
33,450
28,340
Home equity
-%
The Firm's retained consumer portfolio consists primarily of
residential real estate loans, credit card loans, auto loans,
and business banking loans, as well as associated lending-
related commitments. The Firm's focus is on serving
primarily the prime segment of the consumer credit market.
Originated mortgage loans are retained in the mortgage
portfolio, securitized or sold to U.S. government agencies
and U.S. government-sponsored enterprises; other types of
consumer loans are typically retained on the balance sheet.
The credit performance of the consumer portfolio continues
to benefit from discipline in credit underwriting as well as
improvement in the economy driven by low unemployment
and increasing home prices. The total amount of residential
real estate loans delinquent 30+ days, excluding government
guaranteed and purchased credit-impaired loans, decreased
from December 31, 2017 due to improved credit
performance and the impact of loans that were delinquent in
2017 due to hurricanes. The Credit Card 30+ day
delinquency rate and the net charge-off rate increased from
the prior year, in line with expectations. For further
CONSUMER CREDIT PORTFOLIO
Management's discussion and analysis
105
(e) At December 31, 2018 and 2017, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $2.6 billion and $4.3 billion, respectively, and
real estate owned ("REO") insured by U.S. government agencies of $75
million and $95 million, respectively. These amounts have been
excluded based upon the government guarantee. In addition, the
Firm's policy is generally to exempt credit card loans from being placed
on nonaccrual status as permitted by regulatory guidance issued by
the Federal Financial Institutions Examination Council ("FFIEC").
(f) For the year ended December 31, 2017, excluding net charge-offs of
$467 million related to the student loan portfolio transfer, the net
charge-off rate for loans would have been 0.55% and for loans -
excluding PCI would have been 0.57%.
(b) Represents the net notional amount of protection purchased and sold
through credit derivatives used to manage both performing and
nonperforming wholesale credit exposures; these derivatives do not
qualify for hedge accounting under U.S. GAAP. For additional
information, refer to Credit derivatives on page 119 and Note 5.
(c) Includes collateral related to derivative instruments where an
appropriate legal opinion has not been either sought or obtained.
(d) Excludes PCI loans. The Firm is recognizing interest income on each
pool of PCI loans as each of the pools is performing.
(a) Receivables from customers and other primarily represents held-for-
investment margin loans to brokerage customers.
0.62
0.60%
0.53
0.52%
Loans - excluding PCI
Loans
Net charge-off rates(f)
865,887
909,386
residential real estate PCI loans
Loans reported, excluding
898,979
936,829
Loans
JPMorgan Chase & Co./2018 Form 10-K
5,387
information on consumer loans, refer to Note 12. For further
information on lending-related commitments, refer to Note
6,479
27.
JPMorgan Chase & Co./2018 Form 10-K
(0.13)%
(291) $ (10)
$
216,496 $ 1,765 $ 2,175
231,078 $
$
Residential mortgage
Loans, excluding PCI loans and loans held-for-sale
2017
2018
2017
2018
Net charge-off/
(recovery) rate (d)(k)(1)
Net charge-offs/
(recoveries) (d)(k)
Nonaccrual loans()(i)
2018
2017
2017
2018
Credit exposure
Consumer, excluding credit card
(in millions, except ratios)
As of or for the year ended December 31,
Consumer credit portfolio
The following table presents consumer credit-related information with respect to the credit portfolio held by CCB, prime
mortgage and home equity loans held by AWM, and prime mortgage loans held by Corporate. For further information about the
Firm's nonaccrual and charge-off accounting policies, refer to Note 12.
106
$
ΝΑ
2,609
156,632
124
16
149,387
156,616
Total consumer credit portfolio
Total credit card exposure
Lending-related commitments (f)
Total credit card loans
Loans held-for-sale
149,511
2.95
4,123
4,518
Loans retained(h)
Credit Card
421,367
419,952
Total consumer exposure, excluding credit card
133
154
Receivables from customers(g)
3.10
4,518
4,123
3.10
107
JPMorgan Chase & Co./2018 Form 10-K
(1) Average consumer loans held-for-sale were $387 million and $1.5 billion for the years ended December 31, 2018 and 2017, respectively. These amounts
were excluded when calculating net charge-off/(recovery) rates.
(k) Net charge-offs/(recoveries) and net charge-off/(recovery) rates excluded write-offs in the PCI portfolio of $187 million and $86 million for the years ended
December 31, 2018 and 2017, respectively. These write-offs decreased the allowance for loan losses for PCI loans. Refer to Allowance for Credit Losses on
pages 120-122 for further information.
(j) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as each of the pools is performing.
(i) At December 31, 2018 and 2017, nonaccrual loans excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $2.6
billion and $4.3 billion, respectively. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In addition, the Firm's
policy is generally to exempt credit card loans from being placed on nonaccrual status, as permitted by regulatory guidance issued by the FFIEC.
(g) Receivables from customers represent held-for-investment margin loans to brokerage customers that are collateralized through assets maintained in the
clients' brokerage accounts. These receivables are reported within accrued interest and accounts receivable on the Firm's Consolidated balance sheets.
(h) Includes billed interest and fees net of an allowance for uncollectible interest and fees.
(f) Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and
does not anticipate, that all available lines of credit would be used at the same time. For credit card commitments, and if certain conditions are met, home
equity commitments, the Firm can reduce or cancel these lines of credit by providing the borrower notice or, in some cases as permitted by law, without
notice. For further information, refer to Note 27.
(d) For the year ended December 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for Total
consumer, excluding credit card and PCI loans and loans held-for-sale would have been 0.20%; Total consumer- retained excluding credit card loans would
have been 0.18%; Total consumer credit portfolio would have been 0.95%; and Total consumer credit portfolio, excluding PCI loans would have been 1.01%.
(e) At December 31, 2018 and 2017, approximately 69% and 68%, respectively, of the PCI option adjustable rate mortgages ("ARMS") portfolio has been
modified into fixed-rate, fully amortizing loans.
(c) Predominantly includes Business Banking loans.
(b) Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses; these
loans are managed by CCB, and therefore, for consistency in presentation, are included within the consumer portfolio.
Memo: Total consumer credit portfolio, excluding PCI
(a) At December 31, 2018 and 2017, excluded operating lease assets of $20.5 billion and $17.1 billion, respectively. These operating lease assets are included
in other assets on the Firm's Consolidated balance sheets. The risk of loss on these assets relates to the residual value of the leased vehicles, which is
managed through projection of the lease residual value at lease origination, periodic review of residual values, and through arrangements with certain auto
manufacturers that mitigates this risk.
1.11%
1.04%
0.90 %
0.95 %
$ 4,701 $ 5,268
$ 4,701 $ 5,268
1,181,963 $ 1,143,709 $ 3,461 $ 4,209
1,157,929 $ 1,113,133 $ 3,461 $ 4,209
$
$
722,342
762,011
572,831
605,379
2.95
48,553
46,066
Lending-related commitments()
0.31
ΝΑ
ΝΑ
30,576
24,034
Total loans - PCI
NA
ΝΑ
ΝΑ
금금금금
NA
ΝΑ
NA
NA
10,689
8,436
ΝΑ
ΝΑ
ΝΑ
NA
ΝΑ
ΝΑ
= =
ΝΑ
NA
1,945
NA
3 3 3 3 3
0.05
1,145
183
4,209
3,461
372,681
373,732
128
95
Loans held-for-sale
0.31
0.05
1,145
183
4,209
3,461
372,553
373,637
Total loans retained
ΝΑ
NA
ΝΑ
ΝΑ
ΝΑ
$
4,856
2017
JPMorgan Chase & Co./2018 Form 10-K
100
Critical factors in maintaining high credit ratings include a
stable and diverse earnings stream, strong capital and
liquidity ratios, strong credit quality and risk management
controls, and diverse funding sources. Rating agencies
continue to evaluate economic and geopolitical trends,
regulatory developments, future profitability, risk
management practices, and litigation matters, as well as
their broader ratings methodologies. Changes in any of
these factors could lead to changes in the Firm's credit
ratings.
maintains sufficient liquidity to withstand a potential
decrease in funding capacity due to ratings downgrades.
JPMorgan Chase's unsecured debt does not contain
requirements that would call for an acceleration of
payments, maturities or changes in the structure of the
existing debt, provide any limitations on future borrowings
or require additional collateral, based on unfavorable
changes in the Firm's credit ratings, financial ratios,
earnings, or stock price.
Downgrades of the Firm's long-term ratings by one or two
notches could result in an increase in its cost of funds, and
access to certain funding markets could be reduced. The
nature and magnitude of the impact of ratings downgrades
depends on numerous contractual and behavioral factors
which the Firm believes are incorporated in its liquidity risk
and stress testing metrics. The Firm believes that it
On June 21, 2018, Fitch upgraded the Parent Company's
long-term issuer rating to AA- (previously A+) and short-
term issuer rating to F1+ (previously F1). The long-term
issuer ratings were also upgraded to AA for JPMorgan Chase
Bank, N.A, Chase Bank USA, N.A., J.P. Morgan Securities LLC
and J.P. Morgan Securities plc (all previously AA-).
On October 25, 2018, Moody's upgraded the Parent
Company's long-term issuer rating to A2 (previously A3)
and short-term issuer rating to P-1 (previously P-2). The
long-term issuer ratings were also upgraded for JPMorgan
Chase Bank, N.A. and Chase Bank USA, N.A. to Aa2
(previously Aa3), and for J.P. Morgan Securities LLC and J.P.
Morgan Securities plc to Aa3 (previously A1).
Stable
F1+
AA
REPUTATION RISK MANAGEMENT
Stable
AA
Stable
F1+
AA-
Fitch Ratings
Stable
A-1
A+
Stable
A-1
F1+
Reputation risk is the potential that an action, inaction,
transaction, investment or event will reduce trust in the
Firm's integrity or competence by its various constituents,
including clients, counterparties, customers, investors,
regulators, employees, communities or the broader public.
Organization and management
Reputation Risk Management is an independent risk
management function that establishes the governance
framework for managing reputation risk across the Firm.
The Firmwide Risk Executive for Reputation Risk reports to
the Firm's CRO.
Monitoring, measuring and managing credit risk across all
portfolio segments, including transaction and exposure
approval
Establishing a comprehensive credit risk policy
framework
•
•
•
•
governance includes the following activities:
Credit Risk Management is an independent risk
management function that monitors, measures and
manages credit risk throughout the Firm and defines credit
risk policies and procedures. The credit risk function reports
to the Firm's CRO. The Firm's credit risk management
Credit risk is the risk associated with the default or change
in credit profile of a client, counterparty or customer. The
Firm provides credit to a variety of customers, ranging from
large corporate and institutional clients to individual
consumers and small businesses. In its consumer
businesses, the Firm is exposed to credit risk primarily
through its home lending, credit card, auto, and business
banking businesses. In its wholesale businesses, the Firm is
exposed to credit risk through its underwriting, lending,
market-making, and hedging activities with and for clients
and counterparties, as well as through its operating services
activities (such as cash management and clearing
activities), securities financing activities, investment
securities portfolio, and cash placed with banks.
Credit risk management
Credit and investment risk is the risk associated with the
default or change in credit profile of a client, counterparty
or customer; or loss of principal or a reduction in expected
returns on investments, including consumer credit risk,
wholesale credit risk, and investment portfolio risk.
CREDIT AND INVESTMENT RISK MANAGEMENT
Management's discussion and analysis
101
JPMorgan Chase & Co./2018 Form 10-K
The Firm's reputation risk governance framework applies to
each LOB and Corporate. Each LOB RRO advises their
business on potential reputation risk issues and provides
oversight of policy and standards created to guide the
identification and assessment of reputation risk. LOB
Reputation Risk Committees and forums review and assess
reputation risk for their respective businesses. Each
function also applies appropriate diligence to reputation
risk arising from their day-to-day activities. Reputation risk
issues deemed significant are escalated to the appropriate
LOB Risk Committee and/or to the Firmwide Risk
Committee.
The Firm's Reputation Risk Governance policy establishes
the principles for managing reputation risk for the Firm, and
is approved annually by the Directors' Risk Policy
Committee. It is the responsibility of employees in each LOB
and Corporate to consider the reputation of the Firm when
deciding whether to offer a new product, engage in a
transaction or client relationship, enter a new jurisdiction,
initiate a business process or other matters. Increasingly,
sustainability, social responsibility and environmental
impacts are important considerations in assessing the
Firm's reputation risk, and are considered as part of
reputation risk governance.
Governance and oversight
The types of events that give rise to reputation risk are
broad and could be introduced in various ways, including by
the Firm's employees and the clients, customers and
counterparties with which the Firm does business. These
events could result in financial losses, litigation and
regulatory fines, as well as other damages to the Firm. As
reputation risk is inherently difficult to identify, manage,
and quantify, an independent reputation risk management
governance function is critical.
Providing oversight to LOB Reputation Risk Offices
("RRO") on certain situations that have the potential to
damage the reputation of the LOB or the Firm
Managing the governance infrastructure and processes
that support consistent identification, escalation,
management and monitoring of reputation risk issues
firmwide
Establishing a firmwide Reputation Risk Governance
policy and standards
The Firm's reputation risk management function includes
the following activities:
A+
Stable
A-2
A-
JPMorgan Chase & Co.
The credit ratings of the Parent Company and the Firm's principal bank and non-bank subsidiaries as of December 31, 2018,
were as follows.
party commitments may be adversely affected by a decline
in credit ratings. For additional information on the impact of
a credit ratings downgrade on the funding requirements for
VIES, and on derivatives and collateral agreements, refer to
SPES on page 55, and liquidity risk and credit-related
contingent features in Note 5.
The cost and availability of financing are influenced by
credit ratings. Reductions in these ratings could have an
adverse effect on the Firm's access to liquidity sources,
increase the cost of funds, trigger additional collateral or
funding requirements and decrease the number of investors
and counterparties willing to lend to the Firm. Additionally,
the Firm's funding requirements for VIES and other third-
Credit ratings
Management's discussion and analysis
99
99
JPMorgan Chase & Co./2018 Form 10-K
The Firm's wholesale businesses also securitize loans for client-driven transactions; those client-driven loan securitizations are
not considered to be a source of funding for the Firm and are not included in the table above. For further description of the
client-driven loan securitizations, refer to Note 14.
(a) Other securitizations includes securitizations of student loans. The Firm deconsolidated the student loan securitization entities in the second quarter of
2017 as it no longer had a controlling financial interest in these entities as a result of the sale of the student loan portfolio.
(b) Includes long-term structured notes which are secured.
731
18,900
25,159
289
34,698 $ 31,156
3,899 $
2,354
9,000
377
10,773 $
$
55
11,470
9,250 $
$
1,545
JPMorgan Chase Bank, N.A.
Chase Bank USA, N.A.
Setting industry and geographic concentration limits, as
appropriate, and establishing underwriting guidelines
Assigning and managing credit authorities in connection
with the approval of all credit exposure
J.P. Morgan Securities LLC
J.P. Morgan Securities plc
Long-term
Standard & Poor's
Stable
P-1
Aa3
Stable
P-1
Aa2
Stable
P-1
A2
Moody's Investors Service
Outlook
issuer
issuer
Outlook
Short-term
Long-term
Short-term
issuer
issuer
Outlook
issuer
issuer
December 31, 2018
Long-term
$
Managing criticized exposures and delinquent loans
Estimating credit losses and ensuring appropriate credit
risk-based capital management
The Credit Risk Management function monitors, measures,
manages and limits credit risk across the Firm's businesses.
To measure credit risk, the Firm employs several
methodologies for estimating the likelihood of obligor or
counterparty default. Methodologies for measuring credit
risk vary depending on several factors, including type of
asset (e.g., consumer versus wholesale), risk measurement
parameters (e.g., delinquency status and borrower's credit
score versus wholesale risk-rating) and risk management
and collection processes (e.g., retail collection center versus
centrally managed workout groups). Credit risk
measurement is based on the probability of default of an
obligor or counterparty, the loss severity given a default
event and the exposure at default.
NA
311
269
ΝΑ
ΝΑ
6,073
4,891
1,013,492
1,068,984
26,272
ΝΑ
30,217
5,943
220
4,831
60
56,523
54,213
930,697
984,554
2,508
3,151
3,351
11,988
130
30
42
Total assets acquired in
loan satisfactions
Lending-related
commitments
2018
ΝΑ
ΝΑ
(16,108)
(15,322)
- $
(12,682) $ (17,609) $
$
Average retained loans
Year ended December 31,
(in millions, except ratios)
Net charge-offs (f)
Liquid securities and
other cash collateral
held against
derivatives(c)
Total credit portfolio
Credit derivatives used
in credit portfolio
management
activities(b)
7,157
5,659 $
$ 2,108,242 $ 2,004,974 $
731
469
991,482
1,039,258
353
299
ΝΑ
ΝΑ
969,415 $ 924,838 $ 4,611 $ 5,943
$
Nonperforming (d)(e)
2017
2018
•
Credit derivatives
•
Loan sales and securitizations
•
Loan syndications and participations
•
JPMorgan Chase & Co./2018 Form 10-K
⚫ Loan underwriting and credit approval process
Management of the Firm's wholesale credit risk exposure is
accomplished through a number of means, including:
Wholesale credit risk is monitored regularly at an aggregate
portfolio, industry, and individual client and counterparty
level with established concentration limits that are reviewed
and revised as deemed appropriate by management,
typically on an annual basis. Industry and counterparty
limits, as measured in terms of exposure and economic risk
appetite, are subject to stress-based loss constraints. In
addition, wrong-way risk – the risk that exposure to a
counterparty is positively correlated with the impact of a
default by the same counterparty, which could cause
exposure to increase at the same time as the counterparty's
capacity to meet its obligations is decreasing - is actively
monitored as this risk could result in greater exposure at
default compared with a transaction with another
counterparty that does not have this risk.
Consumer credit risk is monitored for delinquency and other
trends, including any concentrations at the portfolio level,
as certain of these trends can be modified through changes
in underwriting policies and portfolio guidelines. Consumer
Risk Management evaluates delinquency and other trends
against business expectations, current and forecasted
economic conditions, and industry benchmarks. Historical
and forecasted economic performance and trends are
incorporated into the modeling of estimated consumer
credit losses and are part of the monitoring of the credit
risk profile of the portfolio.
The Firm has developed policies and practices that are
designed to preserve the independence and integrity of the
approval and decision-making process of extending credit to
ensure credit risks are assessed accurately, approved
properly, monitored regularly and managed actively at both
the transaction and portfolio levels. The policy framework
establishes credit approval authorities, concentration limits,
risk-rating methodologies, portfolio review parameters and
guidelines for management of distressed exposures. In
addition, certain models, assumptions and inputs used in
evaluating and monitoring credit risk are independently
validated by groups that are separate from the line of
businesses.
Risk monitoring and management
Stress testing is important in measuring and managing
credit risk in the Firm's credit portfolio. The process
assesses the potential impact of alternative economic and
business scenarios on estimated credit losses for the Firm.
Economic scenarios and the underlying parameters are
defined centrally, articulated in terms of macroeconomic
factors and applied across the businesses. The stress test
results may indicate credit migration, changes in
delinquency trends and potential losses in the credit
portfolio. In addition to the periodic stress testing
processes, management also considers additional stresses
outside these scenarios, including industry and country-
specific stress scenarios, as necessary. The Firm uses stress
testing to inform decisions on setting risk appetite both at a
Firm and LOB level, as well as to assess the impact of stress
on individual counterparties.
Risk-rated portfolios are generally held in CIB, CB and AWM,
but also include certain business banking and auto dealer
loans held in CCB that are risk-rated because they have
characteristics similar to commercial loans. For the risk-
rated portfolio, credit loss estimates are based on estimates
of the probability of default ("PD") and loss severity given a
default. The probability of default is the likelihood that a
borrower will default on its obligation; the loss given default
("LGD") is the estimated loss on the loan that would be
realized upon default and takes into consideration collateral
and structural support for each credit facility. The
estimation process includes assigning risk ratings to each
borrower and credit facility to differentiate risk within the
portfolio. These risk ratings are reviewed regularly by Credit
Risk Management and revised as needed to reflect the
borrower's current financial position, risk profile and
related collateral. The calculations and assumptions are
based on both internal and external historical experience
and management judgment and are reviewed regularly.
Stress testing
Risk-rated exposure
JPMorgan Chase & Co./2018 Form 10-K
102
The scored portfolio is generally held in CCB and
predominantly includes residential real estate loans, credit
card loans, and certain auto and business banking loans.
For the scored portfolio, credit loss estimates are based on
statistical analysis of credit losses over discrete periods of
time. The statistical analysis uses portfolio modeling, credit
scoring, and decision-support tools, which consider loan-
level factors such as delinquency status, credit scores,
collateral values, and other risk factors. Credit loss analyses
also consider, as appropriate, uncertainties and other
factors, including those related to current macroeconomic
and political conditions, the quality of underwriting
standards, and other internal and external factors. The
factors and analysis are updated on a quarterly basis or
more frequently as market conditions dictate.
Scored exposure
The methodologies used to estimate credit losses depend
on the characteristics of the credit exposure, as described
below.
Based on these factors and related market-based inputs,
the Firm estimates credit losses for its exposures. Probable
credit losses inherent in the consumer and wholesale held-
for-investment loan portfolios are reflected in the allowance
for loan losses, and probable credit losses inherent in
lending-related commitments are reflected in the allowance
for lending-related commitments. These losses are
estimated using statistical analyses and other factors as
described in Note 13. In addition, potential and unexpected
credit losses are reflected in the allocation of credit risk
capital and represent the potential volatility of actual losses
relative to the established allowances for loan losses and
lending-related commitments. The analyses for these losses
include stress testing that considers alternative economic
scenarios as described in the Stress testing section below.
For further information, refer to Critical Accounting
Estimates used by the Firm on pages 141-143.
Master netting agreements
Risk identification and measurement
.
103
2017
2018
Credit exposure
Real estate owned
Other
Assets acquired in loan
satisfactions
Loans retained
Loans held-for-sale
Loans at fair value
Total loans-reported
Derivative receivables
Receivables from
customers and other(a)
Total credit-related
assets
December 31,
(in millions)
Total credit portfolio
For a further discussion of the consumer credit environment
and consumer loans, refer to Consumer Credit Portfolio on
pages 106-111 and Note 12. For a further discussion of the
wholesale credit environment and wholesale loans, refer to
Wholesale Credit Portfolio on pages 112-119 and Note 12.
For further information regarding the credit risk inherent in
the Firm's cash placed with banks, refer to Wholesale credit
exposure - industry exposures on pages 113-115; for
information regarding the credit risk inherent in the Firm's
investment securities portfolio, refer to Note 10; and for
information regarding credit risk inherent in the securities
financing portfolio, refer to Note 11.
In the following tables, reported loans include loans
retained (i.e., held-for-investment); loans held-for-sale; and
certain loans accounted for at fair value. The following
tables do not include loans which the Firm accounts for at
fair value and classifies as trading assets. For further
information regarding these loans, refer to Notes 2 and 3.
For additional information on the Firm's loans, lending-
related commitments and derivative receivables, including
the Firm's accounting policies, refer to Notes 12, 27, and 5,
respectively.
Credit risk is the risk associated with the default or change
in credit profile of a client, counterparty or customer.
CREDIT PORTFOLIO
JPMorgan Chase & Co./2018 Form 10-K
104
To enable monitoring of credit risk and effective decision-
making, aggregate credit exposure, credit quality forecasts,
concentration levels and risk profile changes are reported
regularly to senior members of Credit Risk Management.
Detailed portfolio reporting of industry; clients,
counterparties and customers; product and geographic
concentrations occurs monthly, and the appropriateness of
the allowance for credit losses is reviewed by senior
management at least on a quarterly basis. Through the risk
reporting and governance structure, credit risk trends and
limit exceptions are provided regularly to, and discussed
with, risk committees, senior management and the Board of
Directors as appropriate.
Risk reporting
For further discussion of consumer and wholesale loans,
refer to Note 12.
• Evaluating the effectiveness of business units' credit
management processes, including the adequacy of credit
analyses and risk grading/LGD rationales, proper
monitoring and management of credit exposures, and
compliance with applicable grading policies and
underwriting guidelines.
Independently validating or changing the risk grades
assigned to exposures in the Firm's wholesale and
commercial-oriented retail credit portfolios, and
assessing the timeliness of risk grade changes initiated by
responsible business units; and
•
In addition to Credit Risk Management, an independent
Credit Review function is responsible for:
Management's discussion and analysis
Collateral and other risk-reduction techniques
Total consumer, excluding credit card loans
Portfolio analysis
212
0
1 year 2 years
5 years
AVG
DRE
Peak
10 years
The following table summarizes the ratings profile of the Firm's derivative receivables, including credit derivatives, net of all
collateral, at the dates indicated. The ratings scale is based on the Firm's internal ratings, which generally correspond to the
ratings as assigned by S&P and Moody's.
Ratings profile of derivative receivables
Rating equivalent
December 31,
(in millions, except ratios)
AAA/Aaa to AA-/Aa3
A+/A1 to A-/A3
BBB+/Baal to BBB-/Baa3
BB+/Bal to B-/B3
CCC+/Caal and below
19
7,428
29%
11,529
31% $
11,831
20
$
Exposure net of % of exposure net
all collateral of all collateral
2017
2018
118
As previously noted, the Firm uses collateral agreements to
mitigate counterparty credit risk. The percentage of the
Firm's over-the-counter derivative transactions subject to
collateral agreements - excluding foreign exchange spot
trades, which are not typically covered by collateral
agreements due to their short maturity and centrally
cleared trades that are settled daily - was approximately
90% at both December 31, 2018, and December 31, 2017.
Total
Exposure net of % of exposure net
all collateral of all collateral
40
60
80
40,415
38,891 $
$
(16,108)
(15,322)
held against derivative receivables (a)
Total, net of all collateral
(a) Includes collateral related to derivative instruments where appropriate
legal opinions have not been either sought or obtained with respect to
master netting agreements.
Liquid securities and other cash collateral
54,213 $
$
Total, net of cash collateral
2017
2018
December 31, (in millions)
56,523
6,919
The fair value of derivative receivables reported on the
Consolidated balance sheets were $54.2 billion and $56.5
billion at December 31, 2018 and 2017, respectively.
Derivative receivables represent the fair value of the
derivative contracts after giving effect to legally enforceable
master netting agreements and cash collateral held by the
Firm. However, in management's view, the appropriate
measure of current credit risk should also take into
consideration additional liquid securities (primarily U.S.
government and agency securities and other group of seven
nations ("G7") government securities) and other cash
collateral held by the Firm aggregating $15.3 billion and
$16.1 billion at December 31, 2018 and 2017,
respectively, that may be used as security when the fair
value of the client's exposure is in the Firm's favor.
In addition to the collateral described in the preceding
paragraph, the Firm also holds additional collateral
(primarily cash, G7 government securities, other liquid
government-agency and guaranteed securities, and
corporate debt and equity securities) delivered by clients at
the initiation of transactions, as well as collateral related to
contracts that have a non-daily call frequency and collateral
that the Firm has agreed to return but has not yet settled as
of the reporting date. Although this collateral does not
reduce the balances and is not included in the table above,
it is available as security against potential exposure that
could arise should the fair value of the client's derivative
contracts move in the Firm's favor. The derivative
receivables fair value, net of all collateral, also does not
include other credit enhancements, such as letters of credit.
For additional information on the Firm's use of collateral
agreements, refer to Note 5.
Peak represents a conservative measure of potential
exposure to a counterparty calculated in a manner that is
broadly equivalent to a 97.5% confidence level over the life
of the transaction. Peak is the primary measure used by the
Firm for setting of credit limits for derivative contracts,
senior management reporting and derivatives exposure
management. DRE exposure is a measure that expresses the
risk of derivative exposure on a basis intended to be
100
120
140
(in billions)
December 31, 2018
Exposure profile of derivatives measures
While useful as a current view of credit exposure, the net
fair value of the derivative receivables does not capture the
potential future variability of that credit exposure. To
capture the potential future variability of credit exposure,
the Firm calculates, on a client-by-client basis, three
measures of potential derivatives-related credit loss: Peak,
Derivative Risk Equivalent ("DRE"), and Average exposure
("AVG"). These measures all incorporate netting and
collateral benefits, where applicable.
The accompanying graph shows exposure profiles to the
Firm's current derivatives portfolio over the next 10 years
as calculated by the Peak, DRE and AVG metrics. The three
measures generally show that exposure will decline after
the first year, if no new trades are added to the portfolio.
The fair value of the Firm's derivative receivables
incorporates CVA to reflect the credit quality of
counterparties. CVA is based on the Firm's AVG to a
counterparty and the counterparty's credit spread in the
credit derivatives market. The Firm believes that active risk
management is essential to controlling the dynamic credit
risk in the derivatives portfolio. In addition, the Firm's risk
management process takes into consideration the potential
impact of wrong-way risk, which is broadly defined as the
potential for increased correlation between the Firm's
exposure to a counterparty (AVG) and the counterparty's
credit quality. Many factors may influence the nature and
magnitude of these correlations over time. To the extent
that these correlations are identified, the Firm may adjust
the CVA associated with that counterparty's AVG. The Firm
risk manages exposure to changes in CVA by entering into
Finally, AVG is a measure of the expected fair value of the
Firm's derivative receivables at future time periods,
including the benefit of collateral. AVG over the total life of
the derivative contract is used as the primary metric for
pricing purposes and is used to calculate credit risk capital
and the CVA, as further described below.
equivalent to the risk of loan exposures. DRE is a less
extreme measure of potential credit loss than Peak and is
used as an input for aggregating derivative credit risk
exposures with loans and other credit risk.
Management's discussion and analysis
117
JPMorgan Chase & Co./2018 Form 10-K
credit derivative contracts, as well as interest rate, foreign
exchange, equity and commodity derivative contracts.
Derivative receivables
17
32
2
2
2
1,482
1,188
Additions
Net charge-offs
2,063
$ 1,734 $
Beginning balance
Gross recoveries
2017
2018
Year ended December 31, (in millions)
Gross charge-offs
Average loans retained
Year ended December 31,
(in millions, except ratios)
Loans - reported
74
66
139,255
154
139,409
83
12
82
Loans
In the normal course of its wholesale business, the Firm
provides loans to a variety of clients, ranging from large
corporate and institutional clients to high-net-worth
individuals. For a further discussion on loans, including
information on credit quality indicators and sales of loans,
refer to Note 12.
The following table presents the change in the nonaccrual
loan portfolio for the years ended December 31, 2018 and
2017.
Wholesale nonaccrual loan activity
The following table presents net charge-offs/recoveries,
which are defined as gross charge-offs less recoveries, for
the years ended December 31, 2018 and 2017. The
amounts in the table below do not include gains or losses
from sales of nonaccrual loans.
Wholesale net charge-offs/(recoveries)
(b) Real Estate exposure is predominantly secured; unsecured exposure is predominantly investment-grade.
(c) Represents drawn exposure as a percentage of credit exposure.
3,606
64,664
68,284
40,415
100% $
38,891
$
2
645
100%
2
18
7,397
16
6,373
34
13,925
723
12,536
JPMorgan Chase & Co./2018 Form 10-K
6,746
Receivables from customers and other
Total(e)
Loans held-for-sale and loans at fair
value
Subtotal
All other(d)
(823)
(158)
313
-
3,099
4,558
Securities Firms
(26)
-
738
1,459
Derivatives enable clients and counterparties to manage
risks including credit risk and risks arising from fluctuations
in interest rates, foreign exchange, equities, and
commodities. The Firm makes markets in derivatives in
order to meet these needs and uses derivatives to manage
certain risks associated with net open risk positions from its
market-making activities, including the counterparty credit
risk arising from derivative receivables. The Firm also uses
derivative instruments to manage its own credit and other
market risk exposure. The nature of the counterparty and
the settlement mechanism of the derivative affect the credit
risk to which the Firm is exposed. For OTC derivatives the
Firm is exposed to the credit risk of the derivative
counterparty. For exchange-traded derivatives (“ETD"),
such as futures and options, and "cleared" over-the-counter
("OTC-cleared") derivatives, the Firm is generally exposed
to the credit risk of the relevant CCP. Where possible, the
Firm seeks to mitigate its credit risk exposures arising from
derivative contracts through the use of legally enforceable
master netting arrangements and collateral agreements.
For a further discussion of derivative contracts,
counterparties and settlement types, refer to Note 5.
The following table summarizes the net derivative
receivables for the periods presented.
Derivative contracts
The Firm provides clearing services for clients entering into
certain securities and derivative contracts. Through the
provision of these services the Firm is exposed to the risk of
non-performance by its clients and may be required to
share in losses incurred by CCPs. Where possible, the Firm
seeks to mitigate its credit risk to its clients through the
collection of adequate margin at inception and throughout
the life of the transactions and can also cease provision of
clearing services if clients do not adhere to their obligations
under the clearing agreement. For further discussion of
clearing services, refer to Note 27.
(b) Excludes PCI loans which are accounted for on a pool basis. Since each
pool is accounted for as a single asset with a single composite interest
rate and an aggregate expectation of cash flows, the past-due status of
the pools, or that of individual loans within the pools, is not
meaningful. The Firm is recognizing interest income on each pool of
loans as each of the pools is performing.
(a) At December 31, 2018 and 2017, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $2.6 billion and $4.3 billion, respectively, and
real estate owned ("REO") insured by U.S. government agencies of $75
million and $95 million, respectively. These amounts have been
excluded based upon the government guarantee.
$ 3,701 $ 4,474
265
240
(158)
30
225
210
4,209
3,461
424
373
3,785
$
$ 3,088
2017
Nonaccrual
retained
loans (d)
Retained
loans
2017
Nonaccrual
retained
loans (d)
1,743
1,032
Nonperforming assets
Nonaccrual loans in the residential real estate portfolio at
December 31, 2018 decreased to $3.1 billion from $3.8
billion at December 31, 2017, of which 24% and 26% were
greater than 150 days past due, respectively. In the
aggregate, the unpaid principal balance of residential real
estate loans greater than 150 days past due was charged
down by approximately 32% and 40% to the estimated net
realizable value of the collateral at December 31, 2018 and
2017, respectively.
The following table presents information as of
December 31, 2018 and 2017, about consumer, excluding
credit card, nonperforming assets.
Total nonaccrual loans
Assets acquired in loan satisfactions
Real estate owned
Other
Total assets acquired in loan satisfactions
Total nonperforming assets
2018
Nonperforming assets (a)
December 31, (in millions)
Nonaccrual loans (b)
Residential real estate
Other consumer
Nonaccrual loans: The following table presents changes in
the consumer, excluding credit card, nonaccrual loans for
the years ended December 31, 2018 and 2017.
Nonaccrual loan activity
Residential mortgage
ΝΑ
ΝΑ
Option ARMS
6,410
ΝΑ
8,276
NA $17,721
ΝΑ
ΝΑ
Total modified PCI loans $13,716
(a) Amounts represent the carrying value of modified residential real
estate loans.
(b) At December 31, 2018 and 2017, $4.1 billion and $3.8 billion,
respectively, of loans modified subsequent to repurchase from Ginnie
Mae in accordance with the standards of the appropriate government
agency (i.e., Federal Housing Administration ("FHA"), U.S. Department
of Veterans Affairs ("VA"), Rural Housing Service of the U.S.
Department of Agriculture ("RHS")) are not included in the table
above. When such loans perform subsequent to modification in
accordance with Ginnie Mae guidelines, they are generally sold back
into Ginnie Mae loan pools. Modified loans that do not re-perform
become subject to foreclosure. For additional information about sales
of loans in securitization transactions with Ginnie Mae, refer to Note
14.
(c) Amounts represent the unpaid principal balance of modified PCI loans.
(d) As of December 31, 2018 and 2017, nonaccrual loans included $2.0
billion and $2.2 billion, respectively, of troubled debt restructurings
("TDRS") for which the borrowers were less than 90 days past due. For
additional information about loans modified in a TDR that are on
nonaccrual status, refer to Note 12.
Additions
Foreclosures and other liquidations
ΝΑ
Retained
loans
NA $ 2,277
NA 4,490
ΝΑ 2,678
Subprime mortgage
Home equity
$ 4,565 $
2,012
1,459 $5,620 $
955 2,118
Total modified
residential real estate
loans, excluding PCI
loans
2,041
$ 6,577 $
2,775
Modified PCI loans (c)
Home equity
$ 2,086
Prime mortgage
3,179
2,414 $7,738 $
2018
excluding PCI loans (a)(b)
real estate loans,
Prime mortgage
Subprime mortgage
Option ARMS
Total
Lifetime loss estimates(a)
Life-to-date liquidation losses(b)
Home equity
2018
2018
2017
$
14.1 $
14.2
$
2017
13.0 $
December 31, (in billions)
The following table provides a summary of lifetime principal loss estimates included in either the nonaccretable difference or
the allowance for loan losses.
Clearing services
The Firm uses lending-related financial instruments, such as
commitments (including revolving credit facilities) and
guarantees, to address the financing needs of its clients.
The contractual amounts of these financial instruments
represent the maximum possible credit risk should the
clients draw down on these commitments or the Firm fulfill
its obligations under these guarantees, and the clients
subsequently fail to perform according to the terms of these
contracts. Most of these commitments and guarantees are
refinanced, extended, cancelled, or expire without being
drawn upon or a default occurring. In the Firm's view, the
total contractual amount of these wholesale lending-related
commitments is not representative of the Firm's expected
future credit exposure or funding requirements. For further
information on wholesale lending-related commitments,
refer to Note 27.
Lending-related commitments
JPMorgan Chase & Co./2018 Form 10-K
116
0.03%
Summary of PCI loans lifetime principal loss estimates
0.04%
155
(93)
The Firm monitors risks associated with junior lien loans
where the borrower has a senior lien loan that is either
delinquent or has been modified. These loans are
considered "high-risk seconds" and are classified as
nonaccrual as they are considered to pose a higher risk of
default than other junior lien loans. At December 31, 2018,
the Firm estimated that the carrying value of its home
equity portfolio contained approximately $550 million of
current junior lien loans that were considered high-risk
seconds, compared with approximately $725 million at
December 31, 2017.
Auto: The auto loan portfolio, which predominantly consists
of prime-quality loans, declined when compared with
December 31, 2017, as paydowns and the charge-off or
liquidation of delinquent loans were predominantly offset
by new originations. Nonaccrual loans decreased from
December 31, 2017. Net charge-offs for the year ended
December 31, 2018 declined when compared with the prior
year primarily as a result of an incremental adjustment
recorded in 2017 in accordance with regulatory guidance
regarding the timing of loss recognition for certain loans in
bankruptcy and loans where assets were acquired in loan
satisfactions.
Consumer & Business banking: Consumer & Business
Banking loans increased when compared with
December 31, 2017 due to loan originations,
predominantly offset by paydowns and charge-offs of
delinquent loans. Nonaccrual loans and net charge-offs
decreased when compared with the prior year.
Purchased credit-impaired loans: PCI loans represent
certain loans that were acquired and deemed to be credit-
impaired on the acquisition date. PCI loans decreased from
December 31, 2017 due to portfolio run off and loan sales.
As of December 31, 2018, approximately 10% of the
option ARM PCI loans were delinquent and approximately
69% of the portfolio had been modified into fixed-rate, fully
amortizing loans. The borrowers for substantially all of the
remaining option ARM loans are making amortizing
payments, although such payments are not necessarily fully
amortizing. This latter group of loans is subject to the risk of
payment shock due to future payment recast. Default rates
generally increase on option ARM loans when payment
recast results in a payment increase. The expected increase
in default rates is considered in the Firm's quarterly
impairment assessment.
119
54,740
12.9
4.0
At December 31, 2018, $160.3 billion, or 63% of the total
retained residential real estate loan portfolio, excluding
mortgage loans insured by U.S. government agencies and
PCI loans, were concentrated in California, New York,
Illinois, Texas and Florida, compared with $152.8 billion, or
63%, at December 31, 2017. For additional information on
the geographic composition of the Firm's residential real
estate loans, refer to Note 12.
Current estimated loan-to-values of residential real
estate loans
Average current estimated loan-to-value ("LTV") ratios have
declined consistent with improvements in home prices,
customer pay downs, and charge-offs or liquidations of
higher LTV loans. For further information on current
estimated LTVS of residential real estate loans, refer to Note
12.
JPMorgan Chase & Co./2018 Form 10-K
Loan modification activities for residential real estate
loans
The performance of modified loans generally differs by
product type due to differences in both the credit quality
and the types of modifications provided. Performance
metrics for modifications to the residential real estate
portfolio, excluding PCI loans, that have been seasoned
more than six months show weighted-average redefault
rates of 22% for residential mortgages and 20% for home
equity. Performance metrics for modifications to the PCI
residential real estate portfolio that have been seasoned
more than six months show weighted average redefault
rates of 19% for home equity, 18% for prime mortgages,
16% for option ARMS and 32% for subprime mortgages.
The cumulative redefault rates reflect the performance of
modifications completed from October 1, 2009 through
December 31, 2018.
Geographic composition of residential real estate loans
109
Certain modified loans have interest rate reset provisions
("step-rate modifications") where the interest rates on
these loans generally began to increase commencing in
2014 by 1% per year, and will continue to do so until the
rate reaches a specified cap. The cap on these loans is
typically at a prevailing market interest rate for a fixed-rate
mortgage loan as of the modification date. At December 31,
2018, the carrying value of non-PCI loans and the unpaid
principal balance of PCI loans modified in step-rate
modifications, which have not yet met their specified caps,
were $2 billion and $3 billion, respectively. The Firm
continues to monitor this risk exposure and the impact of
these potential interest rate increases is considered in the
Firm's allowance for loan losses.
The following table presents information as of
December 31, 2018 and 2017, relating to modified
retained residential real estate loans for which concessions
have been granted to borrowers experiencing financial
difficulty. For further information on modifications for the
years ended December 31, 2018 and 2017, refer to Note
12.
Modified residential real estate loans
December 31,
(in millions)
Modified residential
Management's discussion and analysis
4.1
(b) Represents both realization of loss upon loan resolution and any principal forgiven upon modification.
For further information on the Firm's PCI loans, including write-offs, refer to Note 12.
29.5
3.9
3.8
3.3
3.3
3.2
3.1
(a) Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses plus additional principal losses
recognized subsequent to acquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses was
$512 million and $842 million at December 31, 2018 and 2017, respectively.
10.3
9.9
9.7
$
31.8 $
31.5 $
30.0 $
10.0
92%
89%
84,669
Asset Managers
(207)
(1)
82
38
585
12,731
42,643
55,997
Healthcare
(3,174)
(1,216)
6
1
4
612
13,767
(19)
Industrials
55,272
37,198
16,770
1,159
32,531
145
(1)
(196)
(21)
Banks & Finance Cos
49,037
34,654
150
28,029
4,484
4
227
221
11
(160)
(56)
State & Municipal Govt(c)
4,383
28,633
656
12
5
(130)
(524)
Central Govt
27,977
(910)
24,486
Utilities
14
27
-
(5,290)
Oil & Gas
41,317
29,317
21,430
4,046
987
22
71
(747)
(1)
14,854
(12)
14
53
87,371
Individuals and Individual Entities (b)
(2)
$
(4) $
254 $
77,029
137 $
23,012 $
139,409 $ 115,401 $
$
Real Estate
receivables
derivative
859 $
and other
cash
collateral
held against
10,024
238
Technology, Media &
(9)
(275)
34
30
532
80
1,791
55,737
87,679
Consumer & Retail
(762)
10
899
29,619
19,182
Liquid
securities
Credit
derivative
hedges(g)
15,028
30,063
155 $ (12,682) $ (15,322)
1,096 $
1,679 $
10,450 $
195,442 $
$ 926,279
$ 881,188 $ 673,617 $
(1,581)
Telecommunications
59,274
36,510
20,453
2,258
(804)
Selected metrics
114
Noninvestment-grade
Net charge-
offs/
(recoveries)
loans
performing nonperforming
Noncriticized
grade
accruing
JPMorgan Chase & Co./2018 Form 10-K
Criticized
Investment-
Credit
exposure(f)
30 days or
more past
due and
(in millions)
December 31, 2017
As of or for the year ended
Criticized
Total reductions
18,741
65
Receivables
Commitments
Derivative
Loans and
Lending-related
December 31, 2018
(a) Multifamily exposure is largely in California.
Total Real Estate Exposure (b)
Other
Multifamily(a)
(in millions, except ratios)
Total Real Estate Exposure (b)
Other
(in millions, except ratios)
Multifamily(a)
Real Estate exposure increased $3.9 billion to $143.3 billion during the year ended December 31, 2018, while the investment-
grade percentage of the portfolio remained relatively flat at 82%. For further information on Real Estate loans, refer to Note
12.
Presented below is additional information on the Real Estate industry to which the Firm has significant exposure.
Real Estate
Management's discussion and analysis
Loans held-for-sale and loans at fair
value
Receivables from customers and other
5,607
26,139
Total(e)
$ 861,265
(a) The industry rankings presented in the table as of December 31, 2017, are based on the industry rankings of the corresponding exposures at
December 31, 2018, not actual rankings of such exposures at December 31, 2017.
Credit
exposure
(b) Individuals and Individual Entities predominantly consists of Wealth Management clients within AWM and includes exposure to personal investment
companies and personal and testamentary trusts.
(d) All other includes: SPES and Private education and civic organizations, representing approximately 92% and 8%, respectively, at December 31, 2018 and
90% and 10%, respectively, at December 31, 2017.
(e) Excludes cash placed with banks of $268.1 billion and $421.0 billion, at December 31, 2018 and 2017, respectively, which is predominantly placed with
various central banks, primarily Federal Reserve Banks.
(f) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against
derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(g) Represents the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives
do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain credit indices.
JPMorgan Chase & Co./2018 Form 10-K
115
(c) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2018 and 2017, noted above, the
Firm held: $7.8 billion and $9.8 billion, respectively, of trading securities; $37.7 billion and $32.3 billion, respectively, of AFS securities; and $4.8 billion
and $14.4 billion, respectively, of held-to-maturity ("HTM") securities, issued by U.S. state and municipal governments. For further information, refer to
Note 2 and Note 10.
$
85,683
$
Derivative
Credit
%
Investment-
Commitments
Receivables
exposure
Lending-related
grade
$
84,635
$
54,620
34
120
$
% Drawn (c)
(16,108)
Loans and
81
33
$
85,716
%
Investment-
grade
89%
% Drawn (c)
92%
57,469
December 31, 2017
131
72
63
143,152
164
143,316
82
57,600
(838)
(2,817)
119 $ (17,609) $
1,524 $
15,797
9,870
5,302
527
98
9
Transportation
14
(131)
Metals & Mining
14,171
6,989
6,822
321
(32)
39
4
4,764
4
(10,095)
(2,520)
Automotive
14,820
9,321
74
5,278
10
1
(284)
Chemicals & Plastics
15,945
11,107
221
376
3
(316)
1
(274)
(335)
All other(d)
60,529
57,081
1,553
Subtotal
3,259
181,349 $ 13,010 $
180
9
2
(2)
2,595 $
$ 829,519 $ 632,565 $
(13)
2,559
Securities Firms
(1)
Insurance
14,089
11,028
2,981
80
4,113
1
(2,195)
Financial Markets Infrastructure
5,036
4,775
261
(23)
(157)
Net changes
Ending balance
40
Active and suspended foreclosure: For information on
loans that were in the process of active or suspended
foreclosure, refer to Note 12.
(1)
(2) $
(20) $
70 $
༤ཤྩཝ
203
2,033
31,901
60,678
94,815
703
158
10,164
86,581
97,077
135 $
1,019 $
receivables
derivative
held against
Credit
derivative
hedges(g)
Net charge-
offs/
(recoveries)
174
43
55
25
(12)
(1,011)
12
220
171
136
1,311
18,594
38,487
58,528
Industrials
8
61
2,170
24,081
46,334
72,646
Telecommunications
Technology, Media &
(14)
(248)
(915)
12
Liquid
securities
and other
cash
collateral
20
30 days or
more past
due and
accruing
loans
Criticized
performing
$ 845,157
$
(14,984)
(4,791) $ (17,609) $
(11,011) $
$ (1,807) $
$ 845,157
Credit derivatives used in credit portfolio
management activities (b)(c)
cash collateral held against derivatives
Total exposure - net of liquid securities and other
(2,625)
5,607
26,139
Receivables from customers and other
Loans held-for-sale and loans at fair value(a)
76
74
80
40,415
370,098
813,411
95,971
195,230
8,042
32,373
274,127
618,181
370,098
813,411
5,607
26,139
$ (17,609)
85%
(a) Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value.
(b) These derivatives do not qualify for hedge accounting under U.S. GAAP.
Noncriticized
Investment-
grade
Credit
exposure(f)
$ 143,316 $ 117,988 $ 24,174 $
Consumer & Retail
Individuals and Individual Entities (b)
Real Estate
(in millions)
December 31, 2018
As of or for the year ended
Noninvestment-grade
Selected metrics
Wholesale credit exposure - industries(a)
As a result of continued growth and the relative size of the portfolio, exposure to "Individuals," which was previously disclosed
in "All Other," is now separately disclosed in the table below as "Individuals and Individual Entities." This category
predominantly consists of Wealth Management clients within AWM and includes exposure to personal investment companies
and personal and testamentary trusts. Predominantly all of this exposure is secured, largely by cash and marketable securities.
In the table below, prior period amounts have been revised to conform with the current period presentation.
Below are summaries of the Firm's exposures as of December 31, 2018 and 2017. The industry of risk category is generally
based on the client or counterparty's primary business activity. For additional information on industry concentrations, refer to
Note 4.
Management's discussion and analysis
113
JPMorgan Chase & Co./2018 Form 10-K
categories. The total criticized component of the portfolio,
excluding loans held-for-sale and loans at fair value, was
$12.1 billion at December 31, 2018, compared with $15.6
billion at December 31, 2017. The decrease was driven by
Oil & Gas, including credit quality improvements in the
portfolio, and a loan sale in the first quarter of 2018.
The Firm focuses on the management and diversification of
its industry exposures, and pays particular attention to
industries with actual or potential credit concerns.
Exposures deemed criticized align with the U.S. banking
regulators' definition of criticized exposures, which consist
of the special mention, substandard and doubtful
Wholesale credit exposure - industry exposures
(a) Other reductions includes loan sales.
(c) The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference
entity on which protection has been purchased. Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection used
in credit portfolio management activities are executed with investment-grade counterparties.
Criticized
nonperforming
(207)
(29)
Banks & Finance Cos
15,660
Transportation
4
118
4,427
11,490
16,035
Chemicals & Plastics
(2,130)
(7,994)
(125)
10,508
1
7,310
9,637
17,339
Automotive
4
81
124
18,251
18,456
Central Govt
392
4,699
393
60
7,484
Financial Markets Infrastructure
(2,080)
(36)
32
2,830
9,777
12,639
Insurance
(22)
(174)
1
19
385
6,767
8,188
15,359
Metals & Mining
(112)
(31)
6
21
22
(42)
-
(1)
18
4
6,067
36,722
42,807
Asset Managers
(133)
(150)
(5)
23
69
761
10,625
36,687
48,142
Healthcare
(2,290)
(575)
11
5
299
15,496
34,120
49,920
14
40,415
10
42,600
2
603
26,746
27,351
State & Municipal Govt(c)
(60)
(142)
(248)
(5,829)
| 。 ༅
38
150
138
4,326
23,558
28,172
Utilities
36
6
635
1,158
17,451
23,356
Oil & Gas
20,070
14,508
138,800
(d) The maturity profile of retained loans, lending-related commitments and derivative receivables is based on remaining contractual maturity. Derivative
contracts that are in a receivable position at December 31, 2018, may become payable prior to maturity based on their cash flow profile or changes in
market conditions.
211,798
Due after 5
years
Total
Ratings profile
Investment-
grade
Noninvestment-
grade
AAA/Aaa to
BBB-/Baa3
Due after
1 year
through
5 years
BB+/Bal &
below
Total
of IG
$ 339,729
$
99,433
$ 439,162
Total %
Due in 1
year or less
Maturity profile(d)
Less: Liquid securities and other cash collateral
held against derivatives
(15,322)
(16,108)
NA
$
ΝΑ
(a) Receivables from customers and other include $30.1 billion and $26.0
billion of held-for-investment margin loans at December 31, 2018 and
2017, respectively, to prime brokerage customers in CIB and AWM;
these are classified in accrued interest and accounts receivable on the
Consolidated balance sheets.
(b) Represents the net notional amount of protection purchased and sold
through credit derivatives used to manage both performing and
nonperforming wholesale credit exposures; these derivatives do not
qualify for hedge accounting under U.S. GAAP. For additional
information, refer to Credit derivatives on page 119, and Note 5.
(c) Excludes assets acquired in loan satisfactions.
112
JPMorgan Chase & Co./2018 Form 10-K
The following tables present the maturity and ratings profiles of the wholesale credit portfolio as of December 31, 2018 and
2017. The ratings scale is based on the Firm's internal risk ratings, which generally correspond to the ratings assigned by S&P
and Moody's. For additional information on wholesale loan portfolio risk ratings, refer to Note 12.
Wholesale credit exposure - maturity and ratings profile
December 31, 2018
(in millions, except ratios)
Loans retained
Derivative receivables
77%
54,213
54,213
$ 138,458 $ 196,974 $ 103,730 $ 439,162
865,866
76
Loans held-for-sale and loans at fair value(a)
15,028
15,028
Receivables from customers and other
30,063
30,063
Total exposure - net of liquid securities and other
cash collateral held against derivatives
$ 910,957
$ 910,957
Credit derivatives used in credit portfolio
management activities (b)(c)
$
(447) $
205,619
10,463
275,317
462,813
74
38,891
387,813
(15,322)
(15,322)
Total derivative receivables, net of all collateral
Lending-related commitments
11,038
79,400
Subtotal
228,896
9,169
294,855
500,998
18,684
38,891
13,558
135,972
387,813
865,866
31,794
288,724
660,247
7,097
99,089
82
(9,318) $ (2,917) $ (12,682) $ (11,213)
Total wholesale credit
exposure
held against derivatives
4,136
(748)
(611)
$
3,461 $
4,209
3,547
110
Credit card
Total credit card loans increased from December 31, 2017
due to new account growth and higher sales volume. The
December 31, 2018 30+ day delinquency rate increased to
1.83% from 1.80% at December 31, 2017, but the
December 31, 2018 90+ day delinquency rate of 0.92%
was flat compared to December 31, 2017. Net charge-offs
increased for the year ended December 31, 2018 when
compared with the prior year, primarily due to the
seasoning of more recent vintages with higher loss rates, as
anticipated given underwriting standards at the time of
origination.
Consistent with the Firm's policy, all credit card loans
typically remain on accrual status until charged off.
However, the Firm establishes an allowance, which is offset
against loans and reduces interest income, for the
estimated uncollectible portion of accrued and billed
interest and fee income.
Geographic and FICO composition of credit card loans
At December 31, 2018, $71.2 billion, or 45% of the total
retained credit card loan portfolio, were concentrated in
California, Texas, New York, Florida and Illinois, compared
with $67.2 billion, or 45%, at December 31, 2017. For
additional information on the geographic and FICO
composition of the Firm's credit card loans, refer to Note
JPMorgan Chase & Co./2018 Form 10-K
351
273
1,509
Year ended December 31,
(in millions)
Beginning balance
$
2018
4,209 $
2,799
2017
4,820
3,525
Reductions:
Principal payments and other (a)
Charge-offs
1,407
1,577
468
699
Returned to performing status
1,399
12.
Modifications of credit card loans
At December 31, 2018 and 2017, the Firm had $1.3 billion
and $1.2 billion, respectively, of credit card loans
outstanding that have been modified in TDRs. For additional
information about loan modification programs to
borrowers, refer to Note 12.
JPMorgan Chase & Co./2018 Form 10-K
2,508
220
1,370
60
1,734
130
30,063 26,139
538,466 491,167
1,430 1,864
387,813 370,098
469
731
$926,279 $861,265
$ 1,899 $ 2,595
Credit derivatives used
in credit portfolio
Liquid securities and
other cash collateral
3,151
454,190 408,505
54,213 56,523
Lending-related
commitments
3,099
$ 1,150 $ 1,734
111
Management's discussion and analysis
WHOLESALE CREDIT PORTFOLIO
In its wholesale businesses, the Firm is exposed to credit
risk primarily through its underwriting, lending, market-
making, and hedging activities with and for clients and
counterparties, as well as through various operating
services (such as cash management and clearing activities),
securities financing activities and cash placed with banks. A
portion of the loans originated or acquired by the Firm's
wholesale businesses is generally retained on the balance
sheet. The Firm distributes a significant percentage of the
loans that it originates into the market as part of its
syndicated loan business and to manage portfolio
concentrations and credit risk.
The credit quality of the wholesale portfolio was stable for
the year ended December 31, 2018, characterized by low
levels of criticized exposure, nonaccrual loans and charge-
offs. Refer to the industry discussion on pages 113-115 for
further information. Retained loans increased across all
wholesale lines of business, primarily driven by commercial
and industrial and financial institution clients in CIB, and
Wealth Management clients globally in AWM. The wholesale
portfolio is actively managed, in part by conducting
ongoing, in-depth reviews of client credit quality and
transaction structure inclusive of collateral where
applicable, and of industry, product and client
concentrations.
In the following tables, the Firm's wholesale credit portfolio
includes exposure held in CIB, CB, AWM and Corporate, and
excludes all exposure managed by CCB.
Wholesale credit portfolio
December 31,
(in millions)
Loans retained
Loans held-for-sale
Loans at fair value
Loans - reported
Derivative receivables
Receivables from
customers and other(a)
Total wholesale credit-
related assets
Credit exposure
Nonperforming (c)
-
2018
$439,162 $402,898
2017
2018
2017
11,877
$
management activities (b) $ (12,682) $ (17,609) $
$ (12,682)
327
285
Total reductions
1,552
1,811
Net changes
(364)
77%
Ending balance
1,734
2018
2017
$ 416,828
$ 392,263
$ 121,643 $ 177,033 $ 104,222 $ 402,898
Total
Total %
of IG
91,217
(1,469)
Subtotal
80,273
9,882
Total derivative receivables, net of all collateral
Lending-related commitments
(16,108)
$ 1,370 $
(16,108)
56,523
Sales
189
(329)
Returned to performing status
$ 311,681
AAA/Aaa to
BBB-/Baa3
Investment-
grade
Ratings profile
Noninvestment-
grade
BB+/Bal &
below
Total
Due after 5
years
5 years
1 year
through
Due in 1
year or less
Due after
Maturity profile(d)
Less: Liquid securities and other cash collateral
held against derivatives
Derivative receivables
Loans retained
(in millions, except ratios)
December 31, 2017
88%
$
234
$ 402,898
200
299
Gross charge-offs
1,137
692
Paydowns and other
Reductions:
Net charge-off rate
56,523
4,521
183
(1,125)
212
(93)
(634)
(1,493)
(158)
(493)
(842)
5,011
313
6,349
5,198
1,779
6,512
4,034 $ 4,544 $ 13,776
(398)
$
Consumer,
excluding
credit card
$
2017
Year ended December 31,
(in millions, except ratios)
Allowance for loan losses
Beginning balance at January 1,
Gross charge-offs
Gross recoveries
Net charge-offs (a)
Consumer,
excluding
credit card
Credit card
Wholesale
Total
4,518
Credit card Wholesale
Total
Write-offs of PCI loans (b)
Provision for loan losses
Other
Ending balance at December 31,
$
4,146
$
5,184 $
$ 4,579 $ 4,884 $ 4,141 $
13,604
1,025
155
(1)
1,145
297
3,818
$
933
$
246 $
383
$
10,724
2,108
4,501
461
3,680
$
1,090
10,289
PCI
440 $
4,744
1,788
-
Total allowance for loan losses
$
4,146 $
5,184 $
4,115 $
1,788
13,445
2,225
2,225
$
4,579 $ 4,884 $ 4,141
$ 13,604
Allowance for lending-related commitments
Beginning balance at January 1,
-
2,162
Formula-based
196 $
4,123
119
5,387
187
187
86
86
(63)
4,818
-
130
(1)
4,885
613
4,973
(286)
5,300
$
Asset-specific (c)
Impairment methodology
$ 13,604
4,141
$
4,856
4,884
$
4,115 $ 13,445
1
2
2018
(1)
4,579 $
Summary of changes in the allowance for credit losses
Credit derivatives
120
1,035 $ 1,068
$
33 $
4,612 $
$
$ 14,500
4,179 $ 5,184 $ 5,137
$
Total allowance for credit losses
Memo:
$
$ 1,022 $ 1,055
-
$
33
$
881
187
187 $
848
33
$ - $ - $
99
956
$
99
923
33
$ - $ - $
Total allowance for lending-related
commitments(d)
4,884
$
5,176 $ 14,672
Retained loans, end of period
Allowance for loan losses to retained nonaccrual
loans(e)
1.47%
1.03%
3.27%
1.23%
1.39%
0.94%
3.31%
1.11%
Allowance for loan losses to retained loans
Credit ratios
30,579
Formula-based
3
$ 924,838
$ 402,898
392,263
$ 149,387
139,918
$ 372,553
366,798
30,576
$ 969,415
936,829
24,037
3
416,828
145,606
374,395
24,034
PCI loans, end of period
Retained loans, average
$ 373,637 $ 156,616 $ 439,162
898,979
JPMorgan Chase & Co./2018 Form 10-K
Asset-specific
1,068
Included in the Firm's end-user activities are credit
derivatives used to mitigate the credit risk associated with
traditional lending activities (loans and unfunded
commitments) and derivatives counterparty exposure in the
Firm's wholesale businesses (collectively, "credit portfolio
management” activities). Information on credit portfolio
management activities is provided in the table below. For
further information on derivatives used in credit portfolio
management activities, refer to Credit derivatives in Note 5.
The Firm also uses credit derivatives as an end-user to
manage other exposures, including credit risk arising from
certain securities held in the Firm's market-making
businesses. These credit derivatives are not included in
credit portfolio management activities; for further
information on these credit derivatives as well as credit
derivatives used in the Firm's capacity as a market-maker in
credit derivatives, refer to Credit derivatives in Note 5.
Credit derivatives used in credit portfolio management
activities
December 31, (in millions)
Credit derivatives used to manage:
Notional amount of
protection
purchased and sold (a)
2017
2018
Loans and lending-related commitments $ 1,272 $ 1,867
Derivative receivables
Credit derivatives used in credit portfolio
management activities
11,410
15,742
$ 12,682 $ 17,609
(a) Amounts are presented net, considering the Firm's net protection
purchased or sold with respect to each underlying reference entity or
index.
The credit derivatives used in credit portfolio management
activities do not qualify for hedge accounting under U.S.
GAAP; these derivatives are reported at fair value, with
gains and losses recognized in principal transactions
revenue. In contrast, the loans and lending-related
commitments being risk-managed are accounted for on an
accrual basis. This asymmetry in accounting treatment,
between loans and lending-related commitments and the
credit derivatives used in credit portfolio management
activities, causes earnings volatility that is not
representative, in the Firm's view, of the true changes in
value of the Firm's overall credit exposure.
The effectiveness of credit default swaps ("CDS") as a hedge
against the Firm's exposures may vary depending on a
number of factors, including the named reference entity
(i.e., the Firm may experience losses on specific exposures
that are different than the named reference entities in the
purchased CDS); the contractual terms of the CDS (which
may have a defined credit event that does not align with an
actual loss realized by the Firm); and the maturity of the
Firm's CDS protection (which in some cases may be shorter
than the Firm's exposures). However, the Firm generally
seeks to purchase credit protection with a maturity date
that is the same or similar to the maturity date of the
exposure for which the protection was purchased, and
remaining differences in maturity are actively monitored
and managed by the Firm.
JPMorgan Chase & Co./2018 Form 10-K
119
Management's discussion and analysis
ALLOWANCE FOR CREDIT LOSSES
The Firm's allowance for credit losses covers the retained
consumer and wholesale loan portfolios, as well as the
Firm's wholesale and certain consumer lending-related
commitments.
For further information on the components of the allowance
for credit losses and related management judgments, refer
to Critical Accounting Estimates Used by the Firm on pages
141-143 and Note 13.
At least quarterly, the allowance for credit losses is
reviewed by the CRO, the CFO and the Controller of the
Firm. As of December 31, 2018, JPMorgan Chase deemed
the allowance for credit losses to be appropriate and
sufficient to absorb probable credit losses inherent in the
portfolio.
The allowance for credit losses decreased compared with
December 31, 2017 driven by:
a reduction in the consumer allowance due to a $250
million reduction in the CCB allowance for loan losses in
the residential real estate PCI portfolio, reflecting
continued improvement in home prices and lower
delinquencies, as well as a $187 million reduction in the
allowance for write-offs of PCI loans partially due to loan
sales. These reductions were largely offset by a $300
million addition to the allowance in the credit card
portfolio, due to loan growth and higher loss rates, as
anticipated.
For additional information on the consumer and wholesale
credit portfolios, refer to Consumer Credit Portfolio on
pages 106-111, Wholesale Credit Portfolio on pages 112-
119 and Note 12.
Credit portfolio management activities
The Firm uses credit derivatives for two primary purposes:
first, in its capacity as a market-maker, and second, as an
end-user, to manage the Firm's own credit risk associated
with various exposures. For a detailed description of credit
derivatives, refer to Credit derivatives in Note 5.
-
$ 1,035 $
1,035 $
$
$
33
$
1,055
1,022 $
$
-
$
33
$
Impairment methodology
Ending balance at December 31,
1
Other
(10)
(17)
7
(14)
--(14)
Provision for lending-related commitments
$ 1,052 $ 1,078
26 $
$
1,068
1
$
33 $
Derivative CVA and
•
Earnings-at-risk
Risk monitoring and control
Market risk exposure is managed primarily through a series
of limits set in the context of the market environment and
business strategy. In setting limits, the Firm takes into
consideration factors such as market volatility, product
liquidity, accommodation of client business, and
management experience. The Firm maintains different
levels of limits. Firm level limits include VaR and stress
limits. Similarly, line of business and Corporate limits
include VaR and stress limits and may be supplemented by
certain nonstatistical risk measures such as profit and loss
drawdowns. Limits may also be set within the lines of
business and Corporate, as well as at the portfolio and/or
legal entity level.
Market Risk Management sets limits and regularly reviews
and updates them as appropriate, with any changes
approved by line of business or Corporate management and
Market Risk Management. Senior management, including
the Firm's CEO and CRO, are responsible for reviewing and
approving certain of these risk limits on an ongoing basis.
Limits that have not been reviewed within specified time
periods by Market Risk Management are escalated to senior
management. The lines of business and Corporate are
responsible for adhering to established limits against which
exposures are monitored and reported.
Limit breaches are required to be reported in a timely
manner to limit approvers, which include Market Risk
Management and senior management. In the event of a
breach, Market Risk Management consults with senior
management of the Firm and of the line of business or
Corporate to determine the appropriate course of action
required to return the applicable positions to compliance,
which may include a reduction in risk in order to remedy the
breach or granting a temporary increase in limits to
accommodate an expected increase in client activity and/or
market volatility. Certain Firm, Corporate or line of
business-level limits that have been breached are escalated
to senior management, the LOB Risk Committee, and/or the
Firmwide Risk Committee.
124
JPMorgan Chase & Co./2018 Form 10-K
The following table summarizes, by line of business and Corporate, the predominant business activities that give rise to market
risks, and certain measures used to capture those risks.
Predominant business activities that give rise to market risk by line of business and Corporate
LOBS and
Corporate
CCB
CIB
•
CB
Predominant business
activities (a)
.
Services mortgage
loans
Originates loans and
takes deposits
Makes markets and
services clients across
fixed income, foreign
exchange, equities and
commodities
Originates loans and
takes deposits
Originates loans and
takes deposits
.
Other sensitivity-based measures
•
Profit and loss drawdowns
•
Governance and oversight
The Firm's approach to managing principal risk is consistent
with the Firm's general risk governance structure. A
Firmwide risk policy framework exists for all principal
investing activities. All investments are approved by
investment committees that include executives who are
independent from the investing businesses.
The Firm's independent control functions are responsible
for reviewing the appropriateness of the carrying value of
investments in accordance with relevant policies. As part of
the risk governance structure, approved levels for
investments are established and monitored for each
relevant business or segment in order to manage the overall
size of the portfolios. The Firm also conducts stress testing
on these portfolios using specific scenarios that estimate
losses based on significant market moves and/or other risk
events.
JPMorgan Chase & Co./2018 Form 10-K
123
Management's discussion and analysis
MARKET RISK MANAGEMENT
Market risk is the risk associated with the effect of changes
in market factors such as interest and foreign exchange
rates, equity and commodity prices, credit spreads or
implied volatilities, on the value of assets and liabilities held
for both the short and long term.
Market Risk Management
Market Risk Management monitors market risks throughout
the Firm and defines market risk policies and procedures.
The Market Risk Management function reports to the Firm's
CRO.
•
Related market risks
Market Risk Management seeks to manage risk, facilitate
efficient risk/return decisions, reduce volatility in operating
performance and provide transparency into the Firm's
market risk profile for senior management, the Board of
Directors and regulators. Market Risk Management is
responsible for the following functions:
•
Establishment of a market risk policy framework
Independent measurement, monitoring and control of
line of business, Corporate, and firmwide market risk
Definition, approval and monitoring of limits
Performance of stress testing and qualitative risk
assessments
Risk measurement
Measures used to capture market risk
There is no single measure to capture market risk and
therefore the Firm uses various metrics, both statistical and
nonstatistical, to assess risk including:
• Value-at-risk (VaR)
•
Stress testing
•
As of December 31, 2018 and 2017, the aggregate
carrying values of the principal investment portfolios were
$22.2 billion and $19.5 billion, respectively, which included
tax-oriented investments (e.g., affordable housing and
alternative energy investments) of $16.6 billion and $14.0
billion, respectively, and private equity, various debt and
equity instruments, and real assets of $5.6 billion and $5.5
billion, respectively.
Non-linear risk primarily
from prepayment options
embedded in mortgages
and changes in the
probability of newly
originated mortgage
commitments actually
closing
differences in the relative
Marketable equity
investments
Positions included in
earnings-at-risk
Positions included in other
sensitivity-based measures
•
Retained loan portfolio
Deposits
Retained loan portfolio
•
•
Deposits
Retained loan portfolio
.
Deposits
Privately held equity and
other investments
measured at fair value
Derivatives FVA and fair
value option elected
liabilities DVA
AWM
Provides initial capital
investments in
products such as
mutual funds and
capital invested
alongside third-party
investors
Originates loans and
takes deposits
Risk from changes in
market factors (e.g., rates
and credit spreads)
Debt securities held in
advance of distribution to
clients, classified as trading
assets debt instruments (b)
Corporate
associated hedges
0
Fair value option elected
liabilities
and securities borrowed
movements of the rate
indices underlying
mortgage exposure and
other interest rates
Risk of loss from adverse
movements in market
prices across interest
rate, credit, currency,
commodity and equity
risk factors
Interest rate risk and
prepayment risk
Positions included in Risk
Management VaR
•
•
.
•
•
•
Basis risk from
Mortgage pipeline loans,
classified as derivatives
Warehouse loans, classified
as trading assets - debt
instruments
Hedges of pipeline loans,
warehouse loans and MSRS,
classified as derivatives
Interest-only securities,
classified as trading assets
debt instruments, and
related hedges, classified as
derivatives
Trading assets/liabilities -
debt and marketable equity
instruments, and
derivatives, including
hedges of the retained loan
portfolio
Certain securities
purchased, loaned or sold
under resale agreements
MSRS
Principal investments are typically private non-traded
financial instruments representing ownership or other
forms of junior capital. Principal investments cover multiple
asset classes and are made either in stand-alone investing
businesses or as part of a broader business platform. In
general, new principal investments include tax-oriented
investments, as well as investments made to enhance or
accelerate LOB and Corporate strategic business initiatives.
The Firm's principal investments are managed by the
various LOBS and Corporate and are reflected within their
respective financial results. Effective January 1, 2018, the
Firm adopted new accounting guidance related to the
recognition and measurement of financial assets, which
requires fair value adjustments upon observable price
changes to certain equity investments previously held at
cost in the principal investment portfolios. For additional
information, refer to Notes 1 and 2.
Principal investment risk
The Firm's independent control functions are responsible
for reviewing the appropriateness of the carrying value of
investment securities in accordance with relevant policies.
Approved levels for investment securities are established
for each risk category, including capital and credit risks.
2016
Consumer, excluding credit card
$
(63) $
613 $
467
$
$
7 $
$
(63) $
620 $ 467
Credit card
4,818
4,973
4,042
4,818
4,973
4,042
4,755
5,586
4,509
-
2017
2018
2016
2017
Net charge-off rates (a)
0.05%
3.10%
0.04%
0.53%
0.34%
2.95%
0.03%
0.62%
Note: In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures.
(a) For the year ended December 31, 2017, excluding net charge-offs of $467 million related to the student loan portfolio transfer, the net charge-off rate for
Consumer, excluding credit card would have been 0.18%; total Firm would have been 0.55%; Consumer, excluding credit card and PCI loans would have
been 0.20%; and total Firm, excluding PCI would have been 0.57%.
(b) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as
purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool.
(c) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. The asset-specific credit card allowance
for loan losses modified in a TDR is calculated based on the loans' original contractual interest rates and does not consider any incremental penalty rates.
(d) The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets.
(e) The Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.
7
JPMorgan Chase & Co./2018 Form 10-K
Management's discussion and analysis
Provision for credit losses
The following table presents the components of the Firm's provision for credit losses:
Provision for
lending-related commitments
Provision for loan losses
Total provision for credit losses
Year ended December 31,
(in millions)
2018
2017
2016
2018
121
4,755
5,593
4,509
lower net charge-offs in the residential real estate
portfolio, largely driven by recoveries from loan sales,
and
- lower net charge-offs in the auto portfolio
partially offset by
a $250 million reduction in the allowance for loan
losses in the residential real estate portfolio - PCI,
reflecting continued improvement in home prices and
lower delinquencies; the reduction was $75 million
lower than the prior year for the residential real estate
portfolio - non credit-impaired
the prior year also included a net $218 million write-
down recorded in connection with the sale of the student
loan portfolio, and
the decrease in the credit card portfolio was due to
-
a $300 million addition to the allowance for loan
losses, reflecting loan growth and higher loss rates, as
anticipated; the addition was $550 million lower than
the prior year,
largely offset by
the decrease in the consumer, excluding credit card
portfolio in CCB was due to
- higher net charge-offs due to seasoning of more recent
vintages, as anticipated, and
in wholesale, the current period expense of $116 million
reflected additions to the allowance for loan losses from
select client downgrades,
largely offset by
- other net portfolio activity, including a reduction in the
allowance for loan losses related to a single name in
the Oil & Gas portfolio in the first quarter of 2018,
compared to a net benefit of $303 million in the prior
year. The prior year benefit reflected a reduction in the
allowance for loan losses on credit quality
improvements in the Oil & Gas, Natural Gas Pipelines,
and Metals and Mining portfolios.
122
JPMorgan Chase & Co./2018 Form 10-K
INVESTMENT PORTFOLIO RISK MANAGEMENT
Investment portfolio risk is the risk associated with the loss
of principal or a reduction in expected returns on
investments arising from the investment securities portfolio
held predominantly by Treasury and CIO in connection with
the Firm's balance sheet or asset-liability management
objectives or from principal investments managed in
various LOBS and Corporate in predominantly privately-held
financial instruments. Investments are typically intended to
be held over extended periods and, accordingly, the Firm
has no expectation for short-term realized gains with
respect to these investments.
Investment securities risk
Investment securities risk includes the exposure associated
with a default in the payment of principal and interest. This
risk is minimized given that Treasury and CIO substantially
invest in high-quality securities. At December 31, 2018, the
investment securities portfolio was $260.1 billion, and the
average credit rating of the securities comprising the
portfolio was AA+ (based upon external ratings where
available and where not available, based primarily upon
internal ratings that correspond to ratings as defined by
S&P and Moody's). For further information on the
investment securities portfolio, refer to Corporate segment
results on pages 77-78 and Note 10. For further
information on the market risk inherent in the portfolio,
refer to Market Risk Management on pages 124-131. For
further information on related liquidity risk, refer to
Liquidity Risk on pages 95-100.
Governance and oversight
Investment securities risks are governed by the Firm's Risk
Appetite framework, and discussed at the CIO, Treasury and
Corporate (CTC) Risk Committee with regular updates to the
DRPC.
•
Manages the Firm's
•
•
130
(286)
571
(14)
(17)
281
116
(303)
852
$
4,885 $ 5,300 $
•
5,080
(14) $
(10) $
281
$
4,871 $ 5,290 $
5,361
Total consumer
Wholesale
Total
Provision for credit losses
The provision for credit losses decreased for the year
ended December 31, 2018 as a result of a decline in the
consumer provision, partially offset by an increase in the
wholesale provision
$
liquidity, funding,
capital, structural
interest rate and
foreign exchange risks
59
(b)
(b)
28
17
39
1
3
2
1
4
12
9
14
4
1
16
(1)
(a)
(b)
(b)
NM
NM
26
39
(b)
(b)
26
58
27
14 (b)
(b)
38
3
3
4
7
3
(1)
12
(a)
NM
(b)
(b)
NM
(6)
(a)
(b)
(b)
NM
NM
(2)
(a)
(b)
(b)
$ 17 (b) $
42 (b)
(a) Average portfolio VaR is less than the sum of the VaR of the components described above, which is due to portfolio diversification. The diversification
effect reflects that the risks are not perfectly correlated.
(b) Diversification benefit represents the difference between the total VaR and each reported level and the sum of its individual components. Diversification
benefit reflects the non-additive nature of VaR due to imperfect correlation across lines of business, Corporate, and risk types. The maximum and
minimum VaR for each portfolio may have occurred on different trading days than the components and consequently diversification benefit is not
meaningful.
Average Total VaR increased $12 million for the year-ended
December 31, 2018 as compared with the prior year.
The increase was primarily due to changes in the risk profile
for Fixed Income and Equities risk types, the inclusion of
certain CIB marketable equity investments and a Corporate
private equity position that became publicly traded in the
fourth quarter of 2017, as well as increased volatility in the
one-year historical look-back period.
In addition, average Credit Portfolio VaR has declined by $4
million, reflecting the sale of select positions in the prior
year.
VaR can vary significantly over time as positions change,
market volatility fluctuates, and diversification benefits
change.
VaR back-testing
The Firm evaluates the effectiveness of its VaR methodology
by back-testing, which compares the daily Risk Management
VaR results with the daily gains and losses actually
recognized on market-risk related revenue.
The Firm's definition of market risk-related gains and losses
is consistent with the definition used by the banking
regulators under Basel III. Under this definition, market
risk-related gains and losses are defined as: gains and
losses on the positions included in the Firm's Risk
Management VaR, excluding fees, commissions, certain
valuation adjustments, net interest income, and gains and
losses arising from intraday trading.
29
JPMorgan Chase & Co./2018 Form 10-K
Management's discussion and analysis
The following chart compares actual daily market risk-related gains and losses with the Firm's Risk Management VaR for the
year ended December 31, 2018. As the chart presents market risk-related gains and losses related to those positions included
in the Firm's Risk Management VaR, the results in the table below differ from the results of back-testing disclosed in the Market
Risk section of the Firm's Basel III Pillar 3 Regulatory Capital Disclosures reports, which are based on Regulatory VaR applied to
covered positions. The chart shows that for the year ended December 31, 2018 the Firm observed ten VaR back-testing
exceptions and posted gains on 128 of the 259 days.
Daily Market Risk-Related Gains and Losses
vs. Risk Management VaR (1-day, 95% Confidence level)
Year ended December 31, 2018
$millions
125
100
75
50
50
127
38
62 (b) $
$
NM
NM
(b)
(b)
12
9
(b)
14
5
(b)
2
28 (b) $
16
(b)
(b)
NM
NM
(4)
(a)
(b)
NM
(b)
NM
$ 41
(10) (a)
109
(b)
NM (b)
Value-at-risk
JPMorgan Chase utilizes VaR, a statistical risk measure, to
estimate the potential loss from adverse market moves in
the current market environment. The Firm has a single VaR
framework used as a basis for calculating Risk Management
VaR and Regulatory VaR.
The framework is employed across the Firm using historical
simulation based on data for the previous 12 months. The
framework's approach assumes that historical changes in
market values are representative of the distribution of
potential outcomes in the immediate future. The Firm
believes the use of Risk Management VaR provides a daily
measure of risk that is closely aligned to risk management
decisions made by the lines of business and Corporate, and
provides the appropriate information needed to respond to
risk events.
The Firm's Risk Management VaR is calculated assuming a
one-day holding period and an expected tail-loss
methodology which approximates a 95% confidence level.
Risk Management VaR provides a consistent framework to
measure risk profiles and levels of diversification across
product types and is used for aggregating risks and
monitoring limits across businesses. VaR results are
reported to senior management, the Board of Directors and
regulators.
Under the Firm's Risk Management VaR methodology,
assuming current changes in market values are consistent
with the historical changes used in the simulation, the Firm
would expect to incur VaR “back-testing exceptions,"
defined as losses greater than that predicted by VaR
estimates, an average of five times every 100 trading days.
The number of VaR back-testing exceptions observed can
differ from the statistically expected number of back-testing
exceptions if the current level of market volatility is
materially different from the level of market volatility
during the 12 months of historical data used in the VaR
calculation.
Underlying the overall VaR model framework are individual
VaR models that simulate historical market returns for
individual risk factors and/or product types. To capture
material market risks as part of the Firm's risk management
framework, comprehensive VaR model calculations are
performed daily for businesses whose activities give rise to
market risk. These VaR models are granular and incorporate
numerous risk factors and inputs to simulate daily changes
in market values over the historical period; inputs are
selected based on the risk profile of each portfolio, as
sensitivities and historical time series used to generate daily
market values may be different across product types or risk
management systems. The VaR model results across all
portfolios are aggregated at the Firm level.
As VaR is based on historical data, it is an imperfect
measure of market risk exposure and potential future
losses. In addition, based on their reliance on available
historical data, limited time horizons, and other factors, VaR
measures are inherently limited in their ability to measure
certain risks and to predict losses, particularly those
associated with market illiquidity and sudden or severe
shifts in market conditions.
For certain products, specific risk parameters are not
captured in Var due to the lack of inherent liquidity and
availability of appropriate historical data. The Firm uses
proxies to estimate the VaR for these and other products
when daily time series are not available. It is likely that
using an actual price-based time series for these products,
if available, would affect the VaR results presented. The
Firm therefore considers other nonstatistical measures such
as stress testing, in addition to VaR, to capture and manage
its market risk positions.
The daily market data used in VaR models may be different
than the independent third-party data collected for VCG
price testing in its monthly valuation process. For example,
in cases where market prices are not observable, or where
proxies are used in VaR historical time series, the data
sources may differ. For further information on the Firm's
valuation process, refer to Valuation process in Note 2.
Because VaR model calculations require daily data and a
consistent source for valuation, it may not be practical to
use the data collected in the VCG monthly valuation process
for VaR model calculations.
The Firm's VaR model calculations are periodically
evaluated and enhanced in response to changes in the
composition of the Firm's portfolios, changes in market
conditions, improvements in the Firm's modeling techniques
and measurements, and other factors. Such changes may
affect historical comparisons of VaR results. For information
regarding model reviews and approvals, refer to Estimations
and Model Risk Management on page 140.
The Firm calculates separately a daily aggregated VaR in
accordance with regulatory rules ("Regulatory VaR"), which
is used to derive the Firm's regulatory VaR-based capital
requirements under Basel III. This Regulatory VaR model
framework currently assumes a ten business-day holding
period and an expected tail loss methodology which
approximates a 99% confidence level. Regulatory VaR is
applied to "covered" positions as defined by Basel III, which
may be different than the positions included in the Firm's
Risk Management VaR. For example, credit derivative
hedges of accrual loans are included in the Firm's Risk
Management VaR, while Regulatory VaR excludes these
credit derivative hedges. In addition, in contrast to the
Firm's Risk Management VaR, Regulatory VaR currently
excludes the diversification benefit for certain VaR models.
126
JPMorgan Chase & Co./2018 Form 10-K
For additional information on Regulatory VaR and the other
components of market risk regulatory capital for the Firm
(e.g., VaR-based measure, stressed VaR-based measure and
the respective backtesting), refer to JPMorgan Chase's Basel
III Pillar 3 Regulatory Capital Disclosures reports, which are
available on the Firm's website at: (http://
investor.shareholder.com/jpmorganchase/basel.cfm).
The table below shows the results of the Firm's Risk Management VaR measure using a 95% confidence level.
Total VaR
As of or for the year ended December 31,
(in millions)
CIB trading VaR by risk type
Fixed income
Foreign exchange
Equities
Management's discussion and analysis
125
JPMorgan Chase & Co./2018 Form 10-K
(b) The AWM contribution to Firmwide average VaR was not material for the year ended December 31, 2018 and 2017.
Structural interest rate
risk from the Firm's
traditional banking
activities
Structural non-USD
foreign exchange risks
•
Retained loan portfolio
Deposits
.
•
Derivative positions
.
Deposits with banks
.
measured at fair value
through noninterest
revenue in earnings
Commodities and other
.
Investment securities
portfolio and related
interest rate hedges
Long-term debt and
related interest rate
hedges
Initial seed capital
investments and related
hedges, classified as
derivatives
Capital invested alongside
third-party investors,
typically in privately
distributed collective
vehicles managed by AWM
(i.e., co-investments)
Privately held equity and
other investments
measured at fair value
Foreign exchange exposure
related to Firm-issued non-
USD long-term debt ("LTD")
and related hedges
(a) In addition to the predominant business activities, each of the LOBS and Corporate may engage in principal investing activities. To the extent principal investments are
deemed market risk sensitive, they are reflected in relevant risk measures (i.e., VaR or Other sensitivity-based measures) and captured in the table above. For additional
discussion on principal investments refer to Investment Portfolio Risk Management on page 123.
Marketable equity
investments
Diversification benefit to CIB trading VaR
CIB trading VaR
Credit portfolio VaR
$ 20
+A
$
40
10
4
20
17
13
26
12
28
8
8
4
13
7
4
10
(26) (a)
NM (b)
NM (b)
(30) (a)
NM (b)
19
(b)
$
15
Diversification benefit to CIB VaR
CIB VaR
CCB VaR
Corporate VaR
Diversification benefit to other VaR
Other VaR
Diversification benefit to CIB and other VaR
Total VaR
+A
2018
2017
65
Avg.
Max
Avg.
Min
Max
33
+A
25
+A
46
6
3
Min
25
239
56
292
109
NM
239
229
Allowance for loan losses to retained nonaccrual
loans excluding credit card
358
120
358
179
109
NM
239
147
NM
Net charge-off rates(a)
NM
-25
NM
JPMorgan Chase & Co./2018 Form 10-K
128
Fourth Quarter
2018
Third Quarter
2018
2018
120
Second Quarter
Risk Management VaR
Market Risk-Related Gains and Losses
-125
-100
-75
-50
First Quarter
2018
0.05
25
0.04
68
NM
358
253
56
NM
nonaccrual loans(e)
239
loans excluding credit card
68
NM
358
140
3.10
Allowance for loan losses to retained nonaccrual
Allowance for loan losses to retained
191
1.03
0.52
1.27
2.95
0.03
0.31
Credit ratios, excluding residential real estate
PCI loans
Allowance for loan losses to
0.60
retained loans
0.67
3.31
0.94
1.23
0.69
3.27
JPMorgan Chase & Co./2018 Form 10-K
131
Management's discussion and analysis
COUNTRY RISK MANAGEMENT
The Firm, through its lines of business and Corporate, may
be exposed to country risk resulting from financial,
economic, political or other significant developments which
adversely affect the value of the Firm's exposures related to
a particular country or set of countries. The Country Risk
Management group actively monitors the various portfolios
which may be impacted by these developments and
measures the extent to which the Firm's exposures are
diversified given the Firm's strategy and risk tolerance
relative to a country.
Organization and management
(b) Impact recognized through OCI.
Country Risk Management is an independent risk
•
The Firm's country risk management function includes the
following activities:
•
•
•
•
•
Establishing policies, procedures and standards
consistent with a comprehensive country risk framework
Assigning sovereign ratings, assessing country risks and
establishing risk tolerance relative to a country
(a) Excludes equity securities without readily determinable fair values that are measured under the measurement alternative. Refer to Note 2 for additional
information.
management function that assesses, manages and monitors
country risk originated across the Firm. The Firmwide Risk
Executive for Country Risk reports to the Firm's CRO.
(1)
1 basis point parallel
1 basis point parallel
increase in spread
Fair value option elected liabilities –
interest rate sensitivity
Represents the basis risk on derivatives
used to hedge the foreign exchange risk on
the non-USD LTD(b)
Primarily represents the foreign exchange
revaluation on the fair value of the
derivative hedges (b)
Impact of changes in the spread related to
derivatives FVA
Impact of changes in the spread related to
fair value option elected liabilities DVA(b)
Interest rate sensitivity on fair value option
liabilities resulting from a change in the
Firm's own credit spread (b)
Measuring and monitoring country risk exposure and
stress across the Firm
(13)
(10)
1
tightening of cross currency
10% depreciation of
currency
17
(13)
1 basis point parallel
increase in spread
(4)
(6)
1 basis point parallel
increase in spread
30
22
basis
Managing and approving country limits and reporting
trends and limit breaches to senior management
Credit derivatives protection purchased and sold is
reported based on the underlying reference entity and is
measured at the notional amount of protection
Providing country risk scenario analysis
To enable effective risk management of country risk to the
Firm, country exposure and stress are measured and
reported weekly, and used by Country Risk Management to
identify trends, and monitor high usages and breaches
against limits.
The following table presents the Firm's top 20 exposures by
country (excluding the U.S.) as of December 31, 2018, and
their comparative exposures as of December 31, 2017. The
selection of countries represents the Firm's largest total
exposures by country, based on the Firm's internal country
risk management approach, and does not represent the
Firm's view of any actual or potentially adverse credit
conditions. Country exposures may fluctuate from period to
period due to client activity and market flows.
As discussed on page 132, during the fourth quarter of
2018 the Firm refined its country exposure measurement
approach to exclude capital invested in local entities. While
this change did not have a material impact to country
exposure, prior period amounts have been revised within
the following table to conform with the current period
presentation.
Top 20 country exposures (excluding the U.S.) (a)
December 31,
(in billions)
Germany
United
Kingdom
Japan
2018
2017(f)
Lending
and
deposits (b) investing (c)(d)
Trading and
Other(e)
Total
exposure
Total
exposure
$ 53.7 $
8.1 $ 0.3 $ 62.1
$ 57.4
28.0
Risk reporting
Developing surveillance tools, such as signaling models
and ratings indicators, for early identification of
potential country risk concerns
Stress testing is an important component of the Firm's
country risk management framework, which aims to
estimate and limit losses arising from a country crisis by
measuring the impact of adverse asset price movements to
a country based on market shocks combined with
counterparty specific assumptions. Country Risk
Management periodically designs and runs tailored stress
scenarios to test vulnerabilities to individual countries or
sets of countries in response to specific or potential market
events, sector performance concerns, sovereign actions and
geopolitical risks. These tailored stress results are used to
inform potential risk reduction across the Firm, as
necessary.
JPMorgan Chase & Co./2018 Form 10-K
Sources and measurement
The Firm is exposed to country risk through its lending and
deposits, investing, and market-making activities, whether
cross-border or locally funded. Country exposure includes
activity with both government and private-sector entities in
a country. Under the Firm's internal country risk
management approach, attribution of exposure to a specific
country is based on the country where the largest
proportion of the assets of the counterparty, issuer, obligor
or guarantor are located or where the largest proportion of
its revenue is derived, which may be different than the
domicile (i.e. legal residence) or country of incorporation of
the counterparty, issuer, obligor or guarantor. Country
exposures are generally measured by considering the Firm's
risk to an immediate default of the counterparty, issuer,
obligor or guarantor, with zero recovery. Assumptions are
sometimes required in determining the measurement and
allocation of country exposure, particularly in the case of
certain non-linear or index exposures. The use of different
measurement approaches or assumptions could affect the
amount of reported country exposure.
During the fourth quarter of 2018, the Firm refined its
country exposure measurement approach to exclude capital
invested in local entities. With this change, country
exposure more directly measures the Firm's risk to an
immediate default of a counterparty, issuer, obligor or
guarantor. The risk associated with capital invested in local
entities will continue to be examined in tailored stress
scenarios, depending on the vulnerabilities being tested.
For more on the Firm's country risk stress testing, refer to
page 133.
Under the Firm's internal country risk measurement
framework:
•
•
•
•
•
Lending exposures are measured at the total committed
amount (funded and unfunded), net of the allowance for
credit losses and eligible cash and marketable securities
collateral received
Deposits are measured as the cash balances placed with
central and commercial banks
Securities financing exposures are measured at their
receivable balance, net of eligible collateral received
Debt and equity securities are measured at the fair value
of all positions, including both long and short positions
Counterparty exposure on derivative receivables is
measured at the derivative's fair value, net of the fair
value of the eligible collateral received
Fair value option elected liabilities –
funding spread risk
purchased or sold, net of the fair value of the recognized
derivative receivable or payable. Credit derivatives
protection purchased and sold in the Firm's market-
making activities is measured on a net basis, as such
activities often result in selling and purchasing
protection related to the same underlying reference
entity; this reflects the manner in which the Firm
manages these exposures
Some activities may create contingent or indirect exposure
related to a country (for example, providing clearing
services or secondary exposure to collateral on securities
financing receivables). These exposures are managed in the
normal course of business through the Firm's credit,
market, and operational risk governance, rather than
through Country Risk Management.
The Firm's internal country risk reporting differs from the
reporting provided under the FFIEC bank regulatory
requirements. For further information on the FFIEC'S
reporting methodology, refer to Cross-border outstandings
on page 306 of the 2018 Form 10-K.
132
Stress testing
Derivatives funding spread risk
Description
Non-USD LTD cross-currency basis
The impact of changes in the maturity of various assets,
liabilities or off-balance sheet instruments as interest
rates change
The Firm manages interest rate exposure related to its
assets and liabilities on a consolidated, firmwide basis.
Business units transfer their interest rate risk to Treasury
and CIO through funds transfer pricing, which takes into
account the elements of interest rate exposure that can be
risk-managed in financial markets. These elements include
asset and liability balances and contractual rates of interest,
contractual principal payment schedules, expected
prepayment experience, interest rate reset dates and
maturities, rate indices used for repricing, and any interest
rate ceilings or floors for adjustable rate products. All
transfer-pricing assumptions are dynamically reviewed.
The Firm generates a baseline for net interest income and
certain interest rate-sensitive fees, and then conducts
simulations of changes for interest rate-sensitive assets and
liabilities denominated in U.S. dollars and other currencies
("non-U.S. dollar" currencies). This simulation primarily
includes retained loans, deposits, deposits with banks,
investment securities, long term debt and any related
interest rate hedges, and excludes other positions in risk
management VaR and other sensitivity-based measures as
described on page 125.
Earnings-at-risk scenarios estimate the potential change in
this baseline, over the following 12 months utilizing
multiple assumptions. These scenarios include a parallel
shift involving changes to both short-term and long-term
rates by an equal amount; a steeper yield curve involving
holding short-term rates constant and increasing long-term
rates or decreasing short-term rates and holding long-term
rates constant; and a flatter yield curve involving holding
short-term rates constant and decreasing long-term rates or
increasing short-term rates and holding long-term rates
constant. These scenarios consider the impact on exposures
as a result of changes in interest rates from baseline rates,
as well as pricing sensitivities of deposits, optionality and
changes in product mix. The scenarios include forecasted
balance sheet changes, as well as modeled prepayment and
reinvestment behavior, but do not include assumptions
about actions that could be taken by the Firm in response to
any such instantaneous rate changes. Mortgage prepayment
assumptions are based on the interest rates used in the
scenarios compared with underlying contractual rates, the
time since origination, and other factors which are updated
periodically based on historical experience. The pricing
sensitivity of deposits in the baseline and scenarios use
assumed rates paid which may differ from actual rates paid
due to timing lags and other factors. The Firm's earnings-at-
risk scenarios are periodically evaluated and enhanced in
response to changes in the composition of the Firm's
balance sheet, changes in market conditions, improvements
in the Firm's simulation and other factors.
The Firm's U.S. dollar sensitivities are presented in the table
below.
December 31,
(in billions)
2018
2017
Parallel shift:
+100 bps shift in rates
$
-100 bps shift in rates
0.9 $
(2.1)
1.7
(3.6)
Steeper yield curve:
+100 bps shift in long-term rates
-100 bps shift in short-term rates
Flatter yield curve:
0.5
0.7
(1.2)
Differences in the amounts by which short-term and long-
term market interest rates change (for example, changes
in the slope of the yield curve)
Differences in the amounts of assets, liabilities and off-
balance sheet instruments that are repricing at the same
time
Differences in the timing among the maturity or repricing
of assets, liabilities and off-balance sheet instruments
•
Other risk measures
Stress testing
Along with VaR, stress testing is an important tool used to
assess risk. While VaR reflects the risk of loss due to
adverse changes in markets using recent historical market
behavior, stress testing reflects the risk of loss from
hypothetical changes in the value of market risk sensitive
positions applied simultaneously. Stress testing measures
the Firm's vulnerability to losses under a range of stressed
but possible economic and market scenarios. The results
are used to understand the exposures responsible for those
potential losses and are measured against limits.
The Firm's stress framework covers Corporate and all lines
of business with market risk sensitive positions. The
framework is used to calculate multiple magnitudes of
potential stress for both market rallies and market sell-offs,
assuming significant changes in market factors such as
credit spreads, equity prices, interest rates, currency rates
and commodity prices, and combines them in multiple ways
to capture an array of hypothetical economic and market
scenarios.
The Firm generates a number of scenarios that focus on tail
events in specific asset classes and geographies, including
how the event may impact multiple market factors
simultaneously. Scenarios also incorporate specific
idiosyncratic risks and stress basis risk between different
products. The flexibility in the stress framework allows the
Firm to construct new scenarios that can test the outcomes
against possible future stress events. Stress testing results
are reported on a regular basis to the respective LOBS,
Corporate and the Firm's senior management.
Stress scenarios are governed by an overall stress
framework and are subject to the standards outlined in the
Firm's policies related to model risk management.
Significant changes to the framework are reviewed by the
relevant LOB Risk Committees on an annual basis or as
changing market conditions warrant and may be redefined
to reflect current or expected market conditions.
The Firm's stress testing framework is utilized in calculating
the Firm's CCAR and other stress test results, which are
reported to the Board of Directors. In addition, stress
testing results are incorporated into the Firm's Risk Appetite
framework, and are reported quarterly to the DRPC.
Profit and loss drawdowns
Profit and loss drawdowns are used to highlight trading
losses above certain levels of risk tolerance. Profit and loss
drawdowns are defined as the decline in net profit and loss
since the year-to-date peak revenue level.
(2.2)
Earnings-at-risk
The effect of interest rate exposure on the Firm's reported
net income is also important as interest rate risk represents
one of the Firm's significant market risks. Interest rate risk
arises not only from trading activities but also from the
Firm's traditional banking activities, which include extension
of loans and credit facilities, taking deposits and issuing
debt. The Firm evaluates its structural interest rate risk
exposure through earnings-at-risk, which measures the
extent to which changes in interest rates will affect the
Firm's net interest income and interest rate-sensitive fees.
For a summary by line of business and Corporate,
identifying positions included in earnings-at-risk, refer to
the table on page 125.
The CTC Risk Committee establishes the Firm's structural
interest rate risk policy and related limits, which are subject
to approval by the DRPC. Treasury and CIO, working in
partnership with the lines of business, calculates the Firm's
structural interest rate risk profile and reviews it with senior
management, including the CTC Risk Committee. In addition,
oversight of structural interest rate risk is managed through
a dedicated risk function reporting to the CTC CRO. This risk
function is responsible for providing independent oversight
and governance around assumptions and establishing and
monitoring limits for structural interest rate risk. The Firm
manages structural interest rate risk generally through its
investment securities portfolio and interest rate derivatives.
JPMorgan Chase & Co./2018 Form 10-K
129
Management's discussion and analysis
Structural interest rate risk can occur due to a variety of
factors, including:
•
•
•
The VaR and sensitivity measures illustrate the economic
sensitivity of the Firm's Consolidated balance sheets to
changes in market variables.
+100 bps shift in short-term rates
-100 bps shift in long-term rates
0.4
1.0
Year ended December 31,
Gain/(loss) (in millions)
Activity
Investment activities (a)
Investment management activities
Other investments
10.1
Consists of seed capital and related hedges;
and fund co-investments
Consists of privately held equity and other
investments held at fair value
The Firm quantifies the market risk of certain investment and funding activities by assessing the potential impact on net
revenue and OCI due to changes in relevant market variables. For additional information on the positions captured in other
sensitivity-based measures, refer to the table Predominant business activities that give rise to market risk on page 125.
The table below represents the potential impact to net revenue or OCI for market risk sensitive instruments that are not
included in VaR or earnings-at-risk. Where appropriate, instruments used for hedging purposes are reported along with the
positions being hedged. The sensitivities disclosed in the table below may not be representative of the actual gain or loss that
would have been realized at December 31, 2018 and 2017, as the movement in market parameters across maturities may
vary and are not intended to imply management's expectation of future deterioration in these sensitivities.
Sensitivity measure
2017
10% decline in market
value
$
(102) $
(110)
10% decline in market
value
(218)
(338)
Funding activities
2018
Non-USD LTD hedges foreign currency
("FX") exposure
portfolio and non-U.S. dollar-denominated debt issuance.
Treasury and CIO, working in partnership with the lines of
business, primarily manage these risks on behalf of the
Firm. Treasury and CIO may hedge certain of these risks
using derivatives within risk limits governed by the CTC Risk
Committee.
Non-U.S. dollar FX risk is the risk that changes in foreign
exchange rates affect the value of the Firm's assets or
liabilities or future results. The Firm has structural non-U.S.
dollar FX exposures arising from capital investments,
forecasted expense and revenue, the investment securities
(0.9)
(1.4)
The Firm's sensitivity to rates is largely a result of assets
repricing at a faster pace than deposits.
The Firm's net U.S. dollar sensitivities as of December 31,
2018 decreased when compared to December 31, 2017
primarily as a result of updating the Firm's baseline to
reflect higher interest rates. As higher interest rates are
now reflected in the Firm's baselines, sensitivities to
changes in rates are expected to be less significant.
The Firm's non-U.S. dollar sensitivities are presented in the
table below.
December 31,
(in billions)
Parallel shift:
+100 bps shift in rates
Flatter yield curve:
+100 bps shift in short-term rates
Other sensitivity-based measures
2018
0.5
$
0.5
0.5
0.5
The results of the non-U.S. dollar interest rate scenario
involving a steeper yield curve with long-term rates rising
by 100 basis points and short-term rates staying at current
levels were not material to the Firm's earnings-at-risk at
December 31, 2018 and 2017.
130
JPMorgan Chase & Co./2018 Form 10-K
Non-U.S. dollar foreign exchange risk
2017
2.6
0.6
44.9
The lines of business and Corporate are responsible for
applying the ORMF in order to manage the operational risk
that arises from their activities. The Control Management
organization, which consists of control managers within
each line of business and Corporate, is responsible for the
day-to-day execution of the ORMF.
Line of business and Corporate control committees are
responsible for reviewing data that indicates the quality and
stability of processes, addressing key operational risk
issues, focusing on processes with control concerns, and
overseeing control remediation. These committees escalate
operational risk issues to the FCC, as appropriate. For
additional information on the FCC, refer to Enterprise-wide
Risk Management on pages 79-140.
The Firmwide Risk Executive for Operational Risk
Management ("ORM”), a direct report to the CRO, is
responsible for defining the ORMF and establishing
minimum standards for its execution. Operational Risk
Officers report to both the line of business CROs and to the
Firmwide Risk Executive for ORM, and are independent of
the respective businesses or corporate functions they
oversee.
The Firm's Operational Risk Management Policy is approved
by the DRPC. This policy establishes the Operational Risk
Management Framework for the Firm.
Operational Risk identification and assessment
The Firm utilizes a structured risk and control self-
assessment process which is executed by the lines of
business and Corporate in accordance with the minimum
standards established by ORM, to identify, assess, mitigate
and manage its operational risk. As part of this process,
lines of business and Corporate identify key operational
risks inherent in their activities, address gaps or
deficiencies identified, and define actions to reduce residual
risk. Action plans are developed for identified control issues
and lines of business and Corporate are held accountable
for tracking and resolving issues in a timely manner.
Operational Risk Officers independently challenge the
execution of the self-assessment and evaluate the
appropriateness of the residual risk results.
In addition to the self-assessment process, the Firm tracks
and monitors events that have led to or could lead to actual
operational risk losses, including litigation-related events.
Responsible lines of business and Corporate analyze their
losses to evaluate the effectiveness of their control
environment to assess where controls have failed, and to
determine where targeted remediation efforts may be
required. ORM provides oversight of these activities and
may also perform independent assessments of significant
operational risk events and areas of concentrated or
emerging risk.
Operational Risk Measurement
In addition to the level of actual operational risk losses,
operational risk measurement includes operational risk-
based capital and operational risk loss projections under
both baseline and stressed conditions.
The primary component of the operational risk capital
estimate is the Loss Distribution Approach (“LDA”)
statistical model, which simulates the frequency and
severity of future operational risk loss projections based on
historical data. The LDA model is used to estimate an
aggregate operational risk loss over a one-year time
horizon, at a 99.9% confidence level. The LDA model
incorporates actual internal operational risk losses in the
quarter following the period in which those losses were
realized, and the calculation generally continues to reflect
such losses even after the issues or business activities
giving rise to the losses have been remediated or reduced.
As required under the Basel III capital framework, the Firm's
operational risk-based capital methodology, which uses the
Advanced Measurement Approach ("AMA”), incorporates
internal and external losses as well as management's view
of tail risk captured through operational risk scenario
analysis, and evaluation of key business environment and
internal control metrics. The Firm does not reflect the
impact of insurance in its AMA estimate of operational risk
capital.
134
JPMorgan Chase & Co./2018 Form 10-K
The Firm considers the impact of stressed economic
conditions on operational risk losses and develops a
forward looking view of material operational risk events
that may occur in a stressed environment. The Firm's
operational risk stress testing framework is utilized in
calculating results for the Firm's CCAR and other stress
testing processes.
For information related to operational risk RWA, CCAR or
ICAAP, refer to Capital Risk Management section, pages
85-94.
Operational Risk Monitoring and reporting
ORM has established standards for consistent operational
risk monitoring and reporting. Operational risk reports are
produced on a firmwide basis as well as by line of business
and Corporate. Reporting includes the evaluation of key
risk indicators against established thresholds as well as the
assessment of different types of operational risk against
stated risk appetite. The standards reinforce escalation
protocols to senior management and to the Board of
Directors.
Subcategories and examples of operational risks
Operational risk can manifest itself in various ways.
Operational risk subcategories such as Compliance risk,
Conduct risk, Legal risk and Estimations and Model risk, as
well as other operational risks, can lead to losses which are
captured through the Firm's operational risk measurement
processes. For more information on Compliance risk,
Conduct risk, Legal risk and Estimations and Model risk,
refer to pages 137, 138, 139 and 140, respectively. Details
on other select examples of operational risks are provided
below.
Cybersecurity risk
Governance
Cybersecurity risk is an important, continuous and evolving
focus for the Firm. The Firm devotes significant resources to
protecting and continuing to improve the security of the
Firm's computer systems, software, networks and other
technology assets. The Firm's security efforts are designed
to protect against, among other things, cybersecurity
attacks by unauthorized parties attempting to obtain access
to confidential information, destroy data, disrupt or
degrade service, sabotage systems or cause other damage.
The Firm continues to make significant investments in
enhancing its cyberdefense capabilities and to strengthen
its partnerships with the appropriate government and law
enforcement agencies and other businesses in order to
understand the full spectrum of cybersecurity risks in the
operating environment, enhance defenses and improve
resiliency against cybersecurity threats. The Firm actively
participates in discussions of cybersecurity risks with law
enforcement, government officials, peer and industry
groups, and has significantly increased efforts to educate
employees and certain clients on the topic.
To monitor and control operational risk, the Firm has an
Operational Risk Management Framework ("ORMF") which
is designed to enable the Firm to maintain a sound and
well-controlled operational environment. The ORMF has
four main components: Governance, Operational Risk
Identification and Assessment, Operational Risk
Measurement, and Operational Risk Monitoring and
Reporting.
Operational risk is the risk associated with inadequate or
failed internal processes, people and systems, or from
external events and includes compliance risk, conduct risk,
legal risk, and estimations and model risk. Operational risk
is inherent in the Firm's activities and can manifest itself in
various ways, including fraudulent acts, business
interruptions, cybersecurity attacks, inappropriate
employee behavior, failure to comply with applicable laws
and regulations or failure of vendors to perform in
accordance with their agreements. These events could
result in financial losses, litigation and regulatory fines, as
well as other damages to the Firm. The goal is to keep
operational risk at appropriate levels in light of the Firm's
financial position, the characteristics of its businesses, and
the markets and regulatory environments in which it
operates.
3.8
1.3
-
5.1
6.8
Malaysia
1.8
1.1
1.4
4.3
3.0
(a) Country exposures presented in the table reflect 87% and 86% of
total firmwide non-U.S. exposure, where exposure is attributed to a
specific country, for the periods ending December 31, 2018 and 2017,
respectively.
(b) Lending and deposits includes loans and accrued interest receivable
(net of eligible collateral and the allowance for loan losses), deposits
with banks (including central banks), acceptances, other monetary
assets, issued letters of credit net of participations, and unused
commitments to extend credit. Excludes intra-day and operating
exposures, such as those from settlement and clearing activities.
(c) Includes market-making inventory, AFS securities, and counterparty
exposure on derivative and securities financings net of eligible
collateral and hedging.
(d) Includes single reference entity ("single-name"), index and other
multiple reference entity transactions for which one or more of the
underlying reference entities is in a country listed in the above table.
(e) Predominantly includes physical commodity inventory.
(f) The country rankings presented in the table as of December 31, 2017,
are based on the country rankings of the corresponding exposures at
December 31, 2018, not actual rankings of such exposures at
December 31, 2017.
JPMorgan Chase & Co./2018 Form 10-K
133
Management's discussion and analysis
OPERATIONAL RISK MANAGEMENT
Operational Risk Management Framework
Third parties with which the Firm does business or that
facilitate the Firm's business activities (e.g., vendors,
exchanges, clearing houses, central depositories, and
financial intermediaries) could also be sources of
JPMorgan Chase & Co./2018 Form 10-K
cybersecurity risk to the Firm. Third party cybersecurity
incidents such as system breakdowns or failures,
misconduct by the employees of such parties, or
cyberattacks could affect their ability to deliver a product or
service to the Firm or result in lost or compromised
information of the Firm or its clients. Clients can also be
sources of cybersecurity risk to the Firm, particularly when
their activities and systems are beyond the Firm's own
security and control systems. As a result, the Firm engages
in regular and ongoing discussions with certain vendors and
clients regarding cybersecurity risks and opportunities to
improve security. However, where cybersecurity incidents
are due to client failure to maintain the security of their
own systems and processes, clients will generally be
responsible for losses incurred.
Compliance implements various practices designed to
identify and mitigate compliance risk by establishing
policies and standards, testing, monitoring, training and
providing guidance.
Governance and oversight
Compliance is led by the Firms' CCO who reports to the
Firm's CRO.
The Firm maintains oversight and coordination of its
Compliance Risk Management practices through the Firm's
CCO, lines of business CCOs and regional CCOS to implement
the Compliance program globally across the lines of
business and regions. The Firm's CCO is a member of the
FCC and the FRC. The Firm's CCO also provides regular
updates to the Audit Committee and DRPC. In addition,
certain Special Purpose Committees of the Board have been
established to oversee the Firm's compliance with
regulatory Consent Orders.
The Firm has a Code of Conduct (the “Code”). Each
employee is given annual training on the Code and is
required annually to affirm his or her compliance with the
Code. All new hires must complete Code training shortly
after their start date with the Firm. The Code sets forth the
Firm's expectation that employees will conduct themselves
with integrity at all times and provides the principles that
govern employee conduct with clients, customers,
shareholders and one another, as well as with the markets
and communities in which the Firm does business. The Code
requires employees to promptly report any known or
suspected violation of the Code, any internal Firm policy, or
any law or regulation applicable to the Firm's business. It
also requires employees to report any illegal conduct, or
conduct that violates the underlying principles of the Code,
by any of the Firm's employees, customers, suppliers,
contract workers, business partners, or agents. The Code
prohibits retaliation against anyone who raises an issue or
concern in good faith. Specified compliance officers are
specially trained and designated as "code specialists" who
act as a resource to employees on questions related to the
Code. Employees can report any known or suspected
violations of the Code through the Code Reporting Hotline
by phone or the internet. The Hotline is anonymous, except
in certain non-U.S. jurisdictions where laws prohibit
anonymous reporting, and is available 24/7 globally, with
translation services. It is maintained by an outside service
provider. Annually, the Audit Committee receives a report
on the Code of Conduct program, including an update on the
employee completion rate for Code of Conduct training and
affirmation.
JPMorgan Chase & Co./2018 Form 10-K
137
Management's discussion and analysis
CONDUCT RISK MANAGEMENT
Conduct risk, a subcategory of operational risk, is the risk
that any action or inaction by an employee or employees
could lead to unfair client or customer outcomes, impact
the integrity of the markets in which the Firm operates, or
compromise the Firm's reputation.
Overview
Each line of business and Corporate is accountable for
identifying and managing its conduct risk to provide
appropriate engagement, ownership and sustainability of a
culture consistent with the Firm's How We Do Business
Principles (the "Principles"). The Principles serve as a guide
for how employees are expected to conduct themselves.
With the Principles serving as a guide, the Firm's Code sets
out the Firm's expectations for each employee and provides
information and resources to help employees conduct
business ethically and in compliance with the law
everywhere the Firm operates. For further discussion of the
Code, refer to Compliance Risk Management on page 137.
Governance and oversight
The Conduct Risk Program is governed by a Board-level
approved Conduct Risk Governance Policy. The Conduct Risk
Governance Policy establishes the framework for
ownership, assessment, managing and escalating conduct
risk in the Firm.
The CRSC provides oversight of the Firm's conduct initiatives
to develop a more holistic view of conduct risks and to
connect key programs across the Firm in order to identify
opportunities and emerging areas of focus.
The CRSC may escalate systemic conduct risk issues to the
FRC and as appropriate to the DRPC. The misconduct
(actual or potential) of individuals involved in material risk
and control issues are escalated to the HR Control Forum.
Certain committees of the Board oversee conduct risk issues
within the scope of their responsibilities.
Conduct risk management encompasses various aspects of
people management practices throughout the employee life
cycle, including recruiting, onboarding, training and
development, performance management, promotion and
compensation processes. Each LOB, Treasury and CIO, and
designated corporate function completes an assessment of
conduct risk quarterly, reviews metrics and issues which
may involve conduct risk, and provides business conduct
training as appropriate.
138
JPMorgan Chase & Co./2018 Form 10-K
Other Functions provide oversight of significant regulatory
obligations that are specific to their respective areas of
responsibility.
These compliance risks relate to a wide variety of legal and
regulatory obligations, depending on the line of business
and the jurisdiction, and include those related to financial
products and services, relationships and interactions with
clients and customers, and employee activities. For
example, compliance risks include those associated with
anti-money laundering compliance, trading activities,
market conduct, and complying with the rules and
regulations related to the offering of products and services
across jurisdictional borders, among others. Compliance
risk is also inherent in the Firm's fiduciary activities,
including the failure to exercise the applicable standard of
care (such as the duties of loyalty or care), to act in the best
interest of clients and customers or to treat clients and
customers fairly.
Each line of business and Corporate hold primary ownership
of and accountability for managing compliance risk. The
Firm's Compliance Organization ("Compliance"), which is
independent of the lines of business, works closely with
senior management to provide independent review,
monitoring and oversight of business operations with a
focus on compliance with the legal and regulatory
obligations applicable to the delivery of the Firm's products
and services to clients and customers.
Overview
To protect the confidentiality, integrity and availability of
the Firm's infrastructure, resources and information, the
Firm maintains a cybersecurity program to prevent, detect,
and respond to cyberattacks. The Global Chief Information
Officer, Chief Technology Control Officer, and Chief
Information Security Officer ("CISO") update the Audit
Committee of the Board of Directors at least annually on the
Firm's Information Security Program, recommended
changes, cybersecurity policies and practices, ongoing
efforts to improve security, as well as its efforts regarding
significant cybersecurity events. In addition, the Firm has a
detailed cybersecurity incident response plan ("IRP")
designed to enable the Firm to respond to attempted
cybersecurity incidents, coordinate such responses with law
enforcement and other government agencies, and notify
clients and customers. Among other key focus areas, the
IRP is designed to mitigate the risk of insider trading
connected to a cybersecurity incident, and includes various
escalation points in this regard including Compliance and
the Legal Department.
The Cybersecurity and Technology Control functions are
responsible for governance and oversight of the Firm's
Information Security Program. In partnership with the
Firm's lines of business, the Cybersecurity and Technology
Control organization identifies information security risk
issues and champions programs for the technological
protection of the Firm's information resources including
applications, infrastructure as well as confidential and
personal information related to the Firm's customers. The
Cybersecurity and Technology Control organization
comprises Governance and Control, Assessments, Assurance
and Training, Cybersecurity Operations, business aligned
control officers, Identity and Access Management, and
resiliency functions that execute the Information Security
Program.
The Global Cybersecurity and Technology Control
governance structure is designed to identify, escalate, and
mitigate information security risks. This structure uses key
governance forums to disseminate information and monitor
technology efforts. These forums are established at
multiple levels throughout the Firm and include
representatives from each line of business and Corporate.
135
Management's discussion and analysis
Reports containing overviews of key technology risks and
efforts to enhance related controls are produced for these
forums, and are reviewed by management at multiple levels
including technology management, Firmwide management
and the Operating Committee. The forums are used to
escalate information security risks or other matters as
appropriate to the FCC.
IRM provides oversight of the activities which identify,
assess, manage and mitigate cybersecurity risk. As integral
participants in cybersecurity governance forums, the IRM
organization actively monitors and oversees the
Cybersecurity and Technology Control functions.
The Firm's Security Awareness Program includes training
that reinforces the Firm's Information Technology Risk and
Security Management policies, standards and practices, as
well as the expectation that employees comply with these
policies. The Security Awareness Program engages
personnel through training on how to identify potential
cybersecurity risks and protect the Firm's resources and
information. This training is mandatory for all employees
globally on an annual basis, and it is supplemented by
firmwide testing initiatives, including quarterly phishing
tests. Finally, the Firm's Global Privacy Program requires all
employees to take annual awareness training on data
privacy. This privacy-focused training includes information
about confidentiality and security, as well as responding to
unauthorized access to or use of information.
Business and technology resiliency risk
Spain
Business disruptions can occur due to forces beyond the
Firm's control such as severe weather, power or
telecommunications loss, flooding, transit strikes, terrorist
threats or infectious disease. The safety of the Firm's
employees and customers is of the highest priority. The
Firm's global resiliency program is intended to enable the
Firm to recover its critical business functions and
supporting assets (i.e., staff, technology and facilities) in
the event of a business interruption. The program includes
corporate governance, awareness training, and testing of
recovery strategies, as well as strategic and tactical
initiatives to identify, assess, and manage business
interruption and public safety risks.
Payment fraud risk is the risk of external and internal
parties unlawfully obtaining personal monetary benefit
through misdirected or otherwise improper payment. Over
the past year, the risk of payment fraud remained at a
heightened level across the industry. The complexities of
these incidents and the strategies used by perpetrators
continue to evolve. A Payments Control Program including
the LOBS and Corporate develop methods for managing the
risk, implementing controls and providing employee and
client education and awareness training. The Firm's
monitoring of customer behavior is periodically evaluated
and enhanced in an effort to detect and mitigate new
strategies implemented by fraud perpetrators. The Firm's
consumer and wholesale businesses collaborate closely to
deploy risk mitigation controls across their businesses.
Third-party outsourcing risk
To identify and manage the operational risk inherent in its
outsourcing activities, the Firm has a Third-Party Oversight
("TPO") framework to assist the lines of business and
Corporate in selecting, documenting, onboarding,
monitoring and managing their supplier relationships. The
objective of the TPO framework is to hold third parties to
the same high level of operational performance as is
expected of the Firm's internal operations. The Corporate
Third-Party Oversight group is responsible for Firmwide TPO
training, monitoring, reporting and standards.
Insurance
One of the ways in which operational risk may be mitigated
is through insurance maintained by the Firm. The Firm
purchases insurance from commercial insurers and utilizes
a wholly-owned captive insurer, Park Assurance Company,
as needed to comply with local laws and regulations (e.g.,
workers compensation), as well as to serve other needs
(e.g., property loss and public liability). Insurance may also
be required by third parties with whom the Firm does
business. The insurance purchased is reviewed and
approved by senior management.
136
JPMorgan Chase & Co./2018 Form 10-K
COMPLIANCE RISK MANAGEMENT
Compliance risk, a subcategory of operational risk, is the
risk of failure to comply with legal or regulatory obligations
or codes of conduct and standards of self-regulatory
organizations applicable to the business activities of the
Firm.
The strength and proficiency of the Firm's global resiliency
program has played an integral role in maintaining the
Firm's business operations during and after various events.
Payment fraud risk
4.5
5.3
-
5.4
0.4
13.0
11.4
Switzerland
9.1
0.6
12.8
13.9
India
6.1
4.0
1.7
11.8
12.3
Luxembourg
10.5
0.5
-
7.2
Australia
14.9
14.3
25.4
3.3
0.4
29.1
30.8
China
9.5
7.1
2.7
11.0
19.3
France
10.8
6.5
17.9
19.4
Canada
10.8
3.4
0.1
16.3
40.7
9.5
4.2
0.4
0.4
5.8
8.0
Mexico
3.7
1.8
-
5.5
5.2
Hong Kong
2.4
1.1
1.9
5.4
4.2
Saudi Arabia
4.7
0.6
5.0
Netherlands
6.7
6.4
3.2
0.2
7.6
6.8
Brazil
4.4
2.9
-
7.3
South Korea
4.6
3.9
1.4
1.5
6.8
6.3
Italy
2.4
3.8
0.2
Singapore
3.1
December 31, 2018
LEGAL RISK MANAGEMENT
144
JPMorgan Chase & Co./2018 Form 10-K
FASB Standards Adopted during 2018 (continued)
Summary of guidance
Standard
Definition of a
business
.
Issued January
2017
Presentation of net
For further information, refer to Note 1.
periodic pension
periodic
postretirement
benefit cost
Issued March 2017
Premium
amortization on
purchased callable
debt securities
Issued March 2017
Hedge accounting
Issued August
cost and net
2017
•
•
certain contract costs, including
whether they may be offset
against revenue in the
Consolidated statements of
income, and requires additional
disclosures about revenue and
contract costs.
Requires that certain equity
instruments be measured at fair
value, with changes in fair value
recognized in earnings.
Provides a measurement
alternative for equity securities
without readily determinable fair
values to be measured at cost less
impairment (if any), plus or minus
observable price changes from an
identical or similar investment of
the same issuer. Any such price
changes are reflected in earnings
beginning in the period of
adoption.
Provides targeted amendments to
the classification of certain cash
flows, including the treatment of
settlement payments for zero
coupon debt instruments and
distributions received from equity
method investments.
Requires restricted cash to be
combined with unrestricted cash
when reconciling the beginning
and ending cash balances on the
Consolidated statements of cash
flows.
Requires additional disclosures to
supplement the Consolidated
statements of cash flows.
Adopted January 1, 2018
Effects on financial statements
•
Adopted January 1, 2018.
For further information, refer to Note 1.
• Adopted January 1, 2018.
⚫ For further information, refer to Note 1.
.
Adopted January 1, 2018.
•
The adoption of the guidance had no material impact as the Firm was
either in compliance with the amendments or the amounts to which it was
applied were immaterial.
•
Narrows the definition of a
business and clarifies that, to be
considered a business,
substantially all of the fair value of
the gross assets acquired (or
disposed of) may not be
concentrated in a single
identifiable asset or a group of
similar assets.
Assets measured at fair value
•
Aligns the accounting with the
economics of the risk
management activities.
Expands the ability for certain
hedges of interest rate risk to
qualify for hedge accounting.
Allows recognition of
ineffectiveness in cash flow
hedges and net investment hedges
in OCI.
•
Permits an election at adoption to
securities classified as held-to-
maturity to available-for-sale.
Simplifies hedge documentation
requirements.
Reclassification of
.
Permits reclassification of the
certain tax effects
from AOCI
Issued February
2018
income tax effects of the TCJA on
items within AOCI to retained
earnings so that the tax effects of
items within AOCI reflect the
appropriate tax rate.
transfer certain investment
•
For further information, refer to Note 1.
•
•
Requires the service cost
component of net periodic
pension and postretirement
benefit cost to be reported
separately in the Consolidated
statements of income from the
other cost components.
Effects on financial statements
.
Adopted January 1, 2018.
The adoption of the guidance had no impact because it is applied
prospectively. Subsequent to adoption, fewer transactions will be treated
as acquisitions or dispositions of a business.
•
Adopted January 1, 2018.
•
For further information, refer to Note 1.
•
Requires amortization of
•
Adopted January 1, 2018.
premiums to the earliest call date
on certain debt securities.
.
For further information, refer to Note 1.
•
•
Adopted January 1, 2018.
Changes the accounting for
•
control of a good or service in the
amount of consideration expected
to be received.
Requires that revenue from
Total assets measured at fair value on
a recurring basis
680.6
17.2
Total assets measured at fair value on a
nonrecurring basis
1.4
Total assets measured at fair value
$
682.0
$
1.0
1.1
18.3
$
2,622.5
Level 3 assets as a percentage of total
Firm assets(a)
Level 3 assets as a percentage of total
Firm assets at fair value(a)
0.7%
2.7%
(a) For purposes of the table above, the derivative receivables total reflects the impact
of netting adjustments; however, the $5.8 billion of derivative receivables classified
as level 3 does not reflect the netting adjustment as such netting is not relevant to
a presentation based on the transparency of inputs to the valuation of an asset.
The level 3 balances would be reduced if netting were applied, including the netting
benefit associated with cash collateral.
Valuation
Details of the Firm's processes for determining fair value
are set out in Note 2. Estimating fair value requires the
application of judgment. The type and level of judgment
required is largely dependent on the amount of observable
market information available to the Firm. For instruments
valued using internally developed valuation models and
other valuation techniques that use significant
unobservable inputs and are therefore classified within
level 3 of the valuation hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
Total Firm assets
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate valuation technique to use. Second, the lack of
observability of certain significant inputs requires
management to assess all relevant empirical data in
deriving valuation inputs including, for example, transaction
details, yield curves, interest rates, prepayment rates,
default rates, volatilities, correlations, equity or debt prices,
valuations of comparable instruments, foreign exchange
rates and credit curves. For further discussion of the
valuation of level 3 instruments, including unobservable
inputs used, refer to Note 2.
27.2
The following table includes the Firm's assets measured at
fair value and the portion of such assets that are classified
within level 3 of the valuation hierarchy. For further
(in billions, except ratios)
Total level
3 assets
Total assets at
fair value
Trading debt and equity instruments
$
359.5
$
4.2
Derivative receivables (a)
Other
54.2
413.7
5.8
10.0
AFS securities
230.4
Loans
3.2
0.1
MSRS
6.1
Trading assets
For instruments classified in levels 2 and 3, management
judgment must be applied to assess the appropriate level of
valuation adjustments to reflect counterparty credit quality,
142
the Firm's creditworthiness, market funding rates, liquidity
considerations, unobservable parameters, and for
portfolios that meet specified criteria, the size of the net
open risk position. The judgments made are typically
affected by the type of product and its specific contractual
terms, and the level of liquidity for the product or within the
market as a whole. For a further discussion of valuation
adjustments applied by the Firm, refer to Note 2.
Imprecision in estimating unobservable market inputs or
other factors can affect the amount of gain or loss recorded
for a particular position. Furthermore, while the Firm
believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
contracts with
customers
Issued May 2014
Recognition and
measurement of
financial assets
and financial
liabilities
Issued January
2016
Classification of
revenue from
certain cash
receipts and cash
payments in the
statement of cash
flows
Treatment of
restricted cash on
the statement of
cash flows
Issued November
2016
Summary of guidance
•
.
.
•
•
Issued August
2016
recognition -
Revenue
Standard
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of methodologies
or assumptions different than those used by the Firm could
result in a different estimate of fair value at the reporting
date. For a detailed discussion of the Firm's valuation
process and hierarchy, and its determination of fair value
for individual financial instruments, refer to Note 2.
Goodwill impairment
Under U.S. GAAP, goodwill must be allocated to reporting
units and tested for impairment at least annually. The Firm's
process and methodology used to conduct goodwill
impairment testing is described in Note 15.
Management applies significant judgment when testing
goodwill for impairment. The goodwill associated with each
business combination is allocated to the related reporting
units for goodwill impairment testing.
For the year ended December 31, 2018, the Firm reviewed
current economic conditions, business performance,
estimated market cost of equity, and projections of business
performance for all its businesses. Based upon such reviews,
the Firm concluded that the goodwill allocated to its
reporting units was not impaired as of December 31, 2018.
The fair values of these reporting units exceeded their
carrying values by approximately 20% or higher and did not
indicate a significant risk of goodwill impairment based on
current projections and valuations.
The projections for all of the Firm's reporting units are
consistent with management's current short-term business
outlook assumptions, and in the longer term, incorporate a
set of macroeconomic assumptions and the Firm's best
estimates of long-term growth and returns on equity of its
businesses. Where possible, the Firm uses third-party and
peer data to benchmark its assumptions and estimates.
Declines in business performance, increases in credit losses,
increases in capital requirements, as well as deterioration in
economic or market conditions, adverse regulatory or
legislative changes or increases in the estimated market cost
of equity, could cause the estimated fair values of the Firm's
reporting units or their associated goodwill to decline in the
future, which could result in a material impairment charge to
earnings in a future period related to some portion of the
associated goodwill.
For additional information on goodwill, refer to Note 15.
JPMorgan Chase & Co./2018 Form 10-K
Credit card rewards liability
JPMorgan Chase offers credit cards with various rewards
programs which allow cardholders to earn rewards points
based on their account activity and the terms and
conditions of the rewards program. Generally, there are no
limits on the points that an eligible cardholder can earn, nor
do they expire, and these points can be redeemed for a
variety of rewards, including cash (predominantly in the
form of account credits), gift cards and travel. The Firm
maintains a rewards liability which represents the estimated
cost of rewards points earned and expected to be redeemed
by cardholders. The rewards liability is sensitive to various
assumptions, including cost per point and redemption rates
for each of the various rewards programs, which are
evaluated periodically. The liability is accrued as the
cardholder earns the benefit and is reduced when the
cardholder redeems points. This liability was $5.8 billion
and $4.9 billion at December 31, 2018 and 2017,
respectively, and is recorded in accounts payable and other
liabilities on the Consolidated balance sheets.
Income taxes
JPMorgan Chase is subject to the income tax laws of the
various jurisdictions in which it operates, including U.S.
federal, state and local, and non-U.S. jurisdictions. These
laws are often complex and may be subject to different
interpretations. To determine the financial statement
impact of accounting for income taxes, including the
provision for income tax expense and unrecognized tax
benefits, JPMorgan Chase must make assumptions and
judgments about how to interpret and apply these complex
tax laws to numerous transactions and business events, as
well as make judgments regarding the timing of when
certain items may affect taxable income in the U.S. and
non-U.S. tax jurisdictions.
JPMorgan Chase's interpretations of tax laws around the
world are subject to review and examination by the various
taxing authorities in the jurisdictions where the Firm
operates, and disputes may occur regarding its view on a
tax position. These disputes over interpretations with the
various taxing authorities may be settled by audit,
administrative appeals or adjudication in the court systems
of the tax jurisdictions in which the Firm operates.
JPMorgan Chase regularly reviews whether it may be
assessed additional income taxes as a result of the
resolution of these matters, and the Firm records additional
reserves as appropriate. In addition, the Firm may revise its
estimate of income taxes due to changes in income tax
laws, legal interpretations, and business strategies. It is
possible that revisions in the Firm's estimate of income
taxes may materially affect the Firm's results of operations
in any reporting period.
The Firm's provision for income taxes is composed of
current and deferred taxes. Deferred taxes arise from
differences between assets and liabilities measured for
financial reporting versus income tax return purposes.
Deferred tax assets are recognized if, in management's
judgment, their realizability is determined to be more likely
than not. The Firm has also recognized deferred tax assets
in connection with certain tax attributes, including NOLS.
The Firm performs regular reviews to ascertain whether its
deferred tax assets are realizable. These reviews include
JPMorgan Chase & Co./2018 Form 10-K
management's estimates and assumptions regarding future
taxable income, which also incorporates various tax
planning strategies, including strategies that may be
available to utilize NOLS before they expire. In connection
with these reviews, if it is determined that a deferred tax
asset is not realizable, a valuation allowance is established.
The valuation allowance may be reversed in a subsequent
reporting period if the Firm determines that, based on
revised estimates of future taxable income or changes in
tax planning strategies, it is more likely than not that all or
part of the deferred tax asset will become realizable. As of
December 31, 2018, management has determined it is
more likely than not that the Firm will realize its deferred
tax assets, net of the existing valuation allowance.
Prior to December 31, 2017, U.S. federal income taxes had
not been provided on the undistributed earnings of certain
non-U.S. subsidiaries, to the extent that such earnings had
been reinvested abroad for an indefinite period of time. The
Firm is no longer maintaining the indefinite reinvestment
assertion on the undistributed earnings of those non-U.S.
subsidiaries in light of the enactment of the TCJA. The U.S.
federal and state and local income taxes associated with the
undistributed and previously untaxed earnings of those
non-U.S. subsidiaries was included in the deemed
repatriation charge recorded as of December 31, 2017. The
Firm will recognize any taxes it may incur on global
intangible low tax income as income tax expense in the
period in which the tax is incurred.
The Firm adjusts its unrecognized tax benefits as necessary
when additional information becomes available. Uncertain
tax positions that meet the more-likely-than-not recognition
threshold are measured to determine the amount of benefit
to recognize. An uncertain tax position is measured at the
largest amount of benefit that management believes is
more likely than not to be realized upon settlement. It is
possible that the reassessment of JPMorgan Chase's
unrecognized tax benefits may have a material impact on its
effective income tax rate in the period in which the
reassessment occurs.
The income tax expense for the current year includes a
change in estimate recorded under SEC Staff Accounting
Bulletin No. 118 (SAB 118) resulting from the enactment of
the TCJA. The accounting under SAB 118 is complete.
For additional information on income taxes, refer to Note
24.
Litigation reserves
For a description of the significant estimates and judgments
associated with establishing litigation reserves, refer to
Note 29.
143
Management's discussion and analysis
ACCOUNTING AND REPORTING DEVELOPMENTS
Financial Accounting Standards Board ("FASB") Standards Adopted during 2018
contracts with customers be
recognized upon transfer of
Adopted January 1, 2018.
For further information, refer to Note 1.
JPMorgan Chase & Co./2018 Form 10-K
Chairman and Chief Executive Officer
Maull
Marianne Lake
Executive Vice President and Chief Financial Officer
148
February 26, 2019
JPMorgan Chase & Co./2018 Form 10-K
loans, where the carrying value is based on the fair value of
the underlying collateral.
Management's discussion and analysis
спие
141
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. The majority of such assets and liabilities are
measured at fair value on a recurring basis, including,
derivatives and structured note products. Certain assets
and liabilities are measured at fair value on a nonrecurring
basis, including certain mortgage, home equity and other
Fair value
It is difficult to estimate how potential changes in specific
factors might affect the overall allowance for credit losses
because management considers a variety of factors and
inputs in estimating the allowance for credit losses.
Changes in these factors and inputs may not occur at the
same rate and may not be consistent across all geographies
or product types, and changes in factors may be
directionally inconsistent, such that improvement in one
factor may offset deterioration in other factors. In addition,
it is difficult to predict how changes in specific economic
conditions or assumptions could affect borrower behavior
or other factors considered by management in estimating
the allowance for credit losses. Given the process the Firm
follows and the judgments made in evaluating the risk
factors related to its loss estimates, management believes
that its current estimate of the allowance for credit losses is
appropriate.
The purpose of these sensitivity analyses is to provide an
indication of the isolated impacts of hypothetical
alternative assumptions on modeled loss estimates. The
changes in the inputs presented above are not intended to
imply management's expectation of future deterioration of
those risk factors. In addition, these analyses are not
intended to estimate changes in the overall allowance for
loan losses, which would also be influenced by the judgment
management applies to the modeled loss estimates to
reflect the uncertainty and imprecision of these modeled
loss estimates based on then-current circumstances and
conditions.
A 100 basis point increase in estimated loss given
default ("LGD") for the Firm's entire wholesale loan
portfolio could imply an increase in the Firm's modeled
credit loss estimates of approximately $175 million.
An increase in probability of default ("PD") factors
consistent with a one-notch downgrade in the Firm's
internal risk ratings for its entire wholesale loan
portfolio could imply an increase in the Firm's modeled
credit loss estimates of approximately $1.6 billion.
For credit card loans, a 100 basis point increase in
unemployment rates from current levels could imply an
increase to modeled annual credit loss estimates of
approximately $875 million.
of approximately $50 million for residential real
estate loans, excluding PCI loans.
an increase to modeled annual credit loss estimates
JPMorgan Chase & Co./2018 Form 10-K
an increase to modeled credit loss estimates of
approximately $425 million for PCI loans.
Jamie Durin
The effectiveness of the Firm's internal control over
financial reporting as of December 31, 2018, has been
audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report
which appears herein.
Changes in the credit quality of the Firm's customers
and counterparties;
Adequacy of the Firm's risk management framework,
disclosure controls and procedures and internal control
over financial reporting;
Adverse judicial or regulatory proceedings;
Changes in applicable accounting policies, including the
introduction of new accounting standards;
Ability of the Firm to determine accurate values of
certain assets and liabilities;
Occurrence of natural or man-made disasters or
calamities or conflicts and the Firm's ability to deal
effectively with disruptions caused by the foregoing;
• Ability of the Firm to maintain the security of its
financial, accounting, technology, data processing and
other operational systems and facilities;
Ability of the Firm to withstand disruptions that may be
caused by any failure of its operational systems or those
of third parties;
Ability of the Firm to effectively defend itself against
cyberattacks and other attempts by unauthorized
parties to access information of the Firm or its
customers or to disrupt the Firm's systems; and
James Dimon
The other risks and uncertainties detailed in Part I, Item
1A: Risk Factors in the Firm's 2018 Form 10-K.
Any forward-looking statements made by or on behalf of
the Firm speak only as of the date they are made, and
JPMorgan Chase does not undertake to update forward-
looking statements. The reader should, however, consult
any further disclosures of a forward-looking nature the
Firm may make in any subsequent Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, or Current Reports
on Form 8-K.
Technology changes instituted by the Firm, its
counterparties or competitors;
JPMorgan Chase & Co./2018 Form 10-K
147
Management's report on internal control over financial reporting
Management of JPMorgan Chase & Co. ("JPMorgan Chase"
or the "Firm") is responsible for establishing and
maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a
process designed by, or under the supervision of, the Firm's
principal executive and principal financial officers, or
persons performing similar functions, and effected by
JPMorgan Chase's Board of Directors, management and
other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with accounting principles generally accepted in the United
States of America.
JPMorgan Chase's internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records, that, in reasonable detail,
accurately and fairly reflect the transactions and
dispositions of the Firm's assets; (2) provide reasonable
assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance
with generally accepted accounting principles, and that
receipts and expenditures of the Firm are being made only
in accordance with authorizations of JPMorgan Chase's
management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Firm's
assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Management has
completed an assessment of the effectiveness of the Firm's
internal control over financial reporting as of December 31,
2018. In making the assessment, management used the
"Internal Control - Integrated Framework" ("COSO 2013")
promulgated by the Committee of Sponsoring Organizations
of the Treadway Commission ("COSO”).
Based upon the assessment performed, management
concluded that as of December 31, 2018, JPMorgan Chase's
internal control over financial reporting was effective based
upon the COSO 2013 framework. Additionally, based upon
management's assessment, the Firm determined that there
were no material weaknesses in its internal control over
financial reporting as of December 31, 2018.
•
°
°
A combined 5% decline in housing prices and a 100
basis point increase in unemployment rates from current
levels could imply:
Governance and oversight
Legal selects, engages and manages outside counsel for the
Firm on all matters in which outside counsel is engaged. In
addition, Legal advises the Firm's Conflicts Office which
reviews the Firm's wholesale transactions that may have the
potential to create conflicts of interest for the Firm.
providing legal advice to the LOBs and Corporate, in
alignment with the lines of defense described under
Enterprise-wide Risk Management.
advising on advocacy in connection with contemplated
and proposed laws, rules and regulations, and
interpreting existing laws, rules and regulations, and
advising on changes thereto
managing dispute resolution
advising on offering and marketing documents and new
business initiatives
advising on products and services, including contract
negotiation and documentation
enforcement matters, including internal reviews and
investigations related to such matters
The Firm's General Counsel reports to the CEO and is a
member of the Operating Committee, the Firmwide Risk
Committee and the Firmwide Control Committee. The
General Counsel's leadership team includes a General
Counsel for each line of business, the heads of the Litigation
and Corporate & Regulatory practices, as well as the Firm's
Corporate Secretary. Each region (e.g., Latin America, Asia
Pacific) has a General Counsel who is responsible for
managing legal risk across all lines of business and
functions in the region.
managing actual and potential litigation and
•
•
•
•
•
•
The global Legal function (“Legal”) provides legal services
and advice to the Firm. Legal is responsible for managing
the Firm's exposure to Legal risk by:
Overview
Legal risk, a subcategory of operational risk, is the risk of
loss primarily caused by the actual or alleged failure to
meet legal obligations that arise from the rule of law in
jurisdictions in which the Firm operates, agreements with
clients and customers, and products and services offered by
the Firm.
•
The Firm's General Counsel and other members of Legal
report on significant legal matters at each meeting of the
Firm's Board of Directors, at least quarterly to the Audit
Committee, and periodically to the DRPC.
Legal serves on and advises various committees (including
new business initiative and reputation risk committees) and
advises the Firm's businesses to protect the Firm's
reputation beyond any particular legal requirements.
JPMorgan Chase & Co./2018 Form 10-K
•
•
To illustrate the potential magnitude of certain alternate
judgments, the Firm estimates that changes in the following
inputs would have the following effects on the Firm's
modeled credit loss estimates as of December 31, 2018,
without consideration of any offsetting or correlated effects
of other inputs in the Firm's allowance for loan losses:
The Firm's allowance for credit losses is sensitive to
numerous factors, which may differ depending on the
portfolio. Changes in economic conditions or in the Firm's
assumptions and estimates could affect its estimate of
probable credit losses inherent in the portfolio at the
balance sheet date. The Firm uses its best judgment to
assess these economic conditions and loss data in
estimating the allowance for credit losses and these
estimates are subject to periodic refinement based on
changes to underlying external or Firm-specific historical
data. Refer to Note 13 for further discussion.
Allowance for credit losses sensitivity
The allowance for credit losses includes a formula-based
component, an asset-specific component, and a component
related to PCI loans. The determination of each of these
components involves significant judgment on a number of
matters. For further information on these components,
areas of judgment and methodologies used in establishing
the Firm's allowance for credit losses, refer to Allowance for
credit losses on pages 120-122 and Note 13.
JPMorgan Chase's allowance for credit losses covers the
retained consumer and wholesale loan portfolios, as well as
the Firm's wholesale and certain consumer lending-related
commitments. The allowance for loan losses is intended to
adjust the carrying value of the Firm's loan assets to reflect
probable credit losses inherent in the loan portfolio as of
the balance sheet date. Similarly, the allowance for lending-
related commitments is established to cover probable credit
losses inherent in the lending-related commitments
portfolio as of the balance sheet date.
Allowance for credit losses
JPMorgan Chase's accounting policies and use of estimates
are integral to understanding its reported results. The
Firm's most complex accounting estimates require
management's judgment to ascertain the appropriate
carrying value of assets and liabilities. The Firm has
established policies and control procedures intended to
ensure that estimation methods, including any judgments
made as part of such methods, are well-controlled,
independently reviewed and applied consistently from
period to period. The methods used and judgments made
reflect, among other factors, the nature of the assets or
liabilities and the related business and risk management
strategies, which may vary across the Firm's businesses and
portfolios. In addition, the policies and procedures are
intended to ensure that the process for changing
methodologies occurs in an appropriate manner. The Firm
believes its estimates for determining the carrying value of
its assets and liabilities are appropriate. The following is a
brief description of the Firm's critical accounting estimates
involving significant judgments.
CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM
JPMorgan Chase & Co./2018 Form 10-K
140
For a summary of model-based valuations and other
valuation techniques, refer to Critical Accounting Estimates
Used by the Firm on pages 141-143 and Note 2.
Under the Firm's Estimations and Model Risk Management
Policy, the Model Risk function reviews and approves new
models, as well as material changes to existing models,
prior to implementation in the operating environment. In
certain circumstances, the head of the Model Risk function
may grant exceptions to the Firm's policy to allow a model
to be used prior to review or approval. The Model Risk
function may also require the user to take appropriate
actions to mitigate the model risk if it is to be used in the
interim. These actions will depend on the model and may
include, for example, limitation of trading activity.
Models are tiered based on an internal standard according
to their complexity, the exposure associated with the model
and the Firm's reliance on the model. This tiering is subject
to the approval of the Model Risk function. In its review of a
model, the Model Risk function considers whether the
model is suitable for the specific purposes for which it will
be used. The factors considered in reviewing a model
include whether the model accurately reflects the
characteristics of the product and its significant risks, the
selection and reliability of model inputs, consistency with
models for similar products, the appropriateness of any
model-related adjustments, and sensitivity to input
parameters and assumptions that cannot be observed from
the market. When reviewing a model, the Model Risk
function analyzes and challenges the model methodology
and the reasonableness of model assumptions and may
perform or require additional testing, including back-testing
of model outcomes. Model reviews are approved by the
appropriate level of management within the Model Risk
function based on the relevant model tier.
Model risks are owned by the users of the models within the
Firm based on the specific purposes of such models. Users
and developers of models are responsible for developing,
implementing and testing their models, as well as referring
models to the Model Risk function for review and approval.
Once models have been approved, model users and
developers are responsible for maintaining a robust
operating environment, and must monitor and evaluate the
performance of the models on an ongoing basis. Model
users and developers may seek to enhance models in
response to changes in the portfolios and in product and
market developments, as well as to capture improvements
in available modeling techniques and systems capabilities.
The governance of analytical and judgment-based
estimations within MRGR's scope follows a consistent
approach to the approach used for models, which is
described in detail below.
Estimations and Model risk, a subcategory of operational
risk, is the potential for adverse consequences from
decisions based on incorrect or misused estimation outputs.
The Firm uses models and other analytical and judgment-
based estimations across various businesses and functions.
The estimation methods are of varying levels of
sophistication and are used for many purposes, such as the
valuation of positions and measurement of risk, assessing
regulatory capital requirements, conducting stress testing,
and making business decisions. A dedicated independent
function, Model Risk Governance and Review ("MRGR”),
defines and governs the Firm's model risk management
policies and certain analytical and judgment-based
estimations, such as those used in risk management, budget
forecasting and capital planning and analysis. MRGR reports
to the Firm's CRO.
ESTIMATIONS AND MODEL RISK MANAGEMENT
Management's discussion and analysis
139
•
•
•
• Ability of the Firm to control expenses;
Competitive pressures;
recorded investment of the
related loans.
Amends existing impairment
guidance for AFS securities to
incorporate an allowance, which
will allow for reversals of credit
impairments in the event that the
credit of an issuer improves.
Requires a cumulative-effect
adjustment to retained earnings
as of the beginning of the
reporting period of adoption.
Requires an impairment loss to be
recognized when the estimated
fair value of a reporting unit falls
below its carrying value.
Replaces existing incurred loss
impairment guidance and
establishes a single allowance
framework for financial assets
carried at amortized cost, which
will reflect management's
estimate of credit losses over the
full remaining expected life of the
financial assets and will consider
expected future changes in
macroeconomic conditions.
Eliminates existing guidance for
PCI loans, and requires
recognition of the nonaccretable
difference as an increase to the
allowance for expected credit
losses on financial assets
purchased with more than
insignificant credit deterioration
since origination, which will be
offset by an increase in the
Eliminates the second condition in
the current guidance that requires
an impairment loss to be
recognized only if the estimated
is below its carrying value.
(a) Early adoption is permitted.
146
•
•
•
Effects on financial statements
•
.
implied fair value of the goodwill
Requires lessees to recognize all
leases longer than twelve months
on the Consolidated balance
sheets as a lease liability with a
corresponding right-of-use asset.
Requires lessees and lessors to
classify most leases using
principles similar to existing lease
accounting, but eliminates the
"bright line" classification tests.
Expands qualitative and
quantitative leasing disclosures.
.
•
145
Management's discussion and analysis
FASB Standards Issued but not adopted as of December 31, 2018
Standard
Leases
Issued February
2016
Financial
instruments -
credit losses
Issued June 2016
Goodwill
Issued January
2017
Summary of guidance
.
•
.
•
.
•
•
.
information, refer to Note 2.
•
•
•
Changes in income tax laws and regulations;
•
Securities and capital markets behavior, including
changes in market liquidity and volatility;
•
•
•
•
Changes in trade, monetary and fiscal policies and laws;
Changes in investor sentiment or consumer spending or
savings behavior;
Changes in credit ratings assigned to the Firm or its
subsidiaries;
Damage to the Firm's reputation;
Ability of the Firm to appropriately address social and
environmental concerns that may arise from its business
activities;
Ability of the Firm to deal effectively with an economic
slowdown or other economic or market disruption;
•
The effectiveness of the Firm's control agenda;
Ability of the Firm to develop or discontinue products
and services, and the extent to which products or
services previously sold by the Firm (including but not
limited to mortgages and asset-backed securities)
require the Firm to incur liabilities or absorb losses not
contemplated at their initiation or origination;
Acceptance of the Firm's new and existing products and
services by the marketplace and the ability of the Firm
to innovate and to increase market share;
Ability of the Firm to attract and retain qualified
employees;
Ability of the Firm to manage effectively its capital and
liquidity, including approval of its capital plans by
banking regulators;
Heightened regulatory and governmental oversight and
scrutiny of JPMorgan Chase's business practices,
including dealings with retail customers;
Changes in laws and regulatory requirements, including
capital and liquidity requirements affecting the Firm's
businesses, and the ability of the Firm to address those
requirements;
political conditions and geopolitical events;
•
•
Adopted January 1, 2019.
The Firm elected the practical expedient to adopt and implement the new
lease guidance as of January 1, 2019 through a cumulative-effect
adjustment without revising prior comparative periods. Upon adoption,
the Firm recognized lease right-of-use ("ROU") assets and lease liabilities
on the Consolidated balance sheet of $8.1 billion and $8.2 billion,
respectively. The impact to the Firm's CET1 capital ratio was a reduction
of approximately 6 bps. The adoption of the new lease guidance did not
have a material impact on the Firm's Consolidated statement of income.
• The Firm elected the available practical expedients to not reassess
whether existing contracts contain a lease or whether classification or
unamortized initial lease costs would be different under the new lease
guidance.
Required effective date: January 1, 2020. (a)
The Firm has established a Firmwide, cross-discipline governance
structure, which provides implementation oversight. The Firm continues
to test and refine its current expected credit loss models that satisfy the
requirements of the new standard. This review and testing, as well as
efforts to meet expanded disclosure requirements, will extend through
the remainder of 2019.
The Firm expects that the allowance related to the Firm's loans and
commitments will increase as it will cover credit losses over the full
remaining expected life of the portfolios. The Firm currently intends to
estimate losses over a two-year forecast period using the weighted-
average of a range of macroeconomic scenarios (established on a
Firmwide basis), and then revert to longer term historical loss experience
to estimate losses over more extended periods.
The Firm currently expects the increase in the allowance to be in the
range of $4-6 billion, primarily driven by Card. This estimate is subject to
further refinement based on continuing reviews and approvals of models,
methodologies and judgments. The ultimate impact will depend upon the
nature and characteristics of the Firm's portfolio at the adoption date, the
macroeconomic conditions and forecasts at that date, and other
management judgments.
The Firm plans to adopt the new guidance on January 1, 2020.
Required effective date: January 1, 2020. (a)
Based on current impairment test results, the Firm does not expect a
material effect on the Consolidated Financial Statements. However, the
impact of the new accounting guidance will depend on the performance of
the reporting units and the market conditions at the time of adoption.
After adoption, the guidance may result in more frequent goodwill
impairment losses due to the removal of the second condition.
The Firm plans to adopt the new guidance on January 1, 2020.
JPMorgan Chase & Co./2018 Form 10-K
FORWARD-LOOKING STATEMENTS
From time to time, the Firm has made and will make
forward-looking statements. These statements can be
identified by the fact that they do not relate strictly to
historical or current facts. Forward-looking statements
often use words such as "anticipate,” “target,” “expect,”
"estimate," "intend,” “plan,” “goal,” “believe,” or other
words of similar meaning. Forward-looking statements
provide JPMorgan Chase's current expectations or forecasts
of future events, circumstances, results or aspirations.
JPMorgan Chase's disclosures in this 2018 Form 10-K
contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. The
Firm also may make forward-looking statements in its other
documents filed or furnished with the SEC. In addition, the
Firm's senior management may make forward-looking
statements orally to investors, analysts, representatives of
the media and others.
All forward-looking statements are, by their nature, subject
to risks and uncertainties, many of which are beyond the
Firm's control. JPMorgan Chase's actual future results may
differ materially from those set forth in its forward-looking
statements. While there is no assurance that any list of risks
and uncertainties or risk factors is complete, below are
certain factors which could cause actual results to differ
from those in the forward-looking statements:
•
•
•
Local, regional and global business, economic and
•
6.1
• In addition, a business must now
include, at a minimum, an input
and a substantive process that
together significantly contribute
to the ability to create outputs.
pwc
(1,377)
(5,707)
Proceeds from long-term borrowings
Payments of long-term borrowings
Proceeds from issuance of preferred stock
Redemption of preferred stock
Treasury stock repurchased
Dividends paid
All other financing activities, net
Net cash provided by financing activities
1,712
Effect of exchange rate changes on cash and due from banks and deposits with banks
Cash and due from banks and deposits with banks at the beginning of the period
Cash and due from banks and deposits with banks at the end of the period
Cash interest paid
71,662
(76,313)
1,696
(1,696)
56,271
83,070
(83,079)
(68,949)
1,258
(1,258)
(19,983)
(15,410)
Net increase/(decrease) in cash and due from banks and deposits with banks
(9,082)
Beneficial interests issued by consolidated VIES
16,540
(123,959)
15,791
15,429
(61,650)
(80,996)
(563)
(2,825)
28,249
(89,202)
Net cash provided by/(used in) investing activities
(2,461)
Financing activities
Deposits
26,728
57,022
97,336
Federal funds purchased and securities loaned or sold under repurchase agreements
23,415
(6,739)
13,007
Short-term borrowings
18,476
Net change in:
(10,109)
(8,993)
(8,476)
Consolidation
The Consolidated Financial Statements include the accounts
of JPMorgan Chase and other entities in which the Firm has
a controlling financial interest. All material intercompany
balances and transactions have been eliminated.
Assets held for clients in an agency or fiduciary capacity by
the Firm are not assets of JPMorgan Chase and are not
included on the Consolidated balance sheets.
The Firm determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity is
a voting interest entity or a variable interest entity.
Voting interest entities
Voting interest entities are entities that have sufficient
equity and provide the equity investors voting rights that
enable them to make significant decisions relating to the
entity's operations. For these types of entities, the Firm's
determination of whether it has a controlling interest is
primarily based on the amount of voting equity interests
held. Entities in which the Firm has a controlling financial
interest, through ownership of the majority of the entities'
voting equity interests, or through other contractual rights
that give the Firm control, are consolidated by the Firm.
Investments in companies in which the Firm has significant
influence over operating and financing decisions (but does
not own a majority of the voting equity interests) are
accounted for (i) in accordance with the equity method of
accounting (which requires the Firm to recognize its
proportionate share of the entity's net earnings), or (ii) at
fair value if the fair value option was elected. These
investments are generally included in other assets, with
income or loss included in noninterest revenue.
Certain Firm-sponsored asset management funds are
structured as limited partnerships or certain limited liability
companies. For many of these entities, the Firm is the
general partner or managing member, but the non-affiliated
partners or members have the ability to remove the Firm as
the general partner or managing member without cause
JPMorgan Chase & Co./2018 Form 10-K
(i.e., kick-out rights), based on a simple majority vote, or
the non-affiliated partners or members have rights to
participate in important decisions. Accordingly, the Firm
does not consolidate these voting interest entities. However,
in the limited cases where the non-managing partners or
members do not have substantive kick-out or participating
rights, the Firm evaluates the funds as VIES and
consolidates the funds if the Firm is the general partner or
managing member and has a potentially significant interest.
The Firm's investment companies and asset management
funds have investments in both publicly-held and privately-
held entities, including investments in buyouts, growth
equity and venture opportunities. These investments are
accounted for under investment company guidelines and,
accordingly, irrespective of the percentage of equity
ownership interests held, are carried on the Consolidated
balance sheets at fair value, and are recorded in other
assets, with income or loss included in noninterest revenue.
If consolidated, the Firm retains such specialized investment
company guidelines.
Variable interest entities
VIES are entities that, by design, either (1) lack sufficient
equity to permit the entity to finance its activities without
additional subordinated financial support from other
parties, or (2) have equity investors that do not have the
ability to make significant decisions relating to the entity's
operations through voting rights, or do not have the
obligation to absorb the expected losses, or do not have the
right to receive the residual returns of the entity.
Certain amounts reported in prior periods have been
reclassified to conform with the current presentation.
The most common type of VIE is an SPE. SPES are commonly
used in securitization transactions in order to isolate certain
assets and distribute the cash flows from those assets to
investors. The basic SPE structure involves a company
selling assets to the SPE; the SPE funds the purchase of
those assets by issuing securities to investors. The legal
documents that govern the transaction specify how the cash
earned on the assets must be allocated to the SPE's
investors and other parties that have rights to those cash
flows. SPES are generally structured to insulate investors
from claims on the SPE's assets by creditors of other
entities, including the creditors of the seller of the assets.
The primary beneficiary of a VIE (i.e., the party that has a
controlling financial interest) is required to consolidate the
assets and liabilities of the VIE. The primary beneficiary is
the party that has both (1) the power to direct the activities
of the VIE that most significantly impact the VIE's economic
performance; and (2) through its interests in the VIE, the
obligation to absorb losses or the right to receive benefits
from the VIE that could potentially be significant to the VIE.
To assess whether the Firm has the power to direct the
activities of a VIE that most significantly impact the VIE's
economic performance, the Firm considers all the facts and
circumstances, including its role in establishing the VIE and
its ongoing rights and responsibilities. This assessment
Notes to consolidated financial statements
includes, first, identifying the activities that most
significantly impact the VIE's economic performance; and
second, identifying which party, if any, has power over those
activities. In general, the parties that make the most
significant decisions affecting the VIE (such as asset
managers, collateral managers, servicers, or owners of call
options or liquidation rights over the VIE's assets) or have
the right to unilaterally remove those decision-makers are
deemed to have the power to direct the activities of a VIE.
To assess whether the Firm has the obligation to absorb
losses of the VIE or the right to receive benefits from the
VIE that could potentially be significant to the VIE, the Firm
considers all of its economic interests, including debt and
equity investments, servicing fees, and derivatives or other
arrangements deemed to be variable interests in the VIE.
This assessment requires that the Firm apply judgment in
determining whether these interests, in the aggregate, are
considered potentially significant to the VIE. Factors
considered in assessing significance include: the design of
the VIE, including its capitalization structure; subordination
of interests; payment priority; relative share of interests
held across various classes within the VIE's capital
structure; and the reasons why the interests are held by the
Firm.
The Firm performs on-going reassessments of: (1) whether
entities previously evaluated under the majority voting-
interest framework have become VIES, based on certain
events, and are therefore subject to the VIE consolidation
framework; and (2) whether changes in the facts and
circumstances regarding the Firm's involvement with a VIE
cause the Firm's consolidation conclusion to change.
Revenue recognition
Interest income
The Firm records interest income on loans, debt securities,
and other debt instruments, generally on a level-yield basis,
based on the underlying contractual rate. For further
discussion of interest income, refer to Note 7.
Revenue from contracts with customers
JPMorgan Chase records noninterest revenue from certain
contracts with customers under ASC 606, Revenue from
Contracts with customers, in investment banking fees,
deposit-related fees, asset management administration and
commissions, and components of card income. Under this
guidance, revenue is recognized when the Firm's
performance obligations are satisfied. For further
discussion of the Firm's revenue from contracts with
customers, refer to Note 6.
Principal transactions revenue
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. Changes in fair value are reported primarily in
principal transactions revenue. For further discussion of fair
value measurement, refer to Notes 2 and 3. For further
discussion of principal transactions revenue, refer to Note
6.
155
The accounting and financial reporting policies of JPMorgan
Chase and its subsidiaries conform to U.S. GAAP.
Additionally, where applicable, the policies conform to the
accounting and reporting guidelines prescribed by
regulatory authorities.
JPMorgan Chase & Co. ("JPMorgan Chase” or the “Firm”), a
financial holding company incorporated under Delaware law
in 1968, is a leading global financial services firm and one
of the largest banking institutions in the U.S. with
operations worldwide. The Firm is a leader in investment
banking, financial services for consumers and small
business, commercial banking, financial transaction
processing and asset management. For a discussion of the
Firm's business segments, refer to Note 31.
Note 1 - Basis of presentation
(1,430)
407
(467)
34,158
14,642
98,271
(2,863)
8,086
(1,482)
(152,511)
40,150
29,471
431,304
391,154
361,683
Cash income taxes paid, net
$ 278,793 $ 431,304 $ 391,154
$
21,152 $ 14,153 $ 9,508
3,542
4,325
2,405
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and,
accordingly, prior period amounts were revised. For additional information, refer to Note 1.
154
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2018 Form 10-K
(105,309)
Use of estimates in the preparation of consolidated
financial statements
(95,091)
29,826
(81,586)
(4,986)
(197,993)
90,201
Accounts payable and other liabilities
Other operating adjustments
2018
2017
2016
$
32,474 $ 24,441 $ 24,733
4,871
5,290
5,361
Trading liabilities
7,791
5,478
1,721
2,312
4,651
2,717
2,136
1,799
(102,141)
(94,628)
(61,107)
6,179
93,453
Other assets
Securities borrowed
1,919
(28,854)
$ 254,190
Balance at December 31
Total stockholders' equity
$ 256,515 $ 255,693
Effective January 1, 2018, the Firm adopted several new accounting standards. For additional information, refer to Note 1.
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2018 Form 10-K
153
Consolidated statements of cash flows
Accrued interest and accounts receivable
Year ended December 31, (in millions)
Net income
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Provision for credit losses
Depreciation and amortization
Deferred tax expense
Other
Originations and purchases of loans held-for-sale
Proceeds from sales, securitizations and paydowns of loans held-for-sale
Net change in:
Trading assets
Operating activities
93,270
60,196
(38,371)
(123,201)
31,448
(17,468)
Held-to-maturity securities:
Proceeds from paydowns and maturities
Purchases
2,945
(9,368)
4,563
6,218
(2,349)
Federal funds sold and securities purchased under resale agreements
(143)
Proceeds from paydowns and maturities
Proceeds from sales
Purchases
Proceeds from sales and securitizations of loans held-for-investment
Other changes in loans, net
All other investing activities, net
37,401
56,117
65,950
46,067
Available-for-sale securities:
Net change in:
Investing activities
Net cash provided by/(used in) operating activities
5,673
(20,007)
(6,861)
(8,653)
2,313
(5,849)
(15,868)
(5,815)
(8,833)
3,982
(4,176)
18,290
(26,256)
5,198
14,630
(16,508)
5,087
295
7,803
(1,827)
14,187
(10,827)
21,884
48,592
The preparation of the Consolidated Financial Statements
requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
revenue and expense, and disclosures of contingent assets
and liabilities. Actual results could be different from these
estimates.
Foreign currency translation
JPMorgan Chase revalues assets, liabilities, revenue and
expense denominated in non-U.S. currencies into U.S.
dollars using applicable exchange rates.
Note 13
Page 239
administration and
Variable interest entities
commissions
Other income
14,591
3,795
773
Note 14
15,364
Allowance for credit losses
Page 244
3,799
Goodwill and Mortgage servicing rights
Note 15
page 252
Total net revenue
Noninterest expense
95,668
901
96,569
Premises and equipment
4
Note 16
Asset management,
6,572
Page 202
Year ended
Employee share-based incentives
Note 9
Page 209
December 31, 2016 (in
Investment securities
Note 10
millions)
Reported Revisions(a)
Page 219
Page 211
Revenue
Securities financing activities
Note 11
Page 216
Investment banking fees
Loans
$
6,448 $
124 $
Note 12
Revised
page 256
Long-term debt
Note 19
Total assets
71 $ 25,898
1,112 405,406
(1,183) 113,587
114,770
Other assets
404,294
Deposits with banks
25,827 $
$
Cash and due from banks
Assets
$2,533,600 $
Revisions(a) Revised
(in millions)
December 31, 2017
Selected Consolidated balance sheets data
(a) Revisions relate to revenue recognition and pension cost guidance.
(201)
5,555
901 $ 56,672
5,756
55,771 $
$
Total noninterest expense
Other expense
page 278
Reported
$2,533,600
(a) Revisions relate to the reclassification of restricted cash.
158
page 257
Compensation expense
Income taxes
29,979
224
Note 24
30,203
page 264
Technology, communication
Off-balance sheet lending-related
and equipment expense
6,846
7
6,853
Professional and outside
financial instruments, guarantees and
other commitments
Note 27
page 271
services
6,655
871
7,526
JPMorgan Chase & Co./2018 Form 10-K
Note 8
Pension and other postretirement
employee benefit plans
Page 201
Interest income and interest expense
earnings
AOCI
Year ended
Premium amortization on purchased callable
debt securities
$
(505) $
261
December 31, 2017 (in
Hedge accounting
34
Increase/(decrease) (in millions)
115
Reported Revisions(a) Revised
Reclassification of certain tax effects from
Revenue
AOCI
288
(288)
Investment banking fees
$
7,248 $
164 $
millions)
Retained
The following table presents the adjustment to retained
earnings and AOCI as a result of the adoption of new
accounting standards in the first quarter of 2018:
Selected Consolidated statements of income data
Gains and losses relating to translating functional currency
financial statements for U.S. reporting are included in OCI
within stockholders' equity. Gains and losses relating to
nonfunctional currency transactions, including non-U.S.
operations where the functional currency is the U.S. dollar,
are reported in the Consolidated statements of income.
Offsetting assets and liabilities
U.S. GAAP permits entities to present derivative receivables
and derivative payables with the same counterparty and the
related cash collateral receivables and payables on a net
basis on the Consolidated balance sheets when a legally
enforceable master netting agreement exists. U.S. GAAP
also permits securities sold and purchased under
repurchase agreements and securities borrowed or loaned
under securities loan agreements to be presented net when
specified conditions are met, including the existence of a
legally enforceable master netting agreement. The Firm has
elected to net such balances when the specified conditions
are met.
The Firm uses master netting agreements to mitigate
counterparty credit risk in certain transactions, including
derivative contracts, resale, repurchase, securities
borrowed and securities loaned agreements. A master
netting agreement is a single agreement with a
counterparty that permits multiple transactions governed
by that agreement to be terminated or accelerated and
settled through a single payment in a single currency in the
event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due). Upon the exercise of derivatives
termination rights by the non-defaulting party (i) all
transactions are terminated, (ii) all transactions are valued
and the positive values of “in the money" transactions are
netted against the negative values of “out of the money"
transactions and (iii) the only remaining payment obligation
is of one of the parties to pay the netted termination
amount. Upon exercise of default rights under repurchase
agreements and securities loan agreements in general (i) all
transactions are terminated and accelerated, (ii) all values
of securities or cash held or to be delivered are calculated,
and all such sums are netted against each other and (iii) the
only remaining payment obligation is of one of the parties
to pay the netted termination amount.
156
JPMorgan Chase & Co./2018 Form 10-K
Typical master netting agreements for these types of
transactions also often contain a collateral/margin
agreement that provides for a security interest in, or title
transfer of, securities or cash collateral/margin to the party
that has the right to demand margin (the "demanding
party"). The collateral/margin agreement typically requires
a party to transfer collateral/margin to the demanding
party with a value equal to the amount of the margin deficit
on a net basis across all transactions governed by the
master netting agreement, less any threshold. The
collateral/margin agreement grants to the demanding
party, upon default by the counterparty, the right to set-off
any amounts payable by the counterparty against any
posted collateral or the cash equivalent of any posted
collateral/margin. It also grants to the demanding party the
right to liquidate collateral/margin and to apply the
proceeds to an amount payable by the counterparty.
For further discussion of the Firm's derivative instruments,
refer to Note 5. For further discussion of the Firm's
securities financing agreements, refer to Note 11.
Statements of cash flows
For JPMorgan Chase's Consolidated statements of cash
flows, cash is defined as those amounts included in cash
and due from banks and deposits with banks.
Accounting standards adopted January 1, 2018
Revenue recognition - revenue from contracts with customers
The adoption of this guidance requires gross presentation of
certain costs that were previously offset against revenue.
Adoption of the guidance did not result in any material
changes in the timing of the Firm's revenue recognition. This
guidance was adopted retrospectively and, accordingly, prior
period amounts were revised, which resulted in an increase in
both noninterest revenue and noninterest expense. The Firm
did not apply any practical expedients. For additional
information, refer to the table on page 158 of this Note, and
Note 6.
Recognition and measurement of financial assets and
financial liabilities
The adoption of this guidance requires that certain equity
instruments be measured at fair value, with changes in fair
value recognized in earnings. The guidance also provides an
alternative to measure equity securities without readily
determinable fair values at cost less impairment (if any), plus
or minus observable price changes from an identical or
similar investment of the same issuer (the "measurement
alternative"). The Firm elected the measurement alternative
for its qualifying equity securities and the adoption of the
guidance resulted in fair value gains of $505 million which
were recognized in other income in the first quarter of 2018.
For additional information, refer to Notes 2 and 10.
Premium amortization on purchased callable debt securities
The adoption of this guidance requires that premiums be
amortized to the earliest call date on certain debt
securities. The adoption of this guidance resulted in a
cumulative-effect adjustment to retained earnings and
AOCI. For additional information, refer to the table below,
and Notes 10 and 23.
Hedge accounting
The adoption of this guidance better aligns hedge
accounting with the economics of the Firm's risk
management activities. As permitted by the guidance, the
Firm also elected to transfer certain investment securities
from HTM to AFS. The adoption of this guidance resulted in
a cumulative-effect adjustment to retained earnings and
AOCI as a result of the investment securities transfer and
the revised guidance for excluded components. For
additional information, refer to the table below, and Notes
5, 10 and 23.
Treatment of restricted cash on the statement of cash flows
The adoption of this guidance requires restricted cash to be
combined with unrestricted cash when reconciling the
beginning and ending cash balances on the Consolidated
statements of cash flows. To align the Consolidated balance
sheets with the Consolidated statements of cash flows, the
Firm reclassified restricted cash into cash and due from
banks or deposits with banks. In addition, for the Firm's
Consolidated statements of cash flows, cash is defined as
those amounts included in cash and due from banks and
deposits with banks. This guidance was applied
retrospectively and, accordingly, prior period amounts have
been revised. For additional information, refer to the table
below, and Note 25.
Presentation of net periodic pension cost and net periodic
postretirement benefit cost
The adoption of this guidance requires the service cost
component of net periodic pension cost and net periodic
postretirement benefit cost to be reported separately in the
Consolidated statements of income from the other cost
components. This change was adopted retrospectively and,
accordingly, prior period amounts were revised, which
resulted in an increase in compensation expense and a
reduction in other expense. For additional information,
refer to the table below, and Note 8.
Reclassification of certain tax effects from AOCI
The adoption of this guidance permitted the Firm to reclassify
from AOCI to retained earnings stranded tax effects due to
the revaluation of deferred tax assets and liabilities as a
result of changes in applicable tax rates under the TCJA. The
adoption of this guidance resulted in a cumulative-effect
adjustment to retained earnings and AOCI. For additional
information, refer to the table below, and Note 23.
JPMorgan Chase & Co./2018 Form 10-K
157
Notes to consolidated financial statements
The following tables present the prior period impact to the
Consolidated statements of income and the Consolidated
balance sheets from the retrospective adoption of the new
accounting standards in the first quarter of 2018:
7,412
1,669
(42,595)
Total
(183) $
Note 3
Page 179
and equipment expense
7,706
9
7,715
Derivative instruments
Note 5
Page 184
Professional and outside
Fair value option
services
1,050
7,890
Noninterest revenue
Note 6
Page 198
Other expense
6,256
Total noninterest expense
$
(177)
6,079
58,434 $ 1,081 $ 59,515
6,840
Technology, communication
Page 159
31,208
88
Asset management,
administration and
Significant accounting policies
commissions
Other income
Total net revenue
15,377
3,639
910
16,287
7
3,646
The following table identifies JPMorgan Chase's other
significant accounting policies and the Note and page where
99,624
1,081
100,705
a detailed description of each policy can be found.
Noninterest expense
Compensation expense
Fair value measurement
Note 2
31,009
199
$
Report of Independent Registered Public Accounting Firm
(9,082)
(21,691)
Diluted earnings per share
Weighted-average basic shares
Weighted-average diluted shares
$
9.04 $
9.00
6.35 $
6.24
6.31
6.19
3,396.4
Basic earnings per share
3,551.6
3,414.0
3,576.8
3,690.0
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and,
accordingly, prior period amounts were revised. For additional information, refer to Note 1.
The Notes to Consolidated Financial Statements are an integral part of these statements.
150
JPMorgan Chase & Co./2018 Form 10-K
Consolidated statements of comprehensive income
Year ended December 31, (in millions)
Net income
3,658.8
Other comprehensive income/(loss), after-tax
Unrealized gains/(losses) on investment securities
Net income per common share data
22,567 $
Income tax expense
5,731
6,079
5,555
63,394
59,515
56,672
40,764
35,900
34,536
22,834
8,290
9,803
Net income
Net income applicable to common stockholders
$
32,474 $
24,441
$
24,733
$
30,709 $
11,459
Translation adjustments, net of hedges
Fair value hedges
Cash flow hedges
Total other comprehensive income/(loss), after-tax
Comprehensive income
(1,476)
1,056
(1,521)
$
30,998
$
25,497
$
23,212
(330)
Effective January 1, 2018, the Firm adopted several new accounting standards. For additional information, refer to Note 1.
JPMorgan Chase & Co./2018 Form 10-K
151
Consolidated balance sheets
December 31, (in millions, except share data)
2018
2017
Assets
Cash and due from banks
$
22,324 $
The Notes to Consolidated Financial Statements are an integral part of these statements.
(192)
1,043
DVA on fair value option elected liabilities
2018
2017
2016
$
32,474 $
24,441 $
24,733
(1,858)
640
(1,105)
20
(306)
(2)
(107)
ΝΑ
ΝΑ
(201)
176
(56)
Defined benefit pension and OPEB plans
(373)
738
(28)
Income before income tax expense
25,898
Total noninterest expense
2,897
Card income
Other income
Noninterest revenue
Interest income
Interest expense
Net interest income
Total net revenue
Provision for credit losses
2018
2017
Mortgage fees and related income
2016
7,550
$
7,412
$
6,572
12,059
11,347
11,566
6,052
5,933
$
5,774
Investment securities gains/(losses)
Lending- and deposit-related fees
To the Board of Directors and Shareholders of JPMorgan
Chase & Co.:
Opinions on the Financial Statements and Internal Control
over Financial Reporting
We have audited the accompanying consolidated balance
sheets of JPMorgan Chase & Co. and its subsidiaries (the
"Firm") as of December 31, 2018 and 2017, and the related
consolidated statements of income, comprehensive income,
changes in stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2018,
including the related notes (collectively referred to as the
"consolidated financial statements"). We also have audited
the Firm's internal control over financial reporting as of
December 31, 2018, based on criteria established in Internal
Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Firm as of December 31, 2018 and 2017, and
the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2018 in
conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the Firm
maintained, in all material respects, effective internal control
over financial reporting as of December 31, 2018, based on
criteria established in Internal Control - Integrated Framework
(2013) issued by the COSO.
Basis for Opinions
The Firm's management is responsible for these consolidated
financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Management's report on
internal control over financial reporting. Our responsibility is
to express opinions on the Firm's consolidated financial
statements and on the Firm's internal control over financial
reporting based on our audits. We are a public accounting
firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to
be independent with respect to the Firm in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and
the PCAOB.
We conducted our audits in accordance with the standards of
the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and
whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements included
performing procedures to assess the risks of material
misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used
and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over
financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included
performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial
Reporting
A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company's
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the
company are being made only in accordance with
authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a
material effect on the financial statements.
Asset management, administration and commissions
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
February 26, 2019
We have served as the Firm's auditor since 1965.
PricewaterhouseCoopers LLP •300 Madison Avenue New York, NY 10017
JPMorgan Chase & Co./2018 Form 10-K
149
Consolidated statements of income
Year ended December 31, (in millions, except per share data)
Revenue
Investment banking fees
Principal transactions
PricewaterhouseCoopers LLP
17,118
16,287
15,364
5,290
5,361
Noninterest expense
Compensation expense
33,117
31,208
30,203
Occupancy expense
3,952
3,723
4,871
3,638
8,802
7,715
6,853
Professional and outside services
8,502
7,890
7,526
Marketing
3,290
2,900
Technology, communications and equipment expense
96,569
100,705
109,029
(66)
141
1,254
1,616
2,491
4,989
4,433
4,779
5,343
3,646
3,799
53,970
50,608
50,486
77,442
64,372
55,901
22,383
14,275
9,818
55,059
50,097
46,083
Other expense
Deposits with banks
256,469
405,406
26,068
26,068
26,068
Common stock
Balance at January 1 and December 31
4,105
4,105
4,105
Additional paid-in capital
Balance at January 1
(1,258)
90,579
92,500
Shares issued and commitments to issue common stock for employee share-based compensation awards, and
related tax effects
(738)
(734)
(334)
Other
(679)
(314)
(539)
Balance at December 31
91,627
89,162
(1,696)
1,696
20,241
$
26,081
312
349
$
20,553 $
26,430
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2018 Form 10-K
1,258
Consolidated statements of changes in stockholders' equity
Preferred stock
Balance at January 1
Issuance
Redemption
Balance at December 31
2018
2017
2016
$
26,068 $ 26,068 $ 26,068
Year ended December 31, (in millions, except per share data)
90,579
91,627
Retained earnings
Other comprehensive income/(loss), after-tax
Balance at December 31
Shares held in RSU Trust, at cost
Balance at January 1 and December 31
Treasury stock, at cost
Balance at January 1
Repurchase
Reissuance
(119)
88
(1,476)
(1,175)
Cumulative effect of change in accounting principles
192
1,056
(1,521)
(1,507)
(119)
(1,175)
(21)
(21)
(21)
(42,595)
(19,983)
2,084
(60,494)
(28,854)
154
Balance at January 1
Accumulated other comprehensive income
162,440
Balance at January 1
Cumulative effect of change in accounting principles
Net income
177,676
162,440
146,420
(183)
(154)
32,474
24,441
24,733
Dividends declared:
Preferred stock
(1,551)
(1,663)
(1,647)
Common stock ($2.72, $2.12 and $1.88 per share for 2018, 2017 and 2016, respectively)
(9,214)
(7,542)
(6,912)
Balance at December 31
199,202
177,676
$
73,118
1,449
68,995
2,674
1,013
62,435 $
54,392
Other assets (included $9,630 and $16,128 at fair value and assets pledged of $3,457 and $7,980)
121,022
113,587
Total assets(a)
Liabilities
Deposits (included $23,217 and $21,321 at fair value)
Federal funds purchased and securities loaned or sold under repurchase agreements (included $935 and $697 at fair
value)
Short-term borrowings (included $7,130 and $9,191 at fair value)
Trading liabilities
54,349
Accounts payable and other liabilities (included $3,269 and $9,208 at fair value)
2,622,532 $ 2,533,600
$ 1,470,666 $ 1,443,982
182,320
158,916
69,276
51,802
144,773
123,663
196,710
189,383
$
14,159
14,934
67,729
Federal funds sold and securities purchased under resale agreements (included 13,235 and $14,732 at fair value)
Securities borrowed (included $5,105 and $3,049 at fair value)
321,588
198,422
111,995
105,112
Trading assets (included assets pledged of $89,073 and $109,887)
413,714
381,844
Investment securities (included $230,394 and $202,225 at fair value and assets pledged of $11,432 and $17,969)
Loans (included $3,151 and $2,508 at fair value)
261,828
249,958
984,554
930,697
Allowance for loan losses
(13,445)
(13,604)
Loans, net of allowance for loan losses
971,109
917,093
Accrued interest and accounts receivable
Premises and equipment
Goodwill, MSRs and other intangible assets
73,200
Beneficial interests issued by consolidated VIES (included $28 and $45 at fair value)
(15,410)
Long-term debt (included $54,886 and $47,519 at fair value)
20,241
Total stockholders' equity
Total liabilities and stockholders' equity
$
256,515
2,622,532 $ 2,533,600
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and,
accordingly, prior period amounts were revised. For additional information, refer to Note 1.
(a) The following table presents information on assets and liabilities related to VIES that are consolidated by the Firm at December 31, 2018 and 2017. The
assets of the consolidated VIES are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general
credit of JPMorgan Chase. The assets and liabilities in the table below include third-party assets and liabilities of consolidated VIES and exclude intercompany
balances that eliminate in consolidation. For a further discussion, refer to Note 14.
152
December 31, (in millions)
Assets
Trading assets
Treasury stock, at cost (829,167,674 and 679,635,064 shares)
Loans
Total assets
Liabilities
Beneficial interests issued by consolidated VIES
All other liabilities
Total liabilities
2018
2017
$
1,966 $
59,456
$
All other assets
(42,595)
255,693
(60,494)
(21)
26,081
282,031
284,080
2,366,017
2,277,907
Commitments and contingencies (refer to Notes 27, 28 and 29)
Stockholders' equity
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,606,750 shares)
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Shares held in restricted stock units ("RSU") trust, at cost (472,953 shares)
26,068
26,068
4,105
4,105
89,162
90,579
199,202
177,676
(1,507)
(119)
(21)
Total liabilities (a)
(395)
Note 7
Litigation
Note 29
Page 41
and serious – if we want to have the proper prescription that leads to
workable solutions.
Page 42
3.
All these issues are fixable, but that will happen only if we set aside partisan
politics and narrow self-interest - our country must come first.
Page 46
4. Governments must be better and more effective - we cannot succeed without
their help. The rest of us could do a better job, too.
Page 47
5.
CEOs: Your country needs you!
Page 50
6. America's global role and engagement are indispensable.
Page 51
9
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES
In this section, I want to give the reader a comprehensive view of how we run the company.
We manage the company consistently with these principles in mind - and they have stood
the test of time. We also strive to satisfy, and even exceed, the requirements of our regu-
lators and governments around the globe - and we think these principles are a critical
component of that.
Page 41
2. We must have a proper diagnosis of our problems – the issues are real
The American Dream is alive - but fraying for many.
1.
$252
$312
$222
$1,494
$368
$1,577
$1,567
$309
1. First and foremost, we look at our business from the point of view of the customer.
$275
$326
$430
$399
$1,820
$233
$274
$480
III. Public Policy
$252
Customer needs are what gets our attention.
We believe that in a hyper-competitive world
(from competitors known and unknown), the
best strategy - both offensive and defensive
- is to give the customer more: something
better, faster or more efficiently. We are
always on a quest to improve our products
and services, and, for the most part, this is
done with enhancements in technology and
through the continual training of our people.
Most fundamental of all is doing the right
thing for our customers - in all cases.
We energetically drive organic growth.
We continue to drive good and healthy
organic growth (meaning good customers,
products and services they need and want
at fair and reasonable prices), and while
we are happy with our progress, we recog-
nize that we won't meet every goal we set
for ourselves and can always do better. In
past letters, we have identified many areas
of organic growth. Our achievements with
these initiatives are detailed in the CEO
letters in this Annual Report, but a few of
the critical strategies are highlighted in the
sidebar below.
ORGANIC GROWTH OPPORTUNITIES ACROSS OUR LINES OF BUSINESS
Commercial
Banking
Being able to deliver the broad-based capabilities of JPMorgan Chase at a
very local level is a key competitive advantage. Since launching our Middle
Market expansion efforts, we are now local in 39 new markets and have
added 2,800 clients, resulting in 22% compounded revenue growth over the
last three years. Our growth potential for Middle Market business isn't just
limited to our expansion markets. Through data-driven analysis, we've
identified nearly 38,000 prospective clients nationally. Some of our most
exciting opportunities are within our legacy markets like New York, Chicago,
Dallas and Houston, where we have been for over a century.
Chase's retail branch expansion amplifies our opportunity to deepen
relationships with clients who already are in those markets by giving them
access to branches and the additional resources that come with that access.
In addition, the expansion opens the opportunity to serve more public
sector customers in new U.S. markets through our Government Banking
business, deepening community engagement and broadening our work with
cities, states, public universities and other municipal clients.
Commercial Banking's partnership with the Corporate & Investment Bank
continues to be highly successful and is a key growth driver for both
businesses. Being able to deliver the #1 investment bank locally enhances
our strategic dialogue with our clients and separates us from our
competitors. In 2018, 39% of the firm's North America investment banking
fees came from Commercial Banking clients, totaling $2.5 billion in revenue,
up from $1 billion 10 years ago. We expect that number to continue to grow.
Asset & Wealth
Management
We are using data and technology to transform how we interact with clients.
By integrating our human expertise with distinctive digital offerings like You
Invest, we have been able to attract new clients, 89% of whom are first-time
investors with Chase.
-
We are expanding our footprint to capture more of the opportunity across
the U.S. wealth management spectrum – from mass affluent ($500,000 to
$3 million) to high-net-worth ($3 million to $10 million) to ultra-high-net-
worth ($10 million or greater). By the end of 2019, we expect to have 6,500
advisors globally on the ground where our clients need us most.
We have continued to innovate our product lineup by adding 47 index funds
and exchange-traded funds (ETF) over the last three years.
12
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES
The charts below show JPMorgan Chase's
fairly consistent growth over the years.
This kind of growth only comes from
Client Franchises Built Over the Long Term
happy, repeat customers. They have plenty
of other choices.
2006
2017
11
Our Corporate & Investment Bank is one of the few truly global businesses
in the financial services industry. As emerging countries take their place on
the global stage, we will be there to support them. The investments we are
making in China and in other emerging markets today will result in our
international growth for years to come.
Our Securities Services business has transformed itself into an industry
powerhouse, and it sits alongside the world's leading trading businesses. As
asset managers face ongoing pressures from passive investing and margin
compression in the coming years, we think we have a unique opportunity to
help them become more efficient by outsourcing support functions and
using our innovative technology platforms.
We have consistently grown share in Markets - including in businesses
where the wallet has shrunk. We are prioritizing investments in products
and technology to stay ahead of our clients' needs. As companies expand
their businesses and acquire assets - increasingly across borders - our
global expertise in hedging risks and protecting capital can be as important
to them as the actual acquisition.
Consumer &
Community
Banking
By 2022, we expect 93% of the U.S. population to be in our Chase footprint
as we expand our branch network to new markets with an integrated
physical and digital approach. In addition to entering the Washington, D.C.,
Philadelphia and Boston markets in 2018, we recently announced nine new
markets for 2019, including Charlotte, Minneapolis, Nashville and St. Louis.
The onboarding experience for new customers is being simplified.
Customers can open a new deposit account digitally in three to five minutes,
functionality that added approximately 1.5 million new accounts since its
February 2018 launch; we're expanding this functionality inside our
branches as well. We also recently announced Chase MyHome, our new
digitally enabled mortgage fulfillment process that prefills applications for
our existing customers. It's 20% faster than our paper-based process,
allowing us to close a mortgage within three weeks. Our confidence in our
enhanced approach is reflected in our money-back guarantee.
10
Corporate &
Investment Bank
•
Customers recently began receiving personalized merchant offers and
$243
discounts from Chase Offers SM. This program ramped up rapidly, with
customers activating 25+ million offers across 7 million cards in the initiative's
first three months. Credit JourneySM, with more than 15 million users enrolled,
has also been a tremendously successful way to engage customers through
access to credit score information and identity protection.
And later this year, we'll make it easier for our credit card customers to
borrow on their existing lines through two new products - My Chase PlanSM,
allowing customers to finance a specific purchase at a reasonable cost at
the point of sale; and My Chase Loan SM, letting customers borrow against
their unused credit limit and pay back their debt in fixed amounts at a
competitive rate. These products enable us to compete for the approximately
$250 billion in card loans that our existing customers have with competitors.
•
•
•
•
We have been #1 in investment banking for the past decade and finished
2018 with 8.7% of global wallet share, the industry's best. Still, we believe
we can increase our share over time as we continue to add bankers
selectively and leverage technology to provide better data and insights
to our clients.
Our Treasury Services business grew revenue by 13% last year. As we
further implement our wholesale payments model, which includes merchant
services, we will be able to deliver a unique value proposition to our clients.
We see opportunities in every customer segment from middle market and
small businesses to large corporate clients and their business outside of
the United States.
•
$281
$167
$167
$573
$730
$558
$361
$755
$365
$372
$757
$722
$2,424
$861
$824
$398
$2,681
$792
$439
$2,811
$648
$2,783
$2,740
$2,329
2018
2017
2016
2015
2014
2013
2012
2011
$784
2010
2008
$1,415
$1,883
$1,881
$1,743
$2,061
$2,427
$2,376 $2,353
2009
$3,011
$558
$464
2013
2012
2011
2010
2009
2008
$1,088
$1,158
2014
$1,115
$1,443
$1,392
$1,519
$1,619
$1,621
$1,693
$1,789
$136
$1,264
2018
2015
2017
$618
$503
$3,255
$679
$660
$3,633
$3,802
$3,740
2016
$3,617
$4,211
$4,227
Deposits and client assets¹
at December 31,
Assets Entrusted to us by Our Clients
■Commercial clients ■Consumer
Corporate clients
2018
($ in billions)
Deposits market share5
# of top 50 Chase markets
where we are #1 (top 3)
3.6%
2.5%
2.5%
Management
North America Private Bank client
assets market share25
3%
4%
4%
Average loans ($B)
# of Wealth Management client advisors
$26.5
1,506
$123.5
2,605
$138.6
2,865
■Serve 62 million U.S. households, including 4 million
small businesses
■49 million active digital customers¹, including
33 million active mobile customers²
■99 million debit and credit card accounts³
■#1 in new primary bank relationships nationally4
■#1 U.S. credit card issuer based on sales and
outstandings
1.8%
Active AUM market share24
Asset & Wealth
$2.7
$2.4
$2.5
Multifamily lending 15
#28
#1
#1
Ranking of 5-year cumulative net client
asset flows 23
■ #2 jumbo mortgage originator⁹
ΝΑ
#2
North America Private Bank (Euromoney)18
#1
#1
#1
Client assets ($T)
$1.3
$2.8
#2
$0.7
■>80% of Fortune 500 companies do business with us
■Presence in over 100 markets globally
■Consistently ranked #1 in Markets revenue since 2012¹¹
■J.P. Morgan Research ranked as the #1 Global
Research Firm¹²
B = Billions
T = Trillions
13
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES
New and Renewed Credit and Capital for Our Clients
2008-2018
($ in billions)
$2,496
$2,357
$2,307
$227
$2,144
$265
$2,102
$258
$2,044
$197
USD U.S. dollar
MSAS = Metropolitan statistical areas
FICC = Fixed Income, Currencies and Commodities
NA Not available
■ #1 in USD payments volume¹³
■Top 3 custodian globally14
■133 locations across the U.S.
■ 26 international locations
■17 specialized industry coverage teams
■■■#1 traditional Middle Market Bookrunner17
■20,000 affordable housing units financed in 2018
■Serve clients across the entire wealth spectrum
■#1 in 16 businesses - compared to 8 in 2014²²
■#1 in global investment banking fees for the 10th
consecutive year¹0
■Business with 55% of the world's largest pension funds,
sovereign wealth funds and central banks
■Fiduciaries across all asset classes
For information on footnotes 1-19, refer to slides 32-33 in the JPMorgan Chase 2019 Investor Day - Firm Overview presentation, which is available on JPMorgan Chase & Co.'s
website (https://www.jpmorganchase.com/corporate/investor-relations/document/2019_firm_overview_ba56d0e8.pdf), under the heading Investor Relations, Events & Presentations,
JPMorgan Chase 2019 Investor Day, and on Form 8-K as furnished to the U.S. Securities and Exchange Commission (SEC) on February 26, 2019, which is available on the SEC's
website (www.sec.gov).
20 2006 reflects First Data joint venture.
21
Source: Barlow Research Associates, Primary Bank Market Share Database as of 4Q18. Rolling eight quarter average of small businesses with revenue of $100,000 - <$25 million.
22 Source: Ranks for Banking - Dealogic as of January 1, 2019, and ranks for Markets, Treasury Services and Securities Services - Coalition, preliminary 2018 rank analysis based on
JPMorgan Chase's business structure.
23 Source: Company filings and JPMorgan Chase estimates. Rankings reflect competitors in the peer group with publicly reported financials and 2018 client assets of at least $500B
as follows: Allianz Group, Bank of America Corporation, Bank of New York Mellon Corporation, BlackRock, Inc., Credit Suisse Group AG, Franklin Resources, Inc., The Goldman Sachs
Group, Inc., Invesco Ltd., Morgan Stanley, T. Rowe Price Group, Inc. and UBS Group AG. JPMorgan Chase's ranking reflects AWM client assets, Chase Wealth Management investments
and new-to-firm Chase Private Client deposits.
24 Source: Strategic Insight as of February 2019. Reflects active long-term mutual funds and exchange-traded funds only. Excludes fund of funds and money market funds.
25 Source: Capgemini World Wealth Report 2018. Market share estimated based on 2017 data (latest available).
NM Not meaningful
■■■83% of 10-year long-term mutual fund assets under
management (AUM) performed above peer median¹9
■Revenue and long-term AUM balance growth ~90%
since 2006
Client assets
Gross investment banking revenue ($B)16
$177.0
3,079
5,130
5,036
Client investment assets ($B)
~$80
$273
$282
Business Banking primary market share²¹
5.1%
8.7%
8.8%
Global investment banking fees 10
#2
Market share¹0
8.7%
Total Markets revenue¹¹
#8
$1,366
$1,192
$661
Merchant processing volume²º ($B)
# of branches
8.7%
9.0%
11 (25)
16 (40)
16 (42)
Consumer &
Average deposits growth rate
8%
Market share¹¹
9%
Active mobile customers growth rate
NM
13%
Banking
Credit card sales market share
15.9%
22.0%
5%
11%
22.3%
Community
$170.9
Corporate &
Investment
Bank
50
50
Bankers
1,203
1,766
1,922
New relationships (gross)
ΝΑ
1,062
1,232
Commercial
Banking
Average loans ($B)
$53.6
$198.1
$205.5
Average deposits ($B)
$73.6
26
# of top 50 MSAs with dedicated teams
$23.2
$23.5
Market share¹¹
Equities¹¹
Assets under custody ($T)
Market share¹¹
$13.9
ཧཱུྃཔིༀ།ཝྃཏྠ
6.3%
#1
8.1%
#1
10.7%
FICC¹¹
#1
7.0%
11.1%
11.9%
Co-#1
Co-#1
5.0%
9.9%
11.2%
#1
8.7%
#1
11.6%
#1
Wholesale deposits
$1,866
Assets under custody²
For additional information, refer to LCR and HQLA on page 96.
6 Represents the amount of HQLA included in the liquidity coverage ratio.
5 Operational risk RWA is a component of RWA under Basel III Advanced measure.
4 Reflects Basel III Standardized measure which is the firm's current binding constraint.
Includes trust preferred securities.
2 CET1 reflects Tier 1 common; reflects Basel I measure.
$197B eligible
for TLAC
$308B
+$5B
preferred stock
$303B³
Long-term debt and
$182B
-$11B
$193B
or sold under repurchase agreements
Fed funds purchased and securities loaned
Reported HQLA
is $529B6
$755B
+~$455B
~$300B
Liquidity
RWA5
CET1 = Common equity Tier 1 ratio. For additional information, refer to Regulatory capital on pages 86-91
TCE = Tangible common equity
RWA Risk-weighted assets
B = Billions
everyone has a fair shot at participating in
and sharing in the rewards of growth, the
economy will be stronger and our society
will be better. We are making significant,
long-term, data-driven business and philan-
thropic investments aimed at opening doors
to opportunity for those being left behind.
Our effort is substantial, permanent and
supported by the whole company.
One of the reasons for JPMorgan Chase's
enduring success is we have always recog-
nized that long-term business success
depends on community success. When
We will never forget that the most important
thing we do is to run a healthy and vibrant
company that is here to constantly serve our
clients with responsible banking. But we
want our shareholders and all of our constit-
uents to understand the tremendous amount
we do, in addition to traditional banking, to
help the communities in which we operate.
4. We lift up our communities.
The real damage to an organization
comes from the cumulative corrosive-
ness of trying to "make" its numbers.
This can be exacerbated by compen-
sation deals and models that can be
manipulated to change quarterly results.
It's easy to change earnings in a quarter
by doing stupid things that help earn-
ings in the short term but are bad in
the long term. Examples include asking
customers to inappropriately buy more
products before the end of the quarter so
you can show revenue growth, reducing
marketing, not opening that new branch
or not investing in technology that won't
have a payback for a year or two. I could
go on and on. And this could spiral
within a company, as loyal, well-meaning
employees do what they can to help a
company meet its “earnings goal."
Importantly, in the next section, I speak
in detail about responsible banking, client
selection and intensive risk management.
Proper management is as critical as anything
else we do, but I did not want to repeat the
messages here.
Earnings guidance can be very damaging.
Let's be very clear: Transparency with
shareholders, proper disclosures and
guidance on certain revenue, expense
and balance sheet items all are good.
However, earnings themselves in any one
quarter are a function of decisions made
over many, many years. Quarterly earn-
ings are dependent upon many factors,
like cost of goods sold and market prices,
which often change, as well as unex-
pected events, the weather, and wage and
gross domestic product (GDP) growth. No
CEO can predict all of those things, and
any analyst with an earnings estimate
has made his or her own specific assump-
tions around them.
Conservative accounting is better. While we
always try to make intelligent economic
decisions, I do believe that appropriately
conservative accounting is a better way to
manage your business. For example, recog-
nize problems early, write off software
that is not valuable, don't book revenue
that is uncertain and so on. Aggressive
accounting leads to trouble, and while it
may help increase performance measures
in the short run, it will most certainly be
uncovered and reversed at precisely the
wrong time.
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES
17
but you can't make business decisions based
on them. While we are rigorous about
proper accounting and disclosure, some-
times accounting can distort the actual
economics of a business. A few examples
will suffice. In credit card accounting, for
instance, new card customer costs are
expensed over the course of a year and
inexplicably as a contra-revenue item
(i.e., as a reduction of revenue rather
than an expense). In addition, under
upcoming accounting rules, losses that are
expected over the life of the card balance
are accounted for upfront. Meanwhile,
the earnings from the card are booked
over the life of the card, which averages
approximately seven years. In connection
with mortgage loans we don't own but
instead service (i.e., by sending statements
and receiving payments on behalf of
the mortgagor), the accounting standard
requires that we present-value expected
revenue and expenses and book every-
thing upfront. But in cash management,
asset management and many other prod-
ucts that have a similar, somewhat predict-
able annuity-like revenue stream, the prac-
tice is different. The reason I am making
this point is that you need to understand
the economics of decisions. Accounting
can easily make people do silly things.
Accounting rules can be counterintuitive,
operational risk
Good financial management is also critical.
We have always believed that a deep and
detailed understanding of a company's finan-
cial and operational statements, including
all assets and liabilities and all revenue and
expenses (without netting and regardless of
whether they are on- or off-balance sheet), is
critical to running a safe and sound organi-
zation. However, accounting, and therefore
earnings, is not a perfect measure of perfor-
mance or economics. I would like to discuss
a few reasons why:
We much prefer to use our capital to grow
than to buy back stock. We believe buying
back stock should be considered only when
either we cannot invest (sometimes as a
result of regulatory policies) or we are gener-
ating excess capital that we do not expect to
use in the next few years. Buybacks should
not be done at the expense of investing
appropriately in our company. Investing
for the future should come first, and at
JPMorgan Chase, it does.
We like to use our capital to grow.
But a fortress balance sheet isn't enough.
To be a fortress company, we believe that
you also need to have strong, properly diver-
sified earnings and margins. It is capital
and liquidity combined with strong earn-
ings and margins that provide the ability to
withstand extreme stress. I want to remind
shareholders that we run hundreds of
stress tests internally each month, some of
which are far more severe than the Federal
Reserve's (the Fed) annual stress test. We
also believe that we should have strong
earnings after making investments for the
future which may reduce earnings in the
short run. We are cost- and capital-efficient;
we rigorously allocate our capital; and we
continually analyze our businesses, both to
maximize their individual performance and
to make sure they are contributing to the
health of the whole company.
We have an incredibly well-capitalized bank
with enormous liquidity.
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES
16
TLAC = Total loss absorbing capacity
LCR = Liquidity coverage ratio
Liquidity = HQLA plus unencumbered marketable securities, which includes excess liquidity at JPMorgan Chase Bank, N.A.
HQLA = High quality liquid assets. Predominantly includes cash on deposit at central banks and highly liquid securities including
U.S. agency mortgage-backed securities, U.S. Treasuries and sovereign bonds
bps = basis points
T = Trillions
However, when you cannot see a clear use
for your excess capital over the short term,
buying back stock is an important capital
tool - as long as you are buying it back at
a reasonable price. And when companies
buy back stock (which we only do when it
is at a price that we think adds value to our
remaining shareholders), the capital is redis-
tributed to investors who can put it to good
use elsewhere. It does not disappear. We
currently have excess capital, but we hope in
the future to be able to invest more of it to
grow our businesses.
Most people consider corporate responsi-
bility to be enhanced philanthropy. While
we are devoted to philanthropy (we are on
our way to spending $350 million a year
on these efforts), corporate responsibility
is far more than just that. We finance more
than $2 billion in affordable housing each
including $389B
+$0.3T
at December 31,
Our Fortress Balance Sheet
You can see in the chart below that our
balance sheet is extraordinarily strong.
A fortress company starts with a fortress
balance sheet.
3. We will maintain a fortress balance sheet - and fortress financial principles.
processing, added data and analytics to prod-
ucts, and moved quickly. We recently sent
one of our senior teams to China to study
what's being achieved there with artificial
intelligence (AI) and fintech, and it's hard
not to be both impressed and a little worried
about the progress China has made - it made
our management team even more motivated
to move quickly. Suffice it to say, no matter
what our current performance is, we cannot
rest on our laurels.
We also never lose sight of the fact that we
have an extraordinary number of strong
competitors - we cannot be complacent.
There are many capable financial tech-
nology (fintech) companies in the United
States and around the world - technology
always creates opportunities for disruption.
We have acknowledged that companies like
Square and PayPal have done things that we
could have done but did not. They looked at
clients' problems, improved straight through
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES
15
data, customer satisfaction and many other
measures. Our management will always be
very critical of its own performance: Acknowl-
edging our shortcomings and mistakes and
studying them intensely and learning from
them make for a stronger company.
On an ongoing basis, we analyze and
compare ourselves with our competitors
at a very detailed level. The analysis we do
is on more than 50 sub-lines of business
and hundreds of products, incorporating
not just financial data but also operational
Managed overhead ratio = total noninterest expense/managed revenue; revenue for GS and MS is reflected on a reported basis.
ROTCE = Return on tangible common equity
Bank of America Corporation (BAC), Citigroup Inc. (C), The Goldman Sachs Group, Inc. (GS), Morgan Stanley (MS), Wells Fargo &
Company (WFC).
Given comparisons are at the business segment level, where available, allocation methodologies across peers may be inconsistent
with JPM's.
segments when available: BAC-CB, BAC-GB & GM, Fifth Third Bancorp (FITB), Morgan Stanley Wealth Management (MS-WM) and TROW.
5
3
2 Best-in-class ROTCE represents implied net income minus preferred stock dividends of comparable JPM peers and peer business
Best-in-class overhead ratio represents comparable JPMorgan Chase (JPM) peer business segments: Bank of America Consumer
Banking (BAC-CB), Bank of America Global Banking and Global Markets (BAC-GB & GM), U.S. Bancorp Corporate and Commercial
Banking (USB-C&CB), Credit Suisse Private Banking (CS-PB) and T. Rowe Price Group, Inc. (TROW).
1
11%
14%
■Consumer deposits
2008
2018
14%
CET1
$1.2T²
RWA
Advanced is $1.4T
2018 Basel III
$2.6T
+$0.4T
$2.2T
Total assets
common equity
$185B
+$101B
$1.5T4
$84B
Total assets¹
$389B operational
risk RWA5
7.0%
+300 bps
4.0%
TCE/
or 17.8% excluding
2018 Basel III
Advanced is 12.9%,
12.0%4
+500 bps
7.0%²
Tangible
18
1 Excludes goodwill and intangible assets.
2013
31%
70%+/-
60%
CS-PB & TROW
Management
74%
Asset & Wealth
FITB
~18%
17%
20%
35%+/-
42%
USB-C&CB
Banking
37%
Commercial
Bank
~16%
16%
BAC-GB & GM
16%
54%+/-
54%
BAC-GB & GM
37%
MS-WM & TROW
25%+
JPMorgan Chase compared with peers4
Overhead ratios5
~17%
Target
с
72%
MS
MS
64%
WFC
WFC
64%
Investment
GS
58%
BAC
BAC
57%
C
JPM
57%
JPM
Target
~55%
ROTCE
GS
16%
57%
Banking
2018
2017
2016
2015
2014
2012
2011
2010
2009
2008
$13.2
$14.9
$16.9
$16.1
$18.8
$20.5
$19.9
$20.5
$20.5
$23.2
$23.5
1 Represents assets under management, as well as custody, brokerage, administration and deposit accounts.
2 Represents activities associated with the safekeeping and servicing of assets.
14
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES
2. We endeavor to be the best at anything and everything we do.
25%+
33%
BAC-CB
28%
50%+/-
47%
BAC-CB
Community
53%
Consumer &
JPM medium-term
target ROTCE
Best-in-class
peer ROTCE².3
Corporate &
JPM 2018
ROTCE
ratios¹
ratios
Best-in-class
peer overhead
overhead
JPM 2018
Returns
Efficiency
JPMorgan Chase Is in Line with Best-in-class Peers in Both Efficiency and Returns
The chart below shows our performance
generally, by business, versus our competi-
tors in terms of efficiency and returns.
While we never expect to be best-in-class
every year in every business, we normally
compare well with our best-in-class peers.
JPM medium-term
target overhead
ratio
14%
17%
($ in trillions)
Interest rate
15,313
8,789
Corporate debt securities
1,918
Asset-backed securities:
Collateralized loan obligations
Other
Total available-for-sale securities
Loans
689
Mortgage servicing rights
Other assets()(g)
Total assets measured at fair value on a recurring basis
Deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Trading liabilities:
Non-U.S. government debt securities
75
Certificates of deposit
37,723
9,985
(472,026)
413,665
68,646
8,520
6,654
68,646
8,519
Debt and equity instruments(d)
1
6,654
Total mortgage-backed securities
83,819
1
U.S. Treasury and government agencies
56,059
Obligations of U.S. states and municipalities
Commercial nonagency
Derivative payables:
|| | ||
83,820
1,798
76,798
549
76,249
Commercial nonagency
Residential nonagency
U.S. government agencies(a)
Mortgage-backed securities:
Debt instruments:
Trading assets:
Total fair value
13,235
5,105
--
$
$
$
13,235
5,105
$
64
718,597
1,862
11
56,059
37,723
75
24,102
1,918
19,437
7,260
71,372
159,021
7,121
Obligations of U.S. states and municipalities
59,179
7,702
51,477
U.S. Treasury and government agencies (a)
80,172
624
79,548
Total mortgage-backed securities
1,512
1,501
54,213
(472,026)
5,817
27,878
Non-U.S. government debt securities
1,214
1,214
Certificates of deposit, bankers' acceptances and commercial paper
Foreign exchange
Equity
Commodity
27,056
Total derivative receivables(e)
Total trading assets(f)
Available-for-sale securities:
Mortgage-backed securities:
U.S. government agencies(a)
Residential nonagency
79,355
184,099
$
155
55,089
Corporate debt securities
Derivative receivables:
Total debt and equity instruments(d)
Other
Physical commodities(c)
Equity securities
Total debt instruments
2,883
127
2,756
Asset-backed securities
41,753
1,706
40,047
Loans (b)
18,989
334
18,655
3,635
Credit
267,089
482
612
771
166,238
676
(154,235)
13,450
46,777
(19,483)
2,508
9,946
20,339
131
(13,479)
6,991
1,453
157,109
518,969
(39,339)
860
19,235
23,214
232
71,833
5,182
1,855
7,037
13,192
301
13,493
155,656
199,628
4,168
359,452
682
266,380
1,642
(245,490)
7,810
71,119
Federal funds sold and securities purchased under resale agreements
Securities borrowed
(c) Includes U.S. government agency securities of $8 million, nonagency securities of $11 million, trading loans of $278 million and non-trading loans of $122
million.
Level 3
(1,129) Option pricing
Forward commodity price
$
39
$56 per barrel
Commodity volatility
5%
Net commodity derivatives
68%
(51)%
95%
MSRS
Other assets
6,130
Discounted cash flows
306 Discounted cash flows
Refer to Note 15
Commodity correlation
60%
20%
Equity-IR correlation
(175)
Discounted cash flows
Prepayment speed
8%
9%
Net equity derivatives
(2,225)
Option pricing
Equity volatility
Equity correlation
14%
57%
20%
98%
Equity-FX correlation
(75)%
61%
Credit spread
55bps
55bps
Yield
(45)%
97%
IR-FX correlation
(45)%
60%
Equity correlation
20%
98%
Equity-FX correlation
Equity-IR correlation
(75)%
61%
20%
60%
Other level 3 assets and liabilities, net()
326
(a) The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated
balance sheets. Furthermore, the inputs presented for each valuation technique in the table are, in some cases, not applicable to every instrument valued
using the technique as the characteristics of the instruments can differ.
(b) Includes U.S. government agency securities of $541 million, nonagency securities of $65 million and trading loans of $252 million.
Interest rate correlation
60%
38bps
Interest rate spread volatility
8%
10%
8%
922
Market comparables
Price
$
20
$108
$40
EBITDA multiple
2.9x
8.3x
7.5x
Long-term debt, short-term borrowings, and
deposits(e)
25,110
Option pricing
16bps
Derivative
netting
adjustments
(45)%
Option pricing
(a) Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient.
In the absence of observable market information, valuations are based
on the fair value of the underlying assets held by the VIE.
Level 2 or 3
Valued using observable market information, where available.
Level 2 or 3(a)
Adjustments to the NAV as required, for restrictions on redemption
(e.g., lock-up periods or withdrawal limitations) or where observable
activity is limited.
.
162
Level 1
•
Net asset value
(d) Comprises trading loans.
3,029
JPMorgan Chase & Co./2018 Form 10-K
168
(g) Price is a significant unobservable input for certain instruments. When quoted market prices are not readily available, reliance is generally placed on price-
based internal valuation techniques. The price input is expressed assuming a par value of $100.
NAV is supported by the ability to redeem and purchase at the NAV
level.
JPMorgan Chase & Co./2018 Form 10-K
Product/instrument
Structured notes (included in
Level 2
Level 1
December 31, 2018 (in millions)
Fair value hierarchy
Assets and liabilities measured at fair value on a recurring basis
The following table presents the assets and liabilities reported at fair value as of December 31, 2018 and 2017, by major
product category and fair value hierarchy.
Notes to consolidated financial statements
163
JPMorgan Chase & Co./2018 Form 10-K
Level 2 or 3
Classification in the valuation
hierarchy
The embedded derivative features are considered using models such
as the Black-Scholes option pricing model, simulation models, or a
combination of models that may use observable or unobservable
valuation inputs, depending on the embedded derivative. The
specific inputs used vary according to the nature of the embedded
derivative features, as described in the discussion above regarding
derivatives valuation. Adjustments are then made to this base
valuation to reflect the Firm's own credit risk (DVA). Refer to page
175 of this Note.
Valuations are based on discounted cash flow analyses that consider
the embedded derivative and the terms and payment structure of
the note.
•
Valuation methodology
borrowings and long-term
debt)
deposits, short-term
(f) Includes level 3 assets and liabilities that are insignificant both individually and in aggregate.
(e) Long-term debt, short-term borrowings and deposits include structured notes issued by the Firm that are financial instruments that typically contain
embedded derivatives. The estimation of the fair value of structured notes includes the derivative features embedded within the instrument. The significant
unobservable inputs are broadly consistent with those presented for derivative receivables.
$
1
1,487bps
Recovery rate
20%
70%
Conditional default rate
3%
72%
Loss severity
100%
56
Market comparables
Price
$
1
$115
Net foreign exchange derivatives
(122)
10bps
IR-FX correlation
Credit spread
25%
$102
$67
Interest rate spread volatility
16bps
38bps
Interest rate correlation
(45)%
97%
IR-FX correlation
45%
60%
Net credit derivatives
142 Discounted cash flows
(163) Discounted cash flows
Prepayment speed
4%
30%
Credit correlation
55%
19,437
9,372
1
85,886
39
21,183
64,664
9,191
1,665
697
697
7,526
21,321
$
$
4,142
$
625,737
$
(503,030)
$
19,216
$
15,403
1,265
343
901,387
17,179
208,164 $
$
170
$
282,825
(277,306)
(493,029)
(493,029)
10,287
10,248
519,594
540,777
964
65,628
9,074
7,684
(14,217)
884
21,017
9,192
(36,203)
5,727
39,668
12,473
(143,349)
953
154,075
794
1,299
(21,954)
1,244
22,009
7,129
1,440
$
13,795
6,030
Deposits
Total assets measured at fair value on a recurring basis
Other assets (f)(g)
Mortgage servicing rights
Loans
Total available-for-sale securities
Equity securities()
Other
Collateralized loan obligations
Asset-backed securities:
2,757
2,757
Corporate debt securities
27.294
9,154
18,140
Non-U.S. government debt securities
59
59
Certificates of deposit
32,338
Obligations of U.S. states and municipalities
22,745
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Trading liabilities:
Debt and equity instruments(d)
Derivative payables:
6,030
2,508
276
202.225
277
160,516
2,232
547
547
41,432
8,817
8,817
20,996
37,777
276
Total liabilities measured at fair value on a recurring basis
Long-term debt
Beneficial interests issued by consolidated VIES
Accounts payable and other liabilities
Total trading liabilities
Total derivative payables(e)
Commodity
Equity
Foreign exchange
Credit
Interest rate
20,720
121
6
13
123,663
9,208
$100
62
$
Price
Market comparables
689
Obligations of U.S. states and municipalities
$90
$103
0
$
Price
Market comparables
419
Commercial mortgage-backed securities and
loans(c)
6%
100%
0%
Loss severity
1%
9%
0%
Conditional default rate
$96
Corporate debt securities
334
Market comparables
Price
Market comparables
127
$78
$101
2
$
Price
Market comparables
942
8%
9%
8%
Discounted cash flows
234
(180) Option pricing
Net interest rate derivatives
Asset-backed securities
Loans(d)
$57
$107
0
$
Price
Yield
22,745
24%
Prepayment speed
Level 3 valuations
JPMorgan Chase & Co./2018 Form 10-K
166
(f) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be
classified in the fair value hierarchy. At December 31, 2018 and 2017, the fair values of these investments, which include certain hedge funds, private
equity funds, real estate and other funds, were $747 million and $779 million, respectively. Included in these balances at December 31, 2018 and 2017,
were trading assets of $49 million and $54 million, respectively, and other assets of $698 million and $725 million, respectively.
(g) Effective January 1, 2018, the Firm adopted the recognition and measurement guidance. Equity securities that were previously reported as AFS securities
were reclassified to other assets upon adoption.
(d) Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).
(e) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid
when a legally enforceable master netting agreement exists. For purposes of the tables above, the Firm does not reduce derivative receivables and
derivative payables balances for this netting adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to a
presentation based on the transparency of inputs to the valuation of an asset or liability. The level 3 balances would be reduced if netting were applied,
including the netting benefit associated with cash collateral.
(c) Physical commodities inventories are generally accounted for at the lower of cost or net realizable value. "Net realizable value" is a term defined in U.S.
GAAP as not exceeding fair value less costs to sell ("transaction costs"). Transaction costs for the Firm's physical commodities inventories are either not
applicable or immaterial to the value of the inventory. Therefore, net realizable value approximates fair value for the Firm's physical commodities
inventories. When fair value hedging has been applied (or when net realizable value is below cost), the carrying value of physical commodities
approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. For a further discussion of the
Firm's hedge accounting relationships, refer to Note 5. To provide consistent fair value disclosure information, all physical commodities inventories have
been included in each period presented.
Notes to consolidated financial statements
165
JPMorgan Chase & Co./2018 Form 10-K
(b) At December 31, 2018 and 2017, included within trading loans were $13.2 billion and $11.4 billion, respectively, of residential first-lien mortgages, and
$2.3 billion and $4.2 billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated
with the intent to sell to U.S. government agencies of $7.6 billion and $5.7 billion, respectively, and reverse mortgages of zero and $836 million,
respectively.
(a) At December 31, 2018 and 2017, included total U.S. government-sponsored enterprise obligations of $92.3 billion and $78.0 billion, respectively, which
were predominantly mortgage-related.
211,644
(493,029) $
$
32,271
$
597,700
74,702 $
$
45
47,519
16,125
31,394
39
The Firm has established well-structured processes for
determining fair value, including for instruments where fair
value is estimated using significant unobservable inputs
(level 3). For further information on the Firm's valuation
process and a detailed discussion of the determination of fair
value for individual financial instruments, refer to pages 159-
163 of this Note.
Estimating fair value requires the application of judgment.
The type and level of judgment required is largely dependent
on the amount of observable market information available to
the Firm. For instruments valued using internally developed
valuation models and other valuation techniques that use
significant unobservable inputs and are therefore classified
within level 3 of the fair value hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate valuation model or other valuation technique to
use. Second, due to the lack of observability of significant
inputs, management must assess all relevant empirical data
in deriving valuation inputs including transaction details,
yield curves, interest rates, prepayment speed, default rates,
volatilities, correlations, equity or debt prices, valuations of
comparable instruments, foreign exchange rates and credit
curves.
6%
19%
0%
Yield
Discounted cash flows
858
$
Residential mortgage-backed securities and
loans (b)
average
Range of input values
Unobservable inputs(g)
0%
Weighted
Fair value
(in millions)
Product/Instrument
December 31, 2018
Level 3 inputs(a)
Notes to consolidated financial statements
167
JPMorgan Chase & Co./2018 Form 10-K
For the Firm's derivatives and structured notes positions
classified within level 3 at December 31, 2018, interest rate
correlation inputs used in estimating fair value were
concentrated towards the upper end of the range; equity
correlation, equity-FX and equity-IR correlation inputs were
concentrated in the middle of the range; commodity
correlation inputs were concentrated in the middle of the
range; credit correlation inputs were concentrated towards
the lower end of the range; and the interest rate-foreign
exchange ("IR-FX") correlation inputs were distributed across
the range. In addition, the interest rate spread volatility
inputs used in estimating fair value were distributed across
the range; equity volatilities and commodity volatilities were
concentrated in the middle of the range; and forward
commodity prices used in estimating the fair value of
commodity derivatives were concentrated towards the lower
end of the range. Recovery rate inputs used in estimating the
fair value of credit derivatives were distributed across the
range; credit spreads and conditional default rates were
concentrated towards the lower end of the range; loss
severity and price inputs were concentrated towards the
upper end of the range.
In the Firm's view, the input range and the weighted average
value do not reflect the degree of input uncertainty or an
assessment of the reasonableness of the Firm's estimates and
assumptions. Rather, they reflect the characteristics of the
various instruments held by the Firm and the relative
distribution of instruments within the range of
characteristics. For example, two option contracts may have
similar levels of market risk exposure and valuation
uncertainty, but may have significantly different implied
volatility levels because the option contracts have different
underlyings, tenors, or strike prices. The input range and
weighted average values will therefore vary from period-to-
period and parameter-to-parameter based on the
characteristics of the instruments held by the Firm at each
balance sheet date.
The range of values presented in the table is representative
of the highest and lowest level input used to value the
significant groups of instruments within a product/instrument
classification. Where provided, the weighted averages of the
input values presented in the table are calculated based on
the fair value of the instruments that the input is being used
to value.
The following table presents the Firm's primary level 3
financial instruments, the valuation techniques used to
measure the fair value of those financial instruments, the
significant unobservable inputs, the range of values for those
inputs and, for certain instruments, the weighted averages of
such inputs. While the determination to classify an
instrument within level 3 is based on the significance of the
unobservable inputs to the overall fair value measurement,
level 3 financial instruments typically include observable
components (that is, components that are actively quoted
and can be validated to external sources) in addition to the
unobservable components. The level 1 and/or level 2 inputs
are not included in the table. In addition, the Firm manages
the risk of the observable components of level 3 financial
instruments using securities and derivative positions that are
classified within levels 1 or 2 of the fair value hierarchy.
Principal valuation
technique
U.S. Treasury and government agencies
86,672
1
JPMorgan Chase & Co./2018 Form 10-K
164
234,238
(460,119) $
$
54,886
19,418
34,784
$
35,468
574,090
85,483 $
$
Total liabilities measured at fair value on a recurring basis
Long-term debt
28
1
27
Beneficial interests issued by consolidated VIES
41,769
144,773
3,269
10
196
(460,119)
9,663
512,809
Fair value hierarchy
Derivative
December 31, 2017 (in millions)
Level 1
1,835
41,822
307
41,515
Total mortgage-backed securities
Commercial - nonagency
Residential nonagency
U.S. government agencies(a)
Mortgage-backed securities:
Debt instruments:
Trading assets:
(460,119)
3,049
$
$
$
14,732
3.049
Securities borrowed
$
$
Federal funds sold and securities purchased under resale agreements
netting
adjustments
Level 3
Level 2
Total fair value
14,732
60
9,613
2,221
82,420
3,063
103,004
50
22,755
80,199
935
7,130
1,523
935
5,607
23,217
680,612
(472,026) $
$
$
$
17,165
4,169
$
$
8,932
6,130
3,151
122
6,130
927
195
899,182
19,048
7,810
236,291 $
$
$
$
230,394
Interest rate
1,526
239,576
1,680
Accounts payable and other liabilities
(13,046)
1,260
21,158
10,161
(41,034)
4,733
46,462
12,785
(152,432)
973
490,054
163,549
1,667
7,784
(234,998)
(18,609)
967
19,309
Total trading liabilities
Total derivative payables(e)
Commodity
Equity
Foreign exchange
Credit
695
7,260
1,895
11
(144,081)
557
158,834
841
869
(22,335)
1,209
21,995
24,673
(291,319)
1,704
314,107
181
325,267
14,887
5,370
167,982
151,915
14,197
6,246
1,322
4,924
87,838
16,151
37,722
2,318
(32,158)
86,671
Total mortgage-backed securities
5,025
5,025
Commercial nonagency
11,367
11,366
70,280
70,280
690
381,790
295
(503,030)
720,515
56,523
(503,030)
5,998
552,533
1,022
152,937
6,948
(13,137)
210
19,875
7,882
11,368
1,645
197
216,296
24,146
Corporate debt securities
57,796
78
28,831
28,887
Non-U.S. government debt securities
226
226
Certificates of deposit, bankers' acceptances and commercial paper
9,811
744
9,067
Obligations of U.S. states and municipalities
37,234
1
6,475
30,758
U.S. Treasury and government agencies(a)
45,373
378
44,995
1,656
312
24,458
Loans(b)
35,242
4,385
152,266
59,645
U.S. government agencies(a)
Residential nonagency
Mortgage-backed securities:
Available-for-sale securities:
Total trading assets()
Total derivative receivables(e)
Commodity
Foreign exchange
Equity
Credit
87,346
Interest rate
Total debt and equity instruments(d)
Other
Physical commodities(c)
Equity securities
Total debt instruments
3,437
153
3,284
Asset-backed securities
37,961
2,719
Derivative receivables:
32,338
Note 2 - Fair value measurement
Interest rate spread volatility
Credit correlation between the underlying debt instruments
•
⚫ CDS spreads and recovery rates
Structured credit derivatives specific inputs include:
In addition, specific inputs used for derivatives that are valued based on
models with significant unobservable inputs are as follows:
The key valuation inputs used will depend on the type of derivative and
the nature of the underlying instruments and may include equity prices,
commodity prices, interest rate yield curves, foreign exchange rates,
volatilities, correlations, CDS spreads and recovery rates. Additionally,
the credit quality of the counterparty and of the Firm as well as market
funding levels may also be considered.
Derivatives that are valued using models such as the Black-Scholes
option pricing model, simulation models, or a combination of models
that may use observable or unobservable valuation inputs as well as
considering the contractual terms.
Valuation methodology
Exchange-traded derivatives that are actively traded and valued using
the exchange price.
Product/instrument
Notes to consolidated financial statements
161
Level 1 and 2
JPMorgan Chase & Co./2018 Form 10-K
Valued using observable market prices or data.
Physical commodities
• Credit rating data
Credit spreads
severity
•
Expected prepayment speed, conditional default rates, loss
Deal-specific payment and loss allocations
Collateral characteristics
Collateralized loan obligations ("CLOS") specific inputs:
Current market assumptions related to yield, prepayment speed,
conditional default rates and loss severity
• Deal-specific payment and loss allocations
Collateral characteristics
Mortgage- and asset-backed securities specific inputs:
In addition, the following inputs to discounted cash flows are used for
the following products:
Discounted cash flows
Equity option specific inputs include:
• Relevant broker quotes
.
• Equity correlation
• Additional available inputs relevant to the investment.
• Operating performance of the underlying portfolio company
Adjustments as required, since comparable public companies are not
identical to the company being valued, and for company-specific
issues and lack of liquidity.
•
Trading multiples of comparable public companies
Transaction prices
.
Level 2 or 3
Fair value is estimated using all available information; the range of
potential inputs include:
Level 3
Refer to Mortgage servicing rights in Note 15.
Additionally, adjustments are made to reflect counterparty credit quality
(CVA) and the impact of funding (FVA). Refer to page 175 of this Note.
• Forward commodity price
Commodity volatility
•
Commodity derivatives specific inputs include:
• Interest rate-FX correlation
• Foreign exchange correlation
• Interest rate correlation
•
Beneficial interests issued by
consolidated VIES
Fund investments (e.g.,
mutual/collective investment
funds, private equity funds,
hedge funds, and real estate
funds)
Private equity direct
investments
Mortgage servicing rights
Level 2 or 3
Level 1
Classifications in the valuation
hierarchy
Interest rate and FX exotic options specific inputs include:
• Equity-IR correlation
• Equity-FX correlation
Equity volatilities
Observable market prices for similar securities
Derivatives
Level 2 or 3
A financial instrument's categorization within the valuation
hierarchy is based on the lowest level of input that is
significant to the fair value measurement.
methodology are unobservable and significant to the fair
value measurement.
Level 3 - one or more inputs to the valuation
Level 2 - inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument.
A three-level valuation hierarchy has been established
under U.S. GAAP for disclosure of fair value measurements.
The valuation hierarchy is based on the transparency of
inputs to the valuation of an asset or liability as of the
measurement date. The three levels are defined as follows.
Level 1 - inputs to the valuation methodology are
quoted prices (unadjusted) for identical assets or
liabilities in active markets.
Valuation hierarchy
Under the Firm's Estimations and Model Risk Management
Policy, the Model Risk function reviews and approves new
models, as well as material changes to existing models,
prior to implementation in the operating environment. In
certain circumstances, the head of the Model Risk function
may grant exceptions to the Firm's policy to allow a model
to be used prior to review or approval. The Model Risk
function may also require the user to take appropriate
actions to mitigate the model risk if it is to be used in the
interim. These actions will depend on the model and may
include, for example, limitation of trading activity.
If prices or quotes are not available for an instrument or a
similar instrument, fair value is generally determined using
valuation models that consider relevant transaction data
such as maturity and use as inputs market-based or
independently sourced parameters. Where this is the case
the price verification process described above is applied to
the inputs to those models.
Where appropriate, the Firm also applies adjustments to
its estimates of fair value in order to appropriately
reflect counterparty credit quality (CVA), the Firm's own
creditworthiness (DVA) and the impact of funding (FVA),
using a consistent framework across the Firm. For more
information on such adjustments refer to Credit and
funding adjustments on page 175 of this Note.
Valuation model review and approval
parameter valuation adjustments are applied to reflect
the uncertainty inherent in the resulting valuation
estimate.
Unobservable parameter valuation adjustments may be
made when positions are valued using prices or input
parameters to valuation models that are unobservable
due to a lack of market activity or because they cannot
be implied from observable market data. Such prices or
parameters must be estimated and are, therefore,
subject to management judgment. Unobservable
The Firm manages certain portfolios of financial
instruments on the basis of net open risk exposure and,
as permitted by U.S. GAAP, has elected to estimate the
fair value of such portfolios on the basis of a transfer of
the entire net open risk position in an orderly
transaction. Where this is the case, valuation
adjustments may be necessary to reflect the cost of
exiting a larger-than-normal market-size net open risk
position. Where applied, such adjustments are based on
factors that a relevant market participant would
consider in the transfer of the net open risk position,
including the size of the adverse market move that is
likely to occur during the period required to reduce the
net open risk position to a normal market-size.
Liquidity valuation adjustments are considered where an
observable external price or valuation parameter exists
but is of lower reliability, potentially due to lower market
activity. Liquidity valuation adjustments are applied and
determined based on current market conditions. Factors
that may be considered in determining the liquidity
adjustment include analysis of: (1) the estimated bid-
offer spread for the instrument being traded; (2)
alternative pricing points for similar instruments in
active markets; and (3) the range of reasonable values
that the price or parameter could take.
•
•
The VCG determines any valuation adjustments that may be
required to the estimates provided by the risk-taking
functions. No adjustments to quoted prices are applied for
instruments classified within level 1 of the fair value
hierarchy (refer to below for further information on the fair
value hierarchy). For other positions, judgment is required
to assess the need for valuation adjustments to
appropriately reflect liquidity considerations, unobservable
parameters, and, for certain portfolios that meet specified
criteria, the size of the net open risk position. The
determination of such adjustments follows a consistent
framework across the Firm:
The VCG verifies fair value estimates provided by the risk-
taking functions by leveraging independently derived prices,
valuation inputs and other market data, where available.
Where independent prices or inputs are not available, the
VCG performs additional review to ensure the
reasonableness of the estimates. The additional review may
include evaluating the limited market activity including
client unwinds, benchmarking valuation inputs to those
used for similar instruments, decomposing the valuation of
structured instruments into individual components,
comparing expected to actual cash flows, reviewing profit
and loss trends, and reviewing trends in collateral valuation.
There are also additional levels of management review for
more significant or complex positions.
Price verification process
Notes to consolidated financial statements
on:
JPMorgan Chase & Co./2018 Form 10-K
Consolidated balance sheets at fair value. The Firm's VCG,
which is part of the Firm's Finance function and
independent of the risk-taking functions, is responsible for
verifying these estimates and determining any fair value
adjustments that may be required to ensure that the Firm's
positions are recorded at fair value. The VGF is composed of
senior finance and risk executives and is responsible for
overseeing the management of risks arising from valuation
activities conducted across the Firm. The Firmwide VGF is
chaired by the Firmwide head of the VCG (under the
direction of the Firm's Controller), and includes sub-forums
covering the CIB, CCB, CB, AWM and certain corporate
functions including Treasury and CIO.
Risk-taking functions are responsible for providing fair value
estimates for assets and liabilities carried on the
Valuation process
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of different
methodologies or assumptions by other market participants
compared with those used by the Firm could result in the
Firm deriving a different estimate of fair value at the
reporting date.
The level of precision in estimating unobservable market
inputs or other factors can affect the amount of gain or loss
recorded for a particular position. Furthermore, while the
Firm believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
measurement date. Fair value is based on quoted market
prices or inputs, where available. If prices or quotes are not
available, fair value is based on valuation models and other
valuation techniques that consider relevant transaction
characteristics (such as maturity) and use as inputs
observable or unobservable market parameters, including
yield curves, interest rates, volatilities, equity or debt
prices, foreign exchange rates and credit curves. Valuation
adjustments may be made to ensure that financial
instruments are recorded at fair value, as described below.
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. These assets and liabilities are predominantly
carried at fair value on a recurring basis (i.e., assets and
liabilities that are measured and reported at fair value on
the Firm's Consolidated balance sheets). Certain assets
(e.g., held-for-sale loans), liabilities and unfunded lending-
related commitments are measured at fair value on a
nonrecurring basis; that is, they are not measured at fair
value on an ongoing basis but are subject to fair value
adjustments only in certain circumstances (for example,
when there is evidence of impairment).
160
JPMorgan Chase & Co./2018 Form 10-K
159
Product/instrument
The following table describes the valuation methodologies generally used by the Firm to measure its significant products/
instruments at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.
In the absence of quoted market prices, securities are valued based
Level 1
Predominantly level 2
Quoted market prices are used where available.
Fair value is based on observable prices for mortgage-backed
securities with similar collateral and incorporates adjustments to
these prices to account for differences between the securities and the
value of the underlying loans, which include credit characteristics,
portfolio composition, and liquidity.
Where observable market data is unavailable or limited, valuations
are based on discounted cash flows, which consider the following:
Credit spreads derived from the cost of CDS; or benchmark credit
curves developed by the Firm, by industry and credit rating
Prepayment speed
Observed market prices for similar instruments
Relevant broker quotes
Investment and trading
securities
residential mortgage loans
expected to be sold (CCB, CIB)
- conforming
Trading loans -
consumer
-
Collateral characteristics
Level 2 or 3
Securities financing agreements
Loans
Valuation methodology
Valuations are based on discounted cash flows, which consider:
•
Classifications in the valuation
hierarchy
Predominantly level 2
Derivative features: for further information refer to the discussion
of derivatives below.
Market rates for the respective maturity
Collateral characteristics
Loans and lending-related commitments - wholesale
Loans carried at fair value
(e.g., trading loans and non-
trading loans) and associated
lending-related commitments
Where observable market data is available, valuations are based on:
Observed market prices (circumstances are infrequent)
•
Other assets
1,265
1 (d)
6,030
Mortgage servicing rights
230 (e)
(328) (c)
(7) (c)
276
Loans
277
Mortgage-backed securities
1
276
Asset-backed securities
1-----1-
Available-for-sale securities:
803 (c)
123
1,246
397
(3,796)
Total available-for-sale securities
61
(340) (c)
(277)
(729)
(in millions)
December 31, 2018
Year ended
Total
realized/
Fair
Fair value measurements using significant unobservable inputs
-
927
(1)
4
(37)
230 (e)
6,130
(740)
(7) (c)
122
(74)
(196)
1
(277)
(636)
(37)
1,047
(d)
1,841
(108)
30
(20)
52
(396) 103
Foreign exchange
(28)
(107)
23
42
4
(7)
5
(40)
(35)
187
(38)
19
(15)
value at
January
1, 2018
(57)
(297)
(63)
Equity
338 (c)
(4,250)
Total net derivative receivables
146
(1,129)
(17)
7
(301)
(72)
1
(674) (73)
Commodity
561
(2,225)
330
(617)
1,805
(2,208)
1,676
198
(3,409)
(2,440)
unrealized
(gains)/
losses
Fair value
Sales
Purchases(f) Sales
Total
realized/
unrealized
gains/
(losses)
1, 2017
(in millions)
at January
December 31, 2017
(430)
Year ended
Fair value measurements using significant unobservable inputs
Settlements(g)
Notes to consolidated financial statements
JPMorgan Chase & Co./2018 Form 10-K
(1,385) (c)(i)
19,418
(831)
1,143
(7,769)
1
11,919
-
171
16,125 (1,169) (c)(i)
Transfers
into
level 3(h)
Trading assets:
83
Residential nonagency
$ (20)
(43) $ 307
49 $
(70) $
$
161 $ (171)
$
Assets:(a)
$ (11)
U.S. government agencies
Mortgage-backed securities:
2017
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2017
Dec. 31,
Fair
value at
Transfers
(out of)
level 3(h)
Debt instruments:
$ 392
Long-term debt
4 - 10 -
1 - (39)
Short-term borrowings
repurchase agreements
Federal funds purchased and
securities loaned or sold under
$ (204) (c)(i)
2 $ (540) $ 4,169
(736) $
$ 1,437 $
-
$
1,665
$
Deposits
Liabilities:(a)
at Dec. 31,
2018
related to
financial
instruments held
Change in
unrealized
(gains)/losses
Fair
value at
Dec. 31,
2018
Transfers
(out of)
level 3(h)
Transfers
into
level 3(h)
Issuances Settlements(g)
$ 4,142 $ (136) (c)(i)
(329) (c)(i)
Trading liabilities - debt and equity
instruments
39
39
consolidated VIES
Beneficial interests issued by
5
(12)
13
Accounts payable and other liabilities
16 (c)
50
(36)
14
(1)
(131) (c)(i)
1,523
(152)
272
(3,388)
3,455
114
(99)
19 (c)
Purchases
(133)
2,719
150
64
(74)
59
(7)
(50)
78
(2)
60
Residential nonagency
Commercial - nonagency
$ (21)
(70) $
94 $
(73) $
$
(164)
478 $
$
307 $ (23)
$
549
U.S.government agencies
11
18
1
U.S. Treasury and government
agencies
(2)
21 22
(22)
624
(165)
189
(97)
2
(232)
(23)
378
securities
Total mortgage-backed
11
(21)
36
(17)
(18)
574
Mortgage-backed securities:
2018
Dec. 31,
The level of volatility used in the valuation of a particular
option-based derivative depends on a number of factors,
including the nature of the risk underlying the option (e.g.,
the volatility of a particular equity security may be
significantly different from that of a particular commodity
index), the tenor of the derivative as well as the strike price
of the option.
Volatility Volatility is a measure of the variability in possible
returns for an instrument, parameter or market index given
how much the particular instrument, parameter or index
changes in value over time. Volatility is a pricing input for
options, including equity options, commodity options, and
interest rate options. Generally, the higher the volatility of
the underlying, the riskier the instrument. Given a long
position in an option, an increase in volatility, in isolation,
would generally result in an increase in a fair value
measurement.
Furthermore, correlation levels are very much dependent on
market conditions and could have a relatively wide range of
levels within or across asset classes over time, particularly in
volatile market conditions.
The level of correlation used in the valuation of derivatives
with multiple underlying risks depends on a number of
factors including the nature of those risks. For example, the
correlation between two credit risk exposures would be
different than that between two interest rate risk exposures.
Similarly, the tenor of the transaction may also impact the
correlation input, as the relationship between the underlying
risks may be different over different time periods.
Correlation Correlation is a measure of the relationship
between the movements of two variables (e.g., how the
change in one variable influences the change in the other).
Correlation is a pricing input for a derivative product where
the payoff is driven by one or more underlying risks.
Correlation inputs are related to the type of derivative (e.g.,
interest rate, credit, equity, foreign exchange and
commodity) due to the nature of the underlying risks. When
parameters are positively correlated, an increase in one
parameter will result in an increase in the other parameter.
When parameters are negatively correlated, an increase in
one parameter will result in a decrease in the other
parameter. An increase in correlation can result in an
increase or a decrease in a fair value measurement. Given a
short correlation position, an increase in correlation, in
isolation, would generally result in a decrease in a fair value
measurement.
Notes to consolidated financial statements
169
The loss severity applied in valuing a mortgage-backed
security investment depends on factors relating to the
underlying mortgages, including the LTV ratio, the nature of
the lender's lien on the property and other instrument-
specific factors.
Loss severity - The loss severity (the inverse concept is the
recovery rate) is the expected amount of future realized
losses resulting from the ultimate liquidation of a particular
loan, expressed as the net amount of loss relative to the
outstanding loan balance. An increase in loss severity is
generally accompanied by an increase in conditional default
rates. An increase in the loss severity, in isolation, would
result in a decrease in a fair value measurement.
EBITDA multiple - EBITDA multiples refer to the input (often
derived from the value of a comparable company) that is
multiplied by the historic and/or expected earnings before
interest, taxes, depreciation and amortization (“EBITDA”) of a
company in order to estimate the company's value. An
increase in the EBITDA multiple, in isolation, net of
adjustments, would result in an increase in a fair value
measurement.
Conditional default rate - The conditional default rate is a
measure of the reduction in the outstanding collateral
balance underlying a collateralized obligation as a result of
defaults. While there is typically no direct relationship
between conditional default rates and prepayment speeds,
collateralized obligations for which the underlying collateral
has high prepayment speeds will tend to have lower
conditional default rates. An increase in conditional default
rates would generally be accompanied by an increase in loss
severity and an increase in credit spreads. An increase in the
conditional default rate, in isolation, would result in a
decrease in a fair value measurement. Conditional default
rates reflect the quality of the collateral underlying a
securitization and the structure of the securitization itself.
Based on the types of securities owned in the Firm's market-
making portfolios, conditional default rates are most typically
at the lower end of the range presented.
JPMorgan Chase & Co./2018 Form 10-K
Prepayment speeds may vary from collateral pool to
collateral pool, and are driven by the type and location of the
Prepayment speed - The prepayment speed is a measure of
the voluntary unscheduled principal repayments of a
prepayable obligation in a collateralized pool. Prepayment
speeds generally decline as borrower delinquencies rise. An
increase in prepayment speeds, in isolation, would result in a
decrease in a fair value measurement of assets valued at a
premium to par and an increase in a fair value measurement
of assets valued at a discount to par.
The yield and the credit spread of a particular mortgage-
backed security primarily reflect the risk inherent in the
instrument. The yield is also impacted by the absolute level of
the coupon paid by the instrument (which may not
correspond directly to the level of inherent risk). Therefore,
the range of yield and credit spreads reflects the range of risk
inherent in various instruments owned by the Firm. The risk
inherent in mortgage-backed securities is driven by the
subordination of the security being valued and the
characteristics of the underlying mortgages within the
collateralized pool, including borrower FICO scores, LTV ratios
for residential mortgages and the nature of the property and/
or any tenants for commercial mortgages. For corporate debt
securities, obligations of U.S. states and municipalities and
other similar instruments, credit spreads reflect the credit
quality of the obligor and the tenor of the obligation.
Credit spread - The credit spread is the amount of additional
annualized return over the market interest rate that a market
participant would demand for taking exposure to the credit
risk of an instrument. The credit spread for an instrument
forms part of the discount rate used in a discounted cash flow
calculation. Generally, an increase in the credit spread would
result in a decrease in a fair value measurement.
Yield The yield of an asset is the interest rate used to
discount future cash flows in a discounted cash flow
calculation. An increase in the yield, in isolation, would result
in a decrease in a fair value measurement.
The following discussion also provides a description of
attributes of the underlying instruments and external market
factors that affect the range of inputs used in the valuation of
the Firm's positions.
The following discussion provides a description of the impact
on a fair value measurement of a change in each
unobservable input in isolation, and the interrelationship
between unobservable inputs, where relevant and significant.
The impact of changes in inputs may not be independent, as a
change in one unobservable input may give rise to a change
in another unobservable input. Where relationships do exist
between two unobservable inputs, those relationships are
discussed below. Relationships may also exist between
observable and unobservable inputs (for example, as
observable interest rates rise, unobservable prepayment
rates decline); such relationships have not been included in
the discussion below. In addition, for each of the individual
relationships described below, the inverse relationship would
also generally apply.
Changes in and ranges of unobservable inputs
underlying borrower, and the remaining tenor of the
obligation as well as the level and type (e.g., fixed or floating)
of interest rate being paid by the borrower. Typically
collateral pools with higher borrower credit quality have a
higher prepayment rate than those with lower borrower
credit quality, all other factors being equal.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the Consolidated
balance sheets amounts (including changes in fair value) for
financial instruments classified by the Firm within level 3 of
the fair value hierarchy for the years ended December 31,
2018, 2017 and 2016. When a determination is made to
classify a financial instrument within level 3, the
determination is based on the significance of the
unobservable inputs to the overall fair value measurement.
However, level 3 financial instruments typically include, in
addition to the unobservable or level 3 components,
observable components (that is, components that are actively
quoted and can be validated to external sources);
accordingly, the gains and losses in the table below include
changes in fair value due in part to observable factors that
are part of the valuation methodology. Also, the Firm risk-
manages the observable components of level 3 financial
instruments using securities and derivative positions that are
classified within level 1 or 2 of the fair value hierarchy; as
these level 1 and level 2 risk management instruments are
not included below, the gains or losses in the following tables
do not reflect the effect of the Firm's risk management
activities related to such level 3 instruments.
170
JPMorgan Chase & Co./2018 Form 10-K
Transfers
(out of)
level 3(h)
Transfers
into
level 3(h)
Settlements(B)
Purchases(f) Sales
gains/
(losses)
1, 2018
January
unrealized
value at
realized/
Fair
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2018
Fair
value at
Fair value measurements using significant unobservable inputs
Total
Debt instruments:
Trading assets:
Assets:(a)
(in millions)
December 31, 2018
Year ended
-
107
- - (1)
Obligations of U.S. states and
9
232
(127)
107
(1)
(120)
118
(40)
295
Other
Equity securities
3,635
(1,355)
1,332
(950)
(2,722)
2,971
(26)
4,385
Total debt instruments
(28)
22
690
55
264
Credit
Interest rate
Net derivative receivables:(b)
(320) (c)
4,168
(1,486)
1,442
(1,069)
(285)
(2,882)
(351) (c)
5,370
Total trading assets - debt and
equity instruments
(301)
301
(4)
3
(118)
(40)
3,144
127
(101)
45
Corporate debt securities
(9)
155
(94)
23
(12)
(277)
459
(22)
312
78
Non-U.S. government debt
(17)
689
(80)
(70)
112
(17)
744
municipalities
securities
(18)
364
(309)
(55)
(41)
98
28
153
Asset-backed securities
(1)
1,706
(765)
813
(658)
(1,793)
1,364
26
19
Loans
(1)
334
(229)
262
(48)
I
53
(30)
(64)
(38)
(132)
149
19
(28)
492
(531)
351
(138)
456
(27)
22
651
649
Obligations of U.S. states and
municipalities
securities
Total mortgage-backed
3
17
(297)
173
(3)
(29)
69
115 (11)
Commercial nonagency
5
83
1,024
(95)
Non-U.S.government debt
74
39
1,832
Asset-backed securities
1,044
(1,311)
(2,598)
2,228
(343)
6,604
Loans
(22)
576
(207)
securities
148
(359)
445
2
736
Corporate debt securities
(7)
46
(30)
19
(7)
(97)
91
(4)
(189)
67
(20)
(319)
Assets:(a)
(in millions)
December 31, 2016
Year ended
Total
realized/
Fair
JPMorgan Chase & Co./2018 Form 10-K
172
(2)
13
3
39
(9)
Trading assets:
3
7 (c)(i)
1,665
(202)
150
(2,748)
3,289
552 (c)(i)
(925) 16,125
1,660
(10,985)
12,458
39
78
3
Debt instruments:
Mortgage-backed securities:
U.S. government agencies
252
4
194
Residential nonagency
$ (36)
(139) $ 392
111 $
$
(115)
$
$ (295)
135
$
715 $ (20)
$
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2016
at
Dec. 31,
2016
(out of)
level 3(h)
Transfers
Transfers
into
level 3(h)
Settlements(g)
Sales
Purchases(f)
Fair value
Fair value measurements using significant unobservable inputs
1, 2016 (losses)
gains/
January
value at unrealized
655
(712)
(968)
288
823
Asset-backed securities
1
1
Mortgage-backed securities
Available-for-sale securities:
(1,238) (c)
(44) (2,360)
76
(293)
(1,025)
545
(1,749) 130 (c)
(119)
Total net derivative receivables
(8) (85)
8
645
10
1
(935) 194
Commodity
(86)
(325) (2,252)
94
213
(852)
277
(36)
(42)
663
1
(119)
(42)
664
1 (d)
Loans
1,518
(49) (c)
259
(7)
(838)
(313)
570
Mortgage servicing rights
6,608
(163) (e)
679
(109)
(919)
Other assets
2,401
130 (c)
487
(496)
(299)
6,096
2,223
(163) (e)
48 (c)
824
Total available-for-sale securities
(1,514) (145)
(6)
Equity
31 (1,384)
28
(90) 761
26
(360)
(287)
649
79
744
Total trading assets - debt and
equity instruments
Other
Physical commodities
7
(207)
11,930
19
(787) 4,837
(832) 302
(2,387) 6,902
(5) 231
29
(40)
(108)
90
265
Equity securities
1,850
(2,651)
(4,541)
4,024
10,921 (314)
Total debt instruments
(169)
(235) (c)
4,763
(4,936)
(48)
(649)
(124)
64
(725) 67
Foreign exchange
(622)
98
36
36
211
(2)
10
549 (742)
(144)
1,263
222
(14)
(713)
(57)
193
876 756
Credit
Interest rate
Net derivative receivables:(b)
(172) (c)
(2,482) 7,894
1,905
(3,051)
(350)
39
(122)
2 (c)
1,067 (c)(i)
(58) 295
59
(4)
(148)
176
30
100
761
Other
39
231
Equity securities
68
4,385
21
(2,180)
(2,028)
4,567 (4,633)
411
6,902
Total debt instruments
153
(198)
75
(56)
(356)
354
32
302
1,346
(46)
(162)
17
(164)
98
(1,384)
Foreign exchange
Credit
(473)
264
(1)
(8)
(1,040)
(82)
60
72
1,263
Interest rate
Net derivative receivables: (b)
128 (c)
5,370
(2,248)
1,422
(2,194)
(4,827)
4,773
550 (c)
7,894
equity instruments
Total trading assets - debt and
39
690
(10)
Asset-backed securities
1
43
(1,491)
1
1
U.S. Treasury and government
agencies
(8)
378
(225)
245
(147)
(245)
241
17
492
securities
|
Total mortgage-backed
11
(49)
64
(13)
(44)
27
9
17
Commercial nonagency
11
60
(133)
132
1
Obligations of U.S. states and
municipalities
649
18
806
(1,323)
(2,832)
2,389
333
4,837
Loans
18
312
(195)
157
(497)
(612)
872
11
576
Corporate debt securities
78
(71)
62
(518)
559
46
Non-U.S. government debt
securities
15
744
(5)
(70)
152
2,719
1
(6)
(41)
Change in
unrealized
(gains)/losses
Dec. 31,
2017
Fair
value at
Transfers
(out of)
level 3(h)
Transfers
into
level 3(h)
Settlements()
Purchases Sales Issuances
Total
realized/
unrealized
(gains)/
losses
Fair
value at
January
1, 2017
(in millions)
December 31, 2017
Year ended
Fair value measurements using significant unobservable inputs
related to
financial
instruments held
74 (c)
(221)
(232) (e)
6,030
3 (c)
276
(d)
14
277
14
276
1
(870)
(177)
1,265
at Dec. 31,
2017
Liabilities:(a)
Deposits
12,850
48
(1)
48
(46)
Long-term debt
consolidated VIES
Beneficial interests issued by
(2)
13
Accounts payable and other liabilities
(3) (c)
43
Trading liabilities - debt and equity
instruments
42 (c)(i)
1,134
Short-term borrowings
repurchase agreements
securities loaned or sold under
Federal funds purchased and
$ 198 (c)(i)
(874) $4,142
11 $
(291) $
$
$ 3,027
$
$ 152 (c)(i) $
$ 2,117
66
77
244 (c)
Other assets
Total net derivative receivables
(718)
(674)
(1)
(6)
(433)
(149)
(85)
Commodity
(161)
422 (3,409)
(1,482)
(245)
(2,360)
(551)
(417)
(2,252)
Equity
42
(396)
149
(61)
854
(10)
13
43
32
(35)
1,116
(615) (c)
1,190
(649)
(797)
(140)
1,103
(232) (e)
6,096
Mortgage servicing rights
(303)
(26)
35 (c)
570
Loans
(352)
(50)
15 (d)
664
Total available-for-sale securities
(352)
(50)
15
663
Asset-backed securities
1
Mortgage-backed securities
Available-for-sale securities:
(1,278) (c)
(4,250)
528
(1,480)
(864)
2,223
(643)
Level 2
Year ended
71.9
72.0
receivable
Accrued interest and accounts
405.4
3.6
401.8
405.4
256.5
256.5
0.1
256.5
25.9
$
$
25.9 $
25.9 $
$
22.3
22.3 $
3 $ 
- $ - $
22.3 $
$
Deposits with banks
Cash and due from banks
72.0
67.0
loan losses(a)
Loans, net of allowance for
31.5
31.4
Investment securities, held-to-
maturity
102.1
102.1
102.1
106.9
183.7
67.0
183.7
308.4
106.9
106.9
Securities borrowed
308.4
308.4
resale agreements
securities purchased under
Federal funds sold and
67.0
183.7
968.0
Financial assets
Level 3
$
Downward carrying value changes/impairment
Upward carrying value changes
Carrying value
Other assets
(in millions)
Year ended
December 31, 2018
As of or for the
The following table presents the carrying value of equity securities without readily determinable fair values held as of
December 31, 2018, that are measured under the measurement alternative and the related adjustments recorded during the
periods presented for those securities with observable price changes. These securities are included in the nonrecurring fair
value tables when applicable price changes are observable.
In its determination of the new carrying values upon observable price changes, the Firm may adjust the prices if deemed
necessary to arrive at the Firm's estimated fair values. Such adjustments may include adjustments to reflect the different rights
and obligations of similar securities, and other adjustments that are consistent with the Firm's valuation techniques for private
equity direct investments.
1,510
As a result of the adoption of the recognition and measurement guidance and the election of the measurement alternative in
the first quarter of 2018, the Firm measures certain equity securities without readily determinable fair values at cost less
impairment (if any), plus or minus observable price changes from an identical or similar investment of the same issuer, with
such changes recognized in other income.
JPMorgan Chase & Co./2018 Form 10-K
176
For further information about the measurement of impaired
collateral-dependent loans, and other loans where the
carrying value is based on the fair value of the underlying
collateral (e.g., residential mortgage loans charged off in
accordance with regulatory guidance), refer to Note 12.
(a) Included $149 million for the year ended 2018 of net gains as a result
of the measurement alternative.
$ (172)
$ 64 $ (308)
gains/(losses)
Total nonrecurring fair value
(1)
liabilities
Equity securities without readily determinable fair values
fair value
309
(160)
Level 2
Level 1
value
Total
estimated
Carrying
Total
estimated
fair value
Level 3
Level 2
Level 1
Carrying
value
Included in other assets above is the Firm's interest in approximately 40 million Visa Class B shares, recorded at a nominal
carrying value. These shares are subject to certain transfer restrictions currently and will be convertible into Visa Class A
shares upon final resolution of certain litigation matters involving Visa. The conversion rate of Visa Class B shares into Visa
Class A shares is 1.6298 at December 31, 2018, and may be adjusted by Visa depending on developments related to the
litigation matters.
(in billions)
Estimated fair value hierarchy
December 31, 2018
The following table presents by fair value hierarchy classification the carrying values and estimated fair values at
December 31, 2018 and 2017, of financial assets and liabilities, excluding financial instruments that are carried at fair value
on a recurring basis, and their classification within the fair value hierarchy.
Notes to consolidated financial statements
177
JPMorgan Chase & Co./2018 Form 10-K
Certain financial instruments that are not carried at fair
value on the Consolidated balance sheets are carried at
amounts that approximate fair value, due to their short-
term nature and generally negligible credit risk. These
instruments include cash and due from banks, deposits with
banks, federal funds sold, securities purchased under resale
agreements and securities borrowed, short-term
receivables and accrued interest receivable, short-term
borrowings, federal funds purchased, securities loaned and
sold under repurchase agreements, accounts payable, and
accrued liabilities. In addition, U.S. GAAP requires that the
fair value of deposit liabilities with no stated maturity (i.e.,
demand, savings and certain money market deposits) be
equal to their carrying value; recognition of the inherent
funding value of these instruments is not permitted.
Financial instruments for which carrying value approximates
fair value
U.S. GAAP requires disclosure of the estimated fair value of
certain financial instruments. Financial instruments within
the scope of these disclosure requirements are included in
the following table. However, certain financial instruments
and all nonfinancial instruments are excluded from the
scope of these disclosure requirements. Accordingly, the fair
value disclosures provided in the following table include
only a partial estimate of the fair value of JPMorgan Chase's
assets and liabilities. For example, the Firm has developed
long-term relationships with its customers through its
deposit base and credit card accounts, commonly referred
to as core deposit intangibles and credit card relationships.
In the opinion of management, these items, in the
aggregate, add significant value to JPMorgan Chase, but
their fair value is not disclosed in this Note.
Additional disclosures about the fair value of financial
instruments that are not carried on the Consolidated
balance sheets at fair value
December 31, 2017
Estimated fair value hierarchy
Accounts payable and other
Other(b)
47.7
The majority of the Firm's lending-related commitments are not carried at fair value on a recurring basis on the Consolidated
balance sheets. The carrying value of the wholesale allowance for lending-related commitments and the estimated fair value of
these wholesale lending-related commitments were as follows for the periods indicated.
(a) Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal, contractual
interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and primary origination or
secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The difference between the estimated fair
value and carrying value of a financial asset or liability is the result of the different methodologies used to determine fair value as compared with carrying value. For
example, credit losses are estimated for a financial asset's remaining life in a fair value calculation but are estimated for a loss emergence period in the allowance for
loan loss calculation; future loan income (interest and fees) is incorporated in a fair value calculation but is generally not considered in the allowance for loan losses.
(b) The prior period amounts have been revised to conform with the current period presentation.
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period
amounts were revised. For additional information, refer to Note 1.
243.5
3.2
240.3
236.6
227.9
3.3
224.6
December 31, 2018
Estimated fair value hierarchy
-
interest debentures
subordinated deferrable
Long-term debt and junior
26.0
- 26.0 -
26.0
- 20.2 - 20.2
20.2
consolidated VIES
Beneficial interests issued by
227.1
151.8
December 31, 2017
Estimated fair value hierarchy
Carrying
value(a)
Fair value measurements using significant unobservable inputs
JPMorgan Chase & Co./2018 Form 10-K
178
The Firm does not estimate the fair value of consumer lending-related commitments. In many cases, the Firm can reduce or
cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without notice. For a further
discussion of the valuation of lending-related commitments, refer to page 161 of this Note.
(a) Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which is recognized at fair value at the inception of the
guarantees.
1.1 $ - $ - $ 1.6 $ 1.6
$
2.1
2.1 $
$
(in billions)
$
Wholesale lending-
Total
estimated
fair value
Level 3
Level 2
Level 1
Carrying
value(a)
Total
estimated
fair value
Level 3
Level 2
Level 1
related commitments $ 1.0 $
31.5
2.9
152.0
-
$ 1,447.5 $
-
$ 1,447.4 $
Deposits
Financial liabilities
48.7
61.3
9.2
52.1
$ 1,447.5 $ 1,422.7 $
53.9
1.0
59.6
920.3
707.1
213.2
914.6
970.0
728.5
241.5
48.7
60.6
148.9
-
-
160.2
3.0
157.0
0.2
160.6
Accounts payable and other
liabilities
42.6
0.2
158.2
158.2
42.4
$ 1,422.7 $
42.6
181.4
62.1
62.1
-
62.1
Short-term borrowings
181.4
181.4
under repurchase agreements
Federal funds purchased and
securities loaned or sold
$ 1,422.7
158.2
37
60.5
2016
(e) Changes in fair value for MSRs are reported in mortgage fees and related income.
(d) Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment ("OTTI") losses that are recorded in earnings, are reported in investment securities gains/(losses).
Unrealized gains/(losses) are reported in OCI. Realized gains/(losses) and foreign exchange hedge accounting adjustments recorded in income on AFS securities were $1 million, zero and
zero for the years ended December 31, 2018, 2017 and 2016, respectively. Unrealized gains/(losses) recorded on AFS securities in OCI were zero, $15 million and $1 million for the years
ended December 31, 2018, 2017 and 2016, respectively.
(c) Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans, and lending-related commitments originated with the intent to sell, and
mortgage loan purchase commitments, which are reported in mortgage fees and related income.
(b) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.
(a) Level 3 assets as a percentage of total Firm assets accounted for at fair value (including assets measured at fair value on a nonrecurring basis) were 3%, 3% and 4% at December 31,
2018, 2017 and 2016 respectively. Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis)
were 15%, 15% and 12% at December 31, 2018, 2017 and 2016, respectively.
Notes to consolidated financial statements
173
JPMorgan Chase & Co./2018 Form 10-K
(7)
--13
6(c)
639 (c)
(1,389) 12,850
315
(5,810)
48
(613)
(31) (0) -- 143
8,140
147 (c)
11,447
549
(6)
43
(f) Loan originations are included in purchases.
(g) Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, deconsolidations associated with beneficial interests in VIES and other
items.
(h) All transfers into and/or out of level 3 are based on changes in the observability and/or significance of the valuation inputs and are assumed to occur at the beginning of the quarterly
reporting period in which they occur.
(i) Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue, and they were not material for the years ended December 31,
2018 and 2017, respectively. Unrealized (gains)/losses are reported in OCI, and they were $(277) million and $(48) million for the years ended December 31, 2018 and 2017,
respectively.
•
During the year ended December 31, 2017, transfers from level
3 into level 2 included the following:
$1.1 billion of long-term debt driven by a decrease in
observability and an increase in the significance of
unobservable inputs for certain structured notes.
•
$1.0 billion of gross equity derivative receivables and $1.6
billion of gross equity derivative payables as a result of a
decrease in observability and an increase in the significance
of unobservable inputs.
$1.4 billion of total debt and equity instruments, the
majority of which were trading loans, driven by a decrease in
observability.
During the year ended December 31, 2018, transfers from level
2 into level 3 included the following:
$1.2 billion of gross equity derivative receivables and $1.5
billion of gross equity derivative payables as a result of an
increase in observability and a decrease in the significance
of unobservable inputs.
$1.5 billion of total debt and equity instruments, the
majority of which were trading loans, driven by an increase
in observability.
During the year ended December 31, 2018, transfers from level
3 into level 2 included the following:
13
•
•
•
Transfers between levels for instruments carried at
fair value on a recurring basis
$1.2 billion decrease in trading assets - debt and equity
instruments predominantly driven by a decrease of $1.0
billion in trading loans primarily due to settlements and net
sales.
Level 3 assets were $17.2 billion at December 31, 2018,
reflecting a decrease of $2.1 billion from December 31, 2017,
largely due to:
For the year ended December 31, 2018
changes to level 3 assets since December 31, 2017, for those
items measured at fair value on a recurring basis. For further
information on changes impacting items measured at fair value
on a nonrecurring basis, refer to Assets and liabilities measured
at fair value on a nonrecurring basis on page 176.
Level 3 assets (including assets measured at fair value on a
nonrecurring basis) were 0.7% of total Firm assets at
December 31, 2018. The following describes significant
Consolidated balance sheets changes
Level 3 analysis
•
(22)
(70) (c)
(55) 1,134
$ (1,283)
$ - $ 1,375
$2,950 $ (56) (c) $
at Dec. 31,
2016
Change in
unrealized
(gains)/losses
related to
financial
instruments held
Fair value
at Dec. 31,
2016
Transfers
(out of)
level 3(h)
Transfers
into
level 3(h)
Settlements()
Deposits
$
Liabilities:(a)
Sales Issuances
Purchases
1, 2016 losses
(gains)/
January
December 31, 2016
value at unrealized
Total
realized/
$ (209)
Fair
(in millions)
$1.5 billion of trading loans driven by an increase in
observability.
$
$
114
(1,210)
1,876
(4)
6
(2)
Long-term debt
consolidated VIES
Beneficial interests issued by
23
(869) $2,117
(15)
63
19
Accounts payable and other liabilities
Trading liabilities - debt and equity
instruments
(230) (c)
639
Short-term borrowings
repurchase agreements
securities loaned or sold under
Federal funds purchased and
23 (c)
(12) (c)
•
(18) (c)
281
$
value
Level 3
Level 1
Total fair
$
Other assets
Loans
December 31, 2017 (in millions)
Fair value hierarchy
238
1,360
823
815
1,079
$
$
-
$
Total assets measured at fair value on a nonrecurring basis
8
-
537
$
264 (b) $
$
$
132 (a)
2017
$ (159)
(148)
$1.2 billion of gross equity derivative payables as a result of
Other assets
$ (68)
Loans
2018
December 31, (in millions)
The following table presents the total change in value of
assets and liabilities for which a fair value adjustment has
been recognized for the years ended December 31, 2018,
2017 and 2016, related to financial instruments held at
those dates.
Nonrecurring fair value changes
596
There were no material liabilities measured at fair value on a nonrecurring basis at December 31, 2018 and 2017.
1,300
$
779
$
521
$
466
183
283
834
Total assets measured at fair value on a nonrecurring basis
(a) Primarily includes equity securities without readily determinable fair values that were adjusted based on observable price changes in orderly transactions
from an identical or similar investment of the same issuer (measurement alternative) as a result of the adoption of the recognition and measurement
guidance. Of the $815 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2018, $667 million related to such
equity securities. These equity securities are classified as level 3 due to the infrequency of the observable prices and/or the restrictions on the shares.
(b) of the $264 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2018, $225 million related to residential real
estate loans carried at the net realizable value of the underlying collateral (e.g., collateral-dependent loans and other loans charged off in accordance with
regulatory guidance). These amounts are classified as level 3 as they are valued using information from broker's price opinions, appraisals and automated
valuation models and discounted based upon the Firm's experience with actual liquidation values. These discounts ranged from 13% to 54% with a
weighted average of 25%.
273 $
Other assets (a)
Credit and funding adjustments - derivatives
Derivatives are generally valued using models that use as
their basis observable market parameters. These market
parameters generally do not consider factors such as
counterparty nonperformance risk, the Firm's own credit
quality, and funding costs. Therefore, it is generally
necessary to make adjustments to the base estimate of fair
value to reflect these factors.
CVA represents the adjustment, relative to the relevant
benchmark interest rate, necessary to reflect counterparty
nonperformance risk. The Firm estimates CVA using a
scenario analysis to estimate the expected positive credit
exposure across all of the Firm's existing positions with each
counterparty, and then estimates losses based on the
probability of default and estimated recovery rate as a
result of a counterparty credit event considering
contractual factors designed to mitigate the Firm's credit
exposure, such as collateral and legal rights of offset. The
key inputs to this methodology are (i) the probability of a
default event occurring for each counterparty, as derived
from observed or estimated CDS spreads; and (ii) estimated
recovery rates implied by CDS spreads, adjusted to consider
the differences in recovery rates as a derivative creditor
relative to those reflected in CDS spreads, which generally
reflect senior unsecured creditor risk.
Loans
JPMorgan Chase & Co./2018 Form 10-K
174
There were no individually significant movements for the
year ended December 31, 2016.
2016
$1.3 billion of net losses on liabilities predominantly driven
by market movements in long-term debt.
2017
$1.6 billion of net gains on liabilities largely driven by
market movements in long-term debt.
2018
•
The following describes significant components of total realized/
unrealized gains/(losses) for instruments measured at fair value
on a recurring basis for the years ended December 31, 2018,
2017 and 2016. For further information on these instruments,
refer to Changes in level 3 recurring fair value measurements
rollforward tables on pages 170-174.
Gains and losses
occur.
All transfers are based on changes in the observability and/or
significance of the valuation inputs and are assumed to occur at
the beginning of the quarterly reporting period in which they
$1.0 billion of trading loans driven by a decrease in
observability.
$1.1 billion of gross equity derivative receivables and $1.0
billion of gross equity derivative payables as a result of an
decrease in observability and an increase in the significance
of unobservable inputs.
During the year ended December 31, 2016, transfers from level
2 into level 3 included the following:
$1.4 billion of long-term debt driven by an increase in
observability and a reduction in the significance of
unobservable inputs for certain structured notes.
During the year ended December 31, 2016, transfers from level
3 into level 2 included the following:
$1.7 billion of long-term debt driven by a decrease in
observability and an increase in the significance of
unobservable inputs for certain structured notes.
$1.0 billion of gross equity derivative receivables and $2.5
billion of gross equity derivative payables as a result of a
decrease in observability and an increase in the significance
of unobservable inputs.
•
FVA represents the adjustment to reflect the impact of
funding and is recognized where there is evidence that a
market participant in the principal market would
incorporate it in a transfer of the instrument. The Firm's
FVA framework, applied to uncollateralized (including
partially collateralized) over-the-counter ("OTC")
derivatives incorporates key inputs such as: (i) the expected
funding requirements arising from the Firm's positions with
During the year ended December 31, 2017, transfers from level
2 into level 3 included the following:
an increase in observability and a decrease in the
significance of unobservable inputs.
The following table provides the impact of credit and
funding adjustments on principal transactions revenue in
the respective periods, excluding the effect of any
associated hedging activities. The FVA presented below
includes the impact of the Firm's own credit quality on the
inception value of liabilities as well as the impact of changes
in the Firm's own credit quality over time.
Total fair
value
Level 3
Fair value hierarchy
Level 2
Level 1
December 31, 2018 (in millions)
The following tables present the assets held as of December 31, 2018 and 2017, respectively, for which a nonrecurring fair
value adjustment was recorded during the years ended December 31, 2018 and 2017, respectively, by major product category
and fair value hierarchy.
Assets and liabilities measured at fair value on a nonrecurring basis
Notes to consolidated financial statements
175
each counterparty and collateral arrangements; and (ii) the
estimated market funding cost in the principal market
which, for derivative liabilities, considers the Firm's credit
risk (DVA). For collateralized derivatives, the fair value is
estimated by discounting expected future cash flows at the
relevant overnight indexed swap rate given the underlying
collateral agreement with the counterparty, and therefore a
separate FVA is not necessary.
JPMorgan Chase & Co./2018 Form 10-K
Valuation adjustments on fair value option elected
liabilities
193 $ 802 $ (84)
(74) (295)
7
Derivatives FVA
Derivatives CVA
Credit and funding adjustments:
2016
2017
2018
Year ended December 31,
(in millions)
The valuation of the Firm's liabilities for which the fair value
option has been elected requires consideration of the Firm's
own credit risk. DVA on fair value option elected liabilities
reflects changes (subsequent to the issuance of the liability)
in the Firm's probability of default and LGD, which are
estimated based on changes in the Firm's credit spread
observed in the bond market. Realized (gains)/losses due to
DVA for fair value option elected liabilities are reported in
principal transactions revenue. Unrealized (gains)/losses
are reported in OCI. Refer to page 174 in this Note and Note
23 for further information.
881,188
Subtotal
439,162
1,627
54,213
15,028
21,460
387,813
Loans held-for-sale and loans at fair value
45,197
15,028
68,284
Automotive
1,469
1,692
952
4,113
1,884
2,029
645
4,558
Receivables from customers and other(a)
Securities Firms
1,186
All other(e)
30,063
(h) Represents lending-related financial instruments.
35,931
402,898
5,607
183
JPMorgan Chase & Co./2018 Form 10-K
3,499
(g) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against derivative
receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(f) Excludes cash placed with banks of $268.1 billion and $421.0 billion, at December 31, 2018 and 2017, respectively, which is predominantly placed with various
central banks, primarily Federal Reserve Banks.
(e) All other includes: SPES and Private education and civic organizations, representing approximately 92% and 8%, respectively, at December 31, 2018 and 90%
and 10%, respectively, at December 31, 2017. For more information on exposures to SPES, refer to Note 14.
(d) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2018 and 2017, noted above, the Firm
held: $7.8 billion and $9.8 billion, respectively, of trading securities; $37.7 billion and $32.3 billion, respectively, of AFS securities; and $4.8 billion and $14.4
billion, respectively, of held-to-maturity ("HTM") securities, issued by U.S. state and municipal governments. For further information, refer to Note 2 and Note
10.
(c) Individuals and Individual Entities predominantly consists of Wealth Management clients within AWM and includes exposure to personal investment companies
and personal and testamentary trusts.
(b) The industry rankings presented in the table as of December 31, 2017, are based on the industry rankings of the corresponding exposures at December 31,
2018, not actual rankings of such exposures at December 31, 2017.
(a) Receivables from customers primarily represent held-for-investment margin loans to brokerage customers (Prime Services in CIB, AWM and CCB) that are
collateralized through assets maintained in the clients' brokerage accounts, as such no allowance is held against these receivables. These receivables are reported
within accrued interest and accounts receivable on the Firm's Consolidated balance sheets.
861,265 408,505
370,098
$2,004,974 $ 930,697 $ 56,523 $ 991,482
$2,108,242 $ 984,554 $ 54,213 $1,039,258
Total exposure(f)(g)
56,523
387,813
54,213
454,190
926,279
Total wholesale-related
370,098
56,523
21,887
2,711
60,529
829,519
5,607
26,139
351
5,170
1,525
1,102
6,391
15,660
Transportation
10,083
208
5,654
15,945
10,952
181
8,167
4,902
Chemicals & Plastics
9,575
342
4,903
14,820
11,770
399
1,870
Total long-term beneficial interests
17,339
16,035
15,797
6,733
977
5,941
18
7,484
Financial Markets Infrastructure
9,874
2,804
1,411
14,089
8,714
2,569
1,356
12,639
Insurance
8,741
702
4,728
14,171
9,501
488
5,370
15,359
Metals & Mining
8,087
5,036
Nonprincipal-protected debt (b)
Manage the risk of the mortgage pipeline, warehouse loans and MSRS Specified risk management CCB
Manage the credit risk of wholesale lending exposures
ΝΑ
Foreign exchange
194
Corporate
Cash flow hedge
192
Corporate
Fair value hedge
Hedge fixed rate assets and liabilities
Hedge floating-rate assets and liabilities
Foreign exchange
• Interest rate
Hedge foreign currency-denominated assets and liabilities
Hedge foreign currency-denominated forecasted revenue and
expense
Manage specifically identified risk exposures in qualifying hedge accounting relationships:
reference
Designation and disclosure segment or unit
Use of Derivative
Type of Derivative
Page
Affected
The following table outlines the Firm's primary uses of derivatives and the related hedge accounting designation or disclosure
category.
Notes to consolidated financial statements
185
JPMorgan Chase & Co./2018 Form 10-K
• Interest rate
Fair value hedge
Corporate
192
195
13,937
Manage the risk of certain other specified assets and liabilities
Specified risk management CIB
195
• Interest rate and
• Credit
• Interest rate
Manage specifically identified risk exposures not designated in qualifying hedge accounting
relationships:
192
CIB
Fair value hedge
Hedge commodity inventory
• Commodity
•
195
Corporate
Net investment hedge
Hedge the value of the Firm's investments in non-U.S. dollar
functional currency entities
• Foreign exchange
194
Corporate
Cash flow hedge
JPMorgan Chase uses net investment hedges to protect the
value of the Firm's net investments in certain non-U.S.
subsidiaries or branches whose functional currencies are
not the U.S. dollar. For qualifying net investment hedges,
changes in the fair value of the derivatives due to changes
in spot foreign exchange rates are recorded in OCI as
translation adjustments. Amounts excluded from the
assessment of effectiveness are recorded directly in
earnings.
JPMorgan Chase uses cash flow hedges primarily to hedge
the exposure to variability in forecasted cash flows from
floating-rate assets and liabilities and foreign currency-
denominated revenue and expense. For qualifying cash flow
hedges, changes in the fair value of the derivative are
recorded in OCI and recognized in earnings as the hedged
item affects earnings. Derivative amounts affecting
earnings are recognized consistent with the classification of
the hedged item - primarily interest income, interest
expense, noninterest revenue and compensation expense. If
the hedge relationship is terminated, then the change in
value of the derivative recorded in AOCI is recognized in
earnings when the cash flows that were hedged affect
earnings. For hedge relationships that are discontinued
because a forecasted transaction is not expected to occur
according to the original hedge forecast, any related
derivative values recorded in AOCI are immediately
recognized in earnings.
revenue.
There are three types of hedge accounting designations: fair
value hedges, cash flow hedges and net investment hedges.
JPMorgan Chase uses fair value hedges primarily to hedge
fixed-rate long-term debt, AFS securities and certain
commodities inventories. For qualifying fair value hedges,
the changes in the fair value of the derivative, and in the
value of the hedged item for the risk being hedged, are
recognized in earnings. Certain amounts excluded from the
assessment of effectiveness are recorded in OCI and
recognized in earnings over the life of the derivative. If the
hedge relationship is terminated, then the adjustment to
the hedged item continues to be reported as part of the
basis of the hedged item, and for benchmark interest rate
hedges, is amortized to earnings as a yield adjustment.
Derivative amounts affecting earnings are recognized
consistent with the classification of the hedged item
primarily net interest income and principal transactions
Long-term debt
Principal-protected debt
$
32,674 (c) $ 28,718 $
(3,956) $
26,297 (c) $
23,848 $
(2,449)
Nonprincipal-protected debt (b)
ΝΑ
26,168
ΝΑ
ΝΑ
23,671
ΝΑ
Total long-term debt
ΝΑ
$
54,886
ΝΑ
ΝΑ
$
47,519
(4,485)
Long-term beneficial interests
(31)
36,590
2,508
40,469 $
To qualify for hedge accounting, a derivative must be highly
effective at reducing the risk associated with the exposure
being hedged. In addition, for a derivative to be designated
as a hedge, the risk management objective and strategy
must be documented. Hedge documentation must identify
the derivative hedging instrument, the asset or liability or
forecasted transaction and type of risk to be hedged, and
how the effectiveness of the derivative is assessed
prospectively and retrospectively. To assess effectiveness,
the Firm uses statistical methods such as regression
analysis, nonstatistical methods such as dollar-value
comparisons of the change in the fair value of the derivative
to the change in the fair value or cash flows of the hedged
item, and qualitative comparisons of critical terms and the
evaluation of any changes in those terms. The extent to
which a derivative has been, and is expected to continue to
be, highly effective at offsetting changes in the fair value or
cash flows of the hedged item must be assessed and
documented at least quarterly. If it is determined that a
derivative is not highly effective at hedging the designated
exposure, hedge accounting is discontinued.
The Firm applies hedge accounting to certain derivatives
executed for risk management purposes - generally interest
rate, foreign exchange and commodity derivatives.
However, JPMorgan Chase does not seek to apply hedge
accounting to all of the derivatives involved in the Firm's
risk management activities. For example, the Firm does not
apply hedge accounting to purchased CDS used to manage
the credit risk of loans and lending-related commitments,
because of the difficulties in qualifying such contracts as
hedges. For the same reason, the Firm does not apply
hedge accounting to certain interest rate, foreign exchange,
and commodity derivatives used for risk management
purposes.
The Firm adopted new hedge accounting guidance in the
first quarter of 2018, which required prospective
amendments to the disclosures, as reflected in this Note.
For additional information on the impact upon adoption of
the new guidance, refer to Notes 1 and 23.
Derivatives designated as hedges
JPMorgan Chase & Co./2018 Form 10-K
184
As permitted under U.S. GAAP, the Firm nets derivative
assets and liabilities, and the related cash collateral
receivables and payables, when a legally enforceable
master netting agreement exists between the Firm and the
derivative counterparty. For further discussion of the
offsetting of assets and liabilities, refer to Note 1. The
accounting for changes in value of a derivative depends on
whether or not the transaction has been designated and
qualifies for hedge accounting. Derivatives that are not
designated as hedges are reported and measured at fair
value through earnings. The tabular disclosures on pages
188-195 of this Note provide additional information on the
amount of, and reporting for, derivative assets, liabilities,
gains and losses. For further discussion of derivatives
embedded in structured notes, refer to Notes 2 and 3.
All free-standing derivatives that the Firm executes for its
own account are required to be recorded on the
Consolidated balance sheets at fair value.
Accounting for derivatives
The Firm provides clearing services for clients in which the
Firm acts as a clearing member at certain derivative
exchanges and clearing houses. The Firm does not reflect
the clients' derivative contracts in its Consolidated Financial
Statements. For further information on the Firm's clearing
services, refer to Note 27.
Derivative clearing services
For more information about risk management derivatives,
refer to the risk management derivatives gains and losses
table on page 195 of this Note, and the hedge accounting
gains and losses tables on pages 192-195 of this Note.
Derivative counterparties and settlement types
The Firm enters into OTC derivatives, which are negotiated
and settled bilaterally with the derivative counterparty. The
Firm also enters into, as principal, certain ETD such as
futures and options, and OTC-cleared derivative contracts
with CCPS. ETD contracts are generally standardized
contracts traded on an exchange and cleared by the CCP,
which is the Firm's counterparty from the inception of the
transactions. OTC-cleared derivatives are traded on a
bilateral basis and then novated to the CCP for clearing.
Commodities contracts are used to manage the price risk of
certain commodities inventories. Gains or losses on these
derivative instruments are expected to substantially offset
the depreciation or appreciation of the related inventory.
Credit derivatives are used to manage the counterparty
credit risk associated with loans and lending-related
commitments. Credit derivatives compensate the purchaser
when the entity referenced in the contract experiences a
credit event, such as bankruptcy or a failure to pay an
obligation when due. Credit derivatives primarily consist of
CDS. For a further discussion of credit derivatives, refer to
the discussion in the Credit derivatives section on pages
195-197 of this Note.
Foreign currency forward contracts are used to manage the
foreign exchange risk associated with certain foreign
currency-denominated (i.e., non-U.S. dollar) assets and
liabilities and forecasted transactions, as well as the Firm's
net investments in certain non-U.S. subsidiaries or branches
whose functional currencies are not the U.S. dollar. As a
result of fluctuations in foreign currencies, the U.S. dollar-
equivalent values of the foreign currency-denominated
assets and liabilities or the forecasted revenues or expenses
increase or decrease. Gains or losses on the derivative
instruments related to these foreign currency-denominated
assets or liabilities, or forecasted transactions, are expected
to substantially offset this variability.
The Firm generally uses interest rate contracts to manage
the risk associated with changes in interest rates. Fixed-rate
assets and liabilities appreciate or depreciate in market
value as interest rates change. Similarly, interest income
and expense increases or decreases as a result of variable-
rate assets and liabilities resetting to current market rates,
and as a result of the repayment and subsequent
origination or issuance of fixed-rate assets and liabilities at
current market rates. Gains and losses on the derivative
instruments related to these assets and liabilities are
expected to substantially offset this variability.
The Firm manages certain market and credit risk exposures
using derivative instruments, including derivatives in hedge
accounting relationships and other derivatives that are used
to manage risks associated with specified assets and
liabilities.
Risk management derivatives
The majority of the Firm's derivatives are entered into for
market-making purposes. Clients use derivatives to mitigate
or modify interest rate, credit, foreign exchange, equity and
commodity risks. The Firm actively manages the risks from
its exposure to these derivatives by entering into other
derivative contracts or by purchasing or selling other
financial instruments that partially or fully offset the
exposure from client derivatives.
Derivative contracts derive their value from underlying
asset prices, indices, reference rates, other inputs or a
combination of these factors and may expose
counterparties to risks and rewards of an underlying asset
or liability without having to initially invest in, own or
exchange the asset or liability. JPMorgan Chase makes
markets in derivatives for clients and also uses derivatives
to hedge or manage its own risk exposures. Predominantly
all of the Firm's derivatives are entered into for market-
making or risk management purposes.
Note 5 - Derivative instruments
Notes to consolidated financial statements
38,157
2,539
44,954
$
(1,567)
3,375
28
1,720
Total Consumer, excluding credit card
Receivables from customers(a)
Consumer, excluding credit card
December 31, (in millions)
2017
As a result of continued growth and the relative size of the portfolio, exposure to "Individuals,” which was previously disclosed
in "All Other," is now separately disclosed in the table below as "Individuals and Individual Entities." This category
predominantly consists of Wealth Management clients within AWM and includes exposure to personal investment companies
and personal and testamentary trusts. Predominantly all of this exposure is secured, largely by cash and marketable securities.
In the table below, prior period amounts have been revised to conform with the current period presentation.
The table below presents both on-balance sheet and off-balance sheet consumer and wholesale-related credit exposure by the
Firm's three credit portfolio segments as of December 31, 2018 and 2017.
JPMorgan Chase & Co./2018 Form 10-K
182
Terms of loan products and collateral coverage are included
in the Firm's assessment when extending credit and
establishing its allowance for loan losses.
Credit card
The Firm does not believe that its exposure to any
particular loan product or industry segment (e.g., real
estate), or its exposure to residential real estate loans with
high LTV ratios, results in a significant concentration of
credit risk.
In the Firm's consumer portfolio, concentrations are
managed primarily by product and by U.S. geographic
region, with a key focus on trends and concentrations at the
portfolio level, where potential credit risk concentrations
can be remedied through changes in underwriting policies
and portfolio guidelines. For additional information on the
geographic composition of the Firm's consumer loan
portfolios, refer to Note 12. In the wholesale portfolio,
credit risk concentrations are evaluated primarily by
industry and monitored regularly on both an aggregate
portfolio level and on an individual client or counterparty
basis.
Concentrations of credit risk arise when a number of clients,
counterparties or customers are engaged in similar
business activities or activities in the same geographic
region, or when they have similar economic features that
would cause their ability to meet contractual obligations to
be similarly affected by changes in economic conditions.
JPMorgan Chase regularly monitors various segments of its
credit portfolios to assess potential credit risk
concentrations and to obtain additional collateral when
deemed necessary and permitted under the Firm's
agreements. Senior management is significantly involved in
the credit approval and review process, and risk levels are
adjusted as needed to reflect the Firm's risk appetite.
Note 4 - Credit risk concentrations
Notes to consolidated financial statements
181
JPMorgan Chase & Co./2018 Form 10-K
4,713
4,468
15
31,235
The Firm's wholesale exposure is managed through loan
syndications and participations, loan sales, securitizations,
credit derivatives, master netting agreements, collateral
and other risk-reduction techniques. For additional
information on loans, refer to Note 12.
Total consumer-related
2018
Credit
exposure(g) Loans
149,511
372,681
421,367
722.342
1,143,709
651,445
530,364
1,181,963
605,379
156,632
762,011
46,066
373,732
419,952
$ 48,553
$ 46,066 $ 421,234 $ 372,681 $
133
154
$ 419,798 $ 373,732 $
Off-balance
sheet(h)
Derivatives
Loans
Credit
exposure(g)
Off-balance
sheet(h)
On-balance sheet
On-balance sheet
Derivatives
3,026
38
5,641
-
Interest rate
Risk exposure
(in millions)
December 31, 2018
December 31, 2017
The following table presents the fair value of structured notes, by balance sheet classification and the primary risk type.
Structured note products by balance sheet classification and risk component
At December 31, 2018 and 2017, the contractual amount of lending-related commitments for which the fair value option was
elected was $6.9 billion and $7.4 billion, respectively, with a corresponding fair value of $(82) million and $(76) million,
respectively. For further information regarding off-balance sheet lending-related financial instruments, refer to Note 27.
(c) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if
applicable, the contractual principal payment at the Firm's next call date.
(a) There were no performing loans that were ninety days or more past due as of December 31, 2018 and 2017.
(b) Remaining contractual principal is not applicable to nonprincipal-protected structured notes and long-term beneficial interests. Unlike principal-protected
structured notes and long-term beneficial interests, for which the Firm is obligated to return a stated amount of principal at maturity, nonprincipal-
protected structured notes and long-term beneficial interests do not obligate the Firm to return a stated amount of principal at maturity, but for structured
notes to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. However, investors are
exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal-protected notes.
ΝΑ
45
$
ΝΑ
ΝΑ
Specified risk management
$
ΝΑ
ΝΑ
45
$
ΝΑ
ΝΑ
Credit
522,192
Foreign exchange
Long-term
debt
69 $ 8,058 $ 30,183
1,312
147
7,106
6,548
8,649 $ 19,112 $ 74,798
7,368
1,207
6,670 $20,985 $ 80,724 $ 47,037 $
$ 53,069 $
Total structured notes
17,581
230
34,172
1,613
34
$ 22,056 $
4,329
2,841
38
-
62 $ 12,372 $ 36,571
995
5,004
3,364
157
5,422
21,382
372
3,169
4,009
$ 24,137 $
term debt borrowings Deposits Total
Total
Short-term
Long-
Short-term
borrowings Deposits
Equity
Commodity
19,182
48,553
621,384
559
13,008
42,600
Oil & Gas
13,053
7,998
11,480
32,531
16,968
9,033
29,033
16,806
Asset Managers
37,533
2,191
16,273
55,997
29,921
1,874
16,347
48,142
Healthcare
42,807
41,317
12,621
1,727
12,869
3,867
18,456
Central Govt
13,611
2,888
12,134
28,633
15,032
2,000
10,319
27,351
State & Municipal Govt(d)
21,046
2,084
6,187
29,317
20,841
1,740
5,591
28,172
Utilities
26,969
16,342
6,816
25,879
49,037
56,801
1,093
36,921
94,815
Consumer & Retail
8,351
1,252
77,768
87,371
25,608
153
113,648
139,409
27,415
9,474
1,017
86,586
97,077
Individuals and Individual Entities (c)
164
115,737
143,316
Real Estate
Wholesale-related (b)
87,679
572,831
31,044
55,521
15,192
5,903
28,825
49,920
Banks & Finance Cos
35,948
1,163
18,161
55,272
38,444
958
19,126
58,528
Industrials
43,344
2,265
13,665
59,274
52,999
2,667
16,980
72,646
Technology, Media & Telecommunications
1,114
Corporate
purchased under resale
foreign exchange
120
Purchased options
98
135
Written options
168
156
Spot, futures and forwards
133 (c)
134
93
Swaps
Total equity contracts
1,441
1,465
453
490
531
528
90
101
367
Commodity contracts
Total commodity contracts
545
492 (c)
designated
as hedges
Not
Net
derivative
receivables(b)
Total
Designated as derivative
hedges receivables
designated
as hedges
December 31, 2018
(in millions)
Not
Gross derivative payables
Gross derivative receivables
Free-standing derivative receivables and payables (a)
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that
are reflected on the Firm's Consolidated balance sheets as of December 31, 2018 and 2017, by accounting designation (e.g.,
whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Impact of derivatives on the Consolidated balance sheets
Notes to consolidated financial statements
187
JPMorgan Chase & Co./2018 Form 10-K
While the notional amounts disclosed above give an
indication of the volume of the Firm's derivatives activity,
the notional amounts significantly exceed, in the Firm's
view, the possible losses that could arise from such
transactions. For most derivative contracts, the notional
amount is not exchanged; it is used simply as a reference to
calculate payments.
(c) The prior period amounts have been revised to conform with the
current period presentation.
contracts, refer to the Credit derivatives discussion on pages 195-197.
(b) Represents the sum of gross long and gross short third-party notional
derivative contracts.
(a) For more information on volumes and types of credit derivative
$ 48,403 (c)
48,239
$
Total derivative notional amounts
346
Purchased options
Written options
Futures and forwards
3,576
3,997
Written options
Note 3 - Fair value option
The fair value option provides an option to elect fair value
as an alternative measurement for selected financial assets,
financial liabilities, unrecognized firm commitments, and
written loan commitments.
The Firm has elected to measure certain instruments at fair
value for several reasons including to mitigate income
statement volatility caused by the differences between the
measurement basis of elected instruments (e.g., certain
instruments elected were previously accounted for on an
accrual basis) and the associated risk management
arrangements that are accounted for on a fair value basis,
as well as to better reflect those instruments that are
managed on a fair value basis.
•
•
The Firm's election of fair value includes the following
instruments:
Loans purchased or originated as part of securitization
warehousing activity, subject to bifurcation accounting,
or managed on a fair value basis, including lending-
related commitments
Certain securities financing agreements, such as those
with an embedded derivative and/or a maturity of
greater than one year
Owned beneficial interests in securitized financial assets
that contain embedded credit derivatives, which would
otherwise be required to be separately accounted for as
a derivative instrument
Structured notes, which are predominantly financial
instruments that contain embedded derivatives, that are
issued as part of CIB's client-driven activities
Certain long-term beneficial interests issued by CIB'S
consolidated securitization trusts where the underlying
assets are carried at fair value
JPMorgan Chase & Co./2018 Form 10-K
179
Notes to consolidated financial statements
Changes in fair value under the fair value option election
The following table presents the changes in fair value included in the Consolidated statements of income for the years ended
December 31, 2018, 2017 and 2016, for items for which the fair value option was elected. The profit and loss information
presented below only includes the financial instruments that were elected to be measured at fair value; related risk
management instruments, which are required to be measured at fair value, are not included in the table.
2018
2017
2016
Principal
transactions
Purchased options
Designated
as hedges
4,322
Total interest rate contracts
Swaps
Equity contracts
11,438
11,084
Total foreign exchange contracts
776
830
Purchased options
786
835
Written options
5,923
5,871
Spot, futures and forwards
3,953
3,548
Cross-currency swaps
Foreign exchange contracts
1,522
1,501
Credit derivatives (a)
33,510
33,644
3,987
All other
income
Total
derivative
payables
derivative
payables(b)
23,252
154,601
869
16,151
160,231
491
23,205
23,205
159,740
Foreign exchange
Credit
$ 284,433 (c) $
1,030 (c) $ 315,992 $ 24,673
3 (c) $284,436
23,252
$ 314,962 (c) $
Net
derivative
payables(b)
Total
derivative
payables
Designated
as hedges
as hedges
designated
Not
Net
derivative
receivables(b)
Total
Designated as derivative
hedges receivables
designated
as hedges
Not
Interest rate
$ 7,129
1,299
1,221
JPMorgan Chase & Co./2018 Form 10-K
188
(c) The prior period amounts have been revised to conform with the current period presentation.
(b) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and
payables when a legally enforceable master netting agreement exists.
(a) Balances exclude structured notes for which the fair value option has been elected. Refer to Note 3 for further information.
1,627 (c) $530,806 $ 37,777
1,540 (c) $ 559,553 $ 56,523 $ 529,179 (c) $
$ 558,013 (c) $
Total fair value of trading
assets and liabilities
7,684
21,901
403
9,192
45,395
45,395
21,498
7,882
6,948
40,040
20,085
19
40,040
20,066
Commodity
Equity
12,473
155,822
Gross derivative payables
Gross derivative receivables
Trading assets and
liabilities
December 31, 2017
(in millions)
164,392
13,450
167,685
628
167,057
Equity
Foreign exchange
1,667
20,276
20,276
$ 242,782 $ 7,784
$
$ 242,782
$ 268,704 $ 23,214
612
20,095
20,095
Credit
833
$
$ 267,871
Interest rate
liabilities
Trading assets and
825
Net
165,217
Commodity
$ 41,769
$ 501,888
946
$
$ 500,942
54,213
$ 526,239 $
$ 524,531 $ 1,708
Total fair value of trading
assets and liabilities
9,372
22,418
121
22,297
6,991
20,470
247
10,161
51,195
51,195
9,946
49,285
-
49,285
20,223
12,785
195
Total
changes in
fair value
recorded(e)
All other
income
The following describes how the gains and losses that are
attributable to changes in instrument-specific credit risk,
were determined.
•
Loans and lending-related commitments: For floating-
rate instruments, all changes in value are attributed to
instrument-specific credit risk. For fixed-rate
instruments, an allocation of the changes in value for the
period is made between those changes in value that are
interest rate-related and changes in value that are
credit-related. Allocations are generally based on an
analysis of borrower-specific credit spread and recovery
information, where available, or benchmarking to similar
entities or industries.
Long-term debt: Changes in value attributable to
instrument-specific credit risk were derived principally
from observable changes in the Firm's credit spread as
observed in the bond market.
Securities financing agreements: Generally, for these
types of agreements, there is a requirement that
collateral be maintained with a market value equal to or
in excess of the principal amount loaned; as a result,
there would be no adjustment or an immaterial
adjustment for instrument-specific credit risk related to
these agreements.
180
JPMorgan Chase & Co./2018 Form 10-K
Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal
balance outstanding as of December 31, 2018 and 2017, for loans, long-term debt and long-term beneficial interests for
which the fair value option has been elected.
December 31, (in millions)
Loans(a)
Determination of instrument-specific credit risk for items
for which a fair value election was made
2018
2017
Fair value
over/
(under)
Contractual
principal
outstanding
Fair value
contractual Contractual
principal
outstanding
(under)
contractual
principal
outstanding
Fair value
Fair value
over/
(e) Changes in fair value exclude contractual interest, which is included in interest income and interest expense for all instruments other than hybrid financial
instruments. For further information regarding interest income and interest expense, refer to Note 7.
(d) Reported in other income.
(c) Reported in mortgage fees and related income.
1
862
1
(747)
(747)
(236)
(236)
(1)
(1)
6
6
Beneficial interests issued by
consolidated VIES
23
23
Long-term debt(a)(b)
2,695
2,695
(2,022)
(2,022)
(773)
(773)
(a) Unrealized gains/(losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected is recorded in OCI,
while realized gains/(losses) are recorded in principal transactions revenue. Realized gains/(losses) due to instrument-specific credit risk recorded in
principal transactions revenue were not material for the years ended December 31, 2018, 2017 and 2016.
(b) Long-term debt measured at fair value predominantly relates to structured notes. Although the risk associated with the structured notes is actively
managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such
risk.
principal
outstanding
Nonaccrual loans
Loans reported as trading assets
$
3,562
$ 21,763 $ 21,043
2017
2018
Notional amounts (b)
Futures and forwards
Swaps
Interest rate contracts
December 31, (in billions)
The following table summarizes the notional amount of
derivative contracts outstanding as of December 31, 2018
and 2017.
Notional amount of derivative contracts
JPMorgan Chase & Co./2018 Form 10-K
186
195
CIB, Corporate
195
CIB
Market-making and other
Market-making and other
Other derivatives
• Various
Market-making and related risk management
⚫ Various
Market-making derivatives and other activities:
4,904
Trading liabilities
(1,812)
(35)
(4,776) $
$
4,240
$
Loans
39
1,350 $ (2,890) $ 4,219
(39)
39
$
1,371 $ (2,848)
(39)
Subtotal
4,279
1,350
(2,929)
4,258
1,371
(2,887)
All other performing loans
Loans reported as trading assets
42,215
Loans
3,186
Total loans
$
49,680
40,403
3,151
44,904 $
Principal
transactions
862
19
1,943
2 (c)
1,945
120
(1) (c)
119
Loans reported as trading
assets:
Changes in instrument-
specific credit risk
(1,679)
414
415
330
14 (c)
344
461
43 (c)
504
Other changes in fair value
160
185 (c)
1 (c)
1 (c)
(1,680)
Debt and equity instruments,
excluding loans
Total
changes in
fair value
recorded (e)
Total
changes in
Principal
transactions
All other
income
fair value
recorded(e)
December 31, (in millions)
Federal funds sold and securities
28
agreements
$
Securities borrowed
(35) $
22
$
(35) $
22
(97) $
50
$
(97) $
(76) $
$
50
1
(76)
1
Trading assets:
345
217
747 (c)
964
(55)
(44)
20
181
(533)
(533)
(134)
|
6
| སྐྱ
13
(7)
62 (d)
82
(134)
Federal funds purchased and
securities loaned or sold under
repurchase agreements
11
11
11
11
19
11
Short-term borrowings (a)
(d)
(45) (d)
79
684 (c)
763
Loans:
Changes in instrument-specific
credit risk
(1)
Other changes in fair value
(1)
Other assets
5
G
Deposits(a)
181
(1)
(1)
(1)
13
(1)
(12)
3 (c)
(9)
(7)
(40)
$
Market-making derivatives
ΝΑ
7,163
14,621 (e)
14,621 (e)
Total derivative payables recognized on the
Consolidated balance sheets
501,888
$
41,769
$ 530,806
Collateral not nettable on the Consolidated balance
sheets(b)(c)
(4,449)
Net amounts
$
37,320
$ 37,777
(4,180)
$ 33,597
(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b) Represents liquid security collateral as well as cash collateral held at third-party custodians related to derivative instruments where an appropriate legal
opinion has been obtained. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative
payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with
that counterparty.
(c) Derivative collateral relates only to OTC and OTC-cleared derivative instruments.
(d) Net derivatives receivable included cash collateral netted of $55.2 billion and $55.5 billion at December 31, 2018 and 2017, respectively. Net derivatives
payable included cash collateral netted of $43.3 billion and $45.5 billion at December 31, 2018 and 2017, respectively. Derivative cash collateral relates
to OTC and OTC-cleared derivative instruments.
16,852
16,852
23,156 (d)(e)
(493,029)
(36,203)
486
4,710
Commodity contracts:
OTC
Exchange-traded (a)
Total commodity contracts
Derivative payables with appropriate legal opinion
Derivative payables where an appropriate legal
opinion has not been either sought or obtained
8,930
8,259 (8,208)
17,189 (13,046)
485,036 (460,119)
(4,838)
(e) The prior period amounts have been revised to conform with the current period presentation.
4,092
(5,508)
2,189 (e)
51
4,143
24,917 (d)
8,870
16,567 (e)
516,185 (e)
(8,709)
161
(14,217)
2,350 (e)
7,697 (e)
190
JPMorgan Chase & Co./2018 Form 10-K
Liquidity risk and credit-related contingent features
79 $
320
1,989
650
Derivatives executed in contemplation of a sale of the underlying financial asset
In certain instances the Firm enters into transactions in which it transfers financial assets but maintains the economic exposure
to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The
Firm generally accounts for such transfers as collateralized financing transactions as described in Note 11, but in limited
circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. The amount of such transfers
accounted for as a sale where the associated derivative was outstanding at December 31, 2018 was not material, and there
were no such transfers at December 31, 2017.
JPMorgan Chase & Co./2018 Form 10-K
191
Notes to consolidated financial statements
Impact of derivatives on the Consolidated statements of income
Single-notch Two-notch
downgrade downgrade
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting
designation or purpose.
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well
as pre-tax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 2018,
2017 and 2016, respectively. The Firm includes gains/(losses) on the hedging derivative in the same line item in the
Consolidated statements of income as the related hedged item.
Gains/(losses) recorded in income
Income statement impact of
excluded components(f)
OCI impact
Year ended December 31, 2018
(in millions)
Derivatives Hedged items
Income
statement
impact
Derivatives -
Amortization
approach
Fair value hedge gains and losses
40,913
2017
764
In addition to the specific market risks introduced by each
derivative contract type, derivatives expose JPMorgan
Chase to credit risk - the risk that derivative counterparties
may fail to meet their payment obligations under the
derivative contracts and the collateral, if any, held by the
Firm proves to be of insufficient value to cover the payment
obligation. It is the policy of JPMorgan Chase to actively
pursue, where possible, the use of legally enforceable
master netting arrangements and collateral agreements to
mitigate derivative counterparty credit risk. The amount of
derivative receivables reported on the Consolidated balance
sheets is the fair value of the derivative contracts after
giving effect to legally enforceable master netting
agreements and cash collateral held by the Firm.
While derivative receivables expose the Firm to credit risk,
derivative payables expose the Firm to liquidity risk, as the
derivative contracts typically require the Firm to post cash
or securities collateral with counterparties as the fair value
of the contracts moves in the counterparties' favor or upon
specified downgrades in the Firm's and its subsidiaries'
respective credit ratings. Certain derivative contracts also
provide for termination of the contract, generally upon a
downgrade of either the Firm or the counterparty, at the
fair value of the derivative contracts. The following table
shows the aggregate fair value of net derivative payables
related to OTC and OTC-cleared derivatives that contain
contingent collateral or termination features that may be
triggered upon a ratings downgrade, and the associated
collateral the Firm has posted in the normal course of
business, at December 31, 2018 and 2017.
OTC and OTC-cleared derivative payables containing
downgrade triggers
December 31, (in millions)
2018
2017
Aggregate fair value of net derivative payables $ 9,396 $ 11,916
Collateral posted
8,907 9,973
The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan
Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, National Association ("JPMorgan Chase Bank, N.A."), at
December 31, 2018 and 2017, related to OTC and OTC-cleared derivative contracts with contingent collateral or termination
features that may be triggered upon a ratings downgrade. Derivatives contracts generally require additional collateral to be
posted or terminations to be triggered when the predefined threshold rating is breached. A downgrade by a single rating
agency that does not result in a rating lower than a preexisting corresponding rating provided by another major rating agency
will generally not result in additional collateral (except in certain instances in which additional initial margin may be required
upon a ratings downgrade), nor in termination payments requirements. The liquidity impact in the table is calculated based
upon a downgrade below the lowest current rating of the rating agencies referred to in the derivative contract.
(b) Amounts represent fair values of derivative payables, and do not reflect collateral posted.
Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives
December 31, (in millions)
Single-notch Two-notch
downgrade downgrade
Amount of additional collateral to be posted upon downgrade (a)
$
76 $
947
$
Amount required to settle contracts with termination triggers upon downgrade (b)
(a) Includes the additional collateral to be posted for initial margin.
172
2018
4,688
(41,034)
45,722
240,777
(135)
(234,998)
75
$ 276,960
6,004
127
$ (271,294)
(5,928)
$ 5,666
76
5,779
283,091
(84)
(277,306)
43
5,785
Credit contracts:
OTC
OTC-cleared
13,412
6,716
(11,895)
1,517
Total credit contracts
Total interest rate contracts
210
Exchange-traded (a)
$ 5,035
669
The Firm did not experience any forecasted transactions that failed to occur for the years ended 2018, 2017 and 2016.
Over the next 12 months, the Firm expects that approximately $(74) million (after-tax) of net losses recorded in AOCI at
December 31, 2018, related to cash flow hedges will be recognized in income. For cash flow hedges that have been
terminated, the maximum length of time over which the derivative results recorded in AOCI will be recognized in earnings is
approximately six years, corresponding to the timing of the originally hedged forecasted cash flows. For open cash flow
hedges, the maximum length of time over which forecasted transactions are hedged is approximately six years. The Firm's
longer-dated forecasted transactions relate to core lending and borrowing activities.
(c) Represents the effective portion of changes in value of the related hedging derivative. Hedge ineffectiveness is the amount by which the cumulative gain or
loss on the designated derivative instrument exceeds the present value of the cumulative expected change in cash flows on the hedged item attributable to
the hedged risk. The Firm did not recognize any ineffectiveness on cash flow hedges during 2017 and 2016.
(b) Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of gains
and losses follows the hedged item - primarily noninterest revenue and compensation expense.
(a) Primarily consists of benchmark interest rate hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in
net interest income.
(90)
(450) $
(360) $
$
(109)
20,128
(395)
19
(55) $
(74) $
$
Total change
in OCI
for period
Amounts recorded
in OCI(c)
AOCI to income
Amounts
reclassified from
Derivatives gains/(losses) recorded in income and other
comprehensive income/(loss)
(286)
(6,714)
(18,609)
2
1,519
(7)
91
Total foreign exchange contracts
161,220
(152,432)
8,788
152,619
(143,349)
9,270
2
Equity contracts:
Total equity contracts
29,437 (25,544)
16,285 (15,490)
3,893
28,193
(23,969)
4,224
795
12,720
(12,234)
Exchange-traded (a)
Changes in fair
value
(1,553)
(141,789)
16,194
6,801
22,995
(15,170)
1,024
(6,784)
(21,954)
17
1,041
Foreign exchange contracts:
OTC
160,930
9,177
(152,161)
OTC-cleared
274
(268)
6
Exchange-traded (a)
16
(3)
13
150,966
1,555
98
8,769
Gains/(losses)
recorded in OCI (g)
Contract type
Interest rate (a)(b)
$
139,915
6,987
$
141 $
8 $
149
(33)
(33)
(a) Excludes physical commodities with a carrying value of $6.8 billion to which the Firm applies fair value hedge accounting. As a result of the application of
hedge accounting, these inventories are carried at fair value, thus recognizing unrealized gains and losses in current periods. Given the Firm exits these
positions at fair value, there is no incremental impact to net income in future periods.
(b) Excludes hedged items where only foreign currency risk is the designated hedged risk, as basis adjustments related to foreign currency hedges will not
reverse through the income statement in future periods. The carrying amount excluded for available-for-sale securities is $14.6 billion and for long-term
debt is $7.3 billion.
(c) Carrying amount represents the amortized cost.
(d) Represents hedged items no longer designated in qualifying fair value hedging relationships for which an associated basis adjustment exists at the balance
sheet date.
JPMorgan Chase & Co./2018 Form 10-K
193
Notes to consolidated financial statements
Cash flow hedge gains and losses
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and
the pre-tax gains/(losses) recorded on such derivatives, for the years ended December 31, 2018, 2017 and 2016,
respectively. The Firm includes the gain/(loss) on the hedging derivative in the same line item in the Consolidated statements
of income as the change in cash flows on the related hedged item.
Year ended December 31, 2018
(in millions)
(724)
381 $
(1,105) $
55,313 (c) $
(f) The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward
points on foreign exchange forward contracts, time values and cross-currency basis spreads. Under the new hedge accounting guidance, the initial amount
of the excluded components may be amortized into income over the life of the derivative, or changes in fair value may be recognized in current period
earnings.
(g) Represents the change in value of amounts excluded from the assessment of effectiveness under the amortization approach, predominantly cross-currency
basis spreads. The amount excluded at inception of the hedge is recognized in earnings over the life of the derivative.
192
JPMorgan Chase & Co./2018 Form 10-K
As of December 31, 2018, the following amounts were recorded on the Consolidated balance sheets related to certain
cumulative fair value hedge basis adjustments that are expected to reverse through the income statement in future periods as
an adjustment to yield.
December 31, 2018
(in millions)
Assets
Investment securities - AFS
Contract type
Liabilities
Beneficial interests issued by consolidated VIES
Cumulative amount of fair value hedging adjustments
included in the carrying amount of hedged items:
Carrying amount
of the hedged
items(a)(b)
Active hedging
relationships
Discontinued
hedging
relationships (d)
Total
$
Long-term debt
Interest rate (a)
Foreign exchange (b)
Total
18 $
(245) $
(263)
Derivatives gains/(losses) recorded in income and other
comprehensive income/(loss)
Amounts
reclassified from
Total change
AOCI to income
Amounts recorded
in OCI (c)
in OCI
for period
$
$
12 $
29
(117)
135
252
$
(134) $
147 $
281
(17) $
(e) Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on the
hedged item attributable to the hedged risk.
(175)
(44) $
(201)
Year ended December 31, 2017
(in millions)
Contract type
Interest rate (a)
Foreign exchange (b)
Total
Year ended December 31, 2016
(in millions)
Contract type
(88)
Interest rate (a)
Total
Derivatives gains/(losses) recorded in income and other
comprehensive income/(loss)
Amounts
reclassified from
AOCI to income
Total change
Amounts recorded
in OCI
in OCI
for period
$
44 $
(26)
Foreign exchange (b)
194
(d) Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or net realizable value (net
realizable value approximates fair value). Gains and losses were recorded in principal transactions revenue.
(b) Excludes the amortization expense associated with the inception hedge accounting adjustment applied to the hedged item. This expense is recorded in net
interest income and substantially offsets the income statement impact of the excluded components. Also excludes the accrual of interest on interest rate
swaps and the related hedged items.
1,125 $
(140)
Year ended December 31, 2017
(in millions)
Contract type
Interest rate (a)(b)
Foreign exchange (c)
Commodity(d)
Total
Year ended December 31, 2016
(in millions)
Contract type
Interest rate (a)(b)
Foreign exchange(c)
Commodity(d)
Total
Gains/(losses) recorded in income
Income
statement
Derivatives Hedged items
(566) $
$
1,148
412 $
Foreign exchange (c)
Commodity(d)
Total
(1,145) $
1,092
1,782 $
637 $
-
623
$
impact
(616)
(566)
476
(140)
789
(754)
35
26
$
736 $
476
Income statement impact due to:
Hedge
ineffectiveness(e)
Excluded
components(f)
Income statement impact due to:
Hedge
ineffectiveness(e)
Excluded
components (f)
$
$
(482) $
2,435
(536)
1,417 $
1,338 $
(2,261)
856
$
Income
statement
impact
6 $
174
174
586
(337) $
50
1,080
$
(9)
(3) $
59
1,083
(a) Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate ("LIBOR")) interest rate risk of fixed-rate long-term debt and AFS
securities. Gains and losses were recorded in net interest income.
850
(c) Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses
related to the derivatives and the hedged items due to changes in foreign currency rates and the income statement impact of excluded components were
recorded primarily in principal transactions revenue and net interest income.
Derivatives Hedged items
938
$
(481) $
(3,509)
1,359 $
3,507
878
$
(18) $
896
(2)
(2)
Gains/(losses) recorded in income
(1,275)
73
29
44
$
(5,265) $
6,214 $
949
$
11 $
1,348
JPMorgan Chase & Co./2018 Form 10-K
OTC
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting
relationships, and the pre-tax gains/(losses) recorded on such instruments for the years ended December 31, 2018, 2017 and
2016.
548
(5,856)
6,404
OTC-cleared
258,227 $ (239,498) $ 18,729
OTC
Net
derivative
receivables
Amounts
netted on the
Consolidated
balance sheets
Gross
derivative
receivables
2018
Amounts
Gross
netted on the
Net
derivative Consolidated derivative
receivables balance sheets receivables
Interest rate contracts:
U.S. GAAP nettable derivative receivables
December 31, (in millions)
2017
collateral held or transferred that relates to derivative receivables or payables where an appropriate legal opinion has not
been either sought or obtained with respect to the master netting agreement, which is excluded from the tables below.
the amount of collateral held or transferred that exceeds the fair value exposure at the individual counterparty level, as of
the date presented, which is excluded from the tables below; and
collateral that consists of non-cash financial instruments (generally U.S. government and agency securities and other G7
government securities) and cash collateral held at third party custodians, which are shown separately as "Collateral not
nettable on the Consolidated balance sheets" in the tables below, up to the fair value exposure amount.
•
•
•
In addition to the cash collateral received and transferred that is presented on a net basis with derivative receivables and
payables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate
counterparty credit risk associated with the Firm's derivative instruments, but are not eligible for net presentation:
The following tables present, as of December 31, 2018 and 2017, gross and net derivative receivables and payables by
contract and settlement type. Derivative receivables and payables, as well as the related cash collateral from the same
counterparty, have been netted on the Consolidated balance sheets where the Firm has obtained an appropriate legal opinion
with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, amounts are
not eligible for netting on the Consolidated balance sheets, and those derivative receivables and payables are shown separately
in the tables below.
Derivatives netting
Principal transactions revenue is driven by many factors,
including the bid-offer spread, which is the difference
between the price at which the Firm is willing to buy a
financial or other instrument and the price at which the
Firm is willing to sell that instrument. It also consists of the
realized (as a result of the sale of instruments, closing out
or termination of transactions, or interim cash payments)
and unrealized (as a result of changes in valuation) gains
and losses on financial and other instruments (including
those accounted for under the fair value option) primarily
used in client-driven market-making activities and on
private equity investments. In connection with its client-
driven market-making activities, the Firm transacts in debt
and equity instruments, derivatives and commodities
(including physical commodities inventories and financial
instruments that reference commodities).
Principal transactions
Exchange-traded (a)
2016
322
Total interest rate contracts
55
(7,170)
(22,335)
225
(15,165)
15,390
7,225
22,615
432
45
387
(12,261)
(7,222)
(19,483)
19,915
Total credit contracts
12,648
7,267
OTC-cleared
OTC
Credit contracts:
20,966
101
213
$ 20,652
$ (284,917)
(6,318)
(84)
(291,319)
312,285
$ 305,569
6,531
185
186
19,463
(245,490)
264,953
(136)
2017
2018
Year ended December 31,
(in millions)
Fair value of
payables(b)
Fair value of
receivables(b)
Total notional
amount
>5 years
1-5 years
<1 year
(in millions)
December 31, 2017
$ 2,929
(941)
$ 1,988
(2,791)
(5,660)
(8,451)
$
5,720
4,719
10,439
$
$
(561,379)
(177,085)
(738,464)
$
$
$ (402,325) $ (43,611)
(119,348)
(11,840)
$ (521,673) $ (55,451)
$ (161,340)
Total
$ (115,443)
(45,897)
Noninvestment-grade
Investment-grade
Risk rating of reference entity
Net fair
value
Net fair
value
Risk rating of reference entity
Investment-grade
$ (159,286)
The Firm also provides advisory services, by assisting its
clients with mergers and acquisitions, divestitures,
restructuring and other complex transactions. Advisory fees
are recognized as revenue typically upon execution of the
client's transaction.
This revenue category includes debt and equity
underwriting and advisory fees. As an underwriter, the Firm
helps clients raise capital via public offering and private
placement of various types of debt and equity instruments.
Underwriting fees are primarily based on the issuance price
and quantity of the underlying instruments, and are
recognized as revenue typically upon execution of the
client's transaction. The Firm also manages and syndicates
loan arrangements. Credit arrangement and syndication
fees, included within debt underwriting fees, are recorded
as revenue after satisfying certain retention, timing and
yield criteria.
Investment banking fees
The adoption of the revenue recognition guidance in the
first quarter of 2018, required gross presentation of certain
costs previously offset against revenue, predominantly
associated with certain distribution costs (previously offset
against asset management, administration and
commissions), with the remainder associated with certain
underwriting costs (previously offset against investment
banking fees). Adoption of the guidance did not result in
any material changes in the timing of revenue recognition.
This guidance was adopted retrospectively and, accordingly,
prior period amounts were revised, which resulted in an
increase in both noninterest revenue and noninterest
expense. The Firm did not apply any practical expedients.
For additional information, refer to Note 1.
The Firm records noninterest revenue from certain
contracts with customers under ASC 606, Revenue from
Contracts with Customers, in investment banking fees,
deposit-related fees, asset management, administration,
and commissions, and components of card income.
Contracts in the scope of ASC 606 are often terminable on
demand and the Firm has no remaining obligation to deliver
future services. For arrangements with a fixed term, the
Firm may commit to deliver services in the future. Revenue
associated with these remaining performance obligations
typically depends on the occurrence of future events or
underlying asset values, and is not recognized until the
outcome of those events or values are known.
Note 6 - Noninterest revenue and noninterest expense
Notes to consolidated financial statements
197
JPMorgan Chase & Co./2018 Form 10-K
(a) The ratings scale is primarily based on external credit ratings defined by S&P and Moody's.
(b) Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm.
$ 9,476
(6,447)
280
$
$ (232,680) $ (453,851) $ (57,868) $ (744,399) $
Total
$ 7,382
2,094
(1,134)
(5,313)
$
8,516
7,407
$
$ (518,441)
(225,958)
$ (39,429)
(18,439)
$ (319,726)
(134,125)
(73,394)
Noninvestment-grade
15,923
Fair value of
payables (b)
Foreign exchange contracts:
163,862
U.S. GAAP nettable derivative payables
Net
derivative
payables
Amounts
netted on the
Consolidated
balance sheets
Gross
derivative
payables
Net
derivative
payables
Amounts
netted on the
Consolidated
balance sheets
payables
December 31, (in millions)
Gross
derivative
2017
2018
Notes to consolidated financial statements
189
JPMorgan Chase & Co./2018 Form 10-K
$ 43,160
(13,363)
$ 56,523
$ 41,167
(13,046)
Net amounts
Collateral not nettable on the Consolidated balance
sheets(b)(c)
$ 559,553
$ 54,213
$ 526,239
Total derivative receivables recognized on the
Consolidated balance sheets
Interest rate contracts:
15,257 (e)
OTC
OTC-cleared
(6,494)
JPMorgan Chase & Co./2018 Form 10-K
198
to Note 31 for segment results.
Investment banking fees are earned primarily by CIB. Refer
$ 7,550 $ 7,412 $ 6,572
Total investment banking fees
2,095
2,144
2,519
Advisory
4,477
5,268
5,031
Total underwriting
3,277
3,802
3,347
Debt
$ 1,684 $ 1,466 $ 1,200
Equity
Underwriting
The following table presents all realized and unrealized
gains and losses recorded in principal transactions revenue.
This table excludes interest income and interest expense on
trading assets and liabilities, which are an integral part of
the overall performance of the Firm's client-driven market-
making activities. Refer to Note 7 for further information on
interest income and interest expense. Trading revenue is
presented primarily by instrument type. The Firm's client-
driven market-making businesses generally utilize a variety
of instrument types in connection with their market-making
and related risk-management activities; accordingly, the
trading revenue presented in the table below is not
representative of the total revenue of any individual line of
business.
In the financial commodity markets, the Firm transacts in
OTC derivatives (e.g., swaps, forwards, options) and ETD
that reference a wide range of underlying commodities. In
the physical commodity markets, the Firm primarily
purchases and sells precious and base metals and may hold
other commodities inventories under financing and other
arrangements with clients.
Principal transactions revenue also includes certain realized
and unrealized gains and losses related to hedge accounting
and specified risk-management activities, including: (a)
certain derivatives designated in qualifying hedge
accounting relationships (primarily fair value hedges of
commodity and foreign exchange risk), (b) certain
derivatives used for specific risk management purposes,
primarily to mitigate credit risk and foreign exchange risk,
and (c) other derivatives. For further information on the
income statement classification of gains and losses from
derivatives activities, refer to Note 5.
233,404 $(228,369)
15,257 (e)
15,925
15,925
(23,879)
26,178
18,876
45,054
Total equity contracts
Exchange-traded (a)
OTC
Equity contracts:
13,045
(144,081)
157,126
9,894
134
42
(1,654)
(7)
12,869
(142,420)
155,289
1,696
141
Net investment hedge gains and losses
9
9,874
(153,988)
(226)
(21)
(154,235)
164,129
Total foreign exchange contracts
235
32
Exchange-traded (a)
OTC-cleared
2,299
22,024
(19,917)
2,107
Derivative receivables where an appropriate legal
opinion has not been either sought or obtained
41,266 (d)(e)
153
2,921 (e)
(8,701)
(13,137)
(503,030)
2,768 (e)
(4,436)
7,204 (e)
8,854
16,058 (e)
544,296 (e)
2,784
38,288 (d)
597
2,187
(5,261)
(8,218)
(13,479)
(472,026)
7,448
8,815
16,263
510,314
OTC
Derivative receivables with appropriate legal opinion
Exchange-traded (a)
OTC
Commodity contracts:
4,054
(32,158)
36,212
5,715
1,947
(12,241)
14,188
3,416
(15,460)
(39,339)
Total commodity contracts
Fair value of
receivables(b)
11
>5 years
195
JPMorgan Chase & Co./2018 Form 10-K
Credit derivatives are financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) and which allow
one party (the protection purchaser) to transfer that risk to
another party (the protection seller). Credit derivatives
expose the protection purchaser to the creditworthiness of
the protection seller, as the protection seller is required to
make payments under the contract when the reference
entity experiences a credit event, such as a bankruptcy, a
failure to pay its obligation or a restructuring. The seller of
credit protection receives a premium for providing
protection but has the risk that the underlying instrument
referenced in the contract will be subject to a credit event.
The Firm is both a purchaser and seller of protection in the
credit derivatives market and uses these derivatives for two
primary purposes. First, in its capacity as a market-maker,
the Firm actively manages a portfolio of credit derivatives
by purchasing and selling credit protection, predominantly
on corporate debt obligations, to meet the needs of
customers. Second, as an end-user, the Firm uses credit
derivatives to manage credit risk associated with lending
exposures (loans and unfunded commitments) and
derivatives counterparty exposures in the Firm's wholesale
businesses, and to manage the credit risk arising from
certain financial instruments in the Firm's market-making
businesses. Following is a summary of various types of
credit derivatives.
The Firm makes markets in derivatives in order to meet the
needs of customers and uses derivatives to manage certain
risks associated with net open risk positions from its
market-making activities, including the counterparty credit
risk arising from derivative receivables. All derivatives not
included in the hedge accounting or specified risk
management categories above are included in this category.
Gains and losses on these derivatives are primarily recorded
in principal transactions revenue. Refer to Note 6 for
information on principal transactions revenue.
Credit derivatives
Gains and losses on derivatives related to market-making
activities and other derivatives
(d) The prior period amounts have been revised to conform with the
current period presentation.
Notes to consolidated financial statements
(c) Primarily relates to derivatives used to mitigate foreign exchange risk
of specified foreign currency-denominated assets and liabilities. Gains
and losses were recorded in principal transactions revenue.
(a) Primarily represents interest rate derivatives used to hedge the
interest rate risk inherent in the mortgage pipeline, warehouse loans
and MSRs, as well as written commitments to originate warehouse
loans. Gains and losses were recorded predominantly in mortgage fees
and related income.
(d)
$ 872
$ 150
$ 175
(d)
(b) Relates to credit derivatives used to mitigate credit risk associated
with lending exposures in the Firm's wholesale businesses. These
derivatives do not include credit derivatives used to mitigate
counterparty credit risk arising from derivative receivables, which is
included in gains and losses on derivatives related to market-making
activities and other derivatives. Gains and losses were recorded in
principal transactions revenue.
(d)
Credit default swaps
For both single-name CDS contracts and index CDS
contracts, upon the occurrence of a credit event, under the
terms of a CDS contract neither party to the CDS contract
has recourse to the reference entity. The protection
purchaser has recourse to the protection seller for the
difference between the face value of the CDS contract and
the fair value of the reference obligation at settlement of
the credit derivative contract, also known as the recovery
value. The protection purchaser does not need to hold the
debt instrument of the underlying reference entity in order
to receive amounts due under the CDS contract when a
credit event occurs.
Total
Credit-related notes
Total credit derivatives
Other credit derivatives (a)
Credit default swaps
Credit derivatives
Credit derivatives may reference the credit of either a single
reference entity ("single-name") or a broad-based index.
The Firm purchases and sells protection on both single-
name and index-reference obligations. Single-name CDS and
index CDS contracts are either OTC or OTC-cleared
derivative contracts. Single-name CDS are used to manage
the default risk of a single reference entity, while index CDS
contracts are used to manage the credit risk associated with
the broader credit markets or credit market segments. Like
the S&P 500 and other market indices, a CDS index consists
of a portfolio of CDS across many reference entities. New
series of CDS indices are periodically established with a new
underlying portfolio of reference entities to reflect changes
in the credit markets. If one of the reference entities in the
index experiences a credit event, then the reference entity
that defaulted is removed from the index. CDS can also be
referenced against specific portfolios of reference names or
against customized exposure levels based on specific client
demands: for example, to provide protection against the
first $1 million of realized credit losses in a $10 million
portfolio of exposure. Such structures are commonly known
as tranche CDS.
December 31, 2018 (in millions)
The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives,
because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value
of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm's view, the
risks associated with such derivatives.
JPMorgan Chase & Co./2018 Form 10-K
196
The following tables present a summary of the notional
amounts of credit derivatives and credit-related notes the
Firm sold and purchased as of December 31, 2018 and
2017. Upon a credit event, the Firm as a seller of protection
would typically pay out only a percentage of the full
notional amount of net protection sold, as the amount
actually required to be paid on the contracts takes into
account the recovery value of the reference obligation at
the time of settlement. The Firm manages the credit risk on
contracts to sell protection by purchasing protection with
identical or similar underlying reference entities. Other
purchased protection referenced in the following tables
includes credit derivatives bought on related, but not
identical, reference positions (including indices, portfolio
coverage and other reference points) as well as protection
purchased through credit-related notes.
A credit-related note is a funded credit derivative where the
issuer of the credit-related note purchases from the note
investor credit protection on a reference entity or an index.
Under the contract, the investor pays the issuer the par
value of the note at the inception of the transaction, and in
return, the issuer pays periodic payments to the investor,
based on the credit risk of the referenced entity. The issuer
also repays the investor the par value of the note at
maturity unless the reference entity (or one of the entities
that makes up a reference index) experiences a specified
credit event. If a credit event occurs, the issuer is not
obligated to repay the par value of the note, but rather, the
issuer pays the investor the difference between the par
value of the note and the fair value of the defaulted
reference obligation at the time of settlement. Neither party
to the credit-related note has recourse to the defaulting
reference entity.
Credit-related notes
Total credit derivatives and credit-related notes
(282)
(20)
(d)
$ 1,174
2016
Year ended December 31,
The following table presents pre-tax gains/(losses) recorded
on a limited number of derivatives, not designated in hedge
accounting relationships, that are used to manage risks
associated with certain specified assets and liabilities,
including certain risks arising from the mortgage pipeline,
warehouse loans, MSRs, wholesale lending exposures, and
foreign currency denominated assets and liabilities.
Gains and losses on derivatives used for specified risk
management purposes
(d) Represents the effective portion of changes in value of the related hedging derivative. The Firm did not recognize any ineffectiveness on net investment
hedges directly in income during 2017 and 2016.
(c) The prior period amounts have been revised to conform with the current period presentation.
2017
(b) Excludes amounts reclassified from AOCI to income on the sale or liquidation of hedged entities. For additional information, refer to Note 23.
$262
Amounts
recorded in
OCI(d)
Amounts
recorded in
income (a)(b)(c)
$(280)
Amounts
recorded in
OCI(d)
$(1,244)
Amounts
recorded in
income (a)(b)(c)
$(152)
Amounts
recorded in
OCI
$1,219
(a) Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign
exchange forward contracts. The Firm elects to record changes in fair value of these amounts directly in other income.
2018
Foreign exchange derivatives
(in millions)
331
(74)
(107)
$11
$
$ 79
2016
2017
Derivatives gains/(losses)
recorded in income
2018
Foreign exchange (c)
Total
Credit (b)
Interest rate (a)
Contract type
(in millions)
Total notional
amount
Year ended December 31,
Maximum payout/Notional amount
Protection purchased Net protection
(21)
117
with identical
(18)
Protection
sold
16,792
16,875
11,747
5,001
(18)
5,045
$
$ 702,098
59,158
761,256
(690,224)
(54,157)
(744,381)
$
Total
Credit-related notes
11,874 $
7,915
$
(744,399)
1-5 years
<1 year
(in millions)
December 31, 2018
-
Protection sold – credit derivatives and credit-related notes ratings (a)/maturity profile
The following tables summarize the notional amounts by the ratings, maturity profile, and total fair value, of credit derivatives
and credit-related notes as of December 31, 2018 and 2017, where JPMorgan Chase is the seller of protection. The maturity
profile is based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the
rating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit
derivatives and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile
reflected below.
(d) Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on
the identical reference instrument.
(c) Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of
protection pays to the buyer of protection in determining settlement value.
(a) Other credit derivatives largely consists of credit swap options.
(b) Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on
protection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than
the notional amount of protection sold.
24,707
16,857 $
$
761,256
$
Total credit derivatives
Other credit derivatives (a)
Amounts
recorded in
income (a)(b)
Credit derivatives
(41,244)
(738,464)
707,282
42,484
749,766
10,062 $
4,053
1,240
$
8,488
12,541
8,425
$
749,766
$
Credit default swaps
11,302
(697,220)
(738,464)
Other
protection
purchased (d)
$
December 31, 2017 (in millions)
purchased (d)
(sold)/
purchased (c)
underlyings(b)
with identical
Other
Protection
sold
Maximum payout/Notional amount
20,966
11,302 $
$
underlyings(b)
(sold)/
purchased (c)
Protection purchased Net protection
protection
54
(29)
(133)
| ཌ | । ། | €
(77)
(21)
Foreign exchange impact and other
(4)
(2)
(2)
36
(30)
(4)
93
$
363
$
(831)
$
$
87
$
(133) $
(29)
Total recognized in net periodic benefit cost and other
comprehensive income
$
36
156
Total recognized in other comprehensive income
23
91
(250)
872
Total defined contribution plans
(74)
(69) $
(79) $
$
181
$
200
$
52
$
Total defined benefit plans
ΝΑ
(74)
(69) $
ΝΑ
(79) $
NA
25
24
20
$
814
789
NA
ΝΑ
(103)
Settlement gain/(loss)
Curtailment gain/(loss)
Amortization of prior service (cost)/credit
Amortization of net loss
395
(669)
467
Net (gain)/loss arising during the year
29
(257)
Prior service (credit)/cost arising during the year
(74)
(69) $
(79) $
$
970
$
1,014
924 $
$
Total pension and OPEB cost included in noninterest expense
Changes in plan assets and benefit obligations recognized in other comprehensive income
ΝΑ
5.00
$
At December 31, 2018, the Firm increased the discount
rates used to determine its benefit obligations for the U.S.
defined benefit pension and OPEB plans in light of current
The discount rate used in determining the benefit obligation
under the U.S. defined benefit pension and OPEB plans was
provided by the Firm's actuaries. This rate was selected by
reference to the yields on portfolios of bonds with maturity
dates and coupons that closely match each of the plan's
projected cash flows. The discount rate for the U.K. defined
benefit pension plan represents a rate of appropriate
duration from the analysis of yield curves provided by the
Firm's actuaries.
The Firm's expected long-term rate of return for defined
benefit pension and OPEB plan assets is a blended weighted
average, by asset allocation of the projected long-term
returns for the various asset classes, taking into
consideration local market conditions and the specific
allocation of plan assets. Returns on asset classes are
developed using a forward-looking approach and are not
strictly based on historical returns. Consideration is also
given to current market conditions and the short-term
portfolio mix of each plan.
Plan assumptions
(c) The rate assumptions for the U.S. defined benefit pension plans are at the upper end of the range, except for the rate of compensation increase, which is
2.30% for both 2018 and 2017, and 3.50% for 2016.
(b) Includes various defined benefit pension plans which are individually immaterial.
(a) Effective January 1, 2018, benefits earned during the year are reported in compensation expense; all other components of net periodic defined benefit
costs are reported within other expense in the Consolidated statements of income.
2017
JPMorgan Chase & Co./2018 Form 10-K
2017
ΝΑ
$
5.00
5.00
ΝΑ
5.50
5.00
5.00
2018
205
Notes to consolidated financial statements
market interest rates, which will decrease expense by
approximately $20 million in 2019. The 2019 expected
long-term rate of return on U.S. defined benefit pension
plan assets and U.S. OPEB plan assets are 5.50% and
4.30%, respectively. As of December 31, 2018, the interest
crediting rate assumption was 4.90%.
The following table presents the weighted-average asset allocation of the fair values of total plan assets at December 31 for
the years indicated, as well as the respective approved asset allocation ranges by asset class.
JPMorgan Chase & Co./2018 Form 10-K
206
Investments held by the plans include financial instruments
which are exposed to various risks such as interest rate,
market and credit risks. Exposure to a concentration of
credit risk is mitigated by the broad diversification of both
U.S. and non-U.S. investment instruments. Additionally, the
investments in each of the collective investment funds and/
or registered investment companies are further diversified
into various financial instruments. As of December 31,
2018, assets held by the Firm's defined benefit pension and
OPEB plans do not include JPMorgan Chase common stock,
except through indirect exposures through investments in
third-party stock-index funds. The plans hold investments in
funds that are sponsored or managed by affiliates of
JPMorgan Chase in the amount of $3.7 billion and $6.0
billion, as of December 31, 2018 and 2017, respectively.
The investment policies for the assets of the Firm's defined
benefit pension plans are to optimize the risk-return
relationship as appropriate to the needs and goals of each
plan using a global portfolio of various asset classes
diversified by market segment, economic sector, and issuer.
Assets are managed by a combination of internal and
external investment managers. The Firm regularly reviews
the asset allocations and asset managers, as well as other
factors that impact the portfolios, which are rebalanced
when deemed necessary.
The assets of the Firm's defined benefit pension plans are
held in various trusts and are invested in well-diversified
portfolios of equity and fixed income securities, cash and
cash equivalents, and alternative investments. The trust-
owned assets of the Firm's U.S. OPEB plan are invested
primarily in fixed income securities. COLI policies used to
defray the cost of the Firm's U.S. OPEB plan are invested in
separate accounts of an insurance company and are
allocated to investments intended to replicate equity and
fixed income indices.
Investment strategy and asset allocation
ΝΑ
490
$
50
$
Discount rate
51
$
Expected long-term rate of return
Benefit
obligation
Defined benefit
pension and OPEB
plan expense
(in millions)
The following table represents the effect of a 25-basis point
decline in the two listed rates below on estimated 2019
defined benefit pension and OPEB plan expense, as well as
the effect on the postretirement benefit obligations.
ΝΑ
395
금금금
ΝΑ
0.80-6.50
0.70 -6.00
0.70 -5.50
Expected long-term rate of return on plan assets (c)
4.40%
4.20%
3.70%
0.60 -4.50% 0.60-4.30 % 0.90 -4.50%
4.00
Discount rate (c)
(103)
(202) $
$
8
$
249
$
(655)
Weighted-average assumptions used to determine net periodic benefit costs
5.00
5.75
Rate of compensation increase (c)
ΝΑ
NA
ΝΑ
NA
Year when rate will reach ultimate
Ultimate
Assumed for next year
Health care cost trend rate
ΝΑ
ΝΑ
NA
1.56-4.90%
1.81- 4.90%
NA
ΝΑ
NA
2.25 -4.30
2.25 -3.00
2.25 -3.00
1.81-4.90%
Interest crediting rate (c)
NA
176
5.00
32
7
15
(873)
(841)
(113)
(34)
(15)
(30)
(197)
330
$
18,052
$ 19,603
$ 2,633
$
2,757
$
7
602
2
78
$
(16,700)
$
(612)
$
(684)
$
19,603
2,540
$ 17,703
2,757
$
1,956
(548)
2,356
(28)
233
75
$
$ (15,512)
$
$ 2,021
184
$
271
Weighted-average actuarial assumptions used to determine benefit obligations
Discount Rate (f)
0.60 4.30%
Rate of compensation increase (f)
2.25 -3.00
0.60 -3.70 %
2.25 -3.00
4.20%
3.70%
ΝΑ
ΝΑ
Interest crediting rate (f)
1.81 -4.90%
1.81 - 4.90%
December 31,
$
(2,794)
$
(3,157)
$
2,073
$ (15,494)
$
(16,530)
ΝΑ
ΝΑ
$ (3,134)
2,903
$
$
184
$
271
(23)
6
Accumulated other comprehensive income/(loss), pretax, end of year
$
(2,800)
(3)
2
(321)
598
556
$
330
$
354
$
Other defined benefit pension plans (b)
Net periodic defined benefit cost (a)
Settlement (gain)/loss
Curtailment (gain)/loss
Prior service cost/(credit)
Net (gain)/loss
Amortization:
Expected return on plan assets
Interest cost on benefit obligations
2016
332
629
$ - $ - $
24
28
$
4
2
2
21
(36)
(36)
(23)
OPEB plans
2017
257
103
(105)
(97)
(103)
(1,030)
(968)
(981)
31
250
2018
2016
2017
2019
ΝΑ
ΝΑ
Year when rate will reach ultimate
5.00
ΝΑ
ΝΑ
Ultimate
2018
5.00
ΝΑ
ΝΑ
Assumed for next year
Health care cost trend rate:
NA
NA
(1)
185
5.00
$
(a) At December 31, 2018 and 2017, included non-U.S. benefit obligations of $(3.3) billion and $(3.8) billion, and plan assets of $3.5 billion and $3.9 billion,
respectively, predominantly in the U.K.
(c) At December 31, 2018 and 2017, defined benefit pension plan amounts that were not measured at fair value included $340 million and $377 million, respectively,
of accrued receivables, and $503 million and $587 million, respectively, of accrued liabilities, for U.S. plans.
2018
Pension plans
Benefits earned during the year
Components of net periodic benefit cost
Year ended December 31, (in millions)
The following table presents the components of net periodic benefit costs reported in the Consolidated statements of income
for the Firm's U.S. and non-U.S. defined benefit pension, defined contribution and OPEB plans, and in other comprehensive
income for the defined benefit pension and OPEB plans, and the weighted-average annualized actuarial assumptions for the
net periodic benefit cost.
JPMorgan Chase & Co./2018 Form 10-K
204
(b) At both December 31, 2018 and 2017, approximately $302 million of U.S. defined benefit pension plan assets included participation rights under participating
annuity contracts.
For the Firm's OPEB plans, a calculated value that
recognizes changes in fair value over a five-year period is
used to determine the expected return on plan assets. This
value is referred to as the market-related value of assets.
Amortization of net gains and losses, adjusted for gains and
losses not yet recognized, is included in annual net periodic
benefit cost if, as of the beginning of the year, the net gain
or loss exceeds 10% of the greater of the accumulated
postretirement benefit obligation or the market-related
value of assets. Any excess net gain or loss is amortized
over the average expected lifetime of retired participants,
which is currently eleven years; however, prior service costs
resulting from plan changes are amortized over the average
years of service remaining to full eligibility age, which is
currently one year.
Gains and losses
Notes to consolidated financial statements
203
JPMorgan Chase & Co./2018 Form 10-K
(h) Includes an unfunded postretirement benefit obligation of $26 million and $32 million at December 31, 2018 and 2017, respectively, for the U.K. plan.
(g) At December 31, 2018 and 2017, the gain/(loss) was primarily attributable to the change in the discount rate.
(e) For pension plans with a projected benefit obligation exceeding plan assets, the projected benefit obligation and fair value of plan assets was $1.3 billion and $762
million at December 31, 2018, respectively and $1.4 billion and $811 million at December 31, 2017, respectively. For pension plans with an accumulated benefit
obligation exceeding plan assets, the accumulated benefit obligation and fair value of plan assets was $1.3 billion and $762 million at December 31, 2018,
respectively, and $1.4 billion and $811 million at December 31, 2017, respectively. For OPEB plans with a projected benefit obligation exceeding plan assets, the
projected benefit obligation was $26 million and $32 million at December 31, 2018 and December 31, 2017, respectively, they had no plan assets.
(f) For the U.S. defined benefit pension plans, the discount rate assumption is 4.30% and 3.70% for 2018 and 2017, respectively, and the rate of compensation
increase and the interest crediting rate are 2.30% and 4.90%, respectively, for both 2018 and 2017.
(d) Represents plans with an aggregate overfunded balance of $5.1 billion and $5.6 billion at December 31, 2018 and 2017, respectively, and plans with an aggregate
underfunded balance of $547 million and $612 million at December 31, 2018 and 2017, respectively.
For the Firm's defined benefit pension plans, fair value is
used to determine the expected return on plan assets.
Amortization of net gains and losses is included in annual
net periodic benefit cost if, as of the beginning of the year,
the net gain or loss exceeds 10% of the greater of the PBO
or the fair value of the plan assets. Any excess is amortized
over the average future service period of defined benefit
pension plan participants, which for the U.S. defined benefit
pension plan is currently eight years and for the non-U.S.
defined benefit pension plans is the period appropriate for
the affected plan. In addition, prior service costs are
amortized over the average remaining service period of
active employees expected to receive benefits under the
plan when the prior service cost is first recognized. Due to
the curtailment of the principal U.S. defined benefit pension
plan in 2018, all related prior service cost was recognized
in the annual net periodic benefit cost.
Asset class
310
Equity securities
Other income on the Firm's Consolidated statements of
income included the following:
Year ended December 31, (in millions)
Operating lease income
2018
2017
$ 4,540 $ 3,613
2016
$ 2,724
Other income
Operating lease income is recognized on a straight-line
basis over the lease term.
Noninterest expense
Other expense on the Firm's Consolidated statements of
income included the following:
Year ended December 31,
(in millions)
Legal expense/(benefit)
FDIC-related expense
2018
2017
2016
Other expense
$
(b) Includes an adjustment to the credit card rewards liability of
approximately $330 million, recorded in the second quarter of 2018.
Card income is earned primarily by CCB and CB. Refer to
Note 31 for segment results.
$ 4,433 $ 4,779
The Firm has contractual agreements with numerous co-
brand partners that grant the Firm exclusive rights to issue
co-branded credit card products and market them to the
customers of such partners. These partners endorse the co-
brand credit card programs and provide their customer or
member lists to the Firm. The partners may also conduct
marketing activities and provide rewards redeemable under
their own loyalty programs that the Firm will grant to co-
brand credit cardholders based on account activity. The
terms of these agreements generally range from five to ten
years.
The Firm typically makes payments to the co-brand credit
card partners based on the cost of partners' marketing
activities and loyalty program rewards provided to credit
cardholders, new account originations and sales volumes.
Payments to partners based on marketing efforts
undertaken by the partners are expensed by the Firm as
incurred and reported as marketing expense. Payments for
partner loyalty program rewards are reported as a
reduction of card income when incurred. Payments to
partners based on new credit card account originations are
accounted for as direct loan origination costs and are
deferred and recognized as a reduction of card income on a
straight-line basis over a 12-month period. Payments to
partners based on sales volumes are reported as a
reduction of card income when the related interchange
income is earned.
The following table presents the components of card income:
Year ended December 31,
(in millions)
Interchange and merchant
processing income
Reward costs and partner
payments
Other card income(a)
Total card income
(a) Predominantly represents annual fees and new account origination
costs, which are deferred and recognized on a straight-line basis over
a 12-month period and are outside the scope of the revenue
recognition guidance, ASC 606, Revenue from Contracts with
Customers.
2018
2016
$ 18,808
$ 17,080 $ 15,367
(13,074) (b)
(745)
$ 4,989
(9,480)
(10,820)
(1,827) (1,108)
2017
Credit card revenue sharing agreements
72 $
1,239
(317)
Non-taxable securities (b)
1,595
1,847
1,766
Total investment securities
7,248
5,538
7,382
Trading assets
8,703
7,610
7,292
Federal funds sold and securities
purchased under resale
7,304
(35) $
1,492
5,535
Taxable securities
1,296
200
JPMorgan Chase & Co./2018 Form 10-K
Note 7 - Interest income and Interest expense
Interest income and interest expense are recorded in the
Consolidated statements of income and classified based on
the nature of the underlying asset or liability.
The following table presents the components of interest
income and interest expense:
5,653
Year ended December 31,
Interest income
Loans(a)
2018
Debt securities(b)
2016
$ 47,620 $ 41,008 $ 36,634
(in millions)
agreements
Certain Chase credit card products offer the cardholder the
ability to earn points based on account activity, which the
cardholder can choose to redeem for cash and non-cash
rewards. The cost to the Firm related to these proprietary
rewards programs varies based on multiple factors
including the terms and conditions of the rewards
programs, cardholder activity, cardholder reward
redemption rates and cardholder reward selections. The
Firm maintains a liability for its obligations under its
rewards programs and reports the current-period cost as a
reduction of card income.
Card income
11,088
11,309
Brokerage commissions(d)
2,505
2,239
2,151
12,408
(349)
257
All other commissions and fees
1,396
1,289
1,324
Total commissions and fees
259
3,901
Commissions and other fees
661
11,038
10,730
9,974
3,222
2,746
2,827
1,067
Total administration fees (c)
2,029
1,915
4,924
3,873
2,994
906
2,179
This revenue category includes interchange income from
credit and debit cards and fees earned from processing card
transactions for merchants, both of which are recognized
when purchases are made by a cardholder. Card income
also includes account origination costs and annual fees,
which are deferred and recognized on a straight-line basis
over a 12-month period.
3,528
$ 12,059 $ 11,347 $ 11,566
(a) Represents fees earned from managing assets on behalf of the Firm's
clients, including investors in Firm-sponsored funds and owners of
separately managed investment accounts.
(b) The Firm receives other asset management fees for services that are
ancillary to investment management services, including commissions
earned on sales or distribution of mutual funds to clients. These fees are
recorded as revenue at the time the service is rendered or, in the case of
certain distribution fees based on the underlying fund's asset value and/
or investor redemption, recorded over time as the investor remains in
the fund or upon investor redemption.
(c) The Firm receives administrative fees predominantly from custody,
securities lending, fund services and securities clearance services it
provides. These fees are recorded as revenue over the period in which
the related service is provided.
(d) The Firm acts as a broker, by facilitating its clients' purchases and sales
of securities and other financial instruments. Brokerage commissions are
collected and recognized as revenue upon occurrence of the client
transaction. The Firm reports certain costs paid to third-party clearing
houses and exchanges net against commission revenue.
Asset management, administration and commissions are
earned primarily by AWM, CIB, CCB, and CB. Refer to Note
31 for segment results.
Mortgage fees and related income
Lending- and deposit-related fees are earned by CCB, CIB,
CB, and AWM. Refer to Note 31 for segment results.
Asset management, administration and commissions
This revenue category includes fees from investment
management and related services, custody, brokerage
services and other products. The Firm manages assets on
behalf of its clients, including investors in Firm-sponsored
funds and owners of separately managed investment
accounts. Management fees are typically based on the value
of assets under management and are collected and
recognized at the end of each period over which the
management services are provided and the value of the
managed assets is known. The Firm also receives
performance-based management fees, which are earned
based on exceeding certain benchmarks or other
performance targets and are accrued and recognized when
the probability of reversal is remote, typically at the end of
the related billing period. The Firm has contractual
arrangements with third parties to provide distribution and
other services in connection with its asset management
activities. Amounts paid to third-party service providers are
recorded in professional and outside services expense.
This revenue category primarily reflects CCB's Home
Lending net production and net mortgage servicing
Net production revenue includes fees and income
recognized as earned on mortgage loans originated with the
intent to sell; the impact of risk management activities
associated with the mortgage pipeline and warehouse
loans; and changes in the fair value of any residual interests
held from mortgage securitizations. Net production revenue
also includes gains and losses on sales of mortgage loans,
lower of cost or fair value adjustments on mortgage loans
held-for-sale, changes in fair value on mortgage loans
originated with the intent to sell and measured at fair value
under the fair value option, as well as losses recognized as
incurred related to the repurchase of previously sold loans.
Net mortgage servicing revenue includes operating revenue
earned from servicing third-party mortgage loans which is
recognized over the period in which the service is provided,
changes in the fair value of MSRS and the impact of risk
management activities associated with MSRs.
For further discussion of risk management activities and
MSRs, refer to Note 15.
Net interest income from mortgage loans is recorded in
interest income.
JPMorgan Chase & Co./2018 Form 10-K
199
Notes to consolidated financial statements
revenue.
3,475
$ 5,774
Total lending- and deposit-related fees $6,052
Total asset management,
administration and
commissions
$ 17,118
$ 16,287 $ 15,364
Principal transactions revenue is earned primarily by CIB.
Refer to Note 31 for segment results.
Lending- and deposit-related fees
Lending-related fees include fees earned from loan
commitments, standby letters of credit, financial
guarantees, and other loan-servicing activities. Deposit-
related fees include fees earned in lieu of compensating
balances, and fees earned from performing cash
management activities and other deposit account services.
Lending- and deposit-related fees in this revenue category
are recognized over the period in which the related service
is provided.
2016
$ 1,114
4,660
Year ended December 31, (in millions)
Deposit-related fees
2018
$ 1,117
2017
4,935
$ 1,110
4,823
$ 5,933
Lending-related fees
3,819
2,327
2,265
Firm contributions
Employee contributions
Benefits paid
Plan settlements
Foreign exchange impact and other
Fair value of plan assets, end of year (a)(b)(c)
Actual return on plan assets
Net funded status (d)(e)
Pretax pension and OPEB amounts recorded in AOCI
Net gain/(loss)
Prior service credit/(cost)
Defined benefit
pension plans
2018
2017
Accumulated benefit obligation, end of year
OPEB plans (h)
Fair value of plan assets, beginning of year
Benefit obligation, end of year(a)
As of or for the year ended December 31,
(in millions)
Change in benefit obligation
Benefit obligation, beginning of year
Benefits earned during the year
Interest cost on benefit obligations
Change in plan assets
Plan amendments
Employee contributions
Net gain/(loss)
Benefits paid
Plan settlements
Expected Medicare Part D subsidy receipts
Foreign exchange impact and other
Plan curtailment
The following table presents the changes in benefit obligations, plan assets, the net funded status, and the pretax pension and
OPEB amounts recorded in AOCI on the Consolidated balance sheets for the Firm's defined benefit pension and OPEB plans, and
the weighted-average actuarial annualized assumptions for the projected and accumulated postretirement benefit obligations.
2018
$ (16,700)
(721)
(g)
40
873
841
69
(g)
76
30
âཙེ༄ |
(4)
ΝΑ
NA
-
15
2017
938
(15)
(354)
$ (15,594)
(330)
$
(684)
$
(708)
(16)
(556)
(24)
(28)
(29)
123
(7)
(7)
(598)
JPMorgan Chase & Co./2018 Form 10-K
202
Pension and OPEB accounting generally requires that the
difference between plan assets at fair value and the benefit
obligation be measured and recorded on the balance sheet.
Plans that are overfunded (excess of plan assets over
benefit obligation) are recorded in other assets and plans
that are underfunded (excess benefit obligation over plan
assets) are recorded within other liabilities. Gains or losses
resulting from changes in the benefit obligation and the
value of plan assets are recorded in other comprehensive
income ("OCI") and recognized as part of the net periodic
benefit cost over subsequent periods as discussed in the
Gains and losses section of this Note. Additionally, income
statement items related to pension and OPEB plans (other
than benefits earned during the period) are aggregated and
reported net within other expense.
5,973 $
2,857 $
1,356
Federal funds purchased and
securities loaned or sold under
repurchase agreements
$
3,066
1,089
Short-term borrowings(e)
1,144
481
203
Trading liabilities - debt and all
1,611
other interest-bearing liabilities(f)
Interest bearing deposits
$ 77,442 $ 64,372 $ 55,901
Securities borrowed (c)
728
(37)
(332)
Deposits with banks
5,907
Interest expense
4,238
All other interest-earning assets(d)
3,417
1,844
859
Interest income and interest expense includes the current-
period interest accruals for financial instruments measured
at fair value, except for derivatives and financial
instruments containing embedded derivatives that would be
separately accounted for in accordance with U.S. GAAP,
absent the fair value option election; for those instruments,
all changes in fair value including any interest elements, are
reported in principal transactions revenue. For financial
instruments that are not measured at fair value, the related
interest is included within interest income or interest
expense, as applicable. For further information on
accounting for interest income and interest expense related
to loans, investment securities, securities financing (i.e.
securities purchased or sold under resale or repurchase
agreements; securities borrowed; and securities loaned)
and long-term debt, refer to Notes 12, 10, 11 and 19,
respectively.
Total interest income
1,879
3,729
2,070
1,102
(a) Includes the amortization/accretion of unearned income (e.g.,
purchase premiums/discounts, net deferred fees/costs, etc.).
(b) Represents securities that are tax-exempt for U.S. federal income tax
purposes.
(c) Negative interest income is related to client-driven demand for certain
securities combined with the impact of low interest rates. This is
matched book activity and the negative interest expense on the
corresponding securities loaned is recognized in interest expense.
(d) Includes held-for-investment margin loans, which are classified in
accrued interest and accounts receivable, and all other interest-
earning assets, which are classified in other assets on the Consolidated
balance sheets.
(e) Includes commercial paper.
(f) Other interest-bearing liabilities include brokerage customer payables.
JPMorgan Chase & Co./2018 Form 10-K
$ 50,188 $ 44,807 $ 40,722
201
Note 8 - Pension and other postretirement
employee benefit plans
The Firm has various defined benefit pension plans and
OPEB plans that provide benefits to its employees in the
U.S. and certain non-U.S. locations. The Firm also provides a
qualified defined contribution plan in the U.S. and maintains
other similar arrangements in certain non-U.S. locations.
The principal defined benefit pension plan in the U.S. is a
qualified noncontributory plan that provides benefits to
substantially all U.S. employees. In connection with changes
to the U.S. Retirement Savings Program during the fourth
quarter of 2018, the Firm announced that it will freeze the
U.S. defined benefit pension plan. Commencing on January
1, 2020 (and January 1, 2019 for new hires), pay credits
will be directed to the U.S. defined contribution plan.
Interest credits will continue to accrue. As a result, a
curtailment was triggered and a remeasurement of the U.S.
defined benefit pension obligation and plan assets occurred
as of November 30, 2018. The plan design change resulted
in an increase to pension expense of $21 million
representing the immediate recognition of the prior service
cost, but did not have a material impact on the U.S. defined
benefit pension plan or the Firm's Consolidated Financial
Statements.
The Firm also has defined benefit pension plans that are
offered in certain non-U.S. locations based on factors such
as eligible compensation, age and/or years of service. It is
the Firm's policy to fund the pension plans in amounts
sufficient to meet the requirements under applicable laws.
The Firm does not anticipate at this time any contribution to
the U.S. defined benefit pension plan in 2019. The 2019
contributions to the non-U.S. defined benefit pension plans
are expected to be $45 million of which $30 million are
contractually required.
The Firm also has a number of nonqualified
noncontributory defined benefit pension plans that are
unfunded. These plans provide supplemental defined
pension benefits to certain employees.
The Firm offers postretirement medical and life insurance
benefits to certain U.S. retirees and postretirement medical
benefits to qualifying U.S. and U.K. employees.
The Firm defrays the cost of its U.S. OPEB obligation
through corporate-owned life insurance (“COLI”) purchased
on the lives of eligible employees and retirees. While the
Firm owns the COLI policies, COLI proceeds (death benefits,
withdrawals and other distributions) may be used only to
reimburse the Firm for its net postretirement benefit claim
payments and related administrative expense. The Firm has
generally funded its postretirement benefit obligations
through contributions to the relevant trust on a pay-as-you
go basis. On December 21, 2017, the Firm contributed
$600 million of cash to the trust as a prefunding of a
portion of its postretirement benefit obligations. The U.K.
OPEB plan is unfunded.
Notes to consolidated financial statements
5,361
5,290
4,871
Long-term debt
7,978
6,753
5,564
Beneficial interest issued by
consolidated VIES
493
503
$ 22,383 $ 14,275 $
504
9,818
Total interest expense
Net interest income
Provision for credit losses
Net interest income after
provision for credit losses
$ 55,059 $ 50,097 $ 46,083
338
296
2017
$ 10,434 $ 9,636
40
40
60
60
Corporate debt securities(c)
3,540
Limited partnerships(b)
3
2,644
4
2,648
U.S. federal, state, local and non-U.S.
government debt securities
1,191
3,543
743
778
161
162
2
5,506
6,407
194
2
778
6,603
-
-
325
325
Collective investment funds (a)
161
Mutual funds
5,342
-
1,096
203
203
302
1,267
2,353
60
143
302
Total assets measured at fair value(e)
$
8,044
$
4,941 $
$ 13,295 $ 11,284
2,715
1,934
-
885
784
1,880
Mortgage-backed securities
82
272
3
143
80
357
100
2
194
Derivative receivables
-
Other(d)
92
$
Equity securities
$
42
30-70%
30-70
270
61%
39
39
37
0-10
3
0-35
13
13
100%
100%
2
100%
10-45
48%
Real estate
Alternatives (c)
Total
Defined benefit pension plans(a)
OPEB plan(d)
Asset
42%
Allocation
Asset
2017
Allocation
% of plan assets
2018
2017
27-100%
% of plan assets
2018
174
100%
100%
value
Cash and cash equivalents
$
343
$
1
Level 3
$
$
344 $
173
$
1
$
-
100%
Level 2
Total fair
(a) Represents the U.S. defined benefit pension plan only, as that is the most significant plan.
(b) Debt securities primarily includes cash and cash equivalents, corporate debt, U.S. federal, state, local and non-U.S. government, and mortgage-backed
securities.
(c) Alternatives primarily include limited partnerships.
(d) Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded.
Fair value measurement of the plans' assets and liabilities
For information on fair value measurements, including descriptions of level 1, 2, and 3 of the fair value hierarchy and the
valuation methods employed by the Firm, refer to Note 2.
Pension and OPEB plan assets and liabilities measured at fair value
Defined benefit pension plans
Level 1
2018
December 31,
(in millions)
Level 1
Level 2
Level 3
Total fair
value
2017
3,986 $
61%
$ 15,580
2020
932
60
1
2021
921
1
57
2022
920
55
1
2023
919
1
52
$
$
Defined
benefit
Medicare
Medicare
Year ended December 31,
pension
62
Part D
plans
subsidy
Part D
subsidy
2019
$
939
(in millions)
Years 2024-2028
4,529
223
2018
2016
Asset management fees
$
1,961
$
Year ended December 31,
(in millions)
310
Investment management fees (a)
All other asset management fees (b)
Total asset management fees
2,096
1,329
1,395
2,325
2,479 $
$ 10,768
2016
2017
2018
2
208
JPMorgan Chase & Co./2018 Form 10-K
Year ended December 31,
(in millions)
Trading revenue by instrument
type
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total trading revenue
Private equity gains
Principal transactions
OPEB
before
The following table presents benefit payments expected to
be paid, which include the effect of expected future service,
for the years indicated. The OPEB medical and life insurance
payments are net of expected retiree contributions.
2017
(a) Substantially all are participating and non-participating annuity contracts.
Actual return on plan assets
Changes in level 3 fair value measurements using significant unobservable inputs
Notes to consolidated financial statements
207
JPMorgan Chase & Co./2018 Form 10-K
(e) At December 31, 2018 and 2017, excludes $5.0 billion and $4.4 billion of certain investments that are measured at fair value using the net asset
value per share (or its equivalent) as a practical expedient, which are not required to be classified in the fair value hierarchy, $340 million and
$377 million of defined benefit pension plan receivables for investments sold and dividends and interest receivables, $479 million and $561
million of defined benefit pension plan payables for investments purchased, and $24 million and $26 million of other liabilities, respectively.
The assets of the U.S. OPEB plan consisted of $561 million and $600 million in corporate debt securities, U.S. federal,
state, local and non-U.S. government debt securities and other classified in level 1 and level 2 of the valuation hierarchy
and in cash and cash equivalents classified in level 1 of the valuation hierarchy and $2.1 billion and $2.2 billion of COLI
policies classified in level 3 of the valuation hierarchy at December 31, 2018 and 2017, respectively.
(d) Other consists primarily of mutual funds, money market funds and participating and non-participating annuity contracts. Mutual funds and money
market funds are primarily classified within level 1 of the fair value hierarchy given they are valued using market observable prices. Participating
and non-participating annuity contracts are classified within level 3 of the fair value hierarchy due to a lack of market mechanisms for transferring
each policy and surrender restrictions.
(c) Corporate debt securities include debt securities of U.S. and non-U.S. corporations.
(b) Unfunded commitments to purchase limited partnership investments for the plans were $521 million and $605 million for 2018 and 2017,
respectively.
(a) At December 31, 2018 and 2017, collective investment funds primarily included a mix of short-term investment funds, U.S. and non-U.S. equity
investments (including index) and real estate funds.
$ (141)
(141) $
$
$ (141)
-
(141) $
$
-
(96) $
$
-
$
Derivative payables
Fair value,
Beginning
balance
Estimated future benefit payments
$
(96) $
-
$
(96) $
(96) $
-
-
Realized
gains/(losses)
Total liabilities measured at fair value (e) $
Purchases, sales
and settlements,
net
- $
1 $
(87) $
- $ 310
U.S. OPEB plan
COLI policies
$
$
- $
Unrealized
gains/(losses)
- $
200 $
- $
$
2,157
396
1,957
U.S. defined benefit pension plan
Annuity contracts and other (a)
Year ended December 31, 2017
- $ 2,072
-
-
Year ended December 31, 2018
U.S. defined benefit pension plan
Annuity contracts and other (a)
$ - $ (85) $ - $
2,157
COLI policies
310 $ - $ - $ (1) $ 1 $ 310
$
$
U.S. OPEB plan
(in millions)
Fair value,
Ending
balance
Transfers in
and/or out
of level 3
59
26,610
59
75
75
U.S. government agencies (c)
Aggregate
(in thousands, except weighted-average data, and
where otherwise stated)
average
Weighted-
average grant
date fair value
Number of
units
Weighted-average
Weighted-
Year ended December 31, 2018
Options/SARS
RSUS/PSUS
Generally, compensation expense for RSUs and PSUs is measured based on the number of units granted multiplied by the stock
price at the grant date, and for employee stock options and SARS, is measured at the grant date using the Black-Scholes
valuation model. Compensation expense for these awards is recognized in net income as described previously. The following
table summarizes JPMorgan Chase's RSUs, PSUs, employee stock options and SARS activity for 2018.
RSUS, PSUs, employee stock options and SARS activity
Notes to consolidated financial statements
Certificates of deposit
JPMorgan Chase & Co./2018 Form 10-K
remaining
209
56,059
33
6,654
The Firm's policy for issuing shares upon settlement of
employee share-based incentive awards is to issue either
new shares of common stock or treasury shares. During
2018, 2017 and 2016, the Firm settled all of its employee
share-based awards by issuing treasury shares.
4,932
98
5
5,025
Total mortgage-backed securities
84,190
788 1,158
83,820
85,886
1,141
355
86,672
U.S. Treasury and government agencies
55,771
366
78
22,510
266
31
22,745
Obligations of U.S. states and municipalities
36,221
1,582
80
37,723
30,490
1,881
32,338
The Firm separately recognizes compensation expense for
each tranche of each award, net of estimated forfeitures, as
if it were a separate award with its own vesting date.
Generally, for each tranche granted, compensation expense
is recognized on a straight-line basis from the grant date
until the vesting date of the respective tranche, provided
that the employees will not become full-career eligible
during the vesting period. For awards with full-career
eligibility provisions and awards granted with no future
substantive service requirement, the Firm accrues the
estimated value of awards expected to be awarded to
employees as of the grant date without giving consideration
to the impact of post-employment restrictions. For each
tranche granted to employees who will become full-career
eligible during the vesting period, compensation expense is
recognized on a straight-line basis from the grant date until
the earlier of the employee's full-career eligibility date or
the vesting date of the respective tranche.
57
Once the PSUs have vested, the shares of common stock
that are delivered, after applicable tax withholding, must be
held for an additional two-year period, typically for a total
combined vesting and holding period of five years from the
grant date.
19,437
7,260
230,394
20,928
69
1
20,996
8,764
198,194
77
24
8,817
3,961
477
201,678
Available-for-sale equity securities(b)
-
547
547
Total available-for-sale securities
228,769
3,168 1,543
230,394
198,741
3,961
477
202,225
Held-to-maturity securities
Mortgage-backed securities
147
3,168 1,543
228,769
Total available-for-sale debt securities
22
In January 2018, 2017 and 2016, the Firm's Board of
Directors approved the grant of performance share units
("PSUS") to members of the Firm's Operating Committee
under the variable compensation program for performance
years 2017, 2016 and 2015, respectively. PSUs are subject
to the Firm's achievement of specified performance criteria
over a three-year period. The number of awards that vest
can range from zero to 150% of the grant amount. The
awards vest and are converted into shares of common stock
in the quarter after the end of the performance period,
which is generally three years. In addition, dividends are
notionally reinvested in the Firm's common stock and will
be delivered only in respect of any earned shares.
RSUS are awarded at no cost to the recipient upon their
grant. Generally, RSUs are granted annually and vest at a
rate of 50% after two years and 50% after three years and
are converted into shares of common stock as of the vesting
date. In addition, RSUs typically include full-career eligibility
provisions, which allow employees to continue to vest upon
voluntary termination based on age or service-related
requirements, subject to post-employment and other
restrictions. All RSU awards are subject to forfeiture until
vested and contain clawback provisions that may result in
cancellation under certain specified circumstances.
Generally, RSUs entitle the recipient to receive cash
payments equivalent to any dividends paid on the
underlying common stock during the period the RSUs are
outstanding and, as such, are considered participating
securities as discussed in Note 22.
In 2018, 2017 and 2016, JPMorgan Chase granted long-
term share-based awards to certain employees under its
LTIP, as amended and restated effective May 19, 2015, and
further amended and restated effective May 15, 2018.
Under the terms of the LTIP, as of December 31, 2018, 86
million shares of common stock were available for issuance
through May 2022. The LTIP is the only active plan under
which the Firm is currently granting share-based incentive
awards. In the following discussion, the LTIP, plus prior Firm
plans and plans assumed as the result of acquisitions, are
referred to collectively as the “LTI Plans,” and such plans
constitute the Firm's share-based incentive plans.
Note 9 - Employee share-based incentives
Employee share-based awards
Non-U.S. government debt securities
23,771
351
20
24,102
Corporate debt securities
1,904
23
9
Under the LTI Plans, stock options and stock appreciation
rights ("SARS") have generally been granted with an
exercise price equal to the fair value of JPMorgan Chase's
common stock on the grant date. The Firm periodically
grants employee stock options to individual employees.
There were no material grants of stock options or SARS
in 2018, 2017 and 2016. SARS generally expire ten years
after the grant date.
1,918
426
32
27,294
101
1
2,757
Asset-backed securities:
Collateralized loan obligations
19,612
1
176
Other
7,225
26,900
2,657
43
945
Commercial
ΝΑ
(21)
45.75
Outstanding, December 31
Exercisable, December 31
58,809 $
ΝΑ
85.04
12,463 $
41.46
ΝΑ
12,449
41.37
2.4 $ 702,815
ΝΑ
2.4
The total fair value of RSUs that vested during the years ended December 31, 2018, 2017 and 2016, was $3.6 billion, $2.9
billion and $2.2 billion, respectively. The total intrinsic value of options exercised during the years ended December 31, 2018,
2017 and 2016, was $370 million, $651 million and $338 million, respectively.
Compensation expense
The Firm recognized the following noncash compensation
expense related to its various employee share-based
incentive plans in its Consolidated statements of income.
Year ended December 31, (in millions)
Cost of prior grants of RSUS, PSUs and
SARS that are amortized over their
applicable vesting periods
2018
2017
2016
$ 1,241
$ 1,125
$ 1,046
Accrual of estimated costs of share-
based awards to be granted in future
periods including those to full-career
eligible employees
Total noncash compensation expense
related to employee share-based
incentive plans
1,081
702,815
894
112.25
84.60
Number of
134
exercise
contractual life
intrinsic
awards
price
(in years)
value
Outstanding, January 1
72,733 $
66.36
17,493
(1)
$
Granted
20,489
110.46
46
113.63
Exercised or vested
(32,277)
58.97
(5,054)
39.65
Forfeited
Canceled
(2,136)
40.76
6,758
$2,322 $ 2,070 $ 1,940
Cash flows and tax benefits
U.S. government agencies (a)
$ 69,026 $
594 $
974
$ 68,646
$ 69,879 $
736 $
335
$ 70,280
Residential:
U.S
Non-U.S.
5,877
Mortgage-backed securities:
79
5,925
8,193
185
14
8,364
2,529
72
6
2,595
2,882
122
1
3,003
31
At December 31, 2018, approximately $704 million
(pretax) of compensation expense related to unvested
awards had not yet been charged to net income. That cost is
expected to be amortized into compensation expense over a
weighted-average period of 1.6 years. The Firm does not
capitalize any compensation expense related to share-based
compensation awards to employees.
Available-for-sale securities
Fair
Effective January 1, 2016, the Firm adopted new
accounting guidance related to employee share-based
payments. As a result of the adoption of this new guidance,
all excess tax benefits (including tax benefits from dividends
or dividend equivalents) on share-based payment awards
are recognized within income tax expense in the
Consolidated statements of income. Income tax benefits
related to share-based incentive arrangements recognized
in the Firm's Consolidated statements of income for the
years ended December 31, 2018, 2017 and 2016, were
$1.1 billion, $1.0 billion and $916 million, respectively.
The following table sets forth the cash received from the
exercise of stock options under all share-based incentive
arrangements, and the actual income tax benefit related to
tax deductions from the exercise of the stock options.
Year ended December 31, (in millions)
Cash received for options exercised
Tax benefit
2018 2017
14 $ 18
2016
$ 26
75
190
70
210
JPMorgan Chase & Co./2018 Form 10-K
Note 10
Investment securities
Investment securities consist of debt securities that are
classified as AFS or HTM. Debt securities classified as
trading assets are discussed in Note 2. Predominantly all of
the Firm's AFS and HTM securities are held by Treasury and
CIO in connection with its asset-liability management
activities. At December 31, 2018, the investment securities
portfolio consisted of debt securities with an average credit
rating of AA+ (based upon external ratings where available,
and where not available, based primarily upon internal
ratings which correspond to ratings as defined by S&P and
Moody's). AFS securities are carried at fair value on the
Consolidated balance sheets. Unrealized gains and losses,
after any applicable hedge accounting adjustments, are
reported as net increases or decreases to AOCI. The specific
identification method is used to determine realized gains
and losses on AFS securities, which are included in securities
gains/(losses) on the Consolidated statements of income.
HTM debt securities, which the Firm has the intent and
ability to hold until maturity, are carried at amortized cost
on the Consolidated balance sheets.
value
For both AFS and HTM debt securities, purchase discounts or
premiums are generally amortized into interest income on a
level-yield basis over the contractual life of the security.
However, as a result of the adoption of the premium
amortization accounting guidance in the first quarter of
2018, premiums on purchased callable debt securities must
be amortized to the earliest call date for debt securities with
call features that are explicit, noncontingent and callable at
fixed prices and on preset dates. The guidance primarily
impacts obligations of U.S. states and municipalities held in
the Firm's investment securities portfolio. For additional
information, refer to Note 23.
The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
December 31, (in millions)
2018
2017
Gross
Amortized unrealized
cost
gains
Gross
unrealized
losses
Fair
value
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
As permitted by the new hedge accounting guidance, the
Firm also elected to transfer U.S. government agency MBS,
commercial MBS, and obligations of U.S. states and
municipalities with a carrying value of $22.4 billion from
HTM to AFS in the first quarter of 2018. The transfer of
these investment securities resulted in the recognition of a
net pretax unrealized gain of $221 million within AOCI. This
transfer was a noncash transaction. For additional
information, refer to Notes 1,5 and 23.
revenue.
Securities financing agreements expose the Firm primarily
to credit and liquidity risk. To manage these risks, the Firm
monitors the value of the underlying securities
(predominantly high-quality securities collateral, including
government-issued debt and agency MBS) that it has
received from or provided to its counterparties compared to
the value of cash proceeds and exchanged collateral, and
either requests additional collateral or returns securities or
collateral when appropriate. Margin levels are initially
established based upon the counterparty, the type of
underlying securities, and the permissible collateral, and
are monitored on an ongoing basis.
7
6,500
15
811
17
7,311
52
1
52
32
1
Asset-backed securities:
Collateralized loan obligations
Corporate debt securities
276
276
1
Other
3,521
20
720
4
4,241
24
Total available-for-sale securities
50,481
201
1
Non-U.S.government debt securities
-
-
266
1
528
4
335
1
863
5
37,677
148
8,908
207
46,585
355
1,834
11
373
20
2,207
31
949
84,190
1,652
26
2,601
33
Certificates of deposit
12,792
1
276
$
792
964
22
Asset-backed securities
Average yield(b)
Fair value
1,904
$
140
$
792
950 $
140
$
$
Amortized cost
Corporate debt securities
2.13%
-%
24,102
23,771
1.33%
1.95%
3.25%
Average yield(b)
5,182
22
1,918
4.05%
4.64%
35,928
36,282
2.62%
28,843
2.57%
28,836
$
3.14%
26,697
18,897
3.19%
4,592
3.12%
2.85%
-%
3,208
26,837
19,000 $
$
4,615
3,222 $
Held-to-maturity securities
Average yield(b)
Fair value
Amortized cost
Total available-for-sale securities
Average yield (b)
Fair value
Amortized cost
4.60%
4.74%
4.56%
63,273
13,314
266
1,708
176
Other
1,208
6
2,354
16
3,562
22
Total available-for-sale securities
50,325
550
36,706
18,681
993
1,543
Held-to-maturity securities
Mortgage-backed securities
U.S. government agencies
4,385
223
7,082
177
11,467
200
Commercial
Total mortgage-backed securities
87,031
176
18,681
Collateralized loan obligations
1,808
15
2,477
65
4,285
Certificates of deposit
75
-
-
Non-U.S. government debt securities
3,123
5
1,937
15
5,060
75
80
-
20
Corporate debt securities
478
8
37
1
515
9
Asset-backed securities:
4,385
14
23
177
12 months or more
Fair value
Gross unrealized
losses
Fair value
Gross unrealized
losses
Total fair
value
Total gross
unrealized losses
U.S. government agencies
$
36,037 $
139
$
Less than 12 months
7,711 $
43,748 $
335
Residential:
U.S.
1,112
Non-U.S.
Commercial
Total mortgage-backed securities
U.S. Treasury and government agencies
Obligations of U.S. states and municipalities
5
596
9
196 $
Investment securities with gross unrealized losses
Mortgage-backed securities:
Available-for-sale securities
11,467
200
Obligations of U.S. states and municipalities
Total held-to-maturity securities
12
4,397
-
1,114
15
1,126
15
23
8,196
192
12,593
215
Total investment securities with gross
unrealized losses
$
54,722 $
573
$
44,902 $
1,185 $
99,624 $
1,758
212
JPMorgan Chase & Co./2018 Form 10-K
December 31, 2017 (in millions)
7,082
Obligations of U.S. states and municipalities
5,606
$-$
80
Total held-to-maturity securities
8,360
88
4,218
106
12,578
194
Total investment securities with gross
unrealized losses
58,841 $
289
$ 17,010 $
2,715
382 $
671
Other-than-temporary impairment
AFS and HTM debt securities in unrealized loss positions are
analyzed as part of the Firm's ongoing assessment of OTTI.
The Firm considers a decline in fair value to be other-than-
temporary when the Firm does not expect to recover the
entire amortized cost basis of the security.
For AFS debt securities, the Firm recognizes OTTI losses in
earnings if the Firm has the intent to sell the debt security,
or if it is more likely than not that the Firm will be required
to sell the debt security before recovery of its amortized
cost basis. In these circumstances the impairment loss is
equal to the full difference between the amortized cost
basis and the fair value of the securities.
For debt securities in an unrealized loss position that the
Firm has the intent and ability to hold, the securities are
evaluated to determine if a credit loss exists. In the event of
a credit loss, only the amount of impairment associated
with the credit loss is recognized in income. Amounts
relating to factors other than credit losses are recorded in
OCI.
Factors considered in evaluating potential OTTI include
adverse conditions specifically related to the industry,
geographic area or financial condition of the issuer or
underlying collateral of a security; payment structure of the
JPMorgan Chase & Co./2018 Form 10-K
security; changes to the rating of the security by a rating
agency; the volatility of the fair value changes; and the
Firm's intent and ability to hold the security until recovery.
The Firm's cash flow evaluations take into account the
factors noted above and expectations of relevant market
and economic data as of the end of the reporting period.
When assessing securities issued in a securitization for OTTI,
the Firm estimates cash flows considering underlying loan-
level data and structural features of the securitization, such
as subordination, excess spread, overcollateralization or
other forms of credit enhancement, and compares the
losses projected for the underlying collateral ("pool losses")
against the level of credit enhancement in the securitization
structure to determine whether these features are sufficient
to absorb the pool losses, or whether a credit loss exists.
The Firm also performs other analyses to support its cash
flow projections, such as first-loss analyses or stress
scenarios.
For beneficial interests in securitizations that are rated
below "AA" at their acquisition, or that can be contractually
prepaid or otherwise settled in such a way that the Firm
would not recover substantially all of its recorded
investment, the Firm considers an impairment to be other-
than-temporary when there is an adverse change in
expected cash flows.
213
Notes to consolidated financial statements
As a result of the adoption of the recognition and
measurement guidance in the first quarter of 2018, equity
securities are no longer permitted to be classified as AFS.
For additional information, refer to Note 1. Additionally, the
Firm did not recognize any OTTI for AFS equity securities for
the years ended December 31, 2017 and 2016.
75,851 $
71
2,131
9
Average yield (b)
477
Held-to-maturity securities
Mortgage-backed securities
U.S. government agencies
4,070
38
205
2
4,275
40
Commercial
3,706
41
1,882
33
5,588
74
Total mortgage-backed securities
7,776
79
2,087
35
9,863
114
Obligations of U.S. states and municipalities
584
For the year ended December 31, 2018, the Firm
recognized $22 million of unrealized losses as OTTI on
securities it intended to sell and subsequently sold during
the year. The Firm does not intend to sell any of the
remaining investment securities with an unrealized loss in
AOCI as of December 31, 2018, and it is not likely that the
Firm will be required to sell these securities before recovery
of their amortized cost basis. Further, the Firm did not
recognize any credit-related OTTI losses during the year
ended December 31, 2018. Accordingly, the Firm believes
that the investment securities with an unrealized loss in
AOCI as of December 31, 2018, are not other-than-
temporarily impaired.
2.02%
Investment securities gains and losses
Year ended December 31,
(in millions)
JPMorgan Chase & Co./2018 Form 10-K
Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at December 31, 2018, of JPMorgan Chase's
investment securities portfolio by contractual maturity.
By remaining maturity
December 31, 2018 (in millions)
Due in one
year or less
Due after one year
through five years
Due after five years
through 10 years
Due after
10 years(c)
Total
Available-for-sale securities
Mortgage-backed securities (a)
214
Amortized cost
519
$
77
$
7,574
$
Fair value
520
77
7,616
76,020
75,607
$
$
The cumulative credit loss component, including any
changes therein, of OTTI losses that have been recognized in
income related to AFS securities was not material as of and
during the years ended December 31, 2018, 2017 and
2016.
Changes in the credit loss component of credit-impaired
debt securities
(a) Excludes realized losses on securities sold of $22 million, $6 million
and $24 million for the years ended December 31, 2018, 2017 and
2016, respectively, that had been previously reported as an OTTI loss
due to the intention to sell the securities.
Realized gains
Realized losses
OTTI losses
Net investment securities gains/
(losses)
OTTI losses
Credit-related losses recognized in
income
Investment securities the Firm
intends to sell(a)
Total OTTI losses recognized in
income
2018
2017
2016
211
$ 1,013
$ 401
(606)
(1,072)
(232)
(7)
(28)
(395)
(66)
141
--(1)
(7)
(27)
$ - $ (7) $ (2
(28)
The following table presents realized gains and losses and
OTTI from AFS securities that were recognized in income.
Fair value
3.50%
3.52%
-
3,508
12,328
28,890
13,479
24,442
541,587 $
33,700
$
398,218 $
27,228
Remaining contractual maturity of the agreements
3,867
Overnight and
continuous
Up to 30 days
247,579
28,402
$
174,971
997
$
30 - 90 days
71,637 $
2,132
90 days
Total
47,400 $
2,169
541,587
33,700
Remaining contractual maturity of the agreements
Greater than
629
2,790
34,128
5,050
13,117 $
5,604 $
$
Amortized cost
Non-U.S. government debt securities
0.49%
-%
75
75
-%
-%
0.49%
Average yield (b)
75
Fair value
75
$
Amortized cost
Certificates of deposit
5.01%
5.02%
5.26%
4.30%
1.94%
Average yield (b)
37,723
2017 (in millions)
3.48%
Overnight and
continuous
30 - 90 days
Amortized cost
Obligations of U.S. states and municipalities
2.67%
3.05%
2.60%
2.90%
2.42%
Average yield (b)
56,059
5,937
9,588
18,090
$
22,444
55,771
$
5,769
9,618 $
$
17,945
$
22,439
$
Amortized cost
U.S. Treasury and government agencies
3.51%
Fair value
177
$
617
Total securities sold under repurchase agreements
Total securities loaned and other
142,185
22,876
(a)
$ 180,674
(a)
$
41,611 $
Greater than
90 days
33,748 $
Total
375
2,328
1,649
398,218
27,228
(a) The prior period amounts have been revised to conform with the current period presentation.
Transfers not qualifying for sale accounting
At December 31, 2018 and 2017, the Firm held $701 million and $1.5 billion, respectively, of financial assets for which the
rights have been transferred to third parties; however, the transfers did not qualify as a sale in accordance with U.S. GAAP.
These transfers have been recognized as collateralized financing transactions. The transferred assets are recorded in trading
assets and loans, and the corresponding liabilities are recorded predominantly in short-term borrowings on the Consolidated
balance sheets.
218
JPMorgan Chase & Co./2018 Form 10-K
176
Fair value
36,221
32,729 $
$
2,698
$
Up to 30 days
78
83,820
71
Asset-backed securities
Equity securities
Total
2018 (in millions)
Total securities sold under repurchase agreements
Total securities loaned and other
Gross liability balance
2018
Securities sold
under repurchase
agreements
$
28,811 $
2,165
1,390
2017
Corporate debt securities
Securities loaned
and other
agreements
13,100 $
2,972
1,594
Securities loaned
and other
323,078
69
177,581
14
1,150
154,900
4,313
1,557
170,196
2,485
Securities sold
under repurchase
Non-U.S. government debt
Obligations of U.S. states and municipalities
U.S. Treasury and government agencies
Net amounts(d)
December 31, (in millions)
Assets
Securities purchased under resale agreements
$
Securities borrowed
448,608 $
113,926
(250,505) $
(8,814)
198,103 $
105,112
(188,502) $
(76,805)
9,601
28,307
Liabilities
Securities sold under repurchase agreements
Securities loaned and other (a)
$
398,218 $
27,228
(250,505) $
(8,814)
Commercial nonagency
Residential nonagency
U.S. government agencies
December 31, (in millions)
Mortgage-backed securities:
The tables below present as of December 31, 2018 and 2017 the types of financial assets pledged in securities financing
agreements and the remaining contractual maturity of the securities financing agreements.
Notes to consolidated financial statements
13,898
217
(d) Includes securities financing agreements that provide collateral rights, but where an appropriate legal opinion with respect to the master netting
agreement has not been either sought or obtained. At December 31, 2018 and 2017, included $7.9 billion and $7.5 billion, respectively, of securities
purchased under resale agreements; $30.3 billion and $25.5 billion, respectively, of securities borrowed; $21.5 billion and $16.5 billion, respectively, of
securities sold under repurchase agreements; and $25 million and $29 million, respectively, of securities loaned and other.
(a) Includes securities-for-securities lending agreements of $3.3 billion and $9.2 billion at December 31, 2018 and 2017, respectively, accounted for at fair
value, where the Firm is acting as lender. These amounts are presented within accounts payable and other liabilities in the Consolidated balance sheets.
(b) Includes securities financing agreements accounted for at fair value. At December 31, 2018 and 2017, included securities purchased under resale
agreements of $13.2 billion and $14.7 billion, respectively; securities sold under repurchase agreements of $935 million and $697 million, respectively;
and securities borrowed of $5.1 billion and $3.0 billion, respectively. There were no securities loaned accounted for at fair value in either period.
(c) In some cases, collateral exchanged with a counterparty exceeds the net asset or liability balance with that counterparty. In such cases, the amounts
reported in this column are limited to the related net asset or liability with that counterparty.
263
18,535
(129,178) $
(18,151)
147,713 $
18,414
JPMorgan Chase & Co./2018 Form 10-K
Amounts not
nettable on the
Consolidated
balance sheets(c)
428
287
4,804
$
20
$ - $ - $
Amortized cost
Obligations of U.S. states and municipalities
3.36%
3.34%
3.53%
-%
-%
Average yield (b)
26,544
26,610
$
$
$
3,125
3,141
30,347 $
30,560
2.98%
133,658
134,709
3.82%
$
228,769
230,394
3.36%
Amortized Cost
Mortgage-backed securities (a)
$ - $ - $
Fair value
7,183
23,485
23,403
4,824
-%
Fair value
The Firm has elected the fair value option for certain
securities financing agreements. For further information
regarding the fair value option, refer to Note 3. The
securities financing agreements for which the fair value
option has been elected are reported within securities
purchased under resale agreements, securities loaned or
sold under repurchase agreements, and securities borrowed
on the Consolidated balance sheets. Generally, for
agreements carried at fair value, current-period interest
accruals are recorded within interest income and interest
expense, with changes in fair value reported in principal
transactions revenue. However, for financial instruments
containing embedded derivatives that would be separately
accounted for in accordance with accounting guidance for
hybrid instruments, all changes in fair value, including any
interest elements, are reported in principal transactions
collateralized financings on the Firm's Consolidated balance
sheets. Resale and repurchase agreements are generally
carried at the amounts at which the securities will be
subsequently sold or repurchased. Securities borrowed and
securities loaned agreements are generally carried at the
amount of cash collateral advanced or received. Where
appropriate under applicable accounting guidance,
securities financing agreements with the same counterparty
are reported on a net basis. For further discussion of the
offsetting of assets and liabilities, refer to Note 1. Fees
received and paid in connection with securities financing
agreements are recorded over the life of the agreement in
interest income and interest expense on the Consolidated
statements of income.
Securities financing agreements are treated as
Note 11 - Securities financing activities
JPMorgan Chase enters into resale, repurchase, securities
borrowed and securities loaned agreements (collectively,
“securities financing agreements") primarily to finance the
Firm's inventory positions, acquire securities to cover short
sales, accommodate customers' financing needs, settle
other securities obligations and to deploy the Firm's excess
cash.
Notes to consolidated financial statements
215
JPMorgan Chase & Co./2018 Form 10-K
(c) Substantially all of the Firm's U.S. residential MBS and collateralized mortgage obligations are due in 10 years or more, based on contractual maturity. The estimated weighted-
average life, which reflects anticipated future prepayments, is approximately 7 years for agency residential MBS, 3 years for agency residential collateralized mortgage
obligations and 2 years for nonagency residential collateralized mortgage obligations.
(b) Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each security. The effective yield
considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives. Taxable-equivalent amounts are used
where applicable. The effective yield excludes unscheduled principal prepayments; and accordingly, actual maturities of securities may differ from their contractual or expected
maturities as certain securities may be prepaid.
(a) As of December 31, 2018, mortgage-backed securities issued by Fannie Mae exceeded 10% of JPMorgan Chase's total stockholders' equity; both the amortized cost
and fair value of such securities was $52.3 billion.
4.12%
4.12%
3.93%
-%
4,894
20
3.48%
Average yield (b)
Total held-to-maturity securities
Amortized cost
$ - $ - $
Fair value
3,145 $
3,161
14,231
28,289 $
28,297
31,458
Average yield(b)
-%
-%
3.53%
3.47%
31,434
Amounts
presented on the
Consolidated
balance sheets(b)
4,914
Amounts netted
on the
Consolidated
balance sheets
22,728 $
$
318
17,656 $
$
U.S. government agencies
Mortgage-backed securities:
Available-for-sale securities
Total gross
unrealized losses
Total fair
value
Gross unrealized
losses
Fair value
12 months or more
Less than 12 months
Gross unrealized
losses
656 $
Fair value
Investment securities with gross unrealized losses
The following tables present the fair value and gross unrealized losses for investment securities by aging category at
December 31, 2018 and 2017.
Investment securities impairment
(c) Included total U.S. government-sponsored enterprise obligations with amortized cost of $20.9 billion and $22.0 billion at December 31, 2018 and 2017,
respectively.
(b) Effective January 1, 2018, the Firm adopted the recognition and measurement guidance. Equity securities that were previously reported as AFS securities were
reclassified to other assets upon adoption.
(a) Includes total U.S. government-sponsored enterprise obligations with fair values of $50.7 billion and $45.8 billion for the years ended December 31, 2018 and
2017 respectively.
Notes to consolidated financial statements
211
JPMorgan Chase & Co./2018 Form 10-K
$ 250,877
671
5,074 $
48,652
194
December 31, 2018 (in millions)
40,384 $
974
Residential:
7
4,792
U.S. Treasury and government agencies
1,158
47,670
825
27,510
333
20,160
Total mortgage-backed securities
147
2,391
2017
4,146
141
3,172
6
U.S
623
4
1,445
2,068
31
1,113
Non-U.S.
Commercial
5
165
1
1,072
6
974
907
47,733
27
80
28.
As a result of the Firm's credit risk mitigation practices with
respect to resale and securities borrowed agreements as
described above, the Firm did not hold any reserves for
credit impairment with respect to these agreements as of
December 31, 2018 and 2017.
216
JPMorgan Chase & Co./2018 Form 10-K
The table below summarizes the gross and net amounts of the Firm's securities financing agreements, as of December 31,
2018 and 2017. When the Firm has obtained an appropriate legal opinion with respect to the master netting agreement with a
counterparty and where other relevant netting criteria under U.S. GAAP are met, the Firm nets, on the Consolidated balance
sheets, the balances outstanding under its securities financing agreements with the same counterparty. In addition, the Firm
exchanges securities and/or cash collateral with its counterparties; this collateral also reduces the economic exposure with the
counterparty. Such collateral, along with securities financing balances that do not meet all these relevant netting criteria under
U.S. GAAP, is presented as “Amounts not nettable on the Consolidated balance sheets," and reduces the "Net amounts"
presented below, if the Firm has an appropriate legal opinion with respect to the master netting agreement with the
counterparty. Where a legal opinion has not been either sought or obtained, the securities financing balances are presented
gross in the "Net amounts" below, and related collateral does not reduce the amounts presented.
December 31, (in millions)
Assets
Gross amounts
Amounts netted
on the
Consolidated
balance sheets
2018
Amounts
presented on the
Consolidated
balance sheets (b)
Amounts not
nettable on the
Consolidated
balance sheets(c)
Net amounts(d)
691,116 $
132,955
321,504 $
111,995
(308,854) $
(79,747)
12,650
32,248
Securities purchased under resale agreements
Liabilities
Securities borrowed
Securities sold under repurchase agreements
$
Securities loaned and other(a)
14,847
In resale and securities borrowed agreements, the Firm is
exposed to credit risk to the extent that the value of the
securities received is less than initial cash principal
advanced and any collateral amounts exchanged. In
repurchase and securities loaned agreements, credit risk
exposure arises to the extent that the value of underlying
securities advanced exceeds the value of the initial cash
principal received, and any collateral amounts exchanged.
Additionally, the Firm typically enters into master netting
agreements and other similar arrangements with its
counterparties, which provide for the right to liquidate the
underlying securities and any collateral amounts exchanged
in the event of a counterparty default. It is also the Firm's
policy to take possession, where possible, of the securities
underlying resale and securities borrowed agreements. For
further information regarding assets pledged and collateral
received in securities financing agreements, refer to Note
541,587 $
33,700
171,975 $
12,740
(149,125) $
22,850
(12,358)
382
Gross amounts
(369,612) $
(20,960)
200
(369,612) $
(20,960)
27,577
33,805
26,544
4,824
105
15
Total held-to-maturity securities
114
31,434
215
Total investment securities
$260,203 $ 3,407 $ 1,758
4,914
31,458
$ 261,852 $ 246,474 $
14,373
554
239
559
Obligations of U.S. states and municipalities
Commercial
28,095
33,360
5,783
1
74
5,710
Total mortgage-backed securities
26,610
134
200
40
26,544
558
Interest income on impaired
loans on a cash basis(a)
Average impaired loans
JPMorgan Chase & Co./2018 Form 10-K
226
(d) Represents the contractual amount of principal owed at December 31, 2018 and 2017. The unpaid principal balance differs from the impaired loan
balances due to various factors including charge-offs, net deferred loan fees or costs, and unamortized discounts or premiums on purchased loans.
(e) As of December 31, 2018 and 2017, nonaccrual loans included $2.0 billion and $2.2 billion, respectively, of TDRs for which the borrowers were less than
90 days past due. For additional information about loans modified in a TDR that are on nonaccrual status, refer to the Loan accounting framework on
pages 219-221 of this Note.
(c) Predominantly all residential real estate impaired loans, excluding PCI loans, are in the U.S.
(b) At December 31, 2018 and 2017, $4.1 billion and $3.8 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae in accordance
with the standards of the appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to
modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform
become subject to foreclosure.
(a) Represents collateral-dependent residential real estate loans that are charged off to the fair value of the underlying collateral less costs to sell. The Firm
reports, in accordance with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed
by the borrower ("Chapter 7 loans") as collateral-dependent nonaccrual TDRs, regardless of their delinquency status. At December 31, 2018, Chapter 7
residential real estate loans included approximately 13% of residential mortgages and approximately 9% of home equity that were 30 days or more past
due.
2,775
Interest income on
impaired loans (a)
1,032
2,414
Year ended December 31,
The following table presents average impaired loans and the related interest income reported by the Firm.
(in millions)
955
2017
305
257 $
5,797 $ 6,376 $
2,189
2,311
2,078
Home equity
5,082 $
$
2018
Residential mortgage
2017
2018
2016
2017
287 $
2018
2016
2016
11,442
5,620
3,701
$
Total impaired loans (b)(c)
Without an allowance(a)
$
4,407
3,381 $
$
2017
2018
1,184
4,565 $
Total residential real estate
excluding PCI
2018
Home equity
2017
2018
Residential mortgage
With an allowance
Impaired loans
$
(in millions)
2017
1,213
$
Allowance for loan losses related to impaired loans
3,466
7,741
1,743
6,207
1,459
Impaired loans on nonaccrual status(e)
Unpaid principal balance of impaired loans (d)
173
133 $
111 $
7,738
6,577 $
$
2,095
2,054
5,643
4,523 $
$
1,236
882
2,118
1,142 $
870
2,012 $
45 $
62 $
88 $
$
9,673
75 $
2,570
77
Number of loans permanently modified
5,705
3,604
4,886
3,760
2,321
1,945
1,283
Number of loans approved for a trial
modification
2016
2017
2018
2016
2017
2018
2016
2017
2,907
2,628
3,338
4,946
December 31,
Term or payment extension
76%
60%
54%
75%
59%
62%
2018
76%
40%
Interest rate reduction
Concession granted:(a)
8,162
8,252
7,853
4,824
5,624
63%
Year ended December 31,
Total residential real estate
- excluding PCI
Home equity
Modifications of residential real estate loans, excluding PCI
loans, are generally accounted for and reported as TDRs.
There were no additional commitments to lend to
borrowers whose residential real estate loans, excluding PCI
loans, have been modified in TDRs.
Loan modifications
(a) Generally, interest income on loans modified in TDRS is recognized on a cash basis until the borrower has made a minimum of six payments under the new
terms, unless the loan is deemed to be collateral-dependent.
155 $ 157
159 $
$
430
414 $
The following table presents new TDRs reported by the
Firm.
388 $
$
Total residential real estate - excluding PCI
80
80
84
125
127
131
7,160 $ 7,986 $ 8,687 $
75 $
Year ended December 31,
2018
Residential mortgage
The following table provides information about how residential real estate loans, excluding PCI loans, were modified under the
Firm's loss mitigation programs described above during the periods presented. This table excludes Chapter 7 loans where the
sole concession granted is the discharge of debt.
The U.S. Treasury's Making Home Affordable programs, as well as the Firm's proprietary modification programs, generally
provide various concessions to financially troubled borrowers including, but not limited to, interest rate reductions, term or
payment extensions and deferral of principal and/or interest payments that would otherwise have been required under the
terms of the original agreement.
Nature and extent of modifications
639
694 $
687 $
Total residential real estate - excluding PCI $
(in millions)
254
385
286
Home equity
373 $
401 $
$
Residential mortgage
2016
2017
321
The table below provides information about the Firm's residential real estate impaired loans, excluding PCI loans. These loans
are considered to be impaired as they have been modified in a TDR. All impaired loans are evaluated for an asset-specific
allowance as described in Note 13.
1,439
HELOCS beyond the revolving period and HELOANS have higher delinquency rates than HELOCS within the revolving period.
That is primarily because the fully-amortizing payment that is generally required for those products is higher than the
minimum payment options available for HELOCS within the revolving period. The higher delinquency rates associated with
amortizing HELOCs and HELOANS are factored into the Firm's allowance for loan losses.
1,765
$ 2,541 $ 4,172
4,172
2,541 $
$
1.09%
0.71%
2,175
$ 249,946
$ 33,450
3.17%
$ 28,340
2.57%
0.77%
0.48%
$ 216,496
$ 231,078
3,937
$ 259,418
1,323
1,610
3,088
$ 75,437
28,847
27,473
5,769
6,866
34,616
34,339
15,249
14,501
2,131
2,521
17,380
17,022
Greater than 125% and refreshed FICO scores:
Current estimated LTV ratios (d)(e)
Nonaccrual loans
3,785
2,692
388
276
4,905
90 or more days past due and government guaranteed (c)
% of 30+ days past due to total retained loans(b)
Total retained loans
150 or more days past due
30-149 days past due
Current
Loan delinquency(a)
(in millions, except ratios)
December 31,
Residential real estate - excluding PCI loans
The following table provides information by class for retained residential real estate
Residential real estate – excluding PCI loans
JPMorgan Chase & Co./2018 Form 10-K
224
Risk-rated business banking and auto loans are similar
to wholesale loans in that the primary credit quality
indicators are the risk rating that is assigned to the loan
and whether the loans are considered to be criticized
and/or nonaccrual. Risk ratings are reviewed on a
regular and ongoing basis by Credit Risk Management
and are adjusted as necessary for updated information
about borrowers' ability to fulfill their obligations. For
further information about risk-rated wholesale loan
credit quality indicators, refer to page 236 of this Note.
For scored auto and scored business banking loans,
geographic distribution is an indicator of the credit
performance of the portfolio. Similar to residential real
estate loans, geographic distribution provides insights
into the portfolio performance based on regional
economic activity and events.
For residential real estate loans, including both non-PCI
and PCI portfolios, the current estimated LTV ratio, or
the combined LTV ratio in the case of junior lien loans, is
an indicator of the potential loss severity in the event of
default. Additionally, LTV or combined LTV ratios can
provide insight into a borrower's continued willingness
to pay, as the delinquency rate of high-LTV loans tends
to be greater than that for loans where the borrower has
equity in the collateral. The geographic distribution of
the loan collateral also provides insight as to the credit
quality of the portfolio, as factors such as the regional
economy, home price changes and specific events such
as natural disasters, will affect credit quality. The
borrower's current or "refreshed" FICO score is a
secondary credit-quality indicator for certain loans, as
FICO scores are an indication of the borrower's credit
payment history. Thus, a loan to a borrower with a low
FICO score (less than 660 ) is considered to be of higher
risk than a loan to a borrower with a higher FICO score.
Further, a loan to a borrower with a high LTV ratio and a
low FICO score is at greater risk of default than a loan to
a borrower that has both a high LTV ratio and a high
FICO score.
-
$ 80,454
- excluding PCI loans.
Residential mortgage
2018
3,216
671
453
$ 241,104
$ 253,510
$ 32,391
$ 27,611
$ 208,713
4,234
3,549
2,416
2,763
2017
$225,899
2018
2017
2018
2017
Home equity
Total residential real
estate excluding PCI
Delinquency rates are a primary credit quality indicator for
consumer loans. Loans that are more than 30 days past due
provide an early warning of borrowers who may be
experiencing financial difficulties and/or who may be
unable or unwilling to repay the loan. As the loan continues
to age, it becomes more clear whether the borrower is
likely either unable or unwilling to pay. In the case of
residential real estate loans, late-stage delinquencies
(greater than 150 days past due) are a strong indicator of
loans that will ultimately result in a foreclosure or similar
liquidation transaction. In addition to delinquency rates,
other credit quality indicators for consumer loans vary
based on the class of loan, as follows:
$ 74,759 $ 68,855 $ 5,695 $ 6,582
Equal to or greater than 660
California
Geographic region(f)
Total retained loans
U.S. government-guaranteed
No FICO/LTV available
Less than 660
194,758
New York
212,505
Less than 80% and refreshed FICO scores:
1,052
607
569
326
483
281
Equal to or greater than 660
Illinois
6,457
6,952
$ 259,418
$ 33,450
$ 28,340
8,495
6,917
8,495
$ 216,496
$ 231,078
2,948
1,698
10,802
9,812
220,020
235,137
25,262
3,850
1,689
22,632
3,355
885
1,259
813
6,917
Less than 660
6,045
4,963
1,676
22
14
3
1
19
13
47
$
31
$
10
6 $
37
$
25
$
Less than 660
101% to 125% and refreshed FICO scores:
$ 249,946
Equal to or greater than 660
33
986
4,369
3,977
Equal to or greater than 660
80% to 100% and refreshed FICO scores:
183
91
95
38
88
53
332
148
296
111
36
37
Less than 660
Impaired loans
Total retained loans
Subprime mortgage
6,618
4,434
4,109
1,158
5,592
5,548
All other(g)
6,810
Total retained loans
51,690
6,925
8,264
59,921
59,954
$ 231,078 $ 216,496
$ 28,340 $ 33,450
52,996
295
236
6,323
869
1,026
9,173
7,988
7,302
7,142
1,642
1,957
8,944
9,099
8,140
7,335
521
632
8,661
7,967
6,574
$ 259,418 $ 249,946
(a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $2.8 billion and $2.4 billion; 30-149
days past due included $2.1 billion and $3.2 billion; and 150 or more days past due included $2.0 billion and $2.9 billion at December 31, 2018 and 2017,
respectively.
(b) At December 31, 2018 and 2017, residential mortgage loans excluded mortgage loans insured by U.S. government agencies of $4.1 billion and $6.1 billion,
respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee.
(c) These balances, which are 90 days or more past due, were excluded from nonaccrual loans as the loans are guaranteed by U.S government agencies. Typically the
principal balance of the loans is insured and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. At
December 31, 2018 and 2017, these balances included $999 million and $1.5 billion, respectively, of loans that are no longer accruing interest based on the
agreed-upon servicing guidelines. For the remaining balance, interest is being accrued at the guaranteed reimbursement rate. There were no loans that were not
guaranteed by U.S. government agencies that are 90 or more days past due and still accruing interest at December 31, 2018 and 2017.
5,608 $
11,286
6,363
0.25%
0.50%
13,532
2.80
3.56
$
1,030
17,924 $
1,371
2.82
3.50
21,266
2.00%
2.64%
(a) These HELOCs are predominantly revolving loans for a 10-year period, after which time the HELOC converts to a loan with a 20-year amortization period,
but also include HELOCS that allow interest-only payments beyond the revolving period.
(b) The Firm manages the risk of HELOCS during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers
are experiencing financial difficulty.
$
6,962
2017
2017
(d) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum,
quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and
forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios
are necessarily imprecise and should be viewed as estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions,
as well as unused lines, related to the property.
(e) Refreshed FICO scores represent each borrower's most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(f) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2018.
(g) At December 31, 2018 and 2017, included mortgage loans insured by U.S. government agencies of $6.9 billion and $8.5 billion, respectively. These amounts have
been excluded from the geographic regions presented based upon the government guarantee.
JPMorgan Chase & Co./2018 Form 10-K
225
Notes to consolidated financial statements
Approximately 37% of the home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANS or
HELOCS. The following table provides the Firm's delinquency statistics for junior lien home equity loans and lines as of
December 31, 2018 and 2017.
December 31, (in millions except ratios)
HELOCS:(a)
Within the revolving period (b)
Beyond the revolving period
HELOANS
Total
Total loans
Total 30+ day delinquency rate
2018
2018
Option ARMS
8,304
12,279
2017
2018
Residential real estate - excluding PCI
December 31, (in millions)
The following table provides information about retained
consumer loans, excluding credit card, by class. In 2017,
the Firm sold its student loan portfolio.
Consumer, excluding credit card, loan portfolio
Consumer loans, excluding credit card loans, consist
primarily of residential mortgages, home equity loans and
lines of credit, auto loans and consumer and business
banking loans, with a focus on serving the prime consumer
credit market. The portfolio also includes home equity loans
secured by junior liens, prime mortgage loans with an
interest-only payment period, and certain payment-option
loans that may result in negative amortization.
Notes to consolidated financial statements
$ 231,078 $ 216,496
28,340
223
Gains and losses on sales of loans (including adjustments to record loans held-for-sale at the lower of cost or fair value)
recognized in other income were not material to the Firm for the years ended December 31, 2018, 2017 and 2016. In
addition, the sale of loans may also result in write downs, recoveries or changes in the allowance recognized in the provision
for credit losses.
Gains and losses on sales of loans
(b) Excludes purchases of retained loans sourced through the correspondent origination channel and underwritten in accordance with the Firm's standards.
Such purchases were $18.6 billion, $23.5 billion and $30.4 billion for the years ended December 31, 2018, 2017 and 2016, respectively.
(c) Includes the Firm's student loan portfolio which was sold in 2017.
(a) Purchases predominantly represent the Firm's voluntary repurchase of certain delinquent loans from loan pools as permitted by Government National
Mortgage Association ("Ginnie Mae") guidelines. The Firm typically elects to repurchase these delinquent loans as it continues to service them and/or
manage the foreclosure process in accordance with applicable requirements of Ginnie Mae, FHA, RHS, and/or VA.
2,702
5,564
15,107
2,381
JPMorgan Chase & Co./2018 Form 10-K
33,450
Residential mortgage
Home equity
$ 373,637 $ 372,553
10,689
8,436
10,799
6,479
2,609
1,945
4,690
Prime mortgage
8,963
Home equity
Residential real estate - PCI
25,789
26,612
Consumer & Business Banking
66,242
63,573
Auto
Other consumer loans
1,448
8,739
$
4,116 (a)(b)
6,368
321
$
Texas
13,769
12,508
1,819
2,021
15,588
14,529
Florida
Washington
New Jersey
Colorado
Massachusetts
Arizona
10,704
9,598
1,575
1,847
$
11,445
3,461 (a)(b)
(c)
Total
Wholesale
Credit card
Consumer, excluding
credit card
2016
Retained loans reclassified to held-for-sale
Sales
Purchases
(in millions)
Year ended December 31,
7,569
14,468
5,260
1,799
11,063
1,229
$
Total
Wholesale
3,405
6,340
2,316
16
72
95
$
Credit card (a)
156,616
Wholesale
Total
$ 439,162
11,877
$
969,415 (b)
11,988
-
3,151
156,632
$ 454,190
$
3,151
984,554
Held-for-sale
$ 373,637
Consumer, excluding
credit card
Retained
(in millions)
•
Wholesale(f)
Commercial and industrial
Real estate
• Financial institutions
• Governments & Agencies
•
Other (g)
At fair value
(a) Includes loans held in CCB, prime mortgage and home equity loans held in AWM and prime mortgage loans held in Corporate.
(c) Includes senior and junior lien home equity loans.
(d) Includes certain business banking and auto dealer risk-rated loans that apply the wholesale methodology for determining the allowance for loan losses;
these loans are managed by CCB, and therefore, for consistency in presentation, are included with the other consumer loan classes.
(e) Predominantly includes Business Banking loans.
(f) Includes loans held in CIB, CB, AWM and Corporate. Excludes prime mortgage and home equity loans held in AWM and prime mortgage loans held in
Corporate. Classes are internally defined and may not align with regulatory definitions.
(g) Includes loans to: individuals and individual entities (predominantly consists of Wealth Management clients within AWM and includes exposure to personal
investment companies and personal and testamentary trusts), SPEs and Private education and civic organizations. For more information on SPES, refer to
Note 14.
The following tables summarize the Firm's loan balances by portfolio segment.
December 31, 2018
(b) Predominantly includes prime (including option ARMS) and subprime loans.
Total
December 31, 2017
(in millions)
3,351
2,508
2,508
$ 408,505
$
930,697
(a) Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income.
(b) Loans (other than PCI loans and those for which the fair value option has been elected) are presented net of unamortized discounts and premiums and net
deferred loan fees or costs. These amounts were not material as of December 31, 2018 and 2017.
3,099
222
The following tables provide information about the carrying value of retained loans purchased, sold and reclassified to held-
for-sale during the periods indicated. Reclassifications of loans to held-for sale are non-cash transactions. The Firm manages its
exposure to credit risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures. Loans that were
reclassified to held-for-sale and sold in a subsequent period are excluded from the sales line of this table.
Year ended December 31,
(in millions)
Purchases
Sales
Retained loans reclassified to held-for-sale
Year ended December 31,
(in millions)
JPMorgan Chase & Co./2018 Form 10-K
Credit card loans
924,838 (b)
Total
Retained
$ 373,732
Consumer, excluding
credit card
$ 372,553
Credit card(a)
$ 149,387
Wholesale
$
$ 402,898
At fair value
Total
128
$ 372,681
124
$
149,511
Held-for-sale
•
Credit card
• Option ARMS
A loan may be returned to accrual status when repayment is
reasonably assured and there has been demonstrated
performance under the terms of the loan or, if applicable,
the terms of the restructured loan.
As permitted by regulatory guidance, credit card loans are
generally exempt from being placed on nonaccrual status;
accordingly, interest and fees related to credit card loans
continue to accrue until the loan is charged off or paid in
full. The Firm separately establishes an allowance, which
reduces loans and is charged to interest income, for the
estimated uncollectible portion of accrued and billed
interest and fee income on credit card loans.
Allowance for loan losses
The allowance for loan losses represents the estimated
probable credit losses inherent in the held-for-investment
loan portfolio at the balance sheet date and is recognized
on the balance sheet as a contra asset, which brings the
recorded investment to the net carrying value. Changes in
the allowance for loan losses are recorded in the provision
for credit losses on the Firm's Consolidated statements of
income. Refer to Note 13 for further information on the
Firm's accounting policies for the allowance for loan losses.
Charge-offs
Consumer loans, other than risk-rated business banking and
auto loans, and PCI loans, are generally charged off or
charged down to the net realizable value of the underlying
collateral (i.e., fair value less costs to sell), with an offset to
the allowance for loan losses, upon reaching specified
stages of delinquency in accordance with standards
established by the FFIEC. Residential real estate loans and
non-modified credit card loans are generally charged off no
later than 180 days past due. Scored auto and modified
credit card loans are charged off no later than 120 days
past due.
Certain consumer loans will be charged off or charged down
to their net realizable value earlier than the FFIEC charge-
off standards in certain circumstances as follows:
Loans modified in a TDR that are determined to be
collateral-dependent.
carrying value of the loan (the cost recovery method). For
consumer loans, application of this policy typically results in
the Firm recognizing interest income on nonaccrual
consumer loans on a cash basis.
Loans to borrowers who have experienced an event that
suggests a loss is either known or highly certain are
subject to accelerated charge-off standards (e.g.,
residential real estate and auto loans are charged off
within 60 days of receiving notification of a bankruptcy
filing).
219
Notes to consolidated financial statements
Wholesale loans, risk-rated business banking loans and risk-
rated auto loans are charged off when it is highly certain
that a loss has been realized, including situations where a
loan is determined to be both impaired and collateral-
dependent. The determination of whether to recognize a
charge-off includes many factors, including the
prioritization of the Firm's claim in bankruptcy, expectations
of the workout/restructuring of the loan and valuation of
the borrower's equity or the loan collateral.
When a loan is charged down to the estimated net realizable
value, the determination of the fair value of the collateral
depends on the type of collateral (e.g., securities, real
estate). In cases where the collateral is in the form of liquid
securities, the fair value is based on quoted market prices
or broker quotes. For illiquid securities or other financial
assets, the fair value of the collateral is estimated using a
discounted cash flow model.
For residential real estate loans, collateral values are based
upon external valuation sources. When it becomes likely
that a borrower is either unable or unwilling to pay, the
Firm utilizes a broker's price opinion, appraisal and/or an
automated valuation model of the home based on an
exterior-only valuation ("exterior opinions"), which is then
updated at least every twelve months, or more frequently
depending on various market factors. As soon as practicable
after the Firm receives the property in satisfaction of a debt
(e.g., by taking legal title or physical possession), the Firm
generally obtains an appraisal based on an inspection that
includes the interior of the home (“interior appraisals”).
Exterior opinions and interior appraisals are discounted
based upon the Firm's experience with actual liquidation
values as compared with the estimated values provided by
exterior opinions and interior appraisals, considering state-
specific factors.
For commercial real estate loans, collateral values are
generally based on appraisals from internal and external
valuation sources. Collateral values are typically updated
every six to twelve months, either by obtaining a new
appraisal or by performing an internal analysis, in
accordance with the Firm's policies. The Firm also considers
both borrower- and market-specific factors, which may
result in obtaining appraisal updates or broker price
opinions at more frequent intervals.
Loans held-for-sale
Auto loans upon repossession of the automobile.
Other than in certain limited circumstances, the Firm
typically does not recognize charge-offs on government-
guaranteed loans.
Held-for-sale loans are measured at the lower of cost or fair
value, with valuation changes recorded in noninterest
revenue. For consumer loans, the valuation is performed on
a portfolio basis. For wholesale loans, the valuation is
performed on an individual loan basis.
JPMorgan Chase & Co./2018 Form 10-K
Nonaccrual loans are those on which the accrual of interest
has been suspended. Loans (other than credit card loans
and certain consumer loans insured by U.S. government
agencies) are placed on nonaccrual status and considered
nonperforming when full payment of principal and interest
is not expected, regardless of delinquency status, or when
principal and interest has been in default for a period of 90
days or more, unless the loan is both well-secured and in
the process of collection. A loan is determined to be past
due when the minimum payment is not received from the
borrower by the contractually specified due date or for
certain loans (e.g., residential real estate loans), when a
monthly payment is due and unpaid for 30 days or more.
Finally, collateral-dependent loans are typically maintained
on nonaccrual status.
Note 12 - Loans
Loan accounting framework
The accounting for a loan depends on management's
strategy for the loan, and on whether the loan was credit-
impaired at the date of acquisition. The Firm accounts for
loans based on the following categories:
•
Originated or purchased loans held-for-investment (i.e.,
"retained"), other than PCI loans
•
Loans held-for-sale
On the date a loan is placed on nonaccrual status, all
interest accrued but not collected is reversed against
interest income. In addition, the amortization of deferred
amounts is suspended. Interest income on nonaccrual loans
may be recognized as cash interest payments are received
(i.e., on a cash basis) if the recorded loan balance is
deemed fully collectible; however, if there is doubt
regarding the ultimate collectibility of the recorded loan
balance, all interest cash receipts are applied to reduce the
•
•
PCI loans held-for-investment
The following provides a detailed accounting discussion of
these loan categories:
Loans held-for-investment (other than PCI loans)
Originated or purchased loans held-for-investment, other
than PCI loans, are recorded at the principal amount
outstanding, net of the following: charge-offs; interest
applied to principal (for loans accounted for on the cost
recovery method); unamortized discounts and premiums;
and net deferred loan fees or costs. Credit card loans also
include billed finance charges and fees net of an allowance
for uncollectible amounts.
55
Interest income on performing loans held-for-investment,
other than PCI loans, is accrued and recognized as interest
income at the contractual rate of interest. Purchase price
discounts or premiums, as well as net deferred loan fees or
costs, are amortized into interest income over the
contractual life of the loan as an adjustment of yield.
Nonaccrual loans
Loans at fair value
Purchases
Interest income on loans held-for-sale is accrued and
recognized based on the contractual rate of interest.
Because held-for-sale loans are recognized at the lower of
cost or fair value, the Firm's allowance for loan losses and
charge-off policies do not apply to these loans.
JPMorgan Chase & Co./2018 Form 10-K
221
Notes to consolidated financial statements
Loan portfolio
The Firm's loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine
the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment the
Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class.
Consumer, excluding
credit card(a)
Residential real estate - excluding PCI
The Firm recognizes foreclosed property upon receiving
assets in satisfaction of a loan (e.g., by taking legal title or
physical possession). For loans collateralized by real
property, the Firm generally recognizes the asset received
at foreclosure sale or upon the execution of a deed in lieu of
foreclosure transaction with the borrower. Foreclosed
assets are reported in other assets on the Consolidated
balance sheets and initially recognized at fair value less
costs to sell. Each quarter the fair value of the acquired
property is reviewed and adjusted, if necessary, to the lower
of cost or fair value. Subsequent adjustments to fair value
are charged/credited to noninterest revenue. Operating
expense, such as real estate taxes and maintenance, are
charged to other expense.
Residential mortgage (b)
Other consumer loans (d)
• Auto
• Consumer & Business Banking(e)
Residential real estate - PCI
• Home equity
Prime mortgage
Subprime mortgage
• Home equity(c)
Loan origination fees or costs and purchase price discounts
or premiums are deferred in a contra loan account until the
related loan is sold. The deferred fees or costs and
discounts or premiums are an adjustment to the basis of the
loan and therefore are included in the periodic
determination of the lower of cost or fair value adjustments
and/or the gain or loss recognized at the time of sale.
Held-for-sale loans are subject to the nonaccrual policies
described above.
The Firm acquires property from borrowers through loan
restructurings, workouts, and foreclosures. Property
acquired may include real property (e.g., residential real
estate, land, and buildings) and commercial and personal
property (e.g., automobiles, aircraft, railcars, and ships).
Because loans modified in TDRs are considered to be
impaired, these loans are measured for impairment using
the Firm's established asset-specific allowance
methodology, which considers the expected re-default rates
for the modified loans. A loan modified in a TDR generally
remains subject to the asset-specific allowance
methodology throughout its remaining life, regardless of
whether the loan is performing and has been returned to
accrual status and/or the loan has been removed from the
impaired loans disclosures (i.e., loans restructured at
market rates). For further discussion of the methodology
used to estimate the Firm's asset-specific allowance, refer to
Note 13.
Loans at fair value
Loans used in a market-making strategy or risk managed on
a fair value basis are measured at fair value, with changes
in fair value recorded in noninterest revenue.
Interest income on these loans is accrued and recognized
based on the contractual rate of interest. Changes in fair
value are recognized in noninterest revenue. Loan
origination fees are recognized upfront in noninterest
revenue. Loan origination costs are recognized in the
associated expense category as incurred.
Because these loans are recognized at fair value, the Firm's
allowance for loan losses and charge-off policies do not
apply to these loans. However, loans at fair value are
subject to the nonaccrual policies described above.
Refer to Note 3 for further information on the Firm's
elections of fair value accounting under the fair value
option. Refer to Note 2 and Note 3 for further information
on loans carried at fair value and classified as trading
assets.
PCI loans
PCI loans held-for-investment are initially measured at fair
value. PCI loans have evidence of credit deterioration since
the loan's origination date and therefore it is probable, at
acquisition, that all contractually required payments will not
be collected. Because PCI loans are initially measured at fair
value, which includes an estimate of future credit losses, no
allowance for loan losses related to PCI loans is recorded at
the acquisition date. Refer to page 231 of this Note for
information on accounting for PCI loans subsequent to their
acquisition.
Foreclosed property
220
Loan classification changes
Loans in the held-for-investment portfolio that management
decides to sell are transferred to the held-for-sale portfolio
at the lower of cost or fair value on the date of transfer.
Credit-related losses are charged against the allowance for
loan losses; non-credit related losses such as those due to
changes in interest rates or foreign currency exchange rates
are recognized in noninterest revenue.
In the event that management decides to retain a loan in
the held-for-sale portfolio, the loan is transferred to the
held-for-investment portfolio at the lower of cost or fair
value on the date of transfer. These loans are subsequently
assessed for impairment based on the Firm's allowance
methodology. For a further discussion of the methodologies
used in establishing the Firm's allowance for loan losses,
refer to Note 13.
Loan modifications
The Firm seeks to modify certain loans in conjunction with
its loss-mitigation activities. Through the modification,
JPMorgan Chase grants one or more concessions to a
borrower who is experiencing financial difficulty in order to
minimize the Firm's economic loss and avoid foreclosure or
repossession of the collateral, and to ultimately maximize
payments received by the Firm from the borrower. The
concessions granted vary by program and by borrower-
specific characteristics, and may include interest rate
reductions, term extensions, payment deferrals, principal
forgiveness, or the acceptance of equity or other assets in
lieu of payments.
Such modifications are accounted for and reported as TDRs.
A loan that has been modified in a TDR is generally
considered to be impaired until it matures, is repaid, or is
otherwise liquidated, regardless of whether the borrower
performs under the modified terms. In certain limited
cases, the effective interest rate applicable to the modified
loan is at or above the current market rate at the time of
the restructuring. In such circumstances, and assuming that
the loan subsequently performs under its modified terms
and the Firm expects to collect all contractual principal and
interest cash flows, the loan is disclosed as impaired and as
a TDR only during the year of the modification; in
subsequent years, the loan is not disclosed as an impaired
loan or as a TDR so long as repayment of the restructured
loan under its modified terms is reasonably assured.
Loans, except for credit card loans, modified in a TDR are
generally placed on nonaccrual status, although in many
cases such loans were already on nonaccrual status prior to
modification. These loans may be returned to performing
status (the accrual of interest is resumed) if the following
criteria are met: (i) the borrower has performed under the
modified terms for a minimum of six months and/or six
payments, and (ii) the Firm has an expectation that
repayment of the modified loan is reasonably assured based
on, for example, the borrower's debt capacity and level of
future earnings, collateral values, LTV ratios, and other
current market considerations. In certain limited and well-
defined circumstances in which the loan is current at the
modification date, such loans are not placed on nonaccrual
status at the time of modification.
JPMorgan Chase & Co./2018 Form 10-K
Sales
Interest income
2018
2017
2018
Total residential real estate -
excluding PCI
Home equity
Residential mortgage
Balance of loans that redefaulted within one
year of permanent modification(a)
Principal forgiven
Principal deferred
Charge-offs recognized upon permanent
modification
Weighted-average remaining contractual term
(in years) of loans with term or payment
extensions after TDR
(in millions, except weighted-average data)
Weighted-average interest rate of loans with
interest rate reductions - before TDR
Weighted-average interest rate of loans with
interest rate reductions - after TDR
Weighted-average remaining contractual term
(in years) of loans with term or payment
extensions before TDR
Year ended
December 31,
The following table provides information about the financial effects of the various concessions granted in modifications of
residential real estate loans, excluding PCI, under the loss mitigation programs described above and about redefaults of
certain loans modified in TDRS for the periods presented. The following table presents only the financial effects of permanent
modifications and does not include temporary concessions offered through trial modifications. This table also excludes Chapter
7 loans where the sole concession granted is the discharge of debt.
Financial effects of modifications and redefaults
Notes to consolidated financial statements
2016
2018
2017
2016
3.46
2.93
2.99
3.80
5.36%
5.06%
5.50%
227
4.99%
5.39%
5.59%
5.15%
5.65%
2016
2017
2018
4.94%
JPMorgan Chase & Co./2018 Form 10-K
(b) Includes variable interest rate to fixed interest rate modifications for the years ended December 31, 2018, 2017 and 2016. Also includes forbearances
that meet the definition of a TDR for the year ended December 31, 2018. Forbearances suspend or reduce monthly payments for a specific period of time
to address a temporary hardship.
(a) Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages
exceeds 100% because predominantly all of the modifications include more than one type of concession. Concessions offered on trial modifications are
generally consistent with those granted on permanent modifications.
12
29
19
10
20
15
44
18
Principal and/or interest deferred
70
62
83
69
66
90
Retained loans reclassified to held-for-sale
86
2.64
Principal forgiveness
16
16
14
32
51
6
31
58
25
8
33
Other(b)
14
7
9
13
7
26
38
2.34
16
2.83
10 20 44 7 13 7 17 33 51
97
98 $
64
Wholesale
56 $ 40
$ 161
$
$ 124 $
$ 180 $ 138
(a) Represents loans permanently modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred
within one year of the modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such
loans defaulted. For residential real estate loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments
past due. In the event that a modified loan redefaults, it is probable that the loan will ultimately be liquidated through foreclosure or another similar type
of liquidation transaction. Redefaults of loans modified within the last 12 months may not be representative of ultimate redefault levels.
At December 31, 2018, the weighted-average estimated
remaining lives of residential real estate loans, excluding
PCI loans, permanently modified in TDRs were 9 years for
residential mortgage and 8 years for home equity. The
estimated remaining lives of these loans reflect estimated
prepayments, both voluntary and involuntary (i.e.,
foreclosures and other forced liquidations).
Active and suspended foreclosure
At December 31, 2018 and 2017, the Firm had non-PCI
residential real estate loans, excluding those insured by U.S.
government agencies, with a carrying value of $653 million
and $787 million, respectively, that were not included in
REO, but were in the process of active or suspended
foreclosure.
228
JPMorgan Chase & Co./2018 Form 10-K
53
Consumer, excluding
credit card
Credit card
Consumer, excluding
credit card
2017
2,312
2,276
26,725
16,741
4,897
2,354
$ - $
2,543 (a)(b)
9,984
36
$
Total
3.60
22
$
23
2.70
24
24
24
19
21
18
21
23
22
38
38
30
38
38
Credit card
38
26
10
39
39
9
30
12
21
$ 1$ 2$ 4 $ 1$ 1$ 1 $ 2$ 3$ 5
38
38
38
11
201
25 $
165 $
203
1,604
1,043
impaired loans (b)
Unpaid principal balance of
$ 461
$ 1,509
358
$ 1,070
152 $ 168
13
70
238
$ 1,250 (c) $ 1,867 (c)
$1$ 4 $ - $ - $ 19 $ 42 $ 297
180
$
255
133
Real estate
1,027 $
$
Commercial and industrial
2016
2017(b)
2018
Year ended December 31, (in millions)
The following table presents the Firm's average impaired
retained loans for the years ended 2018, 2017 and 2016.
(c) Based upon the domicile of the borrower, largely consists of loans in the U.S.
(b) Represents the contractual amount of principal owed at December 31, 2018 and 2017. The unpaid principal balance differs from the impaired loan
balances due to various factors, including charge-offs; interest payments received and applied to the carrying value; net deferred loan fees or costs; and
unamortized discount or premiums on purchased loans.
(a) When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an
allowance. This typically occurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied
to the loan balance.
2,154
1,723
4 94 - - 473
252 $ 404
$
Allowance for loan losses related
to impaired loans
4 $ 93
$
78
107 $
$
$ 807 $ 1,170
With an allowance
Impaired loans
2017
2018
2017
2018
2017
2018
2017
$
$
Financial institutions
Without an allowance(a)
$
$
$
93
4 $
$
138
$
134 $
947 $ 1,398
$
Total impaired loans
60
27
228
140
$
57
100,234
1,480
0.53%
0.01%
-%
0.26%
0.44%
1.33%
1.71%
% of criticized
nonaccrual to
total retained
0.66
1.13
0.12
0.12
0.01
0.32%
0.74%
2018
$129,806
0.65%
4.45%
3.54%
loans
total retained
exposure to
criticized
0.12
% of total
$131,784 $113,698
$ 15,509
$ 14,187
$ 47,648 $ 40,074
$ 113,648
$115,737
$119,969
$439,162 $402,898
1,256 $
165
48
0.21
0.43
$115,737 $ 113,648
JPMorgan Chase & Co./2018 Form 10-K
238
(b) The prior period amounts have been revised to conform with the
current period presentation.
(a) The related interest income on accruing impaired loans and interest
income recognized on a cash basis were not material for the years
ended December 31, 2018, 2017 and 2016.
Certain loan modifications are considered to be TDRs as
they provide various concessions to borrowers who are
experiencing financial difficulty. All TDRs are reported as
impaired loans in the tables above. TDRs were $576 million
and $614 million as of December 31, 2018 and 2017,
respectively. The impact of these modifications, as well as
new TDRs, were not material to the Firm for the years
ended December 31, 2018, 2017 and 2016.
1,923
213
241
1,710 $
199
1,416 $
$
Total(a)
Other
Governments & Agencies
217
13
$129,806 $119,969
Total retained
loans
$ 95,379
307,519
$ 102,646
336,516
loans
Loans by
geographic
distribution (a)
Total non-U.S.
$ 29,572
Total U.S.
0.26
$ 28,470
91,499
$ 3,101
110,547
$ 18,524
29,124
$ 16,790
23,284
$ 3,150
11,037
$ 2,906
12,603
$ 48,433
83,351
$ 44,112
69,586
$ 2,967
112,770
2017
Criticized
2017
30-89 days past
$130,918 $112,559 $436,916 $399,640
$ 15,493
$ 14,165
$ 40,042
$ 47,622
$ 113,258
$128,678 $118,288 $115,533
still accruing
past due and
than 30 days
Current and less
delinquency(b)
Loan
0.03%
due and still
0.04%
accruing
216
108
168
still accruing(c)
past due and
90 or more days
1,383
908
898
702
12
18
15
12
242
67
109
-%
0.01%
0.03%
$ 40,074
$ 14,187
$ 15,509
$131,784
$113,698
$439,162 $402,898
Net charge-offs/
(recoveries)
$ 165 $ 117 $ (20) $
(4)
$
$
6
$
$
loans
$ 47,648
5
$
-%
0.01%
-%
-%
(0.02)%
0.10%
0.13%
3
retained loans
(recoveries) to
charge-offs/
% of net
$ 155 $ 119
(5)
$
10
end-of-period
2018
12
15
57 $
0.07%
% of criticized nonaccrual loans to total real estate retained loans
$
846
754
0.65%
0.98%
1.00%
0.63%
355
366
36,553 $ 36,051 $ 115,737 $ 113,648
79,184 $ 77,597 $
388
491
0.49%
% of total criticized exposure to total real estate retained loans
Criticized nonaccrual
$
Total real estate loans
2018
2017
44 $
0.06%
2017
77 $
0.21%
$
Total
retained loans
Other
Governments &
Agencies
Financial
institutions
Real estate
Commercial
and industrial
2018
(in millions)
December 31,
The table below sets forth information about the Firm's wholesale impaired retained loans.
Wholesale impaired retained loans consist of loans that have been placed on nonaccrual status and/or that have been modified
in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 13.
Wholesale impaired retained loans and loan modifications
0.12%
0.12%
0.74%
136
134 $
92
0.26%
2018
2017
2018
2
4
136
134
1,357
851
loans
Total retained
nonaccrual
141
188
2
3
4
4
161
239
1,150
1,734
Criticized exposure
Real estate retained loans
(in millions, except ratios)
December 31,
Other Commercial
Multifamily
The following table presents additional information on the real estate class of loans within the Wholesale portfolio for the
periods indicated. Exposure consists primarily of secured commercial loans, of which multifamily is the largest segment.
Multifamily lending finances acquisition, leasing and construction of apartment buildings, and includes exposure to real
estate investment trusts ("REITs"). Other commercial lending largely includes financing for acquisition, leasing and
construction, largely for office, retail and industrial real estate, and includes exposure to REITs. Included in real estate loans is
$10.5 billion and $10.8 billion as of December 31, 2018 and 2017, respectively, of construction and development exposure
consisting of loans originally purposed for construction and development, general purpose loans for builders, as well as loans
for land subdivision and pre-development.
10
Notes to consolidated financial statements
JPMorgan Chase & Co./2018 Form 10-K
(d) Other includes individuals and individual entities (predominantly consists of Wealth Management clients within AWM and includes exposure to personal
investment companies and personal and testamentary trusts), SPES and Private education and civic organizations. For more information on SPES, refer to
Note 14.
(c) Represents loans that are considered well-collateralized and therefore still accruing interest.
(b) The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor's ability to meet contractual obligations
rather than relying on the past due status, which is generally a lagging indicator of credit quality.
(a) The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
$119,969 $115,737 $ 113,648 $ 47,648 $ 40,074 $ 14,187 $ 15,509 $131,784 $113,698 $439,162 $402,898
$129,806
237
Total retained
2,622
99,433
4,006
4,309
4,883
4,996
4,997
5,094
6,506
6,739
8,585
3,912
8,938
9,770
13,021
13,601
14,200
15,085
$ 23,757 $ 22,245
1.80%
0.92
1.83%
0.92
$ 149,387
9,138
3,826
60,415
57,980
Allowance for loan losses related to
impaired credit card loans
1,319 $
$
Impaired credit card loans with an
allowance(a)(b)(c)
2018
December 31, (in millions)
Credit card impaired loans and loan modifications
The table below provides information about the Firm's
impaired credit card loans. All of these loans are considered
to be impaired as they have been modified in TDRs.
JPMorgan Chase & Co./2018 Form 10-K
234
a) The geographic regions presented in the table are ordered based on the
magnitude of the corresponding loan balances at December 31, 2018.
1.4
0.8
84.0%
14.6
15.0
84.2%
No FICO available
Less than 660
Equal to or greater than 660
value with estimated refreshed FICO scores
$ 149,387
$ 156,616
$ 156,616
1,378
1,305
1,426
1,444
The table below provides information about the Firm's
credit card loans.
While the borrower's credit score is another general
indicator of credit quality, the Firm does not view credit
scores as a primary indicator of credit quality because the
borrower's credit score tends to be a lagging indicator. The
distribution of such scores provides a general indicator of
credit quality trends within the portfolio; however, the score
does not capture all factors that would be predictive of
future credit performance. Refreshed FICO score
information, which is obtained at least quarterly, for a
statistically significant random sample of the credit card
portfolio is indicated in the following table. FICO is
considered to be the industry benchmark for credit scores.
The Firm generally originates new card accounts to prime
consumer borrowers. However, certain cardholders' FICO
scores may decrease over time, depending on the
performance of the cardholder and changes in credit score
calculation.
The credit card portfolio segment includes credit card loans
originated and purchased by the Firm. Delinquency rates
are the primary credit quality indicator for credit card loans
as they provide an early warning that borrowers may be
experiencing difficulties (30 days past due); information on
those borrowers that have been delinquent for a longer
period of time (90 days past due) is also considered. In
addition to delinquency rates, the geographic distribution of
the loans provides insight as to the credit quality of the
portfolio based on the regional economy.
Credit card loan portfolio
Notes to consolidated financial statements
233
JPMorgan Chase & Co./2018 Form 10-K
At December 31, 2018 and 2017, the Firm had PCI residential real estate loans with an unpaid principal balance of
$964 million and $1.3 billion, respectively, that were not included in REO, but were in the process of active or suspended
foreclosure.
Active and suspended foreclosure
(a) Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model, for example cash flows expected
to be collected due to the impact of modifications and changes in prepayment assumptions.
4.35%
4.53%
11,768
$
11,159
$
8,422
4.92%
Accretable yield percentage
Balance at December 31
(428)
284
As of or for the year ended December 31,
(in millions, except ratios)
440
Net charge-offs
Current and less than 30 days past due
and still accruing
$ 146,704
$ 153,746
2.95%
4,518 $ 4,123
3.10%
$
2017
2018
Percentage of portfolio based on carrying
Total retained credit card loans
All other
Michigan
Colorado
Pennsylvania
Ohio
New Jersey
Illinois
Florida
New York
Texas
% of 30+ days past due to total retained loans
% of 90+ days past due to total retained loans
Credit card loans by geographic region (a)
California
30-89 days past due and still accruing
90 or more days past due and still accruing
Total retained credit card loans
Loan delinquency ratios
% of net charge-offs to retained loans
Loan delinquency
2017
1,215
383
1,327
2018
2017
2018
2017
2018
2017
2018
2017
2018
except ratios)
(in millions,
December 31,
Total
retained loans
Other(d)
Governments &
Agencies
Financial
institutions
Real estate
Commercial
and industrial
As of or for the
year ended
The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment. For
additional information on industry concentrations, refer to Note 4.
2018
JPMorgan Chase & Co./2018 Form 10-K
2017
2,103
309
190
371
851
1,469
Lower than 80% and refreshed FICO scores:
Equal to or greater than 660
5,548
6,134
2,689
3,551
739
895
5,111
6,113
14,087
16,693
Less than 660
1,908
2,095
1,568
Loans by risk
ratings
(1,379)
236
Risk ratings are reviewed on a regular and ongoing basis by
Credit Risk Management and are adjusted as necessary for
updated information affecting the obligor's ability to fulfill
its obligations.
65
Weighted-average interest rate
$ 1,260 $ 1,214 $ 1,325
2016
2017
2018
Year ended December 31,
(in millions, except
2016
2017
2018
weighted-average data)
Financial effects of modifications and redefaults
The following table provides information about the financial
effects of the concessions granted on credit card loans
modified in TDRs and redefaults for the periods presented.
If the cardholder does not comply with the modified
payment terms, then the credit card loan continues to age
and will ultimately be charged-off in accordance with the
Firm's standard charge-off policy. In most cases, the Firm
does not reinstate the borrower's line of credit.
New enrollments in these loan modification programs for
the years ended December 31, 2018, 2017 and 2016, were
$866 million, $756 million and $636 million, respectively.
For all periods disclosed, new enrollments were less than
1% of total retained credit card loans.
impaired credit card loans
Interest income on
Average impaired credit card loans
Year ended December 31,
(in millions)
The following table presents average balances of impaired
credit card loans and interest income recognized on those
loans.
(c) Predominantly all impaired credit card loans are in the U.S.
(b) There were no impaired loans without an allowance.
(a) The carrying value and the unpaid principal balance are the same for credit
card impaired loans.
59
As noted above, the risk rating of a loan considers the
industry in which the obligor conducts its operations. As
part of the overall credit risk management framework, the
Firm focuses on the management and diversification of its
industry and client exposures, with particular attention paid
to industries with actual or potential credit concern. Refer
to Note 4 for further detail on industry concentrations.
63
17.98%
Management considers several factors to determine an
appropriate risk rating, including the obligor's debt capacity
and financial flexibility, the level of the obligor's earnings,
the amount and sources for repayment, the level and nature
of contingencies, management strength, and the industry
and geography in which the obligor operates. The Firm's
definition of criticized aligns with the banking regulatory
definition of criticized exposures, which consist of special
mention, substandard and doubtful categories. Risk ratings
generally represent ratings profiles similar to those defined
by S&P and Moody's. Investment-grade ratings range from
"AAA/Aaa" to "BBB-/Baa3." Noninvestment-grade ratings
are classified as noncriticized ("BB+/Ba1 and B-/B3") and
criticized ("CCC+"/"Caal and below"), and the criticized
portion is further subdivided into performing and
nonaccrual loans, representing management's assessment
of the collectibility of principal and interest. Criticized loans
have a higher probability of default than noncriticized
loans.
The primary credit quality indicator for wholesale loans is
the risk rating assigned to each loan. Risk ratings are used
to identify the credit quality of loans and differentiate risk
within the portfolio. Risk ratings on loans consider the PD
and the LGD. The PD is the likelihood that a loan will
default. The LGD is the estimated loss on the loan that
would be realized upon the default of the borrower and
takes into consideration collateral and structural support
for each credit facility.
Wholesale loans include loans made to a variety of clients,
ranging from large corporate and institutional clients to
high-net-worth individuals.
Wholesale loan portfolio
Notes to consolidated financial statements
235
JPMorgan Chase & Co./2018 Form 10-K
For credit card loans modified in TDRs, payment default is
deemed to have occurred when the borrower misses two
consecutive contractual payments. A substantial portion of
these loans are expected to be charged-off in accordance
with the Firm's standard charge-off policy. Based on
historical experience, the estimated weighted-average
default rate for modified credit card loans was expected to
be 33.38%, 31.54% and 28.87% as of December 31,
2018, 2017 and 2016, respectively.
Loans that redefaulted within
one year of modification (a)(b)
(a) Represents loans modified in TDRs that experienced a payment default in
the periods presented, and for which the payment default occurred within
one year of the modification. The amounts presented represent the balance
of such loans as of the end of the quarter in which they defaulted.
(b) The prior period amounts have been revised to conform with the current
period presentation.
93 $ 74
$
116
$
The Firm may offer one of a number of loan modification
programs to credit card borrowers who are experiencing
financial difficulty. Most of the credit card loans have been
modified under long-term programs for borrowers who are
experiencing financial difficulties. These modifications
involve placing the customer on a fixed payment plan,
generally for 60 months, and typically include reducing the
interest rate on the credit card. Substantially all
modifications are considered to be TDRs.
Loan modifications
4.76
4.88
5.16
Weighted-average interest rate
of loans - after TDR
15.56%
16.58%
of loans - before TDR
Other changes in expected cash flows (a)
260
(1,555)
233
Illinois
966
738
238
177
61
44
135
98
532
419
Washington
2,022
1,660
628
502
330
268
457
365
273
607
154
123
149
113
79
65
Massachusetts
866
690
336
258
110
88
178
134
242
210
New Jersey
883
709
249
199
161
200
73
525
2,739
$ 8,447
$ 3,197
$ 2,442
$ 6,502
$ 4,708
$ 11,020
$ 9,144
Total unpaid principal balance
951
470
345
149
113
319
228
577
265
No FICO/LTV available
9,305
7,425
3,499
$ 10,898
New York
$ 24,741
Geographic region (based on unpaid principal balance)(d)
2,255
878
713
296
234
428
332
1,137
976
Florida
$ 17,293
$ 13,389
$ 6,225
$ 4,798
$ 797
$ 593
$ 3,716
$ 2,578
$ 6,555
$ 5,420
California
1,515
$31,617
161
98
307
7,926
6,531 $
$
2017
2018
2017
2018
Total 30+ day delinquency rate
Total loans
Total
HELOANS
(in millions, except ratios)
HELOCS:(a)(b)
December 31,
Approximately 26% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANS or
HELOCS. The following table provides delinquency statistics for PCI junior lien home equity loans and lines of credit based on
the unpaid principal balance as of December 31, 2018 and 2017.
JPMorgan Chase & Co./2018 Form 10-K
232
(c) Refreshed FICO scores represent each borrower's most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(d) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2018.
(a) Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition.
(b) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a
minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the
extent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral
values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates. Current estimated combined LTV for junior lien home
equity loans considers all available lien positions, as well as unused lines, related to the property.
$ 24,741 $31,617
$ 8,447 $ 10,898
$ 3,197
4.00%
$ 2,442
4.62%
280
6,811 $
13,491
$
2016
2017
11,768
(1,396)
503
(109)
Changes in interest rates on variable-rate loans
$
11,159
(1,249)
2018
Accretion into interest income
Beginning balance
(in millions, except ratios)
Year ended December 31,
Total PCI
The table below presents the accretable yield activity for the Firm's PCI consumer loans for the years ended December 31,
2018, 2017 and 2016, and represents the Firm's estimate of gross interest income expected to be earned over the remaining
life of the PCI loan portfolios. The table excludes the cost to fund the PCI portfolios, and therefore the accretable yield does not
represent net interest income expected to be earned on these portfolios.
(a) In general, these HELOCS are revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at
the end of the loan's term. Substantially all HELOCS are beyond the revolving period.
(b) Includes loans modified into fixed rate amortizing loans.
4.65%
3.98%
5.28
3.57
360
8,286
$
240
$ 4,708 $ 6,502
4,620
51
37
123
91
66
54
Arizona
Virginia
550
417
232
178
132
96
129
95
57
48
Maryland
633
491
211
$ 9,144 $ 11,020
280
520
3,610
1,369
1,059
1,101
843
881
679
1,269
1,029
Total unpaid principal balance
All other
525
389
156
112
60
43
106
69
203
165
393
91,217
230
559
5,520
6,531
7,013
2,993
$ 5,032
2,916
$ 13,850 $ 13,477
9,524
9,929
3,863
$
4,023
4,195
8,244
8,218
3,716
3,916
2,046
2,017
5,762
5,933
4,381
$ 8,445
8,330
$
$
589
584
7
26,249 $
252
111
25,454
213
122
111
$ 89,233 $ 91,105
841
797
129
$ 63,573 $
0.93%
66,242
0.89%
$ 26,612 $ 25,789 $ 90,185 $ 92,031
1.36%
1.30%
1.06%
128
141
245
283
373
1.01%
424
3,256
3,350
1,502
1,424
2,775
1,587
1,656
28,895
30,051
860
4,462
849
2,447
2,505
$ 63,573 $ 66,242
$ 26,612 $
4,515
25,789
33,357
34,566
$ 90,185
$ 92,031
$ 15,749 $ 15,604
273
-
93
9
$ 18,743
751
$ 17,938 $ 34,492
791
2,686
$ 62,984 $ 65,651
1,357
1,418
4,758
4,774
2,084
2,221
1,491
1,383
3,575
3,604
1,973
2,105
1,305
1,380
3,278
3,485
1,981
2,044
723
721
2,704
2,765
1,357
1,329
2017
2018
2017
5,162
4,692
259
210 0 2 - 182
150
710
620
3,983
3,738
performing
Criticized
84,321
93,591
9,988
11,478
369
201
13,071
15,316
14,335
14,876
Criticized
46,558
nonaccrual
1,357
10,486
11,821
369
203
13,283
15,470
15,181
15,630
51,898
56,309
grade
noninvestment-
Total
1,734
1,150
239
161
2
4
136
134
851
$ 33,542
51,720
grade:
Texas
New York
Illinois
Florida
Arizona
Ohio
New Jersey
Michigan
Louisiana
All other
Total retained loans
Loans by risk ratings (c)
Noncriticized
Criticized performing
Criticized nonaccrual
Auto
Consumer &
Business Banking
Total other consumer
2018
2017
2018
California
Noncriticized
Geographic region (b)
% of 30+ days past due to total retained loans
Noninvestment-
$339,729 $311,681
$119,963 $103,212
$ 15,140
$ 13,984
$ 26,791
$ 32,178
$ 98,467
$100,107
$ 73,497 $ 68,071
Investment-
grade
1,608
Other consumer loans
The table below provides information for other consumer retained loan classes, including auto and business banking loans.
December 31,
(in millions, except ratios)
Loan delinquency
Current
30-119 days past due
120 or more days past due
Total retained loans
Nonaccrual loans (a)
1,024
884
191
Current estimated LTV ratios (based on unpaid principal balance)(b)(c)
Greater than 125% and refreshed FICO scores:
Equal to or greater than 660
$
17 $ 33
$
1
$
4
$
-
$
2 $
+A
Less than 660
13
21
7
16
9
20
10.13%
3 7
9.16%
$ 31,617
123
176
457
689
1,045
1,584
$ 9,144
$ 11,020
$ 4,708
$ 6,502
$ 2,442
% of 30+ days past due to total loans
5.69%
6.79%
10.24%
10.20%
16.75%
$ 3,197
17.42%
$ 8,447
$ 10,898
$ 24,741
10.12% 11.34%
327
$
6 9
162
353
75
33
71
155
320
80% to 100% and refreshed FICO scores:
Equal to or greater than 660
805
1,195
75
221
54
119
119
316
1,053
1,851
Less than 660
388
43
+A
17
45
23
$
21
$
45
36
46
66
101% to 125% and refreshed FICO scores:
Equal to or greater than 660
135
274
6
16
Less than 660
65
132
22
42
62
35
20
112
223
1,620
63 $
355
73
402
Impaired loans on nonaccrual status
229
268
(a) When discounted cash flows, collateral value or market price equals or
exceeds the recorded investment in the loan, the loan does not require
an allowance. This typically occurs when the impaired loans have been
partially charged off and/or there have been interest payments
received and applied to the loan balance.
(b) Predominantly all other consumer impaired loans are in the U.S.
(c) Other consumer average impaired loans were $275 million, $427
million and $635 million for the years ended December 31, 2018,
2017 and 2016, respectively. The related interest income on impaired
loans, including those on a cash basis, was not material for the years
ended December 31, 2018, 2017 and 2016.
(d) Represents the contractual amount of principal owed at December 31,
2018 and 2017. The unpaid principal balance differs from the
impaired loan balances due to various factors, including charge-offs,
interest payments received and applied to the principal balance, net
deferred loan fees or costs and unamortized discounts or premiums on
purchased loans.
Loan modifications
Certain other consumer loan modifications are considered
to be TDRS as they provide various concessions to
borrowers who are experiencing financial difficulty. All of
these TDRs are reported as impaired loans. At
December 31, 2018 and 2017, other consumer loans
modified in TDRs were $79 million and $102 million,
respectively. The impact of these modifications, as well as
new TDRs, were not material to the Firm for the years
ended December 31, 2018, 2017 and 2016. Additional
commitments to lend to borrowers whose loans have been
modified in TDRs as of December 31, 2018 and 2017 were
not material. TDRs on nonaccrual status were $57 million
and $72 million at December 31, 2018 and 2017,
respectively.
230
JPMorgan Chase & Co./2018 Form 10-K
Purchased credit-impaired loans
PCI loans are initially recorded at fair value at acquisition.
PCI loans acquired in the same fiscal quarter may be
aggregated into one or more pools, provided that the loans
have common risk characteristics. A pool is then accounted
for as a single asset with a single composite interest rate
and an aggregate expectation of cash flows. All of the Firm's
residential real estate PCI loans were acquired in the same
fiscal quarter and aggregated into pools of loans with
common risk characteristics.
On a quarterly basis, the Firm estimates the total cash flows
(both principal and interest) expected to be collected over
the remaining life of each pool. These estimates incorporate
assumptions regarding default rates, loss severities, the
amounts and timing of prepayments and other factors that
reflect then-current market conditions. Probable decreases
in expected cash flows (i.e., increased credit losses) trigger
the recognition of impairment, which is then measured as
the present value of the expected principal loss plus any
related forgone interest cash flows, discounted at the pool's
effective interest rate. Impairments are recognized through
the provision for credit losses and an increase in the
allowance for loan losses. Probable and significant
increases in expected cash flows (e.g., decreased credit
losses, the net benefit of modifications) would first reverse
any previously recorded allowance for loan losses with any
remaining increases recognized prospectively as a yield
adjustment over the remaining estimated lives of the
underlying loans. The impacts of (i) prepayments, (ii)
changes in variable interest rates, and (iii) any other
changes in the timing of expected cash flows are generally
recognized prospectively as adjustments to interest income.
The Firm continues to modify certain PCI loans. The impact
of these modifications is incorporated into the Firm's
quarterly assessment of whether a probable and significant
change in expected cash flows has occurred, and the loans
continue to be accounted for and reported as PCI loans. In
evaluating the effect of modifications on expected cash
flows, the Firm incorporates the effect of any forgone
interest and also considers the potential for redefault. The
Firm develops product-specific probability of default
estimates, which are used to compute expected credit
losses. In developing these probabilities of default, the Firm
considers the relationship between the credit quality
characteristics of the underlying loans and certain
assumptions about home prices and unemployment based
upon industry-wide data. The Firm also considers its own
historical loss experience to-date based on actual
redefaulted modified PCI loans.
The excess of cash flows expected to be collected over the
carrying value of the underlying loans is referred to as the
accretable yield. This amount is not reported on the Firm's
Consolidated balance sheets but is accreted into interest
income at a level rate of return over the remaining
estimated lives of the underlying pools of loans.
Since the timing and amounts of expected cash flows for the
Firm's PCI consumer loan pools are reasonably estimable,
interest is being accreted and the loan pools are being
reported as performing loans. No interest would be
accreted and the PCI loan pools would be reported as
nonaccrual loans if the timing and/or amounts of expected
cash flows on the loan pools were determined not to be
reasonably estimable.
The liquidation of PCI loans, which may include sales of
loans, receipt of payment in full from the borrower, or
foreclosure, results in removal of the loans from the
underlying PCI pool. When the amount of the liquidation
proceeds (e.g., cash, real estate), if any, is less than the
unpaid principal balance of the loan, the difference is first
applied against the PCI pool's nonaccretable difference for
principal losses (i.e., the lifetime credit loss estimate
established as a purchase accounting adjustment at the
acquisition date). When the nonaccretable difference for a
particular loan pool has been fully depleted, any excess of
the unpaid principal balance of the loan over the liquidation
proceeds is written off against the PCI pool's allowance for
loan losses. Write-offs of PCI loans also include other
adjustments, primarily related to principal forgiveness
modifications. Because the Firm's PCI loans are accounted
for at a pool level, the Firm does not recognize charge-offs
of PCI loans when they reach specified stages of
delinquency (i.e., unlike non-PCI consumer loans, these
loans are not charged off based on FFIEC standards).
The PCI portfolio affects the Firm's results of operations
primarily through: (i) contribution to net interest margin;
(ii) expense related to defaults and servicing resulting from
the liquidation of the loans; and (iii) any provision for loan
losses. The Firm's residential real estate PCI loans were
funded based on the interest rate characteristics of the
loans. For example, variable-rate loans were funded with
variable-rate liabilities and fixed-rate loans were funded
with fixed-rate liabilities with a similar maturity profile. A
net spread will be earned on the declining balance of the
portfolio, which is estimated as of December 31, 2018, to
have a remaining weighted-average life of 7 years.
JPMorgan Chase & Co./2018 Form 10-K
231
$
Notes to consolidated financial statements
Allowance for loan losses related to impaired loans
Unpaid principal balance of impaired loans (d)
251 $
213
191
222
(a) There were no loans that were 90 or more days past due and still accruing interest at December 31, 2018 and December 31, 2017.
(b) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2018.
(c) For risk-rated business banking and auto loans, the primary credit quality indicator is the risk rating of the loan, including whether the loans are
considered to be criticized and/or nonaccrual.
JPMorgan Chase & Co./2018 Form 10-K
229
Notes to consolidated financial statements
Other consumer impaired loans and loan modifications
The following table provides information about the Firm's other consumer impaired loans, including risk-rated business
banking and auto loans that have been placed on nonaccrual status, and loans that have been modified in TDRs.
December 31, (in millions)
Impaired loans
With an allowance
2018
2017
222 $
272
Without an allowance(a)
29
26
Total impaired loans (b)(c)
$
298
392
Residential real estate - PCI loans
December 31,
$ 8,624
$ 10,272
$ 4,226
$ 5,839
$ 2,033
$ 2,640
$ 7,592
$ 9,662
$ 22,475
$ 28,413
150 or more days past due
Total loans
278
242
356
259
336
286
381
398
547
1,221
30-149 days past due
The table below provides information about the Firm's consumer, excluding credit card, PCI loans.
Current
2017
(in millions, except ratios)
Carrying value(a)
Home equity
Prime mortgage
2018
Subprime mortgage
2018
Option ARMS
2017
$ 10,689
2018
2017
$ 8,963
$ 10,799
$ 4,690
2017
$ 6,479
2017
$ 1,945
$ 2,609
2018
$ 8,436
Loan delinquency (based on unpaid principal balance)
Total PCI
2018
$ 24,034
$ 30,576
2017
-
Credit card
4,884
$
4,579
$
(11)
(1)
(10)
1
$
5,080
4,042
467
5,300
(286)
2
(1)
4,973
613
156
571
156
4,141 $
$
3,680
4,501
2,108
358 (c) $
308
$
1,090
461 $
13,604
383 (c) $
246
$
13,776
4,544 $
$
4,034
$
5,198
$
86
86
4,692
13,555
4,315 $
$
3,434
$
5,806
$
13,776
1,779
4,544 $
4,034
$
5,198
$
Total
Wholesale
2016
Credit card
$
4,521
212
6,512
341
3,442
909
5,387
119
4,123
1,145
(1,005)
(57)
(357)
(591)
(1,125)
(93)
(398)
(634)
5,697
398
3,799
1,500
10,289
credit card
2,579
342
4,202
$
-233
105
2,691
300
$ - $ 7 $
98
2,391
2,366
$
95
$
31 $
64
2,133
$
889,907
383,790 $
$
141,711
35,682
3
$
12,197
842,028
26
1,078
1,078
$ 33 $ - $ 1,035 $ 1,068 $ 26 $ - $ 1,052 $
$
11
(1)
12
281
281
$ - $ : 1,052 $
(10)
7
786
$
772
$
$
14
$
(17)
2,017 $
381,770
1,240 $
140,471
319,787
35,679
364,406 $
$
4,034
5,198
$
13,604
4,141 $
$
4,884
4,544 $
$
$
2,311
2,311
2,225
2,225
10,457
1,008
$
4,579
13,776
$
8,036
$
924,838
$
$ 402,898
$ 149,387
30,579
3
30,576
372,553
$
$
8,940
$
11,118
883,141
401,028
1,867 $
$
1,215
148,172
333,941
$
3,676
Total
excluding
Consumer,
1,788
PCI
10,724
3,818
4,744
2,162
Formula-based
933
1,788
$
$
440 (c)
$
196
$
Asset-specific (b)
Allowance for loan losses by impairment methodology
13,445
297
$
Total allowance for loan losses
4,146
Ending balance at December 31,
Other
Provision for lending-related commitments
Beginning balance at January 1,
Allowance for lending-related commitments
Loans measured at fair value of collateral less cost to sell
Net charge-offs
Impaired collateral-dependent loans
$
Total retained loans
Formula-based
Asset-specific
Loans by impairment methodology
13,445
$
4,115
$
5,184
PCI
4,115
$
5,184
(842)
Gross recoveries
6,349
313
5,011
1,025
Gross charge-offs
13,604
(493)
4,141 $
4,884
$
4,579
$
Beginning balance at January 1,
Allowance for loan losses
Total
Wholesale
$
(158)
(1,493)
Net charge-offs
$
4,146
$
Ending balance at December 31,
(1)
(1)
Other
4,885
130
4,818
(63)
Provision for loan losses
187
187
Write-offs of PCI loans(a)
4,856
155
4,518
183
Allowance for lending-related commitments by impairment methodology
$
6,828
$
$
469
$
Total lending-related commitments
Formula-based
Lending-related commitments by impairment methodology
Asset-specific
1,055
$
469
1,022
923
99
$
99
$
$
-
$
956
$
46,066
46,066
605,379
Wholesale
2017
Credit card
credit card
excluding
Consumer,
(table continued from previous page)
JPMorgan Chase & Co./2018 Form 10-K
242
(c) The asset-specific credit card allowance for loan losses is related to loans that have been modified in a TDR; such allowance is calculated based on the loans' original contractual
interest rates and does not consider any incremental penalty rates.
(b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
(a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as purchase accounting
adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool.
$ 1,039,258
387,813
$
605,379
$
1,038,789
387,344
33
$
$
33
$
439,162
$
156,616
$
373,637
$
24,037
969,415
3
24,034
935,981
437,909
9,397
1,250 $
$
1,319
155,297
342,775
-
24
2,080
21
Formula-based
Asset-specific
1,055
$
1,022
$
$
33
$
1
1
(14)
(14)
1,068
1,035
33
2,282
202
45
Total allowance for lending-related commitments
$ - $ - $ 187 $
187
$
68,874 $
18,984
94,905
3,615 $
7
Total
$ 182,763 $
63
3,685 $
52,280 $
17,612
63,411
133,303
410 $
93
Commercial and other (b)
943 $
1,353
93
745
$ 1,248 $
1,133
2,076 $
157
2,035
157 $
3,481
$
(a) Excludes U.S. government agency securitizations and re-securitizations, which are not Firm-sponsored. Refer to pages 250-251 of this Note for
information on the Firm's loan sales to U.S. government agencies.
$
Residential mortgage:
3,117
December 31, 2017 (in millions)
Principal amount outstanding
JPMorgan Chase interest in securitized assets in
nonconsolidated VIES(c)(d)(e)
Assets held in
Assets
Total assets
held in
held by
consolidated
securitization securitization
nonconsolidated
Prime/Alt-A and option ARMs
Subprime
Total
interests
VIES
VIES
continuing
involvement
Trading
assets
Other
Investment financial
securities assets
held by
JPMorgan
Chase
Securitization-related (a)
securitization
VIES with
(b) Consists of securities backed by commercial loans (predominantly real estate) and non-mortgage-related consumer receivables purchased from third
parties.
(c) Excludes the following: retained servicing (refer to Note 15 for a discussion of MSRs); securities retained from loan sales to U.S. government agencies;
interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities (refer to Note 5
for further information on derivatives); senior and subordinated securities of $87 million and $28 million, respectively, at December 31, 2018, and $88
million and $48 million, respectively, at December 31, 2017, which the Firm purchased in connection with CIB's secondary market-making activities.
(d) Includes interests held in re-securitization transactions.
(e) As of December 31, 2018 and 2017, 60% and 61%, respectively, of the Firm's retained securitization interests, which are predominantly carried at fair
value and include amounts required to be held pursuant to credit risk retention rules, were risk-rated “A” or better, on an S&P-equivalent basis. The
retained interests in prime residential mortgages consisted of $1.3 billion of investment-grade for both periods, and $16 million and $48 million of
noninvestment-grade at December 31, 2018 and 2017, respectively. The retained interests in commercial and other securitizations trusts consisted of
$1.2 billion and $1.6 billion of investment-grade and $623 million and $412 million of noninvestment-grade retained interests at December 31, 2018
and 2017, respectively.
11,241
Agency
Most re-securitizations with which the Firm is involved are
client-driven transactions in which a specific client or group
of clients is seeking a specific return or risk profile. For
these transactions, the Firm has concluded that the
decision-making power of the entity is shared between the
Firm and its clients, considering the joint effort and
decisions in establishing the re-securitization trust and its
assets, as well as the significant economic interest the client
holds in the re-securitization trust; therefore the Firm does
not consolidate the re-securitization VIE.
In more limited circumstances, the Firm creates a
nonagency re-securitization trust independently and not in
conjunction with specific clients. In these circumstances, the
Firm is deemed to have the unilateral ability to direct the
most significant activities of the re-securitization trust
because of the decisions made during the establishment
and design of the trust; therefore, the Firm consolidates the
re-securitization VIE if the Firm holds an interest that could
potentially be significant.
Additionally, the Firm may invest in beneficial interests of
third-party-sponsored re-securitizations and generally
purchases these interests in the secondary market. In these
circumstances, the Firm does not have the unilateral ability
to direct the most significant activities of the re-
securitization trust, either because it was not involved in the
initial design of the trust, or the Firm is involved with an
independent third-party sponsor and demonstrates shared
power over the creation of the trust; therefore, the Firm
does not consolidate the re-securitization VIE.
246
JPMorgan Chase & Co./2018 Form 10-K
The following table presents information on
12,617
nonconsolidated re-securitization VIES.
Firm-sponsored private-label
(in millions)
Assets held in VIES with continuing
involvement (a)
Interest in VIES
Agency
Interest in VIES
Nonconsolidated
re-securitization VIES
December 31,
15,532
647
$
JPMorgan Chase & Co./2018 Form 10-K
245
Notes to consolidated financial statements
Residential mortgage
The Firm securitizes residential mortgage loans originated
by CCB, as well as residential mortgage loans purchased
from third parties by either CCB or CIB. CCB generally
retains servicing for all residential mortgage loans it
originated or purchased, and for certain mortgage loans
purchased by CIB. For securitizations of loans serviced by
CCB, the Firm has the power to direct the significant
activities of the VIE because it is responsible for decisions
related to loan modifications and workouts. CCB may also
retain an interest upon securitization.
In addition, CIB engages in underwriting and trading
activities involving securities issued by Firm-sponsored
securitization trusts. As a result, CIB at times retains senior
and/or subordinated interests (including residual interests
and amounts required to be held pursuant to credit risk
retention rules) in residential mortgage securitizations at
the time of securitization, and/or reacquires positions in the
secondary market in the normal course of business. In
certain instances, as a result of the positions retained or
reacquired by CIB or held by CCB, when considered together
with the servicing arrangements entered into by CCB, the
Firm is deemed to be the primary beneficiary of certain
securitization trusts. Refer to the table on page 248 of this
Note for more information on consolidated residential
mortgage securitizations.
The Firm does not consolidate a residential mortgage
securitization (Firm-sponsored or third-party-sponsored)
when it is not the servicer (and therefore does not have the
power to direct the most significant activities of the trust)
or does not hold a beneficial interest in the trust that could
potentially be significant to the trust. Refer to the table on
page 248 of this Note for more information on the
consolidated residential mortgage securitizations, and the
table on the previous page of this Note for further
information on interests held in nonconsolidated residential
mortgage securitizations.
Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans,
and engages in underwriting and trading activities involving
the securities issued by securitization trusts. CIB may retain
unsold senior and/or subordinated interests (including
amounts required to be held pursuant to credit risk
retention rules) in commercial mortgage securitizations at
the time of securitization but, generally, the Firm does not
service commercial loan securitizations. For commercial
mortgage securitizations the power to direct the significant
activities of the VIE generally is held by the servicer or
investors in a specified class of securities ("controlling
class"). The Firm generally does not retain an interest in the
controlling class in its sponsored commercial mortgage
securitization transactions. Refer to the table on page 248
of this Note for more information on the consolidated
commercial mortgage securitizations, and the table on the
previous page of this Note for further information on
interests held in nonconsolidated securitizations.
Re-securitizations
The Firm engages in certain re-securitization transactions in
which debt securities are transferred to a VIE in exchange
for new beneficial interests. These transfers occur in
connection with both agency (Federal National Mortgage
Association ("Fannie Mae"), Federal Home Loan Mortgage
Corporation ("Freddie Mac") and Government National
Mortgage Association ("Ginnie Mae")) and nonagency
(private-label) sponsored VIES, which may be backed by
either residential or commercial mortgages. The Firm's
consolidation analysis is largely dependent on the Firm's
role and interest in the re-securitization trusts.
The following table presents the principal amount of
securities transferred to re-securitization VIES.
Year ended December 31,
(in millions)
2018
2017
2016
Transfers of securities to
VIES
Firm-sponsored private-label
$
$
210 $
1,794
210
801
1,448 $
247
•
•
Municipal bond vehicles
Financing of municipal bond investments
247-248
The Firm's other business segments are also involved with VIES (both third-party and Firm-sponsored), but to a lesser extent,
as follows:
Asset & Wealth Management: AWM sponsors and manages certain funds that are deemed VIES. As asset manager of the
funds, AWM earns a fee based on assets managed; the fee varies with each fund's investment objective and is competitively
priced. For fund entities that qualify as VIES, AWM's interests are, in certain cases, considered to be significant variable
interests that result in consolidation of the financial results of these entities.
Assist clients in accessing the financial markets in a
cost-efficient manner and structures transactions to
meet investor needs
Commercial Banking: CB provides financing and lending-related services to a wide spectrum of clients, including certain
third-party-sponsored entities that may meet the definition of a VIE. CB does not control the activities of these entities and
does not consolidate these entities. CB's maximum loss exposure, regardless of whether the entity is a VIE, is generally
limited to loans and lending-related commitments which are reported and disclosed in the same manner as any other third-
party transaction.
In addition, CIB also invests in and provides financing and other services to VIES sponsored by third parties. Refer to page 249
of this Note for more information on the VIES sponsored by third parties.
Significant Firm-sponsored variable interest entities
Credit card securitizations
CCB's Card business securitizes originated credit card loans,
primarily through the Chase Issuance Trust (the “Trust”).
The Firm's continuing involvement in credit card
securitizations includes servicing the receivables, retaining
an undivided seller's interest in the receivables, retaining
certain senior and subordinated securities and maintaining
escrow accounts.
The Firm is considered to be the primary beneficiary of
these Firm-sponsored credit card securitization trusts based
on the Firm's ability to direct the activities of these VIES
through its servicing responsibilities and other duties,
including making decisions as to the receivables that are
transferred into those trusts and as to any related
modifications and workouts. Additionally, the nature and
extent of the Firm's other continuing involvement with the
trusts, as indicated above, obligates the Firm to absorb
244
losses and gives the Firm the right to receive certain
benefits from these VIES that could potentially be
significant.
The underlying securitized credit card receivables and other
assets of the securitization trusts are available only for
payment of the beneficial interests issued by the
securitization trusts; they are not available to pay the Firm's
other obligations or the claims of the Firm's creditors.
Corporate: Corporate is involved with entities that may meet the definition of VIES; however these entities are generally
subject to specialized investment company accounting, which does not require the consolidation of investments, including
VIES. In addition, Treasury and CIO invest in securities generally issued by third parties which may meet the definition of
VIES (e.g., issuers of asset-backed securities). In general, the Firm does not have the power to direct the significant
activities of these entities and therefore does not consolidate these entities. Refer to Note 10 for further information on the
Firm's investment securities portfolio.
Multi-seller conduits
CIB
245-247
$
368,014 $
974,646
975,152
JPMorgan Chase & Co./2018 Form 10-K
243
Notes to consolidated financial statements
Note 14 - Variable interest entities
For a further description of JPMorgan Chase's accounting policies regarding consolidation of VIES, refer to Note 1. Page 198
The following table summarizes the most significant types of Firm-sponsored VIES by business segment. The Firm considers a
"sponsored" VIE to include any entity where: (1) JPMorgan Chase is the primary beneficiary of the structure; (2) the VIE is
used by JPMorgan Chase to securitize Firm assets; (3) the VIE issues financial instruments with the JPMorgan Chase name; or
(4) the entity is a JPMorgan Chase-administered asset-backed commercial paper conduit.
Line of Business
Transaction Type
Activity
2018 Form 10-K
page references
Credit card securitization trusts
244-245
CCB
Mortgage securitization trusts
Mortgage and other securitization trusts
Securitization of originated credit card receivables
Servicing and securitization of both originated and
purchased residential mortgages
245-247
Securitization of both originated and purchased
residential and commercial mortgages, and other
consumer loans
The agreements with the credit card securitization trusts
require the Firm to maintain a minimum undivided interest
in the credit card trusts (generally 5%). As of December 31,
2018 and 2017, the Firm held undivided interests in Firm-
sponsored credit card securitization trusts of $15.1 billion
and $15.8 billion, respectively. The Firm maintained an
average undivided interest in principal receivables owned
by those trusts of approximately 37% and 26% for the
years ended December 31, 2018 and 2017. The Firm did
2018
JPMorgan Chase & Co./2018 Form 10-K
Firm-sponsored mortgage and other securitization trusts
The Firm securitizes (or has securitized) originated and
purchased residential mortgages, commercial mortgages
and other consumer loans primarily in its CCB and CIB
businesses. Depending on the particular transaction, as well
as the respective business involved, the Firm may act as the
servicer of the loans and/or retain certain beneficial
interests in the securitization trusts.
$
623 $
647 $
$
1,270
32
Commercial and other (b)
102,961
50,679
-
$ 183,040 $
3,269 $
15,434
79,387
145,500
53
53
783
$
1,459 $
Total
3,237 $
63,350 $
16,729
Subprime
The following table presents the total unpaid principal amount of assets held in Firm-sponsored private-label securitization
entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing
involvement includes servicing the loans, holding senior interests or subordinated interests (including amounts required to be
held pursuant to credit risk retention rules), recourse or guarantee arrangements, and derivative contracts. In certain
instances, the Firm's only continuing involvement is servicing the loans. Refer to Securitization activity on page 250 of this
Note for further information regarding the Firm's cash flows associated with and interests retained in nonconsolidated VIES,
and pages 250-251 of this Note for information on the Firm's loan sales to U.S. government agencies.
December 31, 2018 (in millions)
Securitization-related (a)
Principal amount outstanding
Assets held in
nonconsolidated
JPMorgan Chase interest in securitized assets in
nonconsolidated VIES(c)(d)(e)
Assets
Total assets
held in
held by
consolidated
securitization securitization
Total
interests
securitization
VIES with
VIES
VIES
continuing
involvement
Trading
assets
Investment
securities
Other
financial
assets
held by
JPMorgan
Chase
Residential mortgage:
Prime/Alt-A and option ARMS
$
not retain any senior securities and retained $3.0 billion
and $4.5 billion of subordinated securities in certain of its
credit card securitization trusts as of December 31, 2018
and 2017, respectively. The Firm's undivided interests in
the credit card trusts and securities retained are eliminated
in consolidation.
2018
2017
118 $
10
55
3,782
359
199
558
1,916
Total
$
3,661
1,449 $ 68,995 $
134
104
238
26,081 $
349 $
26,430
(a) Includes residential and commercial mortgage securitizations.
(b) Includes assets classified as cash and other assets on the Consolidated balance sheets.
(c) The assets of the consolidated VIES included in the program types above are used to settle the liabilities of those entities. The assets and liabilities include
third-party assets and liabilities of consolidated VIES and exclude intercompany balances that eliminate in consolidation.
(d) The interest-bearing beneficial interest liabilities issued by consolidated VIES are classified in the line item on the Consolidated balance sheets titled,
"Beneficial interests issued by consolidated variable interest entities." The holders of these beneficial interests generally do not have recourse to the
general credit of JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $13.7 billion and $21.8 billion at
December 31, 2018 and 2017, respectively. For additional information on interest-bearing long-term beneficial interests, refer to Note 19.
(e) Includes liabilities classified as accounts payable and other liabilities on the Consolidated balance sheets.
2,021
2,674 $ 73,118 $
248
66
105
Mortgage securitization entities(a)
41,923 $
23,411
652 $
42,575
$
21,278 $
16 $ 21,294
48
23,459
Other
3,045
3,073
Municipal bond vehicles
1,278
3
1,281
1,265
2
1,267
28
JPMorgan Chase & Co./2018 Form 10-K
506 $
367,508
553,891
$
1,068
1,035 $
$
$
33
$
909
26
883
881
848
33
169
$
169
$ - $ 1
-
26
$
$
1,052
53,247
53,247
$
990,751
991,482
369,367
370,098 $
$
$ 572,831
48,553
$
572,831
48,553
$
$
731
731 $
$
$
$
1,078
$
Firm-administered multi-seller conduits
$
$
Firm-sponsored credit card trusts
Liabilities
December 31, 2018 (in millions)
VIE program type
Trading
assets
Loans
Other(b)
Total
assets(c)
Beneficial
interests in
VIE assets(d)
Other(e)
Assets
Total
liabilities
$
Firm-administered multi-seller conduits
31,760 $
24,411
491 $
300
32,251 $
24,711
13,404 $
12 $
Firm-sponsored credit card trusts
The following table presents information on assets and liabilities related to VIES consolidated by the Firm as of December 31,
2018 and 2017.
TOB trusts are considered to be variable interest entities.
The Firm consolidates Non-Customer TOB trusts because as
the Residual holder, the Firm has the right to make
decisions that significantly impact the economic
performance of the municipal bond vehicle, and it has the
right to receive benefits and bear losses that could
potentially be significant to the municipal bond vehicle.
Holders of the floaters may "put," or tender, their floaters
to the TOB trust. If the remarketing agent cannot
successfully remarket the floaters to another investor, the
liquidity provider either provides a loan to the TOB trust for
the TOB trust's purchase of the floaters, or it directly
purchases the tendered floaters.
783
29
3,058
2,250
(a) Represents the principal amount and includes the notional amount of
interest-only securities.
As of December 31, 2018 and 2017, the Firm did not
consolidate any agency re-securitization VIES or any Firm-
sponsored private-label re-securitization VIES.
Multi-seller conduits
Multi-seller conduit entities are separate bankruptcy
remote entities that provide secured financing,
collateralized by pools of receivables and other financial
assets, to customers of the Firm. The conduits fund their
financing facilities through the issuance of highly rated
commercial paper. The primary source of repayment of the
commercial paper is the cash flows from the pools of assets.
In most instances, the assets are structured with deal-
specific credit enhancements provided to the conduits by
the customers (i.e., sellers) or other third parties. Deal-
specific credit enhancements are generally structured to
cover a multiple of historical losses expected on the pool of
assets, and are typically in the form of overcollateralization
provided by the seller. The deal-specific credit
enhancements mitigate the Firm's potential losses on its
agreements with the conduits.
To ensure timely repayment of the commercial paper, and
to provide the conduits with funding to provide financing to
customers in the event that the conduits do not obtain
funding in the commercial paper market, each asset pool
financed by the conduits has a minimum 100% deal-
specific liquidity facility associated with it provided by
JPMorgan Chase Bank, N.A. JPMorgan Chase Bank, N.A. also
provides the multi-seller conduit vehicles with uncommitted
program-wide liquidity facilities and program-wide credit
enhancement in the form of standby letters of credit. The
amount of program-wide credit enhancement required is
based upon commercial paper issuance and approximates
10% of the outstanding balance of commercial paper.
The Firm consolidates its Firm-administered multi-seller
conduits, as the Firm has both the power to direct the
significant activities of the conduits and a potentially
significant economic interest in the conduits. As
administrative agent and in its role in structuring
transactions, the Firm makes decisions regarding asset
types and credit quality, and manages the commercial
paper funding needs of the conduits. The Firm's interests
that could potentially be significant to the VIES include the
fees received as administrative agent and liquidity and
JPMorgan Chase & Co./2018 Form 10-K
program-wide credit enhancement provider, as well as the
potential exposure created by the liquidity and credit
enhancement facilities provided to the conduits. Refer to
page 248 of this Note for further information on
consolidated VIE assets and liabilities.
In the normal course of business, JPMorgan Chase makes
markets in and invests in commercial paper issued by the
Firm-administered multi-seller conduits. The Firm held
$20.1 billion and $20.4 billion of the commercial paper
issued by the Firm-administered multi-seller conduits at
December 31, 2018 and 2017, respectively, which have
been eliminated in consolidation. The Firm's investments
reflect the Firm's funding needs and capacity and were not
driven by market illiquidity. Other than the amounts
required to be held pursuant to credit risk retention rules,
the Firm is not obligated under any agreement to purchase
the commercial paper issued by the Firm-administered
multi-seller conduits.
Deal-specific liquidity facilities, program-wide liquidity and
credit enhancement provided by the Firm have been
eliminated in consolidation. The Firm or the Firm-
administered multi-seller conduits provide lending-related
commitments to certain clients of the Firm-administered
multi-seller conduits. The unfunded commitments were
$8.0 billion and $8.8 billion at December 31, 2018 and
2017, respectively, and are reported as off-balance sheet
lending-related commitments. For more information on off-
balance sheet lending-related commitments, refer to Note
27.
Municipal bond vehicles
Municipal bond vehicles or tender option bond ("TOB")
trusts allow institutions to finance their municipal bond
investments at short-term rates. In a typical TOB
transaction, the trust purchases highly rated municipal
bond(s) of a single issuer and funds the purchase by issuing
two types of securities: (1) puttable floating-rate
certificates ("floaters") and (2) inverse floating-rate
residual interests ("residuals"). The floaters are typically
purchased by money market funds or other short-term
investors and may be tendered, with requisite notice, to the
TOB trust. The residuals are retained by the investor seeking
to finance its municipal bond investment. TOB transactions
where the residual is held by a third-party investor are
typically known as customer TOB trusts, and non-customer
TOB trusts are transactions where the Residual is retained
by the Firm. Customer TOB trusts are sponsored by a third
party; refer to page 249 on this Note for further
information. The Firm serves as sponsor for all non-
customer TOB transactions. The Firm may provide various
services to a TOB trust, including remarketing agent,
liquidity or tender option provider, and/or sponsor.
J.P. Morgan Securities LLC may serve as a remarketing
agent on the floaters for TOB trusts. The remarketing agent
is responsible for establishing the periodic variable rate on
the floaters, conducting the initial placement and
remarketing tendered floaters. The remarketing agent may,
247
Notes to consolidated financial statements
but is not obligated to, make markets in floaters. Floaters
held by the Firm were not material during 2018 and 2017.
JPMorgan Chase Bank, N.A. or J.P. Morgan Securities LLC
often serves as the sole liquidity or tender option provider
for the TOB trusts. The liquidity provider's obligation to
perform is conditional and is limited by certain events
("Termination Events"), which include bankruptcy or failure
to pay by the municipal bond issuer or credit enhancement
provider, an event of taxability on the municipal bonds or
the immediate downgrade of the municipal bond to below
investment grade. In addition, the liquidity provider's
exposure is typically further limited by the high credit
quality of the underlying municipal bonds, the excess
collateralization in the vehicle, or, in certain transactions,
the reimbursement agreements with the Residual holders.
Consolidated VIE assets and liabilities
13,416
$
4,842
4,875
$
1,966 $ 59,456 $
1,013 $ 62,435
$
20,241 $
312 $
20,553
Assets
Total
Liabilities
Trading
assets
Loans
Other(b)
Total
assets(c)
Beneficial
interests in
VIE assets(d)
Other(e)
Total
liabilities
VIE program type
December 31, 2017 (in millions)
105
103
2
Municipal bond vehicles
1,779
4
1,783
1,685
3
1,688
Mortgage securitization entities(a)
53
3,285
40
3,378
308
161
469
Other
134
178
312
33
$ 553,891
506
(in millions)
LGD estimate is a judgment-based estimate assigned to
each loan or lending-related commitment. The estimate
represents the amount of economic loss if the obligor were
to default. The type of obligor, quality of collateral, and the
seniority of the Firm's lending exposure in the obligor's
capital structure affect LGD.
A PD estimate is determined based on the Firm's history of
defaults over more than one credit cycle.
The Firm assesses the credit quality of a borrower or
counterparty and assigns a risk rating. Risk ratings are
assigned at origination or acquisition, and if necessary,
adjusted for changes in credit quality over the life of the
exposure. In assessing the risk rating of a particular loan or
lending-related commitment, among the factors considered
are the obligor's debt capacity and financial flexibility, the
level of the obligor's earnings, the amount and sources for
repayment, the level and nature of contingencies,
management strength, and the industry and geography in
which the obligor operates. These factors are based on an
evaluation of historical and current information and involve
subjective assessment and interpretation. Determining risk
ratings involves significant judgment; emphasizing one
factor over another or considering additional factors could
affect the risk rating assigned by the Firm.
The Firm's methodology for determining the allowance for
loan losses and the allowance for lending-related
commitments involves the early identification of credits that
are deteriorating. The formula-based component of the
allowance for wholesale loans and lending-related
commitments is calculated by applying statistical credit loss
factors (estimated PD and LGD) to the recorded investment
balances or loan-equivalent over a loss emergence period to
arrive at an estimate of incurred credit losses in the
portfolio. Estimated loss emergence periods may vary by
the funded versus unfunded status of the instrument and
may change over time.
Formula-based component - Wholesale loans and lending-
related commitments
Notes to consolidated financial statements
239
The Firm applies judgment in estimating PD, LGD, loss
emergence period and loan-equivalent used in calculating
the allowance for credit losses. Estimates of PD, LGD, loss
emergence period and loan-equivalent used are subject to
periodic refinement based on any changes to underlying
external or Firm-specific historical data. Changes to the
time period used for PD and LGD estimates could also affect
the allowance for credit losses. The use of different inputs,
estimates or methodologies could change the amount of the
allowance for credit losses determined appropriate by the
Firm.
The statistical calculation is then adjusted to take into
consideration model imprecision, external factors and
current economic events that have occurred but that are not
yet reflected in the factors used to derive the statistical
calculation; these adjustments are accomplished in part by
analyzing the historical loss experience for each major
product segment. However, it is difficult to predict whether
historical loss experience is indicative of future loss levels.
Management applies judgment in making this adjustment,
taking into account uncertainties associated with current
macroeconomic and political conditions, quality of
underwriting standards, borrower behavior, and other
relevant internal and external factors affecting the credit
quality of the portfolio. In certain instances, the
interrelationships between these factors create further
uncertainties. The application of different inputs into the
statistical calculation, and the assumptions used by
management to adjust the statistical calculation, are subject
to management judgment, and emphasizing one input or
assumption over another, or considering other inputs or
assumptions, could affect the estimate of the allowance for
credit losses for the consumer credit portfolio.
JPMorgan Chase & Co./2018 Form 10-K
The formula-based allowance for credit losses for the
consumer portfolio segments is calculated by applying
statistical credit loss factors (estimated PD and loss
severities) to the recorded investment balances or loan-
equivalent amounts of pools of loan exposures with similar
risk characteristics over a loss emergence period to arrive
at an estimate of incurred credit losses. Estimated loss
emergence periods may vary by product and may change
over time; management applies judgment in estimating loss
emergence periods, using available credit information and
trends. In addition, management applies judgment to the
statistical loss estimates for each loan portfolio category,
using delinquency trends and other risk characteristics to
estimate the total incurred credit losses in the portfolio.
Management uses additional statistical methods and
considers actual portfolio performance, including actual
losses recognized on defaulted loans and collateral
valuation trends, to review the appropriateness of the
primary statistical loss estimate. The economic impact of
The formula-based component is based on a statistical
calculation to provide for incurred credit losses in all
consumer loans and performing risk-rated loans. All loans
restructured in TDRs as well as any impaired risk-rated
loans have an allowance assessed as part of the asset-
specific component, while PCI loans have an allowance
assessed as part of the PCI component. Refer to Note 12 for
more information on TDRs, Impaired loans and PCI loans.
Formula-based component - Consumer loans and certain
lending-related commitments
Formula-based component
JPMorgan Chase's allowance for loan losses represents
management's estimate of probable credit losses inherent
in the Firm's retained loan portfolio, which consists of the
two consumer portfolio segments (primarily scored) and
the wholesale portfolio segment (risk-rated). The allowance
for loan losses includes a formula-based component, an
asset-specific component, and a component related to PCI
loans, as described below. Management also estimates an
allowance for wholesale and certain consumer lending-
related commitments using methodologies similar to those
used to estimate the allowance on the underlying loans.
The Firm's policies used to determine its allowance for
credit losses are described in the following paragraphs.
Determining the appropriateness of the allowance is
complex and requires judgment by management about the
effect of matters that are inherently uncertain. Subsequent
evaluations of the loan portfolio, in light of the factors then
prevailing, may result in significant changes in the
allowances for loan losses and lending-related
commitments in future periods. At least quarterly, the
allowance for credit losses is reviewed by the CRO, the CFO
and the Controller of the Firm. As of December 31, 2018,
JPMorgan Chase deemed the allowance for credit losses to
be appropriate and sufficient to absorb probable credit
losses inherent in the portfolio.
Note 13 - Allowance for credit losses
Consumer,
excluding
credit card
potential modifications of residential real estate loans is not
included in the statistical calculation because of the
uncertainty regarding the type and results of such
modifications.
In addition to the statistical credit loss estimates applied to
the wholesale portfolio, management applies its judgment
to adjust the statistical estimates for wholesale loans and
lending-related commitments, taking into consideration
model imprecision, external factors and economic events
that have occurred but are not yet reflected in the loss
factors. Historical experience of both LGD and PD are
Overall, the allowance for credit losses for consumer
portfolios is sensitive to changes in the economic
environment (e.g., unemployment rates), delinquency rates,
the realizable value of collateral (e.g., housing prices), FICO
scores, borrower behavior and other risk factors. While all
of these factors are important determinants of overall
allowance levels, changes in the various factors may not
occur at the same time or at the same rate, or changes may
be directionally inconsistent such that improvement in one
factor may offset deterioration in another. In addition,
changes in these factors would not necessarily be consistent
across all geographies or product types. Finally, it is difficult
to predict the extent to which changes in these factors
would ultimately affect the frequency of losses, the severity
of losses or both.
considered when estimating these adjustments. Factors
related to concentrated and deteriorating industries also
are incorporated where relevant. These estimates are based
on management's view of uncertainties that relate to
current macroeconomic conditions, quality of underwriting
standards and other relevant internal and external factors
affecting the credit quality of the current portfolio.
240
Year ended December 31,
(Table continued on next page)
The table below summarizes information about the allowances for loan losses and lending-relating commitments, and includes
a breakdown of loans and lending-related commitments by impairment methodology.
Allowance for credit losses and related information
Notes to consolidated financial statements
JPMorgan Chase & Co./2018 Form 10-K
These cash flow projections are based on estimates
regarding default rates (including redefault rates on
modified loans), loss severities, the amounts and timing of
prepayments and other factors that are reflective of current
and expected future market conditions. These estimates are
dependent on assumptions regarding the level of future
home prices, and the duration of current overall economic
conditions, among other factors. These estimates and
assumptions require significant management judgment and
certain assumptions are highly subjective.
241
PCI loans
Estimating the timing and amounts of future cash flows is
highly judgmental as these cash flow projections rely upon
estimates such as loss severities, asset valuations, default
rates (including redefault rates on modified loans), the
amounts and timing of interest or principal payments
(including any expected prepayments) or other factors that
are reflective of current and expected market conditions.
These estimates are, in turn, dependent on factors such as
the duration of current overall economic conditions,
industry-, portfolio-, or borrower-specific factors, the
expected outcome of insolvency proceedings as well as, in
certain circumstances, other economic factors, including
the level of future home prices. All of these estimates and
assumptions require significant management judgment and
certain assumptions are highly subjective.
JPMorgan Chase & Co./2018 Form 10-K
The asset-specific component of the allowance for impaired
loans that have been modified in TDRS (including forgone
interest, principal forgiveness, as well as other concessions)
incorporates the effect of the modification on the loan's
expected cash flows, which considers the potential for
redefault. For residential real estate loans modified in TDRS,
the Firm develops product-specific probability of default
estimates, which are applied at a loan level to compute
expected losses. In developing these probabilities of
default, the Firm considers the relationship between the
credit quality characteristics of the underlying loans and
certain assumptions about home prices and unemployment,
based upon industry-wide data. The Firm also considers its
own historical loss experience to-date based on actual
redefaulted modified loans. For credit card loans modified
in TDRs, expected losses incorporate projected redefaults
based on the Firm's historical experience by type of
modification program. For wholesale loans modified in
TDRs, expected losses incorporate management's
expectation of the borrower's ability to repay under the
modified terms.
The Firm generally measures the asset-specific allowance as
the difference between the recorded investment in the loan
and the present value of the cash flows expected to be
collected, discounted at the loan's original effective interest
rate. Subsequent changes in impairment are reported as an
adjustment to the allowance for loan losses. In certain
cases, the asset-specific allowance is determined using an
observable market price, and the allowance is measured as
the difference between the recorded investment in the loan
and the loan's fair value. Collateral-dependent loans are
charged down to the fair value of collateral less costs to
sell. For any of these impaired loans, the amount of the
asset-specific allowance required to be recorded, if any, is
dependent upon the recorded investment in the loan
(including prior charge-offs), and either the expected cash
flows or fair value of collateral. Refer to Note 12 for more
information about charge-offs and collateral-dependent
loans.
The asset-specific component of the allowance relates to
loans considered to be impaired, which includes loans that
have been modified in TDRS as well as risk-rated loans that
have been placed on nonaccrual status. To determine the
asset-specific component of the allowance, larger risk-rated
loans (primarily loans in the wholesale portfolio segment)
are evaluated individually, while smaller loans (both risk-
rated and scored) are evaluated as pools using historical
loss experience for the respective class of assets.
Asset-specific component
In connection with the acquisition of certain PCI loans,
which are accounted for as described in Note 12, the
allowance for loan losses for the PCI portfolio is based on
quarterly estimates of the amount of principal and interest
cash flows expected to be collected over the estimated
remaining lives of the loans.
time deposits were as follows.
2022
December 31, 2018
(in millions)
2019
2020
2021
2023
6,309
256
U.S.
Non-U.S.
Total
$ 31,757
$ 40,259 $ 72,016
229
At December 31, 2018, the maturities of interest-bearing
After 5 years
Total
$ 66,780 $ 59,720
$6,374 at fair value) (a)
Total
Interest-bearing (included $3,526 and
6,538
250,984
241,143
Total deposits in non-U.S. offices
270,076
256,719
Total deposits
$ 1,470,666
$1,443,982
(a) Includes structured notes classified as deposits for which the fair value
option has been elected. For further discussion, refer to Note 3.
At December 31, 2018 and 2017, time deposits in
denominations of $250,000 or more were as follows.
December 31, (in millions)
2018
2017
U.S. offices
Non-U.S. offices
$ 25,119 $ 30,671
41,661
29,049
5,235
$
258
6,958
$
Total long-term beneficial
interests (e)
0.00-6.54%
13,579
8,192
$
7,611
6,103
0.00-4.62%
2.50-4.62%
308
$
$
2,977
3,471
0.00-3.01%
1.27-2.87%
Interest rates
$
4,634
2,324
Variable rate
$
JPMorgan Chase & Co./2018 Form 10-K
6,448
308
Junior subordinated deferrable interest debentures
On September 10, 2018 the Firm's last remaining issuer of
outstanding trust preferred securities ("issuer trust") was
liquidated, resulting in $475 million of trust preferred
securities and $15 million of trust common securities
originally issued by the issuer trust being cancelled. The
junior subordinated debentures previously held by the trust
issuer were distributed pro rata to the holders of the trust
preferred and trust common securities. The carrying value
of the junior subordinated debt was $659 million as of
December 31, 2018.
The Firm's unsecured debt does not contain requirements
that would call for an acceleration of payments, maturities
or changes in the structure of the existing debt, provide any
limitations on future borrowings or require additional
collateral, based on unfavorable changes in the Firm's credit
ratings, financial ratios, earnings or stock price.
JPMorgan Chase & Co. has guaranteed certain long-term
debt of its subsidiaries, including both long-term debt and
structured notes. These guarantees rank on parity with the
Firm's other unsecured and unsubordinated indebtedness.
The amount of such guaranteed long-term debt and
structured notes was $10.9 billion and $7.9 billion at
December 31, 2018 and 2017, respectively.
The weighted-average contractual interest rates for total
long-term debt excluding structured notes accounted for at
fair value were 3.28% and 2.87% as of December 31,
2018 and 2017, respectively. In order to modify exposure
to interest rate and currency exchange rate movements,
JPMorgan Chase utilizes derivative instruments, primarily
interest rate and cross-currency interest rate swaps, in
conjunction with some of its debt issuances. The use of
these instruments modifies the Firm's interest expense on
the associated debt. The modified weighted-average
interest rates for total long-term debt, including the effects
of related derivative instruments, were 3.64% and 2.56%
as of December 31, 2018 and 2017, respectively.
Notes to consolidated financial statements
257
JPMorgan Chase & Co./2018 Form 10-K
(g) The aggregate carrying values of debt that matures in each of the five years subsequent to 2018 is $32.4 billion in 2019, $46.7 billion in 2020, $40.0 billion in 2021, $16.3
billion in 2022 and $26.4 billion in 2023.
(f) At December 31, 2018, long-term debt in the aggregate of $138.2 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior to maturity, based on the
terms specified in the respective instruments.
(e) Included on the Consolidated balance sheets in beneficial interests issued by consolidated VIES. Also included $28 million and $45 million accounted for at fair value at
December 31, 2018 and 2017, respectively. Excluded short-term commercial paper and other short-term beneficial interests of $6.5 billion and $4.3 billion at December 31,
2018 and 2017, respectively.
(d) Included $11.2 billion and $10.3 billion of outstanding zero-coupon notes at December 31, 2018 and 2017, respectively. The aggregate principal amount of these notes at their
respective maturities is $37.4 billion and $33.5 billion, respectively. The aggregate principal amount reflects the contractual principal payment at maturity, which may exceed
the contractual principal payment at the Firm's next call date, if applicable.
(c) Included $54.9 billion and $47.5 billion of long-term debt accounted for at fair value at December 31, 2018 and 2017, respectively.
(b) Included long-term debt of $47.7 billion and $63.5 billion secured by assets totaling $207.0 billion and $208.4 billion at December 31, 2018 and 2017, respectively. The
amount of long-term debt secured by assets does not include amounts related to hybrid instruments.
(a) The interest rates shown are the range of contractual rates in effect at December 31, 2018 and 2017, respectively, including non-U.S. dollar fixed- and variable-rate issuances,
which excludes the effects of the associated derivative instruments used in hedge accounting relationships, if applicable. The use of these derivative instruments modifies the
Firm's exposure to the contractual interest rates disclosed in the table above. Including the effects of the hedge accounting derivatives, the range of modified rates in effect at
December 31, 2018, for total long-term debt was (0.06) % to 8.88%, versus the contractual range of 0.17% to 8.75% presented in the table above. The interest rate ranges
shown exclude structured notes accounted for at fair value.
$ 21,771
13,714
15,576
$
19,092
2017
Non-U.S. offices
(70)
(30)
(91)
Change in derivative fair value
and other
(341)
(10)
380
Total risk management
(111)
(242)
217
Total net mortgage servicing
revenue
984
977
1,637
assumptions in model (b)
Changes in fair value based on variations in assumptions
generally cannot be easily extrapolated, because the
relationship of the change in the assumptions to the change
in fair value are often highly interrelated and may not be
linear. In this table, the effect that a change in a particular
assumption may have on the fair value is calculated without
changing any other assumption. In reality, changes in one
factor may result in changes in another, which would either
magnify or counteract the impact of the initial change.
value due to other inputs and
(72)
due to collection/realization of
expected cash flows
(740)
(795) (916)
Impact on fair value of 200 basis points
adverse change
(452)
(481)
Total operating revenue
1,095
1,219
1,420
Risk management:
CPR: Constant prepayment rate.
Changes in MSR asset fair value
due to market interest rates
and other (a)
300
(202)
Other changes in MSR asset fair
Total CCB mortgage fees and
related income
1,252
1,613
Fixed rate
$ 369,505 $ 393,645
Note 18 - Accounts payable and other liabilities
Accounts payable and other liabilities consist of brokerage
payables, which includes payables to customers, dealers
and clearing organizations, and payables from security
purchases that did not settle; accrued expenses, including
income tax payables and credit card rewards liability; and
all other liabilities, including obligations to return securities
received as collateral and litigation reserves.
The following table details the components of accounts
payable and other liabilities.
December 31, (in millions)
Brokerage payables
Other payables and liabilities (a)
Total accounts payable and other
liabilities
2018
$ 114,794
81,916
2017
$ 102,727
86,656
$ 196,710 $ 189,383
(a) Includes credit card rewards liability of $5.8 billion and $4.9 billion at
December 31, 2018 and 2017, respectively.
$14,947 at fair value)(a)
Total deposits in U.S. offices
831,085
793,618
1,200,590
1,187,263
2018
Interest-bearing (included $19,691, and
Noninterest-bearing
U.S. offices
2,490
All other
2
3
1
Mortgage fees and related income
$1,254
$ 1,616
Noninterest-bearing
$2,491
JPMorgan Chase & Co./2018 Form 10-K
255
Notes to consolidated financial statements
Note 16 - Premises and equipment
Premises and equipment, including leasehold
improvements, are carried at cost less accumulated
depreciation and amortization. JPMorgan Chase computes
depreciation using the straight-line method over the
estimated useful life of an asset. For leasehold
improvements, the Firm uses the straight-line method
computed over the lesser of the remaining term of the
leased facility or the estimated useful life of the leased
asset.
JPMorgan Chase capitalizes certain costs associated with
the acquisition or development of internal-use software.
Once the software is ready for its intended use, these costs
are amortized on a straight-line basis over the software's
expected useful life and reviewed for impairment on an
ongoing basis.
Note 17 - Deposits
At December 31, 2018 and 2017, noninterest-bearing and
interest-bearing deposits were as follows.
December 31, (in millions)
(a) Represents both the impact of changes in estimated future
prepayments due to changes in market interest rates, and the
difference between actual and expected prepayments.
(b) Represents the aggregate impact of changes in model inputs and
assumptions such as projected cash flows (e.g., cost to service),
discount rates and changes in prepayments other than those
attributable to changes in market interest rates (e.g., changes in
prepayments due to changes in home prices).
Long-term beneficial
interests:
$
$
3.63-8.00%
3.38%
8.53%
Interest rates (a)
9
9
9
-
Variable rate
14,646
$
$ 14,308
$ 12,214
1,948
$
146
$
3.38-8.53%
Fixed rate
3.38-8.53%
$
11,000
Variable rate
$
25
$
12
$
Fixed rate
Federal Home Loan Banks
advances:
Subsidiaries
182,667
$
$ 183,115
$ 98,639
71,335
$
13,141
Subtotal
Subordinated debt:
141,551
26,461
0.16-7.25%
0.17-6.40%
2018
Parent company
(in millions, except rates)
By remaining maturity at
December 31,
JPMorgan Chase issues long-term debt denominated in various currencies, predominantly U.S. dollars, with both fixed and
variable interest rates. Included in senior and subordinated debt below are various equity-linked or other indexed instruments,
which the Firm has elected to measure at fair value. Changes in fair value are recorded in principal transactions revenue in the
Consolidated statements of income, except for unrealized gains/(losses) due to DVA which are recorded in OCI. The following
table is a summary of long-term debt carrying values (including unamortized premiums and discounts, issuance costs,
valuation adjustments and fair value adjustments, where applicable) by remaining contractual maturity as of December 31,
2018.
Note 19 - Long-term debt
JPMorgan Chase & Co./2018 Form 10-K
$ 51,419 $ 43,075 $ 94,494
5,538
2,023
3,515
2,091
372
1,719
3,057
173
2,884
Under 1 year
1-5 years
After 5 years
Total
0.45-6.40%
22,978
$
145,820
$
81,500
4,916
$
55,362
14,025
0.23-4.95%
29,300
0.17-6.30%
4,037
Variable rate
$
8,958
Fixed rate
Senior debt:
Total
2017
Interest rates (a)
284,080
118
4,000
155
-%
-%
Interest rates (a)
1,585
1,466
- 1,466
Variable rate
690
$
659
$
659
99,138
$
96,791
$
19,482
3.04-8.75%
$
$
3.04-8.75%
Subtotal
282,031 (f)(g)
$
120,246
$
$ 129,391
32,394
$
Total long-term debt (b)(c)(d)
2,275
$
2,125
$
2,125
$
-
$ (235) $ (250)
$
1.88-8.75%
$
$
Fixed rate
6,454
22,277
2.60-7.50%
1.65-7.50%
$
1,574
6,667
Variable rate
Interest rates (a)
$
Fixed rate
Senior debt:
60,450
1.18-2.00%
2.36-2.96%
2.43-2.52%
2.36-2.96%
2.58-2.95%
Interest rates (a)
44,300
167
$
$
8,406
6,657
1.00-7.50%
$ 16,434
35,601
$ 11,990
Junior subordinated debt:
58,056
$
Subtotal $ 19,253
8.25%
8.25%
8.25%
-%
$
-%
$
301
$
$ - $ - $ 301
Fixed rate
Variable rate
Interest rates(a)
Subordinated debt:
26,218
0.22-7.50%
1.00-7.50%
313
9.04%
December 31,
(427)
63,542
51,852
Total proceeds received from
loan sales(b)
$
Gains/(losses) on loan sales(c)(d)
$
43,680 $
(93) $
63,659 $
163 $
52,444
222
foreclosure process in accordance with the applicable
requirements, and such loans continue to be insured or
guaranteed. When the Firm's repurchase option becomes
exercisable, such loans must be reported on the
Consolidated balance sheets as a loan with a corresponding
liability. For additional information, refer to Note 12.
The following table presents loans the Firm repurchased or
had an option to repurchase, real estate owned, and
foreclosed government-guaranteed residential mortgage
loans recognized on the Firm's Consolidated balance sheets
as of December 31, 2018 and 2017. Substantially all of
these loans and real estate are insured or guaranteed by
U.S.government agencies.
(a) Predominantly includes securities from U.S. GSEs and Ginnie Mae that
are generally sold shortly after receipt.
(b) Excludes the value of MSRS retained upon the sale of loans.
(c) Gains/(losses) on loan sales include the value of MSRs.
(d) The carrying value of the loans accounted for at fair value
approximated the proceeds received upon loan sale.
Options to repurchase delinquent loans
In addition to the Firm's obligation to repurchase certain
loans due to material breaches of representations and
warranties as discussed in Note 27, the Firm also has the
option to repurchase delinquent loans that it services for
Ginnie Mae loan pools, as well as for other U.S. government
agencies under certain arrangements. The Firm typically
elects to repurchase delinquent loans from Ginnie Mae loan
pools as it continues to service them and/or manage the
Loan delinquencies and liquidation losses
December 31,
43,671
(in millions)
Proceeds from loans sales as
securities (a)
117 $
Loans and excess MSRS sold to U.S. government-
sponsored enterprises, loans in securitization
transactions pursuant to Ginnie Mae guidelines, and other
third-party-sponsored securitization entities
In addition to the amounts reported in the securitization
activity tables above, the Firm, in the normal course of
business, sells originated and purchased mortgage loans
and certain originated excess MSRS on a nonrecourse basis,
predominantly to U.S. government-sponsored enterprises
("U.S. GSES"). These loans and excess MSRs are sold
primarily for the purpose of securitization by the U.S. GSES,
who provide certain guarantee provisions (e.g., credit
enhancement of the loans). The Firm also sells loans into
securitization transactions pursuant to Ginnie Mae
guidelines; these loans are typically insured or guaranteed
by another U.S. government agency. The Firm does not
consolidate the securitization vehicles underlying these
transactions as it is not the primary beneficiary. For a
limited number of loan sales, the Firm is obligated to share
a portion of the credit risk associated with the sold loans
with the purchaser. Refer to Note 27 for additional
information about the Firm's loan sales and securitization-
related indemnifications. Refer to Note 15 for additional
information about the impact of the Firm's sale of certain
excess MSRS.
JPMorgan Chase & Co./2018 Form 10-K
The following table summarizes the activities related to
loans sold to the U.S. GSES, loans in securitization
transactions pursuant to Ginnie Mae guidelines, and other
third-party-sponsored securitization entities.
Year ended December 31,
(in millions)
2018
2017
2016
Carrying value of loans sold
$
44,609 $ 64,542 $
52,869
Proceeds received from loan
sales as cash
$
9 $
592
250
2018
Loans repurchased or option to repurchase (a)
2017
90 days past due
2018
2017
2018
Net liquidation losses(a)
2017
$ 50,679 $ 52,280
15,434
79,387
$
17,612
63,411
$ 145,500 $133,303 $
3,354 $
2,478
225
6,057 $ 9,103 $
4,870
610 $
790
3,276
(169)
719
957
280
2018
2017
Securitized assets
Commercial and other
7,021 $
8,629
Real estate owned
75
95
Foreclosed government-guaranteed residential
mortgage loans (b)
361
527
(a) Predominantly all of these amounts relate to loans that have been
repurchased from Ginnie Mae loan pools.
(b) Relates to voluntary repurchases of loans, which are included in
accrued interest and accounts receivable.
The table below includes information about components of nonconsolidated securitized financial assets held in Firm-sponsored
private-label securitization entities, in which the Firm has continuing involvement, and delinquencies as of December 31, 2018
and 2017.
As of or for the year ended December 31, (in millions)
Securitized loans
Residential mortgage:
Prime/ Alt-A & option ARMS
Subprime
Total loans securitized
6.2
5.8%
7.1
4.4%
4.0%
2017
2016
Residential
mortgage(f)
Commercial
and other(g)
Residential
mortgage(f)
Commercial
and other(s)
Residential
mortgage(f)
$
6,431 $
10,159
$
5,532 $
10,252
$
1,817 $
Commercial
and other(g)
8,964
Proceeds received from loan sales as financial
instruments(b)(c)
2018
Servicing fees collected (d)
All cash flows during the period:(a)
Year ended December 31,
5,254
VIES sponsored by third parties
The Firm enters into transactions with VIES structured by
other parties. These include, for example, acting as a
derivative counterparty, liquidity provider, investor,
underwriter, placement agent, remarketing agent, trustee
or custodian. These transactions are conducted at arm's-
length, and individual credit decisions are based on the
analysis of the specific VIE, taking into consideration the
quality of the underlying assets. Where the Firm does not
have the power to direct the activities of the VIE that most
significantly impact the VIE's economic performance, or a
variable interest that could potentially be significant, the
Firm generally does not consolidate the VIE, but it records
and reports these positions on its Consolidated balance
sheets in the same manner it would record and report
positions in respect of any other third-party transaction.
Tax credit vehicles
The Firm holds investments in unconsolidated tax credit
vehicles, which are limited partnerships and similar entities
that construct, own and operate affordable housing,
alternative energy, and other projects. These entities are
primarily considered VIES. A third party is typically the
general partner or managing member and has control over
the significant activities of the tax credit vehicles, and
accordingly the Firm does not consolidate tax credit
vehicles. The Firm generally invests in these partnerships as
a limited partner and earns a return primarily through the
receipt of tax credits allocated to the projects. The
maximum loss exposure, represented by equity investments
and funding commitments, was $16.5 billion and $13.4
billion, of which $4.0 billion and $3.2 billion was unfunded
at December 31, 2018 and 2017, respectively. In order to
reduce the risk of loss, the Firm assesses each project and
withholds varying amounts of its capital investment until
the project qualifies for tax credits. Refer to Note 24 for
further information on affordable housing tax credits. For
more information on off-balance sheet lending-related
commitments, refer to Note 27.
Customer municipal bond vehicles (TOB trusts)
The Firm may provide various services to Customer TOB
trusts, including remarketing agent, liquidity or tender
option provider. In certain Customer TOB transactions, the
Firm, as liquidity provider, has entered into a
reimbursement agreement with the Residual holder. In
those transactions, upon the termination of the vehicle, the
Firm has recourse to the third-party Residual holders for
any shortfall. The Firm does not have any intent to protect
Residual holders from potential losses on any of the
underlying municipal bonds. The Firm does not consolidate
Customer TOB trusts, since the Firm does not have the
power to make decisions that significantly impact the
economic performance of the municipal bond vehicle. The
Firm's maximum exposure as a liquidity provider to
Customer TOB trusts at December 31, 2018 and 2017, was
$4.8 billion and $5.3 billion, respectively. The fair value of
assets held by such VIES at December 31, 2018 and 2017
was $7.7 billion and $9.2 billion, respectively. For more
information on off-balance sheet lending-related
commitments, refer to Note 27.
Loan securitizations
The Firm has securitized and sold a variety of loans,
including residential mortgage, credit card, and commercial
mortgage. The purposes of these securitization transactions
were to satisfy investor demand and to generate liquidity
for the Firm.
For loan securitizations in which the Firm is not required to
consolidate the trust, the Firm records the transfer of the
loan receivable to the trust as a sale when all of the
following accounting criteria for a sale are met: (1) the
transferred financial assets are legally isolated from the
Firm's creditors; (2) the transferee or beneficial interest
holder can pledge or exchange the transferred financial
assets; and (3) the Firm does not maintain effective control
over the transferred financial assets (e.g., the Firm cannot
repurchase the transferred assets before their maturity and
it does not have the ability to unilaterally cause the holder
to return the transferred assets).
For loan securitizations accounted for as a sale, the Firm
recognizes a gain or loss based on the difference between
the value of proceeds received (including cash, beneficial
interests, or servicing assets received) and the carrying
value of the assets sold. Gains and losses on securitizations
are reported in noninterest revenue.
JPMorgan Chase & Co./2018 Form 10-K
249
Notes to consolidated financial statements
Securitization activity
The following table provides information related to the Firm's securitization activities for the years ended December 31, 2018,
2017 and 2016, related to assets held in Firm-sponsored securitization entities that were not consolidated by the Firm, and
where sale accounting was achieved at the time of the securitization.
(in millions)
Principal securitized
$
6,449 $
319
10,218
(f) Includes prime mortgages only. Excludes certain loan securitization transactions entered into with Ginnie Mae, Fannie Mae and Freddie Mac.
(g) Includes commercial mortgage and other consumer loans.
Key assumptions used to value retained interests originated
during the year are shown in the table below.
Year ended December 31,
2018
2017
2016
Residential mortgage retained interest:
Weighted-average life (in years)
7.6
Weighted-average discount rate
3.6%
4.8
2.9%
4.5
4.2%
Commercial mortgage retained interest:
Weighted-average life (in years)
5.3
Weighted-average discount rate
(e) Includes cash paid by the Firm to reacquire assets from nonconsolidated entities - for example, loan repurchases due to representation and warranties and servicer
"clean-up" calls.
(c) The carrying value of the loans accounted for at fair value approximated the proceeds received upon loan sale.
(d) The prior period amounts have been revised to conform with the current period presentation.
(b) Predominantly includes Level 2 assets.
(a) Excludes re-securitization transactions.
$
2
5,661 $
338
10,340
$
3
1,831 $
477
9,094
3
114
Purchases of previously transferred financial assets (or
the underlying collateral) (e)
1
37
411
301
463
918
482
1,441
Cash flows received on interests
721 $
1,623
(a) Includes liquidation gains as a result of private label mortgage settlement payments during the first quarter of 2018, which were reflected as asset recoveries by
trustees.
(63)
Total changes in valuation due to other inputs and assumptions
(70)
(30)
(91)
Total changes in valuation due to inputs and assumptions
230
(232)
(163)
Fair value at December 31,
$
6,130
$
6,030 $
6,096
Change in unrealized gains/(losses) included in income related to MSRs held at December 31,
Contractual service fees, late fees and other ancillary fees included in income
$
91
230
(109)
(19)
(109)
610
963
570
(740)
(797)
(919)
300
(202)
(72)
Projected cash flows (e.g., cost to service)
15
(102)
(35)
Discount rates
Prepayment model changes and other (c)
24
7
$
(232) $
(163)
The table below outlines the key economic assumptions
used to determine the fair value of the Firm's MSRs at
December 31, 2018 and 2017, and outlines the
sensitivities of those fair values to immediate adverse
changes in those assumptions, as defined below.
(in millions, except rates)
2018
2017
Weighted-average prepayment speed
$ 268 $ 636 $ 853
assumption ("CPR")
8.78%
Net mortgage servicing revenue:
Operating revenue:
Loan servicing revenue
1,835
2,014
2,336
Changes in MSR asset fair value
Impact on fair value of 10% adverse change $ (205) $ (221)
Impact on fair value of 20% adverse change
Weighted-average option adjusted spread
Impact on fair value of 100 basis points
adverse change
(397)
2016
2017
2018
Net production revenue
Third-party mortgage loans serviced at December 31, (in billions)
1,778
521.0
1,886
2,124
555.0
593.3
Servicer advances, net of an allowance for uncollectible amounts, at December 31, (in billions) (d)
3.0
(140)
4.0
(a) Includes excess MSRs transferred to agency-sponsored trusts in exchange for stripped mortgage backed securities ("SMBS"). In each transaction, a
portion of the SMBS was acquired by third parties at the transaction date; the Firm acquired the remaining balance of those SMBS as trading securities.
(b) Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and
expected prepayments.
(c) Represents changes in prepayments other than those attributable to changes in market interest rates.
(d) Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest, taxes and insurance), which will generally be reimbursed within
a short period of time after the advance from future cash flows from the trust or the underlying loans. The Firm's credit risk associated with these servicer
advances is minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right
to stop payment to investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if
they were not made in accordance with applicable rules and agreements.
254
JPMorgan Chase & Co./2018 Form 10-K
The following table presents the components of mortgage
fees and related income (including the impact of MSR risk
management activities) for the years ended December 31,
2018, 2017 and 2016.
Year ended December 31,
(in millions)
CCB mortgage fees and related
income
4.7
8.70%
(636)
679
6,858
6,858
$ 47,471 $ 47,507 $47,288
The following table presents changes in the carrying
amount of goodwill.
Year ended December 31, (in
millions)
Balance at beginning of period
Changes during the period from:
Business combinations(a)
Dispositions (b)
Other(c)
Balance at December 31,
2018
2017
$ 47,507 $ 47,288
(36)
199
20
6,857
2016
$ 47,325
6,772
2,861
2,860
JPMorgan Chase & Co./2018 Form 10-K
251
Notes to consolidated financial statements
Note 15 - Goodwill and Mortgage servicing rights
Goodwill
Goodwill is recorded upon completion of a business
combination as the difference between the purchase price
and the fair value of the net assets acquired. Subsequent to
initial recognition, goodwill is not amortized but is tested
for impairment during the fourth quarter of each fiscal
year, or more often if events or circumstances, such as
adverse changes in the business climate, indicate there may
be impairment.
The goodwill associated with each business combination is
allocated to the related reporting units, which are
determined based on how the Firm's businesses are
managed and how they are reviewed by the Firm's
Operating Committee. The following table presents goodwill
attributed to the business segments.
December 31, (in millions)
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
Total goodwill
2018
2017
2016
6,770
$ 30,984 $31,013 $30,797
6,776
2,860
(72)
35
$ 47,471 $ 47,507 $ 47,288
(a) For 2017, represents CCB goodwill in connection with an acquisition.
(b) For 2016, represents AWM goodwill, which was disposed of as part of
a sale.
2016
$
6,030
$ 6,096
$
6,608
MSR activity:
Originations of MSRS
Purchase of MSRS
Disposition of MSRs (a)
Net additions
Changes due to collection/realization of expected cash flows
Changes in valuation due to inputs and assumptions:
Changes due to market interest rates and other(b)
Changes in valuation due to other inputs and assumptions:
931
1,103
2017
2018
Fair value at beginning of period
As of or for the year ended December 31, (in millions, except where otherwise noted)
(c) Includes foreign currency remeasurement and other adjustments.
Goodwill impairment testing
The Firm's goodwill was not impaired at December 31,
2018, 2017, and 2016.
The goodwill impairment test is performed in two steps. In
the first step, the current fair value of each reporting unit is
compared with its carrying value. If the fair value is in
excess of the carrying value, then the reporting unit's
goodwill is considered not to be impaired. If the fair value is
less than the carrying value, then a second step is
performed. In the second step, the implied current fair
value of the reporting unit's goodwill is determined by
comparing the fair value of the reporting unit (as
determined in step one) to the fair value of the net assets of
the reporting unit, as if the reporting unit were being
acquired in a business combination. The resulting implied
current fair value of goodwill is then compared with the
carrying value of the reporting unit's goodwill. If the
carrying value of the goodwill exceeds its implied current
fair value, then an impairment charge is recognized for the
excess. If the carrying value of goodwill is less than its
implied current fair value, then no goodwill impairment is
recognized.
The Firm uses the reporting units' allocated capital plus
goodwill and other intangible assets capital as a proxy for
the carrying values of equity for the reporting units in the
goodwill impairment testing. Reporting unit equity is
determined on a similar basis as the allocation of capital to
the Firm's lines of business and takes into consideration
capital level of similarly-rated peers and applicable
regulatory requirements. Proposed line of business equity
levels are incorporated into the Firm's annual budget
process, which is reviewed by the Firm's Board of Directors.
Allocated capital is further reviewed on a periodic basis and
updated as needed.
252
JPMorgan Chase & Co./2018 Form 10-K
The primary method the Firm uses to estimate the fair
value of its reporting units is the income approach. This
approach projects cash flows for the forecast period and
uses the perpetuity growth method to calculate terminal
values. These cash flows and terminal values are then
discounted using an appropriate discount rate. Projections
of cash flows are based on the reporting units' earnings
forecasts which are reviewed with senior management of
the Firm. The discount rate used for each reporting unit
represents an estimate of the cost of equity for that
reporting unit and is determined considering the Firm's
overall estimated cost of equity (estimated using the Capital
Asset Pricing Model), as adjusted for the risk characteristics
specific to each reporting unit (for example, for higher
levels of risk or uncertainty associated with the business or
management's forecasts and assumptions). To assess the
reasonableness of the discount rates used for each
reporting unit management compares the discount rate to
the estimated cost of equity for publicly traded institutions
with similar businesses and risk characteristics. In addition,
the weighted average cost of equity (aggregating the
various reporting units) is compared with the Firms' overall
estimated cost of equity to ensure reasonableness.
315
The valuations derived from the discounted cash flow
analysis are then compared with market-based trading and
transaction multiples for relevant competitors. Trading and
transaction comparables are used as general indicators to
assess the general reasonableness of the estimated fair
values, although precise conclusions generally cannot be
drawn due to the differences that naturally exist between
the Firm's businesses and competitor institutions.
Management also takes into consideration a comparison
between the aggregate fair values of the Firm's reporting
units and JPMorgan Chase's market capitalization. In
evaluating this comparison, management considers several
factors, including (i) a control premium that would exist in a
market transaction, (ii) factors related to the level of
execution risk that would exist at the firmwide level that do
not exist at the reporting unit level and (iii) short-term
market volatility and other factors that do not directly
affect the value of individual reporting units.
Mortgage servicing rights
MSRS represent the fair value of expected future cash flows
for performing servicing activities for others. The fair value
considers estimated future servicing fees and ancillary
revenue, offset by estimated costs to service the loans, and
generally declines over time as net servicing cash flows are
received, effectively amortizing the MSR asset against
contractual servicing and ancillary fee income. MSRs are
either purchased from third parties or recognized upon sale
or securitization of mortgage loans if servicing is retained.
As permitted by U.S. GAAP, the Firm has elected to account
for its MSRS at fair value. The Firm treats its MSRs as a
single class of servicing assets based on the availability of
market inputs used to measure the fair value of its MSR
asset and its treatment of MSRS as one aggregate pool for
risk management purposes. The Firm estimates the fair
value of MSRS using an option-adjusted spread ("OAS")
model, which projects MSR cash flows over multiple interest
rate scenarios in conjunction with the Firm's prepayment
model, and then discounts these cash flows at risk-adjusted
rates. The model considers portfolio characteristics,
contractually specified servicing fees, prepayment
assumptions, delinquency rates, costs to service, late
charges and other ancillary revenue, and other economic
factors. The Firm compares fair value estimates and
assumptions to observable market data where available,
and also considers recent market activity and actual
portfolio experience.
JPMorgan Chase & Co./2018 Form 10-K
253
Notes to consolidated financial statements
The fair value of MSRS is sensitive to changes in interest
rates, including their effect on prepayment speeds. MSRS
typically decrease in value when interest rates decline
because declining interest rates tend to increase
prepayments and therefore reduce the expected life of the
net servicing cash flows that comprise the MSR asset.
Conversely, securities (e.g., mortgage-backed securities),
principal-only certificates and certain derivatives (i.e.,
those for which the Firm receives fixed-rate interest
payments) increase in value when interest rates decline.
JPMorgan Chase uses combinations of derivatives and
securities to manage the risk of changes in the fair value of
MSRs. The intent is to offset any interest-rate related
changes in the fair value of MSRS with changes in the fair
value of the related risk management instruments.
The following table summarizes MSR activity for the years ended December 31, 2018, 2017 and 2016.
Declines in business performance, increases in credit losses,
increases in capital requirements, as well as deterioration
in economic or market conditions, adverse regulatory or
legislative changes or increases in the estimated market
cost of equity, could cause the estimated fair values of the
Firm's reporting units or their associated goodwill to
decline in the future, which could result in a material
impairment charge to earnings in a future period related to
some portion of the associated goodwill.
9.35%
19
year; we do extensive lending in low- and
moderate-income neighborhoods; we lend
to and finance small businesses around
the country; and we design products and
services in financial education for lower
income individuals. And importantly, these
efforts are supported by senior leadership,
managed by some of our best people (these
efforts are not an afterthought) and are
sustainable. We try to be creative, but we
analyze everything, including philanthropy,
based on expected results.
of the risks we bear, we essentially do
not worry about things like fluctuating
markets and short-term economic reports.
We simply manage through them.
•
We do not worry about loan growth. It
is most definitely an outcome of how we
manage credit and client decisions. We will
not stretch, ever, to show growth in loans.
While we fanatically manage our
company, we do not worry about missing
revenue or expense budgets for good
reasons. This is not a mixed message. We
want our leaders to do the right thing for
the long term and explain it if they have
good reasons to diverge from prior plans.
We do not worry about charge-offs
increasing in a recession - we fully expect
it, and we manage our business knowing
there will be good times and bad times.
Suffice it to say, we stay devoted to these
principles.
25
II. COMMENTS ON CURRENT CRITICAL ISSUES
In this section, I review and analyze some of the current critical issues that affect our company.
1. We need to continue to restore trust in the strength of the U.S. banking system and
global systemically important financial institutions.
An enormous amount has been accomplished in
the last decade.
The strength, stability and resiliency of the
financial system have been fundamentally
improved over the course of the last 10 years.
While I don't agree with all of the Wall Street
Reform and Consumer Protection Act (Dodd-
Frank) regulations, the bill did give regulators
needed authority to fix our financial system's
most critical flaws. These post-crisis reforms
have made banks much safer and sounder
in the three most important areas: capital,
liquidity, and resolution and recovery.
Large banks, defined as global systemically
important financial institutions, have more
than doubled their highest quality capital to
protect against losses, and they have tripled
their liquid assets to total assets ratio to protect
against unexpected net cash outflows. This
allows healthy banks to weather extreme stress
while continuing to provide credit and support
to their clients (see message to employees on
pages 27-28 that describes many of the lessons
learned from the crisis and the extensive steps
we took to help our clients).
Here's an eye-opening example of how much
capital is now in the system: Under the Fed's
most extreme stress-testing scenario, where 35
of the largest American banks bear extreme
losses (as if each were the worst bank in the
system), the combined losses are about 6% of
the total loss absorbing resources of those 35
banks. JPMorgan Chase alone has nearly three
times the loss absorbing resources to cover
the projected losses of all of these 35 banks
(see chart below).
In addition, resolution and recovery regu-
lations have given regulators both the legal
authority and the tools to manage a failing
or failed institution (see my comments in
the sidebar on page 29 about how Lehman
Brothers would have played out under
today's new rules). This allows regulators to
minimize the impact of a major failed insti-
tution on both taxpayers and the system.
Loss Absorbing Resources of U.S. SIFI Banks Combined
($ in billions)
$1,749
$1,274
$475
While we worry extensively about all
We do not worry about quarterly earnings.
Build the company for the future, and you
will maximize earnings over the long run.
We do not worry about the stock price in
the short run. If you continue to build a
great company, the stock price will take
care of itself.
•
More than 1,000 mortgage-free homes have
been awarded to military families through
nonprofit partners as part of our firm's
Military Home Awards Program.
We completely support the U.S. military.
We cannot understand how any U.S.
citizen does not support the extraordinary
sacrifice and hardship borne by the mili-
tary to help protect this great nation.
Needless to say, our success is impossible
without our employees, and we strive
mightily to help them in both their profes-
sional and personal lives.
6. We always strive to learn more about management and leadership.
At the end of the day, everything we do is
done by human beings. In my annual letter
to shareholders, I always enjoy sharing what
we have learned about management, leader-
ship and organizations over time.
Great management is critical, though true
leadership requires more.
For any large organization, great manage-
ment is critical to its long-term success. Great
management is disciplined and rigorous.
Facts, analysis, detail ... facts, analysis, detail
repeat. You can never do enough, and
...
it does not end. Complex activity requires
hard work and not guessing. Test, test, test
--
2007¹
and learn, learn, learn. And accept failure
as a "normal" recurring outcome. Develop
great models but know that they are not the
answer judgment has to be involved in
matters related to human beings. You need
to have good decision-making processes,
with the right people in the room, the proper
dissemination of information and the appro-
priate follow-up - all to get to the right deci-
sion. Force urgency and kill complacency.
Know that there is competition everywhere,
all the time. But even if you do all of this
well, it is not enough.
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES
Real leadership requires heart and humility.
It's possible to be very good at the type
of management described above, but as
managers rise in an organization, they
depend on others more and more. The team
is increasingly important – many team
members know more than their managers
do about certain issues - a team working
together can get to a better outcome. I have
seen many senior managers ascend into
big new roles with a bad reaction to their
increasing dependence on other people – by
hoarding information, never allowing them-
selves to be embarrassed and demanding
personal loyalty versus loyalty to the
nization and its principles. They don't grow
into the new job - they swell into it. I have
often felt that dependency on their teams
makes these folks feel paranoid or insecure -
leading to this bad behavior.
orga-
Good leaders have the humility to know that
they don't know everything. They foster an
environment of openness and sharing. They
earn trust and respect. There are no "friends
of the boss" - everyone gets equal treatment.
The door is universally open to everybody.
Everyone knows that these leaders are only
trying to do the right thing for customers and
clients. They share the credit when things go
well and take the blame when it does not.
And true leaders don't just show they care
- they actually do care. While they demand
hard work and effort, they work as hard as
anyone, and they have deep empathy for
their employees under any type of stress.
They are patriots not mercenaries; they have
the heart to wear the jersey every day.
You need to stay hungry and scrappy.
Competition is everywhere, but, often, very
successful companies are lulled into a false
sense of security. Having worked at a number
of companies not nearly as successful as ours
(I have to confess that I kind of liked being
the underdog), we fought every day to even
try to get to the major leagues. All companies
are subject to inertia, insipid bureaucracy and
other flaws, which must be eradicated. If a
company isn't staying on edge, maintaining
a fire in its belly and pushing forward, it will
eventually fail.
7. We do not worry about some issues.
Since we shared issues that are high priori-
ties, it is almost as important to describe the
issues we don't worry about daily - and why.
A few are listed below:
⋅
24
-2x
Loan loss reserves, preferred stock
and TLAC long-term debt
JPMorgan Chase did everything it possibly could do to help during this time.
-
-
...
On March 16, 2008, we announced our acquisition of Bear Stearns, a company with $300 billion of assets,
which had collapsed and had fatal problems (we were essentially buying a house but it was a house on
fire). And we did this at the request of the U.S. government (thinking at the time that this could help head
off a terrible crisis). On September 25, 2008, 10 days after the collapse of Lehman Brothers, we bought the
largest S&L - WaMu – another company that had $300 billion of assets. We took other extraordinary actions
- often at calculated but great risk to JPMorgan Chase – to support clients, including governments, and to
support the markets in general. We loaned $70 billion in the global interbank market when it was needed
most. With markets in complete turmoil, we were the only bank willing to single-handedly lend $4 billion to
the state of California, $2 billion to the state of New Jersey and $1 billion to the state of Illinois. Additionally
- and frequently - we loaned or raised for our clients $1.3 trillion at consistent and fair rates, in many cases
far below what the market would have demanded, and we provided more than $100 billion to local govern-
ments, municipalities, schools, hospitals and not-for-profits over the course of 2009. Many other banks did
the same. You probably will be surprised to find out that we lent a tremendous amount of money to Lehman
before the crisis - and even more after the crisis. In fact, at the request of the Federal Reserve, we took
extraordinary risk to lend more than $80 billion (on a secured basis) to Lehman after its bankruptcy to help
facilitate sales of assets in as orderly a way as possible to minimize disruption in the markets.
27
This was a traumatic, historic period of time not just for the financial system but for the world as a whole.
We endured a once-in-a-generation economic, political and social storm, and because of you, we have
emerged 10 years after this crisis as a company of which we can all be proud.
The aftermath and lessons learned.
Many people still ask me about the Troubled Asset Relief Program (TARP), a government program that
provided funding to banks in the midst of the crisis. JPMorgan Chase did not want or need TARP money,
but we recognized that if the healthy banks did not take it, no one else could - out of fear that the market
would lose confidence in them. And while it helped create the false rallying cry that all the banks needed
support, the government, both the Federal Reserve and the Treasury, was trying everything it could in
addition to TARP. And the Federal Reserve and the Treasury should be congratulated for the extraordinary
actions they took to stave off a far worse crisis. In hindsight, it is easy to criticize any specific action, but,
in total, the government succeeded in avoiding a calamity.
While the collapse of Lehman in September 2008 was the epicenter of the crisis, it was actually far more
complex than that - the roots go back to before 2006. By late 2006, we already saw problems in subprime
mortgages, leveraged lending and quantitative investing. With the onset of Basel II, leverage at investment
banks (not commercial banks) more than doubled, as did shadow banking (think structured investment
vehicles, collateralized debt obligations, money market funds and so on). This was often funded by
unsecured, undependable short-term wholesale borrowing. Then the biggest problem of all presented
itself: It was not just subprime mortgages that were flawed – but all mortgages. This happened, in hind-
sight, by bad underwriting, government policy that fueled and fostered inappropriate mortgage lending
(higher and higher loan-to-values, less and less cash down, weaker appraisals and insufficient income
certification), unscrupulous brokers and cavalier investors. The banks, though not the worst actors in
mortgages, joined the party, too. When the world realized that $1 trillion would ultimately be lost in
mortgages, panic ensued. There were multiple failures - mortgage brokers, savings and loans (S&L),
including Washington Mutual (WaMu) and IndyMac, as well as Fannie Mae and Freddie Mac (which were
the largest financial failures of all time) – culminating in the dramatic failure of Lehman, followed by
the extraordinary bailouts of AIG and other major financial institutions.
There were many lessons learned from the crisis: the need for plenty of capital and liquidity, proper
underwriting and regulations that are constantly refined, fair and appropriate. In fact, regulators should
take a victory lap because Lehman, Bear Stearns, AIG and multiple other failures effectively could not
happen today because of the new rules and requirements.
-
We entered the crisis with the capital, liquidity, earnings, diversity of businesses, people and a risk
management culture that enabled us to avoid most – but, unfortunately, not all – of the issues exposed by
the crisis. These strengths also helped us to weather the economic crisis and to continue to play a central
role in supporting our clients and our communities and rebuilding the U.S. economy. Counter to what most
people think, many of the extreme actions we took were not done to make a profit: They were done to
support our country and the financial system.
What stood out most was our character and capabilities - which make JPMorgan Chase what it is today.
When the global financial crisis unfolded in 2008, the people of JPMorgan Chase understood the vital role
our firm needed to play and felt a deep responsibility to those who rely on us. It was this sense of respon-
sibility that enabled us to move beyond the challenges we were facing at that time and maintain a focus
on what really matters: Taking care of our clients, helping the communities in which we operate - all while
under extreme pressure from both the markets and the body politic – and protecting our company.
-
How we managed through the crisis is a testimony to the collective strength of character and commitment
of our people. During those chaotic days throughout the crisis and its aftermath, many of our people had
to work around the clock, seven days a week, for months on end. And they did it without complaint. The
biggest lesson of the crisis: The quality, character, culture and capabilities of your partners are paramount.
Looking back and then looking around at the company we are today, I am filled with awe and admiration.
For JPMorgan Chase, these past 10 years have been part of a challenging, yet defining, decade. Today,
JPMorgan Chase is among the leaders in most of our businesses. I can't tell you how proud I am to be your
partner and to witness your extraordinary performance. I can't thank our current and former employees
enough for helping us get through those turbulent times and for the company we have become.
аше
28
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES
-
We offer internship and rotational entry
programs to ease the transition from
military service to the financial services
industry. Once at our firm, veterans
can count on the support of our Office
of Military and Veterans Affairs, which
sponsors mentorship programs, acclima-
tion and development initiatives, recog-
nition events and other programs to help
bridge the gap between military and
corporate cultures.
The gathering storm hit with a vengeance.
-
$2,265
$1,249
$1,016
$396
$1392
$211
$185
2018¹
35 CCAR banks 2018
projected pre-tax net losses
(severely adverse scenario)
A decade has passed since the collapse of Lehman Brothers so now is a good time to reflect on the financial
crisis that was raging 10 years ago this month. A lot has been written – and far more is still to be written
- on this crisis, but I would like to share a few thoughts with you on that extraordinary period of time and
everything that all of you at JPMorgan Chase did to try to help.
2018 JPMorgan Chase only
2 Federal Reserve Dodd-Frank Act Stress Test 2018: Supervisory Stress Test Methodology
and Results, June 2018.
Source: SNL Financial; Federal Reserve Bank, February 2019
SIFI Systemically important financial institution
CCAR = Comprehensive Capital Analysis and Review
TLAC Total loss absorbing capacity
26
Looking back on
the financial crisis
September 2018 message to employees 10 years after the financial crisis
Dear Colleagues,
Includes only the 18 banks participating in CCAR in 2013, as well as Bear Stearns,
Countrywide, Merrill Lynch, National City, Wachovia and Washington Mutual.
JPMorgan Chase has hired more than
14,000 U.S. veterans since 2011 – including
over 1,100 in 2018 alone - with more than
50% coming from diverse backgrounds.
Tangible common equity
Supporting veterans
20
Reprinted with permission from CNN Business
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES
•
•
In 2018, we launched AdvancingCities,
JPMorgan Chase's $500 million, five-year
initiative to drive inclusive growth in cities
around the world. Through this effort, we
are combining our business and philan-
thropic resources and expertise to expand
opportunity for those being left behind
in today's economy. This is a global
program. Marking our firm's 150th anni-
versary in France last year, we announced
a $30 million, five-year commitment
the first Advancing Cities investment – to
support underserved small businesses
and provide skills training to residents
in Seine-Saint-Denis and other areas in
Greater Paris with high levels of poverty
and unemployment.
-
Our recent $350 million New Skills at Work
commitment is focused on how we prepare
people to succeed in our transformed work-
places and changing global economy. Over the
past five years, we have supported worker
education and training around the world
- collaborating with nearly 750 partners
and nonprofits in 37 countries and 30
U.S. states, affecting 150,000 individuals.
We are now bolstering our strategy by
promoting better ways for business and
education to collaborate, scaling the best
education and job training programs.
While we know a fundamental disconnect
still remains between business and the
average citizen, we also believe that the only
solution is to remain relentless in our efforts
to earn trust from every customer in every
community. We believe that is the best we
can do. As the largest financial institution in
the country, JPMorgan Chase understands
our responsibility to earn public trust with
everyone, every day.
When disaster strikes, we give special care to
our customers.
When disaster strikes - we are there for our
customers. After Hurricane Florence and
Hurricane Michael devastated the Caro-
linas and the Gulf Coast, respectively, after
wildfires destroyed large parts of California
and after a number of other tragic events,
we stepped up for our communities and
our customers. We also provided relief to
customers affected by the recent government
shutdown - and kept at it until they received
their back pay. Here's a list of the kinds of
things we did when disaster struck:
•
•
•
•
Re-entered damaged areas, often as the
first bank, filling our ATMs and quickly
reopening our branches to give customers
access to cash, as well as crucial docu-
ments in their safe deposit box.
Activated our special-care line with
specialists to quickly help customers.
Refunded customers' overdraft fees.
Extended and deferred payments on
customers' car loans.
Provided necessary relief on customers'
mortgage loans.
a fair and equal chance to succeed, no matter their zip code or
skin color.
As part of this effort, we are helping to create a $6.65 million
Entrepreneurs of Color Fund with local partners in the Wash-
ington, D.C. region to expand access to capital, improve business
services, and streamline supplier diversity programs for small,
minority-owned businesses. To date, we have launched similar
low-cost loan funds in four other U.S. cities, bringing other
investors to the table, and leveraging nearly $40 million to
support underserved entrepreneurs. Thus far, Entrepreneurs of
Color Funds have created or saved more than 1,200 jobs in
critical neighborhoods lacking needed resources to grow.
We are also investing in the financial success of black Americans
through a focus on savings, homeownership, and entrepreneur-
ship. For example, the largest wealth gaps lie in racial disparities
among entrepreneurs. If people of color owned businesses at the
same rates as whites, 9 million more jobs and $300 billion in
income would be created.
Advancing Black Pathways will create a dedicated talent pipeline
that will start young black professionals on an early career path
and foster a corporate culture that further encourages diversity
at all levels. We plan to hire more than 4,000 black students in
full-time positions, apprenticeships, and internships over the
next five years. JPMorgan Chase will also help create job training
programs that are aligned with growing industries in the broader
communities we serve.
We are huge supporters of regional and
community banks, which are critical to many
cities and small towns around the country.
In an op-ed published by The Wall Street
Journal in 2016, I wrote: “In this system,
regional and smaller community banks play
an indispensable role. They sit close to the
communities they serve; their highest-
ranking corporate officers live in the same
neighborhoods as their clients. They are able
to forge deep and long-standing relation-
ships and bring a keen knowledge of the
local economy and culture. They frequently
are able to provide high-touch and special-
ized banking services." JPMorgan Chase,
as a traditional “money center bank" and
“bankers' bank," in fact, is the largest banker
in America to regional and community
banks. We bank approximately 530 of
America's 5,200 regional and community
banks. In 2018, we made loans to them or
raised capital for them totaling $4 billion. In
addition, we process payments for them, we
finance some of their mortgage activities,
we advise them on acquisitions, and we buy
and sell securities for them. We also provide
them with interest rate swaps and foreign
exchange both for themselves – to help
them hedge some of their exposures - and
for their clients.
Our veteran-focused efforts are centered
on facilitating success in veterans' post-
service lives primarily through employ-
ment and retention. In 2011, JPMorgan
Chase and 10 other companies launched
the 100,000 Jobs Mission, setting a goal
of collectively hiring 100,000 veterans.
The initiative has resulted in the hiring
of more than 500,000 veterans by over
200 member companies of the Veteran
Jobs Mission, with the ultimate goal of
employing 1 million veterans.
•
Over the past five years, we have developed
and refined a model that may be a blue-
print for urban revitalization and inclusive
growth. Our head of Corporate Responsi-
bility describes our significant measures in
more detail in his letter, but I highlight a
few examples here, including the sidebar on
page 20 that describes our focused effort to
support black advancement in a number of
the communities we serve:
Detroit exemplifies the challenges many cities
wrestle with, as well as the strategies for
solving them. Since 2014, JPMorgan Chase
has been combining its philanthropy
and business expertise to address some
of Detroit's biggest economic hurdles,
ranging from catalyzing development,
building infrastructure and affordable
housing, and boosting small business
growth to revitalizing education and
preparing Detroiters with the skills to
secure well-paying jobs. We are deeply
proud of our $150 million commitment
and the impact we have made to date -
the city has been the proving ground for
our model for driving inclusive growth,
which has made a real difference in
Detroit's comeback and the lives of its
citizens. Over the past five years, we have
taken lessons learned and applied them to
other cities facing similar challenges.
The Entrepreneurs of Color Fund (EOCF) is
another example of how we are turning our
insights into action. In 2015, JPMorgan
Chase helped launch the Entrepreneurs of
Color Fund in Detroit to provide under-
served entrepreneurs with access to
capital and assistance needed to grow and
thrive. From 2015 to 2018, the fund made or
approved loans totaling $6.6 million to 79
minority small businesses, resulting in over
830 new or preserved jobs. Since then, the
Detroit fund has more than tripled in size
to over $22 million. Building on the success
of Detroit's EOCF, we expanded this model
to San Francisco, the South Bronx, the
Greater Washington region and Chicago,
where it is also making a real impact. In
total, these funds are now approximately
$40 million and growing.
19
MELLODY HOBSON
JAMIE DIMON
Removed minimum payments on credit
cards, reducing cash payments and
limiting the impact on customer credit
reports.
ADVANCING BLACK PATHWAYS: from an op-ed that originally ran on CNN Business
For all the positive economic trends in America, the racial wealth
gap continues to prevent growth from benefiting everyone. While
this is not a new crisis, it is one we must urgently address so that
economic opportunity is equally extended to black Americans.
Racism, intolerance, and poverty strangle economic opportunity.
The racial wealth gap is stark: For single black Americans, the
median wealth is $200 to $300, compared to $15,000 to $28,000
for single white Americans. This divide undermines financial
stability for many black Americans.
Closing the racial wealth gap is good for Americans, and it
makes good business sense. We know employees from diverse
backgrounds offering different perspectives drive better
corporate outcomes. A recent study showed that businesses
with diverse leadership generate 19% more revenue than
non-diverse companies.
Diversity can also reduce turnover. Nearly seven in 10 millennials
reported they would continue to work at a company for five or
more years if it is diverse.
As leaders in business as well as the broader community, we know
we have a responsibility to society. Not to mention, as financial
services executives, we can help to foster widespread prosperity.
To this end, we have both worked to empower black Americans
to achieve personal and professional success. For example, After
School Matters, a nonprofit founded in 2000, provides enrich-
ment programs to thousands of inner-city high school students in
Chicago. Meanwhile, JPMorgan Chase's Fellowship Initiative,
founded in 2010, offers hands-on college access and academic
support to young men of color in Los Angeles, New York, Chicago
and Dallas. The scale and success of these efforts are impressive
- but not enough. There is much more work to be done.
-
Recently, we announced Advancing Black Pathways - a new
program at JPMorgan Chase that seeks to build on existing
efforts to bridge the racial wealth divide and ultimately help
black families build wealth. We urge more businesses to join us
as we attempt to close this divide.
Our current initiative, Advancing Black Leaders, seeks to hire and
promote more black senior executives and junior-level employees
at JPMorgan Chase. We know investing in our employees is key
to our company's future. In addition to recruiting more African-
American leaders, we also need to focus on retaining them. Since
2016, the firm has increased the number of black managing
directors by 41% and black executive directors by 53%. A good
start - but just the beginning.
Mellody Hobson and Jamie Dimon:
Black Americans are still worse off
financially. Businesses can help.
In addition, in 2018, donated more than $4
million to emergency assistance agencies
around the world, which included imme-
diate help following the earthquake and
tsunami in Indonesia, wildfires in Greece,
and devastating floods and landslides in
western Japan.
Businesses of every size have an important role to play in
expanding opportunity. By working together, we can give people
21
We provide comprehensive retirement
benefits, including a competitive 401(k)
plan and dollar-for-dollar match on 5%
of pay. For 2018, the 401(k) plan match,
totaling approximately $482 million,
enhanced the retirement savings of
135,000 employees.
We recognize that many employees
who earn under $60,000 a year often
do not invest in a 401(k) plan because
they cannot afford the lost cash flow
and, therefore, do not receive the match.
For these employees, we make a discre-
tionary $750 Special Award to them. This
provided 56,000 U.S. employees with $40
million in additional retirement funds
and this money is granted whether or not
they make their own contribution to a
401(k) plan.
Health benefits and wellness programs
We offer a comprehensive health benefits
package in the United States, including
a medical plan that covers over 296,000
individuals (138,000 employees, 106,000
children and 52,000 spouses/domestic
partners). In 2018, we covered $1.3 billion
in medical costs (net of employee payroll
contributions). We care very much about
our employees' health.
We subsidize the health benefit costs of
lower
wage earners up to 90% of the
total cost- for higher paid employees,
we subsidize approximately 60%. In
addition, recognizing the hardship
that deductibles cause for lower paid
employees, effective January 1, 2018, we
lowered the deductible in the medical
plan by $750 for employees earning less
than $60,000. For these employees, if
they do their wellness screenings, their
effective deductible could be zero.
Enrolled employees and spouses/
domestic partners earned collectively
about $100 million toward their Medical
Reimbursement Accounts in 2018, funded
by JPMorgan Chase, for completing well-
ness activities.
Outside the United States, we provide
medical coverage to 80,000 employees
and their families under local medical
insurance plans.
62% of employees around the globe have
access to our 54 on-site Health & Wellness
Centers, which are staffed with doctors,
nurses, nurse practitioners and other
health professionals. These centers are
extensively visited - in excess of 600,000
encounters a year. And over 100 visits
were potentially life-saving interventions
(involving, for example, urgent cardiac or
respiratory issues).
•
•
We extensively invest in employee bene-
fits and training opportunities so that our
workers can continue to increase their
skills and advance their career. Our total
direct investment in training and devel-
opment is approximately $250 million
a year. What's more important and hard
to measure is the on-the-job training that
just about every employee gets from their
manager - education that leads to deep
knowledge and promotion opportunities
(and, unfortunately, lots of recruiting from
our competitors). In 2018, we delivered 9
million hours of training to our employees
worldwide, augmented by several new
digital learning innovations.
Since inception of the program in 2015,
26,500 managers (approximately 60% of
all managers) have attended one or more
Leadership Edge programs. These offer
critical training in leadership and manage-
ment. While this initiative is costly, we
are starting to see results in terms of
reduced attrition, higher satisfaction from
employees and better management.
Volunteer and Employee Engagement Paid Time
Off policy
Effective January 1, 2019, we implemented
a new Volunteer and Employee Engage-
ment Paid Time Off policy, which provides
up to eight hours of paid time off each
calendar year for volunteer and other
firm-sponsored activities.
23
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES
•
The new policy increases opportunities for
employees to participate in volunteer activ-
ities and give back to our communities.
Over the past five years, contributed more
than $22 million to support immediate
and long-term recovery from disasters.
Parental Leave policy
In 2017, we increased paid parental leave
for the primary caregiver to 16 weeks, up
from 12 weeks, for eligible employees in
the United States. In 2018, we extended
the leave for non-primary parental care-
givers to six weeks of paid time off (up
from two weeks).
-
•
Training
•
2
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES
5. We take care of our employees.
Our employees are fundamental to the
vibrancy and success of our company. At
the end of the day, everything we do – from
operations and technology to service and
reputation is completely based upon the
abilities and character of our employees.
•
-
We have more than 256,000 employees
globally, with over 170,000 in the United
States. Our commitment to creating an
inclusive organization is not only about
doing the right thing; it's about doing
what makes our company stronger. In
2016, we introduced Advancing Black
Leaders, an expanded diversity strategy
focused on increased hiring, retention
and development of talent from within
the black community. We magnified that
effort in 2019 with our Advancing Black
Pathways initiative (which is outlined
in the sidebar on page 20). Now, in the
United States, 50% of our firm's workforce
is ethnically diverse. That said, we know
we have work to do to increase the repre-
sentation of ethnically diverse employees
at senior levels of the company.
On gender diversity, women represent
30% of our firm's senior leadership glob-
ally. These are women who run major
businesses and functions - several units
on their own would be among Fortune
1000 companies. Investing in the advance-
ment of women is a key focus for our
company, and we have established a global
firmwide initiative called Women on the
Move that empowers female employees,
clients and consumers to build their
career, grow their businesses and improve
their financial health.
.
To encourage diversity and inclusion
in the workplace, we have 10 Busi-
ness Resource Groups (BRG) across the
company to connect approximately
100,000 participating employees around
common interests, as well as foster
networking and camaraderie. Groups are
defined by shared affinities, including
race and cultural heritage, generation,
gender, sexual orientation, disability and
military status. For example, some of our
largest BRGs are Adelante for Hispanic
and Latino employees, Access Ability for
employees who have a disability, ASPIRE
for Asian and Pacific Islander employees,
NextGen for early career professionals,
PRIDE for our LGBT+ employees, BOLD
for black employees and Women on the
Move, our largest group, which has more
than 30,000 members globally.
Inclusion and diversity
We have been raising wages for our
22,000 employees at the lower end of the
pay range. For those earning between $12
and $16.50 an hour in the United States,
we have been increasing hourly wages to
between $15 and $18, depending on the
local cost of living. For employees making
$40,000 a year or less in the United States,
our average pay increases are around
$4,800. This is the right thing to do, and
we now offer well above the average
hourly wage for most markets. Remember,
these jobs are often the first rung on the
ladder, and many of these employees soon
move on to higher paying positions.
These increases are on top of the firm's
comprehensive benefits package, with an
average value of $12,000 for employees in
the lower wage tier.
22
22
I. JPMORGAN CHASE PRINCIPLES AND STRATEGIES
401(k) Retirement
Wages
•
•
$ (1,521)
JPMorgan Chase & Co./2018 Form 10-K
(e) The pre-tax amount is reported in other expense in the Consolidated statements of income.
(d) The pre-tax amounts are predominantly recorded in noninterest revenue, net interest income and compensation expense in the Consolidated statements
of income.
2017
$ (1,476) $ 1,971 $ (915) $ 1,056 $ (2,451) $ 930
(a) The pre-tax amount is reported in investment securities gains/(losses) in the Consolidated statements of income.
(b) Reclassifications of pre-tax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in the
Consolidated statements of income. During the year ended December 31, 2018, the Firm reclassified a net pre-tax loss of $168 million to other expense
related to the liquidation of certain legal entities, $17 million related to net investment hedge losses and $151 million related to cumulative translation
adjustments. During the year ended December 31, 2017, the Firm reclassified a net pre-tax loss of $25 million to other expense related to the liquidation
of a legal entity, $50 million related to net investment hedge gains and $75 million related to cumulative translation adjustments.
(321) $ 1,043 $ (303) $ 111 $ (192) $ (529) $
285
263
(c) Represents changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads, which are excluded from the assessment
of hedge effectiveness and recorded in other comprehensive income. The initial cost of cross-currency basis spreads is recognized in earnings as part of
the accrual of interest on the cross-currency swap.
Notes to consolidated financial statements
Increase/(decrease) in tax rate
resulting from:
JPMorgan Chase and its eligible subsidiaries file a
consolidated U.S. federal income tax return. JPMorgan
Chase uses the asset and liability method to provide income
taxes on all transactions recorded in the Consolidated
Financial Statements. This method requires that income
taxes reflect the expected future tax consequences of
temporary differences between the carrying amounts of
assets or liabilities for book and tax purposes. Accordingly,
a deferred tax asset or liability for each temporary
difference is determined based on the tax rates that the
Firm expects to be in effect when the underlying items of
income and expense are realized. JPMorgan Chase's
expense for income taxes includes the current and deferred
portions of that expense. A valuation allowance is
established to reduce deferred tax assets to the amount the
Firm expects to realize.
Due to the inherent complexities arising from the nature of
the Firm's businesses, and from conducting business and
being taxed in a substantial number of jurisdictions,
significant judgments and estimates are required to be
made. Agreement of tax liabilities between JPMorgan Chase
and the many tax jurisdictions in which the Firm files tax
returns may not be finalized for several years. Thus, the
Firm's final tax-related assets and liabilities may ultimately
be different from those currently reported.
Effective tax rate and expense
A reconciliation of the applicable statutory U.S. federal
income tax rate to the effective tax rate for each of the
years ended December 31, 2018, 2017 and 2016, is
presented in the following table.
Effective tax rate
Year ended December 31,
Statutory U.S. federal tax rate
2018
U.S. state and local income
$ (1,761) $
Note 24 - Income taxes
$ (330)
34
DVA on fair value option elected liabilities, net change: $ 1,364 $
Total other comprehensive income/(loss)
(1)
2016
3
Foreign exchange and other
(9)
25
(54)
12
(42)
77
199
(25)
Net change
(450)
77
(373)
964
(226)
738
(64)
36
(28)
52
21.0%
2018
35.0%
31.9%
28.4%
Impact of the TCJA
2018
The Firm's effective tax rate decreased in 2018 due to the
TCJA, including the reduction in the U.S. federal statutory
income tax rate as well as a $302 million net tax benefit
recorded in 2018 resulting from changes in the estimates
related to the remeasurement of certain deferred taxes and
the deemed repatriation tax on non-U.S. earnings. The
change in estimate was recorded under SEC Staff
Accounting Bulletin No. 118 (“SAB 118") and the
accounting under SAB 118 is complete.
2017
The Firm's effective tax rate increased in 2017 driven by a
$1.9 billion income tax expense representing the estimated
impact of the enactment of the TCJA. The $1.9 billion tax
expense was predominantly driven by a deemed
repatriation of the Firm's unremitted non-U.S. earnings and
adjustments to the value of certain tax-oriented
investments partially offset by a benefit from the
revaluation of the Firm's net deferred tax liability.
The deemed repatriation of the Firm's unremitted non-U.S.
earnings is based on the post-1986 earnings and profits of
each controlled foreign corporation. The calculation
resulted in an estimated income tax expense of $3.7 billion.
Furthermore, accounting for income taxes requires the
remeasurement of certain deferred tax assets and liabilities
based on the rates at which they are expected to reverse in
the future. The Firm remeasured its deferred tax asset and
liability balances in the fourth quarter of 2017 to the new
statutory U.S. federal income tax rate of 21% as well as any
federal benefit associated with state and local deferred
income taxes. The remeasurement resulted in an estimated
income tax benefit of $2.1 billion.
Adjustments were also recorded in 2017 to income tax
expense for certain tax-oriented investments. These
adjustments were driven by changes to affordable housing
proportional amortization resulting from the reduction of
the federal income tax rate under the TCJA. SAB 118 did not
apply to these adjustments.
(a) Predominantly includes earnings of U.K. subsidiaries that were deemed
to be reinvested indefinitely through December 31, 2017.
264
JPMorgan Chase & Co./2018 Form 10-K
The components of income tax expense/(benefit) included
in the Consolidated statements of income were as follows
for each of the years ended December 31, 2018, 2017, and
2016.
Income tax expense/(benefit)
Year ended December 31,
Non-U.S.
2017
2016
(in millions)
Current income tax expense/(benefit)
4
20.3%
Effective tax rate
(0.3)
(0.1)
(1.7) (a)
taxes, net of U.S. federal
income tax benefit
4.0
2.2
2.4
Tax-exempt income
(1.5)
(3.3)
(3.1)
35.0%
Non-U.S. subsidiary earnings
(3.1)
(a)
Business tax credits
(3.5)
(4.2)
(3.9)
Impact of the TCJA
5.4
Other, net
0.4
0.6
1
(138)
2
Net unrealized gains/(losses) arising during the period
(245)
58
(187)
147
(55)
92
(450)
168
(282)
Cash flow hedges:
Reclassification adjustment for realized (gains)/losses
included in net income(d)
4
(14)
134
(50)
84
360
(134)
226
Net change
(263)
(18)
62
ΝΑ
ΝΑ
942
(1,294)
476
(818)
262
(102)
160
158
U.S. federal
20
ΝΑ
19
(306)
1
(3)
(2)
(140)
33
(107)
ΝΑ
ΝΑ
NA
(325)
(1)
(201)
(105)
160
257
(97)
160
Amortization of prior service cost/(credit)
(23)
6
(17)
(36)
13
(90)
(23)
14
(22)
Curtailment (gain)/loss
21
(5)
16
Settlement (gain)/loss
2
-
2
(36)
281
250
(24)
176
(90)
34
(56)
Defined benefit pension and OPEB plans:
Prior service credit/(cost) arising during the period
(29)
7
(22)
Net gain/(loss) arising during the period
79
(558)
(456)
802
(160)
642
(366)
145
(221)
Reclassification adjustments included in net income(e):
Amortization of net loss
103
102
2,077
2,757
3,483
1,760
(56)
--
(51)
Decreases related to a lapse of
applicable statute of limitations
Balance at December 31,
$ 4,861 $ 4,747 $ 3,450
After-tax interest expense/(benefit) and penalties related to
income tax liabilities recognized in income tax expense were
$192 million, $102 million and $86 million in 2018, 2017
and 2016, respectively.
At December 31, 2018 and 2017, in addition to the liability
for unrecognized tax benefits, the Firm had accrued $887
million and $639 million, respectively, for income tax-
related interest and penalties.
266
JPMorgan Chase & Co./2018 Form 10-K
Tax examination status
JPMorgan Chase is continually under examination by the
Internal Revenue Service, by taxing authorities throughout
the world, and by many state and local jurisdictions
throughout the U.S. The following table summarizes the
status of significant income tax examinations of JPMorgan
Chase and its consolidated subsidiaries as of December 31,
2018.
December 31, 2018
JPMorgan Chase - U.S.
Periods under
examination
2006-2010
Status
Field examination of
amended returns
JPMorgan Chase – U.S.
2011-2013
Field Examination
JPMorgan Chase - U.S.
(334)
(266)
(785)
(350)
The valuation allowance at December 31, 2018, was due to
the state and local capital loss carryforwards and certain
non-U.S. deferred tax assets, including NOL carryforwards.
Unrecognized tax benefits
At December 31, 2018, 2017 and 2016, JPMorgan Chase's
unrecognized tax benefits, excluding related interest
expense and penalties, were $4.9 billion, $4.7 billion and
$3.5 billion, respectively, of which $3.8 billion, $3.5 billion
and $2.6 billion, respectively, if recognized, would reduce
the annual effective tax rate. Included in the amount of
unrecognized tax benefits are certain items that would not
affect the effective tax rate if they were recognized in the
Consolidated statements of income. These unrecognized
items include the tax effect of certain temporary
differences, the portion of gross state and local
unrecognized tax benefits that would be offset by the
benefit from associated U.S. federal income tax deductions,
and the portion of gross non-U.S. unrecognized tax benefits
that would have offsets in other jurisdictions. JPMorgan
Chase is presently under audit by a number of taxing
authorities, most notably by the Internal Revenue Service as
summarized in the Tax examination status table below. As
JPMorgan Chase is presently under audit by a number of
taxing authorities, it is reasonably possible that over the
next 12 months the resolution of these examinations may
increase or decrease the gross balance of unrecognized tax
benefits by as much as $0.9 billion. Upon settlement of an
audit, the change in the unrecognized tax benefit would
result from payment or income statement recognition.
The following table presents a reconciliation of the
beginning and ending amount of unrecognized tax benefits
for the years ended December 31, 2018, 2017 and 2016.
Year ended December 31,
(in millions)
Balance at January 1,
Increases based on tax positions
related to the current period
2018
$ 4,747
2017
$ 3,450
2014-2016
2016
980
1,355
262
Increases based on tax positions
related to prior periods
649
626
583
Decreases based on tax positions
related to prior periods
Decreases related to cash
settlements with taxing authorities
(1,249)
$ 3,497
Field Examination
JPMorgan Chase - New
York State
2012-2014
$
2018
2017
22.1 $
25.7
14.6
16.8
4.1
40.8 $
3.3
45.8
(a) Comprises $39.6 billion and $44.8 billion in deposits with banks, and
$1.2 billion and $1.0 billion in cash and due from banks on the
Consolidated balance sheets as of December 31, 2018 and 2017,
respectively.
Total restricted cash (a)
Also, as of December 31, 2018 and 2017, the Firm had the
following other restricted assets:
•
Cash and securities pledged with clearing organizations
for the benefit of customers of $20.6 billion and $18.0
billion, respectively.
Securities with a fair value of $9.7 billion and $3.5
billion, respectively, were also restricted in relation to
customer activity.
Intercompany funds transfers
Restrictions imposed by U.S. federal law prohibit JPMorgan
Chase & Co. ("Parent Company”) and certain of its affiliates
from borrowing from banking subsidiaries unless the loans
are secured in specified amounts. Such secured loans
provided by any banking subsidiary to the Parent Company
or to any particular affiliate, together with certain other
transactions with such affiliate (collectively referred to as
"covered transactions"), are generally limited to 10% of the
banking subsidiary's total capital, as determined by the risk-
based capital guidelines; the aggregate amount of covered
transactions between any banking subsidiary and all of its
affiliates is limited to 20% of the banking subsidiary's total
capital.
The Parent Company's two principal subsidiaries are
JPMorgan Chase Bank, N.A. and JPMorgan Chase Holdings
LLC, an intermediate holding company (the "IHC"). The IHC
holds the stock of substantially all of JPMorgan Chase's
subsidiaries other than JPMorgan Chase Bank, N.A. and its
subsidiaries. The IHC also owns other assets and
intercompany indebtedness owing to the holding company.
The Parent Company is obligated to contribute to the IHC
substantially all the net proceeds received from securities
issuances (including issuances of senior and subordinated
debt securities and of preferred and common stock).
The principal sources of income and funding for the Parent
Company are dividends from JPMorgan Chase Bank, N.A.
and dividends and extensions of credit from the IHC. In
addition to dividend restrictions set forth in statutes and
regulations, the Federal Reserve, the OCC and the FDIC have
authority under the Financial Institutions Supervisory Act to
prohibit or to limit the payment of dividends by the banking
organizations they supervise, including the Parent Company
and its subsidiaries that are banks or bank holding
companies, if, in the banking regulator's opinion, payment
of a dividend would constitute an unsafe or unsound
practice in light of the financial condition of the banking
organization. The IHC is prohibited from paying dividends or
extending credit to the Parent Company if certain capital or
liquidity "thresholds" are breached or if limits are otherwise
imposed by the Parent Company's management or Board of
Directors.
At January 1, 2019, the Parent Company's banking
subsidiaries could pay, in the aggregate, approximately $10
billion in dividends to their respective bank holding
companies without the prior approval of their relevant
banking regulators. The capacity to pay dividends in 2019
will be supplemented by the banking subsidiaries' earnings
during the year.
•
JPMorgan Chase has recorded deferred tax assets of $163
million at December 31, 2018, in connection with U.S.
federal and non-U.S. net operating loss ("NOL")
carryforwards and state and local capital loss
carryforwards. At December 31, 2018, total U.S. federal
NOL carryforwards were approximately $423 million, non-
U.S. NOL carryforwards were approximately $120 million
and state and local capital loss carryforwards were $1.3
billion. If not utilized, the U.S. federal NOL carryforwards
will expire between 2022 and 2036 and the state and local
capital loss carryforwards will expire between 2020 and
2022. Certain non-U.S. NOL carryforwards will expire
between 2028 and 2034 whereas others have an unlimited
carryforward period.
banks and held for other general
purposes
securities and futures brokerage
customers
Field Examination
JPMorgan Chase - New
York City
2012-2014
Field Examination
JPMorgan Chase -
California
2011-2012
Field Examination
JPMorgan Chase - U.K.
2006 - 2016
Field examination of
certain select entities
Cash reserves at non-U.S. central
JPMorgan Chase & Co./2018 Form 10-K
Notes to consolidated financial statements
Note 25 - Restricted cash, other restricted
assets and intercompany funds transfers
Restricted cash and other restricted assets
Certain of the Firm's cash and other assets are restricted as
to withdrawal or usage. These restrictions are imposed by
various regulatory authorities based on the particular
activities of the Firm's subsidiaries.
The business of JPMorgan Chase Bank, N.A. is subject to
examination and regulation by the OCC. The Bank is a
member of the U.S. Federal Reserve System, and its
deposits in the U.S. are insured by the FDIC, subject to
applicable limits.
The Federal Reserve requires depository institutions to
maintain cash reserves with a Federal Reserve Bank. The
average required amount of reserve balances is deposited
by the Firm's bank subsidiaries. In addition, the Firm is
required to maintain cash reserves at certain non-US
central banks.
The Firm is also subject to rules and regulations established
by other U.S. and non U.S. regulators. As part of its
compliance with the respective regulatory requirements,
the Firm's broker-dealers (principally J.P. Morgan Securities
LLC in the U.S and J.P. Morgan Securities plc in the U.K.) are
subject to certain restrictions on cash and other assets.
Upon the adoption of the restricted cash guidance in the
first quarter of 2018, restricted and unrestricted cash are
reported together on the Consolidated balance sheets and
Consolidated statements of cash flows. The following table
presents the components of the Firm's restricted cash:
December 31, (in billions)
Cash reserves - Federal Reserve
Banks
$
Segregated for the benefit of
267
200
3,502
3,713
-
4,651
$ 8,290 $ 11,459 $ 9,803
Total income tax expense includes $54 million, $252
million and $55 million of tax benefits recorded in 2018,
2017, and 2016, respectively, as a result of tax audit
resolutions.
Tax effect of items recorded in stockholders' equity
The preceding table does not reflect the tax effect of certain
items that are recorded each period directly in
stockholders' equity. The tax effect of all items recorded
directly to stockholders' equity resulted in an increase of
$172 million in 2018, a decrease of $915 million in 2017,
and an increase of $925 million in 2016.
Results from Non-U.S. earnings
The following table presents the U.S. and non-U.S.
components of income before income tax expense for the
years ended December 31, 2018, 2017 and 2016.
Prior to December 31, 2017, U.S. federal income taxes had
not been provided on the undistributed earnings of certain
non-U.S. subsidiaries, to the extent that such earnings had
been reinvested abroad for an indefinite period of time. The
Firm is no longer maintaining the indefinite reinvestment
assertion on the undistributed earnings of those non-U.S.
subsidiaries in light of the enactment of the TCJA. The U.S.
federal and state and local income taxes associated with the
undistributed and previously untaxed earnings of those
non-U.S. subsidiaries was included in the deemed
repatriation charge recorded as of December 31, 2017.
Affordable housing tax credits
The Firm recognized $1.5 billion, $1.7 billion and $1.7
billion of tax credits and other tax benefits associated with
investments in affordable housing projects within income
tax expense for the years 2018, 2017 and 2016,
respectively. The amount of amortization of such
investments reported in income tax expense was $1.2
billion, $1.7 billion and $1.2 billion, respectively. The
carrying value of these investments, which are reported in
other assets on the Firm's Consolidated balance sheets, was
$7.9 billion and $7.8 billion at December 31, 2018 and
2017, respectively. The amount of commitments related to
these investments, which are reported in accounts payable
and other liabilities on the Firm's Consolidated balance
sheets, was $2.3 billion and $2.4 billion at December 31,
2018 and 2017, respectively.
Year ended December 31,
2,312
(in millions)
Non-U.S.(a)
2018
2017
2016
$33,052 $27,103
7,712 8,797
$ 26,651
7,885
$34,536
Income before income tax expense $ 40,764 $ 35,900
(a) For purposes of this table, non-U.S. income is defined as income
generated from operations located outside the U.S.
JPMorgan Chase & Co./2018 Form 10-K
U.S.
265
1,721
Total deferred income tax
expense/(benefit)
U.S. state and local
1,638
1,029
904
Total current income tax expense/
(benefit)
6,569
9,147
5,152
Deferred income tax expense/(benefit)
Total income tax expense
U.S. federal
2,174
4,364
Non-U.S.
(93)
(144)
(73)
U.S. state and local
455
282
360
1,359
$ 2,854 $ 5,718 $ 2,488
2,400
Notes to consolidated financial statements
Deferred income tax expense/(benefit) results from
differences between assets and liabilities measured for
financial reporting purposes versus income tax return
purposes. Deferred tax assets are recognized if, in
management's judgment, their realizability is determined to
be more likely than not. If a deferred tax asset is
determined to be unrealizable, a valuation allowance is
established. The significant components of deferred tax
assets and liabilities are reflected in the following table as
of December 31, 2018 and 2017.
8,111
Deferred tax assets, net of valuation
allowance
Deferred tax liabilities
Depreciation and amortization
$
2,533 $
2,299
Mortgage servicing rights, net of
hedges
2,586
7,966 $
Leasing transactions
(294)
Non-U.S. operations
Other, net
Gross deferred tax liabilities
13,551
12,241
Net deferred tax (liabilities)/assets
$
(5,585) $
(4,130)
4,719
Deferred taxes
(46)
Valuation allowance
December 31, (in millions)
2018
2017
327
Deferred tax assets
Allowance for loan losses
$
3,433
$
Employee benefits
(89)
1,129
2,701
3,395
688
3,528
Non-U.S. operations
629
Tax attribute carryforwards
163
219
Gross deferred tax assets
8,055
8,157
Accrued expenses and other
1,236
(119)
99
265.00
231.25
(c)
Total preferred
stock
2,606,750 2,606,750 $26,068 $26,068
(a) Represented by depositary shares.
(b) Dividends on fixed-rate preferred stock are payable quarterly. Dividends on fixed-to-floating-rate preferred stock are payable semiannually while at a fixed rate, and payable
quarterly after converting to a floating rate.
(c) Dividend per share is prorated based on the number of days outstanding for the period.
(d) The dividend rate for Series I preferred stock became floating and payable quarterly starting on April 30, 2018; prior to which the dividend rate was fixed at 7.90% or $395.00
per share payable semi annually. The Firm declared a dividend of $147.34, $148.45 and $153.09 per share on outstanding Series I preferred stock on June 15, 2018,
September 14, 2018 and December 14, 2018, respectively.
Each series of preferred stock has a liquidation value and
redemption price per share of $10,000, plus accrued but
unpaid dividends.
On January 24, 2019, the Firm issued $1.85 billion of
6.00% non-cumulative preferred stock, Series EE, and on
January 30, 2019, the Firm announced that it will redeem
all $925 million of its outstanding 6.70% non-cumulative
preferred stock, Series T, on March 1, 2019. On September
21, 2018, the Firm issued $1.7 billion of 5.75% non-
cumulative preferred stock, Series DD. On October 30,
2018, the Firm redeemed $1.7 billion of its fixed-to-floating
rate non-cumulative perpetual preferred stock, Series I.
On October 20, 2017, the Firm issued $1.3 billion of fixed-
to-floating rate non-cumulative preferred stock, Series CC,
with an initial dividend rate of 4.625%. On December 1,
2017, the Firm redeemed all $1.3 billion of its outstanding
5.50% non-cumulative preferred stock, Series O. Quarterly
dividend per share for Series O was $137.50 for the years
ended December 31, 2017 and 2016.
Redemption rights
Each series of the Firm's preferred stock may be redeemed
on any dividend payment date on or after the earliest
redemption date for that series. All outstanding preferred
stock series except Series I may also be redeemed following
a "capital treatment event," as described in the terms of
each series. Any redemption of the Firm's preferred stock is
subject to non-objection from the Board of Governors of the
Federal Reserve System (the "Federal Reserve").
JPMorgan Chase & Co./2018 Form 10-K
259
Notes to consolidated financial statements
Note 21 Common stock
At December 31, 2018 and 2017, JPMorgan Chase was
authorized to issue 9.0 billion shares of common stock with
a par value of $1 per share.
Common shares issued (newly issued or reissuance from
treasury) by JPMorgan Chase during the years ended
December 31, 2018, 2017 and 2016 were as follows.
LIBOR + 3.80
LIBOR + 2.58
305.00
LIBOR + 3.33
250.00
250,000
Series X
160,000
160,000
Series Z
200,000
200,000
Series CC
125,750
125,750
The following table sets forth the Firm's repurchases of
common equity for the years ended December 31, 2018,
2017 and 2016. There were no Warrants repurchased
during the years ended December 31, 2018, 2017 and
2016.
2,500 2,500
1,600 1,600
2,000 2,000
1,258 1,258
5.150 5/1/2023 5/1/2023
6.000 8/1/2023 8/1/2023
6.750 2/1/2024 2/1/2024
6.125 4/30/2024 4/30/2024
5.000 7/1/2019 7/1/2019
6.100 10/1/2024 10/1/2024
5.300 5/1/2020 5/1/2020
4.625 11/1/2022 11/1/2022
LIBOR + 3.25
257.50
LIBOR + 3.30
300.00
LIBOR + 3.78
337.50
LIBOR + 3.33
306.25
LIBOR + 3.32
4/23/2013
7/29/2013
1/22/2014
3/10/2014
6/9/2014
9/23/2014
4/21/2015
10/20/2017
Year ended December 31, (in millions)
Total number of shares of common stock
repurchased
2018
2017
5.4
Employee stock purchase plans
0.9
0.8
Total reissuance
32.0
30.7
26.0
11.1
1.0
38.1
Total treasury - balance at
December 31
9.4
(829.1)
3,275.8
(679.6) (543.7)
3,425.3 3,561.2
There were no warrants to purchase shares of common
stock ("Warrants") outstanding at December 31, 2018, as
any Warrants that were not exercised on or before October
29, 2018, have expired. At December 31, 2017, and 2016,
respectively, the Firm had 15.0 million and 24.9 million
Warrants outstanding.
On June 28, 2018, in conjunction with the Federal Reserve's
release of its 2018 CCAR results, the Firm's Board of
Directors authorized a $20.7 billion common equity
repurchase program. As of December 31, 2018, $10.4
billion of authorized repurchase capacity remained under
the program. This authorization includes shares
repurchased to offset issuances under the Firm's share-
based compensation plans.
The Firm from time to time enters into written trading plans
under Rule 10b5-1 of the Securities Exchange Act of 1934
to facilitate repurchases in accordance with the common
equity repurchase program. A Rule 10b5-1 repurchase plan
allows the Firm to repurchase its equity during periods
when it would not otherwise be repurchasing common
equity - for example, during internal trading “blackout
periods." All purchases under a Rule 10b5-1 plan must be
made according to a predefined plan established when the
Firm is not aware of material nonpublic information. For
additional information regarding repurchases of the Firm's
equity securities, refer to Part II, Item 5: Market for
registrant's common equity, related stockholder matters
and issuer purchases of equity securities, on page 30.
As of December 31, 2018, approximately 85 million shares
of common stock were reserved for issuance under various
employee incentive, compensation, option and stock
purchase plans, and directors' compensation plans.
260
JPMorgan Chase & Co./2018 Form 10-K
Note 22 - Earnings per share
Basic earnings per share ("EPS") is calculated using the
two-class method. Dilutive EPS is calculated under both the
two-class and treasury stock methods, and the more
dilutive amount is reported. Under the two-class method, all
earnings (distributed and undistributed) are allocated to
each class of common stock and participating securities
based on their respective rights to receive dividends.
JPMorgan Chase grants RSUs under its share-based
compensation programs, which entitle recipients to receive
nonforfeitable dividends during the vesting period on a
basis equivalent to the dividends paid to holders of common
stock; these unvested awards meet the definition of
participating securities. Accordingly, these RSUs are treated
as a separate class of securities in computing basic EPS, and
are not included as incremental shares in computing
dilutive EPS; refer to Note 9 for additional information. For
each of the periods presented diluted EPS calculated under
the two-class method was more dilutive.
The following table presents the calculation of basic and
diluted EPS for the years ended December 31, 2018, 2017
and 2016.
Outstanding at December 31
250,000
Warrant exercise
21.7
2016
181.5
166.6
140.4
$19,983 $15,410 $ 9,082
Year ended December 31,
(in millions)
2018
2017
2016
24.5
Total issued - balance at
January 1
4,104.9
Treasury - balance at January 1
(679.6)
Repurchase
(181.5)
4,104.9 4,104.9
(543.7) (441.4)
(166.6) (140.4)
Reissuance:
Employee benefits and
compensation plans
Aggregate purchase price of common
stock repurchases
Series V
1,000 1,000
100,000
$
900 $
900
Series T
92,500
92,500
925
925
Series W
88,000
90,000
88,000
143,000
143,000
Series AA
142,500
142,500
Series BB
115,000
115,000
Series DD
169,625
Series Y
2/5/2013
1/30/2014
880
880 6/23/2014
1,430 1,430 2/12/2015
1,425 1,425 6/4/2015
1,150 1,150 7/29/2015
1,696
9/21/2018
90,000
Fixed-rate:
Note 20 Preferred stock
At December 31, 2018 and 2017, JPMorgan Chase was
authorized to issue 200 million shares of preferred stock, in
one or more series, with a par value of $1 per share.
In the event of a liquidation or dissolution of the Firm,
JPMorgan Chase's preferred stock then outstanding takes
precedence over the Firm's common stock with respect to
the payment of dividends and the distribution of assets.
The following is a summary of JPMorgan Chase's non-cumulative preferred stock outstanding as of December 31, 2018 and 2017.
Carrying value
(in millions)
Shares at December 31, (a)
at December 31,
Contractual
rate
Date at
which
dividend
Floating
Series P
annual
2017
2018
2017
Issue date
in effect at Earliest
December redemption
31, 2018
date
rate
becomes
floating
rate of
Dividend
declared
three-month
LIBOR plus:
per
share(b)
2018
Year ended December 31,
5.450% 3/1/2018
ΝΑ
Series I
LIBOR +
430,375
600,000
4,304 6,000 4/23/2008
3.47% 4/30/2018 4/30/2018 LIBOR + 3.47% $395.00 (d)
147.34
148.45
(d)
(d)
(d)
rate:
153.09
150,000
Series R
150,000
150,000
150,000
Series S
200,000
200,000
1,500 1,500
1,500 1,500
2,000 2,000
Series U
100,000
Series Q
ΝΑ
Fixed-to-floating-
ΝΑ
$136.25
6.700
6.300
6.125
6.100
6.150 9/1/2020
5.750 12/1/2023
3/1/2019
ΝΑ
ΝΑ
167.50
9/1/2019
ΝΑ
ΝΑ
157.50
111.81 (c)
3/1/2020
ΝΑ
153.13
9/1/2020
ΝΑ
ΝΑ
152.50
ΝΑ
ΝΑ
153.75
ΝΑ
ΝΑ
(162)
(in millions,
2018
AOCI
Net change
466
(1,858)
(277)
20
(107)
16
(201)
(414)
(373)
(79)
1,043
(288)
(1,476)
Balance at
December 31,
2018
$ 1,202
$ (727)
$
(161) $
(109)
$
(2,308)
$
effects from
certain tax
115
261
$
$
76
$
(1,521)
$
(368)
$
268
Cumulative effect of
596
changes in
principles:(b)
Premium
amortization on
purchased
callable debt
securities
Hedge accounting
Reclassification of
261 (54)
169
accounting
$
(1,507)
(a) Effective January 1, 2016, the Firm adopted new accounting guidance related to the recognition and measurement of financial liabilities where the fair
value option has been elected. This guidance requires the portion of the total change in fair value caused by changes in the Firm's own credit risk (DVA) to
be presented separately in OCI; previously these amounts were recognized in net income.
(93)
302
66
(24)
(2,430)
572
(1,858) 1,010
(370)
42
640
(141)
(1,769)
395
53
(88)
(1,105)
Net change
Fair value hedges, net change(c).
(1,078)
156
(922)
1,313
(801)
512
(261)
664
$ (470)
$ (1,628) $ 611 $ (1,017)
$ (2,160) $ 944
(b) Represents the adjustment to AOCI as a result of the new accounting standards adopted in the first quarter of 2018. For additional information, refer to
Note 1.
(c) Represents changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads, which are excluded from the assessment
of hedge effectiveness and recorded in other comprehensive income. The initial cost of cross-currency basis spreads is recognized in earnings as part of
the accrual of interest on the cross currency swap.
262
JPMorgan Chase & Co./2018 Form 10-K
The following table presents the pre-tax and after-tax changes in the components of OCI.
Year ended December 31, (in millions)
Unrealized gains/(losses) on investment securities:
Net unrealized gains/(losses) arising during the period
Reclassification adjustment for realized (gains)/losses
included in net income(a)
Net change
Translation adjustments (b):
Translation
$ (346) $ 598
Hedges
2018
Tax
effect
2017
Tax
2016
After-tax Pre-tax
effect After-tax
Pre-tax
Tax
effect
After-tax
$ (2,825) $
665
Pre-tax
$ 2,164
2017
December 31,
17.6
25.2
31.2
Total weighted-average diluted
shares outstanding
Net income per share
$
3,414.0 3,576.8
9.00 $ 6.31 $
3,690.0
6.19
JPMorgan Chase & Co./2018 Form 10-K
3,396.4 3,551.6 3,658.8
261
Note 23 - Accumulated other comprehensive income/(loss)
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation
adjustments (including the impact of related derivatives), fair value changes of excluded components on fair value hedges, cash
flow hedging activities, and net loss and prior service costs/(credit) related to the Firm's defined benefit pension and OPEB plans.
Accumulated
Year ended
December 31,
(in millions)
Unrealized
gains/(losses)
on investment
securities
Translation
adjustments,
net of hedges
Fair value
hedges (c)
Cash flow
hedges
Defined benefit pension
and OPEB plans
Notes to consolidated financial statements
DVA on fair value
option elected
liabilities
$ 30,709 $ 22,567 $ 22,834
3,396.4 3,551.6 3,658.8
2017
2016
Basic earnings per share
Net income
Less: Preferred stock dividends
Net income applicable to common
equity
Less: Dividends and undistributed
earnings allocated to participating
securities
Net income applicable to common
stockholders
Total weighted-average basic
shares outstanding
Net income per share
$ 9.04 $ 6.35 $ 6.24
Diluted earnings per share
Total weighted-average basic shares
outstanding
Add: Employee stock options, SARS,
warrants and unvested PSUs
$ 32,474 $ 24,441 $ 24,733
1,551 1,663
1,647
30,923 22,778
23,086
214
211
252
$ 30,709 $ 22,567 $ 22,834
Net income applicable to common
stockholders
except per share amounts)
other
comprehensive
income/(loss)
December 31,
December 31,
2016
$ 1,524
$
(164)
ΝΑ
$ (100)
$
(2,259)
$
Balance at
(176)
(1,175)
Net change
640
(306)
ΝΑ
176
738
(192)
1,056
Balance at
$
Balance at
154
(1,521)
154
2015
$ 2,629
$ (162)
ΝΑ
$
(44)
$
(2,231)
$
$
(330)
192
change in
accounting
principle (a)
Net change
(1,105)
ΝΑ
(2)
ΝΑ
(56)
(28)
Cumulative effect of
JPMorgan Chase & Co./2018 Form 10-K
(0.7)
$
$
26,420
$
2,079
$
Standby letters of credit and
other financial guarantees
28,492
Other letters
Investment-grade(a)
of credit
2,646
Noninvestment-grade (a)
7,078
746
6,734
1,066
Total contractual amount
$
Other letters
of credit
Standby letters of credit and
other financial guarantees
(in millions)
(g) Certain guarantees and commitments associated with the Firm's membership in clearing houses previously disclosed in "other guarantees and
commitments" are now disclosed in "Exchange and clearing house guarantees and commitments". Prior period amounts have been revised to conform
with the current period presentation.
(h) At December 31, 2018 and 2017, primarily includes letters of credit hedged by derivative transactions and managed on a market risk basis, and unfunded
commitments related to institutional lending. Additionally, includes unfunded commitments predominantly related to certain tax-oriented equity
investments.
(i) For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-
related products, the carrying value represents the fair value.
272
JPMorgan Chase & Co./2018 Form 10-K
Other unfunded commitments to extend credit
Other unfunded commitments to extend credit generally
consist of commitments for working capital and general
corporate purposes, extensions of credit to support
commercial paper facilities and bond financings in the event
that those obligations cannot be remarketed to new
investors, as well as committed liquidity facilities to clearing
organizations. The Firm also issues commitments under
multipurpose facilities which could be drawn upon in
several forms, including the issuance of a standby letter of
credit.
The Firm acts as a settlement and custody bank in the U.S.
tri-party repurchase transaction market. In its role as
settlement and custody bank, the Firm in part is exposed to
the intra-day credit risk of its cash borrower clients, usually
broker-dealers. This exposure arises under secured
clearance advance facilities that the Firm extended to its
clients (i.e. cash borrowers); these facilities contractually
limit the Firm's intra-day credit risk to the facility amount
and must be repaid by the end of the day. As of
December 31, 2017, the secured clearance advance facility
maximum outstanding commitment amount was $1.5
billion. As of December 31, 2018 the Firm no longer offers
such arrangements to its clients.
Guarantees
U.S. GAAP requires that a guarantor recognize, at the
inception of a guarantee, a liability in an amount equal to
the fair value of the obligation undertaken in issuing the
guarantee. U.S. GAAP defines a guarantee as a contract that
contingently requires the guarantor to pay a guaranteed
party based upon: (a) changes in an underlying asset,
liability or equity security of the guaranteed party; or (b) a
third party's failure to perform under a specified
agreement. The Firm considers the following off-balance
sheet arrangements to be guarantees under U.S. GAAP:
standby letters of credit and other financial guarantees,
securities lending indemnifications, certain indemnification
agreements included within third-party contractual
arrangements, certain derivative contracts and the
guarantees under the sponsored member repo program.
As required by U.S. GAAP, the Firm initially records
guarantees at the inception date fair value of the obligation
assumed (e.g., the amount of consideration received or the
net present value of the premium receivable). For certain
types of guarantees, the Firm records this fair value amount
in other liabilities with an offsetting entry recorded in cash
(for premiums received), or other assets (for premiums
receivable). Any premium receivable recorded in other
assets is reduced as cash is received under the contract, and
the fair value of the liability recorded at inception is
amortized into income as lending and deposit-related fees
over the life of the guarantee contract. For indemnifications
provided in sales agreements, a portion of the sale
proceeds is allocated to the guarantee, which adjusts the
gain or loss that would otherwise result from the
transaction. For these indemnifications, the initial liability is
amortized to income as the Firm's risk is reduced (i.e., over
time or when the indemnification expires). Any contingent
liability that exists as a result of issuing the guarantee or
indemnification is recognized when it becomes probable
and reasonably estimable. The contingent portion of the
liability is not recognized if the estimated amount is less
than the carrying amount of the liability recognized at
inception (adjusted for any amortization). The contractual
amount and carrying value of guarantees and
indemnifications are included in the table on page 272. For
additional information on the guarantees, see below.
Standby letters of credit and other financial guarantees
Standby letters of credit and other financial guarantees are
conditional lending commitments issued by the Firm to
guarantee the performance of a client or customer to a
third party under certain arrangements, such as
commercial paper facilities, bond financings, acquisition
financings, trade and similar transactions.
The following table summarizes the contractual amount and carrying value of standby letters of credit and other financial
guarantees and other letters of credit arrangements as of December 31, 2018 and 2017.
Standby letters of credit, other financial guarantees and other letters of credit
2018
2017
December 31,
$
(f) At December 31, 2018, includes guarantees to the Fixed Income Clearing Corporation under the sponsored member repo program and commitments and
guarantees associated with the Firm's membership in certain clearing houses. At December 31, 2017 includes commitments and guarantees associated
with the Firm's membership in certain clearing houses.
33,498
2,825
$
3
$
636
$
3
17,400
521
$
$
17,421
$
878
(a) The ratings scale is based on the Firm's internal ratings which generally correspond to ratings as defined by S&P and Moody's.
JPMorgan Chase & Co./2018 Form 10-K
273
583
$
Commitments with collateral
Total carrying value
$
35,226
$
3,712
Allowance for lending-related commitments
$
167
$
3
$
192
$
3
Guarantee liability
354
-
444
$
(e) At December 31, 2018 and 2017, collateral held by the Firm in support of securities lending indemnification agreements was $195.6 billion and $188.7
billion, respectively. Securities lending collateral primarily consists of cash and securities issued by governments that are members of G7 and U.S.
government agencies.
(d) Predominantly all wholesale lending-related commitments are in the U.S.
(c) At December 31, 2018 and 2017, reflected the contractual amount net of risk participations totaling $282 million and $334 million, respectively, for
other unfunded commitments to extend credit; $10.4 billion and $10.4 billion, respectively, for standby letters of credit and other financial guarantees;
and $385 million and $405 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown
gross of risk participations.
3
3
1,376
1.479
$ 1,409 $1,512
79,400 135,390 159,465
-
3,712
370,098
$991,482
$ 708,578 $ 137,929 $ 161,458 $ 31,293 $ 1,039,258
Derivatives qualifying as guarantees
2,099
299
12,614
40,259
55,271
$ 179,490
57,174
$186,077 $
$ - $ - $ - $ 1
$ 
186,077
636
521
35,226
Other letters of credit(c)
Total wholesale (d)
Total lending-related
Other guarantees and commitments
Securities lending indemnification agreements and
guarantees (e)
62,384 123,751 154,177
11,178
351,490
331,160
852
840
14,408
2,608
11,462
177
5,248
40
2,380
13,558
33,498
2,825
387,813
$
$
367
304
ΝΑ
NA
ΝΑ
1,019
ΝΑ
1,169
89
111
30
38
13,871
542
299
3,468
8,183
8,206
(73)
(76)
(a) Includes certain commitments to purchase loans from correspondents.
(b) Predominantly all consumer lending-related commitments are in the U.S.
ΝΑ
Notes to consolidated financial statements
NA
ΝΑ
Unsettled resale and securities borrowed
agreements
102,008
--- 102,008
76,859
Unsettled repurchase and securities loaned
agreements
57,732
57,732
44,205
Loan sale and securitization-related
indemnifications:
Mortgage repurchase liability
Loans sold with recourse
Exchange & clearing house guarantees and
commitments (f)(g)
Other guarantees and commitments (g)(h)
58,960
3,874
ΝΑ
ΝΑ
ΝΑ
Standby letters of credit and other financial
guarantees (c)
Securities lending indemnifications
Derivatives qualifying as guarantees
$
1,881 $ 1,853 $
1,860
Loans
Sublease rental income
(239)
(251)
Gross rental expense
(241)
Trading assets and other
$
1,642 $
1,602 $
1,619
2018
2017
Net rental expense
Investment securities
2016
2017
83.7
68.1
1,520
Assets pledged at Federal Reserve banks and
FHLBS
475.3
493.7
1,320
Total assets pledged
1,138
973
4,480
10,992
(825)
$ 10,167
$ 663.0 $ 697.6
Total assets pledged do not include assets of consolidated
VIES; these assets are used to settle the liabilities of those
entities. Refer to Note 14 for additional information on
assets and liabilities of consolidated VIES. For additional
information on the Firm's securities financing activities,
refer to Note 11. For additional information on the Firm's
long-term debt, refer to Note 19. The significant
components of the Firm's pledged assets were as follows.
Year ended December 31,
December 31, (in billions)
(in millions)
2018
$
Assets that may not be sold or repledged or
otherwise used by secured parties
59.5
440.1
163.4
Note 29 - Litigation
Contingencies
As of December 31, 2018, the Firm and its subsidiaries and
affiliates are defendants or putative defendants in
numerous legal proceedings, including private, civil
litigations and regulatory/government investigations. The
litigations range from individual actions involving a single
plaintiff to class action lawsuits with potentially millions of
class members. Investigations involve both formal and
informal proceedings, by both governmental agencies and
self-regulatory organizations. These legal proceedings are
at varying stages of adjudication, arbitration or
investigation, and involve each of the Firm's lines of
business and geographies and a wide variety of claims
(including common law tort and contract claims and
statutory antitrust, securities and consumer protection
claims), some of which present novel legal theories.
The Firm believes the estimate of the aggregate range of
reasonably possible losses, in excess of reserves
established, for its legal proceedings is from $0 to
approximately $1.5 billion at December 31, 2018. This
estimated aggregate range of reasonably possible losses
was based upon currently available information for those
proceedings in which the Firm believes that an estimate of
reasonably possible loss can be made. For certain matters,
the Firm does not believe that such an estimate can be
made, as of that date. The Firm's estimate of the aggregate
range of reasonably possible losses involves significant
judgment, given:
•
•
the number, variety and varying stages of the
proceedings, including the fact that many are in
preliminary stages,
Notes to consolidated financial statements
the existence in many such proceedings of multiple
defendants, including the Firm, whose share of liability
(if any) has yet to be determined,
In addition, the outcome of a particular proceeding may be
a result which the Firm did not take into account in its
estimate because the Firm had deemed the likelihood of
that outcome to be remote. Accordingly, the Firm's estimate
of the aggregate range of reasonably possible losses will
change from time to time, and actual losses may vary
significantly.
278
Set forth below are descriptions of the Firm's material legal
proceedings.
American Depositary Receipts Pre-Release Inquiry. In
December 2018, JPMorgan Chase Bank, N.A. reached a
settlement with the U.S. Securities and Exchange
Commission regarding its inquiry into activity relating to
pre-released American Depositary Receipts.
Foreign Exchange Investigations and Litigation. The Firm
previously reported settlements with certain government
authorities relating to its foreign exchange ("FX") sales and
trading activities and controls related to those activities. FX-
related investigations and inquiries by government
authorities, including competition authorities, are ongoing,
and the Firm is cooperating with and working to resolve
those matters. In May 2015, the Firm pleaded guilty to a
single violation of federal antitrust law. In January 2017,
the Firm was sentenced, with judgment entered thereafter
and a term of probation ending in January 2020. The
Department of Labor has granted the Firm a five-year
exemption of disqualification that allows the Firm and its
affiliates to continue to rely on the Qualified Professional
Asset Manager exemption under the Employee Retirement
Income Security Act ("ERISA") until January 2023. The Firm
will need to reapply in due course for a further exemption
to cover the remainder of the ten-year disqualification
period. Separately, in February 2017 the South Africa
Competition Commission referred its FX investigation of the
Firm and other banks to the South Africa Competition
Tribunal, which is conducting civil proceedings concerning
that matter.
The Firm is also one of a number of foreign exchange
dealers named as defendants in a class action filed in the
United States District Court for the Southern District of New
York by U.S.-based plaintiffs, principally alleging violations
of federal antitrust laws based on an alleged conspiracy to
manipulate foreign exchange rates (the "U.S. class action").
In January 2015, the Firm entered into a settlement
agreement in the U.S. class action. Following this
settlement, a number of additional putative class actions
were filed seeking damages for persons who transacted FX
futures and options on futures (the "exchanged-based
actions"), consumers who purchased foreign currencies at
allegedly inflated rates (the "consumer action"),
participants or beneficiaries of qualified ERISA plans (the
"ERISA actions"), and purported indirect purchasers of FX
instruments (the “indirect purchaser action"). Since then,
the Firm has entered into a revised settlement agreement to
resolve the consolidated U.S. class action, including the
exchange-based actions. The Court granted final approval of
that settlement agreement in August 2018. Certain
members of the settlement class filed requests to the Court
to be excluded from the class, and certain of them filed a
complaint against the Firm and a number of other foreign
exchange dealers in November 2018 (the "opt-out action").
JPMorgan Chase & Co./2018 Form 10-K
the numerous yet-unresolved issues in many of the
proceedings, including issues regarding class
certification and the scope of many of the claims, and
the attendant uncertainty of the various potential
outcomes of such proceedings, including where the Firm
has made assumptions concerning future rulings by the
court or other adjudicator, or about the behavior or
incentives of adverse parties or regulatory authorities,
and those assumptions prove to be incorrect.
277
Certain prior period amounts for both collateral and pledged
assets (including the corresponding pledged assets
parenthetical disclosure for trading assets and other assets on
the Consolidated balance sheets) have been revised to
conform with the current period presentation.
JPMorgan Chase & Co./2018 Form 10-K
437.7
173.7
Total assets pledged
Collateral
$ 663.0 $ 697.6
The Firm accepts financial assets as collateral that it is
permitted to sell or repledge, deliver or otherwise use. This
collateral is generally obtained under resale and other
securities financing agreements, customer margin loans and
derivative contracts. Collateral is generally used under
repurchase and other securities financing agreements, to
cover short sales and to collateralize derivative contracts and
deposits.
The following table presents the fair value of collateral
accepted.
December 31, (in billions)
2018
2017
Collateral permitted to be sold or repledged,
delivered, or otherwise used
$ 1,245.3
$ 968.8
Collateral sold, repledged, delivered or
otherwise used
998.3
771.0
$ 86.2
1,561
$ 135.8
$ 104.0
304
In addition to derivative contracts that meet the
characteristics of a guarantee, the Firm is both a purchaser
and seller of credit protection in the credit derivatives
market. For a further discussion of credit derivatives, refer
to Note 5.
Unsettled securities financing agreements
In the normal course of business, the Firm enters into resale
and securities borrowed agreements. At settlement, these
commitments result in the Firm advancing cash to and
receiving securities collateral from the counterparty. The
Firm also enters into repurchase and securities loaned
agreements. At settlement, these commitments result in the
Firm receiving cash from and providing securities collateral
to the counterparty. Such agreements settle at a future
date. These agreements generally do not meet the
definition of a derivative, and therefore, are not recorded
on the Consolidated balance sheets until settlement date.
These agreements predominantly have regular-way
settlement terms. For a further discussion of securities
financing agreements, refer to Note 11.
Loan sales-and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm's mortgage loan sale and
securitization activities with GSES the Firm has made
representations and warranties that the loans sold meet
certain requirements, and that may require the Firm to
repurchase mortgage loans and/or indemnify the loan
purchaser if such representations and warranties are
breached by the Firm. Further, although the Firm's
securitizations are predominantly nonrecourse, the Firm
does provide recourse servicing in certain limited cases
where it agrees to share credit risk with the owner of the
mortgage loans. To the extent that repurchase demands
that are received relate to loans that the Firm purchased
from third parties that remain viable, the Firm typically will
have the right to seek a recovery of related repurchase
losses from the third party. Generally, the maximum amount
of future payments the Firm would be required to make for
breaches of these representations and warranties would be
equal to the unpaid principal balance of such loans that are
deemed to have defects that were sold to purchasers
(including securitization-related SPEs) plus, in certain
circumstances, accrued interest on such loans and certain
expenses.
274
367
JPMorgan Chase & Co./2018 Form 10-K
The liability related to repurchase demands associated with
private label securitizations is separately evaluated by the
Firm in establishing its litigation reserves.
For additional information regarding litigation, refer to Note
29.
Loans sold with recourse
The Firm provides servicing for mortgages and certain
commercial lending products on both a recourse and
nonrecourse basis. In nonrecourse servicing, the principal
credit risk to the Firm is the cost of temporary servicing
advances of funds (i.e., normal servicing advances). In
recourse servicing, the servicer agrees to share credit risk
with the owner of the mortgage loans, such as Fannie Mae
or Freddie Mac or a private investor, insurer or guarantor.
Losses on recourse servicing predominantly occur when
foreclosure sales proceeds of the property underlying a
defaulted loan are less than the sum of the outstanding
principal balance, plus accrued interest on the loan and the
cost of holding and disposing of the underlying property.
The Firm's securitizations are predominantly nonrecourse,
thereby effectively transferring the risk of future credit
losses to the purchaser of the mortgage-backed securities
issued by the trust. At December 31, 2018 and 2017, the
unpaid principal balance of loans sold with recourse totaled
$1.0 billion and $1.2 billion, respectively. The carrying
value of the related liability that the Firm has recorded in
accounts payable and other liabilities on the Consolidated
balance sheets, which is representative of the Firm's view of
the likelihood it will have to perform under its recourse
obligations, was $30 million and $38 million at
December 31, 2018 and 2017, respectively.
Other off-balance sheet arrangements
Indemnification agreements - general
In connection with issuing securities to investors outside the
U.S., the Firm may agree to pay additional amounts to the
holders of the securities in the event that, due to a change
in tax law, certain types of withholding taxes are imposed
on payments on the securities. The terms of the securities
may also give the Firm the right to redeem the securities if
such additional amounts are payable. The Firm may also
enter into indemnification clauses in connection with the
licensing of software to clients ("software licensees") or
when it sells a business or assets to a third party ("third-
party purchasers"), pursuant to which it indemnifies
software licensees for claims of liability or damages that
may occur subsequent to the licensing of the software, or
third-party purchasers for losses they may incur due to
actions taken by the Firm prior to the sale of the business or
assets. It is difficult to estimate the Firm's maximum
exposure under these indemnification arrangements, since
this would require an assessment of future changes in tax
law and future claims that may be made against the Firm
that have not yet occurred. However, based on historical
experience, management expects the risk of loss to be
remote.
Card charge-backs
Private label securitizations
Derivative receivables
Derivative payables
Fair value
The Firm transacts certain derivative contracts that have
the characteristics of a guarantee under U.S. GAAP. These
contracts include written put options that require the Firm
to purchase assets upon exercise by the option holder at a
specified price by a specified date in the future. The Firm
may enter into written put option contracts in order to meet
client needs, or for other trading purposes. The terms of
written put options are typically five years or less.
Derivatives deemed to be guarantees also includes stable
value contracts, commonly referred to as “stable value
products", that require the Firm to make a payment of the
difference between the market value and the book value of
a counterparty's reference portfolio of assets in the event
that market value is less than book value and certain other
conditions have been met. Stable value products are
transacted in order to allow investors to realize investment
returns with less volatility than an unprotected portfolio.
These contracts are typically longer-term or may have no
stated maturity, but allow the Firm to elect to terminate the
contract under certain conditions.
The notional value of derivatives guarantees generally
represents the Firm's maximum exposure. However,
exposure to certain stable value products is contractually
limited to a substantially lower percentage of the notional
amount.
The fair value of derivative guarantees reflects the
probability, in the Firm's view, of whether the Firm will be
required to perform under the contract. The Firm reduces
exposures to these contracts by entering into offsetting
transactions, or by entering into contracts that hedge the
market risk related to the derivative guarantees.
The following table summarizes the derivatives qualifying as
guarantees as of December 31, 2018 and 2017.
(in millions)
Notional amounts
Derivative guarantees
December 31, December 31,
2018
2017
$
55,271
$
57,174
Stable value contracts with
contractually limited exposure
Maximum exposure of stable
value contracts with
contractually limited exposure
28,637
29,104
2,963
3,053
Under the rules of Visa USA, Inc., and MasterCard
International, JPMorgan Chase Bank, N.A., is primarily liable
for the amount of each processed card sales transaction
that is the subject of a dispute between a cardmember and
a merchant. If a dispute is resolved in the cardmember's
favor, Merchant Services will (through the cardmember's
issuing bank) credit or refund the amount to the
cardmember and will charge back the transaction to the
merchant. If Merchant Services is unable to collect the
amount from the merchant, Merchant Services will bear the
loss for the amount credited or refunded to the
cardmember. Merchant Services mitigates this risk by
withholding future settlements, retaining cash reserve
accounts or by obtaining other collateral. However, in the
unlikely event that: (1) a merchant ceases operations and is
unable to deliver products, services or a refund; (2)
Merchant Services does not have sufficient collateral from
the merchant to provide cardmember refunds; and (3)
Merchant Services does not have sufficient financial
resources to provide cardmember refunds, JPMorgan Chase
Bank, N.A., would recognize the loss.
Merchant Services incurred aggregate losses of $30 million,
$28 million, and $85 million on $1,366.1 billion, $1,191.7
billion, and $1,063.4 billion of aggregate volume processed
for the years ended December 31, 2018, 2017 and 2016,
respectively. Incurred losses from merchant charge-backs
are charged to other expense, with the offset recorded in a
valuation allowance against accrued interest and accounts
receivable on the Consolidated balance sheets. The carrying
value of the valuation allowance was $23 million and $7
million at December 31, 2018 and 2017, respectively,
which the Firm believes, based on historical experience and
the collateral held by Merchant Services of $144 million
and $141 million at December 31, 2018 and 2017,
respectively, is representative of the payment or
performance risk to the Firm related to charge-backs.
Clearing Services - Client Credit Risk
The Firm provides clearing services for clients by entering
into securities purchases and sales and derivative contracts
with CCPS, including ETDS such as futures and options, as
well as OTC-cleared derivative contracts. As a clearing
member, the Firm stands behind the performance of its
clients, collects cash and securities collateral (margin) as
well as any settlement amounts due from or to clients, and
remits them to the relevant CCP or client in whole or part.
There are two types of margin: variation margin is posted
on a daily basis based on the value of clients' derivative
contracts and initial margin is posted at inception of a
derivative contract, generally on the basis of the potential
changes in the variation margin requirement for the
contract.
As a clearing member, the Firm is exposed to the risk of
nonperformance by its clients, but is not liable to clients for
the performance of the CCPS. Where possible, the Firm
seeks to mitigate its risk to the client through the collection
of appropriate amounts of margin at inception and
throughout the life of the transactions. The Firm can also
cease providing clearing services if clients do not adhere to
The Firm may pledge financial assets that it owns to
maintain potential borrowing capacity at discount windows
with Federal Reserve banks, various other central banks and
FHLBS. Additionally, pledged assets are used for other
purposes, including to collateralize repurchase and other
securities financing agreements, to cover short sales and to
collateralize derivative contracts and deposits. Certain of
these pledged assets may be sold or repledged or otherwise
used by the secured parties and are parenthetically
identified on the Consolidated balance sheets as assets
pledged.
The following table presents the Firm's pledged assets.
December 31, (in billions)
Assets that may be sold or repledged or
otherwise used by secured parties
2017
Year ended December 31, (in millions)
2019
2020
2021
2022
2023
After 2023
Total minimum payments required
Less: Sublease rentals under noncancelable subleases
Net minimum payments required
Total rental expense was as follows.
2018
Pledged assets
Through the Firm's securities lending program,
counterparties' securities, via custodial and non-custodial
arrangements, may be lent to third parties. As part of this
program, the Firm provides an indemnification in the
lending agreements which protects the lender against the
failure of the borrower to return the lent securities. To
minimize its liability under these indemnification
agreements, the Firm obtains cash or other highly liquid
collateral with a market value exceeding 100% of the value
of the securities on loan from the borrower. Collateral is
marked to market daily to help assure that collateralization
is adequate. Additional collateral is called from the
borrower if a shortfall exists, or collateral may be released
to the borrower in the event of overcollateralization. If a
borrower defaults, the Firm would use the collateral held to
purchase replacement securities in the market or to credit
the lending client or counterparty with the cash equivalent
thereof.
The following table presents required future minimum
rental payments under operating leases with noncancelable
lease terms that expire after December 31, 2018.
Lease commitments
JPMorgan Chase & Co./2018 Form 10-K
275
Notes to consolidated financial statements
their obligations under the clearing agreement. In the event
of nonperformance by a client, the Firm would close out the
client's positions and access available margin. The CCP
would utilize any margin it holds to make itself whole, with
any remaining shortfalls required to be paid by the Firm as
a clearing member.
The Firm reflects its exposure to nonperformance risk of the
client through the recognition of margin receivables from
clients and margin payables to CCPS; the clients' underlying
securities or derivative contracts are not reflected in the
Firm's Consolidated Financial Statements.
It is difficult to estimate the Firm's maximum possible
exposure through its role as a clearing member, as this
would require an assessment of transactions that clients
may execute in the future. However, based upon historical
experience, and the credit risk mitigants available to the
Firm, management believes it is unlikely that the Firm will
have to make any material payments under these
arrangements and the risk of loss is expected to be remote.
For information on the derivatives that the Firm executes
for its own account and records in its Consolidated Financial
Statements, refer to Note 5.
Exchange & Clearing House Memberships
The Firm is a member of several securities and derivative
exchanges and clearing houses, both in the U.S. and other
countries, and it provides clearing services to its clients.
Membership in some of these organizations requires the
Firm to pay a pro rata share of the losses incurred by the
organization as a result of the default of another member.
Such obligations vary with different organizations. These
obligations may be limited to the amount (or a multiple of
the amount) of the Firm's contribution to the guarantee
fund maintained by a clearing house or exchange as part of
the resources available to cover any losses in the event of a
member default. Alternatively, these obligations may also
include a pro rata share of the residual losses after applying
the guarantee fund. Additionally, certain clearing houses
require the Firm as a member to pay a pro rata share of
losses that may result from the clearing house's investment
of guarantee fund contributions and initial margin,
unrelated to and independent of the default of another
member. Generally a payment would only be required
should such losses exceed the resources of the clearing
house or exchange that are contractually required to absorb
the losses in the first instance. In certain cases, it is difficult
to estimate the Firm's maximum possible exposure under
these membership agreements, since this would require an
assessment of future claims that may be made against the
Firm that have not yet occurred. However, based on
historical experience, management expects the risk of loss
to the Firm to be remote. Where the Firm's maximum
possible exposure can be estimated, the amount is disclosed
in the table on page 272, in the Exchange & clearing house
guarantees and commitments line.
Sponsored Member Repo Program
In 2018 the Firm commenced the sponsored member repo
program, wherein the Firm acts as a sponsoring member to
clear eligible overnight resale and repurchase agreements
through the Government Securities Division of the Fixed
Income Clearing Corporation ("FICC") on behalf of clients
that become sponsored members under the FICC's rules.
The Firm also guarantees to the FICC the prompt and full
payment and performance of its sponsored member clients'
respective obligations under the FICC's rules. The Firm
minimizes its liability under these overnight guarantees by
obtaining a security interest in the cash or high quality
securities collateral that the clients place with the clearing
house therefore the Firm expects the risk of loss to be
remote. The Firm's maximum possible exposure, without
taking into consideration the associated collateral, is
included in the Exchange & clearing house guarantees and
commitments line on page 272. For additional information
on credit risk mitigation practices on resale agreements and
the types of collateral pledged under repurchase
agreements, refer to Note 11.
Guarantees of subsidiaries
In the normal course of business, the Parent Company may
provide counterparties with guarantees of certain of the
trading and other obligations of its subsidiaries on a
contract-by-contract basis, as negotiated with the Firm's
counterparties. The obligations of the subsidiaries are
included on the Firm's Consolidated balance sheets or are
reflected as off-balance sheet commitments; therefore, the
Parent Company has not recognized a separate liability for
these guarantees. The Firm believes that the occurrence of
any event that would trigger payments by the Parent
Company under these guarantees is remote.
The Parent Company has guaranteed certain long-term debt
and structured notes of its subsidiaries, including JPMorgan
Chase Financial Company LLC (“JPMFC”), a 100%-owned
finance subsidiary. All securities issued by JPMFC are fully
and unconditionally guaranteed by the Parent Company.
These guarantees, which rank on a parity with the Firm's
unsecured and unsubordinated indebtedness, are not
included in the table on page 272 of this Note. For
additional information, refer to Note 19.
276
JPMorgan Chase & Co./2018 Form 10-K
Note 28 - Commitments, pledged assets and
collateral
At December 31, 2018, JPMorgan Chase and its
subsidiaries were obligated under a number of
noncancelable operating leases for premises and equipment
used primarily for banking purposes. Certain leases contain
renewal options or escalation clauses providing for
increased rental payments based on maintenance, utility
and tax increases, or they require the Firm to perform
restoration work on leased premises. No lease agreement
imposes restrictions on the Firm's ability to pay dividends,
engage in debt or equity financing transactions or enter into
further lease agreements.
Other unfunded commitments to extend credit(c)
58,960
33
2,189,293
118,036
2,589,887
2,189,293
118,036
Capital ratios (b)
CET1
2,589,887
12.0%
21.1%
12.9%
15.5%
13.6%
Tier 1
13.7
13.9
13.9%
Adjusted average (a)
174,469
1,205,539
187,259
187,259
$
23,696
23,696
237,511
198,494
28,628
227,435
192,250
Wholesale:
Total capital
Assets
Risk-weighted
1,528,916
1,348,230
112,513
1,421,205
21.1
14.7
15.5
13.6
JPMorgan
Chase & Co. Chase Bank, N.A.
Basel III Standardized Transitional
JPMorgan
Basel III Advanced Transitional
Chase Bank
USA, N.A.
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
Chase Bank
USA, N.A.
$
183,300
184,375
$
21,600
$
208,644
184,375
Assets
$
Total capital
CET1 capital
Total
15.5
14.7
25.4
16.0
15.9
15.6
Tier 1 leverage (c)
8.1
8.6
20.1
8.1
8.6
20.1
December 31, 2017
(in millions, except ratios)
Regulatory capital
Tier 1 capital
21,600
183,474
209,093
23,696
23,696
Minimum capital ratios
BHC(a)(e)(f)
Well-capitalized ratios
IDI (b)(e)(f)
BHC(c)
IDI (d)
Capital ratios
CET1
Tier 1
Total
9.0%
The following table presents the minimum and well-
capitalized ratios to which the Firm and its IDI subsidiaries
were subject as of December 31, 2018.
6.375%
6.5%
10.5
7.875
6.0
8.0
12.5
9.875
-%
Add'l
-Tier 1
capital
• Perpetual preferred stock
capital
Note 26 - Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
minimum capital requirements and standards for the Firm's
IDI, including JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A.
Capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. bank holding companies and
banks, including the Firm and its IDI subsidiaries. Basel III
set forth two comprehensive approaches for calculating
RWA: a standardized approach ("Basel III Standardized")
and an advanced approach ("Basel III Advanced"). Certain
of the requirements of Basel III were subject to phase-in
periods that began on January 1, 2014 and continued
through the end of 2018 ("transitional period").
The three components of regulatory capital under the Basel
Ill rules are as illustrated below:
Total
Common stockholder's equity
including capital for AOCI related to:
• AFS debt securities
• Defined benefit pension and OPEB
plans
CET1
capital
Tier 1
capital
Less certain deductions for:
• Goodwill
• MSRS
• Deferred tax assets that arise from
NOL and tax credit carryforwards
10.0
10.0
Tier 1 leverage
4.0
Regulatory capital
CET1 capital
Tier 1 capital
Basel III Standardized Transitional
Basel III Advanced Transitional
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
Chase Bank
USA, N.A.
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
Chase Bank
USA, N.A.
$
183,474 $
187,259
209,093
187,259
(in millions, except ratios)
$
December 31, 2018
Notes to consolidated financial statements
4.00
5.0
5.0
SLR
5.0
6.00
6.0
Note: The table above is as defined by the regulations issued by the Federal
Reserve, OCC and FDIC and to which the Firm and its IDI subsidiaries are
subject.
(a) Represents the Transitional minimum capital ratios applicable to the
Firm under Basel III at December 31, 2018. At December 31, 2018,
the CET1 minimum capital ratio includes 1.875% resulting from the
phase in of the Firm's 2.5% capital conservation buffer, and 2.625%
resulting from the phase in of the Firm's 3.5% GSIB surcharge.
(b) Represents requirements for JPMorgan Chase's IDI subsidiaries. The
CET1 minimum capital ratio includes 1.875% resulting from the phase
in of the 2.5% capital conservation buffer that is applicable to the IDI
subsidiaries. The IDI subsidiaries are not subject to the GSIB surcharge.
(c) Represents requirements for bank holding companies pursuant to
regulations issued by the Federal Reserve.
(d) Represents requirements for IDI subsidiaries pursuant to regulations
issued under the FDIC Improvement Act.
(e) For the period ended December 31, 2017 the CET1, Tier 1, Total and
Tier 1 leverage minimum capital ratios applicable to the Firm were
7.5%, 9.0%, 11.0% and 4.0% and the CET1, Tier 1, Total and Tier 1
leverage minimum capital ratios applicable to the Firm's IDI
subsidiaries were 5.75%, 7.25%, 9.25% and 4.0% respectively.
(f) Represents minimum SLR requirement of 3.0%, as well as,
supplementary leverage buffers of 2.0% and 3.0% for BHC and IDI,
respectively.
• Long-term debt qualifying as
Tier 2
• Qualifying allowance for
credit losses
Tier 2
capital
Under the risk-based and leverage-based capital guidelines
of the Federal Reserve, JPMorgan Chase is required to
maintain minimum ratios for CET1, Tier 1, Total, Tier 1
leverage and the SLR. Failure to meet these minimum
requirements could cause the Federal Reserve to take
action. IDI subsidiaries are also subject to these capital
requirements by their respective primary regulators.
JPMorgan Chase & Co./2018 Form 10-K
269
The following tables present the risk-based and leverage-based capital metrics for JPMorgan Chase and its significant IDI
subsidiaries under both the Basel III Standardized and Basel III Advanced Approaches. As of December 31, 2018 and 2017,
JPMorgan Chase and all of its IDI subsidiaries were well-capitalized and met all capital requirements to which each was subject.
238,395
27,196
27,691
Expires
after 5
years
Total
Total
Lending-related
Consumer, excluding credit card:
Home equity
Residential mortgage(a)
5 years
$
1,095 $ 1,813 $ 17,197 $
5,469
-
12
5,481
20,901 $ 20,360
5,736
$ 12 $
796 $
through
3 years
1 year
through
3 years
JPMorgan Chase & Co./2018 Form 10-K
Note 27 - Off-balance sheet lending-related
financial instruments, guarantees, and
other commitments
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to address
the financing needs of its customers and clients. The
contractual amount of these financial instruments
represents the maximum possible credit risk to the Firm
should the customer or client draw upon the commitment
or the Firm be required to fulfill its obligation under the
guarantee, and should the customer or client subsequently
fail to perform according to the terms of the contract. Most
of these commitments and guarantees are refinanced,
extended, cancelled, or expire without being drawn or a
default occurring. As a result, the total contractual amount
of these instruments is not, in the Firm's view,
representative of its expected future credit exposure or
funding requirements.
To provide for probable credit losses inherent in wholesale
and certain consumer lending-commitments, an allowance
for credit losses on lending-related commitments is
maintained. Refer to Note 13 for further information
regarding the allowance for credit losses on lending-related
commitments. The following table summarizes the
contractual amounts and carrying values of off-balance
sheet lending-related financial instruments, guarantees and
other commitments at December 31, 2018 and 2017. The
amounts in the table below for credit card and home equity
lending-related commitments represent the total available
credit for these products. The Firm has not experienced,
and does not anticipate, that all available lines of credit for
these products will be utilized at the same time. The Firm
can reduce or cancel credit card lines of credit by providing
the borrower notice or, in some cases as permitted by law,
without notice. In addition, the Firm typically closes credit
card lines when the borrower is 60 days or more past due.
The Firm may reduce or close HELOCS when there are
significant decreases in the value of the underlying
property, or when there has been a demonstrable decline in
the creditworthiness of the borrower.
JPMorgan Chase & Co./2018 Form 10-K
271
Notes to consolidated financial statements
Carrying value(i)
2017
2018
2017
Off-balance sheet lending-related financial instruments, guarantees and other commitments
Contractual amount
2018
Expires
after
Expires
after
Expires in
By remaining maturity at December 31,
(in millions)
1 year or
less
12
-
-
Auto
17,735
46,066
48,553
33
33
Credit card
605,379
195,839
-
Total consumer(b)
629,178
2,539
1,993
17,735
605,379 572,831
651,445 621,384
-
33
1,993
270
2,539
Total consumer, excluding credit card
6,954
878
78
101
8,011
9,255
2
2
Consumer & Business Banking
10,580
566
102
425
11,673
13,202
19
19
23,799
(a) Effective January 1, 2018, the SLR was fully phased-in under Basel III. The December 31, 2017 amounts were calculated under the Basel III Transitional
rules.
-
6.6%
Capital ratios (b)
CET1
Tier 1
Total
Tier 1 leverage (c)
12.2%
13.8%
126,517
19.1%
13.9
13.8
19.1
14.5
14.8% (d)
14.8
11.3%
(d)
12.8%
190,523
(d)
1,241,916
2,116,031
11.8%
183,300
208,644
227,933
184,375
$
21,600
184,375
189,510
(d)
26,250
Risk-weighted
1,499,506
Adjusted average (a)
2,514,270
1,338,970
2,116,031
(d)
113,108
126,517
1,435,825
2,514,270
11.3
15.9
21,600
14.6
8.7
$
2,813,396
$
Chase Bank
USA, N.A.
177,328
$
JPMorgan
Chase & Co.
3,204,463
December 31, 2017
Basel III Advanced Transitional
JPMorgan
Chase Bank, N.A.
3,269,988
$
$
Chase Bank
USA, N.A.
182,803
6.4%
6.7%
13.4%
8.3
6.5%
2,775,041
Total leverage exposure (a)
SLR(a)
Chase & Co.
JPMorgan
Chase Bank, N.A.
15.9
15.3 (d)
13.8
17.1
8.3
8.7
17.1
24.5
(b) For each of the risk-based capital ratios, the capital adequacy of the Firm and its IDI subsidiaries is evaluated against the lower of the two ratios as
calculated under Basel III approaches (Standardized or Advanced).
(c) The Tier 1 leverage ratio is not a risk-based measure of capital.
(d) The prior period amounts have been revised to conform with the current period presentation.
December 31, 2018
Basel III Advanced Fully Phased-In
JPMorgan
(d)
(a) Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for on-balance sheet assets
that are subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets.
(in millions, except ratios)
251,503
249,257
246,345
Credit quality metrics
Allowance for credit losses
$
14,367 $
1.41%
14,500 $
1.39%
14,225 $
1.39%
14,482
252,539
1.44%
14,672
1.47%
Allowance for loan losses to total retained loans
$
255,693
252,942
229,625
232,314
232,415
$
229,795
Total stockholders' equity
256,515
253,707
258,956
256,201
258,382
258,483
255,863
Headcount
256,105
255,313
257,458
14,648 $
1.49%
6,364
14,490
1.52%
1.27
6,426
1,264
0.55%
$
1.29
6,154 $
1,265
0.56%
1.28
6,432 $
1,204
1.31
6,826
0.59%
1,654
0.54%
0.76% (h)
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly,
prior period amounts were revised. For additional information, refer to Note 1.
230,133
(b) Quarterly ratios are based upon annualized amounts.
(a) TBVPS and ROTCE are non-GAAP financial measures. For further discussion of these measures, refer to Explanation and Reconciliation of the Firm's Use of Non-GAAP
Financial Measures and Key Performance Measures on pages 57-59.
(h)
1,335
1,252
0.54%
$
Allowance for loan losses to retained loans
excluding purchased credit-impaired loans (f)
1.23
1.23
1.22
1.25
Nonperforming assets
$
Net charge-offs
Net charge-off rate
5,190
1,236
0.52%
$
5,034 $
1,033
0.43%
5,767
$
14,480 $
1.49%
231,390
812,119
230,447
263,288
263,458
281,850
913,761
908,767
895,974
$ 407,064 $ 402,513
Core loans
899,006
889,433
870,536
863,683
843,432
834,935
931,856
$ 420,418
$ 412,282 $ 381,844
238,188 $ 249,958
934,424 $ 930,697
948,414
(c) The percentage represents the Firm's reported average LCR per the U.S. LCR public disclosure requirements, which became effective April 1, 2017.
6.6
6.7
6.6
SLR(e)
Selected balance sheet data (period-end)
Trading assets
Investment Securities
Loans
$ 413,714 $ 419,827 $ 418,799
261,828
231,398
233,015
984,554
954,318
Average core loans
231,192
907,271
877,640
1,443,982
1,439,027
1,439,473
1,422,999
Long-term debt
282,031
1,486,961
270,124
274,449
284,080
288,582
292,973
289,492
Common stockholders' equity
273,114
1,452,122
1,458,762
1,470,666
861,089
850,166
837,522
824,583
805,382
Total assets
2,622,532
2,615,183
2,590,050
2,609,785
2,533,600
2,563,074
2,563,174
2,546,290
Deposits
894,279
(d) Ratios presented are calculated under the Basel III Transitional rules and for the capital ratios represent the lower of the Standardized or Advanced approach. As of
December 31, 2018, and September 30, 2018, the Firm's capital ratios were equivalent whether calculated on a transitional or fully phased-in basis. Refer to Capital
Risk Management on pages 85-94 for additional information on Basel III.
Cash income taxes paid, net(e)
calculated under the Basel III Transitional rules.
Long-term debt
Total interest-bearing liabilities
Noninterest-bearing deposits
21,079
493
2.34
Beneficial interests issued by consolidated VIES
276,414
2.89
1,789,064
22,383
1.25
395,856
Trading liabilities - equity instruments (e)
7,978
2.09
3,729
178,161
2,608,898
Liabilities
Interest-bearing deposits
$
1,060,605
5,973
0.56%
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings (c)
189,282
3,066
1.62
63,523
1,144
1.80
Trading liabilities - debt and all other interest-bearing liabilities (d)(e)
34,295
$
Trading liabilities - derivative payables
All other liabilities, including the allowance for lending-related commitments
(a) Represents securities that are tax-exempt for U.S. federal income tax purposes.
(b) Includes held-for-investment margin loans, which are classified in accrued interest and accounts receivable, and all other interest-earning assets, which are classified in other
assets on the Consolidated balance sheets.
(c) Includes commercial paper.
(d) Other interest-bearing liabilities include brokerage customer payables.
(e) The combined balance of trading liabilities - debt and equity instruments were $107.0 billion, $90.7 billion and $92.8 billion for the years ended December 31, 2018, 2017
and 2016, respectively.
(f) The ratio of average stockholders' equity to average assets was 9.8% for 2018, 10.0% for 2017, and 10.2% for 2016. The return on average stockholders' equity, based on net
income, was 12.7% for 2018, 9.5% for 2017, and 9.9% for 2016.
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period
amounts were revised. For additional information, refer to Note 1.
(g) Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(i) The annualized rate for securities based on amortized cost was 3.25% in 2018, 3.13% in 2017, and 2.99% in 2016, and does not give effect to changes in fair value that are
reflected in AOCI.
(j) Negative interest income and yield is related to client-driven demand for certain securities combined with the impact of low interest rates; this is matched book activity and the
negative interest expense on the corresponding securities loaned is recognized in interest expense and reported within trading liabilities – debt and all other interest-bearing
liabilities.
288
JPMorgan Chase & Co./2018 Form 10-K
1,782
6.5
(h) Fees and commissions on loans included in loan interest amounted to $1.2 billion in 2018, $1.0 billion in 2017, and $808 million in 2016.
2.25%
2.50
55,687
$
91,137
Total liabilities
2,353,427
Stockholders' equity
Preferred stock
26,249
Common stockholders' equity
229,222
Total stockholders' equity
Total liabilities and stockholders' equity
Interest rate spread
Net interest income and net yield on interest-earning assets
255,471 (f)
$
2,608,898
43,075
Total assets
154,010
Other assets
Deposits with banks
$
405,514
5,907
1.46%
Federal funds sold and securities purchased under resale agreements
Interest(g)
217,150
1.76
Securities borrowed
115,082
728
0.63
Trading assets - debt instruments
3,819
Average
rate
2018
balance
(f) Excludes the impact of residential real estate PCI loans, a non-GAAP financial measure. For further discussion of these measures, refer to Explanation and
Reconciliation of the Firm's Use of Non-GAAP Financial Measures and Key Performance Measures on pages 57-59, and the Allowance for credit losses on pages 120-
122.
(g) The Firm's results for the three months ended December 31, 2017, included a $2.4 billion decrease to net income as a result of the enactment of the TCJA. For
additional information related to the impact of the TCJA, refer to Note 24.
(h) Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rates for the three months ended March 31, 2017 would have
been 0.54%.
JPMorgan Chase & Co./2018 Form 10-K
287
Distribution of assets, liabilities and stockholders' equity; interest rates and interest differentials
Consolidated average balance sheet, interest and rates
Provided below is a summary of JPMorgan Chase's
consolidated average balances, interest rates and interest
differentials on a taxable-equivalent basis for the years
2016 through 2018. Income computed on a taxable-
equivalent basis is the income reported in the Consolidated
statements of income, adjusted to present interest income
(Table continued on next page)
(Unaudited)
Year ended December 31,
(Taxable-equivalent interest and rates; in millions, except rates)
Assets
and average rates earned on assets exempt from income
taxes (i.e. federal taxes) on a basis comparable with other
taxable investments. The incremental tax rate used for
calculating the taxable-equivalent adjustment was
approximately 24%, 37% and 38% in 2018, 2017 and
2016, respectively.
Average
261,051
8,763
3.36
Taxable securities
47,796
5.06
48,818
3,417
7.00
2,229,188
(13,269)
78,070
3.50
21,694
101,872
Trading assets - derivative receivables
60,734
Goodwill, MSRs and other intangible assets
54,669
944,885
(e) Effective January 1, 2018, the SLR was fully phased-in under Basel III. The SLR is defined as Tier 1 capital divided by the Firm's total leverage exposure. Ratios prior to
March 31, 2018 were
(h)
7,640
Non-taxable securities (a)
Total investment securities
Loans
All other interest-earning assets(b)
Total interest-earning assets
Allowance for loan losses
Cash and due from banks
Trading assets - equity instruments
194,232
5,653
2.91
42,456
1,987
4.68
(i)
236,688
3.23
6.5
$ 32,474
6.5
817
1,580
2,015
1,307
4,846
4,482
1,241
3,817
5,456
4,639
Income tax expense/(benefit)
3,541
3,578
3,670
5,802
1,290
Net income/(loss)
$ 14,852
$ 9,000 $ 9,000 $ 9,000
$ 16,000
$ 2,853 $ 2,337 $ 2,251
$ 2,657
$ 4,237 $ 3,539
$ 20,000
$ 20,000
$ 10,815
$ 64,000
$ 70,000 $ 70,000
$ 51,000
$ 10,813
$ 11,773
$ 9,714
$ 9,395
$ 51,000
$ 51,000
Average equity
4,237
5,554
5,544
15,661
Noninterest expense
26
39
53
282
(276)
129
563
(45)
(60)
4,494
5,572
4,753
Provision for credit losses
12,822
27,835
Total assets
26,062
20,918
15,295
15,590
15,516
14,851
19,491
tax expense/(benefit)
Income/(loss) before income
9,255
10,218
10,353
2,934
3,327
3,386
19,116
19,407
24,905
13,835
557,441
535,310
2017
2018
2016
2017
2018
2016
2016
2017
(in millions, except ratios)
December 31,
Total
Reconciling Items(a)
Corporate
As of or for the year ended
2018
Noninterest revenue
$
(263) $
(2,265)
$
(1,877) $ (2,704)
(1,313)
(628)
(1,425)
(487)
1,140
(128)
Total net revenue
55
135
Net interest income
$
938
1,085 $
(b)
(Table continued from previous page)
JPMorgan Chase & Co./2018 Form 10-K
284
72
14%
16%
18%
17%
28%
Return on equity
138,384
151,909
170,024
214,341
221,228
220,229
803,511
826,384
903,051
16%
552,601
20%
16%
74
74
39
39
37
54
56
57
55
56
53
Overhead ratio
24%
25%
31%
17%
14,076
7,453
8,605
Total international
156,946
394,134 (e)
3,783 $
1,212
5,292 $
1,899
327
1,632
22,690
1,959
9,126 $
4,414
6,313
Asia/Pacific
14,418 $
$
Europe/Middle East/Africa
Latin America/Caribbean
15,172
North America (a)
73,879
(e) Total assets for the U.K. were approximately $296 billion, $309 billion, and $310 billion at December 31, 2018, 2017 and 2016, respectively.
(d) Expense is composed of noninterest expense and the provision for credit losses.
(c) Effective January 1, 2018, the Firm adopted the revenue recognition guidance. The revenue recognition guidance was applied retrospectively and,
accordingly, prior period amounts were revised. For additional information, refer to Note 1.
(b) Revenue is composed of net interest income and noninterest revenue.
(a) Substantially reflects the U.S.
594,051
1,896,921
42,971
208
5,203
19,530
24,733 $ 2,490,972
34,536 $
62,033 $
96,569 $
$
Total
7,518
27,018
46,861
2016
$ 2,533,600
615,432
1,918,168
5,158
19,283
24,441
4,500
6,028
Asia/Pacific
407,145 (e)
4,007
5,773 $
9,347 $
15,120
$
Europe/Middle East/Africa
2017
32,474 $ 2,622,532
40,764 $
109,029 $ 68,265 $
$
Latin America/Caribbean
282
1,994
1,528
471
7,772
28,128
35,900 $
64,805 $
100,705 $
$
Total
49,435
77,563
North America (a)
15,370
23,142
Total international
44,569
299
163,718
852
1,523
JPMorgan Chase & Co./2018 Form 10-K
Note 31 - Business segments
The Firm is managed on a line of business basis. There are
four major reportable business segments - Consumer &
Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset & Wealth Management. In
addition, there is a Corporate segment. The business
segments are determined based on the products and
services provided, or the type of customer served, and they
reflect the manner in which financial information is
currently evaluated by the Firm's Operating Committee.
Segment results are presented on a managed basis. For a
further discussion concerning JPMorgan Chase's business
segments, refer to Segment results of this footnote.
31,775
35,819
Net interest income
$ 10,539
$ 2,522 $ 2,320
$ 2,343
$ 24,449
$ 24,539
$ 26,968
$ 15,255
$ 14,710
$ 16,260
2016
2017
2018
29,660
2016
9,480
10,891
9,059
35,340
34,657
36,448
44,915
46,485
52,079
Total net revenue
3,033
$ 9,789
$ 10,456
3,379
3,537
5,133
6,083
6,716
10,118
$
2017
2016
Segment results
Notes to consolidated financial statements
283
JPMorgan Chase & Co./2018 Form 10-K
The Corporate segment consists of Treasury and Chief
Investment Office and Other Corporate, which includes
corporate staff functions and expense that is centrally
managed. Treasury and CIO is predominantly responsible
for measuring, monitoring, reporting and managing the
Firm's liquidity, funding, capital, structural interest rate and
foreign exchange risks. The major Other Corporate functions
include Real Estate, Technology, Legal, Corporate Finance,
Human Resources, Internal Audit, Risk Management,
Compliance, Control Management, Corporate Responsibility
and various Other Corporate groups.
AWM, with client assets of $2.7 trillion, is a global leader in
investment and wealth management. AWM clients include
institutions, high-net-worth individuals and retail investors
in many major markets throughout the world. AWM offers
investment management across most major asset classes
including equities, fixed income, alternatives and money
market funds. AWM also offers multi-asset investment
management, providing solutions for a broad range of
clients' investment needs. For Wealth Management clients,
AWM also provides retirement products and services,
brokerage and banking services including trusts and
estates, loans, mortgages and deposits. The majority of
AWM's client assets are in actively managed portfolios.
Corporate
Asset & Wealth Management
CB delivers extensive industry knowledge, local expertise
and dedicated service to U.S. and U.S. multinational clients,
including corporations, municipalities, financial institutions
and nonprofit entities with annual revenue generally
ranging from $20 million to $2 billion. In addition, CB
provides financing to real estate investors and owners.
Partnering with the Firm's other businesses, CB provides
comprehensive financial solutions, including lending,
treasury services, investment banking and asset
management to meet its clients' domestic and international
financial needs.
Commercial Banking
maker in cash securities and derivative instruments, and
also offers sophisticated risk management solutions, prime
brokerage, and research. Markets & Investor Services also
includes Securities Services, a leading global custodian
which provides custody, fund accounting and
administration, and securities lending products principally
for asset managers, insurance companies and public and
private investment funds.
The CIB, which consists of Banking and Markets & Investor
Services, offers a broad suite of investment banking,
market-making, prime brokerage, and treasury and
securities products and services to a global client base of
corporations, investors, financial institutions, government
and municipal entities. Banking offers a full range of
investment banking products and services in all major
capital markets, including advising on corporate strategy
and structure, capital-raising in equity and debt markets, as
well as loan origination and syndication. Banking also
includes Treasury Services, which provides transaction
services, consisting of cash management and liquidity
solutions. Markets & Investor Services is a global market-
Corporate & Investment Bank
CCB offers services to consumers and businesses through
bank branches, ATMs, digital (including online and mobile)
and telephone banking. CCB is organized into Consumer &
Business Banking (including Consumer Banking/Chase
Wealth Management and Business Banking), Home Lending
(including Home Lending Production, Home Lending
Servicing and Real Estate Portfolios) and Card, Merchant
Services & Auto. Consumer & Business Banking offers
deposit and investment products and services to
consumers, and lending, deposit, and cash management
and payment solutions to small businesses. Home Lending
includes mortgage origination and servicing activities, as
well as portfolios consisting of residential mortgages and
home equity loans. Card, Merchant Services & Auto issues
credit cards to consumers and small businesses, offers
payment processing services to merchants, and originates
and services auto loans and leases.
Consumer & Community Banking
The following is a description of each of the Firm's business
segments, and the products and services they provide to
their respective client bases.
The following table provides a summary of the Firm's
segment results as of or for the years ended December 31,
2018, 2017 and 2016, on a managed basis. The Firm's
definition of managed basis starts with the reported U.S.
GAAP results and includes certain reclassifications to
present total net revenue for the Firm (and each of the
reportable business segments) on an FTE basis. Accordingly,
revenue from investments that receive tax credits and tax-
exempt securities is presented in the managed results on a
basis comparable to taxable investments and securities.
This allows management to assess the comparability of
revenue from year-to-year arising from both taxable and
tax-exempt sources. The corresponding income tax impact
related to tax-exempt items is recorded within income tax
expense/(benefit). These adjustments have no impact on
net income as reported by the Firm as a whole or by the
lines of business.
2018
Each business segment is allocated capital by taking into
consideration capital levels of similarly rated peers and
applicable regulatory capital requirements. ROE is
measured and internal targets for expected returns are
established as key measures of a business segment's
performance.
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were
applied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.
Net income in 2018 for each of the business segments reflects the favorable impact of the reduction in the U.S. federal
statutory income tax rate as a result of the TCJA.
2017
2018
2016
2017
2018
Noninterest revenue
(in millions, except ratios)
December 31,
Asset & Wealth Management
Commercial Banking
Corporate & Investment Bank
Consumer & Community Banking
As of or for the year ended
(Table continued on next page)
Segment results and reconciliation
The Firm's allocation methodology incorporates Basel III
Standardized RWA, Basel III Advanced RWA, leverage, the
GSIB surcharge, and a simulation of capital in a severe
stress environment. On at least an annual basis, the
assumptions and methodologies used in capital allocation
are assessed and as a result, the capital allocated to lines of
business may change.
1,980,895
53,970 $ 50,608 $ 50,486
55,059
(1,897)
1,793
Noninterest expense
109
(481)
(678)
1,643
Short-term borrowings
5,202
4,581
Other interest expense
2,957
13,862
(2,273)
4,413
Proceeds from long-term
Total expense
8,665
9,884
10,790
25,013
subsidiaries
Proceeds from issuance of
and undistributed net income of
(21,956) (29,812) (29,298)
Payments of long-term borrowings
Income before income tax benefit
41,498
25,855
25,845
borrowings
6,161
3,705
Borrowings from subsidiaries
and affiliates(b)
105
400
2,291
63
8,036
1,793
78
Other changes in loans, net
Advances to and investments in
subsidiaries and affiliates, net
All other investing activities, net
Net cash provided by/(used in)
1,165
(88)
(444)
Non-bank
852
1,553
515
Bank and bank holding company
Other income from subsidiaries:
207
(280)
49
preferred stock
(51,967)
114
888
and affiliates (b)
Interest expense to subsidiaries
Net change in:
Expense
Financing activities
16,045
14,495
33,678
Total income
(49,707)
(153)
8,099
investing activities
(846)
(623)
Other income
41
1,696
Income tax benefit
5,563
5,501
deposits with banking
subsidiaries at the beginning of
the year
5,338
163
55 $
5,315
65,873
Deposits with banking subsidiaries
Cash and due from banks
Cash and due from banks and
Assets
(60,310)
(62)
(131)
$
Trading assets
3,304
4,773
82
74
Non-bank
$
Cash interest paid
5,370 $
$
year
2,106
3,334
Bank and bank holding company
subsidiaries at the end of the
Advances to, and receivables from, subsidiaries:
deposits with banking
Cash and due from banks and
Net decrease in cash and due from
banks and deposits with banking
subsidiaries
2017
2018
(3,197)
Net income
13,973
12,644
5,623
(9,082)
(15,410)
(19,983)
Treasury stock repurchased
Equity in undistributed net income
of subsidiaries
(1,258)
(1,696)
Redemption of preferred stock
876
1,007
1,838
$ 32,474 $ 24,441 $ 24,733
1,258
Dividends paid
(8,993)
(16,340)
(30,680)
(905)
(1,361)
(1,526)
All other financing activities, net
Net cash used in financing
activities
$ 30,998 $ 25,497 $ 23,212
December 31, (in millions)
Balance sheets(a)
Comprehensive income
(1,521)
1,056
(1,476)
Other comprehensive income, net
(8,476)
(10,109)
Other interest income
353
maturities from available-for-
sale securities
(1,643) $
(1,241) $
79,222 $
771,787
$
$
9,803
11,459
(704) $
8,290
(b)
(4,017)
(2,505)
(241)
2,282
215
(3,474)
$
$
80,350 $
NM
NM
NM
NM
NM
NM
NM
ΝΑ
ΝΑ
NA
799,426
781,478
$
$
84,631 $
34,536
35,900
40,764
(3,474)
Noninterest expense
5,361
5,290
4,871
(4)
(4)
Provision for credit losses
96,569
100,705
109,029
(3,474)
(4,017)
(2,505)
46,083
50,097
902
NM
501
63,394
6.5
(2,505)
(945)
639
(1,026)
Overhead ratio
Return on equity
Total assets
Average equity
Net income/(loss)
Income tax expense/(benefit)
tax expense/(benefit)
Income/(loss) before income
56,672
59,515
462
NM
NM
NM
4,635
(4,400)
Other operating adjustments
2016
2017
2018
Bank and bank holding company
Non-bank(b)
affiliates:
Dividends from subsidiaries and
Income
(in millions)
Year ended December 31,
13,873
13,540
32,501
(18,166)
Cash dividends from subsidiaries
and affiliates (b)
Net cash provided by/(used in)
22,450
794
72
216
Interest income from subsidiaries
Proceeds from paydowns and
3,873
540
2
Net change in:
$ 10,000
$ 13,000
$ 32,501
Investing activities
(7,406)
16,431
operating activities
(1,209)
(3,113)
(5,651)
JPMorgan Chase & Co./2018 Form 10-K
(b) Included $375 million related to tax-oriented investments as a result of the enactment of the TCJA.
(a) Segment results on a managed basis reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/(benefit). These adjustments
are eliminated in reconciling items to arrive at the Firm's reported U.S. GAAP results.
$ 229,222 $ 230,350 $ 224,631
$ 32,474 $ 24,441 $ 24,733
59
59
58
10%
10%
13%
2,490,972
2,533,600
2,622,532
NM
285
(1,744)
Note 32 - Parent Company
Statements of income and comprehensive income(a)
Parent company net loss
27,846
26,185
38,125
$ 24,733
$ 24,441
2016
2017
2018
Less: Net income of subsidiaries
and affiliates (b)
Net income
Operating activities
(in millions)
Year ended December 31,
Statements of cash flows (a)
The following tables present Parent Company-only financial
statements. Effective January 1, 2018, the Parent Company
adopted several new accounting standards. Certain of the new
accounting standards were applied retrospectively and,
accordingly, prior period amounts were revised. For additional
information, refer to Note 1.
25,719
(4,017)
52,033
9,556
9,749
Income tax expense
1,775
2,309
2,256
8,254
1,950
2,824
2,720
1,893
Net income
$
7,066
4,022
$
10,662
10,689
11,008
10,964
9,656
Provision for credit losses
1,548
948
10,572
1,210
1,308
1,452
1,215
1,315
Income before income tax expense
8,841
1,165
15,283
8,380 $
8,712
$
1.08
$
1.77
$
1.83
2.38
$
Diluted
1.98
2.34
Average shares: Basic
Diluted
3,335.8
3,347.3
1.66
8,316 $
$
2.35 $
$
4,232
(g)
$
6,732
$
2.31
7,029 $
Earnings per share data
Net income:
Basic
$
1.99
$
6,448
14,767
14,570
24,939
449,628
1,077
10,478
451,713
422
10,426
Total assets
$ 473,265 $ 475,023
Liabilities and stockholders' equity
Other assets
Borrowings from, and payables to, subsidiaries
and affiliates (b)
Other liabilities
Long-term debt(c)(d)
Total liabilities (d)
Total stockholders' equity
$ 20,017 $ 23,426
2,672
8,821
Short-term borrowings
3,350
Non-bank(b)
Investments (at equity) in subsidiaries and
affiliates:
with the European General Court, and that appeal is
pending.
Notes to consolidated financial statements
279
LIBOR and Other Benchmark Rate Investigations and
Litigation. JPMorgan Chase has received subpoenas and
requests for documents and, in some cases, interviews,
from federal and state agencies and entities, including the
U.S. Commodity Futures Trading Commission and various
state attorneys general, as well as the European
Commission ("EC"), the Swiss Competition Commission
("ComCo") and other regulatory authorities and banking
associations around the world relating primarily to the
process by which interest rates were submitted to the
British Bankers Association ("BBA") in connection with the
setting of the BBA's London Interbank Offered Rate
("LIBOR") for various currencies, principally in 2007 and
2008. Some of the inquiries also relate to similar processes
by which information on rates was submitted to the
European Banking Federation (“"EBF") in connection with
the setting of the EBF's Euro Interbank Offered Rate
("EURIBOR"). The Firm continues to cooperate with these
investigations to the extent that they are ongoing. ComCo's
investigation relating to EURIBOR, to which the Firm and
other banks are subject, continues. In December 2016, the
EC issued a decision against the Firm and other banks
finding an infringement of European antitrust rules relating
to EURIBOR. The Firm has filed an appeal of that decision
In addition, certain merchants have filed individual actions
raising similar allegations against Visa and Mastercard, as
well as against the Firm and other banks, and those actions
are proceeding.
the Court of Appeals. The case was remanded to the District
Court for further proceedings consistent with the appellate
decision. The original class action was divided into two
separate actions, one seeking primarily monetary relief and
the other seeking primarily injunctive relief. In September
2018, the parties to the class action seeking monetary
relief finalized an agreement which amends and supersedes
the prior settlement agreement, and the plaintiffs filed a
motion seeking preliminary approval of the modified
settlement. This settlement provides for the defendants to
contribute an additional $900 million to the approximately
$5.3 billion currently held in escrow from the original
settlement. In January 2019, the amended agreement was
preliminarily approved by the District Court, and formal
notice of the class settlement will proceed in accordance
with the District Court's order. $600 million of the
additional amount will be funded from the litigation escrow
account established under the Visa defendants'
Retrospective Responsibility Plan, and $300 million will be
paid by Mastercard and certain banks in accordance with an
agreement among themselves regarding their respective
shares. In June 2018, Visa deposited an additional $600
million into its litigation escrow account, which in turn led
to a corresponding change in the conversion rate of Visa
Class B to Class A shares. Of the Mastercard-related portion,
the Firm's share is approximately $36 million. The class
action seeking primarily injunctive relief continues
separately.
Bank and bank holding company
A number of merchants appealed the settlement to the
United States Court of Appeals for the Second Circuit,
which, in June 2016, vacated the District Court's
certification of the class action and reversed the approval of
the class settlement. In March 2017, the U.S. Supreme
Court declined petitions seeking review of the decision of
JPMorgan Chase & Co./2018 Form 10-K
General Motors Litigation. JPMorgan Chase Bank, N.A.
participated in, and was the Administrative Agent on behalf
of a syndicate of lenders on, a $1.5 billion syndicated Term
Loan facility ("Term Loan") for General Motors Corporation
("GM"). In July 2009, in connection with the GM bankruptcy
proceedings, the Official Committee of Unsecured Creditors
of Motors Liquidation Company ("Creditors Committee”)
filed a lawsuit against JPMorgan Chase Bank, N.A., in its
individual capacity and as Administrative Agent for other
lenders on the Term Loan, seeking to hold the underlying
lien invalid based on the filing of a UCC-3 termination
statement relating to the Term Loan. In January 2015,
following several court proceedings, the United States Court
of Appeals for the Second Circuit reversed the Bankruptcy
Court's dismissal of the Creditors Committee's claim and
remanded the case to the Bankruptcy Court with
instructions to enter partial summary judgment for the
Creditors Committee as to the termination statement. The
proceedings in the Bankruptcy Court thereafter continued
with respect to, among other things, additional defenses
asserted by JPMorgan Chase Bank, N.A. and the value of
additional collateral on the Term Loan that was unaffected
by the filing of the termination statement at issue. In
addition, certain Term Loan lenders filed cross-claims in the
Bankruptcy Court against JPMorgan Chase Bank, N.A.
seeking indemnification and asserting various claims. In
January 2019, the parties reached an agreement in
principle to fully resolve the litigation, including the cross-
claims filed against the Firm. The agreement is subject to
definitive documentation and court approval, and is not
expected to have any material impact on the Firm. The
Bankruptcy Court has stayed all deadlines in the action to
allow the parties to finalize the settlement agreement for
submission to the Bankruptcy Court.
The District Court has dismissed one of the ERISA actions,
and the United States Court of Appeals for the Second
Circuit affirmed that dismissal in July 2018. The second
ERISA action was voluntarily dismissed with prejudice in
November 2018. The indirect purchaser action, the
consumer action and the opt-out action remain pending in
the District Court.
5,501 $
6,911 $ 5,426 $
1,775
5,563
4,550
1,053
Interchange Litigation. A group of merchants and retail
associations filed a series of class action complaints alleging
that Visa and Mastercard, as well as certain banks,
conspired to set the price of credit and debit card
interchange fees and enacted respective rules in violation of
antitrust laws. The parties settled the cases for a cash
payment, a temporary reduction of credit card interchange,
and modifications to certain credit card network rules. In
December 2013, the District Court granted final approval of
the settlement.
185,240
216,750
256,515
3rd quarter
2nd quarter 1st quarter
Selected income statement data
Total net revenue
Total noninterest expense
Pre-provision profit
4th quarter
$ 26,109
15,720
10,389
$ 27,753 $
15,971
11,782
27,907
16,080
11,827
$ 24,457
14,895
9,562
$
25,578 $ 25,731 $
$ 27,260
15,623
11,637
2nd quarter 1st quarter
3rd quarter
4th quarter
8,302
184,252
219,330
255,693
Total liabilities and stockholders' equity
$ 473,265 $ 475,023
(a) In 2016, in connection with the Firm's 2016 Resolution Submission, the Parent
Company established the IHC, and contributed substantially all of its direct
subsidiaries (totaling $55.4 billion) other than JPMorgan Chase Bank, N.A., as
well as most of its other assets (totaling $160.5 billion) and intercompany
indebtedness to the IHC. Total noncash assets contributed were $62.3 billion. In
2017, the Parent Company transferred $16.2 billion of noncash assets to the IHC
to complete the contributions to the IHC.
(b) Affiliates include trusts that issued guaranteed capital debt securities ("issuer
trusts"). For further discussion on these issuer trusts, refer to Note 19.
(c) At December 31, 2018, long-term debt that contractually matures in 2019
through 2023 totaled 13.1 billion, $22.1 billion, $20.3 billion, $12.8 billion,
and $16.2 billion, respectively.
(d) For information regarding the Parent Company's guarantees of its subsidiaries'
obligations, refer to Notes 19 and 27.
(e) Represents payments, net of refunds, made by the Parent Company to various
taxing authorities and includes taxes paid on behalf of certain of its subsidiaries
that are subsequently reimbursed. The reimbursements were $1.2 billion, $4.1
billion, and $3.0 billion for the years ended December 31, 2018, 2017, and
2016, respectively.
286
JPMorgan Chase & Co./2018 Form 10-K
Supplementary information
Selected quarterly financial data (unaudited)
As of or for the period ended
(in millions, except per share, ratio, headcount
data and where otherwise noted)
2018
2017
3,376.1
In addition, the Firm has been named as a defendant along
with other banks in a series of individual and putative class
actions related to benchmarks filed in various United States
District Courts, including two putative class actions relating
to U.S. dollar LIBOR during the period that it was
administered by ICE Benchmark Administration. These
actions have been filed, or consolidated for pre-trial
purposes, in the United States District Court for the
Southern District of New York. In these actions, plaintiffs
make varying allegations that in various periods, starting in
2000 or later, defendants either individually or collectively
manipulated various benchmark rates by submitting rates
that were artificially low or high. Plaintiffs allege that they
transacted in loans, derivatives or other financial
instruments whose values are affected by changes in these
rates and assert a variety of claims including antitrust
claims seeking treble damages. These matters are in various
stages of litigation.
3,394.3
2.37
65
63
64
63
63
63
65
LCR (average) (c)
115
115
115
119
120
115
113
N/A
67
61
1.28
1.37
0.66
1.04
1.10
1.03
Loans-to-deposits ratio
Overhead ratio
57
58
58
61
57
57
60
1.28
CET1 capital ratio(d)
12.0
15.4
15.5
15.3
15.9
16.1
16.0
15.5
15.6
8.2
8.2
8.2
8.3
8.4
31,261
8.1
12.0
Tier 1 leverage ratio(d)
14.1
12.0
11.8
12.2
12.5
12.5
12.4
Total capital ratio(d)
Tier 1 capital ratio(d)
13.6
13.6
13.5
13.9
14.1
14.2
13.7
1.06
ROA(b)
13
$ 366,301
3,425.3
$
331,393 $ 321,633 $ 312,078
3,469.7
3,519.0
3,552.8
3,360.9
Book value per share
69.52
68.85
67.59
67.04
66.95
66.05
70.35
64.68
$ 375,239 $ 350,204 $ 374,423
3,404.8
3,275.8
1.07
1.76
1.82
1.65
3,458.3
3,479.5
3,489.7
3,512.2
3,325.4
3,534.7
3,574.1
3,599.0
3,601.7
3,630.4
Market and per common share data
Market capitalization
$ 319,780
Common shares at period-end
3,559.6
TBVPS(a)
56.33
55.68
14%
15%
7%
11%
12%
11%
14%
ROTCE(a)(b)
17
17
19
8
13
14
14
12%
ROE(b)
Selected ratios and metrics
55.14
54.05
53.56
54.03
53.29
52.04
Cash dividends declared per share
0.80
0.80
0.56
0.56
0.56
0.56
0.50
0.50
2.29
3,415.2
3,434.7
The Firm has agreed to settle putative class actions related
to exchange-traded Eurodollar futures contracts, Swiss
franc LIBOR, EURIBOR, the Singapore Interbank Offered
Rate, the Singapore Swap Offer Rate and the Australian
Bank Bill Swap Reference Rate. Those settlements are all
subject to further documentation and court approval.
8,341
*
Total assets
$
16,181
$
9,953
6,228
4,444
423,835 (e)
7,119
4,866
2,253
Net income
1,593
2,435
1,413
1,022
718
46,560
25,735
16,232
9,503
6,755
641,637
83,294
171,242
expense
Expense (c)(d)
Revenue (b)(c)
JPMorgan Chase & Co./2018 Form 10-K
In view of the inherent difficulty of predicting the outcome
of legal proceedings, particularly where the claimants seek
very large or indeterminate damages, or where the matters
present novel legal theories, involve a large number of
parties or are in early stages of discovery, the Firm cannot
state with confidence what will be the eventual outcomes of
the currently pending matters, the timing of their ultimate
resolution or the eventual losses, fines, penalties or
consequences related to those matters. JPMorgan Chase
believes, based upon its current knowledge and after
consultation with counsel, consideration of the material
legal proceedings described above and after taking into
account its current litigation reserves and its estimated
aggregate range of possible losses, that the other legal
proceedings currently pending against it should not have a
material adverse effect on the Firm's consolidated financial
condition. The Firm notes, however, that in light of the
uncertainties involved in such proceedings, there is no
assurance that the ultimate resolution of these matters will
not significantly exceed the reserves it has currently
accrued or that a matter will not have material reputational
consequences. As a result, the outcome of a particular
matter may be material to JPMorgan Chase's operating
results for a particular period, depending on, among other
factors, the size of the loss or liability imposed and the level
of JPMorgan Chase's income for that period.
The Firm has established reserves for several hundred of its
currently outstanding legal proceedings. In accordance with
the provisions of U.S. GAAP for contingencies, the Firm
accrues for a litigation-related liability when it is probable
that such a liability has been incurred and the amount of
the loss can be reasonably estimated. The Firm evaluates its
outstanding legal proceedings each quarter to assess its
litigation reserves, and makes adjustments in such reserves,
upwards or downward, as appropriate, based on
management's best judgment after consultation with
counsel. During the year ended December 31, 2018, the
Firm's legal expense was $72 million, and for the years
ended December 31, 2017 and 2016, it was a benefit of
$(35) million and $(317) million, respectively. There is no
assurance that the Firm's litigation reserves will not need to
be adjusted in the future.
JPMorgan Chase & Co./2018 Form 10-K
In addition to the various legal proceedings discussed
above, JPMorgan Chase and its subsidiaries are named as
defendants or are otherwise involved in a substantial
number of other legal proceedings. The Firm believes it has
meritorious defenses to the claims asserted against it in its
currently outstanding legal proceedings and it intends to
defend itself vigorously. Additional legal proceedings may
be initiated from time to time in the future.
*
Note 30 - International operations
*
Wendel. Since 2012, the French criminal authorities have
been investigating a series of transactions entered into by
senior managers of Wendel Investissement ("Wendel")
during the period from 2004 through 2007 to restructure
their shareholdings in Wendel. JPMorgan Chase Bank, N.A.,
Paris branch provided financing for the transactions to a
number of managers of Wendel in 2007. JPMorgan Chase
has cooperated with the investigation. The investigating
judges issued an ordonnance de renvoi in November 2016,
referring JPMorgan Chase Bank, N.A. to the French tribunal
correctionnel for alleged complicity in tax fraud. No date for
trial has been set by the court. The Firm has been
successful in legal challenges made to the Court of
Cassation, France's highest court, with respect to the
criminal proceedings. In January 2018, the Paris Court of
Appeal issued a decision cancelling the mise en examen of
JPMorgan Chase Bank, N.A. The Court of Cassation ruled in
September 2018 that a mise en examen is a prerequisite for
an ordonnance de renvoi and remanded the case to the
Court of Appeal to consider JPMorgan Chase Bank, N.A.'s
application for the annulment of the ordonnance de renvoi
referring JPMorgan Chase Bank, N.A. to the French tribunal
correctionnel. Any further actions in the criminal
proceedings are stayed pending the outcome of that
application. In addition, a number of the managers have
commenced civil proceedings against JPMorgan Chase
Bank, N.A. The claims are separate, involve different
allegations and are at various stages of proceedings.
Precious Metals Investigations and Litigation. Various
authorities, including the Department of Justice's Criminal
Division, are conducting investigations relating to trading
practices in the precious metals markets and related
conduct. The Firm is responding to and cooperating with
these investigations. Several putative class action
complaints have been filed in the United States District
Court for the Southern District of New York against the Firm
and certain current and former employees, alleging a
precious metals futures and options price manipulation
scheme in violation of the Commodity Exchange Act. The
Firm is also a defendant in a consolidated action filed in the
United States District Court for the Southern District of New
York alleging monopolization of silver futures in violation of
the Sherman Act.
confirmation of the Plan of Adjustment, and that appeal was
dismissed by the United States Court of Appeals for the
Eleventh Circuit. The appellants have filed a petition seeking
review by the Supreme Court of the United States.
280
Municipal Derivatives Litigation. Several civil actions were
commenced against the Firm relating to certain Jefferson
County, Alabama (the “County") warrant underwritings and
swap transactions. The actions generally alleged that the
Firm made payments to certain third parties in exchange for
being chosen to underwrite more than $3.0 billion in
warrants issued by the County and to act as the
counterparty for certain swaps executed by the County. The
County subsequently filed for bankruptcy and in November
2013, the Bankruptcy Court confirmed a Plan of Adjustment
pursuant to which the above-described actions against the
Firm were released and dismissed with prejudice. Certain
sewer rate payers filed an appeal challenging the
The following table presents income statement and balance
sheet-related information for JPMorgan Chase by major
international geographic area. The Firm defines
international activities for purposes of this footnote
presentation as business transactions that involve clients
residing outside of the U.S., and the information presented
below is based predominantly on the domicile of the client,
the location from which the client relationship is managed,
or the location of the trading desk. However, many of the
Firm's U.S. operations serve international businesses.
As the Firm's operations are highly integrated, estimates
and subjective assumptions have been made to apportion
revenue and expense between U.S. and international
operations. These estimates and assumptions are consistent
with the allocations used for the Firm's segment reporting
as set forth in Note 31.
The Firm's long-lived assets for the periods presented are
not considered by management to be significant in relation
to total assets. The majority of the Firm's long-lived assets
are located in the U.S.
As of or for the year ended December 31,
(in millions)
2018
Europe/Middle East/Africa
Asia/Pacific
Latin America/Caribbean
Total international
North America (a)
Total
Income before
income tax
In actions related to U.S. dollar LIBOR during the period that
it was administered by the BBA, the District Court dismissed
certain claims, including antitrust claims brought by some
plaintiffs whom the District Court found did not have
standing to assert such claims, and permitted antitrust
claims, claims under the Commodity Exchange Act and
common law claims to proceed. The plaintiffs whose
antitrust claims were dismissed for lack of standing have
filed an appeal. In February 2018, as to those actions which
the Firm has not agreed to settle, the District Court (i)
granted class certification with respect to certain antitrust
claims related to bonds and interest rate swaps sold directly
by the defendants, (ii) denied class certification with
respect to state common law claims brought by the holders
of those bonds and swaps and (iii) denied class certification
with respect to the putative class action related to LIBOR-
based loans held by plaintiff lending institutions.
281
Notes to consolidated financial statements
8.4
6.4
8.5
223
(770)
U.S.
Investment securities:
(20)
(328)
308
167
(174)
341
AFS: Available-for-sale
Non-U.S.
361
(35)
396
882
423
459
U.S.
Trading assets - debt instruments:
20
(547)
24
216
519
211
(110)
544
332
212
Non-U.S.
4,329
AOCI: Accumulated other comprehensive income/(loss)
2,286
2,043
ARM: Adjustable rate mortgage(s)
5,956
4,246
1,710
U.S.
Loans:
(416)
(113)
(303)
(116)
73
(189)
Non-U.S.
303
(4)
AUC: Assets under custody
101
JPMorgan Chase & Co./2018 Form 10-K
293
Glossary of Terms and Acronyms
rating of CCC+/Caa1 and below, as defined by S&P and
Moody's.
CRO: Chief Risk Officer
CRSC: Conduct Risk Steering Committee
CTC: CIO, Treasury and Corporate
CVA: Credit valuation adjustment
Debit and credit card sales volume: Dollar amount of card
member purchases, net of returns.
Deposit margin/deposit spread: Represents net interest
income expressed as a percentage of average deposits.
Distributed denial-of-service attack: The use of a large
number of remote computer systems to electronically send
a high volume of traffic to a target website to create a
service outage at the target. This is a form of cyberattack.
Credit derivatives: Financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) which allow one
party (the protection purchaser) to transfer that risk to
another party (the protection seller). Upon the occurrence
of a credit event by the reference entity, which may include,
among other events, the bankruptcy or failure to pay its
obligations, or certain restructurings of the debt of the
reference entity, neither party has recourse to the reference
entity. The protection purchaser has recourse to the
protection seller for the difference between the face value
of the CDS contract and the fair value at the time of settling
the credit derivative contract. The determination as to
whether a credit event has occurred is generally made by
the relevant International Swaps and Derivatives
Association ("ISDA") Determinations Committee.
Criticized: Criticized loans, lending-related commitments
and derivative receivables that are classified as special
mention, substandard and doubtful categories for
regulatory purposes and are generally consistent with a
Dodd-Frank Act: Wall Street Reform and Consumer
Protection Act
DVA: Debit valuation adjustment
EC: European Commission
Eligible LTD: Long-term debt satisfying certain eligibility
criteria
Embedded derivatives: are implicit or explicit terms or
features of a financial instrument that affect some or all of
the cash flows or the value of the instrument in a manner
similar to a derivative. An instrument containing such terms
or features is referred to as a "hybrid." The component of
the hybrid that is the non-derivative instrument is referred
to as the "host." For example, callable debt is a hybrid
instrument that contains a plain vanilla debt instrument
(i.e., the host) and an embedded option that allows the
issuer to redeem the debt issue at a specified date for a
specified amount (i.e., the embedded derivative). However,
a floating rate instrument is not a hybrid composed of a
fixed-rate instrument and an interest rate swap.
ERISA: Employee Retirement Income Security Act of 1974
EPS: Earnings per share
ETD: “Exchange-traded derivatives": Derivative contracts
that are executed on an exchange and settled via a central
clearing house.
EU: European Union
Fannie Mae: Federal National Mortgage Association
FASB: Financial Accounting Standards Board
FCA: Financial Conduct Authority
DRPC: Board of Directors' Risk Policy Committee
59
Core loans: Represents loans considered central to the
Firm's ongoing businesses; core loans excludes loans
classified as trading assets, runoff portfolios, discontinued
portfolios and portfolios the Firm has an intent to exit.
Credit cycle: A period of time over which credit quality
improves, deteriorates and then improves again (or vice
versa). The duration of a credit cycle can vary from a couple
of years to several years.
resources.
AUM: "Assets under management”: Represent assets
managed by AWM on behalf of its Private Banking,
Institutional and Retail clients. Includes "Committed capital
not Called."
Auto loan and lease origination volume: Dollar amount of
auto loans and leases originated.
Beneficial interests issued by consolidated VIES:
Represents the interest of third-party holders of debt,
equity securities, or other obligations, issued by VIES that
JPMorgan Chase consolidates.
Benefit obligation: Refers to the projected benefit
obligation for pension plans and the accumulated
postretirement benefit obligation for OPEB plans.
BHC: Bank holding company
Card Services includes the Credit Card and Merchant
Services businesses.
CB: Commercial Banking
CBB: Consumer & Business Banking
CCAR: Comprehensive Capital Analysis and Review
CCB: Consumer & Community Banking
CCO: Chief Compliance Officer
Commercial Card: provides a wide range of payment
services to corporate and public sector clients worldwide
through the commercial card products. Services include
procurement, corporate travel and entertainment, expense
management services, and business-to-business payment
solutions.
CCP: "Central counterparty" is a clearing house that
interposes itself between counterparties to contracts traded
in one or more financial markets, becoming the buyer to
every seller and the seller to every buyer and thereby
ensuring the future performance of open contracts. A CCP
becomes counterparty to trades with market participants
through novation, an open offer system, or another legally
binding arrangement.
CEO: Chief Executive Officer
CET1 Capital: Common equity Tier 1 capital
CFTC: Commodity Futures Trading Commission
CFO: Chief Financial Officer
CFP: Contingency funding plan
Chase Bank USA, N.A.: Chase Bank USA, National
Association
CIB: Corporate & Investment Bank
CIO: Chief Investment Office
Client assets: Represent assets under management as well
as custody, brokerage, administration and deposit accounts.
Client deposits and other third-party liabilities: Deposits,
as well as deposits that are swept to on-balance sheet
liabilities (e.g., commercial paper, federal funds purchased
and securities loaned or sold under repurchase
agreements) as part of client cash management programs.
CLO: Collateralized loan obligations
CLTV: Combined loan-to-value
Collateral-dependent: A loan is considered to be collateral-
dependent when repayment of the loan is expected to be
provided solely by the underlying collateral, rather than by
cash flows from the borrower's operations, income or other
CDS: Credit default swaps
All other interest-earning assets, predominantly U.S.
510
1,063
1,388
(176)
1,209
1,827
(618)
6
Change in net interest income
Change in interest expense
Non-U.S.
U.S.
Intercompany funding:
1,212
Non-U.S.
Long-term debt:
(1)
121
(122)
(10)
256
(266)
Beneficial interests issued by consolidated VIES, predominantly
U.S.
61
64
U.S.
10
16
2
ABS: Asset-backed securities
2018 Form 10-K: Annual report on Form 10-K for year
ended December 31, 2018, filed with the U.S. Securities
and Exchange Commission.
Glossary of Terms and Acronyms
JPMorgan Chase & Co./2018 Form 10-K
292
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and,
accordingly, prior period amounts were revised. For additional information, refer to Note 1.
(a) Includes commercial paper.
4,118
4,457
35
186
4,490
1,216 $
(33)
$ 2,902 $
(151)
17
721
8,193
8,108
2,462 $ 4,277
$ 1,815 $
704
(85)
(35)
(186)
151
(721)
(17)
(704)
(23)
(25)
(3)
204
1,185
1,140
1,194
985
209
2,339
2,095
735
42
244
42
Non-U.S.
U.S.
Interest-bearing deposits:
Interest-bearing liabilities
8,575
5,706
2,869
12,385
10,655
1,730
Change in interest income
985
844
141
1,573
777
ALCO: Asset Liability Committee
41
AWM: Asset & Wealth Management
45
2,118
1,842
24
180
Non-U.S.
276
U.S.
Trading liabilities - debt, short-term and all other interest-bearing
liabilities: (a)
(54)
(108)
54
242
576
659
(83)
1,213
1,167
237
5
Non-U.S.
46
46
U.S.
Federal funds purchased and securities loaned or sold under
repurchase agreements:
266
307
1,067
2016
1,653,648
9,818
0.59
437,693
447,956
$
2,180,592 $
14,275
0.65%
$
2,101,604 $
9,818
0.47%
$
51,410
2.36%
$
47,292
2.25%
46,059
2.68
40,705
2.49
5,351
1.15
6,587
1.42
0.82
14,275
1,742,899
(10)
1.52
32,457
503
1.55
40,180
504
1.25
276,750
33
6,745
FCC: Firmwide Control Committee
2.44
283,169
JPMorgan Chase & Co./2018 Form 10-K
5,533
14,739
8
0.05
12,404
31
0.25
(2,874)
(25)
(20,405)
10
2,874
25
20,405
1.95
1,219
22.5
23.1
$
59
59
409
18
$
1,977 $ 2,386
(45)
(27)
267
26
275
264
11
706
633
73
32
Non-U.S.
U.S.
(132)
(213)
81
425
252
173
194
531
(337)
1,610
(1,141) $ 2,751
$
change
20.7
291
Changes in net interest income, volume and rate analysis
The table below presents an attribution of net interest income between volume and rate. The attribution between volume and rate
is calculated using annual average balances for each category of assets and liabilities shown in the table and the corresponding
annual average rates (refer to pages 288-292 for more information on average balances and rates). In this analysis, when the
change cannot be isolated to either volume or rate, it has been allocated to volume. The average annual rates include the impact of
changes in market rates as well as the impact of any change in composition of the various products within each category of asset
or liability. This analysis is calculated separately for each category without consideration of the relationship between categories
(for example, the net spread between the rates earned on assets and the rates paid on liabilities that fund those assets). As a
result, changes in the granularity or groupings considered in this analysis would produce a different attribution result, and due to
the complexities involved, precise allocation of changes in interest rates between volume and rates is inherently complex and
judgmental.
(Unaudited)
Year ended December 31,
(On a taxable-equivalent basis; in millions)
Interest-earning assets
Deposits with banks:
U.S.
Non-U.S.
Federal funds sold and securities purchased under resale
agreements:
21.1
U.S.
Securities borrowed:
2018 versus 2017
Increase/(decrease) due
to change in:
2017 versus 2016
Increase/(decrease) due
to change in:
Volume
Rate
Net
change
Volume
Net
Rate
Non-U.S.
800
80,117
1,280
(66) (c)
(0.10)
73,297
(341) (c)
(0.46)
27,214
29
0.11
29,667
9
0.03
128,293
4,186
3.26
116,211
3,825
3.29
108,913
3,528
3.24
99,354
3,548
3.57
223,140
7,490
3.36
216,726
68,110
1.19
1,099
92,466
Average rate
Average balance
Interest
Average rate
Average balance
Interest
$
366,814 $
4,093
1.12%
$
72,849
145
6,971
0.20
1,707
0.52%
172
0.27
90,879
1,360
1.50
112,901
1,166
1.03
100,941
967
0.96
329,498 $
64,101
1.60
3.22
813
1,029
0.15
237,172
634
0.27
221,532
327
0.15
115,574
1,349
1.17
121,945
773
0.63
71,812
262
0.37
56,775
316
0.56
138,470
1,271
0.92
133,788
86
0.06
79,876
703,738
0.29
2,223
776,049
1.79
62,661
1,229
1.97
832,608
39,439
4.74
788,213
35,110
4.45
73,789
1,857
2.52
45,538
78,165
2.25
41,504
1,844
4.44
38,344
859
2.24
2,180,592
65,685
3.01
2,101,604
57,110
2.72
1,756
FDIA: Federal Depository Insurance Act
FDIC: Federal Deposit Insurance Corporation
440,124
FFELP: Federal Family Education Loan Program
77,910
2,299,500
2,210,920
26,212
230,350
256,562 (f)
$ 2,556,062
26,068
224,631
250,699 (f)
$
2,461,619
$
51,410
2.19%
2.36
JPMorgan Chase & Co./2018 Form 10-K
$
47,292
2.13%
2.25
289
Interest rates and interest differential analysis of net interest income - U.S. and non-U.S.
Presented below is a summary of interest rates and interest
differentials segregated between U.S. and non-U.S.
operations for the years 2016 through 2018. The
segregation of U.S. and non-U.S. components is based on
(Table continued on next page)
(Unaudited)
Year ended December 31,
the location of the office recording the transaction.
Intercompany funding generally consists of dollar-
denominated deposits originated in various locations that
are centrally managed by Treasury and CIO.
87,292
2018
55,927
20,737
177,765
1,102
0.62
32,457
503
1.55
40,180
504
1.25
291,489
6,753
2017
2.32
295,573
5,564
1.88
1,742,899
14,275
0.82
1,653,648
9,818
0.59
404,165
402,698
21,022
44,122
1.21
(Taxable-equivalent interest and rates; in millions, except rates)
Interest
77,027
640
0.83
38,055
88
0.23
U.S.
Non-U.S.
All other interest-earning assets, predominantly U.S.
Total interest-earning assets
141,134
5,068
3.59
119,917
3,695
3.08
200,883
6,943
3.46
35,805
697
1.95
864,149
45,395
5.25
1.21
Average balance
1,392
2.38
Average rate
Interest-earning assets
Deposits with banks:
U.S.
Non-U.S.
Federal funds sold and securities purchased under resale agreements:
U.S.
Non-U.S.
Securities borrowed:
U.S.
Non-U.S.
Trading assets - debt instruments:
U.S.
Non-U.S.
Investment securities:
U.S.
Non-U.S.
Loans:
305,117 $
100,397
5,703
1.87%
204
0.20
102,144
2,427
115,006
2,070
171,814
0.56
(0.04)
102,964
(332) (i)
(0.32)
237,206
7,714
3.25
215,565
7,373
3.42
223,592
5,534
2.48
235,211
5,538
2.35
45,086
2,769
6.14
44,176
2,662
6.03
(i)
268,678
8,303
(37) (i)
3.09
95,324
2,265
Within the Consolidated average balance sheets, interest and rates summary, the principal amounts of nonaccrual loans have
been included in the average loan balances used to determine the average interest rate earned on loans. For additional
information on nonaccrual loans, including interest accrued, refer to Note 12.
(Table continued from previous page)
Average
balance
2017
Interest(g)
Average
rate
2016
Average
balance
Average
Interest(g)
rate
$
439,663
$
4,238
0.96%
$
393,599
$
1,879
0.48%
191,820
2,327
1.21
205,367
1.10
(i)
279,387
8,200
95,528
70,897
53,752
135,098
$
2,461,619
$
1,013,221
$
2,857
0.28%
$
925,270
$
1,356
0.15%
187,386
46,532
1,611
0.86
481
1.03
178,720
36,140
1,089
0.61
203
18,705
2,556,062
$
138,991
2.94
(h)
906,397
41,296
(h)
4.56
866,378
36,866
4.26
41,504
2,180,592
(13,453)
80,736
20,432
1,844
4.44
38,344
859
2.24
65,685
3.01
2,101,604
(13,965)
2.72
59,588
53,999
115,913
2,401
2.97
48,818
•
Net revenue rate: Represents Card Services net revenue
(annualized) expressed as a percentage of average loans for
the period.
Net mortgage servicing revenue: Includes operating
revenue earned from servicing third-party mortgage loans
which is recognized over the period in which the service is
provided, changes in the fair value of MSRS and the impact
of risk management activities associated with MSRs.
Net production revenue: Includes fees and income
recognized as earned on mortgage loans originated with the
intent to sell; the impact of risk management activities
associated with the mortgage pipeline and warehouse
loans; and changes in the fair value of any residual interests
held from mortgage securitizations. Net production revenue
also includes gains and losses on sales of mortgage loans,
lower of cost or fair value adjustments on mortgage loans
held-for-sale, changes in fair value on mortgage loans
originated with the intent to sell and measured at fair value
under the fair value option, as well as losses recognized as
incurred related to repurchases of previously sold loans.
Net charge-off/(recovery) rate: Represents net charge-
offs/(recoveries) (annualized) divided by average retained
loans for the reporting period.
Net Capital Rule: Rule 15c3-1 under the Securities
Exchange Act of 1934.
NAV: Net Asset Value
NA: Data is not applicable or available for the period
presented.
Multi-asset: Any fund or account that allocates assets under
management to more than one asset class.
MSR: Mortgage servicing rights
MSA: Metropolitan statistical areas
loan is other than the borrower's primary residence; or (v) a
history of delinquencies or late payments on the loan.
296
Subprime loans are loans that, prior to mid-2008, were
offered to certain customers with one or more high risk
characteristics, including but not limited to: (i) unreliable or
poor payment histories; (ii) a high LTV ratio of greater than
80% (without borrower-paid mortgage insurance); (iii) a
high debt-to-income ratio; (iv) an occupancy type for the
Subprime
Prime mortgage loans are made to borrowers with good
credit records who meet specific underwriting
requirements, including prescriptive requirements related
to income and overall debt levels. New prime mortgage
borrowers provide full documentation and generally have
reliable payment histories.
Prime
The option ARM real estate loan product is an adjustable-
rate mortgage loan that provides the borrower with the
option each month to make a fully amortizing, interest-only
or minimum payment. The minimum payment on an option
ARM loan is based on the interest rate charged during the
introductory period. This introductory rate is usually
significantly below the fully indexed rate. The fully indexed
rate is calculated using an index rate plus a margin. Once
the introductory period ends, the contractual interest rate
charged on the loan increases to the fully indexed rate and
adjusts monthly to reflect movements in the index. The
minimum payment is typically insufficient to cover interest
accrued in the prior month, and any unpaid interest is
deferred and added to the principal balance of the loan.
Option ARM loans are subject to payment recast, which
converts the loan to a variable-rate fully amortizing loan
upon meeting specified loan balance and anniversary date
triggers.
Alt-A loans are generally higher in credit quality than
subprime loans but have characteristics that would
disqualify the borrower from a traditional prime loan. Alt-A
lending characteristics may include one or more of the
following: (i) limited documentation; (ii) a high CLTV ratio;
(iii) loans secured by non-owner occupied properties; or (iv)
a debt-to-income ratio above normal limits. A substantial
proportion of the Firm's Alt-A loans are those where a
borrower does not provide complete documentation of his
or her assets or the amount or source of his or her income.
Option ARMS
Alt-A
Correspondent - Banks, thrifts, other mortgage banks and
other financial institutions that sell closed loans to the Firm.
Mortgage product types:
Retail - Borrowers who buy or refinance a home through
direct contact with a mortgage banker employed by the
Firm using a branch office, the Internet or by phone.
Borrowers are frequently referred to a mortgage banker by
a banker in a Chase branch, real estate brokers, home
builders or other third parties.
Glossary of Terms and Acronyms
295
Mortgage origination channels:
Moody's: Moody's Investor Services
•
MMDA: Money Market Deposit Accounts
Net interchange income includes the following
components:
Rewards costs: The cost to the Firm for points earned by
cardholders enrolled in credit card rewards programs.
Principal transactions revenue also includes certain realized
and unrealized gains and losses related to hedge accounting
and specified risk-management activities, including: (a)
certain derivatives designated in qualifying hedge
accounting relationships (primarily fair value hedges of
commodity and foreign exchange risk), (b) certain
derivatives used for specific risk management purposes,
primarily to mitigate credit risk, foreign exchange risk and
commodity risk, and (c) other derivatives.
Pretax margin: Represents income before income tax
expense divided by total net revenue, which is, in
management's view, a comprehensive measure of pretax
performance derived by measuring earnings after all costs
are taken into consideration. It is one basis upon which
management evaluates the performance of AWM against
the performance of their respective competitors.
Principal transactions revenue: Principal transactions
revenue is driven by many factors, including the bid-offer
spread, which is the difference between the price at which
the Firm is willing to buy a financial or other instrument and
the price at which the Firm is willing to sell that instrument.
It also consists of realized (as a result of closing out or
termination of transactions, or interim cash payments) and
unrealized (as a result of changes in valuation) gains and
losses on financial and other instruments (including those
accounted for under the fair value option) primarily used in
client-driven market-making activities and on private equity
investments. In connection with its client-driven market-
making activities, the Firm transacts in debt and equity
instruments, derivatives and commodities (including
physical commodities inventories and financial instruments
that reference commodities).
Pre-provision profit/(loss): Represents total net revenue
less noninterest expense. The Firm believes that this
financial measure is useful in assessing the ability of a
lending institution to generate income in excess of its
provision for credit losses.
PRA: Prudential Regulatory Authority
credit-impaired loans acquired in the same fiscal quarter
into one or more pools, provided that the loans have
common risk characteristics(e.g., product type, LTV ratios,
FICO scores, past due status, geographic location). A pool is
then accounted for as a single asset with a single composite
interest rate and an aggregate expectation of cash flows.
PD: Probability of default
JPMorgan Chase & Co./2018 Form 10-K
PCI: “Purchased credit-impaired" loans represents certain
loans that were acquired and deemed to be credit-impaired
on the acquisition date in accordance with the guidance of
the FASB. The guidance allows purchasers to aggregate
Participating securities: Represents unvested share-based
compensation awards containing nonforfeitable rights to
dividends or dividend equivalents (collectively, "dividends"),
which are included in the earnings per share calculation
using the two-class method. JPMorgan Chase grants RSUs to
certain employees under its share-based compensation
programs, which entitle the recipients to receive
nonforfeitable dividends during the vesting period on a
basis equivalent to the dividends paid to holders of common
stock. These unvested awards meet the definition of
participating securities. Under the two-class method, all
earnings (distributed and undistributed) are allocated to
each class of common stock and participating securities,
based on their respective rights to receive dividends.
PCA: Prompt corrective action
Parent Company: JPMorgan Chase & Co.
Overhead ratio: Noninterest expense as a percentage of
total net revenue.
Over-the-counter cleared (“OTC-cleared”) derivatives:
Derivative contracts that are negotiated and executed
bilaterally, but subsequently settled via a central clearing
house, such that each derivative counterparty is only
exposed to the default of that clearing house.
Over-the-counter (“OTC") derivatives: Derivative contracts
that are negotiated, executed and settled bilaterally
between two derivative counterparties, where one or both
counterparties is a derivatives dealer.
OPEB: Other postretirement employee benefit
ORMF: Operational Risk Management Framework
OTTI: Other-than-temporary impairment
OCI: Other comprehensive income/(loss)
OCC: Office of the Comptroller of the Currency
OAS: Option-adjusted spread
Nonperforming assets: Nonperforming assets include
nonaccrual loans, nonperforming derivatives and certain
assets acquired in loan satisfaction, predominantly real
estate owned and other commercial and personal property.
NOW: Negotiable Order of Withdrawal
recognized on an accrual basis. Loans (other than credit
card loans and certain consumer loans insured by U.S.
government agencies) are placed on nonaccrual status
when full payment of principal and interest is not expected,
regardless of delinquency status, or when principal and
interest have been in default for a period of 90 days or
more unless the loan is both well-secured and in the
process of collection. Collateral-dependent loans are
typically maintained on nonaccrual status.
Glossary of Terms and Acronyms
JPMorgan Chase & Co./2018 Form 10-K
Nonaccrual loans: Loans for which interest income is not
NOL: Net operating loss
NM: Not meaningful
Net yield on interest-earning assets: The average rate for
interest-earning assets less the average rate paid for all
sources of funds.
Partner payments: Payments to co-brand credit card
partners based on the cost of loyalty program rewards
earned by cardholders on credit card transactions.
• Interchange income: Fees earned by credit and debit
card issuers on sales transactions.
Merchant Services: is a business that primarily processes
transactions for merchants.
MD&A: Management's discussion and analysis
Measurement alternative: Measures equity securities
without readily determinable fair values at cost less
impairment (if any), plus or minus observable price changes
from an identical or similar investment of the same issuer.
MBS: Mortgage-backed securities
HTM: Held-to-maturity
HQLA: High quality liquid assets
Households: A household is a collection of individuals or
entities aggregated together by name, address, tax
identifier and phone number.
Glossary of Terms and Acronyms
JPMorgan Chase & Co./2018 Form 10-K
294
Home equity - junior lien: Represents loans and
commitments where JPMorgan Chase holds a security
interest that is subordinate in rank to other liens.
Home equity - senior lien: Represents loans and
commitments where JPMorgan Chase holds the first
security interest on the property.
HELOC: Home equity line of credit
HELOAN: Home equity loan
Headcount-related expense: Includes salary and benefits
(excluding performance-based incentives), and other
noncompensation costs related to employees.
GSIB: Global systemically important banks
Ginnie Mae: Government National Mortgage Association
GSE: Fannie Mae and Freddie Mac
G7: Group of Seven nations: Countries in the G7 are
Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
G7 government bonds: Bonds issued by the government of
one of the G7 nations.
FVA: Funding valuation adjustment
FX: Foreign exchange
FTE: Fully taxable equivalent
FSB: Financial Stability Board
Freddie Mac: Federal Home Loan Mortgage Corporation
Free standing derivatives: a derivative contract entered
into either separate and apart from any of the Firm's other
financial instruments or equity transactions. Or, in
conjunction with some other transaction and is legally
detachable and separately exercisable.
Forward points: Represents the interest rate differential
between two currencies, which is either added to or
subtracted from the current exchange rate (i.e., “spot rate")
to determine the forward exchange rate.
FRC: Firmwide Risk Committee
Firm: JPMorgan Chase & Co.
FICO score: A measure of consumer credit risk provided by
credit bureaus, typically produced from statistical models
by Fair Isaac Corporation utilizing data collected by the
credit bureaus.
FICC: The Fixed Income Clearing Corporation
FHLB: Federal Home Loan Bank
FHA: Federal Housing Administration
FFIEC: Federal Financial Institutions Examination Council
ICAAP: Internal capital adequacy assessment process
IDI: Insured depository institutions
IHC: JPMorgan Chase Holdings LLC, an intermediate holding
company
•
•
Master netting agreement: A single agreement with a
counterparty that permits multiple transactions governed
by that agreement to be terminated or accelerated and
settled through a single payment in a single currency in the
event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due).
The LTV ratio considering all available lien positions, as well
as unused lines, related to the property. Combined LTV
ratios are used for junior lien home equity products.
Managed basis: A non-GAAP presentation of Firmwide
financial results that includes reclassifications to present
revenue on a fully taxable-equivalent basis. Management
also uses this financial measure at the segment level,
because it believes this provides information to enable
investors to understand the underlying operational
performance and trends of the particular business segment
and facilitates a comparison of the business segment with
the performance of competitors.
Combined LTV ratio
An estimate of the LTV as of a certain date. The current
estimated LTV ratios are calculated using estimated
collateral values derived from a nationally recognized home
price index measured at the metropolitan statistical area
("MSA") level. These MSA-level home price indices consist of
actual data to the extent available and forecasted data
where actual data is not available. As a result, the estimated
collateral values used to calculate these ratios do not
represent actual appraised loan-level collateral values; as
such, the resulting LTV ratios are necessarily imprecise and
should therefore be viewed as estimates.
Current estimated LTV ratio
The LTV ratio at the origination date of the loan. Origination
date LTV ratios are calculated based on the actual appraised
values of collateral (i.e., loan-level data) at the origination
date.
Origination date LTV ratio
collateral (i.e., residential real estate) securing the loan.
LTV: "Loan-to-value": For residential real estate loans, the
relationship, expressed as a percentage, between the
principal amount of a loan and the appraised value of the
JPMorgan Chase & Co./2018 Form 10-K
LTIP: Long-term incentive plan
Loss emergence period: Represents the time period
between the date at which the loss is estimated to have
been incurred and the ultimate realization of that loss.
LOB CROS: Line of Business and CTC Chief Risk Officers
PSU(s): Performance share units
LOB: Line of business
LIBOR: London Interbank Offered Rate
LGD: Loss given default
LDA: Loss Distribution Approach
LCR: Liquidity coverage ratio
JPMorgan Securities: J.P. Morgan Securities LLC
Loan-equivalent: Represents the portion of the unused
commitment or other contingent exposure that is expected,
based on historical portfolio experience, to become drawn
prior to an event of a default by an obligor.
JPMorgan Clearing: J.P. Morgan Clearing Corp.
JPMorgan Chase Bank, N.A.: JPMorgan Chase Bank,
National Association
ISDA: International Swaps and Derivatives Association
JPMorgan Chase: JPMorgan Chase & Co.
Investment-grade: An indication of credit quality based on
JPMorgan Chase's internal risk assessment system.
"Investment grade" generally represents a risk profile
similar to a rating of a “BBB-”/“Baa3" or better, as defined
by independent rating agencies.
All TDRS (both wholesale and consumer), including ones
that have returned to accrual status
All wholesale nonaccrual loans
Impaired loan: Impaired loans are loans measured at
amortized cost, for which it is probable that the Firm will be
unable to collect all amounts due, including principal and
interest, according to the contractual terms of the
agreement. Impaired loans include the following:
LLC: Limited Liability Company
Federal Reserve: The Board of the Governors of the Federal
Reserve System
REIT: "Real estate investment trust”: A special purpose
investment vehicle that provides investors with the ability to
participate directly in the ownership or financing of real-
estate related assets by pooling their capital to purchase
and manage income property (i.e., equity REIT) and/or
mortgage loans (i.e., mortgage REIT). REITS can be publicly
or privately held and they also qualify for certain favorable
tax considerations.
Glossary of Terms and Acronyms
90,990
1,484
1.63
Beneficial interests issued by consolidated VIES, predominantly U.S.
Long-term debt:
21,079
493
2.34
U.S.
Non-U.S.
Intercompany funding:
U.S.
Non-U.S.
Total interest-bearing liabilities
Noninterest-bearing liabilities (b)
Total investable funds
Net interest income and net yield:
U.S.
256,220
7,954
3.10
20,194
24
0.12
(51,933)
(746)
Non-U.S.
51,933
2.25
150,694
3,417
7.00
2,229,188
78,070
3.50
Interest-bearing liabilities
Interest-bearing deposits:
U.S.
816,305
4,562
0.56
Non-U.S.
244,300
1,411
0.58
Federal funds purchased and securities loaned or sold under repurchase agreements:
U.S.
117,754
2,562
2.18
Non-U.S.
71,528
504
0.70
Trading liabilities - debt, short-term and all other interest-bearing liabilities: (a)
U.S.
3,389
746
1,789,064
22,383
TCE: Tangible common equity
TBVPS: Tangible book value per share
Taxable-equivalent basis: In presenting results on a
managed basis, the total net revenue for each of the
business segments and the Firm is presented on a tax-
equivalent basis. Accordingly, revenue from investments
that receive tax credits and tax-exempt securities is
presented in managed basis results on a level comparable
to taxable investments and securities; the corresponding
income tax impact related to tax-exempt items is recorded
within income tax expense.
Structural interest rate risk: Represents interest rate risk
of the non-trading assets and liabilities of the Firm.
Structured notes: Structured notes are financial
instruments whose cash flows are linked to the movement
in one or more indexes, interest rates, foreign exchange
rates, commodities prices, prepayment rates, or other
market variables. The notes typically contain embedded
(but not separable or detachable) derivatives. Contractual
cash flows for principal, interest, or both can vary in
amount and timing throughout the life of the note based on
non-traditional indexes or non-traditional uses of traditional
interest rates or indexes.
SMBS: Stripped mortgage-backed securities
SPES: Special purpose entities
SLR: Supplementary leverage ratio
Single-name: Single reference-entities
Seed capital: Initial JPMorgan capital invested in products,
such as mutual funds, with the intention of ensuring the
fund is of sufficient size to represent a viable offering to
clients, enabling pricing of its shares, and allowing the
manager to develop a track record. After these goals are
achieved, the intent is to remove the Firm's capital from the
investment.
SEC: Securities and Exchange Commission
Scored portfolio: The scored portfolio predominantly
includes residential real estate loans, credit card loans and
certain auto and business banking loans where credit loss
estimates are based on statistical analysis of credit losses
over discrete periods of time. The statistical analysis uses
portfolio modeling, credit scoring and decision-support
tools.
SAR(S): Stock appreciation rights
298
S&P: Standard and Poor's 500 Index
RWA: "Risk-weighted assets": Basel III establishes two
comprehensive approaches for calculating RWA (a
Standardized approach and an Advanced approach) which
include capital requirements for credit risk, market risk, and
in the case of Basel III Advanced, also operational risk. Key
differences in the calculation of credit risk RWA between the
Standardized and Advanced approaches are that for Basel
III Advanced, credit risk RWA is based on risk-sensitive
approaches which largely rely on the use of internal credit
models and parameters, whereas for Basel III Standardized,
credit risk RWA is generally based on supervisory risk-
weightings which vary primarily by counterparty type and
asset class. Market risk RWA is calculated on a generally
consistent basis between Basel III Standardized and Basel III
Advanced.
RSU(s): Restricted stock units
ROTCE: Return on tangible common equity
ROE: Return on equity
ROA: Return on assets
Risk-rated portfolio: Credit loss estimates are based on
estimates of the probability of default ("PD”) and loss
severity given a default. The probability of default is the
likelihood that a borrower will default on its obligation; the
loss given default ("LGD") is the estimated loss on the loan
that would be realized upon the default and takes into
consideration collateral and structural support for each
credit facility.
Revenue wallet: Proportion of fee revenue based on
estimates of investment banking fees generated across the
industry (i.e., the revenue wallet) from investment banking
transactions in M&A, equity and debt underwriting, and
loan syndications. Source: Dealogic, a third-party provider
of investment banking competitive analysis and volume-
based league tables for the above noted industry products.
RHS: Rural Housing Service of the U.S. Department of
Agriculture
Retained loans: Loans that are held-for-investment (i.e.,
excludes loans held-for-sale and loans at fair value).
Reported basis: Financial statements prepared under U.S.
GAAP, which excludes the impact of taxable-equivalent
adjustments.
REO: Real estate owned
Regulatory VaR: Daily aggregated VaR calculated in
accordance with regulatory rules.
Receivables from customers: Primarily represents held-for-
investment margin loans to brokerage customers that are
collateralized through assets maintained in the clients'
brokerage accounts, as such no allowance is held against
these receivables. These receivables are reported within
accrued interest and accounts receivable on the Firm's
Consolidated balance sheets.
TDR: "Troubled debt restructuring" is deemed to occur
when the Firm modifies the original terms of a loan
agreement by granting a concession to a borrower that is
experiencing financial difficulty.
TLAC: Total Loss Absorbing Capacity
U.K.: United Kingdom
Unaudited: Financial statements and information that have
1.25
$
2,229,188 $
22,383
1.00%
$
55,687
2.50%
50,236
2.91
5,451
1.09
297
Non-U.S.
Assets
Liabilities
24.7
22.3
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior
period amounts were revised. For additional information, refer to Note 1.
(a) Includes commercial paper.
(b) Represents the amount of noninterest-bearing liabilities funding interest-earning assets.
(c) Negative interest income and yield is related to client-driven demand for certain securities combined with the impact of low interest rates; this is matched book
activity and the negative interest expense on the corresponding securities loaned is recognized in interest expense and reported within trading liabilities - debt,
short-term and all other interest-bearing liabilities.
290
JPMorgan Chase & Co./2018 Form 10-K
For further information, refer to the "Net interest income" discussion in Consolidated Results of Operations on pages 48-51.
JPMorgan Chase & Co./2018 Form 10-K
Percentage of total assets and liabilities attributable to non-U.S. operations:
57,110
(Table continued from previous page)
Financial information about JPMorgan
Chase & Co. can be accessed by visiting
the Investor Relations website at
jpmorganchase.com. Additional
questions should be addressed to:
M.L. Chayotid Kridakon
Taiwan
Carl K. Chien
Vietnam
Van Bich Phan
Italy
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The Netherlands
Peter A. Kerckhoffs
Luxembourg
Pablo Garnica
JPMorgan Chase Vice Chairs
Mark S. Garvin
Vittorio U. Grilli
Thailand
Phyllis J. Campbell
Jacob A. Frenkel
Walter A. Gubert
Mel R. Martinez
David Mayhew
E. John Rosenwald
JPMorgan Chase & Co./2018 Annual Report
301
J.P. Morgan International Council
Rt. Hon. Tony Blair
Chairman of the Council
Former Prime Minister of Great Britain
and Northern Ireland
London, United Kingdom
John L. Donnelly
The Hon. Robert M. Gates
Edmund Y. Lee
Carlos Ma. G Mendoza
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Latin America/Caribbean
Andean, Caribbean and Central
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Colombia
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Brazil
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Chile
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Mexico
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Turkey
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Partner
RiceHadleyGates LLC
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Chairman and Chief Executive Officer
Hills & Company International Consultants
Washington, District of Columbia
The Hon. John Howard OM AC
Former Prime Minister of Australia
Sydney, Australia
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President and Chief Executive Officer
Siemens AG
Munich, Germany
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Chairman
Kissinger Associates, Inc.
New York, New York
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Director
The Kraft Heinz Company
Pittsburgh, Pennsylvania
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Chief Executive Officer
Wolters Kluwer
Alphen aan den Rijn, The Netherlands
New York, New York
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Dhahran, Saudi Arabia
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Partner
RiceHadleyGates LLC
Stanford, California
Paolo Rocca
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Tenaris
Buenos Aires, Argentina
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Chief Executive Officer
OCI N.V.
London, United Kingdom
Ratan Naval Tata
Chairman Emeritus
Tata Trusts
Mumbai, India
President and Chief Executive Officer
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JPMorgan Chase & Co.
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Moscow, Russia
Washington, District of Columbia
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Chairman and Chief Executive Officer
LVMH Moët Hennessy - Louis Vuitton
Paris, France
Paul Bulcke
Member of the Board of Directors
Nestlé S.A.
Vevey, Switzerland
Jamie Dimon*
Chairman and Chief Executive Officer
JPMorgan Chase & Co.
New York, New York
John Elkann
Chairman
Fiat Chrysler Automobiles N.V.
Torino, Italy
Martin Feldstein
Professor of Economics
Harvard University
Cambridge, Massachusetts
Ignacio Galán
Chairman
Iberdrola, S.A.
Madrid, Spain
Armando Garza Sada
Chairman of the Board
ALFA
Nuevo León, Mexico
Alex Gorsky
Chairman and Chief Executive Officer
Johnson & Johnson
New Brunswick, New Jersey
Herman Gref
Chief Executive Officer,
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Sberbank
Iberia, Italy and the Netherlands
Belgium, France, Greece,
Nick Bossart
Switzerland
3 Corporate Governance &
Nominating Committee
2 Compensation & Management
Development Committee
1 Audit Committee
Member of:
William C. Weldon 2,3
Retired Chairman and
Chief Executive Officer
Johnson & Johnson
(Healthcare products)
Lee R. Raymond 2, 3
Lead Independent Director
JPMorgan Chase & Co.;
Retired Chairman and
Chief Executive Officer
Exxon Mobil Corporation
(Oil and gas)
(Industrial and financial services)
Retired Vice Chairman
General Electric Company;
Retired Chairman and
Chief Executive Officer
GE Capital
Michael A. Neal 4
(Real estate development)
Clear Creek Properties, Inc.
Chairman and Chief Executive Officer
Laban P. Jackson, Jr.¹
4 Directors' Risk Policy Committee
5 Public Responsibility Committee
Ariel Investments, LLC
(Investment management)
Mellody Hobson 1,5
(Professional services)
Timothy P. Flynn 1,5
Retired Chairman and
Chief Executive Officer
KPMG
Chief Executive Officer
JPMorgan Chase & Co.
(Financial services)
James Dimon
Chairman and
Chief Executive Officer
Henry Crown and Company
(Diversified investments)
James S. Crown 4
Chairman and
Berkshire Hathaway Inc.
(Conglomerate)
Todd A. Combs 4,5
Investment Officer
(Television and entertainment)
Chief Executive Officer
NBCUniversal, LLC
Stephen B. Burke 2, 3
The Boeing Company
(Aerospace)
President
Operating Committee
James Dimon
Chairman and
Jason R. Scott
Firmwide Controller
Nicole Giles
Molly Carpenter
Secretary
Other Corporate Officers
Head of Corporate Responsibility;
Chairman of the Mid-Atlantic Region
Peter L. Scher
CEO, Commercial Banking
Douglas B. Petno
Head of Human Resources
Robin Leopold
Chief Financial Officer
Marianne Lake
Stacey Friedman
General Counsel
CEO, Asset & Wealth Management
Mary Callahan Erdoes
Chief Information Officer
Lori Beer
Chief Risk Officer
Ashley Bacon
CEO, Consumer & Community Banking
Chief Operating Officer;
Co-President and
Gordon A. Smith
CEO, Corporate & Investment Bank
Chief Operating Officer;
Co-President and
Daniel E. Pinto
Chief Executive Officer
Retired Executive Vice President
Joseph C. Tsai
James A. Bell¹
JPMorgan Chase & Co.
Hong Kong
Filippo Gori
Japan
Steve Teru Rinoie
Korea
Tae Jin Park
South and South East Asia
Kalpana Morparia
Indonesia
Haryanto T. Budiman
Europe/Middle East/Africa
Africa, Central & Eastern Europe,
Kazakhstan, Middle East, Pakistan,
Russia and Turkey
Sjoerd Leenart
Bahrain, Egypt and Lebanon
Ali Moosa
Mark Leung
Kazakhstan and Russia
Middle East and North Africa
Khaled Hobballah
Karim Tannir
Saudi Arabia
Bader A. Alamoudi
Sub-Saharan Africa
Austria, Germany, Ireland, Israel,
Nordics and Switzerland
Dorothee Blessing
Austria
Anton J. Ulmer
Ireland
Carin Bryans
Israel
Roy Navon
Yan L. Tavrovsky
China
Paul Uren
Australia and New Zealand
Linda B. Bammann 4
Retired Deputy Head of Risk
Management
Board of Directors
299
JPMorgan Chase & Co./2018 Form 10-K
Warehouse loans: Consist of prime mortgages originated
with the intent to sell that are accounted for at fair value
and classified as trading assets.
VIES: Variable interest entities
VGF: Valuation Governance Forum
VCG: Valuation Control Group
VaR: "Value-at-risk" is a measure of the dollar amount of
potential loss from adverse market moves in an ordinary
market environment.
VA: U.S. Department of Veterans Affairs
U.S. LCR: Liquidity coverage ratio under the final U.S. rule.
U.S. Treasury: U.S. Department of the Treasury
U.S. government-sponsored enterprises ("U.S. GSES") and
U.S. GSE obligations: In the U.S., GSES are quasi-
governmental, privately held entities established by
Congress to improve the flow of credit to specific sectors of
the economy and provide certain essential services to the
public. U.S. GSEs include Fannie Mae and Freddie Mac, but
do not include Ginnie Mae, which is directly owned by the
U.S. Department of Housing and Urban Development. U.S.
GSE obligations are not explicitly guaranteed as to the
timely payment of principal and interest by the full faith and
credit of the U.S.government.
U.S. GAAP: Accounting principles generally accepted in the
U.S.
U.S.: United States of America
not been subjected to auditing procedures sufficient to
permit an independent certified public accountant to
express an opinion.
Glossary of Terms and Acronyms
Investor Relations
Lou Rauchenberger
General Auditor
JPMorgan Chase & Co./2018 Annual Report
Regional Chief Executive Officers
Asia Pacific
Europe/Middle East/Africa
Latin America/Canada
Nicolas Aguzin
Viswas Raghavan
Martin G. Marron
Senior Country Officers and Location Heads
Asia Pacific
(Financial services)
Executive Vice Chairman
Alibaba Group
Hong Kong, China
The Hon. Tung Chee Hwa GBM
Vice Chairman
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302
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One final but key issue: Agile platforms and
cloud capabilities not only allow you to do
things much faster but also enable you to
organize teams differently. You can create
smaller teams of five to 20 people who can
be continually reimagining, reinventing and
rolling out new products and services in a
few days instead of months.
Technological solutions help us do better
underwriting, expediting the mortgage or
automobile loan approval process, letting
The power of artificial intelligence and machine
learning is real.
These technologies already are helping us
reduce risk and fraud, upgrade customer
service, improve underwriting and enhance
marketing across the firm. And this is just
the beginning. As our management teams
get better at understanding the power of AI
and machine learning, these tools are rapidly
being deployed across virtually everything we
do. We can also use artificial intelligence to
try to achieve certain desired outcomes, such
as making mortgages even more available to
minorities. A few examples will suffice:
In the Corporate & Investment Bank,
DeepX leverages machine learning to
assist our equities algorithms globally to
execute transactions across 1,300 stocks a
day, and this total is rising as we roll out
DeepX to new countries.
Across our company, we will be deploying
virtual assistants (robots driven by artifi-
cial intelligence) to handle tasks such as
maintaining internal help desks, tracking
down errors and routing inquiries.
In Consumer Marketing, we are better
able to customize insights and offerings
for individual customers, based on, for
example, their ability to save or invest,
their travel preferences or the availability
of discounts on brands they like.
the customer accept the loan in a couple
of clicks and then start shopping for a
home or car.
II. COMMENTS ON CURRENT CRITICAL ISSUES
•
•
In our Consumer Operations, we are using
AI and machine learning techniques for
ATM cash management to optimize cash
in devices, reduce the cost of reloads and
schedule ATM maintenance.
And our initial results from machine
learning fraud applications are expected
to drive approximately $150 million of
annual benefits and countless efficiencies.
For example, machine learning is helping
to deliver a better customer experience
while also prioritizing safety at the point of
sale, where fraud losses have been reduced
significantly, with automated decisions
on transactions made in milliseconds.
We are now able to approve 1 million
additional good customers (who would
have been declined for potential fraud)
and also decline approximately 1 million
additional fraudsters (who would have
been approved). Machine learning will
also curtail check fraud losses by analyzing
signatures, payee names and check features
in real time.
Over time, AI will also dramatically
improve Anti-Money Laundering/Bank
Secrecy Act protocols and processes as well
as other complex compliance requirements.
34
on the external cloud or the internal cloud
(the internal cloud will have many of the
benefits of the external cloud's scalable and
efficient platforms).
33
It is important to note that the cloud has
matured to the point where it can meet the
high expectations that are set by large enter-
prises that have fairly intense demands
around security, audit procedures, access to
systems, cyber security and business resiliency.
We will try to retrain and redeploy our workforce
as Al reduces certain types of jobs.
We are evaluating all of our jobs to deter-
mine which are most susceptible to being
lost through AI. We will plan ahead so we
can retrain or deploy our employees both
for other roles inside the company and, if
necessary, outside the company.
32
II. COMMENTS ON CURRENT CRITICAL ISSUES
Lehman failed, no one had a problem
in replacing any of these activities.
For another example, American regu-
lators simply doubled thresholds for
American banks (versus international
competition) and have never adjusted
them, as they were supposed to do, for
economic growth, for other new regula-
tions like total loss absorbing capacity
and liquidity or for the fact that GSIB
banks have become a smaller part of
the financial system. Now regulators
are talking about adding GSIB require-
ments to CCAR, which is only logical if
the GSIB charge itself makes sense in
the first place. If GSIB regulation is to
become this important, it needs thor-
ough justification.
Later in this letter I discuss some possible
adverse consequences to the U.S. financial
system because of the interplay between
these factors in a downturn. One comment
that we continue to hear is that U.S. banks
are now doing quite well despite evidence
that GSIB requirements are tougher on
U.S. banks than on foreign banks. But
that outperformance is not ordained from
above and may not always be the case. We
should calculate data the right way, and
U.S. banks, their employees, shareholders
and the communities they serve should not
be put at a permanent disadvantage.
Proper calibration of financial regulation
can enhance the growth and resiliency of
the U.S. economy, which actually reduces
systemic risk and helps banks safely serve
more clients.
4. We believe stock buybacks are an essential part of proper capital allocation but
secondary to long-term investing.
I have already noted that stock buybacks,
though sometimes misused, are an
important tool that businesses must have
to reallocate excess capital. To reiterate, this
should be done only after proper invest-
ments for the future have been considered.
A recent complaint is that companies,
partially due to tax reform, have used
their excess capital to buy back more
stock instead of investing in their busi-
ness. While this is true, you should keep in
mind three things. First, as stock buybacks
increased in 2018, so did corporate capital
expenditures and research and develop-
ment (R&D). In fact, contrary to popular
belief, capital expenditures as a percentage
of GDP are higher today than in the "good
old days" of the 1950s and 1960s. Second,
companies tend to buy back stock when
they don't see a good use for capital in the
next year or two. We believe that as compa-
nies adjust to the new higher cash flows,
they will begin to reinvest more of that
money in the United States. The benefit of
tax reform is the long-term (multi-year)
cumulative effect of capital retained and
reinvested in the United States. And third,
the capital that was used to buy back stock
did not disappear - it was given to share-
holders who then put it to a better and
higher use of their own choosing.
Here is one concluding comment on long-
term investing: Many investors legiti-
mately demand that companies think long
term and explain their strategies and poli-
cies. Meanwhile, these same investors, who
demand long-term thinking from compa-
nies, often invest in funds that are paid a
lot of money for how a stock performs in
one year. I hope these investors appreciate
the disconnect and hope they will consider
the pressures for short-term performance
they may have helped to create.
II. COMMENTS ON CURRENT CRITICAL ISSUES
.
5. On the importance of the cloud and artificial intelligence, we are all in.
The power of the cloud is real.
We were a little slow in adopting the cloud,
for which I am partially responsible. My
early thinking about the cloud was that it
was just another term for outsourcing. I held
firm to the view, which is somewhat still
true, that we can run our own data centers,
networks and applications as efficiently as
anyone. But here's the critical point: Cloud
capabilities are far more extensive, and
we are now full speed ahead. Let me cite a
couple of examples:
The cloud gives us the ability to achieve
rapid scale and elasticity of computing
power exponentially beyond our own
capacity. This will be especially relevant as
we scale
up our artificial intelligence efforts.
The cloud platform is agile and flexible.
It offers access to data sets, advanced
analytics and machine learning capabili-
ties beyond our own. It increases devel-
opers' effectiveness by multiples - you
can almost "click and drop" new elements
into existing programs as opposed to
writing extensive new code. For instance,
adding databases and/or machine
learning to an application can be done
almost instantaneously. And certain
tasks, such as testing code and provi-
sioning compute power, are automated.
The cloud provides a software develop-
ment experience that is frictionless and
allows our engineers to prototype quickly
and learn fast, as well as increase the
speed of delivering new capabilities to our
customers and clients.
We will be rapidly “refactoring” most of our
applications to take full advantage of cloud
computing. We then can decide whether it is
more advantageous to run our applications
The combined power of virtually unlimited
computing strength, AI applied to almost
anything and the ability to use vast sets
of data and rapidly change applications
is extraordinary – we have only begun to
take advantage of the opportunities for the
company and for our customers.
enterprises are often inefficient; corporate
and government debt levels are growing
rapidly; financial markets lack depth, trans-
parency and adequate rule of law; and Asia
is a very complex part of the world geopoliti-
cally speaking. Just as important, not enough
people participate in the nation's political
system. Chinese leadership is well aware of
these issues and talks about many of them
quite openly. I say none of this to be nega-
tive about China (indeed, I have enormous
respect for what the Chinese have accom-
plished in the economic realm) but just to
give a balanced view. And in spite of these
difficulties, we believe that China is well on
its way to becoming a fully developed nation,
though the future will probably entail more
uncertainty and moments of slower growth
(like the rest of us) than in the past.
Disruption of trade is another risk for
China. The United States' trade issues with
China are substantial and real. They include
the theft or forced transfer of intellectual
property; lack of bilateral investment rights,
giving ownership or control of investments;
onerous non-tariff barriers; unfair subsidies
or benefits for state-owned enterprises; and
the lack of rapid enforcement of any disagree-
ments. The U.S. position is supported, though
in an uncoordinated way, by our Japanese
and European allies. We should only expect
China to do what is in its own self-interest,
but we believe that it should and will agree
to some of the United States' trade demands
because, ultimately, the changes will create
a stronger Chinese economy. We should
also point out that over the last 30 years,
the Chinese have been on a high-speed path
that includes increasing transparency and
economic reform, and while the momentum
slows down periodically, they have continued
relentlessly on that path. We believe the odds
are high that a fair trade deal will eventually
be worked out – but if not, there could be
serious repercussions.
The threat of cyber security may very well be the
biggest threat to the U.S. financial system.
dinated way, fiscal, monetary and industrial
policy levers to maintain the growth and
employment they want, and they have the
control and wherewithal to do it. That being
said, the American public should understand
that China does not have a straight road to
becoming the dominant economic power.
The nation simply has too much to overcome
in the foreseeable future. If China and the
United States can maintain a healthy strategic
and economic relationship (and that should
be our goal), it could greatly benefit both
countries as well as the rest of the world.
Debt levels are increasing around the world -
although this debt is mitigated because much
of it is sovereign debt, which is different from
corporate and consumer debt.
If countries essentially owe debt to them-
selves, not to creditors outside their country,
they can generally manage their debt
(America's total debt to GDP is just about
80%, while Japan's is approaching 200%).
Such debt is not necessarily a good thing
because it can be politically destabilizing and
overcomplicate policymaking; however, it
is generally manageable because if a nation
owes money to itself, it is essentially real-
locating its income across various interest
groups within the country. If the country
can continue to grow, it can still create more
income for its citizens.
America's debt level is rapidly increasing
but is not at the danger level. While America
does owe in excess of $6 trillion (essentially
40% of its publicly held debt) to creditors
outside the country, U.S. companies and
investors hold more than $25 trillion in total
claims on foreigners, including more than
$12 trillion of foreign portfolio holdings,
and the U.S. economy is worth more than
$100 trillion. So we earn more on foreign
assets than we pay to foreign creditors. This
is not a major issue. However, our country's
debt level over the next 30 years will start
to increase exponentially, and at a certain
point, this could cause concern in global
capital markets. We have time to address this
problem, but we should start to deal with the
issue well before it becomes a crisis.
37
II. COMMENTS ON CURRENT CRITICAL ISSUES
People also point to emerging market debt -
both corporate and sovereign - as a potential
issue, but the emerging markets, both coun-
tries and companies, are much bigger and
stronger than they were in the past. They
have more foreign exchange reserves and
generally more effective risk management of
currency and interest rate mismatches.
Leveraged lending is increasing, particularly
through shadow banks.
Total leveraged lending in the United
States is approximately $2.3 trillion. About
25% of the loans are owned by banks, the
majority in more senior positions, and the
remaining 75% are owned by shadow banks
or non-banks. Deconstructing that number a
bit, about $1.8 trillion is in U.S. institutional
leverage term loans - approximately 30%
of which are owned by banks. We estimate
that approximately $500 billion of direct
loans are owned exclusively by non-banks.
While leveraged lending is a growing issue
and one that we are monitoring, we don't
think this is yet of the size or quality to cause
systemic issues in the financial system. This
does not mean it won't create some issues.
When things get bad, invariably prices drop
dramatically, certain types of high-yield debt
cannot be refinanced, etc. but at this level,
it is still a manageable issue.
There are growing geopolitical tensions - with
less certainty around American global leadership.
Geopolitical tensions are always there - just
reading the newspaper in any week in any
year since World War II would make anyone
pretty worried. But it does appear that geopo-
litical tensions are growing. Let me mention a
few: Russian aggression, Middle East conflicts,
Venezuela, North Korea, Iran, Turkey, Brexit
and European politics generally.
It's always difficult to understand the effect
of geopolitical uncertainty. But it is now
heightened due to uncertainty around how
the United States intends to exercise global
leadership. This uncertainty may very
well
be the biggest new unknown factor affecting
critical geopolitical and economic issues.
The chance of bad policy errors is increasing.
In this risk section and in the next section
on public policy, I feel compelled to empha-
size an obvious point: Bad public policy is
a major risk. It could be central banks and
monetary policy, trade snafus or simply deep
political gridlock in an increasingly complex
world but bad policymaking is definitely
an increasing risk for the global economy.
The confusion and uncertainty around liquidity
are causing some legitimate concerns.
Several times in the last few years, including
in the fourth quarter of 2018, markets
exhibited rapid losses of liquidity, although
fortunately, and importantly, the markets
recovered in all cases – but that was in the
context of a good environment. The ongoing
debate around liquidity and short-term losses
of liquidity in the market is an important
one. We consider it in two ways: traditional
liquidity and macro liquidity.
Traditional liquidity. I call it micro liquidity
here, and it generally refers to the width of
the bid-ask spread, as well as the size and
speed with which securities can be bought
or sold without dramatically affecting
their price. There is no question that some
micro liquidity is more constrained than
in the past due to bank capital, liquidity
and Volcker Rule requirements. In addi-
tion, high-frequency traders generally
create some intraday liquidity (within a
day), though even this is unreliable in a
downturn. Because they rarely take posi-
tions interday (day to day), traders do not
create real liquidity, but view is that
my
they increase the volatility of liquidity
over time. There is no question that rules
and regulations also cause unwanted and
unnecessary distortions in money market
vehicles, such as repos and swaps, particu-
larly at quarter-end.
If
you look at liquidity - from before the
financial crisis to today - in fairly liquid
markets like Treasuries, swaps and equi-
ties, there is a noticeable difference. In
good markets, liquidity is essentially high
and is almost at the same level today as it
38
China can deal with many serious situa-
tions because, unlike developed democratic
nations, it can both macromanage and
micromanage its economy and move very
fast. Government officials can pull, in a coor-
6. We remain devoted and diligent to protect privacy and stay cyber safe - we will do what
it takes.
GSIB capital requirements. My biggest
issue is with GSIB capital require-
ments, and since they may be added
to the CCAR stress test, they become
even more important. Most of the
factors used in GSIB requirements
are not risk-adjusted – and many of
the calculations have no fundamental
underpinning or logical justification.
Their methodology irrationally multi-
plies certain factors over and over, and
many of the facts are simply unjus-
tified on any basis. For example, one
of the risks is called “substitutability,"
which is supposed to measure the risk
that we won't be able to replace certain
services of a large bank that fails or
retrenches during a crisis. The specific
factors used to calculate this risk are
market share of equity and debt under-
writing and market making. But when
36
I have written in previous letters about the
enormous effort and resources we dedi-
cate to protect ourselves and our clients
- we spend nearly $600 million a year on
these efforts and have more than 3,000
employees deployed to this mission in some
way. Indirectly, we also spend a lot of time
and effort trying to protect our company in
different ways as part of the ordinary course
of running the business. But the financial
system is interconnected, and adversaries are
smart and relentless – so we must continue
to be vigilant. The good news is that the
industry (plus many other industries), along
with the full power of the federal govern-
ment, is increasingly being mobilized to
combat this threat.
The issues around privacy are real.
We have spoken frequently in the past about
the importance of safeguarding the privacy
of our customers. We already do this exten-
sively, and, in fact, we are inventing new
products to make it easier for our customers
to understand where we send their data
(with their permission), as well as how to
change or restrict what we do with that data.
New laws in Europe stipulate that consumers
should be able to see what data companies
have on file about them and to correct or
delete this information if they choose. These
are the right principles, but they are very
complex to execute. It is imperative that the
U.S. government thoughtfully design policies
to protect its consumers and that these poli-
cies be national versus state-specific. Different
35
II. COMMENTS ON CURRENT CRITICAL ISSUES
state laws around privacy rules would create
a virtually impossible legal, compliance and
regulatory-monitoring situation.
But maybe the most crucial privacy issue of
all relates to protecting our democracy. Our
First Amendment rights do not extend to
foreign governments, entities or individuals.
The openness of the internet means that
trolls, foreign governments and others are
aggressively using social media and other
platforms to confuse and distort information.
They should not be allowed to secretly or
dishonestly advertise or even promote ideas
on media and social networks. We believe
there are ways to address this, and we will be
talking more about this issue in the future.
7. We know there are risks on the horizon that will eventually demand our attention.
In spite of all the uncertainty, the U.S.
economy continues to grow in 2019, albeit
more slowly than in 2018. Employment and
wages are going up, inflation is moderate,
financial markets are healthy, and consumer
and business confidence remains strong,
although down from all-time highs. The
consumer balance sheet and credit are in
rather good shape, and housing, though not
particularly strong, is in short supply in
many U.S. cities, which should eventually
be a tailwind. Before I review some of the
serious and possibly increasing risks that
we may confront in the years ahead, I do
want to review what happened in the fourth
quarter of 2018.
The fourth quarter of 2018 might be a harbinger
of things to come.
Going into the final months of last year, opti-
mism about the global economy prevailed,
and this was reflected in the stock and
bond markets. But in the fourth quarter,
growth slowed in Germany; Italy repudiated
European Union rules; Brexit uncertainty
remained; and fear spiked around Ameri-
ca's trade issues with China. Among other
geopolitical tensions, the U.S. government
shutdown began. In addition, more questions
arose about interest rate increases in the
United States and the effect of the reversal of
unprecedented quantitative easing, partic-
ularly in this country. These issues, which
reduced growth forecasts and increased
uncertainty, should legitimately cause stock
prices to drop and bond spreads to increase.
However, stock markets fell 20%, investment
grade bond spreads gapped out by 36% and
certain markets (like initial public offerings
and high yield) virtually closed down. Even
at the time, these large swings seemed to
be an overreaction, but they highlight two
critical issues. One, which we never forget, is
that investor sentiment can veer widely from
optimism to pessimism based on little funda-
mental change. And second, for the fourth
or fifth time in this recovery, there were
excessive moves in the market with rapidly
increasing volatility accompanied by steep
drops in liquidity.
Market reactions do not always accurately
reflect the real economy, and, therefore, poli-
cymakers and even companies should not
overreact to them. But they do reflect market
participant views of changing probabilities
and possibilities of economic outcomes.
Thus, policymakers (and banks), particularly
the Fed, must necessarily (because they need
to think forward) take an assessment of these
issues into account. With this backdrop, I
will discuss some of the serious issues on
people's minds (with more on liquidity later).
There are legitimate concerns around China's
economy (in addition to trade), but they are
manageable.
To fully understand China, you have to do
a fair assessment of all of its strengths and
weaknesses. Over the last 40 years, China has
done a highly effective job of getting itself
to this point of economic development, but
in the next 40 years, the country will have
to confront serious issues. The Chinese lack
enough food, water and energy; corruption
continues to be a problem; state-owned
II. COMMENTS ON CURRENT CRITICAL ISSUES
-
-
that in the nine quarters following the
actual Lehman collapse, JPMorgan Chase
earned $30 billion). One of the refrains
that we hear about CCAR results is they
show that most banks at the worst part
of the stress cycle can barely cover their
required capital. This is fundamentally
inaccurate. The CCAR test can give this
false impression because it requires
banks to do unnatural things (such as
continuing all stock buybacks - even
when it is completely obvious that
banks wouldn't or couldn't do this). As a
result, we don't rely solely on CCAR, and
we stress test hundreds of scenarios a
month, preparing ourselves for circum-
stances far worse than CCAR stress.
From 2014 to 2016, oil prices collapsed from
a high of $108 per barrel to a low of $26
per barrel. We were carrying approximately
250 loans to smaller oil and gas companies
(mostly based in Houston), referred to in
the industry as “reserve-based loans," or
RBLs. The proven oil and gas reserves in
the ground served as the collateral for these
loans, as reviewed by both J.P. Morgan's
petroleum engineers and third-party engi-
neering consultants. We had $3 billion in
A recent example in the oil and gas sector shows
how we balance risk while serving clients in
tough times.
Banks are under constant pressure, including
political pressure, to make loans (remember
subprime mortgages?) even when they
should not. But when and if something goes
wrong with loans, even when
and
proper
responsible underwriting is done, banks will
come under a lot of legal, regulatory and
political scrutiny and should expect to be
blamed for potentially causing the problem.
These conflicting pressures to make or not
rules that may be unpopular. I have always
believed that this necessary discipline with
customers is one of the reasons that, histori-
cally, banks have not been popular.
II. COMMENTS ON CURRENT CRITICAL ISSUES
29
Making bad and unworthy loans ultimately
is bad for both the bank and the customer.
Being a responsible bank means you can't
always give customers what they want,
and, therefore, it is unlikely that all of your
customers are going to like you. We are
fundamentally not in the same position
as most businesses. If a customer has the
money, most businesses will sell their goods
and services to that customer. Banks can't do
that. Sometimes we have to say no or enforce
Responsible banks cannot always give customers
what they want.
make loans – will always exist and need to be outstanding loans under the RBL structure
two times the average normal trading day
revenue. Overall, loans are still the biggest
risk that banks take. Our loan losses last year
were $5 billion, and in the worst year of the
Great Recession, our loan losses were approx-
imately $24 billion.
2. We have to remind ourselves that responsible banking is good and safe banking.
However, if by the remotest, shooting-star possibility Lehman failed anyway, regulators would
now have the legal authority to put the firm in receivership (they did not have that ability
back in 2007-2008). At the moment of failure, unsecured debt of approximately $120 billion
would be immediately converted to equity. "New Lehman” would be the best-capitalized
bank in the world. In addition, derivatives contracts would not be triggered, and cash would
continue to move through the pipes of the financial system. Legislators and regulators should
be applauded for what they have done to solve the Too Big to Fail problem, though I should
point out that this was accomplished by putting some basic rules in place - not the thousands
of other rules layered atop them.
As I mentioned in my shareholder letter in 2016, it is instructive to look at what would happen
if Lehman were to fail in today's regulatory regime. First of all, it is highly unlikely the firm
would fail because under today's capital rules, Lehman's equity capital would be approximately
$45 billion instead of $23 billion, which it was in 2007. In addition, Lehman would have far
stronger liquidity and “bail-inable” debt. And finally, the firm would be forced to raise capital
much earlier in the process. Lehman simply would not have failed.
HAVE BEEN EASILY MANAGEABLE IF IT DID FAIL
IT SIMPLY WOULD NOT HAVE FAILED, BUT IT WOULD
-
LEHMAN REDUX
While CCAR losses may exceed what
banks are likely to experience, they do
appropriately include benefits that banks
receive from being diversified and from
having healthy profit margins. And
CCAR is an effective built-in countercy-
clical buffer because its whole purpose
is to ensure adequate capital at the worst
point of a major stress event. Capital
requirements for GSIBS, however, are
completely different.
One of the critical responsibilities of banks is
to take a rigorous and disciplined approach
to allocating capital in the financial system
whether they do it directly through loans or
through public and private capital markets.
Banks need to do this knowing there will
be recessions and that they should plan to
support their clients through their most diffi-
cult times. We did exactly that throughout
the 2008 crisis (again, see message to
employees on pages 27-28). While many
people focus on market making, which of
course entails risk (we buy and sell about $2
trillion a day of various securities around the
world), this risk taking is carefully moni-
tored and largely hedged. To put risk taking
and market making a little bit in perspective
- in the last five years, we have lost money
trading on only 11 days, and the loss was
usually small and never more than about
properly navigated by a good bank.
II. COMMENTS ON CURRENT CRITICAL ISSUES
Client selection is one of the most important
things we do. If one bank builds a book of
business with clients of high character and
another bank builds its business with clients
of low character (who are usually pushing
sound banking practices to the limit), it's
clear which bank will succeed over time.
Therefore, turning down clients, which can
sometimes be hard to do, is often the only
way to be a responsible bank.
I deeply believe in stress testing, but I do
have issues with CCAR. First, it consists
of only a single test (there are many
things that can go wrong that should
be stress tested) - which is unlikely to
prepare anyone (banks or regulators)
adequately. There is an arbitrariness
to a single test. Moreover, I don't think
CCAR accurately represents what a loss
would look like in the nine quarters
after a Lehman-type event (remember
Comprehensive Capital Analysis Review.
Operational risk capital. We now hold
nearly $400 billion of operational risk-
weighted assets, which means we hold
more than $40 billion of equity for assets
that don't exist. This was a new calcula-
tion added after the crisis to recognize
that banks also bear serious operational
risk (stemming from lawsuits, processing
errors and other issues). I agree that all
banks bear operational risk, yet this is
also true for all companies. Most compa-
nies, including banks, have earnings to
pay for operational risk. And the calcu-
lation that gets us to $400 billion is
questionable and so complex that I am
not going to explain it here. Finally, most
of our operational risk assets stem from
Bear Stearns and WaMu subprime mort-
gage products that we don't even offer
anymore. Tying up capital in perpetuity
- looking for shadows on the wall - is
probably not the best idea for fostering
growth in America.
We also need to get the recalibration of
other regulatory requirements right, partic-
ularly around operational risk capital, the
Fed's Comprehensive Capital Analysis and
Review (CCAR) stress test and the addi-
tional allocation of capital to global system-
ically important banks (GSIB). If we don't
do so, certain products and services will
continue to be pushed outside the banking
system (where they are, fundamentally, not
regulated), distorting markets and raising
the cost of credit for clients.
II. COMMENTS ON CURRENT CRITICAL ISSUES
Client selection is critical.
Because of these significant issues, we
are intensely reviewing our role in origi-
nating, servicing and holding mortgages.
The odds are increasing that we will
need to materially change our mortgage
strategy going forward.
In the early 2000s, bad mortgage laws
helped create the Great Recession of 2008.
Today, bad mortgage rules are hindering
the healthy growth of the U.S. economy.
Because there are so many regulators
involved in crafting the new rules, coupled
with political intervention that isn't
always helpful, it is hard to achieve the
much-needed mortgage reform. This has
become a critical issue and one reason
why banks have been moving away from
significant parts of the mortgage busi-
ness. That business, in particular, high-
lights one of the flaws of our complicated
capital allocation regime. The best way to
risk manage a bank is to use risk weights
that are actually based on risk. However,
since most banks are also constrained by
standardized capital (a capital measure
that does not risk-adjust for the lower risk
of having a properly underwritten prime
mortgage), owning mortgages becomes
hugely unprofitable.
The country desperately needs mortgage
reform - it would add to America's economic
growth. Reducing onerous and unneces-
sary origination and servicing require-
ments (there are 3,000 federal and state
requirements today) and opening up the
securitization markets for safe loans would
dramatically improve the cost and avail-
ability of mortgages to consumers - partic-
ularly the young, the self-employed and
those with prior defaults. And these would
not be subprime mortgages but mortgages
that we should be making. By taking this
step, our economists believe that home-
ownership and economic growth would
increase by up to 0.2% a year.
31
Here are a few areas where we think recalibra-
tion would be good not only for banks, but for
consumers and the economy as a whole:
•
I want to be very clear that we do not advo-
cate for the repeal of Dodd-Frank. We believe
that the strength and resilience of the U.S.
financial system have benefited from the
law. Ten years out from the crisis, however, it
is appropriate for policymakers to examine
areas of our regulatory framework that
are excessive, overlapping, inefficient or
duplicative. At the same time, they should
identify areas where banks can promote
economic growth without impacting the very
important progress we have made on safety
and soundness. In fact, a stronger economy,
by definition, is a safer economy. Our goal
should be to achieve a rational, calibrated
approach to regulation that strikes the right
balance. This should be an ongoing and
rigorous process that does not require any
significant piece of legislation and should not
be politicized.
3. We believe in good regulation - both to help America grow and improve financial stability.
II. COMMENTS ON CURRENT CRITICAL ISSUES
30
(and more to the oil industry as a whole).
While we made these loans conservatively,
we knew that low oil prices at the bottom of
the cycle put us at great risk of loan losses
- maybe even as high as $500 million. Our
view was that we were going to work with
these borrowers; i.e., extend the loans and
try to help the companies survive this rough
patch. (Of course, we put up additional loan
loss reserves to account for possible losses.)
At one point, surprisingly, some regulators
made it clear that they did not want banks
to extend these loans because they were too
risky. But we thought it was important, even
at the risk of losing hundreds of millions
of dollars (something that we were posi-
tioned to be able to do), to help our clients
get through this tough time rather than
desert them when they needed us most. And
sticking with our clients is exactly what we
did. We thought regulators were overreacting
- and, indeed, our losses, ultimately, were
miniscule. Because of these actions, we are
still welcome in Houston.
Risk taking is a detailed, analytical process and
includes extensive risk mitigation.
Shareholders may be surprised to find out
that, fundamentally, we are not a risk-taking
but rather a risk-mitigating institution.
Risk mitigation is not guessing – it is a
thoughtful, detailed analytical process that
leads to measured decision making. Partic-
ipants in our risk meetings can attest that
while we are adamant about serving clients,
we are also fanatic about understanding and
mitigating some of the associated risks. So,
in addition to proper client selection, risks
are mitigated through simplification, diver-
sification, hedging, syndication, covenants,
hard limits, continuous monitoring and fast
reaction to problems. We deeply analyze
everything so we can shoulder appropriate
risk for and with our clients. We are their
financial partner.
Carefully monitor the growing shadow bank
system. While we do not believe that the
rise in non-banks and shadow banking
has reached the point of systemic risk, the
growth in non-bank mortgage lending,
student lending, leveraged lending and
some consumer lending is accelerating
and needs to be assiduously monitored.
(We do this monitoring regularly as part
of our own business.) Growth in shadow
banking has been possible because rules
and regulations imposed upon banks
are not necessarily imposed upon these
non-bank lenders, which exemplifies the
risk of not having the new rules prop-
erly calibrated. An additional risk is that
many of these non-bank lenders will not
be able to continue lending in difficult
economic times - their borrowers will
become stranded. Banks traditionally try
to continue lending to their customers in
tough times.
I would like to give a few examples, which
represent the tip of the iceberg (it would
be easy to come up with thousands more).
Governments, both federal and state,
fight to keep military bases open that
we don't need and Veterans Affairs
hospitals that are broken – making the
military more costly and less effective.
Our shortcomings are not just about
inefficiencies; they border on immoral.
In an incredibly depressing story,
former Secretary of Defense Bob Gates
describes how Congress took years
longer than it should have to approve
the building of U.S. Army personnel
46
carriers that we needed in Iraq and
Afghanistan to protect our soldiers from
improvised explosive devices. While
we dallied, many of our soldiers died or
received terrible lifelong injuries.
•
III. PUBLIC POLICY
46
We need to set aside our narrow self-interest.
We live in an increasingly complex world
where companies, governments, unions
and special interest groups vie for time,
attention and favorable circumstances for
their respective institutions. While it is a
constitutional right to petition our govern-
ment, and many organizations legitimately
fight for the interests of their constituents,
we all may have become too self-inter-
ested. I fear that this self-interest is part of
what is destroying the glue that holds our
society together. We all share a collective
responsibility to improve our country.
I am not an advocate for unregulated, unvar-
nished, free-for-all capitalism. (Few people I
know are.) But we shouldn't forget that true
freedom and free enterprise (capitalism) are,
at some point, inexorably linked.
strate that we are spending money wisely,
we should spend more - think infrastruc-
ture and education funding. And that
may very well mean taxing the wealthy
more. If that happens, the wealthy should
remember that if we improve our society
and our economy, then they, in effect, are
among the main winners.
We need to set aside partisan politics.
None of these issues is exclusively owned
by Democrats or Republicans. To the
contrary, it is clear that partisan politics is
stopping collaborative policy from being
implemented, particularly at the federal
level. This is not some special economic
malaise we are in. This is about our society.
We are unwilling to compromise. We are
unwilling or unable to create good policy
based on deep analytics. And our govern-
ment is unable to reorganize and keep pace
in the new world. Plain and simple, this is a
collective failure to put the needs of society
ahead of our personal, parochial and
partisan interests. If we do not fix these
problems, America's moral, economic and
military dominance may cease to exist.
In my view, we need a Marshall Plan for
America. To do this, Democrats have to
acknowledge that many of the things that
have been done as a nation - often in
the name of good - have sometimes not
worked and need to be modified. Throwing
money at problems does not always work.
Recently, a report showed that the federal
government wasted nearly $1 billion on
charter schools due to mismanagement
and lack of adequate oversight - this was
money intended to help children. Demo-
crats should acknowledge Republicans'
legitimate concerns that sending money
to Washington tends to be simply seen as
waste, ultimately offering little value to
local communities. Republicans need to
acknowledge that America should and can
afford to provide a proper safety net for
our elderly, our sick and our poor, as well as
help create an environment that generates
more opportunities and more income for
more Americans. And if we can demon-
3. All these issues are fixable, but that will happen only if we set aside partisan politics and
narrow self-interest - our country must come first.
III. PUBLIC POLICY
45
Show me a country without any large,
successful companies, and I will show you
an unsuccessful country - with too few
jobs and not enough opportunity as an
outcome. And no country would be better
off without its large, successful companies in
addition to its midsized and small compa-
nies. Private enterprise is the true engine of
growth in any country. Approximately 150
million people work in the United States:
130 million work in private enterprise and
only 20 million people in government. As
I pointed out earlier in this letter, large,
successful companies generally provide
good wages, even at the starting level, as
well as insurance for employees and their
families, retirement plans, training and
other benefits. Companies in a free enter-
prise system drive innovation through
capital investments and R&D; they are huge
supporters of communities; and they often
are at the forefront of social policy. Are they
the reason for all of society's ills? Absolutely
not. However, in many ways and without ill
intent, many companies were able to avoid
almost literally drive by - many of society's
problems. Now they are being called upon to
do more - and they should.
Successful economies will create large, successful
companies.
Five states (California, Connecticut,
Illinois, New Jersey and New York) fight
for unlimited state and local tax deduc-
tions because those five states reap 46%
of the benefit - even worse, knowing
that over 80% of the benefits from
these deductions go to people who earn
more than $320,000 a year.
Our nation requires strong political
leaders to develop good, thoughtful poli-
cies, use their political skills to determine
what is doable and exercise their leader-
ship skills to lead people toward common-
sense solutions.
Businesses are equally guilty here.
We know what to do. High schools and community colleges
should work with local businesses to create specific skills
training programs, internships and apprenticeships that
prepare graduating students to be job-ready - whether they
go on to earn a credential, to work or to attend college. With
7 million job openings and 6 million unemployed workers in
the United States, there is an opportunity for companies to
work with local institutions, including community colleges and
local apprenticeship programs. Business must be involved
in this process, and it needs to be done locally because that
is where the actual jobs are. Germany does an exceptional
job at apprenticeships. Germany has one of the strongest
education and training systems in the world, with about 1.5
million young people annually participating in apprentice-
ship programs that are paid opportunities to gain in-demand
skills along with an education. The vocational schools and
apprenticeship programs work directly with local businesses
to ensure students are connected to available jobs upon
graduation. Germany's youth unemployment rate is one of the
lowest in the world.
- none of
The business tax changes in the 2017 tax law made the United States
more competitive, benefiting American workers today and strength-
ening our economy for the long term. In 2018, nominal wages
increased 3.3% - the fastest rate of growth since 2008 - and job
openings exceeded the number of unemployed workers for the first
time since the federal government started tracking these data in
2000. Beyond this important progress, there is still more that
policymakers could do to help working Americans. Of the 150 million
Americans working today, approximately 21 million earn between
$7.25 an hour (the prevailing federal minimum wage) and $10.10 an
hour. It is hard to live on $7-$10 an hour, particularly for families
(even if two household members are working). While it would be
acceptable to increase minimum wages, this should be done locally
TAX CREDITS AND BENEFITS
This may be our toughest, most complicated problem, but we know
there are some things we can do to make the system work better.
Some of the solutions may include aligning incentives better; trying
to eliminate the extraordinary amount of money wasted on
bureaucracy, administration and fraud; empowering employees to
make better choices, with upfront transparency in employer plan
pricing and options and the actual cost of medical procedures;
developing better corporate wellness programs, focusing particu-
larly on obesity and smoking; creating better tools to shop around
for non-emergency care and manage healthcare expenses; and
reducing the extraordinary expense for unwanted end-of-life care.
Another obvious thing to do is to start teaching wellness, nutrition,
health and exercise in K-12 classrooms nationwide.
HEALTHCARE
品
The 2015 transportation spending bill, Fixing America's Surface
Transportation Act (FAST Act), is intended to fund surface transporta-
tion programs - including highways - at over $305 billion through
2020. Its aim is to improve mobility on America's highways; create
jobs and support economic growth; decrease bureaucracy in getting
projects approved and completed - and we need to finish its
implementation. Again, experience from other countries may help.
We could learn from Germany and Canada, for example, whose
officials endorsed large infrastructure projects and sped through
permitting in two to three years by forcing federal, state and local
approvers to simultaneously work through a single vetting process.
Significantly reducing the time of permitting also dramatically reduces
the cost and uncertainty around making major capital investments.
INFRASTRUCTURE INVESTMENT
Starting a small business today generally requires multiple licenses,
which take precious months to get. But it doesn't end there. Talk
with any small business owner and that person will describe the
mountains of red tape, inefficient systems and a huge amount of
documentation involved to operate the business. We need to reduce
the number of licenses that are required to open and run a small
business. In addition, we should look at the excessive state and local
rules affecting small businesses, consolidating and eliminating
unnecessary rules and regulations where possible. And all
regulations should have a thorough cost-benefit analysis and be
periodically reviewed for current relevancy.
REGULATORY REFORM
Some countries are now implementing mandatory preschool
for children at three years of age. This is a wonderful policy. It
makes childcare less expensive and has proved to be extraor-
dinarily good for student education short and long term.
Parents like it, too. Of course, the benefits may not be seen for
many years, but this is precisely the type of long-term thinking
in policymaking that we need.
EDUCATION
Some solutions to how we might drive growth, incomes and opportunity
47
I have already commented about needing
real policies that include thoughtful plans
to increase growth and create more oppor-
tunity for everyone. Faster growth will
raise incomes, generate opportunities and
create the wherewithal to fund improve-
ments in our social welfare programs.
(On pages 48-49, I describe some possible
solutions to the problems previously high-
lighted on pages 43-44.) These solutions
are not my own but are a synthesis of
some of the best thoughts that we have
seen. Some of these solutions are simple,
and some are more complex. And obvi-
ously, if they were politically easy to put
into practice, that would have been done
by now. However, I am convinced that if
we could get ideas like these implemented,
economic growth and opportunity for all
would be greatly enhanced.
The U.S. federal government is becoming
less relevant to what is going on in people's
lives. People have generally lost faith in the
ability of institutions to deliver on their
mission and meet societal needs. They are
demanding change, and we must recognize
that change is needed. We need dramatic
reform of our global and federal institu-
tions and how we attack our biggest soci-
etal challenges. There are signs of progress,
particularly in how local governments are
starting to attack pressing problems - the
ones that directly affect people's lives, like
education, housing and employment. Look
at Detroit and see how excellent leader-
ship is fixing a once failing city. We should
continue to empower local governments
to address the needs of our society, but we
should be asking our federal government
to do the same.
4. Governments must be better and more effective - we cannot succeed without their help.
The rest of us could do a better job, too.
say, industry gets its share of tax breaks
and forms of protection from legiti-
mate competition. I could add hospitals,
schools and unions to this list
our institutions is blameless.
While leaders obviously fight for their
institutions, we all need to be able to
advocate for policies that are good for
our organizations without being bad for
our country. And as a general matter, we,
as citizens, should support policies that
are good for our country even if they
may not be good for us individually. For
too long, too many have fought to use
regulation and legislation to further their
interests without appropriate regard for
the needs of the country.
Just start digging through the tax code
– buried in there are an extraordi-
nary number of loopholes, credits and
exemptions that aren't about competi-
tiveness or good tax policy. Suffice it to
חיייוייים
48
When governments control companies,
economic assets (companies, lenders and
so on) over time are used to further polit-
ical interests leading to inefficient compa-
nies and markets, enormous favoritism and
corruption. As Margaret Thatcher said, "The
problem with socialism is that eventually you
run out of other people's money." Socialism
inevitably produces stagnation, corruption
and often worse – such as authoritarian
We are always prepared to deal with the next
recession.
We generally do not spend a lot of time
guessing about when the next recession will
be – we manage our business knowing that
there will be cycles.
First and foremost, we will continue to serve
our clients. From the prior parts of this
letter, you can see that we continued to make
responsible loans to our clients during and
after the Great Recession when they needed
us most - and we will do that again. We will
not stop investing in our future, investing in
technology or building new branches. We will
continue to make markets for our clients. We
will not overreact to the credit cycle.
We will mitigate risk. We may reduce risk
by taking on fewer new clients or by syndi-
cating or hedging risk. And we may reduce
risk by managing our portfolio of securi-
ties and loans unrelated to clients. We will
exercise more of our muscle in terms of
managing expenses, monitoring headcount
and creating more efficiencies. We will have
special credit teams, created in advance, to
deal with any problematic credits.
Finally, we will be seeking out new ways
to grow and compete. Our experience is
that recessions do create opportunities for
healthy companies to enhance their fran-
chises generally by serving clients where
other companies cannot.
40
III. PUBLIC POLICY
There are many critical issues roiling the
United States and other countries around
the world today - just to name a few:
capitalism versus other economic systems,
the role of business in our society, how the
United States intends to exercise global
leadership, income inequality, equal oppor-
tunity, access to healthcare, immigration
and diversity. Many people have lost faith
in government's ability to solve these and
other problems. In fact, almost all insti-
tutions - governments, schools, unions,
media and businesses - have lost credibility
in the eyes of the public. In the meantime,
many of these problems have been around
for a long time and are not aging well. Poli-
tics is increasingly divisive, and a number
of policies are not working. This state of
affairs is unlikely to get better without thor-
ough diagnosis, thoughtful policy solutions
and a commitment to a common purpose.
In this section, I attempt to analyze and
offer some views on what has caused
this situation and then suggest some
solutions. Neither the diagnoses nor the
proposed cures are purely my own. These
issues have been studied intensively by
many people with deep knowledge. And
given the space and other constraints of
this letter, I may be about to violate the
Einstein maxim, which I love: "Everything
should be made as simple as possible, but
not simpler." One of the main points I am
trying to make is that when you step back
and take a comprehensive multi-year view,
looking at the situation in its totality, it
is the cumulative effect of many of our
policies that has created many of our prob-
lems. And whatever the solutions, I think
they are unlikely to be achieved by govern-
ment alone - civil society and business
need to be part of the equation. To start,
we must understand our problems.
1. The American Dream is alive - but fraying for many.
Before I talk about our problems, I think it's
important to put any negatives in context, so
first a paean to our nation. America is still
the most prosperous nation the world has
ever seen. We are blessed with the natural
gifts of land; all the food, water and energy
we need; the Atlantic and Pacific oceans as
natural borders; and wonderful neighbors
in Canada and Mexico. And we are blessed
with the extraordinary gifts from our
Founding Fathers, which are still unequaled:
freedom of speech, freedom of religion,
freedom of enterprise, and the promise of
equality and opportunity. These gifts have
led to the most dynamic economy the world
has ever seen, nurturing vibrant businesses
large and small, exceptional universities, and
a welcoming environment for innovation,
science and technology. America was an idea
borne on principles, not based upon histor-
ical relationships and tribal politics. It has
and will continue to be a beacon of hope for
the world and a magnet for the world's best
and brightest.
Of course, America has always had its flaws.
Some of its more recent issues center on
income inequality, stagnant wages, lack of
equal opportunity, immigration and lack
of access to healthcare. I make it a prac-
tice when hearing complaints to strive to
understand where people might be right
or partially right instead of rejecting or
accepting their views reflexively.
41
III. PUBLIC POLICY
Middle class incomes have been stagnant
for years. Income inequality has gotten
worse. Forty percent of American workers
earn less than $15 an hour, and about 5%
of full-time American workers earn the
minimum wage or less, which is certainly
not a living wage. In addition, 40% of
Americans don't have $400 to deal with
unexpected expenses, such as medical
bills or car repairs. More than 28 million
Americans don't have medical insurance
at all. And, surprisingly, 25% of those
eligible for various types of federal assis-
tance programs don't get any help. No
one can claim that the promise of equal
opportunity is being offered to all Amer-
icans through our education systems, nor
are those who have run afoul of our justice
system getting the second chance that
many of them deserve. And we have been
debating immigration reform for 30 years.
Simply put, the social needs of far too
many of our citizens are not being met.
The key point here is that a fairly healthy
U.S. economy will be confronting a wide
variety of issues in 2020 and 2021. It's hard
to look at all the issues facing the world and
not think that the range of possible outcomes
is broader and that the odds of bad outcomes
might be increasing. And certain factors, like
confidence, which we know is important, can
be easily damaged by bad policy, unexpected
events or even high market volatility. The
next recession may not resemble prior reces-
sions. Next time, the cause may be just the
cumulative effect of negative factors - the
proverbial last straw on the camel's back.
8. We are prepared for - though we are not predicting - a recession.
If a downturn starts and leads to darker
scenarios, we will be prepared, and we also
believe the U.S. government will eventually
respond adequately.
Of course, we hyper-focus on today's prob-
lems, and they often overshadow the prog-
ress we are making across the globe. We
should not overlook the positive signs. In
addition to the strong U.S. economy, the
world is still growing, trade issues may be
properly resolved and Brazil, among others,
has turned the corner economically.
government officials who often have an
increasing ability to interfere with both the
economy and individual lives - which they
frequently do to maintain power. This would
be as much a disaster for our country as it has
been in the other places it's been tried.
II. COMMENTS ON CURRENT CRITICAL ISSUES
was before the crisis. But when markets
became volatile in the last several years,
liquidity dropped much further and faster
than it did before the crisis. It is important
to remember that this happened in good
times. Therefore, it is reasonable to expect
that what we have been experiencing is
now the new normal of liquidity - and
that we should be prepared for it to be
even worse in truly difficult times.
Macro liquidity. This describes a broader
view of financial conditions. For example,
is it easy to borrow and lend? Are banks
able to increase their lending? Is the cost of
borrowing going up? Is the Fed adding or
reducing liquidity in the system (essentially
by buying or selling Treasuries)? There is
no doubt that new regulations, particularly
bank liquidity requirements, dramatically
reduce the ability of the Fed to increase
bank lending today by shoring up bank
reserves. In the old days, the central bank
could effectively create excess reserves by
buying Treasuries. These excess reserves
were lendable by the bank. Today, such
reserves are often not lendable due to new
liquidity rules. So bank lending as a func-
tion of deposits is, in effect, permanently
reduced. The notion of "money velocity"
and in fact the transmission of monetary
policy are, therefore, different from the
past, and it is hard to calculate the full
effect of all these changes. It is extremely
difficult for us, and probably even for the
Fed, to know when and at what level the
removal of cash (liquidity) from the system
starts to significantly affect macro or micro
liquidity. We will, however, probably know
it when we see it.
There is still global growth, and employ-
ment and wages continue to go up. However,
this has been a very slow recovery, and it is
possible that the "normal" increase of infla-
tion late in the cycle, due to wage demands
and limited supply, can still happen. We
don't see it today, but I would not rule it out.
In addition, 10-year bond spreads have been
suppressed in some way by the extreme
quantitative easing around the world. If that
ever reverses in a material way, how could
it not have an effect on the 10-year bond?
Finally, I would not look at the yield curve
and its potential inversion as giving the same
signals as in the past. There has simply been
too much interference in the global markets
by central banks and regulators to under-
stand its full effect on the yield curve.
Expect banks to be far more constrained going
into the next real downturn.
Over the last 10 years, the U.S. economy has
grown cumulatively about 20%. While this
may sound impressive, it must be put into
context: After a sharp downturn, economic
growth would have been 40% over 10 years
in a normal recovery. Twenty percent more
growth would have added $4 trillion to
GDP, which certainly would have driven
wages higher and given us the wherewithal
to broadly build a better country. Key
questions that keep arising - and remain
unanswered are: Why have productivity
and economic growth been so anemic?
And why have income inequality and so
many other things gotten worse? Included
among the common explanations is that
"secular stagnation" is the new normal. I've
also heard blame placed on institutional
greed and "short-termism," bad corporate
governance, job displacement from new
technologies, immigration or trade and a
lack of new productivity-enhancing tech-
nology. Another common refrain is that
capitalism and free enterprise have failed.
As you'll see, I think some of these argu-
ments miss the mark.
Today is nothing like 2008. There are fewer
leveraged financial assets in the system
When the next real downturn begins, banks
will be constrained - both psychologically
and by new regulations – from lending freely
into the marketplace, as many of us did in
2008 and 2009. New regulations mean that
banks will have to maintain more liquidity
going into a downturn, be prepared for the
impacts of even tougher stress tests and
hold more capital because capital require-
ments are even more procyclical than in the
past. Effectively, some new rules will force
capital to the sidelines just when it might
be needed most by clients and the markets.
For example, in the next financial crisis,
JPMorgan Chase will simply be unable to
take some of the actions we took in 2008, as
described in the sidebar on pages 27-28.
The Fed is still quite powerful and retains
numerous tools to deal with many of the issues
described above.
says
There is excessive focus on what the Fed
and does in the short term. The Fed appro-
priately, and by necessity, needs to be data
dependent - how could it be otherwise? And,
of course, while proper policy requires Fed
39
II. COMMENTS ON CURRENT CRITICAL ISSUES
officials to constantly think about the future
(though it does not require them to make
specific forecasts public), they can't know
what the future holds with any certainty. But
they are deeply knowledgeable, flexible and
appropriately willing to change their minds.
And, counter to what you often hear today,
they retain a large number of tools at their
disposal. They can change short-term rates at
will and, in fact, can effect change on longer
term rates if they want. With a few simple
words, they can change the future expecta-
tions of the interest rate curve. They can buy
or finance an extraordinary amount of assets,
and they can revise regulations, if necessary,
to improve liquidity or enhance lending.
They can often, simply by asking, get banks
to take certain actions that they want. It is a
mistake to think that they don't have signifi-
cant tools at their disposal.
now than a decade ago. In 2008, huge losses
in the mortgage market forced consumers
and companies to sell assets acquired by
borrowing. Fundamentally, market panic
ensued. Now there is far less borrowing
against assets, and it is unlikely that there
will be a lot of forced selling as a result.
However, keep in mind that it is still possible
for investors to sell lots of assets if any form
of market panic takes place.
-
There may be too much certainty that growth will
be slow and inflation subdued.
Slogans are not policy, and, though simple
and sometimes virtuous-sounding, they often
lead to policies that fail. Well-intentioned but
poorly designed policies generally have large
and unintended negative consequences. Policy
should always be extremely well-designed.
In my view, too often we don't perform the
deep analysis required to fully understand
our problems. One of the reasons is that we
often have too short term an orientation;
i.e., looking at how things have changed
year-over-year or even quarter-over-quarter.
We frequently fail to look at trends over a
multi-year period or over decades - we miss
the forest for the trees. It's also important to
point out that many economic models that
are used to design policy have a hard time
Our litigation system now costs 1.6% of GDP, 1% more than
what it costs in the average OECD (Organisation for Economic
Co-operation and Development) nation.
DRAMATIC REDUCTION IN LABOR
FORCE PARTICIPATION
Wages for low-skilled work are no longer a living wage – the
incentives to start work have been declining over time. Add to
this the education issues already mentioned above. Two other
contributing factors are that many former felons have a hard
time getting jobs, and an estimated 2 million Americans are
currently addicted to opioids (in 2017, a staggering 48,000
Americans died because of opioid overdoses). Some studies
show that addiction is one of the major reasons why many men
ages 25-54 are permanently out of work.
FRUSTRATING IMMIGRATION
POLICIES AND REFORM
Forty percent of foreign students who receive advanced
degrees in science, technology and math (300,000 students
annually) have no legal way of staying here, although many
would choose to do so. Most students from countries outside
the United States pay full freight to attend our universities,
but many are forced to take the skills they learned here back
home. From my vantage point, that means one of our largest
exports is brainpower. We need more thoughtful, merit-based
immigration policies. In addition, most Americans would like a
permanent solution to DACA (Deferred Action for Childhood
Arrivals) and a path to legal status for law-abiding, tax-paying
undocumented immigrants – this is tearing the body politic
apart. The Congressional Budget Office estimates the failure to
pass immigration reform earlier this decade is costing us 0.3%
of GDP a year.
STUDENT LENDING (AND DEBT)
Irrational student lending, soaring college costs and the burden of
student loans have become a significant issue. The impact of
student debt is now affecting mortgage credit and household
formation - a $1,000 increase in student debt reduces subsequent
homeownership rates by 1.8%. Recent research shows that the
burdens of student debt are now starting to affect the economy.
LACK OF PROPER FEDERAL
GOVERNMENT BUDGETING
AND PLANNING
This inevitably leads to waste, inefficiency and constraints on
multi-year planning. One striking example: It may cost the
military at least 20% of its spending power when budgets are
not approved on time and continuous spending resolutions are
imposed. And we don't do some basic things well, like account
for loans and guarantees properly and demand appropriate
funding of public pension plans.
44
III. PUBLIC POLICY
It is hard to look at these issues in their
totality and not conclude that they have a
significant negative effect on the great Amer-
ican economic engine. My view is if you add
it all
up, this dysfunction could easily have
been a 1% drag on our growth rate. Before I
talk about some ideas to address these issues,
I would like to discuss one major debate
currently in the echo chamber.
This is not to say that capitalism does not
have flaws, that it isn't leaving people behind
and that it shouldn't be improved. It's essen-
tial to have a strong social safety net - and all
countries should be striving for continuous
improvement in regulations as well as social
and welfare conditions.
Many countries are called social democra-
cies, and they successfully combine market
economies with strong social safety nets.
This is completely different from traditional
socialism. In a traditional socialist system,
the government controls the means of
production and decides what to produce and
in what quantities, and, often, how and where
the citizens work rather than leaving those
decisions in the hands of the private sector.
2. We must have a proper diagnosis of our problems – the issues are real and serious –
if we want to have the proper prescription that leads to workable solutions.
-
CAPRICIOUS AND WASTEFUL
LITIGATION SYSTEM
The inability to reform mortgage markets has dramatically
reduced mortgage availability. In fact, our analysis shows that,
conservatively, more than $1 trillion in additional mortgage loans
might have been made over a five-year period had we reformed
our mortgage system. J.P. Morgan analysis indicates that the cost
of not reforming the mortgage markets could be as high as 0.2%
of GDP a year.
Is capitalism to blame? Is socialism better?
There is no question that capitalism has been
the most successful economic system the
world has ever seen. It has helped lift billions
of people out of poverty, and it has helped
enhance the wealth, health and education of
people around the world. Capitalism enables
competition, innovation and choice.
%
INEFFICIENT MORTGAGE MARKETS
42
INEFFECTIVE AND OUT-OF-TOUCH
incorporating or accounting for the effect of
certain factors that can be pivotal but are too
complex or qualitative to model.
EDUCATION SYSTEMS
Many of our high schools, vocational schools and community
colleges do not properly prepare today's younger generation
for available professional-level jobs, many of which pay a
multiple of the minimum wage. We used to be among the best
in the world at training our workforce for good jobs, but now
we are falling short. This is a huge reason for both inequality
and lack of opportunity. Our inner-city high schools are failing
their communities and are leaving too many behind. In some
inner-city schools, fewer than 60% of students graduate, and
of those who do, a significant number are not prepared for
employment and are often relegated to a life of poverty.
Proper training and retraining would also help in our rapidly
changing technological world. Finally, skills training has
become increasingly important over time, and the negligence
of our education systems to be responsive to employers'
current needs has to have reduced GDP growth.
EXCESSIVE REGULATION AND
BUREAUCRACY
Excessive regulation for both large and small companies
has reduced growth and business formation without
making the economic system safer or better. The ease of
starting a business in the United States has worsened, and
both small business formation and employment growth
have dropped to the lowest rates in 30 years. By some
estimates, approximately $2 trillion is spent on federal
regulations annually, which is about $15,000 per house-
hold. We need good regulations, and we have to get better
at effectively implementing them - accomplishing the
desired good outcomes - while minimizing unnecessary
costs and bad unintended consequences.
Our problems: What's holding back our nation's productivity and
economic growth and reducing opportunity
-
Over the last 20 years, as the world reduced its tax rates,
America did not. Our previous tax code was increasingly
uncompetitive, overly complex and loaded with special-interest
provisions that created winners and losers. This was driving
down capital investment in the United States and giving an
advantage to foreign companies, thereby reducing productivity
and causing wages to remain stagnant. The good news is the
recent changes in the U.S. tax system include many of the key
ingredients to fuel economic expansion: a business tax rate that
will make the United States competitive around the world along
with provisions to free U.S. companies to bring back profits
earned overseas.
+
PREVIOUSLY UNCOMPETITIVE TAX
SYSTEM FOR BUSINESS
43
I have tried to come up with a list of critical
factors that greatly affect the health of an
economy over many years (such as educa-
tion, infrastructure, healthcare, etc.). The
list is below, and when you look at how we
have performed in these areas, it's rather
condemning. Our shortcomings in these
areas clearly have impeded the prosperity
of the U.S. economy and have failed many
of our fellow citizens over the past two
decades or so.
INABILITY TO PLAN AND BUILD
INFRASTRUCTURE
These now represent almost 20% of GDP - more than twice the
cost per person compared with most developed nations. While
we have some of the best healthcare in the world, our outcomes
are not twice as good as those of the rest of the world. Some
studies say that gains in life expectancy in the last 50 years were
a significant contributor to U.S. national wealth (and health),
possibly equal to half of GDP growth, as people were healthier
and lived longer, which generally improved the quality of the
labor force and productivity. This may no longer be true. Obesity
costs our country $1.4 trillion a year because it drives so many
illnesses (i.e., heart disease, diabetes, cancer, stroke and
depression). Even worse, 70% of today's youth (ages 17-24) are
not eligible for military service, essentially due to poor academic
skills (basic reading and writing) or health issues (often obesity
or diabetes). And out-of-pocket healthcare expenses for the
average American have skyrocketed over the last 20 years,
causing huge anxiety, particularly for low-income families who
have been hit with the highest increases in healthcare costs.
SOARING HEALTHCARE COSTS
It took eight years to get a man to the moon (from idea to
completion), but it now can take a decade to simply get the
permits to build a bridge or a new solar field. The country that
used to have the best infrastructure on the planet by most
measures is now not even ranked among the top 20 developed
nations, according to the World Economic Forum's Basic
Requirement Index, which reflects infrastructure along with
other criteria. We are falling behind on airports, bridges,
water, highways, aviation and more. One study examined the
effect of poor infrastructure on efficiency (for example, poorly
constructed highways, congested airports with antiquated air
traffic control systems, aging electrical grids and old water
pipes) and concluded this could all be costing us more than
$200 billion a year. Philip K. Howard, who does some of the
best academic work on America's infrastructure, estimates it
would cost $4 trillion to fix our aging infrastructure - and this
is less than it would cost not to fix it. In fact, a recent study by
Business Roundtable found that every dollar spent restoring
our infrastructure system to good repair and expanding its
capacity would produce nearly $4 in economic benefits. What
happened to that "can-do" nation of ours?
58
Charlotte
Nashville
Greenville
Auburn
security. The reception in each mar-
ket, by new and existing customers,
has been wonderful. As part of the
market expansion, we also support
each local community directly with
help from the JPMorgan Chase Foun-
dation. In Washington, D.C., we com-
mitted $1.6 million in philanthropy.
In Boston, we committed $3 billion
for home and small business loans
and $1.1 million to support jobs and
skills development.
Existing customers enjoyed a steady
stream of improvements to their
experience with us: the ability to
lock and unlock a misplaced card,
more options on how to pay credit
card bills, discounts and offers from
favorite merchants, and, for those
who have multiple relationships with
us, a clear understanding of the prod-
ucts they qualify for before applying.
Profitability
Our active mobile customer base
grew 11% since 2017, averaging a
login rate of 15 times a month. And
we have made it easy for customers
who want to speak with someone by
phone or in person.
Customers are doing more than 80%
of their transactions on their own.
This simple experience means cus-
tomers who use mobile and digital
channels are happier with us, tend to
do more business with us and are
more profitable.
Raleigh
We are always focused on improving
the customer experience. Across all
of our products, we have made it
quicker and easier to become a Chase
customer. Increasingly, that experi-
ence is digital, online or mobile. More
than 1 million customers opened a
checking or savings account digitally
in 2018. For existing customers who
were adding an account, it took less
than three minutes. We have plans to
reduce that time even further.
We prioritize long-term, profitable
growth when making decisions about
investing in the future of our con-
sumer franchise. In 2018, we contin-
ued our progress to drive down struc-
tural expense, reducing our overhead
ratio to 53%, down from 56% the
prior year. We've also made progress
reducing our cost to serve each house-
hold while our customer base and
total transaction volume continue to
grow.
We've made investments that
have brought down our cost to serve
each household by 15% since 2014.
These investments allow us to reach
more customers at a lower cost and
through the channels they prefer.
More and more often, that channel
is mobile.
Existing footprint
St. Louis
We achieved our 2018 results with
continued focus on the same four
areas as in years past: customers,
profitability, people and controls.
Most exciting, perhaps, is the innova-
tive spirit surging through the bank.
Last September, we kicked off a com-
petition in which teams of analysts
and associates across the CIB were
invited to submit their best ideas for
making the company faster, smarter
and better. In a span of several weeks,
the teams submitted 469 ideas, many
of which we are already taking for-
Here are some of the highlights of
what we accomplished in each of
these areas.
Customers
We are proud that Chase has a rela-
tionship with nearly half of all U.S.
households. A first step in reaching
more customers is making sure we
are meeting their needs. Therefore,
we are introducing new products
and refreshing existing ones with
the features and benefits our cus-
tomers value.
Another step taken this past year
was to open branches in new mar-
kets, specifically Washington, D.C.,
Philadelphia and Boston. When we
enter these communities, we bring
the full force of this great company
- hiring, lending and helping cus-
tomers save for their first home, start
a business or retire with financial
52
Kansas City
Expanding into new markets
We plan to add retail branches in nine more U.S.
markets this year, opening as many as 90 new
branches and hiring 700 employees, offering more
customers access to our retail and business banking
services and providing jobs to these communities.
2018 expansion
2019 expansion
Branch expansion 2018-2019
Minneapolis
Providence
Pittsburgh
Lincoln
Last year, we announced plans to open up to 400
new retail branches and hire as many as 3,000
employees in new U.S. markets over the next five
years. This expansion is part of a $20 billion invest-
ment in our business and local economic growth. We
are committed to serving all communities, including
those with low- to moderate-income households, with
these new branches. We've opened 12 branches in
the Greater Washington region, Philadelphia and the
Delaware Valley, and Boston - and will continue to
grow in these regions.
With our scale, global footprint and
leadership, we have the ability to ana-
lyze data and generate insights like no
other financial services company in
the world. We increasingly see our
business as a platform to which cli-
ents can connect for whatever finan-
cial products and services they need.
First to offer real-time
payments in U.S. dollars, euros
and British pounds
dashboard. This transparency only
strengthens relationships and pro-
vides even more value to companies
that look to us for strategic advice.
@
#1 Fixed Income Trading
market share
#1
First to create a
blockchain-based payment
information network
$6 trillion of wholesale
payments processed daily
PAYMENT NETWORK
BLOCKCHAIN-BASED
FIRST
WHOLESALE PAYMENTS
$6T
Top Global
Research Firm
#1
57
In Europe, our attention remains on
Brexit. Despite the uncertainty of the
U.K.'s future relationship with the
European Union, J.P. Morgan has
been planning for the worst while
hoping for the best. Regardless of
Brexit's ultimate consequences,
J.P. Morgan will be able to serve
clients in any scenario. We're fortu-
nate to have branches, offices and
talented people across Europe, ensur-
ing seamless client service before,
during and after Brexit.
We grew our business while reduc-
ing our overhead ratio and making
significant investments. These
include investing in the 400
branches we are opening in new
markets to extend our reach to cus-
tomers, as well as in other improve-
ments to our customers' experience.
FIRST
TO OFFER
REAL-TIME PAYMENTS
FIRST
In investment banking, we are using
technology to empower bankers and
strengthen connections with clients.
With access to a wealth of informa-
tion about M&A and the capital mar-
kets, bankers can sit side by side with
clients, review trends and evaluate
timely capital raises or even model
what might happen to their stock in
an activist situation. Treasurers can
view our top-ranked research, evalu-
ate various financial metrics and cre-
ate custom reports on an easy-to-use
In wholesale payments, more than
180 international banks have signed
on to be part of J.P. Morgan's Inter-
bank Information Network, which
uses blockchain technology to
instantly transfer global payment
information among correspondent
banks, allowing funds to reach ben-
eficiaries faster and with fewer steps.
We are also the first bank to offer
real-time payments in U.S. dollars,
euros and British pounds, and the
first U.S. bank to create and test a
digital coin for instantaneous cross-
border payments using blockchain.
giving them clearer insight into their
own portfolios and helping them bet-
ter manage the risks and concentra-
tions associated with their positions.
In Securities Services, which safe-
guards more than $23 trillion in
client assets, we extended our
Investment Analytics Platform to
more than 200 large investor clients,
As electronification of the trading
markets continues across asset
classes, we are building sophisticated
trading platforms, such as Algo
Central, enabling clients to use pre-
dictive analytics to tailor orders and
even change the speed and execution
style while the trade is live.
That lesson is one of the many rea-
sons we continue to reinvest such
significant sums - now more than
$11.5 billion per year - into technol-
ogy across the firm.
We've learned the hard way that it is
incredibly costly to lose a leadership
position due to a failure to embrace
change. Our firm was a leader in for-
eign exchange in the late 1990s, but
by resisting rather than embracing
electronic trading, we lost market
share. It took many years and mil-
lions of dollars of investment to
recapture our leadership - illustrating
the crippling effect that short-term
thinking can have on a business.
There is also a large opportunity to
improve efficiencies internally using
technology. About 40% of time in
global operations is spent on servicing
client accounts, including answering
queries. As we develop systems to bet-
ter direct those requests, we will spend
less time searching for answers and
more time responding to client needs.
Technology
#1
$23.2 trillion client assets
under custody
First U.S. bank with
a digital coin
ASSETS UNDER CUSTODY
$23.2T
WITH DIGITAL COIN
U.S. BANK
Co #1 Equity Trading
market share
Our customers spent more than
$1 trillion on 99 million debit and
credit card accounts in 2018, averag-
ing 49 million transactions every day.
We also have the largest customer
base of active mobile users among
U.S. banks at 33 million.
institutions. America should engage and
exercise its power and influence cautiously
and judiciously. We should all understand
that global laws, standards and norms will be
established whether or not our nation partic-
ipates in setting them. It is certain that we
will be happier with the evolution of global
standards if we help craft and implement
them. We should not abdicate this role. To
the contrary, it is critical that America help
develop the best global standards in trade,
immigration, corporate governance and
many other important issues.
29% of check deposit
transactions through
QuickDepositSM
Somehow we need to help reinvent govern-
ment to make it more efficient and nimble
in the new world. While the federal govern-
ment remains somewhat in a stalemate, we
have seen governors and mayors at the state
and local levels taking active control and
framing effective solutions. They are helping
to create a laboratory of what works and are
often at the forefront with initiatives that
restore confidence in the ability of govern-
ment to deliver. We also call upon CEOs
and other leaders to step up and offer
non-parochial solutions.
One final thought: If I were king for a day,
I would always have a competitive business
tax system and invest in infrastructure and
education as a sine qua non to maximize
the long-term health and growth of our
economy and our citizens. I would not trade
these issues off - I would figure out a way to
properly pay for them.
5. CEOs: Your country needs you!
Despite the fact that CEOs are not generally
viewed with high levels of trust, surprisingly,
the 2019 Edelman Trust Barometer global
report - encompassing a general global
population of more than 33,000 respondents
- shows that 76% think CEOs should take
a stand on challenging issues and that 75%
actually trust their employer.
We believe CEOs can and should get involved
- particularly when they or their companies
can uniquely help design policies that are
good for America. At JPMorgan Chase, we are
strengthening our public policy teams to take
our advocacy and ideas to the next level. We
believe the best way to scale programs that
we have seen work in cities, states and coun-
tries around the globe is to develop action-
able public policies that allow more people to
benefit from economic growth.
We can use our unique capabilities, data
and resources to help inform infrastruc-
ture policies, corporate governance policies,
affordable housing policies, financial educa-
tion policies and inclusion policies, as well
as small business financing and formation,
community and economic development, and
others. In addition, while almost all compa-
nies can help further job skills, training, and
diversity and inclusion efforts, each company
can also add value where it has distinct
capabilities, like expertise around healthcare,
infrastructure or technology.
It's not enough just for companies to meet
the letter and the spirit of the law. They can
also aggressively work to improve society.
They can take positions on public policy
that they think are good for the country.
And they can decide, with proper policies
and regulatory oversight, with whom and
how they will do business.
However, this does get complex. What
companies cannot do is abridge the law of
the land or abrogate the rights of voters
and their representatives to set the law of
the land. There are circumstances in which
JPMorgan Chase is called upon to do things
and/or set policies that should have been
set by the federal government – in effect,
these are decisions that the voter must
decide. We work very hard to try to stay on
the right side of all these issues.
In any event, things have changed. In the
past, boards and advisors to boards advised
company CEOs to keep their head down
and stay out of the line of fire. Now the
opposite may be true. If companies and
CEOs do not get involved in public policy
issues, making progress on all these prob-
lems may be more difficult.
50
III. PUBLIC POLICY
6. America's global role and engagement are indispensable.
One of the biggest uncertainties in the
world today is America's role on the world
stage. A more secure and more prosperous
world is also good for the long-term security
and prosperity of the United States. And
America's role in building that more secure
world has been and will likely continue to
be indispensable.
While there are many legitimate complaints
about international organizations (the
North Atlantic Treaty Organization, the
World Trade Organization and the United
Nations), the world is better off with these
Investors always assess geopolitical
risks, and 2018 provided no shortage
of them. For our part, we constantly
monitor and stress test our positions.
We take a long-term view of client
relationships and investments while
maintaining discipline on underwrit-
ing standards and risk concentrations
across clients, countries and products.
Potential opportunities in Asia
Pacific, particularly China, remain
significant. Last year, we announced
major growth plans for China,
including the appointment of a new
country chief executive officer along
with a formal application to Chinese
regulators to establish a new, major-
ity-owned securities company.
III. PUBLIC POLICY
49
All levels of government should do proper budgeting and planning
- and on a multi-year basis. It is particularly important that most
federal programs - think military, infrastructure and education
have good long-term plans and be held accountable to execute
them. When the government says it is going to spend money, it
should tell the American people what the expected outcome is and
report on it. It should account for loans the same way the private
sector does, and it should be required to do cost-benefit analysis.
PROPER BUDGETING AND PLANNING
and carefully so it does not increase unemployment. Perhaps a
more effective step would be to expand the Earned Income Tax
Credit (EITC). Today, the EITC supplements low- to moderate-
income working individuals and couples, particularly with children.
For example, a single mother with two children earning $9 an hour
(approximately $20,000 a year) could receive a tax credit of more
than $5,000 at year's end. Last year, the EITC program cost the
United States about $63 billion, and 25 million individuals received
the credit. We should convert the EITC to make it more like a
negative income payroll tax, which would spread the benefit,
reduce fraudulent and improper payments, and get it into more
people's hands. Workers without children receive a very small tax
credit this should be dramatically expanded, too.
-
AD
LITIGATION
While the rule of law and the right of plaintiffs to get their day
in court are sacrosanct, there have to be ways to improve this
system. One example, which works in many other countries, is to
have the loser pay in some circumstances. Clearly, this would have
to be done in such a way as to ensure that aggrieved parties are
not denied appropriate access to our justice system. But we need
a way to reduce frivolous litigation designed principally to extract
fees for lawyers. We also need to reduce the time and the cost
necessary to achieve justice by adding more judges and creating
more specialty courts to deal with complex issues.
IMMIGRATION
There has been support for bipartisan comprehensive legislation
that provides substantial money for border security, creates more
merit-based immigration, makes DACA permanent and gives a
path to legal status or citizenship for law-abiding, hard-working,
undocumented immigrants. We know this is no easy feat, but we
should pass and enact legislation to resolve immigration.
IN CLOSING
LABOR FORCE PARTICIPATION
Reducing recidivism of those who have been incarcerated is not only
important to citizens with a criminal record and their families - but it
can also have profound positive implications for public safety. Last
year, we welcomed the Federal Deposit Insurance Corporation's
proposed changes to allow banks more flexibility in hiring citizens
convicted of a crime. Our responsibility to recruit, hire, retain and
train talented workers extends to this population, and we will support
re-entry programs and give convicted and/or formerly incarcerated
Americans a path to well-paying jobs. Finally, we should all be
gratified that the government now seems to be taking the opioid
problem very seriously.
STUDENT LENDING
We should have programs to ameliorate the burden of student loans
on some former students. We would be well-advised to have more
properly designed underwriting standards around the creation of
student loans. Direct government lending to students has grown
almost 500% over the last 10 years - and it has not all been
responsible lending. It would also be helpful for the government to
disclose student lending programs as if they were accountable on
the same basis as a bank. Addressing these factors would lead to
far better, and healthier, student lending.
%
MORTGAGE LENDING
Things can be done to reform mortgage markets, which would
increase mortgage availability - as I mentioned in the previous
sidebar on pages 43-44.
-
We have already mentioned two critical solutions that would help
improve labor force participation – make work pay more by
expanding the EITC and provide graduating students with work skills
that will lead to better paying jobs. Remember, jobs bring dignity.
That first job is often the first rung on the ladder. People like working,
and studies show that once people start working, they continue
working. Jobs and living wages lead to better social outcomes – more
household formation, more marriages and children, and less crime,
as well as better health and overall well-being.
Banking deposits and investment
balances. The incremental deposits
acquired over this time period alone
would be equivalent to the seventh
largest retail bank in the country.
While I have a deep and abiding faith in the United States of America
and its extraordinary resiliency and capabilities, we do not have a divine
right to success. Our challenges are significant, and we should not
assume they will take care of themselves. Let us all do what we can to
strengthen our exceptional union.
Jane Pon
In CCB, our four-year compound
annual growth rate for deposits has
been double that of the industry over-
all since 2014, and in 2018, we grew
retail deposit share in 27 of our top
30 markets. Our average deposits of
$670 billion were up 5%, and client
investment assets reached $282
billion, up 3% despite volatility in
the market. Since 2014, we have
brought in $215 billion of Consumer
#1 in U.S. retail
deposit growth
15
MOBILE LOGINS
15 mobile logins
per active user per month
62M
62 million households
az D. Baust
on minded
//e
Jood C. emisor
CHASE O
QuickDeposit
29%
QUICKDEPOSITSM
Consumer and Community Banking
(CCB) had a remarkable 2018. We
delivered a 28% return on equity on
record net income of $14.9 billion and
$52.1 billion in revenue, up 12% year-
over-year. We grew our customer base
to nearly 62 million U.S. households,
including 4 million small businesses.
Among our consumer households,
25% have a relationship with two or
more Chase lines of business. This
performance is a direct result of the
growth in our business drivers and a
sustained focus on investing for the
medium and long term.
2018 financial results
#1
#1 most visited banking
portal in the U.S.
Jamie Dimon
Chairman and Chief Executive Officer
April 4, 2019
51
Consumer & Community Banking
In 2018, the U.S. economy benefited
from continued low unemployment
and stable inflation. There have been
other economic periods like this
since the 1950s, but they have not
lasted as long. The U.S. economy is
strong. Gross domestic product
increased at an annual rate of 2.9%;
unemployment in 2018 hit its lowest
level since December 1969; and wage
growth picked up, passing along
some of the strength of the economic
expansion to the consumer many
of whom are our customers. The
consumer debt burden is at manage-
able levels, both consumer and small
business optimism is at or near an
all-time high, and consumer credit
remains strong.
-
I would like to express my deep gratitude and appreciation for the
employees of JPMorgan Chase. From this letter, I hope shareholders
and all readers gain an appreciation for the tremendous character and
capabilities of our people and how they have helped communities
around the world. I hope you are as proud of them as I am.
While the economy is performing
well, it is not working for everyone.
Across the firm, we recognize this
and want to do our part to remedy
that reality. As a company, we want
to help everyone make the most of
their money and seek opportunities
to connect with households we don't
already serve.
SAPPHIRE
RESERVE
D. BARRETT
#1
VISA
A12
#1 in total U.S. credit card sales
volume and outstandings
#1
CHASE O
Around the world
$35.3
That said, I believe we are closer to
the end of the expansionary cycle
than the beginning. My sense is that
the market volatility in the fourth
quarter of 2018 was partly due
to fear among investors that the
downturn was coming sooner than
expected. Meanwhile, "flash crashes"
are becoming more frequent. These
are a function of a number of factors,
including thinner liquidity across
asset classes, fewer participants in
the market and a growing percentage
of automated trading volumes.
Growing businesses
Of the 62 million households with
whom we have a relationship,
roughly 1 million of them will buy or
lease a car with Chase each year. We
think we can do better than that by
making the experience easier and
adding value to the process – for our
customers and for our dealer and
manufacturer partners.
Owning a car
We have made it simpler and faster
for customers who want to work with
us to buy their home. Our digitally
enabled fulfillment process is more
convenient than the paper process;
it's 20% faster, can be completed
online from anywhere and allows
customers to monitor their progress
through the process. Customer satis-
faction is at record highs, but there is
still room to simplify and improve.
Owning a home
cover unexpected expenses, save for a
home or invest. In January 2019, dur-
ing National Savings Month, we intro-
duced Auto Save, which allows our
customers to set rules for how much
to save based on milestones like
receiving a paycheck or spending at a
certain merchant. And every week, on
average, we welcome 5,000 new cus-
tomers to You Invest, our self-directed
digital investing product.
54
We want to help everyone make the
most of their money, whether they
need to build emergency savings to
Growing wealth
Our customers make more than
$2 trillion in payments each year
whether they are shopping with one
of our cards, paying a bill or paying
another person. No matter the
method, we want them to be able to
do so with ease and confidence, as
well as to realize the value of paying
with Chase. In addition to the new
customer-friendly features I men-
tioned earlier, we are upgrading our
card chips to be “tap to pay"-enabled.
We announced two new features for
our credit card customers coming
later this year - My Chase Plans and
My Chase LoanS to provide more
ways to borrow using existing Chase
credit card lines. When customers
need to pay their Chase bills, they
can set a fixed amount to pay auto-
matically or pay at our ATMs.
-
Paying with Chase
We will also continue to expand to
new markets. We expect 93% of the
U.S. population to be in our Chase
footprint by the end of 2022.
product to meet the needs of the mil-
lions of U.S. households outside of the
banking system - Chase Secure Bank-
ing. For a fee of $4.95 a month, people
receive access to our branches, ATMs
and mobile banking to make pay-
ments, deposit checks and send
money, and they cannot overdraft.
As we continue to focus on custom-
ers' needs in 2019, we will make it
even easier to become a Chase cus-
tomer and grow with us during a life-
time. Earlier this year, we created a
As a firm, JPMorgan Chase can do
more to support businesses than just
about any other financial services
firm. From sole proprietors, family-,
female- and minority-owned busi-
nesses all the way to the largest global,
multinational corporations, we help
businesses manage the spectrum of
needs, whether making day-to-day
payments or financing growth. No
matter the business, we are focused
on ways to bring unique value to cus-
tomers who do more business with us.
Becoming a customer
For our customers who process pay-
ments with Chase, we can offer same-
day funding if they deposit those
sales into a Chase Business Checking
account. For a small business owner,
same-day access to your sales can
make a real difference.
I have never been more optimistic
about our future. We are committed
to making our business even better
by serving more customers. The key
to doing that is moving faster. We
have made progress improving upon
the pace we became accustomed to,
but we still need to do better.
⚫ #1 U.S. credit card issuer
#1 most visited banking portal in
the U.S.chase.com
Retail deposit volume growth at a
rate more than twice the industry
average since 2014
The most frequently added new
bank among small businesses
that added another financial
institution in the past year
(Barlow Research)¹
⚫ #1 in primary bank relationships
within our Chase footprint
#1 in overall customer satisfac-
tion among national banks
(J.D. Power)
.
2018 HIGHLIGHTS AND ACCOMPLISHMENTS
CEO, Consumer & Community Banking
Co-President and Chief Operating Officer,
JPMorgan Chase & Co., and
Gordon Smith
Jordan
accomplish for our customers and
our shareholders.
speed at which companies function.
Those we visited are using machine
learning to open accounts in seconds
or pay out claims based on smart-
phone images within hours. Seeing
these capabilities only inspired us to
move more quickly and push the
boundaries of what we think we can
Members of my leadership team
and I traveled to China at the end of
2018, and we were impressed by the
Closing
Looking ahead - 2019
Our customers rely on us to protect
their data and their money. We take
that responsibility very seriously.
Therefore, we deploy many safe-
guards, checks and balances to make
sure we do our work as effectively as
possible. This helps us adhere to the
many regulations and requirements
that govern us. Upgrading and rigor-
ously maintaining these controls is
an ongoing discipline; we are proud
of the work we do and will continue
to improve.
―
ACCOUNTS
DIGITAL DEPOSIT
1.5M
49 million active digital
customers
ACTIVE DIGITAL CUSTOMERS
49M
DIGITAL PLATFORM
YOU INVEST
More than 80% of
transactions self-serviced
SELF-SERVICED
80+%
இ
53
port 74% of the transactions that
once required a teller.
-
You Invest digital trading
platform launched
1.5 million deposit accounts
opened digitally
We are committed to serving all
households with these new branches,
including ones with low to moderate
incomes.
People
Controls
We are also mindful that the nature
of our work is changing as we invest
in technology that allows customers
to manage their own needs. While
we have hired 2,000+ more people in
technology and digital roles, we have
7,000 fewer employees working in
operational positions since 2014.
We are committed to offering other
opportunities and training to those
employees who might need to find a
new role here at Chase or some-
where else.
representation - and, most recently,
Advancing Black Pathways, our effort
to promote greater opportunities
for black Americans to participate in
economic success.
33 million active mobile
customers
ACTIVE MOBILE CUSTOMERS
33M
{=
# 1 U.S. co-brand credit card
issuer
sales volume
More than $1 trillion
$1+T
T
Includes employees and contractors
But we don't stop with our employ-
ees. We are leading initiatives to drive
inclusive growth across the country,
such as Women on the Move - which
helps women overcome barriers they
face at work and helps further female
We have always believed our com-
pany has a role to play in society,
leading by example in areas such as
diversity. It's important to us that our
employees represent the customers
we serve. More than 57% of our
employees are women, and more than
half are minorities. Our employees
who work directly with customers in
our branches and call centers have
higher minority representation than
our senior executive positions, and we
are working to correct that balance.
We are so proud of our team, 135,000¹
strong. In the same way we focus
on making experiences great for our
customers, we also strive to do the
same for our employees.
in credit and debit card
We expect to see periods of volatility
in the future, and we are committed
to managing risk in a dynamic way
no matter what market conditions
we face. That requires us to be disci-
plined and not overextend ourselves,
trusting in our strengths and doing
what is right.
#1 in total U.S. credit and debit
payments volume
1
#1
Reported results for 2014 and 2015 have been revised to reflect the adoption in 2018 of the new revenue recognition guidance
² EMEA = Europe/Middle East/Africa
1 Dealogic as of January 1, 2019
57%
56%
54%
64%
67%
Overhead ratio
$8.1
$6.9
$11.8
$10.8
$10.8
#1 in global investment
■Net income
banking fees for
the 10th consecutive year
$1T OF M&A
From an economic perspective, fun-
damental growth continues to sup-
port the longest postwar expansion
in history. Corporate earnings and
balance sheets are healthy, U.S.
unemployment is near record lows
and we are not seeing signs of dete-
riorating credit quality.
The economic cycle
We know that profitability stems
from serving clients well, and the
choices we are making today always
start with the same two-part ques-
tion: Is this the right thing to do for
our clients and for the long term?
That focus has generated results for
our shareholders, too. In addition to
earning an industry-leading return on
equity, our market share among the
CIB's largest competitors grew the
most year-over-year, even after outpac-
ing the group between 2014 and 2017,
according to data from Coalition.
leader - and continually invest in
digital technologies to provide clients
with data and insights when and
where they want them.
In addition to onboarding more than
$1 trillion in assets from BlackRock,
there were many other significant suc-
cesses. New business wins globally
have led to a growth in assets under
custody of approximately $2.7 trillion
since the start of 2017. Such mandates
helped drive revenue up 8% in 2018
to $4.2 billion, while we maintained
industry-leading operating margins
and high client satisfaction scores.
Although our overall results are
impressive, it's important for us to
stay hungry and focused on our
clients, anticipate changes and never
lapse into complacency. We embrace
disruption - even as the market
Securities Services continued to
grow and transform in 2018 while
benefiting from higher interest rates
and client balances. The business
took on an unprecedented amount of
new client business while at the
same time streamlining infrastruc-
ture and upgrading systems.
Chase Merchant Services, the largest
merchant acquirer in the U.S. and
Europe. Together, these businesses
form the biggest wholesale payments
network in the world, processing
more than $6 trillion payments daily.
It serves 1.6 million small business
customers and more than 80% of
Fortune 500 companies. By combin-
ing units, we will be able to reduce
legacy platform costs, accelerate the
expansion of our merchant acquisi-
tion business into Latin America and
Asia Pacific, and continue to innovate
across networks using blockchain
technology.
#1 Global
Trading House
More than $475 billion raised
for clients in the capital markets
#1
OF CAPITAL
$475+ B
||$||
Advisor on more than
$1 trillion of announced M&A
transactions
DCD
Revenue
$34.7
$33.7
Looking ahead, Treasury Services
will benefit from our recent deci-
sion to integrate its operations with
In Treasury Services, we continued
to outpace competitors, growing
firmwide revenue to approximately
$9 billion. Our performance was
helped by higher interest rates and
operating deposits, which have
grown by 9% since 2016.
Even with the fourth quarter's turbu-
lent markets, stronger performances
during the year in areas such as
Currencies & Emerging Markets and
Commodities contributed to $12.7
billion of Fixed Income Markets
revenue in 2018, nearly matching our
2017 result. Once again, we gained
share as the industry wallet declined.
$6.9 billion, up 21%. Our Cash Equi-
ties, Equity Derivatives and Prime
Finance businesses each gained
market share, and each generated
double-digit revenue growth during
the year. The investments we have
made in people and technology have
led to stronger execution capabilities
and significant growth in both client
balances and volumes. Over the past
five years, our Equities business has
gained more wallet share than our top
three competitors combined.
Despite volatile trading markets at the
end of the year, we continued to be a
leading provider of trading liquidity
to institutional investors, reporting
full-year Markets revenue of $19.6 bil-
lion, up 6% from 2017. In Equities, we
achieved record full-year revenue of
As a result of our worldwide invest-
ment banking work for clients, we
generated $7.5 billion in fees and
solidified our #1 standing in market
share for the 10th consecutive year. In
fact, amid heavy competition in a rel-
atively healthy economic environ-
ment, our share of global investment
banking business stood at 8.7%, the
highest of any bank since 2009.
We ranked #1 in wallet share for
both debt and equity capital markets
and raised more than $475 billion
for clients around the world. We led
prominent initial public offerings
(IPO), including for AXA Equitable
Holdings, the largest U.S. insurance
IPO since 2002, and for Siemens
Healthineers, the largest healthcare
IPO ever in EMEA².
such as Takeda's $82 billion acquisi-
tion of Shire, IBM's $34 billion pur-
chase of Red Hat and Walmart's $16
billion acquisition of Flipkart, India's
largest online retailer.
Last year was especially active for
mergers and acquisitions (M&A) and
equity markets. We advised on more
than $1 trillion in announced M&A¹
in 2018, including significant deals
The standout performances of our
businesses last year and over the past
decade are the result of hard work,
continuous investment and a belief
that a complete, global offering helps
clients meet their evolving financial
objectives. As our clients grow in size
and complexity, they require a finan-
cial partner who can provide the
financing solutions they need, wher-
ever they need them and however
they want them delivered.
We are now 10 years removed from
the financial crisis of 2008, when
J.P. Morgan was a safe haven for
clients in chaotic markets. We
remain that safe haven while we
drive the industry forward through
innovation and technology.
2018 performance and backdrop
The Corporate & Investment Bank
(CIB) had a record year in 2018, set-
ting a new benchmark for earnings
of $11.8 billion on $36.4 billion of
revenue, resulting in a return on
equity (ROE) of 16%.
Corporate & Investment Bank
55
1017-4018 data, small businesses with
revenue $100,000 to $25 million
Strong Returns on Higher Capital³
($ in billions)
CIB ROE
Capital
2014
$34.7
$36.4
$70
$70
$64
$62
$61
Relief provided to customers
affected by the California wild-
fires and the federal government
shutdown
16%
16%
12%
10%
2018
2017
2016
2015
14%
For those customers who rely on
branches, we are tailoring our physi-
cal network to match the service
activity of each location. We have
expanded into our new market loca-
tions using a combination of strate-
gically placed full-service branches,
smaller format branches and stand-
alone ATMs which can now sup-
Consumer Banking customers who
have relationships with two or more
Chase lines of business generate two
and a half times more pre-tax income
for us. That is because they have
deeper relationships and also
because they are often servicing their
accounts digitally, which is more
cost-effective.
•
Middle Market expansion - Record
revenue of $649 million; 17% CAGR
since 2013
Investment banking - Record
gross revenue of $2.5 billion5;
8% CAGR since 2013
International banking -
Revenue of $400 million;
10% CAGR since 2013
1 Rank based on S&P Global Market
Intelligence as of December 31, 2018
2 Refinitiv LPC, FY18
3 Greenwich Associates Commercial Banking
Study, 2018
4 Investment Banking and Card Services
revenue represents gross revenue generated
by CB clients
5 Represents the percentage and amount of
CIB's North America investment banking
fees generated by CB clients, excluding fees
from fixed income and equity markets,
which is included in CB gross IB revenue
6 Non-U.S. revenue from U.S. multinational
clients
Progress in key growth areas
CAGR = Compound annual growth rate
In 2018, we marked the 10-year anni-
versary of the global financial crisis,
emanating from the U.S., that
shocked financial markets all around
the world. Investors with the forti-
tude to remain steadfast on their
long-term investing journey and
withstand the tremendous volatility
have been highly rewarded. But for
many others in the decade since
2008, it has been difficult to endure
the severe drawdowns and even
more challenging to ever fully re-risk.
2018 didn't enhance confidence in
markets either - for the first time in
this century, cash was the only major
publicly traded U.S. asset class to gen-
erate a positive return for investors.
Fiduciaries since 1881
Reflecting over the past decade, I am
proud of how our teams have helped
clients
from those with a small
savings account to the world's largest
pension and sovereign wealth funds
- navigate this volatile period. As
stewards of wealth, we measure suc-
cess by our ability to drive positive
client outcomes over time, and we
recognize the responsibility and
privilege that come with serving as
a fiduciary. Since launching our first
investment product in 1881 - one
that is still available today - our
J.P. Morgan culture has remained
committed each and every day to
delivering to clients the strongest
risk-adjusted investment returns
we can uncover in the markets.
Strong investment performance
2018 marked another impressive
year in investment performance ver-
sus our competitors, with more than
83% of our mutual fund assets
under management (AUM) around
the world outperforming the
peer
median over the 10-year period.
In 2018, we were recognized by
Morningstar with five important rat-
ings upgrades, representing almost
$70 billion in client assets. Smart-
Retirement was upgraded to Gold,
making it the only active target date
manager in the industry with a Gold
rating. Global Allocation, Small Cap
Equity and Growth & Income all
were upgraded to Silver. Core Plus
Bond was upgraded to Bronze.
Our impressive investment perfor-
mance attracted $25 billion of net
new asset flows in 2018, marking
our 10th consecutive year of net long-
term inflows and bringing the total
assets entrusted to us to $2.7 trillion.
SMART RETIREMENT
Asset & Wealth Management
revenue
$4.1 billion in Treasury Services
$513 million in Card Services revenue
#1 Traditional Middle Market
Bookrunner²
Winner of Greenwich Best Brand
Awards in Middle Market Banking
- Overall, Loans and Lines of
Credit, Cash Management, Inter-
national Products and Services³
62
•
Business segment highlights
Middle Market Banking - Record
gross Investment Banking
revenue; added five new offices
Corporate Client Banking -
Record revenue, with strong
investment banking growth and
record average loans
Commercial Term Lending -
Completed rollout of new CREOS
platform across the business,
resulting in more than 40% of new
loans originated with normalized
controllable cycle times of less
than 30 days
Real Estate Banking - Record
net income, with revenue up 13%
from 2017
•
•
•
•
•
•
Community Development Banking
Provided over $1.5 billion in capital
for affordable housing properties
and supported the firm's Advancing-
Cities initiative with banking and
community engagement expertise
Firmwide contribution
Commercial Banking clients
accounted for 39% of total North
America investment banking fees
Over $145 billion in assets under
management from Commercial
Banking clients, generating approxi-
mately $500 million in investment
management revenue
Upgraded to Gold,
ranked top quintile over 10 years
⚫ #1 U.S. multifamily lender¹
GLOBAL ALLOCATION
SMALL CAP EQUITY
ASSET CLASS/PRODUCT
Importantly, our flows are not concen-
trated in any one asset class, region
or channel but come from a well-
diversified set of global businesses.
Consistent financial performance
When we focus on client outcomes,
our own financial success follows.
Record revenue of $14.1 billion and
record net income of $2.9 billion
enabled us to deliver a healthy 31%
return on equity for our share-
holders. As we continue to invest
in the business for the future, our
deeply embedded culture of risk
management allowed us to do so
while holding our net charge-off
ratio to a very low 0.01%.
Top talent
Top talent is our single most impor-
tant asset. We consistently attract,
train and cultivate many of the top
investment managers and advisors
in our industry, proudly retaining
more than 95% of our top talent
over the last several years. In the
Wealth Management space, we
continue to broaden our coverage
and are approaching nearly 6,500
advisors, located all around the
world and close to where our
clients need us most. We will
continue to expand our footprint
across the U.S. and other high-
growth areas such as China, where
we can import our firm's expertise,
as well as welcome new local talent
into the J.P. Morgan family.
Product innovation
To help ensure we continue provid-
ing our clients with the solutions
they need today and into the
future, we are laser focused on
innovating new products every-
where we do business. There's
nothing we can't achieve when
we put the resources of this firm
behind an initiative, and these
are only a few examples:
JPMorgan Chase Total Client Asset Flows: 2014-2018¹
CHANNEL
Beta/ETFs: Just two years ago, we
started building our Beta busi-
ness. Today, we offer beta capabil-
ities and exchange-traded funds
(ETF) ranging from active to
strategic beta and passive, with
$43 billion in AUM. In 2018, our
U.S. ETF business ranked #4 in
industry flows, competing head
to head with firms that have long
led the rankings and were consid-
ered unassailable.
AUM
Assets=
AUM+AUS
Assets
Fixed Income
Equity
Multi-Asset
Alternatives
Liquidity
Brokerage
You Invest: Launched in 2018, You
Invest has transformed the land-
scape for our retail clients. The
easy-to-navigate user interface and
the ability to access investments on
the
go
have attracted a new genera-
tion of clients, 89% of whom are
first-time investors with Chase.
And that's only the beginning -
later this year, we'll be rolling out
our digital advice platform called
You Invest Portfolios.
REGION
64
63
Upgraded to Silver,
ranked top decile over 5, 10 & 15 years
GROWTH & INCOME
Upgraded to Silver,
ranked top quintile over 5 & 10 years
CORE PLUS BOND
Upgraded to Bronze,
ranked top quartile over 5 & 10 years
2018 % of J.P. Morgan Asset Management Long-Term Mutual Fund AUM
Outperforming Peer Median over 10 years¹
(net of fees)
Total J.P. Morgan
Asset Management
83%
Equity
93%
For footnoted information, refer to slide 16 in the 2019 Asset & Wealth Management Investor Day presentation,
which is available at jpmorganchase.com/corporate/investor-relations/event-calendar.htm
AUM Assets under management
Fixed Income
Multi-Asset Solutions
& Alternatives
59%
85%
Upgraded to Silver,
ranked top decile over 5 years
Leadership positions
Delivered an industry-leading
overhead ratio of 37%
Continued superior credit quality
- net charge-off ratio of 0.03%
With $23.2 trillion in assets
under custody, our Securities
Services business continued to
win more client mandates across
the globe, helping to drive rev-
enue up 8% in 2018.
More than 180 international banks
have signed on to be part of
J.P. Morgan's Interbank Informa-
tion Network, which uses block-
chain technology to instantly
transfer global payment informa-
tion among correspondent banks.
59
Commercial Banking
1
In Commercial Banking (CB), we
continue to execute our long-term,
disciplined strategy, focused on help-
ing our clients succeed and making a
positive difference in our communi-
ties. Across our business, we have
been steadily investing to deliver
more value to our clients. I'm excited
about what we've accomplished so
far and the tremendous opportunity
ahead of us. As you consider the
future for CB, it's useful to reflect on
our progress over the last decade:
•
This 10-year perspective provides a
through-the-cycle lens, which is the
best way to measure the outcome of
our efforts, as well as the tremen-
dous potential for CB. At every step
along the way, we have been build-
ing with patience, selecting the
best clients and maintaining our
fortress principles.
• During this time, we commenced
our Middle Market expansion
efforts, focusing on delivering our
broad-based capabilities to more
clients across the U.S. To date, we
have opened 67 new locations,
added 650 new bankers and set a
•
•
In 2008, we acquired our Commer-
cial Term Lending (CTL) franchise
from Washington Mutual. Since
then, CTL has become the #1 multi-
family lender in the U.S., as we
have made significant investments
to better serve our clients.
I'm incredibly proud of how our
team is executing and the market
leadership positions we've estab-
lished. You can see the outcome of
this hard work and discipline in our
performance-over the past decade,
we've added high-quality loans and
deposits, nearly doubled revenue and
tripled net income.
While we're pleased with these
results, we are not standing still. We
see enormous potential for our fran-
chise and are building for the next
10 years and beyond. In this letter,
I share highlights from our 2018
performance, the progress we are
making on our strategic priorities
and the investments underway that
will drive continued success for our
clients and CB.
Ten-Year Retrospective - Consistent Investment and Disciplined Growth
($ in billions)
2008
2018
$9.1
$4.8
solid foundation for continued
organic growth.
Firmwide revenue in Treasury
Services grew to nearly $9 billion
in 2018. Our decision to integrate
the business with our Merchant
Services offering now provides
clients with access to the largest
wholesale payments network in
the world.
•
• Overall Markets revenue of $19.6
billion was up 6%, led by record
revenue in Equities trading, which
was up 21%.
ward with funding. The competition
showcased the amazing talent emerg-
ing within the organization and fueled
optimism about our bank's future.
goes
Communities and partnerships
Being part of a firm that has four
best-in-class franchises is extraordi-
nary. The talent and resources we
can mobilize for a client, a govern-
ment, an industry or a new market
are unmatched. Our work in Detroit
is well-known: We have partnered
with local officials and organizations,
investing $150 million in the city's
economic recovery. This effort
beyond a financial commitment.
Through the JPMorgan Chase Ser-
vice Corps, teams of our colleagues
are working on-site at local nonprofit
partners to solve specific challenges.
I'm proud to say that the firm is
extending its resources to other cities
and communities, such as Greater
Paris and Chicago. As a global bank
with clients and employees around
the world, we believe we can add
value by partnering with local
governments and organizations to
expand access to jobs and skills for
young people and adults and help
regional businesses grow.
We are also working with colleagues
across the bank to support different
segments of the economy. The CIB'S
integration with Chase Merchant Ser-
vices is aimed at making international
payments seamless for both consum-
ers and e-commerce companies. Simi-
larly, being able to offer best-in-class
advice and capital markets expertise
to 19,000 midsized companies on
Commercial Banking's roster helped
yield $2.5 billion of North America
investment banking revenue during
2018 - a record. Our bankers are plan-
ning to gradually extend efforts to
midsized companies in Europe and
Latin America as well. We're also
working with the Private Bank to
expand our coverage of family offices
across the U.S. and around the world.
Conclusion
We have worked hard over many
years to earn our place as an indus-
try leader in market share, financial
strength and reputation. As we trans-
form our business for the future, we
will build on our legacy of success by
taking advantage of strategic growth
opportunities while maintaining day-
to-day discipline. Our experienced
and talented CIB leadership team,
bolstered by the next generation of
vibrant, energetic employees, is pro-
pelling our company to the forefront
of digital banking and is positioning
us to serve our clients with the inno-
vative, effective financial strategies
they will need in the years to come.
Janus
Daniel E. Pinto
Co-President and Chief Operating
Officer, JPMorgan Chase & Co., and
CEO, Corporate & Investment Bank
2018 HIGHLIGHTS AND ACCOMPLISHMENTS
•
•
The CIB had earnings of $11.8 billion
J.P. Morgan advised on 10 of the
on $36.4 billion of revenue, produc-
ing a best-in-class ROE of 16%.
J.P. Morgan ranked #1 in global
investment banking fees for the 10th
consecutive year, ending 2018 with
an 8.7% market share, the highest
share of any bank since 2009.
• J.P. Morgan ranked #1 in wallet
share for both debt and equity capi-
tal markets, raising more than $475
billion for clients around the world.
top 20 M&A transactions in 2018
and generated a full-year record
in M&A revenue.
J.P. Morgan ranked as the #1
Global Research Firm in Institu-
tional Investor magazine's annual
investor survey. We also ranked
#1 in both All-America and All-
Europe Fixed Income, #1 in All-
America Equity Research, and #2
in All-Europe Equity Research and
Latin America Research.
Revenue
10-year CAGR
7%
$4.2
ments and asset classes, watch market
conditions closely and maintain our
strict underwriting criteria. By staying
true to these fundamentals, we
believe we can thoughtfully continue
to grow our CRE loan portfolio.
Enhancing our capabilities to deliver
more value
Recognizing that clients are in vari-
ous stages of development and in
different industries, we know they
have unique needs and priorities.
We also know that expectations are
shifting and that we need to contin-
ually raise the bar to deliver more
value. As such, CB has dedicated,
client-focused design teams working
to integrate, simplify and create
new functionality. These teams are
developing exciting new capabilities
that will deliver powerful solutions
while substantially improving the
overall client experience.
We are making significant invest-
ments in our digital and payments
capabilities, and this work is critical
to our value proposition. It will
enable our clients to connect with us
in the simplest way possible,
Prospect density¹
MMBSI footprint
whether through application pro-
gramming interfaces or an open
banking solution, and allow clients
to accept and collect payments from
anywhere in the world, in any cur-
rency. Finally, our ability to deliver
real-time data and insights will help
clients optimize and simplify their
operations. The value we deliver
through these capabilities allows us
to build incredibly close client rela-
tionships and is the foundation for
gathering and retaining long-term,
stable operating deposits.
Similarly, we are transforming how
we provide credit to our clients. As
an example, in CTL, speed and cer-
tainty of execution are critical. To
address this, we developed our pro-
prietary loan origination platform,
CREOS. Today, we use CREOS to pro-
cess 100% of our CTL volume and
are seeing terrific results with more
than 40% of our loans closing in less
than 30 days. This platform allows
our clients to focus on running their
business and lets us deliver a supe-
rior client experience rather than
compete on pricing, terms and credit.
61
Making a positive difference in the
communities we serve
In CB, we embrace our obligation to
be a positive force in our communi-
ties and are well-positioned to sup-
port the firm's commitment to mak-
ing a difference. In 2018, we financed
the development of more than 20,000
housing units for low-income individ-
uals, and, notably, our Community
Development Banking team provided
$188 million in capital to the nation's
largest Community Development
Financial Institutions. In addition, CB
supported local businesses, states and
municipalities, school districts, non-
profits and higher education institu-
tions with over $56 billion in capital
to help them deliver their critical
services. Equally important to serving
our communities, last year CB
employees volunteered more than
20,000 hours at local organizations.
Looking forward
I hope you can see why I'm incredibly
proud of our franchise and excited
about the opportunities ahead. CB's
performance over the last 10 years
has set the standard for us going
forward. We have an exceptional
team, outstanding capabilities and
enormous market opportunities.
We believe we are well-prepared for
whatever market conditions are
ahead, and the investments we are
making today will drive success for
decades to come.
All of this comes down to our cli-
ents. We are grateful for our long-
standing relationships and appreci-
ate the trust and confidence they
place in JPMorgan Chase. I also want
to thank the entire CB team for mak-
ing our business better every day
and their ongoing commitment to
serving clients.
2018 HIGHLIGHTS AND ACCOMPLISHMENTS
Ding
Douglas B. Petno
CEO, Commercial Banking
Performance highlights
Delivered record revenue of
$9.1 billion and record earnings
of $4.2 billion
Generated return on equity of 20%
on $20 billion of allocated capital
1 Size of circle indicates relative number of prospects in a given city
MMBSI Middle Market Banking and Specialized Industries
AUS
Middle Market Banking and Specialized Industries - Market Opportunity
Positioning for long-term success in
Commercial Real Estate
$1.4
11%
Net income
$206
$82
10%
Average loans
Average deposits¹
$171
$103
5%
Deposits herein represent average client deposits and other third-party liabilities
CAGR Compound annual growth rate
Record performance in 2018
In 2018, CB delivered outstanding
financial results. We generated record
revenue of $9.1 billion, up 5% year-
over-year, and net income grew 20%
to a record $4.2 billion. We have
remained highly selective in growing
our loan portfolio, and our net charge-
offs were just 3 basis points for the
year. Our continued credit, expense
and capital discipline led to an industry-
leading overhead ratio of 37% and a
strong return on equity of 20%.
Clients are at the center of everything
we do, and we're delivering meaning-
ful advice, solutions and capital to
help them succeed. In 2018, we hired
more than 150 new bankers and
made nearly 30,000 more client calls.
Through these efforts, we added over
1,200 new relationships, grew loans
by $7.4 billion across our business
and ended the year with $206 billion
in average
loan balances.
Being able to deliver our leading
investment banking capabilities
locally separates us from our compet-
itors. Our partnership with the
Corporate & Investment Bank (CIB) is
outstanding and allows us to deepen
our strategic dialogue with clients.
Even while investment banking activ-
ity is market dependent, we have
grown revenue every year since the
JPMorgan Chase/Bank One merger in
2004. 2018 was no exception, as we
generated a record $2.5 billion in
Investment Banking (IB) revenue,
accounting for 39% of CIB's North
America investment banking fees.
Growing our client franchise
Across all of our businesses, we have
a tremendous opportunity to add
more great clients and deepen those
relationships over time. Since launch-
ing our Middle Market expansion
efforts, we are local and active in 39
new metropolitan statistical areas
60
and have added close to 2,800 new
clients. When we move into a new
market, we are truly engaged in our
communities and deliver the full
power and platform of our entire
firm. Client by client, banker by
banker, we have organically created a
nice-sized bank from scratch, build-
ing a $15 billion loan portfolio and
an $11 billion deposit franchise. The
foundational investments we make
upfront, essentially our operating
infrastructure, are meaningful and
are now largely in place. As our pres-
ence matures, these newer markets
will drive revenue growth, margins
and returns for
many years to come.
The growth potential for our Middle
Market business isn't limited to our
expansion markets. Through data-
driven analysis, we've identified and
prioritized 38,000 prospective clients
nationally. Some of our most excit-
ing opportunities are within our leg-
acy markets, such as New York, Chi-
cago, Dallas and Houston, where we
have been for over a century.
Overall, we now have banking teams
in 116 locations across the U.S. These
markets account for roughly 70% of
the country's gross domestic product,
and our success will continue to be
driven by our exceptional teams, our
comprehensive capabilities delivered
locally and CB's ability to grow with
clients over time.
Our Commercial Real Estate (CRE)
businesses are designed to thrive
through the cycle, and growth has
been highly selective and disciplined.
We are pleased with our performance
in 2018, generating loan growth of 4%
and $24 billion in loan originations.
As we move into 2019, we will con-
tinue to target cycle-resistant seg-
2018 HIGHLIGHTS AND ACCOMPLISHMENTS
Custody
Wealth Management
•
•
Unlocking the power of data for public
good
We are harnessing our scale and scope to shed
light on the inner workings of today's global
economy. The JPMorgan Chase Institute seeks
to help decision makers – policymakers, busi-
nesses and nonprofit leaders - use timely data
and thoughtful analyses to make informed
decisions that advance inclusive growth around
the world. Drawing on our firm's unique propri-
etary data, expertise and market access, the
Institute develops analyses and insights on the
inner workings of the global economy, frames
critical problems, and convenes stakeholders
and leading thinkers around solutions. Our
firm's data informs all of our strategic invest-
ments in communities around the world.
In 2018, the Institute shared valuable analyses
and insights on:
Local commerce activity, leveraging 4 billion
credit and debit card transactions from
nearly 7.7 million customers to provide an
unprecedented view of the online U.S. econ-
omy, examining how online commerce has
grown, who has driven that growth, and how
it has impacted brick-and-mortar merchants;
Families' out-of-pocket healthcare spending
trends from 2014 to 2017;
Growth and evolution of the Online Platform
Economy, exploring its scale, key segments,
characteristics and how earnings from plat-
forms figure into family income;
Challenges, opportunities and life cycles
of America's small businesses by analyzing
revenue and cash flows of 1.3 million small
businesses;
Institutional investor trading behavior in
foreign exchange markets around three
events that led to the largest one-day moves
in the relevant currencies in the last 20
years: Brexit, the 2016 U.S. presidential elec-
tion and the decision by the Swiss National
Bank to remove the Swiss franc floor; and
Americans' tax refunds by income and other
demographic characteristics, as well as the
impact of tax refunds on healthcare spending.
In 2018, our firm and employees donated
more than $4 million to assist disaster
relief efforts around the globe.
good works
JPMORGAN CHASE & Co
Within the first three months of the firm's
Board Match program - which doubles
the impact of eligible employees' dona-
tions to nonprofits on whose boards they
serve - 271 employees contributed,
resulting in the firm matching more than
$1.3 million to those organizations.
Deposits
One such investment is the $6 million we com-
mitted in 2018 to prepare Greater Washington
area students for local, in-demand technology
jobs. As an employer, we hear from so many of
our clients and employers about their struggle
to find workers with the right skills. In 2017,
only 3,000 individuals obtained associate
degrees and other sub-baccalaureate creden-
tials in digital skills and technology, while there
were 15,000 jobs that needed those credentials
in the region. Demand for tech workers with
less than a four-year degree increased by 42%
in the region between 2014 and 2017.
CHASE
As we expand our consumer business, we are
also increasing our philanthropic commitment
to our communities. For example, in 2018, we
announced plans to open 70 new branches in
the Greater Washington region and hire 700
new employees, the first major branch expan-
sion as part of our firm's $20 billion, five-year
investment in our business and local economic
growth. To fuel the economy of this region, we
committed $4 billion in lending for home mort-
gages and small business and $500 million to
support affordable housing. In addition,
roughly 20% of our branches in the region will
reside in low- and moderate-income communi-
ties. We also doubled our philanthropic invest-
ment, committing $25 million to create eco-
nomic opportunity for residents at risk of being
left behind in today's economy.
୭୭
values have risen and mortgage
lending is up. While much work
remains to be done, there is a sense
of optimism once again, particularly
among young people who now see
a future for themselves in their city.
In 2018, we took a major step to
expand the number of people and
places we reach by launching
Advancing Cities, our firm's $500
million initiative to drive inclusive
growth around the world. While
many cities are experiencing grow-
ing economies, vibrant downtown
cores often obscure large pockets of
concentrated poverty. At the same
time, cities offer the opportunity
to drive large-scale innovation and
impact. Through AdvancingCities,
we are combining our business
and philanthropic resources to do
exactly that.
Opening doors to opportunity
transforms lives, lifts entire com-
munities and strengthens the global
economy. It is also the best way to
repair the societal fractures that
increasingly divide us and that's
the right thing to do for our firm
and for our shareholders.
Peter L. Scher
-
Head of Corporate Responsibility and
Chairman of the Mid-Atlantic Region
Nearly 59,000 employees volunteered
more than 389,000 hours in 2018. This
includes 218 employee volunteers from
offices in 15 countries who contributed
18,500 hours working on-site with 49
of our nonprofit partners through the
JPMorgan Chase Service Corps.
66
JPMorgan Chase believes that companies must
do even more to help solve today's biggest
challenges and create economic opportunity
for more people. To do so, they must invest in
communities the same way they invest in their
own businesses. As announced in early 2018,
our firm will deploy $1.75 billion by 2023 to
drive inclusive growth in communities around
the world. Generating Return on Community
is one of our core objectives because we know
that the future of our company depends on the
well-being of our communities.
To create and sustain lasting positive change,
JPMorgan Chase is investing in four key drivers
of opportunity, areas that are aligned with our
business expertise: jobs and skills, small busi-
ness expansion, neighborhood revitalization
and financial health. We are putting this model
into action through significant, long-term and
data-driven investments that leverage our
firm's expertise, capital, data, technology and
global presence.
AdvancingCities - Expanding opportunity
at scale
Our model for impact has yielded real results so
we are doubling down on our commitment to
drive inclusive growth and expanding the num-
ber of people and places we reach. JPMorgan
Chase launched Advancing Cities - our largest,
most comprehensive corporate responsibility ini-
tiative to date to invest in solutions that bolster
the world's cities and the people within them.
This initiative will allow us to deepen our work
in cities in two ways: through targeted commit-
ments in key markets where the conditions
exist for large-scale investments and through
an annual Challenge that will accelerate collab-
orative, innovative solutions designed by local
leaders and residents to break down barriers
to opportunity.
To catalyze sustainable growth, we are combin-
ing our firm's philanthropic efforts with our
lending and investing expertise to deploy up
to $250 million as low-cost, long-term loan
capital. We expect our investment to attract
an additional $1 billion in outside capital.
In 2018, marking our 150th anniversary in
France, JPMorgan Chase announced its
first AdvancingCities commitment - a $30
million, five-year philanthropic investment
to provide underserved residents and local
entrepreneurs across Greater Paris access
to economic opportunity.
Building branches, strengthening our
communities
Generating Return on Community
Business has an obligation and a
vested interest in ensuring our
system delivers on its unrivaled
potential to create widely shared
economic opportunity. That's why
JPMorgan Chase is applying the
same capabilities and resources that
enable us to deliver Return on Invest-
ment for our shareholders to generate
what we call 'Return on Community.'
This means we are making inten-
tional, long-term investments aimed
at lifting those who are being left
behind, focused where we can lever-
Engaged our employees to serve our
communities:
Awarded our 1,000th mortgage-free home to
Detroit: Five years into our $150 million
commitment:
68
•
Generating Return on Community through our
comprehensive, multimillion-dollar commit-
ments to Detroit, Chicago and the Greater
Washington region:
Accomplishments
• Named to Black Enterprise's 50 Best
Companies for Diversity list
• Named an ENERGY STAR® Partner of the
Year, recognized by the U.S. Environmental
Protection Agency and U.S. Department
of Energy
Named to the Military Times' Best for Vets
Employers list
Harvard Business School (in a 2018 case study)
profiled the firm's model for impact in Detroit
and how it's being applied in other cities
Named recipient of the International Medical
Corps' Global Citizen Award
Named to The Chronicle of Philanthropy's
Top 20 Corporate Givers list
Named to Fortune magazine's Change the
World list for the second year in a row
Ranked Top 10 on Fortune magazine's
World's Most Admired Companies list
•
67
13,573 people participated in workforce
programs; 1,632 units of affordable hous-
ing were created or preserved; 13,180
people received services to improve their
financial health; 2,067 jobs were created
or retained; 4,387 small businesses
received capital or technical assistance
Detail
VEGAN
VEGAN
•
• In 2018, provided $3.2 billion for wind
and solar projects in the U.S. Since 2003,
JPMorgan Chase has committed or arranged
more than $21 billion in financing for wind,
solar and geothermal projects in the U.S.
To date, hosted five Partnerships for Raising
Opportunity in Neighborhoods (PRO Neigh-
borhoods) competitions, awarding more
than $98 million to over 70 Community
Development Financial Institutions across
the U.S. After our $68 million commitment,
the winners of the first three competitions
raised an additional $713 million in outside
capital, issued over 21,000 loans to low- and
moderate-income customers, and created or
preserved more than 3,000 affordable hous-
ing units and 11,000 quality jobs.
•
Expanded the Entrepreneurs of Color Fund
(EOCF) from Detroit to Chicago, the South
Bronx and the Bay Area, providing minority
entrepreneurs with access to capital, educa-
tion and other resources to build and grow
their businesses. Through 2018, JPMorgan
Chase has committed $13.6 million through
EOCF, resulting in 210 loans totaling $9.5
million that created or retained 1,200 jobs.
Launched the Financial Inclusion Lab in
India, applying insights from the Lab in
the U.S. to help scale early-stage fintech
startups that are focused on helping
India's underserved communities.
Announced eight financial services inno-
vators as winners of the Financial Solu-
tions Lab (FinLab) 2018 Challenge,
focused on improving consumer financial
health in the U.S. To date, FinLab has
supported more than 30 innovative finan-
cial technology (fintech) companies that
have raised over $500 million in capital
since joining the program, saving U.S.
residents more than $1 billion.
a U.S. military veteran, reaching all five
branches of service in communities across
44 states.
-
Through New Skills at Work, over the past
five years, we have helped nearly 150,000
people receive skills training for well-paying
jobs in growing industries by partnering with
about 740 nonprofits, investing $250 million
in job training and career education initia-
tives in 37 countries, as well as 30 U.S.
states and Washington, D.C.
590 units of affordable housing were cre-
ated or preserved; 312 jobs were created
or retained; 722 small businesses received
capital or technical assistance
-
received services to improve their finan-
cial health; 1,246 jobs were created or
retained; and 1,319 small businesses
received capital or technical assistance
Greater Washington region: One year into
our $25 million commitment:
2,857 people participated in workforce
programs; 176 units of housing were
created or preserved; 5,341 people
-
Chicago's South and West sides: One year
into our $40 million commitment:
Through our global commitment to promote
financial health:
harder but are unable to get ahead.
The average American family has
seen its net worth move backward
over a generation. Meanwhile, for
every $100 in white family wealth
today, black families hold just about
$5. For far too many people, the
system is not working.
As part of our firm's global New Skills for Youth
initiative, our investment will support five
school districts in Virginia, Washington, D.C.,
and Maryland and enable them to partner with
local colleges and universities to build career
pathways for students that lead to well-paying
technology jobs.
ensuring our system delivers on its unrivaled potential entry-level employees.
while delivering almost 280 modern
technology applications straight to
our clients and advisors. Our relent-
less focus on product and system
optimization and continuous empha-
sis on cutting waste allow us to con-
tinuously reinvest in our future.
Fortitude
In this time of rapid change and
competition, we are fortunate to be
part of the broader JPMorgan Chase
organization, where we all constantly
challenge one another to use our
expertise, scale and invaluable client
base to continuously reimagine the
future of how we serve our clients.
We have a proud legacy of doing
first-class business in a first-class way,
and we have extended that promise
to institutions, central banks, sover-
eign wealth funds and individuals.
It's our history and our expertise that
give us the fortitude and vision to
help our clients thrive in today's
evolving market. No matter the
speed or scale of change, our funda-
mental mission remains the same:
We are relentlessly focused on
driving toward the best client out-
comes, and we believe that focus is
the engine of our continued success.
I couldn't be more proud of what we
have delivered for our clients and our
shareholders, and I have never been
more excited for what is to come.
༢་རི་གཏུམ།
Mary Callahan Erdoes
CEO, Asset & Wealth Management
2018 HIGHLIGHTS AND ACCOMPLISHMENTS
Our ability to innovate and to sustain
our growth requires us to have rigor-
ous discipline around business simpli-
fication. Over the past few years, we
have merged or closed
229 funds
while launching 125 new products; we
have closed 21 front office locations in
order to open 17 new state-of-the-art
facilities; and we have decommis-
sioned nearly 230 legacy system tools
Business highlights
10th consecutive year of net
long-term inflows
Record revenue of $14.1 billion
•
•
Record net income of $2.9 billion
Record average loan balances
of $139 billion
.
Simplify for growth
Digital everything: Our ability to
connect with clients – however,
wherever and whenever they need
us - is paramount to our future
success. Our goal is to deliver
J.P. Morgan's expertise 24/7, world-
wide. One example of a recent
application we launched is Digital
Portfolio Insights. This cutting-edge
tool allows external financial advi-
sors to access J.P. Morgan's propri-
etary risk management analytics
to generate sophisticated and
customized insights. In 2018, these
advisors used the tool to help them
build better portfolios for over
20,000 of their clients.
-
Retail
Institutional
U.S.
LatAm
Assets
EMEA
Asia
≥$0
2014
2015
2016
2017
2018
<$0
For footnoted information, refer to slide 17 in the 2019 Asset & Wealth Management Investor Day presentation,
which is available at jpmorganchase.com/corporate/investor-relations/event-calendar.htm
AUM Assets under management
AUS = Assets under supervision
•
•
to create widely shared economic opportunity.
Awards and recognition
Asia (AsianInvestor, June 2018)
• More than 83% of our long-
term mutual fund AUM
outperformed the peer median
over the 10-year period
Retention rate of over 95%
for top talent
•
•
Leadership positions
Best Global Provider of
Short-Term Investments/
Money Market Funds
(Global Finance, March 2019)
Best Tech Innovation in
Data Globally
(The Banker, August 2018)
North America Asset Manager
of the Year
(Reactions, November 2018)
Asset Manager of the Year for
Record average mortgage
Leading Pan-European Fund
Management Firm (Thomson
Reuters/Extel, June 2018)
Retirement Leader of the Year
(Fund Action, June 2018)
ETF Issuer of the Year
(ETF.com, March 2019)
Best Private Bank for Research &
Asset Allocation Globally
(Euromoney, February 2019)
Best Private Bank for
Ultra-High-Net-Worth Globally
(FT/PWM magazine, November 2018)
65
Corporate Responsibility
In an era characterized by deep
social divisions and widening eco-
nomic disparity all over the world,
companies like ours have a responsi-
bility to be leaders in finding solu-
tions. This is not simply about being
a good corporate citizen; it is a busi-
ness imperative. The success of our
firm is inextricably linked to the
success of our communities.
Many of today's challenges stem
from the reality that, despite a grow-
ing economy, people are working
66
age our firm's expertise: building job
skills, expanding small businesses,
revitalizing neighborhoods and
promoting financial health.
Over the last five
years, we have
refined this model in Detroit, where
we made a $150 million commitment
to the city's economic recovery.
The
results have exceeded our expecta-
tions. People are moving back. The
unemployment rate is down from
20% in 2013 to less than 9% today.
For the first time in 17 years,
home
Business has an obligation and a vested interest in
These efforts underscore the degree
to which our mission to drive inclu-
sive growth has become a fundamen-
tal tenet of our culture. Through our
market expansion, kicked off in 2018,
we are bringing the full force of our
firm to advance this mission. We are
opening 400 new Chase branches,
enabling us to lend to more custom-
ers, offer more good jobs and further
invest in neighborhoods. The first
of these branches are now open in
Boston, Philadelphia and Washing-
ton, D.C., where we are pairing them
with expanded lending and philan-
thropic commitments, focused in
low- and moderate-income areas.
And we are actively working to hire
locally while raising wages for our
balances of $41.5 billion
1,470,666
1,443,982
806,152
2,572,274
15.5
15.1
2,351,698
2,490,972
2,622,532 2,533,600
628,785
$ 398,988
261,828
249,958
289,059
290,827
$ 372,130
348,004
930,697
894,765
837,299
757,336
931,856
863,683
984,554
$ 381,844
$ 413,714
N/A
596,823
670,757
769,385
829,558
885,221
13.1
8.1
8.3
8.4
8.5
7.6
6.4%
6.5%
6.5%
6.5%
732,093
$ 343,839
2016
1,279,715
139.17
169.98
147.82
100.00
113.68
115.24
129.02
157.17
150.27
JPMorgan Chase
KBW Bank
S&P Financial
S&P 500
75
2013
113.38
115.18
100.00
137.82
125
100
December 31,
(in dollars)
2013
2014
2015
$ 100.00
2014
$ 109.88
109.36
$ 119.07
109.90
2016
$ 160.23
141.23
2017
2018
$ 203.07
167.49
$ 189.57
100.00
150
2015
2018
•
(in millions, except per share data
and ratios)
2018
2017
Change
Selected income statement data
Total net revenue
$109,029
$100,705
Total noninterest expense
63,394
59,515
7
Pre-provision profit
15.9
•
.
8%
Year ended December 31,
JPMorgan Chase & Co./2018 Form 10-K
41
Management's discussion and analysis
The following is Management's discussion and analysis of the financial condition and results of operations ("MD&A”) of JPMorgan
Chase for the year ended December 31, 2018. The MD&A is included in both JPMorgan Chase's Annual Report for the year ended
December 31, 2018 ("Annual Report") and its Annual Report on Form 10-K for the year ended December 31, 2018 ("2018 Form
10-K") filed with the Securities and Exchange Commission ("SEC"). Refer to the Glossary of terms and acronyms on pages 293-299
for definitions of terms and acronyms used throughout the Annual Report and the 2018 Form 10-K.
The MD&A contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of
1995. These statements are based on the current beliefs and expectations of JPMorgan Chase's management and are subject to
significant risks and uncertainties. For a discussion of certain of those risks and uncertainties and the factors that could cause
JPMorgan Chase's actual results to differ materially because of those risks and uncertainties, refer to Forward-looking Statements
on page 147) and Part I, Item 1A: Risk factors in the 2018 Form 10-K.
INTRODUCTION
JPMorgan Chase & Co. (NYSE: JPM), a financial holding
company incorporated under Delaware law in 1968, is a
leading global financial services firm and one of the largest
banking institutions in the United States of America
("U.S."), with operations worldwide; JPMorgan Chase had
$2.6 trillion in assets and $256.5 billion in stockholders'
equity as of December 31, 2018. The Firm is a leader in
investment banking, financial services for consumers and
small businesses, commercial banking, financial transaction
processing and asset management. Under the J.P. Morgan
and Chase brands, the Firm serves millions of customers in
the U.S. and globally many of the world's most prominent
corporate, institutional and government clients.
2017
JPMorgan Chase's principal bank subsidiaries are JPMorgan
Chase Bank, National Association ("JPMorgan Chase Bank,
N.A."), a national banking association with U.S. branches in
27 states and the District of Columbia as of December 31,
2018, and Chase Bank USA, National Association ("Chase
Bank USA, N.A."), a national banking association that is the
Firm's principal credit card-issuing bank. In January 2019,
the OCC approved an application of merger which was filed
by JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A. in
December 2018 and which contemplates that Chase Bank
USA, N.A. will merge with and into JPMorgan Chase Bank,
N.A., with JPMorgan Chase Bank, N.A. as the surviving bank.
For additional information refer to Supervision and
Regulation on pages 1-6 in the 2018 Form 10-K. JPMorgan
Chase's principal nonbank subsidiary is J.P. Morgan
Securities LLC (“J.P. Morgan Securities”), a U.S. broker-
dealer. The bank and non-bank subsidiaries of JPMorgan
Chase operate nationally as well as through overseas
branches and subsidiaries, representative offices and
subsidiary foreign banks. The Firm's principal operating
subsidiary in the U.K. is J.P. Morgan Securities plc, a
subsidiary of JPMorgan Chase Bank, N.A.
22
42
JPMorgan Chase & Co./2018 Form 10-K
EXECUTIVE OVERVIEW
This executive overview of the MD&A highlights selected
information and does not contain all of the information that is
important to readers of this 2018 Form 10-K. For a complete
description of the trends and uncertainties, as well as the
risks and critical accounting estimates affecting the Firm and
its various lines of business, this 2018 Form 10-K should be
read in its entirety.
Effective January 1, 2018, the Firm adopted several new
accounting standards, of which the most significant to the
Firm was the guidance related to revenue recognition, and
recognition and measurement of financial assets. The
revenue recognition guidance requires gross presentation of
certain costs that were previously offset against revenue.
This change was adopted retrospectively and, accordingly,
prior period amounts were revised, resulting in both total
net revenue and total noninterest expense increasing with no
impact to net income. The adoption of the recognition and
measurement guidance resulted in $505 million of fair value
gains in the first quarter of 2018, recorded in total net
revenue, on certain equity investments that were previously
held at cost. For additional information, refer to Note 1.
Financial performance of JPMorgan Chase
For management reporting purposes, the Firm's activities
are organized into four major reportable business
segments, as well as a Corporate segment. The Firm's
consumer business is the Consumer & Community Banking
("CCB") segment. The Firm's wholesale business segments
are Corporate & Investment Bank ("CIB"), Commercial
Banking ("CB"), and Asset & Wealth Management ("AWM").
For a description of the Firm's business segments, and the
products and services they provide to their respective client
bases, refer to Business Segment Results on pages 60-78,
and Note 31.
1,375,179
175
225
241,359
Credit quality metrics
Allowance for credit losses
$
Allowance for loan losses to total retained loans
Allowance for loan losses to retained loans excluding purchased credit-impaired loans(e)
14,500 $
1.39%
1.23
14,672
1.47%
1.27
$
14,854 $
14,341 $
14,807
1.55%
1.34
1.63%
1.90%
234,598
243,355
252,539
256,105
1,363,427
282,031
284,080
295,245
288,651
276,379
230,447
1.37
229,625
221,505
211,664
256,515
255,693
254,190
247,573
231,727
228,122
200
1.55
$
(e) Excluded the impact of residential real estate purchased credit-impaired ("PCI") loans, a non-GAAP financial measure. For further discussion of these measures, refer to
Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures and Key Performance Measures on pages 57-59, and the Allowance for credit losses on
pages 120-122.
(f) On December 22, 2017, the Tax Cuts and Jobs Act ("TCJA") was signed into law. The Firm's results for the year ended December 31, 2017 included a $2.4 billion decrease
to net income as a result of the enactment of the TCJA. For additional information related to the impact of the TCJA, refer to Note 24.
(g) Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for the year ended December 31, 2017 would have been 0.55%.
40
40
JPMorgan Chase & Co./2018 Form 10-K
FIVE-YEAR STOCK PERFORMANCE
The following table and graph compare the five-year cumulative total return for JPMorgan Chase & Co. ("JPMorgan Chase" or
the "Firm") common stock with the cumulative return of the S&P 500 Index, the KBW Bank Index and the S&P Financial Index.
The S&P 500 Index is a commonly referenced equity benchmark in the United States of America (“U.S."), consisting of leading
companies from different economic sectors. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are
publicly traded in the U.S. and is composed of leading national money center and regional banks and thrifts. The S&P Financial
Index is an index of financial companies, all of which are components of the S&P 500. The Firm is a component of all three
industry indices.
The following table and graph assume simultaneous investments of $100 on December 31, 2013, in JPMorgan Chase common
stock and in each of the above indices. The comparison assumes that all dividends are reinvested.
December 31,
(in dollars)
JPMorgan Chase
KBW Bank Index
S&P Financial Index
S&P 500 Index
(d) Effective January 1, 2018, the SLR was fully phased-in under Basel III. The SLR is defined as Tier 1 capital divided by the Firm's total leverage exposure. Ratios prior to
2018 were calculated under the Basel III Transitional rules, per the SLR public disclosure requirements which became effective January 1, 2015.
(c) Ratios presented are calculated under the Basel III Transitional capital rules and for the capital ratios represent the lower of the Standardized or Advanced approach. As of
December 31, 2018, the Firm's capital ratios were equivalent whether calculated on a transitional or fully phased-in basis. Refer to Capital Risk Management on pages
85-94 for additional information on Basel III.
(b) For the years ended December 31, 2018 and 2017, the percentage represents the Firm's reported average LCR for the three months ended December 31, 2018 and 2017,
per the U.S. LCR public disclosure requirements which became effective April 1, 2017. Refer to Liquidity Risk Management on pages 95-100 for additional information on
the Firm's LCR.
(a) TBVPS and ROTCE are non-GAAP financial measures. For a further discussion of these measures, refer to Explanation and Reconciliation of the Firm's Use of Non-GAAP
Financial Measures and Key Performance Measures on pages 57-59.
Net charge-offs
Net charge-off rate
0.52%
5,190 $ 6,426
4,856
5,387
0.60%
$
7,535 $
7,034 $
Nonperforming assets
7,967
4,086
4,759
(g)
0.54%
0.52%
0.65%
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior
period amounts were revised. For additional information, refer to Note 1.
4,692
11.6
15.5
14.0
Return on tangible common equity ("ROTCE") (a)
Return on common equity ("ROE")
Selected ratios and metrics
Cash dividends declared per share
Tangible book value per share ("TBVPS") (a)
Book value per share
Common shares at period-end
Market capitalization
Market and per common share data
2014
2015
2016
2017
2018
Net income:
Earnings per share data
Net income
Income tax expense
Income before income tax expense
Provision for credit losses
Pre-provision profit
Return on assets ("ROA")
Overhead ratio
Total noninterest expense
Loans-to-deposits ratio
Tier 1 capital ratio(c)
45,635
62,156
59,911
56,672
94,440 $ 95,994
$ 96,569 $
$ 100,705
59,515
$ 109,029
63,394
Headcount
Total stockholders' equity
Common stockholders' equity
Long-term debt
Deposits
Total assets
Average core loans
Core Loans
Loans
Investment securities
Supplementary leverage ratio ("SLR") (d)
Selected balance sheet data (period-end)
Trading assets
Tier 1 leverage ratio(c)
Total capital ratio(c)
Liquidity coverage ratio ("LCR") (average) (b)
Common equity tier 1 ("CET1") capital ratio (c)
Total net revenue
(in millions, except per share, ratio, headcount data and where otherwise noted)
Selected income statement data
As of or for the year ended December 31,
Off-Balance Sheet Arrangements and Contractual
Cash Obligations
55
52 Consolidated Balance Sheets and Cash Flows Analysis
Notes to Consolidated Financial Statements
Consolidated Financial Statements
155
150
149 Report of Independent Registered Public Accounting
Firm
148 Management's Report on Internal Control Over
Financial Reporting
Audited financial statements:
Consolidated Results of Operations
48
Executive Overview
43
42 Introduction
Management's discussion and analysis:
41 Five-Year Stock Performance
40 Five-Year Summary of Consolidated Financial
Highlights
Financial:
Table of contents
45,635
57 Explanation and Reconciliation of the Firm's Use of
Non-GAAP Financial Measures and Key Performance
Measures
60
Business Segment Results
79 Enterprise-wide Risk Management
Diluted
Basic
Average shares:
Diluted
Basic
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS (unaudited)
Financial
39
JPMorgan Chase & Co./2018 Form 10-K
The following pages from JPMorgan Chase & Co.'s 2018
Form 10-K are not included herein: 1-38, 300-311
41,190
Note:
287 Selected quarterly financial data (unaudited)
Supplementary information:
144 Accounting and Reporting Developments
147 Forward-Looking Statements
141 Critical Accounting Estimates Used by the Firm
134 Operational Risk Management
132 Country Risk Management
Market Risk Management
124
102 Credit and Investment Risk Management
84 Strategic Risk Management
288 Distribution of assets, liabilities and stockholders'
equity; interest rates and interest differentials
293 Glossary of Terms and Acronyms
13.5
39,897
33,838
0.96
1.24
13
13
13
12
17
10%
11%
10%
10%
13%
1.58
1.72
1.88
2.12
2.72
44.60
48.13
51.44
53.56
1.00
56.33
0.99
58
13.9
13.7
10.2
11.8
12.3
12.2
12.0
N/A
N/A
N/A
119
113
56
65
65
64
67
65
63
59
59
0.89
56.98
60.46
64.06
$ 24,442 $
24,733
$
24,441
(f)
32,474 $
$
8,954
6,260
9,803
11,459
8,290
3,139
30,699
30,702
34,536
35,900
40,764
3,827
5,361
5,290
4.871
21,745
$
9.04 $
9.00
6.35
67.04
70.35
3,714.8
3,663.5
$ 241,899 $ 232,472
$ 307,295
3,561.2
$ 366,301
3,425.3
3,275.8
$ 319,780
3,842.3
34,529
3,808.3
3,658.8
3,690.0
5.29
5.33
6.05 $
6.00
6.19
6.31
3,551.6
3,576.8
3,396.4
3,414.0
$
6.24
$
3,741.2
3,773.6
41,190
lower new account origination costs, and higher merchant
processing fees on higher volumes,
largely offset by
Provision for credit losses
JPMorgan Chase & Co./2018 Form 10-K
47
Management's discussion and analysis
CONSOLIDATED RESULTS OF OPERATIONS
This section provides a comparative discussion of JPMorgan
Chase's Consolidated Results of Operations on a reported
basis for the three-year period ended December 31, 2018,
unless otherwise specified. Factors that relate primarily to a
single business segment are discussed in more detail within
that business segment. For a discussion of the Critical
Accounting Estimates Used by the Firm that affect the
Consolidated Results of Operations, refer to pages 141-143.
Effective January 1, 2018, the Firm adopted several new
accounting standards. Certain of the new accounting
standards were applied retrospectively and, accordingly,
prior period amounts were revised. For additional
information, refer to Note 1.
Revenue
Year ended December 31,
(in millions)
2018
2017
Investment banking fees
$
7,550 $
Principal transactions
12,059
Lending- and deposit-related fees
6,052
7,412 $
11,347
5,933
2016
6,572
11,566
5,774
Asset management,
administration and commissions
17,118
16,287
15,364
Investment securities gains/
(losses)
(395)
The Firm continues to develop and implement plans to
appropriately mitigate the risks associated with IBOR
discontinuation as identified alternative reference rates
develop, and liquidity in the markets referencing them
increases. The Firm will continue to engage with regulators
as the transition progresses.
(66)
NWGs are also working with accounting standard setters to
manage the accounting implications of amending existing
contracts to add fallback language and to change reference
rates. Current efforts include the identification of potential
accounting impacts and potential alternatives to mitigate
those impacts through interpretation of existing accounting
rules, or through transition relief from FASB and IASB
standard setting.
IBORS are referenced in approximately $370 trillion of
wholesale and consumer transactions globally spanning a
broad range of financial products and contracts. Without
advance transition planning for alternative benchmarks,
sudden cessation of those broadly referenced rates could
cause significant disruptions to gross flows of floating-rate
payments and receipts. An abrupt cessation could also
impair the normal functioning of a variety of markets,
including commercial and consumer lending.
JPMorgan Chase established a Firmwide LIBOR Transition
program in early 2018. The Firmwide CFO and the CEO of
the CIB oversee the program as senior sponsors. When
assessing risks associated with IBOR transition, the program
considers three possible scenarios: disorderly transition,
measured/regulated transition, and IBOR in continuity.
These risks will continue to be monitored, along with any
new risks that emerge as the program progresses. Plans to
mitigate the risks associated with IBOR transition have been
identified, with some already in the early stages of
implementation. Model risk, for example, will be mitigated
by the identification and migration of swap curves based on
IBORS to new alternative reference rates.
The Firm takes a disciplined approach to managing its
expenses, while investing for growth and innovation. As a
result, management expects Firmwide adjusted expense for
the full-year 2019 to be less than $66 billion.
The Firm continues to experience charge-off rates at very
low levels, reflecting favorable credit trends across the
consumer and wholesale portfolios. Management expects
full-year 2019 net charge-offs to be less than $5.5 billion,
higher than 2018, driven by growth.
First-quarter 2019
Management expects the first-quarter 2019 net interest
income, on a managed basis, to be approximately flat
compared with the fourth-quarter of 2018.
Firmwide adjusted expense for the first-quarter 2019 is
expected to be up mid-single digits compared with the first
quarter of 2018.
Markets revenue for the first-quarter 2019 is expected to be
lower when compared with the prior-year quarter by high-
teens percentage points on a reported basis, and by low
double-digit percentage points excluding the impact of the
recognition and measurement accounting standard in the
first quarter of 2018, depending on market conditions.
JPMorgan Chase & Co./2018 Form 10-K
45
Management's discussion and analysis
Business Developments
Expected departure of the U.K. from the EU
In 2016, the U.K. voted to withdraw from the European
Union ("EU"), and in March 2017, the U.K. invoked Article
50 of the Lisbon Treaty, which commenced withdrawal
negotiations with the EU. As a result, the U.K. is scheduled
to depart from the EU on March 29, 2019. Negotiations
regarding the terms of the U.K.'s withdrawal continue
between the U.K. and the EU, although the situation
remains highly uncertain.
The Firm has a long-standing presence in the U.K., which
currently serves as the regional headquarters of the Firm's
operations in over 30 countries across Europe, the Middle
East, and Africa ("EMEA"). In the region, the Firm serves
clients and customers across its business segments. The
Firm has approximately 16,000 employees in the U.K., of
which approximately two-thirds are in London, with
operational and technology support centers in locations
such as Bournemouth, Glasgow and Edinburgh.
The Firm has been preparing for and continues to make
significant progress in its readiness for the U.K.'s expected
withdrawal from the EU, which is commonly referred to as
"Brexit." JPMorgan Chase established a Firmwide Brexit
Implementation program in 2017. The program covers
strategic implementation across all impacted businesses
and functions. The program's objective is to deliver the
Firm's capabilities on "day one" of the U.K.'s withdrawal
across all impacted legal entities. The program includes an
ongoing assessment of implementation risks including
political, legal and regulatory risks and plans for addressing
and mitigating those risks. The Firm is also monitoring the
expected macroeconomic developments associated with a
no-deal scenario and has undertaken stress testing covering
credit and market risk to assess potential impacts.
Significant uncertainty remains around the U.K.'s expected
departure from the EU, including the possibility that the
U.K. departs without any agreement being reached on how
U.K. financial services firms will conduct business within the
EU (i.e., "a no-deal scenario").
The Firm is planning for a U.K. withdrawal in the event that
an agreement is reached, as well as for a no-deal scenario.
Significant uncertainties exist under either potential
outcome. For example, in planning for the U.K. withdrawal
from the EU under a no-deal scenario, the Firm is focused
on the following key areas to ensure continuation of service
to its EU clients: regulatory and legal entity readiness; client
readiness; and business and operational readiness.
Regulatory and legal entity readiness
The Firm intends to leverage its existing EU legal entities, in
Germany, Luxembourg and Ireland to conduct broader
financial service activities. These legal entities are in
advanced stages of readiness, including governance,
infrastructure, capital, local regulatory licenses and branch
authorizations, as needed. The Firm anticipates that its EU
legal entities will be ready to service its EU clients in March
2019, if required. There are some dependencies on final
authorizations from the European Central Bank and
jurisdictional National Competent Authorities to carry out
new activity in the EU legal entities.
Client readiness
Where required, agreements with the Firm's EU clients are
being re-documented from current U.K. legal entities to
existing EU legal entities to ensure continuation of service.
This process involves establishing new agreements such as
ISDA master agreements between clients and the relevant
EU legal entity. There is a risk that not all clients will have
the appropriate legal and operational arrangements in
place upon the U.K.'s withdrawal from the EU. The Firm
continues to actively engage with its clients to ensure
preparedness and, to the extent possible, minimize
operational disruption.
Business and operational readiness
The Firm is expecting to add several hundred employee
positions in its various EU locations, including individuals
who the Firm expects to relocate from the U.K. The Firm is
preparing to be operational in the EU across all in-scope
businesses and functions, including the build-out of
technology, processes and controls, and the necessary
resourcing in the EU locations across first, second and third
line of defense functions.
The Firm and its EU legal entities' access to market
infrastructures such as trading venues, central
counterparties ("CCPS") and central settlement systems
("CSDS") will need to be adjusted to comply with the
evolving regulatory framework. Some uncertainty remains
with respect to the readiness of the overall market
ecosystem and connectivity between participants. The Firm
continues to monitor the regulatory landscape and is
preparing to take mitigating action, as needed, specifically
in areas such as “contract continuity" that would allow U.K.
entities to continue servicing trade lifecycle events.
In the event that the U.K.'s withdrawal from the EU is
delayed through a transition deal or another mechanism,
the Firm would have the required operational capabilities to
conduct business from its EU legal entities, but the timing of
any changes would be re-assessed to ensure that a strategic
approach is taken. The Firm continues to closely monitor all
negotiations and legislative developments and has
developed an implementation plan that allows for flexibility
given the continued uncertainty.
46
JPMorgan Chase & Co./2018 Form 10-K
LIBOR transition
The Financial Stability Board ("FSB") and the Financial
Stability Oversight Council ("FSOC") have observed that the
secular decline in interbank short-term funding poses
structural risks for unsecured benchmark interest rates
such as Interbank Offered Rates (“IBORS"), and therefore
regulators and market participants in various jurisdictions
have been working to identify alternative reference rates
that are compliant with the International Organization of
Securities Commission's standards for transaction-based
benchmarks. In the U.S., the Alternative Reference Rates
Committee (the “ARRC”), a group of market and official
sector participants, identified the Secured Overnight
Financing Rate ("SOFR") as its recommended alternative
benchmark rate. Other alternative reference rates have
been recommended in other jurisdictions.
Market participants are working closely with public sector
representation as part of National Working Groups
("NWGS") towards the common goal of facilitating an
orderly transition from IBORS. Current NWG efforts include
the development of cash and derivative markets referencing
alternative reference rates, as well as the development of
industry consensus for fallback language that would
determine the rates to use in various IBOR-indexed
contracts when a particular IBOR ceases to be produced.
The Firm is encouraging its clients to actively participate in
industry consultations on fallback language in order to
ensure the broadest possible industry engagement in and
understanding of IBOR transition. The Firm continues to
monitor the transition by clients from the current IBOR-
referencing products to products referencing the new
alternative reference rates.
Mortgage fees and related income
1,254
1,616
•
•
Equity Markets with strength across products, primarily in
derivatives and prime brokerage, reflecting strong client
activity, and
Fixed Income Markets reflecting strong performance in
Currencies & Emerging Markets, and higher revenue in
Commodities compared to a challenging prior year,
largely offset by lower revenue in Credit,
.
the results also reflect a loss in Credit Adjustments &
Other, largely driven by higher funding spreads on
derivatives.
For additional information, refer to CIB and Corporate
segment results on pages 66-70 and pages 77-78,
respectively, and Note 6.
Asset management, administration and commissions
revenue increased reflecting:
•
•
higher asset management fees in AWM and CCB driven by
higher average market levels and the cumulative impact
of net inflows. For AWM, these were partially offset by fee
compression and lower performance fees
higher brokerage commissions driven by higher volumes
in CIB and AWM, and higher asset-based fees in CIB.
For additional information, refer to AWM, CCB and CIB
segment results on pages 74-76, pages 62-65 and pages
66-70, respectively, and Note 6.
For information on lending- and deposit-related fees, refer
to the segment results for CCB on pages 62-65, CIB on
pages 66-70, and CB on pages 71-73 and Note 6; on
securities gains, refer to the Corporate segment discussion
on pages 77-78.
Investment securities losses increased due to sales related
to repositioning the investment securities portfolio.
•
•
Mortgage fees and related income decreased driven by:
lower net production revenue reflecting lower production
margins and volumes, as well as the impact of a loan sale,
partially offset by
higher net mortgage servicing revenue reflecting higher
MSR risk management results, predominantly offset by
lower servicing revenue on a lower level of third-party
loans serviced.
For further information, refer to CCB segment results on
pages 62-65, Note 6 and 15.
Card income increased driven by:
•
•
lower net interchange income reflecting higher rewards
costs and partner payments, largely offset by higher card
sales volumes. The rewards costs included an adjustment
to the credit card rewards liability of approximately $330
million, recorded in the second quarter of 2018, driven
by an increase in redemption rate assumptions.
For further information, refer to CCB segment results on
pages 62-65 and Note 6.
48
JPMorgan Chase & Co./2018 Form 10-K
11
Principal transactions revenue increased primarily
reflecting higher revenue in CIB driven by:
For additional information, refer to CIB segment results on
pages 66-70 and Note 6.
lower debt underwriting fees primarily driven by declines
in industry-wide fee levels.
predominantly offset by
141
2,491
Card income
4,989
4,433
4,779
Other income(a)
5,343
3,646
3,799
Noninterest revenue
53,970
50,608
50,486
Management expects full-year 2019 net interest income, on
a managed basis, to be in excess of $58 billion, reflecting
the annualized impact of 2018 interest rate increases, as
well as expected loan and deposit growth.
Net interest income
50,097
46,083
Total net revenue
$ 109,029 $ 100,705 $ 96,569
(a) Included operating lease income of $4.5 billion, $3.6 billion and $2.7
billion for the years ended December 31, 2018, 2017 and 2016,
respectively.
2018 compared with 2017
Investment banking fees increased from a strong prior
year, with overall share gains, reflecting:
•
•
•
higher advisory fees driven by a higher number of large
completed transactions, and
higher equity underwriting fees driven by a higher share
of fees, reflecting strong performance across products
55,059
Firmwide
The increase in CIB was partially offset by private equity
losses reflecting markdowns on certain legacy private
equity investments compared with gains in the prior year in
Corporate.
•
15.9
55 5
5
(a) Ratios presented are calculated under the Basel III Transitional rules. As of
December 31, 2018, the Firm's capital ratios were equivalent whether
calculated on a transitional or fully phased-in basis. Refer to Capital Risk
Management on pages 85-94 for additional information on Basel III.
Comparisons noted in the sections below are for the full year of
2018 versus the full year of 2017, unless otherwise specified.
Firmwide overview
JPMorgan Chase reported strong results for 2018, with record
net income and EPS of $32.5 billion and $9.00 per share,
respectively, on net revenue of $109.0 billion. Excluding the
impact of the Tax Cuts & Jobs Acts ("TCJA"), net income and
EPS were still records for a full year. The Firm reported ROE of
13% and ROTCE of 17%. For additional information related to
the impact of the TCJA, refer to the Consolidated Results of
Operations on pages 48-51 and Note 24.
JPMorgan Chase & Co./2018 Form 10-K
•
•
•
Net income increased 33%, reflecting higher net revenue
and the impact of the lower U.S. federal statutory income
tax rate as a result of the TCJA, partially offset by an
increase in noninterest expense.
Total net revenue increased 8%. Net interest income was
$55.1 billion, up 10%, driven by the impact of higher rates,
loan growth and Card margin expansion, partially offset by
lower CIB Markets net interest income. Noninterest revenue
was $54.0 billion, up 7%, largely driven by higher CIB
Markets noninterest revenue and auto lease income,
partially offset by markdowns on certain legacy private
equity investments and the impact of higher funding spreads
on derivatives.
Noninterest expense was $63.4 billion, up 7%,
predominantly driven by investments in the business,
including technology, marketing, higher compensation
expense on increased headcount, and real estate, as well as
higher revenue-related costs, including auto lease
depreciation and volume-related transaction costs.
The provision for credit losses was $4.9 billion, down from
$5.3 billion in the prior year, reflecting a decrease in the
consumer provision driven by a lower addition to the credit
card allowance for credit losses and lower net charge-offs.
The lower net charge-offs were primarily driven by
recoveries from loan sales in the residential real estate
portfolio, predominantly offset by higher net charge-offs in
the credit card portfolio, as anticipated. The prior year also
included a net $218 million write-down recorded in
connection with the sale of the student loan portfolio. The
decrease in the consumer provision was partially offset by
an increase in the wholesale provision, reflecting additions
to the allowance for loan losses from select client
downgrades.
The total allowance for credit losses was $14.5 billion at
December 31, 2018, and the Firm had a loan loss coverage
ratio, excluding the PCI portfolio, of 1.23%, compared with
1.27% in the prior year. The Firm's nonperforming assets
totaled $5.2 billion at December 31, 2018, a decrease from
$6.4 billion in the prior year, reflecting improved credit
performance in the consumer portfolio, and reductions in
the wholesale portfolio including repayments and loan sales.
Firmwide average core loans and core loans excluding CIB
both increased 7%.
Selected capital-related metrics
•
The Firm's Basel III Fully Phased-In CET1 capital was $183.5
billion, and the Standardized and Advanced CET1 ratios were
12.0% and 12.9%, respectively.
The Firm's Fully Phased-In supplementary leverage ratio
("SLR") was 6.4%.
The Firm continued to grow tangible book value per share
("TBVPS"), ending 2018 at $56.33, up 5%.
ROTCE and TBVPS are each non-GAAP financial measures. Core
loans and each of the Fully Phased-In capital and certain
leverage measures are all considered key performance
measures. For a further discussion of each of these measures,
refer to Explanation and Reconciliation of the Firm's Use of
Non-GAAP Financial Measures and Key Performance Measures
on pages 57-59, and Capital Risk Management on pages
85-94.
43
Management's discussion and analysis
Lines of business highlights
Selected business metrics for each of the Firm's four lines of
business are presented below for the full year of 2018.
•
15.5
Revenue of $52.1 billion, up 12%; record
13.9
12.2%
4,871
•
5,290
(8)
Net income
32,474
24,441
33
•
Diluted earnings per share
9.00
6.31
Selected ratios and metrics
Return on common equity
Return on tangible common equity
13%
17
10%
12
Book value per share
$ 70.35 $ 67.04
Tangible book value per share
56.33
53.56
Capital ratios (a)
CET1
Tier 1 capital
Total capital
12.0%
13.7
Credit provided and capital raised
43
net income of $14.9 billion, up 58%
trillion
Capital raised for corporate clients and
non-U.S. government entities
Record revenue of $9.1 billion, up 5%;
record net income of $4.2 billion, up 20%
•
Average loan balances of $205.5 billion, up
4%
$57
billion
Credit and capital raised for U.S.
governments and nonprofit entities (a)
CB
ROE 20%
AWM
ROE 31%
•
•
$1.3
Strong credit quality with net charge-offs of
3 bps
record net income of $2.9 billion, up 22%
Average loan balances of $139 billion, up
12%
Assets under management ("AUM") of $2.0
trillion, down 2%
For a detailed discussion of results by line of business, refer
to the Business Segment Results on pages 60-61.
(a) Includes states, municipalities, hospitals and universities.
JPMorgan Chase & Co./2018 Form 10-K
2019 outlook
These current expectations are forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are based on
the current beliefs and expectations of JPMorgan Chase's
management and are subject to significant risks and
uncertainties. For a further discussion of certain of those risks
and uncertainties and the other factors that could cause
JPMorgan Chase's actual results to differ materially because of
those risks and uncertainties, refer to Forward-Looking
Statements on page 147 and the Risk Factors section on
pages 7-28. There is no assurance that actual results in 2019
will be in line with the outlook set forth below, and the Firm
does not undertake to update any forward-looking statements.
JPMorgan Chase's outlook for 2019 should be viewed against
the backdrop of the global and U.S. economies, financial
markets activity, the geopolitical environment, the
competitive environment, client and customer activity levels,
and regulatory and legislative developments in the U.S. and
other countries where the Firm does business. Each of these
factors will affect the performance of the Firm and its lines
of business. The Firm expects that it will continue to make
appropriate adjustments to its businesses and operations in
response to ongoing developments in the legal, regulatory,
business and economic environments in which it operates.
•
•
•
JPMorgan Chase continues to support consumers,
businesses and communities around the globe. The Firm
provided credit and raised capital for wholesale and
consumer clients during 2018, consisting of:
•
Record revenue of $14.1 billion, up 2%;
Investment Banking revenue up 2%;
Treasury Services revenue up 13%; and
Securities Services revenue up 8%
44
billion
CCB
ROE 28%
deposits of $670 billion, up 5%
Total credit provided and capital raised
trillion
Client investment assets of $282 billion, up
3%
•
Credit card sales volume up 11% and
$227
Credit for consumers
•
billion
$2.5
•
merchant processing volume up 15%
Record revenue of $36.4 billion, up 5%;
record net income of $11.8 billion, up 9%
$24
Credit for U.S. small businesses
• Maintained #1 ranking for Global
billion
Average core loans up 6%; average
CIB
Investment Banking fees with 8.7% wallet
share
•
$937
Credit for corporations
ROE 16%
•
Record Equity Markets revenue of $6.9
billion, up 21%
4,017
104,722
96,569
2,505
100,043
Pre-provision profit
45,635
3,474
100,705
51,410
2,505
109,029
Total net revenue
47,292
1,209
46,083
48,140
1,313
50,097
55,687
(b)
111,534
41,190
39,917
45,207
9,803
3,474
15,476
628
4,017
11,459
10,795
2,505 (b)
8,290
Income tax expense
expense
38,010
3,474
34,536
4,017
35,900
43,269
2,505
40,764
Income before income tax
43,371
3,474
39,897
4,017
55,059
Reported
Results
2,265
(in millions, except ratios)
Year ended
2016
2017
adjustments (a)
equivalent
Fully taxable-
2018
Reported
Results
December 31,
Managed
basis
The following summary table provides a reconciliation from the Firm's reported U.S. GAAP results to managed basis.
financial measures allow management to assess the
comparability of revenue from year-to-year arising from
both taxable and tax-exempt sources. The corresponding
income tax impact related to tax-exempt items is recorded
within income tax expense. These adjustments have no
impact on net income as reported by the Firm as a whole or
by the lines of business.
In addition to analyzing the Firm's results on a reported
basis, management reviews Firmwide results, including the
overhead ratio, on a "managed" basis; these Firmwide
managed basis results are non-GAAP financial measures.
The Firm also reviews the results of the lines of business on
a managed basis. The Firm's definition of managed basis
starts, in each case, with the reported U.S. GAAP results and
includes certain reclassifications to present total net
revenue for the Firm (and each of the reportable business
segments) on an FTE basis. Accordingly, revenue from
investments that receive tax credits and tax-exempt
securities is presented in the managed results on a basis
comparable to taxable investments and securities. These
The Firm prepares its Consolidated Financial Statements in
accordance with U.S. GAAP; these financial statements
appear on pages 150-154. That presentation, which is
referred to as "reported" basis, provides the reader with an
understanding of the Firm's results that can be tracked
consistently from year-to-year and enables a comparison of
the Firm's performance with other companies' U.S. GAAP
financial statements.
Non-GAAP financial measures
PERFORMANCE MEASURES
EXPLANATION AND RECONCILIATION OF THE FIRM'S USE OF NON-GAAP FINANCIAL MEASURES AND KEY
JPMorgan Chase & Co./2018 Form 10-K
13,277
56
(f) Includes noncancelable operating leases for premises and equipment used primarily for banking purposes. Excludes the benefit of noncancelable sublease
rentals of $825 million and $1.0 billion at December 31, 2018 and 2017, respectively. Refer to Note 28 for more information on lease commitments.
(g) Included unfunded commitments of $40 million at both December 31, 2018 and 2017, to third-party private equity funds, and $231 million and $77
million of unfunded commitments at December 31, 2018 and 2017, respectively, to other equity investments.
Management also uses certain non-GAAP financial
measures at the Firm and business-segment level, because
these other non-GAAP financial measures provide
information to investors about the underlying operational
performance and trends of the Firm or of the particular
business segment, as the case may be, and, therefore,
facilitate a comparison of the Firm or the business segment
with the performance of its relevant competitors. For
additional information on these non-GAAP measures, refer
to Business Segment Results on pages 60-78. Non-GAAP
financial measures used by the Firm may not be comparable
to similarly named non-GAAP financial measures used by
other companies.
Fully taxable-
equivalent
adjustments (a)
Managed
basis
Reported
Results
50,486
53,312
2,704
50,608
55,847
1,877
53,970
Net interest income
Total noninterest revenue
2,265 $ 6,064
$
$ 3,799
$ 6,350
2,704
$
$ 3,646
$ 7,220
1,877 (b)
$
$ 5,343
Other income
Managed
basis
Fully taxable-
equivalent
adjustments (a)
52,751
Overhead ratio
interest-earning assets(c)
NM
Other income increased reflecting:
•
•
JPMorgan Chase & Co./2018 Form 10-K
58
(c) For further information on CIB's Markets businesses, refer to page 69.
(b) For a reconciliation of net interest income on a reported and managed
basis, refer to reconciliation from the Firm's reported U.S. GAAP results
to managed basis on page 57.
amounts are used where applicable.
(a) Interest includes the effect of related hedges. Taxable-equivalent
2.59%
higher operating lease income from growth in auto
operating lease volume in CCB
2.85%
Markets
assets excluding CIB
average interest-earning
1.22
0.86
0.51
Net interest yield on
average CIB Markets
Net interest yield on
2.25%
3.25%
2.36%
fair value gains of $505 million recognized in the first
quarter of 2018 related to the adoption of the new
recognition and measurement accounting guidance for
certain equity investments previously held at cost
lower investment valuations in AWM, and
higher operating lease income reflecting growth in auto
operating lease volume in CCB, and
(e) Includes accrued interest and future contractual interest obligations. Excludes interest related to structured notes for which the Firm's payment obligation
is based on the performance of certain benchmarks.
partially offset by
the disposal of an asset in AWM
the redemption of guaranteed capital debt securities
("trust preferred securities"), and
the sale of Visa Europe interests in CCB,
the absence in the current year of gains from
lower other income in CIB largely driven by a $520
million impact related to the enactment of the TCJA,
which reduced the value of certain of CIB's tax-oriented
investments, and
Other income decreased primarily due to:
•
the absence of the impact related to the enactment of the
TCJA, which reduced the value of certain of CIB's tax-
oriented investments by $520 million in the prior year
partially offset by
.
.
Asset management, administration and commissions
revenue increased as a result of higher asset management
fees in AWM and CCB, and higher asset-based fees in CIB,
both driven by higher market levels
lower Fixed Income-related revenue driven by sustained
strong prior year in CIB, primarily reflecting:
Principal transactions revenue decreased compared with a
Investment banking fees increased reflecting higher debt
and equity underwriting fees in CIB. The increase in debt
underwriting fees was driven by a higher share of fees and
an overall increase in industry-wide fees; and the increase
in equity underwriting fees was driven by growth in
industry-wide issuance, including a strong initial public
offering ("IPO") market.
.
Net interest income increased driven by the impact of
higher rates, loan growth across the businesses, and Card
margin expansion, partially offset by lower CIB Markets net
interest income. The Firm's average interest-earning assets
were $2.2 trillion, up $49 billion from the prior year, and
the net interest yield on these assets, on an FTE basis, was
2.50%, an increase of 14 basis points from the prior year.
The net interest yield excluding CIB Markets was 3.25%, an
increase of 40 basis points. Net interest yield excluding CIB
markets is a non-GAAP financial measure. For a further
discussion of this measure, refer to Explanation and
Reconciliation of the Firm's Use of Non-GAAP Financial
Measures and Key Performance Measures on pages 57-59.
2017 compared with 2016
For further information, refer to Note 6.
the absence of a legal benefit of $645 million that was
recorded in the prior year in Corporate related to a
settlement with the FDIC receivership for Washington
Mutual and with Deutsche Bank as trustee of certain
Washington Mutual trusts.
Mortgage fees and related income decreased driven by
lower MSR risk management results, lower net production
revenue on lower margins and volumes, and lower servicing
revenue on lower average third-party loans serviced.
Card income decreased predominantly driven by higher
credit card new account origination costs, largely offset
by higher card-related fees, primarily annual fees.
2.50%
assets - managed basis
average interest-earning
Less: CIB Markets net
interest income (c)
55,687 $ 51,410 $ 47,292
$
2017
2018
Year ended December 31,
(in millions, except rates)
Net interest income -
managed basis(a)(b)
2016
In addition to reviewing net interest income and the net
interest yield on a managed basis, management also
reviews these metrics excluding CIB's Markets businesses,
as shown below; these metrics, which exclude CIB's Markets
businesses, are non-GAAP financial measures. Management
reviews these metrics to assess the performance of the
Firm's lending, investing (including asset-liability
management) and deposit-raising activities. The resulting
metrics that exclude CIB's Markets businesses are referred
to as non-markets-related net interest income and net yield.
CIB's Markets businesses are Fixed Income Markets and
Equity Markets. Management believes that disclosure of
non-markets-related net interest income and net yield
provides investors and analysts with other measures by
which to analyze the non-markets-related business trends
of the Firm and provides a comparable measure to other
financial institutions that are primarily focused on lending,
investing and deposit-raising activities.
Net interest income and net yield excluding CIB's Markets
businesses
Management's discussion and analysis
3,087
57
(b) The decrease in fully taxable-equivalent adjustments for the year ended December 31, 2018, reflects the impact of the TCJA.
(a) Predominantly recognized in CIB and CB business segments and Corporate.
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and,
accordingly, prior period amounts were revised. For additional information, refer to Note 1.
57%
NM
59%
57%
NM
59%
57%
JPMorgan Chase & Co./2018 Form 10-K
4,630
6,334
Net interest income
excluding CIB Markets (a) $
Net interest yield on
The Firm also reviews adjusted expense, which is
noninterest expense excluding Firmwide legal expense and
is therefore a non-GAAP financial measure. Additionally,
certain credit metrics and ratios disclosed by the Firm
exclude PCI loans, and are therefore non-GAAP measures.
Management believes these measures help investors
understand the effect of these items on reported results
and provide an alternate presentation of the Firm's
performance. For additional information on credit metrics
and ratios excluding PCI loans, refer to Credit and
Investment Risk Management on pages 102-123.
* Represents net income applicable to common equity
Tangible common equity at period-end / Common shares at period-end
Net income* / Average common stockholders' equity
Return on tangible common equity ("ROTCE")
Net income* / Average tangible common equity
Tangible book value per share ("TBVPS")
Return on common equity ("ROE")
Reported net income / Total average assets
Total noninterest expense / Total net revenue
Return on assets ("ROA")
Overhead ratio
Common stockholders' equity at period-end /
Common shares at period-end
Book value per share ("BVPS")
Certain U.S. GAAP and non-GAAP financial measures are calculated as
follows:
Calculation of certain U.S. GAAP and non-GAAP financial measures
520,307
540,835
609,635
$1,619,553 $1,639,757 $ 1,581,297
Average interest-earning
assets excluding CIB
Markets
Less: Average CIB Markets
interest-earning assets (c)
$2,180,592 $ 2,101,604
$2,229,188
Average interest-earning
assets
52,600 $ 46,780 $ 40,958
58%
(d) For further information, refer to unsettled resale and securities borrowed agreements in Note 27.
Special-purpose entities: variable interests and other
obligations, including contingent obligations, arising
from variable interests in nonconsolidated VIES
(b) Primarily includes dividends declared on preferred and common stock, deferred annuity contracts, pension and other postretirement employee benefit
obligations, insurance liabilities and income taxes payable associated with the deemed repatriation under the TCJA.
*
*
For all periods, cash was used for repurchases of common
stock and cash dividends on common and preferred stock.
In 2016, cash provided reflected higher deposits, net
proceeds from long-term borrowings, and an increase in
securities loaned or sold under repurchase agreements.
In 2017, cash provided reflected higher deposits and
short-term borrowings, partially offset by a net decrease
in long-term borrowings.
In 2018, cash provided reflected higher deposits, short-
term borrowings, and securities loaned or sold under
repurchase agreements.
The Firm's financing activities include acquiring customer
deposits and issuing long-term debt, as well as preferred
and common stock.
Financing activities
In 2016, cash used reflected net originations of loans,
and an increase in securities purchased under resale
agreements.
In 2017, cash provided reflected net proceeds from
paydowns, maturities, sales and purchases of investment
securities and a decrease in securities purchased under
resale agreements, partially offset by net originations of
loans.
For a further discussion of the activities affecting the Firm's
cash flows, refer to Consolidated Balance Sheets Analysis on
pages 52-53, Capital Risk Management on pages 85-94,
and Liquidity Risk Management on pages 95-100.
In 2018, cash used reflected an increase in securities
purchased under resale agreements, higher net
originations of loans and net purchases of investment
securities.
•
•
•
•
The Firm's investing activities predominantly include
originating held-for-investment loans and investing in the
securities portfolio and other short-term instruments.
Investing activities
• In 2016, cash provided primarily reflected net income
excluding noncash adjustments, partially offset by an
increase in trading assets.
• In 2017, cash used primarily reflected a decrease in
trading liabilities and accounts payable and other
liabilities, and an increase in accrued interest and
accounts receivable, partially offset by net income
excluding noncash adjustments and a decrease in trading
assets.
• In 2018, cash provided primarily reflected net income
excluding noncash adjustments, increased trading
liabilities and accounts payable and other liabilities,
partially offset by an increase in trading assets, net
originations of loans held-for-sale, and higher securities
borrowed and other assets.
JPMorgan Chase's operating assets and liabilities primarily
support the Firm's lending and capital markets activities.
These assets and liabilities can vary significantly in the
normal course of business due to the amount and timing of
cash flows, which are affected by client-driven and risk
management activities and market conditions. The Firm
believes cash flows from operations, available cash and
other liquidity sources, and its capacity to generate cash
through secured and unsecured sources are sufficient to
meet its operating liquidity needs.
.
54
JPMorgan Chase & Co./2018 Form 10-K
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
(in millions)
By remaining maturity at December 31,
The carrying amount of on-balance sheet obligations on the
Consolidated balance sheets may differ from the minimum
contractual amount of the obligations reported below. For a
discussion of mortgage repurchase liabilities and other
obligations, refer to Note 27.
Contractual cash obligations
The accompanying table summarizes, by remaining
maturity, JPMorgan Chase's significant contractual cash
obligations at December 31, 2018. The contractual cash
obligations included in the table below reflect the minimum
contractual obligation under legally enforceable contracts
with terms that are both fixed and determinable. Excluded
from the below table are certain liabilities with variable
cash flows and/or no obligation to return a stated amount
of principal at maturity.
Contractual cash obligations
Management's discussion and analysis
55
JPMorgan Chase & Co./2018 Form 10-K
271-276
Refer to Note 27
Off-balance sheet lending-related financial instruments,
guarantees, and other commitments
Page references
244-251
Refer to Note 14
Location of disclosure
a legal benefit of $645 million recorded in the second
quarter of 2017 in Corporate related to a settlement with
the FDIC receivership for Washington Mutual and with
Deutsche Bank as trustee of certain Washington Mutual
trusts.
Type of off-balance sheet arrangement
The table below provides an index of where in this 2018 Form 10-K a discussion of the Firm's various off-balance sheet
arrangements can be found. In addition, refer to Note 1 for information about the Firm's consolidation policies.
The Firm has no commitments to issue its own stock to
support any SPE transaction, and its policies require that
transactions with SPES be conducted at arm's length and
reflect market pricing. Consistent with this policy, no
JPMorgan Chase employee is permitted to invest in SPES
with which the Firm is involved where such investment
would violate the Firm's Code of Conduct.
The Firm holds capital, as deemed appropriate, against all
SPE-related transactions and related exposures, such as
derivative contracts and lending-related commitments and
guarantees.
The Firm is involved with several types of off-balance sheet
arrangements, including through nonconsolidated special-
purpose entities (“SPES”), which are a type of VIE, and
through lending-related financial instruments (e.g.,
commitments and guarantees).
Special-purpose entities
In the normal course of business, the Firm enters into
various off-balance sheet arrangements and contractual
obligations that may require future cash payments. Certain
obligations are recognized on-balance sheet, while others
are off-balance sheet under accounting principles generally
accepted in the U.S. (“U.S. GAAP").
$(152,511) $ 40,150 $ 29,471
2019
Operating activities
(1,482)
For information on changes in stockholders' equity, refer to
page 153, and on the Firm's capital actions, refer to Capital
actions on pages 91-92.
advances, predominantly offset by net issuance of
structured notes in CIB, as well as net issuance of senior
debt in Treasury and CIO. For additional information on the
Firm's long-term debt activities, refer to Liquidity Risk
Management on pages 95-100 and Note 19.
Beneficial interests issued by consolidated VIES decreased
due to net maturities of credit card securitizations. For
further information on Firm-sponsored VIES and loan
securitization trusts, refer to Off-Balance Sheet
Arrangements on pages 55-56 and Note 14 and 27.
Long-term debt decreased primarily driven by lower FHLB
Accounts payable and other liabilities increased partly as a
result of higher client payables related to prime brokerage
activities in CIB.
Trading liabilities increased predominantly as a result of
client-driven market-making activities in CIB, which resulted
in higher levels of short positions in equity instruments in
Equity Markets, including prime brokerage. For additional
information, refer to Derivative contracts on pages 117-
118, and Notes 2 and 5.
4%
256,515
$ 2,622,532 $ 2,533,600
Short-term borrowings increased reflecting short-term
advances from Federal Home Loan Banks ("FHLBS”) and the
net issuance of commercial paper in Treasury and CIO
primarily for short-term liquidity management. For
additional information, refer to Liquidity Risk Management
on pages 95-100.
Federal funds purchased and securities loaned or sold
under repurchase agreements increased reflecting higher
client-driven market-making activities and higher secured
financing of trading assets-debt and equity instruments in
CIB.
For more information, refer to the Liquidity Risk
Management discussion on pages 95-100; and Notes 2
and 17.
JPMorgan Chase & Co./2018 Form 10-K
The decrease in AWM was driven by balance migration
predominantly into the Firm's higher-yielding investment-
related products. The decrease in CB was driven by a
reduction in non-operating deposits.
•
•
Deposits increased in CIB and CCB, largely offset by
decreases in AWM and CB.
Total liabilities and stockholders' equity
Stockholders' equity
Total liabilities
4
2,277,907
255,693
2,366,017
(1)
The increase in CIB was predominantly driven by growth
in operating deposits related to client activity in CIB's
Treasury Services business, and in CCB reflecting the
continuation of growth from new accounts.
53
Management's discussion and analysis
Consolidated cash flows analysis
8,086
(2,863)
Effect of exchange rate
changes on cash
98,271
14,642
34,158
Financing activities
•
(89,202)
28,249
(197,993)
Investing activities
$ (10,827) $ 21,884
$ 14,187
Operating activities
2016
•
2017
2018
Year ended December 31,
Net cash provided by/(used in)
(in millions)
The following is a discussion of cash flow activities during
the years ended December 31, 2018, 2017 and 2016.
Net increase/(decrease) in
cash and due from banks
(c) The prior period amounts have been revised to conform with the current period presentation.
2020-2021
2017
271
7
2
262
Equity investment commitments (c)(g)
9,877
10,992
4,480
2,111
2,840
117
1,561
(22)
54,103
58,252
27,496
8,295
11,501
10,960
Contractual interest payments (e)
76,859
102,008
Operating leases(f)
Contractual purchases and capital expenditures(c)
1,948
1,048
(a) Excludes structured notes on which the Firm is not obligated to return a stated amount of principal at the maturity of the notes, but is obligated to return
an amount based on the performance of the structured notes.
2,085,721
146,133
177,059
160,049 $ 2,180,513 $
32,330
11,515
57,982 $
16,119
108,113 $
$ 1,854,369 $
117,095
1,434
1,937
26,081
287
566
728
356
Total contractual cash obligations
Total off-balance sheet obligations
Obligations under co-brand programs
3,743
3,599
60
543
102,008
2018
2022-2023
agreements (d)
Off-balance sheet obligations
62,393
-
-
62,393
Short-term borrowings (a)
158,916
182,320
371
458
181,491
42,664
sold under repurchase agreements
1,468,031 $ 1,437,464
5,439 $
6,227 $
8,958 $
1,447,407 $
Deposits (a)
On-balance sheet obligations
Total
Total
After 2023
Federal funds purchased and securities loaned or
Beneficial interests issued by consolidated VIES
13,502
5,075
1,939,588
13,613
11,794
2,003,454
127,719
46,467
91,994
1,737,274
Total on-balance sheet obligations
2,846
260,895
258,658
118,782
37,171
1,669
1,687
5,592
Other(b)(c)
75,816
26,889
Long-term debt(a)
26,036
20,258
281
1,400
Unsettled resale and securities borrowed
Net interest income increased primarily driven by the net
impact of higher rates and loan growth across the
businesses, partially offset by declines in Markets net
interest income in CIB. The Firm's average interest-earning
assets were $2.2 trillion, up $79 billion from the prior year,
and the net interest yield on these assets, on a fully taxable
equivalent ("FTE") basis, was 2.36%, an increase of 11
basis points from the prior year. The net interest yield
excluding CIB Markets was 2.85%, an increase of 26 basis
points from the prior year.
282,031
partially offset by
7,890
8,502
Professional and outside services
•
6,853
7,715
8,802
equipment
Technology, communications and
•
3,638
3,723
3,952
Occupancy
Noncompensation expense:
2016
$30,203
$31,208
$33,117
Compensation expense
2017
2018
(in millions)
•
7,526
Year ended December 31,
Marketing
2,900
.
higher legal expense, with a net benefit in the prior year
partially offset by
•
• a loss of $174 million on the liquidation of a legal entity,
recorded in other expense in Corporate, in the second
quarter of 2018, and
higher investments in technology in the businesses and
marketing in CCB
higher outside services expense primarily due to higher
volume-related transaction costs in CIB and higher
external fees on revenue growth in AWM
higher depreciation expense due to growth in auto
operating lease volume in CCB
•
•
Noncompensation expense increased as a result of:
Compensation expense increased driven by investments in
headcount across the businesses, including bankers and
advisors, as well as technology and other support staff, and
higher revenue-related compensation expense largely in
CIB.
2018 compared with 2017
(b) Included FDIC-related expense of $1.2 billion, $1.5 billion and $1.3 billion
for the years ended December 31, 2018, 2017 and 2016, respectively.
(a) Included Firmwide legal expense/(benefit) of $72 million, $(35) million
and $(317) million for the years ended December 31, 2018, 2017 and
2016, respectively.
$63,394
30,277 28,307 26,469
$59,515 $56,672
Total noncompensation expense
Total noninterest expense
•
5,555
6,079
5,731
Other(a)(b)
2,897
3,290
lower FDIC-related expense as a result of the elimination
Noninterest expense
50
2018 compared with 2017
5,361
5,290
Total provision for credit losses $ 4,871
852
(303)
116
Wholesale
4,509
5,593
4,755
Total consumer
467
4,042
4,973
4,818
Credit card
620 $
(63) $
Consumer, excluding credit card $
2016
2017
2018
(in millions)
The provision for credit losses decreased as a result of a
decline in the consumer provision, partially offset by an
increase in the wholesale provision
JPMorgan Chase & Co./2018 Form 10-K
•
the decrease in the consumer, excluding credit card
portfolio in CCB was due to
- a net $218 million write-down recorded in connection
with the sale of the student loan portfolio.
a $416 million higher addition to the allowance for credit
losses related to the credit card portfolio driven by higher
loss rates and loan growth, and a lower reduction in the
allowance for the residential real estate portfolio
predominantly driven by continued improvement in home
prices and delinquencies, and
- $450 million of higher net charge-offs, primarily in the
credit card portfolio due to growth in newer vintages
which, as anticipated, have higher loss rates than the
more seasoned portion of the portfolio, partially offset by
a decrease in net charge-offs in the residential real estate
portfolio reflecting continued improvement in home
prices and delinquencies,
a higher consumer provision driven by
a net $422 million reduction in the wholesale allowance for
credit losses, reflecting credit quality improvements in the
Oil & Gas, Natural Gas Pipelines, and Metals & Mining
portfolios, compared with an addition of $511 million in the
prior year driven by downgrades in the same portfolios
predominantly offset by
•
The provision for credit losses decreased as a result of:
2017 compared with 2016
For a more detailed discussion of the credit portfolio and the
allowance for credit losses, refer to the segment discussions of
CCB on pages 62-65, CIB on pages 66-70, CB on pages 71-73,
the Allowance for Credit Losses on pages 120-122 and Note
13.
improvements in the Oil & Gas, Natural Gas Pipelines,
and Metals and Mining portfolios.
- other net portfolio activity, including a reduction in the
allowance for loan losses related to a single name in
the Oil & Gas portfolio in the first quarter of 2018,
compared to a net benefit of $303 million in the prior
year. The prior year benefit reflected a reduction in the
allowance for loan losses on credit quality
largely offset by
in wholesale, the current period expense of $116 million
reflected additions to the allowance for loan losses from
select client downgrades,
- higher net charge-offs due to seasoning of more recent
vintages, as anticipated, and
largely offset by
- a $300 million addition to the allowance for loan
losses, reflecting loan growth and higher loss rates, as
anticipated; the addition was $550 million lower than
the prior year,
the decrease in the credit card portfolio was due to
the prior year also included a net $218 million write-
down recorded in connection with the sale of the student
loan portfolio, and
-
- a $250 million reduction in the allowance for loan
losses in the residential real estate portfolio - PCI,
reflecting continued improvement in home prices and
lower delinquencies; the reduction was $75 million
lower than the prior year for the residential real estate
portfolio non credit-impaired
- lower net charge-offs in the auto portfolio
partially offset by
lower net charge-offs in the residential real estate
portfolio, largely driven by recoveries from loan sales,
and
-
low volatility and tighter credit spreads
Year ended December 31,
of the surcharge at the end of the third quarter of 2018,
and
For additional information on the liquidation of a legal
entity, refer to Note 23.
930,697
984,554
249,958
261,828
381,844
413,714
105,112
111,995
Total assets
Other assets
Goodwill, MSRs and other intangible assets
Premises and equipment
Accrued interest and accounts receivable
Loans, net of allowance for loan losses
Allowance for loan losses
Loans
Investment securities
Trading assets
Securities borrowed
62
198,422
321,588
Federal funds sold and securities purchased under resale agreements
(13,445)
(37)
(13,604)
917,093
284,080
Loans increased reflecting:
•
•
securities, refer to Corporate segment results on pages 77-
78, Investment Portfolio Risk Management on page 123
and Notes 2 and 10.
52
Investment securities increased primarily due to purchases
of U.S. Treasury Bills, reflecting a shift in the deployment of
excess cash in Treasury and CIO from deposits with banks.
The increase was partially offset by net sales, paydowns and
maturities largely of obligations of U.S. states and
municipalities, commercial MBS and non-U.S. government
debt securities. For additional information on investment
Trading assets increased as a result of a shift in the
deployment of excess cash in Treasury and CIO from
deposits with banks into short-term instruments as well as
client-driven market-making activities in CIB. For additional
information, refer to Derivative contracts on pages 117-
118, and Notes 2 and 5.
Federal funds sold and securities purchased under resale
agreements increased primarily due to a shift in the
deployment of excess cash in Treasury and CIO from
deposits with banks to securities purchased under resale
agreements, and higher client-driven market-making
activities in CIB. For additional information on the Firm's
Liquidity Risk Management, refer to pages 95-100.
Securities borrowed increased driven by higher demand for
securities to cover short positions related to client-driven
market-making activities in CIB.
Cash and due from banks and deposits with banks
decreased primarily as a result of a shift in the deployment
of excess cash in Treasury and Chief Investment Office
("CIO") from deposits with Federal Reserve Banks to other
short-term instruments (as noted below), based on market
opportunities. Deposits with banks reflect the Firm's
placements of its excess cash with various central banks,
including the Federal Reserve Banks.
4 %
2,533,600
2,622,532 $
(1)
7856268517
113,587
121,022
54,392
54,349
14,159
14,934
67,729
73,200
971,109
the absence of an impairment in CB on certain leased
equipment
(14)%
256,469
28.4%
31.9%
20.3%
9,803
11,459
$35,900 $34,536
$40,764
8,290
2016
2017
2018
2018 compared with 2017
Income tax expense
Effective tax rate
Year ended December 31,
(in millions, except rate)
Income before income tax
expense
Income tax expense
For a discussion of legal expense, refer to Note 29.
the absence in the current year of two items totaling
$175 million in CCB related to liabilities from a merchant
in bankruptcy and mortgage servicing reserves
an impairment in CB on certain leased equipment, the
majority of which was sold subsequent to year-end
partially offset by
a lower legal net benefit compared to the prior year
higher FDIC-related expense, and
• contributions to the Firm's Foundation
higher depreciation expense from growth in auto
operating lease volume in CCB
Noncompensation expense increased as a result of:
Compensation expense increased predominantly driven by
investments in headcount in most businesses, including
bankers and business-related support staff, and higher
performance-based compensation expense, predominantly
in AWM.
2017 compared with 2016
The effective tax rate decreased in 2018 driven by
25,898
405,406
.
the impact of the TCJA, including the reduction in the U.S.
federal statutory income tax rate, a $302 million net
22,324 $
$
Change
2017
2018
Deposits with banks
Cash and due from banks
Assets
December 31, (in millions)
Selected Consolidated balance sheets data
The following is a discussion of the significant changes between December 31, 2018 and 2017.
Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were
applied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.
Consolidated balance sheets analysis
CONSOLIDATED BALANCE SHEETS AND CASH FLOWS ANALYSIS
Management's discussion and analysis
51
JPMorgan Chase & Co./2018 Form 10-K
benefits resulting from the vesting of employee share-
based awards related to the appreciation of the Firm's
stock price upon vesting above their original grant price,
and the release of a valuation allowance.
a $1.9 billion increase to income tax expense
representing the initial impact of the enactment of the
TCJA. The increase was driven by the deemed repatriation
of the Firm's unremitted non-U.S. earnings and
adjustments to the value of certain tax-oriented
investments, partially offset by a benefit from the
revaluation of the Firm's net deferred tax liability. The
incremental expense resulted in a 5.4 percentage point
increase in the Firm's effective tax rate
partially offset by
•
•
The effective tax rate increased in 2017 driven by:
the reduction in the effective tax rate was partially offset by
the impact of higher pre-tax income, and the change in
mix of income and expense subject to U.S. federal, state
and local taxes. For further information, refer to Note 24.
2017 compared with 2016
tax benefit resulting from changes in the prior year
estimates related to the remeasurement of certain
deferred taxes and the deemed repatriation tax on non-
U.S. earnings, and the absence of the initial $1.9 billion
impact from the TCJA's enactment in December 2017
•
Provision for credit losses
•
189,383
Change
higher loans across the wholesale businesses, primarily
driven by commercial and industrial and financial
institution clients in CIB and Wealth Management clients
globally in AWM, and
higher consumer loans driven by retention of originated
high-quality prime mortgages in CCB and AWM, and
growth in credit card loans. These were predominantly
offset by mortgage paydowns and loan sales, lower home
equity loans, run-off of PCI loans, and lower auto loans.
The allowance for loan losses decreased driven by:
• a reduction in the consumer allowance due to a $250
million reduction in the CCB allowance for loan losses in
the residential real estate PCI portfolio, reflecting
continued improvement in home prices and lower
delinquencies, as well as a $187 million reduction in the
allowance for write-offs of PCI loans partially due to loan
sales. These reductions were largely offset by a $300
million addition to the allowance in the credit card
portfolio, due to loan growth and higher loss rates, as
anticipated.
For a more detailed discussion of loans and the allowance
for loan losses, refer to Credit and Investment Risk
Management on pages 102-123, and Notes 2, 3, 12 and
13.
JPMorgan Chase & Co./2018 Form 10-K
Accrued interest and accounts receivable increased
primarily reflecting higher client receivables related to
client-driven activities in CIB.
Other assets increased reflecting higher auto operating
lease assets from growth in business volume in CCB and
higher alternative energy investments in CIB.
For information on Goodwill and MSRs, refer to Note 15.
Selected Consolidated balance sheets data
December 31, (in millions)
Liabilities
Deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Trading liabilities
$
1,470,666 $
1,443,982
2
69,276
51,802
34
144,773
123,663
17
196,710
182,320
Accounts payable and other liabilities
4
Management's discussion and analysis
49
110
JPMorgan Chase & Co./2018 Form 10-K
losses on hedges of accrual loans.
higher Lending-related revenue reflecting lower fair value
•
higher Equity-related revenue primarily in Prime
Services, and
20,241
Beneficial interests issued by consolidated variable interest entities ("VIES")
Long-term debt
2018
2017
•
15
158,916
4.4%
132.9%
5
1 On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.
Tangible book value over time captures the company's use of capital, balance sheet and profitability. In this chart, we are looking at
heritage Bank One shareholders and JPMorgan Chase & Co. shareholders. The chart shows the increase in tangible book value per share;
it is an after-tax number that assumes all dividends were retained vs. the Standard & Poor's 500 Index (S&P 500 Index), which is a
pretax number that includes reinvested dividends.
3.0%
209.0%
290.2%
9.2%
12.2%
499.2%
Stock total return analysis
(A) - (B)
S&P 500 Index
(B)
(A)
JPMorgan Chase & Co.
5.6%
477.5%
5.9%
210.8%
S&P Financials Index
11.5%
688.3%
Relative Results
JPMorgan Chase & Co.
Performance since becoming CEO of Bank One
(3/27/2000-12/31/2019)¹
S&P 500 Index
5.9%
210.8%
12.8%
988.2%
S&P Financials Index
S&P 500 Index
Bank One
Ten years
Five years
Compounded annual gain
One year
December 31, 2019
Performance for the period ended
Overall gain
Compounded annual gain
(7/1/2004-12/31/2019)
and JPMorgan Chase & Co. merger
Performance since the Bank One
Compounded annual gain
Overall gain
2
$110.72
15%
15% $14.4
17%
11%
$6.31
$15.4
13%
19%
15%
$6.19
$6.00
$17.9
$17.4
$19.0
$21.3
22%
24%
$21.7
$24.7 $24.4
$24.4
$9.00
$26.9
$10.72
Adjusted net income¹
$32.5
$36.4
($in billions, except per share and ratio data)
Earnings, Diluted Earnings per Share and Return on Tangible Common Equity
2004-2019
1
15%
10%
$5.19
$5.29
$113.80
High: $140.08
Low: $95.94
Tangible Book Value and Average Stock Price per Share
2004-2019
Adjusted net income, a non-GAAP financial measure, excludes $2.4 billion from net income in 2017 as a result of the enactment of the Tax Cuts and Jobs Act.
2019
2018
2017
2016
2015
2009 2010 2011 2012 2013 2014
Return on tangible common equity (ROTCE)
Diluted earnings per share
■Net income
2006 2007 2008
2005
(A) - (B)
2004
$5.6
$2.35
$8.5
$3.96
6%
$4.33
$4.00
$4.34
$4.48
$11.7
10%
12%
13%
13%
$2.26
Relative Results
(3/27/2000-12/31/2019)¹
Bank One
(A)
Facilitated nearly $50 billion in
clean financing in 2019
MIDDLE MARKET LENDER
TRADITIONAL
#1
CONSUMER BANK
#1
CLEAN FINANCING
~$50B
Named to Fortune magazine's
Most Admired Companies and
Change the World lists
BUSINESS
LEADERSHIP
C
Serving nearly 63 million U.S.
households, including 4 million small
businesses
U.S. HOUSEHOLDS
~63M
#1 primary bank in our
Consumer Bank footprint
$2 billion in financing for affordable
housing projects in 2019
$2B
Information about J.P. Morgan's capabilities can be found at jpmorgan.com and about
Chase's capabilities at chase.com. Information about JPMorgan Chase & Co. is available
at jpmorganchase.com.
JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets
of $2.7 trillion and operations worldwide. The firm is a leader in investment banking,
financial services for consumers and small businesses, commercial banking, financial
transaction processing and asset management. A component of the Dow Jones Industrial
Average, JPMorgan Chase & Co. serves millions of customers in the United States and
many of the world's most prominent corporate, institutional and government clients
under its J.P. Morgan and Chase brands.
(c) The ratios presented are calculated under the Basel III Fully Phased-In Approach. Refer to Capital Risk Management on pages 85-92
for additional information on these measures.
(a) TBVPS and ROTCE are each non-GAAP financial measures. Refer to Explanation and Reconciliation of the Firm's Use of Non-GAAP
Financial Measures and Key Financial Performance Measures on pages 57-59 for additional information on these measures.
(b) Refer to Liquidity Risk Management on pages 93-98 for additional information on this measure.
252,539
256,105
256,981
Headcount
3,275.8
3,084.0
Common shares at period-end
366,301
319,780
AFFORDABLE HOUSING
429,913
# 1 traditional Middle Market
Bookrunner in the U.S.
INVESTMENT BANK
Jamie Dimon,
Chairman and
Chief Executive Officer
1 Represents managed revenue.
2 Adjusted net income, a non-GAAP
financial measure, excludes
$2.4 billion from net income in
2017 as a result of the enactment
of the Tax Cuts and Jobs Act.
affecting our country. When the time is right and the future is clearer, I will
provide a more complete and current view on how this crisis might change
our strategies around how we run the company, work with our clients and
governments, and develop public policy solutions. However, right now, as we
deal with the spiraling effects of this pandemic, I want to focus on what we as
a bank can do to remain strong, resilient and well-positioned to support our
colleagues, clients, customers and communities across the globe.
Looking back on the last two decades - starting from my time as CEO of Bank
One in 2000 - the firm has weathered some unprecedented challenges, as we
will with this current pandemic, but they did not stop us from accomplishing
some extraordinary things. Once again, you should know how grateful and
proud I am of our more than 200,000 employees around the world. I also want
to thank Daniel Pinto, Gordon Smith, our Operating Committee, our Board of
Directors and our senior leaders for the exceptional leadership they have shown
under the most difficult of circumstances.
We entered this crisis in a position of strength. 2019 was another strong year
for JPMorgan Chase, with the firm generating record revenue and net income,
as well as setting numerous other records across our lines of business. We
earned $36.4 billion in net income on revenue of $118.7 billion, reflecting
strong underlying performance across our businesses. We now have delivered
record results in nine of the last 10 years² and are confident we will continue
to do so in the future, though it should be expected that our earnings will be
down meaningfully in 2020. Our largest businesses grew revenue and net
income for the year, while the firm continued to make significant investments
in products, people and technology. We grew core loans by 2%, increased
deposits overall by 5% and generally broadened market share across our
businesses, all while maintaining credit discipline and a fortress balance sheet.
In total, we extended credit and raised capital of $2.3 trillion for businesses,
institutional clients and U.S. customers.
3
Throughout our history, JPMorgan Chase has built its reputation on being
there for clients, customers and communities in the most critical times. This
unprecedented environment is no different. Our actions during this global crisis
are essential to keeping the global economy going and will be remembered for
years to come.
As we prepare this year's annual letter to shareholders, the world is confronting
one of the greatest health threats of a generation, one that profoundly
impacts the global economy and all of its citizens. Our thoughts remain with
the communities and individuals, including healthcare workers and first
responders, most deeply hit by the COVID-19 crisis.
Dear Fellow Shareholders,
90% of You Invest customers are
first-time investors with Chase
# 1 U.S. Private Bank
#1 U.S.
multifamily lender
#1
YOU INVEST
$
PRIVATE BANK
#1
DCD
MULTIFAMILY LENDER
#1
88% of long-term mutual fund
assets under management
ranked in the top two quartiles
over 10 years
volume and outstandings
#1 in total U.S. credit card sales
#1 globally in both investment
banking fees and Markets revenue
RANKED IN TOP TWO QUARTILES
88%
CREDIT CARD
#1
90%
S&P 500 Index
(B)
Market capitalization
$
$51.44
$35.49
$48.13
$44.60
$40.72
$38.68
$33.62
$30.12
$15.35 $16.45 $18.88 $52.96 $2252 52200
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Tangible book value
Average stock price
2017
2018 2019
$53.56
Adjusted
ROTCE¹ was
for 2017
JPMorgan Chase stock is owned by large institutions, pension plans, mutual
funds and directly by individual investors. However, it is important to remember
that in almost all cases, the ultimate beneficiaries are individuals in our
communities. Approximately 100 million people in the United States own
stock, and a large percentage of these individuals, in one way or another, own
JPMorgan Chase stock. Many of these people are veterans, teachers, police
officers, firefighters, retirees, or those saving for a home, school or retirement.
Your management team goes to work every day recognizing the enormous
responsibility that we have to perform for our shareholders.
While we don't run the company worrying about the stock price in the short
run, in the long run our stock price is a measure of the progress we have made
over the years. This progress is a function of continual investments, in good and
bad times, to build our capabilities - our people, systems and products. These
important investments drive the future prospects of our company and position
it to grow and prosper for decades. Whether looking back over five years, 10
years or since the JPMorgan Chase and Bank One merger (15 years ago), our
stock has significantly outperformed the Standard & Poor's 500 Index and the
Standard & Poor's Financials Index.
Bank One/JPMorgan Chase & Co. tangible book value per share performance vs. S&P 500 Index
Performance since becoming CEO of Bank One
In these annual letters, I usually cover a range of topics, including a review of
JPMorgan Chase's principles, priorities and performance, as well as the broader
geopolitical issues facing our company and the most critical public policy issues
Compounded annual gain
Overall gain
Performance since the Bank One
and JPMorgan Chase & Co. merger
(7/1/2004-12/31/2019)
Compounded annual gain
Overall gain
13.6%
106.94
$40.36 $39.36 $39.22
$39.83
97.62
$ 139.40
Closing share price
Market data
255,693
229,625
256,515
261,330
Total stockholders' equity
230,447
234,337
Common stockholders' equity
1,443,982
1,470,666
$36.07
1,562,431
2,533,600
2,622,532
2,687,379
Total assets
$ 930,697
$ 984,554
$ 959,769
$58.17
$51.88
$47.75
$60.98
$43.93
$56.33
$38.70
Deposits
3,425.3
$92.01
During this crisis, we have been utilizing our
disaster recovery sites and implementing
alternative work arrangements globally.
We now have more than 180,000 employees
working from home (and quite effectively),
including traders, bankers, portfolio managers,
Provision for credit losses
5,585
4,871
5,290
Net income
$
36,431
$
32,474
$
24,441
Per common share data
Net income per share:
Basic
41,190
$
$
9.04
$
6.35
Diluted
Book value
Tangible book value (TBVPS)(a)
Cash dividends declared
Selected ratios
Return on common equity
15%
13%
10%
Return on tangible common equity (ROTCE)(a)
10.75
19
45,635
Pre-provision profit
Loans
$63.83 $65.62
CHASE O
CHASE O
2019
ANNUAL REPORT
JPMORGAN CHASE&Co.
3
7J1-22
JPMorgan
7,22-31
JPMORGAN CHASE & Co.
Black
Pathways
Advancing
50,130
Black
Black
Pathw
Financial Highlights
As of or for the year ended December 31,
(in millions, except per share, ratio data and headcount)
Total net revenue
2019
2018
2017
Total noninterest expense
$ 115,627
65,497
$ 109,029
63,394
$ 100,705
59,515
Pathways
17
Selected income statement data
Liquidity coverage ratio (average) (b)
No matter the challenge, we manage our
company consistently with principles that
have stood the test of time. I have written
about these inviolable principles often - the
need for extremely talented and motivated
employees; a fortress balance sheet that
allows us to invest in good times and in bad
times; clear, comprehensive and accurate
financial, risk and operating reporting to
A corporation – essentially any institution
is a living, breathing organism made up
of
people, technology, institutional knowledge
and relationships and is generally organized
around mission and purpose. Entering into
a crisis is not the time to figure out what
you want to be. You must already be a
well-functioning organization prepared to
rapidly mobilize your resources, take your
losses and survive another day for the good
of all your stakeholders.
DEALING WITH AN EXTRAORDINARY CRISIS
7
7. We need to come together: My fervent hope for America.
6. We need a plan to get safely back to work.
5. We are working closely with all levels of government during this
crisis - and while we will participate in government programs to
address the severe economic challenges, we will not request any
regulatory relief for ourselves.
4. We are transparent with our shareholders: What they should expect
regarding our financial and operating performance in 2020.
3. We make extraordinary efforts to lift up our communities, especially
in challenging times.
2. We take excellent care of our employees.
1. We go to extraordinary lengths to help our customers - consumers,
small businesses, midsize companies, large corporations, and state
and local governments.
Dealing With an Extraordinary Crisis
Within this letter, I discuss the following:
Unlike past letters, the placement of charts about the performance of our lines
of business and our fortress balance sheet is different - they can be found in an
appendix following this letter to peruse at your leisure. Instead, I am going to
focus my comments in the rest of this letter on issues that relate to our current
crisis. And while I enjoy sharing my opinion on many other matters, I will avoid
doing so this year.
let us make quick and accurate decisions; a
devotion to our customers and communi-
ties; and continuous investing in technology
to better serve both our employees and our
customers. (These principles also underlie
an organization's preparedness for tough
competition - I was going to write this year
that the competition is back in all of its
facets. There'll be more to come on that next
year.)
The results shown above use our stock price as of December 31, 2019. If you
compare that with our stock price as of March 31, 2020, you would see a
dramatic change. For example, the overall stock price gain from the date of the
JPMorgan Chase and Bank One merger was 442% at the end of last year, but
it dropped to 252% three months later. While that's still far better than many
companies' performance, it illustrates the volatility of returns.
These charts show actual returns of the stock, with dividends reinvested, for heritage shareholders of Bank One and JPMorgan Chase & Co.
vs. the Standard & Poor's 500 Index (S&P 500 Index) and the Standard & Poor's Financials Index (S&P Financials Index).
12.2%
15.6%
11.1%
11.7%
20.5%
32.1%
31.5%
47.3%
4.1%
85.6%
9.2%
290.2%
441.9%
12
11.5%
1 On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.
We are there for our customers, employees
and communities in good and bad times
- we are a port in the storm. It is in the
toughest of times that we need to use our
capital and liquidity to help clients – large
and small. COVID-19 is one of those extraor-
dinary times. Below are some of the things
we are doing to help our company and our
customers during this global crisis.
13.6%
1. We go to extraordinary lengths to help our customers consumers, small businesses,
midsize companies, large corporations, and state and local governments.
15.5
16.0
Total capital ratio (c)
13.8
13.7
14.1
15.7
12.1
12.4
Common equity Tier 1 capital ratio (c)
119
-
113
116
12.0
10.72
Tier 1 capital ratio (c)
6.31
How else would we process $6 trillion in
payments or buy and sell approximately
$2 trillion in securities and foreign exchange
transactions for our clients on a daily basis?
And how else would we raise more than
$2 trillion of credit and capital for our
clients each year? Our branches, collectively,
have 1 million customer visits each day, and
our combined credit card and debit card
transaction volume totals $1.1 trillion a year.
9.00
First and foremost, we have to be prepared to
operate under extremely adverse circumstances.
The significant economic fallout from this
crisis reinforces the critical need to keep the
global financial system fully functioning -
and we recognize that our firm is an
important part of the global economy.
Therefore, we incorporate plans for resil-
ience in everything we do – resilience for
hurricanes, data center failures, cyber attacks
and other issues. And while we had not
envisioned the effects of a pandemic like
this one, all of this preparation has paid off
- and we have been able to accomplish far
more and far more quickly than we origi-
nally thought possible. It is absolutely
essential that we be up and functioning for
all of our customers each and every day.
Selected balance sheet data (period-end)
2.12
3.40
53.56
2.72
56.33
60.98
67.04
70.35
75.98
-
Change in qualifying allowance for credit losses
(662)
Change in Advanced Tier 2 capital
(36)
Advanced Tier 2 capital at December 31, 2019
Other
(587)
(39)
Standardized Total capital at December 31, 2019
18,342
Advanced Tier 2 capital at December 31, 2018
242,589
28,157
Standardized Tier 2 capital at December 31, 2019
(261)
17,680
(36)
Change in Standardized Tier 2 capital
Change in long-term debt and other instruments qualifying
as Tier 2
Advanced Total capital at December 31, 2019
Total RWA
$ 232,112
105,976 $
Other
926,647 $
$
1,528,916
105,863 $
$ 1,423,053 $
December 31, 2018
Market risk Operational risk
RWA
RWA
(a) Includes DVA related to structured notes recorded in AOCI.
Credit risk
RWA
Advanced
Standardized
Market risk
RWA
Credit risk
RWA
Year ended December 31, 2019
(in millions)
The following table presents changes in the components of RWA under Basel III Standardized and Advanced approaches for the
year ended December 31, 2019. The amounts in the rollforward categories are estimates, based on the predominant driver of
the change.
RWA rollforward
Management's discussion and analysis
89
JPMorgan Chase & Co./2019 Form 10-K
Total RWA
(186)
Other
(10,076)
18,342
232,112 $ 227,435
28,418
28,157
Standardized Tier 2 capital
Change in Standardized/Advanced Tier 1 capital
146
110
Net issuance of noncumulative perpetual preferred stock
Other
13,772
14,500
14,314
Standardized/Advanced Tier 1 capital at
Qualifying allowance for credit losses
qualifying as Tier 2 capital
Long-term debt and other instruments
Change in CET1 capital
209,093
214,432
Standardized/Advanced Tier 1 capital
December 31, 2018
Standardized/Advanced Tier 1 capital at
388,582 $
13,733
Change in qualifying allowance for credit losses
December 31, 2019
4,279
$
(a) Represents deferred tax liabilities related to tax-deductible goodwill
and to identifiable intangibles created in nontaxable transactions,
which are netted against goodwill and other intangibles when
calculating CET1 capital.
Advanced Total capital
17,680
Advanced Tier 2 capital
(10,477)
capital
(39)
Change in long-term debt and other instruments qualifying
as Tier 2
209,093
credit losses for Advanced Tier 2
28,418
Standardized Tier 2 capital at December 31, 2018
237,511
242,589
Standardized Total capital
214,432
5,339
135
925
Adjustment in qualifying allowance for
1,421,205
Asset & Wealth Management
(6,406)
10.5
10.5
449
46,618
47,031
2,730,239
Total adjusted average assets(a)
20.0
22.0
22.0
Commercial Banking
70.0
80.0
80.0
52.0 $ 51.0
52.0 $
$
Consumer & Community Banking
Corporate & Investment Bank
$ 214,432 $ 209,093
2,777,270 $ 2,636,505
Less: Adjustments for deductions
from Tier 1 capital
9.0
Off-balance sheet exposures (b)
Total leverage exposure
$
Preferred stock dividends declared were $1.6 billion for the
year ended December 31, 2019.
Preferred stock
Capital actions
The table below presents the Firm's assessed level of capital
allocated to each LOB as of the dates indicated.
The Firm's allocation methodology incorporates Basel III
Standardized RWA, Basel III Advanced RWA, leverage, the
GSIB surcharge, and a simulation of capital in a severe
stress environment. Periodically, the assumptions and
methodologies used to allocate capital are assessed and as
a result, the capital allocated to the LOBS may change. The
Firm will assess impacts from any regulatory changes to the
capital framework as changes are finalized.
Each business segment is allocated capital by taking into
consideration a variety of factors including capital levels of
similarly rated peers and applicable regulatory capital
requirements. ROE is measured and internal targets for
expected returns are established as key measures of a
business segment's performance.
Line of business equity
Refer to Note 27 for JPMorgan Chase Bank, N.A.'s SLR
ratios.
(b) Off-balance sheet exposures are calculated as the average of the three
month-end spot balances during the reporting quarter.
Total average assets
(a) Adjusted average assets, for purposes of calculating the SLR, includes
total quarterly average assets adjusted for on-balance sheet assets
that are subject to deduction from Tier 1 capital, predominantly
goodwill and other intangible assets.
6.4%
6.3%
SLR
Total common stockholders' equity $ 231.6 $ 234.3 $ 230.4
80.4
69.8
67.1
Corporate (a)
2,589,887
693,192
680,101
3,423,431 $ 3,269,988
(a) Includes the $2.7 billion (after-tax) impact to retained earnings upon
the adoption of CECL on January 1, 2020.
Tier 1 capital
2018
2019
17,167
Changes in RWA
41,190
696
(5,891)
46,385
23,592
(5,781)
29,373
(30,214)
Movement in portfolio levels(c)
(5,500)
(5,800)
(5,800)
Portfolio runoff(b)
(59,017)
(24,433)
(34,584)
(30,839)
(24,433)
(5,500)
Model & data changes (a)
December 31, 2019
75,649 $ 1,515,869
2020
(in billions)
December 31,
2018
December 31,
2019
(in millions, except ratio)
January 1,
December 31,
Line of business equity (Allocated capital)
The following table presents the components of the Firm's
SLR as of December 31, 2019 and 2018.
$ 1,440,220 $
Supplementary leverage ratio
75,652 $
$ 932,948 $
(23,327)
(30,324)
6,301
(13,047)
(b) Portfolio runoff for credit risk RWA primarily reflects reduced risk from position rolloffs in legacy portfolios in Home Lending.
(c) Movement in portfolio levels (inclusive of rule changes) refers to: changes in book size, composition, credit quality, and market movements for credit risk RWA;
changes in position and market movements for market risk RWA; and updates to cumulative losses for operational risk RWA.
(a) Model & data changes refer to material movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance (exclusive of rule
changes); and an update to the wholesale credit risk Advanced Approach parameters.
696
389,278 $
1,397,878
26,068
4.0%
Less: Other Tier 1 adjustments
Tier 1 capital
CET1 capital
Risk-based capital metrics:
(in millions)
Minimum
capital ratios
Advanced
Standardized
December 31, 2019
The following tables present the Firm's risk-based and leverage-based capital measures under both the Basel III Standardized
and Advanced approaches.
In addition to meeting the capital ratio requirements of
Basel III, the Firm and its IDI subsidiaries also must
maintain minimum capital and leverage ratios in order to be
"well-capitalized" under the regulations issued by the
Federal Reserve and the Prompt Corrective Action ("PCA")
requirements of the FDIC Improvement Act ("FDICIA”),
respectively. Refer to Note 27 for additional information.
Other regulatory capital
Failure to maintain an SLR ratio equal to or greater than the
regulatory minimum may result in limitations on the
amount of capital that the Firm may distribute such as
through dividends and common equity repurchases.
deducted for Tier 1 capital, and adding certain off-balance
sheet exposures, such as undrawn commitments and
derivatives potential future exposure.
Management's discussion and analysis
88
88
87
The SLR is defined as Tier 1 capital under Basel III divided
by the Firm's total leverage exposure. Total leverage
exposure is calculated by taking the Firm's total average on-
balance sheet assets, less amounts permitted to be
Supplementary leverage ratio
Total capital
$ 187,753 $ 187,753
214,432
242,589
Risk-weighted assets
232,112
209,093
183,474
$
183,474
209,093
214,432
$
capital ratios
Advanced (b)
The Federal Reserve's framework for setting the
countercyclical capital buffer takes into account the macro
financial environment in which large, internationally active
banks function. As of December 31, 2019, the U.S.
countercyclical capital buffer remained at 0%. The Federal
Reserve will continue to review the buffer at least annually.
The buffer can be increased if the Federal Reserve, FDIC and
OCC determine that systemic risks are meaningfully above
normal and can be calibrated up to an additional 2.5% of
RWA subject to a 12-month implementation period.
Failure to maintain regulatory capital equal to or in excess
of the risk-based regulatory capital minimum plus the
capital conservation buffer (inclusive of the GSIB surcharge)
and any countercyclical buffer may result in limitations to
the amount of capital that the Firm may distribute, such as
through dividends and common equity repurchases.
Leverage-based Capital Regulatory Minimums
Standardized (b)
December 31, 2018
SLR
Total leverage exposure
Tier 1 leverage ratio
Adjusted average assets (a)
Leverage-based capital metrics:
Total capital ratio
Tier 1 capital ratio
CET1 capital ratio
Minimum
The Firm's effective regulatory minimum GSIB surcharge
calculated under Method 2 remains unchanged at 3.5% for
2020.
(a) The GSIB surcharge was subject to transition provisions (in 25%
increments) through the end of 2018.
2.625%
4.50%
4.50%
2
4
2.50%
1.875%
6
2.625%
GSIB surcharge
Capital
conservation
buffer
8
Capital
conservation
buffer incl. GSIB
9.00%
10
10.50%
12
12/31/19
CET1: 12.4%
14
The following chart presents the Firm's Basel III minimum CET1 capital ratio during the Basel III transitional periods and on a
fully phased-in basis under the Basel III rules currently in effect.
Risk-based Capital Regulatory Minimums
3.50%
237,511
Minimum
requirement
2018
N/A
3.50%
3.50%
2.50%
2.50%
2018
2019
Transitional (a)
Method 1
Method 2
0
Fully Phased-In:
JPMorgan Chase & Co./2019 Form 10-K
interconnectedness, complexity and substitutability. The
second ("Method 2"), modifies the Method 1 requirements
to include a measure of short-term wholesale funding in
place of substitutability, and introduces a GSIB score
Under the Federal Reserve's GSIB rule, the Firm is required
to calculate its GSIB surcharge on an annual basis under two
separately prescribed methods, and is subject to the higher
of the two. The first ("Method 1"), reflects the GSIB
surcharge as prescribed by the Basel Committee's
assessment methodology, and is calculated across five
criteria: size, cross-jurisdictional activity,
As an expansion of the capital conservation buffer, the Firm
is also required to hold additional levels of capital in the
form of a global systemically important bank (“GSIB”)
surcharge and a countercyclical capital buffer.
2018.
All banking institutions are currently required to have a
minimum CET1 capital ratio of 4.5% of risk-weighted
assets. Certain banking organizations, including the Firm,
are also required to hold additional amounts of capital to
serve as a "capital conservation buffer". The capital
conservation buffer is intended to be used to absorb losses
in times of financial or economic stress. The capital
conservation buffer was subject to a phase-in period that
began January 1, 2016 and continued through the end of
Additional information regarding the Firm's capital ratios, as
well as the U.S. federal regulatory capital standards to
which the Firm is subject, is presented in Note 27. Refer to
the Firm's Pillar 3 Regulatory Capital Disclosures reports,
which are available on the Firm's website, for further
information on the Firm's Basel III measures.
The Firm's Basel III Standardized-risk-based ratios are
currently more binding than the Basel III Advanced-risk-
based ratios, and the Firm expects that this will remain the
case for the foreseeable future.
2019
"multiplication factor". The following table presents the
Firm's GSIB surcharge.
26,993
314
227,435
1,397,878
Other intangible assets
(640)
Changes in additional paid-in capital
47,471
47,823
Goodwill
Less:
(22,555)
Net purchase of treasury stock
230,447
234,337
(10,897)
34,844
2019
Year Ended December 31, (in millions)
Standardized/Advanced CET1 capital at December 31, 2018 $183,474
Net income applicable to common equity
Dividends declared on common stock
December 31, December 31,
2019
2018
261,330 $ 256,515
26,068
26,993
$
Common stockholders' equity
819
748
Changes related to AOCI
2,904
Preferred stock
187,753
December 31, 2019
Standardized/Advanced CET1 capital at
183,474
187,753
Standardized/Advanced CET1 capital
4,279
Change in Standardized/Advanced CET1 capital
Less: Preferred stock
2,280
Certain deferred tax liabilities(a)
(480)
Changes related to other CET1 capital adjustments
Add:
1,103
Adjustment related to DVA (a)
1,034
323
Other CET1 capital adjustments
2,381
Total stockholders' equity
(in millions)
The following table presents the changes in Basel III CET1
capital, Tier 1 capital and Tier 2 capital for the year ended
December 31, 2019.
12.5
16.0
15.5
14.0
16.6
16.0
10.5
14.7
13.7
$ 2,730,239
12.0
14.1
9.0%
12.9%
12.0%
10.5%
13.4%
12.4%
1,421,205
1,528,916
15.3
1,515,869
$ 2,730,239
$ 2,589,887
Capital rollforward
The following table presents reconciliations of total
stockholders' equity to Basel III CET1 capital, Tier 1 capital
and Total capital as of December 31, 2019 and 2018.
Capital components
JPMorgan Chase & Co./2019 Form 10-K
The Firm believes that it will operate with a Basel III CET1 capital ratio between 11.5% and 12% over the medium term.
(c) Represents minimum SLR requirement of 3.0%, as well as supplementary leverage buffer of 2.0%.
(b) The Firm's capital ratios as of December 31, 2018 were equivalent whether calculated on a transitional or fully phased-in basis.
(a) Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for on-balance sheet assets
that are subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets.
5.0% (c)
$ 2,589,887
6.4%
4.0%
8.1%
8.1%
NA
ΝΑ
5.0% (c)
6.3%
$ 3,423,431
During the year ended December 31, 2019 and through the
date of filing of the 2019 Form 10-K, the Firm issued and
redeemed several series of non-cumulative preferred stock.
Refer to Note 21 for additional information on the Firm's
preferred stock, including issuances and redemptions.
7.9%
7.9%
ΝΑ
NA
$ 3,269,988
Common stock dividends
9.5
On September 17, 2019, the Firm announced that its Board
of Directors had declared a quarterly common stock
dividend of $0.90 per share, an increase from $0.80 per
share, effective with the dividend paid on October 31,
2019. The Firm's dividends are subject to the Board of
Directors' approval on a quarterly basis.
Management's discussion and analysis
95
JPMorgan Chase & Co./2019 Form 10-K
The increase in CIB reflects growth in operating deposits
driven by client activity, primarily in Treasury Services, and
an increase in client-driven net issuances of structured notes
in Markets. The increase in CCB was driven by continued
growth in new accounts. The increases in AWM and CB were
primarily driven by growth in interest-bearing deposits; for
AWM, the growth was partially offset by migration,
predominantly into the Firm's investment-related products.
Refer to the discussion of the Firm's Business Segment
Results and the Consolidated Balance Sheets Analysis on
pages 60-78 and pages 52-53, respectively, for further
information on deposit and liability balance trends.
Average deposits across the Firm increased for the year
ended December 31, 2019.
The Firm believes that average deposit balances are
generally more representative of deposit trends than period-
end deposit balances.
1,562,431 $ 1,470,666 $ 1,523,067 $ 1,456,461
$
67%
61%
62%
984.6
959.8
64%
1,470.7
$
1,562.4
2018
2019
Loans-to-deposits ratio
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2019 and 2018,
and average balances for the years ended December 31, 2019 and 2018. Refer to the Consolidated Balance Sheets Analysis on
pages 52-53 and Note 20 for additional information.
Sources of funds (excluding deposits)
As of or for the year ended December 31,
(in millions)
2019
Average
Common stockholders' equity(f)
Preferred stock (f)
Total long-term secured funding
Other long-term secured funding (e)
FHLB advances
Credit card securitization(c)
Total long-term unsecured funding
Loans
Structured notes (d)
Trust preferred securities
Senior notes
Total short-term secured funding
Obligations of Firm-administered multi-seller conduits(c)
Other borrowed funds (b)
Securities sold under agreements to repurchase (a)
Securities loaned (a)
Total short-term unsecured funding
Other borrowed funds
Commercial paper
Subordinated debt
Deposits as a % of total liabilities
Deposits
(in billions except ratios)
2019
2018
2019
Average
Total Firm
Corporate
Asset & Wealth Management
Commercial Banking
Corporate & Investment Bank
2018
Consumer & Community Banking
As of or for the year ended December 31,
The table below summarizes, by LOB, the period-end and average deposit balances as of and for the years ended December 31,
2019 and 2018.
borrowings, through the issuance of unsecured long-term
debt, or from borrowings from the Parent company or the
IHC. The Firm's non-bank subsidiaries are primarily funded
from long-term unsecured borrowings and short-term
secured borrowings, primarily securities loaned or sold under
repurchase agreements. Excess funding is invested by
Treasury and CIO in the Firm's investment securities portfolio
or deployed in cash or other short-term liquid investments
based on their interest rate and liquidity risk characteristics.
Deposits
The Firm funds its global balance sheet through diverse
sources of funding including stable deposits, secured and
unsecured funding in the capital markets and stockholders'
equity. Deposits are the primary funding source for JPMorgan
Chase Bank, N.A. Additionally, JPMorgan Chase Bank, N.A.
may also access funding through short- or long-term secured
Management believes that the Firm's unsecured and secured
funding capacity is sufficient to meet its on- and off-balance
sheet obligations.
Sources of funds
Funding
JPMorgan Chase & Co./2019 Form 10-K
(in millions)
2018
$
678,854 $
As of December 31,
Deposits provide a stable source of funding and reduce the
Firm's reliance on the wholesale funding markets. A
significant portion of the Firm's deposits are consumer
deposits and wholesale operating deposits, which are both
considered to be stable sources of liquidity. Wholesale
operating deposits are considered to be stable sources of
liquidity because they are generated from customers that
maintain operating service relationships with the Firm.
The table below shows the loan and deposit balances, the
loans-to-deposits ratios, and deposits as a percentage of
total liabilities, as of December 31, 2019 and 2018.
729
820
323
253
137,272
140,118
138,546
718,416 $
147,804
172,666
170,859
184,115
477,250
515,913
482,084
511,843
670,388
693,550 $
170,822
94
2019
$
$
4,842
4,643
5,010
4,363
52,121
34,143
44,455
28,635
15,900
9,707 $
13,404 $
6,461 $
$
219,451
251,420 $
$
232,566
258,500 $
39,459 $ 62,869 $
48,493 $
72,863
$
JPMorgan Chase & Co./2019 Form 10-K
46
96
Long-term funding provides additional sources of stable
funding and liquidity for the Firm. The Firm's long-term
funding plan is driven primarily by expected client activity,
liquidity considerations, and regulatory requirements,
including TLAC. Long-term funding objectives include
maintaining diversification, maximizing market access and
optimizing funding costs. The Firm evaluates various
funding markets, tenors and currencies in creating its
optimal long-term funding plan.
The Firm's sources of short-term unsecured funding
primarily consist of issuance of wholesale commercial
paper. The decrease in commercial paper at December 31,
2019, from December 31, 2018, was due to lower net
issuance primarily for short-term liquidity management.
Long-term funding and issuance
The balances associated with securities loaned or sold
under agreements to repurchase fluctuate over time due to
customers' investment and financing activities, the Firm's
demand for financing, the ongoing management of the mix
of the Firm's liabilities, including its secured and unsecured
financing (for both the investment securities and market-
making portfolios), and other market and portfolio factors.
The Firm's sources of short-term secured funding primarily
consist of securities loaned or sold under agreements to
repurchase. These instruments are secured predominantly
by high-quality securities collateral, including government-
issued debt, U.S. GSE and government agency MBS.
Securities loaned or sold under agreements to repurchase
were relatively flat at December 31, 2019, compared with
December 31, 2018, as the net increase from the Firm's
participation in the Federal Reserve's open market
operations was offset by client-driven activities, and lower
secured financing of trading assets-debt instruments, all in
CIB.
Short-term funding
(f) Refer to Capital Risk Management on pages 85-92, Consolidated statements of changes in stockholders' equity on page 149, and Note 21 and Note 22 for additional
information on preferred stock and common stockholders' equity.
$
(e) Includes long-term structured notes which are secured.
(c) Included in beneficial interests issued by consolidated variable interest entities on the Firm's Consolidated balance sheets.
(a) Primarily consists of short-term securities loaned or sold under agreements to repurchase.
(b) There were no FHLB advances with original maturities of less than one year as of December 31, 2019. As of December 31, 2018, includes FHLB advances with
original maturities of less than one year of $11.4 billion.
229,222
232,907 $
$
26,249
27,511 $
26,993 $ 26,068 $
234,337 $ 230,447
$
(d) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
49,640
65,487
53,090
8,816
9,481
5,983
177,629
217,807 $
171,975 $
175,709 $
$
39,203
10,692
33,346 $
22,298 $
$
11,369
10,369
8,789
7,544
22,977 $ 27,834
30,059 $
14,754 $
38,848 $
2018
18,622
26,050
74,724
16,178
17,387
16,743
17,591
471
153,162
168,546 $
162,733 $
30,428
166,185 $
216,037
263,602 $
$
3,396
10,929
4,843
9,223
209,537 $ 216,727
$
24,320
$
The Firm's common stock dividends are planned as part of
the Capital Management governance framework in line with
the Firm's capital management objectives.
94
(b) Predominantly U.S. Treasuries, U.S. GSE and government agency MBS,
and sovereign bonds net of applicable haircuts under the LCR rule.
(c) HQLA eligible securities may be reported in securities borrowed or
purchased under resale agreements, trading assets, or investment
securities on the Firm's Consolidated balance sheets.
Surplus/(shortfall)
4.5
4.7%
11.3%
% of total leverage exposure
Minimum requirement
17.8
$
37.7
$
9.5
23.0
Minimum requirement
Surplus/(shortfall)
10.7%
25.5%
386.4 $
$
Eligible
external TLAC
Eligible LTD
161.8
(in billions, except ratio)
Total eligible TLAC & LTD
% of RWA
$
61.2 $
7.8
Refer to Part I, Item 1A: Risk Factors on pages 6-28 of the
2019 Form 10-K for information on the financial
consequences to holders of the Firm's debt and equity
securities in a resolution scenario.
The following table presents J.P. Morgan Securities plc's
capital metrics:
The Bank of England requires, on a transitional basis, that
U.K. banks, including U.K. regulated subsidiaries of overseas
groups, maintain a minimum requirement for own funds
and eligible liabilities ("MREL”). As of December 31, 2019,
J.P. Morgan Securities plc was compliant with the
requirements of the MREL rule.
J.P. Morgan Securities plc is a wholly-owned subsidiary of
JPMorgan Chase Bank, N.A. and has authority to engage in
banking, investment banking and broker-dealer activities.
J.P. Morgan Securities plc is jointly regulated by the U.K.
Prudential Regulation Authority ("PRA") and the Financial
Conduct Authority ("FCA"). J.P. Morgan Securities plc is
subject to the European Union Capital Requirements
Regulation and the PRA capital rules, each of which
implemented Basel III and thereby subject J.P. Morgan
Securities plc to its requirements.
J.P. Morgan Securities plc
In addition to its alternative minimum net capital
requirements, J.P. Morgan Securities is required to hold
"tentative net capital" in excess of $1.0 billion and is also
required to notify the SEC in the event that its tentative net
capital is less than $5.0 billion. Tentative net capital is net
capital before deducting market and credit risk charges as
defined by the Net Capital Rule. As of December 31, 2019,
J.P. Morgan Securities maintained tentative net capital in
excess of the minimum and notification requirements.
Minimum
3,751
$ 21,050 $
Actual
Net Capital
December 31, 2019
(in millions)
The following table presents J.P. Morgan Securities' net
capital:
J.P. Morgan Securities has elected to compute its minimum
net capital requirements in accordance with the "Alternative
Net Capital Requirements" of the Net Capital Rule.
JPMorgan Chase's principal U.S. broker-dealer subsidiary is
J.P. Morgan Securities. J.P. Morgan Securities is subject to
Rule 15c3-1 under the Securities Exchange Act of 1934
(the "Net Capital Rule"). J.P. Morgan Securities is also
registered as a futures commission merchant and subject to
the Rules of the Commodity Futures Trading Commission
("CFTC").
J.P. Morgan Securities
Broker-dealer regulatory capital
Management's discussion and analysis
93
91
JPMorgan Chase & Co./2019 Form 10-K
December 31, 2019
The following table presents the eligible external TLAC and
LTD amounts, as well as a representation of the amounts as
a percentage of the Firm's total RWA and total leverage
exposure.
Failure to maintain TLAC equal to or in excess of the
regulatory minimum plus applicable buffers may result in
limitations to the amount of capital that the Firm may
distribute, such as through dividends and common equity
repurchases.
(a) RWA is the greater of Standardized and Advanced.
Greater
of
applicable
buffers, including
Method 1 GSIB
surcharge
+
18% of RWA (a)
The following table sets forth the Firm's repurchases of
common equity for the years ended December 31, 2019,
2018 and 2017.
The Firm's Board of Directors has authorized the repurchase
of up to $29.4 billion of gross common equity between July
1, 2019 and June 30, 2020 as part of the Firm's annual
capital plan. As of December 31, 2019, $15.6 billion of
authorized repurchase capacity remained under this
common equity repurchase program.
Minimum external TLAC
The minimum external TLAC and the minimum level of
eligible long-term debt requirements are shown below:
Common equity
7.5%
of total
leverage
exposure
33%
31%
2017
2018
2019
Year ended December 31,
Common dividend payout ratio
The following table shows the common dividend payout
ratio based on net income applicable to common equity.
JPMorgan Chase & Co./2019 Form 10-K
90
Refer to Note 21 and Note 26 for information regarding
dividend restrictions.
30%
December 31, 2019
+
2.0% buffer
Effective January 1, 2019, the Federal Reserve's TLAC rule
requires the U.S. GSIB top-tier holding companies, including
JPMorgan Chase & Co., to maintain minimum levels of
external TLAC and eligible long-term debt ("eligible LTD”).
Total Loss-Absorbing Capacity ("TLAC”)
Other capital requirements
Refer to Part II, Item 5: Market for Registrant's Common
Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities on page 30 of the 2019 Form 10-K for
additional information regarding repurchases of the Firm's
equity securities.
The Firm from time to time enters into written trading plans
under Rule 10b5-1 of the Securities Exchange Act of 1934
to facilitate repurchases in accordance with the common
equity repurchase program. A Rule 10b5-1 repurchase plan
allows the Firm to repurchase its equity during periods
when it may otherwise not be repurchasing common equity
- for example, during internal trading blackout periods.
The authorization to repurchase common equity is utilized
at management's discretion, and the timing of purchases
and the exact amount of common equity that may be
repurchased is subject to various factors, including market
conditions; legal and regulatory considerations affecting the
amount and timing of repurchase activity; the Firm's capital
position (taking into account goodwill and intangibles);
internal capital generation; and alternative investment
opportunities. The repurchase program does not include
specific price targets or timetables; may be executed
through open market purchases or privately negotiated
transactions, or utilizing Rule 10b5-1 plans; and may be
suspended by management at any time.
$ 24,121 $ 19,983 $ 15,410
Aggregate purchase price of common
stock repurchases
surcharge
4.5%
of total
leverage
exposure
Minimum level of eligible
long-term debt
Greater
of
+
166.6
181.5
213.0
6% of RWA (a)
2017
2018
2019
Year ended December 31, (in millions)
Total number of shares of common
stock repurchased
Greater of Method 1
and Method 2 GSIB
(d) Excludes average excess HQLA at JPMorgan Chase Bank, N.A. that are
not transferable to non-bank affiliates.
(in millions, except ratios)
Total capital
CET1 ratio
Total capital ratio
$
The Firm's average LCR increased during the three months
ended December 31, 2019, compared with both the three-
month periods ended September 30, 2019 and December
31, 2018, due to an increase HQLA from unsecured long-
term debt issuances. Additionally, liquidity in JPMorgan
Chase Bank, N.A. increased during the fourth quarter and
from the prior year period primarily due to growth in stable
deposits. This increase in excess liquidity is excluded from
the Firm's reported LCR under the LCR rule.
December 31,
2018
Three months ended
September
30, 2019
December 31,
2019
Average amount
(in millions)
The following table summarizes the Firm's average LCR for
the three months ended December 31, 2019, September
30, 2019 and December 31, 2018 based on the Firm's
interpretation of the finalized LCR framework.
Estimated net cash outflows are based on standardized
stress outflow and inflow rates prescribed in the LCR rule,
which are applied to the balances of the Firm's assets,
sources of funds, and obligations. The LCR is required to be
a minimum of 100%.
Under the LCR rule, the amount of HQLA held by JPMorgan
Chase Bank, N.A. that is in excess of its stand-alone 100%
minimum LCR requirement, and that is not transferable to
non-bank affiliates, must be excluded from the Firm's
reported HQLA.
The LCR rule requires that the Firm maintain an amount of
unencumbered High Quality Liquid Assets (“HQLA") that is
sufficient to meet its estimated total net cash outflows over
a prospective 30 calendar-day period of significant stress.
HQLA is the amount of liquid assets that qualify for
inclusion in the LCR. HQLA primarily consist of
unencumbered cash and certain high-quality liquid
securities as defined in the LCR rule.
Liquidity Coverage Ratio
The Firm's contingency funding plan ("CFP"), which is
approved by the firmwide ALCO and the Board Risk
Committee, is a compilation of procedures and action plans
for managing liquidity through stress events. The CFP
incorporates the limits and indicators set by the Liquidity
Risk Oversight group. These limits and indicators are
reviewed regularly to identify emerging risks or
vulnerabilities in the Firm's liquidity position. The CFP
identifies the alternative contingent funding and liquidity
resources available to the Firm and its legal entities in a
period of stress.
Contingency funding plan
liquidity requirements, and to manage through periods of
stress when access to normal funding sources may be
disrupted.
Management's discussion and analysis
93
JPMorgan Chase & Co./2019 Form 10-K
Results of stress tests are considered in the formulation of
the Firm's funding plan and assessment of its liquidity
position. The Parent Company acts as a source of funding
for the Firm through equity and long-term debt issuances,
and its intermediate holding company, JPMorgan Chase
Holdings LLC (the "IHC") provides funding support to the
ongoing operations of the Parent Company and its
subsidiaries. The Firm maintains liquidity at the Parent
Company, IHC, and operating subsidiaries at levels sufficient
to comply with liquidity risk tolerances and minimum
Liquidity outflow assumptions are modeled across a range
of time horizons and currency dimensions and contemplate
both market and idiosyncratic stresses.
Potential impediments to the availability and
transferability of liquidity between jurisdictions and
material legal entities such as regulatory, legal or other
restrictions.
The Firm's average LCR fluctuates from period to period,
due to changes in its HQLA and estimated net cash outflows
as a result of ongoing business activity. Refer to the Firm's
U.S. LCR Disclosure reports, which are available on the
Firm's website for a further discussion of the Firm's LCR.
Other liquidity sources
In addition to the assets reported in the Firm's HQLA above,
the Firm had unencumbered marketable securities, such as
equity securities and fixed income debt securities, that the
Firm believes would be available to raise liquidity of
approximately $315 billion and $226 billion as of
December 31, 2019 and 2018, respectively. This includes
securities included as part of the excess liquidity at
JPMorgan Chase Bank, N.A. that are not transferable to non-
bank affiliates, as described above. The amount of such
securities increased from the prior year.
The Firm also had available borrowing capacity at FHLBS
and the discount window at the Federal Reserve Bank as a
result of collateral pledged by the Firm to such banks of
approximately $322 billion and $276 billion as of
December 31, 2019 and 2018, respectively. This borrowing
capacity excludes the benefit of cash and securities
reported in the Firm's HQLA or other unencumbered
securities that are currently pledged at the Federal Reserve
Bank discount window and other central banks. Available
borrowing capacity increased from the prior year primarily
as a result of an increase in collateral available to be
pledged as a result of the merger of Chase Bank USA, N.A.
with and into JPMorgan Chase Bank, N.A., and an increase
in available collateral as a result of maturities of borrowings
from FHLBS. Although available, the Firm does not view this
borrowing capacity at the Federal Reserve Bank discount
window and the other central banks as a primary source of
liquidity.
$
(a) Represents cash on deposit at central banks, primarily the Federal
Reserve Banks.
61,566
113%
115%
75,884 $ 69,009 $
$
(d)
Net excess HQLA
116%
467,704
Estimated non-contractual and contingent cash outflows,
and
$ 469,402 $ 468,452 $
529,270
545,286 $ 537,461 $
232,201
337,704
297,069
$ 203,296 $ 199,757
341,990
Eligible securities (b)(c)
Total HQLA(d)
Eligible cash (a)
HQLA
Net cash outflows
LCR
Varying levels of access to unsecured and secured
funding markets,
Liquidity stress tests are intended to ensure that the Firm
has sufficient liquidity under a variety of adverse scenarios,
including scenarios analyzed as part of the Firm's resolution
and recovery planning. Stress scenarios are produced for
JPMorgan Chase & Co. ("Parent Company") and the Firm's
material legal entities on a regular basis, and other stress
tests are performed in response to specific market events or
concerns. Liquidity stress tests assume all of the Firm's
contractual financial obligations are met and take into
consideration:
Internal stress testing
Developing a process to classify, monitor and report
limit breaches;
Defining, monitoring and reporting liquidity risk metrics;
Establishing and monitoring limits and indicators,
including Liquidity Risk Appetite;
•
•
•
.
•
•
The Firm has a liquidity risk oversight function whose
primary objective is to provide independent assessment,
measurement, monitoring, and control of liquidity risk
across the Firm. Liquidity Risk Oversight's responsibilities
include:
Performing an independent review of liquidity risk
management processes;
Liquidity risk oversight
LIQUIDITY RISK MANAGEMENT
JPMorgan Chase & Co./2019 Form 10-K
12
92
8.0%
21.3%
4.5%
16.5%
52,983
Liquidity risk is the risk that the Firm will be unable to meet
its contractual and contingent financial obligations as they
arise or that it does not have the appropriate amount,
composition and tenor of funding and liquidity to support
its assets and liabilities.
Estimated Minimum ratios
Monitoring and reporting internal firmwide and legal
entity liquidity stress tests as well as regulatory defined
liquidity stress tests;
Monitoring liquidity positions, balance sheet variances
and funding activities;
Committees responsible for liquidity governance include the
firmwide ALCO as well as LOB and regional ALCOS, the
Treasurer Committee, and the CTC Risk Committee. In
addition, the Board Risk Committee reviews and
recommends to the Board of Directors, for formal approval,
the Firm's liquidity risk tolerances, liquidity strategy, and
liquidity policy. Refer to Firmwide Risk Management on
pages 79-83 for further discussion of ALCO and other risk-
related committees.
Setting transfer pricing in accordance with underlying
liquidity characteristics of balance sheet assets and
liabilities as well as certain off-balance sheet items.
Governance
Managing compliance with regulatory requirements
related to funding and liquidity risk; and
Managing liquidity within the Firm's approved liquidity
risk appetite tolerances and limits;
Defining and monitoring firmwide and legal entity-
specific liquidity strategies, policies, reporting and
contingency funding plans;
Developing internal liquidity stress testing assumptions;
Analyzing and understanding the liquidity characteristics
of the assets and liabilities of the Firm, LOBS and legal
entities, taking into account legal, regulatory, and
operational restrictions;
.
In the context of the Firm's liquidity management, Treasury
and CIO is responsible for:
Approving or escalating for review new or updated
liquidity stress assumptions; and
Maintain the appropriate amount of surplus liquidity at
a firmwide and legal entity level, where relevant.
Monitor exposures;
Optimize liquidity sources and uses;
•
As part of the Firm's overall liquidity management strategy,
the Firm manages liquidity and funding using a centralized,
global approach in order to:
Manage an optimal funding mix and availability of
liquidity sources.
Ensure that the Firm's core businesses and material legal
entities are able to operate in support of client needs
and meet contractual and contingent financial
obligations through normal economic cycles as well as
during stress events, and
•
Treasury and CIO is responsible for liquidity management.
The primary objectives of effective liquidity management
are to:
Liquidity management
Identify constraints on the transfer of liquidity between
the Firm's legal entities; and
NA
3,461
373,637
Total consumer, excluding credit card loans
335,040
373,732
3,142
3,461
412
2
E3E33 3 3 3
ΝΑ
ΝΑ
NA
ΝΑ
3 3 3 3 3
ΝΑ
ΝΑ
95
3,002
Loans held-for-sale
ΝΑ
7,281
8,436
NA
Total loans-PCI
20,363
24,034
ΝΑ
3 3 3 3 3
ΝΑ
Total loans retained
332,038
3,140
3,461
412
NA
1,945
ΝΑ
ΝΑ
Total consumer exposure, excluding credit card
386,452
419,952
Credit Card
Loans retained(e)
Loans held-for-sale
154
Total credit card loans
Total credit card exposure
Total consumer credit portfolio
Memo: Total consumer credit portfolio, excluding PCI
168,924
156,616
-- 4,848
Lending-related commitments(d)
Receivables from customers
46,066
51,412
ΝΑ
NA
ΝΑ
ΝΑ
NA
183
0.12
0.05
ΝΑ
NA
ΝΑ
183
0.12
0.05
Lending-related commitments (d)
ΝΑ
4,518
1,740
4,690
Loans, excluding PCI loans and loans held-for-sale
Residential mortgage
$
199,037 $
231,078 $ 1,618 $ 1,765
$
2018
(44) $ (291)
Home equity
Auto(a)(b)
23,917
28,340
1,162
1,323
(0.02)% (0.13)%
Net charge-off/
(recovery) rate(h)(i)
2019
2018
2019
JPMorgan Chase & Co./2019 Form 10-K
103
Management's discussion and analysis
The following table presents consumer credit-related information with respect to the credit portfolio held by CCB, scored prime
mortgage and scored home equity loans held by AWM, and scored prime mortgage loans held by Corporate. Refer to Note 12 for
further information about the Firm's nonaccrual and charge-off accounting policies.
Consumer credit portfolio
As of or for the year ended December 31,
(in millions, except ratios)
Consumer, excluding credit card
Credit exposure
Nonaccrual loans (f)(g)
Net charge-offs/
(recoveries)(h)
2019
2018
2019
2018
(46)
NA
(5)
(0.02)
3,140
412
183
0.13
0.05
Loans - PCI
349,603
Home equity
8,963
ΝΑ
Prime mortgage
Subprime mortgage
Option ARMS
3,965
7,377
311,675
Total loans, excluding PCI loans and loans held-for-sale
0.90
61,522
63,573
113
128
206
0.33
0.38
Consumer & Business Banking (b)(c)
27,199
26,612
247
245
296
236
1.11
(0.18)
3.10
3.10
16
31.8 $
30.1 $
30.0
(a) Includes the original nonaccretable difference established in purchase accounting of $30.5 billion for principal losses plus additional principal losses
recognized subsequent to acquisition through the provision and allowance for loan losses. The remaining nonaccretable difference for principal losses was
$466 million and $512 million at December 31, 2019 and 2018, respectively.
(b) Represents both realization of loss upon loan resolution and any principal forgiven upon modification.
Refer to Note 12 for further information on the Firm's PCI loans, including write-offs.
Geographic composition of residential real estate loans
31.7 $
At December 31, 2019, $142.7 billion, or 64% of the total
retained residential real estate loan portfolio, excluding
mortgage loans insured by U.S. government agencies and
PCI loans, were concentrated California, New York,
Illinois, Texas and Florida, compared with $160.3 billion, or
63%, at December 31, 2018. Refer to Note 12 for
additional information on the geographic composition of the
Firm's residential real estate loans.
Average current estimated loan-to-value ("LTV") ratios have
declined consistent with recent improvements in home
prices, customer pay-downs, and charge-offs or liquidations
of higher LTV loans. Refer to Note 12 for further
information on current estimated LTVS of residential real
estate loans.
Modified residential real estate loans
The following table presents information as of
December 31, 2019 and 2018, relating to modified
retained residential real estate loans for which concessions
have been granted to borrowers experiencing financial
difficulty. Refer to Note 12 for further information on
modifications for the years ended December 31, 2019 and
2018.
December 31,
(in millions)
Total modified
2019
Current estimated loan-to-values of residential real
estate loans
$
9.9
10.0
13.9 $
14.1
$
13.0 $
13.0
4.1
4.1
3.9
3.9
3.4
3.3
3.2
3.2
10.3
10.3
2018
$
Retained
loans
Retained
loans
1,869
ΝΑ 2,041
ΝΑ
Option ARMS
5,692
ΝΑ 6,410
NA $13,716
Subprime mortgage
ΝΑ
Total modified PCI loans $12,372
(a) Amounts represent the carrying value of modified residential real
estate loans.
(b) At December 31, 2019 and 2018, $14 million and $4.1 billion,
respectively, of loans modified subsequent to repurchase from Ginnie
Mae in accordance with the standards of the appropriate government
agency (i.e., Federal Housing Administration ("FHA"), U.S. Department
of Veterans Affairs ("VA"), Rural Housing Service of the U.S.
Department of Agriculture ("RHS")) are not included in the table
above. When such loans perform subsequent to modification in
accordance with Ginnie Mae guidelines, they are generally sold back
into Ginnie Mae loan pools. Modified loans that do not re-perform
become subject to foreclosure. Refer to Note 14 for additional
information about sales of loans in securitization transactions with
Ginnie Mae.
(c) Amounts represent the unpaid principal balance of modified PCI loans.
(d) As of December 31, 2019 and 2018, nonaccrual loans included $1.9
billion and $2.0 billion, respectively, of troubled debt restructurings
("TDRS") for which the borrowers were less than 90 days past due.
Refer to Note 12 for additional information about loans modified in a
TDR that are on nonaccrual status.
106
JPMorgan Chase & Co./2019 Form 10-K
ΝΑ
ΝΑ
3,179
ΝΑ
Nonaccrual
retained
loans (d)
Modified residential
real estate loans,
excluding PCI loans (a)(b)
Residential mortgage
Home equity
$ 4,005 $
1,921
1,367 $ 4,565 $ 1,459
965 2,058
963
residential real estate
loans, excluding PCI
loans
$ 5,926 $
2,332 $ 6,623 $ 2,422
Modified PCI loans (c)
Home equity
$ 1,986
NA $ 2,086
ΝΑ
Prime mortgage
2,825
Nonaccrual
retained
loans (d)
2018
2019
2018
0.95 %
(a) At December 31, 2019 and 2018, excluded operating lease assets of $22.8 billion and $20.5 billion, respectively. These operating lease assets are included
in other assets on the Firm's Consolidated balance sheets. Refer to Note 18 for further information.
(b) Includes certain business banking and auto dealer risk-rated loans for which the wholesale methodology is applied for determining the allowance for loan
losses; these loans are managed by CCB, and therefore, for consistency in presentation, are included within the consumer portfolio.
(c) Predominantly includes Business Banking loans.
(d) Credit card and home equity lending-related commitments represent the total available lines of credit for these products. The Firm has not experienced, and
does not anticipate, that all available lines of credit would be used at the same time. For credit card commitments, and if certain conditions are met, home
equity commitments, the Firm can reduce or cancel these lines of credit by providing the borrower notice or, in some cases as permitted by law, without
notice. Refer to Note 28 for further information.
(e) Includes billed interest and fees net of an allowance for uncollectible interest and fees.
1.09 %
(f) At December 31, 2019 and 2018, nonaccrual loans excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $961
million and $2.6 billion, respectively. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In addition, the
Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status, as permitted by regulatory guidance issued by the FFIEC.
(g) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI loans as each of the pools is performing.
(i) Average consumer loans held-for-sale were $2.9 billion and $387 million for the years ended December 31, 2019 and 2018, respectively. These amounts
were excluded when calculating net charge-off/(recovery) rates.
104
JPMorgan Chase & Co./2019 Form 10-K
Consumer, excluding credit card
Portfolio analysis
Loan balances decreased from December 31, 2018 due to
lower residential real estate loans, predominantly driven by
loan sales.
(h) Net charge-offs/(recoveries) and net charge-off/(recovery) rates excluded write-offs in the PCI portfolio of $151 million and $187 million for the years
ended December 31, 2019 and 2018, respectively. These write-offs decreased the allowance for loan losses for PCI loans. Refer to Allowance for Credit
Losses on pages 116-117 for further information.
0.90 %
1.04 %
$
168,924
156,632
NA
4,848
ΝΑ
ΝΑ
NA
4,518
3.10
3.10
650,720
605,379
819,644
762,011
$
$
1,206,096 $ 1,181,963 $ 3,142 $ 3,461
5,260 $ 4,701
1,185,733 $ 1,157,929 $ 3,142 $ 3,461 $ 5,260 $ 4,701
The following discussions provide information concerning
individual loan products, excluding PCI loans which are
addressed separately. Refer to Note 12 for further
information about this portfolio, including information
about delinquencies, loan modifications and other credit
quality indicators.
Residential mortgage: The residential mortgage portfolio,
including loans held-for-sale, predominantly consists of
prime mortgage loans. The portfolio decreased from
December 31, 2018 driven by paydowns as well as loan
sales in Home Lending, largely offset by originations of
prime mortgage loans that have been retained on the
balance sheet. Net recoveries for the year ended
December 31, 2019 were lower when compared with the
prior year as the prior year benefited from larger recoveries
on loan sales.
At December 31, 2019 and 2018, the Firm's residential
mortgage portfolio included $22.4 billion and $21.6 billion,
respectively, of interest-only loans. These loans have an
interest-only payment period generally followed by an
adjustable-rate or fixed-rate fully amortizing payment
period to maturity and are typically originated as higher-
balance loans to higher-income borrowers, predominantly
in AWM. Performance of this portfolio for the year ended
December 31, 2019 was consistent with the performance of
the broader residential mortgage portfolio for the same
period.
At December 31, 2019, approximately 90% of the Firm's
home equity portfolio consists of home equity lines of credit
JPMorgan Chase & Co./2019 Form 10-K
105
Management's discussion and analysis
The following table provides a summary of lifetime principal loss estimates included in either the nonaccretable difference or
the allowance for loan losses.
Summary of PCI loans lifetime principal loss estimates
December 31, (in billions)
Home equity
Prime mortgage
Subprime mortgage
Option ARMS
Total
Lifetime loss estimates(a)
Life-to-date liquidation losses (b)
2019
Home equity: The home equity portfolio declined from
December 31, 2018 primarily reflecting paydowns.
The Firm's retained consumer portfolio consists primarily of
residential real estate loans, credit card loans, auto loans,
and business banking loans, as well as associated lending-
related commitments. The Firm's focus is on serving
primarily the prime segment of the consumer credit market.
Originated mortgage loans are retained in the mortgage
portfolio, securitized or sold to U.S. government agencies
and U.S. government-sponsored enterprises; other types of
consumer loans are typically retained on the balance sheet.
The credit performance of the consumer portfolio continues
to benefit from discipline in credit underwriting as well as
improvement in the economy driven by low unemployment
and increasing home prices. Refer to Note 12 for further
information on the consumer loan portfolio. Refer to Note 28
for further information on lending-related commitments.
Consumer & Business Banking: Consumer & Business
Banking loans increased when compared with
December 31, 2018 as loan originations were
predominantly offset by paydowns and charge-offs of
delinquent loans. Net charge-offs for the year ended
December 31, 2019 increased when compared with the
prior year primarily due to higher deposit overdraft losses.
Purchased credit-impaired loans: PCI loans represent
certain loans that were acquired and deemed to be credit-
impaired on the acquisition date. PCI loans decreased from
December 31, 2018 due to portfolio run-off. As of
December 31, 2019, approximately 9% of the option ARM
PCI loans were delinquent and approximately 71% of the
portfolio has been modified into fixed-rate, fully amortizing
loans. The borrowers for substantially all of the remaining
option ARM loans are making amortizing payments,
although such payments are not necessarily fully
amortizing. This latter group of loans is subject to the risk of
payment shock due to future payment recast. Default rates
generally increase on option ARM loans when payment
recast results in a payment increase. The expected increase
in default rates is considered in the Firm's quarterly
impairment assessment.
The carrying value of HELOCS outstanding was $22 billion at
December 31, 2019. This amount included $10 billion of
HELOCS that have recast from interest-only to fully
amortizing payments or have been modified and $3 billion
of interest-only balloon HELOCS, which primarily mature
after 2030. The Firm manages the risk of HELOCS during
their revolving period by closing or reducing the undrawn
line to the extent permitted by law when borrowers are
exhibiting a material deterioration in their credit risk
profile.
The following table provides a summary of the Firm's
residential mortgage portfolio insured and/or guaranteed
by U.S. government agencies, including loans held-for-sale.
The Firm monitors its exposure to certain potential
unrecoverable claim payments related to government
insured loans and considers this exposure in estimating the
allowance for loan losses.
(in millions)
Current
$
1,280 $
30-89 days past due
695
90 or more days past due
961
December 31, December 31,
2019
2018
2,884
1,528
2,600
Total government guaranteed loans
$
2,936 $
7,012
("HELOCS") and the remainder consisted of home equity
loans ("HELOANS"). HELOANS are generally fixed-rate,
closed-end, amortizing loans, with terms ranging from 3-30
years. In general, HELOCS originated by the Firm are
revolving loans for a 10-year period, after which time the
HELOC recasts into a loan with a 20-year amortization
period.
Auto: The auto portfolio predominantly consists of prime-
quality loans. The portfolio declined when compared with
December 31, 2018, as paydowns and charge-offs or
liquidation of delinquent loans were predominantly offset
by new originations.
CONSUMER CREDIT PORTFOLIO
243
(e) At December 31, 2019 and 2018, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $961 million and $2.6 billion, respectively,
and real estate owned ("REO") insured by U.S. government agencies of
$41 million and $75 million, respectively. These amounts have been
excluded based upon the government guarantee. In addition, the
Firm's policy is generally to exempt credit card loans from being placed
on nonaccrual status as permitted by regulatory guidance issued by
the Federal Financial Institutions Examination Council ("FFIEC").
issuer
issuer
Outlook
issuer
issuer
Outlook
December 31, 2019
issuer
Outlook
Moody's Investors Service
Standard & Poor's
JPMorgan Chase & Co./2019 Form 10-K
P-1
Stable
Aa2
Short-term
issuer
Long-term
Short-term
Long-term
289
34,698
The Firm's wholesale businesses also securitize loans for client-driven transactions; those client-driven loan securitizations are
not considered to be a source of funding for the Firm and are not included in the table above. Refer to Note 14 for further
description of the client-driven loan securitizations.
JPMorgan Chase & Co./2019 Form 10-K
97
Management's discussion and analysis
Credit ratings
The cost and availability of financing are influenced by
credit ratings. Reductions in these ratings could have an
adverse effect on the Firm's access to liquidity sources,
increase the cost of funds, trigger additional collateral or
funding requirements and decrease the number of investors
and counterparties willing to lend to the Firm. The nature
and magnitude of the impact of ratings downgrades
depends on numerous contractual and behavioral factors,
which the Firm believes are incorporated in its liquidity risk
and stress testing metrics. The Firm believes that it
maintains sufficient liquidity to withstand a potential
decrease in funding capacity due to ratings downgrades.
Additionally, the Firm's funding requirements for VIES and
other third-party commitments may be adversely affected
by a decline in credit ratings.
The credit ratings of the Parent Company and the Firm's principal bank and non-bank subsidiaries as of December 31, 2019,
were as follows.
JPMorgan Chase & Co.
JPMorgan Chase Bank, N.A. (a)
J.P. Morgan Securities LLC
J.P. Morgan Securities plc
Long-term Short-term
P-1
9,250
25,159
Stable
P-1
Critical factors in maintaining high credit ratings include a
stable and diverse earnings stream, strong capital and
liquidity ratios, strong credit quality and risk management
controls, and diverse funding sources. Rating agencies
continue to evaluate economic and geopolitical trends,
regulatory developments, future profitability, risk
management practices, and litigation matters, as well as
their broader ratings methodologies. Changes in any of
these factors could lead to changes in the Firm's credit
ratings.
98
JPMorgan Chase & Co./2019 Form 10-K
REPUTATION RISK MANAGEMENT
Reputation risk is the risk that an action or inaction may
negatively impact the Firm's integrity and reduce
confidence in the Firm's competence held by various
constituents, including clients, counterparties, customers,
investors, regulators, employees, communities or the
broader public.
JPMorgan Chase's unsecured debt does not contain
requirements that would call for an acceleration of
payments, maturities or changes in the structure of the
existing debt, provide any limitations on future borrowings
or require additional collateral, based on unfavorable
changes in the Firm's credit ratings, financial ratios,
earnings, or stock price.
Organization and management
The Firm's reputation risk management function includes
the following activities:
Establishing a Firmwide Reputation Risk Governance
policy and standards consistent with the reputation risk
framework
Managing the governance infrastructure and processes
that support consistent identification, escalation,
management and monitoring of reputation risk issues
Firmwide
Providing guidance to LOB Reputation Risk Offices
("RRO"), as appropriate
The types of events that give rise to reputation risk are
broad and could be introduced in various ways, including by
the Firm's employees and the clients, customers and
counterparties with which the Firm does business. These
events could result in financial losses, litigation and
regulatory fines, as well as other damages to the Firm.
Governance and oversight
Reputation Risk Management is an independent risk
management function that establishes the governance
framework for managing reputation risk across the Firm. As
reputation risk is inherently difficult to identify, manage,
and quantify, an independent reputation risk management
governance function is critical.
(a) On May 18, 2019, Chase Bank USA, N.A. merged with and into JPMorgan Chase Bank, N.A., with JPMorgan Chase Bank, N.A. as the surviving bank. The
credit rating for JPMorgan Chase Bank, N.A. reflects the credit rating of the merged entity.
Stable
F1+
Stable
Fitch Ratings
A-
AA-
A-2
F1+
Stable
Stable
A+
A-1
Stable
A+
A-1
Stable
AA
F1+
Stable
AA
Aa3
6,975 $
15,817
927
23,719 $
10,773 $
204 $
9,562
19,867
23,502
Structured notes (a)
5,844
2,444
1,750 $
1,750
33,563
25,410
Total long-term unsecured funding - issuance
$
25,711 $
25,946 $
35,313 $
9,562
22,000 $
1,502
5,867
14,000 $
The significant majority of the Firm's long-term unsecured funding is issued by the Parent Company to provide flexibility in
support of both bank and non-bank subsidiary funding needs. The Parent Company advances substantially all net funding
proceeds to its subsidiary, the IHC. The IHC does not issue debt to external counterparties. The following table summarizes
long-term unsecured issuance and maturities or redemptions for the years ended December 31, 2019 and 2018. Refer to Note
20 for additional information on long-term debt.
Long-term unsecured funding
Year ended December 31,
(Notional in millions)
Issuance
Senior notes issued in the U.S. market
Senior notes issued in non-U.S. markets
Total senior notes
2019
2018
2019
2018
Parent Company
Subsidiaries
$
34,972
Maturities/redemptions
Senior notes
$
FHLB advances
Other long-term secured funding (a)
Total long-term secured funding
(a) Includes long-term structured notes which are secured.
Issuance
Maturities/Redemptions
2019
2018
2019
2018
$
$
204
1,396 $
9,000
377
$
Credit card securitization
The Firm's Reputation Risk Governance policy establishes
the principles for managing reputation risk for the Firm. It is
the responsibility of employees in each LOB and Corporate
to consider the reputation of the Firm when deciding
whether to offer a new product, engage in a transaction or
client relationship, enter a new jurisdiction, initiate a
business process or other matters. Increasingly,
sustainability, social responsibility and environmental
impacts are important considerations in assessing the
Firm's reputation risk, and are considered as part of
reputation risk governance.
(in millions)
Long-term secured funding
Subordinated debt
Structured notes
18,098 $
183
2,944
Total long-term unsecured funding - maturities/redemptions
$
19,141
136
2,678
21,225 $ 21,955 $
$
5,367 $
4,466
19,271
15,049
24,638 $
19,515
(a) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
The Firm can also raise secured long-term funding through securitization of consumer credit card loans and advances from the
FHLBS. The following table summarizes the securitization issuance and FHLB advances and their respective maturities or
redemptions for the years ended December 31, 2019 and 2018.
Year ended December 31,
Reputation risk issues deemed material are escalated as
appropriate.
A2
99
299
Lending-related
commitments
1,106,247
1,039,258
474
469
387
$ 2,149,488 $ 2,108,242 $
5,659
Total credit portfolio
Credit derivatives used
in credit portfolio
management
activities (b)
102
$
(18,030) $
4,971 $
NA
ΝΑ
Total assets acquired in
loan satisfactions
1,043,241
1,068,984
4,110
4,891
customers and other(a)
Total credit-related
assets
Assets acquired in loan
satisfactions
Real estate owned
Other
NA
NA
344
269
NA
ΝΑ
43
30
(12,682) $
30,217
- $
other cash collateral
residential real estate PCI loans
919,702
909,386
Net charge-off rates
Loans
Loans - excluding PCI
Loans reported, excluding
0.60%
0.61
0.53
(a) Receivables from customers and other primarily represents brokerage-
related held-for-investment customer receivables.
(b) Represents the net notional amount of protection purchased and sold
through credit derivatives used to manage both performing and
nonperforming wholesale credit exposures; these derivatives do not
qualify for hedge accounting under U.S. GAAP. Refer to Credit
derivatives on page 115 and Note 5 for additional information.
(c) Includes collateral related to derivative instruments where appropriate
legal opinions have not been either sought or obtained with respect to
master netting agreements.
(d) Excludes PCI loans. The Firm is recognizing interest income on each
pool of PCI loans as each of the pools is performing.
0.52%
936,829
941,919
Loans
held against
derivatives(c)
Year ended December 31,
JPMorgan Chase & Co./2019 Form 10-K
(15,322)
ΝΑ
NA
(in millions, except ratios)
2019
2018
Net charge-offs
$
5,629 $
4,856
Average retained loans
Liquid securities and
33,706
(16,009)
60
100
JPMorgan Chase & Co./2019 Form 10-K
Risk monitoring and management
The Firm has developed policies and practices that are
designed to preserve the independence and integrity of the
approval and decision-making process of extending credit to
ensure credit risks are assessed accurately, approved
properly, monitored regularly and managed actively at both
the transaction and portfolio levels. The policy framework
establishes credit approval authorities, concentration limits,
risk-rating methodologies, portfolio review parameters and
guidelines for management of distressed exposures. In
addition, certain models, assumptions and inputs used in
evaluating and monitoring credit risk are independently
validated by groups that are separate from the LOBS.
Consumer credit risk is monitored for delinquency and other
trends, including any concentrations at the portfolio level,
as certain of these trends can be modified through changes
in underwriting policies and portfolio guidelines. Consumer
Risk Management evaluates delinquency and other trends
against business expectations, current and forecasted
economic conditions, and industry benchmarks. Historical
and forecasted economic performance and trends are
incorporated into the modeling of estimated consumer
credit losses and are part of the monitoring of the credit
risk profile of the portfolio.
Wholesale credit risk is monitored regularly at an aggregate
portfolio, industry, and individual client and counterparty
level with established concentration limits that are reviewed
and revised periodically as deemed appropriate by
management. Industry and counterparty limits, as
measured in terms of exposure and economic risk appetite,
are subject to stress-based loss constraints. In addition,
wrong-way risk, that is the risk that exposure to a
counterparty is positively correlated with the impact of a
default by the same counterparty, which could cause
exposure to increase at the same time as the counterparty's
capacity to meet its obligations is decreasing - is actively
monitored as this risk could result in greater exposure at
default compared with a transaction with another
counterparty that does not have this risk.
Management of the Firm's wholesale credit risk exposure is
accomplished through a number of means, including:
⚫ Loan underwriting and credit approval process
• Loan syndications and participations
•
Loan sales and securitizations
Credit derivatives
• Master netting agreements
© Collateral and other risk-reduction techniques
In addition to Credit Risk Management, an independent
Credit Review function is responsible for:
Stress testing is important in measuring and managing
credit risk in the Firm's credit portfolio. The process
assesses the potential impact of alternative economic and
business scenarios on estimated credit losses for the Firm.
Economic scenarios and the underlying parameters are
defined centrally, articulated in terms of macroeconomic
factors and applied across the businesses. The stress test
results may indicate credit migration, changes in
delinquency trends and potential losses in the credit
portfolio. In addition to the periodic stress testing
processes, management also considers additional stresses
outside these scenarios, including industry and country-
specific stress scenarios, as necessary. The Firm uses stress
testing to inform decisions on setting risk appetite both at a
Firm and LOB level, as well as to assess the impact of stress
on individual counterparties.
Independently validating or changing the risk grades
assigned to exposures in the Firm's wholesale and
commercial-oriented retail credit portfolios, and
assessing the timeliness of risk grade changes initiated by
responsible business units; and
Stress testing
The Credit Risk Management function monitors, measures,
manages and limits credit risk across the Firm's businesses.
To measure credit risk, the Firm employs several
methodologies for estimating the likelihood of obligor or
counterparty default. Methodologies for measuring credit
risk vary depending on several factors, including type of
asset (e.g., consumer versus wholesale), risk measurement
parameters (e.g., delinquency status and borrower's credit
score versus wholesale risk-rating) and risk management
and collection processes (e.g., retail collection center versus
centrally managed workout groups). Credit risk
measurement is based on the probability of default of an
obligor or counterparty, the loss severity given a default
event and the exposure at default.
Receivables from
Management's discussion and analysis
CREDIT AND INVESTMENT RISK MANAGEMENT
Credit and investment risk is the risk associated with the
default or change in credit profile of a client, counterparty
or customer; or loss of principal or a reduction in expected
returns on investments, including consumer credit risk,
wholesale credit risk, and investment portfolio risk.
Credit risk management
Credit risk is the risk associated with the default or change
in credit profile of a client, counterparty or customer. The
Firm provides credit to a variety of customers, ranging from
large corporate and institutional clients to individual
consumers and small businesses. In its consumer
businesses, the Firm is exposed to credit risk primarily
through its home lending, credit card, auto, and business
banking businesses. In its wholesale businesses, the Firm is
exposed to credit risk through its underwriting, lending,
market-making, and hedging activities with and for clients
and counterparties, as well as through its operating services
activities (such as cash management and clearing
activities), securities financing activities, investment
securities portfolio, and cash placed with banks.
Credit Risk Management is an independent risk
management function that monitors, measures and
manages credit risk throughout the Firm and defines credit
risk policies and procedures. The Firm's credit risk
•
•
•
•
management governance includes the following activities:
Establishing a credit risk policy framework
Monitoring, measuring and managing credit risk across all
portfolio segments, including transaction and exposure
approval
Setting industry and geographic concentration limits, as
appropriate, and establishing underwriting guidelines
Assigning and managing credit authorities in connection
with the approval of credit exposure
Managing criticized exposures and delinquent loans
Estimating credit losses and ensuring appropriate credit
risk-based capital management
Risk identification and measurement
In addition, potential and unexpected credit losses are
reflected in the allocation of credit risk capital and
represent the potential volatility of actual losses relative to
the established allowances for loan losses and lending-
related commitments. The analyses for these losses include
stress testing that considers alternative economic scenarios
as described in the Stress testing section below.
Evaluating the effectiveness of business units' credit
management processes, including the adequacy of credit
analyses and risk grading/LGD rationales, proper
monitoring and management of credit exposures, and
compliance with applicable grading policies and
underwriting guidelines.
Based on these factors and the methodology and estimates
described in Note 13, the Firm estimates credit losses for its
exposures. The allowance for loan losses reflects credit
losses related to the consumer and wholesale held-for-
investment loan portfolios, and the allowance for lending-
related commitments reflects credit losses related to the
Firm's lending-related commitments. Refer to Note 13 and
Critical Accounting Estimates used by the Firm on pages
136-138 for further information.
Risk reporting
945,601 $ 969,415 $
11,988
3,983 $ 4,611
7
7,104
90
220
7,064
959,769
4,080
4,831
49,766
54,213
Refer to Note 12 for further discussion of consumer and
wholesale loans.
30
984,554
Loans held-for-sale
Loans at fair value
Total loans reported
Derivative receivables
3,151
2018
JPMorgan Chase & Co./2019 Form 10-K
$
101
Management's discussion and analysis
CREDIT PORTFOLIO
Total credit portfolio
December 31,
(in millions)
Loans retained
Credit risk is the risk associated with the default or change
in credit profile of a client, counterparty or customer.
In the following tables, reported loans include loans
retained (i.e., held-for-investment); loans held-for-sale; and
certain loans accounted for at fair value. The following
tables do not include loans which the Firm accounts for at
fair value and classifies as trading assets; refer to Notes 2
and 3 for further information regarding these loans. Refer
to Notes 12, 28, and 5 for additional information on the
Firm's loans, lending-related commitments and derivative
receivables, including the Firm's accounting policies.
Refer to Note 10 for information regarding the credit risk
inherent in the Firm's investment securities portfolio; and
refer to Note 11 for information regarding credit risk
inherent in the securities financing portfolio. Refer to
Consumer Credit Portfolio on pages 103-107 and Note 12
for a further discussion of the consumer credit environment
and consumer loans. Refer to Wholesale Credit Portfolio on
pages 108-115 and Note 12 for a further discussion of the
wholesale credit environment and wholesale loans.
Credit exposure
Nonperforming (d)(e)
2019
2018
2019
To enable monitoring of credit risk and effective decision-
making, aggregate credit exposure, credit quality forecasts,
concentration levels and risk profile changes are reported
regularly to senior members of Credit Risk Management.
Detailed portfolio reporting of industry, clients,
counterparties and customers, product and geography are
prepared, and the appropriateness of the allowance for
credit losses is reviewed by senior management at least on
a quarterly basis. Through the risk reporting and
governance structure, credit risk trends and limit exceptions
are provided regularly to, and discussed with, risk
committees, senior management and the Board of Directors
as appropriate.
130
538,466
1,430
Assets acquired in loan
satisfactions
Real estate owned
539,277
ΝΑ
ΝΑ
968
Total assets acquired in
Other
ΝΑ
ΝΑ
19
ΝΑ
Total wholesale credit-
related assets
loan satisfactions
ΝΑ
73
30,063
5
60
2018
149
2019
$444,639 $439,162 $ 843 $1,150
Loans held-for-sale
4,062 11,877
Loans at fair value
7,104
3,151
90
220
455,805
454,190
938
1,370
Derivative receivables
Receivables from
customers and other (a)
49,766
54,213
30
33,706
73
Investment-
grade
commitments
(in millions, except ratios)
Loans retained
Derivative receivables
Less: Liquid securities and other cash collateral
held against derivatives
Maturity profile(d)
Due in 1
year or less
Due after
1 year
through
5 years
Due after 5
years
Total
Ratings profile
Noninvestment
-grade
Total
Total %
of IG
$ 128,430 $ 209,397 $ 106,812 $ 444,639
$ 344,199
$
100,440
Nonperforming
$ 444,639
December 31, 2019
Lending-related
Wholesale credit exposure - maturity and ratings profile
JPMorgan Chase & Co./2019 Form 10-K
404,115 387,813
474
469
Total wholesale credit
portfolio
$943,392 $926,279 $ 1,591 $ 1,972
Credit derivatives used
in credit portfolio
management activities (b) $ (18,030) $ (12,682) $
$
Liquid securities and
other cash collateral
held against derivatives
(16,009)
(15,322)
ΝΑ
ΝΑ
(a) Receivables from customers and other include $33.7 billion and $30.1
billion of brokerage-related held-for-investment customer receivables
at December 31, 2019 and 2018, respectively, to clients in CIB and
AWM; these are classified in accrued interest and accounts receivable
on the Consolidated balance sheets.
(b) Represents the net notional amount of protection purchased and sold
through credit derivatives used to manage both performing and
nonperforming wholesale credit exposures; these derivatives do not
qualify for hedge accounting under U.S. GAAP. Refer to Credit
derivatives on page 115 and Note 5 for additional information.
108
The following tables present the maturity and internal risk ratings profiles of the wholesale credit portfolio as of
December 31, 2019 and 2018. The Firm considers internal ratings equivalent to BBB-/Baa3 or higher as investment grade.
Refer to Note 12 for further information on internal risk ratings.
2018
(15,322)
Loans - reported
2,210
2,799
360
373
Reductions:
3,142
3,461
Principal payments and other(a)
$ 3,088
Additions
Real estate owned (c)
Other
Charge-offs
Returned to performing status
214
196
Foreclosures and other liquidations
24
Assets acquired in loan satisfactions
$ 2,782
4,209
3,461 $
77%
Nonperforming assets
The following table presents information as of
December 31, 2019 and 2018, about consumer, excluding
credit card, nonperforming assets.
Nonperforming assets (a)
December 31, (in millions)
Nonaccrual loans(b)
Residential real estate
Other consumer
Total nonaccrual loans
Nonaccrual loans: The following table presents changes in
the consumer, excluding credit card, nonaccrual loans for
the years ended December 31, 2019 and 2018.
Nonaccrual loan activity
Year ended December 31,
2019
2018
(in millions)
2019
2018
Beginning balance
$
30
Total reductions
Total assets acquired in loan satisfactions
238
(b) Excludes PCI loans, which are accounted for on a pool basis. Since each
pool is accounted for as a single asset with a single composite interest
rate and an aggregate expectation of cash flows, the past-due status of
the pools, or that of individual loans within the pools, is not
meaningful. The Firm is recognizing interest income on each pool of
loans as each of the pools is performing.
(c) The prior period amount has been revised to conform with the current
period presentation.
(a) Other reductions includes loan sales.
Active and suspended foreclosure: Refer to Note 12 for
information on loans that were in the process of active or
suspended foreclosure.
Credit card
Total credit card loans increased from December 31, 2018
due to higher sales volume from existing customers and
new account growth. Net charge-offs increased for the year
ended December 31, 2019 when compared with the prior
year, due to loan growth, in line with expectations.
Consistent with the Firm's policy, all credit card loans
typically remain on accrual status until charged off.
However, the Firm establishes an allowance, which is offset
against loans and reduces interest income, for the
estimated uncollectible portion of accrued and billed
interest and fee income. Refer to Note 12 for further
information about this portfolio, including information
about delinquencies.
Geographic and FICO composition of credit card loans
At December 31, 2019, $77.5 billion, or 46% of the total
retained credit card loan portfolio, was concentrated in
California, Texas, New York, Florida and Illinois, compared
with $71.2 billion, or 45%, at December 31, 2018. Refer to
Note 12 for additional information on the geographic and
FICO composition of the Firm's credit card loans.
Modifications of credit card loans
At December 31, 2019 and 2018, the Firm had $1.5 billion
and $1.3 billion, respectively, of credit card loans
outstanding that have been modified in TDRs. Refer to Note
12 for additional information about loan modification
programs for borrowers.
JPMorgan Chase & Co./2019 Form 10-K
107
Management's discussion and analysis
WHOLESALE CREDIT PORTFOLIO
In its wholesale businesses, the Firm is exposed to credit
risk primarily through its underwriting, lending, market-
making, and hedging activities with and for clients and
counterparties, as well as through various operating
services (such as cash management and clearing activities),
securities financing activities and cash placed with banks. A
portion of the loans originated or acquired by the Firm's
wholesale businesses is generally retained on the balance
sheet. The Firm distributes a significant percentage of the
loans that it originates into the market as part of its
syndicated loan business and to manage portfolio
concentrations and credit risk.
The credit performance of the wholesale portfolio remained
favorable for the year ended December 31, 2019,
characterized by continued low levels of criticized exposure,
nonaccrual loans and charge-offs. Refer to the industry
discussion on pages 109-111 for further information.
Loans held-for-sale decreased, driven by a loan syndication
in CIB. The wholesale portfolio is actively managed, in part
by conducting ongoing, in-depth reviews of client credit
quality and transaction structure inclusive of collateral
where applicable, and of industry, product and client
concentrations.
In the following tables, the Firm's wholesale credit portfolio
includes exposure held in CIB, CB, AWM and Corporate. It
excludes all exposure managed by CCB, scored prime
mortgage and scored home equity loans held in AWM and
scored prime mortgage loans held in Corporate.
Wholesale credit portfolio
December 31,
(in millions)
Loans retained
(a) At December 31, 2019 and 2018, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $961 million and $2.6 billion, respectively,
and real estate owned ("REO") insured by U.S. government agencies of
$41 million and $75 million, respectively. These amounts have been
excluded based upon the government guarantee.
Credit exposure
2019
3,461
$
226
Net changes
Total nonperforming assets
$ 3,380
$
3,687
Ending balance
1,026
1,407
421
468
834
1,399
248
273
2,529
3,547
(319)
(748)
3,142 $
49,766
49,766
(16,009)
Subtotal
$
881,188 $ 673,617 $ 195,442 $ 10,450 $
1,679 $
1,096 $
(1,581)
155 $ (12,682) $
JPMorgan Chase & Co./2019 Form 10-K
116
• a $251 million addition in the wholesale allowance for
credit losses driven by select client downgrades.
Refer to Consumer Credit Portfolio on pages 103-107,
Wholesale Credit Portfolio on pages 108-115 and Note 12
for additional information on the consumer and wholesale
credit portfolios.
2
• a $500 million addition to the allowance for loan losses in
the credit card portfolio reflecting loan growth and
higher loss rates as newer vintages season and become a
larger part of the portfolio, and
• an $800 million reduction in the CCB allowance for loan
losses, which included $650 million in the PCI residential
real estate portfolio, reflecting continued improvement in
home prices and delinquencies; $100 million in the non
credit-impaired residential real estate portfolio; and $50
million in the business banking portfolio; as well as
The allowance for credit losses decreased compared with
December 31, 2018 driven by:
portfolio.
At least quarterly, the allowance for credit losses is
reviewed by the CRO, the CFO and the Controller of the
Firm. As of December 31, 2019, JPMorgan Chase deemed
the allowance for credit losses to be appropriate and
sufficient to absorb probable credit losses inherent in the
Refer to Critical Accounting Estimates Used by the Firm on
pages 136-138 and Note 13 for further information on the
components of the allowance for credit losses and related
management judgments.
The Firm's allowance for credit losses covers the retained
consumer and wholesale loan portfolios, as well as the
Firm's wholesale and certain consumer lending-related
commitments.
ALLOWANCE FOR CREDIT LOSSES
Management's discussion and analysis
115
• a $151 million reduction for write-offs of PCI loans,
predominantly offset by
JPMorgan Chase & Co./2019 Form 10-K
2
12
9,777
2,830
32
(36)
(2,080)
Securities Firms
Financial Markets Infrastructure
All other(d)
4,558
2
3,099
(158)
(823)
7,484
6,746
738
(26)
68,284
64,664
3,606
1,459
12,639
The effectiveness of credit default swaps ("CDS") as a hedge
against the Firm's exposures may vary depending on a
number of factors, including the named reference entity
(i.e., the Firm may experience losses on specific exposures
that are different than the named reference entities in the
purchased CDS); the contractual terms of the CDS (which
may have a defined credit event that does not align with an
actual loss realized by the Firm); and the maturity of the
Firm's CDS protection (which in some cases may be shorter
than the Firm's exposures). However, the Firm generally
seeks to purchase credit protection with a maturity date
that is the same or similar to the maturity date of the
exposure for which the protection was purchased, and
remaining differences in maturity are actively monitored
and managed by the Firm. Refer to Credit derivatives in
Note 5 for a detailed description of credit derivatives.
(a) Amounts are presented net, considering the Firm's net protection
purchased or sold with respect to each underlying reference entity or
index.
6,373
18
6,225
32
12,536
39
13,148
19
31%
16
11,831
7,428
5,471
% of exposure net
of all collateral
Exposure net of
all collateral
25% $
8,347
$
% of exposure net
of all collateral
all collateral
Exposure net of
2018
16
The credit derivatives used in credit portfolio management
activities do not qualify for hedge accounting under U.S.
GAAP; these derivatives are reported at fair value, with
gains and losses recognized in principal transactions
revenue. In contrast, the loans and lending-related
commitments being risk-managed are accounted for on an
accrual basis. This asymmetry in accounting treatment,
between loans and lending-related commitments and the
credit derivatives used in credit portfolio management
activities, causes earnings volatility that is not
representative, in the Firm's view, of the true changes in
value of the Firm's overall credit exposure.
566
723
18,030 $ 12,682
$
2,047 $ 1,272
15,983
11,410
Notional amount of
protection
purchased and sold (a)
2019
2018
Credit derivatives used in credit portfolio
management activities
Loans and lending-related commitments $
Derivative receivables
December 31, (in millions)
Credit derivatives used to manage:
Credit derivatives used in credit portfolio management
activities
The Firm also uses credit derivatives as an end-user to
manage other exposures, including credit risk arising from
certain securities held in the Firm's market-making
businesses. These credit derivatives are not included in
credit portfolio management activities.
2
Included in the Firm's end-user activities are credit
derivatives used to mitigate the credit risk associated with
traditional lending activities (loans and unfunded
commitments) and derivatives counterparty exposure in the
Firm's wholesale businesses (collectively, "credit portfolio
management” activities). Information on credit portfolio
management activities is provided in the table below.
The Firm uses credit derivatives for two primary purposes:
first, in its capacity as a market-maker, and second, as an
end-user, to manage the Firm's own credit risk associated
with various exposures.
Credit derivatives
JPMorgan Chase & Co./2019 Form 10-K
100%
38,891
100% $
33,757
$
2
Credit portfolio management activities
Insurance
(112)
(31)
23
(5)
(150)
(133)
Oil & Gas
42,600
23,356
17,451
1,158
69
635
36
(248)
Utilities
28,172
23,558
4,326
138
150
38
6
ལྷ
761
36,687
4
14
10
221
(1,011)
(12)
(207)
(29)
(5,829)
10,625
Banks & Finance Cos
34,120
15,496
299
5
11
(575)
(2,290)
Healthcare
48,142
49,920
(142)
(60)
State & Municipal Govt(c)
19
1
(174)
(22)
Central Govt
18,456
18,251
124
81
385
4
(2,130)
Transportation
15,660
10,508
4,699
393
60
21
6
(7,994)
6,767
8,188
15,359
27,351
26,746
603
2
18
(1)
(42)
Automotive
17,339
9,637
7,310
392
1
(125)
Chemicals & Plastics
16,035
11,490
4,427
118
4
Metals & Mining
2019
114
As previously noted, the Firm uses collateral agreements to
mitigate counterparty credit risk. The percentage of the
Firm's over-the-counter derivative transactions subject to
collateral agreements - excluding foreign exchange spot
trades, which are not typically covered by collateral
agreements due to their short maturity and centrally
cleared trades that are settled daily - was approximately
90% at both December 31, 2019 and 2018.
Total
(a) Multifamily exposure is largely in California.
81
82
63
72
57,600
143,316
164
143,152
131
(b) Real Estate exposure is predominantly secured; unsecured exposure is largely investment-grade.
(c) Represents drawn exposure as a percentage of credit exposure.
57,469
% Drawn (c)
%
Investment-
grade
89%
85,716
$
33
$
85,683
exposure
Receivables
92%
Commitments
Loans
The following table presents the change in the nonaccrual
loan portfolio for the years ended December 31, 2019 and
2018.
369
Net charge-offs/(recoveries)
1,734
$ 1,370 $
(158)
(42)
Gross recoveries
2018
2019
In its wholesale businesses, the Firm provides loans to a
variety of clients, ranging from large corporate and
institutional clients to high-net-worth individuals. Refer to
Note 12 for a further discussion on loans, including
information about delinquencies, loan modifications and
other credit quality indicators.
313
$ 435,876 $ 416,828
2018
2019
Gross charge-offs
Average loans retained
Year ended December 31,
(in millions, except ratios)
Loans - reported
Wholesale net charge-offs/(recoveries)
The following table presents net charge-offs/recoveries,
which are defined as gross charge-offs less recoveries, for
the years ended December 31, 2019 and 2018. The
amounts in the table below do not include gains or losses
from sales of nonaccrual loans.
Wholesale nonaccrual loan activity
411
Credit
Derivative
Loans and
Lending-related
Total Real Estate Exposure (b)
Other
(in millions, except ratios)
Multifamily(a)
Real Estate exposure increased $6.0 billion to $149.3 billion during the year ended December 31, 2019, and the investment
grade percentage of the portfolio remained relatively flat at 81%. Refer to Note 12 for further information on Real Estate
loans.
Presented below is additional information on the Real Estate industry, to which the Firm has significant exposure.
Real Estate
Management's discussion and analysis
111
JPMorgan Chase & Co./2019 Form 10-K
(in millions, except ratios)
Multifamily(a)
(g) Represents the net notional amounts of protection purchased and sold through credit derivatives used to manage the credit exposures; these derivatives
do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain credit indices.
(e) Excludes cash placed with banks of $254.0 billion and $268.1 billion, at December 31, 2019 and 2018, respectively, which is predominantly placed with
various central banks, primarily Federal Reserve Banks.
(c) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2019 and 2018, noted above, the
Firm held: $6.5 billion and $7.8 billion, respectively, of trading assets; $29.8 billion and $37.7 billion, respectively, of AFS securities; and $4.8 billion at
both periods of held-to-maturity ("HTM") securities, issued by U.S. state and municipal governments. Refer to Note 2 and Note 10 for further information.
(d) All other includes: SPES and Private education and civic organizations, representing approximately 92% and 8%, respectively, at both December 31, 2019
and 2018.
(b) Individuals and Individual Entities predominantly consists of Wealth Management clients within AWM and includes exposure to personal investment
companies and personal and testamentary trusts.
(a) The industry rankings presented in the table as of December 31, 2018, are based on the industry rankings of the corresponding exposures at
December 31, 2019, not actual rankings of such exposures at December 31, 2018.
$ 926,279
Total(e)
15,028
30,063
Receivables from customers and other
Loans held-for-sale and loans at fair
value
(f) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against
derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables.
Other
Total Real Estate Exposure (b)
December 31, 2019
December 31, 2018
% Drawn (c)
92%
59
78
81
149,267
619
148,648
68
62,883
561
62,322
%
Investment-
grade
91%
86,384
$
58
$
86,326
$
Credit
exposure
Derivative
Receivables
Commitments
Loans and
Lending-related
155
6,067
2,141
Net charge-off/(recovery) rate
(in billions)
December 31, 2019
Exposure profile of derivatives measures
The below graph shows exposure profiles to the Firm's
current derivatives portfolio over the next 10 years as
calculated by the Peak, DRE and AVG metrics. The three
measures generally show that exposure will decline after
the first year, if no new trades are added to the portfolio.
exposure to a counterparty (AVG) and the counterparty's
credit quality. Many factors may influence the nature and
magnitude of these correlations over time. To the extent
that these correlations are identified, the Firm may adjust
the CVA associated with that counterparty's AVG. The Firm
risk manages exposure to changes in CVA by entering into
credit derivative contracts, as well as interest rate, foreign
exchange, equity and commodity derivative contracts.
The fair value of the Firm's derivative receivables
incorporates CVA to reflect the credit quality of
counterparties. CVA is based on the Firm's AVG to a
counterparty and the counterparty's credit spread in the
credit derivatives market. The Firm believes that active risk
management is essential to controlling the dynamic credit
risk in the derivatives portfolio. In addition, the Firm's risk
management process takes into consideration the potential
impact of wrong-way risk, which is broadly defined as the
potential for increased correlation between the Firm's
Finally, AVG is a measure of the expected fair value of the
Firm's derivative receivables at future time periods,
including the benefit of collateral. AVG over the total life of
the derivative contract is used as the primary metric for
pricing purposes and is used to calculate credit risk capital
and CVA, as further described below.
DRE exposure is a measure that expresses the risk of
derivative exposure on a basis intended to be equivalent to
the risk of loan exposures. DRE is a less extreme measure of
potential credit loss than Peak and is used as an input for
aggregating derivative credit risk exposures with loans and
other credit risk.
Peak represents a conservative measure of potential
exposure to a counterparty calculated in a manner that is
broadly equivalent to a 97.5% confidence level over the life
of the transaction. Peak is the primary measure used by the
Firm for setting credit limits for derivative contracts, senior
management reporting and derivatives exposure
management.
140
("AVG"). These measures all incorporate netting and
collateral benefits, where applicable.
113
While useful as a current view of credit exposure, the net
fair value of the derivative receivables does not capture the
potential future variability of that credit exposure. To
capture the potential future variability of credit exposure,
the Firm calculates, on a client-by-client basis, three
measures of potential derivatives-related credit loss: Peak,
Derivative Risk Equivalent ("DRE"), and Average exposure
The Firm also holds additional collateral (primarily cash, G7
government securities, other liquid government agency and
guaranteed securities, and corporate debt and equity
securities) delivered by clients at the initiation of
transactions, as well as collateral related to contracts that
have a non-daily call frequency and collateral that the Firm
has agreed to return but has not yet settled as of the
reporting date. Although this collateral does not reduce the
balances and is not included in the table above, it is
available as security against potential exposure that could
arise should the fair value of the client's derivative contracts
move in the Firm's favor. The derivative receivables fair
value, net of all collateral, also does not include other credit
enhancements, such as letters of credit. Refer to Note 5 for
additional information on the Firm's use of collateral
agreements.
The fair value of derivative receivables reported on the
Consolidated balance sheets were $49.8 billion and $54.2
billion at December 31, 2019 and 2018, respectively.
Derivative receivables represent the fair value of the
derivative contracts after giving effect to legally enforceable
master netting agreements and cash collateral held by the
Firm. However, in management's view, the appropriate
measure of current credit risk should also take into
consideration additional liquid securities (primarily U.S.
government and agency securities and other group of seven
nations ("G7") government securities) and other cash
collateral held by the Firm aggregating $16.0 billion and
$15.3 billion at December 31, 2019 and 2018,
respectively, that may be used as security when the fair
value of the client's exposure is in the Firm's favor.
(a) Includes collateral related to derivative instruments where appropriate
legal opinions have not been either sought or obtained with respect to
master netting agreements.
33,757 $ 38,891
$
(15,322)
(16,009)
Management's discussion and analysis
Liquid securities and other cash collateral
held against derivative receivables(a)
Total, net of all collateral
120
80
CCC+/Caal and below
BB+/Bal to B-/B3
BBB+/Baal to BBB-/Baa3
A+/A1 to A-/A3
AAA/Aaa to AA-/Aa3
(in millions, except ratios)
December 31,
Internal rating equivalent
Ratings profile of derivative receivables
100
The following table summarizes the ratings profile of the Firm's derivative receivables, including credit derivatives, net of all
collateral, at the dates indicated. The Firm considers internal ratings equivalent to BBB-/Baa3 or higher as investment grade.
Refer to Note 12 for further information on internal risk ratings.
Peak
DRE
AVG
5 years
1 year 2 years
0
20
40
60
10 years
54,213
49,766 $
$
2,573
Total reductions
327
206
Sales
234
556
Returned to performing status
299
1,552
376
692
1,435
Paydowns and other
Reductions:
Additions
Beginning balance
Year ended December 31, (in millions)
0.04%
0.08%
Gross charge-offs
Net changes
(432)
(364)
Total, net of cash collateral
2018
2019
December 31, (in millions)
Derivative receivables
The following table summarizes the net derivative
receivables for the periods presented.
counterparty. For exchange-traded derivatives ("ETD"),
such as futures and options, and cleared over-the-counter
("OTC-cleared") derivatives, the Firm is generally exposed
to the credit risk of the relevant CCP. Where possible, the
Firm seeks to mitigate its credit risk exposures arising from
derivative contracts through the use of legally enforceable
master netting arrangements and collateral agreements.
Refer to Note 5 for a further discussion of derivative
contracts, counterparties and settlement types.
JPMorgan Chase & Co./2019 Form 10-K
Derivatives enable clients and counterparties to manage
risks including credit risk and risks arising from fluctuations
in interest rates, foreign exchange, equities, and
commodities. The Firm makes markets in derivatives in
order to meet these needs and uses derivatives to manage
certain risks associated with net open risk positions from its
market-making activities, including the counterparty credit
risk arising from derivative receivables. The Firm also uses
derivative instruments to manage its own credit and other
market risk exposure. The nature of the counterparty and
the settlement mechanism of the derivative affect the credit
risk to which the Firm is exposed. For OTC derivatives the
Firm is exposed to the credit risk of the derivative
Derivative contracts
The Firm provides clearing services for clients entering into
certain securities and derivative contracts. Through the
provision of these services the Firm is exposed to the risk of
non-performance by its clients and may be required to
share in losses incurred by CCPs. Where possible, the Firm
seeks to mitigate its credit risk to its clients through the
collection of adequate margin at inception and throughout
the life of the transactions and can also cease the provision
of clearing services if clients do not adhere to their
obligations under the clearing agreement. Refer to Note 28
for a further discussion of clearing services.
Clearing services
Receivables from customers primarily represent held-for-
investment margin loans to brokerage clients in CIB and
AWM that are collateralized by assets maintained in the
clients' brokerage accounts (e.g., cash on deposit, liquid and
readily marketable debt or equity securities), as such no
allowance is held against these receivables. To manage its
credit risk the Firm establishes margin requirements and
monitors the required margin levels on an ongoing basis,
and requires clients to deposit additional cash or other
collateral, or to reduce positions, when appropriate. These
receivables are reported within accrued interest and
accounts receivable on the Firm's Consolidated balance
sheets.
Receivables from Customers
The Firm uses lending-related financial instruments, such as
commitments (including revolving credit facilities) and
guarantees, to address the financing needs of its clients.
The contractual amounts of these financial instruments
represent the maximum possible credit risk should the
clients draw down on these commitments or when the Firm
fulfills its obligations under these guarantees, and the
clients subsequently fail to perform according to the terms
of these contracts. Most of these commitments and
guarantees are refinanced, extended, cancelled, or expire
without being drawn upon or a default occurring. As a
result, the Firm does not believe that the total contractual
amount of these wholesale lending-related commitments is
representative of the Firm's expected future credit exposure
or funding requirements. Refer to Note 28 for further
information on wholesale lending-related commitments.
Lending-related commitments
JPMorgan Chase & Co./2019 Form 10-K
112
938 $ 1,370
$
Ending balance
1,188
(804)
36,722
Asset Managers
accruing
loans
Net charge-
offs/
(recoveries)
Credit
derivative
hedges (g)
cash
collateral
held against
derivative
receivables
$ 149,267 $
121,283 $
26,534 $
Criticized
nonperforming
1,401 $
98 $
12 $
(100) $
102,292
90,865
11,219
171
37
386
49 $
28
Criticized
performing
Investment-
grade
Wholesale credit exposure - industry exposures
The Firm focuses on the management and diversification of
its industry exposures, and pays particular attention to
industries with actual or potential credit concerns.
Exposures deemed criticized align with the U.S. banking
regulators' definition of criticized exposures, which consist
of the special mention, substandard and doubtful
categories. The total criticized component of the portfolio,
excluding loans held-for-sale and loans at fair value, was
$14.3 billion at December 31, 2019, compared with $12.1
billion at December 31, 2018. The increase was driven by
select client downgrades.
JPMorgan Chase & Co./2019 Form 10-K
109
Management's discussion and analysis
Below are summaries of the Firm's exposures as of December 31, 2019 and 2018. The industry of risk category is generally
based on the client or counterparty's primary business activity. Refer to Note 4 for additional information on industry
concentrations.
Wholesale credit exposure - industries (a)
Noninvestment-grade
Noncriticized
Selected metrics
and other
As of or for the year ended
December 31, 2019
(in millions)
Real Estate
Individuals and Individual Entities(b)
Consumer & Retail
30 days or
more past
due and
Credit
exposure(f)
Liquid
securities
(d) The maturity profile of retained loans, lending-related commitments and derivative receivables is based on remaining contractual maturity. Derivative
contracts that are in a receivable position at December 31, 2019, may become payable prior to maturity based on their cash flow profile or changes in
market conditions.
(641)
57,587
161
41
(746)
(9)
Asset Managers
51,775
45,208
6,550
4
176
13
(4,785)
Banks & Finance Cos
50,091
34,599
14,692
795
5
(834)
(2,112)
18
99,331
1,050
38,760
39,524
2,062
158
80
112
(235)
(11)
Technology, Media &
Telecommunications
18,264
59,021
20,368
2,923
128
13
26
(658)
(17)
Industrials
58,250
35,602
(c) The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference
entity on which protection has been purchased. Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection used
in credit portfolio management activities are executed with investment-grade counterparties.
(a) Represents loans held-for-sale, primarily related to syndicated loans and loans transferred from the retained portfolio, and loans at fair value.
(b) These derivatives do not qualify for hedge accounting under U.S. GAAP.
88%
Receivables from customers and other
33,706
33,706
Total exposure - net of liquid securities and other
cash collateral held against derivatives
Credit derivatives used in credit portfolio
management activities (b)(c)
$ 927,383
$ 927,383
$ (4,912) $
(10,031) $ (3,087) $ (18,030) $ (16,276)
11,166
$
$ (18,030)
90%
December 31, 2018
(in millions, except ratios)
Loans retained
Derivative receivables
Maturity profile(d)
Ratings profile
Due after
(1,754)
Due in 1
year or less
11,166
71
75
(16,009)
Total derivative receivables, net of all collateral
Lending-related commitments
6,561
77,298
Subtotal
212,289
6,960
314,281
530,638
20,236
33,757
Loans held-for-sale and loans at fair value(a)
26,966
33,757
80
12,536
139,584
404,115
882,511
288,864
660,029
115,251
222,482
404,115
882,511
6,791
1 year
through
$ 138,458 $
Due after 5
5 years
years
196,974 $ 103,730 $ 439,162
54,213
82
74
76
Loans held-for-sale and loans at fair value (a)
Receivables from customers and other
15,028
30,063
15,028
30,063
Total exposure - net of liquid securities and other
cash collateral held against derivatives
38,891
387,813
865,866
$ 910,957
Credit derivatives used in credit portfolio
management activities (b)(c)
$
(447) $
(9,318) $
(2,917) $ (12,682) $ (11,213)
$
(1,469)
$
(12,682)
$ 910,957
7,097
99,089
205,619
31,794
288,724
660,247
38,891
387,813
865,866
Total
Investment-
grade
Noninvestment-
grade
Total
Total %
of IG
$ 339,729
$
99,433
$ 439,162
77%
54,213
Less: Liquid securities and other cash collateral
held against derivatives
(15,322)
(15,322)
Total derivative receivables, net of all collateral
Lending-related commitments
11,038
79,400
Subtotal
228,896
9,169
294,855
500,998
18,684
13,558
135,972
Healthcare
46,638
36,231
9,248
JPMorgan Chase & Co./2019 Form 10-K
Noninvestment-grade
30 days or
more past
Selected metrics
Liquid
securities
and other
cash
collateral
As of or for the year ended
December 31, 2018
(in millions)
110
Real Estate
Consumer & Retail
Credit
exposure(f)
Investment-
grade
Noncriticized
Criticized
performing
Criticized
nonperforming
due and
accruing
loans
Individuals and Individual Entities (b)
Net charge-
offs/
(recoveries)
$ 943,392
11,166
-
(6)
76,492
72,565
3,548
376
3
4
1
33,706
(4,833)
Subtotal
$ 898,520 $ 674,813 $ 209,392 $
12,968 $
1,347 $
910 $
369 $ (18,030) $
(16,009)
Loans held-for-sale and loans at fair
value
Receivables from customers and other
Total(e)
(959)
Credit
derivative
held against
derivative
hedges(g)
55
(248)
(14)
Technology, Media &
Telecommunications
72,646
46,334
24,081
2,170
(915)
61
12
Industrials
58,528
38,487
18,594
1,311
136
171
20
8
12
25
43
receivables
$ 143,316 $
117,988 $
24,174 $
1,019 $
97,077
86,581
10,164
174
94,815
60,678
31,901
2,033
135 $
70 $
(20) $
(2) $
(1)
158
703
203
-
42,807
-
147
(414)
(50)
State & Municipal Govt(c)
26,697
26,195
502
29
(46)
Automotive
39
17,317
6,759
558
5
(194)
Chemicals & Plastics
17,276
11,984
5,080
212
10,000
3
1
301
1,074
85
79
6
(405)
(145)
Oil & Gas
41,570
22,221
10
17,780
577
-
98
(429)
(10)
Utilities
34,753
22,196
12,246
992
(10)
(13)
Metals & Mining
Insurance
12,202
9,413
2,768
17
4
3
(36)
(1,998)
(37)
Securities Firms
All other(d)
7,335
5,969
1,339
27
(48)
(3,201)
4,116
3,969
Financial Markets Infrastructure
(37)
7
29
15,337
7,020
7,620
658
39
1
(1)
(33)
(6)
Central Govt
Transportation
14,843
14,502
341
(9,018)
(1,963)
13,917
8,644
4,863
347
63
-
0.60
0.05
435,876
(b)
(b)
NM
NM
$
43
$
30 (b) $ 65 (b)
(10)
$
Forecasted balance sheet, as well as modeled
prepayment and reinvestment behavior, but do not
include assumptions about actions that could be taken by
the Firm in response to any such instantaneous rate
changes. Mortgage prepayment assumptions are based
on the interest rates used in the scenarios compared with
underlying contractual rates, the time since origination,
and other factors which are updated periodically based
on historical experience.
The impact on exposures as a result of instantaneous
changes in interest rates from baseline rates.
•
One way the Firm evaluates its structural interest rate risk is
through earnings-at-risk. Earnings-at-risk estimates the
Firm's interest rate exposure for a given interest rate
scenario. It is presented as a sensitivity to a baseline, which
includes net interest income and certain interest rate
sensitive fees. The baseline uses market interest rates and
in the case of deposits, pricing assumptions. The Firm
conducts simulations of changes to this baseline for interest
rate-sensitive assets and liabilities denominated in U.S.
dollars and other currencies ("non-U.S. dollar" currencies).
These simulations primarily include retained loans,
deposits, deposits with banks, investment securities, long-
term debt and any related interest rate hedges, and exclude
other positions in risk management VaR and other
sensitivity-based measures as described on page 120.
Earnings-at-risk scenarios estimate the potential change to
a net interest income baseline, over the following 12
months, utilizing multiple assumptions. These scenarios
include a parallel shift involving changes to both short-term
and long-term rates by an equal amount; a steeper yield
curve involving holding short-term rates constant and
increasing long-term rates or decreasing short-term rates
and holding long-term rates constant; and a flatter yield
curve involving increasing short-term rates and holding
long-term rates constant or holding short-term rates
constant and decreasing long-term rates. These scenarios
consider many different factors, including:
JPMorgan Chase & Co./2019 Form 10-K
124
The Firm manages interest rate exposure related to its
assets and liabilities on a consolidated, Firmwide basis.
Business units transfer their interest rate risk to Treasury
and CIO through funds transfer pricing, which takes into
account the elements of interest rate exposure that can be
risk-managed in financial markets. These elements include
asset and liability balances and contractual rates of interest,
contractual principal payment schedules, expected
prepayment experience, interest rate reset dates and
maturities, rate indices used for repricing, and any interest
rate ceilings or floors for adjustable rate products. All
transfer-pricing assumptions are dynamically reviewed.
The impact of changes in the maturity of various assets,
liabilities or off-balance sheet instruments as interest
rates change
The pricing sensitivity of deposits, using normalized
deposit betas which represent the amount by which
deposit rates paid could change upon a given change in
market interest rates over the cycle. The deposit rates
paid in these scenarios differ from actual deposit rates
paid, particularly for retail deposits, due to repricing lags
and other factors.
NM
NM
(a)
(a)
(b)
(b)
NM
NM
(b)
(b)
11
8
(b)
(b)
17
12
9
14
(a)
(10)
(b)
(b)
Differences in the amounts by which short-term and long-
term market interest rates change (for example, changes
in the slope of the yield curve)
Differences in timing among the maturity or repricing of
assets, liabilities and off-balance sheet instruments
Differences in the amounts of assets, liabilities and off-
balance sheet instruments that are maturing or repricing
at the same time
•
The CTC Risk Committee establishes the Firm's structural
interest rate risk policy and related limits, which are subject
to approval by the Board Risk Committee. Treasury and CIO,
working in partnership with the LOBS, calculates the Firm's
structural interest rate risk profile and reviews it with senior
management, including the CTC Risk Committee. In addition,
oversight of structural interest rate risk is managed through
a dedicated risk function reporting to the CTC. This risk
function is responsible for providing independent oversight
and governance around assumptions and establishing and
monitoring limits for structural interest rate risk. The Firm
manages structural interest rate risk generally through its
investment securities portfolio and interest rate derivatives.
Structural interest rate risk can occur due to a variety of
factors, including:
Risk Management VaR
Market Risk-Related Gains and Losses
-125
-100
-75
-50
-25
0
25
25
50
75
100
125
$millions
vs. Risk Management VaR (1-day, 95% Confidence level)
Year ended December 31, 2019
Daily Market Risk-Related Gains and Losses
The following chart compares actual daily market risk-related gains and losses with the Firm's Risk Management VaR for the
year ended December 31, 2019. As the chart presents market risk-related gains and losses related to those positions included
in the Firm's Risk Management VaR, the results in the table below differ from the results of back-testing disclosed in the Market
Risk section of the Firm's Basel III Pillar 3 Regulatory Capital Disclosures reports, which are based on Regulatory VaR applied to
the Firm's covered positions. For the year ended December 31, 2019 the Firm observed eight VaR back-testing exceptions and
posted market risk-related gains on 141 of the 259 days.
JPMorgan Chase & Co./2019 Form 10-K
First Quarter
(1)
Second Quarter
2019
The effect of interest rate exposure on the Firm's reported
net income is important as interest rate risk represents one
of the Firm's significant market risks. Interest rate risk
arises not only from trading activities but also from the
Firm's traditional banking activities, which include extension
of loans and credit facilities, taking deposits and issuing
debt as well as from the investment securities portfolio.
Refer to the table on page 120 for a summary by LOB and
Corporate, identifying positions included in earnings-at-risk.
Earnings-at-risk
Profit and loss drawdowns are used to highlight trading
losses above certain levels of risk tolerance. A profit and
loss drawdown is a decline in revenue from its year-to-date
peak level.
Profit and loss drawdowns
The Firm's stress testing framework is utilized in calculating
the Firm's CCAR and other stress test results, which are
reported to the Board of Directors. In addition, stress
testing results are incorporated into the Firm's Risk Appetite
framework, and are reported periodically to the Board Risk
Committee.
framework and are subject to the standards outlined in the
Firm's policies related to model risk management.
Significant changes to the framework are reviewed as
appropriate.
Stress scenarios are governed by an overall stress
The Firm generates a number of scenarios that focus on tail
events in specific asset classes and geographies, including
how the event may impact multiple market factors
simultaneously. Scenarios also incorporate specific
idiosyncratic risks and stress basis risk between different
products. The flexibility in the stress framework allows the
Firm to construct new scenarios that can test the outcomes
against possible future stress events. Stress testing results
are reported on a regular basis to senior management of
the Firm, as appropriate.
The Firm's stress framework covers Corporate and all LOBS
with market risk sensitive positions. The framework is used
to calculate multiple magnitudes of potential stress for both
market rallies and market sell-offs, assuming significant
changes in market factors such as credit spreads, equity
prices, interest rates, currency rates and commodity prices,
and combines them in multiple ways to capture an array of
hypothetical economic and market scenarios.
Along with VaR, stress testing is an important tool used to
assess risk. While VaR reflects the risk of loss due to
adverse changes in markets using recent historical market
behavior, stress testing reflects the risk of loss from
hypothetical changes in the value of market risk sensitive
positions applied simultaneously. Stress testing measures
the Firm's vulnerability to losses under a range of stressed
but possible economic and market scenarios. The results
are used to understand the exposures responsible for those
potential losses and are measured against limits.
Stress testing
Other risk measures
Management's discussion and analysis
123
Fourth Quarter
2019
JPMorgan Chase & Co./2019 Form 10-K
I
2019
2019
Third Quarter
NM
(b)
NM
15
13
31
17
13
26
12
8
4
13
(33) (a)
NM (b)
NM (b)
(26) (a)
NM (b)
NM (b)
(b)
(b)
42
3
29
6
46
Avg.
Min
Max
Avg.
Min
Max
40
+A
$
7
20
8
34 36
31
$ 50
$ 33
$ 25
LA
$
15
122
(b)
61
(b)
42
29
63
39
26
59
5
10
19
11
1
3
13
12
9
14
(4) (a)
(b)
(b)
(b)
(b)
NM
38
26
58
5
3
7
3
3
4
(a)
(5)
(b)
(b)
NM
NM
(2)
(a)
(b)
(b)
NM
2018
The Firm's definition, of market risk-related gains and losses
is consistent with the definition used by the banking
regulators under Basel III. Under this definition, market
risk-related gains and losses are defined as: gains and
losses on the positions included in the Firm's Risk
Management VaR excluding select components of revenue
such as fees, commissions, certain valuation adjustments,
net interest income, and gains and losses arising from
intraday trading.
VaR back-testing
130
4,818
(63)
5,449
484
5,348
(383)
Provision for loan losses
4,885
187
151
151
4,856
155
4,518
183
5,629
369
187
Other
(1)
(1)
$
Asset-specific (b)
Impairment methodology
$ 13,445
4,115
$
5,184
4,146 $
$
4,241 $ 13,123
$
5,683
3,199 $
$
Ending balance at December 31,
(1)
(1)
9
11
4,848
412
Write-offs of PCI loans(a)
Net charge-offs
$
$ 13,445
5,184 $ 4,115
$
$ 4,146
Total
Credit card Wholesale
excluding
credit card
Total
Credit card Wholesale
2018
Consumer,
2019
Consumer,
excluding
credit card
Beginning balance at January 1,
Allowance for loan losses
(in millions, except ratios)
Year ended December 31,
Summary of changes in the allowance for credit losses
4,579
136 $
$
941,919
(1,493)
(158)
(493)
(842)
(1,181)
(42)
(588)
(551)
6,349
313
5,011
1,025
6,810
411
5,436
963
Gross recoveries
Gross charge-offs
$ 13,604
4,884 $ 4,141
477
$
Formula-based
$
99
923
33
$
$
-
102 $
1,089
102 $
1,056
33
$ - $ - $
Retained loans, end of period
Total allowance for credit losses
Memo:
Total allowance for lending-related
commitments(c)
Formula-based
Asset-specific
Impairment methodology
1,055
$ 1,022 $
33 $
99
1,191 $
956
33 $
In addition, average CCB VaR increased by $4 million, driven
by MSR risk management activities.
Average Total VaR increased $2 million for the year-ended
December 31, 2019 as compared with the prior year. This
was predominantly due to increased exposure in the Fixed
Income risk type, increases in the Equities risk type driven
by the inclusion of Tradeweb following its IPO in the second
quarter of 2019, and increased volatility in the one-year
historical look-back period, partially offset by increases in
diversification benefit.
(b) Diversification benefit represents the difference between the total VaR and each reported level and the sum of its individual components. Diversification
benefit reflects the non-additive nature of VaR due to imperfect correlation across LOBS, Corporate, and risk types. The maximum and minimum VaR for
each portfolio may have occurred on different trading days than the components and consequently diversification benefit is not meaningful.
(a) Average portfolio VaR is less than the sum of the VaR of the components described above, which is due to portfolio diversification. The diversification
effect reflects that the risks are not perfectly correlated.
62 (b)
$ 28 (b) $
41
156,319
349,724
20,363
$ 332,038 $ 168,924 $ 444,639 $ 945,601
5,137 $ 14,500
$
$ 4,179 $ 5,184
$ 1,022 $ 1,055
33 $
$
1,158 $ 1,191
$ 5,399 $ 14,314
$ 3,232 $ 5,683
$
$
The Firm performs daily VaR model back-testing, which
compares the daily Risk Management VaR results with the
daily gains and losses actually recognized on market-risk
related revenue.
1,158 $
33 $
$
297
3,818
$
440
4,744
2,162
11,289
987
4,241 $ 13,123
5,683 $
$ 3,199 $
Total allowance for loan losses
-
$
196
$
847
$
234
4,007
5,206
2,076
987
PCI
933
$
$
10,724
1,788
$
Ending balance at December 31,
1
----1
Other
(14)
$ 1,035 $ 1,068
- (14)
136
136
Provision for lending-related commitments
33 $
1,055 $
33 $ $ 1,022
$
Beginning balance at January 1,
Allowance for lending-related commitments
$ 13,445
4,115
5,184 $
1,788
4,146 $
2019
(b)
Total VaR
December 31,
The Firm's non-U.S. dollar sensitivities are presented in the
table below.
The change in the Firm's U.S. dollar sensitivities as of
December 31, 2019 compared to December 31, 2018
reflected updates to the Firm's baseline for lower short-
term and long-term rates as well as the impact of changes
in the Firm's balance sheet. The Firm's sensitivity to short-
term rates reflected updates to the Firm's baseline for lower
rates but changes in the Firm's balance sheet more than
offset the impacts of the lower rates. The Firm's sensitivity
to long-term rates increased as a result of updates to the
Firm's baseline to reflect lower rates in addition to changes
in the Firm's balance sheet. The increased sensitivity to
long-term rates is more impactful to the downward scenario
due to the Firm's sensitivity to mortgage prepayments.
(0.9)
(1.8)
0.4
(0.9)
+100 bps shift in short-term rates
-100 bps shift in long-term rates
(1.2)
(0.2)
0.5
1.2
+100 bps shift in long-term rates
-100 bps shift in short-term rates
Flatter yield curve:
(2.1)
(2.0)
-100 bps shift in rates
Steeper yield curve:
0.9
$
0.3
(in billions)
$
Parallel shift:
Flatter yield curve:
Year ended December 31,
The table below represents the potential impact to net revenue or OCI for market risk sensitive instruments that are not
included in VaR or earnings-at-risk. Where appropriate, instruments used for hedging purposes are reported along with the
positions being hedged. The sensitivities disclosed in the table below may not be representative of the actual gain or loss that
would have been realized at December 31, 2019 and 2018, as the movement in market parameters across maturities may
vary and are not intended to imply management's expectation of future changes in these sensitivities.
The Firm quantifies the market risk of certain investment and funding activities by assessing the potential impact on net
revenue and other comprehensive income ("OCI") due to changes in relevant market variables. Refer to the table Predominant
business activities that give rise to market risk on page 120 for additional information on the positions captured in other
sensitivity-based measures.
Firm. Treasury and CIO may hedge certain of these risks
using derivatives.
portfolio and non-U.S. dollar-denominated debt issuance.
Treasury and CIO, working in partnership with the LOBS,
primarily manage these risks on behalf of the
liabilities or future results. The Firm has structural non-U.S.
dollar FX exposures arising from capital investments,
forecasted expense and revenue, the investment securities
Other sensitivity-based measures
Non-U.S. dollar FX risk is the risk that changes in foreign
exchange rates affect the value of the Firm's assets or
Non-U.S. dollar foreign exchange risk
125
JPMorgan Chase & Co./2019 Form 10-K
The results of the non-U.S. dollar interest rate scenario
involving a steeper yield curve with long-term rates rising
by 100 basis points and short-term rates staying at current
levels were not material to the Firm's earnings-at-risk at
December 31, 2019 and 2018.
0.5
0.5
0.5
$
$
2018
2019
+100 bps shift in short-term rates
+100 bps shift in rates
Gain/(loss) (in millions)
+100 bps shift in rates
2018
305
68
NM
358
253
Allowance for loan losses to retained nonaccrual
loans excluding credit card
70
NM
503
162
68
NM
358
140
Net charge-off rates
0.13%
3.10%
0.08%
0.61%
503
(in billions)
Parallel shift:
NM
nonaccrual loans (d)
2019
December 31,
The Firm's U.S. dollar sensitivities are presented in the table
below.
The Firm's earnings-at-risk scenarios are periodically
evaluated and enhanced in response to changes in the
composition of the Firm's balance sheet, changes in market
conditions, improvements in the Firm's simulation and other
factors. While a relevant measure of the Firm's interest rate
exposure, the earnings at risk analysis does not represent a
forecast of the Firm's net interest income (Refer to the
2020 Outlook on page 45 for additional information).
3.10
0.04
0.52
Credit ratios, excluding residential real estate
PCI loans
Allowance for loan losses to
retained loans
0.71
3.36
0.95
1.31
0.67
3.31
0.94
1.23
Allowance for loan losses to retained
70
0.05%
Activity
Investment management activities
503
329
120
NM
358
292
Allowance for loan losses to retained nonaccrual
loans excluding credit card
102
NM
503
187
120
NM
358
179
Net charge-off rates
0.12
3.10
0.08
NM
JPMorgan Chase & Co./2019 Form 10-K
102
1.39%
20,363
$ 373,637
374,395
24,034
$ 156,616
145,606
$ 439,162
416,828
$ 969,415
936,829
3
24,037
Retained loans, average
PCI loans, end of period
Credit ratios
Allowance for loan losses to retained loans
0.96%
3.36%
0.95%
1.39%
1.11%
3.31%
0.94%
Allowance for loan losses to retained nonaccrual
loans(d)
Investment activities (a)
126
(a) Excludes equity securities without readily determinable fair values that are measured under the measurement alternative. Refer to Note 2 for additional
information.
Fair value option elected liabilities -
interest rate sensitivity
Fair value option elected liabilities –
funding spread risk
Derivatives funding spread risk
Non-USD LTD hedges foreign currency
("FX") exposure
Non-USD LTD cross-currency basis
Funding activities
(218)
(192)
10% decline in market
value
(102)
(68) $
$
10% decline in market
value
2018
2019
Sensitivity measure
Consists of seed capital and related hedges;
and fund co-investments
Consists of privately held equity and other
investments held at fair value
Description
Other investments
Represents the basis risk on derivatives
used to hedge the foreign exchange risk on
the non-USD LTD(b)
(b) Impact recognized through OCI.
Primarily represents the foreign exchange
revaluation on the fair value of the
derivative hedges (b)
Impact of changes in the spread related to
fair value option elected liabilities DVA (b)
1
(2)
1 basis point parallel
increase in spread
increase in spread
30
29
1 basis point parallel
(4)
(5)
1 basis point parallel
increase in spread
17
15
10% depreciation of
currency
basis
tightening of cross currency
(13)
(17)
1 basis point parallel
Interest rate sensitivity on fair value option
liabilities resulting from a change in the
Firm's own credit spread (b)
Impact of changes in the spread related to
derivatives FVA
3.10%
0.5 $
0.53%
Originates loans and
takes deposits
Risk from adverse
movements in market
factors (e.g., rates and
credit spreads)
Interest rate risk and
prepayment risk
Debt securities held in
advance of distribution to
clients, classified as trading
assets debt instruments(a)
Corporate
Manages the Firm's
•
liquidity, funding,
products such as
mutual funds and
capital invested
alongside third-party
investors
capital, structural
foreign exchange risks
.
Structural interest rate
risk from the Firm's
traditional banking
activities
Structural non-USD
foreign exchange risks
Derivative positions
measured at fair value
through noninterest
revenue in earnings
Marketable equity
investments
•
•
Retained loan portfolio
Deposits
interest rate and
• Provides initial capital
investments in
AWM
Retained loan portfolio
Deposits
Trading assets/liabilities -
debt and marketable equity
instruments, and
derivatives, including
hedges of the retained loan
portfolio
Certain securities
purchased, loaned or sold
under resale agreements
and securities borrowed
Fair value option elected
liabilities
Derivative CVA and
Positions included in
.
Retained loan portfolio
Deposits
Privately held equity and
other investments
measured at fair value
Derivatives FVA and fair
value option elected
liabilities DVA
CB
Originates loans and
takes deposits
associated hedges
•
Marketable equity
investments
.
Interest rate risk and
prepayment risk
•.
Marketable equity
investments (a)
•
Deposits with banks
Investment securities
portfolio and related
interest rate hedges
Long-term debt and
related interest rate
hedges
(a) The AWM and CB contributions to Firmwide average VaR were not material for the year ended December 31, 2019 and 2018.
Initial seed capital
investments and related
hedges, classified as
derivatives
The table below shows the results of the Firm's Risk Management VaR measure using a 95% confidence level. VaR can vary
significantly as positions change, market volatility fluctuates, and diversification benefits change.
Total VaR
As of or for the year ended December 31,
(in millions)
0.04%
Fixed income
Foreign exchange
Equities
Commodities and other
Diversification benefit to CIB trading VaR
CIB trading VaR
Credit portfolio VaR
Diversification benefit to CIB VaR
CIB VaR
CCB VaR
Corporate and other LOB VaR
Diversification benefit to other VaR
Other VaR
Diversification benefit to CIB and other VaR
VaR and the other components of market risk regulatory
capital for the Firm (e.g., VaR-based measure, stressed VaR-
based measure and the respective backtesting).
Fair value option elected
liabilities
Refer to JPMorgan Chase's Basel III Pillar 3 Regulatory
Capital Disclosures reports, which are available on the
Firm's website, for additional information on Regulatory
121
Capital invested alongside
third-party investors,
typically in privately
distributed collective
vehicles managed by AWM
(i.e., co-investments)
Privately held equity and
other investments
measured at fair value
Foreign exchange exposure
related to Firm-issued non-
USD long-term debt ("LTD")
and related hedges
120
JPMorgan Chase & Co./2019 Form 10-K
Value-at-risk
JPMorgan Chase utilizes VaR, a statistical risk measure, to
estimate the potential loss from adverse market moves in
the current market environment. The Firm has a single VaR
framework used as a basis for calculating Risk Management
VaR and Regulatory VaR.
The framework is employed across the Firm using historical
simulation based on data for the previous 12 months. The
framework's approach assumes that historical changes in
market values are representative of the distribution of
potential outcomes in the immediate future. The Firm
believes the use of Risk Management VaR provides a daily
measure of risk that is closely aligned to risk management
decisions made by the LOBS and Corporate and, along with
other market risk measures, provides the appropriate
information needed to respond to risk events.
The Firm's Risk Management VaR is calculated assuming a
one-day holding period and an expected tail-loss
methodology which approximates a 95% confidence level.
Risk Management VaR provides a consistent framework to
measure risk profiles and levels of diversification across
product types and is used for aggregating risks and
monitoring limits across businesses. VaR results are
reported to senior management, the Board of Directors and
regulators.
Under the Firm's Risk Management VaR methodology,
assuming current changes in market values are consistent
with the historical changes used in the simulation, the Firm
would expect to incur VaR “back-testing exceptions,"
defined as losses greater than that predicted by VaR
estimates, an average of five times every 100 trading days.
The number of VaR back-testing exceptions observed can
differ from the statistically expected number of back-testing
exceptions if the current level of market volatility is
materially different from the level of market volatility
during the 12 months of historical data used in the VaR
calculation.
Underlying the overall VaR model framework are individual
VaR models that simulate historical market returns for
individual risk factors and/or product types. To capture
material market risks as part of the Firm's risk management
framework, comprehensive VaR model calculations are
performed daily for businesses whose activities give rise to
market risk. These VaR models are granular and incorporate
numerous risk factors and inputs to simulate daily changes
in market values over the historical period; inputs are
selected based on the risk profile of each portfolio, as
sensitivities and historical time series used to generate daily
market values may be different across product types or risk
management systems. The VaR model results across all
portfolios are aggregated at the Firm level.
As VaR is based on historical data, it is an imperfect
measure of market risk exposure and potential future
losses. In addition, based on their reliance on available
historical data, limited time horizons, and other factors, VaR
measures are inherently limited in their ability to measure
certain risks and to predict losses, particularly those
associated with market illiquidity and sudden or severe
shifts in market conditions.
For certain products, specific risk parameters are not
captured in Var due to the lack of inherent liquidity and
availability of appropriate historical data. The Firm uses
proxies to estimate the VaR for these and other products
when daily time series are not available. It is likely that
using an actual price-based time series for these products,
if available, would affect the VaR results presented. The
Firm therefore considers other nonstatistical measures such
as stress testing, in addition to VaR, to capture and manage
its market risk positions.
The daily market data used in VaR models may be different
than the independent third-party data collected for VCG
price testing in its monthly valuation process. For example,
in cases where market prices are not observable, or where
proxies are used in VaR historical time series, the data
sources may differ. Refer to Valuation process in Note 2 for
further information on the Firm's valuation process. As VaR
model calculations require daily data and a consistent
source for valuation, it may not be practical to use the data
collected in the VCG monthly valuation process for VaR
model calculations.
The Firm's VaR model calculations are periodically
evaluated and enhanced in response to changes in the
composition of the Firm's portfolios, changes in market
conditions, improvements in the Firm's modeling techniques
and measurements, and other factors. Such changes may
affect historical comparisons of VaR results. Refer to
Estimations and Model Risk Management on page 135 for
information regarding model reviews and approvals.
The Firm calculates separately a daily aggregated VaR in
accordance with regulatory rules ("Regulatory VaR"), which
is used to derive the Firm's regulatory VaR-based capital
requirements under Basel III. This Regulatory VaR model
framework currently assumes a ten business-day holding
period and an expected tail loss methodology which
approximates a 99% confidence level. Regulatory VaR is
applied to "covered" positions as defined by Basel III, which
may be different than the positions included in the Firm's
Risk Management VaR. For example, credit derivative
hedges of accrual loans are included in the Firm's Risk
Management VaR, while Regulatory VaR excludes these
credit derivative hedges. In addition, in contrast to the
Firm's Risk Management VaR, Regulatory VaR currently
excludes the diversification benefit for certain Var models.
JPMorgan Chase & Co./2019 Form 10-K
Management's discussion and analysis
related hedges, classified as
derivatives
CIB trading VaR by risk type
classified as trading assets
•
•
•
Establishing a market risk policy framework
Independently measuring, monitoring and controlling
LOB, Corporate, and Firmwide market risk
Defining, approving and monitoring of limits
Performing stress testing and qualitative risk assessments
Risk measurement
Measures used to capture market risk
There is no single measure to capture market risk and
therefore Market Risk Management uses various metrics,
both statistical and nonstatistical, to assess risk including:
•
•
Value-at-risk (VaR)
•
Stress testing
Profit and loss drawdowns
Earnings-at-risk
Other sensitivity-based measures
Risk monitoring and control
Market risk exposure is managed primarily through a series
of limits set in the context of the market environment and
business strategy. In setting limits, Market Risk
Management takes into consideration factors such as
market volatility, product liquidity, accommodation of client
business, and management experience. Market Risk
Management maintains different levels of limits. Firm level
limits include VaR and stress limits. Similarly, LOB and
Corporate limits include VaR and stress limits and may be
supplemented by certain nonstatistical risk measures such
as profit and loss drawdowns. Limits may also be set within
the LOBS and Corporate, as well as at the legal entity level.
Market Risk Management sets limits and regularly reviews
and updates them as appropriate. Senior management is
responsible for reviewing and approving certain of these
risk limits on an ongoing basis. Limits that have not been
reviewed within specified time periods by Market Risk
Management are escalated to senior management. The
LOBS and Corporate are responsible for adhering to
established limits against which exposures are monitored
and reported.
Market Risk Management monitors market risks throughout
the Firm and defines market risk policies and procedures.
Market Risk Management seeks to manage risk, facilitate
efficient risk/return decisions, reduce volatility in operating
performance and provide transparency into the Firm's
market risk profile for senior management, the Board of
Directors and regulators. Market Risk Management is
responsible for the following functions:
Limit breaches are required to be reported in a timely
manner to limit approvers, which include Market Risk
Management and senior management. In the event of a
breach, Market Risk Management consults with appropriate
members of the Firm to determine the suitable course of
action required to return the applicable positions to
compliance, which may include a reduction in risk in order
to remedy the breach or granting a temporary increase in
limits to accommodate an expected increase in client
activity and/or market volatility. Certain Firm, Corporate or
LOB-level limit breaches are escalated as appropriate.
Market Risk Management
MARKET RISK MANAGEMENT
debt instruments, and
Note: In the table above, the financial measures which exclude the impact of PCI loans are non-GAAP financial measures.
(a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as
purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool.
(b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR. The asset-specific credit card allowance
for loan losses modified in a TDR is calculated based on the loans' original contractual interest rates and does not consider any incremental penalty rates.
(c) The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets.
(d) The Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.
JPMorgan Chase & Co./2019 Form 10-K
117
Management's discussion and analysis
INVESTMENT PORTFOLIO RISK MANAGEMENT
Investment portfolio risk is the risk associated with the loss
of principal or a reduction in expected returns on
investments arising from the investment securities portfolio
or from principal investments. The investment securities
portfolio is predominantly held by Treasury and CIO in
connection with the Firm's balance sheet or asset-liability
management objectives. Principal investments are
predominantly privately-held financial instruments and are
managed in the LOBS and Corporate. Investments are
typically intended to be held over extended periods and,
accordingly, the Firm has no expectation for short-term
realized gains with respect to these investments.
Investment securities risk
Governance and oversight
Investment securities risks are governed by the Firm's Risk
Appetite framework, and reviewed at the CTC Risk
Committee with regular updates to the Board Risk
Committee.
The Firm's independent control functions are responsible
for reviewing the appropriateness of the carrying value of
investment securities in accordance with relevant policies.
Approved levels for investment securities are established
for each risk category, including capital and credit risks.
Principal investment risk
Principal investments are typically private non-traded
financial instruments representing ownership or other
forms of junior capital. Principal investments span multiple
asset classes and are made either in stand-alone investing
businesses or as part of a broader business platform. In
general, new principal investments include tax-oriented
investments, as well as investments made to enhance or
accelerate LOB and Corporate strategic business initiatives.
The Firm's principal investments are managed by the LOBS
and Corporate and are reflected within their respective
financial results.
As of December 31, 2019 and 2018, the aggregate
carrying values of the principal investment portfolios were
$24.2 billion and $22.2 billion, respectively, which included
tax-oriented investments (e.g., affordable housing and
alternative energy investments) of $18.2 billion and $16.6
billion, respectively, and private equity, various debt and
equity instruments, and real assets of $6.0 billion and $5.6
billion, respectively.
Governance and oversight
The Firm's approach to managing principal risk is consistent
with the Firm's risk governance structure. A Firmwide risk
policy framework exists for all principal investing activities
and includes approval by executives who are independent
from the investing businesses, as appropriate.
The Firm's independent control functions are responsible
for reviewing the appropriateness of the carrying value of
investments in accordance with relevant policies. As part of
the risk governance structure, approved levels for
investments are established and monitored for each
relevant business or segment in order to manage the overall
size of the portfolios. The Firm also conducts stress testing
on these portfolios using specific scenarios that estimate
losses based on significant market moves and/or other risk
events.
118
JPMorgan Chase & Co./2019 Form 10-K
Market risk is the risk associated with the effect of changes
in market factors, such as interest and foreign exchange
rates, equity and commodity prices, credit spreads or
implied volatilities, on the value of assets and liabilities held
for both the short and long term.
JPMorgan Chase & Co./2019 Form 10-K
Investment securities risk includes the exposure associated
with a default in the payment of principal and interest. This
risk is mitigated given that the investment securities
portfolio held by Treasury and CIO is predominantly
invested in high-quality securities. At December 31, 2019,
the Treasury and CIO investment securities portfolio was
$396.4 billion, and the average credit rating of the
securities comprising the portfolio was AA+ (based upon
external ratings where available and where not available,
based primarily upon internal risk ratings. Refer to
Corporate segment results on pages 77-78 and Note 10 for
further information on the investment securities portfolio
and internal risk ratings. Refer to Market Risk Management
on pages 119-126 for further information on the market
risk inherent in the portfolio. Refer to Liquidity Risk
Management on pages 93-98 for further information on
related liquidity risk.
Management's discussion and analysis
Basis and correlation risk
from changes in the way
asset values move
relative to one another
•
.
Interest rate risk and
prepayment risk
•
•
Positions included in Risk
Management VaR
•
•
•
Mortgage commitments,
classified as derivatives
Warehouse loans, classified
as trading assets - debt
instruments
Hedges of mortgage
commitments, warehouse
loans and MSRs, classified
as derivatives
119
Interest-only securities,
Risk of loss from adverse
movements in market
prices and implied
volatilities across interest
rate, foreign exchange,
credit, commodity and
equity instruments
•
MSRS
CIB
Makes markets and
services clients across
fixed income, foreign
exchange, equities and
commodities
Originates loans and
takes deposits
The following table summarizes the predominant business activities and related market risks, as well as positions which give
rise to market risk and certain measures used to capture those risks, for each LOB and Corporate.
LOBs and
Corporate
CCB
activities
Services mortgage
loans
Originates loans and
takes deposits
Related market risks
Predominant business
Risk from changes in the
probability of newly
originated mortgage
commitments closing
Interest rate risk and
prepayment risk
Deposits
•
•
Retained loan portfolio
•
In addition to the predominant business activities, each LOB and Corporate may engage in principal investing activities. To the
extent principal investments are deemed market risk sensitive, they are reflected in relevant risk measures (i.e., VaR or Other
sensitivity-based measures) and captured in the table below. Refer to Investment Portfolio Risk Management on page 118 for
additional discussion on principal investments.
earnings-at-risk
•
Positions included in other
sensitivity-based measures
11.7
13.0
India
4.6
3.6
3.1
11.3
11.8
4.4
3.8
4.8
5.8
2.4
Brazil
Netherlands
9.0
14.3
6.9
6.5
0.9
7.2
18.1
17.9
Canada
12.0
4.8
1.1
13.2
Luxembourg
12.1
0.8
12.9
11.0
Australia
0.1
7.3
2.6
4.3
Saudi Arabia
4.7
0.5
5.2
5.3
Hong Kong SAR
2.6
1.7
0.8
5.1
5.4
Mexico
3.9
10.7
0.8
5.1
5.8
3.2
Spain
1.6
0.9
6.8
6.8
Italy
2.4
4.2
Singapore
0.2
6.4
South Korea
4.5
1.8
0.1
6.4
7.6
6.8
France
Risk reporting
18.3
Lending exposures are measured at the total committed
amount (funded and unfunded), net of the allowance for
credit losses and eligible cash and marketable securities
collateral received
Deposits are measured as the cash balances placed with
central and commercial banks
Securities financing exposures are measured at their
receivable balance, net of eligible collateral received
Debt and equity securities are measured at the fair value
of all positions, including both long and short positions
Counterparty exposure on derivative receivables is
measured at the derivative's fair value, net of the fair
value of the eligible collateral received
Credit derivatives protection purchased and sold is
reported based on the underlying reference entity and is
measured at the notional amount of protection
purchased or sold, net of the fair value of the recognized
derivative receivable or payable. Credit derivatives
protection purchased and sold in the Firm's market-
making activities is measured on a net basis, as such
activities often result in selling and purchasing
protection related to the same underlying reference
entity; this reflects the manner in which the Firm
manages these exposures
Some activities may create contingent or indirect exposure
related to a country (for example, providing clearing
services or secondary exposure to collateral on securities
financing receivables). These exposures are managed in the
normal course of business through the Firm's credit,
market, and operational risk governance, rather than
through Country Risk Management.
The Firm's internal country risk reporting differs from the
reporting provided under the FFIEC bank regulatory
requirements. Refer to Cross-border outstandings on page
306 of the 2019 Form 10-K for further information on the
FFIEC's reporting methodology.
JPMorgan Chase & Co./2019 Form 10-K
127
Management's discussion and analysis
Stress testing
Stress testing is an important component of the Firm's
country risk management framework, which aims to
estimate and limit losses arising from a country crisis by
measuring the impact of adverse asset price movements to
a country based on market shocks combined with
counterparty specific assumptions. Country Risk
Management periodically designs and runs tailored stress
scenarios to test vulnerabilities to individual countries or
sets of countries in response to specific or potential market
events, sector performance concerns, sovereign actions and
geopolitical risks. These tailored stress results are used to
inform potential risk reduction across the Firm, as
necessary.
Country exposure and stress are measured and reported
regularly, and used by Country Risk Management to identify
trends, and monitor high usages and breaches against
limits.
For country risk management purposes, the Firm may
report exposure to jurisdictions that are not fully
autonomous, including Special Administrative Regions
("SAR") and dependent territories, separately from the
independent sovereign states with which they are
associated.
The following table presents the Firm's top 20 exposures by
country (excluding the U.S.) as of December 31, 2019, and
their comparative exposures as of December 31, 2018. The
selection of countries represents the Firm's largest total
exposures by country, based on the Firm's internal country
risk management approach, and does not represent the
Firm's view of any actual or potentially adverse credit
conditions.
•
Country exposures may fluctuate from period to period due
to client activity and market flows. The increase in exposure
in Japan is largely due to increased cash balances placed
with the central bank of Japan, driven by client activity.
•
•
4.7
COUNTRY RISK MANAGEMENT
The Firm, through its LOBS and Corporate, may be exposed
to country risk resulting from financial, economic, political
or other significant developments which adversely affect
the value of the Firm's exposures related to a particular
country or set of countries. The Country Risk Management
group actively monitors the various portfolios which may be
impacted by these developments and measures the extent
to which the Firm's exposures are diversified given the
Firm's strategy and risk tolerance relative to a country.
Organization and management
Country Risk Management is an independent risk
management function that assesses, manages and monitors
country risk originated across the Firm.
The Firm's country risk management function includes the
following activities:
•
•
•
Establishing policies, procedures and standards
consistent with a comprehensive country risk framework
Assigning sovereign ratings, assessing country risks and
establishing risk tolerance relative to a country
Measuring and monitoring country risk exposure and
stress across the Firm
Managing and approving country limits and reporting
trends and limit breaches to senior management
Developing surveillance tools, such as signaling models
and ratings indicators, for early identification of
potential country risk concerns
Providing country risk scenario analysis
Sources and measurement
The Firm is exposed to country risk through its lending and
deposits, investing, and market-making activities, whether
cross-border or locally funded. Country exposure includes
activity with both government and private-sector entities in
a country. Under the Firm's internal country risk
management approach, attribution of exposure to a specific
country is based on the country where the largest
proportion of the assets of the counterparty, issuer, obligor
or guarantor are located or where the largest proportion of
its revenue is derived, which may be different than the
domicile (i.e. legal residence) or country of incorporation of
the counterparty, issuer, obligor or guarantor. Country
exposures are generally measured by considering the Firm's
risk to an immediate default of the counterparty, issuer,
obligor or guarantor, with zero recovery. Assumptions are
sometimes required in determining the measurement and
allocation of country exposure, particularly in the case of
certain non-linear or index exposures. The use of different
measurement approaches or assumptions could affect the
amount of reported country exposure.
Under the Firm's internal country risk measurement
framework:
•
Top 20 country exposures (excluding the U.S.) (a)
December 31,
(in billions)
2019
31.0
9.9
1.5
42.4
40.7
China
11.3
6.5
1.4
19.2
19.3
Switzerland
10.9
0.8
6.6
United Kingdom
29.1
43.8
0.3
2018(e)
Lending
and
deposits (b)
Trading and
investing (c)
Other(d)
Total
exposure
Total
exposure
12.8
Germany
45.8 $
5.4 $
0.4 $ 51.6
$ 62.1
Japan
35.5
8.0
$
5.5
0.8
1.8
Management's discussion and analysis
LEGAL RISK MANAGEMENT
Legal risk, a subcategory of operational risk, is the risk of
loss primarily caused by the actual or alleged failure to
meet legal obligations that arise from the rule of law in
jurisdictions in which the Firm operates, agreements with
clients and customers, and products and services offered by
the Firm.
•
Overview
The global Legal function (“Legal") provides legal services
and advice to the Firm. Legal is responsible for managing
the Firm's exposure to legal risk by:
133
managing actual and potential litigation and
enforcement matters, including internal reviews and
investigations related to such matters
advising on offering and marketing documents and new
business initiatives
managing dispute resolution
interpreting existing laws, rules and regulations, and
advising on changes thereto
advising on advocacy in connection with contemplated
and proposed laws, rules and regulations, and
•
providing legal advice to the LOBS and Corporate, in
alignment with the lines of defense described under
Firmwide Risk Management on pages 79-83.
advising on products and services, including contract
negotiation and documentation
JPMorgan Chase & Co./2019 Form 10-K
Conduct risk management encompasses various aspects of
people management practices throughout the employee life
cycle, including recruiting, onboarding, training and
development, performance management, promotion and
compensation processes. Each LOB, Treasury and CIO, and
designated corporate functions completes an assessment of
conduct risk periodically, reviews metrics and issues which
may involve conduct risk, and provides business conduct
training as appropriate.
Each committee of the Board oversees conduct risks within
its scope of responsibilities, and the CRSC may escalate to
such committees as appropriate.
CCOR Management implements policies and standards
designed to govern, identify, measure, monitor and test,
manage, and report compliance risk.
Governance and oversight
Compliance is led by the Firm's Global CCO and FRE for
Operational Risk.
The Firm maintains oversight and coordination of its
compliance risk through the implementation of the CCOR
Risk Management Framework. The Firm's CCO also provides
regular updates to the Audit Committee and the Board Risk
Committee. In addition, certain Special Purpose Committees
of the Board have previously been established to oversee
the Firm's compliance with regulatory Consent Orders.
Code of Conduct
The Firm has a Code of Conduct (the "Code") that sets forth
the Firm's expectation that employees will conduct
themselves with integrity at all times and provides the
principles that govern employee conduct with clients,
customers, shareholders and one another, as well as with
the markets and communities in which the Firm does
business. The Code requires employees to promptly report
any known or suspected violation of the Code, any internal
Firm policy, or any law or regulation applicable to the Firm's
business. It also requires employees to report any illegal
conduct, or conduct that violates the underlying principles
of the Code, by any of the Firm's employees, clients,
customers, suppliers, contract workers, business partners,
or agents. All newly hired employees are assigned Code
training and current employees are periodically assigned
Code training on an ongoing basis. Employees are required
to affirm their compliance with the Code periodically.
Employees can report any potential or actual violations of
the Code through the Code Reporting Hotline by phone or
the internet. The Hotline is anonymous, except in certain
non-U.S. jurisdictions where laws prohibit anonymous
reporting, and is available at all times globally, with
translation services. It is administered by an outside service
provider. The Code prohibits retaliation against anyone who
raises an issue or concern in good faith. Periodically, the
Audit Committee receives reports on the Code of Conduct
program.
132
JPMorgan Chase & Co./2019 Form 10-K
CONDUCT RISK MANAGEMENT
Conduct risk, a subcategory of operational risk, is the risk
that any action or inaction by an employee or employees
could lead to unfair client or customer outcomes, impact
the integrity of the markets in which the Firm operates, or
compromise the Firm's reputation.
Overview
Each LOB and Corporate is accountable for identifying and
managing its conduct risk to provide appropriate
engagement, ownership and sustainability of a culture
consistent with the Firm's How We Do Business Principles
(the "Principles"). The Principles serve as a guide for how
employees are expected to conduct themselves. With the
Principles serving as a guide, the Firm's Code sets out the
Firm's expectations for each employee and provides
information and resources to help employees conduct
business ethically and in compliance with the laws
everywhere the Firm operates. Refer to Compliance Risk
Management on page 132 for further discussion of the
Code.
Governance and oversight
The Conduct Risk Program is governed by the CCOR
Management policy, which establishes the framework for
governance, identification, measurement, monitoring and
testing, management and reporting conduct risk in the
Firm.
The Conduct Risk Steering Committee (CRSC) provides
oversight of the Firm's conduct initiatives to develop a more
holistic view of conduct risks and to connect key programs
across the Firm in order to identify opportunities and
emerging areas of focus.
Legal selects, engages and manages outside counsel for the
Firm on all matters in which outside counsel is engaged. In
addition, Legal advises the Firm's Conflicts Office which
reviews the Firm's wholesale transactions that may have the
potential to create conflicts of interest for the Firm.
Other functions provide oversight of significant regulatory
obligations that are specific to their respective areas of
responsibility.
Governance and oversight
Legal serves on and advises various committees (including
new business initiative and reputation risk committees) and
advises the Firm's LOBS and Corporate on potential
reputation risk issues.
136
•
A combined 5% decline in housing prices and a 100
basis point increase in unemployment rates from
expectations could imply:
°
°
an increase to modeled credit loss estimates of
approximately $250 million for PCI loans.
To illustrate the potential magnitude of certain alternate
judgments, the Firm estimates that changes in the following
inputs would have the following effects on the Firm's
modeled credit loss estimates as of December 31, 2019,
without consideration of any offsetting or correlated effects
of other inputs in the Firm's allowance for loan losses:
an increase to modeled annual credit loss estimates
of approximately $50 million for residential real
estate loans, excluding PCI loans.
An increase in probability of default ("PD") factors
consistent with a one-notch downgrade in the Firm's
internal risk ratings for its entire wholesale loan
portfolio could imply an increase in the Firm's modeled
credit loss estimates of approximately $1.6 billion.
A 100 basis point increase in estimated loss given
default ("LGD") for the Firm's entire wholesale loan
portfolio could imply an increase in the Firm's modeled
credit loss estimates of approximately $200 million.
The purpose of these sensitivity analyses is to provide an
indication of the isolated impacts of hypothetical
alternative assumptions on modeled loss estimates. The
changes in the inputs presented above are not intended to
imply management's expectation of future deterioration of
those risk factors. In addition, these analyses are not
intended to estimate changes in the overall allowance for
loan losses, which would also be influenced by the judgment
management applies to the modeled loss estimates to
reflect the uncertainty and imprecision of these modeled
loss estimates based on then-current circumstances and
conditions.
It is difficult to estimate how potential changes in specific
factors might affect the overall allowance for credit losses
because management considers a variety of factors and
inputs in estimating the allowance for credit losses.
Changes in these factors and inputs may not occur at the
same rate and may not be consistent across all geographies
or product types, and changes in factors may be
directionally inconsistent, such that improvement in one
factor may offset deterioration in other factors. In addition,
it is difficult to predict how changes in specific economic
conditions or assumptions could affect borrower behavior
or other factors considered by management in estimating
the allowance for credit losses. Given the process the Firm
follows and the judgments made in evaluating the risk
factors related to its loss estimates, management believes
that its current estimate of the allowance for credit losses is
appropriate.
Fair value
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. The majority of such assets and liabilities are
measured at fair value on a recurring basis, including,
derivatives and structured note products. Certain assets
and liabilities are measured at fair value on a nonrecurring
basis, including certain mortgage, home equity and other
JPMorgan Chase & Co./2019 Form 10-K
Malaysia
For credit card loans, a 100 basis point increase in
unemployment rates from expectations could imply an
increase to modeled annual credit loss estimates of
approximately $850 million.
The Firm's allowance for credit losses is sensitive to
numerous factors, which may differ depending on the
portfolio. Changes in economic conditions or in the Firm's
assumptions and estimates could affect its estimate of
probable credit losses inherent in the portfolio at the
balance sheet date. The Firm uses its best judgment to
assess these economic conditions and loss data in
estimating the allowance for credit losses and these
estimates are subject to periodic refinement based on
changes to underlying external or Firm-specific historical
data. Refer to Note 13 for further discussion.
Allowance for credit losses sensitivity
The allowance for credit losses includes a formula-based
component, an asset-specific component, and a component
related to PCI loans. The determination of each of these
components involves significant judgment on a number of
matters. Refer to Allowance for credit losses on pages 116-
117 and Note 13 for further information on these
components, areas of judgment and methodologies used in
establishing the Firm's allowance for credit losses.
134
JPMorgan Chase & Co./2019 Form 10-K
ESTIMATIONS AND MODEL RISK MANAGEMENT
Estimations and Model risk, a subcategory of operational
risk, is the potential for adverse consequences from
decisions based on incorrect or misused estimation outputs.
The Firm uses models and other analytical and judgment-
based estimations across various businesses and functions.
The estimation methods are of varying levels of
sophistication and are used for many purposes, such as the
valuation of positions and measurement of risk, assessing
regulatory capital requirements, conducting stress testing,
and making business decisions. A dedicated independent
function, Model Risk Governance and Review ("MRGR"),
defines and governs the Firm's policies relating to the
management of model risk and risks associated with certain
analytical and judgment-based estimations, such as those
used in risk management, budget forecasting and capital
planning and analysis.
The governance of analytical and judgment-based
estimations within MRGR's scope follows a consistent
approach to the approach used for models, which is
described in detail below.
Model risks are owned by the users of the models within the
Firm based on the specific purposes of such models. Users
and developers of models are responsible for developing,
implementing and testing their models, as well as referring
models to the Model Risk function for review and approval.
Once models have been approved, model users and
developers are responsible for maintaining a robust
operating environment, and must monitor and evaluate the
performance of the models on an ongoing basis. Model
users and developers may seek to enhance models in
response to changes in the portfolios and in product and
market developments, as well as to capture improvements
in available modeling techniques and systems capabilities.
Models are tiered based on an internal standard according
to their complexity, the exposure associated with the model
and the Firm's reliance on the model. This tiering is subject
to the approval of the Model Risk function. In its review of a
model, the Model Risk function considers whether the
model is suitable for the specific purposes for which it will
be used. When reviewing a model, the Model Risk function
analyzes and challenges the model methodology and the
reasonableness of model assumptions, and may perform or
require additional testing, including back-testing of model
outcomes. Model reviews are approved by the appropriate
level of management within the Model Risk function based
on the relevant model tier.
Refer to Critical Accounting Estimates Used by the Firm on
pages 136-138 and Note 2 for a summary of model-based
valuations and other valuation techniques.
JPMorgan Chase & Co./2019 Form 10-K
135
Management's discussion and analysis
CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM
JPMorgan Chase's accounting policies and use of estimates
are integral to understanding its reported results. The
Firm's most complex accounting estimates require
management's judgment to ascertain the appropriate
carrying value of assets and liabilities. The Firm has
established policies and control procedures intended to
ensure that estimation methods, including any judgments
made as part of such methods, are well-controlled,
independently reviewed and applied consistently from
period to period. The methods used and judgments made
reflect, among other factors, the nature of the assets or
liabilities and the related business and risk management
strategies, which may vary across the Firm's businesses and
portfolios. In addition, the policies and procedures are
intended to ensure that the process for changing
methodologies occurs in an appropriate manner. The Firm
believes its estimates for determining the carrying value of
its assets and liabilities are appropriate. The following is a
brief description of the Firm's critical accounting estimates
involving significant judgments.
Allowance for credit losses
The Firm's allowance for credit losses covers the retained
consumer and wholesale loan portfolios, as well as the
Firm's wholesale and certain consumer lending-related
commitments. The allowance for loan losses is intended to
adjust the carrying value of the Firm's loans to reflect
probable credit losses inherent in the loan portfolio as of
the balance sheet date. Similarly, the allowance for lending-
related commitments is established to cover probable credit
losses inherent in the lending-related commitments
portfolio as of the balance sheet date.
The Firm's General Counsel reports to the CEO and is a
member of the Operating Committee, the Firmwide Risk
Committee and the Firmwide Control Committee. The Firm's
General Counsel and other members of Legal report on
significant legal matters to the Firm's Board of Directors
and periodically to the Audit Committee.
These compliance risks relate to a wide variety of legal and
regulatory obligations, depending on the LOB and the
jurisdiction, and include risks related to financial products
and services, relationships and interactions with clients and
customers, and employee activities. For example,
compliance risks include those associated with anti-money
laundering compliance, trading activities, market conduct,
and complying with the rules and regulations related to the
offering of products and services across jurisdictional
borders. Compliance risk is also inherent in the Firm's
fiduciary activities, including the failure to exercise the
applicable standard of care (such as the duties of loyalty or
care), to act in the best interest of clients and customers or
to treat clients and customers fairly.
Under the Firm's Estimations and Model Risk Management
Policy, the Model Risk function reviews and approves new
models, as well as material changes to existing models,
prior to implementation in the operating environment. In
certain circumstances exceptions may be granted to the
Firm's policy to allow a model to be used prior to review or
approval. The Model Risk function may also require the user
to take appropriate actions to mitigate the model risk if it is
to be used in the interim. These actions will depend on the
model and may include, for example, limitation of trading
activity.
Overview
The Firm utilizes a structured risk and control self-
assessment process that is executed by the LOBS and
Corporate. As part of this process, the LOBS and Corporate
evaluate the effectiveness of their control environment to
assess where controls have failed, and to determine where
remediation efforts may be required. CCOR Management
JPMorgan Chase & Co./2019 Form 10-K
provides oversight of these activities and may also perform
independent assessments of significant operational risk
events and areas of concentrated or emerging risk.
Operational Risk Measurement
CCOR Management performs independent risk assessments
of the Firm's operational risks, which includes assessing the
effectiveness of the control environment and reporting the
results to senior management.
In addition, operational risk measurement includes
operational risk-based capital and operational risk loss
projections under both baseline and stressed conditions.
The Firm's CCOR Management policy establishes the CCOR
Management Framework for the Firm. The CCOR
Management Framework is articulated in the Risk
Governance and Oversight Policy which is reviewed and
approved by the Board Risk Committee periodically.
Operational Risk identification
The primary component of the operational risk capital
estimate is the Loss Distribution Approach ("LDA")
statistical model, which simulates the frequency and
severity of future operational risk loss projections based on
historical data. The LDA model is used to estimate an
aggregate operational risk loss over a one-year time
horizon, at a 99.9% confidence level. The LDA model
incorporates actual internal operational risk losses in the
quarter following the period in which those losses were
realized, and the calculation generally continues to reflect
such losses even after the issues or business activities
giving rise to the losses have been remediated or reduced.
As required under the Basel III capital framework, the Firm's
operational risk-based capital methodology, which uses the
Advanced Measurement Approach ("AMA"), incorporates
internal and external losses as well as management's view
of tail risk captured through operational risk scenario
analysis, and evaluation of key business environment and
internal control metrics. The Firm does not reflect the
impact of insurance in its AMA estimate of operational risk
capital.
Refer to Capital Risk Management section, on pages 85-92
for information related to operational risk RWA, and CCAR.
Operational Risk Monitoring and testing
The results of risk assessments performed by CCOR
Management are leveraged as one of the key criteria in the
independent monitoring and testing of the LOBS and
Corporate's compliance with laws and regulation. Through
monitoring and testing, CCOR Management independently
identifies areas of operational risk and tests the
effectiveness of controls within the LOBS and Corporate.
129
Management's discussion and analysis
Management of Operational Risk
The operational risk areas or issues identified through
monitoring and testing are escalated to the LOBS and
Corporate to be remediated through action plans, as
needed, to mitigate operational risk. CCOR Management
may advise the LOBS and Corporate in the development and
implementation of action plans.
The Firm considers the impact of stressed economic
conditions on operational risk losses and develops a
forward looking view of material operational risk events
that may occur in a stressed environment. The Firm's
operational risk stress testing framework is utilized in
calculating results for the Firm's CCAR and other stress
testing processes.
The Firm's Global Chief Compliance Officer ("CCO") and FRE
for Operational Risk is responsible for defining the CCOR
Management Framework and establishing minimum
standards for its execution. Operational Risk Officers
("OROS") report to both the LOB CROS and to the FRE for
Operational Risk, and are independent of the respective
businesses or functions they oversee.
LOBS and Corporate control committees are responsible for
reviewing data that indicates the quality and stability of
processes, addressing key operational risk issues, focusing
on processes with control concerns, and overseeing control
remediation.
The LOBS and Corporate hold ownership, responsibility and
accountability for the management of operational risk. The
Control Management Organization, which consists of control
managers within each LOB and Corporate, is responsible for
the day-to-day execution of the CCOR Framework and the
evaluation of the effectiveness of their control
environments to determine where targeted remediation
efforts may be required.
0.8
Each LOB and Corporate hold primary ownership of and
accountability for managing compliance risk. The Firm's
Compliance Organization ("Compliance"), which is
independent of the LOBS, provides independent review,
monitoring and oversight of business operations with a
focus on compliance with the legal and regulatory
obligations applicable to the delivery of the Firm's products
and services to clients and customers.
0.8
3.4
4.3
I
(a) Top 20 country exposures reflect approximately 88% and 87% of
total Firmwide non-U.S. exposure, where exposure is attributed to a
specific country, at December 31, 2019 and 2018, respectively.
(b) Lending and deposits includes loans and accrued interest receivable
(net of eligible collateral and the allowance for loan losses), deposits
with banks (including central banks), acceptances, other monetary
assets, issued letters of credit net of participations, and unused
commitments to extend credit. Excludes intra-day and operating
exposures, such as those from settlement and clearing activities.
(c) Includes market-making inventory, AFS securities, and counterparty
exposure on derivative and securities financings net of eligible
collateral and hedging. Includes exposure from single reference entity
("single-name"), index and other multiple reference entity transactions
for which one or more of the underlying reference entities is in a
country listed in the above table.
(d) Predominantly includes physical commodity inventory.
(e) The country rankings presented in the table as of December 31, 2018,
are based on the country rankings of the corresponding exposures at
December 31, 2019, not actual rankings of such exposures at
December 31, 2018.
128
JPMorgan Chase & Co./2019 Form 10-K
OPERATIONAL RISK MANAGEMENT
Operational risk is the risk associated with an adverse
outcome resulting from inadequate or failed internal
processes or systems; human factors; or external events
impacting the Firm's processes or systems; it includes
compliance, conduct, legal, and estimations and model risk.
Operational risk is inherent in the Firm's activities and can
manifest itself in various ways, including fraudulent acts,
business interruptions, cybersecurity attacks, inappropriate
employee behavior, failure to comply with applicable laws
and regulations or failure of vendors to perform in
accordance with their agreements. Operational Risk
Management attempts to manage operational risk at
appropriate levels in light of the Firm's financial position,
the characteristics of its businesses, and the markets and
regulatory environments in which it operates.
Operational Risk Management Framework
The Firm's Compliance, Conduct, and Operational Risk
("CCOR") Management Framework is designed to enable the
Firm to govern, identify, measure, monitor and test,
manage and report on the Firm's operational risk.
Operational Risk Reporting
Escalation of risks is a fundamental expectation for
employees at the Firm. Risks identified by CCOR
Management are escalated to the appropriate LOB and
Corporate Control Committees, as needed. CCOR
Management has established standards to ensure that
consistent operational risk reporting and operational risk
reports are produced on a Firmwide basis as well as by
LOBS and Corporate. Reporting includes the evaluation of
key risk indicators and key performance indicators against
established thresholds as well as the assessment of
different types of operational risk against stated risk
appetite. The standards reinforce escalation protocols to
senior management and to the Board of Directors.
Subcategories and examples of operational risks
Operational risk can manifest itself in various ways.
Operational risk subcategories such as Compliance risk,
Conduct risk, Legal risk, and Estimations and Model risk as
well as other operational risks, can lead to losses which are
captured through the Firm's operational risk measurement
processes. Refer to pages 132, 133, and 134, respectively
for more information on Compliance, Conduct, Legal, and
Estimations and Model risk. Details on other select
examples of operational risks are provided below.
Operational Risk Governance
Cybersecurity risk is an important, continuous and evolving
focus for the Firm. The Firm devotes significant resources to
protecting and continuing to improve the security of its
computer systems, software, networks and other
technology assets. The Firm's security efforts are designed
to protect against, among other things, cybersecurity
attacks by unauthorized parties attempting to obtain access
to confidential information, destroy data, disrupt or
degrade service, sabotage systems or cause other damage.
The Firm continues to make significant investments in
enhancing its cyberdefense capabilities and to strengthen
its partnerships with the appropriate government and law
enforcement agencies and other businesses in order to
understand the full spectrum of cybersecurity risks in the
operating environment, enhance defenses and improve
resiliency against cybersecurity threats. The Firm actively
participates in discussions of cybersecurity risks with law
enforcement, government officials, peer and industry
groups, and has significantly increased efforts to educate
employees and certain clients on the topic.
The IRM function provides oversight of the activities
designed to identify, assess, measure, and mitigate
cybersecurity risk.
The Firm's Security Awareness Program includes training
that reinforces the Firm's Information Technology Risk and
Security Management policies, standards and practices, as
well as the expectation that employees comply with these
policies. The Security Awareness Program engages
personnel through training on how to identify potential
cybersecurity risks and protect the Firm's resources and
information. This training is mandatory for all employees
globally on a periodic basis, and it is supplemented by
Firmwide testing initiatives, including periodic phishing
tests. Finally, the Firm's Global Privacy Program requires all
employees to take periodic awareness training on data
privacy. This privacy-focused training includes information
about confidentiality and security, as well as responding to
unauthorized access to or use of information.
Business and technology resiliency risk
Business disruptions can occur due to forces beyond the
Firm's control such as severe weather, power or
telecommunications loss, accidents, failure of a third party
to provide expected services, cyberattack, flooding, transit
strikes, terrorism, health emergencies, the spread of
infectious diseases or pandemics. The safety of the Firm's
employees and customers is of the highest priority. The
Firmwide resiliency program is intended to enable the Firm
to recover its critical business functions and supporting
assets (i.e., staff, technology and facilities) in the event of a
business interruption. The program includes governance,
awareness training, and testing of recovery strategies, as
well as strategic and tactical initiatives to identify, assess,
and manage business interruption and public safety risks.
The strength and proficiency of the Firmwide resiliency
program has played an integral role in maintaining the
Firm's business operations during and after various events.
Payment fraud risk
Payment fraud risk is the risk of external and internal
parties unlawfully obtaining personal monetary benefit
through misdirected or otherwise improper payment. The
risk of payment fraud remains at a heightened level across
the industry. The complexities of these incidents and the
strategies used by perpetrators continue to evolve. Under
the Payments Control Program, methods are developed for
managing the risk, implementing controls, and providing
employee and client education and awareness trainings. The
Firm's monitoring of customer behavior is periodically
evaluated and enhanced in an effort to detect and mitigate
new strategies implemented by fraud perpetrators.
The Firm's Third-Party Oversight ("TPO") and Inter-affiliates
Oversight ("IAO") framework assist the LOBS and Corporate
in selecting, documenting, onboarding, monitoring and
managing their supplier relationships including services
provided by affiliates. The objectives of the TPO framework
is to hold suppliers to a high level of operational
performance and to mitigate key risks including data loss
and business disruption. The Corporate Third-Party
Oversight group is responsible for Firmwide training,
monitoring, reporting and standards.
Insurance
One of the ways in which operational risk may be mitigated
is through insurance maintained by the Firm. The Firm
purchases insurance from commercial insurers and
maintains a wholly-owned captive insurer, Park Assurance
Company. Insurance may also be required by third parties
with whom the Firm does business.
JPMorgan Chase & Co./2019 Form 10-K
131
Management's discussion and analysis
Cybersecurity risk
COMPLIANCE RISK MANAGEMENT
technology efforts. These forums are established at
multiple levels throughout the Firm and include
representatives from each LOB and Corporate. Reports
containing overviews of key technology risks and efforts to
enhance related controls are produced for these forums,
and are reviewed by management at multiple levels. The
forums are used to escalate information security risks or
other matters as appropriate.
JPMorgan Chase & Co./2019 Form 10-K
Third-party outsourcing risk
The Global Cybersecurity and Technology Control
governance structure is designed to identify, escalate, and
mitigate information security risks. This structure uses key
governance forums to disseminate information and monitor
Third parties with which the Firm does business or that
facilitate the Firm's business activities (e.g., vendors,
exchanges, clearing houses, central depositories, and
financial intermediaries) are also sources of cybersecurity
•
130
risk to the Firm. Third party cybersecurity incidents such as
system breakdowns or failures, misconduct by the
employees of such parties, or cyberattacks could affect
their ability to deliver a product or service to the Firm or
result in lost or compromised information of the Firm or its
clients. Clients are also sources of cybersecurity risk to the
Firm, particularly when their activities and systems are
beyond the Firm's own security and control systems. As a
result, the Firm engages in regular and ongoing discussions
with certain vendors and clients regarding cybersecurity
risks and opportunities to improve security. However, where
cybersecurity incidents occur as a result of client failures to
maintain the security of their own systems and processes,
clients are responsible for losses incurred.
To protect the confidentiality, integrity and availability of
the Firm's infrastructure, resources and information, the
Firm maintains a cybersecurity program designed to
prevent, detect, and respond to cyberattacks. The Audit
Committee is updated periodically on the Firm's Information
Security Program, recommended changes, cybersecurity
policies and practices, ongoing efforts to improve security,
as well as its efforts regarding significant cybersecurity
events. In addition, the Firm has a cybersecurity incident
response plan ("IRP") designed to enable the Firm to
respond to attempted cybersecurity incidents, coordinate
such responses with law enforcement and other
government agencies, and notify clients and customers, as
applicable. Among other key focus areas, the IRP is
designed to mitigate the risk of insider trading connected to
a cybersecurity incident, and includes various escalation
points.
The Cybersecurity and Technology Control functions are
responsible for governance and oversight of the Firm's
Information Security Program. In partnership with the
Firm's LOBS and Corporate, the Cybersecurity and
Technology Control organization identifies information
security risk issues and oversees programs for the
technological protection of the Firm's information resources
including applications, infrastructure as well as confidential
and personal information related to the Firm's customers.
The Cybersecurity and Technology organization is
comprised of business aligned information security
managers that are supported within the organization by the
following products that execute the Information Security
Program for the Firm:
•
Cyber Defense & Fraud
Data Management, Protection & Privacy
Compliance risk, a subcategory of operational risk, is the
risk of failing to comply with laws, rules, regulations or
codes of conduct and standards of self-regulatory
organizations.
•
Identity & Access Management
Governance & Controls
Production Management & Resiliency
•
Software & Platform Enablement
JPMorgan Chase & Co./2019 Form 10-K
Card income
Mortgage fees and related income
Investment securities gains/(losses)
Asset management, administration and commissions
Lending- and deposit-related fees
Principal transactions
Investment banking fees
Revenue
145
Consolidated statements of income
Other income
JPMorgan Chase & Co./2019 Form 10-K
We have served as the Firm's auditor since 1965.
Report of Independent Registered Public Accounting Firm
February 25, 2020
PricewaterhouseCoopers LLP
Addressing the matter involved performing procedures and
evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements.
These procedures included testing the effectiveness of
controls relating to the Firm's allowance for loan losses
estimation processes. These procedures also included, among
others, testing management's process for estimating the
allowance for loan losses, which included evaluating the
appropriateness of the models and methodologies used in the
statistical credit loss estimates for the wholesale, credit card
and consumer loan portfolios; testing the completeness and
accuracy of data; and evaluating the reasonableness of
assumptions and judgments used in the statistical credit loss
estimate and the adjustments to the statistical credit loss
significant judgment and estimation by management in
determining the modeling techniques utilized in their
statistical credit loss estimates, which in turn led to a high
degree of auditor judgment, subjectivity and effort in
performing procedures and in evaluating audit evidence
obtained relating to the statistical credit loss estimates and
the appropriateness of the adjustments to the statistical loss
estimates, and (ii) the audit effort involved professionals with
specialized skill and knowledge to assist in evaluating the
audit evidence.
Year ended December 31, (in millions, except per share data)
estimates. This included, as relevant, evaluating the
reasonableness of probabilities of default, loss severities and
loss given default. Evaluating management's adjustment to
the statistical credit loss estimate included evaluating the
reasonableness of the impacts of model imprecision and
external factors and economic events which have occurred
but are not yet otherwise reflected in the statistical credit
loss estimate. The procedures included the use of
professionals with specialized skill and knowledge to assist in
evaluating the appropriateness of certain models,
methodologies and inputs into the statistical credit loss
estimates.
12,059
Interest income(a)
17,118
The principal considerations for our determination that
performing procedures relating to the allowance for loan
losses for the wholesale loan, credit card loan, and consumer
loan portfolios is a critical audit matter are (i) there was
17,165
5,933
6,052
6,369
11,347
14,018
7,412
Noninterest revenue
$
7,501 $
$
2017
2018
2019
Provision for credit losses
Total net revenue
Net interest income
Interest expense(a)
7,550
As described in Note 13 to the consolidated financial
statements, the Firm's allowance for loan losses represents
management's estimate of probable credit losses inherent in
the Firm's retained loan portfolios, which primarily consists
of wholesale loans, credit card loans and consumer loans. As
of December 31, 2019, the allowance for loan losses was
$13.1 billion on total retained loans of $945.6 billion. The
Firm's allowance for loan losses is determined for each of the
retained loan portfolios utilizing a statistical credit loss
estimate. These statistical credit loss estimates are calculated
using statistical credit loss factors, specifically the probability
of default and loss severity for the credit card and consumer
loans and the probability of default and loss given default for
the wholesale loans. Management then applies judgment to
adjust these statistical loss estimates to take into
consideration model imprecision, external factors and
economic events that have occurred but are not yet reflected
in the loss factors.
(in billions, except ratios)
The principal considerations for our determination that
performing procedures relating to the fair value of mortgage
servicing rights assets is a critical audit matter are (i) there
was significant judgment and estimation by management in
determining the fair value of mortgage servicing rights,
which in turn led to a high degree of auditor judgment,
subjectivity and effort in performing procedures and in
evaluating the audit evidence obtained related to the
prepayment speed and option adjusted spread assumptions,
and (ii) the audit effort involved professionals with
specialized skill and knowledge to assist in evaluating the
audit evidence obtained from these procedures.
Addressing the matter involved performing procedures and
evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements.
These procedures included testing the effectiveness of
controls relating to the valuation of mortgage servicing
rights, including controls over the Firm's models,
assumptions, and data. These procedures also included,
among others, the involvement of professionals with
specialized skill and knowledge to assist in testing
management's process including testing and evaluating the
reasonableness of prepayment speed and option adjusted
spread assumptions used in the model.
Report of Independent Registered Public Accounting Firm
JPMorgan Chase & Co./2019 Form 10-K
142
February 25, 2020
loans, where the carrying value is based on the fair value of
the underlying collateral.
Assets measured at fair value
The following table includes the Firm's assets measured at
fair value and the portion of such assets that are classified
within level 3 of the valuation hierarchy. Refer to Note 2 for
further information.
December 31, 2019
Trading debt and equity instruments
pwc
Derivative receivables(a)
Total assets at
fair value
Total level
3 assets
$
361.3
$
3.4
49.7
4.7
16,287
Trading assets
To the Board of Directors and Shareholders of JPMorgan
Chase & Co.:
Opinions on the Financial Statements and Internal Control
over Financial Reporting
We have audited the accompanying consolidated balance
sheets of JPMorgan Chase & Co. and its subsidiaries (the
"Firm") as of December 31, 2019 and 2018, and the related
consolidated statements of income, comprehensive income,
changes in stockholders' equity and cash flows for each of the
three years in the period ended December 31, 2019,
including the related notes (collectively referred to as the
"consolidated financial statements"). We also have audited
the Firm's internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal
Control-Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
As described in Note 15 to the consolidated financial
statements, the Firm has elected to account for the Firm's
mortgage servicing rights assets at fair value, with balances
of $4.7 billion as of December 31, 2019. Management
estimates the fair value of mortgage servicing rights using an
option-adjusted spread model, which projects cash flows over
multiple interest rate scenarios in conjunction with the Firm's
prepayment model, and then discounts these cash flows at
risk-adjusted rates. The key economic assumptions used to
determine the fair value of mortgage servicing rights are
prepayment speeds and option adjusted spread.
Fair Value of Mortgage Servicing Rights Assets
144
Addressing the matter involved performing procedures and
evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements.
These procedures included testing the effectiveness of
controls relating to the Firm's processes for determining fair
value which include controls over models, inputs, and data.
These procedures also included, among others, the
involvement of professionals with specialized skill and
knowledge to assist in developing an independent estimate of
fair value for a sample of these financial instruments.
Developing the independent estimate involved testing the
completeness and accuracy of data provided by management,
developing independent inputs and, as appropriate,
evaluating and utilizing management's aforementioned
unobservable inputs; and comparing management's estimate
to the independently developed estimate of fair value.
The principal considerations for our determination that
performing procedures relating to the fair value of certain
level 3 financial instruments is a critical audit matter are (i)
there was significant judgment and estimation by
management in determining the inputs to estimate fair value,
which in turn led to a high degree of auditor judgment,
subjectivity, and effort in performing procedures related to
the fair value of these financial instruments, and (ii) the audit
effort involved professionals with specialized skill and
knowledge to assist in evaluating the audit evidence obtained
from these procedures.
As described in Notes 2 and 3 to the consolidated financial
statements, the Firm carries $802.8 billion of its assets and
$233.8 billion of its liabilities at fair value on a recurring
basis. Included in these balances are $8.1 billion of trading
assets and $37.7 billion of liabilities measured at fair value
on a recurring basis, collectively financial instruments, which
are classified as level 3 as they contain one or more inputs to
valuation which are unobservable and significant to their fair
value measurement. The Firm utilized internally developed
valuation models and unobservable inputs to estimate fair
value of the level 3 financial instruments. The unobservable
inputs used by management to estimate the fair value of
certain of these financial instruments include volatility
relating to interest rates and correlation relating to interest
rates, equity prices and foreign exchange rates.
Fair Value of Certain Level 3 Financial Instruments
The critical audit matters communicated below are matters
arising from the current period audit of the consolidated
financial statements that were communicated or required to
be communicated to the audit committee and that (i) relate
to accounts or disclosures that are material to the
consolidated financial statements and (ii) involved our
especially challenging, subjective, or complex judgments. The
communication of critical audit matters does not alter in any
way our opinion on the consolidated financial statements,
taken as a whole, and we are not, by communicating the
critical audit matters below, providing separate opinions on
the critical audit matters or on the accounts or disclosures to
which they relate.
Critical Audit Matters
Report of Independent Registered Public Accounting Firm
143
JPMorgan Chase & Co./2019 Form 10-K
PricewaterhouseCoopers LLP •300 Madison Avenue • New York, NY 10017
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A company's
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the
company are being made only in accordance with
authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use, or
disposition of the company's assets that could have a
material effect on the financial statements.
Definition and Limitations of Internal Control over Financial
Reporting
Our audits of the consolidated financial statements included
performing procedures to assess the risks of material
misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles used
and significant estimates made by management, as well as
evaluating the overall presentation of the consolidated
financial statements. Our audit of internal control over
financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included
performing such other procedures as we considered
necessary in the circumstances. We believe that our audits
provide a reasonable basis for our opinions.
We conducted our audits in accordance with the standards of
the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and
whether effective internal control over financial reporting
was maintained in all material respects.
The Firm's management is responsible for these consolidated
financial statements, for maintaining effective internal
control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Management's report on
internal control over financial reporting. Our responsibility is
to express opinions on the Firm's consolidated financial
statements and on the Firm's internal control over financial
reporting based on our audits. We are a public accounting
firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to
be independent with respect to the Firm in accordance with
the U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and
the PCAOB.
Basis for Opinions
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of the Firm as of December 31, 2019 and 2018, and
the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2019 in
conformity with accounting principles generally accepted in
the United States of America. Also in our opinion, the Firm
maintained, all material respects, effective internal control
over financial reporting as of December 31, 2019, based on
criteria established in Internal Control - Integrated Framework
(2013) issued by the COSO.
Allowance for Loan Losses - Wholesale Loan, Credit Card Loan
and Consumer Loan Portfolios
258
$
(66)
32,474 $
36,431 $
$
Net income applicable to common stockholders
Net income
11,459
8,290
8,114
35,900
24,441
40,764
59,515
63,394
65,497
6,079
5,731
5,087
Income tax expense
Income before income tax expense
Total noninterest expense
44,545
411.0
34,642
$
JPMorgan Chase & Co./2019 Form 10-K
146
The Notes to Consolidated Financial Statements are an integral part of these statements.
(a) In the second quarter of 2019, the Firm implemented certain presentation changes that impacted interest income and interest expense, but had no effect
on net interest income. These changes were applied retrospectively and, accordingly, prior period amounts were revised to conform with the current
presentation. Refer to Note 7 for additional information.
3,576.8
3,551.6
3,396.4
3,414.0
3,221.5
3,230.4
6.31
6.35
$
9.04
9.00
10.75 $
10.72
$
Weighted-average diluted shares
Weighted-average basic shares
Diluted earnings per share
Basic earnings per share
Net income per common share data
22,567
30,709 $
Other expense
(395)
2,900
3,579
55,059
57,245
13,874
21,041
26,795
63,971
76,100
84,040
50,608
50,097
53,970
3,646
5,343
5,731
4,433
4,989
5,304
1,616
1,254
2,036
58,382
115,627
109,029
100,705
Marketing
7,890
8,502
8,533
Professional and outside services
7,715
8,802
9,821
Technology, communications and equipment expense
3,723
3,952
4,322
Occupancy expense
31,208
33,117
34,155
Compensation expense
Noninterest expense
5,290
4,871
5,585
3,290
8.1
The Firm elected the available practical expedient to not
reassess whether existing contracts contain a lease or
whether classification or unamortized initial lease costs
would be different under the new lease guidance. The Firm
elected the modified retrospective transition method, through
a cumulative-effect adjustment to retained earnings without
revising prior periods.
350.7
•
Technology changes instituted by the Firm, its
counterparties or competitors;
The effectiveness of the Firm's control agenda;
Ability of the Firm to develop or discontinue products and
services, and the extent to which products or services
previously sold by the Firm (including but not limited to
mortgages and asset-backed securities) require the Firm
to incur liabilities or absorb losses not contemplated at
their initiation or origination;
Acceptance of the Firm's new and existing products and
services by the marketplace and the ability of the Firm to
innovate and to increase market share;
Ability of the Firm to attract and retain qualified
employees;
Ability of the Firm to control expenses;
Competitive pressures;
•
Changes in the credit quality of the Firm's clients,
customers and counterparties;
disclosure controls and procedures and internal control
over financial reporting;
•
Adverse judicial or regulatory proceedings;
•
Changes in applicable accounting policies, including the
introduction of new accounting standards;
•
Local, regional and global business, economic and
political conditions and geopolitical events;
•
Adequacy of the Firm's risk management framework,
•
•
•
•
The adoption of this guidance resulted in a net increase to the
allowance for credit losses of $4.3 billion and a decrease to
retained earnings of $2.7 billion, primarily driven by Card.
Under the CECL framework, the Firm estimates losses over a
two-year forecast period using the weighted-average of a
range of macroeconomic scenarios (established on a
Firmwide basis), and then reverts to longer term historical
loss experience to estimate losses over more extended
periods.
The Firm elected to phase-in the impact to retained earnings
of $2.7 billion to regulatory capital, at 25 percent per year in
each of 2020 to 2023 ("CECL transitional period"). Based on
the Firm's capital as of December 31, 2019, the estimated
impact to the Standardized CET1 capital ratio will be a
reduction of approximately 4 bps for each transitional year.
As permitted by the guidance, the Firm elected the fair value
option for certain securities financing agreements. The
difference between their carrying amount and fair value was
immaterial and was recorded as part of the Firm's
cumulative-effect adjustment.
Refer to Note 1 for further information.
Goodwill
Issued January
2017
.
Requires recognition of an impairment loss when
the estimated fair value of a reporting unit falls
below its carrying value.
• Eliminates the requirement that an impairment
loss be recognized only if the estimated implied
fair value of the goodwill is below its carrying
value.
•
•
•
No impact upon adoption as the guidance is to be applied
prospectively.
140
JPMorgan Chase & Co./2019 Form 10-K
FORWARD-LOOKING STATEMENTS
From time to time, the Firm has made and will make
forward-looking statements. These statements can be
identified by the fact that they do not relate strictly to
historical or current facts. Forward-looking statements often
use words such as “anticipate,” “target,” “expect,”
"estimate," "intend,” “plan,” “goal," "believe," or other
words of similar meaning. Forward-looking statements
provide JPMorgan Chase's current expectations or forecasts
of future events, circumstances, results or aspirations.
JPMorgan Chase's disclosures in this 2019 Form 10-K
contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. The
Firm also may make forward-looking statements in its other
documents filed or furnished with the SEC. In addition, the
Firm's senior management may make forward-looking
statements orally to investors, analysts, representatives of
the media and others.
All forward-looking statements are, by their nature, subject
to risks and uncertainties, many of which are beyond the
Firm's control. JPMorgan Chase's actual future results may
differ materially from those set forth in its forward-looking
statements. While there is no assurance that any list of risks
and uncertainties or risk factors is complete, below are
certain factors which could cause actual results to differ from
those in the forward-looking statements:
•
Adopted January 1, 2020.
•
Changes in laws and regulatory requirements, including
capital and liquidity requirements affecting the Firm's
businesses, and the ability of the Firm to address those
requirements;
Ability of the Firm to withstand disruptions that may be
caused by any failure of its operational systems or those
of third parties;
Ability of the Firm to effectively defend itself against
cyberattacks and other attempts by unauthorized parties
to access information of the Firm or its customers or to
disrupt the Firm's systems; and
The other risks and uncertainties detailed in Part I, Item
1A: Risk Factors in the JPMorgan Chase's 2019 Form 10-
K.
Any forward-looking statements made by or on behalf of the
Firm speak only as of the date they are made, and JPMorgan
Chase does not undertake to update any forward-looking
statements. The reader should, however, consult any further
disclosures of a forward-looking nature the Firm may make
in any subsequent Form 10-Ks, Quarterly Reports on Form
10-Qs, or Current Reports on Form 8-K.
JPMorgan Chase & Co./2019 Form 10-K
141
Management's report on internal control over financial reporting
Management of JPMorgan Chase & Co. ("JPMorgan Chase"
or the "Firm") is responsible for establishing and
maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a
process designed by, or under the supervision of, the Firm's
principal executive and principal financial officers, or
persons performing similar functions, and effected by
JPMorgan Chase's Board of Directors, management and
other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with accounting principles generally accepted in the United
States of America ("U.S. GAAP").
JPMorgan Chase's internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records, that, in reasonable detail,
accurately and fairly reflect the transactions and
Ability of the Firm to maintain the security of its financial,
accounting, technology, data processing and other
operational systems and facilities;
dispositions of the Firm's assets; (2) provide reasonable
assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance
with U.S. GAAP, and that receipts and expenditures of the
Firm are being made only in accordance with authorizations
of JPMorgan Chase's management and directors; and (3)
provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or
disposition of the Firm's assets that could have a material
effect on the financial statements.
Based upon the assessment performed, management
concluded that as of December 31, 2019, JPMorgan Chase's
internal control over financial reporting was effective based
upon the COSO 2013 framework. Additionally, based upon
management's assessment, the Firm determined that there
were no material weaknesses in its internal control over
financial reporting as of December 31, 2019.
The effectiveness of the Firm's internal control over
financial reporting as of December 31, 2019, has been
audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report
which appears herein.
James Dimon
James Dorin
спие
Chairman and Chief Executive Officer
Jenig, hijs
Jennifer Piepszak
Executive Vice President and Chief Financial Officer
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Management has
completed an assessment of the effectiveness of the Firm's
internal control over financial reporting as of December 31,
2019. In making the assessment, management used the
"Internal Control - Integrated Framework" ("COSO 2013")
promulgated by the Committee of Sponsoring Organizations
of the Treadway Commission ("COSO”).
Occurrence of natural or man-made disasters or
calamities, including health emergencies, the spread of
infectious diseases, pandemics or outbreaks of hostilities,
or the effects of climate change, and the Firm's ability to
deal effectively with disruptions caused by the foregoing;
Ability of the Firm to determine accurate values of certain
assets and liabilities;
•
Heightened regulatory and governmental oversight and
scrutiny of JPMorgan Chase's business practices, including
dealings with retail customers;
Changes in trade, monetary and fiscal policies and laws;
•
Changes in income tax laws and regulations;
•
Securities and capital markets behavior, including
changes in market liquidity and volatility;
•
•
•
Changes in investor sentiment or consumer spending or
savings behavior;
Ability of the Firm to manage effectively its capital and
liquidity, including approval of its capital plans by banking
regulators;
Changes in credit ratings assigned to the Firm or its
subsidiaries;
•
Damage to the Firm's reputation;
•
Ability of the Firm to appropriately address social,
environmental and sustainability concerns that may arise
from its business activities;
Ability of the Firm to deal effectively with an economic
slowdown or other economic or market disruption,
including, but not limited to, in the interest rate
environment;
•
•
•
AFS securities
•
•
1.8%
(a) For purposes of the table above, the derivative receivables total reflects the impact
of netting adjustments; however, the $4.7 billion of derivative receivables classified
as level 3 does not reflect the netting adjustment as such netting is not relevant to
a presentation based on the transparency of inputs to the valuation of an asset.
The level 3 balances would be reduced if netting were applied, including the netting
benefit associated with cash collateral.
Valuation
Details of the Firm's processes for determining fair value
are set out in Note 2. Estimating fair value requires the
application of judgment. The type and level of judgment
required is largely dependent on the amount of observable
market information available to the Firm. For instruments
valued using internally developed valuation models and
other valuation techniques that use significant
unobservable inputs and are therefore classified within
level 3 of the valuation hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate valuation technique to use. Second, the lack of
observability of certain significant inputs requires
management to assess all relevant empirical data in
deriving valuation inputs including, for example, transaction
details, yield curves, interest rates, prepayment rates,
default rates, volatilities, correlations, equity or debt prices,
valuations of comparable instruments, foreign exchange
rates and credit curves. Refer to Note 2 for a further
discussion of the valuation of level 3 instruments, including
unobservable inputs used.
For instruments classified in levels 2 and 3, management
judgment must be applied to assess the appropriate level of
valuation adjustments to reflect counterparty credit quality,
JPMorgan Chase & Co./2019 Form 10-K
the Firm's creditworthiness, market funding rates, liquidity
considerations, unobservable parameters, and for
portfolios that meet specified criteria, the size of the net
open risk position. The judgments made are typically
affected by the type of product and its specific contractual
terms, and the level of liquidity for the product or within the
market as a whole. Refer to Note 2 for a further discussion
of valuation adjustments applied by the Firm.
Imprecision in estimating unobservable market inputs or
other factors can affect the amount of gain or loss recorded
for a particular position. Furthermore, while the Firm
believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
0.6%
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of methodologies
or assumptions different than those used by the Firm could
result in a different estimate of fair value at the reporting
date. Refer to Note 2 for a detailed discussion of the Firm's
valuation process and hierarchy, and its determination of
fair value for individual financial instruments.
Goodwill impairment
For the year ended December 31, 2019, the Firm reviewed
current economic conditions, estimated market cost of equity,
as well as actual and projections of business performance for
all its businesses. Based upon such reviews, the Firm
concluded that the goodwill allocated to its reporting units
was not impaired as of December 31, 2019. The fair values of
these reporting units exceeded their carrying values by
approximately 15% or higher and did not indicate a
significant risk of goodwill impairment based on current
projections and valuations.
The projections for all of the Firm's reporting units are
consistent with management's current short-term business
outlook assumptions, and in the longer term, incorporate a
set of macroeconomic assumptions and the Firm's best
estimates of long-term growth and returns on equity of its
businesses. Where possible, the Firm uses third-party and
peer data to benchmark its assumptions and estimates.
Refer to Note 15 for additional information on goodwill,
including the goodwill impairment assessment as of
December 31, 2019.
Credit card rewards liability
JPMorgan Chase offers credit cards with various rewards
programs which allow cardholders to earn rewards points
based on their account activity and the terms and
conditions of the rewards program. Generally, there are no
limits on the points that an eligible cardholder can earn, nor
137
Management's discussion and analysis
do the points expire, and the points can be redeemed for a
variety of rewards, including cash (predominantly in the
form of account credits), gift cards and travel. The Firm
maintains a rewards liability which represents the estimated
cost of rewards points earned and expected to be redeemed
by cardholders. The rewards liability is sensitive to various
assumptions, including cost per point and redemption rates
for each of the various rewards programs, which are
evaluated periodically. The liability is accrued as the
cardholder earns the benefit and is reduced when the
cardholder redeems points. This liability was $6.4 billion
and $5.8 billion at December 31, 2019 and 2018,
respectively, and is recorded in accounts payable and other
liabilities on the Consolidated balance sheets.
Income taxes
JPMorgan Chase is subject to the income tax laws of the
various jurisdictions in which it operates, including U.S.
federal, state and local, and non-U.S. jurisdictions. These
laws are often complex and may be subject to different
interpretations. To determine the financial statement
impact of accounting for income taxes, including the
provision for income tax expense and unrecognized tax
benefits, JPMorgan Chase must make assumptions and
judgments about how to interpret and apply these complex
tax laws to numerous transactions and business events, as
well as make judgments regarding the timing of when
certain items may affect taxable income in the U.S. and
non-U.S. tax jurisdictions.
Under U.S. GAAP, goodwill must be allocated to reporting
units and tested for impairment at least annually. The Firm's
process and methodology used to conduct goodwill
impairment testing is described in Note 15.
Management applies significant judgment when testing
goodwill for impairment. The goodwill associated with each
business combination is allocated to the related reporting
units for goodwill impairment testing.
JPMorgan Chase's interpretations of tax laws around the
world are subject to review and examination by the various
taxing authorities in the jurisdictions where the Firm
operates, and disputes may occur regarding its view on a
tax position. These disputes over interpretations with the
various taxing authorities may be settled by audit,
administrative appeals or adjudication in the court systems
of the tax jurisdictions in which the Firm operates.
JPMorgan Chase regularly reviews whether it may be
assessed additional income taxes as a result of the
resolution of these matters, and the Firm records additional
reserves as appropriate. In addition, the Firm may revise its
estimate of income taxes due to changes in income tax
laws, legal interpretations, and business strategies. It is
possible that revisions in the Firm's estimate of income
taxes may materially affect the Firm's results of operations
in any reporting period.
Level 3 assets as a percentage of total
Firm assets at fair value(a)
2,687.4
Loans
7.1
MSRS
4.7
4.7
Other
29.3
0.7
Total assets measured at fair value on
a recurring basis
Level 3 assets as a percentage of total
Firm assets(a)
802.8
Total assets measured at fair value on a
nonrecurring basis
4.8
Total assets measured at fair value
$
807.6
$
1.3
14.8
Total Firm assets
$
13.5
The Firm's provision for income taxes is composed of
current and deferred taxes. Deferred taxes arise from
differences between assets and liabilities measured for
financial reporting versus income tax return purposes.
Deferred tax assets are recognized if, in management's
judgment, their realizability is determined to be more likely
than not. The Firm has also recognized deferred tax assets
in connection with certain tax attributes, including net
operating loss ("NOL") carryforwards and foreign tax credit
("FTC") carryforwards. The Firm performs regular reviews
to ascertain whether its deferred tax assets are realizable.
These reviews include management's estimates and
assumptions regarding future taxable income, which also
incorporates various tax planning strategies, including
strategies that may be available to utilize NOLS before they
expire. In connection with these reviews, if it is determined
138
that a deferred tax asset is not realizable, a valuation
allowance is established. The valuation allowance may be
reversed in a subsequent reporting period if the Firm
determines that, based on revised estimates of future
taxable income or changes in tax planning strategies, it is
more likely than not that all or part of the deferred tax
asset will become realizable. As of December 31, 2019,
management has determined it is more likely than not that
the Firm will realize its deferred tax assets, net of the
existing valuation allowance.
Management's discussion and analysis
FASB Standards Issued but not adopted as of December 31, 2019
Standard
Financial
Instruments-
-
Credit Losses
("CECL")
Issued June 2016
Summary of guidance
139
• Establishes a single allowance framework for all
financial assets carried at amortized cost and
certain off-balance sheet credit exposures. This
framework requires that management's estimate
reflects credit losses over the full remaining
expected life and considers expected future
changes in macroeconomic conditions.
Eliminates existing guidance for PCI loans, and
requires recognition of the nonaccretable
difference as an increase to the allowance for
expected credit losses on financial assets
purchased with more than insignificant credit
deterioration since origination, with a
corresponding increase in the recorded
investment of the related loans.
•
•
Requires inclusion of expected recoveries,
limited to the cumulative amount of prior write-
offs, when estimating the allowance for credit
losses for in scope financial assets (including
collateral dependent assets).
Amends existing impairment guidance for AFS
securities to incorporate an allowance, which will
allow for reversals of credit impairments in the
event that the credit of an issuer improves.
Requires a cumulative-effect adjustment to
retained earnings as of the beginning of the
reporting period of adoption.
Effects on financial statements
•
JPMorgan Chase & Co./2019 Form 10-K
• Refer to Note 18 for further information.
Adopted January 1, 2019.
The Firm adjusts its unrecognized tax benefits as necessary
when additional information becomes available. Uncertain
tax positions that meet the more-likely-than-not recognition
threshold are measured to determine the amount of benefit
to recognize. An uncertain tax position is measured at the
largest amount of benefit that management believes is
more likely than not to be realized upon settlement. It is
possible that the reassessment of JPMorgan Chase's
unrecognized tax benefits may have a material impact on its
effective income tax rate in the period in which the
reassessment occurs.
Refer to Note 25 for additional information on income
taxes.
Litigation reserves
Refer to Note 30 for a description of the significant
estimates and judgments associated with establishing
litigation reserves.
JPMorgan Chase & Co./2019 Form 10-K
ACCOUNTING AND REPORTING DEVELOPMENTS
Financial Accounting Standards Board ("FASB") Standards Adopted during 2019
Standard
Leases
Issued February
2016
Summary of guidance
•
•
•
Requires lessees to recognize all leases longer
than twelve months on the Consolidated balance
sheets as a lease liability with a corresponding
right-of-use asset.
Requires lessees and lessors to classify most
leases using principles similar to existing lease
accounting, but eliminates the "bright line"
classification tests.
Expands qualitative and quantitative leasing
disclosures.
•
Effects on financial statements
•
Adopted January 1, 2020.
•
Firmwide allowance increase
Level 1 or 2
(10,897)
Common stock ($3.40, $2.72 and $2.12 per share for 2019, 2018 and 2017, respectively)
Balance at December 31
(1,663)
(1,551)
(1,587)
Preferred stock
Dividends declared:
24,441
(183)
32,474
36,431
62
162,440
177,676
199,202
Net income
Cumulative effect of change in accounting principles
Balance at January 1
(9,214)
Retained earnings
(7,542)
199,202
1,056
(1,476)
3,076
1,569
(1,175)
(119)
88
(1,507)
Repurchase
Balance at January 1
Treasury stock, at cost
Balance at January 1 and December 31
Shares held in RSU Trust, at cost
Balance at December 31
Other comprehensive income/(loss), after-tax
Cumulative effect of change in accounting principles
Balance at January 1
Accumulated other comprehensive income
177,676
223,211
90,579
89,162
88,522
(1,258)
(1,696)
(4,075)
1,258
1,696
5,000
26,068 $ 26,068 $ 26,068
$
2017
2018
2019
Balance at December 31
Redemption
Issuance
Balance at January 1
Preferred stock
Year ended December 31, (in millions, except per share data)
26,993
26,068
26,068
Common stock
Balance at December 31
(314)
(679)
(49)
Other
(734)
(738)
(591)
(1,507)
Shares issued and commitments to issue common stock for employee share-based compensation awards, and
related tax effects
90,579
89,162
Balance at January 1
Additional paid-in capital
4,105
4,105
4,105
Balance at January 1 and December 31
91,627
(119)
(21)
(21)
(652)
93,270
93,453
(94,628)
(102,141)
(70,980)
79,182
2,136
2,717
1,996
2,312
1,721
949
6,179
7,791
JPMorgan Chase & Co./2019 Form 10-K
5,290
4,871
(38,371)
5,673
(27,631)
(6,861)
7,803
(10,827)
14,187
6,046
295
5,693
(16,508)
14,630
(352)
5,585
(26,256)
(14,516)
3,982
(8,833)
(17,949)
(15,868)
(5,849)
(78)
(8,653)
18,290
Consolidated statements of changes in stockholders' equity
36,431 $ 32,474 $ 24,441
2017
JPMorgan Chase & Co./2019 Form 10-K
The Notes to Consolidated Financial Statements are an integral part of these statements.
$ 261,330 $ 256,515 $ 255,693
(42,595)
(60,494)
1,669
2,084
1,566
(83,049)
(28,854)
(15,410)
(19,983)
(24,121)
(42,595)
(60,494)
Total stockholders' equity
Balance at December 31
Reissuance
(21)
149
Consolidated statements of cash flows
Year ended December 31, (in millions)
Operating activities
2018
2019
Other operating adjustments
Accounts payable and other liabilities
Trading liabilities
Other assets
Accrued interest and accounts receivable
Securities borrowed
$
Trading assets
Proceeds from sales, securitizations and paydowns of loans held-for-sale
Originations and purchases of loans held-for-sale
Other
Deferred tax expense
Depreciation and amortization
Provision for credit losses
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Net income
Net change in:
Net cash provided by/(used in) operating activities
JPMorgan Chase & Co./2019 Form 10-K
148
Federal funds sold and securities purchased under resale agreements (included $14,561 and $13,235 at fair value)
Securities borrowed (included $6,237 and $5,105 at fair value)
256,469
241,927
Deposits with banks
22,324
21,704 $
$
Cash and due from banks
Assets
2018
2019
December 31, (in millions, except share data)
Consolidated balance sheets
147
JPMorgan Chase & Co./2019 Form 10-K
The Notes to Consolidated Financial Statements are an integral part of these statements.
25,497
249,157
$
321,588
111,995
Goodwill, MSRs and other intangible assets
Premises and equipment
Accrued interest and accounts receivable
971,109
946,646
Loans, net of allowance for loan losses
(13,445)
(13,123)
Allowance for loan losses
984,554
959,769
261,828
398,239
Investment securities (included $350,699 and $230,394 at fair value and assets pledged of $10,325 and $11,432)
Loans (included $7,104 and $3,151 at fair value)
413,714
411,103
Trading assets (included assets pledged of $111,522 and $89,073)
139,758
30,998
$
39,507
24,441
32,474 $
36,431 $
$
2017
2018
2019
Total other comprehensive income/(loss), after-tax
Comprehensive income
DVA on fair value option elected liabilities
Defined benefit pension and OPEB plans
Cash flow hedges
Fair value hedges
Translation adjustments, net of hedges
Other comprehensive income/(loss), after-tax
Unrealized gains/(losses) on investment securities
Net income
Year ended December 31, (in millions)
Consolidated statements of comprehensive income
2,855
(1,858)
640
20
$
1,056
(1,476)
3,076
(192)
1,043
(965)
738
72,861
(373)
176
(201)
172
ΝΑ
(107)
30
(306)
20
964
73,200
25,813
14,934
Loans
Trading assets
Assets
December 31, (in millions)
(a) The following table presents information on assets and liabilities related to VIES that are consolidated by the Firm at December 31, 2019 and 2018. The
assets of the consolidated VIES are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general
credit of JPMorgan Chase. The assets and liabilities in the table below include third-party assets and liabilities of consolidated VIES and exclude intercompany
balances that eliminate in consolidation. Refer to Note 14 for a further discussion.
$ 2,687,379 $ 2,622,532
256,515
261,330
(21)
(60,494)
(1,507)
1,569
(21)
(83,049)
199,202
223,211
89,162
88,522
4,105
4,105
All other assets
Total assets
Liabilities
Beneficial interests issued by consolidated VIES
20,553
18,288 $
$
312
20,241
$
17,841
447
$
26,068
1,966
59,456
1,013
62,435
$
881
2,633 $
42,931
$
2018
2019
Total liabilities
All other liabilities
46,445 $
The Notes to Consolidated Financial Statements are an integral part of these statements.
26,993
Total stockholders' equity
Commitments and contingencies (refer to Notes 28, 29 and 30)
Total liabilities(a)
Long-term debt (included $75,745 and $54,886 at fair value)
Beneficial interests issued by consolidated VIES (included $36 and $28 at fair value)
Accounts payable and other liabilities (included $3,728 and $3,269 at fair value)
Trading liabilities
Short-term borrowings (included $5,920 and $7,130 at fair value)
Federal funds purchased and securities loaned or sold under repurchase agreements (included $549 and $935 at fair
value)
Deposits (included $28,589 and $23,217 at fair value)
Liabilities
$ 2,687,379 $ 2,622,532
121,022
126,830
Total assets(a)
Other assets (included $9,111 and $9,630 at fair value and assets pledged of $3,349 and $3,457)
54,349
53,341
$ 1,562,431 $ 1,470,666
183,675
182,320
40,920
Treasury stock, at cost (1,020,912,567 and 829,167,674 shares)
Shares held in restricted stock units ("RSU”) trust, at cost (472,953 shares)
Accumulated other comprehensive income/loss
Retained earnings
Additional paid-in capital
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,699,250 and 2,606,750 shares)
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
Stockholders' equity
2,366,017
Total liabilities and stockholders' equity
2,426,049
291,498
20,241
17,841
196,710
210,407
144,773
119,277
69,276
282,031
Investing activities
8,368
Federal funds sold and securities purchased under resale agreements
page 279
Note 30
Litigation
Allowance for credit losses
page 272
Note 28
other commitments
financial instruments, guarantees and
January 1,
2020
Off-balance sheet lending-related
Consumer, excluding credit card $
CECL
adoption
impact
(in billions)
Leases
page 265
Note 25
Income taxes
page 257
Note 20
Long-term debt
page 254
Note 18
December
31, 2019
page 254
3.2 $
5.7
2.7
$
(0.8)
3.5
(0.8)
4.3
$
Decrease to retained earnings
Tax effect
Total pre-tax impact
Credit card
Balance sheet reclassification(a)
18.6
4.3 $
14.3 $
$
Firmwide
4.0
3.4
11.2
0.2 $
5.5
(1.4)
5.4
Wholesale
Retained earnings
(a) Represents the recognition of the nonaccretable difference on
purchased credit deteriorated assets and the Firm's election to
recognize the reserve for uncollectible accrued interest on credit card
loans in the allowance, both of which resulted in a corresponding
increase to loans.
Note 16
page 250
page 195
Note 6
Noninterest revenue and noninterest
expense
page 180
Note 5
Derivative instruments
page 175
Note 3
page 154
Note 2
Interest income and Interest expense
Fair value measurement
Fair value option
Significant accounting policies
Accounting standards adopted January 1, 2018
Effective January 1, 2018, the Firm adopted several
accounting standards resulting in a net decrease of $183
million to retained earnings and a net increase of $88
million to AOCI. Certain of these standards were adopted
retrospectively and, accordingly, prior period amounts were
revised. The adoption of the recognition and measurement
guidance resulted in $505 million of fair value gains in the
first quarter of 2018, recorded in total net revenue, on
certain equity investments that were previously held at
cost.
The following table presents the impacts to the allowance
for credit losses and retained earnings upon adoption of
this guidance on January 1, 2020:
For JPMorgan Chase's Consolidated statements of cash
flows, cash is defined as those amounts included in cash
and due from banks and deposits with banks.
Accounting standard adopted January 1, 2020
Financial Instruments - Credit Losses ("CECL")
The adoption of this guidance established a single
allowance framework for all financial assets carried at
amortized cost and certain off-balance sheet credit
exposures. This framework requires that management's
estimate reflects credit losses over the full remaining
expected life and considers expected future changes in
macroeconomic conditions.
Typical master netting agreements for these types of
transactions also often contain a collateral/margin
agreement that provides for a security interest in, or title
transfer of, securities or cash collateral/margin to the party
that has the right to demand margin (the “demanding
party"). The collateral/margin agreement typically requires
a party to transfer collateral/margin to the demanding
party with a value equal to the amount of the margin deficit
on a net basis across all transactions governed by the
master netting agreement, less any threshold. The
collateral/margin agreement grants to the demanding
party, upon default by the counterparty, the right to set-off
any amounts payable by the counterparty against any
posted collateral or the cash equivalent of any posted
collateral/margin. It also grants to the demanding party the
right to liquidate collateral/margin and to apply the
proceeds to an amount payable by the counterparty.
Refer to Note 5 for further discussion of the Firm's
derivative instruments. Refer to Note 11 for further
discussion of the Firm's securities financing agreements.
Statements of cash flows
JPMorgan Chase & Co./2019 Form 10-K
The Firm uses master netting agreements to mitigate
counterparty credit risk in certain transactions, including
derivative contracts, resale, repurchase, securities
borrowed and securities loaned agreements. A master
netting agreement is a single agreement with a
counterparty that permits multiple transactions governed
by that agreement to be terminated or accelerated and
settled through a single payment in a single currency in the
event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due). Upon the exercise of derivatives
termination rights by the non-defaulting party (i) all
transactions are terminated, (ii) all transactions are valued
and the positive values of "in the money" transactions are
netted against the negative values of "out of the money"
transactions and (iii) the only remaining payment obligation
is of one of the parties to pay the netted termination
amount. Upon exercise of default rights under repurchase
agreements and securities loan agreements in general (i) all
transactions are terminated and accelerated, (ii) all values
of securities or cash held or to be delivered are calculated,
and all such sums are netted against each other and (iii) the
only remaining payment obligation is of one of the parties
to pay the netted termination amount.
U.S. GAAP permits entities to present derivative receivables
and derivative payables with the same counterparty and the
related cash collateral receivables and payables on a net
basis on the Consolidated balance sheets when a legally
enforceable master netting agreement exists. U.S. GAAP
also permits securities sold and purchased under
repurchase agreements and securities borrowed or loaned
under securities loan agreements to be presented net when
specified conditions are met, including the existence of a
legally enforceable master netting agreement. The Firm has
elected to net such balances when the specified conditions
are met.
Offsetting assets and liabilities
Gains and losses relating to translating functional currency
financial statements for U.S. reporting are included in the
Consolidated statements of comprehensive income. Gains
and losses relating to nonfunctional currency transactions,
including non-U.S. operations where the functional currency
is the U.S. dollar, are reported in the Consolidated
statements of income.
The following table identifies JPMorgan Chase's other
significant accounting policies and the Note and page where
a detailed description of each policy can be found.
Premises and equipment
Note 7
Pension and other postretirement
employee benefit plans
Note 15
Goodwill and Mortgage servicing rights
page 242
Note 14
Variable interest entities
page 237
Note 13
Allowance for credit losses
page 217
Note 12
page 198
Loans
Note 11
Securities financing activities
page 208
Note 10
Investment securities
page 206
Note 9
Employee share-based incentives
page 199
Note 8
page 214
Net change in:
JPMorgan Chase & Co./2019 Form 10-K
Notes to consolidated financial statements
on:
Level 2 or 3
In the absence of quoted market prices, securities are valued based
Level 1
Predominantly level 2
Quoted market prices
Fair value is based on observable prices for mortgage-backed
securities with similar collateral and incorporates adjustments to
these prices to account for differences between the securities and the
value of the underlying loans, which include credit characteristics,
portfolio composition, and liquidity.
Investment and trading
securities
Trading loans - conforming
residential mortgage loans
expected to be sold
Loans consumer
•
Collateral characteristics
Credit spreads derived from the cost of CDS; or benchmark credit
curves developed by the Firm, by industry and credit rating
Prepayment speed
•
•
are based on discounted cash flows, which consider the following:
Where observable market data is unavailable or limited, valuations
Level 2 or 3
Predominantly level 2
Classifications in the valuation
hierarchy
Observed market prices for similar instruments
•
•
Relevant broker quotes
Observable market prices for similar securities
Relevant broker quotes
156
Valued using observable market prices or data.
Physical commodities
Credit rating data
•
Credit spreads
•
Expected prepayment speed, conditional default rates, loss
severity
•
• Deal-specific payment and loss allocations
•
Collateral characteristics
Collateralized loan obligations ("CLOS") specific inputs:
Current market assumptions related to yield, prepayment speed,
conditional default rates and loss severity
.
• Deal-specific payment and loss allocations
Collateral characteristics
•
Mortgage- and asset-backed securities specific inputs:
In addition, the following inputs to discounted cash flows are used for
the following products:
Discounted cash flows
•
•
153
•
•
A three-level valuation hierarchy has been established
under U.S. GAAP for disclosure of fair value measurements.
The valuation hierarchy is based on the observability of
Valuation hierarchy
Under the Firm's Estimations and Model Risk Management
Policy, the Model Risk function reviews and approves new
models, as well as material changes to existing models,
prior to implementation in the operating environment. In
certain circumstances exceptions may be granted to the
Firm's policy to allow a model to be used prior to review or
approval. The Model Risk function may also require the user
to take appropriate actions to mitigate the model risk if it is
to be used in the interim. These actions will depend on the
model and may include, for example, limitation of trading
activity.
If prices or quotes are not available for an instrument or a
similar instrument, fair value is generally determined using
valuation models that consider relevant transaction terms
such as maturity and use as inputs market-based or
independently sourced parameters. Where this is the case
the price verification process described above is applied to
the inputs in those models.
Valuation model review and approval
Where appropriate, the Firm also applies adjustments to
its estimates of fair value in order to appropriately
reflect counterparty credit quality (CVA), the Firm's own
creditworthiness (DVA) and the impact of funding (FVA),
using a consistent framework across the Firm. Refer to
Credit and funding adjustments on page 171 of this Note
for more information on such adjustments.
Adjustments are made to reflect the uncertainty
inherent in the resulting valuation estimate.
JPMorgan Chase & Co./2019 Form 10-K
Uncertainty adjustments related to unobservable
parameters may be made when positions are valued
using prices or input parameters to valuation models
that are unobservable due to a lack of market activity or
because they cannot be implied from observable market
data. Such prices or parameters must be estimated and
are, therefore, subject to management judgment.
The Firm manages certain portfolios of financial
instruments on the basis of net open risk exposure and,
as permitted by U.S. GAAP, has elected to estimate the
fair value of such portfolios on the basis of a transfer of
the entire net open risk position in an orderly
transaction. Where this is the case, valuation
adjustments may be necessary to reflect the cost of
exiting a larger-than-normal market-size net open risk
position. Where applied, such adjustments are based on
factors that a relevant market participant would
consider in the transfer of the net open risk position,
including the size of the adverse market move that is
likely to occur during the period required to reduce the
net open risk position to a normal market-size.
•
Liquidity valuation adjustments are considered where an
observable external price or valuation parameter exists
but is of lower reliability, potentially due to lower market
activity. Liquidity valuation adjustments are made based
on current market conditions. Factors that may be
considered in determining the liquidity adjustment
include analysis of: (1) the estimated bid-offer spread
for the instrument being traded; (2) alternative pricing
points for similar instruments in active markets; and (3)
the range of reasonable values that the price or
parameter could take.
The VCG verifies fair value estimates provided by the risk-
taking functions by leveraging independently derived prices,
valuation inputs and other market data, where available.
Where independent prices or inputs are not available, the
VCG performs additional review to ensure the
reasonableness of the estimates. The additional review may
include evaluating the limited market activity including
client unwinds, benchmarking valuation inputs to those
used for similar instruments, decomposing the valuation of
structured instruments into individual components,
comparing expected to actual cash flows, reviewing profit
and loss trends, and reviewing trends in collateral valuation.
There are also additional levels of management review for
more significant or complex positions.
Price verification process
154
Risk-taking functions are responsible for providing fair value
estimates for assets and liabilities carried on the
Consolidated balance sheets at fair value. The Firm's VCG,
which is part of the Firm's Finance function and
independent of the risk-taking functions, is responsible for
verifying these estimates and determining any fair value
adjustments that may be required to ensure that the Firm's
positions are recorded at fair value. The VGF is composed of
senior finance and risk executives and is responsible for
overseeing the management of risks arising from valuation
activities conducted across the Firm. The Firmwide VGF is
chaired by the Firmwide head of the VCG (under the
direction of the Firm's Controller), and includes sub-forums
covering the CIB, CCB, CB, AWM and certain corporate
functions including Treasury and CIO.
Valuation process
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of different
methodologies or assumptions by other market participants
compared with those used by the Firm could result in the
Firm deriving a different estimate of fair value at the
reporting date.
The level of precision in estimating unobservable market
inputs or other factors can affect the amount of gain or loss
recorded for a particular position. Furthermore, while the
Firm believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date. Fair value is based on quoted market
prices or inputs, where available. If prices or quotes are not
available, fair value is based on valuation models and other
valuation techniques that consider relevant transaction
characteristics (such as maturity) and use, as inputs,
observable or unobservable market parameters, including
yield curves, interest rates, volatilities, prices (such as
commodity, equity or debt prices), correlations, foreign
exchange rates and credit curves. Valuation adjustments
may be made to ensure that financial instruments are
recorded at fair value, as described below.
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. These assets and liabilities are predominantly
carried at fair value on a recurring basis (i.e., assets and
liabilities that are measured and reported at fair value on
the Firm's Consolidated balance sheets). Certain assets,
liabilities and unfunded lending-related commitments are
measured at fair value on a nonrecurring basis; that is, they
are not measured at fair value on an ongoing basis but are
subject to fair value adjustments only in certain
circumstances (for example, when there is evidence of
impairment).
Note 2 - Fair value measurement
The VCG determines any valuation adjustments that may be
required to the estimates provided by the risk-taking
functions. No adjustments to quoted prices are applied for
instruments classified within level 1 of the fair value
hierarchy (refer to the discussion below for further
information on the fair value hierarchy). For other
positions, judgment is required to assess the need for
valuation adjustments to appropriately reflect liquidity
considerations, unobservable parameters, and, for certain
portfolios that meet specified criteria, the size of the net
open risk position. The determination of such adjustments
follows a consistent framework across the Firm:
Observed market prices (circumstances are infrequent)
inputs to the valuation of an asset or liability as of the
•
Where observable market data is available, valuations are based on:
Loans carried at fair value
(e.g., trading loans and non-
trading loans) and associated
lending-related commitments
Loans and lending-related commitments - wholesale
Market rates for the respective maturity
Collateral characteristics
Derivative features: refer to the discussion of derivatives below
for further information.
•
Valuations are based on discounted cash flows, which consider:
Valuation methodology
Securities financing agreements
Product/instrument
•
The following table describes the valuation methodologies generally used by the Firm to measure its significant products/
instruments at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.
155
JPMorgan Chase & Co./2019 Form 10-K
hierarchy is based on the lowest level of input that is
significant to the fair value measurement.
A financial instrument's categorization within the valuation
methodology are unobservable and significant to the fair
value measurement.
Level 3 one or more inputs to the valuation
-
Level 2 - inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument.
Level 1 inputs to the valuation methodology are
quoted prices (unadjusted) for identical assets or
liabilities in active markets.
measurement date. The three levels are defined as follows.
Notes to consolidated financial statements
Foreign currency translation
JPMorgan Chase revalues assets, liabilities, revenue and
expense denominated in non-U.S. currencies into U.S.
dollars using applicable exchange rates.
Use of estimates in the preparation of consolidated
financial statements
(4,075)
Cash income taxes paid, net
Cash and due from banks and deposits with banks at the beginning of the period
Cash and due from banks and deposits with banks at the end of the period
Cash interest paid
Net increase/(decrease) in cash and due from banks and deposits with banks
Effect of exchange rate changes on cash and due from banks and deposits with banks
Net cash provided by financing activities
All other financing activities, net
Dividends paid
Treasury stock repurchased
Redemption of preferred stock
(1,696)
1,258
(83,079)
(76,313)
56,271
71,662
61,085
(69,610)
5,000
Proceeds from issuance of preferred stock
Payments of long-term borrowings
Proceeds from long-term borrowings
(1,377)
1,712
1,696
4,289
(1,258)
(19,983)
$ 29,918 $ 21,152 $ 14,153
5,624
$ 431,304
$ 263,631 $ 278,793
391,154
431,304
278,793
40,150
(152,511)
(15,162)
8,086
(24,001)
(2,863)
14,642
34,158
32,987
407
(1,430)
(1,146)
(8,993)
(10,109)
(12,343)
(15,410)
(182)
The preparation of the Consolidated Financial Statements
requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
revenue and expense, and disclosures of contingent assets
and liabilities. Actual results could be different from these
estimates.
Beneficial interests issued by consolidated VIES
18,476
70,181
(242,149)
62,095
(53,697)
56,117
37,401
52,200
All other investing activities, net
Other changes in loans, net
Proceeds from sales and securitizations of loans held-for-investment
Purchases
Proceeds from sales
Proceeds from paydowns and maturities
46,067
Available-for-sale securities:
(9,368)
4,563
2,945
3,423
(13,427)
Purchases
Proceeds from paydowns and maturities
Held-to-maturity securities:
31,448
(123,201)
72,396
(2,349)
16,540
90,201
29,826
(28,561)
Short-term borrowings
(6,739)
23,415
1,347
Federal funds purchased and securities loaned or sold under repurchase agreements
57,022
26,728
101,002
Deposits
(95,091) (105,309)
Net change in:
Net cash provided by/(used in) investing activities
28,249
(197,993)
(54,013)
(563)
(4,986)
(5,035)
(61,650)
(81,586)
15,791
Financing activities
4,325
3,542
The Notes to Consolidated Financial Statements are an integral part of these statements.
150
Principal transactions revenue
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. Changes in fair value are reported primarily in
principal transactions revenue. Refer to Notes 2 and 3 for
further discussion of fair value measurement. Refer to Note
6 for further discussion of principal transactions revenue.
152
Revenue from contracts with customers
JPMorgan Chase recognizes noninterest revenue from
certain contracts with customers, in investment banking
fees, deposit-related fees, asset management
administration and commissions, and components of card
income, when the Firm's related performance obligations
are satisfied. Refer to Note 6 for further discussion of the
Firm's revenue from contracts with customers.
The Firm recognizes interest income on loans, debt
securities, and other debt instruments, generally on a level-
yield basis, based on the underlying contractual rate. Refer
to Note 7 for further discussion of interest income.
The Firm performs on-going reassessments of: (1) whether
entities previously evaluated under the majority voting-
interest framework have become VIES, based on certain
events, and are therefore subject to the VIE consolidation
framework; and (2) whether changes in the facts and
circumstances regarding the Firm's involvement with a VIE
cause the Firm's consolidation conclusion to change.
Refer to Note 14 for further discussion of the Firm's VIES.
circumstances, including its role in establishing the VIE and
its ongoing rights and responsibilities. This assessment
includes, first, identifying the activities that most
significantly impact the VIE's economic performance; and
second, identifying which party, if any, has power over those
activities. In general, the parties that make the most
significant decisions affecting the VIE (such as asset
managers, collateral managers, servicers, or owners of call
options or liquidation rights over the VIE's assets) or have
the right to unilaterally remove those decision-makers are
deemed to have the power to direct the activities of a VIE.
To assess whether the Firm has the obligation to absorb
losses of the VIE or the right to receive benefits from the
VIE that could potentially be significant to the VIE, the Firm
considers all of its economic interests, including debt and
equity investments, servicing fees, and derivatives or other
arrangements deemed to be variable interests in the VIE.
This assessment requires that the Firm apply judgment in
determining whether these interests, in the aggregate, are
considered potentially significant to the VIE. Factors
considered in assessing significance include: the design of
the VIE, including its capitalization structure; subordination
of interests; payment priority; relative share of interests
held across various classes within the VIE's capital
structure; and the reasons why the interests are held by the
Firm.
Notes to consolidated financial statements
151
The most common type of VIE is an SPE. SPES are commonly
used in securitization transactions in order to isolate certain
assets and distribute the cash flows from those assets to
investors. The basic SPE structure involves a company
selling assets to the SPE; the SPE funds the purchase of
those assets by issuing securities to investors. The legal
documents that govern the transaction specify how the cash
earned on the assets must be allocated to the SPE's
investors and other parties that have rights to those cash
flows. SPES are generally structured to insulate investors
from claims on the SPE's assets by creditors of other
entities, including the creditors of the seller of the assets.
The primary beneficiary of a VIE (i.e., the party that has a
controlling financial interest) is required to consolidate the
assets and liabilities of the VIE. The primary beneficiary is
the party that has both (1) the power to direct the activities
of the VIE that most significantly impact the VIE's economic
performance; and (2) through its interests in the VIE, the
obligation to absorb losses or the right to receive benefits
from the VIE that could potentially be significant to the VIE.
To assess whether the Firm has the power to direct the
activities of a VIE that most significantly impact the VIE's
economic performance, the Firm considers all the facts and
VIES are entities that, by design, either (1) lack sufficient
equity to permit the entity to finance its activities without
additional subordinated financial support from other
parties, or (2) have equity investors that do not have the
ability to make significant decisions relating to the entity's
operations through voting rights, or do not have the
obligation to absorb the expected losses, or do not have the
right to receive the residual returns of the entity.
Variable interest entities
Revenue recognition
Interest income
Voting interest entities are entities that have sufficient
equity and provide the equity investors voting rights that
enable them to make significant decisions relating to the
entity's operations. For these types of entities, the Firm's
determination of whether it has a controlling interest is
primarily based on the amount of voting equity interests
held. Entities in which the Firm has a controlling financial
interest, through ownership of the majority of the entities'
voting equity interests, or through other contractual rights
that give the Firm control, are consolidated by the Firm.
Investments in companies in which the Firm has significant
influence over operating and financing decisions (but does
not own a majority of the voting equity interests) are
accounted for (i) in accordance with the equity method of
accounting (which requires the Firm to recognize its
proportionate share of the entity's net earnings), or (ii) at
fair value if the fair value option was elected. These
investments are generally included in other assets, with
income or loss included in noninterest revenue.
Certain Firm-sponsored asset management funds are
structured as limited partnerships or limited liability
companies. For many of these entities, the Firm is the
general partner or managing member, but the non-affiliated
partners or members have the ability to remove the Firm as
JPMorgan Chase & Co./2019 Form 10-K
Voting interest entities
The Firm determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity is
a voting interest entity or a variable interest entity.
Assets held for clients in an agency or fiduciary capacity by
the Firm are not assets of JPMorgan Chase and are not
included on the Consolidated balance sheets.
The Consolidated Financial Statements include the accounts
of JPMorgan Chase and other entities in which the Firm has
a controlling financial interest. All material intercompany
balances and transactions have been eliminated.
Certain amounts reported in prior periods have been
reclassified to conform with the current presentation.
Consolidation
The accounting and financial reporting policies of JPMorgan
Chase and its subsidiaries conform to U.S. GAAP.
Additionally, where applicable, the policies conform to the
accounting and reporting guidelines prescribed by
regulatory authorities.
JPMorgan Chase & Co./2019 Form 10-K
the general partner or managing member without cause
(i.e., kick-out rights), based on a simple majority vote, or
the non-affiliated partners or members have rights to
participate in important decisions. Accordingly, the Firm
does not consolidate these voting interest entities. However,
in the limited cases where the non-managing partners or
members do not have substantive kick-out or participating
rights, the Firm evaluates the funds as VIES and
consolidates the funds if the Firm is the general partner or
managing member and has a potentially significant interest.
The Firm's investment companies and asset management
funds have investments in both publicly-held and privately-
held entities, including investments in buyouts, growth
equity and venture opportunities. These investments are
accounted for under investment company guidelines and,
accordingly, irrespective of the percentage of equity
ownership interests held, are carried on the Consolidated
balance sheets at fair value, and are recorded in other
assets, with income or loss included in noninterest revenue.
If consolidated, the Firm retains such specialized investment
company guidelines.
JPMorgan Chase & Co. ("JPMorgan Chase" or the "Firm"), a
financial holding company incorporated under Delaware law
in 1968, is a leading global financial services firm and one
of the largest banking institutions in the U.S. with
operations worldwide. The Firm is a leader in investment
banking, financial services for consumers and small
business, commercial banking, financial transaction
processing and asset management. Refer to Note 32 for a
discussion of the Firm's business segments.
Note 1 - Basis of presentation
Notes to consolidated financial statements
Level 2 or 3 (a)
Valued using observable market information, where available.
In the absence of observable market information, valuations are based
on the fair value of the underlying assets held by the VIE.
(a) Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient.
JPMorgan Chase & Co./2019 Form 10-K
Level 2 or 3
Adjustments to the NAV as required, for restrictions on redemption
(e.g., lock-up periods or withdrawal limitations) or where observable
activity is limited.
• Operating performance of the underlying portfolio company
Adjustments as required, since comparable public companies are not
identical to the company being valued, and for company-specific
issues and lack of liquidity.
Level 1
NAV is supported by the ability to redeem and purchase at the NAV
level.
• Additional available inputs relevant to the investment.
Net asset value
.
Beneficial interests issued by
consolidated VIES
157
Fund investments (e.g.,
mutual/collective investment
funds, private equity funds,
hedge funds, and real estate
funds)
•
Notes to consolidated financial statements
158
Structured notes (included in
2,822 (c)(e)
166
JPMorgan Chase & Co./2019 Form 10-K
Assets and liabilities measured at fair value on a recurring basis
The following table presents the assets and liabilities reported at fair value as of December 31, 2019 and 2018, by major
product category and fair value hierarchy.
JPMorgan Chase & Co./2019 Form 10-K
•Trading multiples of comparable public companies
Level 2 or 3
Classification in the valuation
hierarchy
The embedded derivative features are considered using models such
as the Black-Scholes option pricing model, simulation models, or a
combination of models that may use observable or unobservable
valuation inputs, depending on the embedded derivative. The
specific inputs used vary according to the nature of the embedded
derivative features, as described in the discussion above regarding
derivatives valuation. Adjustments are then made to this base
valuation to reflect the Firm's own credit risk (DVA). Refer to page
171 of this Note.
Valuations are based on discounted cash flow analyses that consider
the embedded derivative and the terms and payment structure of
the note.
•
•
Valuation methodology
debt)
borrowings and long-term
deposits, short-term
Product/instrument
•
• Interest rate correlation
Level 2 or 3
Level 1
Credit
Classifications in the valuation
hierarchy
• Forward equity price
Credit correlation between the underlying debt instruments
Equity option specific inputs include:
CDS spreads and recovery rates
•
•
Structured credit derivatives specific inputs include:
In addition, specific inputs used for derivatives that are valued based on
models with significant unobservable inputs are as follows:
The key valuation inputs used will depend on the type of derivative and
the nature of the underlying instruments and may include equity prices,
commodity prices, interest rate yield curves, foreign exchange rates,
volatilities, correlations, CDS spreads and recovery rates. Additionally,
the credit quality of the counterparty and of the Firm as well as market
funding levels may also be considered.
Derivatives that are valued using models such as the Black-Scholes
option pricing model, simulation models, or a combination of models
that may use observable or unobservable valuation inputs as well as
considering the contractual terms.
Exchange-traded derivatives that are actively traded and valued using
the exchange price.
Valuation methodology
Derivatives
Product/instrument
23,339
Level 2 or 3
Mortgage servicing rights
Private equity direct
investments
.
Fair value is estimated using all available information; the range of
potential inputs include:
Level 3
Refer to Mortgage servicing rights in Note 15.
Additionally, adjustments are made to reflect counterparty credit quality
(CVA) and the impact of funding (FVA). Refer to page 171 of this Note.
• Forward commodity price
Commodity volatility
Commodity derivatives specific inputs include:
• Interest rate-FX correlation
Transaction prices
Foreign exchange correlation
• Interest rate volatility
Interest rate and FX exotic options specific inputs include:
Equity-IR correlation
.
Equity-FX correlation
.
Equity correlation
Equity volatility
Interest rate spread volatility
(1,448)
Foreign exchange
Equity
(8,538)
928,185
25,229
8,481
724
452
7,305
340,962 $
$
$
$
4,699
4,699
7,104
350,699
5,458
24,991
1
5,458
198,296
7,104
152,402
24,991
$
13,543
$
(479,860) $
276,746
795
Interest rate
75,569
41
16,481
59,047
5,920
Derivative payables:
1,674
549
549
28,589
$
$
3,360
$
802,830
4,246
1,732
Debt and equity instruments(d)
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
139,436
U.S. Treasury and government agencies
128,295
1
128,294
Total mortgage-backed securities
5,188
5,188
Commercial nonagency
12,990
1
110,117
110,117
12,989
Residential nonagency
U.S. GSES and government agencies(a)
Mortgage-backed securities:
Available-for-sale securities:
139,436
Obligations of U.S. states and municipalities
29,810
29,810
Deposits
Total assets measured at fair value on a recurring basis
Other assets(e)
Mortgage servicing rights
Loans
Total available-for-sale securities
Other
Collateralized loan obligations
Trading liabilities:
Asset-backed securities:
845
77
21,787
I
845
77
8,821
12,966
Non-U.S. government debt securities
Certificates of deposit
Corporate debt securities
(270,670)
8,603
Credit
Level 1
Commercial nonagency
Residential nonagency
U.S. GSES and government agencies(a)
Mortgage-backed securities:
Debt instruments:
Trading assets:
Securities borrowed
Federal funds sold and securities purchased under resale agreements
December 31, 2018 (in millions)
Fair value hierarchy
Notes to consolidated financial statements
159
JPMorgan Chase & Co./2019 Form 10-K
233,844
(468,420) $
$
Level 2
Level 3
Derivative
netting
adjustments(f)
$
Total mortgage-backed securities
1,512
11
1,501
1,862
64
1,798
76,798
36
75,745
549
5,105
13,235
Total fair value
$
$
$
13,235
5,105
$
76,249
23,339
37,673
$
52,406
601,409
5,480
47,261
|
13,158
(131,950)
1,039
143,960
109
(40,204)
1,652
763
14,358
Accounts payable and other liabilities
Total trading liabilities
Total derivative payables
Commodity
Equity
Foreign exchange
(13,469)
Total trading assets(e)
12,537
200
63,182 $
$
Total liabilities measured at fair value on a recurring basis
Long-term debt
36
Beneficial interests issued by consolidated VIES
3,728
119,277
19,685
43,708
9,255
45
452
9,214
502,010
518,491
59,951
3,231
904
7,758
(12,127)
(468,420)
(468,420)
79,548
411,049
8,119
$ 76 per barrel
Commodity volatility
5%
Commodity correlation
(48)%
105%
95%
MSRS
Other assets
4.699
222
Discounted cash flows
Discounted cash flows
Refer to Note 15
Credit spread
45bps
45bps
Yield
12%
12%
$39
Forward commodity price
(16) Option pricing
Net commodity derivatives
65%
Prepayment speed
9%
Forward equity price(h)
92%
105%
Equity volatility
9%
734
93%
10%
97%
Equity-FX correlation
(81)%
60%
Equity-IR correlation
25%
35%
Equity correlation
(58)%
Long-term debt, short-term borrowings, and
deposits(e)
Market comparables
Option pricing
265
(a) The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated
balance sheets. Furthermore, the inputs presented for each valuation technique in the table are, in some cases, not applicable to every instrument valued
using the technique as the characteristics of the instruments can differ.
(b) Comprises U.S. GSES and government agency securities of $797 million, nonagency securities of $24 million and trading loans of $155 million.
(c) Comprises nonagency securities of $4 million and trading loans of $95 million.
(d) Comprises trading loans.
(e) Long-term debt, short-term borrowings and deposits include structured notes issued by the Firm that are financial instruments that typically contain
embedded derivatives. The estimation of the fair value of structured notes includes the derivative features embedded within the instrument. The significant
unobservable inputs are broadly consistent with those presented for derivative receivables.
(f) Includes level 3 assets and liabilities that are insignificant both individually and in aggregate.
(g) Price is a significant unobservable input for certain instruments. When quoted market prices are not readily available, reliance is generally placed on price-
based internal valuation techniques. The price input is expressed assuming a par value of $100.
(h) Forward equity price is expressed as a percentage of the current equity price.
JPMorgan Chase & Co./2019 Form 10-K
163
Notes to consolidated financial statements
Changes in and ranges of unobservable inputs
The following discussion provides a description of the impact
on a fair value measurement of a change in each
unobservable input in isolation, and the interrelationship
between unobservable inputs, where relevant and significant.
The impact of changes in inputs may not be independent, as a
change in one unobservable input may give rise to a change
in another unobservable input. Where relationships do exist
between two unobservable inputs, those relationships are
discussed below. Relationships may also exist between
observable and unobservable inputs (for example, as
observable interest rates rise, unobservable prepayment
rates decline); such relationships have not been included in
the discussion below. In addition, for each of the individual
relationships described below, the inverse relationship would
also generally apply.
The following discussion also provides a description of
attributes of the underlying instruments and external market
factors that affect the range of inputs used in the valuation of
the Firm's positions.
Yield - The yield of an asset is the interest rate used to
discount future cash flows in a discounted cash flow
calculation. An increase in the yield, in isolation, would result
in a decrease in a fair value measurement.
Credit spread - The credit spread is the amount of additional
annualized return over the market interest rate that a market
participant would demand for taking exposure to the credit
risk of an instrument. The credit spread for an instrument
forms part of the discount rate used in a discounted cash flow
calculation. Generally, an increase in the credit spread would
result in a decrease in a fair value measurement.
The yield and the credit spread of a particular mortgage-
backed security primarily reflect the risk inherent in the
instrument. The yield is also impacted by the absolute level of
the coupon paid by the instrument (which may not
correspond directly to the level of inherent risk). Therefore,
the range of yield and credit spreads reflects the range of risk
inherent in various instruments owned by the Firm. The risk
inherent in mortgage-backed securities is driven by the
subordination of the security being valued and the
characteristics of the underlying mortgages within the
collateralized pool, including borrower FICO scores, LTV ratios
for residential mortgages and the nature of the property and/
or any tenants for commercial mortgages. For corporate debt
securities, obligations of U.S. states and municipalities and
other similar instruments, credit spreads reflect the credit
quality of the obligor and the tenor of the obligation.
Other level 3 assets and liabilities, net(f)
35%
25%
60%
Price
$17
$117
$37
Interest rate volatility
6%
44%
Interest rate correlation
28,373
(65)%
IR-FX correlation
(58)%
40%
Equity correlation
10%
97%
Equity-FX correlation
Equity-IR correlation
(81)%
94%
IR-FX correlation
$115
$1
624
14,252
27,421
(285,873)
1,400
311,173
721
361,283
3,394
177,472
180,417
14,128
232
13,896
7,217
-
3,579
(14,175)
701
117
137,938
701,535
181,255
49,766
(479,860)
4,725
524,063
838
6,162
72,330
(11,080)
17,058
6,477
(39,250)
2,085
43,642
9,005
(129,482)
432
184
267,608
2,966
196
244
Other
Physical commodities(c)
Equity securities
Total debt instruments
Asset-backed securities
1,382
47,047
Loans(b)
Total debt and equity instruments(d)
651
18%
Loss severity
100%
35
Net foreign exchange derivatives
Net equity derivatives
Market comparables
(469) Option pricing
(138) Discounted cash flows
(3,395) Option pricing
Price
2%
(479,860)
Derivative receivables:
Credit
2,630
37
48,429
18,514
53,924
252
6,478
88,584
Interest rate
48,797
2,000
45,307
ཊྚ ཀླུ ག་ ། ༅ ་ཤྲཥྞཾ སྨཱ ཀེ
2,593
159,753
104,889
71,890
3,638
Total derivative receivables
Commodity
Foreign exchange
Equity
1,490
624
80,172
U.S. Treasury, GSES and government agencies(a)
927
8,932
$
17,165
$
4,169
$
$
(472,026)
$
680,612
$
23,217
935
1,523
7,130
Trading liabilities:
Debt and equity instruments(d)
195
899,182
19,048
935
5,607
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
7,810
236,291 $
$
$
Total available-for-sale securities
Loans
Mortgage servicing rights
Total assets measured at fair value on a recurring basis
19,437
7,260
71,372
159,021
Derivative payables:
3,029
7,260
1
230,394
122
6,130
3,151
6,130
$
Deposits
19,437
Other
Interest rate
Foreign exchange
695
163,549
973
(152,432)
12,785
46,462
4,733
(41,034)
10,161
21,158
1,260
(13,046)
9,372
2,221
82,420
3,063
490,054
9.613
(460,119)
1,667
(18,609)
967
19,309
Equity
Commodity
Total derivative payables
Total trading liabilities
Accounts payable and other liabilities
Beneficial interests issued by consolidated VIES
Long-term debt
Total liabilities measured at fair value on a recurring basis
Credit
$
22,755
50
103,004
1,526
239,576
1,680
(234,998)
7,784
80,199
Other assets(e)
Collateralized loan obligations
1,918
1,642
(245,490)
23,214
19,235
860
Interest rate
612
771
166,238
676
(154,235)
13,450
46,777
2,508
(39,339)
9,946
20,339
266,380
682
359,452
4,168
Commodity
Total derivative receivables
79,355
184,099
3,635
267,089
71,119
482
131
232
5,182
1,855
7,037
13,192
301
13,493
155,656
199,628
71,833
(13,479)
6,991
1,453
56,059
Obligations of U.S. states and municipalities
37,723
Certificates of deposit
Non-U.S.government debt securities
15,313
75
8,789
Corporate debt securities
U.S. Treasury and government agencies
Asset-backed securities:
68,646
8,520
6,654
83,820
56,059
37,723
75
24,102
1,918
41,769
83,819
6,654
518,969
5,817
(472,026)
54,213
157,109
718,597
9,985
(472,026)
Total mortgage-backed securities
413,665
Available-for-sale securities:
Mortgage-backed securities:
U.S. GSES and government agencies (a)
68,646
Residential nonagency
8,519
1
Commercial nonagency
Total trading assets(e)
512,809
9,663
(460,119)
$71
Interest rate volatility
6%
44%
Interest rate spread volatility
20bps
30bps
Interest rate correlation
(65)%
94%
IR-FX correlation
(58)%
40%
Net credit derivatives
63 Discounted cash flows
(174) Discounted cash flows
Credit correlation
Credit spread
$102
$1
Price
Market comparables
$72
Loans(d)
Asset-backed securities
Net interest rate derivatives
(395) Option pricing
193
Discounted cash flows
Yield
Prepayment speed
5%
8%
939
Market comparables
Price
$2
$116
$70
37
28%
4%
30%
31%
334
18,655
Corporate debt securities
55,089
155
27,056
27,878
Non-U.S.government debt securities
18,989
1,214
Certificates of deposit, bankers' acceptances and commercial paper
7,810
689
7,121
Obligations of U.S. states and municipalities
59,179
7,702
51,477
1,214
$112
Loans(b)
1,706
59%
3bps
1,308bps
Recovery rate
15%
70%
Conditional default rate
Derivative receivables:
40,047
Total debt and equity instruments(d)
Physical commodities(c)
Equity securities
Total debt instruments
2,883
127
2,756
Asset-backed securities
41,753
Other
Prepayment speed - The prepayment speed is a measure of
the voluntary unscheduled principal repayments of a
prepayable obligation in a collateralized pool. Prepayment
speeds generally decline as borrower delinquencies rise. An
increase in prepayment speeds, in isolation, would result in a
decrease in a fair value measurement of assets valued at a
premium to par and an increase in a fair value measurement
of assets valued at a discount to par.
$4
Market comparables
(d) Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).
(e) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be
classified in the fair value hierarchy. At December 31, 2019 and 2018, the fair values of these investments, which include certain hedge funds, private
equity funds, real estate and other funds, were $684 million and $747 million, respectively. Included in these balances at December 31, 2019 and 2018,
were trading assets of $54 million and $49 million, respectively, and other assets of $630 million and $698 million, respectively.
(f) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid
when a legally enforceable master netting agreement exists. The level 3 balances would be reduced if netting were applied, including the netting benefit
associated with cash collateral.
JPMorgan Chase & Co./2019 Form 10-K
161
Notes to consolidated financial statements
Level 3 valuations
The Firm has established well-structured processes for
determining fair value, including for instruments where fair
value is estimated using significant unobservable inputs
(level 3). Refer to pages 154-158 of this Note for further
information on the Firm's valuation process and a detailed
discussion of the determination of fair value for individual
financial instruments.
Estimating fair value requires the application of judgment.
The type and level of judgment required is largely dependent
on the amount of observable market information available to
the Firm. For instruments valued using internally developed
valuation models and other valuation techniques that use
significant unobservable inputs and are therefore classified
within level 3 of the fair value hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate valuation model or other valuation technique to
use. Second, due to the lack of observability of significant
inputs, management must assess relevant empirical data in
deriving valuation inputs including transaction details, yield
curves, interest rates, prepayment speed, default rates,
volatilities, correlations, prices (such as commodity, equity or
debt prices), valuations of comparable instruments, foreign
exchange rates and credit curves.
The following table presents the Firm's primary level 3
financial instruments, the valuation techniques used to
measure the fair value of those financial instruments, the
significant unobservable inputs, the range of values for those
inputs and, for certain instruments, the weighted averages of
such inputs. While the determination to classify an
instrument within level 3 is based on the significance of the
unobservable inputs to the overall fair value measurement,
level 3 financial instruments typically include observable
components (that is, components that are actively quoted
and can be validated to external sources) in addition to the
unobservable components. The level 1 and/or level 2 inputs
are not included in the table. In addition, the Firm manages
the risk of the observable components of level 3 financial
instruments using securities and derivative positions that are
classified within levels 1 or 2 of the fair value hierarchy.
The range of values presented in the table is representative
of the highest and lowest level input used to value the
significant groups of instruments within a product/instrument
classification. Where provided, the weighted averages of the
input values presented in the table are calculated based on
the fair value of the instruments that the input is being used
to value.
In the Firm's view, the input range and the weighted average
value do not reflect the degree of input uncertainty or an
assessment of the reasonableness of the Firm's estimates and
assumptions. Rather, they reflect the characteristics of the
various instruments held by the Firm and the relative
distribution of instruments within the range of
characteristics. For example, two option contracts may have
similar levels of market risk exposure and valuation
uncertainty, but may have significantly different implied
volatility levels because the option contracts have different
underlyings, tenors, or strike prices. The input range and
weighted average values will therefore vary from period-to-
period and parameter-to-parameter based on the
characteristics of the instruments held by the Firm at each
balance sheet date.
For the Firm's derivatives and structured notes positions
classified within level 3 at December 31, 2019, interest rate
correlation inputs used in estimating fair value were
distributed across the range; equity correlation, equity-FX
and equity-IR correlation inputs were concentrated in the
middle of the range; commodity correlation inputs were
concentrated in the middle of the range; credit correlation
inputs were concentrated towards the lower end of the range;
and forward equity prices and the interest rate-foreign
exchange ("IR-FX") correlation inputs were distributed across
the range. In addition, the interest rate volatility and interest
rate spread volatility inputs used in estimating fair value were
distributed across the range; equity volatilities and
commodity volatilities were concentrated towards the lower
end of the range; and forward commodity prices used in
estimating the fair value of commodity derivatives were
concentrated in the middle of the range. Prepayment speed
inputs used in estimating the fair value of interest rate
derivatives were concentrated towards the lower end of the
range. Recovery rate inputs used in estimating the fair value
of credit derivatives were distributed across the range; credit
spreads were concentrated towards the lower end of the
range; conditional default rates and loss severity inputs were
concentrated towards the upper end of the range and price
inputs were concentrated towards the lower end of the range.
162
JPMorgan Chase & Co./2019 Form 10-K
Level 3 inputs(a)
December 31, 2019
approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. Refer to Note 5 for a further
discussion of the Firm's hedge accounting relationships. To provide consistent fair value disclosure information, all physical commodities inventories have
been included in each period presented.
JPMorgan Chase & Co./2019 Form 10-K
160
(c) Physical commodities inventories are generally accounted for at the lower of cost or net realizable value. "Net realizable value" is a term defined in U.S.
GAAP as not exceeding fair value less costs to sell ("transaction costs"). Transaction costs for the Firm's physical commodities inventories are either not
applicable or immaterial to the value of the inventory. Therefore, net realizable value approximates fair value for the Firm's physical commodities
inventories. When fair value hedging has been applied (or when net realizable value is below cost), the carrying value of physical commodities
144,773
196
10
3,269
27
1
28
85,483 $
Fair value
35,468
574,090
54,886
$
34,784
$
(460,119)
$
234,238
(a) At December 31, 2019 and 2018, included total U.S. GSE obligations of $104.5 billion and $92.3 billion, respectively, which were mortgage-related.
(b) At December 31, 2019 and 2018, included within trading loans were $19.8 billion and $13.2 billion, respectively, of residential first-lien mortgages, and
$3.4 billion and $2.3 billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated
with the intent to sell to U.S. GSES and government agencies of $13.6 billion and $7.6 billion, respectively.
19,418
Product/Instrument
Residential mortgage-backed securities and
loans(b)
$
100%
5%
Commercial mortgage-backed securities and
loans(c)
99
Market comparables
Price
$0
$100
0%
$79
10
Market comparables
Price
$71
$100
$95
Corporate debt securities
558
Obligations of U.S. states and municipalities
Price
Loss severity
5%
(in millions)
Principal valuation
technique
Weighted
Unobservable inputs(8)
Range of input values
average
976
Discounted cash flows
0%
Yield
18%
6%
Prepayment speed
0%
26%
13%
Conditional default rate
0%
2%
Prepayment speeds may vary from collateral pool to
collateral pool, and are driven by the type and location of the
(19,483)
Commercial nonagency
(422)
(168)
31
(82)
824
(55)
U.S. Treasury, GSES and
government agencies
I
|
-----
Obligations of U.S. states and
municipalities
689
13
85
(159)
876
(35)
624
securities
83
(86)
(20)
15
11
2
20
(26)
(8)
(14)
Êག
(58)
23
2
(4)
4
1
Total mortgage-backed
15
(610)
10
13
(708)
(562)
625
(538)
1,382
Asset-backed securities
127
37
727
(93)
28
(22)
37
Total debt instruments
3,635
158
2,452
(1,916)
(40)
25
132
Loans
Non-U.S. government debt
securities
155
1
290
(287)
14
(18)
1,706
155
334
47
437
(247)
(52)
112
(73)
558
Corporate debt securities
64
Residential nonagency
$ (58)
Trading assets:
_ $ _- $ 14,561
Total fair value
Derivative
netting
adjustments()
$
14,561
6,237
Securities borrowed
$
Debt instruments:
$
Level 3
Level 2
Level 1
December 31, 2019 (in millions)
Fair value hierarchy
underlying borrower, and the remaining tenor of the
obligation as well as the level and type (e.g., fixed or floating)
of interest rate being paid by the borrower. Typically
collateral pools with higher borrower credit quality have a
higher prepayment rate than those with lower borrower
credit quality, all other factors being equal.
Conditional default rate - The conditional default rate is a
measure of the reduction in the outstanding collateral
balance underlying a collateralized obligation as a result of
defaults. While there is typically no direct relationship
between conditional default rates and prepayment speeds,
collateralized obligations for which the underlying collateral
has high prepayment speeds will tend to have lower
conditional default rates. An increase in conditional default
rates would generally be accompanied by an increase in loss
severity and an increase in credit spreads. An increase in the
conditional default rate, in isolation, would result in a
decrease in a fair value measurement. Conditional default
rates reflect the quality of the collateral underlying a
securitization and the structure of the securitization itself.
Based on the types of securities owned in the Firm's market-
making portfolios, conditional default rates are most typically
at the lower end of the range presented.
Loss severity - The loss severity (the inverse concept is the
recovery rate) is the expected amount of future realized
losses resulting from the ultimate liquidation of a particular
loan, expressed as the net amount of loss relative to the
outstanding loan balance. An increase in loss severity is
generally accompanied by an increase in conditional default
rates. An increase in the loss severity, in isolation, would
result in a decrease in a fair value measurement.
Federal funds sold and securities purchased under resale agreements
The loss severity applied in valuing a mortgage-backed
security investment depends on factors relating to the
underlying mortgages, including the LTV ratio, the nature of
the lender's lien on the property and other instrument-
specific factors.
Mortgage-backed securities:
Residential nonagency
17,956
Corporate debt securities
27,169
26,600
Non-U.S.government debt securities
252
Certificates of deposit, bankers' acceptances and commercial paper
6,468
U.S. GSES and government agencies (a)
Obligations of U.S. states and municipalities
78,289
U.S. Treasury, GSES and government agencies(a)
47,973
Total mortgage-backed securities
1,486
Commercial nonagency
1,977
44,510
10,295
(830)
164
Correlation - Correlation is a measure of the relationship
between the movements of two variables. Correlation is a
pricing input for a derivative product where the payoff is
driven by one or more underlying risks. Correlation inputs are
related to the type of derivative (e.g., interest rate, credit,
equity, foreign exchange and commodity) due to the nature
of the underlying risks. When parameters are positively
correlated, an increase in one parameter will result in an
increase in the other parameter. When parameters are
negatively correlated, an increase in one parameter will
result in a decrease in the other parameter. An increase in
correlation can result in an increase or a decrease in a fair
value measurement. Given a short correlation position, an
increase in correlation, in isolation, would generally result in
a decrease in a fair value measurement.
Settlements(g)
Transfers
into
level 3(h)
Transfers
(out of)
level 3(h)
Fair
value at
Dec. 31,
2019
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2019
Debt instruments:
Mortgage-backed securities:
Purchases(f) Sales
U.S. GSES and government
agencies
549 $ (62)
773 $
(310)
$
(134) $
1 $
(20) $
797
$
JPMorgan Chase & Co./2019 Form 10-K
gains/
(losses)
unrealized
The level of correlation used in the valuation of derivatives
with multiple underlying risks depends on a number of
factors including the nature of those risks. For example, the
correlation between two credit risk exposures would be
different than that between two interest rate risk exposures.
Similarly, the tenor of the transaction may also impact the
correlation input, as the relationship between the underlying
risks may be different over different time periods.
Furthermore, correlation levels are very much dependent on
market conditions and could have a relatively wide range of
levels within or across asset classes over time, particularly in
volatile market conditions.
Volatility Volatility is a measure of the variability in possible
returns for an instrument, parameter or market index given
how much the particular instrument, parameter or index
changes in value over time. Volatility is a pricing input for
options, including equity options, commodity options, and
interest rate options. Generally, the higher the volatility of
the underlying, the riskier the instrument. Given a long
position in an option, an increase in volatility, in isolation,
would generally result in an increase in a fair value
measurement.
The level of volatility used in the valuation of a particular
option-based derivative depends on a number of factors,
including the nature of the risk underlying the option (e.g.,
the volatility of a particular equity security may be
significantly different from that of a particular commodity
index), the tenor of the derivative as well as the strike price
of the option.
Forward price - Forward price is the price at which the buyer
agrees to purchase the asset underlying a forward contract
on the predetermined future delivery date, and is such that
the value of the contract is zero at inception.
The forward price is used as an input in the valuation of
certain derivatives and depends on a number of factors
including interest rates, the current price of the underlying
asset, and the expected income to be received and costs to be
incurred by the seller as a result of holding that asset until
the delivery date. An increase in the forward can result in an
increase or a decrease in a fair value measurement.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the Consolidated
balance sheets amounts (including changes in fair value) for
financial instruments classified by the Firm within level 3 of
the fair value hierarchy for the years ended December 31,
2019, 2018 and 2017. When a determination is made to
classify a financial instrument within level 3, the
determination is based on the significance of the
unobservable inputs to the overall fair value measurement.
However, level 3 financial instruments typically include, in
addition to the unobservable or level 3 components,
observable components (that is, components that are actively
quoted and can be validated to external sources);
accordingly, the gains and losses in the table below include
changes in fair value due in part to observable factors that
are part of the valuation methodology. Also, the Firm risk-
manages the observable components of level 3 financial
instruments using securities and derivative positions that are
classified within level 1 or 2 of the fair value hierarchy; as
these level 1 and level 2 risk management instruments are
not included below, the gains or losses in the following tables
do not reflect the effect of the Firm's risk management
activities related to such level 3 instruments.
JPMorgan Chase & Co./2019 Form 10-K
165
January
1, 2019
Notes to consolidated financial statements
December 31, 2019
(in millions)
Assets:(a)
Trading assets:
Fair value measurements using significant unobservable inputs
Fair
Total
realized/
value at
Year ended
810
$
2,966
6
(7)
724
(180) (c)
Fair value measurements using significant unobservable inputs
Total
Fair
realized/
(33)
Year ended
December 31, 2019
(in millions)
January
1, 2019
unrealized
(gains)/
losses
Purchases
Sales Issuances Settlements(g)
Transfers
into
level 3(h)
Transfers
(out of)
level 3(h)
value at
Fair
value at
Dec. 31,
2019
(165)
(198) (c)
130
(2,584) (c)
1-------1-
-
1
-
-
1
194
122
(125)
(1)
6,130 (1,180) (d)
927
1,489
(789)
(951)
4,699
(1,180) (d)
4 (c)
(16)
(4,489)
Change in
unrealized
gains/(losses)
related to
financial
instruments held
Liabilities:(a)
Accounts payable and other
liabilities
10
(2) (c)
(84)
115
6
45
3 (c)
29 (c)
consolidated VIES
1
(1) (c)
Long-term debt
19,418
2,815 (c)(e)
10,441
(1,343)
Beneficial interests issued by
at Dec. 31,
2019
41
16
$ 4,169 $ 278 (c)(e) $
-
$
-
Short-term borrowings
1,523
229 (c)(e)
$ 916 $
3,441
(47)
(806) $
(3,356)
(1,209) $ 3,360
(248) 1,674
$ 307 (c)(e)
155 (c)(e)
Trading liabilities - debt and equity
instruments
50
2 (c)
(22)
41
1
12 $
85
845
1,144
Deposits
(89)
2,560
(2,045)
(906)
993
(1,457)
3,394
123 (c)
Net derivative receivables:(b)
81 (c)
Interest rate
Foreign exchange
Equity
Commodity
Total net derivative receivables
Available-for-sale securities:
Mortgage-backed securities
Asset-backed securities
Total available-for-sale securities
Credit
Total trading assets - debt and
equity instruments
<  ྴ ; ཀྱེ ྴ ་
232
Equity securities
(411)
232
(41)
58
(103)
(22)
181
(109)
196
(18)
Other
301
(36)
50
(26)
(54)
2
(5)
Loans
Mortgage servicing rights
4,168
(38) (394)
1
(607)
(380)
(2,225) (310)
397
(573)
(503)
224 (3,395)
(22)
(1,608)
36
(348)
89
(6)
(3,796) (794) (c)
Other assets
579
(1,122)
(1,129) 497
312
(405)
(67)
(125)
5
(7)
118
(332)
(599)
(107)
(36)
20
109
(9)
17
(127)
(139)
(297) (551)
29
8
(44)
1
2,695
6
(1)
(747)
(1)
1 (c)
(16)
(6,172)
2,695
1
(e) Changes in fair value exclude contractual interest, which is included in interest income and interest expense for all instruments other than hybrid financial
instruments. Refer to Note 7 for further information regarding interest income and interest expense.
(2,022)
(a) Unrealized gains/(losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected is recorded in OCI,
while realized gains/(losses) are recorded in principal transactions revenue. Realized gains/(losses) due to instrument-specific credit risk recorded in
principal transactions revenue were not material for the years ended December 31, 2019, 2018 and 2017.
(b) Long-term debt measured at fair value predominantly relates to structured notes. Although the risk associated with the structured notes is actively
managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such
risk.
Long-term debt: Changes in value attributable to
instrument-specific credit risk were derived principally
from observable changes in the Firm's credit spread as
observed in the bond market.
6,130
927
(d) Reported in other income.
Loans and lending-related commitments: For floating-
rate instruments, all changes in value are attributed to
instrument-specific credit risk. For fixed-rate
instruments, an allocation of the changes in value for the
period is made between those changes in value that are
interest rate-related and changes in value that are
credit-related. Allocations are generally based on an
analysis of borrower-specific credit spread and recovery
information, where available, or benchmarking to similar
entities or industries.
Determination of instrument-specific credit risk for items
for which a fair value election was made
The following describes how the gains and losses that are
attributable to changes in instrument-specific credit risk,
were determined.
6
(16)
(6,173)
(2,022)
Long-term debt(a)(b)
(533)
Trading liabilities
181
Securities financing agreements: Generally, for these
types of agreements, there is a requirement that
collateral be maintained with a market value equal to or
in excess of the principal amount loaned; as a result,
there would be no adjustment or an immaterial
adjustment for instrument-specific credit risk related to
these agreements.
(1,730)
(1,730)
181
(533)
Federal funds purchased and
securities loaned or sold under
repurchase agreements
(8)
(8)
11
11
11
11
Short-term borrowings (a)
(693)
(693)
862
862
(747)
Other liabilities
176
Total net derivative receivables
(1)
1
276
Asset-backed securities
1
Mortgage-backed securities
Available-for-sale securities:
803 (c)
397 (3,796)
(729)
1,047
(2,440)
1,841
338 (c)
(4,250)
146
(17) (1,129)
7
(301)
Deposits(a)
(72)
1
Total available-for-sale securities
JPMorgan Chase & Co./2019 Form 10-K
277
Loans
4
(37)
(740)
(7) (c)
122
(74)
(196)
1
(277)
(277)
(37)
61
(328) (c)
(636)
123
1,246
230 (d)
6,030
1,265
Other assets
Mortgage servicing rights
(7) (c)
276
1 (i)
(44)
(36)
11
19 (c)
39
Trading liabilities - debt and equity
instruments
-
$
$ 4,142 $ (136) (c)(e) $
1,665 (329) (c)(e)
Short-term borrowings
Deposits
Liabilities:(a)
(99)
related to
financial
instruments held
at Dec. 31,
2018
Fair
value at
Dec. 31,
2018
Transfers
(out of)
level 3(h)
Purchases Sales Issuances Settlements(g) level 3(h)
losses
Transfers
into
(gains)/
January
1, 2018
(in millions)
December 31, 2018
Change in
unrealized
(gains)/losses
114
Accounts payable and other
13
16,125 (1,169) (c)(e)
561
Long-term debt
39
consolidated VIES
Beneficial interests issued by
liabilities
10
4
16 (c)
50
14
(1)
$ (204) (c)(e)
(131) (c)(e)
(540) $4,169
(152) 1,523
272
2 $
(736) $
(3,388)
$ 1,437 $
3,455
5
(12)
unrealized
Total
realized/
Fair
value at
Year ended
(26)
(26)
(1)
(1)
(1)
(1)
Other changes in fair value
1
1
(1)
(1)
(12)
3 (c)
(9)
Other assets
(d)
5
11
5
(45) (d)
(40)
Changes in instrument-specific
credit risk
(55) (d)
Loans:
747 (c)
Fair value measurements using significant unobservable inputs
(340) (c)
230 (d)
specific credit risk
763
2 (c)
765
414
1 (c)
415
330
14 (c)
344
Other changes in fair value
254
1,224 (c)
1,478
160
185 (c)
345
217
964
(2,225)
U.S. GSES and government
agencies
(617)
1
government agencies
U.S. Treasury, GSES and
(22)
624
(165)
189
(97)
(232)
(1)
574
378
securities
ཁྱཻ།
Total mortgage-backed
(2)
1
(21)
$
11
(23)
Obligations of U.S. states and
municipalities
744
364
(18)
312
Corporate debt securities
(9)
155
(94)
23
(12)
(277)
459
(22)
78
securities
Non-U.S. government debt
(17)
689
(80)
(70)
112
(17)
(21)
36
(17)
(18)
Mortgage-backed securities:
Debt instruments:
Trading assets:
Assets:(a)
Fair
value at
Dec. 31,
2018
Transfers
(out of)
level 3(h)
Transfers
into
level 3(h)
Settlements(g)
Purchases(f) Sales
gains/
(losses)
January
1, 2018
(in millions)
December 31, 2018
unrealized
value at
Year ended
realized/
Fair
Fair value measurements using significant unobservable inputs
Total
Residential nonagency
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2018
(309)
1
307 $ (23)
18
2
11
Commercial nonagency
64
(74)
59
(7)
(50)
78
(2)
60
Residential nonagency
TA
549
(70) $
94 $
(73) $
$
478 $ (164)
$
$
330
(48)
(229) 334
Credit
187
(38)
19
(15)
(430)
107 (133)
150
264
(35)
Interest rate
(320) (c)
(1,486) 4,168
1,442
(1,069)
(2,882)
3,144
(351) (c)
5,370
equity instruments
Net derivative receivables: (b)
(40)
5
(7)
1,805
(2,208)
1,676
198
(3,409)
(674) (73)
Commodity
Equity
(63)
(297)
42
(108)
30
(20)
52
(396) 103
Foreign exchange
(28)
(107)
23
4
(57)
Total trading assets - debt and
(301)
301
(4)
22
127
(101)
45
(55)
(41)
98
28
153
Asset-backed securities
(1)
1,706
(765)
813
(658)
(1,793)
1,364
26
2,719
Loans
(1)
Total debt instruments
262
4,385
2,971
3
(118)
(40)
55
(285)
690
Other
9
(127) 232
107
(1)
(120)
118
(40)
295
Equity securities
(28)
(1,355) 3,635
1,332
(950)
(2,722)
(26)
(39)
83
11,919
7 (c)(e)
$ 198 (c)(e)
(874) $4,142
(202) 1,665
11 $
150
$
(291)
(2,748)
3,289
42 (c)(e)
1,134
$
$ 3,027
$
$ 2,117 $152 (c)(e) $
48
(46)
(3) (c)
43
Trading liabilities - debt and equity
instruments
Short-term borrowings
3
Deposits
3
39
12,850 1,067 (c)(e)
Long-term debt
39
78
(6)
39
(122)
2 (c)
48
consolidated VIES
Beneficial interests issued by
(2) (c)
13
3
(1)
(2) (c)
13
liabilities
Accounts payable and other
(9)
Liabilities:(a)
at Dec. 31,
2017
related to
financial
instruments held
14
277
(870)
(177)
66
2,223 244 (c)
Other assets
(797)
(140)
1,103
(303)
(26)
35 (c)
(232) (d)
6,096
Mortgage servicing rights
570
Loans
(352)
(50)
(i)
276
3 (c)
6,030
Change in
unrealized
(gains)/losses
Fair
value at
Dec. 31,
2017
Transfers
(out of)
level 3(h)
Transfers
into
level 3(h)
Settlements()
Sales Issuances
Purchases
unrealized
(gains)/
losses
1, 2017
12,458
(in millions)
December 31, 2017
Total
realized/
Fair
value at
Year ended
Fair value measurements using significant unobservable inputs
74 (c)
1,265
(221)
(232) (d)
January
15 (i)
(10,985)
(925)
170
driven by market movements in long-term debt.
$1.3 billion of net losses on liabilities predominantly
2017
$1.6 billion of net gains on liabilities largely driven by
market movements in long-term debt.
2018
driven by market movements in long-term debt.
$3.3 billion of net losses on liabilities predominantly
to Note 15 for additional information on MSRS.
$2.1 billion of net losses on assets largely due to MSRS
reflecting faster prepayment speeds on lower rates. Refer
•
•
.
•
The following describes significant components of total
realized/unrealized gains/(losses) for instruments measured
at fair value on a recurring basis for the years ended
December 31, 2019, 2018 and 2017. These amounts
exclude any effects of the Firm's risk management activities
where the financial instruments are classified as level 1 and 2
of the fair value hierarchy. Refer to Changes in level 3
recurring fair value measurements rollforward tables on
pages 165-169 for further information on these instruments.
2019
Gains and losses
All transfers are based on changes in the observability and/or
significance of the valuation inputs and are assumed to occur
at the beginning of the quarterly reporting period in which
they occur.
Notes to consolidated financial statements
169
JPMorgan Chase & Co./2019 Form 10-K
$1.2 billion of gross equity derivative payables as a result
of an increase in observability and a decrease in the
significance of unobservable inputs.
Credit and funding adjustments - derivatives
Derivatives are generally valued using models that use as
their basis observable market parameters. These market
parameters generally do not consider factors such as
counterparty nonperformance risk, the Firm's own credit
quality, and funding costs. Therefore, it is generally
necessary to make adjustments to the base estimate of fair
value to reflect these factors.
FVA represents the adjustment to reflect the impact of
funding and is recognized where there is evidence that a
market participant in the principal market would
incorporate it in a transfer of the instrument. The Firm's
FVA framework, applied to uncollateralized (including
partially collateralized) over-the-counter ("OTC")
derivatives incorporates key inputs such as: (i) the expected
funding requirements arising from the Firm's positions with
Other assets (a)
Loans
December 31, 2019 (in millions)
The following tables present the assets held as of December 31, 2019 and 2018, respectively, for which a nonrecurring fair
value adjustment was recorded during the years ended December 31, 2019 and 2018, respectively, by major product category
and fair value hierarchy.
Assets and liabilities measured at fair value on a nonrecurring basis
171
JPMorgan Chase & Co./2019 Form 10-K
The valuation of the Firm's liabilities for which the fair value
option has been elected requires consideration of the Firm's
own credit risk. DVA on fair value option elected liabilities
reflects changes (subsequent to the issuance of the liability)
in the Firm's probability of default and LGD, which are
estimated based on changes in the Firm's credit spread
observed in the bond market. Realized (gains)/losses due to
DVA for fair value option elected liabilities are reported in
principal transactions revenue. Unrealized (gains)/losses
are reported in OCI. Refer to page 169 in this Note and Note
24 for further information.
Valuation adjustments on fair value option elected
liabilities
$ 241 $ 193 $ 802
199
(74) (295)
2017
2018
2019
Derivatives FVA
Derivatives CVA
Credit and funding adjustments:
Year ended December 31,
(in millions)
The following table provides the impact of credit and
funding adjustments on principal transactions revenue in
the respective periods, excluding the effect of any
associated hedging activities. The FVA presented below
includes the impact of the Firm's own credit quality on the
inception value of liabilities as well as the impact of changes
in the Firm's own credit quality over time.
each counterparty and collateral arrangements; and (ii) the
estimated market funding cost in the principal market
which, for derivative liabilities, considers the Firm's credit
risk (DVA). For collateralized derivatives, the fair value is
estimated by discounting expected future cash flows at the
relevant overnight indexed swap rate given the underlying
collateral agreement with the counterparty, and therefore a
separate FVA is not necessary.
CVA represents the adjustment, relative to the relevant
benchmark interest rate, necessary to reflect counterparty
nonperformance risk. The Firm estimates CVA using a
scenario analysis to estimate the expected positive credit
exposure across all of the Firm's existing positions with each
counterparty, and then estimates losses based on the
probability of default and estimated recovery rate as a
result of a counterparty credit event considering
contractual factors designed to mitigate the Firm's credit
exposure, such as collateral and legal rights of offset. The
key inputs to this methodology are (i) the probability of a
default event occurring for each counterparty, as derived
from observed or estimated CDS spreads; and (ii) estimated
recovery rates implied by CDS spreads, adjusted to consider
the differences in recovery rates as a derivative creditor
relative to those reflected in CDS spreads, which generally
reflect senior unsecured creditor risk.
$1.5 billion of trading loans driven by an increase in
observability.
•
$1.7 billion of long-term debt driven by a decrease in
observability and an increase in the significance of
unobservable inputs for certain structured notes.
During the year ended December 31, 2017, significant
transfers from level 3 into level 2 included the following:
Transfers between levels for instruments carried at
fair value on a recurring basis
Level 3 assets were $13.5 billion at December 31, 2019,
reflecting a decrease of $3.6 billion from December 31,
2018, partially due to a $1.4 billion decrease in MSRs. Refer
to the Gains and losses section below for additional
information.
For the year ended December 31, 2019
Level 3 assets (including assets measured at fair value on a
nonrecurring basis) were 0.6% of total Firm assets at
December 31, 2019. The following describes significant
changes to level 3 assets since December 31, 2018, for those
items measured at fair value on a recurring basis. Refer to
Assets and liabilities measured at fair value on a
nonrecurring basis on page 172 for further information on
changes impacting items measured at fair value on a
nonrecurring basis.
Consolidated balance sheets changes
Level 3 analysis
(i) Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment ("OTTI") losses that are recorded in earnings, are reported in investment securities gains/
(losses). Unrealized gains/(losses) are reported in OCI. There were no realized gains/(losses) and foreign exchange hedge accounting adjustments recorded in income on AFS
securities for the years ended December 31, 2019 and 2017, respectively and $1 million recorded for the year ended December 31, 2018. There were no unrealized gains/(losses)
recorded on AFS securities in OCI for the years ended December 31, 2019 and 2018, respectively and $15 million recorded for the year ended December 31, 2017.
(h) All transfers into and/or out of level 3 are based on changes in the observability and/or significance of the valuation inputs and are assumed to occur at the beginning of the
quarterly reporting period in which they occur.
(g) Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, deconsolidation associated with beneficial interests in VIES and
other items.
(f) Loan originations are included in purchases.
(e) Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue, and they were not material for the years ended December
31, 2019, 2018 and 2017, respectively. Unrealized (gains)/losses are reported in OCI, and they were $319 million, $(277) million and $(48) million for the years ended December
31, 2019, 2018 and 2017, respectively.
(d) Changes in fair value for MSRs are reported in mortgage fees and related income.
(c) Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans, and lending-related commitments originated with the intent to
sell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income.
(b) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.
(a) Level 3 assets as a percentage of total Firm assets accounted for at fair value (including assets measured at fair value on a nonrecurring basis) were 2%, 3% and 3% at December 31,
2019, 2018 and 2017, respectively. Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis)
were 16%, 15% and 15% at December 31, 2019, 2018 and 2017, respectively.
JPMorgan Chase & Co./2019 Form 10-K
168
552 (c)(e)
16,125
During the year ended December 31, 2019, significant
transfers from level 2 into level 3 included the following:
•
•
•
$1.0 billion of gross equity derivative receivables and
$2.5 billion of gross equity derivative payables as a result
of a decrease in observability and an increase in the
significance of unobservable inputs.
•
During the year ended December 31, 2017, significant
transfers from level 2 into level 3 included the following:
$1.2 billion of gross equity derivative receivables and
$1.5 billion of gross equity derivative payables as a result
of an increase in observability and a decrease in the
significance of unobservable inputs.
$1.1 billion of long-term debt driven by a decrease in
observability and an increase in the significance of
unobservable inputs for certain structured notes.
During the year ended December 31, 2018, significant
transfers from level 3 into level 2 included the following:
$1.5 billion of total debt and equity instruments, the
majority of which were trading loans, driven by an
increase in observability.
$1.0 billion of gross equity derivative receivables and
$1.6 billion of gross equity derivative payables as a result
of a decrease in observability and an increase in the
significance of unobservable inputs.
During the year ended December 31, 2018, significant
transfers from level 2 into level 3 included the following:
$1.4 billion of total debt and equity instruments, the
majority of which were trading loans, driven by a decrease
in observability.
$1.4 billion of long-term debt as a result of an increase in
observability and a decrease in the significance of
unobservable inputs.
•
1,660
JPMorgan Chase & Co./2019 Form 10-K
$962 million of gross commodities derivative payables as
a result of an increase in observability.
$1.1 billion of gross equity derivative receivables and
$1.3 billion of gross equity derivative payables as a result
of an increase in observability and a decrease in the
significance of unobservable inputs.
$1.5 billion of total debt and equity instruments, the
majority of which were obligations of U.S. states and
municipalities and trading loans, driven by an increase in
observability.
During the year ended December 31, 2019, significant
transfers from level 3 into level 2 included the following:
$904 million of gross equity derivative payables as a
result of a decrease in observability and an increase in the
significance of unobservable inputs.
$993 million of total debt and equity instruments, the
majority of which were trading loans, driven by a decrease
in observability.
•
•
•
$1.2 billion of deposits as a result of an increase in
observability and a decrease in the significance of
unobservable inputs.
664
Total available-for-sale securities
14
(2,832)
2,389
333
4,837
Loans
18
312
(195)
157
(497)
(612)
872
11
576
Corporate debt securities
78
(71)
62
(518)
(1,323)
559
806
2,719
4,385
(2,180)
1,346
(2,028)
(4,633)
4,567
411
6,902
Total debt instruments
153
(198)
75
(56)
(356)
354
32
302
Asset-backed securities
43
(1,491)
46
Non-U.S. government debt
securities
15
1
11
(49)
64
(13)
(44)
27
9
17
Commercial nonagency
11
60
(133)
132
(64)
(30)
53
19
1
Total mortgage-backed
securities
492
17
744
(5)
(70)
152
188
649
municipalities
Obligations of U.S. states and
|
68
1
government agencies
U.S. Treasury, GSES and
(8)
378
(225)
245
(147)
(245)
241
1
Equity securities
231
39
(85) (149)
Commodity
(161)
(3,409)
422
(1,482)
(245)
(551)
1,116
(2,252) (417)
Equity
42
(396)
149
(61)
854
(10)
13
(1,384) 43
(433)
(6)
(1)
(674)
276
1
(352)
(50)
15
663
Asset-backed securities
1
Mortgage-backed securities
Foreign exchange
Available-for-sale securities:
(4,250)
528
(1,480)
(864)
(649)
1,190
(2,360) (615) (c)
Total net derivative receivables
(718)
(1,278) (c)
Total assets measured at fair value on a nonrecurring basis
32
(41)
550 (c)
7,894
equity instruments
Total trading assets - debt and
39
690
(10)
17
21
295
(58)
59
(4)
(162)
(46)
(148)
176
30
100
761
Other
4,773
(4,827)
(2,194)
1,422
77
(6)
1
98 (164)
Credit
(473)
264
(1)
(8)
(35)
(1,040)
60
72
1,263
Interest rate
Net derivative receivables:(b)
(c)
128
5,370
(2,248)
(82)
$
(c) Reported in mortgage fees and related income.
Level 1
related commitments $
Wholesale lending-
Total
estimated
fair value(b)
Level 3
Level 2
Level 1
Carrying
value(a)
Total
estimated
fair value
Level 3
Level 2
Level 1
Carrying
value(a)
(in billions)
December 31, 2018
Estimated fair value hierarchy
December 31, 2019
Estimated fair value hierarchy
The majority of the Firm's lending-related commitments are not carried at fair value on a recurring basis on the Consolidated
balance sheets. The carrying value of the wholesale allowance for lending-related commitments and the estimated fair value of
these wholesale lending-related commitments were as follows for the periods indicated.
(a) Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal,
contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and
primary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The
difference between the estimated fair value and carrying value of a financial asset or liability is the result of the different methodologies used to
determine fair value as compared with carrying value. For example, credit losses are estimated for a financial asset's remaining life in a fair value
calculation but are estimated for a loss emergence period in the allowance for loan losses calculation; future loan income (interest and fees) is
incorporated in a fair value calculation but is generally not considered in the allowance for loan losses.
227.9
3.3
1.2 $
224.6
-
$
Certain securities financing agreements, such as those
with an embedded derivative and/or a maturity of
greater than one year
Loans purchased or originated as part of securitization
warehousing activity, subject to bifurcation accounting,
or managed on a fair value basis, including lending-
related commitments
The Firm's election of fair value includes the following
instruments:
•
The Firm has elected to measure certain instruments at fair
value for several reasons including to mitigate income
statement volatility caused by the differences between the
measurement basis of elected instruments (e.g., certain
instruments that otherwise would be accounted for on an
accrual basis) and the associated risk management
arrangements that are accounted for on a fair value basis,
as well as to better reflect those instruments that are
managed on a fair value basis.
The fair value option provides an option to elect fair value
as an alternative measurement for selected financial assets,
financial liabilities, unrecognized firm commitments, and
written loan commitments.
Note 3 - Fair value option
JPMorgan Chase & Co./2019 Form 10-K
174
The Firm does not estimate the fair value of consumer lending-related commitments. In many cases, the Firm can reduce or
cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without notice. Refer to
page 156 of this Note for a further discussion of the valuation of lending-related commitments.
(b) The prior period amounts have been revised to conform with the current period presentation.
(a) Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which is recognized at fair value at the inception of the
guarantees.
2.2
2.2 $
$
$
1.0 $
1.9 $
1.9 $
$
227.1
221.8
3.5
Accounts payable and other
181.4
62.1
181.4
62.1
62.1
181.4
183.1
35.0
35.0
35.0
Short-term borrowings
183.1
183.1
under repurchase agreements
securities loaned or sold
Federal funds purchased and
$ 1,447.5
$ 1,447.5 $
-
$ 1,447.4 $
$ 1,534.1
liabilities
164.0
0.1
160.0
218.3
215.5
interest debentures
subordinated deferrable
Long-term debt and junior
20.2
20.2
20.2
17.9
Owned beneficial interests in securitized financial assets
that contain embedded credit derivatives, which would
otherwise be required to be separately accounted for as
a derivative instrument
17.9
consolidated VIES
Beneficial interests issued by
160.2
3.0
157.0
0.2
160.6
163.6
3.5
17.8
-
Structured notes, which are predominantly financial
instruments that contain embedded derivatives, that are
issued as part of client-driven activities
JPMorgan Chase & Co./2019 Form 10-K
Purchases(f)
Sales
Settlements(g)
Transfers
into
level 3(h)
level 3(h)
U.S. GSES and government
agencies
$
392 $ (11)
$
161
$ (171)
$
(70)
$
49 $
(43) $
307
$
(20)
gains/
1, 2017 (losses)
Changes in instrument-
unrealized
Fair
value at
January
Fair value hierarchy
(7,769)
1,143
(831) 19,418
(1,385) (c)(e)
JPMorgan Chase & Co./2019 Form 10-K
167
Notes to consolidated financial statements
Year ended
December 31, 2017
(in millions)
Assets:(a)
Trading assets:
Debt instruments:
Mortgage-backed securities:
Fair value measurements using significant unobservable inputs
Transfers
(out of)
Fair
value at
Dec. 31,
2017
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31,
2017
Total
realized/
assets:
Loans reported as trading
1,945
purchased under resale
Federal funds sold and securities
December 31, (in millions)
Total
changes in
fair value
recorded(e)
All other
income
Principal
transactions
Total
changes in
fair value
recorded(e)
All other
income
Principal
transactions
Total
changes in
fair value
recorded(e)
All other
income
Principal
transactions
2017
2018
2019
The following table presents the changes in fair value included in the Consolidated statements of income for the years ended
December 31, 2019, 2018 and 2017, for items for which the fair value option was elected. The profit and loss information
presented below only includes the financial instruments that were elected to be measured at fair value; related risk
management instruments, which are required to be measured at fair value, are not included in the table.
Changes in fair value under the fair value option election
Notes to consolidated financial statements
175
agreements
$
(36) $
$
2 (c)
1,943
(1,679)
1 (c)
(1,680)
2,481
(1) (c)
2,482
excluding loans
Certain long-term beneficial interests issued by CIB's
consolidated securitization trusts where the underlying
assets are carried at fair value
Debt and equity instruments,
50
(97)
$
(97) $
50
(35) $
22
$
(35) $
22
(36) $
133
Securities borrowed
Trading assets:
$ 1,534.1 $
133
$ 1,533.8 $
reclassified to held-for-sale.
(a) Primarily includes the impact of certain mortgage loans that were
$ 64 $ (308)
$ (106)
gains/(losses)
Total nonrecurring fair value
--(1)
liabilities
Accounts payable and other
$ (159)
(148)
132 (b)
2017
2018
$ (68)
2019
$(274) (a)
168 (b)
Other assets
December 31, (in millions)
Loans
The following table presents the total change in value of
assets and liabilities for which a fair value adjustment has
been recognized for the years ended December 31, 2019,
2018 and 2017, related to assets and liabilities held at
those dates.
Nonrecurring fair value changes
There were no liabilities measured at fair value on a nonrecurring basis at December 31, 2019 and 2018.
(b) Included $187 million and $149 million for the years ended December
31, 2019 and 2018, respectively, of net gains as a result of the
measurement alternative.
(c) of the $269 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2019, $248 million related to residential real
estate loans carried at the net realizable value of the underlying collateral (e.g., collateral-dependent loans and other loans charged off in accordance with
regulatory guidance). These amounts are classified as level 3 as they are valued using information from broker's price opinions, appraisals and automated
valuation models and discounted based upon the Firm's experience with actual liquidation values. These discounts ranged from 14% to 49% with a
weighted average of 28%.
Refer to Note 12 for further information about the
measurement of impaired collateral-dependent loans, and
other loans where the carrying value is based on the fair
value of the underlying collateral (e.g., residential mortgage
loans charged off in accordance with regulatory guidance).
JPMorgan Chase & Co./2019 Form 10-K
Included in other assets above is the Firm's interest in approximately 40 million Visa Class B shares, recorded at a nominal
carrying value. These shares are subject to certain transfer restrictions currently and will be convertible into Visa Class A
shares upon final resolution of certain litigation matters involving Visa. The conversion rate of Visa Class B shares into Visa
Class A shares is 1.6228 at December 31, 2019, and may be adjusted by Visa depending on developments related to the
litigation matters.
(a) The cumulative upward carrying value changes between January 1, 2018 and December 31, 2019 were $528 million.
(b) The cumulative downward carrying value changes/impairment between January 1, 2018 and December 31, 2019 were $(200) million.
(42)
309
1,510
2,441 $
229
$
2018
2019
Downward carrying value changes/impairment (b)
Upward carrying value changes (a)
Carrying value
Other assets
(in millions)
As of or for the year ended December 31,
The following table presents the carrying value of equity securities without readily determinable fair values held as of
December 31, 2019 and 2018, that are measured under the measurement alternative and the related adjustments recorded
during the periods presented for those securities with observable price changes. These securities are included in the
nonrecurring fair value tables when applicable price changes are observable.
In its determination of the new carrying values upon observable price changes, the Firm may adjust the prices if deemed
necessary to arrive at the Firm's estimated fair values. Such adjustments may include adjustments to reflect the different rights
and obligations of similar securities, and other adjustments that are consistent with the Firm's valuation techniques for private
equity direct investments.
The Firm measures certain equity securities without readily determinable fair values at cost less impairment (if any), plus or
minus observable price changes from an identical or similar investment of the same issuer, with such changes recognized in
other income.
Equity securities without readily determinable fair values
172
(b) Primarily includes certain mortgage loans that were reclassified to held-for-sale.
Total assets measured at fair value on a nonrecurring basis
(a) Primarily includes equity securities without readily determinable fair values that were adjusted based on observable price changes in orderly transactions
from an identical or similar investment of the same issuer (measurement alternative). Of the $1.0 billion in level 3 assets measured at fair value on a
nonrecurring basis as of December 31, 2019, $787 million related to such equity securities. These equity securities are classified as level 3 due to the
infrequency of the observable prices and/or the restrictions on the shares.
1,360
$
1,298
$
3,476
$
1,043
1,029
14
-
3,731
269 (c) $
$
(b)
3,462
$
Total fair
value
-
Level 2
Level 3
4,774
Fair value hierarchy
December 31, 2018 (in millions)
Loans
$
1,079
$
281
$
$
823
815
537
Additional disclosures about the fair value of financial
instruments that are not carried on the Consolidated
balance sheets at fair value
264
273
$
-8
$
value
Level 3
Level 2
Level 1
Total fair
Other assets
$
U.S. GAAP requires disclosure of the estimated fair value of
certain financial instruments, which are included in the
following table. However, this table does not include other
items, such as nonfinancial assets, intangible assets, certain
financial instruments, and customer relationships. In the
opinion of management, these items, in the aggregate, add
significant value to JPMorgan Chase, but their fair value is
not disclosed in this table.
$
Financial instruments for which carrying value approximates
fair value
308.4
308.4
234.6
61.3
Other
939.5
Loans, net of allowance for
loan losses(a)
48.8
0.1
47.5
Investment securities, held-to-
maturity
133.5
234.6
133.5
Securities borrowed
234.6
resale agreements
securities purchased under
Federal funds sold and
133.5
106.9
106.9
48.9
Financial liabilities
31.5
(160)
Deposits
106.9
308.4
60.6
970.0
728.5
1.0
72.0
59.6
61.4
0.8
60.6
241.5
968.0
949.0
734.9
214.1
31.4
60.5
0.1
31.5
256.5
Cash and due from banks
Financial assets
Total
estimated
fair value
Level 3
Level 2
Level 1
Carrying
value
Total
estimated
fair value
Level 3
Level 1
Carrying
value
(in billions)
December 31, 2018
Estimated fair value hierarchy
Estimated fair value hierarchy
December 31, 2019
The following table presents by fair value hierarchy classification the carrying values and estimated fair values at
December 31, 2019 and 2018, of financial assets and liabilities, excluding financial instruments that are carried at fair value
on a recurring basis, and their classification within the fair value hierarchy.
Notes to consolidated financial statements
71.9
173
$ 21.7 $
21.7 $
Level 2
$
22.3
$
$
72.0
71.3
0.1
71.2
71.3
Accrued interest and accounts
receivable
256.5
256.5
JPMorgan Chase & Co./2019 Form 10-K
Certain financial instruments that are not carried at fair
value on the Consolidated balance sheets are carried at
amounts that approximate fair value, due to their short-
term nature and generally negligible credit risk. These
instruments include cash and due from banks, deposits with
banks, federal funds sold, securities purchased under resale
agreements and securities borrowed, short-term
receivables and accrued interest receivable, short-term
borrowings, federal funds purchased, securities loaned and
sold under repurchase agreements, accounts payable, and
accrued liabilities. In addition, U.S. GAAP requires that the
fair value of deposit liabilities with no stated maturity (i.e.,
demand, savings and certain money market deposits) be
equal to their carrying value; recognition of the inherent
funding value of these instruments is not permitted.
241.9
241.9
241.9
Deposits with banks
22.3 $
22.3 $
21.7
$
Net
derivative
receivables (b)
Total
derivative
receivables
Designated as
hedges
as hedges
December 31, 2018
Not
designated
Not
designated
as hedges
Gross derivative payables
Gross derivative receivables
$ 43,708
(in millions)
628
liabilities
Total
derivative
payables
Net
derivative
payables(b)
Trading assets and
$ 512,128
Interest rate
$ 267,871
$
833
20,095
$ 268,704
20,095
Foreign exchange
167,057
Designated
as hedges
Credit
45,727
16,914
$ 510,995
138,487
308
167,685
9,005
144,125
983
145,108
13,158
Equity
Commodity
45,727
6,477
52,741
52,741
12,537
328
17,242
6,162
19,736
149
19,885
7,758
Total fair value of trading
assets and liabilities
$ 528,147
$ 1,479
$ 529,626 $ 49,766
$ 1,133
$ 23,214
612
13,450
2018
$
(b) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and
payables when a legally enforceable master netting agreement exists.
184
JPMorgan Chase & Co./2019 Form 10-K
Derivatives netting
The following tables present, as of December 31, 2019 and 2018, gross and net derivative receivables and payables by
contract and settlement type. Derivative receivables and payables, as well as the related cash collateral from the same
counterparty, have been netted on the Consolidated balance sheets where the Firm has obtained an appropriate legal opinion
with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, amounts are
not eligible for netting on the Consolidated balance sheets, and those derivative receivables and payables are shown separately
in the tables below.
In addition to the cash collateral received and transferred that is presented on a net basis with derivative receivables and
payables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate
counterparty credit risk associated with the Firm's derivative instruments, but are not eligible for net presentation:
collateral that consists of non-cash financial instruments (generally U.S. government and agency securities and other G7
government securities) and cash collateral held at third-party custodians, which are shown separately as "Collateral not
nettable on the Consolidated balance sheets" in the tables below, up to the fair value exposure amount;
•
the amount of collateral held or transferred that exceeds the fair value exposure at the individual counterparty level, as of
the date presented, which is excluded from the tables below; and
collateral held or transferred that relates to derivative receivables or payables where an appropriate legal opinion has not
been either sought or obtained with respect to the master netting agreement, which is excluded from the tables below.
December 31, (in millions)
U.S. GAAP nettable derivative receivables
Gross
derivative
receivables
(a) Balances exclude structured notes for which the fair value option has been elected. Refer to Note 3 for further information.
2019
Amounts
netted on the
Consolidated
balance sheets
Gross
derivative
receivables
Amounts
netted on the
Consolidated
balance sheets
Net
derivative
receivables
Interest rate contracts:
OTC
OTC-cleared
Exchange-traded (a)
Total interest rate contracts
Credit contracts:
138,179
OTC
Net
derivative
receivables
$ 41,769
$ 501,888
946
$ 242,782 $ 7,784
20,276
164,392
20,276
1,667
825
165,217
12,785
Equity
Commodity
49,285
20,223
247
49,285
20,470
9,946
6,991
51,195
51,195
10,161
22,297
121
22,418
9,372
Total fair value of trading
assets and liabilities
$ 524,531
$ 1,708
$ 526,239 $ 54,213
$ 500,942
$
$ 242,782
Foreign exchange
3,604
15,121
Spot, futures and forwards
5,577
5,871
Written options
700
835
Purchased options
718
830
Total foreign exchange contracts
10,599
11,084
3,548
Equity contracts
Futures and forwards
Written options
Purchased options
406
346
142
101
646
528
611
490
1,805
Swaps
Cross-currency swaps
Foreign exchange contracts
1,501
OTC-cleared
Notional amount of derivative contracts
The following table summarizes the notional amount of
derivative contracts outstanding as of December 31, 2019
and 2018.
December 31, (in billions)
Notional amounts (b)
2019
2018
Interest rate contracts
Swaps
$
21,228
$
21,763
Futures and forwards
3,152
3,562
Written options
3,938
3,997
Purchased options
4,361
4,322
Total interest rate contracts
32,679
33,644
Credit derivatives (a)
1,242
1,465
1,652
Total equity contracts
Swaps
Not
designated
as hedges
Designated as
hedges
Total
derivative
receivables
Net
derivative
receivables(b)
Not
designated
as hedges
Designated
as hedges
Total
derivative derivative
payables payables(b)
Net
Trading assets and
liabilities
Interest rate
(in millions)
$ 312,451
843
$ 313,294 $ 27,421
$ 279,272
$
1
$ 279,273 $ 8,603
Credit
14,876
14,876
701
15,121
-
$
December 31, 2019
Gross derivative payables
Gross derivative receivables
147
134
Spot, futures and forwards
211
156
Written options
135
135
Purchased options
124
120
Total commodity contracts
617
545
Total derivative notional amounts
$
46,942 $
48,239
(a) Refer to the Credit derivatives discussion on pages 191-194 for more
information on volumes and types of credit derivative contracts.
(b) Represents the sum of gross long and gross short third-party notional
derivative contracts.
While the notional amounts disclosed above give an
indication of the volume of the Firm's derivatives activity,
the notional amounts significantly exceed, in the Firm's
view, the possible losses that could arise from such
transactions. For most derivative contracts, the notional
amount is not exchanged; it is simply a reference amount
used to calculate payments.
JPMorgan Chase & Co./2019 Form 10-K
183
Notes to consolidated financial statements
Impact of derivatives on the Consolidated balance sheets
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that
are reflected on the Firm's Consolidated balance sheets as of December 31, 2019 and 2018, by accounting designation (e.g.,
whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Free-standing derivative receivables and payables (a)
Commodity contracts
$ 299,205 $ (276,255) $ 22,950
27,594
308,994
Foreign exchange contracts:
OTC
142,360
OTC-cleared
186
(131,792)
(152)
10,568
34
Exchange-traded (a)
12
(6)
6
1,519
160,930
274
16
8,769
6
(3)
13
Total foreign exchange contracts
142,558
(131,950)
10,608
161,220
(152,432)
8,788
Equity contracts:
(152,161)
(268)
2
(6,714)
(18,609)
1,517
365
(303)
62
$ 233,404
7,163
210
$ (228,369)
(6,494)
$ 5,035
669
Total interest rate contracts
277,893
(270,670)
7,223
240,777
(135)
(234,998)
75
5,779
Credit contracts:
OTC
OTC-cleared
11,570
3,390
Total credit contracts
14,960
(10,080)
(3,389)
(13,469)
1,490
1
1,491
13,412
6,716
20,128
(11,895)
OTC
79
Exchange-traded (a)
(21,778)
150
2,629
29,557 (d)
8,259
17,189
485,036
(8,208)
(13,046)
(460,119)
51
4,143
24,917 (d)
14,151
14,151
16,852
16,852
$ 512,128
$
6,012
(5,862)
14,756 (12,127)
497,977 (468,420)
43,708
$ 41,769
Collateral not nettable on the Consolidated balance
sheets (b)(c)
(7,896)
Net amounts
$
35,812
(4,449)
$ 37,320
(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b) Represents liquid security collateral as well as cash collateral held at third-party custodians related to derivative instruments where an appropriate legal
opinion has been obtained. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative
payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with
that counterparty.
(c) Derivative collateral relates only to OTC and OTC-cleared derivative instruments.
(d) Net derivatives receivable included cash collateral netted of $65.9 billion and $55.2 billion at December 31, 2019 and 2018, respectively. Net derivatives
payable included cash collateral netted of $54.4 billion and $43.3 billion at December 31, 2019 and 2018, respectively. Derivative cash collateral relates
to OTC and OTC-cleared derivative instruments.
$ 501,888
(30)
4,092
(4,838)
5,816
29,437
(25,544)
3,893
20,216
(18,426)
1,790
16,285
(15,490)
795
47,810
(40,204)
7,606
45,722
(41,034)
4,688
Total equity contracts
Commodity contracts:
OTC
OTC-cleared
Exchange-traded (a)
Total commodity contracts
Derivative payables with appropriate legal opinion
Derivative payables where an appropriate legal
opinion has not been either sought or obtained
Total derivative payables recognized on the
Consolidated balance sheets
8,714
30
(6,235)
2,479
8,930
JPMorgan Chase & Co./2019 Form 10-K
9,442
347
$ 7,082
10,217
4
163,862
235
32
Total foreign exchange contracts
136,447
(129,482)
6,965
164,129
(153,988)
(226)
(21)
(154,235)
9,874
9
11
9,894
(6)
Equity contracts:
Exchange-traded (a)
Total equity contracts
23,106
(20,820)
2,286
26,178
(23,879)
2,299
19,654
42,760
(18,430)
1,224
18,876
OTC
33
6,928
(129,324)
(152)
(9,360)
(258)
(285,873)
82
89
23,121
$ 258,227
6,404
322
264,953
$ (239,498)
(5,856)
(136)
(245,490)
$ 18,729
548
186
19,463
10,743
3,864
Total credit contracts
14,607
(10,317)
(3,858)
(14,175)
426
6
432
12,648
7,267
19,915
(12,261)
(7,222)
(19,483)
387
45
432
Foreign exchange contracts:
OTC
136,252
OTC-cleared
Exchange-traded (a)
185
10
(15,460)
267,311 $ (260,229)
(10,138)
3,416
3,510
$ 526,239
$ 54,213
Collateral not nettable on the Consolidated balance
sheets(b)(c)
(14,226)
Net amounts
$ 35,540
(13,046)
$ 41,167
JPMorgan Chase & Co./2019 Form 10-K
185
Notes to consolidated financial statements
2019
49,766
2018
December 31, (in millions)
payables
Amounts
netted on the
Consolidated
balance sheets
Net
derivative
payables
Gross
derivative
payables
Amounts
netted on the
Consolidated
balance sheets
Net
derivative
payables
U.S. GAAP nettable derivative payables
Interest rate contracts:
OTC
OTC-cleared
Exchange-traded(a)
Gross
derivative
$
529,626
Total derivative receivables recognized on the
Consolidated balance sheets
45,054
(39,339)
5,715
Commodity contracts:
OTC
OTC-cleared
Exchange-traded(a)
7,093
28
6,154
(5,149)
1,944
7,448
(5,261)
2,187
Total commodity contracts
Derivative receivables with appropriate legal opinion
(28)
(5,903)
13,275 (11,080)
516,083 (479,860)
251
2,195
36,223
(d)
8,815
16,263
510,314
(8,218)
(13,479)
(472,026)
597
2,784
38,288
(d)
Derivative receivables where an appropriate legal
opinion has not been either sought or obtained
13,543
13,543
15,925
15,925
(39,250)
182
10,952
191
Loans
On-balance sheet
Derivatives
Off-balance
sheet(h)
$ 51,412 $ 419,798 $ 373,732 $
$ 46,066
Receivables from customers
-
-
Total Consumer, excluding credit card
386,452
335,040
2018
Credit card
168,924
Total consumer-related
1,206,096
503,964
154
51,412
419,952
373,732
650,720
762,011
156,632
702,132
819,644
Credit
exposure(g)
Off-balance
sheet(h)
On-balance sheet
Derivatives
34 1,207
6,670 $ 20,985 $ 80,724
995
157
5,422
-
5,004
38
3,364
7,368 34,172
1,613
JPMorgan Chase & Co./2019 Form 10-K
177
Notes to consolidated financial statements
Note 4 - Credit risk concentrations
Concentrations of credit risk arise when a number of clients,
counterparties or customers are engaged in similar
business activities or activities in the same geographic
region, or when they have similar economic features that
would cause their ability to meet contractual obligations to
be similarly affected by changes in economic conditions.
JPMorgan Chase regularly monitors various segments of its
credit portfolios to assess potential credit risk
concentrations and to obtain additional collateral when
deemed necessary and permitted under the Firm's
agreements. Senior management is significantly involved in
the credit approval and review process, and risk levels are
adjusted as needed to reflect the Firm's risk appetite.
In the Firm's consumer portfolio, concentrations are
managed primarily by product and by U.S. geographic
region, with a key focus on trends and concentrations at the
portfolio level, where potential credit risk concentrations
can be remedied through changes in underwriting policies
and portfolio guidelines. Refer to Note 12 for additional
information on the geographic composition of the Firm's
consumer loan portfolios. In the wholesale portfolio, credit
risk concentrations are evaluated primarily by industry and
monitored regularly on both an aggregate portfolio level
and on an individual client or counterparty basis.
The Firm's wholesale exposure is managed through loan
syndications and participations, loan sales, securitizations,
credit derivatives, master netting agreements, collateral
and other risk-reduction techniques. Refer to Note 12 for
additional information on loans.
The Firm does not believe that its exposure to any
particular loan product or industry segment (e.g., real
estate), or its exposure to residential real estate loans with
high LTV ratios, results in a significant concentration of
credit risk.
Terms of loan products and collateral coverage are included
in the Firm's assessment when extending credit and
establishing its allowance for loan losses.
178
JPMorgan Chase & Co./2019 Form 10-K
The table below presents both on-balance sheet and off-balance sheet consumer and wholesale-related credit exposure by the
Firm's three credit portfolio segments as of December 31, 2019 and 2018.
2019
Credit
December 31, (in millions)
Consumer, excluding credit card
exposure(g) Loans
$ 386,452 $ 335,040 $
1,181,963
4,852 8,177 42,323
32 1,454
1,958
5,841 $26,328 $106,982 $ 53,069 $
530,364
605,379
14,680
2,766
41,575
72,646
16,980
2,667
52,999
Industrials
58,250
19,096
878
38,276
59,021
58,528
958
38,444
Asset Managers
51,775
23,939
7,160
20,676
42,807
16,806
9,033
16,968
Banks & Finance Cos
19,126
Technology, Media & Telecommunications
56,801
1,093
651,445
Wholesale-related (a)
Real Estate
149,267
116,244
619
32,404
143,316
115,737
164
27,415
Individuals and Individual Entities(b)
102,292
91,980
694
9,618
97,077
86,586
1,017
9,474
Consumer & Retail
99,331
30,879
1,424
67,028
94,815
36,921
46,066
50,091
$ 74,813 $
3,169
21,382
372
48,570
Loans
Total loans
7,046
$
59,511
$
47,318
6,965
55,533 $
(1,252)
42,215
(81)
(3,978) $
3,186
49,680
Loans reported as trading assets
$
(1,812)
(35)
(4,776)
Long-term debt
Principal-protected debt
$
40,124 (c) $
Nonprincipal-protected debt (b)
ΝΑ
39,246 $
36,499
(878) $
32,674 (c) $
40,403
3,151
44,904 $
All other performing loans
1,350 $ (2,890)
(39)
(2,929)
1,350
Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal
balance outstanding as of December 31, 2019 and 2018, for loans, long-term debt and long-term beneficial interests for
which the fair value option has been elected.
December 31, (in millions)
Loans (a)
2019
Contractual
principal
outstanding
Fair value
Fair value
over/
(under)
contractual
principal
outstanding
2018
Fair value
over/
Contractual
principal
outstanding
(under)
contractual
principal
Fair value outstanding
Nonaccrual loans
Loans reported as trading assets
$
Loans
3,717
178
$
Subtotal
3,895
139
1,250
1,111 $ (2,606) $ 4,240
(39)
$
39
(2,645)
4,279
28,718 $
Total structured notes
(3,956)
ΝΑ
Structured note products by balance sheet classification and risk component
The following table presents the fair value of structured notes, by balance sheet classification and the primary risk type.
December 31, 2019
December 31, 2018
(in millions)
Risk exposure
Interest rate
Credit
Foreign exchange
Equity
Commodity
Long-term
debt
At December 31, 2019 and 2018, the contractual amount of lending-related commitments for which the fair value option was
elected was $4.6 billion and $6.9 billion, respectively, with a corresponding fair value of $(94) million and $(92) million,
respectively. Refer to Note 28 for further information regarding off-balance sheet lending-related financial instruments.
Short-term
Long-term
debt
Short-term
borrowings Deposits
Total
$ 35,470 $
5,715
3,862
5
34 $ 16,692 $ 52,196 $ 24,137 $
875
48
62 $ 12,372 $ 36,571
6,590
4,009
29,294
472
borrowings Deposits Total
(c) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if
applicable, the contractual principal payment at the Firm's next call date.
(a) There were no performing loans that were ninety days or more past due as of December 31, 2019 and 2018.
(b) Remaining contractual principal is not applicable to nonprincipal-protected structured notes and long-term beneficial interests. Unlike principal-protected
structured notes and long-term beneficial interests, for which the Firm is obligated to return a stated amount of principal at maturity, nonprincipal-
protected structured notes and long-term beneficial interests do not obligate the Firm to return a stated amount of principal at maturity, but for structured
notes to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. However, investors are
exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal-protected notes.
ΝΑ
26,168
ΝΑ
Total long-term debt
ΝΑ $ 75,745
ΝΑ
ΝΑ
$
54,886
ΝΑ
Long-term beneficial interests
Nonprincipal-protected debt (b)
Total long-term beneficial interests
ΝΑ
$
36
NA
ΝΑ
$
28
ΝΑ
ΝΑ
$
36
ΝΑ
ΝΑ
$
28
ΝΑ
Corporate
30,639
14,287
Notes to consolidated financial statements
Note 5 - Derivative instruments
Derivative contracts derive their value from underlying
asset prices, indices, reference rates, other inputs or a
combination of these factors and may expose
counterparties to risks and rewards of an underlying asset
or liability without having to initially invest in, own or
exchange the asset or liability. JPMorgan Chase makes
markets in derivatives for clients and also uses derivatives
to hedge or manage its own risk exposures. Predominantly
all of the Firm's derivatives are entered into for market-
making or risk management purposes.
Market-making derivatives
The majority of the Firm's derivatives are entered into for
market-making purposes. Clients use derivatives to mitigate
or modify interest rate, credit, foreign exchange, equity and
commodity risks. The Firm actively manages the risks from
its exposure to these derivatives by entering into other
derivative contracts or by purchasing or selling other
financial instruments that partially or fully offset the
exposure from client derivatives.
Risk management derivatives
The Firm manages certain market and credit risk exposures
using derivative instruments, including derivatives in hedge
accounting relationships and other derivatives that are used
to manage risks associated with specified assets and
liabilities.
The Firm generally uses interest rate derivatives to manage
the risk associated with changes in interest rates. Fixed-rate
assets and liabilities appreciate or depreciate in market
value as interest rates change. Similarly, interest income
and expense increase or decrease as a result of variable-
rate assets and liabilities resetting to current market rates,
and as a result of the repayment and subsequent
origination or issuance of fixed-rate assets and liabilities at
current market rates. Gains and losses on the derivative
instruments related to these assets and liabilities are
expected to substantially offset this variability.
Foreign currency derivatives are used to manage the
foreign exchange risk associated with certain foreign
currency-denominated (i.e., non-U.S. dollar) assets and
liabilities and forecasted transactions, as well as the Firm's
net investments in certain non-U.S. subsidiaries or branches
whose functional currencies are not the U.S. dollar. As a
result of fluctuations in foreign currencies, the U.S. dollar-
equivalent values of the foreign currency-denominated
assets and liabilities or the forecasted revenues or expenses
increase or decrease. Gains or losses on the derivative
instruments related to these foreign currency-denominated
assets or liabilities, or forecasted transactions, are expected
to substantially offset this variability.
Commodities derivatives are used to manage the price risk
of certain commodities inventories. Gains or losses on these
derivative instruments are expected to substantially offset
the depreciation or appreciation of the related inventory.
Credit derivatives are used to manage the counterparty
credit risk associated with loans and lending-related
commitments. Credit derivatives compensate the purchaser
when the entity referenced in the contract experiences a
credit event, such as bankruptcy or a failure to pay an
obligation when due. Credit derivatives primarily consist of
CDS. Refer to the discussion in the Credit derivatives section
on pages 191-194 of this Note for a further discussion of
credit derivatives.
Refer to the risk management derivatives gains and losses
table on page 191 of this Note, and the hedge accounting
gains and losses tables on pages 188-191 of this Note for
more information about risk management derivatives.
Derivative counterparties and settlement types
The Firm enters into OTC derivatives, which are negotiated
and settled bilaterally with the derivative counterparty. The
Firm also enters into, as principal, certain ETD such as
futures and options, and OTC-cleared derivative contracts
with CCPS. ETD contracts are generally standardized
contracts traded on an exchange and cleared by the CCP,
which is the Firm's counterparty from the inception of the
transactions. OTC-cleared derivatives are traded on a
bilateral basis and then novated to the CCP for clearing.
Derivative clearing services
179
The Firm provides clearing services for clients in which the
Firm acts as a clearing member at certain derivative
exchanges and clearing houses. The Firm does not reflect
the clients' derivative contracts in its Consolidated Financial
Statements. Refer to Note 28 for further information on the
Firm's clearing services.
All free-standing derivatives that the Firm executes for its
own account are required to be recorded on the
Consolidated balance sheets at fair value.
As permitted under U.S. GAAP, the Firm nets derivative
assets and liabilities, and the related cash collateral
receivables and payables, when a legally enforceable
master netting agreement exists between the Firm and the
derivative counterparty. Refer to Note 1 for further
discussion of the offsetting of assets and liabilities. The
accounting for changes in value of a derivative depends on
whether or not the transaction has been designated and
qualifies for hedge accounting. Derivatives that are not
designated as hedges are reported and measured at fair
value through earnings. The tabular disclosures on pages
184-191 of this Note provide additional information on the
amount of, and reporting for, derivative assets, liabilities,
gains and losses. Refer to Notes 2 and 3 for further
discussion of derivatives embedded in structured notes.
180
JPMorgan Chase & Co./2019 Form 10-K
Derivatives designated as hedges
The Firm applies hedge accounting to certain derivatives
executed for risk management purposes - generally interest
rate, foreign exchange and commodity derivatives.
However, JPMorgan Chase does not seek to apply hedge
accounting to all of the derivatives involved in the Firm's
risk management activities. For example, the Firm does not
apply hedge accounting to purchased CDS used to manage
the credit risk of loans and lending-related commitments,
because of the difficulties in qualifying such contracts as
hedges. For the same reason, the Firm does not apply
hedge accounting to certain interest rate, foreign exchange,
and commodity derivatives used for risk management
purposes.
To qualify for hedge accounting, a derivative must be highly
effective at reducing the risk associated with the exposure
being hedged. In addition, for a derivative to be designated
as a hedge, the risk management objective and strategy
must be documented. Hedge documentation must identify
the derivative hedging instrument, the asset or liability or
forecasted transaction and type of risk to be hedged, and
how the effectiveness of the derivative is assessed
prospectively and retrospectively. To assess effectiveness,
the Firm uses statistical methods such as regression
analysis, nonstatistical methods such as dollar-value
comparisons of the change in the fair value of the derivative
to the change in the fair value or cash flows of the hedged
item, and qualitative comparisons of critical terms and the
evaluation of any changes in those terms. The extent to
which a derivative has been, and is expected to continue to
be, highly effective at offsetting changes in the fair value or
cash flows of the hedged item must be assessed and
documented at least quarterly. If it is determined that a
derivative is not highly effective at hedging the designated
exposure, hedge accounting is discontinued.
There are three types of hedge accounting designations: fair
value hedges, cash flow hedges and net investment hedges.
JPMorgan Chase uses fair value hedges primarily to hedge
fixed-rate long-term debt, AFS securities and certain
commodities inventories. For qualifying fair value hedges,
the changes in the fair value of the derivative, and in the
value of the hedged item for the risk being hedged, are
recognized in earnings. Certain amounts excluded from the
assessment of effectiveness are recorded in OCI and
recognized in earnings over the life of the derivative. If the
hedge relationship is terminated, then the adjustment to
the hedged item continues to be reported as part of the
basis of the hedged item, and for benchmark interest rate
hedges, is amortized to earnings as a yield adjustment.
Derivative amounts affecting earnings are recognized
consistent with the classification of the hedged item
primarily net interest income and principal transactions
revenue.
-
JPMorgan Chase uses cash flow hedges primarily to hedge
the exposure to variability in forecasted cash flows from
floating-rate assets and liabilities and foreign currency-
denominated revenue and expense. For qualifying cash flow
hedges, changes in the fair value of the derivative are
recorded in OCI and recognized in earnings as the hedged
item affects earnings. Derivative amounts affecting
earnings are recognized consistent with the classification of
the hedged item - primarily noninterest revenue, net
interest income and compensation expense. If the hedge
relationship is terminated, then the change in value of the
derivative recorded in AOCI is recognized in earnings when
the cash flows that were hedged affect earnings. For hedge
relationships that are discontinued because a forecasted
transaction is not expected to occur according to the
original hedge forecast, any related derivative values
recorded in AOCI are immediately recognized in earnings.
JPMorgan Chase uses net investment hedges to protect the
value of the Firm's net investments in certain non-U.S.
subsidiaries or branches whose functional currencies are
not the U.S. dollar. For qualifying net investment hedges,
changes in the fair value of the derivatives due to changes
in spot foreign exchange rates are recorded in OCI as
translation adjustments. Amounts excluded from the
assessment of effectiveness are recorded directly in
earnings.
JPMorgan Chase & Co./2019 Form 10-K
Accounting for derivatives
JPMorgan Chase & Co./2019 Form 10-K
(h) Represents lending-related financial instruments.
(g) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against derivative
receivables or loans and liquid securities and other cash collateral held against derivative receivables.
1,627
21,460
439,162
54,213
387,813
Loans held-for-sale and loans at fair value
11,166
11,166
15,028
15,028
Receivables from customers and other(e)
33,706
30,063
Total wholesale-related
Total exposure(f)(g)
943,392
$2,149,488 $ 959,769 $
455,805
49,766 404,115
49,766 $1,106,247
926,279 454,190
54,213
387,813
$2,108,242 $ 984,554 $ 54,213 $1,039,258
(a) The industry rankings presented in the table as of December 31, 2018, are based on the industry rankings of the corresponding exposures at December 31,
2019, not actual rankings of such exposures at December 31, 2018.
(b) Individuals and Individual Entities predominantly consists of Wealth Management clients within AWM and includes exposure to personal investment companies
and personal and testamentary trusts.
(c) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2019 and 2018, noted above, the Firm
held: $6.5 billion and $7.8 billion, respectively, of trading assets; $29.8 billion and $37.7 billion, respectively, of AFS securities; and $4.8 billion at both
periods of held-to-maturity ("HTM") securities, issued by U.S. state and municipal governments. Refer to Note 2 and Note 10 for further information.
(d) All other includes: SPES and Private education and civic organizations, representing approximately 92% and 8%, respectively, at both December 31, 2019
and 2018. Refer to Note 14 for more information on exposures to SPES.
(e) Receivables from customers primarily represent held-for-investment margin loans to brokerage clients in CIB and AWM that are collateralized by assets
maintained in the clients' brokerage accounts (e.g., cash on deposit, liquid and readily marketable debt or equity securities), as such no allowance is held
against these receivables. To manage its credit risk the Firm establishes margin requirements and monitors the required margin levels on an ongoing basis,
and requires clients to deposit additional cash or other collateral, or to reduce positions, when appropriate. These receivables are reported within accrued
interest and accounts receivable on the Firm's Consolidated balance sheets.
(f) Excludes cash placed with banks of $254.0 billion and $268.1 billion, at December 31, 2019 and 2018, respectively, which is predominantly placed with
various central banks, primarily Federal Reserve Banks.
181
45,197
Notes to consolidated financial statements
Affected
Hedge commodity inventory
Fair value hedge
CIB
188
Manage specifically identified risk exposures not designated in qualifying hedge accounting
relationships:
• Interest rate
• Credit
• Interest rate and
foreign exchange
Manage the risk associated with mortgage commitments, warehouse
loans and MSRS
Manage the credit risk associated with wholesale lending exposures
Manage the risk associated with certain other specified assets and
liabilities
Market-making derivatives and other activities:
• Various
Commodity
• Various
Other derivatives
Specified risk management
CCB
191
Specified risk management
Specified risk management
CIB
191
Corporate
191
Market-making and other
Market-making and other
CIB
CIB, AWM,
191
Market-making and related risk management
•
191
Corporate
Page
Type of Derivative
Use of Derivative
Designation and disclosure segment or unit reference
Manage specifically identified risk exposures in qualifying hedge accounting relationships:
• Interest rate
• Interest rate
Hedge fixed rate assets and liabilities
Fair value hedge
Corporate
188
Hedge floating-rate assets and liabilities
Cash flow hedge
Corporate
190
• Foreign exchange
• Foreign exchange
Hedge foreign currency-denominated assets and liabilities
Hedge foreign currency-denominated forecasted revenue and
expense
Fair value hedge
Corporate
188
Cash flow hedge
Corporate
190
• Foreign exchange
Hedge the value of the Firm's investments in non-U.S. dollar
functional currency entities
Net investment hedge
The following table outlines the Firm's primary uses of derivatives and the related hedge accounting designation or disclosure
category.
5,165
68,284
881,188
24,441
State & Municipal Govt(c)
26,697
9,924
2,000
14,773
27,351
10,319
2,000
15,032
Automotive
17,317
5,408
20,841
368
17,339
5,170
399
11,770
Chemicals & Plastics
17,276
4,710
459
12,107
16,035
4,902
181
11,541
1,740
5,591
28,172
49,920
28,825
5,903
15,192
Healthcare
46,638
13,951
2,078
30,609
48,142
16,347
1,874
29,921
Oil & Gas
41,570
13,064
852
27,654
42,600
13,008
559
29,033
Utilities
34,753
5,085
2,573
27,095
Metals & Mining
404,115
15,337
402
8,714
Securities Firms
7,335
752
4,507
2,076
4,558
645
2,029
1,884
Financial Markets Infrastructure
4,116
2,569
9
1,625
7,484
18
5,941
1,525
All other(d)
76,492
50,186
Subtotal
898,520
444,639
1,865
49,766
2,482
1,356
12,639
8,651
9,733
15,359
5,370
488
9,501
Central Govt
14,843
2,818
10,477
1,548
18,456
3,867
12,869
1,720
Transportation
13,917
4,804
715
8,398
15,660
6,391
1,102
8,167
Insurance
12,202
1,269
2,282
5,202
3,915
JPMorgan Chase & Co./2019 Form 10-K
186
female
Recently, Daniel Pinto and Gordon Smith, our Co-Presidents and Chief Operating Officers, sent a note to
employees about steps we're taking to ensure our values reach all corners of our company.
While the health crisis we are facing supersedes all other topics in this year's letter, the subject of
diversity and inclusion is such an important one that I feel compelled to include it. As a firm, we have
an unwavering commitment to integrity, fairness and responsibility. That's why any instances of racist
behavior and discrimination are so deeply unsettling.
A DIVERSE AND INCLUSIVE COMPANY IS A STRONGER COMPANY
11
Needless to say, this success would be impos-
sible without our exceptional employees, and
we recognize our responsibility to support
both their professional and personal lives
now more than ever.
While conditions may sometimes be unusual
and difficult, we are functioning smoothly. In
fact, over the last month in certain parts of
our company, we've had the highest volume
and transaction totals we have ever seen.
It's amazing how quickly we have mobilized
and implemented work-from-home and other
resiliency measures - in weeks instead of
months or years. There are great lessons to
be learned from this experience.
For those who must go to work on-site, we
are reinforcing both basic and enhanced
personal and office hygiene measures
to keep them, their colleagues and their
clients safe. We have modified business
operations, staggered shifts, changed
seating arrangements, closed buildings to
nonessential visitors and provided addi-
tional equipment where possible. We have
also intensified nightly and daily cleaning
of all offices and branches worldwide that
remain open.
All branch employees are being paid for
their regularly scheduled hours even if
those hours are reduced or their branch is
temporarily closed.
A special payment of up to $1,000 has
been granted to full- and part-time
employees whose job requires them to
continue working on-site and generally
whose annual cash compensation is less
than $60,000.
•
•
All employees are receiving five additional
paid days off to help manage personal
needs, which may include dependent care,
child care or other issues.
We have clinical staff internally to support
our employees through this difficult time,
whether it is fielding general inquiries
related to COVID-19 or locating testing or
other medical facilities.
Dear colleagues,
We are managing through uncertain times right now and recognize many of you are focusing much of your day on responding
to the ongoing spread of the COVID-19 coronavirus. While this is a top priority for all of us, we want to make sure you know we
haven't lost sight of our commitment to keeping you informed about our ongoing efforts to strengthen our culture. Now, more
than ever, we need the best of everyone because only together will we get through these unprecedented times.
18
My fervent hope is that America rolls up its
sleeves and starts to attack these problems.
Fixing them would better prepare us for
future catastrophes, create better economic
outcomes for everyone (with policies that
aim to maximize economic growth, driving
the best potential outcomes), improve
income inequality, protect the most vulner-
able and foster economic growth that is
more resilient, which would also strengthen
America's role in the world. We must never
I have written in detail in past letters that
the regulatory system is in need of both
reform and recalibration – not because we
want it to happen but because it would be
good for a deepening and widening of the
financial system – something that would
benefit all Americans. While a lot of the rules
were constructive and made the financial
system stronger, we are now seeing the
impact of poorly coordinated, poorly cali-
brated and poorly organized rulemaking.
After the crisis subsides (and it will), our
country should thoroughly review all aspects
of our preparedness and response. And we
should use the opportunity to closely review
the economic response and determine
whether any additional regulatory changes
are warranted to improve our financial and
economic system. There will be a time and
place for that - but not now.
6. We need a plan to get safely back to work.
It is hoped that the number of new COVID-19
cases will decrease soon and - coupled with
greatly enhanced medical capabilities (more
beds, proper equipment where it is needed,
adequate testing) – the healthcare system is
equipped to take care of all Americans, both
minimizing their suffering and maximizing
their chance of living. Once this occurs,
people can carefully start going back to work,
of course with proper social distancing,
vigilant hygiene, proper testing and other
precautions. There are many jobs that can be
safely done; however, employees in certain
companies should return to business as usual
only if the Centers for Disease Control and
Prevention (CDC) and other government
entities deem it safe to do so.
In addition, this "return to work" process
could be accelerated if federal, state and local
governments make tests widely available
that allow people to certify that they have
contracted and recovered from the disease,
have the necessary antibodies to prevent
them from getting sick again and are not
infectious to anyone. Initially, we need a
buffer period of days or weeks for people
to be tested, and then for those who test
negative for the virus, we need to discover
whether virus antibodies appear through
serology testing. Both the CDC and private
companies are scrambling to produce such
tests: The U.K. has ordered 3.5 million
of them, Germany will use them to issue
immunity certificates to COVID-19 survi-
vors, and China and Singapore already are
using tests to determine how extensively the
virus spread in large populations in order
to measure the true infection rate. In the
United States, the Food and Drug Admin-
istration is allowing doctors to use these
serology tests to identify recovered patients
whose antibodies could treat emergency
cases of the disease.
The country was not adequately prepared for
this pandemic - however, we can and should
be more prepared for what comes next. Done
right, a disciplined transition would maxi-
mize the health of Americans and minimize
the time, extent and suffering caused by the
economic downturn.
We continue to pay employees who are
at home because they have had potential
exposure to the virus or whose health is
higher risk. Additionally, we provide paid
medical leave to employees who are unwell.
17
7. We need to come together: My fervent hope for America.
Sometimes extraordinary events in history
can cause a change in the body politic. As a
nation, we were clearly not equipped for this
global pandemic, and the consequences have
been devastating. But it is forcing us to work
together, and it is improving civility and
reminding us that we all live on one planet.
E Pluribus Unum.
I am hoping that civility, humanity, empathy
and the goal of improving America will
break through.
We have the resources to emerge from this
crisis as a stronger country. America is still
the most prosperous nation the world has
ever seen. We are blessed with the natural
gifts of land; all the food, water and energy
we need; the Atlantic and Pacific oceans as
natural borders; and wonderful neighbors in
Canada and Mexico. And we are blessed with
the extraordinary gifts from our Founding
Fathers, which are still unequaled: freedom
of speech, freedom of religion, freedom
of enterprise, and the promise of equality
and opportunity. These gifts have led to the
most dynamic economy the world has ever
seen one that nurtures vibrant businesses
large and small, exceptional universities, and
a welcoming environment for innovation,
science and technology. America was an idea
borne on principles, not based upon histor-
ical relationships and tribal politics. It has
and will continue to be a beacon of hope for
the world and a magnet for the world's best
and brightest.
Of course, America has always had its flaws.
The current pandemic is only one example
of the bad planning and management that
have hurt our country: Our inner city schools
don't graduate half of their students and
don't give our children an education that
leads to a livelihood; our healthcare system
is increasingly costly with many of our citi-
zens lacking any access; and nutrition and
personal health aren't even being taught at
many schools. Obesity has become a national
scourge. We have a litigation and regulatory
system that cripples small businesses with
red tape and bureaucracy; ineffective infra-
structure planning and investment; and huge
waste and inefficiency at both the state and
federal levels. We have failed to put proper
immigration policies in place; our social
safety nets are poorly designed; and the
share of wages for the bottom 30% of
Americans has effectively been going down.
We need to acknowledge these problems
and the damage they have done if we are
ever going to fix them.
There should have been a pandemic play-
book. Likewise, every problem I noted above
should have detailed and nonpartisan solu-
tions. As we have seen in past crises of this
magnitude, there will come a time when we
will look back and it will be clear how we -
at all levels of society, government, business,
healthcare systems, and civic and humani-
tarian organizations - could have been and
will be better prepared to face emergencies
of this scale. While the inclination of some
will be to finger-point and look for blame,
I hope we can avoid that. I also hope we can
avoid people using times of crisis to argue
for what they already believe. We need to
demand more of ourselves and our leaders
if we want to prevent or mitigate these
disasters. This can be a moment when we
all come together and recognize our shared
responsibility, acting in a way that reflects
the best of all of us. As President Kennedy
historically said, “Ask not what your country
can do for you - ask what you can do for
your country."
DEALING WITH AN EXTRAORDINARY CRISIS
DEALING WITH AN EXTRAORDINARY CRISIS
During this pandemic, we have also taken
extensive steps to protect and support our
employees and their families. For example:
-
9
Clearly, some clients may be much more
vulnerable than others - for example, trans-
portation companies, hospitality enterprises,
hospitals, utilities and, in particular, small
businesses that do not have enough capital
to withstand sudden and sustained down-
turns in income. JPMorgan Chase Institute
research reveals that 50% of small busi-
nesses have less than 15 cash buffer days,
reinforcing why small businesses are being
heavily disrupted by the current crisis and
We are also taking significant action to support
businesses – small, midsize and large – and state
and local governments.
-
Of our approximately 5,000 Chase branches,
we have managed to keep three-quarters of
them open and safe for our customers
who need our services. In every one of our
markets, almost all of our 2,300 branches
with drive-up windows have remained open
for business, allowing people to maintain
a safe distance. Our 17,000 bankers have
continued to take appointments and proac-
tively reach out to customers - helping them
manage their finances and use our digital
tools - often letting customers stay home.
In addition, the vast majority of our 16,850
ATMs are well-stocked and still functioning
to provide needed cash to our customers.
Our call centers have not fared as well;
many of them have been effectively shut
down by local restrictions. As the volume of
calls has increased from customers seeking
assistance, hold times have also increased.
We have mobilized quickly to address this
issue, reminding customers that our digital
self-service capabilities are always available
for them to check balances, deposit checks
or make payments. Additionally, we have
built new tools - digital and electronic – to
allow customers to request relief without
waiting for a specialist. And we are making it
possible for our displaced phone specialists
to work from home.
-
You can learn more about our customer
response at: www.chase.com/stayconnected.
Waiving or refunding some fees, including
early withdrawal fees on certificates of
deposit.
Continuing to responsibly lend to
qualified consumers.
Not reporting payment deferrals such as
late payments to credit bureaus for up-to-
date clients.
Removing minimum payment require-
ments on credit cards and waiving
associated late fees.
Providing a 90-day grace period for
mortgage and auto loan/lease payments
and waiving any associated late fees.
•
•
We have been helping our customers, who
tell us about their financial struggles as a
result of the crisis, and are offering relief
measures such as:
DEALING WITH AN EXTRAORDINARY CRISIS
will feel the effects for a significant period of
time - even as more capital from the recent
federal stimulus program reaches them.
To support businesses during this current
crisis, we are doing the following:
Prudently extending credit to businesses
of all sizes for working capital and general
corporate purposes. For example, in the
past 60 days alone, we have extended $950
million in new loans to small businesses.
Times like these reinforce that our employees
are our most important asset – they are
fundamental to the vibrancy and success of
our company. Excellence in everything we do
– from operations and technology to service
and reputation - depends upon the abilities
and character of our employees. Our vast and
diverse team of people serves our customers
and communities, builds the technology,
makes the strategic decisions, manages the
risks, determines our investments and drives
innovation. Setting aside differing views of
our complex world and the risks and oppor-
tunities ahead, it is inarguable that having
such an extraordinary team – people with
guts, brains and enormous capabilities who
can navigate whatever circumstances bring -
is what ensures our future prosperity.
2. We take excellent care of our employees.
DEALING WITH AN EXTRAORDINARY CRISIS
10
10
We applaud the speed with which the federal
government and the Federal Reserve (the
Fed), as well as other central banks around
the world, put together a stimulus package
and other funding benefits to help individ-
uals, businesses, and state and local entities
across the United States and beyond. Much
remains to be done to assure these resources
can be quickly and effectively rolled out.
We hope to be at the forefront of using this
assistance to help our customers get through
what is certain to be a difficult next few
months. We will not use this relief funding
for ourselves.
We stand ready to assist the government in
implementing stimulus package benefits to
support the economy.
In last year's letter, I wrote about the
many ways we take excellent care of our
employees: competitive wages and compen-
sation, 401(k) retirement benefits, health
benefits and wellness programs, extensive
training programs, volunteer and employee
engagement opportunities, generous parental
leave policies and much more.
Recognizing the extraordinary extension of
new credit, mentioned above, and knowing
there will be a major recession mean that we
are exposing ourselves to billions of dollars
of additional credit losses as we help both
consumer and business customers through
these difficult times. (We will provide more
detail on these actions later in this letter.) Of
course, we are in continual contact with our
regulators about our actions and efforts.
Continuing to support vital institutions to
keep our communities strong: Increased
funding in March included, for example,
$1.9 billion for hospitals and healthcare
companies, $270 million for educational
institutions, $360 million for nonprofits,
and $240 million for state and local
governments.
Continuing the issuance of bonds for
highly rated companies ($85 billion) – it
may surprise you that the first quarter of
2020 will be our largest quarter for invest-
ment grade issuance, led by J.P. Morgan.
-
Continuing to maintain undrawn
revolving commitments in our wholesale
businesses, which totaled approximately
$295 billion as of the close of business on
March 31, 2020. Companies have already
drawn down more than $50 billion of their
revolvers to prepare themselves for the
crisis (this already dramatically exceeds
what happened in the global financial
crisis). Many others have requested addi-
tional credit, which we have been offering
judiciously – more than $25 billion of new
credit extensions were approved in the
month of March alone.
Continuing in the ordinary course of busi-
ness to sustain consumers, businesses and
communities with about $500 billion of
credit and capital raised every quarter.
Servicing clients with additional credit
through revolving facilities, when appro-
priate, and stepping in to try to help with
credit when others can't or won't.
Waiving and refunding fees for those
businesses in need and finding ways
to help more small businesses through
resources available at the Small Business
Administration.
Continuing to fund construction projects
essential to our communities (affordable
housing, food banks and grocery stores)
through our $5 billion commitment.
16
While we will aggressively help our
customers take advantage of these new
programs (though we must take action
to protect ourselves from ongoing – and,
more important, future – litigation risk),
we want our shareholders to know that we
have not requested any regulatory relief
for ourselves. Saying that we will not ask
for regulatory relief does not mean the
government shouldn't change some rules
and regulations, however. For example,
some rules can improperly prevent healthy,
well-capitalized banks from lending freely
in times of stress. This can hurt customers
as the crisis deepens. Leaving high-quality,
available liquidity undeployed in times of
need is an opportunity forever lost.
no impact on safety, soundness or regulatory
oversight. We are working with the govern-
ment to make sure such crisis-relief measures
are structured to work effectively - there are
a significant number of details that need to be
resolved, which I will not go into here.
Increasing the diversity of the businesses we partner with firmwide
We are fully committed to a fair, equitable and inclusive company for our customers, our employees, our partners and our
suppliers. This is part of every manager's job, and they will be held accountable.
The diversity of the businesses we partner with across the firm is just as important as our employee diversity - from the small
businesses to which we provide access to capital, to our asset managers, to our suppliers and to the companies we assist in
bringing public.
We intend to increase diverse representation through structural process improvements in how we select partners and build
our pipeline.
The firm will also continue to use data and research to further inform the development of products, services, employee
programs and community investments that help address racial disparities in wealth building.
This all goes to say our work described above is representative of our deep commitment and is ongoing. It is not a "one
and done" event. We will remain steadfast, continue to work now and in the future, and remain ever-vigilant in our effort to
maintain a culture where racism cannot live or thrive. Over the next 30 days, each business will review their current strategies
and contribute a plan to bring this to life and each business will be held accountable.
Let us say again, we are all the keepers of our culture and we are committed to ensuring that ours is one where all employees and
customers are treated equally and fairly, and where all of us receive the opportunity and mutual respect we deserve.
Sondan
Jonny
I can assure you, it did not take one particular story to make us realize that a diverse and inclusive culture
is important.
We know that too many people are being left behind – particularly in the black community. The Civil War
ended more than 150 years ago, and we still have not come even close to parity. We need to do more as a
nation, and we have more to do as a firm.
13
DEALING WITH AN EXTRAORDINARY CRISIS
3. We make extraordinary efforts to lift up our communities, especially in challenging times.
I believe that our shareholders know
we make extraordinary efforts to lift up
our communities, both at a local level -
supporting schools and work skills training,
for example and at the national level,
helping to formulate policies that are good
for countries. These policies affect healthcare,
infrastructure, education and employment,
including initiatives such as those that help
people with a criminal background get a
second chance.
We know that it is essential for managers to be inclusive leaders and we will focus on helping them recognize ways they can be
intentional about inclusion as they recruit, hire, retain and develop diverse talent.
Because the role of the manager is arguably the most critical role in promoting our culture deep into the organization, we will
make additional manager training mandatory at the time of promotion to a people-manager role, and at the time of promotion
to a senior leader role, in addition to other developmental moments for managers. We already have training in many parts of
the organization, including programs like "Journey to Inclusive Teams" and the required unconscious bias training for branch
managers. We will continue to enhance and embed this required training throughout the manager's career.
In order to drive more diverse and inclusive behaviors amongst our leaders, managers, employees and customers, we are
requiring diversity and inclusion training for all employees at various points throughout an employee lifecycle, including at the
time of hire, and periodically thereafter. We expect all employees to fulfill these requirements.
Instituting required firmwide Diversity & Inclusion Training
We also looked at how employee discretion may affect product accessibility across lines of business. We found opportunities
to increase awareness about the firm's Diversity & Inclusion strategy, and we identified a need to expand our diversity
recruitment efforts to help us hire more diverse talent, and to implement mandatory firmwide training.
While this work is ongoing, here are five initial areas where work is now underway, including:
Enhancing our employee feedback process
We are looking hard at how we treat an employee complaint when it comes in. We are already working to simplify escalation
channels so employees are clear on where to submit complaints, in addition to further building out our capabilities across
complaints to better understand the full scope of the individual's experience. Feedback suggests that employees are not
always clear on where to submit complaints, so we are working to identify where improvements are needed.
Employees are encouraged to use existing channels to report inappropriate conduct or discrimination. We will continue to
strengthen these "listening posts" and reporting channels in an effort to make sure every one of us feels safe and confident
identifying and reporting inappropriate behavior.
Making it easier for customers to access products and services
We regularly review the products and services we offer to customers, and we are looking for ways to boost customer
connectivity across our full spectrum of consumer products. To start, we are focusing on:
We know that crises like COVID-19 create
further inequities in society so it is even
more important that we be present for those
communities hit hard by the pandemic.
JPMorgan Chase made a $50 million
commitment to help address the immediate
humanitarian crisis, as well as the long-term
economic challenges people face. Funding
will be deployed over time with particular
focus on the most vulnerable people and
communities, including:
•
Re-evaluating the qualification requirements for new product features and benefits.
We will improve product parameters and strengthen monitoring tools to ensure the exercise of discretion works as intended.
Bolstering our hiring systems to build a more robust pipeline of diverse talent
Attracting the best talent can only be achieved through a dedicated focus on inclusive recruiting, so we are recommitting
ourselves to this effort. We have made progress in this area, with programs such as Advancing Black Leaders, a program
12
focused specifically on increased hiring, retention and development of talent from within the black community. Over the past
four years, we have increased the number of black professionals in our most senior ranks, with the number of black managing
directors and executive directors up by more than 50 percent.
In addition, we are expanding our specialized team dedicated to conducting more targeted outreach to recruit diverse talent.
We will expand on our program to hold hiring managers and recruiters at the highest levels of the company accountable for
hiring a diverse group of professionals.
Enhancing ease of navigating and guiding customers through our full range of products and services available across
our entire branch network; and
After Superstorm Sandy, Hurricane Harvey
and other devastating natural disasters
around the globe, after wildfires ravaged
California towns and after a number of
other tragic events, we stepped up for our
customers. Today, we are doing the same
across the country as we work individually
with customers facing COVID-19-related
hardships.
Immediate healthcare, food and other
humanitarian relief globally;
Assistance to small businesses vulnerable
to significant economic hardships in the
United States, China and Europe.
4. We are transparent with our shareholders: What they should expect regarding our
financial and operating performance in 2020.
Of course, we do not know how this crisis
will ultimately end, including how long it
will last, how much economic damage it will
do, or how fast or slow the recovery will be.
We have always been serious about stress
testing and run an enormous number of tests
per week so that we are prepared for most
crises. But as is often the case, this "actual
new crisis" while it shares attributes with
what is being stress tested – is dramatically
different from the expected.
We stopped buying back our stock: We have
always held the position that the highest
and best use of our equity is to reinvest it in
our own business and, of course, to be able
to withstand tough times. Halting buybacks
was simply a very prudent action - we don't
know exactly what the future will hold - but
at a minimum, we assume that it will include
a bad recession combined with some kind of
financial stress similar to the global financial
crisis of 2008. Our bank cannot be immune
to the effects of this kind of stress.
We will share in detail our latest thinking on
the impact this crisis will have on our finan-
cials in our first quarter earnings release in
mid-April; however, to put it in context, here
is how our shareholders can think broadly
about a reasonable range of outcomes.
Our 2019 pretax earnings were $48 billion'
- a huge and powerful earnings stream that
enables us to absorb the loss of revenues and
the higher credit costs that inevitably follow
a crisis. For comparison, the Comprehensive
Capital Analysis and Review (CCAR) results
for 2020 that we submitted to the Federal
Reserve in 2019 (which assumed outcomes
like U.S. unemployment peaking at 10%
and the stock market falling 50%) showed a
decline in revenue of almost 20% and credit
costs of approximately $20 billion more than
what we experienced in 2019. We believe we
would perform better than this if the Fed's
scenario were to actually occur. But even in
the Fed's scenario, we would be profitable
in every quarter.² These stress test results
also show that following such a meaningful
reduction in our revenue (and assuming we
continue to pay dividends), our common
equity Tier 1 (CET1) ratio would likely hold
at a very strong 10%, and we would have in
excess of $500 billion of liquid assets.
Additionally, we have run an extremely
adverse scenario that assumes an even
deeper contraction of gross domestic
product, down as much as 35% in the
second quarter and lasting through the end
15
DEALING WITH AN EXTRAORDINARY CRISIS
of the
year, and with U.S. unemployment
continuing to increase, peaking at 14% in
the fourth quarter. Even under this scenario,
the company would still end the year with
strong liquidity and a CET1 ratio of approx-
imately 9.5% (common equity Tier 1 capital
would still total $170 billion). This scenario is
quite severe and, we hope, unlikely. If it were
to play out, the Board would likely consider
suspending the dividend even though it is
a rather small claim on our equity capital
base. If the Board suspended the dividend, it
would be out of extreme prudence and based
upon continued uncertainty over what the
next few years will bring.
It is also important to be aware that in both
our central case scenario for 2020 results
and in our extremely adverse scenario, we
are lending – currently or plan to do so -
an additional $150 billion for our clients'
needs. Despite this, our capital resources and
liquidity are very strong in both models. We
have over $500 billion in total liquid assets
and an incremental $300+ billion borrowing
capacity at the Federal Reserve and Federal
Home Loan Banks, if needed, to support
these loans, as well as meet our liquidity
requirements (these numbers do not include
the potential use of some of the Fed's newly
created facilities). We could, of course,
make our capital and liquidity buffer better
by restricting our activities, but we do not
intend to do that - our clients need us.
I would like to point out that, as we get closer
to the extremely adverse scenario, current
regulatory constraints will limit additional
actions we can take to help clients - in spite
of the extraordinary amount of capital and
liquidity we could deploy.
5. We are working closely with all levels of government during this crisis - and while we will
participate in government programs to address the severe economic challenges, we will
not request any regulatory relief for ourselves.
We are just beginning to analyze and work
with the government on all of their various
programs. For the most part, these initiatives
will need the deep involvement of the private
sector to be properly executed. We intend
to do everything we can – - and as soon as
possible to ensure that government support
is reaching the people who need it most.
We applaud and support the recent actions
the U.S. Department of the Treasury and the
Federal Reserve have taken to try to miti-
gate the economic impact of the COVID-19
turmoil. The Fed's overwhelming actions have
already dramatically reduced the financial
stress in the system, and there is still more
they could do if they need to. For example,
balance sheet expansion, additional lending
facilities, and changes to capital and liquidity
requirements are steps designed to ensure
that more capital will flow through the
system, which will ultimately allow us to help
more families and small businesses. These
actions would bolster the U.S. economy with
2 We are adjusting these CCAR results
for the global market shock trading
losses and operational losses - and
there have been none in this crisis.
1 Represents managed pretax
income.
example, while many community banks
were seeking more liquidity to serve their
local communities amidst COVID-19 fears,
we were able to help approximately 100
community banks secure $775 million in
increased cash availability over a three-
week period in March, delivering $1.9
billion of cash to support their branches
and ATMs. This is not only a win for our
clients but also for the communities in
which they operate.
-
There is a tremendous amount we do day to
day in addition to traditional banking - to
help the communities in which we operate,
including the following, some of which you
might be surprised to know:
We finance more than $5.5 billion in
affordable housing each year (including
residential and commercial lending and
mortgages in low- and moderate-income
communities).
We provide small business loans in low-
and moderate-income neighborhoods.
We design products and services to
promote the financial health of lower-
income individuals.
We support a number of employee- and
community-based initiatives and philan-
thropic activities, including:
- Office of Military and Veterans Affairs,
which sponsors mentorship, devel-
opment and recognition programs
to support the military and veterans
working at the firm;
-
As you know, after the media reported on alleged discrimination in our firm last year, Jamie asked Gordon to lead an internal
team to take a hard look at how we do business so that we could gain a deeper understanding of what more we can do to root
out racism and discrimination anywhere it exists.
Help for existing nonprofit partners
around the world that are responding to
the crisis in their communities;
Women on the Move, our global
firmwide effort that
empowers
employees, clients and consumers;
- Advancing Black Pathways, a compre-
hensive program focused on providing
more opportunities for black people
and black-owned businesses because
we know that opportunity is not always
created equally;
Entrepreneurs of Color Fund, which
is expanding and provides minority
entrepreneurs with access to capital,
education and other resources.
We expect to finance more than $100
billion in transactions aimed at supporting
development in emerging market coun-
tries - in infrastructure, education, health-
care, agribusiness and industry, among
other investments - to promote the United
Nations' Sustainable Development Goals.
14
DEALING WITH AN EXTRAORDINARY CRISIS
•
We are huge supporters of regional and
community banks, which are critical to
many cities and small towns around the
country. We bank approximately 500 of
America's 5,000 regional and commu-
nity banks. In 2019, we lent or raised a
total of $2.6 billion in capital for them. In
addition, we provide payment-processing
services for them, we finance some of their
mortgage activities, we advise on acqui-
sitions, and we buy and sell securities
for these banks. We also supply interest
rate swaps and foreign exchange both for
themselves to help them hedge some of
their exposures - and for their clients. For
The Service Corps, which mobilizes
employee volunteers to help nonprofit
organizations around the world;
As a result, we've identified a number of areas that, with enhanced, scaled or new programming or processes, would serve to
improve our culture in important ways. For example, we focused on employee and customer complaints - examining common
themes, where they originated and where opportunity exists to improve.
We're taking significant steps to help our
consumer customers.
DEALING WITH AN EXTRAORDINARY CRISIS
and operations and call center teams across
the globe. We are ensuring they continue
to operate at the highest standards with the
proper technological tools and access so they
can serve their clients safely and seamlessly.
Over the past few weeks, we have had nearly
150,000 concurrent virtual sessions - nearly
five times our pre-pandemic average - and we
have capacity in reserve to support signifi-
cantly more demand if necessary.
Challenging our people to be clear-eyed and open to change, we tasked many of our senior leaders from across the firm, from
multiple lines of business and control functions, to evaluate our policies, procedures and programs firmwide, to ensure they are
fair for all employees and customers. To be clear, we are looking across the whole firm and at everything we do.
Beneficial interests issued by consolidated VIES
$(152)
income(a)(b)
$11
$(1,244)
(a) Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign
exchange forward contracts. The Firm elects to record changes in fair value of these amounts directly in other income.
(b) Excludes amounts reclassified from AOCI to income on the sale or liquidation of hedged entities. The Firm reclassified net pre-tax gains/(losses) of $18
million to other income, $(17) million and $50 million to other expense related to the liquidation of certain legal entities during the years ended
December 31, 2019, 2018 and 2017, respectively. Refer to Note 24 for further information.
(c) Represents the effective portion of changes in value of the related hedging derivative. The Firm did not recognize any ineffectiveness on net investment
hedges directly in income during 2017.
Gains and losses on derivatives used for specified risk
management purposes
The following table presents pre-tax gains/(losses) recorded
on a limited number of derivatives, not designated in hedge
accounting relationships, that are used to manage risks
associated with certain specified assets and liabilities,
including certain risks arising from mortgage commitments,
warehouse loans, MSRs, wholesale lending exposures, and
foreign currency denominated assets and liabilities.
Year ended December 31,
Derivatives gains/(losses)
recorded in income
2019
2018
2017
(in millions)
Contract type
$1,219
Interest rate (a)
Amounts
recorded in
OCI(c)
recorded in
OCI
190
JPMorgan Chase & Co./2019 Form 10-K
Net investment hedge gains and losses
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting
relationships, and the pre-tax gains/(losses) recorded on such instruments for the years ended December 31, 2019, 2018 and
2017.
Year ended December 31,
(in millions)
Foreign exchange derivatives
2019
2018
2017
Amounts
recorded in
income(a)(b)
$72
Amounts
recorded in
OCI
$64
Amounts
recorded in
Amounts
Amounts
recorded in
income(a)(b)
The Firm did not experience any forecasted transactions that failed to occur for the years ended 2019, 2018 and 2017.
Over the next 12 months, the Firm expects that approximately $(8) million (after-tax) of net losses recorded in AOCI at
December 31, 2019, related to cash flow hedges will be recognized in income. For cash flow hedges that have been
terminated, the maximum length of time over which the derivative results recorded in AOCI will be recognized in earnings is
approximately five years, corresponding to the timing of the originally hedged forecasted cash flows. For open cash flow
hedges, the maximum length of time over which forecasted transactions are hedged is approximately seven years. The Firm's
longer-dated forecasted transactions relate to core lending and borrowing activities.
$ 1,491 $
(30)
(5)
A credit-related note is a funded credit derivative where the
issuer of the credit-related note purchases from the note
investor credit protection on a reference entity or an index.
Under the contract, the investor pays the issuer the par
value of the note at the inception of the transaction, and in
return, the issuer pays periodic payments to the investor,
based on the credit risk of the referenced entity. The issuer
also repays the investor the par value of the note at
maturity unless the reference entity (or one of the entities
that makes up a reference index) experiences a specified
credit event. If a credit event occurs, the issuer is not
obligated to repay the par value of the note, but rather, the
issuer pays the investor the difference between the par
value of the note and the fair value of the defaulted
reference obligation at the time of settlement. Neither party
to the credit-related note has recourse to the defaulting
reference entity.
The following tables present a summary of the notional
amounts of credit derivatives and credit-related notes the
Firm sold and purchased as of December 31, 2019 and
2018. Upon a credit event, the Firm as a seller of protection
would typically pay out only a percentage of the full
notional amount of net protection sold, as the amount
actually required to be paid on the contracts takes into
account the recovery value of the reference obligation at
the time of settlement. The Firm manages the credit risk on
contracts to sell protection by purchasing protection with
identical or similar underlying reference entities. Other
purchased protection referenced in the following tables
includes credit derivatives bought on related, but not
identical, reference positions (including indices, portfolio
coverage and other reference points) as well as protection
purchased through credit-related notes.
192
JPMorgan Chase & Co./2019 Form 10-K
The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives,
because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value
of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm's view, the
risks associated with such derivatives.
Total credit derivatives and credit-related notes
December 31, 2019 (in millions)
Credit derivatives
Credit default swaps
Other credit derivatives (a)
Total credit derivatives
Credit-related notes
Total
December 31, 2018 (in millions)
Credit derivatives
Credit-related notes
Foreign exchange (c)
Total
For both single-name CDS contracts and index CDS
contracts, upon the occurrence of a credit event, under the
terms of a CDS contract neither party to the CDS contract
has recourse to the reference entity. The protection
purchaser has recourse to the protection seller for the
difference between the face value of the CDS contract and
the fair value of the reference obligation at settlement of
the credit derivative contract, also known as the recovery
value. The protection purchaser does not need to hold the
debt instrument of the underlying reference entity in order
to receive amounts due under the CDS contract when a
credit event occurs.
Credit default swaps
79 $
(21)
117
331
(74)
(107)
Credit (b)
$ 1,456 $ 175 $
150
(a) Primarily represents interest rate derivatives used to hedge the
interest rate risk inherent in mortgage commitments, warehouse loans
and MSRs, as well as written commitments to originate warehouse
loans. Gains and losses were recorded predominantly in mortgage fees
and related income.
(b) Relates to credit derivatives used to mitigate credit risk associated
with lending exposures in the Firm's wholesale businesses. These
derivatives do not include credit derivatives used to mitigate
counterparty credit risk arising from derivative receivables, which is
included in gains and losses on derivatives related to market-making
activities and other derivatives. Gains and losses were recorded in
principal transactions revenue.
(c) Primarily relates to derivatives used to mitigate foreign exchange risk
of specified foreign currency-denominated assets and liabilities. Gains
and losses were recorded in principal transactions revenue.
Gains and losses on derivatives related to market-making
activities and other derivatives
The Firm makes markets in derivatives in order to meet the
needs of customers and uses derivatives to manage certain
risks associated with net open risk positions from its
market-making activities, including the counterparty credit
risk arising from derivative receivables. All derivatives not
included in the hedge accounting or specified risk
management categories above are included in this category.
Gains and losses on these derivatives are primarily recorded
in principal transactions revenue. Refer to Note 6 for
information on principal transactions revenue.
Credit derivatives
Credit derivatives are financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) and which allow
one party (the protection purchaser) to transfer that risk to
another party (the protection seller). Credit derivatives
expose the protection purchaser to the creditworthiness of
the protection seller, as the protection seller is required to
make payments under the contract when the reference
entity experiences a credit event, such as a bankruptcy, a
failure to pay its obligation or a restructuring. The seller of
credit protection receives a premium for providing
protection but has the risk that the underlying instrument
referenced in the contract will be subject to a credit event.
The Firm is both a purchaser and seller of protection in the
credit derivatives market and uses these derivatives for two
primary purposes. First, in its capacity as a market-maker,
the Firm actively manages a portfolio of credit derivatives
by purchasing and selling credit protection, predominantly
on corporate debt obligations, to meet the needs of
customers. Second, as an end-user, the Firm uses credit
derivatives to manage credit risk associated with lending
exposures (loans and unfunded commitments) and
derivatives counterparty exposures in the Firm's wholesale
businesses, and to manage the credit risk arising from
certain financial instruments in the Firm's market-making
businesses. Following is a summary of various types of
credit derivatives.
JPMorgan Chase & Co./2019 Form 10-K
191
Notes to consolidated financial statements
Credit derivatives may reference the credit of either a single
reference entity ("single-name") or a broad-based index.
The Firm purchases and sells protection on both single-
name and index-reference obligations. Single-name CDS and
index CDS contracts are either OTC or OTC-cleared
derivative contracts. Single-name CDS are used to manage
the default risk of a single reference entity, while index CDS
contracts are used to manage the credit risk associated with
the broader credit markets or credit market segments. Like
the S&P 500 and other market indices, a CDS index consists
of a portfolio of CDS across many reference entities. New
series of CDS indices are periodically established with a new
underlying portfolio of reference entities to reflect changes
in the credit markets. If one of the reference entities in the
index experiences a credit event, then the reference entity
that defaulted is removed from the index. CDS can also be
referenced against specific portfolios of reference names or
against customized exposure levels based on specific client
demands: for example, to provide protection against the
first $1 million of realized credit losses in a $10 million
portfolio of exposure. Such structures are commonly known
as tranche CDS.
(c) Represents the effective portion of changes in value of the related hedging derivative. Hedge ineffectiveness is the amount by which the cumulative gain or
loss on the designated derivative instrument exceeds the present value of the cumulative expected change in cash flows on the hedged item attributable to
the hedged risk. The Firm did not recognize any ineffectiveness on cash flow hedges during 2017.
(a) Primarily consists of hedges of LIBOR-indexed floating-rate assets and floating-rate liabilities. Gains and losses were recorded in net interest income.
(b) Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of gains
and losses follows the hedged item - primarily noninterest revenue and compensation expense.
149
Foreign exchange(b)
Total
Year ended December 31, 2017
(in millions)
Contract type
Interest rate (a)
Foreign exchange (b)
Total
Derivatives gains/(losses) recorded in income and other
comprehensive income/(loss)
Amounts
reclassified from
AOCI to income
Amounts recorded
in OCI
Total change
in OCI
for period
$
(28) $
Interest rate (a)
(3) $
Contract type
Total
(a) Excludes physical commodities with a carrying value of $6.5 billion and $6.8 billion at December 31, 2019 and 2018, respectively, to which the Firm
applies fair value hedge accounting. As a result of the application of hedge accounting, these inventories are carried at fair value, thus recognizing
unrealized gains and losses in current periods. Since the Firm exits these positions at fair value, there is no incremental impact to net income in future
periods.
(33)
(b) Excludes hedged items where only foreign currency risk is the designated hedged risk, as basis adjustments related to foreign currency hedges will not
reverse through the income statement in future periods. At December 31, 2019 and 2018, the carrying amount excluded for available-for-sale securities
is $14.9 billion and $14.6 billion, respectively, and for long-term debt is $2.8 billion and $7.3 billion, respectively.
(c) Carrying amount represents the amortized cost.
(d) Represents hedged items no longer designated in qualifying fair value hedging relationships for which an associated basis adjustment exists at the balance
sheet date.
JPMorgan Chase & Co./2019 Form 10-K
189
Notes to consolidated financial statements
Cash flow hedge gains and losses
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and
the pre-tax gains/(losses) recorded on such derivatives, for the years ended December 31, 2019, 2018 and 2017,
respectively. The Firm includes the gain/(loss) on the hedging derivative in the same line item in the Consolidated statements
of income as the change in cash flows on the related hedged item.
Year ended December 31, 2019
(in millions)
Contract type
Interest rate (a)
Foreign exchange (b)
(in millions)
25
25
(75)
Derivatives gains/(losses) recorded in income and other
comprehensive income/(loss)
Amounts
reclassified from
AOCI to income
Amounts recorded
in OCI(c)
Total change
in OCI
for period
$
(17) $
12 $
29
(117)
135
252
$
(134) $
147 $
(263)
(245) $
18 $
$
125
200
$
(103) $
122 $
225
Derivatives gains/(losses) recorded in income and other
comprehensive income/(loss)
-(33)
Amounts
reclassified from
AOCI to income
Total change
in OCI
for period
$
44 $
(26)
(44) $
(201)
(88)
(175)
Amounts recorded
in OCI
281
35
8 $
Changes in fair
value
Gains/(losses)
recorded in OCI(g)
Derivatives -
31 $ - $ 828
831
(2,373) $
3,204 $
$
Amortization
approach
Income
statement
impact
154
Hedged items
OCI impact
Income statement impact of
excluded components(f)
Gains/(losses) recorded in income
Total
Commodity(d)
Foreign exchange(c)
Interest rate (a)(b)
Contract type
(in millions)
Year ended December 31, 2017
Derivatives
328
482
(866)
Derivatives -
Changes in fair
value
Amortization
approach
Income
statement
impact
Hedged items
Derivatives
OCI impact
Income statement impact of
excluded components(f)
Gains/(losses) recorded in income
39
$
1,373
(866) $
$
63
71
1,384
(1,897) $
3,281 $
$
148
(77)
39
482
Total
Commodity (d)
Foreign exchange(c)
Interest rate (a) (b)
104
Amount required to settle contracts with termination triggers upon downgrade (b)
189 $
$
Amount of additional collateral to be posted upon downgrade (a)
Single-notch Two-notch
downgrade downgrade
Two-notch
downgrade downgrade
December 31, (in millions)
Single-notch
2018
2019
Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives
The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan
Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, N.A., at December 31, 2019 and 2018, related to OTC
and OTC-cleared derivative contracts with contingent collateral or termination features that may be triggered upon a ratings
downgrade. Derivatives contracts generally require additional collateral to be posted or terminations to be triggered when the
predefined threshold rating is breached. A downgrade by a single rating agency that does not result in a rating lower than a
preexisting corresponding rating provided by another major rating agency will generally not result in additional collateral
(except in certain instances in which additional initial margin may be required upon a ratings downgrade), nor in termination
payments requirements. The liquidity impact in the table is calculated based upon a downgrade below the lowest current rating
of the rating agencies referred to in the derivative contract.
8,907
2018
9,396
13,329
2019
14,819
Aggregate fair value of net derivative payables
Collateral posted
December 31, (in millions)
OTC and OTC-cleared derivative payables containing downgrade triggers
While derivative receivables expose the Firm to credit risk, derivative payables expose the Firm to liquidity risk, as the
derivative contracts typically require the Firm to post cash or securities collateral with counterparties as the fair value of the
contracts moves in the counterparties' favor or upon specified downgrades in the Firm's and its subsidiaries' respective credit
ratings. Certain derivative contracts also provide for termination of the contract, generally upon a downgrade of either the
Firm or the counterparty, at the fair value of the derivative contracts. The following table shows the aggregate fair value of net
derivative payables related to OTC and OTC-cleared derivatives that contain contingent collateral or termination features that
may be triggered upon a ratings downgrade, and the associated collateral the Firm has posted in the normal course of
business, at December 31, 2019 and 2018.
In addition to the specific market risks introduced by each derivative contract type, derivatives expose JPMorgan Chase to
credit risk - the risk that derivative counterparties may fail to meet their payment obligations under the derivative contracts
and the collateral, if any, held by the Firm proves to be of insufficient value to cover the payment obligation. It is the policy of
JPMorgan Chase to actively pursue, where possible, the use of legally enforceable master netting arrangements and collateral
agreements to mitigate derivative counterparty credit risk inherent in derivative receivables.
Liquidity risk and credit-related contingent features
1,467
1,398
Gains/(losses)
recorded in OCI(g)
$
947
Contract type
(in millions)
Year ended December 31, 2018
Total
Commodity(d)
Foreign exchange (c)
Interest rate (a)(b)
Contract type
(in millions)
Year ended December 31, 2019
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well
as pre-tax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 2019,
2018 and 2017, respectively. The Firm includes gains/(losses) on the hedging derivative in the same line item in the
Consolidated statements of income as the related hedged item.
Fair value hedge gains and losses
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting
designation or purpose.
Impact of derivatives on the Consolidated statements of income
Notes to consolidated financial statements
187
JPMorgan Chase & Co./2019 Form 10-K
In certain instances the Firm enters into transactions in which it transfers financial assets but maintains the economic exposure
to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The
Firm generally accounts for such transfers as collateralized financing transactions as described in Note 11, but in limited
circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. The amount of such transfers
accounted for as a sale where the associated derivative was outstanding was not material at both December 31, 2019 and
2018.
Derivatives executed in contemplation of a sale of the underlying financial asset
(b) Amounts represent fair values of derivative payables, and do not reflect collateral posted.
(a) Includes the additional collateral to be posted for initial margin.
764
172
76 $
Credit default swaps
$
1,782 $
157,545
2,365
Beneficial interests issued by consolidated VIES
$
2,388
278 $
Total
Discontinued
hedging
relationships(d)
2,110 $
125,860 (c) $
$
$
Active hedging
relationships
of the hedged
Carrying amount
Cumulative amount of fair value hedging adjustments
included in the carrying amount of hedged items:
Long-term debt
Liabilities
Investment securities - AFS
Assets
(in millions)
December 31, 2019
As of December 31, 2019, the following amounts were recorded on the Consolidated balance sheets related to certain
cumulative fair value hedge basis adjustments that are expected to reverse through the income statement in future periods as
an adjustment to yield.
items(a)(b)
6,719 $
161 $
6,880
141 $
$
139,915
6,987
$
(724)
381 $
(1,105) $
55,313 (c) $
$
Total
Discontinued
hedging
relationships(d)
Active hedging
relationships
Carrying amount
of the hedged
items(a)(b)
included in the carrying amount of hedged items:
Cumulative amount of fair value hedging adjustments
Long-term debt
Liabilities
Investment securities - AFS
Assets
(in millions)
December 31, 2018
(8)
(8)
JPMorgan Chase & Co./2019 Form 10-K
188
(g) Represents the change in value of amounts excluded from the assessment of effectiveness under the amortization approach, predominantly cross-currency
basis spreads. The amount excluded at inception of the hedge is recognized in earnings over the life of the derivative.
(f) The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward
points on foreign exchange forward contracts, time values and cross-currency basis spreads. Excluded components may impact earnings either through
amortization of the initial amount over the life of the derivative or through fair value changes recognized in the current period.
Income statement impact due to:
Gains/(losses) recorded in income
(140)
$
1,125
(566) $
$
1,148
412 $
736 $
$
26
(754)
789
(140)
476
(566)
476
(616)
623
$
$
637
Derivatives Hedged items
(1,145) $
1,092
Income
statement
impact
Excluded
components (f)
(e) Hedge ineffectiveness is the amount by which the gain or loss on the designated derivative instrument does not exactly offset the gain or loss on the
hedged item attributable to the hedged risk.
(d) Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or net realizable value (net
realizable value approximates fair value). Gains and losses were recorded in principal transactions revenue.
(c) Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses
related to the derivatives and the hedged items due to changes in foreign currency rates and the income statement impact of excluded components were
recorded primarily in principal transactions revenue and net interest income.
(b) Excludes the amortization expense associated with the inception hedge accounting adjustment applied to the hedged item. This expense is recorded in net
interest income and substantially offsets the income statement impact of the excluded components. Also excludes the accrual of interest on interest rate
swaps and the related hedged items.
(a) Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate ("LIBOR")) interest rate risk of fixed-rate long-term debt and AFS
securities. Gains and losses were recorded in net interest income.
938
11 $
$
949
44
29
73
(2)
(2)
896
(18) $
$
878
1,359 $
3,507
1,348
6,214 $
(1,275)
(5,265) $
$
(481) $
(3,509)
$
Hedge
ineffectiveness(e)
Other credit derivatives (a)
Year ended December 31, 2018
Credit-related notes
Credit
Foreign exchange
Equity
Commodity
Total trading revenue
Private equity gains/(losses)
Principal transactions
2019
2018
2017
The following table presents the components of Firmwide
asset management, administration and commissions.
Year ended December 31,
(in millions)
2019
2018
2017
$ 2,552 $
1,961 $
2,479
1,611
1,395
1,329
3,171
3,222
2,746
Asset management fees
Investment management fees (a)
All other asset management fees(b)
$ 10,865
$ 10,768
$ 10,434
315
Interest rate
296
type
Year ended December 31,
(in millions)
2019
2018
2017
$ 1,648 $ 1,684 $ 1,466
3,513
3,347
5,161
5,031
2,340
2,519
3,802
5,268
2,144
Total investment banking fees $ 7,501 $ 7,550 $ 7,412
Investment banking fees are earned primarily by CIB. Refer
to Note 32 for segment results.
Principal transactions
Principal transactions revenue is driven by many factors,
including:
the bid-offer spread, which is the difference between the
price at which a market participant is willing and able to
sell an instrument to the Firm and the price at which
another market participant is willing and able to buy it
from the Firm, and vice versa; and
realized and unrealized gains and losses on financial
instruments and commodities transactions, including
those accounted for under the fair value option, primarily
used in client-driven market-making activities, and on
private equity investments.
Realized gains and losses result from the sale of
instruments, closing out or termination of transactions,
or interim cash payments.
Unrealized gains and losses result from changes in
valuation.
In connection with its client-driven market-making
activities, the Firm transacts in debt and equity
instruments, derivatives and commodities, including
physical commodities inventories and financial instruments
that reference commodities.
Principal transactions revenue also includes realized and
unrealized gains and losses related to:
derivatives designated in qualifying hedge accounting
relationships, primarily fair value hedges of commodity
and foreign exchange risk;
derivatives used for specific risk management purposes,
primarily to mitigate credit risk and foreign exchange
risk.
Refer to Note 5 for further information on the income
statement classification of gains and losses from derivatives
activities.
In the financial commodity markets, the Firm transacts in
OTC derivatives (e.g., swaps, forwards, options) and ETD
that reference a wide range of underlying commodities. In
the physical commodity markets, the Firm primarily
purchases and sells precious and base metals and may hold
other commodities inventories under financing and other
arrangements with clients.
The following table presents all realized and unrealized
gains and losses recorded in principal transactions revenue.
This table excludes interest income and interest expense on
trading assets and liabilities, which are an integral part of
the overall performance of the Firm's client-driven market-
making activities in CIB and cash deployment activities in
Treasury and CIO. Refer to Note 7 for further information on
interest income and interest expense.
Trading revenue is presented primarily by instrument type.
The Firm's client-driven market-making businesses
generally utilize a variety of instrument types in connection
with their market-making and related risk-management
activities; accordingly, the trading revenue presented in the
table below is not representative of the total revenue of any
individual LOB.
JPMorgan Chase & Co./2019 Form 10-K
195
Notes to consolidated financial statements
Trading revenue by instrument
Advisory
5,812
3,873
Lending- and deposit-related fees
Lending-related fees include fees earned from loan
commitments, standby letters of credit, financial
guarantees, and other loan-servicing activities. Deposit-
related fees include fees earned in lieu of compensating
balances, and fees earned from performing cash
management activities and other deposit account services.
Lending- and deposit-related fees in this revenue category
are recognized over the period in which the related service
is provided.
The following table presents the components of lending-
and deposit-related fees.
Year ended December 31, (in millions)
Lending-related fees
2019
$ 1,184
2018
Deposit-related fees
5,185
$ 1,117
4,935
$ 6,052
Total lending- and deposit-related fees $6,369
2017
$ 1,110
4,823
$ 5,933
Lending- and deposit-related fees are earned by CCB, CIB,
CB, and AWM. Refer to Note 32 for segment results.
Asset management, administration and commissions
This revenue category includes fees from investment
management and related services, custody, brokerage
services and other products. The Firm manages assets on
behalf of its clients, including investors in Firm-sponsored
funds and owners of separately managed investment
accounts. Management fees are typically based on the value
of assets under management and are collected and
recognized at the end of each period over which the
management services are provided and the value of the
managed assets is known. The Firm also receives
performance-based management fees, which are earned
based on exceeding certain benchmarks or other
performance targets and are accrued and recognized when
the probability of reversal is remote, typically at the end of
the related billing period. The Firm has contractual
arrangements with third parties to provide distribution and
other services in connection with its asset management
activities. Amounts paid to these third-party service
providers are generally recorded in professional and outside
services expense.
$ 17,165 $ 17,118 $ 16,287
(a) Represents fees earned from managing assets on behalf of the Firm's
clients, including investors in Firm-sponsored funds and owners of
separately managed investment accounts.
(b) Represents fees for services that are ancillary to investment
management services, such as commissions earned on the sales or
distribution of mutual funds to clients. These fees are recorded as
revenue at the time the service is rendered or, in the case of certain
distribution fees based on the underlying fund's asset value and/or
investor redemption, recorded over time as the investor remains in the
fund or upon investor redemption.
(c) Predominantly includes fees for custody, securities lending, funds
services and securities clearance. These fees are recorded as revenue
over the period in which the related service is provided.
(d) Represents commissions earned when the Firm acts as a broker, by
facilitating its clients' purchases and sales of securities and other
financial instruments. Brokerage commissions are collected and
recognized as revenue upon occurrence of the client transaction. The
Firm reports certain costs paid to third-party clearing houses and
exchanges net against commission revenue.
Asset management, administration and commissions are
earned primarily by AWM, CIB, CCB, and CB. Refer to Note
32 for segment results.
Mortgage fees and related income
This revenue category primarily reflects CCB's Home
Lending net production and net mortgage servicing
revenue.
Net production revenue includes fees and income
recognized as earned on mortgage loans originated with the
intent to sell, and the impact of risk management activities
associated with the mortgage pipeline and warehouse
loans. Net production revenue also includes gains and
losses on sales and lower of cost or fair value adjustments
on mortgage loans held-for-sale (excluding certain
repurchased loans insured by U.S. government agencies),
and changes in the fair value of financial instruments
measured under the fair value option.
196
JPMorgan Chase & Co./2019 Form 10-K
Total credit derivatives
Refer to Note 32 for segment results.
4,924
Principal transactions revenue is earned primarily by CIB.
3,901
Total asset management fees
11,180
11,038
10,730
1,122
906
661
14,268
12,408
11,088
Total administration fees(c)
2,197
2,179
2,029
(250)
(349)
259
Commissions and other fees
Brokerage commissions(d)
2,439
2,505
2,239
$ 14,018 $ 12,059 $ 11,347
All other commissions and fees
1,349
1,396
1,289
Total commissions and fees
Total asset management,
administration and
commissions
3,788
3,528
Total underwriting
270
Equity
with identical
underlyings(b)
protection
purchased (d)
$
(697,220)
(41,244)
(738,464)
$ 707,282
42,484
749,766
$
10,062 $
1,240
11,302
4,053
8,488
12,541
8,425
$
(738,464)
$
749,766
$
11,302 $
20,966
(a) Other credit derivatives predominantly consist of credit swap options and total return swaps.
(b) Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on
protection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than
the notional amount of protection sold.
(c) Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of
protection pays to the buyer of protection in determining settlement value.
(d) Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on
the identical reference instrument.
JPMorgan Chase & Co./2019 Form 10-K
193
Notes to consolidated financial statements
The following tables summarize the notional amounts by the ratings, maturity profile, and total fair value, of credit derivatives
and credit-related notes as of December 31, 2019 and 2018, where JPMorgan Chase is the seller of protection. The maturity
profile is based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the
rating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit
derivatives and credit-related notes where JPMorgan Chase is the purchaser of protection are comparable to the profile
reflected below.
Protection sold - credit derivatives and credit-related notes ratings (a)/maturity profile
December 31, 2019
(in millions)
<1 year
Protection
sold
1-5 years
Other
Maximum payout/Notional amount
Total
Debt
Maximum payout/Notional amount
Protection purchased Net protection
Other
Protection
sold
with identical
underlyings(b)
(sold)/
purchased (c)
protection
purchased (d)
$
(562,338)
$
(44,929)
(607,267)
571,892
52,007
623,899
$
7,078
9,554 $ 3,936
7,364
16,632
11,300
-
-
9,606
$
(607,267)
$
623,899 $
16,632 $ 20,906
Protection purchased Net protection
>5 years
(sold)/
purchased (c)
The following table presents the components of investment
banking fees.
Noninvestment-grade
$ (115,443)
(45,897)
Total
$ (161,340)
$
$ (402,325)
(119,348)
(521,673)
$ (43,611)
(11,840)
$ (561,379) $
(177,085)
5,720
4,719
$
(2,791)
(5,660)
$ (55,451) $ (738,464)
$
10,439
$
(8,451)
$ 1,988
(a) The ratings scale is primarily based on external credit ratings defined by S&P and Moody's.
(b) Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements and cash collateral received by the Firm.
194
JPMorgan Chase & Co./2019 Form 10-K
Note 6 - Noninterest revenue and noninterest expense
Noninterest revenue
The Firm records noninterest revenue from certain
contracts with customers in investment banking fees,
deposit-related fees, asset management, administration,
and commissions, and components of card income. The
related contracts are often terminable on demand and the
Firm has no remaining obligation to deliver future services.
For arrangements with a fixed term, the Firm may commit
to deliver services in the future. Revenue associated with
these remaining performance obligations typically depends
on the occurrence of future events or underlying asset
values, and is not recognized until the outcome of those
events or values are known.
Investment banking fees
This revenue category includes debt and equity
underwriting and advisory fees. As an underwriter, the Firm
helps clients raise capital via public offering and private
placement of various types of debt and equity instruments.
Underwriting fees are primarily based on the issuance price
and quantity of the underlying instruments, and are
recognized as revenue typically upon execution of the
client's transaction. The Firm also manages and syndicates
loan arrangements. Credit arrangement and syndication
fees, included within debt underwriting fees, are recorded
as revenue after satisfying certain retention, timing and
yield criteria.
The Firm also provides advisory services, by assisting its
clients with mergers and acquisitions, divestitures,
restructuring and other complex transactions. Advisory fees
are recognized as revenue typically upon execution of the
client's transaction.
Total notional
amount
Year ended December 31,
(in millions)
Underwriting
Investment-grade
Risk rating of reference entity
$ 2,929
(941)
Net fair
value
Fair value of
receivables(b)
Fair value of
payables(b)
Net fair
value
Risk rating of reference entity
Investment-grade
$ (114,460)
Noninvestment-grade
(41,661)
Total
$ (156,121)
$ (42,129)
(9,841)
$ (51,970)
$
(467,996)
(139,271)
$ (607,267)
$
$
(311,407)
(87,769)
$ (399,176)
$
Fair value of
payables(b)
Fair value of
receivables(b)
6,153
4,281
10,434
>5 years
1-5 years
<1 year
(in millions)
Total notional
amount
$ 6,641
$ 5,242
1,399
(911)
(2,882)
$ (3,793)
December 31, 2018
$
(664)
$
Total recognized in net periodic benefit cost and other
comprehensive income
(133)
$
(286) $
$
363 $
$
(831)
395 $
87
(655)
0.70 -6.00
(374) $
8
$
(202)
Weighted-average assumptions used to determine net periodic benefit costs
Discount rate (c)
0.60-4.30% 0.60 4.50% 0.60 4.30 %
4.20%
3.70%
4.20%
Expected long-term rate of return on plan assets (c)
0.00 -5.50
(871)
0.70-5.50
$
$
5
(4)
4.30
29
Prior service (credit)/cost arising during the year
Net (gain)/loss arising during the year
Amortization of net loss
Amortization of prior service (cost)/credit
Curtailment gain/(loss)
Settlement gain/(loss)
(719)
467
(669)
(286)
(167)
(103)
(250)
(3)
23
36
-
(21)
| ཌ | | । │
91
(133)
(2)
(2)
Foreign exchange impact and other
13
(30)
54
Total recognized in other comprehensive income
4.00
JPMorgan Chase & Co./2019 Form 10-K
Rate of compensation increase (c)
(a) Benefits earned during the year are reported in compensation expense; all other components of net periodic defined benefit costs are reported within
other expense in the Consolidated statements of income.
(b) Includes various defined benefit pension plans which are individually immaterial.
(c) The rate assumptions for the U.S. defined benefit pension plans are at the upper end of the range, except for the rate of compensation increase, which was
2.30% for 2019, 2018 and 2017, respectively.
(d) Excludes participants whose benefits under the plan are capped.
Plan assumptions
The Firm's expected long-term rate of return for defined
benefit pension and OPEB plan assets is a blended weighted
average, by asset allocation of the projected long-term
returns for the various asset classes, taking into
consideration local market conditions and the specific
allocation of plan assets. Returns on asset classes are
developed using a forward-looking approach and are not
strictly based on historical returns. Consideration is also
given to current market conditions and the short-term
portfolio mix of each plan.
202
The discount rate used in determining the benefit obligation
under the U.S. defined benefit pension and OPEB plans was
provided by the Firm's actuaries. This rate was selected by
reference to the yields on portfolios of bonds with maturity
dates and coupons that closely match each of the plan's
projected cash flows. The discount rate for the U.K. defined
benefit pension plan represents a rate of appropriate
duration from the analysis of yield curves provided by the
Firm's actuaries.
At December 31, 2019, the Firm decreased the discount
rates used to determine its benefit obligations for the U.S.
JPMorgan Chase & Co./2019 Form 10-K
defined benefit pension and OPEB plans in light of current
market interest rates, which is expected to decrease
expense by approximately $69 million in 2020. The 2020
expected long-term rate of return on U.S. defined benefit
pension plan assets and U.S. OPEB plan assets are 4.00%
and 4.11%, respectively.
The following table represents the effect of a 25-basis point
decline in the two listed rates below on estimated 2020
defined benefit pension and OPEB plan expense, as well as
the effect on the postretirement benefit obligations.
Defined benefit
pension and OPEB
(in millions)
2017
plan expense
$
57
Discount rate
$
6
$
ΝΑ
544
Investment strategy and asset allocation
The assets of the Firm's defined benefit pension plans are
held in various trusts and are invested in well-diversified
portfolios of equity and fixed income securities, cash and
cash equivalents, and alternative investments. The trust-
owned assets of the Firm's U.S. OPEB plan are invested
primarily in fixed income securities. COLI policies used to
partially defray the cost of the Firm's U.S. OPEB plan are
invested in separate accounts of an insurance company and
are allocated to investments intended to replicate equity
and fixed income indices.
The investment policies for the assets of the Firm's defined
benefit pension plans are to optimize the risk-return
relationship as appropriate to the needs and goals of each
plan using a global portfolio of various asset classes
diversified by market segment, economic sector, and issuer.
Assets are managed by a combination of internal and
external investment managers. The Firm regularly reviews
the asset allocations and asset managers, as well as other
factors that impact the portfolios, which are rebalanced
when deemed necessary.
Investments held by the plans include financial instruments
which are exposed to various risks such as interest rate,
market and credit risks. Exposure to a concentration of
credit risk is mitigated by the broad diversification of both
U.S. and non-U.S. investments. Additionally, the investments
in each of the collective investment funds and/or registered
investment companies are further diversified into various
financial instruments. As of December 31, 2019, assets
held by the Firm's defined benefit pension and OPEB plans
do not include securities issued by JPMorgan Chase or its
affiliates, except through indirect exposures through
investments in ETFs, mutual funds and collective investment
funds managed by third-parties. The plans hold investments
that are sponsored or managed by affiliates of JPMorgan
Chase in the amount of $3.1 billion and $3.7 billion, as of
December 31, 2019 and 2018, respectively.
The following table presents the weighted-average asset allocation of the fair values of total plan assets at December 31 for
the years indicated, as well as the respective approved asset allocation ranges by asset class.
Changes in plan assets and benefit obligations recognized in other comprehensive income
203
Expected long-term rate of return
5.00
2018
ΝΑ
Interest crediting rate (c)
2.25 -3.00
1.81 -4.90%
2.25 -3.00
2.25 -3.00
NA
ΝΑ
ΝΑ
1.81- 4.90%
1.81- 4.90%
NA
ΝΑ
ΝΑ
Health care cost trend rate (d)
Assumed for next year
2019
Ultimate
ΝΑ
ΝΑ
NA
금금금
ΝΑ
ΝΑ
5.00
5.00
5.00
ΝΑ
NA
5.00
5.00
5.00
ΝΑ
Year when rate will reach ultimate
(69)
Interest crediting rate(e)
(88) $
(e) For the U.S. defined benefit pension plans, the discount rate assumption was 3.30% and 4.30%, and the interest crediting rate was 4.65% and 4.90%, for 2019
and 2018, respectively. The rate of compensation increase was not applicable to the U.S. plan in 2019 due to the Plan Freeze, and was 2.30% in 2018. The rate of
compensation increase presented in the table for 2019 applies to the non-U.S. plans.
(f) Excludes participants whose benefits under the plan are capped.
(g) At December 31, 2019 and 2018, the gain/(loss) was primarily attributable to the change in the discount rate.
200
JPMorgan Chase & Co./2019 Form 10-K
Gains and losses
For the Firm's defined benefit pension plans, fair value is
used to determine the expected return on plan assets.
Amortization of net gains and losses is included in annual
net periodic benefit cost if, as of the beginning of the year,
the net gain or loss exceeds 10% of the greater of the
projected benefit obligation or the fair value of the plan
assets. Any excess is amortized over the average future
service period of defined benefit pension plan participants,
which for the U.S. defined benefit pension plan is currently
eight years and for the non-U.S. defined benefit pension
plans is the period appropriate for the affected plan. As a
result of the Plan Freeze, beginning in 2020, any excess for
the U.S. defined benefit pension plan will be amortized over
the average expected lifetime of plan participants which is
currently 38 years. In addition, prior service costs are
amortized over the average remaining service period of
active employees expected to receive benefits under the
plan when the prior service cost is first recognized.
For the Firm's OPEB plans, a calculated value that
recognizes changes in fair value over a five-year period is
used to determine the expected return on plan assets. This
value is referred to as the market-related value of assets.
Amortization of net gains and losses, adjusted for gains and
losses not yet recognized, is included in annual net periodic
benefit cost if, as of the beginning of the year, the net gain
or loss exceeds 10% of the greater of the accumulated
postretirement benefit obligation or the market-related
value of assets. Any excess is amortized over the average
expected lifetime of retired participants, which is currently
eleven years.
JPMorgan Chase & Co./2019 Form 10-K
201
Notes to consolidated financial statements
The following table presents the components of net periodic benefit costs reported in the Consolidated statements of income
for the Firm's U.S. and non-U.S. defined benefit pension, defined contribution and OPEB plans, and in other comprehensive
income for the defined benefit pension and OPEB plans, and the weighted-average annualized actuarial assumptions for the
net periodic benefit cost.
Interest cost on benefit obligations
Expected return on plan assets
Amortization:
(d) For pension plans with a projected benefit obligation exceeding plan assets, the projected benefit obligation and fair value of plan assets was $1.5 billion and $885
million at December 31, 2019, respectively and $1.3 billion and $762 million at December 31, 2018, respectively. For pension plans with an accumulated benefit
obligation exceeding plan assets, the accumulated benefit obligation and fair value of plan assets was $1.4 billion and $885 million at December 31, 2019,
respectively, and $1.3 billion and $762 million at December 31, 2018, respectively. For OPEB plans with a projected benefit obligation exceeding plan assets, the
projected benefit obligation was $43 million and $26 million at December 31, 2019 and 2018, respectively, and they had no plan assets.
Net (gain)/loss
Curtailment (gain)/loss
Settlement (gain)/loss
Net periodic defined benefit cost(a)
Other defined benefit pension plans(b)
Total defined benefit plans
Year ended December 31, (in millions)
Pension plans
2019
2018
2017
OPEB plans
2019
2018
2017
Prior service (credit)/cost
Components of net periodic benefit cost
(c) Represents plans with an aggregate overfunded balance of $6.3 billion and $5.1 billion at December 31, 2019 and 2018, respectively, and plans with an aggregate
underfunded balance of $618 million and $547 million at December 31, 2019 and 2018, respectively.
(a) At December 31, 2019 and 2018, included non-U.S. benefit obligations of $(3.8) billion and $(3.3) billion, and plan assets of $4.0 billion and $3.5 billion,
respectively, predominantly in the U.K.
Accumulated other comprehensive income/(loss), pretax, end of year
Weighted-average actuarial assumptions used to determine benefit obligations
Discount rate (e)
Rate of compensation increase (e)
December 31,
0.20 -3.30%
2.25 -3.00
1.78 -4.65%
0.60 -4.30 %
2.25 -3.00
3.20%
4.20%
ΝΑ
ΝΑ
1.81 -4.90%
ΝΑ
NA
(b) At December 31, 2019 and 2018, defined benefit pension plan amounts that were not measured at fair value included $1.3 billion and $340 million, respectively, of
accrued receivables, and $1.7 billion and $503 million, respectively, of accrued liabilities.
Health care cost trend rate (f)
ΝΑ
ΝΑ
5.00
5.00
Ultimate
NA
ΝΑ
5.00
5.00
Year when rate will reach ultimate
NA
ΝΑ
2020
2019
Assumed for next year
(79) $
Benefits earned during the year
356
25
20
24
ΝΑ
(79) $
NA
(69)
ΝΑ
$
232
$
52
$
200
$
(88) $
(88) $
(69)
Total defined contribution plans
952
872
814
ΝΑ
ΝΑ
NA
Total pension and OPEB cost included in noninterest expense
$ 1,184 $
924
$
1,014
$
(79) $
$
$
$
$
354
$
330
$ - $ - $
596
556
598
24
24
28
(915)
(981)
(968)
176
(112)
(97)
167
103
250
3
(23)
(36)
21
2
2
$
207
$
32
(103)
Asset class
-
Equity securities
3,543
3
3,540
7,092
2
7,090
Corporate debt securities (c)
40
40
187
-
187
Limited partnerships(b)
161
161
265
-
265
Collective investment funds (a)
5,506
2
162
5,342
3,426
2
184
3,240
Equity securities
344
U.S. federal, state, local and non-U.S.
government debt securities
1,790
1,054
$
Total assets measured at fair value(e)
1,267
302
80
885
1,167
250
132
785
Other(d)
143
143
-
$
337
Derivative receivables
357
3
272
82
1,019
4
701
314
Mortgage-backed securities
1,934
743
1,191
2,844
337
$
1
$
100%
13
9
0-24
2
1
0-6
39
40
61%
60%
30-70%
30-70
37
16
100%
0-40
74%
42-100%
2018
% of plan assets
2019
Allocation
2018
2019
Allocation
Asset
% of plan assets
Asset
OPEB plan(d)
184
Defined benefit pension plans(a)
48%
6,738 $ 9,499 $
100%
100%
343
158 $
$
$
1
$
157
$
Cash and cash equivalents
value
Level 3
Level 2
Level 1
Total fair
100%
Total fair
value
Level 2
Level 1
(in millions)
December 31,
2018
2019
Defined benefit pension plans
Pension and OPEB plan assets and liabilities measured at fair value
Refer to Note 2 for information on fair value measurements, including descriptions of level 1, 2, and 3 of the fair value
hierarchy and the valuation methods employed by the Firm.
Fair value measurement of the plans' assets and liabilities
(d) Represents the U.S. OPEB plan only, as the U.K. OPEB plan is unfunded.
(c) Alternatives primarily include limited partnerships.
(a) Represents the U.S. defined benefit pension plan only, as that is the most significant plan.
(b) Debt securities primarily includes cash and cash equivalents, corporate debt, U.S. federal, state, local and non-U.S. government, asset-backed and
mortgage-backed securities.
100%
Level 3
258
$ 16,495 $
8,044 $ 4,941 $
1
$
59
$
1,030
$
2020
subsidy
subsidy
plans
(in millions)
Part D
Part D
pension
2021
Year ended December 31,
Medicare
benefit
Defined
OPEB
before
The following table presents benefit payments expected to
be paid, which include the effect of expected future service,
for the years indicated. The OPEB medical and life insurance
payments are net of expected retiree contributions.
Estimated future benefit payments
(a) Substantially all are participating annuity contracts.
(b) The prior period amounts have been revised to conform with the current period presentation.
(43) $
(42) $
$
310 0 $ - $ - $ (1) $ 1 $
2,157 $
$
COLI policies
Medicare
U.S. OPEB plan
1,020
1
Real estate
Alternatives (c)
Refer to Note 23 for further information on the
classification of share-based awards for purposes of
calculating earnings per share.
new shares of common stock or treasury shares. During
2019, 2018 and 2017, the Firm settled all of its employee
share-based awards by issuing treasury shares.
The Firm's policy for issuing shares upon settlement of
employee share-based incentive awards to issue either
The Firm separately recognizes compensation expense for
each tranche of each award, net of estimated forfeitures, as
if it were a separate award with its own vesting date.
Generally, for each tranche granted, compensation expense
is recognized on a straight-line basis from the grant date
until the vesting date of the respective tranche, provided
that the employees will not become full-career eligible
during the vesting period. For awards with full-career
eligibility provisions and awards granted with no future
substantive service requirement, the Firm accrues the
estimated value of awards expected to be awarded to
employees as of the grant date without giving consideration
to the impact of post-employment restrictions. For each
tranche granted to employees who will become full-career
eligible during the vesting period, compensation expense is
recognized on a straight-line basis from the grant date until
the earlier of the employee's full-career eligibility date or
the vesting date of the respective tranche.
Once the PSUs and dividend equivalent share units have
vested, the shares of common stock that are delivered, after
applicable tax withholding, must be held for an additional
two-year period, for a total combined vesting and holding
period of approximately five to eight years from the grant
date depending on regulations in certain countries.
Under the LTI Plans, stock appreciation rights ("SARS") and
stock options have generally been granted with an exercise
price equal to the fair value of JPMorgan Chase's common
stock on the grant date. SARS and stock options generally
expire ten years after the grant date. There were no
material grants of employee SARS or stock options in 2019,
2018 and 2017.
Performance share units ("PSUs”) are granted annually, and
approved by the Firm's Board of Directors, to members of
the Firm's Operating Committee under the variable
compensation program. PSUs are subject to the Firm's
achievement of specified performance criteria over a three-
year period. The number of awards that vest can range from
zero to 150% of the grant amount. In addition, dividends
that accrue during the vesting period are reinvested in
dividend equivalent share units. PSUs and the related
dividend equivalent share units are converted into shares of
common stock after vesting.
RSUs are awarded at no cost to the recipient upon their
grant. Generally, RSUs are granted annually and vest at a
rate of 50% after two years and 50% after three years and
are converted into shares of common stock as of the vesting
date. In addition, RSUs typically include full-career eligibility
provisions, which allow employees to continue to vest upon
voluntary termination based on age or service-related
requirements, subject to post-employment and other
restrictions. All RSU awards are subject to forfeiture until
vested and contain clawback provisions that may result in
cancellation under certain specified circumstances.
Predominantly all RSUs entitle the recipient to receive cash
payments equivalent to any dividends paid on the
underlying common stock during the period the RSUs are
outstanding.
In 2019, 2018 and 2017, JPMorgan Chase granted long-
term share-based awards to certain employees under its
LTIP, as amended and restated effective May 15, 2018.
Under the terms of the LTIP, as of December 31, 2019, 75
million shares of common stock were available for issuance
through May 2022. The LTIP is the only active plan under
which the Firm is currently granting share-based incentive
awards. In the following discussion, the LTIP, plus prior Firm
plans and plans assumed as the result of acquisitions, are
referred to collectively as the “LTI Plans,” and such plans
constitute the Firm's share-based incentive plans.
Note 9 - Employee share-based incentives
Employee share-based awards
Notes to consolidated financial statements
205
JPMorgan Chase & Co./2019 Form 10-K
57
2,072
310
1
211
4,613
Years 2025-2029
50
970
2024
52
980
2023
54
1,020
2022
$
Debt securities(b)
$
U.S. defined benefit pension plan
204
At December 31, 2019 and 2018, the assets of the U.S. OPEB plan consisted of $562 million and $561 million,
respectively, in cash and cash equivalents, corporate debt securities, U.S. federal, state, local and non-U.S. government
debt securities and other assets classified in level 1 and level 2 of the valuation hierarchy and $2.4 billion and $2.1
billion, respectively, of COLI policies classified in level 3 of the valuation hierarchy.
(d) Other consists primarily of mutual funds, money market funds and participating annuity contracts. Mutual funds and money market funds are
primarily classified within level 1 of the fair value hierarchy given they are valued using market observable prices. Participating annuity contracts
are classified within level 3 of the fair value hierarchy due to a lack of market mechanisms for transferring each policy and surrender restrictions.
(e) At December 31, 2019 and 2018, excludes $4.4 billion and $5.0 billion of certain investments that are measured at fair value using the net asset
value per share (or its equivalent) as a practical expedient, which are not required to be classified in the fair value hierarchy, $1.3 billion and $340
million of defined benefit pension plan receivables for investments sold and dividends and interest receivables, $1.7 billion and $479 million of
defined benefit pension plan payables for investments purchased, and $25 million and $24 million of other liabilities, respectively.
(c) Corporate debt securities include debt securities of U.S. and non-U.S. corporations.
(b) Unfunded commitments to purchase limited partnership investments for the plans were $451 million and $521 million for 2019 and 2018,
respectively.
(a) At December 31, 2019 and 2018, collective investment funds primarily included a mix of short-term investment funds, U.S. and non-U.S. equity
investments (including index) and real estate funds.
(96)
$
(96) $
$
-
(118) $
$
-
JPMorgan Chase & Co./2019 Form 10-K
$ (118) $
(96)
$
Total
(96) $
$
-
(118) $
$
(118) $
$
$
Derivative payables
$ 13,295
310
Total liabilities measured at fair value (e) $
Annuity contracts and other (a)
Changes in level 3 fair value measurements using significant unobservable inputs
Beginning
Year ended December 31, 2018
COLI policies
2,431
$
(42) $
2,072 $ - $ 401 $
$
258
$
2
(85) $
$
31
$
Fair value,
$
$
Ending
balance
Fair value,
U.S. OPEB plan
Year ended December 31, 2019
U.S. defined benefit pension plan
Annuity contracts and other (a)
(in millions)
and/or out
of level 3
net(b)
Transfers in
Purchases, sales
and settlements,
Unrealized
gains/(losses)(b)
Realized
gains/(losses)
Actual return on plan assets
balance
310
$
Benefit
obligation
$
3,066
4,630
Short-term borrowings (e)
repurchase agreements
securities loaned or sold under
Federal funds purchased and
8,957 $ 5,973 $ 2,857
$
Interest bearing deposits
Interest expense
$ 84,040 $ 76,100 $ 63,971
Total interest income(c)
1,312
1,890
1,611
1,967
4,238
5,907
3,887
Deposits with banks
94
913
1,574
Securities borrowed (c)
2,327
3,819
6,146
agreements
purchased under resale
Federal funds sold and securities
All other interest-earning assets (c) (d)
1,248
1,144
481
Note 8 - Pension and other postretirement
employee benefit plans
JPMorgan Chase & Co./2019 Form 10-K
198
(f) Other interest-bearing liabilities includes interest expense on prime
brokerage-related customer payables.
(c) In the second quarter of 2019, the Firm implemented certain
presentation changes that impacted interest income and interest
expense, but had no effect on net interest income. These changes were
made to align the accounting treatment between the balance sheet
and the related interest income or expense, primarily by offsetting
interest income and expense for certain prime brokerage-related held-
for-investment customer receivables and payables that are currently
presented as a single margin account on the balance sheet. These
changes were applied retrospectively and, accordingly, prior period
amounts were revised to conform with the current presentation.
(d) Includes interest earned on prime brokerage-related held-for-
investment customer receivables, which are classified in accrued
interest and accounts receivable, and all other interest-earning assets,
which are classified in other assets on the Consolidated balance sheets.
(e) Includes commercial paper.
(b) Represents securities that are tax-exempt for U.S. federal income tax
purposes.
(a) Includes the amortization/accretion of unearned income (e.g.,
purchase premiums/discounts, net deferred fees/costs, etc.).
$ 51,660 $ 50,188 $ 44,807
5,290
4,871
5,585
$ 57,245 $55,059 $ 50,097
Net interest income after provision
for credit losses
Net interest income
Provision for credit losses
Total interest expense (c)
consolidated VIES
Interest income and interest expense includes the current-
period interest accruals for financial instruments measured
at fair value, except for derivatives and financial
instruments containing embedded derivatives that would be
separately accounted for in accordance with U.S. GAAP,
absent the fair value option election; for those instruments,
all changes in fair value including any interest elements, are
reported in principal transactions revenue. For financial
instruments that are not measured at fair value, the related
interest is included within interest income or interest
expense, as applicable. Refer to Notes 12, 10, 11 and 20,
for further information on accounting for interest income
and interest expense related to loans, investment securities,
securities financing activities (i.e., securities purchased or
sold under resale or repurchase agreements; securities
borrowed; and securities loaned) and long-term debt,
respectively.
Trading liabilities - debt and all
other interest-bearing liabilities (c)(f)
2,585
2,387
1,669
Long-term debt
7,610
8,807
6,753
Beneficial interest issued by
568
493
503
$ 26,795 $ 21,041 $ 13,874
7,978
The Firm has various defined benefit pension plans and
OPEB plans that provide benefits to its employees in the
U.S. and certain non-U.S. locations. The Firm also provides a
qualified defined contribution plan in the U.S. and maintains
other similar arrangements in certain non-U.S. locations.
The principal defined benefit pension plan in the U.S. is a
qualified noncontributory plan that provides benefits to
substantially all U.S. employees. In connection with changes
to the U.S. Retirement Savings Program during the fourth
quarter of 2018, the Firm announced that it will freeze the
U.S. defined benefit pension plan (the “Plan Freeze").
Commencing on January 1, 2020 (and January 1, 2019 for
new hires), new pay credits are directed to the U.S. defined
contribution plan. Interest credits on the U.S. defined
benefit pension plan will continue to accrue. As a result, a
curtailment was triggered and a remeasurement of the U.S.
defined benefit pension obligation and plan assets occurred
as of November 30, 2018. The plan design change did not
have a material impact on the U.S. defined benefit pension
plan or the Firm's Consolidated Financial Statements.
The Firm also has defined benefit pension plans that are
offered in certain non-U.S. locations based on factors such
as eligible compensation, age and/or years of service. It is
the Firm's policy to fund the pension plans in amounts
sufficient to meet the requirements under applicable laws.
The Firm does not anticipate at this time making any
contribution to the U.S. defined benefit pension plan in
2020. The 2020 contributions to the non-U.S. defined
benefit pension plans are expected to be $49 million, of
which $34 million are contractually required.
8,703
Trading assets - debt instruments
Refer to Note 18 for information on operating lease income
included within other income.
Card income is earned primarily by CCB and CB. Refer to
Note 32 for segment results.
(b) Includes an adjustment to the credit card rewards liability of
approximately $330 million, recorded in the second quarter of 2018.
(a) Predominantly represents account origination costs and annual fees,
which are deferred and recognized on a straight-line basis over a 12-
month period.
$ 4,433
(10,820)
(1,827)
(13,074) (b)
(745)
4,989
(14,312)
(754)
5,304 $
$
$ 17,080
$ 18,808
$ 20,370
2018
2019
Noninterest expense
2017
Other card income(a)
Interchange and merchant
processing income
Reward costs and partner
payments
Year ended December 31,
(in millions)
The following table presents the components of card income:
The Firm typically makes payments to the co-brand credit
card partners based on the cost of partners' marketing
activities and loyalty program rewards provided to credit
cardholders, new account originations and sales volumes.
Payments to partners based on marketing efforts
undertaken by the partners are expensed by the Firm as
incurred and reported as marketing expense. Payments for
partner loyalty program rewards are reported as a
reduction of card income when incurred. Payments to
partners based on new credit card account originations are
accounted for as direct loan origination costs and are
deferred and recognized as a reduction of card income on a
straight-line basis over a 12-month period. Payments to
partners based on sales volumes are reported as a
reduction of card income when the related interchange
income is earned.
The Firm has contractual agreements with numerous co-
brand partners that grant the Firm exclusive rights to issue
co-branded credit card products and market them to the
customers of such partners. These partners endorse the co-
brand credit card programs and provide their customer or
member lists to the Firm. The partners may also conduct
marketing activities and provide rewards redeemable under
their own loyalty programs that the Firm will grant to co-
brand credit cardholders based on account activity. The
terms of these agreements generally range from five to ten
years.
Credit card revenue sharing agreements
Certain Chase credit card products offer the cardholder the
ability to earn points based on account activity, which the
cardholder can choose to redeem for cash and non-cash
rewards. The cost to the Firm related to these proprietary
rewards programs varies based on multiple factors
including the terms and conditions of the rewards
programs, cardholder activity, cardholder reward
redemption rates and cardholder reward selections. The
Firm maintains a liability for its obligations under its
rewards programs and reports the current-period cost as a
reduction of card income.
This revenue category includes interchange and other
income from credit and debit card transactions, and fees
earned from processing card transactions for merchants,
both of which are recognized when purchases are made by
a cardholder and presented net of certain transaction-
related costs. Card income also includes account origination
costs and annual fees, which are deferred and recognized
on a straight-line basis over a 12-month period.
470
Net interest income from mortgage loans is recorded in
interest income.
Refer to Note 15 for further information on risk
management activities and MSRS.
Net mortgage servicing revenue includes operating revenue
earned from servicing third-party mortgage loans, which is
recognized over the period in which the service is provided;
changes in the fair value of MSRs; the impact of risk
management activities associated with MSRS; and gains and
losses on securitization of excess mortgage servicing. Net
mortgage servicing revenue also includes gains and losses
on sales and lower of cost or fair value adjustments of
certain repurchased loans insured by U.S. government
agencies.
206
Total card income
Other expense
Other expense on the Firm's Consolidated statements of
income included the following:
Year ended December 31,
(in millions)
5,534
1,848
7,382
7,248
9,291
Total investment securities (a)
1,595
1,329
Non-taxable securities (b)
5,653
7,962
Taxable securities
Loans(a)
Interest income
(in millions)
$ 50,375 $ 47,620 $ 41,008
2017
2018
2019
Legal expense/(benefit)
FDIC-related expense
$
2019
239 $
457
2018
2017
72 $
1,239
10,800
(35)
JPMorgan Chase & Co./2019 Form 10-K
197
Notes to consolidated financial statements
Note 7 - Interest income and Interest expense
Interest income and interest expense are recorded in the
Consolidated statements of income and classified based on
the nature of the underlying asset or liability.
The following table presents the components of interest
income and interest expense:
Year ended December 31,
1,492
The Firm also has a number of nonqualified
noncontributory defined benefit pension plans that are
unfunded. These plans provide supplemental defined
pension benefits to certain employees.
Card income
The Firm partially defrays the cost of its U.S. OPEB
obligation through corporate-owned life insurance ("COLI")
purchased on the lives of eligible employees and retirees.
While the Firm owns the COLI policies, certain COLI
proceeds (death benefits, withdrawals and other
distributions) may be used only to reimburse the Firm for
its net postretirement benefit claim payments and related
administrative expense. The Firm has prefunded its U.S.
postretirement benefit obligations. The U.K. OPEB plan is
unfunded.
(110)
(873)
(820)
15
14
7
8
2
2
75
80
(28)
454
(548)
2,757
$
$ 2,633
(116)
185
(2)
2
$ (17,069)
$
(113)
(15,512)
(636)
$
(612)
$
18,052
2,932
$ 19,603
$
-
(15)
(197)
The Firm offers postretirement medical and life insurance
benefits to certain U.S. retirees and postretirement medical
benefits to certain qualifying U.S. and U.K. employees.
-
(23)
(3,157)
$
(26)
(2,286)
184
$
470
$
(3,134)
$
(2,260)
$
ΝΑ
NA
(15,494)
$
$
20,373
$
18,052
$ 2,993
$
121
2,633
$
2,540
$ 2,357
$
2,021
$ (17,047)
$ 3,304
15
JPMorgan Chase & Co./2019 Form 10-K
69
Accumulated benefit obligation, end of year
(a)(b)
Net funded status (c)(d)
Fair value of plan assets, end of year
Foreign exchange impact and other
Plan settlements
Benefits paid
Employee contributions
Firm contributions
Actual return on plan assets
Fair value of plan assets, beginning of year
Change in plan assets
Benefit obligation, end of year(a)
Foreign exchange impact and other
Plan settlements
Benefits paid
Net gain/(loss)
-
Pension and OPEB accounting guidance generally requires
that the difference between plan assets at fair value and the
benefit obligation be measured and recorded on the
balance sheet. Plans that are overfunded (excess of plan
assets over benefit obligation) are recorded in other assets
and plans that are underfunded (excess benefit obligation
over plan assets) are recorded in other liabilities. Gains or
losses resulting from changes in the benefit obligation and
the value of plan assets are recorded in OCI and recognized
as part of the net periodic benefit cost over subsequent
periods as discussed in the Gains and losses section of this
Note. Additionally, benefits earned during the year are
reported in compensation expense; all other components of
net periodic defined benefit costs are reported in other
expense in the Consolidated statements of income.
199
Notes to consolidated financial statements
The following table presents the changes in benefit obligations, plan assets, the net funded status, and the pretax pension and
OPEB amounts recorded in AOCI on the Consolidated balance sheets for the Firm's defined benefit pension and OPEB plans, and
the weighted-average actuarial annualized assumptions for the projected and accumulated postretirement benefit obligations.
As of or for the year ended December 31,
Pretax pension and OPEB amounts recorded in AOCI
(in millions)
Benefit obligation, beginning of year
Benefits earned during the year
Interest cost on benefit obligations
Plan amendments
Plan curtailment
Employee contributions
Change in benefit obligation
Net gain/(loss)
JPMorgan Chase & Co./2019 Form 10-K
Defined benefit
pension plans
67
873
820
40
(51)
(g)
938
(g)
Prior service credit/(cost)
(15)
(14)
(7)
(8)
123
(29)
(1,296)
(24)
(5)
2018
OPEB plans
2019
2018
$ (15,512)
(356)
2019
$ (612)
$
(684)
(596)
(556)
(24)
$ (16,700)
(354)
Mortgage-backed securities:
Securities loaned
and other
agreements
Securities sold
under repurchase
Securities loaned
and other
2018
December 31, (in millions)
agreements
Securities sold
under repurchase
Gross liability balance
The tables below present as of December 31, 2019 and 2018 the types of financial assets pledged in securities financing
agreements and the remaining contractual maturity of the securities financing agreements.
Notes to consolidated financial statements
2019
U.S. GSES and government agencies
29
34,119
$
$
34,311 (a) $
Residential nonagency
1,239
2,165
Commercial nonagency
U.S. Treasury, GSES and government agencies
Obligations of U.S. states and municipalities
Non-U.S.government debt
1,612
1,390
334,398
$
215
12,650
32,248
(c) Includes securities financing agreements that provide collateral rights, but where an appropriate legal opinion with respect to the master netting
agreement has not been either sought or obtained. At December 31, 2019 and 2018, included $11.0 billion and $7.9 billion, respectively, of securities
purchased under resale agreements; $31.9 billion and $30.3 billion, respectively, of securities borrowed; $22.7 billion and $21.5 billion, respectively, of
securities sold under repurchase agreements; and $7 million and $25 million, respectively, of securities loaned and other.
(9,654)
35
2018
December 31, (in millions)
Gross amounts
Amounts netted
on the
Consolidated
balance sheets
Amounts
presented on the
Consolidated
balance sheets
Amounts not
nettable on the
Consolidated
balance sheets(b)
Net amounts(c)
Assets
Securities purchased under resale agreements
$
Securities borrowed
691,116 $
132,955
(369,612) $
(20,960)
321,504 $
111,995
(308,854) $
(79,747)
Liabilities
Securities sold under repurchase agreements
Securities loaned and other(a)
$
541,587 $
33,700
(369,612) $
(20,960)
171,975 $
12,740
(149,125) $
(12,358)
22,850
382
(a) Includes securities-for-securities lending agreements of $3.7 billion and $3.3 billion at December 31, 2019 and 2018, respectively, accounted for at fair
value, where the Firm is acting as lender. In the Consolidated balance sheets, the Firm recognizes the securities received at fair value within other assets
and the obligation to return those securities within accounts payable and other liabilities.
(b) In some cases, collateral exchanged with a counterparty exceeds the net asset or liability balance with that counterparty. In such cases, the amounts
reported in this column are limited to the related net asset or liability with that counterparty.
JPMorgan Chase & Co./2019 Form 10-K
317,578 (a)
Overnight and
continuous
1,181
$
Up to 30 days
199,870
1,706
$
30 - 90 days
57,305 $
937
Greater than
90 days
72,863 $
1,978
Total
555,172
36,649
Remaining contractual maturity of the agreements
2018 (in millions)
Overnight and
continuous
Total securities sold under repurchase agreements
$
Total securities loaned and other
247,579
28,402
Up to 30 days
$ 174,971
30 - 90 days
$
997
71,637
2,132
Greater than
90 days
47,400 $
Total
2,169
541,587
33,700
Transfers not qualifying for sale accounting
At December 31, 2019 and 2018, the Firm held $743 million and $2.1 billion, respectively, of financial assets for which the
rights have been transferred to third parties; however, the transfers did not qualify as a sale in accordance with U.S. GAAP.
These transfers have been recognized as collateralized financing transactions. The transferred assets are recorded in trading
assets and loans, and the corresponding liabilities are recorded predominantly in short-term borrowings on the Consolidated
balance sheets. The prior period amount has been revised to conform with the current period presentation.
216
JPMorgan Chase & Co./2019 Form 10-K
225,134
32,028
Total securities loaned and other
$
Total securities sold under repurchase agreements
145,548
1,528
1,150
154,900
Corporate debt securities
13,826
1,580
13,898
4,313
428
Asset-backed securities
1,794
3,867
Equity securities
21,455
69
33,512
28,890
Total
$
555,172
$
36,649
$
541,587
$
33,700
(a) The prior period amounts have been revised to conform with the current period presentation.
Remaining contractual maturity of the agreements
2019 (in millions)
24,143
12,328
(151,566) $
JPMorgan Chase & Co./2019 Form 10-K
(379,463) $
(26,960)
51
$
50
1.47%
-%
-%
51
50
1.47%
Obligations of U.S. states and municipalities
Amortized cost
$
$
Fair value
Average yield(a)
-%
Asset-backed securities
Amortized cost
$
Fair value
Average yield(a)
Total held-to-maturity securities
Amortized cost
Fair value
Average yield(a)
-%
99
$
4,698
$
$
-%
Fair value
Average yield(a)
1.99%
1.87%
2.27%
3.47%
2.73%
Held-to-maturity securities
Mortgage-backed securities
Amortized Cost
Fair value
Average yield (a)
$
$
-%
-%
$
5,850
$
30,673
$
36,523
6,114
3.06%
31,512
3.10%
37,626
3.10%
U.S. Treasury and government agencies
Amortized cost
$
Average yield(a)
4,797
4,990
5,096
Note 11 - Securities financing activities
JPMorgan Chase enters into resale, repurchase, securities
borrowed and securities loaned agreements (collectively,
“securities financing agreements") primarily to finance the
Firm's inventory positions, acquire securities to cover short
sales, accommodate customers' financing needs, settle
other securities obligations and to deploy the Firm's excess
cash.
Securities financing agreements are treated as
collateralized financings on the Firm's Consolidated balance
sheets. Resale and repurchase agreements are generally
carried at the amounts at which the securities will be
subsequently sold or repurchased. Securities borrowed and
securities loaned agreements are generally carried at the
amount of cash collateral advanced or received. Where
appropriate under applicable accounting guidance,
securities financing agreements with the same counterparty
are reported on a net basis. Refer to Note 1 for further
discussion of the offsetting of assets and liabilities. Fees
received and paid in connection with securities financing
agreements are recorded over the life of the agreement in
interest income and interest expense on the Consolidated
statements of income.
The Firm has elected the fair value option for certain
securities financing agreements. Refer to Note 3 for further
information regarding the fair value option. The securities
financing agreements for which the fair value option has
been elected are reported within securities purchased
under resale agreements, securities loaned or sold under
repurchase agreements, and securities borrowed on the
Consolidated balance sheets. Generally, for agreements
carried at fair value, current-period interest accruals are
recorded within interest income and interest expense, with
changes in fair value reported in principal transactions
revenue. However, for financial instruments containing
embedded derivatives that would be separately accounted
for in accordance with accounting guidance for hybrid
instruments, all changes in fair value, including any interest
elements, are reported in principal transactions revenue.
Securities financing agreements expose the Firm primarily
to credit and liquidity risk. To manage these risks, the Firm
monitors the value of the underlying securities
(predominantly high-quality securities collateral, including
government-issued debt and U.S. GSES and government
agencies MBS) that it has received from or provided to its
counterparties compared to the value of cash proceeds and
exchanged collateral, and either requests additional
collateral or returns securities or collateral when
appropriate. Margin levels are initially established based
upon the counterparty, the type of underlying securities,
and the permissible collateral, and are monitored on an
ongoing basis.
In resale and securities borrowed agreements, the Firm is
exposed to credit risk to the extent that the value of the
securities received is less than initial cash principal
advanced and any collateral amounts exchanged. In
repurchase and securities loaned agreements, credit risk
exposure arises to the extent that the value of underlying
securities advanced exceeds the value of the initial cash
principal received, and any collateral amounts exchanged.
Additionally, the Firm typically enters into master netting
agreements and other similar arrangements with its
counterparties, which provide for the right to liquidate the
underlying securities and any collateral amounts exchanged
in the event of a counterparty default. It is also the Firm's
policy to take possession, where possible, of the securities
underlying resale and securities borrowed agreements.
Refer to Note 29 for further information regarding assets
pledged and collateral received in securities financing
agreements.
As a result of the Firm's credit risk mitigation practices with
respect to resale and securities borrowed agreements as
described above, the Firm did not hold any reserves for
credit impairment with respect to these agreements as of
December 31, 2019 and 2018.
214
JPMorgan Chase & Co./2019 Form 10-K
The table below summarizes the gross and net amounts of the Firm's securities financing agreements, as of December 31,
2019 and 2018. When the Firm has obtained an appropriate legal opinion with respect to a master netting agreement with a
counterparty and where other relevant netting criteria under U.S. GAAP are met, the Firm nets, on the Consolidated balance
sheets, the balances outstanding under its securities financing agreements with the same counterparty. In addition, the Firm
exchanges securities and/or cash collateral with its counterparty to reduce the economic exposure with the counterparty, but
such collateral is not eligible for net Consolidated balance sheet presentation. Where the Firm has obtained an appropriate
legal opinion with respect to the counterparty master netting agreement, such collateral, along with securities financing
balances that do not meet all these relevant netting criteria under U.S. GAAP, is presented in the table below as “Amounts not
nettable on the Consolidated balance sheets," and reduces the "Net amounts" presented. Where a legal opinion has not been
either sought or obtained, the securities financing balances are presented gross in the "Net amounts" below.
Gross amounts
Amounts netted
on the
Consolidated
balance sheets
2019
Amounts
presented on the
Consolidated
balance sheets
Amounts not
nettable on the
Consolidated
balance sheets(b)
Net amounts(c)
December 31, (in millions)
Assets
Securities purchased under resale agreements
Securities borrowed
$
628,609 $
166,718
(379,463) $
(26,960)
249,146 $
139,758
(233,818) $
(104,990)
15,328
34,768
Liabilities
Securities sold under repurchase agreements
$
Securities loaned and other(a)
555,172 $
36,649
Notes to consolidated financial statements
213
(b) Substantially all of the Firm's U.S. residential MBS and collateralized mortgage obligations are due in 10 years or more, based on contractual maturity. The estimated
weighted-average life, which reflects anticipated future prepayments, is approximately 6 years for agency residential MBS, 3 years for agency residential collateralized
mortgage obligations and 3 years for nonagency residential collateralized mortgage obligations.
(a) Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each security. The effective yield
considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives. Taxable-equivalent amounts are used
where applicable. The effective yield excludes unscheduled principal prepayments; and accordingly, actual maturities of securities may differ from their contractual or
expected maturities as certain securities may be prepaid.
-%
3.91%
4.04%
4.04%
5,296
$
873
$
6,169
5,296
-%
3.19%
873
3.11%
6,169
175,709 $
9,689
3.18%
$
11,245
$
36,244
$
47,540
-%
50
1.47%
11,516
37,375
48,941
3.13%
3.23%
3.20%
$ - $ 51
106
350,699
17 $
Obligations of U.S. states and municipalities
221 1
81
81
5,267
62
5,267
62
50
1
Asset-backed securities:
Collateralized loan obligations
3,421
50
Total held-to-maturity securities
63
1,375
1,456
4,796
10,113
63
Total investment securities with gross
unrealized losses
$
67,234 $
310 $
21,166 $
131 $
88,400 $
441
210
8,657
U.S. Treasury and government agencies
62
5,186
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
10,364
11
7,756
45
18,120
56
Other
1,639
9
753
11
2,392
20
Total available-for-sale securities
58,577
247
19,710
131
78,287
378
Held-to-maturity securities
Mortgage-backed securities:
U.S. GSES and government agencies
5,186
62
Total mortgage-backed securities
JPMorgan Chase & Co./2019 Form 10-K
Less than 12 months
Investment securities with gross unrealized losses
12 months or more
3,172
141
4,146
147
Total mortgage-backed securities
20,160
333
27,510
825
47,670
1,158
U.S. Treasury and government agencies
4,792
7
2,391
71
7,183
78
Obligations of U.S. states and municipalities
1,808
15
171,621 $
176,052
65
4,285
80
Certificates of deposit
75
-
-
6
17
974
6
Gross unrealized
losses
Fair value
Gross unrealized
losses
Total fair
value
Total gross
unrealized losses
December 31, 2018 (in millions)
Fair value
Available-for-sale securities
Mortgage-backed securities:
U.S. GSES and government agencies
Residential:
17,656
318
22,728
656
40,384
974
U.S.
623
4
1,445
27
2,068
31
Non-U.S.
907
5
165
1
1,072
Commercial
75
5,376
1,406
299
5,096
4,824
105
15
4,914
Asset-backed securities:
Collateralized loan obligations
Total held-to-maturity securities
Total investment securities
6,169
47,540
-
1,464
4,797
63
31,434
$ 392,846 $ 7,235 $ 441
$ 399,640
$ 260,203 $
239
215
3,407 $ 1,758
31,458
$ 261,852
(a) Includes AFS U.S. GSE obligations with fair values of $78.5 billion and $50.7 billion, and HTM U.S. GSE obligations with amortized cost of $31.6 billion and
$20.9 billion, at December 31, 2019 and 2018, respectively. As of December 31, 2019, mortgage-backed securities issued by Fannie Mae and Freddie
Mac each exceeded 10% of JPMorgan Chase's total stockholders' equity; the amortized cost and fair value of such securities were $69.4 billion and $71.4
billion, and $38.7 billion and $39.6 billion, respectively.
JPMorgan Chase & Co./2019 Form 10-K
209
Notes to consolidated financial statements
Investment securities impairment
The following tables present the fair value and gross unrealized losses for investment securities by aging category at
December 31, 2019 and 2018.
6,169
48,941
Obligations of U.S. states and municipalities
50
1
378
350,699
228,769
3,168
1,543
7,260
230,394
Held-to-maturity securities
Mortgage-backed securities:
U.S. GSES and government agencies (a)
36,523
1,165
62
Total mortgage-backed securities
36,523
1,165
22
37,626
26,610
134
200
26,544
62
37,626
26,610
134
200
26,544
U.S. Treasury and government agencies
51
Investment securities with gross unrealized losses
December 31, 2019 (in millions)
Fair value
Less than 12 months
Gross unrealized
losses
199
1
1,486
13
Total mortgage-backed securities
19,338
68
4,100
41
23,438
109
U.S. Treasury and government agencies
23,003
145
5,695
30
28,698
175
Obligations of U.S. states and municipalities
186
1
186
1
Certificates of deposit
77
77
Non-U.S. government debt securities
3,970
13
12
4
1,287
1
12 months or more
Fair value
Gross unrealized
losses
Total fair
value
Total gross
unrealized losses
Available-for-sale securities
Mortgage-backed securities:
U.S. GSES and government agencies
$
16,966 $
53
$
3,058 $
36 $
20,024 $
89
Residential:
U.S
1,072
3
423
3
1,495
6
Non-U.S.
13
420
1
433
Commercial
Non-U.S. government debt securities
3,123
Corporate debt securities
$
27,693
Fair value
124
202
883
28,601
29,810
Average yield(a)
4.13%
4.68%
5.28%
4.86%
26,552
4.87%
$
77
$
$
$
77
0.50%
-%
-%
-%
77
77
0.50%
Certificates of deposit
$
825
$
Amortized cost
$
10,687
$
92,805
$
26,353
$
9,317
$
139,162
Fair value
10,700
93,039
26,446
9,251
139,436
Average yield(a)
1.82%
1.84%
1.90%
1.98%
1.86%
Obligations of U.S. states and municipalities
Amortized cost
$
123
$
193
Amortized cost
Fair value
Average yield(a)
Non-U.S. government debt securities
-%
823
845
3.91%
Amortized cost
Fair value
Average yield(a)
$
2,352
$
17
0.62%
2,353
2.78%
7,184 $
7,177
2.86%
20,923 $
30,476
20,902
30,449
2.77%
2.79%
Total available-for-sale securities
Amortized cost
$
17,782
$
Fair value
17,808
107,158 $
107,655
48,745 $
49,184
3.50%
U.S. Treasury and government agencies
426
4.49%
Amortized cost
$
6,672 $
Fair value
6,682
Average yield(a)
2.17%
11,544
11,791
1.84%
$
2,898 $
313
$
21,427
3,001
313
21,787
1.29%
1.67%
1.87%
Corporate debt securities
Amortized cost
Fair value
Average yield(a)
Asset-backed securities
$
205 $
206 $
412 $-$
207
212
4.14%
3.34%
3.40%
2.76%
4,385
23
7,082
177
11,467
200
Total mortgage-backed securities
4,385
23
7,082
177
11,467
200
Obligations of U.S. states and municipalities
12
-
1,114
15
1,126
15
Total held-to-maturity securities
4,397
23
8,196
192
12,593
215
Total investment securities with gross
unrealized losses
54,722
U.S. GSES and government agencies
573
Mortgage-backed securities:
1,543
478
558
1,937
15
5,060
20
37
1
515
9
Asset-backed securities:
Collateralized loan obligations
18,681
176
18,681
176
Other
1,208
6
2,354
16
3.562
22
Total available-for-sale securities
50,325
550
36,706
993
87,031
Held-to-maturity securities
5,771
44,902
99,624
Contractual maturities and yields
The following table presents the amortized cost and estimated fair value at December 31, 2019, of JPMorgan Chase's investment
securities portfolio by contractual maturity.
By remaining maturity
December 31, 2019 (in millions)
Available-for-sale securities
Mortgage-backed securities
Amortized cost
Due in one
year or less
Due after one year
through five years
Due after five years
through 10 years
Due after
10 years(b)
Total
Fair value
Average yield(a)
$
1
$
58
$
11,073
$
1
58
11,251
114,516
116,985
$
125,648
128,295
1.99%
2.78%
JPMorgan Chase & Co./2019 Form 10-K
1,185
212
Changes in the credit loss component of credit-impaired
debt securities
1,758
Other-than-temporary impairment
AFS and HTM debt securities in unrealized loss positions are
analyzed as part of the Firm's ongoing assessment of OTTI.
The Firm considers a decline in fair value to be other-than-
temporary when the Firm does not expect to recover the
entire amortized cost basis of the security.
For AFS debt securities, the Firm recognizes OTTI losses in
earnings if the Firm has the intent to sell the debt security,
or if it is more likely than not that the Firm will be required
to sell the debt security before recovery of its amortized
cost basis. In these circumstances the impairment loss is
equal to the full difference between the amortized cost
basis and the fair value of the securities.
For debt securities in an unrealized loss position that the
Firm has the intent and ability to hold, the securities are
evaluated to determine if a credit loss exists. In the event of
a credit loss, only the amount of impairment associated
with the credit loss is recognized in income. Amounts
relating to factors other than credit losses are recorded in
OCI.
Factors considered in evaluating potential OTTI include
adverse conditions specifically related to the industry,
geographic area or financial condition of the issuer or
underlying collateral of a security; payment structure of the
security; changes to the rating of the security by a rating
JPMorgan Chase & Co./2019 Form 10-K
agency; the volatility of the fair value changes; and the
Firm's intent and ability to hold the security until recovery.
The Firm's cash flow evaluations take into account the
factors noted above and expectations of relevant market
and economic data as of the end of the reporting period.
When assessing securities issued in a securitization for OTTI,
the Firm estimates cash flows considering underlying loan-
level data and structural features of the securitization, such
as subordination, excess spread, overcollateralization or
other forms of credit enhancement, and compares the
losses projected for the underlying collateral ("pool losses")
against the level of credit enhancement in the securitization
structure to determine whether these features are sufficient
to absorb the pool losses, or whether a credit loss exists.
The Firm also performs other analyses to support its cash
flow projections, such as first-loss analyses or stress
scenarios.
For beneficial interests in securitizations that are rated
below "AA" at their acquisition, or that can be contractually
prepaid or otherwise settled in such a way that the Firm
would not recover substantially all of its recorded
investment, the Firm considers an impairment to be other-
than-temporary when there is an adverse change in
expected cash flows.
211
Notes to consolidated financial statements
The Firm recognizes unrealized losses on investment
securities that it intends to sell as OTTI. The Firm does not
intend to sell any of the remaining investment securities
with an unrealized loss in AOCI as of December 31, 2019,
and it is not likely that the Firm will be required to sell these
securities before recovery of their amortized cost basis.
Further, the Firm did not recognize any credit-related OTTI
losses during the year ended December 31, 2019. Based on
its assessment, the Firm believes that the investment
securities with an unrealized loss in AOCI as of December
31, 2019, are not other-than-temporarily impaired.
Investment securities gains and losses
The following table presents realized gains and losses and
OTTI from AFS securities that were recognized in income.
Year ended December 31,
(in millions)
Realized gains
Realized losses
OTTI losses (a)
Net investment securities gains/
(losses)
2019
2018
$ 650 $ 211
2017
$ 1,013
(392)
(606)
(1,072)
(7)
(66)
258
(395)
(a) Represents OTTI losses recognized in income on investment securities
the Firm intends to sell. Excludes realized losses on securities sold of
$22 million and $6 million for the years ended December 31, 2018
and 2017, respectively, that had been previously reported as an OTTI
loss due to the intention to sell the securities.
The cumulative credit loss component, including any
changes therein, of OTTI losses that have been recognized in
income related to AFS securities was not material as of and
during the years ended December 31, 2019, 2018 and
2017.
345,306
2,477
22
89
$ 110,117 $ 69,026 $
594 $ 974
$ 68,646
Residential:
U.S
Non-U.S.
2,395 $
10,223
6
10,450
5,877
79
31
5,925
2,477
233
$ 107,811 $
U.S. GSES and government agencies (a)
Mortgage-backed securities:
208
JPMorgan Chase & Co./2019 Form 10-K
The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
2019
2018
Gross
Amortized unrealized
cost
gains
Gross
unrealized
losses
Fair
value
Amortized
cost
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
December 31, (in millions)
Available-for-sale securities
64
1
2,540
2,529
U.S. Treasury and government agencies
139,162
449
175
139,436
55,771
366
78
Total available-for-sale securities
56,059
Obligations of U.S. states and municipalities
27,693
2,118
1
29,810
36,221
1,582
83,820
During the fourth quarter of 2019, the Firm transferred
$6.2 billion of collateralized loan obligations from AFS to
HTM for capital management purposes. These securities
were transferred at fair value in a non-cash transaction.
1,158
84,190
72
6
2,595
Commercial
5,137
64
13
5,188
6,758
43
147
6,654
Total mortgage-backed securities
125,648
2,756
109
128,295
788
For both AFS and HTM debt securities, purchase discounts or
premiums are generally amortized into interest income on a
level-yield basis over the contractual life of the security.
However, premiums on certain callable debt securities are
amortized to the earliest call date.
net increases or decreases to AOCI. The specific
identification method is used to determine realized gains
and losses on AFS securities, which are included in securities
gains/(losses) on the Consolidated statements of income.
HTM debt securities, which the Firm has the intent and
ability to hold until maturity, are carried at amortized cost
on the Consolidated balance sheets.
AFS securities are carried at fair value on the Consolidated
balance sheets. Unrealized gains and losses, after any
applicable hedge accounting adjustments, are reported as
58,809 $
85.04
12,463 $
41.46
Granted
23,811
99.79
18
111.01
Exercised or vested
(28,754)
69.98
(6,923)
41.50
Forfeited
Canceled
(1,627)
Outstanding, January 1
98.58
value
price
RSUS, PSUs, employee SARS and stock options activity
Generally, compensation expense for RSUs and PSUs is measured based on the number of units granted multiplied by the stock
price at the grant date, and for employee SARS and stock options, is measured at the grant date using the Black-Scholes
valuation model. Compensation expense for these awards is recognized in net income as described previously. The following
table summarizes JPMorgan Chase's RSUs, PSUs, employee SARS and stock options activity for 2019.
RSUS/PSUS
SARS/Options
Year ended December 31, 2019
Weighted-
Weighted-average
(in thousands, except weighted-average data, and
where otherwise stated)
Number of
units
Weighted-
average grant
date fair value
average
remaining
Aggregate
Number of
awards
exercise
contractual life
intrinsic
(in years)
80
-
ΝΑ
2017
Tax benefits
Excess tax benefits (including tax benefits from dividends or
dividend equivalents) on share-based payment awards are
recognized within income tax expense in the Consolidated
statements of income. Income tax benefits related to share-
based incentive arrangements recognized in the Firm's
Consolidated statements of income for the years ended
December 31, 2019, 2018 and 2017, were $895 million,
$1.1 billion and $1.0 billion, respectively.
$ 1,141
$ 1,241 $ 1,125
Accrual of estimated costs of share-
based awards to be granted in future
periods including those to full-career
eligible employees
1,115
1,081
945
Total noncash compensation expense
related to employee share-based
incentive plans
$2,256 $2,322 $ 2,070
At December 31, 2019, approximately $693 million
(pretax) of compensation expense related to unvested
awards had not yet been charged to net income. That cost is
expected to be amortized into compensation expense over a
weighted-average period of 1.6 years. The Firm does not
capitalize any compensation expense related to share-based
compensation awards to employees.
JPMorgan Chase & Co./2019 Form 10-K
207
Notes to consolidated financial statements
Note 10 Investment securities
Investment securities consist of debt securities that are
classified as AFS or HTM. Debt securities classified as
trading assets are discussed in Note 2. Predominantly all of
the Firm's AFS and HTM securities are held by Treasury and
CIO in connection with its asset-liability management
activities. At December 31, 2019, the investment securities
portfolio consisted of debt securities with an average credit
rating of AA+ (based upon external ratings where available,
and where not available, based primarily upon internal
ratings). The Firm's internal risk ratings generally align with
the qualitative characteristics (e.g., borrower capacity to
meet financial commitments and vulnerability to changes in
the economic environment) defined by S&P and Moody's,
however the quantitative characteristics (e.g., PDs and
LGDs) may differ as they reflect internal historical
experiences and assumptions.
2018
ΝΑ
2019
Year ended December 31, (in millions)
(31)
89.71
Outstanding, December 31
Exercisable, December 31
52,239 $
ΝΑ
99.62
5,527 $
41.36
ΝΑ
5,522
41.29
1.9 $539,071
1.9
538,971
The total fair value of RSUs that vested during the years ended December 31, 2019, 2018 and 2017, was $2.9 billion, $3.6
billion and $2.9 billion, respectively. The total intrinsic value of options exercised during the years ended December 31, 2019,
2018 and 2017, was $503 million, $370 million and $651 million, respectively.
Compensation expense
The Firm recognized the following noncash compensation
expense related to its various employee share-based
incentive plans in its Consolidated statements of income.
Cost of prior grants of RSUS, PSUs, SARS
and employee stock options that are
amortized over their applicable
vesting periods
37,723
345,306
176
823
Corporate debt securities
24,102
20
351
23,771
21,787
17
377
21,427
Non-U.S. government debt securities
75
75
77
77
22
845
1,904
23
9
56
24,991
19,612
1
Asset-backed securities:
19,437
Certificates of deposit
Other
40
20
5,458
7,225
57
1,918
9
5,438
25,038
Collateralized loan obligations
Interest income
83
84
80
Total residential real estate - excluding PCI
Note 12 - Loans
Loan accounting framework
The accounting for a loan depends on management's
strategy for the loan, and on whether the loan was credit-
impaired at the date of acquisition. The Firm accounts for
loans based on the following categories:
•
•
•
Originated or purchased loans held-for-investment (i.e.,
"retained"), other than PCI loans
Loans held-for-sale
Loans at fair value
PCI loans held-for-investment
JPMorgan Chase & Co./2019 Form 10-K
The Firm recognizes foreclosed property upon receiving
assets in satisfaction of a loan (e.g., by taking legal title or
physical possession). For loans collateralized by real
property, the Firm generally recognizes the asset received
at foreclosure sale or upon the execution of a deed in lieu of
foreclosure transaction with the borrower. Foreclosed
assets are reported in other assets on the Consolidated
balance sheets and initially recognized at fair value less
costs to sell. Each quarter the fair value of the acquired
property is reviewed and adjusted, if necessary, to the lower
of cost or fair value. Subsequent adjustments to fair value
are charged/credited to noninterest revenue. Operating
expense, such as real estate taxes and maintenance, are
charged to other expense.
The Firm acquires property from borrowers through loan
restructurings, workouts, and foreclosures. Property
acquired may include real property (e.g., residential real
estate, land, and buildings) and commercial and personal
property (e.g., automobiles, aircraft, railcars, and ships).
75
75 $
68 $
287 $
127
2018
2017
2019
2018
2017
2019
2018
2017
Foreclosed property
Residential mortgage
4,307 $
Home equity
2,007
5,082 $ 5,797 $
2,123
2,222
224 $
257 $
132
131
$
Loans held-for-investment (other than PCI loans)
Originated or purchased loans held-for-investment, other
than PCI loans, are recorded at the principal amount
outstanding, net of the following: charge-offs; interest
applied to principal (for loans accounted for on the cost
recovery method); unamortized discounts and premiums;
and net deferred loan fees or costs. Credit card loans also
include billed finance charges and fees net of an allowance
for uncollectible amounts.
Because loans modified in TDRs are considered to be
impaired, these loans are measured for impairment using
the Firm's established asset-specific allowance
methodology, which considers the expected re-default rates
for the modified loans. A loan modified in a TDR generally
remains subject to the asset-specific allowance
methodology throughout its remaining life, regardless of
whether the loan is performing and has been returned to
accrual status and/or the loan has been removed from the
impaired loans disclosures (i.e., loans restructured at
market rates). Refer to Note 13 for further discussion of the
methodology used to estimate the Firm's asset-specific
allowance.
Such modifications are accounted for and reported as TDRs.
A loan that has been modified in a TDR is generally
considered to be impaired until it matures, is repaid, or is
otherwise liquidated, regardless of whether the borrower
performs under the modified terms. In certain limited
cases, the effective interest rate applicable to the modified
loan is at or above the current market rate at the time of
the restructuring. In such circumstances, and assuming that
the loan subsequently performs under its modified terms
and the Firm expects to collect all contractual principal and
interest cash flows, the loan is disclosed as impaired and as
a TDR only during the year of the modification; in
subsequent years, the loan is not disclosed as an impaired
loan or as a TDR so long as repayment of the restructured
loan under its modified terms is reasonably assured.
Notes to consolidated financial statements
217
Auto loans upon repossession of the automobile.
Other than in certain limited circumstances, the Firm
typically does not recognize charge-offs on government-
guaranteed loans.
Loans to borrowers who have experienced an event that
suggests a loss is either known or highly certain are
subject to accelerated charge-off standards (e.g.,
residential real estate and auto loans are charged off
within 60 days of receiving notification of a bankruptcy
filing).
Loans modified in a TDR that are determined to be
collateral-dependent.
Certain consumer loans will be charged off or charged down
to their net realizable value earlier than the FFIEC charge-
off standards in certain circumstances as follows:
Consumer loans, other than risk-rated business banking and
auto loans, and PCI loans, are generally charged off or
charged down to the net realizable value of the underlying
collateral (i.e., fair value less costs to sell), with an offset to
the allowance for loan losses, upon reaching specified
stages of delinquency in accordance with standards
established by the FFIEC. Residential real estate loans and
non-modified credit card loans are generally charged off no
later than 180 days past due. Scored auto and modified
credit card loans are charged off no later than 120 days
past due.
The allowance for loan losses represents the estimated
probable credit losses inherent in the held-for-investment
loan portfolio at the balance sheet date and is recognized
on the balance sheet as a contra asset, which brings the
recorded investment to the net carrying value. Changes in
the allowance for loan losses are recorded in the provision
for credit losses on the Firm's Consolidated statements of
income. Refer to Note 13 for further information on the
Firm's accounting policies for the allowance for loan losses.
Charge-offs
Allowance for loan losses
As permitted by regulatory guidance, credit card loans are
generally exempt from being placed on nonaccrual status;
accordingly, interest and fees related to credit card loans
continue to accrue until the loan is charged off or paid in
full. The Firm separately establishes an allowance, which
reduces loans and is charged to interest income, for the
estimated uncollectible portion of accrued and billed
interest and fee income on credit card loans.
A loan may be returned to accrual status when repayment is
reasonably assured and there has been demonstrated
performance under the terms of the loan or, if applicable,
the terms of the restructured loan.
carrying value of the loan (the cost recovery method). For
consumer loans, application of this policy typically results in
the Firm recognizing interest income on nonaccrual
consumer loans on a cash basis.
JPMorgan Chase & Co./2019 Form 10-K
On the date a loan is placed on nonaccrual status, all
interest accrued but not collected is reversed against
interest income. In addition, the amortization of deferred
amounts is suspended. Interest income on nonaccrual loans
may be recognized as cash interest payments are received
(i.e., on a cash basis) if the recorded loan balance is
deemed fully collectible; however, if there is doubt
regarding the ultimate collectibility of the recorded loan
balance, all interest cash receipts are applied to reduce the
Nonaccrual loans are those on which the accrual of interest
has been suspended. Loans (other than credit card loans
and certain consumer loans insured by U.S. government
agencies) are placed on nonaccrual status and considered
nonperforming when full payment of principal and interest
is not expected, regardless of delinquency status, or when
principal and interest has been in default for a period of 90
days or more, unless the loan is both well-secured and in
the process of collection. A loan is determined to be past
due when the minimum payment is not received from the
borrower by the contractually specified due date or for
certain loans (e.g., residential real estate loans), when a
monthly payment is due and unpaid for 30 days or more.
Finally, collateral-dependent loans are typically maintained
on nonaccrual status.
Nonaccrual loans
Interest income on performing loans held-for-investment,
other than PCI loans, is accrued and recognized as interest
income at the contractual rate of interest. Purchase price
discounts or premiums, as well as net deferred loan fees or
costs, are amortized into interest income over the
contractual life of the loan as an adjustment of yield.
Wholesale loans, risk-rated business banking loans and risk-
rated auto loans are charged off when it is highly certain
that a loss has been realized, including situations where a
loan is determined to be both impaired and collateral-
dependent. The determination of whether to recognize a
charge-off includes many factors, including the
prioritization of the Firm's claim in bankruptcy, expectations
of the workout/restructuring of the loan and valuation of
the borrower's equity or the loan collateral.
When a loan is charged down to the estimated net realizable
value, the determination of the fair value of the collateral
depends on the type of collateral (e.g., securities, real
estate). In cases where the collateral is in the form of liquid
securities, the fair value is based on quoted market prices
or broker quotes. For illiquid securities or other financial
assets, the fair value of the collateral is generally estimated
using a discounted cash flow model.
For residential real estate loans, collateral values are based
upon external valuation sources. When it becomes likely
that a borrower is either unable or unwilling to pay, the
Firm utilizes a broker's price opinion, appraisal and/or an
automated valuation model of the home based on an
exterior-only valuation ("exterior opinions"), which is then
updated at least every twelve months, or more frequently
depending on various market factors. As soon as practicable
after the Firm receives the property in satisfaction of a debt
(e.g., by taking legal title or physical possession), the Firm
generally obtains an appraisal based on an inspection that
includes the interior of the home ("interior appraisals").
Exterior opinions and interior appraisals are discounted
based upon the Firm's experience with actual liquidation
values as compared with the estimated values provided by
exterior opinions and interior appraisals, considering state-
specific factors.
For commercial real estate loans, collateral values are
generally based on appraisals from internal and external
valuation sources. Collateral values are typically updated
every six to twelve months, either by obtaining a new
appraisal or by performing an internal analysis, in
accordance with the Firm's policies. The Firm also considers
both borrower- and market-specific factors, which may
result in obtaining appraisal updates or broker price
opinions at more frequent intervals.
The Firm seeks to modify certain loans in conjunction with
its loss-mitigation activities. Through the modification,
JPMorgan Chase grants one or more concessions to a
borrower who is experiencing financial difficulty in order to
minimize the Firm's economic loss and avoid foreclosure or
repossession of the collateral, and to ultimately maximize
payments received by the Firm from the borrower. The
concessions granted vary by program and by borrower-
specific characteristics, and may include interest rate
reductions, term extensions, payment deferrals, principal
forgiveness, or the acceptance of equity or other assets in
lieu of payments.
Loan modifications
In the event that management decides to retain a loan in
the held-for-sale portfolio, the loan is transferred to the
held-for-investment portfolio at the lower of cost or fair
value on the date of transfer. These loans are subsequently
assessed for impairment based on the Firm's allowance
methodology. Refer to Note 13 for a further discussion of
the methodologies used in establishing the Firm's allowance
for loan losses.
Loans in the held-for-investment portfolio that management
decides to sell are transferred to the held-for-sale portfolio
at the lower of cost or fair value on the date of transfer.
Credit-related losses are charged against the allowance for
loan losses; non-credit related losses such as those due to
changes in interest rates or foreign currency exchange rates
are recognized in noninterest revenue.
Loan classification changes
JPMorgan Chase & Co./2019 Form 10-K
218
PCI loans held-for-investment are initially measured at fair
value. PCI loans have evidence of credit deterioration since
the loan's origination date and therefore it is probable, at
acquisition, that all contractually required payments will not
be collected. Because PCI loans are initially measured at fair
value, which includes an estimate of future credit losses, no
allowance for loan losses related to PCI loans is recorded at
the acquisition date. Refer to page 229 of this Note for
information on accounting for PCI loans subsequent to their
acquisition.
Loans, except for credit card loans, modified in a TDR are
generally placed on nonaccrual status, although in many
cases such loans were already on nonaccrual status prior to
modification. These loans may be returned to performing
status (the accrual of interest is resumed) if the following
criteria are met: (i) the borrower has performed under the
modified terms for a minimum of six months and/or six
payments, and (ii) the Firm has an expectation that
repayment of the modified loan is reasonably assured based
on, for example, the borrower's debt capacity and level of
future earnings, collateral values, LTV ratios, and other
current market considerations. In certain limited and well-
defined circumstances in which the loan is current at the
modification date, such loans are not placed on nonaccrual
status at the time of modification.
PCI loans
Because these loans are recognized at fair value, the Firm's
allowance for loan losses and charge-off policies do not
apply to these loans. However, loans at fair value are
subject to the nonaccrual policies described above.
Interest income on these loans is accrued and recognized
based on the contractual rate of interest. Changes in fair
value are recognized in noninterest revenue. Loan
origination fees are recognized upfront in noninterest
revenue. Loan origination costs are recognized in the
associated expense category as incurred.
Loans used in a market-making strategy or risk managed on
a fair value basis are measured at fair value, with changes
in fair value recorded in noninterest revenue.
Loans at fair value
Loan origination fees or costs and purchase price discounts
or premiums are deferred in a contra loan account until the
related loan is sold. The deferred fees or costs and
discounts or premiums are an adjustment to the basis of the
loan and therefore are included in the periodic
determination of the lower of cost or fair value adjustments
and/or the gain or loss recognized at the time of sale.
Because these loans are recognized at the lower of cost or
fair value, the Firm's allowance for loan losses and charge-
off policies do not apply to these loans. However, loans
held-for-sale are subject to the nonaccrual policies
described above.
Interest income on loans held-for-sale is accrued and
recognized based on the contractual rate of interest.
Loans held-for-sale are measured at the lower of cost or fair
value, with valuation changes recorded in noninterest
revenue. For consumer loans, the valuation is performed on
a portfolio basis. For wholesale loans, the valuation is
performed on an individual loan basis.
The following provides a detailed accounting discussion of
these loan categories:
Refer to Note 3 for further information on the Firm's
elections of fair value accounting under the fair value
option. Refer to Note 2 and Note 3 for further information
on loans carried at fair value and classified as trading
assets.
Loans held-for-sale
Residential mortgage
219
11,988
969,415 (b)
$
$ 439,162
11,877
16
95
Total
Wholesale
Credit card(a)
156,616
$
373,637
$
credit card
Total
At fair value
Held-for-sale
Consumer, excluding
$ 335,040
Retained
(in millions)
December 31, 2018
959,769
$
3,151
3,151
$ 373,732
$
$ - $
1,282 (a)(b)
30,484
Total
Wholesale
Credit card
Consumer, excluding
credit card
2019
Retained loans reclassified to held-for-sale
Sales
Purchases
(in millions)
$ 455,805
Year ended December 31,
Sales
Purchases
Year ended December 31,
(in millions)
The following tables provide information about the carrying value of retained loans purchased, sold and reclassified to held-
for-sale during the periods indicated. Reclassifications of loans to held-for sale are non-cash transactions. The Firm manages its
exposure to credit risk on an ongoing basis. Selling loans is one way that the Firm reduces its credit exposures. Loans that were
reclassified to held-for-sale and sold in a subsequent period are excluded from the sales line of this table.
JPMorgan Chase & Co./2019 Form 10-K
220
(a) Includes accrued interest and fees net of an allowance for the uncollectible portion of accrued interest and fee income.
(b) Loans (other than PCI loans and those for which the fair value option has been elected) are presented net of unamortized discounts and premiums and net
deferred loan fees or costs. These amounts were not material as of December 31, 2019 and 2018.
984,554
$
$ 454,190
156,632
Retained loans reclassified to held-for-sale
2019
168,924
7,104
•
• Financial institutions
Commercial and industrial
Real estate
Wholesale(f)
•
• Credit card loans
Credit card
Option ARMS
• Subprime mortgage
• Prime mortgage
Home equity
Residential real estate - PCI
• Consumer & Business Banking(e)
• Auto
Other consumer loans (d)
Home equity(c)
•
•Residential mortgage (b)
Residential real estate - excluding PCI
Consumer, excluding
credit card(a)
The Firm's loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine
the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment the
Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class.
Loan portfolio
Notes to consolidated financial statements
•
Governments & Agencies
• Other(g)
(a) Includes loans held in CCB, scored prime mortgage and scored home equity loans held in AWM and scored prime mortgage loans held in Corporate.
(b) Predominantly includes prime loans (including option ARMs).
(c) Includes senior and junior lien home equity loans.
7,104
-
7,064
3,002 - 4,062
945,601 (b)
$
$ 444,639
Total
Wholesale
Credit card(a)
168,924
$
$
$ 332,038
Consumer, excluding
Total
At fair value
Held-for-sale
Retained
(in millions)
December 31, 2019
The following tables summarize the Firm's loan balances by portfolio segment.
(g) Includes loans to: individuals and individual entities (predominantly consists of Wealth Management clients within AWM and includes loans to personal
investment companies and personal and testamentary trusts), SPES and Private education and civic organizations. Refer to Note 14 for more information
on SPEs.
(f) Includes loans held in CIB, CB, AWM and Corporate. Excludes scored prime mortgage and scored home equity loans held in AWM and scored prime
mortgage loans held in Corporate. Classes are internally defined and may not align with regulatory definitions.
(d) Includes certain business banking and auto dealer risk-rated loans for which the wholesale methodology is applied for determining the allowance for loan
losses; these loans are managed by CCB, and therefore, for consistency in presentation, are included with the other consumer loan classes.
(e) Predominantly includes Business Banking loans.
credit card
(in millions)
6,207
1,459
Interest income on impaired
loans on a cash basis(a)
39
39
39
40
38
38
39
10
23
38
21
21
19
19
24
24
21
2.83
3.60
3.81
20
38
$ 1$ 1$ 2 $ - $ 1$ 1 $ 1$ 2
3
$ 97 $ 124 $
107
$
33
17
7
13
7
3
20
10
4
22
30
19
10
9
4
12
21
15
2.64
59
3.46
2.99
Principal forgiven
Principal deferred
Charge-offs recognized upon permanent
modification
Weighted-average remaining contractual term
(in years) of loans with term or payment
extensions - after TDR
(in millions, except weighted-average data)
Weighted-average interest rate of loans with
interest rate reductions - before TDR
Weighted-average interest rate of loans with
interest rate reductions - after TDR
Weighted-average remaining contractual term
(in years) of loans with term or payment
extensions - before TDR
December 31,
Year ended
The following table provides information about the financial effects of the various concessions granted in modifications of
residential real estate loans, excluding PCI, under the loss mitigation programs described above and about redefaults of
certain loans modified in TDRs for the periods presented. The following table presents only the financial effects of permanent
modifications and does not include temporary concessions offered through trial modifications. This table also excludes Chapter
7 loans where the sole concession granted is the discharge of debt.
Financial effects of modifications and redefaults
Balance of loans that redefaulted within one
year of permanent modification(a)
Notes to consolidated financial statements
JPMorgan Chase & Co./2019 Form 10-K
(c) The prior period amounts have been revised to conform with the current period presentation. This revision also impacted home equity impaired loans and
new TDRs in this note, as well as loans by impairment methodology in Note 13.
(b) Includes variable interest rate to fixed interest rate modifications for the years ended December 31, 2019, 2018 and 2017. Also includes forbearances
that meet the definition of a TDR for the years ended December 31, 2019 and 2018. Forbearances suspend or reduce monthly payments for a specific
period of time to address a temporary hardship.
(a) Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages
exceeds 100% because predominantly all of the modifications include more than one type of concession. Concessions offered on trial modifications are
generally consistent with those granted on permanent modifications.
32
51
63
31
58
225
70
Residential mortgage
Home equity
3.80
4.21
5.06%
5.50%
5.68%
4.94%
5.39%
5.53%
5.15%
5.65%
5.88%
2017
2018
2019
2017
2018
2019
2017
2018
2019
Total residential real estate -
excluding PCI
3.53
Interest income on
impaired loans(a)
$
56
6,623
5,926 $
$
2,058
2,091
2,033
907
4,532
3,893 $
45
$
1,042 $
879
1,921 $
13 $
$
88
$
4,565
4,005 $
52 $
$
Allowance for loan losses related to impaired loans
$
1,151
$
65 $
133
Average impaired loans
The following table presents average impaired loans and the related interest income reported by the Firm.
Year ended December 31,
JPMorgan Chase & Co./2019 Form 10-K
224
(d) Represents the contractual amount of principal owed at December 31, 2019 and 2018. The unpaid principal balance differs from the impaired loan
balances due to various factors including charge-offs, net deferred loan fees or costs, and unamortized discounts or premiums on purchased loans.
(e) As of December 31, 2019 and 2018, nonaccrual loans included $1.9 billion and $2.0 billion, respectively, of TDRS for which the borrowers were less than
90 days past due. Refer to the Loan accounting framework on pages 217-219 of this Note for additional information about loans modified in a TDR that
are on nonaccrual status.
(c) Predominantly all impaired loans in the table above are in the U.S.
(b) At December 31, 2019 and 2018, $14 million and $4.1 billion, respectively, of loans modified subsequent to repurchase from Ginnie Mae in accordance
with the standards of the appropriate government agency (i.e., FHA, VA, RHS) are not included in the table above. When such loans perform subsequent to
modification in accordance with Ginnie Mae guidelines, they are generally sold back into Ginnie Mae loan pools. Modified loans that do not re-perform
become subject to foreclosure.
(a) Represents collateral-dependent residential real estate loans that are charged off to the fair value of the underlying collateral less costs to sell. The Firm
reports, in accordance with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed
by the borrower ("Chapter 7 loans") as collateral-dependent nonaccrual TDRs, regardless of their delinquency status. At December 31, 2019, Chapter 7
residential real estate loans included approximately 9% of residential mortgages and approximately 7% of home equity that were 30 days or more past
due.
2,422
9,738
2,332
963
965
8,739
3,531
3,301
1,291
23,435
5,438
1,367
Impaired loans on nonaccrual status(e)
Unpaid principal balance of impaired loans (d)
Total impaired loans (b)(c)
64 $
1,184
Without an allowance(a)
2.52
0.25%
2.80
2.48
0.35%
17,924
1,030
5,608
11,286
5,488 $
8,724
754
14,966 $
$
2.82
$
JPMorgan Chase & Co./2019 Form 10-K
226
At December 31, 2019 and 2018, the Firm had non-PCI
residential real estate loans, excluding those insured by U.S.
government agencies, with a carrying value of $529 million
and $653 million, respectively, that were not included in
REO, but were in the process of active or suspended
foreclosure.
Active and suspended foreclosure
At December 31, 2019, the weighted-average estimated
remaining lives of residential real estate loans, excluding
PCI loans, permanently modified in TDRs were 9 years for
residential mortgage and 8 years for home equity. The
estimated remaining lives of these loans reflect estimated
prepayments, both voluntary and involuntary (i.e.,
foreclosures and other forced liquidations).
(a) Represents loans permanently modified in TDRs that experienced a payment default in the periods presented, and for which the payment default occurred
within one year of the modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such
loans defaulted. For residential real estate loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments
past due. In the event that a modified loan redefaults, it is probable that the loan will ultimately be liquidated through foreclosure or another similar type
of liquidation transaction. Redefaults of loans modified within the last 12 months may not be representative of ultimate redefault levels.
$ 161 $ 180
166
$
2018
1.70%
2.00%
(a) These HELOCs are predominantly revolving loans for a 10-year period, after which time the HELOC converts to a loan with a 20-year amortization period,
but also include HELOCS that allow interest-only payments beyond the revolving period.
$
3,381
2,851 $
$
2018
2019
Total residential real estate
- excluding PCI
2018
2019
Home equity
2018
2019
Residential mortgage
With an allowance
Impaired loans
(in millions)
December 31,
The table below provides information about the Firm's residential real estate impaired loans, excluding PCI loans. These loans
are considered to be impaired as they have been modified in a TDR. All impaired loans are evaluated for an asset-specific
allowance as described in Note 13.
Impaired loans
HELOCS beyond the revolving period and HELOANS have higher delinquency rates than HELOCS within the revolving period.
That is primarily because the fully-amortizing payment that is generally required for those products is higher than the
minimum payment options available for HELOCS within the revolving period. The higher delinquency rates associated with
amortizing HELOCS and HELOANS are factored into the Firm's allowance for loan losses.
(b) The Firm manages the risk of HELOCS during their revolving period by closing or reducing the undrawn line to the extent permitted by law when borrowers
are experiencing financial difficulty.
1,154
(in millions)
$
53,919
236
202
6,574
5,596
8,944
7,186
1,642
1,394
7,302
5,792
5,798
8,661
521
444
8,140
7,777
9,173
8,428
869
720
8,304
7,708
8,221
6,810
3,929
4,434
JPMorgan Chase & Co./2019 Form 10-K
(g) At December 31, 2019 and 2018, included mortgage loans insured by U.S. government agencies of $63 million and $6.9 billion, respectively. These amounts have
been excluded from the geographic regions presented based upon the government guarantee.
(f) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2019.
(e) Refreshed FICO scores represent each borrower's most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(d) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum,
quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and
forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral values; as such, the resulting ratios
are necessarily imprecise and should be viewed as estimates. Current estimated combined LTV for junior lien home equity loans considers all available lien positions,
as well as unused lines, related to the property.
(c) These balances are excluded from nonaccrual loans as the loans are guaranteed by U.S government agencies. Typically the principal balance of the loans is insured
and interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. At December 31, 2019 and 2018, these balances
included $34 million and $999 million, respectively, of loans that are no longer accruing interest based on the agreed-upon servicing guidelines. For the remaining
balance, interest is being accrued at the guaranteed reimbursement rate. There were no loans that were not guaranteed by U.S. government agencies that are 90 or
more days past due and still accruing interest at December 31, 2019 and 2018.
(b) At December 31, 2019 and 2018, residential mortgage loans excluded mortgage loans insured by U.S. government agencies of $46 million and $4.1 billion,
respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee.
days past due included $20 million and $2.1 billion; and 150 or more days past due included $26 million and $2.0 billion at December 31, 2019 and 2018,
respectively.
(a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $17 million and $2.8 billion; 30-149
$ 222,954 $ 259,418
$ 23,917 $ 28,340
59,921
45,789
6,925
5,797
52,996
$231,078
39,992
$ 199,037
Total retained loans
All other(g)
5,592
4,861
1,158
932
12,279
11,779
1,575
1,325
$ 80,454
$ 71,109
$ 4,831 $ 5,695
$ 66,278 $ 74,759
$ 259,418
$ 222,954
$ 28,340
$ 23,917
$ 231,078
$ 199,037
6,917
63
1,698
1,356
9,812
8,777
235,137
206,569
22,632
3,355
885
2,776
667
6,457
813
6,917
689
63
6,001
25,706
223
28,847
5,769
10,704
10,454
Arizona
Massachusetts
New Jersey
Colorado
Washington
Florida
15,588
14,200
1,819
1,599
13,769
12,601
Texas
17,380
14,992
2,131
1,788
15,249
13,204
34,616
30,591
4,885
Notes to consolidated financial statements
Approximately 37% of the home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANS or
HELOCS. The following table provides the Firm's delinquency statistics for junior lien home equity loans and lines as of
December 31, 2019 and 2018.
December 31, (in millions except ratios)
Number of loans approved for a trial
modification
2,105
2,570
1,283
3,767
4,605 (c)
Number of loans permanently modified
1,448
2,907
2,628
3,470
4,946
5,765 (c) 5,872
5,624
4,918
7,175 (c) 7,048 (c)
7,853
8,252
Concession granted:(a)
Interest rate reduction
66%
40%
63%
81%
62%
59%
77%
2017
54%
2018
2017
Home equity
2019
$ 234 $
256
2018
2017
401 $
335
373
383
Total residential real estate - excluding PCI
$
490 $
736 $
756
Nature and extent of modifications
The Firm's proprietary modification programs as well as government programs, including U.S. GSES, generally provide various
concessions to financially troubled borrowers including, but not limited to, interest rate reductions, term or payment
extensions and deferral of principal and/or interest payments that would otherwise have been required under the terms of the
original agreement.
The following table provides information about how residential real estate loans, excluding PCI loans, were modified under the
Firm's loss mitigation programs described above during the periods presented. This table excludes Chapter 7 loans where the
sole concession granted is the discharge of debt.
Residential mortgage
Year ended December 31,
2019
2018
2017
2019
Home equity
2018
Total residential real estate
excluding PCI
2019
Illinois
60%
90
7
14
38
Year ended December 31,
The following table presents new TDRs reported by the
Firm.
Modifications of residential real estate loans, excluding PCI
loans, are generally accounted for and reported as TDRs.
There were no additional commitments to lend to
borrowers whose residential real estate loans, excluding PCI
loans, have been modified in TDRs.
(a) Generally, interest income on loans modified in TDRS is recognized on a cash basis until the borrower has made a minimum of six payments under the new
terms, unless the loan is deemed to be collateral-dependent.
Loan modifications
155
159 $
151 $
414 $
388 $
6,314 $ 7,205 $ 8,019 $ 356 $
2019
2018
2019
Total 30+ day delinquency rate
Total loans
Total
HELOANS
Beyond the revolving period
Within the revolving period (b)
HELOCS:(a)
5
Term or payment extension
13
5
55
72
64
66
69
71
62
70
Principal and/or interest deferred
26
44
15
7
20
10
13
29
12
Principal forgiveness
Other(b)
6
45
8
16
7
New York
California
Geographic region (f)
$ 332,038 $ 373,637
8,436
7,281
1,945
1,740
4,690
3,965
Prime mortgage
8,963
7,377
Home equity
Residential real estate - PCI
26,612
27,199
Consumer & Business Banking
63,573
61,522
Auto
Other consumer loans
28,340
23,917
$ 199,037 $ 231,078
2018
Subprime mortgage
2019
Option ARMS
Delinquency rates are a primary credit quality indicator for
consumer loans. Loans that are more than 30 days past due
provide an early warning of borrowers who may be
experiencing financial difficulties and/or who may be
unable or unwilling to repay the loan. As the loan continues
to age, it becomes more clear whether the borrower is
likely either unable or unwilling to pay. In the case of
residential real estate loans, late-stage delinquencies
(greater than 150 days past due) are a strong indicator of
loans that will ultimately result in a foreclosure or similar
liquidation transaction. In addition to delinquency rates,
other credit quality indicators for consumer loans vary
based on the class of loan, as follows:
Greater than 125% and refreshed FICO scores:
Current estimated LTV ratios (d)(e)
Nonaccrual loans
90 or more days past due and government guaranteed (c)
% of 30+ days past due to total retained loans (b)
Total retained loans
150 or more days past due
30-149 days past due
Current
Loan delinquency(a)
(in millions, except ratios)
December 31,
Residential real estate - excluding PCI loans
The following table provides information by class for retained residential real estate - excluding PCI loans.
Residential real estate - excluding PCI loans
JPMorgan Chase & Co./2019 Form 10-K
222
Risk-rated business banking and auto loans are similar
to wholesale loans in that the primary credit quality
indicators are the internal risk ratings that are assigned
to the loan and whether the loans are considered to be
criticized and/or nonaccrual. Risk ratings are reviewed
on a regular and ongoing basis by Credit Risk
Management and are adjusted as necessary for updated
information about borrowers' ability to fulfill their
obligations. Refer to page 234 of this Note for further
information about risk-rated wholesale loan credit
quality indicators.
For scored auto and scored business banking loans,
geographic distribution is an indicator of the credit
performance of the portfolio. Similar to residential real
estate loans, geographic distribution provides insights
into the portfolio performance based on regional
economic activity and events.
For residential real estate loans, including both non-PCI
and PCI portfolios, the current estimated LTV ratio, or
the combined LTV ratio in the case of junior lien loans, is
an indicator of the potential loss severity in the event of
default. Additionally, LTV or combined LTV ratios can
provide insight into a borrower's continued willingness
to pay, as the delinquency rate of high-LTV loans tends
to be greater than that for loans where the borrower has
equity in the collateral. The geographic distribution of
the loan collateral also provides insight as to the credit
quality of the portfolio, as factors such as the regional
economy, home price changes and specific events such
as natural disasters, will affect credit quality. The
borrower's current or “refreshed" FICO score is a
secondary credit quality indicator for certain loans, as
FICO scores are an indication of the borrower's credit
payment history. Thus, a loan to a borrower with a low
FICO score (less than 660 ) is considered to be of higher
risk than a loan to a borrower with a higher FICO score.
Further, a loan to a borrower with a high LTV ratio and a
low FICO score is at greater risk of default than a loan to
a borrower that has both a high LTV ratio and a high
FICO score.
•
•
$
Total retained loans
Total residential real
estate excluding PCI
Home equity
Residential real estate - excluding PCI
Retained loans reclassified to held-for-sale
Sales
Purchases
(in millions)
Year ended December 31,
2,312
2,276
26,725
16,741
4,897
$
2,354
$ - $
2,543 (a)(b)
9,984
36
$
Total
Wholesale
Credit card
Consumer, excluding
credit card
2018
11,559
2,371
9,188
2017
Residential mortgage
Consumer, excluding
credit card
Wholesale
December 31, (in millions)
The following table provides information about retained
consumer loans, excluding credit card, by class.
Consumer, excluding credit card, loan portfolio
Consumer loans, excluding credit card loans, consist
primarily of residential mortgages, home equity loans and
lines of credit, auto loans and consumer and business
banking loans, with a focus on serving the prime consumer
credit market. The portfolio also includes home equity loans
secured by junior liens, prime mortgage loans with an
interest-only payment period, and certain payment-option
loans that may result in negative amortization.
Notes to consolidated financial statements
221
JPMorgan Chase & Co./2019 Form 10-K
Net gains on sales of loans (including adjustments to record loans held-for-sale at the lower of cost or fair value) recognized in
noninterest revenue was $394 million for the year ended December 31, 2019. Gains and losses on sales of loans were not
material for the years ended December 31, 2018 and 2017. In addition, the sale of loans may also result in write downs,
recoveries or changes in the allowance recognized in the provision for credit losses.
Gains and losses on sales of loans
(b) Excludes purchases of retained loans sourced through the correspondent origination channel and underwritten in accordance with the Firm's standards.
Such purchases were $16.6 billion, $18.6 billion and $23.5 billion for the years ended December 31, 2019, 2018 and 2017, respectively.
(c) Includes the Firm's student loan portfolio which was sold in 2017.
(a) Purchases predominantly represent the Firm's voluntary repurchase of certain delinquent loans from loan pools as permitted by Government National
Mortgage Association ("Ginnie Mae") guidelines. The Firm typically elects to repurchase these delinquent loans as it continues to service them and/or
manage the foreclosure process in accordance with applicable requirements of Ginnie Mae, FHA, RHS, and/or VA.
7,569
1,229
6,340
(c)
14,468
5,260
$
1,799
11,063
$
$
3,461 (a)(b)
3,405
$
Total
Credit card
2,573
Residential mortgage
2019
19
53
35
148
87
111
56
37
31
33
Less than 660
Equal to or greater than 660
101% to 125% and refreshed FICO scores:
14
9
1
1
13
8
31
$
22
$
38
6
54
80% to 100% and refreshed FICO scores:
Total retained loans
U.S. government-guaranteed
No FICO/LTV available
Less than 660
19,597
212,505
186,972
Equal to or greater than 660
Less than 80% and refreshed FICO scores:
607
398
326
191
281
207
Less than 660
4,963
5,619
986
606
3,977
5,013
Equal to or greater than 660
91
Home equity
$
$
$ 28,340
$ 23,917
$ 231,078
$ 199,037
2,692
605
276
196
3,216
940
$ 253,510
$ 221,409
$ 27,611
453
336
$ 23,385
$ 225,899
2,763
2,416
409
$ 198,024
604
2018
2019
2018
2019
2018
$ 222,954
4
$ 259,418
0.48%
25
$
18
$
Less than 660
Equal to or greater than 660
3,088
2,780
1,323
1,162
1,765
1,618
2,541
$
38
$
2,541
38 $
$
0.71%
0.67%
2.57%
2.22%
0.49%
•
33
13
1,276
1,491
3,300
3,575
1,986
1,973
1,139
1,305
3,125
3,278
1,905
1,981
798
723
2,703
2,704
1,215
1,357
1,253
1,329
2,468
2,686
1,617
1,587
741
860
2,358
2,447
27,629
2,084
28,895
2,024
4,871
Criticized nonaccrual
$
8,081
$ 8,330
$ 5,902 $ 5,520
$ 13,983
$ 13,850
6,804
6,531
3,110
2,993
9,914
9,524
3,639
3,863
4,432
4,381
8,071
8,244
3,360
3,716
1,745
2,046
5,105
5,762
3,262
3,256
1,609
1,502
4,758
5,194
4,462
32,823
Impaired loans on nonaccrual status
224
229
(a) When discounted cash flows, collateral value or market price equals or
exceeds the recorded investment in the loan, the loan does not require
an allowance. This typically occurs when the impaired loans have been
partially charged off and/or there have been interest payments
received and applied to the loan balance.
(b) Predominantly all other consumer impaired loans are in the U.S.
(c) Other consumer average impaired loans were $246 million, $275
million and $427 million for the years ended December 31, 2019,
2018 and 2017, respectively. The related interest income on impaired
loans, including those on a cash basis, was not material for the years
ended December 31, 2019, 2018 and 2017.
(d) Represents the contractual amount of principal owed at December 31,
2019 and 2018. The unpaid principal balance differs from the
impaired loan balances due to various factors, including charge-offs,
interest payments received and applied to the principal balance, net
deferred loan fees or costs and unamortized discounts or premiums on
purchased loans.
Loan modifications
Certain other consumer loan modifications are considered
to be TDRS as they provide various concessions to
borrowers who are experiencing financial difficulty. All of
these TDRs are reported as impaired loans. At
December 31, 2019 and 2018, other consumer loans
modified in TDRs were $76 million and $79 million,
respectively. The impact of these modifications, as well as
new TDRs, were not material to the Firm for the years
ended December 31, 2019, 2018 and 2017. Additional
commitments to lend to borrowers whose loans have been
modified in TDRs as of December 31, 2019 and 2018 were
not material. TDRs on nonaccrual status were $54 million
and $57 million at December 31, 2019 and 2018,
respectively.
228
JPMorgan Chase & Co./2019 Form 10-K
Purchased credit-impaired loans
PCI loans are initially recorded at fair value at acquisition.
PCI loans acquired in the same fiscal quarter may be
aggregated into one or more pools, provided that the loans
have common risk characteristics. A pool is then accounted
for as a single asset with a single composite interest rate
and an aggregate expectation of cash flows. All of the Firm's
residential real estate PCI loans were acquired in the same
fiscal quarter and aggregated into pools of loans with
common risk characteristics.
On a quarterly basis, the Firm estimates the total cash flows
(both principal and interest) expected to be collected over
the remaining life of each pool. These estimates incorporate
assumptions regarding default rates, loss severities, the
amounts and timing of prepayments and other factors that
reflect then-current market conditions. Probable decreases
in expected cash flows (i.e., increased credit losses) trigger
the recognition of impairment, which is then measured as
the present value of the expected principal loss plus any
related forgone interest cash flows, discounted at the pool's
effective interest rate. Impairments are recognized through
the provision for credit losses and an increase in the
allowance for loan losses. Probable and significant
increases in expected cash flows (e.g., decreased credit
losses, the net benefit of modifications) would first reverse
any previously recorded allowance for loan losses with any
remaining increases recognized prospectively as a yield
adjustment over the remaining estimated lives of the
underlying loans. The impacts of (i) prepayments, (ii)
changes in variable interest rates, and (iii) any other
changes in the timing of expected cash flows are generally
recognized prospectively as adjustments to interest income.
The Firm continues to modify certain PCI loans. The impact
of these modifications is incorporated into the Firm's
quarterly assessment of whether a probable and significant
change in expected cash flows has occurred, and the loans
continue to be accounted for and reported as PCI loans. In
evaluating the effect of modifications on expected cash
flows, the Firm incorporates the effect of any forgone
interest and also considers the potential for redefault. The
Firm develops product-specific probability of default
estimates, which are used to compute expected credit
losses. In developing these probabilities of default, the Firm
considers the relationship between the credit quality
characteristics of the underlying loans and certain
assumptions about home prices and unemployment based
upon industry-wide data. The Firm also considers its own
historical loss experience to-date based on actual
redefaulted modified PCI loans.
The excess of cash flows expected to be collected over the
carrying value of the underlying loans is referred to as the
accretable yield. This amount is not reported on the Firm's
Consolidated balance sheets but is accreted into interest
income at a level rate of return over the remaining
estimated lives of the underlying pools of loans.
Since the timing and amounts of expected cash flows for the
Firm's PCI consumer loan pools are reasonably estimable,
interest is being accreted and the loan pools are being
reported as performing loans. No interest would be
accreted and the PCI loan pools would be reported as
nonaccrual loans if the timing and/or amounts of expected
cash flows on the loan pools were determined not to be
reasonably estimable.
The liquidation of PCI loans, which may include sales of
loans, receipt of payment in full from the borrower, or
foreclosure, results in removal of the loans from the
underlying PCI pool. When the amount of the liquidation
proceeds (e.g., cash, real estate), if any, is less than the
unpaid principal balance of the loan, the difference is first
applied against the PCI pool's nonaccretable difference for
principal losses (i.e., the lifetime credit loss estimate
established as a purchase accounting adjustment at the
acquisition date). When the nonaccretable difference for a
particular loan pool has been fully depleted, any excess of
the unpaid principal balance of the loan over the liquidation
proceeds is written off against the PCI pool's allowance for
loan losses. Write-offs of PCI loans also include other
adjustments, primarily related to principal forgiveness
modifications. Because the Firm's PCI loans are accounted
for at a pool level, the Firm does not recognize charge-offs
of PCI loans when they reach specified stages of
delinquency (i.e., unlike non-PCI consumer loans, these
loans are not charged off based on FFIEC standards).
The PCI portfolio affects the Firm's results of operations
primarily through: (i) contribution to net interest margin;
(ii) expense related to defaults and servicing resulting from
the liquidation of the loans; and (iii) any provision for loan
losses.
JPMorgan Chase & Co./2019 Form 10-K
229
Notes to consolidated financial statements
Residential real estate - PCI loans
The table below provides information about the Firm's consumer, excluding credit card, PCI loans.
December 31,
(in millions, except ratios)
Subprime mortgage
Option ARMS
Home equity
2019
2018
Prime mortgage
2019
63
355
342
71 $
$
33,357
$ 61,522 $ 63,573 $ 27,199 $ 26,612 $ 88,721 $ 90,185
$ 14,178 $ 15,749 $ 19,156 $ 18,743
360
273
$ 33,334 $ 34,492
727
198
751
191
1,087
1,024
198
191
(a) There were no loans that were 90 or more days past due and still accruing interest at December 31, 2019 and December 31, 2018.
(b) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2019.
(c) For risk-rated business banking and auto loans, the primary credit quality indicator is the internal risk rating of the loan, including whether the loans are
considered to be criticized and/or nonaccrual.
JPMorgan Chase & Co./2019 Form 10-K
227
Notes to consolidated financial statements
Criticized performing
Other consumer impaired loans and loan modifications
December 31, (in millions)
Impaired loans
With an allowance
2019
2018
$
Without an allowance(a)
227 $
19
222
Total impaired loans (b)(c)
$
246 $
29
251
Allowance for loan losses related to impaired loans
Unpaid principal balance of impaired loans (d)
The following table provides information about the Firm's other consumer impaired loans, including risk-rated business
banking and auto loans that have been placed on nonaccrual status, and loans that have been modified in TDRs.
Noncriticized
Loans by risk ratings (c)
Total retained loans
690
583
258
219
88
78
134
112
210
174
New Jersey
738
586
177
143
44
37
98
80
419
326
Washington
709
622
199
175
123
113
154
Massachusetts
53
65
97
393
334
211
180
37
33
91
77
54
44
Arizona
Virginia
417
370
134
178
96
87
95
86
48
40
Maryland
491
423
240
206
73
67
113
157
2018
233
Illinois
$ 26,249
252
$ 87,786 $ 89,233
818
841
111
117
111
% of 30+ days past due to total retained loans
0.94%
Nonaccrual loans (a)
Geographic region(b)
113
$ 61,522 $ 63,573
0.93%
128
$ 27,199
1.31%
247
$ 26,612
1.36%
245
$ 88,721 $ 90,185
1.05%
360
1.06%
373
California
Texas
New York
Illinois
Florida
Arizona
Ohio
New Jersey
Michigan
Louisiana
All other
$ 26,842
240
117
-
589
$ 60,944 $ 62,984
578
1,660
1,461
502
441
268
245
365
324
525
451
New York
2,255
Other consumer loans
The table below provides information for other consumer retained loan classes, including auto and business banking loans.
200
December 31,
Loan delinquency
Auto
Consumer &
Business Banking
Total other consumer
2019
2018
2019
2018
2019
2018
Current
30-119 days past due
120 or more days past due
Total retained loans
(in millions, except ratios)
2019
2018
2019
Certain loan modifications are considered to be TDRS as
they provide various concessions to borrowers who are
experiencing financial difficulty. All TDRs are reported as
impaired loans in the tables above. TDRs were $460 million
and $576 million as of December 31, 2019 and 2018,
respectively. The impact of these modifications, as well as
new TDRs, were not material to the Firm for the years
ended December 31, 2019, 2018 and 2017.
1,710
1,416 $
1,359 $
$
Total(a)
241
199
168
Other
165
48
57
11
Financial institutions
1,256
1,027 $
133
94
Real estate
1,086 $
$
Commercial and industrial
2017
2018
2019
Year ended December 31, (in millions)
The following table presents the Firm's average impaired
retained loans for the years ended 2019, 2018 and 2017.
(c) Based upon the domicile of the borrower, largely consists of loans in the U.S.
(b) Represents the contractual amount of principal owed at December 31, 2019 and 2018. The unpaid principal balance differs from the impaired loan
balances due to various factors, including charge-offs; interest payments received and applied to the carrying value; net deferred loan fees or costs; and
unamortized discount or premiums on purchased loans.
(a) When the discounted cash flows, collateral value or market price equals or exceeds the recorded investment in the loan, the loan does not require an
allowance. This typically occurs when the impaired loans have been partially charged-off and/or there have been interest payments received and applied
to the loan balance.
(a) The related interest income on accruing impaired loans and interest
income recognized on a cash basis were not material for the years
ended December 31, 2019, 2018 and 2017.
236
JPMorgan Chase & Co./2019 Form 10-K
190
539
851
Lower than 80% and refreshed FICO scores:
Equal to or greater than 660
4,803
5,548
2,429
2,689
784
739
4,710
5,111
12,726
1,723
14,087
1,562
1,908
1,250
1,568
1,136
1,327
NO FICO/LTV available
208
265
165
228
95
113
2,093
254
Less than 660
113
1,104
54
$
134
49 $
$
947
814 $
$
Total impaired loans
4
-
-
27
-
140
177
Without an allowance(a)
$ 1,070
731
$
152
42 $
$
4
3 $
$
107
49 $
$
807
3 $
4
$
46 $
4
4
203
72
1,043
974
impaired loans(b)
Unpaid principal balance of
297
$
234
$
19
3 $
473
$
1 $
$
25
9 $
$
252
221 $
$
to impaired loans
Allowance for loan losses related
180
1,250 (c)
181
912 (c) $
$
165
1
130
161
112
1,221
148
242
172
223
101
123
333
457
754
1,045
$ 7,568
$ 9,144
% of 30+ days past due to total loans
4.82%
5.69%
$ 3,984
9.81%
$ 4,708
$ 2,195
$ 2,442
$ 7,295
$ 8,447
$ 21,042
$ 24,741
10.24%
15.08%
16.75%
9.44%
10.12%
$ 22,475
$ 19,266
1,022
398
356
$ 7,377 $ 8,963
$ 3,965
$ 4,690
$ 1,740 $ 1,945
$ 7,281
2018
$ 8,436
$ 20,363
2019
Total PCI
2018
$ 24,034
Carrying value(a)
Loan delinquency (based on unpaid principal balance)
Current
8.44%
30-149 days past due
Total loans
$ 7,203 $ 8,624
$ 3,593
$ 4,226
$ 1,864
$ 2,033
$ 6,606
$ 7,592
217
278
219
259
230
286
150 or more days past due
100
9.16%
Greater than 125% and refreshed FICO scores:
109
162
Less than 660
39
65
17
22
20
35
18
33
94
155
80% to 100% and refreshed FICO scores:
Equal to or greater than 660
588
805
47
75
47
54
85
119
767
1,053
Less than 660
261
388
65
17
14
4
6
Equal to or greater than 660
$
12 $ 17
$
2
$
1
$
$
$
1
$
Less than 660
9
Current estimated LTV ratios (based on unpaid principal balance)(b)(c)
13
7
7
9
7
3 7
$ 15 $ 21
29
36
101% to 125% and refreshed FICO scores:
Equal to or greater than 660
86
135
3
6
6
637 $
165
69
$ 29,572
100,234
88,626
Total U.S.
Total non-U.S. $ 28,253
distribution(a)
geographic
Loans by
loans
0.26
0.19
0.12
0.03
0.01
0.01
0.12
0.04
0.66
0.64
total retained
nonaccrual to
% of criticized
1.33%
1.56%
0.26%
0.34%
0.01%
-%
0.32%
1.02%
$ 4,123 $ 2,967
112,121 112,770
0.65%
$ 16,800
39,808
$ 2,232
10,510
% of net
$ 369 $ 155
10
28 $
$
$
$
$
$
12 $ (20)
$
$ 329 $ 165
(recoveries)
Net charge-offs/
$444,639 $439,162
$131,784
$142,166
$ 14,187
$ 12,742
$ 47,648
$ 56,608
$ 116,244 $115,737
$116,879 $129,806
Total retained
loans
$ 102,646
336,516
$101,374
343,265
$ 48,433
83,351
$ 49,966
92,200
$ 3,150
11,037
$ 18,524
29,124
0.90%
3.54%
4.13%
4
3
134
48
851
752
nonaccrual
Criticized
4,692
6,095
182
449
0 - 2 4
150
574
620
1,001
3,738
4,071
performing
Criticized
93,591
93,502
11,478
12,411
201
126
15,316
15,768
40
161
843
1,150
loans
total retained
criticized to
% of total
$131,784 $444,639 $439,162
$142,166
$ 14,187
$ 12,742
$ 47,648
$ 56,608
$115,737
$ 116,244
$116,879 $129,806
loans
charge-offs/
(recoveries) to
Total retained
100,440
11,821
12,900
203
126
15,470
16,345
15,630
14,890
56,309
56,179
grade
noninvestment-
Total
99,433
end-of-period
retained loans
0.28%
407
79,184 $
$
79,402
$
2018
Total real estate loans
2019
2018
Other Commercial
2019
2018
2019
Criticized
Real estate retained loans
(in millions, except ratios)
December 31,
Multifamily
The following table presents additional information on the real estate class of loans within the Wholesale portfolio for the
periods indicated, which consists primarily of secured commercial loans, of which multifamily is the largest segment.
Multifamily lending finances acquisition, leasing and construction of apartment buildings, and includes loans to real estate
investment trusts ("REITs"). Other commercial lending largely includes financing for acquisition, leasing and construction,
largely for office, retail and industrial real estate, and includes loans to REITs. Included in real estate loans is $8.2 billion and
$10.5 billion as of December 31, 2019 and 2018, respectively, of construction and development loans originally purposed
for construction and development, general purpose loans for builders, as well as loans for land subdivision and pre-
development.
Notes to consolidated financial statements
235
JPMorgan Chase & Co./2019 Form 10-K
(d) Other includes individuals and individual entities (predominantly consists of Wealth Management clients within AWM and includes loans to personal
investment companies and personal and testamentary trusts), SPES and Private education and civic organizations. Refer to Note 14 for more information
on SPEs.
(c) Represents loans that are considered well-collateralized and therefore still accruing interest.
(a) The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
(b) The credit quality of wholesale loans is assessed primarily through ongoing review and monitoring of an obligor's ability to meet contractual obligations
rather than relying on the past due status, which is generally a lagging indicator of credit quality.
$444,639 $439,162
$131,784
$ 14,187 $142,166
$116,879 $129,806 $ 116,244 $115,737 $ 56,608 $ 47,648 $ 12,742
loans
Total retained
388
% of total criticized to total real estate retained loans
0.51%
0.49%
Total
retained loans
Other
Financial
institutions
Real estate
and industrial
Commercial
The table below sets forth information about the Firm's wholesale impaired retained loans.
(in millions)
December 31,
Wholesale impaired retained loans consist of loans that have been placed on nonaccrual status and/or that have been modified
in a TDR. All impaired loans are evaluated for an asset-specific allowance as described in Note 13.
Wholesale impaired retained loans and loan modifications
0.12%
0.04%
134
1,150
$
$
77
0.21%
10 $
0.03%
$
57
0.07%
38 $
0.05%
% of criticized nonaccrual loans to total real estate retained loans
$
Criticized nonaccrual
0.65%
0.90%
754
36,842 $ 36,553 $ 116,244 $ 115,737
642
366
1,049
1.74%
1.00%
48
14,876
843
40
accruing
due and still
30-89 days past
$442,886 $436,916
$130,918
$141,739
$ 14,165
$ 12,713
$ 47,622
$ 56,583
$ 116,098 $115,533
$115,753 $128,678
still accruing
past due and
than 30 days
Current and less
delinquency(b)
Loan
0.04%
0.08%
0.01%
0.02%
-%
-%
-%
-%
(0.02)%
0.01%
0.13%
339
109
94
67
4
3
134
48
851
752
nonaccrual
Criticized
188
42
3
4
1
10
161
2
4
168
35
still accruing (c)
past due and
90 or more days
908
868
702
387
18
28
12
20
3
13,841
51,720
51,356
Loan delinquency
Net charge-off rate
Net charge-offs
As of or for the year ended December 31,
(in millions, except ratios)
The table below provides information about the Firm's
credit card loans.
While the borrower's credit score is another general
indicator of credit quality, the Firm does not view credit
scores as a primary indicator of credit quality because the
borrower's credit score tends to be a lagging indicator. The
distribution of such scores provides a general indicator of
credit quality trends within the portfolio; however, the score
does not capture all factors that would be predictive of
future credit performance. Refreshed FICO score
information, which is obtained at least quarterly, for a
statistically significant random sample of the credit card
portfolio is indicated in the following table. FICO is
considered to be the industry benchmark for credit scores.
The Firm generally originates new card accounts to prime
consumer borrowers. However, certain cardholders' FICO
scores may decrease over time, depending on the
performance of the cardholder and changes in the credit
score calculation.
The credit card portfolio segment includes credit card loans
originated and purchased by the Firm. Delinquency rates
are the primary credit quality indicator for credit card loans
as they provide an early warning that borrowers may be
experiencing difficulties (30 days past due); information on
those borrowers that have been delinquent for a longer
period of time (90 days past due) is also considered. In
addition to delinquency rates, the geographic distribution of
the loans provides insight as to the credit quality of the
portfolio based on the regional economy.
Credit card loan portfolio
Notes to consolidated financial statements
231
JPMorgan Chase & Co./2019 Form 10-K
At December 31, 2019 and 2018, the Firm had PCI residential real estate loans with an unpaid principal balance of
$721 million and $964 million, respectively, that were not included in REO, but were in the process of active or suspended
foreclosure.
Active and suspended foreclosure
(a) Other changes in expected cash flows may vary from period to period as the Firm continues to refine its cash flow model, for example cash flows expected
to be collected due to the impact of modifications and changes in prepayment assumptions.
4.53%
11,159
$
8,422
4.92%
$
6,165
5.28%
Accretable yield percentage
Balance at December 31
284
(1,379)
(589)
Other changes in expected cash flows (a)
503
(1,396)
11,768
30-89 days past due and still accruing
2019
2018
$
$ 23,757
$ 25,783
16,728
0.92
1.83%
1.87%
0.95
Total retained loans
All other
Michigan
Colorado
Pennsylvania
Ohio
New Jersey
Illinois
Florida
$
New York
California
% of 30+ days past due to total retained loans
% of 90+ days past due to total retained loans
Geographic region (a)
Loan delinquency ratios
90 or more days past due and still accruing
Total retained loans
$ 156,616
$ 168,924
1,444
1,426
1,550
1,607
$ 153,746
$ 165,767
Current and less than 30 days past due
and still accruing
3.10%
4,848 $ 4,518
3.10%
Texas
15,085
2017
(575)
JPMorgan Chase & Co./2019 Form 10-K
230
(c) Refreshed FICO scores represent each borrower's most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(d) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2019.
(a) Carrying value includes the effect of fair value adjustments that were applied to the consumer PCI portfolio at the date of acquisition.
(b) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a
minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the
extent available and forecasted data where actual data is not available. These property values do not represent actual appraised loan level collateral
values; as such, the resulting ratios are necessarily imprecise and should be viewed as estimates. Current estimated combined LTV for junior lien home
equity loans considers all available lien positions, as well as unused lines, related to the property.
$ 24,741
$ 21,042
$ 8,447
$ 7,295
$ 2,195 $ 2,442
$ 9,144 $ 3,984 $ 4,708
$ 7,568
3,610
3,048
1,059
888
843
755
679
563
1,029
842
Total unpaid principal balance
All other
389
317
112
93
43
37
Approximately 27% of the PCI home equity portfolio are senior lien loans; the remaining balance are junior lien HELOANS or
HELOCS. The following table provides delinquency statistics for PCI junior lien home equity loans and lines of credit based on
the unpaid principal balance as of December 31, 2019 and 2018.
December 31,
Total 30+ day delinquency rate
(in millions, except ratios)
HELOCS:(a)(b)
Changes in interest rates on variable-rate loans
$
8,422
(1,093)
Accretion into interest income
$
2019
Beginning balance
(in millions, except ratios)
Year ended December 31,
Total PCI
The table below presents the accretable yield activity for the Firm's PCI consumer loans for the years ended December 31,
2019, 2018 and 2017, and represents the Firm's estimate of gross interest income expected to be earned over the remaining
life of the PCI loan portfolios. The table excludes the cost to fund the PCI portfolios, and therefore the accretable yield does not
represent net interest income expected to be earned on these portfolios.
(a) In general, these HELOCS are revolving loans for a 10-year period, after which time the HELOC converts to an interest-only loan with a balloon payment at
the end of the loan's term. Substantially all HELOCS are beyond the revolving period.
(b) Includes loans modified into fixed rate amortizing loans.
3.98%
4.00%
3.57
2018
11,159
(1,249)
(109)
2018
3.64
280
6,811
220
5,557 $
$
3.52%
6,531
5,337 $
$
2019
2018
2019
Total loans
Total
HELOANS
3.53%
57
14,544
10,830
As of or for the
year ended
The table below provides information by class of receivable for the retained loans in the Wholesale portfolio segment. Refer to
Note 4 for additional information on industry concentrations.
JPMorgan Chase & Co./2019 Form 10-K
234
As noted above, the risk rating of a loan considers the
industry in which the obligor conducts its operations. As
part of the overall credit risk management framework, the
Firm focuses on the management and diversification of its
industry and client exposures, with particular attention paid
to industries with actual or potential credit concern. Refer
to Note 4 for further detail on industry concentrations.
Risk ratings are reviewed on a regular and ongoing basis by
Credit Risk Management and are adjusted as necessary for
updated information affecting the obligor's ability to fulfill
its obligations.
Noninvestment-grade ratings are further classified as
noncriticized and criticized, and the criticized portion is
further subdivided into performing and nonaccrual loans,
representing management's assessment of the collectibility
of principal and interest. Criticized loans have a higher PD
than noncriticized loans. The Firm's definition of criticized
aligns with the U.S. banking regulatory definition of
criticized exposures, which consist of special mention,
substandard and doubtful categories.
Management considers several factors to determine an
appropriate internal risk rating, including the obligor's debt
capacity and financial flexibility, the level of the obligor's
earnings, the amount and sources for repayment, the level
and nature of contingencies, management strength, and the
industry and geography in which the obligor operates. The
Firm's internal risk ratings generally align with the
qualitative characteristics (e.g., borrower capacity to meet
financial commitments and vulnerability to changes in the
economic environment) defined by S&P and Moody's,
however the quantitative characteristics (e.g., PDs and
LGDS) may differ as they reflect internal historical
experiences and assumptions. The Firm considers internal
ratings equivalent to BBB-/Baa3 or higher as investment
grade, and these ratings have a lower PD and/or lower LGD
than non-investment grade ratings.
The primary credit quality indicator for wholesale loans is
the internal risk rating assigned to each loan. Risk ratings
are used to identify the credit quality of loans and
differentiate risk within the portfolio. Risk ratings on loans
consider the PD and the LGD. The PD is the likelihood that a
loan will default. The LGD is the estimated loss on the loan
that would be realized upon the default of the borrower and
takes into consideration collateral and structural support
for each credit facility.
Wholesale loans include loans made to a variety of clients,
ranging from large corporate and institutional clients to
high-net-worth individuals.
Wholesale loan portfolio
Notes to consolidated financial statements
233
JPMorgan Chase & Co./2019 Form 10-K
For credit card loans modified in TDRs, payment default is
deemed to have occurred when the borrower misses two
consecutive contractual payments. A substantial portion of
these loans are expected to be charged-off in accordance
with the Firm's standard charge-off policy. Based on
historical experience, the estimated weighted-average
default rate for modified credit card loans was expected to
be 32.89%, 33.38% and 31.54% as of December 31,
2019, 2018 and 2017, respectively.
(a) Represents loans modified in TDRs that experienced a payment default
in the periods presented, and for which the payment default occurred
within one year of the modification. The amounts presented represent
the balance of such loans as of the end of the quarter in which they
defaulted.
The Firm may offer one of a number of loan modification
programs to credit card borrowers who are experiencing
financial difficulty. Most of the credit card loans have been
modified under long-term programs for borrowers who are
experiencing financial difficulties. These modifications
involve placing the customer on a fixed payment plan,
generally for 60 months, and typically include reducing the
interest rate on the credit card. Substantially all
modifications are considered to be TDRs.
93
$ 116 $
148
$
Loans that redefaulted within
one year of modification(a)
4.88
5.16
4.70
Weighted-average interest rate
of loans - after TDR
59
65
72
Commercial
and industrial
Real estate
Financial
institutions
Governments &
Agencies
Noncriticized
grade:
Noninvestment-
$119,963 $344,199 $339,729
$129,266
$ 13,984
$ 12,616
$ 32,178
$ 40,263
$ 101,354 $100,107
$ 60,700 $ 73,497
Investment-
grade
Loans by risk
ratings
2018
16.58%
2019
2019
2018
2019
2018
2019
2018
2019
2018
2019
except ratios)
(in millions,
December 31,
Total
retained loans
Other(d)
2018
13,601
17.98%
Weighted-average interest rate
of loans before TDR
232
2019.
(a) The geographic regions presented in the table are ordered based on
the magnitude of the corresponding loan balances at December 31,
0.8
0.6
84.2%
15.0
15.4
84.0%
No FICO available
Less than 660
Equal to or greater than 660
Percentage of portfolio based on carrying
value with estimated refreshed FICO scores
$ 156,616
$ 168,924
60,415
64,717
3,912
4,164
4,309
4,763
4,996
5,245
5,094
5,406
6,739
7,165
8,938
9,579
9,770
JPMorgan Chase & Co./2019 Form 10-K
Credit card impaired loans and loan modifications
The table below provides information about the Firm's
impaired credit card loans. All of these loans are considered
to be impaired as they have been modified in TDRS.
December 31, (in millions)
Impaired credit card loans with an
allowance(a)(b)(c)
$ 1,389 $ 1,260 $ 1,214
2017
2018
2019
weighted-average data)
Year ended December 31,
(in millions, except
2017
2018
2019
The following table provides information about the financial
effects of the concessions granted on credit card loans
modified in TDRs and redefaults for the periods presented.
Financial effects of modifications and redefaults
If the cardholder does not comply with the modified
payment terms, then the credit card loan continues to age
and will ultimately be charged-off in accordance with the
Firm's standard charge-off policy. In most cases, the Firm
does not reinstate the borrower's line of credit.
New enrollments in these loan modification programs for
the years ended December 31, 2019, 2018 and 2017, were
$961 million, $866 million and $756 million, respectively.
For all periods disclosed, new enrollments were less than
1% of total retained credit card loans.
Loan modifications
impaired credit card loans
19.07%
Interest income on
(in millions)
Year ended December 31,
The following table presents average balances of impaired
credit card loans and interest income recognized on those
loans.
(c) Predominantly all impaired credit card loans are in the U.S.
(b) There were no impaired loans without an allowance.
(a) The carrying value and the unpaid principal balance are the same for
credit card impaired loans.
440
477
impaired credit card loans
Allowance for loan losses related to
1,319
1,452 $
2019
2018
Average impaired credit card loans
$
2018
$
2018
2019
2018
2019
2018
2019
2018
2019
2019
$ 21,042
$ 8,447
$ 7,295
$ 2,442
$ 2,195
$ 4,708
$ 3,984
$ 7,568
Total unpaid principal balance
951
7,425
6,041
722
Impaired loans
345
With an allowance
1,937
Geographic region (based on unpaid principal balance)(d)
California
$ 4,475
$ 5,420
$ 2,166
$ 2,578
531
$ 593
$ 4,189
$ 4,798
$ 11,361
$ 13,389
Florida
833
976
288
332
212
234
604
713
$ 24,741
2,622
$ 9,144
535 $
7
Firm-administered multi-seller conduits
$
$
Firm-sponsored credit card trusts
VIE program type
Total
$ 183,040 $
3,269 $
1
50,679
15,434
79,387
145,500
$
623 $
53
783
1,459 $
647 $
$
1,270
Total
liabilities
Other(e)
Beneficial
interests in
VIE assets (d)
$
Total
assets(c)
14,986 $
25,183
355
64
2,762
1,884
3
1,881
1,907
4
1,903
66
663
266 $
Other
3,237 $
32
Municipal bond vehicles
9,259
36
6,467
6 $
6,461 $
9,223
15,252 $
25,539
Mortgage securitization entities (a)
Other(b)
Loans
Trading
assets
2018
2,928
U.S. GSES and government agencies
Interest in VIES
2019
(in millions)
December 31,
Nonconsolidated
re-securitization VIES
The following table presents information on
nonconsolidated re-securitization VIES.
3,058
JPMorgan Chase & Co./2019 Form 10-K
Additionally, the Firm may invest in beneficial interests of
third-party-sponsored re-securitizations and generally
purchases these interests in the secondary market. In these
circumstances, the Firm does not have the unilateral ability
to direct the most significant activities of the re-
securitization trust, either because it was not involved in the
initial design of the trust, or the Firm is involved with an
independent third-party sponsor and demonstrates shared
power over the creation of the trust; therefore, the Firm
does not consolidate the re-securitization VIE.
The Firm did not transfer any private label securities to re-
securitization VIES during 2019, 2018 and 2017,
respectively, and retained interests in any such Firm-
sponsored VIES as of December 31, 2019 and 2018 were
immaterial.
Most re-securitizations with which the Firm is involved are
client-driven transactions in which a specific client or group
of clients is seeking a specific return or risk profile. For
these transactions, the Firm has concluded that the
decision-making power of the entity is shared between the
Firm and its clients, considering the joint effort and
decisions in establishing the re-securitization trust and its
assets, as well as the significant economic interest the client
holds in the re-securitization trust; therefore the Firm does
not consolidate the re-securitization VIE.
12,617
15,532
25,852
U.S. GSES and government
agencies
Transfers of securities to
VIES
244
As of December 31, 2019 and 2018, the Firm did not
consolidate any U.S. GSE and government agency re-
securitization VIES or any Firm-sponsored private-label re-
securitization VIES.
Multi-seller conduits
Multi-seller conduit entities are separate bankruptcy
remote entities that provide secured financing,
collateralized by pools of receivables and other financial
assets, to customers of the Firm. The conduits fund their
financing facilities through the issuance of highly rated
commercial paper. The primary source of repayment of the
commercial paper is the cash flows from the pools of assets.
In most instances, the assets are structured with deal-
specific credit enhancements provided to the conduits by
the customers (i.e., sellers) or other third parties. Deal-
specific credit enhancements are generally structured to
cover a multiple of historical losses expected on the pool of
assets, and are typically in the form of overcollateralization
provided by the seller. The deal-specific credit
enhancements mitigate the Firm's potential losses on its
agreements with the conduits.
(in millions)
December 31, 2019
Liabilities
Assets
The following table presents information on assets and liabilities related to VIES consolidated by the Firm as of December 31,
2019 and 2018.
Consolidated VIE assets and liabilities
TOB trusts are considered to be variable interest entities.
The Firm consolidates non-customer TOB trusts because as
the Residual holder, the Firm has the right to make
decisions that significantly impact the economic
performance of the municipal bond vehicle, and it has the
right to receive benefits and bear losses that could
potentially be significant to the municipal bond vehicle.
53
Holders of the floaters may “put," or tender, their floaters
to the TOB trust. If the remarketing agent cannot
successfully remarket the floaters to another investor, the
liquidity provider either provides a loan to the TOB trust for
the TOB trust's purchase of the floaters, or it directly
purchases the tendered floaters.
perform is conditional and is limited by certain events
(“Termination Events"), which include bankruptcy or failure
to pay by the municipal bond issuer or credit enhancement
provider, an event of taxability on the municipal bonds or
the immediate downgrade of the municipal bond to below
investment grade. In addition, the liquidity provider's
exposure is typically further limited by the high credit
quality of the underlying municipal bonds, the excess
collateralization in the vehicle, or, in certain transactions,
the reimbursement agreements with the Residual holders.
Notes to consolidated financial statements
245
J.P. Morgan Securities LLC may serve as a remarketing
agent on the floaters for TOB trusts. The remarketing agent
is responsible for establishing the periodic variable rate on
the floaters, conducting the initial placement and
remarketing tendered floaters. The remarketing agent may,
but is not obligated to, make markets in floaters. Floaters
held by the Firm were not material during 2019 and 2018.
JPMorgan Chase Bank, N.A. or J.P. Morgan Securities LLC
often serves as the sole liquidity or tender option provider
for the TOB trusts. The liquidity provider's obligation to
Municipal bond vehicles or tender option bond ("TOB")
trusts allow institutions to finance their municipal bond
investments at short-term rates. In a typical TOB
transaction, the trust purchases highly rated municipal
bond(s) of a single issuer and funds the purchase by issuing
two types of securities: (1) puttable floating-rate
certificates ("floaters") and (2) inverse floating-rate
residual interests ("residuals"). The floaters are typically
purchased by money market funds or other short-term
investors and may be tendered, with requisite notice, to the
TOB trust. The residuals are retained by the investor seeking
to finance its municipal bond investment. TOB transactions
where the residual is held by a third-party investor are
typically known as customer TOB trusts, and non-customer
TOB trusts are transactions where the Residual is retained
by the Firm. Customer TOB trusts are sponsored by a third
party; refer to page 247 of this Note for further
information. The Firm serves as sponsor for all non-
customer TOB transactions. The Firm may provide various
services to a TOB trust, including remarketing agent,
liquidity or tender option provider, and/or sponsor.
Municipal bond vehicles
Deal-specific liquidity facilities, program-wide liquidity and
credit enhancement provided by the Firm have been
eliminated in consolidation. The Firm or the Firm-
administered multi-seller conduits provide lending-related
commitments to certain clients of the Firm-administered
multi-seller conduits. The unfunded commitments were
$8.9 billion and $8.0 billion at December 31, 2019 and
2018, respectively, and are reported as off-balance sheet
lending-related commitments in other unfunded
commitments to extend credit. Refer to Note 28 for more
information on off-balance sheet lending-related
commitments.
In the normal course of business, JPMorgan Chase makes
markets in and invests in commercial paper issued by the
Firm-administered multi-seller conduits. The Firm held
$16.3 billion and $20.1 billion of the commercial paper
issued by the Firm-administered multi-seller conduits at
December 31, 2019 and 2018, respectively, which have
been eliminated in consolidation. The Firm's investments
reflect the Firm's funding needs and capacity and were not
driven by market illiquidity. Other than the amounts
required to be held pursuant to credit risk retention rules,
the Firm is not obligated under any agreement to purchase
the commercial paper issued by the Firm-administered
multi-seller conduits.
JPMorgan Chase & Co./2019 Form 10-K
To ensure timely repayment of the commercial paper, and
to provide the conduits with funding to provide financing to
customers in the event that the conduits do not obtain
funding in the commercial paper market, each asset pool
financed by the conduits has a minimum 100% deal-
specific liquidity facility associated with it provided by
JPMorgan Chase Bank, N.A. JPMorgan Chase Bank, N.A. also
provides the multi-seller conduit vehicles with uncommitted
program-wide liquidity facilities and program-wide credit
enhancement in the form of standby letters of credit. The
amount of program-wide credit enhancement required is
based upon commercial paper issuance and approximates
10% of the outstanding balance of commercial paper.
The Firm consolidates its Firm-administered multi-seller
conduits, as the Firm has both the power to direct the
significant activities of the conduits and a potentially
significant economic interest in the conduits. As
administrative agent and in its role in structuring
transactions, the Firm makes decisions regarding asset
types and credit quality, and manages the commercial
paper funding needs of the conduits. The Firm's interests
that could potentially be significant to the VIES include the
fees received as administrative agent and liquidity and
program-wide credit enhancement provider, as well as the
potential exposure created by the liquidity and credit
enhancement facilities provided to the conduits. Refer to
page 246 of this Note for further information on
consolidated VIE assets and liabilities.
2,892
276
130
406
Commercial and other (b)
63,350 $
16,729
102,961
2
469
161
308
3,378
312
62,435 $
1,013 $
$
1,966 $ 59,456 $
Total
178
40
3,285
1,688
3
1,685
1,783
$
Prime/Alt-A and option ARMS
Subprime
Residential mortgage:
Securitization-related (a)
20,241 $
105
JPMorgan Chase interest in securitized assets in
nonconsolidated VIES(c)(d)(e)
December 31, 2018
(in millions)
Assets held in
Assets
Total assets
held in
held by
consolidated
securitization securitization
nonconsolidated
Total
interests
103
securitization
VIES with
Other
VIES
VIES
continuing
involvement
assets
Trading Investment financial
securities
held by
JPMorgan
assets
Chase
4
2017
1,779
53
134
Mortgage securitization entities(a)
December 31, 2018
Liabilities
Assets
18,288
447 $
17,841 $
$
46,445
(in millions)
881 $
2,633 $
$
Total
272
272
855
192
-
42,931 $
Trading
assets
Loans
Other(b)
Municipal bond vehicles
4,875
33
13,416
12 $
13,404 $
4,842
32,251 $
24,711
300
491 $
31,760 $
24,411
Firm-administered multi-seller conduits
$
$
Firm-sponsored credit card trusts
VIE program type
Total
liabilities
Other(e)
Beneficial
interests in
VIE assets(d)
Total
assets(c)
Other
625 $
2018
Year ended December 31,
(in millions)
Credit card securitization trusts
CCB
Mortgage securitization trusts
Mortgage and other securitization trusts
Securitization of originated credit card receivables
Servicing and securitization of both originated and
purchased residential mortgages
Securitization of both originated and purchased
residential and commercial mortgages, and other
consumer loans
2019 Form 10-K
page references
242-243
243-245
Line of Business
243-245
CIB
Multi-seller conduits
Municipal bond vehicles
Assist clients in accessing the financial markets in a
cost-efficient manner and structures transactions to
meet investor needs
Financing of municipal bond investments
245
245-246
The Firm's other business segments are also involved with VIES (both third-party and Firm-sponsored), but to a lesser extent,
as follows:
Asset & Wealth Management: AWM sponsors and manages certain funds that are deemed VIES. As asset manager of the
funds, AWM earns a fee based on assets managed; the fee varies with each fund's investment objective and is competitively
priced. For fund entities that qualify as VIES, AWM's interests are, in certain cases, considered to be significant variable
interests that result in consolidation of the financial results of these entities.
•
Commercial Banking: CB provides financing and lending-related services to a wide spectrum of clients, including certain
third-party-sponsored entities that may meet the definition of a VIE. CB does not control the activities of these entities and
does not consolidate these entities. CB's maximum loss exposure, regardless of whether the entity is a VIE, is generally
limited to loans and lending-related commitments which are reported and disclosed in the same manner as any other third-
party transaction.
Activity
Refer to Note 1 on page 151 for a further description of JPMorgan Chase's accounting policies regarding consolidation of VIES.
The following table summarizes the most significant types of Firm-sponsored VIES by business segment. The Firm considers a
"sponsored" VIE to include any entity where: (1) JPMorgan Chase is the primary beneficiary of the structure; (2) the VIE is
used by JPMorgan Chase to securitize Firm assets; (3) the VIE issues financial instruments with the JPMorgan Chase name; or
(4) the entity is a JPMorgan Chase-administered asset-backed commercial paper conduit.
46,066
46,066
605,379
387,344
1,038,789
48,553
$ 605,379
$ 387,813 $ 1,039,258
$
Transaction Type
48,553
572,831
572,831
369,367
$ 370,098 $
990,751
991,482
JPMorgan Chase & Co./2019 Form 10-K
241
Notes to consolidated financial statements
Note 14 - Variable interest entities
$
Corporate: Corporate is involved with entities that may meet the definition of VIES; however these entities are generally
subject to specialized investment company accounting, which does not require the consolidation of investments, including
VIES. In addition, Treasury and CIO invest in securities generally issued by third parties which may meet the definition of
VIES (e.g., issuers of asset-backed securities). In general, the Firm does not have the power to direct the significant
activities of these entities and therefore does not consolidate these entities. Refer to Note 10 for further information on the
Firm's investment securities portfolio.
In addition, CIB also invests in and provides financing and other services to VIES sponsored by third parties. Refer to page 247
of this Note for more information on the VIES sponsored by third parties.
Significant Firm-sponsored variable interest entities
Credit card securitizations
VIES
Securitization-related (a)
Residential mortgage:
Prime/Alt-A and option ARMS
$
60,348 $
2,796 $
48,734
VIES
$
14,661
Commercial and other(b)
111,903
Total
$
186,912 $
2,796 $
13,490
80,878
143,102
Subprime
December 31, 2019
(in millions)
held by
JPMorgan
Chase
Total
interests
CCB's Card business may securitize originated credit card
loans, primarily through the Chase Issuance Trust (the
"Trust”). The Firm's continuing involvement in credit card
securitizations includes servicing the receivables, retaining
an undivided seller's interest in the receivables, retaining
certain senior and subordinated securities and maintaining
escrow accounts.
The Firm is considered to be the primary beneficiary of
these Firm-sponsored credit card securitization trusts based
on the Firm's ability to direct the activities of these VIES
through its servicing responsibilities and other duties,
including making decisions as to the receivables that are
transferred into those trusts and as to any related
modifications and workouts. Additionally, the nature and
extent of the Firm's other continuing involvement with the
trusts, as indicated above, obligates the Firm to absorb
242
losses and gives the Firm the right to receive certain
benefits from these VIES that could potentially be
significant.
The underlying securitized credit card receivables and other
assets of the securitization trusts are available only for
payment of the beneficial interests issued by the
securitization trusts; they are not available to pay the Firm's
other obligations or the claims of the Firm's creditors.
The agreements with the credit card securitization trusts
require the Firm to maintain a minimum undivided interest
in the credit card trusts (generally 5%). As of December 31,
2019 and 2018, the Firm held undivided interests in Firm-
sponsored credit card securitization trusts of $5.3 billion
and $15.1 billion, respectively. The Firm maintained an
average undivided interest in principal receivables owned
by those trusts of approximately 50% and 37% for the
years ended December 31, 2019 and 2018. The Firm did
JPMorgan Chase & Co./2019 Form 10-K
not retain any senior securities and retained $3.0 billion of
subordinated securities in certain of its credit card
securitization trusts as of both December 31, 2019 and
2018, respectively. The Firm's undivided interests in the
credit card trusts and securities retained are eliminated in
consolidation.
Firm-sponsored mortgage and other securitization trusts
The Firm securitizes (or has securitized) originated and
purchased residential mortgages, commercial mortgages
and other consumer loans primarily in its CCB and CIB
businesses. Depending on the particular transaction, as well
as the respective business involved, the Firm may act as the
servicer of the loans and/or retain certain beneficial
interests in the securitization trusts.
The following table presents the total unpaid principal amount of assets held in Firm-sponsored private-label securitization
entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing
involvement includes servicing the loans, holding senior interests or subordinated interests (including amounts required to be
held pursuant to credit risk retention rules), recourse or guarantee arrangements, and derivative contracts. In certain
instances, the Firm's only continuing involvement is servicing the loans. The Firm's maximum loss exposure from retained and
purchased interests is the carrying value of these interests. Refer to Securitization activity on page 248 of this Note for further
information regarding the Firm's cash flows associated with and interests retained in nonconsolidated VIES, and pages 248-
249 of this Note for information on the Firm's loan sales and securitization activity related to U.S. GSES and government
agencies.
Principal amount outstanding
Assets
Total assets
held in
held by
consolidated
securitization securitization
Assets held in
nonconsolidated
JPMorgan Chase interest in securitized assets in
nonconsolidated VIES (c)(d)(e)
securitization
VIES with
Trading
assets
Investment
securities
Other
financial
assets
continuing
involvement
$
731
731 $
$
$
1,799
241
773
785
7
$ 1,160
1,035
312 $
$
$
(14)
(14)
26
7
$ - $ 1,052
$
1,078
(17)
1,068
1,327 $ 1,398 $
241 $
3,117
The Firm engages in certain re-securitization transactions in
which debt securities are transferred to a VIE in exchange
for new beneficial interests. These transfers occur in
connection with both U.S. GSES and government agency
sponsored VIES, which are backed by residential mortgages.
The Firm's consolidation analysis is largely dependent on
the Firm's role and interest in the re-securitization trusts.
The following table presents the principal amount of
securities transferred to re-securitization VIES.
Re-securitizations
Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans,
and engages in underwriting and trading activities involving
the securities issued by securitization trusts. CIB may retain
unsold senior and/or subordinated interests (including
amounts required to be held pursuant to credit risk
retention rules) in commercial mortgage securitizations at
the time of securitization but, generally, the Firm does not
service commercial loan securitizations. For commercial
mortgage securitizations the power to direct the significant
activities of the VIE generally is held by the servicer or
investors in a specified class of securities ("controlling
class"). The Firm generally does not retain an interest in the
controlling class in its sponsored commercial mortgage
securitization transactions. Refer to the table on page 246
of this Note for more information on the consolidated
commercial mortgage securitizations, and the table on the
previous page of this Note for further information on
interests held in nonconsolidated securitizations.
The Firm does not consolidate residential mortgage
securitizations (Firm-sponsored or third-party-sponsored)
when it is not the servicer (and therefore does not have the
power to direct the most significant activities of the trust)
or does not hold a beneficial interest in the trust that could
potentially be significant to the trust. Refer to the table on
page 246 of this Note for more information on the
consolidated residential mortgage securitizations, and the
table on the previous page of this Note for further
information on interests held in nonconsolidated residential
mortgage securitizations.
In addition, CIB engages in underwriting and trading
activities involving securities issued by Firm-sponsored
securitization trusts. As a result, CIB at times retains senior
and/or subordinated interests (including residual interests
and amounts required to be held pursuant to credit risk
retention rules) in residential mortgage securitizations at
the time of securitization, and/or reacquires positions in the
secondary market in the normal course of business. In
certain instances, as a result of the positions retained or
reacquired by CIB or held by CCB, when considered together
with the servicing arrangements entered into by CCB, the
Firm is deemed to be the primary beneficiary of certain
securitization trusts. Refer to the table on page 246 of this
Note for more information on consolidated residential
mortgage securitizations.
The Firm securitizes residential mortgage loans originated
by CCB, as well as residential mortgage loans purchased
from third parties by either CCB or CIB. CCB generally
retains servicing for all residential mortgage loans it
originated or purchased, and for certain mortgage loans
purchased by CIB. For securitizations of loans serviced by
CCB, the Firm has the power to direct the significant
activities of the VIE because it is responsible for decisions
related to loan modifications and workouts. CCB may also
retain an interest upon securitization.
Residential mortgage
Notes to consolidated financial statements
243
JPMorgan Chase & Co./2019 Form 10-K
(e) As of December 31, 2019 and 2018, 63% and 60%, respectively, of the Firm's retained securitization interests, which are predominantly carried at fair
value and include amounts required to be held pursuant to credit risk retention rules, were risk-rated "A" or better, on an S&P-equivalent basis. The
retained interests in prime residential mortgages consisted of $1.1 billion and $1.3 billion of investment-grade, and $72 million and $16 million of
noninvestment-grade at December 31, 2019 and 2018, respectively. The retained interests in commercial and other securitizations trusts consisted of
$1.2 billion of investment-grade for both periods, and $575 million and $623 million of noninvestment-grade retained interests at December 31, 2019
and 2018, respectively.
(d) Includes interests held in re-securitization transactions.
(c) Excludes the following: retained servicing (refer to Note 15 for a discussion of MSRS); securities retained from loan sales and securitization activity related
to U.S. GSES and government agencies; interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of
securitization entities (refer to Note 5 for further information on derivatives); senior and subordinated securities of $106 million and $94 million,
respectively, at December 31, 2019, and $87 million and $28 million, respectively, at December 31, 2018, which the Firm purchased in connection with
CIB's secondary market-making activities.
(b) Consists of securities backed by commercial real estate loans and non-mortgage-related consumer receivables purchased from third parties.
(a) Excludes U.S. GSES and government agency securitizations and re-securitizations, which are not Firm-sponsored. Refer to pages 248-249 of this Note for
information on the Firm's loan sales and securitization activity related to U.S. GSES and government agencies.
801
1,448 $
210
1,794
210 $
(10)
2019
1
33
1,022 $
1,055
$
33
$
$
187
848
1,035 $
$
33
187
1,068
$
$
$
469 $
469
$
$
881
956
923
-92
$
$
1,022 $
1,055
$
33
$
$
1,035
$
1,068
$ - $ - $ 9 99 $
99
$
- $ - $ 18
33
$
33
$
$
20,553
95
2,366
(b) Includes assets classified as cash and other assets on the Consolidated balance sheets.
(c) The assets of the consolidated VIEs included in the program types above are used to settle the liabilities of those entities. The assets and liabilities include
third-party assets and liabilities of consolidated VIES and exclude intercompany balances that eliminate in consolidation.
(d) The interest-bearing beneficial interest liabilities issued by consolidated VIES are classified in the line item on the Consolidated balance sheets titled,
"Beneficial interests issued by consolidated variable interest entities." The holders of these beneficial interests generally do not have recourse to the
general credit of JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $6.7 billion and $13.7 billion at
December 31, 2019 and 2018, respectively. Refer to Note 20 for additional information on interest-bearing long-term beneficial interests.
(e) Includes liabilities classified as accounts payable and other liabilities on the Consolidated balance sheets.
155
4,518
183
(1,125)
(93)
(398)
(634)
(1,493)
(158)
4,856
(493)
6,512
212
4,521
1,779
6,349
313
5,011
13,776
4,544 $
(842)
$
1,145
119
$
1
2
(1)
(1)
(1)
-
5,300
(286)
4,123
4,973
4,885
130
4,818
(63)
86
86
187
187
5,387
613
4,146
4,034
5,198
(c) The asset-specific credit card allowance for loan losses is related to loans that have been modified in a TDR; such allowance is calculated based on the
loans' original contractual interest rates and does not consider any incremental penalty rates.
(a) Write-offs of PCI loans are recorded against the allowance for loan losses when actual losses for a pool exceed estimated losses that were recorded as
purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan is recognized when the underlying loan is removed from a pool.
(b) Includes risk-rated loans that have been placed on nonaccrual status and loans that have been modified in a TDR.
$ 1,106,247
404,115
$
650,720
$
1,105,773
403,641
240
650,720
$
Total lending-related commitments
Formula-based
474
$
474
$
$
$
51,412
51,412
$
JPMorgan Chase & Co./2019 Form 10-K
Consumer,
excluding
$
13,604
$ 33 $ - $ 1,031.
4,141 $
$
4,884
$
4,579
1,025
$
(table continued from previous page)
Total
2017
Credit card
excluding
credit card
Total
Consumer,
Wholesale
2018
Credit card
credit card
Wholesale
$
5,184
$
30,576
24,037
3
24,034
373,637
$
883,099
401,028
11,160
1,867 $
3
$
333,899
$
8,078
$
9,443
935,935
1,250 $
437,909
$
1,319
155,297
342,729
1,215
148,172
$
30,579
439,162
31 $
233
$
64
2,133
$
45
2,282
21 $
202
$
2,080
$
$ 156,616 $
24
924,838
402,898 $
$
149,387
$
372,553
$
969,415
$
$
6,874
$
13,604
$
933
297
3,818
4,744
2,162
440 (c) $
$
196
$
246
13,604
4,141
$
4,884
$
4,579
$
13,445
$
4,115
$
$
10,724
2,108
4,141 $
$
4,884
$
4,579
$
13,445
4,115 $
$
5,184
$
4,146
$
2,225
2,225
1,788
1,788
10,289
1,090
461 $
3,680
383 (c) $
4,501
Asset-specific
(a) Includes residential and commercial mortgage securitizations.
Lending-related commitments by impairment methodology
$
4,848
412
Net charge-offs
(1,181)
(42)
(588)
(551)
Gross recoveries
6,810
369
411
963
Gross charge-offs
13,445
$
4,115
$
5,184
$
4,146
5,436
$
5,629
151
13,123
$
4,241
$
5,683
$
3,199
$
Ending balance at December 31,
Write-offs of PCI loans (a)
9
(1)
(1)
Other
5,449
484
5,348
(383)
Provision for loan losses
151
11
Allowance for loan losses by impairment methodology
Beginning balance at January 1,
Total
The Firm applies judgment in estimating PD, LGD, loss
emergence period and loan-equivalent used in calculating
the allowance for credit losses. Estimates of PD, LGD, loss
emergence period and loan-equivalent used are subject to
periodic refinement based on any changes to underlying
external or Firm-specific historical data. Changes to the
time period used for PD and LGD estimates could also affect
the allowance for credit losses. The use of different inputs,
estimates or methodologies could change the amount of the
allowance for credit losses determined appropriate by the
Firm.
LGD estimate is a judgment-based estimate assigned to
each loan or lending-related commitment. The estimate
represents the amount of economic loss if the obligor were
to default. The type of obligor, quality of collateral, and the
seniority of the Firm's lending exposure in the obligor's
capital structure affect LGD.
A PD estimate is determined based on the Firm's history of
defaults over more than one credit cycle.
The Firm assesses the credit quality of a borrower or
counterparty and assigns an internal risk rating. Risk
ratings are assigned at origination or acquisition, and if
necessary, adjusted for changes in credit quality over the
life of the exposure. In assessing the risk rating of a
particular loan or lending-related commitment, among the
factors considered are the obligor's debt capacity and
financial flexibility, the level of the obligor's earnings, the
amount and sources for repayment, the level and nature of
contingencies, management strength, and the industry and
geography in which the obligor operates. These factors are
based on an evaluation of historical and current information
and involve subjective assessment and interpretation.
Determining risk ratings involves significant judgment;
emphasizing one factor over another or considering
additional factors could affect the risk rating assigned by
the Firm.
The Firm's methodology for determining the allowance for
loan losses and the allowance for lending-related
commitments involves the early identification of credits that
are deteriorating. The formula-based component of the
allowance for wholesale loans and lending-related
commitments is calculated by applying statistical credit loss
factors (estimated PD and LGD) to the recorded investment
balances or loan-equivalent over a loss emergence period to
arrive at an estimate of incurred credit losses in the
portfolio. Estimated loss emergence periods may vary by
the funded versus unfunded status of the instrument and
may change over time.
Formula-based component - Wholesale loans and lending-
related commitments
Notes to consolidated financial statements
237
Overall, the allowance for credit losses for consumer
portfolios is sensitive to changes in the economic
environment (e.g., unemployment rates), delinquency rates,
the realizable value of collateral (e.g., housing prices), FICO
scores, borrower behavior and other risk factors. While all
of these factors are important determinants of overall
allowance levels, changes in the various factors may not
occur at the same time or at the same rate, or changes may
be directionally inconsistent such that improvement in one
factor may offset deterioration in another. In addition,
changes in these factors would not necessarily be consistent
across all geographies or product types. Finally, it is difficult
to predict the extent to which changes in these factors
would ultimately affect the frequency of losses, the severity
of losses or both.
In addition to the statistical credit loss estimates applied to
the wholesale portfolio, management applies its judgment
to adjust the statistical estimates for wholesale loans and
lending-related commitments, taking into consideration
model imprecision, external factors and economic events
that have occurred but are not yet reflected in the loss
The statistical calculation is then adjusted to take into
consideration model imprecision, external factors and
current economic events that have occurred but that are not
yet reflected in the factors used to derive the statistical
calculation; these adjustments are accomplished in part by
analyzing the historical loss experience for each major
product segment. However, it is difficult to predict whether
historical loss experience is indicative of future loss levels.
Management applies judgment in making this adjustment,
taking into account uncertainties associated with current
macroeconomic and political conditions, quality of
underwriting standards, borrower behavior, and other
relevant internal and external factors affecting the credit
quality of the portfolio. In certain instances, the
interrelationships between these factors create further
uncertainties. The application of different inputs into the
statistical calculation, and the assumptions used by
management to adjust the statistical calculation, are subject
to management judgment, and emphasizing one input or
assumption over another, or considering other inputs or
assumptions, could affect the estimate of the allowance for
credit losses for the consumer credit portfolio.
JPMorgan Chase & Co./2019 Form 10-K
The formula-based allowance for credit losses for the
consumer portfolio segments is calculated by applying
statistical credit loss factors (estimated PD and loss
severities) to the recorded investment balances or loan-
equivalent amounts of pools of loan exposures with similar
risk characteristics over a loss emergence period to arrive
at an estimate of incurred credit losses. Estimated loss
emergence periods may vary by product and may change
over time; management applies judgment in estimating loss
emergence periods, using available credit information and
trends. In addition, management applies judgment to the
statistical loss estimates for each loan portfolio category,
using delinquency trends and other risk characteristics to
estimate the total incurred credit losses in the portfolio.
Management uses additional statistical methods and
considers actual portfolio performance, including actual
losses recognized on defaulted loans and collateral
valuation trends, to review the appropriateness of the
primary statistical loss estimate. The economic impact of
The formula-based component is based on a statistical
calculation to provide for incurred credit losses in all
consumer loans and performing risk-rated loans. All loans
restructured in TDRs as well as any impaired risk-rated
loans have an allowance assessed as part of the asset-
specific component, while PCI loans have an allowance
assessed as part of the PCI component. Refer to Note 12 for
more information on TDRs, Impaired loans and PCI loans.
Formula-based component - Consumer loans and certain
lending-related commitments
Formula-based component
JPMorgan Chase's allowance for loan losses represents
management's estimate of probable credit losses inherent
in the Firm's retained loan portfolio, which consists of the
two consumer portfolio segments (primarily scored) and
the wholesale portfolio segment (risk-rated). The allowance
for loan losses includes a formula-based component, an
asset-specific component, and a component related to PCI
loans, as described below. Management also estimates an
allowance for wholesale and certain consumer lending-
related commitments using methodologies similar to those
used to estimate the allowance on the underlying loans.
The Firm's policies used to determine its allowance for
credit losses are described in the following paragraphs.
Determining the appropriateness of the allowance is
complex and requires judgment by management about the
effect of matters that are inherently uncertain. Subsequent
evaluations of the loan portfolio, in light of the factors then
prevailing, may result in significant changes in the
allowances for loan losses and lending-related
commitments in future periods. At least quarterly, the
allowance for credit losses is reviewed by the CRO, the CFO
and the Controller of the Firm. As of December 31, 2019,
JPMorgan Chase deemed the allowance for credit losses to
be appropriate and sufficient to absorb probable credit
losses inherent in the portfolio.
Note 13 - Allowance for credit losses
Principal amount outstanding
JPMorgan Chase & Co./2019 Form 10-K
246
potential modifications of residential real estate loans is not
included in the statistical calculation because of the
uncertainty regarding the type and results of such
modifications.
Allowance for loan losses
238
Asset-specific component
Wholesale
2019
Credit card
Consumer,
excluding
credit card
(in millions)
Year ended December 31,
(Table continued on next page)
The table below summarizes information about the allowances for loan losses and lending-relating commitments, and includes
a breakdown of loans and lending-related commitments by impairment methodology.
Allowance for credit losses and related information
factors. Historical experience of both LGD and PD are
considered when estimating these adjustments. Factors
related to concentrated and deteriorating industries also
are incorporated where relevant. These estimates are based
on management's view of uncertainties that relate to
current macroeconomic conditions, quality of underwriting
standards and other relevant internal and external factors
affecting the credit quality of the current portfolio.
Notes to consolidated financial statements
JPMorgan Chase & Co./2019 Form 10-K
These cash flow projections are based on estimates
regarding default rates (including redefault rates on
modified loans), loss severities, the amounts and timing of
prepayments and other factors that are reflective of current
and expected future market conditions. These estimates are
dependent on assumptions regarding the level of future
home prices, and the duration of current overall economic
conditions, among other factors. These estimates and
assumptions require significant management judgment and
certain assumptions are highly subjective.
In connection with the acquisition of certain PCI loans,
which are accounted for as described in Note 12, the
allowance for loan losses for the PCI portfolio is based on
quarterly estimates of the amount of principal and interest
cash flows expected to be collected over the estimated
remaining lives of the loans.
PCI loans
Estimating the timing and amounts of future cash flows is
highly judgmental as these cash flow projections rely upon
estimates such as loss severities, asset valuations, default
rates (including redefault rates on modified loans), the
amounts and timing of interest or principal payments
(including any expected prepayments) or other factors that
are reflective of current and expected market conditions.
These estimates are, in turn, dependent on factors such as
the duration of current overall economic conditions,
industry-, portfolio-, or borrower-specific factors, the
expected outcome of insolvency proceedings as well as, in
certain circumstances, other economic factors, including
the level of future home prices. All of these estimates and
assumptions require significant management judgment and
certain assumptions are highly subjective.
JPMorgan Chase & Co./2019 Form 10-K
The asset-specific component of the allowance for impaired
loans that have been modified in TDRS (including forgone
interest, principal forgiveness, as well as other concessions)
incorporates the effect of the modification on the loan's
expected cash flows, which considers the potential for
redefault. For residential real estate loans modified in TDRS,
the Firm develops product-specific probability of default
estimates, which are applied at a loan level to compute
expected losses. In developing these probabilities of
default, the Firm considers the relationship between the
credit quality characteristics of the underlying loans and
certain assumptions about home prices and unemployment,
based upon industry-wide data. The Firm also considers its
own historical loss experience to-date based on actual
redefaulted modified loans. For credit card loans modified
in TDRs, expected losses incorporate projected redefaults
based on the Firm's historical experience by type of
modification program. For wholesale loans modified in
TDRs, expected losses incorporate management's
expectation of the borrower's ability to repay under the
modified terms.
The Firm generally measures the asset-specific allowance as
the difference between the recorded investment in the loan
and the present value of the cash flows expected to be
collected, discounted at the loan's original effective interest
rate. Subsequent changes in impairment are reported as an
adjustment to the allowance for loan losses. In certain
cases, the asset-specific allowance is determined using an
observable market price, and the allowance is measured as
the difference between the recorded investment in the loan
and the loan's fair value. Collateral-dependent loans are
charged down to the fair value of collateral less costs to
sell. For any of these impaired loans, the amount of the
asset-specific allowance required to be recorded, if any, is
dependent upon the recorded investment in the loan
(including prior charge-offs), and either the expected cash
flows or fair value of collateral. Refer to Note 12 for more
information about charge-offs and collateral-dependent
loans.
The asset-specific component of the allowance relates to
loans considered to be impaired, which includes loans that
have been modified in TDRS as well as risk-rated loans that
have been placed on nonaccrual status. To determine the
asset-specific component of the allowance, larger risk-rated
loans (primarily loans in the wholesale portfolio segment)
are evaluated individually, while smaller loans (both risk-
rated and scored) are evaluated as pools using historical
loss experience for the respective class of assets.
239
Asset-specific (b)
Formula-based
136
Ending balance at December 31,
Other
136
136
1,055
$
33 $ - $ 1,022
$
Provision for lending-related commitments
$
Beginning balance at January 1,
2,140
81
82
$
25
$
2,059
Loans measured at fair value of collateral less cost to sell
$
Allowance for lending-related commitments
57
33
-
1,158
$
1,089
1,056
102
$
102
$
33
$
33
Formula-based
$ - $ - $ 10
$
Asset-specific
Allowance for lending-related commitments by impairment methodology
1,191
$
1,158
$
Total allowance for lending-related commitments
$
Net charge-offs
Impaired collateral-dependent loans
Total allowance for loan losses
PCI
13,123
$
4,241
$
5,683
$
3,199
Loans by impairment methodology
$
987
11,289
4,007
5,206
2,076
847
234
477 (c) $
$
987
Asset-specific
Formula-based
PCI
Total retained loans
945,601
444,639 $
$
168,924
$
332,038
$
20,363
20,363
916,702
443,727
8,536
$
912
$
1,452
167,472
305,503
$
6,172
$
1,191
2,966
$
256
$
Fair value at beginning of period
2017
2018
2019
As of or for the year ended December 31, (in millions, except where otherwise noted)
The following table summarizes MSR activity for the years ended December 31, 2019, 2018 and 2017.
those for which the Firm receives fixed-rate interest
payments) increase in value when interest rates decline.
JPMorgan Chase uses combinations of derivatives and
securities to manage the risk of changes in the fair value of
MSRs. The intent is to offset any interest-rate related
changes in the fair value of MSRS with changes in the fair
value of the related risk management instruments.
The fair value of MSRS is sensitive to changes in interest
rates, including their effect on prepayment speeds. MSRs
typically decrease in value when interest rates decline
because declining interest rates tend to increase
prepayments and therefore reduce the expected life of the
net servicing cash flows that comprise the MSR asset.
Conversely, securities (e.g., mortgage-backed securities),
principal-only certificates and certain derivatives (i.e.,
Notes to consolidated financial statements
251
JPMorgan Chase & Co./2019 Form 10-K
MSRS represent the fair value of expected future cash flows
for performing servicing activities for others. The fair value
considers estimated future servicing fees and ancillary
revenue, offset by estimated costs to service the loans, and
generally declines over time as net servicing cash flows are
received, effectively amortizing the MSR asset against
contractual servicing and ancillary fee income. MSRs are
either purchased from third parties or recognized upon sale
or securitization of mortgage loans if servicing is retained.
As permitted by U.S. GAAP, the Firm has elected to account
for its MSRS at fair value. The Firm treats its MSRs as a
single class of servicing assets based on the availability of
market inputs used to measure the fair value of its MSR
asset and its treatment of MSRS as one aggregate pool for
risk management purposes. The Firm estimates the fair
value of MSRS using an option-adjusted spread ("OAS”)
model, which projects MSR cash flows over multiple interest
rate scenarios in conjunction with the Firm's prepayment
model, and then discounts these cash flows at risk-adjusted
rates. The model considers portfolio characteristics,
contractually specified servicing fees, prepayment
assumptions, delinquency rates, costs to service, late
charges and other ancillary revenue, and other economic
factors. The Firm compares fair value estimates and
assumptions to observable market data where available,
and also considers recent market activity and actual
portfolio experience.
Mortgage servicing rights
Declines in business performance, increases in credit losses,
increases in capital requirements, as well as deterioration
in economic or market conditions, adverse regulatory or
legislative changes or increases in the estimated market
cost of equity, could cause the estimated fair values of the
Firm's reporting units or their associated goodwill to
decline in the future, which could result in a material
impairment charge to earnings in a future period related to
some portion of the associated goodwill.
The valuations derived from the discounted cash flow
analysis are then compared with market-based trading and
transaction multiples for relevant competitors. Trading and
transaction comparables are used as general indicators to
assess the general reasonableness of the estimated fair
values, although precise conclusions generally cannot be
drawn due to the differences that naturally exist between
the Firm's businesses and competitor institutions.
Management also takes into consideration a comparison
between the aggregate fair values of the Firm's reporting
units and JPMorgan Chase's market capitalization. In
evaluating this comparison, management considers several
factors, including (i) a control premium that would exist in a
market transaction, (ii) factors related to the level of
execution risk that would exist at the firmwide level that do
not exist at the reporting unit level and (iii) short-term
market volatility and other factors that do not directly
affect the value of individual reporting units.
The primary method the Firm uses to estimate the fair
value of its reporting units is the income approach. This
approach projects cash flows for the forecast period and
uses the perpetuity growth method to calculate terminal
values. These cash flows and terminal values are then
discounted using an appropriate discount rate. Projections
of cash flows are based on the reporting units' earnings
forecasts which are reviewed with senior management of
the Firm. The discount rate used for each reporting unit
represents an estimate of the cost of equity for that
reporting unit and is determined considering the Firm's
overall estimated cost of equity (estimated using the Capital
Asset Pricing Model), as adjusted for the risk characteristics
specific to each reporting unit (for example, for higher
levels of risk or uncertainty associated with the business or
management's forecasts and assumptions). To assess the
reasonableness of the discount rates used for each
reporting unit management compares the discount rate to
the estimated cost of equity for publicly traded institutions
with similar businesses and risk characteristics. In addition,
the weighted average cost of equity (aggregating the
various reporting units) is compared with the Firm's overall
estimated cost of equity to ensure reasonableness.
$ 47,507
$ 47,288
349
3
(36)
199
20
6,130
$ 47,823 $ 47,471 $ 47,507
Goodwill impairment testing
The Firm's goodwill was not impaired at December 31,
2019, 2018, and 2017.
The goodwill impairment test is performed in two steps. In
the first step, the current fair value of each reporting unit is
compared with its carrying value. If the fair value is in
excess of the carrying value, then the reporting unit's
goodwill is considered not to be impaired. If the fair value is
less than the carrying value, then a second step is
performed. In the second step, the implied current fair
value of the reporting unit's goodwill is determined by
comparing the fair value of the reporting unit (as
determined in step one) to the fair value of the net assets of
the reporting unit, as if the reporting unit were being
acquired in a business combination. The resulting implied
current fair value of goodwill is then compared with the
carrying value of the reporting unit's goodwill. If the
carrying value of the goodwill exceeds its implied current
fair value, then an impairment charge is recognized for the
excess. If the carrying value of goodwill is less than its
implied current fair value, then no goodwill impairment is
recognized.
The Firm uses the reporting units' allocated capital plus
goodwill and other intangible assets as a proxy for the
carrying values of equity for the reporting units in the
goodwill impairment testing. Reporting unit equity is
determined on a similar basis as the allocation of capital to
the LOBS which takes into consideration a variety of factors
including capital levels of similarly rated peers and
applicable regulatory capital requirements. Proposed LOB
equity levels are incorporated into the Firm's annual budget
process, which is reviewed by the Firm's Board of Directors.
Allocated capital is further reviewed periodically and
updated as needed.
250
JPMorgan Chase & Co./2019 Form 10-K
(a) For 2019, represents goodwill associated with the acquisition of
InstaMed. This goodwill was allocated to CIB, CB and CCB. For 2017,
represents CCB goodwill in connection with an acquisition.
(b) Primarily relates to foreign currency adjustments.
$ 6,030
$
6,096
(740)
(797)
Changes in valuation due to inputs and assumptions:
Changes due to market interest rates and other (b)
(893)
300
(951)
(202)
Projected cash flows (e.g., cost to service)
Discount rates
Prepayment model changes and other (c)
(333) (e)
15
(102)
Changes in valuation due to other inputs and assumptions:
$ 47,471
963
700
MSR activity:
Originations of MSRS
Purchase of MSRS
Disposition of MSRs (a)
Net additions
Changes due to collection/realization of expected cash flows
610
1,384
1,103
105
315
(789)
(636)
(140)
931
2017
2018
2019
Securitized loans
Residential mortgage:
Prime/ Alt-A & option ARMS
Subprime
Commercial and other
Securitized assets
2019
As of or for the year ended December 31, (in millions)
2018
2019
Net liquidation losses(a)
2018
$ 48,734 $ 50,679 $
13,490
80,878
15,434
79,387
2,449 $ 3,354 $
1,813
2,478
187
90 days past due
2019
2018
579 $
The table below includes information about components of nonconsolidated securitized financial assets held in Firm-sponsored
private-label securitization entities, in which the Firm has continuing involvement, and delinquencies as of December 31, 2019
and 2018.
(b) Relates to voluntary repurchases of loans, which are included in
accrued interest and accounts receivable.
December 31,
(in millions)
Loans repurchased or option to repurchase (a) $
Real estate owned
Foreclosed government-guaranteed residential
mortgage loans(b)
361
2019
2,941 $
7,021
41
75
198
(a) Predominantly all of these amounts relate to loans that have been
repurchased from Ginnie Mae loan pools.
2018
153
532
445
2018
2017
$ 31,041 $ 30,984 $31,013
6,770 6,776
2,860 2,860
6,858
6,942
2,982
6,858
6,857
2019
$ 47,823 $ 47,471 $47,507
amount of goodwill.
Year ended December 31, (in
millions)
Balance at beginning of period
Changes during the period from:
Business combinations(a)
Other(b)
Balance at December 31,
The following table presents changes in the carrying
225
Total goodwill
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
610
(169)
280
1,556 $
721
Total loans securitized
$ 143,102 $145,500 $ 4,449 $ 6,057 $
(a) Includes liquidation gains as a result of private label mortgage settlement payments during the first quarter of 2018, which were reflected as asset recoveries by
trustees.
Asset & Wealth Management
JPMorgan Chase & Co./2019 Form 10-K
Notes to consolidated financial statements
Note 15 Goodwill and Mortgage servicing rights
Goodwill
Goodwill is recorded upon completion of a business
combination as the difference between the purchase price
and the fair value of the net assets acquired. Subsequent to
initial recognition, goodwill is not amortized but is tested
for impairment during the fourth quarter of each fiscal
year, or more often if events or circumstances, such as
adverse changes in the business climate, indicate there may
be impairment.
The goodwill associated with each business combination is
allocated to the related reporting units, which are
determined based on how the Firm's businesses are
managed and how they are reviewed by the Firm's
Operating Committee. The following table presents goodwill
attributed to the business segments.
December 31, (in millions)
249
24
(19)
(107)
7.93%
(397)
(384)
$ (205)
Impact on fair value of 10% adverse change $ (200)
Impact on fair value of 20% adverse change
Weighted-average option adjusted spread(a)(b)
Impact on fair value of 100 basis points
adverse change
Changes in MSR asset fair value
7.87%
2,014
1,533
Loan servicing revenue
Operating revenue:
Net mortgage servicing revenue:
8.78%
11.67%
1,835
assumption (constant prepayment rate)
$ (169) $
due to collection/realization of
due to market interest rates
and other (a)
Changes in MSR asset fair value
Risk management:
1,219
1,095
582
(235)
Total operating revenue
(326)
Impact on fair value of 200 basis points
adverse change
(795)
(740)
(951)
expected cash flows
(452)
(893)
636
$ 1,618
(a) Includes excess MSRS transferred to agency-sponsored trusts in exchange for stripped mortgage backed securities ("SMBS"). In each transaction, a
portion of the SMBS was acquired by third parties at the transaction date; the Firm acquired the remaining balance of those SMBS as trading securities.
(b) Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and
expected prepayments.
4.0
3.0
2.0
Servicer advances, net of an allowance for uncollectible amounts, at December 31, (in billions)(d)
555.0
(c) Represents changes in prepayments other than those attributable to changes in market interest rates.
521.0
1,778
(232)
$
230
(1,180) $
1,639
522.0
Third-party mortgage loans serviced at December 31, (in billions)
1,886
268
(d) Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest, taxes and insurance), which will generally be reimbursed within
a short period of time after the advance from future cash flows from the trust or the underlying loans. The Firm's credit risk associated with these servicer
advances is minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right
to stop payment to investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if
they were not made in accordance with applicable rules and agreements.
252
Net production revenue
Weighted-average prepayment speed
2018
2019
(in millions, except rates)
December 31,
(e) The decrease in projected cash flows was largely related to default servicing assumption updates.
The table below outlines the key economic assumptions
used to determine the fair value of the Firm's MSRs at
December 31, 2019 and 2018, and outlines the
sensitivities of those fair values to immediate adverse
changes in those assumptions, as defined below.
2018
2019
CCB mortgage fees and related
income
Year ended December 31,
(in millions)
The following table presents the components of mortgage
fees and related income (including the impact of MSR risk
management activities) for the years ended December 31,
2019, 2018 and 2017.
JPMorgan Chase & Co./2019 Form 10-K
2017
Loan delinquencies and liquidation losses
300
Other changes in MSR asset fair
Non-U.S. offices
Total deposits in U.S. offices
813,881
1,200,590
876,156
1,271,823
$ 395,667 $ 386,709
2018
Noninterest-bearing (included $1,980 and
$2,367 at fair value)(a)(b)
2019
Noninterest-bearing (included $22,637
and $17,204 at fair value) (a)(b)
December 31, (in millions)
U.S. offices
At December 31, 2019 and 2018, noninterest-bearing and
interest-bearing deposits were as follows.
Note 17 - Deposits
JPMorgan Chase capitalizes certain costs associated with
the acquisition or development of internal-use software.
Once the software is ready for its intended use, these costs
are amortized on a straight-line basis over the software's
expected useful life and reviewed for impairment on an
ongoing basis.
Note 16 - Premises and equipment
Premises and equipment, including leasehold
improvements, are carried at cost less accumulated
depreciation and amortization. JPMorgan Chase computes
depreciation using the straight-line method over the
estimated useful life of an asset. For leasehold
improvements, the Firm uses the straight-line method
computed over the lesser of the remaining term of the
leased facility or the estimated useful life of the leased
asset.
Interest-bearing (included $2,534 and
$2,487 at fair value)(a)(b)
Notes to consolidated financial statements
20,087
$
(109)
91
Total changes in valuation due to other inputs and assumptions
(287)
(70)
(30)
6,030
Total changes in valuation due to inputs and assumptions
230
(232)
Fair value at December 31,
$
4,699
$ 6,130
(1,180)
(202)
253
(a) Represents both the impact of changes in estimated future
prepayments due to changes in market interest rates, and the
difference between actual and expected prepayments.
(b) Represents the aggregate impact of changes in model inputs and
assumptions such as projected cash flows (e.g., cost to service),
discount rates and changes in prepayments other than those
attributable to changes in market interest rates (e.g., changes in
prepayments due to changes in home prices).
(242)
(111)
(165)
Total risk management
(10)
(341)
Total net mortgage servicing
1,015
Change in derivative fair value
(30)
(70)
(287)
assumptions in model(b)
value due to other inputs and
and other
JPMorgan Chase & Co./2019 Form 10-K
revenue
984
$ 1,616
$ 2,036 $ 1,254
Mortgage fees and related income
3
2
1
417
All other
1,252
2,035
Changes in fair value based on variations in assumptions
generally cannot be easily extrapolated, because the
relationship of the change in the assumptions to the change
in fair value are often highly interrelated and may not be
linear. In this table, the effect that a change in a particular
assumption may have on the fair value is calculated without
changing any other assumption. In reality, changes in one
factor may result in changes in another, which would either
magnify or counteract the impact of the initial change.
(a) Includes the impact of operational risk and regulatory capital.
(b) The prior period amount has been revised to conform with the current
period presentation.
Total CCB mortgage fees and
related income
977
1,613
In addition to the Firm's obligation to repurchase certain
loans due to material breaches of representations and
warranties as discussed in Note 28, the Firm also has the
option to repurchase delinquent loans that it services for
Ginnie Mae loan pools, as well as for other U.S. government
agencies under certain arrangements. The Firm typically
elects to repurchase delinquent loans from Ginnie Mae loan
Options to repurchase delinquent loans
(c) Excludes the value of MSRS retained upon the sale of loans.
(d) Gains/(losses) on loan sales include the value of MSRs.
(e) The carrying value of the loans accounted for at fair value
approximated the proceeds received upon loan sale.
The following table presents the carrying value of assets
subject to leases reported on the Consolidated balance
sheets:
On a periodic basis, the Firm assesses leased assets for
impairment, and if the carrying amount of the leased asset
exceeds the undiscounted cash flows from the lease
payments and the estimated residual value upon disposition
of the leased asset, an impairment loss is recognized.
The risk of loss on auto and equipment leased assets
relating to the residual value of the leased assets is
monitored through projections of the asset residual values
at lease origination and periodic review of residual values,
and is mitigated through arrangements with certain
manufacturers or lessees.
The Firm provides auto and equipment lease financing to its
customers through lease arrangements with lease terms
that may contain renewal, termination and/or purchase
options. Generally, the Firm's lease financings are operating
leases. These assets are recognized in other assets on the
Firm's Consolidated balance sheets and are depreciated on
a straight-line basis over the lease term to reduce the asset
to its estimated residual value. Depreciation expense is
included in technology, communications and equipment
expense in the Consolidated statements of income. The
Firm's lease income is generally recognized on a straight-
line basis over the lease term and is included in other
income in the Consolidated statements of income.
Firm as lessor
1,413
$
Year ended December 31,
Right-of-use assets obtained in exchange for operating
lease obligations
1,572
$
Cash paid for amounts included in the measurement of
lease liabilities - operating cash flows
Supplemental cash flow information
3.68%
Weighted average discount rate
Supplemental non-cash information
8.8
(in millions)
Rental expense
2022
2021
2020
Year ended December 31, (in millions)
operating leases as of December 31, 2019:
The following table presents future payments under
2019
1,873
Net rental expense
(184)
Sublease rental income
2,057
$
Gross rental expense
$
2023
Weighted average remaining lease term (in years)
Lease liabilities
13
175
798
89
709
3,823
188
$ 110,057
3,700
$ 60,614
Total
Non-U.S.
U.S.
Note 18 Leases
Lease commitments
$ 49,443
123
8,190
8,505
534
891
$
Right-of-use assets
2019
(in millions, except where otherwise noted)
December 31,
Operating lease liabilities and ROU assets are recognized at
the lease commencement date based on the present value
of the future minimum lease payments over the lease term.
The future lease payments are discounted at a rate that
represents the Firm's collateralized borrowing rate for
financing instruments of a similar term and are included in
accounts payable and other liabilities. The operating lease
ROU asset, included in premises and equipment, also
includes any lease prepayments made, plus initial direct
costs incurred, less any lease incentives received. Rental
expense associated with operating leases is recognized on a
straight-line basis over the lease term, and generally
included in occupancy expense in the Consolidated
statements of income. The following tables provide
information related to the Firm's operating leases:
357
JPMorgan Chase & Co./2019 Form 10-K
At December 31, 2019, JPMorgan Chase and its
subsidiaries were obligated under a number of
noncancelable leases, predominantly operating leases for
premises and equipment used primarily for business
purposes. These leases generally have terms of 20 years or
less, determined based on the contractual maturity of the
lease, and include periods covered by options to extend or
terminate the lease when the Firm is reasonably certain
that it will exercise those options. None of these lease
agreements impose restrictions on the Firm's ability to pay
dividends, engage in debt or equity financing transactions
or enter into further lease agreements. Certain of these
leases contain escalation clauses that will increase rental
payments based on maintenance, utility and tax increases,
which are non-lease components. The Firm elected not to
separate lease and non-lease components of a contract for
its real estate leases. As such, real estate lease payments
represent payments on both lease and non-lease
components.
Effective January 1, 2019, the Firm adopted new guidance
that requires lessees to recognize on the Consolidated
balance sheets all leases with lease terms greater than
twelve months as a lease liability with a corresponding
right-of-use ("ROU”) asset. Accordingly, the Firm recognized
operating lease liabilities and ROU assets of $8.2 billion and
$8.1 billion, respectively. The adoption of the new lease
guidance did not have a material impact on the Firm's
Consolidated statements of income. The change in
accounting due to the adoption of the new lease guidance
did not result in a material change to the future net
minimum rental payments/receivables or to the net rental
expense when compared to December 31, 2018.
Firm as lessee
$ 66,033 $ 50,064 $ 116,097
340
39
301
254
Total
2024
Total future minimum lease payments
$
Total future minimum lease receipts
52
After 2024
37
2024
8,101
86
1,025
2022
2,733
2021
$ 8,505
4,168
2023
$
In addition to the table above, as of December 31, 2019,
the Firm had additional future operating lease
commitments of $1.2 billion that were signed but had not
yet commenced. These operating leases will commence
between 2020 and 2022 with lease terms up to 25 years.
255
(a) Includes credit card rewards liability of $6.4 billion and $5.8 billion at
December 31, 2019 and 2018, respectively.
$ 210,407 $ 196,710
81,916
92,032
$ 118,375 $ 114,794
2018
JPMorgan Chase & Co./2019 Form 10-K
2019
Other payables and liabilities (a)
Brokerage payables
December 31, (in millions)
The following table details the components of accounts
payable and other liabilities.
Note 19 - Accounts payable and other liabilities
Accounts payable and other liabilities consist of brokerage
payables, which includes payables to customers, dealers
and clearing organizations, and payables from security
purchases that did not settle; accrued expenses, including
income tax payables and credit card rewards liability; and
all other liabilities, including obligations to return securities
received as collateral and litigation reserves.
Notes to consolidated financial statements
Total accounts payable and other
liabilities
After 2024
2020
Year ended December 31, (in millions)
The following table presents the Firm's operating lease
income and the related depreciation expense on the
Consolidated statements of income:
21,428
5,303
23,587 $
6,121
$
2018
2019
Year ended December 31,
(in millions)
Accumulated depreciation
operating leases, net of accumulated
Carrying value of assets subject to
(in millions)
December 31,
Change in unrealized gains/(losses) included in income related to MSRs held at December 31,
Contractual service fees, late fees and other ancillary fees included in income
Less: Imputed interest
depreciation
(1,585)
$ 1,604
Operating lease income
10,090
3,757
944
The following table presents future receipts under operating
leases as of December 31, 2019:
1,081
1,257
1,447
2,808
4,540 $
3,522
5,455 $
4,157
2017
2018
2019
Depreciation expense
3,611
JPMorgan Chase & Co./2019 Form 10-K
After 5 years
2023
2019
2018
2017
Residential mortgage retained interest:
Weighted-average life (in years)
4.8
Year ended December 31,
Weighted-average discount rate
7.6
3.6%
4.8
2.9%
Commercial mortgage retained interest:
Weighted-average life (in years)
6.4
Weighted-average discount rate
7.4%
4.1%
Key assumptions used to value retained interests originated
during the year are shown in the table below.
(c) The carrying value of the loans accounted for at fair value approximated the proceeds received upon loan sale.
(d) The prior period amounts have been revised to conform with the current period presentation.
2
319
2
338
3
Cash flows received on interests
(e) Includes prime mortgages only. Excludes loan securitization activity related to U.S. GSES and government agencies.
(f) Includes commercial mortgage and other consumer loans.
507
411
301
463
918
(a) Excludes re-securitization transactions.
(b) Predominantly includes Level 2 assets.
237
287
5.3
4.0%
Loans and excess MSRS sold to U.S. government-
sponsored enterprises and loans in securitization
transactions pursuant to Ginnie Mae guidelines
In addition to the amounts reported in the securitization
activity tables above, the Firm, in the normal course of
business, sells originated and purchased mortgage loans
and certain originated excess MSRs on a nonrecourse basis,
predominantly to U.S. GSES. These loans and excess MSRS
are sold primarily for the purpose of securitization by the
U.S. GSES, who provide certain guarantee provisions (e.g.,
credit enhancement of the loans). The Firm also sells loans
into securitization transactions pursuant to Ginnie Mae
guidelines; these loans are typically insured or guaranteed
by another U.S. government agency. The Firm does not
consolidate the securitization vehicles underlying these
transactions as it is not the primary beneficiary. For a
limited number of loan sales, the Firm is obligated to share
a portion of the credit risk associated with the sold loans
with the purchaser. Refer to Note 28 for additional
information about the Firm's loan sales- and securitization-
related indemnifications. Refer to Note 15 for additional
information about the impact of the Firm's sale of certain
excess MSRs.
43,671
63,542
Total proceeds received from
loan sales(c)
$
Gains/(losses) on loan sales (d)(e) $
91,422
91,495 $
499 $
63,659
163
pools as it continues to service them and/or manage the
foreclosure process in accordance with the applicable
requirements, and such loans continue to be insured or
guaranteed. When the Firm's repurchase option becomes
exercisable, such loans must be reported on the
Consolidated balance sheets as a loan with a corresponding
liability. Refer to Note 12 for additional information.
The following table presents loans the Firm repurchased or
had an option to repurchase, real estate owned, and
foreclosed government-guaranteed residential mortgage
loans recognized on the Firm's Consolidated balance sheets
as of December 31, 2019 and 2018. Substantially all of
these loans and real estate are insured or guaranteed by
U.S. government agencies.
(a) Includes securities from U.S. GSES and Ginnie Mae that are generally
sold shortly after receipt or retained as part of the Firm's investment
securities portfolio.
(b) Included in level 2 assets.
43,680 $
(93) $
7.1
4.4%
Proceeds from loan sales as
securities (a)(b)
9 $
248
JPMorgan Chase & Co./2019 Form 10-K
The following table summarizes the activities related to
loans sold to the U.S. GSES, and loans in securitization
transactions pursuant to Ginnie Mae guidelines.
Year ended December 31,
(in millions)
2019
2018
117
2017
$
92,349 $ 44,609 $ 64,542
Proceeds received from loan
sales as cash
$
73 $
Carrying value of loans sold
2024
Servicing fees collected (d)
5,661 $
$ 1,562,431 $1,470,666
Total deposits
Total deposits in non-U.S. offices
248,617
270,076
290,608
270,521
(a) Includes structured notes classified as deposits for which the fair value
option has been elected. Refer to Note 3 for further discussion.
(b) In the second quarter of 2019, the Firm reclassified balances related
to certain structured notes from interest-bearing to noninterest-
bearing deposits as the associated returns are recorded in principal
transactions revenue and not in net interest income. This change was
applied retrospectively and, accordingly, prior period amounts were
revised to conform with the current presentation.
Interest-bearing (included $1,438 and
$1,159 at fair value)(a)(b)
VIES sponsored by third parties
The Firm enters into transactions with VIES structured by
other parties. These include, for example, acting as a
derivative counterparty, liquidity provider, investor,
underwriter, placement agent, remarketing agent, trustee
or custodian. These transactions are conducted at arm's-
length, and individual credit decisions are based on the
analysis of the specific VIE, taking into consideration the
quality of the underlying assets. Where the Firm does not
have the power to direct the activities of the VIE that most
significantly impact the VIE's economic performance, or a
variable interest that could potentially be significant, the
Firm generally does not consolidate the VIE, but it records
and reports these positions on its Consolidated balance
sheets in the same manner it would record and report
positions in respect of any other third-party transaction.
Tax credit vehicles
The Firm holds investments in unconsolidated tax credit
vehicles, which are limited partnerships and similar entities
that own and operate affordable housing, energy, and other
projects. These entities are primarily considered VIES. A
third party is typically the general partner or managing
member and has control over the significant activities of the
tax credit vehicles, and accordingly the Firm does not
consolidate tax credit vehicles. The Firm generally invests in
these partnerships as a limited partner and earns a return
primarily through the receipt of tax credits allocated to the
projects. The maximum loss exposure, represented by
equity investments and funding commitments, was $19.1
billion and $16.5 billion, of which $5.5 billion and $4.0
billion was unfunded at December 31, 2019 and 2018,
respectively. In order to reduce the risk of loss, the Firm
assesses each project and withholds varying amounts of its
capital investment until the project qualifies for tax credits.
Refer to Note 25 for further information on affordable
housing tax credits. Refer to Note 28 for more information
on off-balance sheet lending-related commitments.
Customer municipal bond vehicles (TOB trusts)
The Firm may provide various services to customer TOB
trusts, including remarketing agent, liquidity or tender
option provider. In certain customer TOB transactions, the
Firm, as liquidity provider, has entered into a
reimbursement agreement with the Residual holder. In
those transactions, upon the termination of the vehicle, the
Firm has recourse to the third-party Residual holders for
any shortfall. The Firm does not have any intent to protect
Residual holders from potential losses on any of the
underlying municipal bonds. The Firm does not consolidate
customer TOB trusts, since the Firm does not have the
power to make decisions that significantly impact the
economic performance of the municipal bond vehicle. The
Firm's maximum exposure as a liquidity provider to
customer TOB trusts at December 31, 2019 and 2018, was
$5.5 billion and $4.8 billion, respectively. The fair value of
assets held by such VIES at December 31, 2019 and 2018
was $8.6 billion and $7.7 billion, respectively. Refer to Note
28 for more information on off-balance sheet lending-
related commitments.
JPMorgan Chase & Co./2019 Form 10-K
21,459
Loan securitizations
At December 31, 2019 and 2018, time deposits in
denominations of $250,000 or more were as follows.
U.S. offices
2022
2021
2020
(in millions)
December 31, 2019
At December 31, 2019, the maturities of interest-bearing
time deposits were as follows.
December 31, (in millions)
$ 94,967 $ 66,780
50,840
$ 44,127 $ 25,119
2018
2019
Total
Non-U.S. offices
41,661
10,340
The Firm has securitized and sold a variety of loans,
including residential mortgage, credit card, and commercial
mortgage. The purposes of these securitization transactions
were to satisfy investor demand and to generate liquidity
for the Firm.
For loan securitizations accounted for as a sale, the Firm
recognizes a gain or loss based on the difference between
the value of proceeds received (including cash, beneficial
interests, or servicing assets received) and the carrying
value of the assets sold. Gains and losses on securitizations
are reported in noninterest revenue.
9,390
$ 6,431 $
10,159
$
5,532 $
and other (f)
10,252
9,957 $
All cash flows during the period: (a)
10,238 $
9,544
$
6,449 $
10,218
$
Proceeds received from loan sales as financial
instruments (b)(c)
For loan securitizations in which the Firm is not required to
consolidate the trust, the Firm records the transfer of the
loan receivable to the trust as a sale when all of the
following accounting criteria for a sale are met: (1) the
transferred financial assets are legally isolated from the
Firm's creditors; (2) the transferee or beneficial interest
holder can pledge or exchange the transferred financial
assets; and (3) the Firm does not maintain effective control
over the transferred financial assets (e.g., the Firm cannot
repurchase the transferred assets before their maturity and
it does not have the ability to unilaterally cause the holder
to return the transferred assets).
mortgage(e)
Residential
247
Notes to consolidated financial statements
Securitization activity
The following table provides information related to the Firm's securitization activities for the years ended December 31, 2019,
2018 and 2017, related to assets held in Firm-sponsored securitization entities that were not consolidated by the Firm, and
where sale accounting was achieved at the time of the securitization.
Year ended December 31,
(in millions)
Commercial
Principal securitized
2018
2017
Residential
mortgage(e)
Commercial
and other(f)
Residential
mortgage(e)
Commercial
and other (f)
2019
Total
(369) $
181.5
Dividend declared per share(c)
Shares(a)
Carrying value
(in millions)
December 31,
December 31,
Contractual rate
in effect at
December 31,
2019
2018
2019
The following is a summary of JPMorgan Chase's non-cumulative preferred stock outstanding as of December 31, 2019 and 2018.
2018
2019
Earliest
redemption
date (b)
Floating
annualized
rate of
three-month
Year ended December 31,
LIBOR/Term
SOFR plus:
2019
2018
2017
Issue date
Fixed-rate:
In the event of a liquidation or dissolution of the Firm,
JPMorgan Chase's preferred stock then outstanding takes
precedence over the Firm's common stock with respect to
the payment of dividends and the distribution of assets.
Note 21 - Preferred stock
$
276
$
6,738
$
13,714
(a) The interest rates shown are the range of contractual rates in effect at December 31, 2019 and 2018, respectively, including non-U.S. dollar fixed- and
variable-rate issuances, which excludes the effects of the associated derivative instruments used in hedge accounting relationships, if applicable. The use
of these derivative instruments modifies the Firm's exposure to the contractual interest rates disclosed in the table above. Including the effects of the
hedge accounting derivatives, the range of modified rates in effect at December 31, 2019, for total long-term debt was (0.02)% to 9.43%, versus the
contractual range of 0.15% to 9.43% presented in the table above. The interest rate ranges shown exclude structured notes accounted for at fair value.
(b) Included long-term debt of $32.0 billion and $47.7 billion secured by assets totaling $186.1 billion and $207.0 billion at December 31, 2019 and 2018,
respectively. The amount of long-term debt secured by assets does not include amounts related to hybrid instruments.
(c) Included $75.7 billion and $54.9 billion of long-term debt accounted for at fair value at December 31, 2019 and 2018, respectively.
(d) Included $13.6 billion and $11.2 billion of outstanding zero-coupon notes at December 31, 2019 and 2018, respectively. The aggregate principal amount
of these notes at their respective maturities is $39.3 billion and $37.4 billion, respectively. The aggregate principal amount reflects the contractual
principal payment at maturity, which may exceed the contractual principal payment at the Firm's next call date, if applicable.
At December 31, 2019 and 2018, JPMorgan Chase was
authorized to issue 200 million shares of preferred stock, in
one or more series, with a par value of $1 per share.
(e) Included on the Consolidated balance sheets in beneficial interests issued by consolidated VIEs. Also included $36 million and $28 million accounted for at
fair value at December 31, 2019 and 2018, respectively. Excluded short-term commercial paper and other short-term beneficial interests of $11.1 billion
and $6.5 billion at December 31, 2019 and 2018, respectively.
(g) The aggregate carrying values of debt that matures in each of the five years subsequent to 2019 is $38.3 billion in 2020, $45.8 billion in 2021, $19.6
billion in 2022, $29.7 billion in 2023 and $25.9 billion in 2024.
JPMorgan Chase & Co./2019 Form 10-K
257
Notes to consolidated financial statements
The weighted-average contractual interest rates for total
long-term debt excluding structured notes accounted for at
fair value were 3.13% and 3.28% as of December 31,
2019 and 2018, respectively. In order to modify exposure
to interest rate and currency exchange rate movements,
JPMorgan Chase utilizes derivative instruments, primarily
interest rate and cross-currency interest rate swaps, in
conjunction with some of its debt issuances. The use of
these instruments modifies the Firm's interest expense on
the associated debt. The modified weighted-average
interest rates for total long-term debt, including the effects
of related derivative instruments, were 3.19% and 3.64%
as of December 31, 2019 and 2018, respectively.
JPMorgan Chase & Co. has guaranteed certain long-term
debt of its subsidiaries, including both long-term debt and
structured notes. These guarantees rank on parity with the
Firm's other unsecured and unsubordinated indebtedness.
The amount of such guaranteed long-term debt and
structured notes was $14.4 billion and $10.9 billion at
December 31, 2019 and 2018, respectively.
The Firm's unsecured debt does not contain requirements
that would call for an acceleration of payments, maturities
or changes in the structure of the existing debt, provide any
limitations on future borrowings or require additional
collateral, based on unfavorable changes in the Firm's credit
ratings, financial ratios, earnings or stock price.
258
JPMorgan Chase & Co./2019 Form 10-K
(f) At December 31, 2019, long-term debt in the aggregate of $141.3 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior to
maturity, based on the terms specified in the respective instruments.
Series P
90,000
$
Series Y
143,000
143,000
1,430
Series AA
142,500
142,500
1,425
Series BB 115,000
630.00
115,000
JPMorgan Chase & Co./2019 Form 10-K
Series DD
169,625
169,625
1,696
1,696
Series EE
185,000
1,850
1,150
630.00
472.50
ΝΑ
$
900
2/5/2013
-% 3/1/2018
ΝΑ
$545.00
$545.00
$545.00
Series T
92,500
925
1/30/2014
3/1/2019
ΝΑ
167.50
670.00
670.00
Series W
88,000
880 6/23/2014
9/1/2019
3,941
$
2,521
$
Variable rate
Interest rates(a)
-%
8.25%
-%
8.25%
8.25%
Junior subordinated debt:
Fixed rate
301
Subtotal $
$
$
51,233
$
21,250
$
94,398
$
96,791
$
21,915
1.00-7.50%
35,601
305
761
$
Variable rate
Interest rates(a)
11,650
6,955
24,938
$
11,881
$
9,273
7.50%
2.15-9.43%
1.00-7.50%
19,597
45,861
1.00-9.43%
$
16,434
Subordinated debt:
Fixed rate
$
305
$
$
693
Series GG
$
$
291,498
(f)(g) $
2,125
282,031
Long-term beneficial
interests:
Fixed rate
$
Variable rate
Interest rates
1,621
900
$
$
1.49-2.19%
$
$
276
0.84-4.06%
2,990
3,748
0.00-4.06%
$
7,611
6,103
0.00-4.62%
Total long-term beneficial
interests(e)
1,369
2,572
0.00-2.77%
$ 132,183
121,032
$
659
Variable rate
1,430
1,430
1,466
Interest rates(a)
-%
-%
2.41-8.75%
2.41-8.75%
3.04-8.75%
Subtotal $
$
$
2,123
$
2,123
$
Total long-term debt (b)(c)(d)
$
38,283
693
$
90,000
1,430 2/12/2015
1,425 6/4/2015
1,150 7/29/2015
9/21/2018
1/24/2019
11/7/2019
(g) The dividend rate for Series V preferred stock became floating and payable quarterly starting on July 1, 2019; prior to which the dividend rate was fixed at
5% or $250.00 per share payable semi annually. The Firm declared a dividend of $144.11 and $139.98 per share on outstanding Series V preferred
stock on August 15, 2019 and November 15, 2019, respectively.
(h) Dividends in the amount of $126.39 per share were declared on September 9, 2019 and include dividends from the original issue date of July 31, 2019
through October 31, 2019. Dividends in the amount of $125.00 per share were declared thereafter on December 10, 2019.
Each series of preferred stock has a liquidation value and
redemption price per share of $10,000, plus accrued but
unpaid dividends. The aggregate liquidation value was
$27.3 billion at December 31, 2019.
On February 24, 2020, the Firm issued $1.5 billion of fixed-
to- floating rate non-cumulative preferred stock, Series II.
On January 31, 2020, the Firm announced that it will
redeem all $1.43 billion of its 6.125% non-cumulative
preferred stock, Series Y on March 1, 2020.
On January 23, 2020, the Firm issued $3.0 billion of fixed-
to-floating rate non-cumulative preferred stock, Series HH.
On December 1, 2019, the Firm redeemed all $900 million
of its 5.45% non-cumulative preferred stock, Series P.
On November 7, 2019, the Firm issued $900 million of
4.75% non-cumulative preferred stock, Series GG.
On October 30, 2019, the Firm redeemed $1.37 billion of
its fixed-to-floating rate non-cumulative perpetual preferred
stock, Series I.
JPMorgan Chase & Co./2019 Form 10-K
(f) The dividend rate for Series I preferred stock became floating and payable quarterly starting on April 30, 2018; prior to which the dividend rate was fixed
at 7.90% or $395.00 per share payable semi annually.
259
On September 1, 2019, the Firm redeemed all $880 million
of its 6.30% non-cumulative preferred stock, Series W.
On July 31, 2019, the Firm issued $2.25 billion of fixed-to-
floating rate non-cumulative preferred stock, Series FF.
On March 1, 2019, the Firm redeemed $925 million of its
6.70% non-cumulative preferred stock, Series T.
On January 24, 2019, the Firm issued $1.85 billion of
6.00% non-cumulative preferred stock, Series EE.
On October 30, 2018, the Firm redeemed $1.7 billion of its
fixed-to-floating rate non-cumulative perpetual preferred
stock, Series I.
On September 21, 2018, the Firm issued $1.7 billion of
5.75% non-cumulative preferred stock, Series DD.
Dividends in the amount of $550.00 per share were
declared for series O from January 1, 2017 through
redemption on December 1, 2017.
Redemption rights
Each series of the Firm's preferred stock may be redeemed
on any dividend payment date on or after the earliest
redemption date for that series. All outstanding preferred
stock series except Series I may also be redeemed following
a "capital treatment event," as described in the terms of
each series. Any redemption of the Firm's preferred stock is
subject to non-objection from the Board of Governors of the
Federal Reserve System (the "Federal Reserve").
Notes to consolidated financial statements
260
(e) No dividends were declared for Series GG from the original issue date of November 7, 2019 through December 31, 2019.
(c) Dividends are declared quarterly. Dividends are payable quarterly on fixed-rate preferred stock. Dividends are payable semiannually on fixed-to-floating-
rate preferred stock while at a fixed rate, and payable quarterly after converting to a floating rate.
LIBOR + 3.33
LIBOR + 3.80
610.00
610.00
610.00
530.00
530.00
530.00
8/1/2024
LIBOR + 2.58
SOFR + 3.38
(d) Dividends in the amount of $211.67 per share were declared on April 12, 2019 and include dividends from the original issue date of January 24, 2019
through May 31, 2019. Dividends in the amount of $150.00 per share were declared thereafter on July 10, 2019 and October 9, 2019.
462.50
129.76
251.39
(h)
Total
preferred
stock
2,699,250 2,606,750
$ 26,993 $ 26,068
(a) Represented by depositary shares.
(b) Fixed-to-floating rate notes convert to a floating rate at the earliest redemption date.
462.50
JPMorgan Chase & Co./2019 Form 10-K
Note 22 Common stock
At December 31, 2019 and 2018, JPMorgan Chase was
authorized to issue 9.0 billion shares of common stock with
a par value of $1 per share.
5.4
Employee stock purchase plans
0.8
0.9
Total reissuance
21.2
32.0
0.8
30.7
Total treasury - balance at
9.4
December 31
(1,020.9) (829.1) (679.6)
3,084.0 3,275.8 3,425.3
There were no warrants to purchase shares of common
stock ("Warrants") outstanding at December 31, 2019, as
any Warrants that were not exercised on or before October
29, 2018, have expired. At December 31, 2017, the Firm
had 15.0 million Warrants outstanding.
On June 27, 2019, in conjunction with the Federal Reserve's
release of its 2019 CCAR results, the Firm's Board of
Directors authorized a $29.4 billion common equity
repurchase program. As of December 31, 2019, $15.6
billion of authorized repurchase capacity remained under
the program. This authorization includes shares
repurchased to offset issuances under the Firm's share-
based compensation plans.
The following table sets forth the Firm's repurchases of
common equity for the years ended December 31, 2019,
2018 and 2017. There were no Warrants repurchased
during any of the years.
Year ended December 31, (in millions)
Total number of shares of common stock
repurchased
Aggregate purchase price of common
stock repurchases
2019
2018
2017
Outstanding at December 31
Warrant exercise
24.5
21.7
Common shares issued (newly issued or reissuance from
treasury) by JPMorgan Chase during the years ended
December 31, 2019, 2018 and 2017 were as follows.
Year ended December 31,
(in millions)
2019
2018
2017
Total issued - balance at
January 1
4,104.9
4,104.9
Treasury - balance at January 1
(829.1)
(679.6)
Repurchase
(213.0)
(181.5)
4,104.9
(543.7)
(166.6)
Reissuance:
Employee benefits and
compensation plans
20.4
500.00 (g)
500.00
534.09
LIBOR + 3.32
(d)
NA
(e)
Fixed-to-floating-rate:
Series I
293,375 430,375
2,934
Series Q
150,000 150,000
511.67
1,500
Series R
150,000
150,000
1,500
1,500
Series S
200,000
200,000
2,000
4,304 4/23/2008
1,500 4/23/2013
NA
3/1/2024
12/1/2024
6.000
4.750
6.125
3/1/2020
ΝΑ
612.52
612.52
612.52
6.100 9/1/2020
ΝΑ
610.00
610.00
610.00
6.150
9/1/2020
ΝΑ
615.00
615.00
615.00
5.750 12/1/2023
ΝΑ
575.00
111.81
2,000
900
Series U
100,000
LIBOR + 3.47% 4/30/2018 LIBOR + 3.47%
5.150 5/1/2023 LIBOR + 3.25
6.000 8/1/2023
6.750 2/1/2024
6.125 4/30/2024
LIBOR + 3.32% 7/1/2019
6.100 10/1/2024
5.300 5/1/2020
4.625 11/1/2022
5.000
$593.23
$646.38
$790.00
(f)
515.00
515.00
515.00
LIBOR + 3.30
7/29/2013
1/22/2014
3/10/2014
6/9/2014
9/23/2014
4/21/2015
10/20/2017
7/31/2019
600.00
600.00
LIBOR + 3.78
675.00
675.00
675.00
LIBOR + 3.33
612.50
612.50
612.50
600.00
2,250
225,000
Series FF
1,000
1,000
Series V
250,000
250,000
2,500
2,500
Series X
160,000
160,000
1,600
1,600
Series Z
200,000
200,000
2,000
2,000
Series CC
125,750 125,750
1,258
1,258
100,000
213.0
Fixed rate
2.36-2.96%
9,147
Deferred income tax expense/(benefit)
U.S. federal
709
1,359
2,174
Non-U.S.
20
(93)
6,569
(144)
220
455
282
Total deferred income tax
expense/(benefit)
949
1,721
2,312
$ 8,114
U.S. state and local
$ 8,290
7,165
1,029
(a) Predominantly includes earnings of U.K. subsidiaries that were deemed
to be reinvested indefinitely through December 31, 2017.
JPMorgan Chase & Co./2019 Form 10-K
265
The following table reflects the components of income tax
expense/(benefit) included in the Consolidated statements
of income.
Income tax expense/(benefit)
Year ended December 31,
(in millions)
Current income tax expense/(benefit)
U.S. federal
Total current income tax expense/
(benefit)
Non-U.S.
2018
2017
$ 3,284 $ 2,854 $ 5,718
2,103
2,077
2,400
U.S. state and local
1,778
1,638
2019
$ 11,459
Total income tax expense
Total income tax expense includes $1.1 billion, $54 million
and $252 million of tax benefits recorded in 2019, 2018,
and 2017, respectively, resulting from the resolution of tax
audits.
(90)
250
79
(24)
103
སྐྱས
(1)
3
Amortization of prior service cost/(credit)
2
131
167
Amortization of net loss
Reclassification adjustments included in net income(e):
642
(160)
802
(456)
102
(558)
(36)
(23)
6
(17)
Tax effect of items recorded in stockholders' equity
The preceding table does not reflect the tax effect of certain
items that are recorded each period directly in
stockholders' equity. The tax effect of all items recorded
directly to stockholders' equity resulted in a decrease of
$862 million in 2019, an increase of $172 million in 2018,
and a decrease of $915 million in 2017.
Results from Non-U.S. earnings
The following table presents the U.S. and non-U.S.
components of income before income tax expense.
Year ended December 31,
(in millions)
Prior to December 31, 2017, U.S. federal income taxes had
not been provided on the undistributed earnings of certain
non-U.S. subsidiaries, to the extent that such earnings had
been reinvested abroad for an indefinite period of time. The
Firm is no longer maintaining the indefinite reinvestment
assertion on the undistributed earnings of those non-U.S.
subsidiaries in light of the enactment of the TCJA. The U.S.
federal and state and local income taxes associated with the
undistributed and previously untaxed earnings of those
non-U.S. subsidiaries was included in the deemed
repatriation charge recorded as of December 31, 2017. The
Firm will recognize any taxes it may incur on global
intangible low tax income as income tax expense in the
period in which the tax is incurred.
Affordable housing tax credits
The Firm recognized $1.5 billion, $1.5 billion and $1.7
billion of tax credits and other tax benefits associated with
investments in affordable housing projects within income
tax expense for the years 2019, 2018 and 2017,
respectively. The amount of amortization of such
investments reported in income tax expense was $1.1
billion, $1.2 billion and $1.7 billion, respectively. The
carrying value of these investments, which are reported in
other assets on the Firm's Consolidated balance sheets, was
$8.6 billion and $7.9 billion at December 31, 2019 and
2018, respectively. The amount of commitments related to
these investments, which are reported in accounts payable
and other liabilities on the Firm's Consolidated balance
sheets, was $2.8 billion and $2.3 billion at December 31,
2019 and 2018, respectively.
U.S.
Non-U.S.(a)
2019
$36,670
7,875
2018
$33,052
2017
$27,103
7,712
8,797
Income before income tax expense $ 44,545
$ 40,764 $ 35,900
(a) For purposes of this table, non-U.S. income is defined as income
generated from operations located outside the U.S.
266
JPMorgan Chase & Co./2019 Form 10-K
Adjustments were also recorded in 2017 to income tax
expense for certain tax-oriented investments. These
adjustments were driven by changes to affordable housing
proportional amortization resulting from the reduction of
the federal income tax rate under the TCJA. SAB 118 did not
apply to these adjustments.
The deemed repatriation of the Firm's unremitted non-U.S.
earnings is based on the post-1986 earnings and profits of
each controlled foreign corporation. The calculation
resulted in an estimated income tax expense of $3.7 billion.
Furthermore, accounting for income taxes requires the
remeasurement of certain deferred tax assets and liabilities
based on the rates at which they are expected to reverse in
the future. The Firm remeasured its deferred tax asset and
liability balances in the fourth quarter of 2017 to the new
statutory U.S. federal income tax rate of 21% as well as any
federal benefit associated with state and local deferred
income taxes. The remeasurement resulted in an estimated
income tax benefit of $2.1 billion.
The Firm's effective tax rate increased in 2017 driven by a
$1.9 billion income tax expense representing the estimated
impact of the enactment of the TCJA. The $1.9 billion tax
expense was predominantly driven by a deemed
repatriation of the Firm's unremitted non-U.S. earnings and
adjustments to the value of certain tax-oriented
investments partially offset by a benefit from the
revaluation of the Firm's net deferred tax liability.
2017
964
(450)
77
(373)
964
(226)
(1)
1
(42)
(193)
738
299
$ 3,921 $
$ (965) $ 1,364 $ (321) $ 1,043 $ (303) $ 111 $ (192)
(845) $ 3,076 $ (1,761) $ 285 $ (1,476) $ 1,971 $
(915) $ 1,056
(a) The pre-tax amount is reported in investment securities gains/(losses) in the Consolidated statements of income.
(b) Reclassifications of pre-tax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in the
Consolidated statements of income. During the year ended December 31, 2019, the Firm reclassified net pre-tax gains of $7 million to other income and
$1 million to other expense, respectively. These amounts, which related to the liquidation of certain legal entities, are comprised of $18 million related to
net investment hedge gains and $10 million related to cumulative translation adjustments. During the year ended December 31, 2018, the Firm
reclassified a net pre-tax loss of $168 million to other expense related to the liquidation of certain legal entities, $17 million related to net investment
hedge losses and $151 million related to cumulative translation adjustments. During the year ended December 31, 2017, the Firm reclassified a net pre-
tax loss of $25 million to other expense related to the liquidation of a legal entity, $50 million related to net investment hedge gains and $75 million
related to cumulative translation adjustments.
(c) Represents changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads, which are excluded from the assessment
of hedge effectiveness and recorded in other comprehensive income. The initial cost of cross-currency basis spreads is recognized in earnings as part of
the accrual of interest on the cross-currency swap.
(d) The pre-tax amounts are primarily recorded in noninterest revenue, net interest income and compensation expense in the Consolidated statements of
income.
(e) The pre-tax amount is reported in other expense in the Consolidated statements of income.
264
DVA on fair value option elected liabilities, net change: $ (1,264) $
Total other comprehensive income/(loss)
1,157
Net change
12
Curtailment (gain)/loss
21
(5)
16
Settlement (gain)/loss
-
-
2
2
2
སྣེཀྑ | བྱེ །
160
(23)
Foreign exchange and other
(13)
12
(1)
34
(9)
25
(54)
JPMorgan Chase & Co./2019 Form 10-K
836
Note 25 - Income taxes
Due to the inherent complexities arising from the nature of
the Firm's businesses, and from conducting business and
being taxed in a substantial number of jurisdictions,
significant judgments and estimates are required to be
made. Agreement of tax liabilities between JPMorgan Chase
and the many tax jurisdictions in which the Firm files tax
returns may not be finalized for several years. Thus, the
Firm's final tax-related assets and liabilities may ultimately
be different from those currently reported.
(4.4)
(3.5)
(4.2)
Tax audit resolutions
(2.3)
(0.1)
(0.3)
Impact of the TCJA
(0.7)
Business tax credits
5.4
0.5
0.2
Effective tax rate
18.2%
20.3%
31.9%
Impact of the TCJA
2018
The Firm's effective tax rate decreased in 2018 due to the
TCJA, including the reduction in the U.S. federal statutory
income tax rate as well as a $302 million net tax benefit
recorded in 2018 resulting from changes in the estimates
related to the remeasurement of certain deferred taxes and
the deemed repatriation tax on non-U.S. earnings. The
change in estimate was recorded under SEC Staff
Accounting Bulletin No. 118 (“SAB 118") and the
accounting under SAB 118 is complete.
Other, net
(a)
(3.1)
0.6
Effective tax rate and expense
The following table presents a reconciliation of the
applicable statutory U.S. federal income tax rate to the
effective tax rate.
Effective tax rate
Year ended December 31,
Statutory U.S. federal tax rate
Increase/(decrease) in tax rate
resulting from:
U.S. state and local income
taxes, net of U.S. federal
income tax benefit
2019
2018
2017
21.0%
21.0%
35.0%
3.5
Tax-exempt income
(1.4)
4.0
(1.5)
2.2
(3.3)
Non-U.S. earnings
1.8
JPMorgan Chase and its eligible subsidiaries file a
consolidated U.S. federal income tax return. JPMorgan
Chase uses the asset and liability method to provide income
taxes on all transactions recorded in the Consolidated
Financial Statements. This method requires that income
taxes reflect the expected future tax consequences of
temporary differences between the carrying amounts of
assets or liabilities for book and tax purposes. Accordingly,
a deferred tax asset or liability for each temporary
difference is determined based on the tax rates that the
Firm expects to be in effect when the underlying items of
income and expense are realized. JPMorgan Chase's
expense for income taxes includes the current and deferred
portions of that expense. A valuation allowance is
established to reduce deferred tax assets to the amount the
Firm expects to realize.
Senior debt:
(169)
Net gain/(loss) arising during the period
2018
Total
2019
Under 1 year
1-5 years
After 5 years
Fixed rate
$
Variable rate
Interest rates (a)
Total
13,580
2,788
$
95,636
3,119
$
161,198
$
18,615
0.15-4.95%
0.50-4.63%
0.45-6.40%
$ 51,982
12,708
0.15-6.40%
Senior debt:
(in millions, except rates)
effect After-tax
After-tax Pre-tax
Tax
2017
2018
Tax
effect
effect After-tax Pre-tax
Pre-tax
2019
Tax
Hedges
Parent company
Translation
Net change
Unrealized gains/(losses) on investment securities:
Net unrealized gains/(losses) arising during the period
Reclassification adjustment for realized (gains)/losses
included in net income(a)
Year ended December 31, (in millions)
The following table presents the pre-tax and after-tax changes in the components of OCI.
Notes to consolidated financial statements
263
Note 20 - Long-term debt
JPMorgan Chase issues long-term debt denominated in various currencies, predominantly U.S. dollars, with both fixed and
variable interest rates. Included in senior and subordinated debt below are various equity-linked or other indexed instruments,
which the Firm has elected to measure at fair value. Changes in fair value are recorded in principal transactions revenue in the
Consolidated statements of income, except for unrealized gains/(losses) due to DVA which are recorded in OCI. The following
table is a summary of long-term debt carrying values (including unamortized premiums and discounts, issuance costs,
valuation adjustments and fair value adjustments, where applicable) by remaining contractual maturity as of December 31,
2019.
By remaining maturity at
December 31,
Translation adjustments(b):
145,820
22,978
0.17-6.40%
Subordinated debt:
Fixed rate
Federal Home Loan Banks
advances:
Fixed rate
$
4
$
35
96
$
135
Subsidiaries
$
Variable rate
9,500
19,000
Interest rates(a)
1.88-2.18%
1.67-2.24%
-%
28,500
1.67-2.24%
44,300
155
3.38-8.53%
183,115
$
194,977
$
$
5,109
$ 10,046
$ 15,155
$
Variable rate
9
9
14,308
9
Interest rates(a)
-%
3.38-3.88%
3.63-8.00%
3.38-8.00%
Subtotal $
16,368
$
69,799
$ 108,810
$
$ 4,025 $ (974) $ 3,051
$ (2,825) $ 665
$ (2,160) $ 944
$ (346) $ 598
(25)
103
Reclassification adjustment for realized (gains)/losses
included in net income(d)
22
92
(55)
147
(187)
58
78
(245)
(28)
122
Net unrealized gains/(losses) arising during the period
Cash flow hedges:
Fair value hedges, net change (c):
Net change
ΝΑ
ΝΑ
ΝΑ
94
(18)
4
(14)
(22)
7
(29)
(4)
1
(5)
Prior service credit/(cost) arising during the period
Defined benefit pension and OPEB plans:
176
(105)
281
(201)
62
(263)
172
(53)
225
Net change
84
(50)
134
(107)
1,005
33
30
(1,078)
(16)
33
(49)
640
(370)
1,010
(1,858)
572
156
42
66
302
(93)
395
(2,430)
(912) 2,855
3,767
(196)
62
(258)
(24)
(922)
1,313
(801)
(9)
39
(306)
(325)
19
20
(138)
158
20
23
(3)
(818)
476
(1,294)
942
(294)
1,236
36
(10)
46
512
(140)
13
(36)
$24,121 $19,983 $15,410
(368)
$
(119)
Cumulative effect of
changes in
accounting
$
principles: (a)
896
(1,858)
(277)
(54)
16
20
(107)
Net change
(1,521)
$
76
640
(306)
NA
176
738
(192)
(1,175)
1,056
Balance at
December 31,
2017
$ 2,164
$
(470)
$
$
(201)
Net change
(414)
88
(1,507)
3,076
Balance at
December 31,
2019
$ 4,057
$ (707)
$
(965)
(131) $
1,569
(a) Represents the adjustment to AOCI as a result of the accounting standards adopted in the first quarter of 2018. Refer to Note 1 for additional information.
$
(1,344)
$
166.6
63
964
$
596
1,043
(1,476)
Balance at
December 31,
2018
$ 1,202
Net change
2,855
$ (727)
20
$
(161) $
30
(109)
172
$
(2,308)
$
(79)
$
(373)
$
Net income applicable to common
stockholders
Total weighted-average basic shares
outstanding
Net income per share
Diluted earnings per share
Net income applicable to common
stockholders
Total weighted-average basic shares
outstanding
Net income applicable to common
equity
Add: Dilutive impact of SARS and
employee stock options, unvested
PSUs and non-dividend-earning
RSUS, and warrants
$ 36,431 $ 32,474 $ 24,441
1,587 1,551
1,663
34,844 30,923
22,778
202
214
Total weighted-average diluted
shares outstanding
Net income per share
Less: Preferred stock dividends
Net income
2017
The Firm from time to time enters into written trading plans
under Rule 10b5-1 of the Securities Exchange Act of 1934
to facilitate repurchases in accordance with the common
equity repurchase program. A Rule 10b5-1 repurchase plan
allows the Firm to repurchase its equity during periods
when it would not otherwise be repurchasing common
equity for example, during internal trading “blackout
periods." All purchases under a Rule 10b5-1 plan must be
made according to a predefined plan established when the
Firm is not aware of material nonpublic information. Refer
to Part II, Item 5: Market for registrant's common equity,
related stockholder matters and issuer purchases of equity
securities, on page 30 for additional information regarding
repurchases of the Firm's equity securities.
(176)
As of December 31, 2019, approximately 70.5 million
shares of common stock were reserved for issuance under
various employee incentive, compensation, option and stock
purchase plans, and directors' compensation plans.
JPMorgan Chase & Co./2019 Form 10-K
261
Management's discussion and analysis
Note 23 - Earnings per share
Basic earnings per share ("EPS") is calculated using the
two-class method. Under the two-class method, all earnings
(distributed and undistributed) are allocated to common
stock and participating securities. JPMorgan Chase grants
RSUS under its share-based compensation programs,
predominantly all of which entitle recipients to receive
nonforfeitable dividends during the vesting period on a
basis equivalent to dividends paid to holders of the Firm's
common stock. These unvested RSUS meet the definition of
participating securities based on their respective rights to
receive nonforfeitable dividends, and they are treated as a
separate class of securities in computing basic EPS.
Participating securities are not included as incremental
shares in computing diluted EPS; refer to Note 9 for
additional information.
Diluted EPS incorporates the potential impact of
contingently issuable shares, including awards which
require future service as a condition of delivery of the
underlying common stock. Diluted EPS is calculated under
both the two-class and treasury stock methods, and the
more dilutive amount is reported. For each of the periods
presented in the table below, diluted EPS calculated under
the two-class method was more dilutive.
The following table presents the calculation of net income
applicable to common stockholders and basic and diluted
EPS for the years ended December 31, 2019, 2018 and
2017.
Year ended December 31,
(in millions,
except per share amounts)
Basic earnings per share
2019
2018
211
$ 34,642 $ 30,709 $ 22,567
Less: Dividends and undistributed
earnings allocated to participating
securities
Balance at
Cash flow
hedges
Defined benefit pension
and OPEB plans
DVA on fair value
option elected
liabilities
other
comprehensive
income/(loss)
December 31,
2016
$ 1,524
$
(164)
ΝΑ
$
(100)
$
$
(2,259)
Translation
adjustments,
net of hedges
on investment
securities
Fair value
hedges
3,230.4
8.9
17.6
25.2
Accumulated
3,414.0
3,576.8
3,221.5 3,396.4 3,551.6
$ 10.72 $ 9.00 $ 6.31
3,221.5 3,396.4 3,551.6
10.75 $ 9.04 $ 6.35
JPMorgan Chase & Co./2019 Form 10-K
Note 24 - Accumulated other comprehensive income/(loss)
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation
adjustments (including the impact of related derivatives), fair value changes of excluded components on fair value hedges, cash
flow hedging activities, net loss and prior service costs/(credit) related to the Firm's defined benefit pension and OPEB plans, and
fair value option-elected liabilities arising from changes in the Firm's own credit risk (DVA).
Year ended
December 31,
(in millions)
Unrealized
gains/(losses)
262
$ 34,642 $ 30,709 $ 22,567
Other letters of credit (c)
58,645 129,414 168,400
938
367,250
351,490
Standby letters of credit and other financial
guarantees (c)
10,791
Other unfunded commitments to extend credit (c)
1,560
33
33
651,445
702,132
18,073
852
2,850
Wholesale:
15,919
2,734
4
5,117
40
2,433
3
2,825
387,813
$1,039,258
521
618
33,498
33,908
2,957
404,115
$ 756,074 $143,157 $ 176,407 $ 30,609 $1,106,247
77,298 140,724 173,557 12,536
Securities lending indemnification agreements and
guarantees (d)
Other guarantees and commitments
Total lending-related
Total wholesale (b)
-
1,745
11,127
183
678,776
9,098
605,379
Consumer & Business Banking
2
2
8,011
9,288
195
197
9,994
600
Auto
12 $ 12
$
21,119 $ 20,901
5,481
12
9,086
1,376
8,296
Total consumer(b)
646
1,162
650,720
650,720
Credit card
33
33
46,066
51,412
105
18,073
2,433
28,056
Total consumer, excluding credit card
19
19
11,673
11,907
2,850
$ 1,593 $ 1,409
The following table summarizes the contractual amount and carrying value of standby letters of credit and other financial
guarantees and other letters of credit arrangements as of December 31, 2019 and 2018.
$ 204,827 $
1,403
(a) Includes certain commitments to purchase loans from correspondents.
206,432
2,684
Ng
(73)
(73)
8,183
58,960
206,432
7,217
3,399
293
841
30
27
89
59
(b) Predominantly all consumer and wholesale lending-related commitments are in the U.S.
(c) At December 31, 2019 and 2018, reflected the contractual amount net of risk participations totaling $76 million and $282 million, respectively, for other
unfunded commitments to extend credit; $9.8 billion and $10.4 billion, respectively, for standby letters of credit and other financial guarantees; and $546
million and $385 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk
participations.
(d) At December 31, 2019 and 2018, collateral held by the Firm in support of securities lending indemnification agreements was $216.2 billion and $195.6
billion, respectively. Securities lending collateral primarily consists of cash, G7 government securities, and securities issued by U.S. GSES and government
agencies.
(e) At December 31, 2019 and 2018, includes guarantees to the Fixed Income Clearing Corporation under the sponsored member repo program and
commitments and guarantees associated with the Firm's membership in certain clearing houses.
(f) At December 31, 2019 and 2018, primarily includes letters of credit hedged by derivative transactions and managed on a market risk basis, and unfunded
commitments related to institutional lending. Additionally, includes unfunded commitments predominantly related to certain tax-oriented equity
investments.
The following tables present the risk-based and leverage-based capital metrics for JPMorgan Chase and JPMorgan Chase Bank,
N.A. under both the Basel III Standardized and Basel III Advanced Approaches. As of December 31, 2019 and 2018, JPMorgan
Chase and JPMorgan Chase Bank, N.A. were well-capitalized and met all capital requirements to which each was subject.
December 31, 2019
(in millions, except ratios)
Regulatory capital
CET1 capital
Tier 1 capital
Residential mortgage (a)
Standby letters of credit and other financial guarantees
Standby letters of credit and other financial guarantees are
conditional lending commitments issued by the Firm to
guarantee the performance of a client or customer to a
third party under certain arrangements, such as
commercial paper facilities, bond financings, acquisition
financings, trade and similar transactions.
ΝΑ
1,019
types of guarantees, the Firm records this fair value amount
in other liabilities with an offsetting entry recorded in cash
(for premiums received), or other assets (for premiums
receivable). Any premium receivable recorded in other
assets is reduced as cash is received under the contract, and
the fair value of the liability recorded at inception is
amortized into income as lending and deposit-related fees
over the life of the guarantee contract. For indemnifications
provided in sales agreements, a portion of the sale
proceeds is allocated to the guarantee, which adjusts the
gain or loss that would otherwise result from the
transaction. For these indemnifications, the initial liability is
amortized to income as the Firm's risk is reduced (i.e., over
time or when the indemnification expires). Any contingent
liability that exists as a result of issuing the guarantee or
indemnification is recognized when it becomes probable
and reasonably estimable. The contingent portion of the
liability is not recognized if the estimated amount is less
than the carrying amount of the liability recognized at
inception (adjusted for any amortization). The contractual
amount and carrying value of guarantees and
indemnifications are included in the table on page 273. For
additional information on the guarantees, see below.
U.S. GAAP requires that a guarantor recognize, at the
inception of a guarantee, a liability in an amount equal to
the fair value of the obligation undertaken in issuing the
guarantee. U.S. GAAP defines a guarantee as a contract that
contingently requires the guarantor to pay a guaranteed
party based upon: (a) changes in an underlying asset,
liability or equity security of the guaranteed party; or (b) a
third party's failure to perform under a specified
agreement. The Firm considers the following off-balance
sheet arrangements to be guarantees under U.S. GAAP:
standby letters of credit and other financial guarantees,
securities lending indemnifications, certain indemnification
agreements included within third-party contractual
arrangements, certain derivative contracts and the
guarantees under the sponsored member repo program.
Guarantees
Other unfunded commitments to extend credit
Other unfunded commitments to extend credit generally
consist of commitments for working capital and general
corporate purposes, extensions of credit to support
commercial paper facilities and bond financings in the event
that those obligations cannot be remarketed to new
investors, as well as committed liquidity facilities to clearing
organizations. The Firm also issues commitments under
multipurpose facilities which could be drawn upon in
several forms, including the issuance of a standby letter of
credit.
Notes to consolidated financial statements
273
JPMorgan Chase & Co./2019 Form 10-K
(g) For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-
related products, the carrying value represents the fair value.
As required by U.S. GAAP, the Firm initially records
guarantees at the inception date fair value of the obligation
assumed (e.g., the amount of consideration received or the
net present value of the premium receivable). For certain
NA
944
ΝΑ
ΝΑ
102,008
117,951
748 - - 11
117,203
agreements
Unsettled resale and securities borrowed
367
Unsettled repurchase and securities loaned
agreements
159
$
$
$ 204,827 $ 186,077
53,089
40,243
11,299
144
- $ - $ - $ 2
55,271
Derivatives qualifying as guarantees
72,790
73,351
Other guarantees and commitments (f)
Exchange & clearing house guarantees and
commitments(e)
금금
NA
ΝΑ
금금
ΝΑ
561 - -
NA
ΝΑ
ΝΑ
Loans sold with recourse
Mortgage repurchase liability
indemnifications:
Loan sale and securitization-related
57,732
금금
1,187 $ 2,548 $ 16,704 $
8.8
$
15.5
15.9
16.0
17.1
8.1
9.4
8.1
9.4
(a) Adjusted average assets, for purposes of calculating the Tier 1 leverage ratio, includes total quarterly average assets adjusted for on-balance sheet assets
that are subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets.
(b) For each of the risk-based capital ratios, the capital adequacy of the Firm and JPMorgan Chase Bank, N.A. is evaluated against the lower of the two ratios
as calculated under Basel III approaches (Standardized or Advanced).
(c) The Tier 1 leverage ratio is not a risk-based measure of capital.
(d) On May 18, 2019, Chase Bank USA, N.A. merged with and into JPMorgan Chase Bank, N.A., with JPMorgan Chase Bank, N.A as the surviving entity. The
December 31, 2018 amounts reported for JPMorgan Chase Bank, N.A. retrospectively reflect the impact of the merger.
December 31, 2019
(in millions, except ratios)
Total leverage exposure
16.5
14.7
14.6
13.7
$
229,952
183,474
209,093
227,435
$
211,671
211,671
220,025
SLR
1,528,916
2,589,887
1,421,205
2,589,887
1,283,146
2,250,480
12.0%
14.6%
12.9%
16.5%
1,446,529
2,250,480
Basel III Advanced Fully Phased-In
December 31, 2018
Basel III Advanced Fully Phased-In
JPMorgan
Chase & Co.
3,423,431
272
JPMorgan Chase & Co./2019 Form 10-K
Off-balance sheet lending-related financial instruments, guarantees and other commitments
Contractual amount
2019
Carrying value (g)
2018
To provide for probable credit losses inherent in wholesale
and certain consumer lending-commitments, an allowance
for credit losses on lending-related commitments is
maintained. Refer to Note 13 for further information
regarding the allowance for credit losses on lending-related
commitments. The following table summarizes the
contractual amounts and carrying values of off-balance
sheet lending-related financial instruments, guarantees and
other commitments at December 31, 2019 and 2018. The
amounts in the table below for credit card and home equity
lending-related commitments represent the total available
credit for these products. The Firm has not experienced,
and does not anticipate, that all available lines of credit for
these products will be utilized at the same time. The Firm
can reduce or cancel credit card lines of credit by providing
the borrower notice or, in some cases as permitted by law,
without notice. In addition, the Firm typically closes credit
card lines when the borrower is 60 days or more past due.
The Firm may reduce or close HELOCS when there are
significant decreases in the value of the underlying
property, or when there has been a demonstrable decline in
the creditworthiness of the borrower.
2019
Expires in
By remaining maturity at December 31,
(in millions)
1 year or
less
Expires
after
1 year
through
3 years
Expires
after
3 years
through
2018
211,671
211,671
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to address
the financing needs of its customers and clients. The
contractual amount of these financial instruments
represents the maximum possible credit risk to the Firm
should the customer or client draw upon the commitment
or the Firm be required to fulfill its obligation under the
guarantee, and should the customer or client subsequently
fail to perform according to the terms of the contract. Most
of these commitments and guarantees are refinanced,
extended, cancelled, or expire without being drawn or a
default occurring. As a result, the total contractual amount
of these instruments is not, in the Firm's view,
representative of its expected future credit exposure or
funding requirements.
Notes to consolidated financial statements
JPMorgan
Chase Bank, N.A.
JPMorgan
Chase & Co.
$
3,044,509
$
3,269,988
$
Note 28 - Off-balance sheet lending-related
financial instruments, guarantees, and
other commitments
JPMorgan
Chase Bank, N.A. (a)
6.3%
6.8%
6.4%
7.3%
(a) On May 18, 2019, Chase Bank USA, N.A. merged with and into JPMorgan Chase Bank, N.A., with JPMorgan Chase Bank, N.A as the surviving entity. The
December 31, 2018 amounts reported for JPMorgan Chase Bank, N.A. retrospectively reflect the impact of the merger.
JPMorgan Chase & Co./2019 Form 10-K
271
2,915,541
183,474 $
209,093
237,511
$
JPMorgan
Chase Bank, N.A. (d)
Assets
Risk-weighted
Adjusted average (a)
Capital ratios (b)
CET1
Tier 1
Total
Total capital
Tier 1 leverage (c)
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
JPMorgan
Chase & Co.
Basel III Advanced Fully Phased-In
JPMorgan
Chase Bank, N.A.
$
187,753 $
206,848
Basel III Standardized Fully Phased-In
$
Tier 1 capital
Regulatory capital
Home equity
Consumer, excluding credit card:
Lending-related
Total
Total
Total capital
Assets
CET1 capital
Risk-weighted
Capital ratios (b)
CET1
Tier 1
Total
Tier 1 leverage (c)
December 31, 2018
(in millions, except ratios)
Adjusted average (a)
680 $
214,432
187,753
214,432
14.2
15.3
16.3
16.0
15.4
16.6
16.9
14.1
7.9
7.9
JPMorgan Chase & Co./2019 Form 10-K
Basel III Standardized Transitional
Basel III Advanced Transitional
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.(d)
JPMorgan
Chase & Co.
8.8
206,851
16.3%
14.2%
$
206,848
206,851
242,589
224,390
232,112
214,091
13.4%
1,515,869
1,397,878
1,269,991
2,730,239
2,353,432
2,730,239
2,353,432
12.4%
1,457,689
270
Also, as of December 31, 2019 and 2018, the Firm had the
following other restricted assets:
Tier 2
capital
$
26,647
$
Investment-grade (a)
of credit
Other letters
Standby letters of credit and
other financial guarantees
Other letters
of credit
Standby letters of credit and
other financial guarantees
(in millions)
December 31,
2018
2019
Standby letters of credit, other financial guarantees and other letters of credit
Deferred taxes
2,136
$
26,420
$
Allowance for lending-related commitments
2,825
$
33,498
$
2,957
$
Deferred income tax expense/(benefit) results from
differences between assets and liabilities measured for
financial reporting purposes versus income tax return
purposes. Deferred tax assets are recognized if, in
management's judgment, their realizability is determined to
be more likely than not. If a deferred tax asset is
determined to be unrealizable, a valuation allowance is
established. The significant components of deferred tax
assets and liabilities are reflected in the following table.
33,908
Total contractual amount
746
7,078
821
7,261
Noninvestment-grade (a)
2,079
$
2019
2018
(89)
8,055
Valuation allowance
(557)
Deferred tax assets, net of valuation
allowance
$
8,203 $
7,966
8,760
Deferred tax liabilities
2,852 $
2,533
Mortgage servicing rights, net of
hedges
2,354
2,586
Leasing transactions
5,598
Depreciation and amortization
$
Gross deferred tax assets
605
Unrecognized tax benefits
At December 31, 2019, 2018 and 2017, JPMorgan Chase's
unrecognized tax benefits, excluding related interest
expense and penalties, were $4.0 billion, $4.9 billion and
$4.7 billion, respectively, of which $2.8 billion, $3.8 billion
and $3.5 billion, respectively, if recognized, would reduce
the annual effective tax rate. Included in the amount of
unrecognized tax benefits are certain items that would not
affect the effective tax rate if they were recognized in the
Consolidated statements of income. These unrecognized
items include the tax effect of certain temporary
differences, the portion of gross state and local
unrecognized tax benefits that would be offset by the
benefit from associated U.S. federal income tax deductions,
and the portion of gross non-U.S. unrecognized tax benefits
that would have offsets in other jurisdictions. JPMorgan
Chase is presently under audit by a number of taxing
authorities, most notably by the Internal Revenue Service as
summarized in the Tax examination status table below. As
JPMorgan Chase is presently under audit by a number of
taxing authorities, it is reasonably possible that over the
next 12 months the resolution of these examinations may
increase or decrease the gross balance of unrecognized tax
benefits by as much as $0.5 billion. Upon settlement of an
audit, the change in the unrecognized tax benefit would
result from payment or income statement recognition.
December 31, (in millions)
Deferred tax assets
Allowance for loan losses
$
3,400
163
$
1,039
Accrued expenses and other
2,767
Non-U.S. operations
949
3,433
1,129
2,701
629
Tax attribute carryforwards
Employee benefits
216
$
4
Loan sales-and securitization-related indemnifications
Mortgage repurchase liability
In the normal course of business, the Firm enters into resale
and securities borrowed agreements. At settlement, these
commitments result in the Firm advancing cash to and
receiving securities collateral from the counterparty. The
Firm also enters into repurchase and securities loaned
agreements. At settlement, these commitments result in the
Firm receiving cash from and providing securities collateral
to the counterparty. Such agreements settle at a future
date. These agreements generally do not meet the
definition of a derivative, and therefore, are not recorded
on the Consolidated balance sheets until settlement date.
These agreements predominantly have regular-way
settlement terms. Refer to Note 11 for a further discussion
of securities financing agreements.
Unsettled securities financing agreements
In addition to derivative contracts that meet the
characteristics of a guarantee, the Firm is both a purchaser
and seller of credit protection in the credit derivatives
market. Refer to Note 5 for a further discussion of credit
derivatives.
367
159
Derivative payables
In connection with the Firm's mortgage loan sale and
securitization activities with U.S. GSES the Firm has made
representations and warranties that the loans sold meet
certain requirements, and that may require the Firm to
repurchase mortgage loans and/or indemnify the loan
purchaser if such representations and warranties are
breached by the Firm. Further, although the Firm's
securitizations are predominantly nonrecourse, the Firm
does provide recourse servicing in certain limited cases
where it agrees to share credit risk with the owner of the
mortgage loans. To the extent that repurchase demands
that are received relate to loans that the Firm purchased
from third parties that remain viable, the Firm typically will
have the right to seek a recovery of related repurchase
losses from the third party. Generally, the maximum amount
of future payments the Firm would be required to make for
breaches of these representations and warranties would be
equal to the unpaid principal balance of such loans that are
deemed to have defects that were sold to purchasers
(including securitization-related SPEs) plus, in certain
circumstances, accrued interest on such loans and certain
expenses.
Fair value
2,967
Maximum exposure of stable
value contracts with
contractually limited exposure
28,637
28,877
Stable value contracts with
contractually limited exposure
55,271
53,089 $
2,963
$
JPMorgan Chase & Co./2019 Form 10-K
Notes to consolidated financial statements
JPMorgan Chase & Co./2019 Form 10-K
276
The Firm reflects its exposure to nonperformance risk of the
client through the recognition of margin receivables from
clients and margin payables to CCPS; the clients' underlying
securities or derivative contracts are not reflected in the
Firm's Consolidated Financial Statements.
As a clearing member, the Firm is exposed to the risk of
nonperformance by its clients, but is not liable to clients for
the performance of the CCPs. Where possible, the Firm
seeks to mitigate its risk to the client through the collection
of appropriate amounts of margin at inception and
throughout the life of the transactions. The Firm can also
cease providing clearing services if clients do not adhere to
their obligations under the clearing agreement. In the event
of nonperformance by a client, the Firm would close out the
client's positions and access available margin. The CCP
would utilize any margin it holds to make itself whole, with
any remaining shortfalls required to be paid by the Firm as
a clearing member.
The Firm provides clearing services for clients by entering
into securities purchases and sales and derivative contracts
with CCPS, including ETDs such as futures and options, as
well as OTC-cleared derivative contracts. As a clearing
member, the Firm stands behind the performance of its
clients, collects cash and securities collateral (margin) as
well as any settlement amounts due from or to clients, and
remits them to the relevant CCP or client in whole or part.
There are two types of margin: variation margin is posted
on a daily basis based on the value of clients' derivative
contracts and initial margin is posted at inception of a
derivative contract, generally on the basis of the potential
changes in the variation margin requirement for the
contract.
Clearing Services - Client Credit Risk
For the years ended December 31, 2019, 2018 and 2017,
Merchant Services processed an aggregate volume of
$1,511.5 billion, $1,366.1 billion, and $1,191.7 billion,
respectively, and the related losses from merchant charge-
backs were not material.
275
Under the rules of payment networks, the Firm, in its role as
a merchant acquirer, retains a contingent liability for
disputed processed credit and debit card transactions that
result in a charge-back to the merchant. If a dispute is
resolved in the cardholder's favor, Merchant Services will
(through the cardholder's issuing bank) credit or refund the
amount to the cardholder and will charge back the
transaction to the merchant. If Merchant Services is unable
to collect the amount from the merchant, Merchant Services
will bear the loss for the amount credited or refunded to the
cardholder. Merchant Services mitigates this risk by
withholding future settlements, retaining cash reserve
accounts or obtaining other collateral. In addition, Merchant
Services recognizes a valuation allowance that covers the
payment or performance risk to the Firm related to charge-
backs.
In connection with issuing securities to investors outside the
U.S., the Firm may agree to pay additional amounts to the
holders of the securities in the event that, due to a change
in tax law, certain types of withholding taxes are imposed
on payments on the securities. The terms of the securities
may also give the Firm the right to redeem the securities if
such additional amounts are payable. The Firm may also
enter into indemnification clauses in connection with the
licensing of software to clients ("software licensees") or
when it sells a business or assets to a third party ("third-
party purchasers"), pursuant to which it indemnifies
software licensees for claims of liability or damages that
may occur subsequent to the licensing of the software, or
third-party purchasers for losses they may incur due to
actions taken by the Firm prior to the sale of the business or
assets. It is difficult to estimate the Firm's maximum
exposure under these indemnification arrangements, since
this would require an assessment of future changes in tax
law and future claims that may be made against the Firm
that have not yet occurred. However, based on historical
experience, management expects the risk of loss to be
remote.
Other off-balance sheet arrangements
Indemnification agreements - general
The Firm provides servicing for mortgages and certain
commercial lending products on both a recourse and
nonrecourse basis. In nonrecourse servicing, the principal
credit risk to the Firm is the cost of temporary servicing
advances of funds (i.e., normal servicing advances). In
recourse servicing, the servicer agrees to share credit risk
with the owner of the mortgage loans, such as Fannie Mae
or Freddie Mac or a private investor, insurer or guarantor.
Losses on recourse servicing predominantly occur when
foreclosure sales proceeds of the property underlying a
defaulted loan are less than the sum of the outstanding
principal balance, plus accrued interest on the loan and the
cost of holding and disposing of the underlying property.
The Firm's securitizations are predominantly nonrecourse,
thereby effectively transferring the risk of future credit
losses to the purchaser of the mortgage-backed securities
issued by the trust. At December 31, 2019 and 2018, the
unpaid principal balance of loans sold with recourse totaled
$944 million and $1.0 billion, respectively. The carrying
value of the related liability that the Firm has recorded in
accounts payable and other liabilities on the Consolidated
balance sheets, which is representative of the Firm's view of
the likelihood it will have to perform under its recourse
obligations, was $27 million and $30 million at
December 31, 2019 and 2018, respectively.
Loans sold with recourse
Refer to Note 30 for additional information regarding
litigation.
The liability related to repurchase demands associated with
private label securitizations is separately evaluated by the
Firm in establishing its litigation reserves.
Private label securitizations
Merchant charge-backs
4,719
December 31,
2018
Derivative guarantees
Commitments with collateral
3
$
521
$
4
$
$
618
354
402
Guarantee liability
3
$
167
$
Total carrying value
December 31,
2019
17,582
726
(in millions)
Notional amounts
The following table summarizes the derivatives qualifying as
guarantees as of December 31, 2019 and 2018.
The fair value of derivative guarantees reflects the
probability, in the Firm's view, of whether the Firm will be
required to perform under the contract. The Firm reduces
exposures to these contracts by entering into offsetting
transactions, or by entering into contracts that hedge the
market risk related to the derivative guarantees.
The notional value of derivatives guarantees generally
represents the Firm's maximum exposure. However,
exposure to certain stable value products is contractually
limited to a substantially lower percentage of the notional
amount.
The Firm transacts in certain derivative contracts that have
the characteristics of a guarantee under U.S. GAAP. These
contracts include written put options that require the Firm
to purchase assets upon exercise by the option holder at a
specified price by a specified date in the future. The Firm
may enter into written put option contracts in order to meet
client needs, or for other trading purposes. The terms of
written put options are typically five years or less.
Derivatives deemed to be guarantees also includes stable
value contracts, commonly referred to as “stable value
products", that require the Firm to make a payment of the
difference between the market value and the book value of
a counterparty's reference portfolio of assets in the event
that market value is less than book value and certain other
conditions have been met. Stable value products are
transacted in order to allow investors to realize investment
returns with less volatility than an unprotected portfolio.
These contracts are typically longer-term or may have no
stated maturity, but allow the Firm to elect to terminate the
contract under certain conditions.
Derivatives qualifying as guarantees
The cash collateral held by the Firm may be invested on
behalf of the client in indemnified resale agreements,
whereby the Firm indemnifies the client against the loss of
principal invested. To minimize its liability under these
agreements, the Firm obtains collateral with a market value
exceeding 100% of the principal invested.
$
Through the Firm's securities lending program,
counterparties' securities, via custodial and non-custodial
arrangements, may be lent to third parties. As part of this
program, the Firm provides an indemnification in the
lending agreements which protects the lender against the
failure of the borrower to return the lent securities. To
minimize its liability under these indemnification
agreements, the Firm obtains cash or other highly liquid
collateral with a market value exceeding 100% of the value
of the securities on loan from the borrower. Collateral is
marked to market daily to help assure that collateralization
is adequate. Additional collateral is called from the
borrower if a shortfall exists, or collateral may be released
to the borrower in the event of overcollateralization. If a
borrower defaults, the Firm would use the collateral held to
purchase replacement securities in the market or to credit
the lending client or counterparty with the cash equivalent
thereof.
JPMorgan Chase & Co./2019 Form 10-K
274
(a) The ratings scale is based on the Firm's internal risk ratings. Refer to Note 12 for further information on internal risk ratings.
583
$
17,400
$
Securities lending indemnifications
Under the risk-based capital and leverage-based guidelines
of the Federal Reserve, JPMorgan Chase is required to
maintain minimum ratios for CET1, Tier 1, Total, Tier 1
leverage and the SLR. Failure to meet these minimum
requirements could cause the Federal Reserve to take
action. IDI subsidiaries are also subject to these capital
requirements by their respective primary regulators.
Other, net
3,713
The three components of regulatory capital under the Basel
III rules are as illustrated below:
Common stockholder's equity
including capital for AOCI related to:
• AFS debt securities
• Defined benefit pension and OPEB
plans
CET1
capital
Less certain deductions for:
• Goodwill
• MSRS
• Deferred tax assets that arise from
NOL and tax credit carryforwards
Tier 1
capital
The following table presents the minimum and well-
capitalized ratios to which the Firm and its IDI subsidiaries
were subject as of December 31, 2019.
Minimum capital ratios
BHC (a)(e)(f)
Well-capitalized ratios
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
minimum capital requirements and standards for the Firm's
IDI subsidiaries, including JPMorgan Chase Bank, N.A.
The capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. bank holding companies and
banks, including the Firm and its IDI subsidiaries, including
JPMorgan Chase Bank, N.A. Two comprehensive approaches
are prescribed for calculating RWA: a standardized
approach ("Basel III Standardized"), and an advanced
approach ("Basel III Advanced"). Effective January 1, 2019,
the capital adequacy of the Firm and JPMorgan Chase Bank,
N.A. is evaluated against the fully phased-in measures
under Basel III that represents the lower of the
Standardized or Advanced approaches. During 2018, the
required capital measures were subject to the transitional
rules and as of December 31, 2018 were the same on a
fully phased-in and on a transitional basis.
Note 27 - Regulatory capital
Notes to consolidated financial statements
269
14.6
3.9
46.5 $
4.1
40.8
(a) Comprises $45.3 billion and $39.6 billion in deposits with banks as of
December 31, 2019 and 2018, respectively, and $1.2 billion in cash
and due from banks as of December 31, 2019 and 2018, on the
Consolidated balance sheets.
•
•
Cash and securities pledged with clearing organizations
IDI (b)(e)(f)
for the benefit of customers of $24.7 billion and $20.6
billion, respectively.
billion, respectively, were also restricted in relation to
customer activity.
Intercompany funds transfers
Restrictions imposed by U.S. federal law prohibit JPMorgan
Chase & Co. ("Parent Company") and certain of its affiliates
from borrowing from banking subsidiaries unless the loans
are secured in specified amounts. Such secured loans
provided by any banking subsidiary to the Parent Company
or to any particular affiliate, together with certain other
transactions with such affiliate (collectively referred to as
"covered transactions"), are generally limited to 10% of the
banking subsidiary's total capital, as determined by the risk-
based capital guidelines; the aggregate amount of covered
transactions between any banking subsidiary and all of its
affiliates is limited to 20% of the banking subsidiary's total
capital.
The Parent Company's two principal subsidiaries are
JPMorgan Chase Bank, N.A. and JPMorgan Chase Holdings
LLC, an intermediate holding company (the "IHC"). The IHC
holds the stock of substantially all of JPMorgan Chase's
subsidiaries other than JPMorgan Chase Bank, N.A. and its
subsidiaries. The IHC also owns other assets and owes
intercompany indebtedness to the holding company. The
Parent Company is obligated to contribute to the IHC
substantially all the net proceeds received from securities
issuances (including issuances of senior and subordinated
debt securities and of preferred and common stock).
The principal sources of income and funding for the Parent
Company are dividends from JPMorgan Chase Bank, N.A.
and dividends and extensions of credit from the IHC. In
addition to dividend restrictions set forth in statutes and
regulations, the Federal Reserve, the OCC and the FDIC have
authority under the Financial Institutions Supervisory Act to
prohibit or to limit the payment of dividends by the banking
organizations they supervise, including the Parent Company
and its subsidiaries that are banks or bank holding
companies, if, in the banking regulator's opinion, payment
of a dividend would constitute an unsafe or unsound
practice in light of the financial condition of the banking
organization. The IHC is prohibited from paying dividends or
extending credit to the Parent Company if certain capital or
liquidity "thresholds" are breached or if limits are otherwise
imposed by the Parent Company's management or Board of
Directors.
At January 1, 2020, the Parent Company's banking
subsidiaries could pay, in the aggregate, approximately $9
billion in dividends to their respective bank holding
companies without the prior approval of their relevant
banking regulators. The capacity to pay dividends in 2020
will be supplemented by the banking subsidiaries' earnings
during the year.
JPMorgan Chase & Co./2019 Form 10-K
Securities with a fair value of $8.8 billion and $9.7
BHC(c)
IDI (d)
Capital ratios
5.0
6.0
N/A
6.0
Note: The table above is as defined by the regulations issued by the Federal
Reserve, OCC and FDIC and to which the Firm and its IDI subsidiaries are
subject.
(a) Represents the minimum capital ratios applicable to the Firm under
Basel III. The CET1 minimum capital ratio includes a capital
conservation buffer of 2.5% and GSIB surcharge of 3.5% as calculated
under Method 2.
SLR
(b) Represents requirements for JPMorgan Chase's IDI subsidiaries. The
CET1 minimum capital ratio includes a capital conservation buffer of
2.5% that is applicable to the IDI subsidiaries. The IDI subsidiaries are
not subject to the GSIB surcharge.
(d) Represents requirements for IDI subsidiaries pursuant to regulations
issued under the FDIC Improvement Act.
(e) For the period ended December 31, 2018, the CET1, Tier 1, Total and
Tier 1 leverage minimum capital ratios applicable to the Firm were
9.0%, 10.5%, 12.5%, and 4.0% and the CET1, Tier 1, Total and Tier 1
leverage minimum capital ratios applicable to the Firm's IDI
subsidiaries were 6.375%, 7.875%, 9.875%, and 4.0%, respectively.
(f) Represents minimum SLR requirement of 3.0%, as well as,
supplementary leverage buffers of 2.0% and 3.0% for BHC and IDI,
respectively.
Total
capital
• Perpetual preferred stock
Add'l
-Tier 1
capital
• Long-term debt qualifying as
Tier 2
• Qualifying allowance for
credit losses
(c) Represents requirements for bank holding companies pursuant to
regulations issued by the Federal Reserve.
16.0
5.0
4.0
CET1
Tier 1
10.5%
7.0%
N/A
6.5%
12.0
8.5
N/A
6.0
Total
14.0
10.5
10.0
10.0
Tier 1 leverage
4.0
8.0
22.1
2018
26.6 $
1,355
10
649
626
Decreases based on tax positions
related to prior periods
(706)
(1,249)
980
(350)
(266)
(334)
(1,012)
$ 4,024 $ 4,861 $ 4,747
After-tax interest expense/(benefit) and penalties related to
income tax liabilities recognized in income tax expense were
$(52) million, $192 million and $102 million in 2019,
2018 and 2017, respectively.
At December 31, 2019 and 2018, in addition to the liability
for unrecognized tax benefits, the Firm had accrued $817
million and $887 million, respectively, for income tax-
related interest and penalties.
JPMorgan Chase & Co./2019 Form 10-K
267
Decreases related to cash
settlements with taxing authorities
Balance at December 31,
Tax examination status
871
$ 4,747
Gross deferred tax liabilities
15,487
13,551
Net deferred tax (liabilities)/assets
$
(7,284) $
(5,585)
2017
$ 3,450
Year ended December 31,
(in millions)
The following table presents a reconciliation of the
beginning and ending amount of unrecognized tax benefits.
JPMorgan Chase has recorded deferred tax assets of $605
million at December 31, 2019, in connection with U.S.
federal and non-U.S. NOL carryforwards, foreign tax credit
("FTC") carryforwards, and state and local capital loss
carryforwards. At December 31, 2019, total U.S. federal
NOL carryforwards were $1.0 billion, non-U.S. NOL
carryforwards were $80 million, FTC carryforwards were
$329 million, and state and local capital loss carryforwards
were $1.1 billion. If not utilized, a portion of the U.S.
federal NOL carryforwards will expire between 2022 and
2036 whereas others have an unlimited carryforward
period. Similarly, certain non-U.S. NOL carryforwards will
expire between 2029 and 2037 whereas others have an
unlimited carryforward period. The FTC carryforwards will
expire in 2029 and the state and local capital loss
carryforwards will expire between 2020 and 2022.
The valuation allowance at December 31, 2019, was due to
the state and local capital loss carryforwards, FTC
carryforwards, and certain non-U.S. deferred tax assets,
including NOL carryforwards.
Increases based on tax positions
related to the current period
Increases based on tax positions
related to prior periods
2019
2018
$ 4,861
Balance at January 1,
4,683
JPMorgan Chase is continually under examination by the
Internal Revenue Service, by taxing authorities throughout
the world, and by many state and local jurisdictions
throughout the U.S. The following table summarizes the
status of significant income tax examinations of JPMorgan
Chase and its consolidated subsidiaries as of December 31,
2019.
Periods under
examination
2011-2013
Note 26 - Restricted cash, other restricted
assets and intercompany funds transfers
Restricted cash and other restricted assets
Certain of the Firm's cash and other assets are restricted as
to withdrawal or usage. These restrictions are imposed by
various regulatory authorities based on the particular
activities of the Firm's subsidiaries.
The business of JPMorgan Chase Bank, N.A. is subject to
examination and regulation by the OCC. The Bank is a
member of the U.S. Federal Reserve System, and its
deposits in the U.S. are insured by the FDIC, subject to
applicable limits.
The Federal Reserve requires depository institutions to
maintain cash reserves with a Federal Reserve Bank. The
average required amount of reserve balances is deposited
by the Firm's bank subsidiaries. In addition, the Firm is
required to maintain cash reserves at certain non-US
central banks.
The Firm is also subject to rules and regulations established
by other U.S. and non U.S. regulators. As part of its
compliance with the respective regulatory requirements,
the Firm's broker-dealers (principally J.P. Morgan Securities
LLC in the U.S and J.P. Morgan Securities plc in the U.K.) are
subject to certain restrictions on cash and other assets.
The following table presents the components of the Firm's
restricted cash:
December 31, (in billions)
JPMorgan Chase & Co./2019 Form 10-K
Cash reserves - Federal Reserve
Banks
Segregated for the benefit of
securities and cleared derivative
customers
Cash reserves at non-U.S. central
banks and held for other general
purposes
Total restricted cash (a)
$
Expires
after 5
years
2019
$
JPMorgan Chase - U.S.
268
Field examination of
Status
Field Examination
completed; JPMorgan
Chase intends to file
amended returns
JPMorgan Chase - U.S.
2014-2016
Field Examination
JPMorgan Chase - New
York State
2012-2014
certain select entities
Field Examination
2012-2014
Field Examination
JPMorgan Chase -
California
2011-2012
Field Examination
JPMorgan Chase - U.K.
2006 - 2017
JPMorgan Chase - New
York City
5 years
283
Sponsored member repo program
ΝΑ
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
NM
2,687,379
2,622,532
2,533,600
15%
13%
10%
NA
NA
781,478
771,787
(966)
1,111 $
68,407 $
837,618
215
2,282
(3,065)
(2,505)
(4,017)
(4,017)
44,545
40,764
35,900
57
(b)
8,290
11,459
(1,241) $
79,222 $
(1,643) $
$
$
80,350 $
$
$
8,114
$
58
$ 36,431 $ 32,474 $ 24,441
2017
Less: Net income of subsidiaries
and affiliates (a)
42,906
38,125
26,185
Parent company net loss
(6,475)
(5,651)
(1,744)
Cash dividends from subsidiaries
affiliates:
and affiliates (a)
26,000
32,501
13,540
Bank and bank holding company
Non-bank(a)
$ 26,000
$ 32,501
$ 13,000
2018
2019
Dividends from subsidiaries and
(in millions)
$ 232,907 $ 229,222 $ 230,350
(a) Segment results on a managed basis reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/
(benefit). These adjustments are eliminated in reconciling items to arrive at the Firm's reported U.S. GAAP results.
(b) Included $375 million related to tax-oriented investments as a result of the enactment of the TCJA.
JPMorgan Chase & Co./2019 Form 10-K
285
Note 33 - Parent Company
The following tables present Parent Company-only financial
statements.
Statements of income and comprehensive income
Statements of cash flows
Year ended December 31,
59
(in millions)
2018
2017
Operating activities
Net income
$ 36,431
$ 32,474
$ 24,441
Year ended December 31,
Income
2019
$
(2,505)
(3,065)
As of or for the year ended
December 31,
(in millions, except ratios)
2019
2018
2017
2019
2018
2017
2019
2018
2017
Noninterest revenue
$
(114) $
(263) $
1,085
$
(2,534) $
Total
Corporate
(Table continued from previous page)
JPMorgan Chase & Co./2019 Form 10-K
14%
17%
20%
17%
26%
31%
25%
52
53
Net interest income
56
57
56
39
37
39
73
74
74
284
56
1,325
135
55
4,871
5,290
Noninterest expense
1,067
902
501
65,497
63,394
59,515
5,585
Income/(loss) before income
Income tax expense/(benefit)
Net income/(loss)
Average equity
Total assets
Return on equity
Overhead ratio
145
(1,026)
639
tax expense/(benefit)
Other operating adjustments
(4)
Provision for credit losses
(531)
(1,877) $
(628)
(2,704)
(b)
$ 58,382 $ 53,970 $
50,608
(1,313)
57,245
55,059
(1)
50,097
1,211
(128)
1,140
(3,065)
(2,505)
(4,017)
115,627
109,029
100,705
Total net revenue
9,862
(4,400)
4,635
activities
(29,481)
(30,680) (16,340)
Cash and due from banks
$
Deposits with banking subsidiaries
32 $
5,309
55
Net decrease in cash and due
from banks and deposits with
banking subsidiaries
(29)
(131)
(62)
5,315
Cash and due from banks and
Trading assets
3,011
3,304
Advances to, and receivables from, subsidiaries:
deposits with banking
subsidiaries at the beginning of
the year
2018
2019
(8,993)
(1,361)
(10,109)
(1,526)
5,000
Net income
$ 36,431 $ 32,474 $ 24,441
Redemption of preferred stock
(4,075)
Other comprehensive income, net
Comprehensive income
3,076
(1,476)
1,056
5,370
Treasury stock repurchased
1,696
1,258
(1,696) (1,258)
(19,983) (15,410)
$ 39,507 $ 30,998 $ 25,497
Dividends paid
(12,343)
Balance sheets
December 31, (in millions)
Assets
All other financing activities, net
Net cash used in financing
(1,290)
(24,001)
5,501
5,563
Bank and bank holding company
Short-term borrowings
Other liabilities
Long-term debt(b)(c)
Total liabilities(c)
Total stockholders' equity
2,616
9,288
197,100
232,414
261,330
$ 23,410 $ 20,017
2,672
8,821
185,240
216,750
256,515
$ 493,744 $ 473,265
286
(a) Affiliates include trusts that issued guaranteed capital debt securities ("issuer
trusts").
(b) At December 31, 2019, long-term debt that contractually matures in 2020
through 2024 totaled $16.4 billion, $20.4 billion, $12.7 billion, $18.6 billion,
and $18.2 billion, respectively.
(c) Refer to Notes 20 and 28 for information regarding the Parent Company's
guarantees of its subsidiaries' obligations.
(d) Represents payments, net of refunds, made by the Parent Company to various
taxing authorities and includes taxes paid on behalf of certain of its subsidiaries
that are subsequently reimbursed. The reimbursements were $6.4 billion, $1.2
billion, and $4.1 billion for the years ended December 31, 2019, 2018, and
2017, respectively.
(e) As a result of the merger of Chase Bank USA, N.A. with and into JPMorgan Chase
Bank, N.A., JPMorgan Chase Bank, N.A. distributed $13.5 billion to the Parent
company as a return of capital, which the Parent company contributed to the
IHC.
JPMorgan Chase & Co./2019 Form 10-K
Total liabilities and stockholders' equity
preferred stock
Borrowings from, and payables to, subsidiaries
and affiliates(a)
$ 493,744 $ 473,265
2,358
3,334
Cash and due from banks and
Non-bank
84
74
Investments (at equity) in subsidiaries and
affiliates:
deposits with banking
subsidiaries at the end of the
year
$ 5,341
Liabilities and stockholders' equity
Cash interest paid
471,207
Non-bank
Other assets
1,044
10,699
449,628
1,077
10,478
Cash income taxes paid, net(d)
$ 7,957
3,910
$ 5,370 $ 5,501
$ 6,911 $ 5,426
1,782
1,775
Total assets
Bank and bank holding company
16%
12,644
16,906
(444)
(88)
Advances to and investments in
subsidiaries and affiliates, net
(6) (e)
8,036
(280)
Other income
(1,731)
888
(623)
Total income
27,427
33,678
14,495
Expense
All other investing activities, net
Net cash provided by/(used in)
investing activities
71
63
49
197
Non-bank
1,553
515
2
540
Net cash provided by/(used in)
Interest income from subsidiaries
223
216
72
operating activities
29,387
65
22,450
Other interest income
41
Investing activities
Net change in:
Other income from subsidiaries:
Other changes in loans, net
78
Bank and bank holding company
2,738
16,431
8,099
(153)
Interest expense to subsidiaries
(481)
Income before income tax benefit
and undistributed net income of
Proceeds from long-term
borrowings
25,569
25,845
25,855
subsidiaries
17,492
13,862
25,013
Income tax benefit
2,033
1,838
1,007
Payments of long-term
borrowings
(21,226)
(21,956) (29,812)
Equity in undistributed net income
of subsidiaries
Proceeds from issuance of
10,790
5,623
(2,273)
(678)
Short-term borrowings
Financing activities
and affiliates(a)
(5,303)
2,291
400
Net change in:
Other interest expense
13,246
4,581
(56)
5,202
1,992
1,793
(1,897)
Borrowings from subsidiaries
and affiliates (a)
2,941
Total expense
9,935
8,665
3,705
Noninterest expense
14%
17%
28%
1,561
5,925 $
2,256
850
4,084 $
1,511
613
388,353 (e)
183,408
47,836
25,583
16,552
90,044
54,530
9,031
35,514
6,208
30,223
$
115,627 $
71,082 $
44,545 $
36,431
619,597
2,067,782
2,687,379
2,411
$
9,977
5,014
7,270
The following table presents income statement and balance
sheet-related information for JPMorgan Chase by major
international geographic area. The Firm defines
international activities for purposes of this footnote
presentation as business transactions that involve clients
residing outside of the U.S., and the information presented
below is based predominantly on the domicile of the client,
the location from which the client relationship is managed,
booking location or the location of the trading desk.
However, many of the Firm's U.S. operations serve
international businesses.
As the Firm's operations are highly integrated, estimates
and subjective assumptions have been made to apportion
revenue and expense between U.S. and international
operations. These estimates and assumptions are consistent
with the allocations used for the Firm's segment reporting
as set forth in Note 32.
The Firm's long-lived assets for the periods presented are
not considered by management to be significant in relation
to total assets. The majority of the Firm's long-lived assets
are located in the U.S.
As of or for the year ended December 31,
(in millions)
2019
Europe/Middle East/Africa
Asia-Pacific
Latin America/Caribbean
2018(b)
Total international
Total
Revenue (c)
Expense (d)
Income before
income tax
expense
Net income
Total assets
$
15,902
$
North America (a)
Europe/Middle East/Africa
$
16,468 $
109,029 $
52,054
68,265 $
31,145
6,819
25,655
641,636
1,980,896
40,764 $
32,474 $ 2,622,532
2017(b)
$
Europe/Middle East/Africa
15,505 $
Asia-Pacific
5,835
9,235 $
4,523
Latin America/Caribbean
1,959
1,527
6,270 $
1,312
432
4,320 $ 409,204 (e)
$
Note 31 - International operations
Total
North America (a)
10,033 $
6,435 $
4,583 $
426,129 (e)
Asia-Pacific
6,997
4,877
2,120
1,491
83,199
171,637
2,365
1,301
1,064
745
43,870
Total international
25,830
16,211
9,619
Latin America/Caribbean
725
Notes to consolidated financial statements
JPMorgan Chase & Co./2019 Form 10-K
998.3
otherwise used by secured parties
$ 125.2
$ 104.0
Assets that may not be sold or repledged or
otherwise used by secured parties
80.2
83.7
Assets pledged at Federal Reserve banks and
FHLBS
Total pledged assets
478.9
475.3
$ 684.3 $ 663.0
Total pledged assets do not include assets of consolidated
VIES; these assets are used to settle the liabilities of those
entities. Refer to Note 14 for additional information on
assets and liabilities of consolidated VIES. Refer to Note 11
for additional information on the Firm's securities financing
activities. Refer to Note 20 for additional information on the
Firm's long-term debt. The significant components of the
Firm's pledged assets were as follows.
December 31, (in billions)
Investment securities
Loans
Trading assets and other
Total pledged assets
1,000.5
Collateral sold, repledged, delivered or
otherwise used
Assets that may be sold or repledged or
$ 1,245.3
In 2018 the Firm commenced the sponsored member repo
program, wherein the Firm acts as a sponsoring member to
clear eligible overnight resale and repurchase agreements
through the Government Securities Division of the Fixed
Income Clearing Corporation ("FICC") on behalf of clients
that become sponsored members under the FICC's rules.
The Firm also guarantees to the FICC the prompt and full
payment and performance of its sponsored member clients'
respective obligations under the FICC's rules. The Firm
minimizes its liability under these overnight guarantees by
obtaining a security interest in the cash or high-quality
securities collateral that the clients place with the clearing
house; therefore, the Firm expects the risk of loss to be
remote. The Firm's maximum possible exposure, without
taking into consideration the associated collateral, is
included in the Exchange & clearing house guarantees and
commitments line on page 273. Refer to Note 11 for
additional information on credit risk mitigation practices on
resale agreements and the types of collateral pledged under
repurchase agreements.
Guarantees of subsidiaries
In the normal course of business, the Parent Company may
provide counterparties with guarantees of certain of the
trading and other obligations of its subsidiaries on a
contract-by-contract basis, as negotiated with the Firm's
counterparties. The obligations of the subsidiaries are
included on the Firm's Consolidated balance sheets or are
reflected as off-balance sheet commitments; therefore, the
Parent Company has not recognized a separate liability for
these guarantees. The Firm believes that the occurrence of
any event that would trigger payments by the Parent
Company under these guarantees is remote.
The Parent Company has guaranteed certain long-term debt
and structured notes of its subsidiaries, including JPMorgan
Chase Financial Company LLC ("JPMFC"), a 100%-owned
finance subsidiary. All securities issued by JPMFC are fully
and unconditionally guaranteed by the Parent Company.
These guarantees, which rank on a parity with the Firm's
unsecured and unsubordinated indebtedness, are not
included in the table on page 273 of this Note. Refer to
Note 20 for additional information.
JPMorgan Chase & Co./2019 Form 10-K
277
Notes to consolidated financial statements
Note 29 - Pledged assets and collateral
Pledged assets
The Firm pledges financial assets that it owns to maintain
potential borrowing capacity at discount windows with
Federal Reserve banks, various other central banks and
FHLBS. Additionally, the Firm pledges assets for other
purposes, including to collateralize repurchase and other
securities financing agreements, to cover short sales and to
collateralize derivative contracts and deposits. Certain of
these pledged assets may be sold or repledged or otherwise
used by the secured parties and are parenthetically
identified on the Consolidated balance sheets as assets
pledged.
2019
The following table presents the Firm's pledged assets.
2019
2018
Collateral
The Firm accepts financial assets as collateral that it is
permitted to sell or repledge, deliver or otherwise use. This
collateral is generally obtained under resale and other
securities financing agreements, prime brokerage-related
held-for-investment customer receivables and derivative
contracts. Collateral is generally used under repurchase and
other securities financing agreements, to cover short sales,
and to collateralize derivative contracts and deposits.
The following table presents the fair value of collateral
accepted.
December 31, (in billions)
Collateral permitted to be sold or repledged,
delivered, or otherwise used
2019
2018
$1,282.5
December 31, (in billions)
2018
$
35.9 $ 59.5
In August 2018, the United States District Court for the
Southern District of New York granted final approval to the
Firm's settlement of a consolidated class action brought by
U.S.-based plaintiffs, which principally alleged violations of
federal antitrust laws based on an alleged conspiracy to
manipulate foreign exchange rates and also sought
damages on behalf of persons who transacted in FX futures
and options on futures. Certain members of the settlement
class filed requests to the Court to be excluded from the
class, and certain of them filed a complaint against the Firm
and a number of other foreign exchange dealers in
November 2018. A number of these actions remain
pending. Further, putative class actions have been filed
against the Firm and a number of other foreign exchange
dealers on behalf of certain consumers who purchased
foreign currencies at allegedly inflated rates and purported
indirect purchasers of FX instruments; these actions also
remain pending in the District Court. In addition, some FX-
related individual and putative class actions based on
similar alleged underlying conduct have been filed outside
the U.S., including in the U.K., Israel and Australia.
Interchange Litigation. Groups of merchants and retail
associations filed a series of class action complaints alleging
that Visa and Mastercard, as well as certain banks,
conspired to set the price of credit and debit card
interchange fees and enacted related rules in violation of
antitrust laws. In 2012, the parties initially settled the cases
for a cash payment, a temporary reduction of credit card
interchange, and modifications to certain credit card
network rules. In 2017, after the approval of that
settlement was reversed on appeal, the case was remanded
to the District Court for further proceedings consistent with
the appellate decision.
The original class action was divided into two separate
actions, one seeking primarily monetary relief and the other
seeking primarily injunctive relief. In September 2018, the
parties to the class action seeking monetary relief finalized
an agreement which amends and supersedes the prior
settlement agreement. Pursuant to this settlement, the
defendants collectively contributed an additional $900
million to the approximately $5.3 billion previously held in
escrow from the original settlement. In December 2019, the
amended agreement was approved by the District Court.
Certain merchants filed notices of appeal of the District
Court's approval order. Based on the percentage of
merchants that opted out of the amended class settlement,
$700 million has been returned to the defendants from the
settlement escrow in accordance with the settlement
agreement. The class action seeking primarily injunctive
relief continues separately.
In addition, certain merchants have filed individual actions
raising similar allegations against Visa and Mastercard, as
well as against the Firm and other banks, and those actions
are proceeding.
LIBOR and Other Benchmark Rate Investigations and
Litigation. JPMorgan Chase has responded to inquiries from
280
various governmental agencies and entities around the
world relating primarily to the British Bankers Association's
London Interbank Offered Rate ("LIBOR") for various
currencies and the European Banking Federation's Euro
Interbank Offered Rate ("EURIBOR"). The Swiss Competition
Commission's investigation relating to EURIBOR, to which
the Firm and other banks are subject, continues. In
December 2016, the European Commission issued a
decision against the Firm and other banks finding an
infringement of European antitrust rules relating to
EURIBOR. The Firm has filed an appeal of that decision with
the European General Court, and that appeal is pending.
In addition, the Firm has been named as a defendant along
with other banks in a series of individual and putative class
actions related to benchmarks, including U.S. dollar LIBOR
during the period that it was administered by the BBA and,
in a separate consolidated putative class action, during the
period that it was administered by ICE Benchmark
Administration. These actions have been filed, or
consolidated for pre-trial purposes, in the United States
District Court for the Southern District of New York. In these
actions, plaintiffs make varying allegations that in various
periods, starting in 2000 or later, defendants either
individually or collectively manipulated various benchmark
rates by submitting rates that were artificially low or high.
Plaintiffs allege that they transacted in loans, derivatives or
other financial instruments whose values are affected by
changes in these rates and assert a variety of claims
including antitrust claims seeking treble damages. These
actions are in various stages of litigation.
In actions related to U.S. dollar LIBOR during the period that
it was administered by the BBA, the District Court dismissed
certain claims, including antitrust claims brought by some
plaintiffs whom the District Court found did not have
standing to assert such claims, and permitted certain claims
to proceed, including antitrust, Commodity Exchange Act,
Section 10(b) of the Securities Exchange Act and common
law claims. The plaintiffs whose antitrust claims were
dismissed for lack of standing have filed an appeal. The
District Court granted class certification of antitrust claims
related to bonds and interest rate swaps sold directly by the
defendants and denied class certification motions filed by
other plaintiffs. The Firm's settlements of putative class
actions related to Swiss franc LIBOR, the Singapore
Interbank Offered Rate and the Singapore Swap Offer Rate
("SIBOR"), the Australian Bank Bill Swap Reference Rate,
and certain of the putative class actions related to U.S.
dollar LIBOR remain subject to court approval. In the class
actions related to SIBOR and Swiss franc LIBOR, the District
Court concluded that the Court lacked subject matter
jurisdiction, and plaintiffs' appeals of those decisions are
pending.
Metals and U.S. Treasuries Investigations and Litigation and
Related Inquiries. Various authorities, including the
Department of Justice's Criminal Division, are conducting
investigations relating to trading practices in the metals
markets and related conduct. The Firm also is responding to
Notes to consolidated financial statements
JPMorgan Chase & Co./2019 Form 10-K
monopolization of silver futures in violation of the Sherman
Act.
Wendel. Since 2012, the French criminal authorities have
been investigating a series of transactions entered into by
senior managers of Wendel Investissement ("Wendel")
during the period from 2004 through 2007 to restructure
their shareholdings in Wendel. JPMorgan Chase Bank, N.A.,
Paris branch provided financing for the transactions to a
number of managers of Wendel in 2007. JPMorgan Chase
has cooperated with the investigation. The investigating
judges issued an ordonnance de renvoi in November 2016,
referring JPMorgan Chase Bank, N.A. to the French tribunal
correctionnel for alleged complicity in tax fraud. No date for
trial has been set by the court. In January 2018, the Paris
Court of Appeal issued a decision cancelling the mise en
examen of JPMorgan Chase Bank, N.A. The Court of
Cassation, France's highest court, ruled in September 2018
that a mise en examen is a prerequisite for an ordonnance
de renvoi and in January 2020 ordered the annulment of
the ordonnance de renvoi referring JPMorgan Chase Bank,
N.A. to the French tribunal correctionnel. In addition, a
number of the managers have commenced civil proceedings
against JPMorgan Chase Bank, N.A. The claims are separate,
involve different allegations and are at various stages of
proceedings.
The Firm has established reserves for several hundred of its
currently outstanding legal proceedings. In accordance with
the provisions of U.S. GAAP for contingencies, the Firm
accrues for a litigation-related liability when it is probable
that such a liability has been incurred and the amount of
the loss can be reasonably estimated. The Firm evaluates its
outstanding legal proceedings each quarter to assess its
litigation reserves, and makes adjustments in such reserves,
upwards or downward, as appropriate, based on
management's best judgment after consultation with
counsel. The Firm's legal expense/(benefit) was $239
million, $72 million and $(35) million for the years ended
December 31, 2019, 2018 and 2017, respectively. There is
no assurance that the Firm's litigation reserves will not need
to be adjusted in the future.
In view of the inherent difficulty of predicting the outcome
of legal proceedings, particularly where the claimants seek
very large or indeterminate damages, or where the matters
present novel legal theories, involve a large number of
parties or are in early stages of discovery, the Firm cannot
state with confidence what will be the eventual outcomes of
the currently pending matters, the timing of their ultimate
resolution or the eventual losses, fines, penalties or
consequences related to those matters. JPMorgan Chase
believes, based upon its current knowledge and after
consultation with counsel, consideration of the material
legal proceedings described above and after taking into
account its current litigation reserves and its estimated
aggregate range of possible losses, that the other legal
proceedings currently pending against it should not have a
material adverse effect on the Firm's consolidated financial
condition. The Firm notes, however, that in light of the
uncertainties involved in such proceedings, there is no
assurance that the ultimate resolution of these matters will
not significantly exceed the reserves it has currently
accrued or that a matter will not have material reputational
consequences. As a result, the outcome of a particular
matter may be material to JPMorgan Chase's operating
results for a particular period, depending on, among other
factors, the size of the loss or liability imposed and the level
of JPMorgan Chase's income for that period.
*
*
*
In addition to the various legal proceedings discussed
above, JPMorgan Chase and its subsidiaries are named as
defendants or are otherwise involved in a substantial
number of other legal proceedings. The Firm believes it has
meritorious defenses to the claims asserted against it in its
currently outstanding legal proceedings and it intends to
defend itself vigorously. Additional legal proceedings may
be initiated from time to time in the future.
related requests concerning similar trading-practices issues
in markets for other financial instruments, such as U.S.
Treasuries. The Firm continues to cooperate with these
investigations and is currently engaged in discussions with
various regulators about resolving their respective
investigations. There is no assurance that such discussions
will result in settlements. Several putative class action
complaints have been filed in the United States District
Court for the Southern District of New York against the Firm
and certain former employees, alleging a precious metals
futures and options price manipulation scheme in violation
of the Commodity Exchange Act. Some of the complaints
also allege unjust enrichment and deceptive acts or
practices under the General Business Law of the State of
New York. The Court consolidated these putative class
actions in February 2019. The Firm is also a defendant in a
consolidated action filed in the United States District Court
for the Southern District of New York alleging
281
279
Foreign Exchange Investigations and Litigation. The Firm
previously reported settlements with certain government
authorities relating to its foreign exchange (“FX") sales and
trading activities and controls related to those activities. FX-
related investigations and inquiries by government
authorities, including competition authorities, are ongoing,
and the Firm is cooperating with and working to resolve
those matters. In May 2015, the Firm pleaded guilty to a
single violation of federal antitrust law. In January 2017,
the Firm was sentenced, with judgment entered thereafter
and a term of probation ending in January 2020. The term
of probation has concluded, with the Firm remaining in
good standing throughout the probation period. The
Department of Labor has granted the Firm a five-year
exemption of disqualification that allows the Firm and its
affiliates to continue to rely on the Qualified Professional
Asset Manager exemption under the Employee Retirement
Income Security Act ("ERISA") until January 2023. The Firm
will need to reapply in due course for a further exemption
to cover the remainder of the ten-year disqualification
period. In addition, the Firm has paid fines totaling
approximately $265 million in connection with the
settlement of FX-related investigations conducted by the
European Commission and the Swiss Competition
Commission which were announced in May 2019 and June
2019, respectively. Separately, in February 2017 the South
Africa Competition Commission referred its FX investigation
of the Firm and other banks to the South Africa Competition
Tribunal, which is conducting civil proceedings concerning
that matter.
460.4
440.1
188.0
163.4
$ 684.3 $ 663.0
278
JPMorgan Chase & Co./2019 Form 10-K
Note 30 Litigation
Contingencies
JPMorgan Chase & Co./2019 Form 10-K
As of December 31, 2019, the Firm and its subsidiaries and
affiliates are defendants, putative defendants or
respondents in numerous legal proceedings, including
private, civil litigations and regulatory/government
investigations. The litigations range from individual actions
involving a single plaintiff to class action lawsuits with
potentially millions of class members. Investigations involve
both formal and informal proceedings, by both
governmental agencies and self-regulatory organizations.
These legal proceedings are at varying stages of
adjudication, arbitration or investigation, and involve each
of the Firm's lines of business and several geographies and
a wide variety of claims (including common law tort and
contract claims and statutory antitrust, securities and
consumer protection claims), some of which present novel
legal theories.
•
•
the number, variety and varying stages of the
proceedings, including the fact that many are in
preliminary stages,
the existence in many such proceedings of multiple
defendants, including the Firm, whose share of liability
(if any) has yet to be determined,
the numerous yet-unresolved issues in many of the
proceedings, including issues regarding class
certification and the scope of many of the claims, and
the attendant uncertainty of the various potential
outcomes of such proceedings, including where the Firm
has made assumptions concerning future rulings by the
court or other adjudicator, or about the behavior or
incentives of adverse parties or regulatory authorities,
and those assumptions prove to be incorrect.
In addition, the outcome of a particular proceeding may be
a result which the Firm did not take into account in its
estimate because the Firm had deemed the likelihood of
that outcome to be remote. Accordingly, the Firm's estimate
of the aggregate range of reasonably possible losses will
change from time to time, and actual losses may vary
significantly.
Set forth below are descriptions of the Firm's material legal
proceedings.
Federal Republic of Nigeria Litigation. JPMorgan Chase Bank,
N.A. operated an escrow and depository account for the
Federal Government of Nigeria ("FGN”) and two major
international oil companies. The account held
approximately $1.1 billion in connection with a dispute
among the clients over rights to an oil field. Following the
settlement of the dispute, JPMorgan Chase Bank, N.A. paid
out the monies in the account in 2011 and 2013 in
accordance with directions received from its clients. In
November 2017, the Federal Republic of Nigeria ("FRN")
commenced a claim in the English High Court for
approximately $875 million in payments made out of the
accounts. The FRN, claiming to be the same entity as the
FGN, alleges that the payments were instructed as part of a
complex fraud not involving JPMorgan Chase Bank, N.A., but
that JPMorgan Chase Bank, N.A. was or should have been on
notice that the payments may be fraudulent. JPMorgan
Chase Bank, N.A. applied for summary judgment and was
unsuccessful. The claim is ongoing and no trial date has
been set.
The Firm believes the estimate of the aggregate range of
reasonably possible losses, in excess of reserves
established, for its legal proceedings is from $0 to
approximately $1.3 billion at December 31, 2019. This
estimated aggregate range of reasonably possible losses
was based upon information available as of that date for
those proceedings in which the Firm believes that an
estimate of reasonably possible loss can be made. For
certain matters, the Firm does not believe that such an
estimate can be made, as of that date. The Firm's estimate
of the aggregate range of reasonably possible losses
involves significant judgment, given:
The Firm is a member of several securities and derivative
exchanges and clearing houses, both in the U.S. and other
countries, and it provides clearing services to its clients.
Membership in some of these organizations requires the
Firm to pay a pro rata share of the losses incurred by the
organization as a result of the default of another member.
Such obligations vary with different organizations. These
obligations may be limited to the amount (or a multiple of
the amount) of the Firm's contribution to the guarantee
fund maintained by a clearing house or exchange as part of
the resources available to cover any losses in the event of a
member default. Alternatively, these obligations may also
include a pro rata share of the residual losses after applying
the guarantee fund. Additionally, certain clearing houses
require the Firm as a member to pay a pro rata share of
losses that may result from the clearing house's investment
of guarantee fund contributions and initial margin,
unrelated to and independent of the default of another
member. Generally a payment would only be required
should such losses exceed the resources of the clearing
house or exchange that are contractually required to absorb
the losses in the first instance. In certain cases, it is difficult
to estimate the Firm's maximum possible exposure under
these membership agreements, since this would require an
assessment of future claims that may be made against the
Firm that have not yet occurred. However, based on
historical experience, management expects the risk of loss
to the Firm to be remote. Where the Firm's maximum
possible exposure can be estimated, the amount is disclosed
in the table on page 273, in the Exchange & clearing house
guarantees and commitments line.
163,823
42,403
3,500
3,386
3,327
10,515
10,353
10,218
Income/(loss) before income
tax expense/(benefit)
22,035
19,491
14,851
16,502
15,590
15,295
5,188
5,544
5,554
3,740
3,670
19,407
20,918
21,519
39
9,059
8,605
14,316
14,076
3,379
13,835
Provision for credit losses
4,952
4,753
Noninterest expense
3,578
28,896
5,572
26,062
277
(60)
(45)
296
129
(276)
61
53
27,835
Income tax expense/(benefit)
5,394
4,639
557,441
552,601
908,153
903,051
826,384
$ 3,924
$ 22,000
220,514
$ 4,237
$ 3,539
$ 20,000
539,090
$ 20,000
$ 10,500 $ 9,000 $ 9,000
220,229
221,228
182,004
170,024
151,909
Return on equity
Overhead ratio
31%
$ 2,833 $ 2,853 $ 2,337
8,984
Total assets
$70,000
5,456
4,580
3,817
4,482
1,264
1,307
2,015
907
817
$ 10,813
$ 70,000
1,241
$ 16,641
$ 14,852 $ 9,395
$ 11,922
$ 11,773
Average equity
$ 52,000
$ 51,000
$ 51,000
$ 80,000
Net income/(loss)
274
34,657
38,298
The following is a description of each of the Firm's business
segments, and the products and services they provide to
their respective client bases.
Consumer & Community Banking
Consumer & Community Banking offers services to
consumers and businesses through bank branches, ATMs,
digital (including mobile and online) and telephone
banking. CCB is organized into Consumer & Business
Banking (including Consumer Banking/Chase Wealth
Management and Business Banking), Home Lending
(including Home Lending Production, Home Lending
Servicing and Real Estate Portfolios) and Card, Merchant
Services & Auto. Consumer & Business Banking offers
deposit and investment products and services to
consumers, and lending, deposit, and cash management
and payment solutions to small businesses. Home Lending
includes mortgage origination and servicing activities, as
well as portfolios consisting of residential mortgages and
home equity loans. Card, Merchant Services & Auto issues
credit cards to consumers and small businesses, offers
payment processing services to merchants, and originates
and services auto loans and leases.
Corporate & Investment Bank
The Corporate & Investment Bank, which consists of
Banking and Markets & Securities Services, offers a broad
suite of investment banking, market-making, prime
brokerage, and treasury and securities products and
services to a global client base of corporations, investors,
financial institutions, government and municipal entities.
Banking offers a full range of investment banking products
and services in all major capital markets, including advising
on corporate strategy and structure, capital-raising in
equity and debt markets, as well as loan origination and
syndication. Banking also includes Treasury Services, which
provides transaction services, consisting of cash
management and liquidity solutions. Markets & Securities
Services is a global market-maker in cash securities and
derivative instruments, and also offers sophisticated risk
management solutions, prime brokerage, and
research. Markets & Securities Services also includes
Securities Services, a leading global custodian which
provides custody, fund accounting and administration, and
securities lending products principally for asset managers,
insurance companies and public and private investment
funds.
Commercial Banking
Commercial Banking provides comprehensive financial
solutions, including lending, treasury services, investment
banking and asset management products across three
primary client segments: Middle Market Banking, Corporate
Client Banking and Commercial Real Estate Banking. Other
includes amounts not aligned with a primary client
segment.
Middle Market Banking covers small business and midsized
corporations, local governments and nonprofit clients.
Corporate Client Banking covers large corporations.
Commercial Real Estate Banking covers investors,
developers, and owners of multifamily, office, retail,
industrial and affordable housing properties.
Asset & Wealth Management
Asset & Wealth Management, with client assets of $3.2
trillion, is a global leader in investment and wealth
management. AWM clients include institutions, high-net-
worth individuals and retail investors in major markets
throughout the world. AWM offers investment management
across most major asset classes including equities, fixed
income, alternatives and money market funds. AWM also
offers multi-asset investment management, providing
solutions for a broad range of clients' investment needs. For
Wealth Management clients, AWM also provides retirement
products and services, brokerage and banking services
including trusts and estates, loans, mortgages and deposits.
The majority of AWM's client assets are in actively managed
portfolios.
Corporate
The Corporate segment consists of Treasury and Chief
Investment Office and Other Corporate, which includes
corporate staff functions and expense that is centrally
managed. Treasury and CIO is predominantly responsible
for measuring, monitoring, reporting and managing the
Firm's liquidity, funding, capital, structural interest rate and
foreign exchange risks. The major Other Corporate functions
include Real Estate, Technology, Legal, Corporate Finance,
Human Resources, Internal Audit, Risk Management,
Compliance, Control Management, Corporate Responsibility
and various Other Corporate groups.
JPMorgan Chase & Co./2019 Form 10-K
Notes to consolidated financial statements
Segment results
The following table provides a summary of the Firm's
segment results as of or for the years ended December 31,
2019, 2018 and 2017, on a managed basis. The Firm's
definition of managed basis starts with the reported U.S.
GAAP results and includes certain reclassifications to
present total net revenue for the Firm (and each of the
reportable business segments) on an FTE basis. Accordingly,
revenue from investments that receive tax credits and tax-
exempt securities is presented in the managed results on a
basis comparable to taxable investments and securities.
This allows management to assess the comparability of
revenue from year-to-year arising from both taxable and
tax-exempt sources. The corresponding income tax impact
related to tax-exempt items is recorded within income tax
expense/(benefit). These adjustments have no impact on
net income as reported by the Firm as a whole or by the
LOBS.
Business segment capital allocation
The Firm is managed on an LOB basis. There are four major
reportable business segments - Consumer & Community
Banking, Corporate & Investment Bank, Commercial
Banking and Asset & Wealth Management. In addition, there
is a Corporate segment. The business segments are
determined based on the products and services provided, or
the type of customer served, and they reflect the manner in
which financial information is currently evaluated by the
Firm's Operating Committee. Segment results are presented
on a managed basis. Refer to Segment results of this
footnote for a further discussion of JPMorgan Chase's
business segments.
Note 32 - Business segments
JPMorgan Chase & Co./2019 Form 10-K
282
Total international
23,299
15,285
8,014
North America (a)
77,406
49,520
27,886
5,319
19,122
Each business segment is allocated capital by taking into
consideration a variety of factors including capital levels of
similarly rated peers and applicable regulatory capital
requirements. ROE is measured and internal targets for
expected returns are established as key measures of a
business segment's performance.
615,430
1,918,170
100,705 $
64,805 $
35,900 $
24,441
$ 2,533,600
(a) Substantially reflects the U.S.
(b) The prior period amounts have been revised to conform with the current period presentation.
(c) Revenue is composed of net interest income and noninterest revenue.
(d) Expense is composed of noninterest expense and the provision for credit losses.
(e) Total assets for the U.K. were approximately $305 billion, $297 billion, and $310 billion at December 31, 2019, 2018 and 2017, respectively.
Total
The Firm's allocation methodology incorporates Basel III
Standardized RWA, Basel III Advanced RWA, leverage, the
GSIB surcharge, and a simulation of capital in a severe
stress environment. Periodically, the assumptions and
methodologies used to allocate capital are assessed and as
a result, the capital allocated to the LOBS may change.
Segment results and reconciliation
(Table continued on next page)
Net interest income
37,241
35,819
31,775
9,156
9,480
$ 24,539
10,118
$ 2,430 $ 2,343 $ 2,522
$ 10,816
$ 26,968
$ 10,539
6,554
6,716
6,083
3,500
3,537
Total net revenue
55,883
52,079
46,485
$ 10,456
36,448
$ 29,142
$ 16,260
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
As of or for the year ended
December 31,
(in millions, except ratios)
2019
2018
2017
$ 14,710
2019
2017
2019
2018
2017
2019
2018
2017
Noninterest revenue
$ 18,642
2018
Reconciling Items(a)
Exchange & Clearing House Memberships
It is difficult to estimate the Firm's maximum possible
exposure through its role as a clearing member, as this
would require an assessment of transactions that clients
may execute in the future. However, based upon historical
experience, and the credit risk mitigants available to the
Firm, management believes it is unlikely that the Firm will
have to make any material payments under these
arrangements and the risk of loss is expected to be remote.
Refer to Note 5 for information on the derivatives that the
Firm executes for its own account and records in its
Consolidated Financial Statements.
Overhead ratio5
#1
#1 in total U.S. credit card sales
volume and outstandings
#1
VISA
D. BARRETT
CHASE O
SAPPHIRE
RESERVE
We take nothing for granted and
remain humble and motivated as we
compete to be, or stay, best in class.
Our performance in 2019 is the result
of that discipline and effort. We are
the #1 U.S. credit card issuer based
on sales and outstanding balances.
We are the #1 primary bank in our
footprint. We are the #1 business
bank based on primary relationships.
We are the #2 mortgage servicer and
the #3 bank auto lender.
We continue to make real progress
in Consumer & Community Banking,
and I am proud of what our great
team has accomplished. We have
built multiple market-leading busi-
nesses while de-risking and
simplifying them, and we worked
with regulators to close gaps and
make tough decisions. We do the
hard work each and every day to
put our customers first and do the
right thing.
Consumer & Community Banking
23
Liquidity = HQLA plus unencumbered marketable securities, which includes excess liquidity at JPMorgan Chase Bank, N.A.
HQLA = High quality liquid assets include cash on deposit at central banks and highly liquid securities (predominantly U.S. Treasuries,
U.S. government-sponsored enterprises and U.S. government agency mortgage-backed securities, and sovereign bonds)
LCR = Liquidity coverage ratio
bps = basis points
T = Trillions
B = Billions
CET1 = Common equity Tier 1 ratio. Refer to Regulatory capital on pages 86-90 for additional information
RWA = Risk-weighted assets
on page 94 for additional information.
4 Represents quarterly average HQLA included in the liquidity coverage ratio. Refer to Liquidity Coverage Ratio
#1 most visited banking
portal in the U.S.
#1
2019 financial results
In 2019, Consumer & Community
Banking delivered a 31% return on
equity on record net income of
$16.6 billion. Our $55.9 billion in
revenue was up 7% year-over-year.
We reduced our overhead ratio to
51.7% and self-funded significant
investments. We grew our customer
base to nearly 63 million U.S. house-
holds, including over 4 million
small businesses. This performance
is a direct result of the growth in
our business drivers and our sus-
tained focus on investing for the
medium and long term.
2008
2009
2010
Corporate clients
2011
2012
2013
2014
2015
2016
2017
T
U.S. households served
Nearly 63 million
~63M
28 million daily visits, calls
and digital channel logins
28M
#1 primary bank
within our footprint
Our average deposits of $694 billion
were up 3% over 2018, and client
investment assets reached $358 bil-
lion, up 27%. We ended the year
with $464 billion in average loans,
reflecting $43 billion in loan sales
over the last two years. Our customer
base of active mobile users is the
3 Operational risk RWA is a component of RWA under the Basel III Advanced measure.
2 Reflects the Basel III Standardized measure, which is the firm's current binding constraint.
1 CET1 reflects the Tier 1 common ratio under the Basel I measure.
is $545B4
2019 Basel III
Advanced is
12.4%²
+540 bps
7.0%¹
2019
2008
common equity
+$104B
13.4%, or 18.6%,
$84B
CET1
APPENDIX
at December 31,
Our Fortress Balance Sheet
GDP Gross domestic product
Return on tangible common equity
5 Managed overhead ratio = total noninterest expense/managed revenue; revenue for GS and MS is reflected on a reported basis.
ROTCE
4 Bank of America Corporation (BAC), Citigroup Inc. (C), The Goldman Sachs Group, Inc. (GS), Morgan Stanley (MS), Wells Fargo &
Company (WFC).
Tangible
excluding $389B
$188B
of operational
$860B
Reported HQLA
+~$560B
~$300B
Liquidity
risk RWA³
$1.5T²
+$0.3T
$1.2T¹
RWA
of operational
including $389B
Advanced is $1.4T,
2019 Basel III
$2.7T
+$0.5T
$2.2T
Total assets
risk RWA³
$1,158
$1,115
$1,088
$1,264
19 S&P Global Market Intelligence as of December 31, 2019.
20 Refinitiv LPC, 2019.
21
23
Source: Company filings and JPMorgan Chase estimates. Rankings reflect financial information publically reported by the following peers: Allianz Group, Bank of America Corporation,
Bank of New York Mellon Corporation, BlackRock, Inc., Credit Suisse Group AG, DWS Group, Franklin Resources, Inc., The Goldman Sachs Group, Inc., Invesco Ltd., Morgan Stanley, State
Street Corporation, T. Rowe Price Group, Inc. and UBS Group AG. JPMorgan Chase's ranking reflects AWM client assets, Chase Wealth Management investments and new-to-the-firm
Chase Private Client deposits.
Source: Capgemini World Wealth Report 2019. Market share estimated based on 2018 data (latest available).
NM Not meaningful
NA Not available
14 Coalition, preliminary 2019 rank and market share analysis reflects JPMorgan Chase's share of the global industry revenue pool and is based on JPMorgan Chase's business structure.
2006 rank analysis is based on JPMorgan Chase analysis.
B = Billions
FICC = Fixed Income, Currencies and Commodities
MSAS = Metropolitan statistical areas
AUM = Assets under management
USD U.S. dollar
K = Thousands
20
New and Renewed Credit and Capital for Our Clients
APPENDIX
T = Trillions
4 Barlow Research Associates, Primary Bank Market Share Database as of 4Q19. Rolling 8-quarter average of small businesses with revenues of $100,000 - <$25 million.
3 2006 reflects First Data joint venture.
Note: 2018 deposits market share and # of top 50 Chase markets where we are #1 (top 3) have been revised to conform with the 2019 methodology.
2.5%
Management
North America Private Bank client
assets market share23
3%
4%
4%
Average loans ($B)
# of Wealth Management client advisors
$26.5
1,506
$138.6
2,865
$149.7
2,890
■■142 locations across the U.S. and 30 international
locations
■Credit, banking, and treasury services to ~18K
Commercial & Industrial clients and ~34K real estate
owners and investors
■■17 specialized industry coverage teams
■#1 traditional Middle Market Bookrunner in the U.S.20
■26,000 affordable housing units financed in 2019
■Serve clients across the entire wealth spectrum
■Clients include 59% of the world's largest pension
funds, sovereign wealth funds and central banks
■Serves as a fiduciary across all asset classes
■88% of Asset Management's 10-year long-term mutual
fund AUM performed above peer median25
■Revenue and long-term AUM grew more than 90%
since 2006
Refer to the 2020 Investor Day presentations for footnoted information, which is available on JPMorgan Chase & Co.'s website under the heading Investor Relations, Events & Presentations,
JPMorgan Chase 2020 Investor Day (www.jpmorganchase.com/corporate/investor-relations/event-calendar.htm), and on Form 8-K as furnished to the U.S. Securities and Exchange
Commission (SEC) on February 25, 2020, which is available on the SEC's website (www.sec.gov), as follows: Refer to Firm Overview slide 3 for footnotes 1, 5, 9, 16, 17, 18, 22 and 25; refer to
Consumer & Community Banking slides 22, 3, 3, 2, 9, 9 and 7 for footnotes 2, 6, 7, 8, 10, 11 and 12, respectively; refer to Corporate & Investment Bank slides 5 and 4 for footnotes 13 and 15,
respectively; and refer to Asset & Wealth Management slide 3 for footnote 22.
2008-2019
Best-in-class peer ROTCE represents implied net income minus preferred stock dividends of the comparable business segments of
JPM peers when available or of JPM peers on a firmwide basis when there is no comparable business segment: BAC-CB, BAC-GB & GM,
Fifth Third Bancorp (FITB), Morgan Stanley Wealth Management (MS-WM) and Morgan Stanley Investment Management (MS-IM).
Comparisons are at the applicable business segment level, when available; the allocation methodologies of peers may not be consis-
tent with JPM's.
($ in billions)
$2,357
$1,577
$368
$1,494
$222
$252
$312
$243
$281
$1,567
$167
$136
$1,789
$1,693
$1,621
$1,619
$1,519
$1,525
$1,392
$167
$309
$275
$476
$2,307
$227
$2,263
$2,144
$265
$2,102
$258
$2,044
$262
$197
$480
$274
$1,866
$233
$1,820
$399
$430
$326
$252
$2,496
Best-in-class peer overhead ratio represents the comparable business segments of JPMorgan Chase (JPM) peers: Bank of America
Consumer Banking (BAC-CB), Bank of America Global Banking and Global Markets (BAC-GB & GM), US Bancorp Corporate and Com-
mercial Banking (USB-C & CB), Credit Suisse Private Banking (CS-PB) and Goldman Sachs Asset Management (GS-AM).
Achievement of medium-term targets may take time and require more
normalized GDP, unemployment and interest rates.
2
2017
2016
2015
2014
2013
2012
Consumer deposits
Wholesale deposits
Client assets
2018
2011
2009
2008
$1,415
$1,743 $1,881 $1,883
$2,061
$2,353
$2,329 $2,376
$2,427
2010
2019
Assets under custody²
($ in trillions)
2014
2013
2012
2011
2010
2009
2008
$13.2
$16.9
$16.1
$14.9
$20.5
$19.9
$18.8
$20.5
$20.5
$23.2
$23.5
$26.8
$2,740
2015
$2,783
$648
$3,255
$844
$679
$660
$3,633
$3,802
$3,740
$3,617
$503
($ in billions)
$4,227 $4,211
Deposits and client assets¹
$4,820
at December 31,
Assets Entrusted to us by Our Clients
Commercial clients ■Consumer
2019
2018
$718
$618
$464
$558
$573
$730
$558
$361
$755
$365
$722
$372
$2,424
$757
$861
$824
$398
$2,681
$792
$439
$2,811
$784
$3,011
$3,258
2.4%
2016
2018
MS
WFC
GS
BAC
с
JPM
Target
<55%
22
JPMorgan Chase compared with peers4
22
37%
MS-WM & MS-IM
CS-PB & GS-AM
Management
26%
<75%
56%
73%
Asset & Wealth
25%+
ROTCE
Target
55%
1
11%
GS
73%
12%
WFC
68%
12%
с
68%
13%
MS
60%
15%
BAC
57%
~17%
19%
JPM
~18%
2017
17%
FITB
40%+/-
52%
Consumer &
JPM medium-term
target ROTCE
Best-in-class
peer ROTCE².3
JPM 2019
ROTCE
JPM medium-term
target overhead
ratio
Best-in-class
peer overhead
ratio¹
ratio
Community
overhead
Returns
Efficiency
JPMorgan Chase is in Line with Best-in-class Peers in Both Efficiency and Returns
While we never expect to be best in class every year in every business, we normally compare
well with our best-in-class peers. The chart below shows our performance generally, by busi-
ness, versus our competitors in terms of efficiency and returns.
APPENDIX
21
¹ Represents assets under management, as well as custody, brokerage, administration and deposit accounts.
² Represents activities associated with the safekeeping and servicing of assets.
2019
JPM 2019
46%
BAC-CB
50%+/-
43%
USB-C & CB
Banking
39%
Commercial
Bank
BAC-GB & GM
BAC-GB & GM
Investment
~16%
15%
14%
54%+/-
54%
56%
Corporate &
Banking
25%+
35%
BAC-CB
31%
17%
1.8%
$1,443
Asset & Wealth
More than 52 million
active digital customers
52+M
Secure Banking checking
account launched
10+ percentage point increase
in share of self-service Consumer
Banking transactions since 2014
PERCENTAGE POINTS
+10+
16
25
channel to interact with us during
the year. We are still committed to
our omnichannel strategy because
our customers are. And all of our
channels have evolved based upon
our customers' preferences and
expectations. For example, we're
able to build branches in new
markets farther apart than branches
in our legacy markets because of
our new tools and capabilities: our
digital account opening functional-
ity and data about our existing
customers in those markets.
Two-thirds of our Consumer Bank-
ing customers used more than one
logged in to our digital channels.
The scale of our distribution gives us
a competitive advantage. When we
bring new products and services to
the marketplace, we bring them to
nearly 63 million households that
engage with us on a regular basis.
On any given day in 2019, 28 million
customers visited us, called us or
Drive engagement through
omnichannel, customer-centered
experiences
relationships, and we are the #1
business bank based on primary
bank relationships. The deposits
these customers bring to us are the
outcome of that relationship.
In these newer markets, customers
can choose whether to open an
account in a branch or digitally.
Until 2018, our checking and sav-
ings accounts could only be opened
In Consumer & Business Banking,
our focus is to be our customers'
primary bank. Customers consider a
wide range of factors when choosing
their primary bank. Over 75% of our
checking households are primary
NEW MARKETS
ENTERED
in a branch. In addition, we were
able to use the information we have
about where our customers live,
work and shop to determine the
optimal locations to place our new
branches and ATMs. This has
allowed us to enter markets with the
smartest possible footprint and
helps explain why the early-stage
performance of these branches has
exceeded our expectations.
Many of the investments we made
have allowed us to reduce annual
expenses via automation and
enabled the improved productivity
described earlier. In Consumer
Banking, our investments in digital
self-service capabilities have reduced
We closely manage expenses, con-
tinuously simplifying and investing
for the medium and long term -
driving down our overhead ratio in
the process. Our 2019 overhead ratio
of 51.7% was 170 basis points better
than in 2018 and 6 percentage
points better than five years ago. In
areas where we have become more
efficient, we have been able to self-
fund some of our investments in
our businesses.
Manage expenses and simplify our
business while continuing to invest
for the future
These efforts have made us better at
providing the capabilities and fea-
tures that improve the customer
experience. As an example, we began
extending already-approved offers
to existing customers for whom we
had enough information to make
an approval decision. Being able to
show customers products they are
qualified for is a superior client
experience. Previously, these same
customers had been required to reap-
ply for products using the same
application as a new-to-Chase
customer. For certain customers -
10 million to date – that wasn't nec-
essary; we wanted to save their time
and make it easier to do more busi-
ness with us. Customers value the
transparency and certainty of these
already-approved offers and the sim-
ple one-click experience to accept
them. Personalized offers such as
these convert at rates up to 20%
higher than our traditional market-
ing offers.
of
We're using data, analytics and tech-
nology to improve the customer
experience and drive productivity.
Over the last five years, our opera-
tional staff has become 20% more
productive, serving a larger cus-
tomer base with a smaller team.
The cost to serve each household
has declined 14% over the same
time period, as the share of transac-
tions completed through self-service
channels has grown more than
10 percentage points.
We are adopting more agile ways
working, including a product- and
platform-based architecture. Product
and platform owners have end-to-
end ownership, which puts decision
making closer to the customer, help-
ing us move faster than we could in
an annual planning cycle.
16 new markets entered and
90+ branches added since 2018
Improve productivity, agility and
customer experience through data,
analytics and technology
AUTOSAVE
$1.5+B
More than 37 million
active mobile customers
ACTIVE MOBILE CUSTOMERS
37+M
In our digital channels, we are pro-
viding new features for our custom-
ers based on their relationship with
Chase. In Chase Mobile, our Snap-
shot feature offers personalized
insights to help customers make the
most of their money. One insight
that educates customers on how to
begin saving automatically - Auto-
save - enabled our customers to set
aside more than $1.5 billion in 2019.
$1.5+ billion saved by
customers using Autosave
bringing in more than half of all
new-to-Chase households. Our lend-
ing customers respond to Consumer
Banking marketing at three times the
rate of pure prospects; in branch
expansion markets, the response rate
is even better. Customers with these
deeper relationships are more satis-
fied and less likely to leave Chase.
We continually improve and sim-
plify the customer experience and
offer new, customer-centered digital
capabilities using our data to benefit
and protect our customers.
www
Apply for new lan
their current home and explore their neighbor-
hood before applying for a new loan.
assets; for example, their home. In 2019, we
rolled out a digital mortgage offering, Chase
MyHome, allowing customers to apply for a loan
and initiate a mortgage origination digitally.
Customers can use features such as Credit Jour-
ney to receive a detailed view of their finances
and borrowing ability; Autosave allows them to
set a down payment savings goal. And with
Chase MyHome, they can review the value of
Today, customers can better understand and
manage some of their most important financial
We've started to bring together our digital
experiences to engage customers at an earlier
stage in their financial journey. Doing so can
help them reach their goals faster. Our already-
established digital tools give customers a clear
view and understanding of their finances.
NEW TOOLS FOR CUSTOMERS
24
These are just a few examples of how we con-
tinue to do more to help our customers with
their everyday finances. We plan to create
more of these experiences for customers with
similar opportunities, such as buying a car,
saving for a vacation and staying on top of
everyday purchases.
Our lending businesses - Credit
Card, Home Lending and Auto
a significant acquisition funnel for
our deepest customer relationships,
customer relationships by offering
compelling value propositions
We're bringing in new customers
and earning more of their valuable
business. In 2019, we grew the total
number of households we serve and
increased the number of households
that have a relationship with more
than one Chase line of business even
faster than households overall.
Among our consumer households,
25% have a relationship with two or
more Chase lines of business.
Acquire, deepen and retain
Here are some highlights of what we
accomplished in 2019 in each of
these areas:
We achieved our 2019 results with
continued focus on six strategic prior-
ities that have remained consistent
and have proved to be effective. We
bring in new customers, drive engage-
ment across multiple channels and
always focus on improving their expe-
rience with us. We closely manage
expenses and simplify our business,
and we seek efficiency and greater
productivity. We're intensely focused
on the regulatory and risk and control
environment. We work to hire the
best, diverse talent in the industry
that also reflects the diverse commu-
nities we serve.
There was no way to predict that
credit performance would remain as
strong as it has over these last few
years, and that has positively contrib-
uted to the performance we deliv-
ered in 2019.
largest and, on an absolute basis, the
fastest growing among U.S. banks:
37 million, up 12% year-over-year.
- are
Credit Journey
Customers visit
Credit Journey to
understand their
borrowing ability.
$174,561
5490K
TX 7504
1234 Main S
Users can get home value
information on Chase
MyHome and track prog-
ress through a simplified
mortgage experience.
More than 1 million
customers have visited
Chase MyHome since
April 2019, and about
80% of customers used
Chase MyHome in 4Q19.
Chase MyHome
1 Reflects percentage of consumer originations that used Chase MyHome for loan fulfillment in the fourth quarter of 2019.
C
See my current home wa
Autosave helped
our customers
save more than
$1.5 billion in 2019.
$20.00
725
Customers can set
goals to save for
major purchases.
Autosave
Approximately 22
million customers
enrolled in Credit
Journey as of
December 2019.
26
in credit and debit card
sales volume
everyday branch transactions per
customer by 49% since 2014 -
eliminating transactions that are
simple and easy for customers to
manage anywhere and at their con-
venience, such as depositing checks.
Operate a disciplined risk and
control environment, protect the
firm's systems, and safeguard
customer and employee privacy
As always, we are focused on manag-
ing risk appropriately and using
well-designed controls. This work is
never done. Investing in these efforts
remains our highest priority, and we
have done so consistently over time.
We are vigilant and never compla-
cent in this space.
$70
$70
$64
$62
Active AUM market share²²
16%
$80
14%
12%
2019
2018
2017
2016
2015¹
16%
Overhead ratio
$38.3
$35.3
28
1 Reported results for 2015 have been revised to reflect the adoption in 2018 of the new revenue recognition guidance.
56%
57%
56%
54%
$36.4
64%
$11.9
$11.8
$10.8
$10.8
$33.7
$34.7
$8.1
■Net income
Revenue
Capital
Gordon Smith
Gordon
Our Chase franchise is powerful and
differentiated from our peers. We will
continue to support our customers,
small business clients, communities
and employees now and in the future.
And as we forge ahead through this
challenging time and get through it,
we still see opportunities to help
and support more people. Two
opportunities that stand out are:
helping a broader range of Ameri-
cans manage their financial lives
and earning the chance to manage
investments for the many millions
of households that work with Chase
as their primary bank.
Over the last few weeks, we have
been offering relief to our customers
and small business clients who are
struggling financially. We have pro-
vided payment relief for credit cards,
auto loans and home loans. We also
continue to lend money.
-
Co-President and Chief Operating Officer,
JPMorgan Chase & Co., and
We have built tremendous busi-
nesses that deliver repeatable reve-
nue. Each year, we work hard to
bring in new customers, retain exist-
ing ones and generate earnings
throughout economic cycles. We are
experiencing turbulent times across
the country and the world - as we
get set to publish this letter. We are
here for our customers in good times
and tough times, and that is true
now more than ever.
Representation is only part of the
equation when it comes to attracting
and retaining world-class talent. We
are focused on driving inclusiveness
and reinforcing the fact that we all
are responsible for keeping a culture
where everyone is respected and
valued for who they are and what
they contribute.
to correct it.
Attract, develop and retain the best
talent for today and the future,
harnessing the power of diversity
Our talent sets us apart, and we
work to attract and retain the best,
diverse talent for today and tomor-
row. Our team must represent and
reflect the diverse customers we
serve every day. We are proud that
more than 57% of our employees in
Consumer & Community Banking
are female and more than half of our
U.S. employees identify as a minor-
ity. The roles with the highest
minority representation are dispro-
portionately our customer-facing,
front-line roles rather than executive
management. We are mindful of this
imbalance and are working tirelessly
send data that customers choose
for us to provide on their behalf.
This reduces risk for all parties
while giving transparency and
control to our customers.
We have made great strides to pro-
tect customer data, as well as our
own systems, when sharing data.
Previously, to share information with
approved third parties, customers
provided their Chase login creden-
tials, giving access to their entire
Chase profile. This enabled third
parties to obtain information beyond
the scope of the customer's inten-
tion. That wasn't safe for the cus-
tomer or for us. Now we require
these third parties to abide by our
data-sharing rules, and we securely
Over the last five years, for example,
we've used technology and machine
learning to reduce fraud losses in the
credit card business by 50%.
Conclusion
CEO, Consumer & Community Banking
27
Corporate & Investment Bank
CIB ROE
($ in billions)
Strong Returns on Higher Capital
Supporting clients during periods of
crisis has always been a hallmark of
our business. A decade ago, when
investors were worried about bank
exposures in struggling economies
such as Ireland, Greece, Portugal,
Spain and Italy, we did not retrench.
On the contrary: In 2009 and 2010,
we stood by those countries, raising
Commitment and consistency
Over the years, that scale has become
a springboard for growth. In 2010,
we began to expand our interna-
tional corporate banking effort to
include multinational clients around
the globe, with 100 bankers dedi-
cated to serving 2,200 clients. Today,
our 400 corporate bankers cover
3,300 companies and their subsidiar-
ies worldwide. In addition, we are
partnering with Commercial Bank-
ing to extend our services to middle
market clients internationally.
Having scale has been equally criti-
cal to our success. Following the
financial crisis, we believed that
clients would gravitate to the best
ideas and offerings, particularly if
they could be accessed anywhere
and at any time.
At J.P. Morgan, we believed that cli-
ents would always need an array of
global banking products even though
margins on these products varied.
We looked at our client relationships
holistically and prioritized long-term
value for them over short-term
profitability for us. That decision –
to continue to provide a full suite
of products and services for clients
across the globe – has proved to be
mutually beneficial.
This created a predicament for banks
emerging from the crisis, and they
chose several different paths. Some
decided to cut back on businesses
that were less profitable or carried
too much capital. Others retreated
from traditional investment banking
businesses altogether.
New regulations that followed the
financial crisis helped make the
banking system safer overall but also
made investment banking more
expensive. Banks had to hold a lot
more capital, which reduced leverage
and ROE. At the same time, major
investments were needed in technol-
ogy and compliance.
The success of our business over the
last decade has hinged chiefly on our
steadfast pursuit of three strategic
goals: being global, complete and at
scale. The benefits of these qualities
may seem obvious today but weren't
quite so clear a decade ago.
Global, complete and at scale
In 2009, 10 years ago, client business
drove earnings in our investment
bank to a record $6.9 billion. By 2019,
the CIB's earnings had topped the
entire firm's net income from 2009.
As we close out the decade, it is worth
reflecting on the strategy that brought
us to this point, helping us to gener-
ate record revenue and profits and a
consistently strong return on equity
(ROE) while adding $42 billion to the
CIB's capital base and investing sub-
stantially in the business.
This standout performance is the cul-
mination of a journey that began
during the 2008 financial crisis when
clients turned to J.P. Morgan for capi-
tal, liquidity and a safe haven.
In 2019,
the Corporate & Investment
Bank (CIB) generated earnings of
$11.9 billion on revenue of $38.3 bil-
lion
- a record year for our business.
Our investments for the long term
have also led to revenue growth.
Examples include the 400 branches
we are in the process of opening in
new markets to extend our reach.
Our new branches in existing mar-
kets break even seven months faster
than they did five years ago, and the
branches in our newer markets are
trending even better than that.
More than $1 trillion
14%
DEALING WITH AN EXTRAORDINARY CRISIS
Assets under custody ($T)
5.0%
11.0%
11.3%
■>80% of Fortune 500 companies do business with us
■Presence in over 100 markets globally
■■#1 in 16 businesses - compared with 8 in 201415
■#1 in global investment banking fees for the 11th
consecutive year13
Market share¹4
■Consistently ranked #1 in Markets revenue since 2012¹4
■#1 in USD payments volume¹6
$13.9
$23.2
$26.8
# of top 50 MSAs with dedicated teams
26
50
■ #2 custodian globally¹7
Co-#1
Co-#1
#8
Corporate &
Market share¹4
6.3%
#1
11.5%
Investment
Bank
FICC¹4
Market share¹4
Equities¹4
#7
#1
#1
12.0%
#1
7.0%
11.8%
12.3%
Bankers
#8
1,203
New relationships (gross)
#1
asset flows²1
ΝΑ
#2
#2
U.S. Private Bank (Euromoney)
#1
#1
#1
Client assets ($T)
$1.3
$2.7
$3.2
$1.1T
#1
#28
Multifamily lending 19
$2.7
ΝΑ
1,232
50
2,101
1,706
Commercial
Banking
Average loans ($B)
$53.6
$205.5
$207.9
Average deposits ($B)
$73.6
$170.9
$172.7
Gross investment banking revenue ($B) 18
$0.7
$2.5
1,922
Total Markets revenue¹4
Ranking of 5-year cumulative net client
8.6%
# of top 50 Chase markets
where we are #1 (top 3)
Average deposits growth rate
3.6%
9.3%
9.3%
Deposits market share¹
11 (25)
13 (40)
8%
5%
3%
Community
Active mobile customers growth rate
14 (40)
Consumer &
2019
2018
forget that America's economic prosperity
is a necessary foundation for our military
capability, which keeps us free and strong
and is essential to world peace. These issues
could all be tackled while preserving the
freedoms ascribed by our Founding Fathers:
life, liberty and the pursuit of happiness,
freedom of speech, freedom of religion and
freedom of enterprise, which means the free
movement of capital and labor (meaning you
#1
9.0%
can work where you want and for whom you
want). At the end of the day, the pursuit of
happiness, our freedoms and free enterprise
are inseparable.
If we acknowledge our problems and work
together, we can lift up those who need help
and society as a whole. Business and govern-
ment collaborating together can conquer our
biggest challenges.
IN CLOSING
While I have a deep and abiding faith in the United States of America
and its extraordinary resiliency and capabilities, we do not have
a divine right to success. Our challenges are significant, and we should
not assume they will take care of themselves. Let us all do what
we can to strengthen our exceptional union.
I would like to express my deep gratitude and appreciation for
the employees of JPMorgan Chase, and I'd also like to
thank all of you who shared your good wishes with me while
I was recuperating from my recent heart surgery. From this letter,
I hope shareholders and all readers gain an appreciation for
the tremendous character and capabilities of our people and how
they have helped communities around the world. They have
faced these times of adversity with grace and fortitude. I hope you
are as proud of them as I am. Finally, the countries and citizens of
the global community will get through this unprecedented situation,
undoubtedly stronger for it. Together, we will rise to the challenge.
Jamie Dimon
Chairman and Chief Executive Officer
April 6, 2020
19
APPENDIX
Client Franchises Built Over the Long Term
2006
NM
11%
Jane Don
Banking
Market share¹³
12%
8.7%
#1
#2
■All-time high Net Promoter Score¹²
9.4%
8.8%
5.1%
Business Banking primary market share4
■■■#3 bank auto lender¹¹
$358
$282
$80
Client investment assets ($B)
Global investment banking fees¹³
4,976
23%
Merchant processing volume³ ($B)
# of branches
16%
$661
$1,366
■#2 mortgage servicer¹0
■Serve ~63 million U.S. households, including
4.3 million small businesses5
$1,512
37 million active mobile customers'
■#1 primary bank within Chase footprint
■#1 U.S. credit card issuer based on sales and
outstandings⁹
Credit card sales market share²
3,079
5,036
■52 million active digital customers, including
22%
14,400 $
1.42%
14,295 $
1.39%
$
14,314
1.39%
253,707
$
Allowance for credit losses
Credit quality metrics
252,942
255,313
Allowance for loan losses to total retained loans
14,591 $
1.43%
1.41%
$
14,225
1.39%
$
14,367
$
14,482
1.44%
Allowance for loan losses to retained loans
excluding purchased credit-impaired loans (f)
Nonperforming assets
256,105
$
Net charge-offs
Net charge-off rate
14,500
1.39%
255,998
231,390
257,444
296,472
288,869
1.31
4,497 $
1,494
0.63%
291,498
290,893
282,031
270,124
273,114
274,449
Common stockholders' equity
234,337
235,985
236,222
254,983
232,844
231,192
230,133
Total stockholders' equity
261,330
264,348
263,215
259,837
256,515
258,956
257,458
256,201
Headcount
256,981
230,447
1.32
(Unaudited)
1.28
Year ended December 31,
Assets
2019
(Taxable-equivalent interest and rates; in millions, except rates)
Average
balance
Interest(h)
Rate
Deposits with banks
$
280,004
$
3,887
1.39%
Federal funds sold and securities purchased under resale agreements
275,429
6,146
2.23
Securities borrowed (a)
131,291
1,574
1.20
Trading assets debt instruments(a)
334,269
10,848
Long-term debt
Taxable securities
3.25
(Table continued on next page)
1.28
58
Consolidated average balance sheets, interest and rates
Provided below is a summary of JPMorgan Chase's
consolidated average balances, interest and rates on a
taxable-equivalent basis for the years 2017 through 2019.
Income computed on a taxable-equivalent basis is the
income reported in the Consolidated statements of income,
5,343
$
5,260 $
1,371
0.58%
1,403
0.60%
5,616
1,361
0.58%
$
1.23
5,190
1,236
0.52%
$
1.23
5,034 $
1,033
0.43%
1.22
1.25
5,767 $
1,252
6,364
1,335
0.59%
0.54%
(a) TBVPS and ROTCE are non-GAAP financial measures. Refer to Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures and Key Performance
Measures on pages 57-59 for further discussion of these measures.
(b) Quarterly ratios are based upon annualized amounts.
(c) The percentage represents the Firm's reported average LCR.
(d) The Basel III capital rules became fully phased-in effective January 1, 2019. Prior to this date, the required capital measures were subject to the transitional rules
which, as of December 31, 2018 and September 30, 2018, were the same on a fully phased-in and transitional basis. Refer to Capital Risk Management on pages
85-92 for additional information on these measures.
(e) The Basel III rule for the SLR became fully phased-in effective January 1, 2018. Refer to Capital Risk Management on pages 85-92 for additional information on
these measures.
(f) This ratio is a non-GAAP financial measure as it excludes the impact of residential real estate PCI loans. Refer to Explanation and Reconciliation of the Firm's Use of
Non-GAAP Financial Measures and Key Performance Measures on pages 57-59, and the Allowance for credit losses on pages 116-117 for further discussion of this
measure.
JPMorgan Chase & Co./2019 Form 10-K
287
Distribution of assets, liabilities and stockholders' equity; interest rates and interest differentials
adjusted to present interest income and rates earned on
assets exempt from income taxes (i.e., federal taxes) on a
basis comparable with other taxable investments. The
incremental tax rate used for calculating the taxable-
equivalent adjustment was approximately 24% in both
2019 and 2018, and 37% in 2017.
1,486,961
115
1,458,762
SLR(e)
Tier 1 leverage ratio(d)
Total capital ratio(d)
13.5
13.6
13.6
13.7
13.8
14.0
14.1
14.1
Tier 1 capital ratio (d)
11.8
12.0
12.0
12.0
12.1
12.2
12.3
12.4
CET1 capital ratio(d)
115
115
113
111
113
115
16.0
116
15.9
15.7
284,127
$ 495,875 $ 523,373
411,103
$
Trading assets
Selected balance sheet data (period-end)
6.5
6.5
6.5
6.4
6.4
6.4
6.3
6.3
8.2
8.2
8.2
$ 533,402 $ 413,714
8.1
8.1
8.0
7.9
7.9
15.3
15.5
15.4
15.5
15.8
LCR (average) (c)
63
65
899,006
889,433
870,536
Average core loans
903,707
900,567
905,786
916,567
907,271
894,279
877,640
861,089
Total assets
2,687,379
2,764,661
2,727,379
2,737,188
2,622,532
2,615,183
2,590,050
2,609,785
Deposits
1,562,431
1,525,261
1,524,361
1,493,441
1,470,666
931,856
905,943
908,971
899,572
65
67
64
63
62
61
Loans-to-deposits ratio
58
$ 419,827 $ 418,799 $ 412,282
Investment Securities
398,239
394,251
307,264
1,452,122
267,365 $
231,398
233,015
238,188
Loans
959,769
945,218
956,889
956,245 $ 984,554
954,318
948,414
934,424
Core loans
916,144
261,828
7,962
(17)
Non-taxable securities (b)
4,068
150,205
0.26
299
2.17%
3,588
165,066 $
114,938
$
Rate
Interest
Average balance
2019
1.34
171,731
1,669
0.97
21,079
243,246
493
2.34
32,457
57
the location of the office recording the transaction.
Intercompany funding generally consists of dollar-
denominated deposits originated in various locations that
are centrally managed by Treasury and CIO.
Loans:
Non-U.S.
U.S.
Investment securities:
Non-U.S.
2.71
U.S.
125,224
1.66
1,967
50,084
3.10
2,435
78,670
(721)
5.49
48,097
875,869
2.05
654
31,914
3.11
8,963
287,961
3.35
3,723
110,999
3.19
7,125
223,270
0.39
151
38,666
1.54
1,423
92,625
2,078
Trading assets - debt instruments:
Non-U.S.
U.S.
2,608,898
$
229,222
255,471 (g)
26,249
2,299,500
123,291
2,353,427
132,836
44,122
21,104
43,075
34,667
411,202
0.82
13,874
1,699,781
1.22
21,041
411,424
1,731,425
2.56
6,753
263,928
3.28
7,978
1.55
503
26,212
230,350
256,562 (g)
$
Securities borrowed: (a)
Non-U.S.
U.S.
Federal funds sold and securities purchased under resale agreements:
Non-U.S.
U.S.
Deposits with banks:
Interest-earning assets
(Taxable-equivalent interest and rates; in millions, except rates)
Year ended December 31,
(Unaudited)
(Table continued on next page)
Presented below is a summary of interest and rates
segregated between U.S. and non-U.S. operations for the
years 2017 through 2019. The segregation of U.S. and non-
U.S. components is based on
3.93
Interest rates and interest differential analysis of net interest income - U.S. and non-U.S.
JPMorgan Chase & Co./2019 Form 10-K
(j) The annualized rate for securities based on amortized cost was 3.05%, 3.25% and 3.13% for the years ended December 31, 2019, 2018 and 2017, respectively,
and does not give effect to changes in fair value that are reflected in AOCI.
(i) Fees and commissions on loans included in loan interest amounted to $1.2 billion each for the years ended December 31, 2019 and 2018, and $1.0 billion for
2017.
(h) Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(g) The ratio of average stockholders' equity to average assets was 9.5%, 9.8% and 10.0% for the years ended December 31, 2019, 2018 and 2017, respectively.
The return on average stockholders' equity, based on net income, was 14.0%, 12.7% and 9.5% for the years ended December 31, 2019, 2018 and 2017,
respectively.
(f) The combined balance of trading liabilities - debt and equity instruments was $101.0 billion, $107.0 billion and $90.7 billion for the years ended December 31,
2019, 2018 and 2017, respectively.
2.19%
2.37
51,410
$
2.25%
2.52
55,687
$
2,556,062
289
2.80
2,345,491
3.61
$
Rate
Interest
Average balance
Rate
2017
Interest
Average balance
2018
(Table continued from previous page)
Refer to the "Net interest income" discussion in Consolidated Results of Operations on pages 48-51 for further information.
JPMorgan Chase & Co./2019 Form 10-K
290
(c) Represents the amount of noninterest-bearing liabilities funding interest-earning assets.
(b) Includes commercial paper.
(a) In the second quarter of 2019, the Firm implemented certain presentation changes that impacted interest income and interest expense, but had no effect on net
interest income. These changes were made to align the accounting treatment between the balance sheet and the related interest income or expense, primarily by
offsetting interest income and expense for certain prime brokerage-related held-for-investment customer receivables and payables that are currently presented as a
single margin account on the balance sheet. These changes were applied retrospectively and, accordingly, prior period amounts were revised to conform with the
current presentation.
22.1
24.5
1.07
5,559
2.86
52,217
Liabilities
Assets
Percentage of total assets and liabilities attributable to non-U.S. operations:
Non-U.S.
U.S.
305,117 $
2.46%
5,703
$
35,748
1,655
65
68,110
1.07
825
77,027
0.96
967
100,941
1.21
1,392
115,006
1.50
1,360
90,879
2.38
2,427
102,144
0.20
145
1.12%
4,093
366,814 $
72,849
0.20
204
100,397
1.87%
57,776
$
1.14%
Non-U.S.
1.75
2,574
147,247
Trading liabilities - debt, short-term and all other interest-bearing liabilities:(a)(b)
U.S.
1.01
641
63,710
Non-U.S.
2.43
3,989
164,284
Federal funds purchased and securities loaned or sold under repurchase agreements:
U.S.
0.78
2,061
265,355
Non-U.S.
0.81
6,896
850,493
U.S.
Interest-bearing deposits:
Interest-bearing liabilities
Total interest-earning assets (a)
All other interest-earning assets, predominantly U.S.(a)
Non-U.S.
U.S.
87,284
1,259
1.44
Beneficial interests issued by consolidated VIES, predominantly U.S.
26,795
2,345,491 $
$
496,649
1.45
26,795
1,848,842
1,414
(1,414)
(42,947)
42,947
0.68
41
3.62
84,571
8,766
2.52
568
22,501
Net interest income and net yield:
Total investable funds
Noninterest-bearing liabilities(c)
Total interest-bearing liabilities(a)
Non-U.S.
U.S.
Intercompany funding:
Non-U.S.
U.S.
Long-term debt:
241,914
6,054
60
8,712
57
260,418 (g)
$
2,741,841
$
57,776
2.16%
2.46
(a) In the second quarter of 2019, the Firm implemented certain presentation changes that impacted interest income and interest expense, but had no effect on net
interest income. These changes were made to align the accounting treatment between the balance sheet and the related interest income or expense, primarily by
offsetting interest income and expense for certain prime brokerage-related held-for-investment customer receivables and payables that are currently presented as a
single margin account on the balance sheet. In addition, the Firm reclassified balances related to certain instruments and structured notes from interest-earning/
bearing to noninterest-earning/bearing assets and liabilities as the associated returns are recorded in principal transactions revenue and not in net interest income.
These changes were applied retrospectively and, accordingly, prior period amounts were revised to conform with the current presentation.
(b) Represents securities that are tax-exempt for U.S. federal income tax purposes.
(c) Includes prime brokerage-related held-for-investment customer receivables, which are classified in accrued interest and accounts receivable, and all other interest-
earning assets, which are classified in other assets on the Consolidated Balance Sheets.
(d) Includes commercial paper.
(e) All other interest-bearing liabilities include prime brokerage-related customer payables.
232,907
288
Within the Consolidated average balance sheets, interest
and rates summary, the principal amounts of nonaccrual
loans have been included in the average loan balances used
to determine the average interest rate earned on loans.
Refer to Note 12 for additional information on nonaccrual
loans, including interest accrued.
(Table continued from previous page)
Average
balance
2018
Interest(h)
Rate
Average
balance
2017
Interest (h)
Rate
JPMorgan Chase & Co./2019 Form 10-K
$
27,511
151,717
$
1,115,848
227,994
52,426
$
8,957
0.80%
4,630
2.03
1,248
2.38
182,105
2,585
2,481,423
1.42
568
2.52
247,968
8,807
3.55
1,848,842
26,795
1.45
407,219
31,085
42,560
22,501
Net interest income and net yield on interest-earning assets (a)
405,514
5,907
5,534
2.48
42,456
1,987
4.68
45,086
2,769
6.14
236,688
7,640
3.23
223,592
(j)
8,303
3.09
(j)
(i)
(i)
944,885
47,796
5.06
906,397
41,296
4.56
268,678
$
2.91
194,232
1.46%
$
439,663
$
4,238
0.96%
217,150
3,819
1.76
191,820
2,327
5,653
1.21
913
0.79
95,324
94
0.10
244,771
8,763
3.58
227,588
7,714
3.39
115,082
Interest rate spread(a)
Total liabilities and stockholders' equity
Total stockholders' equity
1,095
(75)
1,298
83
Beneficial interests issued by consolidated VIES, predominantly
U.S.
37
38
75
(266)
256
(10)
Long-term debt:
U.S.
158
93
812
(762)
1,971
1,209
Non-U.S.
17
17
16
16
Intercompany funding:
U.S.
719
Non-U.S.
(47)
30
2,155
733
2,339
777
Federal funds purchased and securities loaned or sold under
repurchase agreements:
U.S.
1,133
294
1,427
46
1,167
Non-U.S.
(77)
(85)
137
5
237
1,213
242
Trading liabilities - debt, short-term and all other interest-bearing
liabilities: (a)(b)
U.S.
(5)
354
56
203
Non-U.S.
222
Change in interest expense(a)
Change in net interest income
293
84,571
3.61
20,645
114,323
53,786
53,683
167,244
$
2,741,841
Liabilities
Interest-bearing deposits(a)
(13,331)
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings (a)(d)
Beneficial interests issued by consolidated VIES
Long-term debt(a)
Total interest-bearing liabilities (a)
Noninterest-bearing deposits(a)
Trading liabilities - equity and other instruments (a)(f)
Trading liabilities - derivative payables
All other liabilities, including the allowance for lending-related commitments(a)
Total liabilities
Stockholders' equity
Preferred stock
Common stockholders' equity
Trading liabilities - debt and all other interest-bearing liabilities (a) (e)(f)
2,345,491
3.93
1,967
(961)
(668)
(704)
JPMorgan Chase & Co./2019 Form 10-K
4.63
Total investment securities
Loans
All other interest-earning assets(a)(c)
Total interest-earning assets (a)
Allowance for loan losses
Cash and due from banks
Trading assets equity and other instruments (a)
Trading assets derivative receivables
Goodwill, MSRS and other intangible assets
All other noninterest-earning assets
Total assets
319,875
9,617
3.01
(j)
(i)
954,539
50,532
5.29
50,084
48,818
44
2,212,908
1,890
CECL: Current Expected Credit Losses
CDS: Credit default swaps
CCP: "Central counterparty" is a clearing house that
interposes itself between counterparties to contracts traded
in one or more financial markets, becoming the buyer to
every seller and the seller to every buyer and thereby
ensuring the future performance of open contracts. A CCP
becomes a counterparty to trades with market participants
through novation, an open offer system, or another legally
binding arrangement.
CCO: Chief Compliance Officer
CCB: Consumer & Community Banking
CCAR: Comprehensive Capital Analysis and Review
CBB: Consumer & Business Banking
CB: Commercial Banking
Card Services includes the Credit Card and Merchant
Services businesses.
BHC: Bank holding company
Benefit obligation: Refers to the projected benefit
obligation for pension plans and the accumulated
postretirement benefit obligation for OPEB plans.
CEO: Chief Executive Officer
Beneficial interests issued by consolidated VIES:
Represents the interest of third-party holders of debt,
equity securities, or other obligations, issued by VIES that
JPMorgan Chase consolidates.
AUM: "Assets under management": Represent assets
managed by AWM on behalf of its Private Banking,
Institutional and Retail clients. Includes "Committed capital
not Called."
AUC: Assets under custody
AOCI: Accumulated other comprehensive income/(loss)
ARM: Adjustable rate mortgage(s)
AWM: Asset & Wealth Management
ALCO: Asset Liability Committee
AFS: Available-for-sale
ABS: Asset-backed securities
2019 Form 10-K: Annual report on Form 10-K for year
ended December 31, 2019, filed with the U.S. Securities
and Exchange Commission.
Glossary of Terms and Acronyms
JPMorgan Chase & Co./2019 Form 10-K
292
Auto loan and lease origination volume: Dollar amount of
auto loans and leases originated.
(a) In the second quarter of 2019, the Firm implemented certain presentation changes that impacted interest income and interest expense, but had no effect on net interest
income. These changes were made to align the accounting treatment between the balance sheet and the related interest income or expense, primarily by offsetting
interest income and expense for certain prime brokerage-related held-for-investment customer receivables and payables that are currently presented as a single margin
account on the balance sheet. These changes were applied retrospectively and, accordingly, prior period amounts were revised to conform with the current presentation.
(b) Includes commercial paper.
CET1 Capital: Common equity Tier 1 capital
CFP: Contingency funding plan
EC: European Commission
DVA: Debit valuation adjustment
Dodd-Frank Act: Wall Street Reform and Consumer
Protection Act
Deposit margin/deposit spread: Represents net interest
income expressed as a percentage of average deposits.
Distributed denial-of-service attack: The use of a large
number of remote computer systems to electronically send
a high volume of traffic to a target website to create a
service outage at the target. This is a form of cyberattack.
Debit and credit card sales volume: Dollar amount of card
member purchases, net of returns.
CVA: Credit valuation adjustment
CTC: CIO, Treasury and Corporate
CRSC: Conduct Risk Steering Committee
CRO: Chief Risk Officer
mention, substandard and doubtful categories for
regulatory purposes.
Glossary of Terms and Acronyms
CFTC: Commodity Futures Trading Commission
CFO: Chief Financial Officer
293
Credit derivatives: Financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) which allow one
party (the protection purchaser) to transfer that risk to
another party (the protection seller). Upon the occurrence
of a credit event by the reference entity, which may include,
among other events, the bankruptcy or failure to pay its
obligations, or certain restructurings of the debt of the
reference entity, neither party has recourse to the reference
entity. The protection purchaser has recourse to the
protection seller for the difference between the face value
of the CDS contract and the fair value at the time of settling
the credit derivative contract. The determination as to
whether a credit event has occurred is generally made by
the relevant International Swaps and Derivatives
Association ("ISDA") Determinations Committee.
Criticized: Criticized loans, lending-related commitments
and derivative receivables that are classified as special
Credit cycle: A period of time over which credit quality
improves, deteriorates and then improves again (or vice
versa). The duration of a credit cycle can vary from a couple
of years to several years.
Core loans: Represents loans central to the Firm's ongoing
businesses; core loans exclude loans classified as trading
assets, runoff portfolios, discontinued portfolios and
portfolios the Firm has an intent to exit.
Commercial Card: provides a wide range of payment
services to corporate and public sector clients worldwide
through the commercial card products. Services include
procurement, corporate travel and entertainment, expense
management services, and business-to-business payment
solutions.
resources.
Collateral-dependent: A loan is considered to be collateral-
dependent when repayment of the loan is expected to be
provided solely by the underlying collateral, rather than by
cash flows from the borrower's operations, income or other
CLTV: Combined loan-to-value
Client assets: Represent assets under management as well
as custody, brokerage, administration and deposit accounts.
Client deposits and other third-party liabilities: Deposits,
as well as deposits that are swept to on-balance sheet
liabilities (e.g., commercial paper, federal funds purchased
and securities loaned or sold under repurchase
agreements) as part of client cash management programs.
CLO: Collateralized loan obligations
CIO: Chief Investment Office
CIB: Corporate & Investment Bank
Chase Bank USA, N.A.: Chase Bank USA, National
Association
JPMorgan Chase & Co./2019 Form 10-K
Eligible LTD: Long-term debt satisfying certain eligibility
criteria
2,536 $ 4,277
1,741 $
1,006,184
$
0.57%
5,973
$
1,045,037
$
2,556,062
$
138,992
53,999
$
59,588
20,432
2,608,898
$
154,010
54,669
60,734
118,152
21,694
3.01
65,284
3.16
125,530
961
3,962
(945) $
2,857
189,282
$
2,089
$ 3,034 $
7,167
721
17
7,539
(372)
5,754
1,792
704
668
0.28%
(293)
177,788
1.26
481
0.86
1,611
187,386
38,095
2.08
1,144
54,993
1.62
3,066
2,387
Embedded derivatives: are implicit or explicit terms or
features of a financial instrument that affect some or all of
the cash flows or the value of the instrument in a manner
similar to a derivative. An instrument containing such terms
or features is referred to as a "hybrid." The component of
the hybrid that is the non-derivative instrument is referred
to as the "host." For example, callable debt is a hybrid
instrument that contains a plain vanilla debt instrument
(i.e., the host) and an embedded option that allows the
issuer to redeem the debt issue at a specified date for a
specified amount (i.e., the embedded derivative). However,
a floating rate instrument is not a hybrid composed of a
fixed-rate instrument and an interest rate swap.
ERISA: Employee Retirement Income Security Act of 1974
EPS: Earnings per share
ETD: “Exchange-traded derivatives": Derivative contracts
that are executed on an exchange and settled via a central
clearing house.
Prime mortgage loans are made to borrowers with good
credit records who meet specific underwriting
requirements, including prescriptive requirements related
to income and overall debt levels. New prime mortgage
borrowers provide full documentation and generally have
reliable payment histories.
Prime
The option ARM real estate loan product is an adjustable-
rate mortgage loan that provides the borrower with the
option each month to make a fully amortizing, interest-only
or minimum payment. The minimum payment on an option
ARM loan is based on the interest rate charged during the
introductory period. This introductory rate is usually
significantly below the fully indexed rate. The fully indexed
rate is calculated using an index rate plus a margin. Once
the introductory period ends, the contractual interest rate
charged on the loan increases to the fully indexed rate and
adjusts monthly to reflect movements in the index. The
minimum payment is typically insufficient to cover interest
accrued in the prior month, and any unpaid interest is
deferred and added to the principal balance of the loan.
Option ARM loans are subject to payment recast, which
converts the loan to a variable-rate fully amortizing loan
upon meeting specified loan balance and anniversary date
triggers.
Alt-A loans are generally higher in credit quality than
subprime loans but have characteristics that would
disqualify the borrower from a traditional prime loan. Alt-A
lending characteristics may include one or more of the
following: (i) limited documentation; (ii) a high CLTV ratio;
(iii) loans secured by non-owner occupied properties; or (iv)
a debt-to-income ratio above normal limits. A substantial
proportion of the Firm's Alt-A loans are those where a
borrower does not provide complete documentation of his
or her assets or the amount or source of his or her income.
Option ARMS
Alt-A
Mortgage product types:
Glossary of Terms and Acronyms
295
Correspondent - Banks, thrifts, other mortgage banks and
other financial institutions that sell closed loans to the Firm.
Retail - Borrowers who buy or refinance a home through
direct contact with a mortgage banker employed by the
Firm using a branch office, the Internet or by phone.
Borrowers are frequently referred to a mortgage banker by
a banker in a Chase branch, real estate brokers, home
builders or other third parties.
Mortgage origination channels:
Subprime
Moody's: Moody's Investor Services
MD&A: Management's discussion and analysis
MBS: Mortgage-backed securities
Measurement alternative: Measures equity securities
without readily determinable fair values at cost less
impairment (if any), plus or minus observable price changes
from an identical or similar investment of the same issuer.
Master netting agreement: A single agreement with a
counterparty that permits multiple transactions governed
by that agreement to be terminated or accelerated and
settled through a single payment in a single currency in the
event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due).
The LTV ratio considering all available lien positions, as well
as unused lines, related to the property. Combined LTV
ratios are used for junior lien home equity products.
Managed basis: A non-GAAP presentation of Firmwide
financial results that includes reclassifications to present
revenue on a fully taxable-equivalent basis. Management
also uses this financial measure at the segment level,
because it believes this provides information to enable
investors to understand the underlying operational
performance and trends of the particular business segment
and facilitates a comparison of the business segment with
the performance of competitors.
Combined LTV ratio
An estimate of the LTV as of a certain date. The current
estimated LTV ratios are calculated using estimated
collateral values derived from a nationally recognized home
price index measured at the metropolitan statistical area
("MSA") level. These MSA-level home price indices consist of
actual data to the extent available and forecasted data
where actual data is not available. As a result, the estimated
collateral values used to calculate these ratios do not
represent actual appraised loan-level collateral values; as
such, the resulting LTV ratios are necessarily imprecise and
should therefore be viewed as estimates.
Current estimated LTV ratio
date.
JPMorgan Chase & Co./2019 Form 10-K
The LTV ratio at the origination date of the loan. Origination
date LTV ratios are calculated based on the actual appraised
values of collateral (i.e., loan-level data) at the origination
Merchant Services: is a business that primarily processes
transactions for merchants.
LTV: "Loan-to-value": For residential real estate loans, the
relationship, expressed as a percentage, between the
principal amount of a loan and the appraised value of the
collateral (i.e., residential real estate) securing the loan.
Origination date LTV ratio
Subprime loans are loans that, prior to mid-2008, were
offered to certain customers with one or more high risk
characteristics, including but not limited to: (i) unreliable or
poor payment histories; (ii) a high LTV ratio of greater than
80% (without borrower-paid mortgage insurance); (iii) a
high debt-to-income ratio; (iv) an occupancy type for the
loan is other than the borrower's primary residence; or (v) a
history of delinquencies or late payments on the loan.
MSA: Metropolitan statistical areas
Multi-asset: Any fund or account that allocates assets under
management to more than one asset class.
3.87
76,728
3.47
41,504
2,170,974
(13,453)
1,312
Nonaccrual loans: Loans for which interest income is not
recognized on an accrual basis. Loans (other than credit
card loans and certain consumer loans insured by U.S.
government agencies) are placed on nonaccrual status
when full payment of principal and interest is not expected,
regardless of delinquency status, or when principal and
interest have been in default for a period of 90 days or
more unless the loan is both well-secured and in the
process of collection. Collateral-dependent loans are
typically maintained on nonaccrual status.
NOL: Net operating loss
NM: Not meaningful
Net yield on interest-earning assets: The average rate for
interest-earning assets less the average rate paid for all
sources of funds.
MSR: Mortgage servicing rights
Net revenue rate: Represents Card Services net revenue
(annualized) expressed as a percentage of average loans for
the period.
Net mortgage servicing revenue: Includes operating
revenue earned from servicing third-party mortgage loans,
which is recognized over the period in which the service is
provided; changes in the fair value of MSRS; the impact of
risk management activities associated with MSRs; and gains
and losses on securitization of excess mortgage servicing.
Net mortgage servicing revenue also includes gains and
losses on sales and lower of cost or fair value adjustments
of certain repurchased loans insured by U.S. government
agencies.
⚫ Partner payments: Payments to co-brand credit card
partners based on the cost of loyalty program rewards
earned by cardholders on credit card transactions.
Reward costs: The cost to the Firm for points earned by
cardholders enrolled in credit card rewards programs.
Interchange income: Fees earned by credit and debit
card issuers on sales transactions.
Net interchange income includes the following
components:
Net charge-off/(recovery) rate: Represents net charge-
offs/(recoveries) (annualized) divided by average retained
loans for the reporting period.
Net Capital Rule: Rule 15c3-1 under the Securities
Exchange Act of 1934.
•
296
NAV: Net Asset Value
NA: Data is not applicable or available for the period
presented.
Net production revenue: Includes fees and income
recognized as earned on mortgage loans originated with the
intent to sell, and the impact of risk management activities
associated with the mortgage pipeline and warehouse
loans. Net production revenue also includes gains and
losses on sales and lower of cost or fair value adjustments
on mortgage loans held-for-sale (excluding certain
repurchased loans insured by U.S. government agencies),
and changes in the fair value of financial instruments
measured under the fair value option.
Loss emergence period: Represents the time period
between the date at which the loss is estimated to have
been incurred and the ultimate realization of that loss.
LTIP: Long-term incentive plan
LOB CROS: Line of Business and CTC Chief Risk Officers
LOB: Line of business
Ginnie Mae: Government National Mortgage Association
GSIB: Global systemically important banks
G7: Group of Seven nations: Countries in the G7 are
Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
G7 government bonds: Bonds issued by the government of
one of the G7 nations.
FVA: Funding valuation adjustment
FX: Foreign exchange
FTE: Fully taxable equivalent
FSB: Financial Stability Board
Free standing derivatives: a derivative contract entered
into either separate and apart from any of the Firm's other
financial instruments or equity transactions. Or, in
conjunction with some other transaction and is legally
detachable and separately exercisable.
Freddie Mac: Federal Home Loan Mortgage Corporation
FRC: Firmwide Risk Committee
Forward points: Represents the interest rate differential
between two currencies, which is either added to or
subtracted from the current exchange rate (i.e., “spot rate")
to determine the forward exchange rate.
Firm: JPMorgan Chase & Co.
FICO score: A measure of consumer credit risk provided by
credit bureaus, typically produced from statistical models
by Fair Isaac Corporation utilizing data collected by the
credit bureaus.
Headcount-related expense: Includes salary and benefits
(excluding performance-based incentives), and other
noncompensation costs related to employees.
FICC: The Fixed Income Clearing Corporation
FHA: Federal Housing Administration
FFIEC: Federal Financial Institutions Examination Council
294
Federal Reserve: The Board of the Governors of the Federal
Reserve System
FDIC: Federal Deposit Insurance Corporation
FDIA: Federal Depository Insurance Act
FCC: Firmwide Control Committee
FCA: Financial Conduct Authority
FASB: Financial Accounting Standards Board
Fannie Mae: Federal National Mortgage Association
EU: European Union
FHLB: Federal Home Loan Bank
HELOAN: Home equity loan
HELOC: Home equity line of credit
Home equity-senior lien: Represents loans and
commitments where JPMorgan Chase holds the first
security interest on the property.
LLC: Limited Liability Company
LIBOR: London Interbank Offered Rate
LGD: Loss given default
LDA: Loss Distribution Approach
LCR: Liquidity coverage ratio
Loan-equivalent: Represents the portion of the unused
commitment or other contingent exposure that is expected,
based on historical portfolio experience, to become drawn
prior to an event of a default by an obligor.
JPMorgan Securities: J.P. Morgan Securities LLC
JPMorgan Chase Bank, N.A.: JPMorgan Chase Bank,
National Association
ISDA: International Swaps and Derivatives Association
JPMorgan Chase: JPMorgan Chase & Co.
IPO: Initial public offering
Investment-grade: An indication of credit quality based on
JPMorgan Chase's internal risk assessment. The Firm
considers ratings of BBB-/Baa3 or higher as investment-
grade.
All TDRS (both wholesale and consumer), including ones
that have returned to accrual status
All wholesale nonaccrual loans
•
Impaired loan: Impaired loans are loans measured at
amortized cost, for which it is probable that the Firm will be
unable to collect all amounts due, including principal and
interest, according to the contractual terms of the
agreement. Impaired loans include the following:
IHC: JPMorgan Chase Holdings LLC, an intermediate holding
company
IDI: Insured depository institutions
ICAAP: Internal capital adequacy assessment process
IBOR: Interbank Offered Rate
Glossary of Terms and Acronyms
JPMorgan Chase & Co./2019 Form 10-K
HTM: Held-to-maturity
HQLA: High-quality liquid assets
Households: A household is a collection of individuals or
entities aggregated together by name, address, tax
identifier and phone number.
Home equity-junior lien: Represents loans and
commitments where JPMorgan Chase holds a security
interest that is subordinate in rank to other liens.
(13,269)
650
349
2,334
15,971
27,753 $ 27,907
$
$ 27,260
15,623
11,637
10,389
12,728
12,491
12,919
11,992
Pre-provision profit
28,832 $ 29,123 $ 26,109
16,341
16,395
15,720
16,080
$
Total noninterest expense
$
Total net revenue
Selected income statement data
2nd quarter 1st quarter
3rd quarter
4th quarter
2nd quarter 1st quarter
4th quarter 3rd quarter
(in millions, except per share, ratio, headcount
data and where otherwise noted)
2018
28,331 $ 29,341
16,339
16,422
2019
11,782
Provision for credit losses
10,662
10,572
2,256
2,309
1,775
2,054
1,690
2,325
2,045
Income tax expense
10,689
8,841
11,827
11,233
11,405
10,565
Income before income tax expense
1,165
1,210
948
1,548
1,495
1,149
1,514
1,427
11,342
1,950
As of or for the period ended
Supplementary information
45,538
813
184
864,149
45,395
5.25
832,608
39,439
4.74
80,736
2,401
1.95
2.97
1,857
2.52
48,818
1,890
3.87
41,504
1,312
3.16
2,212,908
76,728
3.47
73,789
Selected quarterly financial data (unaudited)
697
3.36
0.11
38,055
88
0.23
27,214
29
0.11
140,221
5,068
3.61
128,157
35,805
4,186
104,550
3,695
3.53
99,431
3,528
3.55
200,883
6,943
3.46
223,140
7,490
3.27
2,170,974
Net income
8,520 $
14%
ROE(b)
Selected ratios and metrics
0.56
0.56
0.80
0.80
0.80
0.80
0.90
0.90
15%
Cash dividends declared per share
55.14
55.68
56.33
57.62
59.52
60.48
60.98
TBVPS(a)
67.59
68.85
69.52
54.05
70.35
16%
12%
56
58
Overhead ratio
1.37
1.28
1.28
1.06
1.39
1.41
1.30
1.22
16%
ROA(b)
17
17
14
19
20
18
17
ROTCE(a)(b)
15%
14%
14%
19
$
71.78
75.24
1.99
$
2.65
2.83 $
2.82
3,250.6
3,259.7
3,207.2
2.69 $
2.68
3,198.5
3,140.7
3,148.5
Diluted
Average shares: Basic
2.57
Diluted
$
2.58 $
Basic
Net income:
Earnings per share data
8,316 $
8,380 $
$
7,066
$
9,179
9,652 $
9,080 $
$
73.88
2.35 $
$
75.98
Book value per share
3,404.8
3,360.9
3,325.4
$ 375,239 $ 350,204 $ 374,423
$ 319,780
3,275.8
3,197.5
$ 369,133 $ 357,479 $ 328,387
3,244.0
3,136.5
429,913
3,084.0
2.31
Common shares at period-end
Market capitalization
Market and per common share data
3,458.3
3,479.5
2.37
2.29
3,415.2
3,434.7
3,376.1
3,394.3
3,335.8
3,347.3
2.34
1.98
2.65
3,298.0
3,308.2
2.38
$
65,284
1.79
802,786
U.S.
Non-U.S.
236
362
598
106
654
760
2
61
63
425
26
59
Trading assets - debt instruments:
U.S.
2,646
(589)
2,057
446
436
882
Non-U.S.
216
33
(188)
252
686
Volume
Increase/(decrease) due
to change in:
Rate
Net
change
Volume
Rate
Net
change
$
(3,030) $
35
915
$
173
60
(1,141) $ 2,751 $ 1,610
59
59
1,304
337
1,641
267
3.01
1,067
168
518
(2,115)
95
Increase/(decrease) due
to change in:
28
(20)
212
332
544
All other interest-earning assets, predominantly U.S.(a)
48
29
77
283
295
578
Change in interest income(a)
34
4,826
7,843
1,369
10,075
11,444
Interest-bearing liabilities
Interest-bearing deposits:
U.S.
407
Non-U.S.
165
1,927
485
3,017
187
105
Non-U.S.
167
Investment securities:
U.S.
2,723
(703)
2,020
(770)
223
(547)
Non-U.S.
(79)
(71)
36
(189)
73
(116)
Loans:
U.S.
628
2,074
2,702
1,710
4,246
5,956
(43)
2019 versus 2018
800
Non-U.S.
85,269
1,306
Securities borrowed: (a)
75,000
1,223
1.63
21,079
493
2.34
32,457
503
0.69
1.55
7,954
3.32
262,817
6,745
2.57
3,528
24
0.68
1,111
8
0.72
239,718
927
134,826
1.51
4,562
0.57
769,596
2,223
0.29
242,251
1,411
0.58
236,588
634
0.27
117,754
2,562
2.18
115,574
1,349
1.17
71,528
504
0.70
71,812
262
0.37
147,512
2,225
(51,933)
(746)
1.53
746
2.69
5,451
1.05
5,351
1.16
JPMorgan Chase & Co./2019 Form 10-K
24.7
22.3
22.5
21.1
291
46,059
Changes in net interest income, volume and rate analysis
2018 versus 2017
(Unaudited)
Year ended December 31,
(On a taxable-equivalent basis; in millions)
Interest-earning assets
Deposits with banks:
U.S.
51,933
Federal funds sold and securities purchased under resale
agreements:
U.S.
The table below presents an attribution of net interest income between volume and rate. The attribution between volume and rate
is calculated using annual average balances for each category of assets and liabilities shown in the table and the corresponding
annual rates (refer to pages 288-292 for more information on average balances and rates). In this analysis, when the change
cannot be isolated to either volume or rate, it has been allocated to volume. The annual rates include the impact of changes in
market rates, as well as the impact of any change in composition of the various products within each category of asset or liability.
This analysis is calculated separately for each category without consideration of the relationship between categories (for example,
the net spread between the rates earned on assets and the rates paid on liabilities that fund those assets). As a result, changes in
the granularity or groupings considered in this analysis would produce a different attribution result, and due to the complexities
involved, precise allocation of changes in interest rates between volume and rates is inherently complex and judgmental.
2.95
Non-U.S.
2.37%
50,236
(2,874)
2,874
25
1,731,425
21,041
1.22
1,699,781
13,874
0.82
481,483
471,193
$
(25)
21,041
2,212,908 $
$
2.52%
55,687
$
51,410
13,874
2,170,974 $
$
0.95%
0.64%
Stephen B. Burke 2,3
Chairman
JPMorgan Chase & Co./2019 Form 10-K
Board of Directors
Linda B. Bammann4
Retired Deputy Head of Risk
Management
JPMorgan Chase & Co.
(Financial services)
James A. Bell¹
Retired Executive Vice President
The Boeing Company
(Aerospace)
299
Chief Executive Officer
Henry Crown and Company
(Diversified investments)
(Television and entertainment)
Todd A. Combs 2,3,5
Investment Officer
Berkshire Hathaway Inc.
(Conglomerate)
James S. Crown4
Chairman and
James Dimon
Chairman and
Chief Executive Officer
JPMorgan Chase & Co.
(Financial services)
Timothy P. Flynn¹
Retired Chairman and
Chief Executive Officer
KPMG
1,5
(Professional services)
Warehouse loans: Consist of prime mortgages originated
with the intent to sell that are accounted for at fair value
and classified as trading assets.
Mellody Hobson 4,5
Co-CEO and President
Ariel Investments, LLC
(Investment management)
NBCUniversal, LLC
VIES: Variable interest entities
JPMorgan Chase & Co./2019 Form 10-K
VCG: Valuation Control Group
Laban P. Jackson, Jr.¹
SOFR: Secured Overnight Financing Rate
SPES: Special purpose entities
Structural interest rate risk: Represents interest rate risk
of the non-trading assets and liabilities of the Firm.
Structured notes: Structured notes are financial
instruments whose cash flows are linked to the movement
in one or more indexes, interest rates, foreign exchange
rates, commodities prices, prepayment rates, or other
market variables. The notes typically contain embedded
(but not separable or detachable) derivatives. Contractual
cash flows for principal, interest, or both can vary in
amount and timing throughout the life of the note based on
non-traditional indexes or non-traditional uses of traditional
interest rates or indexes.
Taxable-equivalent basis: In presenting results on a
managed basis, the total net revenue for each of the
business segments and the Firm is presented on a tax-
equivalent basis. Accordingly, revenue from investments
that receive tax credits and tax-exempt securities is
presented in managed basis results on a level comparable
to taxable investments and securities; the corresponding
income tax impact related to tax-exempt items is recorded
within income tax expense.
TBVPS: Tangible book value per share
TCE: Tangible common equity
TDR: “Troubled debt restructuring" is deemed to occur
when the Firm modifies the original terms of a loan
agreement by granting a concession to a borrower that is
experiencing financial difficulty.
TLAC: Total loss-absorbing capacity
U.K.: United Kingdom
Unaudited: Financial statements and information that have
Glossary of Terms and Acronyms
not been subjected to auditing procedures sufficient to
permit an independent certified public accountant to
express an opinion.
U.S.: United States of America
U.S.government agencies: U.S. government agencies
include, but are not limited to, agencies such as Ginnie Mae
and FHA, and do not include Fannie Mae and Freddie Mac
which are U.S. government-sponsored enterprises (“U.S.
GSES"). In general, obligations of U.S. government agencies
are fully and explicitly guaranteed as to the timely payment
of principal and interest by the full faith and credit of the
U.S. government in the event of a default.
U.S. GAAP: Accounting principles generally accepted in the
U.S.
U.S. GSE(s): "U.S. government-sponsored enterprises” are
quasi-governmental, privately-held entities established or
chartered by the U.S. government to serve public purposes
as specified by the U.S. Congress to improve the flow of
credit to specific sectors of the economy and provide
certain essential services to the public. U.S. GSES include
Fannie Mae and Freddie Mac, but do not include Ginnie Mae
or FHA. U.S. GSE obligations are not explicitly guaranteed as
to the timely payment of principal and interest by the full
faith and credit of the U.S. government.
U.S. LCR: Liquidity coverage ratio under the final U.S. rule.
U.S. Treasury: U.S. Department of the Treasury
VA: U.S. Department of Veterans Affairs
VaR: "Value-at-risk" is a measure of the dollar amount of
potential loss from adverse market moves in an ordinary
market environment.
VGF: Valuation Governance Forum
Chairman and Chief Executive Officer
Clear Creek Properties, Inc.
(Real estate development)
RWA: "Risk-weighted assets": Basel III establishes two
comprehensive approaches for calculating RWA (a
Standardized approach and an Advanced approach) which
include capital requirements for credit risk, market risk, and
in the case of Basel III Advanced, also operational risk. Key
differences in the calculation of credit risk RWA between the
Standardized and Advanced approaches are that for Basel
III Advanced, credit risk RWA is based on risk-sensitive
approaches which largely rely on the use of internal credit
models and parameters, whereas for Basel III Standardized,
credit risk RWA is generally based on supervisory risk-
weightings which vary primarily by counterparty type and
asset class. Market risk RWA is calculated on a generally
consistent basis between Basel III Standardized and Basel III
Advanced.
Chief Executive Officer
JPMORGAN CHASE & Co.
Corporate headquarters
383 Madison Avenue
New York, NY 10179-0001
Telephone: 212-270-6000
jpmorganchase.com
Annual Report on Form 10-K
The Annual Report on Form 10-K of
JPMorgan Chase & Co. as filed with the
U.S. Securities and Exchange Commission
will be made available without charge
upon request to:
Office of the Secretary
JPMorgan Chase & Co.
4 New York Plaza
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Stock listing
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JPMorgan Chase & Co. is JPM.
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questions should be addressed to:
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JPMorgan Chase & Co.
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Director or the non-management directors
as a group, please mail correspondence to:
JPMorgan Chase & Co.
Attention (Board member(s))
Office of the Secretary
4 New York Plaza
JPMorgan Chase & Co./2019 Annual Report
New York, NY 10004-2413
302
Ayala Corporation
Makati City, Philippines
London, United Kingdom
Ratan Naval Tata
Chairman Emeritus
Tata Sons Ltd
Mumbai, India
Joseph C. Tsai
Executive Vice Chairman
Alibaba Group
Hong Kong, China
The Hon. Tung Chee Hwa GBM
Vice Chairman
National Committee of the Chinese
People's Political Consultative Conference
Hong Kong, China
Masahiko Uotani
President and
Group Chief Executive Officer
Shiseido Co., Ltd.
Tokyo, Japan
Cees J.A. van Lede
Former Chairman and Chief Executive
Officer, Board of Management
AkzoNobel
Amsterdam, The Netherlands
Jaime Augusto Zobel de Ayala
Chairman and Chief Executive Officer
* Ex-officio
The Corporate Governance Principles, the
charters of the principal standing Board
committees, the Code of Conduct, the Code
of Ethics for Finance Professionals and other
governance information can be accessed by
visiting our website at jpmorganchase.com
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"About us" tab.
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NYSE CLOSING B
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Tenaris
John L. Donnelly
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Vittorio U. Grilli
Walter A. Gubert
Mel R. Martinez
JPMorgan Chase & Co./2019 Annual Report
David Mayhew
E. John Rosenwald
301
J.P. Morgan International Council
Rt. Hon. Tony Blair
Chairman of the Council
Former Prime Minister of Great Britain
and Northern Ireland
London, United Kingdom
The Hon. Robert M. Gates
Vice Chairman of the Council
Partner
Rice, Hadley, Gates & Manuel LLC
Washington, District of Columbia
Phyllis J. Campbell
Bernard Arnault
JPMorgan Chase Vice Chairs
Canada
Michael A. Neal 4
Retired Vice Chairman
General Electric Company;
Retired Chairman and
Cassander Verwey
Russia and Kazakhstan
Yan Tavrovsky
Latin America/Caribbean
Andean, Caribbean and Central
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Moises Mainster
Colombia
Angela Hurtado
Argentina
Facundo D. Gómez Minujin
Brazil
José Berenguer
Chile
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Mexico
Felipe García-Moreno
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LVMH Moët Hennessy - Louis Vuitton
Paris, France
Paul Bulcke
Chairman of the Board of Directors
Nestlé S.A.
Joe Kaeser
President and Chief Executive Officer
Siemens AG
Munich, Germany
The Hon. Henry A. Kissinger
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Kissinger Associates, Inc.
New York, New York
Jorge Paulo Lemann
Director
The Kraft Heinz Company
Pittsburgh, Pennsylvania
Nancy McKinstry
Chief Executive Officer and
Chairman of the Executive Board
Wolters Kluwer
Alphen aan den Rijn, The Netherlands
Amin H. Nasser
President and Chief Executive Officer
Saudi Aramco
Dhahran, Saudi Arabia
The Hon. Condoleezza Rice
Partner
Rice, Hadley, Gates & Manuel LLC
Stanford, California
Paolo Rocca
The Hon. John Howard OM AC
Former Prime Minister of Australia
Sydney, Australia
The Hon. Carla A. Hills
Chairman and Chief Executive Officer
Hills & Company International Consultants
Washington, District of Columbia
Moscow, Russia
Chairman of the Executive Board
Sberbank
Vevey, Switzerland
Jamie Dimon*
Chairman and Chief Executive Officer
JPMorgan Chase & Co.
New York, New York
John Elkann
Chairman and Chief Executive Officer
EXOR N.V.
Turin, Italy
Buenos Aires, Argentina
Ignacio S. Galán
Madrid, Spain
Armando Garza Sada
Chairman of the Board
ALFA, S.A.B. of C.V.
San Pedro Garza García, Mexico
Alex Gorsky
Chairman and Chief Executive Officer
Johnson & Johnson
New Brunswick, New Jersey
Herman Gref
Chief Executive Officer,
Chairman and Chief Executive Officer
Iberdrola, S.A.
JP
Investor Services Program
JPMorgan Chase & Co.'s Investor Services
Program offers a variety of convenient,
low-cost services to make it easier to
reinvest dividends and buy and sell shares
of JPMorgan Chase & Co. common stock.
A brochure and enrollment materials may
be obtained by contacting the Program
Administrator, Computershare, by calling
800-758-4651, by writing to the address
indicated above or by visiting its website at
www-us.computershare.com/investor.
NY
Australia and New Zealand
Asia Pacific
Senior Country Officers and Location Heads
Martin G. Marrón
Viswas Raghavan
Filippo Gori
Latin America/Canada
Europe/Middle East/Africa
Asia Pacific
Regional Chief Executive Officers
JPMorgan Chase & Co./2019 Annual Report
General Auditor
Lou Rauchenberger
Investor Relations
LIST
Joseph M. Evangelisti
Corporate Communications
Jason R. Scott
Robert Bedwell
China
Mark Leung
Hong Kong
Iberia
Dorothee Blessing
Germany
Mustafa Bagriacik
Kyril Courboin
Nick Bossart
Turkey
France
Tanguy A. Piret
Firmwide Controller
Switzerland
Sub-Saharan Africa
Kevin Latter
Bader Alamoudi
Saudi Arabia
Ali Moosa
Bahrain, Egypt and Lebanon
Anton J. Ulmer
Austria
Europe/Middle East/Africa
Belgium
Ignacio de la Colina
Nicole Giles
Other Corporate Officers
Daniel E. Pinto
Chief Executive Officer
Chairman and
James Dimon
Operating Committee
5 Public Responsibility Committee
4 Risk Committee
3 Corporate Governance &
Nominating Committee
2 Compensation & Management
Development Committee
1 Audit Committee
Member of:
Retired Chairman and
Chief Executive Officer
Exxon Mobil Corporation
(Oil and gas)
JPMorgan Chase & Co.;
Lead Independent Director
Lee R. Raymond 2,3
(Industrial and financial services)
GE Capital
Co-President and
Chief Operating Officer;
CEO, Corporate & Investment Bank
Gordon A. Smith
Head of Corporate Responsibility;
Chairman of the Mid-Atlantic Region
Peter L. Scher
Jennifer A. Piepszak
Chief Financial Officer
CEO, Commercial Banking
Douglas B. Petno
Robin Leopold
Head of Human Resources
CEO, Consumer Lending
Marianne Lake
Molly Carpenter
Secretary
Stacey Friedman
General Counsel
Mary Callahan Erdoes
Chief Information Officer
Lori A. Beer
Chief Risk Officer
Ashley Bacon
CEO, Consumer & Community Banking
Chief Operating Officer;
Co-President and
CEO, Asset & Wealth Management
Ireland
300
Israel
Revenue wallet: Proportion of fee revenue based on
estimates of investment banking fees generated across the
industry (i.e., the revenue wallet) from investment banking
transactions in M&A, equity and debt underwriting, and
loan syndications. Source: Dealogic, a third-party provider
of investment banking competitive analysis and volume-
based league tables for the above noted industry products.
RHS: Rural Housing Service of the U.S. Department of
Agriculture
Retained loans: Loans that are held-for-investment (i.e.,
excludes loans held-for-sale and loans at fair value).
GAAP, which excludes the impact of taxable-equivalent
adjustments.
Glossary of Terms and Acronyms
297
JPMorgan Chase & Co./2019 Form 10-K
Reported basis: Financial statements prepared under U.S.
REO: Real estate owned
Regulatory VaR: Daily aggregated VaR calculated in
accordance with regulatory rules.
REIT: "Real estate investment trust”: A special purpose
investment vehicle that provides investors with the ability to
participate directly in the ownership or financing of real-
estate related assets by pooling their capital to purchase
and manage income property (i.e., equity REIT) and/or
mortgage loans (i.e., mortgage REIT). REITS can be publicly
or privately held and they also qualify for certain favorable
tax considerations.
PSUs: Performance share units
derivatives used for specific risk management purposes,
primarily to mitigate credit risk and foreign exchange
risk.
derivatives designated in qualifying hedge accounting
relationships, primarily fair value hedges of commodity
and foreign exchange risk;
Principal transactions revenue also includes realized and
unrealized gains and losses related to:
In connection with its client-driven market-making
activities, the Firm transacts in debt and equity
instruments, derivatives and commodities, including
physical commodities inventories and financial instruments
that reference commodities.
Unrealized gains and losses result from changes in
valuation.
Realized gains and losses result from the sale of
instruments, closing out or termination of transactions,
or interim cash payments.
Risk-rated portfolio: Credit loss estimates are based on
estimates of the probability of default ("PD") and loss
severity given a default. The probability of default is the
likelihood that a borrower will default on its obligation; the
loss given default ("LGD") is the estimated loss on the loan
that would be realized upon the default and takes into
consideration collateral and structural support for each
credit facility.
realized and unrealized gains and losses on financial
instruments and commodities transactions, including
those accounted for under the fair value option, primarily
used in client-driven market-making activities, and on
private equity investments.
ROA: Return on assets
ROTCE: Return on tangible common equity
CHASE
WELCOME TO
Carin Bryans
Ε
SMBS: Stripped mortgage-backed securities
SLR: Supplementary leverage ratio
Single-name: Single reference-entities
Shelf Deals: Shelf offerings are SEC provisions that allow
issuers to register for new securities without selling the
entire issuance at once. Since these issuances are filed with
the SEC but are not yet priced in the market, they are not
included in the league tables until the actual securities are
issued.
Seed capital: Initial JPMorgan capital invested in products,
such as mutual funds, with the intention of ensuring the
fund is of sufficient size to represent a viable offering to
clients, enabling pricing of its shares, and allowing the
manager to develop a track record. After these goals are
achieved, the intent is to remove the Firm's capital from the
investment.
Securities financing agreements: Include resale,
repurchase, securities borrowed and securities loaned
agreements
298
SEC: Securities and Exchange Commission
Scored portfolio: The scored portfolio predominantly
includes residential real estate loans, credit card loans and
certain auto and business banking loans where credit loss
estimates are based on statistical analysis of credit losses
over discrete periods of time. The statistical analysis uses
portfolio modeling, credit scoring and decision-support
tools.
SAR(S): Stock appreciation rights
S&P: Standard and Poor's 500 Index
RSU(s): Restricted stock units
ROU assets: Right-of-use assets
ROE: Return on equity
the bid-offer spread, which is the difference between the
price at which a market participant is willing and able to
sell an instrument to the Firm and the price at which
another market participant is willing and able to buy it
from the Firm, and vice versa; and
CHASE
CENTER
Pre-provision profit/(loss): Represents total net revenue
less noninterest expense. The Firm believes that this
financial measure is useful in assessing the ability of a
lending institution to generate income in excess of its
provision for credit losses.
Thailand
Edmund Y. Lee
Singapore
Carlos Ma. G Mendoza
Philippines
Steve R. Clayton
Malaysia
Haryanto T. Budiman
M.L. Chayotid Kridakon
Indonesia
South and South East Asia
Tae Jin Park
Korea
Steve Teru Rinoie
Japan
Filippo Gori
Roy Navon
Pretax margin: Represents income before income tax
expense divided by total net revenue, which is, in
management's view, a comprehensive measure of pretax
performance derived by measuring earnings after all costs
are taken into consideration. It is one basis upon which
management evaluates the performance of AWM against
the performance of their respective competitors.
Principal transactions revenue: Principal transactions
revenue is driven by many factors, including:
Kalpana Morparia
Taiwan
Italy
Vietnam
Carl K. Chien
PCI: "Purchased credit-impaired" loans represents certain
loans that were acquired and deemed to be credit-impaired
on the acquisition date in accordance with the guidance of
the FASB. The guidance allows purchasers to aggregate
credit-impaired loans acquired in the same fiscal quarter
into one or more pools, provided that the loans have
common risk characteristics(e.g., product type, LTV ratios,
FICO scores, past due status, geographic location). A pool is
then accounted for as a single asset with a single composite
interest rate and an aggregate expectation of cash flows.
PD: Probability of default
Participating securities: Represents unvested share-based
compensation awards containing nonforfeitable rights to
dividends or dividend equivalents (collectively, "dividends"),
which are included in the earnings per share calculation
using the two-class method. JPMorgan Chase grants RSUs to
certain employees under its share-based compensation
programs, which entitle the recipients to receive
nonforfeitable dividends during the vesting period on a
basis equivalent to the dividends paid to holders of common
stock. These unvested awards meet the definition of
participating securities. Under the two-class method, all
earnings (distributed and undistributed) are allocated to
each class of common stock and participating securities,
based on their respective rights to receive dividends.
PCA: Prompt corrective action
Parent Company: JPMorgan Chase & Co.
Overhead ratio: Noninterest expense as a percentage of
total net revenue.
Over-the-counter cleared (“OTC-cleared") derivatives:
Derivative contracts that are negotiated and executed
bilaterally, but subsequently settled via a central clearing
house, such that each derivative counterparty is only
exposed to the default of that clearing house.
Over-the-counter ("OTC") derivatives: Derivative contracts
that are negotiated, executed and settled bilaterally
between two derivative counterparties, where one or both
counterparties is a derivatives dealer.
OCC: Office of the Comptroller of the Currency
OCI: Other comprehensive income/(loss)
OPEB: Other postretirement employee benefit
OTTI: Other-than-temporary impairment
PRA: Prudential Regulation Authority
Glossary of Terms and Acronyms
The Netherlands
Khaled Hobballah
Karim Tannir
Middle East and North Africa
Pablo Garnica
Luxembourg
Francesco Cardinali
Nonperforming assets: Nonperforming assets include
nonaccrual loans, nonperforming derivatives and certain
assets acquired in loan satisfaction, predominantly real
estate owned and other commercial and personal property.
NOW: Negotiable Order of Withdrawal
OAS: Option-adjusted spread
Van Bich Phan
Our clients: Relentlessly focused on
delivering solutions and capital to
drive their success
Clients are at the absolute center of
everything we do, and every day, we
strive to deliver differentiated advice,
tailored solutions and meaningful
capital to help them succeed. The
breadth and quality of our capabili-
ties, along with our outstanding
team, allow us to build deep, valuable
relationships over time. By being
part of JPMorgan Chase, we have the
ability to serve clients throughout
the life cycle of their businesses
from opening their first operating
accounts and expanding overseas to
funding an important acquisition or
taking their company public. In 2019,
across our business, we made more
than 290,000 client calls and grew
loans by $2.4 billion, ending the
year with $208 billion in average
loan balances. Our long-term view,
unmatched solutions and enduring
commitment to our clients set us
apart in the industry.
As our clients' expectations continue
to evolve, we have dedicated teams
designing new functionality that
will deliver even greater value to our
clients and enhance their experience.
This design-led approach has informed
our investments in technology, data,
digital and payments. To date, our
work has resulted in tangible bene-
fits, such as faster credit delivery,
reduced account opening time and
new integrated solutions.
We can uniquely bring our clients
an entire suite of wholly owned,
global treasury capabilities, includ-
ing merchant acquiring, commercial
cards and cross-border payments.
These integrated solutions allow
clients to accept any method of
payment, in any currency, around
the world. Moreover, clients can
connect with us however they want,
from a global exchange to applica-
tion programming interfaces. As a
result of the investments we are
making in our comprehensive pay-
ments platform, we can deliver valu-
able analytics and insights to clients
across all of their treasury activities
to optimize their businesses.
Our communities: Serving as a
positive force where we live and work
In CB, we embrace our obligation to
be a positive force in our communi-
ties. We ended 2019 with over $54
billion in financing to local compa-
nies, states and municipalities,
schools, nonprofits and healthcare
providers. We have dedicated teams
across the country, working hard to
support these vital institutions so
they can continue to keep our com-
munities strong.
GROWING OUR CLIENT FRANCHISE
1 S&P Global Market Intelligence as of December 31, 2019.
33
170+
NEW
BANKERS
CLIENT
CALLS
1700+
50
Our Commercial Real Estate (CRE)
businesses are also at the forefront
of this important work. As the #1
multifamily lender in the U.S.',
Commercial Term Lending (CTL)
provides capital to apartment build-
ing and workforce housing owners.
In 2019, more than 40% of the loans
originated in CTL funded properties
in low- to moderate-income neighbor-
NEW CLIENT
RELATIONSHIPS
2015
EDEN
2019
PRESENCE
IN TOP 50 MSAS
Long-term target
1 Represents total JPMorgan Chase revenue from investment banking products provided to CB clients.
CARG Compound annual growth rate
32
Commercial Banking Gross Investment Banking Revenue¹
($ in billions)
$1.3
CAGR 8%
$3.0
$2.7
$2.2
2010
2019
Long-term target
MAKING A POSITIVE DIFFERENCE IN OUR COMMUNITIES
We take great pride in the work we do to
support our communities. We ended 2019
with over $54 billion in financing to local
companies, states and municipalities, schools,
nonprofits and healthcare providers. We also
originated over $2 billion in loans for the
construction of affordable housing for low-
income individuals. In addition, our teams are
very active civically and volunteered more
than 25,000 hours with local organizations.
LUNTEER
national companies across 18 coun-
tries. We have a significant opportu-
nity to support these clients not
only in the U.S. but also in other key
geographies around the world. As
CB continues to build internation-
ally, we benefit greatly from the
firm's existing local knowledge and
well-established risk, compliance
and control infrastructure. Similar
to our strategy in the U.S., we are
taking a long-term view, focused on
selecting only the best clients, and
will continue to execute with
patience and discipline.
172
Strong financial performance for
shareholders
172 CITIES GLOBALLY
Record revenue of $14.3 billion
$3.7B
Record pretax income of $3.7 billion
$161B
Record end-of-period loan balances
of $161 billion
$100B
Record long-term AUM flows of
$100 billion
$14.3B
88%
Retention rate of over 95% of top
talent and 39% of AM AUM managed
by female portfolio managers
2019 % of 10-year J.P. Morgan Asset Management Long-Term Mutual Fund AUM
Above Peer Median4
(net of fees)
Total J.P. Morgan
Asset Management
Multi-Asset Solutions
2015
88% of 10-year AM long-term mutual
fund AUM above peer median
$3.2T
I am proud of our results for our
clients, while, at the same time, we
continue to deliver strong financial
performance for our shareholders.
In
2019, Asset & Wealth Manage-
ment achieved record total client
assets of $3.2 trillion, record revenue
of $14.3 billion, record pretax income
of $3.7 billion and return on equity
of 26%. Our reliable and consistent
growth has been powered by
success across our diversified Asset
Management (AM) and Wealth
Management (WM) franchises.
Given our long-term approach, we
are even prouder of our sustained
performance over the past 10 years.
We strive to be the best, not the
biggest. If you relentlessly work to
be the best, you will have years like
2019, in which we received $194
billion in net new client asset
flows². In fact, since 2015, we
received half a trillion dollars in
net new client asset flows². Similar
to our investment performance,
our flows are not concentrated in
any one asset class, region or client
segment, but come from a well-
diversified set of businesses.
hoods. Our Community Development
Banking team had a record year, origi-
nating over $2 billion in loans for the
construction of affordable housing
and extending nearly $200 million in
financing to critical community devel-
opment institutions. In total, our CRE
business financed more than 25,000
housing units for low-income individ-
uals in 2019.
Across CB, our people best demon-
strate the positive impact we create
in our communities. Many of our
employees are active civically and
serve on philanthropic boards. Last
year, our team volunteered more
than 25,000 hours with local organi-
zations. We take great pride in the
work we do to support our commu-
nities and the firm's commitment
to make a difference.
Our employees: Empowering and
enabling our teams
Our success wouldn't be possible
without our incredible team. As such,
we're focused on having the best,
diverse talent with the right skills to
lead our business forward. We're
making significant investments in
our training and development pro-
grams to enhance our team's exper-
tise in emerging technologies, data
and digital solutions. We have cre-
ated dedicated training centers that
host intensive credit and treasury
services programs to build upon crit-
ical knowledge and enable our teams
to provide even more value to our
clients. Overall, in 2019, CB employ-
ees completed more than 350,000
hours of training.
We're also investing to empower
our teams with the best digital tools
and data resources to ensure their
success. Last year, we launched a
new client management system that
harnesses the power of cloud tech-
nology and our firmwide data assets
to better support our bankers. This
platform provides live dashboards
with real-time client information
alerting our team on service needs,
product usage and the overall health
of their client portfolio. So far, we've
received tremendous feedback, as
the tool meaningfully increases
efficiency and allows more time
to be spent with our clients.
Looking forward: Continuing to
execute with patience and discipline
Focused on our strategic priorities
Looking ahead, our attention
remains focused on executing our
long-term strategic priorities. We
will continue to invest and drive
innovation across our businesses,
build deep client relationships,
maintain fortress principles, and
attract and retain the best talent.
Doing all of this with patience and
discipline will allow us to deliver
value for our clients, employees,
communities and shareholders
throughout the cycle.
Managing the market challenges
emerging in 2020
We have a long history of supporting
our clients and being a market leader
through challenging times. Our
approach to the current global crisis
is no different. As we navigate this
complex situation, I have never
been more proud of the entire CB
team and am so grateful for their
hard work, compassion and tenacity.
It's inspiring to see everyone come
together to support one another,
and I am confident the work we
are doing for our clients and our
communities right now will be
remembered forever.
Dung
Douglas B. Petno
CEO, Commercial Banking
34
Asset & Wealth Management
2019 marked my 10th year as CEO of
Asset & Wealth Management. During
this past decade, we have success-
fully helped millions of individuals
and institutions around the world
invest for their futures. Our clients
come to us for advice, ideas and solu-
tions for some of their most impor-
tant life events, and for help in navi-
gating through turbulent times. We
cherish our clients' trust and never
take it for granted.
Strong investment performance for
clients
Our success begins with a focus on
investment performance, which
requires the unwavering, long-term
prioritization and retention of our
1,000+ investment professionals.
This has led to 88% of 10-year
long-term mutual fund assets under
management above peer median
and 196 mutual funds 4- or 5-star
rated'. It's worth noting that our per-
formance is not concentrated in any
asset class or region. It represents
leading performance across all asset
classes globally.
OFFICES IN
2010
Record client assets of $3.2 trillion
$1,000
.
¹ For footnoted information, refer to slide 17 in the 2020 Asset & Wealth Management Investor Day presentation, which is available at jpmorganchase.com/corporate/investor-relations/event-calendar.htm.
* Record
5%
$3.7*
2019 CAGR
10-yr
$2.3
5%
$14.3*
2009
→ 2019 CAGR
10-yr
Pretax Income ($ in billions)
$8.6
$1.2
AUM
7%
$2.4*
AUS + AUM
$3.2* 7%
2009
→ 2019 CAGR
10-yr
Revenue ($ in billions)¹
$1.7
2009
Considering M&A: While we always
prefer organic growth, there are
times when the industry changes
drastically, and we need to be on
top of it, which is what we are
doing now. We are very selective,
evaluating every M&A opportunity
for an adjacent capability. But most
important, we always prioritize our
clients' needs and increasing share-
holder value.
Continuing to invest in the business
Our long-term commitment means
that we will continue to serve our
clients and invest in making our
business better for the future:
⚫ Front office: We will continue to
hire top front office talent. Addi-
tionally, we will continue to invest
in our investment capabilities,
spending around $320 million on
AM research and making thou-
sands of company visits annually.
DEBT CAPITAL MARKETS
#1
#1 in global Investment Banking
fees for the 11th consecutive year
#1
MARKETS
BANKING
38
Head of Corporate Responsibility and
Chairman of the Mid-Atlantic Region
Peter L. Scher
As the world responds to this health
and economic crisis, we will need to
be nimble and lean into our strengths
to best support those who have been
most vulnerable to economic disrup-
tion. We will continue to apply what
we learn to scale solutions, deepen
our impact and support our custom-
ers, communities and colleagues.
Make no mistake: An inclusive
economy is a stronger economy,
and we all have an interest in that.
economic opportunity to more
people, including by giving those
who have a criminal history a second
chance. We are advocating at the
state and federal levels for reforms
including “banning the box,"
establishing automatic record
expungement for certain offenses
and promoting fair-chance hiring
in the financial services sector. In
2019, our firm gave second chances
to 3,000 people in the U.S. with
criminal backgrounds.
Scaling the most effective programs
and creating greater economic oppor-
tunity for the most vulnerable will
require thoughtful and effective pub-
lic policy. Last year, we launched the
JPMorgan Chase PolicyCenter to
advance policies at the federal, state
and local levels that strengthen com-
munities and change lives.
Business leadership in developing
policy solutions is critical as we work
to address the longer-term impact of
this crisis. We have a track record
of supporting policies that provide
Our ongoing efforts to help prepare
workers for the future of work
exemplify this strategy in practice.
As technology alters nearly every
facet of work, the education and
skills that people need are rapidly
changing. We have combined our
resources and reach to give people
the education and skills they need to
succeed. We have committed $350
million globally to support and scale
the most effective local initiatives to
equip people with in-demand skills.
This investment will be even more
critical given the recent unforeseen
disruption in the global economy and
the longer-term need to rebuild the
labor market. From Delhi to Detroit,
efforts focused on opportunity and
inclusivity, like career and technical
education in high schools to appren-
ticeships in growing industries, are
preparing more people to launch
successful careers. Additionally, in
partnership with our Human
Resources team, we're redefining
how we train and develop our
employees by identifying future-
critical skills.
Client Assets (EOP, $ in trillions)
those most vulnerable as they face
financial hardship and uncertain
work opportunities, including neigh-
borhood development, financial
health, and jobs and skills.
For JPMorgan Chase, this means
bringing the full force of our
business to lift up those we serve
around the world, focused on where
we can deliver the greatest impact
and reinvigorate the global economy
to benefit more people.
Now more than ever, business must
step up and collaborate with local,
civic and government leaders to lend
our expertise toward solutions that
support our customers, communities
and employees in need. Business
Roundtable's recent Statement
on the Purpose of a Corporation
made clear that America's largest
companies must operate for the
benefit of all stakeholders, and we
must be there for them in both good
and challenging times.
As the world faces the health and eco-
nomic consequences of COVID-19, the
challenges ahead are a stark reminder
that too many people already struggle
with economic insecurity every day.
This struggle will likely escalate as
this public health crisis continues to
disrupt the global economy.
Corporate Responsibility
37
Mary Callahan Erdoes
CEO, Asset & Wealth Management
being impacted concurrently in
2020, now is the most important time
to have portfolios actively managed.
In times like these, I'm also reminded
of how fortunate I am to be part of
JPMorgan Chase. For more than 200
years, we have been at our best in the
most difficult of times. I am proud of,
and inspired by, how our colleagues
and partners have responded to this
crisis, and I remain incredibly opti-
mistic about the firm's future.
As a fiduciary, we view events that
completely disrupt an industry, coun-
try or way of living as the times
when active security selection (and
deselection) is of the utmost impor-
tance. With all three of these areas
As I write this letter, we are at an
unprecedented moment in time.
The global COVID-19 pandemic has
caused many people to suffer, created
historic volatility and changed how
we work and live. However, we can
take comfort in knowing that people
around the world are coming together
to respond to these challenges in
powerful and inspiring ways.
China: We've been in China since the
1970s, and we are set to become the
first foreign asset manager to fully
own a Chinese fund manager with
China International Fund Manage-
ment. Our increased stake will fur-
ther solidify our position in China
and better address our clients' needs.
Environmental, Social & Governance
(ESG): With the help of industry
experts we have hired, we are
doing more than ever before,
focusing on our clients' needs
and delivering across AM and
WM. In AM, we are working
toward 100% of AUM being ESG-
integrated while we launch new
ESG-focused WM strategies.
.
Technology: We are creating and
leveraging tools, such as You Invest
and machine learning, to help our
clients and employees focus on
higher-value activities and make
better decisions. We always look to
simplify our production processes
so that 50+% of our technology
spend is dedicated to new and excit-
ing capabilities that deliver stronger
client outcomes.
In response to COVID-19 and in addi-
tion to efforts across the firm to sup-
port our customers and employees in
need, we made an initial $50 million
philanthropic commitment to help
those most affected by humanitarian
challenges, as well as sustainable and
innovative solutions to help small
businesses and underserved commu-
nities recover when the crisis subsides.
We will continue to focus on areas
where we can leverage our core busi-
ness, philanthropy and policy exper-
tise to help the most vulnerable in
the short and long term. In addition
to supporting small businesses, this
approach has effectively informed
and scaled solutions across pillars
that will remain critical to helping
36
managing what is now nearly a
quarter of a trillion dollars in Alter-
native assets. I am excited about
the opportunities to continue build-
ing our franchise, from expanding
our leading core real estate capabil-
ities to building out our newly con-
solidated private credit capabilities.
brating our 50th anniversary of
Wealth Management
Assets
Deposits
Custody
AUS
Brokerage
Liquidity
Alternatives
Multi-Asset
Equity
Fixed Income
AUM
AUM+AUS
Retail
Assets=
ASSET CLASS/PRODUCT
CHANNEL
REGION
35
AUM Assets under management
For footnoted information, refer to slides noted below in the 2020 Asset & Wealth Management Investor Day presentation, which is available at jpmorganchase.com/corporate/investor-relations/event-calendar.htm.
1 See slide 18; 2 See slide 25; 3 See slide 17; 4 See slide 20.
90%
81%
91%
88%
& Alternatives
Fixed Income
Equity
JPMorgan Chase Total Client Asset Flows: 2015-2019¹
#1 in global DCM, with #1 in bond
underwriting for 10 years in a row and
#1 in loan syndication since 2016
Institutional
LatAm
Building Alternatives: We are cele-
Scaling Asset Management: To scale,
we need strong, diversified long-
term investment performance,
which we have with 91% of Equity,
81% of Fixed Income and 90% of
Multi-Asset Solutions & Alternatives
10-year mutual fund AUM above
peer median. This performance has
driven our above-industry growth
over the last 10 years and will con-
tinue to be our foundation to scale
over the next 10 years. And with
around 2% market share across
asset classes, we have significant
opportunity to capture share.
internationally, where we have less
than 2% market share³. We plan to
capture share by continuing to be
the go-to bank, delivering solutions
across the balance sheet.
•
Expanding the Global Private Bank:
Over the last five years, we've
hired approximately 1,300 advi-
sors, successfully converted
hundreds of referrals from around
the firm, attracted over 11,000 net
new clients and captured around
$200 billion in client asset flows.
We still have a significant expan-
sion opportunity, particularly
Focusing on U.S. Wealth Management:
This is one of the firm's biggest
opportunities with the U.S. repre-
senting approximately $50 trillion
in market size³. For example,
Chase banks half of the 22 million
households within the $1 million
to $10 million net worth segment³,
but only 5% have investments
with us. We have a tremendous
opportunity to capture new clients
and deepen current relationships.
•
•
Looking ahead to the next decade,
we are highlighting five major
drivers to continue our momentum:
Growth priorities for the next
decade
level. In addition, we've grown the
number of managed accounts by
7.6x to a record 730,000.
x = times
Growth since 2009 is an equally
powerful story in WM, where revenue
grew by 1.8x to a record $7.1 billion
and pretax income by 1.7x to $1.9 bil-
lion. We continue to differentiate our-
selves by providing the advice, solu-
tions and client experience that our
clients need. As an example of their
commitment, we've nearly tripled
the number of clients with over $100
million of total positions to a record
U.S.
Wealth Management
Asset Management
AUS Assets under supervision
For footnoted information, refer to slides noted below in the 2020 Asset & Wealth Management Investor Day presentation, which is available at jpmorganchase.com/corporate/investor-relations/event-calendar.htm.
¹See slide 25; 2 See slide 18; 3 See slide 19; 4See slide 20.
<$0
≥$0
Asia
2019
2018
2017
2016
2015
EMEA
Assets
Since 2009, AM grew revenue² by
1.5x to $7.3 billion and pretax
income by 1.4x to $1.9 billion. That
success has been driven by a broad,
diversified platform. On long-term
AUM, we achieved record levels
across asset classes (Equity, Fixed
Income, Multi-Asset), segments
(Retail and Institutional) and geogra-
phies (U.S. and International). We
also achieved success in key growth
areas of the market, with Multi-Asset
AUM growing by 6.4x to $267 billion
and, in particular, Target Date AUS
growing by 25x to $125 billion.
$53
290K+
#1
29
SECURITIES SERVICES
WHOLESALE PAYMENTS
#2
$27T
$27 trillion in assets under custody,
up 16% year-over-year
#1
By line of business, we ranked #1 in
wallet share for both Equity and
Debt Capital Markets during 2019,
#1 in U.S. dollar
payments volume
$6 trillion in payments
processed daily
20,000+
20,000+ daily net asset valuations
provided to clients
#1
# 1 merchant acquirer
in the U.S.
raising more than $530 billion for
clients around the world. J.P. Morgan
was bookrunner on more equity
deals than any other bank, a feat we
achieved in eight of the last 10 years.
And our 9.4% share of the global
wallet was the highest of any bank
during the last decade.
J.P. Morgan brought 79 companies
public in 2019, including several
highly anticipated “unicorns," finish-
ing the year as the #1 underwriter
of initial public offerings (IPO) by
wallet share. At the same time, our
Private Capital Markets group raised
more than $13 billion for clients,
making it a fast-growing part of our
business last year.
$6T
In a year characterized by cross-border
deals, our Debt Capital Markets busi-
ness acted as the world's leading
bookrunner and retained its #1 posi-
tion with 8.7% of global wallet share.
The business showed its strength
across product lines, ranking #1 for
wallet share in high-grade, high-yield
and investment-grade issuance, as
well as in leveraged loans.
In the context of generally flat
industry revenue, the CIB has won
more business and gained greater
wallet share than any other competi-
tor over the last five years, according
to Dealogic. We ended 2019 with a
global wallet share of 9.0%, the
highest attained in a decade.
2019 performance
#1
#1 in Markets revenue
globally since 2012
13%
13%
return on equity
#1
EQUITY CAPITAL MARKETS
#1 in global ECM wallet,
The CIB's record 2019 earnings of
$11.9 billion on record revenue of
$38.3 billion allowed us to maintain
our position as the world's top
investment banking franchise for
the 11th consecutive year. In addition,
we earned $7.6 billion in global
investment banking fees, narrowly
beating our all-time record of $7.5
billion in 2018.
with $13 billion raised for private markets
and #1 in IPO wallet
€7.5 billion and €11 billion for Greece
and Italy, respectively. That support
continues to this day. Last year, we
opened a state-of-the-art office in
Dublin, which is now a thriving
center of technology and commerce.
That commitment and consistency are
now spurring the firm's expansion in
the world's fastest-growing economies.
Ten years ago, regulatory constraints
on foreign banks severely restricted
what we could offer clients in China.
Today, we have approvals from Chi-
nese authorities to open a majority-
owned securities joint venture with a
path to 100% ownership. Bringing our
full suite of banking capabilities to
China will enable its companies to
grow beyond the country's borders
and allow more investors to access its
market. This sets us up for tremen-
dous growth in one of the world's
largest economies while retaining a
prudent approach to expansion.
Stable returns and continuity
The diversity of our CIB businesses
has served us well, especially during
times of market stress, and we have
delivered consistent returns through
the entire economic and market
cycle. Our traditional investment
banking businesses of Markets and
Banking have delivered a combined
ROE ranging from 14% to 18% over
the past five years. Meanwhile, Secu-
rities Services and Treasury Services,
the traditional transaction banking
businesses, have delivered between
10% and 20% during the same
period. This means that for the past
five years, the combined CIB has
achieved an average ROE of 15%.
Equally critical to our long-term suc-
cess is attracting and, more important,
retaining top talent to ensure our
clients receive best-in-class execution
and consistency in their experience.
This is a particular priority in the
Investment Banking business, where
clients choose us to lead deals because
of trust earned over many years.
Our financial stability and continuity
of personnel enable us to build effec-
tively on our progress and invest
year after
That investment
year.
includes a firmwide technology bud-
get of about $12 billion, much of it
directed toward CIB systems. Not
only is technology the structural
underpinning of our business, but it
is also a power that we have learned
to scale and selectively share with cli-
ents who seek the same cutting-edge
analytical and risk mitigation tools
that our professionals use in-house.
And while we are more efficient
than we were five years ago, there is
still more output to be won per dol-
lar of investment. As we modernize
our infrastructure and scale our
technology capabilities, we will
continue to make key investments
required to "change the bank” while
deploying resources needed to “run
the bank" efficiently.
#1 in subproducts including equity
derivatives, securitized products, and
G10 rates, FX and financing
In our Mergers and Acquisitions
(M&A) business, J.P. Morgan ranked
#2 globally in announced dollar vol-
ume and wallet share, as clients con-
#2 custodian
globally
In our Markets business, which
serves more than 6,500 clients, reve-
nue totaled nearly $21 billion in
2019, up 7% from the prior year. The
business achieved an overall ROE of
13% despite the additional capital we
invested in our trading businesses in
recent years.
31
Commercial Banking
Across JPMorgan Chase, we measure
our success not just by our financial
results, but by our ability to make a
positive difference for our clients,
employees, communities and share-
holders. Over the last several years in
Commercial Banking (CB), we've been
executing a consistent, long-term
strategy focused on doing just that.
Our shareholders: Investing for
long-term value
Strong 2019 financial performance
To create value in CB, we work hard
every day to add great clients and
deepen those relationships over time.
We've been making sustained invest-
ments in our people and capabilities
to drive results across our business.
In the last two years, we've hired
more than 300 bankers and
expanded our presence to 24 high-
potential locations. These invest-
ments have led to more client activ-
ity than ever before, and in 2019, we
added over 1,700 new client relation-
ships, a 60% increase since 2017.
Our intense client focus and disci-
plined execution have resulted in
consistent strong financial perfor-
mance across our business. In 2019,
CB generated $9.0 billion in reve-
nue, $3.9 billion in net income and
a return on equity of 17%. While
our overall results were affected by
lower interest rates, the fundamen-
tals of our business remained out-
standing, with record Treasury
Services fee revenue of $1.5 billion
and steady loan and deposit growth.
We continued to benefit from our
strong partnership with the Corpo-
rate & Investment Bank, delivering
record investment banking revenue
of $2.7 billion, up 10% from 2018.
Our credit discipline has served us
well, and by maintaining our strict
underwriting standards, our net
charge-off rate in 2019 was 8 basis
points. This marked the eighth
straight year in which net charge-offs
were less than 10 basis points.
Enormous growth potential
The overall potential to expand our
business is tremendous, and as we
enter into a new decade, we remain
focused on our multifaceted long-term
growth strategy. Our Middle Market
expansion effort is a terrific example
of identifying a market opportunity
and executing with purpose. Since
2008, we've nearly doubled our foot-
print across the country, moving into
47 metropolitan statistical areas
(MSAs), adding locations in over 20
states and hiring almost 500 bankers.
We've been able to compete and suc-
ceed in these new markets because of
the quality of our team, the strength
of our brand and JPMorgan Chase's
unmatched capabilities, delivered at
a very local level. To date, we've selec-
tively added almost 3,300 clients,
over $15 billion of loans and over
$13 billion of deposits.
We're equally excited about expand-
ing our business internationally. In
2019, we hired nearly 80 bankers to
serve non-U.S.-headquartered, multi-
tinued to turn to us for complex and
transformative deals. Although the
global M&A wallet decreased 10%
year-over-year, J.P. Morgan gained
share across regions, earning global
advisory fees of $2.4 billion, 5% shy
of our 2018 record.
Middle Market Expansion Revenue
($ in millions)
CAGR 34%
$354
$723
¹ Assets under custody: Represents assets held directly or indirectly on behalf of clients under safekeeping, custody and servicing arrangements.
2 Assets under administration: Represents the market value of client assets for which administrative and other related services are performed.
CEO, Corporate & Investment Bank
MAINTAINING STRONG PERFORMANCE
Jonas
Daniel E. Pinto
Co-President and Chief Operating Officer,
JPMorgan Chase & Co., and
Approximately $46 billion of stocks
cross our Equities Markets trading
desks each day. The business gener-
ated $6.5 billion in revenue in 2019,
making J.P. Morgan the top bank by
wallet share, with 11.3%, up from
8.4% in 2015. Our Cash Equities
business continued to grow revenue
and share, and our balances in
Prime Finance finished the year at
all-time highs.
It was an exceptional year for our
Fixed Income Markets business.
Revenue rose 13% to $14.4 billion,
with a particularly good performance
in securitized products and a recov-
ery in the credit and rates markets
from the previous year.
Wholesale Payments celebrated its
first year as a combined business
that brought together the services we
offer to corporate treasurers with
those for global merchants. The busi-
ness performed well during a year in
which the Federal Reserve cut inter-
est rates multiple times and margins
on deposits tightened.
Ongoing investments in the busi-
ness, which processed $43 million in
payments per second last year across
more than 120 currencies, helped
drive organic growth and a healthy
pipeline. In basic terms, Wholesale
Payments enables clients to make,
manage and accept payments
securely anytime, anywhere and by
any method. Our opportunity here is
tremendous, particularly as business
gravitates to larger banks with
global scale.
30
Securities Services, which provides
post-trade services such as custody
and fund administration, generated
$4.2 billion in revenue during 2019,
down slightly from the previous
year but
up 16% since 2015.
Although deposit margins narrowed
due to lower interest rates, we con-
tinued to invest in products, sys-
tems and services. The business has
generated record growth over the
last five years, with assets under
custody¹ up 41% and assets under
administration² up 55%.
Embedding sustainability
Wholesale Payments supports clients
across the bank; within the CIB alone,
Treasury Services revenue was up
39% since 2015. Cash management
and clearing were among the strong
revenue generators in 2019. In addi-
tion, the acquisition of Philadelphia-
based InstaMed, an innovative health-
care payments company, was the
firm's largest since the financial crisis.
We understand the pressing nature
of climate change and believe that
companies like ours can add tremen-
dous value by helping global compa-
nies - and the global economy -
transition to cleaner energy.
Currently, around 80% of the world's
energy is sourced from fossil fuels,
which remain the primary source for
heating homes and powering cars.
We are working to reduce this
dependency by committing billions
of dollars to sustainable projects in
2020 alone, including green technol-
ogies. Furthermore, we are embed-
ding sustainability into many of our
daily business practices, from assess-
ing risk to designing products to
advising clients.
We have also tightened restrictions on
certain activities, such as financing for
coal mining and Arctic drilling, and
are on track to meet our own commit-
ment from three years ago to source
renewable energy for our entire 2020
global power needs. These initiatives
are enthusiastically supported by
our employees, as well as by the next
generation of recruits, who want
J.P. Morgan to lead in this space.
That said, business alone cannot
ensure the transition to a lower-
carbon economy. Government policy
is crucial. Recently, we joined the
Climate Leadership Council, a group
promoting a bipartisan road map for
a revenue-neutral, carbon tax-and-
dividend framework for the U.S.
Conclusion
Our impressive 2019 performance
was not easily won, as competition
and geopolitical uncertainty intensi-
fied. The year 2020, however, has
already presented all of us with our
most challenging problem yet: a
pandemic of proportions not seen
for 100 years.
Across the firm, taking care of our
employees and standing by our
clients during events like the corona-
virus are critical priorities. With so
many companies, institutions and
governments relying on J.P. Morgan
for their own operations and eco-
nomic well-being, it's essential that
we do the right things day to day,
staying focused on risk, costs and
making sure our clients have access to
the capital they need. We must also
think about optimizing the business
for the near future, continuously mak-
ing adjustments to ensure that we are
as efficient and effective as possible
while closing addressable gaps.
At J.P. Morgan, a readiness to adapt
has always characterized the way we
do business, and our approach to
environmental, social and gover-
nance issues is no different. The
issue of environmental sustainabil-
ity is gaining urgency by the day
and is among the growing risks
being evaluated by our business
and policymakers.
Finally, we must think creatively
about next-generation transforma-
tion and ways
that our businesses
will change over the next five to 10
years. To that end, we are evaluating
emerging technologies and reshap-
ing our approach to data to bring the
power of artificial intelligence and
machine learning to all our busi-
nesses. We're also building out our
infrastructure to reduce friction,
improve client service and offer
access to sophisticated analytics.
We have the most solid underpin-
nings for the enduring success of a
world-class business: the capital, the
brainpower and the hard-earned
experience to get things right.
Although we will be tested by any
number and variety of uncertainties
in the years to come, these qualities
make me confident and optimistic
about our shared future.
CCB
ROE
•
26%
ROE
AWM
(a) Includes states, municipalities, hospitals and universities.
Card loans up 7%
31%
trillion
Total credit provided and capital raised
Record revenue of $14.3 billion, up 2%
Average loans up 8%; average deposits up
2%
loans down 9% impacted by loan sales;
Credit and capital raised for nonprofit and
U.S. government entities (a)
Assets under management ("AUM") of $2.4
trillion, up 19%
These current expectations are forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are based on
the current beliefs and expectations of JPMorgan Chase's
management and are subject to significant risks and
uncertainties. Refer to Forward-Looking Statements on page
141, and the Risk Factors section on pages 6-28 of the Firm's
2019 Form 10-K, for a further discussion of certain of those
risks and uncertainties and the other factors that could cause
JPMorgan Chase's actual results to differ materially because
of those risks and uncertainties. There is no assurance that
actual results in 2019 will be in line with the outlook set forth
below, and the Firm does not undertake to update any
forward-looking statements.
44
JPMorgan Chase & Co./2019 Form 10-K
Recent events
On February 25, 2020, JPMorgan Chase announced
additional steps in its initiatives to address climate change
and further promote sustainable development. This year,
JPMorgan Chase commits to facilitate $200 billion to
advance the objectives of the United Nations Sustainable
Development Goals (SDGs), including $50 billion toward
green initiatives. The new commitment is intended to
address a broader set of challenges in the developing world
and developed countries where social and economic
development gaps persist. As part of this commitment, the
Firm had previously announced the creation of the J.P.
Morgan Development Finance Institution to expand
its financing activities for developing countries.
On December 18, 2019, JPMorgan Chase announced that
the China Securities Regulatory Commission has approved
the application of J.P. Morgan Securities (China) Company
Limited for a Securities and Futures Business Permit. This
approval allows J.P. Morgan's majority-owned securities
company in China to commence operations.
On December 11, 2019, JPMorgan Chase announced certain
organizational changes to its U.S. Wealth Management
business. The Firm's advisors across Chase Wealth
Management and J.P. Morgan Securities will become one
business unit - U.S. Wealth Management.
2020 outlook
JPMorgan Chase's outlook for 2020 should be viewed
against the backdrop of the global and U.S. economies,
financial markets activity, the geopolitical environment, the
competitive environment, client and customer activity
levels, and regulatory and legislative developments in the
U.S. and other countries where the Firm does business. Each
of these factors will affect the performance of the Firm and
its LOBS. The Firm will continue to make appropriate
adjustments to its businesses and operations in response to
ongoing developments in the business, economic,
regulatory, and legal environments in which it operates.
Firmwide full-year 2020
•
•
•
The Firm continues to take a disciplined approach to
managing expenses, while investing for growth and
innovation. As a result, management expects Firmwide
adjusted expense for the full-year 2020 to be
approximately $67 billion.
Management expects full-year 2020 net interest income,
on a managed basis, to be approximately $57 billion,
market dependent, reflecting the impact of lower interest
rates offset by balance sheet growth and mix.
$2.3
Refer to the Business Segment Results on pages 60-61 for a
detailed discussion of results by business segment.
6.5%
Record revenue of $55.9 billion, up 7%;
record net income of $16.6 billion, up 12%
Average loans down 3%; Home Lending
6.5%
1,562,431
The Firm continues to experience charge-off rates at very
low levels, reflecting favorable credit trends across the
consumer and wholesale portfolios. Management expects
full-year 2020 net charge-offs to be just over $6 billion,
an increase from prior year, driven by Card on growth and
mix.
2,351,698
2,490,972
2,533,600
2,622,532
2,687,379
670,757
769,385
829,558
885,221
906,606
732,093
806,152
6.5%
863,683
916,144
837,299
894,765
930,697
984,554
959,769
290,827
289,059
249,958
261,828
398,239
$ 343,839
$ 372,130
$ 411,103 $ 413,714 $ 381,844
931,856
Management expects the full-year 2020 effective tax
rate, on a reported basis, to be approximately 20%, and
approximately 5 to 7 percentage points higher on a
managed basis.
record net income of $11.9 billion, up 1%
Management expects first-quarter 2020 net interest
income, on a managed basis, to be approximately $14.2
billion, market dependent.
Record revenue of $38.3 billion, up 5%;
Credit for U.S. small businesses
billion
1,470,666
•
Maintained #1 ranking for Global
CIB
ROE
Investment Banking fees with 9.0% wallet
$860
share, up 40 basis points (“bps")
Credit for corporations
billion
14%
•
Investment Banking revenue of $7.2
billion, up 3%
$1.0
Total Markets revenue of $20.9 billion, up
7%
trillion
Capital raised for corporate clients and
non-U.S. government entities
CB
ROE
17%
•
•
Record Investment Banking revenue of
$2.7 billion, up 10%
$79
billion
Average loans and deposits each up 1%
Strong credit quality with NCOs of 8 bps
$33
First-quarter 2020
merchant processing volume up 11%
•
Firmwide adjusted expense for the first-quarter 2020 is
expected to be approximately $17 billion.
The effective tax rate, on a reported basis, for the first
quarter of 2020 is expected to be approximately 17%
largely as a result of tax benefits related to the vesting of
employee share-based awards.
Markets revenue for the first-quarter of 2020 is expected
to be higher when compared with the prior-year quarter
by mid-teens percentage points, depending on market
conditions.
JPMorgan Chase & Co./2019 Form 10-K
45
45
Management's discussion and analysis
Business Developments
Departure of the U.K. from the EU
The U.K.'s departure from the EU, which is commonly
referred to as "Brexit," occurred on January 31, 2020.
Following this departure, the U.K. has entered a transition
period that is scheduled to expire on December 31, 2020.
The purpose of the transition period is to enable the U.K.
and the EU to negotiate the terms of their future
relationship. The transition period can be extended, but
both sides need to agree to extend it by July 1, 2020. It is
not clear whether the terms of the future relationship can
be agreed before the end of 2020, and so significant
uncertainty remains about the relationship between the
U.K. and the EU after the end of the transition period.
The Firm has a long-standing presence in the U.K., which
currently serves as the regional headquarters of the Firm's
operations in over 30 countries across Europe, the Middle
East, and Africa ("EMEA"). In the region, the Firm serves
clients and customers across its business segments. The
Firm has approximately 17,000 employees in the U.K., of
which approximately two-thirds are in London, with
operational and technology support centers in locations
such as Bournemouth, Glasgow and Edinburgh.
In light of the ongoing uncertainty, the Firm continues to
execute the relevant elements of its Firmwide Brexit
Implementation program with the objective of being able to
continue delivering the Firm's capabilities to its EU clients.
The program covers strategic implementation across all
impacted businesses and functions and includes an ongoing
assessment of implementation risks including political, legal
and regulatory risks and plans for addressing and mitigating
those risks under any scenario, including where the U.K. and
the EU fail to reach an agreement on their future
relationship by the end of 2020 and the transition period is
not extended.
The principal operational risks associated with Brexit
continue to be the potential for disruption caused by
insufficient preparations by individual market participants
or in the overall market ecosystem, and risks related to
potential disruptions of connectivity among market
participants. There continues to be regulatory and legal
uncertainty with respect to various matters including
contract continuity, access by market participants to
liquidity in certain products, such as products subject to
potentially conflicting U.K. and EU regulatory requirements
in relation to eligible trading venues, including certain
cross-border derivative contracts and equities that are
listed on both U.K. and EU exchanges, as well as ongoing
access to central banks. It is uncertain as to whether any of
these issues will be resolved in the negotiations, or whether
any of the previous temporary solutions will be available at
the end of the transition period to mitigate these risks.
The Firm is focused on the following key areas to ensure
continuation of service to its EU clients: regulatory and legal
entity readiness; client readiness; and business and
operational readiness. Following are the significant updates.
Regulatory and legal entity readiness
The Firm's legal entities in Germany, Luxembourg and
Ireland are now prepared and licensed to provide services
to the Firm's EU clients, including a branch network
covering locations such as Paris, Madrid and Milan.
Client readiness
The agreements covering a significant proportion of the
Firm's EU client activity have been re-documented to other
EU legal entities to help facilitate continuation of service.
The Firm continues to actively engage with clients that have
not completed re-documentation to ensure preparedness
both in terms of documentation and any operational
changes that may be required. The Firm may be negatively
impacted by any operational disruption stemming from
delays of or lapses in the readiness of other market
participants or market infrastructures.
Business and operational readiness
The Firm relocated certain employees during 2019 and
added specific employees to certain EU legal entities, where
appropriate, to support the level of client activity that has
been migrated. The Firm's longer term staffing plan will
develop in accordance with the increasing level of activity in
the EU entities and alongside the future legal and
regulatory framework between the U.K. and EU. The Firm
continues to closely monitor legislative developments, and
its implementation plan allows for flexibility given the
continued uncertainties.
46
46
JPMorgan Chase & Co./2019 Form 10-K
•
Client investment assets up 27%; average
deposits up 3%
$262
Credit for consumers
billion
Credit card sales volume up 10% and
1,375,179
1,279,715
291,498
2018
Change
Selected income statement data
Total net revenue
$115,627
$ 109,029
6%
Total noninterest expense
65,497
63,394
2019
3
50,130
45,635
10
Provision for credit losses
5,585
4,871
15
Net income
36,431
32,474
Pre-provision profit
12
(in millions, except per share data
and ratios)
Financial performance of JPMorgan Chase
75
2014
2015
2016
2017
2018
2019
JPMorgan Chase & Co./2019 Form 10-K
41
Management's discussion and analysis
Year ended December 31,
The following is Management's discussion and analysis of the financial condition and results of operations ("MD&A") of JPMorgan
Chase for the year ended December 31, 2019. The MD&A is included in both JPMorgan Chase's Annual Report for the year ended
December 31, 2019 ("Annual Report") and its Annual Report on Form 10-K for the year ended December 31, 2019 ("2019 Form
10-K”) filed with the Securities and Exchange Commission (“SEC”). Refer to the Glossary of terms and acronyms on pages 293-299
for definitions of terms and acronyms used throughout the Annual Report and the 2019 Form 10-K.
INTRODUCTION
JPMorgan Chase & Co. (NYSE: JPM), a financial holding
company incorporated under Delaware law in 1968, is a
leading global financial services firm and one of the largest
banking institutions in the United States of America
("U.S."), with operations worldwide; JPMorgan Chase had
$2.7 trillion in assets and $261.3 billion in stockholders'
equity as of December 31, 2019. The Firm is a leader in
investment banking, financial services for consumers and
small businesses, commercial banking, financial transaction
processing and asset management. Under the J.P. Morgan
and Chase brands, the Firm serves millions of customers in
the U.S. and globally many of the world's most prominent
corporate, institutional and government clients.
JPMorgan Chase's principal bank subsidiary is JPMorgan
Chase Bank, National Association ("JPMorgan Chase Bank,
N.A."), a national banking association with U.S. branches in
38 states and Washington, D.C. as of December 31, 2019.
JPMorgan Chase's principal nonbank subsidiary is J.P.
Morgan Securities LLC ("J.P. Morgan Securities"), a U.S.
broker-dealer. The bank and non-bank subsidiaries of
JPMorgan Chase operate nationally as well as through
overseas branches and subsidiaries, representative offices
and subsidiary foreign banks. The Firm's principal operating
subsidiary outside the U.S. is J.P. Morgan Securities plc, a
U.K.-based subsidiary of JPMorgan Chase Bank, N.A.
For management reporting purposes, the Firm's activities
are organized into four major reportable business
segments, as well as a Corporate segment. The Firm's
consumer business is the Consumer & Community Banking
("CCB") segment. The Firm's wholesale business segments
are Corporate & Investment Bank ("CIB"), Commercial
Banking ("CB"), and Asset & Wealth Management ("AWM").
Refer to Business Segment Results on pages 60-78, and
Note 32 for a description of the Firm's business segments,
and the products and services they provide to their
respective client bases.
22
42
JPMorgan Chase & Co./2019 Form 10-K
EXECUTIVE OVERVIEW
This executive overview of the MD&A highlights selected
information and does not contain all of the information that is
important to readers of this 2019 Form 10-K. For a complete
description of the trends and uncertainties, as well as the
risks and critical accounting estimates affecting the Firm and
its various lines of business ("LOBS"), this 2019 Form 10-K
should be read in its entirety.
The MD&A contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of
1995. These statements are based on the current beliefs and expectations of JPMorgan Chase's management and are subject to
significant risks and uncertainties. Refer to Forward-looking Statements on page 141) and Part 1, Item 1A: Risk factors in the
2019 Form 10-K on pages 6-28 for a discussion of certain of those risks and uncertainties and the factors that could cause
JPMorgan Chase's actual results to differ materially because of those risks and uncertainties.
Diluted earnings per share
10.72
9.00
•
Net income was $36.4 billion, up 12%.
Total net revenue increased 6%. Net interest income was
$57.2 billion, up 4%, driven by continued balance sheet
growth and mix as well as higher average short-term
rates, partially offset by higher deposit pay rates.
Noninterest revenue was $58.4 billion, up 8%, driven by
growth across CCB as well as higher Markets revenue in
CIB. Noninterest revenue included approximately $500
million of gains on the sales of certain mortgage loans in
Home Lending.
•
Noninterest expense was $65.5 billion, up 3%, driven by
continued investments across the businesses including
employees, technology, real estate, and marketing, as
well as higher volume- and revenue-related expenses,
including depreciation expense on auto lease assets,
partially offset by lower FDIC charges.
• Income tax expense included $1.1 billion of tax benefits
related to the resolution of certain tax audits.
•
The provision for credit losses was $5.6 billion, up $714
million, reflecting increases in both wholesale and
consumer. The increase in the wholesale provision
reflects additions to the allowance for credit losses in the
current year on select client downgrades. The prior year
reflected a benefit related to a single name in the Oil &
Gas portfolio and higher recoveries. The increase in the
consumer provision reflects higher net charge-offs and
additions to the allowance for loan losses in Card,
predominantly offset by a higher reduction in the
allowance for loan losses in Home Lending. The prior year
also benefited from larger recoveries in Home Lending on
loan sales.
The total allowance for credit losses was $14.3 billion at
December 31, 2019, and the Firm had a loan loss
coverage ratio of 1.39%, flat compared with the prior
year; excluding the PCI portfolio, the equivalent ratio was
1.31% compared with 1.23% in the prior year. The
Firm's nonperforming assets totaled $4.5 billion at
December 31, 2019, a decrease from $5.2 billion in the
prior year, primarily reflecting paydowns in the wholesale
portfolio and improved credit performance in the
consumer portfolio.
Firmwide average total loans of $955 billion were up 1%,
or up 3% excluding the impact of certain loan sales in
Home Lending.
•
Selected capital-related metrics
The Firm's SLR was 6.3%.
The Firm continued to grow tangible book value per share
("TBVPS"), ending 2019 at $60.98, up 8%.
ROTCE and TBVPS are non-GAAP financial measures. Refer
to Explanation and Reconciliation of the Firm's Use of Non-
GAAP Financial Measures and Key Performance Measures
on pages 57-59, and Capital Risk Management on pages
85-92 for a further discussion of each of these measures.
JPMorgan Chase & Co./2019 Form 10-K
43
43
Management's discussion and analysis
Business segment highlights
Selected business metrics for each of the Firm's four LOBS
are presented below for the full year of 2019.
.
The Firm's CET1 capital was $188 billion, and the
Standardized and Advanced CET1 ratios were 12.4% and
13.4%, respectively.
JPMorgan Chase reported strong results for 2019, with
record revenue, net income and EPS of $115.6 billion,
$36.4 billion and $10.72 per share, respectively. The Firm
reported ROE of 15% and ROTCE of 19%.
Firmwide overview
(a) The Basel III capital rules became fully phased-in effective January 1, 2019.
Prior to this date, the required capital measures were subject to the
transitional rules which, as of December 31, 2018, were the same on a fully
phased-in and transitional basis. Refer to Capital Risk Management on
pages 85-92 for additional information on these measures.
Comparisons noted in the sections below are for the full year
of 2019 versus the full year of 2018, unless otherwise
specified.
19
Selected ratios and metrics
Return on common equity
Return on tangible common equity
Book value per share
Tangible book value per share
Capital ratios (a)
CET1
Tier 1 capital
Total capital
15%
19
13%
17
8
56.33
8
$ 75.98 $ 70.35
60.98
12.4%
14.1
12.0%
13.7
16.0
15.5
S&P 500
S&P Financials
KBW Bank
JPMorgan Chase
Nonperforming assets
$
Net charge-offs
Net charge-off rate
1.31
4,497 $
5,629
0.60%
1.23
5,190 $
4,856
0.52%
14,672
1.47%
1.27
6,426
5,387
0.60% (g)
$
14,854 $
14,341
Allowance for loan losses to retained loans excluding purchased credit-impaired loans (e)
1.55%
1.34
1.37
$
7,535 $
4,692
7,034
4,086
0.54%
0.52%
Total stockholders' equity
Headcount
1.63%
1.39%
14,500 $
14,314 $
1.39%
282,031
284,080
295,245
288,651
234,337
230,447
229,625
228,122
221,505
261,330
256,515
255,693
254,190
247,573
256,981
256,105
252,539
243,355
234,598
Credit quality metrics
Allowance for credit losses
$
Allowance for loan losses to total retained loans
(a) TBVPS and ROTCE are each non-GAAP financial measures. Refer to Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures and Key
Performance Measures on pages 57-59 for a further discussion of these measures.
Credit provided and capital raised
(b) For the years ended December 31, 2019, 2018 and 2017, the percentage represents the Firm's reported average LCR for the three months ended December
31, 2019, 2018 and 2017, which became effective April 1, 2017. Refer to Liquidity Risk Management on pages 93-98 for additional information on the
Firm's LCR.
(d) The Basel III rule for the SLR became fully phased-in effective January 1, 2018. Prior to this date, the SLR was calculated under the transitional rules. Refer to
Capital Risk Management on pages 85-92 for additional information on these measures.
2019
$ 100.00
100.00
$ 108.37
100.48
$ 145.82
129.13
$ 184.81
153.14
$ 172.52
126.02
$ 254.07
171.54
2017
100.00
120.38
147.58
128.33
169.52
100.00
101.37
113.49
138.26
132.19
173.80
98.44
2016
2015
2014
(e) This ratio is a non-GAAP financial measure as it excludes the impact of residential real estate purchased credit-impaired ("PCI") loans. Refer to Explanation
and Reconciliation of the Firm's Use of Non-GAAP Financial Measures and Key Performance Measures on pages 57-59, and the Allowance for credit losses on
pages 116-117 for further discussion of this measure.
(f) In December 2017, the Tax Cuts and Jobs Act ("TCJA") was signed into law. The Firm's results for the year ended December 31, 2017 included a $2.4 billion
decrease to net income as a result of the enactment of the TCJA. Refer to Note 25 for additional information related to the impact of the TCJA.
(g) Excluding net charge-offs of $467 million related to the student loan portfolio sale, the net charge-off rate for the year ended December 31, 2017 would have
been 0.55%.
40
40
JPMorgan Chase & Co./2019 Form 10-K
FIVE-YEAR STOCK PERFORMANCE
The following table and graph compare the five-year cumulative total return for JPMorgan Chase & Co. ("JPMorgan Chase" or
the "Firm") common stock with the cumulative return of the S&P 500 Index, the KBW Bank Index and the S&P Financials Index.
The S&P 500 Index is a commonly referenced equity benchmark in the United States of America ("U.S."), consisting of leading
companies from different economic sectors. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are
publicly traded in the U.S. and is composed of leading national money center and regional banks and thrifts. The S&P Financials
Index is an index of financial companies, all of which are components of the S&P 500. The Firm is a component of all three
industry indices.
JPMorgan Chase continues to support consumers,
businesses and communities around the globe. The Firm
provided new and renewed credit and raised capital for
wholesale and consumer clients during 2019, consisting of:
December 31,
(in dollars)
2018
JPMorgan Chase
KBW Bank Index
S&P Financials Index
S&P 500 Index
250
225
200
175
150
125
100
December 31,
(in dollars)
(c) The Basel III capital rules became fully phased-in effective January 1, 2019. Prior to this date, the required capital measures were subject to the transitional
rules which, as of December 31, 2018, were the same on a fully phased-in and transitional basis. Refer to Capital Risk Management on pages 85-92 for
additional information on these measures.
The following table and graph assume simultaneous investments of $100 on December 31, 2014, in JPMorgan Chase common
1,443,982
8.1
Supplementary information:
Firmwide Risk Management
79
60
Business Segment Results
57 Explanation and Reconciliation of the Firm's Use of
Non-GAAP Financial Measures and Key Performance
Measures
Off-Balance Sheet Arrangements and Contractual
Cash Obligations
55
52 Consolidated Balance Sheets and Cash Flows Analysis
Notes to Consolidated Financial Statements
151
146
Consolidated Financial Statements
143 Report of Independent Registered Public Accounting
Firm
287
142 Management's Report on Internal Control Over
Financial Reporting
48 Consolidated Results of Operations
Executive Overview
43
42 Introduction
Management's discussion and analysis:
41 Five-Year Stock Performance
40 Five-Year Summary of Consolidated Financial
Highlights
Financial:
Table of contents
40
More than 400 employees contributed to
the Board Match program, which doubles
the impact of eligible employees' dona-
tions to nonprofits on whose boards they
serve, resulting in the firm matching more
than $1.6 million to those organizations.
In 2019, our firm and employees donated
more than $2.8 million to disaster relief
efforts around the globe.
- Nearly 73,000 employees volunteered
467,000 hours in 2019. This includes 325
employee volunteers from 14 countries
who contributed nearly 20,000 hours
working with about 70 nonprofits through
the JPMorgan Chase Service Corps.
Employees serving our communities:
EOCF to five metros - Detroit, Chicago, the
South Bronx, the Bay Area and the Greater
Washington region - providing minority
entrepreneurs with access to capital, educa-
tion and other resources. Through 2019, we
committed over $17 million through EOCF,
resulting in more than 475 loans, totaling
$17 million in deployed loan capital that
created or retained over 3,000 jobs.
Sustainable finance: In 2019, we provided
over $3 billion for wind and solar projects.
Since 2003, JPMorgan Chase has committed
or arranged $24 billion in financing for wind,
solar and geothermal projects.
Audited financial statements:
Selected quarterly financial data (unaudited)
288 Distribution of assets, liabilities and stockholders'
equity; interest rates and interest differentials
293 Glossary of Terms and Acronyms
84 Strategic Risk Management
Basic
Average shares:
Diluted
Basic
Net income:
Earnings per share data
Net income
Income tax expense
Income before income tax expense
Provision for credit losses
Pre-provision profit
Total noninterest expense
Total net revenue
(in millions, except per share, ratio, headcount data and where otherwise noted)
Selected income statement data
As of or for the year ended December 31,
FIVE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS (unaudited)
Financial
85 Capital Risk Management
93 Liquidity Risk Management
100
119
Credit and Investment Risk Management
Market Risk Management
Small business expansion: We expanded
127 Country Risk Management
136 Critical Accounting Estimates Used by the Firm
139 Accounting and Reporting Developments
141 Forward-Looking Statements
Note:
The following pages from JPMorgan Chase & Co.'s 2019
Form 10-K are not included herein: 1-38, 300-311
JPMorgan Chase & Co./2019 Form 10-K
39
129 Operational Risk Management
across the U.S. As of 2019, the winners
raised more than $870 million in outside
capital and made over 35,000 loans worth
in excess of $475 million dedicated to low-
and moderate-income communities.
•
•
Awards and recognition
2019 HIGHLIGHTS AND ACCOMPLISHMENTS
39
We are also promoting bipartisan, market-
based policy solutions - such as a carbon
tax-and-dividend framework for the U.S. –
to reduce carbon emissions and protect
consumers. And we've expanded restrictions
on financing for coal mining and coal-fired
power and prohibited financing for new oil
and gas development in the Arctic. Finally,
we're on track to source renewable energy
for 100% of our own global power needs by
the end of 2020.
Transitioning to a low-carbon economy
JPMorgan Chase is committed to creating a
more sustainable future for our employees,
customers and communities. Our firm has
committed to facilitate $200 billion in financing
in 2020 to support the objectives of the United
Nations' Sustainable Development Goals, with
a focus on addressing climate change and
advancing social and economic development.
Sound financial health is the foundation on
which strong and resilient households, com-
munities and economies are built. We're using
our data, expertise and capital to improve the
financial health of customers, employees and
communities. In 2019, JPMorgan Chase made
a $25 million commitment to the Financial
Solutions Lab, which supports technology-
based innovations that improve financial
health. This investment builds on our five-year
collaboration with the Financial Solutions Lab,
which has supported nearly 40 innovative
financial technology companies (fintechs) that
have raised over $500 million in capital since
joining the program, saving U.S. residents
more than $1 billion.
Advancing financial health
Housing that individuals and families can
afford, in proximity to economic opportunity
and basic services, is the cornerstone of vibrant
and resilient neighborhoods. Producing, pre-
serving and protecting affordable housing is
essential to our strategy for creating thriving
neighborhoods. For example, we're investing
$22 million to develop and preserve affordable
housing in San Francisco and Oakland. This
investment, which combines long-term, low-cost
loans and philanthropic capital, will provide
more affordable housing and protect local
residents from being displaced.
Cultivating thriving neighborhoods
Boosting small business growth
Through our long-term investments around the
world, we have seen firsthand how underserved,
minority entrepreneurs have the power to lift
up entire communities. Yet these populations
often face unique barriers that inhibit their suc-
cess. This is why our efforts focus on unleashing
their power as drivers of opportunity. We have
taken many insights learned from innovative
models, such as the Entrepreneurs of Color
Fund (EOCF), and are applying them to more
communities. For example, in Paris, we're
working with nonprofit partners to help local
and diverse entrepreneurs in Seine-Saint-Denis
grow their businesses. In London, we're giving a
boost to female entrepreneurs by providing
technical support and hands-on mentorship.
Preparing workers for the future of work
Technological change continues to transform
the world of work. By 2030, more than 30% of
American workers and 375 million workers
globally will need to change jobs or upgrade
their skills significantly in order to advance
within the workforce. We are investing $350 mil-
lion over the next five years to equip young
people and adults with the skills they need to be
successful in a rapidly changing economy. We
are working to create greater economic mobility
and career pathways for workers both inside
our firm and in our communities. Our firm is
investing in our employees through long-term
training and reskilling efforts. We are also
making long-term commitments to boost career
readiness. We invested $7 million in Denver,
Colorado's youth apprenticeship system to
develop strong connections between high
schools and higher education, focused on well-
paying careers in the region's growing industries.
million families; how Miami's small businesses
turn a profit yet have limited cash buffers;
and how families are weathering financial
volatility on a monthly basis.
payments affect the financial lives of 4.6
Our data allow us to better understand and
answer important questions about the finan-
cial health and resilience of U.S. consumers,
businesses and communities, as well as study
labor and financial markets. In 2019, the
Institute shared valuable insights across a
range of areas, including how student loan
Harnessing the power of data
Sound public policy is informed by timely,
granular data. The JPMorgan Chase Institute is
dedicated to delivering data-rich analyses and
expert insights for the public good. Leveraging
the firm's unique assets and proprietary data,
the Institute helps policymakers, businesses
and nonprofit leaders use timely data and
thoughtful analyses to address critical issues
and advance global prosperity.
Through the PolicyCenter, we are advancing pol-
icy changes to remove barriers to employment
for people with a criminal background and
advocating for policy solutions that will enable
more young people - particularly those who
lack opportunity to access high-quality career-
readiness programs that pave the way to well-
paying jobs. In 2020, the PolicyCenter will
expand its focus to tackle additional issue areas.
Public policy is a critical tool to scale the most
innovative and impactful approaches that bring
about lasting change. In 2019, we launched the
JPMorgan Chase PolicyCenter to develop and
advance sustainable, evidence-based policy
solutions that drive inclusive economic growth
in the U.S. and around the world.
15.1
15.5
15.9
15.5
16.0
13.5
• Ranked Top 10 on Fortune magazine's
World's Most Admired Companies list
14.0
13.7
14.1
Creating an economy that works for
more people
Companies like ours have a responsibility to
step up and help solve pressing challenges.
When communities do well, our firm does well.
This conviction is reflected in how JPMorgan
Chase does business every day. We're investing
in our customers, employees and communities
around the world to break down barriers to
opportunity and create an economy that works
for more people.
We are combining our business and policy
expertise, sustainable business practices, data,
capital and global presence to advance solu-
tions worldwide. Our efforts focus on five key
areas where we believe we can make the
greatest impact: jobs and skills, neighborhood
development, small business expansion,
financial health and sustainability.
Advancing policy solutions
13.9
Diluted
•
-
Neighborhood development: To date,
we've hosted six Partnerships for Raising
Opportunity in Neighborhoods (PRO
Neighborhoods) competitions, awarding
more than $131 million to over 95 Commu-
nity Development Financial Institutions
Financial health: In India, the Financial
Inclusion Lab has supported 18 fintechs,
which have expanded their services to reach
more than 900,000 people in underserved
communities in the country. Additionally, we
committed $15 million to the Catalyst Fund,
in partnership with UK Aid, to advance
financial inclusion in emerging markets.
Jobs and skills: Over the past six years, we
have helped more than 150,000 people
across 37 countries develop in-demand skills
for jobs in growing industries.
- The inaugural Advancing Cities competi-
tion - which sources innovative and
sustainable solutions that address press-
ing challenges facing communities -
awarded a total of $15 million to winning
cities: Chicago, Louisville, Miami, San
Diego and Syracuse.
Bay Area: New $75 million, five-year
commitment to help address housing
affordability and displacement challenges
in San Francisco and Oakland.
224 people participated in workforce
training programs; 955 units of afford-
able housing were created or preserved;
1,120 jobs were created or retained; and
2,092 small businesses received capital
or technical assistance
4,000 people participated in career-
readiness programs; 12 small businesses
received capital or technical assistance
Greater Washington region: Two years
into our $25 million commitment:
Greater Paris: First year of our
$30 million commitment:
-
•
•
•
-Chicago's South and West sides: Two
years into our $40 million commitment:
6,362 people participated in workforce
training programs; 48 units of affordable
housing were created or preserved;
49,314 people received services to
improve their financial health; 2,323 jobs
were created or retained; and 3,305
small businesses received capital or
technical assistance
044
es around the world
Mancing ston
JPM
Named to the Military Times' Best for Vets
Employers list
Earned 100% on the Human Rights
Campaign's Corporate Equality Index -
17th consecutive year
Inducted into the Billion Dollar Roundtable
for attaining at least $1 billion in diverse
supplier spend
Accomplishments
•
Named to Fortune magazine's Change the
World list third consecutive year
AdvancingCities: Bolstering the long-term
-
Detroit: Six years into our $200 million
commitment:
14,728 people participated in workforce
training programs; 2,002 units of afford-
able housing were created or preserved;
17,255 people received services to
improve their financial health; 3,855
jobs were created or retained; and 7,718
small businesses received capital or
technical assistance
&Co AXOS JPM
JPMORGAN CHASE & CO
&Co AXOS
vitality of the world's cities through low-
cost, long-term loans and philanthropic
investments:
Market and per common share data
Market capitalization
Common shares at period-end
1.88
2.12
2.72
3.40
48.13
51.44
53.56
56.33
60.98
60.46
64.06
67.04
70.35
75.98
3,663.5
3,561.2
$ 241,899
10.72
3,221.5
3,230.4
9.00
3,396.4
3,414.0
6.31
6.19
6.00
1.72
3,551.6
3,658.8
3,690.0
3,741.2
3,773.6
3,084.0
3,275.8
$ 366,301
3,425.3
$ 307,295
3,576.8
6.05
$ 429,913 $ 319,780
13%
12.2
12.0
12.4
N/A
N/A
119
113
116
65
65
64
67
61
63
59
59
58
10%
10%
11%
19
17
12
15%
13
1.33
1.24
0.96
1.00
0.99
57
13
7.9
$
$
96,569
$
$ 100,705
$ 115,627 $ 109,029
65,497
2015
2016
2017
2018
2019
Common stockholders' equity
Long-term debt
Deposits
Total assets
Average core loans
Core Loans
Loans
Investment securities
Book value per share
Tangible book value per share ("TBVPS”)(a)
Cash dividends declared per share
Selected ratios and metrics
Return on common equity ("ROE")
Return on tangible common equity ("ROTCE")(a)
Return on assets ("ROA")
$ 94,440
Overhead ratio
Liquidity coverage ratio ("LCR") (average) (b)
Common equity tier 1 ("CET1") capital ratio (c)
Tier 1 capital ratio (c)
Total capital ratio(c)
Tier 1 leverage ratio (c)
Supplementary leverage ratio ("SLR") (d)
Selected balance sheet data (period-end)
Trading assets
Loans-to-deposits ratio
6.24
63,394
56,672
6.35
9.04 $
$ 10.75 $
24,442
24,733 $
$
24,441
(f)
36,431 $ 32,474 $
$
6,260
9,803
11,459
8,290
8,114
30,702
34,536
59,911
50,130
45,635
41,190
39,897
34,529
59,515
5,585
5,290
5,361
3,827
44,545
40,764
35,900
4,871
12.3
11.8
8.4
8.5
6.3%
6.4%
8.3
Short-term borrowings (a)
182,320
183,675
371
183,304
Federal funds purchased and securities loaned or
sold under repurchase agreements
3,550 $
2,508 $
5,840 $
1,546,142 $
$
Deposits (a)
On-balance sheet obligations
1,558,040 $ 1,468,031
35,107
62,393
Beneficial interests issued by consolidated VIES
13,628
3,950
296
17,874
20,258
Long-term debt(a)
35,031
58,847
50,680
105,857
250,415
258,658
Operating leases(b)
35,107
2020
Total
Total
Refer to Consolidated Balance Sheets Analysis on pages 52-
53, Capital Risk Management on pages 85-92, and Liquidity
Risk Management on pages 93-98 for a further discussion
of the activities affecting the Firm's cash flows.
54
JPMorgan Chase & Co./2019 Form 10-K
OFF-BALANCE SHEET ARRANGEMENTS AND CONTRACTUAL CASH OBLIGATIONS
In the normal course of business, the Firm enters into
various off-balance sheet arrangements and contractual
obligations that may require future cash payments. Certain
obligations are recognized on-balance sheet, while others
are disclosed off-balance sheet under accounting principles
generally accepted in the U.S. ("U.S. GAAP”).
Special-purpose entities
The Firm has several types of off-balance sheet
arrangements, including through nonconsolidated special-
purpose entities ("SPES"), which are a type of VIE, and
through lending-related financial instruments (e.g.,
commitments and guarantees).
The Firm holds capital, as appropriate, against all SPE-
related transactions and related exposures, such as
derivative contracts and lending-related commitments and
guarantees.
The Firm has no commitments to issue its own stock to
support any SPE transaction, and its policies require that
transactions with SPES be conducted at arm's length and
reflect market pricing. Consistent with this policy, no
JPMorgan Chase employee is permitted to invest in SPES
with which the Firm is involved where such investment
would violate the Firm's Code of Conduct.
The table below provides an index of where in this 2019 Form 10-K a discussion of the Firm's various off-balance sheet
arrangements can be found. Refer to Note 1 for additional information about the Firm's consolidation policies.
Type of off-balance sheet arrangement
Special-purpose entities: variable interests and other
obligations, including contingent obligations, arising
from variable interests in nonconsolidated VIES
Location of disclosure
Refer to Note 14
Page references
(in millions)
242-249
Refer to Note 28
272-277
JPMorgan Chase & Co./2019 Form 10-K
55
Management's discussion and analysis
Contractual cash obligations
The accompanying table summarizes, by remaining
maturity, JPMorgan Chase's significant contractual cash
obligations at December 31, 2019. The contractual cash
obligations included in the table below reflect the minimum
contractual obligation under legally enforceable contracts
with terms that are both fixed and determinable. Excluded
from the table are certain liabilities with variable cash flows
and/or no obligation to return a stated amount of principal
at maturity.
Contractual cash obligations
By remaining maturity at December 31,
The carrying amount of on-balance sheet obligations on the
Consolidated balance sheets may differ from the minimum
contractual amount of the obligations reported below. Refer
to Note 28 for a discussion of mortgage repurchase
liabilities and other obligations.
2021-2022
2019
2023-2024
2018
After 2024
Off-balance sheet lending-related financial instruments,
guarantees, and other commitments
1,604
3,757
2,025
210
Obligations under co-brand programs
351
710
382
33
105
2,929
3,599
1,548
1,937
Total off-balance sheet obligations
127,857
12,741
8,468
766
Total contractual cash obligations
1,951,368 $
86,128 $
66,574 $
28,582
144,347 $
177,648
2,248,417 $ 2,180,513
166,067
(a) Excludes structured notes on which the Firm is not obligated to return a stated amount of principal at the maturity of the notes, but is obligated to return
an amount based on the performance of the structured notes.
(b) Includes noncancelable operating leases for premises and equipment used primarily for business purposes. Excludes the benefit of noncancelable
sublease rentals of $846 million and $825 million at December 31, 2019 and 2018, respectively. Refer to Note 18 for further information on operating
leases.
(c) Primarily includes dividends declared on preferred and common stock, deferred annuity contracts, pension and other postretirement employee benefit
obligations, insurance liabilities and income taxes payable associated with the deemed repatriation under the TCJA.
(d) Refer to unsettled resale and securities borrowed agreements in Note 28 for further information.
(e) Includes accrued interest and future contractual interest obligations. Excludes interest related to structured notes for which the Firm's payment obligation
is based on the performance of certain benchmarks.
56
JPMorgan Chase & Co./2019 Form 10-K
126,830
$
1,920
Contractual purchases and capital expenditures
271
10,090
10,992
Other(c)
8,695
2,046
1,851
2,976
15,568
11,794
Total on-balance sheet obligations
1,823,511
73,387
58,106
115,765
2,070,769
2,014,446
Off-balance sheet obligations
539
539
Equity investment commitments
58,252
102,008
117,951
54,681
2,704
28,444
10,517
7,844
Contractual interest payments (e)
748
117,203
Unsettled resale and securities borrowed
agreements (d)
7,876
*
⚫ For both periods, cash was used for repurchases of
common stock and cash dividends on common and
preferred stock.
*
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Trading liabilities
Accounts payable and other liabilities
Beneficial interests issued by consolidated variable interest entities (“VIES”)
Long-term debt
2019
2018
Change
$ 1,562,431
183,675
40,920
$
1,470,666
6
182,320
1
69,276
Other assets increased reflecting higher cash collateral
placed with central counterparties in CIB, and higher auto
operating lease assets from growth in the business in CCB.
(41)
144,773
(18)
210,407
196,710
7
17,841
20,241
(12)
291,498
282,031
3
2,426,049
2,366,017
261,330
$ 2,687,379 $
119,277
in MSRs was partially offset by an increase in goodwill
related to the acquisition of InstaMed. Refer to Note 15 for
additional information.
Deposits
Liabilities
121,022
5
$
2,687,379
$
2,622,532
2 %
Cash and due from banks and deposits with banks
decreased primarily as a result of a shift in the deployment
of cash to investment securities, and net maturities of
short-term borrowings and long term debt in Treasury and
CIO, partially offset by an increase in deposits. Deposits with
banks reflect the Firm's placements of its excess cash with
various central banks, including the Federal Reserve Banks.
Federal funds sold and securities purchased under resale
agreements decreased as a result of client-driven market-
making activities in Fixed Income Markets in CIB and a shift
in the deployment of cash in Treasury and CIO. Refer to
Liquidity Risk Management on pages 93-98 and Note 10 for
additional information.
Securities borrowed increased in CIB related to client-
driven market-making activities in Fixed Income Markets,
and to cover customer short positions in prime brokerage.
Refer to Liquidity Risk Management on pages 93-98 and
Note 10 for additional information.
Trading assets was relatively flat, reflecting:
• a reduction in short-term instruments associated with
cash deployment activities in Treasury and CIO,
offset by
growth in client-driven activities in CIB Markets, primarily
debt instruments, and
in CCB, growth related to originations of mortgage
warehouse loans, resulting from the favorable rate
environment.
Refer to Notes 2 and 5 for additional information.
Investment securities increased primarily due to net
purchases of U.S. Treasuries and U.S. GSE and government
agency MBS in Treasury and CIO. The net purchases were
primarily driven by cash deployment and interest rate risk
management activities. Refer to Corporate segment results
on pages 77-78, Investment Portfolio Risk Management on
page 118 and Notes 2 and 10 for additional information on
investment securities.
Loans decreased reflecting loan sales in Home Lending, and
lower loans in CIB, primarily driven by a loan syndication
and net paydowns, partially offset by growth in AWM and
Card.
The allowance for loan losses decreased driven by:
December 31, (in millions)
Selected Consolidated balance sheets data
Goodwill, MSRs and other intangibles decreased reflecting
lower MSRS as a result of the realization of expected cash
flows and faster prepayment speeds on lower rates,
partially offset by net additions to the MSRs. The decrease
Premises and equipment increased primarily due to the
adoption of the new lease accounting guidance effective
January 1, 2019. Refer to Note 18 for additional
information.
JPMorgan Chase & Co./2019 Form 10-K
52
256,515
52
• a $115 million addition in the wholesale allowance for
loan losses driven by select client downgrades.
a $500 million addition to the allowance for loan losses in
the credit card portfolio reflecting loan growth and
higher loss rates as newer vintages season and become a
larger part of the portfolio, and
•
• a $151 million reduction for write-offs of PCI loans,
largely offset by
an $800 million reduction in the CCB allowance for loan
losses, which included $650 million in the PCI residential
real estate portfolio, reflecting continued improvement in
home prices and delinquencies; $100 million in the non
credit-impaired residential real estate portfolio; and $50
million in the business banking portfolio; as well as
•
Refer to Credit and Investment Risk Management on pages
100-118, and Notes 2, 3, 12 and 13 for further discussion
of loans and the allowance for loan losses.
*
2
2%
Year ended December 31,
2018
2017
Operating activities
$
Investing activities
6,046
(54,013)
Financing activities
32,987
34,158
$ 14,187 $ (10,827)
(197,993) 28,249
14,642
Effect of exchange rate
changes on cash
(182)
(2,863)
2019
8,086
cash and due from banks and
deposits with banks
Operating activities
$ (15,162) $(152,511) $ 40,150
JPMorgan Chase's operating assets and liabilities primarily
support the Firm's lending and capital markets activities.
These assets and liabilities can vary significantly in the
normal course of business due to the amount and timing of
cash flows, which are affected by client-driven and risk
management activities and market conditions. The Firm
believes that cash flows from operations, available cash and
other liquidity sources, and its capacity to generate cash
through secured and unsecured sources, are sufficient to
meet its operating liquidity needs.
• In 2019, cash provided primarily reflected net income
excluding noncash adjustments and net proceeds of sales,
securitizations, and paydowns of loans held-for-sale,
partially offset by higher securities borrowed, an increase
in other assets and a decrease in trading liabilities.
• In 2018, cash provided primarily reflected net income
excluding noncash adjustments, increased trading
liabilities and accounts payable and other liabilities,
partially offset by an increase in trading assets and net
originations of loans held-for-sale.
Investing activities
The Firm's investing activities predominantly include
originating held-for-investment loans and investing in the
investment securities portfolio and other short-term
instruments.
• In 2019, cash used reflected net purchases of investment
securities, partially offset by lower securities purchased
under resale agreements, and net proceeds from sales
and securitizations of loans held-for-investment.
• In 2018, cash used reflected an increase in securities
purchased under resale agreements, higher net
originations of loans and net purchases of investment
securities.
Financing activities
The Firm's financing activities include acquiring customer
deposits and issuing long-term debt, as well as preferred
and common stock.
• In 2019, cash provided reflected higher deposits,
partially offset by a decrease in short-term borrowings
and net payments of long term borrowings.
• In 2018, cash provided reflected higher deposits, short-
term borrowings, and securities loaned or sold under
repurchase agreements, partially offset by net payments
of long term borrowings.
Net increase/(decrease) in
Net cash provided by/(used in)
(in millions)
The following is a discussion of cash flow activities during
the years ended December 31, 2019 and 2018. Refer to
Consolidated cash flows analysis on page 54 of the Firm's
2018 Form 10-K for a discussion of the 2017 activities.
Total liabilities
Stockholders' equity
Total liabilities and stockholders' equity
Deposits increased reflecting:
⚫ continued growth driven by new accounts in CCB
•
•
growth in operating deposits in CIB driven by client
activity, primarily in Treasury Services, and an increase in
client-driven net issuances of structured notes in Markets,
and
higher deposits in CB and AWM from growth in interest-
bearing deposits; for AWM, the growth was partially offset
by migration, predominantly into the Firm's investment-
related products.
Refer to the Liquidity Risk Management discussion on pages
93-98; and Notes 2 and 17 for more information.
Federal funds purchased and securities loaned or sold
under repurchase agreements was relatively flat, as the net
increase from the Firm's participation in the Federal
Reserve's open market operations was offset by client-
driven activities, and lower secured financing of trading
assets-debt instruments, all in CIB. Refer to the Liquidity
Risk Management discussion on pages 93-98 and Note 11
for additional information.
Short-term borrowings decreased reflecting lower
commercial paper issuances and short-term advances from
Federal Home Loan Banks (“FHLB") in Treasury and CIO,
primarily driven by liquidity management. Refer to pages
93-98 for information on changes in Liquidity Risk
Management.
Trading liabilities decreased due to client-driven market-
making activities in CIB, which resulted in lower levels of
short positions in both debt and equity instruments in
Markets. Refer to Notes 2 and 5 for additional information.
Accounts payable and other liabilities increased reflecting:
•
Consolidated cash flows analysis
Management's discussion and analysis
53
JPMorgan Chase & Co./2019 Form 10-K
Refer to page 149 for information on changes in
stockholders' equity, and Capital actions on pages 90-91.
Refer to Liquidity Risk Management on pages 93-98 and
Note 20 for additional information on the Firm's long-term
debt activities.
2,622,532
Refer to Off-Balance Sheet Arrangements on pages 55-56
and Note 14 and 28 for further information on Firm-
sponsored VIES and loan securitization trusts.
Long-term debt increased as a result of client-driven net
issuances of structured notes in CIB's Markets business,
partially offset by net maturities of FHLB advances in
Treasury and CIO.
largely offset by
maturities of credit card securitizations,
Refer to Note 18 for additional information on Leases.
Beneficial interests issued by consolidated VIES decreased
due to:
higher client payables related to client-driven activities in
CIB.
the impact of the adoption of the new lease accounting
guidance effective January 1, 2019, and
•
higher levels of Firm-administered multi-seller conduit
commercial paper issued to third parties.
(2)
3
IBOR transition
3,723
3,952
4,322
Occupancy
Noncompensation expense:
$40,764 $ 35,900
$44,545
Income before income tax
expense
$ 34,155 $ 33,117 $ 31,208
2017
2018
2019
Year ended December 31,
(in millions, except rate)
2017
2018
2019
Compensation expense
Income tax expense
8,114
8,290
11,459
Other(a)(b)
2,900
3,290
3,579
Marketing
7,890
8,502
8,533
Year ended December 31,
(in millions)
Professional and outside services
8,802
9,821
equipment
31.9%
20.3%
18.2%
Effective tax rate
Technology, communications and
7,715
5,087
Noninterest expense
JPMorgan Chase & Co./2019 Form 10-K
4,965
(383) $ (63) $ 620
4,973
4,818
5,348
2017
2018
2019
2019 compared with 2018
Total provision for credit losses
Wholesale
Total consumer
Credit card
Consumer, excluding credit card
(in millions)
Year ended December 31,
Provision for credit losses
Management's discussion and analysis
620
4,755
116
5,593
(303)
50
Refer to the segment discussions of CCB on pages 62-65,
CIB on pages 66-70, CB on pages 71-73, the Allowance for
Credit Losses on pages 116-117 and Note 13 for further
discussion of the credit portfolio and the allowance for
credit losses.
- lower net recoveries in the residential real estate
portfolio as the prior year benefited from larger
recoveries on loan sales.
partially offset by
a $50 million reduction in the allowance for loan losses
in the business banking portfolio
a $650 million reduction in the allowance for loan
losses in the purchase credit-impaired ("PCI")
residential real estate portfolio, reflecting continued
improvement in home prices and delinquencies, and a
$100 million reduction in the allowance for loan losses
in the non credit-impaired residential real estate
portfolio, compared to a $250 million reduction in the
PCI residential real estate portfolio in the prior year,
and
to
a decrease in consumer, excluding credit card, in CCB due
Income tax expense
•
a $500 million addition to the allowance for loan losses
reflecting loan growth and higher loss rates, as newer
vintages season and become a larger part of the
portfolio, compared to a $300 million addition in the
prior year
- higher net charge-offs on loan growth, in line with
expectations, and
-
• an increase in credit card due to
The increase in the total consumer provision reflects:
The increase in the wholesale provision reflects additions to
the allowance for credit losses in the current year on select
client downgrades. The prior year reflected a benefit related
to a single name in the Oil & Gas portfolio and higher
recoveries.
The provision for credit losses increased driven by both the
wholesale and consumer portfolios.
$ 5,585 $ 4,871 $ 5,290
largely offset by
5,731
Total noncompensation expense
Total noninterest expense
31,342
25
111,995
139,758
(23)
321,588
249,157
(6)
256,469
241,927
(3)%
22,324
21,704 $
$
Change
2018
2019
Total assets
411,103
413,714
(1)
398,239
54,349
53,341
73
14,934
25,813
73,200
72,861
(3)
Other assets
971,109
(2)
(13,445)
(13,123)
(3)
984,554
959,769
52
261,828
946,646
Goodwill, MSRs and other intangible assets
Premises and equipment
Accrued interest and accounts receivable
lower FDIC charges as a result of the elimination of the
surcharge at the end of the third quarter of 2018
•
•
•
largely offset by
higher pension costs due to changes to actuarial
assumptions and estimates,
higher legal expense, and
expense in certain businesses in CIB
lower other regulatory-related assessments in CIB.
higher volume-related expense, including depreciation
from growth in auto lease assets in CCB, and brokerage
•
Compensation expense increased driven by investments
across the businesses, including front office, as well as
technology staff hires.
2019 compared with 2018
(b) Included FDIC-related expense of $457 million, $1.2 billion and $1.5
billion for the years ended December 31, 2019, 2018 and 2017,
respectively.
(a) Included Firmwide legal expense/(benefit) of $239 million, $72
million and $(35) million for the years ended December 31, 2019,
2018 and 2017, respectively.
$ 65,497 $ 63,394 $ 59,515
6,079
28,307
30,277
Noncompensation expense increased as a result of:
higher investments across the businesses, including
technology, real estate and marketing
49
The prior year included a loss of $174 million on the
liquidation of a legal entity in Corporate recorded in other
expense. Refer to Note 24 for additional information on the
liquidation of a legal entity.
The effective tax rate decreased due to the recognition of
$1.1 billion of tax benefits related to the resolution of
certain tax audits, and changes in the mix of income and
expense subject to U.S. federal, and state and local taxes.
The decrease was partially offset by lower tax benefits
related to the vesting of employee share-based awards. In
addition, the prior year included a $302 million net tax
benefit resulting from changes in the estimates under the
TCJA related to the remeasurement of certain deferred
taxes and the deemed repatriation tax on non-U.S. earnings.
Refer to Note 25 for further information.
Loans, net of allowance for loan losses
Allowance for loan losses
Loans
Investment securities
Trading assets
Securities borrowed
Federal funds sold and securities purchased under resale agreements
Deposits with banks
2019 compared with 2018
Cash and due from banks
December 31, (in millions)
Selected Consolidated balance sheets data
The following is a discussion of the significant changes between December 31, 2019 and 2018.
Consolidated balance sheets analysis
CONSOLIDATED BALANCE SHEETS AND CASH FLOWS ANALYSIS
Management's discussion and analysis
51
JPMorgan Chase & Co./2019 Form 10-K
Assets
JPMorgan Chase & Co./2019 Form 10-K
the impact of efficiencies
The Firm's average interest-earning assets were $2.3
trillion, up $133 billion, and the yield was 3.61%, up 14
bps. The net yield on these assets, on an FTE basis, was
2.46%, a decrease of 6 bps. The net yield excluding CIB
Markets was 3.27%, up 2bps.
14,018
7,550 $
12,059
Lending- and deposit-related fees
6,369
6,052
7,412
11,347
5,933
Asset management, administration
and commissions
17,165
17,118
16,287
Investment securities gains/(losses)
258
(395)
(66)
Mortgage fees and related income
2,036
1,254
1,616
Card income
5,304
4,989
4,433
Other income(a)
5,731
5,343
Principal transactions
7,501 $
$
Investment banking fees
To manage the risks associated with the transition from
IBORS, JPMorgan Chase established a Firmwide LIBOR
Transition program in early 2018 that is overseen by the
Firmwide CFO and the CEO of the CIB. When assessing risks
associated with IBOR transition, the program monitors a
variety of scenarios, including disorderly transition,
measured/regulated transition considering volatility along
the SOFR curve and clearinghouse plans to change their
discount rates to alternative reference rates, and IBOR in
continuity beyond December 2021.
The Firm continues to monitor and facilitate the transition
by clients from IBOR-referencing products to products
referencing alternative reference rates. The Firm's
transition efforts to date include:
•
•
ongoing implementation of new fallback provisions that
provide for the determination of replacement rates for
LIBOR-linked syndicated loans, securitizations, floating
rate notes and bi-lateral business loans based on the
recommendations of the ARRC, and introducing SOFR as a
replacement benchmark rate for certain of these
products;
planning to adopt further fallback provisions
recommended by the ARRC, including for residential
ARMS, in conjunction with the adoption of these
provisions by market participants; and
completing its first bilateral SOFR loan in the U.S. and
executing its first interest rate swap linked to the Euro
short-term rate in Europe.
Market participants are continuing to work closely with the
public sector as part of National Working Groups ("NWGs")
towards the common goal of facilitating an orderly
transition from IBORS. Current NWG efforts include the
continued development of cash and derivative markets
referencing alternative reference rates, as well as the
development of industry consensus for fallback language
that would determine the replacement rates to use in
various IBOR-indexed contracts when a particular IBOR
ceases to be produced. The Firm is monitoring and
providing input in the development of the IBOR Fallbacks
Protocol of the International Swaps and Derivatives
Association ("ISDA"), which is expected to be published in
2020, and is encouraging its clients to actively participate
in ISDA and industry consultations in order to ensure the
broadest possible industry engagement in and
understanding of IBOR transition. The Firm continues to
monitor the development of alternative reference rates in
other jurisdictions with NWGS.
The Financial Accounting Standards Board ("FASB") has
confirmed that it will issue an accounting standards update
in 2020 providing optional expedients and exceptions for
applying generally accepted accounting principles to
contracts and hedge relationships affected by benchmark
reform. The International Accounting Standards Board
("IASB") has made amendments to IFRS hedge accounting
requirements that provide relief to market participants on
the accounting treatment of IBOR-linked products in the
period leading up to the expected cessation of IBORS and is
also considering further relief for the accounting impacts
upon transition to an alternative reference rate.
The U.S. Treasury Department has issued proposed
regulations that are intended to avoid adverse tax
consequences in connection with the transition from IBORS.
Under the proposed regulations, amendments to contracts
meeting certain requirements will not be treated as taxable
for U.S. federal income tax purposes.
Noninterest revenue
The Firm continues to monitor the transition relief being
considered by the FASB, IASB and U.S. Treasury Department
regarding accounting and tax implications of reference rate
reform. The Firm also continues to develop and implement
plans to appropriately mitigate the risks associated with
IBOR discontinuation as identified alternative reference
rates develop and liquidity in these rates increases. The
Firm will continue to engage with regulators and clients as
the transition from IBORS progresses.
Net yield excluding CIB Markets is a non-GAAP financial
measure. Refer to Explanation and Reconciliation of the
Firm's Use of Non-GAAP Financial Measures and Key
Performance Measures on pages 57-59 for a further
discussion of this measure.
As a result of the expected discontinuation of certain
unsecured benchmark interest rates, including the London
Interbank Offered Rate ("LIBOR") and other Interbank
Offered Rates ("IBORS") regulators and market participants
in various jurisdictions have been working to identify
alternative reference rates that are compliant with the
International Organization of Securities Commission's
standards for transaction-based benchmarks. In the U.S.,
the Alternative Reference Rates Committee (the "ARRC"), a
group of market and official sector participants, identified
the Secured Overnight Financing Rate ("SOFR") as its
recommended alternative benchmark rate. Other
alternative reference rates have been recommended in
other jurisdictions. Industry sources estimate that IBORS are
referenced in approximately $400 trillion of wholesale and
consumer transactions globally spanning a broad range of
financial products and contracts. The Firm has a significant
number of IBOR-referenced contracts, including derivatives,
bilateral and syndicated loans, securities, and debt and
preferred stock issuances.
47
Management's discussion and analysis
CONSOLIDATED RESULTS OF OPERATIONS
This section provides a comparative discussion of JPMorgan
Chase's Consolidated Results of Operations on a reported
basis for the two-year period ended December 31, 2019,
unless otherwise specified. Refer to Consolidated Results of
Operations on pages 48-51 of the Firm's Annual Report on
Form 10-K for the year ended December 31, 2018 (the
"2018 Form 10-K") for a discussion of the 2018 versus 2017
results. Factors that relate primarily to a single business
segment are discussed in more detail within that business
segment. Refer to pages 136-138 for a discussion of the
Critical Accounting Estimates Used by the Firm that affect the
Consolidated Results of Operations.
Effective January 1, 2018, the Firm adopted several
accounting standards. Certain of the accounting standards
were applied retrospectively and, accordingly, prior period
amounts were revised. Refer to Note 1 for additional
information.
Revenue
Year ended December 31,
2017
(in millions)
2019
JPMorgan Chase & Co./2019 Form 10-K
58,382
2018
3,646
50,608
Asset management, administration and commissions
revenue increased primarily due to higher asset
management fees from growth in client investment assets
in CCB.
Refer to CCB and AWM segment results on pages 62-65 and
pages 74-76, respectively, and Note 6 for additional
information.
Investment securities gains/(losses) in both periods reflect
the impact of repositioning the investment securities
portfolio. Refer to Corporate segment results on pages 77-
78 and Note 10 for additional information.
48
JPMorgan Chase & Co./2019 Form 10-K
.
Mortgage fees and related income increased driven by:
Net interest income increased driven by continued balance
sheet growth and changes in mix, as well as higher average
short-term rates, partially offset by higher rates paid on
deposits.
Refer to Note 6 for further information.
measurement accounting guidance for certain equity
investments previously held at cost.
• $505 million of fair value gains related to the adoption in
the first quarter of 2018 of the recognition and
The prior year included:
lower other income in CIB largely related to increased
amortization on a higher level of alternative energy
investments. The increased amortization was more than
offset by lower income tax expense from the associated
tax credits.
higher investment valuation gains in AWM, which were
largely offset by the impact of the related hedges that
were reflected in principal transactions revenue,
largely offset by
higher operating lease income from growth in auto
operating lease volume in CCB, and
•
•
Other income increased reflecting:
Card income increased as the prior year included an
adjustment of approximately $330 million to the credit card
rewards liability. Excluding this item, Card income was
relatively flat. Refer to CCB segment results on pages 62-65
and Note 6 for further information.
Refer to CCB segment results on pages 62-65, Note 6 and
15 for further information.
lower net mortgage servicing revenue driven by lower
operating revenue reflecting faster prepayment speeds
on lower rates and the impact of reclassifying certain
loans to held-for-sale.
53,970
partially offset by
higher net mortgage production revenue reflecting
approximately $500 million of gains on sales of certain
loans, as well as higher mortgage production volumes
and margins,
Lending- and deposit-related fees increased primarily due
to higher deposit-related fees in CCB, reflecting growth in
customer accounts and transactions, and higher lending-
related commitment fees in the wholesale businesses.
Refer to CCB, CIB and CB segment results on pages 62-65,
pages 66-70 and pages 71-73, respectively, and Note 6 for
additional information.
Refer to CIB, AWM and Corporate segment results on pages
66-70, pages 74-76 and pages 77-78, respectively, and
Note 6 for additional information.
•
Principal transactions revenue in Corporate was relatively
flat, reflecting the combined impact of losses on cash
deployment transactions in Treasury and CIO, which were
more than offset by the related net interest income earned
on those transactions, and lower net markdowns on certain
legacy private equity investments.
•
offset by
gains and increased activity in investment-grade and
high-yield bonds,
higher debt underwriting fees driven by wallet share
•
Principal transactions revenue in CIB may in certain cases
have offsets across other revenue lines, including net
interest income. The Firm assesses its CIB Markets business
performance on a total revenue basis.
lower advisory fees driven by a decline in industry-wide
fees despite wallet share gains.
2019 compared with 2018
$ 115,627 $ 109,029 $ 100,705
Total net revenue
50,097
55,059
57,245
Net interest income
(a) Included operating lease income of $5.5 billion, $4.5 billion and $3.6
billion for the years ended December 31, 2019, 2018 and 2017,
respectively.
Refer to CIB segment results on pages 66-70 and Note 6 for
additional information.
Investment banking fees were relatively flat, reflecting in
CIB:
lower revenue in AWM related to hedges on certain
investments. The impact of these hedges was more than
offset by higher valuation gains on the related
investments reflected in other income
•
Principal transactions revenue increased reflecting:
The net increase in CIB was partially offset by
higher revenue in CIB, which included a gain on the initial
public offering ("IPO") of Tradeweb in the second quarter
the favorable impact of tighter funding spreads on
derivatives in Credit Adjustments & Other.
of 2019. Excluding this gain, the increase in CIB's revenue
was driven by:
higher revenue in Fixed Income Markets, reflecting an
overall strong performance, primarily in agency
mortgage trading within Securitized Products; the
increase in 2019 also reflected the impact of
challenging market conditions in Credit in the fourth
quarter of 2018; and
2017
(a) Predominantly recognized in CIB, CB and Corporate.
57%
NM
57,245 $ 55,059
59%
57%
NM
58%
(b) The decrease in fully taxable-equivalent adjustments for the year ended December 31, 2018, reflects the impact of the TCJA.
JPMorgan Chase & Co./2019 Form 10-K
Net interest income and net yield excluding CIB's Markets
businesses
44
Management's discussion and analysis
In addition to reviewing net interest income and the net
yield on a managed basis, management also reviews these
metrics excluding CIB's Markets businesses, as shown
below; these metrics, which exclude CIB's Markets
businesses, are non-GAAP financial measures. Management
reviews these metrics to assess the performance of the
Firm's lending, investing (including asset-liability
management) and deposit-raising activities. The resulting
metrics that exclude CIB's Markets businesses are referred
to as non-markets-related net interest income and net yield.
CIB's Markets businesses are Fixed Income Markets and
Equity Markets. Management believes that disclosure of
non-markets-related net interest income and net yield
provides investors and analysts with other measures by
which to analyze the non-markets-related business trends
of the Firm and provides a comparable measure to other
financial institutions that are primarily focused on lending,
investing and deposit-raising activities.
2018
50,097
55%
$
Net interest income -
reported
2019
Year ended December 31,
(in millions, except rates)
57
15,476
44,545
11,459
553.5
519.6
520.8
serviced (period-end)
Third-party mortgage loans
816.1
$
MSR carrying value
761.4 $ 789.8
(period-end)
Total loans serviced
97.6
$ 105.2 $ 79.4 $
origination volume(c)
Fully taxable-equivalent
Total mortgage
$
(period-end)
4.7
6.1
10,795
2,505 (b)
8,290
11,179
39,917
4,017
35,900
43,269
2,505
40,764
47,610
3,065
3,065
NM
57%
Overhead ratio
8,114
Income tax expense
6.0
4,017
1,313
Markets interest-earning
assets (b)(c)
Net interest income -
managed basis(a)
2.46%
2.52%
2.37%
Net yield on average CIB
57.3
0.46
0.52
0.87
Net yield on average
interest-earning assets
excluding CIB Markets
3.27%
3.25%
2.85%
Net yield on average
interest-earning assets -
managed basis)
(a) Interest includes the effect of related hedges. Taxable-equivalent
amounts are used where applicable.
58
JPMorgan Chase & Co./2019 Form 10-K
Tangible common equity, ROTCE and TBVPS
Tangible common equity ("TCE”), ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm's common
stockholders' equity (i.e., total stockholders' equity less preferred stock) less goodwill and identifiable intangible assets (other
than MSRS), net of related deferred tax liabilities. ROTCE measures the Firm's net income applicable to common equity as a
percentage of average TCE. TBVPS represents the Firm's TCE at period-end divided by common shares at period-end. TCE,
ROTCE and TBVPS are utilized by the Firm, as well as investors and analysts, in assessing the Firm's use of equity.
The following summary table provides a reconciliation from the Firm's common stockholders' equity to TCE.
Average
(in millions, except per share and ratio data)
Common stockholders' equity
Less: Goodwill
Less: Other intangible assets
Add: Certain deferred tax liabilities (a)
Tangible common equity
Return on tangible common equity
Tangible book value per share
Period-end
(b) Refer to page 69 for further information on CIB's Markets businesses.
(c) In the second quarter of 2019, the Firm reclassified balances related
to certain instruments from interest-earning to noninterest-earning
assets, as the associated returns are recorded in principal transactions
revenue and not in net interest income. These changes were applied
retrospectively and, accordingly, prior period amounts were revised to
conform with the current presentation.
531,217
593,355
672,629
$
531
628
57,776 $ 55,687 $ 51,410
Calculation of certain U.S. GAAP and non-GAAP financial measures
Certain U.S. GAAP and non-GAAP financial measures are calculated as
follows:
Book value per share ("BVPS")
Common stockholders' equity at period-end /
Common shares at period-end
Overhead ratio
Total noninterest expense / Total net revenue
Return on assets ("ROA")
Reported net income / Total average assets
Return on common equity ("ROE")
Net income*/ Average common stockholders' equity
Return on tangible common equity ("ROTCE")
Net income* / Average tangible common equity
Tangible book value per share ("TBVPS")
Tangible common equity at period-end / Common shares at period-end
* Represents net income applicable to common equity
The Firm also reviews adjusted expense, which is
noninterest expense excluding Firmwide legal expense and
is therefore a non-GAAP financial measure. Additionally,
certain credit metrics and ratios disclosed by the Firm
exclude PCI loans, and are therefore non-GAAP measures.
Management believes that these measures help investors
understand the effect of these items on reported results
and provide an alternate presentation of the Firm's
performance. Refer to Credit and Investment Risk
Management on pages 100-118 for additional information
on credit metrics and ratios excluding PCI loans.
$1,672,862 $1,619,553 $1,639,757
Average interest-earning
assets excluding CIB
Markets
Less: Average CIB Markets
interest-earning assets (b)(c)
$2,212,908 $ 2,170,974
$2,345,491
Average interest-earning
assets(c)
adjustments
54,656 $ 52,600 $ 46,780
Net interest income
4,630
3,087
3,120
interest income (b)
Less: CIB Markets net
excluding CIB Markets (a) $
41.1
(e) At December 31, 2019, 2018 and 2017, excluded mortgage loans insured by
U.S. government agencies of $1.7 billion, $4.1 billion and $6.2 billion,
respectively, that are 30 or more days past due. These amounts have been
excluded based upon the government guarantee.
Correspondent
Card
640,219
670,388
693,550
Deposits
1.19%
0.77%
0.76%
Home Lending (e)(f)
393,598
419,066
416,694
Core loans
30+ day delinquency rate
1.87
469,814
464,327
Total loans
(g)
1.21
1.04
1.20
Total net charge-offs/
(recovery) rate(d)
2,880
1,788
2,225
Card
5,683
5,184
4,884
478,281
Auto
1.83
Equity
987
Home Lending - PCI loans (c)
1,003
1,003
903
PCI loans
Home Lending, excluding
Year ended December 31,
796
$
746 $ 796
$
Banking
Consumer & Business
1.80
Allowance for loan losses
0.92
0.95
90+ day delinquency rate
Card
133,721
129,518
127,137
Headcount
0.89
0.93
0.94
Auto
51,000
51,000
52,000
0.92
465
464
464
37,297
33,260
30,056
Debit and credit card sales
volume
$ 1,114.4
$ 1,016.9
$
916.9
Consumer & Business Banking
Average deposits
$ 678.9 $ 656.5 $ 625.6
Deposit margin
2.49%
2.38%
(in thousands) (b)
1.98%
$
Client investment assets
6.6 $
358.0
6.7 $
282.5
7.3
273.3
Home Lending
Mortgage origination volume
by channel
Retail
$ 51.0
$
38.3
$
40.3
Business banking origination
volume
Active mobile customers
46,694
49,254
Total allowance for loan
losses(c)
$ 8,784 $ 9,235
$ 9,372
64
42
(a) Excludes PCI loans. The Firm is recognizing interest income on each pool of PCI
loans as each of the pools is performing.
(b) At December 31, 2019, 2018 and 2017, nonaccrual loans excluded mortgage
loans 90 or more days past due and insured by U.S. government agencies of
$961 million, $2.6 billion and $4.3 billion, respectively. These amounts have
been excluded based upon the government guarantee.
(c) Net charge-offs/(recoveries) and the net charge-off/(recovery) rates for the
years ended December 31, 2019, 2018 and 2017, excluded $151 million, $187
million and $86 million, respectively, of write-offs in the PCI portfolio. These
write-offs decreased the allowance for loan losses for PCI loans. Refer to
Summary of changes in the allowance for credit losses on page 117 for further
information on PCI write-offs.
(d) Excludes the impact of PCI loans. For the years ended December 31, 2019, 2018
and 2017, the net charge-off/(recovery) rates including the impact of PCI loans
were as follows: (1) home equity of (0.15)%, (0.02) % and 0.14%, respectively;
(2) residential mortgage of (0.03)%, (0.14)% and (0.01)%, respectively; (3)
JPMorgan Chase & Co./2019 Form 10-K
Home Lending of (0.05) %, (0.12) % and 0.02%, respectively; and (4) total CCB
of 1.14%, 0.98% and 1.12%, respectively.
(f) Excludes PCI loans. The 30+ day delinquency rate for PCI loans was 8.44%,
9.16% and 10.13% at December 31, 2019, 2018 and 2017, respectively.
(g) Excluding net charge-offs of $467 million related to the student loan portfolio
transfer, the total net charge-off rates for the full year 2017 would have been
1.10%.
Selected metrics
As of or for the year ended
December 31,
(in billions, except ratios and
where otherwise noted)
JPMorgan Chase & Co./2019 Form 10-K
2019
52,421
(in thousands) (a)
Active digital customers
5,130
5,036
4,976
54.2
Number of branches
61.7
62.6
CCB households (in millions)
Business Metrics
2017
2018
61.1
Dec 31,
CORPORATE & INVESTMENT BANK
Dec 31,
2018
38,298
9,480
36,448
4,207
572
24,539
10,118
34,657
Provision for credit losses
277
(60)
(45)
Noninterest expense
Compensation expense
10,618
10,215
9,531
Noncompensation expense
10,901
Total net revenue(a)
10,703
Total noninterest expense
21,519
20,918
19,407
Income before income tax
expense
16,502
15,590
15,295
Income tax expense
4,580
3,817
4,482
Net income
9,876
$ 11,922 $ 11,773 $ 10,813
9,156
26,968
(d) Represents the ratio of MSR carrying value (period-end) to third-party mortgage
loans serviced (period-end) divided by the ratio of loan servicing-related revenue
to third-party mortgage loans serviced (average).
65
Management's discussion and analysis
JPMorgan Chase & Co./2019 Form 10-K
The Corporate & Investment Bank, which consists of
Banking and Markets & Securities Services, offers a
broad suite of investment banking, market-making,
prime brokerage, and treasury and securities products
and services to a global client base of corporations,
investors, financial institutions, government and
municipal entities. Banking offers a full range of
investment banking products and services in all major
capital markets, including advising on corporate
strategy and structure, capital-raising in equity and
debt markets, as well as loan origination and
syndication. Banking also includes Treasury Services,
which provides transaction services, consisting of cash
management and liquidity solutions. Markets &
Securities Services is a global market-maker in cash
securities and derivative instruments, and also offers
sophisticated risk management solutions, prime
brokerage, and research. Markets & Securities Services
also includes Securities Services, a leading global
custodian which provides custody, fund accounting and
administration, and securities lending products
principally for asset managers, insurance companies
and public and private investment funds.
Selected income statement data
2019
2018
2017
Year ended December 31,
(in millions)
Revenue
Investment banking fees
$ 7,575 $ 7,473 $ 7,356
Net interest income
Principal transactions
12,271
Lending- and deposit-related fees
1,518
1,497
10,873
1,531
Asset management,
administration and commissions
4,545
4,488
All other income
1,108
1,239
Noninterest revenue
29,142
14,396
(b) Users of all mobile platforms who have logged in within the past 90 days.
(c) Firmwide mortgage origination volume was $115.9 billion, $86.9 billion and
$107.6 billion for the years ended December 31, 2019, 2018 and 2017,
respectively.
(a) Includes tax-equivalent adjustments, predominantly due to income tax
credits related to alternative energy investments; income tax credits
and amortization of the cost of investments in affordable housing
projects; and tax-exempt income from municipal bonds of $2.3 billion,
$1.7 billion and $2.4 billion for the years ended December 31, 2019,
2018 and 2017, respectively.
Year ended December 31,
(in millions, except ratios)
Financial ratios
12,812
Equity Markets
6,494
6,888
5,703
Securities Services
4,154
4,245
3,917
Credit Adjustments & Other(a)
121
(373)
(228)
Total Markets & Securities
Services
12,706
25,187
$38,298
22,204
$ 34,657
Total net revenue
(a) Includes credit valuation adjustments ("CVA") managed centrally
within CIB and funding valuation adjustments ("FVA") on derivatives,
which are primarily reported in principal transactions revenue. Results
are presented net of associated hedging activities and net of CVA and
FVA amounts allocated to Fixed Income Markets and Equity Markets.
Refer to Notes 2, 3 and 24 for additional information.
2019 compared with 2018
Net income was $11.9 billion, up 1%.
Net revenue was $38.3 billion, up 5%.
Banking revenue was $13.1 billion, up 1%.
•
Investment Banking revenue was $7.2 billion, up 3%,
with higher debt underwriting fees, largely offset by
lower advisory and equity underwriting fees. The Firm
maintained its #1 ranking for Global Investment Banking
fees with overall share gains, according to Dealogic.
Debt underwriting fees were $3.5 billion, up 8%,
reflecting wallet share gains and increased activity in
investment-grade and high-yield bonds.
- Advisory fees were $2.4 billion, down 5%, and Equity
underwriting fees were $1.7 billion, down 1%, driven
by a decline in industry-wide fees despite wallet share
gains.
Treasury Services revenue was $4.6 billion, down 3%,
driven by deposit margin compression predominantly
offset by higher balances and fee growth.
Lending revenue was $1.3 billion, up 3%, with higher net
interest income largely offset by losses on hedges of
accrual loans.
66
66
23,466
$36,448
Selected income statement data
14,418
12,453
Return on equity
Overhead ratio
2019
2018
2017
14%
16%
14%
Student
56
57
56
Compensation expense as
percentage of total net
28
28
Fixed Income Markets
28
Revenue by business
Investment Banking
Treasury Services
$ 7,215
$ 6,987
$ 6,852
4,565
4,697
4,172
Lending
1,331
1,298
1,429
Total Banking
13,111
12,982
revenue
(a) Users of all web and/or mobile platforms who have logged in within the past 90
days.
15.2
18.8
JPMorgan Chase
Wholesale Businesses
Corporate & Investment Bank
Commercial
Banking(a)
Asset & Wealth
Management
Consumer &
Home Lending
Card, Merchant
Services & Auto
Business Banking
•
Consumer
Banking/
Chase Wealth
Management
Consumer & Community Banking
⚫ Home
• Home
Lending
Servicing
• Card
Services
- Credit Card
Banking
• Investment
Banking
• Treasury
Services (a)
•
Business
- Merchant
Services(a)
Banking
⚫ Lending
Lending
Production
• Auto
Consumer Businesses
The Firm is managed on an LOB basis. There are four major
reportable business segments - Consumer & Community
Banking, Corporate & Investment Bank, Commercial
Banking and Asset & Wealth Management. In addition, there
is a Corporate segment.
2019
2018
2017
$
234,337 $
47,823
819
230,447
47,471
748
2,381
2,280
188,076 $ 184,508
$ 232,907
47,620
789
2,328
$ 186,826
47,491
807
2,231
$ 229,222 $ 230,350
47,317
832
3,116
$ 183,155 $ 185,317
$
The business segments are determined based on the
products and services provided, or the type of customer
served, and they reflect the manner in which financial
information is currently evaluated by the Firm's Operating
Committee. Segment results are presented on a managed
basis. Refer to Explanation and Reconciliation of the Firm's
use of Non-GAAP Financial Measures and Key Performance
Measures, on pages 57-59 for a definition of managed
basis.
ΝΑ
60.98 $
19%
17%
12%
ΝΑ
ΝΑ
NA
(a) Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted
against goodwill and other intangibles when calculating TCE.
Key performance measures
Core loans is considered a key performance measure. Core
loans represents loans considered central to the Firm's
ongoing businesses, and excludes loans classified as trading
assets, runoff portfolios, discontinued portfolios and
portfolios the Firm has an intent to exit. Core loans is a
measure utilized by the Firm and its investors and analysts
in assessing actual growth in the loan portfolio.
JPMorgan Chase & Co./2019 Form 10-K
59
Management's discussion and analysis
BUSINESS SEGMENT RESULTS
ΝΑ
56.33
• Real Estate
Portfolios
Markets &
Securities Services
• Fixed
2.65x
3.34x
3.09x
Card, excluding Commercial Card
Credit card sales volume
$
762.8
$ 692.4 $ 622.2
New accounts opened
(in millions)
Card Services
Net revenue rate
7.8
7.8
MSR revenue multiple (d)
8.4
11.27%
10.57%
Merchant Services
Merchant processing volume
$ 1,511.5 $ 1,366.1
$ 1,191.7
Auto
Loan and lease origination
volume
34.0
$ 31.8
$
33.3
Average Auto operating lease
assets
21.6
11.52%
1.08%
1.17%
0.90%
Income
Markets
• Equity
Markets
• Securities
Services
⚫ Credit
Adjustments
& Other
•
Middle
Market
Banking
Corporate
Client
Banking
Commercial
Real Estate
Banking
⚫ Asset
Management
• Wealth
Management
(a) Effective in the first quarter of 2020, the Merchant Services business was realigned from CCB to CIB as part of the Firm's Wholesale Payments business.
The revenue and expenses of the Merchant Services business will be reported across CCB, CIB and CB based primarily on client relationship.
Description of business segment reporting methodology
Results of the business segments are intended to present
each segment as if it were a stand-alone business. The
management reporting process that derives business
segment results includes the allocation of certain income
and expense items, described in more detail below. The
Firm also assesses the level of capital required for each LOB
on at least an annual basis. The Firm periodically assesses
the assumptions, methodologies and reporting
classifications used for segment reporting, and further
refinements may be implemented in future periods.
Revenue sharing
When business segments join efforts to sell products and
services to the Firm's clients, the participating business
segments may agree to share revenue from those
transactions. Revenue is generally recognized in the
segment responsible for the related product or service on a
gross basis, with an allocation to the other segment(s)
involved in the transaction. The segment results reflect
these revenue-sharing agreements.
(period-end)
mortgage loans serviced
(period-end) to third-party
Ratio of MSR carrying value
The amount of capital assigned to each business is referred
to as equity. Periodically, the assumptions and
methodologies used to allocate capital are assessed and as
a result, the capital allocated to the LOBS may change. Refer
to Line of business equity on page 90 for additional
information on business segment capital allocation.
Business segment capital allocation
2019
Debt expense and preferred stock dividend allocation
As part of the funds transfer pricing process, almost all of
the cost of the credit spread component of outstanding
unsecured long-term debt and preferred stock dividends is
allocated to the reportable business segments, while the
balance of the cost is retained in Corporate. The
methodology to allocate the cost of unsecured long-term
debt and preferred stock dividends to the business
segments is aligned with the Firm's process to allocate
capital. The allocated cost of unsecured long-term debt is
included in a business segment's net interest income, and
net income is reduced by preferred stock dividends to arrive
at a business segment's net income applicable to common
equity.
Funds transfer pricing is the process by which the Firm
allocates interest income and expense to each business
segment and transfers the primary interest rate risk and
liquidity risk exposures to Treasury and CIO within
Corporate. The funds transfer pricing process considers the
interest rate risk, liquidity risk and regulatory requirements
on a product-by-product basis within each business
segment. This process is overseen by senior management
and reviewed by the Firm's Treasurer Committee.
Funds transfer pricing
Where business segments use services provided by
corporate support units, or another business segment, the
costs of those services are allocated to the respective
business segments. The expense is generally
allocated based on the actual cost and use of services
provided. In contrast, certain costs and investments related
to corporate support units, technology and operations not
currently leveraged by any LOB, are not allocated to the
business segments and are retained in Corporate. Expense
retained in Corporate generally includes parent company
costs that would not be incurred if the segments were
stand-alone businesses; adjustments to align corporate
support units; and other items not aligned with a particular
business segment.
Expense Allocation
JPMorgan Chase & Co./2019 Form 10-K
60
Segment Results - Managed Basis
65,395
Income tax expense
61,862
Provision for credit losses
4,952
4,753
5,572
Noninterest expense
Compensation expense
10,700
10,534
10,133
Noncompensation expense (a)
18,196
17,301
15,929
Total noninterest expense
28,896
27,835
26,062
Income before income tax
expense
22,035
19,491
14,851
5,394
4,639
5,456
46,485
64,675
52,079
31,775
$ 3,624 $ 3,431
administration and
commissions
2,499
2,402
2,212
Mortgage fees and related
income
2,035
1,252
1,613
Card income
4,847
4,554
4,024
All other income
5,402
4,428
3,430
Noninterest revenue
18,642
16,260
14,710
Net interest income
Total net revenue
37,241
35,819
55,883
expense
Income before income tax
45,207
50,608
55,847
1,877
53,970
2,704 $ 6,350
$
$ 3,646
(b) $ 7,220
1,877
$
$ 5,343
2,534 $ 8,265
2,534 60,916
58,382
Total noninterest revenue
$
$ 5,731
Other income
Managed
basis
Fully taxable-
equivalent
adjustments(a)
Reported
Managed
basis
equivalent
adjustments(a)
Reported
Managed
basis
equivalent
adjustments(a)
2,704
53,312
Net interest income
57,245
4,017
41,190
48,140
2,505
45,635
53,195
3,065
50,130
Pre-provision profit
104,722
4,017
100,705
Lending- and deposit-related fees $ 3,859
111,534
109,029
115,627
Total net revenue
51,410
1,313
50,097
55,687
(b)
628
55,059
57,776
531
2,505
62
62
Asset management,
5,278
Provision for credit losses
4,952
4,753
5,572
277
Net income/(loss)
16,641
Return on equity ("ROE")
31%
14,852
28%
9,395
17%
11,922
14%
(60)
11,773
16%
(45)
296
129
(276)
10,813
3,924
4,237
3,539
14%
17%
5,673
5,484
3,327
3,386
The following tables summarize the Firm's results by segment for the periods indicated.
Year ended December 31,
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
(in millions, except ratios)
Total net revenue
2019
2018
$ 55,883
$ 52,079
Total noninterest expense
Pre-provision profit/(loss)
28,896
20%
27,835
2019
$ 38,298
21,519
26,987
24,244
20,423
16,779
2018
$ 36,448
20,918
15,530
2017
$ 34,657
19,407
15,250
2019
2018
2017
$ 8,984 $ 9,059 $ 8,605
3,500
2017
$ 46,485
26,062
Reported
17%
Asset & Wealth Management
2019
65,497
53,195
63,394
59,515
48,140
45,207
NM
(1,643)
NM
5,585
36,431
15%
4,871
5,290
32,474
13%
24,441
10%
Note: Net income in 2019 and 2018 for each of the business segments reflects the favorable impact of the reduction in the U.S. federal statutory income tax
rate as a result of the TCJA.
The following sections provide a comparative discussion of the Firms results by segment as of or for the years ended
December 31, 2019 and 2018.
JPMorgan Chase & Co./2019 Form 10-K
61
Management's discussion and analysis
2019
2018
2017
CONSUMER & COMMUNITY BANKING
Consumer & Community Banking offers services to
consumers and businesses through bank branches,
ATMs, digital (including mobile and online) and
telephone banking. CCB is organized into Consumer &
Business Banking (including Consumer Banking/Chase
Wealth Management and Business Banking), Home
Lending (including Home Lending Production, Home
Lending Servicing and Real Estate Portfolios) and Card,
Merchant Services & Auto. Consumer & Business
Banking offers deposit and investment products and
services to consumers, and lending, deposit, and cash
management and payment solutions to small
businesses. Home Lending includes mortgage
origination and servicing activities, as well as
portfolios consisting of residential mortgages and
home equity loans. Card, Merchant Services & Auto
issues credit cards to consumers and small businesses,
offers payment processing services to merchants, and
originates and services auto loans and leases.
Selected income statement data
Year ended December 31,
(in millions, except ratios)
Revenue
501
639
902
(1,030)
(4)
(1,241)
1,111
NM
2,337
25%
Corporate
Total
2018
2017
2019
2018
2017
2019
2018
2017
$ 14,316
10,515
3,801
Year ended December 31,
(in millions, except ratios)
Total net revenue
Total noninterest expense
Pre-provision profit/(loss)
Provision for credit losses
10,353
3,723
Net income/(loss)
Return on equity ("ROE")
2,833
26%
53
2,853
$ 14,076 $ 13,835
10,218
3,617
39
$ 1,211
1,067
144
$ (128) $ 1,140
$118,692
$111,534
$104,722
(1)
31%
61
(in millions, except ratios)
3,065 118,692
Fully taxable-
(287)
(50)
Residential mortgage
199,799
Home Lending
197,339
203,859
169,636
63
(7)
(48)
Home equity
Residential mortgage
42,751
36,013
(16)
30,163
239,872
Home Lending
66,242
63,573
61,522
Auto
4,123
4,518
4,848
Card
149,511
156,632
168,924
Card
47
(294)
(98)
240,090
Home equity
257
236
2017
2018
2019
As of or for the year ended
December 31,
Selected metrics
(in millions, except headcount)
As of or for the year ended
December 31,
Selected metrics
Management's discussion and analysis
63
63
JPMorgan Chase & Co./2019 Form 10-K
Fully taxable-
partially offset by
a $50 million reduction in the allowance for loan losses in
the business banking portfolio
Selected balance sheet data
(period-end)
(in millions, except ratio data) 2019
Credit data and quality
2018
2017
296
Banking
Consumer & Business
25,789
26,612
27,199
Consumer & Business Banking
Auto
Net charge-offs/(recoveries) (c)
$ 4,084
$ 3,339
$ 3,018
Nonaccrual loans (a)(b)
$ 539,090 $ 557,441 $ 552,601
Total assets
statistics
Loans:
206
243
331
202,624
186,557
Residential mortgage
0.02
(0.14)
(0.05)
Home Lending(d)
46,398
39,133
32,975
Home equity
(0.01)
(0.16)
(0.03)
Residential mortgage (d)
190,242
Card
3.10
3.10
Auto
NM
Student
140,024
145,652
156,325
Card
24,875
0.51
0.33
Auto
236,640
241,757
219,532
Home Lending
2.95
0.38
a $650 million reduction in the allowance for loan losses
in the PCI residential real estate portfolio, reflecting
continued improvement in home prices and delinquencies,
and a $100 million reduction in the allowance for loan
losses in the non credit-impaired residential real estate
portfolio, compared to a $250 million reduction in the PCI
residential real estate portfolio in the prior year, and
26,197
Consumer & Business Banking
Total net charge-offs/
(recoveries)
659,885
678,854
718,416
Deposits
415,167
434,466
414,107
Core loans
498 (g)
Student
481,632
486,689
457,444
Total loans
$ 5,252
$ 4,703
$ 5,256 (g)
Equity
0.18
(0.02)
(0.19)
Home equity(d)
Loans:
1.03%
1.11% 0.90%
26,608
Consumer & Business
Banking
$ 542,191
Total assets
Net charge-off/(recovery)
rate(c)
Selected balance sheet data
(average)
51,000
51,000
52,000
$ 547,368 $ 532,756
-
lower net recoveries in the residential real estate portfolio
as the prior year benefited from larger recoveries on loan
sales.
a decrease in consumer, excluding credit card due to
$ 2,035
Mortgage fees and related
income
977
984
417
Net mortgage servicing
revenue(b)
636
268
1,618
Net production revenue
Mortgage fees and related
income details:
5,955
19,426
21,790
24,209
Card, Merchant Services & Auto
5,484
5,179
$ 1,252
$ 1,613
Financial ratios
Return on equity
partially offset by
higher loan balances and margin expansion in Card, as well
as higher deposit margins and growth in deposit balances in
CBB,
•
Net interest income was $37.2 billion, up 4%, and included
charges from the loan sales mentioned above. Excluding these
charges, net interest income increased, driven by:
-
Net revenue was $55.9 billion, an increase of 7%. Net
production revenue included approximately $500 million of
gains on the sales of certain mortgage loans that were
predominantly offset by charges in net interest income for the
unwind of the related internal funding from Treasury and CIO
associated with these loans. The charges reflect the net
present value of that funding and is recognized as interest
income in Treasury and CIO. Refer to Corporate on pages 77-
78 and Funds Transfer Pricing ("FTP") on page 61 of this Form
10-K for further information.
Net income was $16.6 billion, an increase of 12%.
2019 compared with 2018
$ 21,104
JPMorgan Chase & Co./2019 Form 10-K
(a) Included depreciation expense on leased assets of $4.1 billion, $3.4
billion and $2.7 billion for the years ended December 31, 2019, 2018
and 2017, respectively.
Note: In the discussion and the tables which follow, CCB presents certain
financial measures which exclude the impact of PCI loans; these are non-
GAAP financial measures.
56
17%
28%
53
31%
52
Overhead ratio
lower loan balances due to loan sales, as well as loan spread
compression in Home Lending.
(b) Included MSR risk management results of $(165) million, $(111)
million and $(242) million for the years ended December 31, 2019,
2018 and 2017, respectively.
$24,805
Home Lending
Consumer & Business Banking
- higher net charge-offs on loan growth, in line with
expectations, and
-
an increase in credit card due to
$26,495
The provision for credit losses was $5.0 billion, an increase of
4%, reflecting:
expense efficiencies and lower FDIC charges.
a $500 million addition to the allowance for loan losses
reflecting loan growth and higher loss rates, as newer
vintages season and become a larger part of the portfolio,
compared to a $300 million addition in the prior year
largely offset by
investments in the business including technology and
marketing and higher depreciation on auto lease assets,
partially offset by
•
.
higher auto lease volume, and
higher net mortgage production revenue reflecting higher
production volumes and margins,
partially offset by
lower net mortgage servicing revenue driven by lower
operating revenue reflecting faster prepayment speeds on
lower rates and the impact of reclassifying certain loans to
held-for-sale.
Noninterest revenue was $18.6 billion, up 15%, and included
gains from the loan sales mentioned above as well as the
impact of the prior-year adjustment of approximately $330
million to the credit card rewards liability. Excluding these
notable items, noninterest revenue increased 9%, driven by:
December 31,
Year ended
2017
Revenue by line of business
$ 9,395
$14,852
$ 16,641
Net income
EXPLANATION AND RECONCILIATION OF THE FIRM'S USE OF NON-GAAP FINANCIAL MEASURES AND KEY
PERFORMANCE MEASURES
Refer to Note 15 for further information regarding changes in
value of the MSR asset and related hedges, and mortgage fees
and related income.
Non-GAAP financial measures
In addition to analyzing the Firm's results on a reported
basis, management reviews Firmwide results, including the
overhead ratio, on a "managed" basis; these Firmwide
managed basis results are non-GAAP financial measures.
The Firm also reviews the results of the LOBS on a managed
basis. The Firm's definition of managed basis starts, in each
case, with the reported U.S. GAAP results and includes
certain reclassifications to present total net revenue for the
Firm (and each of the reportable business segments) on an
FTE basis. Accordingly, revenue from investments that
receive tax credits and tax-exempt securities is presented in
the managed results on a basis comparable to taxable
investments and securities. These financial measures allow
management to assess the comparability of revenue from
year-to-year arising from both taxable and tax-exempt
sources. The corresponding income tax impact related to
tax-exempt items is recorded within income tax expense.
These adjustments have no impact on net income as
reported by the Firm as a whole or by the LOBS.
Management also uses certain non-GAAP financial
measures at the Firm and business-segment level, because
these other non-GAAP financial measures provide
information to investors about the underlying operational
performance and trends of the Firm or of the particular
business segment, as the case may be, and, therefore,
facilitate a comparison of the Firm or the business segment
with the performance of its relevant competitors. Refer to
Business Segment Results on pages 60-78 for additional
information on these non-GAAP measures. Non-GAAP
financial measures used by the Firm may not be comparable
to similarly named non-GAAP financial measures used by
other companies.
The following summary table provides a reconciliation from the Firm's reported U.S. GAAP results to managed basis.
2018
2019
The Firm prepares its Consolidated Financial Statements in
accordance with U.S. GAAP; these financial statements
appear on pages 146-150. That presentation, which is
referred to as "reported" basis, provides the reader with an
understanding of the Firm's results that can be tracked
consistently from year-to-year and enables a comparison of
the Firm's performance with other companies' U.S. GAAP
financial statements.
Noninterest expense was $28.9 billion, up 4%, driven by:
Year ended December 31,
(c) Management uses allowance for loan losses to period-end loans
retained, excluding trade finance and conduits, a non-GAAP financial
measure, to provide a more meaningful assessment of CIB's allowance
coverage ratio.
404,363 349,169
85
instruments
70
342,124
Total nonperforming
Trading assets-derivative
assets
(b) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
57
(a) Allowance for loan losses of $110 million, $174 million and $316
million were held against these nonaccrual loans at December 31,
2019, 2018 and 2017, respectively.
390
0.72
1,379
Loans held-for-sale and
Allowance for lending-
loans at fair value
Total loans
Core loans
1,199
Equity
8,609
6,412
130,980 120,829
130,810 120,560
70,000
4,995
113,363
113,006
related commitments
848
754
727
80,000
Total allowance for credit
1,202
108,368
503
780
1,027
receivables
48,196
60,552
losses
56,466
Loans:
(in millions)
Allowance for loan
Loans retained(a)
122,371
114,417
Allowance for credit losses:
losses
2,050
1,953
excluding trade finance
and conduits (c)
1.31
1.24
1.92
Allowance for loan losses to
period-end loans retained,
nonaccrual loans
271
170
Nonaccrual loans to total
period-end loans
0.31
0.47
retained(a)
Allowance for loan losses to
1.27
0.93
2,106
Net charge-off/(recovery)
70,000
rate(b)
0.15%
0.08%
0.07%
Headcount
55,991
54,480
51,181
Allowance for loan losses to
period-end loans
(a) Loans retained includes credit portfolio loans, loans held by
consolidated Firm-administered multi-seller conduits, trade finance
loans, other held-for-investment loans and overdrafts.
retained
0.99
Investment banking fees
Assets acquired in loan
satisfactions
13,050
$922,758 $857,060
308
retained(a)
Nonaccrual loans
4,321
10,112
loans at fair value
Loans held-for-sale and
Nonaccrual loans:
443
108,765
121,733
Nonperforming assets:
Loans retained(a)
Loans:
71
$
93
$
129,389
183
812
131,845
$
$
663
403
Total nonaccrual loans
Selected balance sheet data
(average)
220
95
for-sale and loans at
fair value
Total loans
112,754
70,000
80,000
Equity
142,122
131,672
Core loans
Nonaccrual loans held-
113,086
142,439
70,000
Trading assets-debt and equity
$
Net charge-offs/
a business exit largely offset by organic growth.
Securities Services revenue was $4.2 billion, down 2%,
driven by deposit margin compression and the impact of
Equity Markets revenue was $6.5 billion, down 6%,
compared to a strong prior year, driven by lower client
activity in derivatives partially offset by higher client
activity in Cash Equities.
Fixed Income Markets revenue was $14.4 billion, up
13%, reflecting an overall strong performance, notably in
Securitized Products. The increase in 2019 also reflected
the impact of challenging market conditions in Credit and
Rates in the fourth quarter of 2018.
•
•
•
•
Credit Adjustments & Other was a gain of $121 million
reflecting tighter funding spreads on derivatives,
compared with a loss of $373 million in the prior year.
included a gain on the IPO of Tradeweb in the second
quarter of 2019. Prior year results included approximately
$500 million of fair value gains recorded in the first quarter
of 2018 related to the adoption of the recognition and
measurement accounting guidance for certain equity
investments previously held at cost.
812
Advisory
Derivative receivables
30
60
130
Assets
$ 985,544
Markets & Securities Services revenue was $25.2 billion, up
7%. Markets revenue was $20.9 billion, up 7% which
(recoveries)
The provision for credit losses was $277 million, compared
with a $60 million net benefit in the prior year. This
increase reflects additions to the allowance for credit losses
in the current year on select client downgrades, and a
benefit related to a single name in the Oil & Gas portfolio
and higher recoveries, both in the prior year.
JPMorgan Chase & Co./2019 Form 10-K
$ 908,153 $ 903,051 $ 826,384
Assets
Credit data and quality
statistics
2017
2018
2019
(in millions, except ratios)
2017
Noninterest expense was $21.5 billion, up 3%,
predominantly driven by higher volume-related expenses
and investments, including front office and technology staff
hires, as well as higher legal expense, partially offset by
lower FDIC charges.
2018
As of or for the year ended
December 31,
Selected metrics
Selected balance sheet data
(period-end)
(in millions, except headcount)
As of or for the year ended
December 31,
Selected metrics
Management's discussion and analysis
67
2019
Equity underwriting
26,831 $
2019
1,694
1,785
Compensation expense
Noninterest expense
(276)
129
296
Provision for credit losses
8,605
9,059
8,984
Total net revenue(b)
6,083
6,716
6,554
Net interest income
2,522
1,534
2,343
Noncompensation expense
1,692
investment banking products, commercial card transactions and asset
management fees. The prior period amounts have been revised to
conform with the current period presentation.
(a) Effective in the first quarter of 2019, includes revenue from
$ 3,924 $ 4,237 $ 3,539
Net income
2,015
1,307
1,264
Income tax expense
5,554
5,544
5,188
Income before income tax expense
3,327
3,386
3,500
Total noninterest expense
1.793
1,715
2,430
Noninterest revenue
1,603
COMMERCIAL BANKING
JPMorgan Chase & Co./2019 Form 10-K
70
70
(c) The prior period amounts have been revised to conform with the current period presentation.
(b) Client deposits and other third-party liabilities pertaining to the Treasury Services and Securities Services businesses, and AUC, are based on the domicile
of the client.
(a) Total net revenue and loans retained (excluding loans held-for-sale and loans at fair value) are based on the location of the trading desk, booking location,
or domicile of the client, as applicable.
23,469
13,971
9,498
14,359 $
8,858
23,217 $
16,855 $
9,976
26,831 $
$
$
Total AUC
All other regions
North America
(in billions)
Commercial Banking provides comprehensive financial
solutions, including lending, treasury services,
investment banking and asset management products
across three primary client segments: Middle Market
Banking, Corporate Client Banking and Commercial
Real Estate Banking. Other includes amounts not
aligned with a primary client segment.
Middle Market Banking covers small business and
midsized corporations, local governments and
nonprofit clients.
Corporate Client Banking covers large corporations.
Commercial Real Estate Banking covers investors,
developers, and owners of multifamily, office, retail,
industrial and affordable housing properties.
1,473
1,517
All other income(a)
$ 919
$ 913 $ 870
Lending- and deposit-related fees
Revenue
2017
(b) Total net revenue included tax-equivalent adjustments from income tax
credits related to equity investments in designated community
development entities and in entities established for rehabilitation of
historic properties, as well as tax-exempt income related to municipal
financing activities of $460 million, $444 million and $699 million for
the years ended December 31, 2019, 2018 and 2017, respectively.
2018
(in millions)
The provision for credit losses was $296 million, up from
$129 million in the prior year. The increase in the provision
reflects additions to the allowance for credit losses on select
client downgrades in the current year and higher recoveries
in the prior year.
Noninterest expense was $3.5 billion, an increase of 3%,
driven by continued investments in the business, largely
offset by lower FDIC charges.
Net revenue was $9.0 billion, a decrease of 1%. Net
interest income was $6.6 billion, a decrease of 2%,
predominantly driven by lower deposit margins. Noninterest
revenue was $2.4 billion, an increase of 4%, driven by
higher investment banking revenue, predominantly due to
increased equity underwriting and M&A activity, and growth
in lending and deposit related fees.
Net income was $3.9 billion, a decrease of 7%.
2019 compared with 2018
Year ended December 31,
Selected income statement data
2019
JPMorgan Chase & Co./2019 Form 10-K
71
Management's discussion and analysis
39
17%
37
20%
17%
39
Overhead ratio
Return on equity
Financial ratios
$ 8,605
$ 9,059
$ 8,984
revenue
Total Commercial Banking net
121
118
119
2,416
(a) Includes CB's share of revenue from investment banking products sold
to CB clients through the CIB.
(b) Refer to page 60 for a discussion of revenue sharing.
(c) Effective in the first quarter of 2019, client segment data includes
Commercial Real Estate Banking which comprises the former
Commercial Term Lending and Real Estate Banking client segments,
and Community Development Banking (previously part of Other). The
prior period amounts have been revised to conform with the current
period presentation.
(period-end)
Credit data and quality statistics
Selected balance sheet data
2017
2018
2019
As of or for the year ended
December 31, (in millions, except
ratios)
2017
2,249
2018
except headcount)
December 31, (in millions,
Selected metrics
As of or for the year ended
Selected metrics
JPMorgan Chase & Co./2019 Form 10-K
12
72
2019
AUC (period-end)(b)
2,169
2,727
$4,094
$4,049
$4,057
3,920
2017
2018
2019
revenue
Total Commercial Banking net
Other
Treasury services
Investment banking(a)
Lending
Year ended December 31,
(in millions, except ratios)
Revenue by product
Selected income statement data (continued)
transactions.
Other product revenue primarily includes tax-equivalent
adjustments generated from Community Development
Banking activities and certain income derived from principal
Treasury services includes revenue from a broad range of
products and services that enable CB clients to manage
payments and receipts, as well as invest and manage funds.
Investment banking includes revenue from a range of
products providing CB clients with sophisticated capital-
raising alternatives, as well as balance sheet and risk
management tools through advisory, equity underwriting,
and loan syndications. Revenue from Fixed Income and
Equity Markets products used by CB clients is also included.
CB product revenue consists of the following:
Lending includes a variety of financing alternatives, which
are primarily provided on a secured basis; collateral
includes receivables, inventory, equipment, real estate or
other assets. Products include term loans, revolving lines of
credit, bridge financing, asset-based structures, leases, and
standby letters of credit.
4,074
3,444
919
852
2,984
2,994
Corporate Client Banking
$ 3,341
$ 3,708
$3,702
Middle Market Banking
Revenue by client segment
Commercial Real Estate Banking (c)
Other(c)
Investment banking revenue, gross (b) $2,744
$ 2,491
$8,605
$ 9,059
$8,984
262
84
88
805
$ 2,385
Net charge-offs/(recoveries)
408,911
162,041
434,422 $
Allowance for loan losses to
period-end loans
0.22
0.22
0.22
Allowance for loan losses to
nonaccrual loans
305
124
77
Nonaccrual loans to period-
end loans
0.29
0.07
0.18
(a) Represents the Nomura “star rating" for Japan domiciled funds and
Morningstar for all other domiciled funds. Includes only Asset
Management retail open-ended mutual funds that have a rating.
Excludes money market funds, Undiscovered Managers Fund, and
Brazil domiciled funds.
(b) Quartile ranking sourced from Lipper, Morningstar, Nomura and Fund
Doctor based on country of domicile. Includes only Asset Management
retail open-ended mutual funds that are ranked by the aforementioned
sources. Excludes money market funds, Undiscovered Managers Fund,
and Brazil domiciled funds.
(c) Loans, deposits and related credit data and quality statistics relate to
the Wealth Management business.
JPMorgan Chase & Co./2019 Form 10-K
0.01%
75
0.01%
Net charge-off rate
International metrics
(a) Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts.
(b) Client deposits and other third-party liabilities pertain to the Treasury Services and Securities Services businesses.
408,911
$
434,422
23,469
23,217 $
2,563
2,699
7,863
8,078
13,043
12,440 $
2017
2018
464,770 $
300
0.02%
15
Management's discussion and analysis
Client assets
4,944
December 31,
(in billions)
2019
2018
2017
North America
9,214
8,933
8,891
Assets by asset class
Total net revenue
$ 14,316 $ 14,076 $ 13,835
Liquidity
542 $
480 $
459
5,143
5,102
702
755
2019 compared with 2018
Client assets were $3.2 trillion, an increase of 18%. Assets
under management were $2.4 trillion, an increase of 19%
driven by the impact of higher market levels and net inflows
into both long-term and liquidity products.
Client assets
International metrics
Year ended December 31,
(in billions, except where otherwise
noted)
Total net revenue (in millions)(a)
Europe/Middle East/Africa (b)
Asia-Pacific (b)
2019
As of or for the year ended
2018
$
2,869 $
2,850 $ 2,837
1,509
1,538
1,405
Latin America/Caribbean (b)
Total international net revenue
724
2017
December 31,
(in millions, except where otherwise noted)
Total net revenue (a)
Europe/Middle East/Africa
Client deposits and other third-party liabilities (average)(b)
108,765
$
129,389
121,733 $
63,796
80,840
77,344
44,969
48,549
44,389
5,895
6,515
6,189
15,385
17,192
$
174,477 $
162,846 $
154,654
464,770 $
$
Total client deposits and other third-party liabilities
170,902
North America
256,817
272,381 $
293,868 $
15,144
$
25,490
26,668
373
Latin America/Caribbean
76,673
82,867
90,364
Asia-Pacific
Total international
152,094
23,689
$
4,313
5,077
11,590
$
12,260
$
11,718
5,330
Total net revenue
North America
Total international net revenue
Latin America/Caribbean
Asia-Pacific
2017 (c)
2018 (c)
2019
$
Europe/Middle East/Africa
1,549
1,473
1,232
18,597
23,056
$
Total loans retained
North America
Total international loans
Latin America/Caribbean
Asia-Pacific
Europe/Middle East/Africa
24,842 $
Loans retained (period-end)(a)
36,448 $
38,298 $
$
17,522
17,638
19,701
17,135
18,810
34,657
Fixed income
$
$
2,890
client advisors
Number of Wealth Management
22,975
23,920
24,191
Headcount
26
26
26
Asset & Wealth Management
30
26
26
Wealth Management
22
26
2,865
26
2,605
Net income was $2.8 billion, a decrease of 1%.
Selected metrics
• Percentage of mutual fund assets under management in funds
ranked in the 1st or 2nd quartile (one, three and five years): All
quartile rankings, the assigned peer categories and the asset values
used to derive this analysis are sourced from the fund ranking
providers mentioned in footnote (b). Quartile rankings are done on
the net-of-fee absolute return of each fund. The data providers re-
denominate the asset values into U.S. dollars. This % of AUM is based
on fund performance and associated peer rankings at the share class
level for U.S. domiciled funds and at the "primary share class" level or
fund level for all other funds. The “primary share class", as defined by
Morningstar, denotes the share class recommended as being the best
proxy for the portfolio and in most cases will be the most retail
version (based upon annual management charge, minimum
investment, currency and other factors). Where peer group rankings
given for a fund are in more than one “primary share class" territory
both rankings are included to reflect local market competitiveness.
The performance data could have been different if all funds/accounts
would have been included. Past performance is not indicative of
future results.
Percentage of mutual fund assets under management in funds
rated 4- or 5-star: Mutual fund rating services rank funds based on
their risk-adjusted performance over various periods. A 5-star rating
is the best rating and represents the top 10% of industry-wide ranked
funds. A 4-star rating represents the next 22.5% of industry-wide
ranked funds. A 3-star rating represents the next 35% of industry-
wide ranked funds. A 2-star rating represents the next 22.5% of
industry-wide ranked funds. A 1-star rating is the worst rating and
represents the bottom 10% of industry-wide ranked funds. The
"overall Morningstar rating" is derived from a weighted average of the
performance associated with a fund's three-, five- and ten-year (if
applicable) Morningstar Rating metrics. For U.S. domiciled funds,
separate star ratings are given at the individual share class level. The
Nomura "star rating" is based on three-year risk-adjusted
performance only. Funds with fewer than three years of history are
not rated and hence excluded from this analysis. All ratings, the
assigned peer categories and the asset values used to derive this
analysis are sourced from these fund rating providers mentioned in
footnote (a). The data providers re-denominate the asset values into
U.S. dollars. This % of AUM is based on star ratings at the share class
level for U.S. domiciled funds, and at a "primary share class" level to
represent the star rating of all other funds except for Japan where
Nomura provides ratings at the fund level. The "primary share class",
as defined by Morningstar, denotes the share class recommended as
being the best proxy for the portfolio and in most cases will be the
most retail version (based upon annual management charge,
minimum investment, currency and other factors). The performance
data could have been different if all funds/accounts would have been
included. Past performance is not indicative of future results.
•
Asset Management has two high-level measures of its
overall fund performance.
Retail clients include financial intermediaries and individual investors.
Institutional clients include both corporate and public institutions,
endowments, foundations, nonprofit organizations and governments
worldwide.
Private Banking clients include high- and ultra-high-net-worth
individuals, families, money managers, business owners and small
corporations worldwide.
AWM's client segments consist of the following:
Wealth Management offers investment advice and wealth
management, including investment management, capital markets and
risk management, tax and estate planning, banking, lending and
specialty-wealth advisory services.
Asset Management provides comprehensive global investment
services, including asset management, pension analytics, asset-liability
management and active risk-budgeting strategies.
AWM's lines of business consist of the following:
JPMorgan Chase & Co./2019 Form 10-K
74
Noninterest expense was $10.5 billion, an increase of 2%,
predominantly driven by investments in the business as well
as volume- and revenue-related expenses.
The provision for credit losses was $61 million, up from
$53 million in the prior year, reflecting higher net-charge
offs, as well as net additions to the allowance for loan
losses, predominantly due to loan growth.
Net revenue was $14.3 billion, an increase of 2%. Net
interest income was $3.5 billion, down 1%, driven by
deposit margin compression, predominantly offset by loan
and deposit growth. Noninterest revenue was $10.8 billion,
up 3%, driven by higher net investment valuation gains and
growth in fees on higher average market levels, partially
offset by a shift in the mix toward lower fee products.
Revenue from Asset Management was $7.3 billion, up 1%,
driven by higher investment valuation gains. The impact on
fees from higher average market levels was more than
offset by a shift in the mix toward lower fee products.
Revenue from Wealth Management was $7.1 billion, up 2%,
driven by loan and deposit growth, growth in fees on the
cumulative impact of net inflows and higher average market
levels and brokerage activity, largely offset by deposit
margin compression.
2019 compared with 2018
Asset Management
Pre-tax margin ratio:
74
907
Income tax expense
3,578
3,670
3,740
Income before income tax expense
10,218
10,353
10,515
Total noninterest expense
4,901
4,858
4,810
Noncompensation expense
5,317
5,495
5,705
817
1,241
Net income
$ 2,833
74
73
Overhead ratio
25%
31%
26%
Return on common equity
Financial ratios
As of or for the year ended
December 31,
6,578
$13,835
$14,316
Total net revenue
7,062
Wealth Management
$ 7,254
Asset Management
Revenue by line of business
$ 2,853 $ 2,337
$ 7,163 $ 7,257
6,913
$14,076
(in millions, except ranking
data and ratios)
% of JPM mutual fund assets
rated as 4- or 5-star (a)
% of JPM mutual fund assets
ranked in 1st or 2nd
10,500
Equity
148,982
137,272
140,118
Deposits
123,464
138,622
149,655
Core loans
123,464
138,622
$ 144,206
$ 160,269
$170,764
149,655
Loans
Total assets
9,000
9,000
Credit data and quality
statistics (c)
Net charge-offs
Nonaccrual loans
Total allowance for credit
losses
10
16
19
290
326
354
Allowance for loan losses
Allowance for lending-
related commitments
Selected balance sheet data
(average)(c)
Allowance for credit losses:
263
116
14
$
10
$
31
$
375
Compensation expense
9,000
10,500
58%
75
77
271
59
61%
2018
2019
Equity
Core loans
Deposits
Loans
Total assets
Selected balance sheet data
(period-end)(c)
5 years
3 years
1 year
quartile:(b)
2017
60%
68
64
146,407
138,546
147,804
130,640
147,632
160,535
130,640
147,632
9,000
160,535
$ 170,024
$182,004
83
85
73
80 m 10
11
75
$ 151,909
160 $ 53
Noninterest expense
53
98,297
100,088
1,110
992
Other(a)
101,951
Commercial Real Estate
Banking (a)
300
254
293
2,558
2,682
2,780
Allowance for loan losses
Allowance for lending-related
commitments
46,963
48,343
51,165
Corporate Client Banking
Total allowance for credit losses
620
3,073
2,858
415
525
558
nonaccrual loans retained(a)
Allowance for loan losses to
Selected balance sheet data
(average)
1.26
1.31
1.34
0.02%
0.03%
0.08%
Net charge-off/(recovery) rate (b)
Allowance for loan losses to
period-end loans retained
$ 203,686
$ 208,296 $ 206,197
Total Commercial Banking
loans
1,461
2,936
513
523
Total nonperforming assets
Allowance for credit losses:
loans at fair value
Nonaccrual loans held-for-sale
Loans held-for-sale and
617
511
498
Nonaccrual loans retained(a)
202,400
204,219
207,287
Loans retained
Nonaccrual loans:
Loans:
Nonperforming assets
$ 220,514 $ 220,229 $ 221,228
Total assets
39
1,009
Total loans
$ 208,296
Core loans
$ 54,188 $ 56,656 $ 56,965
Period-end loans by client
segment
Middle Market Banking
3
2
25
satisfactions
20,000
$ 218,896 $ 218,259 $ 217,047
Assets acquired in loan
511
498
and loans at fair value
Total nonaccrual loans
$ 203,686
203,469
1,286
1,978
$ 206,197
206,039
20,000
208,181
22,000
Equity
617
Nonaccrual loans to period-end
total loans
0.24
0.25
Selected income statement data
Asset & Wealth Management, with client assets of $3.2
trillion, is a global leader in investment and wealth
management. AWM clients include institutions, high-
net-worth individuals and retail investors in major
markets throughout the world. AWM offers investment
management across most major asset classes including
equities, fixed income, alternatives and money market
funds. AWM also offers multi-asset investment
management, providing solutions for a broad range of
clients' investment needs. For Wealth Management
clients, AWM also provides retirement products and
services, brokerage and banking services including
trusts and estates, loans, mortgages and deposits. The
majority of AWM's client assets are in actively managed
portfolios.
ASSET & WEALTH MANAGEMENT
Management's discussion and analysis
73
JPMorgan Chase & Co./2019 Form 10-K
(a) Effective in the first quarter of 2019, client segment data includes
Commercial Real Estate Banking which comprises the former
Commercial Term Lending and Real Estate Banking client segments,
and Community Development Banking (previously part of Other). The
prior period amounts have been revised to conform with the current
period presentation.
10,061
11,042
11,629
Debt underwriting (a)
Headcount
$ 205,501 $ 198,112
$ 207,919
Total Commercial Banking
loans
1,563
1,386
Year ended December 31,
2019
2018
2017
61
Provision for credit losses
$ 9,856
600
10,456
3,379
13,835
3,537
14,076
14,316
Total net revenue
3,500
Net interest income
985
$10,212 $10,171
368
10,539
Noninterest revenue
604
All other income
and commissions
Asset management, administration
Revenue
and headcount)
(in millions, except ratios
10,816
39
Other(a)
99,243
Core loans
$ 207,919
Total loans
was held against nonaccrual loans retained at December 31, 2019,
2018 and 2017, respectively.
909
1,258
1,082
loans at fair value
Loans held-for-sale and
(a) Allowance for loan losses of $114 million, $92 million and $92 million
197,203
204,243
206,837
Loans retained
Loans:
Total assets
0.30
207,787
205,320
$ 205,501 $ 198,112
197,846
(b) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
100,884
Commercial Real Estate
Banking (a)
46,037
47,780
50,360
Corporate Client Banking
57,092 $ 55,474
$ 55,690 $
95,038
Middle Market Banking
20,000
20,000
22,000
Equity
177,018
170,901
172,734
Client deposits and other
third-party liabilities
Average loans by client
segment
Assets under management
29,027
342
Year ended December 31,
(in billions)
Assets under management
2019
2018
2017
rollforward
Beginning balance
Net asset flows:
$
1,987 $ 2,034 $ 1,771
Liquidity
60
31
9
Fixed income
106
(1)
36
Client assets (continued)
Equity
(a) Represents assets under management, as well as client balances in
brokerage accounts.
3,226 $ 2,733 $ 2,789
Private Banking
$
1,504 $
1,274 $
1,256
Total client assets
$
3,226 $ 2,733 $
2,789
Institutional
1,099
Retail
623
946
513
990
(a) Regional revenue is based on the domicile of the client.
543
Total client assets
$
(b) The prior period amounts have been revised to conform with the
current period presentation.
1,969
(10)
(11)
93
(144)
243
$
3,226 $
2,733 $ 2,789
JPMorgan Chase & Co./2019 Form 10-K
3,233
10,100
$
13,498
2019
Client deposits and other third party liabilities (average) (b)
Total AUC
Other(a)
Fixed Income
Assets under custody ("AUC") by asset class (period-end) (in billions):
(in millions, except where otherwise noted)
December 31,
88
2
178
315
$ 2,733 $ 2,789 $
Multi-asset and alternatives
4
24
43
Market/performance/other impacts
217
(103)
186
Ending balance, December 31
$
2,364 $ 1,987 $
2,034
Client assets rollforward
Beginning balance
Net asset flows
Market/performance/other impacts
Ending balance, December 31
76
16
2,453
As of or for the year ended
1,942
North America
62
51
51
Custody/brokerage/
administration/deposits
862
746
755
Total international assets under
management
682
580
605
Total client assets
$
3,226 $
2,733 $
2,789
North America
1,682
Latin America/Caribbean (b)
1,407
2,034
2,364
464
474
Equity
474
384
428
Europe/Middle East/Africa (b)
$
428 $ 366 $
393
Multi-asset and alternatives
746
659
Asia-Pacific (b)
192
163
161
673
Total assets under management
1,987
2,287
1,429
Total assets under management
1,074
926
968
Latin America/Caribbean (b)
147
125
124
Retail
618
509
540
Total international client assets
939
791
820
Total assets under management $
2,364 $
1,987 $
2,034
Institutional
Memo:
230
272
$
2,364 $
1,987 $
2,034
Alternatives client assets (a)
185 $
171 $
166
Client assets
Assets by client segment
Private Banking
672 $
552 $
526
Europe/Middle East/Africa (b)
Asia-Pacific (b)
$
520 $
440 $
466
226
Selected metrics
Equity
69
13.4
1
7.1
2
9.0
1
9.4
1
9.0
2
8.9
2
9.4
2
8.4%
2
8.7% #
2
9.2% #
1
2
12.3
11.5
1
9.3
1
Management's discussion and analysis
1
10.1
1
11.1
2
11.2
1
12.0
1
7.8
1
7.2
1
7.8
1
1
12.8
#
Rank
JPMorgan Chase & Co./2019 Form 10-K
68
(a) Represents long-term debt and loan syndications.
7,356
$
7,473
7,575 $
$
Total investment banking fees
3,738
3,280
3,532
1,468
2,150
2,509 $
1,684
1,666
2,377 $
2017
2018
League table results - wallet share
Share
Year ended
December 31,
M&A(b)
Share
Rank
Share
Rank
2017
2018
2019
Global investment banking fees(e)
U.S.
Global
Loan syndications
U.S.
Global
Long-term debt(d)
U.S.
Global
Equity and equity-related (c)
U.S.
Global
Based on fees (a)
1
9.7
1
1,635
390
2,204
1,794
22
7,388
(500)
6,888 $
$ 12,706 $
3,587
9,119
410
952
2,182
8
880
7,529 17,792
(1,035) 3,120
6,494 $ 20,912
$ 14,418 $
Total net revenue
4,155
Net interest income (a)
10,263
12.3
872
All other income
1,775
407
2,025
administration and commissions
974
16,507
(21)
JPMorgan Chase & Co./2019 Form 10-K
(b) Loss days represent the number of days for which Markets posted losses. The loss days determined under this measure differ from the disclosure of daily
market risk-related gains and losses for the Firm in the value-at-risk ("VaR”) back-testing discussion on pages 121-123.
(a) The decline in Markets net interest income in 2018 was driven by higher funding costs.
4
5
1
Loss days(b)
18,515
5,703 $
12,812 $
$
19,594
4,630
228
4,402
3,087
415
13,885
5,475
8,410
436
602
Noninterest revenue
Total
Markets
Year ended December 31,
(in millions, except where
2017
2018
Asset management,
For the periods presented below, the predominant source of
principal transactions revenue was the amount recognized
upon executing new transactions.
client demand, and changes in the fair value of instruments
used by the Firm to actively manage the risk exposure
arising from such inventory. Principal transactions revenue
recognized upon executing new transactions with market
participants is driven by many factors including the level of
client activity, the bid-offer spread (which is the difference
between the price at which a market participant is willing
and able to sell an instrument to the Firm and the price at
which another market participant is willing and able to buy
it from the Firm, and vice versa), market liquidity and
volatility. These factors are interrelated and sensitive to the
same factors that drive inventory-related revenue, which
include general market conditions, such as interest rates,
foreign exchange rates, credit spreads, and equity and
commodity prices, as well as other macroeconomic
conditions.
Principal transactions reflects revenue on financial
instruments and commodities transactions that arise from
client-driven market-making activity. Principal transactions
revenue includes amounts recognized upon executing new
transactions with market participants, as well as "inventory-
related revenue", which is revenue recognized from gains
and losses on derivatives and other instruments that the
Firm has been holding in anticipation of, or in response to,
The following table summarizes select income statement
data for the Markets businesses. Markets includes both
Fixed Income Markets and Equity Markets. Markets revenue
comprises principal transactions, fees, commissions and
other income, as well as net interest income. The Firm
assesses its Markets business performance on a total
revenue basis, as offsets may occur across revenue line
items. For example, securities that generate net interest
income may be risk-managed by derivatives that are
recorded in principal transactions revenue. Refer to Notes 6
and 7 for a description of the composition of these income
statement line items.
Fixed
Markets revenue
8.1%
1
8.6% #
1
9.0% #
1
#
10.9
(a) Source: Dealogic as of January 2, 2020. Reflects the ranking of revenue wallet and market share.
(b) Global M&A excludes any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S.
(c) Global equity and equity-related ranking includes rights offerings and Chinese A-Shares.
(d) Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities ("ABS") and
mortgage-backed securities ("MBS"); and exclude money market, short-term debt, and U.S. municipal securities.
(e) Global investment banking fees exclude money market, short-term debt and shelf deals.
otherwise noted)
2019
Equity
Markets
Equity
Markets
7,393 $ 3,855 $ 11,248
6
197
191
203
6
Income
Markets
197
205
7
Lending- and deposit-related fees
$
198
$
Principal transactions
Fixed
Income
Markets
Total
Markets
Equity
Markets
Markets
Fixed
Income
Total
Markets
8,786 $ 5,739 $ 14,525 $ 7,560 $ 5,566 $ 13,126
2017
(461) $
$
Principal transactions
Revenue
2018
(426) $
(in millions, except headcount)
Year ended December 31,
Selected income statement and balance sheet data
The Corporate segment consists of Treasury and Chief
Investment Office and Other Corporate, which includes
corporate staff functions and expense that is centrally
managed. Treasury and CIO is predominantly
responsible for measuring, monitoring, reporting and
managing the Firm's liquidity, funding, capital,
structural interest rate and foreign exchange risks. The
major Other Corporate functions include Real Estate,
Technology, Legal, Corporate Finance, Human
Resources, Internal Audit, Risk Management,
Compliance, Control Management, Corporate
Responsibility and various Other Corporate groups.
CORPORATE
(c) The Firmwide Risk Committee escalates significant issues directly to the Board Risk Committee as appropriate
(d) As applicable
2019
284
The Firm's Operating Committee, which consists of the
Firm's CEO, CRO, CFO and other senior executives, is
accountable to and may refer matters to the Firm's Board of
Directors. The Operating Committee is responsible for
escalating to the Board the information necessary to
facilitate the Board's exercise of its duties.
(losses)
Governance Forum
Valuation
Asset and Liability
Committee
Firmwide
Chief Risk
Officer
Head of Human
Resources
Head of
Corporate
Responsibility
Chief Information
Officer
General
Counsel
Chief Financial
Officer
Line of
Business CEOs (b)
Chief Executive Officer
Operating Committee
Other Board Committees (a)
Board Risk Committee
Board of Directors
The chart below illustrates the Board of Directors' and key senior management-level committees in the Firm's risk governance
structure. In addition, there are other committees, forums and paths of escalation that support the oversight of risk which are
not shown in the chart below or described in this Form 10-K.
Asset & Wealth
Management
Risk Committee
The independent status of the IRM function is supported by a governance structure that provides for escalation of risk issues to
senior management, the FRC, and the Board of Directors, as appropriate.
Commercial Banking
Risk Committee
Firmwide Risk
Committee(c)
JPMorgan Chase & Co./2019 Form 10-K
(a) Other Board Committees include the Compensation & Management Development Committee, Corporate Governance & Nominating Committee and Public Responsibility Committee
(b) The LOB CEOS for Corporate & Investment Bank and Consumer & Community Banking are also the firm's Co-Presidents and Co-Chief Operating Officers;
the CEO for Consumer Lending reports to the CEO for Consumer & Community Banking and is also a member of the Operating Committee
Conduct Risk Steering
Committee
Firmwide Control
Committee
Firmwide
Estimations Risk
Committee
Firmwide Fiduciary
Risk Governance
Committee
Line of Business, Corporate and Regional Control Committees
(d)
Line of Business Reputation Risk Committees
Line of Business Estimations Risk Committees (d)
Line of Business Fiduciary Risk Committees (d)
Regional Risk
Committees
Risk Committee
CIO, Treasury &
Corporate
Corporate &
Investment Bank
Risk Committee
Consumer &
Community Banking
Risk Committee
Internal
Audit
Audit Committee
86
Risk governance and oversight structure
80
Impacts of Risks
Consequences of
risks, both
quantitative and
qualitative
Types of Risks
Categories
Drivers of Risks
Factors that
cause a risk
to exist
119-126
Market risk
118
108-115
103-107
99
93-98
85-92
84
Page
Consumer credit risk
Wholesale credit risk
Investment portfolio risk
Capital risk
Liquidity risk
Reputation risk
Risk governance and oversight functions
Strategic risk
The following sections discuss the risk governance and
oversight functions in place to manage the risks inherent in
the Firms business activities.
by which risks
manifest themselves
JPMorgan Chase & Co./2019 Form 10-K
Drivers of Risks are factors that cause a risk to exist. Drivers
of risks include the economic environment, regulatory and
government policy, competitor and market evolution,
business decisions, process and judgment error, deliberate
wrongdoing, dysfunctional markets, and natural disasters.
Types of Risks are categories by which risks manifest
themselves. Risks are generally categorized in the following
four risk types:
Strategic risk is the risk to earnings, capital, liquidity or
reputation associated with poorly designed or failed
business plans or inadequate response to changes in the
operating environment.
The Firm's overall appetite for risk is governed by a “Risk
Appetite" framework. The framework and the Firm's risk
appetite are set and approved by the Firm's CEO, Chief
Financial Officer ("CFO") and CRO. Quantitative parameters
and qualitative factors are used to monitor and measure the
Firm's capacity to take risk consistent with its stated risk
appetite. Qualitative factors have been established to assess
select operational risks that impact the Firm's reputation.
Risk Appetite results are reported to the Board Risk
Committee.
Risk appetite
Each LOB and Corporate area owns the ongoing
identification of risks, as well as the design and execution of
controls, inclusive of IRM-specified controls, to manage
those risks. To support this activity, the Firm has a risk
identification process designed to facilitate their
responsibility to identify material risks inherent to the Firm,
catalog them in a central repository and review the most
material risks on a regular basis. The IRM function reviews
and challenges the LOB and Corporate's identification of
risks, maintains the central repository and provides the
consolidated Firmwide results to the Firmwide Risk
Committee ("FRC") and Board Risk Committee.
Risk identification and ownership
In addition, there are other functions that contribute to the
Firmwide control environment including Finance, Human
Resources, Legal and Control Management.
The Internal Audit function operates independently from
other parts of the Firm and performs independent testing
and evaluation of processes and controls across the Firm as
the "third line of defense." The Internal Audit Function is
headed by the General Auditor, who reports to the Audit
Committee and administratively to the CEO.
The IRM function is independent of the businesses and is
the Firm's "second line of defense." The IRM function sets
and oversees the risk management structure for Firmwide
risk governance, and independently assesses and challenges
the first line of defense risk management practices. IRM is
also responsible for its own adherence to applicable laws,
rules and regulations and for the implementation of policies
and standards established by IRM with respect to its own
processes.
to applicable laws, rules and regulations and for the
implementation of the risk management structure (which
may include policy, standards, limits, thresholds and
controls) established by IRM.
Management's discussion and analysis
79
JPMorgan Chase & Co./2019 Form 10-K
The Firm relies upon each of its LOBS and Corporate areas
giving rise to risk to operate within the parameters
identified by the IRM function, and within its own
management-identified risk and control standards. Each
LOB and Treasury & CIO, including their aligned Operations,
Technology and Control Management are the Firm's "first
line of defense" and own the identification of risks, as well
as the design and execution of controls to manage those
risks. The first line of defense is responsible for adherence
Three lines of defense
The Firm's risk governance and oversight framework is
managed on a Firmwide basis. The Firm has an Independent
Risk Management ("IRM") function, which consists of the
Risk Management and Compliance organizations. The Chief
Executive Officer ("CEO") appoints, subject to approval by
the Risk Committee of the Board ("Board Risk Committee"),
the Firm's Chief Risk Officer ("CRO") to lead the IRM
organization and manage the risk governance structure of
the Firm. The framework is subject to approval by the Board
Risk Committee in the form of the primary risk management
policies. The Firm's CRO oversees and delegates authorities
to LOB CROS, Firmwide Risk Executives ("FRES"), and the
Firm's Chief Compliance Officer ("CCO"), who each establish
Risk Management and Compliance organizations, set the
Firm's risk governance policies and standards, and define
and oversee the implementation of the Firm's risk
governance. The LOB CROS are responsible for risks that
arise in their LOBS, while FRES oversee risk areas that span
across the individual LOB, functions and regions.
Impacts of Risks are consequences of risks, both
quantitative and qualitative. There may be many
consequences of risks manifesting, such as a reduction in
earnings and capital, liquidity outflows, and fines or
penalties, or qualitative impacts such as reputation
damage, loss of clients and customers, and regulatory and
enforcement actions.
Market risk is the risk associated with the effect of
changes in market factors, such as interest and foreign
exchange rates, equity and commodity prices, credit
spreads or implied volatilities, on the value of assets and
liabilities held for both the short and long term.
Operational risk is the risk associated with an adverse
outcome resulting from inadequate or failed internal
processes or systems; human factors; or external events
impacting the Firm's processes or systems; it includes
compliance, conduct, legal, and estimations and model
risk.
Credit and investment risk is the risk associated with the
default or change in credit profile of a client,
counterparty or customer; or loss of principal or a
reduction in expected returns on investments, including
consumer credit risk, wholesale credit risk, and
investment portfolio risk.
•
The Firm manages its risk through risk governance and
oversight functions. The scope of a particular function may
include one or more drivers, types and/or impacts of risk.
For example, Country Risk Management oversees country
risk which may be a driver of risk or an aggregation of
exposures that could give rise to multiple risk types such as
credit or market risk.
98
Key Regulatory Developments
•
•
JPMorgan Chase & Co./2019 Form 10-K
Retain flexibility to take advantage of future investment
opportunities;
Maintain sufficient capital in order to continue to build
and invest in the Firm's businesses through the cycle and
in stressed environments;
•
•
Treasury & CIO is responsible for capital management.
The primary objectives of effective capital management are
to:
Capital management
In addition, the Basel Independent Review function ("BIR"),
which is a part of the IRM function, conducts independent
assessments of the Firm's regulatory capital framework.
These assessments are intended to ensure compliance with
the applicable regulatory capital rules in support of senior
management's responsibility for managing capital and for
the Board Risk Committee's oversight of management in
executing that responsibility.
Performing an independent assessment of the Firm's
capital management activities, including changes made
to the contingency capital plan described below.
Defining, monitoring and reporting capital risk metrics;
Establishing, calibrating and monitoring capital risk
limits and indicators, including capital risk appetite;
Developing a process to classify, monitor and report
limit breaches; and
•
•
•
•
Capital Management Oversight's responsibilities include:
•
The Firm has a Capital Management Oversight function
whose primary objective is to provide independent
assessment, measuring, monitoring and control of capital
risk across the Firm.
Promote the Firm's ability to serve as a source of
strength to its subsidiaries;
capital ratios as well as maintain “well-capitalized"
status for the Firm and its insured depository institution
("IDI") subsidiaries at all times under applicable
Investment securities gains/
Annually, the Firm prepares the ICAAP, which informs the
Board of Directors of the ongoing assessment of the Firm's
processes for managing the sources and uses of capital as
well as compliance with supervisory expectations for capital
planning and capital adequacy. The Firm's ICAAP integrates
stress testing protocols with capital planning.
Internal Capital Adequacy Assessment Process
On June 27, 2019, the Federal Reserve informed the Firm
that it did not object to the Firm's 2019 capital plan. Refer
to Capital actions on pages 90-91 for information on
actions taken by the Firm's Board of Directors following the
2019 CCAR results.
Management's discussion and analysis
85
The Federal Reserve requires large bank holding
companies, including the Firm, to submit on an annual basis
a capital plan that has been reviewed and approved by the
Board of Directors. The Federal Reserve uses
Comprehensive Capital Analysis and Review (“CCAR”) and
other stress testing processes to ensure that large bank
holding companies (“BHC”) have sufficient capital during
periods of economic and financial stress, and have robust,
forward-looking capital assessment and planning processes
in place that address each BHC's unique risks to enable it to
absorb losses under certain stress scenarios. Through CCAR,
the Federal Reserve evaluates each BHC's capital adequacy
and internal capital adequacy assessment processes
("ICAAP"), as well as its plans to make capital distributions,
such as dividend payments or stock repurchases.
Capital planning and stress testing
Comprehensive Capital Analysis and Review
Committees responsible for overseeing the Firm's capital
management include the Capital Governance Committee,
the Treasurer Committee and the Firmwide ALCO. Capital
management oversight is governed through the CIO,
Treasury and Corporate ("CTC") risk committee. In addition,
the Board Risk Committee periodically reviews the Firm's
capital risk tolerance. Refer to Firmwide Risk Management
on pages 79-83 for additional discussion on the Board Risk
Committee and the ALCO.
Governance
The Firm considers regulatory capital requirements as well
as an internal assessment of capital adequacy, in normal
economic cycles and in stress events, when setting its
minimum capital levels. The capital governance framework
requires regular monitoring of the Firm's capital positions,
stress testing and defining escalation protocols, both at the
Firm and material legal entity levels.
Capital risk management is intended to be flexible in order
to react to a range of potential events. In its management of
capital, the Firm takes into consideration economic risk and
all applicable regulatory capital requirements to determine
the level of capital needed.
The Firm addresses these objectives through establishing
internal minimum capital requirements and a strong capital
management governance framework, both in business as
usual conditions and in the event of stress.
throughout a resolution period in accordance with the
Firm's preferred resolution strategy.
Maintain sufficient capital resources to operate
Meet capital distribution objectives; and
regulatory capital requirements;
Ensure the Firm operates above the minimum regulatory
Effective January 1, 2020, the Firm adopted the Financial
Instruments - Credit Losses ("CECL") guidance under U.S.
GAAP. As provided by the U.S. banking agencies, the Firm
elected to phase-in the impact to retained earnings of $2.7
billion to regulatory capital, at 25 percent per year in each
of 2020 to 2023 ("CECL transitional period"). Based on the
Firm's capital as of December 31, 2019, the estimated
impact to the Standardized CET1 capital ratio will be a
reduction of approximately 4 bps for each transitional year.
Refer to Accounting and Reporting Developments on pages
139-140 and Note 1 for further information.
Capital management oversight
Capital risk is the risk the Firm has an insufficient level or
composition of capital to support the Firm's business
activities and associated risks during normal economic
environments and under stressed conditions.
Conduct risk
132
Compliance risk
129-135
Operational risk
127-128
Country risk
The CCAR and other stress testing processes assess the
potential impact of alternative economic and business
scenarios on the Firm's earnings and capital. Economic
scenarios, and the parameters underlying those scenarios,
are defined centrally and applied uniformly across the
businesses. These scenarios are articulated in terms of
macroeconomic factors, which are key drivers of business
results; global market shocks, which generate short-term
but severe trading losses; and idiosyncratic operational risk
events. The scenarios are intended to capture and stress
key vulnerabilities and idiosyncratic risks facing the Firm.
However, when defining a broad range of scenarios, actual
events can always be worse. Accordingly, management
considers additional stresses outside these scenarios, as
necessary. These results are reviewed by management and
the Board of Directors.
Contingency capital plan
The Firm's contingency capital plan establishes the capital
management framework for the Firm and specifies the
principles underlying the Firm's approach towards capital
management in normal economic conditions and during
stress. The contingency capital plan defines how the Firm
calibrates its targeted capital levels and meets minimum
capital requirements, monitors the ongoing appropriateness
of planned capital distributions, and sets out the capital
contingency actions that are expected to be taken or
considered at various levels of capital depletion during a
period of stress.
Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The Office of the Comptroller of
the Currency ("OCC”) establishes similar minimum capital
requirements for the Firm's IDI subsidiaries, including
JPMorgan Chase Bank, N.A. The U.S. capital requirements
generally follow the Capital Accord of the Basel Committee,
as amended from time to time.
Basel III Overview
The capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. BHCs and banks, including the
Firm and its IDI subsidiaries, including JPMorgan Chase
Bank, N.A. The minimum amount of regulatory capital that
must be held by BHCs and banks is determined by
calculating risk-weighted assets ("RWA"), which are on-
balance sheet assets and off-balance sheet exposures,
weighted according to risk. Two comprehensive approaches
are prescribed for calculating RWA: a standardized
approach ("Basel III Standardized"), and an advanced
approach ("Basel III Advanced"). Effective January 1, 2019,
the capital adequacy of the Firm is evaluated against the
fully phased-in measures under Basel III and represents the
lower of the Standardized or Advanced approaches. During
2018, the required capital measures were subject to the
transitional rules and as of December 31, 2018 the results
were the same on a fully phased-in and on a transitional
basis.
Basel III establishes capital requirements for calculating
credit risk RWA and market risk RWA, and in the case of
Basel III Advanced, operational risk RWA. Key differences in
the calculation of credit risk RWA between the Standardized
and Advanced approaches are that for Basel III Advanced,
credit risk RWA is based on risk-sensitive approaches which
largely rely on the use of internal credit models and
parameters, whereas for Basel III Standardized, credit risk
RWA is generally based on supervisory risk-weightings
which vary primarily by counterparty type and asset class.
Market risk RWA is calculated on a generally consistent
basis between Basel III Standardized and Basel III
Advanced. In addition to the RWA calculated under these
approaches, the Firm may supplement such amounts to
incorporate management judgment and feedback from its
regulators.
Basel III also includes a requirement for Advanced
Approach banking organizations, including the Firm, to
calculate the SLR. Refer to SLR on page 90 for additional
information.
133
A strong capital position is essential to the Firm's business
strategy and competitive position. Maintaining a strong
balance sheet to manage through economic volatility is
considered a strategic imperative of the Firm's Board of
Directors, CEO and Operating Committee. The Firm's
fortress balance sheet philosophy focuses on risk-adjusted
returns, strong capital and robust liquidity. The Firm's
capital risk management strategy focuses on maintaining
long-term stability to enable the Firm to build and invest in
market-leading businesses, including in highly stressed
environments. Senior management considers the
implications on the Firm's capital prior to making any
significant decisions that could impact future business
activities. In addition to considering the Firm's earnings
outlook, senior management evaluates all sources and uses
of capital with a view to ensuring the Firm's capital
strength.
Legal risk
Estimations and Model risk
CAPITAL RISK MANAGEMENT
JPMorgan Chase & Co./2019 Form 10-K
==
84
The Firm's balance sheet strategy, which focuses on risk-
adjusted returns, strong capital and robust liquidity, is also
a component in the management of strategic risk. Refer to
Capital Risk Management on pages 85-92 for further
information on capital risk. Refer to Liquidity Risk
Management on pages 93-98 for further information on
liquidity risk. In addition, for further information on
reputation risk, refer to Reputation Risk Management on
page 99.
These strategic initiatives, along with IRM's assessment, are
incorporated in the Firm's budget and provided to the Board
for review.
The Firm's strategic planning process, which includes the
development and execution of strategic initiatives, is one
component of managing the Firm's strategic risk. Guided by
the Firm's How We Do Business Principles (the "Principles"),
the Operating Committee and management teams in each
LOB and Corporate review and update the strategic plan
periodically. The process includes evaluating the high-level
strategic framework and performance against prior-year
initiatives, assessing the operating environment, refining
existing strategies and developing new strategies.
In addition, IRM conducts a qualitative assessment of the
LOB and Corporate strategic initiatives to assess their
impact on the risk profile of the Firm.
In the process of developing business plans and strategic
initiatives, LOB and Corporate leadership identify the
associated risks that are incorporated into the Firmwide
Risk Identification process and monitored and assessed as
part of the Firmwide Risk Appetite framework.
The Operating Committee and the senior leadership of each
LOB and Corporate are responsible for managing the Firm's
most significant strategic risks. Strategic risks are overseen
by IRM through participation in business reviews, LOB and
Corporate senior management committees and other
relevant governance forums and ongoing discussions. The
Board of Directors oversees management's strategic
decisions, and the Board Risk Committee oversees IRM and
the Firm's risk management framework.
Management and oversight
Strategic risk is the risk to earnings, capital, liquidity or
reputation associated with poorly designed or failed
business plans or inadequate response to changes in the
operating environment.
STRATEGIC RISK MANAGEMENT
Management's discussion and analysis
83
JPMorgan Chase & Co./2019 Form 10-K
135
134
Risk governance and oversight functions
Firmwide
The Firmwide Asset and Liability Committee ("ALCO") is
responsible for overseeing the Firm's asset and liability
management ("ALM") activities and the management of
liquidity risk, balance sheet, interest rate risk, and capital
risk. The ALCO is supported by the Treasurer Committee and
the Capital Governance Committee. The Treasurer
Committee is responsible for monitoring the Firm's overall
balance sheet, liquidity risk and interest rate risk. The
Capital Governance Committee is responsible for overseeing
and providing guidance concerning the effectiveness of the
Firm's capital framework, capital policies and regulatory
capital implementation.
(263)
1,085
Net interest income
1,325
135
55
Total net revenue (b)
1,211
(128)
1,140
Provision for credit losses
The Firmwide Valuation Governance Forum ("VGF") is
composed of senior finance and risk executives and is
responsible for overseeing the management of fair value
risks arising from valuation activities conducted across the
Firm.
(1)
(4)
Noninterest expense (c)
1,067
902
(114)
Noninterest revenue
867
558
JPMorgan Chase & Co./2019 Form 10-K
(d) Average core loans were $1.7 billion, $1.7 billion and $1.6 billion for the
years ended December 31, 2019, 2018 and 2017, respectively.
(c) Included a net legal benefit of $(214) million, $(241) million and $(593)
million for the years ended December 31, 2019, 2018 and 2017,
respectively.
(b) Included tax-equivalent adjustments, driven by tax-exempt income from
municipal bonds, of $314 million, $382 million and $905 million for the
years ended December 31, 2019, 2018 and 2017, respectively. The
decrease in taxable-equivalent adjustments for the year ended December
31, 2018, reflects the impact of the TCJA.
(a) Included revenue related to a legal settlement of $645 million for the year
ended December 31, 2017.
The current period included $1.1 billion of tax benefits
related to the resolution of certain tax audits. The prior year
expense reflected a net benefit of $302 million resulting
from changes in estimates under the TCJA related to the
remeasurement of certain deferred taxes and the deemed
repatriation tax on non-U.S. earnings, which was more than
offset by changes to certain tax reserves and other tax
adjustments.
The prior year included a pre-tax loss of $174 million on
the liquidation of a legal entity.
Noninterest expense of $1.1 billion was up $165 million
reflecting higher investments in technology and real estate,
and higher pension costs due to changes to actuarial
assumptions and estimates.
501
higher losses on cash deployment transactions which
were more than offset by the related net interest income
earned on those transactions.
market-driven impacts on certain Corporate investments,
Net revenue was $1.2 billion, compared with a net loss of
$128 million in the prior year driven by higher net interest
income and noninterest revenue. The increase in net
interest income was driven by balance sheet growth and
changes in mix, and also includes income related to the
unwind of the internal funding provided to CCB upon the
sale of certain mortgage loans. The income reflects the net
present value of that funding and is recognized as a charge
to net interest income in CCB. Refer to CCB on pages 62-65
and FTP on page 61 of this Form 10-K for further
information.
258
lower net markdowns on certain legacy private equity
investments,
(395)
(66)
All other income(a)
89
and
77
Income/(loss) before income
145
$ 1,111 $ (1,241) $ (1,643)
$837,618
$ 771,787 $ 781,478
1,649
1,597
1,653
1,649
1,597
1,653
38,033
37,145
34,601
2019 compared with 2018
investment securities gains, compared with losses in the
prior year, due to the repositioning of the investment
securities portfolio, and
•
•
Noninterest revenue increased reflecting:
60
(1,703)
1,394
(283)
(966)
1,111 $ (1,241) $ (1,643)
Headcount
Income tax expense/(benefit)
(1,026)
215
639
2,282
Net income/(loss)
$
Total net revenue
2,032
(821)
$ 1,211 $
tax expense/(benefit)
510
(638)
(128) $
(69)
(1,172)
Treasury and CIO
Other Corporate
Total net revenue
Net income/(loss)
Treasury and CIO
Other Corporate
Total net income/(loss)
Total assets (period-end)
Loans (period-end)
Core loans(d)
566
574
1,140
77
partially offset by
Treasury and CIO overview
Firmwide structures for risk governance.
and
Ownership of risk identification, assessment, data and
management within each of the LOBS and Corporate;
Acceptance of responsibility, including identification and
escalation of risk issues, by all individuals within the
Firm;
The Firm believes that effective risk management requires,
among other things:
Risk is an inherent part of JPMorgan Chase's business
activities. When the Firm extends a consumer or wholesale
loan, advises customers and clients on their investment
decisions, makes markets in securities, or offers other
products or services, the Firm takes on some degree of risk.
The Firm's overall objective is to manage its businesses, and
the associated risks, in a manner that balances serving the
interests of its clients, customers and investors and protects
the safety and soundness of the Firm.
FIRMWIDE RISK MANAGEMENT
•
•
JPMorgan Chase & Co./2019 Form 10-K
78
HTM investment securities
(period-end)
260,115 247,980
396,416
Investment securities portfolio
(period-end)
47,733
31,434
47,540
200,247
228,681
348,876
318,144 235,196 267,272
47,927
The Firm strives for continual improvement in its efforts to
enhance controls, ongoing employee training and
development, talent retention, and other measures. The
Firm follows a disciplined and balanced compensation
framework with strong internal governance and
independent oversight by the Board of Directors (the
"Board"). The impact of risk and control issues is carefully
considered in the Firm's performance evaluation and
incentive compensation processes.
Management's discussion and analysis
Risk governance and oversight framework
The Firm's risk governance and oversight functions align to:
JPMorgan Chase & Co./2019 Form 10-K
32
82
Line of Business Reputation Risk Committees review and
assess transactions, activities and clients that have the
potential for material reputation risk to the Firm.
Line of Business and Regional Risk Committees are
responsible for providing oversight of the governance,
limits, and controls that are in place through the scope of
their activities. These committees review the ways in which
the particular LOB or the business operating in a particular
region could be exposed to adverse outcomes with a focus
on identifying, accepting, escalating and/or requiring
remediation of matters brought to these committees.
Line of Business and Corporate Control Committees oversee
the control environment of their respective business or
function. As part of that mandate, they are responsible for
reviewing indicators of elevated or emerging risks and other
data that may impact the quality and stability of the
processes in a business or function, addressing key
operational risk issues, focusing on processes with control
concerns and overseeing control remediation.
The Conduct Risk Steering Committee ("CRSC") is responsible
for reviewing, calibrating and consolidating Firmwide
Conduct Risk Appetite and setting overall direction for the
Firm's Conduct Risk Program.
The Firmwide Estimations Risk Committee ("FERC") provides
oversight of the governance framework for quantitative and
qualitative estimations and models as specified in the
Estimations and Model Risk Management Policy. The FERC
also has responsibility to set the prioritization of
estimations and model risk activities and drive consistency
through review of LOB activities and escalated issues.
The Firmwide Fiduciary Risk Governance Committee
("FFRGC") provides oversight of the governance framework
for fiduciary risk or fiduciary-related conflict of interest risk
inherent in each of the Firm's LOBS. The FFRGC approves
risk or compliance policy exceptions and reviews periodic
reports from the LOBS and control functions including
fiduciary metrics and control trends.
The Firmwide Control Committee ("FCC") is an escalation
committee for senior management to review and discuss
the Firmwide operational risk environment including
identified issues, operational risk metrics and significant
events that have been escalated.
The Firmwide Risk Committee ("FRC") is the Firm's highest
management-level risk committee. It provides oversight of
the risks inherent in the Firm's businesses and serves as an
escalation point for risk topics and issues raised by
underlying committees and/or FRC members.
The Firm's senior management-level committees that are
primarily responsible for key risk-related functions include:
Management oversight
The Corporate Governance & Nominating Committee
exercises general oversight with respect to the governance
of the Board. The Committee evaluates and recommends to
the Board corporate governance practices applicable to the
Firm. It also appraises the framework for assessing the
Board's performance and self-evaluation.
The Public Responsibility Committee assists the Board in its
oversight of the Firm's positions and practices on public
responsibility matters such as community investment, fair
lending, sustainability, consumer practices and other public
policy issues that reflect the Firm's values and character
and could impact the Firm's reputation among all of its
stakeholders. The Committee also provides guidance on
these matters to management and the Board, as
appropriate.
The Compensation & Management Development Committee
("CMDC") assists the Board in its oversight of the Firm's
compensation principles and practices. The CMDC reviews
and approves the Firm's compensation and benefits
programs. In addition, the Committee reviews Operating
Committee members' performance against their goals, and
approves their compensation awards. The CMDC also
reviews the development of and succession for key
executives, and provides oversight of the Firm's culture,
including reviewing updates from management regarding
significant conduct issues and any related employee
actions, including compensation actions.
The Audit Committee assists the Board in its oversight of
management's responsibility to ensure that there is an
effective system of controls reasonably designed to
safeguard the Firm's assets and income, ensure the integrity
of the Firm's financial statements, and maintain compliance
with the Firm's ethical standards, policies, plans and
procedures, and with laws and regulations. It also assists
the Board in its oversight of the Firm's independent
registered public accounting firm's qualifications,
independence and performance, and of the performance of
the Firm's Internal Audit function.
The Board Risk Committee assists the Board in its oversight
of management's responsibility to implement a global risk
management framework reasonably designed to identify,
assess and manage the Firm's risks. The Board Risk
Committee's responsibilities include approval of applicable
primary risk policies and review of certain associated
frameworks, analysis and reporting established by
management. Breaches in risk appetite and parameters,
issues that may have a material adverse impact on the Firm,
including capital and liquidity issues, and other significant
risk-related matters are escalated to the Board Risk
Committee, as appropriate.
Management's discussion and analysis
81
JPMorgan Chase & Co./2019 Form 10-K
The JPMorgan Chase Bank, N.A. Board of Directors is
responsible for the oversight of management of the bank.
The JPMorgan Chase Bank, N.A. Board accomplishes this
function acting directly and through the principal standing
committees of the Firm's Board of Directors. Risk and
control oversight on behalf of JPMorgan Chase Bank N.A. is
primarily the responsibility of the Risk Committee and the
Audit Committee, respectively, and, with respect to
compensation and other management-related matters, the
Compensation & Management Development Committee.
The Firm's Board of Directors provides oversight of risk. The
Board Risk Committee is the principal committee that
oversees risk matters. The Audit Committee oversees the
control environment, and the Compensation & Management
Development Committee oversees compensation and other
management-related matters. Each committee of the Board
oversees reputational risks and conduct risks within its
scope of responsibility.
Board oversight
The Firm's risk management governance and oversight
framework involves understanding drivers of risks, types of
risks, and impacts of risks.
34,939
31,747
Investment securities portfolio
(average)
Treasury and CIO is predominantly responsible for
measuring, monitoring, reporting and managing the Firm's
liquidity, funding, capital, structural interest rate and
foreign exchange risks. The risks managed by Treasury and
CIO arise from the activities undertaken by the Firm's four
major reportable business segments to serve their
respective client bases, which generate both on- and off-
balance sheet assets and liabilities.
Treasury and CIO seek to achieve the Firm's asset-liability
management objectives generally by investing in high-
quality securities that are managed for the longer-term as
part of the Firm's investment securities portfolio. Treasury
and CIO also use derivatives to meet the Firm's asset-
liability management objectives. Refer to Note 5 for further
information on derivatives. In addition, Treasury and CIO
manage the Firm's cash position primarily through deposits
at central banks and investments in short-term instruments.
Refer to Liquidity Risk Management on pages 93-98 for
further information on liquidity and funding risk. Refer to
Market Risk Management on pages 119-126 for
information on interest rate, foreign exchange and other
risks.
The investment securities portfolio primarily consists of U.S.
GSE and government agency and nonagency mortgage-
backed securities, U.S. and non-U.S. government securities,
obligations of U.S. states and municipalities, other ABS and
corporate debt securities. At December 31, 2019, the
investment securities portfolio was $396.4 billion, and the
average credit rating of the securities comprising the
portfolio was AA+ (based upon external ratings where
available and, where not available, based primarily upon
internal risk ratings. Refer to Note 10 for further
information on the investment securities portfolio and
internal risk ratings.
Selected income statement and balance sheet data
As of or for the year ended
December 31, (in millions)
2019
2018
2017
Investment securities gains/
(losses)
$
258
AFS investment securities
(period-end)
(395) $
$
Net Income was $1.1 billion compared with a net loss of
$1.2 billion in the prior year.
(78)
Available-for-sale ("AFS")
(average)
283,205
203,449
investment securities
219,345
Held-to-maturity ("HTM")
investment securities
(average)
$57
119
Loans ($B) 30
Asset & Wealth
Management
$282
$218
$187
$30
206
Client assets ($T) 30
$52
$1.3
$1.9
183
$3.7
$4.3
Traditional assets ($T) 30, 31
$1.2
$1.6
$3.2
$3.7
Alternatives assets ($B) 30, 32
146
$100
$157
$282
$353
Deposits ($B) 30
$124
$199
36
■18 specialized industry coverage teams
■#1 overall Middle Market Bookrunner in the U.S.27
■Over 100,000 affordable housing units financed
in 202128
$5.0
$6.1
$9.6
$10.3
Firmwide Payments revenue rank
(share)17
NA
ΝΑ
#1 (6.7%) #1 (7.2%)
Firmwide Payments revenue ($B)
■>90% of Fortune 500 companies do business
with us
Consistently ranked #1 in Markets revenue
since 201115
■J.P. Morgan Research ranked as the #1 Global
Research Firm, #1 Global Equity Research Team
and #1 Global Fixed Income Research Team¹9
■#1 in USD payments volume20
#1 in U.S. Merchant transaction processing²¹
■■■#2 custodian globally²²
Daily payment processing (T) 18
ΝΑ
ΝΑ
>$8
>$9
Average daily security purchases
■Presence in over 100 markets globally
■#1 in global investment banking fees for the
13th consecutive year¹4
and sales ($T)
$715
$319
#8
#3
CO-#1
# of Global Private Bank client
advisors 30
co-#1
Corporate &
Market share15
5.0%
7.6%
$611
12.2%
Investment
Bank
Assets under custody ($T)
$13.9
$16.9
$31.0
$33.2
Average client deposits ($B) 16
$190
11.5%
Mutual Funds with a 4/5-star rating29
ΝΑ
$2.7
$301.5
■Credit, banking, and treasury services to
Commercial
Gross investment banking revenue ($B) 24
$0.7
$1.4
$3.3
$5.1
Banking
$237.8
Payments revenue ($B) 25
$1.1
$1.5
$1.8
Multifamily lending26
#28
#1
#1
#1
~23K Commercial & Industrial clients and ~32K
real estate owners and investors
$0.9
NA
$174.7
Average deposits ($B) 23
$2.9
# of top 75 MSAs with dedicated teams
49
# of bankers
1,203
1,108
66
2,020
66
2,254
■140 locations across the U.S. and 32 international
locations, with 27 new markets since 2018
$73.6
New relationships (gross)
ΝΑ
1,856
2,579
Average loans ($B)
$53.6
$104.2
$218.9
$205.0
■$1B revenue from Middle Market expansion
markets, up 34% YoY
ΝΑ
1,506
Total stockholders' equity
2,462
$ 997,620
$1,012,853
3,384,757
2,144,257
2,462,303
Deposits
3,743,567
Total assets (a)
$1,077,714
Loans
Selected balance sheet data (period-end)
16.0
17.3
16.8
Total capital ratio (d)
2,686,477
14.1
15.0
Tier 1 capital ratio (d)
12.4
13.1
13.1
Common equity Tier 1 capital ratio (d)
116
110
111
Liquidity coverage ratio (average) (c)
19
14
23
15.0
Return on tangible common equity (ROTCE)(b)
Common stockholders' equity
259,289
294,127
(d) Refer to Capital Risk Management on pages 86-96 for additional information on these measures.
(c) Refer to Liquidity Risk Management on pages 97-104 for additional information on this measure.
(b) Pre-provision profit, TBVPS and ROTCE are each non-GAAP financial measures. Refer to Explanation and Reconciliation of the
Firm's Use of Non-GAAP Financial Measures on pages 58-60 for additional information on these measures.
(a) Prior-period amounts have been revised to conform with the current presentation. Refer to the Income Taxes footnote on pages
277-279 for further information.
256,981
255,351
271,025
Headcount
3,084.0
3,049.4
2,944.1
Common shares at period-end
429,913
Equities15
387,492
Market capitalization
139.40
$
127.07
$
$ 158.35
Closing share price
Market data
261,330
279,354
234,337
1,562,431
249,291
466,206
15%
12%
19%
■Positive client asset flows across all regions,
behind BlackRock 35
■86% of 10-year JPMAM long-term mutual fund
AUM performed above peer median34
■■Business with 60% of the world's largest pension
funds, sovereign wealth funds and central banks
■■#2 in 5-year cumulative net client asset flows
8
For footnoted information, refer to page 47 in this Annual Report.
MSAS Metropolitan statistical areas
FICC = Fixed income, currencies and commodities
EOP End of period
K = Thousands
YOY Year-over-year
T = Trillions
USD U.S. dollar
B = Billions
segments and products
PPP = Paycheck Protection Program
AUM = Assets under management
NA Not available
NM = Not meaningful
#1
#1
#1
#1
#1
#2
#4
#7
Global Private Bank (Euromoney)33
U.S. Private Bank (Euromoney) 33
2,738
M = Millions
■$58B in Alternatives fundraising
■#2 in Institutional Money Market Funds AUM36
■■60% of Asset Management AUM managed by
female and/or diverse portfolio managers³7
$
Return on common equity
Selected ratios
3.40
3.60
3.80
60.98
66.11
71.53
75.98
81.75
88.07
10.72
8.88
15.36
10.75
$
8.89
15.39
$
Cash dividends declared per share
Tangible book value per share (TBVPS)(b)
Book value per share
Diluted
Basic
Net income per share:
Per common share data
36,431
$
29,131
2,389
12.5%
40.9
10.1%
$10.72
$29.1/
$8.88
23%
$19.0
$17.9
$17.4
$6.00
$32.5
$6.19
19%
13%
$6.31
$15.4
11%
17%
15% $14.4
15%
15%
Adjusted net income¹
$21.7
a
Looking back on the last year and the past two decades – starting from my time
as CEO of Bank One in 2000 - it is clear that our financial discipline, constant
investment in innovation and ongoing development of our people are what
enabled us to persevere in our steadfast dedication to help clients, communities
and countries throughout the world. 2021 was another strong year for JPMorgan
Chase, with the firm generating record revenue, as well as setting numerous
other records in each of our lines of business. We earned $48.3 billion in net
income on revenue of $125.3 billion versus $29.1 billion on revenue of $122.9
billion in 2020, reflecting strong underlying performance across our businesses.
Included in the $48.3 billion is $9.2 billion after tax in reserve releases due to
the volatility introduced by the new current expected credit loss accounting
3
standard. We have pointed out repeatedly that we do not consider these reserve
releases core or recurring profits because they are driven by hypothetical,
probability-weighted scenarios. Excluding these reserve releases, we still earned
18% on tangible equity - an extremely healthy number. We generally grew mar-
ket share across our businesses and continued to make significant investments
in products, people and technology, all while maintaining credit discipline and
a fortress balance sheet. In total, we extended credit and raised capital of
$3.2 trillion for large and small businesses, governments and U.S. consumers.
I'd like to note some steadfast principles that are worth repeating. The first is
that while JPMorgan Chase stock is owned by large institutions, pension plans,
mutual funds and directly by individual investors, in almost all cases, the
ultimate beneficiaries are individuals in our communities. More than 100
million people in the United States own stock, and a large percentage of these
individuals, in one way or another, own JPMorgan Chase stock. Many of these
people are veterans, teachers, police officers, firefighters, healthcare workers,
retirees or those saving for a home, education or retirement. Your management
team goes to work every day recognizing the enormous responsibility that we
have to our shareholders.
Second, while we don't run the company worrying about the stock price in the
short run, in the long run our stock price is a measure of the progress we have
made over the years. This progress is a function of continual investments in
our people, systems and products, in good and bad times, to build our capabili-
ties. Whether looking back 10 years or since the JPMorgan Chase/Bank One
merger in 2004, these investments have resulted in our stock's significant out-
performance of the Standard & Poor's 500 Index and the Standard & Poor's
Financials Index. These important investments will also drive our company's
future prospects and position it to grow and prosper for decades.
Earnings, Diluted Earnings per Share and Return on Tangible Common Equity
2004-2021
($ in billions, except per share and ratio data)
Net income
excluding reserve
release/build
$38.4
$48.3
$39.1
$36.4
$15.36
24%
22%
$21.3
$26.9
$9.00
$24.4 $24.7 $24.4
15%
10%
14%
$5.19
was 13.6%
for 2017
2019 2020 2021
ROTCE excluding
reserve release/build
was 19.3% for 2020
and 18.5% for 2021
Tangible Book Value¹ and Average Stock Price per Share
2004-2021
$92.01
High: $172.96
Low: $123.77
$155.61
$113.80
$110.72
$106.52
$63.83 $65.62
$58.17
$51.88
$47.75
$43.93
$38.70
$39.83
$36.07
Adjusted
ROTCE¹
Although I begin this annual letter to shareholders in a challenging landscape,
I remain proud of what our company and our hundreds of thousands of employ-
ees around the world have achieved, collectively and individually. As you know,
we have long championed the essential role of banking in a community - its
potential for bringing people together, for enabling companies and individuals to
reach for their dreams, and for being a source of strength in difficult times.
Throughout these past two challenging years, we never stopped doing all the
things we should be doing to serve our clients and our communities.
1 Adjusted net income excludes $2.4 billion from net income in 2017 as a result of the enactment of the Tax Cuts and Jobs Act.
2015
$5.29 13%
13%
12%
10%
$11.7
$4.48
$4.34
$4.00
$8.5
$4.33
6%
$3.96
$45 $2.35 $135 $226│
2004 2005
2006 2007
2008
Net income
Diluted earnings per share
2009 2010 2011 2012 2013 2014
Return on tangible common equity (ROTCE)
2016 2017 2018
essential freedoms, including free enterprise. We have seen America, in partner-
ship with other countries around the globe, come together previously during
instances of conflict and crisis. This juncture is also a moment when our country
needs to work across the private and public sectors to lead once again by,
among other remediations, improving American competitiveness and better ful-
filling equal access to opportunity for all. JPMorgan Chase, a company that has
historically worked across borders and boundaries, will do its part to ensure the
global economy is safe and secure. I discuss these themes later in this letter.
Chief Executive
Officer
Chairman and
Total net revenue (a)
Total noninterest expense
Pre-provision profit (b)
Provision for credit losses
2021
2020
2019
$ 121,649
71,343
$ 119,951
$ 115,720
66,656
65,269
50,306
53,295
50,451
(9,256)
17,480
5,585
Net income
Selected income statement data
$
(in millions, except per share, ratio data and headcount)
Financial Highlights
2021
ANNUAL
REPORT
LUNTEER
VOLUNT
FOLENTED
LUNTEER
JPMorgan
DATE
CHASEO
MOSIPP
CONSULTATION
NGOING SERVICE & DELIVERY
Proactive & consultative service
DEEPEN
EXTEND
CO
In your neighborhood.
Here to help.
JPMORGAN CHASE & Co.
CHASE O
As of or for the year ended December 31,
$40.36 $39.36 $39.22
48,334
ADVANCE RACIAL EQUITY
#1
MULTIFAMILY LENDER
#1 U.S.
multifamily lender
84
U.S. WEALTH MANAGEMENT
ADVISORS HONORED
$389B
AWM CLIENT ASSET INFLOWS
00000
LAUNCHED
CHASE
IN THE U.K.
Record number of
wealth advisors ranked best in class
$389 billion in total Asset & Wealth
Management client asset inflows
Expanded Consumer Bank
outside the U.S. for the first time
Dear Fellow Shareholders,
We are facing challenges at every turn: a pandemic, unprecedented government
actions, a strong recovery after a sharp and deep global recession, a highly
polarized U.S. election, mounting inflation, a war in Ukraine and dramatic
economic sanctions against Russia. While all this turmoil has serious ramifica-
tions on our company, its effect on the world - with the extreme suffering of
the Ukrainian people and the potential restructuring of the global order – is far
more important.
Adding to the disruption, these events are unfolding while America remains
divided within its borders, with many arguing that it has lost its essential leader-
ship role outside of its borders and around the world. But during this difficult
time, we have a moment to put aside our differences, offer solutions and work
with others in the Western world to come together in defense of democracy and
2
Jamie Dimon,
Named to Fortune magazine's
Most Admired Companies list
$30B
TOP 10
#1 traditional Middle Market
bookrunner in the U.S.
Deployed or committed
more than $18 billion of $30 billion
to advance racial equity
#1
CORPORATE & INVESTMENT BANK
Generated $21 billion of net income
on record revenue of $52 billion
100%
2021 DISABILITY EQUALITY INDEX
Scored 100% on the 2021 Disability
Equality Index for the seventh
consecutive year
#1
UNDERWRITER OF GREEN BONDS
$2.5T
SUSTAINABLE DEVELOPMENT TARGET
#1
CUSTOMER SATISFACTION
#1 underwriter of green bonds
and ESG-labeled bonds
Targeted $2.5 trillion for sustainable
development activities, including
$1 trillion to advance climate action
#1 in J.D. Power
U.S. small business banking
satisfaction
#1
MIDDLE MARKET LENDER
10
$35.49
$71.53
$66.11
$4,997
% of digital non-card payments5
<25%
~40%
72%
75%
Credit card sales ($B)
$257
$344
$703
$894
Debit card sales ($B)
NA
$189
$379
$467
Debit & credit card sales volume ($B)
ΝΑ
$533
$4,022
$1,081
~$1,500
Total payments volume ($B)4
10.3%
# of top 50 markets where
we are #1 (top 3)
7 (14)
6(18)
8(25)
8 (25)
Consumer &
Business Banking primary market
Community
Banking
share³
5.1%
6.8%
9.5%
Client investment assets ($B)¹
~$80
$138
$590
$718
NA
9.6%
$1,361
16%
#1
#1
Market share¹4
8.7%
8.2%
9.2%
Total Markets revenue¹5
#8
#1
Market share15
6.3%
9.3%
FICC15
#7
#1
#1
12.7%
#1
#1
9.5%
#1
12.2%
#1
Market share15
7.0%
#2
Credit card sales market share
Global investment banking fees¹4
17%
20%
22%
22%
9.2%
■59 million active digital customers, including
45 million active mobile customers⁹
■Primary bank relationships for >75% of
Consumer Banking checking households
■First bank to have branch presence in all
contiguous 48 U.S. states
■#1 U.S. credit card issuer based on sales and
outstandings 10
■ #3 mortgage servicer¹¹
■#2 bank auto lender¹²
■Provided deferred payments and forbearance
options for >2 million mortgages, auto loans
and credit cards, representing ~$90 billion in
balances 13
■#1 PPP lender on a dollar basis
Credit card loans ($B, EOP)
$153
$132
$144
$154
Credit card loans market share
19%
18%
17%
13.0%
6.6%
Deposits market share²
7.4%
373.5%
5.3%
208.6%
JPMorgan Chase & Co.
S&P 500 Index
S&P Financials Index
Compounded annual gain
11.3%
Overall gain
553.9%
10.7%
494.4%
5.3%
145.9%
Performance for the period ended
December 31, 2021
Compounded annual gain
One year
Five years
Ten years
27.7%
16.0%
12.6%
1,213.2%
28.7%
18.5%
S&P Financials Index
Bank One
$60.98
$56.33
$53.56
$51.44
$48.13
$44.60
$21.96
$18.88
$15.35 $16.45
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
■Tangible book value Average stock price
1 9% compound annual growth rate since 2004.
5
Stock total return analysis
Performance since becoming CEO of Bank One
(3/27/2000-12/31/2021)¹
Compounded annual gain
Overall gain
Performance since the Bank One
and JPMorgan Chase & Co. merger
(7/1/2004-12/31/2021)
S&P 500 Index
4.4%
34.9%
20.2%
Active mobile customers (M)
8.2
45.5
■Serve >66 million U.S. households and >5 million
small business relationships
# of branches
3,079
5,508
4,908
4,790
# of advisors¹
NM
3,201
4,417
4,725
Average deposits ($B)¹
$204
$383
$851
$1,055
66
13.2%
63
~45
16.5%
16.3%
These charts show actual returns of the stock, with dividends reinvested, for heritage shareholders of Bank One and JPMorgan Chase & Co.
vs. the Standard & Poor's 500 Index (S&P 500 Index) and the Standard & Poor's Financials Index (S&P Financials Index).
1 On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.
We have consistently described to you, our shareholders, the basic principles
and strategies we use to build this company – from maintaining a fortress bal-
ance sheet, constantly investing and nurturing talent to fully satisfying regula-
tors, continually improving risk, governance and controls, and serving customers
and clients while lifting up communities worldwide.
If you look deeper, you will find that our success and accomplishments are founded
on our commitment to our shareholders. Shareholder value can be built only if you
maintain a healthy and vibrant company, which means doing a good job taking care
of your customers, employees and communities. Conversely, how can you have a
healthy company if you neglect any of these stakeholders? As we have learned in
2021, there are myriad ways an institution can demonstrate its compassion for its
employees and its communities while still upholding shareholder value.
Adhering to our basic principles and strategies allows us to drive good organic
growth and properly manage our capital (including dividends and stock buy-
backs), as we have consistently demonstrated over the past decades. All of this
is shown in the charts on pages 8-12, which illustrate how we have grown our
9
franchises, how we compare with our competitors and how we look at our
fortress balance sheet. I invite you to peruse them at your leisure. In addition,
I urge you to read the CEO letters in this Annual Report, which will give you
more specific details about our businesses and our plans for the future.
There are two other critical points I would like to make. We strive to build endur-
ing businesses, and we are not a conglomerate - all our businesses rely on and
benefit from each other. Both of these factors help generate our superior
returns. But, despite our best efforts, the moats that protect this company are
not particularly deep and we face extraordinary competition. I have written
about this reality extensively in the past and cover it in more detail in this letter.
However, it is the hand we have been dealt, and we will play it as best we can.
My friend, Warren Buffett, spoke in his letter this year about his silent partner –
the U.S. government - noting that all his company's success is predicated upon
the extraordinary conditions our country creates. He is right to say to his share-
holders that when they see the flag, they should all say thank you. We should,
too. I do just want to note that in our case, the silent partner is not so silent.
JPMorgan Chase is a healthy and thriving company, and we always want to give
back and pay our fair share. We do – and we want it to be spent well and have
the greatest impact. To give you an idea of where our taxes and fees go: In the
last 10 years, we paid $42 billion in federal, state and local taxes in the United
States and $17 billion in taxes outside of the United States. We also paid the
Federal Deposit Insurance Corporation $11 billion so that it has the resources
to cover the failure of any major American bank.
Finally, the basis of our success is our people. They are the ones who serve our
customers and communities, build the technology, make the strategic decisions,
manage the risks, determine our investments and drive innovation. Whatever
your view is of the world's complexity and the risks and opportunities ahead,
having a great team of people - with guts, brains, integrity and enormous capa-
bilities to navigate personally challenging circumstances while maintaining high
standards of professional excellence - is what ensures our prosperity, now and
in the future.
7
Client Franchises Built Over the Long Term
2006
2011
2020
2021
Households (M)
~55
TRADITIONAL
Information about J.P. Morgan's capabilities can be found at jpmorgan.com and about
Chase's capabilities at chase.com. Information about JPMorgan Chase & Co. is available
at jpmorganchase.com.
JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets
of $3.7 trillion and operations worldwide. The firm is a leader in investment banking,
financial services for consumers and small businesses, commercial banking, financial
transaction processing and asset management. A component of the Dow Jones Industrial
Average, JPMorgan Chase & Co. serves millions of customers in the United States and
many of the world's most prominent corporate, institutional and government clients
under its J.P. Morgan and Chase brands.
$ 7,254
Equity
Markets
8,786 $ 5,739 $ 14,525
7
205
198
10
$
$ 11,857 $ 6,087 $ 17,944
236
226
338
17
321
Lending- and deposit-related fees
$ 7,911 $ 7,519 $ 15,430
Fixed
Income
Markets
Total
Markets Markets
Equity
Income
Markets
Total
Markets
Total
Markets
Asset management,
administration and commissions
9,749
Noninterest revenue
(62)
493
871
(101)
972
Income
Equity
Markets Markets
All other income
407
2,498
2,087
411
2,512
1,967
545
1,775
Fixed
Fixed
Principal transactions
#
12.4
1
12.3
1
12.6
1
1
10.1
11.1
1
10.9
1
12.0
1
12.8
1
9.5 % #
1
9.2 %
Year ended December 31,
(in millions, except where
otherwise noted)
2019
2020
2021
For the periods presented below, the predominant source of principal transactions revenue was the amount recognized upon
executing new transactions.
JPMorgan Chase & Co./2021 Form 10-K
70
is willing and able to sell an instrument to the Firm and the
price at which another market participant is willing and able
to buy it from the Firm, and vice versa), market liquidity
and volatility. These factors are interrelated and sensitive
to the same factors that drive inventory-related revenue,
which include general market conditions, such as interest
rates, foreign exchange rates, credit spreads, and equity
and commodity prices, as well as other macroeconomic
conditions.
difference between the price at which a market participant
Principal transactions reflects revenue on financial
instruments and commodities transactions that arise from
client-driven market-making activity. Principal transactions
revenue includes amounts recognized upon executing new
transactions with market participants, as well as "inventory-
related revenue", which is revenue recognized from gains
and losses on derivatives and other instruments that the
Firm has been holding in anticipation of, or in response to,
client demand, and changes in the fair value of instruments
used by the Firm to actively manage the risk exposure
arising from such inventory. Principal transactions revenue
recognized upon executing new transactions with market
participants is affected by many factors including the level
of client activity, the bid-offer spread (which is the
The following table summarizes selected income statement
data for the Markets businesses. Markets includes both
Fixed Income Markets and Equity Markets. Markets revenue
consists of principal transactions, fees, commissions and
other income, as well as net interest income. The Firm
assesses its Markets business performance on a total
revenue basis, as offsets may occur across revenue line
items. For example, securities that generate net interest
income may be risk-managed by derivatives that are
reflected at fair value in principal transactions revenue.
Refer to Notes 6 and 7 for a description of the composition
of these income statement line items.
Markets revenue
(e) Global investment banking fees exclude money market, short-term debt and shelf securities.
(a) Source: Dealogic as of January 3, 2022. Reflects the ranking of revenue wallet and market share.
(b) Global M&A excludes any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S.
(c) Global equity and equity-related ranking includes rights offerings and Chinese A-Shares.
(d) Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities ("ABS") and
mortgage-backed securities ("MBS"); and exclude money market, short-term debt, and U.S. municipal securities.
8.9 %
1
#
Net interest income
7,116
9,402
1,127
19,151
(a) Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts.
(b) Represents total merchant processing volume across CIB, CCB and CB.
464,795
610,555 $
714,910 $
$
Client deposits and other third party liabilities (average)(c)
1,511.5
(c) Client deposits and other third-party liabilities pertain to the Payments and Securities Services businesses.
1,597.3 $
$
26,831
30,980 $
33,221 $
$
3,233
3,651
1,886.7 $
4,161
JPMorgan Chase & Co./2021 Form 10-K
Management's discussion and analysis
2020
2021
Europe/Middle East/Africa
Loans retained (period-end)(a)
Total net revenue
North America
Total international net revenue
71
Latin America/Caribbean
Europe/Middle East/Africa
(a)
Total net revenue
(in millions, except where otherwise noted)
December 31,
As of or for the year ended
International metrics
Asia-Pacific
Merchant processing volume (in billions) (b)
Total AUC
Other (a)
$ 16,865 $ 10,529 $ 27,394 $ 20,878 $
Total net revenue
3,120
(1,035)
4,155
8,374
483
8,605 $ 29,483 $ 14,418 $ 6,494 $ 20,912
2,182
880
17,792
10,263
8
872
431
21,109
8,122
12,987
7,891
8,243
7,529
Loss days (a)
4
4
10,100
13,498
15,840 $
11,489
16,098 $
12,962
$
Equity
Fixed Income
2019
2020
2021
Assets under custody ("AUC") by asset class (period-end) (in billions):
(in millions, except where otherwise noted)
December 31,
As of or for the year ended
Selected metrics
(a) Loss days represent the number of days for which CIB Markets, which consists of Fixed Income Markets and Equity Markets, posted losses to total net
revenue. The loss days determined under this measure differ from the measure used to determine backtesting gains and losses. Daily backtesting gains
and losses include positions in the Firm's Risk Management value-at-risk ("VaR") measure and exclude select components of total net revenue, which may
more than offset backtesting gains or losses on a particular day. For more information on daily backtesting gains and losses, refer to the VaR discussion on
pages 135-137.
1
1
12.1
1
7.8
and conduits (d)
excluding trade finance
period-end loans retained,
Allowance for loan losses to
0.99
1.77
0.84
1.12
retained
0.15 %
0.27 %
- %
Net charge-off/(recovery)
rate(c)
(b) Includes secured lending-related positions, credit portfolio loans, loans
held by consolidated Firm-administered multi-seller conduits, trade
finance loans, other held-for-investment loans and overdrafts.
(c) Primarily reflects lending-related positions originated and purchased
in CIB Markets, including loans held for securitization.
(d) During the six months ended June 30, 2021, 1,155 technology and
risk management employees were transferred from Corporate to CIB.
(e) Prior-period amounts have been revised to conform with the current
presentation.
(a) Prior-period amounts have been revised to conform with the current
presentation. Refer to Note 25 for further information.
60,013
Allowance for loan losses to
period-end loans
61,733
2.54
Allowance for loan losses to
69
(d) Management uses allowance for loan losses to period-end loans
retained, excluding trade finance and conduits, a non-GAAP financial
measure, to provide a more meaningful assessment of CIB's allowance
coverage ratio.
(c) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
(b) At December 31, 2021, 2020 and 2019, nonaccrual loans excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $281 million, $316 million and $127 million,
respectively. These amounts have been excluded based upon the
government guarantee.
(a) Allowance for loan losses of $58 million, $278 million and $110
million were held against these nonaccrual loans at December 31,
2021, 2020 and 2019, respectively.
JPMorgan Chase & Co./2021 Form 10-K
0.61
1.31
1.54
period-end loans
Nonaccrual loans to total
390
235
231
retained (a)
nonaccrual loans
0.68
67,546
Headcount(d)
2,050
2,366
1,348
losses
Loans held-for-sale and
Allowance for loan
122,371
135,676
1,202
145,137
Allowance for credit losses:
Loans:
1,052
2,811
1,835
assets
Total nonperforming
Loans retained(b)
loans at fair value
51,072
33,792
3,900
2,720
losses
Total allowance for credit
80,000
80,000
83,000
Equity
848
1,534
1,372
related commitments
Allowance for lending-
32,884
155,255
169,468
196,209
Total loans
Management's discussion and analysis
2019
Investment banking fees
Advisory
2
11.3
2
9.0 %
2
9.0% #
2
9.5
10.2 % #
#
Share
Rank
Share
Rank
Share
Rank
2
2019
2
2
1
8.8
1
8.4
1
13.5
1
9.3
12.0
11.8
2
9.4
1
8.9
2
8.9
2
2020
2021
Global investment banking fees(e)
3,532
4,351
5,025
Debt underwriting (a)
1,666
2,758
3,953
Total investment banking fees
Equity underwriting
2,368 $
4,381 $
$
2019
2020
2021
Year ended December 31,
2,377
$
13,359 $
9,477 $
U.S.
Global
Loan syndications
U.S.
Global
Long-term debt (d)
U.S.
Global
Equity and equity-related (c)
U.S.
Global
M&A(b)
Based on fees (a)
Year ended December 31,
League table results - wallet share
(a) Represents long-term debt and loan syndications.
7,575
(in millions)
$
13,954 $
13,872 $
$225,548
Total assets
4,200
919
1,069
3,715
(b)
Selected balance sheet
data (average)
$ 233,156
$ 4,057
4,629
3,653
1,611
115
Other
Investment banking (a)
Payments
$
Lending
2019
$ 4,396
$208,296
$ 218,896
88
1,129
$ 218,896
3,122
$205,042
Investment banking revenue,
206,837
217,767
201,920
Client deposits and other
third-party liabilities
133
Total loans
Loans held-for-sale
Loans retained
Loans:
$ 9,264
$ 9,313
$ 10,008
Total Commercial Banking net
revenue
and loans at fair
value
$ 210,125
$ 208,443
Total Commercial
Banking loans (a)
Equity
2,245
$ 210,125
22,000
2,223
$ 208,443
24,000
Total loans
Loans held-for-sale
and loans at fair
value
207,880
206,220
Period-end loans by
client segment
Loans retained
$ 228,911
$ 230,776
(b)
2019
2020
2021
Loans:
$ 220,514
Middle Market Banking (a) $ 61,159
Corporate Client Banking
Other
207,287
2020
2021
Revenue by product
(in millions, except ratios)
Year ended December 31,
992
444
218
101,951
101,146
101,751
Banking
Commercial Real Estate
$ 54,188
51,165
$ 61,115
47,420
45,315
1,009
$ 208,296
22,000
1,082
$ 207,919
Selected balance sheet
data (period-end)
Total assets
(b)
$ 5,092
2020
2021
December 31, (in millions, except
ratios)
As of or for the year ended
Selected metrics
JPMorgan Chase & Co./2021 Form 10-K
74
2019
(a) At December 31, 2021 and 2020, total loans included $1.2 billion and
$6.6 billion of loans under the PPP, of which $1.1 billion and $6.4
billion were in Middle Market Banking, respectively. Refer to Credit
Portfolio on pages 108-109 for a further discussion of the PPP.
(b) Prior-period amounts have been revised to conform with the current
presentation. Refer to Note 25 for further information.
(a) Includes CB's share of revenue from investment banking products sold
to CB clients through the CIB.
11,629
11,675
12,902
Headcount
$ 207,919
$ 218,896
(b) Refer to Business Segment Results page 61 for a discussion of revenue
sharing.
$205,042
Credit data and quality statistics
$ 71
498
1,406
740
120
Total nonaccrual loans
and loans at fair value
Nonaccrual loans held-for-sale
Net charge-offs/(recoveries)
498
740
(c)
Nonaccrual loans retained(a)
Nonaccrual loans:
Nonperforming assets
$ 160
$ 401
1,286
Total Commercial
Banking loans
17 %
40
11 %
41
172,734
22,000
237,825
22,000
301,502
24,000
Equity
$ 3,640
3,203
2,313
157
77
Other
$ 3,805
2,419
3,508
Corporate Client Banking
$ 4,004
Middle Market Banking
Revenue by client segment
$ 2,744
$ 3,348
Commercial Real Estate Banking
3,119
2,169
171
Total Commercial Banking net
revenue
21 %
40
Overhead ratio
Return on equity
100,884
985
687
222
Other
Financial ratios
102,479
100,331
$ 55,690
50,360
$ 61,558
54,172
$ 60,128
44,361
Average loans by client
segment
Middle Market Banking
Corporate Client Banking
Commercial Real Estate
Banking
$ 9,264
$ 9,313
$ 10,008
gross
48,196
As of or for the year
ended December 31, (in
millions, except
headcount)
Selected income statement data (continued)
37,664
46,045
Latin America/Caribbean
90,364
124,145
132,241
Asia-Pacific
29,024
174,477
243,867 $
$
Europe/Middle East/Africa
Client deposits and other third-party liabilities (average) (b)
121,733
133,296 $
159,786 $
211,592 $
$
Total international
422,153 $
All other regions
$
North America
(in billions)
AUC (period-end)(b)
464,795
170,930
$
237,154
610,555 $
$
Total client deposits and other third-party liabilities
292,757
North America
293,865
$
373,401
714,910 $
Total loans retained
74,734
87,410
49,284 $
51,749 $
$
20,498
25,957
28,407
18,767
39,265
23,327
1,543
1,931
1,833
5,319
7,524
7,555
11,905
23,342
$
33,084
$
105,225
North America
46,999
45,886
54,561
Total international loans
6,173
5,425
7,006
Latin America/Caribbean
14,759
12,802
14,471
Asia-Pacific
26,067
$
27,659
Total AUC
Selected metrics
$
20,028 $
10,952
30,980 $
3,798
4,041
Total noninterest expense
1,950
1,944
2,068
Noncompensation expense
3,735
1,785
1,973
Compensation expense
Noninterest expense
296
2,113
(947)
Provision for credit losses
1,854
9,264
Income before income tax expense
3,402
Other revenue primarily includes tax-equivalent
adjustments generated from Community Development
Banking and activity derived from principal transactions.
Investment banking includes revenue from a range of
products providing CB clients with sophisticated capital-
raising alternatives, as well as balance sheet and risk
management tools through advisory, equity
underwriting, and loan syndications. Revenue from Fixed
Income and Equity Markets products used by CB clients is
also included.
Payments includes revenue from a broad range of
products and services that enable CB clients to manage
payments and receipts, as well as invest and manage
funds.
Lending includes a variety of financing alternatives, which
are primarily provided on a secured basis; collateral
includes receivables, inventory, equipment, real estate or
other assets. Products include term loans, revolving lines of
credit, bridge financing, asset-based structures, leases, and
standby letters of credit.
CB product revenue consists of the following:
Management's discussion and analysis
73
6,914
JPMorgan Chase & Co./2021 Form 10-K
$ 5,246 $ 2,578 $ 3,958
Net income
1,275
824
1,668
Income tax expense
5,233
(a) Total net revenue included tax-equivalent adjustments from income
tax credits related to equity investments in designated community
development entities and in entities established for rehabilitation of
historic properties, as well as tax-exempt income related to municipal
financing activities, of $330 million, $350 million and $460 million for
the years ended December 31, 2021, 2020 and 2019, respectively.
Prior-period tax-equivalent adjustment amounts have been revised to
conform with the current presentation. Refer to Note 25 for further
information.
9,313
10,008
Total net revenue
2019
2020
2021
(in millions)
Year ended December 31,
Selected income statement data
Middle Market Banking covers small and midsized
companies, local governments and nonprofit clients.
Corporate Client Banking covers large corporations.
Commercial Real Estate Banking covers investors,
developers, and owners of multifamily, office, retail,
industrial and affordable housing properties.
2021 compared with 2020
Commercial Banking provides comprehensive financial
solutions, including lending, payments, investment
banking and asset management products across three
primary client segments: Middle Market Banking,
Corporate Client Banking and Commercial Real Estate
Banking. Other includes amounts not aligned with a
primary client segment.
JPMorgan Chase & Co./2021 Form 10-K
72
(b) Client deposits and other third-party liabilities pertaining to the Payments and Securities Services businesses, and AUC, are based on the domicile of the
client.
(a) Total net revenue and loans retained (excluding loans held-for-sale and loans at fair value) are based on the location of the trading desk, booking
location, or domicile of the client, as applicable.
26,831
9,976
16,855
COMMERCIAL BANKING
Net income was $5.2 billion, up $2.7 billion, predominantly
driven by a net benefit in the provision for credit losses,
compared to an expense in the prior year.
Net revenue was $10.0 billion, up 7%. Net interest income
was $6.0 billion, down 3%, driven by the net impact of
margin compression on higher deposits and a decrease in
loans, largely offset by lower funding costs. Noninterest
revenue was $3.9 billion, up 28%, predominantly driven by
higher investment banking and payments revenue.
Noninterest expense was $4.0 billion, up 6%,
predominantly driven by investments in the business,
including higher compensation expense, and higher
volume- and revenue-related expense.
The provision for credit losses was a net benefit of $947
million, driven by a net reduction in the allowance for credit
losses, compared with an expense of $2.1 billion in the
prior year.
(a)
6,554
6,246
6,079
Net interest income
2,710
3,067
3,929
Noninterest revenue
941
1,769
1,880
2,537
All other income
$ 1,187 $
$ 1,392
Lending- and deposit-related fees
Revenue
21,655 $
11,566
33,221 $
69,243
68,203
receivables
558
259
300
nonaccrual loans retained (a)
Allowance for loan losses to
1.34
1.60
1.08
period-end loans retained
Nonaccrual loans to period-end
Allowance for loan losses to
0.18 %
0.04 %
Net charge-off/(recovery) rate (b)
293
3,073
651
3,986
2,968
Total allowance for credit losses
749
Allowance for lending-related
commitments
0.08 %
2,780
total loans
0.67
59
$ 9,818
418
10,236
2019
2020
2021
Selected income statement data
The majority of AWM's client assets are in actively
managed portfolios.
Provides retirement products and services, brokerage,
custody, trusts and estates, loans, mortgages, deposits
and investment management to high net worth clients.
Global Private Bank
0.36
Offers multi-asset investment management solutions
across equities, fixed income, alternatives and money
market funds to institutional and retail investors
providing for a broad range of clients' investment needs.
Asset & Wealth Management, with client assets of $4.3
trillion, is a global leader in investment and wealth
management.
ASSET & WEALTH MANAGEMENT
Management's discussion and analysis
75
JPMorgan Chase & Co./2021 Form 10-K
(c) At December 31, 2021, nonaccrual loans excluded $114 million of
PPP loans 90 or more days past due and guaranteed by the SBA.
(b) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
(a) Allowance for loan losses of $124 million, $273 million and $114
million was held against nonaccrual loans retained at December 31,
2021, 2020 and 2019, respectively.
0.24
Asset Management
Year ended December 31,
3,335
Allowance for loan losses
25 %
20 %
14 %
49
48
57
25
24
28
2019
$12,506
$ 7,215
6,270
5,560
5,842
1,001
1,146
1,021
Total Banking
19,777
$ 8,871
2,219
2020
Revenue by business
Investment Banking
Payments (a)
Lending
Allowance for credit losses:
523
1,430
757
Total nonperforming assets
25
24
17
CORPORATE & INVESTMENT BANK
2021
The Corporate & Investment Bank, which consists of
Banking and Markets & Securities Services, offers a
broad suite of investment banking, market-making,
prime brokerage, and treasury and securities products
and services to a global client base of corporations,
investors, financial institutions, merchants,
government and municipal entities. Banking offers a
full range of investment banking products and services
in all major capital markets, including advising on
corporate strategy and structure, capital-raising in
equity and debt markets, as well as loan origination
and syndication. Banking also includes Payments,
which provides payments services enabling clients to
manage payments and receipts globally, and cross-
border financing. Markets & Securities Services
includes Markets, a global market-maker across
products, including cash and derivative instruments,
which also offers sophisticated risk management
solutions, prime brokerage, and research. Markets &
Securities Services also includes Securities Services, a
leading global custodian which provides custody, fund
accounting and administration, and securities lending
products principally for asset managers, insurance
companies and public and private investment funds.
Year ended December 31,
2021
2020
2019
$ 9,477 $ 7,575
14,399
Selected income statement data
Year ended December 31,
(in millions, except ratios)
Financial ratios
Return on equity
Overhead ratio
Compensation expense as
percentage of total net
revenue
Selected income statement data
15,577
(in millions, except ratios)
Asset management, administration
Overhead ratio
Return on equity
Financial ratios
Noninterest expense was $10.9 billion, up 10%, driven by
higher volume- and revenue-related compensation expense
and distribution fees, higher structural expense, and higher
investments in the business, partially offset by lower legal
expense.
the net impact of margin compression on higher deposits.
The provision for credit losses was a net benefit of $227
million, driven by a reduction in the allowance for credit
losses, compared with an expense of $263 million in the
prior year.
.
partially offset by
higher loans including the impact of lower funding costs,
and higher asset management fees,
•
Pre-tax margin ratio:
Revenue from Global Private Bank was $7.7 billion, up
17%, predominantly driven by:
higher performance fees, and
higher asset management fees, net of liquidity fee
waivers, on higher average market levels and strong
cumulative net inflows into long-term and liquidity
products,
•
.
Revenue from Asset Management was $9.2 billion, up 21%,
predominantly driven by:
Net revenue was $17.0 billion, an increase of 19%. Net
interest income was $3.9 billion, up 14%. Noninterest
revenue was $13.1 billion, up 21%.
Net income was $4.7 billion, an increase of 58%.
2021 compared with 2020
6,337
$13,591
higher net investment valuation gains.
$ 7,654
6,586
Asset Management
Asset & Wealth Management
JPMorgan Chase & Co./2021 Form 10-K
76
(a) In the first quarter of 2021, the Wealth Management business was
renamed Global Private Bank.
28
28
30
UN
27
26
Global Private Bank (a)
29
37
39
35
72
70
64
26 %
28 %
33 %
NNN
Revenue
7,711
$16,957 $14,240
Global Private Bank (a)
5,028
4,959
5,692
Compensation expense
Noninterest expense
263
(227)
Provision for credit losses
3,355
13,591
Noncompensation expense
3,418
14,240
Total net revenue
3,886
Net interest income
$10,610
212
10,822
738
13,071
Noninterest revenue
All other income
$12,333
and commissions
16,957
Total net revenue
5,227
4,719
$ 9,246
Asset Management
Revenue by line of business
$ 2,867
$ 2,992
$ 4,737
Net income
918
1,028
4,998
Assets acquired in loan
3,785
4,020
6,265
expense
Income before income tax
9,747
9,957
10,919
Total noninterest expense
Income tax expense
14,078
1,528
16,865
except ratios)
2021
2020
2019
Selected balance sheet data
Credit data and quality
(period-end)
statistics
Total assets (a)
2019
$1,259,896 $1,095,926
Net charge-offs/
(recoveries)
$
6 $
370
$
183
Loans:
Loans retained(b)
$913,803
Nonperforming assets:
2020
except headcount)
Markets & Securities Services revenue was $32.0 billion,
down 5%. Markets revenue was $27.4 billion, down 7%.
•
•
•
•
Fixed Income Markets revenue was $16.9 billion, down
19%, driven by lower revenue in Rates, Currencies &
Emerging Markets, Fixed Income Financing, Commodities
and Credit compared to a strong prior year, partially
offset by higher revenue in Securitized Products.
Equity Markets revenue was $10.5 billion, up 22%,
driven by strong performance across prime brokerage,
derivatives and Cash Equities.
Securities Services revenue was $4.3 billion, up 2%,
driven by growth in fees and deposits, predominantly
offset by deposit margin compression.
2021
Credit Adjustments & Other was a gain of $250 million
predominantly driven by valuation adjustments related to
derivatives.
The provision for credit losses was a net benefit of $1.2
billion, driven by a net reduction in the allowance for credit
losses, compared with an expense of $2.7 billion in the
prior year.
68
JPMorgan Chase & Co./2021 Form 10-K
Selected metrics
As of or for the year ended
Selected metrics
As of or for the year ended
December 31, (in millions,
December 31, (in millions,
Noninterest expense was $25.3 billion, up 8%,
predominantly driven by higher compensation expense,
including revenue-related compensation and investments,
as well as higher volume-related brokerage expense,
partially offset by lower legal expense.
• Lending revenue was $1.0 billion, down 13%,
predominantly driven by lower net interest income,
largely offset by lower fair value losses on hedges of
accrual loans, and higher loan commitment fees.
159,786
121,733
952
Total assets (a)
$1,334,518 $1,121,942
$992,770
Trading assets-debt and
equity instruments
(e)
448,099
425,060
2,670
376,182
316
56
30
91
85
70
Trading assets-derivative
(e)
Fixed Income Markets
Derivative receivables
Assets acquired in loan
satisfactions
133,296
1,428
644
Nonaccrual loans:
Loans held-for-sale and
loans at fair value
50,386
Total loans
210,172
Equity
83,000
39,588
172,884
80,000
Total nonaccrual loans
34,317
156,050
80,000
retained(a)
584
1,008
308
Nonaccrual loans held-
Selected balance sheet data
(average)
for-sale and loans at
fair value
844
1,662
Nonaccrual loans
• Payments revenue was $6.3 billion, up 13%, and
included net gains on equity investments. Excluding these
net gains, revenue was $5.8 billion, up 5%, driven by
higher deposit balances and fees, largely offset by
deposit margin compression.
satisfactions
Investment Banking revenue was $12.5 billion, up 41%,
driven by higher Investment Banking fees, reflecting
higher fees across products. The Firm ranked #1 for
Global Investment Banking fees, according to Dealogic.
- Advisory fees were $4.4 billion, up 85%, driven by
increased M&A activity and wallet share gains.
Revenue
Investment banking fees
$ 13,359
Principal transactions
15,764
17,560
Lending- and deposit-related fees
2,514
2,070
(in millions)
1,668
and commissions
5,024
4,721
4,400
All other income
1,548
1,292
2,018
Noninterest revenue
Asset management, administration
38,209
(b) Consists primarily of centrally managed credit valuation adjustments
("CVA"), funding valuation adjustments ("FVA") on derivatives, other
valuation adjustments, and certain components of fair value option
elected liabilities, which are primarily reported in principal
transactions revenue. Results are presented net of associated hedging
activities and net of CVA and FVA amounts allocated to Fixed Income
Markets and Equity Markets. Refer to Notes 2, 3 and 24 for additional
information.
Total net revenue
- Equity underwriting fees were $4.0 billion, up 43%,
driven by a strong IPO market and wallet share gains.
Debt underwriting fees were $5.0 billion, up 15%,
predominantly driven by an active leveraged loan
market primarily related to acquisition financing.
20,878
14,418
Equity Markets
10,529
8,605
6,494
Securities Services
4,328
(a) In the fourth quarter of 2021, the Wholesale Payments business was
renamed Payments.
4,253
Credit Adjustments & Other(b)
250
(29)
121
31,972
$51,749
25,187
$49,284
$39,265
Total Markets & Securities
Services
4,154
35,120
33,707
Net interest income
22,444
Income before income tax
expense
27,598
23,020
16,544
Income tax expense
6,464
5,926
4,590
Net income
(a) Includes tax-equivalent adjustments, predominantly due to income tax
credits and other tax benefits related to alternative energy
investments; income tax credits and amortization of the cost of
investments in affordable housing projects; and tax-exempt income
from municipal bonds of $3.0 billion, $2.4 billion and $1.9 billion for
the years ended December 31, 2021, 2020 and 2019, respectively.
Prior-period tax-equivalent adjustment amounts have been revised to
conform with the current presentation. Refer to Note 25 for further
information.
JPMorgan Chase & Co./2021 Form 10-K
67
40
Management's discussion and analysis
2021 compared with 2020
Net income was $21.1 billion, up 24%, largely driven by a
net benefit in the provision for credit losses, compared to
an expense in the prior year.
30,060
Banking revenue was $19.8 billion, up 27%.
Net revenue was $51.7 billion, up 5%.
23,538
25,325
$ 21,134 $ 17,094 $ 11,954
11,264
13,540
14,164
Total noninterest expense
9,205
(a)
Total net revenue
49,284
39,265
Provision for credit losses
(1,174)
51,749
277
11,926
Noninterest expense
Compensation expense
13,096
12,229
11,612
11,180
2,726
Noncompensation expense
General
Auditor (c)
(ex-officio member)
Head of
Human
Resources
Head of Corporate
Responsibility and
Chairman of the
Mid-Atlantic Region
Chief
Information
Officer
Line of Business and Corporate Function Control Committees
oversee the operational risk and control environment of
their respective business or function, inclusive of
Operational Risk, Compliance and Conduct Risks. As part of
that mandate, they are responsible for reviewing indicators
of elevated or emerging risks and other data that may
impact the level of operating risk in a business or function,
addressing key operational risk issues, with an emphasis on
processes with control concerns and overseeing control
remediation.
General
Counsel
Chief Operating
President and
Operating Committee
Internal
Audit
Chief Executive Officer
Officer (b)
(a) The CRO may escalate directly to the Board Risk Committee. The Firmwide Risk Committee escalates significant issues directly to the Board Risk Committee as appropriate.
(b) The CEO of the Corporate & Investment Bank is also the Firm's sole President and Chief Operating Officer following the retirement of the Firm's Co-President and Co-Chief Operating Officer on December 31, 2021.
(c) The General Auditor reports to the Audit Committee and administratively to the CEO.
The Compensation & Management Development Committee
("CMDC") assists the Board in its oversight of the Firm's
compensation principles and practices. The CMDC reviews
and approves the Firm's compensation and qualified
benefits programs. The Committee reviews the performance
of Operating Committee members against their goals, and
approves their compensation awards. In addition, the CEO's
award is subject to ratification by the independent directors
of the Board. The CMDC also reviews the development of
and succession for key executives. As part of the Board's
role of reinforcing, demonstrating and communicating the
"tone at the top", the CMDC provides oversight of the Firm's
culture, including reviewing updates from management
regarding significant conduct issues and any related actions
with respect to employees, including compensation actions.
The Public Responsibility Committee provides oversight and
review of the Firm's positions and practices on public
responsibility matters such as community investment, fair
lending, sustainability, consumer practices and other public
policy issues that reflect the Firm's values and character
and could impact the Firm's reputation among its
stakeholders. The Committee also provides guidance on
these matters to management and the Board, as
appropriate.
Board oversight
The Firm's Board of Directors actively oversees the business
and affairs of the Firm. This includes monitoring the Firm's
financial performance and condition and reviewing the
strategic objectives and plans of the Firm. The Board carries
out a significant portion of its oversight responsibilities
through its independent, principal standing committees.
The Board Risk Committee is the principal committee that
oversees risk matters. The Audit Committee oversees the
control environment, and the Compensation & Management
Development Committee oversees compensation and other
management-related matters. Each committee of the Board
oversees reputational risks and conduct risks within its
scope of responsibility.
The JPMorgan Chase Bank, N.A. Board of Directors is
responsible for the oversight of management of the bank.
The JPMorgan Chase Bank, N.A. Board accomplishes this
function acting directly and through the principal standing
committees of the Firm's Board of Directors. Risk and
control oversight on behalf of JPMorgan Chase Bank N.A. is
primarily the responsibility of the Risk Committee and the
Audit Committee, respectively, and, with respect to
compensation and other management-related matters, the
Compensation & Management Development Committee.
The Board Risk Committee assists the Board in its oversight
of management's responsibility to implement a global risk
management framework reasonably designed to identify,
assess and manage the Firm's risks. The Board Risk
Committee's responsibilities include approval of applicable
primary risk policies and review of certain associated
frameworks, analysis and reporting established by
management. Breaches in risk appetite and parameters,
issues that may have a material adverse impact on the Firm,
including capital and liquidity issues, and other significant
risk-related matters are escalated to the Board Risk
Committee, as appropriate.
The Audit Committee assists the Board in its oversight of
management's responsibility to ensure that there is an
effective system of controls reasonably designed to
safeguard the Firm's assets and income, ensure the
integrity of the Firm's financial statements, and maintain
compliance with the Firm's ethical standards, policies, plans
and procedures, and with laws and regulations. It also
assists the Board in its oversight of the Firm's independent
registered public accounting firm's qualifications,
independence and performance, and of the performance of
the Firm's Internal Audit function.
JPMorgan Chase & Co./2021 Form 10-K
83
Management's discussion and analysis
The Corporate Governance & Nominating Committee
exercises general oversight with respect to the governance
of the Board of Directors. It reviews the qualifications of
and recommends to the Board of Directors proposed
nominees for election to the Board. The Committee
evaluates and recommends to the Board corporate
governance practices applicable to the Firm. It also
appraises the framework for assessing the Board's
performance and self-evaluation.
Management oversight
The Firm's senior management-level committees that are
primarily responsible for key risk-related functions include:
The Firmwide Risk Committee ("FRC") is the Firm's highest
management-level risk committee. It provides oversight of
the risks inherent in the Firm's businesses and serves as an
escalation point for risk topics and issues raised by
underlying committees and/or FRC members.
The Firmwide Control Committee ("FCC") is an escalation
committee for senior management to review and discuss
the Firmwide operational risk environment including
identified issues, operational risk metrics and significant
events that have been escalated.
Committee and
Firmwide Valuation
Governance Forum
Line of Business and Regional Risk Committees are
responsible for providing oversight of the governance,
limits, and controls that are in place within the scope of
their respective activities. These committees review the
ways in which the particular LOB or the business operating
in a particular region could be exposed to adverse
outcomes with a focus on identifying, accepting, escalating
and/or requiring remediation of matters brought to these
committees.
The Firm's Operating Committee, which consists of the
Firm's CEO, CRO, CFO, General Counsel, CEOs of the LOBS
and other senior executives, is accountable to and may
refer matters to the Firm's Board of Directors. The
Operating Committee is responsible for escalating to the
Board the information necessary to facilitate the Board's
exercise of its duties.
Asset and Liability
Identification framework designed to facilitate each LOB
and Corporate's responsibility to identify material risks
inherent to the Firm, catalog them in a central repository
and review the most material risks on a regular basis. The
IRM function reviews and challenges the LOB and
Corporate's identified risks, maintains the central
repository and provides the consolidated Firmwide results
to the Firmwide Risk Committee ("FRC") and Board Risk
Committee.
Firmwide Control
81
The Asset and Liability Committee ("ALCO") is responsible for
overseeing the Firm's asset and liability management
("ALM"), including the activities and frameworks supporting
the management of liquidity risk, balance sheet, interest
rate risk, and capital risk.
82
28
Management's discussion and analysis
The IRM function is independent of the businesses and is
the Firm's "second line of defense." The IRM function
independently assesses and challenges the first line of
defense risk management practices. IRM is also responsible
for its own adherence to applicable laws, rules and
regulations and for the implementation of policies and
standards established by IRM with respect to its own
processes.
Internal Audit is an independent function that provides
objective assessment on the adequacy and effectiveness of
Firmwide processes, controls, governance and risk
management as the "third line of defense." The Internal
Audit Function is headed by the General Auditor, who
reports to the Audit Committee and administratively to the
CEO.
In addition, there are other functions that contribute to the
Firmwide control environment but are not considered part
of a particular line of defense, including Finance, Human
Resources and Legal, and are responsible for adherence to
applicable laws, rules and regulations and policies and
standards established by IRM with respect to their own
processes.
Risk identification and ownership
Each LOB and Corporate owns the ongoing identification of
risks, as well as the design and execution of controls,
including IRM-specified controls, to manage those risks. To
support this activity, the Firm has a formal Risk
Risk appetite
The Firm's overall appetite for risk is governed by "Risk
Appetite" frameworks for quantitative and qualitative risks.
Periodically the Firm's risk appetite is set and approved by
senior management (including the CEO and CRO) and
approved by the Board Risk Committee. Quantitative and
qualitative risks are assessed to monitor and measure the
Firm's capacity to take risk consistent with its stated risk
appetite. Risk appetite results are reported to the Board
Risk Committee.
JPMorgan Chase & Co./2021 Form 10-K
Committee
Risk governance and oversight structure
The chart below illustrates the committees of the Board of Directors and key senior management-level committees in the
Firm's risk governance structure. In addition, there are other committees, forums and paths of escalation that support the
oversight of risk which are not shown in the chart below or described in this Form 10-K.
Board of Directors
Board Risk Committee
Public Responsibility Committee
Compensation and Management
Development Committee
Corporate Governance and
Nominating Committee
Audit Committee
Chief Risk
Officer(a)
Chief
Financial
Officer
Line of Business
CEOS (b) and
Select Business
Heads
Firmwide Risk
Committee(a)
Line of Business,
Regional Risk
Committees and
The independent status of the IRM function is supported by a governance structure that provides for escalation of risk issues to
senior management, the FRC, and the Board of Directors, as appropriate.
The Firmwide Valuation Governance Forum ("VGF") is
composed of senior finance and risk executives and is
responsible for overseeing the management of risks arising
from valuation activities conducted across the Firm.
.
The following sections discuss the risk governance and
oversight functions in place to manage the risks inherent in
the Firm's business activities.
Capital management oversight
The Firm has a Capital Management Oversight function
whose primary objective is to provide independent
oversight of capital risk across the Firm.
•
Capital Management Oversight's responsibilities include:
Defining, monitoring and reporting capital risk metrics;
Establishing, calibrating and monitoring capital risk
limits and indicators, including capital risk appetite;
Developing a process to classify, monitor and report
capital limit breaches;
Performing an assessment of the Firm's capital
management activities, including changes made to the
Contingency Capital Plan described below; and
Conducting assessments of the Firm's regulatory capital
framework intended to ensure compliance with
applicable regulatory capital rules.
Capital management
Treasury & CIO is responsible for capital management.
The primary objectives of the Firm's capital management
are to:
•
JPMorgan Chase & Co./2021 Form 10-K
•
Maintain sufficient capital in order to continue to build
and invest in the Firm's businesses through the cycle
and in stressed environments;
Retain flexibility to take advantage of future investment
opportunities;
Promote the Firm's ability to serve as a source of
strength to its subsidiaries;
Ensure the Firm operates above the minimum regulatory
capital ratios as well as maintain "well-capitalized"
status for the Firm and its insured depository institution
("IDI") subsidiaries at all times under applicable
regulatory capital requirements;
•
•
•
Meet capital distribution objectives; and
Maintain sufficient capital resources to operate
throughout a resolution period in accordance with the
Firm's preferred resolution strategy.
The Firm addresses these objectives through:
Establishing internal minimum capital requirements and
maintaining a strong capital governance framework. The
internal minimum capital levels consider the Firm's
regulatory capital requirements as well as an internal
assessment of capital adequacy, in normal economic
cycles and in stress events;
Retaining flexibility in order to react to a range of
potential events; and
Regular monitoring of the Firm's capital position and
following prescribed escalation protocols, both at the
Firm and material legal entity levels.
Governance
Committees responsible for overseeing the Firm's capital
management include the Capital Governance Committee,
the ALCO as well as LOB and regional ALCOS, and the CIO,
Treasury and Corporate ("CTC") Risk Committee. In
addition, the Board Risk Committee periodically reviews the
Firm's capital risk tolerance. Refer to Firmwide Risk
Management on pages 81-84 for additional discussion on
the ALCO and other risk-related committees.
Capital planning and stress testing
Comprehensive Capital Analysis and Review
The Federal Reserve requires large Bank Holding
Companies ("BHCS"), including the Firm, to submit at least
annually a capital plan that has been reviewed and
approved by the Board of Directors. The Federal Reserve
uses CCAR and other stress testing processes to ensure that
large BHCs have sufficient capital during periods of
economic and financial stress, and have robust, forward-
looking capital assessment and planning processes in place
that address each BHC's unique risks to enable it to absorb
losses under certain stress scenarios. Through CCAR, the
Federal Reserve evaluates each BHC's capital adequacy and
internal capital adequacy assessment processes (“ICAAP”),
as well as its plans to make capital distributions, such as
dividend payments or stock repurchases. The Federal
Reserve uses results under the severely adverse scenario
from its supervisory stress test to determine each firm's
Stress Capital Buffer (“SCB”) requirement for the coming
year.
On June 28, 2021, JPMorgan Chase announced that it had
completed the 2021 CCAR stress test process. On August 5,
2021, the Federal Reserve affirmed the Firm's 2021 SCB
requirement of 3.2% (down from 3.3%) and the Firm's
Standardized CET1 capital ratio requirement including
regulatory buffers, of 11.2% (down from 11.3%). The
2021 SCB requirement became effective on October 1,
2021 and will remain in effect until September 30, 2022.
86
JPMorgan Chase & Co./2021 Form 10-K
A strong capital position is essential to the Firm's business
strategy and competitive position. Maintaining a strong
balance sheet to manage through economic volatility is
considered a strategic imperative of the Firm's Board of
Directors, CEO and Operating Committee. The Firm's
fortress balance sheet philosophy focuses on risk-adjusted
returns, strong capital and robust liquidity. The Firm's
capital risk management strategy focuses on maintaining
long-term stability to enable the Firm to build and invest in
market-leading businesses, including in highly stressed
environments. Senior management considers the
implications on the Firm's capital prior to making significant
decisions that could impact future business activities. In
addition to considering the Firm's earnings outlook, senior
management evaluates all sources and uses of capital with
a view to ensuring the Firm's capital strength.
Capital risk is the risk the Firm has an insufficient level or
composition of capital to support the Firm's business
activities and associated risks during normal economic
environments and under stressed conditions.
CAPITAL RISK MANAGEMENT
Management's discussion and analysis
Risk governance and oversight functions
Strategic Risk
Capital risk
Liquidity risk
Reputation risk
Consumer Credit Risk
Wholesale credit risk
Investment portfolio risk
Market risk
Country risk
Operational risk
Page
85
86-96
97-104
105
110-116
117-128
132
133-140
141-142
143-149
146
Risk governance and oversight functions
The Firm manages its risk through risk governance and
oversight functions. The scope of a particular function may
include one or more drivers, types and/or impacts of risk.
For example, Country Risk Management oversees country
risk which may be a driver of risk or an aggregation of
exposures that could give rise to multiple risk types such as
credit or market risk.
147
Estimations and Model risk
149
Compliance Risk
Conduct risk
Legal risk
84
JPMorgan Chase & Co./2021 Form 10-K
STRATEGIC RISK MANAGEMENT
Strategic risk is the risk to earnings, capital, liquidity or
reputation associated with poorly designed or failed
business plans or inadequate response to changes in the
operating environment.
Management and oversight
The Operating Committee and the senior leadership of each
LOB and Corporate are responsible for managing the Firm's
most significant strategic risks. Strategic risks are overseen
by IRM through participation in relevant business reviews,
LOB and Corporate senior management meetings, risk and
control committees and other relevant governance forums
and ongoing discussions. The Board of Directors oversees
management's strategic decisions, and the Board Risk
Committee oversees IRM and the Firm's risk management
framework.
In the process of developing business plans and strategic
initiatives, LOB and Corporate senior management identify
the associated risks that are incorporated into the Firmwide
Risk Identification process and their impact on risk appetite.
In addition, IRM conducts a qualitative assessment of the
LOB and Corporate strategic initiatives to assess their
impact on the risk profile of the Firm.
The Firm's strategic planning process, which includes the
development and execution of strategic initiatives, is one
component of managing the Firm's strategic risk. Guided by
the Firm's How We Do Business Principles (the "Principles"),
the Operating Committee and senior management teams in
each LOB and Corporate review and update the strategic
plan periodically. The process includes evaluating the high-
level strategic framework and performance against prior-
year initiatives, assessing the operating environment,
refining existing strategies and developing new strategies.
These strategic initiatives, along with IRM's assessment, are
incorporated in the Firm's budget and provided to the
Board as part of its review and approval of the Firm's
strategic plan.
The Firm's balance sheet strategy, which focuses on risk-
adjusted returns, strong capital and robust liquidity, is also
a component in the management of strategic risk. Refer to
Capital Risk Management on pages 86-96 for further
information on capital risk. Refer to Liquidity Risk
Management on pages 97-104 for further information on
liquidity risk. Refer to Reputation Risk Management on page
105 for further information on reputation risk.
JPMorgan Chase & Co./2021 Form 10-K
85
148
Each LOB and Treasury & CIO, including their aligned
Operations, Technology and Control Management, are the
Firm's "first line of defense" and own the identification of
risks, as well as the design and execution of controls to
manage those risks. The first line of defense is responsible
for adherence to applicable laws, rules and regulations and
for the implementation of the risk management structure
(which may include policy, standards, limits, thresholds and
controls) established by IRM.
$ 591,913
Three lines of defense
1,657
38,366
(a) Included tax-equivalent adjustments, driven by tax-exempt income
from municipal bonds, of $257 million, $241 million and $314 million
for the years ended December 31, 2021, 2020 and 2019,
respectively.
(b) During the six months ended June 30, 2021, 1,155 technology and
risk management employees were transferred from Corporate to CIB.
Net income was a loss of $3.7 billion compared with a loss
of $1.8 billion in the prior year.
Net revenue was a loss of $3.5 billion, compared with a loss
of $1.2 billion in the prior year.
Net interest income decreased primarily driven by:
•
•
limited opportunities to deploy funds in response to
significant deposit growth across the LOBS, and
the impact of faster prepayments on mortgage-backed
securities in the first half of 2021,
partially offset by
•
higher net interest income on growth in investment
securities.
Noninterest revenue decreased primarily due to:
⚫ net investment securities losses related to repositioning
the investment securities portfolio, compared with net
gains in the prior year from sales of U.S. GSE and
•
government agency MBS,
lower net valuation gains on several legacy equity
investments
partially offset by
•
the absence of losses recorded in the prior year in
Treasury and CIO related to cash deployment
transactions, which were more than offset by the related
net interest income earned on these transactions, also in
the prior year, and
⚫ the absence of losses recorded in the prior year related to
the early termination of certain of the Firm's long-term
debt in Treasury and CIO
Noninterest expense of $1.8 billion was up $429 million
primarily due to a higher contribution to the Firm's
Foundation, investments related to the Firm's international
consumer expansion, technology initiatives, and higher
legal expense, largely offset by the absence of an
impairment on a legacy investment recorded in the prior
year.
Refer to Note 10 and Note 13 for additional information on
the investment securities portfolio and the allowance for
credit losses.
The current period income tax benefit was driven by
changes in the level and mix of income and expenses
subject to U.S. federal and state and local taxes as well as
other tax adjustments, partially offset by the resolutions of
certain tax audits.
JPMorgan Chase & Co./2021 Form 10-K
79
Management's discussion and analysis
1,770
38,952
$1,518,100 $1,359,831 $837,618
1,649
38,033
$ (3,713) $ (1,750) $ 1,111
1,394
(283)
724
1,211
Provision for credit losses
81
66
(1)
Noninterest expense
1,802
1,373
1,067
Income/(loss) before income
tax expense/(benefit)
Income tax expense/(benefit)
(5,366)
(1,653)
Treasury and CIO overview
(2,615)
(865)
$ (3,713) $ (1,750) $
145
(966)
1,111
$
(3,464) (1,368)
(19)
192
(3,483) $ (1,176) $
2,032
(821)
1,211
(3,057)
(656)
(1,403)
(347)
Total net revenue
Treasury and CIO
Other Corporate
Total net revenue
Net income/(loss)
Treasury and CIO
Other Corporate
Total net income/(loss)
Total assets (period-end)
Loans (period-end)
Headcount(b)
Net income/(loss)
The Firm relies upon each area of the Firm giving rise to
risk to operate within the parameters identified by the IRM
function, and within its own management-identified risk and
control standards.
Treasury and CIO is predominantly responsible for
measuring, monitoring, reporting and managing the Firm's
liquidity, funding, capital, structural interest rate and
foreign exchange risks. The risks managed by Treasury and
CIO arise from the activities undertaken by the Firm's four
major reportable business segments to serve their
respective client bases, which generate both on- and off-
balance sheet assets and liabilities.
The investment securities portfolio predominantly consists
of U.S. GSE and government agency and nonagency
mortgage-backed securities, U.S. and non-U.S. government
securities, obligations of U.S. states and municipalities,
other ABS and corporate debt securities. At December 31,
2021, the Treasury and CIO investment securities portfolio,
net of allowance for credit losses, was $670.1 billion, and
the average credit rating of the securities comprising the
portfolio was AA+ (based upon external ratings where
available and, where not available, based primarily upon
internal risk ratings). Refer to Note 10 for further
information on the Firm's investment securities portfolio
and internal risk ratings.
JPMorgan Chase & Co./2021 Form 10-K
FIRMWIDE RISK MANAGEMENT
Risk is an inherent part of JPMorgan Chase's business
activities. When the Firm extends a consumer or wholesale-
loan, advises customers and clients on their investment
decisions, makes markets in securities, or offers other
products or services, the Firm takes on some degree of risk.
The Firm's overall objective is to manage its businesses, and
the associated risks, in a manner that balances serving the
interests of its clients, customers and investors and protects
the safety and soundness of the Firm.
The Firm believes that effective risk management requires,
among other things:
•
•
Acceptance of responsibility, including identification and
escalation of risks by all individuals within the Firm;
Ownership of risk identification, assessment, data and
management within each of the LOBS and Corporate;
and
Firmwide structures for risk governance.
The Firm follows a disciplined and balanced compensation
framework with strong internal governance and
independent oversight by the Board of Directors (the
"Board"). The impact of risk and control issues is carefully
considered in the Firm's performance evaluation and
incentive compensation processes.
Risk governance and oversight framework
The Firm's risk management governance and oversight
framework involves understanding drivers of risks, types of
risks, and impacts of risks.
The Firm's risk governance and oversight functions align to:
Categories
Drivers of Risks
Types of Risks
Factors that
cause a risk
to exist
by which risks
manifest themselves
Impacts of Risks
Consequences of
risks, both
quantitative and
qualitative
Drivers of Risks are factors that cause a risk to exist. Drivers
of risks include the economic environment, regulatory and
government policy, competitor and market evolution,
business decisions, process and judgment error, deliberate
wrongdoing, dysfunctional markets, and natural disasters.
Types of Risks are categories by which risks manifest
themselves. Risks are generally categorized in the following
four risk types:
•
Strategic risk is the risk to earnings, capital, liquidity or
reputation associated with poorly designed or failed
business plans or inadequate response to changes in the
operating environment.
Credit and investment risk is the risk associated with the
default or change in credit profile of a client,
counterparty or customer; or loss of principal or a
reduction in expected returns on investments, including
.
consumer credit risk, wholesale credit risk, and
investment portfolio risk.
Market risk is the risk associated with the effect of
changes in market factors, such as interest and foreign
exchange rates, equity and commodity prices, credit
spreads or implied volatilities, on the value of assets and
liabilities held for both the short and long term.
Operational risk is the risk associated with an adverse
outcome resulting from inadequate or failed internal
processes or systems; human factors; or external events
impacting the Firm's processes or systems. It includes
compliance, conduct, legal, and estimations and model
risk.
Impacts of Risks are consequences of risks, both
quantitative and qualitative. There may be many
consequences of risks manifesting, including quantitative
impacts such as a reduction in earnings and capital,
liquidity outflows, and fines or penalties, or qualitative
impacts such as reputation damage, loss of clients and
customers, and regulatory and enforcement actions.
The Firm's risk governance and oversight framework is
managed on a Firmwide basis. The Firm has an Independent
Risk Management ("IRM") function, which consists of the
Risk Management and Compliance organizations. The Chief
Executive Officer ("CEO") appoints, subject to approval by
the Risk Committee of the Board ("Board Risk Committee”),
the Firm's Chief Risk Officer ("CRO") to lead the IRM
organization and manage the risk governance structure of
the Firm. The framework is subject to approval by the Board
Risk Committee in the form of the Risk Governance and
Oversight Policy. The Firm's CRO oversees and delegates
authorities to LOB CROS, Firmwide Risk Executives ("FRES"),
and the Firm's Chief Compliance Officer ("CCO"), who each
establish Risk Management and Compliance organizations,
set the Firm's risk governance policies and standards, and
define and oversee the implementation of the Firm's risk
governance. The LOB CROS are responsible for risks that
arise in their LOBS, while FRES oversee risk areas that span
across the individual LOBS, functions and regions.
60
80
(b) At December 31, 2021, and 2020, the allowance for credit losses on
investment securities was $42 million and $78 million, respectively.
Refer to Note 10 for further information.
(a) During 2021 and 2020, the Firm transferred $104.5 billion and
$164.2 billion of investment securities, respectively, from AFS to HTM
for capital management purposes.
Selected income statement and balance sheet data
As of or for the year ended
December 31, (in millions)
Held-to-maturity securities
(average) a
2021
2020
2019
Investment securities gains/
(losses)
$
(345) $ 795
$ 258
Available-for-sale securities
(average)
$306,827
$ 413,367
Treasury and CIO seek to achieve the Firm's asset-liability
management objectives generally by investing in high-
quality securities that are managed for the longer-term as
part of the Firm's investment securities portfolio. Treasury
and CIO also use derivatives to meet the Firm's asset-
liability management objectives. Refer to Note 5 for further
information on derivatives. In addition, Treasury and CIO
manage the Firm's cash position primarily through deposits
at central banks and investments in short-term instruments.
Refer to Liquidity Risk Management on pages 97-104 for
further information on liquidity and funding risk. Refer to
Market Risk Management on pages 133-140 for
information on interest rate, foreign exchange and other
risks.
$283,205
94,569
34,939
$ 507,936
$318,144
$306,352
$ 386,065 $348,876
Investment securities portfolio
(average)
Available-for-sale securities
(period-end)
Held-to-maturity securities, net
of allowance for credit losses
(period-end)(a)
Investment securities portfolio,
net of allowance for credit
losses (period-end)(b)
363,707
201,821
47,540
$670,059 $ 587,886 $ 396,416
285,086
2021 compared with 2020
782
$161,863
Total international net revenue
December 31,
53
63
59
72
69
74
5 years
80
72
6,474
75
Total assets
$234,425
$203,384
$173,175
218,271
282,052
186,608
158,149
198,755
142,740
14,000
10,500
Selected balance sheet data
(period-end)(c)
5,403
5,102
(in billions)
732
Multi-asset
463
595
779
Equity
591
671
693
Fixed income
$ 16,957 $14,240 $ 13,591
Total net revenue
539
641 $
708 $
$
Liquidity
8,489
8,837
10,483
North America
Assets by asset class
2019
2020
2021
10,500
Selected balance sheet data
(average)
Total assets
$217,187
964
115
38
19
Allowance for credit losses:
Allowance for loan losses
Allowance for lending-
related commitments
$
365
$
598
$
350
Total allowance for credit
losses
$
383
$
636
$
369
Net charge-off/(recovery)
rate
0.01 %
(0.01)%
Allowance for loan losses to
period-end loans
0.17
0.32
(d)
656
29
$
$181,432
198,487
166,311
147,404
230,296
161,955
135,265
14,000
10,500
10,500
Headcount
22,762
20,683
21,550
Number of Global Private
Bank client advisors
2,738
2,462
2,419
Credit data and quality
statistics)
Loans
Deposits
Equity
Net charge-offs/(recoveries) $ 26
Nonaccrual loans
708
18
$
Allowance for loan losses to
nonaccrual loans
596
$ 561 $ 517 $ 428
(a) Includes CCB client investment assets invested in managed accounts
and J.P. Morgan mutual funds where AWM is the investment manager.
(b) In the first quarter of 2021, Institutional and Retail client segments
were renamed to Global Institutional and Global Funds, respectively.
This did not result in a change to the clients within either client
segment.
(a) Regional revenue is based on the domicile of the client.
3,089
$ 4,295 $ 3,652 $
Total client assets
2,150
2,534
3,032
North America
1,581 $ 1,359
1,311
1,106
885
760
624
4,295 $ 3,652 $ 3,089
$
Client assets (continued)
Total client assets (a)
Global Fundsb
1,479
Global Institutional (b)
1,931 $
$
Private Banking
939
1,118
1,263
Total international client assets
147
(b)
Year ended December 31,
(in billions)
2021
2020
36
61
104
68
78
Ending balance, December 31
Market/performance/other
impacts
Net asset flows
Beginning balance
Client assets rollforward
Ending balance, December 31
impacts
Market/performance/other
Alternatives
Multi-asset
Equity
Fixed income
Liquidity
Net asset flows:
1,958
$ 2,716 $ 2,328 $
Beginning balance
Assets under management
rollforward
2019
166
195
Latin America/Caribbean
619
Total client assets (a)
761
936
1,182
administration/deposits
682
811
894
Total international assets under
management
Custody/brokerage/
2,328
2,716
3,113
Total assets under management
62
70
79
Latin America/Caribbean
139
153
201
Alternatives
192
224
254
$ 4,295 $ 3,652 $ 3,089
Assets under management
Europe/Middle East/Africa
Asia-Pacific
North America
Total assets under management
754
2,716 $2,328
272
330
381
520
622 $
687 $
$
Europe/Middle East/Africa
Asia-Pacific
1,081
628
689 $
1,273
805 $
1,430
878
3,113 $
Total assets under management $
(b)
Global Fundsb
Global Institutional (b)
$
Private Banking
Client assets
Assets by client segment
2,328
1,646
1,905
2,716 $
$ 3,113 $
2,219
(d)
(14)
62
CORPORATE
The Corporate segment consists of Treasury and Chief
Investment Office and Other Corporate, which includes
corporate staff functions and expense that is centrally
managed. Treasury and CIO is predominantly
responsible for measuring, monitoring, reporting and
managing the Firm's liquidity, funding, capital,
structural interest rate and foreign exchange risks. The
major Other Corporate functions include Real Estate,
Technology, Legal, Corporate Finance, Human
Resources, Internal Audit, Risk Management,
Compliance, Control Management, Corporate
Responsibility and various Other Corporate groups.
Selected income statement and balance sheet data
Year ended December 31,
(in millions, except headcount)
2021
2020
JPMorgan Chase & Co./2021 Form 10-K
2019
Principal transactions
$
187 $
245 $
(461)
Investment securities gains/
(losses)
Revenue
4,295 $ 3,652 $ 3,089
294
287
17
5
2
26
6
2
165
192
212
$ 3,113 $
2,716 $ 2,328
$ 3,652 $
389
3.089 $ 2,619
276
176
$
254
All other income
(11)
(345)
226
258
Deposits
Loans
3 years
1 year
ranked in 1
quartile:D
% of JPM mutual fund assets
1st
or 2nd
(in millions, except ranking
data, ratios and headcount)
% of JPM mutual fund assets
rated as 4- or 5-star (a)
52
As of or for the year ended
December 31,
• Percentage of mutual fund assets under management in funds
ranked in the 1st or 2nd quartile (one, three and five years): All
quartile rankings, the assigned peer categories and the asset values
used to derive these rankings are sourced from the fund rating
providers. Quartile rankings are based on the net-of-fee absolute
return of each fund. Where applicable, the fund rating providers
redenominate asset values into U.S. dollars. The percentage of AUM is
based on fund performance and associated peer rankings at the share
class level for U.S.-domiciled funds, at a "primary share class" level to
represent the quartile ranking for U.K., Luxembourg and Hong Kong
SAR funds and at the fund level for all other funds. The performance
data may have been different if all share classes had been included.
Past performance is not indicative of future results.
"Primary share class" means the C share class for European funds and
Acc share class for Hong Kong SAR and Taiwan funds. If these share
classes are not available, the oldest share class is used as the primary
share class.
• Percentage of mutual fund assets under management in funds
rated 4- or 5-star: Mutual fund rating services rank funds based on
their risk adjusted performance over various periods. A 5-star rating
is the best rating and represents the top 10% of industry-wide ranked
funds. A 4-star rating represents the next 22.5% of industry-wide
ranked funds. A 3-star rating represents the next 35% of industry-
wide ranked funds. A 2-star rating represents the next 22.5% of
industry-wide ranked funds. A 1-star rating is the worst rating and
represents the bottom 10% of industrywide ranked funds. An overall
Morningstar rating is derived from a weighted average of the
performance associated with a fund's three-, five and ten-year (if
applicable) Morningstar Rating metrics. For U.S.-domiciled funds,
separate star ratings are provided at the individual share
class level. The Nomura "star rating" is based on three-year risk-
adjusted performance only. Funds with fewer than three years of
history are not rated and hence excluded from these rankings. All
ratings, the assigned peer categories and the asset values used to
derive these rankings are sourced from the applicable fund rating
provider. Where applicable, the fund rating providers redenominate
asset values into U.S. dollars. The percentage of AUM is based on star
ratings at the share class level for U.S.-domiciled funds, and at a
"primary share class" level to represent the star rating of all other
funds, except for Japan, for which Nomura provides ratings at the
fund level. The performance data may have been different if all share
classes had been included. Past performance is not indicative of
future results.
U.S. funds, as set forth below, in order to establish a more consistent
approach across these products. Prior periods in the following table
have been revised to conform to the current presentation.
Effective September 2021, AWM changed the source for the peer
group quartile rankings of its funds from Lipper to Morningstar for
U.S.-domiciled funds (except for "Municipals" and "Investor" funds,
for which the source remains Lipper) and Taiwan domiciled funds.
AWM evaluates fund performance utilizing this peer group ranking
and believes that it provides investors with comparability across the
industry. This change resulted in both positive and negative impacts
on the quartile rankings for prior periods, as compared to how they
would have been ranked by Lipper. In addition, AWM has changed its
selection of the "primary share class" for certain non-
Asset Management has two high-level measures of its
overall fund performance.
.
886
Selected metrics
2021
2020
69 %
159
89
Noninterest revenue
68
1,199
(114)
Net interest income
(3,551)
(2,375)
1,325
Total net revenue (a)
(3,483)
(1,176)
66%
2019
36
63 %
795
33
Equity
104
2,869
$ 3,571 $ 2,956 $
2,017
2019
2020
2021
Latin America/Caribbean
Total net revenue (in millions)(a)
Europe/Middle East/Africa
Asia-Pacific
(in billions, except where otherwise
noted)
Year ended December 31,
International metrics
Client assets were $4.3 trillion, an increase of 18%. Assets
under management were $3.1 trillion, an increase of 15%
driven by cumulative net inflows and the impact of higher
market levels.
2021 compared with 2020
Client assets
Management's discussion and analysis
1,665
77
presentation.
(d) Prior-period amount has been revised to conform with the current
(c) Loans, deposits and related credit data and quality statistics relate to
the Global Private Bank business.
(b) Quartile ranking sourced from Morningstar, Lipper and Nomura based
on country of domicile. Includes only Asset Management retail open-
ended mutual funds that are ranked by the aforementioned sources.
Excludes money market funds, Undiscovered Managers Fund, and
Brazil domiciled funds. Prior-period amounts were revised to conform
with the current period presentation.
(a) Represents the Morningstar Rating for all domiciled funds except for
Japan domiciled funds which use Nomura. Includes only Asset
Management retail open-ended mutual funds that have a rating.
Excludes money market funds, Undiscovered Managers Fund, and
Brazil domiciled funds. Prior-period amounts were revised to conform
with the current period presentation.
0.07
0.52
(d)
0.22
0.02 %
0.32
Nonaccrual loans to period-
end loans
304
85
JPMorgan Chase & Co./2021 Form 10-K
1,509
Client assets
48
13.8 %
4Q 2020 30 2021
Standardized
4.0 %
0
Advanced
December 31,
2020(a)
Capital ratio
requirements
Standardized
4Q 2021
(b)
$
205,078
$ 213,942 $
205,078
246,162
274,900
234,844
246,162
234,844
$ 213,942
All banking institutions are currently required to have a
minimum CET1 capital ratio of 4.5% of risk-weighted
assets.
Certain banking organizations, including the Firm, are
required to hold additional levels of capital to serve as a
"capital conservation buffer". The capital conservation
buffer incorporates a global systemically important bank
("GSIB") surcharge, a discretionary countercyclical capital
buffer and a fixed capital conservation buffer of 2.5% for
Advanced regulatory capital requirements and a variable
SCB requirement, floored at 2.5%, for Standardized
regulatory capital requirements.
Advanced
Failure to maintain regulatory capital equal to or in excess
of the risk-based regulatory capital minimum plus the
capital conservation buffer (inclusive of the GSIB surcharge)
and any countercyclical buffer will result in limitations to
the amount of capital that the Firm may distribute, such as
through dividends and common share repurchases, as well
as certain executive discretionary bonus payments.
The U.S. federal regulatory capital standards include a
framework for setting a discretionary countercyclical capital
buffer taking into account the macro financial environment
in which large, internationally active banks function. As of
December 31, 2021, the U.S. countercyclical capital buffer
remained at 0%. The Federal Reserve will continue to
review the buffer at least annually. The buffer can be
increased if the Federal Reserve, FDIC and OCC determine
that systemic risks are meaningfully above normal and can
be calibrated up to an additional 2.5% of RWA subject to a
12-month implementation period.
The Firm's Method 2 surcharge calculated using data as of
December 31, 2020 is 4.0%, which will be effective
January 1, 2023. The Firm's estimated Method 2 surcharge
calculated using data as of December 31, 2021 is 4.5%.
Accordingly, based on the GSIB rule currently in effect, the
Firm's effective GSIB surcharge is expected to increase to
4.5% on January 1, 2024 unless the Firm's Method 2 GSIB
surcharge calculation based upon data as of December 31,
2022 is lower.
On November 23, 2021, the FSB released its annual GSIB
list based upon data as of December 31, 2020, which
announced the Firm's Method 1 GSIB surcharge of 2.5%
(up from 2.0%) effective January 1, 2023, unless the
Firm's Method 1 GSIB surcharge, as determined by the FSB,
is lower based upon data as of December 31, 2021.
2020
2.5 %
3.5 %
2.0 %
3.5 %
2.0 %
3.5 %
2021
6.9 %
2022
Method 1
The following table presents the Firm's effective GSIB
surcharge for the years ended December 31, 2021 and
2020. For 2022, the Firm's effective GSIB surcharge under
both Method 1 and Method 2 remains unchanged at 2.0%
and 3.5%, respectively.
Management's discussion and analysis
89
JPMorgan Chase & Co./2021 Form 10-K
Under the Federal Reserve's GSIB rule, the Firm is required
to assess its GSIB surcharge on an annual basis under two
separately prescribed methods based on data for the
previous fiscal year-end, and is subject to the higher of the
two. "Method 1", reflects the GSIB surcharge as prescribed
by the Basel Committee's assessment methodology, and is
calculated by the Financial Stability Board ("FSB") across
five criteria: size, cross-jurisdictional activity,
interconnectedness, complexity and substitutability.
"Method 2", calculated by the Firm, modifies the Method 1
requirements to include a measure of short-term wholesale
funding in place of substitutability, and introduces a GSIB
score "multiplication factor".
4Q 2020 40 2021
-
Method 2
15.8
5.4 %
$
Tier 1 capital ratio
17.3
269,923
17.2
14.7
10.5 %
12.0
265,796
257,228
Total capital ratio
1,638,900
13.1 %
13.1 %
11.2 %
15.0
16.8
15.0
17.3
12.7
1,547,920
13.8 %
15.9
1,484,431
1,560,609
3,401,542
14.0
Three months ended
4,571,789
$
7.0 %
6.5 %
3,353,319
$
3,782,035
$
(a) The capital metrics reflect the CECL capital transition provisions. Additionally, loans originated under the PPP receive a zero percent risk weight.
(b) Represents minimum requirements and regulatory buffers applicable to the Firm. For the period ended December 31, 2020, the Basel III Standardized
CET1, Tier 1, and Total capital ratio requirements applicable to the Firm were 11.3%, 12.8%, and 14.8%, respectively. Refer to Note 27 for additional
information.
Capital ratio
requirements (d)
December 31, 2021(b)
SLR
Total leverage exposure
Tier 1 leverage ratio
The Firm believes that it will operate with a Basel III
Standardized CET1 capital ratio between 12.0% and 13.0%
in the near term, based on the Basel III capital rules
currently in effect, and with consideration for an increase in
the GSIB surcharge in 2023.
Adjusted average assets (a)
Leverage-based capital metrics:
(in millions, except ratios)
December 31, 2020 (b)(c)
Total Loss-Absorbing Capacity
December 31,
2021(a)
Leverage-based Capital Regulatory Requirements
December 31,
2021(a)
expect to realize material credit losses on PPP loans
because the loans are guaranteed by the SBA. As of
December 31, 2021, the Firm had $6.7 billion of loans
Management's discussion and analysis
87
JPMorgan Chase & Co./2021 Form 10-K
Paycheck Protection Program. The federal banking agencies
issued a final rule in September 2020 to neutralize the
regulatory capital effects of participating in the PPP on risk-
based capital ratios by applying a zero percent risk weight
to loans originated under the program. The Firm does not
The CECL capital transition provisions have also been
incorporated into Tier 2 capital, adjusted average assets,
and total leverage exposure and are also subject to the
three-year transition period beginning January 1, 2022.
Refer to Note 1 for further information on the CECL
accounting guidance.
As of December 31, 2021, the capital metrics of the Firm
reflected the benefit of the CECL capital transition
provisions of $2.9 billion, which will be phased in at 25%
per year beginning January 1, 2022.
remaining under the program.
CECL regulatory capital transition. The Firm elected to apply
the CECL capital transition provisions as permitted by the
federal banking agencies which delayed the effects of CECL
on regulatory capital for two years until January 1, 2022,
followed by a three-year transition period ("CECL capital
transition provisions").
COVID-19 Pandemic
Basel III establishes capital requirements for calculating
credit risk RWA and market risk RWA, and in the case of
Basel III Advanced, operational risk RWA. Key differences in
the calculation of credit risk RWA between the Standardized
and Advanced approaches are that for Basel III Advanced,
credit risk RWA is based on risk-sensitive approaches which
largely rely on the use of internal credit models and
parameters, whereas for Basel III Standardized, credit risk
RWA is generally based on supervisory risk-weightings
which vary primarily by counterparty type and asset class.
Market risk RWA is calculated on a generally consistent
basis between Basel III Standardized and Basel III Advanced.
In addition to the RWA calculated under these approaches,
the Firm may supplement such amounts to incorporate
management judgment and feedback from its regulators.
Basel III also includes a requirement for Advanced
Approaches banking organizations, including the Firm, to
calculate the SLR. The Firm's SLR is currently more binding
than the Basel III Standardized-risk-based ratios. Refer to
SLR on page 93 for additional information.
weighted according to risk. Two comprehensive approaches
are prescribed for calculating RWA: a standardized
approach ("Basel III Standardized"), and an advanced
approach ("Basel III Advanced"). For each of the risk-based
capital ratios, the capital adequacy of the Firm is evaluated
against the lower of the Standardized or Advanced
approaches compared to their respective regulatory capital
ratio requirements. The Firm's Basel III Standardized-risk-
based ratios are currently more binding than the Basel III
Advanced-risk-based ratios.
The capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. BHCs and banks, including the
Firm and its IDI subsidiaries, including JPMorgan Chase
Bank, N.A. The minimum amount of regulatory capital that
must be held by BHCs and banks is determined by
calculating risk-weighted assets ("RWA"), which are on-
balance sheet assets and off-balance sheet exposures,
Basel III Overview
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
minimum capital requirements and standards for the Firm's
IDI subsidiaries, including JPMorgan Chase Bank, N.A. The
U.S. capital requirements generally follow the Capital
Accord of the Basel Committee, as amended from time to
time.
Regulatory capital
The Firm's Contingency Capital Plan establishes the capital
management framework for the Firm and specifies the
principles underlying the Firm's approach towards capital
management in normal economic conditions and during
stress. The Contingency Capital Plan defines how the Firm
calibrates its targeted capital levels and meets minimum
capital requirements, monitors the ongoing
appropriateness of planned capital distributions, and sets
out the capital contingency actions that are expected to be
taken or considered at various levels of capital depletion
during a period of stress.
The Firm has been impacted by market events as a result of
the COVID-19 pandemic, but has remained well-capitalized.
Key Regulatory Developments
Contingency Capital Plan
Total leverage exposure for purposes of calculating the SLR
includes PPP loans as the Firm did not participate in the
Federal Reserve's Paycheck Protection Program Lending
Facility, which would have allowed the Firm to exclude them
under the final rule.
Standardized Approach for Counterparty Credit Risk. In
November 2019, the U.S. banking regulators adopted a rule
implementing "Standardized Approach for Counterparty
Credit Risk" ("SA-CCR"), which replaced the current
exposure method used to measure derivatives counterparty
exposure under Standardized approach RWA, as well as
leverage exposure used to calculate the SLR in the
regulatory capital framework. The rule applies to Basel III
Advanced Approaches banking organizations, such as the
Firm and JPMorgan Chase Bank, N.A., with a mandatory
compliance date of January 1, 2022.
3.30%
Capital
10.50%
11.20%
11.30%
T
T
10-
TLAC Holdings rule. On October 20, 2020, the federal
banking agencies issued a final rule prescribing the
regulatory capital treatment for holdings of Total Loss-
Absorbing Capacity ("TLAC") debt instruments by certain
large banking organizations, such as the Firm and JPMorgan
Chase Bank, N.A. This rule expanded the scope of the prior
capital deductions rule relating to the holdings of capital
instruments of financial institutions to also include TLAC
debt instruments issued by systemically important banking
organizations. The final rule became effective April 1, 2021
and did not have a material impact on the Firm's risk-based
capital metrics.
12-
as of 12/31/21: 13.1%
CET1 capital ratio
The Firm's Basel III Standardized
The following chart presents the Firm's Basel III CET1 capital ratio requirements under the Basel III rules currently in effect.
Risk-based Capital Regulatory Requirements
JPMorgan Chase & Co./2021 Form 10-K
88
Based on the derivatives exposure as of December 31,
2021, the adoption of SA-CCR is estimated to increase the
Firm's Standardized RWA by approximately $40 billion and
result in a modest decrease in its total leverage
exposure. These estimates may differ from the actual
impact based on the composition of the Firm's derivatives
exposure as of March 31, 2022.
14
The Federal Reserve's TLAC rule requires the U.S. GSIB top-
tier holding companies, including the Firm, to maintain
minimum levels of external TLAC and eligible long-term
debt ("eligible LTD"). Refer to TLAC on page 95 for
additional information.
Stress testing assesses the potential impact of alternative
economic and business scenarios on the Firm's earnings
and capital. Economic scenarios, and the parameters
underlying those scenarios, are defined centrally and
applied uniformly across the businesses. These scenarios
are articulated in terms of macroeconomic factors, which
are key drivers of business results; global market shocks,
which generate short-term but severe trading losses; and
idiosyncratic operational risk events. The scenarios are
intended to capture and stress key vulnerabilities and
idiosyncratic risks facing the Firm. In addition to CCAR and
other periodic stress testing, management also considers
tailored stress scenarios and sensitivity analyses, as
necessary.
Internal Capital Adequacy Assessment Process
(b)
Capital ratio
requirements
2020(a)
Standardized
December 31,
CET1 capital ratio
Risk-weighted assets
Total capital
Tier 1 capital
Minimum
requirement
CET1 capital
The following tables present the Firm's risk-based capital metrics under both the Basel III Standardized and Advanced
approaches and leverage-based capital metrics.
JPMorgan Chase & Co./2021 Form 10-K
90
In addition to meeting the capital ratio requirements of
Basel III, the Firm and its IDI subsidiaries must also
maintain minimum capital and leverage ratios in order to be
"well-capitalized" under the regulations issued by the
Federal Reserve and the Prompt Corrective Action ("PCA")
requirements of the FDIC Improvement Act ("FDICIA"),
respectively. Refer to Note 27 for additional information.
Additional information regarding the Firm's capital ratios,
as well as the U.S. federal regulatory capital standards to
which the Firm is subject, is presented in Note 27. Refer to
the Firm's Pillar 3 Regulatory Capital Disclosures reports,
which are available on the Firm's website, for further
information on the Firm's Basel III measures.
Failure to maintain an SLR equal to or greater than the
regulatory requirement will result in limitations on the
amount of capital that the Firm may distribute such as
through dividends and common share repurchases, as well
as on certain executive discretionary bonus payments.
Other regulatory capital
The SLR is defined as Tier 1 capital under Basel III divided
by the Firm's total leverage exposure. Total leverage
exposure is calculated by taking the Firm's total average
on-balance sheet assets, less amounts permitted to be
deducted for Tier 1 capital, and adding certain off-balance
sheet exposures, such as undrawn commitments and
derivatives potential future exposure.
Banking organizations subject to the Basel III Advanced
approach are currently required to have a minimum SLR of
3.0%. Certain banking organizations, including the Firm,
are also required to hold an additional 2.0% leverage
buffer.
Supplementary leverage ratio
(in millions, except ratios)
Risk-based capital metrics:
Annually, the Firm prepares the ICAAP, which informs the
Board of Directors of the ongoing assessment of the Firm's
processes for managing the sources and uses of capital as
well as compliance with supervisory expectations for capital
planning and capital adequacy. The Firm's ICAAP integrates
stress testing protocols with capital planning. The Firm's
Audit Committee is responsible for reviewing and approving
the capital stress testing control framework.
2
4.50%
Refer to Capital actions on page 94 for information on
actions taken by the Firm's Board of Directors following the
2021 CCAR results.
5.0 %
3.20%
2.50%
conservation
buffer incl. GSIB & SCB
8
Stress capital
4.50%
3.50%
3.50%
buffer
6
Fixed capital
conservation buffer
4
GSIB surcharge
4.50%
3.50%
(a) Adjusted average assets, for purposes of calculating the leverage ratios, includes total quarterly average assets adjusted for on-balance sheet assets that
are subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets.
Adjustment related to AOCI (a)
(c) Total leverage exposure for purposes of calculating the SLR excludes U.S. Treasury securities and deposits at Federal Reserve Banks, as provided by the
rule issued by the Federal Reserve which became effective April 1, 2020 and remained in effect through March 31, 2021. The SLR excluding the relief was
5.8% for the period ended December 31, 2020.
During the year ended December 31, 2021, the Firm issued
and redeemed several series of non-cumulative preferred
stock. Additionally, on December 31, 2021, the Firm
announced the redemption of $2.0 billion of its fixed-to-
floating rate non-cumulative preferred stock, Series Z and
subsequently redeemed those securities on February 1,
2022. Refer to Note 21 for additional information on the
Firm's preferred stock, including the issuance and
redemption of preferred stock.
Preferred stock dividends declared were $1.6 billion for the
year ended December 31, 2021.
Preferred stock
The Board of Director's authorization to repurchase
common shares is utilized at management's discretion, and
the timing of purchases and the exact amount of common
shares that may be repurchased is subject to various
factors, including market conditions; legal and regulatory
considerations affecting the amount and timing of
repurchase activity; the Firm's capital position (taking into
account goodwill and intangibles); internal capital
generation; and alternative investment opportunities. The
repurchase program does not include specific price targets
or timetables; may be suspended by management at any
time; and may be executed through open market purchases
or privately negotiated transactions, or utilizing Rule
10b5-1 plans, which are written trading plans that the Firm
may enter into from time to time under Rule 10b5-1 of the
Securities Exchange Act of 1934 and which allow the Firm
to repurchase its common shares during periods when it
may otherwise not be repurchasing common shares - for
example, during internal trading blackout periods.
Refer to Part II, Item 5: Market for Registrant's Common
Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities on page 35 of the 2021 Form 10-K for
additional information regarding repurchases of the Firm's
equity securities.
The following table sets forth the Firm's repurchases of
common stock for the years ended December 31, 2021,
2020 and 2019.
Refer to capital planning and stress testing on pages 86-87
for additional information.
On June 24, 2021, the Federal Reserve announced that the
temporary restrictions on capital distributions would expire
on June 30, 2021 as a result of the Firm remaining above
its minimum risk-based capital requirements under the
2021 CCAR stress test. Effective July 1, 2021, the Firm
became subject to the normal capital distribution
restrictions provided under the regulatory capital
framework. The Firm continues to be authorized to
repurchase common shares under its existing common
share repurchase program previously approved by the
Board of Directors.
On December 18, 2020, the Federal Reserve announced
that all large banks, including the Firm, could resume share
repurchases commencing in the first quarter of 2021.
Subsequently, the Firm announced that its Board of
Directors authorized a new common share repurchase
program for up to $30 billion. As directed by the Federal
Reserve, total net repurchases and common stock dividends
in the first and second quarters of 2021 were restricted and
could not exceed the average of the Firm's net income for
the four preceding calendar quarters.
2019
31 %
Year ended December 31, (in millions)
Total number of shares of common
stock repurchased
2020
40 %
Year ended December 31,
Common dividend payout ratio
Common stock
The following table shows the common dividend payout
ratio based on net income applicable to common equity.
The Firm's quarterly common stock dividend is currently
$1.00 per share. The Firm's dividends are subject to
approval by the Board of Directors on a quarterly basis.
Refer to Note 21 and Note 26 for information regarding
dividend restrictions.
The Firm's common stock dividends are planned as part of
the Capital Management governance framework in line with
the Firm's capital management objectives.
Common stock dividends
Capital actions
Management's discussion and analysis
93
JPMorgan Chase & Co./2021 Form 10-K
2021
25 %
$ 259.3 $ 249.3
2021
2019
Surplus/
(shortfall)
requirements
Regulatory
% of RWA
(in billions,
except ratio)
Total eligible
amount
The following table presents the eligible external TLAC and
eligible LTD amounts, as well as a representation of the
amounts as a percentage of the Firm's total RWA and total
leverage exposure applying the impact of the CECL capital
transition provisions as of December 31, 2021 and 2020.
External TLAC requirement
The external TLAC requirements and the minimum level of
eligible long-term debt requirements are shown below:
The Federal Reserve's TLAC rule requires the U.S. GSIB top-
tier holding companies, including the Firm, to maintain
minimum levels of external TLAC and eligible long-term
debt.
2020(a)
Total Loss-Absorbing Capacity
JPMorgan Chase & Co./2021 Form 10-K
94
24
(a) On March 15, 2020, in response to the economic disruptions caused
by the COVID-19 pandemic, the Firm temporarily suspended
repurchases of its common stock. Subsequently, the Federal Reserve
directed all large banks, including the Firm, to discontinue net share
repurchases through the end of 2020.
$ 18,448 $ 6,397 $ 24,121
Aggregate purchase price of common
stock repurchases
213.0
50.0
119.7
Other capital requirements
December 31, 2021
External
TLAC
259.3
84.8
Line of business equity
Refer to Note 27 for JPMorgan Chase Bank, N.A.'s SLR.
(d) The SLR excluding the relief was 5.8% for the period ended December
31, 2020.
(c) Off-balance sheet exposures are calculated as the average of the three
month-end spot balances on applicable regulatory exposures during
the reporting quarter. Refer to the Firm's Pillar 3 Regulatory Capital
Disclosures reports for additional information.
(a) For purposes of calculating the SLR, includes total quarterly average
assets adjusted for on-balance sheet assets that are subject to
deduction from Tier 1 capital, predominantly goodwill, other intangible
assets and adjustments for the CECL capital transition provisions.
(b) Adjusted average assets used for the calculation of Tier 1 leverage
ratio.
(d)
6.9 %
5.4 %
681,755
$3,401,542
Each business segment is allocated capital by taking into
consideration a variety of factors including capital levels of
similarly rated peers and applicable regulatory capital
requirements. ROE is measured and internal targets for
expected returns are established as key measures of a
business segment's performance.
$4,571,789
46,499
3,353,319
49,620
3,782,035
789,754
3,399,818
$ 246,162 $ 234,844
3,831,655
December 31, December 31,
2021
2020
SLR
Total leverage exposure
and Federal Reserve Bank
deposits
Less: Exclusion for U.S. Treasuries
729,978
Total common stockholders' equity $
The Firm's allocation methodology incorporates Basel III
Standardized RWA, Basel III Advanced RWA, the GSIB
surcharge, and a simulation of capital in a severe stress
environment. As of January 1, 2022, the Firm has changed
its line of business capital allocations primarily as a result of
changes in RWA for each LOB and to reflect an increase in
the Firm's GSIB surcharge to 4.0% that will be effective
January 1, 2023. The assumptions and methodologies used
to allocate capital are periodically reassessed and as a
result, the capital allocated to the LOBS may change from
time to time.
Line of business equity (Allocated capital)
88.3
64.3
Corporate
10.5
14.0
17.0
Asset & Wealth Management
22.0
24.0
The following table presents the capital allocated to each
business segment.
25.0
80.0
83.0
2020
2021
50.0 $ 52.0
January 1,
2022
50.0 $
103.0
$
Consumer & Community Banking
Corporate & Investment Bank
(b) The capital metrics reflect the CECL capital transition provisions.
December 31,
Commercial Banking
LTD
December 31, 2020 (a)
External
TLAC
LTD
December 31, 2021
The following table presents J.P. Morgan Securities' net
capital:
J.P. Morgan Securities has elected to compute its minimum
net capital requirements in accordance with the
"Alternative Net Capital Requirements" of the Net Capital
Rule.
JPMorgan Chase's principal U.S. broker-dealer subsidiary is
J.P. Morgan Securities. J.P. Morgan Securities is subject to
Rule 15c3-1 under the Securities Exchange Act of 1934
(the "Net Capital Rule"). J.P. Morgan Securities is also
registered as a futures commission merchant and is subject
to regulatory capital requirements, including those imposed
by the SEC, Commodity Futures Trading Commission
("CFTC"), Financial Industry Regulatory Authority ("FINRA")
and the National Futures Association ("NFA").
J.P. Morgan Securities
Broker-dealer regulatory capital
Management's discussion and analysis
95
JPMorgan Chase & Co./2021 Form 10-K
(in millions)
Refer to Part I, Item 1A: Risk Factors on pages 9-33 of the
2021 Form 10-K for information on the financial
consequences to holders of the Firm's debt and equity
securities in a resolution scenario.
(a) Total leverage exposure excludes U.S. Treasury securities and deposits
at Federal Reserve Banks, as provided by the rule issued by the
Federal Reserve which became effective April 1, 2020 and remained in
effect through March 31, 2021.
Failure to maintain TLAC equal to or in excess of the
regulatory minimum plus applicable buffers will result in
limitations on the amount of capital that the Firm may
distribute, such as through dividends and common share
repurchases, as well as on certain executive discretionary
bonus payments.
(a) RWA is the greater of Standardized and Advanced compared to their
respective regulatory capital ratio requirements.
of total
leverage
exposure
Greater
of
4.5%
Greater of Method 1
and Method 2 GSIB
surcharge
long-term debt
Minimum level of eligible
Refer to Risk-based Capital Regulatory Requirements on
pages 89-90 for further information on the GSIB surcharge.
Refer to Liquidity Risk Management on pages 97-104 for
further information on long-term debt issued by the Parent
Company.
6% of RWA (a)
Net Capital
$ 24,581 $
JPMorgan Chase & Co./2021 Form 10-K
96
(a) Represents minimum requirements excluding additional capital
requirements (i.e. capital buffers) specified by the PRA. J.P. Morgan
Securities plc's capital ratios as of December 31, 2021 exceeded the
minimum requirements, including the additional capital requirements
specified by the PRA.
8.0 %
4.5 %
Total capital ratio
CET1 ratio
18.5 %
23.7 %
54,818
Actual
$
(in millions, except ratios)
Regulatory
Total capital
J.P. Morgan Securities registered with the SEC as a security-
based swap dealer effective November 1, 2021 and
continues to be registered with the CFTC as a swap dealer.
As a result of additional SEC and CFTC capital and financial
reporting requirements for security-based swap dealers and
swap dealers, J.P. Morgan Securities is subject to alternative
minimum net capital requirements and required to hold
"tentative net capital" in excess of $5.0 billion (up from
$1.0 billion). J.P. Morgan Securities is also required to
notify the SEC and CFTC in the event that its tentative net
capital is less than $6.0 billion (up from $5.0 billion).
Tentative net capital is net capital before deducting market
and credit risk charges as defined by the Net Capital Rule.
As of December 31, 2021, J.P. Morgan Securities
maintained tentative net capital in excess of the minimum
and notification requirements.
December 31, 2021
The following table presents J.P. Morgan Securities plc's
capital metrics:
J.P. Morgan Securities plc is a wholly-owned subsidiary of
JPMorgan Chase Bank, N.A. and has authority to engage in
banking, investment banking and broker-dealer activities.
J.P. Morgan Securities plc is jointly regulated by the U.K.
Prudential Regulation Authority ("PRA") and the Financial
Conduct Authority ("FCA"). J.P. Morgan Securities plc is
subject to the European Union Capital Requirements
Regulation, as adopted in the U.K., and the PRA capital
rules, each of which have implemented Basel III and thereby
subject J.P. Morgan Securities plc to its requirements.
The Bank of England requires that U.K. banks, including U.K.
regulated subsidiaries of overseas groups, maintain a
minimum requirement for own funds and eligible liabilities
("MREL"). The MREL requirements were subject to a phased
implementation and became fully-phased in on January 1,
2022. As of December 31, 2021, J.P. Morgan Securities plc
was compliant with the fully-phased in requirements of the
MREL rule.
J.P. Morgan Securities plc
Minimum
5,968
Estimated Minimum ratios (a)
28.3
4.6 $ 97.9 $
$
33.1
$
62.1
$
54.7
$
95.9
$
9.5
18% of RWA (a)
23.0
22.5
11.6 %
27.0 %
12.8 %
28.4 %
$ 181.4
$ 421.0
$ 210.4
$ 464.6
9.5
+
applicable
buffers, including
$ 30.3
(shortfall)
Surplus/
4.5
9.5
4.5
9.5
requirements
2.0% buffer
Regulatory
+
5.3 %
12.4 %
4.6 %
10.2 %
exposure
% of total
leverage
Method 1 GSIB
surcharge
exposure
7.5%
of total
leverage
Greater
of
Total adjusted average assets (b)
Add: Off-balance sheet exposures (c)
Less: Regulatory capital
adjustments
(in billions)
(in millions, except ratio)
Tier 1 capital
$
Total average assets
$
capital
$ 234,844
December 31, 2020
Standardized/Advanced Tier 1
Standardized/Advanced Tier 1 capital at
297
234,844
(e)
8,864
Change in Standardized/Advanced CET1 capital
Standardized/Advanced CET1 capital at
December 31, 2021
205,078
30,063
34,838
2,618
Less: Other Tier 1 adjustments
Preferred stock
213,942
capital
Standardized/Advanced CET1
$ 213,942
904
Change in CET1 capital (b)
Long-term debt and other
$
Standardized Total capital
$
Standardized Tier 2 capital
Other
15,012
losses
11,318
Change in Standardized/Advanced Tier 1 capital
8,864
Qualifying allowance for credit
2,775
Net issuance of noncumulative perpetual preferred stock
Other
16,645
$
14,106
$
capital
instruments qualifying as Tier 2
(c)
(321)
18,372
(380)
62
28,738 $ 35,079
274,900 $ 269,923
882
(4,106)
$ 279,354
30,063
249,291
259,289
Common stockholders' equity
294,127
34,838
$
Total stockholders' equity
Less: Preferred stock
December 31,
2020
December 31,
2021
(in millions)
2020
2021
Year Ended December 31, (in millions)
The following table presents the changes in Basel III CET1
capital, Tier 1 capital and Tier 2 capital for the year ended
December 31, 2021.
Capital rollforward
The following table presents reconciliations of total
stockholders' equity to Basel III CET1 capital, Tier 1 capital
and Total capital as of December 31, 2021 and 2020.
Capital components
Management's discussion and analysis
91
JPMorgan Chase & Co./2021 Form 10-K
(d) Represents minimum requirements and regulatory buffers applicable to the Firm. Refer to Note 27 for additional information.
Standardized/Advanced CET1 capital at December 31,
Other intangible assets
$205,078
46,734
2,972
(8,070)
21
(17,231)
Changes related to other CET1 capital adjustments (b)
Changes in additional paid-in capital
Net purchase of treasury stock
49,248
50,315
Net income applicable to common equity
Dividends declared on common stock
Goodwill
Changes related to AOCI
3,486
3,351
Other CET1 capital adjustments (b)
2,453
2,499
Certain deferred tax liabilities (a)
Add:
(11,456)
Less:
Standardized/Advanced Tier 1 capital at
December 31, 2021
246,162
Standardized Tier 2 capital at December 31, 2020
6,905
56,027
94,486
7,367
87,119
Movement in portfolio levels (c)
(3,640)
(3,640)
(5,300)
Changes in RWA
(5,300)
(15,984)
1,484,431
385,191 $
96,910 $
(8,309)
(7,675)
(10,895)
(8,309)
(2,586)
Model & data changes (a)
Portfolio runoff (b)
1,002,330 $
79,233
$ 1,543,452 $
Three months ended
The following table presents the components of the Firm's
SLR.
Supplementary leverage ratio
Refer to the Firm's Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm's website, for further
information on Credit risk RWA, Market risk RWA and Operational risk RWA.
(d) As of December 31, 2021 and 2020, the Basel III Standardized Credit risk RWA included wholesale and retail off balance-sheet RWA of $218.5 billion and
$204.3 billion, respectively; and the Basel III Advanced Credit risk RWA included wholesale and retail off balance-sheet RWA of $188.5 billion and $158.9
billion, respectively.
(c) Movement in portfolio levels (inclusive of rule changes) refers to: for Credit risk RWA, changes in book size, composition and credit quality, market
movements, and deductions for excess eligible credit reserves not eligible for inclusion in Tier 2 capital; for Market risk RWA, changes in position, market
movements, and changes in the Firm's regulatory multiplier from Regulatory VaR backtesting exceptions; and for Operational risk RWA, updates to
cumulative losses and macroeconomic model inputs.
(b) Portfolio runoff for Credit risk RWA primarily reflects reduced risk from position rolloffs in legacy portfolios in Home Lending.
(a) Model & data changes refer to material movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance
(exclusive of rule changes).
1,547,920
December 31, 2021
63,489
405,372 $
20,181
20,181
95,506 $
$ 1,047,042 $
(1,404)
44,712
78,291
1,638,900
$ 246,162
83,113
$
(942)
95,448 $
96,390 $
Change in qualifying allowance for credit losses (b)
Change in Standardized Tier 2 capital
Standardized Tier 2 capital at December 31, 2021
Standardized Total capital at December 31, 2021
Advanced Tier 2 capital at December 31, 2020
Change in long-term debt and other instruments
qualifying as Tier 2
(c) Represents the allowance for credit losses eligible for inclusion in Tier
2 capital up to 1.25% of credit risk RWA, including the impact of the
CECL capital transition provision with any excess deducted from RWA.
(d) Represents an adjustment to qualifying allowance for credit losses for
the excess of eligible credit reserves over expected credit losses up to
0.6% of credit risk RWA, including the impact of the CECL capital
transition provision with any excess deducted from RWA.
(e) Other Tier 1 Capital adjustments included $2.0 billion of Series Z
preferred stock called for redemption on December 31, 2021 and
subsequently redeemed on February 1, 2022.
(b) As of December 31, 2021 and 2020, the impact of the CECL capital
transition provision was an increase in CET1 capital of $2.9 billion and
$5.7 billion, respectively.
(a) Represents deferred tax liabilities related to tax-deductible goodwill
and to identifiable intangibles created in nontaxable transactions,
which are netted against goodwill and other intangibles when
calculating CET1 capital.
(2,539)
(3,360)
(442)
(6,341)
Other
(b)
Change in long-term debt and other instruments
qualifying as Tier 2
Change in qualifying allowance for credit losses"
Other
(12,695)
22,384
$
Advanced Total capital
$
Advanced Tier 2 capital
2 capital
for credit losses for Advanced Tier
Adjustment in qualifying allowance
$ 35,079
1,560,609
(9,104)
19,634
265,796
Change in Advanced Tier 2 capital
$
$ 257,228
$ 28,738
$ 274,900
$ 22,384
$ 1,464,219 $
Advanced Tier 2 capital at December 31, 2021
Advanced Total capital at December 31, 2021
December 31, 2020
Total RWA
Operational risk
RWA
Market risk
RWA
Total RWA
Advanced
Standardized
Market risk
RWA
Credit risk
RWA(d)
Credit risk
RWA(d)
The following table presents changes in the components of RWA under Basel III Standardized and Advanced approaches for the
year ended December 31, 2021. The amounts in the rollforward categories are estimates, based on the predominant driver of
the change.
RWA rollforward
JPMorgan Chase & Co./2021 Form 10-K
92
(b) Includes the impact of the CECL capital transition provisions.
(c) Net issuance of noncumulative perpetual preferred stock included
$2.0 billion of Series Z preferred stock called for redemption on
December 31, 2021 and subsequently redeemed on February 1,
2022.
(a) Includes cash flow hedges and debit valuation adjustment ("DVA")
related to structured notes recorded in AOCI.
$ 19,634
$265,796
Year ended December 31, 2021
(in millions)
(442)
(2,750)
(2,539)
231
Deposits as a % of total liabilities
2,562
738
2,566
100
(in billions except ratios)
The table below shows the loan and deposit balances, the
loans-to-deposits ratios, and deposits as a percentage of
total liabilities, as of December 31, 2021 and 2020.
As of December 31,
Deposits
526
$ 37,033 $ 54,535 $ 31,479 $ 50,776
Over 12 months
Total
$ 23,468 $ 45,648
3,158
459
913
Over six months but
within 12 months
1,887
4,115
2,172
6,235
$ 29,359 $ 49,342
Non-U.S.
U.S.
Loans
675
Loans-to-deposits ratio
2021
2020
$
Noninterest-bearing
U.S. offices
2019
2020
2019
2020
2021
(in millions, except interest rates)
Average interest rates
Average balances
Year ended December 31,
(Unaudited)
The following table provides a summary of the average balances and average interest rates of JPMorgan Chase's deposits for
the years ended December 31, 2021, 2020, and 2019.
Refer to the discussion of the Firm's Business Segment
Results and the Consolidated Balance Sheets Analysis on
pages 61-80 and pages 55-56, respectively, for further
information on deposit and liability balance trends.
In CCB, the increase was also driven by growth from existing
and new accounts across both consumer and small business
customers.
December 31, 2021, reflecting significant inflows across
the LOBS primarily driven by the effect of certain
government actions in response to the COVID-19 pandemic.
The Firm believes that average deposit balances are
generally more representative of deposit trends than
period-end deposit balances, over time. However, during
periods of market disruption those trends could be affected.
Average deposits increased for the year ended
JPMorgan Chase & Co./2021 Form 10-K
47 %
44 %
69 %
1,012.9
2,144.3
2,462.3 $
71 %
1,077.7
$
2021
495,722
Long-term
issuer
386,116
The Firm's sources of short-term secured funding primarily
consist of securities loaned or sold under agreements to
repurchase. These instruments are secured predominantly
by high-quality securities collateral, including government-
issued debt and U.S. GSE and government agency MBS.
Securities sold under agreements to repurchase decreased
at December 31, 2021, compared with December 31,
2020, due to lower secured financing of AFS investment
securities in Treasury and CIO, and trading assets in CIB
Markets.
Short-term funding
(f) Includes nonrecourse advances provided under the Money Market Mutual Fund Liquidity Facility.
(e) Refer to Capital Risk Management on pages 86-96, Consolidated statements of changes in stockholders' equity on page 163, Note 21 and Note 22 for
additional information on preferred stock and common stockholders' equity.
(a) Primarily consists of short-term securities loaned or sold under agreements to repurchase.
(b) Included in beneficial interests issued by consolidated variable interest entities on the Firm's Consolidated balance sheets.
(c) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
(d) Includes long-term structured notes which are secured.
236,865
250,968 $
$
249,291
259,289 $
$
Common stockholders' equity(e)
29,899
33,027 $
The balances associated with securities loaned or sold
under agreements to repurchase fluctuate over time due to
investment and financing activities of clients, the Firm's
demand for financing, the ongoing management of the mix
of the Firm's liabilities, including its secured and unsecured
financing (for both the investment securities and market-
making portfolios), and other market and portfolio factors.
$
$
Preferred stock(e)
37,056
19,714 $
$
23,606
17,427 $
$
Total long-term secured funding
4,460
4,384
4,540
3,920
27,076
34,838 $ 30,063
The Firm's sources of short-term unsecured funding
primarily consist of issuances of wholesale commercial
paper and other borrowed funds. The increase in
commercial paper at December 31, 2021, from
December 31, 2020 was due to higher net issuance
primarily for short-term liquidity management.
The increase in unsecured other borrowed funds at
December 31, 2021 from December 31, 2020, and for the
average year ended December 31, 2021 compared to the
prior year period, was primarily due to net issuances of
structured notes.
102
7,596
4,113
3,000
26,855
45,081
60
$
39,500 $ 25,500 $
5,581
1,355
$
Subsidiaries
Parent Company
2020
2021
2020
2021
Senior notes
Maturities/redemptions
JPMorgan Chase & Co./2021 Form 10-K
Long-term funding and issuance
Long-term funding provides an additional source of stable funding and liquidity for the Firm. The Firm's long-term funding plan
is driven primarily by expected client activity, liquidity considerations, and regulatory requirements, including TLAC. Long-term
funding objectives include maintaining diversification, maximizing market access and optimizing funding costs. The Firm
evaluates various funding markets, tenors and currencies in creating its optimal long-term funding plan.
The significant majority of the Firm's long-term unsecured funding is issued by the Parent Company to provide flexibility in
support of both bank and non-bank subsidiary funding needs. The Parent Company advances substantially all net funding
proceeds to its subsidiary, the IHC. The IHC does not issue debt to external counterparties. The following table summarizes
long-term unsecured issuance and maturities or redemptions for the years ended December 31, 2021 and 2020. Refer to
Note 20 for additional information on the IHC and long-term debt.
Long-term unsecured funding
Year ended December 31,
12,174
(Notional in millions)
Senior notes issued in the U.S. market
Senior notes issued in non-U.S. markets
Total senior notes
Subordinated debt
Structured notes (a)
Total long-term unsecured funding - issuance
Issuance
$
14,123
5,520
$
Senior notes
247,953
227,256 $
$
Total short-term secured funding
10,523
6,198
Obligations of Firm-administered multi-seller conduits (b)
23,812 (f)
(f)
28,138
24,667 (f)
28,487
191,488 $
Other borrowed funds
6,876
4,886
2,765
Securities loaned (a)
246,354
$
250,229
$
207,877
189,806 $
$
Securities sold under agreements to repurchase (a)
23,858
$
6,536
Subordinated debt
20,531
166,089
21,608
$
3,156
$
4,943
2,397 $
$
265,354
$
277,319
$
263,022
285,975 $
$
73,056
75,152
75,325
73,956
$
$
9,283
294,526
11,430
$
288,132
181,290 $
11,110
171,509
20,789
Structured notes (c)
Total long-term unsecured funding
Credit card securitization (b)
FHLB advances
Other long-term secured funding (d)
20,877
27,385
49,194 $
32,714
32,714 $
REPUTATION RISK MANAGEMENT
Reputation risk is the risk that an action or inaction may
negatively impact perception of the Firm's integrity and
reduce confidence in the Firm's competence by various
constituents, including clients, counterparties, customers,
investors, regulators, employees, communities or the
broader public.
Organization and management
Reputation Risk Management establishes the governance
framework for managing reputation risk across the Firm's
LOBS and Corporate. As reputation risk is inherently
challenging to identify, manage, and quantify, a reputation
risk management function is particularly important.
The Firm's reputation risk management function includes
the following activities:
•
Maintaining a Firmwide Reputation Risk Governance
policy and standard consistent with the reputation risk
framework
Overseeing the governance execution through
processes and infrastructure that support consistent
identification, escalation, management and monitoring
of reputation risk issues Firmwide
The types of events that result in reputation risk are wide-
ranging and may be introduced by the Firm's employees
and the clients, customers and counterparties with which
the Firm does business. These events could result in
financial losses, litigation and regulatory fines, as well as
other harm to the Firm.
Governance and oversight
The Reputation Risk Governance policy establishes the
principles for managing reputation risk for the Firm. It is
the responsibility of employees in each LOB and Corporate
to consider the reputation of the Firm when deciding
whether to offer a new product, engage in a transaction or
client relationship, enter a new jurisdiction, initiate a
business process or consider any other activity.
Sustainability, social responsibility and environmental
impacts are important considerations in assessing the
Firm's reputation risk, and are a component of the Firm's
reputation risk governance.
Reputation risk issues deemed material are escalated as
appropriate.
JPMorgan Chase & Co./2021 Form 10-K
JPMorgan Chase & Co./2021 Form 10-K
105
CREDIT AND INVESTMENT RISK MANAGEMENT
Credit and investment risk is the risk associated with the
default or change in credit profile of a client, counterparty
or customer; or loss of principal or a reduction in expected
returns on investments, including consumer credit risk,
wholesale credit risk, and investment portfolio risk.
Credit risk management
Credit risk is the risk associated with the default or change
in credit profile of a client, counterparty or customer. The
Firm provides credit to a variety of customers, ranging from
large corporate and institutional clients to individual
consumers and small businesses. In its consumer
businesses, the Firm is exposed to credit risk primarily
through its home lending, credit card, auto, and business
banking businesses. In its wholesale businesses, the Firm is
exposed to credit risk through its underwriting, lending,
market-making, and hedging activities with and for clients
and counterparties, as well as through its operating services
activities (such as cash management and clearing
activities), and securities financing activities. The Firm is
also exposed to credit risk through its investment securities
portfolio and cash placed with banks.
Credit Risk Management monitors, measures and manages
credit risk throughout the Firm and defines credit risk
policies and procedures. The Firm's credit risk management
governance includes the following activities:
• Maintaining a credit risk policy framework
•
Monitoring, measuring and managing credit risk across
all portfolio segments, including transaction and
exposure approval
Setting industry and geographic concentration limits, as
appropriate, and establishing underwriting guidelines
Assigning and managing credit authorities in connection
with the approval of credit exposure
• Managing criticized exposures and delinquent loans, and
Estimating credit losses and supporting appropriate
credit risk-based capital management
Risk identification and measurement
To measure credit risk, the Firm employs several
methodologies for estimating the likelihood of obligor or
counterparty default. Methodologies for measuring credit
risk vary depending on several factors, including type of
asset (e.g., consumer versus wholesale), risk measurement
parameters (e.g., delinquency status and borrower's credit
score versus wholesale risk-rating) and risk management
and collection processes (e.g., retail collection center
versus centrally managed workout groups). Credit risk
measurement is based on the probability of default of an
obligor or counterparty, the loss severity given a default
event and the exposure at default.
Based on these factors and the methodology and estimates
described in Note 13 and Note 10, the Firm estimates credit
losses for its exposures. The allowance for loan losses
reflects estimated credit losses related to the consumer and
wholesale held-for-investment loan portfolios, the
allowance for lending-related commitments reflects
estimated credit losses related to the Firm's lending-related
commitments and the allowance for investment securities
reflects estimated credit losses related to the investment
securities portfolio. Refer to Note 13, Note 10 and Critical
Accounting Estimates used by the Firm on pages 150-153
for further information.
In addition, potential and unexpected credit losses are
reflected in the allocation of credit risk capital and
represent the potential volatility of actual losses relative to
the established allowances for loan losses and lending-
related commitments. The analyses for these losses include
stress testing that considers alternative economic scenarios
as described below.
Management's discussion and analysis
104
Critical factors in maintaining high credit ratings include a
stable and diverse earnings stream, strong capital and
liquidity ratios, strong credit quality and risk management
controls, and diverse funding sources. Rating agencies
continue to evaluate economic and geopolitical trends,
regulatory developments, future profitability, risk
management practices, and litigation matters, as well as
their broader ratings methodologies. Changes in any of
these factors could lead to changes in the Firm's credit
ratings.
JPMorgan Chase's unsecured debt does not contain
requirements that would call for an acceleration of
payments, maturities or changes in the structure of the
existing debt, provide any limitations on future borrowings
or require additional collateral, based on unfavorable
changes in the Firm's credit ratings, financial ratios,
earnings, or stock price.
Short-term
issuer
Long-term
Outlook
issuer
Short-term
issuer
Outlook
Aa2
P-1
Stable
Aa3
P-1
Stable
A+
A-1
Positive
A+
A-1
(c) On April 23, 2021, Fitch affirmed the credit ratings of the Parent Company and the Firm's principal bank and non-bank subsidiaries, and revised the
outlook from negative to stable.
(b) On May 24, 2021, Standard & Poor's affirmed the credit ratings of the Parent Company and the Firm's principal bank and non-bank subsidiaries, and
revised the outlook from stable to positive.
(a) On July 12, 2021, Moody's revised the outlook of the Parent Company's long-term issuer rating from stable to positive. The outlook for the Parent
Company's short-term issuer rating and the Firm's principal bank and non-bank subsidiaries remained unchanged at stable.
Stable
F1+
AA
Stress testing
Stable
LIQUIDITY RISK MANAGEMENT
Stable
F1+
AA-
Fitch Ratings (c)
Positive
F1+
37,451 $
Stress testing is important in measuring and managing
credit risk in the Firm's credit portfolio. The stress testing
process assesses the potential impact of alternative
economic and business scenarios on estimated credit losses
for the Firm. Economic scenarios and the underlying
parameters are defined centrally, articulated in terms of
macroeconomic factors and applied across the businesses.
The stress test results may indicate credit migration,
changes in delinquency trends and potential losses in the
credit portfolio. In addition to the periodic stress testing
processes, management also considers additional stresses
outside these scenarios, including industry and country-
specific stress scenarios, as necessary. The Firm uses stress
testing to inform decisions on setting risk appetite both at a
Firm and LOB level, as well as to assess the impact of stress
on individual counterparties.
JPMorgan Chase & Co./2021 Form 10-K
Issuance
(a) Includes long-term structured notes which are secured.
Total long-term secured funding
Other long-term secured funding (a)
FHLB advances
Credit card securitization
(in millions)
Year ended December 31,
Long-term secured funding
The Firm can also raise secured long-term funding through securitization of consumer credit card loans and FHLB advances.
The following table summarizes the securitization issuance and FHLB advances and their respective maturities or redemptions
for the years ended December 31, 2021 and 2020.
(a) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
37,703
30,002
33,023
33,088 $
Maturities/Redemptions
15,543 $ 34,194 $
Total long-term unsecured funding - maturities/redemptions
-
7,701
65 $
$
28,719
135
5,340
4,694
Structured notes
10,840 $
9
Subordinated debt
$
60
24,245
24,185
$
2021
2020
2021
A-2
A-
Standard & Poor's (b)
P-1
A2
Moody's Investors Service(a)
Short-term
issuer
issuer
December 31, 2021
Long-term
J.P. Morgan Securities LLC
J.P. Morgan Securities plc
JPMorgan Chase Bank, N.A.
JPMorgan Chase & Co.
The credit ratings of the Parent Company and the Firm's principal bank and non-bank subsidiaries as of December 31, 2021
were as follows:
maintains sufficient liquidity to withstand a potential
decrease in funding capacity due to ratings downgrades.
Additionally, the Firm's funding requirements for VIES and
other third-party commitments may be adversely affected
by a decline in credit ratings. Refer to liquidity risk and
credit-related contingent features in Note 5 for additional
information on the impact of a credit ratings downgrade on
the funding requirements for VIES, and on derivatives and
collateral agreements.
The cost and availability of financing are influenced by
credit ratings. Reductions in these ratings could have an
adverse effect on the Firm's access to liquidity sources,
increase the cost of funds, trigger additional collateral or
funding requirements and decrease the number of investors
and counterparties willing to lend to the Firm. The nature
and magnitude of the impact of ratings downgrades
depends on numerous contractual and behavioral factors,
which the Firm believes are incorporated in its liquidity risk
and stress testing metrics. The Firm believes that it
Credit ratings
2020
$
$
525
$
1,000 $
15,000
1,130
525 $ 17,130 $
106
2,550 $
3,011
741
6,302 $
1,048
33,082
The Firm's wholesale businesses also securitize loans for client-driven transactions; those client-driven loan securitizations are
not considered to be a source of funding for the Firm and are not included in the table above. Refer to Note 14 for a further
description of client-driven loan securitizations.
JPMorgan Chase & Co./2021 Form 10-K
103
Management's discussion and analysis
2,525
29,509
$
22,987
26,876 $
Management's discussion and analysis
Funding
Sources of funds
Management believes that the Firm's unsecured and
secured funding capacity is sufficient to meet its on- and
off-balance sheet obligations, which includes both short-
and long-term cash requirements.
The Firm funds its global balance sheet through diverse
sources of funding including stable deposits, secured and
unsecured funding in the capital markets and stockholders'
equity. Deposits are the primary funding source for
JPMorgan Chase Bank, N.A. Additionally, JPMorgan Chase
Bank, N.A. may access funding through short- or long-term
secured borrowings, through the issuance of unsecured
Deposits
long-term debt, or from borrowings from the IHC. The
Firm's non-bank subsidiaries are primarily funded from
long-term unsecured borrowings and short-term secured
borrowings, primarily securities loaned or sold under
repurchase agreements. Excess funding is invested by
Treasury and CIO in the Firm's investment securities
portfolio or deployed in cash or other short-term liquid
investments based on their interest rate and liquidity risk
characteristics.
Refer to Note 28 for additional information on off-balance
sheet obligations.
The table below summarizes, by LOB and Corporate, the period-end and average deposit balances as of and for the years
ended December 31, 2021 and 2020.
As of or for the year ended December 31,
(in millions)
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
99
Asset & Wealth Management
Total Firm
Deposits provide a stable source of funding and reduce the
Firm's reliance on the wholesale funding markets. A
significant portion of the Firm's deposits are consumer
deposits and wholesale operating deposits, which are both
considered to be stable sources of liquidity. Wholesale
operating deposits are considered to be stable sources of
liquidity because they are generated from customers that
maintain operating service relationships with the Firm.
Furthermore, certain deposits are covered by insurance
protection that provides additional funding stability and
results in a benefit to the LCR. Deposit insurance protection
may be available to depositors in the countries in which the
deposits are placed. For example, the Federal Deposit
Insurance Corporation ("FDIC") provides deposit insurance
protection for deposits placed in a U.S. Depository
Institution. At December 31, 2021 and 2020, the Firmwide
estimated uninsured deposits were $1,489.6 billion and
$1,275.9 billion, respectively, primarily reflecting
wholesale operating deposits.
Average
2021
2020
2021
2020
$ 1,148,110 $ 958,706
707,791
$ 1,054,956 $
851,390
702,215
760,048
655,095
323,954
Corporate
JPMorgan Chase & Co./2021 Form 10-K
As of December 31, 2021, the Firm and JPMorgan Chase
Bank, N.A. were compliant with the 100% minimum NSFR,
based on the Firm's current understanding of the final rule.
The net stable funding ratio (“NSFR") is a liquidity
requirement for large banking organizations that is
intended to measure the adequacy of "available" and
"required" amounts of stable funding over a one-year
horizon. On October 20, 2020, the federal banking agencies
issued a final NSFR rule under which large banking
organizations such as the Firm and JPMorgan Chase Bank,
N.A. are required to maintain an NSFR of at least 100% on
an ongoing basis. The final NSFR rule became effective on
July 1, 2021, and the Firm will be required to publicly
disclose its quarterly average NSFR semi-annually
beginning in 2023.
$ 703,384
34,738
Net cash outflows
LCR
$ 738,122
$ 664,801 $
111 %
$ 690,013
34,049
$ 724,062 $ 697,059
645,557 $ 634,037
112 %
$ 455,612
241,447
110 %
Net excess eligible
HOLA (d)
$
73,321
$
78,505
$
63,022
JPMorgan Chase Bank, N.A.:
LCR
178 %
174 %
NSFR
The Firm also had available borrowing capacity at FHLBS
and the discount window at the Federal Reserve Bank as a
result of collateral pledged by the Firm to such banks of
approximately $308 billion and $307 billion as of
December 31, 2021 and 2020, respectively. This borrowing
capacity excludes the benefit of cash and securities
reported in the Firm's eligible HQLA or other unencumbered
securities that are currently pledged at the Federal Reserve
Bank discount window and other central banks. Although
available, the Firm does not view this borrowing capacity at
the Federal Reserve Bank discount window and the other
central banks as a primary source of liquidity.
In addition to the assets reported in the Firm's eligible
HQLA discussed above, the Firm had unencumbered
marketable securities, such as equity and debt securities,
that the Firm believes would be available to raise liquidity.
This includes excess eligible HQLA securities at JPMorgan
Chase Bank, N.A. that are not transferable to non-bank
affiliates. The fair value of these securities was
approximately $914 billion and $740 billion as of
December 31, 2021 and 2020, respectively, although the
amount of liquidity that could be raised at any particular
time would be dependent on prevailing market conditions.
The fair value increased compared to December 31, 2020,
due to an increase in excess eligible HQLA at JPMorgan
Chase Bank, N.A. which was primarily a result of increased
deposits.
Other liquidity sources
JPMorgan Chase & Co./2021 Form 10-K
98
284,263
The Firm and JPMorgan Chase Bank, N.A.'s average LCR
fluctuates from period to period, due to changes in its
eligible HQLA and estimated net cash outflows as a result of
ongoing business activity. Refer to the Firm's U.S. LCR
Disclosure reports, which are available on the Firm's
website, for a further discussion of the Firm's LCR.
(d) Excludes average excess eligible HQLA at JPMorgan Chase Bank, N.A.
that are not transferable to non-bank affiliates.
(b) Predominantly U.S. Treasuries, U.S. GSE and government agency MBS,
and sovereign bonds net of applicable haircuts under the LCR rule.
(c) Eligible HQLA securities may be reported in securities borrowed or
purchased under resale agreements, trading assets, or investment
securities on the Firm's Consolidated balance sheets.
(a) Represents cash on deposit at central banks, primarily the Federal
Reserve Banks.
$ 555,300 $ 516,374 $ 401,903
Net excess eligible
HQLA
160 %
The Firm's average LCR increased during the three months
ended December 31, 2021, compared with the prior year
period primarily due to long-term debt issuances.
JPMorgan Chase Bank, N.A.'s average LCR increased during
the three months ended December 31, 2021, compared
with both the three month periods ended September 30,
2021 and December 31, 2020 primarily due to growth in
deposits. The increase in excess liquidity in JPMorgan Chase
Bank, N.A. is excluded from the Firm's reported LCR under
the LCR rule.
Eligible securities (b)(c)
301,343
282,052
1,068,857
1,564,579
1,949,786
Total deposits in U.S. offices
1,323,812
Total interest-bearing deposits
2.56
1.10
0.26
52,415
59,053
48,628
Time
0.46
0.13
850,493
0.06
739,916
950,267
Savings (b)
1.42 %
0.25 %
0.06 %
195,350
269,888
324,917
Demand (a)
Interest-bearing
ΝΑ
ΝΑ
ΝΑ
602,728
0.07
0.21
0.81
396
198,755
318
230,296
161,955
511
666
$ 2,462,303 $ 2,144,257
$ 2,347,154 $ 1,906,751
Total uninsured deposits include time deposits. The table
below presents an estimate of uninsured U.S. and non-U.S.
time deposits, and their remaining maturities. The Firm's
estimates of its uninsured U.S. time deposits are based on
data that the Firm calculates periodically under applicable
FDIC regulations. For purposes of this presentation, all non-
U.S. time deposits are deemed to be uninsured.
(in millions)
Three months or
less
Over three months
but within 6
months
December 31,
2020
December 31,
2021
U.S.
Non-U.S.
Outlook
Positive/
Stable
Positive
1,236,609
0.05
0.15
0.56
Non-U.S. offices
Noninterest-bearing
237,645
Interest-bearing
Savings
Time
26,315
21,805
21,103
313,304
Demand
JPMorgan Chase & Co.:
2020
December 31, September 30, December 31,
2021
2021
0.59 %
0.12 %
0.02 %
$ 1,523,067
$ 1,906,751
$ 2,347,154
0.72
0.02
(0.09)
286,458
342,172
397,368
Total deposits in non-U.S. offices
0.78
Total deposits
0.02
265,355
320,367
371,053
Total interest-bearing deposits
1.64
0.13
(0.09)
47,376
52,822
57,749
ΝΑ
0.59
NA
ΝΑ
(0.10)
(a) Includes Negotiable Order of Withdrawal ("NOW") accounts, and certain trust accounts.
(b) Includes Money Market Deposit Accounts ("MMDAS").
Refer to Note 17 for additional information on deposits.
JPMorgan Chase & Co./2021 Form 10-K
$
Total short-term unsecured funding
2,531
2,197
$
2,446
1,769
9,198
12,903
8,510
9,999
12,129
$
12,285
$
2020
2021
101
Management's discussion and analysis
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2021 and 2020,
and average balances for the years ended December 31, 2021 and 2020. Refer to the Consolidated Balance Sheets Analysis
on pages 55-56 and Note 11 for additional information.
Sources of funds (excluding deposits)
As of or for the year ended December 31,
(in millions)
(0.10)
Commercial paper
Federal funds purchased
Average
2021
$
15,108 $
2020
12,031
Other borrowed funds
217,979
267,545
Liquidity risk is the risk that the Firm will be unable to meet
its contractual and contingent financial obligations as they
arise or that it does not have the appropriate amount,
composition and tenor of funding and liquidity to support
its assets and liabilities.
Monitor exposures;
Identify constraints on the transfer of liquidity between
the Firm's legal entities; and
Maintain the appropriate amount of surplus liquidity at
a Firmwide and legal entity level, where relevant.
Governance
Committees responsible for liquidity governance include the
Firmwide ALCO as well as LOB and regional ALCOS, the
Treasurer Committee, and the CTC Risk Committee. In
addition, the Board Risk Committee reviews and
recommends to the Board of Directors, for formal approval,
the Firm's liquidity risk tolerances, liquidity strategy, and
liquidity policy. Refer to Firmwide Risk Management on
pages 81-84 for further discussion of ALCO and other risk-
related committees.
Internal stress testing
Liquidity stress tests are intended to ensure that the Firm
has sufficient liquidity under a variety of adverse scenarios,
including scenarios analyzed as part of the Firm's resolution
and recovery planning. Stress scenarios are produced for
JPMorgan Chase & Co. ("Parent Company") and the Firm's
material legal entities on a regular basis, and other stress
tests are performed in response to specific market events
or concerns. Liquidity stress tests assume all of the Firm's
contractual financial obligations are met and take into
consideration:
.
.
Varying levels of access to unsecured and secured
funding markets;
•
Estimated non-contractual and contingent cash
outflows; and
Potential impediments to the availability and
transferability of liquidity between jurisdictions and
material legal entities such as regulatory, legal or other
restrictions.
Liquidity outflow assumptions are modeled across a range
of time horizons and currency dimensions and contemplate
both market and idiosyncratic stresses.
Results of stress tests are considered in the formulation of
the Firm's funding plan and assessment of its liquidity
position. The Parent Company acts as a source of funding
for the Firm through equity and long-term debt issuances,
and its intermediate holding company, JPMorgan Chase
Holdings LLC (the “IHC”) provides funding support to the
ongoing operations of the Parent Company and its
subsidiaries. The Firm maintains liquidity at the Parent
Company, IHC, and operating subsidiaries at levels sufficient
to comply with liquidity risk tolerances and minimum
liquidity requirements, and to manage through periods of
JPMorgan Chase & Co./2021 Form 10-K
97
Management's discussion and analysis
Three months ended
(d)
Total HQLA
Eligible cash (a)
HQLA
Average amount
(in millions)
Optimize liquidity sources and uses;
The following table summarizes the Firm and JPMorgan
Chase Bank, N.A.'s average LCR for the three months ended
December 31, 2021, September 30, 2021 and
December 31, 2020 based on the Firm's interpretation of
the LCR framework.
Under the LCR rule, the amount of eligible HQLA held by
JPMorgan Chase Bank, N.A. that is in excess of its stand-
alone 100% minimum LCR requirement, and that is not
transferable to non-bank affiliates, must be excluded from
the Firm's reported eligible HQLA.
The LCR rule requires that the Firm and JPMorgan Chase
Bank, N.A. maintain an amount of eligible HQLA that is
sufficient to meet its estimated total net cash outflows over
a prospective 30 calendar-day period of significant stress.
Eligible HQLA, for purposes of calculating the LCR, is the
amount of unencumbered HQLA that satisfy certain
operational considerations as defined in the LCR rule. HQLA
primarily consist of cash and certain high-quality liquid
securities as defined in the LCR rule.
Liquidity Coverage Ratio and HQLA
The Firm's Contingency Funding Plan ("CFP") sets out the
strategies for addressing and managing liquidity resource
needs during a liquidity stress event and incorporates
liquidity risk limits, indicators and risk appetite tolerances.
The CFP also identifies the alternative contingent funding
and liquidity resources available to the Firm and its legal
entities in a period of stress.
Contingency funding plan
stress when access to normal funding sources may be
disrupted.
Estimated net cash outflows are based on standardized
stress outflow and inflow rates prescribed in the LCR rule,
which are applied to the balances of the Firm's assets,
sources of funds, and obligations. The LCR for both the Firm
and JPMorgan Chase Bank, N.A. is required to be a
minimum of 100%.
$
•
well as certain off-balance sheet items.
Liquidity risk oversight
The Firm has a Liquidity Risk Oversight function whose
primary objective is to provide oversight of liquidity risk
across the Firm. Liquidity Risk Oversight's responsibilities
include:
•
•
• Defining, monitoring and reporting liquidity risk metrics;
Independently establishing and monitoring limits and
indicators, including liquidity risk appetite;
Developing a process to classify, monitor and report
limit breaches;
Performing an independent review of liquidity risk
management processes;
Monitoring and reporting internal Firmwide and legal
entity liquidity stress tests, regulatory defined metrics,
as well as liquidity positions, balance sheet variances
and funding activities; and
Approving or escalating for review new or updated
liquidity stress assumptions.
Liquidity management
Treasury & CIO is responsible for liquidity management.
The primary objectives of the Firm's liquidity management
are to:
•
Ensure that the Firm's core businesses and material
legal entities are able to operate in support of client
needs and meet contractual and contingent financial
obligations through normal economic cycles as well as
during stress events, and
Manage an optimal funding mix and availability of
liquidity sources.
The Firm addresses these objectives through:
•
•
characteristics of balance sheet assets and liabilities as
Setting FTP in accordance with underlying liquidity
related to funding and liquidity risk; and
Managing compliance with regulatory requirements
risk appetite tolerances and limits;
Managing liquidity within the Firm's approved liquidity
As part of the Firm's overall liquidity management strategy,
the Firm manages liquidity and funding using a centralized,
global approach designed to:
specific liquidity strategies, policies, reporting and
contingency funding plans;
• Developing internal liquidity stress testing assumptions;
of the assets and liabilities of the Firm, LOBS and legal
entities, taking into account legal, regulatory, and
operational restrictions;
Analyzing and understanding the liquidity characteristics
•
•
•
Defining and monitoring Firmwide and legal entity-
AA
$
625,974
$
The following table provides a summary of the Firm's
residential mortgage portfolio insured and/or guaranteed
by U.S. government agencies, predominantly loans held-for-
sale and loans at fair value. The Firm monitors its exposure
to certain potential unrecoverable claim payments related
to government-insured loans and considers this exposure in
estimating the allowance for loan losses.
At December 31, 2021 and 2020, the carrying value of
interest-only residential mortgage loans were $30.0 billion
and $25.6 billion, respectively. These loans have an
interest-only payment period generally followed by an
adjustable-rate or fixed-rate fully amortizing payment
period to maturity and are typically originated as higher-
balance loans to higher-income borrowers, predominantly
in AWM. The interest-only residential mortgage loan
portfolio reflected net recoveries for the year ended
December 31, 2021, in line with the performance of the
broader prime mortgage portfolio.
The carrying value of home equity lines of credit
outstanding was $18.7 billion at December 31, 2021. This
amount included $6.2 billion of HELOCS that have recast
from interest-only to fully amortizing payments or have
been modified and $6.0 billion of interest-only balloon
HELOCS, which primarily mature after 2030. The Firm
manages the risk of HELOCS during their revolving period by
closing or reducing the undrawn line to the extent
permitted by law when borrowers are exhibiting a material
deterioration in their credit risk profile.
Loans at fair value increased from December 31, 2020,
reflecting loan purchase activity in CIB driven by higher
client demand, as well as increased originations in Home
Lending due to the continued low rate environment.
Nonaccrual loans at fair value decreased from
December 31, 2020 due to sales in CIB.
Retained loans were relatively flat compared to
December 31, 2020 as the decline in Home Lending driven
by paydowns outpacing originations of prime mortgage
loans was predominantly offset by growth in AWM. Retained
nonaccrual loans decreased from December 31, 2020
reflecting improved credit performance. Net recoveries for
the year ended December 31, 2021 were higher when
compared with the prior year as the current year benefited
from further improvement in HPI and higher reversals of
prior write-downs due to prepayments as a result of the low
rate environment.
Residential real estate: The residential real estate
portfolio, including loans held-for-sale and loans at fair
value, predominantly consists of prime mortgage loans and
home equity lines of credit.
The following discussions provide information concerning
individual loan products. Refer to Note 12 for further
information about this portfolio, including information
about delinquencies, loan modifications and other credit
quality indicators.
Loans increased from December 31, 2020 driven by higher
residential real estate loans at fair value, largely offset by
lower auto and other loans.
Portfolio analysis
Consumer, excluding credit card
JPMorgan Chase & Co./2021 Form 10-K
112
Of the $1.3 billion of retained loans under payment deferral
programs as of December 31, 2021, approximately $611
million were accounted for as TDRs prior to payment deferral
and approximately $40 million were accounted for as TDRS
because they did not qualify for or the Firm did not elect to
suspend TDR accounting guidance under the option provided
by the CARES Act, as extended by the Consolidated
Appropriations Act and which expired on January 1, 2022.
Borrowers that are unable to resume or continue making
payments in accordance with the original or modified
contractual terms of their agreements upon exit from
deferral programs will be placed on nonaccrual status in line
with the Firm's nonaccrual policy, except for credit cards as
permitted by regulatory guidance, and the loans charged off
or down in accordance with the Firm's charge-off policies.
Refer to Note 12 for additional information on the Firm's
nonaccrual and charge-off policies.
As of December 31, 2021 and 2020, the Firm had
approximately $1.3 billion and $10.7 billion, respectively, of
retained consumer loans under payment deferral programs,
predominantly in residential real estate, compared to
approximately $28.3 billion at June 30, 2020. During the
fourth quarter of 2021, there were approximately $386
million of new enrollments in consumer payment deferral
programs. Predominantly all borrowers that exited payment
deferral programs are current. The Firm continues to
monitor the credit risk associated with loans subject to
payment deferrals throughout the deferral period and on an
ongoing basis after the borrowers are required to resume
making regularly scheduled payments, and considers
expected losses of principal and accrued interest on these
loans in its allowance for credit losses.
In March 2020, the Firm began providing assistance to
customers response to the COVID-19 pandemic,
predominantly in the form of payment deferrals.
Consumer assistance
(b) Includes overdrafts.
(a) Credit card loans with maturities greater than one year represent TDRs and are at fixed interest rates. There are no credit card loans due after one year at
variable interest rates.
$ 230,118
$ 46,252
$ 43,927
4
74,568
10,490
395
227
95
36
24,376
(in millions)
Current
30-89 days past due
90 or more days past due
Total government guaranteed loans
$ 5,231
(b)
2020
2021
December 31, (in millions)
Nonaccrual loans
Residential real estate"
Auto and other
Nonperforming assets (a)
The following table presents information as of
December 31, 2021 and 2020, about consumer, excluding
credit card, nonperforming assets.
Nonperforming assets
The following table presents information relating to
modified retained residential real estate loans for which
concessions have been granted to borrowers experiencing
financial difficulty, which include both TDRS and modified
PCD loans not accounted for as TDRs. The following table
does not include loans with short-term or other insignificant
modifications that are not considered concessions and,
therefore, are not TDRs, or loans for which the Firm has
elected to suspend TDR accounting guidance under the
option provided by the CARES Act. Refer to Note 12 for
further information on modifications for the years ended
December 31, 2021 and 2020.
Modified residential real estate loans
Management's discussion and analysis
113
JPMorgan Chase & Co./2021 Form 10-K
42,275
942
Refer to Note 12 for information on the geographic
composition and current estimated LTVs of the Firm's
residential real estate loans.
At December 31, 2021, $145.5 billion, or 65% of the total
retained residential real estate loan portfolio, excluding
mortgage loans insured by U.S. government agencies, were
concentrated in California, New York, Florida, Texas and
Illinois, compared with $146.6 billion, or 65% at
December 31, 2020.
Geographic composition and current estimated loan-to-
value ratio of residential real estate loans
1,778
874
623
1,447 $
$
235
135
669
689 $
$
2020
December 31, December 31,
2021
Average current estimated loan-to-value ("LTV") ratios
have declined consistent with recent improvements in home
prices and customer pay-downs.
$ 155,510
$ 10,991
388
$
132
$
Total
After 15
years
5-15
years
years
1 year
1-5
Within
Total credit card loans
card loans
Total consumer, excluding credit
615
Auto and other
Consumer, excluding credit card
(in millions)
December 31, 2021
The table below sets forth loan maturities and the distribution between fixed and floating interest rates based on the stated
terms of the loan agreements.
Maturities and sensitivity to changes in interest rates
Management's discussion and analysis
111
JPMorgan Chase & Co./2021 Form 10-K
(m) Average consumer loans held-for-sale and loans at fair value were $29.1 billion and $18.3 billion for the years ended December 31, 2021 and 2020,
respectively. These amounts were excluded when calculating net charge-off/(recovery) rates.
(I) At December 31, 2021, nonaccrual loans excluded $506 million of PPP loans 90 or more days past due and guaranteed by the SBA.
(k) Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic. Includes loans to customers that have exited
COVID-19 related payment deferral programs and are 90 or more days past due, predominantly all of which were considered collateral-dependent at time of
exit.
(j) At December 31, 2021 and 2020, nonaccrual loans excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $623
million and $874 million, respectively. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In addition, the
Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status, as permitted by regulatory guidance.
(i) Represents the notional amount of protection obtained through the issuance of credit-related notes that reference certain pools of residential real estate and
auto loans in the retained consumer portfolio.
Residential real estate
$ 6,316
$ 21,481
(b)
$
Total consumer loans
Auto and other
Residential real estate
(a)
Loans due after one year at variable interest rates
Credit card
Auto and other
Residential real estate
Loans due after one year at fixed interest rates
$ 477,602
$ 230,118
$ 46,252
$ 230,078
$ 43,927
Total consumer loans
323,306
154,296
(a)
230,118
46,252
42,985
942
153,354
3,951
$252,306
71,000
40
24,771
42,370
3,819
$157,305
(c)
119
5,350
151
Foreclosures and other liquidations
1,024
1,716
2020
2021
(in millions, except ratios)
Returned to performing status
Year ended December 31,
390
229
Charge-offs
983
2,018
Principal payments and other (a)
1,609
1,616 $
$
Nonaccrual loans
(b)
Reductions:
5.90 %
7.24 %
retained PCD loans
5,892
2,956
Total additions
% of 30+ days past due to total
110
394
Net charge-offs
$
JPMorgan Chase & Co./2021 Form 10-K
116
At December 31, 2021, the Firm had $1.0 billion of credit
card loans outstanding that have been modified in TDRS,
which does not include loans with short-term or other
insignificant modifications that are not considered TDRS,
compared to $1.4 billion at December 31, 2020. Refer to
Note 12 for additional information about loan modification
programs to borrowers.
Modifications of credit card loans
Geographic and FICO composition of credit card loans
At December 31, 2021, $70.5 billion, or 46% of the total
retained credit card loan portfolio, was concentrated in
California, Texas, New York, Florida and Illinois, compared
with $65.0 billion, or 45%, at December 31, 2020. Refer to
Note 12 for additional information on the geographic and
FICO composition of the Firm's credit card loans.
Consistent with the Firm's policy, all credit card loans
typically remain on accrual status until charged off.
However, the Firm's allowance for loan losses includes the
estimated uncollectible portion of accrued and billed
interest and fee income. Refer to Note 12 for further
information about this portfolio, including information
about delinquencies.
Total credit card loans increased from December 31, 2020
reflecting strong sales volume predominantly offset by
higher payments. The December 31, 2021 30+ and 90+
day delinquency rates of 1.04% and 0.50%, respectively,
decreased compared to the December 31, 2020 30+ and
90+ day delinquency rates of 1.68% and 0.92%,
respectively. The delinquency rates continue to benefit from
the ongoing impact of government stimulus and support
provided to borrowers who participated in payment
assistance programs. Net charge-offs decreased for the
year ended December 31, 2021 compared with the prior
year reflecting lower charge-offs and higher recoveries as
consumer cash balances remained elevated.
Credit card
Management's discussion and analysis
115
JPMorgan Chase & Co./2021 Form 10-K
(b) Includes loans to customers that have exited COVID-19 related
payment deferral programs and are 90 or more days past due,
predominantly all of which were considered collateral-dependent at
time of exit.
(a) At December 31, 2021 and 2020, loans under payment deferral
programs offered in response to the COVID-19 pandemic which are
still within their deferral period and performing according to their
modified terms are generally not considered delinquent.
5,184
Refer to Note 12 for further information about the
consumer credit portfolio, including information about
delinquencies, other credit quality indicators, loan
modifications and loans that were in the process of active or
suspended foreclosure.
(a) Other reductions includes loan sales.
3,101
6,467
(1,117)
5,350 $
$
Ending balance
Net changes
74
0.39 %
$
15
0.10%
Net charge-off rate
2,791
4,073
Total reductions
(b) Includes loans to customers that have exited COVID-19 related
payment deferral programs and are 90 or more days past due,
predominantly all of which were considered collateral-dependent at
time of exit.
2,956
Other additions
(b)
JPMorgan Chase & Co./2021 Form 10-K
114
(c) At December 31, 2021, nonaccrual loans excluded $506 million of
PPP loans 90 or more days past due and guaranteed by the SBA.
(b) Generally excludes loans under payment deferral programs offered in
response to the COVID-19 pandemic. Includes loans to customers that
have exited COVID-19 related payment deferral programs and are 90
or more days past due, predominantly all of which were considered
collateral-dependent at time of exit.
(a) At December 31, 2021 and 2020, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $623 million and $874 million, respectively,
and REO insured by U.S. government agencies of $5 million and $9
million, respectively. These amounts have been excluded based upon
the government guarantee.
Auto and other: The auto and other loan portfolio,
including loans at fair value, predominantly consists of
prime-quality scored auto and business banking loans, as
well as overdrafts. The portfolio decreased when compared
with December 31, 2020 due to a decrease in business
banking loans largely offset by growth in the scored auto
portfolio. Business Banking loans declined predominantly
due to PPP loan forgiveness, partially offset by originations.
The increase in the scored auto portfolio was driven by loan
originations predominantly offset by paydowns. Net charge-
offs for the year ended December 31, 2021 decreased
when compared to the prior year driven by lower scored
auto charge-offs as the current year benefited from higher
vehicle collateral values and elevated consumer cash
balances, partially offset by higher overdraft charge-offs.
The scored auto portfolio net charge-off rates were 0.04%
and 0.25% for the years ended December 31, 2021 and
2020, respectively.
(a) At December 31, 2021 and 2020, nonaccrual loans included $2.7
billion and $3.0 billion, respectively, of TDRS for which the borrowers
were less than 90 days past due. Refer to Note 12 for additional
information about loans modified in a TDR that are on nonaccrual
status.
3,899
$ 5,484
152
134
Total assets acquired in loan satisfactions
Total nonperforming assets
December 31,
2020
15,406
Nonaccrual loans
December 31,
2021
13,251 $
3,938
Nonaccrual retained loans (a
$
Retained loans
(in millions)
21
22
131
112
Other
Real estate owned
Assets acquired in loan satisfactions
Total nonaccrual loans
6,467
(a)
(h) Also includes commercial card lending-related commitments primarily in CB and CIB.
The following table presents changes in consumer,
excluding credit card, nonaccrual loans for the years ended
December 31, 2021 and 2020.
Purchased credit deteriorated ("PCD") loans
17,041
$
13,741
$
Total PCD loans
708
ΝΑ
PCD loans, upon adoption of CECL
573
664
150 or more days past due
Additions:
432
Nonaccrual loan activity
331
3,366
6,467 $
$
Beginning balance
2020
2021
(in millions)
12,746 $ 16,036
$
Year ended December 31,
Current
(in millions, except ratios)
Loan delinquency(a)
The following tables provide credit-related information for
PCD loans which are reported in residential real estate.
December 31, December 31,
2021
2020
30-149 days past due
(g) Includes billed interest and fees.
$ 6,619
(e) Includes scored mortgage loans held in CCB and CIB.
(c) Prior-period amount has been revised to conform with the current
presentation.
(b) Represents the net notional amount of protection purchased and sold
through credit derivatives and credit-related notes used to manage
credit exposures.
(a) Receivables from customers reflect held-for-investment margin loans
to brokerage clients in CIB, CCB and AWM; these are reported within
accrued interest and accounts receivable on the Consolidated balance
sheets.
ΝΑ
NA
(14,806)
(10,102)
derivatives
108
Liquid securities and
other cash collateral
held against
$ - $
$ (22,218) $ (23,965)
Total credit portfolio
Credit derivatives and
credit-related notes
used in credit portfolio
management
activities (b)(c)
(d) At December 31, 2021 and 2020, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $623 million and $874 million, respectively,
and real estate owned ("REO") insured by U.S. government agencies of
$5 million and $9 million, respectively. These amounts have been
excluded based upon the government guarantee. In addition, the
Firm's policy is generally to exempt credit card loans from being
placed on nonaccrual status as permitted by regulatory guidance.
(e) At December 31, 2021, nonaccrual loans excluded $633 million of PPP
loans 90 or more days past due and guaranteed by the SBA.
9,110 $ 11,483
The Firm has developed policies and practices that are
designed to preserve the independence and integrity of the
approval and decision-making process for extending credit
to ensure credit risks are assessed accurately, approved
properly, monitored regularly and managed actively at both
the transaction and portfolio levels. The policy framework
establishes credit approval authorities, concentration limits,
risk-rating methodologies, portfolio review parameters and
guidelines for management of distressed exposures. In
addition, certain models, assumptions and inputs used in
evaluating and monitoring credit risk are independently
validated by groups that are separate from the LOBS.
Consumer credit risk is monitored for delinquency and
other trends, including any concentrations at the portfolio
level, as certain of these trends can be addressed through
changes in underwriting policies and portfolio guidelines.
Consumer Risk Management evaluates delinquency and
other trends against business expectations, current and
forecasted economic conditions, and industry benchmarks.
Historical and forecasted economic performance and trends
are incorporated into the modeling of estimated consumer
credit losses and are part of the monitoring of the credit
risk profile of the portfolio.
Wholesale credit risk is monitored regularly at an aggregate
portfolio, industry, and individual client and counterparty
level with established concentration limits that are
reviewed and revised periodically as deemed appropriate
by management. Industry and counterparty limits, as
measured in terms of exposure and economic risk appetite,
are subject to stress-based loss constraints. Wrong-way risk
is the risk that exposure to a counterparty is positively
correlated with the impact of a default by the same
counterparty, which could cause exposure to increase at the
same time as the counterparty's capacity to meet its
obligations is decreasing.
•
Management of the Firm's wholesale credit risk exposure is
accomplished through a number of means, including:
Loan underwriting and credit approval processes
Loan syndications and participations
• Loan sales and securitizations
•
Credit derivatives
• Master netting agreements, and
Collateral and other risk-reduction techniques
In addition to Credit Risk Management, an independent
Credit Review function is responsible for:
•
Risk monitoring and management
Independently validating or changing the risk grades
assigned to exposures in the Firm's wholesale credit
portfolio, and assessing the timeliness of risk grade
changes initiated by responsible business units; and
Evaluating the effectiveness of the credit management
processes of the LOBS and Corporate, including the
adequacy of credit analyses and risk grading/loss given
default ("LGD") rationales, proper monitoring and
management of credit exposures, and compliance with
applicable grading policies and underwriting guidelines.
Refer to Note 12 for further discussion of consumer and
wholesale loans.
The following table provides information on Firmwide
nonaccrual loans to total loans.
(in millions, except ratios)
Paycheck Protection Program
The Firm provided various forms of assistance to customers
and clients impacted by the COVID-19 pandemic, including
payment deferrals and covenant modifications. The
majority of the Firm's COVID-19 related loan modifications
have not been considered troubled debt restructurings
("TDRS"). Assistance provided in response to the COVID-19
pandemic could delay the recognition of delinquencies,
nonaccrual status, and net charge-offs for those customers
and clients who would have otherwise moved into past due
or nonaccrual status. Refer to Consumer Credit Portfolio on
pages 110-116 and Wholesale Credit Portfolio on pages
117-128 for information on loan modifications as of
December 31, 2021. Refer to Notes 12 and 13 for further
information on the Firm's accounting policies for loan
modifications and the allowance for credit losses.
Customer and client assistance
JPMorgan Chase & Co./2021 Form 10-K
0.55 %
0.30 %
5,259
958,303
2,865 $
965,271
$
2020
2021
Net charge-off rates
Average retained loans
December 31,
Net charge-offs
Year ended December 31,
net charge-offs and recoveries.
The following table provides information about the Firm's
1.04 %
0.72 %
2020
10,573
1,012,853
$
7,795
1,077,714
$
2021
Firmwide nonaccrual loans to total loans
outstanding
Total loans
Total nonaccrual loans
(in millions, except ratios)
The PPP, established by the CARES Act and implemented by
the SBA, provided the Firm with delegated authority to
process and originate PPP loans. When certain criteria are
met, PPP loans are subject to forgiveness and the Firm will
receive payment of the forgiveness amount from the SBA.
PPP loans have a contractual term of two or five years and
provide borrowers with an automatic payment deferral of
principal and interest. The SBA will pay accrued interest
through the payment deferral period and additional interest
up to a maximum of 120 days past due. Based upon these
servicing guidelines, the Firm continues to accrue interest
for PPP loans 90 or more days past due until delinquency
reaches 120 days past due. PPP processing fees are
deferred and accreted into interest income over the
contractual life of the loans, but may be accelerated upon
forgiveness or prepayment.
Risk reporting
JPMorgan Chase & Co./2021 Form 10-K
47,710
Total credit-related
assets
1,194,440
1,136,007
8,111
10,629
Assets acquired in loan
satisfactions
Real estate owned
Other
ΝΑ
ΝΑ
213
256
59,645
ΝΑ
22
21
Total assets acquired in
loan satisfactions
ΝΑ
NA
235
277
Lending-related
commitments
1,262,313
1,165,688
764
(f) Credit card, home equity and certain business banking lending-related commitments represent the total available lines of credit for these products. The Firm
has not experienced, and does not anticipate, that all available lines of credit would be used at the same time. For credit card commitments, and if certain
conditions are met, home equity commitments and certain business banking commitments, the Firm can reduce or cancel these lines of credit by providing
the borrower notice or, in some cases as permitted by law, without notice. Refer to Note 28 for further information.
577
ΝΑ
To enable monitoring of credit risk and effective decision-
making, aggregate credit exposure, credit quality forecasts,
concentration levels and risk profile changes are reported
regularly to senior members of Credit Risk Management.
Detailed portfolio reporting of industry, clients,
counterparties and customers, product and geography are
prepared, and the appropriateness of the allowance for
credit losses is reviewed by senior management at least on
a quarterly basis. Through the risk reporting and
governance structure, credit risk trends and limit
exceptions are provided regularly to, and discussed with,
risk committees, senior management and the Board of
Directors.
Receivables from
7,795
316
107
Management's discussion and analysis
CREDIT PORTFOLIO
Credit risk is the risk associated with the default or change
in credit profile of a client, counterparty or customer.
In the following tables, total loans include loans retained
(i.e., held-for-investment); loans held-for-sale; and certain
loans accounted for at fair value. The following tables do
not include loans which the Firm accounts for at fair value
and classifies as trading assets; refer to Notes 2 and 3 for
further information regarding these loans. Refer to Notes
12, 28, and 5 for additional information on the Firm's
loans, lending-related commitments and derivative
receivables, including the Firm's related accounting
policies.
Refer to Note 10 for information regarding the credit risk
inherent in the Firm's investment securities portfolio; and
refer to Note 11 for information regarding credit risk
inherent in the securities financing portfolio. Refer to
Consumer Credit Portfolio on pages 110-116 and Note 12
for further discussions of the consumer credit environment
and consumer loans. Refer to Wholesale Credit Portfolio on
pages 117-128 and Note 12 for further discussions of the
wholesale credit environment and wholesale loans.
Total credit portfolio
December 31,
(in millions)
Loans retained
Total loans
(a)
customersa
Credit exposure
Nonperforming"
(d)(e)
1,507
10,573
56
2021
2021
2020
Loans held-for-sale
Loans at fair value
8,688
58,820
1,077,714
Derivative receivables
57,081
$1,010,206 $ 960,506
7,873
44,474
1,012,853
75,444
$
6,932 $ 8,782
48
815
284
(c)
2020
At December 31, 2021 and 2020, the Firm had $6.7 billion
and $27.2 billion, respectively, of PPP loans, including $5.4
billion and $19.2 billion, respectively, in consumer, and
$1.3 billion and $8.0 billion, respectively, in wholesale. The
PPP ended for new applications on May 31, 2021.
$2,456,753 $ 2,301,695
accelerated recognition in interest income of the associated
deferred processing fees, primarily in CCB.
Net charge-offs/(recoveries)
Total consumer - retained
Credit card - retained
Total consumer, excluding credit card - retained
Auto and other
Residential real estate
Consumer, excluding credit card
(in millions, except ratios)
(747)
(2,028) $
$
Credit-related notes used in credit portfolio management activities
(i)
2021
6,467
$
1,178,620
1,253,470 $
$
Total consumer credit portfolio (h)
802,722
884,830
Total credit card exposure (h)
658,506
730,534
Lending-related commitments (f)(h)
ΝΑ
NA
5,350 $
2020
Year ended December 31,
Average loans - retained
2021
2020
Net charge-off/(recovery) rate (m)
As of December 31, 2021, approximately $34 billion of
PPP loans have been repaid through payments of
forgiveness amounts to the Firm from the SBA. During the
year ended December 31, 2021, this resulted in
(d) At December 31, 2021 and 2020, included $5.4 billion and $19.2 billion of loans, respectively, in Business Banking under the PPP. The Firm does not expect
to realize material credit losses on PPP loans because the loans are guaranteed by the SBA. Refer to Credit Portfolio on pages 108-109 for a further
discussion of the PPP.
(c) Includes scored auto and business banking loans and overdrafts.
(a) Includes scored mortgage and home equity loans held in CCB and AWM, and scored mortgage loans held in Corporate.
(b) At December 31, 2021 and 2020, excluded operating lease assets of $17.1 billion and $20.6 billion, respectively. These operating lease assets are included
in other assets on the Firm's Consolidated balance sheets. Refer to Note 18 for further information.
0.99 %
0.62 %
2.93
1.94
0.06
0.51
(0.07)%
(0.12)%
0.37
235,300
66,705
302,005
146,391
448,396
438,714 $
$
4,460
2,723 $
$
139,900
4,286
2,712
298,814
174
11
220,914 $
77,900
(164) $
338
(275) $
286
$
2021
144,216
154,296
2020
NA
119
4,759 $
225,302 $
76,825
302,127
295,556
224,795 $
70,761
$
2020
2021
Nonaccrual loans (i)(k)(1)
2020
2021
Credit exposure
Auto and other (b)(c) (d)
4,878
Residential real estate (a)
(in millions)
December 31,
Consumer credit portfolio
The following tables present consumer credit-related information with respect to the scored credit portfolio held in CCB, AWM,
CIB and Corporate.
JPMorgan Chase & Co./2021 Form 10-K
110
The Firm's retained consumer portfolio consists primarily of
residential real estate loans, credit card loans, scored auto
and business banking loans, as well as associated lending-
related commitments. The Firm's focus is on serving
primarily the prime segment of the consumer credit market.
Originated mortgage loans are retained in the residential
real estate portfolio, securitized or sold to U.S. government
agencies and U.S. government-sponsored enterprises; other
types of consumer loans are typically retained on the
balance sheet. The credit performance of the consumer
portfolio, including net charge-offs continued to benefit from
the improvement in the macroeconomic environment during
2021. Refer to Note 12 for further information on the
consumer loan portfolio. Refer to Note 28 for further
information on lending-related commitments.
CONSUMER CREDIT PORTFOLIO
Management's discussion and analysis
Total credit card loans
At December 31, 2021, $633 million of PPP loans 90 or
more days past due have been excluded from the Firm's
nonaccrual loans as they are guaranteed by the SBA.
Refer to CCB segment results on pages 63-66 and Note 12
for a further discussion of the PPP.
109
JPMorgan Chase & Co./2021 Form 10-K
Consumer, excluding credit card
5,313
Total loans - retained
5,464
784
Loans held-for-sale
NA
151
NA
143,432
154,296
Loans retained(g)
Credit Card
368,640
Total consumer exposure, excluding credit card
57,319
45,334
Lending-related commitments (f)
6,467
375,898
5,350
Loans held-for-sale
1,305
NA
Loans at fair value (e)
1,287
15,147
26,463
1,003
Total consumer, excluding credit card loans
323,306
318,579
472
Noninvestment-grade
As of or for the year ended
Selected metrics
Wholesale credit exposure - industries (a)
maturity. Derivative contracts that are in a receivable position at December 31, 2021, may become payable prior to maturity based on their cash flow
profile or changes in market conditions.
The table below summarizes by industry the Firm's exposures as of December 31, 2021 and 2020. The industry of risk
category is generally based on the client or counterparty's primary business activity. Refer to Note 4 for additional information
on industry concentrations.
Exposures deemed criticized align with the U.S. banking
regulators' definition of criticized exposures, which consist
of the special mention, substandard and doubtful
categories. Total criticized exposure, excluding loans held-
for-sale and loans at fair value, was $38.2 billion at
December 31, 2021 and $41.6 billion at December 31,
2020, representing approximately 3.5% and 4.0% of total
wholesale credit exposure, respectively. The decrease in
criticized exposure was driven by net portfolio activity and
client-specific upgrades, primarily in Oil & Gas and
Automotive, largely offset by client-specific downgrades.
The $38.2 billion of criticized exposure at December 31,
2021 was largely undrawn and $35.0 billion was
performing.
119
JPMorgan Chase & Co./2021 Form 10-K
its industry exposures, and pays particular attention to
industries with actual or potential credit concerns.
The Firm focuses on the management and diversification of
December 31, 2021
Wholesale credit exposure - industry exposures
Management's discussion and analysis
(in millions)
Noncriticized
Individuals and Individual Entities (b)
related
credit-
(e) The maturity profile of retained loans, lending-related commitments and derivative receivables is generally based on remaining contractual
Net charge-
offs/
(recoveries)
accruing
loans"
performing nonperforming
Criticized
Criticized
Investment-
grade
Credit
(f)(g)
exposure
Credit
derivative
hedges and
30 days or
more past
due and
$ 155,069 $ 120,174 $
Technology, Media &
Consumer & Retail
Real Estate
(d) Prior-period amounts have been revised to conform with the current presentation.
17,750
JPMorgan Chase & Co./2021 Form 10-K
38,941
312,694
730,908
28,410
60,638
17,734 449,863
179,217 1,025,448
35,111
Loans held-for-sale and loans at fair value (a)
Receivables from customers
14,478
315,179
527,562
318,669
Subtotal
116,950
Total derivative receivables, net of collateral
Lending-related commitments
(14,806)
(14,806)
Less: Liquid securities and other cash collateral
held against derivatives
75,444
75,444
(d)
Liquid securities
and other cash
collateral held
21,697
137,169
294,540
(c) The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference
entity on which protection has been purchased. Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection used
in credit portfolio management activities are executed with investment-grade counterparties. In addition, the Firm obtains credit protection against
certain loans in the retained loan portfolio through the issuance of credit-related notes.
47,710
64
118
(a) Loans held-for-sale are primarily related to syndicated loans and loans transferred from the retained portfolio.
(b) These derivatives do not qualify for hedge accounting under U.S. GAAP.
78%
$ (23,218)
(5,054)
(18,164) $
$ (6,765) $ (13,627) $ (2,826) $ (23,218) $
credit portfolio management activities (b)(c)(d)
Credit derivatives and credit-related notes used in
$1,108,269
$ 1,108,269
other cash collateral held against derivatives
Total exposure - net of liquid securities and
71
70
60,638
449,863
1,025,448
35,111
47,710
against
derivative
(174)
receivables
15,136
42,133
59,014
Healthcare
(1)
(608)
13
428
169
2,895
26,957
36,953
66,974
Industrials
(3,900)
1,686
8
59
(4)
20,698
42,606
Oil & Gas
(810)
(553)
9
9
5
1,138
23,809
29,732
54,684
Banks & Finance Cos
(d)
(490)
204
notes (i)
5
68,593
122,789
(1)
32
1,450
471
99
18,797
122,606
141,973
(190) $
6 $
394 $
617 $
4,636 $
29,642 $
59,622
12,630
53,317
405
81,228
Asset Managers
(12)
(935)
(1)
58
325
8,595
25,540
49,610
84,070
Telecommunications
(357)
2
288
9,445
Total %
of IG
74 %
Ratings profile
135,674
125
101
ΝΑ
derivatives
other cash collateral
held against
Liquid securities and
764
Total wholesale
credit portfolio
Credit derivatives and
credit-related notes
used in credit
portfolio
management
activities (b)
Total assets acquired
in loan satisfactions
ΝΑ
ΝΑ
125
101
ΝΑ
Lending-related
commitments
577
ΝΑ
486,445
117
JPMorgan Chase & Co./2021 Form 10-K
(d) Loans that were modified in response to the COVID-19 pandemic
continue to be risk-rated in accordance with the Firm's overall credit
risk management framework. As of December 31, 2021,
predominantly all of these loans were considered performing.
(c) Prior-period amounts have been revised to conform with the current
presentation.
(b) Represents the net notional amount of protection purchased and sold
through credit derivatives and credit-related notes used to manage
both performing and nonperforming wholesale credit exposures; these
derivatives do not qualify for hedge accounting under U.S. GAAP. Refer
to Credit derivatives on page 128 and Note 5 for additional
information.
(a) Receivables from customers reflect held-for-investment margin loans
to brokerage clients in CIB, CCB and AWM; these are reported within
accrued interest and accounts receivable on the Consolidated balance
sheets.
ΝΑ
NA
(14,806)
(10,102)
$
$ (20,190) $ (23,218) (c) $
$ 3,626 $4,864
$1,203,283 $1,123,075
449,863
ΝΑ
2,761 4,162
673,212
716,838
7,401
$ 2,054 $3,318
$ 560,354 $ 514,947
2020
2021
2021
Nonperforming(d)
Credit exposure
2020
(a)
December 31,
(in millions)
Loans retained
Loans held-for-sale
Loans at fair value
Loans
Wholesale credit portfolio
As of December 31, 2021, retained loans increased
$45.4 billion driven by CIB and AWM, partially offset by
decreases in CCB. Lending-related commitments increased
$36.6 billion, predominantly driven by net portfolio activity
in CB and CIB, including an increase in held for sale
commitments intended to be syndicated.
In its wholesale businesses, the Firm is exposed to credit
risk primarily through its underwriting, lending, market-
making, and hedging activities with and for clients and
counterparties, as well as through various operating
services (such as cash management and clearing activities),
securities financing activities and cash placed with banks. A
portion of the loans originated or acquired by the Firm's
wholesale businesses is generally retained on the balance
sheet. The Firm distributes a significant percentage of the
loans that it originates into the market as part of its
syndicated loan business and to manage portfolio
concentrations and credit risk. The wholesale portfolio is
actively managed, in part by conducting ongoing, in-depth
reviews of client credit quality and transaction structure
inclusive of collateral where applicable, and of industry,
product and client concentrations. Refer to the industry
discussion on pages 119-123 for further information.
The Firm's wholesale credit portfolio includes exposure held
in CIB, CB, AWM and Corporate, as well as risk-rated
exposures held in CCB, including business banking and auto
dealer exposure for which the wholesale methodology is
applied when determining the allowance for credit losses.
In 2021 the credit environment continued to improve
following the broad-based deterioration during the earlier
stages of the COVID-19 pandemic.
WHOLESALE CREDIT PORTFOLIO
20,222
5,784
Management's discussion and analysis
48
32,357
Total wholesale
credit-related
assets
Assets acquired in
loan satisfactions
Real estate owned
Other
47,710
59,645
Receivables from
customers
56
316
75,444 (c)
57,081
Derivative receivables
4,106
550,058
600,112
504
343
29,327
284
Wholesale assistance
In March 2020, the Firm began providing assistance to
clients in response to the COVID-19 pandemic,
predominantly in the form of payment deferrals and
covenant modifications.
As of December 31, 2021 and 2020, the Firm had
approximately $107 million and $1.6 billion, respectively,
of retained loans under payment deferral programs,
compared to $16.8 billion at June 30, 2020. Predominantly
all clients that exited deferral are current or have paid
down their loans. The Firm continues to monitor the credit
risk associated with loans subject to deferrals throughout
the deferral period and on an ongoing basis after the
borrowers are required to resume making regularly
scheduled payments, and considers expected losses of
Wholesale credit exposure - maturity and ratings profile
$
(2,267) $ (20,190) $ (15,559)
(10,414) $
$ (7,509) $
Credit derivatives and credit-related notes used in
credit portfolio management activities (b)(c)(d)
$1,193,181
$1,193,181
Total exposure - net of liquid securities and other
cash collateral held against derivatives
39,758
59,645
71
68
68
46,979
486,445
1,093,778
15,045
155,329
320,717
31,934
331,116
773,061
(4,631)
46,979
486,445
1,093,778
39,758
59,645
$ (20,190)
Maturity profile (e)
$ 379,273 $
$ 183,969 $ 197,905 $ 133,073 $ 514,947
Noninvestment-
grade
Investment-
grade
Total
After 5
years
5 years
through
1 year or
less
After 1 year
Derivative receivables
Loans retained
(in millions, except ratios)
December 31, 2020
Ratings profile
77 %
Total
$ 514,947
(a)
20,517
25,208
173,839
Total %
of IG
Total
Noninvestment-
grade
After 5
years
5 years
After 1 year
through
1 year or
less
Maturity profile (e)
Derivative receivables
Loans retained
(in millions, except ratios)
December 31, 2021
The following tables present the maturity and internal risk ratings profiles of the wholesale credit portfolio as of
December 31, 2021 and 2020. The Firm generally considers internal ratings with qualitative characteristics equivalent to
BBB-/Baa3 or higher as investment grade, and takes into consideration collateral and structural support when determining
the internal risk rating for each credit facility. Refer to Note 12 for further information on internal risk ratings.
In addition, the Firm granted assistance in the form of
covenant modifications. These types of assistance, both
payment deferrals and covenant modifications, are
generally not reported as TDRs, either because the
modifications were insignificant or they qualified to
suspend TDR accounting guidance under the option
provided by the CARES Act, as extended by the Consolidated
Appropriations Act and which expired on January 1, 2022.
Loans under assistance continue to be risk-rated in
accordance with the Firm's overall credit risk management
framework. As of December 31, 2021, substantially all of
these loans were considered performing.
principal and accrued interest on these loans in its
allowance for credit losses.
150,343
Loans held-for-sale and loans at fair value a
Receivables from customers
$ 560,354
57,081
12,814
340,308
571,298
348,641
Subtotal
120,929
13,648
Total derivative receivables, net of collateral
Lending-related commitments
(10,102)
(10,102)
Less: Liquid securities and other cash collateral
held against derivatives
$ 214,064 $ 218,176 $ 128,114 $ 560,354
57,081
$
$ 410,011
Investment-
grade
Total
73 %
2,445
As of December 31, 2021, the investment-grade
percentage of the portfolio remained relatively flat at 71%,
while criticized exposure decreased $3.4 billion from $41.6
billion to $38.2 billion. The decrease in criticized exposure
was driven by net portfolio activity and client-specific
upgrades, primarily in Oil & Gas and Automotive, largely
offset by client-specific downgrades. Nonperforming
exposure decreased $1.2 billion driven by lower
nonperforming loans, primarily in Oil & Gas and Individuals
and Individual Entities, with net portfolio activity and client-
specific upgrades partially offset by client-specific
downgrades. The decrease in nonperforming loans was
partially offset by increases in derivatives and lending-
related commitments.
4
25,359
52
41
Food and Beverage
28,012
897
28,909
62
33
Consumer Hard Goods
12,937
178
13,115
59
36
Leisure (b)
Total Consumer & Retail
$
7,440
105,635
241
7,681
599
18
24,760
33 %
$
122,789
49 %
32 %
December 31, 2020
Loans and
Lending-related
(in millions, except ratios)
Commitments
Derivative
Receivables
Credit
exposure
Retail (a)
$
32,486
$
887
$
33,373
% Investment-
grade
52 %
(d)
% Drawn
Business and Consumer Services
43
$
2,802
$
$
23,083
19,523
42,606
% Investment-
grade
39 %
60
(c)
% Drawn
26 %
26
49 %
26 %
December 31, 2020
Loans and
Lending-related
(in millions, except ratios)
Commitments
Derivative
Receivables
Credit
exposure
Exploration & Production ("E&P") and Oil field Services
$
18,228
$
Other Oil & Gas (a)
5,452
582
6,034
$
36,572
$
$
108,437
53 %
36 %
(a) Retail consists of Home Improvement & Specialty Retailers, Restaurants, Supermarkets, Discount & Drug Stores, Specialty Apparel and Department Stores.
(b) Leisure consists of Gaming, Arts & Culture, Travel Services and Sports & Recreation. As of December 31, 2021, approximately 81% of the noninvestment-
grade Leisure portfolio is secured.
(c) Approximately 80% of the noninvestment-grade portfolio is secured.
(d) Represents drawn exposure as a percent of credit exposure.
Oil & Gas
Oil & Gas exposure was $42.6 billion as of December 31, 2021, including $23.1 billion of Exploration & Production and Oil
field Services as shown in the table below. The increase in derivative receivables resulted from market movements related to
Oil & Gas prices. Criticized exposure decreased by $4.0 billion from $5.7 billion at December 31, 2020 to $1.7 billion at
December 31, 2021, driven by net portfolio activity and client-specific upgrades partially offset by client-specific downgrades.
December 31, 2021
2,669
(in millions, except ratios)
Derivative
Receivables
Credit
exposure
Exploration & Production ("E&P") and Oil field Services
$
17,631
$
Other Oil & Gas (a)
18,941
Total Oil & Gas
(b)
Loans and
Lending-related
Commitments
19,288
$
$
69
9,108
76
73
9,242
22
9,264
62
47
10,573
199
10,772
60
69
$
3,084
147,113
16
3,100
24
57
$
9,039
1,385
55
13,856
Derivative
Receivables
Credit
exposure
% Investment-
grade
(d)
% Drawn
$
85,368
$
183
$
85,551
85 %
92 %
16,372
475
16,847
76
70
13,435
421
76
$
148,498
78 %
32,159
347
32,506
46
33
30,434
957
31,391
59
33
17,035
111
17,146
46
30
7,620
102
7,722
17
34
Total Consumer & Retail (c)
31 %
50 %
34,024
$
80 %
(b) Other Income Producing Properties consists of clients with diversified property types or other property types outside of categories listed in the table above
(c) Real Estate exposure is approximately 78% secured; unsecured exposure is approximately 75% investment-grade.
(d) Represents drawn exposure as a percentage of credit exposure.
122
JPMorgan Chase & Co./2021 Form 10-K
Consumer & Retail
Consumer & Retail exposure was $122.8 billion as of December 31, 2021, and predominantly included Retail, Business and
Consumer Services, and Food and Beverage as shown in the table below. Criticized exposure increased by $617 million from
$9.2 billion at December 31, 2020 to $9.9 billion at December 31, 2021, driven by client-specific downgrades and net
portfolio activity largely offset by client-specific upgrades.
December 31, 2021
(in millions, except ratios)
(a)
Retail a
120,120
Business and Consumer Services
Consumer Hard Goods
Leisure (b)
Loans and
Lending-related
Commitments
Derivative
Receivables
Credit
exposure
% Investment-
grade
% Drawn (d)
$
32,872
$
1,152
Food and Beverage
1,048
595
$
19,276
19,883
Secured by real estate
and industrial
Other
Total
(in millions, except ratios)
Net charge-offs/(recoveries)
Average retained loans
2021
2020
2021
2020
2021
2020
2021
2020
$ 13
$ 10
$ 105 $ 737
$ 24 $ 52
$ 142 $
799
Year ended December 31,
Commercial
118,417 122,435
The following table presents net charge-offs/recoveries, average retained loans and net charge-off/recovery rate by loan class
for the year ended December 31, 2021 and 2020.
1,129
$ 27,559
95,685
162,600
117,886
$ 28,624
10,523
27,427
$ 65,542
$128,312
1,105
4,442
159,445
312,355
$221,319
$241,130 $ 66,574
$ 71,089
$ 600,112
$ 3,762 $ 9,454 $
9,129
18,206
2,258
1,025
16,778
19
3,311
$ 23,797
86,557
99,679
$ 19,170
9,498
10,649
$ 241,130
$ 66,574
$ 63,285
1,087
$ 71,089
138,015
162,554
270,125
December 31, (in millions)
Total, net of cash collateral
Liquid securities and other cash
collateral held against derivative
receivables
Total, net of liquid securities and
other cash collateral
Other collateral
held against derivative receivables
Total, net of collateral
2021
2020
$
57,081 $ 75,444
(a)
(10,102)
(14,806)
$
46,979 $
60,638
(a)
(1,544)
(1,836)
$ 45,435 $
58,802
(a) Prior-period amounts have been revised to conform with the current
presentation.
126
JPMorgan Chase & Co./2021 Form 10-K
Derivative receivables
The following tables summarize the net derivative
receivables and the internal ratings profile for the periods
presented.
The Firm also holds additional collateral (primarily cash, G7
government securities, other liquid government agency and
guaranteed securities, and corporate debt and equity
securities) delivered by clients at the initiation of
transactions, as well as collateral related to contracts that
have a non-daily call frequency and collateral that the Firm
has agreed to return but has not yet settled as of the
reporting date. Although this collateral does not reduce the
balances and is not included in the tables below, it is
available as security against potential exposure that could
arise should the fair value of the client's derivative contracts
move in the Firm's favor. Refer to Note 5 for additional
information on the Firm's use of collateral agreements.
The fair value of derivative receivables reported on the
Consolidated balance sheets were $57.1 billion and $75.4
billion at December 31, 2021 and 2020, respectively. The
decrease was primarily driven by market movements and
maturities of certain trades in CIB, partially offset by an
increase in commodity derivatives. Derivative receivables
represent the fair value of the derivative contracts after
giving effect to legally enforceable master netting
agreements and the related cash collateral held by the Firm.
In addition, the Firm held liquid securities and other cash
collateral that the Firm believes is legally enforceable and
may be used as security when the fair value of the client's
exposure is in the Firm's favor. For these purposes, the
definition of liquid securities is consistent with the definition
of high quality liquid assets as defined in the LCR rule.
In management's view, the appropriate measure of current
credit risk should also take into consideration other
collateral, which generally represents securities that do not
qualify as high quality liquid assets under the LCR rule, but
that the Firm believes is legally enforceable. The collateral
amounts for each counterparty are limited to the net
derivative receivables for the counterparty.
224,918
526,557
509,907
Net charge-off/(recovery) rate
0.01 %
0.01 %
0.08 %
0.45 %
0.01 %
0.02 %
52,132
0.03 %
JPMorgan Chase & Co./2021 Form 10-K
125
Management's discussion and analysis
Lending-related commitments
The Firm uses lending-related financial instruments, such as
commitments (including revolving credit facilities) and
guarantees, to address the financing needs of its clients. The
contractual amounts of these financial instruments
represent the maximum possible credit risk should the
clients draw down on these commitments or when the Firm
fulfills its obligations under these guarantees, and the
clients subsequently fail to perform according to the terms
of these contracts. Most of these commitments and
guarantees have historically been refinanced, extended,
cancelled, or expired without being drawn upon or a default
occurring. As a result, the Firm does not believe that the
total contractual amount of these wholesale lending-related
commitments is representative of the Firm's expected
future credit exposure or funding requirements. Refer to
Note 28 for further information on wholesale lending-
related commitments.
Receivables from customers
Receivables from customers reflect held-for-investment
margin loans to brokerage clients in CIB, CCB and AWM that
are collateralized by assets maintained in the clients'
brokerage accounts (e.g., cash on deposit, and liquid and
readily marketable debt or equity securities). Because of
this collateralization, no allowance for credit losses is
generally held against these receivables. To manage its
credit risk the Firm establishes margin requirements and
monitors the required margin levels on an ongoing basis,
and requires clients to deposit additional cash or other
collateral, or to reduce positions, when appropriate. These
receivables are reported within accrued interest and
accounts receivable on the Firm's Consolidated balance
sheets.
Derivative contracts
Derivatives enable clients and counterparties to manage risk
including credit risk and risks arising from fluctuations in
interest rates, foreign exchange and equities and
commodities prices. The Firm makes markets in derivatives
in order to meet these needs and uses derivatives to
manage certain risks associated with net open risk positions
from its market-making activities, including the
counterparty credit risk arising from derivative receivables.
The Firm also uses derivative instruments to manage its own
credit risk and other market risk exposure. The nature of the
counterparty and the settlement mechanism of the
derivative affect the credit risk to which the Firm is exposed.
For OTC derivatives the Firm is exposed to the credit risk of
the derivative counterparty. For exchange-traded
derivatives ("ETD"), such as futures and options, and
cleared over-the-counter ("OTC-cleared") derivatives, the
Firm can also be exposed to the credit risk of the relevant
CCP. Where possible, the Firm seeks to mitigate its credit
risk exposures arising from derivative contracts through the
use of legally enforceable master netting arrangements and
collateral agreements. The percentage of the Firm's OTC
derivative transactions subject to collateral agreements -
excluding foreign exchange spot trades, which are not
typically covered by collateral agreements due to their short
maturity and centrally cleared trades that are settled daily -
was approximately 88% at both December 31, 2021 and
2020. Refer to Note 5 for additional information on the
Firm's use of collateral agreements. Refer to Note 5 for a
further discussion of derivative contracts, counterparties
and settlement types.
0.16 %
6,587
$
Total
Additions
2021
2020
$ 4,106 $ 1,271
2,909
6,753
Reductions:
Paydowns and other
2,676
2,290
Gross charge-offs
268
922
Returned to performing status
1,106
569
Sales
520
137
Total reductions
4,570
Beginning balance
Year ended December 31, (in millions)
Wholesale nonaccrual loan activity
The following table presents the change in the nonaccrual
loan portfolio for the years ended December 31, 2021 and
2020. Since December 31, 2020, nonaccrual loan exposure
decreased $1.7 billion, largely in Oil & Gas and Individuals
and Individual Entities, with net portfolio activity and client-
specific upgrades partially offset by client-specific
downgrades.
% Investment-
grade
32 %
(c)
% Drawn
62
37 %
21
Total Oil & Gas (b)
$
37,516
$
1,643
3,918
$
47 %
29 %
(a) Other Oil & Gas includes Integrated Oil & Gas companies, Midstream/Oil Pipeline companies and refineries.
(b) Secured exposure was $18.0 billion and $13.2 billion at December 31, 2021 and 2020, respectively, over half of which is reserve-based lending to the
Exploration & Production sub-sector; unsecured exposure is largely investment-grade.
(c) Represents drawn exposure as a percent of credit exposure.
JPMorgan Chase & Co./2021 Form 10-K
123
Management's discussion and analysis
Loans
In its wholesale businesses, the Firm provides loans to a
variety of clients, ranging from large corporate and
institutional clients to high-net-worth individuals. Refer to
Note 12 for a further discussion on loans, including
information about delinquencies, loan modifications and
other credit quality indicators.
39,159
Commitments
Net changes
2,835
Maturities and sensitivity to changes in interest rates
The table below sets forth wholesale loan maturities and the distribution between fixed and floating interest rates based on the
stated terms of the loan agreements by loan class. Refer to Note 12 for further information on loan classes.
December 31, 2021
(in millions, except ratios)
Wholesale loans:
Secured by real estate
Commercial and industrial
Other
Total wholesale loans
Loans due after one year at fixed interest rates
Secured by real estate
Commercial and industrial
Other
Loans due after one year at variable interest rates
Secured by real estate
Commercial and industrial
Other
Total wholesale loans
(a) Includes demand loans and overdrafts.
1 year or
(a)
less
After 1
year
through 5
years
After 5
years
through
15 years
After 15
years
JPMorgan Chase & Co./2021 Form 10-K
124
0.16 %
0.03 %
Ending balance
$ 2,445 $ 4,106
The following table presents net charge-offs/recoveries,
which are defined as gross charge-offs less recoveries, for
the years ended December 31, 2021 and 2020. The
amounts in the table below do not include gains or losses
from sales of nonaccrual loans recognized in noninterest
revenue.
Wholesale net charge-offs/(recoveries)
Year ended December 31,
(in millions, except ratios)
2021
2020
Loans
(1,661)
Average loans retained
$ 509,907
Gross charge-offs
283
Gross recoveries collected
(141)
954
(155)
Net charge-offs/(recoveries)
142
799
Net charge-off/(recovery) rate
$ 526,557
128
Lending-related
December 31, 2020
504 $
374 $
94 $
related
notes (h)(i)
(190) $
Individuals and Individual
Entities (b)
122,870
107,266
14,688
227
689
1,570
(17)
Consumer & Retail
108,437
57,580
41,624
8,852
381
203
55
$ 4,294 $
(381)
27,576
$ 148,498
$ 1,203,283
120
JPMorgan Chase & Co./2021 Form 10-K
Selected metrics
Noninvestment-grade
As of or for the year ended
December 31, 2020
(in millions)
Real Estate
Credit
exposure(f)(g)
Investment-
grade
Noncriticized
Criticized
performing
Criticized
nonperforming
accruing
loans
30 days or
more past
due and
Net charge-
offs/
(recoveries)
Credit
derivative
hedges
and credit-
Liquid securities
and other cash
collateral held
against
derivative
receivables
$ 116,124 $
(5)
Technology, Media &
Telecommunications
(658)
(61)
Healthcare
60,118
44,901
13,356
1,684
177
96
104
(378)
(191)
Banks & Finance Cos
54,032
35,115
17,820
1,045
52
20
13
(659)
70
278
225
1,852
72,150
36,435
27,770
7,738
207
10
73
(984)
(56)
Asset Managers
Total(e)
66,573
8,885
85
21
19
1
(4,685)
Industrials
66,470
37,512
26,881
57,582
(1,648)
39,758
59,645
Loans held-for-sale and loans at fair
value
209
11
6
(382)
(4)
Chemicals & Plastics
17,660
11,319
5,817
518
6
7
(67)
Metals & Mining
16,696
7,848
8,491
294
63
27
7
914
(15)
7,011
33,203
60
(582)
Automotive
34,573
24,606
9,446
399
122
95
(3)
(463)
State & Municipal Govt (c)
33,216
32,522
586
101
7
74
-
(14)
Utilities
25,069
(4)
Transportation
14,635
4,180
2,599
1,578
3
(47)
(217)
All other(d)
111,690
97,537
Subtotal
$ 1,103,880 $ 782,628 $
13,580
283,069 $
205
368
242
(5)
35,049 $
3,134 $ 3,320 $
(8,313)
142 $ (20,190) $
(2,503)
(10,102)
Securities Firms
390
3,987
4,377
6,010
5,983
2,470
172
21
20
(110)
(24)
Insurance
13,926
Receivables from customers
9,943
96
(25)
(2,366)
Central Govt
11,317
11,067
250
(7,053)
(72)
Financial Markets Infrastructure
3,887
Oil & Gas
39,159
18,456
Real Estate
Real Estate exposure was $155.1 billion as of December 31, 2021, of which $89.2 billion was multifamily lending as shown in
the table below. Criticized exposure increased by $455 million from $4.8 billion at December 31, 2020 to $5.3 billion at
December 31, 2021, driven by client-specific downgrades predominantly offset by client-specific upgrades and net portfolio
activity.
(in millions, except ratios)
Multifamily (a)
Office
Other Income Producing Properties"
Industrial
Services and Non Income Producing
Retail
Lodging
Total Real Estate Exposure(c)
(in millions, except ratios)
Multifamily(a)
Office
Other Income Producing Properties (b)
Industrial
Services and Non Income Producing
Retail
Lodging
Total Real Estate Exposure
(a) Multifamily exposure is largely in California.
December 31, 2021
Loans and
Lending-related
Commitments
Presented below is additional detail on certain of the Firm's industry exposures.
Derivative
Receivables
Management's discussion and analysis
JPMorgan Chase & Co./2021 Form 10-K
37,622 $
3,951 $
2,922 $
(49)
(9,924)
799 $ (23,218) $
(3,423)
(1,889)
(14,806)
Loans held-for-sale and loans
at fair value
Receivables from customers
35,111
47,710
Total(e)
$ 1,123,075
(a) The industry rankings presented in the table as of December 31, 2020, are based on the industry rankings of the corresponding exposures at
December 31, 2021, not actual rankings of such exposures at December 31, 2020.
(b) Individuals and Individual Entities predominantly consists of Global Private Bank clients within AWM and includes exposure to personal investment
companies and personal and testamentary trusts.
(c) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2021 and 2020, noted above, the
Firm held: $7.1 billion and $7.2 billion, respectively, of trading assets; $15.9 billion and $20.4 billion, respectively, of AFS securities; and $14.0 billion
and $12.8 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. Refer to Note 2 and Note 10 for further information.
(d) All other includes: SPES and Private education and civic organizations, representing approximately 94% and 6%, respectively, at December 31, 2021 and
92% and 8%, respectively, at December 31, 2020.
(e) Excludes cash placed with banks of $729.6 billion and $516.9 billion, at December 31, 2021 and 2020, respectively, which is predominantly placed with
various central banks, primarily Federal Reserve Banks.
(f) Credit exposure is net of risk participations and excludes the benefit of credit derivatives and credit-related notes used in credit portfolio management
activities held against derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(g) Credit exposure includes held-for-sale and fair value option elected lending-related commitments.
(h) Prior-period amounts have been revised to conform with the current presentation.
(i) Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic.
(j) Represents the net notional amounts of protection purchased and sold through credit derivatives and credit-related notes used to manage the credit
exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain
credit indices.
121
Credit
exposure
% Investment-
grade
(d)
11,536
63
50
9,580
106
9,686
61
69
2,859
63
2,922
5
33
$
153,956
$
1,113
$
155,069
77 %
77 %
24
11,512
64
75
% Drawn
$
89,032
$
122
$
89,154
84 %
89 %
16,409
$
234
75
71
13,018
498
13,516
77
55
11,546
66
11,612
16,643
(9)
83
374
22,451
7,048
571
54
14
(7)
(402)
(1)
Chemicals & Plastics
17,176
10,622
5,703
822
29
6
(83)
Metals & Mining
15,542
5,958
8,699
704
30,124
Utilities
(41)
41
14,969
4,952
782
11
249
(488)
(4)
Automotive
43,331
25,548
181
15,575
59
152
22
(434)
State & Municipal Govt(c)
38,286
37,705
574
2
5
2,149
Loans and
8
(141)
Infrastructure
6,515
6,449
66
(10)
Securities Firms
8,048
All other(d)
(h)
96,527
6,116
84,650
1,927
1
4
18
(h)
Subtotal
$ 1,040,254
$ 744,848 $
10,999
253,833
504
Financial Markets
(982)
(8,364)
373
(13)
Transportation
16,232
7,549
6,340
2,137
206
30
117
(83)
16
(26)
13,141
10,177
2,960
3
1
7
(1,771)
Central Govt
17,025
16,652
Insurance
1,558
5
December 31,
•
Originates loans and
•
takes deposits
Interest rate risk and
prepayment risk
•
•
Derivative CVA and
associated hedges
CB
.
investments
Marketable equity
investments
•
Retained loan portfolio
Deposits
AWM
.
Provides initial capital
•
Marketable equity
investments in
Derivatives FVA and fair
value option elected
liabilities DVA (a)
Positions included in other
sensitivity-based measures
Fair value option elected
liabilities DVA (a)
Mortgage commitments,
classified as derivatives
Warehouse loans that are
fair value option elected,
classified as loans - debt
instruments
• MSRS
•
•
Hedges of mortgage
commitments, warehouse
loans and MSRs, classified
as derivatives
Interest-only and mortgage-
backed securities, classified
as trading assets debt
instruments, and related
hedges, classified as
derivatives
Privately held equity and
other investments
measured at fair value; and
certain real estate-related
fair value option elected
loans
Fair value option elected
liabilities
Certain securities
purchased, loaned or sold
under resale agreements
and securities borrowed
Fair value option elected
liabilities
Certain fair value option
elected loans
Positions included in
earnings-at-risk
•
.
Retained loan portfolio
Deposits
Retained loan portfolio
Deposits
Trading assets/liabilities -
debt and marketable equity
instruments, and
derivatives, including
hedges of the retained loan
portfolio
products such as
mutual funds and
capital invested
Capital invested alongside
third-party investors,
typically in privately
distributed collective
vehicles managed by AWM
(i.e., co-investments)
Privately held equity and
other investments
measured at fair value
Foreign exchange exposure
related to Firm-issued non-
USD long-term debt ("LTD")
and related hedges
134
JPMorgan Chase & Co./2021 Form 10-K
derivatives
Value-at-risk
The framework is employed across the Firm using historical
simulation based on data for the previous 12 months. The
framework's approach assumes that historical changes in
market values are representative of the distribution of
potential outcomes in the immediate future. The Firm
believes the use of Risk Management VaR provides a daily
measure of risk that is closely aligned to risk management
decisions made by the LOBS and Corporate and, along with
other market risk measures, provides the appropriate
information needed to respond to risk events.
The Firm's Risk Management VaR is calculated assuming a
one-day holding period and an expected tail-loss
methodology which approximates a 95% confidence level.
Risk Management VaR provides a consistent framework to
measure risk profiles and levels of diversification across
product types and is used for aggregating risks and
monitoring limits across businesses. VaR results are
reported to senior management, the Board of Directors and
regulators.
Underlying the overall VaR model framework are individual
VaR models that simulate historical market returns for
individual risk factors and/or product types. To capture
material market risks as part of the Firm's risk management
framework, comprehensive VaR model calculations are
performed daily for businesses whose activities give rise to
market risk. These VaR models are granular and
incorporate numerous risk factors and inputs to simulate
daily changes in market values over the historical period;
inputs are selected based on the risk profile of each
portfolio, as sensitivities and historical time series used to
generate daily market values may be different across
product types or risk management systems. The VaR model
results across all portfolios are aggregated at the Firm
level.
As VaR is based on historical data, it is an imperfect
measure of market risk exposure and potential future
losses. In addition, based on their reliance on available
historical data, limited time horizons, and other factors,
VaR measures are inherently limited in their ability to
measure certain risks and to predict losses, particularly
those associated with market illiquidity and sudden or
severe shifts in market conditions.
For certain products, specific risk parameters are not
captured in Var due to the lack of liquidity and availability
of appropriate historical data. The Firm uses proxies to
estimate the VaR for these and other products when daily
time series are not available. It is likely that using an actual
price-based time series for these products, if available,
would affect the VaR results presented. The Firm therefore
considers other nonstatistical measures such as stress
testing, in addition to VaR, to capture and manage its
market risk positions.
The daily market data used in VaR models may be different
than the independent third-party data collected for VCG
price testing in its monthly valuation process. For example,
in cases where market prices are not observable, or where
proxies are used in VaR historical time series, the data
sources may differ. Refer to Valuation process in Note 2 for
further information on the Firm's valuation process. As VaR
model calculations require daily data and a consistent
source for valuation, it may not be practical to use the data
collected in the VCG monthly valuation process for VaR
model calculations.
The Firm's VaR model calculations are periodically
evaluated and enhanced in response to changes in the
composition of the Firm's portfolios, changes in market
conditions, improvements in the Firm's modeling
techniques and measurements, and other factors. Such
changes may affect historical comparisons of VaR results.
Refer to Estimations and Model Risk Management on page
149 for information regarding model reviews and
approvals.
The Firm calculates separately a daily aggregated VaR in
accordance with regulatory rules ("Regulatory VaR"), which
is used to derive the Firm's regulatory VaR-based capital
requirements under Basel III capital rules. This Regulatory
VaR model framework currently assumes a ten business-day
holding period and an expected tail loss methodology which
approximates a 99% confidence level. Regulatory VaR is
applied to "covered" positions as defined by Basel III capital
rules, which may be different than the positions included in
the Firm's Risk Management VaR. For example, credit
derivative hedges of accrual loans are included in the Firm's
Risk Management VaR, while Regulatory VaR excludes these
credit derivative hedges. In addition, in contrast to the
Firm's Risk Management VaR, Regulatory VaR currently
excludes the diversification benefit for certain Var models.
Refer to JPMorgan Chase's Basel III Pillar 3 Regulatory
Capital Disclosures reports, which are available on the
Firm's website, for additional information on Regulatory
VaR and the other components of market risk regulatory
capital for the Firm (e.g., VaR-based measure, stressed
VaR-based measure and the respective backtesting).
JPMorgan Chase utilizes value-at-risk ("VaR"), a statistical
risk measure, to estimate the potential loss from adverse
market moves in the current market environment. The Firm
has a single VaR framework used as a basis for calculating
Risk Management VaR and Regulatory VaR.
compensation and related
hedges, classified as
Certain deferred
hedges, classified as
derivatives
alongside third-party
investors
Originates loans and
takes deposits
Corporate
Manages the Firm's
•
liquidity, funding,
capital, structural
Risk from adverse
movements in market
factors (e.g., market
prices, rates and credit
spreads)
Interest rate risk and
prepayment risk
Debt securities held in
advance of distribution to
clients, classified as trading
assets - debt instruments
interest rate and
foreign exchange risks
Structural interest rate
risk from the Firm's
traditional banking
activities
Structural non-USD
foreign exchange risks
Derivative positions
measured through
noninterest revenue in
earnings
Marketable equity
investments
•
Retained loan portfolio
Deposits
Deposits with banks
Investment securities
portfolio and related
interest rate hedges
Long-term debt and
related interest rate
hedges
•
(a) Reflects structured notes in Risk Management VaR and the DVA on structured notes in other sensitivity-based measures.
(b) The AWM and CB contributions to Firmwide average VaR were not material for the years ended December 31, 2021 and 2020.
Initial seed capital
investments and related
Positions included in Risk
Management VaR
.
•
Basis and correlation risk
from changes in the way
asset values move
relative to one another
Interest rate risk and
prepayment risk
2020
$
23.2
$
20.0
Private equity, various debt and
equity instruments, and real assets
Total carrying value
$
December 31, December 31,
2021
7.3
$
6.2
26.2
(a) Prior-period amount has been revised to conform with the current
presentation. Refer to Note 25 for further information.
Governance and oversight
The Firm's approach to managing principal risk is consistent
with the Firm's risk governance structure. A Firmwide risk
policy framework exists for all principal investing activities
and includes approval by executives who are independent
from the investing businesses, as appropriate.
The Firm's independent control functions are responsible
for reviewing the appropriateness of the carrying value of
investments in accordance with relevant policies. As part of
the risk governance structure, approved levels for
investments are established and monitored for each
relevant business or segment in order to manage the
overall size of the portfolios. The Firm also conducts stress
testing on these portfolios using specific scenarios that
estimate losses based on significant market moves and/or
other risk events.
132
JPMorgan Chase & Co./2021 Form 10-K
30.5
Tax-oriented investments, primarily
in alternative energy and
affordable housing
(in billions)
The table below presents the aggregate carrying values of
the principal investment portfolios as of December 31,
2021 and 2020.
26
4,371
55
6,892
54
$
16,386
100 % $
28,328
100 %
131
JPMorgan Chase & Co./2021 Form 10-K
Management's discussion and analysis
INVESTMENT PORTFOLIO RISK MANAGEMENT
Investment portfolio risk is the risk associated with the loss
of principal or a reduction in expected returns on
investments arising from the investment securities portfolio
or from principal investments. The investment securities
portfolio is predominantly held by Treasury and CIO in
connection with the Firm's balance sheet and asset-liability
management objectives. Principal investments are
predominantly privately-held financial instruments and are
managed in the LOBS and Corporate. Investments are
typically intended to be held over extended periods and,
accordingly, the Firm has no expectation for short-term
realized gains with respect to these investments.
Investment securities risk
Investment securities risk includes the exposure associated
with a default in the payment of principal and interest. This
risk is mitigated given that the investment securities
portfolio held by Treasury and CIO predominantly consists
of high-quality securities. At December 31, 2021, the
Treasury and CIO investment securities portfolio, net of
allowance for credit losses, was $670.1 billion, and the
average credit rating of the securities comprising the
portfolio was AA+ (based upon external ratings where
available, and where not available, based primarily upon
internal risk ratings). Refer to Corporate segment results on
pages 79-80 and Note 10 for further information on the
investment securities portfolio and internal risk ratings.
Refer to Market Risk Management on pages 133-140 for
further information on the market risk inherent in the
portfolio. Refer to Liquidity Risk Management on pages
97-104 for further information on related liquidity risk.
Governance and oversight
Investment securities risks are governed by the Firm's Risk
Appetite framework, and reviewed at the CTC Risk
Committee with regular updates to the Board Risk
Committee.
The Firm's independent control functions are responsible
for reviewing the appropriateness of the carrying value of
investment securities in accordance with relevant policies.
Approved levels for investment securities are established
for each risk category, including capital and credit risks.
Principal investment risk
Principal investments are typically privately-held financial
instruments representing ownership interests or other
forms of junior capital. In general, principal investments
include tax-oriented investments and investments made to
enhance or accelerate the Firm's business strategies and
exclude those that are consolidated on the Firm's balance
sheets. These investments are made by dedicated investing
businesses or as part of a broader business strategy. The
Firm's principal investments are managed by the LOBS and
Corporate and are reflected within their respective financial
results. The Firm's investments will continue to evolve in
line with its strategies, including the Firm's commitment to
support underserved communities and minority-owned
businesses. The aggregate carrying values of the principal
investment portfolios have not been significantly affected
by the impact of the COVID-19 pandemic.
MARKET RISK MANAGEMENT
JPMorgan Chase & Co./2021 Form 10-K
Market risk is the risk associated with the effect of changes
in market factors such as interest and foreign exchange
rates, equity and commodity prices, credit spreads or
implied volatilities, on the value of assets and liabilities held
for both the short and long term.
Market Risk Management monitors market risks throughout
the Firm and defines market risk policies and procedures.
Market Risk Management seeks to manage risk, facilitate
efficient risk/return decisions, reduce volatility in operating
performance and provide transparency into the Firm's
market risk profile for senior management, the Board of
Directors and regulators. Market Risk Management is
responsible for the following functions:
Management's discussion and analysis
The following table summarizes the predominant business activities and related market risks, as well as positions which give
rise to market risk and certain measures used to capture those risks, for each LOB and Corporate.
In addition to the predominant business activities, each LOB and Corporate may engage in principal investing activities. To the
extent principal investments are deemed market risk sensitive, they are reflected in relevant risk measures and captured in the
table below. Refer to Investment Portfolio Risk Management on page 132 for additional discussion on principal investments.
LOBS and
Corporate
CCB
CIB
Predominant business
activities
•
•
133
Originates and services
mortgage loans
Originates loans and
takes deposits
Makes markets and
services clients across
fixed income, foreign
exchange, equities and
commodities
Originates loans and
takes deposits
Related market risks
•
•
Risk from changes in the
probability of newly
originated mortgage
commitments closing
Interest rate risk and
prepayment risk
Risk of loss from adverse
movements in market
prices and implied
volatilities across interest
rate, foreign exchange,
credit, commodity and
equity instruments
•
JPMorgan Chase & Co./2021 Form 10-K
Market Risk Management periodically reviews the Firm's
existing market risk measures to identify opportunities for
enhancement, and to the extent appropriate, will calibrate
those measures accordingly over time.
risks or to predict losses. This imprecision may be
heightened when sudden or severe shifts in market
conditions occur. For additional discussion on model
uncertainty refer to Estimations and Model Risk
Management on page 149.
•
•
Maintaining a market risk policy framework
Independently measuring, monitoring and controlling
LOB, Corporate, and Firmwide market risk
Defining, approving and monitoring of limits
Performing stress testing and qualitative risk
assessments
Risk measurement
Measures used to capture market risk
There is no single measure to capture market risk and
therefore Market Risk Management uses various metrics,
both statistical and nonstatistical, to assess risk including:
•
Value-at-risk (VAR)
• Stress testing
•
•
•
Profit and loss drawdowns
Earnings-at-risk
Other sensitivity-based measures
Risk monitoring and control
Market risk exposure is managed primarily through a series
of limits set in the context of the market environment and
business strategy. In setting limits, Market Risk
Management takes into consideration factors such as
market volatility, product liquidity, accommodation of client
business, and management judgment. Market Risk
Management maintains different levels of limits. Firm level
limits include VaR and stress limits. Similarly, LOB and
Corporate limits include VaR and stress limits and may be
supplemented by certain nonstatistical risk measures such
as profit and loss drawdowns. Limits may also be set within
the LOBS and Corporate, as well as at the legal entity level.
Market Risk Management sets limits and regularly reviews
and updates them as appropriate. Senior management is
responsible for reviewing and approving certain of these
risk limits on an ongoing basis. Limits that have not been
reviewed within specified time periods by Market Risk
Management are reported to senior management. The LOBS
and Corporate are responsible for adhering to established
limits against which exposures are monitored and reported.
Limit breaches are required to be reported in a timely
manner to limit approvers, which include Market Risk
Management and senior management. In the event of a
breach, Market Risk Management consults with senior
members of appropriate groups within the Firm to
determine the suitable course of action required to return
the applicable positions to compliance, which may include a
reduction in risk in order to remedy the breach or granting
a temporary increase in limits to accommodate an expected
increase in client activity and/or market volatility. Certain
Firm, Corporate or LOB-level limit breaches are escalated as
appropriate.
Market Risk Management continues to actively monitor the
impact of the COVID-19 pandemic on market risk exposures
by leveraging existing risk measures and controls.
Models used to measure market risk are inherently
imprecise and are limited in their ability to measure certain
Market Risk Management
135
Management's discussion and analysis
The table below shows the results of the Firm's Risk Management VaR measure using a 95% confidence level. VaR can vary
significantly as positions change, market volatility fluctuates, and diversification benefits change.
94
20
10
82
(a)
(c)
(c)
(a)
(c)
14
(22)
NM
(17)
(c)
NM
NM
$ 55
$
24
$ 153
NM
25
NM
(c)
1
12
(b)
(b)
(b)
(b)
24
14
94
19
9
82
(a)
(4)
(c)
(c)
NM
NM
(4) (a)
(c)
NM
$ 95
11
$
$ 164
136
$ millions
Daily Risk Management VaR
175
150
125
100
75
50
25
The following graph presents daily Risk Management VaR for the four trailing quarters. As noted previously, average Total VaR
decreased by $40 million for the year ended December 31, 2021, when compared with the prior year. Daily Risk Management
VaR has also declined, returning to pre-pandemic levels, as the volatility which occurred in late March of 2020 at the onset of
the COVID-19 pandemic has rolled out of the one-year historical look-back period.
0
Second Quarter
Third Quarter
Fourth Quarter
2021
2021
2021
2021
JPMorgan Chase & Co./2021 Form 10-K
Ratings profile of derivative receivables
First Quarter
Total VaR
CIB VaR
9
(a) Diversification benefit represents the difference between the portfolio VaR and the sum of its individual components. This reflects the non-additive nature
of VaR due to imperfect correlation across LOBS, Corporate, and risk types.
(b) Average and maximum Corporate and other LOB VaR were primarily driven by a private equity position that became publicly traded at the end of the third
quarter of 2020. As of March 31, 2021 the Firm no longer held this position.
(c) The maximum and minimum VaR for each portfolio may have occurred on different trading days than the components and consequently diversification
benefit is not meaningful.
Generally, average VaR across risk types and LOBS was
lower due to volatility which occurred at the onset of the
COVID-19 pandemic rolling out of the one-year historical
look-back period, predominantly impacting exposures in
fixed income and commodities. As a result, average Total
VaR decreased by $40 million for the year ended
December 31, 2021 when compared with the prior year.
In the current year, maximum VaR remained elevated
relative to average VaR as the aforementioned volatility
was still included in the historical look-back period in the
first quarter of 2021.
Effective July 1, 2020, the Firm refined the scope of VaR to
exclude certain real estate-related fair value option elected
loans, and included them in other sensitivity-based
measures to more effectively measure the risk from these
loans. In the absence of this refinement, the average Total
VaR and each of the components would have been higher
by the amounts reported in the following table:
For the year ended
December 31,
(in millions)
Amount by which reported average VaR
would have been higher
2021
2020
CIB fixed income VaR
$
5
$
11
CIB trading VaR
5
9
5
9
4
32
1,134
3
162
Min
Max
$
60
$ 30
$ 153
$
98
$
Avg.
35
2
27
10
4
18
16
8
38
24
6
Max
Min
Avg.
Total VaR
As of or for the year ended December 31,
(in millions)
CIB trading VaR by risk type
Fixed income
Foreign exchange
Equities
Commodities and other
Diversification benefit to CIB trading VaR
CIB trading VaR
Credit portfolio VaR
Diversification benefit to CIB VaR
CIB VaR
CCB VaR
Corporate and other LOB VAR
Diversification benefit to other VaR
Other VaR
Diversification benefit to CIB and other VaR
Total VaR
2021
2020
13
5
41
9
16
3
28
(a)
(c)
(6)
(c)
(a)
(c)
12
(c)
NM
(17)
NM
NM
52
22
133
92
31
NM
4
6
160
43
28
7
47
(49)
(a)
(c)
(c)
NM
NM
(67)
(a)
(c)
(c)
NM
NM
52
22
134
93
32
19
29
$ 156
15
313
(665) $
$
Asset-specific (b)
Impairment methodology
$ 2,409
$ 2,222
$
$
187
$ 2,261
$ 2,148
$
113
$
Ending balance at December 31,
1,121
(1)
(1)
$
1,079
Portfolio-based
9,937
Impairment methodology
$ 28,328
$ 6,892
$ 17,800
$ 3,636
$ 16,386
$ 1,308
27,020
$ 682
6,210
2,430
633
17,167
(7)
3,643
$
$ (89)
16,475
263
4,108
4,371
$
1,765 $ 10,250
$
Total allowance for loan losses
$
Asset-specific
42
1
$
Beginning balance at January 1,
Allowance for lending-related commitments
$ 28,328
$ 6,892
$ 17,800
3,636
$
187
$ 16,386
1,765
$
Ending balance at December 31,
1
1
(6)
5,259
16,291
4,431
$ 10,250
(149)
1
$
$ 2,409
Other
(74)
(75)
Provision for lending-related commitments
98
(35)
133
NA
$ 2,222
ΝΑ
ΝΑ
Cumulative effect of a change in accounting
principle (a)
$ 1,191
1,179
$
$
12
$
NA
10,886
Portfolio-based
Total allowance for investment securities
89
213
NM
1.94
Net charge-off rates
36
Allowance for loan losses to retained nonaccrual
loans excluding credit card
323
208
0.03
NM
236
213
NM
36
Allowance for loan losses to retained nonaccrual
loans (c)
2.95 %
1.34 %
12.41 %
67
1.20 %
0.30
0.06
Total consumer
Credit card
Consumer, excluding credit card
Auto and other
Residential real estate
(in millions, except ratios)
December 31,
The table below presents a breakdown of the allowance for loan losses by loan class. Refer to Note 12 for further information
on loan classes.
67
Allocation of allowance for loan losses
130
(a) Represents the impact to allowance for credit losses upon the adoption of CECL on January 1, 2020. Refer to Note 1 for further information.
(b) Includes collateral dependent loans, including those considered TDRS and those for which foreclosure is deemed probable, modified PCD loans, and non-
collateral dependent loans that have been modified or are reasonably expected to be modified in a TDR. Also includes risk-rated loans that have been
placed on nonaccrual status for the wholesale portfolio segment. The asset-specific credit card allowance for loan losses modified or reasonably expected
to be modified in a TDR is calculated based on the loans' original contractual interest rates and does not consider any incremental penalty rates.
(c) The Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.
0.55
0.16
2.93
120
208
NM
JPMorgan Chase & Co./2021 Form 10-K
Total allowance for lending-related
commitments
1.62 %
6.64 %
$
114
2,295
$
114
2,108
187
$
$
$
NA
167
2,094
167
1,981
113
$
$
$ 1,878 $ 10,250 $ 6,519
NA
$ 113 $
Total allowance for credit losses
$
0.78 %
2,148 $ 2,261
NA $
42
$ 18,689
$
0.60 %
Allowance for loan losses to retained loans
Credit ratios
958,303
$960,506
$514,947
509,907
$302,127 $143,432
302,005 146,391
$1,010,206
965,271
$ 187 $
$560,354
526,557
Retained loans, average
Retained loans, end of period
Memo:
$ 9,114 $ 30,815
$ 3,823 $ 17,800
2,222 $ 2,409
NA $ 78
ΝΑ
ΝΑ
$295,556 $154,296
298,814 139,900
974
(9,071)
(2,375)
(4)
Credit derivatives and credit-related notes used in credit
portfolio management activities
The Firm also uses credit derivatives as an end-user to
manage other exposures, including credit risk arising from
certain securities held in the Firm's market-making
businesses. These credit derivatives are not included in
credit portfolio management activities.
Included in the Firm's end-user activities are credit
derivatives used to mitigate the credit risk associated with
traditional lending activities (loans and lending-related
commitments) and derivatives counterparty exposure in the
Firm's wholesale businesses (collectively, "credit portfolio
management activities"). Information on credit portfolio
management activities is provided in the table below.
Credit portfolio management activities
The Firm uses credit derivatives for two primary purposes:
first, in its capacity as a market-maker, and second, as an
end-user, to manage the Firm's own credit risk associated
with various exposures.
Credit derivatives
Management's discussion and analysis
127
December 31, (in millions)
JPMorgan Chase & Co./2021 Form 10-K
DRE
AVG
years
10
years
year years
5
2
Peak
1
Credit derivatives and credit-related notes
used to manage:
Credit derivatives and credit-related notes
used in credit portfolio management
activities
• a $2.6 billion net reduction in wholesale, across the LOBS.
The Firm's allowance for credit losses is estimated using a
weighted average of five internally developed
macroeconomic scenarios. As of December 31, 2021, the
Firm assigned more balanced weightings to both its adverse
and upside scenarios compared to the significant weighting
that the Firm placed on its adverse scenarios as of
December 31, 2020, reflecting the sustained improvement
and resilience of the macroeconomic environment, despite
the ongoing impact of the COVID-19 pandemic. In addition,
because the impact of the COVID-19 pandemic and
governmental actions taken in response to the pandemic
caused a dislocation in certain historical relationships used
for modeling credit loss estimates, the Firm continues to
place reliance on management judgment and make
adjustments specific to that dislocation, although to a lesser
extent than in 2020. The allowance for credit losses of
$18.7 billion reflects remaining uncertainties, including the
potential impact that additional waves or variants of
COVID-19 may have on the pace of economic growth and
near-term supply chain disruptions.
• a $9.5 billion reduction in consumer, predominantly in
the credit card portfolio; and
The allowance for credit losses as of December 31, 2021
was $18.7 billion, a decrease from $30.8 billion at
December 31, 2020. The decrease in the allowance for
credit losses was primarily driven by improvements in the
macroeconomic environment, consisting of:
Discussion of changes in the allowance
the allowance for credit losses on investment securities,
which is recognized within Investment Securities on the
Consolidated balance sheets.
the allowance for loan losses, which covers the Firm's
retained loan portfolios (scored and risk-rated) and is
presented separately on the Consolidated balance sheets,
the allowance for lending-related commitments, which is
presented on the Consolidated balance sheets in accounts
payable and other liabilities, and
The Firm's allowance for credit losses represents
management's estimate of expected credit losses over the
remaining expected life of the Firm's financial assets
measured at amortized cost and certain off-balance sheet
lending-related commitments. The Firm's allowance for
credit losses comprises:
ALLOWANCE FOR CREDIT LOSSES
Loans and lending-related commitments
Derivative receivables
JPMorgan Chase & Co./2021 Form 10-K
The effectiveness of credit default swaps ("CDS") as a hedge
against the Firm's exposures may vary depending on a
number of factors, including the named reference entity
(i.e., the Firm may experience losses on specific exposures
that are different than the named reference entities in the
purchased CDS); the contractual terms of the CDS (which
may have a defined credit event that does not align with an
actual loss realized by the Firm); and the maturity of the
Firm's CDS protection (which in some cases may be shorter
than the Firm's exposures). However, the Firm generally
seeks to purchase credit protection with a maturity date
that is the same or similar to the maturity date of the
exposure for which the protection was purchased, and
remaining differences in maturity are actively monitored
and managed by the Firm. Refer to Credit derivatives in
Note 5 for further information on credit derivatives and
derivatives used in credit portfolio management activities.
The credit derivatives used in credit portfolio management
activities do not qualify for hedge accounting under U.S.
GAAP; these derivatives are reported at fair value, with
gains and losses recognized in principal transactions
revenue. In contrast, the loans and lending-related
commitments being risk-managed are accounted for on an
accrual basis. This asymmetry in accounting treatment,
between loans and lending-related commitments and the
credit derivatives used in credit portfolio management
activities, causes earnings volatility that is not
representative, in the Firm's view, of the true changes in
value of the Firm's overall credit exposure.
(a) Amounts are presented net, considering the Firm's net protection
purchased or sold with respect to each underlying reference entity or
index. Prior-period amounts have been revised to conform with the
current presentation.
$ 20,190 $ 23,218
$ 4,856
18,362
$ 4,138
16,052
2020
Notional amount of
protection
purchased and sold (a)
2021
128
The Firm's central case assumptions reflected U.S.
unemployment rates and year over year growth in U.S. real
GDP as follows:
0
40
33
15,157
37,013
67 % $
30,278
$
collateral
of collateral
21,789
Exposure net of
Exposure net of
collateral
2020
2021
Total
Noninvestment-grade
Investment-grade
995
(in millions, except ratios)
% of exposure net
20
$
100 % $
60
80
100
120
140
(in billions)
December 31, 2021
management process for derivatives exposures takes into
consideration the potential impact of wrong-way risk, which
is broadly defined as the risk that exposure to a
counterparty is positively correlated with the impact of a
default by the same counterparty, which could cause
exposure to increase at the same time as the counterparty's
capacity to meet its obligations is decreasing. Many factors
may influence the nature and magnitude of these
correlations over time. To the extent that these correlations
are identified, the Firm may adjust the CVA associated with
a particular counterparty's AVG. The Firm risk manages
exposure to changes in CVA by entering into credit
derivative contracts, as well as interest rate, foreign
exchange, equity and commodity derivative contracts.
The below graph shows exposure profiles to the Firm's
current derivatives portfolio over the next 10 years as
calculated by the Peak, DRE and AVG metrics. The three
measures generally show that exposure will decline after
the first year, if no new trades are added to the portfolio.
Exposure profile of derivatives measures
45,435
The fair value of the Firm's derivative receivables
incorporates CVA to reflect the credit quality of
counterparties. CVA is based on the Firm's AVG to a
counterparty and the counterparty's credit spread in the
credit derivatives market. The Firm believes that active risk
management is essential to controlling the dynamic credit
risk in the derivatives portfolio. In addition, the Firm's risk
DRE exposure is a measure that expresses the risk of
derivative exposure, including the benefit of collateral, on a
basis intended to be equivalent to the risk of loan
exposures. DRE is a less extreme measure of potential
credit loss than Peak and is used as an input for
aggregating derivative credit risk exposures with loans and
other credit risk.
Peak represents a conservative measure of potential
derivative exposure, including the benefit of collateral, to a
counterparty calculated in a manner that is broadly
equivalent to a 97.5% confidence level over the life of the
transaction. Peak is the primary measure used by the Firm
for setting credit limits for derivative contracts, senior
management reporting and derivatives exposure
management.
While useful as a current view of credit exposure, the net
fair value of the derivative receivables does not capture the
potential future variability of that credit exposure. To
capture the potential future variability of credit exposure,
the Firm calculates, on a client-by-client basis, three
measures of potential derivatives-related credit loss: Peak,
Derivative Risk Equivalent ("DRE"), and Average exposure
("AVG"). These measures all incorporate netting and
collateral benefits, where applicable.
100 %
37
63 %
% of exposure net
of collateral
58,802
Finally, AVG is a measure of the expected fair value of the
Firm's derivative exposure, including the benefit of
collateral, at future time periods. AVG over the total life of
the derivative contract is used as the primary metric for
pricing purposes and is used to calculate credit risk capital
and CVA, as further described below.
U.S. unemployment rate (a)
YoY growth in U.S. real GDP(b)
Assumptions at December 31, 2021
2Q22
4.2 %
3.1 %
954
5,077
805
4,564
283
3,651
630
4,172
6,836
(1,642)
297
ΝΑ
ΝΑ
NA
NA
Gross recoveries collected
Gross charge-offs
Cumulative effect of a change in accounting
principle (a)
5,517
$ 13,123
(619)
(141)
(2)
Other
(4,838)
(1,858)
Provision for loan losses
799
4,286
174
(939)
2,865
2,712
11
Net charge-offs
(1,577)
(155)
(791)
(631)
(1,699)
142
5,683 $ 4,902
$
$ 2,538
3.9 %
3.5 %
9.2 %
5.1 %
5.7 %
6.8 %
U.S. unemployment rate
YoY growth in U.S. real GDP (b)
(a)
(a) Reflects quarterly average of forecasted U.S. unemployment rate.
(b) As of December 31, 2021, the year over year growth in U.S. real GDP
in the forecast horizon of the central scenario is calculated as the
percent change in U.S. real GDP levels from the prior year. This year
over year growth rate replaces the previously disclosed pandemic-
focused measure of the cumulative change in U.S. real GDP from pre-
pandemic conditions at December 31, 2019. Prior periods have been
revised to conform with the current presentation.
2Q22
2Q21
Assumptions at December 31, 2020
2.1 %
2.8 %
3.9 %
4.0 %
2Q23
4Q22
4Q21
Subsequent changes to this forecast and related estimates
will be reflected in the provision for credit losses in future
periods.
Refer to Critical Accounting Estimates Used by the Firm on
pages 150-153 for further information on the allowance
for credit losses and related management judgments.
Refer to Consumer Credit Portfolio on pages 110-116,
Wholesale Credit Portfolio on pages 117-128 for
additional information on the consumer and wholesale
credit portfolios.
JPMorgan Chase & Co./2021 Form 10-K
$ 28,328
$ 17,800 $ 6,892
$ 3,636
Beginning balance at January 1,
Total
Wholesale
Credit card
Consumer,
excluding
credit card
Total
Credit card Wholesale
Consumer,
excluding
credit card
Allowance for loan losses
(in millions, except ratios)
Year ended December 31,
2020
2021
Allowance for credit losses and related information
Management's discussion and analysis
129
Secured by real estate
Commercial and industrial
$ 4,371
12,015
1,589
7
948
23 %
2,047
$
Percent of retained loans
to total retained loans
8
Allowance for loan losses
$
Allowance for loan losses
2020
2021
Total
Total wholesale
Other
817
1,765
Percent of retained loans
to total retained loans
22 %
3,636
29
3,643
14
1,881
12
12
1,495
46
2,115
21,436
45
15
17,800
15
10,250
31
Consists of certain real estate-related fair value
option elected loans, privately held equity and
other investments held at fair value"
(d)
Consists of seed capital and related hedges;
fund co-investments(); and certain deferred
compensation and related hedges"
Description
Asset Management activities
Debt and equity(a)
Sensitivity measure
Activity
Other debt and equity
2021
(919)
10% decline in market
value
$
(69) $
(48)
10% decline in market
value
(971)
Funding activities
Year ended December 31,
Gain/(loss) (in millions)
Non-USD LTD cross-currency basis
2020
The table below represents the potential impact to net revenue, OCI or noninterest expense for market risk sensitive
instruments that are not included in VaR or earnings-at-risk. Where appropriate, instruments used for hedging purposes are
reported net of the positions being hedged. The sensitivities disclosed in the table below may not be representative of the
actual gain or loss that would have been realized at December 31, 2021 and 2020, as the movement in market parameters
across maturities may vary and are not intended to imply management's expectation of future changes in these sensitivities.
Parallel shift:
Other sensitivity-based measures
4.5
The change in the Firm's U.S. dollar sensitivities as of
December 31, 2021 compared to December 31, 2020
reflected updates to the Firm's baseline for higher rates as
well as the impact of changes in the Firm's balance sheet.
The Firm's sensitivity to rates is primarily a result of assets
repricing at a faster pace than deposits.
The Firm's non-U.S. dollar sensitivities are presented in the
table below.
December 31,
(in billions)
Non-USD LTD hedges foreign currency
("FX") exposure
+100 bps shift in rates
Flatter yield curve:
+100 bps shift in short-term rates
2021
2020
$
0.8 $
0.9
0.8
0.8
The results of the non-U.S. dollar interest rate scenario
involving a steeper yield curve with long-term rates rising
by 100 basis points and short-term rates staying at current
levels were not material to the Firm's earnings-at-risk at
December 31, 2021 and 2020.
JPMorgan Chase & Co./2021 Form 10-K
139
Management's discussion and analysis
Non-U.S. dollar foreign exchange risk
Non-U.S. dollar FX risk is the risk that changes in foreign exchange rates affect the value of the Firm's assets or liabilities or
future results. The Firm has structural non-U.S. dollar FX exposures arising from capital investments, forecasted expense and
revenue, the investment securities portfolio and non-U.S. dollar-denominated debt issuance. Treasury and CIO, working in
partnership with the LOBS, primarily manage these risks on behalf of the Firm. Treasury and CIO may hedge certain of these
risks using derivatives.
The Firm quantifies the market risk of certain debt and equity and funding activities by assessing the potential impact on net
revenue, other comprehensive income ("OCI") and noninterest expense due to changes in relevant market variables. Refer to
the predominant business activities that give rise to market risk on page 134 for additional information on the positions
captured in other sensitivity-based measures.
Derivatives funding spread risk
currency
Fair value option elected liabilities -
funding spread risk"
1 basis point parallel
increase in spread
3
3
(a) Excludes equity securities without readily determinable fair values that are measured under the measurement alternative. Refer to Note 2 for additional
information.
(b) Effective September 30, 2021, the Firm's funding spread risk measure for both derivatives and fair value option elected liabilities represents the
sensitivity to the Firm's FVA spread. Previously, these measures represented the sensitivity to the Firm's credit spread observed in the market. The Firm
believes the updated measure is more reflective of the Firm's funding spread risk. Prior-period amounts have been revised to conform with the current
presentation.
(c) Impact recognized through net revenue.
(d) Impact recognized through noninterest expense.
(e) Impact recognized through OCI.
140
(3)
JPMorgan Chase & Co./2021 Form 10-K
The Firm, through its LOBS and Corporate, may be exposed
to country risk resulting from financial, economic, political
or other significant developments which adversely affect
the value of the Firm's exposures related to a particular
country or set of countries. The Country Risk Management
group actively monitors the various portfolios which may be
impacted by these developments and measures the extent
to which the Firm's exposures are diversified given the
Firm's strategy and risk tolerance relative to a country.
Organization and management
Country Risk Management is an independent risk
management function that assesses, manages and monitors
exposure to country risk across the Firm.
The Firm's country risk management function includes the
following activities:
•
.
•
•
Maintaining policies, procedures and standards
COUNTRY RISK MANAGEMENT
(3)
1 basis point parallel
increase in spread
40
Fair value option elected liabilities -
interest rate sensitivity
Represents the basis risk on derivatives used to
hedge the foreign exchange risk on the non-
USD LTD(e)
Primarily represents the foreign exchange
revaluation on the fair value of the derivative
(e)
hedges
Impact of changes in the spread related to
derivatives FVAC)
Impact of changes in the spread related to fair
value option elected liabilities DVA (e)
Interest rate sensitivity on fair value option
elected liabilities resulting from a change in the
Firm's own credit spreade
Interest rate sensitivity related to risk
management of changes in the Firm's own
credit spread on the fair value option elected
liabilities noted above
15
13
1 basis point parallel
(16)
(16)
tightening of cross currency
basis
10% depreciation of
2.4
1 basis point parallel
increase in spread
(7)
(9)
1 basis point parallel
increase in spread
41
(b)
3.2
Forecasted balance sheet, as well as modeled
prepayment and reinvestment behavior, but exclude
assumptions about actions that could be taken by the
Firm or its clients and customers in response to any such
instantaneous rate changes. Mortgage prepayment
assumptions are based on the interest rates used in the
scenarios compared with underlying contractual rates,
the time since origination, and other factors which are
updated periodically based on historical experience.
Deposit forecasts used in the baseline and scenarios do
not include assumptions to account for the reversal of
Quantitative Easing.
6.9
12
8
6
6
0
Days with
Backtesting Gains
0%-50%
>50% 100%
>100% 150%
10
>150%
Days with Backtesting Losses
Losses as a Percentage of Risk Management VaR (%)
JPMorgan Chase & Co./2021 Form 10-K
Backtesting Exceptions
for Trailing 12 Months
1Q21
0
2Q21
4
I Trailing 12 Months
4Q21
25
I
20
3.9
VaR backtesting
The Firm performs daily VaR model backtesting, which
compares the daily Risk Management VaR results with the
daily gains and losses that are utilized for VaR backtesting
purposes. The gains and losses depicted in the chart below
do not reflect the Firm's reported revenue as they exclude
select components of total net revenue, such as those
associated with the execution of new transactions (i.e.,
intraday client-driven trading and intraday risk
management activities), fees, commissions, certain
valuation adjustments and net interest income. These
excluded components of total net revenue may more than
offset the backtesting gain or loss on a particular day. The
definition of backtesting gains and losses above is
consistent with the requirements for backtesting under
Basel III capital rules.
A backtesting exception occurs when the daily backtesting
loss exceeds the daily Risk Management VaR for the prior
day. Under the Firm's Risk Management VaR methodology,
assuming current changes in market values are consistent
with the historical changes used in the simulation, the Firm
would expect to incur VaR backtesting exceptions on
average five times every 100 trading days. The number of
VaR backtesting exceptions observed can differ from the
statistically expected number of backtesting exceptions if
the current level of market volatility is materially different
from the level of market volatility during the 12 months of
historical data used in the VaR calculation.
For the 12 months ended December 31, 2021, the Firm
posted backtesting gains on 145 of the 260 days, and
observed 20 VaR backtesting exceptions. Twelve of the
backtesting exceptions were in the three months ended
December 31, 2021 as market volatility, particularly
related to interest rates, was materially higher than the
market volatility in the 12 months of historical data used
for the VaR calculation. Firmwide backtesting loss days can
differ from the loss days for which Fixed Income Markets
and Equity Markets posted losses, as disclosed in CIB
Markets revenue, as the population of positions which
compose each metric are different and due to the exclusion
of select components of total net revenue in backtesting
gains and losses as described above. For more information
on CIB Markets revenue, refer to pages 70-71.
The following chart presents the distribution of Firmwide daily backtesting gains and losses for the trailing 12 months and
three months ended December 31, 2021. The daily backtesting losses are displayed as a percentage of the corresponding
daily Risk Management VaR. The count of days with backtesting losses are shown in aggregate, in fifty percentage point
intervals. Backtesting exceptions are displayed within the intervals that are greater than one hundred percent. The results in
the chart below differ from the results of backtesting disclosed in the Market Risk section of the Firm's Basel III Pillar 3
Regulatory Capital Disclosures reports, which are based on Regulatory VaR applied to the Firm's covered positions.
Distribution of Daily Backtesting Gains and Losses
Count of Trading Days
175
145
150
125
100
75
69
50
24
26
Backtesting Exceptions
|
3Q21
1.8
4
12
Earnings-at-risk scenarios estimate the potential change to
a net interest income baseline, over the following 12
months utilizing multiple assumptions. These scenarios
include a parallel shift involving changes to both short-term
and long-term rates by an equal amount; a steeper yield
curve involving holding short-term rates constant and
increasing long-term rates; and a flatter yield curve
involving increasing short-term rates and holding long-term
rates constant. These scenarios consider many different
factors, including:
•
The impact on exposures as a result of instantaneous
changes in interest rates from baseline rates.
consistent with a comprehensive country risk framework
Assigning sovereign ratings, assessing country risks and
establishing risk tolerance relative to a country
Measuring and monitoring country risk exposure and
stress across the Firm
• The pricing sensitivity of deposits, known as deposit
betas, represent the amount by which deposit rates paid
could change upon a given change in market interest
rates. The deposit rates paid in these scenarios differ
from actual deposit rates paid, due to repricing lags and
other factors.
The Firm's earnings-at-risk scenarios are periodically
evaluated and enhanced in response to changes in the
composition of the Firm's balance sheet, changes in market
conditions, improvements in the Firm's simulation and
other factors. While a relevant measure of the Firm's
interest rate exposure, the earnings-at-risk analysis does
not represent a forecast of the Firm's net interest income
(Refer to Outlook on page 49 for additional information).
The Firm's U.S. dollar sensitivities are presented in the table
below.
December 31,
term debt and any related interest rate hedges, and funds
transfer pricing of other positions in risk management VaR
and other sensitivity-based measures as described on page
134.
(in billions)
Parallel shift:
Steeper yield curve:
+100 bps shift in long-term rates
+100 bps shift in short-term rates
Flatter yield curve:
2021
2020
$
5.0
$
+100 bps shift in rates
JPMorgan Chase & Co./2021 Form 10-K
138
The Firm manages interest rate exposure related to its
assets and liabilities on a consolidated, Firmwide basis.
Business units transfer their interest rate risk to Treasury
and CIO through funds transfer pricing, which takes into
account the elements of interest rate exposure that can be
risk-managed in financial markets. These elements include
asset and liability balances and contractual rates of
interest, contractual principal payment schedules, expected
prepayment experience, interest rate reset dates and
maturities, rate indices used for repricing, and any interest
rate ceilings or floors for adjustable rate products.
One way the Firm evaluates its structural interest rate risk
is through earnings-at-risk. Earnings-at-risk estimates the
Firm's interest rate exposure for a given interest rate
scenario. It is presented as a sensitivity to a baseline, which
includes net interest income and certain interest rate
sensitive fees. The baseline uses market interest rates and
in the case of deposits, pricing assumptions. The Firm
conducts simulations of changes to this baseline for interest
rate-sensitive assets and liabilities denominated in U.S.
dollars and other currencies ("non-U.S. dollar” currencies).
These simulations primarily include retained loans,
deposits, deposits with banks, investment securities, long-
137
Management's discussion and analysis
Other risk measures
Stress testing
Along with VaR, stress testing is an important tool used to
assess risk. While VaR reflects the risk of loss due to
adverse changes in markets using recent historical market
behavior, stress testing reflects the risk of loss from
hypothetical changes in the value of market risk sensitive
positions applied simultaneously. Stress testing measures
the Firm's vulnerability to losses under a range of stressed
but possible economic and market scenarios. The results
are used to understand the exposures responsible for those
potential losses and are measured against limits.
The Firm's stress framework covers market risk sensitive
positions in the LOBS and Corporate. The framework is used
to calculate multiple magnitudes of potential stress for both
market rallies and market sell-offs, assuming significant
changes in market factors such as credit spreads, equity
prices, interest rates, currency rates and commodity prices,
and combines them in multiple ways to capture an array of
hypothetical economic and market scenarios.
The Firm generates a number of scenarios that focus on tail
events in specific asset classes and geographies, including
how the event may impact multiple market factors
simultaneously. Scenarios also incorporate specific
idiosyncratic risks and stress basis risk between different
products. The flexibility in the stress framework allows the
Firm to construct new scenarios that can test the outcomes
against possible future stress events. Stress testing results
are reported periodically to senior management of the
Firm, as appropriate.
Stress scenarios are governed by the overall stress
framework, under the oversight of Market Risk
Management, and the models to calculate the stress results
are subject to the Firm's Estimations and Model Risk
Management Policy. The Firmwide Market Risk Stress
Methodology Committee reviews and approves changes to
stress testing methodology and scenarios across the Firm.
Significant changes to the framework are escalated to
senior management, as appropriate.
The Firm's stress testing framework is utilized in calculating
the Firm's CCAR and other stress test results, which are
reported periodically to the Board of Directors. In addition,
stress testing results are incorporated into the Firm's Risk
Appetite framework, and are reported periodically to the
Board Risk Committee.
Profit and loss drawdowns
Profit and loss drawdowns are used to highlight trading
losses above certain levels of risk tolerance. A profit and
loss drawdown is a decline in revenue from its year-to-date
peak level.
Earnings-at-risk
The effect of interest rate exposure on the Firm's reported
net income is important as interest rate risk represents one
of the Firm's significant market risks. Interest rate risk
arises not only from trading activities but also from the
Firm's traditional banking activities, which include
extension of loans and credit facilities, taking deposits,
issuing debt and the investment securities portfolio. Refer
to the table on page 134 for a summary by LOB and
Corporate, identifying positions included in earnings-at-risk.
The CTC Risk Committee establishes the Firm's structural
interest rate risk policy and related limits, which are subject
to approval by the Board Risk Committee. Treasury and CIO,
working in partnership with the LOBS, calculates the Firm's
structural interest rate risk profile and reviews it with
senior management, including the CTC Risk Committee. In
addition, oversight of structural interest rate risk is
managed through a dedicated risk function reporting to the
CTC CRO. This risk function is responsible for providing
independent oversight and governance around assumptions
and establishing and monitoring limits for structural
interest rate risk. The Firm manages structural interest rate
risk generally through its investment securities portfolio
and interest rate derivatives.
Structural interest rate risk can occur due to a variety of
factors, including:
•
•
•
Differences in timing among the maturity or repricing of
assets, liabilities and off-balance sheet instruments
Differences in the amounts of assets, liabilities and off-
balance sheet instruments that are maturing or repricing
at the same time
Differences in the amounts by which short-term and long-
term market interest rates change (for example, changes
in the slope of the yield curve)
The impact of changes in the maturity of various assets,
liabilities or off-balance sheet instruments as interest
rates change
4Q21
Managing and approving country limits and reporting
trends and limit breaches to senior management
Developing surveillance tools, such as signaling models
and ratings indicators, for early identification of
potential country risk concerns
4.5
Sources and measurement
The Firm's Security Awareness Program includes training
that reinforces the Firm's Information Technology Risk and
Security Management policies, standards and practices, as
well as the expectation that employees comply with these
policies. The Security Awareness Program engages
personnel through training on how to identify potential
cybersecurity risks and protect the Firm's resources and
information. This training is mandatory for all employees
globally on a periodic basis, and it is supplemented by
Firmwide testing initiatives, including periodic phishing
tests. The Firm provides specialized security training for
certain employee roles such as application developers.
Finally, the Firm's Global Privacy Program requires all
employees to take periodic awareness training on data
privacy. This privacy-focused training includes information
about confidentiality and security, as well as responding to
unauthorized access to or use of information.
The IRM function provides oversight of the activities
designed to identify, assess, measure, and mitigate
cybersecurity risk.
The Global Cybersecurity and Technology Control
governance structure is designed to identify, escalate, and
mitigate information security risks. This structure uses key
governance forums to disseminate information and monitor
technology efforts. These forums are established at multiple
levels throughout the Firm and include representatives
from each LOB and Corporate. The forums are used to
escalate information security risks or other matters as
appropriate.
Global Technology Product Security
Governance, Risk & Controls
Identity & Access Management
Cyber Operations
•
•
•
and personal information related to the Firm's employees
and customers. The Cybersecurity and Technology Controls
organization consists of business aligned information
security managers that are supported within the
organization by the following products that execute the
Information Security Program for the Firm:
JPMorgan Chase & Co./2021 Form 10-K
144
The Cybersecurity and Technology Control functions are
responsible for governance and oversight of the Firm's
Information Security Program. In partnership with the
Firm's LOBS and Corporate, the Cybersecurity and
Technology Control organization identifies information
security risk issues and oversees programs for the
technological protection of the Firm's information resources
including applications, infrastructure as well as confidential
Due to the impact of the COVID-19 pandemic, the Firm
increased the use of remote access and video conferencing
solutions provided by third parties to facilitate remote
work. As a result the Firm deployed additional
precautionary measures and controls to mitigate
cybersecurity risks and those measures and controls remain
place.
To protect the confidentiality, integrity and availability of
the Firm's infrastructure, resources and information, the
Firm maintains a cybersecurity program designed to
prevent, detect, and respond to cyberattacks. The Audit
Committee is periodically provided with updates on the
Firm's Information Security Program, recommended
changes, cybersecurity policies and practices, ongoing
efforts to improve security, as well as its efforts regarding
significant cybersecurity events. In addition, the Firm has a
cybersecurity incident response plan ("IRP") designed to
enable the Firm to respond to attempted cybersecurity
incidents, coordinate such responses with law enforcement
and other government agencies, and notify clients and
customers, as applicable. Among other key focus areas, the
IRP is designed to mitigate the risk of insider trading
connected to a cybersecurity incident, and includes various
escalation points.
Third parties with which the Firm does business or that
facilitate the Firm's business activities (e.g., vendors, supply
chain, exchanges, clearing houses, central depositories, and
financial intermediaries) are also sources of cybersecurity
risk to the Firm. Third party cybersecurity incidents such as
system breakdowns or failures, misconduct by the
employees of such parties, or cyberattacks, including
ransomware and supply-chain compromises could affect
their ability to deliver a product or service to the Firm or
result in lost or compromised information of the Firm or its
clients. Clients are also sources of cybersecurity risk to the
Firm and its information assets, particularly when their
activities and systems are beyond the Firm's own security
and control systems. As a result, the Firm engages in
regular and ongoing discussions with certain vendors and
clients regarding cybersecurity risks and opportunities to
improve security. However, where cybersecurity incidents
occur as a result of client failures to maintain the security of
their own systems and processes, clients are responsible for
losses incurred.
law enforcement, government officials, peer and industry
groups, and has significantly increased efforts to educate
employees and certain clients on the topic of cybersecurity
risks.
Ongoing business expansions may expose the Firm to
potential new threats as well as expanded regulatory
scrutiny including the introduction of new cybersecurity
requirements. The Firm continues to make significant
investments in enhancing its cyber defense capabilities and
to strengthen its partnerships with the appropriate
government and law enforcement agencies and other
businesses in order to understand the full spectrum of
cybersecurity risks in the operating environment, enhance
defenses and improve resiliency against cybersecurity
threats. The Firm actively participates in discussions and
simulations of cybersecurity risks both internally and with
Cybersecurity risk is the risk of the Firm's exposure to harm
or loss resulting from misuse or abuse of technology by
malicious actors. Cybersecurity risk is an important and
continuously evolving focus for the Firm. Significant
resources are devoted to protecting and enhancing the
security of computer systems, software, networks, storage
devices, and other technology assets. The Firm's security
efforts are designed to protect against, among other things,
cybersecurity attacks by unauthorized parties attempting to
obtain access to confidential information, destroy data,
disrupt or degrade service, sabotage systems or cause other
damage.
Cybersecurity risk
Subcategories and examples of operational risks
Operational risk can manifest itself in various ways.
Operational risk subcategories such as Compliance risk,
Conduct risk, Legal risk, and Estimations and Model risk as
well as other operational risks, can lead to losses which are
captured through the Firm's operational risk measurement
processes. Refer to pages 146, 147, 148 and 149,
respectively for more information on Compliance, Conduct,
Legal, and Estimations and Model risk. Details on other
select examples of operational risks are provided below.
Escalation of risks is a fundamental expectation for
employees at the Firm. Risks identified by Operational Risk
and Compliance are escalated to the appropriate LOB and
Corporate Control Committees, as needed. Operational Risk
and Compliance has established standards to ensure that
consistent operational risk reporting and operational risk
reports are produced on a Firmwide basis as well as by the
LOBS and Corporate. Reporting includes the evaluation of
key risk and performance indicators against established
thresholds as well as the assessment of different types of
operational risk against stated risk appetite. The standards
reinforce escalation protocols to senior management and to
the Board of Directors.
Operational Risk Reporting
The operational risk areas or issues identified through
monitoring and testing are escalated to the LOBS and
Corporate to be remediated through action plans, as
needed, to mitigate operational risk. Operational Risk and
Compliance may advise the LOBS and Corporate in the
development and implementation of action plans.
Business and technology resiliency risk
Management of Operational Risk
Disruptions can occur due to forces beyond the Firm's
control such as the spread of infectious diseases or
pandemics, severe weather, power or telecommunications
loss, failure of a third party to provide expected services,
cyberattacks and, terrorism. The Firmwide Business
Resiliency Program is designed to enable the Firm to
prepare for, adapt to, withstand and recover from business
disruptions including occurrence of an extraordinary event
beyond its control that may impact critical business
functions and supporting assets (i.e., staff, technology,
facilities and third parties). The program includes
governance, awareness training, planning and testing of
recovery strategies, as well as strategic and tactical
initiatives to identify, assess, and manage business
interruption and public safety risks.
Payment fraud risk is the risk of external and internal
parties unlawfully obtaining personal monetary benefit
through misdirected or otherwise improper payment. The
risk of payment fraud normalized in 2021 since the
heightened levels experienced during earlier stages of the
COVID-19 pandemic. The Firm continues to employ various
controls for managing payment fraud risk as well as
providing employee and client education and awareness
trainings.
2.2
9.1
5.8
South Korea
JPMorgan Chase & Co./2021 Form 10-K
146
The Firm has a Code of Conduct (the "Code") that sets forth
the Firm's expectation that employees will conduct
themselves with integrity at all times and provides the
principles that govern employee conduct with clients,
customers, shareholders and one another, as well as with
the markets and communities in which the Firm does
business. The Code requires employees to promptly report
any potential or actual violation of the Code, any internal
Firm policy, or any law or regulation applicable to the
Firm's business. It also requires employees to report any
illegal conduct, or conduct that violates the underlying
principles of the Code, by any of the Firm's employees,
clients, customers, suppliers, contract workers, business
partners, or agents. Code training is assigned to newly hired
employees upon joining the Firm, and to current employees
periodically on an ongoing basis. Employees are required to
affirm their compliance with the Code at least annually.
Employees can report any potential or actual violations of
the Code through the Firm's Conduct Hotline by phone or
the internet. The Hotline is anonymous, except in certain
non-U.S. jurisdictions where laws prohibit anonymous
reporting, and is available at all times globally, with
translation services. It is administered by an outside service
provider. The Code prohibits retaliation against anyone who
raises an issue or concern in good faith. Periodically, the
Audit Committee receives reports on the Code of Conduct
program.
Code of Conduct
The Firm maintains oversight and coordination of its
compliance risk through the implementation of the CCOR
Risk Management Framework. The Firm's Global CCO and
FRE for Operational Risk and Qualitative Risk Appetite also
provides regular updates to the Board Risk Committee and
the Audit Committee. In certain cases, Special Purpose
Committees of the Board may be established to oversee the
Firm's compliance with regulatory Consent Orders.
Operational Risk and Compliance is led by the Firm's Global
CCO and FRE for Operational Risk and Qualitative Risk
Appetite.
Governance and oversight
Operational Risk and Compliance implements policies and
standards designed to govern, identify, measure, monitor
and test, manage, and report on compliance risk.
Other functions provide oversight of significant regulatory
obligations that are specific to their respective areas of
responsibility.
These compliance risks relate to a wide variety of laws,
rules and regulations varying across the LOBS and
Corporate, and jurisdictions, and include risks related to
financial products and services, relationships and
interactions with clients and customers, and employee
activities. For example, compliance risks include those
associated with anti-money laundering compliance, trading
activities, market conduct, and complying with the laws,
rules, and regulations related to the offering of products
and services across jurisdictional borders. Compliance risk
is also inherent in the Firm's fiduciary activities, including
the failure to exercise the applicable standard of care (such
as the duties of loyalty or care), to act in the best interest of
clients and customers or to treat clients and customers
fairly.
Each of the LOBs and Corporate hold primary ownership of
and accountability for managing their compliance risk. The
Firm's Operational Risk and Compliance Organization
("Operational Risk and Compliance"), which is independent
of the LOBS and Corporate, provides independent review,
monitoring and oversight of business operations with a
focus on compliance with the laws, rules, and regulations
applicable to the delivery of the Firm's products and
services to clients and customers.
Overview
Compliance risk, a subcategory of operational risk, is the
risk of failing to comply with laws, rules, regulations or
codes of conduct and standards of self-regulatory
organizations.
COMPLIANCE RISK MANAGEMENT
Management's discussion and analysis
145
JPMorgan Chase & Co./2021 Form 10-K
One of the ways in which operational risk may be mitigated
is through insurance maintained by the Firm. The Firm
purchases insurance from commercial insurers and
maintains a wholly-owned captive insurer, Park Assurance
Company. Insurance may also be required by third parties
with whom the Firm does business.
Insurance
The Firm's Third-Party Oversight ("TPO") and Inter-affiliates
Oversight ("IAO") frameworks assist the LOBS and
Corporate in selecting, documenting, onboarding,
monitoring and managing their supplier relationships
including services provided by affiliates. The objectives of
the TPO framework are to hold suppliers and other third
parties to a high level of operational performance and to
mitigate key risks, including data loss and business
disruptions. The Corporate Third-Party Oversight group
is responsible for Firmwide training, monitoring, reporting
and standards.
Third-party outsourcing risk
Payment fraud risk
6.9
Management's discussion and analysis
JPMorgan Chase & Co./2021 Form 10-K
0.3
2.0
3.6
Hong Kong SAR
4.0
6.8
-
1.8
5.0
Belgium
7.7
6.8
0.6
0.7
5.5
Netherlands
9.7
8.4
0.4
1.8
6.2
Italy
10.1
8.7
Providing country risk scenario analysis
5.9
143
6.2
4.3
The results of risk assessments performed by Operational
Risk and Compliance are leveraged as one of the key
criteria in the independent monitoring and testing of the
LOBS and Corporate's compliance with laws, rules and
regulation. Through monitoring and testing, Operational
Risk and Compliance independently identify areas of
heightened operational risk and tests the effectiveness of
controls within the LOBS and Corporate.
Operational Risk Monitoring and testing
Refer to Capital Risk Management on pages 86-96 for
information related to operational risk RWA, and CCAR.
The Firm considers the impact of stressed economic
conditions on operational risk losses and develops a
forward looking view of material operational risk events
that may occur in a stressed environment. The Firm's
operational risk stress testing framework is utilized in
calculating results for the Firm's CCAR and other stress
testing processes.
In addition, Operational Risk and Compliance assesses
operational risks through quantitative means, including
operational risk-based capital and estimation of operational
risk losses under both baseline and stressed conditions.
The primary component of the operational risk capital
estimate is the Loss Distribution Approach ("LDA")
statistical model, which simulates the frequency and
severity of future operational risk loss projections based on
historical data. The LDA model is used to estimate an
aggregate operational risk loss over a one-year time
horizon, at a 99.9% confidence level. The LDA model
incorporates actual internal operational risk losses in the
quarter following the period in which those losses were
realized, and the calculation generally continues to reflect
such losses even after the issues or business activities
giving rise to the losses have been remediated or reduced.
As required under the Basel III capital framework, the
Firm's operational risk-based capital methodology, which
uses the Advanced Measurement Approach ("AMA"),
incorporates internal and external losses as well as
management's view of tail risk captured through
operational risk scenario analysis, and evaluation of key
business environment and internal control metrics. The
Firm does not reflect the impact of insurance in its AMA
estimate of operational risk capital.
Operational Risk and Compliance performs an independent
assessment of the operational risks inherent within the
LOBS and Corporate, which includes evaluating the
effectiveness of the control environments and reporting the
results to senior management.
Operational Risk Measurement
The Firm utilizes a structured risk and control self-
assessment process that is executed by the LOBS and
Corporate. As part of this process, the LOBS and Corporate
evaluate the effectiveness of their control environment to
assess where controls have failed, and to determine where
remediation efforts may be required. The Firm's
Operational Risk and Compliance organization
("Operational Risk and Compliance") provides oversight of
and challenge to these evaluations and may also perform
independent assessments of significant operational risk
events and areas of concentrated or emerging risk.
The Firm's Global Chief Compliance Officer ("CCO") and FRE
for Operational Risk and Qualitative Risk Appetite is
responsible for defining the CCOR Management Framework
and establishing minimum standards for its execution. The
LOB and Corporate aligned CCOR Lead Officers report to the
Global CCO and FRE for Operational Risk and Qualitative
Risk Appetite and are independent of the respective
businesses or functions they oversee. The CCOR
Management Framework is included in the Risk Governance
and Oversight Policy that is reviewed and approved by the
Board Risk Committee periodically.
The LOBS and Corporate are responsible for the
management of operational risk. The Control Management
Organization, which consists of control managers within
each LOB and Corporate, is responsible for the day-to-day
execution of the CCOR Framework and the evaluation of the
effectiveness of their control environments to determine
where targeted remediation efforts may be required.
Operational Risk Governance
The Firm's Compliance, Conduct, and Operational Risk
("CCOR") Management Framework is designed to enable
the Firm to govern, identify, measure, monitor and test,
manage and report on the Firm's operational risk.
Operational Risk Management Framework
compliance, conduct, legal, and estimations and model risk.
Operational risk is inherent in the Firm's activities and can
manifest itself in various ways, including fraudulent acts,
business disruptions (including those caused by
extraordinary events beyond the Firm's control) cyber
attacks, inappropriate employee behavior, failure to comply
with applicable laws, rules and regulations or failure of
vendors or other third party providers to perform in
accordance with their agreements. Operational Risk
Management attempts to manage operational risk at
appropriate levels in light of the Firm's financial position,
the characteristics of its businesses, and the markets and
regulatory environments in which it operates.
Operational risk is the risk of an adverse outcome resulting
from inadequate or failed internal processes or systems;
human factors; or external events impacting the Firm's
processes or systems. Operational Risk includes
OPERATIONAL RISK MANAGEMENT
JPMorgan Chase & Co./2021 Form 10-K
142
(d) Predominantly includes physical commodity inventory.
(e) The country rankings presented in the table as of December 31, 2020,
are based on the country rankings of the corresponding exposures at
December 31, 2021, not actual rankings of such exposures at
December 31, 2020.
(a) Country exposures presented in the table reflect 89% and 90% of
total Firmwide non-U.S. exposure, where exposure is attributed to an
individual country, at December 31, 2021 and 2020, respectively.
(b) Lending and deposits includes loans and accrued interest receivable,
lending-related commitments (net of eligible collateral and the
allowance for credit losses), deposits with banks (including central
banks), acceptances, other monetary assets, and issued letters of
credit net of risk participations. Excludes intra-day and operating
exposures, such as those from settlement and clearing activities.
(c) Includes market-making inventory, Investment securities, and
counterparty exposure on derivative and securities financings net of
eligible collateral and hedging. Includes exposure from single
reference entity ("single-name"), index and other multiple reference
entity transactions for which one or more of the underlying reference
entities is in a country listed in the above table.
-
I
4.9
4.9
0.6
Mexico
Saudi Arabia
Operational Risk Identification
10.1
The decrease in exposure to Germany and the increase in
exposure to the United Kingdom were primarily due to
changes in cash placements with the central banks of those
countries driven by balance sheet and liquidity
management activities in the fourth quarter of 2021.
The increase in exposure to Australia was due to increased
cash placements with the central bank of Australia, largely
driven by client activity following monetary policy decisions
in the country and growth in client deposits.
Top 20 country exposures (excluding the U.S.) (a)
December 31,
(in billions)
United Kingdom $
Germany
Japan
2021
2020(e)
Lending
and
deposits
(b)
Trading and
investing
(c)
Other(d)
Total
exposure
0.3
81.7 $
12.7 $
Total
exposure
2.0 $ 96.4 $ 68.4
65.3
(4.2)
0.6
61.7
127.2
38.8
6.4
0.3
The following table presents the Firm's top 20 exposures by
country (excluding the U.S.) as of December 31, 2021, and
their comparative exposures as of December 31, 2020. The
selection of countries represents the Firm's largest total
exposures by individual country, based on the Firm's
internal country risk management approach, and does not
represent the Firm's view of any existing or potentially
adverse credit conditions. Country exposures may fluctuate
from period to period due to client activity and market
flows.
For country risk management purposes, the Firm may
report exposure to jurisdictions that are not fully
autonomous, including Special Administrative Regions
("SAR") and dependent territories, separately from the
independent sovereign states with which they are
associated.
Country exposure and stress are measured and reported
regularly, and used by Country Risk Management to identify
trends, and monitor high usages and breaches against
limits.
Risk reporting
Under the Firm's internal country risk management
approach, attribution of exposure to an individual country is
based on the country where the largest proportion of the
assets of the counterparty, issuer, obligor or guarantor are
located or where the largest proportion of its revenue is
derived, which may be different than the domicile (i.e. legal
residence) or country of incorporation.
The Firm is exposed to country risk through its lending and
deposits, investing, and market-making activities, whether
cross-border or locally funded. Country exposure includes
activity with both government and private-sector entities in
a country.
5.8
Individual country exposures reflect an aggregation of the
Firm's risk to an immediate default, with zero recovery, of
the counterparties, issuers, obligors or guarantors
attributed to that country. Activities which result in
contingent or indirect exposure to a country are not
included in the country exposure measure (for example,
providing clearing services or secondary exposure to
collateral on securities financing receivables).
Assumptions are sometimes required in determining the
measurement and allocation of country exposure,
particularly in the case of certain non-linear or index
products, or where the nature of the counterparty, issuer,
obligor or guarantor is not suitable for attribution to an
individual country. The use of different measurement
approaches or assumptions could affect the amount of
reported country exposure.
Under the Firm's internal country risk measurement
framework:
•
•
•
•
•
45.5
Lending exposures are measured at the total committed
amount (funded and unfunded), net of the allowance for
credit losses and eligible cash and marketable securities
collateral received
Securities financing exposures are measured at their
receivable balance, net of eligible collateral received
Debt and equity securities are measured at the fair value
of all positions, including both long and short positions
Counterparty exposure on derivative receivables is
measured at the derivative's fair value, net of the fair
value of the eligible collateral received
Credit derivatives protection purchased and sold is
reported based on the underlying reference entity and is
measured at the notional amount of protection
purchased or sold, net of the fair value of the recognized
derivative receivable or payable. Credit derivatives
protection purchased and sold in the Firm's market-
making activities is measured on a net basis, as such
activities often result in selling and purchasing
protection related to the same underlying reference
entity; this reflects the manner in which the Firm
manages these exposures
The Firm's internal country risk reporting differs from the
reporting provided under the FFIEC bank regulatory
requirements.
JPMorgan Chase & Co./2021 Form 10-K
141
Management's discussion and analysis
Stress testing
Stress testing is an important component of the Firm's
country risk management framework, which aims to
estimate and limit losses arising from a country crisis by
measuring the impact of adverse asset price movements to
a country based on market shocks combined with
counterparty specific assumptions. Country Risk
Management periodically designs and runs tailored stress
scenarios to test vulnerabilities to individual countries or
sets of countries in response to specific or potential market
events, sector performance concerns, sovereign actions and
geopolitical risks. These tailored stress results are used to
inform potential risk reduction across the Firm, as
necessary.
Country Risk Management continues to monitor the impact
of the COVID-19 pandemic on individual countries.
Deposits are measured as the cash balances placed with
central and commercial banks
45.6
COVID-19 Pandemic
29.2
France
11.0
2.0
1.0
14.0
18.8
Singapore
6.8
4.6
0.9
12.3
Brazil
5.3
6.7
12.0
10.8
Luxembourg
10.1
1.4
11.5
12.4
Spain
Australia
0.9
9.2
10.5
14.7
8.7
7.1
-
15.9
Switzerland
14.7
1.4
4.8
20.9
18.7
China
10.1
1.8
9.9
7.1
16.9
5.8
India
14.5
1.4
0.2
39.1
14.7
Canada
21.2
18.6
2.0
9.6
Total trading assets
308.5
0.2
433.5
14.0
1.9
5.5
5.5
7.3
0.3
Total assets measured at fair value on
a recurring basis
58.8
57.1
AFS securities
376.4
The following table includes the Firm's assets measured at
fair value and the portion of such assets that are classified
Assets measured at fair value
1,154.5
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. The majority of such assets and liabilities are
measured at fair value on a recurring basis, including,
derivatives and structured note products. Certain assets and
liabilities are measured at fair value on a nonrecurring
basis, including certain mortgage, home equity and other
loans, where the carrying value is based on the fair value of
the underlying collateral.
within level 3 of the fair value hierarchy. Refer to Note 2 for
further information.
December 31, 2021
(in billions, except ratios)
Total assets
at fair value
Total level 3
assets
Federal Funds sold and securities
purchased under resale agreements
Securities borrowed
$
252.7
81.5
$
Trading assets:
Trading debt and equity instruments
Derivative receivables (a)
2.3
17.5
Under U.S. GAAP, goodwill must be allocated to reporting
units and tested for impairment at least annually. The
Firm's process and methodology used to conduct goodwill
impairment testing is described in Note 15.
3.5
151
Management's discussion and analysis
For instruments classified in levels 2 and 3, management
judgment must be applied to assess the appropriate level of
valuation adjustments to reflect counterparty credit quality,
the Firm's creditworthiness, market funding rates, liquidity
considerations, unobservable parameters, and for portfolios
that meet specified criteria, the size of the net open risk
position. The judgments made are typically affected by the
type of product and its specific contractual terms, and the
level of liquidity for the product or within the market as a
whole. In periods of heightened market volatility and
uncertainty judgments are further affected by the wider
variation of reasonable valuation estimates, particularly for
positions that are less liquid. Refer to Note 2 for a further
discussion of valuation adjustments applied by the Firm.
Imprecision in estimating unobservable market inputs or
other factors can affect the amount of gain or loss recorded
for a particular position. Furthermore, while the Firm
believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of methodologies or
assumptions different than those used by the Firm could
result in a different estimate of fair value at the reporting
date. Refer to Note 2 for a detailed discussion of the Firm's
valuation process and hierarchy, and its determination of
fair value for individual financial instruments.
Goodwill impairment
Management applies significant judgment when testing
goodwill for impairment. The goodwill associated with each
business combination is allocated to the related reporting
units for goodwill impairment testing.
JPMorgan Chase & Co./2021 Form 10-K
For the year ended December 31, 2021, the Firm reviewed
current economic conditions, including the potential
impacts of the COVID-19 pandemic on business
performance, estimated market cost of equity, as well as
actual business results and projections of business
performance for its reporting units. The Firm has concluded
that the goodwill allocated to its reporting units was not
impaired as of December 31, 2021. For each of the
reporting units, fair value exceeded carrying value by at
least 10% and there was no indication of a significant risk
of goodwill impairment based on current projections and
valuations.
152
Refer to Note 15 for additional information on goodwill,
including the goodwill impairment assessment as of
December 31, 2021.
Credit card rewards liability
Recognizing that forecasts of macroeconomic conditions are
inherently uncertain, particularly in light of the recent
economic conditions, the Firm believes that its process to
consider the available information and associated risks and
uncertainties is appropriately governed and that its
estimates of expected credit losses were reasonable and
appropriate for the period ended December 31, 2021.
Fair value
JPMorgan Chase is subject to the income tax laws of the
various jurisdictions in which it operates, including U.S.
federal, state and local, and non-U.S. jurisdictions. These
laws are often complex and may be subject to different
interpretations. To determine the financial statement
impact of accounting for income taxes, including the
provision for income tax expense and unrecognized tax
benefits, JPMorgan Chase must make assumptions and
judgments about how to interpret and apply these complex
tax laws to numerous transactions and business events, as
well as make judgments regarding the timing of when
certain items may affect taxable income in the U.S. and
non-U.S. tax jurisdictions.
JPMorgan Chase offers credit cards with various rewards
programs which allow cardholders to earn rewards points
based on their account activity and the terms and
conditions of the rewards program. Generally, there are no
limits on the points that an eligible cardholder can earn, nor
do the points expire, and the points can be redeemed for a
variety of rewards, including cash (predominantly in the
form of account credits), gift cards and travel. The Firm
maintains a rewards liability which represents the
estimated cost of rewards points earned and expected to be
redeemed by cardholders. The liability is accrued as the
cardholder earns the benefit and is reduced when the
cardholder redeems points. This liability was $9.8 billion
and $7.7 billion at December 31, 2021 and 2020,
respectively, and is recorded in accounts payable and other
liabilities on the Consolidated balance sheets. The increase
in the liability was driven by continued growth in rewards
points earned on increased spend and promotional offers
outpacing redemptions throughout 2021, and to a lesser
extent adjustments to redemption rate assumptions.
The rewards liability is sensitive to redemption rate (“RR”)
and cost per point ("CPP”) assumptions. The RR assumption
is used to estimate the number of points earned by
customers that will be redeemed over the life of the
account. The CPP assumption is used to estimate the cost of
future point redemptions. These assumptions are evaluated
periodically considering historical actuals, cardholder
redemption behavior and management judgment. Updates
to these assumptions will impact the rewards liability. As of
December 31, 2021, a combined increase of 25 basis
points in RR and 1 basis point in CPP would increase the
rewards liability by approximately $265 million.
Income taxes
The projections for the Firm's reporting units are consistent
with management's current business outlook assumptions
in the short term, and the Firm's best estimates of long-
term growth and return on equity in the longer term. Where
possible, the Firm uses third-party and peer data to
benchmark its assumptions and estimates.
Total assets measured at fair value on a
nonrecurring basis
JPMorgan Chase's interpretations of tax laws around the
world are subject to review and examination by the various
taxing authorities in the jurisdictions where the Firm
operates, and disputes may occur regarding its view on a
tax position. These disputes over interpretations with the
various taxing authorities may be settled by audit,
administrative appeals or adjudication in the court systems
Details of the Firm's processes for determining fair value
are set out in Note 2. Estimating fair value requires the
application of judgment. The type and level of judgment
required is largely dependent on the amount of observable
market information available to the Firm. For instruments
valued using internally developed valuation models and
other valuation techniques that use significant
unobservable inputs and are therefore classified within
level 3 of the fair value hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
2.5
Total assets measured at fair value
Total Firm assets
$
$
1,158.0
3,743.6
$ 20.0
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate valuation model or other valuation technique to
use. Second, the lack of observability of certain significant
inputs requires management to assess relevant empirical
data in deriving valuation inputs including, for example,
transaction details, yield curves, interest rates, prepayment
speed, default rates, volatilities, correlations, prices (such
as commodity, equity or debt prices), valuations of
comparable instruments, foreign exchange rates and credit
curves. Refer to Note 2 for a further discussion of the
valuation of level 3 instruments, including unobservable
inputs used.
Loans
Other
Level 3 assets at fair value as a
percentage of total Firm assets (a)
Level 3 assets at fair value as a
percentage of total Firm assets at fair
value(a)
0.5%
1.7%
(a) For purposes of the table above, the derivative receivables total
reflects the impact of netting adjustments; however, the $7.3 billion of
derivative receivables classified as level 3 does not reflect the netting
adjustment as such netting is not relevant to a presentation based on
the transparency of inputs to the valuation of an asset. The level 3
balances would be reduced if netting were applied, including the
netting benefit associated with cash collateral.
Valuation
MSRS
This analysis relates only to the modeled credit loss
estimates and is not intended to estimate changes in the
overall allowance for credit losses as it does not reflect any
potential changes in other adjustments to the quantitative
calculation, which would also be influenced by the judgment
management applies to the modeled lifetime loss estimates
to reflect the uncertainty and imprecision of these modeled
lifetime loss estimates based on then-current circumstances
and conditions.
managing actual and potential litigation and
• An increase of approximately $2.6 billion for credit card
loans
advising on offering and marketing documents and new
business initiatives
Legal selects, engages and manages outside counsel for the
Firm on all matters in which outside counsel is engaged. In
addition, Legal advises the Firm's Conflicts Office which
reviews the Firm's wholesale transactions that may have
the potential to create conflicts of interest for the Firm.
Governance and oversight
The Firm's General Counsel reports to the CEO and is a
member of the Operating Committee, the Firmwide Risk
Committee and the Firmwide Control Committee. The Firm's
General Counsel and other members of Legal report on
significant legal matters to the Firm's Board of Directors
and to the Audit Committee.
Legal serves on and advises various committees and advises
the Firm's LOBS and Corporate on potential reputation risk
issues.
•
managing dispute resolution
advising on products and services, including contract
negotiation and documentation
•
advising on changes to them
advising on advocacy in connection with contemplated
and proposed laws, rules and regulations, and
providing legal advice to the LOBS, Corporate and the
Board.
148
JPMorgan Chase & Co./2021 Form 10-K
• interpreting existing laws, rules and regulations, and
ESTIMATIONS AND MODEL RISK MANAGEMENT
enforcement matters, including internal reviews and
investigations related to such matters
The global Legal function (“Legal”) provides legal services
and advice to the Firm. Legal is responsible for managing
the Firm's exposure to legal risk by:
Conduct risk, a subcategory of operational risk, is the risk
that any action or inaction by an employee or employees
could lead to unfair client or customer outcomes, impact
the integrity of the markets in which the Firm operates, or
compromise the Firm's reputation.
CONDUCT RISK MANAGEMENT
JPMorgan Chase & Co./2021 Form 10-K
Overview
Each LOB and Corporate is accountable for identifying and
managing its conduct risk to provide appropriate
engagement, ownership and sustainability of a culture
consistent with the Firm's How We Do Business Principles
(the "Principles"). The Principles serve as a guide for how
employees are expected to conduct themselves. With the
Principles serving as a guide, the Firm's Code sets out the
Firm's expectations for each employee and provides
information and resources to help employees conduct
business ethically and in compliance with the laws
everywhere the Firm operates. Refer to Compliance Risk
Management on page 146 for further discussion of the
Code.
Governance and oversight
•
The Conduct Risk Program is governed by the CCOR
Management policy, which establishes the framework for
governance, identification, measurement, monitoring and
testing, management and reporting conduct risk in the
Firm.
JPMorgan Chase & Co./2021 Form 10-K
147
Management's discussion and analysis
LEGAL RISK MANAGEMENT
Legal risk, a subcategory of operational risk, is the risk of
loss primarily caused by the actual or alleged failure to
meet legal obligations that arise from the rule of law in
jurisdictions in which the Firm operates, agreements with
clients and customers, and products and services offered by
the Firm.
Overview
The Firm has a senior forum that provides oversight of the
Firm's conduct initiatives to develop a more holistic view of
conduct risks and to connect key programs across the Firm
in order to identify opportunities and emerging areas of
focus. This forum is responsible for setting overall program
direction for strategic enhancements to the Firm's
employee conduct framework and reviewing the
consolidated Firmwide Conduct Risk Appetite Assessment.
Conduct risk management encompasses various aspects of
people management practices throughout the employee life
cycle, including recruiting, onboarding, training and
development, performance management, promotion and
compensation processes. Each LOB, Treasury and CIO, and
each designated corporate function completes an
assessment of conduct risk periodically, reviews metrics
and issues which may involve conduct risk, and provides
conduct education as appropriate.
An increase of approximately $3.0 billion for wholesale
loans and lending-related commitments
Estimations and Model risk, a subcategory of operational
risk, is the potential for adverse consequences from
decisions based on incorrect or misused estimation outputs.
The Firm uses models and other analytical and judgment-
based estimations across various businesses and functions.
The estimation methods are of varying levels of
sophistication and are used for many purposes, such as the
valuation of positions and measurement of risk, assessing
regulatory capital requirements, conducting stress testing,
evaluating the allowance for credit losses and making
business decisions. A dedicated independent function,
Model Risk Governance and Review ("MRGR"), defines and
governs the Firm's policies relating to the management of
model risk and risks associated with certain analytical and
judgment-based estimations, such as those used in risk
management, budget forecasting and capital planning and
analysis.
Model risks are owned by the users of the models within the
Firm based on the specific purposes of such models. Users
and developers of models are responsible for developing,
implementing and testing their models, as well as referring
models to the MRGR for review and approval. Once models
have been approved, model users and developers are
responsible for maintaining a robust operating
environment, and must monitor and evaluate the
performance of the models on an ongoing basis. Model
users and developers may seek to enhance models in
response to changes in the portfolios and in product and
market developments, as well as to capture improvements
in available modeling techniques and systems capabilities.
•
Key MEVS for the consumer portfolio include U.S.
unemployment, HPI and U.S. real GDP.
•
Key MEVS for the wholesale portfolio include U.S. real
GDP, U.S. unemployment, U.S. equity prices, corporate
credit spreads, oil prices, commercial real estate prices
and HPI.
Changes in the Firm's assumptions and forecasts of
economic conditions could significantly affect its estimate of
expected credit losses in the portfolio at the balance sheet
date or lead to significant changes in the estimate from one
reporting period to the next.
The Firm's allowance for credit losses is estimated using a
weighted average of five internally developed
macroeconomic scenarios. As of December 31, 2021, the
Firm assigned more balanced weightings to both its adverse
and upside scenarios compared to the significant weighting
that the Firm placed on its adverse scenarios as of
December 31, 2020, reflecting the sustained improvement
and resilience of the macroeconomic environment, despite
the ongoing impact of the COVID-19 pandemic. In addition,
because the impact of the COVID-19 pandemic and
governmental actions taken in response to the pandemic
caused a dislocation in certain historical relationships used
for modeling credit loss estimates, the Firm continues to
place reliance on management judgment and make
adjustments specific to that dislocation, although to a lesser
extent than in 2020. The allowance for credit losses of
$18.7 billion reflects remaining uncertainties, including the
potential impact that additional waves or variants of
COVID-19 may have on the pace of economic growth and
near-term supply chain disruptions.
One of the most significant judgments involved in
estimating the Firm's allowance for credit losses relates to
the macroeconomic forecasts used to estimate credit losses
over the eight-quarter forecast period within the Firm's
methodology. The eight-quarter forecast incorporates
hundreds of MEVS that are relevant for exposures across
the Firm, with modeled credit losses being driven primarily
by a subset of less than twenty variables. The specific
variables that have the greatest effect on the modeled
losses of each portfolio vary by portfolio and geography.
It is difficult to estimate how potential changes in any one
factor or input might affect the overall allowance for credit
losses because management considers a wide variety of
factors and inputs in estimating the allowance for credit
losses. Changes in the factors and inputs considered may
not occur at the same rate and may not be consistent across
all geographies or product types, and changes in factors
and inputs may be directionally inconsistent, such that
improvement in one factor or input may offset deterioration
in others.
150
JPMorgan Chase & Co./2021 Form 10-K
3.2% lower at the end of the eight-quarter forecast, with a
peak difference of approximately 6.5% in the second
quarter of 2022; and lower national HPI with a peak
difference of nearly 15.8% in the second quarter of 2023.
This analysis is not intended to estimate expected future
changes in the allowance for credit losses as the impacts of
changes in many MEVS are both interrelated and nonlinear,
so the results of this analysis cannot be simply extrapolated
for more severe changes in macroeconomic variables.
Additionally, expectations of future changes in portfolio
composition and borrower behavior can significantly affect
the allowance for credit losses.
To demonstrate the sensitivity of credit loss estimates to
macroeconomic forecasts as of December 31, 2021, the
Firm compared the modeled estimates under its relative
adverse scenario to its central scenario. Without
considering offsetting or correlated effects in other
qualitative components of the Firm's allowance for credit
losses, the comparison between these two scenarios for the
lending exposures below reflect the following differences:
•
An increase of approximately $550 million for residential
real estate loans and lending-related commitments
To consider the impact of a hypothetical alternate
macroeconomic forecast, the Firm compared the modeled
credit losses determined using its central and relative
adverse macroeconomic scenarios, which are two of the five
scenarios considered in estimating the allowances for loan
losses and lending-related commitments. The central and
relative adverse scenarios each included a full suite of
MEVS, but differed in the levels, paths and peaks/troughs of
those variables over the eight-quarter forecast period.
For example, compared to the Firm's central scenario
shown on page 129 and in Note 13, the Firm's relative
adverse scenario assumes a significantly elevated U.S.
unemployment rate, averaging approximately 2.8% higher
over the eight-quarter forecast, with a peak difference of
approximately 4.4% in the second quarter of 2022; lower
U.S. real GDP with a slower recovery, remaining nearly
The governance of analytical and judgment-based
estimations within MRGR's scope follows a consistent
approach which is used for models, as described in detail
below.
The allowance for credit losses involves significant
judgment on a number of matters including development
and weighting of macroeconomic forecasts, incorporation of
historical loss experience, assessment of risk
characteristics, assignment of risk ratings, valuation of
collateral, and the determination of remaining expected
life. Refer to Note 10 and Note 13 for further information
on these judgments as well as the Firm's policies and
methodologies used to determine the Firm's allowance for
credit losses.
•
Models are tiered based on an internal standard according
to their complexity, the exposure associated with the model
and the Firm's reliance on the model. This tiering is subject
to the approval of the MRGR. In its review of a model, the
MRGR considers whether the model is suitable for the
specific purposes for which it will be used. When reviewing
a model, the MRGR analyzes and challenges the model
methodology and the reasonableness of model
assumptions, and may perform or require additional
testing, including back-testing of model outcomes. Model
reviews are approved by the appropriate level of
management within the MRGR based on the relevant model
tier.
Under the Firm's Estimations and Model Risk Management
Policy, the MRGR reviews and approves new models, as well
as material changes to existing models, prior to their use. In
certain circumstances exceptions may be granted to the
Firm's policy to allow a model to be used prior to review or
approval. The MRGR may also require the user to take
appropriate actions to mitigate the model risk if it is to be
used in the interim. These actions will depend on the model
and may include, for example, limitation of trading activity.
While models are inherently imprecise, the degree of
imprecision or uncertainty can be heightened by the market
or economic environment. This is particularly true when the
current and forecasted environment is significantly
different from the historical macroeconomic environments
upon which the models were trained, as the Firm
experienced during the early stages of the COVID-19
pandemic. This uncertainty may necessitate a greater
degree of judgment and analytics to inform adjustments to
model outputs than in typical periods.
Refer to Critical Accounting Estimates Used by the Firm on
pages 150-153 and Note 2 for a summary of model-based
valuations and other valuation techniques.
JPMorgan Chase & Co./2021 Form 10-K
149
The allowance for credit losses on investment securities.
Management's discussion and analysis
JPMorgan Chase's accounting policies and use of estimates
are integral to understanding its reported results. The
Firm's most complex accounting estimates require
management's judgment to ascertain the appropriate
carrying value of assets and liabilities. The Firm has
established policies and control procedures intended to
ensure that estimation methods, including any judgments
made as part of such methods, are well-controlled,
independently reviewed and applied consistently from
period to period. The methods used and judgments made
reflect, among other factors, the nature of the assets or
liabilities and the related business and risk management
strategies, which may vary across the Firm's businesses and
portfolios. In addition, the policies and procedures are
intended to ensure that the process for changing
methodologies occurs in an appropriate manner. The Firm
believes its estimates for determining the carrying value of
its assets and liabilities are appropriate. The following is a
brief description of the Firm's critical accounting estimates
involving significant judgments.
Allowance for credit losses
The Firm's allowance for credit losses represents
management's estimate of expected credit losses over the
remaining expected life of the Firm's financial assets
measured at amortized cost and certain off-balance sheet
lending-related commitments. The allowance for credit
losses comprises:
•
The allowance for loan losses, which covers the Firm's
retained loan portfolios (scored and risk-rated),
⚫ The allowance for lending-related commitments, and
CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM
of the tax jurisdictions in which the Firm operates.
JPMorgan Chase regularly reviews whether it may be
assessed additional income taxes as a result of the
resolution of these matters, and the Firm records additional
unrecognized tax benefits, as appropriate. In addition, the
Firm may revise its estimate of income taxes due to changes
in income tax laws, legal interpretations, and business
strategies. It is possible that revisions in the Firm's estimate
of income taxes may materially affect the Firm's results of
operations in any reporting period.
154
The Firm has also recognized deferred tax assets in
connection with certain tax attributes, including net
operating loss ("NOL") carryforwards and foreign tax credit
("FTC") carryforwards. The Firm performs regular reviews
to ascertain whether its deferred tax assets are realizable.
These reviews include management's estimates and
assumptions regarding future taxable income, including
foreign source income, and may incorporate various tax
planning strategies, including strategies that may be
available to utilize NOLS and FTCs before they expire. In
connection with these reviews, if it is determined that a
deferred tax asset is not realizable, a valuation allowance is
established. The valuation allowance may be reversed in a
subsequent reporting period if the Firm determines that,
based on revised estimates of future taxable income or
changes in tax planning strategies, it is more likely than not
that all or part of the deferred tax asset will become
realizable. As of December 31, 2021, management has
determined it is more likely than not that the Firm will
realize its deferred tax assets, net of the existing valuation
allowance.
•
.
Ability of the Firm to effectively defend itself against
Ability of the Firm to withstand disruptions that may be
caused by any failure of its operational systems or those
of third parties;
Ability of the Firm to maintain the security of its financial,
accounting, technology, data processing and other
operational systems and facilities;
calamities, including health emergencies, the spread of
infectious diseases, epidemics or pandemics, an outbreak
or escalation of hostilities or other geopolitical
instabilities, the effects of climate change or
extraordinary events beyond the Firm's control, and the
Firm's ability to deal effectively with disruptions caused
by the foregoing;
•
•
•
•
Changes in investor sentiment or consumer spending or
savings behavior;
•
Ability of the Firm to manage effectively its capital and
liquidity;
changes in market liquidity and volatility;
•
Changes in income tax laws, rules, and regulations;
•
Changes in trade, monetary and fiscal policies and laws;
Changes in the level of inflation;
Heightened regulatory and governmental oversight and
scrutiny of JPMorgan Chase's business practices,
including dealings with retail customers;
Changes in laws, rules, and regulatory requirements,
including capital and liquidity requirements affecting the
Firm's businesses, and the ability of the Firm to address
those requirements;
political conditions and geopolitical events;
•
•
Occurrence of natural or man-made disasters or
Local, regional and global business, economic and
Ability of the Firm to determine accurate values of certain
assets and liabilities;
Securities and capital markets behavior, including
Changes in credit ratings assigned to the Firm or its
subsidiaries;
•
Damage to the Firm's reputation;
Deferred taxes arise from differences between assets and
liabilities measured for financial reporting versus income
tax return purposes. Deferred tax assets are recognized if,
in management's judgment, their realizability is determined
to be more likely than not. Deferred taxes are measured
using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred
taxes of a change in tax rates is recognized within the
provision for income taxes in the period enacted.
JPMorgan Chase & Co./2021 Form 10-K
156
February 22, 2022
Executive Vice President and Chief Financial Officer
Jeremy Barnum
Lyk
Chairman and Chief Executive Officer
Dinin
спие
James Dimon
The effectiveness of the Firm's internal control over
financial reporting as of December 31, 2021, has been
audited by PricewaterhouseCoopers LLP, an independent
registered public accounting firm, as stated in their report
which appears herein.
Based upon the assessment performed, management
concluded that as of December 31, 2021, JPMorgan
Chase's internal control over financial reporting was
effective based upon the COSO 2013 framework.
Additionally, based upon management's assessment, the
Firm determined that there were no material weaknesses in
its internal control over financial reporting as of
December 31, 2021.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate. Management has
completed an assessment of the effectiveness of the Firm's
internal control over financial reporting as of December 31,
2021. In making the assessment, management used the
"Internal Control - Integrated Framework" ("COSO 2013")
promulgated by the Committee of Sponsoring Organizations
of the Treadway Commission ("COSO”).
JPMorgan Chase's internal control over financial reporting
includes those policies and procedures that (1) pertain to
the maintenance of records, that, in reasonable detail,
accurately and fairly reflect the transactions and
dispositions of the Firm's assets; (2) provide reasonable
assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance
with U.S. GAAP, and that receipts and expenditures of the
Firm are being made only in accordance with authorizations
of JPMorgan Chase's management and directors; and (3)
provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or
disposition of the Firm's assets that could have a material
effect on the financial statements.
Management's report on internal control over financial reporting
155
The other risks and uncertainties detailed in Part I, Item
1A: Risk Factors in JPMorgan Chase's 2021 Form 10-K.
Any forward-looking statements made by or on behalf of the
Firm speak only as of the date they are made, and JPMorgan
Chase does not undertake to update any forward-looking
statements. The reader should, however, consult any further
disclosures of a forward-looking nature the Firm may make
in any subsequent Form 10-Ks, Quarterly Reports on Form
10-Qs, or Current Reports on Form 8-K.
to access information of the Firm or its customers or to
disrupt the Firm's systems; and
cyber attacks and other attempts by unauthorized parties
•
JPMorgan Chase & Co./2021 Form 10-K
slowdown or other economic or market disruption,
including, but not limited to, in the interest rate
environment;
Ability of the Firm to deal effectively with an economic
Ability of the Firm to appropriately address social,
environmental and sustainability concerns that may arise,
including from its business activities;
•
•
•
Economic, financial, reputational and other impacts of the
COVID-19 pandemic;
Management of JPMorgan Chase & Co. ("JPMorgan Chase"
or the "Firm") is responsible for establishing and
maintaining adequate internal control over financial
reporting. Internal control over financial reporting is a
process designed by, or under the supervision of, the Firm's
principal executive and principal financial officers, or
persons performing similar functions, and effected by
JPMorgan Chase's Board of Directors, management and
other personnel, to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with accounting principles generally accepted in the United
States of America (“U.S. GAAP”).
Changes in applicable accounting policies, including the
introduction of new accounting standards;
The January 2021 update provides an election to
account for derivatives modified to change the
rate used for discounting, margining, or contract
price alignment (collectively "discounting
transition") as modifications.
Provides a one-time election to transfer securities
out of the held-to-maturity classification if certain
criteria are met.
Allows for changes in critical terms of a hedge
accounting relationship without automatic
termination of that relationship. Provides various
practical expedients and elections designed to
allow hedge accounting to continue uninterrupted
during the transition period.
• Provides an election to account for certain
contract amendments related to reference rate
reform as modifications rather than
extinguishments without the requirement to
assess the significance of the amendments.
instruments, hedge accounting relationships, and
other transactions are amended due to reference
rate reform.
Provides optional expedients and exceptions to
current accounting guidance when financial
•
Summary of guidance
January 2021
updated
2020 and
Issued March
•
.
Standard
Financial Accounting Standards Board ("FASB") Standards Adopted since January 1, 2021
ACCOUNTING AND REPORTING DEVELOPMENTS
Management's discussion and analysis
JPMorgan Chase & Co./2021 Form 10-K
Refer to Note 30 for a description of the significant
estimates and judgments associated with establishing
litigation reserves.
Litigation reserves
Refer to Note 25 for additional information on income
taxes.
The Firm's provision for income taxes is composed of
current and deferred taxes. The current and deferred tax
provisions are calculated based on estimates and
assumptions that could differ from the actual results
reflected in income tax returns filed during the subsequent
year. Adjustments based on filed returns are generally
recorded in the period when the tax returns are filed and
the global tax implications are known, which could impact
the Firm's effective tax rate.
amounts is different than the amounts recorded, such
differences will generally impact the Firm's provision for
income taxes in the period in which such a determination is
made.
•
The Firm adjusts its unrecognized tax benefits as necessary
when new information becomes available, including
changes in tax law and regulations, and interactions with
taxing authorities. Uncertain tax positions that meet the
more-likely-than-not recognition threshold are measured to
determine the amount of benefit to recognize. An uncertain
tax position is measured at the largest amount of benefit
that management believes is more likely than not to be
realized upon settlement. It is possible that the
reassessment of JPMorgan Chase's unrecognized tax
benefits may have a material impact on its effective income
tax rate in the period in which the reassessment occurs.
Although the Firm believes that its estimates are
reasonable, the final tax amount could be different from the
amounts reflected in the Firm's income tax provisions and
accruals. To the extent that the final outcome of these
Reference Rate
Reform
Effects on financial statements
153
7, 2021 update was effective when issued.
disclosure controls and procedures and internal control
over financial reporting;
Adverse judicial or regulatory proceedings;
Issued and effective March 12, 2020. The January
Adequacy of the Firm's risk management framework,
Changes in the credit quality of the Firm's clients,
customers and counterparties;
Competitive pressures;
Ability of the Firm to attract and retain qualified and
diverse employees;
Acceptance of the Firm's new and existing products and
services by the marketplace and the ability of the Firm to
innovate and to increase market share;
Ability of the Firm to develop or discontinue products and
services, and the extent to which products or services
previously sold by the Firm require the Firm to incur
liabilities or absorb losses not contemplated at their
initiation or origination;
The effectiveness of the Firm's control agenda;
counterparties or competitors;
Technology changes instituted by the Firm, its
•
•
Ability of the Firm to control expenses;
All forward-looking statements are, by their nature, subject
to risks and uncertainties, many of which are beyond the
Firm's control. JPMorgan Chase's actual future results may
differ materially from those set forth in its forward-looking
statements. While there is no assurance that any list of risks
and uncertainties or risk factors is complete, below are
certain factors which could cause actual results to differ from
those in the forward-looking statements:
.
The Firm elected to apply certain of the practical
expedients related to contract modifications and
hedge accounting relationships, and discounting
transition beginning in the third quarter of 2020.
The discounting transition election was applied
retrospectively. The main purpose of the practical
expedients is to ease the administrative burden of
accounting for contracts impacted by reference
rate reform. These elections did not have a
material impact on the Consolidated Financial
Statements.
From time to time, the Firm has made and will make
forward-looking statements. These statements can be
identified by the fact that they do not relate strictly to
historical or current facts. Forward-looking statements often
use words such as "anticipate,” “target," "expect,"
"estimate," "intend,” “plan,” “goal,” “believe,” or other
words of similar meaning. Forward-looking statements
provide JPMorgan Chase's current expectations or forecasts
of future events, circumstances, results or aspirations.
JPMorgan Chase's disclosures in this 2021 Form 10-K
contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. The
Firm also may make forward-looking statements in its other
documents filed or furnished with the SEC. In addition, the
Firm's senior management may make forward-looking
statements orally to investors, analysts, representatives of
the media and others.
FORWARD-LOOKING STATEMENTS
⋅
•
JPMorgan Chase & Co./2021 Form 10-K
•
•
•
•
•
3,036
Marketing
2,476
3,351
Other expense
Total noninterest expense
Income before income tax expense
Income tax expense a
65,269
Basic earnings per share
Net income applicable to common stockholders
Net income per common share data
5,469
5,941
5,087
71,343
8,533
66,656
Net income
8,464
38,567
Professional and outside services
57,245
59,562
121,649
119,951
115,720
(9,256)
17,480
5,585
Noninterest expense
9,814
Compensation expense
34,155
Occupancy expense
4,516
4,449
4,322
Technology, communications and equipment expense
9,941
10,338
9,821
34,988
35,815
The Notes to Consolidated Financial Statements are an integral part of these statements.
11,228
3,230.4
Effective January 1, 2020, the Firm adopted the CECL accounting guidance. Refer to Note 1 for further information.
(a) Prior-period amounts have been revised to conform with the current presentation. Refer to Note 25 for further information.
160
JPMorgan Chase & Co./2021 Form 10-K
29,131 $
JPMorgan Chase & Co.
Consolidated statements of comprehensive income
Year ended December 31, (in millions)
Net income
Other comprehensive income/(loss), after-tax
Unrealized gains/(losses) on investment securities
Translation adjustments, net of hedges
Fair value hedges
Cash flow hedges
2021
2020
2019
$
48,334 $
54,563
3,087.4
44,866
3,026.6
3,082.4
6,684
8,435
$
48,334 $
$
46,503 $
29,131 $
27,410 $
36,431
34,642
Diluted earnings per share
Weighted-average basic shares
Weighted-average diluted shares
$
15.39 $
15.36
8.89
8.88
$
10.75
10.72
3,021.5
3,221.5
52,311
February 22, 2022
9,960
Fair Value of Certain Level 3 Financial Instruments
As described in Notes 2 and 3 to the consolidated financial
statements, the Firm carries $1.2 trillion of its assets and
$403.1 billion of its liabilities at fair value on a recurring
basis. Included in these balances are $9.6 billion of trading
assets and $41.5 billion of liabilities measured at fair value
on a recurring basis, collectively financial instruments,
which are classified as level 3 as they contain one or more
inputs to valuation which are unobservable and significant
to their fair value measurement. The Firm utilized internally
developed valuation models and unobservable inputs to
estimate fair value of the level 3 financial instruments. The
unobservable inputs used by management to estimate the
fair value of certain of these financial instruments include
forward equity prices, volatility relating to interest rates
and equity prices and correlation relating to interest rates,
equity prices, credit and foreign exchange rates.
The principal considerations for our determination that
performing procedures relating to the fair value of certain
level 3 financial instruments is a critical audit matter are (i)
the significant judgment and estimation by management in
determining the inputs to estimate fair value, which in turn
led to a high degree of auditor judgment, subjectivity, and
effort in performing procedures and in evaluating audit
evidence obtained related to the fair value of these financial
instruments, and (ii) the audit effort involved the use of
professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and
evaluating audit evidence in connection with forming our
JPMorgan Chase & Co./2021 Form 10-K
Report of Independent Registered Public Accounting Firm
overall opinion on the consolidated financial statements.
These procedures included testing the effectiveness of
controls relating to the Firm's determination of the fair
value, including controls over models, inputs, and data.
These procedures also included, among others, the
involvement of professionals with specialized skill and
knowledge to assist in developing an independent estimate
of fair value for a sample of these financial instruments and
comparing management's estimate to the independently
developed estimate of fair value. Developing the
independent estimate involved testing the completeness
and accuracy of data provided by management, developing
independent inputs and, as appropriate, evaluating and
utilizing management's aforementioned unobservable
inputs.
ہیں
ricewaterhouseCoopers LLP
We have served as the Firm's auditor since 1965.
JPMorgan Chase & Co./2021 Form 10-K
159
JPMorgan Chase & Co.
Consolidated statements of income
Year ended December 31, (in millions, except per share data)
Revenue
Investment banking fees
Principal transactions
Lending- and deposit-related fees
Addressing the matter involved performing procedures and
evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements.
These procedures included testing the effectiveness of
controls relating to the Firm's allowance for loan losses,
including controls over model validation and generation of
macroeconomic scenarios. These procedures also included,
among others, testing management's process for estimating
the allowance for loan losses, which involved (i) evaluating
the appropriateness of the models and methodologies used
in quantitative calculations; (ii) evaluating the
reasonableness of forecasts of U.S. unemployment and U.S.
real gross domestic product; (iii) testing the completeness
and accuracy of data used in the estimate; and (iv)
evaluating the reasonableness of management's
adjustments to the quantitative output for the impacts of
model imprecision, emerging risk assessments, trends and
other subjective factors that are not yet otherwise reflected
in the credit loss estimate. These procedures also included
the use of professionals with specialized skill and
knowledge to assist in evaluating the appropriateness of
certain models, methodologies and macroeconomic
variables.
Asset management, administration and commissions
evaluating audit evidence obtained relating to the credit
loss estimates and the appropriateness of the adjustments
to the credit loss estimates, and (iii) the audit effort
involved the use of professionals with specialized skill and
knowledge.
To the Board of Directors and Shareholders of JPMorgan
Chase & Co.:
158
As described in Note 13 to the consolidated financial
statements, the allowance for loan losses for the portfolio-
based component of the wholesale and credit card loan
portfolios was $14.0 billion on total portfolio-based
retained loans of $711.4 billion at December 31, 2021. The
Firm's allowance for loan losses represents management's
estimate of expected credit losses over the remaining
expected life of the Firm's loan portfolios and considers
expected future changes in macroeconomic conditions. The
portfolio-based component of the Firm's allowance for loan
losses for the wholesale and credit card retained loan
portfolios begins with a quantitative calculation of expected
credit losses over the expected life of the loan by applying
credit loss factors to the estimated exposure at default. The
credit loss factors applied are determined based on the
weighted average of five internally developed
macroeconomic scenarios that take into consideration the
Firm's economic outlook as derived through forecast
macroeconomic variables, the most significant of which are
U.S. unemployment and U.S. real gross domestic product.
This quantitative calculation is further adjusted to take into
consideration model imprecision, emerging risk
assessments, trends and other subjective factors that are
not yet otherwise reflected in the credit loss estimate.
The principal considerations for our determination that
performing procedures relating to the allowance for loan
losses for the portfolio-based component of the wholesale
and credit card loan portfolios is a critical audit matter are
(i) the significant judgment and estimation by management
in the forecast of macroeconomic variables, specifically U.S.
unemployment and U.S. real gross domestic product, as the
Firm's forecasts of economic conditions significantly affect
its estimate of expected credit losses at the balance sheet
date, (ii) the significant judgment and estimation by
management in determining the quantitative calculation
utilized in their credit loss estimates and the adjustments to
take into consideration model imprecision, emerging risk
assessments, trends and other subjective factors that are
not yet otherwise reflected in the credit loss estimate,
which both in turn led to a high degree of auditor judgment,
subjectivity and effort in performing procedures and in
The critical audit matters communicated below are matters
arising from the current period audit of the consolidated
financial statements that were communicated or required
to be communicated to the audit committee and that (i)
relate to accounts or disclosures that are material to the
consolidated financial statements and (ii) involved our
especially challenging, subjective, or complex judgments.
The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing
separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Allowance for Loan Losses - Portfolio-based component of
Wholesale Loan and Credit Card Loan Portfolios
Critical Audit Matters
Report of Independent Registered Public Accounting Firm
157
JPMorgan Chase & Co./2021 Form 10-K
PricewaterhouseCoopers LLP • 300 Madison Avenue • New York, NY 10017
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with generally accepted accounting principles. A company's
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit
preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in
accordance with authorizations of management and
directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the
financial statements.
Our audits of the consolidated financial statements included
performing procedures to assess the risks of material
misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles
used and significant estimates made by management, as
well as evaluating the overall presentation of the
consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and
testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures
as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial
Reporting
We conducted our audits in accordance with the standards of
the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about
whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and
whether effective internal control over financial reporting
was maintained in all material respects.
The Firm's management is responsible for these
consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Management's report on internal control over financial
reporting. Our responsibility is to express opinions on the
Firm's consolidated financial statements and on the Firm's
internal control over financial reporting based on our audits.
We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to
the Firm in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
Basis for Opinions
accounts for credit losses on certain financial instruments in
2020.
As discussed in Note 1 to the consolidated financial
statements, the Firm changed the manner in which it
Change in Accounting Principle
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of the Firm as of December 31, 2021 and
2020, and the results of its operations and its cash flows for
each of the three years in the period ended December 31,
2021 in conformity with accounting principles generally
accepted in the United States of America. Also in our
opinion, the Firm maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2021, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the
COSO.
We have audited the accompanying consolidated balance
sheets of JPMorgan Chase & Co. and its subsidiaries (the
"Firm") as of December 31, 2021 and 2020, and the related
consolidated statements of income, comprehensive income,
changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 2021,
including the related notes (collectively referred to as the
"consolidated financial statements"). We also have audited
the Firm's internal control over financial reporting as of
December 31, 2021, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
Opinions on the Financial Statements and Internal Control
over Financial Reporting
Investment securities gains/(losses)
Mortgage fees and related income
Card income
(345)
802
258
2,170
3,091
2,036
5,102
4,435
5,076
4,830
4,865
6,052
69,338
65,388
58,475
57,864
64,523
84,040
5,553
16,908
18,177
21,029
6,626
Other income (a)
Noninterest revenue
Interest income
Interest expense
Net interest income
Total net revenue
Provision for credit losses
2021
2020
26,795
2019
13,216 $
9,486
$
7,501
16,304
18,021
14,018
7,032
6,511
$
36,431
263,978
4,123
85,710
171,415
175,490
336,413
(169,289)
(166,504)
1,996
1,649
3,274
(347,864)
1,270
(3,573)
(148,749)
3,748
8,614
7,932
5,585
17,480
(9,256)
$ 29,131 $ 36,431
$ 48,334
2019
2020
2021
Available-for-sale securities:
8,368
Purchases
(45,635)
6,551
(27,631)
21,360
(12,400)
(111,756)
50,897
72,396
(47,115)
34,473
4,092
(79,910)
78,084
2,233
3,115
(20,734)
(398)
7,415
43,162
(14,516)
77,198
(23,190)
(17,777)
(42,430)
(11,745)
(78)
(18,012)
(12,401)
(466)
3,423
(13,427)
Proceeds from paydowns and maturities
Federal funds sold and securities purchased under resale agreements
Effective January 1, 2020, the Firm adopted the CECL accounting guidance. Refer to Note 1 for further information.
$ 294,127
1,566
(83,049)
(60,494)
(24,121)
(83,049)
(6,397)
1,262
(88,184)
(88,184)
(18,448)
1,217
(105,415)
Total stockholders' equity
Balance at December 31
Reissuance
Repurchase
(21)
The Notes to Consolidated Financial Statements are an integral part of these statements.
21
(21)
Balance at January 1
Treasury stock, at cost
Balance at December 31
Liquidation of RSU Trust
Balance at January 1
Shares held in RSU Trust, at cost
Balance at December 31
1,569
7,986
(84)
(21)
Held-to-maturity securities:
$ 279,354 $ 261,330
163
Net change in:
Investing activities
Net cash provided by/(used in) operating activities
Other operating adjustments
(a)
Accounts payable and other liabilities
Trading liabilities
Other assets (a)
Accrued interest and accounts receivable
Securities borrowed
Trading assets
JPMorgan Chase & Co./2021 Form 10-K
Net change in:
Originations and purchases of loans held-for-sale
Other
Deferred tax (benefit)/expense(a)
Depreciation and amortization
Provision for credit losses
Adjustments to reconcile net income to net cash provided by/(used in) operating activities:
Net income
Operating activities
Year ended December 31, (in millions)
Consolidated statements of cash flows
JPMorgan Chase & Co.
Proceeds from sales, securitizations and paydowns of loans held-for-sale
3,076
Proceeds from paydowns and maturities
Purchases
The Consolidated Financial Statements include the accounts
of JPMorgan Chase and other entities in which the Firm has
a controlling financial interest. All material intercompany
balances and transactions have been eliminated.
Consolidation
Certain amounts reported in prior periods have been
reclassified to conform with the current presentation.
Notably in the first quarter of 2021, the Firm reclassified
certain deferred investment tax credits from accounts
payable and other liabilities to other assets to be a
reduction to the carrying value of the associated tax-
oriented investments. Refer to Note 25 for further
information.
The accounting and financial reporting policies of JPMorgan
Chase and its subsidiaries conform to U.S. GAAP.
Additionally, where applicable, the policies conform to the
accounting and reporting guidelines prescribed by
regulatory authorities.
JPMorgan Chase & Co. ("JPMorgan Chase” or the “Firm”), a
financial holding company incorporated under Delaware law
in 1968, is a leading financial services firm based in the
U.S., with operations worldwide. The Firm is a leader in
investment banking, financial services for consumers and
small businesses, commercial banking, financial transaction
processing and asset management. Refer to Note 32 for a
further discussion of the Firm's business segments.
Note 1 - Basis of presentation
Notes to consolidated financial statements
JPMorgan Chase & Co./2021 Form 10-K
164
278,793
263,631
Assets held for clients in an agency or fiduciary capacity by
the Firm are not assets of JPMorgan Chase and are not
included on the Consolidated balance sheets.
527,609
213,225
(182)
32,987
(1,146)
(927)
596,645
9,155
(11,508)
275,993
(1,477)
(12,343)
(12,690)
(12,858)
(15,162)
(24,001)
The Firm determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity is
a voting interest entity or a variable interest entity.
Voting interest entities are entities that have sufficient
equity and provide the equity investors voting rights that
enable them to make significant decisions relating to the
entity's operations. For these types of entities, the Firm's
determination of whether it has a controlling interest is
primarily based on the amount of voting equity interests
held. Entities in which the Firm has a controlling financial
interest, through ownership of the majority of the entities'
voting equity interests, or through other contractual rights
that give the Firm control, are consolidated by the Firm.
Investments in companies in which the Firm has significant
influence over operating and financing decisions (but does
not own a majority of the voting equity interests) are
accounted for (i) in accordance with the equity method of
accounting (which requires the Firm to recognize its
proportionate share of the entity's net earnings), or (ii) at
fair value if the fair value option was elected. These
investments are generally included in other assets, with
income or loss included in noninterest revenue.
JPMorgan Chase & Co./2021 Form 10-K
pwc
The Firm uses master netting agreements to mitigate
counterparty credit risk in certain transactions, including
derivative contracts, resale, repurchase, securities
borrowed and securities loaned agreements. A master
netting agreement is a single agreement with a
counterparty that permits multiple transactions governed
by that agreement to be terminated or accelerated and
settled through a single payment in a single currency in the
event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due). Upon the exercise of derivatives
termination rights by the non-defaulting party (i) all
transactions are terminated, (ii) all transactions are valued
and the positive values of "in the money" transactions are
netted against the negative values of "out of the money"
transactions and (iii) the only remaining payment obligation
is of one of the parties to pay the netted termination
amount. Upon exercise of default rights under repurchase
U.S. GAAP permits entities to present derivative receivables
and derivative payables with the same counterparty and the
related cash collateral receivables and payables on a net
basis on the Consolidated balance sheets when a legally
enforceable master netting agreement exists. U.S. GAAP
also permits securities sold and purchased under
repurchase agreements and securities borrowed or loaned
under securities loan agreements to be presented net when
specified conditions are met, including the existence of a
legally enforceable master netting agreement. The Firm has
elected to net such balances where it has determined that
the specified conditions are met.
Offsetting assets and liabilities
Gains and losses relating to translating functional currency
financial statements for U.S. reporting are included in the
Consolidated statements of comprehensive income. Gains
and losses relating to nonfunctional currency transactions,
including non-U.S. operations where the functional currency
is the U.S. dollar, are reported in the Consolidated
statements of income.
JPMorgan Chase revalues assets, liabilities, revenue and
expense denominated in non-U.S. currencies into U.S.
dollars using applicable exchange rates.
Foreign currency translation
The preparation of the Consolidated Financial Statements
requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
revenue and expense, and disclosures of contingent assets
and liabilities. Actual results could be different from these
estimates.
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. Changes in fair value are reported primarily in
principal transactions revenue. Refer to Notes 2 and 3 for
further discussion of fair value measurement. Refer to Note
6 for further discussion of principal transactions revenue.
Use of estimates in the preparation of consolidated
financial statements
Principal transactions revenue
Voting interest entities
166
The Firm recognizes interest income on loans, debt
securities, and other debt instruments, generally on a level-
yield basis, based on the underlying contractual rate. Refer
to Note 7 for further discussion of interest income.
Interest income
The Firm performs on-going reassessments of: (1) whether
entities previously evaluated under the majority voting-
interest framework have become VIES, based on certain
events, and are therefore subject to the VIE consolidation
framework; and (2) whether changes in the facts and
circumstances regarding the Firm's involvement with a VIE
cause the Firm's consolidation conclusion to change.
Refer to Note 14 for further discussion of the Firm's VIES.
Revenue recognition
obligation to absorb losses or the right to receive benefits
from the VIE that could potentially be significant to the VIE.
To assess whether the Firm has the power to direct the
activities of a VIE that most significantly impact the VIE'S
economic performance, the Firm considers all the facts and
circumstances, including its role in establishing the VIE and
its ongoing rights and responsibilities. This assessment
includes, first, identifying the activities that most
significantly impact the VIE's economic performance; and
second, identifying which party, if any, has power over
those activities. In general, the parties that make the most
significant decisions affecting the VIE (such as asset
managers, collateral managers, servicers, or owners of call
options or liquidation rights over the VIE's assets) or have
the right to unilaterally remove those decision-makers are
deemed to have the power to direct the activities of a VIE.
To assess whether the Firm has the obligation to absorb
losses of the VIE or the right to receive benefits from the
VIE that could potentially be significant to the VIE, the Firm
considers all of its economic interests, including debt and
equity investments, servicing fees, and derivatives or other
arrangements deemed to be variable interests in the VIE.
This assessment requires that the Firm apply judgment in
determining whether these interests, in the aggregate, are
considered potentially significant to the VIE. Factors
considered in assessing significance include: the design of
the VIE, including its capitalization structure; subordination
of interests; payment priority; relative share of interests
held across various classes within the VIE's capital
structure; and the reasons why the interests are held by the
Firm.
Notes to consolidated financial statements
165
JPMorgan Chase & Co./2021 Form 10-K
The most common type of VIE is an SPE. SPES are commonly
used in securitization transactions in order to isolate certain
assets and distribute the cash flows from those assets to
investors. The basic SPE structure involves a company
selling assets to the SPE; the SPE funds the purchase of
those assets by issuing securities to investors. The legal
documents that govern the transaction specify how the cash
earned on the assets must be allocated to the SPE'S
investors and other parties that have rights to those cash
flows. SPES are generally structured to insulate investors
from claims on the SPE's assets by creditors of other
entities, including the creditors of the seller of the assets.
The primary beneficiary of a VIE (i.e., the party that has a
controlling financial interest) is required to consolidate the
assets and liabilities of the VIE. The primary beneficiary is
the party that has both (1) the power to direct the activities
of the VIE that most significantly impact the VIE's economic
performance; and (2) through its interests in the VIE, the
VIES are entities that, by design, either (1) lack sufficient
equity to permit the entity to finance its activities without
additional subordinated financial support from other
parties, or (2) have equity investors that do not have the
ability to make significant decisions relating to the entity's
operations through voting rights, or do not have the
obligation to absorb the expected losses, or do not have the
right to receive the residual returns of the entity.
Variable interest entities
Certain Firm-sponsored asset management funds are
structured as limited partnerships or limited liability
companies. For many of these entities, the Firm is the
general partner or managing member, but the non-
affiliated partners or members have the ability to remove
the Firm as the general partner or managing member
without cause (i.e., kick-out rights), based on a simple
majority vote, or the non-affiliated partners or members
have rights to participate in important decisions.
Accordingly, the Firm does not consolidate these voting
interest entities. However, in the limited cases where the
non-managing partners or members do not have
substantive kick-out or participating rights, the Firm
evaluates the funds as VIES and consolidates the funds if
the Firm is the general partner or managing member and
has both power and a potentially significant interest.
The Firm's investment companies and asset management
funds have investments in both publicly-held and privately-
held entities, including investments in buyouts, growth
equity and venture opportunities. These investments are
accounted for under investment company guidelines and,
accordingly, irrespective of the percentage of equity
ownership interests held, are carried on the Consolidated
balance sheets at fair value, and are recorded in other
assets, with income or loss included in noninterest revenue.
If consolidated, the Firm retains the accounting under such
specialized investment company guidelines.
Revenue from contracts with customers
JPMorgan Chase recognizes noninterest revenue from
certain contracts with customers, in investment banking
fees, deposit-related fees, asset management
administration and commissions, and components of card
income, when the Firm's related performance obligations
are satisfied. Refer to Note 6 for further discussion of the
Firm's revenue from contracts with customers.
Proceeds from sales
(6,517)
(4,075)
(28,561)
4,438
1,347
31,528
(20,799)
7,773
(4,254)
Beneficial interests issued by consolidated VIES
Short-term borrowings
Federal funds purchased and securities loaned or sold under repurchase agreements
101,002
602,765
293,764
Proceeds from long-term borrowings
Deposits
Financing activities
(5,035)
(52,059)
(51,743)
62,095
23,559
(50,263)
(7,341)
(261,912)
57,675
52,200
149,758
70,181
(397,145) (242,149)
50,075
162,748
(248,785)
35,845
(91,797)
(11,044)
(129,344)
Net cash (used in) investing activities
All other investing activities, net
Other changes in loans, net
Proceeds from sales and securitizations of loans held-for-investment
Net change in:
(18,408)
82,409
1,347
78,686
(54,932) (105,055)
(1,430)
(2,575)
The Notes to Consolidated Financial Statements are an integral part of these statements.
(a) Prior-period amounts have been revised to conform with the current presentation. Refer to Note 25 for further information on revisions to operating
activities.
$ 5,142 $ 13,077 $ 29,918
18,737
8,140
6,224
$ 740,834 $ 527,609 $ 263,631
Cash income taxes paid, net (a)
Cash interest paid
Cash and due from banks and deposits with banks at the end of the period
Cash and due from banks and deposits with banks at the beginning of the period
Net increase/(decrease) in cash and due from banks and deposits with banks
Payments of long-term borrowings
Effect of exchange rate changes on cash and due from banks and deposits with banks
All other financing activities, net
Dividends paid
Treasury stock repurchased
Redemption of preferred stock
5,000
4,500
7,350
Proceeds from issuance of preferred stock
(69,610)
61,085
4,289
Net cash provided by financing activities
6,417
(8,070)
(1,507)
151,539
181,498
Other assets (included $14,753 and $13,827 at fair value and assets pledged of $5,298 and $3,739) (a)
Total assets (b)
53,428
56,691
27,109
27,070
90,503
102,570
984,525
1,061,328
Liabilities
(28,328)
1,012,853
1,077,714
Goodwill, MSRs and other intangible assets
Premises and equipment
Accrued interest and accounts receivable
Loans, net of allowance for loan losses
Allowance for loan losses
Loans (included $58,820 and $44,474 at fair value)
589,999
672,232
Investment securities, net of allowance for credit losses
(16,386)
201,821
Deposits (included $11,333 and $14,484 at fair value)
Short-term borrowings (included $20,015 and $16,893 at fair value)
Accumulated other comprehensive income
Retained earnings
Additional paid-in capital
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 3,483,750 and 3,006,250 shares)
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
281,685
3,105,403
3,449,440
301,005
17,578
10,750
231,285
262,755
Federal funds purchased and securities loaned or sold under repurchase agreements (included $126,435 and $155,735
at fair value)
170,181
215,209
45,208
194,340
53,594
$ 2,462,303 $ 2,144,257
$ 3,743,567 $ 3,384,757
Stockholders' equity
Commitments and contingencies (refer to Notes 28, 29 and 30)
Total liabilities (b)
Long-term debt (included $74,934 and $76,817 at fair value)
Beneficial interests issued by consolidated VIES (included $12 and $41 at fair value)
Accounts payable and other liabilities (included $5,651 and $3,476 at fair value) (a)
Trading liabilities
164,693
Treasury stock, at cost (1,160,784,750 and 1,055,499,435 shares)
363,707
388,178
40,264 $
$
3,076
6,417
(8,070)
Total other comprehensive income/(loss), after-tax
Comprehensive income
(965)
(491)
(293)
DVA on fair value option elected liabilities
964
35,548 $
212
Defined benefit pension and OPEB plans
172
2,320
(2,679)
30
19
(19)
20
234
(461)
2,855
922
Held-to-maturity securities, net of allowance for credit losses
39,507
JPMorgan Chase & Co./2021 Form 10-K
308,525
Available-for-sale securities (amortized cost of $308,254 and $381,729, net of allowance for credit losses; included
assets pledged of $18,268 and $32,227)
503,126
433,575
Trading assets (included assets pledged of $102,710 and $130,645)
160,635
206,071
296,284
261,698
Federal funds sold and securities purchased under resale agreements (included $252,720 and $238,015 at fair value)
Securities borrowed (included $81,463 and $52,983 at fair value)
502,735
The Notes to Consolidated Financial Statements are an integral part of these statements.
714,396
24,874
26,438 $
$
Cash and due from banks
2020
2021
Assets
December 31, (in millions, except share data)
Consolidated balance sheets
JPMorgan Chase & Co.
161
Deposits with banks
Total stockholders' equity
Total liabilities and stockholders' equity
34,838
88,522
88,394
88,415
Balance at December 31
(49)
(56)
(131)
Other
(591)
(72)
152
Retained earnings
Shares issued and commitments to issue common stock for employee share-based compensation awards, and
related tax effects
88,522
88,394
Balance at January 1
Additional paid-in capital
4,105
4,105
4,105
Balance at January 1 and December 31
Common stock
26,993
30,063
89,162
34,838
Balance at January 1
Net income
1,569
7,986
Other comprehensive income/(loss), after-tax
Balance at January 1
Accumulated other comprehensive income/(loss)
223,211
236,990
272,268
(11,119) (10,897)
(11,456)
Common stock ($3.80, $3.60 and $3.40 per share for 2021, 2020 and 2019, respectively)
Balance at December 31
Cumulative effect of change in accounting principles
(1,587)
(1,600)
Preferred stock
Dividends declared:
36,431
29,131
48,334
62
(2,650)
199,202
223,211
236,990
(1,583)
(4,075)
(1,430)
(2,575)
490
35,524
$
2,010 $
33,024
$
2020
2021
All other assets
Loans
Trading assets
Assets
December 31, (in millions)
$
162
$ 3,743,567 $ 3,384,757
279,354
(88,184)
7,986
236,990
272,268
(84)
(105,415)
294,127
88,394
88,415
4,105
4,105
30,063
(a) Prior-period amounts have been revised to conform with the current presentation. Refer to Note 25 for further information.
(b) The following table presents information on assets and liabilities related to VIEs that are consolidated by the Firm at December 31, 2021 and 2020. The
assets of the consolidated VIES are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general
credit of JPMorgan Chase. The assets and liabilities in the table below include third-party assets and liabilities of consolidated VIES and exclude
intercompany balances that eliminate in consolidation. Refer to Note 14 for a further discussion.
1,934
37,619
681
40,234
Total assets
Liabilities
5,000
4,500
7,350
30,063 $ 26,993 $ 26,068
$
2019
2020
2021
Balance at December 31
Redemption
Issuance
Balance at January 1
Preferred stock
Year ended December 31, (in millions, except per share data)
Consolidated statements of changes in stockholders' equity
JPMorgan Chase & Co.
JPMorgan Chase & Co./2021 Form 10-K
The Notes to Consolidated Financial Statements are an integral part of these statements.
17,578
233
17,811
10,750 $
245
10,995 $
$
$
Total liabilities
All other liabilities
Beneficial interests issued by consolidated VIES
(5,540)
Report of Independent Registered Public Accounting Firm
2.3
$167
Our fortress balance sheet is accompanied by a fortress
income statement. Even under extreme stress, our company
could make a profit. For example, if credit losses were
$10 billion higher or more, if we had a $10 billion operational
error or if certain asset-based revenue dropped by as much
as $10 billion, we would still be in very good shape.
There is more than $500 billion in
preferred stock, long-term debt and
common equity, an extraordinary
capital base. Equally important, the
amount of unsecured short-term
financing, the riskiest type, is
negligible.
We tend to look at this number
on a more normalized basis. For
example, charge-offs are artificially
low in this part of the cycle (a more
normal amount would be $7 billion
versus $3 billion), and we don't
consider the reserve release of
$12 billion as core or recurring profits.
If you adjust for this and add back
the $8 billion of normalized higher
net interest income¹, our normalized
pre-tax profit would be closer to
$50+ billion.
of revenue is fairly recurring and
predictable; for example, revenue
from loans, Asset Management,
Consumer Banking, Wealth
Management, Securities Services
and Payments. We've already told
our shareholders that net interest
income (excluding CIB Markets) will
be more than $8 billion higher in
2022, primarily due to higher rates.
A large portion of our $125 billion
The best way to ascertain actual
risk is by looking at Advanced risk-
weighted assets (RWA), which
total only $1.1 trillion (excluding
operational risk RWA) because so
many assets have so little risk.
This is an extraordinary
amount of consumer
and wholesale deposits.
And in terms of capital preservation, we could, if we had
These are still our riskiest assets,
but you can see how small they are
relative to the size of our balance
sheet.
10
4 Includes trading liabilities for debt and equity instruments and derivative payables.
3 Includes trading assets for debt instruments, equity and other instruments and derivative receivables.
2 Loans net of allowance for loan losses.
1 Includes $700 billion cash, $450 billion United States Treasury securities and ~$150 billion agency mortgage-backed securities; reported high quality liquid assets (HQLA) is $738
billion and represents quarterly average HQLA included in the liquidity coverage ratio. Total reported eligible HQLA excludes average excess eligible HQLA at JPMorgan Chase Bank,
N.A. that are not transferable to nonbank affiliates. Refer to liquidity coverage ratio on page 103 of the 2021 10-K for additional information.
1,251%
(182)%
These assets are cash (essentially deposits at
the Fed) and other highly marketable securities.
This is an extraordinary amount of liquidity –
approximately $700 billion is required by the
liquidity coverage ratio and will always consist
of the most conservative assets.
(71)%
to, cut the dividend to zero, saving $12 billion in a year.
Or we could reduce expenses substantially - which we could
easily achieve.
11
2017
2016
$6.1
$7.3
$7.0
$6.7
$8.6
1 Excluding CIB Markets net interest income.
$9.7
62.3
72.1
82.4
90.4
102.4
($ in trillions and # in millions, respectively)
Daily Payment Processing and Merchant Acquiring Transactions
55.1
2018
64%
3
4%
0.5
76%
1.0
443%
$ 1.7
Change since
2008
3.7
2021
Reserve build/(release)
Net charge-offs
Noninterest expense
Expenses, credit costs and pre-tax profit
Total net revenue
Net interest income
Noninterest income
Pre-tax profit
(12)
$ 63
108%
0.2
71
72%
125
14%
53
174%
$ 73
199%
Change since
2008
108%
$ 3.7
94%
0.3
16%
0.3
10%
2021
2019
■Daily payment processing¹ ($T)
■Daily merchant acquiring transactions (M)
JPM
57%
JPM
24%
GS
54%
GS
23%
ROTCE
JPMorgan Chase compared with large peers5
12
47%
MS-WM & IM
48%
UBS-GWM & MS-IM
CS-PB & TROW
Management
33%
Overhead ratio6
59%
BAC
MS
For footnoted information, refer to page 47 in this Annual Report.
G-SIB Global Systemically Important Banks
ROTCE Return on tangible common equity
13%
C
67%
WFC
67%
14%
67%
MS
17%
BAC
67%
с
20%
WFC
64%
Asset & Wealth
15%
WFC-CB
51%
COF-DC & CB
Community
58%
Consumer &
Best-in-class
G-SIB ROTCE 3,4
Best-in-class all
banks ROTCE², 4
JPM 2021
ROTCE
41%
Best-in-class peer
overhead ratio¹
JPM 2021
Returns
Efficiency
JPMorgan Chase Is in Line with Best-in-Class Peers in Both Efficiency and Returns
2021
2020
1 Based on Firmwide data using regulatory reporting guidelines as prescribed by the Federal Reserve Board.
overhead ratio
31%
BAC-CB
31%
BAC-CB
20%
Key
PNC
Banking
21%
42%
40%
Commercial
Bank
26%
GS-IB & GM
26%
GS-IB & GM
GS-IB & GM
Investment
25%
53%
49%
Corporate &
Banking
Revenue
Within this letter, I discuss the following:
($ in billions)
Income statement
1 Government, government-related and nonprofits available for 2019-2021 only; included in Corporate clients and Small Business, Middle Market
and Commercial clients for prior years.
Corporate clients Small Business, Middle Market and Commercial clients
Government, government-related and nonprofits¹
New and Renewed Credit and Capital for Our Clients
2008-2021
($ in billions)
$3,186
Assets Entrusted to us by Our Clients
$288
$2,496
$2,357
$2,307 $227
$2,345
$2,263
$2,144
$265
$331
$641
at December 31,
$1,148
$618
$503
$3,255
$844
$660 $679
$3,633
$3,617
$6,950
$3,802
($ in billions)
$4,227 $4,211 $718 $1,186
Deposits and client assets¹
$4,820
$1,314
$959
$5,926
$3,740
$464
$2,102
$333
$1,264
$1,088
$1,115 $1,158
$1,294 $1,346
2008
2009
2010
$1,443
2011
2013
2014
2015
2016
2017
2018
2019
2012
$258
$1,392
$1,619
$2,044
$244
$197
$480
$274
$1,567
$1,577
$1,519
$252 $230 $300 $326 327 3309 543052625226
5312 $243 525252528151.926
$167
Consumers
$136
$1,789
$1,693
$1,621
$368
$558
$3,011
$4,488
2017
2016
2015
2014
2013
2012
2011
2018
2010
2008
$13.2
$16.1 $16.9
$14.9
$19.9 $20.5
$18.8
$20.5 $20.5
2009
$23.5 $23.2
2019
2021
Total liabilities and equity
Common equity
Preferred stock and long-term debt
Trading liabilities4
Deposits
Liabilities and equity
Total assets
2020
Trading assets³
Liquid assets¹
Assets
(average, $ in trillions)
Selected data, for the year ended December 31,
Fortress balance sheet
9
1 Represents assets under management, as well as custody, brokerage, administration and deposit accounts.
2 Represents activities associated with the safekeeping and servicing of assets.
Loans²
$26.8
$31.0
($ in trillions)
$3,258
$730
$558
$361
$755
$365
$3,781
$573
$757
$722
$2,424
$824 $861
$398
$2,681
$784 $792
$439
$2,811
$372
$648
$2,783 $2,740
$2,427
Assets under custody²
$33.2
2021
2020
2019
2018
2017
2016
2015
2014
2009
2011
Client assets Wholesale deposits Consumer deposits
2013
2012
2010
2008
$1.415 $1.743 $1.81 $1883 52061▬▬▬▬▬▬▬
$2,329 $2,376 $2,353
Selected data, for the year ended December 31,
SIGNIFICANT GEOPOLITICAL AND ECONOMIC CHALLENGES
Page 15
The U.S. economy is strong.
•
Drive high performance, the right way.
Page 45
•
Retaining talent is important and so is life outside of work.
Page 46
Significant Geopolitical and
Economic Challenges
America and the rest of the world are facing the
confluence of three important and conflicting
forces: 1) a strong U.S. economy, which, we hope,
has COVID-19 in its rearview mirror; 2) high
inflation, which means rising interest rates and,
importantly, the reversal of quantitative easing
(QE); and 3) the war in Ukraine and the accompa-
nying humanitarian crisis, with its impact on the
global economy in the short term, as well as its
significant impact on the geopolitics of the future.
These factors will likely have a meaningful effect
on the economy over the next few years and on
geopolitics for the next several decades.
I should remind the reader that we normally don't
worry about - or even try to predict - normal fluc-
tuations of the economy. In all times, we are pre-
pared for difficult markets and severe recessions,
as well as for unpredictable events, not only so we
will survive them but also so we can be there for
our clients when they need us the most. However,
sometimes there are powerful underlying struc-
tural trends that we must try to understand since
their impact can be so large, with widespread
impact on many parts of human existence.
THE U.S. ECONOMY IS STRONG.
In 2020 and 2021, enormous QE - approximately
$4.4 trillion, or 18%, of 2021 gross domestic
product (GDP) and enormous fiscal stimulus
(which has been and always will be inflationary)
- approximately $5 trillion, or 21%, of 2021 GDP
- stabilized markets and allowed companies to
raise enormous amounts of capital. In addition,
this infusion of capital saved many small busi-
nesses and put more than $2.5 trillion in the
hands of consumers and almost $1 trillion into
state and local coffers. These actions led to a
rapid decline in unemployment, dropping from
15% to under 4% in 20 months the magnitude
and speed of which were both unprecedented.
Additionally, the economy grew 7% in 2021
despite the arrival of the Delta and Omicron vari-
-
ants and the global supply chain shortages, which
were largely fueled by the dramatic upswing in
consumer spending and the shift in that spend
from services to goods. Fortunately, during these
two years, vaccines for COVID-19 were also rap-
idly developed and distributed.
In today's economy, the consumer is in excellent
financial shape (on average), with leverage
among the lowest on record, excellent mortgage
underwriting (even though we've had home price
appreciation), plentiful jobs with wage increases
and more than $2 trillion in excess savings,
mostly due to government stimulus. Most con-
sumers and companies (and states) are still flush
with the money generated in 2020 and 2021, with
consumer spending over the last several months
12% above pre-COVID-19 levels. (But we must rec-
ognize that the account balances in lower-income
households, smaller to begin with, are going
down faster and that income for those house-
holds is not keeping pace with rising inflation.)
-
Page 45
Combat the enemy within.
•
Page 45
Morgan Health is helping us lead in healthcare transformation.
Page 41
We continue to support data-driven policymaking through the JPMorgan Chase
PolicyCenter and Institute.
Page 41
We join other companies in evolving our vision of the workplace.
Page 42
MANAGEMENT LESSON: THE BENEFIT OF PURPOSE AND THE TREMENDOUS
Today's economic landscape is completely differ-
ent from the 2008 financial crisis when the con-
sumer was extraordinarily overleveraged, as was
the financial system as a whole from banks and
investment banks to shadow banks, hedge funds,
private equity, Fannie Mae and many other enti-
ties. In addition, home price appreciation, fed by
bad underwriting and leverage in the mortgage
system, led to excessive speculation, which was
missed by virtually everyone - eventually leading
to nearly $1 trillion in actual losses.
VALUE OF WORK
Perfect your Picasso – have something to strive for and motivate you.
Page 44
•
Recognize the tremendous value of work.
Page 44
.
Nurture the extraordinary value of trust.
Page 44
•
During 2020 and 2021, many aberrant things also
happened: 2 million people retired early; the sup-
ply of immigrant workers dropped by 1 million
due to immigration policies; available jobs sky-
rocketed to 11 million (again unprecedented); and
job seekers dropped to 5 million. Wage growth
accelerated dramatically, particularly in low-
income jobs. We should not be unhappy that
wages are going up - and that workers have
15
THE CONFLUENCE OF THESE FACTORS
MAY BE UNPRECEDENTED.
Each of these three factors mentioned above is
unique in its own right: The dramatic stimulus-
fueled recovery from the COVID-19 pandemic,
the likely need for rapidly raising rates and the
required reversal of QE, and the war in Ukraine
and the sanctions on Russia. They present com-
pletely different circumstances than what we've
experienced in the past - and their confluence
may dramatically increase the risks ahead.
SIGNIFICANT GEOPOLITICAL AND ECONOMIC CHALLENGES
17
While it is possible, and hopeful, that all of these
events will have peaceful resolutions, we should
prepare for the potential negative outcomes.
In the next section, I discuss immediate actions
we should take to protect us from potential seri-
ous problems.
THE WAR COULD AFFECT GEOPOLITICS
FOR DECADES.
Russian aggression is having another dramatic
and important result: It is coalescing the demo-
cratic, Western world - across Europe and the
North Atlantic Treaty Organization (NATO) coun-
tries to Australia, Japan and Korea. The United
States and the West realize there is no replace-
ment for strong allies and strong militaries.
The war and prior trade disputes with China also
highlight the critical importance of economic
relationships and trade, particularly trade that
involves anything affecting national security. The
outcome of these two issues will transcend Russia
and likely will affect geopolitics for decades,
potentially leading to both a realignment of alli-
ances and a restructuring of global trade. How
the West comports itself, and whether the West
can maintain its unity, will likely determine the
future global order and shape America's (and its
allies') important relationship with China, which
I talk more about later in this letter.
HOW ARE WE MANAGING OUR GLOBAL
BANK IN THESE DIFFICULT MARKETS AND
COMPLEX TIMES?
Our hearts go out to all of those affected by the
war - JPMorgan Chase and its employees have
already donated over $5 million to the Ukrainian
humanitarian crisis, with more to come.
JPMorgan Chase has also played its part in the
implementation of the Western world's policies
and sanctions regarding Russia. Of course, we are
following both the letter of the law and the spirit
of all the American and allied sanctions, working
hand in hand with governments to implement
complex policies and directives, and then some.
Managing this has been an enormous undertak-
ing. It is completely different from navigating a
financial crisis or a severe recession. This entails
sanctioning individuals, including their ownership
of assets and companies; reducing exposures
across multiple products and services; analyzing
and stopping billions of dollars of payments as
directed by governments; and many other actions.
We are not worried about our direct exposure to
Russia, though we could still lose about $1 billion
over time. But we are actively monitoring the
impact of ongoing sanctions and Russia's
response, concerned as well about their second-
ary and collateral effects on so many companies
and countries. We have been steadfast in our
operating principles to be prepared for the
unpredictable. Rest assured that our manage-
ment teams, hundreds of us, globally, have been
working around the clock to do the right thing.
18
SIGNIFICANT GEOPOLITICAL AND ECONOMIC CHALLENGES
2020
Many more sanctions could be added - which
could dramatically, and unpredictably, increase
their effect. Along with the unpredictability of
war itself and the uncertainty surrounding global
commodity supply chains, this makes for a poten-
tially explosive situation. I speak later about the
precarious nature of the global energy supply,
but for now, simply, that supply is easy to disrupt.
(We should also keep in mind that, as a percent-
age of global GDP, oil is only about 40% of what it
was in 1973 - but it is still essential and critical.)
As I write this letter, the war in Ukraine has been
raging for well over a month and is creating a sig-
nificant refugee crisis. We do not know what its
outcome ultimately will be, but the hostilities in
Ukraine and the sanctions on Russia are already
having a substantial economic impact. They have
roiled global oil, commodity and agricultural mar-
kets. We expect the fallout from the war and
resulting sanctions to reduce Russia's GDP by
12.5% by midyear (a decline worse than the 10%
drop after the 1998 default). Our economists cur-
rently think that the euro area, highly dependent
on Russia for oil and gas, will see GDP growth of
roughly 2% in 2022, instead of the elevated 4.5%
pace we had expected just six weeks ago. By con-
trast, they expect the U.S. economy to advance
roughly 2.5% versus a previously estimated 3%.
But I caution that these estimates are based upon
a fairly static view of the war in Ukraine and the
sanctions now in place.
-
The effects of geopolitics on the economy are
harder to predict. For as much attention as it
gets, geopolitics over the past 50 years have
rarely disrupted the global economy in the short
run (think Afghanistan; Iraq; Korea; Vietnam; con-
flicts between Pakistan and India, India and
China, China and Vietnam, Russia and China; and
at least 10 other upheavals and wars in the Mid-
dle East). The 1973 Organization of the Petroleum
Exporting Countries, or OPEC, oil embargo was an
exception, when the sharp jump in oil prices
pushed the world into a global recession. How-
ever, it's important to point out that while past
geopolitical events often did not have short-term
economic effects, they frequently had large,
longer-term consequences such as America's
experience with the Vietnam War, which drove
the great inflation of the 1970s and 1980s and
tore the body politic apart.
more choices and are making different decisions
- in spite of the fact that this causes some diffi-
culties for business. House prices surged during
the pandemic (housing became and still is in
extremely short supply), and asset prices
remained high, some, in my view, in bubble terri-
tory. Inflation soared to 7%; while clearly some of
this rise is transitory due to supply chain short-
ages, some is not, because higher wages, higher
housing costs, and higher energy and commodity
prices will persist (more to come on this later).
All these factors will continue in 2022, driving
further growth as well as continued inflation. One
additional point: Consumer confidence and con-
sumer spending have diverged dramatically, with
consumer confidence dropping. Spending, how-
ever, is more important, and the drop in con-
sumer confidence may be in reaction to ongoing
fatigue from the pandemic shutdown and con-
cerns over high inflation.
PERSISTENT INFLATION WILL REQUIRE
RISING INTEREST RATES AND A MASSIVE
BUT NECESSARY SHIFT FROM
QUANTITATIVE EASING TO QUANTITATIVE
TIGHTENING.
It is easy to second-guess complex decisions after
the fact. The Federal Reserve (the Fed) and the
government did the right thing by taking bold
dramatic actions following the misfortune
unleashed by the pandemic. In hindsight, it
worked. But also in hindsight, the medicine (fiscal
spending and QE) was probably too much and
lasted too long.
I do not envy the Fed for what it must do next:
The stronger the recovery, the higher the rates
that follow (I believe that this could be signifi-
cantly higher than the markets expect) and the
stronger the quantitative tightening (QT). If the
Fed gets it just right, we can have years of
growth, and inflation will eventually start to
recede. In any event, this process will cause lots
of consternation and very volatile markets. The
Fed should not worry about volatile markets
unless they affect the actual economy. A strong
economy trumps market volatility.
This is in no way traditional Fed tightening - and
there are no models that can even remotely give
us the answers. I have always been critical of
people's excessive reliance on models - since
they don't capture major catalysts, such as cul-
ture, character and technological advances. And
in our current situation, the Fed needs to deal
with things it has never dealt with before (and
are impossible to model), including supply chain
issues, sanctions, war and a reversal of QE in the
face of unparalleled inflation. Obviously, the Fed
always needs to be data-dependent, and this is
true today more than ever before. However, the
data will likely continue to be inconsistent and
volatile and hard to read. The Fed should strive
for consistency but not when it's impossible
to achieve.
SIGNIFICANT GEOPOLITICAL AND ECONOMIC CHALLENGES
-
The shift from QE to QT will cause a massive
change in the flow of funds in and out of Treasury
bonds and, therefore, all securities. Our situation
today is completely unlike the monetary policy
adjustments following the great financial crisis of
2008. When central banks were buying bonds
from 2008 to 2014, there was a tremendous
amount of deleveraging in the rest of the finan-
cial world. Clearly, this deleveraging slowed
growth, which in turn reduced the need for busi-
ness investment. In addition, banks were required
to buy Treasuries to meet their new liquidity
requirements. This action reduced both lending
and the money supply in the years after the great
financial crisis. Low growth also led to less capital
needed, and QE added to the savings glut. I am
16
SIGNIFICANT GEOPOLITICAL AND ECONOMIC CHALLENGES
still convinced that these are some of the primary
reasons our economy experienced low growth
and so-called "secular stagnation."
In today's economic environment, countries' cen-
tral banks do not need to increase their foreign
exchange reserves as they did after the great
financial crisis, and banks don't need to buy Trea-
suries to improve their liquidity ratios. This time
around, business investment will likely be higher,
both because of higher growth and because the
capital required to combat climate change is esti-
mated to be more than $4 trillion annually.
Finally, governments will also need to borrow
more money - not less.
This massive change in the flow of funds trig-
gered by Fed tightening is certain to have market
and economic effects that will be studied for
decades to come. Our bank is prepared for drasti-
cally higher rates and more volatile markets.
THE WAR IN UKRAINE AND THE
SANCTIONS ON RUSSIA, AT A MINIMUM,
WILL SLOW THE GLOBAL ECONOMY - AND
IT COULD EASILY GET WORSE.
One thing the Fed should do, and seems to have
done, is to exempt themselves - give themselves
ultimate flexibility - from the pattern of raising
rates by only 25 basis points and doing so on a
regular schedule. And while they may announce
how they intend to reduce the Fed balance sheet,
they should be free to change this plan on a
moment's notice in order to deal with actual
events in the economy and the markets. A Fed
that reacts strongly to data and events in real
time will ultimately create more confidence. In
any case, rates will need to go up substantially.
The Fed has a hard job to do so let's all wish them
the best.
Page 38
2021
Page 37
•
Government, with its unique powers, has an essential role in managing the economy
- but it needs to be realistic about its limitations on what it can and cannot do.
Page 21
We must confront the Russia challenge with bold solutions.
Page 22
•
A strong America need not fear a rising China.
Page 23
•
There are compelling reasons for global trade restructuring.
Page 24
•
We can have a path forward for U.S. policy: Agree on what we want, then execute.
Page 24
COMPETITIVE THREAT REDUX
Page 20
To maintain our competitiveness, our country must regain its competence – and our
principles, including free enterprise, need to be nurtured.
Page 19
While America has flaws, its essential strengths endure.
Progress continues in our diversity, equity and inclusion efforts.
Page 15
⚫ Persistent inflation will require rising interest rates and a massive but necessary
shift from quantitative easing to quantitative tightening.
Page 16
• The war in Ukraine and the sanctions on Russia, at a minimum, will slow the global
economy - and it could easily get worse.
Page 17
•
•
The confluence of these factors may be unprecedented.
• The war could affect geopolitics for decades.
Page 18
•
How are we managing our global bank in these difficult markets and complex times?
Page 18
THE EXTRAORDINARY NEED FOR STRONG AMERICAN LEADERSHIP
Page 19
Page 17
Banks performed magnificently during the COVID-19 crisis.
•
The role of banks in the global financial system is diminishing.
Page 33
Some investments generate predictable returns.
Page 33
Acquisitions should pay for themselves – and each one has its own logic.
Page 34
•
Page 34
INVESTMENTS AND ACQUISITIONS: DETERMINING THE BEST USE OF CAPITAL
AND ASSESSING ROIS
We make extensive investments in technology for a broad range of reasons, from
improving operations and security to enhancing our products and services.
UPDATES ON SPECIFIC ISSUES FACING OUR COMPANY
We are vigilant against cyber attacks.
Page 37
Page 37
Our commitment to sustainability is informed by energy realities.
•
•
Page 34
14
We want to build upon our global footprint.
13
Page 26
Page 26
•
Possibly more important: The role of public companies in the global financial
system is also diminishing.
Page 29
•
More regulation is coming – 10 years after the crisis, we are still rolling out Basel IV
- and we need more thoughtful calibration of the rules.
Page 28
•
How should we address our G-SIB conundrum?
Page 32
•
Banks need to acknowledge the dramatically changing competitive landscape.
Page 30
Page 32
Long-term debt
page 266
Note 18
Leases
page 265
Note 16
Premises and equipment
page 261
page 253
Goodwill and Mortgage servicing rights
Note 14
Variable interest entities
page 248
page 229
Note 13
Allowance for credit losses
Note 15
Note 20
JPMorgan Chase & Co./2021 Form 10-K
Earnings per share
Note 12
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability an orderly
transaction between market participants at the
measurement date. Fair value is based on quoted market
prices or inputs, where available. If prices or quotes are not
available, fair value is based on valuation models and other
valuation techniques that consider relevant transaction
characteristics (such as maturity) and use, as inputs,
observable or unobservable market parameters, including
yield curves, interest rates, volatilities, prices (such as
commodity, equity or debt prices), correlations, foreign
exchange rates and credit curves. Valuation adjustments
may be made to ensure that financial instruments are
recorded at fair value, as described below.
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. These assets and liabilities are predominantly
carried at fair value on a recurring basis (i.e., assets and
liabilities that are measured and reported at fair value on
the Firm's Consolidated balance sheets). Certain assets,
liabilities and unfunded lending-related commitments are
measured at fair value on a nonrecurring basis; that is, they
are not measured at fair value on an ongoing basis but are
subject to fair value adjustments only in certain
circumstances (for example, when there is evidence of
impairment).
Note 2 - Fair value measurement
168
page 290
Note 30
page 283
page 269
Note 28
commitments
instruments, guarantees and other
Off-balance sheet lending-related financial
page 277
Note 25
Income taxes
page 274
Note 23
Litigation
Loans
Financial Instruments - Credit Losses ("CECL")
The adoption of this guidance established a single
allowance framework for all financial assets measured at
amortized cost and certain off-balance sheet credit
exposures. This framework requires that management's
estimate reflects credit losses over the instrument's
remaining expected life and considers expected future
changes in macroeconomic conditions. Prior to the adoption
of the CECL accounting guidance, the Firm's allowance for
credit losses represented management's estimate of
probable credit losses inherent in the Firm's retained loan
portfolios and certain lending-related commitments. The
adoption of CECL on January 1, 2020, resulted in a $2.7
billion decrease to retained earnings.
Note 11
Note 3
Fair value option
page 169
Note 2
Fair value measurement
a detailed description of each policy can be found.
The following table identifies JPMorgan Chase's other
significant accounting policies and the Note and page where
Significant accounting policies
Notes to consolidated financial statements
167
JPMorgan Chase & Co./2021 Form 10-K
The level of precision in estimating unobservable market
inputs or other factors can affect the amount of gain or loss
recorded for a particular position. Furthermore, while the
Firm believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
Accounting standard adopted January 1, 2020
For JPMorgan Chase's Consolidated statements of cash
flows, cash is defined as those amounts included in cash
and due from banks and deposits with banks on the
Consolidated balance sheets.
Typical master netting agreements for these types of
transactions also often contain a collateral/margin
agreement that provides for a security interest in, or title
transfer of, securities or cash collateral/margin to the party
that has the right to demand margin (the “demanding
party"). The collateral/margin agreement typically requires
a party to transfer collateral/margin to the demanding
party with a value equal to the amount of the margin deficit
on a net basis across all transactions governed by the
master netting agreement, less any threshold. The
collateral/margin agreement grants to the demanding
party, upon default by the counterparty, the right to set-off
any amounts payable by the counterparty against any
posted collateral or the cash equivalent of any posted
collateral/margin. It also grants to the demanding party the
right to liquidate collateral/margin and to apply the
proceeds to an amount payable by the counterparty.
Refer to Note 5 for further discussion of the Firm's
derivative instruments. Refer to Note 11 for further
discussion of the Firm's securities financing agreements.
Statements of cash flows
agreements and securities loan agreements in general (i)
all transactions are terminated and accelerated, (ii) all
values of securities or cash held or to be delivered are
calculated, and all such sums are netted against each other
and (iii) the only remaining payment obligation is of one of
the parties to pay the netted termination amount.
JPMorgan Chase & Co./2021 Form 10-K
page 190
Derivative instruments
Note 5
page 196
Securities financing activities
page 220
Note 10
Investment securities
page 218
Note 9
Employee share-based incentives
page 215
page 226
Note 8
Pension and other postretirement
page 214
Note 7
Interest income and Interest expense
page 211
Note 6
expense
Noninterest revenue and noninterest
employee benefit plans
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of different
methodologies or assumptions by other market participants
compared with those used by the Firm could result in the
Firm deriving a different estimate of fair value at the
reporting date.
•
Risk-taking functions are responsible for providing fair
value estimates for assets and liabilities carried on the
Consolidated balance sheets at fair value. The Firm's
Valuation Control Group ("VCG"), which is part of the Firm's
Finance function and independent of the risk-taking
functions, is responsible for verifying these estimates and
determining any fair value adjustments that may be
required to ensure that the Firm's positions are recorded at
fair value. In addition, the Firm's Valuation Governance
Forum ("VGF"), which is composed of senior finance and
risk executives, is responsible for overseeing the
management of risks arising from valuation activities
conducted across the Firm. The Firmwide VGF is chaired by
the Firmwide head of the VCG (under the direction of the
Firm's Controller), and includes sub-forums covering the
In the absence of quoted market prices, securities are valued based
on:
Level 1
Quoted market prices
portfolio composition, and liquidity.
Investment and trading
securities
sold
Loans carried at fair value -
conforming residential
mortgage loans expected to be value of the underlying loans, which include credit characteristics,
Fair value is based on observable market prices for mortgage-backed Predominantly level 2
securities with similar collateral and incorporates adjustments to
these prices to account for differences between the securities and the
• Collateral characteristics
Prepayment speed
curves developed by the Firm, by industry and credit rating
•
• Credit spreads derived from the cost of CDS; or benchmark credit
based on discounted cash flows, which consider the following:
Where observable market data is unavailable or limited, valuations are
Loans - consumer
Observed market prices for similar instruments
Level 2 or 3
•
•
Relevant broker quotes
•
• Credit spreads
Expected prepayment speed, conditional default rates, loss
severity
•
Deal-specific payment and loss allocations
•
Collateral characteristics
•
conditional default rates and loss severity
Current market assumptions related to yield, prepayment speed,
• Deal-specific payment and loss allocations
•
⚫ Collateral characteristics
Mortgage- and asset-backed securities specific inputs:
the following products:
In addition, the following inputs to discounted cash flows are used for
• Discounted cash flows
Observable market prices for similar securities
Relevant broker quotes
• Observed market prices (circumstances are infrequent)
Loans carried at fair value
(trading loans and non-trading
loans) and associated
lending-related commitments
Fair value hierarchy
Under the Firm's Estimations and Model Risk Management
Policy, the MRGR reviews and approves new models, as well
as material changes to existing models, prior to
implementation in the operating environment. In certain
circumstances exceptions may be granted to the Firm's
policy to allow a model to be used prior to review or
approval. The MRGR may also require the user to take
appropriate actions to mitigate the model risk if it is to be
used in the interim. These actions will depend on the model
and may include, for example, limitation of trading activity.
If prices or quotes are not available for an instrument or a
similar instrument, fair value is generally determined using
valuation models that consider relevant transaction terms
such as maturity and use as inputs market-based or
independently sourced parameters. Where this is the case
the price verification process described above is applied to
the inputs in those models.
Valuation model review and approval
Where appropriate, the Firm also applies adjustments to
its estimates of fair value in order to appropriately
reflect counterparty credit quality (CVA), the Firm's own
creditworthiness (DVA) and the impact of funding (FVA),
using a consistent framework across the Firm. Refer to
Credit and funding adjustments on page 186 of this Note
for more information on such adjustments.
using prices or input parameters to valuation models
that are unobservable due to a lack of market activity or
because they cannot be implied from observable market
data. Such prices or parameters must be estimated and
are, therefore, subject to management judgment.
Adjustments are made to reflect the uncertainty
inherent in the resulting valuation estimate.
Notes to consolidated financial statements
169
JPMorgan Chase & Co./2021 Form 10-K
Uncertainty adjustments related to unobservable
parameters may be made when positions are valued
The Firm manages certain portfolios of financial
instruments on the basis of net open risk exposure and,
as permitted by U.S. GAAP, has elected to estimate the
fair value of such portfolios on the basis of a transfer of
the entire net open risk position in an orderly
transaction. Where this is the case, valuation
adjustments may be necessary to reflect the cost of
exiting a larger-than-normal market-size net open risk
position. Where applied, such adjustments are based on
factors that a relevant market participant would
consider in the transfer of the net open risk position,
including the size of the adverse market move that is
likely to occur during the period required to reduce the
net open risk position to a normal market-size.
Liquidity valuation adjustments are considered where an
observable external price or valuation parameter exists
but is of lower reliability, potentially due to lower
market activity. Liquidity valuation adjustments are
made based on current market conditions. Factors that
may be considered in determining the liquidity
adjustment include analysis of: (1) the estimated bid-
offer spread for the instrument being traded; (2)
alternative pricing points for similar instruments in
active markets; and (3) the range of reasonable values
that the price or parameter could take.
•
The VCG determines any valuation adjustments that may be
required to the estimates provided by the risk-taking
functions. No adjustments to quoted prices are applied for
instruments classified within level 1 of the fair value
hierarchy (refer to the discussion below for further
information on the fair value hierarchy). For other
positions, judgment is required to assess the need for
valuation adjustments to appropriately reflect liquidity
considerations, unobservable parameters, and, for certain
portfolios that meet specified criteria, the size of the net
open risk position. The determination of such adjustments
follows a consistent framework across the Firm:
The VCG verifies fair value estimates provided by the risk-
taking functions by leveraging independently derived
prices, valuation inputs and other market data, where
available. Where independent prices or inputs are not
available, the VCG performs additional review to ensure the
reasonableness of the estimates. The additional review may
include evaluating the limited market activity including
client unwinds, benchmarking valuation inputs to those
used for similar instruments, decomposing the valuation of
structured instruments into individual components,
comparing expected to actual cash flows, reviewing profit
and loss trends, and reviewing trends in collateral
valuation. There are also additional levels of management
review for more significant or complex positions.
Price verification process
CIB, CCB, CB, AWM and certain corporate functions including
Treasury and CIO.
A three-level fair value hierarchy has been established
under U.S. GAAP for disclosure of fair value measurements.
The fair value hierarchy is based on the observability of
inputs to the valuation of an asset or liability as of the
measurement date. The three levels are defined as follows.
Level 1 - inputs to the valuation methodology are
quoted prices (unadjusted) for identical assets or
liabilities in active markets.
Level 2 - inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument.
Level 3 - one or more inputs to the valuation
Loans and lending-related
commitments - wholesale
Level 2 or 3
Where observable market data is available, valuations are based on:
Collateral characteristics
Predominantly level 2
Classifications in the fair value
hierarchy
• Market rates for the respective maturity
Derivative features: refer to the discussion of derivatives below
for further information.
Valuation process
•
Valuation methodology
Securities financing agreements
Product/instrument
The following table describes the valuation methodologies generally used by the Firm to measure its significant products/
instruments at fair value, including the general classification of such instruments pursuant to the fair value hierarchy.
JPMorgan Chase & Co./2021 Form 10-K
170
A financial instrument's categorization within the fair value
hierarchy is based on the lowest level of input that is
significant to the fair value measurement.
methodology are unobservable and significant to the fair
value measurement.
Valuations are based on discounted cash flows, which consider:
Collateralized loan obligations ("CLOS") specific inputs:
58,820
Credit rating data
10,291
883,791
236,916
75,444
(627,924)
7,668
(627,924)
693,236
6,771
(14,732)
231
21,272
16,487
(54,125)
2,464
3,519
503,074
Available-for-sale securities:
Loans (e)
Other
Total available-for-sale securities
Collateralized loan obligations
Asset-backed securities:
Corporate debt securities
Total trading assets
Non-U.S. government debt securities
U.S. Treasury and government agencies
Total mortgage-backed securities
Commercial nonagency
Residential - nonagency
U.S. GSES and government agencies (a)(g)
Mortgage-backed securities:
Obligations of U.S. states and municipalities
67,093
(g)
15,781
234,452
11,571
5,189
100,163
(g)
476
21,351
190,555
2,652
2,098
161,363
131,035
97,035
6,382
2,332
28
2,304
294,496
(g)
(g)
49
(190,479)
987
680
(12,665)
624
12,721
205,127
146
35,725
(355,923)
2,307
387,023
2,318
427,630
2,623
21,400
7
113,294
10,233
2,856
Trading liabilities:
16,893
2,420
155,735
14,484
$
Debt and equity instruments(c)
$
$
1,243,209
$
(627,924)
$
16,410
2,913
Derivative payables:
Interest rate
(g)
99,558
51
16,838
82,669
Total liabilities measured at fair value on a recurring basis
Long-term debt
Beneficial interests issued by consolidated VIES
Accounts payable and other liabilities
Total trading liabilities
Total derivative payables
Commodity
Equity
Foreign exchange
(g)
Credit
$
6,994
13,209
4,561
1,394,604
11,571
155,735
14,473
22,928
20,396
201,951
126,390
2,856
10,233
216
113,301
9,793
13,135
20,396
201,951
126,383
7
216
10,048
215,093
6,249
173,085
42,169
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
8,110
460,119 $
$
$
Deposits
$
Total assets measured at fair value on a recurring basis
Other assets (d)
3,276
3,276
Mortgage servicing rights
44,474
2,305
388,178
6,249
10,048
538
893
6,101
21,524
Accounts payable and other liabilities
9,712
(18,216)
1,328
26,600
17,233
1,104
88,935
5,115
(62,494)
72,609
14,097
880
8,194
(232,537)
(10,032)
(161,649)
1,274
7,118
521,740
12,200
548,456
74,934
24,374
41,471
$
50,560
752,480
94,050 $
$
Total liabilities measured at fair value on a recurring basis
Long-term debt
12
164,693
5,651
50,116
(484,928)
(484,928)
12,230
69
467
12
Beneficial interests issued by consolidated VIES
174,349
$
123
10,468
$
2,317
$
$
17,479
$
(488,206) $
$
14,003
4,139
1,243,845
9,016
126,435
17,534
9,558
381,431 $
$
$
$
5,494
5,494
306
1,154,549
11,333
2,481
126,435
20,015
2,036
237,714
981
Total trading liabilities
Total derivative payables
Commodity
Equity
Foreign exchange
Credit
Interest rate
Derivative payables:
114,577
30
26,716
87,831
444
2,496
(484,928) $
174
1,327
2,166
28
2,138
68,844
449
3
68,395
Total fair value
238,015
Total derivative receivables
Commodity
Foreign exchange
Equity
(g)
Credit (g)
52,983
1,330
71,860
480
507
21,017
67,625
182
40,671
1,230
1,230
7,192
8
7,184
NII
115,259
10,996
104,263
72,340
Interest rate
403,073
Derivative receivables:
Other
Level 2
Level 1
Fair value hierarchy
Total mortgage-backed securities
Commercial nonagency
Residential - nonagency
Level 3
U.S. GSES and government agencies (a)
Debt instruments:
Trading assets:
Securities borrowed
Federal funds sold and securities purchased under resale agreements
December 31, 2020 (in millions)
JPMorgan Chase & Co./2021 Form 10-K
Mortgage-backed securities:
Derivative
netting
adjustments(f)
$
$
Physical commodities (b)
Equity securities
Total debt instruments
Asset-backed securities
Loans
Corporate debt securities
26,772
Non-U.S. government debt securities
Certificates of deposit, bankers' acceptances and commercial paper
Obligations of U.S. states and municipalities
U.S. Treasury, GSES and government agencies (a)
$
$
$
238,015
52,983
Total debt and equity instruments
349,442
2,049
(340,975)
Residential nonagency
38,944
265
39,209
2,358
28
U.S. GSES and government agencies (a)
2,386
1,506
10
1,516
Total mortgage-backed securities
42,808
303
Commercial nonagency
Mortgage-backed securities:
Debt instruments:
Trading assets:
Assets and liabilities measured at fair value on a recurring basis
Fair value hierarchy
December 31, 2021 (in millions)
Level 1
Federal funds sold and securities purchased under resale agreements
$
$
Securities borrowed
Level 2
252,720
81,463
Level 3
Derivative
netting
adjustments(f)
$
$
$
Total fair value
252,720
81,463
43,111
The following table presents the assets and liabilities reported at fair value as of December 31, 2021 and 2020, by major
product category and fair value hierarchy.
U.S. Treasury, GSES and government agencies (a)
9,181
7,366
708
8,074
Asset-backed securities
2,668
26
Loans
2,694
Equity securities
Physical commodities (b)
Other
Total debt and equity instruments(c)
Derivative receivables:
Interest rate
Total debt instruments
24,823
332
24,491
-
77,708
Obligations of U.S. states and municipalities
7,068
7
7,075
Certificates of deposit, bankers' acceptances and commercial paper
852
852
Non-U.S. government debt securities
26,982
44,581
81
71,644
Corporate debt securities
68,527
Credit
Notes to consolidated financial statements
173
.
Interest rate spread volatility
• Interest rate correlation
•
Interest rate-FX correlation
Foreign exchange correlation
Private equity direct
investments
• Interest rate curve
• Credit correlation between the underlying debt instruments
• CDS spreads and recovery rates
Equity option specific inputs include:
• Forward equity price
Equity volatility
Equity correlation
Structured credit derivatives specific inputs include:
Mortgage servicing rights
Level 2 or 3
Level 1
Physical commodities
Valued using observable market prices or data.
JPMorgan Chase & Co./2021 Form 10-K
Level 1 or 2
171
Notes to consolidated financial statements
Product/instrument
Derivatives
Valuation methodology
Exchange-traded derivatives that are actively traded and valued using
the exchange price.
Derivatives that are valued using models such as the Black-Scholes
option pricing model, simulation models, or a combination of models
that may use observable or unobservable valuation inputs as well as
considering the contractual terms.
The key valuation inputs used will depend on the type of derivative and
the nature of the underlying instruments and may include equity prices,
commodity prices, foreign exchange rates, volatilities, correlations, CDS
spreads and recovery rates.
In addition, specific inputs used for derivatives that are valued based on
models with significant unobservable inputs are as follows:
Interest rate and FX exotic options specific inputs include:
Interest rate volatility
Classifications in the fair value
hierarchy
Equity-FX correlation
JPMorgan Chase & Co./2021 Form 10-K
Equity-IR correlation
• Forward commodity price
Adjustments to the NAV as required, for restrictions on redemption
(e.g., lock-up periods or withdrawal limitations) or where
observable activity is limited.
Valued using observable market information, where available.
Level 2 or 3
In the absence of observable market information, valuations are based
on the fair value of the underlying assets held by the VIE.
(a) Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient.
172
Level 2 or 3 (a)
JPMorgan Chase & Co./2021 Form 10-K
Structured notes (included in
deposits, short-term
borrowings and long-term
debt)
Valuation methodology
Valuations are based on discounted cash flow analyses that consider
the embedded derivative and the terms and payment structure of
the note.
• The embedded derivative features are considered using models such
as the Black-Scholes option pricing model, simulation models, or a
combination of models that may use observable or unobservable
valuation inputs, depending on the embedded derivative. The
specific inputs used vary according to the nature of the embedded
derivative features, as described in the discussion above regarding
derivatives valuation. Adjustments are then made to this base
valuation to reflect the Firm's own credit risk (DVA). Refer to page
186 of this Note.
Classification in the fair value
hierarchy
Level 2 or 3
Product/instrument
Level 1
NAV is supported by the ability to redeem and purchase at the NAV
level.
•
Commodity volatility
• Commodity correlation
Additionally, adjustments are made to reflect counterparty credit quality
(CVA) and the impact of funding (FVA). Refer to page 186 of this Note.
Refer to Mortgage servicing rights in Note 15.
Level 3
Fair value is estimated using all available information; the range of
potential inputs include:
Level 2 or 3
Transaction prices
Trading multiples of comparable public companies
Operating performance of the underlying portfolio company
Fund investments (e.g.,
mutual/collective investment
funds, private equity funds,
hedge funds, and real estate
funds)
Beneficial interests issued by
consolidated VIES
Adjustments as required, since comparable public companies are
not identical to the company being valued, and for company-specific
issues and lack of liquidity.
• Additional available inputs relevant to the investment.
Net asset value
Commodity derivatives specific inputs include:
308,525
Foreign exchange
Equity
Total derivative receivables
5,448
182,897
125,467
161
56,887
1,933
9,662
9,662
(f) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid
when a legally enforceable master netting agreement exists. The level 3 balances would be reduced if netting were applied, including the netting benefit
associated with cash collateral.
(g) Prior-period amounts have been revised to conform with the current presentation.
(e) At December 31, 2021 and 2020, included $26.2 billion and $15.1 billion, respectively, of residential first-lien mortgages, and $8.2 billion and $6.3
billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell
to U.S. GSES and government agencies of $13.6 billion and $8.4 billion, respectively.
(d) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be
classified in the fair value hierarchy. At December 31, 2021 and 2020, the fair values of these investments, which include certain hedge funds, private
equity funds, real estate and other funds, were $801 million and $670 million, respectively. Included in these balances at December 31, 2021 and 2020,
were trading assets of $51 million and $52 million, respectively, and other assets of $750 million and $618 million, respectively.
Notes to consolidated financial statements
175
JPMorgan Chase & Co./2021 Form 10-K
5,448
321
16,209
15,860
4,949
4
83,558
177,463
15,860
5,430
10,779
160
161
סייייייי
72,543
6,070
4,949
83,562
177,463
(c) Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).
72,539
6,070
(a) At December 31, 2021 and 2020, included total U.S. GSE obligations of $73.9 billion and $117.6 billion, respectively, which were mortgage-related.
(b) Physical commodities inventories are generally accounted for at the lower of cost or net realizable value. "Net realizable value" is a term defined in U.S.
GAAP as not exceeding fair value less costs to sell ("transaction costs"). Transaction costs for the Firm's physical commodities inventories are either not
applicable or immaterial to the value of the inventory. Therefore, net realizable value approximates fair value for the Firm's physical commodities
inventories. When fair value hedging has been applied (or when net realizable value is below cost), the carrying value of physical commodities
approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. Refer to Note 5 for a further
discussion of the Firm's hedge accounting relationships. To provide consistent fair value disclosure information, all physical commodities inventories have
been included in each period presented.
$
25,898
(55,515)
7,381
74,032
21,433
(194,493)
21,767
1,421
132
1,995
(12,837)
848
13,984
13,012
214,373
962
(14,444)
8,285
(618,264)
$
76,817
23,397
41,510
$
53,420
926.189
88,192 $
41
170,181
3,476
70,623
(618,264)
(618,264)
12,712
68
12,661
673,598
690,436
513
41
2,628
85,297
2,895
437,627
Commodity
4
Trading liabilities:
267,493
2,020
(248,611)
21,974
9,321
518
1,072
(8,808)
134
168,590
855
(156,954)
12,625
65,139
1,031
376,443
2,279
186,394
95,509
139,015
1,457
235,981
86,904
1,741
662
89,307
5,357
20,788
26,145
24,850
160
25,010
187,770
3,492
Debt and equity instruments(c)
(58,650)
26,232
U.S. Treasury and government agencies
Obligations of U.S. states and municipalities
Non-U.S. government debt securities
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
Total mortgage-backed securities
Other
Total available-for-sale securities
Mortgage servicing rights
Other assets(d)
Total assets measured at fair value on a recurring basis
Deposits
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Loans (e)
Commercial nonagency
Residential nonagency
U.S. GSES and government agencies (a)
421
(15,183)
11,470
1,206
536,775
7,306
188,976
723,169
9,585
(488,206)
(488,206)
57,081
433,524
Total trading assets(d)
Available-for-sale securities:
Mortgage-backed securities:
9,981
176
(c)
The Firm has established well-structured processes for
determining fair value, including for instruments where fair
value is estimated using significant unobservable inputs
(level 3). Refer to pages 169-173 of this Note for further
information on the Firm's valuation process and a detailed
discussion of the determination of fair value for individual
financial instruments.
1, 2019 (losses)
unrealized
gains/
realized/
Total
value at
January
Fair
U.S. GSES and government
agencies
Mortgage-backed securities:
Debt instruments:
Trading assets:
Assets: (a)
December 31, 2019
(in millions)
Year ended
JPMorgan Chase & Co./2021 Form 10-K
182
Fair value measurements using significant unobservable inputs
Fair
Purchases (f)
Sales
(20) $
1 $
$
(134)
$
$ (310)
773
1,920
$
at Dec. 31, 2019
Change in
unrealized
gains/(losses)
related to
financial
instruments held
2019
value at
Dec. 31,
Transfers
(out of)
level 3
Transfers
into
level 3
Settlements (g)
$ 549 $ (62)
(c)(e)
(1,282) 23,397
1,250
51
(8)
136
14 - (4)
(126)
(2) (c)
41
(1)
Trading liabilities - debt and equity
instruments
(c)(e)
(46) 2,420
$ 455 (c)(e)
(943) $2,913
265 $
105
(605) $
(4,115)
671 $
5,140
143
797
(c)
(c)
(9,833)
9,883
40
(c)(e)
23,339
Long-term debt
consolidated VIES
Accounts payable and other liabilities
Beneficial interests issued by
68
(7)
47
37
(87)
33
45
28 (c)
$
$ (58)
64
(52)
(247)
437
47
334
Corporate debt securities
4
155
(18)
14
(287)
290
1
155
securities
112
(73)
558
40
28
(40)
(93)
37
127
Asset-backed securities
13
Non-U.S. government debt
673
437
(82)
(519)
456
29
738
Loans
(386)
13
10
(610)
(4)
15
(14)
(26)
20
2
11
4
Commercial - nonagency
23
(58)
15
(20)
(86)
83
25
2
Residential nonagency
1
securities
(8)
(159)
85
13
689
municipalities
Obligations of U.S. states and
Total mortgage-backed
(55)
(82)
31
(168)
(422)
876
(35)
624
824
(22)
$
1,674
(212)
(139)
Credit
325
258
308
(332)
(2,228)
(148)
308
(332) 2,682
Interest rate
Net derivative receivables:(b)
(23)
2,623
73
(154)
181
59
(65)
(3,395)
Equity
116
(434)
3
13
(1,961)
83
49
49
(607)
Foreign exchange
(110)
(224)
(32)
(24)
1,754
(1,099)
(1,514)
535
(1)
(376)
412
196 (137)
Equity securities (h)
(209)
(153)
2,098
1,213
(601)
(1,129)
2,169
(248)
2,257
Total debt instruments
(1,563)
1,664
476
Other (h)
2,810
(c)
(c)
(52)
2,685
equity instruments
Total trading assets - debt and
(82)
268
(245)
6
(497)
(9)
229
333
232
49
$ 3,360 $ 165 (c)(e) $
(338) (c)(e)
(2,317)
(935)
(18)
(1,540)
(c)
2,305
3,276
538
(7)
40
(320)
(104)
75
(c)
(63)
917
(899)
(176)
1,192
(d)
(d)
(3) (c)
Fair value measurements using significant unobservable inputs
Total
Short-term borrowings
Deposits
Liabilities: (a)
at Dec. 31, 2020
instruments held
Change in
unrealized
(gains)/losses
related to
financial
Fair
value at
Dec. 31,
2020
4,699 (1,540)
Transfers
(out of)
level 3
(g)
1, 2020 (gains)/losses Purchases Sales Issuances Settlements"
Fair value realized/
unrealized
at January
December 31, 2020
(in millions)
Year ended
Transfers
into
level 3
(684)
2,571
(733)
(2,884)
2,121
(c)
267
(731)
(1)
(310)
(446)
356
27
(16) (546)
(4,489) 1,908
Total net derivative receivables
Commodity
(556)
(3,862)
24
(241)
1,162
(1,505)
(4,993)
(84)
962
(243) (c)
516
(1)
1
Other assets
302
Mortgage servicing rights
Total available-for-sale securities
Corporate debt securities
(1)
1
Mortgage-backed securities
Available-for-sale securities:
42
Loans
(4)
37
Total debt instruments
Consolidated balance sheets changes
Level 3 analysis
(h) Prior-period amounts have been revised to conform with the current presentation.
(g) Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, deconsolidations associated with beneficial
interests in VIES and other items.
(f) Loan originations are included in purchases.
(e) Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue, and were not material for the years
ended December 31, 2021, 2020 and 2019. Unrealized (gains)/losses are reported in OCI, and they were $258 million, $221 million and $319 million for the
years ended December 31, 2021, 2020 and 2019, respectively.
(d) Changes in fair value for MSRS are reported in mortgage fees and related income.
(c) Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans, and lending-related commitments
originated with the intent to sell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income.
(b) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.
Notes to consolidated financial statements
183
JPMorgan Chase & Co./2021 Form 10-K
(a) Level 3 assets at fair value as a percentage of total Firm assets at fair value (including assets measured at fair value on a nonrecurring basis) were 2%, 1%
and 2% at December 31, 2021, 2020 and 2019, respectively. Level 3 liabilities at fair value as a percentage of total Firm liabilities at fair value (including
liabilities measured at fair value on a nonrecurring basis) were 10%, 9% and 16% at December 31, 2021, 2020 and 2019, respectively.
2,822
(c)(e)
The following describes significant changes to level 3 assets
since December 31, 2020, for those items measured at fair
value on a recurring basis. Refer to Assets and liabilities
measured at fair value on a nonrecurring basis on page 187
for further information on changes impacting items measured
at fair value on a nonrecurring basis.
For the year ended December 31, 2021
Level 3 assets were $17.5 billion at December 31, 2021,
reflecting an increase of $1.1 billion from December 31,
2020.
The increase for the year ended December 31, 2021 was
predominantly driven by:
$1.3 billion of non-trading loans driven by a decrease in
observability.
$1.5 billion of gross equity derivative receivables and
$1.2 billion of gross equity derivative payables as a result
of a decrease in observability and an increase in the
significance of unobservable inputs.
due to trading loans, driven by a decrease in observability.
$1.0 billion of total debt and equity instruments, largely
•
transfers from level 2 into level 3 included the following:
During the year ended December 31, 2021, significant
(1,448) 23,339
Transfers between levels for instruments carried at
fair value on a recurring basis
Refer to Note 15 for information on MSRs.
• $372 million decrease in non-trading loans due to
settlements net of transfers.
$287 million decrease in gross interest rate derivative
receivables due to settlements net of gains.
•
partially offset by
$2.2 billion increase in MSRS,
•
Refer to the sections below for additional information.
29
45
(c)
instruments held
related to
financial
Change in
unrealized
(gains)/losses
Fair
value at
Dec. 31,
2019
Transfers
(out of)
level 3
Transfers
into
level 3
Settlements(g)
at Dec. 31, 2019
10,441
(c)(e)
Long-term debt
(c)
(1)
1
consolidated VIES
Beneficial interests issued by
19,418 2,815
During the year ended December 31, 2021, significant
transfers from level 3 into level 2 included the following:
$ 916
3,441
(806)
(3,356)
651
6
(8,538)
3
41
(c)
(47)
$
16
155
1,674
(c)(e)
$ 307 (c)(e)
12 $ (1,209) $ 3,360
(248)
85
$
1
115
•
$1.9 billion of gross equity derivative receivables and
$2.1 billion of gross equity derivative payables as a result
of an increase in observability and a decrease in the
significance of unobservable inputs.
JPMorgan Chase & Co./2021 Form 10-K
Refer to Note 15 for additional information on MSRs.
$2.1 billion of net losses on assets largely due to MSRS
reflecting faster prepayment speeds on lower rates.
$3.3 billion of net losses on liabilities predominantly
driven by market movements in long-term debt.
•
2019
$102 million of net gains on liabilities driven by market
movements in short-term borrowings.
$10 million of net gains on assets driven by gains in net
interest rate derivative receivables due to market
movements largely offset by losses in MSRS reflecting
faster prepayment speeds on lower rates.
2020
$1.1 billion of net gains on liabilities, driven by gains in
short-term borrowings due to market movements.
$495 million of net gains on assets, driven by gains in net
interest rate derivative receivables due to market
movements, partially offset by losses in net equity
derivative receivables and net commodity derivative
receivables due to market movements.
•
•
The following describes significant components of total
realized/unrealized gains/(losses) for instruments measured
at fair value on a recurring basis for the years ended
December 31, 2021, 2020 and 2019. These amounts
exclude any effects of the Firm's risk management activities
where the financial instruments are classified as level 1 and 2
of the fair value hierarchy. Refer to Changes in level 3
recurring fair value measurements rollforward tables on
pages 180-184 for further information on these instruments.
2021
Gains and losses
All transfers are based on changes in the observability and/or
significance of the valuation inputs and are assumed to occur
at the beginning of the quarterly reporting period in which
they occur.
185
Notes to consolidated financial statements
Credit and funding adjustments - derivatives
Derivatives are generally valued using models that use as
their basis observable market parameters. These market
parameters generally do not consider factors such as
counterparty nonperformance risk, the Firm's own credit
quality, and funding costs. Therefore, it is generally
necessary to make adjustments to the base estimate of fair
value to reflect these factors.
CVA represents the adjustment, relative to the relevant
benchmark interest rate, necessary to reflect counterparty
nonperformance risk. The Firm estimates CVA using a
scenario analysis to estimate the expected positive credit
exposure across all of the Firm's existing positions with
each counterparty, and then estimates losses based on the
probability of default and estimated recovery rate as a
result of a counterparty credit event considering
contractual factors designed to mitigate the Firm's credit
exposure, such as collateral and legal rights of offset. The
key inputs to this methodology are (i) the probability of a
default event occurring for each counterparty, as derived
from observed or estimated CDS spreads; and (ii) estimated
recovery rates implied by CDS spreads, adjusted to consider
the differences in recovery rates as a derivative creditor
relative to those reflected in CDS spreads, which generally
reflect senior unsecured creditor risk.
JPMorgan Chase & Co./2021 Form 10-K
186
The valuation of the Firm's liabilities for which the fair value
option has been elected requires consideration of the Firm's
own credit risk. DVA on fair value option elected liabilities
reflects changes (subsequent to the issuance of the liability)
in the Firm's probability of default and LGD, which are
estimated based on changes in the Firm's credit spread
observed in the bond market. Realized (gains)/losses due to
DVA for fair value option elected liabilities are reported in
principal transactions revenue. Unrealized (gains)/losses
are reported in OCI. Refer to page 184 in this Note and Note
24 for further information.
Valuation adjustments on fair value option elected
liabilities
$ 362 $ (337) $ 241
47
(64)
199
2019
2020
$1.4 billion of long-term debt as a result of an increase in
observability and a decrease in the significance of
unobservable inputs.
2021
Derivatives CVA
Credit and funding adjustments:
(in millions)
Year ended December 31,
The following table provides the impact of credit and
funding adjustments on principal transactions revenue in
the respective periods, excluding the effect of any
associated hedging activities. The FVA presented below
includes the impact of the Firm's own credit quality on the
inception value of liabilities as well as the impact of changes
in the Firm's own credit quality over time.
each counterparty and collateral arrangements; and (ii) the
estimated market funding cost in the principal market
which, for derivative liabilities, considers the Firm's credit
risk (DVA). For collateralized derivatives, the fair value is
estimated by discounting expected future cash flows at the
relevant overnight indexed swap rate given the underlying
collateral agreement with the counterparty, and therefore a
separate FVA is not necessary.
FVA represents the adjustment to reflect the impact of
funding and is recognized where there is evidence that a
market participant in the principal market would
incorporate it in a transfer of the instrument. The Firm's
FVA framework, applied to uncollateralized (including
partially collateralized) over-the-counter ("OTC")
derivatives incorporates key inputs such as: (i) the expected
funding requirements arising from the Firm's positions with
Derivatives FVA
observability and a decrease in the significance of
unobservable inputs.
$1.2 billion of deposits as a result of an increase in
a result of an increase in observability.
transfers from level 3 into level 2 included the following:
During the year ended December 31, 2020, significant
JPMorgan Chase & Co./2021 Form 10-K
184
$1.2 billion of long-term debt driven by a decrease in
observability and an increase in the significance of
unobservable inputs for structured notes.
$2.6 billion of non-trading loans driven by a decrease in
observability.
$880 million of gross interest rate derivative payables as
a result of a decrease in observability and an increase in
the significance of unobservable inputs.
•
$2.6 billion of gross equity derivative receivables and
$3.5 billion of gross equity derivative payables as a result
of a decrease in observability and an increase in the
significance of unobservable inputs.
•
•
•
•
During the year ended December 31, 2020, significant
transfers from level 2 into level 3 included the following:
$1.8 billion of total debt and equity instruments,
predominantly equity securities and trading loans, driven
by a decrease in observability.
$809 million of long-term debt driven by an increase in
observability and a decrease in the significance of
unobservable inputs for structured notes.
$794 million of non-trading loans driven by an increase in
observability.
•
$1.4 billion of total debt and equity instruments, largely
due to trading loans, driven by an increase in
observability.
•
$2.0 billion of total debt and equity instruments,
predominantly due to corporate debt and trading loans,
driven by an increase in observability.
$962 million of gross commodities derivative payables as
$1.1 billion of gross equity derivative receivables and
$1.3 billion of gross equity derivative payables as a result
of an increase in observability and a decrease in the
significance of unobservable inputs.
$1.5 billion of total debt and equity instruments, the
majority of which were obligations of U.S. states and
municipalities and trading loans, driven by an increase in
observability.
•
•
•
•
•
transfers from level 3 into level 2 included the following:
$904 million of gross equity derivative payables as a
result of a decrease in observability and an increase in the
significance of unobservable inputs.
$993 million of total debt and equity instruments, the
majority of which were trading loans, driven by a decrease
in observability.
•
During the year ended December 31, 2019, significant
transfers from level 2 into level 3 included the following:
$1.3 billion of long-term debt driven by an increase in
observability and a decrease in the significance of
unobservable inputs for structured notes.
$943 million of deposits as a result of an increase in
observability and a decrease in the significance of
unobservable inputs.
$2.4 billion of gross equity derivative receivables and
$2.4 billion of gross equity derivative payables as a result
of an increase in observability and a decrease in the
significance of unobservable inputs.
During the year ended December 31, 2019, significant
(3)
(84)
(2)
29
8
(9)
20
(36)
(107)
Foreign exchange
Credit
(599)
(332)
118
(7)
5
(125)
109
(44)
(139)
(127)
(297) (551)
Commodity
(1,608)
224 (3,395)
(405)
(503)
(573)
397
(38) (394)
(2,225) (310)
(380)
(607)
1
(22)
312
(67)
17
Equity
Interest rate
Net derivative receivables:b
85 (c)
(109)
181
(22)
(103)
58
232 (41)
Equity securities
196
12
(1,191)
622
(350)
(1,727)
2,181
55
2,667
2,257
(1,129) 497
(18)
301 (36)
2,685
(1,305)
805
(426)
(1,856)
2,289
(22) (c)
Other
3,200
91
232
(5)
2
(54)
(26)
50
Total trading assets - debt and
equity instruments
(c)
36
89
Fair
value at
January
1, 2019
(in millions)
December 31, 2019
Year ended
Fair value measurements using significant unobservable inputs
(180)
(c)
(d)
(1,180)
38
516
4,699
917
(7)
6
(156)
(166)
Total
realized/
unrealized
(gains)/
losses
Purchases
Sales
Issuances
10
Accounts payable and other liabilities
41
(22)
2
50
(c)
229
Trading liabilities - debt and equity
instruments
1,523
(c)(e)
$
(c)(e)
$ 4,169 $ 278
Deposits
Liabilities:(a)
229
1,161 (150)
Other assets
(c)
Mortgage-backed securities
Available-for-sale securities:
(4,489) (2,584)
1,144
(411)
(89)
(1,122)
1-------1-
579
Total net derivative receivables
(c)
(c)
130
(16)
845
(6)
(3,796) (794)
(348)
Corporate debt securities
1
(951)
(789)
1,489
(d)
6,130 (1,180)
Mortgage servicing rights
(153)
Total available-for-sale securities
Loans
188
(188)
236
(c)
59
856
(c)
1
(482)
28
Short-term borrowings
9
Notes to consolidated financial statements
179
JPMorgan Chase & Co./2021 Form 10-K
The loss severity applied in valuing a mortgage-backed
security investment depends on factors relating to the
underlying mortgages, including the LTV ratio, the nature of
the lender's lien on the property and other instrument-
specific factors.
Loss severity - The loss severity (the inverse concept is the
recovery rate) is the expected amount of future realized
losses resulting from the ultimate liquidation of a particular
loan, expressed as the net amount of loss relative to the
outstanding loan balance. An increase in loss severity is
generally accompanied by an increase in conditional default
rates. An increase in the loss severity, in isolation, would
result in a decrease in a fair value measurement.
Conditional default rate - The conditional default rate is a
measure of the reduction in the outstanding collateral
balance underlying a collateralized obligation as a result of
defaults. While there is typically no direct relationship
between conditional default rates and prepayment speeds,
collateralized obligations for which the underlying collateral
has high prepayment speeds will tend to have lower
conditional default rates. An increase in conditional default
rates would generally be accompanied by an increase in loss
severity and an increase in credit spreads. An increase in the
conditional default rate, in isolation, would result in a
decrease in a fair value measurement. Conditional default
rates reflect the quality of the collateral underlying a
securitization and the structure of the securitization itself.
Based on the types of securities owned in the Firm's market-
making portfolios, conditional default rates are most typically
at the lower end of the range presented.
Prepayment speeds may vary from collateral pool to
collateral pool, and are driven by the type and location of the
underlying borrower, and the remaining tenor of the
obligation as well as the level and type (e.g., fixed or floating)
of interest rate being paid by the borrower. Typically
collateral pools with higher borrower credit quality have a
higher prepayment rate than those with lower borrower
credit quality, all other factors being equal.
Prepayment speed - The prepayment speed is a measure of
the voluntary unscheduled principal repayments of a
prepayable obligation in a collateralized pool. Prepayment
speeds generally decline as borrower delinquencies rise. An
increase in prepayment speeds, in isolation, would result in a
decrease in a fair value measurement of assets valued at a
premium to par and an increase in a fair value measurement
of assets valued at a discount to par.
The yield and the credit spread of a particular mortgage-
backed security primarily reflect the risk inherent in the
instrument. The yield is also impacted by the absolute level of
the coupon paid by the instrument (which may not
correspond directly to the level of inherent risk). Therefore,
the range of yield and credit spreads reflects the range of risk
inherent in various instruments owned by the Firm. The risk
inherent in mortgage-backed securities is driven by the
subordination of the security being valued and the
characteristics of the underlying mortgages within the
collateralized pool, including borrower FICO scores, LTV
ratios for residential mortgages and the nature of the
property and/or any tenants for commercial mortgages. For
corporate debt securities, obligations of U.S. states and
municipalities and other similar instruments, credit spreads
reflect the credit quality of the obligor and the tenor of the
obligation.
Credit spread - The credit spread is the amount of additional
annualized return over the market interest rate that a market
participant would demand for taking exposure to the credit
risk of an instrument. The credit spread for an instrument
forms part of the discount rate used in a discounted cash flow
calculation. Generally, an increase in the credit spread would
result in a decrease in a fair value measurement.
Yield - The yield of an asset is the interest rate used to
discount future cash flows in a discounted cash flow
calculation. An increase in the yield, in isolation, would result
in a decrease in a fair value measurement.
The following discussion also provides a description of
attributes of the underlying instruments and external market
factors that affect the range of inputs used in the valuation of
the Firm's positions.
The following discussion provides a description of the impact
on a fair value measurement of a change in each
unobservable input in isolation, and the interrelationship
between unobservable inputs, where relevant and significant.
The impact of changes in inputs may not be independent, as a
change in one unobservable input may give rise to a change
in another unobservable input. Where relationships do exist
between two unobservable inputs, those relationships are
discussed below. Relationships may also exist between
observable and unobservable inputs (for example, as
observable interest rates rise, unobservable prepayment
rates decline); such relationships have not been included in
the discussion below. In addition, for each of the individual
relationships described below, the inverse relationship would
also generally apply.
Changes in and ranges of unobservable inputs
JPMorgan Chase & Co./2021 Form 10-K
Correlation - Correlation is a measure of the relationship
between the movements of two variables. Correlation is a
pricing input for a derivative product where the payoff is
driven by one or more underlying risks. Correlation inputs are
related to the type of derivative (e.g., interest rate, credit,
equity, foreign exchange and commodity) due to the nature
of the underlying risks. When parameters are positively
correlated, an increase in one parameter will result in an
increase in the other parameter. When parameters are
negatively correlated, an increase in one parameter will
result in a decrease in the other parameter. An increase in
correlation can result in an increase or a decrease in a fair
value measurement. Given a short correlation position, an
increase in correlation, in isolation, would generally result in
a decrease in a fair value measurement.
The level of correlation used in the valuation of derivatives
with multiple underlying risks depends on a number of
factors including the nature of those risks. For example, the
correlation between two credit risk exposures would be
different than that between two interest rate risk exposures.
Similarly, the tenor of the transaction may also impact the
correlation input, as the relationship between the underlying
risks may be different over different time periods.
Furthermore, correlation levels are very much dependent on
market conditions and could have a relatively wide range of
levels within or across asset classes over time, particularly in
volatile market conditions.
Volatility - Volatility is a measure of the variability in possible
returns for an instrument, parameter or market index given
how much the particular instrument, parameter or index
changes in value over time. Volatility is a pricing input for
options, including equity options, commodity options, and
interest rate options. Generally, the higher the volatility of
the underlying, the riskier the instrument. Given a long
position in an option, an increase in volatility, in isolation,
would generally result in an increase in a fair value
measurement.
unrealized
realized/
Total
Fair
value at
January
Trading assets:
Assets: (a)
(in millions)
178
December 31, 2021
Fair value measurements using significant unobservable inputs
JPMorgan Chase & Co./2021 Form 10-K
180
The forward price is used as an input in the valuation of
certain derivatives and depends on a number of factors
including interest rates, the current price of the underlying
asset, and the expected income to be received and costs to be
incurred by the seller as a result of holding that asset until
the delivery date. An increase in the forward can result in an
increase or a decrease in a fair value measurement.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the Consolidated
balance sheets amounts (including changes in fair value) for
financial instruments classified by the Firm within level 3 of
the fair value hierarchy for the years ended December 31,
2021, 2020 and 2019. When a determination is made to
classify a financial instrument within level 3, the
determination is based on the significance of the
unobservable inputs to the overall fair value measurement.
However, level 3 financial instruments typically include, in
addition to the unobservable or level 3 components,
observable components (that is, components that are actively
quoted and can be validated to external sources);
accordingly, the gains and losses in the table below include
changes in fair value due in part to observable factors that
are part of the valuation methodology. Also, the Firm risk-
manages the observable components of level 3 financial
instruments using securities and derivative positions that are
classified within level 1 or 2 of the fair value hierarchy; as
these level 1 and level 2 risk management instruments are
not included below, the gains or losses in the following tables
do not reflect the effect of the Firm's risk management
activities related to such level 3 instruments.
Forward price - Forward price is the price at which the buyer
agrees to purchase the asset underlying a forward contract
on the predetermined future delivery date, and is such that
the value of the contract is zero at inception.
Interest rate curve - represents the relationship of interest
rates over differing tenors. The interest rate curve is used to
set interest rate and foreign exchange derivative cash flows
and is also a pricing input used in the discounting of any
derivative cash flow.
The level of volatility used in the valuation of a particular
option-based derivative depends on a number of factors,
including the nature of the risk underlying the option (e.g.,
the volatility of a particular equity security may be
significantly different from that of a particular commodity
index), the tenor of the derivative as well as the strike price
of the option.
Year ended
(i) Amounts represent weighted averages except for derivative-related inputs where arithmetic averages are used.
(h) Forward equity price is expressed as a percentage of the current equity price.
(g) Price is a significant unobservable input for certain instruments. When quoted market prices are not readily available, reliance is generally placed on price-
based internal valuation techniques. The price input is expressed assuming a par value of $100.
Equity correlation
(2)%
50%
(35)%
IR-FX correlation
25%
87%
17%
(65)%
106bps
544bps
5bps
Interest rate volatility
Refer to Note 15
Discounted cash flows
Option pricing
5,494
28,236
Interest rate correlation
1, 2021 gains/(losses) Purchases (f)
100%
Equity-FX correlation
(f) Includes equity securities of $806 million including $144 million in Other assets, for which quoted prices are not readily available and the fair value is
generally based on internal valuation techniques such as EBITDA multiples and comparable analysis. All other level 3 assets and liabilities are insignificant
both individually and in aggregate.
(e) Long-term debt, short-term borrowings and deposits include structured notes issued by the Firm that are financial instruments that typically contain
embedded derivatives. The estimation of the fair value of structured notes includes the derivative features embedded within the instrument. The significant
unobservable inputs are broadly consistent with those presented for derivative receivables.
(b) Comprises U.S. GSE and government agency securities of $265 million, nonagency securities of $28 million and non-trading loans of $888 million.
(c) Comprises nonagency securities of $10 million, trading loans of $40 million and non-trading loans of $341 million.
(d) Comprises trading loans of $668 million and non-trading loans of $704 million.
(a) The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated
balance sheets. Furthermore, the inputs presented for each valuation technique in the table are, in some cases, not applicable to every instrument valued
using the technique as the characteristics of the instruments can differ.
46%
65%
35%
55%
27%
15%
Equity-IR correlation
Credit correlation
936 Discounted cash flows
1,062
Other level 3 assets and liabilities, net(f)
(27)%
59%
(79)%
50%
Long-term debt, short-term borrowings, and
deposits(e)
Fair
Settlements (g)
8---
Obligations of U.S. states and
municipalities
(36)
303
(2)
19
(132)
(98)
59
(23)
480
securities
(2)
10
14
(1)
7
Non-U.S. government debt
securities
(225)
162
(4)
(489)
404
(23)
507
(17)
Corporate debt securities
81
(107)
(7)
(332)
359
(14)
182
(10)
(7)
(3)
28
Commercial nonagency
-
28
Residential nonagency
$
449 $ (28)
$
3
U.S. GSES and government
agencies
Debt instruments:
at Dec. 31, 2021
Change in
unrealized
gains/(losses)
related to
financial
instruments held
Dec. 31,
2021
value at
Transfers
(out of)
level 3
Transfers
into
level 3
Mortgage-backed securities:
Sales
5
21 $
(1)
4
(5)
(24)
$ (31)
265
(1) $
222
e
(110) $
$
(67)
ུ།
Total mortgage-backed
12
26
1 $
332
MSRS
76%
$154
$0
Price
Market comparables
493
Net interest rate derivatives
Non-U.S. government debt securities
Loans(d)
Corporate debt securities
$84
$103
$0
Price
Market comparables
391
$87
1,372
Market comparables
Price
11bps
Interest rate spread volatility
106bps
544bps
5bps
Interest rate volatility
(26) Option pricing
(c)
$96
$87
Price
Market comparables
81
$89
$107
$5
$103
loans
Commercial mortgage-backed securities and
4%
Average(i)
Range of input values
Unobservable inputs (8)
Principal valuation
technique
Fair value
(in millions)
Product/Instrument
December 31, 2021
(b)
Level 3 inputs (a)
177
JPMorgan Chase & Co./2021 Form 10-K
In the Firm's view, the input range, weighted and arithmetic
average values do not reflect the degree of input uncertainty
or an assessment of the reasonableness of the Firm's
estimates and assumptions. Rather, they reflect the
characteristics of the various instruments held by the Firm
and the relative distribution of instruments within the range
of characteristics. For example, two option contracts may
have similar levels of market risk exposure and valuation
uncertainty, but may have significantly different implied
volatility levels because the option contracts have different
underlyings, tenors, or strike prices. The input range and
weighted average values will therefore vary from period-to-
period and parameter-to-parameter based on the
characteristics of the instruments held by the Firm at each
balance sheet date.
The range of values presented in the table is representative
of the highest and lowest level input used to value the
significant groups of instruments within a product/instrument
classification. Where provided, the weighted averages of the
input values presented in the table are calculated based on
the fair value of the instruments that the input is being used
to value.
The following table presents the Firm's primary level 3
financial instruments, the valuation techniques used to
measure the fair value of those financial instruments, the
significant unobservable inputs, the range of values for those
inputs and the weighted or arithmetic averages of such
inputs. While the determination to classify an instrument
within level 3 is based on the significance of the unobservable
inputs to the overall fair value measurement, level 3 financial
instruments typically include observable components (that is,
components that are actively quoted and can be validated to
external sources) in addition to the unobservable
components. The level 1 and/or level 2 inputs are not
included in the table. In addition, the Firm manages the risk
of the observable components of level 3 financial instruments
using securities and derivative positions that are classified
within levels 1 or 2 of the fair value hierarchy.
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate valuation model or other valuation technique to
use. Second, due to the lack of observability of significant
inputs, management must assess relevant empirical data in
deriving valuation inputs including transaction details, yield
curves, interest rates, prepayment speed, default rates,
volatilities, correlations, prices (such as commodity, equity or
debt prices), valuations of comparable instruments, foreign
exchange rates and credit curves.
Estimating fair value requires the application of judgment.
The type and level of judgment required is largely dependent
on the amount of observable market information available to
the Firm. For instruments valued using internally developed
valuation models and other valuation techniques that use
significant unobservable inputs and are therefore classified
within level 3 of the fair value hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
Notes to consolidated financial statements
23bps
Residential mortgage-backed securities and
loans
1,181
110%
0%
Loss severity
0%
2%
0%
Conditional default rate
$
14%
0%
Prepayment speed
4%
15%
0%
Yield
Discounted cash flows
15%
13%
14bps
(65)%
100%
17%
Equity correlation
32%
132%
4%
Equity volatility
99%
122%
63%
(h)
Forward equity price
4%
28%
0%
55%
Equity-FX correlation
(79)%
59%
(10)
$747/MT $689 / MT
$3,482/MT $3,046 / MT
185%
95%
5%
(50)%
Commodity correlation
Commodity volatility
$2,610 / MT
Industrial metals commodity forward
9%
$631 / MT
(907) Option pricing
Net commodity derivatives
27%
50%
15%
Equity-IR correlation
(27)%
Oil commodity forward
9%
17%
65%
35%
Credit correlation
8%
30%
0%
Prepayment speed
Discounted cash flows
Discounted cash flows
65%
26
10
(2)%
50%
(35)%
IR-FX correlation
25%
87%
Net credit derivatives
Interest rate correlation
46%
Net foreign exchange derivatives
(40)%
$80
$115
$0
51%
67%
35%
48
384bps
1bps
IR-FX correlation
Prepayment speed
Interest rate curve
Credit spread
Recovery rate
Price
(3,626) Option pricing
Discounted cash flows
Net equity derivatives
Market comparables
(320) Option pricing
(99)
4,396bps
(16)
Level 3 valuations
893
unrealized
value at
Year ended
Total
realized/
Fair
Fair value measurements using significant unobservable inputs
Notes to consolidated financial statements
181
JPMorgan Chase & Co./2021 Form 10-K
87
(809) 24,374
103
(12,191)
(c)(e)
369 (c)(e)
December 31, 2020
(in millions)
January
1, 2020
gains/
(losses)
(f)
U.S. GSES and government
agencies
at Dec. 31, 2020
Change in
unrealized
gains/(losses)
related to
financial
instruments held
value at
Dec. 31,
2020
Fair
Mortgage-backed securities:
Debt instruments:
23,397
Trading assets:
Loans
Transfers
(out of)
level 3
Transfers
into
level 3
(g)
Settlements
Sales
Purchases
Assets: (a)
Long-term debt
consolidated VIES
Beneficial interests issued by
2,481
$ (77) (c)(e)
(482) $ 2,317
(72)
2 $
9
(467) $
(5,308)
$ 431 $
6,823
-
(83) (c)(e)
$
$
(c)(e)
$ 2,913 $ (80)
2,420 (1,391) (c)(e)
Short-term borrowings
at Dec. 31, 2021
Change in
unrealized
(gains)/losses
related to
financial
instruments held
Transfers
(out of)
level 3
-
$
Trading liabilities - debt and equity
instruments
(8)
8 (c)
69
(8)
1
8
68
(c)
51
Accounts payable and other liabilities
(c)
30
(14)
64
38
(101)
(c)
(157)
797 $ (172)
$
134 $ (149)
411
(236)
(205)
582
(23)
558
Corporate debt securities
(580)
11
(23)
(7)
(245)
281
21
155
Non-U.S. government debt
securities
182
8
507
Loans
value at
Dec. 31,
2021
(9)
(40)
44
(3)
37
Asset-backed securities
(25)
(40)
(944)
791
(182)
(484)
1,112
(73)
673
893
Transfers
into
level 3
(1)
10
(1)
28
(3)
(4)
(5)
15
2
Commercial - nonagency
23
$ (150)
449
$
-
$
(161) $
$
Residential nonagency
(1)
4
(1)
municipalities
Obligations of U.S. states and
(151)
480
(6)
2
(166)
1
(154)
(170)
824
securities
Total mortgage-backed
3
(3)
2
150
(gains)/losses Purchases Sales Issuances Settlements(g)
13,505
at January
1, 2021
Interest rate
Net derivative receivables: (b)
(388)
2,279
(1,428)
1,000
(531)
(1,855)
2,503
(33)
2,623
(c)
(c)
Total trading assets - debt and
equity instruments
31
160
(103)
258 1,789
5
116
(2,011)
(110)
110
(434) (209)
Foreign exchange
141
74
(6)
34
146
(12)
6
(224) 130
Credit
282
(16)
(88)
112
(192)
(98)
233
74
26
(7)
2
(2)
(99)
76
28
28
Asset-backed securities
(20)
708
(873)
648
(287)
(669)
994
2
(2)
Total debt instruments
2,098
(30)
49
Other
(335)
662
(111)
unrealized
(168)
378
222
(77)
Equity securities
(84)
1,457
(1,214)
831
(433)
(1,687)
1,892
476
(12)
164
(419)
(c)
Other assets
3,022
98 (d)
3,276
Mortgage servicing rights
538
(439)
(87) (c)
2,305
Loans
(1)
161
(1)
612
16
9
(114)
(17)
December 31, 2021
14
Fair value Total realized/
Deposits
(in millions)
Liabilities:(a)
Year ended
Fair
Fair value measurements using significant unobservable inputs
11
(c)
5,494
306
(1)
(59) (c)
(794) 1,933
(965) 1,301
(788)
(239)
ele
162
98 (d)
Total available-for-sale securities
(4,993) 502 (c)
Total net derivative receivables
145
(731) (728)
Commodity
(3,626) (155)
1,662
171
(2,813)
1,285
(3,862) (480)
(1)
Equity
13
1,758
(493)
(3,620)
315
(4)
916
Corporate debt securities
162
Available-for-sale securities:
(145) (c)
(4,894)
79
Mortgage-backed securities
445
(12)
161
(907)
(426)
(1)
1,031
JPMorgan Chase & Co./2021 Form 10-K
190
The following table presents the changes in fair value included in the Consolidated statements of income for the years ended
December 31, 2021, 2020 and 2019, for items for which the fair value option was elected. The profit and loss information
presented below only includes the financial instruments that were elected to be measured at fair value; related risk
management instruments, which are required to be measured at fair value, are not included in the table.
2021
Certain long-term beneficial interests issued by CIB's
consolidated securitization trusts where the underlying
assets are carried at fair value
2020
2019
December 31, (in millions)
Principal
transactions
All other
income
Changes in fair value under the fair value option election
All other
income
Principal
transactions
All other
income
Total
changes in
fair value
recorded(e)
Principal
transactions
Total
changes in
fair value
recorded (e)
Federal funds sold and
securities purchased under
Securities borrowed
Structured notes and other hybrid instruments, which
are predominantly financial instruments that contain
embedded derivatives, that are issued or transacted as
part of client-driven activities
resale agreements
$
Total
changes in
fair value
recorded(e)
Owned beneficial interests in securitized financial assets
that contain embedded credit derivatives, which would
otherwise be required to be separately accounted for as
a derivative instrument
2.1
Loans purchased or originated as part of securitization
warehousing activity, subject to bifurcation accounting,
or managed on a fair value basis, including lending-
related commitments
estimated
fair value
Wholesale lending-
(112) $
(200)
related commitments $
2.1 $
$
$
2.9 $
2.9 $
2.2 $
$
$
2.1 $
(a) Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which is recognized at fair value at the inception of the
guarantees.
(b) Includes the wholesale allowance for lending-related commitments.
The Firm does not estimate the fair value of consumer off-balance sheet lending-related commitments. In many cases, the Firm
can reduce or cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without
notice. Refer to page 171 of this Note for a further discussion of the valuation of lending-related commitments.
JPMorgan Chase & Co./2021 Form 10-K
189
Notes to consolidated financial statements
Note 3 - Fair value option
The fair value option provides an option to elect fair value
as an alternative measurement for selected financial assets,
financial liabilities, unrecognized firm commitments, and
written loan commitments.
The Firm has elected to measure certain instruments at fair
value for several reasons including to mitigate income
statement volatility caused by the differences between the
measurement basis of elected instruments (e.g., certain
instruments that otherwise would be accounted for on an
accrual basis) and the associated risk management
arrangements that are accounted for on a fair value basis,
as well as to better reflect those instruments that are
managed on a fair value basis.
The Firm's election of fair value includes the following
instruments:
.
•
Certain securities financing agreements
$
Changes in instrument-
specific credit risk
12
Other changes in fair
value
(8)
Loans:
353
135
(8)
(19)
135
248
248
(19)
(1)
2
475
197
(c)
7
190
582
(c)
(7)
589
(1)
477
Level 3
353
(112) $
(200)
specific credit risk
assets:
$
$
143
12 $
143
(36) $
$
(36)
133
133
Trading assets:
Debt and equity instruments,
excluding loans
(c)
(2,171)
(1)
(f)
(2,172)
(c)
2,587
(1)
2,586
2,482
(1)
(c)
2,481
Loans reported as trading
Changes in instrument-
Level 2
152.3
Carrying
value(a)(b)
Refer to Note 12 for further information about the
measurement of collateral-dependent loans.
(a) Included $379 million, $(134) million and $201 million for the years
ended December 31, 2021, 2020 and 2019, respectively, of net
gains/(losses) as a result of the measurement alternative.
$(933) $ (92)
$ 277
gains/(losses)
Total nonrecurring fair value
(11)
5
Accounts payable and other
liabilities
182
$ (274)
2019
2020
$(393)
(529)
344
Other assets
(a)
$ (72)
Loans
2021
December 31, (in millions)
The following table presents the total change in value of
assets and liabilities for which fair value adjustments have
been recognized for the years ended December 31, 2021,
2020 and 2019, related to assets and liabilities held at
those dates.
Nonrecurring fair value changes
(b) of the $856 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2021, $254 million related to residential real
estate loans carried at the net realizable value of the underlying collateral (e.g., collateral-dependent loans). These amounts are classified as level 3 as
they are valued using information from broker's price opinions, appraisals and automated valuation models and discounted based upon the Firm's
experience with actual liquidation values. These discounts ranged from 12% to 45% with a weighted average of 25%.
Total liabilities measured at fair value on a nonrecurring basis
(a) Primarily includes equity securities without readily determinable fair values that were adjusted based on observable price changes in orderly transactions
from an identical or similar investment of the same issuer (measurement alternative). Of the $1.6 billion in level 3 assets measured at fair value on a
nonrecurring basis as of December 31, 2021, $1.5 billion related to equity securities adjusted based on the measurement alternative. These equity
securities are classified as level 3 due to the infrequency of the observable prices and/or the restrictions on the shares.
12
$
$ 12
-
- $
JPMorgan Chase & Co./2021 Form 10-K
187
Notes to consolidated financial statements
Equity securities without readily determinable fair values
(in billions)
December 31, 2020
Estimated fair value hierarchy
December 31, 2021
Estimated fair value hierarchy
The following table presents by fair value hierarchy classification the carrying values and estimated fair values at
December 31, 2021 and 2020, of financial assets and liabilities, excluding financial instruments that are carried at fair value
on a recurring basis, and their classification within the fair value hierarchy.
JPMorgan Chase & Co./2021 Form 10-K
188
Certain financial instruments that are not carried at fair
value on the Consolidated balance sheets are carried at
amounts that approximate fair value, due to their short-
term nature and generally negligible credit risk. These
instruments include cash and due from banks, deposits with
banks, federal funds sold, securities purchased under resale
agreements and securities borrowed, short-term
receivables and accrued interest receivable, short-term
borrowings, federal funds purchased, securities loaned and
sold under repurchase agreements, accounts payable, and
accrued liabilities. In addition, U.S. GAAP requires that the
fair value of deposit liabilities with no stated maturity (i.e.,
demand, savings and certain money market deposits) be
equal to their carrying value; recognition of the inherent
funding value of these instruments is not permitted.
Financial instruments for which carrying value approximates
fair value
U.S. GAAP requires disclosure of the estimated fair value of
certain financial instruments, which are included in the
following table. However, this table does not include other
items, such as nonfinancial assets, intangible assets, certain
financial instruments, and customer relationships. In the
opinion of management, these items, in the aggregate, add
significant value to JPMorgan Chase, but their fair value is
not disclosed in this table.
Additional disclosures about the fair value of financial
instruments that are not carried on the Consolidated
balance sheets at fair value
Included in other assets above is the Firm's interest in approximately 40 million Visa Class B common shares, recorded at a
nominal carrying value. These shares are subject to certain transfer restrictions currently and will be convertible into Visa
Class A common shares upon final resolution of certain litigation matters involving Visa. The conversion rate of Visa Class B
common shares into Visa Class A common shares is 1.6181 at December 31, 2021, and may be adjusted by Visa depending on
developments related to the litigation matters.
(a) The period-end carrying values reflect cumulative purchases and sales in addition to upward and downward carrying value changes.
(b) The cumulative upward carrying value changes between January 1, 2018 and December 31, 2021 were $1.0 billion.
(c) The cumulative downward carrying value changes/impairment between January 1, 2018 and December 31, 2021 were $(369) million.
(301)
(53)
$
Downward carrying value changes/impairment (c)
2,368
$
3,642
432
Upward carrying value changes(b)
$
Carrying value (a)
2020
2021
Other assets
(in millions)
As of or for the year ended December 31,
The following table presents the carrying value of equity securities without readily determinable fair values held as of
December 31, 2021 and 2020, that are measured under the measurement alternative and the related adjustments recorded
during the periods presented for those securities with observable price changes. These securities are included in the
nonrecurring fair value tables when applicable price changes are observable.
In its determination of the new carrying values upon observable price changes, the Firm may adjust the prices if deemed
necessary to arrive at the Firm's estimated fair values. Such adjustments may include adjustments to reflect the different
rights and obligations of similar securities, and other adjustments that are consistent with the Firm's valuation techniques for
private equity direct investments.
The Firm measures certain equity securities without readily determinable fair values at cost less impairment (if any), plus or
minus observable price changes from an identical or similar investment of the same issuer (i.e., measurement alternative),
with such changes recognized in other income.
167
12
3,567
$
Accounts payable and other liabilities
3,478
$
2,468
$
1,010
$
$
Total assets measured at fair value on a nonrecurring basis
1,616
1,612
4
1,862
$
3
856
1,006
$
$
Other assets (a)
Loans
(b)
value
Level 3
Level 2
Level 1
December 31, 2021 (in millions)
Total fair
Fair value hierarchy
The following tables present the assets and liabilities held as of December 31, 2021 and 2020, for which nonrecurring fair
value adjustments were recorded during the years ended December 31, 2021 and 2020, by major product category and fair
value hierarchy.
$
Carrying
value
3
$
1,951
12
$
1,616
$
$
Accounts payable and other liabilities
Total assets measured at fair value on a nonrecurring basis
984
979
5
2,583
$
972
$
Total liabilities measured at fair value on a nonrecurring basis
1,611
$
Other assets
Loans
Total fair
value
Level 3
Level 2
Level 1
December 31, 2020 (in millions)
Fair value hierarchy
3
$
3
$
$
$
Level 1
Level 1
Total
estimated
Level 3 fair value
Accounts payable and other
liabilities
28.3
28.3
28.3
33.6
33.6
33.6
Short-term borrowings
59.5
59.5
59.5
67.9
67.9
67.9
under repurchase agreements
securities loaned or sold
Federal funds purchased and
$ 2,128.9
-
$ 2,128.9 $
$ 2,129.8 $
$ 2,451.0
$ 2,451.0 $
$ 2,451.0 $
Deposits
Financial liabilities
81.9
1.9
966.5
217.6
212.1
4.9
217.0
Total
Total
estimated
fair value
Level 3
Level 2
Level 1
Carrying
value(a))
(in billions)
December 31, 2020
Estimated fair value hierarchy
December 31, 2021
Estimated fair value hierarchy
The majority of the Firm's lending-related commitments are not carried at fair value on a recurring basis on the Consolidated
balance sheets. The carrying value and the estimated fair value of these wholesale lending-related commitments were as
follows for the periods indicated.
(a) Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal,
contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and
primary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. Carrying
value of the loan takes into account the loan's allowance for loan losses, which represents the loan's expected credit losses over its remaining expected
life. The difference between the estimated fair value and carrying value of a loan is generally attributable to changes in market interest rates, including
credit spreads, market liquidity premiums and other factors that affect the fair value of a loan but do not affect its carrying value.
212.4
3.2
17.6
755.6
209.2
204.8
17.5
10.8
232.6
-
10.8
229.5
3.1
226.0
Long-term debt
10.7
Beneficial interests issued by
consolidated VIES
186.2
4.3
181.9
186.6
17.6
210.9
80.0
81.8
940.1
89.4
0.1
89.3
89.4
102.1
0.1
102.0
102.1
Accrued interest and accounts
receivable
502.7
502.7
24.9
$
$
Federal funds sold and
24.9 $
$
26.4
714.4
-
26.4 $
4 $ 
- $ - $
714.4
714.4
Deposits with banks
$ 26.4 $
Cash and due from banks
Financial assets
Total
estimated
fair value
Level 3
Level 2
Level 1
Carrying
value
24.9 $
502.7
Level 2
securities purchased under
9.0
1,023.2
98.8
821.1
1.4
202.1
97.4
98.7
Other
1,002.5
(a)
loan losses
Loans, net of allowance for
205.5
Other changes in fair value
53.2
201.8
362.6
resale agreements
179.3
363.7
maturity
Investment securities, held-to-
107.7
58.3
107.7
58.3
107.7
124.6
58.3
9.0
16
124.6
Securities borrowed
183.3
(139) 2,056
Long-term debt: Changes in value attributable to
instrument-specific credit risk were derived principally
from observable changes in the Firm's credit spread as
observed in the bond market.
1,917
37,852
2,575
18,587
59,014
Healthcare
43,476
1,851
21,143
66,470
44,098
1,224
21,652
66,974
Industrials
26,237
9,277
31,059
66,573
30,846
9,351
41,031
81,228
Asset Managers
53,211
4,252
14,687
72,150
63,615
2,640
60,118
19,405
3,252
37,461
15,322
33,216
State & Municipal Govt(d)
20,208
5,995
17,128
43,331
22,094
720
11,759
34,573
Automotive
26,249
1,643
17,815
11,267
25,533
6,034
11,039
42,606
Oil & Gas
14,984
8,044
31,004
54,032
16,049
4,418
34,217
54,684
Banks & Finance Cos
39,159
1,563
84,070
Technology, Media &
Total consumer(a)
658,506
144,216
802,722
730,534
154,296
884,830
57,319
$
$
(i)
$ 45,334 $ 375,898 $ 318,579
$
(i)
$ 368,640 $ 323,306
Consumer, excluding credit card
Credit card (a)
sheet()
Derivatives
Loans
(4)
Off-balance
Credit
exposure
Off-balance
Derivatives sheet()
exposure(h) Loans
December 31, (in millions)
Credit
On-balance sheet
2020
2021
On-balance sheet
1,253,470
477,602
775,868
1,178,620
66,622
2,802
39,013
108,437
80,532
2,669
39,588
122,789
Consumer & Retail
11,374
1,750
109,746
122,870
10,080
Telecommunications
1,317
141,973
Individuals and Individual Entities (c)
28,814
1,385
118,299
148,498
34,203
1,113
119,753
155,069
Real Estate
Wholesale (b)
715,825
462,795
130,576
16,331
38,286
18,054
449,863
75,444
35,651
2,838
96,527 58,038
1,040,254 514,947
35,111
35,111
47,710
486,445 1,123,075
$ 57,081 $1,262,313 $2,301,695 $1,012,853
$ 2,456,753 $1,077,714
57,081
600,112
1,203,283
35,325
486,445
4,167
57,081
560,354
39,758
39,758
59,645
Total exposure(s)(h)
Total wholesale
Receivables from customers (f)
Loans held-for-sale and loans at fair value
1,103,880
Subtotal
72,198
(k)
111,690
All other(e)
2,741
4,838
469
8,048
2,451
1,260
550,058
75,444
449,863
$ 75,444
Assets and liabilities measured at fair value on a nonrecurring basis
JPMorgan Chase & Co./2021 Form 10-K
196
As permitted under U.S. GAAP, the Firm nets derivative
assets and liabilities, and the related cash collateral
receivables and payables, when a legally enforceable
master netting agreement exists between the Firm and the
derivative counterparty. Refer to Note 1 for further
discussion of the offsetting of assets and liabilities. The
accounting for changes in value of a derivative depends on
whether or not the transaction has been designated and
qualifies for hedge accounting. Derivatives that are not
designated as hedges are reported and measured at fair
value through earnings. The tabular disclosures on pages
200-207 of this Note provide additional information on the
amount of, and reporting for, derivative assets, liabilities,
gains and losses. Refer to Notes 2 and 3 for a further
discussion of derivatives embedded in structured notes.
All free-standing derivatives that the Firm executes for its
own account are required to be recorded on the
Consolidated balance sheets at fair value.
Accounting for derivatives
The Firm provides clearing services for clients in which the
Firm acts as a clearing member at certain exchanges and
clearing houses. The Firm does not reflect the clients'
derivative contracts in its Consolidated Financial
Statements. Refer to Note 28 for further information on the
Firm's clearing services.
Derivative clearing services
Refer to the risk management derivatives gains and losses
table on page 207 of this Note, and the hedge accounting
gains and losses tables on pages 204-206 of this Note for
more information about risk management derivatives.
Derivative counterparties and settlement types
The Firm enters into OTC derivatives, which are negotiated
and settled bilaterally with the derivative counterparty. The
Firm also enters into, as principal, certain ETD such as
futures and options, and OTC-cleared derivative contracts
with CCPS. ETD contracts are generally standardized
contracts traded on an exchange and cleared by the CCP,
which is the Firm's counterparty from the inception of the
transactions. OTC-cleared derivatives are traded on a
bilateral basis and then novated to the CCP for clearing.
Commodities derivatives are used to manage the price risk
of certain commodities inventories. Gains or losses on these
derivative instruments are expected to substantially offset
the depreciation or appreciation of the related inventory.
Credit derivatives are used to manage the counterparty
credit risk associated with loans and lending-related
commitments. Credit derivatives compensate the purchaser
when the entity referenced in the contract experiences a
credit event, such as bankruptcy or a failure to pay an
obligation when due. Credit derivatives primarily consist of
CDS. Refer to the Credit derivatives section on pages
207-210 of this Note for a further discussion of credit
derivatives.
Foreign currency derivatives are used to manage the
foreign exchange risk associated with certain foreign
currency-denominated (i.e., non-U.S. dollar) assets and
liabilities and forecasted transactions, as well as the Firm's
net investments in certain non-U.S. subsidiaries or branches
whose functional currencies are not the U.S. dollar. As a
result of fluctuations in foreign currencies, the U.S. dollar-
equivalent values of the foreign currency-denominated
assets and liabilities or the forecasted revenues or expenses
increase or decrease. Gains or losses on the derivative
instruments related to these foreign currency-denominated
assets or liabilities, or forecasted transactions, are expected
to substantially offset this variability.
The Firm generally uses interest rate derivatives to manage
the risk associated with changes in interest rates. Fixed-rate
assets and liabilities appreciate or depreciate in market
value as interest rates change. Similarly, interest income
and expense increase or decrease as a result of variable-
rate assets and liabilities resetting to current market rates,
and as a result of the repayment and subsequent
origination or issuance of fixed-rate assets and liabilities at
current market rates. Gains and losses on the derivative
instruments related to these assets and liabilities are
expected to substantially offset this variability.
The Firm manages certain market and credit risk exposures
using derivative instruments, including derivatives in hedge
accounting relationships and other derivatives that are used
to manage risks associated with specified assets and
liabilities.
Risk management derivatives
469
The majority of the Firm's derivatives are entered into for
market-making purposes. Clients use derivatives to mitigate
or modify interest rate, credit, foreign exchange, equity and
commodity risks. The Firm actively manages the risks from
its exposure to these derivatives by entering into other
derivative contracts or by purchasing or selling other
financial instruments that partially or fully offset the
exposure from client derivatives.
Derivative contracts derive their value from underlying
asset prices, indices, reference rates, other inputs or a
combination of these factors and may expose
counterparties to risks and rewards of an underlying asset
or liability without having to initially invest in, own or
exchange the asset or liability. JPMorgan Chase makes
markets in derivatives for clients and also uses derivatives
to hedge or manage its own risk exposures. Predominantly
all of the Firm's derivatives are entered into for market-
making or risk management purposes.
Note 5 - Derivative instruments
Notes to consolidated financial statements
195
JPMorgan Chase & Co./2021 Form 10-K
(k) Prior-period amounts have been revised to conform with the current presentation.
(j) Represents lending-related financial instruments.
(i) At December 31, 2021 and 2020, included $5.4 billion and $19.2 billion of loans in Business Banking under the PPP, respectively. PPP loans are
guaranteed by the SBA. Other than in certain limited circumstances, the Firm typically does not recognize charge-offs, classify as nonaccrual nor record an
allowance for loan losses on these loans.
(h) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against
derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(f) Receivables from customers reflect held-for-investment margin loans to brokerage clients in CIB, CCB and AWM that are collateralized by assets
maintained in the clients' brokerage accounts (e.g., cash on deposit, liquid and readily marketable debt or equity securities). Because of this
collateralization, no allowance for credit losses is generally held against these receivables. To manage its credit risk the Firm establishes margin
requirements and monitors the required margin levels on an ongoing basis, and requires clients to deposit additional cash or other collateral, or to reduce
positions, when appropriate. These receivables are reported within accrued interest and accounts receivable on the Firm's Consolidated balance sheets.
(g) Excludes cash placed with banks of $729.6 billion and $516.9 billion, at December 31, 2021 and 2020, respectively, which is predominantly placed with
various central banks, primarily Federal Reserve Banks.
(d) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2021 and 2020, noted above, the
Firm held: $7.1 billion and $7.2 billion, respectively, of trading assets; $15.9 billion and $20.4 billion, respectively, of AFS securities; and $14.0 billion
and $12.8 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. Refer to Note 2 and Note 10 for further information.
(e) All other includes: SPES and Private education and civic organizations, representing approximately 94% and 6%, respectively, at December 31, 2021 and
92% and 8%, respectively, at December 31, 2020. Refer to Note 14 for more information on exposures to SPES.
(c) Individuals and Individual Entities predominantly consists of Global Private Bank clients within AWM and includes exposure to personal investment
companies and personal and testamentary trusts.
(a) Also includes commercial card lending-related commitments primarily in CB and CIB.
(b) The industry rankings presented in the table as of December 31, 2020, are based on the industry rankings of the corresponding exposures at
December 31, 2021, not actual rankings of such exposures at December 31, 2020.
$1,165,688
Market-making derivatives
4,180
Securities Firms
2,739
Transportation
9,806
882
4,854
15,542
10,076
924
5,696
16,696
Metals & Mining
11,436
856
4,884
17,176
14,635
12,063
5,033
17,660
Chemicals & Plastics
21,910
3,340
4,874
30,124
23,498
3,736
5,969
33,203
Utilities
17,885
2,347
564
The table below presents both on-balance sheet and off-balance sheet consumer and wholesale credit exposure by the Firm's
three credit portfolio segments as of December 31, 2021 and 2020. The wholesale industry of risk category is generally based
on the client or counterparty's primary business activity.
5,453
8,400
3,757
19
6,515
1,885
2,487
5
4,377
Financial Markets Infrastructure
1,316
12,313
3,396
17,025
1,591
6,837
782
2,889
Central Govt
9,572
2,527
1,042
13,141
9,923
2,700
1,303
13,926
Insurance
8,171
1,495
6,566
16,232
11,317
JPMorgan Chase & Co./2021 Form 10-K
194
Terms of loan products and collateral coverage are included
in the Firm's assessment when extending credit and
establishing its allowance for loan losses.
Fair value
principal
outstanding
(under)
contractual
over/
Contractual
Fair value
2020
Fair value
over/
(under)
contractual
principal
outstanding
Fair value
Contractual
principal
outstanding
2021
Nonaccrual loans
Loans
December 31, (in millions)
Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal
balance outstanding as of December 31, 2021 and 2020, for loans, long-term debt and long-term beneficial interests for
which the fair value option has been elected.
Notes to consolidated financial statements
191
JPMorgan Chase & Co./2021 Form 10-K
Securities financing agreements: Generally, for these
types of agreements, there is a requirement that
collateral be maintained with a market value equal to or
in excess of the principal amount loaned; as a result,
there would be no adjustment or an immaterial
adjustment for instrument-specific credit risk related to
these agreements.
information, where available, or benchmarking to
similar entities or industries.
•
•
Loans and lending-related commitments: For floating-
rate instruments, all changes in value are attributed to
instrument-specific credit risk. For fixed-rate
instruments, an allocation of the changes in value for
the period is made between those changes in value that
are interest rate-related and changes in value that are
credit-related. Allocations are generally based on an
analysis of borrower-specific credit spread and recovery
•
The following describes how the gains and losses that are
attributable to changes in instrument-specific credit risk,
were determined.
Determination of instrument-specific credit risk for items
for which the fair value option was elected
(f) Prior-period amounts have been revised to conform with the current presentation.
(e) Changes in fair value exclude contractual interest, which is included in interest income and interest expense for all instruments other than certain hybrid
financial instruments recorded in CIB. Refer to Note 7 for further information regarding interest income and interest expense.
(d) Reported in other income.
principal
outstanding
Loans reported as trading assets
Loans
Subtotal
7,917
(1,066)
7,528
8,594
Loans
Loans reported as trading assets
All other performing loans (b)
(11)
317
328
(12)
281
293
(360)
(3,191)
(c) Reported in mortgage fees and related income.
1,507
2,062
(2,838)
1,343
4,181
1,867
(121)
797
555 $ (2,831)
$
3,386
546 $ (2,717) $
$
3,263
918
$
90 or more days past due and government guaranteed
Loans (a)
5,253
(b) Long-term debt measured at fair value predominantly relates to structured notes. Although the risk associated with the structured notes is actively
managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such
risk.
(a) Unrealized gains/(losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected are recorded in OCI
while realized gains/(losses) are recorded in principal transactions revenue. Realized gains/(losses) due to instrument-specific credit risk recorded in
principal transactions revenue were $(15) million and $20 million for the years ended December 31,2021 and 2020, respectively, and were not material
for the year ended December 31, 2019.
(6,172)
69
agreements
under repurchase
(1,730)
(1,730)
(726)
(726)
(183)
securities loaned or sold
Federal funds purchased and
Deposits (a)
14
6
8
Short-term borrowings (a)
38
(d)
(65)
103
(14)
(26)
12
(d)
Other assets
1,491
267 1,224
(c)
3,709
3,239 (c)
470
(d)
6,439
(366)
7
1
(6,173)
(2,121)
(1)
(c)
(c)
(16)
(16)
(94)
6
6
2
(693)
(8)
Trading liabilities
(8)
(693)
||||
(94)
(2,120)
(17)
(976)
2
7
294
(366)
(6)
69
4
(c)(d)
(17)
(980)
Long-term debt (a)(b)
Other liabilities
(6)
294
(c)
57,695
47
65 $ 5,057
1,022
6,409
$ 38,129 $
$ 38,988
7,210
1 $ 4,860
858
6,352
$ 34,127 $
Total
Long-term Short-term
debt borrowings Deposits
Total
Short-term
borrowings Deposits
Long-term
debt
December 31, 2020
December 31, 2021
Total structured notes
Commodity
Equity
Foreign exchange
Credit
Interest rate
Risk exposure
(in millions)
The following table presents the fair value of structured notes, by balance sheet classification and the primary risk type.
Structured note products by balance sheet classification and risk component
JPMorgan Chase & Co./2021 Form 10-K
192
At December 31, 2021 and 2020, the contractual amount of lending-related commitments for which the fair value option was
elected was $11.9 billion and $18.1 billion, respectively, with a corresponding fair value of $10 million and $(39) million,
respectively. Refer to Note 28 for further information regarding off-balance sheet lending-related financial instruments.
(d) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if
applicable, the contractual principal payment at the Firm's next call date.
(a) These balances are excluded from nonaccrual loans as the loans are insured and/or guaranteed by U.S. government agencies.
(b) There were no performing loans that were ninety days or more past due as of December 31, 2021 and 2020.
(c) Remaining contractual principal is not applicable to nonprincipal-protected structured notes and long-term beneficial interests. Unlike principal-protected
structured notes and long-term beneficial interests, for which the Firm is obligated to return a stated amount of principal at maturity, nonprincipal-
protected structured notes and long-term beneficial interests do not obligate the Firm to return a stated amount of principal at maturity, but for
structured notes to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. However, investors
are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal-protected notes.
$
43,251
7,431
29,317
405
The Firm does not believe that its exposure to any
particular loan product or industry segment results in a
significant concentration of credit risk.
The Firm's wholesale exposure is managed through loan
syndications and participations, loan sales, securitizations,
credit derivatives, master netting agreements, collateral
and other risk-reduction techniques. Refer to Note 12 for
additional information on loans.
In the Firm's consumer portfolio, concentrations are
managed primarily by product and by U.S. geographic
region, with a key focus on trends and concentrations at the
portfolio level, where potential credit risk concentrations
can be remedied through changes in underwriting policies
and portfolio guidelines. Refer to Note 12 for additional
information on the geographic composition of the Firm's
consumer loan portfolios. In the wholesale portfolio, credit
risk concentrations are evaluated primarily by industry and
monitored regularly on both an aggregate portfolio level
and on an individual client or counterparty basis.
Concentrations of credit risk arise when a number of clients,
counterparties or customers are engaged in similar
business activities or activities in the same geographic
region, or when they have similar economic features that
would cause their ability to meet contractual obligations to
be similarly affected by changes in economic conditions.
JPMorgan Chase regularly monitors various segments of its
credit portfolios to assess potential credit risk
concentrations and to obtain additional collateral when
deemed necessary and permitted under the Firm's
agreements. Senior management is significantly involved in
the credit approval and review process, and risk levels are
adjusted as needed to reflect the Firm's risk appetite.
Note 4 - Credit risk concentrations
Notes to consolidated financial statements
193
JPMorgan Chase & Co./2021 Form 10-K
(a) Excludes deposits linked to precious metals for which the fair value option has not been elected of $692 million and $739 million for the years ended
December 31, 2021 and 2020, respectively.
$ 93,739
6,213 $ 12,182
$ 92,642 $ 75,344 $
8,001 $ 11,054
$ 73,587 $
ΝΑ
38,857
495
13
(a)
6,893
3,705
92
5,021
26,943
250
41,269
408
(a)
5,125
3
-
3,613
4,767
1,066
315
6,827
232
41
$
ΝΑ
40,560
(2,158) $
33,799 $
$
35,957
$
(d)
(d)
Principal-protected debt
(4,052)
51,468 $
$
55,520
(3,869) $
$
66,894 $
70,763
$
(850)
49,089
49,939
(1,019)
65,270
66,289
Long-term debt
Total loans
Subtotal
(1,478)
628
42,650
42,022
$
57,742
40,526 $
Nonprincipal-protected debt (c)
ΝΑ
12
$
ΝΑ
ΝΑ
41
$
ΝΑ
NA
12
$
NA
Total long-term beneficial interests
Nonprincipal-protected debt (c)
(34)
Long-term beneficial interests
76,817
$
ΝΑ
ΝΑ
74,934
$
NA
Total long-term debt
ΝΑ
36,291
ΝΑ
ΝΑ
41,135
ΝΑ
ΝΑ
3,386
(183)
86
6
December 31, (in millions)
2021
Single-notch Two-notch
downgrade downgrade
219 $
98
Amount of additional collateral to be posted upon downgrade (a)
$
Amount required to settle contracts with termination triggers upon downgrade (b)
(a) Includes the additional collateral to be posted for initial margin.
(b) Amounts represent fair values of derivative payables, and do not reflect collateral posted.
(c) Prior-period amount has been revised to conform with the current presentation.
Derivatives executed in contemplation of a sale of the underlying financial asset
2020
Single-notch Two-notch
downgrade downgrade
1,577
787
$
119 $
153
1,243
(c)
1,682
In certain instances the Firm enters into transactions in which it transfers financial assets but maintains the economic exposure
to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The
Firm generally accounts for such transfers as collateralized financing transactions as described in Note 11, but in limited
circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. The amount of such transfers
accounted for as a sale where the associated derivative was outstanding was not material at both December 31, 2021 and
2020.
JPMorgan Chase & Co./2021 Form 10-K
203
Notes to consolidated financial statements
Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives
Impact of derivatives on the Consolidated statements of income
(a) Prior-period amount has been revised to conform with the current presentation.
The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan
Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, N.A., at December 31, 2021 and 2020, related to OTC
and OTC-cleared derivative contracts with contingent collateral or termination features that may be triggered upon a ratings
downgrade. Derivatives contracts generally require additional collateral to be posted or terminations to be triggered when the
predefined rating threshold is breached. A downgrade by a single rating agency that does not result in a rating lower than a
preexisting corresponding rating provided by another major rating agency will generally not result in additional collateral
(except in certain instances in which additional initial margin may be required upon a ratings downgrade), nor in termination
payment requirements. The liquidity impact in the table is calculated based upon a downgrade below the lowest current rating
of the rating agencies referred to in the derivative contract.
26,289
$
(5,872)
44,244
(11,964)
$ 58,659
(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b) Includes liquid securities and other cash collateral held at third-party custodians related to derivative instruments where an appropriate legal opinion has
been obtained. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative payables
balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with that
counterparty.
(c) Derivative collateral relates only to OTC and OTC-cleared derivative instruments.
(d) Net derivatives receivable included cash collateral netted of $67.6 billion and $88.0 billion at December 31, 2021 and 2020, respectively. Net derivatives
payable included cash collateral netted of $64.3 billion and $78.4 billion at December 31, 2021 and 2020, respectively. Derivative cash collateral relates
to OTC and OTC-cleared derivative instruments.
(e) Prior-period amounts have been revised to conform with the current presentation.
202
JPMorgan Chase & Co./2021 Form 10-K
Liquidity risk and credit-related contingent features
In addition to the specific market risks introduced by each derivative contract type, derivatives expose JPMorgan Chase to
credit risk - the risk that derivative counterparties may fail to meet their payment obligations under the derivative contracts
and the collateral, if any, held by the Firm proves to be of insufficient value to cover the payment obligation. It is the policy of
JPMorgan Chase to actively pursue, where possible, the use of legally enforceable master netting arrangements and collateral
agreements to mitigate derivative counterparty credit risk inherent in derivative receivables.
While derivative receivables expose the Firm to credit risk, derivative payables expose the Firm to liquidity risk, as the
derivative contracts typically require the Firm to post cash or securities collateral with counterparties as the fair value of the
contracts moves in the counterparties' favor or upon specified downgrades in the Firm's and its subsidiaries' respective credit
ratings. Certain derivative contracts also provide for termination of the contract, generally upon a downgrade of either the
Firm or the counterparty, at the fair value of the derivative contracts. The following table shows the aggregate fair value of net
derivative payables related to OTC and OTC-cleared derivatives that contain contingent collateral or termination features that
may be triggered upon a ratings downgrade, and the associated collateral the Firm has posted in the normal course of
business, at December 31, 2021 and 2020.
OTC and OTC-cleared derivative payables containing downgrade triggers
December 31, (in millions)
2021
Aggregate fair value of net derivative payables
$
20,114
$
2020
26,945
(a)
19,402
Collateral posted
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting
designation or purpose.
Fair value hedge gains and losses
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well
as pre-tax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 2021,
2020 and 2019, respectively. The Firm includes gains/(losses) on the hedging derivative in the same line item in the
Consolidated statements of income as the related hedged item.
$ (15,249) $
9,710
17,422 $
101
72
2,173
$
(286) $
2,263
$
(26)
Gains/(losses) recorded in income
Income statement impact of
excluded components
(e)
OCI impact
Year ended December 31, 2020
(in millions)
Contract type
Interest rate (a)(b)
Foreign exchange
(c)
Commodity (d)
Total
Derivatives
Total
(26)
32
(286)
Gains/(losses) recorded in income
Income statement impact of
excluded components
(e)
OCI impact
Year ended December 31, 2021
(in millions)
Contract type
Derivatives Hedged items
Income
statement
impact
Amortization
approach
Changes in fair
value
Net amounts
Derivatives -
Gains/(losses).
recorded in OCI (f)
$
Foreign exchange (c)
Commodity (d)
(4,323) $
(1,317)
(9,609)
6,363 $
2,040 $
$
2,159
$
1,349
32
Interest rate (a)(b)
$ 70,623
$ 688,887
50,116
(8,781)
(4,056)
(12,837)
1,530
19
1,549
Foreign exchange contracts:
OTC
171,610
(160,946)
10,664
OTC-cleared
706
(703)
3
Exchange-traded (a)
7
-
7
210,803
836
34
(193,672)
(819)
(2)
17,131
17
32
Total foreign exchange contracts
172,323
4,075
14,386
668
(10,032)
10,700
(e)
$ 332,214
$ (321,140) $ 11,074
19,710
(19,494)
216
4
358
239,563
(232,537)
7,026
(161,649)
352,282
17
11,307
(e)
(e)
9,021
1,679
(8,421)
600
10,311
(1,611)
68
Total credit contracts
(341)
(340,975)
Hedged items
10,674
(194,493)
69,821
(55,515)
14,306
14,874
73
(73)
8,954 (8,476)
23,901 (18,216)
518,487 (484,928)
(9,667)
5,207
10,365
(7,544)
2,821
32
478
5,685
33,559
(d)
7,391
17,788
665,950
(32)
(6,868)
(14,444)
(618,264)
523
3,344
47,686
(d)
16,557
16,557
22,937
22,937
$ 535,044
$
9,506
(62,494)
72,000
Collateral not nettable on the Consolidated balance
sheets(b)(c)
17,180
Equity contracts:
OTC
31,379
(27,830)
3,549
35,330
(28,763)
6,567
Exchange-traded (a)
40,621
211,673
(34,664)
34,491
(26,752)
7,739
Total equity contracts
Commodity contracts:
OTC
OTC-cleared
Exchange-traded (a)
Total commodity contracts
Derivative payables with appropriate legal opinion
Derivative payables where an appropriate legal
opinion has not been either sought or obtained
Total derivative payables recognized on the
Consolidated balance sheets
5,957
(e)
Income
statement
impact
Changes in fair
value
Cash flow hedge gains and losses
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and
the pre-tax gains/(losses) recorded on such derivatives, for the years ended December 31, 2021, 2020 and 2019,
respectively. The Firm includes the gains/(losses) on the hedging derivative in the same line item in the Consolidated
statements of income as the change in cash flows on the related hedged item.
Derivatives gains/(losses) recorded in income and other
comprehensive income/(loss)
Year ended December 31, 2021
(in millions)
Contract type
Interest rate (a)
Foreign exchange (b)
Total
Year ended December 31, 2020
(in millions)
Contract type
Interest rate (a)
Foreign exchange (b)
Total
Year ended December 31, 2019
(in millions)
Contract type
Interest rate (a)
Foreign exchange (b)
Total
Amounts
reclassified from
AOCI to income
Amounts recorded
in OCI
Notes to consolidated financial statements
Total change
in OCI
for period
205
(e) Represents basis adjustments existing on the balance sheet date associated with hedged items that have been de-designated from qualifying fair value
hedging relationships.
Active hedging
relationships"
Discontinued
hedging
relationships
(d)(e)
Total
$
(c)
139,684 $
3,572 $
847 $
4,419
Long-term debt
$
177,611
$
3,194 $
746
11,473 $
(3)
14,667
(3)
Beneficial interests issued by consolidated VIES
(a) Excludes physical commodities with a carrying value of $25.7 billion and $11.5 billion at December 31, 2021 and 2020, respectively, to which the Firm
applies fair value hedge accounting. As a result of the application of hedge accounting, these inventories are carried at fair value, thus recognizing
unrealized gains and losses in current periods. Since the Firm exits these positions at fair value, there is no incremental impact to net income in future
periods.
(b) Excludes hedged items where only foreign currency risk is the designated hedged risk, as basis adjustments related to foreign currency hedges will not
reverse through the income statement in future periods. At December 31, 2021 and 2020, the carrying amount excluded for AFS securities is
$14.0 billion and $14.5 billion, respectively, and for long-term debt is $10.8 billion and $6.6 billion, respectively.
(c) Carrying amount represents the amortized cost, net of allowance if applicable. Refer to Note 10 for additional information.
(d) Positive amounts related to assets represent cumulative fair value hedge basis adjustments that will reduce net interest income in future periods. Positive
(negative) amounts related to liabilities represent cumulative fair value hedge basis adjustments that will increase (reduce) net interest income in future
periods.
JPMorgan Chase & Co./2021 Form 10-K
$
$
1,032 $
190
1,222 $
122 $
225
(a) Primarily consists of hedges of contractually specified floating-rate (e.g., LIBOR and SOFR-indexed) assets and liabilities. Gains and losses were recorded in
net interest income.
(b) Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of
gains and losses follows the hedged item - primarily noninterest revenue and compensation expense.
The Firm did not experience any forecasted transactions that failed to occur for the years ended 2021, 2020 and 2019.
Over the next 12 months, the Firm expects that approximately $671 million (after-tax) of net gains recorded in AOCI at
December 31, 2021, related to cash flow hedges will be recognized in income. For cash flow hedges that have been
terminated, the maximum length of time over which the derivative results recorded in AOCI will be recognized in earnings is
approximately eight years, corresponding to the timing of the originally hedged forecasted cash flows. For open cash flow
hedges, the maximum length of time over which forecasted transactions are hedged is approximately six years. The Firm's
longer-dated forecasted transactions relate to core lending and borrowing activities.
Net investment hedge gains and losses
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting
relationships, and the pre-tax gains/(losses) recorded on such instruments for the years ended December 31, 2021, 2020 and
2019.
Year ended December 31,
(in millions)
Foreign exchange derivatives
2021
2020
2019
Amounts
recorded in
income (a)(b)
$(228)
Amounts
recorded in
OCI
$2,452
Amounts
recorded in
income (a)(b)
$(122)
Amounts
recorded in
OCI
$(1,408)
Amounts
recorded in
income(a)(b)
$72
Amounts
recorded in
OCI
$64
(a) Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign
exchange forward contracts. The Firm elects to record changes in fair value of these amounts directly in other income.
(b) Excludes amounts reclassified from AOCI to income on the sale or liquidation of hedged entities. The amount reclassified for the year ended December 31,
2021 was not material. The Firm reclassified net pre-tax gains of $3 million and $18 million to other income related to the liquidation of certain legal
entities during the years ended December 31, 2020 and 2019, respectively. Refer to Note 24 for further information.
206
200
125
25
(3) $
(2,370) $
67
(3,402)
(123)
(2,303) $
(3,525)
Derivatives gains/(losses) recorded in income and other
comprehensive income/(loss)
Amounts
reclassified from
AOCI to income
Amounts recorded
in OCI
Total change
in OCI
for period
$
570 $
items a
3,582 $
41
41
$
570 $
3,623 $
3,053
$
Derivatives gains/(losses) recorded in income and other
comprehensive income/(loss)
Amounts
reclassified from
AOCI to income
Amounts recorded
in OCI
Total change
in OCI
for period
(28) $
(75)
(103) $
3,012
of the hedged
Carrying amount
Cumulative amount of fair value hedging adjustments
included in the carrying amount of hedged items:
Interest rate
(a)(b)
Foreign exchange (c)
Commodity (d)
Total
Gains/(losses) recorded in income
Income statement impact of
(e)
excluded components"
OCI impact
Derivatives
Hedged items
Income
statement
impact
Amortization
approach
Changes in fair
value
Derivatives -
Gains/(losses),
recorded in OCI(f)
$
$
3,204 $
154
(77)
3,281 $
(2,373) $
328
831
$
$
828
Contract type
(in millions)
Year ended December 31, 2019
25
Derivatives -
Gains/(losses)
recorded in OCI (f)
$
2,962 $
793
(1,889) $
1,073 $
$
(619)
174
(457)
1,093
174
$
$
25
2,650
143
137
$
1,248 $
142 $
1,390
$
(457) $
1,404
$
(2,507)
Amortization
approach
482
482
(d)(e)
Total
(c)
$
65,746
$
417 $
661 $
1,078
Long-term debt
$
195,642
$
(1,999) $
Beneficial interests issued by consolidated VIES
749
8,834 $
(1)
6,835
(1)
December 31, 2020
(in millions)
Assets
Investment securities - AFS
Liabilities
Discontinued
hedging
relationships
Active hedging
relationships
items (a
of the hedged
39
148
(1,897) $
71
1,384 $
63
(866) $
1,373
$
39
(a) Primarily consists of hedges of the benchmark (e.g., London Interbank Offered Rate ("LIBOR"), Secured Overnight Financing Rate ("SOFR")) interest rate
risk of fixed-rate long-term debt and AFS securities. Gains and losses were recorded in net interest income.
(b) Excludes the amortization expense associated with the inception hedge accounting adjustment applied to the hedged item. This expense is recorded in net
interest income and substantially offsets the income statement impact of the excluded components. Also excludes the accrual of interest on interest rate
swaps and the related hedged items.
(c) Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses
related to the derivatives and the hedged items due to changes in foreign currency rates and the income statement impact of excluded components were
recorded primarily in principal transactions revenue and net interest income.
(866)
(d) Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or net realizable value (net
realizable value approximates fair value). Gains and losses were recorded in principal transactions revenue.
(f) Represents the change in value of amounts excluded from the assessment of effectiveness under the amortization approach, predominantly cross-
currency basis spreads. The amount excluded at inception of the hedge is recognized in earnings over the life of the derivative.
204
JPMorgan Chase & Co./2021 Form 10-K
As of December 31, 2021 and 2020, the following amounts were recorded on the Consolidated balance sheets related to
certain cumulative fair value hedge basis adjustments that are expected to reverse through the income statement in future
periods as an adjustment to yield.
Cumulative amount of fair value hedging adjustments
included in the carrying amount of hedged items:
December 31, 2021
(in millions)
Assets
Investment securities - AFS
Liabilities
Carrying amount
(e) The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward
points on foreign exchange forward contracts, time values and cross-currency basis spreads. Excluded components may impact earnings either through
amortization of the initial amount over the life of the derivative or through fair value changes recognized in the current period.
JPMorgan Chase & Co./2021 Form 10-K
223,576 $ (216,757) $ 6,819
15,695
203
292
$
Written options
135
124
Purchased options
111
105
Total commodity contracts
619
565
Total derivative notional amounts $
49,735
$
47,175
(a) Refer to the Credit derivatives discussion on pages 207-210 for more
information on volumes and types of credit derivative contracts.
(b) Represents the sum of gross long and gross short third-party notional
derivative contracts.
(c) Prior-period amounts have been revised to conform with the current
presentation.
While the notional amounts disclosed above give an
indication of the volume of the Firm's derivatives activity,
the notional amounts significantly exceed, in the Firm's
view, the possible losses that could arise from such
transactions. For most derivative contracts, the notional
amount is not exchanged; it is simply a reference amount
used to calculate payments.
JPMorgan Chase & Co./2021 Form 10-K
199
Notes to consolidated financial statements
Impact of derivatives on the Consolidated balance sheets
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that
are reflected on the Firm's Consolidated balance sheets as of December 31, 2021 and 2020, by accounting designation (e.g.,
whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Free-standing derivative receivables and payables (a)
198
Gross derivative receivables
188
138
13,259
12,450
Equity contracts
Swaps
Futures and forwards
Written options
Purchased options
612
448
139
140
654
(c)
668
(c)
598
610
2,003
1,866
Total equity contracts
Commodity contracts
Swaps
185
Spot, futures and forwards
Gross derivative payables
December 31, 2021
(in millions)
12,625
10,912
174,622
10,912
880
1,124
175,746
14,097
Equity
68,631
68,631
9,981
Commodity
21,233
5,420
26,653
11,470
79,727
20,837
79,727
17,233
7,091
27,928
9,712
Total fair value of trading
169,579
393
169,186
Foreign exchange
Not
designated
as hedges
Designated as
hedges
Total
derivative
receivables
Net
derivative
receivables (b)
Not
designated
as hedges
Designated
as hedges
Total
derivative
payables
Net
derivative
payables (b
Trading assets and
liabilities
Total foreign exchange contracts
Interest rate
$
23
Credit
9,839
-
$ 270,585
9,839
$ 21,974
1,031
$ 240,731
$
$ 240,731
$ 8,194
$ 270,562
825
727
Purchased options
• Foreign exchange
Hedge foreign currency-denominated forecasted revenue and
expense
Cash flow hedge
Corporate
206
• Foreign exchange
Hedge the value of the Firm's investments in non-U.S. dollar
functional currency entities
Net investment hedge
Corporate
206
• Commodity
Hedge commodity inventory
Fair value hedge
CIB, AWM
204-205
• Interest rate and
foreign exchange
Manage specifically identified risk exposures not designated in qualifying hedge accounting relationships:
• Interest rate
Manage the risk associated with mortgage commitments, warehouse
loans and MSRS
• Credit
Manage the credit risk associated with wholesale lending exposures
Manage the risk associated with certain other specified assets and
liabilities
Market-making derivatives and other activities:
Specified risk management
CCB
207
206
204-205
Corporate
Fair value hedge
Hedge foreign currency-denominated assets and liabilities
To qualify for hedge accounting, a derivative must be highly
effective at reducing the risk associated with the exposure
being hedged. In addition, for a derivative to be designated
as a hedge, the risk management objective and strategy
must be documented. Hedge documentation must identify
the derivative hedging instrument, the asset or liability or
forecasted transaction and type of risk to be hedged, and
how the effectiveness of the derivative is assessed
prospectively and retrospectively. To assess effectiveness,
the Firm uses statistical methods such as regression
analysis, nonstatistical methods such as dollar-value
comparisons of the change in the fair value of the derivative
to the change in the fair value or cash flows of the hedged
item, and qualitative comparisons of critical terms and the
evaluation of any changes in those terms. The extent to
which a derivative has been, and is expected to continue to
be, highly effective at offsetting changes in the fair value or
cash flows of the hedged item must be assessed and
documented at least quarterly. If it is determined that a
derivative is not highly effective at hedging the designated
exposure, hedge accounting is discontinued.
There are three types of hedge accounting designations: fair
value hedges, cash flow hedges and net investment hedges.
JPMorgan Chase uses fair value hedges primarily to hedge
fixed-rate long-term debt, AFS securities and certain
commodities inventories. For qualifying fair value hedges,
the changes in the fair value of the derivative, and in the
value of the hedged item for the risk being hedged, are
recognized in earnings. Certain amounts excluded from the
assessment of effectiveness are recorded in OCI and
recognized in earnings over the life of the derivative. If the
hedge relationship is terminated, then the adjustment to
the hedged item continues to be reported as part of the
basis of the hedged item, and for benchmark interest rate
hedges, is amortized to earnings as a yield adjustment.
Derivative amounts affecting earnings are recognized
consistent with the classification of the hedged item -
primarily net interest income and principal transactions
revenue.
JPMorgan Chase uses cash flow hedges primarily to hedge
the exposure to variability in forecasted cash flows from
floating-rate assets and liabilities and foreign currency-
denominated revenue and expense. For qualifying cash flow
hedges, changes in the fair value of the derivative are
recorded in OCI and recognized in earnings as the hedged
item affects earnings. Derivative amounts affecting
earnings are recognized consistent with the classification of
the hedged item - primarily noninterest revenue, net
interest income and compensation expense. If the hedge
relationship is terminated, then the change in value of the
derivative recorded in AOCI is recognized in earnings when
the cash flows that were hedged affect earnings. For hedge
relationships that are discontinued because a forecasted
transaction is expected to not occur according to the
original hedge forecast, any related derivative values
recorded in AOCI are immediately recognized in earnings.
JPMorgan Chase uses net investment hedges to protect the
value of the Firm's net investments in certain non-U.S.
subsidiaries or branches whose functional currencies are
not the U.S. dollar. For qualifying net investment hedges,
changes in the fair value of the derivatives due to changes
in spot foreign exchange rates are recorded in OCI as
translation adjustments. Amounts excluded from the
assessment of effectiveness are recorded directly in
earnings.
JPMorgan Chase & Co./2021 Form 10-K
197
Notes to consolidated financial statements
The following table outlines the Firm's primary uses of derivatives and the related hedge accounting designation or disclosure
category.
Affected
Page
Type of Derivative
Specified risk management
Specified risk management Corporate
Use of Derivative
Manage specifically identified risk exposures in qualifying hedge accounting relationships:
• Interest rate
Hedge fixed rate assets and liabilities
Fair value hedge
Corporate
204-205
• Interest rate
Hedge floating-rate assets and liabilities
Cash flow hedge
Corporate
⚫ Foreign exchange
Designation and disclosure segment or unit reference
assets and liabilities
CIB
207
3,018
3,375
Purchased options
3,188
3,675
Total interest rate contracts
32,801
31,097
Credit derivatives"
(a)
(c)
1,053
1,197
Foreign exchange contracts
Cross-currency swaps
4,112
3,924
Spot, futures and forwards
7,679
6,871
Written options
741
830
Written options
3,057
2,520
Futures and forwards
• Various
• Various
Market-making and related risk management
Other derivatives
Market-making and other
Market-making and other
CIB
207
CIB, AWM,
207
Corporate
198
207
JPMorgan Chase & Co./2021 Form 10-K
The following table summarizes the notional amount of
free-standing derivative contracts outstanding as of
December 31, 2021 and 2020.
December 31, (in billions)
Notional amounts (b)
2021
2020
Interest rate contracts
Swaps
$
24,075 $ 20,990
(c)
Notional amount of derivative contracts
(15,492)
(288)
$ 539,451
$ 545,287
166,980
(156,954)
10,026
202,218
(190,479)
11,739
Equity contracts:
OTC
Exchange-traded (a)
Total equity contracts
(e)
25,704
36,095
61,799
(23,977)
(34,673)
(58,650)
1,727
1,422
3,149
29,844
28,294
58,138
(27,374)
2,470
(26,751)
1,543
(54,125)
4,013
Total foreign exchange contracts
Commodity contracts:
30
11,694
8,035
1,671
9,706
(7,177)
(1,631)
(8,808)
858
40
898
8,894
4,326
13,220
(8,356) (e)
(4,309)
(12,665)
538
17
555
Total credit contracts
Foreign exchange contracts:
OTC
166,185
(156,251)
9,934
201,349
OTC-cleared
789
(703)
Exchange-traded (a)
6
834
35
(189,655)
(819)
(5)
15
OTC
OTC-cleared
Exchange-traded (a)
(14,806)
$ 60,638
JPMorgan Chase & Co./2021 Form 10-K
201
Notes to consolidated financial statements
December 31, (in millions)
U.S. GAAP nettable derivative payables
Interest rate contracts:
OTC
OTC-cleared
Exchange-traded (a)
Total interest rate contracts
Credit contracts:
OTC
OTC-cleared
2021
Gross
derivative
payables
Amounts
netted on the
Consolidated
balance sheets
Net
derivative
payables
Gross
derivative
payables
2020
Amounts netted
on the
Consolidated
balance sheets
Net
derivative
payables
(10,102)
46,979
$
Net amounts
Collateral not nettable on the Consolidated balance
sheets(c)
Total commodity contracts
Derivative receivables with appropriate legal opinion
Derivative receivables where an appropriate legal
opinion has not been either sought or obtained
Total derivative receivables recognized on the
Consolidated balance sheets
15,063
49
(6,868)
(49)
8,279
(8,266)
23,391 (15,183)
528,471 (488,206)
8,195
10,924
13
8,208
40,265
(d)
20
6,833
17,777
677,461
(7,901)
(20)
(6,811)
(e)
3,023
22
3,045
49,537
(d)
16,816
16,816
25,907
25,907
$ 545,287
$
57,081
$ 703,368
$ 75,444
(14,732)
(627,924)
30,185
(355,923)
159
$ 391,648
13,345
206,260
Equity
(c)
Commodity
70,612
20,579
924
70,612
21,503
$ 35,725
680
15,781
16,487
6,771
$ 353,987
$
$ 353,987
$ 13,012
(c)
14,832
214,229
14,832
1,995
1,697
215,926
21,433
(c)
81,413
20,834
81,413
25,898
901
205,359
Foreign exchange
13,345 (c)
$
57,081
$ 526,829
$ 8,215
$ 535,044 $ 50,116
December 31, 2020
(in millions)
Trading assets and
liabilities
Gross derivative receivables
Not
designated
as hedges
Total
Designated as derivative
hedges receivables
Net
derivative
receivables (b)
1,895
Gross derivative payables
as hedges
Designated
as hedges
Total
derivative
payables
Net
derivative
payables
(c)
Interest rate
(c)
$ 390,817
$
831
Credit
Not
designated
$ 5,836
22,729
Total fair value of trading
Interest rate contracts:
OTC
OTC-cleared
Exchange-traded (a)
Total interest rate contracts
Credit contracts:
OTC
OTC-cleared
(e)
(e)
$ 251,953 $ (234,283) $ 17,670
$ 367,214
$ (337,609)
$ 29,605
14,144
498
266,595
(13,839)
(489)
(248,611)
305
9
17,984
18,340
554
386,108
(17,919)
(395)
421
U.S. GAAP nettable derivative receivables
derivative
receivables
Net
2020
Amounts netted
on the
Consolidated
balance sheets
assets and liabilities
$ 700,712
$ 2,656
$ 703,368 $
75,444
$ 685,295
$ 3,592 $ 688,887 $ 70,623
(a) Balances exclude structured notes for which the fair value option has been elected. Refer to Note 3 for further information.
(b) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and
payables when a legally enforceable master netting agreement exists.
(c) Prior-period amounts have been revised to conform with the current presentation.
200
8,285
JPMorgan Chase & Co./2021 Form 10-K
The following tables present, as of December 31, 2021 and 2020, gross and net derivative receivables and payables by
contract and settlement type. Derivative receivables and payables, as well as the related cash collateral from the same
counterparty, have been netted on the Consolidated balance sheets where the Firm has obtained an appropriate legal opinion
with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, amounts are
not eligible for netting on the Consolidated balance sheets, and those derivative receivables and payables are shown
separately in the tables below.
In addition to the cash collateral received and transferred that is presented on a net basis with derivative receivables and
payables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate
counterparty credit risk associated with the Firm's derivative instruments, but are not eligible for net presentation:
•
collateral that consists of liquid securities and other cash collateral held at third-party custodians, which are shown
separately as "Collateral not nettable on the Consolidated balance sheets" in the tables below, up to the fair value exposure
amount. For the purpose of this disclosure, the definition of liquid securities is consistent with the definition of high quality
liquid assets as defined in the LCR rule;
the amount of collateral held or transferred that exceeds the fair value exposure at the individual counterparty level, as of
the date presented, which is excluded from the tables below; and
collateral held or transferred that relates to derivative receivables or payables where an appropriate legal opinion has not
been either sought or obtained with respect to the master netting agreement, which is excluded from the tables below.
December 31, (in millions)
2021
Amounts
Gross
netted on the
derivative Consolidated
receivables balance sheets
Net
derivative
receivables
Gross
derivative
receivables
Derivatives netting
The Firm applies hedge accounting to certain derivatives
executed for risk management purposes - generally interest
rate, foreign exchange and commodity derivatives.
However, JPMorgan Chase does not seek to apply hedge
accounting to all of the derivatives involved in the Firm's
risk management activities. For example, the Firm does not
apply hedge accounting to purchased CDS used to manage
the credit risk of loans and lending-related commitments,
because of the difficulties in qualifying such contracts as
hedges. For the same reason, the Firm does not apply
hedge accounting to certain interest rate, foreign exchange,
and commodity derivatives used for risk management
purposes.
Derivatives designated as hedges
2,786
10,630
13,416
2021
Derivatives gains/(losses)
recorded in income
Foreign exchange (c)
Total
Credit (b)
Interest rate (a)
Contract type
(in millions)
Year ended December 31,
The following table presents pre-tax gains/(losses)
recorded on a limited number of derivatives, not designated
in hedge accounting relationships, that are used to manage
risks associated with certain specified assets and liabilities,
including certain risks arising from mortgage commitments,
warehouse loans, MSRS, wholesale lending exposures, and
foreign currency denominated assets and liabilities.
Gains and losses on derivatives used for specified risk
management purposes
Year ended December 31,
(in millions)
Underwriting
Equity
Debt
2020
Total underwriting
2021
2020
2019
4,853
$ 3,969 $ 2,759 $ 1,648
4,362
8,822
7,121
3,513
5,161
4,394
2,365
2,340
Total investment banking fees $ 13,216 $ 9,486 $ 7,501
Investment banking fees are earned primarily by CIB. Refer
to Note 32 for segment results.
•
Principal transactions
Advisory
2019
$ 1,078
(94)
94
December 31, 2020 (in millions)
Total
Credit-related notes (b
Total credit derivatives
Other credit derivatives (a)
Credit default swaps
Credit derivatives
December 31, 2021 (in millions)
Total credit derivatives and credit-related notes
The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives,
because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value
of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm's view, the
risks associated with such derivatives.
JPMorgan Chase & Co./2021 Form 10-K
208
The following tables present a summary of the notional
amounts of credit derivatives and credit-related notes the
Firm sold and purchased as of December 31, 2021 and
2020. Upon a credit event, the Firm as a seller of protection
would typically pay out only a percentage of the full
notional amount of net protection sold, as the amount
actually required to be paid on the contracts takes into
account the recovery value of the reference obligation at
the time of settlement. The Firm manages the credit risk on
contracts to sell protection by purchasing protection with
identical or similar underlying reference entities. Other
purchased protection referenced in the following tables
includes credit derivatives bought on related, but not
identical, reference positions (including indices, portfolio
coverage and other reference points) as well as protection
purchased by CIB through credit-related notes primarily in
its market-making businesses. In addition, the Firm obtains
credit protection against certain loans in the retained
consumer portfolio through the issuance of credit-related
notes. Since these credit-related notes are not part of the
market-making businesses they are not included in the
table below.
A credit-related note is a funded credit derivative where the
issuer of the credit-related note purchases from the note
investor credit protection on a reference entity or an index.
Under the contract, the investor pays the issuer the par
value of the note at the inception of the transaction, and in
return, the issuer pays periodic payments to the investor,
based on the credit risk of the referenced entity. The issuer
also repays the investor the par value of the note at
maturity unless the reference entity (or one of the entities
that makes up a reference index) experiences a specified
credit event. If a credit event occurs, the issuer is not
obligated to repay the par value of the note, but rather, the
issuer pays the investor the difference between the par
value of the note and the fair value of the defaulted
reference obligation at the time of settlement. Neither party
to the credit-related note has recourse to the defaulting
reference entity.
Credit-related notes
For both single-name CDS contracts and index CDS
contracts, upon the occurrence of a credit event, under the
terms of a CDS contract neither party to the CDS contract
has recourse to the reference entity. The protection
purchaser has recourse to the protection seller for the
difference between the face value of the CDS contract and
the fair value of the reference obligation at settlement of
the credit derivative contract, also known as the recovery
value. The protection purchaser does not need to hold the
debt instrument of the underlying reference entity in order
to receive amounts due under the CDS contract when a
credit event occurs.
Credit derivatives may reference the credit of either a single
reference entity (“single-name"), broad-based index or
portfolio. The Firm purchases and sells protection on both
single-name and index-reference obligations. Single-name
CDS and index CDS contracts are either OTC or OTC-cleared
derivative contracts. Single-name CDS are used to manage
the default risk of a single reference entity, while index CDS
contracts are used to manage the credit risk associated with
the broader credit markets or credit market segments. Like
the S&P 500 and other market indices, a CDS index consists
of a portfolio of CDS across many reference entities. New
series of CDS indices are periodically established with a new
underlying portfolio of reference entities to reflect changes
in the credit markets. If one of the reference entities in the
index experiences a credit event, then the reference entity
that defaulted is removed from the index. CDS can also be
referenced against specific portfolios of reference names or
against customized exposure levels based on specific client
demands: for example, to provide protection against the
first $1 million of realized credit losses in a $10 million
portfolio of exposure. Such structures are commonly known
as tranche CDS.
$ 2,994 $ 1,491
(176)
(30)
43
(5)
$ 1,078 $ 2,861 $ 1,456
(a) Primarily represents interest rate derivatives used to hedge the
interest rate risk inherent in mortgage commitments, warehouse loans
and MSRS, as well as written commitments to originate warehouse
loans. Gains and losses were recorded predominantly in mortgage fees
and related income.
(b) Relates to credit derivatives used to mitigate credit risk associated
with lending exposures in the Firm's wholesale businesses. These
derivatives do not include credit derivatives used to mitigate
counterparty credit risk arising from derivative receivables, which is
included in gains and losses on derivatives related to market-making
activities and other derivatives. Gains and losses were recorded in
principal transactions revenue.
(c) Primarily relates to derivatives used to mitigate foreign exchange risk
of specified foreign currency-denominated assets and liabilities. Gains
and losses were recorded in principal transactions revenue.
Gains and losses on derivatives related to market-making
activities and other derivatives
Principal transactions revenue is driven by many factors,
including:
The Firm makes markets in derivatives in order to meet the
needs of customers and uses derivatives to manage certain
risks associated with net open risk positions from its
market-making activities, including the counterparty credit
risk arising from derivative receivables. All derivatives not
included in the hedge accounting or specified risk
management categories above are included in this
category. Gains and losses on these derivatives are
Credit derivatives
Credit derivatives are financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) and which allow
one party (the protection purchaser) to transfer that risk to
another party (the protection seller). Credit derivatives
expose the protection purchaser to the creditworthiness of
the protection seller, as the protection seller is required to
make payments under the contract when the reference
entity experiences a credit event, such as a bankruptcy, a
failure to pay its obligation or a restructuring. The seller of
credit protection receives a premium for providing
protection but has the risk that the underlying instrument
referenced in the contract will be subject to a credit event.
The Firm is both a purchaser and seller of protection in the
credit derivatives market and uses these derivatives for two
primary purposes. First, in its capacity as a market-maker,
the Firm actively manages a portfolio of credit derivatives
by purchasing and selling credit protection, predominantly
on corporate debt obligations, to meet the needs of
customers. Second, as an end-user, the Firm uses credit
derivatives to manage credit risk associated with lending
exposures (loans and unfunded commitments) in its
wholesale and consumer businesses and derivatives
counterparty exposures in its wholesale businesses, and to
manage the credit risk arising from certain financial
instruments in the Firm's market-making businesses.
Following is a summary of various types of credit
derivatives.
JPMorgan Chase & Co./2021 Form 10-K
207
Notes to consolidated financial statements
Credit default swaps
primarily recorded in principal transactions revenue. Refer
to Note 6 for information on principal transactions revenue.
Credit derivatives
the bid-offer spread, which is the difference between the
price at which a market participant is willing and able to
sell an instrument to the Firm and the price at which
another market participant is willing and able to buy it
from the Firm, and vice versa; and
Realized gains and losses result from the sale of
instruments, closing out or termination of transactions,
or interim cash payments.
2021
2020
2019
2,787
4,253
3,179
7,773
6,171
5,589
1,428
2,088
1,133
Asset management fees
Investment management fees (a)
All other asset management fees (b)
Total asset management fees
$ 14,027
(in millions)
$ 11,694
378
338
315
14,405
12,032
11,180
16,325
17,840
14,268
(21)
181
(250)
Total administration fees (c)
2,554
$ 10,865
1,628
2,753
2,691
Unrealized gains and losses result from changes in
valuation.
In connection with its client-driven market-making
activities, the Firm transacts in debt and equity
instruments, derivatives and commodities, including
physical commodities inventories and financial instruments
that reference commodities.
•
Principal transactions revenue also includes realized and
unrealized gains and losses related to:
derivatives designated in qualifying hedge accounting
relationships, primarily fair value hedges of commodity
and foreign exchange risk;
derivatives used for specific risk management purposes,
primarily to mitigate credit risk and foreign exchange
risk.
Refer to Note 5 for further information on the income
statement classification of gains and losses from derivatives
activities.
In the financial commodity markets, the Firm transacts in
OTC derivatives (e.g., swaps, forwards, options) and ETD
that reference a wide range of underlying commodities. In
the physical commodity markets, the Firm primarily
purchases and sells precious and base metals and may hold
other commodities inventories under financing and other
arrangements with clients.
The following table presents all realized and unrealized
gains and losses recorded in principal transactions revenue.
This table excludes interest income and interest expense on
trading assets and liabilities, which are an integral part of
the overall performance of the Firm's client-driven market-
making activities in CIB and fund deployment activities in
Treasury and CIO. Refer to Note 7 for further information
on interest income and interest expense.
Trading revenue is presented primarily by instrument type.
The Firm's client-driven market-making businesses
generally utilize a variety of instrument types in connection
with their market-making and related risk-management
activities; accordingly, the trading revenue presented in the
table below is not representative of the total revenue of any
individual LOB.
JPMorgan Chase & Co./2021 Form 10-K
211
Notes to consolidated financial statements
Year ended December 31,
(in millions)
2021
2020
2019
Year ended December 31,
$ 1,646 $ 2,575 $ 2,739
The following table presents the components of Firmwide
asset management, administration and commissions.
Principal transactions
Private equity gains/(losses)
Total trading revenue
realized and unrealized gains and losses on financial
instruments and commodities transactions, including
those accounted for under the fair value option, primarily
used in client-driven market-making activities, and on
private equity investments.
Commodity
Foreign exchange
Credit (b)
Interest rate (a)
instrument type
Trading revenue by
outside services expense.
Equity
2,249
Credit default swaps
Other credit derivatives (a
Fair value of
Fair value of
receivables
Total notional
amount
>5 years
1-5 years
<1 year
(in millions)
December 31, 2020
$ 3,649
$ 3,022
627
(623)
(2,003)
(2,626)
$
6,275
$
payablesb
2,630
$
$
3,645
$
$ (375,296)
$ (29,035)
(7,289)
$ (36,324)
$ (255,106)
(84,851)
$ (339,957)
$ (123,330)
$ (91,155)
(32,175)
Total
Noninvestment-grade
Investment-grade
Risk rating of reference entity
Net fair
value
(124,315)
(499,611)
Net fair
value
Risk rating of reference entity
(c)
Investment banking fees
The Firm records noninterest revenue from certain
contracts with customers in investment banking fees,
deposit-related fees, asset management, administration,
and commissions, and components of card income. The
related contracts are often terminable on demand and the
Firm has no remaining obligation to deliver future services.
For arrangements with a fixed term, the Firm may commit
to deliver services in the future. Revenue associated with
these remaining performance obligations typically depends
on the occurrence of future events or underlying asset
values, and is not recognized until the outcome of those
events or values are known.
Noninterest revenue
Note 6 - Noninterest revenue and noninterest expense
JPMorgan Chase & Co./2021 Form 10-K
210
(a) The ratings scale is primarily based on external credit ratings defined by S&P and Moody's.
(b) Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements including cash collateral netting.
(c) Prior-period amounts have been revised to conform with the current presentation.
$ 5,949
(3,376)
$
9,325
$ (573,984) $
$ (404,167) $ (44,479)
$ (125,338)
Total
$ 4,538
1,411
(2,542)
Investment-grade
$ (93,529)
Noninvestment-grade
(31,809)
$ (306,830) $ (35,326)
(97,337)
(9,153)
(c)
payables (b)
(c)
$
(435,685) $
(138,299)
5,372
$
(834)
3,953
(c)
(a)
Fair value of
Total notional
amount
Protection sold
Other
Protection purchased Net protection
Maximum payout/Notional amount
25,141
38,155 $
$ 537,766 $
$ (499,611)
9,437
15,704
38,155
13,435
23,456
2,269
with identical
underlyings
14,699 $
$ 458,180
79,586
537,766
(443,481)
(56,130)
(499,611)
$
purchased (e)
Other
protection
(sold)/
purchased (d)
Net protection
Protection purchased
with identical
underlyings (c)
Protection sold
Maximum payout/Notional amount
Total
(b)
Credit-related notes
Total credit derivatives
$
(c)
(sold)/
purchased (d)
protection
>5 years
1-5 years
<1 year
December 31, 2021
(in millions)
The following tables summarize the notional amounts by the ratings, maturity profile, and total fair value, of credit derivatives
as of December 31, 2021 and 2020, where JPMorgan Chase is the seller of protection. The maturity profile is based on the
remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the rating of the reference
entity on which the credit derivative contract is based. The ratings and maturity profile of credit derivatives where JPMorgan
Chase is the purchaser of protection are comparable to the profile reflected below.
Protection sold - credit derivatives ratings (a)/maturity profile
Notes to consolidated financial statements
209
JPMorgan Chase & Co./2021 Form 10-K
(f) Prior-period amounts have been revised to conform with the current presentation.
(e) Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on
the identical reference instrument.
(d) Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of
protection pays to the buyer of protection in determining settlement value.
(a) Other credit derivatives predominantly consist of credit swap options and total return swaps.
(b) Represents Other protection purchased by CIB, primarily in its market-making businesses.
(c) Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on
protection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than
the notional amount of protection sold.
35,381 $ 23,664
$
609,365
$
(573,984)
purchased (e)
(f)
$ (533,900)
(f)
$
(40,084)
(573,984)
Fair value of
receivables (b)
552,021
57,344
609,365
$
18,121 $
17,260
35,381
The following table presents the components of investment
banking fees.
(f)
10,248
$
(f)
This revenue category includes debt and equity
underwriting and advisory fees. As an underwriter, the Firm
helps clients raise capital via public offering and private
placement of various types of debt and equity instruments.
Underwriting fees are primarily based on the issuance price
and quantity of the underlying instruments, and are
recognized as revenue typically upon execution of the
client's transaction. The Firm also manages and syndicates
loan arrangements. Credit arrangement and syndication
fees, included within debt underwriting fees, are recorded
as revenue after satisfying certain retention, timing and
yield criteria.
2,197
3,046
The Firm maintains funded and unfunded postretirement
benefit plans that provide medical and life insurance for
certain eligible employees and retirees as well as their
dependents covered under these programs. None of these
plans have a material impact on the Firm's Consolidated
Financial Statements.
The Firm also provides a qualified defined contribution plan
in the U.S. and maintains other similar arrangements in
certain non-U.S. locations. The most significant of these
plans is the JPMorgan Chase 401(k) Savings Plan ("the
401(k) Savings Plan"), which covers substantially all U.S.
employees. Employees can contribute to the 401(k) Savings
Plan on a pretax and/or Roth 401(k) after-tax basis. The
Firm makes an annual matching contribution as well as an
annual profit-sharing contribution to the 401(k) Savings
Plan on behalf of eligible participants.
The following table presents the pretax benefit obligations, plan assets, the net funded status, and the amounts recorded in
AOCI on the Consolidated balance sheets for the Firm's defined benefit pension and OPEB plans.
As of or for the year ended December 31,
(in millions)
Projected benefit obligations
Fair value of plan assets
Net funded status
Accumulated other comprehensive income/(loss)
$
Defined benefit
pension and OPEB plans
2021
2020
(18,046) $
25,692
The Firm has various defined benefit pension plans and
OPEB plans that provide benefits to its employees in the
U.S. and certain non-U.S. locations. Substantially all the
defined benefit pension plans are closed to new
participants. The principal defined benefit pension plan in
the U.S., which covered substantially all U.S. employees,
was closed to new participants and frozen for existing
participants on January 1, 2020, (and January 1, 2019 for
new hires on or after December 2, 2017). Interest credits
continue to accrue to participants' accounts based on their
accumulated balances.
(19,137)
25,417
6,280
(453)
(1,586)
The weighted-average discount rate used to value the benefit obligations as of December 31, 2021 and 2020, was 2.54% and
2.17%, respectively.
Gains and losses
Gains or losses resulting from changes in the benefit obligation and the fair value of plan assets are recorded in OCI.
Amortization of net gains or losses are recognized as part of the net periodic benefit cost over subsequent periods, if, as of the
beginning of the year, the net gain or loss exceeds 10% of the greater of the projected benefit obligation or the fair value of
the plan assets. Amortization is generally over the average expected remaining lifetime of plan participants, given the frozen
status of most plans. For the years ended December 31, 2021 and 2020, the net gain was predominantly attributable to a
market-driven increase in the fair value of plan assets and changes in the discount rate.
The following table presents the components of net periodic benefit costs reported in the Consolidated statements of income
for the Firm's defined benefit pension, defined contribution and OPEB plans, and in other comprehensive income for the
defined benefit pension and OPEB plans.
Year ended December 31, (in millions)
2021
Pension and OPEB plans
2020
2019
Total net periodic defined benefit plan cost/(credit)
$
Total defined contribution plans
7,646
Note 8 - Pension and other postretirement
employee benefit plans
JPMorgan Chase & Co./2021 Form 10-K
214
126
372
1,248
Trading liabilities - debt and all
other interest-bearing liabilities
(c)(f)
257
195
2,585
Long-term debt
4,282
5,764
8,807
Beneficial interest issued by
consolidated VIES
83
214
(f) All other interest-bearing liabilities includes interest expense on
brokerage-related customer payables.
(c) Negative interest income is related to the impact of current interest
rates combined with the fees paid on client-driven securities borrowed
balances. The negative interest expense related to prime brokerage
customer payables is recognized in interest expense and reported
within trading liabilities - debt and all other interest-bearing liabilities.
(d) Includes interest earned on brokerage-related held-for-investment
customer receivables, which are classified in accrued interest and
accounts receivable, and all other interest-earning assets, which are
classified in other assets on the Consolidated balance sheets.
(e) Includes commercial paper.
(b) Represents securities that are tax-exempt for U.S. federal income tax
purposes.
(a) Includes the amortization/accretion of unearned income (e.g.,
purchase premiums/discounts and net deferred fees/costs).
$ 61,567 $ 37,083 $ 51,660
5,585
Total pension and OPEB cost included in noninterest expense
Total recognized in other comprehensive income
$ 52,311 $ 54,563 $ 57,245
(9,256) 17,480
Net interest income after provision
for credit losses
Provision for credit losses
Net interest income
$
Total interest expense
568
5,553 $ 9,960 $ 26,795
$
$
(201) $
1,333
1,132 $
(1,129) $
Total fair
value
(a)
Level 1
Level 2(b)
Level 3(c)
Total fair
value
$ 6,541 $ 12,315
$ 3,172
$ 22,028
$
7,031
$ 12,384
$ 2,952
$ 22,367
Assets measured at fair value classified in
fair value hierarchy
Assets measured at fair value using NAV
as practical expedient not classified in
fair value hierarchy
JPMorgan Chase & Co./2021 Form 10-K
216
$ 25,417
(601)
3,651
(c) Consists of corporate-owned life insurance policies and participating annuity contracts.
Level 3 (c)
$ 25,692
3,960
(b) Consists largely of corporate debt securities.
(a) Consists largely of equity securities.
Total fair value of plan assets
payables not classified in fair value
hierarchy
Net defined benefit pension plan
(296)
Short-term borrowings (e)
Level 2(b)
Level 1
(285) $
1,332
1,047 $
(214) $
144
952
1,096
(1,157)
The following table presents the weighted-average actuarial assumptions used to determine the net periodic benefit costs for
the defined benefit pension and OPEB plans.
Year ended December 31,
Discount rate
Expected long-term rate of return on plan assets
JPMorgan Chase & Co./2021 Form 10-K
Defined benefit pension and OPEB plans
2021
2020
2019
2.17 %
2.97 %
2.93 %
3.91 %
3.89 %
5.08 %
2020
2021
Defined benefit pension and OPEB plans
December 31,
(in millions)
Refer to Note 2 for information on fair value measurements, including descriptions of level 1, 2, and 3 of the fair value
hierarchy and the valuation methods employed by the Firm.
Pension plan assets and liabilities measured at fair value
As of December 31, 2021, assets held by the Firm's defined
benefit pension and OPEB plans do not include securities
issued by JPMorgan Chase or its affiliates, except through
indirect exposures through investments in exchange traded
funds, mutual funds and collective investment funds
managed by third-parties. The defined benefit pension and
OPEB plans hold investments that are sponsored or
managed by affiliates of JPMorgan Chase in the amount of
$2.5 billion and $2.7 billion, as of December 31, 2021 and
2020, respectively.
(a)
The assets of the Firm's defined benefit pension plans are
held in various trusts and are invested in well-diversified
portfolios of equity and fixed income securities, cash and
cash equivalents, and alternative investments. The Firm
regularly reviews the asset allocations and asset managers,
as well as other factors that could impact the portfolios,
which are rebalanced when deemed necessary. The
approved asset allocation ranges by asset class for the
Firm's principal defined benefit plan are 42-100% debt
securities, 0-40% equity securities, 0-3% real estate, and
0-12% alternatives as of December 31, 2021.
Fair value measurement of the plans' assets and liabilities
The discount rates used in determining the benefit
obligations are generally provided by the Firm's actuaries,
with the Firm's principal defined benefit pension plan using
a rate that was selected by reference to the yields on
portfolios of bonds with maturity dates and coupons that
closely match each of the plan's projected cash flows.
The Firm's expected long-term rate of return is a blended
weighted average, by asset allocation of the projected long-
term returns for the various asset classes, taking into
consideration local market conditions and the specific
allocation of plan assets. Returns on asset classes are
developed using a forward-looking approach and are not
strictly based on historical returns, with consideration given
to current market conditions and the portfolio mix of each
plan.
Plan assumptions
Notes to consolidated financial statements
215
Investment strategy and asset allocation
Commissions and other fees
Brokerage commissions(d)
4,630
274
JPMorgan Chase & Co./2021 Form 10-K
value adjustments of certain repurchased loans insured by
U.S. government agencies.
Refer to Note 15 for further information on risk
management activities and MSRS.
Net interest income from mortgage loans is recorded in
interest income.
Card income
This revenue category includes interchange and other
income from credit and debit card transactions; and fees
earned from processing card transactions for merchants,
both of which are recognized when purchases are made by
a cardholder and presented net of certain transaction-
related costs. Card income also includes account origination
costs and annual fees, which are deferred and recognized
on a straight-line basis over a 12-month period.
Certain credit card products offer the cardholder the ability
to earn points based on account activity, which the
cardholder can choose to redeem for cash and non-cash
rewards. The cost to the Firm related to these proprietary
rewards programs varies based on multiple factors
including the terms and conditions of the rewards
programs, cardholder activity, cardholder reward
redemption rates and cardholder reward selections. The
Firm maintains a liability for its obligations under its
rewards programs and reports the current-period cost as a
reduction of card income.
Credit card revenue sharing agreements
The Firm has contractual agreements with numerous co-
brand partners that grant the Firm exclusive rights to issue
co-branded credit card products and market them to the
customers of such partners. These partners endorse the co-
brand credit card programs and provide their customer or
member lists to the Firm. The partners may also conduct
marketing activities and provide rewards redeemable under
their own loyalty programs that the Firm will grant to co-
brand credit cardholders based on account activity. The
terms of these agreements generally range from five to ten
years.
The Firm typically makes payments to the co-brand credit
card partners based on the cost of partners' marketing
activities and loyalty program rewards provided to credit
cardholders, new account originations and sales volumes.
Payments to partners based on marketing efforts
undertaken by the partners are expensed by the Firm as
incurred and reported as marketing expense. Payments for
partner loyalty program rewards are reported as a
reduction of card income when incurred. Payments to
partners based on new credit card account originations are
accounted for as direct loan origination costs and are
deferred and recognized as a reduction of card income on a
straight-line basis over a 12-month period. Payments to
partners based on sales volumes are reported as a
reduction of card income when the related interchange
income is earned.
The following table presents the components of card income:
Year ended December 31,
(in millions)
Interchange and merchant
processing income
Reward costs and partner
payments
(a)
212
Other card income a
2019
2021
2020
$ 23,592
$ 18,563
$ 20,370
(17,868)
(622)
(13,637) (14,540)
(491)
(754)
$ 5,102 $ 4,435 $ 5,076
(a) Predominantly represents the amortization of account origination
costs and annual fees, which are deferred and recognized on a
straight-line basis over a 12-month period.
Card income is earned primarily by CCB, CIB and CB. Refer
to Note 32 for segment results.
Refer to Note 18 for information on operating lease income
included within other income.
Noninterest expense
Total card income
This revenue category reflects CCB's Home Lending
production and net mortgage servicing revenue.
Production revenue includes fees and income recognized as
earned on mortgage loans originated with the intent to sell,
and the impact of risk management activities associated
with the mortgage pipeline and warehouse loans.
Production revenue also includes gains and losses on sales
and lower of cost or fair value adjustments on mortgage
loans held-for-sale (excluding certain repurchased loans
insured by U.S.government agencies), and changes in the
fair value of financial instruments measured under the fair
value option. Net mortgage servicing revenue includes
operating revenue earned from servicing third-party
mortgage loans, which is recognized over the period in
which the service is provided; changes in the fair value of
MSRS; the impact of risk management activities associated
with MSRS; and gains and losses on securitization of excess
mortgage servicing. Net mortgage servicing revenue also
includes gains and losses on sales and lower of cost or fair
Mortgage fees and related income
Asset management, administration and commissions are
earned primarily by AWM, CIB and CCB. Refer to Note 32 for
segment results.
2,959
2,439
All other commissions and fees
1,024
937
1,092
Total commissions and fees
4,070
3,896
3,531
Total asset management,
$ 16,304 $ 18,021 $ 14,018
(a) Includes the impact of changes in funding valuation adjustments on
derivatives.
(b) Includes the impact of changes in credit valuation adjustments on
derivatives, net of the associated hedging activities.
Principal transactions revenue is earned primarily by CIB.
Refer to Note 32 for segment results.
Lending- and deposit-related fees
Lending-related fees include fees earned from loan
commitments, standby letters of credit, financial
guarantees, and other loan-servicing activities. Deposit-
related fees include fees earned from providing overdraft
and other deposit account services, and from performing
cash management activities. Lending- and deposit-related
fees in this revenue category are recognized over the period
in which the related service is provided.
The following table presents the components of lending-
and deposit-related fees.
(c) Predominantly includes fees for custody, securities lending, funds
services and securities clearance. These fees are recorded as revenue
over the period in which the related service is provided.
(d) Represents commissions earned when the Firm acts as a broker, by
facilitating its clients' purchases and sales of securities and other
financial instruments. Brokerage commissions are collected and
recognized as revenue upon occurrence of the client transaction. The
Firm reports certain costs paid to third-party clearing houses and
exchanges net against commission revenue.
(b) Represents fees for services that are ancillary to investment
management services, such as commissions earned on the sales or
distribution of mutual funds to clients. These fees are recorded as
revenue at the time the service is rendered or, in the case of certain
distribution fees based on the underlying fund's asset value and/or
investor redemption, recorded over time as the investor remains in the
fund or upon investor redemption.
administration and commissions $ 21,029 $ 18,177 $ 16,908
(a) Represents fees earned from managing assets on behalf of the Firm's
clients, including investors in Firm-sponsored funds and owners of
separately managed investment accounts.
Lending- and deposit-related fees are earned by CCB, CIB,
CB, and AWM. Refer to Note 32 for segment results.
Asset management, administration and commissions
This revenue category includes fees from investment
management and related services, custody, brokerage
services and other products. The Firm manages assets on
behalf of its clients, including investors in Firm-sponsored
funds and owners of separately managed investment
accounts. Management fees are typically based on the value
of assets under management and are collected and
recognized at the end of each period over which the
management services are provided and the value of the
managed assets is known. The Firm also receives
performance-based management fees, which are earned
based on exceeding certain benchmarks or other
performance targets and are accrued and recognized when
the probability of reversal is remote, typically at the end of
the related billing period. The Firm has contractual
arrangements with third parties to provide distribution and
other services in connection with its asset management
activities. Amounts paid to these third-party service
providers are generally recorded in professional and
Total lending- and deposit-related fees $7,032 $6,511 $ 6,626
$ 1,184
5,442
Other expense
$ 1,271
5,240
Deposit-related fees
Lending-related fees
2019
2020
2021
Year ended December 31, (in millions)
$ 1,472
5,560
Other expense on the Firm's Consolidated statements of
income included the following:
Year ended December 31,
(in millions)
6,825
7,832
9,141
Federal funds sold and securities
purchased under resale
agreements
958
2,436
6,146
Securities borrowed (c)
(385)
(302)
1,574
Deposits with banks
512
749
3,887
repurchase agreements
securities loaned or sold under
Federal funds purchased and
531 $ 2,357 $ 8,957
$
Interest bearing deposits
Trading assets - debt instruments
$ 57,864 $ 64,523 $ 84,040
Total interest income
Interest income and interest expense includes the current-
period interest accruals for financial instruments measured
at fair value, except for derivatives and financial
instruments containing embedded derivatives that would be
separately accounted for in accordance with U.S. GAAP,
absent the fair value option election; for those instruments,
all changes in fair value including any interest elements, are
primarily reported in principal transactions revenue. For
financial instruments that are not measured at fair value,
the related interest is included within interest income or
interest expense, as applicable. Refer to Notes 12, 10, 11
and 20 for further information on accounting for interest
income and interest expense related to loans, investment
securities, securities financing activities (i.e., securities
purchased or sold under resale or repurchase agreements;
securities borrowed; and securities loaned) and long-term
debt, respectively.
2,146
1,023
894
All other interest-earning assets (d)
Interest expense
1,058
9,291
7,523
Legal expense
2021
2020
2019
$
426
$ 1,115 $
239
213
JPMorgan Chase & Co./2021 Form 10-K
Notes to consolidated financial statements
Note 7 - Interest income and Interest expense
Interest income and interest expense are recorded in the
Consolidated statements of income and classified based on
the nature of the underlying asset or liability.
The following table presents the components of interest
income and interest expense:
Year ended December 31,
9,027
(in millions)
2021
Total investment securities (a)
1,329
1,184
1,063
Non-taxable securities (b)
Interest income
7,843
Taxable securities
Loans
(a)
$ 41,537 $ 43,758 $ 51,855
7,962
2019
2020
6,460
The Firm also provides advisory services, by assisting its
clients with mergers and acquisitions, divestitures,
restructuring and other complex transactions. Advisory fees
are recognized as revenue typically upon execution of the
client's transaction.
166
12 months or more
Gross
Changes in level 3 fair value measurements using
significant unobservable inputs
Commercial
4,323
30
8
4,345
7,211
106
1
7,316
110,828
29
2,968
107,889
103,103
853
1,400
102,556
U.S. GSES and government agencies
U.S. Residential
Mortgage-backed securities:
3,730
Held-to-maturity securities (a)
11
3,687
50
53,184
183,270
2,103
169
185,204
U.S. Treasury and government agencies
117,830
59
3,053
114,836
114,001
1,013
1,412
113,602
Total mortgage-backed securities
2,679
77
2,602
54
53,234
388,178
6,705
Collateralized loan obligations
Asset-backed securities:
216
3
4
215
321
19
8
332
Corporate debt securities
22,928
13
354
22,587
16,209
46
92
16,163
9,674
256
6
9,662
381,729
308,525
2,343
2,614
308,254
Total available-for-sale securities
6,249
16
91
6,174
5,448
2
47
5,403
Other
10,048
31
24
10,055
18
Obligations of U.S. states and municipalities
13,985
453
349
12
2,993
7
394
13
23
348 $
133
2,906
2
1
17
3,387
20
120
2
-
120
2
5,060
Available-for-sale securities with gross unrealized losses
37
2,557
1
December 31, 2021 (in millions)
Fair value unrealized losses
Fair value unrealized losses
Total fair
value
Total gross
unrealized losses
Available-for-sale securities
Mortgage-backed securities:
Residential:
U.S.
Non-U.S.
Commercial
Total mortgage-backed securities
Obligations of U.S. states and municipalities
$
303 $
1 $
45 $
1 $
133
-
510
9
5,570
2,047
363,707
21,138
2
90
21,050
48,922
22
75
48,869
Total investment securities, net of
allowance for credit losses
Total held-to-maturity securities
Other
Collateralized loan obligations
Asset-backed securities:
13,270
519
12,751
14,394
44
1
7
2,110
3,189
The following tables present the fair value and gross unrealized losses by aging category for AFS securities at December 31,
2021 and 2020. The tables exclude U.S. Treasury and government agency securities and U.S. GSE and government agency
MBS with unrealized losses of $2.2 billion and $150 million, at December 31, 2021 and 2020, respectively; changes in the
value of these securities are generally driven by changes in interest rates rather than changes in their credit profile given the
explicit or implicit guarantees provided by the U.S. government.
AFS securities impairment
Notes to consolidated financial statements
221
JPMorgan Chase & Co./2021 Form 10-K
however the quantitative characteristics (e.g., probability of
default ("PD") and loss given default ("LGD")) may differ as
they reflect internal historical experiences and
assumptions. Risk ratings are assigned at acquisition,
reviewed on a regular and ongoing basis by Credit Risk
Management and adjusted as necessary over the life of the
investment for updated information affecting the issuer's
ability to fulfill its obligations.
At December 31, 2021, the investment securities portfolio
consisted of debt securities with an average credit rating of
AA+ (based upon external ratings where available, and
where not available, based primarily upon internal risk
ratings). Risk ratings are used to identify the credit quality
of securities and differentiate risk within the portfolio. The
Firm's internal risk ratings generally align with the
qualitative characteristics (e.g., borrower capacity to meet
financial commitments and vulnerability to changes in the
economic environment) defined by S&P and Moody's,
(c) Excludes $1.9 billion and $2.1 billion of accrued interest receivables at December 31, 2021 and 2020, respectively, included in accrued interest and
accounts receivables on the Consolidated balance sheets. The Firm generally does not recognize an allowance for credit losses on accrued interest
receivables, consistent with its policy to write them off no later than 90 days past due by reversing interest income. The Firm did not reverse through
interest income any accrued interest receivables for the years ended December 31, 2021 and 2020.
(b) The amortized cost of investment securities is reported net of allowance for credit losses of $42 million and $78 million at December 31, 2021 and 2020,
respectively.
Non-U.S. government debt securities
(a) The Firm purchased $111.8 billion, $12.4 billion and $13.4 billion of HTM securities for the years ended December 31, 2021, 2020 and 2019,
respectively.
$ 593,650
317
$ 583,550 $ 10,417 $
$ 671,153
$ 671,961 $ 4,724 $ 5,532
205,472
3,712
201,821
2,041
362,628
61
Less than 12 months
Gross
20,396
1,404
Canceled
Forfeited
39.08
(2,005)
107.26
(20,235)
Exercised or vested
152.19
2,250
138.98
20,347
Granted
41.25
$
3,124
112.85
47,510 $
Outstanding, January 1
intrinsic
value
(2,217)
ΝΑ
Aggregate
126.77
Outstanding, December 31
$ 1,101
$ 1,161
2019
2020
2021
Total noncash compensation expense
related to employee share-based
incentive plans
Year ended December 31, (in millions)
Cost of prior grants of RSUS, PSUS, SARS
and stock options that are amortized
over their applicable vesting periods
Accrual of estimated costs of share-
based awards to be granted in future
periods, predominantly those to full-
career eligible employees
incentive plans in its Consolidated statements of income.
The Firm recognized the following noncash compensation
expense related to its various employee share-based
Compensation expense
The total fair value of RSUs that vested during the years ended December 31, 2021, 2020 and 2019, was $2.9 billion, $2.8
billion and $2.9 billion, respectively. The total intrinsic value of options exercised during the years ended December 31, 2021,
2020 and 2019, was $232 million, $182 million and $503 million, respectively.
127,030
6.8 $ 141,872
0.9
$ 116.62
45.14
3,369
1,119
NA
126.32
45,405 $
ΝΑ
Exercisable, December 31
NA
$ 1,141
Weighted-average
remaining
contractual life
(in years)
exercise
JPMorgan Chase & Co./2021 Form 10-K
4,740
1,016
1,036
1,082
1,106
1,124
$
Defined benefit
pension and OPEB
plans
Years 2027-2031
2026
2025
2024
2023
2022
Year ended December 31,
(in millions)
The following table presents benefit payments expected to
be paid for the defined benefit pension and OPEB plans for
the years indicated.
Estimated future benefit payments
Investments classified in level 3 of the fair value hierarchy
increased $220 million in 2021 from $3.0 billion to
$3.2 billion, predominantly due to $332 million in
unrealized gains, partially offset by $94 million in
settlements. In 2020, there was an increase of $263
million, from $2.7 billion to $3.0 billion consisting of
$343 million in unrealized gains and $33 million of
transfers into level 3, partially offset by $118 million in
settlements.
217
price
Notes to consolidated financial statements
In 2021, 2020 and 2019, JPMorgan Chase granted long-
term share-based awards to certain employees under its
LTIP, as amended and restated effective May 15, 2018, and
subsequently amended effective May 18, 2021. Under the
terms of the LTIP, as of December 31, 2021, 83 million
shares of common stock were available for issuance
through May 2025. The LTIP is the only active plan under
which the Firm is currently granting share-based incentive
awards. In the following discussion, the LTIP, plus prior Firm
plans and plans assumed as the result of acquisitions, are
referred to collectively as the "LTI Plans," and such plans
constitute the Firm's share-based incentive plans.
Number of
awards
average
Weighted-
average grant
date fair value
Number of
units
(in thousands, except weighted-average data, and
where otherwise stated)
Weighted-
Year ended December 31, 2021
SARS/Options
RSUS/PSUS
Generally, compensation expense for RSUS and PSUs is measured based on the number of units granted multiplied by the stock
price at the grant date, and for SARS and stock options, is measured at the grant date using the Black-Scholes valuation model.
Compensation expense for these awards is recognized in net income as described previously. The following table summarizes
JPMorgan Chase's RSUS, PSUS, SARS and stock options activity for 2021.
RSUS, PSUS, SARS and stock options activity
JPMorgan Chase & Co./2021 Form 10-K
218
Refer to Note 23 for further information on the
classification of share-based awards for purposes of
calculating earnings per share.
The Firm's policy for issuing shares upon settlement of
employee share-based incentive awards is to issue either
new shares of common stock or treasury shares. During
2021, 2020 and 2019, the Firm settled all of its employee
share-based awards by issuing treasury shares.
The Firm separately recognizes compensation expense for
each tranche of each award, net of estimated forfeitures, as
if it were a separate award with its own vesting date.
Generally, for each tranche granted, compensation expense
is recognized on a straight-line basis from the grant date
until the vesting date of the respective tranche, provided
that the employees will not become full-career eligible
during the vesting period. For awards with full-career
eligibility provisions and awards granted with no future
substantive service requirement, the Firm accrues the
estimated value of awards expected to be awarded to
employees as of the grant date without giving consideration
to the impact of post-employment restrictions. For each
tranche granted to employees who will become full-career
eligible during the vesting period, compensation expense is
recognized on a straight-line basis from the grant date until
the earlier of the employee's full-career eligibility date or
the vesting date of the respective tranche.
Once the PSUs and dividend equivalent share units have
vested, the shares of common stock that are delivered, after
applicable tax withholding, must be held for an additional
two-year period, for a total combined vesting and holding
period of approximately five to eight years from the grant
date depending on regulations in certain countries.
Under the LTI Plans, stock appreciation rights ("SARS") and
stock options have generally been granted with an exercise
price equal to the fair value of JPMorgan Chase's common
stock on the grant date. SARS and stock options generally
expire ten years after the grant date. In 2021, the Firm
awarded its Chairman and CEO and its President and Chief
Operating Officer 1.5 million and 750,000 SARS,
respectively. There were no material grants of SARS or stock
options in 2020 and 2019.
Performance share units ("PSUs") are granted annually,
and approved by the Firm's Board of Directors, to members
of the Firm's Operating Committee under the variable
compensation program. PSUs are subject to the Firm's
achievement of specified performance criteria over a three-
year period. The number of awards that vest can range
from zero to 150% of the grant amount. In addition,
dividends that accrue during the vesting period are
reinvested in dividend equivalent share units. PSUs and the
related dividend equivalent share units are converted into
shares of common stock after vesting.
RSUS are awarded at no cost to the recipient upon their
grant. Generally, RSUs are granted annually and vest at a
rate of 50% after two years and 50% after three years and
are converted into shares of common stock as of the vesting
date. In addition, RSUs typically include full-career eligibility
provisions, which allow employees to continue to vest upon
voluntary termination based on age or service-related
requirements, subject to post-employment and other
restrictions. All RSU awards are subject to forfeiture until
vested and contain clawback provisions that may result in
cancellation under certain specified circumstances.
Predominantly all RSUs entitle the recipient to receive cash
payments equivalent to any dividends paid on the
underlying common stock during the period the RSUs are
outstanding.
Note 9 - Employee share-based incentives
Employee share-based awards
1,768
1,350
1,115
Total mortgage-backed securities
2,856
34
71
2,819
4,949
17
22
4,944
3,766
5
20
3,751
3,906
1
25
3,882
6,467
3
83,754
224
821
83,562
18,993
15,860
2
972
14,890
Obligations of U.S. states and municipalities
201,951
100
2,141
199,910
177,463
1,243
668
178,038
U.S. Treasury and government agencies
126,390
92
2,687
123,795
1,013
6,246
2,164
2
2020
2021
The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
JPMorgan Chase & Co./2021 Form 10-K
220
Transfers of securities from AFS to HTM are non-cash
transactions and are recorded at fair value.
Unrealized gains or losses at the date of transfer of these
securities continue to be reported in AOCI and are amortized
into interest income on a level-yield basis over the
remaining life of the securities. This amortization will offset
the effect on interest income of the amortization of the
premium or discount resulting from the transfer recorded at
fair value.
During the second quarter of 2021, the Firm transferred
$104.5 billion of investment securities from AFS to HTM for
capital management purposes. AOCI included pretax
unrealized gains of $425 million on the securities at the
date of transfer.
For both AFS and HTM securities, purchase discounts or
premiums are generally amortized into interest income on a
level-yield basis over the contractual life of the security.
However, premiums on certain callable debt securities are
amortized to the earliest call date.
AFS securities are carried at fair value on the Consolidated
balance sheets. Unrealized gains and losses, after any
applicable hedge accounting adjustments or allowance for
credit losses, are reported in AOCI. The specific
identification method is used to determine realized gains
and losses on AFS securities, which are included in
investment securities gains/(losses) on the Consolidated
statements of income. HTM securities, which the Firm has
the intent and ability to hold until maturity, are carried at
amortized cost, net of allowance for credit losses, on the
Consolidated balance sheets.
Investment securities consist of debt securities that are
classified as AFS or HTM. Debt securities classified as
trading assets are discussed in Note 2. Predominantly all of
the Firm's AFS and HTM securities are held by Treasury and
CIO in connection with its asset-liability management
activities.
Note 10 - Investment securities
Notes to consolidated financial statements
219
JPMorgan Chase & Co./2021 Form 10-K
Income tax benefits (including tax benefits from dividends
or dividend equivalents) related to share-based incentive
arrangements recognized in the Firm's Consolidated
statements of income for the years ended December 31,
2021, 2020 and 2019, were $957 million, $837 million
and $895 million, respectively.
Tax benefits
At December 31, 2021, approximately $862 million
(pretax) of compensation expense related to unvested
awards had not yet been charged to net income. That cost is
expected to be amortized into compensation expense over a
weighted-average period of 1.8 years. The Firm does not
capitalize any compensation expense related to share-
based compensation awards to employees.
$ 2,929 $ 2,451 $ 2,256
Amortized
cost (b)(c)
Gross
unrealized
gains
Gross
unrealized
losses
Fair
value
38
2,128
Non-U.S.
Commercial
U.S.
Residential:
$ 113,301
50
$ 110,979 $ 2,372 $
$ 72,543
1
993
$ 72,800 $
U.S. GSES and government agencies
Mortgage-backed securities:
Available-for-sale securities
December 31, (in millions)
Fair
value
Gross
unrealized
losses
Gross
unrealized
gains
Amortized
Cost (b)(c)
736 $
5
1
Asset-backed securities
Amortized cost
Total available-for-sale securities
1.32 %
15,110
15,077
$
8,409
8,438
1.28 %
$
3,369
3,372
1.25 %
1.88 %
1.35 %
800
$
799
$
2,500
2,500
$
9.25 %
%
1.61 %
10.03 %
$
17,506
Fair value
17,547
$
- %
Average yield(a)
Fair value
$
Amortized cost
Mortgage-backed securities
Held-to-maturity securities
1.35 %
2.37 %
- %
1.15 %
308,257
$
105,843
106,527
27,850
$
27,587
$
157,321
156,601
0.67 %
1.61 %
Average yield (a)
308,525
1,322
321
290
7,211
7,224
2.34 %
Average yield (a)
Fair value
$
Amortized cost
Non-U.S. government debt securities
4.88 %
4.89 %
14,890
15,860
14,355
1,346
4.84 %
4.38 %
4.06 %
Average yield(a)
146
13
Fair value
$
13,450
$
1,285
$
5,491
$
5,532
2.53 %
332
$
31
$
301
$
Average yield (a)
Fair value
Amortized cost
Asset-backed securities
31
Average yield (a)
Amortized cost
Corporate debt securities
2.14 %
16,209
16,163
$
%
1.09 %
$
3,461
3.453
Fair value
$
1,338
11,495
11,814
2.53 %
1.43 %
363,746
$
151,020
151,406
92,371
$
92,742
$
94,243
93,141
0.76 %
$
25,741
25,710
0.54 %
Average yield(a)
Fair value
$
Amortized cost
Total held-to-maturity securities
Average yield(a)
Fair value
%
13,402
13,449
37,514
37,514
$
50,916
46
JPMorgan Chase & Co./2021 Form 10-K
226
In resale and securities borrowed agreements, the Firm is
exposed to credit risk to the extent that the value of the
securities received is less than initial cash principal
advanced and any collateral amounts exchanged. In
repurchase and securities loaned agreements, credit risk
exposure arises to the extent that the value of underlying
securities advanced exceeds the value of the initial cash
principal received, and any collateral amounts exchanged.
Additionally, the Firm typically enters into master netting
agreements and other similar arrangements with its
counterparties, which provide for the right to liquidate the
underlying securities and any collateral amounts exchanged
in the event of a counterparty default. It is also the Firm's
policy to take possession, where possible, of the securities
underlying resale and securities borrowed agreements.
Refer to Note 29 for further information regarding assets
pledged and collateral received in securities financing
agreements.
Securities financing agreements expose the Firm primarily
to credit and liquidity risk. To manage these risks, the Firm
monitors the value of the underlying securities
(predominantly high-quality securities collateral, including
government-issued debt and U.S. GSEs and government
agencies MBS) that it has received from or provided to its
counterparties compared to the value of cash proceeds and
exchanged collateral, and either requests additional
collateral or returns securities or collateral when
appropriate. Margin levels are initially established based
upon the counterparty, the type of underlying securities,
and the permissible collateral, and are monitored on an
ongoing basis.
Credit risk mitigation practices
The Firm has elected the fair value option for certain
securities financing agreements. Refer to Note 3 for further
information regarding the fair value option. The securities
financing agreements for which the fair value option has
been elected are reported within securities purchased
under resale agreements, securities loaned or sold under
repurchase agreements, and securities borrowed on the
Consolidated balance sheets. Generally, for agreements
carried at fair value, current-period interest accruals are
recorded within interest income and interest expense, with
changes in fair value reported in principal transactions
revenue. However, for financial instruments containing
embedded derivatives that would be separately accounted
for in accordance with accounting guidance for hybrid
instruments, all changes in fair value, including any interest
elements, are reported in principal transactions revenue.
Securities financing agreements not elected under the fair
value option are measured at amortized cost. As a result of
the Firm's credit risk mitigation practices described below,
the Firm did not hold any allowance for credit losses with
respect to resale and securities borrowed arrangements as
of December 31, 2021 and 2020.
collateralized financings on the Firm's Consolidated balance
sheets. Where appropriate under applicable accounting
guidance, securities financing agreements with the same
counterparty are reported on a net basis. Refer to Note 1
for further discussion of the offsetting of assets and
liabilities. Fees received and paid in connection with
securities financing agreements are recorded over the life
of the agreement in interest income and interest expense
on the Consolidated statements of income.
Securities financing agreements are treated as
Note 11 - Securities financing activities
JPMorgan Chase enters into resale, repurchase, securities
borrowed and securities loaned agreements (collectively,
"securities financing agreements") primarily to finance the
Firm's inventory positions, acquire securities to cover short
sales, accommodate customers' financing needs, settle
other securities obligations and to deploy the Firm's excess
cash.
Amortized cost
Notes to consolidated financial statements
JPMorgan Chase & Co./2021 Form 10-K
(b) Substantially all of the Firm's U.S. residential MBS and collateralized mortgage obligations are due in 10 years or more, based on contractual maturity. The
estimated weighted-average life, which reflects anticipated future prepayments, is approximately 6 years for agency residential MBS, 4 years for agency
residential collateralized mortgage obligations and 3 years for nonagency residential collateralized mortgage obligations.
(a) Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each
security. The effective yield considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging
derivatives. Taxable-equivalent amounts are used where applicable. The effective yield excludes unscheduled principal prepayments; and accordingly,
actual maturities of securities may differ from their contractual or expected maturities as certain securities may be prepaid. However, for certain callable
debt securities, the average yield is calculated to the earliest call date.
1.65 %
362,628
1.27 %
1.30 %
1.18 %
%
50,963
225
3.82 %
3.83 %
14,394
0.54 %
Average yield (a)
$
66,653
65,868
91,727
$
92,845
$
25,706
25,675
Fair value
0.74 %
$
U.S. Treasury and government agencies
2.78 %
2.83 %
2.43 %
1.76 %
114,001
113,608
$
100,791
100,849
$
Amortized cost
$
1.26 %
$
13,043
14,018
$
12,715
$
1,192
1,240
3.74 %
2.72 %
3.72 %
Average yield (a)
76
%
35
$
76
$
35
$
Amortized cost
Obligations of U.S. states and municipalities
0.90 %
183,270
185,204
Fair value
142
$
13
4
968
9
2,709
49
1
49
42
4,159
17
391
25
3,768
34
3 5
2,742
823
16
124
18
699
1
3,677
13
13
91
$
57
12,133 $
$
Total available-for-sale securities with gross
unrealized losses
31
16
7,893
953
13
15
2,645
685
1
235
268
18
5,248
Collateralized loan obligations
Asset-backed securities:
Corporate debt securities
Non-U.S. government debt securities
3
96
5
3
Other
4
2,507
594 $
16,538 $
$
Total available-for-sale securities with gross
unrealized losses
2
18
8,318
267
2
178
89
Other
65 $
-
18
8,110
Collateralized loan obligations
Asset-backed securities:
Corporate debt securities
Non-U.S. government debt securities
19
212
18
46
208
4,694 $
1,336 $
$
$
32 $
$
3
562 $
$
Obligations of U.S. states and municipalities
Total mortgage-backed securities
Commercial
Non-U.S.
42 $ 17,874 $
U.S.
Mortgage-backed securities:
Available-for-sale securities
Total gross
unrealized losses
Total fair
value
Fair value unrealized losses
Gross
12 months or more
Less than 12 months
Gross
Fair value unrealized losses
December 31, 2020 (in millions)
Available-for-sale securities with gross unrealized losses
Residential:
49 $
107
106
2.25 %
1.75 %
1.53 %
0.52 %
83,757
83,562
$
75,155
74,677
$
4,823
5,094
$
2.19 %
3,771
3,783
$
8
$
Average yield(a)
Fair value
Amortized cost
Total
Due after
10 years (b)
Due after five years
through 10 years
Due after one year
through five years
8
Due in one
year or less
U.S. Treasury and government agencies
$
16,827 $
$
Amortized cost
Obligations of U.S. states and municipalities
0.57 %
177,463
178,038
$
8,829
9,057
0.54 %
0.61 %
Amortized cost
0.55 %
Average yield (a)
14,554
7,802
Fair value
$
14,618
$
146,817
$
7,774
1.01 %
Mortgage-backed securities
146,050
December 31, 2021 (in millions)
The allowance for credit losses on investment securities was
$42 million and $78 million as of December 31, 2021 and
2020, respectively. The allowance for credit losses on
investment securities as of December 31, 2020 included a
$10 million cumulative-effect adjustment to retained
earnings upon the adoption of CECL on January 1, 2020.
Allowance for credit losses on investment securities
The primary credit quality indicator for HTM securities is the
risk rating assigned to each security. At both December 31,
2021 and 2020, all HTM securities were rated investment
grade and were current and accruing, with approximately
98% rated at least AA+.
Credit quality indicator
The application of different inputs and assumptions into the
calculation of the allowance for credit losses is subject to
significant management judgment, and emphasizing one
input or assumption over another, or considering other
inputs or assumptions, could affect the estimate of the
allowance for credit losses on HTM securities.
The allowance for credit losses on HTM collateralized loan
obligations and U.S. residential mortgage-backed securities
is calculated as the difference between the amortized cost
and the present value of the cash flows expected to be
collected, discounted at the security's effective interest
rate. These cash flow estimates are developed based on
expectations of underlying collateral performance derived
using the eight-quarter macroeconomic forecast and the
single year straight-line interpolation, as well as considering
the structural features of the security.
The allowance for credit losses on HTM obligations of U.S.
states and municipalities and commercial mortgage-backed
securities is calculated by applying statistical credit loss
factors (estimated PD and LGD) to the amortized cost. The
credit loss factors are derived using a weighted average of
five internally developed eight-quarter macroeconomic
scenarios, followed by a single year straight-line
interpolation to revert to long run historical information for
periods beyond the forecast period. Refer to Note 13 for
further information on the eight-quarter macroeconomic
forecast.
The allowance for credit losses represents expected credit
losses over the remaining expected life of HTM securities.
Allowance for credit losses
HTM securities - credit risk
Selected impacts of investment securities on the
Consolidated statements of income
Notes to consolidated financial statements
223
When assessing securities issued in a securitization for
credit losses, the Firm estimates cash flows considering
relevant market and economic data, underlying loan-level
data, and structural features of the securitization, such as
subordination, excess spread, overcollateralization or other
forms of credit enhancement, and compares the losses
projected for the underlying collateral ("pool losses")
against the level of credit enhancement in the securitization
structure to determine whether these features are sufficient
to absorb the pool losses, or whether a credit loss exists.
Factors considered in evaluating credit losses include
adverse conditions specifically related to the industry,
geographic area or financial condition of the issuer or
underlying collateral of a security; and payment structure of
the security.
For impaired debt securities that the Firm has the intent
and ability to hold, the securities are evaluated to
determine if a credit loss exists. If it is determined that a
credit loss exists, that loss is recognized as an allowance for
credit losses through the provision for credit losses in the
Consolidated Statements of Income, limited by the amount
of impairment. Any impairment not due to credit losses is
recorded in OCI.
investment securities gains/(losses) is equal to the full
difference between the amortized cost (net of allowance if
applicable) and the fair value of the security.
The Firm recognizes impairment losses in earnings if the
Firm has the intent to sell the debt security, or if it is more
likely than not that the Firm will be required to sell the debt
security before recovery of its amortized cost. In these
circumstances the impairment loss recognized in
AFS securities are considered impaired if the fair value is
less than the amortized cost.
JPMorgan Chase & Co./2021 Form 10-K
Available-for-sale securities
222
JPMorgan Chase & Co./2021 Form 10-K
Year ended December 31,
For beneficial interests in securitizations that are rated
below "AA" at their acquisition, or that can be contractually
prepaid or otherwise settled in such a way that the Firm
would not recover substantially all of its recorded
investment, the Firm evaluates impairment for credit losses
when there is an adverse change in expected cash flows.
(in millions)
Realized gains
By remaining maturity
The following table presents the amortized cost and estimated fair value at December 31, 2021, of JPMorgan Chase's investment
securities portfolio by contractual maturity.
Contractual maturities and yields
JPMorgan Chase & Co./2021 Form 10-K
224
$ (36) $ 68
Provision for credit losses
ΝΑ
$ 258
$ 802
$ (345)
Effective January 1, 2020, the Firm adopted the CECL accounting
guidance. Refer to Note 1 for further information.
$
(392)
$ 650
$ 3,080
(2,278)
595
(940)
2021
Realized losses
Investment securities gains/
(losses)
2019
2020
$ 11,807
182
284
6
$
$ 222,463
578
1,069
11
883
$ 18,476
$ 68,755
$ 48,368
$
7,981
$ 11,739
33
$ 50,794
Converted to
term loans
25
27
11
$ 68,742
6,409
$ 48,334
$ 18,428
$
30-149 days past due
150 or more days past due
Total retained loans
13
21
23
7,929
27
$ 11,684
$ 49,147
$
6,392
22
-
Total
$ 12,273
(k) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2021.
% of 30+ days past due to
total retained loans (c)
(j) Excludes loans with no FICO and/or LTV data available.
(i) Prior-period amounts have been revised to conform with the current presentation.
(h) At December 31, 2021 and 2020, included residential real estate loans, primarily held in LLCS in AWM that did not have a refreshed FICO score. These loans have been
included in a FICO band based on management's estimation of the borrower's credit quality.
(g) Refreshed FICO scores represent each borrower's most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(f) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a minimum,
quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the extent available and
forecasted data where actual data is not available. Current estimated combined LTV for junior lien home equity loans considers all available lien positions, as well as
unused lines, related to the property.
(e) These balances are excluded from nonaccrual loans as the loans are guaranteed by U.S government agencies. Typically the principal balance of the loans is insured and
interest is guaranteed at a specified reimbursement rate subject to meeting agreed-upon servicing guidelines. At December 31, 2021 and 2020, these balances were
no longer accruing interest based on the agreed-upon servicing guidelines. There were no loans that were not guaranteed by U.S. government agencies that are 90 or
more days past due and still accruing interest at December 31, 2021 and 2020.
(c) Interest income on nonaccrual loans recognized on a cash basis was $172 million and $161 million for the years ended December 31, 2021 and 2020, respectively.
(d) Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic. Includes loans to customers that have exited COVID-19
payment related deferral programs and are 90 or more days past due, predominantly all of which were considered collateral-dependent at time of exit.
(b) Generally, all consumer nonaccrual loans have an allowance. In accordance with regulatory guidance, certain nonaccrual loans that are considered collateral-
dependent have been charged down to the lower of amortized cost or the fair value of their underlying collateral less costs to sell. If the value of the underlying
collateral improves subsequent to the charge down, the related allowance may be negative.
(a) Includes collateral-dependent residential real estate loans that are charged down to the fair value of the underlying collateral less costs to sell. The Firm reports, in
accordance with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower
("Chapter 7 loans") as collateral-dependent nonaccrual TDRs, regardless of their delinquency status. At December 31, 2021, approximately 7% of Chapter 7
residential real estate loans were 30 days or more past due.
225,302
224,795 $
$
Revolving loans
Within the
revolving
period
43,899
44,500
(I) At December 31, 2021 and 2020, included mortgage loans insured by U.S. government agencies of $66 million and $76 million, respectively. These amounts have
been excluded from the geographic regions presented based upon the government guarantee.
236
JPMorgan Chase & Co./2021 Form 10-K
2017
0.02 %
0.07 %
0.26 %
0.65 %
0.47 %
3.18 %
0.27 %
1,449
$224,795
3.80 %
(in millions, except ratios)
Loan delinquency(a)(b)
2020
December 31, 2020
Term loans by origination year(d)
Revolving loans
2019
2018
1.02 %
Prior to
2017
1,282
2018
2019
credit card
Credit card
Wholesale
Total
(b)(c)
$
$
$
30,474
1,291
23,445
$
2,573
53,919
9,188
Consumer, excluding
Retained loans reclassified to held-for-sale (a)
Sales
Purchases
5,024
Total
(b)(c)
$
3,474
352
2,084
$
$
2,371
787
$
4,633
18,268
4,451
JPMorgan Chase & Co./2021 Form 10-K
Year ended December 31,
(in millions)
1,159
17,916
1,580
11,559
(a) Reclassifications of loans to held-for-sale are non-cash transactions.
(b) Predominantly includes purchases of residential real estate loans, including the Firm's voluntary repurchases of certain delinquent loans from loan pools
as permitted by Government National Mortgage Association ("Ginnie Mae") guidelines for the years ended December 31, 2021, 2020 and 2019. The Firm
typically elects to repurchase these delinquent loans as it continues to service them and/or manage the foreclosure process in accordance with applicable
requirements of Ginnie Mae, FHA, RHS, and/or VA.
Delinquency rates are the primary credit quality indicator
for consumer loans. Loans that are more than 30 days past
due provide an early warning of borrowers who may be
experiencing financial difficulties and/or who may be
unable or unwilling to repay the loan. As the loan continues
to age, it becomes more clear whether the borrower is likely
to be unable or unwilling to pay. In the case of residential
real estate loans, late-stage delinquencies (greater than
150 days past due) are a strong indicator of loans that will
ultimately result in a foreclosure or similar liquidation
transaction. In addition to delinquency rates, other credit
quality indicators for consumer loans vary based on the
class of loan, as follows:
•
•
For residential real estate loans, the current estimated
LTV ratio, or the combined LTV ratio in the case of junior
lien loans, is an indicator of the potential loss severity in
the event of default. Additionally, LTV or combined LTV
ratios can provide insight into a borrower's continued
willingness to pay, as the delinquency rate of high-LTV
loans tends to be greater than that for loans where the
borrower has equity in the collateral. The geographic
distribution of the loan collateral also provides insight as
to the credit quality of the portfolio, as factors such as
the regional economy, home price changes and specific
events such as natural disasters, will affect credit
quality. The borrower's current or "refreshed" FICO
score is a secondary credit quality indicator for certain
loans, as FICO scores are an indication of the borrower's
credit payment history. Thus, a loan to a borrower with a
low FICO score (less than 660) is considered to be of
higher risk than a loan to a borrower with a higher FICO
score. Further, a loan to a borrower with a high LTV
ratio and a low FICO score is at greater risk of default
than a loan to a borrower that has both a high LTV ratio
and a high FICO score.
For scored auto and business banking loans, geographic
distribution is an indicator of the credit performance of
the portfolio. Similar to residential real estate loans,
geographic distribution provides insights into the
portfolio performance based on regional economic
activity and events.
234
(a) At December 31, 2021 and 2020, included $5.4 billion and $19.2
billion of loans, respectively, in Business Banking under the PPP.
JPMorgan Chase & Co./2021 Form 10-K
The following tables provide information on delinquency, which is the primary credit quality indicator for retained residential
real estate loans.
December 31, 2021
Term loans by origination year(d)
(in millions, except ratios)
Loan delinquency(a)(b)
Current
2021
2020
2019
Residential real estate
2017
302,127
76,825
(c) Excludes purchases of retained loans of $25.8 billion, $16.3 billion and $16.6 billion for the years ended December 31, 2021, 2020 and 2019,
respectively, which are predominantly sourced through the correspondent origination channel and underwritten in accordance with the Firm's standards.
The amount of purchases of retained loans at December 31, 2020 has been revised to conform with the current presentation.
Gains and losses on sales of loans
Net gains/(losses) on sales of loans and lending-related commitments (including adjustments to record loans and lending-
related commitments held-for-sale at the lower of cost or fair value) recognized in noninterest revenue was $261 million for
the year ended December 31, 2021 of which $253 million was related to loans. Net gains/(losses) on sales of loans and
lending-related commitments was $(43) million for the year ended December 31, 2020 of which $(36) million was related to
loans. Net gains on sales of loans was $394 million for the year ended December 31, 2019. In addition, the sale of loans may
also result in write downs, recoveries or changes in the allowance recognized in the provision for credit losses.
233
JPMorgan Chase & Co./2021 Form 10-K
Notes to consolidated financial statements
Consumer, excluding credit card loan portfolio
Consumer loans, excluding credit card loans, consist
primarily of scored residential mortgages, home equity
loans and lines of credit, auto and business banking loans,
with a focus on serving the prime consumer credit market.
The portfolio also includes home equity loans secured by
junior liens, prime mortgage loans with an interest-only
payment period, and certain payment-option loans that may
result in negative amortization.
$ 295,556
The following table provides information about retained
consumer loans, excluding credit card, by class.
Residential real estate
Auto and other (a)
Total retained loans
2020
225,302
2021
$ 224,795
70,761
December 31, (in millions)
5,242
Remaining contractual maturity of the agreements
6,105
2.91 %
0.17 %
0.20 %
0.22 %
0.12 %
0.02 %
(e)
(e)
(e)
% of 30+ days past due to
total retained loans (c)
$225,302
$ 15,769
$ 7,945
$50,736
$28,025
0.54 %
3.23 %
0.98 %
(a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies as follows: current included $35 million and $36
million; 30-149 days past due included $11 million and $16 million; and 150 or more days past due included $20 million and $24 million at
December 31, 2021 and 2020, respectively.
Equal to or greater than 660
Greater than 125% and refreshed FICO scores:
Current estimated LTV ratios (f)(g)(h)(i)
90 or more days past due and government guaranteed (e)
$
Nonaccrual loans (a)(b)(c)(d)
(in millions, except weighted-average data)
$ 20,450
The following table provides information on nonaccrual and other credit quality indicators for retained residential real estate
loans.
Notes to consolidated financial statements
235
JPMorgan Chase & Co./2021 Form 10-K
Approximately 37% of the total revolving loans are senior lien loans; the remaining balance are junior lien loans. The lien
position the Firm holds is considered in the Firm's allowance for credit losses. Revolving loans that have been converted to
term loans have higher delinquency rates than those that are still within the revolving period. That is primarily because the
fully-amortizing payment that is generally required for those products is higher than the minimum payment options available
for revolving loans within the revolving period.
(e) Prior-period amounts have been revised to conform with the current presentation.
(c) At December 31, 2021 and 2020, residential real estate loans excluded mortgage loans insured by U.S. government agencies of $31 million and $40
million, respectively, that are 30 or more days past due. These amounts have been excluded based upon the government guarantee.
(d) Purchased loans are included in the year in which they were originated.
(b) At December 31, 2021 and 2020, loans under payment deferral programs offered in response to the COVID-19 pandemic which are still within their
deferral period and performing according to their modified terms are generally not considered delinquent.
Nonaccrual loans and other credit quality indicators
$ 13,930
$31,859
$ 56,588
$ 7,902
(e)
$ 49,218
$27,978
$ 20,410
$ 13,900
$31,820
(e)
$ 56,576
(e)
Total
to term
loans
period
Converted
Within the
revolving
Wholesale
Current
$
(e)
$223,064
1,193
264
22
1,045
245
21
674
844
$ 15,260
29
18
10
20
25
14
9
3
Total retained loans
150 or more days past due
30-149 days past due
22
18
December 31, 2021
4,759
$
24
76
2,492
208,238
11,980
Total retained loans
All other()
Connecticut
Massachusetts
225,302
New Jersey
Colorado
Illinois
Texas
Florida
New York
California
Geographic region (k)
Washington
765
54 %
763
71,383
7,227
6,832
7,917
8,292
8,235
8,885
13,130
$
11,565
13,865
13,981
16,182
32,287
32,545
73,444
$
13,773
5,784
Weighted average FICO(g) (i)
Weighted average LTV ratio (f)(i)
101% to 125% and refreshed FICO scores:
Less than 660
239
89
2,177
2,701
44
Equal to or greater than 660
38
2
6
$
2
N
33
December 31, 2020
5,313
12
50 %
Less than 660
Equal to or greater than 660
$
224,795
$
Total retained loans
66
2,930
9,658
80% to 100% and refreshed FICO scores:
209,295
37
U.S. government-guaranteed
No FICO/LTV available
Less than 660
Equal to or greater than 660
Less than 80% and refreshed FICO scores:
Less than 660
15
Credit card
22,849
2020
315,834
143
1,916
7
174,971
1,572
1,525
157,563
2
1,730
38,180
1,619
Prior to
2016
1,864
1,211
694
358
241,578
855
$
Total securities loaned and other
Securities sold
under repurchase
agreements
2021
Gross liability balance
2020
Securities loaned
and other
$
Securities sold
under repurchase
Securities loaned
and other
$
37,046
$
$
1,508
1,463
56,744
1,016
agreements
35,026
532,899
49,054
20,980
Overnight and
continuous
Total securities sold under repurchase agreements
Total securities loaned and other
$
238,667
37,887
Up to 30 days
$ 230,980
1,647
$
30 - 90 days
70,777
500
2020 (in millions)
$
Total
$
578,060
41,366
Transfers not qualifying for sale accounting
At December 31, 2021 and 2020, the Firm held $440 million and $598 million, respectively, of financial assets for which the
rights have been transferred to third parties; however, the transfers did not qualify as a sale in accordance with U.S. GAAP.
These transfers have been recognized as collateralized financing transactions. The transferred assets are recorded in trading
assets and loans, and the corresponding liabilities are recorded predominantly in short-term borrowings on the Consolidated
balance sheets.
228
Greater than
90 days
37,636
1,332
Total securities sold under repurchase agreements
532,899
52,610
59,492
875
37,627
$
52,610 $
578,060
$
41,366
Remaining contractual maturity of the agreements
$
Overnight and
195,035
50,034
Up to 30 days
$ 231,171
1,701
$
30 - 90 days
47,201
Greater than
90 days
Total
$
continuous
JPMorgan Chase & Co./2021 Form 10-K
2021 (in millions)
Equity securities
Liabilities
Securities sold under repurchase agreements
Securities loaned and other (a)
$
532,899 $
52,610
(343,093) $
(44,262)
189,806 $
(166,456)
$
23,350
8,348
(8,133)
215
2020
December 31, (in millions)
Gross amounts
16,043
51,472
$
(245,588)
(154,599)
261,631 $
206,071
The table below summarizes the gross and net amounts of
the Firm's securities financing agreements, as of
December 31, 2021 and 2020. When the Firm has obtained
an appropriate legal opinion with respect to a master
netting agreement with a counterparty and where other
relevant netting criteria under U.S. GAAP are met, the Firm
nets, on the Consolidated balance sheets, the balances
outstanding under its securities financing agreements with
the same counterparty. In addition, the Firm exchanges
securities and/or cash collateral with its counterparty to
reduce the economic exposure with the counterparty, but
such collateral is not eligible for net Consolidated balance
sheet presentation. Where the Firm has obtained an
appropriate legal opinion with respect to the counterparty
master netting agreement, such collateral, along with
securities financing balances that do not meet all these
relevant netting criteria under U.S. GAAP, is presented in
the table below as "Amounts not nettable on the
Consolidated balance sheets," and reduces the "Net
amounts" presented. Where a legal opinion has not been
either sought or obtained, the securities financing balances
are presented gross in the "Net amounts" below. In
transactions where the Firm is acting as the lender in a
securities-for-securities lending agreement and receives
securities that can be pledged or sold as collateral, the Firm
recognizes the securities received at fair value within other
assets and the obligation to return those securities within
accounts payable and other liabilities on the Consolidated
balance sheets.
Gross amounts
Amounts netted
on the
Consolidated
balance sheets
2021
Amounts
presented on the
Consolidated
balance sheets
Amounts not
nettable on the
Consolidated
balance sheets"
Amounts netted
on the
Consolidated
balance sheets
(b)
(c)
December 31, (in millions)
Assets
Securities purchased under resale agreements
Securities borrowed
$
604,724 $
250,333
(343,093) $
(44,262)
Net amounts"
Amounts
presented on the
Consolidated
balance sheets
Amounts not
nettable on the
Consolidated
balance sheets (b)
Net amounts (c)
(b) In some cases, collateral exchanged with a counterparty exceeds the net asset or liability balance with that counterparty. In such cases, the amounts
reported in this column are limited to the related net asset or liability with that counterparty.
(c) Includes securities financing agreements that provide collateral rights, but where an appropriate legal opinion with respect to the master netting
agreement has not been either sought or obtained. At December 31, 2021 and 2020, included $13.9 billion and $17.0 billion, respectively, of securities
purchased under resale agreements; $46.4 billion and $42.1 billion, respectively, of securities borrowed; $21.6 billion and $14.5 billion, respectively, of
securities sold under repurchase agreements; and $198 million and $8 million, respectively, of securities loaned and other.
JPMorgan Chase & Co./2021 Form 10-K
227
Notes to consolidated financial statements
The tables below present as of December 31, 2021 and 2020 the types of financial assets pledged in securities financing
agreements and the remaining contractual maturity of the securities financing agreements.
December 31, (in millions)
(a) Includes securities-for-securities lending agreements of $5.6 billion and $3.4 billion at December 31, 2021 and 2020, respectively, accounted for at fair
value, where the Firm is acting as lender.
Mortgage-backed securities:
Residential nonagency
Commercial - nonagency
U.S. Treasury, GSES and government agencies
Obligations of U.S. states and municipalities
Non-U.S. government debt
Corporate debt securities
Asset-backed securities
U.S. GSES and government agencies
Total
44
$
Assets
Securities purchased under resale agreements
$
Securities borrowed
666,467 $
193,700
(370,183) $
(33,065)
296,284 $
160,635
15,897
(273,206) $
(115,219)
Liabilities
Securities sold under repurchase agreements
$
Securities loaned and other (a)
578,060 $
41,366
(370,183) $
(33,065)
207,877 $ (191,980)
8,301
(8,257)
23,078
45,416
Consumer, excluding
credit card
Note 12 - Loans
The accounting for a loan depends on management's
strategy for the loan. The Firm accounts for loans based on
the following categories:
$
154,296
$ 600,112
$ 1,077,714
Consumer, excluding
Retained
Held-for-sale
At fair value
Total
credit card
Credit card
$ 302,127
$
1,305
143,432
784
$ 323,306
$ 1,010,206
8,688
58,820
7,401
32,357
26,463
The following tables summarize the Firm's loan balances by portfolio segment.
December 31, 2021
(in millions)
Retained
Held-for-sale
At fair value
Total
Wholesale
$ 514,947
December 31, 2020
Consumer, excluding
credit card
$ 295,556
$
Credit card
154,296
Wholesale
$ 560,354
Total(a)(b)
1,287
(in millions)
15,147
5,784
29,327
$
Purchases
Sales
Retained loans reclassified to held-for-sale (a)
232
2021
Consumer, excluding
credit card
Credit card
(in millions)
Wholesale
(b)(c)
$
515 LOND $ - $
799
1,225
1,122
31,022
2,178
$
1,637
31,821
3,403
Total
(e) Includes loans to financial institutions, states and political subdivisions, SPES, nonprofits, personal investment companies and trusts, as well as loans to
individuals and individual entities (predominantly Global Private Bank clients within AWM). Refer to Note 14 for more information on SPES.
Year ended December 31,
Sales
318,579
$
144,216
$ 550,058
$
Total(a)(b)
960,506
7,873
Retained loans reclassified to held-for-sale (a)
44,474
(a) Excludes $2.7 billion and $2.9 billion of accrued interest receivables at December 31, 2021 and 2020, respectively. The Firm wrote off accrued interest
receivables of $56 million and $121 million for the years ended December 31, 2021 and 2020, respectively.
(b) Loans (other than those for which the fair value option has been elected) are presented net of unamortized discounts and premiums and net deferred loan
fees or costs. These amounts were not material as of December 31, 2021 and 2020.
The following tables provide information about the carrying value of retained loans purchased, sold and reclassified to held-
for-sale during the periods indicated. Loans that were reclassified to held-for-sale and sold in a subsequent period are
excluded from the sales line of this table.
Year ended December 31,
(in millions)
Purchases
$ 1,012,853
(d) The wholesale portfolio segment's classes align with loan classifications as defined by the bank regulatory agencies, based on the loan's collateral,
purpose, and type of borrower.
(c) Includes loans held in CIB, CB, AWM, Corporate as well as risk-rated loans held in CCB, including business banking and auto dealer loans for which the
wholesale methodology is applied when determining the allowance for loan losses.
(a) Includes scored mortgage and home equity loans held in CCB and AWM, and scored mortgage loans held in CIB and Corporate.
(b) Includes scored auto and business banking loans and overdrafts.
Consumer loans are generally charged off or charged down
to the lower of the amortized cost or the net realizable
value of the underlying collateral (i.e., fair value less
estimated costs to sell), with an offset to the allowance for
loan losses, upon reaching specified stages of delinquency
in accordance with standards established by the FFIEC.
Residential real estate loans, unmodified credit card loans
and scored business banking loans are generally charged
off no later than 180 days past due. Scored auto and
modified credit card loans are charged off no later than 120
days past due.
Certain consumer loans are charged off or charged down to
their net realizable value earlier than the FFIEC charge-off
standards in certain circumstances as follows:
Loans modified in a TDR that are determined to be
collateral-dependent.
JPMorgan Chase & Co./2021 Form 10-K
229
•
•
Notes to consolidated financial statements
Loans to borrowers who have experienced an event that
suggests a loss is either known or highly certain are
subject to accelerated charge-off standards (e.g.,
residential real estate and auto loans are charged off or
charged down within 60 days of receiving notification of
a bankruptcy filing).
Auto loans upon repossession of the automobile.
Other than in certain limited circumstances, the Firm
typically does not recognize charge-offs on the government-
guaranteed portion of loans.
Wholesale loans are charged off when it is highly certain
that a loss has been realized. The determination of whether
to recognize a charge-off includes many factors, including
the prioritization of the Firm's claim in bankruptcy,
expectations of the workout/restructuring of the loan and
valuation of the borrower's equity or the loan collateral.
When a loan is charged down to the lower of its amortized
cost or the estimated net realizable value of the underlying
collateral, the determination of the fair value of the
collateral depends on the type of collateral (e.g., securities,
real estate). In cases where the collateral is in the form of
liquid securities, the fair value is based on quoted market
prices or broker quotes. For illiquid securities or other
financial assets, the fair value of the collateral is generally
estimated using a discounted cash flow model.
For residential real estate loans, collateral values are based
upon external valuation sources. When it becomes likely
that a borrower is either unable or unwilling to pay, the
Firm utilizes a broker's price opinion, appraisal and/or an
automated valuation model of the home based on an
exterior-only valuation ("exterior opinions"), which is then
updated at least every 12 months, or more frequently
depending on various market factors. As soon as practicable
after the Firm receives the property in satisfaction of a debt
(e.g., by taking legal title or physical possession), the Firm
generally obtains an appraisal based on an inspection that
includes the interior of the home ("interior appraisals").
Exterior opinions and interior appraisals are discounted
based upon the Firm's experience with actual liquidation
values as compared with the estimated values provided by
exterior opinions and interior appraisals, considering state-
specific factors.
For commercial real estate loans, collateral values are
generally based on appraisals from internal and external
valuation sources. Collateral values are typically updated
every six to twelve months, either by obtaining a new
appraisal or by performing an internal analysis, in
accordance with the Firm's policies. The Firm also considers
both borrower- and market-specific factors, which may
result in obtaining appraisal updates or broker price
opinions at more frequent intervals.
Charge-offs
The allowance for loan losses represents the estimated
expected credit losses in the held-for-investment loan
portfolio at the balance sheet date and is recognized on the
balance sheet as a contra asset, which brings the amortized
cost to the net carrying value. Changes in the allowance for
loan losses are recorded in the provision for credit losses on
the Firm's Consolidated statements of income. Refer to
Note 13 for further information on the Firm's accounting
policies for the allowance for loan losses.
Allowance for loan losses
As permitted by regulatory guidance, credit card loans are
generally exempt from being placed on nonaccrual status;
accordingly, interest and fees related to credit card loans
continue to accrue until the loan is charged off or paid in
full.
•
•
Originated or purchased loans held-for-investment (i.e.,
"retained")
Loans held-for-sale
Loans at fair value
The following provides a detailed accounting discussion of
the Firm's loans by category:
Loans held-for-investment
Loans held-for-sale
Originated or purchased loans held-for-investment,
including PCD, are recorded at amortized cost, reflecting
the principal amount outstanding, net of the following:
unamortized deferred loan fees, costs, premiums or
discounts; charge-offs; collection of cash; and foreign
exchange. Credit card loans also include billed finance
charges and fees.
Interest income on performing loans held-for-investment is
accrued and recognized as interest income at the
contractual rate of interest. Purchase price discounts or
premiums, as well as net deferred loan fees or costs, are
amortized into interest income over the contractual life of
the loan as an adjustment of yield.
The Firm classifies accrued interest on loans, including
accrued but unbilled interest on credit card loans, in
accrued interest and accounts receivables on the
Consolidated balance sheets. For credit card loans, accrued
interest once billed is then recognized in the loan balances,
with the related allowance recorded in the allowance for
credit losses. Changes in the allowance for credit losses on
accrued interest on credit card loans are recognized in the
provision for credit losses and charge-offs are recognized
by reversing interest income. Expected losses related to
accrued interest on certain performing, modified loans to
borrowers impacted by COVID-19 are considered in the
Firm's allowance for loan losses. For other loans, the Firm
generally does not recognize an allowance for credit losses
on accrued interest receivables, consistent with its policy to
write them off no later than 90 days past due by reversing
interest income.
Nonaccrual loans
Nonaccrual loans are those on which the accrual of interest
has been suspended. Loans (other than credit card loans
and certain consumer loans insured by U.S. government
agencies) are placed on nonaccrual status and considered
nonperforming when full payment of principal and interest
is not expected, regardless of delinquency status, or when
principal and interest has been in default for a period of 90
days or more, unless the loan is both well-secured and in
the process of collection. A loan is determined to be past
due when the minimum payment is not received from the
borrower by the contractually specified due date or for
certain loans (e.g., residential real estate loans), when a
monthly payment is due and unpaid for 30 days or more.
Finally, collateral-dependent loans are typically maintained
on nonaccrual status.
On the date a loan is placed on nonaccrual status, all
interest accrued but not collected is reversed against
interest income. In addition, the amortization of deferred
amounts is suspended. Interest income on nonaccrual loans
may be recognized as cash interest payments are received
(i.e., on a cash basis) if the recorded loan balance is
deemed fully collectible; however, if there is doubt
regarding the ultimate collectibility of the recorded loan
balance, all interest cash receipts are applied to reduce the
carrying value of the loan (the cost recovery method). For
consumer loans, application of this policy typically results in
the Firm recognizing interest income on nonaccrual
consumer loans on a cash basis.
A loan may be returned to accrual status when repayment is
reasonably assured and there has been demonstrated
performance under the terms of the loan or, if applicable,
the terms of the restructured loan.
Interest income
Loan accounting framework
Loans held-for-sale are measured at the lower of cost or fair
value, with valuation changes recorded in noninterest
revenue. For consumer loans, the valuation is performed on
a portfolio basis. For wholesale loans, the valuation is
performed on an individual loan basis.
Loan origination fees or costs and purchase price discounts
or premiums are deferred in a contra loan account until the
related loan is sold. The deferred fees or costs and
discounts or premiums are an adjustment to the basis of the
loan and therefore are included in the periodic
determination of the lower of cost or fair value adjustments
and/or the gain or loss recognized at the time of sale.
Because these loans are recognized at the lower of cost or
fair value, the Firm's allowance for loan losses and charge-
off policies do not apply to these loans. However, loans
held-for-sale are subject to the nonaccrual policies
described above.
Assistance provided in response to the COVID-19 pandemic
could delay the recognition of delinquencies, nonaccrual
status, and net charge-offs for those customers who would
have otherwise moved into past due or nonaccrual status.
Foreclosed property
The Firm acquires property from borrowers through loan
restructurings, workouts, and foreclosures. Property
acquired may include real property (e.g., residential real
estate, land, and buildings) and commercial and personal
property (e.g., automobiles, aircraft, railcars, and ships).
The Firm recognizes foreclosed property upon receiving
assets in satisfaction of a loan (e.g., by taking legal title or
physical possession). For loans collateralized by real
property, the Firm generally recognizes the asset received
at foreclosure sale or upon the execution of a deed in lieu of
foreclosure transaction with the borrower. Foreclosed
assets are reported in other assets on the Consolidated
balance sheets and initially recognized at fair value less
estimated costs to sell. Each quarter the fair value of the
acquired property is reviewed and adjusted, if necessary, to
the lower of cost or fair value. Subsequent adjustments to
fair value are charged/credited to noninterest revenue.
Operating expense, such as real estate taxes and
maintenance, are charged to other expense.
Foreclosures have resumed after having been temporarily
suspended in response to the COVID-19 pandemic.
231
Notes to consolidated financial statements
Loan portfolio
The Firm's loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine
the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment the
Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class.
To the extent that certain modifications did not meet any of
the above criteria, the Firm accounted for them as TDRs.
As permitted by regulatory guidance, the Firm did not place
loans with deferrals granted due to COVID-19 on
nonaccrual status where such loans were not otherwise
reportable as nonaccrual. The Firm considered expected
losses of principal and accrued interest associated with all
COVID-19 related loan modifications in its allowance for
credit losses.
Consumer, excluding
Residential real estate
• Auto and other (b)
(a)
Credit card
Credit card loans
Wholesale (c)(d)
Secured by real estate
•Commercial and industrial
Other"
credit card
Interest income on loans held-for-sale is accrued and
recognized based on the contractual rate of interest.
the Firm elected to suspend TDR accounting guidance
under the option provided by the CARES Act, as
extended by the Consolidated Appropriations Act and
which expired on January 1, 2022.
management decides to sell are transferred to the held-for-
sale portfolio at the lower of cost or fair value on the date
of transfer. Credit-related losses are charged against the
allowance for loan losses; non-credit related losses such as
those due to changes in interest rates or foreign currency
exchange rates are recognized in noninterest revenue.
In the event that management decides to retain a loan in
the held-for-sale portfolio, the loan is transferred to the
held-for-investment portfolio at amortized cost on the date
of transfer. These loans are subsequently assessed for
impairment based on the Firm's allowance methodology.
Refer to Note 13 for a further discussion of the
methodologies used in establishing the Firm's allowance for
loan losses.
Loans at fair value
Loans for which the fair value option has been elected are
measured at fair value, with changes in fair value recorded
in noninterest revenue.
Interest income on these loans is accrued and recognized
based on the contractual rate of interest. Changes in fair
value are recognized in noninterest revenue. Loan
origination fees are recognized upfront in noninterest
revenue. Loan origination costs are recognized in the
associated expense category as incurred.
Because these loans are recognized at fair value, the Firm's
allowance for loan losses and charge-off policies do not
apply to these loans. However, loans at fair value are
subject to the nonaccrual policies described above.
Refer to Note 3 for further information on the Firm's
elections of fair value accounting under the fair value
option. Refer to Note 2 and Note 3 for further information
on loans carried at fair value and classified as trading
assets.
230
JPMorgan Chase & Co./2021 Form 10-K
Loan classification changes
Loans in the held-for-investment portfolio that
2016
Loan modifications
The Firm seeks to modify certain loans in conjunction with
its loss mitigation activities. Through the modification,
JPMorgan Chase grants one or more concessions to a
borrower who is experiencing financial difficulty in order to
minimize the Firm's economic loss and avoid foreclosure or
repossession of the collateral, and to ultimately maximize
payments received by the Firm from the borrower. The
concessions granted vary by program and by borrower-
specific characteristics, and may include interest rate
reductions, term extensions, payment delays, principal
forgiveness, or the acceptance of equity or other assets in
lieu of payments. Such modifications are accounted for and
reported as TDRs. Loans with short-term and other
insignificant modifications that are not considered
concessions are not TDRs.
Loans, except for credit card loans, modified in a TDR are
generally placed on nonaccrual status, although in many
cases such loans were already on nonaccrual status prior to
modification. These loans may be returned to performing
status (the accrual of interest is resumed) if the following
criteria are met: (i) the borrower has performed under the
modified terms for a minimum of six months and/or six
payments, and (ii) the Firm has an expectation that
repayment of the modified loan is reasonably assured based
on, for example, the borrower's debt capacity and level of
future earnings, collateral values, LTV ratios, and other
current market considerations. In certain limited and well-
defined circumstances in which the loan is current at the
modification date, such loans are not placed on nonaccrual
status at the time of modification.
Loans modified in TDRs are generally measured for
impairment using the Firm's established asset-specific
allowance methodology, which considers the expected re-
default rates for the modified loans. A loan modified in a
TDR generally remains subject to the asset-specific
component of the allowance throughout its remaining life,
regardless of whether the loan is performing and has been
returned to accrual status. Refer to Note 13 for further
discussion of the methodology used to estimate the Firm's
asset-specific allowance.
JPMorgan Chase & Co./2021 Form 10-K
•
The Firm granted various forms of assistance to customers
and clients impacted by the COVID-19 pandemic, including
payment deferrals and covenant modifications. The
majority of the Firm's COVID-19 related loan modifications
have not been considered TDRs because:
•
they represent short-term or other insignificant
modifications, whether under the Firm's regular loan
modification assessments or as permitted by regulatory
guidance, or
217,209
35,036
903 $ 252,245
Modifications of residential real estate loans, where the
Firm grants concessions to borrowers who are experiencing
financial difficulty are generally accounted for and reported
as TDRs. Loans with short-term or other insignificant
modifications that are not considered concessions are not
TDRs nor are loans for which the Firm has elected to
suspend TDR accounting guidance under the option
provided by the CARES Act. The carrying value of new TDRS
was $866 million, $819 million and $490 million for the
years ended December 31, 2021, 2020 and 2019,
respectively. There were no additional commitments to lend
to borrowers whose residential real estate loans have been
modified in TDRS.
8 $
1
92,369
26,466
9
$
118,835
Secured by real estate
December 31, 2020
Term loans by origination year (a)
Revolving loans
1,226 $
458
1,684 $
2020
2018
2017
2016
Prior to 2016
Within the
revolving
period
Converted to
term loans
Total
(in millions)
Loans by risk ratings
Investment-grade
2019
$
$
19,066
5,613
24,679
Secured by real estate
December 31, 2021
Term loans by origination year
2021
2020
2019
2018
2017
Prior to 2017
Revolving loans
Within the
revolving
period
Converted to
term loans
Total
(in millions)
Loans by risk ratings
Investment-grade
$
23,346 $
Noninvestment-grade
Total retained loans
$
5,364
28,710 $
16,030 $ 17,265 $
3,826
4,564
19,856 $ 21,829 $
8,103 $ 7,325 $
3,806
2,834
11,909 $ 10,159 $
$
Noninvestment-grade
17,004 $
4,998
19,870 $
6,027
Prior to 2017
Within the
revolving
period
Revolving loans
Converted
to term
loans
Total
(in millions)
Loans by risk ratings
(a)
Investment-grade
Noninvestment-grade
$
21,342 $
6,268 $
19,314
Total retained loans
$ 40,656 $
7,112
13,380 $
3,609 $
4,559
8,168 $
1,269 $
2,177
3,446 $
1,108 $
930
2,038 $
819
430
1,249 $
$
2017
(b) Includes loans to financial institutions, states and political subdivisions, SPEs, nonprofits, personal investment companies and trusts, as well as loans to
individuals and individual entities (predominantly Global Private Bank clients within AWM). Refer to Note 14 for more information on SPEs.
2018
2020
Total retained loans
$
22,002 $ 25,897 $
12,448 $
5,886
18,334 $
11,218 $
4,184
15,402 $
13,611 $
3,738
17,349 $
14,898
4,523
19,421 $
$
1,098 $
489
1,587 $
$
90,147
1
29,846
1
$
119,993
(a) Prior-period amounts have been revised to conform with the current presentation.
244
JPMorgan Chase & Co./2021 Form 10-K
Commercial and industrial
December 31, 2021
Term loans by origination year
2021
2019
(a) At December 31, 2021, nonaccrual loans excluded $127 million of PPP loans 90 or more days past due and guaranteed by the SBA, predominantly in
commercial and industrial.
0.64
0.37
2020
$
92,369
$ 90,147
$
75,783
$
71,917
$ 241,859
$ 217,209
$ 410,011 $ 379,273
Noncriticized
22,495
26,129
62,039
57,870
52,440
33,053
136,974
117,052
Criticized performing
3,645
3,234
Total retained loans
2021
6,900
2020
Other (b)
JPMorgan Chase & Co./2021 Form 10-K
Wholesale loan portfolio
Wholesale loans include loans made to a variety of clients,
ranging from large corporate and institutional clients to
high-net-worth individuals.
The primary credit quality indicator for wholesale loans is
the internal risk rating assigned to each loan. Risk ratings
are used to identify the credit quality of loans and
differentiate risk within the portfolio. Risk ratings on loans
consider the PD and the LGD. The PD is the likelihood that a
loan will default. The LGD is the estimated loss on the loan
that would be realized upon the default of the borrower and
takes into consideration collateral and structural support
for each credit facility.
Management considers several factors to determine an
appropriate internal risk rating, including the obligor's debt
capacity and financial flexibility, the level of the obligor's
earnings, the amount and sources for repayment, the level
and nature of contingencies, management strength, and the
industry and geography in which the obligor operates. The
Firm's internal risk ratings generally align with the
qualitative characteristics (e.g., borrower capacity to meet
financial commitments and vulnerability to changes in the
economic environment) defined by S&P and Moody's,
however the quantitative characteristics (e.g., PD and LGD)
may differ as they reflect internal historical experiences and
assumptions. The Firm generally considers internal ratings
with qualitative characteristics equivalent to BBB-/Baa3 or
higher as investment grade, and these ratings have a lower
PD and/or lower LGD than non-investment grade ratings.
Noninvestment-grade ratings are further classified as
noncriticized and criticized, and the criticized portion is
further subdivided into performing and nonaccrual loans,
representing management's assessment of the collectibility
of principal and interest. Criticized loans have a higher PD
than noncriticized loans. The Firm's definition of criticized
aligns with the U.S. banking regulatory definition of
criticized exposures, which consist of special mention,
substandard and doubtful categories.
Risk ratings are reviewed on a regular and ongoing basis by
Credit Risk Management and are adjusted as necessary for
updated information affecting the obligor's ability to fulfill
its obligations.
As noted above, the risk rating of a loan considers the
industry in which the obligor conducts its operations. As
part of the overall credit risk management framework, the
Firm focuses on the management and diversification of its
industry and client exposures, with particular attention paid
to industries with actual or potential credit concern. Refer
to Note 4 for further detail on industry concentrations.
243
JPMorgan Chase & Co./2021 Form 10-K
Notes to consolidated financial statements
The following tables provide information on internal risk rating, which is the primary credit quality indicator for retained
wholesale loans.
December 31,
(in millions, except ratios)
Loans by risk ratings
Investment-grade
Noninvestment-grade:
Secured by real estate
2021
2020
Commercial and industrial
2021
2020
2021
41,367 $
35,312
10,991
326
75.13 %
52.02 %
50.39 %
81.76 %
86.11 %
73.17 %
73.65 %
% of total criticized to total
retained loans
3.34
3.10
5.40
9.05
0.52
0.79
2.39
3.62
% of criticized nonaccrual to
total retained loans
0.27
0.40
0.67
1.35
0.26
0.36
77.73 %
Criticized nonaccrual(a)
total retained loans
$ 514,947
483
969
Total noninvestment-grade
26,466
29,846
69,908
1,931
70,792
770
759
1,079
904
11,315
15,304
53,969
35,036
2,054
150,343
3,318
135,674
Total retained loans
$ 118,835
$ 119,993
$ 145,691
$ 142,709
$ 295,828
$ 252,245
$ 560,354
% of investment-grade to
1
$
74
15
15
90 or more days past due and still accruing(c)
658
$ 293,358 $ 249,713 $ 554,980 $ 508,707
$ 143,459 $ 140,100
1,193
601
331
Current and less than 30 days past due and still accruing $ 118,163 $ 118,894
30-89 days past due and still accruing
Loan delinquency(b)
Total retained loans
$ 118,835 $ 119,993 $ 145,691 $ 142,709
33,436
39,242
3,003
3,103
$ 115,732 $ 116,990 $ 106,449 $ 109,273 $ 215,750 $ 180,583 $ 437,931 $ 406,846
80,078
71,662
122,423 108,101
$295,828 $ 252,245 $ 560,354 $ 514,947
2020
2021
2020
Other
Total
retained loans
2021
70
2020
20
1,606
8,252
145,524 $
535
24,710
8,787 $ 170,234 $
779 $
124
JPMorgan Chase & Co./2021 Form 10-K
246
(d) At December 31, 2021, nonaccrual loans excluded $127 million of PPP loans 90 or more days past due and guaranteed by the SBA, predominantly in
commercial and industrial.
(c) Represents loans that are considered well-collateralized and therefore still accruing interest.
(a) The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
(b) At December 31, 2021 and December 31, 2020, loans under payment deferral programs offered in response to the COVID-19 pandemic which are still
within their deferral period and performing according to their modified terms are generally not considered delinquent. The credit quality of wholesale
loans is assessed primarily through ongoing review and monitoring of an obligor's ability to meet contractual obligations rather than relying on the past
due status, which is generally a lagging indicator of credit quality.
$ 118,835 $ 119,993 $ 145,691 $ 142,709 $ 295,828 $ 252,245 $ 560,354 $ 514,947
Total retained loans
Criticized nonaccrual (d)
3,318
2,054
904
759
1,931
969
483
326
2,865
57
206
22
3,114
1,590
121
$
2021
2021
$
% of total criticized to total retained loans secured by real estate
Criticized nonaccrual
1,671
$
$ 73,801 $ 73,078
2020
2021
2020
2021
2020
2021
Criticized
Retained loans secured by real estate
(in millions, except ratios)
December 31,
Total retained loans secured
by real estate
Other Commercial
Multifamily
The following table presents additional information on retained loans secured by real estate within the Wholesale portfolio,
which consists of loans secured wholly or substantially by a lien or liens on real property at origination. Multifamily lending
includes financing for acquisition, leasing and construction of apartment buildings. Other commercial lending largely includes
financing for acquisition, leasing and construction, largely for office, retail and industrial real estate. Included in secured by
real estate loans is $5.7 billion and $6.4 billion as of December 31, 2021 and 2020, respectively, of construction and
development loans made to finance land development and on-site construction of commercial, industrial, residential, or farm
buildings.
Notes to consolidated financial statements
245
JPMorgan Chase & Co./2021 Form 10-K
(a) Includes loans to financial institutions, states and political subdivisions, SPES, nonprofits, personal investment companies and trusts, as well as loans to
individuals and individual entities (predominantly Global Private Bank clients within AWM). Refer to Note 14 for more information on SPES.
(b) Prior-period amounts have been revised to conform with the current presentation.
% of criticized nonaccrual loans to total retained loans secured by real estate
Secured by real estate
Loan modifications
$
2020
Commercial
and industrial
Total non-U.S.
Total U.S.
Loans by geographic distribution (a)
(in millions)
December 31,
The following table provides information on the geographic distribution and delinquency for retained wholesale loans.
Geographic distribution and delinquency
0.40 %
0.27%
483
$
326
$
427
0.91 %
3.10 %
3.34 %
3,717
3,971
$ 118,835 $ 119,993
45,034 $ 46,915
2,300
2,573
5.48 %
5.11 %
235 $
0.52 %
1,144
1.57 %
56
0.08 %
242
4,089 $
175
4.264 $
7,455 $
1,660
9,115 $
$
36,721 $ 16,530 $
2,950 $
5,470
8,420 $
1,756 $
2,323
4,079 $
1,034 $
611
1,645 $
1,178 $
786
1,964 $
36,424 $
36,852
1
$
71,917
73
70,792
73,276 $
74
$
142,709
(a) At December 31, 2021, $1.1 billion of the $1.3 billion total PPP loans in the wholesale portfolio were commercial and industrial. Of the $1.1 billion, $698
million were originated in 2021 and $396 million were originated in 2020. PPP loans are guaranteed by the SBA and considered investment-grade. Other
than in certain limited circumstances, the Firm typically does not recognize charge-offs, classify as nonaccrual nor record an allowance for loan losses on
these loans.
(b) Prior-period amounts have been revised to conform with the current presentation.
(c) At December 31, 2020, $7.4 billion of the $8.0 billion total PPP loans in the wholesale portfolio were commercial and industrial.
Other (a)
December 31, 2021
Term loans by origination year
Total retained loans
2021
7,341 $
9,189
Noninvestment-grade
75,783
69,908
76,679 $
75
$ 145,691
Commercial and industrial
December 31, 2020
(in millions)
Term loans by origination year(b)
Revolving loans
Within the
2020
2019
2018
2017
2016
Prior to
2016
revolving
period
Converted to
term loans
Total
Loans by risk ratings
(c)
Investment-grade
$
21,233 $
15,488
6,804 $
553
7,357 $
2020
2018
241,859
53,969
295,828
Other (a)
December 31, 2020
Term loans by origination year(b)
Revolving loans
2020
2019
2018
2017
2016
Prior to 2016
Within the
revolving
period
Converted to
term loans
Total
(in millions)
Loans by risk ratings
Investment-grade
$
Noninvestment-grade
Total retained loans
$
33,190 $
5,048
38,238 $ 13,347 $
11,116 $
2,231
$
2019
606
601 $
2017
Prior to 2017
Revolving loans
Within the
revolving
period
Converted to
term loans
Total
(in millions)
Loans by risk ratings
Investment-grade
$
Noninvestment-grade
26,782 $
16,905
Total retained loans
$
43,687 $
17,829 $
2,399
20,228 $
6,125 $
1,455
7,580 $
2,885 $
935
3,820 $
3,868 $
218
4,086 $
7,651
467
$
8,118
$
176,118 $
31,585
207,703 $
5
For credit card loans modified in TDRs, payment default is
deemed to have occurred when the borrower misses two
consecutive contractual payments. Defaulted modified
credit card loans remain in the modification program and
continue to be charged off in accordance with the Firm's
standard charge-off policy.
2.26%
91 $
0.12 %
$ 57 $ 110 $ 148
$ 3,724
$ 1,832
$
688
$ 2,259
$
133
$ 70,761
% of 30+ days past due to
total retained loans
0.54 %
0.47 %
1.17 %
1.42 %
1.75 %
3.20 %
0.75 %
9.77 %
1.66 %
December 31, 2020
Term loans by origination year
Revolving loans
(in millions, except ratios)
Loan delinquency(a)
$ 7,531
2020
$ 19,079
Total retained loans
$ 3,671
$ 1,800
$
666
$ 2,242
$
120
$ 69,589
30-119 days past due
192
120 or more days past due
720
35
88
31
21
12
6
1,123
1
1
5
7
49
$ 35,515
$ 7,443
Within the
2019
30
17
446
1
8
8
18
$ 46,266
$ 12,936
$ 7,444
$ 4,575
$ 2,100
$
766
$ 2,555
$
183
$ 76,825
% of 30+ days past due to
total retained loans
0.21 %
0.83 %
1.03 %
1.18 %
23
Converted
42
120 or more days past due
Total retained loans
2018
2017
2016
Prior to
2016
revolving
period
to term
loans
Total
(d)
Current
$ 46,169
30-119 days past due
97
$ 12,829
107
$ 7,367
77
$ 4,521
$ 2,058
$
742
$ 2,517
$
158
$ 76,361
53
1
2.00 %
$ 18,324
Current
14
13
2
2
5
36
66
63
(a) Represents concessions granted in permanent modifications as a percentage of the number of loans permanently modified. The sum of the percentages
exceeds 100% because predominantly all of the modifications include more than one type of concession. Concessions offered on trial modifications are
generally consistent with those granted on permanent modifications.
(b) Includes variable interest rate to fixed interest rate modifications and payment delays that meet the definition of a TDR.
JPMorgan Chase & Co./2021 Form 10-K
237
Notes to consolidated financial statements
Financial effects of modifications and redefaults
The following table provides information about the financial effects of the various concessions granted in modifications of
residential real estate loans under the loss mitigation programs described above and about redefaults of certain loans
modified in TDRs for the periods presented. The following table presents only the financial effects of permanent modifications
and do not include temporary concessions offered through trial modifications. This table also excludes Chapter 7 loans where
the sole concession granted is the discharge of debt, loans with short-term or other insignificant modifications that are not
considered concessions, and loans for which the Firm has elected to suspend TDR accounting guidance under the option
provided by the CARES Act.
Year ended December 31,
(in millions, except weighted average data)
Weighted-average interest rate of loans with interest rate reductions - before TDR
Weighted-average interest rate of loans with interest rate reductions - after TDR
2021
2020
2019
4.54 %
2.92
23
5.09 %
3.28
71
53
(a) Represents the outstanding balance prior to modification.
(b) Represents loans modified in TDRs that experienced a payment default
in the periods presented, and for which the payment default occurred
within one year of the modification. The amounts presented represent
the balance of such loans as of the end of the quarter in which they
defaulted.
Nature and extent of modifications
The Firm's proprietary modification programs as well as
government programs, including U.S. GSE programs,
generally provide various concessions to financially
troubled borrowers including, but not limited to, interest
rate reductions, term or payment extensions and delays of
principal and/or interest payments that would otherwise
have been required under the terms of the original
agreement. The following table provides information about
how residential real estate loans were modified in TDRS
under the Firm's loss mitigation programs described above
during the periods presented. This table excludes Chapter 7
loans where the sole concession granted is the discharge of
debt, loans with short-term or other insignificant
modifications that are not considered concessions, and
loans for which the Firm has elected to suspend TDR
accounting guidance under the option provided by the
CARES Act.
Year ended December 31,
2021
Number of loans approved for a trial modification
6,246
Number of loans permanently modified
4,588
Concession granted: (a)
Interest rate reduction
Term or payment extension
Principal and/or interest deferred
Principal forgiveness
Other(b)
2020
5,522
6,850
2019
5,872
4,918
74 %
50 %
77 %
49
$35,323
5.68 %
3.81
23
At December 31, 2021, the weighted-average estimated remaining lives of residential real estate loans permanently modified
in TDRs were 4 years. The estimated remaining lives of these loans reflect estimated prepayments, both voluntary and
involuntary (i.e., foreclosures and other forced liquidations).
Active and suspended foreclosure
At December 31, 2021 and 2020, the Firm had residential real estate loans, excluding those insured by U.S. government
agencies, with a carrying value of $619 million and $846 million, respectively, that were not included in REO, but were in the
process of active or suspended foreclosure.
238
JPMorgan Chase & Co./2021 Form 10-K
Auto and other
The following tables provide information on delinquency, which is the primary credit quality indicator for retained auto and
other consumer loans.
(in millions, except ratios)
Loan delinquency(a)
2021
2020
December 31, 2021
Term loans by origination year
Revolving loans
Within the
2019
2018
2017
Prior to
2017
revolving
period
Converted
to term
loans
Total
(c)
(c)
(a) Represents loans permanently modified in TDRS that experienced a payment default in the periods presented, and for which the payment default occurred
within one year of the modification. The dollar amounts presented represent the balance of such loans at the end of the reporting period in which such
loans defaulted. For residential real estate loans modified in TDRs, payment default is deemed to occur when the loan becomes two contractual payments
past due. In the event that a modified loan redefaults, it will generally be liquidated through foreclosure or another similar type of liquidation transaction.
Redefaults of loans modified within the last twelve months may not be representative of ultimate redefault levels.
Weighted-average remaining contractual term (in years) of loans with term or payment extensions - before TDR
Weighted-average remaining contractual term (in years) of loans with term or payment extensions - after TDR
Charge-offs recognized upon permanent modification
166
199
22
20
38
39
39
$
-
$
5
$
1
Principal deferred
28
16
19
Principal forgiven
1
5
7
Balance of loans that redefaulted within one year of permanent modification (a)
$
160
$
$
3.13 %
53
13.66 %
Notes to consolidated financial statements
Other credit quality indicators
The following table provides information on other credit quality indicators for retained credit card loans.
(in millions, except ratios)
December 31, 2021
December 31, 2020
Geographic region (a)
California
Texas
$
23,030
$
20,921
15,879
14,544
New York
Florida
12,652
11,919
10,412
9,562
Illinois
New Jersey
241
Ohio
JPMorgan Chase & Co./2021 Form 10-K
0.92
Total
1.04 %
0.50
$
139,783
$
1,239
$
141,022
997
94
$
1,277
142,057
42
1,091
1,319
$
1,375
$
143,432
1.60 %
0.90
9.89 %
3.05
1.68 %
(a) At December 31, 2021 and 2020, loans under payment deferral programs offered in response to the COVID-19 pandemic which are still within their
deferral period and performing according to their modified terms are generally not considered delinquent.
(b) Represents TDRs.
Converted to term loans (b)
Pennsylvania
8,530
0.2
(a) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2021.
Loan modifications
The Firm may offer loan modification programs granting
concessions to credit card borrowers who are experiencing
financial difficulty. The Firm grants concessions for most of
the credit card loans under long-term programs. These
modifications involve placing the customer on a fixed
payment plan, generally for 60 months, and typically
include reducing the interest rate on the credit card.
Substantially all modifications under the Firm's long-term
programs are considered to be TDRs. Loans with short-term
or other insignificant modifications that are not considered
concessions are not TDRs.
If the cardholder does not comply with the modified
payment terms, then the credit card loan continues to age
and will ultimately be charged-off in accordance with the
Firm's standard charge-off policy. In most cases, the Firm
does not reinstate the borrower's line of credit.
Financial effects of modifications and redefaults
The following table provides information about the financial
effects of the concessions granted on credit card loans
modified in TDRs and redefaults for the periods presented.
For all periods disclosed, new enrollments were less than
1% of total retained credit card loans.
Year ended December 31,
(in millions, except
weighted-average data)
Balance of new TDRs (a)
$
2021
393 $
2020
2019
818 $ 961
17.75 %
18.04 % 19.07 %
5.14
4.64
4.70
1.49 %
redefaulted within one year of
modification
0.2
Colorado
13.9
88.5 %
11.3
8,006
6,367
5,927
4,923
4,673
4,708
4,476
4,573
4,092
Michigan
3,773
3,553
All other
59,449
55,759
Total retained loans
$
154,296
$
143,432
Percentage of portfolio based on carrying value with estimated refreshed FICO scores
Equal to or greater than 660
Less than 660
No FICO available
85.9 %
Within the revolving period
Weighted-average interest rate
of loans - before TDR
Weighted-average interest rate
of loans after TDR
Balance of loans that
2.74
4,901
4,668
Illinois
2,930
3,768
New Jersey
2,355
2,646
Pennsylvania
2,004
1,924
Arizona
1,887
2,465
Ohio
1,843
2,163
Louisiana
1,801
1,808
All other
28,170
28,022
Florida
Total retained loans
8,824
New York
(a) At December 31, 2021 and 2020, loans under payment deferral programs offered in response to the COVID-19 pandemic which are still within their
deferral period and performing according to their modified terms are generally not considered delinquent.
December 31, 2020
0.60 %
(b) At December 31, 2021, auto and other loans excluded $667 million of PPP loans guaranteed by the SBA that are 30 or more days past due. These
amounts have been excluded based upon the SBA guarantee. At December 31, 2020, all PPP loans guaranteed by the SBA were current.
(c) At December 31, 2021, included $4.4 billion of loans originated in 2021 and $1.0 billion of loans originated in 2020 in Business Banking under the PPP.
PPP loans are guaranteed by the SBA. Other than in certain limited circumstances, the Firm typically does not recognize charge-offs, classify as nonaccrual
nor record an allowance for loan losses on these loans.
(d) At December 31, 2020, included $19.2 billion of loans in Business Banking under the PPP.
239
Notes to consolidated financial statements
Nonaccrual and other credit quality indicators
The following table provides information on nonaccrual and
other credit quality indicators for retained auto and other
consumer loans.
(in millions, except ratios)
Nonaccrual loans (a)(b)(c)
Geographic region(d)
California
Texas
Total Auto and other
December
31, 2021
119
December
31, 2020
151
Loan modifications
Certain auto and other loan modifications are considered
to be TDRS as they provide various concessions to
borrowers who are experiencing financial difficulty. Loans
with short-term or other insignificant modifications that
are not considered concessions are not TDRs.
The impact of these modifications, as well as new TDRS,
were not material to the Firm for the years ended
December 31, 2021, 2020 and 2019. Additional
commitments to lend to borrowers whose loans have been
modified in TDRs as of December 31, 2021 and 2020
were not material.
$
11,163 $
12,302
7,859
8,235
5,848
$
JPMorgan Chase & Co./2021 Form 10-K
(a) At December 31, 2021, nonaccrual loans excluded $506 million of
PPP loans 90 or more days past due and guaranteed by the SBA, of
which $35 million is no longer accruing interest based on the
guidelines set by the SBA. Typically the principal balance of the loans is
insured and interest is guaranteed at a specified reimbursement rate
subject to meeting the guidelines set by the SBA. There were no loans
that were not guaranteed by the SBA that are 90 or more days past
due and still accruing interest at December 31, 2021 and 2020.
(b) Generally, all consumer nonaccrual loans have an allowance. In
Within the revolving period
December 31, 2021
Converted to term loans (b)
Total
$
151,798
$
901
$
152,699
770
% of 90+ days past due to total retained loans
59
741
27
768
$
153,309
$
987
8.71 %
154,296
70,761 $ 76,825
829
% of 30+ days past due to total retained loans
$
Total retained loans
accordance with regulatory guidance, certain nonaccrual loans that
are considered collateral-dependent have been charged down to the
lower of amortized cost or the fair value of their underlying collateral
less costs to sell. If the value of the underlying collateral improves
subsequent to the charge down, the related allowance may be
negative.
Loan delinquency ratios
(c) Interest income on nonaccrual loans recognized on a cash basis was
not material for the years ended December 31, 2021 and 2020.
(d) The geographic regions presented in this table are ordered based on
the magnitude of the corresponding loan balances at December 31,
2021.
240
JPMorgan Chase & Co./2021 Form 10-K
Credit card loan portfolio
The credit card portfolio segment includes credit card loans
originated and purchased by the Firm. Delinquency rates
are the primary credit quality indicator for credit card loans
as they provide an early warning that borrowers may be
experiencing difficulties (30 days past due); information on
those borrowers that have been delinquent for a longer
period of time (90 days past due) is also considered. In
addition to delinquency rates, the geographic distribution of
the loans provides insight as to the credit quality of the
portfolio based on the regional economy.
While the borrower's credit score is another general
indicator of credit quality, the Firm does not view credit
scores as a primary indicator of credit quality because the
borrower's credit score tends to be a lagging indicator. The
distribution of such scores provides a general indicator of
credit quality trends within the portfolio; however, the score
does not capture all factors that would be predictive of
future credit performance. Refreshed FICO score
information, which is obtained at least quarterly, for a
statistically significant random sample of the credit card
portfolio is indicated in the following table. FICO is
considered to be the industry benchmark for credit scores.
The Firm generally originates new card accounts to prime
consumer borrowers. However, certain cardholders' FICO
scores may decrease over time, depending on the
performance of the cardholder and changes in the credit
score calculation.
The following tables provide information on delinquency, which is the primary credit quality indicator for retained credit card
loans.
(in millions, except ratios)
0.99 %
0.48
Current and less than 30 days past due
and still accruing
Loan delinquency(a)
30-89 days past due and still accruing
Current and less than 30 days past due
and still accruing
Loan delinquency(a)
(in millions, except ratios)
90 or more days past due and still accruing
% of 30+ days past due to total retained loans
30-89 days past due and still accruing
Loan delinquency ratios
90 or more days past due and still accruing
Total retained loans
% of 90+ days past due to total retained loans
114
$
945,601
$
133
4,956
$
$
76
$
209 $
5,144
46 $
2,053
$
481,678
87
+A
$
82
2,140
$
$
$
188
36
8,536
$ 168,924
ΝΑ
ΝΑ
114 $
ΝΑ
ΝΑ
$
302,127
$
143,432
$
514,947
$
960,506
5,961
268,675
20,363
294,999
$
1,452
167,472
$
1,123
480,555
$
916,702
20,363
$
$
37,783
37,783
102
577 $
$
$
474
$
474
423,993
$ 424,570
$
461,776
462,353 $
30,417
392,967
30,417
$
$
393,441
$
423,384
423,858
251
21,629 $
938,877
Notes to consolidated financial statements
$
577
JPMorgan Chase & Co./2021 Form 10-K
$
187
2,108
2,295
12
1,077
1,089
$
187
$
$
$ $ 102 $
2,222
2,409 $
12
$
$
1,179
$
1,191
$
- $ - $
$
$
511,341
$
285,479
NA
ΝΑ $
78
ΝΑ
NA
NA
ΝΑ
$
3,823
$
17,800
$
9,114
$
30,815
$
2,550
$
5,683
$
6,081
ΝΑ
1,191
$
1,179
Discussion of changes in the allowance
ΝΑ
ΝΑ
ΝΑ
1,079
1,121
136
136
-
(1)
$
(1)
187
$
$
2,222
$
2,409
$
12
$
$
$
142,057
14,314
633
$
17,800
$
6,892
$
28,328
$
2,538
$
5,683
$
4,902
$
13,123
$
16,648
$
1,375
$
3,606
$
3,636
$
987
987
$
682
$
3,643
17,167
6,210
1,308 $
27,020
75
$
477
(7) $
$
$
847
1,476
5,206
4,607
11,289
ΝΑ
ΝΑ
ΝΑ
ΝΑ
295
The allowance for credit losses as of December 31, 2021
was $18.7 billion, a decrease from $30.8 billion at
December 31, 2020. The decrease in the allowance for
credit losses was primarily driven by improvements
macroeconomic environment, consisting of:
506
• a $9.5 billion reduction in consumer, predominantly in
the credit card portfolio; and
Securitization-related (a)
Residential mortgage:
Prime/Alt-A and option ARMS
Subprime
Commercial and other
$
(b)
49,644 $
12,896
119,732
1,693 $
46
41,265
$
12,154
92,351
574 $
9
724 $
$
1,298
9
Total
$ 182,272 $
1,739 $
145,770
$
955
1,538 $
Chase
1,549
held by
JPMorgan
Trading
assets
ΝΑ
4,451
$
1,647 $
3,958 $
601 $
6,206
Principal amount outstanding
JPMorgan Chase interest in securitized assets in
nonconsolidated VIES (c)(d)(e)
December 31, 2020
(in millions)
Total assets
Assets
held in
consolidated
securitization securitization
held by
VIES
VIES
Assets held in
nonconsolidated
Total
interests
securitization
VIES with
continuing
involvement
Other
Investment financial
securities assets
262
2,766
2,273 $
The following table presents information on the Firm's
interests in nonconsolidated re-securitization VIES.
Nonconsolidated
re-securitization VIES
2021
December 31,
(in millions)
U.S. GSES and government agencies
Interest in VIES
$
1,947 $
2020
2,631
As of December 31, 2021 and 2020, the Firm did not
consolidate any U.S. GSE and government agency re-
securitization VIES or any Firm-sponsored private-label re-
securitization VIES.
Multi-seller conduits
Multi-seller conduit entities are separate bankruptcy
remote entities that provide secured financing,
collateralized by pools of receivables and other financial
assets, to customers of the Firm. The conduits fund their
financing facilities through the issuance of highly rated
commercial paper. The primary source of repayment of the
commercial paper is the cash flows from the pools of assets.
In most instances, the assets are structured with deal-
specific credit enhancements provided to the conduits by
the customers (i.e., sellers) or other third parties. Deal-
specific credit enhancements are generally structured to
cover a multiple of historical losses expected on the pool of
assets, and are typically in the form of overcollateralization
provided by the seller. The deal-specific credit
enhancements mitigate the Firm's potential losses on its
agreements with the conduits.
To ensure timely repayment of the commercial paper, and
to provide the conduits with funding to provide financing to
customers in the event that the conduits do not obtain
funding in the commercial paper market, each asset pool
financed by the conduits has a minimum 100% deal-
specific liquidity facility associated with it provided by
JPMorgan Chase Bank, N.A. JPMorgan Chase Bank, N.A. also
provides the multi-seller conduit vehicles with uncommitted
program-wide liquidity facilities and program-wide credit
enhancement in the form of standby letters of credit. The
amount of program-wide credit enhancement required is
based upon commercial paper issuance and approximates
10% of the outstanding balance of commercial paper.
The Firm consolidates its Firm-administered multi-seller
conduits, as the Firm has both the power to direct the
significant activities of the conduits and a potentially
significant economic interest in the conduits. As
administrative agent and in its role in structuring
transactions, the Firm makes decisions regarding asset
types and credit quality, and manages the commercial
paper funding needs of the conduits. The Firm's interests
that could potentially be significant to the VIES include the
fees received as administrative agent and liquidity and
program-wide credit enhancement provider, as well as the
potential exposure created by the liquidity and credit
enhancement facilities provided to the conduits.
In the normal course of business, JPMorgan Chase makes
markets in and invests in commercial paper issued by the
Firm-administered multi-seller conduits. The Firm held
$13.7 billion and $13.5 billion of the commercial paper
issued by the Firm-administered multi-seller conduits at
December 31, 2021 and 2020, respectively, which have
been eliminated in consolidation. The Firm's investments
reflect the Firm's funding needs and capacity and were not
driven by market illiquidity. Other than the amounts
required to be held pursuant to credit risk retention rules,
the Firm is not obligated under any agreement to purchase
the commercial paper issued by the Firm-administered
multi-seller conduits.
Deal-specific liquidity facilities, program-wide liquidity and
credit enhancement provided by the Firm have been
eliminated in consolidation. The Firm or the Firm-
administered multi-seller conduits provide lending-related
commitments to certain clients of the Firm-administered
multi-seller conduits. The unfunded commitments were
$13.4 billion and $12.2 billion at December 31, 2021 and
2020, respectively, and are reported as off-balance sheet
lending-related commitments in other unfunded
commitments to extend credit. Refer to Note 28 for more
information on off-balance sheet lending-related
commitments.
Municipal bond vehicles
Municipal bond vehicles or tender option bond ("TOB")
trusts allow institutions to finance their municipal bond
investments at short-term rates. In a typical TOB
transaction, the trust purchases highly rated municipal
bond(s) of a single issuer and funds the purchase by issuing
two types of securities: (1) puttable floating-rate
certificates ("floaters") and (2) inverse floating-rate
residual interests ("residuals"). The floaters are typically
purchased by money market funds or other short-term
investors and may be tendered, with requisite notice, to the
TOB trust. The residuals are retained by the investor
seeking to finance its municipal bond investment. TOB
transactions where the residual is held by a third-party
investor are typically known as customer TOB trusts, and
non-customer TOB trusts are transactions where the
Residual is retained by the Firm. Customer TOB trusts are
sponsored by a third party. The Firm serves as sponsor for
all non-customer TOB transactions. The Firm may provide
various services to a TOB trust, including remarketing
agent, liquidity or tender option provider, and/or sponsor.
J.P. Morgan Securities LLC may serve as a remarketing
agent on the floaters for TOB trusts. The remarketing agent
is responsible for establishing the periodic variable rate on
the floaters, conducting the initial placement and
remarketing tendered floaters. The remarketing agent may,
but is not obligated to, make markets in floaters. Floaters
held by the Firm were not material during 2021 and 2020.
JPMorgan Chase Bank, N.A. or J.P. Morgan Securities LLC
often serves as the sole liquidity or tender option provider
for the TOB trusts. The liquidity provider's obligation to
256
JPMorgan Chase & Co./2021 Form 10-K
Notes to consolidated financial statements
255
JPMorgan Chase & Co./2021 Form 10-K
Additionally, the Firm may invest in beneficial interests of
third-party-sponsored re-securitizations and generally
purchases these interests in the secondary market. In these
circumstances, the Firm does not have the unilateral ability
to direct the most significant activities of the re-
securitization trust, either because it was not involved in
the initial design of the trust, or the Firm was involved with
an independent third-party sponsor and demonstrated
shared power over the creation of the trust; therefore, the
Firm does not consolidate the re-securitization VIE.
262 $
4,073
(a) Excludes U.S. GSES and government agency securitizations and re-securitizations, which are not Firm-sponsored.
(b) Consists of securities backed by commercial real estate loans and non-mortgage-related consumer receivables purchased from third parties.
(c) Excludes the following: retained servicing; securities retained from loan sales and securitization activity related to U.S. GSES and government agencies;
interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities; senior and
subordinated securities of $145 million and $36 million, respectively, at December 31, 2021, and $105 million and $40 million, respectively, at
December 31, 2020, which the Firm purchased in connection with CIB's secondary market-making activities.
(d) Includes interests held in re-securitization transactions.
(e) As of December 31, 2021 and 2020, 79% and 73%, respectively, of the Firm's retained securitization interests, which are predominantly carried at fair
value and include amounts required to be held pursuant to credit risk retention rules, were risk-rated “A” or better, on an S&P-equivalent basis. The
retained interests in prime residential mortgages consisted of $1.6 billion and $1.3 billion of investment-grade retained interests, and $131 million and
$41 million of noninvestment-grade retained interests at December 31, 2021 and 2020, respectively. The retained interests in commercial and other
securitization trusts consisted of $3.5 billion and $2.0 billion of investment-grade retained interests, and $929 million and $753 million of
noninvestment-grade retained interests at December 31, 2021 and 2020, respectively.
254
JPMorgan Chase & Co./2021 Form 10-K
Residential mortgage
The Firm securitizes residential mortgage loans originated
by CCB, as well as residential mortgage loans purchased
from third parties by either CCB or CIB. CCB generally
retains servicing for all residential mortgage loans it
originated or purchased, and for certain mortgage loans
purchased by CIB. For securitizations of loans serviced by
CCB, the Firm has the power to direct the significant
activities of the VIE because it is responsible for decisions
related to loan modifications and workouts. CCB may also
retain an interest upon securitization.
In addition, CIB engages in underwriting and trading
activities involving securities issued by Firm-sponsored
securitization trusts. As a result, CIB at times retains senior
and/or subordinated interests (including residual interests
and amounts required to be held pursuant to credit risk
retention rules) in residential mortgage securitizations at
the time of securitization, and/or reacquires positions in the
secondary market in the normal course of business. In
certain instances, as a result of the positions retained or
reacquired by CIB or held by Treasury and CIO or CCB, when
considered together with the servicing arrangements
entered into by CCB, the Firm is deemed to be the primary
beneficiary of certain securitization trusts.
The Firm does not consolidate residential mortgage
securitizations (Firm-sponsored or third-party-sponsored)
when it is not the servicer (and therefore does not have the
power to direct the most significant activities of the trust)
or does not hold a beneficial interest in the trust that could
potentially be significant to the trust.
3,274
Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans,
and engages in underwriting and trading activities involving
the securities issued by securitization trusts. CIB may retain
unsold senior and/or subordinated interests (including
amounts required to be held pursuant to credit risk
retention rules) in commercial mortgage securitizations at
the time of securitization but, generally, the Firm does not
service commercial loan securitizations. Treasury and CIO
may choose to invest in these securitizations as well. For
commercial mortgage securitizations the power to direct
the significant activities of the VIE generally is held by the
servicer or investors in a specified class of securities
("controlling class"). The Firm generally does not retain an
interest in the controlling class in its sponsored commercial
mortgage securitization transactions.
The Firm engages in certain re-securitization transactions in
which debt securities are transferred to a VIE in exchange
for new beneficial interests. These transfers occur in
connection with both U.S. GSES and government agency
sponsored VIES, which are backed by residential mortgages.
The Firm's consolidation analysis is largely dependent on
the Firm's role and interest in the re-securitization trusts.
The following table presents the principal amount of
securities transferred to re-securitization VIES.
Year ended December 31,
(in millions)
Transfers of securities to VIES
U.S. GSES and government
agencies
2021
2020
2019
$ 53,923 $ 46,123 $ 25,852
Most re-securitizations with which the Firm is involved are
client-driven transactions in which a specific client or group
of clients is seeking a specific return or risk profile. For
these transactions, the Firm has concluded that the
decision-making power of the entity is shared between the
Firm and its clients, considering the joint effort and
decisions in establishing the re-securitization trust and its
assets, as well as the significant economic interest the client
holds in the re-securitization trust; therefore the Firm does
not consolidate the re-securitization VIE.
The Firm did not transfer any private label securities to re-
securitization VIES during 2021, 2020 and 2019,
respectively, and retained interests in any such Firm-
sponsored VIES as of December 31, 2021 and 2020 were
immaterial.
Re-securitizations
671
1,753
2
-
Refer to Consumer Credit Portfolio on pages 110-116,
Wholesale Credit Portfolio on pages 117-128 for additional
information on the consumer and wholesale credit
portfolios.
252
JPMorgan Chase & Co./2021 Form 10-K
Note 14 - Variable interest entities
Refer to Note 1 on page 165 for a further description of JPMorgan Chase's accounting policies regarding consolidation of VIES.
The following table summarizes the most significant types of Firm-sponsored VIES by business segment. The Firm considers a
"Firm-sponsored" VIE to include any entity where: (1) JPMorgan Chase is the primary beneficiary of the structure; (2) the VIE
is used by JPMorgan Chase to securitize Firm assets; (3) the VIE issues financial instruments with the JPMorgan Chase name;
or (4) the entity is a JPMorgan Chase-administered asset-backed commercial paper conduit.
Line of Business
Transaction Type
Activity
2021 Form 10-K
page references
Credit card securitization trusts
CCB
Mortgage securitization trusts
Securitization of originated credit card receivables
Servicing and securitization of both originated and
purchased residential mortgages
253-254
254-256
Mortgage and other securitization trusts
254-256
CIB
Multi-seller conduits
Municipal bond vehicles
Securitization of both originated and purchased
residential and commercial mortgages, and other
consumer loans
Refer to Critical Accounting Estimates Used by the Firm on
pages 150-153 for further information on the allowance for
credit losses and related management judgments.
Subsequent changes to this forecast and related estimates
will be reflected in the provision for credit losses in future
periods.
(a) Reflects quarterly average of forecasted U.S. unemployment rate.
(b) As of December 31, 2021, the year over year growth in U.S. real GDP
in the forecast horizon of the central scenario is calculated as the
percent change in U.S. real GDP levels from the prior year. This year
over year growth rate replaces the previously disclosed pandemic-
focused measure of the cumulative change in U.S. real GDP from pre-
pandemic conditions at December 31, 2019. Prior periods have been
revised to conform with the current presentation.
3.9%
• a $2.6 billion net reduction in wholesale, across the LOBS.
The Firm's allowance for credit losses is estimated using a
weighted average of five internally developed
macroeconomic scenarios. As of December 31, 2021, the
Firm assigned more balanced weightings to both its adverse
and upside scenarios compared to the significant weighting
that the Firm placed on its adverse scenarios as of
December 31, 2020, reflecting the sustained improvement
and resilience of the macroeconomic environment, despite
the ongoing impact of the COVID-19 pandemic. In addition,
because the impact of the COVID-19 pandemic and
governmental actions taken in response to the pandemic
caused a dislocation in certain historical relationships used
for modeling credit loss estimates, the Firm continues to
place reliance on management judgment and make
adjustments specific to that dislocation, although to a lesser
extent than in 2020. The allowance for credit losses of
$18.7 billion reflects remaining uncertainties, including the
potential impact that additional waves or variants of
COVID-19 may have on the pace of economic growth and
near-term supply chain disruptions.
The Firm's central case assumptions reflected U.S.
unemployment rates and year over year growth in U.S. real
GDP as follows:
U.S. unemployment rate (a)
YoY growth in U.S. real GDP (b)
U.S. unemployment rate (a)
YoY growth in U.S. real GDP (b)
Assumptions at December 31, 2021
2Q22
4Q22
2Q23
4.2 %
Assisting clients in accessing the financial markets in
a cost-efficient manner and structuring transactions
to meet investor needs
4.0 %
2.8 %
3.9 %
2.1 %
Assumptions at December 31, 2020
2Q22
2Q21
4Q21
6.8 %
5.7 %
9.2 %
3.5 %
5.1 %
3.1 %
the
Financing of municipal bond investments
256-257
securitization
VIES with
continuing
involvement
Trading
assets
Other
Investment financial
securities assets
held by
JPMorgan
Chase
Securitization-related (a)
Residential mortgage:
Prime/Alt-A and option ARMS
$
Subprime
Commercial and other(b)
55,085 $
10,966
150,694
942 $
27
47,029
$
Total
$ 216,745 $
969 $
10,115
93,698
150,842
974 $
2
684 $
95 $
Total
interests
Assets held in
nonconsolidated
VIES
VIES
The Firm's other business segments are also involved with VIES (both third-party and Firm-sponsored), but to a lesser extent,
as follows:
Asset & Wealth Management: AWM sponsors and manages certain funds that are deemed VIES. As asset manager of the
funds, AWM earns a fee based on assets managed; the fee varies with each fund's investment objective and is competitively
priced. For fund entities that qualify as VIES, AWM's interests are, in certain cases, considered to be significant variable
interests that result in consolidation of the financial results of these entities.
Commercial Banking: CB provides financing and lending-related services to a wide spectrum of clients, including certain
third-party-sponsored entities that may meet the definition of a VIE. CB does not control the activities of these entities and
does not consolidate these entities. CB's maximum loss exposure, regardless of whether the entity is a VIE, is generally
limited to loans and lending-related commitments which are reported and disclosed in the same manner as any other third-
party transaction.
Corporate: Corporate is involved with entities that may meet the definition of VIES; however these entities are generally
subject to specialized investment company accounting, which does not require the consolidation of investments, including
VIES. In addition, Treasury and CIO invest in securities generally issued by third parties which may meet the definition of
VIES (e.g., issuers of asset-backed securities). In general, the Firm does not have the power to direct the significant
activities of these entities and therefore does not consolidate these entities. Refer to Note 10 for further information on the
Firm's investment securities portfolio.
In addition, CIB also invests in and provides financing and other services to VIEs sponsored by third parties. Refer to pages
257-258 of this Note for more information on consolidated VIE assets and liabilities as well as the VIES sponsored by third
parties.
Significant Firm-sponsored variable interest entities
Credit card securitizations
CCB's Card business may securitize originated credit card
loans, primarily through the Chase Issuance Trust (the
“Trust”). The Firm's continuing involvement in credit card
securitizations includes servicing the receivables, retaining
an undivided seller's interest in the receivables, retaining
certain senior and subordinated securities and maintaining
escrow accounts.
The Firm consolidates the assets and liabilities of its
sponsored credit card trusts as it is considered to be the
primary beneficiary of these securitization trusts based on
the Firm's ability to direct the activities of these VIES
through its servicing responsibilities and other duties,
including making decisions as to the receivables that are
transferred into those trusts and as to any related
modifications and workouts. Additionally, the nature and
extent of the Firm's other continuing involvement with the
trusts, as indicated above, obligates the Firm to absorb
losses and gives the Firm the right to receive certain
benefits from these VIES that could potentially be
significant.
256
The underlying securitized credit card receivables and other
assets of the securitization trusts are available only for
payment of the beneficial interests issued by the
securitization trusts; they are not available to pay the Firm's
other obligations or the claims of the Firm's creditors.
JPMorgan Chase & Co./2021 Form 10-K
253
Notes to consolidated financial statements
maintained an average undivided interest in principal
receivables owned by those trusts of approximately 57%
and 39% for the years ended December 31, 2021 and
2020, respectively. The Firm did not retain any senior
securities and retained $1.5 billion of subordinated
securities in certain of its credit card securitization trusts at
both December 31, 2021 and 2020. The Firm's undivided
interests in the credit card trusts and securities retained are
eliminated in consolidation.
Firm-sponsored mortgage and other securitization trusts
The Firm securitizes (or has securitized) originated and
purchased residential mortgages, commercial mortgages
and other consumer loans primarily in its CCB and CIB
businesses. Depending on the particular transaction, as well
as the respective business involved, the Firm may act as the
servicer of the loans and/or retain certain beneficial
interests in the securitization trusts.
The following tables present the total unpaid principal amount of assets held in Firm-sponsored private-label securitization
entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing
involvement includes servicing the loans, holding senior interests or subordinated interests (including amounts required to be
held pursuant to credit risk retention rules), recourse or guarantee arrangements, and derivative contracts. In certain
instances, the Firm's only continuing involvement is servicing the loans. The Firm's maximum loss exposure from retained and
purchased interests is the carrying value of these interests.
December 31, 2021
(in millions)
Principal amount outstanding
Assets
Total assets
held in
held by
consolidated
securitization securitization
JPMorgan Chase interest in securitized assets in
nonconsolidated VIES (c)(d)(e)
The agreements with the credit card securitization trusts
require the Firm to maintain a minimum undivided interest
in the credit card trusts (generally 5%). As of
December 31, 2021 and 2020, the Firm held undivided
interests in Firm-sponsored credit card securitization trusts
of $7.1 billion and $5.4 billion, respectively. The Firm
98
Total
42
Provision for loan losses
(1,858)
(4,838)
(2,375)
(9,071)
Other
(2)
(4)
(6)
Ending balance at December 31,
$
1,765
$
10,250
$
4,371
$
16,386
Allowance for lending-related commitments
Beginning balance at January 1,
$
NA
187
ΝΑ
NA
NA
6,892
NA
$
28,328
ΝΑ
Gross charge-offs
630
3,651
283
4,564
Gross recoveries collected
(619)
(939)
(141)
(1,699)
Net charge-offs
11
2,712
142
2,865
Write-offs of PCI loans (b)
NA
$
$
2,222
ΝΑ
$
42
Total allowance for credit losses
$
1,878
$
10,250
$
6,519
$
18,689
Allowance for loan losses by impairment methodology
Asset-specific (c)
(665)
$
313
$
263
$
(89)
Portfolio-based
NA
NA
Total allowance for investment securities
2,261
$
2,409
Cumulative effect of a change in accounting principle (a)
ΝΑ
ΝΑ
ΝΑ
ΝΑ
Provision for lending-related commitments
(75)
(74)
NA
(149)
1
1
Ending balance at December 31,
$
113
$
-
$
2,148
$
Other
2,430
Cumulative effect of a change in accounting principle (a)
17,800
$
604 $
365
969 $
1,667
$
264
286 $
473
800 $
104
1,144 $
910
2,818
500
1,931 $
759 $
904 $
2,054 $
3,318
(a) Loans that were modified in response to the COVID-19 pandemic continue to be risk-rated in accordance with the Firm's overall credit risk management
framework. As of December 31, 2021, substantially all of these loans were considered performing.
(b) When the discounted cash flows or collateral value equals or exceeds the amortized cost of the loan, the loan does not require an allowance. This typically
occurs when the loans have been partially charged off and/or there have been interest payments received and applied to the loan balance.
(c) Interest income on nonaccrual loans recognized on a cash basis were not material for the years ended December 31, 2021 and 2020.
Loan modifications
Certain loan modifications are considered to be TDRs as they provide various concessions to borrowers who are experiencing
financial difficulty. Loans with short-term or other insignificant modifications that are not considered concessions are not TDRS
nor are loans for which the Firm has elected to suspend TDR accounting guidance under the option provided by the CARES Act.
New TDRs during the years ended December 31, 2021, 2020 and 2019 were $881 million, $734 million and $407 million,
respectively. New TDRS during the years ended December 31, 2021, 2020 and 2019 reflected deferral of principal and
interest payments, extending maturity dates and the receipt of assets in partial satisfaction of the loan predominantly in Other
and Commercial and Industrial loan classes. The impact of these modifications resulting in new TDRS was not material to the
Firm for the years ended December 31, 2021, 2020 and 2019. The carrying value of TDRs was $607 million and $954 million
as of December 31, 2021 and 2020, respectively.
JPMorgan Chase & Co./2021 Form 10-K
247
351
132
483 $
Notes to consolidated financial statements
326 $
Total nonaccrual loans (c)
Nonaccrual loans
The following table provides information on retained wholesale nonaccrual loans.
December 31,
(in millions)
Secured by real estate
2021
2020
Commercial
and industrial
2021
2020
Other
2021
2020
Total
retained loans
2021
2020
Nonaccrual loans (a)
With an allowance
$
Without an allowance (b)
254 $
72
$
Note 13 - Allowance for credit losses
The Firm's allowance for credit losses represents
management's estimate of expected credit losses over the
remaining expected life of the Firm's financial assets
measured at amortized cost and certain off-balance sheet
lending-related commitments. The allowance for credit
losses comprises:
•
The asset-specific component of the allowance for loans
that have been or are expected to be modified in TDRS
incorporates the effect of the modification on the loan's
expected cash flows (including forgone interest, principal
forgiveness, as well as other concessions), and also the
potential for redefault. For residential real estate loans
modified in or expected to be modified in TDRs, the Firm
develops product-specific probability of default estimates,
which are applied at a loan level to compute expected
losses. In developing these probabilities of default, the Firm
considers the relationship between the credit quality
characteristics of the underlying loans and certain
assumptions about housing prices and unemployment,
based upon industry-wide data. The Firm also considers its
own historical loss experience to-date based on actual
redefaulted modified loans. For credit card loans modified
in or expected to be modified in TDRs, expected losses
incorporate projected delinquencies and charge-offs based
on the Firm's historical experience by type of modification
program. For wholesale loans modified or expected to be
modified in TDRs, expected losses incorporate
management's expectation of the borrower's ability to
repay under the modified terms.
Estimating the timing and amounts of future cash flows is
highly judgmental as these cash flow projections rely upon
estimates such as loss severities, asset valuations, default
rates (including redefault rates on modified loans), the
amounts and timing of interest or principal payments
(including any expected prepayments) or other factors that
are reflective of current and expected market conditions.
These estimates are, in turn, dependent on factors such as
the duration of current overall economic conditions,
industry, portfolio, or borrower-specific factors, the
expected outcome of insolvency proceedings as well as, in
certain circumstances, other economic factors. All of these
estimates and assumptions require significant management
judgment and certain assumptions are highly subjective.
JPMorgan Chase & Co./2021 Form 10-K
249
Notes to consolidated financial statements
Allowance for credit losses and related information
The table below summarizes information about the allowances for credit losses, and includes a breakdown of loans and
lending-related commitments by impairment methodology. Refer to Note 10 for further information on the allowance for
credit losses on investment securities.
(Table continued on next page)
Year ended December 31,
(in millions)
Allowance for loan losses
Consumer,
excluding
credit card
Credit card
2021
Wholesale
Total
Beginning balance at January 1,
$
3,636
$
recognized (for recoveries of prior charge-offs associated
with improvements in the fair value of collateral).
The Firm generally measures the asset-specific allowance as
the difference between the amortized cost of the loan and
the present value of the cash flows expected to be collected,
discounted at the loan's original effective interest rate.
Subsequent changes in impairment are generally
recognized as an adjustment to the allowance for loan
losses. For collateral-dependent loans, the fair value of
collateral less estimated costs to sell is used to determine
the charge-off amount for declines in value (to reduce the
amortized cost of the loan to the fair value of collateral) or
the amount of negative allowance that should be
To determine the asset-specific component of the
allowance, collateral-dependent loans (including those
loans for which foreclosure is probable) and larger,
nonaccrual risk-rated loans in the wholesale portfolio
segment are generally evaluated individually, while smaller
loans (both scored and risk-rated) are aggregated for
evaluation using factors relevant for the respective class of
assets.
Asset-specific component
the allowance for loan losses, which covers the Firm's
retained loan portfolios (scored and risk-rated) and is
presented separately on the Consolidated balance sheets,
the allowance for lending-related commitments, which is
presented on the Consolidated balance sheets in accounts
payable and other liabilities, and
the allowance for credit losses on investment securities,
which is recognized within investment securities on the
Consolidated balance sheets.
The income statement effect of all changes in the allowance
for credit losses is recognized in the provision for credit
losses.
Determining the appropriateness of the allowance for credit
losses is complex and requires significant judgment by
management about the effect of matters that are inherently
uncertain. At least quarterly, the allowance for credit losses
is reviewed by the CRO, the CFO and the Controller of the
Firm. Subsequent evaluations of credit exposures,
considering the macroeconomic conditions, forecasts and
other factors then prevailing, may result in significant
changes in the allowance for credit losses in future periods.
The Firm's policies used to determine its allowance for loan
losses and its allowance for lending-related commitments
are described in the following paragraphs. Refer to Note 10
for a description of the policies used to determine the
allowance for credit losses on investment securities.
Methodology for allowances for loan losses and lending-
related commitments
The allowance for loan losses and allowance for lending-
related commitments represents expected credit losses
over the remaining expected life of retained loans and
lending-related commitments that are not unconditionally
cancellable. The Firm does not record an allowance for
future draws on unconditionally cancellable lending-related
commitments (e.g., credit cards). Expected losses related to
accrued interest on credit card loans and certain
performing, modified loans to borrowers impacted by
COVID-19 are considered in the Firm's allowance for loan
losses. However, the Firm does not record an allowance on
other accrued interest receivables, due to its policy to write
these receivables off no later than 90 days past due by
reversing interest income.
The expected life of each instrument is determined by
considering its contractual term, expected prepayments,
cancellation features, and certain extension and call
options. The expected life of funded credit card loans is
generally estimated by considering expected future
payments on the credit card account, and determining how
much of those amounts should be allocated to repayments
248
of the funded loan balance (as of the balance sheet date)
versus other account activity. This allocation is made using
an approach that incorporates the payment application
requirements of the Credit Card Accountability
Responsibility and Disclosure Act of 2009, generally paying
down the highest interest rate balances first.
The estimate of expected credit losses includes expected
recoveries of amounts previously charged off or expected to
be charged off, even if such recoveries result in a negative
allowance.
$
Collective and Individual Assessments
.
Relevant risk characteristics for the consumer portfolio
include product type, delinquency status, current FICO
scores, geographic distribution, and, for collateralized
loans, current LTV ratios.
• Relevant risk characteristics for the wholesale portfolio
include LOB, geography, risk rating, delinquency status,
level and type of collateral, industry, credit enhancement,
product type, facility purpose, tenor, and payment terms.
The majority of the Firm's credit exposures share risk
characteristics with other similar exposures, and as a result
are collectively assessed for impairment ("portfolio-based
component"). The portfolio-based component covers
consumer loans, performing risk-rated loans and certain
lending-related commitments.
If an exposure does not share risk characteristics with other
exposures, the Firm generally estimates expected credit
losses on an individual basis, considering expected
repayment and conditions impacting that individual
exposure ("asset-specific component"). The asset-specific
component covers modified PCD loans, loans modified or
reasonably expected to be modified in a TDR, collateral-
dependent loans, as well as, risk-rated loans that have been
placed on nonaccrual status.
Portfolio-based component
The portfolio-based component begins with a quantitative
calculation that considers the likelihood of the borrower
changing delinquency status or moving from one risk rating
to another. The quantitative calculation covers expected
credit losses over an instrument's expected life and is
estimated by applying credit loss factors to the Firm's
estimated exposure at default. The credit loss factors
incorporate the probability of borrower default as well as
loss severity in the event of default. They are derived using
JPMorgan Chase & Co./2021 Form 10-K
a weighted average of five internally developed
macroeconomic scenarios over an eight-quarter forecast
period, followed by a single year straight-line interpolation
to revert to long run historical information for periods
beyond the eight-quarter forecast period. The five
macroeconomic scenarios consist of a central, relative
adverse, extreme adverse, relative upside and extreme
upside scenario, and are updated by the Firm's central
forecasting team. The scenarios take into consideration the
Firm's macroeconomic outlook, internal perspectives from
subject matter experts across the Firm, and market
consensus and involve a governed process that incorporates
feedback from senior management across LOBS, Corporate
Finance and Risk Management.
The quantitative calculation is adjusted to take into
consideration model imprecision, emerging risk
assessments, trends and other subjective factors that are
not yet reflected in the calculation. These adjustments are
accomplished in part by analyzing the historical loss
experience, including during stressed periods, for each
major product or model. Management applies judgment in
making this adjustment, including taking into account
uncertainties associated with the economic and political
conditions, quality of underwriting standards, borrower
behavior, credit concentrations or deterioration within an
industry, product or portfolio, as well as other relevant
internal and external factors affecting the credit quality of
the portfolio. In certain instances, the interrelationships
between these factors create further uncertainties.
The application of different inputs into the quantitative
calculation, and the assumptions used by management to
adjust the quantitative calculation, are subject to significant
management judgment, and emphasizing one input or
assumption over another, or considering other inputs or
assumptions, could affect the estimate of the allowance for
loan losses and the allowance for lending-related
commitments.
When calculating the allowance for loan losses and the
allowance for lending-related commitments, the Firm
assesses whether exposures share similar risk
characteristics. If similar risk characteristics exist, the Firm
estimates expected credit losses collectively, considering
the risk associated with a particular pool and the probability
that the exposures within the pool will deteriorate or
default. The assessment of risk characteristics is subject to
significant management judgment. Emphasizing one
characteristic over another or considering additional
characteristics could affect the allowance.
9,937
4,108
16,475
6,836
902
5,436
472
6,810
(631)
(791)
(155)
(1,577)
(536)
(588)
(57)
(1,181)
174
4,286
799
5,259
366
4,848
415
5,629
954
ΝΑ
5,077
NA
$
5,683
$
4,902
$
13,123
$
3,434
$
5,184
$
4,827
$
13,445
297
5,517
(1,642)
4,172
ΝΑ
NA
ΝΑ
805
ΝΑ
NA
ΝΑ
$
5,683
$
4,902
$
13,123
$
12
$
$
1,179
$
1,191
$
12
$
$
1,043
$
1,055
133
2,538
$
28,328
$
151
151
974
10,886
4,431
16,291
(378)
5,348
479
5,449
2,538
1
(1)
(1)
11
9
$
3,636
$
17,800
$
6,892
1
$
Total
Wholesale
2,255
558,099
$
17,161
993,045
NA
ΝΑ
ΝΑ
NA
$
295,556
$
154,296
$
560,354
$ 1,010,206
Collateral-dependent loans
Net charge-offs
Loans measured at fair value of collateral less cost to sell
$
33
$
4,472
153,309
281,637
$
987
PCI
ΝΑ
ΝΑ
NA
ΝΑ
Total allowance for loan losses
$
1,765
$
10,250
38
617
$
$
16,386
Loans by impairment methodology
Asset-specific (c)
Portfolio-based
PCI
Total retained loans
$
13,919
$
4,371
(35)
$
5,089
$
764
-
$
453,571
454,335
483,159
$
483,923
(a) Represents the impact to allowance for credit losses upon the adoption of CECL on January 1, 2020. Refer to Note 1 for further information.
(b) Prior to the adoption of CECL, write-offs of PCI loans were recorded against the allowance for loan losses when actual losses for a pool exceeded estimated
losses that were recorded as purchase accounting adjustments at the time of acquisition. A write-off of a PCI loan was recognized when the underlying
loan was removed from a pool.
(c) Includes collateral dependent loans, including those considered TDRS and those for which foreclosure is deemed probable, modified PCD loans and non-
collateral dependent loans that have been modified or are reasonably expected to be modified in a TDR. Also includes risk-rated loans that have been
250
JPMorgan Chase & Co./2021 Form 10-K
placed on nonaccrual status for the wholesale portfolio segment. The asset-specific credit card allowance for loans modified, or reasonably expected to be
modified, in a TDR is calculated based on the loans' original contractual interest rates and does not consider any incremental penalty rates.
(d) The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets.
(e) At December 31, 2021, 2020 and 2019, lending-related commitments excluded $15.7 billion, $19.5 billion and $9.8 billion, respectively, for the
consumer, excluding credit card portfolio segment; $730.5 billion, $658.5 billion and $650.7 billion, respectively, for the credit card portfolio segment;
and $32.1 billion, $25.3 billion and $24.1 billion, respectively, for the wholesale portfolio segment, which were not subject to the allowance for lending-
related commitments. Prior-period amount for wholesale lending-related commitments, including the amount not subject to allowance, has been revised
to conform with the current presentation.
(table continued from previous page)
Consumer,
excluding
credit card
Credit card
2020
Wholesale
Consumer,
excluding
credit card
Credit card
2019
764
$
29,588
29,588
$
Allowance for lending-related commitments by impairment methodology
Asset-specific
$
Portfolio-based
$$,
167
$
167
Total allowance for lending-related commitments (d)
$
71
113
113
2,094
$
$
2,148
$
2,261
Lending-related commitments by impairment methodology
Asset-specific
$ - $ - $
Portfolio-based (e)
Total lending-related commitments
1,981
$
perform is conditional and is limited by certain events
("Termination Events"), which include bankruptcy or failure
to pay by the municipal bond issuer or credit enhancement
provider, an event of taxability on the municipal bonds or
the immediate downgrade of the municipal bond to below
investment grade. In addition, the liquidity provider's
exposure is typically further limited by the high credit
quality of the underlying municipal bonds, the excess
collateralization in the vehicle, or, in certain transactions,
the reimbursement agreements with the Residual holders.
169
2020
2019
$ 2,215
$ 2,629
$ 1,618
The table below outlines the key economic assumptions
used to determine the fair value of the Firm's MSRs at
December 31, 2021 and 2020, and outlines the
sensitivities of those fair values to immediate adverse
changes in those assumptions, as defined below.
December 31,
2021
(in millions, except rates)
2021
2020
9.90 %
14.90 %
$ (210)
$ (206)
(404)
6.44 %
Weighted-average prepayment speed
assumption (constant prepayment rate)
Impact on fair value of 10% adverse change
Impact on fair value of 20% adverse change
Weighted-average option adjusted spread (a)
Impact on fair value of 100 basis points
adverse change
(392)
7.19 %
Operating revenue:
Production revenue
448
522
1.8
2.0
(b) Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and
expected prepayments.
(c) Represents changes in prepayments other than those attributable to changes in market interest rates.
(d) Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest, taxes and insurance), which will generally be reimbursed within a
short period of time after the advance from future cash flows from the trust or the underlying loans. The Firm's credit risk associated with these servicer
advances is minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right
to stop payment to investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if
they were not made in accordance with applicable rules and agreements.
Net mortgage servicing revenue:
(e) The decrease in projected cash flows was largely related to default servicing assumption updates.
263
Notes to consolidated financial statements
The following table presents the components of mortgage
fees and related income (including the impact of MSR risk
management activities) for the years ended December 31,
2021, 2020 and 2019.
Year ended December 31,
(in millions)
CCB mortgage fees and related
income
JPMorgan Chase & Co./2021 Form 10-K
$ (225)
$ (134)
Impact on fair value of 200 basis points
adverse change
value due to other inputs and
assumptions in model (b)
(306)
28
(287)
Change in derivative fair value
and other
Other changes in MSR asset fair
(623)
Total risk management
(525)
(18)
Total net mortgage servicing
revenue
(56)
450
1,522
(893)
(1,568)
404
(433)
(258)
Loan servicing revenue
1,257
1,367
1,533
Changes in MSR asset fair value
due to collection/realization of
expected cash flows
(788)
Total operating revenue
469
(899)
468
(951)
582
Changes in MSR asset fair value
due to market interest rates
and other(a)
1,639
1,325
1,298
520
1.6
Servicer advances, net of an allowance for uncollectible amounts, at December 31, (in billions)(d)
(a) Includes excess MSRS transferred to agency-sponsored trusts in exchange for stripped mortgage backed securities ("SMBS") for the years ended December
31, 2020 and 2019. In each transaction, a portion of the SMBS was acquired by third parties at the transaction date; the Firm acquired the remaining
balance of those SMBS as trading securities.
$
3,276
$ 4,699
$
6,130
1,659
944
2019
1,384
248
105
(114)
(176)
(789)
2,908
1,016
1,363
2020
2021
Changes due to market interest rates and other (b)
units and JPMorgan Chase's market capitalization. In
evaluating this comparison, management considers several
factors, including (i) a control premium that would exist in a
market transaction, (ii) factors related to the level of
execution risk that would exist at the Firmwide level that do
not exist at the reporting unit level and (iii) short-term
market volatility and other factors that do not directly
affect the value of individual reporting units.
Unanticipated declines in business performance, increases
in credit losses, increases in capital requirements, as well as
deterioration in economic or market conditions, adverse
regulatory or legislative changes or increases in the
estimated market cost of equity, could cause the estimated
fair values of the Firm's reporting units to decline in the
future, which could result in a material impairment charge
to earnings in a future period related to some portion of the
associated goodwill.
Mortgage servicing rights
MSRS represent the fair value of expected future cash flows
for performing servicing activities for others. The fair value
considers estimated future servicing fees and ancillary
revenue, offset by estimated costs to service the loans, and
generally declines over time as net servicing cash flows are
received, effectively amortizing the MSR asset against
contractual servicing and ancillary fee income. MSRs are
either purchased from third parties or recognized upon sale
or securitization of mortgage loans if servicing is retained.
As permitted by U.S. GAAP, the Firm has elected to account
for its MSRS at fair value. The Firm treats its MSRs as a
single class of servicing assets based on the availability of
market inputs used to measure the fair value of its MSR
asset and its treatment of MSRS as one aggregate pool for
risk management purposes. The Firm estimates the fair
value of MSRS using an option-adjusted spread ("OAS”)
model, which projects MSR cash flows over multiple interest
rate scenarios in conjunction with the Firm's prepayment
model, and then discounts these cash flows at risk-adjusted
rates. The model considers portfolio characteristics,
contractually specified servicing fees, prepayment
assumptions, delinquency rates, costs to service, late
charges and other ancillary revenue, and other economic
factors. The Firm compares fair value estimates and
assumptions to observable market data where available,
and also considers recent market activity and actual
portfolio experience.
262
JPMorgan Chase & Co./2021 Form 10-K
The fair value of MSRS is sensitive to changes in interest
rates, including their effect on prepayment speeds. MSRs
typically decrease in value when interest rates decline
because declining interest rates tend to increase
prepayments and therefore reduce the expected life of the
net servicing cash flows that comprise the MSR asset.
Conversely, securities (e.g., mortgage-backed securities),
and certain derivatives (e.g., those for which the Firm
receives fixed-rate interest payments) increase in value
when interest rates decline. JPMorgan Chase uses
combinations of derivatives and securities to manage the
risk of changes in the fair value of MSRs. The intent is to
offset any interest-rate related changes in the fair value of
MSRs with changes in the fair value of the related risk
management instruments.
The following table summarizes MSR activity for the years ended December 31, 2021, 2020 and 2019.
As of or for the year ended December 31, (in millions, except where otherwise noted)
Fair value at beginning of period
MSR activity:
Originations of MSRS
Purchase of MSRS
Disposition of MSRs (a)
Net additions/(dispositions)
Changes due to collection/realization of expected cash flows
Changes in valuation due to inputs and assumptions:
700
417
(788)
(951)
98
(1,540)
(1,180)
Fair value at December 31,
$
5,494
$
Total changes in valuation due to inputs and assumptions
3,276 $
Change in unrealized gains/(losses) included in income related to MSRs held at December 31,
Contractual service fees, late fees and other ancillary fees included in income
$
98
$
(1,540) $
(1,180)
Third-party mortgage loans serviced at December 31, (in billions)
4,699
(287)
28
(306)
404
(1,568)
(893)
Changes in valuation due to other inputs and assumptions:
Projected cash flows (e.g., cost to service)
Discount rates
Prepayment model changes and other(c)
(e)
109
(54)
(333)
199
153
(415)
(117)
(107)
Total changes in valuation due to other inputs and assumptions
(899)
Notes to consolidated financial statements
Total CCB mortgage fees and related
income
3,079
Weighted average discount rate
Supplemental cash flow information
2021
2020
$
7,888 $ 8,006
8,328
8,508
Weighted average remaining lease term (in
years)
8.5
8.7
3.48 %
Cash paid for amounts included in the
measurement of lease liabilities - operating
cash flows
$
1,656 $
1,626
Supplemental non-cash information
Right-of-use assets obtained in exchange
for operating lease obligations
3.40 %
$
Lease liabilities
December 31,
2026
821
990
After 5 years
484
132
616
(in millions, except where otherwise noted)
Right-of-use assets
Total
$ 101,604
265
Notes to consolidated financial statements
Note 18 Leases
Firm as lessee
At December 31, 2021, JPMorgan Chase and its
subsidiaries were obligated under a number of
noncancellable leases, predominantly operating leases for
premises and equipment used primarily for business
purposes. These leases generally have terms of 20 years or
less, determined based on the contractual maturity of the
lease, and include periods covered by options to extend or
terminate the lease when the Firm is reasonably certain
that it will exercise those options. All leases with lease
terms greater than twelve months are reported as a lease
liability with a corresponding right-of-use ("ROU”) asset.
None of these lease agreements impose restrictions on the
Firm's ability to pay dividends, engage in debt or equity
financing transactions or enter into further lease
agreements. Certain of these leases contain escalation
clauses that will increase rental payments based on
maintenance, utility and tax increases, which are non-lease
components. The Firm elected not to separate lease and
non-lease components of a contract for its real estate
leases. As such, real estate lease payments represent
payments on both lease and non-lease components.
Operating lease liabilities and ROU assets are recognized at
the lease commencement date based on the present value
of the future minimum lease payments over the lease term.
The future lease payments are discounted at a rate that
represents the Firm's collateralized borrowing rate for
financing instruments of a similar term and are included in
accounts payable and other liabilities. The operating lease
ROU asset, included in premises and equipment, also
includes any lease prepayments made, plus initial direct
costs incurred, less any lease incentives received. Rental
expense associated with operating leases is recognized on a
straight-line basis over the lease term, and generally
included in occupancy expense in the Consolidated
statements of income.
The following tables provide information related to the
Firm's operating leases:
$ 49,490 $ 52,114
1,167 $
1,350
Year ended December 31,
Total future minimum lease payments
Less: Imputed interest
Total
$
1,572
1,435
1,285
After 2026
1,115
3,453
9,722
(1,394)
$ 8,328
In addition to the table above, as of December 31, 2021,
the Firm had additional future operating lease
commitments of $0.9 billion that were signed but had not
yet commenced. These operating leases will commence
between 2022 and 2023 with lease terms up to 22 years.
266
JPMorgan Chase & Co./2021 Form 10-K
862
2026
2025
2024
(in millions)
Rental expense
2021
2020
Gross rental expense
$
2,086 $
2,094
Sublease rental income
Net rental expense
(129)
(166)
$
1,957 $
1,928
The following table presents future payments under
operating leases as of December 31, 2021:
Year ended December 31, (in millions)
2022
2023
240
38
202
2025
$9,873 at fair value) (a)
$ 638,879
$ 572,711
Interest-bearing (included $629 and
$2,567 at fair value)"
1,432,578
1,197,032
2,071,457
Noninterest-bearing (included $8,115 and
1,769,743
Total deposits in U.S. offices
Non-U.S. offices
Noninterest-bearing (included $2,420 and
$1,486 at fair value) (a)
26,229
23,435
Interest-bearing (included $169 and $558
at fair value)
364,617
351,079
(a)
December 31, (in millions)
2020
2021
2,035
11
12
1
1,015
(165)
(a) Includes the impact of operational risk and regulatory capital.
Changes in fair value based on variations in assumptions
generally cannot be easily extrapolated, because the
relationship of the change in the assumptions to the change
in fair value are often highly interrelated and may not be
linear. In this table, the effect that a change in a particular
assumption may have on the fair value is calculated without
changing any other assumption. In reality, changes in one
factor may result in changes in another, which would either
magnify or counteract the impact of the initial change.
All other
Mortgage fees and related income
$ 2,170 $ 3,091 $ 2,036
(a) Represents both the impact of changes in estimated future
prepayments due to changes in market interest rates, and the
difference between actual and expected prepayments.
(b) Represents the aggregate impact of changes in model inputs and
assumptions such as projected cash flows (e.g., cost to service),
discount rates and changes in prepayments other than those
attributable to changes in market interest rates (e.g., changes in
prepayments due to changes in home prices).
264
JPMorgan Chase & Co./2021 Form 10-K
Note 16 - Premises and equipment
Premises and equipment, including leasehold
improvements, are carried at cost less accumulated
depreciation and amortization. JPMorgan Chase computes
depreciation using the straight-line method over the
estimated useful life of an asset. For leasehold
improvements, the Firm uses the straight-line method
computed over the lesser of the remainder of the lease
term, or estimated useful life of the improvements.
JPMorgan Chase capitalizes certain costs associated with
the acquisition or development of internal-use software.
Once the software is ready for its intended use, these costs
are amortized on a straight-line basis over the software's
expected useful life and reviewed for impairment on an
ongoing basis.
Note 17 - Deposits
At December 31, 2021 and 2020, noninterest-bearing and
interest-bearing deposits were as follows.
U.S. offices
Total deposits in non-U.S. offices
Total deposits
2,159
390,846
$ 2,462,303
(in millions)
U.S.
Non-U.S.
Total
2022
$ 47,595
$ 50,805
December 31, 2021
$ 98,400
771
308
1,079
2024
269
10
279
2023
At December 31, 2021, the maturities of interest-bearing
time deposits were as follows.
(b) Prior-period amount has been revised to conform with the current
presentation.
(a) Represents all time deposits in non-U.S.offices as these deposits
typically exceed the insured limit.
$2,144,257
JPMorgan Chase & Co./2021 Form 10-K
(a) Includes structured notes classified as deposits for which the fair value
option has been elected. Refer to Note 3 for further discussion.
At December 31, 2021 and 2020, time deposits in
denominations that met or exceeded the insured limit were
as follows.
December 31, (in millions)
U.S. offices
Non-U.S. offices
(a)
Total
2021
2020
$ 38,970
54,535
$ 33,812
50,776
$ 93,505
$ 84,588
(b)
374,514
261
Risk management:
The primary method the Firm uses to estimate the fair value
of its reporting units is the income approach. This approach
projects cash flows for the forecast period and uses the
perpetuity growth method to calculate terminal values.
These cash flows and terminal values are then discounted
using an appropriate discount rate. Projections of cash
flows are based on the reporting units' earnings forecasts
which are reviewed with senior management of the Firm.
The discount rate used for each reporting unit represents
an estimate of the cost of equity for that reporting unit and
is determined considering the Firm's overall estimated cost
of equity (estimated using the Capital Asset Pricing Model),
as adjusted for the risk characteristics specific to each
reporting unit (for example, for higher levels of risk or
uncertainty associated with the business or management's
forecasts and assumptions). To assess the reasonableness
of the discount rates used for each reporting unit,
management compares the discount rate to the estimated
cost of equity for publicly traded institutions with similar
businesses and risk characteristics. In addition, the
weighted average cost of equity (aggregating the various
reporting units) is compared with the Firm's overall
estimated cost of equity to ensure reasonableness. The
valuations derived from the discounted cash flow analysis
are then compared with market-based trading and
transaction multiples for relevant competitors. Trading and
transaction comparables are used as general indicators to
assess the overall reasonableness of the estimated fair
values, although precise conclusions generally cannot be
drawn due to the differences that naturally exist between
the Firm's businesses and competitor institutions.
Management also takes into consideration a comparison
between the aggregate fair values of the Firm's reporting
89
Total
$
1,934 $ 37,619
$
681 $ 40,234 $
17,578 $
4,946
10,556
1,902
318
233 $
(a) Includes residential and commercial mortgage securitizations.
(c) Includes assets classified as cash and other assets on the Consolidated balance sheets.
(b) Largely includes purchased supply chain finance receivables and purchased auto loan securitizations in CIB.
(d) The assets of the consolidated VIES included in the program types above are used to settle the liabilities of those entities. The assets and liabilities include
third-party assets and liabilities of consolidated VIES and exclude intercompany balances that eliminate in consolidation.
(e) The interest-bearing beneficial interest liabilities issued by consolidated VIES are classified in the line item on the Consolidated balance sheets titled,
"Beneficial interests issued by consolidated variable interest entities." The holders of these beneficial interests generally do not have recourse to the
general credit of JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $2.6 billion and $5.2 billion at
December 31, 2021 and 2020, respectively.
(f) Includes liabilities classified as accounts payable and other liabilities on the Consolidated balance sheets.
JPMorgan Chase & Co./2021 Form 10-K
17,811
108
89
427
249
$
148 $
188
12,110 $
23,977
Municipal bond vehicles
1,930
2
1,932
4,943 $
10,523
1,902
3 $
33
Mortgage securitization entities (a
Other
2
1,694
176
94
1,788
210
257
11,962
23,787
Notes to consolidated financial statements
The Firm enters into transactions with VIES structured by
other parties. These include, for example, acting as a
derivative counterparty, liquidity provider, investor,
underwriter, placement agent, remarketing agent, trustee
or custodian. These transactions are conducted at arm's-
length, and individual credit decisions are based on the
analysis of the specific VIE, taking into consideration the
quality of the underlying assets. Where the Firm does not
have the power to direct the activities of the VIE that most
significantly impact the VIE's economic performance, or a
variable interest that could potentially be significant, the
Firm generally does not consolidate the VIE, but it records
and reports these positions on its Consolidated balance
sheets in the same manner it would record and report
positions in respect of any other third-party transaction.
Tax credit vehicles
Residential
mortgage
(d)
$
23,876 $
14,917
$
7,103 $
Commercial
mortgage and other(e)
6,624
9,957 $
Commercial
and other(e)
9,390
All cash flows during the period: (a)
Proceeds received from loan sales as financial
instruments(c)
$
Servicing fees collected
24,450 $
153
$
Residential
Residential
Commercial
mortgage and other(e)
(d)
The Firm holds investments in unconsolidated tax credit
vehicles, which are limited partnerships and similar entities
that own and operate affordable housing, energy, and other
projects. These entities are primarily considered VIES. A
third party is typically the general partner or managing
member and has control over the significant activities of the
tax credit vehicles, and accordingly the Firm does not
consolidate tax credit vehicles. The Firm generally invests in
these partnerships as a limited partner and earns a return
primarily through the receipt of tax credits allocated to the
projects. The maximum loss exposure, represented by
equity investments and funding commitments, was $26.8
billion and $23.6 billion, of which $9.4 billion and $8.7
billion was unfunded at December 31, 2021 and 2020,
respectively. The prior-period maximum loss exposure
amount has been revised to conform with the current
presentation. The Firm assesses each project and to reduce
the risk of loss, may withhold varying amounts of its capital
investment until the project qualifies for tax credits. Refer
to Note 25 for further information on affordable housing
tax credits. Refer to Note 28 for more information on off-
balance sheet lending-related commitments.
Customer municipal bond vehicles (TOB trusts)
The Firm may provide various services to customer TOB
trusts, including remarketing agent, liquidity or tender
option provider. In certain customer TOB transactions, the
Firm, as liquidity provider, has entered into a
reimbursement agreement with the Residual holder. In
those transactions, upon the termination of the vehicle, the
Firm has recourse to the third-party Residual holders for
any shortfall. The Firm does not have any intent to protect
Residual holders from potential losses on any of the
underlying municipal bonds. The Firm does not consolidate
customer TOB trusts, since the Firm does not have the
power to make decisions that significantly impact the
economic performance of the municipal bond vehicle. The
Firm's maximum exposure as a liquidity provider to
customer TOB trusts at December 31, 2021 and 2020, was
$6.8 billion and $6.7 billion, respectively. The fair value of
assets held by such VIES at both December 31, 2021 and
2020 was $10.5 billion.
Loan securitizations
The Firm has securitized and sold a variety of loans,
including residential mortgages, credit card receivables,
and commercial mortgages. The purposes of these
securitization transactions were to satisfy investor demand
and to generate liquidity for the Firm.
For loan securitizations in which the Firm is not required to
consolidate the trust, the Firm records the transfer of the
loan receivable to the trust as a sale when all of the
following accounting criteria for a sale are met: (1) the
transferred financial assets are legally isolated from the
Firm's creditors; (2) the transferee or beneficial interest
holder can pledge or exchange the transferred financial
assets; and (3) the Firm does not maintain effective control
over the transferred financial assets (e.g., the Firm cannot
repurchase the transferred assets before their maturity and
it does not have the ability to unilaterally cause the holder
to return the transferred assets).
For loan securitizations accounted for as a sale, the Firm
recognizes a gain or loss based on the difference between
the value of proceeds received (including cash, beneficial
interests, or servicing assets received) and the carrying
value of the assets sold. Gains and losses on securitizations
are reported in noninterest revenue.
258
JPMorgan Chase & Co./2021 Form 10-K
Securitization activity
The following table provides information related to the Firm's securitization activities for the years ended December 31, 2021,
2020 and 2019, related to assets held in Firm-sponsored securitization entities that were not consolidated by the Firm, and
where sale accounting was achieved at the time of the securitization.
2021
2020
2019
Year ended December 31,
(in millions)
Principal securitized
VIES sponsored by third parties
15,044
2
$
Other(f)
Total
liabilities
-
JPMorgan Chase & Co./2021 Form 10-K
1
11,108
19,883
$
Beneficial
interests in
VIE assets (e)
102 $
11,210
19,955
$
2,397 $
6,198
1 $
2,398
41
6,239
71
assets (d)
Other(c)
Loans
Consolidated VIE assets and liabilities
Holders of the floaters may "put," or tender, their floaters
to the TOB trust. If the remarketing agent cannot
successfully remarket the floaters to another investor, the
liquidity provider either provides a loan to the TOB trust for
the TOB trust's purchase of the floaters, or it directly
purchases the tendered floaters.
TOB trusts are considered to be variable interest entities.
The Firm consolidates non-customer TOB trusts because as
the Residual holder, the Firm has the right to make
decisions that significantly impact the economic
performance of the municipal bond vehicle, and it has the
right to receive benefits and bear losses that could
potentially be significant to the municipal bond vehicle.
The following table presents information on assets and liabilities related to VIES consolidated by the Firm as of December 31,
2021 and 2020.
December 31, 2021
(in millions)
VIE program type
Firm-sponsored credit card trusts
Firm-administered multi-seller conduits
Municipal bond vehicles
Mortgage securitization entities (a)
Other
Total
Assets
Liabilities
Trading
assets
Total
2,009
Firm-administered multi-seller conduits
-
2,011
10,995
Assets
Liabilities
December 31, 2020
(in millions)
Trading assets Loans
Other(c)
245 $
Total
assets(d)
(e)
Other(f)
Total
liabilities
VIE program type
Firm-sponsored credit card trusts
$
-
Beneficial
interests in
VIE assetse
10,750 $
35,524 $
490 $
1,976
-
1,976
955
32
(b)
1,078
283
987
1,361
179
85
264
118
118
$
2,010 $ 33,024
$
2
$
$
6,865
Total loans securitized
$
47,029 $
10,115
93,698
41,265
12,154
92,351
$
Commercial and other
2,466 $
4,988 $
2,406
1,456
5,958
17 $
16
288
212
179
30
1,609
Subprime
Prime/Alt-A & option ARMS
Residential mortgage:
2020
1,022 $
1,413
5
9
36
(a) Predominantly all of these amounts relate to loans that have been
repurchased from Ginnie Mae loan pools.
(b) Relates to voluntary repurchases of loans, which are included in
accrued interest and accounts receivable.
64
The table below includes information about components of and delinquencies related to nonconsolidated securitized financial
assets held in Firm-sponsored private-label securitization entities, in which the Firm has continuing involvement as of
December 31, 2021 and 2020.
Securitized assets
As of or for the year ended December 31, (in millions)
2021
2020
90 days past due
2021
2020
Net liquidation losses
2021
2020
Securitized loans
$ 150,842 $ 145,770 $
2021
5,531 $
$
$ 49,248
2020
$ 47,823
1,124
(57)
2019
$ 47,471
349
3
2021
$ 50,315 $ 49,248 $ 47,823
(a) For 2021, represents estimated goodwill associated with the
acquisitions of Nutmeg in Corporate, OpenInvest and Campbell Global
in AWM, and Frank and The Infatuation in CCB. For 2020, represents
estimated goodwill associated with the acquisitions of cxLoyalty in CCB
and 55ip in AWM. For 2019, represents goodwill associated with the
acquisition of InstaMed. This goodwill was allocated to CIB, CB and
CCB.
Goodwill impairment testing
The Firm's goodwill was not impaired at December 31,
2021, 2020 and 2019.
Effective January 1, 2020, the Firm adopted new
accounting guidance related to goodwill impairment testing.
The adoption of the guidance requires recognition of an
impairment loss when the estimated fair value of a
reporting unit falls below its carrying value. It eliminated
the requirement that an impairment loss be recognized only
if the estimated implied fair value of the goodwill is below
its carrying value.
The goodwill impairment test is generally performed by
comparing the current fair value of each reporting unit with
its carrying value. If the fair value is in excess of the
carrying value, then the reporting unit's goodwill is
considered not to be impaired. If the fair value is less than
the carrying value, then an impairment charge is recognized
for the amount by which the reporting unit's carrying value
exceeds its fair value, up to the amount of goodwill
allocated to that reporting unit.
The Firm uses the reporting units' allocated capital plus
goodwill and other intangible assets as a proxy for the
carrying values of equity for the reporting units in the
goodwill impairment testing. Reporting unit equity is
determined on a similar basis as the allocation of capital to
the LOBS which takes into consideration a variety of factors
including capital levels of similarly rated peers and
applicable regulatory capital requirements. Proposed LOB
capital levels are incorporated into the Firm's annual
budget process, which is reviewed by the Firm's Board of
Directors. Allocated capital is further reviewed periodically
and updated as needed.
7,321 $
(b) Primarily foreign currency adjustments and adjustments to goodwill
related to prior period acquisitions.
Balance at December 31,
Business combinations (a)
Other (b)
Balance at beginning of period
Changes during the period from:
321 $
421
260
JPMorgan Chase & Co./2021 Form 10-K
Note 15 - Goodwill and Mortgage servicing rights
Goodwill
Goodwill is recorded upon completion of a business
combination as the difference between the purchase price
and the fair value of the net assets acquired, and can be
adjusted up to one year from the acquisition date as more
information is obtained about the fair value of assets
acquired and liabilities assumed. Subsequent to initial
recognition, goodwill is not amortized but is tested for
impairment during the fourth quarter of each fiscal year, or
more often if events or circumstances, such as adverse
changes in the business climate, indicate that there may be
an impairment.
The goodwill associated with each business combination is
allocated to the related reporting units, which are generally
determined based on how the Firm's businesses are
managed and how they are reviewed. The following table
presents goodwill attributed to the reportable business
segments and Corporate.
December 31, (in millions)
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
Corporate (a)
Total goodwill
2021
2020 2019
$31,474 $31,311 $30,133
7,906 7,913 7,901
2,986 2,985 2,982
7,222 7,039 6,807
727
$ 50,315 $49,248 $47,823
(a) For goodwill in Corporate acquired in the third quarter of 2021, the
Firm elected to perform a qualitative impairment assessment, as
permitted under U.S. GAAP.
The following table presents changes in the carrying
amount of goodwill.
Year ended December 31, (in
millions)
13,352
mortgage loans (b)
1,412
13
Real estate owned
2021
2020
2019
Residential mortgage retained interest:
Weighted-average life (in years)
3.9
4.7
Year ended December 31,
Weighted-average discount rate
8.2 %
Commercial mortgage retained interest:
Weighted-average life (in years)
6.0
Weighted-average discount rate
1.2 %
6.9
3.0 %
3.3 %
7.4 %
4.8
Key assumptions used to value retained interests originated
during the year are shown in the table below.
$
Foreclosed government-guaranteed residential
10,238 $
9,544
1
211
1
Cash flows received on interests
578
273
801
239
287
507
2
237
(b) Predominantly includes Level 2 assets.
(c) The carrying value of the loans accounted for at fair value approximated the proceeds received upon loan sale.
(d) Represents prime mortgages. Excludes loan securitization activity related to U.S. GSEs and government agencies.
(e) Includes commercial mortgage and other consumer loans.
6.4
4.1 %
(a) Excludes re-securitization transactions.
JPMorgan Chase & Co./2021 Form 10-K
$ 103,447 $ 80,231 $
$
9 $
6 $
91,495
499
(a) Includes securities from U.S. GSES and Ginnie Mae that are generally
sold shortly after receipt or retained as part of the Firm's investment
securities portfolio.
(b) Included in Level 2 assets.
(c) Excludes the value of MSRS retained upon the sale of loans.
(d) Gains/(losses) on loan sales include the value of MSRs.
Gains/(losses) on loan sales (d)(e)
(e) The carrying value of the loans accounted for at fair value
approximated the proceeds received upon loan sale.
In addition to the Firm's obligation to repurchase certain
loans due to material breaches of representations and
warranties as discussed in Note 28, the Firm also has the
option to repurchase delinquent loans that it services for
Ginnie Mae loan pools, as well as for other U.S. government
agencies under certain arrangements. The Firm typically
elects to repurchase delinquent loans from Ginnie Mae loan
pools as it continues to service them and/or manage the
foreclosure process in accordance with the applicable
requirements, and such loans continue to be insured or
guaranteed. When the Firm's repurchase option becomes
exercisable, such loans must be reported on the
Consolidated balance sheets as a loan with a corresponding
liability. Refer to Note 12 for additional information.
The following table presents loans the Firm repurchased or
had an option to repurchase, real estate owned, and
foreclosed government-guaranteed residential mortgage
loans recognized on the Firm's Consolidated balance sheets
as of December 31, 2021 and 2020. Substantially all of
these loans and real estate are insured or guaranteed by
U.S. government agencies.
December 31,
Loans repurchased or option to repurchase (a) $
Loans and excess MSRS sold to U.S. government-
sponsored enterprises and loans in securitization
transactions pursuant to Ginnie Mae guidelines
In addition to the amounts reported in the securitization
activity tables above, the Firm, in the normal course of
business, sells originated and purchased mortgage loans
and certain originated excess MSRS on a nonrecourse basis,
predominantly to U.S. GSES. These loans and excess MSRs
are sold primarily for the purpose of securitization by the
U.S. GSES, who provide certain guarantee provisions (e.g.,
credit enhancement of the loans). The Firm also sells loans
into securitization transactions pursuant to Ginnie Mae
guidelines; these loans are typically insured or guaranteed
by another U.S. government agency. The Firm does not
consolidate the securitization vehicles underlying these
transactions as it is not the primary beneficiary. For a
limited number of loan sales, the Firm is obligated to share
a portion of the credit risk associated with the sold loans
with the purchaser. Refer to Note 28 for additional
information about the Firm's loan sales- and securitization-
related indemnifications. Refer to Note 15 for additional
information on MSRs.
(in millions)
Options to repurchase delinquent loans
Total proceeds received from
loan sales)
Loan delinquencies and liquidation losses
80,186
91,422
The following table summarizes the activities related to
loans sold to the U.S. GSES, and loans in securitization
transactions pursuant to Ginnie Mae guidelines.
Year ended December 31,
(in millions)
Carrying value of loans sold
2020
2019
$ 105,035 $ 81,153 $ 92,349
Proceeds received from loan
sales as cash
2021
161 $
103,286
259
$
Proceeds from loan sales as
securities (a)(b)
73
Notes to consolidated financial statements
45 $
Yes, of course, it is true that large government
actions dramatically helped individuals, compa-
nies (including banks) and the economy overall.
But it is also true that banks performed magnifi-
cently during the COVID-19 crisis. They extended
a huge amount of credit, waived fees and post-
poned debt repayment, and were at the forefront
of delivering Paycheck Protection Program (PPP)
loans to small businesses. And they did it the
right way, protecting government money by
trying to make legitimate loans to borrowers in
need. By contrast, nonbanks were involved in
instances of illegitimate PPP loans and Economic
Injury Disaster Loan assistance, as well as stimu-
lus money fraud, often at rates almost five times
those of traditional banks. As for us:
JPMorgan Chase was the #1 PPP lender - over
the life of the program, we funded more than
400,000 loans totaling over $40 billion.
Since March 13, 2020, we delayed payments
due and refunded fees for more than 3.5
million customer accounts - refunding more
than $250 million for nearly 2 million consumer
deposit and lending accounts and offering
delayed payments and forbearance on more
than 2 million mortgage, auto and credit
card accounts, representing approximately
$90 billion in loans.
In 2020, we committed $250 million in global
business and philanthropic initiatives, with
particular focus on the people and communi-
ties most vulnerable and hardest hit by the
pandemic.
the Great Recession when many banks were not.
And fortunately, unlike during the Great Reces-
sion, the U.S. economy was actually in good
shape going into the COVID-19 recession.
In addition, JPMorgan Chase launched several
ambitious flagship programs, including our
$30 billion commitment to help close the racial
wealth gap and drive economic inclusion, which
is described in more detail within this letter.
unlike during
While the U.S. government's actions were a ben-
efit to the whole economy, including the banking
industry, banks were more than able to weather
the terrible financial storm while setting aside
extensive reserves for potential future loan
losses. Importantly, during this time, the Fed con-
ducted two additional, severely adverse Compre-
hensive Capital Analysis and Review stress tests,
which projected bank results under extreme
unemployment, GDP loss, market disruption and
a smaller government stimulus. The results
showed that banks could withstand these
extreme conditions while continuing to finance
the economy.
26
COMPETITIVE THREAT REDUX
Size of the Financial Sector/Industry
($ in trillions)
2010
In 2020, we raised capital and provided credit
totaling $2.3 trillion for customers and busi-
nesses of all sizes, helping them meet payroll,
avoid layoffs and fund operations during that
first year of the pandemic crisis.
U.S. bank liquid assets¹
Total U.S. debt and equity market
8.6
$
$ 2.8
-
$ 10.9
$ 6.6
2021
1.5
$ 0.8
U.S. G-SIB market capitalization
U.S. bank loans
Size of banks
in the financial
system
$ 136.4
$ 57.6
$
Within days of realizing COVID-19 was a pandemic
that would virtually close large parts of the
world's economies, the U.S. government moved
with unprecedented speed. Fortunately, most
banks were part of the solution
• A new strategic economic and competitive
framework, devised in partnership with our
allies (particularly as it relates to China), which
includes trade and industrial policy, as previ-
ously discussed. This does need rebranding.
Trade is only part of an economic relationship
(there are investment rights, property rights,
education, immigration rights and so on). We
should always negotiate strategic economic
agreements remembering that whether you
emerge with a formal agreement or not, you
likely have created a policy.
The growing competition to banks from each
other, shadow banks, fintechs and large technol-
ogy companies is intensifying and clearly contrib-
uting to the diminishing role of banks and public
companies in the United States and the global
financial system. Before we give an update on the
structural shifts taking place, it would be good to
address the question: How did banks perform
during the recent COVID-19 crisis?
Our leaders need to agree on what we want and
then execute to get it done. At a minimum, we
should all agree that we want:
We need more real leaders - people who know
how to get things done, who are capable and who
can educate and explain to all citizens what we
need and why. We need a renaissance of the
American dream and American "can-do"
exceptionalism.
WE CAN HAVE A PATH FORWARD FOR U.S.
POLICY: AGREE ON WHAT WE WANT, THEN
EXECUTE.
rejoin the TPP - it is the best geostrategic and
trade arrangement possible with allied nations.
This restructuring will likely take place over time
and does not need to be extraordinarily disrup-
tive. There will be winners and losers - some of
the main beneficiaries will be Brazil, Canada,
Mexico and friendly Southeast Asian nations.
Along with reconfiguring our supply chains, we
must create new trading systems with our allies.
As mentioned above, my preference would be to
Companies will diversify their supply chains
simply to be more resilient.
• The world's most prosperous economy, which
would also mean having the world's reserve
currency. The strength and the importance of
the U.S. dollar are predicated on the strength
and openness of the U.S. economy, the rule of
law and the free movement of capital.
For similar national security reasons, activities
(including investment activities) that help
create a national security risk - i.e., sharing
critical technology with potential adversaries -
should be restricted.
There is no question that supply chains need to
be restructured for three different reasons:
THERE ARE COMPELLING REASONS FOR
GLOBAL TRADE RESTRUCTURING.
23
Total U.S. broker dealer inventories
All of these policies must be done in conjunction
with our allies or they will not be effective -
because without a united front, unfair economic
and trade practices will still be allowed to flour-
ish. If it were up to me, I would rejoin the Trans-
Pacific Partnership (TPP). We need to look at
trade as only one part of strategic economic part-
nerships and that's exactly what TPP did. There
is a lot at stake, but there is no reason why seri-
ous, comprehensive, honest negotiations can't
lead to good outcomes.
(exports and imports). By contrast, China's total
trade with Russia in 2021 totaled almost $150
billion. Clearly, these economic relationships are
critical to China and the West - China also has a
huge interest in making this work.
For any products or materials that are essential
for national security (think rare earths, 5G and
semiconductors), the U.S. supply chain must
either be domestic or open only to completely
friendly allies. We cannot and should not ever
be reliant on processes that can and will be
used against us, especially when we are most
vulnerable.
BANKS PERFORMED MAGNIFICENTLY
DURING THE COVID-19 CRISIS.
•
⚫ A "Marshall Plan," as previously mentioned, to
ensure energy security for us and our Euro-
pean allies, requiring us to secure proper
energy supplies immediately for the next few
years (which can be done while reducing CO2
emissions and combatting climate change).
Competitive Threat Redux
25
THE EXTRAORDINARY NEED FOR STRONG AMERICAN LEADERSHIP
Then there are the counterexamples, countries
sometimes flush with natural resources - Argen-
tina, Cuba and Venezuela. Rarely is the successful
nation the socialist or autocratic one. And all of
the negative cases are either socialist govern-
ments or governments hypothetically run in the
name of the people. The successful nations, on
the other hand, all are market-based economies
of slightly different types with policies that grow
their economy and share the nation's wealth.
Sweden is a good example of a country that many
consider socialist, but it is far from it. By most
measures, Sweden is actually more of a market-
based economy than the United States, and it has
enormous wealth and extremely strong social
safety nets.
It is always instructive to look around the world
at policies and countries that work - and policies
and countries that don't work. For example, you
can find countries that have done a great job pro-
viding safety nets - without damaging labor -
and building infrastructure efficiently without
crippling regulations. A number of countries have
succeeded in developing themselves, surprisingly
often with minimal natural resources: Ireland,
Israel, Singapore, South Korea and Sweden.
Singapore has developed effective healthcare
programs. Germany and Switzerland have created
impressive work apprenticeship models, and
Hong Kong has excelled at infrastructure.
Another inspiring example is Ireland. After
decades of sectarian strife and terrorism, Ireland
is now a melting pot with a thriving economy due
to good government policies.
Learning from Other Countries' Successes
and Failures
Regulations and policies that foster growth and
accomplish stated goals but don't cripple busi-
ness innovation and investment. Policies need to
be consistent, reliable and constantly reviewed
to reduce red tape and increase efficiency.
The war in Ukraine and the growing competitive-
ness of China - including its growing military and
strategic alliances across the globe - dictate that
we move forward on our comprehensive needs.
If we do not resolve our problems and restore
effective long-term leadership, it is easy to envi-
sion darker days ahead in both the economic and
geopolitical realms. But with great leadership,
America, our allies and the rest of the world will
enjoy a brighter future.
•
-
• A more equitable labor market that maximizes
employment and values all jobs, effective and
continuous job training for workers of all ages,
and practices that better promote sharing the
wealth i.e., higher minimum wages, an
increased Earned Income Tax Credit (EITC),
broader healthcare coverage and other related
policies.
⚫ The strongest military in the world - continu-
ally maintained, though used judiciously and
in conjunction with our allies. The strength of
the military needs to be matched by the
strength of our diplomatic, development and
intelligence agencies.
THE EXTRAORDINARY NEED FOR STRONG AMERICAN LEADERSHIP
24
A strong America that respects all its citizens,
helps the poor and disadvantaged, honors
again the dignity of work, and demonstrates
character and civility. And we all want well-
functioning, healthy social safety nets.
$
2000
$
>50
2.2
$
ΝΑ
$ 1.2
ΝΑ
금금
Nonbank share of mortgage originations
Nonbank share of leveraged lending
companies market capitalization
Global exchanges and financial data
U.S. neobanks – # of users (M)7
Cryptocurrency market capitalization
capitalization
Private and public fintech companies market
Payments market capitalization
competitors
Size of nonbank
4.8
4.2
THE EXTRAORDINARY NEED FOR STRONG AMERICAN LEADERSHIP
$ 14.0
$ 20.4
Google, Amazon, Facebook, Apple market
capitalization5
$ 0.2
9%
$ 0.5
LA XA
$
6.9
$
1.2
29
$ 0.1
4.1
$
68%
4.5
Shadow banks
Hedge fund and private equity AUM²
U.S. private equity backed companies (K)
U.S. publicly listed companies (K)³
Total private direct credit4
$ 3.1
$
9.7
1996
1.6
COMPETITIVE THREAT REDUX
28
Properly regulated banks are meant to protect and
enhance the financial system. They are transpar-
ent with regulators, and they strive mightily to
protect the system from terrorism financing and
tax evasion as they implement know your cus-
tomer (KYC) and anti-money laundering laws. They
protect clients' assets and clients' money in move-
ment. They also help customers - from protecting
their data and minimizing fraud and cyber risk to
providing financial education - and must abide
by social requirements, such as the Community
Reinvestment Act, which requires banks to extend
their services into lower-income communities.
Regulators need to figure out what they really
want to achieve.
The pace of change and the size of the competition
are extraordinary, and activity is accelerating.
Walmart, for good reason (over 200 million cus-
tomers visit their stores each week) can use new
digital technologies to efficiently bring banking-
type services to their customers. Apple, already a
strong presence in banking-type services with
Apple Pay and the Apple Card, is actively extend-
ing services into other banking-type products,
such as payment processing, credit risk assess-
ment, person-to-person payment systems, mer-
chant acquiring and buy-now-pay-later offers.
The large tech companies, already 100% digital,
have hundreds of millions of customers, enormous
resources in data and proprietary systems - all of
which give them an extraordinary competitive
advantage.
Banks around the world are already engaged in
tough competition with each other. A quick review
of the chart on page 27 shows the phenomenal
size of nonbanks - from payments companies and
fintechs to exchanges and Big Tech – that com-
pete with traditional banks, but outside of the
banking regulatory system, in providing certain
financial services. And those don't include many
others, such as Schwab, Fidelity or Vanguard -
which also provide banking-type services. The
data also doesn't show that last year alone,
$130 billion was invested in fintech, allowing
them to speed things up - and at scale.
-
Keep in mind that markets, not regulators, set
capital requirements. If regulators set capital
standards that are too high for banks to hold
loans, then the markets will drive those loans
outside of the banking system. There are also
non-capital regulatory standards that can force
activities out of the regulatory system, such as
excessive reporting and social requirements,
among others.
Regulations have consequences, both intended
and unintended - but many regulations are
crafted with little regard for their interplay with
other policies and their cumulative effect. As a
result, regulations often are disconnected from
their likely outcomes. This is particularly true
when trying to determine what products and ser-
vices will remain inside the regulatory system as
opposed to those likely to move outside of it.
THE ROLE OF BANKS IN THE GLOBAL
FINANCIAL SYSTEM IS DIMINISHING.
Banks have advantages and disadvantages. Some
of the advantages, including economies of scale,
profitability and brand, may only diminish slowly.
Unfortunately, it also seems likely that some of
the disadvantages, such as uneven or costly regu-
lation, may not diminish at all. Other disadvan-
tages, like legacy systems, will diminish over time.
54%
82%
87%
Sources: FactSet, S&P Global Market Intelligence, Assets and Liabilities of Commercial Banks in the United States H.8 data, Financial Accounts of the United States Z.1 data,
World Federation of Exchanges, Pitchbook, Preqin and CoinMarketCap
G-SIB Global Systemically Important Banks
AUM
1.0
Assets under management
K = Thousands
M = Millions
For footnoted information, refer to page 47 in this Annual Report.
COMPETITIVE THREAT REDUX
27
I also have very little doubt that if the severely
adverse scenario played out, JPMorgan Chase
would perform far better than the stress test pro-
jections. One supporting data point: From March
5, 2020 to March 20, 2020, when the stock mar-
ket fell 24% and the bond index spread gapped
from 191 to 446 prior to major Fed intervention,
our actual trading revenue was higher than nor-
mal as we actively made markets for our clients.
By contrast, the hypothetical stress test had
us losing a huge amount of money in market-
making, based on the way it is calculated. While
I understand why regulators stress test this way
- they are essentially trying to ensure that banks
survive the worst-case scenario - the methodol-
ogy clearly does not result in an accurate forecast
of how our company would perform under
adverse circumstances.
NA Not applicable
Although there will be global trade restructuring,
lots of global trade (and trade with China) will
remain even after trade partnerships have been
altered. Keep in mind, China's trade with the West
and the United States in 2021 totaled $3.6 trillion
10.1
Because we are dealing with a combination of cir-
cumstances that we have never confronted before
- the rise of a country equal in size to us, unfair
trade and bilateral investment rights, and state-
sponsored subsidies and competition – we will
need to respond in equally unprecedented ways.
We should stop complaining about unfair prac-
tices and just take appropriate action. Both coun-
tries can take unilateral actions as they see fit in
the economic domain - and they already do
and that is okay.
We sometimes blame inflation on corporate prof-
its - for example, the cost of meat in the United
States is high not because of the profits earned by
the meat packing industry but because of high
cattle and feed costs and disruptions in logistics.
Similarly, energy costs are high not because of
price gouging but because of the dramatic decline
in investments in energy, which results in reduced
supply when demand goes up. Regulation has dra-
matically impeded our ability to build good infra-
structure in a timely manner - the cost of building
a highway has more than tripled in 20 years
purely because of expenses due to regulations.
We have fallen into the rut of false narratives,
which distracts us from facing reality. We don't
define our problems properly. If you have the
wrong diagnosis of a problem, you will certainly
have the wrong solution. Even if you have the
right diagnosis, you still may arrive at the wrong
solution - but your odds are certainly much
better. Our policies are often incomprehensible
and uncoordinated, and our policy decisions
frequently have no forethought and no identifica-
tion of desired outcomes.
GOVERNMENT, WITH ITS UNIQUE
POWERS, HAS AN ESSENTIAL ROLE IN
MANAGING THE ECONOMY - BUT IT
NEEDS TO BE REALISTIC ABOUT ITS
LIMITATIONS ON WHAT IT CAN AND
CANNOT DO.
THE EXTRAORDINARY NEED FOR STRONG AMERICAN LEADERSHIP
20
What we really need are free enterprise, more
civic-minded companies and citizens, and extraor-
dinarily competent government and policies.
Nonetheless, many countries - inadvertently
through decades of following bad policy or delib-
erately by restricting freedoms - damage the full
benefit of free enterprise and often discourage
savings, innovation, and the free movement of
people and labor. We all believe in great social
safety nets that reduce poverty, provide opportu-
nity for good jobs and serve as an engine for
economic growth. But freedom slowly disappears
when a country's government controls too much
of its economy, and people in nearly every coun-
try, free or not, do not like constantly being told
what to do. It is disingenuous when political lead-
ers say that government "built the roads" and
then use that statement as an argument to sup-
press free enterprise. The roads were built by the
people and for the people so that all could travel
and prosper.
Free enterprise celebrates, and is inseparable
from, human freedom and creativity, which ulti-
mately are the sources of all human progress. The
secret sauce of free enterprise is not only the free
movement of capital but also, more importantly,
the value of knowledge and free people exercising
their rights.
Freedom and its brother, free enterprise,
properly regulated are the answer - not
unconstrained capitalism nor crony capitalism,
where business uses government and regula-
tions to maintain its position or strengthen its
hand. All interest groups, business groups
included, should applaud good public policy
and not resist it for self-serving reasons.
Over the past 20 years, our economy has grown,
on average, at only 2%. American ingenuity,
work ethic, technology and business capability
were able to overcome some - but not all
- of
our mismanagement. We should not accept
mediocrity; we no longer imagine what should
be: Over the past decade, we should have grown
at 3.5%.
America's moral, economic and military might all
derive from our principles and are also predi-
cated on the strength and competence of the
American system. We must acknowledge that
nurturing and maintaining our enormously pros-
perous economy provides the foundation of that
system. Ultimately, that economy is what pays for
the best military the world has ever seen.
BE NURTURED.
OUR COUNTRY MUST REGAIN ITS
COMPETENCE AND OUR PRINCIPLES,
INCLUDING FREE ENTERPRISE, NEED TO
-
Our politics are dysfunctional, which has prevented
some of our best, brightest and most competent
to want to work in government. While we have
plenty of economists, academics and lifetime pol-
iticians in government, who I know are committed
to doing their best, we need additional brain-
power, capabilities and experience from leaders
across all sectors of our society, including busi-
ness. It is going to take extraordinary, broad-
based leadership to solve our problems.
TO MAINTAIN OUR COMPETITIVENESS,
19
THE EXTRAORDINARY NEED FOR STRONG AMERICAN LEADERSHIP
Our country is not perfect, but our basic princi-
ples - i.e., the rule of law, individual liberties,
freedom of speech and religion, and the concept
of equal opportunity - are still exceptional ideals
that most of the world wants yet often is not able
to achieve. These principles still make America
In prior letters, I have detailed our poor manage-
ment of basic policy in America and what the
consequences have been from that dysfunction:
ineffective education systems, soaring healthcare
costs, excessive regulation and bureaucracy, the
inability to plan and build infrastructure effi-
ciently, inequitable taxes, a capricious and waste-
ful litigation system, frustrating immigration poli-
cies and reform, inefficient mortgage markets and
housing policy, a partially untrained and unpre-
pared labor force, excessive student debt, and the
lack of proper federal government budgeting and
spending, which lead to huge inefficiencies. Since
I have covered these issues at length in the past,
I will not elaborate on them here. I do, however,
want to point out (and I find it disheartening) how
readily we accept the failure, often with a chuckle,
of our bureaucracy and policies.
WHILE AMERICA HAS FLAWS, ITS
ESSENTIAL STRENGTHS ENDURE.
Many feel despondent about the "decline" of
America. Our economy has had anemic growth
for decades. COVID-19 and George Floyd's murder
cast a spotlight on what we already knew – that
our lower-income citizens, often minorities, suffer
more in our society, particularly during reces-
sions and times of turmoil. Continuing income
inequality may very well be causing growing par-
tisanship, as some people believe the American
dream is fraying and that our system is unfair,
leaving many of our citizens behind.
goods and services. Such reorganization does not
need to be a disaster or decoupling. With thought-
ful analysis and execution, it should be rational
and orderly. This is in everyone's best interest.
It also is clear that trade and supply chains, where
they affect matters of national security, need to
be restructured. You simply cannot rely on coun-
tries with different strategic interests for critical
If Western allies across Europe and Asia realize
there is power in strong partnership, it puts the
Western world in a better position to address
future challenges, including those posed by
China's growth. This is applicable to areas where
we have common interests (e.g., anti-terrorism,
nuclear proliferation, climate change), as well as
to areas where we may not (e.g., economic and
political competition).
The world does not want an arrogant America tell-
ing everyone what to do but, instead, wants Amer-
ica working with allies, collaborating and compro-
mising. Most of the world would applaud mature,
respectful and civil leadership by America. We can
organize military and economic frameworks that
make the world safe and prosperous for democ-
racy and freedom only if we work with our allies.
Even before the war in Ukraine jeopardized the
world order, we were facing exceptional and
enormous global challenges – nuclear prolifera-
tion (this is still the biggest risk to mankind, bar
none, and made all the more stark by the war
in Ukraine), threats to cybersecurity, terrorism,
climate change, pressures on free and fair trade,
and vast inequities in society. Critical to solving
these problems is strong American leadership.
American global leadership is the best course for
the world and for America - and our leadership
needs to articulate to its citizens why this is the
case. The war in Ukraine reminds us that in a
troubled world, national security always
becomes the paramount concern. We should
never again forget that this is true even in peace-
ful times - and we should never again be lulled
into a false sense of security. Power abhors a
vacuum, and it should be increasingly clear to all
that without strong American leadership, chaos
likely will prevail.
-
The Extraordinary Need for
Strong American Leadership
7.3
To counter unfair competition on China's part
(i.e., subsidies and state-sponsored monopolies),
we will need to develop thoughtful policies and
strategies that work. We also need to develop
"industrial policies" that help industries impor-
tant to national security (for example, semicon-
ductors, 5G, rare earths and others) succeed. I
believe this could be done intelligently and not as
"handouts" or subsidies that create excessive
profits. This will also require increased govern-
ment R&D focused on activities that business
simply cannot do alone - advanced science,
military technologies, among others.
the partner of choice for many countries and the
destination of choice for many individuals. Our
American system gave us one of the world's most
prosperous and innovative economies. I do not
like it when anyone disparages this wonderful
country because of our flaws. Though our sins
may be real, they are the sins of all countries.
We can celebrate this country for having given so
much to so many while acknowledging prior mis-
takes and fixing them. It is shocking to me how
many people denigrate not just America but free
enterprise and the essential role of business. If
America could open its borders to all, I have little
doubt that billions of people, if they could, would
want to come here, and few would leave.
There are some things only the federal govern-
ment can do among them, protect national
security, operate federal courts, act as a central
bank, perform certain research and development
(R&D), and execute some national infrastructure.
America has faced tough times before - the Civil
War, World War I, the U.S. stock market crash of
1929 and the Great Depression that followed,
World War II and 9/11, among others. As recently
as the late 1960s and 1970s, we struggled with
the loss of the Vietnam War, political and racial
injustice, recessions and inflation. (Do you
remember America's obsession and fear about
the emergence of Japan as an economic power in
the 1980s?) In each case, however, America's
resiliency persevered and ultimately strength-
ened our position in the world. We hope this time
is no different, but we should not be complacent
as we do not have a divine right to success.
Democrats should acknowledge Republicans'
legitimate concerns that money sent to Washing-
ton often ends up in large wasteful programs,
ultimately offering little value to local communi-
ties. Democrats could acknowledge that while we
need good government, it is not the answer to
everything. Democrats could also acknowledge
that a healthy fear of a large central government
is not irrational (like a leviathan).
-
While government cannot create jobs outside of
government itself, it can optimize the conditions
under which jobs can be created. If it simply
exhibits consistency and competence in the per-
formance of its tasks, government will maximize
investments and jobs. Conversely, government
can destroy jobs and capital investment through
bureaucracy, red tape and constant policy
changes. Government cannot and will not be able
to hold back technology, but it can foster an envi-
ronment that promotes quick retraining of those
who are replaced by technological advancements.
Our problems are neither Democratic nor
Republican - nor are the solutions. Unfortunately,
however, partisan politics are preventing
collaborative policy from being designed and
implemented, particularly at the federal level.
We would do better if we listened to one another.
America and China have large differences: ideo-
logical, democracy versus single-party rule, and
market capitalism versus state-controlled capital-
ism. We also have common interests: halting
nuclear proliferation, reducing terrorism, stop-
ping climate change and promoting peaceful rela-
tionships. All countries, including China, want to
lift up their people. Done right, we can establish
and maintain a relationship with China that will
allow both countries and the world to thrive.
with India, the Soviet Union and Vietnam since
World War II. These neighbors do not all look at
the rise of China as being completely beneficial.
By comparison, America is at peace with its North
American neighbors and is protected by the
Atlantic and Pacific oceans.
Asia is a very tangled continent, geopolitically
speaking. Many of China's neighbors (Afghani-
stan, India, Indonesia, Japan, Korea, Pakistan, the
Philippines, Russia and Vietnam) are large, com-
plicated and not always friendly to China - in
fact, China has had border skirmishes and wars
America is not operating from a position of weak-
ness; indeed, our strengths are extraordinary.
Conversely, over the next 40 years, China will have
to grapple with some serious issues: For all of its
strengths, China still needs more food, water and
energy to support its population; pollution is ram-
pant; corruption continues to be a problem; state-
owned enterprises are often inefficient; corporate
and government debt levels are growing rapidly;
financial markets lack depth, transparency and
adequate rule of law; income inequality remains
highly prevalent; and its working age population
has been declining since 2015. China will continue
to face pressure from the United States and other
Western governments over human rights, democ-
racy and freedom in Hong Kong, and activity in the
South China Sea and Taiwan.
The most important relationship over the next
100 years will be the one between America (and
its allies) and China. The stronger the allied
nations, the better it is for America. But for
America to get this essential relationship right,
we need to have a clear-eyed view of our strategic
economic and national security interests.
A STRONG AMERICA NEED NOT FEAR A
RISING CHINA.
Strong, bold and comprehensive short-term and
long-term policies, persistently and properly exe-
cuted, will maximize the strength and the durable
unity of the democratic world. Not only will this
be very good for the Western world in general,
but it will help frame our approach with China.
THE EXTRAORDINARY NEED FOR STRONG AMERICAN LEADERSHIP
222
As we are seeing - and know from past
experience - oil and gas supply can be easily
disrupted, either physically or by additional
sanctions, significantly impacting energy
prices. National security demands energy
security for ourselves and for our allies over-
seas. Fortunately, we do not need to change
our long-term objectives on climate change
and greenhouse gases, and we should remind
ourselves that using gas to diminish coal con-
sumption is an actionable way to reduce CO2
emissions expeditiously. While the United
States is fairly energy independent, we need to
increase our energy production and get more
gas (in the form of liquefied natural gas) to
Europe immediately. Our work with all of our
allies should include urging them to both
• We need a "Marshall Plan" to ensure energy
security for us and our European allies. Our
European allies, who are highly dependent on
Russian energy, require our help. For such a
plan to succeed, we need to secure proper
energy supplies immediately for the next
few years, which can be done while reducing
CO2 emissions.
Turn up sanctions - there are many more that
could be imposed - in whatever way national
security experts recommend to maximize the
right outcomes.
Direct billions of dollars in aid to Ukraine,
announced now, to support the country
currently and to help rebuild in the future.
We should also help the Europeans with the
enormous migration issues they are facing.
The United States could take the lead in
humanitarian efforts and ask all nations,
including China, to join us in this response.
increase their production and deliver some of
it to Europe. To do this, we also need immedi-
ate approval for additional oil leases and
gas pipelines, as well as permits for green
energy projects; i.e., solar and wind. We
cannot accomplish our goals with misguided
and counterproductive policies.
To both sides, these steps make our resolve
clear and reflect our recognition of the grave
new geopolitical realities.
Republicans need to acknowledge that America
can and should afford to provide a proper safety
net for our elderly, our sick and our poor, as well
as help create an environment that generates
more opportunities and more income for more
Americans. Republicans could acknowledge that if
the government can demonstrate that it is spend-
ing money wisely, we should spend more - think
infrastructure and education funding. And that
may very well mean higher taxes for the wealthy.
Should that happen, the wealthy should keep in
mind that if tax monies improve our society and
our economy, then those same individuals will be,
in effect, among the main beneficiaries.
Democrats and Republicans often seem to be
ships passing in the night - with both parties
talking at cross purposes even when they may
share the same goals. Compromise is not incom-
patible with democracy - in fact, compromise is
THE EXTRAORDINARY NEED FOR STRONG AMERICAN LEADERSHIP
21
21
We must remember that the concepts of free
enterprise, rugged individualism and entrepre-
neurship are not incompatible with meaningful
safety nets and the desire to lift up our disadvan-
taged citizens. We can acknowledge the excep-
tional history of America and also acknowledge
our flaws, which need redress.
WE MUST CONFRONT THE RUSSIA
CHALLENGE WITH BOLD SOLUTIONS.
a core principle of democracy. Enacting major
policies on a purely partisan basis (think health-
care and tax reform) virtually guarantees
decades of fighting. It's not unreasonable to
assert that major policies should be bipartisan
or not at all.
Our nation's solutions need to be bold, brave
and dynamic and they have to be bipartisan
because we know only bipartisan solutions stand
on firm ground. Bipartisanship could start with
the appointment of Republicans to the cabinet.
We need to think broadly because whatever we do
will not only help determine the fate of the war in
Ukraine but likely will determine the ability of the
Western democratic world to address critical
future challenges. We also need to ensure that
the Western coalition remains economically com-
petitive on the world stage. The better America
performs as a country in dealing with Russia now,
the easier it will be for us to engage with the rest
of the world, including China, going forward.
In addition to being big, clear-eyed and realistic,
our solutions should acknowledge that we are
essentially, and unfortunately, reverting to some
Cold War strategies. Here are some actions we
should take immediately:
Demonstrate leadership and commitment to
a long-term military strategy by meaningfully
increasing our military budget and troop
deployment on NATO's borders, as appropriate.
America must be ready for the possibility of an
extended war in Ukraine with unpredictable out-
comes. We should prepare for the worst and hope
for the best. We must look at this as a wake-up
call. We need to pursue short-term and long-term
strategies with the goal of not only solving the
current crisis but also maintaining the long-term
unity of the newly strengthened democratic alli-
ances. We need to make this a permanent, long-
lasting stand for democratic ideals and against
all forms of evil.
The following table sets forth the Firm's repurchases of
common stock for the years ended December 31, 2021,
2020 and 2019.
2019
Year ended December 31, (in millions)
Total number of shares of common stock
repurchased
Aggregate purchase price of common
stock repurchases
2021
2020(a)
119.7
$24,121
213.0
$18,448
$ 6,397
(in millions)
Year ended December 31,
Common shares issued (reissuances from treasury) by
JPMorgan Chase during the years ended December 31,
2021, 2020 and 2019 were as follows.
50.0
At December 31, 2021 and 2020, JPMorgan Chase was
authorized to issue 9.0 billion shares of common stock with
a par value of $1 per share.
(f) The dividend rate for Series V preferred stock became floating and payable quarterly starting on July 1, 2019; prior to which the dividend rate was fixed at
5% or $250.00 per share payable semi annually.
JPMorgan Chase & Co./2021 Form 10-K
2021
(d) Dividends are declared quarterly. Dividends are payable quarterly on fixed-rate preferred stock. Dividends are payable semiannually on fixed-to-floating-
rate preferred stock while at a fixed rate, and payable quarterly after converting to a floating rate.
(e) The initial dividend declared is prorated based on the number of days outstanding for the period. Dividends were declared quarterly thereafter at the
contractual rate.
(g) The dividend rate for Series Z preferred stock became floating and payable quarterly starting on May 1, 2020; prior to which the dividend rate was fixed at
5.3% or $265.00 per share payable semi annually.
Each series of preferred stock has a liquidation value and redemption price per share of $10,000, plus accrued but unpaid
dividends. The aggregate liquidation value was $35.2 billion at December 31, 2021.
JPMorgan Chase & Co./2021 Form 10-K
271
Notes to consolidated financial statements
Redemptions
On February 1, 2022, the Firm redeemed all $2.0 billion of its fixed-to-floating rate non-cumulative preferred stock, Series Z.
On June 1, 2021, the Firm redeemed all $1.43 billion of its 6.10% non-cumulative preferred stock, Series AA and all
$1.15 billion of its 6.15% non-cumulative preferred stock, Series BB.
On March 1, 2020, the Firm redeemed all $1.43 billion of its 6.125% non-cumulative preferred stock, Series Y.
Redemption rights
Each series of the Firm's preferred stock may be redeemed on any dividend payment date on or after the earliest redemption
date for that series. All outstanding preferred stock series except Series I may also be redeemed following a “capital treatment
event," as described in the terms of each series. Any redemption of the Firm's preferred stock is subject to non-objection from
the Board of Governors of the Federal Reserve System (the "Federal Reserve").
272
Note 22 - Common stock
2020
Note 23 - Earnings per share
Total issued - balance at
Total treasury - balance at
December 31
(1,160.8) (1,055.5) (1,020.9)
2,944.1 3,049.4 3,084.0
On December 18, 2020, the Federal Reserve announced
that all large banks, including the Firm, could resume share
repurchases commencing in the first quarter of 2021.
Subsequently, the Firm announced that its Board of
Directors authorized a new common share repurchase
program for up to $30 billion. As directed by the Federal
Reserve, total net repurchases and common stock dividends
in the first and second quarters of 2021 were restricted and
could not exceed the average of the Firm's net income for
the four preceding calendar quarters.
On June 24, 2021, the Federal Reserve announced that the
temporary restrictions on capital distributions would expire
on June 30, 2021 as a result of the Firm remaining above
its minimum risk-based capital requirements under the
2021 CCAR stress test. Effective July 1, 2021, the Firm
became subject to the normal capital distribution
restrictions provided under the regulatory capital
framework. The Firm continues to be authorized to
repurchase common shares under its existing common
share repurchase program previously approved by the
Board of Directors.
(a) On March 15, 2020, in response to the economic disruptions caused
by the COVID-19 pandemic, the Firm temporarily suspended
repurchases of its common stock. Subsequently, the Federal Reserve
directed all large banks, including the Firm, to discontinue net share
repurchases through the end of 2020.
The authorization to repurchase common shares is utilized
at management's discretion, and the timing of purchases
and the exact amount of common shares that may be
repurchased is subject to various factors, including market
conditions; legal and regulatory considerations affecting the
amount and timing of repurchase activity; the Firm's capital
position (taking into account goodwill and intangibles);
internal capital generation; and alternative investment
opportunities. The repurchase program does not include
specific price targets or timetables; may be suspended by
management at any time; and may be executed through
open market purchases or privately negotiated
transactions, or utilizing Rule 10b5-1 plans, which are
written trading plans that the Firm may enter into from
time to time under Rule 10b5-1 of the Securities Exchange
Act of 1934 and which allow the Firm to repurchase its
common shares during periods when it may otherwise not
be repurchasing common shares -for example, during
internal trading blackout periods.
As of December 31, 2021, approximately 58.3 million
shares of common stock were reserved for issuance under
various employee incentive, compensation, option and
stock purchase plans, and directors' compensation plans.
273
JPMorgan Chase & Co./2021 Form 10-K
Notes to consolidated financial statements
Basic earnings per share ("EPS") is calculated using the
two-class method. Under the two-class method, all earnings
(distributed and undistributed) are allocated to common
stock and participating securities. JPMorgan Chase grants
RSUS under its share-based compensation programs,
predominantly all of which entitle recipients to receive
nonforfeitable dividends during the vesting period on a
basis equivalent to dividends paid to holders of the Firm's
common stock. These unvested RSUS meet the definition of
participating securities based on their respective rights to
receive nonforfeitable dividends, and they are treated as a
separate class of securities in computing basic EPS.
Participating securities are not included as incremental
shares in computing diluted EPS; refer to Note 9 for
additional information.
Diluted EPS incorporates the potential impact of
contingently issuable shares, including awards which
require future service as a condition of delivery of the
underlying common stock. Diluted EPS is calculated under
both the two-class and treasury stock methods, and the
more dilutive amount is reported. For each of the periods
presented in the table below, diluted EPS calculated under
the two-class method was more dilutive.
The following table presents the calculation of net income
applicable to common stockholders and basic and diluted
EPS for the years ended December 31, 2021, 2020 and
2019.
Year ended December 31,
(in millions,
except per share amounts)
Total reissuance
0.8
21.2
15.4
14.4
January 1
Treasury - balance at January 1
4,104.9 4,104.9
(1,055.5) (1,020.9)
Repurchase
(119.7)
(50.0)
4,104.9
(829.1)
(213.0)
2019
Reissuance:
compensation plans
13.5
14.2
20.4
Employee stock purchase
plans
0.9
1.2
Employee benefits and
Outstanding at December 31
3,087.4
2020
345
(7,289)
(83)
1,749
262
(5,540)
(802)
192
5,426 (1,303)
(610)
(258)
62
(196)
4,123
3,767
(912)
2,855
(2,447)
2,452
125
(591)
(2,322)
1,861
1,407
(103)
1,304
(49)
33
(16)
$ (974) $ 3,051
$ 4,025
$ (5,802) $ 6,228 $ (1,495) $ 4,733
$ (7,634) $ 1,832
(1,153)
$
(84)
(a) Includes after-tax net unamortized unrealized gains of $2.4 billion related to AFS securities that have been transferred to HTM. Refer to Note 10 for
further information.
275
JPMorgan Chase & Co./2021 Form 10-K
Notes to consolidated financial statements
The following table presents the pre-tax and after-tax changes in the components of OCI.
Year ended December 31, (in millions)
Unrealized gains/(losses) on investment securities:
Net unrealized gains/(losses) arising during the period
Reclassification adjustment for realized (gains)/losses
included in net income (a)
Net change
(1,411)
Translation adjustments (b):
Hedges
2021
Tax
2020
2019
Pre-tax
effect After-tax Pre-tax
Tax
effect
After-tax
Pre-tax
Tax
effect
After-tax
Translation
$
341
46
(870)
2,753
122
(28)
|4
94
Reclassification adjustment for realized (gains)/losses
included in net income (d)
(1,222)
293
(929)
(570)
137
(433)
103
(25)
78
Net change
(3,525)
Defined benefit pension and OPEB plans, net change:
1,129
846
(207)
(2,679)
(c) Floating annualized rate includes three-month LIBOR, three-month term SOFR or five-year Constant Maturity Treasury ("CMT") rate, as applicable, plus the
spreads noted above.
3,623
(1,750)
553
(2,303)
(10)
36
5
(466)
(461)
(4)
238
234
(3)
23
20
(1,070)
(26)
(19)
25
(6)
19
39
(9)
30
Net change
Fair value hedges, net change(c):
Cash flow hedges:
Net unrealized gains/(losses) arising during the period
7
(210)
$
$ (131) $ (296)
8.9
3,026.6
(a)
3,230.4
$ 15.36 $ 8.88 $ 10.72
274
JPMorgan Chase & Co./2021 Form 10-K
Note 24 - Accumulated other comprehensive income/(loss)
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation
adjustments (including the impact of related derivatives), fair value changes of excluded components on fair value hedges,
cash flow hedging activities, net loss and prior service costs/(credit) related to the Firm's defined benefit pension and OPEB
plans, and fair value option-elected liabilities arising from changes in the Firm's own credit risk (DVA).
Unrealized
gains/(losses)
Accumulated
Year ended December 31,
(in millions)
on investment
securities
Translation
adjustments,
net of hedges
Fair value Cash flow
hedges hedges
Defined benefit
pension and OPEB
plans
DVA on fair value
option elected
liabilities
other
comprehensive
income/(loss)
Balance at December 31,
2018
$ 1,202
$
(727)
5.0
5.1
3,021.5 3,082.4 3,221.5
$ 46,503 $ 27,410 $ 34,642
2019
Basic earnings per share
Net income
Less: Preferred stock dividends
Net income applicable to common
equity
Less: Dividends and undistributed
earnings allocated to participating
securities
Net income applicable to common
stockholders
Total weighted-average basic shares
outstanding
Net income per share
Diluted earnings per share
Net income applicable to common
stockholders
$
Total weighted-average basic shares
outstanding
Total weighted-average diluted
shares outstanding
Net income per share
$ 48,334 $ 29,131 $ 36,431
1,600 1,583
1,587
46,734 27,548
34,844
231
138
202
$ 46,503 $ 27,410 $ 34,642
3,021.5 3,082.4 3,221.5
$ 15.39 $ 8.89 $10.75
Add: Dilutive impact of SARS and
employee stock options, unvested
PSUs and nondividend-earning
RSUS, and warrants
(161) $ (109)
$ (2,308)
$
6,417
Balance at December 31,
2020
$ 8,180
$
(473)
$
Net change
(5,540)
(461)
(112) $ 2,383
(19) (2,679)
$
(491)
(1,132)
(860)
$
7,986
922
(293)
(8,070)
Balance at December 31,
2021
$ 2,640
(a)
$
(934)
$
2021
212
(369) $
Net change
2,855
20
30
172
964
596
(965)
$
(1,507)
3,076
Balance at December 31,
2019
1,569
$ 4,057
(707)
$
(131) $
Net change
4,123
234
19
63
2,320
$
(1,344)
$
$
(b) Fixed-to-floating rate notes convert to a floating rate at the earliest redemption date.
Shares (a)
3,483,750 3,006,250 $ 34,838 $30,063
ΝΑ
$-
$-
$545.00
Series T
1/30/2014
- % 3/1/2018
3/1/2019
167.50
Series W
6/23/2014
9/1/2019
NA
472.50
ΝΑ
2/5/2013
$
Series P
December 31,
2021
2020
2021
December 31,
2020
Issue date
2021
Contractual rate
in effect at
Earliest
December 31, redemption
date(b)
Floating
annualized
Year ended December 31,
rate(c)
2021
2020
2019
Fixed-rate:
Series Y
Dividend declared per share(d)
2/12/2015
ΝΑ
NA
305.00
610.00
610.00
9/1/2020
ΝΑ
9/1/2020
307.50
615.00
5.750
12/1/2023
ΝΑ
575.00
575.00
615.00
6/4/2015
1,425
1,150 7/29/2015
1,696 9/21/2018
1,850 1/24/2019
900 11/7/2019
900
153.13
612.52
Series AA
142,500
Series BB
115,000
Series DD 169,625
169,625
Series EE
185,000
185,000
1,696
1,850
Series GG
90,000
90,000
3/1/2020
575.00
Carrying value
(in millions)
The following is a summary of JPMorgan Chase's non-cumulative preferred stock outstanding as of December 31, 2021 and
2020.
(f)(g)
$
281,685
Fixed rate
$
748
2,035
$
$
$
Variable rate
Interest rates"
650
(a)
1.39 %
999
$
1,975
$ 301,005
$ 154,025
3.20 %
3.20 %
3.26 %
Subtotal $
-
$
$
1,975
$
Total long-term debt
(b)(c)(d)
Long-term beneficial
interests:
$
22,776
$ 124,204
1.53%
3,053
179
3.24 %
$
(d) Included $15.8 billion and $16.1 billion of outstanding zero-coupon notes at December 31, 2021 and 2020, respectively. The aggregate principal amount
of these notes at their respective maturities is $46.4 billion and $45.3 billion, respectively. The aggregate principal amount reflects the contractual
principal payment at maturity, which may exceed the contractual principal payment at the Firm's next call date, if applicable.
(e) Included on the Consolidated balance sheets in beneficial interests issued by consolidated VIES. Also included $12 million and $41 million accounted for at
fair value at December 31, 2021 and 2020, respectively. Excluded short-term commercial paper and other short-term beneficial interests of $8.2 billion
and $12.4 billion at December 31, 2021 and 2020, respectively.
(f) At December 31, 2021, long-term debt in the aggregate of $185.0 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior to
maturity, based on the terms specified in the respective instruments.
(g) The aggregate carrying values of debt that matures in each of the five years subsequent to 2021 is $22.8 billion in 2022, $32.6 billion in 2023, $36.4
billion in 2024, $26.1 billion in 2025 and $29.1 billion in 2026.
(h) Prior-period amounts have been revised to conform with the current presentation.
JPMorgan Chase & Co./2021 Form 10-K
(c) Included $74.9 billion and $76.8 billion of long-term debt accounted for at fair value at December 31, 2021 and 2020, respectively.
269
The weighted-average contractual interest rates for total
long-term debt excluding structured notes accounted for at
fair value were 2.67% and 2.89% as of December 31,
2021 and 2020, respectively. In order to modify exposure
to interest rate and currency exchange rate movements,
JPMorgan Chase utilizes derivative instruments, primarily
interest rate and cross-currency interest rate swaps, in
conjunction with some of its debt issuances. The use of
these instruments modifies the Firm's interest expense on
the associated debt. The modified weighted-average
interest rates for total long-term debt, including the effects
of related derivative instruments, were 1.43% and 1.59%
as of December 31, 2021 and 2020, respectively.
JPMorgan Chase & Co. has guaranteed certain long-term
debt of its subsidiaries, including structured notes. These
guarantees rank on parity with the Firm's other unsecured
and unsubordinated indebtedness. The amount of such
guaranteed long-term debt and structured notes was $16.4
billion and $13.8 billion at December 31, 2021 and 2020,
respectively.
The Firm's unsecured debt does not contain requirements
that would call for an acceleration of payments, maturities
or changes in the structure of the existing debt, provide any
limitations on future borrowings or require additional
collateral, based on unfavorable changes in the Firm's
credit ratings, financial ratios, earnings or stock price.
270
JPMorgan Chase & Co./2021 Form 10-K
Note 21 - Preferred stock
At December 31, 2021 and 2020, JPMorgan Chase was authorized to issue 200 million shares of preferred stock, in one or
more series, with a par value of $1 per share. In the event of a liquidation or dissolution of the Firm, JPMorgan Chase's
preferred stock then outstanding takes precedence over the Firm's common stock with respect to the payment of dividends
and the distribution of assets.
Notes to consolidated financial statements
(b) Included long-term debt of $14.1 billion and $17.2 billion secured by assets totaling $170.6 billion and $166.4 billion at December 31, 2021 and 2020,
respectively. The amount of long-term debt secured by assets does not include amounts related to hybrid instruments.
(a) The interest rates shown are the weighted average of contractual rates in effect at December 31, 2021 and 2020, respectively, including non-U.S. dollar
fixed- and variable-rate issuances, which excludes the effects of the associated derivative instruments used in hedge accounting relationships, if
applicable. The interest rates shown exclude structured notes accounted for at fair value.
5,153
2,369
2,784
1.57 %
1.30 %
(e)
Total long-term beneficial
interests
$
1,398
$
999
$
179
$
2,576
$
1,747
829
(e)
6.000
3/1/2024
515.00
600.00
600.00
600.00
LIBOR + 3.78
675.00
$428.03 $593.23
515.00
675.00
LIBOR + 3.33
612.50
612.50
612.50
(f)
LIBOR + 3.32
675.00
$370.38
515.00
LIBOR + 3.47% 4/30/2018 LIBOR + 3.47%
5.150 5/1/2023 LIBOR + 3.25
8/1/2023 LIBOR + 3.30
2/1/2024
4/30/2024
7/1/2019
10/1/2024
LIBOR + 3.80% 5/1/2020
4.625 11/1/2022
5.000
8/1/2024
2/1/2025
4/1/2025
6/1/2026
225,000
225,000
2,250
2,250 7/31/2019
Series HH
300,000 300,000
3,000
Series II
150,000 150,000
1,500
Series KK
200,000
2,000
3,000 1/23/2020
1,500 2/24/2020
5/12/2021
4.600
4.000
3.650
353.65
6.100
436.85
LIBOR + 3.33
460.00
470.22
ΝΑ
(e)
400.00
341.11
SOFR + 3.125
SOFR + 2.745
CMT + 2.85
NA
201.76
ΝΑ
ΝΑ
Total
preferred
stock
(e)
(e)
251.39
500.00
610.00
610.00
610.00
LIBOR + 3.80
401.44
453.52
530.00
(g)
LIBOR + 2.58
462.50
462.50
462.50
(e)
SOFR + 3.38
500.00
534.09
LIBOR + 3.32%
6.000
6.750
6.125
1/22/2014
3/10/2014
6/9/2014
1,600 9/23/2014
2,000 4/21/2015
1,258 10/20/2017
1,850
2,000
5/20/2021
7/29/2021
4.550 6/1/2026
4.625 6/1/2026
4.200 9/1/2026
NA
321.03
NA
200,000
ΝΑ
ΝΑ
245.39
ΝΑ
ΝΑ
(e)
NA
(e)
Series MM
185,000
Series LL
ΝΑ
600.00
600.00
511.67
(e)
4.750 12/1/2024
ΝΑ
475.00
506.67
ΝΑ
Series JJ
(e)
150,000
1,500
3/17/2021
142.33
NA
ΝΑ
Fixed-to-floating-rate:
250,000
250,000
2,500
2,500
Series X
160,000 160,000
1,600
Series Z
200,000
200,000
2,000
Series CC
Series FF
125,750
125,750
1,258
Series V
(a) Represented by depositary shares.
1,000
100,000
Series I
Series Q
150,000 150,000
Series R
150,000 150,000
293,375 293,375 $ 2,934 $ 2,934 4/23/2008
1,500 4/23/2013
1,500 7/29/2013
1,500
1,500
Series S
200,000
200,000
2,000
2,000
Series U
100,000
1,000
(733)
$
225
2.22 %
3.00%
2.67 %
2.97 %
$
8,168
$
10,101
$
18,269
$
19,255
Variable rate
-
9
2.93 %
(a)
11,877
13,343
(h)
Fixed rate
$
9,900
$
71,001
$ 121,469
Interest ratesa
(a
)
$ 202,370
180,208
(h)
Subordinated debt:
Variable rate
Interest rates"
Fixed rate
845
9,106
3,392
$
After 5 years
- %
4.28 %
110
$
123
Variable rate
11,000
11,000
14,000
Interest rates
(a)
5.53 %
0.19 %
6.14 %
0.23 %
0.34 %
Senior debt:
$
57
- %
45
4.24 %
4.24 %
Subtotal $
10,745
$
88,275
$ 134,962
4.21 %
$ 233,982
211,349
Subsidiaries
Federal Home Loan Banks
advances:
Fixed rate
$
8
$
$
1-5 years
Under 1 year
2021
(in millions)
2021
2020
2019
Operating lease income $
4,914 $
5,539 $
5,455
Depreciation expense
3,380
4,257
4,157
The following table presents future receipts under
operating leases as of December 31, 2021:
Year ended December 31, (in millions)
Year ended December 31,
income and the related depreciation expense on the
Consolidated statements of income:
The following table presents the Firm's operating lease
6,388
2,320
Firm as lessor
The Firm provides auto and equipment lease financing to its
customers through lease arrangements with lease terms
that may contain renewal, termination and/or purchase
options. The Firm's lease financings are predominantly auto
operating leases. These assets subject to operating leases
are recognized in other assets on the Firm's Consolidated
balance sheets and are depreciated on a straight-line basis
over the lease term to reduce the asset to its estimated
residual value. Depreciation expense is included in
technology, communications and equipment expense in the
Consolidated statements of income. The Firm's lease
income is generally recognized on a straight-line basis over
the lease term and is included in other income in the
Consolidated statements of income.
On a periodic basis, the Firm assesses leased assets for
impairment, and if the carrying amount of the leased asset
exceeds the undiscounted cash flows from the lease
payments and the estimated residual value upon disposition
of the leased asset, an impairment loss is recognized.
The risk of loss on auto and equipment leased assets
relating to the residual value of the leased assets is
monitored through projections of the asset residual values
at lease origination and periodic review of residual values,
and is mitigated through arrangements with certain
manufacturers or lessees.
The following table presents the carrying value of assets
subject to leases reported on the Consolidated balance
sheets:
December 31,
(in millions)
2022
Carrying value of assets subject to
2020
operating leases, net of accumulated
depreciation
Accumulated depreciation
$
17,553 $ 21,155
5,737
2021
2023
2024
2025
93,583
$ 262,755 $ 231,285
(a) Includes credit card rewards liability of $9.8 billion and $7.7 billion at
December 31, 2021 and 2020, respectively.
(b) Prior-period amounts have been revised to conform with the current
presentation. Refer to Note 25 for further information.
268
JPMorgan Chase & Co./2021 Form 10-K
$ 169,172 $ 140,291
90,994
Note 20 - Long-term debt
By remaining maturity at
December 31,
(in millions, except rates)
Parent company
Senior debt:
Total
2020
Total
JPMorgan Chase issues long-term debt denominated in various currencies, predominantly U.S. dollars, with both fixed and
variable interest rates. Included in senior and subordinated debt below are various equity-linked or other indexed instruments,
which the Firm has elected to measure at fair value. Changes in fair value are recorded in principal transactions revenue in the
Consolidated statements of income, except for unrealized gains/(losses) due to DVA which are recorded in OCI. The following
table is a summary of long-term debt carrying values (including unamortized premiums and discounts, issuance costs,
valuation adjustments and fair value adjustments, where applicable) by remaining contractual maturity as of December 31,
2021.
Fixed rate
2020
Total accounts payable and other
liabilities
2026
$ 2,984
1,674
559
48
43
After 2026
Total future minimum lease receipts
2021
$ 5,308
267
Notes to consolidated financial statements
Note 19 - Accounts payable and other liabilities
Accounts payable and other liabilities consist of brokerage
payables, which include payables to customers and
payables related to security purchases that did not settle, as
well as other accrued expenses, such as credit card rewards
liability, operating lease liabilities, income tax payables, and
litigation reserves.
The following table details the components of accounts
payable and other liabilities.
December 31, (in millions)
Brokerage payables
Other payables and liabilities (a)(b)
JPMorgan Chase & Co./2021 Form 10-K
(h)
- %
16,227
$
17,088
$
35,929
$
12,031
65,048
Subtotal $
$
Junior subordinated debt:
8.25 %
8.25 %
- %
8.25 %
- %
Fixed rate
Variable rate
(a)
$
$
(c) Represents changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads, which are excluded from the assessment
of hedge effectiveness and recorded in other comprehensive income. The initial cost of cross-currency basis spreads is recognized in earnings as part of
the accrual of interest on the cross-currency swap.
(d) The pre-tax amounts are primarily recorded in noninterest revenue, net interest income and compensation expense in the Consolidated statements of
income.
276
JPMorgan Chase & Co./2021 Form 10-K
Interest rates"
1,297
68,301
1,297
738
$
678
$
678
$
1,297
(a) The pre-tax amount is reported in Investment securities gains/(losses) in the Consolidated statements of income.
(b) Reclassifications of pre-tax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in the
Consolidated statements of income. During the year ended December 31, 2021, the Firm reclassified a net pre-tax loss of $7 million to other expense
related to the liquidation of certain legal entities, driven by cumulative translation adjustments. During the year ended December 31, 2020, the Firm
reclassified a net pre-tax gain of $6 million to other income related to the liquidation of legal entities, $3 million related to net investment hedge gains
and $3 million related to cumulative translation adjustments. During the year ended December 31, 2019, the Firm reclassified net pre-tax gains of
$7 million to other income and $1 million to other expense, respectively. These amounts, which related to the liquidation of certain legal entities, are
comprised of $18 million related to net investment hedge gains and $10 million related to cumulative translation adjustments.
Interest rates
Variable rate
4,701
$
10,028
$
15,504
$
$
4.55 %
(h)
11,248
19,896
7,003
38,147
37,642
Variable rate
-
775
4.92%
309
$
287
$
$
287
$
$
Fixed rate
Subordinated debt:
2.28 %
2.09 %
(53)
1.64 %
$
$ 3,921 $ (845) $ 3,076
$ (8,070) $ 8,066 $ (1,649) $ 6,417
$(10,099) $ 2,029
Interest rates"
172
DVA on fair value option elected liabilities, net change:
Total other comprehensive income/(loss)
(393)
100
922
(293)
214
(648)
(2)
(a)
1,157
(193)
964
157
(491)
(1,264)
299
212
(965)
(h)
9,639
142,003
2,980
2,199
283
69
23
182,701
10,490
52
182,701
5,028
Other guarantees and commitments
(g)
19
(a) Includes certain commitments to purchase loans from correspondents.
(b) Also includes commercial card lending-related commitments primarily in CB and CIB.
(c) Predominantly all consumer and wholesale lending-related commitments are in the U.S.
(d) At December 31, 2021 and 2020, reflected the contractual amount net of risk participations totaling $44 million and $72 million, respectively, for other
unfunded commitments to extend credit; $7.9 billion and $8.5 billion, respectively, for standby letters of credit and other financial guarantees; and $451
million and $357 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk
participations.
(e) At December 31, 2021 and 2020, collateral held by the Firm in support of securities lending indemnification agreements was $357.4 billion and $264.3
billion, respectively. Securities lending collateral primarily consists of cash, G7 government securities, and securities issued by U.S. GSES and government
agencies.
(f) At December 31, 2021 and 2020, includes guarantees to the Fixed Income Clearing Corporation under the sponsored member repo program and
commitments and guarantees associated with the Firm's membership in certain clearing houses.
(g) At December 31, 2021 and 2020, primarily includes unfunded commitments related to certain tax-oriented equity investments, unfunded commitments
to purchase secondary market loans, and other equity investment commitments.
(h) Prior-period amounts have been revised to conform with the current presentation.
(i) For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-
related products, and lending-related commitments for which the fair value option was elected, the carrying value represents the fair value.
284
JPMorgan Chase & Co./2021 Form 10-K
Exchange & clearing house guarantees and
commitments
889
ΝΑ
ΝΑ
61
322
Unsettled resale and securities borrowed
agreements
(h)
101,553
2,128 - - 103,681
102,355
1
2
Unsettled repurchase and securities loaned
agreements
73,631
632
84
74,263
(1)
Loan sale and securitization-related
indemnifications:
Mortgage repurchase liability
Loans sold with recourse
NA
ΝΑ
ΝΑ
금금
ΝΑ
ΝΑ
NA
827
ΝΑ
104,901
NA
12.0
475
Contractual amount
2021
Expires
after
Expires in
By remaining maturity at December 31,
(in millions)
1 year or
less
Expires
after
1 year
through
3 years
3 years
through
5 years
Expires
after 5
years
Total
Total
Lending-related
Consumer, excluding credit card:
Residential Real Estate (a)
$ 15,649 $
2,216 $
5,797 $ 9,334 $
Auto and other
Total consumer, excluding credit card
Credit card (b)
11,387
27,036
730,534
951
32,996 $ 46,047
12,338
100
148
11,272
2
Off-balance sheet lending-related financial instruments, guarantees and other commitments
2020
2021
2020
2,970,285
7.9 %
Total leverage exposure
$
4,571,789
$
4,119,286
$
3,401,542
$
3,688,797
SLR
5.4 %
2,216
6.5 %
6.3 %
(a) Adjusted average assets, for purposes of calculating the leverage ratio, includes total quarterly average assets adjusted for on-balance sheet assets that
are subject to deduction from Tier 1 capital, predominantly goodwill and other intangible assets.
(b) The capital metrics reflect the CECL capital transition provisions.
(c) JPMorgan Chase's total leverage exposure for purposes of calculating the SLR, excludes on-balance sheet amounts of U.S. Treasury securities and deposits
at Federal Reserve Banks, as provided by the interim final rule issued by the Federal Reserve which became effective April 1, 2020 and remained in effect
through March 31, 2021. On June 1, 2020, the Federal Reserve, OCC and FDIC issued an interim final rule which became effective April 1, 2020 and
remained in effect through March 31, 2021 that provides IDI subsidiaries with an option to apply this temporary exclusion subject to certain restrictions.
JPMorgan Chase Bank, N.A. did not elect to apply this exclusion.
282
JPMorgan Chase & Co./2021 Form 10-K
Note 28-Off-balance sheet lending-related
financial instruments, guarantees, and
other commitments
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to address
the financing needs of its customers and clients. The
contractual amount of these financial instruments
represents the maximum possible credit risk to the Firm
should the customer or client draw upon the commitment
or the Firm be required to fulfill its obligation under the
guarantee, and should the customer or client subsequently
fail to perform according to the terms of the contract. Most
of these commitments and guarantees have historically
been refinanced, extended, cancelled, or expired without
being drawn or a default occurring. As a result, the total
contractual amount of these instruments is not, in the
Firm's view, representative of its expected future credit
exposure or funding requirements.
To provide for expected credit losses in wholesale and
certain consumer lending-related commitments, an
allowance for credit losses on lending-related commitments
is maintained. Refer to Note 13 for further information
regarding the allowance for credit losses on lending-related
commitments. The following table summarizes the
contractual amounts and carrying values of off-balance
sheet lending-related financial instruments, guarantees and
other commitments at December 31, 2021 and 2020. The
amounts in the table below for credit card and home equity
lending-related commitments represent the total available
credit for these products. The Firm has not experienced,
and does not anticipate, that all available lines of credit for
these products will be utilized at the same time. The Firm
can reduce or cancel credit card lines of credit by providing
the borrower notice or, in some cases as permitted by law,
without notice. In addition, the Firm typically closes credit
card lines when the borrower is 60 days or more past due.
The Firm may reduce or close HELOCS when there are
significant decreases in the value of the underlying
property, or when there has been a demonstrable decline in
the creditworthiness of the borrower.
JPMorgan Chase & Co./2021 Form 10-K
283
Notes to consolidated financial statements
Carrying value (i)
6.9 %
Other unfunded commitments to extend credit
Other unfunded commitments to extend credit generally
consist of commitments for working capital and general
corporate purposes, extensions of credit to support
commercial paper facilities and bond financings in the event
that those obligations cannot be remarketed to new
investors, as well as committed liquidity facilities to clearing
organizations. The Firm also issues commitments under
multipurpose facilities which could be drawn upon in
several forms, including the issuance of a standby letter of
credit.
5,797
45,334
15,092
3,854
8,261
498
4,015
96
1,162
-
25,208
28,530
4,448
486,445
30,982
476
443
3,053
449,863
$1,165,688
9
14
2,522 2,605
$2,624 $2,753
$337,770 $
3,119
$
$
-
396
12,296
39,919
$ 337,770
55,730
$ 250,418
54,415
$
-
$
2,037 2,148
415,828
453,467
24,046
57,319
102
148
730,534
658,506
Total consumer (b)(c)
757,570
2,216
5,797
10,285
775,868
715,825
102
10,285
148
Other unfunded commitments to extend credit (d)
Standby letters of credit and other financial
guarantees (d)
Other letters of credit (d)
Total wholesale (c)
Total lending-related
Other guarantees and commitments
Securities lending indemnification agreements and
guarantees
(e)
Derivatives qualifying as guarantees
120,929 175,896 164,412
$ 878,499 $178,112 $170,209 $ 35,493 $1,262,313
101,983
167,137 160,301
Wholesale:
Guarantees
80
or other assets (for premiums receivable). Any premium
receivable recorded in other assets is reduced as cash is
received under the contract, and the fair value of the
liability recorded at inception is amortized into income as
lending and deposit-related fees over the life of the
guarantee contract. The lending-related contingent
obligation is recognized based on expected credit losses in
addition to, and separate from, any non-contingent
obligation.
Tax-exempt income
3.0
$ 44,866
$59,562 $35,815
Income before income tax
expense
21.0 %
(b)
(b)
(0.9)
2021 2020
2019
$50,126 $27,312 $ 36,991
9,436 8,503
7,875
2020
21.0 %
21.0 %
2021
U.S.
Year ended December 31,
(in millions)
The following table presents the U.S. and non-U.S.
components of income before income tax expense.
Results from non-U.S. earnings
Tax effect of items recorded in stockholders' equity
The preceding table does not reflect the tax effect of certain
items that are recorded each period directly in
stockholders' equity. The tax effect of all items recorded
directly to stockholders' equity resulted in an increase of
$2.0 billion in 2021 and decreases of $827 million and
$862 million in 2020 and 2019, respectively.
2019
2.5
(1.6)
Non-U.S. earnings
0.1
Fair value
Derivative payables
475
322
In addition to derivative contracts that meet the
characteristics of a guarantee, the Firm is both a purchaser
and seller of credit protection in the credit derivatives
market. Refer to Note 5 for a further discussion of credit
derivatives.
Unsettled securities financing agreements
In the normal course of business, the Firm enters into resale
and securities borrowed agreements. At settlement, these
commitments result in the Firm advancing cash to and
receiving securities collateral from the counterparty. The
Firm also enters into repurchase and securities loaned
agreements. At settlement, these commitments result in the
Firm receiving cash from and providing securities collateral
to the counterparty. Such agreements settle at a future
date. These agreements generally do not meet the
definition of a derivative, and therefore, are not recorded
on the Consolidated balance sheets until settlement date.
These agreements predominantly have regular-way
settlement terms. Refer to Note 11 for a further discussion
of securities financing agreements.
Loan sales-and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm's mortgage loan sale and
securitization activities with U.S. GSES the Firm has made
representations and warranties that the loans sold meet
certain requirements, and that may require the Firm to
repurchase mortgage loans and/or indemnify the loan
purchaser if such representations and warranties are
breached by the Firm.
Private label securitizations
The liability related to repurchase demands associated with
private label securitizations is separately evaluated by the
Firm in establishing its litigation reserves.
Refer to Note 30 for additional information regarding
litigation.
Loans sold with recourse
The Firm provides servicing for mortgages and certain
commercial lending products on both a recourse and
nonrecourse basis. In nonrecourse servicing, the principal
credit risk to the Firm is the cost of temporary servicing
advances of funds (i.e., normal servicing advances). In
recourse servicing, the servicer agrees to share credit risk
286
JPMorgan Chase & Co./2021 Form 10-K
(a)
3.5
(1.4)
1.8
1.4
Total income tax expense includes $69 million tax expense,
and $72 million and $1.1 billion of tax benefits recorded in
2021, 2020, and 2019, respectively, resulting from the
resolution of tax audits.
(a) Prior-period amount has been revised to conform with the current
presentation.
Total income tax expense
Total deferred income tax
expense/(benefit)
2019
2020
2021
U.S. federal
(in millions)
Year ended December 31,
Income tax expense/(benefit)
The following table reflects the components of income tax
expense/(benefit) included in the Consolidated statements
of income.
U.S. state and local income
taxes, net of U.S. federal
income tax benefit
Increase/(decrease) in tax rate
resulting from:
Statutory U.S. federal tax rate
Year ended December 31,
Effective tax rate
The following table presents a reconciliation of the
applicable statutory U.S. federal income tax rate to the
effective tax rate.
Effective tax rate and expense
In the first quarter of 2021, the Firm reclassified certain
deferred investment tax credits from accounts payable and
other liabilities to other assets to be a reduction to the
carrying value of the associated tax-oriented investments.
The reclassification also resulted in an increase in income
tax expense and a corresponding increase in other income,
with no effect on net income. Prior-period amounts have
been revised to conform with the current presentation,
including the Firm's effective income tax rate.
Due to the inherent complexities arising from the nature of
the Firm's businesses, and from conducting business and
being taxed in a substantial number of jurisdictions,
significant judgments and estimates are required to be
made. Agreement of tax liabilities between JPMorgan Chase
and the many tax jurisdictions in which the Firm files tax
returns may not be finalized for several years. Thus, the
Firm's final tax-related assets and liabilities may ultimately
be different from those currently reported.
JPMorgan Chase and its eligible subsidiaries file a
consolidated U.S. federal income tax return. JPMorgan
Chase uses the asset and liability method to provide income
taxes on all transactions recorded in the Consolidated
Financial Statements. This method requires that income
taxes reflect the expected future tax consequences of
temporary differences between the carrying amounts of
assets or liabilities for book and tax purposes. Accordingly,
a deferred tax asset or liability for each temporary
difference is determined based on the tax rates that the
Firm expects to be in effect when the underlying items of
income and expense are realized. JPMorgan Chase's
expense for income taxes includes the current and deferred
portions of that expense. A valuation allowance is
established to reduce deferred tax assets to the amount the
Firm expects to realize.
Note 25 - Income taxes
Current income tax expense/
(benefit)
2,803
$ 2,865 $5,759
2,718 2,705
1,897 1,793
2,103
U.S. state and local
1,270
$ 8,435
3,748 (3,573)
$11,228 $6,684
220
20
1,030
(a)
(a)
3,460 (2,776)
(101) (126)
389 (671)
Deferred income tax expense/
Non-U.S.
U.S. federal
(benefit)
Total current income tax expense/
(benefit)
U.S. state and local
Non-U.S.
7,165
7,480 10,257
1,778
$ 3,284
U.S. GAAP requires that a guarantor recognize, at the
inception of a guarantee, a liability in an amount equal to
the fair value of the obligation undertaken in issuing the
guarantee. U.S. GAAP defines a guarantee as a contract that
contingently requires the guarantor to pay a guaranteed
party based upon: (a) changes in an underlying asset,
liability or equity security of the guaranteed party; or (b) a
third party's failure to perform under a specified
agreement. The Firm considers the following off-balance
sheet arrangements to be guarantees under U.S. GAAP:
standby letters of credit and other financial guarantees,
securities lending indemnifications, certain indemnification
agreements included within third-party contractual
arrangements, certain derivative contracts and the
guarantees under the sponsored member repo program.
As required by U.S. GAAP, the Firm initially records
guarantees at the inception date fair value of the non-
contingent obligation assumed (e.g., the amount of
consideration received or the net present value of the
premium receivable). For these obligations, the Firm
records this fair value amount in other liabilities with an
offsetting entry recorded in cash (for premiums received),
2,882
29,778
Noninvestment-grade
8,532
1,361
8,132
790
Total contractual amount
$
28,530
(a)
$
$
30,982
$
3,053
Allowance for lending-related commitments
$
123
$
4,448
2,263
$
22,850
Non-lending-related contingent obligations are recognized
when the liability becomes probable and reasonably
estimable. These obligations are not recognized if the
estimated amount is less than the carrying amount of any
non-contingent liability recognized at inception (adjusted
for any amortization). Examples of non-lending-related
contingent obligations include indemnifications provided in
sales agreements, where a portion of the sale proceeds is
allocated to the guarantee, which adjusts the gain or loss
that would otherwise result from the transaction. For these
indemnifications, the initial liability is amortized to income
as the Firm's risk is reduced (i.e., over time or when the
indemnification expires).
The contractual amount and carrying value of guarantees
and indemnifications are included in the table on page 284.
For additional information on the guarantees, see below.
Standby letters of credit and other financial guarantees
Standby letters of credit and other financial guarantees are
conditional lending commitments issued by the Firm to
guarantee the performance of a client or customer to a
third party under certain arrangements, such as commercial
paper facilities, bond financings, acquisition financings,
trade financings and similar transactions.
The following table summarizes the contractual amount and carrying value of standby letters of credit and other financial
guarantees and other letters of credit arrangements as of December 31, 2021 and 2020.
Standby letters of credit, other financial guarantees and other letters of credit
2021
2020
December 31,
(in millions)
Standby letters of credit and
other financial guarantees
Other letters
of credit
Standby letters of credit and
other financial guarantees
Other letters
of credit
Investment-grade (a)
$
19,998
$
3,087
$
9
$
$
7.0 %
$
JPMorgan Chase & Co./2021 Form 10-K
285
Notes to consolidated financial statements
Securities lending indemnifications
Through the Firm's securities lending program,
counterparties' securities, via custodial and non-custodial
arrangements, may be lent to third parties. As part of this
program, the Firm provides an indemnification in the
lending agreements which protects the lender against the
failure of the borrower to return the lent securities. To
minimize its liability under these indemnification
agreements, the Firm obtains cash or other highly liquid
collateral with a market value exceeding 100% of the value
of the securities on loan from the borrower. Collateral is
marked to market daily to help assure that collateralization
is adequate. Additional collateral is called from the
borrower if a shortfall exists, or collateral may be released
to the borrower in the event of overcollateralization. If a
borrower defaults, the Firm would use the collateral held to
purchase replacement securities in the market or to credit
the lending client or counterparty with the cash equivalent
thereof.
The cash collateral held by the Firm may be invested on
behalf of the client in indemnified resale agreements,
whereby the Firm indemnifies the client against the loss of
principal invested. To minimize its liability under these
agreements, the Firm obtains collateral with a market value
exceeding 100% of the principal invested.
Derivatives qualifying as guarantees
The Firm transacts in certain derivative contracts that have
the characteristics of a guarantee under U.S. GAAP. These
contracts include written put options that require the Firm
to purchase assets upon exercise by the option holder at a
specified price by a specified date in the future. The Firm
may enter into written put option contracts in order to meet
client needs, or for other trading purposes. The terms of
written put options are typically five years or less.
Derivatives deemed to be guarantees also includes stable
value contracts, commonly referred to as “stable value
products", that require the Firm to make a payment of the
difference between the market value and the book value of
a counterparty's reference portfolio of assets in the event
that market value is less than book value and certain other
conditions have been met. Stable value products are
transacted in order to allow investors to realize investment
returns with less volatility than an unprotected portfolio.
These contracts are typically longer-term or may have no
stated maturity, but allow the Firm to elect to terminate the
contract under certain conditions.
The notional value of derivative guarantees generally
represents the Firm's maximum exposure. However,
exposure to certain stable value products is contractually
limited to a substantially lower percentage of the notional
amount.
The fair value of derivative guarantees reflects the
probability, in the Firm's view, of whether the Firm will be
required to perform under the contract. The Firm reduces
exposures to these contracts by entering into offsetting
transactions, or by entering into contracts that hedge the
market risk related to the derivative guarantees.
The following table summarizes the derivatives qualifying
as guarantees as of December 31, 2021 and 2020.
(in millions)
Notional amounts
Derivative guarantees
December 31, December 31,
2021
2020
$
55,730 $
54,415
Stable value contracts with
contractually limited exposure
Maximum exposure of stable
value contracts with
contractually limited exposure
(a) The ratings scale is based on the Firm's internal risk ratings. Refer to Note 12 for further information on internal risk ratings.
27,752
498
17,238
14
Guarantee liability
353
363
Total carrying value
$
476
$
9
$
443
$
14
Commitments with collateral
$
14,511
$
999
$
$
8.0 %
Risk-weighted assets
$
Total capital
Risk-weighted assets
CET1 capital ratio
Tier 1 capital ratio
Total capital ratio
December 31, 2020
(in millions, except ratios)
Risk-based capital metrics:
Tier 1 capital
Basel III Standardized
Cash reserves at non-U.S. central
banks and held for other general
purposes
2020
2021
December 31, (in billions)
Segregated for the benefit of
securities and cleared derivative
customers
The following table presents the components of the Firm's
restricted cash:
The Firm is also subject to rules and regulations established
by other U.S. and non U.S. regulators. As part of its
compliance with the respective regulatory requirements,
the Firm's broker-dealer activities are subject to certain
restrictions on cash and other assets.
The Firm is required to maintain cash reserves at certain
non-US central banks.
The business of JPMorgan Chase Bank, N.A. is subject to
examination and regulation by the OCC. The Bank is a
member of the U.S. Federal Reserve System, and its
deposits in the U.S. are insured by the FDIC, subject to
applicable limits.
Basel III Advanced
CET1 capital
Risk-based capital metrics:
(in millions, except ratios)
ΝΑ
5.0 %
5.0
6.0
ΝΑ
6.0
Under the risk-based capital and leverage-based guidelines
of the Federal Reserve, JPMorgan Chase is required to
maintain minimum ratios for CET1 capital, Tier 1 capital,
Total capital, Tier 1 leverage and the SLR. Failure to meet
these minimum requirements could cause the Federal
Reserve to take action. IDI subsidiaries are also subject to
these capital requirements established by their respective
primary regulators.
Note: The table above is as defined by the regulations issued by the
Federal Reserve, OCC and FDIC and to which the Firm and its IDI
subsidiaries are subject.
(a) Represents minimum SLR requirement of 3.0%, as well as
supplementary leverage buffer requirements of 2.0% and 3.0% for
BHC and IDI subsidiaries, respectively.
(b) The Federal Reserve's regulations do not establish well-capitalized
thresholds for these measures for BHCs.
JPMorgan Chase & Co./2021 Form 10-K
281
Notes to consolidated financial statements
Current Expected Credit Losses
The Firm elected to apply the CECL capital transition
provisions as permitted by the federal banking agencies
delaying the effects of CECL on regulatory capital for two
years until January 1, 2022, followed by a three-year
transition period ("CECL capital transition provisions").
As of December 31, 2021, the capital metrics of the Firm
reflected the benefit of the CECL capital transition
provisions of $2.9 billion, which will be phased in at 25%
per year beginning January 1, 2022.
The CECL capital transition provisions have also been
incorporated into Tier 2 capital, adjusted average assets,
and total leverage exposure and are also subject to the
three-year transition period beginning January 1, 2022.
The following tables present risk-based capital metrics under both the Basel III Standardized and Basel III Advanced
approaches and leverage-based capital metrics for JPMorgan Chase and JPMorgan Chase Bank, N.A. As of December 31, 2021
and 2020, JPMorgan Chase and JPMorgan Chase Bank, N.A. were well-capitalized and met all capital requirements to which
each was subject.
December 31, 2021
Certain of the Firm's cash and other assets are restricted as
to withdrawal or usage. These restrictions are imposed by
various regulatory authorities based on the particular
activities of the Firm's subsidiaries.
4.0 %
Note 26 - Restricted cash, other restricted
assets and intercompany funds transfers
Restricted cash and other restricted assets
279
related to the current period
Increases based on tax positions
$ 4,861
$ 4,024
$ 4,250
Balance at January 1,
2019
2020
798
2021
JPMorgan Chase - U.K.
JPMorgan Chase - New
York City
JPMorgan Chase -
California
certain select entities
Field examination of
2006 - 2019
Field Examination
2011 - 2012
Field Examination
Year ended December 31,
(in millions)
685
871
Increases based on tax positions
JPMorgan Chase & Co./2021 Form 10-K
At December 31, 2021 and 2020, in addition to the liability
for unrecognized tax benefits, the Firm had accrued $1.1
billion and $1.0 billion, respectively, for income tax-related
interest and penalties.
After-tax interest expense/(benefit) and penalties related
to income tax liabilities recognized in income tax expense
were $174 million, $147 million and $(52) million in 2021,
2020 and 2019, respectively.
$ 4,636 $ 4,250 $ 4,024
Balance at December 31,
(1,012)
(116)
(148)
with taxing authorities
Decreases related to cash settlements
(706)
(705)
(657)
related to prior periods
Decreases based on tax positions
10
362
393
related to prior periods
Notes to consolidated financial statements
4.0 %
IDI
BHC(b)
• Perpetual preferred stock
Total
capital
NOL and tax credit carryforwards
• Deferred tax assets that arise from
• MSRs
• Goodwill
Less certain deductions for:
CET1
capital
Add'l
-Tier 1
capital
• Defined benefit pension and OPEB
plans
including capital for AOCI related to:
Common stockholder's equity
The capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. bank holding companies and
banks, including the Firm and its IDI subsidiaries, including
JPMorgan Chase Bank, N.A. Two comprehensive approaches
are prescribed for calculating RWA: a standardized
approach ("Basel III Standardized"), and an advanced
approach ("Basel III Advanced"). For each of the risk-based
capital ratios, the capital adequacy of the Firm and
JPMorgan Chase Bank, N.A. is evaluated against the lower of
the Standardized or Advanced approaches compared to
their respective regulatory capital ratio requirements.
The three components of regulatory capital under the Basel
Ill rules are as illustrated below:
establishes similar minimum capital requirements and
standards for the Firm's principal IDI subsidiary, JPMorgan
Chase Bank, N.A.
The Federal Reserve establishes capital requirements,
including well-capitalized requirements, for the
consolidated financial holding company. The OCC
Note 27 - Regulatory capital
JPMorgan Chase & Co./2021 Form 10-K
280
• AFS debt securities
Tier 1
capital
The following table presents the risk-based regulatory
capital ratio requirements and well-capitalized ratios to
which the Firm and its IDI subsidiaries were subject as of
December 31, 2021 and 2020.
Standardized capital
8.5
12.7
capital
6.5 %
ΝΑ
7.0 %
10.5 %
7.0 %
11.2 %
CET1 capital
IDI(e)
BHC (d)
IDI (c)
BHC(a)
IDI (c)
Well-capitalized
ratios
ratio requirements
ratio requirements
BHC(a)(b)
Risk-based capital ratios
Advanced capital
At January 1, 2022, the Parent Company's banking
subsidiaries could pay, in the aggregate, approximately $20
billion in dividends to their respective bank holding
companies without the prior approval of their relevant
banking regulators. The capacity to pay dividends in 2022
will be supplemented by the banking subsidiaries' earnings
during the year.
The principal sources of income and funding for the Parent
Company are dividends from JPMorgan Chase Bank, N.A.
and dividends and extensions of credit from the IHC. In
addition to dividend restrictions set forth in statutes and
regulations, the Federal Reserve, the OCC and the FDIC have
authority under the Financial Institutions Supervisory Act to
prohibit or to limit the payment of dividends by the banking
organizations they supervise, including the Parent Company
and its subsidiaries that are banks or bank holding
companies, if, in the banking regulator's opinion, payment
of a dividend would constitute an unsafe or unsound
practice in light of the financial condition of the banking
organization. The IHC is prohibited from paying dividends or
extending credit to the Parent Company if certain capital or
liquidity "thresholds" are breached or if limits are otherwise
imposed by the Parent Company's management or Board of
Directors.
The Parent Company's two principal subsidiaries are
JPMorgan Chase Bank, N.A. and JPMorgan Chase Holdings
LLC, an intermediate holding company (the "IHC"). The IHC
generally holds the stock of JPMorgan Chase's subsidiaries
other than JPMorgan Chase Bank, N.A. and its subsidiaries.
The IHC also owns other assets and provides intercompany
loans to the Parent Company. The Parent Company is
obligated to contribute to the IHC substantially all the net
proceeds received from securities issuances (including
issuances of senior and subordinated debt securities and of
preferred and common stock).
Restrictions imposed by U.S. federal law prohibit JPMorgan
Chase Bank, N.A., and its subsidiaries, from lending to
JPMorgan Chase & Co. ("Parent Company") and certain of
its affiliates unless the loans are secured in specified
amounts. Such secured loans provided by any banking
subsidiary to the Parent Company or to any particular
affiliate, together with certain other transactions with such
affiliate (collectively referred to as "covered transactions"),
must be made on terms and conditions that are consistent
with safe and sound banking practices. In addition, unless
collateralized with cash or US Government debt obligations,
covered transactions are generally limited to 10% of the
banking subsidiary's total capital, as determined by the risk-
based capital guidelines; the aggregate amount of covered
transactions between any banking subsidiary and all of its
affiliates is limited to 20% of the banking subsidiary's total
capital.
10.0
Tier 1
Note: The table above is as defined by the regulations issued by the
Federal Reserve, OCC and FDIC and to which the Firm and its IDI
subsidiaries are subject.
(a) Represents the regulatory capital ratio requirements applicable to the
Firm. The CET1, Tier 1 and Total capital ratio requirements each
include a respective minimum requirement plus a GSIB surcharge of
3.5% as calculated under Method 2; plus a 3.2% SCB for Basel III
Standardized ratios and a fixed 2.5% capital conservation buffer for
Basel III Advanced ratios. The countercyclical buffer is currently set to
0% by the federal banking agencies.
(b) For the period ended December 31, 2020, the CET1, Tier 1, and Total
capital ratio requirements under Basel III Standardized applicable to
the Firm were 11.3%, 12.8% and 14.8%, respectively.
(c) Represents requirements for JPMorgan Chase's IDI subsidiaries. The
CET1, Tier 1 and Total capital ratio requirements include a fixed capital
conservation buffer requirement of 2.5% that is applicable to the IDI
subsidiaries. The IDI subsidiaries are not subject to the GSIB surcharge.
(d) Represents requirements for bank holding companies pursuant to
regulations issued by the Federal Reserve.
(e) Represents requirements for IDI subsidiaries pursuant to regulations
issued under the FDIC Improvement Act.
The following table presents the leverage-based regulatory
capital ratio requirements and well-capitalized ratios to
which the Firm and its IDI subsidiaries were subject as of
December 31, 2021 and 2020.
• Long-term debt qualifying as
Tier 2
• Qualifying allowance for
credit losses
Tier 2
capital
Leverage-based capital ratios
Tier 1 leverage
SLR
Capital ratio
requirements
(a)
Well-capitalized
ratios
BHC
IDI
10.0
2015-2017
10.5
10.5
Intercompany funds transfers
Securities with a fair value of $30.0 billion and $1.3
billion, respectively, were also restricted in relation to
customer activity.
for the benefit of customers of $47.5 billion and $37.2
billion, respectively.
Cash and securities pledged with clearing organizations
•
•
Also, as of December 31, 2021 and 2020, the Firm had the
following other restricted assets:
(a) Comprises $18.4 billion and $22.7 billion in deposits with banks, and
$1.3 billion and $1.7 billion in cash and due from banks on the
Consolidated balance sheets as of December 31, 2021 and 2020,
respectively.
24.4
5.1
19.3
5.1
19.7 $
14.6
$
Total restricted cash (a)
6.0 %
8.0
Total capital
14.7
14.0
3,353,319
Field Examination
2014-2018
16.9 %
16.9
13.8 %
19.2 %
15.9
19.2
16.8
17.8
17.2
15.0
19.5
Basel III Advanced
JPMorgan
Chase & Co. (a)
JPMorgan
Chase Bank, N.A. (a)
JPMorgan
Chase & Co.a
(a)
JPMorgan
Chase Bank, N.A. (a)
CET1 capital
Tier 1 capital
Basel III Standardized
13.1 %
1,392,847
1,547,920
JPMorgan
Chase Bank, N.A. (a)
JPMorgan
Chase & Co. (a)
JPMorgan
Chase Bank, N.A."
(a)
$
213,942
$
246,162
274,900
266,907
266,910
$
213,942 $
266,907
246,162
266,910
281,826
265,796
272,299
1,638,900
1,582,280
Total capital
(a)
8.5
Tier 1 capital ratio
December 31, 2021
JPMorgan
Chase & Co.
(b)
JPMorgan
Chase Bank, N.A.
(b)
JPMorgan
Chase & Co.
(b)(c)
17.8
December 31, 2020
JPMorgan
Chase Bank, N.A. (b)(c)
(in millions, except ratios)
Leverage-based capital metrics:
Adjusted average assets (a)
$
3,782,035
Tier 1 leverage ratio
$
6.5 %
3,334,925
Three months ended
(a) The capital metrics reflect the CECL capital transition provisions. Additionally, loans originated under the PPP receive a zero percent risk weight.
17.3
15.7 %
15.7
16.9
Total capital ratio
$
205,078
234,844
269,923
$
234,235
234,237
$
252,045
205,078
234,844
257,228
$
234,235
234,237
239,673
1,560,609
1,492,138
1,484,431
1,343,185
13.1 %
15.0
17.3
13.8 %
15.8
17.4 %
17.4
CET1 capital ratio
JPMorgan
Chase & Co."
(a)
Business tax credits
4,459
Other, net
5,124
4,227
Leasing transactions
2,184
2,049
hedges
6,025
Mortgage servicing rights, net of
3,289 $
$
Depreciation and amortization
Deferred tax liabilities
12,752
$
10,424
$
3,329
Gross deferred tax liabilities
14,024
16,662
JPMorgan Chase - U.S.
JPMorgan Chase - New
York State
Periods under
examination
2011 - 2013
Field Examination
Field examination of
amended returns
Status
JPMorgan Chase - U.S.
JPMorgan Chase is continually under examination by the
Internal Revenue Service, by taxing authorities throughout
the world, and by many state and local jurisdictions
throughout the U.S. The following table summarizes the
status of significant income tax examinations of JPMorgan
Chase and its consolidated subsidiaries as of December 31,
2021.
Tax examination status
The following table presents a reconciliation of the
beginning and ending amount of unrecognized tax benefits.
At December 31, 2021, 2020 and 2019, JPMorgan Chase's
unrecognized tax benefits, excluding related interest
expense and penalties, were $4.6 billion, $4.3 billion and
$4.0 billion, respectively, of which $3.4 billion, $3.1 billion
and $2.8 billion, respectively, if recognized, would reduce
the annual effective tax rate. Included in the amount of
unrecognized tax benefits are certain items that would not
affect the effective tax rate if they were recognized in the
Consolidated statements of income. These unrecognized
items include the tax effect of certain temporary
differences, the portion of gross state and local
unrecognized tax benefits that would be offset by the
benefit from associated U.S. federal income tax deductions,
and the portion of gross non-U.S. unrecognized tax benefits
that would have offsets in other jurisdictions. JPMorgan
Chase is presently under audit by a number of taxing
authorities, most notably by the Internal Revenue Service as
summarized in the Tax examination status table below. As
JPMorgan Chase is presently under audit by a number of
taxing authorities, it is reasonably possible that over the
next 12 months the resolution of these examinations may
increase or decrease the gross balance of unrecognized tax
benefits by as much as approximately $300 million. Upon
settlement of an audit, the change in the unrecognized tax
benefit would result from payment or income statement
recognition.
Unrecognized tax benefits
JPMorgan Chase & Co./2021 Form 10-K
The valuation allowance at December 31, 2021, was due to
the state and local capital loss carryforwards, FTC
carryforwards, and certain non-U.S. deferred tax assets,
including NOL carryforwards.
JPMorgan Chase has recorded deferred tax assets of $615
million at December 31, 2021, in connection with U.S.
federal and non-U.S. NOL carryforwards and other tax
attributes, FTC carryforwards, and state and local capital
loss carryforwards. At December 31, 2021, total U.S.
federal NOL carryforwards were $972 million, non-U.S. NOL
carryforwards were $210 million, FTC carryforwards were
$258 million, state and local capital loss carryforwards
were $1.1 billion, and other U.S. federal tax attributes were
$359 million. If not utilized, a portion of the U.S. federal
NOL carryforwards and other U.S. federal tax attributes will
expire between 2026 and 2037 whereas others have an
unlimited carryforward period. Similarly, certain non-U.S.
NOL carryforwards will expire between 2026 and 2036
whereas others have an unlimited carryforward period. The
FTC carryforwards will expire between 2029 and 2030, and
the state and local capital loss carryforwards will expire in
2022.
278
(3,910)
(3,600) $
$
Net deferred tax (liabilities)/assets
allowance
Deferred tax assets, net of valuation
(560)
(378)
277
JPMorgan Chase & Co./2021 Form 10-K
(a) Prior-period amounts have been revised to conform with the current
presentation.
The Firm will recognize any U.S. income tax expense it may
incur on global intangible low tax income as income tax
expense in the period in which the tax is incurred.
(b) Prior-period amount has been revised to conform with the current
presentation.
(a) For purposes of this table, non-U.S. income is defined as income
generated from operations located outside the U.S.
Non-U.S.(a
18.8 %
18.7 %
18.9 %
Effective tax rate
0.8
(0.1)
(a)
Other, net
(3.8)
(2.3)
Tax audit resolutions
(5.4)
(4.2)
Notes to consolidated financial statements
2012-2014
Affordable housing tax credits
Deferred taxes
Valuation allowance
13,312
10,802
Gross deferred tax assets
757
615
849
900
3,332
3,955
1,104
7,270
4,345 $
$
2020
2021
Tax attribute carryforwards
Accrued expenses and other
Non-U.S. operations
Deferred income tax expense/(benefit) results from
differences between assets and liabilities measured for
financial reporting purposes versus income tax return
purposes. Deferred tax assets are recognized if, in
management's judgment, their realizability is determined to
be more likely than not. If a deferred tax asset is
determined to be unrealizable, a valuation allowance is
established. The significant components of deferred tax
assets and liabilities are reflected in the following table.
December 31, (in millions)
Deferred tax assets
Allowance for loan losses
Employee benefits
The Firm recognized $1.7 billion of tax credits and other tax
benefits associated with investments in affordable housing
projects within income tax expense for the year ended
2021, and $1.5 billion in each of the years ended 2020 and
2019. The amount of amortization of such investments
reported in income tax expense was $1.3 billion, $1.2
billion and $1.1 billion, respectively. The carrying value of
these investments, which are reported in other assets on
the Firm's Consolidated balance sheets, was $10.8 billion
and $9.7 billion at December 31, 2021 and 2020,
respectively. The amount of commitments related to these
investments, which are reported in accounts payable and
other liabilities on the Firm's Consolidated balance sheets,
was $4.6 billion and $3.8 billion at December 31, 2021
and 2020, respectively.
987
research. Markets & Securities Services also includes
Securities Services, a leading global custodian which
provides custody, fund accounting and administration, and
securities lending products principally for asset managers,
insurance companies and public and private investment
funds.
JPMorgan Chase & Co./2021 Form 10-K
Total
(e)
$
16,561
9,654
$
10,833 $
6,372
5,728 $
3,282
2,756
1,589
1,167
North America (a)
4,202
2,300
878
517,904
277,897
61,657
28,971
18,794
10,177
7,380
857,458
92,678
43,293
49,385
40,954
$
Total international
Latin America/Caribbean
Asia-Pacific
In addition to the various legal proceedings discussed
above, JPMorgan Chase and its subsidiaries are named as
defendants or are otherwise involved in a substantial
number of other legal proceedings. The Firm believes it has
meritorious defenses to the claims asserted against it in its
currently outstanding legal proceedings and it intends to
292
JPMorgan Chase & Co./2021 Form 10-K
defend itself vigorously. Additional legal proceedings may
be initiated from time to time in the future.
The Firm has established reserves for several hundred of its
currently outstanding legal proceedings. In accordance with
the provisions of U.S. GAAP for contingencies, the Firm
accrues for a litigation-related liability when it is probable
that such a liability has been incurred and the amount of
the loss can be reasonably estimated. The Firm evaluates its
outstanding legal proceedings each quarter to assess its
litigation reserves, and makes adjustments in such reserves,
upward or downward, as appropriate, based on
management's best judgment after consultation with
counsel. The Firm's legal expense was $426 million, $1.1
billion and $239 million for the years ended December 31,
2021, 2020 and 2019, respectively. There is no assurance
that the Firm's litigation reserves will not need to be
adjusted in the future.
In view of the inherent difficulty of predicting the outcome
of legal proceedings, particularly where the claimants seek
very large or indeterminate damages, or where the matters
present novel legal theories, involve a large number of
parties or are in early stages of discovery, the Firm cannot
state with confidence what will be the eventual outcomes of
the currently pending matters, the timing of their ultimate
resolution or the eventual losses, fines, penalties or
consequences related to those matters. JPMorgan Chase
believes, based upon its current knowledge and after
consultation with counsel, consideration of the material
legal proceedings described above and after taking into
account its current litigation reserves and its estimated
aggregate range of possible losses, that the other legal
proceedings currently pending against it should not have a
material adverse effect on the Firm's consolidated financial
condition. The Firm notes, however, that in light of the
uncertainties involved in such proceedings, there is no
assurance that the ultimate resolution of these matters will
not significantly exceed the reserves it has currently
accrued or that a matter will not have material reputational
consequences. As a result, the outcome of a particular
matter may be material to JPMorgan Chase's operating
results for a particular period, depending on, among other
factors, the size of the loss or liability imposed and the level
of JPMorgan Chase's income for that period.
JPMorgan Chase & Co./2021 Form 10-K
293
Notes to consolidated financial statements
Note 31 - International operations
The following table presents income statement and balance
sheet-related information for JPMorgan Chase by major
international geographic area. The Firm defines
international activities for purposes of this footnote
presentation as business transactions that involve clients
residing outside of the U.S., and the information presented
below is based predominantly on the domicile of the client,
the location from which the client relationship is managed,
booking location or the location of the trading desk.
However, many of the Firm's U.S. operations serve
international businesses.
As the Firm's operations are highly integrated, estimates
and subjective assumptions have been made to apportion
revenue and expense between U.S. and international
operations. These estimates and assumptions are consistent
with the allocations used for the Firm's segment reporting
as set forth in Note 32.
The Firm's long-lived assets for the periods presented are
not considered by management to be significant in relation
to total assets. The majority of the Firm's long-lived assets
are located in the U.S.
As of or for the year ended December 31,
(in millions)
Revenue (c)
(d)
Expense
Income before
income tax
expense
Net income
Total assets
2021
Europe/Middle East/Africa
2,886,109
*
$
62,087 $
119,951 $
84,136 $
35,815 $
29,131 $ 3,384,757
2019(b)
Europe/Middle East/Africa
$
15,887 $
9,860 $
Asia-Pacific
$
7,254
Latin America/Caribbean
2,405
1,561
6,027 $
2,194
844
Total international
25,546
16,481
North America (a)
90,174
54,373
5,060
Total
3,868 $ 530,687
2,630
252,553
837
61,980
7,335
845,220
21,796
2,539,537
25,355
59,562 $
48,334 $ 3,743,567
2020(b)
Europe/Middle East/Africa
$
16,566 $
10,987 $
(e)
Asia-Pacific
9,289
5,558
5,579 $
3,731
Latin America/Caribbean
2,740
1,590
1,150
Total international
28,595
18,135
10,460
North America (a)
91,356
66,001
121,649 $
Securities Lending Antitrust Litigation. JPMorgan Chase
Bank, N.A., J.P. Morgan Securities LLC, J.P. Morgan Prime,
Inc., and J.P. Morgan Strategic Securities Lending Corp. are
named as defendants in a putative class action filed in the
United States District Court for the Southern District of New
York. The complaint asserts violations of federal antitrust
law and New York State common law in connection with an
alleged conspiracy to prevent the emergence of anonymous
exchange trading for securities lending transactions.
Defendants' motion to dismiss the complaint was denied.
Plaintiffs have moved to certify a class in this action, which
defendants are opposing.
In October 2020, two putative class action complaints were
filed under the Securities Exchange Act of 1934 in the
United States District Court for the Eastern District of New
York against the Firm and certain individual defendants on
behalf of shareholders who acquired shares during the
putative class period alleging that certain SEC filings of the
Firm were materially false or misleading in that they did not
disclose certain information relating to the above-
referenced investigations. The Court consolidated these
putative class actions in January 2021. Plaintiffs filed their
second amended complaint in May 2021, which additionally
alleged that certain orders in precious metals futures
contracts placed by precious metals futures traders during
the putative class period were materially false and
misleading. Defendants have moved to dismiss.
New York against the Firm and certain former employees,
alleging a precious metals futures and options price
manipulation scheme in violation of the Commodity
Exchange Act. Some of the complaints also allege unjust
enrichment and deceptive acts or practices under the
General Business Law of the State of New York. The Court
consolidated these putative class actions, and, in December
2021, the Court preliminarily approved a settlement among
the parties. In addition, several putative class actions were
filed in the United States District Courts for the Northern
District of Illinois and Southern District of New York against
the Firm, alleging manipulation of U.S. Treasury futures and
options, and bringing claims under the Commodity
Exchange Act. The actions in the Northern District of Illinois
were transferred to the Southern District of New York. The
Court consolidated these putative class actions, and, in
December 2021, the Court preliminarily approved a
settlement among the parties. In Canada, plaintiffs have
moved to commence putative class action proceedings
based on similar alleged underlying conduct related to
precious metals.
The following table presents the Firm's pledged assets.
December 31, (in billions)
Assets that may be sold or repledged or
otherwise used by secured parties
2021
2020
$ 126.3
$ 166.6
Collateral
The Firm accepts financial assets as collateral that it is
permitted to sell or repledge, deliver or otherwise use. This
collateral is generally obtained under resale and other
securities financing agreements, prime brokerage-related
held-for-investment customer receivables and derivative
contracts. Collateral is generally used under repurchase and
other securities financing agreements, to cover short sales,
and to collateralize derivative contracts and deposits.
The following table presents the fair value of collateral
accepted.
December 31, (in billions)
The Firm pledges financial assets that it owns to maintain
potential borrowing capacity at discount windows with
Federal Reserve banks, various other central banks and
FHLBS. Additionally, the Firm pledges assets for other
purposes, including to collateralize repurchase and other
securities financing agreements, to cover short sales and to
collateralize derivative contracts and deposits. Certain of
these pledged assets may be sold or repledged or otherwise
used by the secured parties and are parenthetically
identified on the Consolidated balance sheets as assets
pledged.
Collateral permitted to be sold or
repledged, delivered, or otherwise used
2021
2020
$ 1,471.3
$ 1,451.7
1,038.9
1,111.0
Assets that may not be sold or repledged or
otherwise used by secured parties
Assets pledged at Federal Reserve banks and
FHLBS
Total pledged assets
112.0
Collateral sold, repledged, delivered or
otherwise used
Pledged assets
Note 29 - Pledged assets and collateral
JPMorgan Chase & Co./2021 Form 10-K
Other off-balance sheet arrangements
Indemnification agreements - general
In connection with issuing securities to investors outside the
U.S., the Firm may agree to pay additional amounts to the
holders of the securities in the event that, due to a change
in tax law, certain types of withholding taxes are imposed
on payments on the securities. The terms of the securities
may also give the Firm the right to redeem the securities if
such additional amounts are payable. The Firm may also
enter into indemnification clauses in connection with the
licensing of software to clients ("software licensees") or
when it sells a business or assets to a third party ("third-
party purchasers"), pursuant to which it indemnifies
software licensees for claims of liability or damages that
may occur subsequent to the licensing of the software, or
third-party purchasers for losses they may incur due to
actions taken by the Firm prior to the sale of the business or
assets. It is difficult to estimate the Firm's maximum
exposure under these indemnification arrangements, since
this would require an assessment of future changes in tax
law and future claims that may be made against the Firm
that have not yet occurred. However, based on historical
experience, management expects the risk of loss to be
remote.
Merchant charge-backs
Under the rules of payment networks, the Firm, in its role as
a merchant acquirer, retains a contingent liability for
disputed processed credit and debit card transactions that
result in a charge-back to the merchant. If a dispute is
resolved in the cardholder's favor, Merchant Services will
(through the cardholder's issuing bank) credit or refund the
amount to the cardholder and will charge back the
transaction to the merchant. If Merchant Services is unable
to collect the amount from the merchant, Merchant Services
will bear the loss for the amount credited or refunded to the
cardholder. Merchant Services mitigates this risk by
withholding future settlements, retaining cash reserve
accounts or obtaining other collateral. In addition, Merchant
Services recognizes a valuation allowance that covers the
payment or performance risk to the Firm related to charge-
backs.
For the years ended December 31, 2021, 2020 and 2019,
Merchant Services processed an aggregate volume of
$1,886.7 billion, $1,597.3 billion, and $1,511.5 billion,
respectively.
Clearing Services - Client Credit Risk
The Firm provides clearing services for clients by entering
into securities purchases and sales and derivative contracts
with CCPs, including ETDs such as futures and options, as
well as OTC-cleared derivative contracts. As a clearing
member, the Firm stands behind the performance of its
clients, collects cash and securities collateral (margin) as
well as any settlement amounts due from or to clients, and
remits them to the relevant CCP or client in whole or part.
There are two types of margin: variation margin is posted
on a daily basis based on the value of clients' derivative
contracts and initial margin is posted at inception of a
derivative contract, generally on the basis of the potential
changes in the variation margin requirement for the
contract.
As a clearing member, the Firm is exposed to the risk of
nonperformance by its clients, but is not liable to clients for
the performance of the CCPs. Where possible, the Firm
seeks to mitigate its risk to the client through the collection
of appropriate amounts of margin at inception and
throughout the life of the transactions. The Firm can also
cease providing clearing services if clients do not adhere to
their obligations under the clearing agreement. In the event
of nonperformance by a client, the Firm would close out the
client's positions and access available margin. The CCP
would utilize any margin it holds to make itself whole, with
any remaining shortfalls required to be paid by the Firm as
a clearing member.
The Firm reflects its exposure to nonperformance risk of the
client through the recognition of margin receivables from
clients and margin payables to CCPS; the clients' underlying
securities or derivative contracts are not reflected in the
Firm's Consolidated Financial Statements.
It is difficult to estimate the Firm's maximum possible
exposure through its role as a clearing member, as this
would require an assessment of transactions that clients
may execute in the future. However, based upon historical
experience, and the credit risk mitigants available to the
Firm, management believes it is unlikely that the Firm will
have to make any material payments under these
arrangements and the risk of loss is expected to be remote.
Refer to Note 5 for information on the derivatives that the
Firm executes for its own account and records in its
Consolidated Financial Statements.
JPMorgan Chase & Co./2021 Form 10-K
287
Notes to consolidated financial statements
Exchange & Clearing House Memberships
The Firm is a member of several securities and derivative
exchanges and clearing houses, both in the U.S. and other
countries, and it provides clearing services to its clients.
Membership in some of these organizations requires the
Firm to pay a pro rata share of the losses incurred by the
organization as a result of the default of another member.
Such obligations vary with different organizations. These
obligations may be limited to the amount (or a multiple of
the amount) of the Firm's contribution to the guarantee
fund maintained by a clearing house or exchange as part of
the resources available to cover any losses in the event of a
member default. Alternatively, these obligations may also
include a pro rata share of the residual losses after applying
the guarantee fund. Additionally, certain clearing houses
require the Firm as a member to pay a pro rata share of
losses that may result from the clearing house's investment
of guarantee fund contributions and initial margin,
unrelated to and independent of the default of another
member. Generally a payment would only be required
should such losses exceed the resources of the clearing
house or exchange that are contractually required to
absorb the losses in the first instance. In certain cases, it is
difficult to estimate the Firm's maximum possible exposure
under these membership agreements, since this would
require an assessment of future claims that may be made
against the Firm that have not yet occurred. However,
based on historical experience, management expects the
risk of loss to the Firm to be remote. Where the Firm's
maximum possible exposure can be estimated, the amount
is disclosed in the table on page 284, in the Exchange &
clearing house guarantees and commitments line.
Sponsored member repo program
The Firm acts as a sponsoring member to clear eligible
overnight and term resale and repurchase agreements
through the Government Securities Division of the Fixed
Income Clearing Corporation ("FICC") on behalf of clients
that become sponsored members under the FICC's rules.
The Firm also guarantees to the FICC the prompt and full
payment and performance of its sponsored member clients'
respective obligations under the FICC's rules. The Firm
minimizes its liability under these guarantees by obtaining a
security interest in the cash or high-quality securities
collateral that the clients place with the clearing house;
therefore, the Firm expects the risk of loss to be remote.
The Firm's maximum possible exposure, without taking into
consideration the associated collateral, is included in the
Exchange & clearing house guarantees and commitments
line on page 284. Refer to Note 11 for additional
information on credit risk mitigation practices on resale
agreements and the types of collateral pledged under
repurchase agreements.
Guarantees of subsidiaries
In the normal course of business, the Parent Company may
provide counterparties with guarantees of certain of the
trading and other obligations of its subsidiaries on a
contract-by-contract basis, as negotiated with the Firm's
counterparties. The obligations of the subsidiaries are
included on the Firm's Consolidated balance sheets or are
reflected as off-balance sheet commitments; therefore, the
Parent Company has not recognized a separate liability for
these guarantees. The Firm believes that the occurrence of
any event that would trigger payments by the Parent
Company under these guarantees is remote.
The Parent Company has guaranteed certain long-term debt
and structured notes of its subsidiaries, including JPMorgan
Chase Financial Company LLC ("JPMFC"), a 100%-owned
finance subsidiary. All securities issued by JPMFC are fully
and unconditionally guaranteed by the Parent Company and
no other subsidiary of the parent company guarantees
these securities. These guarantees, which rank on a parity
with the Firm's unsecured and unsubordinated
indebtedness, are not included in the table on page 284 of
this Note. Refer to Note 20 for additional information.
288
476.4
113.9
455.3
$ 714.7 $ 735.8
the attendant uncertainty of the various potential
outcomes of such proceedings, including where the Firm
has made assumptions concerning future rulings by the
court or other adjudicator, or about the behavior or
incentives of adverse parties or regulatory authorities,
and those assumptions prove to be incorrect.
In addition, the outcome of a particular proceeding may be
a result which the Firm did not take into account in its
estimate because the Firm had deemed the likelihood of
that outcome to be remote. Accordingly, the Firm's
estimate of the aggregate range of reasonably possible
losses will change from time to time, and actual losses may
vary significantly.
Set forth below are descriptions of the Firm's material legal
proceedings.
Amrapali. India's Enforcement Directorate ("ED") is
investigating J.P.Morgan India Private Limited in connection
with investments made in 2010 and 2012 by two offshore
funds formerly managed by JPMorgan Chase entities into
residential housing projects developed by the Amrapali
Group ("Amrapali"). In 2017, numerous creditors filed civil
claims against Amrapali, including petitions brought by
home buyers relating to delays in delivering or failure to
deliver residential units. The home buyers' petitions have
been overseen by the Supreme Court of India and are
ongoing. In August 2021, the ED issued an order fining J.P.
Morgan India Private Limited approximately $31.5 million.
The Firm is appealing the order and the fine. Relatedly, in
July 2019, the Supreme Court of India issued an order
making preliminary findings that Amrapali and other
parties, including unspecified JPMorgan Chase entities and
the offshore funds that had invested in the projects,
violated certain currency control and money laundering
provisions, and ordering the ED to conduct a further inquiry
under India's Prevention of Money Laundering Act (“PMLA”)
and Foreign Exchange Management Act ("FEMA"). In May
2020, the ED attached approximately $25 million from J.P.
Morgan India Private Limited in connection with the
criminal PMLA investigation. The Firm is responding to and
cooperating with the PMLA investigation.
Federal Republic of Nigeria Litigation. JPMorgan Chase Bank,
N.A. operated an escrow and depository account for the
Federal Government of Nigeria (“FGN”) and two major
international oil companies. The account held
approximately $1.1 billion in connection with a dispute
among the clients over rights to an oil field. Following the
settlement of the dispute, JPMorgan Chase Bank, N.A. paid
out the monies in the account in 2011 and 2013 in
accordance with directions received from its clients. In
November 2017, the Federal Republic of Nigeria ("FRN")
commenced a claim in the English High Court for
approximately $875 million in payments made out of the
accounts. The FRN, claiming to be the same entity as the
FGN, alleges that the payments were instructed as part of a
complex fraud not involving JPMorgan Chase Bank, N.A., but
that JPMorgan Chase Bank, N.A. was or should have been on
notice that the payments may be fraudulent. JPMorgan
Chase Bank, N.A. applied for summary judgment and was
unsuccessful. The claim is ongoing and a trial commenced in
February 2022.
Foreign Exchange Investigations and Litigation. The Firm
previously reported settlements with certain government
authorities relating to its foreign exchange ("FX") sales and
trading activities and controls related to those activities.
Among those resolutions, in May 2015, the Firm pleaded
guilty to a single violation of federal antitrust law. The
Department of Labor granted the Firm a five-year
20
290
JPMorgan Chase & Co./2021 Form 10-K
exemption of disqualification that allows the Firm and its
affiliates to continue to rely on the Qualified Professional
Asset Manager exemption under the Employee Retirement
Income Security Act ("ERISA") until January 2023. The Firm
will need the Department of Labor to approve a further
exemption to cover the remainder of the ten-year
disqualification period following the antitrust plea. The only
remaining FX-related governmental inquiry is a South Africa
Competition Commission matter which is currently pending
before the South Africa Competition Tribunal.
With respect to civil litigation matters, in August 2018, the
United States District Court for the Southern District of New
York granted final approval to the Firm's settlement of a
consolidated class action brought by U.S.-based plaintiffs,
which principally alleged violations of federal antitrust laws
based on an alleged conspiracy to manipulate foreign
exchange rates and also sought damages on behalf of
persons who transacted in FX futures and options on
futures. Certain members of the settlement class filed
requests to the Court to be excluded from the class, and
certain of them filed a complaint against the Firm and other
foreign exchange dealers in November 2018. A number of
these actions remain pending. Further, a putative class
action has been filed against the Firm and other foreign
exchange dealers on behalf of certain consumers who
purchased foreign currencies at allegedly inflated rates.
Another putative class action was brought against the Firm
and other foreign exchange dealers on behalf of purported
indirect purchasers of FX instruments. In 2020, the Court
approved a settlement by the Firm and 11 other defendants
of that class action for a total of $10 million. In addition,
some FX-related individual and putative class actions based
on similar alleged underlying conduct have been filed
outside the U.S., including in the U.K., Israel, the
Netherlands, Brazil and Australia.
Inquiries Concerning Preservation Requirements. In
December 2021 certain of the Firm's subsidiaries entered
into resolutions with the U.S. Securities and Exchange
Commission ("SEC") and the U.S. Commodity Futures
Trading Commission ("CFTC") to resolve their respective
civil investigations of compliance with records preservation
requirements applicable to broker-dealer firms, swap
dealers and futures commission merchants. The SEC and
CFTC found that J.P. Morgan Securities LLC did not maintain
copies of certain communications required to be maintained
under their respective record keeping rules, where such
communications were sent or received by employees over
electronic messaging channels that had not been approved
for employee use by the Firm. The CFTC resolution also
included JPMorgan Chase Bank, N.A. and J.P. Morgan
Securities plc as swap dealers. The SEC and CFTC also found
related supervision failures. Under these resolutions, J.P.
Morgan Securities LLC paid a $125 million civil monetary
penalty to the SEC, and J.P. Morgan Securities LLC,
JPMorgan Chase Bank, N.A. and J.P. Morgan Securities plc
paid a total $75 million civil monetary penalty to the CFTC.
The Firm continues to respond to requests for information
and other material from certain authorities concerning its
compliance with records preservation requirements in
connection with business communications sent over
electronic messaging channels that have not been approved
by the Firm. The Firm is cooperating with these inquiries.
Interchange Litigation. Groups of merchants and retail
associations filed a series of class action complaints alleging
that Visa and Mastercard, as well as certain banks,
conspired to set the price of credit and debit card
interchange fees and enacted related rules in violation of
antitrust laws. In 2012, the parties initially settled the cases
for a cash payment, a temporary reduction of credit card
interchange, and modifications to certain credit card
network rules. In 2017, after the approval of that
settlement was reversed on appeal, the case was remanded
to the United States District Court for the Eastern District of
New York for further proceedings consistent with the
appellate decision.
The original class action was divided into two separate
actions, one seeking primarily monetary relief and the other
seeking primarily injunctive relief. In September 2018, the
parties to the monetary class action finalized an agreement
which amends and supersedes the prior settlement
agreement. Pursuant to this settlement, the defendants
collectively contributed an additional $900 million to the
approximately $5.3 billion previously held in escrow from
the original settlement. In December 2019, the amended
settlement agreement was approved by the District Court.
Certain merchants appealed the District Court's approval
order, and those appeals are pending. Based on the
percentage of merchants that opted out of the amended
class settlement, $700 million has been returned to the
defendants from the settlement escrow in accordance with
the settlement agreement. The injunctive class action
continues separately, and in September 2021, the District
Court granted plaintiffs' motion for class certification in
part, and denied the motion in part.
In addition, certain merchants have filed individual actions
raising similar allegations against Visa and Mastercard, as
well as against the Firm and other banks, and some of those
actions remain pending.
LIBOR and Other Benchmark Rate Investigations and
Litigation. JPMorgan Chase has responded to inquiries from
various governmental agencies and entities around the
world relating primarily to the British Bankers Association's
("BBA") London Interbank Offered Rate ("LIBOR") for
various currencies and the European Banking Federation's
Euro Interbank Offered Rate ("EURIBOR"). The Swiss
Competition Commission's investigation relating to
EURIBOR, to which the Firm and other banks are subject,
continues. In December 2016, the European Commission
issued a decision against the Firm and other banks finding
an infringement of European antitrust rules relating to
EURIBOR. The Firm has filed an appeal of that decision with
the European General Court, and that appeal is pending.
JPMorgan Chase & Co./2021 Form 10-K
291
Notes to consolidated financial statements
In addition, the Firm has been named as a defendant along
with other banks in various individual and putative class
actions related to benchmark rates, including U.S. dollar
LIBOR. In actions related to U.S. dollar LIBOR during the
period that it was administered by the BBA, the Firm has
obtained dismissal of certain actions and resolved certain
other actions, and others are in various stages of litigation.
The United States District Court for the Southern District of
New York has granted class certification of antitrust claims
related to bonds and interest rate swaps sold directly by the
defendants, including the Firm. A consolidated putative
class action related to the period that U.S. dollar LIBOR was
administered by ICE Benchmark Administration has been
dismissed. In addition, a group of individual plaintiffs filed a
lawsuit asserting antitrust claims, alleging that the Firm and
other defendants were engaged in an unlawful agreement
to set U.S. dollar LIBOR and conspired to monopolize the
market for LIBOR-based consumer loans and credit cards.
Defendants moved to dismiss plaintiffs' complaint. In
December 2021, the court denied plaintiffs' motions for a
preliminary injunction seeking to enjoin defendants from
setting U.S. dollar LIBOR and enforcing any financial
instruments that rely on U.S. dollar LIBOR. The Firm's
settlements of putative class actions related to Swiss franc
LIBOR, the Singapore Interbank Offered Rate and the
Singapore Swap Offer Rate, and the Australian Bank Bill
Swap Reference Rate remain subject to court approval.
Metals and U.S. Treasuries Investigations and Litigation and
Related Inquiries. The Firm previously reported that it and/
or certain of its subsidiaries had entered into resolutions
with the U.S. Department of Justice ("DOJ"), the U.S.
Commodity Futures Trading Commission ("CFTC") and the
U.S. Securities and Exchange Commission ("SEC"), which,
collectively, resolved those agencies' respective
investigations relating to historical trading practices by
former employees in the precious metals and U.S.
treasuries markets and related conduct from 2008 to
2016.
The Firm entered into a Deferred Prosecution Agreement
("DPA") with the DOJ in which it agreed to the filing of a
criminal information charging JPMorgan Chase & Co. with
two counts of wire fraud and agreed, along with JPMorgan
Chase Bank, N.A. and J.P. Morgan Securities LLC, to certain
terms and obligations as set forth therein. Under the terms
of the DPA, the criminal information will be dismissed after
three years, provided that JPMorgan Chase & Co., JPMorgan
Chase Bank, N.A. and J.P. Morgan Securities LLC fully
comply with all of their obligations.
Across the three resolutions with the DOJ, CFTC and SEC,
JPMorgan Chase & Co., JPMorgan Chase Bank, N.A. and J.P.
Morgan Securities LLC agreed to pay a total monetary
amount of approximately $920 million. A portion of the
total monetary amount includes victim compensation
payments.
Several putative class action complaints have been filed in
the United States District Court for the Southern District of
the numerous yet-unresolved issues in many of the
proceedings, including issues regarding class
certification and the scope of many of the claims, and
Total
the existence in many such proceedings of multiple
defendants, including the Firm, whose share of liability
(if any) has yet to be determined,
•
Total pledged assets do not include assets of consolidated
VIES; these assets are used to settle the liabilities of those
entities. Refer to Note 14 for additional information on
assets and liabilities of consolidated VIES. Refer to Note 11
for additional information on the Firm's securities financing
activities. Refer to Note 20 for additional information on the
Firm's long-term debt. The significant components of the
Firm's pledged assets were as follows.
December 31, (in billions)
Investment securities
2021
2020
$
80.1 $ 80.2
Loans
428.5
420.5
Trading assets and other
206.1
235.1
Total pledged assets
$ 714.7 $ 735.8
JPMorgan Chase & Co./2021 Form 10-K
289
Notes to consolidated financial statements
Note 30 - Litigation
Contingencies
As of December 31, 2021, the Firm and its subsidiaries and
affiliates are defendants or respondents in numerous legal
proceedings, including private, civil litigations, government
investigations or regulatory enforcement matters. The
litigations range from individual actions involving a single
plaintiff to class action lawsuits with potentially millions of
class members. Investigations and regulatory enforcement
matters involve both formal and informal proceedings, by
both governmental agencies and self-regulatory
organizations. These legal proceedings are at varying stages
of adjudication, arbitration or investigation, and involve
each of the Firm's lines of business and several geographies
and a wide variety of claims (including common law tort
and contract claims and statutory antitrust, securities and
consumer protection claims), some of which present novel
legal theories.
The Firm believes the estimate of the aggregate range of
reasonably possible losses, in excess of reserves
established, for its legal proceedings is from $0 to
approximately $1.5 billion at December 31, 2021. This
estimated aggregate range of reasonably possible losses
was based upon information available as of that date for
those proceedings in which the Firm believes that an
estimate of reasonably possible loss can be made. For
certain matters, the Firm does not believe that such an
estimate can be made, as of that date. The Firm's estimate
of the aggregate range of reasonably possible losses
involves significant judgment, given:
•
the number, variety and varying stages of the
proceedings, including the fact that many are in
preliminary stages,
$
with the owner of the mortgage loans, such as Fannie Mae
or Freddie Mac or a private investor, insurer or guarantor.
Losses on recourse servicing predominantly occur when
foreclosure sales proceeds of the property underlying a
defaulted loan are less than the sum of the outstanding
principal balance, plus accrued interest on the loan and the
cost of holding and disposing of the underlying property.
The Firm's securitizations are predominantly nonrecourse,
thereby effectively transferring the risk of future credit
losses to the purchaser of the mortgage-backed securities
issued by the trust. At December 31, 2021 and 2020, the
unpaid principal balance of loans sold with recourse totaled
$827 million and $889 million, respectively. The carrying
value of the related liability that the Firm has recorded in
accounts payable and other liabilities on the Consolidated
balance sheets, which is representative of the Firm's view of
the likelihood it will have to perform under its recourse
obligations, was $19 million and $23 million at
December 31, 2021 and 2020, respectively.
70,854
Income tax expense/
(benefit)
6,876
2,749
5,362
6,464
5,926
4,590
1,668
824
3,785
1,275
1,028
918
Net income/(loss)
$20,930
$ 8,217
Average equity
$50,000
$ 52,000
Total assets
500,370
1,528
4,020
6,265
5,233
29,256
27,990
28,276
25,325
23,538
22,444
4,041
3,798
3,735
10,919
9,957
9,747
Income/(loss) before
income tax expense/
(benefit)
27,806
10,966
21,903
27,598
23,020
16,544
6,914
3,402
$ 16,541
$ 52,000
541,367
$21,134 $ 17,094
$83,000 $ 80,000
$ 11,954
$ 5,246
20%
14 %
21 %
11 %
17 %
33 %
28 %
26 %
Overhead ratio
58
55
51
49
48
57
40
41
40
64
70
72
296
115,720 $
25%
Noninterest expense
31 %
41 %
$ 2,578
$ 3,958
$ 4,737
$ 2,992
$ 2,867
$ 80,000
(b)
(b)
1,259,896
1,095,926
913,803
$24,000
230,776
$22,000
$22,000
$14,000
$10,500
$10,500
228,911
220,514
234,425
203,384
173,175
Return on equity
15 %
59
496,705
(227)
The majority of AWM's client assets are in actively managed
portfolios.
Corporate
The Corporate segment consists of Treasury and Chief
Investment Office and Other Corporate, which includes
corporate staff functions and expense that is centrally
managed. Treasury and CIO is predominantly responsible
for measuring, monitoring, reporting and managing the
Firm's liquidity, funding, capital, structural interest rate and
foreign exchange risks. The major Other Corporate
functions include Real Estate, Technology, Legal, Corporate
Finance, Human Resources, Internal Audit, Risk
Management, Compliance, Control Management, Corporate
Responsibility and various Other Corporate groups.
JPMorgan Chase & Co./2021 Form 10-K
295
Notes to consolidated financial statements
Segment results
The following table provides a summary of the Firm's
segment results as of or for the years ended December 31,
2021, 2020 and 2019, on a managed basis. The Firm's
definition of managed basis starts with the reported U.S.
GAAP results and includes certain reclassifications to
present total net revenue for the Firm (and each of the
reportable business segments) on an FTE basis.
Accordingly, revenue from investments that receive tax
credits and tax-exempt securities is presented in the
managed results on a basis comparable to taxable
investments and securities. This allows management to
assess the comparability of revenue from year-to-year
arising from both taxable and tax-exempt sources. The
corresponding income tax impact related to tax-exempt
items is recorded within income tax expense/(benefit).
These adjustments have no impact on net income as
reported by the Firm as a whole or by the LOBS.
Segment results and reconciliation (a)
(Table continued on next page)
Global Private Bank
Capital allocation
The Firm's allocation methodology incorporates Basel III
Standardized RWA, Basel III Advanced RWA, the GSIB
surcharge, and a simulation of capital in a severe stress
environment. The assumptions and methodologies used to
allocate capital are periodically reassessed and as a result,
the capital allocated to the LOBS may change from time to
time.
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
As of or for the year ended
December 31,
(in millions, except ratios)
2021
2020
Noninterest revenue
Each business segment is allocated capital by taking into
consideration a variety of factors including capital levels of
similarly rated peers and applicable regulatory capital
requirements. ROE is measured and internal targets for
expected returns are established as key measures of a
business segment's performance.
Offers multi-asset investment management solutions across
equities, fixed income, alternatives and money market
funds to institutional and retail investors providing for a
broad range of clients' investment needs.
Asset Management
Asset & Wealth Management, with client assets of $4.3
trillion, is a global leader in investment and wealth
management.
263
9,065
35,801
44,866 $
4,158 $ 391,369
1,467
183,023
609
47,820
6,234
30,197
(e)
622,212
2,064,265
36,431 $ 2,686,477
(a) Substantially reflects the U.S.
(b) Prior-period amounts have been revised to conform with the current presentation.
(c) Revenue is composed of net interest income and noninterest revenue.
(d) Expense is composed of noninterest expense and the provision for credit losses.
(e) Total assets for the U.K. were approximately $365 billion, $353 billion and $309 billion at December 31, 2021, 2020 and 2019, respectively.
294
JPMorgan Chase & Co./2021 Form 10-K
Note 32 - Business segments
The Firm is managed on an LOB basis. There are four major
reportable business segments - Consumer & Community
Banking, Corporate & Investment Bank, Commercial
Banking and Asset & Wealth Management. In addition, there
is a Corporate segment. The business segments are
determined based on the products and services provided, or
the type of customer served, and they reflect the manner in
which financial information is evaluated by the Firm's
Operating Committee. Segment results are presented on a
managed basis. Refer to Segment results of this footnote
for a further discussion of JPMorgan Chase's business
segments.
The following is a description of each of the Firm's business
segments, and the products and services they provide to
their respective client bases.
Consumer & Community Banking
Consumer & Community Banking offers services to
consumers and businesses through bank branches, ATMs,
digital (including mobile and online) and telephone
banking. CCB is organized into Consumer & Business
Banking (including Consumer Banking, J.P. Morgan Wealth
Management and Business Banking), Home Lending
(including Home Lending Production, Home Lending
Servicing and Real Estate Portfolios) and Card & Auto.
Consumer & Business Banking offers deposit, investment
and lending products, payments and services to consumers,
and lending, deposit, and cash management and payment
solutions to small businesses. Home Lending includes
mortgage origination and servicing activities, as well as
portfolios consisting of residential mortgages and home
equity loans. Card & Auto issues credit cards to consumers
and small businesses and originates and services auto loans
and leases.
Corporate & Investment Bank
The Corporate & Investment Bank, which consists of
Banking and Markets & Securities Services, offers a broad
suite of investment banking, market-making, prime
brokerage, and treasury and securities products and
services to a global client base of corporations, investors,
financial institutions, merchants, government and municipal
entities. Banking offers a full range of investment banking
products and services in all major capital markets, including
advising on corporate strategy and structure, capital-raising
in equity and debt markets, as well as loan origination and
syndication. Banking also includes Payments, which
provides payments services enabling clients to manage
payments and receipts globally, and cross-border financing.
Markets & Securities Services includes Markets, a global
market-maker across products, including cash and
derivative instruments, which also offers sophisticated risk
management solutions, prime brokerage, and
Commercial Banking
Commercial Banking provides comprehensive financial
solutions, including lending, payments, investment banking
and asset management products across three primary client
segments: Middle Market Banking, Corporate Client Banking
and Commercial Real Estate Banking. Other includes
amounts not aligned with a primary client segment.
Middle Market Banking covers small and midsized
companies, local governments and nonprofit clients.
Corporate Client Banking covers large corporations.
Commercial Real Estate Banking covers investors,
developers, and owners of multifamily, office, retail,
industrial and affordable housing properties.
Asset & Wealth Management
$17,286
$ 17,740
Provides retirement products and services, brokerage,
custody, trusts and estates, loans, mortgages, deposits and
investment management to high net worth clients.
2021
Total net revenue
50,073
51,268
55,133
51,749
49,284
39,265
10,008
9,313
9,264
16,957
14,240
13,591
Provision for credit losses
(6,989)
12,312
4,954
(1,174)
2,726
277
(947)
2019
$ 17,796
296
3,355
3,418
2,113
6,554
3,886
2020
2019
2021
$38,209
Net interest income
32,787
33,528
37,337
13,540
$ 35,120
14,164
$30,060
$
2020
$ 3,067
2019
2021
$ 2,710
$13,071
2020
$10,822 $10,236
2019
9,205
6,079
6,246
$ 3,929
2,293
54
6,811
1,775
Net increase/(decrease) in cash
and due from banks and deposits
with banking subsidiaries
(20)
deposits with banking
subsidiaries at the beginning of
the year
(29)
Cash and due from banks and
Advances to, and receivables from, subsidiaries:
5,000
(4,075)
(18,408) (6,517) (24,001)
(12,858) (12,690) (12,343)
(1,238) (1,080) (1,290)
1,524
Trading assets
Assets
Deposits with banking subsidiaries
$
Cash and due from banks
2020
2021
December 31, (in millions)
(29,481)
(12,694)
8,544
6,865
36 $
6,809
5,341
Cash interest paid
Cash and due from banks and
All other financing activities, net
Net cash provided by/(used in)
financing activities
$ 28,039 $ 25,150
Borrowings from, and payables to, subsidiaries
and affiliates
Liabilities and stockholders' equity
$ 568,481 $ 528,424
Total assets
Cash income taxes paid, net(d)
508,602
1,011
10,058
1,007
12,220
Other assets
5,370
Non-bank
Bank and bank holding company
year
Investments (at equity) in subsidiaries and
affiliates:
deposits with banking
subsidiaries at the end of the
86
50
Non-bank
27
431
Bank and bank holding company
545,635
Balance sheets
14,150
$ 40,264
subsidiaries
and undistributed net income of
25,569
37,312
49,169
Proceeds from long-term
borrowings
Income before income tax benefit
(56)
2,941
1,425
(20)
Short-term borrowings
9,935
7,542
6,641
Total expense
2,647
Borrowings from subsidiaries
and affiliates (a)
1,992
2,222
2,637
Noninterest expense
13,246
Short-term borrowings
5,753
$ 35,548 $ 39,507
Income tax benefit
176
1,324
Comprehensive income
7,350 4,500
(2,575) (1,430)
Redemption of preferred stock
Treasury stock repurchased
Dividends paid
3,076
6,417
(8,070)
(loss), net
Other comprehensive income/
$ 29,131 $ 36,431
$ 48,334
Net income
Proceeds from issuance of
preferred stock
16,906
27,631
41,252
of subsidiaries
Equity in undistributed net income
(21,226)
(34,194)
(15,543)
Payments of long-term
borrowings
2,033
17,492
1,329
Other liabilities
Rate
1,018
9,340
3,149
3,210
5,660
11,769
15,176
17,697
15,097
14,111
2,424
2,258
12,657
3,397
8,285
611
(1,889)
(4,156)
(2,285)
(1,527)
(1,288)
11,495
16,133
12,380
13,287
10,473
3,040
2,326
973
(1,349)
Interest (h)
2021
Average
balance
assets exempt from income taxes (i.e., federal taxes) on a
basis comparable with other taxable investments. The
incremental tax rate used for calculating the taxable-
equivalent adjustment was approximately 24% in 2021,
2020 and 2019.
Assets
(Taxable-equivalent interest and rates; in millions, except rates)
Year ended December 31,
(Unaudited)
(Table continued on next page)
Consolidated average balance sheets, interest and rates
Provided below is a summary of JPMorgan Chase's
consolidated average balances, interest and rates on a
taxable-equivalent basis for the years 2019 through 2021.
Income computed on a taxable-equivalent basis is the
income reported in the Consolidated statements of income,
adjusted to present interest income and rates earned on
Distribution of assets, liabilities and stockholders' equity; interest rates and interest differentials
299
JPMorgan Chase & Co./2021 Form 10-K
(a) Prior-period amounts have been revised to conform with the current presentation. Refer to Note 25 for further information.
(b) Pre-provision profit is a non-GAAP financial measure. Refer to Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures on pages
58-60 for a discussion of these measures.
Net income
Income tax expense (a)
Income before income tax expense
Provision for credit losses
Pre-provision profit(b)
$ 12,136 $ 9,443 $ 4,687 $ 2,865
$ 10,399 $ 11,687 $ 11,948 $ 14,300
345
13,541
12,812
12,584
11,369
For the period ended
Total net revenue(a)
Selected quarterly financial data (unaudited)
Supplementary information
JPMorgan Chase & Co./2021 Form 10-K
298
(d) Represents payments, net of refunds, made by the Parent Company to
various taxing authorities and includes taxes paid on behalf of certain
of its subsidiaries that are subsequently reimbursed. The
reimbursements were $13.9 billion, $8.3 billion, and $6.4 billion for
the years ended December 31, 2021, 2020, and 2019, respectively.
(e) As a result of the merger of Chase Bank USA, N.A. with and into
JPMorgan Chase Bank, N.A., JPMorgan Chase Bank, N.A. distributed
$13.5 billion to the Parent company as a return of capital, which the
Parent company contributed to the IHC.
(c) Refer to Notes 20 and 28 for information regarding the Parent
Company's guarantees of its subsidiaries' obligations.
(b) At December 31, 2021, long-term debt that contractually matures in
2022 through 2026 totaled $10.7 billion, $16.6 billion, $24.2 billion,
$22.8 billion, and $24.7 billion, respectively.
(a) Affiliates include trusts that issued guaranteed capital debt securities
("issuer trusts").
$ 4,065 $ 5,445 $ 7,957
15,259
5,366
3,910
$ 6,845 $ 6,865 $ 5,341
279,354
$ 528,424
$ 568,481
Total liabilities and stockholders' equity
294,127
Total stockholders' equity
249,070
274,354
Total liabilities (c)
213,384
235,957
924
9,612
2021
Long-term debt (b)(c)
2020
4th quarter
16,791
16,942
16,875
16,048
29,255 $ 33,075 $ 28,286
29,335 $
$
32,266
18,725
17,667
$
$ 30,479
29,647
17,063
17,888
Total noninterest expense
$
$ 29,257
Selected income statement data
1st quarter
2nd quarter
4th quarter 3rd quarter
1st quarter
2nd quarter
3rd quarter
(in millions)
Other interest expense/(income)
NA
(5,303)
(3,713) $
79,968 $
$
$
(1,653)
(5,366)
Overhead ratio
Return on equity
Total assets
Average equity
Net income/(loss)
(2,615)
(865)
(1,750) $
72,365 $
Income tax expense/(benefit)
Income/(loss) before income
65,269
66,656
71,343
1,067
1,373
1,802
Noninterest expense
5,585
17,480
tax expense/(benefit)
145
(3,655)
(2,978)
-
$
$
68,407 $
$ 29,131 $ 36,431
48,334
$
$
1,111 $
8,435
6,684
11,228
(2,744)
(2,978)
(3,655)
(966)
(b)
(b)
(b)
44,866
35,815
59,562
(2,744)
(9,256)
(1)
66
81
$
Noninterest revenue
(b)
(b)
(b)
2019
2020
2021
2019
2020
2021
2019
2020
2021
(in millions, except ratios)
December 31,
As of or for the year ended
Total
(a)
Reconciling Items
Corporate
(Table continued from previous page)
Deposits with banks
68 $
$ 250,968
1,199 $
Total net revenue
Provision for credit losses
115,720
119,951
121,649
(2,744)
(2,978)
(3,655)
1,211
(1,176)
57,245
54,563
52,311
$ 58,475
65,388
$
$ 69,338
(2,213)
(531)
$
(2,560)
(418)
(3,225) $
(430)
(114) $
1,325
(2,375)
(3,551)
(3,483)
Net interest income
Net change in:
1,518,100
837,618
859
Bank and bank holding company
Net change in:
subsidiaries:
Investing activities
Other income/(expense) from
29,387
16,857
(5,595)
Net cash provided by/(used in)
operating activities
Non-bank
223
32
Interest income from subsidiaries
26,000
9,862
10,000
6,000
(12,677) 15,357
Other operating adjustments
$ 26,000
6,000
$
Bank and bank holding company $ 10,000
Non-bank(a)
affiliates:
63
366
Other income/(expense)
1,137
(8,830)
5,353
(a)
subsidiaries and affiliates a
Financing activities
Interest expense/(income) to
Expense
65
(2,639)
(2,969)
71
24
(e)
(6)
(2,663)
(3,000)
31
All other investing activities, net
Net cash provided by/(used in)
investing activities
Advances to and investments in
subsidiaries and affiliates, net
2,738
197
(1,731)
27,427
7,718
12,394
Total income
2,019
(569)
205
51,252
(2,918) (4,500) (6,475)
42,906
33,631
$ 36,431
NM
NM
NM
NM
NM
NM
(b)
15 %
12 %
19 %
NM
NM
NM
NM
NM
NM
2,686,477
(b)
$ 232,907
$ 236,865
3,384,757
3,743,567
ΝΑ
ΝΑ
59
1,359,831
56
JPMorgan Chase & Co./2021 Form 10-K
$ 48,334 $ 29,131
Cash dividends from subsidiaries
(a)
and affiliates
Parent company net loss
Less: Net income of subsidiaries
and affiliates (a)
Net income
Operating activities
2019
2020
2021
Year ended December 31,
(in millions)
Statements of cash flows
2019
2020
2021
Dividends from subsidiaries and
Income
(in millions)
Year ended December 31,
Statements of income and comprehensive income
The following tables present Parent Company-only financial
statements.
Note 33 - Parent Company
Notes to consolidated financial statements
297
56
$
(a) Segment results on a managed basis reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/
(benefit). These adjustments are eliminated in reconciling items to arrive at the Firm's reported U.S. GAAP results.
(b) Prior-period amounts have been revised to conform with the current presentation. Refer to Note 25 for further information.
U.S.
158,793
(0.12)
(66)
52,903
(0.23)
(319)
137,752
0.43
659
154,825
0.26
299
114,406
Loans:
Non-U.S.
U.S.
Investment securities:
Non-U.S.
U.S.
Trading assets - debt instruments:
Non-U.S.
U.S.
Securities borrowed: (a)
Non-U.S.
U.S.
Federal funds sold and securities purchased under resale agreements:
(0.09)
3,530
0.13 %
2.22
3,326
901
1,323,812
U.S.
Interest-bearing deposits:
Interest-bearing liabilities
1.81
58,294
3,215,942
0.73
894
123,079
2.21
2,448
110,686
4.24
39,215
924,713
Total interest-earning assets
All other interest-earning assets, predominantly U.S.
Non-U.S.
1.29
397
30,868
1.31
7,399
563,109
2.66
125,036
0.07
693
(181)
Non-U.S.
54,981
$
(g)
236,865
266,764
3,202,150
$
29,899
2,480,685
2,935,386
150,979
161,269
42,560
61,593
31,085
32,628
407,219
517,527
1.45
26,795
1,848,842
0.46
9,960
2,162,369
3.55
8,807
247,968
2.27
5,764
1.88 %
1.98
527,340 $
192,432
27,511
232,907
260,418
2,741,103
$
U.S.
Deposits with banks:
Rate
Interest
Average balance
2021
Interest-earning assets
(Taxable-equivalent interest and rates; in millions, except rates)
(Unaudited)
(Table continued on next page)
Presented below is a summary of interest and rates segregated between U.S. and non-U.S. operations for the years 2019
through 2021. The segregation of U.S. and non-U.S. components is based on the location of the office recording the
transaction. Intercompany funding generally consists of dollar-denominated deposits originated in various locations that are
centrally managed by Treasury and CIO.
Interest rates and interest differential analysis of net interest income - U.S. and non-U.S.
301
JPMorgan Chase & Co./2021 Form 10-K
(I) Prior-period amounts have been revised to conform with the current presentation.
(k) The annualized rate for securities based on amortized cost was 1.33%, 1.85% and 3.05% for the years ended December 31, 2021, 2020 and 2019,
respectively, and does not give effect to changes in fair value that are reflected in AOCI.
(j) Negative interest income and yield are related to the impact of current interest rates combined with the fees paid on client-driven securities borrowed
balances. The negative interest expense related to prime brokerage customer payables is recognized in interest expense and reported within trading
liabilities - debt and all other interest-bearing liabilities.
(i) Fees and commissions on loans included in loan interest amounted to $1.9 billion, $1.0 billion and $1.2 billion for the years ended December 31, 2021,
2020 and 2019.
(h) Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(g) The ratio of average stockholders' equity to average assets was 7.6%, 8.3% and 9.5% for the years ended December 31, 2021, 2020 and 2019,
respectively. The return on average stockholders' equity, based on net income, was 17.0%, 10.9% and 14.0% for the years ended December 31, 2021,
2020 and 2019, respectively.
(f) The combined balance of trading liabilities - debt and equity instruments was $128.2 billion, $106.5 billion and $101.0 billion for the years ended
December 31, 2021, 2020 and 2019, respectively.
2.46
2.16 %
57,776
$
(g)
$
254,400
Non-U.S.
(370)
299
2.17 %
3,588
165,066 $
114,938
(0.01)
(19)
149,389
$
0.26 %
768
294,669 $
$
Rate
Interest
Average balance
2019
Rate
Interest
Average balance
2020
(Table continued from previous page)
Refer to the "Net interest income” discussion in Consolidated Results of Operations on pages 52-54 for further information.
JPMorgan Chase & Co./2021 Form 10-K
302
(c) Represents the amount of noninterest-bearing liabilities funding interest-earning assets.
(b) Includes commercial paper.
(a) Negative interest income and yield are related to the impact of current interest rates combined with the fees paid on client-driven securities borrowed
balances. The negative interest expense related to prime brokerage customer payables is recognized in interest expense and reported within trading
liabilities - debt and all other interest-bearing liabilities.
0.26
20.4
141,409
0.95
3.07
6,157
200,811
2.34
5,056
216,025
0.39
151
38,666
0.01
3
43,446
1.54
1,423
92,625
(0.30)
(305)
100,026
1.66
2,078
125,224
0.81
1,095
134,517
2.71
4,068
150,205
1,341
371,053
24.6
6,119
Intercompany funding:
Non-U.S.
U.S.
Long-term debt:
Beneficial interests issued by consolidated VIES, predominantly U.S.
Non-U.S.
U.S.
0.57
83
14,595
0.66
728
109,583
(0.20)
(345)
176,466
Trading liabilities - debt, short-term and all other interest-bearing liabilities:(a)(b)
0.09
52
60,082
Non-U.S.
0.11
222
199,220
U.S.
Federal funds purchased and securities loaned or sold under repurchase agreements:
(0.10)
U.S.
0.87
Non-U.S.
Noninterest-bearing liabilities
1.86
46,622
1.64 %
52,741
0.17 %
5,553
3,215,942 $
$
$
710,753
0.22
5,553
1,229
(1,229)
(116,317)
116,317
2,505,189
0.96
53
5,528
1.73
4,229
244,850
Liabilities
Assets
Percentage of total assets and liabilities attributable to non-U.S. operations:
Non-U.S.
U.S.
Net interest income and net yield:
Total investable funds
Total interest-bearing liabilities
106,911
2.52
22,501
241,431
0.28
126
0.11
274
0.03%
531
$
1,694,865
259,302
44,618
$
(a) Represents securities that are tax-exempt for U.S. federal income tax purposes.
Net interest income and net yield on interest-earning assets
Interest rate spread
Total liabilities and stockholders' equity
Total stockholders' equity
Common stockholders' equity
Preferred stock
Stockholders' equity
Total liabilities
All other liabilities, including the allowance for lending-related commitments (c)
Trading liabilities - derivative payables
Trading liabilities - equity and other instruments (f)
Noninterest-bearing deposits
Total interest-bearing liabilities
Long-term debt
Beneficial interests issued by consolidated VIES
Trading liabilities - debt and all other interest-bearing liabilities (e) (f)
(j)
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings (d)
257
14,595
Average
balance
(Table continued from previous page)
JPMorgan Chase & Co./2021 Form 10-K
300
Within the Consolidated average balance sheets, interest and rates summary, the principal amounts of nonaccrual loans have
been included in the average loan balances used to determine the average interest rate earned on loans. Refer to Note 12 for
additional information on nonaccrual loans, including interest accrued.
(e) All other interest-bearing liabilities include brokerage-related customer payables.
(c) Prior-period amounts have been revised to conform with the current presentation. Refer to Note 25 for further information.
(d) Includes commercial paper.
(b) Includes brokerage-related held-for-investment customer receivables, which are classified in accrued interest and accounts receivable, and all other
interest-earning assets, which are classified in other assets on the Consolidated Balance Sheets.
1.59%
1.64
52,741
$
(g)
33,027
250,968
283,995
3,725,202
$
3,441,207
186,755
60,318
36,656
652,289
0.22
5,553
2,505,189
1.71
4,282
250,378
0.57
83
0.11
2020
3,725,202
207,737
Trading assets - derivative receivables
Trading assets - equity and other instruments
Cash and due from banks
Allowance for loan losses
Total interest-earning assets
All other interest-earning assets (b)
Loans
Total investment securities
Non-taxable securities (a)
Taxable securities
2.42
6,856
283,829
Trading assets - debt instruments
(j)
(0.20)
(385)
190,655
Securities borrowed
0.36
958
269,231
Federal funds sold and securities purchased under resale agreements
0.07 %
512
$
719,772
Goodwill, MSRs and other intangible assets
$
563,147
1.15
55,003
69,101
172,822
26,776
Interest-bearing deposits
Liabilities
Total assets
(c)
All other noninterest-earning assets"
1.81
58,294
0.73
894
(22,179)
3,215,942
123,079
4.02
41,663
1,035,399
(i)
1.31
7,796
593,977
(k)
4.33
1,336
30,830
6,460
568
Interest(h)
Average
166,718
53,683
53,786
114,323
20,645
3,202,150
$
179,413
51,934
73,749
(1)
(1)
120,878
22,241
(25,775)
3.61
84,571
(13,331)
2,345,279
2.34
64,941
3.99
2,146
53,779
1.30
1,023
5.25
$
52,012
2,741,103
1,389,224
1.12
214
19,216
1.42
2,585
182,105
0.10
195
205,255
(j)
2.38
1,248
2.03
4,630
0.80 %
8,957
$
1,115,848
227,994
52,426
0.96
372
0.41
1,058
255,421
38,853
$
0.17 %
2,357
$
$
Rate
989,943
43,886
1.20
1,574
131,291
(0.21)
(j)
(302)
143,472
2.23
6,146
275,429
0.88
2,436
275,926
1.39 %
3,887
$
280,004
$
0.17 %
749
$
444,058
$
Rate
Interest (h)
2019
balance
322,936
4.37
7,869
294,958
2,779,710
78,784
1,004,597
(i)
(i)
3.01
9,617
319,875
1.82
9,280
509,937
(k)
(k)
4.63
1,655
35,748
4.32
1,437
33,287
2.80
7,962
284,127
1.65
7,843
476,650
3.12
9,189
2.44
2,813
Year ended December 31,
94,147
Commercial Card: provides a wide range of payment
services to corporate and public sector clients worldwide
through the commercial card products. Services include
procurement, corporate travel and entertainment, expense
management services, and business-to-business payment
solutions.
Credit derivatives: Financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) which allow one
party (the protection purchaser) to transfer that risk to
another party (the protection seller). Upon the occurrence
of a credit event by the reference entity, which may include,
among other events, the bankruptcy or failure to pay its
obligations, or certain restructurings of the debt of the
reference entity, neither party has recourse to the
reference entity. The protection purchaser has recourse to
the protection seller for the difference between the face
value of the CDS contract and the fair value at the time of
settling the credit derivative contract. The determination as
to whether a credit event has occurred is generally made by
the relevant International Swaps and Derivatives
Association ("ISDA") Determinations Committee.
Criticized: Criticized loans, lending-related commitments
and derivative receivables that are classified as special
JPMorgan Chase & Co./2021 Form 10-K
305
Glossary of Terms and Acronyms
mention, substandard and doubtful categories for
regulatory purposes.
CRO: Chief Risk Officer
CTC: CIO, Treasury and Corporate
Custom lending: Loans to AWM's Global Private Bank
clients, including loans to private investment funds and
loans that are collateralized by nontraditional asset types,
such as art work, aircraft, etc.
CVA: Credit valuation adjustment
Debit and credit card sales volume: Dollar amount of card
member purchases, net of returns.
Collateral-dependent: A loan is considered to be collateral-
dependent when repayment of the loan is expected to be
provided substantially through the operation or sale of the
collateral when the borrower is experiencing financial
difficulty, including when foreclosure is deemed probable
based on borrower delinquency.
Deposit margin/deposit spread: Represents net interest
income expressed as a percentage of average deposits.
Distributed denial-of-service attack: The use of a large
number of remote computer systems to electronically send
a high volume of traffic to a target website to create a
service outage at the target. This is a form of cyberattack.
Dodd-Frank Act: Wall Street Reform and Consumer
Protection Act
EC: European Commission
Eligible HQLA: Eligible high-quality liquid assets, for
purposes of calculating the LCR, is the amount of
unencumbered HQLA that satisfy certain operational
considerations as defined in the LCR rule.
Eligible LTD: Long-term debt satisfying certain eligibility
criteria
Embedded derivatives: are implicit or explicit terms or
features of a financial instrument that affect some or all of
the cash flows or the value of the instrument in a manner
similar to a derivative. An instrument containing such terms
or features is referred to as a "hybrid." The component of
the hybrid that is the non-derivative instrument is referred
to as the "host." For example, callable debt is a hybrid
instrument that contains a plain vanilla debt instrument
(i.e., the host) and an embedded option that allows the
issuer to redeem the debt issue at a specified date for a
specified amount (i.e., the embedded derivative). However,
a floating rate instrument is not a hybrid composed of a
fixed-rate instrument and an interest rate swap.
EPS: Earnings per share
ERISA: Employee Retirement Income Security Act of 1974
ETD: "Exchange-traded derivatives": Derivative contracts
that are executed on an exchange and settled via a central
clearing house.
•
EU: European Union
Expense categories:
Volume- and/or revenue-related expenses generally
correlate with changes in the related business/
•
DVA: Debit valuation adjustment
CMT: Constant Maturity Treasury
CLTV: Combined loan-to-value
Client assets: Represent assets under management as well
as custody, brokerage, administration and deposit accounts.
Client deposits and other third-party liabilities: Deposits,
as well as deposits that are swept to on-balance sheet
liabilities (e.g., commercial paper, federal funds purchased
and securities loaned or sold under repurchase
agreements) as part of client cash management programs.
CLO: Collateralized loan obligations
ALCO: Asset Liability Committee
Amortized cost: Amount at which a financing receivable or
investment is originated or acquired, adjusted for accretion
or amortization of premium, discount, and net deferred fees
or costs, collection of cash, charge-offs, foreign exchange,
and fair value hedge accounting adjustments. For AFS
securities, amortized cost is also reduced by any
impairment losses recognized in earnings. Amortized cost is
not reduced by the allowance for credit losses, except
where explicitly presented net.
AOCI: Accumulated other comprehensive income/(loss)
ARM: Adjustable rate mortgage(s)
AUC: Assets under custody
AUM: "Assets under management": Represent assets
managed by AWM on behalf of its Private Banking,
Institutional and Retail clients. Includes "Committed capital
not Called."
Auto loan and lease origination volume: Dollar amount of
auto loans and leases originated.
AWM: Asset & Wealth Management
Beneficial interests issued by consolidated VIES:
Represents the interest of third-party holders of debt,
equity securities, or other obligations, issued by VIES that
JPMorgan Chase consolidates.
Benefit obligation: Refers to the projected benefit
obligation for pension plans and the accumulated
postretirement benefit obligation for OPEB plans.
BHC: Bank holding company
CB: Commercial Banking
CBB: Consumer & Business Banking
CCAR: Comprehensive Capital Analysis and Review
CCB: Consumer & Community Banking
CCO: Chief Compliance Officer
CCP: "Central counterparty" is a clearing house that
interposes itself between counterparties to contracts traded
in one or more financial markets, becoming the buyer to
every seller and the seller to every buyer and thereby
ensuring the future performance of open contracts. A CCP
becomes a counterparty to trades with market participants
through novation, an open offer system, or another legally
binding arrangement.
CDS: Credit default swaps
CECL: Current Expected Credit Losses
CEO: Chief Executive Officer
CET1 Capital: Common equity Tier 1 capital
CFO: Chief Financial Officer
CFP: Contingency funding plan
CFTC: Commodity Futures Trading Commission
Chase Bank USA, N.A.: Chase Bank USA, National
Association
CIB: Corporate & Investment Bank
CIO: Chief Investment Office
•
transaction volume or revenue. Examples include
commissions and incentive compensation within the
LOBS, depreciation expense related to operating lease
assets, and brokerage expense related to trading
transaction volume.
Investments in the business include expenses associated
with supporting medium- to longer-term strategic plans
of the Firm. Examples include front office growth, market
expansion, initiatives in technology (including related
compensation), marketing, and acquisitions.
Structural expenses are those associated with the day-to-
day cost of running the Firm and are expenses not
included in the above two categories. Examples include
employee salaries and benefits, certain other incentive
compensation, and costs related to real estate.
Fannie Mae: Federal National Mortgage Association
FASB: Financial Accounting Standards Board
FCA: Financial Conduct Authority
(1,101)
(1,466)
(555)
336
513
32
481
Non-U.S.
365
(1,526)
(259)
(1,267)
U.S.
Trading assets - debt instruments:
(148)
(147)
(1)
(69)
(56)
(13)
Non-U.S.
(1,728)
(1,704)
(24)
(14)
70
(219)
AFS: Available-for-sale
Investment securities:
Non-U.S.
FCC: Firmwide Control Committee
FDIC: Federal Deposit Insurance Corporation
Federal Reserve: The Board of the Governors of the Federal
Reserve System
FFIEC: Federal Financial Institutions Examination Council
FHA: Federal Housing Administration
FHLB: Federal Home Loan Bank
FICC: The Fixed Income Clearing Corporation
FICO score: A measure of consumer credit risk provided by
credit bureaus, typically produced from statistical models
by Fair Isaac Corporation utilizing data collected by the
credit bureaus.
FINRA: Financial Industry Regulatory Authority
Firm: JPMorgan Chase & Co.
Forward points: Represents the interest rate differential
between two currencies, which is either added to or
subtracted from the current exchange rate (i.e., "spot
rate") to determine the forward exchange rate.
FRC: Firmwide Risk Committee
Freddie Mac: Federal Home Loan Mortgage Corporation
Free standing derivatives: a derivative contract entered
into either separate and apart from any of the Firm's other
financial instruments or equity transactions. Or, in
conjunction with some other transaction and is legally
detachable and separately exercisable.
FSB: Financial Stability Board
FTE: Fully taxable equivalent
FVA: Funding valuation adjustment
FX: Foreign exchange
306
JPMorgan Chase & Co./2021 Form 10-K
All other interest-earning assets, predominantly U.S.
(115)
(260)
(3,686)
3,426
38
(1,304)
(180)
(2,474)
(136)
1,170
(44)
U.S.
(84)
ABS: Asset-backed securities
Glossary of Terms and Acronyms
495
(5,103)
(4,608)
Non-U.S.
(55)
(384)
(439)
25
(2,017)
(1,992)
Federal funds purchased and securities loaned or sold under
repurchase agreements:
(1,387)
U.S.
(635)
(641)
176
(3,302)
(3,126)
Non-U.S.
8
(151)
(143)
(51)
(395)
(6)
(1,496)
109
U.S.
355
Non-U.S.
600
U.S.
Loans:
(77)
(3,093)
(85)
(449)
(2,493)
557
270
(129)
74
324
(7,907)
(850)
(1,447)
(7,350)
(776)
(1,123)
Change in interest income
1,793
(8,440)
(6,647)
5,418
(25,048)
(19,630)
Interest-bearing liabilities
Interest-bearing deposits:
(446)
Trading liabilities - debt, short-term and all other interest-bearing
liabilities:(a)(b)
U.S.
(43)
(3,193)
13
(3,062)
19
Intercompany funding:
U.S.
(739)
764
Non-U.S.
Change in interest expense
Change in net interest income
$
(249)
(17,618) (16,835)
$ 4,635 $ (7,430) $ (2,795)
(a) Negative interest income and yield are related to the impact of current interest rates combined with the fees paid on client-driven securities borrowed
balances. The negative interest expense related to prime brokerage customer payables is recognized in interest expense and reported within trading
liabilities - debt and all other interest-bearing liabilities.
739
(764)
22
(4,429)
1,771 $ (4,011) $
25
(25)
(4,407)
(2,240)
(89)
249
160
89
(160)
783
(b) Includes commercial paper.
304
JPMorgan Chase & Co./2021 Form 10-K
2.63
6
2021 Form 10-K: Annual report on Form 10-K for the year
ended December 31, 2021, filed with the U.S. Securities
and Exchange Commission.
(7)
(1,475)
(272)
(315)
2
(2,606)
(2,604)
Non-U.S.
112
19
131
36
(698)
(662)
Beneficial interests issued by consolidated VIES, predominantly
U.S.
(27)
(104)
(131)
(37)
(317)
(354)
Long-term debt:
U.S.
(64)
Non-U.S.
(12)
(1,411)
5
131
U.S.
320
(983)
0.46
9,960
2,162,369
1,414
(1,414)
(42,947)
42,947
1,254
46,327
(1,254)
(46,327)
0.68
41
6,054
0.89
60
6,777
3.62
87,284
1,259
1.44
19,216
214
1.12
1,848,842
22,501
2.52
247,623
5,704
2.30
241,914
8,766
568
0.64
26,795
617,341
The table below presents an attribution of net interest income between volume and rate. The attribution between volume and rate
is calculated using annual average balances for each category of assets and liabilities shown in the table and the corresponding
annual rates (refer to pages 300-304 for more information on average balances and rates). In this analysis, when the change
cannot be isolated to either volume or rate, it has been allocated to volume. The annual rates include the impact of changes in
market rates, as well as the impact of any change in composition of the various products within each category of asset or liability.
This analysis is calculated separately for each category without consideration of the relationship between categories (for example,
the net spread between the rates earned on assets and the rates paid on liabilities that fund those assets). As a result, changes in
the granularity or groupings considered in this analysis would produce a different attribution result, and due to the complexities
involved, precise allocation of changes in interest rates between volume and rates is inherently complex and judgmental.
Changes in net interest income, volume and rate analysis
303
22.1
24.5
20.9
23.5
JPMorgan Chase & Co./2021 Form 10-K
1.07
5,559
0.97
5,739
2.86
52,217
2.25
49,242
2.46 %
496,437
$
2,779,710 $
9,960
0.36 %
$
1.45
2,345,279 $
1.14 %
Securities borrowed: (a)
54,981
1.98 %
$
57,776
26,795
597
92,988
1.75
2,146
53,779
1.30
1,023
78,784
3.23
2,954
91,373
2.30
2,178
94,747
5.46
49,058
898,570
4.58
41,708
909,850
3,032
3.22
475,832
8,703
1.83
287,961
3.99
8,963
34,105
577
1.69
31,914
654
2.05
3.11
2,779,710
64,941
2.34
164,284
3,989
2.43
50,463
195
0.39
0.42
63,710
1.01
151,120
(30)
(0.02)
147,247
2,574
641
(Unaudited)
863
0.78
2,345,279
84,571
3.61
1,068,857
2,288
0.21
204,958
850,493
0.81
320,367
69
0.02
265,355
2,061
6,896
Year ended December 31,
$
Interest-earning assets
(42)
308 $
$
Net
change
Rate
Volume
Net
change
(383) $
(120)
Rate
Increase/(decrease) due
to change in:
2021 versus 2020
2020 versus 2019
Increase/(decrease) due
to change in:
Federal funds sold and securities purchased under resale
Non-U.S.
U.S.
Deposits with banks:
Volume
(75)
(162)
(On a taxable-equivalent basis; in millions)
333 $
$
81
(436)
75
Non-U.S.
(2,727)
(2,644)
(511)
(1,064)
(1,042)
(976)
(66)
U.S.
agreements:
(3,153) $ (2,820)
(310)
(318)
(83)
(8)
OAS: Option-adjusted spread
OCC: Office of the Comptroller of the Currency
OCI: Other comprehensive income/(loss)
OPEB: Other postretirement employee benefit
Over-the-counter ("OTC") derivatives: Derivative contracts
that are negotiated, executed and settled bilaterally
between two derivative counterparties, where one or both
counterparties is a derivatives dealer.
PCD: “Purchased credit deteriorated" assets represent
acquired financial assets that as of the date of acquisition
have experienced a more-than-insignificant deterioration in
credit quality since origination, as determined by the Firm.
PD: Probability of default
Overhead ratio: Noninterest expense as a percentage of
total net revenue.
Participating securities: Represents unvested share-based
compensation awards containing nonforfeitable rights to
dividends or dividend equivalents (collectively,
"dividends"), which are included in the earnings per share
calculation using the two-class method. JPMorgan Chase
grants RSUs to certain employees under its share-based
compensation programs, which entitle the recipients to
receive nonforfeitable dividends during the vesting period
on a basis equivalent to the dividends paid to holders of
common stock. These unvested awards meet the definition
of participating securities. Under the two-class method, all
earnings (distributed and undistributed) are allocated to
each class of common stock and participating securities,
based on their respective rights to receive dividends.
PCA: Prompt corrective action
PCAOB: Public Company Accounting Oversight Board
NSFR: Net Stable Funding Ratio
Over-the-counter cleared ("OTC-cleared") derivatives:
Derivative contracts that are negotiated and executed
bilaterally, but subsequently settled via a central clearing
house, such that each derivative counterparty is only
exposed to the default of that clearing house.
Parent Company: JPMorgan Chase & Co.
NOL: Net operating loss
government agencies) are placed on nonaccrual status
when full payment of principal and interest is not expected,
regardless of delinquency status, or when principal and
interest have been in default for a period of 90 days or
more unless the loan is both well-secured and in the
process of collection. Collateral-dependent loans are
typically maintained on nonaccrual status.
Glossary of Terms and Acronyms
JPMorgan Chase & Co./2021 Form 10-K
308
Nonaccrual loans: Loans for which interest income is not
recognized on an accrual basis. Loans (other than credit
card loans and certain consumer loans insured by U.S.
PPP: Paycheck Protection Program under the Small
Business Association ("SBA")
NM: Not meaningful
NFA: National Futures Association
Net yield on interest-earning assets: The average rate for
interest-earning assets less the average rate paid for all
sources of funds.
Net revenue rate: Represents Credit Card net revenue
(annualized) expressed as a percentage of average loans
for the period.
Net mortgage servicing revenue: Includes operating
revenue earned from servicing third-party mortgage loans,
which is recognized over the period in which the service is
provided; changes in the fair value of MSRs; the impact of
risk management activities associated with MSRS; and gains
and losses on securitization of excess mortgage servicing.
Net mortgage servicing revenue also includes gains and
losses on sales and lower of cost or fair value adjustments
of certain repurchased loans insured by U.S. government
agencies.
• Partner payments: Payments to co-brand credit card
partners based on the cost of loyalty program rewards
earned by cardholders on credit card transactions.
Nonperforming assets: Nonperforming assets include
nonaccrual loans, nonperforming derivatives and certain
assets acquired in loan satisfaction, predominantly real
estate owned and other commercial and personal property.
NOW: Negotiable Order of Withdrawal
PRA: Prudential Regulation Authority
In connection with its client-driven market-making
activities, the Firm transacts in debt and equity
instruments, derivatives and commodities, including
physical commodities inventories and financial instruments
that reference commodities.
Pre-tax margin: Represents income before income tax
expense divided by total net revenue, which is, in
management's view, a comprehensive measure of pretax
performance derived by measuring earnings after all costs
are taken into consideration. It is one basis upon which
management evaluates the performance of AWM against
the performance of their respective competitors.
Principal transactions revenue: Principal transactions
revenue is driven by many factors, including:
Net Capital Rule: Rule 15c3-1 under the Securities
Exchange Act of 1934.
NAV: Net Asset Value
NA: Data is not applicable or available for the period
presented.
Multi-asset: Any fund or account that allocates assets under
management to more than one asset class.
MSR: Mortgage servicing rights
poor payment histories; (ii) a high LTV ratio of greater than
80% (without borrower-paid mortgage insurance); (iii) a
high debt-to-income ratio; (iv) an occupancy type for the
loan is other than the borrower's primary residence; or (v)
a history of delinquencies or late payments on the loan.
MSA: Metropolitan statistical areas
Subprime loans are loans that, prior to mid-2008, were
offered to certain customers with one or more high risk
characteristics, including but not limited to: (i) unreliable or
Subprime
Prime mortgage loans are made to borrowers with good
credit records who meet specific underwriting
requirements, including prescriptive requirements related
to income and overall debt levels. New prime mortgage
borrowers provide full documentation and generally have
reliable payment histories.
Prime
Reward costs: The cost to the Firm for points earned by
cardholders enrolled in credit card rewards programs
generally tied to sales transactions.
Option ARMS
Alt-A loans are generally higher in credit quality than
subprime loans but have characteristics that would
disqualify the borrower from a traditional prime loan. Alt-A
lending characteristics may include one or more of the
following: (i) limited documentation; (ii) a high CLTV ratio;
(iii) loans secured by non-owner occupied properties; or (iv)
a debt-to-income ratio above normal limits. A substantial
proportion of the Firm's Alt-A loans are those where a
borrower does not provide complete documentation of his
or her assets or the amount or source of his or her income.
Production revenue: Includes fees and income recognized
as earned on mortgage loans originated with the intent to
sell, and the impact of risk management activities
associated with the mortgage pipeline and warehouse
loans. Production revenue also includes gains and losses on
sales and lower of cost or fair value adjustments on
mortgage loans held-for-sale (excluding certain
repurchased loans insured by U.S. government agencies),
and changes in the fair value of financial instruments
measured under the fair value option.
derivatives used for specific risk management purposes,
primarily to mitigate credit risk and foreign exchange
risk.
derivatives designated in qualifying hedge accounting
relationships, primarily fair value hedges of commodity
and foreign exchange risk;
•
Principal transactions revenue also includes realized and
unrealized gains and losses related to:
•
Unrealized gains and losses result from changes in
valuation.
Realized gains and losses result from the sale of
instruments, closing out or termination of transactions,
or interim cash payments.
realized and unrealized gains and losses on financial
instruments and commodities transactions, including
those accounted for under the fair value option, primarily
used in client-driven market-making activities, and on
private equity investments.
the bid-offer spread, which is the difference between the
price at which a market participant is willing and able to
sell an instrument to the Firm and the price at which
another market participant is willing and able to buy it
from the Firm, and vice versa; and
•
•
Pre-provision profit/(loss): Represents total net revenue
less noninterest expense. The Firm believes that this
financial measure is useful in assessing the ability of a
lending institution to generate income in excess of its
provision for credit losses.
The option ARM real estate loan product is an adjustable-
rate mortgage loan that provides the borrower with the
option each month to make a fully amortizing, interest-only
or minimum payment. The minimum payment on an option
ARM loan is based on the interest rate charged during the
introductory period. This introductory rate is usually
significantly below the fully indexed rate. The fully indexed
rate is calculated using an index rate plus a margin. Once
the introductory period ends, the contractual interest rate
charged on the loan increases to the fully indexed rate and
adjusts monthly to reflect movements in the index. The
minimum payment is typically insufficient to cover interest
accrued in the prior month, and any unpaid interest is
deferred and added to the principal balance of the loan.
Option ARM loans are subject to payment recast, which
converts the loan to a variable-rate fully amortizing loan
upon meeting specified loan balance and anniversary date
triggers.
Interchange income: Fees earned by credit and debit
card issuers on sales transactions.
•
Madhav Kalyan
Ireland
Marc Hussey
Indonesia
Gioshia Ralie
Malaysia
Israel
Roy Navon
Italy
Hooi Ching Wong
Philippines
Carlos Ma. G Mendoza
Singapore
Edmund Y. Lee
Thailand
Marco Sucharitkul
Glossary of Terms and Acronyms
G7: Group of Seven nations: Countries in the G7 are
Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
G7 government bonds: Bonds issued by the government of
one of the G7 nations.
India
Ignacio de la Colina
Sudhir Goel
Iberia
Tae Jin Park
Europe/Middle East/Africa
Austria
Anton J. Ulmer
Bahrain, Egypt and Lebanon
Ali Moosa
Belgium
Tanguy A. Piret
France
Ginnie Mae: Government National Mortgage Association
GSIB: Global systemically important banks
HELOC: Home equity line of credit
Kyril Courboin
Stefan P. Povaly
Saudi Arabia
Bader A. Alamoudi
Kevin G. Latter
Net charge-off/(recovery) rate: Represents net charge-
offs/(recoveries) (annualized) divided by average retained
loans for the reporting period.
Switzerland
Nick Bossart
Turkey
Southeast Asia
Germany
•
Home equity - senior lien: Represents loans and
commitments where JPMorgan Chase holds the first
security interest on the property.
Households: A household is a collection of individuals or
entities aggregated together by name, address, tax
identifier and phone number.
Origination date LTV ratio
The LTV ratio at the origination date of the loan. Origination
date LTV ratios are calculated based on the actual
appraised values of collateral (i.e., loan-level data) at the
origination date.
Current estimated LTV ratio
An estimate of the LTV as of a certain date. The current
estimated LTV ratios are calculated using estimated
collateral values derived from a nationally recognized home
price index measured at the metropolitan statistical area
("MSA") level. These MSA-level home price indices consist
of actual data to the extent available and forecasted data
where actual data is not available. As a result, the
estimated collateral values used to calculate these ratios do
not represent actual appraised loan-level collateral values;
as such, the resulting LTV ratios are necessarily imprecise
and should therefore be viewed as estimates.
Combined LTV ratio
The LTV ratio considering all available lien positions, as well
as unused lines, related to the property. Combined LTV
ratios are used for junior lien home equity products.
Managed basis: A non-GAAP presentation of Firmwide
financial results that includes reclassifications to present
revenue on a fully taxable-equivalent basis. Management
also uses this financial measure at the segment level,
because it believes this provides information to enable
investors to understand the underlying operational
performance and trends of the particular business segment
and facilitates a comparison of the business segment with
the performance of competitors.
Master netting agreement: A single agreement with a
counterparty that permits multiple transactions governed
by that agreement to be terminated or accelerated and
settled through a single payment in a single currency in the
event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due).
MBS: Mortgage-backed securities
MD&A: Management's discussion and analysis
Measurement alternative: Measures equity securities
without readily determinable fair values at cost less
impairment (if any), plus or minus observable price changes
from an identical or similar investment of the same issuer.
Merchant Services: offers merchants payment processing
capabilities, fraud and risk management, data and analytics,
and other payments services. Through Merchant Services,
merchants of all sizes can accept payments via credit and
debit cards and payments in multiple currencies.
JPMorgan Chase & Co./2021 Form 10-K
307
Glossary of Terms and Acronyms
MEV: Macroeconomic variable
MMLF: Money Market Mutual Fund Liquidity Facility
Moody's: Moody's Investor Services
Mortgage origination channels:
Retail - Borrowers who buy or refinance a home through
direct contact with a mortgage banker employed by the
Firm using a branch office, the Internet or by phone.
Borrowers are frequently referred to a mortgage banker by
a banker in a Chase branch, real estate brokers, home
builders or other third parties.
Correspondent - Banks, thrifts, other mortgage banks and
other financial institutions that sell closed loans to the Firm.
Mortgage product types:
Net interchange income includes the following
components:
LTV: "Loan-to-value": For residential real estate loans, the
relationship, expressed as a percentage, between the
principal amount of a loan and the appraised value of the
collateral (i.e., residential real estate) securing the loan.
LTIP: Long-term incentive plan
LOB CROS: Line of Business and CTC Chief Risk Officers
LOB: Line of business
HQLA: "High-quality liquid assets" consist of cash and
certain high-quality liquid securities as defined in the LCR
rule.
HTM: Held-to-maturity
IBOR: Interbank Offered Rate
ICAAP: Internal capital adequacy assessment process
IDI: Insured depository institutions
IHC: JPMorgan Chase Holdings LLC, an intermediate holding
company
Investment-grade: An indication of credit quality based on
JPMorgan Chase's internal risk assessment. The Firm
considers ratings of BBB-/Baa3 or higher as investment-
grade.
IPO: Initial public offering
ISDA: International Swaps and Derivatives Association
Home equity-junior lien: Represents loans and
commitments where JPMorgan Chase holds a security
interest that is subordinate in rank to other liens.
JPMorgan Chase: JPMorgan Chase & Co.
JPMorgan Chase Foundation or the Firm's Foundation: A
not-for-profit organization that makes contributions for
charitable and educational purposes.
JPMorgan Securities: J.P. Morgan Securities LLC
LCR: Liquidity coverage ratio
LDA: Loss Distribution Approach
LGD: Loss given default
LIBOR: London Interbank Offered Rate
LLC: Limited Liability Company
JPMorgan Chase Bank, N.A.: JPMorgan Chase Bank,
National Association
Alt-A
Jaime Augusto Zobel de Ayala
Chairman
Carl K. Chien
VA: U.S. Department of Veterans Affairs
U.S. Treasury: U.S. Department of the Treasury
U.S. GSE(s): “U.S. government-sponsored enterprises" are
quasi-governmental, privately-held entities established or
chartered by the U.S. government to serve public purposes
as specified by the U.S. Congress to improve the flow of
credit to specific sectors of the economy and provide
certain essential services to the public. U.S. GSEs include
Fannie Mae and Freddie Mac, but do not include Ginnie Mae
or FHA. U.S. GSE obligations are not explicitly guaranteed as
to the timely payment of principal and interest by the full
faith and credit of the U.S. government.
U.S. government agencies: U.S. government agencies
include, but are not limited to, agencies such as Ginnie Mae
and FHA, and do not include Fannie Mae and Freddie Mac
which are U.S. government-sponsored enterprises (“U.S.
GSES"). In general, obligations of U.S. government agencies
are fully and explicitly guaranteed as to the timely payment
of principal and interest by the full faith and credit of the
U.S. government in the event of a default.
U.S. GAAP: Accounting principles generally accepted in the
U.S.
U.S.: United States of America
U.K.: United Kingdom
TLAC: Total loss-absorbing capacity
other insignificant modifications that are not considered
concessions are not TDRs.
Glossary of Terms and Acronyms
JPMorgan Chase & Co./2021 Form 10-K
310
TDR: "Troubled debt restructuring" is deemed to occur
when the Firm modifies the original terms of a loan
agreement by granting a concession to a borrower that is
experiencing financial difficulty. Loans with short-term and
TCE: Tangible common equity
TBVPS: Tangible book value per share
VaR: "Value-at-risk" is a measure of the dollar amount of
potential loss from adverse market moves in an ordinary
market environment.
VCG: Valuation Control Group
VGF: Valuation Governance Forum
VIES: Variable interest entities
Chief Executive Officer
Henry Crown and Company
(Diversified investments)
James S. Crown 4,5
Chairman and
(Conglomerate and insurance)
Chief Executive Officer
GEICO
President and
Berkshire Hathaway Inc.;
Investment Officer
Taxable-equivalent basis: In presenting results on a
managed basis, the total net revenue for each of the
business segments and the Firm is presented on a tax-
equivalent basis. Accordingly, revenue from investments
that receive tax credits and tax-exempt securities is
presented in managed basis results on a level comparable
to taxable investments and securities; the corresponding
income tax impact related to tax-exempt items is recorded
within income tax expense.
Todd A. Combs 2,3
Retired Chairman and
Chief Executive Officer
NBCUniversal, LLC
Stephen B. Burke²,3
Linda B. Bammann2,4
Retired Deputy Head of Risk
Management
JPMorgan Chase & Co.
(Financial services)
Board of Directors
311
JPMorgan Chase & Co./2021 Form 10-K
Warehouse loans: Consist of prime mortgages originated
with the intent to sell that are accounted for at fair value
and classified as loans.
(Television and entertainment)
James Dimon
Chairman and
Chief Executive Officer
JPMorgan Chase & Co.
(Financial services)
Structural interest rate risk: Represents interest rate risk
of the non-trading assets and liabilities of the Firm.
Structured notes: Structured notes are financial
instruments whose cash flows are linked to the movement
in one or more indexes, interest rates, foreign exchange
rates, commodities prices, prepayment rates, underlying
reference pool of loans or other market variables. The notes
typically contain embedded (but not separable or
detachable) derivatives. Contractual cash flows for
principal, interest, or both can vary in amount and timing
throughout the life of the note based on non-traditional
indexes or non-traditional uses of traditional interest rates
or indexes.
SOFR: Secured Overnight Financing Rate
Retained loans: Loans that are held-for-investment (i.e.,
excludes loans held-for-sale and loans at fair value).
Revenue wallet: Proportion of fee revenue based on
estimates of investment banking fees generated across the
industry (i.e., the revenue wallet) from investment banking
transactions in M&A, equity and debt underwriting, and loan
syndications. Source: Dealogic, a third-party provider of
investment banking competitive analysis and volume-based
league tables for the above noted industry products.
Reported basis: Financial statements prepared under U.S.
GAAP, which excludes the impact of taxable-equivalent
adjustments.
REO: Real estate owned
Regulatory VaR: Daily aggregated VaR calculated in
accordance with regulatory rules.
PSUs: Performance share units
Glossary of Terms and Acronyms
Taiwan
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"JPMorgan Chase," "J.P. Morgan," "Chase," the Octagon
symbol and other words or symbols in this report that
identify JPMorgan Chase services are service marks
of JPMorgan Chase & Co. Other words or symbols in this
report that identify other parties' goods or services may
be trademarks or service marks of those other parties.
RHS: Rural Housing Service of the U.S. Department of
Agriculture
ROA: Return on assets
ROE: Return on equity
ROTCE: Return on tangible common equity
SMBS: Stripped mortgage-backed securities
SLR: Supplementary leverage ratio
Shelf securities: Securities registered with the SEC under a
shelf registration statement that have not been issued,
offered or sold. These securities are not included in league
tables until they have actually been issued.
Single-name: Single reference-entities
Seed capital: Initial JPMorgan capital invested in products,
such as mutual funds, with the intention of ensuring the
fund is of sufficient size to represent a viable offering to
clients, enabling pricing of its shares, and allowing the
manager to develop a track record. After these goals are
achieved, the intent is to remove the Firm's capital from the
investment.
Securities financing agreements: Include resale,
repurchase, securities borrowed and securities loaned
agreements
SEC: Securities and Exchange Commission
card loans, auto loans to individuals and certain small
business loans.
SPES: Special purpose entities
Scored portfolios: Consumer loan portfolios that
predominantly include residential real estate loans, credit
SAR(s) as it pertains to employee stock awards: Stock
appreciation rights
SAR as it pertains to Hong Kong: Special Administrative
Region
SA-CCR: Standardized Approach for Counterparty Credit
Risk
S&P: Standard and Poor's 500 Index
RWA: "Risk-weighted assets": Basel III establishes two
comprehensive approaches for calculating RWA (a
Standardized approach and an Advanced approach) which
include capital requirements for credit risk, market risk, and
in the case of Basel III Advanced, also operational risk. Key
differences in the calculation of credit risk RWA between
the Standardized and Advanced approaches are that for
Basel III Advanced, credit risk RWA is based on risk-sensitive
approaches which largely rely on the use of internal credit
models and parameters, whereas for Basel III Standardized,
credit risk RWA is generally based on supervisory risk-
weightings which vary primarily by counterparty type and
asset class. Market risk RWA is calculated on a generally
consistent basis between Basel III Standardized and Basel III
Advanced.
RSU(s): Restricted stock units
ROU assets: Right-of-use assets
SCB: Stress Capital Buffer
Independent registered public
accounting firm
PricewaterhouseCoopers LLP
300 Madison Avenue
New York, NY 10017
Timothy P. Flynn¹
Retired Chairman and
(Professional services)
Regional Chief Executive Officers
Asia Pacific
Filippo Gori
Europe/Middle East/Africa
Latin America/Canada
Viswas Raghavan
Alfonso Eyzaguirre
Senior Country Officers and Location Heads
Asia Pacific
Australia and New Zealand
Robert P. Bedwell
China
Mark C.M. Leung
Hong Kong
Harshika Patel
JPMorgan Chase & Co./2021 Annual Report
Secretary
John H. Tribolati
312
Robin Leopold
Head of Human Resources
Douglas B. Petno
CEO, Commercial Banking
Jennifer A. Piepszak
Co-CEO, Consumer & Community
Banking
Troy L. Rohrbaugh
Head of Global Markets
Peter L. Scher
Japan
Vice Chairman
CEO, International Consumer Banking
Other Corporate Officers
Joseph M. Evangelisti
Corporate Communications
Mikael Grubb
Investor Relations
Elena A. Korablina
Firmwide Controller
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ACQUISITIONS SHOULD PAY FOR
•
I can go on and on, but suffice it to say, we must
be prepared for this trend to continue.
It seems unlikely to me that all the banks, shadow
banks and fintech companies will thrive as they
strive to take share from each other over the next
decade. I would expect to see many mergers among
America's 4,000+ banks - they need to do this, in
some cases, to create more economies of scale to
be able to compete. Other companies will try differ-
ent strategies, including bank-fintech mergers or
mergers just between fintechs. You should expect
to see some winners and lots of casualties - it's
just not possible for everyone to perform well.
POSSIBLY MORE IMPORTANT: THE ROLE
OF PUBLIC COMPANIES IN THE GLOBAL
FINANCIAL SYSTEM IS ALSO DIMINISHING.
In addition to banks' shrinking global role, you
can see that the number of public companies,
which should have grown substantially over the
past decade, is remarkably reduced. Instead, U.S.
public companies peaked in 1996 at 7,300 and
now total 4,800. Conversely, the number of pri-
vate U.S. companies backed by private equity
companies has grown from 1,600 to 10,100 - a
remarkable increase.
This migration is worthy of serious study. The
reasons are complex and may include public mar-
ket factors, such as onerous reporting require-
ments, higher litigation expenses, costly regula-
tions, cookie-cutter board governance, less com-
pensation flexibility, heightened public scrutiny
and the relentless pressure of quarterly earnings.
It's incumbent upon us to figure out why so many
companies and so much capital are being moved
out of transparent public markets to less trans-
parent private markets - and whether this is in
the country's long-term interest. We do need to
ask some questions: Do we want public compa-
nies? Are we okay with more and more of our
capital markets being private and, therefore, less
regulated? If I were a shareholder of a company, I
would ask myself, do I really think that all the
rules we impose on public companies actually
make them better? Finally, we need to consider, is
it a good thing that many investors won't have
the opportunity to invest in these companies if
and when they are private?
Guidance from financial advisors
29
There are good and bad reasons why capital is
going private. For example, private companies
can raise money more easily now than in the
past. Private companies' boards and manage-
ment teams can focus primarily on the business,
and private investors can be more patient with
capital - they are not necessarily worried about
short-term results.
We need to study this public market diminishment
thoughtfully and deeply – particularly since more
regulation is coming that will affect this trend.
This is a good time to think through and create
the outcomes we want - and not just let multiple,
often well-meaning but uncoordinated legal, reg-
ulatory and policy decisions take us where we do
not want to go.
MORE REGULATION IS COMING - 10
YEARS AFTER THE CRISIS, WE ARE STILL
ROLLING OUT BASEL IV - AND WE NEED
MORE THOUGHTFUL CALIBRATION OF THE
RULES.
Basel IV seems likely to increase capital require-
ments for banks on credit, loans, trading books
and operational risk, some of which is unneces-
sary. These risks are real, but they need to be
properly and rationally calculated. For example,
operational risk is real; it exists in all enterprises
and is usually handled in the ordinary course of
business. If all large companies had to hold capi-
tal for operational risk, following the standard set
for banks, trillions of dollars of additional capital
would be permanently held in idle funds. The
question for all capital requirements is: How
much is enough?
If done properly, bank regulations could be recali-
brated, adding virtually no additional risk, to
make it easier for banks to make loans, interme-
diate markets and finance the economy. When it
comes to political debate about banking regula-
tions, there is little truth to the notion that regu-
lations have been “loosened" - at least in the
context of large banks.
We should keep in mind the enormous unintended
consequences that could result from any policy
(e.g., regulations) not being properly thought
through. Policy with no forethought - designed
without a comprehensive plan or instigated out of
anger or false morality – can have bad outcomes.
A few examples will suffice:
⚫ The U.S. government management of student
lending has been a disaster. In the 11 years
since they've taken over student lending, they
have extended an additional $1 trillion in loans.
Prior to the pandemic, $300 billion of these
loans were either severely delinquent or not
being paid. We are not against student lending,
but the disciplined use of capital should be
applied here, too. I generally agree with the
position that for loans that should not have
been made and where the borrower reaped no
benefit, there should be some forgiveness.
However, many loans were properly made and
brought the benefit that was expected. Govern-
ment should reform its policies to stop making
loans that should never be made.
• Fannie Mae and Freddie Mac contributed to the
crisis in the mortgage market. In the mad rush
to improve home ownership levels, these gov-
ernment-guaranteed institutions played a
major part (along with many others engaged in
the mortgage markets), over decades, in loos-
ening mortgage underwriting standards. Ulti-
mately, this proved catastrophic, leading to
nearly $1 trillion in mortgage losses. Con-
versely, since then, mortgage regulations'
excessive tightening is not only pushing the
mortgage market into the unregulated financial
system but also making mortgages less avail-
able to mostly lower-income Americans.
30
COMPETITIVE THREAT REDUX
Services for Consumers and Small Businesses
Account Access and Management
•
Savings accounts
• A sizable and growing portion of equity trading
has moved off transparent exchanges to non-
traditional trading firms, causing a loss of
access to on-exchange liquidity for many
market participants.
Other companies providing banking-type
services have hundreds of millions of accounts
that hold consumer money, process payments,
access bank accounts and extensively use
customer data.
Neobanks, now with over 50 million accounts,
bypass the Durbin Amendment and so earn
higher revenue per debit swipe - and they
don't have to abide by certain other regulatory
or social requirements.
Banks' share of the leveraged loan market
has decreased over the last 20 years from
46% to 13%.
We've made tremendous progress over the past
few years to create a more inclusive company and
promote equity in all our communities. The work is
not easy, but we are as committed as ever to doing
what is right and just. I'll spotlight a few areas of
focus and describe the progress we've made.
A More Diverse Workforce
We continue to believe that if our team is more
diverse, we will generate better ideas and better
outcomes, enjoy a stronger corporate culture and
outperform our competitors. This appears to be
proving true.
Despite the pandemic and talent retention chal-
lenges, we continue to boost our representation
among women and people of color. Here are
some examples:
More women were promoted to the position of
managing director in 2021 than ever before;
similarly, a record number of women were
promoted to executive director. By year's end,
based on employees who self-identified,
women represented 49% of the firm's total
workforce. Overall Hispanic representation was
20%, Asian representation grew to 17% and
Black representation increased to 14%.
• We expanded our global Diversity, Equity and
Inclusion department to include three new
Centers of Excellence: Advancing Hispanics and
Latinos, The Office of Asian and Pacific Islander
Affairs, and The Office of LGBT+ Affairs.
To promote greater participation in our work-
force by Black professionals, we expanded our
Historically Black Colleges and Universities
partnerships to 17 schools across the United
States to boost recruitment connections,
expand student career pathways, and support
long-term student development and financial
health.
• We continue to find ways to lift our LGBT+
employees, professionals with disabilities and
military veteran colleagues. We just celebrated
the 10th anniversary of the Veteran Jobs
Mission, which is a coalition JPMorgan Chase
co-founded in 2011 as the 100,000 Jobs
Mission. It began as 11 companies committed to
hiring military talent across the private sector,
and now membership exceeds 300 companies
with more than 830,000 veterans hired.
Finally, I want to be clear: We oppose any and all
forms of discrimination against anyone. Being
the bank of choice for all is our goal - and we
want everyone to feel welcome here and be able
to contribute to our core mission to the best of
their ability.
38
•
UPDATES ON SPECIFIC ISSUES FACING OUR COMPANY
The chart on page 27 shows banks' decreasing
role in the global economy, but a few examples
will put it in stark contrast.
•
Banks' size and market cap (U.S. global
systemically important bank [G-SIB] market
cap is $1.5 trillion) have dramatically dimin-
ished relative to their nonbank competitors.
• U.S. banks' broker-dealer inventories have
barely kept pace with the large increase in total
markets. Banks' dramatic decline in market-
making ability relative to the size of the public
markets is a factor in the periodic disruptions
that occur in the public markets.
• U.S. banks' loans in an 11-year period have only
grown 65% and now represent only 8% of total
U.S. debt and equity markets, down from 11%
in 2010.
•
•
Conversely, U.S. banks' liquid assets are up
more than 300% to $8.6 trillion, most of which
is needed to meet liquidity requirements.
Banks' share of mortgage originations has
gone from 91% to 32%.
•
PROGRESS CONTINUES IN OUR DIVERSITY,
EQUITY AND INCLUSION EFFORTS.
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Spending summary
There is no silver bullet to meet the world's
energy and climate goals. But we can start by pri-
oritizing emissions reductions, developing mean-
ingful short- and long-term goals and crafting
innovative policy solutions. The curve toward net
zero can still be bent before it's too late.
COMPETITIVE THREAT REDUX
• Finally, let's set meaningful goals and identify a
few tangible, cost-effective solutions to reduce
emissions today. This should include minimizing
fugitive methane emissions and virtually elimi-
nating wasteful flaring of natural gas. Immedi-
ately actionable opportunities like these might
require more financing, not less, to reduce the
short-term rate of climate change and prepare
companies to thrive in a lower-carbon future.
In 2021, JPMorgan Chase set 2030 targets to
reduce the carbon intensity of our financing
portfolio, starting with oil and gas, electric
power and automotive manufacturing - with
We have always said that the G-SIB calculation is
nonsensical as it is not risk-based at all. It drives
absurd behavior, such as favoring various acquisi-
tions that may be imprudent but don't require
G-SIB capital or encouraging very risky loans that
require no more G-SIB capital than risk-free
loans. Being a large, diversified company, with
strong revenue and profit streams, is normally a
source of strength in troubled times, but this is a
negative in regard to G-SIB capital. Even though
American banks are performing well today, these
extra capital requirements we are required to
meet will have long-term negative consequences.
This extra capital is a drag on our return on equity
(ROE), effectively reducing whatever our ROE
would be by approximately 15% (hypothetically,
our 17% target should be 20%). As a result, the
dilemma is this: Do we restrict our growth and our
ability to serve our clients in order to reduce our
capital requirements over time and seek a higher
ROE or do we invest our capital to grow with our
clients (and in many cases remain competitive)
and accept a permanently lower ROE?
BANKS NEED TO ACKNOWLEDGE THE
DRAMATICALLY CHANGING COMPETITIVE
LANDSCAPE.
If banks want to compete in this new and increas-
ingly competitive world, they need to acknowl-
edge the truth of this new landscape and
respond appropriately - sometimes it truly is
change or die.
As they adopt new technologies like cloud, artifi-
cial intelligence (AI) and digital platforms, banks
may have an advantage in being able to leverage
their large customer base to offer increasingly
comprehensive products and services, often at no
additional cost. While many fintech companies
specialize in one area, you already see many fin-
techs moving in this direction – trying to deepen
and broaden their client relationships.
-
The chart on the preceding page shows the exten-
sive number of services we already offer to our
customers - many of which, depending on the
product and customer relationship, are at no
additional cost.
We have always invested for the future, and that
is even more true today than it has been in the
past. But the principle is the same – constantly
invest and innovate to ensure our future
prosperity.
32
COMPETITIVE THREAT REDUX
Investments and Acquisitions:
Determining the Best Use of
Capital and Assessing ROIS
We have always said that a steady and increasing
dividend along with reinvestment in one's own
business - organically and inorganically, offen-
sively and defensively – are the highest and best
use of capital. Reinvestment would ordinarily
come before stock buybacks unless the stock is
extraordinarily cheap. And we generally only buy
back stock when we don't see a clear need for the
capital over the next few years.
In fact, stock buybacks at our company will be
lower in the next year or so because we may need
to retain more capital due to required capital
increases (which, by any real measure, we defi-
nitely do not need) and because we have made
some good acquisitions that we believe will
enhance the future of our company.
We try to be rigorous in how we invest for the
future. Above all, we try to free up our capital
and capabilities with the following in mind:
1) we reduce complexity in our company and
simplify as much as possible; 2) we periodically
assess and eliminate hobbies (which have a dan-
ger all their own); and 3) we assess investments
and activities that seemed good when we started
them but are not working out as planned. How-
ever, some things simply are complex (like air-
planes, pharmaceuticals, technology and bank-
ing) but worthwhile - and in fact necessary to
compete. We don't let fear of that complexity
stop us from investing.
Before we talk about different types of invest-
ments, we should recognize that our most impor-
tant asset - far more important than capital - is
the quality of our people.
We announced earlier in the year that our total
expenses would increase by approximately $6
billion. Of that amount, $2.5 billion is mostly
related to people, reflecting both inflationary and
competitive labor market dynamics. (We have
been quite adamant that we will do what is neces-
sary to retain talent - we cannot be one of the
best companies without having some of the best
talent.) Included in this $2.5 billion are certain
expenses (think travel and entertainment) as
economies have reopened.
In this section of the letter, I am going to focus on
investments - describing how and why we do
them and offering a few examples. We have
always believed that investing continuously and
rigorously for the future is critical for our ongoing
success. This year, we announced that the
expenses related to investments would increase
from $11.5 billion to $15 billion. I am going to try
to describe the "incremental investments" of
$3.5 billion, though I can't review them all (and
for competitive reasons I wouldn't). But we hope
a few examples will give you comfort in our
decision-making process.
SOME INVESTMENTS GENERATE
PREDICTABLE RETURNS.
Some investments have a fairly predictable time
to cash flow positive and a good and predictable
return on investment (ROI) however you measure
it. These investments include branches and bank-
ers, around the world, across all our businesses.
They also include certain marketing expenses,
which have a known and quantifiable return.
This category combined will add $1 billion to our
expenses in 2022.
INVESTMENTS AND ACQUISITIONS: DETERMINING THE BEST USE OF CAPITAL AND ASSESSING ROIS
33
-
Our shareholders should also know that when we
make investments like these, we incorporate
through-the-cycle thinking - we don't only look
at current margins and charge-offs but also eval-
uate what we expect them to be over the next
several years.
The U.S. implementation of G-SIB requirements
does not enable a level playing field - plain and
simple. Not only have American rules made the
G-SIB designation worse for American banks (if
JPMorgan Chase could operate on the same basis
as large European banks, our Tier 1 capital
requirements would be reduced by $30 billion),
but the rules have not been adjusted as the
framework allows. G-SIB capital requirements
were supposed to be modified to account for the
increasing size of the global economy and the
smaller size of banks in relation to that global
economy this simply has not happened. So
JPMorgan Chase will be required to hold 2% more
common equity Tier 1 capital as a consequence.
31
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Market research
COMPETITIVE THREAT REDUX
HOW SHOULD WE ADDRESS OUR G-SIB
CONUNDRUM?
THEMSELVES
OWN LOGIC.
Deals on your favorite stuff
AND EACH ONE HAS ITS
-
In the consumer world, we have spent about
$100 million since 2017 on Al, machine
learning and other technology initiatives to
improve fraud risk systems. We know this
investment is working. Our annual fraud
losses have come down 14% since 2017
despite volumes being up almost 50%, and
we estimate that our technology investments
alone have contributed about $100 million in
annual savings.
We have developed over 1,000 application pro-
gramming interfaces that give various types of
customers access to our systems in a controlled
way, allowing them to automate our banking
systems into their enterprise systems.
There are plenty of forward-looking and exciting
R&D investments, too. For example, we are
working on several research-based projects that
have the potential for significant future impact.
These involve multi-agent simulation, synthetic
data and encryption methods - elements that
have the capacity to unlock new ways of trading,
managing risk and assessing productivity. Multi-
agent simulations, for example, enable the
exploration of strategies that can handle chal-
lenging regimes as variations of novel historical
data. Synthetic data, well-calibrated by real
data, enables effective testing, experimentation
and development without triggering privacy and
regulatory restrictions associated with using
real data. Encryption methods give us better
tools to protect our clients' privacy and also
equip us with the necessary techniques to
handle the metaverse. This category also
includes investment in the critical area of
quantum computing.
While we measure each of these incremental
investments (and there are hundreds of them) as
diligently as we can, you can assess the overall
results by asking the following questions: Do we
maintain the competitiveness of our products?
Are we gaining market share? Do we have real wins
against some tough competitors, both in the bank-
ing world and in fintech companies? What are our
customer satisfaction scores? Have we built won-
derful new products, like Credit Journey and Self-
Directed Investing, that may not generate revenue
but clearly have improved our business? How are
our products serving our clients' needs to access
our systems how and when they want?
Finally, also consider: Is the bank sustaining its
overall competitive position, growing at pace and
still maintaining a very healthy return on tangible
common equity while investing for the future? We
hope you will see some great new and exciting
products and services this year.
36
INVESTMENTS AND ACQUISITIONS: DETERMINING THE BEST USE OF CAPITAL AND ASSESSING ROIS
Updates on Specific Issues
Facing Our Company
WE ARE VIGILANT AGAINST CYBER
ATTACKS.
Increasingly, we are investing more money
(think hundreds of millions of dollars) each year
on Al for very specific purposes. For example,
we use Al to generate insights on existing and
prospective clients from public information,
such as KYC protocols, regulatory filings, social
media, news, public websites and documents.
Once standardized, the information is then
applied to multiple uses, such as generating
leads, identifying companies and investors,
onboarding clients, and detecting environmen-
tal, social and governance (ESG) themes. In all
of these cases, there are identifiable returns
due to lower prospecting costs or improved
services. One specific example will suffice:
As we have highlighted in previous letters,
we cannot overemphasize how cyber threats pose
extreme hazards to our company and our country.
This has become even more evident as the cost of
ransomware has increased dramatically (cyber
attacks may have caused the death of some peo-
ple as hospitals could not provide the necessary
procedures). And it is evident to everyone, with
the war in Ukraine, that grave damage could be
inflicted if cyber is widely used as a tool of war.
We believe that our company has some of the best
cyber protections in place, as well as the best
talent to monitor and guard our information. We
also work extensively, and increasingly, with the
appropriate agencies of the U.S. government to
help protect the financial system and the country.
-
.
.
First, we must promote energy security. Con-
straining the flow of capital needed to produce
and move fuels, especially as the war in Ukraine
rages on, is a bad idea. The world still needs oil
and natural gas today, but not all hydrocarbons
are equal when it comes to their carbon foot-
print. We should be directing more capital
toward less carbon-intensive fuel sources and
investing in innovations, such as carbon capture
and sequestration, as we look to transition to
green technologies delivered at scale for soci-
ety. Our company is firmly committed to helping
finance these kinds of investments and expedit-
ing the use of lower-carbon fuels. This is why we
established the Center for Carbon Transition,
centralizing client access to financing, advisory
and research solutions to help them make the
low-carbon transition and thrive.
Second, we need to scale investment massively
in clean technologies. As the International
Energy Agency has emphasized, "huge leaps in
clean energy innovation" are core to achieving
net zero. This is because the world will rely on
traditional fuels until alternatives, like clean
hydrogen, are fully available. To accelerate
progress, JPMorgan Chase has a goal of financ-
ing and facilitating $1 trillion by 2030 to
advance climate action – supporting initiatives
such as renewable energy, green buildings and
vehicle electrification.
Third, governments should play a leadership
role by enacting thoughtful policies that spur
long-term and large-scale capital deployment
for low-carbon solutions that create jobs and
benefit the global economy. Here are some
examples: a carbon tax that directs some pro-
ceeds to help offset energy costs for under-
UPDATES ON SPECIFIC ISSUES FACING OUR COMPANY
37
served communities; measures to promote
investment in technology R&D; and reductions
in permitting timelines for energy infrastruc-
ture, such as wind and solar farms and lique-
fied natural gas.
-
OUR COMMITMENT TO SUSTAINABILITY IS
INFORMED BY ENERGY REALITIES.
Despite the growth in well-intended climate
pledges from governments and companies, the
world is well short of meeting its net zero emis-
sions goals by 2050. But the war in Ukraine and
sanctions on Russia are driving gasoline prices up
and threatening Europe's access to natural gas.
Resource scarcity leads to higher energy costs and
reduces reliability, hindering national security and
hurting the most vulnerable. Disruptions to the
global energy system are again highlighting our
urgent global need to provide energy resources
securely, reliably and affordably and, at the same
time, address long-term clean energy solutions
and strategies to reduce our carbon footprint.
These objectives are not mutually exclusive.
We can and must - do both.
We built the capability for our Self-Directed
Investing, which now has 800,000 new invest-
ment accounts totaling nearly $60 billion on
the platform. We are excited to enhance and
roll out this product to all of our customers, as
we think it is a critical offering in today's new
competitive environment.
To begin, we need to find a better way forward
that can bring diverse stakeholders together in
pursuit of the North Star: another "Marshall Plan"
(as described earlier). Here are four ways to
jump-start that process:
35
We expect to achieve double-digit market
share over time in Payments, being the world's
most innovative bank, as well as the safest
and most resilient.
Acquisitions generally extend products, add ser-
vices or bring in technology that we would have
had to otherwise build ourselves. These acquisi-
tions are described in more detail in the letters
from the other CEOS included in this report. Over
the last 18 months, we spent nearly $5 billion on
acquisitions, which will increase "incremental
investment" expenses by approximately $700
million in 2022.
We expect most of these acquisitions to produce
positive returns and strong earnings within a few
years, fully justifying their cost. In a few cases,
these acquisitions earn money - plus, we believe,
help stave off erosion in other parts of our busi-
ness. Importantly, on an ongoing basis, many of
our acquisitions will be relatively capital-lite,
meaning they can grow over time but require
little additional regulatory capital.
WE WANT TO BUILD UPON OUR GLOBAL
FOOTPRINT.
While we don't disclose our investment here, our
international consumer expansion is an invest-
ment of a different nature. We believe the digital
world gives us an opportunity to build a con-
sumer bank outside the United States that, over
time, can become very competitive - an option
that does not exist in the physical world. We
start with several advantages that we believe
will get stronger over time: a global brand, with
long-term capital and staying power; a global
Payments business; an international Private
Bank; global Asset Management products; and
best-in-class trading platforms. We have the
talent and know-how to deliver these through
WE MAKE EXTENSIVE INVESTMENTS IN
TECHNOLOGY FOR A BROAD RANGE OF
REASONS, FROM IMPROVING
OPERATIONS AND SECURITY TO
ENHANCING OUR PRODUCTS AND
SERVICES.
Investments in technology and operations, as
well as related products and services, are the
most complicated category. Some of these invest-
ments simply must be done to sustain the compa-
ny's health. Investments in this bucket help keep
the ship in tip-top shape and touch a broad range
of workplace needs: regulatory requirements and
necessary improvements for cybersecurity, as
well as operational resiliency and security. Some
things we have done with no direct revenue ben-
efit, rather simply to maintain our competitive
position. I call these table stakes - think of
digital account opening for consumer and small
business accounts. Other investments are specific
improvements to products and services, often
with identifiable benefits. Finally, there are
specific investments in this category that are
more like forward-looking R&D, as described
in the examples that follow.
Combined, this category will add a little bit less
than $2 billion to our "incremental investment"
expenses in 2022 (the actual expense lines could
be for people, hardware or software, or pur-
chased services). Almost all of the $2 billion in
expenses are analyzed and studied for their ROI
or other significant benefits.
Sometimes people refer to some of these
expenses as modernizing or adopting new tech-
nologies. I prefer not to talk about it that way
because, effectively, we have been modernizing
my entire life. Also, the term implies that once
you get to a modern platform, these expenses
should dramatically decrease - which is rarely
34
cutting-edge technology, allowing us to harness
the full range of these capabilities from all our
businesses. We can apply what we have learned
in our leading U.S. franchise and vice versa. We
may be wrong on this one, but I like our hand.
the case. In fact, when we analyze these
expenses, we incorporate not only the cost to
build the product or service but also the cost to
maintain it going forward. Furthermore, once you
have built the new platforms, they generally cre-
ate a whole new set of investment opportunities
to be analyzed. Technology always drives change,
but now the waves of technological innovation
come in faster and faster. The science behind
them is also increasingly complex as technology
(including Al) is "embedded" in more products.
In today's world, I cannot overemphasize the
importance of implementing new technology.
INVESTMENTS AND ACQUISITIONS: DETERMINING THE BEST USE OF CAPITAL AND ASSESSING ROIS
We now process payments for eight of the top
10 global Big Tech companies (up from three
out of 10 companies five years ago), consis-
tently winning business from strong competi-
tors. We continue to bring to the market and
commercialize innovative products, such as
embedded banking; Al-driven fraud controls
and forecasting; and account validation and
programmable payments on JPM Coin. Decen-
tralized finance and blockchain are real, new
technologies that can be deployed in both pub-
lic and private fashion, permissioned or not.
JPMorgan Chase is at the forefront of this inno-
vation. We use a blockchain network called
Liink to enable banks to share complex infor-
mation, and we also use a blockchain to move
tokenized U.S. dollar deposits with JPM Coin.
We believe there are many uses where a block-
chain can replace or improve contracts, data
ownership and other enhancements; for some
purposes, however, it is currently too expensive
or too slow to be deployed.
In certain product areas, we made large, multi-
year investments to improve a specific busi-
ness. In Payments, we have been investing con-
sistently over the past five years to modernize
our businesses and compete with both banks
and fintech companies. Since 2016, we have
invested more than $1.5 billion in technology,
operations, sales, products and controls and
generated an incremental $4 billion in organic
revenue annually, taking our overall market
share in Treasury Services from 4.5% in 2016
to 7.2% in 2021. In 2021, we continued this
strong momentum, initiating a large majority of
all real-time payments in the United States in
our cloud-native, faster payments platform,
which is now live in 45 countries. We are also
winning more than 80% of all global bids that
include virtual account solutions available on
our liquidity platform.
INVESTMENTS AND ACQUISITIONS: DETERMINING THE BEST USE OF CAPITAL AND ASSESSING ROIS
Second, much of our "incremental investment"
technology spend involves building software for
new products and services. There are hundreds
of these, large and small. Again, a few examples
will describe the process:
•
⚫ These “infrastructure" costs include things like
modernizing developer tools and embedding
operational resiliency and cybersecurity controls.
Thousands of applications (and their related
databases) are being replatformed and refac-
tored to run in the private and public cloud envi-
ronment. To give you an example: We migrated
our Card mainframe to the new data center and
are already seeing approximately 20% faster
response times for our major customer-facing
applications. This one application will use only
1.5% of the capacity of our new data centers:
Of our more than 5,000 applications that will
still be in use in two years, 40% will have been
replatformed.
We have spent $2.2 billion building new, cloud-
based data centers. Our total expensed cost
of data centers is higher than in previous years
- mostly because of the duplicative expense
that is generated as we run both the new and
older centers.
We hope a few examples will explain how these
expenses are managed. To do so, we are going to
talk about two different types of investments that
are clearly related: infrastructure and software.
First, on the path to new and modern infrastruc-
ture, cloud-based systems, whether private or
public, will ultimately be faster, cheaper, more
flexible and also Al-enabled - all extremely
valuable features. A few other additional details:
4 Comparisons are at the applicable business segment level, when available; the allocation
methodologies of peers may not be consistent with JPM's.
6 Managed overhead ratio = total noninterest expense/managed revenue; revenue for GS and
MS is reflected on a reported basis.
Size of the Financial/Sector Industry (page 27)
1 Consists of cash assets and Treasury and agency securities.
5 Bank of America Corporation (BAC), Citigroup Inc. (C), The Goldman Sachs Group, Inc. (GS),
Morgan Stanley (MS) and Wells Fargo & Company (WFC).
2 AUM includes Dry Powder, 2021 figure is annualized based on available data through Q1.
3 NYSE + NASDAQ; excludes investment funds, exchange-traded fund's unit trusts and com-
panies whose business goal is to hold shares of other listed companies; a company with
several classes of shares is only counted once.
8 Inside Mortgage Finance and JPMorgan Chase internal data; consists of Top 50 Originators.
5 Facebook not included in 2010.
6 Private companies use the latest valuations.
7 Active users where applicable; data as of various points throughout the year due to the
inconsistency of disclosure.
47
3 Best-in-class G-SIB ROTCE represents implied net income minus preferred stock dividends
of the comparable business segments of JPM G-SIB peers when available, or of JPM G-SIB
peers on a firmwide basis when there is no comparable business segment: Bank of America
Consumer Banking (BAC-CB), Goldman Sachs Investment Banking and Global Markets (GS-IB
& GM), Wells Fargo & Company Commercial Banking (WFC-CB) and Morgan Stanley Wealth
Management and Investment Management (MS-WM & IM). WFC-CB is the only G-SIB peer to
disclose a comparable business segment to Commercial Banking.
Consumer &
Community Banking
4 Loans held by nonbank entities per the Federal Reserve Bank Z.1 Financial Accounts of the
United States.
2 Best-in-class all banks ROTCE represents implied net income minus preferred stock divi-
dends of the comparable business segments of JPM peers when available, or of JPM peers
on a firmwide basis when there is no comparable business segment: Bank of America
Consumer Banking (BAC-CB), Goldman Sachs Investment Banking and Global Markets
(GS-IB & GM), KeyBank (Key), UBS Global Wealth Management (UBS-GWM) and Morgan
Stanley Investment Management (MS-IM).
30 In the fourth quarter of 2020, the firm realigned certain Wealth Management clients from Asset
& Wealth Management to Consumer & Community Banking. Prior-period amounts have been
revised to conform with the current presentation.
37 Represents assets under management in a strategy with at least one listed female and/or
diverse portfolio manager. "Diverse" defined as U.S. ethnic minority.
36 iMoneyNet.
35 Source: Company filings and JPMorgan Chase estimates. Rankings reflect publicly-traded
peer group as follows: Allianz Group, Bank of America Corporation, Bank of New York Mellon
Corporation, BlackRock, Inc., Charles Schwab Corporation, Credit Suisse Group AG, DWS Group,
Franklin Resources, Inc., The Goldman Sachs Group, Inc., Invesco Ltd., Morgan Stanley, State
Street Corporation, T. Rowe Price Group, Inc. and UBS Group AG. JPMorgan Chase ranking
reflects Asset & Wealth Management client assets, U.S. Wealth Management investments and
new-to-firm Chase Private Client deposits.
to Morningstar for U.S.-domiciled funds (except for Municipal and Investor Funds) and
Taiwan-domiciled funds to better align these funds to the providers and peer groups we believe
most appropriately reflects their competitive positioning. This change may positively or
adversely impact, substantially in some cases, the quartile rankings for one or more of these
funds as compared with how they would have been ranked by Lipper for this reporting period or
future reporting periods. The source for determining the rankings for all other funds remains the
same. The classifications in terms of product suites and product engines shown are J.P. Morgan's
own and are based on internal investment management structures.
34 All quartile rankings, the assigned peer categories and the asset values are sourced from the
fund ranking providers. Quartile rankings are based on the net-of-fee absolute return of each
fund. The data providers re-denominate the asset values into U.S. dollars. This percentage of
assets under management is based on fund performance and associated peer rankings at the
share class level for U.S.-domiciled funds, at a primary share class level to represent the quartile
ranking of the U.K., Luxembourg and Hong Kong funds and at the fund level for all other funds.
The primary share class, is defined as C share class for European funds and Acc share class for
Hong Kong and Taiwan funds. In case the share classes defined are not available, the oldest
share class is used as the primary share class. The performance data could have been different if
all share classes would have been included. Past performance is not indicative of future results.
Effective September 2021 the firm has changed the peer group ranking source from Lipper
23 Client deposits and other third-party liabilities.
33 Euromoney.
32 Assets under management only for 2006.
31 Traditional assets include Equity, Fixed Income, Multi-Asset and Liquidity assets under
management; Brokerage, Administration and Custody assets under supervision.
28 Aligns with the affordable housing component of the firm's $30 billion racial equity commitment.
29 Represents the Nomura star rating for Japan-domiciled funds and Morningstar for all other
domiciled funds. Includes only Asset Management retail open-ended mutual funds that have a
rating. Excludes money market funds, Undiscovered Managers Fund and Brazil- and Korea-
domiciled funds. Mutual fund rating services rank funds based on their risk-adjusted
performance over various periods. A 5-star rating is the best rating and represents the top 10%
of industry-wide ranked funds. A 4-star rating represents the next 22.5% of industry-wide ranked
funds. A 3-star rating represents the next 35% of industry-wide ranked funds. A 2-star rating
represents the next 22.5% of industry-wide ranked funds. A 1-star rating is the worst rating and
represents the bottom 10% of industry-wide ranked funds. The 'overall Morningstar rating' is
derived from a weighted average of the performance figures associated with a fund's three-,
five-and 10-year (if applicable) Morningstar Rating metrics. For U.S.-domiciled funds, separate
star ratings are given at the individual share class level. The Nomura star rating is based on
three-year risk-adjusted performance only. Funds with fewer than three years of history are not
rated and hence excluded from this analysis. All ratings and the assigned peer categories used
to derive this analysis are sourced from these fund rating providers as mentioned. Past
performance is not indicative of future results.
26 S&P Global Market Intelligence as of December 31, 2021.
27 Refinitiv LPC, Full Year 2021.
25 Represents product revenue excluding deposit net interest income.
24 Represents total JPMorgan Chase revenue from investment banking products sold to Commercial
Banking clients.
It is with great pride that we write our
first shareholder letter together as
co-CEOs of Consumer & Community
Banking (CCB), and we are especially
proud to work alongside nearly 130,000
talented CCB colleagues. We took the
reins of this industry-leading franchise
from Gordon Smith in May 2021 and are
grateful for his vision, leadership and
mentoring. Our business has grown to
serve more than 66 million households,
including over 5 million small businesses.
Looking at the state of the CCB business
today, we are operating from a position
of strength on both an absolute and rela-
tive basis. However, we don't take this
position for granted. Competition is
everywhere, including banks and fin-
techs that are formidable in every one of
our businesses. We acknowledge that we
must continue to match the simplicity
that new entrants bring to the customer
experience before they are able to match
our distribution and scale.
JPMorgan Chase Is in Line with Best-in-class Peers in Both Efficiency and Returns (page 12)
1 Best-in-class peer overhead ratio represents the comparable business segments of
JPMorgan Chase (JPM) peers: Capital One Domestic Card & Consumer Banking (COF-DC &
CB), Goldman Sachs Investment Banking and Global Markets (GS-IB & GM), PNC Bank (PNC),
Credit Suisse Private Banking (CS-PB) and T. Rowe Price (TROW).
66+M
#1
CHASE
22 Assets under custody based on company filings.
CONSUMER & COMMUNITY BANKING
48
These factors, together with significant
appreciation in home prices and used car
values, drove exceptionally strong credit
performance across our portfolios.
Net charge-offs across portfolios were
at historic lows, and we released $9.8
billion in credit reserves. Over the near
term, we expect many of these macro-
driven trends will start to normalize.
We invest with a long-term focus to
drive sustainable growth and outperfor-
mance. Last year was no exception, and
we identified opportunities to invest in
Our financial performance needs to be
considered in the context of the rapidly
evolving macro environment, which cre-
ated both headwinds and tailwinds. Given
the strength of our primary bank relation-
ships, the impact of the extraordinary level
of stimulus and relief programs on con-
sumers and small businesses drove out-
sized growth in deposits. Average deposits
of $1.1 trillion were up 24% over 2020.
Conversely, that same excess liquidity,
coupled with a low rate environment, led
to significant margin compression in
deposits, deleveraging in credit card loans
and accelerated levels of refinance activ-
ity in Home Lending. We ended 2021 with
$434 billion in average loans, down 3%.
In 2021, CCB delivered a 41% return on
equity on net income of $20.9 billion.
Adjusting for $9.8 billion in credit
reserve releases, our return on equity
would have been 26%. Revenue of
$50.1 billion was down 2% year-over-
year, while our overhead ratio increased
to 58% as we continued to invest heavily
for future growth.
BEST-IN-CLASS FINANCIAL
PERFORMANCE
1 Based on 2021 monthly visit estimates provided by Similarweb for combined desktop and mobile visits when compared with peers.
#1 most-visited banking
portal in the U.S.¹
#1 U.S. credit card issuer
based on sales and outstandings
VISA
#1
D BYBELL
D. BARRETT
SAPPHIRE
RESERVE
#1 in total combined
U.S. credit and debit
payments volume
#1
#1
#1 primary bank for
U.S. small businesses
%
We are intensely focused on where we
can provide more customer value, gain
share and expand our capabilities in high-
growth areas. As the past two years have
reminded us, nothing is certain, and we
will continue to prepare for all scenarios
in order to be there for our customers.
Looking forward, we are focused on the
following strategic priorities to drive
shareholder value:
More than 66 million
U.S. households served
1) Best-in-class financial performance
2) Leveraging data and technology to
drive productivity and agility
4) Growing households and better serving
customer needs to be the bank for
all Americans
5) Protecting our customers and the firm
through a strong risk and controls
environment
6) Being the place everyone wants to
work
#1
#1 in U.S. retail deposit
market share
3) Driving engagement with experiences
that customers love
21 Nilson, Full Year 2020.
45
19 Institutional Investor.
.
UPDATES ON SPECIFIC ISSUES FACING OUR COMPANY
42
Generally speaking, many employees (approxi-
mately 50%) will necessarily work at a location
full time. That would include nearly all employ-
ees in our retail bank branches, as well as jobs
in check processing, vaults, sales and trading,
critical operations functions and facilities,
amenities, security, medical and many others.
Some employees (approximately 40%) will
work under a hybrid model (e.g., some days on-
site and other days at home). Increased flexibil-
ity and hybrid working arrangements will vary
by job type. We do hope to provide these types
of arrangements where they are appropriate
and for those who want them.
Although the pandemic changed the way we work
in many ways, for the most part it only acceler-
ated ongoing trends. While it's clear that working
from home will become more permanent in
American business, such arrangements also need
to work for both the company and its clients. I
believe our firm's on-site versus remote work will
sort out something like this:
As a company, while we continually prepare for
multiple business resiliency scenarios (e.g., data
center failures, closures of cities, major storms,
even widespread disease), we never fully pre-
pared for a pandemic that entailed a large-scale
shutdown of the global economy. Although some
of our employees, particularly in the branches,
continued to work on our premises every day, we
quickly set up the technology - ranging from call
centers and operations to trading and investment
banking - that enabled many of our employees to
work from home. We learned that we could func-
tion virtually with Zoom and Cisco and maintain
productivity, at least in the short run.
A small percentage of employees, possibly
Today, in many places COVID-19 has moved from
pandemic to endemic status, although there is
still suffering in some parts of the world. And we
are cognizant that the risk of new variants is real
and that if they occur, we will need to take appro-
priate action.
This work is not easy, but we believe it's impera-
tive that policymaking include private and public
sector partnership. We continue to need better
data to understand what is happening in the real
economy so we can help shape policies that make
a significant and positive impact on those who
need help the most.
The Institute's work has also helped inform our
policy advocacy efforts that support inclusive
growth. Two years ago, we launched the JPMorgan
Chase PolicyCenter to drive this work. Grounded
in data, we are developing and advocating for
policy aimed at reducing structural barriers to
economic mobility and broadening opportunity
for millions of families who live on the financial
margins and have been most impacted by COVID-
19. For example, as Congress was debating
expanded unemployment benefits, our research
showed how these benefits had boosted spending
and stimulated economic activity during COVID-
19. Additional research has provided insight
into household balances, cutting across income
levels and providing an important barometer
on how households are faring as government
support expires.
half of U.S. households. The Institute's data and
analyses have helped policymakers better under-
stand the impact of decisions - ranging from
student loan relief and targeted investments in
underserved Chicago and Detroit neighborhoods
to small business support and insights about how
families manage income volatility and use their tax
refunds. Importantly, the Institute has also helped
shape some of our own products and employee
benefits, including how we incentivize customers
to save more money and reduce health insurance
deductibles for our lower-paid employees.
41
UPDATES ON SPECIFIC ISSUES FACING OUR COMPANY
Six years ago, we created the JPMorgan Chase
Institute to deliver unique data and insights to
help solve some of our most pressing economic
challenges. This information offers a unique lens
into the financial habits of millions of small busi-
nesses and households, leveraging anonymized
and aggregated customer data that represents
WE JOIN OTHER COMPANIES IN EVOLVING
OUR VISION OF THE WORKPLACE.
Last year, I wrote that one lesson of leadership is
putting in place good decision-making processes.
An essential part of that is good data because
the challenges we face are complex and intercon-
nected. Too often, decision makers use "facts" to
justify a pre-existing point of view or do not
accurately represent reality. Good data that is
granular and timely and, when possible, lever-
ages big data sources must be at the heart of all
policy processes to ensure measurable and equi-
table outcomes.
10%, may work full time from home in very
specific roles.
Remote work will change how we manage our
real estate. We will quickly move to a more "open
seating" arrangement in which digital tools will
help manage seating arrangements (people will
have regular neighborhoods where they can con-
gregate), as well as needed amenities, such as
conference room space. As a result, for every 100
employees, we may need seats for approximately
60 to 75 on average with an appropriate
Two final points. Of our total overhead of $71
billion, $39 billion represents our people costs.
Over time, using lots of data, surveys and other
metrics, we believe we can gain efficiencies while
still keeping our people happy, healthy and moti-
vated, at an increasingly lower cost.
We are moving full steam ahead with building our
new headquarters in New York City. We will, of
course, consolidate even more employees into
this building, which will house between 12,000
and 14,000 people. We are extremely excited
about the building's public spaces, state-of-the-
art technology, and health and wellness ameni-
ties, among many other features. It's in the best
location in one of the world's greatest cities.
Finally, the negative effects of the weaknesses
outlined above are cumulative - they weren't
as obvious earlier in the pandemic - and they
get worse over time.
Remote work eliminates much spontaneous
learning and creativity because you don't run
into people at the coffee machine, talk with
clients in unplanned scenarios or travel to meet
with customers and employees for feedback on
your products and services.
.
•
In all situations, these decisions depend upon
what is optimal for our company and our
clients, and we will extensively monitor and ana-
lyze outcomes to ensure this is the case.
As we reopen, and we mostly are, we will, of
course, follow government guidelines.
A heavy reliance on Zoom meetings actually
slows down decision making because there is
less immediate follow-up.
⚫ Most professionals learn their job through an
apprenticeship model, which is almost impos-
sible to replicate in the Zoom world. Since the
onset of COVID-19, JPMorgan Chase has hired
over 80,000 new people into the company -
and we are making sure they are properly
trained on all aspects of our business, from
their special role to the significance of conduct
and culture. But this is harder to do over Zoom.
Over time, this drawback could dramatically
undermine the character and culture you want
to promote in your company.
Performing jobs remotely is more successful
when people know one another and already
have a large body of existing work to do. It
does not work as well when people don't know
each other.
•
The virtual world also presents some serious
weaknesses. For example:
increase in conference room, private office and
amenity space to make it a great work
environment.
-
•
WE CONTINUE TO SUPPORT DATA-DRIVEN
POLICYMAKING THROUGH THE
JPMORGAN CHASE POLICYCENTER AND
INSTITUTE.
Looking forward, Morgan Health is investing
$250 million to accelerate the development and
delivery of accountable care (managing a patient's
total care from prevention to outcomes), complet-
ing its first $50 million investment in Vera Whole
Health - and its subsequent investment in Cast-
light - with plans to deploy these services to our
employees in Columbus, Ohio, this year. Morgan
Health just completed another investment in
healthcare analytics company Embold Health,
which will help facilitate how consumers access
the highest-quality care available. We are also
working toward providing equal access to equal
healthcare, regardless of race, income or other
personal characteristics for our employees and in
the communities we serve. Addressing inequities
in healthcare is fundamental to Morgan Health's
strategy, and our partnership with Kaiser Perman-
ente in California is moving forward quickly on its
collaborative effort focused on the collection and
reporting of health equity performance metrics.
who will help our Benefits team attack this prob-
lem from many different angles.
Our dedication to racial equity is not simply a
five-year effort. We might not always get it right,
but we are committed to advancing racial equity
and sharing our progress on the journey.
Access to Banking: We helped more than
200,000 customers open low-cost checking
accounts with no overdraft fees; opened 10
Community Center branches (the sidebar that
follows includes more details about this initia-
tive), often in areas with larger Black, Hispanic
and Latino populations; and hired over 100
Community Managers in underserved commu-
nities to build relationships with community
leaders, nonprofits and small businesses.
•
• CDFIS: We provided more than $190 million in
incremental financing to CDFIs to support com-
munities that lack access to traditional financing.
MDIS: We invested more than $100 million in
equity in 16 diverse financial institutions that
serve nearly 90 communities in 19 states and
the District of Columbia.
Small Business: We hired 25 diverse senior
business consultants to provide free one-on-
one coaching for minority business owners in
14 U.S. cities and to mentor more than 1,000
small businesses.
UPDATES ON SPECIFIC ISSUES FACING OUR COMPANY
•
Affordable Rental Housing: We approved
funding of approximately $13 billion in loans
to create and preserve more than 100,000
affordable housing and rental units across
the United States.
Supplier Diversity: In 2021, we spent an addi-
tional $155 million with 140 Black, Hispanic and
Latino suppliers - more than doubling the first-
year spend goal and increasing the number of
new Black, Hispanic and Latino suppliers by
more than 40% over 2020.
•
By the end of 2021, we had deployed or commit-
ted more than $18 billion toward our goal. That
commitment focuses on increasing homeowner-
ship, expanding affordable rental housing and
growing small businesses, spending more with
Black, Hispanic and Latino suppliers, improving
financial health and access to banking, investing
in minority depository institutions (MDI) and com-
munity development financial institutions (CDFI),
and investing in communities through philan-
thropic capital. Here are some details on our
progress to date:
The murder of George Floyd in 2020 highlighted
what we already knew: More was required by all
of us to address systemic racism. In October
2020, less than five months after his tragic mur-
der, our company made a five-year, $30 billion
commitment to help close the racial wealth gap.
We committed to trying new things and putting
the full force of our firm behind solutions that
could really make an impact.
An Update on Our $30 Billion Racial Equity
Commitment
Homeownership: We established a Community
and Affordable Home Lending business, hiring
over 150 Community Home Lending Advisors
and expanding the Chase Homebuyer Grant to
$5,000 to help cover customers' closing costs
and down payments for homes purchased in
6,700 minority neighborhoods nationwide.
39
Community Building through Community Banking
-
This is why, in 2021, we launched Morgan Health,
a new business unit. With Morgan Health, we have
an opportunity to deliver and scale new health-
care models that improve the quality, equity and
affordability of employer-sponsored healthcare.
We're focused on connecting healthcare to
improved health outcomes for our employees.
JPMorgan Chase has approximately 20 talented
people on our Human Resources Benefits team
helping employees and their families access the
best possible medical care. In hindsight, it is
shocking how few people we had dedicated to this
vitally important issue. With Morgan Health, we
are adding approximately 30 more individuals
Managing the complexities of healthcare is stag-
gering, whether you are an individual or a corpo-
ration - from coping with actual health issues
(covering the spectrum of a bad back to diabetes
to cancer) and locating suitable primary or spe-
cialist care to deciphering incomprehensible
insurance plans and pricing, resolving excessive
surprise bills and other issues. While the U.S.
healthcare system is exceptional in many ways,
it also has many flaws that must be addressed.
Healthcare costs, which are already the highest in
the world, continue to rise (average premiums for
family coverage have increased 22% since 2016)
for both employers and employees - with no evi-
dence that outcomes are improving (e.g., only
46.5% of adults with private insurance have their
blood pressure controlled, and that number has
declined in the last 10 years).
JPMorgan Chase spends $39 billion on compensa-
tion and benefits for our 270,000+ employees.
Of that amount, about $1.5 billion is directed to
medical costs for our employees and their fami-
lies - approximately 460,000 people. Our
employees also spend approximately $500 million
on their own medical care. Medical care costs
may be our most important benefit costs because
they have a critical impact on the health and well-
being of our employees and their families. As our
employees remain our most valuable asset,
improving the quality and delivery of healthcare
services is a high priority.
MORGAN HEALTH IS HELPING US LEAD IN
HEALTHCARE TRANSFORMATION.
UPDATES ON SPECIFIC ISSUES FACING OUR COMPANY
40
We call this going from "community
banking" to "community building," and it
is an important evolution in serving com-
munities where it is long overdue. While
it is early, our approach has the promise
to create real local impact.
We're also taking a local approach to our
community investments and advocating
for local policy solutions. Our business is
only as strong as our communities, so
we increased our investments in places
like Mattapan in Boston and Oak Cliff in
Dallas to help local minority small busi-
nesses access the capital and support
they need to grow. We've expanded our
homebuyer grant program, which pro-
vides $5,000 to cover closing costs and
down payments when customers buy
homes in 6,700 minority neighborhoods
nationwide. We are also looking at alter-
native credit scores and other ways to
increase homeownership in underserved
communities and build generational
wealth and stability.
new small business loans extended, and
a host of other metrics to ensure that we
are achieving results and listening to
feedback so we can have even greater
impact. In October 2021, we published a
detailed report on our racial equity ini-
tiatives, including our Community Center
branches and Community Managers,
which we intend to continue to provide,
letting others learn from our experience.
We know that to be sustainable, this
effort must be measured by results. Our
company is closely tracking the number
of accounts opened, the number of
mortgages funded, the pace and scale of
I've attended many grand openings of our
Community Center branches in person.
The energy is contagious. We've hosted
mayors, community partners, students
and small business customers who have
shared their sense of pride and optimism
about what these branches mean for their
community. Our Community Managers
are always front and center at these
events, connecting people to one another
and forging new relationships.
The Community Manager, a new role
within the bank, primarily functions as a
local ambassador to build and nurture
relationships with community leaders,
nonprofit partners and small businesses.
We have now hired over 100 Community
Managers in underserved communities
and intend to keep growing that number.
Our Community Managers have hosted
more than 1,300 financial health events
with over 36,000 people in attendance
and have participated in 600+ community
service events. We want people who live
and work in these communities to feel
welcome and included when they visit our
branches. We ask them to come as they
are and bring the family or their dog.
They are also likely to know the employ-
ees in the branch, as we hire locally-
people who live in the community and
care about serving their neighbors.
were built with minority contractors,
and we hire local artists to make these
locations complement their neighbor-
hoods. With branches expanding to
Atlanta, Baltimore, Miami, Philadelphia
and Tulsa, we expect to have 17 Commu-
nity Center branches serving customers
in underserved communities by the end
of 2022.
A local bank branch, especially in a low-
income neighborhood, can be successful
only when it fits the community's needs.
That is why over the last several years
we have shifted our approach to how we
offer access to financial health educa-
tion, as well as low-cost products and
services, to help build wealth, especially
in Black, Hispanic and Latino communi-
ties. We are delivering this approach
through our Community Center
branches, unique spaces in the heart of
urban communities. Beginning with Har-
lem in New York City and Ventura Village
in Minneapolis, we have opened 10 more
Community Center branches in neighbor-
hoods like Stony Island in the South
Shore of Chicago, Crenshaw in Los Ange-
les, and Wards 7 and 8 in Washington,
D.C. Ten of these branches were opened
since we announced our $30 billion com-
mitment to racial equity in October
2020. These branches have more space
to host grassroots community events,
small business mentoring sessions and
financial health seminars. The majority
Americans have lost trust in the ability
of large institutions like the federal gov-
ernment, national media and big compa-
nies even big banks - to understand or
care about their needs. This view is well
earned, particularly among communities
of color and low-income households.
Simply put, our country has done a bad
job of looking out for and creating oppor-
tunity for everyone. We need to consider
more thoughtfully the unique needs of
communities across the United States.
Companies of all sizes need to show up,
listen, and make the right investments
and decisions to earn a neighborhood's
trust. And it needs to be done on the
ground and in the community itself to be
authentic and sustainable. Impact is most
effective when it is local.
And finally, our leaders must lead. They have to
walk the floors, they must see clients, they need
to be visible, they need to teach and educate, and
they need to be able to conduct impromptu meet-
ings. They cannot lead from behind a desk or in
front of a screen.
UPDATES ON SPECIFIC ISSUES FACING OUR COMPANY
20 Based on third-party data.
33
46
April 4, 2022
Chairman and Chief Executive Officer
Мо
Jamie Dimon
Jane Pane
MANAGEMENT LESSON: THE BENEFIT OF PURPOSE AND THE TREMENDOUS VALUE OF WORK
Finally, we sincerely hope that all the citizens and countries of the world see an
end to this terrible pandemic, see an end to the war in Ukraine, and see a
renaissance of a world on the path to peace and democracy.
In Closing
We also recognize and ask our employees to
take care of their mind, body, spirit, soul, friends
and family. While we do what we can to help
them, we recognize that these are the most
important things in their life, and we try to
constantly remind them to give the needed time
and attention to what they cherish most.
But turnover can be bad, too. It is bad when inef-
ficiency or bureaucracy or ineffective managers
drive out good talent. It is still true that most
people leave their job because they don't like
their boss.
they are treated fairly and equitably. And
everyone has their own needs in terms of family,
income, work-life balance and other factors.
-
All companies have turnover in staff, and all turn-
over is not necessarily bad. People seek out new
challenges, may find outside advancement oppor-
tunities or may just want a change in lifestyle.
Sometimes good people leave because they are
getting a better opportunity or increased com-
pensation at another company. You should not be
angry when someone receives a higher compen-
sation offer from another company. No one likes
to feel they are being taken advantage of -
everyone wants to go home each day thinking
I would like to express my deep gratitude and appreciation for the 270,000+
employees, and their families, of JPMorgan Chase. From this letter, I hope
shareholders and all readers gain an appreciation for the tremendous character
and capabilities of our people and how they have helped communities around
the world. They have faced these times of adversity with grace and fortitude.
I hope you are as proud of them as I am.
Retaining your best talent is essential. In addition
to being treated with enormous respect, what
people want most is a challenging job with mean-
ingful work.
Footnotes
1 Certain wealth management clients were realigned from Asset & Wealth Management to
Consumer & Community Banking in the fourth quarter of 2020. 2006 & 2011 amounts were not
revised in connection with this realignment.
43
18 Based on Firmwide data using Regulatory reporting guidelines as prescribed by the Federal
Reserve Board.
17 Coalition Greenwich Competitor Analytics. Reflects Global Firmwide Treasury Securities business
(Corporate & Investment Bank and Commercial Banking).
16 Client deposits and other third-party liabilities pertaining to the Payments and Securities
Services businesses.
15 Coalition Greenwich Competitor Analytics. Share is based on JPMorgan Chase's internal business
structure and revenues; rank is based on Coalition Index Banks. 2006 rank analysis is based on
JPMorgan Chase analysis. 2021 excludes the impact of Archegos.
14 Dealogic as of January 3, 2022.
Client Franchises Built Over the Long Term (page 8)
13 $90 billion represents the December 31, 2021 balances for accounts provided payment relief,
including those currently enrolled in relief and those who have exited relief. Includes Auto DCS
and residential real estate loans held in Consumer & Community Banking, Asset & Wealth
Management and Corporate.
11 Inside Mortgage Finance, Top Primary Mortgage Servicers as of 4Q21.
7 Represents general purpose credit card loans outstanding, which excludes private label,
American Express Company (AXP) Charge Card and Citi Retail Cards, and Commercial Card.
Based on loans outstanding disclosures by peers and internal JPMorgan Chase estimates.
8 Represents users of all web and/or mobile platforms who have logged in within the past 90 days.
9 Represents users of all mobile platforms who have logged in within the past 90 days.
10 Based on 2021 sales volume and loans outstanding disclosures by peers (American Express
Company, Bank of America Corporation, Capital One Financial Corporation, Citigroup Inc. and
Discover Financial Services) and JPMorgan Chase estimates. Sales volume excludes private label
and Commercial Card. AXP reflects the U.S. Consumer segment and JPMorgan Chase estimates
for AXP's U.S. small business sales. Loans outstanding exclude private label, AXP Charge Card,
and Citi Retail Cards.
6 Represents general purpose credit card spend, which excludes private label and Commercial
Card. Based on company filings and JPMorgan Chase estimates.
5 Digital non-card payment transactions include outflows for ACH, BillPay, PayChase, Zelle,
RTP, external transfers, and some wires, excluding Credit and Debit card sales. 2006 and 2011
are based on internal JPMorgan Chase estimates.
4 Total payment volumes reflect Consumer and Small Business customers' digital (ACH, Bill Pay,
PayChase, Zelle, RTP, ExternalTransfers, Digital Wires), non-digital (Non-digital Wires, ATM,
Teller, Checks) and credit and debit card payment outflows. 2011 is based on internal
JPMorgan Chase estimates.
3 Barlow Research Associates, Primary Bank Market Share Database as of 4Q21. Rolling 8-quarter
average of small businesses with revenue of more than $100,000 and less than $25 million.
12 Experian AutoCount data for 4Q21. Reflects financing market share for new and used loan and
lease units at franchised and independent dealers.
RETAINING TALENT IS IMPORTANT AND
SO IS LIFE OUTSIDE OF WORK.
2 Federal Deposit Insurance Corporation ("FDIC") 2021 Summary of Deposits survey per S&P
Global Market Intelligence. Includes a $1B deposit cap for market share. Includes all commercial
banks, savings banks, and savings institutions as defined by the FDIC.
Personally and professionally, I am motivated by
the desire to leave the world a better place - if I
do my job well, this company can do so much for
individuals, shareholders, communities, countries
and humanity. I am motivated when I see our cus-
tomers and employees in action, knowing there is
MANAGEMENT LESSON: THE BENEFIT OF PURPOSE AND THE TREMENDOUS VALUE OF WORK
Management Lesson: The
Benefit of Purpose and the
Tremendous Value of Work
I have expressed regret for many years in this
letter that we, as a society, have not found a way
to better prepare our young people for jobs,
Along the same lines, some in society diminish
"starter" jobs, such as cashiers, office workers,
bank tellers, fast food cooks and others. These
"starter" jobs bring dignity, provide security for
many families and create a solid work ethic.
Often, they result in better social outcomes in
terms of reductions in drug use and crime, similar
to outcomes we have seen from summer youth
employment. For many, these jobs are the first
rung on the career ladder, leading to bigger and
bigger jobs. For example, more than 95% of
Domino's franchise owners started as delivery
drivers or pizza makers. At JPMorgan Chase,
about one-third of our branch managers started
as tellers or personal bankers.
Work, all work, has value. It was a beautiful thing
during the onset of COVID-19 when we celebrated
our essential workers (in New York City, it was
unbelievable to hear the sound of 1 million New
Yorkers shouting thanks out their windows every
evening at 7:00), including nurses, firefighters,
emergency medical service staff, sanitation work-
ers and police officers (although recently that
spirit seems to have waned). They were always
essential workers, and they appreciated our
recognition.
RECOGNIZE THE TREMENDOUS VALUE
OF WORK.
whether through conventional schooling or
apprenticeships and skills-based training, which is
more important today than ever before. Offering
better training and getting more income to lower-
paid workers would hugely benefit the economy,
the individuals involved and social outcomes -
and would help rectify income inequality. We must
do a better job improving the outcomes of an edu-
cation; i.e., that it leads to well-paying jobs. I also
believe that we should immediately increase the
minimum wage and the EITC to both entice more
people into the workforce and to get more income
into the hands of the lower paid.
increased opportunity for each of them when we
do better as a company. I am motivated when I go
to our annual National Achievers Conference,
which recognizes some of our most successful
bankers and managers in the branches. Some-
times they have tears in their eyes as they accept
this recognition – many have never been recog-
nized before- and it is hard to describe how this
deepens my own sense of responsibility.
It seems to me that people are happier and more
motivated when they have a passion, a moral pur-
pose, something they are devoted to - when they
are painting their own Picasso, striving for some-
thing. Some people find it in religion, the military,
teaching, science, athletics, parenthood, entre-
preneurship or simply being their best at their
craft. Whatever it is, all these things combined
when done well ― create a wonderful society. And
most people I know get an enormous sense of
satisfaction from the exploration and learning
that take place on the journey.
PERFECT YOUR PICASSO - HAVE
SOMETHING TO STRIVE FOR AND
MOTIVATE YOU.
In the rest of this section, I talk about some man-
agement lessons - I always enjoy sharing what I
have learned over time by watching others and
through my own successes and failures.
In the section on Investments, I described what
we consider our most important investment: our
people, who in accounting terms are not even
considered an asset. But we all understand the
value of building a great team.
Great management and leadership are critical to
any large organization's long-term success,
whether it is a company or a country. Strong
management is disciplined and rigorous. Facts,
analysis, detail ... facts, analysis, detail ... repeat.
You can never do enough, and it does not end.
But creating an exceptional management team is
an art, not a science.
45
-
NURTURE THE EXTRAORDINARY VALUE
OF TRUST.
44
-
MANAGEMENT LESSON: THE BENEFIT OF PURPOSE AND THE TREMENDOUS VALUE OF WORK
Finally, sharing credit, recognizing the contribu-
tions of others, and not casting blame or finger-
pointing all are critical to earning trust.
Bring energy and drive - not just every day - but
to every meeting and interaction.
-
Trust is earned, given and received. To maximize
human creativity and freedoms - which are the
greatest gifts of capitalism trust is essential.
-
We must strive for continuous improvement, set
high standards and emphasize the negatives
when we observe them but always remember to
make life fun. When I travel around the world and
see our people and our company in action, I love
it. And you must make it fun not only because it
has a positive effect on retention, attitude and
the overall culture of the company but also
because it leads to sharing and truth-telling.
I've enjoyed the show "Ted Lasso." He tries to get
the best out of everybody, and he displays great
gratitude. While I could get a little better at show-
ing more gratitude on a day-to-day basis with my
management team (I did give them biscuits in lit-
tle pink boxes this year), they do know how much
I trust, respect, appreciate and admire them.
Three additional things: You don't create a win-
ning team by pandering to individuals. You must
deal with conflict immediately, directly and forth-
rightly problems do not age well. When people
cannot do their job, they should not have that job.
We should either work with them to find another
role where they can thrive or ask them to leave.
Just do it respectfully to everyone involved - do
not embarrass people who have been working for
the company.
DRIVE HIGH PERFORMANCE, THE
RIGHT WAY.
Very often, the enemy within fights change,
resists making bold decisions and balks at invest-
ments that are hard, such as growing the sales-
force. When the enemy within takes over, energy
and creativity wither quickly... although it may
take decades for the company to die.
The other disease that arises from within is a
workplace completely run by corporate head-
quarters: It is very easy to be critical of people in
the field for their failures when you don't walk in
the trenches with them.
While trust is the force multiplier, a workplace
cannot devolve into excessive, feel-good collabo-
ration and bureaucracy. I have seen work envi-
ronments in which everyone is so nice to each
other and so collaborative that it slowly creates
crippling bureaucracy as everyone's opinion is
sought out and everyone has a veto.
COMBAT THE ENEMY WITHIN.
We must make it safe to argue, disagree and
challenge each other while continuing to dig
deeper in areas where we're not doing as well as
we'd like. It must be okay to fail or make mis-
takes. Trust is the force multiplier that gets the
best out of everyone. You do not earn trust if you
finger-point, don't admit to your own mistakes or
don't share the credit.
So how do you drive high performance while cre-
ating a safe workplace that values relationships
built on trust and respect? The best leaders treat
all people properly and respectfully, from clerks
to CEOs. Everyone needs to help one another at a
company because everyone's collective purpose
is to serve clients. When strong leaders consider
promoting people, they pick those who are
respected by their colleagues and ask them-
selves, "Would I want to work for him? Would I
want my kid to report to her?"
•
•
Last year alone, our customers:
been simplifying the basics – things our
customers do most often - such as open-
ing an account, replacing a card, checking
their credit score and making a payment.
-
49
CONSUMER & COMMUNITY BANKING
Get my letter
Share this conditional approval
letter with your real estate agent or
potential sellers to show you're a
serious buyer
•
Buying power
Chase MyHomeSM
2:16
Create plan
Feb
Mar
April
Opened about 50% of consumer
deposit accounts digitally
/mo
You're already
approved to buy
a home up to
$400,000
Submitted nearly three-quarters of
consumer mortgage applications
digitally
As we expand our product offerings and
earn deeper customer relationships and
engagement, we have areas of opportu-
nity to gain meaningful share.
Processed more than 5 million card
replacements digitally
+ $4.83 monthly fee
.
We had a record 2021:
We are investing significantly in our U.S.
Wealth Management business, which rep-
resents one of our biggest growth oppor-
tunities. We already have relationships
with about half of affluent households in
the United States, but we don't have a pro-
portionate share of their investments.
There are an estimated 13 million affluent
Chase households who have a total deposit
and investment wallet of approximately
$17 trillion, and we are making progress in
winning their investment relationships.
U.S. Wealth Management
In 2021, we became the first bank to have
branches in all the lower 48 states, and
we are on track to deliver on our previ-
ous commitment, which was to open
400 new branches in 25 states and the
District of Columbia. Over time, we will
continue to optimize our distribution net-
work as customer needs evolve. Our goal
is not to have the most branches - but
to have the right branches, in more
communities, serving the financial
needs of our customers.
Our distribution network
We are focused on three major growth
areas across CCB: optimizing our distri-
bution network; expanding our U.S.
Wealth Management business; and
advancing our leadership in payments,
lending and commerce.
GROWING HOUSEHOLDS AND
BETTER SERVING CUSTOMER NEEDS
TO BE THE BANK FOR ALL AMERICANS
Provided free one-on-one coaching for
business owners in 14 U.S. cities
through dedicated consultants
Expanded our homebuyer grant pro-
gram, which includes $5,000 to help a
customer cover a down payment and
closing costs in 6,700 minority neigh-
borhoods nationwide
Hired more than 150 Community Home
Lending Advisors focused on sustain-
able homeownership
Opened 10 additional Community
Center branches and hired more than
100 Community Managers
•
.
•
For example, since our October 2020
Racial Equity Commitment, we have:
Took steps to improve their financial
health, with 8 million customers
engaging with Credit Journey monthly
and 28 million in the program
We are intensely focused on building
trust with customers in every commu-
nity we serve by making investments
that will have a lasting impact for fami-
lies, small businesses and neighbor-
hoods. And we're achieving this by having
products, services and solutions that are
relevant and valuable for all customer
segments - so every customer believes
we are the bank for them. Where we have
gaps, we need to fill them, and we are.
Initiated nearly 60% of their card
transaction disputes through digital
channels
Safely and seamlessly moved more
than $3 trillion in digital payments
Money out
Spend anywhere $50.00
$62.50
Chase Snapshot
. Insights
...
2:16
Request money
+Place to spend
$25.00
Restaurants
Increased investment assets by 22%
$75.00
Spend
Available balance $150.00
Chase First Banking™
2:16
... New products
WE ARE MEETING OUR CUSTOMERS WHERE THEY ARE WITH ...
Our customer base of 59 million active
digital users is the largest and fastest
growing among major U.S. banks when
comparing our growth in 2021. We have
We think about our branches as a store-
front - a place where digital engage-
ment comes together with our bankers
and advisors, who work every day to
deliver the full capabilities of JPMorgan
Chase. Thirty-six million unique custom-
ers walk into our almost 5,000 branches
every year, generating about 85% of
initial deposit balances. Our branch
network is a powerful channel that most
of our competitors don't have and can't
easily replicate.
2021
Credit & debit card usage
Money in
Daily
Weekly
12 payments
$83.33/mo
9 payments
$125.00/mo
$750.00
6 payments
Choose payment option
Purchase amount
CREDIT CARD (...4321)
Account
My Chase PlanⓇ
.. Engagement
...
... Flexibility
2:16
$4,300
$86
Cash flow
Checking and savings
Monthly
$33
Grew the number of investment
households we serve by 12%
BEING THE PLACE EVERYONE
WANTS TO WORK
We are going to continue to invest in our
advisors, launch a new remote advice
model and expand our self-directed
capabilities. In addition, we will launch a
new digital wealth planning tool avail-
able free to all Chase clients. These
investments will position us well to earn
a greater share of our clients' wallets.
2021
9.5%
$27.4
12.2%
$13.4
Source: Coalition Greenwich Competitor Analytics; Dealogic; J.P. Morgan
Investment Banking wallet share
Investment Banking fees
■Markets wallet share
Total Markets revenue
2011
$19.3
8.2%
9.3%
$5.9
($ in billions)
INVESTMENT BANKING FEES AND MARKETS REVENUE
A decade later, we can reflect on the
merits of that decision. Today, the CIB
operates in 100+ countries and 100 cur-
rencies, serves more than 90% of the
Fortune 500 and has leadership posi-
tions across every major business line.
The COVID-19 pandemic provided a
rigorous test of our business model. It is
a course we set 10 years ago when we
combined our Investment Bank, Treasury
& Securities Services business and Global
Corporate Bank in a bid to create the
strongest and most complete Corporate
& Investment Bank (CIB) in the industry.
We set out to be global, diversified, com-
plete and at scale and to provide a safe
haven for clients in times of stress. We
aimed for both league-topping perfor-
Imance and stable returns so we would be
able to invest continuously and consis-
tently, always with an eye to the future.
New virus outbreaks continued to
appear, however, and supply chains
remained disrupted. In addition, the
tumultuous market environment of 2020
did not normalize as much as expected,
and through the year, we raised nearly
$1.5 trillion in capital and extended
almost $700 billion in credit for clients
around the world as they responded to
the ongoing crisis. With the pandemic in
its second year, thousands of companies
had to make bold moves to survive and
thrive, igniting a nearly $6 trillion deal
boom and the busiest year on record for
our M&A franchise.
Economies started to emerge from the
shadow of the pandemic. Company order
books began to fill up once more, and
demand for energy, cars, travel and
home improvements returned.
Revenue from our combined businesses
has grown from $34 billion in 2011 to
$52 billion in 2021; return on equity has
risen from 17% to almost 25%; fees in
Investment Banking have more than dou-
bled; and in trading, revenue from our
Equities desk has soared from $4.5 bil-
lion 10 years ago to $10.5 billion in 2021.
2021 was another extraordinary year for
our business.
In 2011, we launched a securities joint
venture in China to open up the coun-
try's dynamic markets to investors and
give domestic firms the chance to
expand overseas. In 2021, we became
the first foreign bank to fully own a secu-
rities company there. Meanwhile, we
have nearly doubled the number of
corporate bankers outside the United
States to better serve major multination-
als around the world. Helping midsized
companies, too, has remained a priority,
and Investment Banking revenue from
our partnership with Commercial Bank-
ing has more than tripled in 10 years to
$5.1 billion in 2021.
THE YEAR IN REVIEW
$10.3
+68%
2 Represents assets held directly or indirectly on behalf of
clients under safekeeping, custody and servicing
arrangements.
Our Securities Services business, which
provides essential post-trade services to
our institutional asset-manager and
asset-owner clients, also had a strong
year, reporting $4.3 billion in revenue.
This is a business we have been investing
and winning - in for several years. In
2021, the team continued this momen-
tum with more than $4 trillion in client
assets onboarded and notable business
wins, including a $700 billion share of
BlackRock's exchange-traded funds busi-
ness. Assets under custody² in this unit
generated extremely strong results, par-
ticularly in Equities, which had its best-
ever year, reporting $10.5 billion in rev-
enue, up 22%, while our Fixed Income
desk reported $17 billion in revenue and
retained its #1 ranking for wallet share.
Another notable success in 2021 was our
Global Research team's top ranking
across all three of Institutional Investor's
annual global surveys, the first time any
provider has achieved this accolade in
the publication's history.
2011
$6.1
($ in billions)
FIRMWIDE PAYMENTS REVENUE
In our Markets business, 2021 revenue
of $27 billion was down from 2020's
highs as industry wallets started to
normalize. Still, our trading businesses
Another recent trend is the growth in
private capital markets as investor
demand grows and companies stay
private for longer. In 2021, from offices
in New York, San Francisco, Los
Angeles, London and Hong Kong, our
Global Private Capital Markets team
set new records, raising approximately
$50 billion for clients.
In Equity Capital Markets, J.P. Morgan
raised more than $435 billion across
nearly 700 deals. In a year that saw
initial public offering issuance jump
over 85% to record levels, our team
led seven of the 10 biggest listings of
the year.
In Debt Capital Markets, just as we
have done over the last decade,
J.P. Morgan finished the year with the
top ranking in the debt and loan
markets, completing more than 4,200
deals and retaining an approximate
10% share of the market. Activity was
bolstered in large part by the M&A
boom and deals to shore up companies
affected by the evolving COVID-19 crisis.
Businesses flush with cash made deci-
sive bets to address strategic gaps,
driving the surge in M&A volumes. In a
standout year, J.P. Morgan advised on
more than 630 deals totaling $1.5 tril-
lion, including the year's biggest deal,
Discovery's announced $96 billion
combination with AT&T's WarnerMedia
segment. M&A revenue increased by
more than 80% compared with the last
two years, and wallet share reached an
all-time high of 10.2%.
1 CIB revenue based on Coalition Greenwich Competitor
Analytics. Investment Banking fees based on Dealogic.
CORPORATE & INVESTMENT BANK
52
Our Investment Banking business ended
2021 with a record 9.5% market share,
generating $13 billion in fees, nearly
$4 billion more than 2020's previous high.
The CIB achieved a 25% return on equity
in 2021 by generating record earnings
of $21 billion on record revenue of $52
billion. For the 11th consecutive year, we
retained our position as the world's pre-
eminent corporate and investment bank¹.
A decade of rock-steady support for our
clients, along with disciplined and ongo-
ing investment in our business, culmi-
nated in the CIB's best-ever year in 2021.
Corporate &
Investment Bank
51
CONSUMER & COMMUNITY BANKING
franchise in the United States, enabling
CONSUMER & COMMUNITY BANKING
trillion in addressable deposits by market
-$9
trillion in addressable deposits by market
$5
~90% of credit card customers in footprint
of the U.S. population covered by market
of credit card customers in footprint
76%
~85%
of the U.S. population covered by market
61%
~5,000 branches
OUR MID-TERM OUTLOOK IS TO HAVE:
5,130 branches
AT THE END OF 2017, OUR NETWORK CONSISTED OF:
50
Payments, lending and commerce
Payments are still the center of gravity
for consumer financial relationships.
We are a leading consumer payments
our customers to move $5 trillion each
year across payment methods. Looking
forward, we're obsessing over simple and
seamless experiences to maintain that
leadership position and give our custom-
ers more choice, flexibility and value.
We are the nation's #1 credit card
provider, with leading airline and hotel
co-brand cards. We are innovating to
deliver more flexible borrowing options,
partner benefits and more. Our leading
programs already in the market pro-
•
duced meaningful results in 2021:
Chase Ultimate Rewards® loyalty
redemptions: 16 million customers
redeemed points earned for travel,
gift cards, cash back and other
experiences
2 Office of the Comptroller of the Currency Project REACH Fact Sheet.
Jennifer Piepszak
Co-CEO, Consumer & Community Banking
Jenn
Co-CEO, Consumer & Community Banking
Marianne Lake
Малаше
We approach our opportunities and chal-
lenges with great humility, yet we have
tremendous confidence about our future
and wouldn't trade our hand with any-
one. Our scale, our assets and - most
important - our people position us well
to be the bank for all Americans.
IN CONCLUSION
are also on the rise, which has had a
positive effect on representation across
many levels.
• Increased the number of advisors by 7%
We are proud of our efforts but are
never satisfied. In 2021, we continued to
improve representation of Asian, Black
and Hispanic talent among our employ-
ees. Our commitment to diversity goes
beyond hiring and includes a focus on
development and inclusion. Our promo-
tion rates of ethnically diverse people
2020
We continue to focus on having the
proper governance and processes in place
to ensure that our business is sustainable
and resilient in order to meet our regula-
tory and customer expectations. We're
using enhanced capabilities in data and
analytics to be more surgical in extending
credit and managing risk. We're also
using our data in a leadership role to
develop an industry utility to responsibly
expand access to credit to many of the
nearly 50 million people in the United
States who have no usable credit score².
Our risk and controls environment is
essential to a healthy, thriving business.
Therefore, protecting our customers and
the firm is job number one for everyone
in CCB. It is only by getting this right
that we are able to innovate and make
financial services seamless and easy for
our customers.
PROTECTING OUR CUSTOMERS AND
THE FIRM THROUGH A STRONG RISK
AND CONTROLS ENVIRONMENT
Over time, we will expand our payments,
lending and loyalty experiences. With
data from more than 66 million house-
holds and over 11 billion impressions
through our own channels, we are in a
great position to understand where our
customers search, shop and build loy-
alty. Our goals are to meet our custom-
ers where they are, deliver ease and
value in shopping experiences, and cap-
ture incremental spend-and-lend share.
One in every four dollars spent on travel
in the United States is on a Chase card, so
travel is a natural place for us to offer
shopping, payment and borrowing experi-
ences at scale. With our acquisition of
cxLoyalty, we now have a wholly owned
proprietary travel platform, currently
ranked among the top travel agencies in
the United States. Our card and platform
assets will enable us to deliver premium,
personalized travel-booking experiences,
fully integrated payments features and
lending flexibility.
My Chase Plan®: Nearly 625,000
credit card customers used this
buy-now-pay-later option
•
• Chase Offers: 15 million customers
engaged with valuable discounts for
shopping at specific merchants
We believe delivering a great customer
experience is inextricably linked to provid-
ing a great employee experience. We
know having a strong culture with diverse
talent is the only way we are going to
achieve everything we have just men-
tioned. And we acknowledge that compe-
tition for talent - especially ours - has
never been more fierce. We approach tal-
ent management as we do any aspect of
the business: We maintain high standards,
set goals, and honestly measure progress
by analyzing our data, listening constantly
and recognizing success.
2019
technology, data, products and cus-
tomer experience - with a particular
focus on areas where we can deepen
our relationships and gain share. The
best evidence of that success is our
growth over the last three years.
MORTGAGE ORIGINATIONS
INVESTING TO DELIVER MORE
VALUE
half of our clients³ are supported by our
specialized bankers, and these teams
provide deep sector expertise and
deliver industry-specific solutions.
By providing industry expertise, financing and investment banking services, CB is helping green businesses grow and catalyzing a more
sustainable future.
CLEAN ENERGY
MOBILITY
AGRICULTURE AND
FOOD TECHNOLOGY
RENEWABLE ENERGY
SUSTAINABLE FINANCE
EFFICIENCY
TECHNOLOGY
The Green Economy Banking team, established in 2021, provides dedicated support to businesses focused on:
SUPPORTING THE GREEN ECONOMY
COMMERCIAL BANKING
56
Across all of these markets, our clients
expect us to truly understand their busi-
ness and industry. Over the last decade,
we have established 18 specialized
industry banking teams dedicated to
important sectors like government,
healthcare and technology. More than
is increasing, and we have a growing
number of high-quality clients.
momentum
-
We are also quite excited about expand-
ing our client franchise internationally.
Over the last three years, we've added
about 50 bankers covering 19 countries,
aligned to over 2,000 active and pro-
spective clients. This is a natural exten-
sion of what we are doing today across
the United States and builds upon
existing, in-country capabilities and
JPMorgan Chase's global platform.
We are off to a great start
CB's Middle Market expansion is a terrific
example of recognizing a market oppor-
tunity and executing a data-driven,
organic growth strategy. Since 2008, we
have added over 500 bankers covering
companies in 72 new locations across
22 states - essentially doubling our foot-
print in the United States. In 2021, this
targeted effort generated $1.2 billion in
revenue, with $19.5 billion in average
loans and $34.8 billion in deposits.
The opportunity to invest and expand
our client franchise is enormous, and we
remain focused on executing our long-
term, disciplined strategy to acquire
more great clients and build deep,
enduring relationships over time. With
consistent investment, our addressable
market continues to grow, and we are
currently calling on almost 45,000
prospective clients.
Empowering our team
CLIENT FRANCHISE
Simply having more bankers in more loca-
tions is not our only objective. It is the
quality and impact of our team - along
with the breadth of our capabilities - that
allow us to develop long-term, valuable
relationships with our clients. Today, our
teams provide a growing range of solu-
tions and solve complex technical prob-
lems for our clients. To further empower
our bankers, we are making investments
to ensure they are technically trained,
data enabled and equipped with the most
powerful digital tools.
We have incredible data assets across
our firm and have been investing in our
$100M+
INSTITUTIONS
TO COMMUNITY
DEVELOPMENT FINANCIAL
TAX CREDIT
INVESTMENTS
IN NEW MARKETS
$575M+ $350M+
3 Refers to U.S.-based clients only.
TO CREATE AND
PRESERVE MORE THAN
100,000 AFFORDABLE
HOUSING UNITS
$13B+
TO VITAL INSTITUTIONS,
SUCH AS HOSPITALS,
GOVERNMENTS
AND SCHOOLS4
$20B+
STRENGTHENING OUR COMMUNITIES
CB takes great pride in being an active
and visible member in our communities.
As our neighborhoods emerge from the
pandemic, it's critical that they receive
STRENGTHENING OUR
COMMUNITIES
We also have an incredible opportunity
to add incremental revenue streams by
delivering new, innovative solutions for
our clients. For example, in Commercial
Real Estate, we have been building a
digital platform that allows our clients
to more effectively manage their real
estate assets, deploying data and analyt-
ics while digitizing and streamlining their
rental payment activities. We are in the
early stages of bringing this functional-
ity to market, and client feedback has
been terrific.
platforms. In addition, CB's treasury
management and core banking capabili-
ties are developed with a deep under-
standing of our clients' objectives and
tailored to their specific needs.
Developing powerful solutions
Our clients benefit directly from our
firm's leading digital and payments
This focus has opened an exciting fron-
tier for us. As such, we are increasing
our investment in this differentiating
resource and expect to see our data
assets become even more valuable to
our franchise and our clients.
foundation and capabilities to become a
truly data-driven business. As a result,
we now have a scalable, cloud-based
data platform to deliver meaningful
value across a range of applications.
These rich data assets bring predictive
insights that enhance the speed and pre-
cision of our credit decisioning and port-
folio management. We are also working
on ways to provide impactful analytics
and business forecasting and bench-
marking to our clients. Our data capabili-
ties further enable our bankers - inform-
ing them on market opportunities, client
insights, product trends and pricing.
Building a data-driven business
TO BLACK-, HISPANIC-
AND LATINO-OWNED OR -LED
FINANCIAL INSTITUTIONS
EXPANDING OUR EXCEPTIONAL
1 Represents product revenue excluding deposit net interest income.
Commercial Banking
55
CORPORATE & INVESTMENT BANK
Daniel E. Pinto
President and Chief Operating Officer,
JPMorgan Chase & Co., and
CEO, Corporate & Investment Bank
Jonas
Our unique combination of stability and
innovation, coupled with our enduring
culture of collaboration and of putting
our clients first, gives me great confi-
dence for the decades to come.
Ten years ago, we brought the Corporate
& Investment Bank together in the belief
that as a whole, we would be greater
than the sum of our parts. And it has
proved to be a lasting success.
CONFIDENCE IN THE FUTURE
The full economic ramifications of the
conflict, including the potential effects
on global growth, can't yet be measured.
Of much greater importance, the human
cost is also yet to be determined. Our
firm has pledged support to the relief
efforts and will continue to do so, hoping
for peace in the region soon.
Of immediate and urgent concern, how-
ever, is what is taking place in Ukraine:
devastation for its citizens and a massive
humanitarian crisis in Europe. The situa-
tion has, without question, intensified
anxiety in global markets, particularly
commodity markets.
There will be challenges for all of us in
the near term as we continue to work
through the pandemic's consequences
and begin to wean global economies off
the financial life support they have
received over the past few years. As
expected, the normalization of monetary
and fiscal policies, coupled with rising
inflation, has created more uncertainty
in markets.
While there are still tight restrictions in
certain parts of the world, many econo-
mies are opening up again, releasing
pent-up consumer and corporate
demand. Businesses and investors are
hungry to put capital to work. Rising
interest rates and their impact on
expected loan growth will likely be
tailwinds for our business.
In 2022, the combination of mass immu-
nity, vaccinations and antiviral drugs
should bring an end to the pandemic
and make COVID-19 an endemic, man-
ageable virus.
In 2021, COVID-19 continued to test us
and our clients, and I am incredibly
proud of how our teams rallied, serving
companies and governments around the
world. We adapted, were flexible and
stayed connected.
PARTNERING THROUGH THE
PANDEMIC
Sustainable and low-carbon businesses
are rushing to develop new technologies.
While many of these companies and
technologies are mature, many more are
just getting started. They will need capi-
tal and advice to help them innovate and
evolve. We intend to lend our consider-
able resources to the challenge.
In 2021, we also announced a new target
to finance and facilitate $2.5 trillion over
the next 10 years to further sustainable
development, including $1 trillion to
support green initiatives. And we are
advising companies on how they can
reduce their own carbon footprint in a
practical, equitable way. Ensuring the
consistent supply of reasonably priced
energy to consumers during the transi-
tion is a huge focus.
In 2020, JPMorgan Chase achieved car-
bon neutrality in our own operations and
spelled out how we will decarbonize our
financing portfolio over the next decade.
In 2021, we became the first U.S. bank to
release sector-specific emission reduc-
tion targets as part of our commitment
to align portions of our financing portfo-
lio with the Paris Agreement.
We understand the urgency to combat
change in our climate, and we are
taking action.
This past year confirmed there is abso-
lutely no limit to what our Commercial
Banking (CB) team can accomplish when
we work together. While 2021 showed
signs of optimism, our clients continued
to face uncertainty, confronting an
ongoing pandemic, accelerated inflation,
disrupted supply chains and tight labor
markets. Through it all, we stood by our
clients and communities, providing them
with resources and expertise to best
navigate these challenges.
2 Represents total JPMorgan Chase revenue from investment banking products provided to CB clients.
2021 also marked another year of
building for our future, investing in
our capabilities for our clients, support-
ing our communities, and delivering
strong growth and returns for our
shareholders.
Highlighting the strength and potential
of our franchise, CB delivered outstand-
ing financial results in 2021, with record
revenue of $10.0 billion, net income of
$5.2 billion and a return on equity of 21%.
2021
2016
2011
$135
$1,223
$422
Middle Market Expansion Revenue
($ in millions)
While we are very proud of our financial
performance, we are even more excited
about the possibilities ahead.
Our firm's unmatched, broad-based
capabilities remain a key differentiator
and growth driver for our business. In
2021, investment banking was a stand-
out example of this, with revenue
increasing 52% to a record $5.1 billion.
We also had a record year across CB
in payments¹, with revenue reaching
$1.8 billion, up 15% from 2020.
Despite challenging market fundamen-
tals, CB's credit performance was quite
strong in 2021, with net charge-offs of
4 basis points. Our consistent under-
writing discipline and rigorous client
selection continued to serve us well,
and we are prepared for a range of
potential economic outcomes.
These results are particularly notable
as low market interest rates negatively
impacted our deposit spreads and
loan balances remained under pressure
last year.
2021
$5.1
2016
$2.3
2011
$1.4
CB Gross Investment Banking Revenue²
($ in billions)
MAINTAINING STRONG PERFORMANCE
DELIVERING RECORD FINANCIAL
PERFORMANCE
4 Includes new credit commitment originations and existing credit commitments that experienced a major modification during 2021.
COMMERCIAL BANKING
57
WEALTH MANAGEMENT
+22%
+8%
BUSINESS BANKING
CHECKING ACCOUNTS
CONSUMER BANKING
HOUSEHOLDS
2019 TO 2021 GROWTH
Now our goal is to mature this model.
We are continuing to modernize our
infrastructure and deepen our customer
relationships by improving experiences.
We're delivering new products and
features to customers more quickly (in
many cases, half the time it took a year
ago) with the flexibility to continuously
release new features. These productivity
gains are meaningful to our customers
and to our business.
Consumer behavior changed at the onset
of the pandemic, largely driven by
necessity. Thanks to our investments in
technology and digital product capabili-
ties, we were in a strong position to
rapidly pivot our operating model to
support our customers' needs. Many
of these changes in consumer behavior
represented an acceleration of secular
trends for which we were already posi-
tioning the business, and we expedited
our transformation to a design-led,
agile product organization.
LEVERAGING DATA AND TECHNOLOGY
TO DRIVE PRODUCTIVITY AND AGILITY
have almost doubled since 2011, up from
$17 trillion to $33 trillion in 2021.
Our rebranded J.P. Morgan Payments
business, which includes Treasury Ser-
vices, Trade Finance, Card and Merchant
Services, continued its impressive
record of growth, generating firmwide
revenue of more than $10 billion, up 7%
for the year. Over the last five years, the
business has grown market share from
4.5% to 7.2% and, since the formation
of the CIB, average deposits across the
business have more than doubled, up
from $319 billion to $715 billion. The
business has also boosted its blockchain
and automation capabilities so clients
can move money around the world
quickly, safely and easily. As the world's
largest transaction bank, the business
moves, on average, more than $9 trillion
every day and remains #1 in U.S. dollar
clearing by volume. In other major
developments during 2021, the business
took a majority stake in Volkswagen's
payments platform, as competition in
the connected car market accelerates.
CORPORATE & INVESTMENT BANK
53
ASSETS UNDER CUSTODY IN SECURITIES SERVICES
($ in trillions)
$16.9
2011
THE COMPETITIVE LANDSCAPE
While we achieved all-time records in
2021 in a number of different areas, we
cannot afford to be complacent. From
long-established rivals to Big Tech and
fintechs, the competitive threat is fierce
and varied.
We are in a privileged position. Our con-
sistent investment over the last 10 years
lends us tremendous firepower for the
future. Technology has always been a pri-
ority, and we have built some exceptional
platforms that are high performing and
resilient and work well at scale. In recent
years, our focus has turned toward mod-
ernizing that infrastructure and using the
cloud to increase our speed, output and
agility so we can serve clients better and
faster, particularly as we compete with
fintech entrants.
Our greatest competitive advantage,
however, is the talented people we have
at J.P. Morgan. Their resilience and
commitment throughout 2021 were
remarkable. Even through the pandemic,
we retained much of our top talent while
taking opportunities to recruit diverse
new talent with fresh perspectives.
During 2021, more than 50% of CIB hires
were diverse.
NEW ACCOUNTS
+97%
+61%
2020
HOME LENDING
DRIVING ENGAGEMENT WITH
EXPERIENCES THAT CUSTOMERS LOVE
Our real engagement differentiator is
the combination of our award-winning
digital capabilities, our extensive physi-
cal network, and our nearly 50,000
local bankers, advisors, and relationship
and branch managers. We are empower-
ing our people with new tools and
insights to advise our customers on their
financial future and have delivered the
highest satisfaction results in our history.
We are also using data to build a more
comprehensive product continuum
and engage with our customers in more
personalized and relevant ways.
2021
2020
2019
Q419 Q420 Q421
+28%
+11%
LOAN AND LEASE
ORIGINATIONS
AUTO
CREDIT CARD
NEW ACCOUNTS
2021
2020
2019
2021
2020
2019
2021
2019
$33.2
2021
HELPING MORE PRIVATE
COMPANIES
Commercial Real Estate team helped
increase access to safe and stable places
to live in underserved communities by
providing over $13 billion in financing to
create and preserve more than 100,000
affordable housing and rental housing
units across the United States.
Availability of affordable housing is also
crucial to combating the broader social
inequities in our society. In 2021, our
To help break down the systems that
have contributed to widespread eco-
nomic inequality - especially for Black,
Hispanic and Latino people - last year
we made equity investments of more
than $100 million in 16 diverse financial
institutions to accelerate growth in
underserved areas. We also established
dedicated banking teams to better con-
nect diverse-, women- and veteran-
owned businesses to the firm's full
spectrum of resources to best support
their success.
-
the appropriate support and resources
they need to thrive. In 2021, we ampli-
fied our community impact work by
further supporting vital institutions,
strengthening diverse businesses and
expanding affordable housing that our
communities need now more than ever.
I'm incredibly proud of our progress.
Last year, CB extended more than
$20 billion in credit to vital institutions
- such as hospitals, governments and
schools – that keep our communities
healthy, stable and vibrant.
CB provided two nonprofits, The Unity Council and Bridge Housing,
with a $90 million loan to build transit-oriented affordable housing
for working families in Oakland, California. The building will create
181 affordable units and commercial space for an organization
focused on ending youth criminalization and incarceration.
Fruitvale Transit Village
CB invested more than $4 million in the redevelopment of a
50,000-square-foot building in Chicago, Illinois. When completed, this
will be a multi-tenant healthy lifestyle hub that fills an absence in the
neighborhood. This new facility will bring professional training and job
opportunities to the community.
Auburn Gresham Healthy Lifestyle Hub
SAN FRANCISCO
OAKLAND
Berkeley
Lake Michigan
30
CHICAGO
90
Oak Lawn
Oak Park
INVESTING IN REDEVELOPMENT
CB is committed to making a positive
difference in our communities and
advancing solutions that will drive real,
sustainable progress for generations
to come.
LOOKING AHEAD
2021
The opportunities ahead for CB are tre-
mendous, and we will continue to invest
in executing our long-term strategy,
always keeping our clients at the center
of everything we do. Equally as impor-
tant, we will continue to embrace our
commitment to being a positive force in
our communities.
In Investment Banking, there remains
significant opportunity related to the
rapid growth of private capital markets.
Over the past 20 years, the number of
U.S. private companies has increased
exponentially while the number of listed
companies has declined, and capital
raises for private companies have grown
almost three times as fast as those for
public ones. In 2021, J.P. Morgan bankers
raised $50 billion for private companies.
More investment capital is being allo-
cated to this space. and more compa-
nies are staying private longer - than
ever before.
Looking ahead, another opportunity
exists in serving the thousands of
smaller, earlier-stage private firms that
are clients of our Commercial Banking
business. And we want to expand our
services to an even wider set of private
companies, connecting them seamlessly
with investors and providing benchmark-
ing for future capital raises.
DATA IS THE DIFFERENTIATOR
In Securities Services, data is a critical
enabler for investor clients in driving
efficiency, performance and growth.
Asset managers use a variety of data
sources to run their business, and the
effort required to gather, cleanse and
organize this data can be significant.
Data services has become a differentia-
tor in the securities services business,
and J.P. Morgan is in a unique position to
address the challenge data management
presents. We are developing solutions to
provide our clients with seamless and
efficient access to data, enabling them to
unlock new insights and opportunities.
SERVING ONLINE MARKETPLACES
In Payments, we see major growth
opportunities as online marketplaces -
big and small are experiencing explo-
sive growth and looking to offer addi-
tional financial solutions to their
customers.
-
Today, online marketplaces account for
more than half of e-commerce sales
globally, and the CIB's Payments busi-
ness wants to be the one-stop shop for
all of their needs. From accepting
payments to creating a seamless check-
out experience, managing payments in
multiple currencies and aggregating and
analyzing data, J.P. Morgan has every-
thing clients need to build and scale
successful platforms.
TRADING ANYWHERE, ANYTIME
+55%
More and more, participants in trading
markets are using digital portals and
electronic trading strategies. They want
the ability to trade round the clock and
round the globe, making multi-dealer
platforms and nontraditional competitors
more popular. In Markets, we are using
our scale and strength to increase
options for clients, building out our own
proprietary channels that connect to oth-
ers in order to streamline the experience
CORPORATE & INVESTMENT BANK
from pre-trade to post-trade. Offering
reliable liquidity in all market conditions,
combined with our ability to harness data
and deliver more intelligent, targeted
services, will be key to serving clients
now and in the future.
Behind all these innovations is our
desire to improve the client experience.
Across our firm, whether our clients are
retail customers or multinationals, the
quality of service we provide and how
we deliver it will determine whether
they choose to remain with us or take
their business elsewhere.
COMMERCIAL BANKING
58
CEO, Commercial Banking
Douglas B. Petno
Ding
I can't thank all of my colleagues enough
for what they do every day to make our
business so special. They are the source
of my confidence in our future.
54
As we look forward, I've never been
more optimistic about our business.
We have an extraordinary team,
unmatched capabilities, and an out-
standing and growing client franchise.
While the coming year will likely bring
challenges and surprises - we are
ready. With 2022 unfolding, we already
see the benefits of being back together
in the office and out in the local markets
with our clients. The power of human
connection is undeniable and is the foun-
dation of our strong relationships with
both our clients and our partners within
the company.
Our approaches to private capital, data
and marketplaces are ways to create a
more holistic client experience. By har-
nessing capabilities across our firm, we
are expanding our service "ecosystem"
and addressing more of our clients' needs
through the J.P. Morgan platform than we
ever thought possible 10 years ago.
CLIMATE ACTION TARGETS
Effective January 1, 2020, the Firm adopted the Financial Instruments - Credit Losses ("CECL") accounting guidance. Refer to Note 1 for further information.
(a) Prior-period amounts have been revised to conform with the current presentation. Refer to Note 25 for further information.
60.98
3.80
3.60
3.40
Tangible book value per share ("TBVPS")(b)
Cash dividends declared per share
Selected ratios and metrics
Return on common equity ("ROE") (c)
Return on tangible common equity ("ROTCE")(b)(c)
Return on assets ("ROA") (b)
Overhead ratio
19%
12 %
15 %
23
66.11
71.53
75.98
81.75
3,021.5
3,082.4
3,221.5
3,026.6
3,087.4
3,230.4
14
$
$
387,492
$
429,913
3,049.4
3,084.0
466,206
2,944.1
88.07
10.72
19
0.91
160
116
13.1
13.1
12.4
15.0
178
15.0
16.8
17.3
16.0
6.5
7.0
7.9
14.1
Supplementary leverage ratio ("SLR") (e)(f)
Tier 1 leverage ratio (e) (f)
Total capital ratio (e)
1.33
59
56
56
Loans-to-deposits ratio
Firm Liquidity coverage ratio ("LCR") (average) (d)
44
47
64
111
110
116
JPMorgan Chase Bank, N.A. LCR (average) (d)
Common equity Tier 1 ("CET1") capital ratio (e)
Tier 1 capital ratio (e)
1.30
5.4 %
8.88
10.75
Total noninterest expense
Pre-provision profit (b)
Provision for credit losses
Income before income tax expense
Income tax expense (a)
Net income
Total net revenue (a)
Earnings per share data
Basic
Diluted
Average shares: Basic
Diluted
Market and per common share data
Market capitalization
Net income:
Selected income statement data
(in millions, except per share, ratio, headcount data and where otherwise noted)
As of or for the year ended December 31,
305 Glossary of Terms and Acronyms
85 Strategic Risk Management
86 Capital Risk Management
97 Liquidity Risk Management
106 Credit and Investment Risk Management
133 Market Risk Management
141 Country Risk Management
143 Operational Risk Management
150 Critical Accounting Estimates Used by the Firm
154 Accounting and Reporting Developments
155 Forward-Looking Statements
The following pages from JPMorgan Chase & Co.'s 2021
Form 10-K are not included herein: 1-42, 312
JPMorgan Chase & Co./2021 Form 10-K
43
Financial
THREE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS (unaudited)
Common shares at period-end
15.36
Book value per share
2020
11,228
6,684
8,435
$
48,334
$
44,866
29,131
36,431
$
15.39
$
8.89
$
$
35,815
59,562
5,585
2019
$
121,649
$
119,951
$
115,720
71,343
66,656
65,269
50,306
53,295
50,451
(9,256)
17,480
2021
6.9 %
4 As of March 2022.
3 As of June 2021.
Loans
1,077,714
1,012,853
997,620
Total assets (a)
3,743,567
398,239
3,384,757
Deposits
2,462,303
2,144,257
1,562,431
Long-term debt
301,005
2,686,477
281,685
0.60 %
672,232
FOUR INGREDIENTS FOR FUTURE
GROWTH
Perspective and experience are key
points of distinction for our clients in
times of volatility and uncertainty.
J.P. Morgan Asset & Wealth Manage-
ment (AWM) has been managing assets
for institutions and individuals around
the world for over 180 years. While
recent years have presented many
unique challenges, our approach has
remained consistent throughout: Rely
on disciplined research, incorporate
our deep experience in developed and
emerging markets, and rigorously man-
age risks. As markets and economies
have become more interconnected,
clients increasingly seek global solu-
tions combined with local expertise,
and AWM is well-positioned to be the
most trusted partner.
Wealth Management
Asset &
6.3 %
Selected balance sheet data (period-end)
589,999
Trading assets
433,575
$
503,126
$
369,687
Investment securities, net of allowance for credit losses
$
291,498
Common stockholders' equity
259,289
30,815
$
14,314
1.62 %
2.95 %
1.39 %
$
$
$
2,865
10,906
5,259
$
5,054
5,629
0.30 %
8,346
18,689
$
Net charge-off rate
249,291
234,337
Total stockholders' equity
294,127
279,354
261,330
271,025
255,351
256,981
Headcount
Credit quality metrics
Allowances for loan losses and lending-related commitments
Allowance for loan losses to total retained loans
Nonperforming assets
Net charge-offs
We accelerated our growth agenda over
the last few years. By focusing on four
ingredients to drive our growth - main-
tain strong investment performance,
recruit and retain the best talent,
attract new clients and generate flows
-AWM delivered record financial per-
formance across a number of metrics.
1) Investment performance
With a laser focus on client outcomes -
across more than 600 investment strate-
gies and delivered by over 1,100 invest-
ment professionals in 20+ markets - we
have achieved top investment perfor-
mance across most asset classes over
most time periods.
2) New talent
Our focus on talent includes retaining
existing employees and attracting new
professionals to our firm. In 2021, we
retained nearly 95% of top senior talent
and more than doubled the number of
front office joiners to over 2,500, a
record for AWM, despite competitive
pressure in our industry. In particular,
we are making progress against our
ambitious Global Private Bank (GPB)
growth strategy, adding nearly 300
net new client advisors in 2021. Our
new advisors are also exceeding our
expectations - approximately 50% are
surpassing their targets - and are
making meaningful contributions to our
business. Roughly 15% of GPB client
asset net flows in 2021 were generated
by new advisors.
were distributed across our broad,
Equally important, our record flows
$5B
$6B
$17B
$4.5T
diversified platform. In 2020 and 2021,
AWM achieved net positive inflows
across all products, client segments
and regions.
$218B
Net Income
Pre-tax
Income
Revenue
Total Client
Positions
Loans
Flows
$389B
RECORD FINANCIAL RESULTS
Flows were not the only record outcome
in 2021: Financial performance was very
strong across the board, with record
AWM revenue, pre-tax income, net
income, loans and total client positions.
Importantly, assets under management
reached $3.1 trillion, and assets under
supervision reached $4.3 trillion, both
all-time highs.
OPERATIONAL EFFICIENCY
2 Global Shares acquisition is subject to regulatory approvals
and expected to close in the second half of 2022.
1 For footnote, refer to page 47 footnote 34 in this Annual
Report.
FASTER
FASTER
FASTER
2x
5x
24x
ACCOUNT
OPENING
PERFORMANCE
REPORTING
MORTGAGE
REFINANCING
$
Increase
in average
speed
OPERATIONAL EFFICIENCY
Last year, I wrote that operational
efficiency was a key priority for us. We
continue to relentlessly eliminate pain
points, drive digitalization throughout
the organization and build scalability in
all of our processes. Some areas of focus
2012-2018
Average
299 Selected quarterly financial data (unaudited)
300 Distribution of assets, liabilities and stockholders'
equity; interest rates and interest differentials
5.4x
2021
& Alternatives
Multi-Asset Solutions
2.5x
2,500+
~1,000
ASSET & WEALTH MANAGEMENT FRONT OFFICE JOINERS
86%
72%
93%
Equity
86%
Total J.P. Morgan
Asset Management
2021 % of J.P. Morgan Asset
Management Long-Term Mutual Fund
AUM Outperforming Peer Median
Over 10 Years¹
INVESTMENT PERFORMANCE
Fixed Income
2020
2021
AUM = Assets under management
2020
2019
$176
اس
$389
$276
($ in billions)
ASSET & WEALTH MANAGEMENT CLIENT ASSET NET FLOWS
Each and every year, clients vote
with their feet. And the best evidence of
our success generating strong invest-
ment performance, attracting excep-
tional talent and satisfying our growing
number of clients is flows. Our flows have
accelerated over the past few years,
reaching a record $389 billion in 2021 -
more than five times our average annual
net flows from 2012 to 2018.
4) Client asset flows
to drive strong net new client growth
into the future.
Attracting new clients requires a combi-
nation of excellent investment perfor-
mance, relentless engagement and the
full power of the J.P. Morgan platform.
In 2021, we were grateful to welcome a
record number of new clients to AWM,
continuing our momentum - over the
past five years, the number of net new
GPB clients tripled. We expect our
record historic numbers of new hires
and the quality of our people to continue
3) New clients
59
ASSET & WEALTH MANAGEMENT
RECORD RESULTS IN 2021
Supplementary information:
Note:
160 Consolidated Financial Statements
INVESTING IN KEY AREAS
With the results over the past few years
validating our strategy, we expect to con-
tinue making significant investments in our
business. Particular areas of focus include:
•
• Advisor hiring: We continue to seek to
be the employer of choice for advisors
looking to join a team-oriented pro-
vider of industry-leading investment
solutions and first-class advice.
Personalization: With the addition
of 55ip and OpenInvest, AWM has
become an innovator, giving clients
the ability to reflect their personal
values in their portfolios, which is
an important growth area for our
industry.
•
Alternatives: In 2021, we added more
than 50 investment professionals and
new platforms in Private Equity,
Private Credit and Campbell Global.
include straight-through processing,
client onboarding, and data structuring
and organization.
DRIVING DIVERSITY, EQUITY AND
INCLUSION
In AWM, we tripled the number of diverse
external hires in just one year, and the
majority of our 2021 analyst class was
composed of female and/or diverse
professionals. In Asset Management,
60% of assets under management are
managed by female and/or diverse
portfolio managers6.
AWM also launched a number of initia-
tives aimed at improving diversity,
equity and inclusion in our community.
We are co-investing alongside Ariel
Alternatives to drive the growth of
emerging minority-owned or -managed
private companies. Within Alternatives,
we have teams that are specifically tar-
geting diverse-owned or -managed funds
or companies to make investments. In
our industry-leading money market fund
platform, we launched the Empower
share class, which creates a new income
stream for our minority- and diverse-led
financial institution partners?.
WELL-POSITIONED FOR THE FUTURE
We are very proud of the performance
and growth we have delivered to our
clients and shareholders and are excited
about the opportunities that lie ahead.
Most important, each and every one of
our 22,762 employees is focused on doing
first-class business in a first-class way.
We prioritize our fiduciary duty to our
clients above everything else, relent-
lessly focusing on and listening to our
clients to improve their experience and
build stronger outcomes. As the world
faces new challenges, AWM is well-
positioned to deliver strong investment
performance and innovation at scale,
while maintaining robust controls. If
we keep this focus, I am confident that
our success will continue to follow.
Hany
Mary Callahan Erdoes
As a firm, we are doing everything we can
to drive toward a more diverse, equitable
and inclusive workforce and community.
CEO, Asset & Wealth Management
A cloud-based provider of
share plan management
software with an expansive
client base of over 600
corporate clients and nearly
$200 billion in assets under
administration across
650,000 corporate employee
participants 2,4.
A financial technology
company that helps financial
professionals customize
and report on values-based
investments with 20+
proprietary values-based
causes4.
46
JPMorgan Chase & Co./2021 Form 10-K
5 Diverse refers to individuals who identify as U.S. ethnic minority.
6 For footnote, refer to page 47 footnote 37 in this Annual Report.
7 Financial institution partners include minority depository
institutions and community development financial institutions.
Partners receive payment for services related to institutional
clients' investments in the Empower share class.
60
ASSET & WEALTH MANAGEMENT
Global Shares
LEVERAGING M&A TO DRIVE GROWTH
55ip
A financial technology
company with proprietary
capabilities that enable
financial advisors to deliver
tax-smart investment
strategies at scale.
CampbellGlobal
FOREST & NATURAL RESOURCE INVESTMENTS
A global timberland
investment manager with
$5.3 billion in assets under
management and over
1.7 million acres managed
worldwide in 15 U.S. states,
New Zealand, Australia
and Chile³.
OpenInvest
AWM has been active in M&A in recent years, following our discussion of the topic at 2020 Investor Day. We completed three transactions -
55ip, Campbell Global and OpenInvest - and recently announced our intent to acquire Global Shares². These companies are among the best in
their field and will enable us to deliver the next generation of digital, personalized and ESG solutions to our clients.
ASSET & WEALTH MANAGEMENT
61
Corporate Responsibility
$1T
Targeted for green
initiatives that support
climate action by 2030
향
Top 10
165 Notes to Consolidated Financial Statements
Bringing the full force of the firm
Helping to address the world's most pressing
problems - from economic inequality and cli-
mate change to systemic racism - is a business
imperative at JPMorgan Chase. We are able to
deliver solutions to these challenges at scale
because of the investments we have made over
the years to build a strong and healthy com-
pany and serve our customers and clients.
CORPORATE RESPONSIBILITY
With that foundation in place, we are combin-
ing our business resources, policy engagement,
philanthropic capital, unique data and exper-
tise to help create a stronger, more inclusive
economy. We are also collaborating closely
with critical stakeholders, including policymak-
ers around the world and nonprofit organiza-
tions embedded in the fabric of their communi-
ties, to help drive innovative solutions.
The firm receives feedback and insights
through long-standing relationships with key
stakeholders including civil rights organiza-
tions, consumer policy groups, nonprofits,
civic leaders and trade associations - which
continues to inform the development of
JPMorgan Chase's products, services and
business practices, including the firm's $30
billion commitment to advance racial equity.
Investing in women of color
Black and Latina women are the backbone of
many of America's communities - as consum-
ers, homeowners, entrepreneurs, business
owners and essential workers in critical
sectors. According to the JPMorgan Chase
Institute, Black and Latina women were partic-
ularly vulnerable to the financial effects of the
pandemic, experiencing the fastest depletion
of their stimulus balance gains. Their economic
recovery is further compounded by long-
standing racial and gender wealth gaps.
Supporting the economic success of Black and
Latina women is foundational to building more
equitable communities. In 2021, for the first
time, JPMorgan Chase's annual competition to
advance equity in cities specifically sourced
and supported solutions designed by and for
Black and Latina women, their families and
their local economies.
Accomplishments:
$18+B
Deployed or committed
toward our $30 billion racial
equity commitment in 2021
-
62
62
Global Head of Corporate Responsibility
We have learned some important lessons
navigating the challenges of the past few
years. We faced a pandemic, a growing
wealth gap, continued social and racial
unrest, and a war in Ukraine resulting in
a devastating humanitarian crisis. It has
also been a chance for companies like
ours to step up and, with a deliberate
and coordinated approach, help move
toward a better direction.
Building on what we've learned, today
JPMorgan Chase is integrating this
approach into how we do business. We
are scaling data-based ideas to support
our customers, clients, communities and
employees to address issues ranging
from sustainability to racial equity to
inclusive economic growth. This smart
strategy is what drew me to this firm.
“Long-term business success depends
on collective societal success.'
Challenges such as systemic inequality
and economic disparity run deep, but
they are not insurmountable. It is the
responsibility of all of us – from govern-
ment to the private sector - to advance
solutions and build an equitable society
and economy.
In September 2021, I joined JPMorgan
Chase as global head of Corporate
Responsibility because of this firm's
unique position to make an impact.
For nearly 10 years, JPMorgan Chase
has pioneered a model for corporate
responsibility. We've combined philan-
thropic capital, research, our employees'
expertise, policy recommendations and
advocacy before every level of govern-
ment. This integrated approach has
helped support small business owners,
train workers for the jobs of today and
tomorrow, empower underserved people
to grow wealth, build more affordable
housing, and test ways to make commu-
nities more resilient against climate
change. These foundational needs
remain critical.
As a central pillar of the firm's $30
billion racial equity commitment, our
work to improve housing affordability
and stability especially for households
of color exemplifies this approach.
Research from the JPMorgan Chase
Institute put a spotlight on the pandem-
ic's unequal impact on households,
including specific hardships facing rent-
ers. These insights are informing policy
and practice. Guided by this data, we
have committed $400 million in philan-
thropic capital ranging from low-cost
loans and equity to affordable housing
initiatives that are community-led,
systemic and scalable. And we are
advancing data-driven policy solutions
to help break down structural inequi-
ties, including solutions to improve
access to affordable mortgage products,
increase housing supply in opportunity-
connected neighborhoods and mitigate
bias in home valuations. These efforts
inform our business as the firm delivers
on its goal to expand homeownership
and reduce housing costs by originating
-
and refinancing tens of thousands of
additional loans for Black, Hispanic and
Latino homeowners and to finance the
creation and preservation of 100,000
additional affordable rental homes in
underserved communities - in the next
five years.
We have learned a great deal from this
multifaceted approach, in collaboration
with community and government lead-
ers. We are now leveraging this blueprint
so we can continue to bring the full force
of our firm in support of inclusive econo-
mies across the globe.
Long-term business success depends
on collective societal success: Greater
economic stability and sustained growth
undermine inequality.
Helping to address the challenges of
sustainable, inclusive growth is the right
thing to do. It is what our customers and
employees expect of us.
And it is good for business, too.
Demetrios
Demetrios Marantis
46
www.jpmorganchase.com, including on the Investor
Relations section of its website at https://
www.jpmorganchase.com/ir. Information on the Firm's
website is not incorporated by reference into this 2021
Form 10-K or the Firm's other filings with the SEC.
The Firm's website is www.jpmorganchase.com. JPMorgan
Chase makes available on its website, free of charge, annual
reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934, as
soon as reasonably practicable after it electronically files or
furnishes such material to the U.S. Securities and Exchange
Commission (the "SEC") at www.sec.gov. JPMorgan Chase
makes new and important information about the Firm
available on its website at https://
For management reporting purposes, the Firm's activities
are organized into four major reportable business
segments, as well as a Corporate segment. The Firm's
consumer business is the Consumer & Community Banking
("CCB") segment. The Firm's wholesale business segments
are the Corporate & Investment Bank ("CIB"), Commercial
Banking (“CB”), and Asset & Wealth Management (“AWM").
Refer to Business Segment Results on pages 61-80, and
Note 32 for a description of the Firm's business segments,
and the products and services they provide to their
respective client bases.
175
150
125
100
December 31,
(in dollars)
2016
200
2017
2019
2020
2021
$ 100.00
100.00
$ 126.73
118.59
2018
225
250
S&P 500 Index
(b) Pre-provision profit, TBVPS and ROTCE are each non-GAAP financial measures. Tangible common equity ("TCE") is also a non-GAAP financial measure. Refer to
Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures on pages 58-60 for a discussion of these measures.
(c) Quarterly ratios are based upon annualized amounts.
(d) For the years ended December 31, 2021, 2020 and 2019, the percentage represents average LCR for the three months ended December 31, 2021, 2020 and
2019. Refer to Liquidity Risk Management on pages 97-104 for additional information on the LCR results.
(e) As of December 31, 2021 and 2020, the capital metrics reflect the relief provided by the Federal Reserve Board in response to the COVID-19 pandemic, including
the Current Expected Credit Losses ("CECL") capital transition provisions that became effective in the first quarter of 2020 and expired on December 31, 2021. As
of December 31, 2020, the SLR reflected the temporary exclusions of U.S. Treasury securities and deposits at Federal Reserve Banks, which became effective April
1, 2020 and remained in effect through March 31, 2021. Refer to Capital Risk Management on pages 86-96 for additional information.
(f) For the years ended December 31, 2021, 2020 and 2019, the percentage represents average ratios for the three months ended December 31, 2021, 2020 and
2019. Refer to Capital Risk Management on pages 86-96 for additional information on the capital metrics.
44
+4
JPMorgan Chase & Co./2021 Form 10-K
FIVE-YEAR STOCK PERFORMANCE
The following table and graph compare the five-year cumulative total return for JPMorgan Chase & Co. ("JPMorgan Chase" or
the "Firm") common stock with the cumulative return of the S&P 500 Index, the KBW Bank Index and the S&P Financials Index.
The S&P 500 Index is a commonly referenced equity benchmark in the United States of America ("U.S."), consisting of leading
companies from different economic sectors. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are
publicly traded in the U.S. and is composed of leading national money center and regional banks and thrifts. The S&P
Financials Index is an index of financial companies, all of which are components of the S&P 500. The Firm is a component of all
three industry indices.
The following table and graph assume simultaneous investments of $100 on December 31, 2016, in JPMorgan Chase common
stock and in each of the above indices. The comparison assumes that all dividends were reinvested.
December 31,
(in dollars)
JPMorgan Chase
KBW Bank Index
S&P Financials Index
$ 118.31
97.59
• We committed $30 million by 2024 to help
catalyze long-term economic prosperity for
Black and Latina women. As part of this $30
million commitment, we awarded $5 million
grants to collaboratives across six cities -
Baltimore, Los Angeles, Miami, Minneapolis-
St. Paul, New Orleans and Washington, D.C.
Accelerating climate and sustainability
solutions
$ 174.23
$ 210.26
2016
2017
2018
2019
2020
2021
75
JPMorgan Chase & Co./2021 Form 10-K
Management's discussion and analysis
The following is Management's discussion and analysis of the financial condition and results of operations ("MD&A”) of JPMorgan
Chase for the year ended December 31, 2021. The MD&A is included in both JPMorgan Chase's Annual Report for the year ended
December 31, 2021 ("Annual Report") and its Annual Report on Form 10-K for the year ended December 31, 2021 ("2021 Form
10-K") filed with the Securities and Exchange Commission (“SEC”). Refer to the Glossary of terms and acronyms on pages 305-311
for definitions of terms and acronyms used throughout the Annual Report and the 2021 Form 10-K.
This Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on the current beliefs and expectations of JPMorgan Chase's management, speak
only as of the date of this Form 10-K and are subject to significant risks and uncertainties. Refer to Forward-looking Statements on
page 155 and Part 1, Item 1A: Risk factors in the 2021 Form 10-K on pages 9-33 for a discussion of certain of those risks and
uncertainties and the factors that could cause JPMorgan Chase's actual results to differ materially because of those risks and
uncertainties. There is no assurance that actual results will be in line with any outlook information set forth herein, and the Firm
does not undertake to update any forward-looking statements.
INTRODUCTION
JPMorgan Chase & Co. (NYSE: JPM), a financial holding
company incorporated under Delaware law in 1968, is a
leading financial services firm based in the United States of
America ("U.S."), with operations worldwide. JPMorgan
Chase had $3.7 trillion in assets and $294.1 billion in
stockholders' equity as of December 31, 2021. The Firm is
a leader in investment banking, financial services for
consumers and small businesses, commercial banking,
financial transaction processing and asset management.
Under the J.P. Morgan and Chase brands, the Firm serves
millions of customers, predominantly in the U.S., and many
of the world's most prominent corporate, institutional and
government clients globally.
JPMorgan Chase's principal bank subsidiary is JPMorgan
Chase Bank, National Association ("JPMorgan Chase Bank,
N.A."), a national banking association with U.S. branches in
48 states and Washington, D.C. as of December 31, 2021.
JPMorgan Chase's principal nonbank subsidiary is J.P.
Morgan Securities LLC ("J.P. Morgan Securities"), a U.S.
broker-dealer. The bank and non-bank subsidiaries of
JPMorgan Chase operate nationally as well as through
overseas branches and subsidiaries, representative offices
and subsidiary foreign banks. The Firm's principal operating
subsidiary outside the U.S. is J.P. Morgan Securities plc, a
U.K.-based subsidiary of JPMorgan Chase Bank, N.A.
45
S&P 500
S&P Financials--
KBW Bank
132.84
100.00
122.14
106.21
140.30
119.15
137.83
164.83
185.90
100.00
121.82
116.47
153.13
181.29
233.28
JPMorgan Chase
$ 164.62
Developing solutions to the sustainability
challenges we face is critical for our planet
and communities around the world. JPMorgan
Chase's global reach and expertise position
us well to help reduce emissions and advance
climate action.
Ranked in the JUST 100:
Companies Leading the New
Era of Responsible Capitalism
Accomplishments:
Ranked Top 10 in Fortune magazine's 2021
World's Most Admired Companies list.
•
•
•
Awards and recognition
than $8 million to disaster relief efforts around
the globe in 2021. In 2022, the firm and our
employees have already donated more than
$5 million to the Ukrainian humanitarian crisis.
The firm and our employees donated more
placed more than 110 employees on nonprofit
boards across the United States.
Our Board Service program trained and
Our career mentorship programs connected
more than 1,200 employees with youth, help-
ing to set them on the right path toward their
future career endeavors.
over 191,000 hours. This includes 275
JPMorgan Chase Service Corps volunteers
from 19 countries who contributed nearly
9,200 hours working with 44 nonprofits.
More than 23,000 employees volunteered
•
•
•
2021 Accomplishments:
•
Ranked Top 10 in the JUST 100: Companies
Leading the New Era of Responsible Capital-
ism, compiled by Forbes and JUST Capital.
Recognized in Forbes' inaugural 2021 Green
Growth 50 list.
Recognized in Forbes' 2021 America's Best
Employers for Veterans list.
Earned 100% rating in the Human Rights
Campaign's Corporate Equality Index 2021
- 19th consecutive year.
64
0.55 %
61 Business Segment Results
81 Firmwide Risk Management
Audited financial statements:
156 Management's Report on Internal Control Over
Financial Reporting
157 Report of Independent Registered Public Accounting
Firm
The firm is minimizing its environmental foot-
print while helping our clients raise capital for
efforts such as building sustainable infrastruc-
ture, developing and scaling new technologies,
and implementing business strategies to tran-
sition to a low-carbon economy. We are also
focused on helping carbon-intensive industries
strategically decarbonize and are supporting
investors who seek to put their capital to work
to advance these opportunities.
58 Explanation and Reconciliation of the Firm's Use of
Non-GAAP Financial Measures
• The firm assists similar efforts around the
globe, including the Financial Inclusion Lab,
which supports fintech solutions for low-
income populations across India, and the
Catalyst Fund, which promotes financial
resilience in emerging markets such as India,
Kenya, Mexico, Nigeria and South Africa.
Employees serving our communities
Through skills-based volunteering programs,
JPMorgan Chase facilitates our employees'
desire to support their communities and
causes that are important to them.
55 Consolidated Balance Sheets and Cash Flows Analysis
47 Executive Overview
46 Introduction
Management's discussion and analysis:
45 Five-Year Stock Performance
44 Three-Year Summary of Consolidated Financial
Highlights
Financial:
Table of contents
CORPORATE RESPONSIBILITY
52 Consolidated Results of Operations
more than $3 billion dollars in savings, avoid
$420 million in fees and settle over $20
million in debt.
•
Over the past seven years, JPMorgan Chase has
committed more than $40 million to the Finan-
cial Solutions Lab to help cultivate, support and
scale innovative ideas that advance the finan-
cial health of low- to moderate-income consum-
ers and historically underserved communities.
Supporting small business growth and
entrepreneurship
63
63
CORPORATE RESPONSIBILITY
JPMorgan Chase hired approximately 4,000
people with criminal backgrounds in 2021,
approximately 10% of our new hires. The firm
also supported Clean Slate legislation to help
clear or seal eligible criminal records and open
access to jobs in places such as Connecticut,
Delaware and Michigan - and continues to
push for measures in Colorado and New York.
Globally, our employees dedicate their time to
help young people develop the skills neces-
sary for success through programs such as
The Fellowship Initiative and Advancing Young
Professionals. These programs helped prepare
more than 440 young people for personal and
professional success in 2021.
• This commitment includes $75 million for the
firm's global career readiness initiative to bet-
ter prepare young people for the jobs of today
and tomorrow.
Accomplishments:
Supporting small businesses and underserved
entrepreneurs is key to lifting entire communi-
ties, yet research from the JPMorgan Chase
Institute shows that Black-, Hispanic-, Latino-
and women-owned small businesses are
underrepresented among firms with substan-
tial external financing, limiting opportunities
to scale their businesses.
Building strong careers and skills
Rapid changes in technology, automation and
artificial intelligence continue to change the
labor market and alter career paths. JPMorgan
Chase made a five-year, $350 million commit-
ment in 2019 to prepare people for the future
of work and meet the growing demand for
skilled workers around the globe. As part of
this, we are building pathways and policy rec-
ommendations to help underserved students
gain better access to credentials, skills,
degrees and real-world work experiences.
•
Companies that participated in the Financial
Solutions Lab have helped customers build
Committed in
philanthropic capital
globally in 2021
•
The firm set a new target to finance and
facilitate more than $2.5 trillion through
2030 to advance sustainable development,
including $1 trillion in green initiatives that
support climate action.
JPMorgan Chase published the comprehensive
steps we are taking to better align our
financing activities with the climate goals of
the Paris Agreement, which include 2030
portfolio-level emissions reduction targets
for the oil and gas, electric power and auto
manufacturing sectors.
• We released our Carbon CompassSM methodol-
ogy, which guides our approach for Paris-
aligned target setting, measuring clients'
carbon intensity, evaluating ongoing progress
and integrating carbon performance consider-
ations into business decision-making.
$450+M
Having achieved carbon neutrality across our
operations since 2020, we set new targets to
reduce the environmental impact of our physi-
cal footprint, including our buildings, branches
and data centers.
To address these disparities, we are leveraging
our business activities, policy expertise and
philanthropic capital to develop innovative
approaches focused on expanding access to
capital, expertise and networks for under-
served entrepreneurs.
• As part of the $34 million ongoing philan-
thropic commitment across India, the firm is
helping young people pursue promising
career pathways while also supporting micro-
businesses and inclusive fintech solutions.
⚫ In 2021, the firm made a five-year, $350 mil-
lion commitment to grow Black-, Hispanic-,
Latino- and women-owned small businesses.
This effort is helping to improve access to cap-
ital by providing low-cost, long-term capital
and technical expertise for more underserved
entrepreneurs in the United States.
Expanding financial health and wealth
creation
D
Accomplishments:
The JPMorgan Chase PolicyCenter is supporting
comprehensive, evidence-based policy reforms
to improve affordable rental housing and
homeownership, including expediting the exe-
cution of better targeted rental assistance,
incentivizing eviction reforms that improve
outcomes for tenants and landlords, and build-
ing on COVID-19 protections that support
homeowners.
Policies and programs aimed at improving
financial health - such as providing access to
affordable financial services and addressing the
underlying challenges that Black, Hispanic and
Latino families face - are key to an inclusive
economic recovery. According to research from
the JPMorgan Chase Institute, the median Black
family holds 32 cents and the median Latino
family holds 47 cents for every dollar held in
liquid assets by the median white family.
In 2019, we made a five-year, $125 million com-
mitment to improve the financial health of
underserved communities. As part of this, we
are leveraging our philanthropic capital and
expertise to seed and scale technology-based
innovations specifically for low- and moderate-
income households around the world.
Accomplishments:
•
• As part of our $30 billion racial equity com-
mitment, we committed $400 million in phil-
anthropic capital over five years to improve
housing affordability and stability for Black,
Hispanic and Latino households.
• Our $400 million commitment includes
$20.4 million to 11 nonprofits working to
test and scale models to improve household
stability and housing affordability.
JPMorgan Chase is helping to support
opportunity-rich neighborhoods where diverse
communities across income levels can live,
including through access to stable affordable
housing and homeownership. We are also pro-
moting data-driven policy solutions to help
improve household stability and increase the
availability of and equitable access to afford-
able housing for both renters and homeowners.
Catalyzing community development
Economic opportunity has deep roots in
neighborhood conditions, and many communi-
ties struggle with concentrated poverty, disin-
vestment and other challenges - including an
ongoing affordable housing crisis that dispro-
portionally impacts households of color.
•
• The firm committed $10 million in loan capital
to the Southern Opportunity and Resilience
Fund, which provides flexible, affordable capi-
tal and free business support services to small
businesses and nonprofits in the South and
Southeast United States to help them navigate
the COVID-19 economic crisis.
• We supported ADIE's organizational capacity
and provided the nonprofit with technical
assistance to help women from low-income
neighborhoods of Greater Paris, including in
Seine-Saint-Denis, to build and sustain their
businesses.
• In 2021, we made a $42.5 million commitment
to expand the Entrepreneurs of Color Fund
(EOCF), a collaboration with a network of
investors, foundations and CDFIs to fuel
Black-, Hispanic- and Latino-owned businesses
in the United States. Since 2015, EOCF has
provided more than 1,500 loans and deployed
more than $78 million in capital.
•
• The firm invested more than $100 million in
Black-, Hispanic- and Latino-owned and -led
minority depository institutions and community
development financial institutions (CDFIs) that
provide vital financial services, such as small
business loans, to underserved communities.
Accomplishments:
Refer to Liquidity Risk Management on pages 97-104; and
Notes 14 and 28 for additional information on Firm-
sponsored VIES and loan securitization trusts.
Long-term debt increased driven by net issuances, partially
offset by fair value hedge accounting adjustments related to
higher rates, and maturities of Federal Home Loan Bank
("FHLB") advances. Refer to Liquidity Risk Management on
pages 97-104 and Note 20 for additional information.
Stockholders' equity increased reflecting net income,
partially offset by the net impact of capital actions, and a
decrease in accumulated other comprehensive income
(“AOCI”). The decrease in AOCI was primarily driven by the
impact of higher rates on the AFS securities portfolio and
cash flow hedges. Refer to page 163 for information on
changes in stockholders' equity, and Capital actions on page
94, Note 24 for additional information on AOCI.
JPMorgan Chase & Co./2021 Form 10-K
56
Beneficial interests issued by consolidated VIES decreased
driven by lower issuances of commercial paper as a result
of lower loans in the Firm-administered multi-seller
conduits in CIB, as well as maturities of credit card
securitizations in Treasury and CIO.
Federal funds purchased and securities loaned or sold
under repurchase agreements decreased due to lower
secured financing of AFS investment securities in Treasury
and CIO, and trading assets in CIB Markets. Refer to
Liquidity Risk Management on pages 97-104 and Note 11
for additional information.
Total assets
Refer to Notes 2 and 5 for information on trading
liabilities.
Short-term borrowings increased as a result of higher
financing of CIB Markets activities, as well as higher
issuances of commercial paper in Treasury and CIO. Refer to
Liquidity Risk Management on pages 97-104 for additional
information.
Refer to Liquidity Risk Management on pages 97-104; and
Notes 2 and 17 for more information.
(a) Prior-period amount has been revised to conform with the current presentation. Refer to Note 25 for further information.
Deposits increased across the LOBS primarily driven by the
effect of certain government actions in response to the
COVID-19 pandemic. In CCB, the increase was also driven by
growth from new and existing accounts across both
consumer and small business customers.
3,449,440
294,127
$ 3,743,567 $
There was a $148 million net reduction in the allowance for
lending-related commitments, driven by both wholesale and
consumer. This allowance is included in other liabilities on
the consolidated balance sheets. The total net reduction in
the allowance for credit losses was $12.1 billion, as of
December 31, 2021.
11 %
Accounts payable and other liabilities increased reflecting
higher client payables related to client-driven activities
primarily in CIB prime brokerage. Refer to Note 19 for
additional information.
Management's discussion and analysis
higher collateral requirements in CIB Markets.
JPMorgan Chase & Co./2021 Form 10-K
3,384,757
181,498
$ 3,743,567 $
(a) Prior-period amount has been revised to conform with the current presentation. Refer to Note 25 for further information.
Cash and due from banks and deposits with banks
increased primarily as a result of the continued growth in
deposits and limited deployment opportunities in Treasury
and CIO. Deposits with banks reflect the Firm's placements
of its excess cash with various central banks, including the
Federal Reserve Banks.
Federal funds sold and securities purchased under resale
agreements decreased driven by:
lower deployment of funds in Treasury and CIO, and lower
client-driven market-making activities in CIB Markets,
partially offset by
Securities borrowed increased reflecting higher client-
driven activities and an increase in the demand for
securities to cover short positions in CIB Markets.
Refer to Note 11 for additional information on securities
purchased under resale agreements and securities
borrowed.
Trading assets decreased reflecting;
• a lower level of securities, primarily debt instruments
related to client-driven market-making activities in CIB
Fixed Income Markets
55
⚫ lower derivative receivables, primarily as a result of
market movements, as well as maturities of certain
trades in CIB, and
Investment securities increased due to the net impact of
purchases and paydowns in the available-for-sale ("AFS")
and held-to-maturity (“HTM”) portfolios, largely offset by
sales in the AFS portfolio. In the second quarter of 2021,
$104.5 billion of AFS were transferred to the HTM portfolio
for capital management purposes. Refer to Corporate
segment results on pages 79-80, Investment Portfolio Risk
Management on page 132 and Notes 2 and 10 for
additional information on investment securities.
Loans increased, reflecting:
•
higher secured lending in CIB Markets; continued strength
in securities-based lending, custom lending and
mortgages in AWM; and growth in Card,
partially offset by
• a decline in CBB and CB due to the net impact of PPP loan
forgiveness and loan originations, and
lower retained residential real estate loans in Home
Lending primarily due to net paydowns.
The allowance for loan losses decreased primarily as a
result of improvements in the macroeconomic environment.
The decline in the allowance consisted of:
a $9.4 billion reduction in consumer, reflecting
improvements in the Firm's macroeconomic outlook,
predominantly in the credit card and residential real
estate portfolios. The residential real estate portfolio also
reflects continued improvements in HPI expectations, and
• a $2.5 billion net reduction in wholesale, across the LOBS,
reflecting improvements in the Firm's macroeconomic
outlook.
⚫ lower deployment of funds in Treasury and CIO.
Refer to Notes 2 and 5 for additional information.
5
•
11
Stockholders' equity
Total liabilities
Long-term debt
Beneficial interests issued by consolidated variable interest entities ("VIES")
Accounts payable and other liabilities (a)
Trading liabilities
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Other assets increased due to the higher cash collateral
placed with central counterparties ("CCPS") in CIB, and
higher tax receivables.
Refer to Note 15 for additional information.
an increase in Goodwill as a result of the acquisitions of
Nutmeg, OpenInvest, Frank, The Infatuation and Campbell
Global.
by the realization of expected cash flows; and
higher MSRS as a result of net additions, partially offset
Goodwill, MSRs and other intangibles increased reflecting:
Deposits
Liabilities
December 31, (in millions)
Selected Consolidated balance sheets data
Refer to Note 16 and 18 for additional information on
Premises and equipment.
Refer to Credit and Investment Risk Management on pages
106-132, and Notes 1, 2, 3, 12 and 13 for further
discussion of loans and the allowance for loan losses.
Accrued interest and accounts receivable increased due to
higher client receivables related to client-driven activities
primarily in CIB prime brokerage.
Total liabilities and stockholders' equity
2021
2020
Change
3,105,403
7
281,685
(39)
17,578
10,750
301,005
14
231,285
262,755
279,354
(3)
164,693
19
45,208
53,594
(10)
15
2,144,257
215,209
2,462,303 $
194,340
$
170,181
Goodwill, MSRs and other intangible assets
Other assets (a)
• higher other investments, including technology expense
across the LOBS
Accrued interest and accounts receivable
2022 outlook
These current expectations are forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are based on
the current beliefs and expectations of JPMorgan Chase's
management and are subject to significant risks and
uncertainties. Refer to Forward-Looking Statements on page
155, and the Risk Factors section on pages 9-33 of the Firm's
2021 Form 10-K, for a further discussion of certain of those
risks and uncertainties and the other factors that could cause
JPMorgan Chase's actual results to differ materially because
of those risks and uncertainties. There is no assurance that
actual results in 2022 will be in line with the outlook
information set forth below, and the Firm does not undertake
to update any forward-looking statements.
JPMorgan Chase's current outlook for 2022 should be
viewed against the backdrop of the global and U.S.
economies, the COVID-19 pandemic, financial markets
activity, the geopolitical environment, the competitive
environment, client and customer activity levels, and
regulatory and legislative developments in the U.S. and
other countries where the Firm does business. Each of these
factors will affect the performance of the Firm and its LOBS.
The Firm will continue to make appropriate adjustments to
its businesses and operations in response to ongoing
developments in the business, economic, regulatory and
legal environments in which it operates. The outlook
information contained in this Form 10-K supersedes all
outlook information provided by the Firm in its periodic
reports furnished to or filed with the SEC prior to the date
of this Form 10-K.
•
•
Full-year 2022
Management expects net interest income on a managed
basis, excluding CIB Markets, to be in excess of $53
billion, market dependent.
Management expects adjusted expense to be
approximately $77 billion, which includes increased
investments in technology, distribution and marketing,
and higher structural expense.
Net interest income on a managed basis, excluding CIB
Markets, and adjusted expense are non-GAAP financial
measures. Refer to Explanation and Reconciliation of the
Firm's Use of Non-GAAP Financial Measures on pages
58-60.
President and Chief Operating Officer of JPMorgan Chase
after the retirement of Gordon Smith at the end of 2021.
Mr. Pinto continues to serve as the CEO of CIB, and the
CEOs of the other LOBS report jointly to Mr. Pinto and
Jamie Dimon, Chairman and CEO of the Firm.
JPMorgan Chase & Co./2021 Form 10-K
49
50
50
Management's discussion and analysis
Business Developments
COVID-19 Pandemic
As the COVID-19 pandemic has continued to evolve, the
Firm has remained focused on serving its clients, customers
and communities, as well as the well-being of its employees.
The Firm continues to actively monitor and adapt to health
and safety developments at local and regional levels as
more of its global workforce returns to the office.
For information on the impact of U.S. government actions
and programs in response to the COVID-19 pandemic, refer
to:
• Credit Portfolio on page 109 for information on PPP,
Consumer Credit Portfolio on page 112 and Wholesale
Credit Portfolio on page 118 for information on retained
loans under payment deferral, and
Note 12 on page 231 for information on the Firm's loan
modification activities.
Interbank Offered Rate ("IBOR") transition
49
On January 1, 2022, Daniel Pinto became the sole
On January 24, 2022, JPMorgan Chase announced that it
has merged three of its EU credit institution subsidiaries
into a single subsidiary, J.P. Morgan SE, which is
headquartered in Germany and has a branch network
across the European Economic Area, as well as a branch
in London.
• On January 25, 2022, JPMorgan Chase announced that it
entered into an agreement with Viva Wallet Holdings
Software Development S.A. to acquire an ownership stake
of approximately 49% in the cloud-based payments
financial technology company, subject to regulatory
approvals.
Credit for corporations
trillion
CB
• Gross Investment Banking revenue of $5.1
billion, up 52%
$1.5
trillion
Capital raised for corporate clients and
non-U.S.government entities
ROE
21%
Average deposits up 27%; average loans
down 6%
$63
billion
Credit and capital raised for nonprofit
and U.S. government entities (b)
AWM
Assets under management (AUM) of $3.1
trillion, up 15%
ROE
33%
Average deposits up 42%; average loans up
19%
$11 billion
(a) Excludes Commercial Card
Refer to the Business Segment Results on pages 61-62 for a
detailed discussion of results by business segment.
Loans under the Small Business
Administration's Paycheck Protection
Program
(a) Excludes loans under the SBA's PPP.
(b) Includes states, municipalities, hospitals and universities.
48
JPMorgan Chase & Co./2021 Form 10-K
Recent events
JPMorgan Chase and other market participants continue to
make progress with respect to the transition from the use of
the London Interbank Offered Rate ("LIBOR") and other
IBORS to comply with the International Organization of
Securities Commission's standards for transaction-based
benchmark rates. As of January 1, 2022, ICE Benchmark
Administration ceased the publication of all tenors of LIBOR
for U.K. sterling, Japanese yen, Swiss franc and Euro LIBOR
(collectively, "non-U.S. dollar LIBOR") and the one-week
and two-month tenors of U.S. dollar LIBOR. The cessation of
the publication of the principal tenors of U.S. dollar LIBOR
(i.e., overnight, one-month, three-month, six-month and
12-month LIBOR) is scheduled for June 30, 2023.
$1.3
In joint statements issued by the Federal Reserve, the OCC
and the FDIC, the banking regulators encouraged U.S. banks
to cease entering into new contracts that use U.S. dollar
LIBOR as a reference rate by December 31, 2021. The Firm
has ceased executing contracts that reference U.S. dollar
LIBOR, with certain permissible limited exceptions, and now
offers various floating rate products, and provides and
arranges various types of floating rate debt financings,
across its businesses that reference replacement rates,
including the Secured Overnight Financing Rate ("SOFR").
The Firm continues to engage with clients in relation to the
transition from the principal tenors of U.S. dollar LIBOR and
to support clients as they move to replacement rates.
On November 16, 2021 the Financial Conduct Authority
("FCA") confirmed that it will allow, for a period of at least
one year, the use of "synthetic" U.K. sterling and Japanese
yen LIBOR rates in all legacy LIBOR contracts, other than
cleared derivatives, that had not been transitioned to
replacement rates by January 1, 2022. The use of these
synthetic LIBORS, will allow market participants additional
time to complete their transition to replacement rates or
otherwise to reduce their exposure to contracts that do not
have robust fallback mechanisms and that are difficult to
amend.
The Firm has made significant progress towards reducing its
exposure to IBOR-referencing contracts, including in
derivatives, bilateral and syndicated loans, securities, and
debt and preferred stock issuances, and is on-track to meet
its internal milestones for contract remediation as well as
the industry milestones and recommendations published by
National Working Groups, including the Alternative
Reference Rates Committee in the U.S.
(345)
258
Mortgage fees and related income
2,170
3,091
2,036
Card income
5,102
4,435
5,076
Other income (a)(b)
Investment securities gains/(losses)
4,830
6,052
Noninterest revenue
69,338
65,388
58,475
52,311
54,563
57,245
Net interest income
Total net revenue
$121,649 $ 119,951 $ 115,720
4,865
16,908
18,177
21,029
In connection with the transition from LIBOR, as of
December 31, 2021 the Firm had remediated substantially
all of the notional amount of its bilateral derivatives
contracts linked to U.S. dollar LIBOR and non-U.S. dollar
JPMorgan Chase & Co./2021 Form 10-K
LIBOR, and substantially all of its non-U.S. dollar LIBOR-
linked loans. The Firm continues its client outreach with
respect to U.S. dollar LIBOR-linked loans.
The Firm is also on schedule to implement further
necessary changes to risk management systems in order to
transition from LIBOR, including modifications to its
operational systems and models. In 2021, the Firm changed
the rate basis of its transfer pricing methodology for U.S.
dollar-denominated contracts to SOFR and implemented
internal controls to restrict the use of LIBOR in new
transactions.
Legislation intended to reduce the likelihood of disputes
arising from the cessation of LIBOR has been adopted or
proposed in certain jurisdictions. The Firm continues to
review the extent to which these legislative actions or
proposals, if enacted, may reduce the risk of litigation and
disputes arising from the transition from LIBOR.
The Firm continues to monitor and evaluate client, industry,
market, regulatory and legislative developments, including
the transition relief issued by the Internal Revenue Service
and U.S. Treasury Department in January 2022 with respect
to the tax implications of reference rate reform.
JPMorgan Chase & Co./2021 Form 10-K
51
Management's discussion and analysis
CONSOLIDATED RESULTS OF OPERATIONS
This section provides a comparative discussion of JPMorgan
Chase's Consolidated Results of Operations on a reported
basis for the two-year period ended December 31, 2021,
unless otherwise specified. Refer to Consolidated Results of
Operations on pages 54-56 of the Firm's Annual Report on
Form 10-K for the year ended December 31, 2020 (the
"2020 Form 10-K") for a discussion of the 2020 versus 2019
results. Factors that relate primarily to a single business
segment are discussed in more detail within that business
segment's results. Refer to pages 150-153 for a discussion of
the Critical Accounting Estimates Used by the Firm that affect
the Consolidated Results of Operations.
Revenue
Year ended December 31,
(in millions)
2021
2020
Investment banking fees
$ 13,216 $
Principal transactions
16,304
Lending- and deposit-related fees
7,032
9,486 $
18,021
6,511
2019
7,501
14,018
6,626
Asset management, administration
and commissions
During the fourth quarter of 2021, the principal central
counterparties ("CCPS") converted cleared derivatives
contracts linked to non-U.S. dollar LIBOR to replacement
rates before the cessation of the publication of those
LIBORS on December 31, 2021.
(a) Included operating lease income of $4.9 billion, for the year ended
December 31, 2021, and $5.5 billion for each of the years ended
December 31, 2020 and 2019.
Credit for U.S. small businesses
• #1 ranking for Global Investment Banking
fees with 9.5% wallet share for the year
Total Markets revenue of $27.4 billion, down
7%, with Fixed Income Markets down 19%
and Equity Markets up 22%
Diluted earnings per share
15.36
8.88
73
Selected ratios and metrics
Return on common equity
Return on tangible common equity
19 %
23
12 %
14
Book value per share
66
$ 88.07
Tangible book value per share
71.53
66.11
Capital ratios (b)
CET1 capital
Tier 1 capital
Total capital
13.1 %
13.1 %
15.0
16.8
15.0
$ 81.75
29,131
48,334
Net income
EXECUTIVE OVERVIEW
This executive overview of the MD&A highlights selected
information and does not contain all of the information that is
important to readers of this 2021 Form 10-K. For a complete
description of the trends and uncertainties, as well as the
risks and critical accounting estimates, affecting the Firm,
this 2021 Form 10-K should be read in its entirety.
Financial performance of JPMorgan Chase
Year ended December 31,
(in millions, except per share data
and ratios)
Selected income statement data
2021
2020
Change
(a)
Total net revenue
Total noninterest expense
$121,649
71,343
$119,951
66,656
1 %
7
Pre-provision profit
50,306
53,295
(6)
Provision for credit losses
(9,256)
17,480
NM
17.3
$22
billion
(a) Prior-period amount has been revised to conform with the current
presentation. Refer to Note 25 for further information.
(b) The capital metrics reflect the relief provided by the Federal Reserve
Board in response to the COVID-19 pandemic, including the CECL
capital transition provisions that became effective in the first quarter
of 2020 and expired on December 31, 2021. Refer to Capital Risk
Management on pages 86-96 for additional information.
The Firm's CET1 capital was $214 billion, and the
Standardized and Advanced CET1 ratios were 13.1% and
13.8%, respectively.
The Firm's SLR was 5.4%.
The Firm grew TBVPS, ending 2021 at $71.53, up 8%
versus the prior year.
Pre-provision profit, ROTCE, TCE and TBVPS are non-GAAP
financial measures. Refer to Explanation and Reconciliation
of the Firm's Use of Non-GAAP Financial Measures on pages
58-60, and Capital Risk Management on pages 86-96 for a
discussion of each of these measures.
JPMorgan Chase & Co./2021 Form 10-K
47
Management's discussion and analysis
Business segment highlights
Selected business metrics for each of the Firm's four LOBS
are presented below for the full year of 2021.
CCB
ROE
.
•
41%
Average loans down 3%; Card net charge-off
rate of 1.94%
Debit and credit card sales volume (a) up 26%
Active mobile customers up 11%
Credit provided and capital raised
JPMorgan Chase continues to support consumers,
businesses and communities around the globe. The Firm
provided new and renewed credit and raised capital for
wholesale and consumer clients during 2021, consisting of:
$3.2 trillion
Total credit provided and capital raised
(including loans and commitments) (a)
$331
billion
Credit for consumers
$13.4 billion of Global Investment Banking
fees, up 41%
CIB
ROE
25%
Average deposits up 24%; client investment
assets up 22%
•
.
Selected capital-related metrics
Comparisons noted in the sections below are for the full year
of 2021 versus the full year of 2020, unless otherwise
specified.
Firmwide overview
JPMorgan Chase reported net income of $48.3 billion for
2021, or $15.36 per share, on net revenue of $121.6
billion. The Firm reported ROE of 19% and ROTCE of 23%.
The Firm's results for 2021 included a reduction in the
allowance for credit losses of $12.1 billion.
•
The Firm had net income of $48.3 billion, up 66%, driven
by a net benefit in the provision for credit losses,
compared to an expense recorded in the prior year.
Total net revenue was up 1%.
-
Noninterest revenue was $69.3 billion, up 6%, driven
by higher Investment Banking fees and asset
management fees, partially offset by lower CIB Markets
revenue.
Net interest income was $52.3 billion, down 4%,
driven by the impact of lower market rates and
changes in the balance sheet mix, partially offset by
balance sheet growth.
•
•
Noninterest expense was $71.3 billion, up 7%,
predominantly driven by higher compensation expense
and continued investments in the business, including
technology.
The provision for credit losses was a net benefit of $9.3
billion, driven by;
a $12.1 billion reduction in the allowance for credit
losses primarily reflecting improvements in the Firm's
macroeconomic outlook, and
- $2.9 billion of net charge-offs predominantly driven by
Card
The prior year provision was an expense of $17.5 billion,
reflecting a net addition to the allowance for credit losses
of $12.2 billion, and $5.3 billion of net charge-offs.
• The total allowance for credit losses was $18.7 billion at
December 31, 2021. The Firm had an allowance for loan
losses to retained loans coverage ratio of 1.62%,
compared with 2.95% in the prior year; the decrease
from the prior year was driven by reductions in the
allowance for credit losses.
• The Firm's nonperforming assets totaled $8.3 billion at
December 31, 2021, a decrease of $2.6 billion from the
prior year, driven by lower nonaccrual loans, reflecting
the impact of net portfolio activity and client-specific
upgrades in wholesale, as well as improved credit
performance in consumer; and lower loans at fair value in
the CIB consumer portfolio, largely due to sales.
•
.
Firmwide average loans of $1.0 trillion were up 3%,
driven by higher loans in AWM and CIB, partially offset by
lower loans in CCB and CB.
Firmwide average deposits of $2.3 trillion were up 23%,
reflecting significant inflows across the LOBS, primarily
driven by the effect of certain government actions in
response to the COVID-19 pandemic, as well as growth
from existing and new accounts in CCB.
808
(b) Prior-period amounts have been revised to conform with the current
presentation. Refer to Note 25 for further information.
2021 compared with 2020
Investment banking fees increased across products in CIB,
reflecting:
Noncompensation expense increased as a result of:
.
higher volume-related expense, including outside
services, predominantly brokerage expense in CIB and
distribution fees in AWM
• higher marketing expense predominantly driven by
higher investments in marketing campaigns and growth
in travel-related benefits in CCB
higher contribution expense, which included a $550
million donation of equity investments to the Firm's
Foundation in the first quarter of 2021, and
⚫ higher other structural expense, including regulatory-
related expense,
partially offset by
(a) Prior-period amounts have been revised to conform with the current
presentation. Refer to Note 25 for further information.
2021 compared with 2020
The effective tax rate was relatively flat as the settlement
of tax audits was largely offset by changes in the level and
mix of income and expenses subject to U.S. federal, and
state and local taxes. Refer to Note 25 for further
information.
•
Compensation expense increased across the LOBS and
Corporate, primarily from higher volume- and revenue-
related expense, as well as the impact of investments in the
businesses.
lower depreciation expense in CCB due to lower auto
lower legal expense, driven by CIB and AWM, and
the absence of an impairment recorded in the prior year
on a legacy investment in Corporate.
54
JPMorgan Chase & Co./2021 Form 10-K
CONSOLIDATED BALANCE SHEETS AND CASH FLOWS ANALYSIS
Consolidated balance sheets analysis
The following is a discussion of the significant changes between December 31, 2021 and 2020.
Selected Consolidated balance sheets data
December 31, (in millions)
2021
2020
lease assets and the impact of higher vehicle collateral
values
2021 compared with 2020
(b) Included Firmwide legal expense of $426 million, $1.1 billion and
$239 million for the years ended December 31, 2021, 2020 and
2019, respectively.
(a) Includes depreciation expense associated with auto operating lease
assets.
Effective tax rate"
(a)
18.9 %
18.7 %
18.8 %
9,941
10,338
9,821
Professional and outside services
9,814
8,464
8,533
Marketing
3,036
2,476
3,351
Other (b)
5,469
5,941
Total noncompensation expense
32,776
31,668
5,087
31,114
Total noninterest expense
$ 71,343 $ 66,656 $ 65,269
Change
Technology, communications and
equipment(a)
Assets
$
14
1,077,714
1,012,853
6
(16,386)
(28,328)
(42)
1,061,328
984,525
8
102,570
589,999
90,503
27,070
27,109
56,691
53,428
6
151,539
3,384,757
20
11 %
Loans
Allowance for loan losses
Loans, net of allowance for loan losses
13
672,232
Investment securities, net of allowance for credit losses
80
26,438
$
Deposits with banks
714,396
Federal funds sold and securities purchased under resale agreements
261,698
24,874
502,735
296,284
6%
42
(12)
Securities borrowed
206,071
160,635
28
Trading assets
433,575
503,126
(14)
Available-for-sale securities
308,525
388,178
(21)
Held-to-maturity securities, net of allowance for credit losses
363,707
201,821
Cash and due from banks
8,435
6,684
11,228
lower net mortgage servicing revenue, reflecting a net
loss in MSR risk management results primarily driven by
updates to model inputs related to prepayment
expectations, and
lower mortgage production revenue on lower production
margins.
Refer to CCB segment results on pages 63-66, Note 6 and
15 for further information.
Card income increased due to:
.
higher net interchange income in CCB driven by an
increase in debit and credit card sales volume above pre-
pandemic levels, partially offset by the impact of a
renegotiation of a co-brand partner contract, as well as
an increase to the rewards liability, and
52
JPMorgan Chase & Co./2021 Form 10-K
higher payments revenue related to commercial card and
merchant processing in CB and CIB on higher volume,
partially offset by
higher amortization related to new account origination
costs in CCB.
.
Refer to CCB, CIB and CB segment results on pages 63-66,
pages 67-72 and pages 73-75, respectively, and Note 6 for
further information.
• lower auto operating lease income in CCB as a result of a
decline in volume, and
increased amortization on a higher level of alternative
energy investments in the tax-oriented investment
portfolio in CIB. The increased amortization was more
than offset by lower income tax expense from the
associated tax credits,
predominantly offset by
⚫ net gains on several investments, primarily in CIB and
AWM, and
the absence of losses recorded in the prior year related to
the early termination of certain of the Firm's long-term
debt in Treasury and CIO.
Net interest income decreased driven by the impact of
lower market rates and changes in the balance sheet mix,
partially offset by balance sheet growth.
The Firm's average interest-earning assets were $3.2
trillion, up $436 billion, predominantly driven by higher
deposits with banks and investment securities, and the yield
was 1.81%, down 53 basis points ("bps”). The net yield on
these assets, on an FTE basis, was 1.64%, a decrease of 34
bps. The net yield excluding CIB Markets was 1.91%, down
39 bps.
Net yield excluding CIB Markets is a non-GAAP financial
measure. Refer to the Consolidated average balance sheets,
interest and rates schedule on pages 300-304 for further
details; and the Explanation and Reconciliation of the Firm's
Use of Non-GAAP Financial Measures on pages 58-60 for a
further discussion of Net interest yield excluding CIB
Markets.
Provision for credit losses
Year ended December 31,
(in millions)
Other income decreased reflecting:
Mortgage fees and related income decreased due to:
Investment securities gains/(losses) reflected net losses
related to repositioning the investment securities portfolio,
compared with net gains in the prior year from sales of U.S.
GSE and government agency MBS. Refer to Corporate
segment results on pages 79-80 and Note 10 for additional
information.
Refer to CCB, CIB and AWM segment results on pages
63-66, pages 67-72 and pages 76-78, respectively, and
Note 6 for additional information.
higher advisory fees driven by increased M&A activity and
wallet share gains
• higher equity underwriting fees due to a strong IPO
market and wallet share gains, and
higher debt underwriting fees predominantly driven by an
active leveraged loan market primarily related to
acquisition financing.
Refer to CIB segment results on pages 67-72 and Note 6 for
additional information.
Principal transactions revenue decreased, reflecting:
lower revenue in CIB Fixed Income Markets, primarily in
Rates, Currencies & Emerging Markets, Credit and
Commodities, compared to a strong prior year, and an
increase in Securitized Products, and
lower net valuation gains on several legacy equity
investments in Corporate,
partially offset by
higher revenue in CIB Equity Markets driven by strong
performance across derivatives, prime brokerage, and
Cash Equities
•
favorable results in CIB's Credit Adjustments & Other,
with a net gain of $250 million predominantly driven by
valuation adjustments related to derivatives, compared
with a $29 million net loss in the prior year, and
⚫ the absence of losses recorded in the prior year in
Treasury and CIO related to cash deployment
transactions, which were more than offset by the related
net interest income earned on these transactions, also in
the prior year.
Refer to CIB and Corporate segment results on pages 67-72
and pages 79-80, respectively, and Note 6 for additional
information.
•
Lending- and deposit-related fees increased as a result of:
higher cash management fees in CIB and CB, and higher
lending-related fees, particularly loan commitment fees
in CIB,
predominantly offset by
•
lower overdraft fee revenue in CCB.
Refer to CCB, CIB and CB segment results on pages 63-66,
pages 67-72 and pages 73-75, respectively, and Note 6 for
additional information.
Asset management, administration and commissions
revenue increased driven by:
•
•
higher asset management fees in AWM and CCB as a
result of higher average market levels and net inflows,
and
higher custody fees in CIB Securities Services, primarily
associated with higher assets under custody.
Consumer, excluding credit card
Credit card
Total consumer
Wholesale
Investment securities
Total provision for credit losses
JPMorgan Chase & Co./2021 Form 10-K
53
Management's discussion and analysis
Noninterest expense
Year ended December 31,
(in millions)
Income tax expense
2021
2020
2019
Year ended December 31,
(in millions, except rate)
2021
2020
2019
Compensation expense
$ 38,567 $ 34,988 $ 34,155
Noncompensation expense:
Income before income tax
expense
$59,562
$35,815
$44,866
Occupancy
4,516
4,449
4,322
Income tax expense (a)
The net benefit in wholesale was due to a net reduction of
$2.6 billion in the allowance for credit losses across the
LOBS, reflecting improvements in the Firm's
macroeconomic outlook. The prior year included a $4.7
billion net addition to the allowance for credit losses.
Refer to the segment discussions of CCB on pages 63-66,
CIB on pages 67-72, CB on pages 73-75, AWM on pages
76-78, the Allowance for Credit Losses on pages 129-131,
and Notes 1, 10 and 13 for further discussion of the credit
portfolio and the allowance for credit losses.
Premises and equipment
the prior year included a $7.4 billion net addition to the
allowance for credit losses.
and
2021
2020
2019
$ (1,933) $ 1,016
$ (378)
(4,838) 10,886
5,348
(6,771)
11,902
4,970
(2,449)
5,510
615
(36)
68
ΝΑ
$ (9,256) $ 17,480 $ 5,585
Effective January 1, 2020, the Firm adopted the CECL accounting
guidance. Refer to Note 1 for further information.
2021 compared with 2020
The provision for credit losses was a net benefit driven by
net reductions in the allowance for credit losses.
The net benefit in consumer was driven by:
•
•
•
a $9.5 billion reduction in the allowance for credit losses,
reflecting improvements in the Firm's macroeconomic
outlook, including $7.6 billion in Card, and $1.2 billion in
Home Lending, which also reflects continued
improvements in Home Price Index ("HPI") expectations,
lower net charge-offs predominantly in Card, as
consumer cash balances remained elevated;
802
$ 118,464
JPMorgan Chase & Co./2021 Form 10-K
Mortgage origination volume
by channel
Home Lending
501.4
4,196
4,417
4,725
590.2
718.1
Number of client advisors
Client investment assets
(d)
$ 13.9 $ 26.6 $ 6.6
Retail
origination volume (c)
$ 683.7
2.48 %
1.58 %
1.27 %
Deposit margin
$ 832.5
$1,035.4
Average deposits
Consumer & Business Banking
$1,081.2 $1,114.4
$1,360.7
sales volume
Business banking
Debit and credit card
$
91.8
70.9
Credit Card
MSR revenue multiple()
(period-end)
mortgage loans serviced
(period-end) to third-party
Ratio of MSR carrying value
4.7
3.3
5.5
(period-end)
MSR carrying value
Correspondent
$ 520.8
$ 519.2
serviced (period-end)
Third-party mortgage loans
$ 105.2
$ 113.8
$ 162.7
Total mortgage origination
volume"
54.2
$ 51.0
72.9
40.9
$
$ 447.3
1.06 %
3.93x
37,315
45,452
65
17,286
(e) At December 31, 2021 and 2020, the principal balance of loans in
Home Lending, Card and Auto under payment deferral programs
offered in response to the COVID-19 pandemic were as follows: (1)
$1.1 billion and $9.1 billion in Home Lending, respectively; (2) $46
million and $264 million in Card, respectively; and (3) $115 million
(c) At December 31, 2021 and 2020, generally excludes loans that were
under payment deferral programs offered in response to the COVID-19
pandemic. Refer to Consumer Credit Portfolio on pages 110-116 for
further information on consumer payment assistance activity. Includes
loans to customers that have exited COVID-19 related payment
deferral programs and are 90 or more days past due, predominantly
all of which were considered collateral-dependent at time of exit.
(d) At December 31, 2021 and 2020, included $5.4 billion and $19.2
billion of loans, respectively, in Business Banking under the PPP. The
Firm does not expect to realize material credit losses on PPP loans
because the loans are guaranteed by the SBA. Refer to Credit Portfolio
on pages 108-109 for a further discussion of the PPP.
(a) At both December 31, 2021 and 2020, nonaccrual loans included
$1.6 billion of PCD loans. Prior to the adoption of CECL, nonaccrual
loans excluded PCI loans as the Firm recognized interest income on
each pool of PCI loans as each of the pools was performing.
(b) At December 31, 2021, 2020 and 2019, nonaccrual loans excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $342 million, $558 million and $963 million,
respectively. These amounts have been excluded based upon the
government guarantee. In addition, the Firm's policy is generally to
exempt credit card loans from being placed on nonaccrual status as
permitted by regulatory guidance.
Effective January 1, 2020, the Firm adopted the CECL accounting
guidance. The adoption resulted in a change in the accounting for
purchased credit-impaired (“PCI”) loans, which are considered purchased
credit deteriorated ("PCD") loans under CECL. Refer to Consumer Credit
Portfolio on pages 110-116 and Note 12 for further information on PCD
loans.
(c) Average Home Lending loans held-for sale and loans at fair value were
$15.4 billion, $11.1 billion and $14.1 billion for the years ended
December 31, 2021, 2020 and 2019, respectively.
(b) At December 31, 2021, 2020 and 2019, Home Lending loans held-
for-sale and loans at fair value were $14.9 billion, $9.7 billion and
$16.6 billion, respectively.
(a) At December 31, 2021 and 2020 included $5.4 billion and $19.2
billion of loans, respectively, in Business Banking under the PPP. Refer
to Credit Portfolio on pages 108-109 for a further discussion of the
PPP.
$22,027 $8,788
$12,340
Management's discussion and analysis
Total allowance for loan
losses
1,042
733
Auto
5,683
17,800
10,250
Card
125,756
122,894
128,863
Headcount
465
40,899
and $376 million in Auto, respectively. Loans that are performing
according to their modified terms are generally not considered
delinquent. Refer to Consumer Credit Portfolio on pages 110-116 for
further information on consumer payment assistance activity.
(f) At December 31, 2021 and 2020, the 30+ day delinquency rates
included PCD loans. The rate at December 31, 2019 was revised to
include the impact of PCI loans.
(h) At December 31, 2021, nonaccrual loans excluded $506 million of
PPP loans 90 or more days past due and guaranteed by the SBA.
(in thousands)(b)
Active mobile customers
52,453
55,274
58,857
(in thousands) (a)
Active digital customers
4,976
4,908
4,790
Number of branches
(g) At December 31, 2021, 2020 and 2019, excluded mortgage loans
insured by U.S. government agencies of $405 million, $744 million
and $1.7 billion, respectively, that are 30 or more days past due.
These amounts have been excluded based upon the government
guarantee.
62.6
66.3
CCB households (in millions)
2019
2020
2021
(in billions, except ratios and
where otherwise noted)
Business Metrics
66
60
As of or for the year ended
December 31,
Selected metrics
(i) Prior-period amount has been revised to conform with the current
presentation.
63.4
0.74 %
2.55x
0.90 %
2.65x
Credit card sales volume,
28,276
25,325
$ 49,284
23,538
2019
$ 39,265
22,444
2021
2020
2019
$ 10,008 $ 9,313 $
9,264
4,041
3,798
27,990
3,735
23,278
26,857
26,424
25,746
16,821
5,967
5,515
5,529
(6,989)
12,312
4,954
20,817
(1,174)
29,256
$51,749
Funds transfer pricing
Funds transfer pricing ("FTP") is the process by which the
Firm allocates interest income and expense to each
business segment and transfers the primary interest rate
risk and liquidity risk to Treasury and CIO within Corporate.
The funds transfer pricing process considers the interest
rate and liquidity risk characteristics of assets and liabilities
and off-balance sheet products. Periodically the
methodology and assumptions utilized in the FTP process
are adjusted to reflect economic conditions and other
factors, which may impact the allocation of net interest
income to the business segments.
JPMorgan Chase & Co./2021 Form 10-K
61
Management's discussion and analysis
As a result of the current interest rate environment and the
excess liquidity stemming from government and central
bank actions since the onset of the COVID-19 pandemic, the
cost of funds for assets and the credits earned for liabilities
have generally declined, impacting the business segments
net interest income. As such, during the period ended
December 31, 2021, this has resulted in lower cost of funds
for loans and margin compression on deposits across the
LOBS.
Debt expense and preferred stock dividend allocation
As part of the funds transfer pricing process, almost all of
the cost of the credit spread component of outstanding
unsecured long-term debt and preferred stock dividends is
allocated to the reportable business segments, while the
balance of the cost is retained in Corporate. The
methodology to allocate the cost of unsecured long-term
debt and preferred stock dividends to the business
segments is aligned with the relevant regulatory capital
requirements, as applicable. The allocated cost of
unsecured long-term debt is included in a business
segment's net interest income, and net income is reduced
Segment Results - Managed Basis
by preferred stock dividends to arrive at a business
segment's net income applicable to common equity.
Refer to Capital Risk Management on pages 86-96 for
additional information.
The amount of capital assigned to each segment is referred
to as equity. The Firm's allocation methodology incorporates
Basel III Standardized RWA, Basel III Advanced RWA, the
GSIB surcharge, and a simulation of capital in a severe
stress environment. As of January 1, 2022, the Firm has
changed its line of business capital allocations primarily as
a result of changes in RWA for each LOB and to reflect an
increase in the Firm's GSIB surcharge to 4.0% that will be
effective January 1, 2023. The assumptions and
methodologies used to allocate capital are periodically
reassessed and as a result, the capital allocated to the LOBS
may change from time to time.
Refer to Line of business equity on page 93 for additional
information on capital allocation.
Total noninterest expense
Pre-provision profit/(loss)
Provision for credit losses
The following tables summarize the Firm's results by segment for the periods indicated.
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
(in millions, except ratios)
Total net revenue
2021
2020
2019
2021
2020
$ 50,073
$ 51,268 $ 55,133
Year ended December 31,
2,726
277
(947)
Corporate
2020
Total
2019
2021
2020
2019
Pre-provision profit/(loss)
6,038
4,283
3,844
$ (3,483) $ (1,176) $
1,802
1,373
(5,285) (2,549)
2021
1,211
7.8
10.48 %
5.4
10.92 %
8.0
10.51 %
Auto
Net revenue rate
(in millions)
New accounts opened
$ 762.8
$ 702.7
$ 893.5
excluding commercial card
$ 125,304
2020
2019
$14,240 $ 13,591
9,747
9,957
10,919
2,113
296
Net income/(loss)
20,930
8,217
16,541
21,134
Return on equity ("ROE")
41%
15%
31%
25 %
17,094
20%
11,954
5,246
2,578
3,958
14%
21 %
11%
17%
Year ended December 31,
(in millions, except ratios)
Total net revenue
Total noninterest expense
Asset & Wealth Management
2021
$16,957
1,890
Where business segments use services provided by
corporate support units, or another business segment, the
costs of those services are allocated to the respective
business segments. The expense is generally
allocated based on the actual cost and use of services
provided. In contrast, certain costs and investments related
to corporate support units, technology and operations not
currently utilized by any LOB, are not allocated to the
business segments and are retained in Corporate. Expense
retained in Corporate generally includes costs that would
not be incurred if the segments were stand-alone
businesses; and other items not aligned with a particular
business segment.
1,813
$ 750
Total assets
$ 500,370 $ 496,705 $ 541,367
Loans:
Consumer & Business Banking
(a)
Home Lending (b)
Card
Auto
Total loans
Deposits
Equity
$3,027
35,095 48,810 29,585
180,529 182,121 213,445
154,296 144,216 168,924
69,138 66,432 61,522
439,058 441,579 473,476
1,148,110 958,706 723,418
50,000 52,000 52,000
289
263
298
(275)
(169)
(98)
Card
2,712
4,286
4,848
Auto
Net charge-offs/(recoveries)
Consumer & Business Banking
Home Lending
35
$5,492
(i)
The provision for credit losses was a net benefit of $7.0
billion, compared with an expense of $12.3 billion in the
prior year, driven by:
.
a $9.8 billion reduction in the allowance for credit losses,
reflecting improvements in the Firm's macroeconomic
outlook, consisting of $7.6 billion in Card, $675 million in
CBB, $300 million in Auto and $1.2 billion in Home
Lending, which also reflects continued improvements in
HPI expectations, and
lower net charge-offs predominantly in Card, as
consumer cash balances remained elevated.
The prior year included a $7.8 billion addition to the
allowance for credit losses.
Refer to Credit and Investment Risk Management on pages
106-132 and Allowance for Credit Losses on pages
129-131 for a further discussion of the credit portfolios
and the allowance for credit losses.
64
JPMorgan Chase & Co./2021 Form 10-K
Selected metrics
As of or for the year ended
December 31,
(in millions, except headcount)
$4,875
Selected balance sheet data
(period-end)
As of or for the year ended
December 31,
(in millions, except ratio data)
2021
2020
2019
2021
2020
2019
Credit data and quality statistics
Nonaccrual loans (a)(b)(c)
(h)
Selected metrics
lower depreciation expense due to lower auto lease
assets and the impact of higher vehicle collateral values.
123
Total net charge-offs/
(recoveries)
Consumer & Business Banking
Home Lending (c)
Card
Auto
Total loans
44,906 43,064 28,859
181,049 197,148 230,662
140,405 146,633 156,325
67,624 61,476 61,862
433,984 448,321 477,708
30+ day delinquency rate (e)
Home Lending (f)(g)
1.25 %
1.15 %
1.58 %
Card
Loans:
1.04
1.87
Auto
0.64
0.69
0.94
90+ day delinquency rate - Card(e)
0.50 %
0.92 %
0.95 %
Allowance for loan losses
Deposits
1.68
206
1.13 %
0.66 %
$2,761
$4,503
$5,254
Net charge-off/(recovery) rate
Consumer & Business Banking (d)
0.64 %
0.61 %
Home Lending
(0.17)
(0.09)
1.03 %
(0.05)
1.03 %
Selected balance sheet data
(average)
1.94
2.93
3.10
Auto
0.05
0.20
0.33
Total assets
$489,771 $ 501,584 $ 543,127
Total net charge-off/
(recovery) rate
Card
partially offset by
increased compensation expense, as well as investments
in technology and marketing campaigns, and growth in
travel-related benefits,
Noninterest expense was $29.3 billion, up 5%, reflecting:
17,114
16,976
17,461
Total noninterest expense
29,256
27,990
28,276
Income before income tax
expense
27,806
10,966
Noncompensation expense (a)
21,903
6,876
2,749
5,362
Net income
$20,930
$ 8,217
$16,541
Revenue by line of business
Consumer & Business Banking
$23,980
$22,955
Income tax expense
$27,376
10,815
12,142
$1,372
$ 697
Consumer & Business Banking
Home Lending
52,000
52,000
50,000
Equity
851,390 698,378
1,054,956
17,740
17,796
11,014
Net interest income
33,528
37,337
Total net revenue
50,073
51,268
55,133
Provision for credit losses
(6,989)
12,312
4,954
Noninterest expense
Compensation expense
32,787
Home Lending
5,291
Card & Auto
•
Management's discussion and analysis
2021 compared with 2020
Net income was $20.9 billion, up $12.7 billion, driven by a
net benefit in the provision for credit losses, compared to
an expense in the prior year.
Net revenue was $50.1 billion, a decrease of 2%.
Net interest income was $32.8 billion, down 2%, driven by:
the net impact in Card of lower revolving loans, primarily
due to higher payments, and lower funding costs,
largely offset by
.
⚫ higher loans in Auto, and
•
the accelerated recognition of deferred processing fees
associated with PPP loan forgiveness, largely offset by
33
the net impact of margin compression on higher deposits
in CBB.
• a decrease in mortgage fees and related income due to a
net loss in MSR risk management results primarily driven
by updates to model inputs related to prepayment
expectations as well as lower production margins,
•
lower auto operating lease income as a result of a decline
in volume, and
⚫ lower overdraft fee revenue,
•
largely offset by
higher asset management fees as a result of higher
average market levels and net inflows, and
• higher card income due to higher net interchange income
driven by an increase in debit and credit card sales
volume above pre-pandemic levels, partially offset by the
impact of a renegotiation of a co-brand partner contract,
an increase to the rewards liability, and higher
amortization related to new account origination costs.
Refer to Note 15 for further information regarding changes
in the value of the MSR asset and related hedges, and
mortgage fees and related income. Refer to Critical
Accounting Estimates on pages 150-153, and Note 6 for
additional information on card income.
•
•
•
Noninterest revenue was $17.3 billion, down 3%, driven
by:
63
(b) Included MSR risk management results of $(525) million, $(18)
million and $(165) million for the years ended December 31, 2021,
2020 and 2019, respectively.
(a) Included depreciation expense on leased assets of $3.3 billion, $4.2
billion and $4.0 billion for the years ended December 31, 2021, 2020
and 2019, respectively.
20,802
6,018
22,295
5,179
22,578
Mortgage fees and related
income details:
Production revenue
2,215
2,629
1,618
Net mortgage servicing
revenue
(56)
450
417
Mortgage fees and related
income
$ 2,159
$ 3,079
$ 2,035
Financial ratios
Return on equity
41 %
58
15 %
55
31 %
51
Overhead ratio
660
Expense Allocation
Capital allocation
Revenue sharing
Year ended
December 31,
Fully taxable-
(in millions, except ratios)
Reported
equivalent
adjustments (b)
Managed
basis
Reported
Other income (a)
$ 4,830
$
2019
Total noninterest revenue
Net interest income
52,311
Total net revenue
121,649
3,225 $ 8,055
3,225 72,563
430 52,741
3,655 125,304
$ 4,865
$
65,388
Fully taxable-
equivalent
adjustments (b)
2,560
2,560
Managed
basis
Reported
69,338
(b)
2020
The following summary table provides a reconciliation from the Firm's reported U.S. GAAP results to managed basis.
In 2021, cash provided resulted from lower trading
assets and higher accounts payable and other liabilities,
partially offset by higher securities borrowed and lower
trading liabilities.
In 2020, cash used primarily reflected higher trading
assets, other assets, and securities borrowed, partially
offset by higher trading liabilities and net income
excluding noncash adjustments.
Investing activities
The Firm's investing activities predominantly include
originating held-for-investment loans and investing in the
investment securities portfolio, and other short-term
instruments.
• In 2021, cash used resulted from net purchases of
investment securities and higher net originations of
loans, partially offset by lower securities purchased under
resale agreements.
• In 2020, cash used primarily reflected net purchases of
investment securities, higher net originations of loans,
and higher securities purchased under resale
agreements.
Financing activities
The Firm's financing activities include acquiring customer
deposits and issuing long-term debt and preferred stock.
• In 2021, cash provided reflected higher deposits and net
proceeds from long- and short-term borrowings, partially
offset by a decrease in securities loaned or sold under
repurchase agreements.
• In 2020, cash provided reflected higher deposits and an
increase in securities loaned or sold under repurchase
agreements, partially offset by net payments of long-term
borrowings.
2021
• For both periods, cash was used for repurchases of
common stock and cash dividends on common and
preferred stock.
*
*
Refer to Consolidated Balance Sheets Analysis on pages
55-56, Capital Risk Management on pages 86-96, and
Liquidity Risk Management on pages 97-104 for a further
discussion of the activities affecting the Firm's cash flows.
JPMorgan Chase & Co./2021 Form 10-K
57
Management's discussion and analysis
EXPLANATION AND RECONCILIATION OF THE FIRM'S USE OF NON-GAAP FINANCIAL MEASURES
Non-GAAP financial measures
The Firm prepares its Consolidated Financial Statements in
accordance with U.S. GAAP; these financial statements
appear on pages 160-164. That presentation, which is
referred to as "reported" basis, provides the reader with an
understanding of the Firm's results that can be tracked
consistently from year-to-year and enables a comparison of
the Firm's performance with the U.S. GAAP financial
statements of other companies.
In addition to analyzing the Firm's results on a reported
basis, management reviews Firmwide results, including the
overhead ratio, on a "managed" basis; these Firmwide
managed basis results are non-GAAP financial measures.
The Firm also reviews the results of the LOBS on a managed
basis. The Firm's definition of managed basis starts, in each
case, with the reported U.S. GAAP results and includes
certain reclassifications to present total net revenue for the
Firm (and each of the reportable business segments) on an
FTE basis. Accordingly, revenue from investments that
receive tax credits and tax-exempt securities is presented in
the managed results on a basis comparable to taxable
investments and securities. These financial measures allow
management to assess the comparability of revenue from
year-to-year arising from both taxable and tax-exempt
sources. The corresponding income tax impact related to
tax-exempt items is recorded within income tax expense.
These adjustments have no impact on net income as
reported by the Firm as a whole or by the LOBS.
Management also uses certain non-GAAP financial
measures at the Firm and business-segment level because
these other non-GAAP financial measures provide
information to investors about the underlying operational
performance and trends of the Firm or of the particular
business segment, as the case may be, and, therefore,
facilitate a comparison of the Firm or the business segment
with the performance of its relevant competitors. Refer to
Business Segment Results on pages 61-80 for additional
information on these non-GAAP measures. Non-GAAP
financial measures used by the Firm may not be
comparable to similarly named non-GAAP financial
measures used by other companies.
*
JPMorgan Chase's operating assets and liabilities primarily
support the Firm's lending and capital markets activities.
These assets and liabilities can vary significantly in the
normal course of business due to the amount and timing of
cash flows, which are affected by client-driven and risk
management activities and market conditions. The Firm
believes that cash flows from operations, available cash and
other liquidity sources, and its capacity to generate cash
through secured and unsecured sources, are sufficient to
meet its operating liquidity needs.
Fully taxable-
equivalent Managed
adjustments" basis
418
2,744
53,195
Provision for credit losses
(9,256)
NA
(9,256)
17,480
NA 17,480
5,585
ΝΑ
5,585
50,451
Income before income tax expense
3,655
Income tax expense (a)
When business segments join efforts to sell products and
services to the Firm's clients, the participating business
segments may agree to share revenue from those
transactions. Revenue is generally recognized in the
segment responsible for the related product or service, with
allocations to the other segment(s) involved in the
transaction. The segment results reflect these revenue-
sharing agreements.
11,228
$48,334
3,655
63,217
14,883
NA $48,334
35,815
6,684
$29,131
2,978
2,978
38,793
9,662
59,562
54,563
65,269
65,269
119,951
2,978
Total noninterest expense
71,343
ΝΑ 71,343
66,656
Pre-provision profit
50,306
3,655
53,961
53,295
ΝΑ
ΝΑ
2,978
$ 6,052
$
58,475
57,245
2,213
2,213
531
$ 8,265
60,688
57,776
115,720
2,744
118,464
$ 7,425
67,948
54,981
122,929
66,656
56,273
$ 263,978 $ (15,162)
$ 213,225
Operating activities
NM
1,111
NM
48,334
29,131
36,431
19%
12%
December 31, 2021 and 2020.
32
62
JPMorgan Chase & Co./2021 Form 10-K
(1,750)
CONSUMER & COMMUNITY BANKING
Selected income statement data
Year ended December 31,
(in millions, except ratios)
Revenue
Lending- and
deposit-related fees
Asset management,
administration and
commissions
JPMorgan Chase & Co./2021 Form 10-K
2021
2020
2019
$ 3,034
$ 3,166
$ 3,938
3,514
2,780
Consumer & Community Banking offers services to
consumers and businesses through bank branches,
ATMs, digital (including mobile and online) and
telephone banking. CCB is organized into Consumer &
Business Banking (including Consumer Banking, J.P.
Morgan Wealth Management and Business Banking),
Home Lending (including Home Lending Production,
Home Lending Servicing and Real Estate Portfolios) and
Card & Auto. Consumer & Business Banking offers
deposit, investment and lending products, payments
and services to consumers, and lending, deposit, and
cash management and payment solutions to small
businesses. Home Lending includes mortgage
origination and servicing activities, as well as portfolios
consisting of residential mortgages and home equity
loans. Card & Auto issues credit cards to consumers and
small businesses and originates and services auto loans
and leases.
2,808
(3,713)
NM
The following sections provide a comparative discussion of the Firm's results by segment as of or for the years ended
1,067
71,343
66,656
65,269
144
53,961
56,273
53,195
Provision for credit losses
(227)
263
15%
Net income/(loss)
2,992
Return on equity ("ROE")
33 %
28%
59
2,867
26%
81
66
(1)
(9,256)
17,480
5,585
4,737
Mortgage fees and related
income
2,159
3,079
origination volume
Loan and lease
Consolidated cash flows analysis
The following is a discussion of cash flow activities during
the years ended December 31, 2021 and 2020. Refer to
Consolidated cash flows analysis on page 59 of the Firm's
2020 Form 10-K for a discussion of the 2019 activities.
(in millions)
Net cash provided by/(used in)
Year ended December 31,
2021
2020
2019
Operating activities
$
$ 78,084
(129,344)
Financing activities
275,993
$ (79,910) $ 4,092
(261,912) (52,059)
596,645 32,987
Effect of exchange rate
changes on cash
(11,508)
9,155
(182)
Net increase/(decrease) in
cash and due from banks and
deposits with banks
Investing activities
43.6
$
38.4
2,035
Card income
3,563
3,068
3,412
All other income
5,016
5,647
5,603
$122,929
JPMorgan Chase & Co./2021 Form 10-K
(f) Represents the ratio of MSR carrying value (period-end) to third-party
mortgage loans serviced (period-end) divided by the ratio of
annualized loan servicing-related revenue to third-party mortgage
loans serviced (average).
(e) Firmwide mortgage origination volume was $182.4 billion, $133.4
billion and $115.9 billion for the years ended December 31, 2021,
2020 and 2019, respectively.
(d) Includes assets invested in managed accounts and J.P. Morgan mutual
funds where AWM is the investment manager. Refer to AWM segment
results on pages 76-78 for additional information.
(c) Included origination volume under the PPP of $10.6 billion and $21.9
billion for the years ended December 31, 2021 and 2020,
respectively. Refer to Credit Portfolio on pages 108-109 for a further
discussion of the PPP.
days.
(b) Users of all mobile platforms who have logged in within the past 90
(a) Users of all web and/or mobile platforms who have logged in within
the past 90 days.
21.6
22.0
19.1
operating lease assets
Average auto
34.0
$
44,866
2,744
Net income
8,435
Dec 31,
2021
Dec 31,
2020
2021
2020
$
50,315
259,289 $ 249,291
49,248
882
904
$
Year ended December 31,
2,499
2,453
210,591 $ 201,592
$ 236,865
47,820
781
2,399
2019
$ 232,907
47,620
789
$ 190,663
2,328
$ 186,826
ΝΑ
ΝΑ
23 %
14 %
19 %
$
$ 250,968
49,584
876
2,474
$ 202,982
71.53 $
Period-end
Return on tangible common equity
$
53,412 $
46,839 $
42,896
Memo: CIB Markets total
net revenue
$
27,394 $ 29,483 $ 20,912
(a) Interest includes the effect of related hedges. Taxable-equivalent
47,610
(b) Refer to pages 70-71 for further information on CIB Markets.
Tangible book value per share
JPMorgan Chase & Co./2021 Form 10-K
Management's discussion and analysis
TCE, ROTCE and TBVPS
TCE, ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm's common stockholders' equity (i.e.,
total stockholders' equity less preferred stock) less goodwill and identifiable intangible assets (other than MSRs), net of related
deferred tax liabilities. ROTCE measures the Firm's net income applicable to common equity as a percentage of average TCE.
TBVPS represents the Firm's TCE at period-end divided by common shares at period-end. TCE, ROTCE and TBVPS are utilized by
the Firm, as well as investors and analysts, in assessing the Firm's use of equity.
The following summary table provides a reconciliation from the Firm's common stockholders' equity to TCE.
Average
(in millions, except per share and ratio data)
Common stockholders' equity
Less: Goodwill
Less: Other intangible assets
Add: Certain deferred tax liabilities (a)
Tangible common equity
59
excluding CIB Markets
66.11
NA
Banking
Lending
Production
Home
Lending
Servicing
• Real Estate
Portfolios
Banking
Markets &
Securities Services
• Fixed
Income
Markets
• Equity
Markets
⚫ Business
• Securities
Services
& Other
Middle
Market
Banking
• Corporate
Client
Banking
Commercial
Real Estate
Banking
Asset & Wealth
Management
⚫ Asset
Management
• Global
Private
Bank(b)
(a) In the fourth quarter of 2021, the Wholesale Payments business was renamed Payments.
(b) In the first quarter of 2021, the Wealth Management business was renamed Global Private Bank.
Description of business segment reporting methodology
Results of the business segments are intended to present
each segment as if it were a stand-alone business. The
management reporting process that derives business
segment results includes the allocation of certain income
and expense items. The Firm also assesses the level of
capital required for each LOB on at least an annual basis.
The Firm periodically assesses the assumptions,
methodologies and reporting classifications used for
segment reporting, and further refinements may be
implemented in future periods. The Firm's LOBS also
provide various business metrics which are utilized by the
Firm and its investors and analysts in assessing
performance.
• Credit
Adjustments
ΝΑ
Management
⚫ J.P. Morgan
NA
(a) Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted
against goodwill and other intangibles when calculating TCE.
60
JPMorgan Chase & Co./2021 Form 10-K
BUSINESS SEGMENT RESULTS
The Firm is managed on an LOB basis. There are four major
reportable business segments - Consumer & Community
Banking, Corporate & Investment Bank, Commercial
Banking and Asset & Wealth Management. In addition, there
is a Corporate segment.
The business segments are determined based on the
products and services provided, or the type of customer
served, and they reflect the manner in which financial
information is evaluated by the Firm's Operating
Committee. Segment results are presented on a managed
basis. Refer to Explanation and Reconciliation of the Firm's
use of Non-GAAP Financial Measures, on pages 58-60 for a
definition of managed basis.
Consumer Businesses
Consumer & Community Banking
JPMorgan Chase
Wealth
Wholesale Businesses
Commercial
Banking
Home Lending
Card & Auto
⚫ Home
• Credit Card
• Auto
• Investment
Banking
⚫ Payments (a)
•
Lending
Consumer &
Business Banking
• Consumer
Banking
Corporate & Investment Bank
Noninterest revenue
amounts are used where applicable.
21,109
Total noninterest expense / Total net revenue
ROA
Reported net income / Total average assets
ROE
Noninterest revenue
Net income* / Average common stockholders' equity
ROTCE
Net income*/ Average tangible common equity
TBVPS
Tangible common equity at period-end / Common shares at period-end
* Represents net income applicable to common equity
In addition, the Firm reviews other non-GAAP measures
such as
Year ended December 31,
(in millions, except rates)
2021
Overhead ratio
2019
•
17,792
$ 54,563 $ 57,245
Fully taxable-equivalent
adjustments
Net interest income -
managed basis (a)
Less: CIB Markets net
interest income"
(b)
430
418
531
Net interest income -
reported
$ 54,981 $ 57,776
Common stockholders' equity at period-end /
Common shares at period-end
Certain U.S. GAAP and non-GAAP financial measures are calculated as
follows:
2,744
11,179
ΝΑ
$29,131
$ 36,431
NA $36,431
Overhead ratio (a)
59%
NM
57 %
56 %
Book value per share ("BVPS")
NM
56 %
NM
55 %
(a) Prior-period amounts have been revised to conform with the current presentation. Refer to Note 25 for further information.
(b) Predominantly recognized in CIB, CB and Corporate.
58
JPMorgan Chase & Co./2021 Form 10-K
Net interest income, net yield, and noninterest revenue
excluding CIB Markets
In addition to reviewing net interest income, net yield, and
noninterest revenue on a managed basis, management also
reviews these metrics excluding CIB Markets, as shown
below. CIB Markets consists of Fixed Income Markets and
Equity Markets. These metrics, which exclude CIB Markets,
are non-GAAP financial measures. Management reviews
these metrics to assess the performance of the Firm's
lending, investing (including asset-liability management)
and deposit-raising activities, apart from any volatility
associated with CIB Markets activities. In addition,
management also assesses CIB Markets business
performance on a total revenue basis as offsets may occur
across revenue lines. Management believes that these
measures provide investors and analysts with alternative
measures to analyze the revenue trends of the Firm.
2020
Calculation of certain U.S. GAAP and non-GAAP financial measures
54 %
8,374
$ 52,311
$ 52,741
Net yield on average
interest-earning assets
excluding CIB Markets
1.91 %
2.30 %
3.27 %
Noninterest revenue-
reported
$
69,338 $
65,388 $
3,120
Fully taxable-equivalent
0.46
adjustments
2,560
2,213
Noninterest revenue -
managed basis
$
72,563 $
67,948
60,688
Less: CIB Markets
noninterest revenue
19,151
3,225
1.11
58,475
Markets interest-earning
assets
8,243
0.93
(a)
$ 44,498
$3,215,942
$2,779,710
$2,345,279
888,238
751,131
672,417
Average interest-earning
assets
Less: Average CIB Markets
interest-earning assets
Net interest income
excluding CIB Markets a
$ 46,607 $ 54,656
Average interest-earning
assets excluding CIB
Markets
Net yield on average CIB
1.98 %
1.64 %
$2,327,704 $2,028,579 $1,672,862
interest-earning assets -
managed basis
2.46 %
The Firm also reviews the allowance for loan losses to
period-end loans retained excluding trade finance and
conduits, a non-GAAP financial measure, to provide a more
meaningful assessment of CIB's allowance coverage ratio.
Management believes that these measures help investors
understand the effect of these items on reported results
and provide an alternative presentation of the Firm's
performance.
Pre-provision profit, which represents total net revenue
less total noninterest expense.
Adjusted expense, which represents noninterest expense
excluding Firmwide legal expense, and
Net yield on average
Chase becomes
the first bank with
nationwide branches
in all lower 48 states
CELEBRATING THE 20TH ANNIVERSARY OF THE BANK ONE/JPMORGAN CHASE
MERGER
2023
JPMorgan Chase
acquires First Republic
Bank from the FDIC
The purchase of First
Republic helped stabilize
and strengthen the U.S.
financial system in a time
of crisis while allowing
JPMorgan Chase to give a
new, secure home to over
half a million First Republic
customers.
6
FDIC Federal Deposit Insurance Corporation
and has impact. United by our principles and purpose, we help people and institutions
finance and achieve their aspirations, lifting up individuals, homeowners, small
businesses, larger corporations, schools, hospitals, cities and countries in all regions
of the world. What we have accomplished in the 20 years since the Bank One and
JPMorgan Chase merger is evidence of the importance of our values.
J.P. Morgan Chase
But they were hardly alone. In 2003, some 215 deals were announced among
U.S. commercial banks and bank holding companies for a total value of $66 billion,
according to Thomson Financial, which tracks merger data.
Bank One
Bank One had been even busier on the acquisition front, especially across the United
States. By 1998, then Banc One had more than 1,300 branches in 12 states when it
announced a merger with First Chicago NBD, a Chicago-based bank created just
three years earlier by the merger of First Chicago and Detroit-based NBD. Now
headquartered in Chicago, the new Bank One became the largest bank in the
Midwest, second largest among credit card companies and fourth largest in the
United States. But the merger didn't go as planned, with Bank One issuing three
different earnings warnings. In March 2000, Bank One reached outside its executive
ranks, and my tenure began as Chairman and CEO, working to overhaul the company
and help bring it back to profitability and growth.
The story begins ... A merger 20 years ago helped transform two giant banks
Fast forward to 2003, and another wave of consolidation was well underway in U.S.
banking. Most of the nation's larger banks were trying to position themselves to be an
"endgame winner." In the biggest deal, Bank of America agreed to buy FleetBoston
Financial Corp. for more than $40 billion. Those two banks – already amalgamations
of several predecessor companies - touted the breadth of their combined retail
branch network.
7
In July 2004, J.P. Morgan Chase and Bank One merged – as part of a 225-year
journey – to form this exceptional company of ours: JPMorgan Chase. At its merger
in 2004, the combined bank was the fourth largest bank in the world by market
capitalization. But with patient groundwork over the years – fixing systems and
upgrading technology, managing the notable acquisitions of Bear Stearns and
Washington Mutual (WaMu) and continuing to reinvest, including in our talent -
we have made our company an endgame winner.
In earlier years, banks worried about their survival. While the past two decades have
brought some virtually unprecedented challenges, including the great financial crisis
and a pandemic followed by a global shutdown, they did not stop us from
accomplishing extraordinary things. Our bank has now emerged as the #1 bank by
market capitalization.
Each of our businesses is among the best in the world, with increased market share,
strong financial results and an unwavering focus on serving our clients, communities
and shareholders with distinction and dedication. The strengths that are embedded in
JPMorgan Chase – the knowledge and cohesiveness of our people, our long-standing
client relationships, our technology and product capabilities, our presence in more
than 100 countries and our unquestionable fortress balance sheet - would be hard to
replicate. Crucially, the strength of our company has allowed us to always be there for
clients, governments and communities - in good times and in bad times - and this
strength has enabled us to continually invest in building our businesses for the future.
You can see from the following charts what gains and improvements we have
achieved along the way.
8
2022
By 2004, J.P. Morgan Chase already represented the consolidation of four of the 10
largest U.S. banks from 1990: The Chase Manhattan Corp., Manufacturers Hanover,
Chemical Banking Corp. and, most recently, J.P. Morgan & Company. And some of their
predecessor companies stretched back into the 1800s, one even into the late 1700s.
JPMorgan Chase ranks
#1 in retail deposits
market share at 10%
based on FDIC data,
with deposits surpassing
$1 trillion
Book value per share
Four modern, private
cloud-based North
American data centers
go live
$1,323,706
Loans
Selected balance sheet data (period-end)
16.8
16.8
18.5
Total capital ratio (c)
15.0
14.9
16.6
Tier 1 capital ratio (c)
13.1
13.2
15.0
Common equity Tier 1 capital ratio (c)
111
112
113
Liquidity coverage ratio (average) (b)
23
18
21
Return on tangible common equity (ROTCE)(a)
19%
14%
$1,135,647
$1,077,714
Total assets
3,875,393
2,934.2
466,206
393,484
489,320
2,876.6
Common shares at period-end
Market capitalization
158.35
$
134.10
$
$ 170.10
Closing share price
17%
Market data
292,332
259,289
264,928
300,474
327,878
Total stockholders' equity
Common stockholders' equity
2,462,303
2,340,179
2,400,688
Deposits
3,743,567
3,665,743
294,127
Return on common equity
Selected ratios
3.80
(9,256)
6,389
9,320
Provision for credit losses
50,306
52,555
70,932
71,343
76,140
$ 121,649
$ 128,695
$ 158,104
87,172
Net income
2021
2023
Pre-provision profit(a)
Total noninterest expense
Total net revenue
Selected income statement data
(in millions, except per share, ratio data and employees)
As of or for the year ended December 31,
Financial Highlights
JPMORGAN CHASE & Co.
Annual
Report
2023
with Curiosity
and Heart
Powering
Growth
2022
2,944.1
$
$
4.00
4.10
71.53
73.12
86.08
88.07
90.29
104.45
15.36
12.09
2021
15.39
49,552
$
$
16.25
$
Cash dividends declared per share
Tangible book value per share (TBVPS) (a)
Diluted
Basic
Net income per share:
Per common share data
48,334
$
37,676
12.10
Employees (d)
16.23
293,723
Bank One merges with
J.P. Morgan Chase & Co.
2004
Chase Manhattan buys
J.P. Morgan & Co.,
forming J.P. Morgan
Chase & Co.
Jamie Dimon joins Bank
One as Chairman and
CEO
2000
川
2024
2020
2015
2010
2005
2000
MAPPING OUR PROGRESS AND MILESTONES
5
Eighth and finally, we know the founda-
tion of our success rests with our people.
They are the front line, both individually
and as teams, serving our customers and
communities, building the technology,
making the strategic decisions, managing
the risks, determining our investments
and driving innovation. However you view
the world - its complexity, risks and
opportunities - a company's prosperity
requires a great team of people with
guts, brains, integrity, enormous capabili-
ties and high standards of professional
excellence to ensure its ongoing success.
Seventh, we operate with a very important
silent partner - the U.S. government -
noting as my friend Warren Buffett points
out that his company's success is predi-
cated upon the extraordinary conditions
our country creates. He is right to say to
his shareholders that when they see the
American flag, they all should say thank
you. We should, too. JPMorgan Chase is a
healthy and thriving company, and we
always want to give back and pay our fair
share. We do pay our fair share - and we
want it to be spent well and have the
greatest impact. To give you an idea of
where our taxes and fees go: In the last 10
years, we paid more than $46 billion in
federal, state and local taxes in the United
States and over $22 billion in taxes outside
of the United States. Additionally, we paid
the Federal Deposit Insurance Corporation
over $10 billion so that it has the resources
to cover failure in the American banking
sector. Our partner - the federal govern-
ment also imposes significant regula-
tions upon us, and it is imperative that we
meet all legal and regulatory require-
ments imposed on our company.
Sixth, and this is the new one, we must be
a source of strength, particularly in tough
times, for our clients and the countries in
which we operate. We must take seriously
our role as one of the guardians of the
world's financial systems.
Fifth, we strive to build enduring busi-
nesses, which rely on and benefit from one
another, but we are not a conglomerate.
This structure helps generate our superior
returns. Nonetheless, despite our best
efforts, the walls that protect this com-
pany are not particularly high - and we
face extraordinary competition. I have
written about this reality extensively in the
past and cover it again in this letter. We
recognize our strengths and vulnerabili-
ties, and we play our hand as best we can.
Fourth, we are united behind basic princi-
ples and strategies (you can see the prin-
ciples for How We Do Business on our
website and our Purpose statement in my
letter from last year) that have helped
build this company and made it thrive.
These allow us to maintain a fortress bal-
ance sheet, constantly invest and nurture
talent, fully satisfy regulators, continually
improve risk, governance and controls,
and serve customers and clients while
lifting up communities worldwide. This
philosophy is embedded in our company
culture and influences nearly every role
in the firm.
Third, while we don't run the company
worrying about the stock price in the short
run, in the long run we consider our stock
price a measure of our progress over time.
This progress is a function of continual
investments in our people, systems and
products, in good and bad times, to build
our capabilities. These important invest-
ments will also drive our company's future
prospects and position it to grow and
prosper for decades. Measured by stock
performance, our progress is exceptional.
For example, whether looking back 10
years or even farther to 2004, when the
JPMorgan Chase/Bank One merger took
place, we have outperformed the Standard
& Poor's 500 Index and the Standard &
Poor's Financials Index.
First, our work has very real human
impact. While JPMorgan Chase stock is
owned by large institutions, pension
plans, mutual funds and directly by single
investors, in almost all cases the ultimate
beneficiaries are individuals in our com-
munities. More than 100 million people in
the United States own stocks; many, in
one way or another, own JPMorgan Chase
stock. Frequently, these shareholders are
veterans, teachers, police officers, fire-
fighters, healthcare workers, retirees, or
those saving for a home, education or
retirement. Often, our employees also
bank these shareholders, as well as their
families and their companies. Your man-
agement team goes to work every day
recognizing the enormous responsibility
that we have to all of our shareholders.
Second, shareholder value can be built
only if you maintain a healthy and vibrant
company, which means doing a good job
of taking care of your customers, employ-
ees and communities. Conversely, how
can you have a healthy company if you
neglect any of these stakeholders? As we
have learned over the past few years,
there are myriad ways an institution can
demonstrate its compassion for its
employees and its communities while still
strengthening shareholder value.
Looking back on the past two+ decades -
starting from my time as Chairman and
CEO of Bank One in 2000 - there is one
common theme: our unwavering dedica-
tion to help clients, communities and
countries throughout the world. It is clear
that our financial discipline, constant
investment in innovation and ongoing
development of our people have enabled
us to achieve this consistency and com-
mitment. In addition, across the firm, we
uphold certain steadfast tenets that are
worth repeating.
STEADFAST PRINCIPLES WORTH REPEATING (AND ONE NEW ONE)
4
I remain proud of our company's resiliency and of what our hundreds of thousands of
employees around the world have achieved, collectively and individually. Throughout
these challenging past few years, we have never stopped doing all the things we should
be doing to serve our clients and our communities. As you know, we are champions of
banking's essential role in a community - its potential for bringing people together, for
enabling companies and individuals to attain their goals, and for being a source of
strength in difficult times. I often remind our employees that the work we do matters
2006
JPMorgan Chase holds
first Investor Day
Asset & Wealth
Management assets
under management
exceed $1 trillion
2008
JPMorgan Chase acquires
Bear Stearns and
Washington Mutual
309,926(e)
Jamie Dimon returns to
work in the office in June
to close the racial
wealth gap and advance
economic inclusion among
historically underserved U.S.
communities, the effort
reported over $30 billion in
progress by the end of 2023.
With the goal of helping
Racial Equity Commitment
announces its $30 billion
JPMorgan Chase
2020
JPMorgan Chase launches
the Second Chance hiring
initiative, helping remove
barriers to employment
opportunities for people
with a criminal record
2019
JPMorgan Chase
announces branch
expansion initiative
Chase credit and debit
card sales volume
surpasses $1 trillion
JPMorgan Chase
announces $30 million
investment in Greater
Paris, followed by $70
million in new commit-
ments in 2023 to create
economic opportunity
across France
We have achieved our decades-long consistency by adhering to our key principles and
strategies (see sidebar on Steadfast Principles on page 5), which allow us to drive
good organic growth and promote proper management of our capital (including
dividends and stock buybacks). The charts on pages 9-15 show our performance
results and illustrate how we have grown our franchises, how we compare with our
competitors and how we look at our fortress balance sheet. Please peruse them and
the CEO letters in this Annual Report, all of which provide specific details about our
businesses and our plans for the future.
2018
2016
JPMorgan Chase makes
historic investment in
Detroit, which reached
$200 million in 2022
JPMorgan Chase
begins using artificial
intelligence and machine
learning for fraud
detection
2014
Chase becomes #1
credit card issuer based
on outstandings
2012
JPMorgan Chase
becomes the biggest
U.S. bank by assets
Jamie Dimon holds his
first bus tour from
Seattle to San Diego
JPMorgan Chase ranks
#1 in Markets revenue
market share for the
first time
2011
JPMorgan Chase
launches Chase Wealth
Management
JPMorgan Chase ranks
#1 in investment banking
fees market share for
the first time
The collapse of the housing
and mortgage markets led to
a severe worldwide financial
crisis, the worst since the
Great Depression. JPMorgan
Chase helped stabilize the
markets by acquiring two
failing institutions, Bear
Stearns and Washington
Mutual (WaMu). WaMu
is still the largest failure
of an insured depository
institution in the history of
the FDIC. Importantly, the
WaMu deal expanded the
bank's network by more
than 2,200 branches,
including gaining a footprint
in California and Florida.
JPMorgan Chase
becomes the biggest
bank in the world by
market capitalization
As always, we hold fast to our commitment to corporate responsibility, including
helping to create a stronger, more inclusive economy – from supporting work skills
training programs around the world to financing affordable housing and small
businesses to making investments in cities like Detroit that show how business and
government leaders can work together to solve problems.
2010
than 100 basis points of Investment Banking market share; Commercial Banking (CB)
added over 5,000 new relationships (excluding First Republic Bank), roughly doubling
the prior year's achievement; and Asset & Wealth Management (AWM) saw record
client asset net inflows of $490 billion, over 20% higher than its prior record.
Scored 100% on the Disability Equality Index
for the ninth consecutive year
DISABILITY EQUALITY INDEX
100%
Fortune magazine's Most Admired Companies list
for the second year in a row
Ranked in the top five on
MOST ADMIRED COMPANIES
TOP 5
by Euromoney magazine
and #1 asset manager by active flows
Named #1 private bank in the world
PRIVATE BANK AND ASSET MANAGER
#1
Generated $14 billion of net income
on revenue of $49 billion
TOP 100
#1
IN DEPOSITS AND FOR SMALL BUSINESSES
#1 BANK
2023 Highlights
JPMorgan Chase & Co. (NYSE: JPM) is a leading financial services firm with assets of
$3.9 trillion and operations worldwide. The firm is a leader in investment banking,
financial services for consumers and small businesses, commercial banking, financial
transaction processing and asset management. Under the J.P. Morgan and Chase
brands, the firm serves millions of customers, predominantly in the U.S., and many of
the world's most prominent corporate, institutional and government clients globally.
Information about J.P. Morgan's capabilities can be found at jpmorgan.com and
about Chase's capabilities at chase.com. Information about JPMorgan Chase & Co.
is available at jpmorganchase.com.
(e) Included approximately 4,500 individuals associated with First Republic who became employees effective July 2, 2023.
(d) This metric, which was formerly Headcount, has been renamed Employees but is otherwise unchanged.
(c) Refer to Capital Risk Management on pages 91-101 for additional information on these measures.
(b) Refer to Liquidity Risk Management on pages 102-109 for additional information on this measure.
(a) Pre-provision profit, TBVPS and ROTCE are each non-GAAP financial measures. Refer to Explanation and Reconciliation of the
Firm's Use of Non-GAAP Financial Measures on pages 62-64 for a discussion of these measures.
As of and for the period ended December 31, 2023, the results of the Firm include the impact of First Republic. Refer to Business
Segment Results on page 67 and Note 34 for additional information.
In 2023, we continued to play a forceful and essential role in advancing economic
growth. In total, we extended credit and raised capital totaling $2.3 trillion for our
consumer and institutional clients around the world. On a daily basis, we move nearly
$10 trillion in over 120 currencies and more than 160 countries, as well as safeguard
over $32 trillion in assets. By purchasing First Republic Bank, we brought much-
needed stability to the U.S. banking system while allowing us to give a new, secure
home to over half a million First Republic customers.
271,025
Named #1 in retail deposit market share
and #1 primary bank for U.S. small businesses
MOST INFLUENTIAL COMPANIES
CORPORATE & INVESTMENT BANK
#1
maintained its #1 rank in both Investment Banking and Markets and gained more
3
Ranked as one of the 100 Most Influential Companies
by Time magazine
Throughout the year, we demonstrated the power of our investment philosophy and
guiding principles, as well as the value of being there for clients - as we always are -
in both good times and bad times. The result was continued growth broadly across
the firm. We will highlight a few examples from 2023: Consumer & Community
Banking (CCB) extended its #1 leadership positions and grew share year-over-year in
retail deposits, credit card sales and credit card outstandings (adding close to 3.6
million net new customers to the franchise); the Corporate & Investment Bank (CIB)
2023 was another strong year for JPMorgan Chase, with our firm generating record
revenue for the sixth consecutive year, as well as setting numerous records in each
of our lines of business. We earned revenue in 2023 of $162.4 billion¹ and net income
of $49.6 billion, with return on tangible common equity (ROTCE) of 21%, reflecting
strong underlying performance across our businesses. We also increased our
quarterly common dividend of $1.00 per share to $1.05 per share in the third quarter
of 2023 - and again to $1.15 per share in the first quarter of 2024 – while continuing
to reinforce our fortress balance sheet. We grew market share in several of our
businesses and continued to make significant investments in products, people and
technology while exercising strict risk disciplines.
In spite of the unsettling landscape, including last year's regional bank turmoil, the
U.S. economy continues to be resilient, with consumers still spending, and the
markets currently expect a soft landing. It is important to note that the economy is
being fueled by large amounts of government deficit spending and past stimulus.
There is also a growing need for increased spending as we continue transitioning to
a greener economy, restructuring global supply chains, boosting military expenditure
and battling rising healthcare costs. This may lead to stickier inflation and higher
rates than markets expect. Furthermore, there are downside risks to watch.
Quantitative tightening is draining more than $900 billion in liquidity from the system
annually - and we have never truly experienced the full effect of quantitative
tightening on this scale. Plus the ongoing wars in Ukraine and the Middle East
continue to have the potential to disrupt energy and food markets, migration, and
military and economic relationships, in addition to their dreadful human cost. These
significant and somewhat unprecedented forces cause us to remain cautious.
created equal," still remains a shining beacon of hope to citizens around the world.
JPMorgan Chase, a company that historically has worked across borders and
boundaries, will do its part to ensure that the global economy is safe and secure.
1 Represents managed revenue.
2
As these events unfold, America's global leadership role is being challenged outside
by other nations and inside by our polarized electorate. We need to find ways to put
aside our differences and work in partnership with other Western nations in the name
of democracy. During this time of great crises, uniting to protect our essential
freedoms, including free enterprise, is paramount. We should remember that
Across the globe, 2023 was yet another year of significant challenges, from the
terrible ongoing wars and violence in the Middle East and Ukraine to mounting
terrorist activity and growing geopolitical tensions, importantly with China. Almost
all nations felt the effects last year of global economic uncertainty, including higher
energy and food prices, inflation rates and volatile markets. While all these events
and associated instability have serious ramifications on our company, colleagues,
clients and countries where we do business, their consequences on the world at large
- with the extreme suffering of the Ukrainian people, escalating tragedy in the Middle
East and the potential restructuring of the global order – are far more important.
Jamie Dimon,
Chairman and
Chief Executive
Officer
la
Dear Fellow Shareholders,
America, "conceived in liberty and dedicated to the proposition that all men are
1
Middle Market Syndicated Lender
in the U.S.
#1
#1 BANK
MIDDLE MARKET SYNDICATED LENDER
CUSTOMER SATISFACTION
IN ARTIFICIAL INTELLIGENCE
Ranked #1 for overall artificial intelligence
capabilities on the Evident Al Index
for the second year in a row
Ranked #1 among self-directed investors
in the J.D. Power 2023 U.S. Wealth
Management Digital Experience Study
Ranked #1 overall
9,246
10,235
Professional and outside services
9,941
9,358
10,174
$ 46,166
8,490
18.4 %
18.9 %
$ 59,562
11,228
Effective tax rate
12,060
19.6 %
Income tax expense
Technology, communications and
9,814
equipment
Marketing
$ 87,172 $ 76,140 $ 71,343
3,911
(b) Included Firmwide legal expense of $1.4 billion, $266 million and
$426 million, as well as FDIC-related expense of $4.2 billion, $860
million and $730 million for the years ended December 31, 2023,
2022 and 2021, respectively. Refer to Note 6 for additional
information.
(c) Reflected the impact of First Republic of $1.5 billion, which included
expenses recorded in the second quarter of 2023 with respect to
individuals associated with First Republic who did not become
employees of the Firm until July 2, 2023. Refer to Business Segment
Results on page 67 for additional information.
4,516
(a) Includes depreciation expense associated with auto operating lease
assets.
Total noninterest expense
34,504 32,776
4,591
40,707
Total noncompensation expense
5,469
6,365
12,045
Other(b)
3,036
(c)
4,696
Net charge-offs increased $3.3 billion, consisting of $2.6
billion in consumer, predominantly driven by Card Services,
as the portfolio continued to normalize to pre-pandemic
levels, and $698 million in wholesale.
Occupancy
Refer to the segment discussions of CCB on pages 68-71,
CIB on pages 72-77, CB on pages 78-80, AWM on pages
81-83, the Allowance for Credit Losses on pages 131-133,
and Notes 1, 10 and 13 for further discussion of the credit
portfolio and the allowance for credit losses.
The provision in the prior year included a $3.5 billion net
addition to the allowance for credit losses, consisting of
$2.3 billion in wholesale and $1.2 billion in consumer,
driven by loan growth and deterioration in the Firm's
macroeconomic outlook, partially offset by a reduction in
the allowance related to a decrease in uncertainty
associated with borrower behavior as the effects of the
pandemic gradually receded, and net charge-offs of $2.9
billion.
The net addition also included $1.2 billion to establish the
allowance for the First Republic loans and lending-related
commitments in the second quarter of 2023.
•$657 million in wholesale, driven by net downgrade
activity and the net effect of changes in the Firm's
weighted average macroeconomic outlook, including a
deterioration in the outlook for commercial real estate in
CB, partially offset by the impact of changes in the loan
and lending-related commitment portfolios.
$1.3 billion in consumer, predominantly driven by CCB,
reflecting a $1.4 billion net addition in Card Services,
partially offset by a net reduction of $200 million in
Home Lending. The net addition in Card Services was
driven by loan growth, including an increase in revolving
balances, partially offset by reduced borrower
uncertainty. The net reduction in Home Lending was
driven by improvements in the outlook for home prices;
and
•
56
The net addition to the allowance for credit losses included
$1.9 billion, consisting of:
2023 compared with 2022
Total provision for credit losses $ 9,320 $ 6,389 $ (9,256)
(36)
Investment securities
2023 compared with 2022
Wholesale
The provision for credit losses was $9.3 billion, reflecting
$6.2 billion of net charge-offs and a net addition of $3.1
billion to the allowance for credit losses.
4,590
JPMorgan Chase & Co./2023 Form 10-K
Income tax expense
$ 61,612
Income before income tax
expense
$ 46,465 $ 41,636 $ 38,567
2021
2022
2023
•
Noncompensation expense:
Year ended December 31,
(in millions)
Noninterest expense
2021
2022
2023
Year ended December 31,
(in millions, except rate)
Compensation expense
Compensation expense increased driven by:
the higher level of pre-tax income and changes in the mix
of income and expenses subject to U.S. federal, state and
local taxes,
•
Refer to Note 25 for further information.
•
higher legal expense in CIB, Corporate and CCB,
higher investments in the business, including marketing
and technology, and
•
higher other expenses, including higher indirect tax
• an income tax benefit related to the finalization of certain
income tax regulations.
•
expense across the segments,
partially offset by
lower depreciation expense on lower auto lease assets.
Refer to Business Segment Results on page 67 and Note 34
for additional information on the First Republic acquisition;
Note 6 for further information;
JPMorgan Chase & Co./2023 Form 10-K
57
expense in CIB, and higher travel and entertainment
40
the impact of the income tax expense associated with the
First Republic acquisition that was reflected in the
estimated bargain purchase gain, which resulted in a
reduction in the Firm's effective tax rate, and
largely offset by
the impact of First Republic in the second half of 2023,
predominantly in CCB and Corporate, and
54
higher volume- and revenue-related compensation
predominantly in AWM and CCB.
Noncompensation expense increased as a result of:
•
•
•
higher FDIC-related expense, which included the $2.9
billion special assessment recognized in Corporate,
2023 compared with 2022
The effective tax rate increased predominantly driven by:
•
•
•
lower benefits associated with tax audit settlements, and
vesting of employee stock based awards,
the impact of First Republic in Corporate and CCB,
CONSOLIDATED BALANCE SHEETS AND CASH FLOWS ANALYSIS
Consolidated balance sheets analysis
The following is a discussion of the significant changes between December 31, 2023 and 2022. Refer to pages 155-158 for a
discussion of the Critical Accounting Estimates Used by the Firm that affect the Consolidated Balance Sheets.
200,436
185,369
8
Trading assets
Available-for-sale securities
540,607
Securities borrowed
453,799
201,704
205,857
(2)
Held-to-maturity securities
front office, as well as wage inflation,
.
19
(12)
315,592
276,152
Selected Consolidated balance sheets data
December 31, (in millions)
2023
2022
Change
Assets
Cash and due from banks
Deposits with banks
$
29,066 $
595,085
27,697
539,537
5 %
10
Federal funds sold and securities purchased under resale agreements
• an increase in employees, primarily in technology and
38
•
2,476
2023
2022
2021
Investment banking fees
$
6,519
(in millions)
$
Principal transactions
24,460
Lending- and deposit-related fees
7,413
19,912
7,098
Asset management fees
6,686 $
15,220
Year ended December 31,
This section provides a comparative discussion of JPMorgan Chase's Consolidated Results of Operations on a reported basis for the
two-year period ended December 31, 2023, unless otherwise specified. Refer to Consolidated Results of Operations on pages
51-54 of the Firm's Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K") for a discussion
of the 2022 versus 2021 results. Factors that relate primarily to a single business segment are discussed in more detail within
that business segment's results. Refer to pages 155-158 for a discussion of the Critical Accounting Estimates Used by the Firm
that affect the Consolidated Results of Operations.
lower advisory fees due to a lower number of completed
transactions, reflecting the lower level of announced
•
369,848
Business Developments
First Republic acquisition
On May 1, 2023, JPMorgan Chase acquired certain assets
and assumed certain liabilities of First Republic Bank (the
"First Republic acquisition") from the Federal Deposit
Insurance Corporation ("FDIC"), as receiver.
Revenue
JPMorgan Chase's Consolidated Financial Statements as of
and for the period ended December 31, 2023 reflect the
impact of First Republic. Where meaningful to the
disclosure, the impact of the First Republic acquisition, as
well as subsequent related business and activities, are
disclosed in various sections of this Form 10-K. The Firm
continues to convert certain operations, and to integrate
clients, products and services, associated with the First
Republic acquisition to align with the Firm's businesses and
operations.
Interbank Offered Rate (“IBOR") transition
The publication of the remaining principal tenors of U.S.
dollar LIBOR (i.e., overnight, one-month, three-month, six-
month and 12-month LIBOR) ceased on June 30, 2023
("LIBOR Cessation"). The one-month, three-month and six-
month tenors of U.S. dollar LIBOR will continue to be
published on a "synthetic" basis, which will allow market
participants to use such rates for certain legacy LIBOR-
linked contracts through September 30, 2024.
As part of the Firm's overall transition efforts which
culminated in the second quarter of 2023, the Firm
successfully completed the conversion of predominantly all
of its remaining cleared derivatives contracts linked to U.S.
dollar LIBOR to the Secured Overnight Financing Rate
("SOFR") as part of initiatives by the principal central
counterparties ("CCPS") to convert cleared derivatives prior
to LIBOR Cessation. Nearly all of the Firm's other U.S. dollar
LIBOR-linked products that remained outstanding at LIBOR
Cessation have been remediated through contractual
fallback provisions or through the framework provided by
the Adjustable Interest Rate (LIBOR) Act ("LIBOR Act"). The
Firm expects that the limited number of contracts
remaining that reference "synthetic" U.S. dollar LIBOR will
be remediated by September 30, 2024.
JPMorgan Chase & Co./2023 Form 10-K
53
CONSOLIDATED RESULTS OF OPERATIONS
Refer to Note 34 and page 67 for additional information
related to First Republic.
deals in the current and the prior year amid a challenging
environment, and
14,096
6,836
Noninterest revenue
68,837
Net interest income
89,267
61,985
66,710
4,830
69,338
52,311
4,322
$ 158,104
$ 128,695 $ 121,649
(a) Included operating lease income of $2.8 billion, $3.7 billion and $4.9
billion for the years ended December 31, 2023, 2022 and 2021,
respectively. Also includes losses on tax-oriented investments. Refer to
Note 6 for additional information.
(b) Included the estimated bargain purchase gain of $2.8 billion for the
year ended December 31, 2023, in Corporate associated with the First
Republic acquisition. Refer to Business Segment Results on page 67,
and Notes 6 and 34 for additional information.
2023 compared with 2022
Investment banking fees decreased, reflecting in CIB:
•
Total net revenue
Commissions and other fees
5,609
Other income(a)
6,581
13,216
16,304
7,032
14,405
6,624
Investment securities losses
(3,180)
(2,380)
(345)
(b)
Mortgage fees and related income
1,250
2,170
Card income
4,784
4,420
5,102
1,176
lower debt underwriting fees as challenging market
conditions, primarily in the first half of the year, resulted
in lower issuance activity across leveraged loans,
investment-grade loans and high-grade bonds. This was
largely offset by higher issuance activity in high-yield
bonds driven by higher industry-wide issuance,
partially offset by
higher equity underwriting fees driven by a higher level
of follow-on offerings due to lower equity market
volatility and a higher level of convertible securities
offerings, which benefited from higher rates, partially
offset by lower activity in private placements amid a
challenging environment.
Refer to CIB segment results on pages 72-77 and Note 6 for
additional information.
JPMorgan Chase & Co./2023 Form 10-K
impairment losses in the second half of 2023,
the net impact of equity investments in CIB, including
•
lower net gains related to certain other Corporate
investments, and
•
55
Refer to the Consolidated average balance sheets, interest
and rates schedule on pages 310-314 for further
information. Net yield excluding Markets is a non-GAAP
financial measure. Refer to Explanation and Reconciliation
of the Firm's Use of Non-GAAP Financial Measures on pages
62-64 for a further discussion of Net yield excluding
Markets.
Net interest income increased driven by higher rates, the
impact of First Republic, and higher revolving balances in
Card Services, partially offset by lower Markets net interest
income and lower average deposit balances.
Refer to Business Segment Results on page 67 and Note 34
for additional information on the First Republic acquisition;
Note 5 for additional information on net investment hedges;
and Note 6 for further information.
• a gain on an equity-method investment received in partial
satisfaction of a loan in CB.
• a gain of $914 million on the sale of Visa B shares and
proceeds from an insurance settlement in Corporate, and
The prior year included:
lower auto operating lease income in CCB due to a decline
in volume,
The Firm's average interest-earning assets were $3.3
trillion, down $23 billion, and the yield was 5.14%, up 236
basis points ("bps”). The net yield on these assets, on an
FTE basis, was 2.70%, an increase of 70 bps. The net yield
excluding Markets was 3.85%, up 125 bps.
a gain of $339 million recognized in the first quarter of
2023 in AWM on the original minority interest in China
International Fund Management ("CIFM") upon the Firm's
acquisition of the remaining 51% interest in the entity,
partially offset by
Provision for credit losses
2021
2,299
3,859
6,983
Total consumer
3,353
6,048
Year ended December 31,
Credit card
935
$
Consumer, excluding credit card
2022
2023
(in millions)
506 $ (1,933)
the impact of net investment hedges in Treasury and CIO,
and
the $2.8 billion estimated bargain purchase gain in
Corporate associated with the First Republic acquisition,
.
•
predominantly offset by
amortization of the purchase discount on certain acquired
lending-related commitments associated with First
Republic, primarily in AWM and CB,
higher lending-related revenue driven by the
•
Lending- and deposit-related fees increased, reflecting:
lower deposit-related fees in CB and CIB driven by the
higher level of client credits that reduce such fees.
Refer to CIB and Corporate segment results on pages 72-77
and pages 84-85, respectively, and Note 6 for additional
information.
The increase in principal transactions revenue also included
the impact of higher short-term cash deployment activities
in Treasury and CIO, reflective of the current interest rate
environment.
The prior year included net markdowns on held-for-sale
positions, primarily unfunded commitments, in the bridge
financing portfolio in CIB and CB.
losses of $280 million in Credit Adjustments & Other
compared with $836 million in the prior year.
the net increase in Markets principal transactions
revenue was more than offset by a decline in Markets
net interest income, primarily due to higher funding
costs; and
Financing, largely offset by lower revenue in Rates and
Currencies & Emerging Markets;
Principal transactions revenue increased, reflecting in CIB:
Principal transactions revenue in CIB generally has offsets
across other revenue lines, including net interest income.
The Firm assesses the performance of its Markets business
on a total net revenue basis.
Refer to CIB, CB and AWM segment results on pages 72-77,
pages 78-80 and pages 81-83, respectively, and Note 6 for
additional information.
Asset management fees increased driven by strong net
inflows and the removal of most money market fund fee
waivers in the prior year in AWM, and in CCB the impact of
First Republic, as well as higher average market levels and
strong net inflows. Refer to CCB and AWM segment results
on pages 68-71 and pages 81-83, respectively, and Note 6
for additional information.
•
•
•
•
Other income increased, reflecting:
Card income increased in CIB and CB, reflecting growth in
merchant processing volume and Commercial Card
transactions in J.P. Morgan Payments; and in CCB, driven by
higher net interchange income on increased debit and
credit card sales volume. Refer to Business Segment
Results, CCB, CIB and CB segment results on pages 65-85,
pages 68-71, pages 72-77 and pages 78-80, respectively,
and Note 6 for further information.
Mortgage fees and related income: refer to CCB segment
results on pages 68-71, Note 6 and 15 for further
information.
Investment securities losses reflected higher net losses on
higher sales of U.S. Treasuries and U.S. GSE and
government agency MBS, associated with repositioning the
investment securities portfolio in both periods in Treasury
and CIO. Refer to Corporate segment results on pages 84-
85 and Note 10 for additional information.
Commissions and other fees increased due to higher
commissions on annuity sales and travel-related services in
CCB. Refer to CCB segment results on pages 68-71 and
Note 6 for additional information.
JPMorgan Chase & Co./2023 Form 10-K
54
revenue in Securitized Products and Fixed Income
higher Fixed Income Markets principal transactions
•
Prime Finance and Equity Derivatives,
higher Equity Markets principal transactions revenue in
(4,838)
(6,771)
(2,449)
425,305
• $146 billion of loans associated with First Republic,
December 31,
Fully taxable-
equivalent
adjustments
Reported
$ 4,830
3,148 $ 7,470
3,148 65,133
61,985
$
$ 4,322
Managed
3,782 $ 9,391
3,782 72,619
480 89,747
4,262 162,366
NA 87,172
75,194
70,932
Pre-provision profit
87,172
Total noninterest expense
158,104
Total net revenue
4,262
(a)
basis
$
125,304
3,655
121,649
52,741
430
52,311
67,144
132,277
76,140
NA
76,140
434
3,582
66,710
128,695
72,563
$ 8,055
3,225
3,225
69,338
89,267
71,343
Net interest income
Total noninterest revenue
The Firm prepares its Consolidated Financial Statements in
accordance with U.S. GAAP; these financial statements
appear on pages 166-170. That presentation, which is
referred to as "reported" basis, provides the reader with an
understanding of the Firm's results that can be tracked
consistently from year-to-year and enables a comparison of
the Firm's performance with the U.S. GAAP financial
statements of other companies.
Non-GAAP financial measures
EXPLANATION AND RECONCILIATION OF THE FIRM'S USE OF NON-GAAP FINANCIAL MEASURES
61
JPMorgan Chase & Co./2023 Form 10-K
Refer to Consolidated Balance Sheets Analysis on pages 58-
60, Capital Risk Management on pages 91-101, and
Liquidity Risk Management on pages 102-109, and the
Consolidated Statements of Cash Flows on page 170 for a
further discussion of the activities affecting the Firm's cash
flows.
In addition to analyzing the Firm's results on a reported
basis, management reviews Firmwide results, including the
overhead ratio, on a "managed" basis; these Firmwide
managed basis results are non-GAAP financial measures.
The Firm also reviews the results of the LOBS on a managed
basis. The Firm's definition of managed basis starts, in each
case, with the reported U.S. GAAP results and includes
certain reclassifications to present total net revenue for the
Firm (and each of the reportable business segments) on an
FTE basis. Accordingly, revenue from investments that
receive tax credits and tax-exempt securities is presented in
the managed results on a basis comparable to taxable
investments and securities. These financial measures allow
⚫ For both periods, cash was used for repurchases of
common stock and cash dividends on common and
preferred stock.
• In 2023, cash used reflected lower deposits, which
included the impact of the repayment of the deposits
provided to First Republic Bank by the consortium of
large U.S. banks that the Firm assumed as part of the
First Republic acquisition, partially offset by higher
securities loaned under repurchase agreements and net
proceeds from long- and short-term borrowings.
The Firm's financing activities include acquiring customer
deposits and issuing long-term debt and preferred stock.
Financing activities
• In 2022, cash used resulted from net originations of
loans and higher securities purchased under resale
agreements, partially offset by net proceeds from
investment securities.
• In 2023, cash provided resulted from net proceeds from
investment securities, proceeds from sales and
securitizations of loans held-for-investment and lower
securities purchased under resale agreements, largely
offset by net originations of loans and net cash used in
the First Republic Bank acquisition.
The Firm's investing activities predominantly include
originating held-for-investment loans, investing in the
investment securities portfolio and other short-term
instruments.
• In 2022, cash used reflected lower deposits, partially
offset by net proceeds from long- and short-term
borrowings.
management to assess the comparability of revenue from
year-to-year arising from both taxable and tax-exempt
sources. The corresponding income tax impact related to
tax-exempt items is recorded within income tax expense.
These adjustments have no impact on net income as
reported by the Firm as a whole or by the LOBS.
Management also uses certain non-GAAP financial
measures at the Firm and business-segment level because
these other non-GAAP financial measures provide
information to investors about the underlying operational
performance and trends of the Firm or of the particular
business segment, as the case may be, and therefore
facilitate a comparison of the Firm or the business segment
with the performance of its relevant competitors. Refer to
Business Segment Results on pages 65-85 for additional
information on these non-GAAP measures. Non-GAAP
financial measures used by the Firm may not be
comparable to similarly named non-GAAP financial
measures used by other companies.
The following summary table provides a reconciliation from the Firm's reported U.S. GAAP results to managed basis.
2023
$
$ 5,609
Other income
Managed
basis
(a)
Fully taxable-
equivalent
adjustments
Reported
Managed
basis
(a)
Fully taxable-
equivalent
adjustments a
Reported
(in millions, except ratios)
Year ended
2021
2022
68,837
Investing activities
NA
52,555
59,562
49,748
12,072
$37,676
ΝΑ
3,582
3,582
8,490
$37,676
$49,552
3,655
ΝΑ
Net income
46,166
65,874
16,322
4,262
12,060
Income tax expense
$49,552
63,217
11,228
3,655
62
(a) Predominantly recognized in CIB, CB and Corporate.
57 %
NM
59 %
58 %
NM
59 %
54 %
NM
55 %
$48,334
ΝΑ
$ 48,334
14,883
(13)
71,343
Investment securities, net of allowance for credit losses
631,162
ΝΑ
(9,256)
6,389
NA
6,389
9,320
(9,256)
ΝΑ
Provision for credit losses
53,961
3,655
50,306
56,137
3,582
9,320
Income before income tax expense
61,612
4,262
(9)
Loans
1,323,706
1,135,647
17
Allowance for loan losses
(22,420)
(19,726)
14
1,301,286
1,115,921
17
107,363
125,189
(14)
571,552
• In 2022, cash provided resulted from higher accounts
payable and other liabilities, lower securities borrowed,
and net proceeds from sales, securitizations, and
paydowns of loans held-for-sale, partially offset by higher
trading assets.
• In 2023, cash provided primarily reflected net income,
lower other assets, and accrued interest and accounts
receivable, predominantly offset by higher trading assets,
lower accounts payable and other liabilities, and higher
securities borrowed.
JPMorgan Chase's operating assets and liabilities primarily
support the Firm's lending and capital markets activities.
These assets and liabilities can vary significantly in the
normal course of business due to the amount and timing of
cash flows, which are affected by client-driven and risk
management activities and market conditions. The Firm
believes that cash flows from operations, available cash and
other liquidity sources, and its capacity to generate cash
through secured and unsecured sources, are sufficient to
meet its operating liquidity needs.
JPMorgan Chase & Co./2023 Form 10-K
58
The allowance for loan losses also reflected a reduction of
$587 million, on January 1, 2023, as a result of the
adoption of the Financial Instruments - Credit Losses:
Troubled Debt Restructurings accounting guidance.
$1.1 billion to establish the allowance for the First
Republic loans in the second quarter of 2023.
- $930 million in wholesale, driven by net downgrade
activity and the net effect of changes in the Firm's
weighted average macroeconomic outlook, and
- $1.3 billion in consumer, predominantly driven by CCB,
reflecting $1.4 billion in Card Services driven by loan
growth, including an increase in revolving balances,
partially offset by a net reduction of $176 million in
Home Lending, and
References in this Form 10-K to "changes to the TDR
accounting guidance" pertain to the Firm's adoption of this
guidance.
•
The allowance for loan losses increased, reflecting:
growth in Auto loans due to net originations.
growth in new accounts in Card Services, as well as higher
revolving balances, which continued to normalize to pre-
pandemic levels, and
•
•
Loans increased, reflecting:
• a net addition to the allowance for loan losses of $2.2
billion, consisting of:
There was also a $408 million net reduction in the
allowance for lending-related commitments recognized in
other liabilities on the Consolidated balance sheets.
Refer to Consolidated Results of Operations and Credit and
Investment Risk Management on pages 54-57 and pages
111-134, respectively, and Notes 2, 3, 12 and 13 for
additional information on loans and the total allowance for
credit losses; and Business Segment Results on page 67 and
Note 34 for additional information on the First Republic
acquisition.
Accrued interest and accounts receivable decreased due
to lower client receivables related to client-driven activities
in Markets.
2023
Beneficial interests issued by consolidated variable interest entities ("VIES")
Long-term debt
Accounts payable and other liabilities
Trading liabilities
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Deposits
Liabilities
December 31, (in millions)
Selected Consolidated balance sheets data
higher MSRs as a result of net additions primarily from
purchases, and the impact of higher interest rates,
partially offset by the realization of expected cash flows.
Refer to Note 15 and 34 for additional information.
Other assets decreased reflecting the impact of the change
in the type of collateral placed with CCPs from cash to
securities.
•
• core deposit intangibles associated with the First
Republic acquisition, and
other intangibles and goodwill related to the acquisition
of the remaining 51% interest in CIFM,
•
Premises and equipment increased as a result of the
construction-in-process associated with the Firm's
headquarters, the First Republic acquisition, largely lease
right-of-use assets, and higher capitalized software. Refer
to Note 16 and 18 for additional information.
Goodwill, MSRs and other intangibles increased
predominantly due to:
Refer to Corporate segment results on pages 84-85,
Investment Portfolio Risk Management on page 134 and
Notes 2 and 10 for additional information on investment
securities.
2022
lower HTM securities driven by maturities and paydowns,
and the transfer of securities to AFS.
•
Accrued interest and accounts receivable
Loans, net of allowance for loan losses
6%
3,665,743
$ 3,875,393 $
(13)
Premises and equipment
182,884
6
60,859
64,381
9
27,734
30,157
159,308
Goodwill, MSRS and other intangible assets
Other assets
Total assets
lower available-for-sale ("AFS") securities driven by
maturities and paydowns, predominantly offset by the
impact of First Republic, net purchases, and the transfer
of securities from held-to-maturity ("HTM") in the first
•
Investment securities decreased due to:
Trading assets increased, reflecting in Markets higher debt
and equity instruments on client-driven market-making
activities, partially offset by lower derivative receivables,
primarily as a result of market movements. Refer to Notes 2
and 5 for additional information.
Refer to Note 11 for additional information on securities
purchased under resale agreements and securities
borrowed.
Securities borrowed increased driven by Markets,
reflecting a higher demand for securities to cover short
positions and client-driven activities.
Federal funds sold and securities purchased under resale
agreements decreased, reflecting a reduction in client-
driven market-making activities, partially offset by higher
cash deployment in Treasury and CIO.
the impacts associated with the First Republic acquisition
in the first half of 2023.
partially offset by
the impact of maturities and paydowns of investment
securities in Treasury and CIO,
the net issuance of long-term debt, and
•
•
increased reflecting the higher level of excess cash placed
with the Federal Reserve Banks. The Firm's excess cash
primarily resulted from:
Cash and due from banks and deposits with banks
quarter of 2023, and
Change
$ 2,400,688 $ 2,340,179
3
Consolidated cash flows analysis
JPMorgan Chase & Co./2023 Form 10-K
60
60
Stockholders' equity: refer to Consolidated Statements of
changes in stockholders' equity on page 169, Capital
Actions on page 99, and Note 24 for additional information.
Long-term debt increased, reflecting the impact of First
Republic, which included the Purchase Money Note issued
to the FDIC and additional FHLB advances, as well as net
issuance consistent with the Firm's long-term funding plans.
The increase was also attributable to net issuances of
structured notes in Markets due to client demand and an
increase in fair value. Refer to Liquidity Risk Management
on pages 102-109 and Note 34 for additional information
on the First Republic acquisition.
The following is a discussion of cash flow activities during
the years ended December 31, 2023 and 2022. Refer to
Consolidated cash flows analysis on page 57 of the Firm's
2022 Form 10-K for a discussion of the 2021 activities.
administered multi-seller conduit commercial paper held by
third parties, reflecting changes in the Firm's short-term
liquidity management. Refer to Liquidity Risk Management
on pages 102-109; and Notes 14 and 28 for additional
information on Firm-sponsored VIES and loan securitization
trusts.
59
JPMorgan Chase & Co./2023 Form 10-K
Accounts payable and other liabilities decreased primarily
due to lower client payables related to client-driven
activities in Markets, partially offset by higher accounts
payable and accrued liabilities, including the $2.9 billion
payable related to the FDIC special assessment. Refer to
Note 19 for additional information.
Trading liabilities increased due to client-driven market-
making activities in Fixed Income Markets, which resulted in
higher levels of short positions in debt instruments,
partially offset by lower derivative payables primarily as a
result of market movements. Refer to Notes 2 and 5 for
additional information.
Refer to Liquidity Risk Management on pages 102-109 for
additional information on deposits, federal funds purchased
and securities loaned or sold under repurchase agreements,
and short-term borrowings; Notes 2 and 17 for deposits
and Note 11 for federal funds purchased and securities
loaned or sold under repurchase agreements; Business
Segment Results on page 67 and Note 34 for additional
information on the First Republic acquisition.
Federal funds purchased and securities loaned or sold
under repurchase agreements increased, reflecting the
impact of a lower level of netting on reduced repurchase
activity.
Beneficial interests issued by consolidated VIES increased
in CIB primarily driven by higher levels of Firm-
(in millions)
Net cash provided by/(used in)
Year ended December 31,
2023
$ 56,917 $(173,600) $ 213,225
Operating activities
cash and due from banks and
deposits with banks
Net increase/(decrease) in
(16,643) (11,508)
1,871
Effect of exchange rate
changes on cash
$ 78,084
(129,344)
275,993
$ 107,119
67,643 (137,819)
(25,571) (126,257)
Financing activities
Investing activities
$ 12,974
Operating activities
2021
2022
327,878
$ 3,875,393 $
• a decrease in CB due to continued deposit attrition as
clients seek higher-yielding investments, predominantly
offset by the retention of inflows associated with
disruptions in the market in the first quarter of 2023.
The net increase also included $61 billion of deposits
associated with First Republic, primarily reflected in CCB,
AWM and CB.
a decline in AWM due to continued migration into higher-
yielding investments driven by the higher interest rate
environment, predominantly offset by growth from new
and existing customers as a result of new product
offerings, and
lower balances in CCB reflecting higher customer
spending,
391,825
83
12,610
23,020
(3)
300,141
290,307
1
177,976
180,428
2
44,027
7
202,613
216,535
44,712
295,865
2
32
3,373,411
growth in Corporate related to the Firm's international
consumer initiatives,
higher balances in CIB due to net issuances of structured
notes as a result of client demand, as well as deposit
inflows from client-driven activities in Payments and
Securities Services, partially offset by deposit attrition,
including actions taken to reduce certain deposits,
Deposits increased, reflecting the net impact of:
Total liabilities and stockholders' equity
Stockholders' equity
Total liabilities
•
•
.
•
6 %
3,665,743
12
292,332
5
3,547,515
JPMorgan Chase & Co./2023 Form 10-K
Overhead ratio
201
$ 489,771
Card Services
2.45
1.47
1.94
Loans:
Auto
0.49
0.21
$497,263
0.05
Home
.
⚫ Payments
Production
• Investment
Banking
• Auto
• Card Services
Home
Lending
Banking
⚫ Lending
$ 584,367
Total assets
0.64 %
(0.17)
(275)
4,699
2,403
2,712
357
144
35
$5,340
$ 2,688
$ 2,761
Net charge-off/(recovery) rate
Banking & Wealth
Selected balance sheet data
Management
(c)
1.13 %
1.17 %
(average)
Home Lending
(0.02)
(0.14)
Card Services &
Auto
(229)
Home Lending
Commercial
Banking
2,996
2,510
247,611 $ 214,552
ΝΑ
73.12
86.08 $
$
ΝΑ
$
49,584
876
1,112
2,572
1,224
2,883
3,225
$ 253,068
50,952
$ 282,056
52,258
300,474 $ 264,928
51,662
52,634
2022
2023
Dec 31,
2022
Dec 31,
2023
Year ended December 31,
2021
$ 250,968
2,505
2,474
$ 230,109
Corporate & Investment Bank
Wholesale Businesses
(a)
JPMorgan Chase
Consumer & Community Banking
Consumer Businesses
The business segments are determined based on the products and services provided, or the type of customer served, and they
reflect the manner in which financial information is evaluated by the Firm's Operating Committee. Segment results are
presented on a managed basis. Refer to Explanation and Reconciliation of the Firm's use of Non-GAAP Financial Measures, on
pages 62-64 for a definition of managed basis.
The Firm is managed on an LOB basis. There are four major reportable business segments - Consumer & Community Banking,
Corporate & Investment Bank, Commercial Banking and Asset & Wealth Management. In addition, there is a Corporate
segment.
BUSINESS SEGMENT RESULTS
JPMorgan Chase & Co./2023 Form 10-K
64
टु
(a) Represents deferred tax liabilities related to tax-deductible goodwill and to identifiable intangibles created in nontaxable transactions, which are netted
against goodwill and other intangibles when calculating TCE.
ΝΑ
ΝΑ
ΝΑ
23 %
18 %
21 %
$ 202,982
$ 203,509
Asset & Wealth
Management
(56)
289
Home Lending (c)
Refer to Note 15 for further information regarding changes
in the value of the MSR asset and related hedges, and
mortgage fees and related income.
Refer to Note 34 for additional information on the First
Republic acquisition.
Noninterest expense was $34.8 billion, up 12%, reflecting:
higher compensation expense, driven by an increase in
employees, including the impact of First Republic in the
second half of 2023 and additions primarily in bankers,
advisors and technology, wage inflation and higher
revenue-related compensation, as well as
higher noncompensation expense, driven by the impact of
First Republic, investments in marketing and technology,
the increase in the FDIC assessment announced in the
prior year as well as higher legal expense, partially offset
by lower auto lease depreciation on lower auto lease
assets.
The provision for credit losses was $6.9 billion, reflecting:
• net charge-offs of $5.3 billion, up $2.6 billion,
predominantly driven by Card Services, as the portfolio
continued to normalize to pre-pandemic levels,
•
•
a $1.2 billion net addition to the allowance for credit
losses, which included $1.4 billion in Card Services,
partially offset by a net reduction of $200 million in
Home Lending. The net addition in Card Services was
driven by loan growth, including an increase in revolving
balances, partially offset by reduced borrower
uncertainty. The net reduction in Home Lending was
driven by improvements in the outlook for home prices;
and
Refer to Note 6 for additional information on card income,
asset management fees, and commissions and other fees;
and Critical Accounting Estimates on pages 155-158 for
credit card rewards liability.
$408 million to establish the allowance for the First
Republic loans and lending-related commitments in the
second quarter of 2023.
JPMorgan Chase & Co./2023 Form 10-K
69
Selected metrics
As of or for the year ended
December 31,
(in millions, except
employees)
Selected metrics
As of or for the year ended
December 31,
The provision in the prior year was $3.8 billion, driven by
net charge-offs of $2.7 billion and a $1.1 billion net
addition to the allowance for credit losses across CCB.
Refer to Credit and Investment Risk Management on pages
111-134 and Allowance for Credit Losses on pages 131-
133 for a further discussion of the credit portfolios and the
allowance for credit losses.
lower mortgage fees and related income in Home
Lending.
lower auto operating lease income as a result of a decline
in volume, and
•
41 %
58
Overhead ratio
(a) Primarily includes operating lease income and commissions and other
fees. Operating lease income was $2.8 billion, $3.6 billion and $4.8
billion for the years ended December 31, 2023, 2022 and 2021,
respectively.
(b) Included depreciation expense on leased assets of $1.7 billion, $2.4
billion and $3.3 billion for the years ended December 31, 2023, 2022
and 2021, respectively.
(c) Included MSR risk management results of $131 million, $93 million
and $(525) million for the years ended December 31, 2023, 2022
and 2021, respectively.
(d) Includes First Republic. Refer to page 67 for additional information.
(e) Banking & Wealth Management and Home Lending included revenue
associated with First Republic of $2.3 billion and $932 million,
respectively, for the year ended December 31, 2023.
(f) In the first quarter of 2023, the allocations of revenue and expense to
CCB associated with a Merchant Services revenue sharing agreement
were discontinued and are now retained in Payments in CIB. Prior-
period amounts have been revised to conform with the current
presentation.
JPMorgan Chase & Co./2023 Form 10-K
•
•
•
2023 compared with 2022
Net income was $21.2 billion, up 42%.
Net revenue was $70.1 billion, up 28%.
Net interest income was $55.0 billion, up 38%, driven by:
deposit margin expansion on higher rates, partially offset
by lower average deposits and the impact of lower PPP
loan forgiveness in Banking & Wealth Management
("BWM"),
higher Card Services NII, reflecting an increase in
revolving balances, and
the impact of First Republic in Home Lending.
Noninterest revenue was $15.1 billion, up 2%, driven by:
higher asset management fees due to the impact of First
Republic as well as higher market levels and strong net
inflows, higher commissions on annuity sales in BWM and
higher other service fees associated with First Republic,
higher net interchange income on increased debit and
credit card sales volume, and
In Card Services, higher annual fees and the higher net
interchange income were more than offset by an
increase in amortization related to new account
origination costs, reflecting continued growth. Net
interchange income in Card Services also reflected the
impact of a reduction in rewards costs and partner
payments in the first quarter of 2023 related to a
periodic tax refund on airline miles redeemed and an
increase to the rewards liability due to adjustments to
certain reward program terms in the second quarter of
2023;
• higher travel-related commissions in Card Services,
predominantly offset by
•
(in millions, except ratio data)
2023
2022
2021
259,181
Card Services
211,175
Auto
77,705
Total loans
579,203
Deposits
1,094,738
(e)
Equity
55,500
29,008
172,554
185,175
68,191
454,928
1,131,611
50,000
35,095
Home Lending
180,529
154,296
69,138
439,058
1,148,110
50,000
Card Services
Auto
Total net charge-offs/
(recoveries)
340
370
(d)
Period-end
Home Lending (b)
Management
2023
2022
2021
Credit data and quality
Selected balance sheet data
(period-end)
statistics
Nonaccrual loans
(a)(b)
$ 3,740
$ 3,899
$ 4,875
Total assets
$ 642,951
$ 514,085 $ 500,370
Net charge-offs/(recoveries)
Loans:
Banking & Wealth
Banking & Wealth
Management (a)
(d)
31,142
29 %
57
Tangible book value per share
Tangible common equity
Total loans
526,355
Deposits
1,126,552
(g)
Equity
54,349
31,545
176,285
163,335
68,098
439,263
1,162,680
50,000
44,906
181,049
72,674
Total net charge-off/
(recovery) rate
0.62 %
0.66 %
30+ day delinquency rate
140,405
Home Lending (d)(e)
0.66 %
0.83 %
1.25 %
67,624
1.02 %
Auto
191,424
Card Services
(a)
Net interest income -
managed basis
adjustments
Fully taxable-equivalent
$ 66,710 $ 52,311
$ 89,267
Net interest income -
reported
2023
Year ended December 31,
(in millions, except rates)
8,243
4,789
$ 67,144 $ 52,741
430
2021
434
2022
480
In addition to reviewing net interest income, net yield, and
noninterest revenue on a managed basis, management also
reviews these metrics excluding Markets, as shown below.
Markets consists of CIB's Fixed Income Markets and Equity
Markets. These metrics, which exclude Markets, are non-
GAAP financial measures. Management reviews these
metrics to assess the performance of the Firm's lending,
investing (including asset-liability management) and
deposit-raising activities, apart from any volatility
associated with Markets activities. In addition, management
also assesses Markets business performance on a total
revenue basis as offsets may occur across revenue lines.
Management believes that these measures provide
investors and analysts with alternative measures to analyze
the revenue trends of the Firm.
Net interest income, net yield, and noninterest revenue
excluding Markets
(f)
232,115
Card Services
$ 89,747
2.14
1.04
(f)
578
12,453
742
$ 722
867
11,200
715
$ 697
660
10,250
733
Total allowance for loan
losses
(g)
Home Lending
$14,458 $13,504
Card Services
Auto
(a) At December 31, 2023, 2022 and 2021, nonaccrual loans excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $123 million, $187 million and $342 million,
respectively. These amounts have been excluded based upon the
government guarantee. In addition, the Firm's policy is generally to
exempt credit card loans from being placed on nonaccrual status as
permitted by regulatory guidance.
(b) At December 31, 2023, 2022 and 2021, generally excludes loans that
were under payment deferral programs offered in response to the
COVID-19 pandemic.
(c) At December 31, 2023, 2022 and 2021, included $94 million, $350
million and $5.4 billion of loans, respectively, in Business Banking
under the PPP. The Firm does not expect to realize material credit
losses on PPP loans because the loans are guaranteed by the SBA.
(d) At December 31, 2023, 2022 and 2021, the principal balance of loans
under payment deferral programs offered in response to the COVID-19
pandemic was $29 million, $449 million and $1.1 billion in Home
Lending, respectively. Loans that are performing according to their
modified terms are generally not considered delinquent.
(e) At December 31, 2023, 2022 and 2021, excluded mortgage loans
insured by U.S. government agencies of $176 million, $258 million and
$405 million, respectively, that are 30 or more days past due. These
amounts have been excluded based upon the government guarantee.
(f) Includes First Republic.
(g) On January 1, 2023, the Firm adopted changes to the TDR accounting
guidance. The adoption of this guidance resulted in a net decrease in
the allowance for loan losses of $591 million, driven by residential real
estate and credit card. Refer to Note 1 for further information.
70
JPMorgan Chase & Co./2023 Form 10-K
$12,340
$ 685
Management
Banking & Wealth
433,984
1,054,956
50,000
Auto
1.19
1.01
0.64
90+ day delinquency rate - Card
Services
1.05 %
0.68 %
0.50 %
Employees
141,640
135,347
128,863
(a) At December 31, 2023, 2022 and 2021, included $94 million, $350
million and $5.4 billion of loans, respectively, in Business Banking
under the PPP.
(b) At December 31, 2023, 2022 and 2021, Home Lending loans held-
for-sale and loans at fair value were $3.4 billion, $3.0 billion and
$14.9 billion, respectively.
(c) Average Home Lending loans held-for sale and loans at fair value were
$4.8 billion, $7.3 billion and $15.4 billion for the years ended
December 31, 2023, 2022 and 2021, respectively.
(d) At December 31, 2023, included $4.0 billion and $90.7 billion for
Banking & Wealth Management and Home Lending, respectively,
associated with First Republic.
(e) Includes First Republic. In the fourth quarter of 2023, CCB transferred
certain deposits associated with First Republic to AWM, CB, and CIB.
Refer to page 67 for additional information.
(f) Average Banking & Wealth Management and Home Lending loans
associated with First Republic were $2.4 billion and $60.2 billion,
respectively, for the year ended December 31, 2023.
(g) Included $39.4 billion associated with First Republic for the year
ended December 31, 2023.
Allowance for loan losses
1.45
(294)
$ 90,041
$3,325,708
19,151
24,195
28,086
revenue
Less: Markets noninterest
72,563
65,133 $
72,619 $
$
Noninterest revenue
managed basis
3,225
3,148
3,782
adjustments
Fully taxable-equivalent
69,338
61,985 $
68,837 $
$
Noninterest revenue -
excluding Markets
$
44,533 $
Add: Certain deferred tax liabilities
(a)
Less: Other intangible assets
Less: Goodwill
Common stockholders' equity
(in millions, except per share and ratio data)
Average
The following summary table provides a reconciliation from the Firm's common stockholders' equity to TCE.
TCE, ROTCE and TBVPS are each non-GAAP financial measures. TCE represents the Firm's common stockholders' equity (i.e.,
total stockholders' equity less preferred stock) less goodwill and identifiable intangible assets (other than MSRs), net of related
deferred tax liabilities. ROTCE measures the Firm's net income applicable to common equity as a percentage of average TCE.
TBVPS represents the Firm's TCE at period-end divided by common shares at period-end. TCE, ROTCE and TBVPS are utilized by
the Firm, as well as investors and analysts, in assessing the Firm's use of equity.
TCE, ROTCE and TBVPS
63
JPMorgan Chase & Co./2023 Form 10-K
(b) Refer to pages 75-76 for further information on Markets.
amounts are used where applicable.
(a) Interest includes the effect of related hedges. Taxable-equivalent
27,792 $ 28,984 $ 27,394
$
revenue
(b)
Memo: Total Markets net
40,938 $ 53,412
Noninterest revenue -
reported
1.91 %
2.60 %
3.85 %
Certain U.S. GAAP and non-GAAP financial measures are calculated as
follows:
Calculation of certain U.S. GAAP and non-GAAP financial measures
$ 62,355 $ 44,498
Average interest-earning
assets
Net interest income,
excluding Markets (a)
income
Less: Markets net interest
(b)
1.64 %
2.00 %
2.70 %
Net yield on average
interest-earning assets -
managed basis
$2,395,884 $2,327,704
$2,339,931
assets excluding Markets
Average interest-earning
888,238
953,195
985,777
(b)
Less: Average Markets
interest-earning assets
$3,349,079 $3,215,942
Book value per share ("BVPS")
Return on tangible common equity
Common stockholders' equity at period-end /
Common shares at period-end
Total noninterest expense / Total net revenue
ROA
0.93
0.50
(0.03)
interest-earning assets
excluding Markets
Net yield on average
assets (b)
Markets interest-earning
Net yield on average
The Firm also reviews the allowance for loan losses to
period-end loans retained excluding trade finance and
conduits, a non-GAAP financial measure, to provide a more
meaningful assessment of CIB's allowance coverage ratio.
Management believes that these measures help investors
understand the effect of these items on reported results
and provide an alternative presentation of the Firm's
performance.
Pre-provision profit, which represents total net revenue
less total noninterest expense.
Adjusted expense, which represents noninterest expense
excluding Firmwide legal expense, and
•
.
In addition, the Firm reviews other non-GAAP measures
such as:
Tangible common equity at period-end / Common shares at period-end
* Represents net income applicable to common equity
TBVPS
Net income* / Average tangible common equity
Net income* / Average common stockholders' equity
ROTCE
ROE
Reported net income / Total average assets
Overhead ratio
503
38 %
50
Financial ratios
5,246
4,213
6,143
21,107
(a)
(a)
(947)
1,268
1,970
25 %
(1,174)
121
14,129
13 %
20,957
41 %
(a)
(a)
(6,989)
3,813
14,916
29 %
38 %
21,232
6,899
1,158
14,925
14 %
20 %
16 %
21 %
$ 125,304
$132,277
$162,366
$ (3,483)
80
1,034
5,601
$ 8,038 $
$ 17,748 $ 16,957
11,829
10,919
12,780
7,047
$ 19,827
2021
2022
2023
2021
Total
Corporate
2022
2023
2021
2022
Asset & Wealth Management
2023
Year ended December 31,
(in millions, except ratios)
Total net revenue
Total noninterest expense
Pre-provision profit/(loss)
Provision for credit losses
5,967
5,919
6,814
26,390
(a)
(a)
$ 70,148 $ 54,814
2021
2022
2023
Corporate & Investment Bank
Year ended December 31,
(in millions, except ratios)
Total net revenue
Commercial Banking
Total noninterest expense
Pre-provision profit/(loss)
Provision for credit losses
Net income/(loss)
Return on equity ("ROE")
Consumer & Community Banking
Refer to Line of business equity on page 98 for additional
information on capital allocation.
The amount of capital assigned to each business segment is
referred to as equity. The Firm's current allocation
methodology incorporates Basel III Standardized risk-
weighted assets ("RWA") and the global systemically
important banks ("GSIB") surcharge, both under rules
currently in effect, as well as a simulation of capital in a
severe stress environment. At least annually, the
assumptions, judgments and methodologies used to
allocate capital are reassessed and, as a result, the capital
allocated to the LOBS may change.
Capital allocation
Refer to Capital Risk Management on pages 91-101 for
additional information.
The allocated cost of unsecured long-term debt is included
in a business segment's net interest income, and net income
is reduced by preferred stock dividends, to arrive at a
business segment's net income applicable to common
equity.
Segment Results - Managed Basis
Debt expense and preferred stock dividend allocation
As part of the funds transfer pricing process, almost all of
the cost of the credit spread component of outstanding
unsecured long-term debt and preferred stock dividends is
allocated to the reportable business segments, while the
balance of the cost is retained in Corporate. The
methodology to allocate the cost of unsecured long-term
debt and preferred stock dividends to the business
segments is aligned with the relevant regulatory capital
requirements and funding needs of the LOBS, as applicable.
Foreign exchange risk is transferred from the LOBS and
Other Corporate to Treasury and CIO for certain revenues
and expenses. Treasury and CIO manages these risks
centrally and reports the impact of foreign exchange rate
movements related to the transferred risk in its results.
Refer to Market Risk Management on page 143 for
additional information.
Foreign exchange risk
The following tables summarize the Firm's results by segment for the periods indicated.
(a)
34,819
31,208
20,752
4,041
4,719
5,378
25,553
(a)
(a)
2021
$ 10,008
2022
$ 11,533
$ 15,546
(a)
2023
2021
$51,943
$ 48,102
27,350
(a)
2022
2023
$48,807
28,594
20,213
(a)
$49,879
29,028
20,851
23,606
35,329
10,168
6,038
2,437
(954)
The following table presents selected impacts to CCB, CB, AWM and Corporate associated with First Republic from the
acquisition date of May 1, 2023.
Segment information related to First Republic
(a) Includes certain revenues that are reported as investment banking
product revenue in CB, and excludes the net impact of equity
investments.
800
779
715
1,887
2,408 2,158
Merchant processing volume (in billions)
Average deposits (in billions)
(in millions)
(b) At December 31, 2023, included $144.6 billion of client investment
assets associated with First Republic.
2021
2022
2023
$18,248 $13,909 $ 9,861
Total net revenue (a)
7,463
8,166
8,971
Number of client advisors
(in millions, except where otherwise noted)
Year ended December 31,
(a) Consists of Global Private Bank in AWM and client investment assets in
J.P. Morgan Wealth Management in CCB.
Selected Income Statement Data
Revenue
Asset management fees
876
4,055
2,862
503
201
489
(b)
387
$ - $ - $ - $
387
$
Total
Corporate
Asset & Wealth
Management
As of or for the year ended December 31, 2023
Commercial
Banking
Consumer &
Community Banking
Provision for credit losses
Total net revenue
Net interest income
Noninterest revenue
All other income
2,438 $ 2,456
$
3,177
$
81
22
(743)
2,821
NM
33 %
25 %
31 %
Return on equity ("ROE")
4,737
171
(227)
128
4,365
5,227
Net income/(loss)
159
53,961
56,137
75,194
71,343
76,140
87,172
1,802
(5,285)
9,320
Markets activities, and contributed to margin expansion on
deposits.
6,389
(3,713)
(b)
Client assets (in billions) (a)
2021
2022
2023
Year ended December 31,
Selected metrics - J.P. Morgan Payments
Selected metrics - Wealth Management
The following tables present key metrics for Wealth Management, which consists of the Global Private Bank in AWM and J.P.
Morgan Wealth Management in CCB; and total revenue and key metrics for J.P. Morgan Payments, which consists of payments
activities in CIB and CB. This presentation is intended to provide investors with additional information concerning Wealth
Management and J.P. Morgan Payments, each of which consists of similar business activities conducted across LOBS to serve
different types of clients and customers.
Selected Firmwide Metrics
JPMorgan Chase & Co./2023 Form 10-K
66
(a) In the first quarter of 2023, the allocations of revenue and expense to CCB associated with a Merchant Services revenue sharing agreement were
discontinued and are now retained in Payments in CIB. Prior-period amounts have been revised to conform with the current presentation.
19 %
14 %
17 %
NM
NM
48,334
37,676
49,552
(9,256)
Return on equity
65
As a result of the higher interest rate environment, the cost
of funds for assets and the credits earned for liabilities have
generally increased, impacting the business segments' net
interest income. During the period ended December 31,
2023, this has resulted in higher cost of funds for loans and
70,148
54,814
49,879
Provision for credit losses
(d)
6,899
3,813
(6,989)
Noninterest expense
Total net revenue
Compensation expense
13,092
12,142
Noncompensation
expense
(f)
(f)
19,648
18,116
16,886
Total noninterest expense
15,171
32,787
39,928
55,030
$ 3,034
2,794
1,175
1,236
2,159
(f)
(f)
Card income
All other income (a)
Noninterest revenue
Net interest income
2,532
2,469
3,364
(d)
(f)
(f)
4,773
5,131
5,741
15,118
14,886
17,092
(d)
(d)
$ 3,316
2,734
34,819
29,028
$30,059 $23,786
5,291
20,802
(f)
(f)
Mortgage fees and related
income details:
Production revenue
421
497
2,215
3,674
21,081
Net mortgage servicing
754
739
(56)
Mortgage fees and related
Banking &
Wealth Management
income
$ 1,175
$ 1,236
$ 2,159
revenue
22,809
Card Services & Auto
4,140
Income before income tax
expense
28,430
19,793
27,840
(f)
(f)
Income tax expense
7,198
Net income
$21,232
30,142
4,877
$14,916
6,883
$20,957
Revenue by line of
business
Banking & Wealth
Management
$43,199
(e)
(e)
Home Lending
31,208
(d)
3,282
Asset management fees
Mortgage fees and related
income
Banking
• Real Estate
Lending
Servicing
⚫ Business
⚫ J.P. Morgan
Wealth
Management
Banking
• Consumer
Management
2,862
Portfolios
4,442
704
668
(55)
3,718
3,277
905
1,171
2,807
8,160
2,401
Markets &
Securities Services
• Fixed
Income
Markets
The funds transfer pricing process considers the interest
rate and liquidity risk characteristics of assets and liabilities
and off-balance sheet products. Periodically, the
methodology and assumptions utilized in the FTP process
are adjusted to reflect economic conditions and other
factors, which may impact the allocation of net interest
income to the segments.
Funds transfer pricing ("FTP") is the process by which the
Firm allocates interest income and expense to the LOBS and
Other Corporate and transfers the primary interest rate risk
and liquidity risk to Treasury and CIO.
Funds transfer pricing
allocated based on the actual cost and use of services
provided. In contrast, certain costs and investments related
to corporate support units, technology and operations that
are not currently utilized by any LOB are not allocated to
the business segments and are retained in Corporate.
Expense retained in Corporate generally includes costs that
would not be incurred if the segments were stand-alone
businesses, and other items not solely aligned with a
particular business segment.
Where business segments use services provided by
corporate support units, or another business segment, the
costs of those services are allocated to the respective
business segments. The expense is generally
Expense allocation
When business segments join efforts to sell products and
services to the Firm's clients and customers, the
participating business segments may agree to share
revenue from those transactions. Revenue is generally
recognized in the segment responsible for the related
product or service, with allocations to the other segment(s)
involved in the transaction. The segment results reflect
these revenue-sharing agreements.
Revenue sharing
Description of business segment reporting methodology
Results of the business segments are intended to present
each segment as if it were a stand-alone business. The
management reporting process that derives business
segment results includes the allocation of certain income
and expense items. The Firm periodically assesses the
assumptions, methodologies and reporting classifications
used for segment reporting, and therefore further
refinements may be implemented in future periods. The
Firm also assesses the level of capital required for each LOB
on at least an annual basis. The Firm's LOBS also provide
various business metrics which are utilized by the Firm and
its investors and analysts in assessing performance.
(a) As a result of the organizational changes that were announced on January 25, 2024, the Firm will be reorganizing its business segments to reflect the
manner in which the segments will be managed. The reorganization of the business segments is expected to be effective in the second quarter of 2024.
Refer to Recent events on page 52 for additional information.
⚫ Global
Private Bank
Management
⚫ Asset
• Commercial
Real Estate
Banking
• Corporate
Client
Banking
• Middle
Market
Banking
& Other
Adjustments
⚫ Credit
• Securities
Services
• Equity
Markets
421
Selected metrics
731
128
(d)
144,602
(d)
60,971
(a) In the fourth quarter of 2023, CCB transferred certain deposits associated with First Republic to AWM, CB and CIB.
(b) Included the preliminary estimated bargain purchase gain of $2.7 billion recorded in other income. For the year ended December 31, 2023, reflects
measurement period adjustments of $63 million, resulting in an estimated bargain purchase gain of $2.8 billion for the year ended December 31, 2023.
Refer to Note 34 for additional information.
(c) Included $360 million of restructuring and integration costs.
(d) Excluded $1.9 billion of loans and $508 million of deposits allocated to CIB.
The following sections provide a comparative discussion of the Firm's results by segment as of or for the years ended
December 31, 2023 and 2022, unless otherwise specified.
JPMorgan Chase & Co./2023 Form 10-K
40
67
CONSUMER & COMMUNITY BANKING
Consumer & Community Banking offers products and
services to consumers and small businesses through
bank branches, ATMs, digital (including mobile and
online) and telephone banking. CCB is organized into
Banking & Wealth Management (including Consumer
Banking, J.P. Morgan Wealth Management and Business
Banking), Home Lending (including Home Lending
Production, Home Lending Servicing and Real Estate
Portfolios) and Card Services & Auto. Banking & Wealth
Management offers deposit, investment and lending
products, cash management, payments and services.
Home Lending includes mortgage origination and
servicing activities, as well as portfolios consisting of
residential mortgages and home equity loans. Card
Services issues credit cards and offers travel services.
Auto originates and services auto loans and leases.
Selected income statement data
Year ended December 31,
(in millions, except ratios)
Revenue
Lending- and deposit-
related fees
68
2023
2022
2021
$ 3,356
$
JPMorgan Chase & Co./2023 Form 10-K
11,436
12,098
38,495
6,163
1,280
(c)
1,219
45
50
1,033
2,347
1,244
98
753
2,015
4,110
Noninterest expense
Net income
Selected Balance Sheet Data (period-end)
Loans
$
Deposits
(a)
94,671
42,710
$
$
As of or for the year ended
(g)
(in billions, except ratios
(d) Total payments transaction volume includes debit and credit card sales
volume and gross outflows of ACH, ATM, teller, wires, BillPay,
PayChase, Zelle, person-to-person and checks.
(c) Users of all mobile platforms who have logged in within the past 90
days.
(a) The Consumer and Small business customers metrics include unique
individuals, and businesses and legal entities, respectively, that have
financial ownership or decision-making power with respect to
accounts; these metrics exclude customers under the age of 18. Where
a customer uses the same unique identifier as both a Consumer and a
Small business, the customer is included in both metrics. For
information concerning the Households metric previously disclosed,
refer to the Glossary of terms and acronyms on pages 315-321.
(b) Users of all web and/or mobile platforms who have logged in within
the past 90 days.
19.1
14.3
10.9
operating lease assets
Average auto
$ 43.6
$ 30.4
$ 41.3
origination volume
Loan and lease
Auto
8.0
9.6
10.0
opened (in millions)
New credit card accounts
10.51 %
9.88
9.87 %
9.77
9.61
Net yield on average loans
9.72 %
Net revenue rate
$ 893.5
$1,064.7
JPMorgan Chase & Co./2023 Form 10-K
(e) Includes assets invested in managed accounts and J.P. Morgan mutual
funds where AWM is the investment manager. Refer to AWM segment
results on pages 81-83 for additional information. At December 31,
2023, included $144.6 billion of client investment assets associated
with First Republic.
(f) Firmwide mortgage origination volume was $41.4 billion, $81.8 billion
and $182.4 billion for the years ended December 31, 2023, 2022 and
2021, respectively.
(g) Excludes First Republic.
49
57
59
25 %
14 %
13 %
2021
2022
2023
Revenue by business
Investment Banking
revenue
Compensation expense as
percentage of total net
Overhead ratio
$1,163.6
Return on equity
(in millions, except ratios)
Year ended December 31,
Selected income statement data
from municipal bonds of $3.6 billion, $3.0 billion and $3.0 billion for
the years ended December 31, 2023, 2022 and 2021, respectively.
(c) In the first quarter of 2023, the allocations of revenue and expense to
CCB associated with a Merchant Services revenue sharing agreement
were discontinued and are now retained in Payments in CIB. Prior-
period amounts have been revised to conform with the current
presentation.
Year ended December 31,
Selected income statement data
research. Markets & Securities Services also includes
Securities Services, a leading global custodian which
provides custody, fund accounting and administration,
and securities lending products principally for asset
managers, insurance companies and public and private
investment funds.
The Corporate & Investment Bank, which consists of
Banking and Markets & Securities Services, offers a
broad suite of investment banking, market-making,
prime brokerage, lending, and treasury and securities
products and services to a global client base of
corporations, investors, financial institutions,
merchants, government and municipal entities.
Banking offers a full range of investment banking
products and services in all major capital markets,
including advising on corporate strategy and structure,
capital-raising in equity and debt markets, as well as
loan origination and syndication. Banking also includes
Payments, which provides services, that enable clients
to manage payments globally across liquidity and
account solutions, commerce solutions, clearing, trade
and working capital. Markets & Securities Services
includes Markets, a global market-maker across
products, including cash and derivative instruments,
which also offers sophisticated risk management
solutions, prime brokerage, clearing and
CORPORATE & INVESTMENT BANK
71
(j) Included origination volume under the PPP of $10.6 billion for the
year ended December 31, 2021. The program ended on May 31, 2021
for new applications.
(i) Included $2.3 billion for the year ended December 31, 2023,
associated with First Republic.
(h) Included $39.4 billion for the year ended December 31, 2023,
associated with First Republic.
Financial ratios
29
commercial card
Card Services
13.9
718.1
4.3
647.1
951.1
Client investment assets
(e)
4.8
origination volume
Business Banking
$ 37.5
$ 22.3
$ 19.6
loans
Business Banking average
1.27 %
1.71 %
2.84 %
Deposit margin
$1,035.4
$1,145.7
$1,111.7
(h)
Average deposits
Banking & Wealth Management
5.0
5.6
5.9
(g)
(j)
Number of client advisors
5,456
5,029
(period-end)
MSR carrying value
serviced (period-end)
5.5
8.0
8.5
$ 519.2
$ 584.3
$ 631.2
$ 162.7
$ 65.4
35.1
$
Sales volume, excluding
Third-party mortgage loans
volume
$ 91.8
70.9
38.5
26.9
12.7
Correspondent
$
$ 22.4
Retail
(i)
volume by channel
Mortgage origination
Home Lending
4,725
Total mortgage origination
volume (in trillions)'
29
$ 6,243
Compensation expense
Noninterest expense
(1,174)
1,158
121
Provision for credit losses
51,943
48,102
48,807
(b)
Total net revenue
13,540
11,900
8,492
Net interest income
38,403
36,202
40,315
Noninterest revenue
663
621
1,578
All other income
(c)
(c)
(c)
1,108
1,249
14,345
13,918
13,096
Noncompensation expense
December 31,
JPMorgan Chase & Co./2023 Form 10-K
(b) In the first quarter of 2023, the allocations of revenue and expense to
CCB associated with a Merchant Services revenue sharing agreement
were discontinued and are now retained in Payments in CIB. Prior-
period amounts have been revised to conform with the current
presentation.
(a) Consists primarily of centrally managed credit valuation adjustments
("CVA"), funding valuation adjustments ("FVA") on derivatives, other
valuation adjustments, and certain components of fair value option
elected liabilities, which are primarily reported in principal
transactions revenue. Results are presented net of associated hedging
activities and net of CVA and FVA amounts allocated to Fixed Income
Markets and Equity Markets. Refer to Notes 2, 3 and 24 for additional
information.
72
(a) Includes CB's share of revenue from investment banking products sold
to CB clients through the CIB that is subject to a revenue sharing
arrangement which is reported as a reduction in All other income.
(b) Includes tax-equivalent adjustments, predominantly due to income tax
credits and other tax benefits related to alternative energy
investments; income tax credits and amortization of the cost of
investments in affordable housing projects; and tax-exempt income
6,457
$21,107
4,669
$14,925
$14,129
Net income
(c)
(c)
5,963
(c)
Income tax expense
19,594
20,092
expense
Income before income tax
25,553
27,350
28,594
Total noninterest expense
12,457
13,432
14,249
(c)
(c)
27,564
25
1,450
4,995
4,488
4,772
Securities Services
10,529
10,367
8,979
Equity Markets
16,865
18,617
18,813
Fixed Income Markets
19,971
15,466
16,523
Total Banking
1,001
1,377
1,007
Lending
6,464
7,579
9,273
Payments
(b)
(b)
$12,506
$ 6,510
4,328
Credit Adjustments & Other (a)
(280)
(836)
5,058
4,821
Commissions and other fees
2,514
2,419
2,213
Lending- and deposit-related
fees
$13,359
15,764
$ 6,929
19,926
23,671
Principal transactions
$ 6,582
Investment banking fees
Card income
(a)
2021
2022
2023
(in millions)
$51,943
$48,102
$48,807
Total net revenue
31,972
32,636
32,284
Total Markets & Securities
Services
250
Revenue
Total payments transaction
(f)
$1,555.4
5.7
6.4
(g)
customers (in millions) (a)
$1,360.7
CCB Small business
76.5
82.1
Banking & Wealth
(in millions)(a)
CCB Consumer customers
Business Metrics
2021
2022
2023
Number of branches
4,897
79.2
and where otherwise noted)
4,787
$1,678.6
sales volume
Debit and credit card
45,452
49,710
53,828
(g)
(in thousands)
58,857
63,136
66,983
Active mobile customers
(in thousands) (b)
Active digital customers
5.3
4,790
(g)
$
809
$
766
$ 740
54
Nonaccrual loans held-for-sale
satisfactions
$ 740
766
$
809
$
Total nonaccrual loans
and loans at fair value
Nonaccrual loans retained (a)
Assets acquired in loan
Nonaccrual loans:
(a) As of December 31, 2023, 2022 and 2021, total loans included $36
million, $132 million, and $1.2 billion of loans, respectively, under the
PPP, of which $32 million, $123 million and $1.1 billion were in
Middle Market Banking, respectively.
$ 71
(b) Includes First Republic. Refer to page 67 for additional information.
(c) As of December 31, 2023, included $5.9 billion and $32.6 billion for
Middle Market Banking and Commercial Real Estate Banking,
respectively, associated with First Republic.
(d) Average loans retained associated with First Republic were $26.8
billion for the year ended December 31, 2023.
(e) In the fourth quarter of 2023, certain deposits associated with First
Republic were transferred from CCB. Refer to page 67 for additional
information.
(f) Average Middle Market Banking and Commercial Real Estate Banking
loans associated with First Republic were $4.2 billion and $22.5
billion, respectively, for the year ended December 31, 2023.
JPMorgan Chase & Co./2023 Form 10-K
79
Selected metrics
As of or for the year ended
December 31, (in millions, except
ratios)
17
2023
2021
Credit data and quality statistics
Net charge-offs/(recoveries)
$ 316
$
84
Nonperforming assets
2022
$ 4,154
$
Allowance for loan losses to
period-end loans retained
1.80
1.42
1.08
Allowance for loan losses to
nonaccrual loans retained (a)
619
434
300
Nonaccrual loans to period-end
total loans
0.29
0.33
0.36
(a) Allowance for loan losses of $156 million, $153 million and $124
million was held against nonaccrual loans retained at December 31,
2023, 2022 and 2021, respectively.
(b) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
0.04%
0.04%
0.12%
(b)
863
766
$ 757
Allowance for credit losses:
Allowance for loan losses
$ 5,005
$ 3,324
$ 2,219
Total nonperforming assets
Allowance for lending-related
commitments
830
749
Total allowance for credit losses
$ 5,806
(c)
(d) Includes First Republic. Refer to page 67 for additional information.
(e) Middle Market Banking and Commercial Real Estate Banking included
$216 million and $687 million, respectively, for the year ended
December 31, 2023, associated with First Republic.
$ 2,968
Net charge-off/(recovery) rate"
801
(c) Includes gross revenues earned by the Firm that are subject to a
revenue sharing arrangement between CB and the CIB for Investment
Banking and Markets' products sold to CB clients. This includes
revenues related to fixed income and equity markets products. Refer
to Business Segment Results on page 65 for a discussion of revenue
sharing.
14,687
(a) In the third quarter of 2023, certain revenue from CIB Markets
products was reclassified from payments to investment banking. Prior-
period amounts have been revised to conform with the current
presentation.
Investment banking (a
(a)(b)
loans at fair value
1,167
1,064
1,611
Other
Total loans
136
Total net revenue
$ 15,546
254
$ 11,533
115
$ 10,008
Deposits
Equity
1,060
$268,345
267,758
29,507
1,350
(e)
$ 223,738
294,180
25,000
3,122
$205,042
301,343
Loans held-for-sale and
24,000
3,653
8,250
Year ended December 31,
(in millions, except ratios)
2023
2022
2021
Total assets
$ 287,851
$243,108
$ 225,548
Revenue by product
Loans:
(d)
Lending
$ 5,993
$ 4,524 $ 4,629
Loans retained
(d)
267,285
222,388
201,920
Payments (a)
5,691
Investment Banking and
Markets revenue, gross (c)
$ 3,393
2,461
20
$ 11,533
2,419
Other
331
168
222
77
$ 10,008
Total loans
$ 268,345
$ 223,738
$ 205,042
Employees
17,867
(c) As of December 31, 2023, included a $729 million allowance for First
Republic.
12,902
Financial ratios
Return on equity
Overhead ratio
20 %
35
16 %
41
21 %
40
$ 15,546
Total net revenue
90
Other
$ 2,978
$ 5,092
Average loans by client
segment
Revenue by client segment
Middle Market Banking
(e)
$ 7,371
Corporate Client Banking
Commercial Real Estate
4,777
$ 5,134
3,918
$ 4,004
3,508
(b) Includes CB's share of revenue from Investment Banking and Markets'
products sold to CB clients through the CIB which is reported in All
other income.
Middle Market Banking
Corporate Client Banking
Commercial Real Estate
Banking
(f)
$ 60,128
44,361
(f)
132,114
105,459
100,331
(e)
Banking
3,308
$ 77,130 $ 67,830
58,770
50,281
80
2023 compared with 2022
ASSET & WEALTH MANAGEMENT
Equity
2023
2022
2021
69 %
73 %
69 %
40
68
54
3 years
67
76
73
5 years
71
81
80
Selected balance sheet data
(period-end)(c)
Total assets
Deposits
Loans
1 year
% of JPM mutual fund assets
and ETFs ranked in 1st or 2nd
quartile:
The provision in the prior year was $128 million driven by a
net addition to the allowance for credit losses.
Global Private Bank
Asset & Wealth Management
31
30
35
38
35
39
35
$245,512
33
(a) Includes the amortization of the purchase discount on certain acquired
lending-related commitments associated with First Republic. The
discount is deferred in other liabilities and recognized on a straight-
line basis over the commitment period and was largely recognized in
the current year as the commitments are generally short term. Refer
to Note 34 for additional information.
(b) Includes the gain on the original minority interest in CIFM upon the
Firm's acquisition of the remaining 51% interest in the entity.
JPMorgan Chase & Co./2023 Form 10-K
81
Asset Management has two high-level measures of its
overall fund performance.
• Percentage of active mutual fund and active ETF assets under
management in funds rated 4- or 5-star: Mutual fund rating services
rank funds based on their risk adjusted performance over various
periods. A 5-star rating is the best rating and represents the top 10%
of industry-wide ranked funds. A 4-star rating represents the next
22.5% of industry-wide ranked funds. A 3-star rating represents the
next 35% of industry-wide ranked funds. A 2-star rating represents
the next 22.5% of industry-wide ranked funds. A 1-star rating is the
worst rating and represents the bottom 10% of industrywide ranked
funds. An overall Morningstar rating is derived from a weighted
average of the performance associated with a fund's three-, five and
ten-year (if applicable) Morningstar Rating metrics. For U.S.-
domiciled funds, separate star ratings are provided at the individual
share class level. The Nomura “star rating" is based on three-year
risk-adjusted performance only. Funds with fewer than three years of
history are not rated and hence excluded from these rankings. All
ratings, the assigned peer categories and the asset values used to
derive these rankings are sourced from the applicable fund rating
provider. Where applicable, the fund rating providers redenominate
asset values into U.S. dollars. The percentage of AUM is based on star
ratings at the share class level for U.S.-domiciled funds, and at a
"primary share class" level to represent the star rating of all other
funds, except for Japan, for which Nomura provides ratings at the
fund level. The performance data may have been different if all share
classes had been included. Past performance is not indicative of
future results.
• Percentage of active mutual fund and active ETF assets under
management in funds ranked in the 1st or 2nd quartile (one, three
and five years):All quartile rankings, the assigned peer categories and
the asset values used to derive these rankings are sourced from the
fund rating providers. Quartile rankings are based on the net-of-fee
absolute return of each fund. Where applicable, the fund rating
providers redenominate asset values into U.S. dollars. The percentage
of AUM is based on fund performance and associated peer rankings at
the share class level for U.S.-domiciled funds, at a "primary share
class" level to represent the quartile ranking for U.K., Luxembourg
and Hong Kong SAR funds and at the fund level for all other funds.
The performance data may have been different if all share classes had
been included. Past performance is not indicative of future results.
"Primary share class” means the C share class for European funds and
Acc share class for Hong Kong SAR and Taiwan funds. If these share
classes are not available, the oldest share class is used as the primary
share class.
Selected metrics
As of or for the year ended
December 31,
(in millions, except ranking
data, ratios and employees)
% of JPM mutual fund assets
and ETFS rated as 4- or 5-
star(a)
37
The provision for credit losses was $159 million,
predominantly driven by a $146 million addition to the
allowance for credit losses to establish the allowance for
the First Republic loans and lending-related commitments
in the second quarter of 2023.
$232,037
(d)
Net charge-offs/(recoveries)
Nonaccrual loans
Allowance for credit losses:
Allowance for loan losses
Allowance for lending-
related commitments
Total allowance for credit
losses
$
13
$
(7)
$
26
650
459
708
$
633
$
494
$
365
28
20
18
(g)
Number of Global Private
Bank client advisors
Credit data and quality
statistics
-c
(c)
Employees
Loans
Deposits
Equity
2,738
227,929
233,232
214,006
218,271
(e)
233,130
282,052
17,000
17,000
14,000
Selected balance sheet data
$234,425
(average)(c)
$240,222
220,487
216,178
16,671
(f)
(e)
$232,438 $217,187
215,582 198,487
261,489 230,296
17,000
14,000
28,485
26,041
22,762
3,515
3,137
Total assets
JPMorgan Chase & Co./2023 Form 10-K
Noninterest expense was $12.8 billion, up 8%,
predominantly driven by higher compensation, including
continued growth in private banking advisor teams,
revenue-related compensation and the impacts of closing
the Global Shares and J.P. Morgan Asset Management China
acquisitions.
higher net interest income on higher average loans
associated with First Republic, and from deposit margin
expansion on higher rates, largely offset by lower
average deposits, and
2021
Revenue
Asset management fees
$11,826
$11,510
$11,518
•
Commissions and other fees
697
662
$ 815
(a)(b)
All other income
1,037
335
Noninterest revenue
13,560
Net interest income
6,267
Total net revenue
19,827
2022
2023
(in millions, except ratios)
Year ended December 31,
Asset & Wealth Management, with client assets of $5.0
trillion, is a global leader in investment and wealth
management.
Asset Management
Offers multi-asset investment management solutions
across equities, fixed income, alternatives and money
market funds to institutional and retail investors
providing for a broad range of clients' investment needs.
Global Private Bank
Provides retirement products and services, brokerage,
custody, estate planning, lending, deposits and
investment management to high net worth clients.
The majority of AWM's client assets are in actively
managed portfolios.
Selected income statement data
$ 208,443
Net income was $5.2 billion, up 20%.
Net revenue was $19.8 billion, up 12%. Net interest
income was $6.3 billion, up 20%. Noninterest revenue was
$13.6 billion, up 8%.
12,507
5,241
17,748
Revenue from Asset Management was $9.1 billion, up 4%,
driven by:
•
a gain of $339 million on the original minority interest in
CIFM upon the Firm's acquisition of the remaining 51%
interest in the entity, and
higher asset management fees driven by strong net
inflows largely offset by the net impact of foreign
exchange rate movements, as well as the removal of most
money market fund fee waivers in the prior year,
largely offset by
.
lower performance fees, and
•
lower NII due to higher funding costs.
•
higher noninterest revenue, predominantly driven by the
amortization of the purchase discount on certain acquired
lending-related commitments associated with First
Republic, partially offset by net investment valuation
losses.
738
13,071
•
Revenue by line of business
Asset Management
Global Private Bank
$ 9,129
10,698
Total net revenue
$19,827
$ 8,818
8,930
$17,748
$ 9,246
7,711
$16,957
Financial ratios
Return on equity
Overhead ratio
Pre-tax margin ratio:
Asset Management
1,528
སྐ
31 %
25 %
33 %
64
67
64
Revenue from Global Private Bank was $10.7 billion, up
20%, driven by:
$ 4,737
6,265
5,791
1,426
$ 4,365
$ 5,227
Provision for credit losses
159
128
(227)
Noninterest expense
Compensation expense
7,115
6,336
Noncompensation expense
5,665
3,886
16,957
5,493
Total noninterest expense
12,780
11,829
10,919
Income before income tax
expense
6,888
Income tax expense
1,661
Net income
5,692
5,227
$ 234,586
2,223
$ 208,443
24,000
218
7
8,243
1,127
7,116
4,789
(377)
5,166
19,151
9,402
4
9,749
10,744
13,451
(a) The decline in Markets net interest income was driven by higher funding costs.
3
Loss days (b)
$ 18,813 $ 8,979 $ 27,792 $ 18,617 $ 10,367 $ 28,984 $ 16,865 $ 10,529 $ 27,394
Total net revenue
Net interest income (a)
Noninterest revenue
24,195
28,086
(294)
(b) Loss days represent the number of days for which Markets, which consists of Fixed Income Markets and Equity Markets, posted losses to total net revenue.
The loss days determined under this measure differ from the measure used to determine backtesting gains and losses. Daily backtesting gains and losses
include positions in the Firm's Risk Management value-at-risk ("VaR") measure and exclude certain components of total net revenue, which may more
than offset backtesting gains or losses on a particular day. For more information on daily backtesting gains and losses, refer to the VaR discussion on
pages 137-139.
As of or for the year ended December 31,
$
4,161
3,526
3,922
14,361 $ 16,098
10,748
12,962
12,927
$
15,543
$
Selected metrics
Client deposits and other third party liabilities (average) (c)
Merchant processing volume (in billions)
Total AUC
Equity
Other(a)
Fixed Income
2021
2022
2023
Assets under custody ("AUC") by asset class (period-end) (in billions):
(in millions, except where otherwise noted)
(b)
(4,396)
4,102
13,375
Fixed
Income
Markets
Total
Markets
Equity
Markets
8,846 $ 20,528
325
22
303
347
40
307
$ 11,682 $
Equity
Markets
$ 12,064 $ 11,514 $ 23,578
Total
Markets
Equity
Markets
Fixed
Income
Markets
$
514
$
383
Net charge-off/(recovery) rate
Allowance for loan losses to
period-end loans
0.01 %
Fixed
Income
Markets
Total
Markets
$ 7,911 $ 7,519 $ 15,430
321
14,711
890
(82)
972
817
(99)
916
1,657
(87)
1,744
2,493
1,948
545
2,525
1,975
550
2,504
1,908
596
338
17
32,392 $ 28,635 $
33,221
$ 2,408 $ 2,158 $ 1,887
$ 645,074 $ 687,391 $ 714,910
$
197,523
$
Total loans retained
105,225
124,048
132,057
North America
54,561
187,642
63,594
Total international loans
7,006
8,599
8,341
Latin America/Caribbean
14,471
15,571
14,333
Asia-Pacific
65,466
$
159,786
Client deposits and other third-party liabilities (average) (b)
$
416,254
$
396,277
$
Total international
46,045
39,917
39,134
Latin America/Caribbean
132,241
129,134
126,918
Asia-Pacific
243,867
$
247,203
$
230,225
$
Europe/Middle East/Africa
33,084
- %
$
$
$
2021
2022
2023
Europe/Middle East/Africa
Loans retained (period-end)(a)
Total net revenue
North America
Total international net revenue
13,725
Latin America/Caribbean
Europe/Middle East/Africa
(a)
Total net revenue
As of or for the year ended December 31,
(in millions, except where otherwise noted)
International metrics
JPMorgan Chase & Co./2023 Form 10-K
76
(c) Client deposits and other third-party liabilities pertain to the Payments and Securities Services businesses.
(a) Consists of mutual funds, unit investment trusts, currencies, annuities, insurance contracts, options and other contracts.
(b) Represents Firmwide merchant processing volume.
Asia-Pacific
15,303
13,954
7,607
42,792
$
51,943
$
48,102
$
48,807
$
(c)
28,601
22,714
25,381
(c)
23,342
25,388
23,426
1,833
2,239
2,094
7,555
7,846
39,424
$ 278,208
0.01 %
0.23
2,055
1,333
1,668
Net income
$ 6,143
$ 4,213 $ 5,246
(a) Total net revenue included tax-equivalent adjustments from income
tax credits related to equity investments in designated community
development entities and in entities established for rehabilitation of
historic properties, as well as tax-exempt income related to municipal
financing activities of $382 million, $322 million and $330 million for
the years ended December 31, 2023, 2022 and 2021, respectively.
(b) Includes First Republic. Refer to page 67 for additional information.
deposit margin expansion on higher rates, partially offset
by lower average deposits, and
higher average loans, including the impact from First
Republic.
Income tax expense
Noninterest revenue was $3.5 billion, up 5%, driven by:
• net markups on held-for-sale positions, primarily
unfunded commitments, in the bridge financing portfolio,
compared with net markdowns in the prior year, and
• higher investment banking revenue and card income,
predominantly offset by
lower deposit-related fees due to the higher level of client
credits that reduce such fees, and
the absence of a gain on an equity-method investment
received in partial satisfaction of a loan.
Noninterest expense was $5.4 billion, up 14%, driven by
higher compensation expense, reflecting an increase in
employees including front office and technology, as well as
higher volume-related expense, including the impact of new
client acquisitions.
The provision for credit losses was $2.0 billion, reflecting:
•
a $1.0 billion net addition to the allowance for credit
losses, driven by the net effect of changes in the Firm's
weighted average macroeconomic outlook, including a
deterioration in the outlook for commercial real estate
and net downgrade activity, partially offset by the impact
of changes in the loan and lending-related commitment
portfolios,
$608 million to establish the allowance for the First
Republic loans and lending-related commitments in the
second quarter of 2023; and
higher lending-related revenue predominantly driven by
the amortization of the purchase discount on certain
acquired lending-related commitments associated with
First Republic,
⚫ net charge-offs of $316 million, up $232 million,
primarily driven by Real Estate, predominantly
concentrated in Office.
6,914
5,546
1,970
1,268
(947)
Noninterest expense
Compensation expense
(b)
2,760
2,296
1,973
•
Noncompensation expense
2,423
2,068
Total noninterest expense
5,378
4,719
4,041
Income before income tax
expense
8,198
2,618
The provision in the prior year was $1.3 billion, reflecting a
net addition to the allowance for credit losses.
78
JPMorgan Chase & Co./2023 Form 10-K
707
$ 278,208
30,000
$ 234,586
25,000
Total loans
Equity
Period-end loans by
client segment
Middle Market Banking (a)
Corporate Client Banking
Commercial Real Estate
Banking
Other
Total loans (a)
545
Selected balance sheet
$ 78,043 $ 72,625
56,132
53,840
(c)
$ 61,159
45,315
(c)
143,507
526
107,999
101,751
122
data (average)
loans at fair value
Loans held-for-sale and
206,220
CB product revenue consists of the following:
Lending includes a variety of financing alternatives,
which are primarily provided on a secured basis;
collateral includes receivables, inventory, equipment,
real estate or other assets. Products include term loans,
revolving lines of credit, bridge financing, asset-based
structures, leases, and standby letters of credit.
Payments includes services that enable CB clients to
manage payments globally across liquidity and account
solutions, commerce solutions, clearing, trade and
working capital.
Investment banking includes revenue from a range of
products providing CB clients with sophisticated capital-
raising alternatives, as well as balance sheet and risk
management tools through advisory, equity
underwriting, and loan syndications. Revenue from fixed
income and equity markets products used by CB clients is
also included.
Other revenue primarily includes tax-equivalent
adjustments generated from Community Development
Banking and activity derived from principal transactions.
Selected income statement data (continued)
Selected metrics
As of or for the year
ended December 31, (in
millions, except
employees)
2023
2022
2021
Selected balance sheet
$ 300,325
$ 257,106 $ 230,776
data (period-end)
Total assets
Loans:
Loans retained
(b)
277,663
233,879
Provision for credit losses
(b)
10,008
11,533
$
645,074
$
687,391
$
714,910
AUC (period-end)(b)
(in billions)
North America
Total client deposits and other third-party liabilities
All other regions
$
21,792
$
19,219
$
21,655
$
10,600
32,392
$
Total AUC
292,757
271,137
248,797
0.17
Allowance for loan losses to
nonaccrual loans
97
108
52
Nonaccrual loans to period-
end loans
0.29
0.21
0.32
82
(a) Represents the Morningstar Rating for all domiciled funds except for
Japan domiciled funds which use Nomura. Includes only Asset
Management retail active open-ended mutual funds and active ETFS
that have a rating. Excludes money market funds, Undiscovered
Managers Fund, and Brazil domiciled funds. This metric has been
updated to include active ETFs, and prior period amounts have been
revised to conform with the current presentation.
(b) Quartile ranking sourced from Morningstar, Lipper and Nomura based
on country of domicile. Includes only Asset Management retail active
open-ended mutual funds and active ETFs that are ranked by the
aforementioned sources. Excludes money market funds, Undiscovered
Managers Fund, and Brazil domiciled funds. This metric has been
updated to include active ETFS, and prior period numbers have been
revised to conform with the current presentation.
(c) Loans, deposits and related credit data and quality statistics relate to
the Global Private Bank business.
(d) Includes First Republic. Refer to page 67 for additional information.
(e) In the fourth quarter of 2023, certain deposits associated with First
Republic were transferred from CCB. Refer to page 67 for additional
information.
(f) Includes $8.7 billion for the full year 2023, associated with First
Republic.
(g) Includes First Republic.
JPMorgan Chase & Co./2023 Form 10-K
422,153
North America
9,416
28,635
0.28
11,566
(a) Total net revenue and loans retained (excluding loans held-for-sale and loans at fair value) are based on the location of the trading desk, booking
location, or domicile of the client, as applicable.
$ 1,243 $ 1,392
685
624
All other income
1,521
1,408
1,913
•
Noninterest revenue
3,494
763
3,336
(b)
Net interest income
12,052
8,197
6,079
•
(a)
Total net revenue
15,546
3,929
Card income
(b)
•
(b) Client deposits and other third-party liabilities pertaining to the Payments and Securities Services businesses, and AUC, are based on the domicile of the
client.
JPMorgan Chase & Co./2023 Form 10-K
77
7
COMMERCIAL BANKING
Commercial Banking provides comprehensive financial
solutions, including lending, payments, investment
banking and asset management products across three
primary client segments: Middle Market Banking,
Corporate Client Banking and Commercial Real Estate
Banking. Other includes amounts not aligned with a
primary client segment.
Middle Market Banking covers small and midsized
companies, local governments and nonprofit clients.
Corporate Client Banking covers large corporations.
Commercial Real Estate Banking covers investors,
developers, and owners of multifamily, office, retail,
industrial and affordable housing properties.
Selected income statement data
Year ended December 31,
(in millions)
Revenue
2023
Lending- and deposit-related fees $ 1,210
2022
2021
2023 compared with 2022
Net income was $6.1 billion, up 46%.
•
Net revenue was $15.5 billion, up 35%.
Net interest income was $12.1 billion, up 47%, driven by:
.
33,221
(c) In the first quarter of 2023, the allocations of revenue and expense to CCB associated with a Merchant Services revenue sharing agreement were
discontinued and are now retained in Payments in CIB. Prior-period amounts have been revised to conform with the current presentation.
661
$
63,836
77,802
68,203
assets
2,173
1,949
1,835
Loans:
Allowance for credit losses:
Loans retained (a)
190,601
172,627
145,137
Allowance for loan
Loans held-for-sale and
receivables
Total nonperforming
Trading assets-derivative
91
1,428
Total assets
$1,428,904
$1,406,250 $1,334,518
Derivative receivables
364
296
losses
316
equity instruments
508,799
405,916
448,099
Assets acquired in loan
satisfactions
115
87
Trading assets-debt and
1,566
2,321
1,348
3,740
2,720
Equity
108,000
103,000
83,000
Net charge-off/(recovery)
Employees
74,404
73,452
67,546
rate
0.14 %
0.05 %
- %
3,369
losses
Total allowance for credit
760,048
loans at fair value (b)
39,831
46,846
51,072
Allowance for lending-
Total loans
230,432
2,292
219,473
related commitments
1,048
1,448
1,372
Deposits
728,537
739,700
196,209
1,694
Total nonaccrual loans
data (average)
73
Selected metrics
Selected metrics
As of or for the year ended
December 31, (in millions,
except employees)
As of or for the year ended
December 31, (in millions,
2023
2022
2021
except ratios)
2023
2022
2021
Selected balance sheet
data (period-end)
JPMorgan Chase & Co./2023 Form 10-K
The provision in the prior year was $1.2 billion,
predominantly driven by a net addition to the allowance for
credit losses.
The net reduction in the allowance was driven by the impact
of changes in the loan and lending-related commitment
portfolios and the net effect of changes in the Firm's
weighted average macroeconomic outlook, predominantly
offset by an addition for certain accounts receivable and net
downgrade activity.
Securities Services revenue was $4.8 billion, up 6%,
driven by deposit margin expansion on higher rates,
largely offset by lower average deposits and fees.
Credit Adjustments & Other was a loss of $280 million,
compared with a loss of $836 million in the prior year.
Noninterest expense was $28.6 billion, up 5%, driven by
higher legal expense, compensation expense, including the
impact of wage inflation, and higher indirect tax expense.
The provision for credit losses was $121 million, driven by
net charge-offs of $272 million, up $190 million, driven by
single name exposures, largely offset by a $151 million net
reduction in the allowance for credit losses.
•
•
2023 compared with 2022
Net income was $14.1 billion, down 5%.
Net revenue was $48.8 billion, up 1%.
Banking revenue was $16.5 billion, up 7%.
Investment Banking revenue was $6.2 billion, down 4%.
Excluding $257 million of markdowns on held-for-sale
positions, primarily unfunded commitments, in the bridge
financing portfolio recorded in the second quarter of
2022, Investment Banking revenue was down 8%.
Investment Banking fees were down 5%, driven by lower
advisory and debt underwriting fees, partially offset by
higher equity underwriting fees. The Firm ranked #1 for
Global Investment Banking fees, according to Dealogic.
Advisory fees were $2.8 billion, down 8%, due to a
lower number of completed transactions, reflecting the
lower level of announced deals in the current and the
prior year amid a challenging environment.
Credit data and quality
statistics
Debt underwriting fees were $2.6 billion, down 8%, as
challenging market conditions, primarily in the first
half of the year, resulted in lower issuance activity
across leveraged loans, investment-grade loans, and
high-grade bonds. This was largely offset by higher
issuance activity in high-yield bonds driven by higher
industry-wide issuance.
Lending revenue was $1.0 billion, down 27%, driven by
$494 million of fair value losses on hedges of retained
loans which included an increase in hedging activity,
compared to $27 million of gains in the prior year,
partially offset by higher net interest income.
Markets & Securities Services revenue was $32.3 billion,
down 1%. Markets revenue was $27.8 billion, down 4%.
•
•
•
•
Equity Markets revenue was $9.0 billion, down 13%,
driven by lower revenue in Equity Derivatives and Cash
Equities, compared with a stronger performance in the
prior year.
- Equity underwriting fees were $1.2 billion, up 11%,
driven by a higher level of follow-on offerings due to
lower equity market volatility and a higher level of
convertible securities offerings which benefited from
higher rates, partially offset by lower activity in private
placements amid a challenging environment.
Payments revenue was $9.3 billion, up 22%, driven by
deposit margin expansion on higher rates and fees,
partially offset by the higher level of client credits that
reduce such fees and lower average deposits. The net
impact of equity investments was flat reflecting net
markdowns in both periods, including the impact of an
impairment in the current year.
Total assets
$1,338,168 $1,334,296 $1,259,896
Net charge-offs/
229,946
Equity
108,000
103,000
50,386
210,172
83,000
Nonaccrual loans
retained (a)
236,442
866
584
Nonaccrual loans held-
Selected balance sheet
for-sale and loans at
fair value (b)
828
848
844
718
(a) Loans retained includes credit portfolio loans, loans held by
consolidated Firm-administered multi-seller conduits, trade finance
loans, other held-for-investment loans and overdrafts.
Total loans
38,919
(recoveries)
$
272
$
82
$ 6
Loans:
42,304
Loans retained (a)
197,523
187,642
159,786
Nonaccrual loans:
Loans held-for-sale and
loans at fair value"
(b)
Nonperforming assets:
(b) Loans held-for-sale and loans at fair value primarily reflect lending
related positions originated and purchased in CIB Markets, including
loans held for securitization.
Fixed Income Markets revenue was $18.8 billion, up 1%,
driven by an increase in finance and trading activity in the
Securitized Products Group and improved performance in
Credit Trading, predominantly offset by lower revenue in
Currencies & Emerging Markets as the business
substantially normalized from the prior year's elevated
levels of volatility and client activity.
retained
14.1
1
13.9
3 2
8.8
11.8
1
7.2
1
6.9
1
8.4
1
10.9
1
1
5.7
2
7.8
Rank
Share
#
2
9.3 % #
2
7.9 % #
12.2
2
2
11.2
2
9.0
2
10.7
1
9.6 %
Share
1
1
Markets revenue
The following table summarizes selected income statement
data for the Markets businesses. Markets includes both
Fixed Income Markets and Equity Markets. Markets revenue
consists of principal transactions, fees, commissions and
other income, as well as net interest income. The Firm
assesses its Markets business performance on a total
revenue basis, as offsets generally occur across revenue
line items. For example, securities that generate net
interest income may be risk-managed by derivatives that
are reflected at fair value in principal transactions revenue.
Refer to Notes 6 and 7 for a description of the composition
of these income statement line items.
Principal transactions reflects revenue on financial
instruments and commodities transactions that arise from
client-driven market-making activity. Principal transactions
revenue includes amounts recognized upon executing new
transactions with market participants, as well as "inventory-
related revenue”, which is revenue recognized from gains
and losses on derivatives and other instruments that the
Firm has been holding in anticipation of, or in response to,
client demand, and changes in the fair value of instruments
used by the Firm to actively manage the risk exposure
arising from such inventory. Principal transactions revenue
recognized upon executing new transactions with market
participants is affected by many factors including the level
of client activity, the bid-offer spread (which is the
JPMorgan Chase & Co./2023 Form 10-K
difference between the price at which a market participant
is willing and able to sell an instrument to the Firm and the
price at which another market participant is willing and able
to buy it from the Firm, and vice versa), market liquidity
and volatility. These factors are interrelated and sensitive
to the same factors that drive inventory-related revenue,
which include general market conditions, such as interest
rates, foreign exchange rates, credit spreads, and equity
and commodity prices, as well as other macroeconomic
conditions.
For the periods presented below, the primary source of principal transactions revenue was the amount recognized upon
executing new transactions.
2023
2022
2021
Year ended December 31,
(in millions, except where
otherwise noted)
Principal transactions
Lending- and deposit-related fees
Commissions and other fees
All other income
Allowance for loan losses to
period-end loans
(e) Global investment banking fees exclude money market, short-term debt and shelf securities.
(a) Source: Dealogic as of January 2, 2024. Reflects the ranking of revenue wallet and market share.
(b) Global M&A excludes any withdrawn transactions. U.S. M&A revenue wallet represents wallet from client parents based in the U.S.
(c) Global equity and equity-related ranking includes rights offerings and Chinese A-Shares.
(d) Long-term debt rankings include investment-grade, high-yield, supranationals, sovereigns, agencies, covered bonds, asset-backed securities ("ABS") and
mortgage-backed securities ("MBS"); and exclude money market, short-term debt, and U.S. municipal securities.
9.3 %
1
12.1
1
11.0
1
10.9
1
15.1
12.1
1
1
12.6
#
1
8.8 % #
1
7.8 % #
12.8
Rank
75
Rank
0.68
☑
74
(a) Allowance for loan losses of $95 million, $104 million and $58 million
were held against these nonaccrual loans at December 31, 2023,
2022 and 2021, respectively.
(b) At December 31, 2023, 2022 and 2021, nonaccrual loans excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $59 million, $115 million and $281 million,
respectively. These amounts have been excluded based upon the
government guarantee.
(c) Loans held-for-sale and loans at fair value were excluded when
calculating the net charge-off/(recovery) rate.
(d) Management uses allowance for loan losses to period-end loans
retained, excluding trade finance and conduits, a non-GAAP financial
measure, to provide a more meaningful assessment of CIB's allowance
coverage ratio. Refer to Explanation and Reconciliation of the Firm's
Use of Non-GAAP Financial Measures on pages 62-64.
JPMorgan Chase & Co./2023 Form 10-K
Investment banking fees
Year ended December 31,
(in millions)
Advisory
Equity underwriting
Debt underwriting (a)
0.68
0.72
period-end loans
Nonaccrual loans to total
1.18
Share
1.22
0.84
Allowance for loan losses to
period-end loans retained,
and conduits (d)
2023
1.64
1.12
Allowance for loan losses to
nonaccrual loans
retained d(a)
268
319
231
1.67
2022
excluding trade finance
2,814 $
Global
(a)
U.S.
Equity and equity-related (c)
Global
U.S.
Long-term debt(d)
M&A(b)
Global
Loan syndications
2022
U.S.
Global investment banking fees (e)
2023
2021
2021
U.S.
Based on fees"
Global
League table results - wallet share
Year ended December 31,
$
4,381
1,034
3,953
2,617
2,844
5,025
1,151
Total investment banking fees
(a) Represents long-term debt and loan syndications.
13,359
$
3,051
6,582 $
6,929
$
The Firm believes that effective risk management requires,
among other things:
Drivers of risks are factors that cause a risk to exist. Drivers
of risks include, but are not limited to, the economic
environment, regulatory or government policy, competitor
or market evolution, business decisions, process or
judgment error, deliberate wrongdoing, dysfunctional
markets, and natural disasters.
Impacts of Risks
Consequences of
risks, both
quantitative and
qualitative
Types of Risks
Categories
by which risks
manifest themselves
Drivers of Risks
Factors that
cause a risk
to exist
The Firm's risk governance and oversight functions align to:
risks.
The Firm's risk governance framework involves
understanding drivers of risks, types of risks, and impacts of
Risk is an inherent part of JPMorgan Chase's business
activities. When the Firm extends a consumer or wholesale
loan, advises customers and clients on their investment
decisions, makes markets in securities, or offers other
products or services, the Firm takes on some degree of risk.
The Firm's overall objective is to manage its business, and
the associated risks, in a manner that balances serving the
interests of its clients, customers and investors, and
protecting the safety and soundness of the Firm.
Acceptance of responsibility, including identification and
escalation of risks by all individuals within the Firm;
Ownership of risk identification, assessment, data and
management within each of the LOBS and Corporate; and
•
FIRMWIDE RISK MANAGEMENT
Types of risks are categories by which risks manifest
themselves. The Firm's risks are generally categorized in
the following four risk types:
Risk governance framework
• A Firmwide risk governance and oversight structure.
The Firm follows a disciplined and balanced compensation
framework with strong internal governance and
independent oversight by the Board of Directors (the
"Board"). The impact of risk and control issues is carefully
considered in the Firm's performance evaluation and
incentive compensation processes.
• Operational risk is the risk of an adverse outcome
resulting from inadequate or failed internal processes or
systems; human factors; or external events impacting the
Firm's processes or systems. Operational risk includes
cybersecurity, compliance, conduct, legal, and
estimations and model risk.
•
Strategic risk is the risk to earnings, capital, liquidity, or
reputation associated with poorly designed or failed
business plans or an inadequate response to changes in
the operating environment.
Credit and investment risk is the risk associated with the
default or change in credit profile of a client,
counterparty or customer; or loss of principal or a
reduction in expected returns on investments, including
consumer credit risk, wholesale credit risk, and
investment portfolio risk.
•
•
Market risk is the risk associated with the effect of
changes in market factors, such as interest and foreign
exchange rates, equity and commodity prices, credit
spreads or implied volatilities, on the value of assets and
liabilities held for both the short and long term.
Impacts of risks are consequences of risks, both quantitative
and qualitative. There may be many consequences of risks
manifesting, including quantitative impacts such as a
reduction in earnings and capital, liquidity outflows, and
fines or penalties, or qualitative impacts such as damage to
the Firm's reputation, loss of clients and customers, and
regulatory and enforcement actions.
The Firm's risk governance framework is managed on a
Firmwide basis. The Firm has an Independent Risk
Management ("IRM") function, which is comprised of Risk
Management and Compliance. The Firm's Chief Executive
Officer ("CEO") appoints, subject to approval by the Risk
Committee of the Board of Directors (the "Board Risk
Committee”), the Firm's Chief Risk Officer ("CRO") to lead
the IRM function and maintain the risk governance
framework of the Firm. The framework is subject to
approval by the Board Risk Committee through its review
and approval of the Risk Governance and Oversight Policy.
The Firm's CRO oversees and delegates authority to the
Firmwide Risk Executives ("FRES"), the Chief Risk Officers of
the LOBS and Corporate ("LOB CROS"), and the Firm's Chief
Compliance Officer ("CCO"), who, in turn, establish Risk
Management and Compliance organizations, develop the
Firm's risk governance policies and standards, and define
and oversee the implementation of the Firm's risk
governance framework. The LOB CROS oversee risks that
arise in their LOBS and Corporate, while FRES oversee risks
that span across the LOBS and Corporate, as well as
functions and regions. Each area of the Firm giving rise to
risk is expected to operate within the parameters identified
by the IRM function, and within the risk and control
standards established by its own management.
Three lines of defense
The Firm's "three lines of defense" are as follows:
The first line of defense consists of each LOB, Treasury and
CIO, and certain Other Corporate initiatives, including their
aligned Operations, Technology and Control Management.
The first line of defense owns the identification of risks
within their respective organizations and the design and
execution of controls to manage those risks.
Responsibilities also include adherence to applicable laws,
rules and regulations and implementation of the risk
86
JPMorgan Chase & Co./2023 Form 10-K
governance framework established by IRM, which may
include policies, standards, limits, thresholds and controls.
The second line of defense is the IRM function, which is
separate from the first line of defense and is responsible for
independently measuring risk, as well as assessing and
challenging the risk management practices of the first line
of defense. IRM is also responsible for the identification of
risks within its respective organization, adherence to
applicable laws, rules and regulations and for the
development and implementation of policies and standards
with respect to its own processes.
•
Management's discussion and analysis
412,180
JPMorgan Chase & Co./2023 Form 10-K
2021
(345)
2022
$ (2,380) $
$ (3,180)
2023
$ 200,708
portfolio, net of allowance
for credit losses (period-
end)(b)
$239,924
Investment securities
Held-to-maturity securities
Available-for-sale securities
(period-end)
Investment securities portfolio
(average)
The third line of defense is Internal Audit, an independent
function that provides objective assessment of the
adequacy and effectiveness of Firmwide processes,
controls, governance and risk management. The Internal
Audit function is headed by the General Auditor, who
reports to the Audit Committee and administratively to the
CEO.
Held-to-maturity securities
(average)(a)
As of or for the year ended
December 31, (in millions)
Investment securities losses
Available-for-sale securities
(average)
(period-end)(a)
85
$306,827
285,086
(c) As of December 31, 2023, included $24.2 billion of AFS securities
associated with First Republic. Refer to Note 34 for additional
information.
(b) As of December 31, 2023, 2022 and 2021, the allowance for credit
losses on investment securities was $94 million, $67 million and $42
million, respectively.
(a) Effective January 1, 2023, the Firm adopted new hedge accounting
guidance. As permitted by the guidance, the Firm elected to transfer
$7.1 billion of HTM securities to AFS. During 2022 and 2021, the Firm
transferred $78.3 billion and $104.5 billion of investment securities,
respectively, from AFS to HTM for capital management purposes. Refer
to Note 1 and Note 10 for additional information on the new hedge
accounting guidance.
$670,059
$629,286
$569,202
402,010
$ 602,718
425,305
369,848
$203,981 $306,352
$ 199,354
(c)
$652,104 $ 591,913
363,707
In addition, there are other functions that contribute to the
Firmwide control environment but are not considered part
of a particular line of defense, including Finance, Human
Resources and Legal. These other functions are responsible
for the identification of risks within their respective
organizations, adherence to applicable laws, rules and
regulations and implementation of the risk governance
framework established by IRM.
(c) The Chief Data and Analytics Officer role was added to the Operating Committee in June 2023.
The LOBS and Corporate own the identification of risks
within their respective organizations, as well as the design
and execution of controls, including IRM-specified controls,
to manage those risks. To support this activity, the Firm has
a risk identification framework designed to facilitate each
LOB and Corporate's responsibility to identify material risks
inherent to the Firm's businesses and operational activities,
catalog them in a central repository and review material
risks on a regular basis. The IRM function reviews and
challenges the LOB and Corporate's identified risks,
maintains the central repository and provides the
consolidated Firmwide results to the Firmwide Risk
Committee ("FRC") and the Board Risk Committee.
Risk appetite
(e) The General Auditor reports to the Audit Committee and administratively to the Firm's CEO.
(f) The Asset and Liability Committee escalates to the Firm's CEO or the Board of Directors (including its committees).
The Firm's Operating Committee, which consists of the
Firm's CEO, CRO, Chief Financial Officer ("CFO"), General
Counsel, CEOs of the LOBS and other senior executives, is
accountable to and may refer matters to the Firm's Board of
Directors. The Operating Committee and certain other
members of senior management are responsible for
escalating to the Board the information necessary to
facilitate the Board's exercise of its duties.
Board oversight
The Firm's Board of Directors actively oversees the business
and affairs of the Firm. This includes monitoring the Firm's
financial performance and condition and reviewing the
strategic objectives and plans of the Firm. The Board carries
out a significant portion of its oversight responsibilities
through its principal standing committees, each of which
consists solely of independent members of the Board. The
Board Risk Committee is the principal committee that
oversees risk matters. The Audit Committee oversees the
control environment, and the Compensation & Management
Development Committee oversees compensation and other
management-related matters. Each committee of the Board
oversees reputation risks, conduct risks, and environmental,
social and governance ("ESG") matters within its scope of
responsibility.
The JPMorgan Chase Bank, N.A. Board of Directors is
responsible for the oversight of management of the bank,
which it discharges both acting directly and through the
principal standing committees of the Firm's Board of
Directors. Risk and control oversight on behalf of JPMorgan
Chase Bank N.A. is primarily the responsibility of the Board
Risk Committee and the Audit Committee, respectively, and,
with respect to compensation and other management-
related matters, the Compensation & Management
Development Committee.
The Board Risk Committee assists the Board in its oversight
of management's responsibility to implement a global risk
management framework reasonably designed to identify,
assess and manage the Firm's risks. The Board Risk
Committee's responsibilities include approval of applicable
primary risk policies and review of certain associated
frameworks, analysis and reporting established by
management. Breaches in risk appetite and parameters,
issues that may have a material adverse impact on the Firm,
including capital and liquidity issues, and other significant
risk-related matters are escalated to the Board Risk
Committee, as appropriate.
The Audit Committee assists the Board in its oversight of
management's responsibility to ensure that there is an
effective system of controls reasonably designed to
safeguard the Firm's assets and income, ensure the integrity
of the Firm's financial statements, and maintain compliance
with the Firm's ethical standards, policies, plans and
procedures, and with laws, rules and regulations. It also
assists the Board in its oversight of the qualifications,
independence and performance of the Firm's independent
registered public accounting firm, and of the performance
of the Firm's Internal Audit function.
88
JPMorgan Chase & Co./2023 Form 10-K
The Compensation & Management Development Committee
("CMDC") assists the Board in its oversight of the Firm's
compensation principles and practices. The CMDC reviews
and approves the Firm's compensation and qualified
benefits programs. The Committee reviews the performance
of Operating Committee members against their goals, and
approves their compensation awards. In addition, the CEO's
award is subject to ratification by the independent directors
of the Board. The CMDC also reviews the development of
and succession for key executives. As part of the Board's
role of reinforcing, demonstrating and communicating the
"tone at the top," the CMDC oversees the Firm's culture,
including reviewing updates from management regarding
significant conduct issues and any related actions with
respect to employees, including compensation actions.
The Public Responsibility Committee oversees and reviews
the Firm's positions and practices on public responsibility
matters such as community investment, fair lending,
sustainability, consumer practices and other public policy
issues that reflect the Firm's values and character and could
impact the Firm's reputation among its stakeholders. The
Committee also provides guidance on these matters to
management and the Board, as appropriate.
The Corporate Governance & Nominating Committee
exercises general oversight with respect to the governance
of the Board of Directors. It reviews the qualifications of
and recommends to the Board proposed nominees for
election to the Board. The Committee evaluates and
recommends to the Board corporate governance practices
applicable to the Firm. It also reviews the framework for
assessing the Board's performance and self-evaluation.
Management oversight
The Firm's senior management-level committees that are
primarily responsible for key risk-related functions include:
The Firmwide Risk Committee ("FRC") is the Firm's highest
management-level risk committee. It oversees the risks
inherent in the Firm's business and provides a forum for
discussion of topics and issues that are raised or escalated
by its members and other committees.
The Firmwide Control Committee ("FCC") is an escalation
committee for senior management to review and discuss
the Firmwide compliance and operational risk environment
including identified issues, compliance and operational risk
metrics and significant events that have been escalated.
Line of Business and Regional Risk Committees are
responsible for overseeing the governance, limits, and
controls that have been established within the scope of
their respective activities. These committees review the
ways in which the particular LOB or the businesses
operating in a particular region could be exposed to
adverse outcomes, with a focus on identifying, accepting,
escalating and/or requiring remediation of matters brought
to these committees.
Line of Business and Corporate Function Control Committees
oversee the risk and control environment of their respective
business or function, inclusive of Operational Risk,
Compliance and Conduct Risks. As part of that mandate,
they are responsible for reviewing indicators of elevated or
emerging risks and other data that may impact the level of
compliance and operational risk in a business or function,
addressing key compliance and operational risk issues, with
an emphasis on processes with control concerns and
overseeing control remediation.
91-101
Selected income statement and balance sheet data
90
Page
Estimations and Model Risk
Legal Risk
(d) Effective February 12, 2024, the Global Head of Corporate Responsibility and Chairman of the Mid-Atlantic Region became a member of the Operating Committee, and the Vice Chairman
became an emeritus member of the Operating Committee.
Conduct Risk
Consumer Credit Risk
Wholesale Credit Risk
Investment Portfolio Risk
Market Risk
Country Risk
Climate Risk
Operational Risk
Capital Risk
Liquidity Risk
Reputation Risk
Risk governance and oversight functions
Strategic Risk
Risk governance and oversight functions
The Firm manages its risk through risk governance and
oversight functions. The scope of a particular function or
business activity may include one or more drivers, types
and/or impacts of risk. For example, Country Risk
Management oversees country risk which may be a driver of
risk or an aggregation of exposures that could give rise to
multiple risk types such as credit or market risk.
The following sections discuss the risk governance and
oversight functions that have been established to manage
the risks inherent in the Firm's business activities.
The Firmwide Valuation Governance Forum ("VGF") is
composed of senior finance and risk executives and is
responsible for overseeing the management of risks arising
from valuation activities conducted across the Firm.
The Asset and Liability Committee ("ALCO") is responsible for
overseeing the Firm's asset and liability management
("ALM"), including the activities and frameworks supporting
management of the balance sheet, liquidity risk, interest
rate risk, and capital risk.
Compliance Risk
(b) As of December 31, 2023, the CEO of the Corporate & Investment Bank was also the Firm's President and Chief Operating Officer. Refer to Recent events on page 52 for further information.
(a) The Firm's CRO may escalate directly to the Board Risk Committee. The Firmwide Risk Committee escalates to the Board Risk Committee, as appropriate.
Line of Business,
Regional Risk
Committees and
Firmwide Control
Committee
Audit Committee
Corporate Governance and
Nominating Committee
Compensation and Management
Development Committee
Public Responsibility Committee
Board Risk Committee (a)
Board of Directors
Operating Committee
Chief Executive Officer
The chart below illustrates the principal standing committees of the Board of Directors and key senior management-level
committees in the Firm's risk governance and oversight structure. In addition, there are other committees, forums and
channels of escalation that support the oversight of risk that are not shown in the chart below or described in this Form 10-K.
Risk governance and oversight structure
Management's discussion and analysis
40
87
JPMorgan Chase & Co./2023 Form 10-K
The Firm's overall appetite for risk is governed by "Risk
Appetite" frameworks for quantitative and qualitative risks.
The Firm's risk appetite is periodically set and approved by
senior management (including the CEO and CRO) and
approved by the Board Risk Committee. Quantitative and
qualitative risks are assessed to monitor and measure the
Firm's capacity to take risk consistent with its stated risk
appetite. Risk appetite results are reported to the Board
Risk Committee.
The independent status of the IRM function is supported by a risk governance and oversight structure that provides channels
for the escalation of risks and issues to senior management, the FRC, and the Board of Directors, as appropriate.
Risk identification and ownership
Chief Risk
Officer (a)
Line of Business
CEOS (b) and
Selected Business
Internal
Audit
(ex-officio member)
General
Auditor (e)
Resources
Officer (c)
Head of
Human
Chief
Financial Officer
Vice
Chairman(d)
Heads
Asset and Liability
Committee () and
Firmwide Valuation
Governance Forum
Firmwide Risk
Committee (a)
Global Chief
Information
Officer
General
Counsel
President and
Chief Operating
Officer (b)
Chief Data
and Analytics
and the average credit rating of the securities comprising
the portfolio was AA+ (based upon external ratings where
available and, where not available, based primarily upon
internal risk ratings). Refer to Note 10 for further
information on the Firm's investment securities portfolio
and internal risk ratings.
(e)
Treasury and CIO is predominantly responsible for
measuring, monitoring, reporting and managing the Firm's
liquidity, funding, capital, structural interest rate and
foreign exchange risks. The risks managed by Treasury and
CIO arise from the activities undertaken by the Firm's four
major reportable business segments to serve their
respective client bases, which generate both on- and off-
balance sheet assets and liabilities.
7,906 (c)
1,878
Total net revenue
(a)
8,038
80
68
(3,551)
(3,483)
•
Provision for credit
losses
171
22
81
Noninterest expense
5,601 (c)(d)
1,034
1,802
Net income/(loss)
•
(1,653)
(233)
(555)
(benefit)
Net interest income
•
(5,366)
(976)
2,266
(benefit)
income tax expense/
Income/(loss) before
Income tax expense/
(1,798)
132
Noninterest revenue
lower net gains related to certain other Corporate
investments.
agency MBS, associated with repositioning the investment
securities portfolio, and
sales of U.S. Treasuries and U.S. GSE and government
higher net investment securities losses related to the
•
partially offset by
The prior year included a gain on the sale of Visa B shares
and proceeds from an insurance settlement.
Noninterest expense was $5.6 billion, up $4.6 billion,
predominantly driven by:
the impact of higher short-term cash deployment
activities as a result of the current interest rate
environment,
higher losses in the prior year on certain revenues
associated with foreign exchange rate movements that
the $2.8 billion estimated bargain purchase gain
associated with the First Republic acquisition,
•
•
•
102-109
are risk-managed by Treasury and CIO, and
$
31,
employees)
(345)
226
809
(2,380)
(3,180)
3,010 (c)
All other income
gains/(losses)
(in millions, except
Investment securities
(227) $
$
302
$
Principal transactions
Revenue
187
Treasury and CIO seeks to achieve the Firm's asset-liability
management objectives generally by investing in high-
quality securities that are managed for the longer-term as
part of the Firm's investment securities portfolio. Treasury
and CIO also uses derivatives to meet the Firm's asset-
liability management objectives. Refer to Note 5 for further
information on derivatives. In addition, Treasury and CIO
manages the Firm's cash position primarily through
deposits at central banks and investments in short-term
instruments. Refer to Liquidity Risk Management on pages
102-109 for further information on liquidity and funding
risk. Refer to Market Risk Management on pages 135-143
for information on interest rate and foreign exchange risks.
The investment securities portfolio predominantly consists
of U.S. and non-U.S. government securities, U.S. GSE and
government agency and nonagency mortgage-backed
securities, collateralized loan obligations, obligations of U.S.
states and municipalities and other ABS. At December 31,
2023, the Treasury and CIO investment securities portfolio,
net of the allowance for credit losses, was $569.2 billion,
2,821
(743) $
2,181
14,203
44,196
1,770
396
38,952
(a) Included tax-equivalent adjustments, predominantly driven by tax-
exempt income from municipal bonds, of $211 million, $235 million
and $257 million for the years ended December 31, 2023, 2022 and
2021, respectively.
(b) Predominantly relates to the Firm's international consumer initiatives.
(c) Includes the impact of the First Republic acquisition. Refer to Notes 6
and 34 for additional information.
(d) Includes the FDIC special assessment. Refer to Note 6 for additional
information.
(e) Income taxes associated with the First Republic acquisition are
reflected in the estimated bargain purchase gain.
•
•
the $2.9 billion FDIC special assessment,
$1.0 billion associated with First Republic, predominantly
driven by integration and restructuring costs as well as
expenses recorded in the second quarter of 2023 with
respect to individuals associated with First Republic who
did not become employees of the Firm until July 2, 2023,
a greater benefit in the prior year on certain expenses
associated with foreign exchange rate movements that
are risk-managed by Treasury and CIO,
higher legal expenses, and
higher costs associated with the Firm's international
consumer growth initiatives,
partially offset by
•
lower benefits-related and real estate expenses.
Treasury and CIO overview
The prior period income tax benefit was driven by benefits
related to tax audit settlements as well as other tax
adjustments, partially offset by a change in the level and
mix of income and expenses subject to U.S. federal, state
and local taxes that also impacted the Firm's tax reserves.
Other Corporate also reflects the Firm's international
consumer initiatives, which includes Chase U.K., the Firm's
digital retail bank in the U.K.; Nutmeg, a digital wealth
manager in the U.K.; and a 46% ownership stake in C6
Bank, a digital bank in Brazil.
The income taxes associated with the First Republic
acquisition are reflected in the estimated bargain purchase
gain.
the impact from changes in the level and mix of income
and expenses subject to U.S. federal, state and local taxes
that also impacted the Firm's tax reserves.
partially offset by
tax adjustments and tax benefits associated with tax audit
settlements,
$1,328,219 $1,518,100
the finalization of certain income tax regulations, other
•
a net addition to the allowance for credit losses related to a
single name exposure, which was subsequently charged off
upon the restructuring of a loan.
The provision for credit losses was $171 million, reflecting
JPMorgan Chase & Co./2023 Form 10-K
84
The net impact of movements in foreign exchange rates
associated with the foreign exchange risk that was
transferred to Treasury and CIO on certain revenues and
expenses was not material to net income. Refer to Foreign
Exchange Risk on page 66 for additional information.
Refer to Note 10 and Note 13 for additional information on
the investment securities portfolio and the allowance for
credit losses.
The current period income tax benefit was driven by:
47,530
21,826
1,924
80 $
$
8,038
$
Total net revenue
519
(19)
(3,483)
1,966 (c)
(3,464)
(439)
6,072
Treasury and CIO
Total net revenue
(3,713)
Other Corporate
$
Net income/(loss)
4,206
$1,348,437
Employees
Deposits (b)
Loans (period-end)
end)
Total assets (period-
Treasury and CIO
Total net income/(loss) $ 2,821
(743) $ (3,713)
$
(3,057)
(656)
(197)
(546)
(1,385) (c)(d)
Other Corporate
.
110
$
120-130
Europe/Middle East/Africa
Asia-Pacific
805
1,430
751 $
1,252
763
2,766 $
974 $
1,488
960
3,422 $
Total assets under management $
Global Funds
Global Institutional
$
Private Banking
Client assets
Assets by client segment
3,113
2,766 $
$ 3,422 $
Total assets under management
2,219
1,992
888
774
894
administration/deposits
1,590
1,282
$
1,182
(a)
$
5,012 $
4,048 $ 4,295
North America
2,534
Total client assets"
740 $
610 $
687
(a)
Total client assets
Net revenue was $8.0 billion, compared with $80 million in
the prior year, predominantly driven by higher net interest
income due to higher rates, partially offset by the impact of
lower Firmwide average deposit balances.
1,964 $
1,314
966
770
885
5,012 $ 4,048 $ 4,295
1,931
North America
Global Funds
3,634
3,032
1,479
Total client assets
$ 5,012 $ 4,048 $
4,295
(a) Regional revenue is based on the domicile of the client.
2,918
Total international assets under
management
1,594
$ 2,452 $
406
331
381
878
Latin America/Caribbean
232
Global Institutional
189
3,113
Total international client assets
1,378
1,130
1,263
Private Banking
195
(a) Includes CCB client investment assets invested in managed accounts
and J.P. Morgan mutual funds where AWM is the investment manager.
Custody/brokerage/
2,766
Assets by asset class
2021
2022
2023
(in billions)
6,474
6,043
886
967
985
6,238
Total international net revenue
December 31,
Latin America/Caribbean
2,017
1,836
1,876
3,571
Client assets
2023 compared with 2022
Assets under management were $3.4 trillion and client
assets were $5.0 trillion, each up 24%, driven by continued
net inflows, higher market levels, and the impact of the
acquisition of Global Shares.
Client assets
International metrics
Year ended December 31,
North America
(in billions, except where otherwise
noted)
2023
2022
2021
$
3,377 $
3,240 $
Total net revenue (in millions)(a)
Europe/Middle East/Africa
Asia-Pacific
Liquidity
$
926 $
$ 539 $ 487 $ 561
263
218
254
Alternatives
197
Europe/Middle East/Africa
Asia-Pacific
201
Latin America/Caribbean
86
69
79
Total assets under management
3,422
201
3,113
732
680
654 $
708
Total net revenue
13,589 11,705 10,483
$ 19,827 $ 17,748 $ 16,957
Fixed income
751
603
638
Assets under management
Equity
868
670
779
Multi-asset
693
114-119
Client assets (continued)
Assets under management
rollforward
Conducting assessments of the Firm's regulatory capital
framework intended to ensure compliance with
applicable regulatory capital rules.
Capital management
Treasury and CIO is responsible for capital management.
The primary objectives of the Firm's capital management
are to:
•
•
Maintain sufficient capital in order to continue to build
and invest in the Firm's businesses through normal
economic cycles and in stressed environments;
Retain flexibility to take advantage of future investment
opportunities;
Promote the Parent Company's ability to serve as a
source of strength to its subsidiaries;
Ensure the Firm operates above the minimum regulatory
capital ratios as well as maintain "well-capitalized" status
for the Firm and its principal insured depository
institution ("IDI") subsidiary, JPMorgan Chase Bank, N.A.
•
•
at all times under applicable regulatory capital
requirements;
Meet capital distribution objectives; and
Maintain sufficient capital resources to operate
throughout a resolution period in accordance with the
Firm's preferred resolution strategy.
The Firm addresses these objectives through:
•
•
Stress testing assesses the potential impact of alternative
economic and business scenarios on the Firm's earnings
and capital. Economic scenarios, and the parameters
underlying those scenarios, are defined centrally and
applied uniformly across the businesses. These scenarios
are articulated in terms of macroeconomic factors, which
are key drivers of business results; global market shocks,
which generate short-term but severe trading losses; and
idiosyncratic operational risk events. The scenarios are
intended to capture and stress key vulnerabilities and
idiosyncratic risks facing the Firm. In addition to CCAR and
other periodic stress testing, management also considers
tailored stress scenarios and sensitivity analyses, as
necessary.
Annually, the Firm prepares the ICAAP, which informs the
Board of Directors of the ongoing assessment of the Firm's
processes for managing the sources and uses of capital as
well as compliance with supervisory expectations for capital
planning and capital adequacy. The Firm's ICAAP integrates
stress testing protocols with capital planning. The Firm's
Audit Committee is responsible for reviewing and approving
the capital planning framework.
Internal Capital Adequacy Assessment Process
Management's discussion and analysis
91
JPMorgan Chase & Co./2023 Form 10-K
Performing assessments of the Firm's capital
management activities, including changes made to the
Contingency Capital Plan described below; and
The Firm's current SCB requirement is 2.9%, and will
remain in effect until September 30, 2024. The Firm's
Standardized CET1 capital ratio requirement, including
regulatory buffers, was 11.4% as of December 31, 2023.
Refer to Capital actions on page 99 for information on
actions taken by the Firm's Board of Directors.
The Federal Reserve requires the Firm, as a large Bank
Holding Company ("BHC"), to submit at least annually a
capital plan that has been reviewed and approved by the
Board of Directors. The Federal Reserve uses
Committees responsible for overseeing the Firm's capital
management include the Capital Governance Committee,
the Firmwide ALCO as well as regional ALCOS, and the CIO,
Treasury and Corporate ("CTC") Risk Committee. In
addition, the Board Risk Committee periodically reviews the
Firm's capital risk tolerance. Refer to Firmwide Risk
Management on pages 86-89 for additional discussion of
the Firmwide ALCO and other risk-related committees.
Capital planning and stress testing
Comprehensive Capital Analysis and Review
Governance
Regularly monitoring the Firm's capital position and
following prescribed escalation protocols, both at the
Firm and material legal entity levels.
Retaining flexibility in order to react to a range of
potential events; and
• Establishing internal minimum capital requirements and
maintaining a strong capital governance framework. The
internal minimum capital levels consider the Firm's
regulatory capital requirements as well as an internal
assessment of capital adequacy, in normal economic
cycles and in stress events;
Comprehensive Capital Analysis and Review (“CCAR”) and
other stress testing processes to assess whether large BHCS,
such as the Firm, have sufficient capital during periods of
economic and financial stress, and have robust, forward-
looking capital assessment and planning processes in place
that address each BHC's unique risks to enable it to absorb
losses under certain stress scenarios. Through CCAR, the
Federal Reserve evaluates each BHC's capital adequacy and
internal capital adequacy assessment processes ("ICAAP”),
as well as its plans to make capital distributions, such as
dividend payments or stock repurchases. The Federal
Reserve uses results under the severely adverse scenario
from its supervisory stress test to determine each firm's
Stress Capital Buffer ("SCB") requirement for the coming
year.
Developing processes to classify, monitor and report
capital limit breaches;
Defining, monitoring and reporting capital risk metrics;
Establishing, calibrating and monitoring capital risk limits
and indicators, including capital risk appetite;
•
The Operating Committee, together with the senior
leadership of each LOB and Corporate, are responsible for
managing the Firm's most significant strategic risks. IRM
engages regularly in strategic business discussions and
decision-making, including participation in relevant
business reviews and senior management meetings, risk
and control committees and other relevant governance
forums, and review of acquisitions and new business
initiatives. The Board of Directors oversees management's
strategic decisions, and the Board Risk Committee oversees
IRM and the Firm's risk governance framework.
Management and oversight
Strategic risk is the risk to earnings, capital, liquidity or
reputation associated with poorly designed or failed
business plans or an inadequate response to changes in the
operating environment.
STRATEGIC RISK MANAGEMENT
Management's discussion and analysis
89
In the process of developing business plans and strategic
initiatives, LOB and Corporate senior management identify
the associated risks that are incorporated into the Firmwide
Risk Identification framework and their impact on risk
appetite.
JPMorgan Chase & Co./2023 Form 10-K
153
152
151
146
147-150
144-145
134
135-143
154
Contingency Capital Plan
In addition, IRM conducts a qualitative assessment of the
LOB and Corporate strategic initiatives to assess their
impact on the risk profile of the Firm.
The Firm's strategic plan, together with IRM's assessment,
are provided to the Board as part of its review and approval
of the Firm's strategic plan, and the plan is also reflected in
the Firm's budget.
•
•
•
•
Capital Risk Management's responsibilities include:
The Firm has a Capital Risk Management function whose
primary objective is to provide independent oversight of
capital risk across the Firm.
The Firm's strategic planning process, which includes the
development of the Firm's strategic plan and other strategic
initiatives, is one component of managing the Firm's
strategic risk. The strategic plan outlines the Firm's
strategic framework and initiatives, and includes
components such as budget, risk appetite, capital, earnings
and asset-liability management objectives. Guided by the
Firm's Business Principles, the Operating Committee and
senior management teams in each LOB and Corporate
review and update the strategic plan periodically, including
evaluating the strategic framework and performance
against prior-year initiatives, assessing the operating
environment, refining existing strategies and developing
new strategies.
Capital risk management
A strong capital position is essential to the Firm's business
strategy and competitive position. Maintaining a strong
balance sheet to manage through economic volatility is a
strategic imperative of the Firm's Board of Directors, CEO
and Operating Committee. The Firm's "fortress balance
sheet" philosophy focuses on risk-adjusted returns, strong
capital and robust liquidity. The Firm's capital risk
management strategy focuses on maintaining long-term
stability to enable the Firm to build and invest in market-
leading businesses, including in highly stressed
environments. Senior management considers the
Capital risk is the risk that the Firm has an insufficient level
or composition of capital to support the Firm's business
activities and associated risks during normal economic
environments and under stressed conditions.
CAPITAL RISK MANAGEMENT
JPMorgan Chase & Co./2023 Form 10-K
90
The Firm's balance sheet strategy, which focuses on risk-
adjusted returns, strong capital and robust liquidity, is also
a component in the management of strategic risk. Refer to
Capital Risk Management on pages 91-101 for further
information on capital risk. Refer to Liquidity Risk
Management on pages 102-109 for further information on
liquidity risk. Refer to Reputation Risk Management on page
110 for further information on reputation risk.
implications on the Firm's capital prior to making significant
decisions that could impact future business activities. In
addition to considering the Firm's earnings outlook, senior
management evaluates all sources and uses of capital with
a view to ensuring the Firm's capital strength.
Year ended December 31,
(in billions)
The Firm's Contingency Capital Plan establishes the capital
management framework for the Firm and specifies the
principles underlying the Firm's approach towards capital
management in normal economic conditions and in stressed
environments. The Contingency Capital Plan defines how
the Firm calibrates its targeted capital levels and meets
minimum capital requirements, monitors the ongoing
appropriateness of planned capital distributions, and sets
out the capital contingency actions that are expected to be
taken or considered at various levels of capital depletion
during a period of stress.
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the Firm as a
consolidated financial holding company. The Office of the
Comptroller of the Currency ("OCC") establishes similar
minimum capital requirements and standards for the Firm's
principal IDI subsidiary, JPMorgan Chase Bank, N.A. The U.S.
capital requirements generally follow the Capital Accord of
the Basel Committee, as amended from time to time.
Basel III Overview
(9)
1
85
35
70
36
13
70
68
(55)
242
Ending balance, December 31
impacts
Market/performance/other
Net asset flows
Beginning balance
Client assets rollforward
Beginning balance
2023
2022
2021
$ 2,766 $ 3,113 $ 2,716
Net asset flows:
17
Liquidity
Equity
Multi-asset
Alternatives
Market/performance/other
impacts
Ending balance, December 31
Fixed income
(1)
8
26
Other Corporate includes staff functions and expense
that is centrally managed as well as certain Firm
initiatives and activities not solely aligned to a specific
LOB. The major Other Corporate functions include Real
Estate, Technology, Legal, Corporate Finance, Human
Resources, Internal Audit, Risk Management,
Compliance, Control Management, Corporate
Responsibility and various Other Corporate groups.
Selected income statement and balance sheet data
2023
2022
2021
2023 compared with 2022
The Corporate segment consists of Treasury and Chief
Investment Office ("CIO") and Other Corporate.
Treasury and CIO is predominantly responsible for
measuring, monitoring, reporting and managing the
Firm's liquidity, funding, capital, structural interest
rate and foreign exchange risks.
Net income was $2.8 billion, compared with a net loss of
$743 million in the prior year.
92
The current Basel III rules establish capital requirements for
calculating credit risk RWA and market risk RWA, and in the
case of Basel III Advanced, operational risk RWA. Key
differences in the calculation of credit risk RWA between
the Standardized and Advanced approaches are that for
Basel III Advanced, credit risk RWA is based on risk-sensitive
approaches which largely rely on the use of internal credit
models and parameters, whereas for Basel III Standardized,
credit risk RWA is generally based on supervisory risk-
weightings which vary primarily by counterparty type and
asset class. Market risk RWA is generally calculated
consistently between Basel III Standardized and Basel III
Advanced. In addition to the RWA calculated under these
approaches, the Firm may supplement such amounts to
Pending the finalization of the U.S. Basel III proposal, the
Firm expects that it will continue to build capital above the
current levels, and therefore the CET1 target of 13.5%
previously set by the Firm (which was with respect to the
current Standardized RWA measure) is no longer
meaningful. The Firm's quarterly capital ratios will vary
dependent on market conditions and other factors. Under
the requirements of the U.S. Basel III proposal, the new
expanded risk-based approach, when fully phased-in, would
be the Firm's binding constraint.
In July 2023, the Federal Reserve, the OCC and the FDIC
released a proposal to amend the risk-based capital
framework, entitled "Regulatory capital rule: Amendments
applicable to large banking organizations and to banking
organizations with significant trading activity," which is
referred to in this Form 10-K as “U.S. Basel III proposal".
Under the proposal, changes to the framework would
include replacement of the Advanced approach with an
expanded risk-based approach, which would not permit the
use of internal models for the calculation of RWA, other
than for market risk. In addition, the stress capital buffer
requirement would be applicable to both the expanded risk-
based approach and the Standardized approach. The
proposal would significantly revise risk-based capital
requirements for all banks with assets of $100 billion or
more, including the Firm and other U.S. GSIBS. The
proposed effective date is July 1, 2025, with a three-year
transition period applicable to the expanded risk-based
approach. Based on the Firm's understanding of the
proposal, as applied to its Consolidated balance sheets as of
June 30, 2023 (the reference date for a special data
collection exercise conducted by the Federal Reserve), the
estimated impact at the end of the transition period would
increase RWA by approximately 30%, which would result in
an approximately 25% increase to CET1 capital necessary
to meet the Firm's CET1 ratio requirement, all else equal.
These estimates do not reflect any actions that the Firm
may take to mitigate the impact of the rule as currently
proposed.
For each of these risk-based capital ratios, the capital
adequacy of the Firm is evaluated against the lower of the
Standardized or Advanced approaches compared to their
respective regulatory capital ratio requirements.
The capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. BHCs and banks, including the
Firm and JPMorgan Chase Bank, N.A. The minimum amount
of regulatory capital that must be held by BHCs and banks is
determined by calculating RWA, which are on-balance sheet
assets and off-balance sheet exposures, weighted according
to risk. Under the rules currently in effect, two
comprehensive approaches are prescribed for calculating
RWA: a standardized approach ("Basel III Standardized"),
and an advanced approach ("Basel III Advanced").
JPMorgan Chase & Co./2023 Form 10-K
Regulatory capital
CORPORATE
JPMorgan Chase & Co./2023 Form 10-K
274
(339)
165
$ 3,422 $
2,766 $ 3,113
$ 4,048 $ 4,295 $
83
490
3,652
389
474
(296)
254
$ 5,012 $ 4,048 $
4,295
49
Noninterest revenue was $132 million, compared with a
loss of $1.8 billion in the prior year, driven by:
Change in long-term debt and other instruments qualifying
as Tier 2
102
373
Defined benefit pension and other postretirement
employee benefit ("OPEB") plans
1,224
3,225
Other intangible assets
53,501
54,377
Standardized/Advanced CET1
(101)
5,381
Unrealized gains/(losses) on investment securities
Translation adjustments, net of hedges (a)
Fair value hedges
Goodwill (c)
6,221
4,717
Less:
Other CET1 capital
adjustments (b)
329
capital
250,585
218,934
13,569
$
11,779
$
capital
instruments qualifying as Tier 2
2022
Long-term debt and other
$ 245,631
277,306
$
capital
Standardized/Advanced Tier 1
27,404
707
27,404
683
Less: Other Tier 1 adjustments
Add: Preferred stock
Changes related to AOCI applicable to capital:
Qualifying allowance for credit
losses (dp
2,510
liabilities (a)
The following table presents the changes in Basel III CET1
capital, Tier 1 capital and Tier 2 capital for the year ended
December 31, 2023.
Capital rollforward
The following table presents reconciliations of total
stockholders' equity to Basel III CET1 capital, Tier 1 capital
and Total capital as of December 31, 2023 and 2022.
Capital components
JPMorgan Chase & Co./2023 Form 10-K
96
(a) The capital metrics reflect the CECL capital transition provisions. Refer to Note 27 for additional information.
(b) Adjusted average assets, for purposes of calculating the leverage ratios, includes quarterly average assets adjusted for on-balance sheet assets that are
subject to deduction from Tier 1 capital, predominantly goodwill, inclusive of estimated equity method goodwill, and other intangible assets.
(c) Represents minimum requirements and regulatory buffers applicable to the Firm. Refer to Note 27 for additional information.
December 31,
5.0 %
5.6 %
6.1 %
4,367,092
$
4,540,465
$
6.6 %
4.0 %
(in millions)
Total stockholders' equity
Less: Preferred stock
$
1,084
Changes in additional paid-in capital
Certain deferred tax
Add:
(8,881)
Net purchase of treasury stock
(12,055)
48,051
Standardized/Advanced CET1 capital at December 31, 2022 $ 218,934
Net income applicable to common equity
Dividends declared on common stock
27,404
264,928
300,474
Common stockholders' equity
2023
Year ended December 31, (in millions)
December 31,
2022
292,332
$
2023
327,878
27,404
2,996
3,703,873
20,102
Other
(1,790)
749
94
(947)
$ 32,138
Advanced Total capital at December 31, 2023
Advanced Tier 2 capital at December 31, 2023
Change in Advanced Tier 2 capital
Other
Change in qualifying allowance for credit losses (b) (c)
$ 31,191
Advanced Tier 2 capital at December 31, 2022
Change in long-term debt and other instruments qualifying
as Tier 2
Change in Standardized Tier 2 capital
Other
Change in qualifying allowance for credit losses (b)
Standardized Tier 2 capital at December 31, 2022
(f) Included an incremental $655 million allowance for credit losses on
certain assets associated with First Republic to which the Standardized
approach has been applied, as permitted by the transition provisions in
the U.S. capital rules.
(e) Represents an adjustment to qualifying allowance for credit losses for
the excess of eligible credit reserves over expected credit losses up to
0.6% of credit risk RWA, including the impact of the CECL capital
transition provision with any excess deducted from RWA.
(d) Represents the allowance for credit losses eligible for inclusion in Tier
2 capital up to 1.25% of credit risk RWA, including the impact of the
CECL capital transition provision with any excess deducted from RWA.
Refer to Note 27 for additional information on the CECL capital
transition.
Standardized Tier 2 capital at December 31, 2023
Standardized Total capital at December 31, 2023
$ 308,497
$ 18,952
(1,790)
855
Credit risk
RWA(c)(d)
Total RWA
Advanced
Standardized
Market risk
RWA
Credit risk
RWA (c)
Year ended December 31, 2023
(in millions)
The following table presents changes in the components of RWA under Basel III Standardized and Advanced approaches for the
year ended December 31, 2023. The amounts in the rollforward categories are estimates, based on the predominant driver of
the change.
RWA rollforward
Management's discussion and analysis
97
46
JPMorgan Chase & Co./2023 Form 10-K
(c) Included an incremental $655 million allowance for credit losses on
certain assets associated with First Republic to which the Standardized
approach has been applied, as permitted by the transition provisions in
the U.S. capital rules.
(b) Includes the impact of the CECL capital transition provisions and the
cumulative effect of changes in accounting principles. Refer to Note 27
for additional information on the CECL capital transition.
(a) Includes foreign currency translation adjustments and the impact of
related derivatives.
$ 18,111
$295,417
94
(841)
(c) Goodwill deducted from capital includes goodwill associated with
equity method investments in nonconsolidated financial institutions
based on regulatory requirements. Refer to page 134 for additional
information on principal investment risk.
19,353
(b) As of December 31, 2023 and 2022, included a net benefit associated
with cash flow hedges and debit valuation adjustments ("DVA") related
to structured notes recorded in AOCI of $4.3 billion and $5.2 billion
and the benefit from the CECL capital transition provisions of $1.4
billion and $2.2 billion, respectively.
18,952
$ 264,583
Redemptions of noncumulative perpetual preferred stock
Other
Change in CET1 capital (b)
Standardized/Advanced Tier 1 capital at December 31,
Changes related to other CET1 capital adjustments (b)
Change in Standardized/Advanced CET1 capital
Standardized/Advanced CET1 capital at
December 31, 2023
277,769
JPMorgan Chase & Co./2023 Form 10-K
308,497
Change in Standardized/Advanced Tier 1 capital
Standardized/Advanced Tier 1 capital at December 31,
$
32,138
$
31,191
$
Standardized Tier 2 capital
(784)
(690)
Standardized Total capital
2023
$ 277,306
(2,530)
$
(13,186)
(13,080)
18,111
295,417
$
Advanced Total capital
$
Advanced Tier 2 capital
(f)
Advanced Tier 2 capital (e)
allowance for credit losses for
Adjustment in qualifying
31,675
24
31,651
$ 245,631
$ 250,585
31,651
(a) Represents deferred tax liabilities related to tax-deductible goodwill
and to identifiable intangibles created in nontaxable transactions,
which are netted against goodwill and other intangibles when
calculating CET1 capital.
Market risk
RWA
$
7.2 %
$
Standardized Advanced
Standardized Advanced
Standardized Advanced Standardized Advanced
0
2
Stress capital buffer
GSIB surcharge
Minimum requirement
4.50% 4.50%
4Q22
4.50% 4.50%
4.50% 4.50%
4
3.50%
3.50%
6
4.00% 4.00%
4.00%
4.50% 4.50%
1Q23
1Q24
All banking institutions are currently required to have a
minimum CET1 capital ratio of 4.5% of risk-weighted
assets.
2.0 %
3.5 %
4.0 %
4.5 %
2.5 %
2.5 %
2022
2023
2024
Method 2
Method 1
The following table presents the Firm's effective GSIB
surcharge for the years ended December 31, 2024, 2023
and 2022.
JPMorgan Chase & Co./2023 Form 10-K
94
interconnectedness, complexity and substitutability.
"Method 2", calculated by the Firm, modifies the Method 1
requirements to include a measure of short-term wholesale
funding in place of substitutability, and introduces a GSIB
score "multiplication factor".
Under the Federal Reserve's GSIB rule, the Firm is required
to assess its GSIB surcharge on an annual basis under two
separately prescribed methods based on data for the
previous fiscal year-end, and is subject to the higher of the
two. "Method 1" reflects the GSIB surcharge as prescribed
by the Basel Committee's assessment methodology, and is
calculated by the Financial Stability Board ("FSB") across
five criteria: size, cross-jurisdictional activity,
4Q23
Certain banking organizations, including the Firm, are
required to hold additional levels of capital to serve as a
"capital conservation buffer". The capital conservation
buffer incorporates a GSIB surcharge, a discretionary
countercyclical capital buffer and a fixed capital
conservation buffer of 2.5% for Advanced regulatory
capital requirements, as well as a variable SCB requirement,
floored at 2.5%, for Standardized regulatory capital
requirements.
4.00%
On November 27, 2023, the FSB released its annual list of
GSIBS based upon data as of December 31, 2022, which
affirmed the Firm's Method 1 GSIB surcharge of 2.5%,
which will be effective January 1, 2025, unless the Firm's
Method 1 GSIB surcharge, as determined by the FSB, is
lower based upon data as of December 31, 2023.
4.50% 4.50%
Capital conservation
buffer incl. GSIB & SCB
Fixed capital
CET1 capital ratio as of
The Firm's Basel III Standardized
16
The following chart presents the Firm's Basel III CET1 capital ratio requirements under the Basel III rules currently in effect.
Risk-based Capital Regulatory Requirements
Management's discussion and analysis
93
December 31, 2023: 15.0%
JPMorgan Chase & Co./2023 Form 10-K
TLAC and Eligible LTD Requirements
In July 2023, the Federal Reserve also released a proposal
to amend the calculation of the GSIB surcharge. If adopted
as proposed, these amendments would require the Firm to
assess its GSIB surcharge on an annual basis, using the
average of the quarterly surcharge calculations throughout
the calendar year, with daily averaging required for certain
measures within the surcharge calculation. Surcharge
increments would be reduced from 50 bps to 10 bps and
there would also be other technical amendments to the
Method 2 calculation. The proposed amendments would
revise risk-based capital requirements for the Firm and
other U.S. GSIBS, and would become effective two calendar
quarters after the adoption of the final rule. Refer to Risk-
based Capital Regulatory Requirements on pages 94-95 for
further information on the GSIB surcharge.
Other Key Regulatory Developments
GSIB Surcharge
Refer to page 95 for additional information on GSIB
surcharge and page 98 for additional information on SLR.
Basel III also includes a requirement for Advanced
Approaches banking organizations, including the Firm, to
calculate its SLR. As of the fourth quarter of 2023, the
Firm's SLR became more binding than the Basel III risk-
based ratios, primarily reflecting the reduction in the Stress
Capital Buffer requirement. With the increase in the GSIB
surcharge in the first quarter of 2024, the Firm expects the
risk-based ratios to revert to being more binding than the
SLR.
As of December 31, 2023, the Advanced Total Capital ratio
became the most binding constraint for the Firm's Basel III
risk-based ratios, primarily reflecting the reduction in the
Stress Capital Buffer requirement. However, as of December
31, 2023, with respect to the CET1 and Tier 1 risk-based
ratios, the Standardized ratios are more binding than the
Advanced ratios.
incorporate management judgment and feedback from its
regulators.
In August 2023, the Federal Reserve, the FDIC and the OCC
released a proposal to expand the eligible long-term debt
("eligible LTD") and clean holding company requirements
under the existing total loss-absorbing capacity ("TLAC")
rule to apply to non-GSIB banks with $100 billion or more
in total consolidated assets. While U.S. GSIBS are already
subject to these requirements, the proposal would reduce
the amount of LTD with remaining maturities of less than
two years that count towards a U.S. GSIB's TLAC
requirement. The proposal would also expand the existing
capital deduction framework for LTD issued by GSIBS to
include LTD issued by non-GSIB banks subject to the LTD
requirements.
14
12.50%
12.00%
8
2.50%
2.50%
2.50%
2.50%
2.90%
2.90%
4.00%
10
4.00%
10.50%
11.00%
11.00%
11.50%
11.40%
12
11.90%
conservation buffer
3,831,200
The Firm's Method 2 surcharge calculated using data as of
December 31, 2021 is 4.5% (up from 4.0%), which
became effective January 1, 2024. The Firm's estimated
Method 2 surcharge calculated using data as of December
31, 2022 is 4.5%. Accordingly, based on the GSIB rule
currently in effect, the Firm's effective GSIB surcharge
increased to 4.5% on January 1, 2024.
Failure to maintain regulatory capital equal to or in excess
of the risk-based regulatory capital minimum plus the
capital conservation buffer (inclusive of the GSIB surcharge)
and any countercyclical buffer will result in limitations to
the amount of capital that the Firm may distribute, such as
through dividends and common share repurchases, as well
as on discretionary bonus payments for certain executive
officers.
16.6
18.5
Total capital ratio
Tier 1 capital ratio
11.0 %
13.6 %
15.0 %
11.4 %
14.9
16.8
13.2 %
CET1 capital ratio
1,609,773
1,669,156
1,653,538
1,671,995
(c)
Risk-weighted assets
15.0 %
12.9
14.9
16.6
15.3
(c)
Capital ratio
requirements
December 31, 2022
December 31, 2023
SLR
Total leverage exposure
Tier 1 leverage ratio
Adjusted average assets (b)
Leverage-based capital metrics: (a)
(in millions, except ratios)
Three months ended
(c) Includes the impacts of certain assets associated with First Republic to which the Standardized approach has been applied as permitted by the transition
provisions in the U.S. capital rules.
(a) The capital metrics reflect the CECL capital transition provisions. Refer to Note 27 for additional information.
(b) Represents minimum requirements and regulatory buffers applicable to the Firm for the period ended December 31, 2023. For the period ended
December 31, 2022, the Basel III Standardized CET1, Tier 1, and Total capital ratio requirements applicable to the Firm were 12.0%, 13.5%, and 15.5%,
respectively; the Basel III Advanced CET1, Tier 1, and Total capital ratio requirements applicable to the Firm were 10.5%, 12.0%, and 14.0%,
respectively. Refer to Note 27 for additional information.
14.5
16.4
17.7
12.5
264,583
The U.S. federal regulatory capital standards include a
framework for setting a discretionary countercyclical capital
buffer taking into account the macro financial environment
in which large, internationally active banks function. As of
December 31, 2023, the U.S. countercyclical capital buffer
remained at 0%. The Federal Reserve will continue to
review the buffer at least annually. The buffer can be
increased if the Federal Reserve, FDIC and OCC determine
that systemic risks are meaningfully above normal and can
be calibrated up to an additional 2.5% of RWA subject to a
12-month implementation period.
(c)
277,769
Capital ratio
requirements
Standardized
December 31,
2022
December 31,
2023
The following tables present the Firm's risk-based capital metrics under both the Basel III Standardized and Advanced
approaches and leverage-based capital metrics. Refer to Note 27 for JPMorgan Chase Bank, N.A.'s risk-based and leverage-
based capital metrics. First Republic Bank was not subject to Advanced approach regulatory capital requirements. As a result,
for certain exposures associated with the First Republic acquisition, Advanced RWA and any impact on Advanced Total capital
is calculated under the Standardized approach as permitted by the transition provisions in the U.S. capital rules. Refer to Note
34 for additional information on the First Republic acquisition.
Selected capital and RWA data
Management's discussion and analysis
95
(b)
JPMorgan Chase & Co./2023 Form 10-K
In addition to meeting the capital ratio requirements of
Basel III, the Firm and its principal IDI subsidiary, JPMorgan
Chase Bank, N.A. must also maintain minimum capital and
leverage ratios in order to be "well-capitalized” under the
regulations issued by the Federal Reserve and the Prompt
Corrective Action requirements of the FDIC Improvement
Act, respectively. Refer to Note 27 for additional
information.
Other regulatory capital
Banking organizations subject to the Basel III Advanced
approach are currently required to have a minimum SLR of
3.0%. Certain banking organizations, including the Firm,
are also required to hold an additional 2.0% leverage
buffer. The SLR is defined as Tier 1 capital under Basel III
divided by the Firm's total leverage exposure. Total
leverage exposure is calculated by taking the Firm's total
average on-balance sheet assets, less amounts permitted to
be deducted for Tier 1 capital, and adding certain off-
balance sheet exposures, as defined in regulatory capital
rules. Refer to SLR on page 98 for additional information.
Failure to maintain an SLR equal to or greater than the
regulatory requirement will result in limitations on the
amount of capital that the Firm may distribute such as
through dividends and common share repurchases, as well
as on discretionary bonus payments for certain executive
officers.
Supplementary leverage ratio
Leverage-based Capital Regulatory Requirements
The Federal Reserve's TLAC rule requires the U.S. GSIB top-
tier holding companies, including the Firm, to maintain
minimum levels of external TLAC and eligible LTD. Refer to
TLAC on page 100 for additional information.
Total Loss-Absorbing Capacity
Additional information regarding the Firm's capital ratios,
as well as the U.S. federal regulatory capital standards to
which the Firm is subject, is presented in Note 27. Refer to
the Firm's Pillar 3 Regulatory Capital Disclosures reports,
which are available on the Firm's website, for further
information on the Firm's current capital measures.
December 31,
2023
Advanced
December 31,
2022
Capital ratio
requirements
308,497
Total capital
245,631
277,306
245,631
277,306
Tier 1 capital
218,934
$
$ 250,585
218,934
$
250,585
$
CET1 capital
(in millions, except ratios)
Risk-based capital metrics: (a)
(b)
295,417
Operational risk
RWA
$
December 31, 2022
The Bank of England requires that U.K. banks, including U.K.
regulated subsidiaries of overseas groups, maintain
minimum requirements for own funds and eligible liabilities
("MREL"). As of December 31, 2023, J.P. Morgan Securities
plc was compliant with its MREL requirements.
J.P. Morgan Securities plc is a wholly-owned subsidiary of
JPMorgan Chase Bank, N.A. and has authority to engage in
banking, investment banking and broker-dealer activities.
J.P. Morgan Securities plc is jointly regulated in the U.K. by
the Prudential Regulation Authority ("PRA") and the
Financial Conduct Authority ("FCA"). J.P. Morgan Securities
plc is subject to the European Union ("EU") Capital
Requirements Regulation (“CRR”), as adopted in the U.K.,
and the PRA capital rules, each of which have implemented
Basel III and thereby subject J.P. Morgan Securities plc to its
requirements.
J.P. Morgan Securities plc
Non-U.S. subsidiary regulatory capital
J.P. Morgan Securities is registered with the SEC as a
security-based swap dealer and with the CFTC as a swap
dealer. As a result of additional SEC and CFTC capital and
financial reporting requirements for security-based swap
dealers and swap dealers, J.P. Morgan Securities is subject
to alternative minimum net capital requirements and
required to hold "tentative net capital" in excess of $5.0
billion. J.P. Morgan Securities is also required to notify the
SEC and CFTC in the event that its tentative net capital is
less than $6.0 billion. Tentative net capital is net capital
before deducting market and credit risk charges as defined
by the Net Capital Rule. As of December 31, 2023, J.P.
Morgan Securities maintained tentative net capital in excess
of the minimum and notification requirements.
Minimum
5,346
$ 27,865 $
Effective January 1, 2023, J.P. Morgan Securities plc was
required to meet the minimum Tier 1 leverage ratio
requirement established by the PRA of 3.25%, plus
regulatory buffers.
Actual
(in millions)
December 31, 2023
The following table presents J.P. Morgan Securities' net
capital:
"Alternative Net Capital Requirements" of the Net Capital
Rule.
J.P. Morgan Securities has elected to compute its minimum
net capital requirements in accordance with the
JPMorgan Chase's principal U.S. broker-dealer subsidiary is
J.P. Morgan Securities. J.P. Morgan Securities is subject to
the regulatory capital requirements of Rule 15c3-1 under
the Securities Exchange Act of 1934 (the “Net Capital
Rule"). J.P. Morgan Securities is also registered as a futures
commission merchant and is subject to regulatory capital
requirements, including those imposed by the SEC, the
Commodity Futures Trading Commission (“CFTC”), the
Financial Industry Regulatory Authority ("FINRA") and the
National Futures Association (“NFA”).
U.S. broker-dealer regulatory capital
J.P. Morgan Securities
Net Capital
The following table presents J.P. Morgan Securities plc's
risk-based and leverage-based capital metrics:
December 31, 2023
(in millions, except ratios)
Total capital
JPMSE is a wholly-owned subsidiary of JPMorgan Chase
Bank, N.A. and has authority to engage in banking,
investment banking and markets activities. JPMSE is
regulated by the European Central Bank as well as the local
regulators in each of the countries in which it operates, and
it is subject to EU capital requirements under Basel III.
JPMSE is required by the EU Single Resolution Board to
maintain MREL. As of December 31, 2023, JPMSE was
compliant with its MREL requirements.
J.P. Morgan SE
(b) At least 75% of the Tier 1 leverage ratio minimum must be met with
CET1 capital.
(a) Represents minimum Pillar 1 requirements specified by the PRA. J.P.
Morgan Securities plc's capital ratios as of December 31, 2023
exceeded the minimum requirements, including the additional capital
requirements specified by the PRA.
(b)
3.3
8.0
6.0
4.5 %
Total RWA
7.3
28.1
22.3
16.9 %
$ 52,522
Actual
CET1 capital ratio
Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio
JPMorgan Chase & Co./2023 Form 10-K
The following table presents JPMSE's risk-based and
leverage-based capital metrics:
100
Refer to Liquidity Risk Management on pages 102-109 for
further information on long-term debt issued by the Parent
Company.
exposure
5.2 %
11.1 %
4.9 %
11.3 %
9.5
10.0
Regulatory
23.0
$
$ 114.0
55.4
$
$ 129.2
22.5
13.8 %
71.4
requirements
9.5
Surplus/
Effective January 1, 2023, the Firm's regulatory
requirements for TLAC to RWA and eligible LTD to RWA
ratios increased by 50 bps to 23.0% and 10.0%,
respectively, due to the increase in the Firm's GSIB
requirements. Refer to Risk-based Capital Regulatory
Requirements on pages 94-95 for further information on
the GSIB surcharge.
Failure to maintain TLAC equal to or in excess of the
regulatory minimum plus applicable buffers will result in
limitations on the amount of capital that the Firm may
distribute, such as through dividends and common share
repurchases, as well as on discretionary bonus payments
for certain executive officers.
(a) RWA is the greater of Standardized and Advanced compared to their
respective regulatory capital ratio requirements.
leverage
exposure
Greater
of
Greater of Method 1
and Method 2 GSIB
surcharge
4.5%
of total
+
long-term debt
6% of RWA (a)
Minimum level of eligible
$ 18.3 $ 71.2 $ 32.0
82.5
4.5
9.5
4.5
(shortfall)
Refer to Part I, Item 1A: Risk Factors on pages 9-33 of the
2023 Form 10-K for information on the financial
consequences to holders of the Firm's debt and equity
securities in a resolution scenario.
December 31, 2023
(in millions, except ratios)
Total capital
Monitor exposures;
•
Optimize liquidity sources and uses;
•
As part of the Firm's overall liquidity management strategy,
the Firm manages liquidity and funding using a centralized,
global approach designed to:
Setting FTP in accordance with underlying liquidity
characteristics of balance sheet assets and liabilities as
well as certain off-balance sheet items.
related to funding and liquidity risk; and
Identify constraints on the transfer of liquidity between
the Firm's legal entities; and
Managing compliance with regulatory requirements
Managing liquidity within the Firm's approved liquidity
specific liquidity strategies, policies, reporting and
contingency funding plans;
Defining and monitoring Firmwide and legal entity-
Developing internal liquidity stress testing assumptions;
entities, as well as currencies, taking into account legal,
regulatory, and operational restrictions;
of the assets and liabilities of the Firm, LOBS, legal
Analyzing and understanding the liquidity characteristics
risk appetite tolerances and limits;
•
•
Maintain the appropriate amount of surplus liquidity at a
Firmwide and legal entity level, where relevant.
Results of stress tests are considered in the formulation of
the Firm's funding plan and assessment of its liquidity
position. The Parent Company acts as a source of funding
for the Firm through equity and long-term debt issuances,
and its intermediate holding company, JPMorgan Chase
Holdings LLC (the “IHC”), provides funding to support the
ongoing operations of the Parent Company and its
subsidiaries. The Firm maintains liquidity at the Parent
Company, the IHC, and operating subsidiaries at levels
sufficient to comply with liquidity risk tolerances and
minimum liquidity requirements, and to manage through
Liquidity outflows are modeled across a range of time
horizons and currency dimensions and contemplate both
market and idiosyncratic stresses.
material legal entities such as regulatory, legal or other
restrictions.
transferability of liquidity between jurisdictions and
Potential impediments to the availability and
Credit rating downgrades;
Collateral haircuts; and
•
Estimated non-contractual and contingent cash outflows;
•
Varying levels of access to unsecured and secured
funding markets;
•
•
The Firm conducts internal liquidity stress testing that is
intended to ensure that the Firm and its material legal
entities have sufficient liquidity under a variety of adverse
scenarios, including scenarios analyzed as part of the Firm's
resolution and recovery planning. Internal stress tests are
produced on a regular basis, and other stress tests are
performed in response to specific market events or
concerns. Liquidity stress tests assume all of the Firm's
contractual financial obligations are met and take into
consideration:
Internal stress testing
Committees responsible for liquidity governance include the
Firmwide ALCO, as well as regional ALCOs, the Treasurer
Committee, and the CTC Risk Committee. In addition, the
Board Risk Committee reviews and recommends to the
Board of Directors, for approval, the Firm's liquidity risk
tolerances, liquidity strategy, and liquidity policy. Refer to
Firmwide Risk Management on pages 86-89 for further
discussion of ALCO and other risk-related committees.
Governance
•
•
•
•
LIQUIDITY RISK MANAGEMENT
Management's discussion and analysis
101
JPMorgan Chase & Co./2023 Form 10-K
(a) Represents minimum Pillar 1 requirements specified by the EU CRR.
J.P. Morgan SE's capital and leverage ratios as of December 31, 2023
exceeded the minimum requirements, including the additional capital
requirements specified by EU regulators.
3.0
8.0
4.5 %
6.0
(a)
5.8
32.2
18.1
18.1 %
44,158
Regulatory
Actual Minimum ratios
Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio
CET1 capital ratio
Liquidity risk is the risk that the Firm will be unable to meet
its cash and collateral needs as they arise or that it does not
have the appropriate amount, composition and tenor of
funding and liquidity to support its assets and liabilities.
29.4 %
Liquidity risk management
•
The Firm addresses these objectives through:
Manage an optimal funding mix and availability of
liquidity sources.
•
•
• Ensure that the Firm's core businesses and material legal
entities are able to operate in support of client needs and
meet contractual and contingent financial obligations
through normal economic cycles as well as during stress
events, and
Treasury and CIO is responsible for liquidity management.
The primary objectives of the Firm's liquidity management
are to:
Liquidity management
Approving or escalating for review new or updated
liquidity stress assumptions.
Monitoring and reporting internal Firmwide and legal
entity liquidity stress tests, regulatory defined metrics, as
well as liquidity positions, balance sheet variances and
funding activities; and
Performing an independent review of liquidity risk
management processes to evaluate their adequacy and
effectiveness;
Developing a process to classify, monitor and report limit
breaches;
Defining, monitoring and reporting liquidity risk metrics;
Independently establishing and monitoring limits and
indicators, including liquidity risk appetite;
•
•
•
•
•
The Firm has a Liquidity Risk Management ("LRM") function
whose primary objective is to provide independent
oversight of liquidity risk across the Firm. Liquidity Risk
Management's responsibilities include:
13.3 %
Regulatory Minimum
ratiosa
$ 228.5
51,398
3,703,873
663,219
$4,367,092
54,432
3,831,200
709,265
$4,540,465
(b)
Total adjusted average assets
adjustments
Less: Regulatory capital
3,755,271
6.1 %
3,885,632
December 31, December 31,
2023
2022
Total average assets
Tier 1 capital
(in millions, except ratio)
Three months ended
The following table presents the components of the Firm's
SLR.
Supplementary leverage ratio
$ 277,306 $ 245,631
Add: Off-balance sheet exposures(c)
Total leverage exposure
SLR
5.6 %
$ 55.5 $ 50.0
54.5
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
2022
2023(a)
2024
(in billions)
January 1,
December 31,
Line of business equity (Allocated capital)
under rules currently in effect, as well as a simulation of
capital in a severe stress environment. At least annually,
the assumptions, judgments and methodologies used to
allocate capital are reassessed and, as a result, the capital
allocated to the LOBS may change. As of January 1, 2024,
changes to the Firm's line of business capital allocations are
primarily a result of updates to the Firm's current capital
requirements and changes in RWA for each LOB under rules
currently in effect. In addition, the capital that the Firm has
accumulated to meet the increased requirements of the U.S.
Basel III proposal has generally been retained in Corporate.
The following table presents the capital allocated to each
business segment.
The Firm's current allocation methodology incorporates
Basel III Standardized RWA and the GSIB surcharge, both
Each business segment is allocated capital by taking into
consideration a variety of factors including capital levels of
similarly rated peers and applicable regulatory capital
requirements. ROE is measured and internal targets for
expected returns are established as key measures of a
business segment's performance.
Line of business equity
(c) Off-balance sheet exposures are calculated as the average of the three
month-end spot balances on applicable regulatory exposures during
the reporting quarter. Refer to the Firm's Pillar 3 Regulatory Capital
Disclosures reports for additional information.
(b) Adjusted average assets used for the calculation of Tier 1 leverage
ratio.
(a) For purposes of calculating the SLR, includes quarterly average assets
adjusted for on-balance sheet assets that are subject to deduction
from Tier 1 capital, predominantly goodwill, inclusive of estimated
equity method goodwill, other intangible assets and adjustments for
the CECL capital transition provisions. Refer to Note 27 for additional
information on the CECL capital transition.
Refer to the Firm's Pillar 3 Regulatory Capital Disclosures reports, which are available on the Firm's website, for further
information on Credit risk RWA, Market risk RWA and Operational risk RWA.
102.0
(d) As of December 31, 2023, Credit risk RWA reflected approximately $52.4 billion of RWA calculated under the Standardized approach for certain assets
associated with First Republic as permitted by the transition provisions in the U.S. capital rules.
(b) Movement in portfolio levels (inclusive of rule changes) refers to: for Credit risk RWA, changes in book size, impacts associated with the First Republic
acquisition, including the benefit of the shared-loss agreements entered into with the FDIC, position roll-offs in legacy portfolios in Home Lending, changes
in composition and credit quality, market movements, and deductions for excess eligible allowances for credit losses not eligible for inclusion in Tier 2
capital; for Market risk RWA, changes in position, market movements, and changes in the Firm's regulatory multiplier from Regulatory VaR backtesting
exceptions; and for Operational risk RWA, updates to cumulative losses and macroeconomic model inputs.
(11,313)
(15,907)
34,364
(11,975)
46,339
Movement in portfolio levels (b)
30.7 %
(11,024)
(4,883)
Model & data changes (a)
446,265 $
85,432 $
1,078,076 $
$
1,653,538
85,002 $
$ 1,568,536 $
1,609,773
(16,196)
88,498
(11,946)
(a) Model & data changes refer to material movements in levels of RWA as a result of revised methodologies and/or treatment per regulatory guidance
(exclusive of rule changes).
(973)
445,292 $
1,669,156
68,603 $
$ 1,155,261 $
59,383
(16,829)
77,185
18,457
1,671,995
68,144 $
$ 1,603,851 $
December 31, 2023
(16,858)
35,315
Changes in RWA
75,579
(973)
(c) As of December 31, 2023 and 2022, the Basel III Standardized Credit risk RWA included wholesale and retail off balance-sheet RWA of $208.5 billion and
$210.1 billion, respectively; and the Basel III Advanced Credit risk RWA included wholesale and retail off balance-sheet RWA of $188.5 billion and $180.8
billion, respectively.
108.0
(4,883)
30.0
External TLAC requirement
applicable
+
18% of RWA (a)
The external TLAC requirements and the minimum level of
eligible long-term debt requirements are shown below:
The Federal Reserve's TLAC rule requires the U.S. GSIB top-
tier holding companies, including the Firm, to maintain
minimum levels of external TLAC and eligible long-term
debt.
Total Loss-Absorbing Capacity
buffers, including
Other capital requirements
99
JPMorgan Chase & Co./2023 Form 10-K
Refer to Long-term funding and issuance on page 108 and
Note 20 for additional information on the Firm's
subordinated debt.
Subordinated Debt
Preferred stock dividends declared were $1.5 billion for the
year ended December 31, 2023, and $1.6 billion for each
of the years ended December 31, 2022 and 2021.
Refer to Note 21 for additional information on the Firm's
preferred stock, including the issuance and redemption of
preferred stock.
Preferred stock
Refer to capital planning and stress testing on page 91 for
additional information.
Management's discussion and analysis
Greater
of
Method 1 GSIB
surcharge
$ 486.0
103.0
$ 513.8 $ 222.6
December 31, 2022
External
TLAC
LTD
LTD
% of total
leverage
Surplus/
(shortfall)
Regulatory
requirements
% of RWA
(in billions,
except ratio)
Total eligible
amount
The following table presents the eligible external TLAC and
eligible LTD amounts, as well as a representation of these
amounts as a percentage of the Firm's total RWA and total
leverage exposure applying the impact of the CECL capital
transition provisions as of December 31, 2023 and 2022.
2.0% buffer
+
exposure
of total
leverage
7.5%
common shares is utilized at management's discretion, and
the timing of purchases and the exact amount of common
shares that may be repurchased is subject to various
factors, including market conditions; legal and regulatory
considerations affecting the amount and timing of
repurchase activity; the Firm's capital position (taking into
account goodwill and intangibles); internal capital
generation; current and proposed future capital
requirements; and alternative investment opportunities.
The $30 billion common share repurchase program
approved by the Board does not establish specific price
targets or timetables. The repurchase program may be
suspended by management at any time; and may be
executed through open market purchases or privately
negotiated transactions, or utilizing Rule 10b5-1 plans,
which are written trading plans that the Firm may enter into
from time to time under Rule 10b5-1 of the Securities
Exchange Act of 1934 and which allow the Firm to
repurchase its common shares during periods when it may
otherwise not be repurchasing common shares – for
example, during internal trading blackout periods.
Refer to Part II, Item 5: Market for Registrant's Common
Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities on page 35 of the 2023 Form 10-K for
additional information regarding repurchases of the Firm's
equity securities.
The Board of Directors' authorization to repurchase
December 31, 2023
External
TLAC
(b) In the second half of 2022, the Firm temporarily suspended share
repurchases, which it resumed under its current common share
repurchase program in the first quarter of 2023.
The Firm's quarterly common stock dividend is currently
$1.05 per share. The Firm's dividends are subject to
approval by the Board of Directors on a quarterly basis.
Refer to Note 21 and Note 26 for information regarding
dividend restrictions.
The Firm's common stock dividends are planned as part of
the Capital Management governance framework in line with
the Firm's capital management objectives.
Common stock dividends
Capital actions
JPMorgan Chase & Co./2023 Form 10-K
98
Total common stockholders' equity $ 300.5
(a) Includes the impact of the First Republic acquisition.
Asset & Wealth Management
Corporate
$ 300.5 $ 264.9
69.9
90.0
98.5
30.0
17.0
15.5
(c) As directed by the Federal Reserve, total net repurchases and common
stock dividends in the first and second quarter of 2021 were restricted
and could not exceed the average of the Firm's net income for the four
preceding calendar quarters. Effective July 1, 2021, the Firm became
subject to the normal capital distribution restrictions provided under
the regulatory capital framework.
25.0
The following table shows the common dividend payout
ratio based on net income applicable to common equity.
Year ended December 31,
Common dividend payout ratio
17.0
25 %
2023
119.7
23.1
69.5
(a) Excludes excise tax and commissions. As part of the Inflation Reduction
Act of 2022, a 1% excise tax was imposed on net share repurchases
effective January 1, 2023.
(c)
2021
2023 2022(b)
$ 9,898 $ 3,122 $ 18,448
Total number of shares of common
stock repurchased
Year ended December 31, (in millions)
The following table sets forth the Firm's repurchases of
common stock for the years ended December 31, 2023,
2022 and 2021.
Effective May 1, 2022, the Firm is authorized to purchase
up to $30 billion under its common share repurchase
program previously approved by the Board of Directors,
which was announced on April 13, 2022.
2021
25 %
Common stock
Aggregate purchase price of common
stock repurchases (a)
2022
33 %
Stable
P-1
A1
Moody's Investors Service
issuer
December 31, 2023
issuer
issuer
Long-term
Short-term
Long-term
Aa2
Outlook
J.P. Morgan Securities LLC
J.P. Morgan Securities plc
J.P. Morgan SE
AA-
Long-term
(b)
Aa3
Outlook
issuer
issuer
Outlook
Negative
Stable
A-1
A+
Stable
Stable
F1+
Fitch Ratings
A-2
A-
Standard & Poor's (a)
Short-term
Short-term
issuer
P-1
JPMorgan Chase Bank, N.A.
ΝΑ
The credit ratings of the Parent Company and the Firm's principal bank and non-bank subsidiaries as of December 31, 2023,
were as follows:
999 $
$
1,998
39,775
50,000
991
92,764
$
Total long-term secured funding
(b)
2023
1,000
9,485
Other long-term secured funding"
FHLB advances
$
Credit card securitization
2022
P-1
2023
Purchase Money Note (a)
$
2022
1,400
14
maintains sufficient liquidity to withstand a potential
decrease in funding capacity due to ratings downgrades.
Additionally, the Firm's funding requirements for VIES and
other third-party commitments may be adversely affected
by a decline in credit ratings. Refer to Note 5 and Note 14
for additional information.
The cost and availability of financing are influenced by
credit ratings. Reductions in these ratings could have an
adverse effect on the Firm's access to liquidity sources,
increase the cost of funds, trigger additional collateral or
funding requirements and decrease the number of investors
and counterparties willing to lend to the Firm. The nature
and magnitude of the impact of ratings downgrades
depends on numerous contractual and behavioral factors,
which the Firm believes are incorporated in its liquidity risk
and stress testing metrics. The Firm believes that it
Credit ratings
JPMorgan Chase & Co./2023 Form 10-K
108
The Firm's wholesale businesses also securitize loans for client-driven transactions; those client-driven loan securitizations are
not considered to be a source of funding for the Firm and are not included in the table above. Refer to Note 14 for a further
description of client-driven loan securitizations.
(a) Reflects the Purchase Money Note associated with the First Republic acquisition. Refer to Note 34 for additional information.
(b) Includes long-term structured notes that are secured.
1,682
$
10,917
268
432
476
1,475 $
$
ΝΑ
JPMorgan Chase & Co.
Stable
Maintaining a credit risk policy framework
A-1
The Firm has developed policies and practices that are
designed to preserve the independence and integrity of the
approval and decision-making process for extending credit
so that credit risks are assessed accurately, approved
properly, monitored regularly and managed actively at both
the transaction and portfolio levels. The policy framework
establishes credit approval authorities, concentration limits,
risk-rating methodologies, portfolio review parameters and
guidelines for management of distressed exposures. In
addition, certain models, assumptions and inputs used in
evaluating and monitoring credit risk are independently
validated by groups that are separate from the LOBS.
Consumer credit risk is monitored for delinquency and
other trends, including any concentrations at the portfolio
level, as certain of these trends can be addressed through
changes in underwriting policies and portfolio guidelines.
Consumer Risk Management evaluates delinquency and
other trends against business expectations, current and
forecasted economic conditions, and industry benchmarks.
Historical and forecasted economic performance and trends
are incorporated into the modeling of estimated consumer
credit losses and are part of the monitoring of the credit
risk profile of the portfolio.
Risk monitoring and management
Management's discussion and analysis
111
JPMorgan Chase & Co./2023 Form 10-K
Stress testing is important in measuring and managing
credit risk in the Firm's credit portfolio. The stress testing
process assesses the potential impact of alternative
economic and business scenarios on estimated credit losses
for the Firm. Economic scenarios and the underlying
parameters are defined centrally, articulated in terms of
macroeconomic factors and applied across the businesses.
The stress test results may indicate credit migration,
changes in delinquency trends and potential losses in the
credit portfolio. In addition to the periodic stress testing
processes, management also considers additional stresses
outside these scenarios, including industry and country-
specific stress scenarios, as appropriate. The Firm uses
stress testing to inform decisions on setting risk appetite
both at a Firm and LOB level, as well as to assess the impact
of stress on individual counterparties.
Wholesale credit risk is monitored regularly at an aggregate
portfolio, industry, and individual client and counterparty
level with established concentration limits that are
reviewed and revised periodically as deemed appropriate
by management. Industry and counterparty limits, as
measured in terms of exposure and economic risk appetite,
are subject to stress-based loss constraints.
Stress testing
Based on these factors and the methodology and estimates
described in Note 13 and Note 10, the Firm estimates credit
losses for its exposures. The allowance for loan losses
reflects estimated credit losses related to the consumer and
wholesale held-for-investment loan portfolios, the
allowance for lending-related commitments reflects
estimated credit losses related to the Firm's lending-related
commitments and the allowance for investment securities
reflects estimated credit losses related to the investment
securities portfolio. Refer to Note 13, Note 10 and Critical
Accounting Estimates used by the Firm on pages 155-158
for further information.
To measure credit risk, the Firm employs several
methodologies for estimating the likelihood of obligor or
counterparty default. Methodologies for measuring credit
risk vary depending on several factors, including type of
asset (e.g., consumer versus wholesale), risk measurement
parameters (e.g., delinquency status and borrower's credit
score versus wholesale risk-rating) and risk management
and collection processes (e.g., retail collection center
versus centrally managed workout groups). Credit risk
measurement is based on the probability of default of an
obligor or counterparty, the loss severity given a default
event and the exposure at default.
Risk identification and measurement
Managing criticized exposures and delinquent loans, and
Estimating credit losses and supporting appropriate
credit risk-based capital management
Setting industry and geographic concentration limits, as
appropriate, and establishing underwriting guidelines
Assigning and managing credit approval authorities in
connection with the approval of credit exposure
Monitoring, measuring and managing credit risk across
all portfolio segments, including transaction and
exposure approval
In addition, potential and unexpected credit losses are
reflected in the allocation of credit risk capital and
represent the potential volatility of actual losses relative to
the established allowances for loan losses and lending-
related commitments. The analyses for these losses include
stress testing that considers alternative economic scenarios
as described below.
•
Management of the Firm's wholesale credit risk exposure is
accomplished through a number of means, including:
• Loan syndications and participations
(in millions)
JPMorgan Chase & Co./2023 Form 10-K
112
Collateral and other risk-reduction techniques
•
To enable monitoring of credit risk and effective decision-
making, aggregate credit exposure, credit quality forecasts,
concentration levels and risk profile changes are reported
regularly to senior members of Credit Risk Management.
Detailed portfolio reporting of industry, clients,
counterparties and customers, product and geography are
prepared, and the appropriateness of the allowance for
credit losses is reviewed by senior management at least on
a quarterly basis. Through the risk reporting and
governance structure, credit risk trends and limit
exceptions are provided regularly to, and discussed with,
risk committees, senior management and the Board of
Directors.
• Loan underwriting and credit approval processes
Risk reporting
Independently assessing risk grades assigned to
exposures in the Firm's wholesale credit portfolio and the
timeliness of risk grade changes initiated by responsible
business units; and
In addition to Credit Risk Management, an independent
Credit Review function is responsible for:
• Master netting agreements, and
Credit derivatives
•
• Loan sales and securitizations
Evaluating the effectiveness of the credit management
processes of the LOBS and Corporate, including the
adequacy of credit analyses and risk grading/loss given
default ("LGD") rationales, proper monitoring and
management of credit exposures, and compliance with
applicable grading policies and underwriting guidelines.
Refer to Note 12 for further discussion of consumer and
wholesale loans.
A+
•
Credit Risk Management monitors, measures and manages
credit risk throughout the Firm and defines credit risk
policies and procedures. The Firm's credit risk management
governance includes the following activities:
REPUTATION RISK MANAGEMENT
109
JPMorgan Chase & Co./2023 Form 10-K
Critical factors in maintaining high credit ratings include a
stable and diverse earnings stream, strong capital and
liquidity ratios, strong credit quality and risk management
controls, and diverse funding sources. Rating agencies
continue to evaluate economic and geopolitical trends,
regulatory developments, future profitability, risk
management practices, and litigation matters, as well as
their broader ratings methodologies. Changes in any of
these factors could lead to changes in the Firm's credit
ratings.
JPMorgan Chase's unsecured debt does not contain
requirements that would call for an acceleration of
payments, maturities or changes in the structure of the
existing debt, provide any limitations on future borrowings
or require additional collateral, based on unfavorable
changes in the Firm's credit ratings, financial ratios,
earnings, or stock price.
(b) On November 13, 2023, Moody's revised the outlook of the Firm's principal bank subsidiary from stable to negative to reflect Moody's change to the U.S.
sovereign outlook.
Reputation risk is the risk that an action or inaction may
negatively impact perception of the Firm's integrity and
reduce confidence in the Firm's competence by various
stakeholders, including clients, counterparties, customers,
communities, investors, regulators, or employees.
(a) On March 31, 2023, Standard & Poor's affirmed the credit ratings of the Parent Company and the Firm's principal bank and non-bank subsidiaries, and
revised the outlook from positive to stable.
F1+
AA
Stable
F1+
AA
Stable
Stable
•
The types of events that may result in reputation risk are
wide-ranging and can be introduced by the Firm's
employees, business strategies and activities, clients,
customers and counterparties with which the Firm does
business. These events could contribute to financial losses,
litigation, regulatory enforcement actions, fines, penalties
or other sanctions, as well as other harm to the Firm.
Reputation Risk Management is an independent risk
management function that establishes the governance
framework for managing reputation risk across the Firm's
LOBS and Corporate. Reputation risk is inherently
challenging to identify, manage, and quantify.
Credit risk is the risk associated with the default or change
in credit profile of a client, counterparty or customer. The
Firm provides credit to a variety of clients and customers,
ranging from large corporate and institutional clients to
individual consumers and small businesses. In its consumer
businesses, the Firm is exposed to credit risk primarily
through its home lending, credit card, auto, and business
banking businesses. In its wholesale businesses, the Firm is
exposed to credit risk through its underwriting, lending,
market-making, and hedging activities with and for clients
and counterparties, as well as through its operating services
activities (such as cash management and clearing
activities), and securities financing activities. The Firm is
also exposed to credit risk through its investment securities
portfolio and cash placed with banks.
Credit risk management
Credit and investment risk is the risk associated with the
default or change in credit profile of a client, counterparty
or customer; or loss of principal or a reduction in expected
returns on investments, including consumer credit risk,
wholesale credit risk, and investment portfolio risk.
CREDIT AND INVESTMENT RISK MANAGEMENT
JPMorgan Chase & Co./2023 Form 10-K
110
Organization and management
The Reputation Risk Governance policy establishes the
principles for managing reputation risk for the Firm. It is
the responsibility of each LOB, Corporate and employees to
consider the reputation of the Firm when deciding whether
to offer a new product, engage in a transaction or client
relationship, enter a new jurisdiction, initiate a business
process or consider any other activity. Environmental
impacts and social concerns are increasingly important
considerations in assessing the Firm's reputation risk, and
are a component of the Firm's reputation risk governance.
consistent identification, escalation and monitoring of
reputation risk issues Firmwide
Providing oversight of the governance framework
through processes and infrastructure to support
policy and a standard consistent with the reputation risk
framework
•Maintaining a Firmwide Reputation Risk Governance
•
The Firm's reputation risk management function includes
the following activities:
Governance and oversight
Maturities/Redemptions
2,998
Year ended December 31,
Non-U.S. offices
0.05
0.34
1.36
1,949,786
0.52
2.03
Noninterest-bearing
1,301,616
1,925,901
Total deposits in U.S. offices
1,290,110
Total interest-bearing deposits
0.26
2.07
4.74
1,358,322
2,049,528
Interest-bearing
Demand
Time
5.82
57,749
65,604
86,443
(0.10)
0.57
2.71
313,304
324,740
321,976
ΝΑ
ΝΑ
ΝΑ
26,315
28,043
24,747
Total interest-bearing deposits
48,628
1.85
62,022
Time
$ 635,791
Noninterest-bearing
U.S. offices
2021
2022
2023
2021
$ 691,206
2022
(in millions, except interest rates)
Average interest rates
Average balances
Year ended December 31,
(Unaudited)
The following table provides a summary of the average balances and average interest rates of JPMorgan Chase's deposits for
the years ended December 31, 2023, 2022, and 2021.
49 %
2023
$
648,170
ΝΑ
0.06
0.28
1.10
930,866
971,788
864,558
Savings (b)
0.06 %
0.92 %
3.50 %
322,122
324,512
279,725
Demand (a)
Interest-bearing
ΝΑ
ΝΑ
145,827
55 %
(0.09)
Total deposits in non-U.S. offices
212,804
$
(a)
Securities sold under agreements to repurchase"
29,968
$
24,141
$
22,659 $
23,724
$
Total short-term unsecured funding
1,567
1,754
1,684
787
$
198,382 $
249,661
$
14,918
9,236
17,781
(b)
Obligations of Firm-administered multi-seller conduits"
25,211
22,010
23,052
(g)
21,775
Other borrowed funds
5,003
4,671
2,547
2,944
Securities loaned (a)
236,192
Federal funds purchased
408,419
12,250
8,418
0.02 %
0.41 %
1.70 %
$ 2,347,154
$ 2,467,915
$ 2,359,067
(0.09)
Total deposits
0.73
397,368
(0.10)
0.78
3.37
371,053
390,344
418,387
433,166
3.18
(a) Includes Negotiable Order of Withdrawal accounts, and certain trust accounts.
(b) Includes Money Market Deposit Accounts.
Refer to Note 17 for additional information on deposits.
106
16,151
$
12,557 $ 12,675
$
2022
2023
2022
2023
14,737
8,200
Average
Other borrowed funds
Commercial paper
(in millions)
As of or for the year ended December 31,
Sources of funds (excluding deposits)
and average balances for the years ended December 31, 2023 and 2022. Refer to the Consolidated Balance Sheets Analysis
on pages 58-60 and Note 11 for additional information.
The following table summarizes short-term and long-term funding, excluding deposits, as of December 31, 2023 and 2022,
JPMorgan Chase & Co./2023 Form 10-K
9,712
Loans-to-deposits ratio
1,135.6
$
As of December 31, 2023 and 2022, the Firm had
approximately $1.4 trillion of available cash and securities
comprised of eligible end-of-period HQLA, excluding the
impact of regulatory haircuts of $798.0 billion and $735.5
billion, respectively, and unencumbered marketable
securities with a fair value of approximately $649 billion
and $694 billion, respectively.
In addition to the assets reported in the Firm's eligible
HQLA discussed above, the Firm had unencumbered
marketable securities, such as equity and debt securities,
that the Firm believes would be available to raise liquidity.
This includes excess eligible HQLA securities at JPMorgan
Chase Bank, N.A. that are not transferable to non-bank
affiliates. The fair value of these securities was
approximately $649 billion and $694 billion as of
December 31, 2023 and 2022, respectively, although the
amount of liquidity that could be raised at any particular
time would be dependent on prevailing market conditions.
The decrease compared to December 31, 2022, was driven
by a reduction in excess eligible HQLA securities at
JPMorgan Chase Bank, N.A., partially offset by an increase
in unencumbered AFS securities.
Liquidity sources
Actions by the Federal Reserve have impacted depositor
behavior, resulting in reductions to system-wide deposits,
including those held by the Firm. Each of the Firm and
JPMorgan Chase Bank, N.A.'s average LCR may fluctuate
from period to period due to changes in their respective
eligible HQLA and estimated net cash outflows as a result of
ongoing business activity and from the continued impacts of
Federal Reserve actions as well as other factors. Refer to
the Firm's U.S. LCR Disclosure reports, which are available
on the Firm's website, for a further discussion of the Firm's
LCR.
Management's discussion and analysis
103
JPMorgan Chase & Co./2023 Form 10-K
The Firm also had available borrowing capacity at the
Federal Home Loan Banks ("FHLBS") and the discount
window at the Federal Reserve Banks as a result of
collateral pledged by the Firm to such banks of
approximately $340 billion and $323 billion as of
December 31, 2023 and 2022, respectively. This borrowing
capacity excludes the benefit of cash and securities
reported in the Firm's eligible HQLA or other unencumbered
securities that are currently pledged at the Federal Reserve
Banks discount window and other central banks. Available
borrowing capacity increased from December 31, 2022
primarily due to a higher amount of wholesale loans
pledged at the Federal Reserve Banks. Although available,
the Firm does not view this borrowing capacity at the
Federal Reserve Banks discount window and the other
central banks as a primary source of liquidity.
Republic acquisition.
JPMorgan Chase Bank, N.A.'s average LCR increased during
the three months ended December 31, 2023, compared
with the three months ended September 30, 2023, driven
by CIB market activities, partially offset by loan growth.
JPMorgan Chase Bank, N.A.'s average LCR for the three
months ended December 31, 2023 decreased compared
with the three months ended December 31, 2022,
reflecting a decrease in JPMorgan Chase Bank, N.A.'s HQLA
as a result of a reduction in cash due to a decline in average
deposits and loan growth, as well as the impact of First
Republic and lower market values of HQLA-eligible
investment securities. These impacts were partially offset
by CIB markets activities.
(c) Predominantly U.S. Treasuries, U.S. GSE and government agency MBS,
and sovereign bonds net of regulatory haircuts under the LCR rule.
(d) Excludes average excess eligible HQLA at JPMorgan Chase Bank, N.A.
that are not transferable to non-bank affiliates.
(b) Eligible HQLA securities may be reported in securities borrowed or
purchased under resale agreements, trading assets, or investment
securities on the Firm's Consolidated balance sheets. For purposes of
calculating the LCR, HQLA securities are included at fair value, which
may differ from the accounting treatment under U.S. GAAP.
(a) Represents cash on deposit at central banks, primarily the Federal
Reserve Banks.
$ 167,096 $ 356,733
$ 215,190
Net excess eligible
HQLA
Refer to Note 10 and Note 34 for additional information on
the Firm's investment securities portfolio and the First
NSFR
The net stable funding ratio ("NSFR") is a liquidity
requirement for large banking organizations that is
intended to measure the adequacy of "available” stable
funding that is sufficient to meet their "required" amounts
of stable funding over a one-year horizon.
For the three months ended December 31, 2023, both the
Firm and JPMorgan Chase Bank, N.A. were compliant with
the 100% minimum NSFR requirement, based on the Firm's
interpretation of the final rule. Refer to the Firm's U.S. NSFR
Disclosure report covering December 31, 2023 and
September 30, 2023 on the Firm's website for additional
information.
Asset & Wealth Management
Commercial Banking
Corporate & Investment Bank
Consumer & Community Banking
Average
(in millions)
As of or for the year ended December 31,
The table below summarizes, by LOB and Corporate, the period-end and average deposit balances as of and for the years ended
December 31, 2023 and 2022.
Refer to Note 28 for additional information on off-balance
sheet obligations.
debt, or from borrowings from the IHC. The Firm's non-bank
subsidiaries are primarily funded from long-term unsecured
borrowings and short-term secured borrowings which are
primarily securities loaned or sold under repurchase
agreements. Excess funding is invested by Treasury and CIO
in the Firm's investment securities portfolio or deployed in
cash or other short-term liquid investments based on their
interest rate and liquidity risk characteristics.
Deposits
The Firm funds its global balance sheet through diverse
sources of funding including stable deposits, secured and
unsecured funding in the capital markets and stockholders'
equity. Deposits are the primary funding source for
JPMorgan Chase Bank, N.A. Additionally, JPMorgan Chase
Bank, N.A. may access funding through short- or long-term
secured borrowings, the issuance of unsecured long-term
Management believes that the Firm's unsecured and secured
funding capacity is sufficient to meet its on- and off-balance
sheet obligations, which includes both short- and long-term
cash requirements.
Sources of funds
Funding
JPMorgan Chase & Co./2023 Form 10-K
104
151 %
Corporate
123 %
$ 781,365 $ 733,048
$ 652,580
112 %
112 %
December 31, September 30, December 31,
2023
Three months ended
(d)
Eligible securities (b)(c)
Eligible cash (a)
HQLA
Average amount
(in millions)
2023
December 31, 2022 based on the Firm's interpretation of
the LCR framework.
Estimated net cash outflows are based on standardized
stress outflow and inflow rates prescribed in the LCR rule,
which are applied to the balances of the Firm's assets,
sources of funds, and obligations. The LCR for both the Firm
and JPMorgan Chase Bank, N.A. is required to be a
minimum of 100%.
Under the LCR rule, the amount of eligible HQLA held by
JPMorgan Chase Bank, N.A. that is in excess of its stand-
alone 100% minimum LCR requirement, and that is not
transferable to non-bank affiliates, must be excluded from
the Firm's reported eligible HQLA.
The LCR rule requires that the Firm and JPMorgan Chase
Bank, N.A. maintain an amount of eligible HQLA that is
sufficient to meet their respective estimated total net cash
outflows over a prospective 30 calendar-day period of
significant stress. Eligible HQLA, for purposes of calculating
the LCR, is the amount of unencumbered HQLA that satisfy
certain operational considerations as defined in the LCR
rule. HQLA primarily consist of cash and certain high-quality
liquid securities as defined in the LCR rule.
LCR and HQLA
The Firm's Contingency Funding Plan ("CFP") sets out the
strategies for addressing and managing liquidity resource
needs during a liquidity stress event and incorporates
liquidity risk limits, indicators and risk appetite tolerances.
The CFP also identifies the alternative contingent funding
and liquidity resources available to the Firm and its legal
entities in a period of stress.
Contingency funding plan
periods of stress when access to normal funding sources
may be disrupted.
The following table summarizes the Firm and JPMorgan
Chase Bank, N.A.'s average LCR for the three months ended
December 31, 2023, September 30, 2023 and
2022
JPMorgan Chase & Co.:
$ 485,263
313,365
LCR
JPMorgan Chase Bank, N.A.:
LCR
Total HQLA
Net cash outflows
$ 80,468
$ 84,697
93,771
$
Net excess eligible
HQLA
(d)
113 %
$ 696,668
$ 704,857
$ 798,628
190,201
$ 542,847
$ 402,663
378,702
129 %
Total Firm
The Firm believes that deposits provide a stable source of
funding and reduce the Firm's reliance on the wholesale
funding markets. A significant portion of the Firm's deposits
are consumer deposits and wholesale operating deposits,
which are both considered to be stable sources of liquidity.
Wholesale operating deposits are generally considered to be
stable sources of liquidity because they are generated from
customers that maintain operating service relationships with
the Firm.
The Firm believes that average deposit balances are
generally more representative of deposit trends than period-
end deposit balances. However, during periods of market
disruption, average deposit trends may be impacted.
Average deposits were lower for the year ended December
31, 2023 compared to the year ended December 31, 2022,
reflecting the net impact of:
3,658
8,670
5,358
17,736
$ 68,765
$ 82,719 $ 77,466 $43,513
Non-U.S.
Over six months
but within 12
months
U.S.
U.S.
December 31,
2022
December 31,
2023
Over three months
but within 6
months
(in millions)
Three months or
less
Total uninsured deposits include time deposits. The table
below presents an estimate of uninsured U.S. and non-U.S.
time deposits, and their remaining maturities. The Firm's
estimates of its uninsured U.S. time deposits are based on
data that the Firm calculates periodically under applicable
FDIC regulations. For purposes of this presentation, all non-
U.S. time deposits are deemed to be uninsured.
Certain deposits are covered by insurance protection that
provides additional funding stability and results in a benefit
to the LCR. Deposit insurance protection may be available
to depositors in the countries in which the deposits are
placed. For example, the Federal Deposit Insurance
Corporation ("FDIC") provides deposit insurance protection
for deposits placed in a U.S. depository institution. At
December 31, 2023 and 2022, the Firmwide estimated
uninsured deposits were $1,331.9 billion and $1,383.7
billion, respectively, primarily reflecting wholesale
operating deposits.
Non-U.S.
10,294
Over 12 months
Total
710
1,323.7
$
69 %
2022
2,340.2
2023
2,400.7 $
68 %
Deposits as a % of total liabilities
Loans
$
(in billions except ratios)
Deposits
As of December 31,
The table below shows the loan and deposit balances, the
loans-to-deposits ratios, and deposits as a percentage of
total liabilities, as of December 31, 2023 and 2022.
$111,459 $ 90,187 $60,005 $ 77,907
2,634
2,850
787
2,543
7,035
4,820
Refer to the Firm's Consolidated Balance Sheets Analysis
and the Business Segment Results on pages 58-60 and
pages 65-85, respectively, for further information on
deposit and liability balance trends. Refer to Note 3 for
further information on structured notes.
Refer to Business Segment Results on pages 65-85 and
Note 34 for additional information on the First Republic
acquisition.
Management's discussion and analysis
105
273,254
739,700
728,537
689,893
777,638
$ 1,126,552 $ 1,162,680
$ 1,094,738 $ 1,131,611
2022
2023
2022
2023
a decline in CIB due to deposit attrition, including actions
taken to reduce certain deposits, predominantly offset by
•
• a decrease in CB due to continued deposit attrition as
clients seek higher-yielding investments, partially offset
by the retention of inflows associated with disruptions in
the market in the first quarter of 2023,
a decline in CCB reflecting higher customer spending,
largely offset by the impact of First Republic,
lower balances in AWM due to continued migration into
higher-yielding investments driven by the higher interest
rate environment, partially offset by growth from new and
existing customers as a result of new product offerings
and the impact of First Republic,
•
271,342
7,387
267,758
233,232
JPMorgan Chase & Co./2023 Form 10-K
• a decrease in CB due to continued deposit attrition as
clients seek higher-yielding investments, predominantly
offset by the retention of inflows associated with
disruptions in the market in the first quarter of 2023.
The net increase also included $61 billion of deposits
associated with First Republic, primarily reflected in CCB,
AWM and CB.
• a decline in AWM due to continued migration into higher-
yielding investments driven by the higher interest rate
environment, predominantly offset by growth from new
and existing customers as a result of new product
offerings, and
lower balances in CCB reflecting higher customer
spending,
higher balances in CIB due to net issuances of structured
notes as a result of client demand, as well as deposit
inflows from client-driven activities in Payments and
Securities Services, partially offset by deposit attrition,
including actions taken to reduce certain deposits,
growth in Corporate related to the Firm's international
consumer initiatives,
Period-end deposits increased from December 31, 2022,
reflecting the net impact of:
growth in Corporate related to the Firm's international
consumer initiatives.
net issuances of structured notes as a result of client
demand, and
$ 2,359,067 $ 2,467,915
$ 2,400,688 $ 2,340,179
9,866
20,042
14,203
21,826
261,489
216,178
233,130
294,180
Total short-term secured funding
0.07
The significant majority of the Firm's total outstanding long-term debt has been issued by the Parent Company to provide
flexibility in support of the funding needs of both bank and non-bank subsidiaries. The Parent Company advances substantially
all net funding proceeds to its subsidiary, the IHC. The IHC does not issue debt to external counterparties. For the year ended
December 31, 2023, the increase in period-end structured notes compared to the prior year period was attributable to net
issuances of structured notes in Markets due to client demand and an increase in fair value.
4,105
4,624
Other long-term secured funding
(e)
ΝΑ
32,829
ΝΑ $
48,989
Purchase Money Note (d)
11,103
28,865
11,093
41,246
(g)
1,950
4,513
3,837
Total long-term secured funding
Common stockholders' equity(f)
(g) As of December 31, 2023, included short-term and long-term FHLB advances of $500 million and $23.2 billion, respectively, associated with First
Republic. Refer to Note 34 for additional information.
(f) Refer to Capital Risk Management on pages 91-101, Consolidated statements of changes in stockholders' equity on page 169, Note 21 and Note 22 for
additional information on preferred stock and common stockholders' equity.
(a) Primarily consists of short-term securities loaned or sold under agreements to repurchase.
(b) Included in beneficial interests issued by consolidated variable interest entities on the Firm's Consolidated balance sheets.
(c) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
(d) Reflects the Purchase Money Note associated with the First Republic acquisition on May 1, 2023. Refer to Note 34 for additional information.
(e) Includes long-term structured notes which are secured.
Preferred stock (f)
$ 253,068
16,890
$
$ 31,893
$
17,197 $ 67,841
27,404 $ 27,404
264,928 $ 282,056
$ 300,474
$
27,404
$
$
97,857
$
$
1,634
1,999 $
$
189,047
$
181,803
188,025 $
$
191,202
$
Subordinated debt
Senior notes
$
291,260
233,217 $
$
255,304
$
Issuance
273,793
Short-term funding
19,708
20,374
$
277,828
$
280,667 $
$
296,966
$
21,803
68,656
70,839
86,056
FHLB advances
Credit card securitization (b)
Total long-term unsecured funding
Structured notes (c)
20,125
76,574
The Firm's sources of short-term secured funding primarily
consist of securities loaned or sold under agreements to
repurchase. These instruments are secured predominantly
by high-quality securities collateral, including government-
issued debt and U.S. GSE and government agency MBS.
Securities sold under agreements to repurchase increased
at December 31, 2023, compared with December 31,
2022, reflecting the impact of a lower level of netting on
reduced repurchase activity.
278,751
The Firm's sources of short-term unsecured funding
primarily consist of issuances of wholesale commercial
paper and other borrowed funds.
3,013
2,535
Total long-term unsecured funding - issuance
$
19,410 $
41,387 $
35,281
39,031 $
35,577
35,577
Maturities/redemptions
Senior notes
$
Subordinated debt
21,483 $
2,090
Structured notes (a)
16,700 $
65
Structured notes
1,532
1,594
Total long-term unsecured funding - maturities/redemptions
$
28,777
28,844 $
25,481
25,546
(a) Includes certain TLAC-eligible long-term unsecured debt issued by the Parent Company.
The Firm can also raise secured long-term funding through securitization of consumer credit card loans and FHLB advances.
The following table summarizes the securitization issuance, the FHLB advances, and their respective maturities or
redemptions, as applicable for the years ended December 31, 2023 and 2022. Additionally, the table includes the FHLB
advances and Purchase Money Note associated with First Republic. Refer to Note 34 for additional information.
Long-term secured funding
The balances associated with securities loaned or sold
under agreements to repurchase fluctuate over time due to
investment and financing activities of clients, the Firm's
demand for financing, the ongoing management of the mix
of the Firm's liabilities, including its secured and unsecured
financing (for both the investment securities and market-
making portfolios), and other market and portfolio factors.
67 $
3,500
25,105 $ 18,294 $
35,352
The increase in period-end commercial paper and the
decrease in average balances for the year ended
December 31, 2023 compared to the respective prior year
periods were due to changes in net issuance levels primarily
for short-term liquidity management.
3,750
The decrease in average secured other borrowed funds for
the year ended December 31, 2023 compared to the prior
year period was primarily due to lower financing of Markets
activities.
JPMorgan Chase & Co./2023 Form 10-K
107
Management's discussion and analysis
Long-term funding provides an additional source of stable funding and liquidity for the Firm. The Firm's long-term funding plan
is driven primarily by expected client activity, liquidity considerations and regulatory requirements, including TLAC. Long-term
funding objectives include maintaining diversification, maximizing market access and optimizing funding costs. The Firm
evaluates various funding markets, tenors and currencies in creating its optimal long-term funding plan.
The following table summarizes long-term unsecured issuance and maturities or redemptions for the years ended
December 31, 2023 and 2022. Refer to Note 20 for additional information on the IHC and long-term debt.
Long-term unsecured funding
Year ended December 31,
(Notional in millions)
Issuance
Senior notes issued in the U.S. market
Senior notes issued in non-U.S. markets
Long-term funding and issuance
Subordinated debt
Total senior notes
2,141
3,750 $
14,256 $ 32,600 $
Subsidiaries
$
2,752
2022
2023
16,397
2022
Parent Company
2023
255
472
1,393
$
2,196
Returned to performing status
Foreclosures and other liquidations
5,350
4,325 $
1,306
2,894
3,016
1,405
186
168
Total reductions
3,221
Net changes
(122)
2022
(1,025)
Ending balance
$
1,052
2023
28
Reductions:
2022
2023
4,203 $
$ 4,015 $ 4,196
188
129
4,203
4,325
120
$1,341,765
129
42
162
157
$
4,365 $ 4,482
(a) At December 31, 2023 and 2022, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $182 million and $302 million, respectively.
These amounts have been excluded based upon the government
guarantee.
(b) Generally excludes loans under payment deferral programs offered in
response to the COVID-19 pandemic.
(c) At December 31, 2023 and 2022, nonaccrual loans excluded $15
million and $101 million, respectively, of PPP loans 90 or more days
past due and guaranteed by the SBA.
Nonaccrual loans
The following table presents changes in consumer,
excluding credit card, nonaccrual loans for the years ended
December 31, 2023 and 2022.
Nonaccrual loan activity
Year ended December 31,
(in millions)
Beginning balance
Additions:
Principal payments and other (a)
Charge-offs
4,325
3,352
32,075
639,097 2,714 2,395
70,880
364
296
Refer to Note 12 for further information about the
consumer credit portfolio, including information about
delinquencies, other credit quality indicators, loan
modifications and loans that were in the process of active or
suspended foreclosure.
$ 603,670 $2,346 $1,963
26
406
89
279
47,625
49,257
Total wholesale
credit-related
assets
Assets acquired in
loan satisfactions
Real estate owned
804,979
759,234 3,078 2,691
ΝΑ
(c)
471,980
536,786
74
154
ΝΑ
ΝΑ
Total assets acquired
ΝΑ
ΝΑ
Other
74
154
Total nonperforming assets
ΝΑ
$ 672,472
3,498
26,520
702,490
54,864
(a) Other reductions include loan sales.
Derivative receivables
Receivables from
customers
2022
118
JPMorgan Chase & Co./2023 Form 10-K
Credit card
Total credit card loans increased from December 31, 2022
reflecting growth from new accounts and revolving
balances which continued to normalize to pre-pandemic
levels. The December 31, 2023 30+ and 90+ day
delinquency rates of 2.14% and 1.05%, respectively,
increased compared to the December 31, 2022 30+ and
90+ day delinquency rates of 1.45% and 0.68%,
respectively. Net charge-offs increased for the year ended
December 31, 2023 compared to the prior year as
delinquencies have normalized.
Consistent with the Firm's policy, all credit card loans
typically remain on accrual status until charged off.
However, the Firm's allowance for loan losses includes the
estimated uncollectible portion of accrued and billed
interest and fee income.
Geographic and FICO composition of credit card loans
At December 31, 2023, $98.1 billion, or 46% of the total
retained credit card loan portfolio, was concentrated in
California, Texas, New York, Florida and Illinois, compared
with $85.4 billion, or 46%, at December 31, 2022.
Modifications of credit card loans
For the year ended December 31, 2023, credit card FDMs
were $648 million. FDMs increased for the year ended
December 31, 2023 compared to credit card TDRs in the
prior year, as delinquencies have normalized. In addition to
FDMs, the Firm also had $27 million of loans subject to trial
modification where the terms of the loans have not been
permanently modified for the year ended December 31,
2023. The changes to the TDR accounting guidance
eliminated the TDR reasonably expected and concession
assessment criteria. Accordingly, trial modifications were
considered TDRs, but not FDMs.
For the year ended December 31, 2022, credit card TDRS
were $418 million.
Refer to Note 1 and Note 12 for further information about
this portfolio, including information about delinquencies,
geographic and FICO composition, and modifications.
JPMorgan Chase & Co./2023 Form 10-K
119
Management's discussion and analysis
WHOLESALE CREDIT PORTFOLIO
In its wholesale businesses, the Firm is exposed to credit
risk primarily through its underwriting, lending, market-
making, and hedging activities with and for clients and
counterparties, as well as through various operating
services (such as cash management and clearing activities),
securities financing activities and cash placed with banks. A
portion of the loans originated or acquired by the Firm's
wholesale businesses is generally retained on the balance
sheet. The Firm distributes a significant percentage of the
loans that it originates into the market as part of its
syndicated loan business and to manage portfolio
concentrations and credit risk. The wholesale portfolio is
actively managed, in part by conducting ongoing, in-depth
reviews of client credit quality and transaction structure,
inclusive of collateral where applicable, and of industry,
product and client concentrations. Refer to the industry
discussion on pages 122-125 for further information.
The Firm's wholesale credit portfolio includes exposure held
in CIB, CB, AWM, and Corporate, and risk-rated exposure
held in CCB, for which the wholesale methodology is applied
when determining the allowance for loan losses. The Firm
continues to convert certain operations, and to integrate
clients, products and services, associated with First
Republic. Accordingly, reporting classifications and internal
risk rating profiles in the wholesale portfolio may change in
future periods. Refer to Business Developments on page 53
for additional information.
As of December 31, 2023, retained loans increased
$68.8 billion predominantly driven by the impact of First
Republic. Lending-related commitments increased
$64.8 billion, driven by the impact of First Republic, and
net portfolio activity in CIB and CB.
As of December 31, 2023, nonperforming exposure
increased $476 million predominantly driven by
nonperforming retained loans in Real Estate and
Healthcare, reflecting downgrades, and Individuals largely
driven by the impact of First Republic, partially offset by a
single name upgrade in Civic Organizations.
For the year ended December 31, 2023, wholesale net
charge-offs increased $698 million, predominantly driven
by the restructuring of a loan, increases in Real Estate
(concentrated in Office) and Consumer & Retail.
Wholesale credit portfolio
December 31,
(in millions)
Loans retained
Loans held-for-sale
Loans at fair value
Loans
Credit exposure
Nonperforming
2023
2023 2022
in loan satisfactions
Total assets acquired in loan satisfactions
Real estate owned
65,955
67,546
(0.10)%
(0.02)%
233,454
296,515 $
(226) $
495
(52) $
684
2022
2023
2022
2023
1.01
(m)
Year ended December 31,
Average loans - retained
2022
2023
Net charge-offs/(recoveries)
4,325
4,203 $
$
1,351,352
(1,187)
$
(790)
$
$
Net charge-off/(recovery) rate"
0.75
632
269
JPMorgan Chase & Co./2023 Form 10-K
(m) Average consumer loans held-for-sale and loans at fair value were $12.9 billion and $17.4 billion for the years ended December 31, 2023 and 2022,
respectively. These amounts were excluded when calculating net charge-off/(recovery) rates.
(I) At December 31, 2023 and 2022, nonaccrual loans excluded $15 million and $101 million, respectively, of PPP loans 90 or more days past due and
guaranteed by the SBA.
(k) Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic.
(j) At December 31, 2023 and 2022, nonaccrual loans excluded mortgage loans 90 or more days past due and insured by U.S. government agencies of $182
million and $302 million, respectively. These amounts have been excluded from nonaccrual loans based upon the government guarantee. In addition, the
Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status, as permitted by regulatory guidance.
(i) At December 31, 2023, included credit exposure of $102.2 billion associated with First Republic, consisting of $99.6 billion in residential real estate and
$2.6 billion in auto and other.
(h) Represents the notional amount of protection obtained through the issuance of credit-related notes that reference certain pools of residential real estate and
auto loans in the retained consumer portfolio.
(g) Also includes commercial card lending-related commitments primarily in CB and CIB.
(f) Includes billed interest and fees.
(e) Credit card, home equity and certain business banking lending-related commitments represent the total available lines of credit for these products. The Firm
has not experienced, and does not anticipate, that all available lines of credit would be used at the same time. For credit card commitments, and if certain
conditions are met, home equity commitments and certain business banking commitments, the Firm can reduce or cancel these lines of credit by providing
the borrower notice or, in some cases as permitted by law, without notice. Refer to Note 28 for further information.
(d) Includes scored mortgage loans held in CCB and CIB, and other consumer unsecured loans in CIB.
(a) Includes scored mortgage and home equity loans held in CCB and AWM.
(b) At December 31, 2023 and 2022, excluded operating lease assets of $10.4 billion and $12.0 billion, respectively. These operating lease assets are included
in other assets on the Firm's Consolidated balance sheets. Refer to Note 18 for further information.
(c) Includes scored auto and business banking loans, and overdrafts.
0.58 %
0.96 %
462,744
555,473 $
1.47
2.45
163,335
191,412
2,403
2,672 $
4,698
5,330 $
$
0.09
0.17
299,409
364,061
1,582,277
$
1,006,459
1,126,781
$
237,561
63,192
300,753
$
326,409
70,866
397,275
$
2022
2023
2022
Nonaccrual loans (i)(k)(1)
Credit exposure
2023
Total consumer- retained
Credit card - retained
Total consumer, excluding credit card - retained
Auto and other
Residential real estate
Consumer, excluding credit card
(in millions, except ratios)
Credit-related notes used in credit portfolio management activities (h)
(e)(g)
Total consumer credit portfolio
Total credit card exposure
Lending-related commitments"
Total credit card loans
Loans retained(f)
Credit card
Total consumer exposure, excluding credit card
Lending-related commitments (e)
3,466 $
177
115
3,745
3,643
821,284
915,658
NA
NA
185,175
211,123
ΝΑ
NA
185,175
211,123
344,893
455,496
(i)
33,518
45,403
423
4,325
4,203
311,375
410,093
465
10,004
12,331
28
95
618
487
3,874
129
Management's discussion and analysis
Maturities and sensitivity to changes in interest rates
The table below sets forth loan maturities by scheduled repayments, by class of loan and the distribution between fixed and
floating interest rates based on the stated terms of the loan agreements. The Firm estimated the principal repayment amounts
for both the residential real estate and auto and other loan classes by calculating the weighted-average loan balance and interest
rates for loan pools based on remaining loan term. Refer to Note 12 for further information on loan classes.
Total government guaranteed loans $
90 or more days past due
30-89 days past due
(in millions)
Current
The following table provides a summary of the Firm's
residential mortgage portfolio insured and/or guaranteed
by U.S.government agencies, predominantly loans held-for-
sale and loans at fair value. The Firm monitors its exposure
to certain potential unrecoverable claim payments related
to government-insured loans and considers this exposure in
estimating the allowance for loan losses.
The carrying value of home equity lines of credit
outstanding was $16.1 billion at December 31, 2023,
which included $2.6 billion associated with First Republic.
The carrying value of home equity lines of credit
outstanding included $4.2 billion of HELOCS that have
recast from interest-only to fully amortizing payments or
have been modified and $4.3 billion of interest-only balloon
HELOCS, which primarily mature after 2030. The Firm
manages the risk of HELOCS during their revolving period by
closing or reducing the undrawn line to the extent
permitted by law when borrowers are exhibiting a material
deterioration in their credit risk profile.
At December 31, 2023 and 2022, the carrying values of
interest-only residential mortgage loans were $90.6 billion
and $36.3 billion, respectively. The increase was driven by
First Republic. These loans have an interest-only payment
period generally followed by an adjustable-rate or fixed-
rate fully amortizing payment period to maturity and are
typically originated as higher-balance loans to higher-
income borrowers. The credit performance of this portfolio
is comparable with the performance of the broader prime
mortgage portfolio.
Loans at fair value increased from December 31, 2022,
driven by an increase in Home Lending as originations
outpaced warehouse loan sales, and in CIB as purchases
outpaced sales and paydowns.
Retained loans increased compared to December 31, 2022
driven by residential real estate loans associated with First
Republic. Retained nonaccrual loans decreased compared
to December 31, 2022 predominantly driven by loan sales,
partially offset by the net impact of paydowns and
additions, including those associated with First Republic.
Net recoveries were lower for the year ended December 31,
2023 compared to the prior year driven by lower
prepayments due to higher interest rates.
Residential real estate: The residential real estate
portfolio, including loans held-for-sale and loans at fair
value, predominantly consists of prime mortgage loans and
home equity lines of credit.
The following discussions provide information concerning
individual loan products. Refer to Note 12 for further
information about this portfolio, including information
about delinquencies, loan modifications and other credit
quality indicators.
Loans increased from December 31, 2022 driven by
residential real estate loans associated with First Republic
and higher auto loans.
Portfolio analysis
Consumer, excluding credit card
JPMorgan Chase & Co./2023 Form 10-K
116
(f) Includes overdrafts.
(c) Includes loans that have an initial fixed interest rate that resets to a variable rate as the variable rate will be the prevailing rate over the life of the loan.
(d) Included $1.6 billion, $19.1 billion, and $41.0 billion in 1-5 years, 5-15 years, and after 15 years, respectively, associated with First Republic.
(e) Includes loans held-for-sale and loans at fair value.
(b) Included $3.0 billion, $8.9 billion, and $15.1 billion in 1-5 years, 5-15 years, and after 15 years, respectively, associated with First Republic.
(a) Included $3.9 billion, $4.6 billion, $27.9 billion, and $56.2 billion of loans within 1 year, 1-5 years, 5-15 years, and after 15 years, respectively, associated
with First Republic.
$ 181,597
$ 115,718
75,462
$
92,549
50,901 $
1,442
79
December 31,
$
2023
446 $
Assets acquired in loan satisfactions
Total nonaccrual loans
Auto and other (c)
Residential real estate (b)
Nonaccrual loans
December 31, (in millions)
Nonperforming assets (a)
December 31, 2023 and 2022, about consumer, excluding
credit card, nonperforming assets.
The following table presents information as of
Nonperforming assets
Auto and other: The auto and other loan portfolio,
including loans at fair value, generally consists of prime-
quality scored auto and business banking loans, other
consumer unsecured loans, and overdrafts. The portfolio
increased when compared to December 31, 2022 due to
originations of scored auto loans and an increase in other
consumer unsecured fair value option loans in CIB
associated with First Republic, largely offset by paydowns.
Net charge-offs for the year ended December 31, 2023
increased compared to the prior year due to higher charge-
offs of scored auto loans driven by the decline in used
vehicle valuations. The scored auto net charge-off rates
were 0.56% and 0.24% for the years ended December 31,
2023 and 2022, respectively.
Management's discussion and analysis
117
JPMorgan Chase & Co./2023 Form 10-K
For the year ended December 31, 2022, residential real
estate TDRs were $362 million. Refer to Note 12 for further
information on TDRs in prior periods.
For the year ended December 31, 2023, residential real
estate FDMS were $136 million. In addition to FDMs, the
Firm also had $69 million of loans subject to trial
modification where the terms of the loans have not been
permanently modified, as well as $9 million of loans subject
to discharge under Chapter 7 bankruptcy proceedings
("Chapter 7 loans"). The changes to the TDR accounting
guidance eliminated the TDR reasonably expected and
concession assessment criteria. Accordingly, trial
modifications and Chapter 7 loans were considered TDRS,
but not FDMs. Refer to Note 1 and Note 12 for further
information.
Modified residential real estate loans
Average current estimated loan-to-value ("LTV") ratios
have improved, reflecting an increase in home prices.
Refer to Note 12 for information on the geographic
composition and current estimated LTVS of the Firm's
residential real estate loans.
At December 31, 2023, $228.4 billion, or 70% of the total
retained residential real estate loan portfolio, was
concentrated in California, New York, Florida, Texas and
Massachusetts, compared with $147.8 billion, or 62% at
December 31, 2022.
Geographic composition and current estimated loan-to-
value ratio of residential real estate loans
1,097
730 $
302
182
136
102
659
December 31,
2022
Other
7,110
5
$
38,021
$
Total consumer, excluding credit card loans (a)
72,719
4
$ 337,374
$ 181,593
$ 110,504
5,209
47,315
20,191
Auto and other
(f)
27,447
$
17,830
$
Residential real estate
Consumer, excluding credit card
Total
After 15
years
5-15
years
years
1-5
Within
1 year (e)
(in millions)
December 31, 2023
74,762
$
$ 115,713
$ 410,093
700
4
3,767
47,236
$ 59,603 $ 89,044
20,337
$
Total consumer loans
Auto and other
Residential real estate (d)
Loans due after one year at variable interest rates (c)
Credit card
Auto and other
Loans due after one year at fixed interest rates
Residential real estate (b)
$ 621,216
$ 115,718 $ 181,597
75,462
$
$ 248,439
Total consumer loans
$ 211,123
5 $
$
700
$
$ 210,418
Total credit card loans
$ 181,597
Lending-related
commitments
$
Credit derivatives and
credit-related notes
used in credit
362,448
Subtotal
143,337
8,007
Total derivative receivables, net of collateral
Lending-related commitments
(22,461)
(22,461)
Less: Liquid securities and other cash collateral
held against derivatives
8,970
368,646
658,437
Derivative receivables
54,864
$
$ 458,838
Investment-
grade
Total
54,864
68 %
$ 672,472
$ 211,104 $ 280,821 $ 180,547 $ 672,472
213,634
15,426
24,803
220,776
24,919
341,611
Credit derivatives and credit-related notes used in
credit portfolio management activities (b)(c)
$1,319,304
$ 1,319,304
Total exposure - net of liquid securities and other
cash collateral held against derivatives
47,625
47,625
Receivables from customers
30,018
32,403
536,786
1,241,661
30,018
66
64
536,786
1,241,661
195,175
416,293
825,368
77
32,403
7,484
Loans held-for-sale and loans at fair value (a)
$
Total %
of IG
Noninvestment-
grade
145,849
110,673
34,261
334
581
861
10
Asset Managers
Individuals and Individual Entities (b)
129,574
45,623
90
4
201
1
(7,209)
Consumer & Retail
127,086
83,857
Total
and other cash
collateral held
against
derivative
receivables
717 $
Ratings profile
After 5
years
After 1 year
through
5 years
1 year or
less
Maturity profile(d)
Loans retained
(in millions, except ratios)
December 31, 2023
275 $ (574) $
The following tables present the maturity and internal risk ratings profiles of the wholesale credit portfolio as of
December 31, 2023 and 2022. The Firm generally considers internal ratings with qualitative characteristics equivalent to
BBB-/Baa3 or higher as investment grade, and takes into consideration collateral and structural support when determining
the internal risk rating for each credit facility. Refer to Note 12 for further information on internal risk ratings.
JPMorgan Chase & Co./2023 Form 10-K
120
(c) Included credit exposure of $90.6 billion associated with First
Republic.
(b) Represents the net notional amount of protection purchased and sold
through credit derivatives and credit-related notes used to manage
both performing and nonperforming wholesale credit exposures; these
derivatives do not qualify for hedge accounting under U.S. GAAP. Refer
to Credit derivatives on page 130 and Note 5 for additional
information.
(a) Receivables from customers reflect held-for-investment margin loans
to brokerage clients in CIB, CCB and AWM; these are reported within
accrued interest and accounts receivable on the Consolidated balance
sheets.
50,190 $
8,558 $
647 $
Wholesale credit exposure - maturity and ratings profile
(3,311) $
(28,353) $ (5,325) $ (36,989) $
(28,869)
Wholesale credit exposure - industry exposures
Management's discussion and analysis
121
JPMorgan Chase & Co./2023 Form 10-K
(d) The maturity profile of retained loans, lending-related commitments and derivative receivables is generally based on remaining contractual
maturity. Derivative contracts that are in a receivable position at December 31, 2023, may become payable prior to maturity based on their cash flow
profile or changes in market conditions.
(c) The notional amounts are presented on a net basis by underlying reference entity and the ratings profile shown is based on the ratings of the reference
entity on which protection has been purchased. Predominantly all of the credit derivatives entered into by the Firm where it has purchased protection used
in credit portfolio management activities are executed with investment-grade counterparties. In addition, the Firm obtains credit protection against
certain loans in the retained loan portfolio through the issuance of credit-related notes.
(a) Loans held-for-sale are primarily related to syndicated loans and loans transferred from the retained portfolio.
(b) These derivatives do not qualify for hedge accounting under U.S. GAAP.
83 %
The Firm focuses on the management and diversification of its industry exposures, and pays particular attention to industries
with actual or potential credit concerns. Exposures that are deemed to be criticized align with the U.S. banking regulators'
definition of criticized exposures, which consist of the special mention, substandard and doubtful categories. Total criticized
exposure, excluding loans held-for-sale and loans at fair value, was $41.4 billion at December 31, 2023 and $31.3 billion at
December 31, 2022, representing approximately 3.3% and 2.7% of total wholesale credit exposure, respectively; of the
$41.4 billion, $38.3 billion was performing. The increase in criticized exposure was predominantly driven by Real Estate,
Technology, Media & Telecommunications (predominantly Technology) and Healthcare, reflecting downgrades.
$ (18,143)
(15,115) $
(1,796) $ (18,143) $
$ (2,817) $ (13,530) $
Credit derivatives and credit-related notes used in
credit portfolio management activities (b)(c)
$1,208,200
$ 1,208,200
other cash collateral held against derivatives
Total exposure - net of liquid securities and
(3,028)
70
The table below summarizes by industry the Firm's exposures as of December 31, 2023 and 2022. The industry of risk
category is generally based on the client or counterparty's primary business activity. Refer to Note 4 for additional information
on industry concentrations.
Noninvestment-grade
Real Estate
related
(i)
notes
Credit
derivative
and credit-
Net charge-
offs/
(recoveries)
30 days or
more past
due and
accruing
loans (if
performing nonperforming
Noncriticized
grade
Wholesale credit exposure - industries (a)
Criticized
exposure(f)(g) Investment-
(h)
Credit
(in millions)
December 31, 2023
As of or for the year ended
Liquid securities
Selected metrics
Criticized
69
76
47,866
471,980
1,123,516
35,427
49,257
Ratings profile
Investment-
grade
Total
After 5
years
5 years
through
1 year or
less
After 1 year
Noninvestment-
grade
Maturity profile(d)
Derivative receivables
Loans retained
(in millions, except ratios)
December 31, 2022
78 %
$ (36,989)
(8,120)
$
Less: Liquid securities and other cash collateral
held against derivatives
$ 204,761 $ 253,896 $ 145,013 $ 603,670
$ 425,412 $ 178,258
70,880
11,635
144,812
334,705
36,231
327,168
788,811
47,866
471,980
1,123,516
35,427
49,257
Receivables from customers
Loans held-for-sale and loans at fair value (a)
19,478
23.441
187,932
14,880
347,456
616,232
319,352
Subtotal
101,083
13,508
Total derivative receivables, net of collateral
Lending-related commitments
(23,014)
(23,014)
70,880
70 %
$ 603,670
Total %
of IG
Total
60,168
58,606
7,863
449
56
23
(26)
(574)
Metals & Mining
15,508
8,403
6,514
1,196
536
12
44
(229)
Securities Firms
8,689
4,570
4,118
1
55
(14)
5,943
16,060
Insurance
20,501
14,503
5,700
298
2
(961)
(6,898)
8,865
Central Govt
17,264
312
127
1
-
(3,490)
(2,085)
Transportation
17,704
(2,765)
Financial Markets Infrastructure
All other(d)
4,251
122
JPMorgan Chase & Co./2023 Form 10-K
208,261 $ 148,866 $
ΝΑ
ΝΑ
(23,014)
(22,461)
$
$ 1,341,765
$ (18,143) $
$1,231,214 $ 3,696 $3,220
455
464
derivatives
other cash collateral
held against
Liquid securities and
management
(b)
activities
portfolio
$ (36,989)
30,018
47,625
(22,461)
879 $ (36,989) $
4,052
134,777
115,711
199
18,618
|
-
439
9
21
(2)
(10,124)
(3,087)
Subtotal
Loans held-for-sale and loans at fair
value
Receivables from customers
Total(e)
$ 1,264,122 $ 846,979 $
375,711 $ 38,258 $
3,174 $
2,785 $
(1,045)
Total wholesale
credit portfolio
2
-
Healthcare
65,025
43,163
18,396
3,005
461
130
17
(2,949)
(3,070)
57,177
33,881
22,744
545
7
9
277
(511)
Banks & Finance Companies
(412)
31
136
318
161
(4,204)
Technology, Media &
Telecommunications
77,296
40,468
27,094
213
9,388
36
81
(4,287)
Industrials
75,092
40,951
30,586
3,419
346
Utilities
36,061
25,242
125
Chemicals & Plastics
20,773
11,353
8,352
916
152
106
640
ཀཝཧསྟྲ
-
|
45
Total consumer, excluding credit card loans
11
(1,927)
(5)
59
31
10,060
23,152
33,977
9,929
765
125
1
(3)
(2,373)
State & Municipal Govt(c)
35,986
33,561
2,390
27
8
Oil & Gas
34,475
18,276
16,076
111
12
Automotive
(653)
Loans at fair value(d)
(4)
Total loans - retained
$1,280,870
2022
2023
2022
2023
Nonperforming (d)
Credit exposure
Loans held-for-sale
Loans at fair value
Total loans
December 31,
(in millions)
Loans retained
On January 1, 2023, the Firm adopted changes to the TDR
accounting guidance, which eliminated the accounting and
disclosure requirements for TDRs including the requirement
to assess whether a modification is reasonably expected or
involves a concession. The new guidance requires disclosure
of loan modifications to borrowers experiencing financial
difficulty consisting of principal forgiveness, interest rate
reduction, other-than-insignificant payment delay, term
extension or a combination of these modifications. The Firm
has defined these types of modifications as financial
difficulty modifications ("FDMS"). As a result of the
elimination of the requirement to assess whether a
modification is reasonably expected or involves a
concession, the population of loans considered FDMs differs
from the population previously considered TDRs. Refer to
Note 1 and Note 12 for further information.
Refer to Note 10 for information regarding the credit risk
inherent in the Firm's investment securities portfolio; and
refer to Note 11 for information regarding credit risk
inherent in the securities financing portfolio. Refer to
Consumer Credit Portfolio on pages 114-119 and Note 12
for further discussions of the consumer credit environment
and consumer loans. Refer to Wholesale Credit Portfolio on
pages 120-130 and Note 12 for further discussions of the
wholesale credit environment and wholesale loans.
In the following tables, total loans include loans retained
(i.e., held-for-investment); loans held-for-sale; and certain
loans accounted for at fair value. The following tables do
not include loans which the Firm accounts for at fair value
and classifies as trading assets; refer to Notes 2 and 3 for
further information regarding these loans. Refer to Notes
12, 28, and 5 for additional information on the Firm's
loans, lending-related commitments and derivative
receivables, including the Firm's related accounting
policies.
3,985
38,851
Credit risk is the risk associated with the default or change
in credit profile of a client, counterparty or customer.
Loans held-for-sale
NA
1,497,847
(c)
ΝΑ
274
203
ΝΑ
42
28
금금금
ΝΑ
CREDIT PORTFOLIO
316
$1,089,598
3,970
42,079
5,989 $ 5,837
NA
NA
derivatives
Liquid securities and
other cash collateral
held against
Total credit portfolio
Credit derivatives and
credit-related notes
used in credit
portfolio
management
activities (b)
Total assets acquired
in loan satisfactions
Lending-related
commitments
Total credit-related
assets
Assets acquired in
loan satisfactions
Real estate owned
Other
7,016
7,281
1,255,784
1,426,195
49,257
$
47,625
364
70,880
54,864
Derivative receivables
Receivables from
customers
6,720
6,917
1,135,647
1,323,706
829
744
54
184
296
231
Total credit portfolio
1,326,782
$2,924,042 $2,582,566 $ 8,061 $
Net charge-offs
(in millions, except ratios)
Year ended December 31,
net charge-offs and recoveries.
The following table provides information about the Firm's
Firmwide nonaccrual loans to total loans
outstanding
JPMorgan Chase & Co./2023 Form 10-K
0.59 %
0.52 %
6,720
1,135,647
1,323,706
6,917 $
$
2023
2022
Total loans
Total nonaccrual loans
(in millions, except ratios)
December 31,
Average retained loans
The following table provides information on Firmwide
nonaccrual loans to total loans.
Net charge-off rates
2022
Auto and other (b)(c)
(a)
Residential real estate a
Consumer, excluding credit card
(in millions)
December 31,
Consumer credit portfolio
The following tables present consumer credit-related information with respect to the scored credit portfolio held in CCB, AWM,
CIB and Corporate.
JPMorgan Chase & Co./2023 Form 10-K
464
The Firm's retained consumer portfolio consists primarily of
loans and lending-related commitments for residential real
estate, credit card, scored auto and business banking,
including those associated with First Republic, primarily in
residential real estate. The consumer credit portfolio also
includes loans at fair value, predominantly in residential real
estate. The Firm's focus is on serving primarily the prime
segment of the consumer credit market. Originated
mortgage loans are retained in the residential real estate
portfolio, securitized or sold to U.S. government agencies
and U.S. government-sponsored enterprises; other types of
consumer loans are typically retained on the balance sheet.
Refer to Note 12 for further information on the consumer
loan portfolio. Refer to Note 28 for further information on
lending-related commitments.
CONSUMER CREDIT PORTFOLIO
Management's discussion and analysis
113
0.27 %
0.52 %
2,853
1,044,765
6,209 $
1,202,348
$
2023
(d) At December 31, 2023 and 2022, nonperforming assets excluded
mortgage loans 90 or more days past due and insured by U.S.
government agencies of $182 million and $302 million, respectively.
These amounts have been excluded based upon the government
guarantee. In addition, the Firm's policy is generally to exempt credit
card loans from being placed on nonaccrual status as permitted by
regulatory guidance.
114
$
NA
-
$ (19,330) $
$ (37,779)
455
7,702
NA
(a) Receivables from customers reflect held-for-investment margin loans
to brokerage clients in CIB, CCB and AWM; these are reported within
accrued interest and accounts receivable on the Consolidated balance
sheets.
(b) Represents the net notional amount of protection purchased and sold
through credit derivatives and credit-related notes used to manage
credit exposures.
(22,461)
(23,014)
(c) Includes credit exposure associated with First Republic consisting of
$102.2 billion in the Consumer credit portfolio and $90.6 billion in the
Wholesale credit portfolio.
50 %
(c) Consumer & Retail exposure is approximately 59% secured; unsecured exposure is approximately 79% investment-grade.
(d) Represents drawn exposure as a percent of credit exposure.
Oil & Gas
Oil & Gas exposure was $34.5 billion as of December 31, 2023 of which $123 million was considered criticized.
December 31, 2023
Loans and
Lending-related
(in millions, except ratios)
Commitments
Derivative
Receivables
(a) Retail consists of Home Improvement & Specialty Retailers, Restaurants, Supermarkets, Discount & Drug Stores, Specialty Apparel and Department Stores.
(b) Leisure consists of Gaming, Arts & Culture, Travel Services and Sports & Recreation. As of December 31, 2023, approximately 90% of the noninvestment-
grade Leisure portfolio is secured.
38 %
33
120,555
Total Consumer & Retail
13,879
172
14,051
51
39
8,173
Credit
exposure
49
21
45
$
118,905
$
1,650
$
8,222
Exploration & Production ("E&P") and Oil field Services
$
18,121
December 31, 2022
Loans and
Lending-related
(in millions, except ratios)
Commitments
Derivative
Receivables
Credit
exposure
Exploration & Production ("E&P") and Oil field Services
25 %
$
$
Other Oil & Gas (a)
15,818
4,666
455
$
22,395
16,273
% Investment-
grade
50 %
% Drawn (c)
25 %
17,729
53 %
34,475
$
$
536
$
18,657
% Investment-
grade
51 %
(c)
% Drawn
Other Oil & Gas (a)
15,649
169
15,818
55
26 %
22
(b)
Total Oil & Gas
$
33,770
$
705
Leisure (b)
Consumer Hard Goods
40
59
Credit
exposure
% Investment-
grade
Retail (a)
13,366
197
13,169
36
57
57
33,186
930
32,256
42
42
Derivative
Receivables
Commitments
(in millions, except ratios)
Lending-related
8,784
160
8,944
25
47
Total Consumer & Retail (c)
$
35,214
125,073
2,013
$
127,086
47 %
36 %
December 31, 2022
Loans and
$
39
392
Consumer Hard Goods
Leisure (b)
309
$
34,200
50 %
% Drawn (d)
33 %
Business and Consumer Services
31,256
384
31,640
50
43
Food and Beverage
31,706
736
32,442
$
33,891
$
Derivative
Food and Beverage
Business and Consumer Services
30 %
% Drawn
(d)
% Investment-
grade
51 %
36,376
34,822
$
$
36,042
$
Credit
exposure
Receivables
Commitments
(in millions, except ratios)
Retail (a)
334
25
0.03 %
$
(in millions, except ratios)
Net charge-offs/(recoveries)
Average retained loans
2023
$ 178 $
151,214
2022
2023
2022
2023
2022
6 $ 370 $ 145
$ 331 $ 30
122,904
170,503
Net charge-off/(recovery) rate
0.12 %
-
%
0.22 %
160,611
0.09 %
325,158
0.10 %
298,506
0.01 %
Other
Total
Commercial
and industrial
Year ended December 31,
52,351
173,752
$242,247
35
5,929
173,194
359,999
$ 48,381
$ 702,490
$ 15,871
5,004
25,264
$
720
34
3,910
$ 41,696
107,334
116,497
$ 315,863
$ 95,999
2
2,019
$ 45,893
$ 11,185
1,376
17,656
$ 37,787
7,093
20,902
$ 48,381
(a) Included $6.6 billion, $16.9 billion, and $9.7 billion of loans in 1 year or less, after 1 year through 5 years, and after 5 years though 15, respectively,
associated with First Republic.
(b) Included $9.8 billion, and $4.1 billion of loans in 1 year or less, and after 1 year through 5 years, respectively, associated with First Republic.
(c) Included $9.7 billion, and $5.7 billion in after 1 year through 5 years, and after 5 years though 15, respectively, associated with First Republic.
(d) Includes loans that have an initial fixed interest rate that resets to a variable rate as the variable rate will be the prevailing rate over the life of the loan.
(e) Included $7.1 billion, and $4.0 billion in after 1 year through 5 years, and after 5 years though 15, respectively, associated with First Republic.
(f) Included $3.0 billion in after 1 year through 5 years associated with First Republic.
(g) Includes loans held-for-sale, demand loans and overdrafts.
The following table presents net charge-offs/recoveries, average retained loans and net charge-off/recovery rate by loan class
for the year ended December 31, 2023 and 2022.
Secured by real estate
2022
2023
$ 879 $ 181
646,875
Total, net of collateral
2023
2022
54,864 $ 70,880
(22,461)
(23,014)
32,403 $ 47,866
(993)
(1,261)
$
31,410 $ 46,605
Ratings profile of derivative receivables
December 31,
(in millions, except ratios)
Investment-grade
Noninvestment-grade
Total
2023
2022
Exposure net of
collateral
% of exposure net
held against derivative receivables
Other collateral
Total, net of liquid securities and other
cash collateral
Liquid securities and other cash collateral
held against derivative receivables
582,021
0.14 %
0.03 %
127
JPMorgan Chase & Co./2023 Form 10-K
Management's discussion and analysis
Lending-related commitments
The Firm uses lending-related financial instruments, such as
commitments (including revolving credit facilities) and
guarantees, to address the financing needs of its clients. The
contractual amounts of these financial instruments represent
the maximum possible credit risk should the clients draw
down on these commitments or when the Firm fulfills its
obligations under these guarantees, and the clients
subsequently fail to perform according to the terms of these
contracts. Most of these commitments and guarantees have
historically been refinanced, extended, cancelled, or expired
without being drawn upon or a default occurring. As a result,
the Firm does not believe that the total contractual amount of
these wholesale lending-related commitments is
representative of the Firm's expected future credit exposure
or funding requirements. Refer to Note 28 for further
information on wholesale lending-related commitments.
Receivables from customers
Receivables from customers reflect held-for-investment
margin loans to brokerage clients in CIB, CCB and AWM that
are collateralized by assets maintained in the clients'
brokerage accounts (including cash on deposit, and primarily
liquid and readily marketable debt or equity securities). To
manage its credit risk, the Firm establishes margin
requirements and monitors the required margin levels on an
ongoing basis, and requires clients to deposit additional cash
or other collateral, or to reduce positions, when appropriate.
Credit risk arising from lending activities subject to collateral
maintenance requirements is generally mitigated by factors
such as the short-term nature of the activity, the fair value of
collateral held and the Firm's right to call for, and the
borrower's obligation to provide, additional margin when the
fair value of the collateral declines. Because of these
mitigating factors, these receivables generally do not require
an allowance for credit losses. However, if in management's
judgment, an allowance for credit losses is required, the Firm
estimates expected credit losses based on the value of the
collateral and probability of borrower default. These
receivables are reported within accrued interest and accounts
receivable on the Firm's Consolidated balance sheets.
Refer to Note 13 for further information on the Firm's
accounting policies for the allowance for credit losses.
Derivative contracts
$ 169,297
Derivatives enable clients and counterparties to manage risk,
including credit risk and risks arising from fluctuations in
interest rates, foreign exchange and equities and
commodities prices. The Firm makes markets in derivatives in
order to meet these needs and uses derivatives to manage
certain risks associated with net open risk positions from its
market-making activities, including the counterparty credit
risk arising from derivative receivables. The Firm also uses
derivative instruments to manage its own credit risk and
other market risk exposure. The nature of the counterparty
and the settlement mechanism of the derivative affect the
credit risk to which the Firm is exposed. For OTC derivatives,
the Firm is exposed to the credit risk of the derivative
counterparty. For exchange-traded derivatives ("ETD"), such
as futures and options, and cleared over-the-counter ("OTC-
cleared") derivatives, the Firm can also be exposed to the
The fair value of derivative receivables reported on the
Consolidated balance sheets was $54.9 billion and $70.9
billion at December 31, 2023 and 2022, respectively. The
decrease was primarily as a result of market movements.
Derivative receivables represent the fair value of the
derivative contracts after giving effect to legally enforceable
master netting agreements and the related cash collateral
held by the Firm.
In addition, the Firm holds liquid securities and other cash
collateral that may be used as security when the fair value of
the client's exposure is in the Firm's favor. For these
purposes, the definition of liquid securities is consistent with
the definition of high quality liquid assets as defined in the
LCR rule.
In management's view, the appropriate measure of current
credit risk should also take into consideration other collateral,
which generally represents securities that do not qualify as
high quality liquid assets under the LCR rule. The benefits of
these additional collateral amounts for each counterparty are
subject to a legally enforceable master netting agreement and
limited to the net amount of the derivative receivables for
each counterparty.
The Firm also holds additional collateral (primarily cash, G7
government securities, other liquid government agency and
guaranteed securities, and corporate debt and equity
securities) delivered by clients at the initiation of
transactions, as well as collateral related to contracts that
have a non-daily call frequency and collateral that the Firm
has agreed to return but has not yet settled as of the
reporting date. Although this collateral does not reduce the
receivables balances and is not included in the tables below, it
is available as security against potential exposure that could
arise should the fair value of the client's derivative contracts
move in the Firm's favor. Refer to Note 5 for additional
information on the Firm's use of collateral agreements for
derivative transactions.
128
JPMorgan Chase & Co./2023 Form 10-K
The following tables summarize the net derivative receivables
and the internal ratings profile for the periods presented.
Derivative receivables
December 31, (in millions)
Total, net of cash collateral
credit risk of the relevant CCP. Where possible, the Firm seeks
to mitigate its credit risk exposures arising from derivative
contracts through the use of legally enforceable master
netting arrangements and collateral agreements. The
percentage of the Firm's OTC derivative transactions subject
to collateral agreements - excluding foreign exchange spot
trades, which are not typically covered by collateral
agreements due to their short maturity and centrally cleared
trades that are settled daily - was approximately 87% at
both December 31, 2023 and 2022. Refer to Note 5 for
additional information on the Firm's use of collateral
agreements and further discussion of derivative contracts,
counterparties and settlement types.
$ 42,417
$ 48,972
Total
$ 582,021
1,011
322
(132)
(141)
879
181
0.14 %
Loans and
Lending-related
Year ended December 31, (in millions)
Beginning balance
Additions
2023
2022
$
2,395 $
2,445
3,543
2,119
Reductions:
Paydowns and other
$ 646,875
2022
2023
Net charge-off/(recovery) rate
33,547
$
5,121
$
38,668
53 %
25 %
(a) Other Oil & Gas includes Integrated Oil & Gas companies, Midstream/Oil Pipeline companies and refineries.
(b) Oil & Gas exposure is approximately 35% secured, approximately half of which is reserve-based lending to the Exploration & Production sub-sector;
unsecured exposure is approximately 61% investment-grade.
(c) Represents drawn exposure as a percent of credit exposure.
JPMorgan Chase & Co./2023 Form 10-K
125
1,336
Management's discussion and analysis
In its wholesale businesses, the Firm provides loans to a
variety of clients, ranging from large corporate and
institutional clients to high-net-worth individuals. Refer to
Note 12 for a further discussion on loans, including
information about delinquencies, loan modifications and
other credit quality indicators.
The following table presents the change in the nonaccrual
loan portfolio for the years ended December 31, 2023 and
2022. Since December 31, 2022, nonaccrual loan exposure
increased by $319 million driven by retained loans in Real
Estate and Healthcare, reflecting downgrades, and
Individuals largely driven by the impact of First Republic,
partially offset by a single name upgrade in Civic
Organizations.
Wholesale nonaccrual loan activity
The following table presents net charge-offs/recoveries,
which are defined as gross charge-offs less recoveries, for
the years ended December 31, 2023 and 2022. The
amounts in the table below do not include gains or losses
from sales of nonaccrual loans recognized in noninterest
revenue.
Wholesale net charge-offs/(recoveries)
Year ended December 31,
(in millions, except ratios)
Loans
Average loans retained
Gross charge-offs
Gross recoveries collected
Net charge-offs/(recoveries)
Loans
Total Oil & Gas
1,329
965
Secured by real estate
Commercial and industrial
Other (b)
Total wholesale loans
Loans due after one year at fixed interest rates
Secured by real estate (c)
Commercial and industrial
Other
Loans due after one year at variable interest rates
(d)
Secured by real estate (e)
Commercial and industrial
Other (f)
Total wholesale loans
less()
$ 16,144
$ 61,764
112,339
141,760
$ 315,863
8,469
38,558
$ 95,999
1 year or
After 1
year
through 5
years
After 5
years
through
15 years
After 15
years
(a)
Wholesale loans:
December 31, 2023
(in millions, except ratios)
The table below sets forth wholesale loan maturities and the distribution between fixed and floating interest rates based on the
stated terms of the loan agreements by loan class. Refer to Note 12 for further information on loan classes.
213
Returned to performing status
616
594
Sales
307
33
Total reductions
3,224
2,169
Gross charge-offs
Net changes
Ending balance
$ 2,714 $
(50)
2,395
Modified wholesale loans
The amortized cost of wholesale FDMs was $2.1 billion for
the year ended December 31, 2023. Refer to Note 1 and
Note 12 for further information.
Wholesale TDRs were $801 million for the year ended
December 31, 2022.
As a result of the elimination of the requirement to assess
whether a modification is reasonably expected or involves a
concession, the population of loans considered FDMS is
greater than the population previously considered TDRs.
Refer to Note 12 for further information on TDRs in prior
periods.
126
JPMorgan Chase & Co./2023 Form 10-K
Maturities and sensitivity to changes in interest rates
319
December 31, 2023
Derivative
Receivables
Consumer & Retail exposure was $127.1 billion as of December 31, 2023. Criticized exposure increased by $409 million from
(9)
(5)
Oil & Gas
38,668
20,547
17,616
474
31
36
57
(414)
Automotive
33,287
23,908
8,839
416
124
198
(6)
(2)
1
529
961
50
36
(262)
(994)
Utilities
36,218
25,981
126
9,294
136
21
15
(607)
(1)
State & Municipal Govt (c)
33,847
33,191
807
(513)
Chemicals & Plastics
20,030
6,497
6,862
1,574
76
Metals & Mining
15,915
8,825
6,863
15,009
222
10
(4,591)
(677)
24
2
(339)
7
(1)
165
Transportation
35
362
12,134
7,103
744
49
10
3
(298)
Insurance
21,045
15,468
5,396
181
1
-
(273)
(7,296)
Central Govt
19,095
18,698
22,994
27,811
51,816
Banks & Finance Companies
$ 170,857
$ 129,866 $
36,945
$ 3,609 $
437 $
543 $
19 $ (113)
$
derivative
receivables
Individuals and Individual
130,815
112,006
18,104
360
345
1,038
1
Asset Managers
Entities (b)
held against
Liquid
securities
and other
cash
collateral
offs/
(recoveries) notes
Noninvestment-grade
30 days or
more past
As of or for the year ended
December 31, 2022
(in millions)
Real Estate
due and
Credit
exposure
(f)(g)
Investment-
grade
Noncriticized
Criticized
performing
Criticized
nonperforming
accruing
loans
Selected metrics
Credit
derivative
Net charge- and credit-
related
95,656
(27)
78,925
61
Industrials
72,483
39,052
30,500
2,809
122
282
44
(1,766)
(1,258)
62,613
43,839
17,117
1,479
178
43
27
(1,055)
Healthcare
39
62
302
5
15
(1)
(8,278)
Consumer & Retail
120,555
60,781
51,871
7,295
608
321
49
(1,157)
Technology, Media &
Telecommunications
72,286
39,199
25,689
7,096
16,665
(4)
Securities Firms
8,066
208,261
71 %
80%
December 31, 2022
Loans and
Lending-related
Commitments
Exposure net of
$
Credit
exposure
(e)
% Drawn
$
99,555
$
17
$
99,572
% Investment-
grade
420
$
207,841
62
46
15,542
208
15,750
55
63
12,763
48
12,811
75
73
4,729
19
4,748
30
48
(d)
$
82 %
16,219
87 %
1
38
3,385
6
37
$
170,608
$
249
3,347
$
76 %
77 %
(b) Other Income Producing Properties consists of clients with diversified property types or other property types outside of categories listed in the table
above.
(c) Real Estate exposure is approximately 82% secured; unsecured exposure is predominantly investment-grade largely to Real Estate Investment Trusts
("REITS") and Real Estate Operating Companies ("REOCS") whose underlying assets are generally diversified.
(d) Included $33.4 billion of credit exposure associated with First Republic, largely in Multifamily.
(e) Represents drawn exposure as a percentage of credit exposure.
124
JPMorgan Chase & Co./2023 Form 10-K
Consumer & Retail
170,857
68
10,200
8
15,929
72
71
14,917
25
14,942
74
73
13,968
10
13,978
65
48
12,701
150
12,851
70
62
10,192
15,928
$7.9 billion at December 31, 2022 to $8.3 billion at December 31, 2023, driven by client-specific downgrades predominantly
offset by client-specific upgrades and net portfolio activity.
74
81
2,714 $ 2,698 $
(5,435)
181 $ (18,143)
(2,948)
$ (23,014)
Loans held-for-sale and loans
at fair value
Receivables from customers
35,427
49,257
Total(e)
$ 28,587 $
$ 1,231,214
(b) Individuals and Individual Entities predominantly consists of Global Private Bank clients within AWM and J.P. Morgan Wealth Management within CCB, and
includes exposure to personal investment companies and personal and testamentary trusts.
(c) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2023 and 2022, noted above, the
Firm held: $5.9 billion and $6.6 billion, respectively, of trading assets; $21.4 billion and $6.8 billion, respectively, of AFS securities; and $9.9 billion and
$19.7 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. Refer to Note 2 and Note 10 for further information.
(d) All other includes: SPES and Private education and civic organizations, representing approximately 94% and 6%, respectively, at December 31, 2023 and
95% and 5%, respectively, at December 31, 2022.
(e) Excludes cash placed with banks of $614.1 billion and $556.6 billion, at December 31, 2023 and 2022, respectively, which is predominantly placed with
various central banks, primarily Federal Reserve Banks.
(f) Credit exposure is net of risk participations and excludes the benefit of credit derivatives and credit-related notes used in credit portfolio management
activities held against derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(g) Credit exposure includes held-for-sale and fair value option elected lending-related commitments.
(h) Included credit exposure of $90.6 billion associated with First Republic predominantly in Real Estate, Asset Managers, and Individuals and Individual
Entities.
(i) Represents the net notional amounts of protection purchased and sold through credit derivatives and credit-related notes used to manage the credit
exposures; these derivatives do not qualify for hedge accounting under U.S. GAAP. The All other category includes purchased credit protection on certain
credit indices.
JPMorgan Chase & Co./2023 Form 10-K
(a) The industry rankings presented in the table as of December 31, 2022, are based on the industry rankings of the corresponding exposures at
December 31, 2023, not actual rankings of such exposures at December 31, 2022.
$ 810,772 $ 304,457
$ 1,146,530
Subtotal
4,235
3,716
115
(13)
(26)
(2,811)
Financial Markets
Infrastructure
4,962
4,525
437
All other(d)
123,307
105,284
17,555
223
245
4
(5)
123
16,145
Management's discussion and analysis
Real Estate
(e)
% Drawn
121,946
$
21
$
121,967
79 %
% Investment-
grade
90 %
18
20,272
70
72
16,462
32
16,494
51
20,254
Credit
exposure
Derivative
Receivables
Loans and
Lending-related
Commitments
Real Estate exposure was $208.3 billion as of December 31, 2023. Criticized exposure increased by $5.2 billion from
$4.0 billion at December 31, 2022 to $9.2 billion at December 31, 2023, predominantly driven by client-specific
downgrades, partially offset by client-specific upgrades.
(in millions, except ratios)
Multifamily(a)
Industrial
Office
Services and Non Income Producing
Other Income Producing Properties (b)
Retail
Lodging
Total Real Estate Exposure(c)
(in millions, except ratios)
Multifamily (a)
Industrial
Office
Services and Non Income Producing
Other Income Producing Properties (b)
Retail
Lodging
Total Real Estate Exposure
(a) Multifamily exposure is largely in California.
December 31, 2023
Presented below is additional detail on certain of the Firm's industry exposures.
of collateral
75
24,004
$ 2,148
113 $
$
2,382
2,306 $
76 $ - $
(1)
Provision for lending-related commitments
$
Beginning balance at January 1,
commitments
Allowance for lending-related
19,726
$ 6,486 $
$ 11,200
2,040
$
22,420
8,114 $
$
$ 12,450
1,856
$
Ending balance at December 31,
4
3
$
1
2,261
(408)
$
-
$ 1,856 $ 12,450 $
Total allowance for loan losses
12,450
(876) $
2,732
$
Portfolio-based
Asset-specific (b)
Impairment methodology
2,382
$ 2,306 $
76 $
$
1,899 $ 1,974
$
75 $
$
Ending balance at December 31,
1
--1
Other
120
157
(37)
(407)
22
21
-
3,192
812
7,653
1,011
5,491
1,151
NA
ΝΑ
ΝΑ
ΝΑ
(587)
2
(100)
(489)
Gross recoveries collected
Gross charge-offs
(a)
Cumulative effect of a change in accounting
principle
16,386
$
$ 4,371
$ 10,250
$ 1,765
19,726
322
4,326
(519)
(793)
1
Other
6,189
2,293
3,353
543
9,468
2,484
6,048
936
Provision for loan losses
2,853
392 $
181
269
6,209
879
4,698
632
Net charge-offs
(1,473)
(141)
(789)
(543)
(1,444)
(132)
2,403
$ 11,200 $ 6,486 $
7,722
$
166
2.45
0.14
0.52
53
0.09
NM
330
146
1.47
0.03
0.27
(a) Represents the impact to the allowance for loan losses upon the adoption of changes to the TDR accounting guidance on January 1, 2023. Refer to Note 1
for further information.
(b) Includes collateral-dependent loans, including those for which foreclosure is deemed probable, and nonaccrual risk-rated loans for all periods presented.
Prior periods also include non collateral-dependent TDRS or reasonably expected TDRs and modified PCD loans.
(c) At December 31, 2023 and 2022, in addition to the allowance for credit losses in the table above, the Firm also had an allowance for credit losses of
$243 million and $21 million, respectively, associated with certain accounts receivable in CIB.
(d) As of December 31, 2023, included the allowance for credit losses associated with First Republic.
(e) The Firm's policy is generally to exempt credit card loans from being placed on nonaccrual status as permitted by regulatory guidance.
132
JPMorgan Chase & Co./2023 Form 10-K
364,061
Retained loans, average
Retained loans, end of period
Memo:
$ 8,792 $ 22,204
$ 2,116 $ 11,200
96
346
NA $
ΝΑ
51
$300,753
299,409
$185,175 $603,670 $1,089,598
163,335 582,021 1,044,765
Credit ratios
Allowance for loan losses to retained loans
0.47 %
5.90 %
1.21%
1.75 %
0.68 %
6.05 %
1.07 %
1.81 %
Allowance for loan losses to retained
nonaccrual loans (e)
51
NA
346
374
53
NM
330
338
Allowance for loan losses to retained
nonaccrual loans excluding credit card
Net charge-off rates
0.17
ΝΑ
ΝΑ
2,382
89
1,810
-
75
Portfolio-based
$
$
$
Asset-specific
Impairment methodology
19,726
$
6,486
$
$ 11,200
19,660
6,019
10,977
2,664
$ 2,040
66
$
467
$
(624) $ 223
$
(484)
22,904
22,420
$
89
$
$
2,306 $
$
76 $
$
1,974
128
$ 24,522
$ 10,013
$ 12,450
$ 1,931
$
NA $
ΝΑ
NA
Total allowance for investment securities
Total allowance for credit losses (c)(d)
8,114
$ 1,899
$
75
$
Total allowance for lending-related
commitments
2,292
2,216
76
1,885
90
$
90
$
-
$ 2,040
Beginning balance at January 1,
Total
year years
years
AVG
DRE
Peak
10
years
129
Management's discussion and analysis
Credit derivatives
The Firm uses credit derivatives for two primary purposes:
first, in its capacity as a market-maker, and second, as an
end-user to manage the Firm's own credit risk associated
with various exposures.
Credit portfolio management activities
Included in the Firm's end-user activities are credit
derivatives used to mitigate the credit risk associated with
traditional lending activities (loans and lending-related
commitments) and derivatives counterparty exposure in the
Firm's wholesale businesses (collectively, “credit portfolio
management activities"). Information on credit portfolio
management activities is provided in the table below.
5
The Firm also uses credit derivatives as an end-user to
manage other exposures, including credit risk arising from
certain securities held in the Firm's market-making
businesses. These credit derivatives are not included in
credit portfolio management activities.
December 31, (in millions)
Credit derivatives and credit-related notes
used to manage:
Notional amount of
protection
purchased and sold (a)
2023
2022
Loans and lending-related commitments
Derivative receivables
$
24,157 $ 6,422
12,832
11,721
Credit derivatives and credit-related notes
used in credit portfolio management
activities
$
36,989 $ 18,143
(a) Amounts are presented net, considering the Firm's net protection
purchased or sold with respect to each underlying reference entity or
index.
The credit derivatives used in credit portfolio management
activities do not qualify for hedge accounting under U.S.
GAAP; these derivatives are reported at fair value, with
gains and losses recognized in principal transactions
revenue. In contrast, the loans and lending-related
commitments being risk-managed are accounted for on an
accrual basis. This asymmetry in accounting treatment,
between loans and lending-related commitments and the
credit derivatives used in credit portfolio management
activities, causes earnings volatility that is not
representative, in the Firm's view, of the true changes in
value of the Firm's overall credit exposure.
The effectiveness of credit default swaps ("CDS") as a hedge
against the Firm's exposures may vary depending on a
number of factors, including the named reference entity
(i.e., the Firm may experience losses on specific exposures
that are different than the named reference entities in the
purchased CDS); the contractual terms of the CDS (which
may have a defined credit event that does not align with an
actual loss realized by the Firm); and the maturity of the
Firm's CDS protection (which in some cases may be shorter
than the Firm's exposures). However, the Firm generally
seeks to purchase credit protection with a maturity date
that is the same or similar to the maturity date of the
exposure for which the protection was purchased, and
remaining differences in maturity are actively monitored
and managed by the Firm. Refer to Credit derivatives in
Note 5 for further information on credit derivatives and
derivatives used in credit portfolio management activities.
Credit derivatives and credit-related notes used in credit
portfolio management activities
collateral
2
0
76 % $
35,097
7,406
24
11,508
31,410
100 % $
46,605
% of exposure net
of collateral
75 %
25
$
While useful as a current view of credit exposure, the net
fair value of the derivative receivables does not capture the
potential future variability of that credit exposure. To
capture this variability, the Firm calculates, on a client-by-
client basis, three measures of potential derivatives-related
credit loss: Peak, Derivative Risk Equivalent ("DRE"), and
Average exposure (“AVG"). These measures all incorporate
netting and collateral benefits, where applicable.
Peak represents a conservative measure of potential
derivative exposure, including the benefit of collateral, to a
counterparty calculated in a manner that is broadly
equivalent to a 97.5% confidence level over the life of the
transaction. Peak is the primary measure used by the Firm
for setting credit limits for derivative contracts, senior
management reporting and derivatives exposure
management.
1
DRE exposure is a measure that expresses the risk of
derivative exposure, including the benefit of collateral, on a
basis intended to be equivalent to the risk of loan
exposures. DRE is a less extreme measure of potential
credit loss than Peak and is used as an input for
aggregating derivative credit risk exposures with loans and
other credit risk.
The fair value of the Firm's derivative receivables
incorporates CVA to reflect the credit quality of
counterparties. CVA is based on the Firm's AVG to a
counterparty and the counterparty's credit spread in the
credit derivatives market. The Firm believes that active risk
management is essential to controlling the dynamic credit
risk in the derivatives portfolio. In addition, the Firm's risk
management process for derivatives exposures takes into
consideration the potential impact of wrong-way risk, which
JPMorgan Chase & Co./2023 Form 10-K
100 %
is broadly defined as the risk that exposure to a
counterparty is positively correlated with the impact of a
default by the same counterparty, which could cause
exposure to increase at the same time as the counterparty's
capacity to meet its obligations is decreasing. Many factors
may influence the nature and magnitude of these
correlations over time. To the extent that these correlations
are identified, the Firm may adjust the CVA associated with
a particular counterparty's AVG. The Firm risk manages
exposure to changes in CVA by entering into credit
derivative contracts, as well as interest rate, foreign
exchange, equity and commodity derivative contracts.
The below graph shows exposure profiles to the Firm's
current derivatives portfolio over the next 10 years as
calculated by the Peak, DRE and AVG metrics. The three
measures generally show that exposure will decline after
the first year, if no new trades are added to the portfolio.
Exposure profile of derivatives measures
December 31, 2023
(in billions)
140
120
100
80
60
40
20
Finally, AVG is a measure of the expected fair value of the
Firm's derivative exposures, including the benefit of
collateral, at future time periods. AVG over the total life of
the derivative contract is used as the primary metric for
pricing purposes and is used to calculate credit risk capital
and CVA, as further described below.
$1,280,870
1,202,348
$397,275 $211,123 $672,472
191,412 646,875
4Q24
U.S. unemployment rate
YoY growth in U.S. real GDP (b)
1.0 %
1.8 %
4.1 %
4.4 %
4.1 %
(a)
2Q25
2Q24
Central case assumptions
at December 31, 2023
The following table presents the Firm's central case
assumptions for the periods presented:
The Firm's allowance for credit losses is estimated using a
weighted average of five internally developed
macroeconomic scenarios. The adverse scenarios
incorporate more punitive macroeconomic factors than the
central case assumptions provided in the table below,
resulting in a weighted average U.S. unemployment rate
peaking at 5.5% in the fourth quarter of 2024, and a
weighted average U.S. real GDP level that is 1.5% lower
than the central case at the end of the second quarter of
2025.
The allowance for credit losses also reflected a reduction of
$587 million as a result of the adoption of changes to the
TDR accounting guidance on January 1, 2023. Refer to Note
1 for further information.
U.S. unemployment rate (a)
The changes in the Firm's weighted average macroeconomic
outlook also included updates to the central scenario in the
third quarter of 2023 to reflect a lower forecasted
unemployment rate consistent with a higher growth rate in
GDP, and the impact of the additional weight placed on the
adverse scenarios in the first quarter of 2023, reflecting
elevated recession risks due to high inflation and tightening
financial conditions.
• $675 million in wholesale, driven by net downgrade
activity, the net effect of changes in the Firm's weighted
average macroeconomic outlook, including deterioration
in the outlook for commercial real estate in CB, and an
addition for certain accounts receivable in CIB, partially
offset by the impact of changes in the loan and lending-
related commitment portfolios.
$1.3 billion in consumer, predominantly driven by CCB,
comprised of $1.4 billion in Card Services, partially offset
by a net reduction of $200 million in Home Lending. The
net addition in Card Services was driven by loan growth,
including an increase in revolving balances, partially
offset by reduced borrower uncertainty. The net
reduction in Home Lending was driven by improvements
in the outlook for home prices, and
130
The net addition to the allowance for credit losses included
$1.9 billion, consisting of:
The allowance for credit losses as of December 31, 2023
was $24.8 billion, reflecting a net addition of $3.1 billion
from December 31, 2022.
Discussion of changes in the allowance
the allowance for credit losses on investment securities,
which is reflected in investment securities on the
Consolidated balance sheets.
the allowance for loan losses, which covers the Firm's
retained loan portfolios (scored and risk-rated) and is
presented separately on the Consolidated balance sheets,
the allowance for lending-related commitments, which is
reflected in accounts payable and other liabilities on the
Consolidated balance sheets, and
•
•
The Firm's allowance for credit losses represents
management's estimate of expected credit losses over the
remaining expected life of the Firm's financial assets
measured at amortized cost and certain off-balance sheet
lending-related commitments. The Firm's allowance for
credit losses generally consists of:
ALLOWANCE FOR CREDIT LOSSES
JPMorgan Chase & Co./2023 Form 10-K
The net addition also included $1.2 billion to establish the
allowance for the First Republic loans and lending-related
commitments in the second quarter of 2023.
Central case assumptions
0.7 %
5.0 %
Wholesale
Credit card
Consumer,
excluding
credit card
Total
Credit card Wholesale
credit card
Allowance for loan losses
(in millions, except ratios)
Consumer,
excluding
Year ended December 31,
2022
at December 31, 2022
Allowance for credit losses and related information
Management's discussion and analysis
131
2023
Refer to Critical Accounting Estimates Used by the Firm on
pages 155-158 for further information on the allowance
for credit losses and related management judgments.
Refer to Consumer Credit Portfolio on pages 114-119,
Wholesale Credit Portfolio on pages 120-130 for additional
information on the consumer and wholesale credit
portfolios.
2Q23
4Q23
JPMorgan Chase & Co./2023 Form 10-K
2Q24
3.8 %
YoY growth in U.S. real GDP(b)
4.3 %
0.4 %
%
(a) Reflects quarterly average of forecasted U.S. unemployment rate.
(b) The year over year growth in U.S. real GDP in the forecast horizon of
the central scenario is calculated as the percentage change in U.S. real
GDP levels from the prior year.
Subsequent changes to this forecast and related estimates
will be reflected in the provision for credit losses in future
periods.
1.5 %
150
Distribution of Daily Backtesting Gains and Losses
139
Count of Trading Days
125
For the 12 months ended December 31, 2023, the Firm
posted backtesting gains on 139 of the 258 days, and
observed 13 VaR backtesting exceptions, of which eight
were in the three months ended December 31, 2023.
Firmwide backtesting loss days can differ from the loss days
for which Fixed Income Markets and Equity Markets posted
losses, as disclosed in CIB Markets revenue, as the
population of positions which comprise each metric are
different and due to the exclusion of certain components of
total net revenue in backtesting gains and losses as
described above.
The Firm performs daily VaR model backtesting, which
compares the daily Risk Management VaR results with the
daily gains and losses that are utilized for VaR backtesting
purposes. The gains and losses depicted in the chart below
do not reflect the Firm's reported revenue as they exclude
certain components of total net revenue, such as those
associated with the execution of new transactions (i.e.,
intraday client-driven trading and intraday risk
management activities), fees, commissions, other valuation
adjustments and net interest income. These excluded
components of total net revenue may more than offset the
backtesting gain or loss on a particular day. The definition
of backtesting gains and losses above is consistent with the
requirements for backtesting under Basel III capital rules.
A backtesting exception occurs when the daily backtesting
loss exceeds the daily Risk Management VaR for the prior
day. Under the Firm's Risk Management VaR methodology,
assuming current changes in market values are consistent
with the historical changes used in the simulation, the Firm
would expect to incur VaR backtesting exceptions five times
every 100 trading days on average. The number of VaR
backtesting exceptions observed can differ from the
statistically expected number of backtesting exceptions if
the current level of market volatility is materially different
from the level of market volatility during the 12 months of
historical data used in the VaR calculation.
VaR backtesting
The following chart presents the distribution of Firmwide
daily backtesting gains and losses for the trailing 12 months
and three months ended December 31, 2023. The daily
backtesting losses are displayed as a percentage of the
corresponding daily Risk Management VaR. The count of
days with backtesting losses are shown in aggregate, in fifty
percentage point intervals. Backtesting exceptions are
displayed within the intervals that are greater than one
hundred percent. The results in the chart below differ from
the results of backtesting disclosed in the Market Risk
section of the Firm's Basel III Pillar 3 Regulatory Capital
Disclosures reports, which are based on Regulatory VaR
applied to the Firm's covered positions.
28
(d)
75
50
73
LLL
25
0
25
Days with
Backtesting Gains
Trailing 12 Months
4Q23
JPMorgan Chase & Co./2023 Form 10-K
100
2023
Third Quarter
2023
69
6
2
20
12
9
17
12
9
16
(5)
NM
NM
(4)
NM
NM
14
9
15
22
1
240
14
8
26
16
4
235
(11)
NM
NM
(10)
NM
NM
40
23
58
57
35
7
14
10
24
measures.
(c) Corporate and other LOB VaR includes a legacy private equity position in Corporate which is publicly traded.
(d) In March 2022, the effects of nickel price increases and the associated volatility in the nickel market resulted in elevated maximum Credit Portfolio VaR, as
well as maximum Total VaR.
2023 compared with 2022
Average Total VaR decreased by $15 million for the year
ended December 31, 2023 when compared with the prior
year.
The decrease was driven by reduced market volatility and
risk reductions predominantly impacting fixed income,
commodities and equities.
The following graph presents daily Risk Management VaR for the four trailing quarters.
Daily Risk Management VaR
$ millions
75
50
25
0
First Quarter
2023
Second Quarter
2023
I
(b) Credit Portfolio VaR includes the derivative CVA, hedges of the CVA and hedges of the retained loan portfolio, which are reported in principal transactions
revenue. This VaR does not include the retained loan portfolio, which is not reported at fair value. In line with the Firm's internal model governance, the
credit risk component of CVA related to certain counterparties was removed from Credit Portfolio VaR due to the widening of the credit spreads for those
counterparties to elevated levels. The related hedges were also removed to maintain consistency. This exposure is now reflected in other sensitivity-based
(a) Diversification benefit represents the difference between the portfolio VaR and the sum of its individual components. This reflects the non-additive nature
of VaR due to imperfect correlation across LOBS, Corporate, and risk types. For maximum and minimum VaR, diversification benefit is not meaningful as
the maximum and minimum VaR for each portfolio may have occurred on different trading days than the components.
Total VaR
Diversification benefit to CIB and other VaR (a)
(11)
NM
NM
(13)
NM
NM
$ 43
$ 26
Fourth Quarter
$
58
$
34
$ 242
(d)
Corporate and other LOB VaR (c)
Diversification benefit to other VaR (a)
Other VaR
$
57
NM
51
Value-at-risk
Stress testing
• Profit and loss drawdowns
Earnings-at-risk
Market Risk Management sets limits and regularly reviews
and updates them as appropriate. Senior management is
responsible for reviewing and approving certain of these
risk limits on an ongoing basis. Limits that have not been
reviewed within specified time periods by Market Risk
Management are reported to senior management. The LOBS
and Corporate are responsible for adhering to established
limits against which exposures are monitored and reported.
Limit breaches are required to be reported in a timely
manner to limit approvers, which include Market Risk
Management and senior management. In the event of a
breach, Market Risk Management consults with senior
members of appropriate groups within the Firm to
determine the suitable course of action required to return
the applicable positions to compliance, which may include a
reduction in risk in order to remedy the breach or granting
a temporary increase in limits to accommodate an expected
increase in client activity and/or market volatility. Firm,
Corporate or LOB-level limit breaches are escalated as
appropriate.
Models used to measure market risk are inherently
imprecise and are limited in their ability to measure certain
risks or to predict losses. This imprecision may be
heightened when sudden or severe shifts in market
conditions occur. For additional discussion on model
uncertainty refer to Estimations and Model Risk
Management on page 154.
Market Risk Management periodically reviews the Firm's
existing market risk measures to identify opportunities for
enhancement, and to the extent appropriate, will calibrate
those measures accordingly over time.
•
•
Economic Value Sensitivity
Other sensitivity-based measures
Risk monitoring and control
Market risk exposure is managed primarily through a series
of limits set in the context of the market environment and
business strategy. In setting limits, Market Risk
Management takes into consideration factors such as
market volatility, product liquidity, accommodation of client
business, and management judgment. Market Risk
Management maintains different levels of limits. Firm level
limits include VaR and stress limits. Similarly, LOB and
Corporate limits include VaR and stress limits and may be
supplemented by certain nonstatistical risk measures such
as profit and loss drawdowns. Limits may also be set within
the LOBS and Corporate, as well as at the legal entity level.
JPMorgan Chase & Co./2023 Form 10-K
135
Management's discussion and analysis
The following table summarizes the predominant business activities and related market risks, as well as positions which give
rise to market risk and certain measures used to capture those risks, for each LOB and Corporate.
•
•
There is no single measure to capture market risk and
therefore Market Risk Management uses various metrics,
both statistical and nonstatistical, to assess risk including:
Measures used to capture market risk
37.0
(a) As of December 31, 2023, included approximately $1.0 billion in tax-
oriented investments in CIB associated with First Republic.
Governance and oversight
The Firm's approach to managing principal investment risk
is consistent with the Firm's risk governance structure. The
Firm has established a Firmwide risk policy framework for
all principal investing activities that includes approval by
executives who are independent from the investing
businesses, as appropriate.
The Firm's independent control functions are responsible
for reviewing the appropriateness of the carrying value of
investments in accordance with relevant policies. As part of
the risk governance structure, approved levels for
investments are established and monitored for each
relevant business or segment in order to manage the
overall size of the portfolios. The Firm also conducts stress
testing on these portfolios using specific scenarios that
estimate losses based on significant market moves and/or
other risk events.
134
JPMorgan Chase & Co./2023 Form 10-K
MARKET RISK MANAGEMENT
Market risk is the risk associated with the effect of changes
in market factors such as interest and foreign exchange
rates, equity and commodity prices, credit spreads or
implied volatilities, on the value of assets and liabilities held
for both the short and long term.
Market Risk Management
Market Risk Management monitors market risks throughout
the Firm and defines market risk policies and procedures.
Market Risk Management seeks to manage risk, facilitate
efficient risk/return decisions, reduce volatility in operating
performance and provide transparency into the Firm's
market risk profile for senior management, the Board of
Directors and regulators. Market Risk Management is
responsible for the following functions:
•
•
•
Maintaining a market risk policy framework
Independently measuring, monitoring and controlling
LOB, Corporate, and Firmwide market risk
Defining, approving and monitoring limits
Performing stress testing and qualitative risk
assessments
Risk measurement
In addition to the predominant business activities, each LOB and Corporate may engage in principal investing activities. To the
extent principal investments are deemed market risk sensitive, they are reflected in relevant risk measures and captured in the
table below. Refer to Investment Portfolio Risk Management on page 134 for additional discussion on principal investments.
$
LOBS and
Corporate
Predominant business
activities
as derivatives
Interest-only and mortgage-
backed securities, classified
as trading assets debt
instruments, and related
hedges, classified as
derivatives
Fair value option elected
liabilities(a)
loans and MSRs, classified
Positions included in
earnings-at-risk
•
•
Deposits
Positions included in other
sensitivity-based measures
Fair value option elected
liabilities DVA (a)
CIB
•
Makes markets and
services clients across
fixed income, foreign
exchange, equities and
commodities
Retained loan portfolio
commitments, warehouse
Hedges of mortgage
•
•
Originates and services
mortgage loans
.
•
Originates loans and
takes deposits
•
Related market risks
Risk from changes in the
probability of newly
originated mortgage
commitments closing
Interest rate risk and
prepayment risk
Positions included in Risk
Management VaR
•
.
Mortgage commitments,
classified as derivatives
Warehouse loans that are
fair value option elected,
classified as loans - debt
instruments
•
MSRS
.
.
CCB
Originates loans and
takes deposits
39.3
10.5
6
1,856
31
2,040
28
12,450
16
11,200
970
17
47
13,240
45
2,997
13
1,782
12
3,519
14,306
6
1,039
Commercial and industrial
Allocation of allowance for loan losses
The table below presents a breakdown of the allowance for loan losses by loan class. Refer to Note 12 for further information
on loan classes.
2023
2022
December 31,
(in millions, except ratios)
Residential real estate
$
Allowance for loan losses
817
Percent of retained loans
to total retained loans
25 %
$
Allowance for loan losses
1,070
Percent of retained loans
to total retained loans
22 %
Auto and other
Consumer, excluding credit card
Credit card
Total consumer
Secured by real estate
13
10.8
3,507
Other
Investment securities risk includes the exposure associated
with a default in the payment of principal and interest. This
risk is mitigated given that the investment securities
portfolio held by Treasury and CIO predominantly consists
of high-quality securities. At December 31, 2023, the
Treasury and CIO investment securities portfolio, net of the
allowance for credit losses, was $569.2 billion, and the
average credit rating of the securities comprising the
portfolio was AA+ (based upon external ratings where
available, and where not available, based primarily upon
internal risk ratings). Refer to Corporate segment results on
pages 84-85 and Note 10 for further information on the
investment securities portfolio and internal risk ratings.
Refer to Liquidity Risk Management on pages 102-109 for
further information on related liquidity risk. Refer to Market
Risk Management on pages 135-143 for further
information on the market risk inherent in the portfolio.
Governance and oversight
Investment securities risks are governed by the Firm's Risk
Appetite framework, and reviewed at the CTC Risk
Committee with regular updates provided to the Board Risk
Committee.
The Firm's independent control functions are responsible
for reviewing the appropriateness of the carrying value of
investment securities in accordance with relevant policies.
Approved levels for investment securities are established
for each risk category, including capital and credit risks.
Principal investment risk
Principal investments are typically privately-held financial
instruments representing ownership interests or other
forms of junior capital. In general, principal investments
include tax-oriented investments and investments made to
enhance or accelerate the Firm's business strategies and
exclude those that are consolidated on the Firm's balance
sheets. These investments are made by dedicated investing
businesses or as part of a broader business strategy. The
Firm's principal investments are managed by the LOBS and
Corporate and are reflected within their respective financial
results. The Firm's investments will continue to evolve
based on market circumstances and in line with its strategic
initiatives, including the Firm's environmental and social
goals.
The table below presents the aggregate carrying values of
the principal investment portfolios as of December 31,
2023 and 2022.
(in billions)
December 31,
Investment securities risk
2023
Tax-oriented investments,
primarily in alternative energy
and affordable housing"
(a
)
$
28.8
$
26.2
Private equity, various debt and
equity instruments, and real
assets
Total carrying value
$
December 31,
2022
Investment portfolio risk is the risk associated with the loss
of principal or a reduction in expected returns on
investments arising from the investment securities portfolio
or from principal investments. The investment securities
portfolio is predominantly held by Treasury and CIO in
connection with the Firm's balance sheet and asset-liability
management objectives. Principal investments are
predominantly privately-held financial instruments and are
managed in the LOBS and Corporate. Investments are
typically intended to be held over extended periods and,
accordingly, the Firm has no expectation for short-term
realized gains with respect to these investments.
INVESTMENT PORTFOLIO RISK MANAGEMENT
Management's discussion and analysis
1,598
27
1,197
28
Total wholesale
8,114
53
6,486
55
Total(a)
$
22,420
100 %
$
19,726
100 %
(a) As of December 31, 2023, included the allowance for loan losses associated with First Republic.
JPMorgan Chase & Co./2023 Form 10-K
133
15
34
•
Basis and correlation risk
from changes in the way
asset values move
138
Management's discussion and analysis
The table below shows the results of the Firm's Risk Management VaR measure using a 95% confidence level. VaR can vary
significantly as positions change, market volatility fluctuates, and diversification benefits change.
Total VaR
As of or for the year ended December 31,
(in millions)
CIB trading VaR by risk type
Fixed income
137
Foreign exchange
Commodities and other
Diversification benefit to CIB trading VaR
CIB trading VaR
Credit Portfolio VaR (b)
Diversification benefit to CIB VaR (a)
CIB VaR
CCB VaR
2023
Equities
JPMorgan Chase & Co./2023 Form 10-K
The Firm calculates separately a daily aggregated VaR in
accordance with regulatory rules ("Regulatory VaR"), which
is used to derive the Firm's regulatory VaR-based capital
requirements under Basel III capital rules. This Regulatory
VaR model framework currently assumes a ten business-day
holding period and an expected tail loss methodology which
approximates a 99% confidence level. Regulatory VaR is
applied to "covered" positions as defined by Basel III capital
rules, which may be different than the positions included in
the Firm's Risk Management VaR. For example, credit
derivative hedges of accrual loans are included in the Firm's
Risk Management VaR, while Regulatory VaR excludes these
credit derivative hedges. In addition, in contrast to the
Firm's Risk Management VaR, Regulatory VaR currently
excludes the diversification benefit for certain Var models.
Refer to JPMorgan Chase's Basel III Pillar 3 Regulatory
Capital Disclosures reports, which are available on the
Firm's website, for additional information on Regulatory
VaR and the other components of market risk regulatory
capital for the Firm (e.g., VaR-based measure, stressed
VaR-based measure and the respective backtesting).
The Firm's VaR model calculations are periodically
evaluated and enhanced in response to changes in the
composition of the Firm's portfolios, changes in market
conditions, improvements in the Firm's modeling
techniques and measurements, and other factors. Such
changes may affect historical comparisons of VaR results.
Refer to Estimations and Model Risk Management on page
154 for information regarding model reviews and
approvals.
hedges, classified as
derivatives
Capital invested alongside
third-party investors,
typically in privately
distributed collective
vehicles managed by AWM
(i.e., co-investments)
Privately held equity and
other investments
measured at fair value
Foreign exchange exposure
related to Firm-issued non-
USD long-term debt ("LTD")
and related hedges
136
JPMorgan Chase & Co./2023 Form 10-K
Value-at-risk
JPMorgan Chase utilizes value-at-risk ("VaR"), a statistical
risk measure, to estimate the potential loss from adverse
market moves in the current market environment. The Firm
has a single VaR framework used as a basis for calculating
Risk Management VaR and Regulatory VaR.
The framework is employed across the Firm using historical
simulation based on data for the previous 12 months. The
framework's approach assumes that historical changes in
market values are representative of the distribution of
potential outcomes in the immediate future. The Firm
believes the use of Risk Management VaR provides a daily
measure of risk that is closely aligned to risk management
decisions made by the LOBS and Corporate and, along with
other market risk measures, provides the appropriate
information needed to respond to risk events.
The Firm's Risk Management VaR is calculated assuming a
one-day holding period and an expected tail-loss
methodology which approximates a 95% confidence level.
Risk Management VaR provides a consistent framework to
measure risk profiles and levels of diversification across
product types and is used for aggregating risks and
monitoring limits across businesses. VaR results are
reported as appropriate to various groups including senior
management, the Board Risk Committee and regulators.
Underlying the overall VaR model framework are individual
VaR models that simulate historical market returns for
individual risk factors and/or product types. To capture
material market risks as part of the Firm's risk management
framework, comprehensive VaR model calculations are
performed daily for businesses whose activities give rise to
market risk. These VaR models are granular and
incorporate numerous risk factors and inputs to simulate
daily changes in market values over the historical period;
inputs are selected based on the risk profile of each
portfolio, as sensitivities and historical time series used to
generate daily market values may be different across
product types or risk management systems. The VaR model
results across all portfolios are aggregated at the Firm
level.
As VaR is based on historical data, it is an imperfect
measure of market risk exposure and potential future
losses. In addition, based on their reliance on available
historical data, limited time horizons, and other factors,
VaR measures are inherently limited in their ability to
measure certain risks and to predict losses, particularly
those associated with market illiquidity and sudden or
severe shifts in market conditions.
For certain products, specific risk parameters are not
captured in Var due to the lack of liquidity and availability
of appropriate historical data. The Firm uses proxies to
estimate the VaR for these and other products when daily
time series are not available. It is likely that using an actual
price-based time series for these products, if available,
would affect the VaR results presented. The Firm therefore
considers other nonstatistical measures such as stress
testing, in addition to VaR, to capture and manage its
market risk positions.
As VaR model calculations require daily data and a
consistent source for valuation, the daily market data used
may be different than the independent third-party data
collected for VCG price testing in its monthly valuation
process. For example, in cases where market prices are not
observable, or where proxies are used in VaR historical time
series, the data sources may differ. Refer to Valuation
process in Note 2 for further information on the Firm's
valuation process.
2022
compensation and related
Avg.
Max
3
15
12
7
20
15
10
28
8
(a)
NM
NM
(43)
NM
17
37
24
55
(42)
82
$
$ 33
Avg.
Min
Max
$
49
$ 31
to
$
71
12
6
26
7
3
11
11
6
169
$ 59
Min
Risk of loss from adverse
movements in market
prices and implied
volatilities across interest
rate, foreign exchange,
credit, commodity and
equity instruments
Certain deferred
hedges, classified as
Privately held equity and
other investments
measured at fair value; and
certain real estate-related
fair value option elected
loans
Derivatives FVA and fair
value option elected
liabilities DVA (a)
Credit risk component of
CVA and associated hedges
for counterparties with
credit spreads that have
widened to elevated levels
CB
AWM
.
•
associated hedges
Marketable equity
investments
Originates loans and
•
Interest rate risk and
prepayment risk
•
Marketable equity
investments"
.
•
Derivative CVA and
elected loans
Certain fair value option
•
relative to one another
.
.
Interest rate risk and
prepayment risk
•
•
Trading assets/liabilities -
.
Retained loan portfolio
•
Deposits
debt and marketable equity
instruments, and
derivatives, including
hedges of the retained loan
portfolio
Certain securities
purchased, loaned or sold
under resale agreements
and securities borrowed
Fair value option elected
liabilities(a)
takes deposits
derivatives
Provides initial capital
products such as
Derivative positions
measured through
noninterest revenue in
earnings
Marketable equity
investments
Retained loan portfolio
•
Deposits
Retained loan portfolio
Deposits
.
•
•
Structural non-USD
foreign exchange risks
•
Investment securities
portfolio and related
interest rate hedges
Long-term debt and
related interest rate
hedges
Deposits
•
.
.
(a) Reflects structured notes in Risk Management VaR and the DVA on structured notes in other sensitivity-based measures.
(b) The AWM and CB contributions to Firmwide average VaR were not material for the years ended December 31, 2023 and 2022.
Initial seed capital
investments and related
Deposits with banks
Structural interest rate
risk from the Firm's
traditional banking
activities
Manages the Firm's
.
mutual funds and
capital invested
alongside third-party
investors
Originates loans and
takes deposits
•
.
Risk from adverse
movements in market
factors (e.g., market
prices, rates and credit
spreads)
Interest rate risk and
prepayment risk
•
Debt securities held in
advance of distribution to
clients, classified as trading
assets debt instruments
Trading assets/liabilities -
derivatives that hedge the
retained loan portfolio (b)
Corporate
•
liquidity, funding,
capital, structural
interest rate and
foreign exchange risks
investments in
33
Stress scenarios are governed by the overall stress
framework, under the oversight of Market Risk
I
+100 bps shift in long-term rates
-100 bps shift in short-term rates
Flatter yield curve:
3.3
(4.6)
-200 bps shift in rates
Steeper yield curve:
(4.2)
4.8
+200 bps shift in rates
2.4
(2.1)
-100 bps shift in rates
(2.0)
0.6
$
$
+100 bps shift in rates
(b)
U.S. dollar:
Parallel shift:
2022
2023
(a)
December 31,
(in billions)
The Firm's earnings-at-risk scenarios are periodically
evaluated and enhanced in response to changes in the
composition of the Firm's balance sheet, changes in market
conditions, improvements in the Firm's simulation and
other factors. While a relevant measure of the Firm's
interest rate exposure, the earnings-at-risk analysis does
not represent a forecast of the Firm's net interest income
(Refer to Outlook on page 52 for additional information).
The Firm's U.S. dollar and non-U.S. dollar sensitivities are
presented in the table below.
The Firm performs sensitivity analyses of the assumptions
used in earnings-at-risk scenarios, including with respect to
deposit betas and forecasts of deposit balances, both of
which are especially significant in the case of consumer
deposits. The results of these sensitivity analyses are
reported to the CTC Risk Committee and the Board Risk
Committee.
impacting both consumer and wholesale deposits. The
model change incorporated observed pricing and
customer behavior in both rising and falling interest rate
environments. Actual deposit rates paid may differ from
the modeled assumptions, primarily due to customer
behavior and competition for deposits.
2.4
JPMorgan Chase & Co./2023 Form 10-K
0.8
3.2
Backtesting Exceptions
JPMorgan Chase & Co./2023 Form 10-K
142
In addition to earnings-at-risk, which is measured as a
sensitivity to a baseline of earnings over the next 12
months, the Firm also measures Economic Value Sensitivity
("EVS"). EVS stress tests the longer-term economic value of
equity by measuring the sensitivity of the Firm's current
balance sheet, primarily retained loans, deposits, debt and
investment securities as well as related hedges, under
various interest rate scenarios. In accordance with the CTC
interest rate risk management policy, the Firm has
established limits on EVS as a percentage of TCE. Additional
information on long-term debt and held to maturity
investment securities is disclosed on page 195 in Note 2
financial instruments that are not carried at fair value on
the Consolidated balance sheets.
Economic Value Sensitivity
As of December 31, 2023, the Firm's sensitivity to a
parallel shift in rates is primarily the result of a greater
impact from assets repricing compared to the impact of
liabilities repricing.
Management's discussion and analysis
141
The change in the Firm's U.S. dollar sensitivities as of
December 31, 2023 compared to December 31, 2022 also
reflected the impact of changes in the Firm's balance sheet
including the impact of the First Republic acquisition.
(b) Reflects the simultaneous shift of U.S. dollar and non-U.S. dollar rates.
In the absence of the model update to incorporate deposit
repricing lags in the second quarter of 2023, the Firm's U.S.
dollar sensitivities as of December 31, 2023, would have
been lower by $4.1 billion to the +100 basis points shift in
short-term and parallel rate scenarios and higher by $3.7
billion to the 100 basis points shift in short-term and
parallel rate scenarios.
(a) Reflects the impact of the aforementioned model update to
incorporate deposit repricing lags. Prior periods have not been
revised.
(1.5)
(0.7)
0.7
$
0.7
$
+100 bps shift in rates
Parallel shift: (b)
(0.9)
(0.5)
(2.8)
1.8
+100 bps shift in short-term rates
-100 bps shift in long-term rates
Non-U.S. dollar:
-100 bps shift in rates
The pricing sensitivity of deposits, known as deposit
betas, represent the amount by which deposit rates paid
could change upon a given change in market interest
rates. As part of the Firm's continuous evaluation and
periodic enhancements to its earnings-at-risk
calculations, the Firm updated its model in the second
quarter of 2023 to incorporate deposit repricing lags
(0.6)
changes in interest rates from baseline rates.
Stress testing
Other risk measures
Management's discussion and analysis
139
8
2211
4Q23
3Q23
2Q23
1Q23
Backtesting Exceptions for
Trailing 12 Months
Along with VaR, stress testing is an important tool used to
assess risk. While VaR reflects the risk of loss due to
adverse changes in markets using recent historical market
behavior, stress testing reflects the risk of loss from
hypothetical changes in the value of market risk sensitive
positions applied simultaneously. Stress testing measures
the Firm's vulnerability to losses under a range of stressed
but possible economic and market scenarios. The results
are used to understand the exposures responsible for those
potential losses and are measured against limits.
JPMorgan Chase & Co./2023 Form 10-K
Days with Backtesting Losses
>50% 100%
0% - 50%
>150%
1
3
F
7
10
14
Forecasted balance sheet, as well as modeled
prepayment and reinvestment behavior, but excluding
assumptions about actions that could be taken by the
Firm or its clients and customers in response to
instantaneous rate changes. Mortgage prepayment
assumptions are based on the interest rates used in the
scenarios compared with underlying contractual rates,
the time since origination, and other factors which are
updated periodically based on historical experience.
Deposit forecasts are a key assumption in the Firm's
earnings-at-risk. The baseline reflects certain
assumptions relating to the reversal of Quantitative
Easing that are highly uncertain and require management
judgment. Therefore, the actual amount of deposits held
by the Firm at any particular time could be impacted by
actions the Federal Reserve may take as part of monetary
policy, including through the use of the Reverse
Repurchase Facility. In addition, there are other factors
that impact the amount of deposits held at the Firm such
as the level of loans across the industry and competition
for deposits.
Losses as a Percentage of Risk Management VaR (%)
The Firm's stress framework covers market risk sensitive
positions in the LOBS and Corporate. The framework is used
to calculate multiple magnitudes of potential stress for both
market rallies and market sell-offs, assuming significant
changes in market factors such as credit spreads, equity
prices, interest rates, currency rates and commodity prices,
and combines them in multiple ways to capture an array of
hypothetical economic and market scenarios.
>100% 150%
Management, and the models to calculate the stress results
are subject to the Firm's Estimations and Model Risk
Management Policy. The Firmwide Market Risk Stress
Methodology Committee reviews and approves changes to
stress testing methodology and scenarios across the Firm.
Significant changes to the framework are escalated to
senior management, as appropriate.
The impact on exposures as a result of instantaneous
The Firm generates a number of scenarios that focus on tail
events in specific asset classes and geographies, including
how the event may impact multiple market factors
simultaneously. Scenarios also incorporate specific
idiosyncratic risks and stress basis risk between different
products. The flexibility in the stress framework allows the
Firm to construct new scenarios that can test the outcomes
against possible future stress events. Stress testing results
are reported periodically to senior management of the
Firm, as appropriate.
•
•
Earnings-at-risk scenarios estimate the potential change to
a net interest income baseline over the following 12 months
utilizing multiple assumptions. These scenarios include a
parallel shift involving changes to both short-term and long-
term rates by an equal amount; a steeper yield curve
involving holding short-term rates constant and increasing
long-term rates; and a flatter yield curve involving
increasing short-term rates and holding long-term rates
constant or holding short-term rates constant and
decreasing long-term rates. These scenarios consider many
different factors, including:
JPMorgan Chase & Co./2023 Form 10-K
One way that the Firm evaluates its structural interest rate
risk is through earnings-at-risk. Earnings-at-risk estimates
the Firm's interest rate exposure for a given interest rate
scenario. It is presented as a sensitivity to a baseline, which
includes net interest income and certain interest rate
sensitive fees. The baseline uses market interest rates and,
Earnings-at-Risk
The Firm manages interest rate exposure related to its
assets and liabilities on a consolidated, Firmwide basis.
Business units transfer their interest rate risk to Treasury
and CIO through funds transfer pricing, which takes into
account the elements of interest rate exposure that can be
risk-managed in financial markets. These elements include
asset and liability balances and contractual rates of
interest, contractual principal payment schedules, expected
prepayment experience, interest rate reset dates and
maturities, rate indices used for repricing, and any interest
rate ceilings or floors for adjustable rate products.
The impact of changes in the maturity of various assets,
liabilities or off-balance sheet instruments as interest
rates change
Differences in the amounts by which short-term and long-
term market interest rates change (for example, changes
in the slope of the yield curve)
Differences in timing among the maturity or repricing of
assets, liabilities and off-balance sheet instruments
Differences in the amounts of assets, liabilities and off-
balance sheet instruments that are maturing or repricing
at the same time
in the case of deposits, pricing assumptions. The Firm
conducts simulations of changes to this baseline for interest
rate-sensitive assets and liabilities denominated in U.S.
dollars and other currencies ("non-U.S. dollar” currencies).
These simulations primarily include retained loans,
deposits, deposits with banks, investment securities, long-
term debt and any related interest rate hedges, and funds
transfer pricing of other positions in risk management VaR
and other sensitivity-based measures as described on page
136. These simulations exclude hedges of exposure from
non-U.S. dollar foreign exchange risk arising from the
Firm's capital investments. The inclusion of the hedges in
these simulations would increase U.S. dollar sensitivities
and decrease non-U.S. dollar sensitivities. Refer to non-U.S.
dollar foreign exchange risk on page 145 for more
information.
Structural interest rate risk management
•
•
Key Risk Drivers and Risk Management Process
Structural interest rate risk can arise due to a variety of
factors, including:
The CTC Risk Committee establishes the Firm's interest rate
risk management policy and related limits, which are
subject to approval by the Board Risk Committee. Treasury
and CIO, working in partnership with the LOBS, calculates
the Firm's structural interest rate risk profile and reviews it
with senior management, including the CTC Risk Committee.
In addition, oversight of structural interest rate risk is
managed through a dedicated risk function reporting to the
CTC CRO. This risk function is responsible for providing
independent oversight and governance around assumptions
and establishing and monitoring limits for structural
interest rate risk, including limits related to Earnings-at-
Risk and Economic Value Sensitivity. The Firm manages
structural interest rate risk generally through its investment
securities portfolio and interest rate derivatives.
VaR, but also from the Firm's traditional banking activities,
which include extension of loans and credit facilities, taking
deposits, issuing debt, as well as the investment securities
portfolio, and associated derivative instruments. Refer to
the table on page 136 for a summary by LOB and Corporate
identifying positions included in earnings-at-risk.
Governance
140
The Firm's stress testing framework is utilized in calculating
the Firm's CCAR and other stress test results, which are
reported periodically to the Board of Directors. In addition,
stress testing results are incorporated into the Firm's Risk
Appetite framework, and are reported periodically to the
Board Risk Committee.
The effect of interest rate exposure on the Firm's reported
net income is important as interest rate risk represents one
of the Firm's significant market risks. Interest rate risk
arises not only from trading activities which are included in
Profit and loss drawdowns
Profit and loss drawdowns are used to highlight trading
losses above certain levels of risk tolerance. A profit and
loss drawdown is a decline in revenue from its year-to-date
peak level.
•
1 basis point parallel
increase in spread
1 basis point parallel
increase in spread
43
The Firm, through its LOBS and Corporate, may be exposed
to country risk resulting from financial, economic, political
or other significant developments which adversely affect
the value of the Firm's exposures related to a particular
country or set of countries. The Country Risk Management
group actively monitors the various portfolios which may be
impacted by these developments and measures the extent
to which the Firm's exposures are diversified given the
Firm's strategy and risk tolerance relative to a country.
(1)
10% credit spread
widening
increase in spread
46
1 basis point parallel
increase in spread
(e) Impact recognized through OCI.
(b) In line with the Firm's internal model governance, the credit risk component of CVA related to certain counterparties was removed from Credit Portfolio
VaR due to the widening of the credit spreads for those counterparties to elevated levels. The related hedges were also removed to maintain consistency.
This exposure is now reflected in other sensitivity-based measures.
(c) Impact recognized through net revenue.
(d) Impact recognized through noninterest expense.
JPMorgan Chase & Co./2023 Form 10-K
143
Management's discussion and analysis
(4)
COUNTRY RISK MANAGEMENT
(a) Excludes equity securities without readily determinable fair values that are measured under the measurement alternative. Refer to Note 2 for additional
information.
(3)
(56)
3
Interest rate sensitivity on fair value option
elected liabilities resulting from a change in the
Firm's own credit spread"
Organization and management
Interest rate sensitivity related to risk
management of changes in the Firm's own credit
spread on the fair value option elected liabilities
noted above (c)
Sensitivity measure
December 31, December 31,
2023
2022
10% decline in
market value
$
1 basis point parallel
(61) $
market value
(1,044)
(1,046)
1 basis point parallel
tightening of cross
currency basis
(12)
(12)
10% depreciation of
currency
16
10% decline in
Country Risk Management is an independent risk
management function that assesses, manages and monitors
exposure to country risk across the Firm.
Lending exposures are measured at the total committed
amount (funded and unfunded), net of the allowance for
credit losses and eligible cash and marketable securities
collateral received
•
Deposits with banks are measured as the cash balances
placed with central banks, commercial banks, and other
financial institutions
Securities financing exposures are measured at their
receivable balance, net of eligible collateral received
Debt and equity securities are measured at the fair value
of all positions, including both long and short positions
Counterparty exposure on derivative receivables is
measured at the derivative's fair value, net of the fair
value of the eligible collateral received
Credit derivatives exposure is measured at the net
notional amount of protection purchased or sold for the
same underlying reference entity, inclusive of the fair
value of the derivative receivable or payable, reflecting
the manner in which the Firm manages these exposures
The Firm's internal country risk reporting differs from the
reporting provided under the FFIEC bank regulatory
requirements.
144
JPMorgan Chase & Co./2023 Form 10-K
Stress testing
Stress testing is an important component of the Firm's
country risk management framework, which aims to
estimate and limit losses arising from a country crisis by
measuring the impact of adverse asset price movements to
a country based on market shocks combined with
counterparty specific assumptions. Country Risk
Management periodically designs and runs tailored stress
scenarios to test vulnerabilities to individual countries or
sets of countries in response to specific or potential market
events, sector performance concerns, sovereign actions and
geopolitical risks. These tailored stress results are used to
inform potential risk reduction across the Firm, as
necessary.
Risk reporting
Country exposure and stress are measured and reported
regularly, and used by Country Risk Management to identify
trends and monitor high usages and breaches against limits.
For country risk management purposes, the Firm may
report exposure to jurisdictions that are not fully
autonomous, including Special Administrative Regions
("SAR") and dependent territories, separately from the
independent sovereign states with which they are
associated.
The following table presents the Firm's top 20 exposures by
country (excluding the U.S.) as of December 31, 2023, and
their comparative exposures as of December 31, 2022. The
top 20 country exposures represent the Firm's largest total
exposures by individual country. Country exposures may
fluctuate from period to period due to a variety of factors,
including client activity, market flows and liquidity
management activities undertaken by the Firm.
The decrease in exposure to Japan when compared to
December 31, 2022, was driven by a reduction in cash
placed with the central bank of Japan as a result of liquidity
management activities undertaken by the Firm.
The decrease in exposure to Australia when compared to
December 31, 2022, was predominantly driven by a
reduction in cash placed with the central bank of Australia
due to client-driven activities resulting from changes in
interest rates.
The Firm continues to monitor its exposure to Russia which
was approximately $350 million as of December 31, 2023.
This amount excludes certain deposits placed on behalf of
clients at the Depository Insurance Agency of Russia.
Top 20 country exposures (excluding the U.S.)(a)
December 31,
(in billions)
Germany
United
Deposits
Impact of changes in the spread related to fair
value option elected liabilities DVA (e)
•
The Firm's country risk management function includes the
following activities:
•
•
•
•
•
•
Maintaining policies, procedures and standards
consistent with a comprehensive country risk framework
Assigning sovereign ratings, assessing country risks and
establishing risk tolerance relative to a country
Measuring and monitoring country risk exposure and
stress across the Firm
Managing and approving country limits and reporting
trends and limit breaches to senior management
Developing surveillance tools, such as signaling models
and ratings indicators, for early identification of
potential country risk concerns
• Providing country risk scenario analysis
Sources and measurement
The Firm is exposed to country risk through its lending and
deposits, investing, and market-making activities, whether
cross-border or locally funded. Country exposure includes
activity with both government and private-sector entities in
a country.
Under the Firm's internal country risk management
approach, attribution of exposure to an individual country is
based on the country where the largest proportion of the
assets of the counterparty, issuer, obligor or guarantor are
located or where the largest proportion of its revenue is
derived, which may be different than the domicile (i.e. legal
residence) or country of incorporation.
Individual country exposures reflect an aggregation of the
Firm's risk to an immediate default, with zero recovery, of
the counterparties, issuers, obligors or guarantors
attributed to that country. Activities which result in
contingent or indirect exposure to a country are not
included in the country exposure measure (for example,
providing clearing services or secondary exposure to
collateral on securities financing receivables).
Assumptions are sometimes required in determining the
measurement and allocation of country exposure,
particularly in the case of certain non-linear or index
products, or where the nature of the counterparty, issuer,
obligor or guarantor is not suitable for attribution to an
individual country. The use of different measurement
approaches or assumptions could affect the amount of
reported country exposure.
Under the Firm's internal country risk measurement
framework:
•
•
Credit risk component of CVA and associated
hedges
149
Primarily represents the foreign exchange
revaluation on the fair value of the derivative
(e)
hedges
Compliance risk, a subcategory of operational risk, is the
risk of failing to comply with laws, rules, regulations or
codes of conduct and standards of self-regulatory
organizations.
COMPLIANCE RISK MANAGEMENT
JPMorgan Chase & Co./2023 Form 10-K
150
As part of its oversight of management's implementation
and maintenance of the Firm's risk management
framework, the Firm's Board of Directors receives periodic
updates from the CIO, the CISO and senior members of the
CTOC concerning cybersecurity matters. These updates
generally include information regarding cybersecurity and
technology developments, the Firm's Information Security
Program and recommended changes to that program,
cybersecurity policies and practices, and ongoing initiatives
to improve information security, as well as any significant
cybersecurity incidents and the Firm's efforts to address
those incidents. The Audit Committee and the Risk
Committee assist the Board in this oversight.
The CTOC escalates key operational risk and control issues,
as appropriate, to the Global Technology Operating
Committee ("GTOC") or its business control committee or to
the appropriate LOB and Corporate Control Committees.
The GTOC is responsible for the governance of the Firmwide
Global Technology organization, including oversight of
Firmwide technology strategies, the delivery of technology
and technology operations, the effective use of information
technology resources, and monitoring and resolving key
operational risk and control matters arising in the Global
Technology organization.
The Cybersecurity and Technology Controls Operating
Committee ("CTOC") is the principal management
committee that oversees the Firm's assessment and
management of cybersecurity risk, including oversight of
the implementation and maintenance of appropriate
controls in support of the Firm's Information Security
Program. The membership of the CTOC includes senior
representatives from the Global Cybersecurity and
Technology Controls organization and relevant corporate
functions, including IRM and Internal Audit. CTOC members
have extensive experience and qualifications in various
technology and information security disciplines, including
relevant experience at the Firm, at other financial services
companies or in other highly-regulated industries.
The governance and oversight for cybersecurity risk
management includes governance forums that inform
management of key areas of concern regarding the
prevention, detection, mitigation and remediation of
cybersecurity risks.
Overview
The governance structure for the Global Cybersecurity and
Technology Controls organization is designed to
appropriately identify, escalate and mitigate cybersecurity
risks. Cybersecurity risk management and its governance
and oversight are integrated into the Firm's operational risk
management framework, including through the escalation
of key risk and control issues to management and the
development of risk mitigation plans for heightened risk
and control issues. IRM independently assesses and
challenges the activities and risk management practices of
the Global Cybersecurity and Technology Controls
organization related to the identification, assessment,
measurement and mitigation of cybersecurity risk. As
needed, the Firm engages third-party assessors or auditing
firms with industry-recognized expertise on cybersecurity
matters to review specific aspects of the Firm's
cybersecurity risk management framework, processes and
controls.
The Firm has a cybersecurity incident response plan
designed to enable the Firm to respond to attempted
cybersecurity incidents, coordinate as appropriate with law
enforcement and other government agencies, notify clients
and customers, as applicable, and recover from such
incidents. In addition, the Firm actively partners with
appropriate government and law enforcement agencies and
peer industry forums, participating in discussions and
simulations to assist in understanding the full spectrum of
cybersecurity risks and in enhancing defenses and
improving resiliency in the Firm's operating environment.
Management's discussion and analysis
with
JPMorgan Chase & Co./2023 Form 10-K
Technology Resiliency, which establishes control
requirements for planning and testing the prioritized
recovery of technology services in the event of degradation
or outage, including incident response planning, data
backup and retention, and recovery readiness in support of
the Firmwide Business Resiliency Program and operational
risk management practices.
Technology Governance, Risk & Controls, which is
responsible for operationalizing technology risk and control
frameworks, analyzing regulatory developments that may
impact the Firm, and developing control catalogs and
assessments of controls, as well as overseeing governance
and reporting of technology and cybersecurity risk.
Security Awareness, which provides awareness and training
that reinforces information risk and security management
practices and compliance with the Firm's policies, standards
and practices. The training is mandatory for all employees
globally on a periodic basis, and it is supplemented by
Firmwide testing initiatives, including periodic phishing
tests. The Firm also provides specialized security training to
employees in specific roles, such as application developers.
The Firm's Global Privacy Program requires all employees
to take periodic training on data privacy that focuses on
confidentiality and security, as well as responding to
unauthorized access to or use of information.
Cyber Operations, which is responsible for implementing
and maintaining controls designed to detect and defend the
Firm against cyber attacks, and includes a dedicated
function for incident response and ongoing monitoring for
cybersecurity threats and vulnerabilities, including those
among the Firm's third-party suppliers.
The Firm's Information Security Program includes the
following functions:
Governance and oversight
Each of the LOBS and Corporate hold primary ownership of
and accountability for managing their compliance risk. The
Firm's Operational Risk and Compliance Organization
("Operational Risk and Compliance"), which is independent
of the LOBS and Corporate, provides independent review,
monitoring and oversight of business operations with a
focus on compliance with the laws, rules, and regulations
applicable to the delivery of the Firm's products and
services to clients and customers.
These compliance risks relate to a wide variety of laws,
rules and regulations across the LOBS and Corporate, and
jurisdictions, and include risks related to financial products
and services, relationships and interactions with clients and
customers, and employee activities. For example,
compliance risks include those associated with anti-money
laundering compliance, trading activities, market conduct,
and complying with the laws, rules, and regulations related
to the offering of products and services across jurisdictional
borders. Compliance risk is also inherent in the Firm's
fiduciary activities, including the failure to exercise the
applicable standard of care to act in the best interest of
fiduciary clients and customers or to treat fiduciary clients
and customers fairly.
Other functions provide oversight of significant regulatory
obligations that are specific to their respective areas of
responsibility.
JPMorgan Chase & Co./2023 Form 10-K
152
The Firm has a senior forum that provides oversight of the
Firm's conduct initiatives to develop a more holistic view of
conduct risks and to connect key programs across the Firm
in order to identify opportunities and emerging areas of
focus. This forum is responsible for setting overall program
direction for strategic enhancements to the Firm's
employee conduct framework and reviewing the
consolidated Firmwide Conduct Risk Appetite Assessment.
Conduct risk management encompasses various aspects of
people management practices throughout the employee life
cycle, including recruiting, onboarding, training and
development, performance management, promotion and
compensation processes. Each LOB, Treasury and CIO, and
each designated corporate function completes an
assessment of conduct risk periodically, reviews metrics
and issues which may involve conduct risk, and provides
conduct education as appropriate.
The Firm maintains oversight and coordination of its
conduct risk through the CCOR Management Framework.
Governance and oversight
Code.
Each LOB and Corporate is accountable for identifying and
managing its conduct risk to provide appropriate
engagement, ownership and sustainability of a culture
consistent with the Firm's Business Principles. The Business
Principles serve as a guide for how employees are expected
to conduct themselves. With the Business Principles serving
as a guide, the Firm's Code sets out the Firm's expectations
for each employee and provides information and resources
to help employees conduct business ethically and in
compliance with applicable laws, rules and regulations
everywhere the Firm operates. Refer to Compliance Risk
Management on page 151 for further discussion of the
Overview
Conduct risk, a subcategory of operational risk, is the risk
that any action or misconduct by an employee could lead to
unfair client or customer outcomes, impact the integrity of
the markets in which the Firm operates, harm employees or
the Firm, or compromise the Firm's reputation.
CONDUCT RISK MANAGEMENT
Management's discussion and analysis
151
JPMorgan Chase & Co./2023 Form 10-K
The Firm has a Code of Conduct (the "Code") that sets forth
the Firm's expectation that employees will conduct
themselves with integrity, at all times. The Code provides
the principles that help govern employee conduct with
clients, customers, suppliers, vendors, shareholders,
regulators, other employees, as well as with the markets
and communities in which the Firm operates. The Code
requires employees to promptly report any potential or
actual violation of the Code, any Firm policy, or any law or
regulation applicable to the Firm's business. It also requires
employees to report any illegal or unethical conduct, or
conduct that violates the underlying principles of the Code,
by any of the Firm's employees, consultants, clients,
customers, suppliers, contract or temporary workers, or
business partners or agents. Training is assigned to newly
hired employees upon joining the Firm, and to current
employees periodically thereafter. Employees are required
to affirm their compliance with the Code annually.
Employees can report any potential or actual violations of
the Code through the Firm's Conduct Hotline (the "Hotline")
by phone or the internet. The Hotline is anonymous, where
permitted by law, and is available at all times globally, with
translation services and is administered by an outside
service provider. The Code prohibits retaliation against
anyone who raises an issue or concern in good faith or
assists with an inquiry or investigation. Periodically, the
Audit Committee receives reports on the Code of Conduct
program.
Code of Conduct
The Firm maintains oversight and coordination of its
compliance risk through the CCOR Management Framework.
The Firm's Global CCO and FRE for Operational Risk and
Qualitative Risk Appetite also provides regular updates to
the Board Risk Committee and the Audit Committee on
significant compliance risk issues, as appropriate.
Operational Risk and Compliance is led by the Firm's Global
CCO and FRE for Operational Risk and Qualitative Risk
Appetite.
Governance and oversight
Operational Risk and Compliance implements policies and
standards designed to govern, identify, measure, monitor
and test, manage, and report on compliance risk.
The Global Chief Information Security Officer ("CISO")
reports to the Global Chief Information Officer, and is a
member of key cybersecurity governance forums. The CISO
leads the Global Cybersecurity and Technology Controls
organization, which is responsible for identifying technology
and cybersecurity risks and for implementing and
maintaining controls to manage cybersecurity threats. The
CISO is responsible for the Firm's Information Security
Program, which is designed to prevent, detect and respond
to cyber attacks in order to help safeguard the
confidentiality, integrity and availability of the Firm's
infrastructure, resources and information. The program
includes managing the Firm's global cybersecurity
operations centers, providing training, conducting
cybersecurity event simulation exercises, implementing the
Firm's policies and standards relating to technology risk
and cybersecurity management, and enhancing, as needed,
the Firm's cybersecurity capabilities.
Organization and management
Risks from cybersecurity threats, including any previous
cybersecurity events, have not materially affected the Firm
or its business strategy, results of operations or financial
condition. Notwithstanding the comprehensive approach
that the Firm takes to address cybersecurity risk, the Firm
may not be successful in preventing or mitigating a future
cybersecurity incident that could have a material adverse
effect on the Firm or its business strategy, results of
operations or financial condition.
Clients and customers are also sources of cybersecurity risk
to the Firm and its information assets, particularly when
their activities and systems are beyond the Firm's own
security and control systems. The Firm engages in periodic
discussions with its clients, customers and other external
parties concerning cybersecurity risks including
opportunities to improve cybersecurity.
Non-U.S. dollar FX risk is the risk that changes in foreign exchange rates affect the value of the Firm's assets or liabilities or
future results. The Firm has structural non-U.S. dollar FX exposures arising from capital investments, forecasted expense and
revenue, the investment securities portfolio and non-U.S. dollar-denominated debt issuance. Treasury and CIO, working in
partnership with the LOBS, primarily manage these risks on behalf of the Firm. Treasury and CIO may hedge certain of these
risks using derivatives. Refer to Business Segment Results on page 66 for additional information.
Other sensitivity-based measures
The Firm quantifies the market risk of certain debt and equity and credit and funding-related exposures by assessing the
potential impact on net revenue, other comprehensive income (“OCI") and noninterest expense due to changes in relevant
market variables. Refer to the predominant business activities that give rise to market risk on page 136 for additional
information on the positions captured in other sensitivity-based measures.
The table below represents the potential impact to net revenue, OCI or noninterest expense for market risk sensitive
instruments that are not included in VaR or earnings-at-risk. Where appropriate, instruments used for hedging purposes are
reported net of the positions being hedged. The sensitivities disclosed in the table below may not be representative of the
actual gain or loss that would have been realized at December 31, 2023 and 2022, as the movement in market parameters
across maturities may vary and are not intended to imply management's expectation of future changes in these sensitivities.
Gain/(loss) (in millions)
Activity
Debt and equity(a)
Asset Management activities
Other debt and equity
Credit- and funding-related exposures
Non-USD LTD cross-currency basis
Non-USD LTD hedges foreign currency
("FX") exposure
Derivatives funding spread risk
CVA counterparty credit risk
(b)
Fair value option elected liabilities -
funding spread risk
Fair value option elected liabilities -
interest rate sensitivity
Description
Consists of certain real estate-related fair value
option elected loans, privately held equity and
other investments held at fair value
Represents the basis risk on derivatives used to
hedge the foreign exchange risk on the non-USD
LTD
Non-U.S. dollar foreign exchange risk
Impact of changes in the spread related to
derivatives FVA
Management's discussion and analysis
The operational risk areas or issues identified through
monitoring and testing are escalated to the LOBS and
Corporate to be remediated through action plans, as
needed, to mitigate operational risk. Operational Risk and
Compliance may advise the LOBS and Corporate in the
development and implementation of action plans.
Third parties with which the Firm does business, that
facilitate the Firm's business activities (e.g., vendors, supply
chain, exchanges, clearing houses, central depositories, and
financial intermediaries) or that the Firm has acquired are
also sources of cybersecurity risk to the Firm. Third party
incidents such as system breakdowns or failures,
misconduct by the employees of such parties, or cyber
attacks, including ransomware and supply-chain
compromises, could have a material adverse effect on the
Firm, including in circumstances in which an affected third
party is unable to deliver a product or service to the Firm or
where the incident delivers compromised software to the
Firm or results in lost or compromised information of the
Firm or its clients or customers.
The Firm has experienced, and expects that it will continue
to experience, a higher volume and complexity of cyber
attacks against the backdrop of heightened geopolitical
tensions. The Firm has implemented measures and controls
reasonably designed to address this evolving environment,
including enhanced threat monitoring. In addition, the Firm
continues to review and enhance its capabilities to address
associated risks, such as those relating to the management
of administrative access to systems.
Cybersecurity risk is an important and continuously evolving
focus for the Firm. Significant resources are devoted to
protecting and enhancing the security of computer systems,
software, networks, storage devices, and other technology.
The Firm's security efforts are designed to protect against,
among other things, cybersecurity attacks that can result in
unauthorized access to confidential information, the
destruction of data, disruptions to or degradations of
service, the sabotaging of systems or other damage.
Overview
Cybersecurity risk is the risk of harm or loss resulting from
misuse or abuse of technology or the unauthorized
disclosure of data.
Cybersecurity risk
JPMorgan Chase & Co./2023 Form 10-K
148
The Firm's Third-Party Oversight ("TPO") and Inter-affiliates
Oversight ("IAO") frameworks assist the LOBS and
Corporate in selecting, documenting, onboarding,
monitoring and managing their supplier relationships
including services provided by affiliates. The objectives of
the TPO framework are to hold suppliers and other third
parties to an appropriate standard of operational
performance and to mitigate key risks, including data loss
and business disruptions. The Corporate Third-Party
Oversight group is responsible for Firmwide training,
monitoring, reporting and standards with respect to third-
party outsourcing risks.
Third-party outsourcing risk
Payment fraud risk is the risk of external and internal
parties unlawfully obtaining personal monetary benefit
through misdirected or otherwise improper payment. The
Firm employs various controls for managing payment fraud
risk as well as providing employee and client education and
awareness trainings.
Payment fraud risk
Disruptions can occur due to forces beyond the Firm's
control such as the spread of infectious diseases or
pandemics, severe weather, natural disasters, the effects of
climate change, power or telecommunications loss, failure
of a third party to provide expected services, cyberattacks,
civil or political unrest or terrorism. The Firmwide Business
Resiliency Program is designed to enable the Firm to
prepare for, adapt to, withstand and recover from business
disruptions including occurrence of extraordinary events
beyond its control that may impact critical business
functions and supporting assets including staff, technology,
facilities and third parties. The program includes
governance, awareness training, planning and testing of
recovery strategies, as well as strategic and tactical
initiatives to identify, assess, and manage business
resiliency risks. The program is required to be managed in
accordance with the Firm's overall approach to Operational
Risk Management, including alignment with technology,
cybersecurity, data, physical security, crisis management,
real estate and outsourcing programs.
Business and technology resiliency risk
In response to the war in Ukraine, numerous financial and
economic sanctions have been imposed on Russia and
Russia-associated entities and individuals by various
governments around the world, including the authorities in
the U.S., U.K. and EU. These sanctions are complex and
continue to evolve. The Firm continues to face increased
operational and other risks associated with addressing
these complex compliance-related matters. To manage this
increased risk, the Firm has implemented controls
reasonably designed to mitigate the risk of non-compliance
and to prevent dealing with sanctioned persons or in
property subject to sanctions, as well as to block or restrict
payments as required by the applicable regulations.
Subcategories and examples of operational risks
Operational risk can manifest itself in various ways.
Operational risk subcategories include Compliance risk,
Conduct risk, Legal risk, and Estimations and Model risk.
Refer to pages 151, 152, 153 and 154, respectively for
more information on Compliance, Conduct, Legal, and
Estimations and Model risk. Details on other select
examples of operational risks such as business and
technology resiliency, payment fraud and third-party
outsourcing, as well as cybersecurity, are provided below.
War in Ukraine and Sanctions
One of the ways in which operational risk may be mitigated
is through insurance maintained by the Firm. The Firm
purchases insurance from commercial insurers and
maintains a wholly-owned captive insurer, Park Assurance
Company. Insurance may also be required by third parties
with whom the Firm does business.
All employees of the Firm are expected to escalate risks
appropriately. Risks identified by Operational Risk and
Compliance are escalated to the appropriate LOB and
Corporate Control Committees, as needed. Operational Risk
and Compliance has established standards designed to
ensure that consistent operational risk reporting and
operational risk reports are produced on a Firmwide basis
as well as by the LOBS and Corporate. Reporting includes
the evaluation of key risk and performance indicators
against established thresholds as well as the assessment of
different types of operational risk against stated risk
appetite. The standards establish escalation protocols to
senior management and to the Board of Directors.
Insurance
Operational Risk Reporting
Management of Operational Risk
2023
Consists of seed capital and related hedges; fund
co-investments; and certain deferred
(d)
compensation and related hedges
banks (b) Lending (c) investing (d) Other(e)
0.1
6.4
(1.2) 0.3
5.6
7.1
Malaysia
3.5
0.2
Netherlands
0.4
4.2
5.3
Luxembourg
0.9
2.2
0.9
I
ེ༅པ
0.1
5.8
6.0
(0.2) 0.2
7.8
10.0
Saudi
Arabia
0.6
5.2
1.9
7.7
7.9
Spain
0.3
5.2
0.8
-
6.3
3.4
Italy
0.1
5.9
4.0
0.3
4.2
(d) Includes market-making positions and hedging, investment securities,
and counterparty exposure on derivative and securities financings net
of eligible collateral. Market-making positions and hedging includes
exposure from single reference entity ("single-name"), index and other
multiple reference entity transactions for which one or more of the
underlying reference entities is in a country listed in the above table.
(e) Includes clearing house guarantee funds and physical commodities.
(f) The country rankings presented in the table as of December 31, 2022,
are based on the country rankings of the corresponding exposures at
December 31, 2023, not actual rankings of such exposures at
December 31, 2022.
compliance, conduct, legal, and estimations and model risk.
Operational risk is inherent in the Firm's activities and can
manifest itself in various ways, including fraudulent acts,
business disruptions (including those caused by
extraordinary events beyond the Firm's control), cyber
attacks, inappropriate employee behavior, failure to comply
with applicable laws, rules and regulations or failure of
vendors or other third party providers to perform in
accordance with their agreements. Operational Risk
Management attempts to manage operational risk at
appropriate levels in light of the Firm's financial position,
the characteristics of its businesses, and the markets and
regulatory environments in which it operates.
Operational Risk Management Framework
The Firm's Compliance, Conduct, and Operational Risk
("CCOR") Management Framework is designed to enable
the Firm to govern, identify, measure, monitor and test,
manage and report on the Firm's operational risk.
The LOBS and Corporate are responsible for the
management of operational risk. The Control Management
Organization, which consists of control managers within
each LOB and Corporate, is responsible for the day-to-day
execution of the CCOR Framework.
The Firm's Global Chief Compliance Officer ("CCO") and FRE
for Operational Risk and Qualitative Risk Appetite is
responsible for defining the CCOR Management Framework
and establishing the minimum standards for its execution.
The LOB and Corporate aligned CCOR Lead Officers report
to the Global CCO and FRE for Operational Risk and
Qualitative Risk Appetite and are independent of the
respective businesses or functions they oversee. The CCOR
Management Framework is included in the Risk Governance
and Oversight Policy that is reviewed and approved by the
Board Risk Committee periodically.
Operational Risk Identification
The Firm utilizes a structured risk and control self-
assessment process that is executed by the LOBS and
Corporate. As part of this process, the LOBS and Corporate
evaluate the effectiveness of their respective control
environment to assess circumstances in which controls have
failed, and to determine where remediation efforts may be
required. The Firm's Operational Risk and Compliance
organization ("Operational Risk and Compliance") provides
oversight of and challenge to these evaluations and may
also perform independent assessments of significant
operational risk events and areas of concentrated or
emerging risk.
Operational Risk Measurement
Operational risk is the risk of an adverse outcome resulting
from inadequate or failed internal processes or systems;
human factors; or external events impacting the Firm's
processes or systems. Operational Risk includes
Operational Risk and Compliance performs an independent
assessment of the operational risks inherent within the
LOBS and Corporate, which includes evaluating the
effectiveness of the control environments and reporting the
results to senior management.
As required under the Basel III capital framework, the
Firm's operational risk capital methodology, which uses the
Advanced Measurement Approach ("AMA”), incorporates
internal and external losses as well as management's view
of tail risk captured through operational risk scenario
analysis, and evaluation of key business environment and
internal control metrics. The Firm does not reflect the
impact of insurance in its AMA estimate of operational risk
capital.
The Firm considers the impact of stressed economic
conditions on operational risk losses and develops a
forward looking view of material operational risk events
that may occur in a stressed environment. The Firm's
operational risk stress testing framework is utilized in
calculating results for the Firm's CCAR and other stress
testing processes.
Refer to Capital Risk Management on pages 91-101 for
information related to operational risk RWA, and CCAR.
Operational Risk Monitoring and testing
The results of risk assessments performed by Operational
Risk and Compliance are used in connection with their
independent monitoring and testing compliance of the LOBS
and Corporate with laws, rules and regulations. Through
monitoring and testing, Operational Risk and Compliance
independently identify areas of heightened operational risk
and tests the effectiveness of controls within the LOBS and
Corporate.
JPMorgan Chase & Co./2023 Form 10-K
147
Trading
and
In addition, Operational Risk and Compliance assesses
operational risks through quantitative means, including
operational risk-based capital and estimation of operational
risk losses under both baseline and stressed conditions.
The primary component of the operational risk-based
capital estimate is the Loss Distribution Approach (“LDA”)
statistical model, which simulates the projected frequency
and severity of operational risk losses based on historical
data. The LDA model is used to estimate an aggregate
operational risk loss over a one-year time horizon, at a
99.9% confidence level. The LDA model incorporates actual
internal operational risk losses in the quarter following the
period in which those losses were realized, and the
calculation generally continues to reflect such losses even
after the issues or business activities giving rise to the
losses have been remediated or reduced.
OPERATIONAL RISK MANAGEMENT
JPMorgan Chase & Co./2023 Form 10-K
146
JPMorgan Chase & Co./2023 Form 10-K
145
Management's discussion and analysis
CLIMATE RISK MANAGEMENT
Climate risk is the risk associated with the impacts of
climate change on the Firm's clients, customers, operations
and business strategy. Climate change is viewed as a driver
of risk that may impact existing types of risks managed by
the Firm. Climate risk is categorized into physical risk and
transition risk.
Physical risk refers to economic costs and financial loss
associated with a changing climate. Acute physical risk
drivers include the increased frequency or severity of
climate and weather events, such as floods, wildfires and
tropical cyclones. Chronic physical risk drivers include more
gradual shifts in the climate, such as sea level rise,
persistent changes in precipitation levels and increases in
average ambient temperatures.
Transition risk refers to the financial and economic
implications associated with a societal adjustment to a low-
carbon economy. Transition risk drivers include possible
changes in public policy, adoption of new technologies and
shifts in consumer preferences. Transition risks may also be
influenced by changes in the physical climate.
Organization and management
The Firm has a Climate Risk Management function that is
responsible for establishing and maintaining the Firmwide
framework and strategy for managing climate risks that
may impact the Firm. The Climate Risk Management
function engages across the Firm to help integrate climate
risk considerations into existing risk management
frameworks, as appropriate.
•
•
Other responsibilities of Climate Risk Management include:
Setting policies, standards, procedures and processes to
support identification, escalation, monitoring and
management of climate risk across the Firm
Developing metrics, scenarios and stress testing
mechanisms designed to assess the range of potential
climate-related financial and economic impacts to the
Firm
Establishing a Firmwide climate risk data strategy and
the supporting climate risk technology infrastructure
The LOBS and Corporate are responsible for the
identification, assessment and management of climate risks
present in their business activities and for adherence to
applicable climate-related laws, rules and regulations.
Governance and oversight
The Firm's approach to managing climate risk is consistent
with the Firm's risk governance structure. The LOBS and
Corporate are responsible for integrating climate risk
management into existing governance frameworks, or
creating new governance frameworks, as appropriate.
The LOBS, Corporate and Climate Risk Management are
responsible for providing the Board Risk Committee with
information on significant climate risks and climate-related
initiatives, as appropriate.
(a) Country exposures presented in the table reflect 88% of total
Firmwide non-U.S. exposure, where exposure is attributed to an
individual country based on the Firm's internal country risk
management approach, at both December 31, 2023 and 2022.
(b) Predominantly represents cash placed with central banks.
(c) Includes loans and accrued interest receivable, lending-related
commitments (net of eligible collateral and the allowance for credit
losses). Excludes intra-day and operating exposures, such as those
from settlement and clearing activities.
3.5
Operational Risk Governance
0.8
1.7
18.3
25.7
Brazil
5.2
5.3
6.2
16.7
6.9
17.8
2.3
11.4
2.0
0.3
16.0
14.4
China
3.5
Canada
9.7
Australia
55.8
$ 69.8 $ 12.1 $ 2.1 $ 0.8 $ 84.8
3.2
-
-
2022(f)
Total
exposure
Total
exposure
$ 93.2
Kingdom
36.4
13.5
1.7
77.1
70.1
Japan
29.4
2.4
3.9
0.3
36.0
5.5
5.0
25.5
13.7
3.8
4.3
0.4
9.7
9.0
Mexico
1.1
3.7
3.4
-
8.2
5.4
Belgium
2.1
0.3
8.0
South Korea
14.0
9.2
1.2
India
5.6
9.8
3.6
9.9
Switzerland
1.2
5.2
10.9
15.3
France
0.6
10.9
0.9
0.8
10.1
18.1
Singapore
1.9
3.8
(2.2)
0.3
3.8
Consumer &
$225
Credit card sales ($B)
Banking
77%
45%
~20%
$5.9
Community
$5.6
$1.4
ΝΑ
$951
Total payments volume ($T)4
% of digital non-card payments
$419
ΝΑ
79%
$1,164
$142
Credit card loans ($B, EOP)
$647
22%
21%
15%
Credit card sales market share
$515
$1,679
$1,555
$664
Debit and credit card sales volume ($B)
$491
$224
ΝΑ
Debit card sales ($B)
$1,065
$189
Deposits market share²
Client investment assets ($B)¹
Average deposits ($B)¹
2023
2022
2013
2005
Client Franchises Built Over the Long Term
1 On March 27, 2000, Jamie Dimon was hired as CEO of Bank One.
10
10
This chart shows actual returns of the stock, with dividends reinvested, for heritage shareholders of Bank One and JPMorgan Chase vs. the Standard & Poor's
500 Index (S&P 500 Index) and the Standard & Poor's Financials Index (S&P Financials Index).
10.0%
12.0%
14.4%
$128
Ten years
$187
ΝΑ
$453
7.5%
9.5%
9.3%
6.8%
4.0%
share³
Business Banking primary market
12 (26)
11 (25)
7(22)
6 (12)
we are #1 (top 3)
# of top 50 markets where
■Serve 82 million U.S. consumers and 6.4 million
small businesses
$1,127
11.3%
$1,163
10.9%
4.5%
$185
Equities¹³
Credit card loans market share
#1
#2
Global investment banking fees¹4
Corporate &
#1
11.0%
#2
12.3%
12.9%
7.9%
5.0%
Market share¹3
#1
#3
#8
#1
10.8%
9.6%
#1
#1
#7
7.0%
#1
Market share¹4
12.0%
$687
$384
$155
Average client deposits ($B) 15
$32.4
$28.6
$20.5
$10.7
Assets under custody (AUC) ($T)
Bank
8.8%
7.8%
8.7%
8.7%
Investment
$211
Market share¹³
#1
11.4%
■#1 deposit market share position in 4 out of the
5 largest banking markets in the country (NY, LA,
Chicago, and San Francisco), while maintaining
branch presence in all contiguous 48 U.S. states
■ #1 primary bank for U.S. small businesses
■■#1 U.S. credit card issuer based on sales and
outstandings¹º
■#1 retail deposit share
consumer checking accounts
■Primary bank relationships for ~80% of
■67 million active digital customers, including
54 million active mobile customers⁹
23%
53.8
49.7
15.6
NA
Active mobile customers (M)
17%
17%
17%
19%
■ #1 owned mortgage servicer"
FICC¹³
■#1 bank auto lender¹²
2,641
#1
11.5%
#1
9.0%
6.3%
Market share¹3
#8
Total Markets revenue¹³
2006
5,456
5,029
3,044
NM
# of advisors¹
4,897
4,787
5,630
# of branches
15.7%
2015
12.1%
23%
$8.88
$16.23
$23595 $276
$4.00
$3.96
$4.33 6%
$8.5
$4.34
$4.48
$11.7
12%
13%
13%
$5.29
21%
$5.19
18%
2005 2006 2007 2008 2009 2010
Net income
for 2017
was 13.6%
2 Adjusted net income excludes $2.4 billion from net income in 2017 as a result of the enactment of the Tax Cuts and Jobs Act.
GAAP = Generally accepted accounting principles
1 Effective January 1, 2020, the Firm adopted the Financial Instruments - Credit Losses accounting guidance. Firmwide results
excluding the net impact of reserve release/(build) of ($9.3) billion and $9.2 billion for the years ending
December 31, 2020 and 2021, respectively, are non-GAAP financial measures.
Return on tangible common equity (ROTCE)
Adjusted
ROTCE²
Diluted earnings per share (EPS)
2020
2018 2019
2017
2016
2014
2013
2012
2011
14%
2021 2022 2023
10%
15% $14.4
$26.9
$10.72 $29.1/
$32.5
Adjusted net income²
$12.09
$15.36
$36.4
$37.7
$39.1
$38.4
$49.6
$48.3
Net income
excluding reserve
release/build¹
($in billions, except per share and ratio data)
Earnings, Diluted Earnings per Share and Return on Tangible Common Equity
2005-2023
$9.00
15% 15%
$24.7
$24.4
$21.7
17%
11%
$6.31
13%
$15.4
19%
15%
$6.00
$17.4
$6.19
$17.9
$19.0
$21.3
22%
24%
$24.4
15.2%
ROTCE excluding
was 19.3% for 2020
Overall gain
Compounded annual gain
(3/27/2000-12/31/2023)¹
Performance since becoming CEO of Bank One
$645
S&P 500 Index
Bank One
Stock total return analysis
1 10% compound annual growth rate since 2005.
Tangible book value Average stock price
2018 2019 2020 2021 2022 2023
2017
2013 2014 2015 2016
2012
2009 2010 2011
12.1%
1,400.7%
2005 2006 2007 2008
6.9%
389.7%
Performance since the Bank One and JPMorgan Chase merger
26.3%
30.7%
Five years
One year
4.7%
146.7%
9.8%
514.7%
10.9%
647.3%
S&P Financials Index
S&P 500 Index
JPMorgan Chase
Compounded annual gain
Performance for the period ended December 31, 2023
Overall gain
Compounded annual gain
(7/1/2004-12/31/2023)
4.9%
209.7%
reserve release/build¹
$16.45 $18.85 $21.96 $22.52 ▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬▬
$30.12
$63.83 $65.62
$86.08
$144.05
$106.52
$110.72
$128.13
$113.80
$155.61
Low: $123.11
High: $170.69
$92.01
2005-2023
Tangible Book Value¹ and Average Stock Price per Share
9
and 18.5% for 2021
$58.17
$27.09
$73.12
$71.53
$51.88
$33.62
$40.72
$38.68
$44.60
$48.13
$35.49
$51.44
$53.56
$40.36 $39.36 $39.22
$36.07
$39.83
$56.33
$43.93
$60.98
$47.75
$66.11
■>90% of Fortune 500 companies do business
with us
S&P Financials Index
■#1 in global investment banking fees for the 15th
consecutive year¹4
Liquid Assets³
Tangible Common Equity (Average)¹
($ in billions)
2005-2023
Our Fortress Balance Sheet
For footnoted information, refer to page 61 in this Annual Report.
ROTCE = Return on tangible common equity
GSIB Global systemically important banks
58%
MS-WM & IM
58%
MS-WM & IM
31%
63%
NTRS-WM & ALLIANZ-AM
Management
64%
Asset & Wealth
19%
WFC-CB
19%
WFC-CB
FITB
Corporate &
59%
55%
13%
Investment
BAC-GB & GM
($ in billions)
16%
BAC-GB & GM
Bank
Commercial
35%
39%
20%
Banking
16%
BAC-GB & GM
15.0%
13.1% 13.1% 13.2%
12.2% 12.1% 12.0%
$63
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
■Tangible common equity (average) ($B) CET1 (%)²
9.0% CAGR
since 2005
387%
$56
350%
159%
192%
152%
136% 132%
90% 80%
129%
106% 110% 118%
311%
Banking
$80
$136
$124
$111
12.4%
11.6%
9.8% 10.1%
11.0% 10.7%
10.2%
8.8%
$95
7.0%
7.0% 7.0%
$230
$161
$180 $185 $183 $187 $191
$170
$203 $204
$149
7.3%
28%
BAC-CB
28%
BAC-CB
38%
2017 2018 2019
2020 2021 2022 2023
2016
2017 2018
2019 2020 2021 2022 2023
1 Based on Firmwide data using regulatory reporting guidelines prescribed by the Federal Reserve for US Title 1 planning purposes; includes internal
settlements, global payments to and through third-party processors and banks, and other internal transfers.
2016
T = Trillions
14
Efficiency
Returns
Overhead ratio²
ROTCE
54%
JPMorgan Chase Exhibits Strength in Both Efficiency and Returns When Compared
with Large Peers and Best-in-Class Peers¹
JPM
55.0
72.1
value processed
56.6
52.6
49.2
45.7
34.6 37.4 39.3
62.3
32.7
124.8
113.4
102.4
More than
double 2010
90.1
82.4
Daily Merchant Acquiring Transactions
(# in millions, average)
115%
21%
BAC
GS
MS
Consumer &
Efficiency
Returns
JPM 2023
overhead ratio
C
Best-in-class peer
overhead ratio³
Best-in-class all
banks ROTCE 4,6
Best-in-class
GSIB ROTCE5,6
50%
Community
50%
COF-DC & CB
JPM 2023
ROTCE
66%
JPMorgan Chase
WFC
13%
67%
WFC
13%
72%
MS
BAC
13%
GS
8%
77%
C
5%
JPM
75%
$9.7T¹ average daily
70% 63% 77% 86%
$804
Page 55
Out of the labyrinth, with focus and resolve
Page 52
Page 50
Providing strong leadership globally and effective policymaking domestically
Manager's Journal: “A Politician's Dream Is a Businessman's Nightmare”
.
Page 47
Strengthening our position with a comprehensive, global economic security strategy
•
Page 45
Coalescing the Western world - A uniquely American task
Page 44
A PIVOTAL MOMENT FOR AMERICA AND THE FREE WESTERN WORLD:
STRATEGY AND POLICY MATTER
Page 42
The secret sauce of leadership (have a heart)
.
Page 41
The benefits and risks of private credit
Page 38
.
A bank's strength: Providing flexible capital
Page 39
MANAGEMENT LESSONS:
-
THINKING, DECIDING AND TAKING ACTION – DELIBERATELY AND WITH HEART
Page 40
•
Benefiting from the OODA loop
Page 40
•
Decision making and acting (have a process)
-
We should have more faith in the amazing power of our freedoms
How we can help lift up our low-income citizens and mend America's torn social fabric
Page 56
17
Clearly, Al comes with many risks, which need
to be rigorously managed.
We have a robust, well-established risk and control
framework that helps us proactively stay in front
of Al-related risks, particularly as the regulatory
landscape evolves. And we will, of course, continue
to work hard with our regulators, clients and sub-
ject matter experts to make sure we maintain the
highest ethical standards and are transparent in
how Al helps us make decisions; e.g., to counter
bias among other things.
You may already be aware that there are bad
actors using Al to try to infiltrate companies' sys-
tems to steal money and intellectual property or
simply to cause disruption and damage. For our
part, we incorporate Al into our toolset to counter
these threats and proactively detect and mitigate
their efforts.
OUR JOURNEY TO THE CLOUD
Getting our technology to the cloud - whether the
public cloud or the private cloud - is essential to
fully maximize all of our capabilities, including the
power of our data. The cloud offers many benefits:
1) it accelerates the speed of delivery of new ser-
vices; 2) it simultaneously reduces the cost of com-
pute power and enables, when needed, an extraor-
dinary amount of compute capability - called
burst computing; 3) it provides that compute capa-
bility across all of our data; and 4) it allows us to
be able to constantly and quickly adopt new tech-
nologies because updated cloud services are con-
tinually being added - more so in the public cloud,
where we benefit from the innovation that all
cloud providers create, than in the private cloud,
where innovation is only our own.
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
Of course, we are learning a lot along the way.
For example, we know we should carefully pick
which applications and which data go to the public
cloud versus the private cloud because of the
expense, security and capabilities required. In
addition, it is critical that we eventually use multi-
ple clouds to avoid lock-in. And we intend to main-
tain our own expertise so that we're never reliant
on the expertise of others even if that requires
additional money.
ACQUIRING FIRST REPUBLIC BANK AND
ITS CUSTOMERS
The purchase of First Republic Bank was not some-
thing that we would have done just for ourselves.
But the regulators relied on us to step forward (we
worked hand in hand with the Federal Reserve, the
Federal Deposit Insurance Corporation (FDIC) and
the U.S. Treasury), and the purchase of First
Republic helped stabilize and strengthen the U.S.
financial system in a time of crisis.
The acquisition of a major company entails a lot of
complexity. People tend to focus on the financial
and economic outcomes, which is a reasonable
thing to do. And in the case of First Republic,
the numbers look rather good. We recorded an
accounting gain of $3 billion on the purchase, and
we told the world we expected to add more than
$500 million to earnings annually, which we now
believe will be closer to $2 billion. However, these
results mask some of the true costs. First, approxi-
mately one-third of the incremental earning was
simply deploying excess capital and liquidity, which
doesn't require purchasing a $300 billion bank -
we simply could have bought $300 billion of
assets. Second, as soon as the deal was
announced, approximately 7,600 of our employees
went from working on tasks that would benefit the
future of JPMorgan Chase to working on the
18
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
We invested approximately $2 billion to build four
new, modern, private cloud-based, highly reliable
and efficient data centers in the United States (we
have 32 data centers globally). To date, about 50%
of our applications run a large part of their pro-
cessing in the public or private cloud. Approxi-
mately 70% of our data is now running in the pub-
lic or private cloud. By the end of 2024, we aim to
have 70% of applications and 75% of data moved
to the public or private cloud. The new data cen-
ters are around 30% more efficient than our exist-
ing legacy data centers. Going to the public cloud
can provide 30% additional efficiency if done cor-
rectly (efficiency improves when your data and
applications have been modified, or "refactored,"
to enable new cloud services). We have been con-
stantly updating most of our global data centers,
and by the end of this year, we can start closing
some that are larger, older and less efficient.
•
- and should use it. Each of our lines of business
has corresponding data and analytics roles so we
can share best practices, develop reusable solutions
that solve multiple business problems, and continu-
ously learn and improve as the future of Al unfolds.
-
Page 57
16
16
Update on Specific Issues Facing
Our Company
Each year, I try to update you on some of the most
important issues facing our company. First and
foremost may well be the impact of artificial intel-
ligence (AI).
-
While we do not know the full effect or the precise
rate at which Al will change our business - or how
it will affect society at large - we are completely
convinced the consequences will be extraordinary
and possibly as transformational as some of the
major technological inventions of the past several
hundred years: Think the printing press, the steam
engine, electricity, computing and the Internet,
among others.
Since the firm first started using Al over a decade
ago, and its first mention in my 2017 letter to
shareholders, we have grown our Al organization
materially. It now includes more than 2,000 AI/
machine learning (ML) experts and data scientists.
We continue to attract some of the best and
brightest in this space and have an exceptional
firmwide AI/ML and Research department with
deep expertise.
We have been actively using predictive Al and ML
for years - and now have over 400 use cases in
production in areas such as marketing, fraud and
risk - and they are increasingly driving real busi-
ness value across our businesses and functions.
We're also exploring the potential that generative
Al (GenAI) can unlock across a range of domains,
most notably in software engineering, customer
service and operations, as well as in general
employee productivity. In the future, we envision
GenAl helping us reimagine entire business work-
flows. We will continue to experiment with these
Al and ML capabilities and implement solutions in
a safe, responsible way.
While we are investing more money in our Al capa-
bilities, many of these projects pay for themselves.
Over time, we anticipate that our use of Al has the
potential to augment virtually every job, as well as
impact our workforce composition. It may reduce
certain job categories or roles, but it may create
others as well. As we have in the past, we will
aggressively retrain and redeploy our talent to
make sure we are taking care of our employees
if they are affected by this trend.
Finally, as a global leader across businesses and
regions, we have large amounts of extraordinarily
rich data that, together with Al, can fuel better
insights and help us improve how we manage risk
and serve our customers. In addition to making
sure our data is high quality and easily accessible,
we need to complete the migration of our analyti-
cal data estate to the public cloud. These new data
platforms offer high-performance compute power,
which will unlock our ability to use our data in
ways that are hard to contemplate today.
Recognizing the importance of Al to our
business, we created a new position called
Chief Data & Analytics Officer that sits on our
Operating Committee.
Elevating this new role to the Operating Committee
level - reporting directly to Daniel Pinto and me -
reflects how critical this function will be going for-
ward and how seriously we expect Al to influence
our business. This will embed data and analytics
into our decision making at every level of the com-
pany. The primary focus is not just on the technical
aspects of Al but also on how all management can
THE CRITICAL IMPACT OF ARTIFICIAL
INTELLIGENCE
Page 37
The undue influence of proxy advisors
Page 36
CAGR = Compound annual growth rate
CET1 = Common equity Tier 1
ROTCE Return on tangible common equity
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
$8.5 $14.4 $14.9 $4.7 $8.8 $15.8 $17.6 $19.9 $16.6 $20.1 $22.4 $22.6 $22.6 $30.7 $34.6 $27.4 $46.5 $35.9 $47.8
$6.3 $5.0 $9.5 ($11.8) ($6.4) $1.1 $10.8 $4.5 $9.2 $9.6 $10.8 $14.4 $22.0 $27.9 $34.0 $16.3 $28.5 $13.2 $19.8
15% 24% 22% 6% 10% 15% 15% 15% 11% 13% 13% 13% 12% 17% 19% 14% 23% 18% 21%
ROTCE (%)
For footnoted information, refer to page 61 in this Annual Report.
Within this letter, I discuss the following:
INTRODUCTION
Summary of our 2023 results and the principles that guide us
Steadfast principles worth repeating (and one new one)
Page 2
Page 2
15
Page 5
Capital returned to common
stockholders ($B)
Average loans/Liquid assets (%)
$745 $786 $768 $755
$860
■Presence in over 100 markets globally
$510 $547
$371
$366
Net income applicable to common
stockholders ($B)
$1,652
$1,430 $1,447
$106 $146 $137
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Cash, deposits with banks, and investment securities ($B)4
Average loans/Cash, deposits with banks, and investment securities (%)
2015 2016 2017 2018 2019 2020 2021 2022 2023
Liquid assets ($B)
$1,437
$921
Mapping our progress and milestones
Celebrating the 20th anniversary of the Bank One/JPMorgan Chase merger
Page 26
Page 28
•
Giving the bank regulatory and supervisory process a serious review
Page 30
•
What we learned: A five-point action plan to move forward on the climate challenge
Powering economic growth in Florida
Protecting the essential role of market making (trading)
STAYING COMPETITIVE IN THE SHRINKING PUBLIC MARKETS
Page 36
•
The pressure of quarterly earnings compounded by bad accounting and bad decisions
Page 36
The hijacking of annual shareholder meetings
Page 33
Page 6
Page 21
Page 19
Page 7
Financial performance
Page 9
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
Page 17
•
Our extensive community outreach efforts, including diversity, equity and inclusion
The critical impact of artificial intelligence
Our journey to the cloud
Page 17
Page 18
• Acquiring First Republic Bank and its customers
Page 18
Navigating in a complex and potentially dangerous world
•
(# in millions, average)
$450
13
funds, sovereign wealth funds and central banks
■■■#2 in 5-year cumulative net client asset flows 35
■Positive client asset flows in 2023 across all
■166 funds with a 4/5 star rating34
■Business with 59% of the world's largest pension
housing units financed in 202328
■ Approximately 28,000 incremental affordable
■ #1 overall Middle Market Bookrunner in the U.S.27
■18 specialized industry coverage teams
■Credit, banking and treasury services to ~34K
Commercial & Industrial clients and ~36K real
estate owners and investors
■151 locations across the U.S. and 39 international
locations, with 16 new cities added in 2023
■ $2.2B revenue from Middle Market expansion
markets, up 45% YOY
#1
#1
#3
#5
Global Private Bank (Euromoney)33
3,515
3,137
2,512
1,484
$372
$411
Asset & Wealth
Management
Average deposits ($B) 30
$42
$135
regions and channels, with strength in liquidity,
fixed income, equity, custody and brokerage
■■#2 in Active ETF AUM and flows
$261
Average loans ($B) 30
$27
$83
$216
$220
# of Global Private Bank client advisors 30
$216
■#1 in Institutional Money Market Funds AUM36
■54% of Asset Management AUM managed by
female and/or diverse portfolio managers37
NA = Not available
NM Not meaningful
$288
$331
$2,496
$2,410
$2,357
$2,307 $227
$3,186
$2,345
$216
$2,265
$2,144
$265
$641
$2,102
$2,263
$207
~$1,900 estimated
2005-2023
AUM = Assets under management
EOP End of period
FICC Fixed income, currencies and commodities
JPMAM = J.P. Morgan Asset Management
MSA = Metropolitan statistical area
For footnoted information, refer to pages 60-61 in this Annual Report.
($ in billions)
USD U.S. dollar
M = Millions
B = Billions
T = Trillions
K = Thousands
11
New and Renewed Credit and Capital for Our Clients
YoY Year-over-year
$74
Alternatives assets ($B) 30,32
$3.4
NA
ΝΑ
$3.1
$3.0
# of top 75 MSAs with dedicated teams²³
36
purchases and sales ($T)
52
1,208
1,242
69
2,360
New relationships (gross) 24
ΝΑ
ΝΑ
# of bankers
2,277
Firmwide average daily security
Co-#1 (9.0%)
Daily Payment Volume¹
■Consistently ranked #1 in Markets revenue since
201113
■J.P. Morgan Research ranked as the #1 Global
Research Firm, #2 Global Equity Research Team
and #1 Global Fixed Income Research Team 18
■#1 in USD payments volume¹9
Firmwide Payments revenue ($B)16
$4.9
■27.1% USD SWIFT market share²º
■■■#1 in U.S. Merchant volume processing²¹
■#3 Custodian globally by revenue²²
$7.8
$18.2
Firmwide Payments revenue rank
(share)¹7
NA
ΝΑ
#1 (8.1%)
$13.9
$258
Average loans ($B)
$132.0
JPMAM LT funds AUM performed
above peer median (10Y) 29
ΝΑ
80%
90%
83%
#1
Client assets ($T) 30
$2.3
$4.0
$5.0
Traditional assets ($T) 30,31
$1.0
$1.9
$1.1
$48.1
#1
#29
$223.7
72
2,888
4,940
$268.3
Average deposits ($B)
$66.1
$198.4
$294.2
#1
$267.8
Gross investment banking revenue ($B) 25
$0.6
$1.7
$3.0
$3.4
Multifamily lending26
Commercial
Banking
$333
$4.4
$244
$365
$1,935 $221
$1,662 $214
$191
$755
$361
$558
$730
$757
$573
$425
$364
$4,488 $4,240
$3,781
$3,258
$2,783 $2,740
$520 $648
$2,329 $2,376 $2,353
$722
$824 $861
$3,633
$4,227 $4,211 $718 $1,186
802 $660 $679 $844 $5,292
$3,255 $464
$503
$618
$372
$558
$2,811
$439
$784 $792
$2,681
$398
$2,254 $2,424
$3,011
$3,617
$1.107 $1,296 $1.513 51.415 51,743 $1.81 $1,83 2.061 ▬▬▬▬▬
2012
$13.9
$14.9
$16.1
$16.9
2005 2006 2007
2008 2009 2010 2011
$15.9
2012 2013 2014 2015 2016
2018 2019
2020 2021
2022 2023
1 Represents assets under management, as well as custody, brokerage, administration and deposit accounts.
$2,044
2 Represents activities associated with the safekeeping and servicing of assets.
2017
2005 2006 2007 2008 2009 2010 2011
Client assets Wholesale deposits Consumer deposits
$20.5 $20.5 $19.9 $20.5
$23.5 $23.2
2013
2014
2015
2016
2017
2018
$18.8
2019 2020 2021 2022 2023
($ in trillions)
$33.2
$31.0
$32.4
$28.6
$26.8
Assets under custody²
$3,802
$2,427
$368
$615
$1,494
$440
$222
$463
$590
$275 $309
$252
$243
$281
$1,926
$167 $136
$1,789
$1,621
$312
$1,693
$1,577
$252
$205
$197
$3,740
$250
$480
$1,866
$1,567
$274
$239
$1,820
$399
$262 $226
$430
$326
$233
$1,519
$167
($ in billions)
$1,209
12
Assets Entrusted to us by Our Clients
2005-2023
Deposits and client assets¹
$1,619
$7,693
$6,950
$1,095
$6,580
$1,148
$5,926
$1,132 $1,306
$959
$1,314
$4,820
2023
2022
1 Government, government-related and nonprofits available starting in 2019; included in Corporate clients and Small Business, Middle Market and Commercial clients for prior years.
$1,329
$1,443
$1,264
$1,088
$1,115 $1,158
2021
$1,294 $1,346
$1,392
2005 2006 2007
2012
2013
2014
2015
2008 2009 2010 2011
2016 2017 2018 2019 2020
Corporate clients Small Business, Middle Market and Commercial clients Consumers Government, government-related and nonprofits¹
$1,231
758
1,130,863
8,522
3,079
8,522
11,322
23,656
Total assets measured at fair value on
a recurring basis
$ 1,134,004
2,490
$ 26,146
Loans
MSRS
Other
38,851
3,141
201,704
The Firm's provision for income taxes is composed of
current and deferred taxes. The current and deferred tax
provisions are calculated based on estimates and
assumptions that could differ from the actual results
reflected in income tax returns filed during the subsequent
year. Adjustments based on filed returns are generally
recorded in the period when the tax returns are filed and
the global tax implications are known, which could impact
the Firm's effective tax rate.
540,565
Derivative receivables
Total trading assets
AFS securities
Total assets measured at fair value on a
nonrecurring basis
Total assets
at fair value
Total level 3
assets
Federal funds sold and securities
purchased under resale agreements
Securities borrowed
$ 259,813
$
70,086
Trading assets:
Trading-debt and equity instruments
485,701
2,373
(a)
54,864
8,924
11,297
Total assets measured at fair value
Total Firm assets
deferred tax asset is not realizable, a valuation allowance is
established. The valuation allowance may be reversed in a
subsequent reporting period if the Firm determines that,
based on revised estimates of future taxable income or
changes in tax planning strategies, it is more likely than not
that all or part of the deferred tax asset will become
realizable. As of December 31, 2023, management has
determined it is more likely than not that the Firm will
realize its deferred tax assets, net of the existing valuation
allowance.
Level 3 assets at fair value as a
percentage of total Firm assets at fair
value
Credit card rewards liability
JPMorgan Chase offers credit cards with various rewards
programs which allow cardholders to earn rewards points
based on their account activity and the terms and
conditions of the rewards program. Generally, there are no
limits on the points that an eligible cardholder can earn, nor
do the points expire, and the points can be redeemed for a
variety of rewards, including cash (predominantly in the
form of account credits), gift cards and travel. The Firm
maintains a rewards liability which represents the
estimated cost of rewards points earned and expected to be
redeemed by cardholders. The liability is accrued as the
cardholder earns the benefit and is reduced when the
cardholder redeems points. This liability was $13.2 billion
and $11.3 billion at December 31, 2023 and 2022,
respectively, and is recorded in accounts payable and other
liabilities on the Consolidated balance sheets. The increase
in the liability was predominantly driven by continued
growth in rewards points earned on higher spend and
promotional offers outpacing redemptions throughout
2023, and, to a lesser extent, adjustments to certain
reward program terms in the second quarter of 2023.
The rewards liability is sensitive to redemption rate ("RR")
and cost per point ("CPP") assumptions. The RR assumption
is used to estimate the number of points earned by
customers that will be redeemed over the life of the
account. The CPP assumption is used to estimate the cost of
future point redemptions. These assumptions are evaluated
periodically considering historical actuals, cardholder
JPMorgan Chase & Co./2023 Form 10-K
157
Management's discussion and analysis
redemption behavior and management judgment. Updates
to these assumptions will impact the rewards liability. As of
December 31, 2023, a combined increase of 25 basis
points in RR and 1 basis point in CPP would increase the
rewards liability by approximately $376 million.
Refer to Note 15 for additional information on goodwill,
including the goodwill impairment assessment as of
December 31, 2023.
Income taxes
JPMorgan Chase's interpretations of tax laws around the
world are subject to review and examination by the various
taxing authorities in the jurisdictions where the Firm
operates, and disputes may occur regarding its view on a
tax position. These disputes over interpretations with the
various taxing authorities may be settled by audit,
administrative appeals or adjudication in the court systems
of the tax jurisdictions in which the Firm operates.
JPMorgan Chase regularly reviews whether it may be
assessed additional income taxes as a result of the
resolution of these matters, and the Firm records additional
unrecognized tax benefits, as appropriate. In addition, the
Firm may revise its estimate of income taxes due to changes
in income tax laws, legal interpretations, and business
strategies. It is possible that revisions in the Firm's estimate
of income taxes may materially affect the Firm's results of
operations in any reporting period.
Deferred taxes arise from differences between assets and
liabilities measured for financial reporting versus income
tax return purposes. Deferred tax assets are recognized if,
in management's judgment, their realizability is determined
to be more likely than not. Deferred taxes are measured
using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred
taxes of a change in tax rates is recognized within the
provision for income taxes in the period enacted.
The Firm has also recognized deferred tax assets in
connection with certain tax attributes, including net
operating loss ("NOL") carryforwards and foreign tax credit
("FTC") carryforwards. The Firm performs regular reviews
to ascertain whether its deferred tax assets are realizable.
These reviews include management's estimates and
assumptions regarding future taxable income, including
foreign source income, and may incorporate various tax
planning strategies, including strategies that may be
available to utilize NOLS and FTCs before they expire. In
connection with these reviews, if it is determined that a
158
The Firm adjusts its unrecognized tax benefits as necessary
when new information becomes available, including
changes in tax law and regulations, and interactions with
taxing authorities. Uncertain tax positions that meet the
more-likely-than-not recognition threshold are measured to
determine the amount of benefit to recognize. An uncertain
tax position is measured at the largest amount of benefit
that management believes is more likely than not to be
realized upon settlement. It is possible that the
reassessment of JPMorgan Chase's unrecognized tax
benefits may have a material impact on its effective income
tax rate in the period in which the reassessment occurs.
Although the Firm believes that its estimates are
reasonable, the final tax amount could be different from the
amounts reflected in the Firm's income tax provisions and
accruals. To the extent that the final outcome of these
amounts is different than the amounts recorded, such
differences will generally impact the Firm's provision for
income taxes in the period in which such a determination is
made.
(in millions, except ratios)
JPMorgan Chase is subject to the income tax laws of the
various jurisdictions in which it operates, including U.S.
federal, state and local, and non-U.S. jurisdictions. These
laws are often complex and may be subject to different
interpretations. To determine the financial statement
impact of accounting for income taxes, including the
provision for income tax expense and unrecognized tax
benefits, JPMorgan Chase must make assumptions and
judgments about how to interpret and apply these complex
tax laws to numerous transactions and business events, as
well as make judgments regarding the timing of when
certain items may affect taxable income in the U.S. and
non-U.S. tax jurisdictions.
The projections for the Firm's reporting units are consistent
with management's current business outlook assumptions
in the short term, and the Firm's best estimates of long-
term growth and return on equity in the longer term. Where
possible, the Firm uses third-party and peer data to
benchmark its assumptions and estimates.
December 31, 2023. For each of the reporting units, fair
value exceeded carrying value by at least 9% and there was
no indication of a significant risk of goodwill impairment
based on current projections and valuations.
For the year ended December 31, 2023, the Firm reviewed
current economic conditions, estimated market cost of
equity, as well as actual business results and projections of
business performance. Based on such reviews, the Firm has
concluded that goodwill was not impaired as of
(a)
$ 3,875,393
1%
2%
(a) For purposes of the table above, the derivative receivables total
reflects the impact of netting adjustments; however, the $8.9 billion of
derivative receivables classified as level 3 does not reflect the netting
adjustment as such netting is not relevant to a presentation based on
the transparency of inputs to the valuation of an asset. The level 3
balances would be reduced if netting were applied, including the
netting benefit associated with cash collateral.
156
JPMorgan Chase & Co./2023 Form 10-K
Valuation
Details of the Firm's processes for determining fair value
are set out in Note 2. Estimating fair value requires the
application of judgment. The type and level of judgment
required is largely dependent on the amount of observable
market information available to the Firm. For instruments
valued using internally developed valuation models and
other valuation techniques that use significant
unobservable inputs and are therefore classified within
level 3 of the fair value hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate valuation model or other valuation technique to
use. Second, the lack of observability of certain significant
inputs requires management to assess relevant empirical
data in deriving valuation inputs including, for example,
transaction details, yield curves, interest rates, prepayment
speeds, default rates, volatilities, correlations, prices (such
as commodity, equity or debt prices), valuations of
comparable instruments, foreign exchange rates and credit
curves. Refer to Note 2 for a further discussion of the
valuation of level 3 instruments, including unobservable
inputs used.
For instruments classified in levels 2 and 3, management
judgment must be applied to assess the appropriate level of
valuation adjustments to reflect counterparty credit quality,
the Firm's creditworthiness, market funding rates, liquidity
considerations, unobservable parameters, and for portfolios
that meet specified criteria, the size of the net open risk
position. The judgments made are typically affected by the
type of product and its specific contractual terms, and the
level of liquidity for the product or within the market as a
whole. In periods of heightened market volatility and
uncertainty judgments are further affected by the wider
variation of reasonable valuation estimates, particularly for
positions that are less liquid. Refer to Note 2 for a further
discussion of valuation adjustments applied by the Firm.
Imprecision in estimating unobservable market inputs or
other factors can affect the amount of gain or loss recorded
for a particular position. Furthermore, while the Firm
believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of methodologies or
assumptions different than those used by the Firm could
result in a different estimate of fair value at the reporting
date. Refer to Note 2 for a detailed discussion of the Firm's
valuation process and hierarchy, and its determination of
fair value for individual financial instruments.
Goodwill impairment
Under U.S. GAAP, goodwill must be allocated to reporting
units and tested for impairment at least annually. The
Firm's process and methodology used to conduct goodwill
impairment testing is described in Note 15.
Management applies significant judgment when testing
goodwill for impairment. The goodwill associated with each
business combination is allocated to the related reporting
units for goodwill impairment testing.
Level 3 assets at fair value as a
percentage of total Firm assets (a)
December 31, 2023
The global Legal function ("Legal") provides legal services
and advice to the Firm. Legal is responsible for managing
the Firm's exposure to legal risk by:
Assets measured at fair value
Legal selects, engages and manages outside counsel for the
Firm on all matters in which outside counsel is engaged. In
addition, Legal advises the Firm's Conflicts Office which
reviews the Firm's wholesale transactions that may have
the potential to create conflicts of interest for the Firm.
Governance and oversight
The Firm's General Counsel reports to the CEO and is a
member of the Operating Committee, the Firmwide Risk
Committee and the Firmwide Control Committee. The Firm's
General Counsel and other members of Legal report on
significant legal matters to the Firm's Board of Directors
and to the Audit Committee.
Legal serves on and advises various committees and advises
the Firm's LOBS and Corporate on potential reputation risk
issues.
JPMorgan Chase & Co./2023 Form 10-K
153
Management's discussion and analysis
providing legal advice to the LOBS, Corporate and the
Board.
ESTIMATIONS AND MODEL RISK MANAGEMENT
Estimations and Model risk, a subcategory of operational
risk, is the potential for adverse consequences from
decisions based on incorrect or misused estimation outputs.
The Firm uses models and other analytical and judgment-
based estimations across various businesses and functions.
The estimation methods are of varying levels of
sophistication and are used for many purposes, such as the
valuation of positions and measurement of risk, assessing
regulatory capital requirements, conducting stress testing,
evaluating the allowance for credit losses and making
business decisions. A dedicated independent function,
Model Risk Governance and Review ("MRGR"), defines and
governs the Firm's policies relating to the management of
model risk and risks associated with certain analytical and
judgment-based estimations, such as those used in risk
management, budget forecasting and capital planning and
analysis.
Model risks are owned by the users of the models within the
LOBS and Corporate based on the specific purposes of such
models. Users and developers of models are responsible for
developing, implementing and testing their models, as well
as referring models to MRGR for review and approval. Once
models have been approved, model users and developers
are responsible for maintaining a robust operating
environment, and must monitor and evaluate the
performance of the models on an ongoing basis. Model
users and developers may seek to enhance models in
response to changes in the relevant portfolios and in
product and market developments, as well as to capture
improvements in available modeling techniques and
systems capabilities.
Models are tiered based on an internal standard according
to their complexity, the exposure associated with the model
and the Firm's reliance on the model. This tiering is subject
to the approval of MRGR. In its review of a model, MRGR
considers whether the model is suitable for the specific
purposes for which it will be used. When reviewing a model,
MRGR analyzes and challenges the model methodology and
the reasonableness of model assumptions, and may
perform or require additional testing, including back-testing
of model outcomes. Model reviews are approved by the
appropriate level of management within MRGR based on the
relevant model tier.
Under the Firm's Estimations and Model Risk Management
Policy, MRGR reviews and approves new models, as well as
material changes to existing models, prior to their use. In
certain circumstances, exceptions may be granted to the
Firm's policy to allow a model to be used prior to review or
approval. MRGR may also require the user to take
appropriate actions to mitigate the model risk if it is to be
used in the interim. These actions will depend on the model
and may include, for example, limitation of trading activity.
While models are inherently imprecise, the degree of
imprecision or uncertainty can be heightened by the market
or economic environment. This is particularly true when the
current and forecasted environments are significantly
different from the historical environments upon which the
models were developed. This increased uncertainty may
necessitate a greater degree of judgment and analytics to
inform any adjustments that the Firm may make to model
outputs than would otherwise be the case. In addition, the
Firm may experience increased uncertainty in its estimates
if assets acquired differ from those used to develop the
models.
Refer to Critical Accounting Estimates Used by the Firm on
pages 155-158 and Note 2 for a summary of model-based
valuations and other valuation techniques.
154
JPMorgan Chase & Co./2023 Form 10-K
The governance of analytical and judgment-based
estimations within MRGR's scope follows a consistent
approach which is used for models, as described in detail
below.
advising on advocacy in connection with contemplated
and proposed laws, rules and regulations, and
interpreting existing laws, rules and regulations, and
advising on changes to them
managing dispute resolution
Refer to Note 25 for additional information on income
taxes.
LEGAL RISK MANAGEMENT
Legal risk, a subcategory of operational risk, is the risk of
loss primarily caused by the actual or alleged failure to
meet legal obligations that arise from the rule of law in
jurisdictions in which the Firm operates, agreements with
clients and customers, and products and services offered by
the Firm.
Overview
•
•
•
•
•
•
•
managing actual and potential litigation and
enforcement matters, including internal reviews and
investigations related to such matters
advising on products and services, including contract
negotiation and documentation
advising on offering and marketing documents and new
business initiatives
CRITICAL ACCOUNTING ESTIMATES USED BY THE FIRM
JPMorgan Chase's accounting policies and use of estimates
are integral to understanding its reported results. The
Firm's most complex accounting estimates require
management's judgment to ascertain the appropriate
carrying value of assets and liabilities. The Firm has
established policies and control procedures intended to
ensure that estimation methods, including any judgments
made as part of such methods, are well-controlled,
independently reviewed and applied consistently from
period to period. The methods used and judgments made
reflect, among other factors, the nature of the assets or
liabilities and the related business and risk management
strategies, which may vary across the Firm's businesses and
portfolios. In addition, the policies and procedures are
intended to ensure that the process for changing
methodologies occurs in an appropriate manner. The Firm
believes its estimates for determining the carrying value of
its assets and liabilities are appropriate. The following is a
brief description of the Firm's critical accounting estimates
involving significant judgments.
Allowance for credit losses
The Firm's allowance for credit losses represents
management's estimate of expected credit losses over the
remaining expected life of the Firm's financial assets
measured at amortized cost and certain off-balance sheet
lending-related commitments. The allowance for credit
losses generally comprises:
•
•
This analysis is not intended to estimate expected future
changes in the allowance for credit losses, for a number of
reasons, including:
The allowance as of December 31, 2023, reflects credit
losses beyond those estimated under the central scenario
due to the weight placed on the adverse scenarios.
The impacts of changes in many MEVS are both
interrelated and nonlinear, so the results of this analysis
cannot be simply extrapolated for more severe changes
in macroeconomic variables.
Expectations of future changes in portfolio composition
and borrower behavior can significantly affect the
allowance for credit losses.
To demonstrate the sensitivity of credit loss estimates to
macroeconomic forecasts as of December 31, 2023, the
Firm compared the modeled estimates under its relative
adverse scenario to its central scenario. Without
considering offsetting or correlated effects in other
qualitative components of the Firm's allowance for credit
losses, the comparison between these two scenarios for the
exposures below reflect the following differences:
• An increase of approximately $850 million for residential
real estate loans and lending-related commitments
• An increase of approximately $3.1 billion for credit card
loans
• An increase of approximately $3.9 billion for wholesale
loans and lending-related commitments
This analysis relates only to the modeled credit loss
estimates and is not intended to estimate changes in the
overall allowance for credit losses as it does not reflect any
potential changes in other adjustments to the quantitative
calculation, which would also be influenced by the judgment
management applies to the modeled lifetime loss estimates
to reflect the uncertainty and imprecision of these modeled
lifetime loss estimates based on then-current circumstances
and conditions.
Recognizing that forecasts of macroeconomic conditions are
inherently uncertain, the Firm believes that its process to
consider the available information and associated risks and
uncertainties is appropriately governed and that its
estimates of expected credit losses were reasonable and
appropriate for the period ended December 31, 2023.
Fair value
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. The majority of such assets and liabilities are
measured at fair value on a recurring basis, including
derivatives, structured note products and certain securities
financing agreements. Certain assets and liabilities are
measured at fair value on a nonrecurring basis, including
certain mortgage, home equity and other loans, where the
carrying value is based on the fair value of the underlying
collateral.
•
The following table includes the Firm's assets measured at
fair value and the portion of such assets that are classified
within level 3 of the fair value hierarchy. Refer to Note 2 for
further information.
approximately 3.9% in the fourth quarter of 2024; and
lower HPI with a peak difference of approximately 17.9% in
the third quarter of 2025.
155
•
•
•
The allowance for loan losses, which covers the Firm's
retained loan portfolios (scored and risk-rated),
The allowance for lending-related commitments and
The allowance for credit losses on investment securities.
The allowance for credit losses involves significant
judgment on a number of matters including development
and weighting of macroeconomic forecasts, incorporation of
historical loss experience, assessment of risk
characteristics, assignment of risk ratings, valuation of
collateral, and the determination of remaining expected
life. Refer to Note 10 and Note 13 for further information
on these judgments as well as the Firm's policies and
methodologies used to determine the Firm's allowance for
credit losses.
One of the most significant judgments involved in
estimating the Firm's allowance for credit losses relates to
the macroeconomic forecasts used to estimate credit losses
over the eight-quarter forecast period within the Firm's
methodology. The eight-quarter forecast incorporates
hundreds of macroeconomic variables ("MEVS") that are
relevant for exposures across the Firm, with modeled credit
losses being driven primarily by a subset of less than twenty
variables. The specific variables that have the greatest
effect on the modeled losses of each portfolio vary by
portfolio and geography.
•
Key MEVS for the consumer portfolio include regional U.S.
unemployment rates and U.S. HPI.
•
Key MEVS for the wholesale portfolio include U.S.
unemployment, U.S. real GDP, U.S. equity prices, U.S.
interest rates, U.S. corporate credit spreads, oil prices,
U.S. commercial real estate prices and U.S. HPI.
Changes in the Firm's assumptions and forecasts of
economic conditions could significantly affect its estimate of
expected credit losses in the portfolio at the balance sheet
date or lead to significant changes in the estimate from one
reporting period to the next.
As a result of the First Republic acquisition, the Firm
recorded an allowance for credit losses for the loans
acquired and lending-related commitments assumed as of
May 1, 2023. Given the differences in risk rating
methodologies for the First Republic portfolio, and the
ongoing integration of products and systems, the allowance
for credit losses for the acquired wholesale portfolio was
measured based on other facilities underwritten by the Firm
with similar risk characteristics and not based on modeled
estimates. As such, the First Republic wholesale portfolio is
excluded from the modeled estimates sensitivity analysis
below. The allowance for credit losses for predominantly all
of the consumer portfolio was measured using the Firm's
modeled approach, as the consumer portfolio is
predominantly residential real estate that has more
commonly defined risk characteristics including loan to
value ratio and credit score, and therefore is reflected in
the sensitivity analysis below. Refer to Note 34 for
additional information on the First Republic acquisition.
It is difficult to estimate how potential changes in any one
factor or input might affect the overall allowance for credit
losses because management considers a wide variety of
factors and inputs in estimating the allowance for credit
losses. Changes in the factors and inputs considered may
not occur at the same rate and may not be consistent across
all geographies or product types, and changes in factors
and inputs may be directionally inconsistent, such that
improvement in one factor or input may offset deterioration
in others.
To consider the impact of a hypothetical alternate
macroeconomic forecast, the Firm compared the modeled
credit losses determined using its central and relative
adverse macroeconomic scenarios, which are two of the five
scenarios considered in estimating the allowances for loan
losses and lending-related commitments. The central and
relative adverse scenarios each included a full suite of
MEVS, but differed in the levels, paths and peaks/troughs of
those variables over the eight-quarter forecast period.
For example, compared to the Firm's central scenario
shown on page 131 and in Note 13, the Firm's relative
adverse scenario assumes an elevated U.S. unemployment
rate, averaging approximately 2.1% higher over the eight-
quarter forecast, with a peak difference of approximately
2.7% in the fourth quarter of 2024; lower U.S. real GDP
with a slower recovery, remaining nearly 3.3% lower at the
end of the eight-quarter forecast, with a peak difference of
JPMorgan Chase & Co./2023 Form 10-K
Management's discussion and analysis
Litigation reserves
Jane Dinin
JPMorgan Chase & Co./2023 Form 10-K
•
including, but not limited to, in the interest rate
environment;
Technology changes instituted by the Firm, its
counterparties or competitors;
The effectiveness of the Firm's control agenda;
Ability of the Firm to develop or discontinue products and
services, and the extent to which products or services
previously sold by the Firm require the Firm to incur
liabilities or absorb losses not contemplated at their
initiation or origination;
Acceptance of the Firm's new and existing products and
services by the marketplace and the ability of the Firm to
innovate and to increase market share;
•
Ability of the Firm to attract and retain qualified and
diverse employees;
Competitive pressures;
Changes in the credit quality of the Firm's clients,
customers and counterparties;
Adequacy of the Firm's risk management framework,
disclosure controls and procedures and internal control
over financial reporting;
•
Adverse judicial or regulatory proceedings;
Ability of the Firm to control expenses;
•
•
•
Changes in trade, monetary and fiscal policies and laws;
•
Changes in the level of inflation;
•
Changes in income tax laws, rules, and regulations;
•
Changes in FDIC assessments;
•
Securities and capital markets behavior, including
changes in market liquidity and volatility;
•
•
•
•
•
•
Ability of the Firm to determine accurate values of certain
assets and liabilities;
Occurrence of natural or man-made disasters or
•
The other risks and uncertainties detailed in Part I, Item
1A: Risk Factors in JPMorgan Chase's 2023 Form 10-K.
Any forward-looking statements made by or on behalf of the
Firm speak only as of the date they are made, and JPMorgan
Chase does not undertake to update any forward-looking
statements. The reader should, however, consult any further
disclosures of a forward-looking nature the Firm may make
in any subsequent Annual Reports on Form 10-Ks, Quarterly
Reports on Form 10-Qs, or Current Reports on Form 8-K.
JPMorgan Chase & Co./2023 Form 10-K
161
Management's report on internal control over financial reporting
Management of JPMorgan Chase & Co. ("JPMorgan Chase" or
the "Firm") is responsible for establishing and maintaining
adequate internal control over financial reporting. Internal
control over financial reporting is a process designed by, or
under the supervision of, the Firm's principal executive and
principal financial officers, or persons performing similar
functions, and effected by JPMorgan Chase's Board of
Directors, management and other personnel, to provide
reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for
external purposes in accordance with accounting principles
generally accepted in the United States of America (“U.S.
GAAP").
JPMorgan Chase's internal control over financial reporting
includes those policies and procedures that (1) pertain to the
maintenance of records, that, in reasonable detail, accurately
and fairly reflect the transactions and dispositions of the
Firm's assets; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation
of financial statements in accordance with U.S. GAAP, and
that receipts and expenditures of the Firm are being made
only in accordance with authorizations of JPMorgan Chase's
management and directors; and (3) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Firm's
assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate. Management has completed an assessment of
the effectiveness of the Firm's internal control over financial
reporting as of December 31, 2023. In making the
assessment, management used the "Internal Control -
Integrated Framework" ("COSO 2013") promulgated by the
Committee of Sponsoring Organizations of the Treadway
Commission ("COSO").
Based upon the assessment performed, management
concluded that as of December 31, 2023, JPMorgan Chase's
internal control over financial reporting was effective based
upon the COSO 2013 framework. Additionally, based upon
management's assessment, the Firm determined that there
were no material weaknesses in its internal control over
financial reporting as of December 31, 2023.
The effectiveness of the Firm's internal control over financial
reporting as of December 31, 2023, has been audited by
PricewaterhouseCoopers LLP, an independent registered
public accounting firm, as stated in their report which
appears herein.
спие
James Dimon
Chairman and Chief Executive Officer
ね
Jeremy Barnum
Executive Vice President and Chief Financial Officer
February 16, 2024
cyber attacks and other attempts by unauthorized parties
to access information of the Firm or its customers or to
disrupt the Firm's systems; and
Heightened regulatory and governmental oversight and
scrutiny of JPMorgan Chase's business practices,
including dealings with retail customers;
Ability of the Firm to deal effectively with an economic
slowdown or other economic or market disruption,
Damage to the Firm's reputation;
•
•
calamities, including health emergencies, the spread of
infectious diseases, epidemics or pandemics, an outbreak
or escalation of hostilities or other geopolitical
instabilities, the effects of climate change or
extraordinary events beyond the Firm's control, and the
Firm's ability to deal effectively with disruptions caused
by the foregoing;
Ability of the Firm to maintain the security of its financial,
accounting, technology, data processing and other
operational systems and facilities;
Ability of the Firm to withstand disruptions that may be
caused by any failure of its operational systems or those
of third parties;
Ability of the Firm to effectively defend itself against
•
•
•
.
•
•
Changes in investor sentiment or consumer spending or
savings behavior;
Ability of the Firm to manage effectively its capital and
liquidity;
Changes in credit ratings assigned to the Firm or its
subsidiaries;
Ability of the Firm to appropriately address social,
environmental and sustainability concerns that may arise,
including from its business activities;
Refer to Note 30 for a description of the significant
estimates and judgments associated with establishing
litigation reserves.
Changes in laws, rules and regulatory requirements,
including capital and liquidity requirements affecting the
Firm's businesses, and the ability of the Firm to address
those requirements;
•
Expands the ability to hedge a portfolio of fixed-
rate assets to allow more types of assets to be
included in the portfolio, and to allow more of the
portfolio to be hedged.
Clarifies the types of derivatives that can be used
as hedges, and the balance sheet presentation
and disclosure requirements for the hedge
accounting adjustments.
Allows a one-time reclassification from HTM to
AFS upon adoption.
Eliminates existing accounting and disclosure
requirements for Troubled Debt Restructurings,
including the requirement to measure the
allowance using a discounted cash flow
methodology.
Requires disclosure of loan modifications for
borrowers experiencing financial difficulty
involving principal forgiveness, interest rate
reduction, other-than-insignificant payment
delay, term extension or a combination of these
modifications.
Requires disclosure of current period loan
charge-off information by origination year.
May be adopted prospectively, or by using a
modified retrospective method wherein the effect
of adoption is reflected as an adjustment to
retained earnings at the effective date.
Summary of guidance
.
Effects on financial statements
Adopted prospectively on January 1, 2023.
Refer to Note 1 for further information.
Adopted under the modified retrospective
method on January 1, 2023.
Refer to Note 1 for further information.
JPMorgan Chase & Co./2023 Form 10-K
•
Issued March 2022
Financial Instruments
Credit Losses: Troubled
Debt Restructurings
and Vintage Disclosures
Issued March 2022
ACCOUNTING AND REPORTING DEVELOPMENTS
Financial Accounting Standards Board (“FASB") Standards Adopted since January 1, 2021
Summary of guidance
Standard
Reference Rate
Reform
•
Issued March
2020 and updated
January 2021 and
December 2022
Provides optional expedients and exceptions to
current accounting guidance when financial
instruments, hedge accounting relationships, and
other transactions are amended due to reference
rate reform.
Effects on financial statements
•
Issued and effective March 12, 2020. The
January 7, 2021 and December 21, 2022
updates were effective when issued.
FASB Standards Adopted since January 1, 2023
Standard
Derivatives and
Hedging: Fair Value
Hedging Portfolio
Layer Method
159
Management's discussion and analysis
FASB Standards Issued but not yet Adopted as of December 31, 2023
Standard
Effects on financial statements
Adopted under the modified retrospective
method on January 1, 2024, which resulted
in a decrease to retained earnings of
approximately $200 million.
Required effective date: Annual financial
statements for the year ending December
31, 2024 and interim financial statements
for the year ending December 31, 2025. (a)
The Firm is currently assessing the potential
impact on its segment disclosures.
Required effective date: Annual financial
statements for the year ending December
31, 2025. (a)
The guidance can be applied on a
prospective basis with the option to apply
the standard retrospectively.
The Firm is evaluating the potential impact
on the Consolidated Financial Statements
disclosures, as well as the Firm's planned
date of adoption.
(a) Early adoption is permitted.
160
JPMorgan Chase & Co./2023 Form 10-K
FORWARD-LOOKING STATEMENTS
From time to time, the Firm has made and will make
forward-looking statements. These statements can be
identified by the fact that they do not relate strictly to
historical or current facts. Forward-looking statements often
use words such as “anticipate,” “target,” “expect,”
"estimate," "intend,” “plan,” “goal," "believe," or other
words of similar meaning. Forward-looking statements
provide JPMorgan Chase's current expectations or forecasts
of future events, circumstances, results or aspirations.
JPMorgan Chase's disclosures in this 2023 Form 10-K
contain forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995. The
Firm also may make forward-looking statements in its other
documents filed or furnished with the SEC. In addition, the
Firm's senior management may make forward-looking
statements orally to investors, analysts, representatives of
the media and others.
All forward-looking statements are, by their nature, subject
to risks and uncertainties, many of which are beyond the
Firm's control. JPMorgan Chase's actual future results may
differ materially from those set forth in its forward-looking
statements. While there is no assurance that any list of risks
and uncertainties or risk factors is complete, below are
certain factors which could cause actual results to differ from
those in the forward-looking statements:
•
•
•
•
Local, regional and global business, economic and
political conditions and geopolitical events, including
geopolitical tensions and hostilities;
Requires categories within the effective tax rate
reconciliation to be further disaggregated if
quantitative thresholds are met.
Requires disclosure of the effective tax rate
reconciliation by specific categories, at a
minimum, with accompanying qualitative
Investments - Equity
Method and Joint
Ventures: Accounting
for Investments in Tax
Credit Structures Using
the Proportional
Amortization Method
Issued March 2023
Segment Reporting:
Improvements to
Reportable Segment
Disclosures
Issued November 2023
Income Taxes:
Improvements to
Income Tax Disclosures
Issued December 2023
Summary of guidance
•
Expands the ability to elect proportional
amortization for more types of tax-oriented
investments (beyond low income housing tax
credit investments) on a program-by-program
basis.
• May be adopted using a full retrospective
method, or a modified retrospective method
wherein the effect of adoption is reflected as an
adjustment to retained earnings at the effective
date.
Requires disclosure of significant segment
expenses that are readily provided to the chief
operating decision maker ("CODM") and included
segment profit or loss.
Requires disclosure of the composition and
aggregate amount of other segment items, which
represent the difference between profit or loss
and segment revenues less significant segment
expenses.
Requires disclosure of the title and position of the
CODM and an explanation of how the CODM uses
the reported segment measures in assessing
segment performance and deciding how to
allocate resources.
Requires disclosure of income taxes paid
disaggregated by 1) federal, state, and foreign
taxes and 2) individual jurisdiction on the basis of
a quantitative threshold of equal to or greater
than 5 percent of total income taxes paid (net of
refunds received).
disclosures, and separate disclosure of
reconciling items based on quantitative
thresholds.
162
JPMorgan Chase & Co./2023 Form 10-K
Accumulated other comprehensive losses
69,338
170,588
92,807
57,864
81,321
26,097
5,553
89,267
66,710
52,311
158,104
128,695
121,649
9,320
6,389
61,985
68,837
4,830
4,322
15,220
14,096
14,405
6,836
6,581
6,624
(3,180)
(9,256)
(2,380)
1,176
1,250
2,170
4,784
4,420
5,102
5,609
(345)
7,032
Noninterest expense
46,465
Income tax expense
12,045
6,365
5,469
87,172
76,140
71,343
61,612
46,166
59,562
12,060
8,490
11,228
Net income
Net income applicable to common stockholders
Income before income tax expense
Total noninterest expense
Other expense
3,036
41,636
38,567
Occupancy expense
4,590
4,696
4,516
Technology, communications and equipment expense
Compensation expense
9,246
Professional and outside services
10,235
10,174
9,814
Marketing
4,591
3,911
9,358
7,098
7,413
16,304
The Firm's management is responsible for these
consolidated financial statements, for maintaining effective
internal control over financial reporting, and for its
assessment of the effectiveness of internal control over
financial reporting, included in the accompanying
Management's report on internal control over financial
reporting. Our responsibility is to express opinions on the
Firm's consolidated financial statements and on the Firm's
internal control over financial reporting based on our audits.
We are a public accounting firm registered with the Public
Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to
the Firm in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and
whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements included
performing procedures to assess the risks of material
misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures
that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our
audits also included evaluating the accounting principles
used and significant estimates made by management, as
well as evaluating the overall presentation of the
consolidated financial statements. Our audit of internal
control over financial reporting included obtaining an
understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and
testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk.
Our audits also included performing such other procedures
as we considered necessary in the circumstances. We believe
that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial
Reporting
A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance
with generally accepted accounting principles. A company's
internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit
preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in
accordance with authorizations of management and
directors of the company; and (iii) provide reasonable
assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
company's assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in
conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
We conducted our audits in accordance with the standards of
the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about
PricewaterhouseCoopers LLP • 300 Madison Avenue New York, NY 10017
JPMorgan Chase & Co./2023 Form 10-K
163
Report of Independent Registered Public Accounting Firm
Critical Audit Matters
The critical audit matters communicated below are matters
arising from the current period audit of the consolidated
financial statements that were communicated or required
to be communicated to the audit committee and that (i)
relate to accounts or disclosures that are material to the
consolidated financial statements and (ii) involved our
especially challenging, subjective, or complex judgments.
The communication of critical audit matters does not alter
in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing
separate opinions on the critical audit matters or on the
accounts or disclosures to which they relate.
Allowance for Loan Losses - Portfolio-based component of
Wholesale Loan and Credit Card Loan Portfolios
As described in Note 13 to the consolidated financial
statements, the allowance for loan losses for the portfolio-
based component of the wholesale and credit card loan
portfolios was $20.2 billion on total portfolio-based
retained loans of $881.3 billion at December 31, 2023. The
Firm's allowance for loan losses represents management's
estimate of expected credit losses over the remaining
expected life of the Firm's loan portfolios and considers
expected future changes in macroeconomic conditions. The
portfolio-based component of the Firm's allowance for loan
losses for the wholesale and credit card retained loan
portfolios begins with a quantitative calculation of expected
credit losses over the expected life of the loan by applying
credit loss factors to the estimated exposure at default. The
credit loss factors applied are determined based on the
weighted average of five internally developed
macroeconomic scenarios that take into consideration the
Firm's economic outlook as derived through forecast
macroeconomic variables, the most significant of which are
U.S. unemployment and U.S. real gross domestic product.
This quantitative calculation is further adjusted to take into
consideration model imprecision, emerging risk
assessments, trends and other subjective factors that are
not yet otherwise reflected in the credit loss estimate.
The principal considerations for our determination that
performing procedures relating to the allowance for loan
losses for the portfolio-based component of the wholesale
and credit card loan portfolios is a critical audit matter are
(i) the significant judgment and estimation by management
in the forecast of macroeconomic variables, specifically U.S.
unemployment and U.S. real gross domestic product, as the
Firm's forecasts of economic conditions significantly affect
its estimate of expected credit losses at the balance sheet
date, (ii) the significant judgment and estimation by
management in determining the quantitative calculation
utilized in their credit loss estimates and the adjustments to
take into consideration model imprecision, emerging risk
assessments, trends and other subjective factors that are
not yet otherwise reflected in the credit loss estimate,
which both in turn led to a high degree of auditor judgment,
subjectivity, and effort in performing procedures and in
164
evaluating audit evidence obtained relating to the credit
loss estimates and the appropriateness of the adjustments
to the credit loss estimates, and (iii) the audit effort
involved the use of professionals with specialized skill and
knowledge.
Addressing the matter involved performing procedures and
evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements.
These procedures included testing the effectiveness of
controls relating to the Firm's allowance for loan losses,
including controls over model validation and generation of
macroeconomic scenarios. These procedures also included,
among others, testing management's process for estimating
the allowance for loan losses, which involved (i) evaluating
the appropriateness of the models and methodologies used
in quantitative calculations; (ii) evaluating the
reasonableness of forecasts of U.S. unemployment and U.S.
real gross domestic product; (iii) testing the completeness
and accuracy of data used in the estimate; and (iv)
evaluating the reasonableness of management's
adjustments to the quantitative output for the impacts of
model imprecision, emerging risk assessments, trends and
other subjective factors that are not yet otherwise reflected
in the credit loss estimate. These procedures also included
the use of professionals with specialized skill and
knowledge to assist in evaluating the appropriateness of
certain models, methodologies and macroeconomic
variables.
Basis for Opinions
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of the Firm as of December 31, 2023 and
2022, and the results of its operations and its cash flows for
each of the three years in the period ended December 31,
2023 in conformity with accounting principles generally
accepted in the United States of America. Also in our
opinion, the Firm maintained, in all material respects,
effective internal control over financial reporting as of
December 31, 2023, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the
COSO.
We have audited the accompanying consolidated balance
sheets of JPMorgan Chase & Co. and its subsidiaries (the
"Firm") as of December 31, 2023 and 2022, and the related
consolidated statements of income, comprehensive income,
changes in stockholders' equity and cash flows for each of
the three years in the period ended December 31, 2023,
including the related notes (collectively referred to as the
"consolidated financial statements"). We also have audited
the Firm's internal control over financial reporting as of
December 31, 2023, based on criteria established in
Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway
Commission (COSO).
Opinions on the Financial Statements and Internal Control
over Financial Reporting
JPMorgan Chase recognizes noninterest revenue from
certain contracts with customers, in investment banking
fees, deposit-related fees, asset management fees,
commissions and other fees, and components of card
income, when the Firm's related performance obligations
are satisfied. Refer to Note 6 for further discussion of the
Firm's revenue from contracts with customers.
172
Principal transactions revenue
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. Changes in fair value are reported primarily in
principal transactions revenue. Refer to Notes 2 and 3 for
further discussion of fair value measurement. Refer to Note
6 for further discussion of principal transactions revenue.
Use of estimates in the preparation of consolidated
financial statements
The preparation of the Consolidated Financial Statements
requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities,
revenue and expense, and disclosures of contingent assets
and liabilities. Actual results could be different from these
estimates.
Foreign currency translation
JPMorgan Chase revalues assets, liabilities, revenue and
expense denominated in non-U.S. currencies into U.S.
dollars using applicable exchange rates.
Fair Value of Certain Level 3 Financial Instruments
Gains and losses relating to translating functional currency
financial statements for U.S. reporting are included in the
Consolidated statements of comprehensive income. Gains
and losses relating to nonfunctional currency transactions,
including non-U.S. operations where the functional currency
is the U.S. dollar, are reported in the Consolidated
statements of income.
U.S. GAAP permits entities to present derivative receivables
and derivative payables with the same counterparty and the
related cash collateral receivables and payables on a net
basis on the Consolidated balance sheets when a legally
enforceable master netting agreement exists. U.S. GAAP
also permits securities sold and purchased under
repurchase agreements and securities borrowed or loaned
under securities loan agreements to be presented net when
specified conditions are met, including the existence of a
legally enforceable master netting agreement. The Firm has
elected to net such balances where it has determined that
the specified conditions are met.
The Firm uses master netting agreements to mitigate
counterparty credit risk in certain transactions, including
derivative contracts, resale, repurchase, securities
borrowed and securities loaned agreements. A master
netting agreement is a single agreement with a
counterparty that permits multiple transactions governed
by that agreement to be terminated or accelerated and
settled through a single payment in a single currency in the
event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due). Upon the exercise of derivatives
termination rights by the non-defaulting party (i) all
transactions are terminated, (ii) all transactions are valued
and the positive values of “in the money" transactions are
netted against the negative values of “out of the money"
transactions and (iii) the only remaining payment obligation
is of one of the parties to pay the netted termination
amount. Upon exercise of default rights under repurchase
JPMorgan Chase & Co./2023 Form 10-K
Additional paid-in capital
Report of Independent Registered Public Accounting Firm
pwc
To the Board of Directors and Shareholders of JPMorgan
Chase & Co.:
Offsetting assets and liabilities
As described in Notes 2 and 3 to the consolidated financial
statements, the Firm carries $1.1 trillion of its assets and
$541.4 billion of its liabilities at fair value on a recurring
basis. Included in these balances are $11.3 billion of
trading assets and $42.2 billion of liabilities measured at
fair value on a recurring basis, collectively financial
instruments, which are classified as level 3 as they contain
one or more inputs to valuation which are unobservable
and significant to their fair value measurement. The Firm
utilized internally developed valuation models and
unobservable inputs to estimate fair value of the level 3
financial instruments. The unobservable inputs used by
management to estimate the fair value of certain of these
financial instruments include interest rate volatility, interest
rate spread volatility, Bermudan switch value, and
correlation relating to interest rates, interest rate-to-
foreign exchange, equity prices, equity-to-foreign exchange,
equity-to-interest rate and credit.
The principal considerations for our determination that
performing procedures relating to the fair value of certain
level 3 financial instruments is a critical audit matter are (i)
the significant judgment and estimation by management in
determining the inputs to estimate fair value, which in turn
led to a high degree of auditor judgment, subjectivity, and
effort in performing procedures and in evaluating audit
evidence obtained related to the fair value of these financial
instruments, and (ii) the audit effort involved the use of
professionals with specialized skill and knowledge.
JPMorgan Chase & Co./2023 Form 10-K
Other income
Noninterest revenue
Interest income
Interest expense
Net interest income
Total net revenue
Provision for credit losses
Card income
2023
2021
$
6,519 $
6,686 $
13,216
24,460
19,912
2022
$
Mortgage fees and related income
Commissions and other fees
Report of Independent Registered Public Accounting Firm
Addressing the matter involved performing procedures and
evaluating audit evidence in connection with forming our
overall opinion on the consolidated financial statements.
These procedures included testing the effectiveness of
controls relating to the Firm's determination of the fair
value, including controls over models, inputs, and data.
These procedures also included, among others, the
involvement of professionals with specialized skill and
knowledge to assist in developing an independent estimate
of fair value for a sample of these financial instruments and
comparing management's estimate to the independently
developed estimate of fair value. Developing the
independent estimate involved testing the completeness
and accuracy of data provided by management, developing
independent inputs and, as appropriate, evaluating and
utilizing management's aforementioned unobservable
inputs.
Pricevatuhouse Coopers LLP
February 16, 2024
We have served as the Firm's auditor since 1965.
JPMorgan Chase & Co./2023 Form 10-K
Investment securities losses
165
Consolidated statements of income
Year ended December 31, (in millions, except per share data)
Revenue
Investment banking fees
Principal transactions
Lending- and deposit-related fees
Asset management fees
JPMorgan Chase & Co.
Revenue from contracts with customers
49,552 $
48,334
369,848
425,305
Investment securities, net of allowance for credit losses
571,552
631,162
Loans (included $38,851 and $42,079 at fair value)
Allowance for loan losses
Loans, net of allowance for loan losses
Accrued interest and accounts receivable
Premises and equipment
Goodwill, MSRs and other intangible assets
1,323,706
1,135,647
(22,420)
(19,726)
205,857
201,704
Available-for-sale securities (amortized cost of $205,456 and $216,188; included assets pledged of $9,219 and $9,158)
Held-to-maturity securities
453,799
Cash and due from banks
$
29,066
$
27,697
Deposits with banks
595,085
1,301,286
539,537
276,152
315,592
Securities borrowed (included $70,086 and $70,041 at fair value)
200,436
185,369
Trading assets (included assets pledged of $128,994 and $93,687)
540,607
Federal funds sold and securities purchased under resale agreements (included $259,813 and $311,883 at fair value)
Assets
1,115,921
125,189
177,976
290,307
300,141
23,020
12,610
391,825
295,865
3,547,515
3,373,411
Total liabilities
(a)
Commitments and contingencies (refer to Notes 28, 29 and 30)
Stockholders' equity
Retained earnings
Preferred stock ($1 par value; authorized 200,000,000 shares: issued 2,740,375 and 2,740,375 shares)
Common stock ($1 par value; authorized 9,000,000,000 shares; issued 4,104,933,895 shares)
180,428
202,613
44,027
44,712
216,535
30,157
27,734
64,381
60,859
Other assets (included $12,306 and $14,921 at fair value and assets pledged of $6,764 and $7,998)
Total assets (a)
159,308
182,884
107,363
Liabilities
Federal funds purchased and securities loaned or sold under repurchase agreements (included $169,003 and $151,999
at fair value)
Short-term borrowings (included $20,042 and $15,792 at fair value)
Trading liabilities
Accounts payable and other liabilities (included $5,637 and $7,038 at fair value)
Beneficial interests issued by consolidated VIES (included $1 and $5 at fair value)
Long-term debt (included $87,924 and $72,281 at fair value)
$ 3,875,393 $ 3,665,743
$ 2,400,688 $ 2,340,179
Deposits (included $78,384 and $28,620 at fair value)
2022
2023
December 31, (in millions, except share data)
2,943.1
2,970.0
3,026.6
The Notes to Consolidated Financial Statements are an integral part of these statements.
166
JPMorgan Chase & Co./2023 Form 10-K
JPMorgan Chase & Co.
Consolidated statements of comprehensive income
Year ended December 31, (in millions)
Net income
Other comprehensive income/(loss), after-tax
Unrealized gains/(losses) on investment securities
Translation adjustments, net of hedges
Fair value hedges
Cash flow hedges
3,021.5
2,965.8
2,938.6
15.36
$
47,760
$
35,892 $
46,503
Net income per common share data
Basic earnings per share
2023
Diluted earnings per share
Weighted-average diluted shares
$
16.25
12.10
15.39
16.23
12.09
Weighted-average basic shares
2022
2021
$
Total other comprehensive income/(loss), after-tax
Comprehensive income
6,898
1,621
(17,257)
(293)
(8,070)
$
56,450
(808)
$
$
40,264
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2023 Form 10-K
167
JPMorgan Chase & Co.
Consolidated balance sheets
20,419
37,676 $
DVA on fair value option elected liabilities
(1,241)
49,552 $
37,676 $
48,334
5,381
(11,764)
(5,540)
329
922
(611)
(101)
98
1,724
(5,360)
(19)
(2,679)
Defined benefit pension and OPEB plans
373
(461)
The Firm recognizes interest income on loans, debt
securities, and other debt instruments, generally on a level-
yield basis, based on the underlying contractual rate. Refer
to Note 7 for further information.
9,941
Revenue recognition
(149,167)
(347,864)
Proceeds from sales, securitizations and paydowns of loans held-for-sale
116,430
167,709
336,413
Net change in:
Trading assets
Securities borrowed
Accrued interest and accounts receivable
Other assets
Trading liabilities
Accounts payable and other liabilities
Other operating adjustments
Net cash provided by operating activities
Investing activities
Net change in:
Federal funds sold and securities purchased under resale agreements
39,740
(54,278)
34,473
Held-to-maturity securities:
Proceeds from paydowns and maturities
Purchases
53,056
(4,141)
48,626
50,897
(33,676) (111,756)
(74,091)
(115,245)
Originations and purchases of loans held-for-sale
3,274
5,174
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2023 Form 10-K
169
JPMorgan Chase & Co.
Consolidated statements of cash flows
Year ended December 31, (in millions)
Operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses
Depreciation and amortization
Deferred tax (benefit)/expense
2023
2022
(31,449)
2021
49,552 $ 37,676 $ 48,334
9,320
6,389
(9,256)
7,512
7,051
7,932
(4,534)
(2,738)
3,748
Bargain purchase gain associated with the First Republic acquisition
(2,775)
Other
4,301
$
85,710
(14,902)
20,203
(136,895) 293,764
Federal funds purchased and securities loaned or sold under repurchase agreements
13,801
Short-term borrowings
(1,934)
8,455
(8,984)
(20,799)
7,773
Beneficial interests issued by consolidated VIES
9,029
2,205
(4,254)
Proceeds from long-term borrowings
75,417
(32,196)
78,442
Payments of long-term borrowings
(64,880)
(45,556)
(54,932)
Proceeds from issuance of preferred stock
7,350
Redemption of preferred stock
Treasury stock repurchased
Dividends paid
All other financing activities, net
Net cash provided by/(used in) financing activities
Effect of exchange rate changes on cash and due from banks and deposits with banks
Net increase/(decrease) in cash and due from banks and deposits with banks
Cash and due from banks and deposits with banks at the beginning of the period
Cash and due from banks and deposits with banks at the end of the period
Cash interest paid
82,409
Effective January 1, 2023, the Firm adopted the Financial Instruments - Credit Losses: Troubled Debt Restructurings and Derivatives and
Hedging: Fair Value Hedging - Portfolio Layer Method accounting guidance. Refer to Note 1 for further information.
Deposits
Financing activities
(45,635)
19,928
(22,970)
(12,401)
32,970
(2,882)
(11,745)
5,315
11,170
(23,190)
(25,388)
58,614
43,162
4,581
12,974
Net change in:
2,339
107,119
78,084
Available-for-sale securities:
Proceeds from paydowns and maturities
Proceeds from sales
Purchases
Proceeds from sales and securitizations of loans held-for-investment
Other changes in loans, net
Net cash used in First Republic Acquisition
All other investing activities, net
53,744
39,159
50,075
108,434
84,616
162,748
(115,499) (126,258) (248,785)
47,312
44,892
(88,343) (128,968)
35,845
(91,797)
(9,920)
(16,740)
67,643
(11,932) (11,044)
(137,819) (129,344)
Net cash provided by/(used in) investing activities
(398)
Cash income taxes paid, net
$ 327,878 $ 292,332 $ 294,127
1,217
$
591
40,372
$
2,151
34,411
550
37,112
$
$
23,020 $
263
23,283 $
12,610
279
12,889
The Notes to Consolidated Financial Statements are an integral part of these statements.
JPMorgan Chase & Co./2023 Form 10-K
JPMorgan Chase & Co.
Consolidated statements of changes in stockholders' equity
Year ended December 31, (in millions, except per share data)
Preferred stock
Balance at January 1
Issuance
Redemption
Balance at December 31
2023
2022
2021
$
27,404 $ 34,838 $ 30,063
7,350
- (7,434)
(2,575)
27,404
27,404
34,838
2,170
37,611
$
2022
2023
Treasury stock, at cost (1,228,275,301 and 1,170,676,094 shares)
Total stockholders' equity
Total liabilities and stockholders' equity
27,404
27,404
4,105
4,105
90,128
89,044
332,901
296,456
(10,443)
(17,341)
(116,217)
Common stock
(107,336)
292,332
$ 3,875,393 $ 3,665,743
(a) The following table presents information on assets and liabilities related to VIES that are consolidated by the Firm at December 31, 2023 and 2022. The
assets of the consolidated VIES are used to settle the liabilities of those entities. The holders of the beneficial interests do not have recourse to the general
credit of JPMorgan Chase. The assets and liabilities in the table below include third-party assets and liabilities of consolidated VIES and exclude
intercompany balances that eliminate in consolidation. Refer to Note 14 for a further discussion.
December 31, (in millions)
Assets
Trading assets
Loans
All other assets
Total assets
Liabilities
Interest income
All other liabilities
Total liabilities
168
327,878
Balance at January 1 and December 31
4,105
4,105
(11,893)
(11,456)
Balance at December 31
332,901
296,456
272,268
Accumulated other comprehensive income/(loss)
Balance at January 1
Other comprehensive income/(loss), after-tax
(17,341)
(84)
7,986
6,898
(10,443)
(17,257)
(12,055)
(8,070)
(84)
Balance at December 31
Treasury stock, at cost
Balance at January 1
Repurchase
Reissuance
Balance at December 31
Total stockholders' equity
(107,336)
(9,980)
1,099
(116,217)
(105,415)
(88,184)
(3,122)
(18,448)
1,201
(107,336)
(17,341)
(105,415)
Common stock ($4.10, $4.00 and $3.80 per share for 2023, 2022 and 2021, respectively)
(1,595)
4,105
Additional paid-in capital
Balance at January 1
89,044
88,415
88,394
Shares issued and commitments to issue common stock for employee share-based compensation awards, and
related tax effects
1,084
629
152
Other
(131)
Balance at December 31
90,128
(1,600)
89,044
Retained earnings
Balance at January 1
Cumulative effect of change in accounting principles
Net income
296,456
272,268
236,990
449
49,552
37,676
48,334
Dividends declared:
Preferred stock
(1,501)
88,415
(7,434)
Beneficial interests issued by consolidated VIES
234
Assets held for clients in an agency or fiduciary capacity by
the Firm are not assets of JPMorgan Chase and are not
included on the Consolidated balance sheets.
The Consolidated Financial Statements include the accounts
of JPMorgan Chase and other entities in which the Firm has
a controlling financial interest. All material intercompany
balances and transactions have been eliminated.
Consolidation
The accounting and financial reporting policies of JPMorgan
Chase and its subsidiaries conform to U.S. GAAP.
Additionally, where applicable, the policies conform to the
accounting and reporting guidelines prescribed by
regulatory authorities.
reporting classification and internal risk rating profiles in
the wholesale portfolio may change in future periods. Refer
to Note 34 for additional information on the First Republic
acquisition.
JPMorgan Chase & Co. ("JPMorgan Chase" or the "Firm"), a
financial holding company incorporated under Delaware law
in 1968, is a leading financial services firm based in the
U.S., with operations worldwide. The Firm is a leader in
investment banking, financial services for consumers and
small businesses, commercial banking, financial transaction
processing and asset management. On May 1, 2023,
JPMorgan Chase acquired certain assets and assumed
certain liabilities of First Republic Bank (the "First Republic
acquisition") from the Federal Deposit Insurance
Corporation ("FDIC"). The Firm continues to convert certain
operations, and to integrate clients, products and services
associated with the First Republic acquisition, to align with
the Firm's businesses and operations. Accordingly,
Note 1 - Basis of presentation
Notes to consolidated financial statements
JPMorgan Chase & Co./2023 Form 10-K
The Notes to Consolidated Financial Statements are an integral part of these statements.
170
18,737
$ 77,114 $ 23,143 $ 5,142
9,908
4,355
(2,575)
(9,824)
(3,162)
(18,408)
(13,463)
(1,521)
(25,571)
1,871
56,917
567,234
(13,562)
(12,858)
$ 740,834
(1,477)
(126,257)
275,993
(16,643)
(173,600)
740,834
(11,508)
213,225
obligation to absorb losses or the right to receive benefits
from the VIE that could potentially be significant to the VIE.
To assess whether the Firm has the power to direct the
activities of a VIE that most significantly impact the VIE's
economic performance, the Firm considers all the facts and
circumstances, including its role in establishing the VIE and
its ongoing rights and responsibilities. This assessment
includes, first, identifying the activities that most
significantly impact the VIE's economic performance; and
second, identifying which party, if any, has power over
those activities. In general, the parties that make the most
significant decisions affecting the VIE (such as asset
managers, collateral managers, servicers, or owners of call
options or liquidation rights over the VIE's assets) or have
the right to unilaterally remove those decision-makers are
deemed to have the power to direct the activities of a VIE.
To assess whether the Firm has the obligation to absorb
losses of the VIE or the right to receive benefits from the
VIE that could potentially be significant to the VIE, the Firm
considers all of its economic interests, including debt and
equity investments, servicing fees, and derivatives or other
arrangements deemed to be variable interests in the VIE.
This assessment requires that the Firm apply judgment in
determining whether these interests, in the aggregate, are
considered potentially significant to the VIE. Factors
considered in assessing significance include: the design of
the VIE, including its capitalization structure; subordination
of interests; payment priority; relative share of interests
held across various classes within the VIE's capital
structure; and the reasons why the interests are held by the
Firm.
The Firm determines whether it has a controlling financial
interest in an entity by first evaluating whether the entity
a voting interest entity or a variable interest entity.
Voting interest entities
Voting interest entities are entities that have sufficient
equity and provide the equity investors voting rights that
enable them to make significant decisions relating to the
entity's operations. For these types of entities, the Firm's
determination of whether it has a controlling interest is
primarily based on the amount of voting equity interests
held. Entities in which the Firm has a controlling financial
interest, through ownership of the majority of the entities'
voting equity interests, or through other contractual rights
that give the Firm control, are consolidated by the Firm.
Investments in companies in which the Firm has significant
influence over operating and financing decisions (but does
not own a majority of the voting equity interests) are
accounted for (i) in accordance with the equity method of
accounting, or (ii) at fair value if the fair value option was
elected. These investments are generally included in other
assets, with income or loss included in noninterest revenue.
The Firm performs on-going reassessments of: (1) whether
entities previously evaluated under the majority voting-
interest framework have become VIES, based on certain
events, and are therefore subject to the VIE consolidation
framework; and (2) whether changes in the facts and
circumstances regarding the Firm's involvement with a VIE
cause the Firm's consolidation conclusion to change.
Refer to Note 14 for further discussion of Firm-sponsored
VIES.
527,609
Notes to consolidated financial statements
171
$ 624,151 $ 567,234
The most common type of VIE is an SPE. SPEs are commonly
used in securitization transactions in order to isolate certain
assets and distribute the cash flows from those assets to
investors. The basic SPE structure involves a company
selling assets to the SPE; the SPE funds the purchase of
those assets by issuing securities to investors. The legal
documents that govern the transaction specify how the cash
earned on the assets must be allocated to the SPE'S
investors and other parties that have rights to those cash
flows. SPES are generally structured to insulate investors
from claims on the SPE's assets by creditors of other
entities, including the creditors of the seller of the assets.
The primary beneficiary of a VIE (i.e., the party that has a
controlling financial interest) is required to consolidate the
assets and liabilities of the VIE. The primary beneficiary is
the party that has both (1) the power to direct the activities
of the VIE that most significantly impact the VIE's economic
performance; and (2) through its interests in the VIE, the
VIES are entities that, by design, either (1) lack sufficient
equity to permit the entity to finance its activities without
additional subordinated financial support from other
parties, or (2) have equity investors that do not have the
ability to make significant decisions relating to the entity's
operations through voting rights, or do not have the
obligation to absorb the expected losses, or do not have the
right to receive the residual returns of the entity.
Variable interest entities
Certain Firm-sponsored asset management funds are
structured as limited partnerships or limited liability
companies. For many of these entities, the Firm is the
general partner or managing member, but the non-
affiliated partners or members have the ability to remove
the Firm as the general partner or managing member
without cause (i.e., kick-out rights), based on a simple
majority vote, or the non-affiliated partners or members
have rights to participate in important decisions.
Accordingly, the Firm does not consolidate these voting
interest entities. However, in the limited cases where the
non-managing partners or members do not have
substantive kick-out or participating rights, the Firm
evaluates the funds as VIES and consolidates the funds if
the Firm is the general partner or managing member and
has both power and a potentially significant interest.
The Firm's investment companies and asset management
funds have investments in both publicly-held and privately-
held entities, including investments in buyouts, growth
equity and venture opportunities. These investments are
accounted for under investment company guidelines and,
accordingly, irrespective of the percentage of equity
ownership interests held, are carried on the Consolidated
balance sheets at fair value, and are recorded in other
assets, with income or loss included in noninterest revenue.
If consolidated, the Firm retains the accounting under such
specialized investment company guidelines.
JPMorgan Chase & Co./2023 Form 10-K
Total fair value
259,813
$
$
Derivative
netting
adjustments(f)
Level 3
Level 2
259,813
70,086
Securities borrowed
$
Federal funds sold and securities purchased under resale agreements
Level 1
December 31, 2023 (in millions)
Assets and liabilities measured at fair value on a recurring basis
The following table presents the assets and liabilities reported at fair value as of December 31, 2023 and 2022, by major
product category and fair value hierarchy.
Notes to consolidated financial statements
179
JPMorgan Chase & Co./2023 Form 10-K
Level 2 or 3
Classification in the fair value
hierarchy
$
Fair value hierarchy
U.S. Treasury, GSES and government agencies (a)
the Firm's own credit risk (DVA). Refer to page 192 of this Note.
•
Fair value is estimated using all available information; the range of
potential inputs include:
Additionally, adjustments are made to reflect counterparty credit quality
(CVA) and the impact of funding (FVA). Refer to page 192 of this Note.
Refer to Mortgage servicing rights in Note 15.
• Commodity correlation
• Commodity volatility
• Forward commodity price
Commodity derivatives specific inputs include:
Equity-IR correlation
.
• Equity-FX correlation
• Equity correlation
• Equity volatility
• Forward equity price
Equity derivatives specific inputs include:
• Credit correlation between the underlying debt instruments
Credit derivatives specific inputs include:
Foreign exchange correlation
•
Beneficial interests issued by
consolidated VIES
.
70,086
Transaction prices
• Operating performance of the underlying portfolio company
Valuations are based on discounted cash flow analyses that consider the
embedded derivative and the terms and payment structure of the note.
The embedded derivative features are considered using models such as
the Black-Scholes option pricing model, simulation models, or a
combination of models that may use observable or unobservable
valuation inputs, depending on the embedded derivative. The specific
inputs used vary according to the nature of the embedded derivative
features, as described in the discussion above regarding derivatives
valuation. Adjustments are then made to this base valuation to reflect
Valuation methodology
Structured notes (included in
deposits, short-term
borrowings and long-term
debt)
Product/instrument
JPMorgan Chase & Co./2023 Form 10-K
178
(a) Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient.
Level 2 or 3
Level 2 or 3 (a)
Level 1
Level 2 or 3
Level 3
In the absence of observable market information, valuations are based
on the fair value of the underlying assets held by the VIE.
Valued using observable market information, where available.
• Adjustments to the NAV as required, for restrictions on redemption
(e.g., lock-up periods or withdrawal limitations) or where
observable activity is limited
• NAV is supported by the ability to redeem and purchase at the NAV
level
Net asset value
• Additional available inputs relevant to the investment
• Adjustments as required, since comparable public companies are
not identical to the company being valued, and for company-specific
issues including lack of liquidity
• Trading multiples of comparable public companies
Trading assets:
Debt instruments:
Mortgage-backed securities:
4,298
243,578
2,815
485,701
2,373
214,080
269,248
17,980
101
17,879
5,791
7
3,305
2,479
108,732
127
679
107,926
353,198
2,138
192,217
158,843
Total derivative receivables
(224,367)
Commodity
26,324
1,010
11,297
741,440
272,212
54,864
(484,384)
8,924
527,360
2,964
5,042
(10,397)
205
15,234
4,928
(52,761)
2,522
55,167
18,019
(187,756)
889
204,737
149
551
(9,103)
8,644
Fund investments (e.g.,
mutual/collective investment
funds, private equity funds,
hedge funds, and real estate
funds)
Foreign exchange
Equity
Interest rate
10
5,858
Obligations of U.S. states and municipalities
143,995
9,998
133,997
U.S. Treasury, GSES and government agencies (a)
77,898
775
77,123
Total mortgage-backed securities
1,374
12
1,362
Commercial nonagency
1,926
5
1,921
74,598
758
73,840
Residential nonagency
U.S. GSES and government agencies (a)
5,868
Credit
Certificates of deposit, bankers' acceptances and commercial paper
756
Derivative receivables:
Total debt and equity instruments
Other
Physical commodities(b)
Equity securities
Total debt instruments
2,205
6
2,199
Asset-backed securities
8,556
684
7,872
Loans
33,338
484
32,854
Corporate debt securities
80,582
179
55,557
24,846
Non-U.S. government debt securities
756
Private equity direct
investments
Mortgage servicing rights
Interest rate-FX correlation
Off-balance sheet lending-related financial
page 285
Note 25
Income taxes
page 283
Note 23
Earnings per share
page 278
Note 20
Long-term debt
instruments, guarantees and other
page 277
Accounts payable & other liabilities
page 275
Note 18
Leases
page 274
Note 16
Premises and equipment
page 269
Note 15
other intangible assets
Note 19
commitments
Litigation
Note 28
•
Notes to consolidated financial statements
175
Uncertainty adjustments related to unobservable
parameters may be made when positions are valued
using prices or input parameters to valuation models
that are unobservable due to a lack of market activity or
The Firm manages certain portfolios of financial
instruments on the basis of net open risk exposure and,
as permitted by U.S. GAAP, has elected to estimate the
fair value of such portfolios on the basis of a transfer of
the entire net open risk position in an orderly
transaction. Where this is the case, valuation
adjustments may be necessary to reflect the cost of
exiting a larger-than-normal market-size net open risk
position. Where applied, such adjustments are based on
factors that a relevant market participant would
consider in the transfer of the net open risk position,
including the size of the adverse market move that is
likely to occur during the period required to sufficiently
reduce the net open risk position.
Liquidity valuation adjustments are considered where an
observable external price or valuation parameter exists
but is of lower reliability, potentially due to lower
market activity. Liquidity valuation adjustments are
made based on current market conditions. Factors that
may be considered in determining the liquidity
adjustment include analysis of: (1) the estimated bid-
offer spread for the instrument being traded; (2)
alternative pricing points for similar instruments in
active markets; and (3) the range of reasonable values
that the price or parameter could take.
•
•
The VCG verifies fair value estimates provided by the risk-
taking functions by leveraging independently derived
prices, valuation inputs and other market data, where
available. Where independent prices or inputs are not
available, the VCG performs additional review to ensure the
reasonableness of the estimates. The additional review may
include evaluating the limited market activity including
client unwinds, benchmarking valuation inputs to those
used for similar instruments, decomposing the valuation of
structured instruments into individual components,
comparing expected to actual cash flows, reviewing profit
and loss trends, and reviewing trends in collateral
valuation. There are also additional levels of management
review for more significant or complex positions.
The VCG determines any valuation adjustments that may be
required to the estimates provided by the risk-taking
functions. No adjustments to quoted prices are applied for
instruments classified within level 1 of the fair value
hierarchy (refer to the discussion below for further
information on the fair value hierarchy). For other
positions, judgment is required to assess the need for
valuation adjustments to appropriately reflect liquidity
considerations, unobservable parameters, and, for certain
portfolios that meet specified criteria, the size of the net
open risk position. The determination of such adjustments
follows a consistent framework across the Firm:
Price verification process
JPMorgan Chase & Co./2023 Form 10-K
Risk-taking functions are responsible for providing fair
value estimates for assets and liabilities carried on the
Consolidated balance sheets at fair value. The Firm's
Valuation Control Group ("VCG"), which is part of the Firm's
Finance function and independent of the risk-taking
functions, is responsible for verifying these estimates and
determining any fair value adjustments that may be
required to ensure that the Firm's positions are recorded at
fair value. In addition, the Firm's Valuation Governance
Forum ("VGF"), which is composed of senior finance and
risk executives, is responsible for overseeing the
management of risks arising from valuation activities
conducted across the Firm. The Firmwide VGF is chaired by
the Firmwide head of the VCG (under the direction of the
Firm's Controller), and includes sub-forums covering the
CIB, CCB, CB, AWM and certain corporate functions including
Treasury and CIO.
Valuation process
The Firm uses various methodologies and assumptions in
the determination of fair value. The use of different
methodologies or assumptions by other market participants
compared with those used by the Firm could result in the
Firm deriving a different estimate of fair value at the
reporting date.
The level of precision in estimating unobservable market
inputs or other factors can affect the amount of gain or loss
recorded for a particular position. Furthermore, while the
Firm believes its valuation methods are appropriate and
consistent with those of other market participants, the
methods and assumptions used reflect management
judgment and may vary across the Firm's businesses and
portfolios.
Fair value is defined as the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the
measurement date. Fair value is based on quoted market
prices or inputs, where available. If prices or quotes are not
available, fair value is based on valuation models and other
valuation techniques that consider relevant transaction
characteristics (such as maturity) and use, as inputs,
observable or unobservable market parameters, including
yield curves, interest rates, volatilities, prices (such as
commodity, equity or debt prices), correlations, foreign
exchange rates and credit curves. Fair value may also
incorporate valuation adjustments.
JPMorgan Chase carries a portion of its assets and liabilities
at fair value. These assets and liabilities are predominantly
carried at fair value on a recurring basis (i.e., assets and
liabilities that are measured and reported at fair value on
the Firm's Consolidated balance sheets). Certain assets,
liabilities and unfunded lending-related commitments are
measured at fair value on a nonrecurring basis; that is, they
are not measured at fair value on an ongoing basis but are
subject to fair value adjustments only in certain
circumstances (for example, when there is evidence of
impairment).
Note 2 - Fair value measurement
JPMorgan Chase & Co./2023 Form 10-K
174
page 298
Note 30
page 291
Goodwill, mortgage servicing rights, and
page 261
Note 14
Variable interest entities
Note 5
Derivative instruments
page 197
Note 3
Fair value option
page 175
Note 2
Fair value measurement
a detailed description of each policy can be found.
The following table identifies JPMorgan Chase's other
significant accounting policies and the Note and page where
Significant accounting policies
Notes to consolidated financial statements
173
JPMorgan Chase & Co./2023 Form 10-K
Refer to Note 12 for further information.
The adoption of this guidance eliminated the disclosure
requirements for TDRs including the requirement to assess
whether a modification is reasonably expected or involves a
concession. The new guidance requires disclosure for loan
modifications to borrowers experiencing financial difficulty
consisting of principal forgiveness, interest rate reduction,
other-than-insignificant payment delay, term extension or a
combination of these modifications. The Firm has defined
these types of modifications as financial difficulty
modifications ("FDMS"). As a result of the elimination of the
requirement to assess whether a modification is reasonably
expected or involves a concession, the population of loans
considered FDMs differs from those previously considered
TDRs. This guidance also requires disclosure of current
period gross charge-offs by vintage origination year.
This guidance was adopted on January 1, 2023 under the
modified retrospective method which resulted in a net
decrease to the allowance for credit losses of $587 million
and an increase to retained earnings of $446 million, after-
tax, predominantly driven by residential real estate and
credit card.
The Firm elected to apply its non-DCF, portfolio-based
allowance approach for modified loans to troubled
borrowers for all portfolios except collateral-dependent
loans and nonaccrual risk-rated loans which the Firm
elected to continue applying a DCF methodology. Refer to
Note 13 for a description of the portfolio-based allowance
approach and the asset-specific allowance approach.
The adoption of this guidance eliminated the accounting
and disclosure requirements for TDRs, including the
requirement to measure the allowance using a discounted
cash flow ("DCF") methodology, and allowed the option of a
non-DCF portfolio-based approach for modified loans to
troubled borrowers. If a DCF methodology is still applied for
these modified loans, the discount rate must be the post-
modification effective interest rate, instead of the pre-
modification effective interest rate.
Financial Instruments - Credit Losses: Troubled Debt
Restructurings ("TDRS")
Refer to Note 5 and Note 10 for additional information.
The adoption of this guidance expanded the ability to hedge
a portfolio of fixed-rate assets to allow more types of assets
to be included in the portfolio, and to allow more of the
portfolio to be hedged. This guidance also clarified the
types of derivatives that could be used as hedges, and the
balance sheet presentation and disclosure requirements for
the hedge accounting adjustments. As permitted by the
guidance, the Firm elected to transfer HTM securities to AFS
and designated those securities in a portfolio layer method
hedge upon adoption. The adoption impact of the transfer
on retained earnings was not material.
Accounting standards adopted January 1, 2023
Derivatives and Hedging: Fair Value Hedging - Portfolio
Layer Method
page 203
because they cannot be implied from observable market
data. Such prices or parameters must be estimated and
are, therefore, subject to management judgment.
Adjustments are made to reflect the uncertainty
inherent in the resulting valuation estimate.
Noninterest revenue and noninterest
Note 6
page 255
Note 13
Allowance for credit losses
page 235
Note 12
Loans
page 232
Note 11
Securities financing activities
page 227
Note 10
Investment securities
page 225
Note 9
Employee share-based incentives
page 222
Note 8
employee benefit plans
Pension and other postretirement
page 221
Note 7
Interest income and Interest expense
page 217
expense
Where appropriate, the Firm also applies adjustments to
its estimates of fair value in order to appropriately
reflect counterparty credit quality (CVA), the Firm's own
creditworthiness (DVA) and the impact of funding (FVA),
using a consistent framework across the Firm. Refer to
Credit and funding adjustments on page 192 of this Note
for more information on such adjustments.
Valuation model review and approval
If prices or quotes are not available for an instrument or a
similar instrument, fair value is generally determined using
valuation models that consider relevant transaction terms
such as maturity and use as inputs market-based or
independently sourced parameters. Where this is the case
the price verification process described above is applied to
the inputs in those models.
•
Credit spreads
•
Expected prepayment speed, conditional default rates, loss
•
Deal-specific payment and loss allocations
•
Collateral characteristics
•
Collateralized loan obligations ("CLOS") specific inputs:
Current market assumptions related to yield, prepayment speed,
conditional default rates and loss severity
•
⚫ Deal-specific payment and loss allocations
Collateral characteristics
Mortgage- and asset-backed securities specific inputs:
the following products:
In addition, the following inputs to discounted cash flows are used for
Discounted cash flows
•
Relevant broker quotes
•
• Observable market prices for similar securities
on:
Credit rating data
Level 2 or 3
Physical commodities
Level 1 or 2
Interest rate correlation
•
Bermudan switch value
•
Interest rate spread volatility
•
Interest rate volatility
Interest rate curve
•
Level 2 or 3
Level 1
Classifications in the fair value
hierarchy
Interest rate and FX exotic derivatives specific inputs include:
In addition, specific inputs used for derivatives that are valued based on
models with significant unobservable inputs are as follows:
The key valuation inputs used will depend on the type of derivative and
the nature of the underlying instruments and may include equity prices,
commodity prices, foreign exchange rates, volatilities, correlations, CDS
spreads, recovery rates and prepayment speed.
Derivatives that are valued using models such as the Black-Scholes
option pricing model, simulation models, or a combination of models
that may use observable or unobservable valuation inputs as well as
considering the contractual terms.
Actively traded derivatives, e.g., exchange-traded derivatives, that are
valued using quoted prices.
Valuation methodology
Derivatives
Product/instrument
Notes to consolidated financial statements
JPMorgan Chase & Co./2023 Form 10-K
177
Valued using observable market prices or data.
(484,384)
In the absence of quoted market prices, securities are valued based
Quoted market prices
Collateral characteristics
•
• Market rates for the respective maturity
Derivative features: refer to the discussion of derivatives below
for further information
•
Valuations are based on discounted cash flows, which consider:
Valuation methodology
Securities financing agreements
Product/instrument
The following table describes the valuation methodologies generally used by the Firm to measure its significant products/
instruments at fair value, including the general classification of such instruments pursuant to the fair value hierarchy.
JPMorgan Chase & Co./2023 Form 10-K
176
A financial instrument's categorization within the fair value
hierarchy is based on the lowest level of input that is
significant to the fair value measurement.
methodology are unobservable and significant to the fair
value measurement.
Level 3 - one or more inputs to the valuation
Level 2 - inputs to the valuation methodology include
quoted prices for similar assets and liabilities in active
markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the
full term of the financial instrument.
Level 1 - inputs to the valuation methodology are
quoted prices (unadjusted) for identical assets or
liabilities in active markets.
measurement date. The three levels are defined as follows.
inputs to the valuation of an asset or liability as of the
•
•
A three-level fair value hierarchy has been established
under U.S. GAAP for disclosure of fair value measurements.
The fair value hierarchy is based on the observability of
Under the Firm's Estimations and Model Risk Management
Policy, MRGR reviews and approves new models, as well as
material changes to existing models, prior to
implementation in the operating environment. In certain
circumstances exceptions may be granted to the Firm's
policy to allow a model to be used prior to review or
approval. MRGR may also require the user to take
appropriate actions to mitigate the model risk if it is to be
used in the interim. These actions will depend on the model
and may include, for example, limitation of trading activity.
Fair value hierarchy
Where observable market data is available, valuations are based on:
Level 1
Classifications in the fair value
hierarchy
Level 2 or 3
Investment and trading
securities
sold
Loans carried at fair value -
conforming residential
mortgage loans expected to be value of the underlying loans, which include credit characteristics,
portfolio composition, and liquidity.
Fair value is based on observable market prices for mortgage-backed Predominantly level 2
securities with similar collateral and incorporates adjustments to
these prices to account for differences between the securities and the
-
Loans consumer
Collateral characteristics
•
Prepayment speed
curves developed by the Firm, by industry and credit rating
Credit spreads derived from the cost of CDS; or benchmark credit
•
based on discounted cash flows, which consider the following:
Where observable market data is unavailable or limited, valuations are
•
Observed market prices for similar instruments
Relevant broker quotes
Observed market prices (circumstances are infrequent)
•
•
lending-related commitments
Loans carried at fair value
(trading loans and non-trading
loans) and associated
Loans and lending-related
commitments - wholesale
Predominantly level 2
540,565
Corporate debt securities
Available-for-sale securities:
Mortgage-backed securities:
U.S. GSES and government agencies (a)
Residential nonagency
Commercial - nonagency
Total mortgage-backed securities
U.S. Treasury and government agencies
3
71,500
4,620
Available-for-sale securities:
1,958
78,078
92,060
71,503
4,620
1,958
78,081
92,060
Obligations of U.S. states and municipalities
6,786
3
Total trading assets(d)
453,756
70,880
169
240,207
1,203
(218,214)
23,365
57,485
4,428
(52,774)
9,139
24,982
375
(16,490)
8,867
3,559
625,352
10,682
175,041
833,837
13,591
(568,713)
(568,713)
For JPMorgan Chase's Consolidated statements of cash
flows, cash is defined as those amounts included in cash
and due from banks and deposits with banks on the
Consolidated balance sheets.
6,786
1,090
Non-U.S. government debt securities
9,105
Total assets measured at fair value on a recurring basis
$
Deposits
$
7,544
285,239 $
$
6,065
1,365,451
26,458
405
14,014
$
Other assets (d)
23,626
(568,713)
$
1,105,603
$
2,162
$
$
28,620
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
$
7,973
7,973
42,079
19,696
118
239
357
Corporate debt securities
Asset-backed securities:
Collateralized loan obligations
Total available-for-sale securities
Other
Loans (e)
Mortgage servicing rights
5,792
3,085
102,654
102,964
239
40,661
1,418
5,792
3,085
205,857
10,591
151,999
14,391
(9,239)
9,722
U.S. GSES and government agencies (a)
Mortgage-backed securities:
Debt instruments:
Trading assets:
Securities borrowed
Federal funds sold and securities purchased under resale agreements
December 31, 2022 (in millions)
Fair value hierarchy
8,546
Residential nonagency
69,737
6,608
7
6,615
Certificates of deposit, bankers' acceptances and commercial paper
2,009
2,009
Non-U.S. government debt securities
18,213
48,429
Obligations of U.S. states and municipalities
Commercial nonagency
Level 1
Level 2
72,879
771
72,108
Total mortgage-backed securities
1,455
7
1,448
2,503
5
2,498
68,921
759
68,162
70,041
Total fair value
311,883
$ $ $ 33
311,883
70,041
$
$
Derivative
netting
adjustments(f)
Level 3
155
607
66,797
25,626
82,483
2,060
665
85,208
9,595
16,673
2
26,270
18,146
253,188
64
171,482
208,485
2,909
382,876
3,390
292,956
4,069
(271,996)
28,419
18,210
2,178
171,606
79,404
463
26,089
Loans
5,744
759
6,503
Asset-backed securities
2,536
23
2,559
Total debt instruments
Equity securities
Physical commodities (b)
Other
Total debt and equity instruments(c)
Derivative receivables:
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total derivative receivables
Corporate debt securities
151,999
1,401
15,792
1,130,863
(484,384) $
$
$
1,833
$
76,551
169,003
18,284
$
23,656
$
78,384
1,241,966
$
$
11,322
758
3,929
6,635
8,522
8,522
3,079
349,625 $
$
1,758
169,003
20,042
107,292
(228,586)
(10,949)
(199,643)
827
211,289
147
745
11,293
3,796
232,277
4,409
Accounts payable and other liabilities
Total trading liabilities
Total derivative payables
Commodity
Equity
Foreign exchange
Credit
Interest rate
Derivative payables:
139,581
37
32,252
38,851
11,896
201,704
6,752
Asset-backed securities:
61,191
100
8,187
13,095
Non-U.S. government debt securities
21,367
Obligations of U.S. states and municipalities
122
Collateralized loan obligations
57,683
91,612
Total mortgage-backed securities
2,803
Commercial - nonagency
3,639
Residential nonagency
85,170
U.S. GSES and government agencies (a)
Mortgage-backed securities:
U.S. Treasury and government agencies
Other (a)
Total available-for-sale securities
Loanse
100
21,282
21,367
57,805
91,612
2,803
3,639
85,170
| | | | |
35,772
130,926
70,778
2,786
6,752
Debt and equity instruments(c)
Trading liabilities:
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
Deposits
Total assets measured at fair value on a recurring basis
Other assets (d)
Mortgage servicing rights
2,786
1,089
12,620
60,887
4,924
250,647
57,649
714
(274,321)
(9,217)
(232,665)
15,970
754
18,856
4,812
(53,657)
8,804
160
22,748
(16,512)
6,757
2,803
101,522
5,702
624,701
652,733
1,283
5
10,009
10,093
53
(586,372)
(586,372)
51,141
177,976
7,038
5
48,189
521
594
9,377
3,368
Trading liabilities:
Debt and equity instruments(c)
Derivative payables:
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total derivative payables
Total trading liabilities
Accounts payable and other liabilities
Beneficial interests issued by consolidated VIES
Long-term debt
Total liabilities measured at fair value on a recurring basis
$
98,719
28,032
84
126,835
2,643
284,280
107,224 $
895,058
$
24,092
37,801
$
Total liabilities measured at fair value on a recurring basis
Long-term debt
1
1
Beneficial interests issued by consolidated VIES
5,637
180,428
40,847
(506,125)
(506,125)
10,776
10,813
52
1,617
563,892
531,640
4,556
111,848
3,968
5,874
(10,504)
484
15,894
9,368
(56,443)
115,816 $
Total trading assets(d)
60,198
889,546
27,726
42,182
72,281
$
(586,372)
$
453,711
(a) At December 31, 2023 and 2022, included total U.S. GSE obligations of $78.5 billion and $73.8 billion, respectively, which were mortgage-related.
(b) Physical commodities inventories are generally accounted for at the lower of cost or net realizable value. "Net realizable value" is a term defined in U.S.
GAAP as not exceeding fair value less costs to sell ("transaction costs"). Transaction costs for the Firm's physical commodities inventories are either not
applicable or immaterial to the value of the inventory. Therefore, net realizable value approximates fair value for the Firm's physical commodities
inventories. When fair value hedging has been applied (or when net realizable value is below cost), the carrying value of physical commodities
approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. Refer to Note 5 for a further
discussion of the Firm's hedge accounting relationships. To provide consistent fair value disclosure information, all physical commodities inventories have
been included in each period presented.
(c) Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).
JPMorgan Chase & Co./2023 Form 10-K
181
Notes to consolidated financial statements
(d) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be
classified in the fair value hierarchy. At December 31, 2023 and 2022, the fair values of these investments, which include certain hedge funds, private
equity funds, real estate and other funds, were $1.0 billion and $950 million, respectively. Included in these balances at December 31, 2023 and 2022,
were trading assets of $42 million and $43 million, respectively, and other assets of $984 million and $907 million, respectively.
(e) At December 31, 2023 and 2022, included $10.2 billion and $9.7 billion, respectively, of residential first-lien mortgages, and $6.0 billion and $6.8
billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell
to U.S. GSES and government agencies of $2.9 billion and $2.4 billion, respectively.
(f) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid
when a legally enforceable master netting agreement exists. The level 3 balances would be reduced if netting were applied, including the netting benefit
associated with cash collateral.
182
JPMorgan Chase & Co./2023 Form 10-K
JPMorgan Chase & Co./2023 Form 10-K
180
541,419
(506,125) $
$
87,924
$
agreements and securities loan agreements in general (i)
all transactions are terminated and accelerated, (ii) all
values of securities or cash held or to be delivered are
calculated, and all such sums are netted against each other
and (iii) the only remaining payment obligation is of one of
the parties to pay the netted termination amount.
Typical master netting agreements for these types of
transactions also often contain a collateral/margin
agreement that provides for a security interest in, or title
transfer of, securities or cash collateral/margin to the party
that has the right to demand margin (the “demanding
party"). The collateral/margin agreement typically requires
a party to transfer collateral/margin to the demanding
party with a value equal to the amount of the margin deficit
on a net basis across all transactions governed by the
master netting agreement, less any threshold. The
collateral/margin agreement grants to the demanding
party, upon default by the counterparty, the right to set-off
any amounts payable by the counterparty against any
posted collateral or the cash equivalent of any posted
collateral/margin. It also grants to the demanding party the
right to liquidate collateral/margin and to apply the
proceeds to an amount payable by the counterparty.
Refer to Note 5 for further discussion of the Firm's
derivative instruments. Refer to Note 11 for further
discussion of the Firm's securities financing agreements.
Statements of cash flows
severity
1,285
145
700
(600)
(2,402)
(646)
Commodity
(146) (59)
59
(1,306)
(290)
(11)
219
(279)
(144)
Total net derivative receivables
673 1,023
(c)
(51)
(1,931)
928
(384) 191
(25)
47
15
(29)
265
230
Foreign exchange
489
31
151
(144)
(187)
144
(422)
62
(80)
Equity
1,329
(60)
(2,645)
(269)
(e)
7,973
467
1,281
(188)
Other assets
405
Mortgage servicing rights
(36) (c)
(20)
(1,147)
(1,011)
(147)
1,306
(38)
(38)
(1,065) 3,079
(c)
293
(e)
525
(120)
2,398
289
(1,120)
(1,852)
(c)
(221)
Available-for-sale securities:
Corporate debt securities
239
24
(225)
Total available-for-sale securities
(d)
239
24
(225)
(c)
Loans
1,418
(843)
304
13
Credit
5
(16)
6
Total debt instruments
2,178
111
1,823
(1)
(1,076)
535
(840)
2,138
148
Equity securities
665
(53)
(593)
(12)
7
23
(172)
(41)
114
(238)
484
35
Loans
759
(15)
1,027
(499)
(441)
382
(529)
684
30
Asset-backed securities
164
(239)
(384)
192
(984)
728
(1,100)
2,373
(302) (c)
(b)
Net derivative receivables:
Interest rate
701
556
251
(255)
654
(1,117)
(288)
502
419
(1,315)
8,522
2,135
Total trading assets - debt and
equity instruments
(218)
127
(422)
Physical commodities
2
7
(2)
7
Other
64
(58)
141
(5)
1
(42)
101
(28)
2,909
467
(c)
45
265
31
673
(125)
(84)
4
(5)
U.S. GSES and government
agencies
759
Residential nonagency
28
(1)
7
(5)
(12)
Commercial - nonagency
29
Mortgage-backed securities:
Debt instruments:
Trading assets:
Sales
Settlements(h)
Transfers
into
level 3
Transfers
(out of)
level 3
Fair
value at
Dec. 31,
2022
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31, 2022
Federal funds sold and securities
purchased under resale agreements
$
-$-$1 $ (1) $
(1) $
1 $
- $
$
10
(1)
3
25
81
(92)
494
(338)
(4)
84
(70)
155
(153)
Corporate debt securities
332
(30)
404
(178)
(100)
357
(322)
securities
(g)
Non-U.S. government debt
7
(12)
5
(5)
7
Total mortgage-backed
securities
303
30
680
(131)
(96)
7
(22)
771
29
Obligations of U.S. states and
municipalities
7
322
Purchases
January
1, 2022
$ 940 $
Short-term borrowings
(c)(f)
1,401
201
-
4,522
$
(1,043) $
(4,345)
$
3
(321) $ 1,833
(24) 1,758
(c)(f)
$
73
(c)(f)
-
95 (c)(f)
$ 2,162 $
Deposits
(14)
758
(82)
Fair value measurements using significant unobservable inputs
Year ended
Fair value Total realized/
December 31, 2023
(in millions)
at January unrealized
1, 2023
Transfers
into
(gains)/losses Purchases Sales
Issuances Settlements(h)
level 3
Transfers
(out of)
level 3
Fair
value at
Dec. 31,
2023
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31, 2023
Liabilities:a
14
Trading liabilities - debt and equity
instruments
(c)
84
12,679
(11,555)
229
(729)
27,726
2,870 (c)(f)
JPMorgan Chase & Co./2023 Form 10-K
187
Notes to consolidated financial statements
Fair value measurements using significant unobservable inputs
Year ended
December 31, 2022
(in millions)
Assets: (a)
Fair
value at
Total
realized/
unrealized
3,010 (c)(f)
gains/
(losses)
24,092
(c)
(21)
(32)
9
(2)
19
(20)
37
Accounts payable and other liabilities
(c)
53
(4)
(16)
24
8
(13)
52
(4)
Long-term debt
463
36
Corporate debt securities
10%
90%
55%
$0
$115
$73
Net foreign exchange derivatives
384bps
128
IR-FX correlation
(40)%
60%
20%
(66) Discounted cash flows
Prepayment speed
11%
Option pricing
3,617bps
Obps
51%
19%
Net credit derivatives
7
233
Discounted cash flows
Discounted cash flows
32
Market comparables
IR-FX correlation
Prepayment speed
Credit correlation
Credit spread
Recovery rate
Price
(35)%
60%
5%
0%
20%
5%
35%
70%
11%
90%
Interest rate curve
17%
20%
12%
Net commodity derivatives
(279) Option pricing
Oil commodity forward
$84 / BBL
$270 / BBL
(19)%
$177/BBL
Commodity volatility
Commodity correlation
$2 / MMBTU
$6/MMBTU $4 / MMBTU
17%
20%
18%
Natural gas commodity forward
(30)%
65%
(88)%
7%
Net equity derivatives
(2,402) Option pricing
Forward equity price(h)
74%
148%
100%
Equity volatility
3%
145%
28%
Equity correlation
15%
100%
57%
Equity-FX correlation
Equity-IR correlation
2%
(82)%
Interest rate correlation
19%
Yield
0%
72%
7%
Prepayment speed
3%
12%
Average (i)
9%
0%
6%
0%
Loss severity
0%
110%
3%
Conditional default rate
Range of input values
Unobservable inputs (8)
Principal valuation
technique
Discounted cash flows
Level 3 valuations
The Firm has established well-structured processes for
determining fair value, including for instruments where fair
value is estimated using significant unobservable inputs
(level 3). Refer to pages 175-179 of this Note for further
information on the Firm's valuation process and a detailed
discussion of the determination of fair value for individual
financial instruments.
Estimating fair value requires the application of judgment.
The type and level of judgment required is largely dependent
on the amount of observable market information available to
the Firm. For instruments valued using internally developed
valuation models and other valuation techniques that use
significant unobservable inputs and are therefore classified
within level 3 of the fair value hierarchy, judgments used to
estimate fair value are more significant than those required
when estimating the fair value of instruments classified
within levels 1 and 2.
In arriving at an estimate of fair value for an instrument
within level 3, management must first determine the
appropriate valuation model or other valuation technique to
use. Second, due to the lack of observability of significant
inputs, management must assess relevant empirical data in
deriving valuation inputs including transaction details, yield
curves, interest rates, prepayment speed, default rates,
volatilities, correlations, prices (such as commodity, equity or
debt prices), valuations of comparable instruments, foreign
exchange rates and credit curves.
The following table presents the Firm's primary level 3
financial instruments, the valuation techniques used to
measure the fair value of those financial instruments, the
significant unobservable inputs, the range of values for those
inputs and the weighted or arithmetic averages of such
inputs. While the determination to classify an instrument
within level 3 is based on the significance of the unobservable
inputs to the overall fair value measurement, level 3 financial
instruments typically include observable components (that is,
components that are actively quoted and can be validated to
external sources) in addition to the unobservable
components. The level 1 and/or level 2 inputs are not
included in the table. In addition, the Firm manages the risk
of the observable components of level 3 financial instruments
using securities and derivative positions that are classified
within levels 1 or 2 of the fair value hierarchy.
The range of values presented in the table is representative
of the highest and lowest level input used to value the
significant groups of instruments within a product/instrument
classification. Where provided, the weighted averages of the
input values presented in the table are calculated based on
the fair value of the instruments that the input is being used
to value.
In the Firm's view, the input range, weighted and arithmetic
average values do not reflect the degree of input uncertainty
or an assessment of the reasonableness of the Firm's
estimates and assumptions. Rather, they reflect the
characteristics of the various instruments held by the Firm
and the relative distribution of instruments within the range
of characteristics. For example, two option contracts may
have similar levels of market risk exposure and valuation
uncertainty, but may have significantly different implied
volatility levels because the option contracts have different
underlyings, tenors, or strike prices. The input range and
weighted and arithmetic average values will therefore vary
from period-to-period and parameter-to-parameter based on
the characteristics of the instruments held by the Firm at
each balance sheet date.
JPMorgan Chase & Co./2023 Form 10-K
183
Notes to consolidated financial statements
Level 3 inputs (a)
December 31, 2023
Product/Instrument
Fair value
(in millions)
Residential mortgage-backed securities and
loans (b)
$
1,743
Commercial mortgage-backed securities and
loans (c)
1,460
Market comparables
Price
$2
$109
$91
Net interest rate derivatives
495
Option pricing
Interest rate volatility
25bps
420bps
117bps
Interest rate spread volatility
37bps
77bps
64bps
Bermudan switch value
0%
54%
Price
(35)%
Market comparables
Non-U.S. government debt securities
$0
$90
$80
Corporate debt securities
484
Market comparables
Price
$0
$242
$98
Loans (d)
1,335
Market comparables
Price
$0
$108
$79
179
98%
31%
MSRS
$
$
$
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. GSES and government
-
agencies
249
(133)
(107)
(14)
758
1
Residential nonagency
759
$
$
- $ - $ - $
December 31, 2023
(in millions)
Assets: (a)
Fair
value at
January
Total
realized/
unrealized
Fair value measurements using significant unobservable inputs
1, 2023 gains/(losses) Purchases
Sales
Settlements(h)
Transfers
into
level 3
Transfers
(out of)
level 3
Fair
value at
Dec. 31,
2023
Change in
unrealized
gains/(losses)
related to
financial
instruments held
at Dec. 31, 2023
Federal funds sold and securities
purchased under resale agreements
$
56- (6)
(1)
1
།
9
Obligations of U.S. states and
municipalities
7
1
(1)
3
10
10
Non-U.S. government debt
securities
155
74
217
(254)
22
(35)
179
74
775
Year ended
(22)
(109)
5
(728)
1
Commercial nonagency
7
6
(1)
8
(8)
12
7
Total mortgage-backed
securities
771
16
249
(139)
9
463
JPMorgan Chase & Co./2023 Form 10-K
Bermudan switch value - The switch value is the difference
between the overall value of a Bermudan swaption, which can
be exercised at multiple points in time, and its most
expensive European swaption and reflects the additional
value that the multiple exercise dates provide the holder.
Switch values are dependent on market conditions and can
vary greatly depending on a number of factors, such as the
tenor of the underlying swap as well as the strike price of the
option. An increase in switch value, in isolation, would
generally result in an increase in a fair value measurement.
Interest rate curve - The interest rate curve represents the
relationship of interest rates over differing tenors. The
interest rate curve is used to set interest rate and foreign
exchange derivative cash flows and is also a pricing input
used in the discounting of any derivative cash flow.
Forward price - The forward price is the price at which the
buyer agrees to purchase the asset underlying a forward
contract on the predetermined future delivery date, and is
such that the value of the contract is zero at inception.
The forward price is used as an input in the valuation of
certain derivatives and depends on a number of factors
including interest rates, the current price of the underlying
asset, and the expected income to be received and costs to be
incurred by the seller as a result of holding that asset until
the delivery date. An increase in the forward can result in an
increase or a decrease in a fair value measurement.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the Consolidated
balance sheets amounts (including changes in fair value) for
financial instruments classified by the Firm within level 3 of
the fair value hierarchy for the years ended December 31,
2023, 2022 and 2021. When a determination is made to
classify a financial instrument within level 3, the
determination is based on the significance of the
unobservable inputs to the overall fair value measurement.
However, level 3 financial instruments typically include, in
addition to the unobservable or level 3 components,
observable components (that is, components that are actively
quoted and can be validated to external sources);
accordingly, the gains and losses in the table below include
changes in fair value due in part to observable factors that
are part of the valuation methodology. The Firm risk-
manages the observable components of level 3 financial
instruments using securities and derivative positions that are
classified within level 1 or 2 of the fair value hierarchy; as
these level 1 and level 2 risk management instruments are
not included below, the gains or losses in the following tables
do not reflect the effect of the Firm's risk management
activities related to such level 3 instruments.
Equity correlation
15%
100%
57%
Equity-FX correlation
(88)%
65%
5%
(30)%
(19)%
20%
12%
1,239
Discounted cash flows
Credit correlation
35%
Equity-IR correlation
60%
(35)%
IR-FX correlation
8,522
Long-term debt, short-term borrowings, and
(e)
deposits
30,078
Discounted cash flows
Option pricing
Refer to Note 15
Interest rate volatility
25bps
420bps
117bps
Bermudan switch value
0%
54%
19%
Interest rate correlation
(82)%
90%
19%
70%
51%
Yield
5%
-
Yield The yield of an asset is the interest rate used to
discount future cash flows in a discounted cash flow
calculation. An increase in the yield, in isolation, would result
in a decrease in a fair value measurement.
Credit spread - The credit spread is the amount of additional
annualized return over the market interest rate that a market
participant would demand for taking exposure to the credit
risk of an instrument. The credit spread for an instrument
forms part of the discount rate used in a discounted cash flow
calculation. Generally, an increase in the credit spread would
result in a decrease in a fair value measurement.
The yield and the credit spread of a particular mortgage-
backed security primarily reflect the risk inherent in the
instrument. The yield is also impacted by the absolute level of
the coupon paid by the instrument (which may not
correspond directly to the level of inherent risk). Therefore,
the range of yield and credit spreads reflects the range of risk
inherent in various instruments owned by the Firm. The risk
inherent in mortgage-backed securities is driven by the
subordination of the security being valued and the
characteristics of the underlying mortgages within the
collateralized pool, including borrower FICO scores, LTV
ratios for residential mortgages and the nature of the
property and/or any tenants for commercial mortgages. For
corporate debt securities, obligations of U.S. states and
municipalities and other similar instruments, credit spreads
reflect the credit quality of the obligor and the tenor of the
obligation.
Prepayment speed - The prepayment speed is a measure of
the voluntary unscheduled principal repayments of a
prepayable obligation in a collateralized pool. Prepayment
speeds generally decline as borrower delinquencies rise. An
increase in prepayment speeds, in isolation, would result in a
decrease in a fair value measurement of assets valued at a
premium to par and an increase in a fair value measurement
of assets valued at a discount to par.
Prepayment speeds may vary from collateral pool to
collateral pool, and are driven by the type and location of the
underlying borrower, and the remaining tenor of the
obligation as well as the level and type (e.g., fixed or floating)
of interest rate being paid by the borrower. Typically
collateral pools with higher borrower credit quality have a
higher prepayment rate than those with lower borrower
credit quality, all other factors being equal.
Conditional default rate - The conditional default rate is a
measure of the reduction in the outstanding collateral
balance underlying a collateralized obligation as a result of
defaults. While there is typically no direct relationship
between conditional default rates and prepayment speeds,
collateralized obligations for which the underlying collateral
has high prepayment speeds will tend to have lower
conditional default rates. An increase in conditional default
rates would generally be accompanied by an increase in loss
severity and an increase in credit spreads. An increase in the
conditional default rate, in isolation, would result in a
decrease in a fair value measurement. Conditional default
rates reflect the quality of the collateral underlying a
securitization and the structure of the securitization itself.
Based on the types of securities owned in the Firm's market-
making portfolios, conditional default rates are most typically
at the lower end of the range presented.
Loss severity - The loss severity (the inverse concept is the
recovery rate) is the expected amount of future realized
losses resulting from the ultimate liquidation of a particular
loan, expressed as the net amount of loss relative to the
outstanding loan balance. An increase in loss severity is
generally accompanied by an increase in conditional default
rates. An increase in the loss severity, in isolation, would
result in a decrease in a fair value measurement.
The loss severity applied in valuing a mortgage-backed
security depends on factors relating to the underlying
mortgages, including the LTV ratio, the nature of the lender's
lien on the property and other instrument-specific factors.
JPMorgan Chase & Co./2023 Form 10-K
185
Notes to consolidated financial statements
Correlation Correlation is a measure of the relationship
between the movements of two variables. Correlation is a
pricing input for a derivative product where the payoff is
driven by one or more underlying risks. Correlation inputs are
related to the type of derivative (e.g., interest rate, credit,
equity, foreign exchange and commodity) due to the nature
of the underlying risks. When parameters are positively
correlated, an increase in one parameter will result in an
increase in the other parameter. When parameters are
negatively correlated, an increase in one parameter will
result in a decrease in the other parameter. An increase in
correlation can result in an increase or a decrease in a fair
value measurement. Given a short correlation position, an
increase in correlation, in isolation, would generally result in
a decrease in a fair value measurement.
The level of correlation used in the valuation of derivatives
with multiple underlying risks depends on a number of
factors including the nature of those risks. For example, the
correlation between two credit risk exposures would be
different than that between two interest rate risk exposures.
Similarly, the tenor of the transaction may also impact the
correlation input, as the relationship between the underlying
risks may be different over different time periods.
Furthermore, correlation levels are very much dependent on
market conditions and could have a relatively wide range of
levels within or across asset classes over time, particularly in
volatile market conditions.
-
Volatility Volatility is a measure of the variability in possible
returns for an instrument, parameter or market index given
how much the particular instrument, parameter or index
changes in value over time. Volatility is a pricing input for
options, including equity options, commodity options, and
interest rate options. Generally, the higher the volatility of
the underlying, the riskier the instrument. Given a long
position in an option, an increase in volatility, in isolation,
would generally result in an increase in a fair value
measurement.
The level of volatility used in the valuation of a particular
option-based derivative depends on a number of factors,
including the nature of the risk underlying the option (e.g.,
the volatility of a particular equity security may be
significantly different from that of a particular commodity
index), the tenor of the derivative as well as the strike price
of the option.
The following discussion also provides a description of
attributes of the underlying instruments and external market
factors that affect the range of inputs used in the valuation of
the Firm's positions.
186
The following discussion provides a description of the impact
on a fair value measurement of a change in each
unobservable input in isolation, and the interrelationship
between unobservable inputs, where relevant and significant.
The impact of changes in inputs may not be independent, as a
change in one unobservable input may give rise to a change
in another unobservable input. Where relationships do exist
between two unobservable inputs, those relationships are
discussed below. Relationships may also exist between
observable and unobservable inputs (for example, as
observable interest rates rise, unobservable prepayment
rates decline); such relationships have not been included in
the discussion below. In addition, for each of the individual
relationships described below, the inverse relationship would
also generally apply.
JPMorgan Chase & Co./2023 Form 10-K
20%
12%
Loss severity
0%
100%
50%
Other level 3 assets and liabilities, net(f)
920
(a) The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated
balance sheets. Furthermore, the inputs presented for each valuation technique in the table are, in some cases, not applicable to every instrument valued
using the technique as the characteristics of the instruments can differ.
(b) Comprises U.S. GSE and government agency securities of $758 million, nonagency securities of $5 million and non-trading loans of $980 million.
(c) Comprises nonagency securities of $12 million, trading loans of $65 million and non-trading loans of $1.4 billion.
(d) Comprises trading loans of $619 million and non-trading loans of $716 million.
(e) Long-term debt, short-term borrowings and deposits include structured notes issued by the Firm that are financial instruments that typically contain
embedded derivatives. The estimation of the fair value of structured notes includes the derivative features embedded within the instrument. The significant
unobservable inputs are broadly consistent with those presented for derivative receivables.
(f) Includes equity securities of $671 million including $544 million in Other assets, for which quoted prices are not readily available and the fair value is
generally based on internal valuation techniques such as EBITDA multiples and comparable analysis. All other level 3 assets and liabilities are insignificant
both individually and in aggregate.
(g) Price is a significant unobservable input for certain instruments. When quoted market prices are not readily available, reliance is generally placed on price-
based internal valuation techniques. The price input is expressed assuming a par value of $100.
(h) Forward equity price is expressed as a percentage of the current equity price.
(i) Amounts represent weighted averages except for derivative related inputs where arithmetic averages are used.
184
Changes in and ranges of unobservable inputs
(48)
222
708
1, 2021
Fair
value at
January
Total realized/
unrealized
(gains)/losses
Purchases
Sales Issuances
Settlements (h)
Transfers
into
level 3
December 31, 2021
(in millions)
Transfers
(out of)
level 3
Change in
unrealized
(gains)/losses
related to
financial
instruments
held at Dec.
31, 2021
Liabilities: (a)
Deposits
$ 2,913 $
Fair
value at
Dec. 31,
2021
Year ended
Fair value measurements using significant unobservable inputs
11
(e)
3,276
98
3,022
538
(c)
16
9
(114)
(17)
(788)
(e)
5,494
98
(239)
(1)
(c)
306
(80)
(59) (c)
(c)(f)
$
(14)
30
(157) (c)
Accounts payable and other liabilities
68
Long-term debt
23,397
64
8 (c)
369 (c)(f)
(c)
69
8
13,505
103
(809)
(c) (f)
(8)
38
(101)
(c)
$ 431
$
Short-term borrowings
2,420
(1,391) (c)(f)
6,823
(467)
(5,308)
$
2 $
9
(482) $ 2,317
(72) 2,481
233
$ (77)
(c) (f)
(83) (c)(f)
Trading liabilities - debt and equity
instruments
51
(8)
$
1,933
(794)
1,301
(1,214)
1,457
(84)
(77)
378
(168)
164
831
(111)
(335)
Physical commodities
Other
Total trading assets - debt and
equity instruments
49
74
(2,813)
662
(433)
(1,687)
1,892
332
(16)
994
(669)
(287)
648
(873)
708
(20)
76
(99)
(2)
2
(7)
26
(2)
(30)
1,758
315
171
(3,626) (155)
Other assets
(1)
162
161
(1)
(1)
(d)
162
161
(1)
(d)
2,305
(87)
(c)
612
(439)
(965)
Mortgage servicing rights
24,374
Loans
Corporate debt securities
(493)
916
(4)
(12)
(907) (426)
Total net derivative receivables
(c)
(4,993)
502
1,662
(3,620)
1,031
445
79
(4,894)
(145) (c)
Available-for-sale securities:
Total available-for-sale securities
87
-1---
(a) Level 3 assets at fair value as a percentage of total Firm assets at fair value (including assets measured at fair value on a nonrecurring basis) were 2% at
December 31, 2023, 2022 and 2021. Level 3 liabilities at fair value as a percentage of total Firm liabilities at fair value (including liabilities measured at fair
value on a nonrecurring basis) were 8% at both December 31, 2023 and December 31, 2022 and 10% at December 31, 2021.
(b) All level 3 derivatives are presented on a net basis, irrespective of the underlying counterparty.
22 $
42
362
47
Valuation adjustments on fair value option elected
liabilities
The valuation of the Firm's liabilities for which the fair value
option has been elected requires consideration of the Firm's
own credit risk. DVA on fair value option elected liabilities
reflects changes (subsequent to the issuance of the liability)
in the Firm's probability of default and LGD, which are
estimated based on changes in the Firm's credit spread
observed in the bond market. Realized (gains)/losses due to
DVA for fair value option elected liabilities are reported in
principal transactions revenue. Unrealized (gains)/losses
are reported in OCI. Refer to page 190 in this Note and Note
24 for further information.
192
JPMorgan Chase & Co./2023 Form 10-K
$
(731)
(480)
(3,862)
Equity
13
(419)
14
(12)
Commodity
$ 221
114
2021
2022
$4.6 billion of net gains on liabilities, predominantly
driven by a decline in the fair value of long-term debt due
to market movements.
2021
$495 million of net gains on assets, driven by gains in net
interest rate derivative receivables due to market
movements, partially offset by losses in net equity
derivative receivables and net commodity derivative
receivables due to market movements.
$1.1 billion of net gains on liabilities, driven by gains in
short-term borrowings due to market movements.
Refer to Note 15 for information on MSRs.
JPMorgan Chase & Co./2023 Form 10-K
191
Notes to consolidated financial statements
Credit and funding adjustments - derivatives
Derivatives are generally valued using models that use as
their basis observable market parameters. These market
parameters generally do not consider factors such as
counterparty nonperformance risk, the Firm's own credit
quality, and funding costs. Therefore, it is generally
necessary to make adjustments to the base estimate of fair
value to reflect these factors.
CVA represents the adjustment, relative to the relevant
benchmark interest rate, necessary to reflect counterparty
nonperformance risk. The Firm estimates CVA using a
scenario analysis to estimate the expected positive credit
exposure across all of the Firm's existing positions with
each counterparty, and then estimates losses based on the
probability of default and estimated recovery rate as a
result of a counterparty credit event considering
contractual factors designed to mitigate the Firm's credit
exposure, such as collateral and legal rights of offset. The
key inputs to this methodology are (i) the probability of a
default event occurring for each counterparty, as derived
from observed or estimated CDS spreads; and (ii) estimated
recovery rates implied by CDS spreads, adjusted to consider
the differences in recovery rates as a derivative creditor
relative to those reflected in CDS spreads, which generally
reflect senior unsecured creditor risk.
FVA represents the adjustment to reflect the impact of
funding and is recognized where there is evidence that a
market participant in the principal market would
incorporate it in a transfer of the instrument. The Firm's
FVA framework, applied to uncollateralized (including
partially collateralized) over-the-counter (“OTC")
derivatives incorporates key inputs such as: (i) the expected
funding requirements arising from the Firm's positions with
each counterparty and collateral arrangements; and (ii) the
estimated market funding cost in the principal market
which, for derivative liabilities, considers the Firm's credit
risk (DVA). For collateralized derivatives, the fair value is
estimated by discounting expected future cash flows at the
relevant overnight indexed swap rate given the underlying
collateral agreement with the counterparty, and therefore a
separate FVA is not necessary.
The following table provides the impact of credit and
funding adjustments on principal transactions revenue in
the respective periods, excluding the effect of any
associated hedging activities. The FVA presented below
includes the impact of the Firm's own credit quality on the
inception value of liabilities as well as the impact of changes
in the Firm's own credit quality over time.
Year ended December 31,
(in millions)
Credit and funding adjustments:
Derivatives CVA
Derivatives FVA
2023
(110)
110
(209)
(434)
(b)
Net derivative receivables: D
(c)
(388)
(1,428) 2,279
1,000
(531)
(1,855)
2,503
(33) (c)
2,623
31
160
(103)
5
(98)
Loans
Interest rate
prepayment speeds on higher rates.
258
116
Foreign exchange
141
74
(6)
34
146
(12)
6
130
(224)
Credit
282
(16)
(88)
112
(2,011)
(192)
1,789
(225)
$7.7 billion of net gains on assets, predominantly driven
by gains in net equity derivative receivables due to market
movements and gains in MSRS reflecting lower
$3.3 billion of net losses on liabilities, predominantly
driven by losses in long-term debt due to market
movements.
Refer to the sections below for additional information.
Transfers between levels for instruments carried at
fair value on a recurring basis
During the year ended December 31, 2023, significant
transfers from level 2 into level 3 included the following:
•
$951 million of gross interest rate derivative receivables
as a result of a decrease in observability and an increase
in the significance of unobservable inputs and $2.1 billion
of gross interest rate derivative payables as a result of
transition to term SOFR for certain interest rate options.
$1.5 billion of gross equity derivative receivables and
$829 million of gross equity derivative payables as a
result of a decrease in observability and an increase in the
significance of unobservable inputs.
• $1.3 billion of non-trading loans driven by a decrease in
observability.
During the year ended December 31, 2023, significant
Refer to Note 15 for information on MSRs.
transfers from level 3 into level 2 included the following:
$1.1 billion of total debt and equity instruments, partially
due to trading loans, driven by an increase in
observability.
$921 million of gross interest rate derivative receivables
as a result of an increase in observability and a decrease
in the significance of unobservable inputs.
$2.3 billion of gross equity derivative receivables and
$1.7 billion of gross equity derivative payables as a result
of an increase in observability and a decrease in the
significance of unobservable inputs.
$1.1 billion of non-trading loans as a result of an increase
in observability and a decrease in the significance of
unobservable inputs.
During the year ended December 31, 2022, significant
transfers from level 2 into level 3 included the following:
$2.4 billion of total debt and equity instruments,
predominantly due to equity securities of $1.1 billion
driven by a decrease in observability predominantly as a
result of restricted access to certain markets and trading
loans of $925 million driven by a decrease in
observability.
•
•
$1.8 billion decrease in gross derivative receivables due
to settlements and net transfers largely offset by gains
and purchases.
predominantly offset by:
$1.7 billion increase in non-trading loans largely due to
$1.1 billion of loans in CIB associated with First Republic.
$549 million increase in MSRs,
JPMorgan Chase & Co./2023 Form 10-K
189
Notes to consolidated financial statements
(c) Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans and lending-related commitments
originated with the intent to sell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income.
(d) Realized gains/(losses) on AFS securities are reported in investment securities gains/(losses). Unrealized gains/(losses) are reported in OCI. Realized and
unrealized gains/(losses) recorded on level 3 AFS securities were not material for the years ended December 31, 2023, 2022 and 2021.
(e) Changes in fair value for MSRS are reported in mortgage fees and related income.
(f) Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue, and were not material for the years
ended December 31, 2023, 2022 and 2021. Unrealized (gains)/losses are reported in OCI, and were $(158) million, $(529) million and $258 million for the
years ended December 31, 2023, 2022 and 2021, respectively.
(g) Loan originations are included in purchases.
(h) Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, deconsolidations associated with beneficial
interests in VIES and other items.
Level 3 analysis
Consolidated balance sheets changes
The following describes significant changes to level 3 assets
since December 31, 2022, for those items measured at fair
value on a recurring basis. Refer to Assets and liabilities
measured at fair value on a nonrecurring basis on page 193
for further information on changes impacting items measured
at fair value on a nonrecurring basis.
For the year ended December 31, 2023
Level 3 assets were $23.7 billion at December 31, 2023,
reflecting an increase of $30 million from December 31,
2022.
The increase for the year ended December 31, 2023 was
driven by:
•
•
$1.6 billion of gross interest rate derivative receivables
and $878 million of gross interest rate derivative
payables as a result of a decrease in observability and an
increase in the significance of unobservable inputs.
$1.6 billion of gross equity derivative receivables and
$2.3 billion of gross equity derivative payables as a result
of a decrease in observability and an increase in the
significance of unobservable inputs.
$1.1 billion of non-trading loans driven by a decrease in
observability.
• $793 million of long-term debt driven by a decrease in
observability and an increase in the significance of
unobservable inputs for structured notes.
•
•
•
$1.4 billion of total debt and equity instruments, largely
due to trading loans, driven by an increase in
observability.
$1.9 billion of gross equity derivative receivables and
$2.1 billion of gross equity derivative payables as a result
of an increase in observability and a decrease in the
significance of unobservable inputs.
$794 million of non-trading loans driven by an increase in
observability.
$809 million of long-term debt driven by an increase in
observability and a decrease in the significance of
unobservable inputs for structured notes.
All transfers are based on changes in the observability and/or
significance of the valuation inputs and are assumed to occur
at the beginning of the quarterly reporting period in which
they occur.
Gains and losses
The following describes significant components of total
realized/unrealized gains/(losses) for instruments measured
at fair value on a recurring basis for the years ended
December 31, 2023, 2022 and 2021. These amounts
exclude any effects of the Firm's risk management activities
where the financial instruments are classified as level 1 and 2
of the fair value hierarchy. Refer to Changes in level 3
recurring fair value measurements rollforward tables on
pages 186-190 for further information on these instruments.
2023
•
•
•
•
•
$1.8 billion of net gains on assets, largely driven by gains
in net interest rate derivative receivables due to market
movements and gains in MSRS reflecting lower
prepayment speeds on higher rates.
During the year ended December 31, 2021, significant
transfers from level 3 into level 2 included the following:
2022
$1.3 billion of non-trading loans driven by a decrease in
observability.
due to trading loans, driven by a decrease in observability.
190
JPMorgan Chase & Co./2023 Form 10-K
During the year ended December 31, 2022, significant
transfers from level 3 into level 2 included the following:
•
•
•
•
$1.2 billion of total debt and equity instruments, largely
due to trading loans, driven by an increase in
observability.
$1.2 billion of gross interest rate derivative receivables
and $807 million of gross interest rate derivative
payables as a result of an increase in observability and a
decrease in the significance of unobservable inputs.
$2.2 billion of gross equity derivative receivables and
$2.3 billion of gross equity derivative payables as a result
of an increase in observability and a decrease in the
significance of unobservable inputs.
$831 million of non-trading loans driven by an increase in
observability.
$1.0 billion of long-term debt driven by an increase in
observability and a decrease in the significance of
unobservable inputs for structured notes.
During the year ended December 31, 2021, significant
transfers from level 2 into level 3 included the following:
•
• $1.0 billion of total debt and equity instruments, largely
$1.5 billion of gross equity derivative receivables and
$1.2 billion of gross equity derivative payables as a result
of a decrease in observability and an increase in the
significance of unobservable inputs.
162
(12,191)
(489)
(146)
369
Total net derivative receivables
(4,894) 6,726
(c)
1,893
(3,467)
56
587
(261)
673
4,765
(c)
Available-for-sale securities:
Corporate debt securities
161
89
5
350
(331)
170
215
(114)
83
3
(5)
489
459
1,226 (2,530)
96
(656)
90
(384)
3,435
Commodity
(907) 571
110
5
88
(15)
239
(c)
Mortgage servicing rights
(e)
(e)
5,494 2,039
2,198
(822)
(936)
7,973
2,039
(c)
(c)
Other assets
306
194
50
(38)
(76)
13
1,418
1,053
5
(d)
(d)
Total available-for-sale securities
161
5
88
(15)
239
5
(c)
Loans
1,933
(158)
568
(261)
(886)
(831)
(103)
(29)
(271)
2,249
(1,276)
(431)
1,378
(1,061)
2,178
(197)
(138)
Equity securities
473
(377)
(2)
1,066
(121)
665
(840)
662 (1,036)
1,457
Total debt instruments
1
(51)
652
(605)
(4)
925
(640)
759
(26)
Asset-backed securities
26
5
19
(24)
(1)
5
(7)
23
Physical commodities
(1)
3
2
(c)
Net derivative receivables: (b)
Interest rate
Credit
Foreign exchange
Equity
(16) 187
74
(419) 726
(3,626) 5,016
325
(483)
329
732
(373)
701
332
226
17
(9)
(992)
5
2,909
2,445
(1)
Other
160
93
37
(221)
1
(6)
64
46
Total trading assets - debt and
equity instruments
(c)
2,279
(1,082)
2,762
(1,653)
(654)
(1,188)
2
(230)
405
12
Total mortgage-backed
securities
480
(23)
59
59
(24)
Obligations of U.S. states and
municipalities
བྱྱེS® ༔
(110)
1
(1)
(5)
4
(1)
8
26
(67)
21
31, 2021
purchased under resale agreements
$
-$ - $ - $ - $ - $ - $ - $ - $ -
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. GSES and government
agencies
449
(28)
Residential nonagency
28
Commercial nonagency
3
5
222
(7)
(17)
14
ཌུརྱ༔]
893
Asset-backed securities
28
Total debt instruments
2,098
Equity securities
476
དྭེཀྑུསཨྰཿསྐྱཊྛི '
(14)
359
(332)
(7)
(107)
81
(10)
(6)
404
Loans
Change in
unrealized
gains/(losses)
related to
financial
instruments
held at Dec.
507
182
265
(31)
28
(3)
10
(2)
(98)
(132)
19
(2)
303
(36)
།
(1)
7
Non-U.S. government debt
securities
Corporate debt securities
2021
(23)
(out of)
level 3
2,481
(358)
$ 531 $
3,963
(114) $
(4,685)
-
$
(280) $2,162
Dec. 31,
$ (76)
15
(15) 1,401
(c)(f)
90
Trading liabilities - debt and equity
instruments
30
(31) (c)
(c)(f)
Short-term borrowings
$
$
191
Fair value measurements using significant unobservable inputs
Year ended
(in millions)
Fair value
December 31, 2022
at January
Total
realized/
unrealized
1, 2022 (gains)/losses Purchases Sales Issuances Settlements (h)
Transfers
into
level 3
Transfers
(out of)
level 3
Fair
value at
Dec. 31,
2022
Change in
unrealized
(gains)/losses
related to
financial
instruments held
at Dec. 31, 2022
Liabilities:(a
Deposits
$ 2,317 $ (292) (c)(f)
(41)
77 - - 57
(c)(f)
84
December 31, 2021
(in millions)
Assets: (a)
Federal funds sold and securities
Fair value measurements using significant unobservable inputs
Fair
value at
January
Total realized/
Year ended
1, 2021
Purchases
(g)
Sales
Settlements(h)
Transfers
into
level 3
(8)
Fair
value at
unrealized
gains/(losses)
JPMorgan Chase & Co./2023 Form 10-K
Transfers
(c)(f)
188
69
(16) (c)
(37)
42
1
(6)
53
Accounts payable and other liabilities
Long-term debt
(3,869) (c)(f)
(c)
24,374
(16)
(3,447)
101 (c)
793
(8,876)
12,714
(1,044) 24,092
1,047.9
Federal funds purchased and
$ 2,311.5
$
$ 2,311.5
-
$2,311.6 $
$2,322.6 $
-
$2,322.3 $
Financial liabilities
101.3
1.7
99.6
securities loaned or sold under
$ 2,322.6
Deposits
24.7
47.5
8.1
233.3
241.8
liabilities
Accounts payable and other
28.2
28.2
repurchase agreements
28.2
24.7
Short-term borrowings (b)
50.6
50.6
50.6
47.5
47.5
24.7
853.9
Federal funds sold and securities
388.6
losses
(a)
Loans, net of allowance for loan
182.2
160.6
369.8
maturity
1,262.5
Investment securities, held-to-
130.3
Securities borrowed
16.3
16.3
agreements
purchased under resale
124.7
130.3
285.6
964.6
Other
199.5
189.1
425.3
342.8
115.3
115.3
115.3
130.3
3.7
3.7
3.7
16.3
1,073.9
101.2
1,250.2
76.3
1.4
74.9
76.1
194.0
241.4
Total
estimated
fair value
251.2
The Firm's election of fair value includes the following
instruments:
The Firm has elected to measure certain instruments at fair
value for several reasons including to mitigate income
statement volatility caused by the differences between the
measurement basis of elected instruments (e.g., certain
instruments that otherwise would be accounted for on an
accrual basis) and the associated risk management
arrangements that are accounted for on a fair value basis,
as well as to better reflect those instruments that are
managed on a fair value basis.
The fair value option provides an option to elect fair value
for selected financial assets, financial liabilities,
unrecognized firm commitments, and written loan
commitments.
Note 3 - Fair value option
JPMorgan Chase & Co./2023 Form 10-K
196
(c) As of December 31, 2023, includes fair value adjustments associated with First Republic for other unfunded commitments to extend credit totaling
$1.1 billion recorded in accounts payable and other liabilities on the Consolidated balance sheets. Refer to Notes 28 and 34 for additional information.
The Firm does not estimate the fair value of consumer off-balance sheet lending-related commitments. In many cases, the Firm can
reduce or cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without notice. Refer to
page 177 of this Note for a further discussion of the valuation of lending-related commitments.
•
(b) Includes the wholesale allowance for lending-related commitments.
3.2
3.2 $
$
$
2.3 $
4.8 $
4.8 $
(a) Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which is recognized at fair value at the inception of the
guarantees.
•
•
•
All other
income
0.1
Principal
transactions
December 31, (in millions)
2021
2022
2023
The following table presents the changes in fair value included in the Consolidated statements of income for the years ended
December 31, 2023, 2022 and 2021, for items for which the fair value option was elected. The profit and loss information
presented below only includes the financial instruments that were elected to be measured at fair value; related risk
management instruments, which are required to be measured at fair value, are not included in the table.
Changes in fair value under the fair value option election
Notes to consolidated financial statements
197
JPMorgan Chase & Co./2023 Form 10-K
Certain long-term beneficial interests issued by CIB's
consolidated securitization trusts where the underlying
assets are carried at fair value
Structured notes and other hybrid instruments, which
are predominantly financial instruments that contain
embedded derivatives, that are issued or transacted as
part of client-driven activities
Owned beneficial interests in securitized financial assets
that contain embedded credit derivatives, which would
otherwise be required to be separately accounted for as
a derivative instrument
Certain securities financing agreements
Loans purchased or originated as part of securitization
warehousing activity, subject to bifurcation accounting,
or managed on a fair value basis, including lending-
related commitments
$
257.5
$
related commitments $
216.5
223.6
303.5
51.3
12.6
12.6
12.6
2.8
23.0
303.9
Long-term debt (b)
23.0
consolidated VIES
Beneficial interests issued by
256.8
5.6
23.0
252.2
219.3
(a) Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal,
contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and
primary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. Carrying
value of the loan takes into account the loan's allowance for loan losses, which represents the loan's expected credit losses over its remaining expected
life. The difference between the estimated fair value and carrying value of a loan is generally attributable to changes in market interest rates, including
credit spreads, market liquidity premiums and other factors that affect the fair value of a loan but do not affect its carrying value.
(b) Includes FHLB advances in level 2 of Long-term debt and Short-term borrowings and the Purchase Money Note in level 3 of Long-term debt associated
with First Republic. Refer to Notes 20 and 34 for additional information.
Wholesale lending-
Level 3
Level 2
Level 1
Carrying
value(a)(B)
Total
estimated
fair value
Level 3
Level 2
Level 1
Carrying
value (a)(b)(c)
(in billions)
December 31, 2022
Estimated fair value hierarchy
December 31, 2023
Estimated fair value hierarchy
The majority of the Firm's lending-related commitments are not carried at fair value on a recurring basis on the Consolidated
balance sheets. The carrying value and the estimated fair value of these wholesale lending-related commitments were as
follows for the periods indicated.
Notes to consolidated financial statements
195
JPMorgan Chase & Co./2023 Form 10-K
3.0 $
124.6
(55) $
(409)
(83)
107.1
$
$
Total assets measured at fair value on a nonrecurring basis
1,388
1,352
36
Other assets
679
1,270
627
$
643
$
$
Loans
Total fair value
$
Level 3
$
$
Other assets (a)
Loans
December 31, (in millions)
The following table presents the total change in value of
assets and liabilities for which fair value adjustments have
been recognized for the years ended December 31, 2023,
2022 and 2021, related to assets and liabilities held at
those dates.
Nonrecurring fair value changes
Total liabilities measured at fair value on a nonrecurring basis
(a) Included impairments on certain equity method investments, as well as equity securities without readily determinable fair values that were adjusted based
on observable price changes in orderly transactions from an identical or similar investment of the same issuer (measurement alternative). Of the $1.3
billion in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2023, $412 million related to equity securities adjusted based
on the measurement alternative. These equity securities are classified as level 3 due to the infrequency of the observable prices and/or the restrictions on
the shares.
84
1,979
$
$
$
$
84
84
Accounts payable and other liabilities
2,658
84
Level 2
Level 1
(in millions)
1,755
$
1,156
$
599
Loans
Total fair value
Other assets
Level 3
Level 1
(in millions)
December 31, 2023
Fair value hierarchy
The following tables present the assets and liabilities held as of December 31, 2023 and 2022, for which nonrecurring fair
value adjustments were recorded during the years ended December 31, 2023 and 2022, by major product category and fair
value hierarchy.
Assets and liabilities measured at fair value on a nonrecurring basis
Total
changes in
fair value
recorded(e)
Level 2
(a)
52
1,334
December 31, 2022
Fair value hierarchy
$
$
$
$
Total liabilities measured at fair value on a nonrecurring basis
3,141
$
2,490
$
651
$
-
$
Total assets measured at fair value on a nonrecurring basis
Accounts payable and other liabilities
1,386
2023
124.7
2022
$ (276) $
(789)
$
-
$ 29.1 $ 29.1 $
Cash and due from banks
Deposits with banks
estimated
fair value
Level 3
Level 2
$
Level 1
Total
Total
estimated
fair value
Level 3
Level 2
Level 1
Carrying
value
December 31, 2022
Estimated fair value hierarchy
Carrying
value
December 31, 2023
Estimated fair value hierarchy
29.1
595.1
0.1
107.0
107.1
Accrued interest and accounts
receivable
539.5
0.2
27.7
$
$
-
$
27.7
539.3
27.7 $
539.5
595.1
0.5
594.6
$
Financial assets
(in billions)
The following table presents, by fair value hierarchy classification, the carrying values and estimated fair values at
December 31, 2023 and 2022, of financial assets and liabilities, excluding financial instruments that are carried at fair value
on a recurring basis, and their classification within the fair value hierarchy.
As of or for the year ended December 31,
The following table presents the carrying value of equity securities without readily determinable fair values held as of
December 31, 2023 and 2022, that are measured under the measurement alternative and the related adjustments recorded
during the periods presented for those securities with observable price changes. These securities are included in the
nonrecurring fair value tables when applicable price changes are observable.
In its determination of the new carrying values upon observable price changes, the Firm may adjust the prices if deemed
necessary to arrive at the Firm's estimated fair values. Such adjustments may include adjustments to reflect the different
rights and obligations of similar securities, and other adjustments that are consistent with the Firm's valuation techniques for
private equity direct investments.
The Firm measures certain equity securities without readily determinable fair values at cost less impairment (if any), plus or
minus observable price changes from an identical or similar investment of the same issuer (i.e., measurement alternative),
with such changes recognized in other income.
Equity securities without readily determinable fair values
Notes to consolidated financial statements
193
(in millions)
JPMorgan Chase & Co./2023 Form 10-K
(a) Included $(232) million, $(338) million and $379 million for the years
ended December 31, 2023, 2022 and 2021, respectively, of net
gains/(losses) as a result of the measurement alternative. The current
period also included impairments on certain equity method
investments.
$ (1,065) $ (547) $ 277
Total nonrecurring fair value gains/
(losses)
Accounts payable and other liabilities
5
344
(72)
Refer to Note 12 for further information about the
measurement of collateral-dependent loans.
Other assets
Carrying value (a)
Upward carrying value changes (b)
amounts that approximate fair value, due to their short-
term nature and generally negligible credit risk. These
instruments include cash and due from banks, deposits with
banks, federal funds sold, securities purchased under resale
agreements and securities borrowed, short-term
receivables and accrued interest receivable, short-term
borrowings, federal funds purchased, securities loaned and
sold under repurchase agreements, accounts payable, and
accrued liabilities. In addition, U.S. GAAP requires that the
fair value of deposit liabilities with no stated maturity (i.e.,
demand, savings and certain money market deposits) be
equal to their carrying value; recognition of the inherent
funding value of these instruments is not permitted.
Certain financial instruments that are not carried at fair
value on the Consolidated balance sheets are carried at
Financial instruments for which carrying value approximates
fair value
U.S. GAAP requires disclosure of the estimated fair value of
certain financial instruments, which are included in the
following table. However, this table does not include other
items, such as nonfinancial assets, intangible assets, certain
financial instruments, and customer relationships. In the
opinion of management, these items, in the aggregate, add
significant value to JPMorgan Chase.
Additional disclosures about the fair value of financial
instruments that are not carried on the Consolidated
balance sheets at fair value
JPMorgan Chase & Co./2023 Form 10-K
194
On January 24, 2024, Visa filed a Current Report on Form 8-K with the SEC announcing that Visa's stockholders approved
amendments to its Certificate of Incorporation that redenominate the Visa B shares to Visa Class B-1 common shares ("Visa
B-1 shares") and authorize Visa to conduct one or more exchange offers ("the Program") which, if conducted, would have the
effect of releasing transfer restrictions on a portion of Visa's B-1 shares through an exchange for Visa Class C common shares
("Visa C shares"). The Program would entitle the Firm to exchange its Visa B-1 shares, for Visa Class B-2 common shares ("Visa
B-2 shares") and Visa C shares, through an initial exchange offer if and when conducted by Visa. The Visa B-2 shares would
continue to be subject to the transfer restrictions associated with the Visa B shares. The Firm is then entitled to sell the Visa C
shares received after a brief lock-up period expires, and Visa is also authorized to extend offers for potential future exchanges,
each enabling the release of additional Visa B shares if certain conditions are met. The timing and likelihood of any initial or
future exchange offer is dependent upon actions taken by Visa and other factors that may be outside of the Firm's control.
In connection with prior sales of Visa B shares, the Firm has entered into derivative instruments with the purchasers of the
shares under which the Firm retains the risk associated with changes in the conversion rate. Under the terms of the derivative
instruments, the Firm will (a) make or receive payments based on subsequent changes in the conversion rate and (b) make
periodic interest payments to the purchasers of the Visa B shares. The payments under the derivative instruments will continue
as long as the Visa B shares remain subject to transfer restrictions. The derivative instruments are accounted for at fair value
using a discounted cash flow methodology based upon the Firm's estimate of the timing and magnitude of final resolution of
the litigation matters. The derivative instruments are recorded in trading liabilities, and changes in fair value are recognized in
other income. As of December 31, 2023, the Firm held derivative instruments associated with 23 million Visa B shares that
the Firm had previously sold, which are all subject to similar terms and conditions.
(a) The period-end carrying values reflect cumulative purchases and sales in addition to upward and downward carrying value changes.
(b) The cumulative upward carrying value changes between January 1, 2018 and December 31, 2023 were $1.2 billion.
(c) The cumulative downward carrying value changes/impairment between January 1, 2018 and December 31, 2023 were $(1.2) billion.
Included in other assets above is the Firm's interest in approximately 37 million Visa Class B common shares (“Visa B shares”).
These shares are subject to certain transfer restrictions and are convertible into Visa Class A common shares ("Visa A shares")
at a specified conversion rate upon final resolution of certain litigation matters involving Visa. The conversion rate of Visa B
shares to Visa A shares was 1.5875 at December 31, 2023 and may be adjusted by Visa depending on developments related
to the litigation matters. The outcome of those litigation matters, and the effect that the resolution of those matters may have
on the conversion rate, is unknown. Accordingly, as of December 31, 2023, there is significant uncertainty regarding when the
transfer restrictions on Visa B shares may be terminated and what the final conversion rate for the Visa B shares will be. As a
result of these considerations, as well as differences in voting rights, Visa B shares are not considered to be similar to Visa A
shares, and they continue to be held at their nominal carrying value.
(826)
(325)
4,096
488
4,457
93
2022
2023
Downward carrying value changes/impairment (c)
2021
Principal
transactions
588 $
732
Total
changes in
fair value
recorded(e)
41,469
170,857
131,681
249
38,927
Individuals and Individual Entities (c)
145,849
126,339
725
18,785
130,815
120,424
434
9,957
Asset Managers
420
129,574
166,372
Real Estate
Derivatives
Off-balance
sheet
1,126,781
211,123
915,658
1,006,459
(j)
$ 344,893 $ 311,375 $
185,175
$ 33,518
Total consumer (a)
1,582,277
621,216
961,061 1,351,352
496,550
821,284
854,802
Wholesale (b)
208,261
Loans
52,178
67,471
72,286
21,622
2,950
47,714
Industrials
75,092
26,548
1,335
47,209
72,483
26,960
1,770
43,753
Healthcare
65,025
52,395
9,925
2,451
77,296
95,656
40,511
16,397
38,748
Consumer & Retail
127,086
46,274
2,013
78,799
120,555
45,867
1,650
73,038
Technology, Media &
Telecommunications
22,450
(h)
Credit
exposure
Off-balance
(k)
Derivatives sheet
$ 45,403
941
187
3,733
2,674
788
50
3,512
38,685
1,862
5,483
2,905
47,073
30,864
4,272
3,545
38,681
2,605
(a)
4,275
4,105
Long-term
debt
Short-term
borrowings
Deposits
Total
$ 38,604
$
5,444
654 $ 74,526
350
$ 113,784
$ 31,973
$
260
$ 24,655
$ 56,888
5,794
170
(a)
11
1
JPMorgan Chase & Co./2023 Form 10-K
201
Notes to consolidated financial statements
The table below presents both on-balance sheet and off-balance sheet consumer and wholesale credit exposure by the Firm's
three credit portfolio segments as of December 31, 2023 and 2022. The wholesale industry of risk category is generally based
on the client or counterparty's primary business activity.
2023
2022
On-balance sheet
On-balance sheet
December 31, (in millions)
Credit
exposure
(h)(i)
Loans
Consumer, excluding credit card
Credit card(a)
$ 455,496 $ 410,093
$
Terms of loan products and collateral coverage are included
in the Firm's assessment when extending credit and
establishing its allowance for credit losses. Refer to Note 13
for additional information on the allowance for credit
losses.
The Firm does not believe that its exposure to any
particular loan product or industry segment results in a
significant concentration of credit risk.
The Firm's wholesale exposure is managed through loan
syndications and participations, loan sales, securitizations,
credit derivatives, master netting agreements, collateral
and other risk-reduction techniques. Refer to Note 12 for
additional information on loans.
In the Firm's consumer portfolio, concentrations are
managed primarily by product and by U.S. geographic
region, with a key focus on trends and concentrations at the
portfolio level, where potential credit risk concentrations
can be remedied through changes in underwriting policies
and portfolio guidelines. Refer to Note 12 for additional
information on the geographic composition of the Firm's
consumer loan portfolios. In the wholesale portfolio, credit
risk concentrations are evaluated primarily by industry and
monitored regularly on both an aggregate portfolio level
and on an individual client or counterparty basis.
$ 87,200 $ 7,439
$ 77,619
1,874
$172,258
1,655
16
2
1,673
23,169
$ 71,271 $
$ 105,029
(a) Excludes deposits linked to precious metals for which the fair value option has not been elected of $627 million and $602 million for the years ended
December 31, 2023 and 2022, respectively.
200
JPMorgan Chase & Co./2023 Form 10-K
Note 4 - Credit risk concentrations
Concentrations of credit risk arise when a number of clients,
counterparties or customers are engaged in similar
business activities or activities in the same geographic
region, or when they have similar economic features that
would cause their ability to meet contractual obligations to
be similarly affected by changes in economic conditions.
JPMorgan Chase regularly monitors various segments of its
credit portfolios to assess potential credit risk
concentrations and to obtain additional collateral when
deemed necessary and permitted under the Firm's
agreements. Senior management is significantly involved in
the credit approval and review process, and risk levels are
adjusted as needed to reflect the Firm's risk appetite.
5,506 $ 28,252
1,577
40,279
62,613
3,285
4,539
8,066
556
3,387
4,123
Financial Markets Infrastructure
4,251
86
2,155
2,010
4,962
13
3,050
1,899
865
All other(e)
8,689
10,042
5,080
555
10,425
15,009
5,005
567
9,437
Metals & Mining
15,508
4,655
274
10,579
15,915
5,398
475
Securities Firms
134,777
Subtotal
1,264,122
471,980
$ 70,880
$1,326,782
$ 54,864 $1,497,847
(a) Also includes commercial card lending-related commitments primarily in CB and CIB.
(b) The industry rankings presented in the table as of December 31, 2022, are based on the industry rankings of the corresponding exposures at
December 31, 2023, not actual rankings of such exposures at December 31, 2022.
(c) Individuals and Individual Entities predominantly consists of Global Private Bank clients within AWM and J.P. Morgan Wealth Management within CCB, and
includes exposure to personal investment companies and personal and testamentary trusts.
(d) In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2023 and 2022, noted above, the
Firm held: $5.9 billion and $6.6 billion, respectively, of trading assets; $21.4 billion and $6.8 billion, respectively, of AFS securities; and $9.9 billion and
$19.7 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. Refer to Note 2 and Note 10 for further information.
(e) All other includes: SPES and Private education and civic organizations, representing approximately 94% and 6%, respectively, at December 31, 2023 and
95% and 5%, respectively, at December 31, 2022. Refer to Note 14 for more information on exposures to SPES.
(f) Receivables from customers reflect held-for-investment margin loans to brokerage clients in CIB, CCB and AWM that are collateralized by assets
maintained in the clients' brokerage accounts (including cash on deposit, and primarily liquid and readily marketable debt or equity securities).
(g) Excludes cash placed with banks of $614.1 billion and $556.6 billion, at December 31, 2023 and 2022, respectively, which is predominantly placed with
various central banks, primarily Federal Reserve Banks.
(h) Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against
derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(i) Included credit exposure associated with First Republic consisting of $102.2 billion in the Consumer, excluding credit card portfolio, and $90.6 billion in
the Wholesale portfolio predominantly in Real Estate, Asset Managers, and Individuals and Individual Entities.
(j) At December 31, 2023 and 2022, included $94 million and $350 million of loans in Business Banking under the PPP, respectively. PPP loans are
guaranteed by the SBA. Other than in certain limited circumstances, the Firm typically does not recognize charge-offs, classify as nonaccrual nor record an
allowance for loan losses on these loans.
(k) Represents lending-related financial instruments.
202
JPMorgan Chase & Co./2023 Form 10-K
70,880
471,980
70,880
31,687
Loans held-for-sale and loans at fair value
Receivables from customers (f)
30,018
47,625
97,034
672,472
30,018
4,032 33,711
54,864 536,786
-
Total wholesale
16,060
1,341,765
54,864
536,786
Total exposure"
(g)(h)
$2,924,042 $1,323,706
123,307
87,545
1,146,530 603,670
35,427
35,427
49,257
1,231,214 639,097
$2,582,566 $1,135,647
4,075
702,490
Total
2,973
3,167
3,269
23,842
State & Municipal Govtd
(d)
35,986
20,019
442
15,525
33,847
18,147
585
15,115
Oil & Gas
34,475
8,480
9,107
705
36,218
3,396
22,970
1,683
37,960
Banks & Finance Companies
57,177
33,941
2,898
20,338
51,816
32,172
3,246
16,398
Utilities
36,061
7,067
25,598
25,290
38,668
9,632
20,501
2,535
7,138
10,828
21,045
2,387
8,081
10,577
Central Govt
Transportation
17,704
5,463
10,669
1,572
19,095
Insurance
13,852
407
5,771
5,121
23,915
Automotive
33,977
17,459
428
16,090
12,955
33,287
529
18,023
Chemicals & Plastics
20,773
6,458
13,874
20,030
14,735
All other
income
Deposits
Short-term
901
901
(183)
(183)
Federal funds purchased and
securities loaned or sold
under repurchase
agreements
(121)
(121)
181
Short-term borrowings (a)
(567)
(567)
473
(2,582)
Trading liabilities
(2,582)
(14)
(c)
2,056
1,917
Other assets
282
(4)
(d)
278
39
(6)
(d)
33
12
(26)
(d)
Deposits (a)
(139)
(24)
43
98
(1)
(11)
(17)
9,088
(980)
(c)(d)
4
(17)
(976)
(a) Unrealized gains/(losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected are recorded in OCI,
while realized gains/(losses) are recorded in principal transactions revenue. Realized gains/(losses) due to instrument-specific credit risk recorded in
principal transactions revenue were not material for the years ended December 31, 2023, 2022 and 2021.
(b) Long-term debt measured at fair value predominantly relates to structured notes. Although the risk associated with the structured notes is actively
managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such
risk.
(c) Reported in mortgage fees and related income.
(d) Reported in other income.
(e) Changes in fair value exclude contractual interest, which is included in interest income and interest expense for all instruments other than certain hybrid
financial instruments in CIB. Refer to Note 7 for further information regarding interest income and interest expense.
8,990
(24)
(c)(d)
(1)
| | │
181
473
69
(366)
69
(366)
43
7
7
Beneficial interests issued by
consolidated VIES
Other liabilities
Long-term debt(a)(b)
(16)
(5,875)
(c)(d)
(78)
(16)
(5,953)
(11)
(2,215)
(794)
(1,421)
(200)
(200)
Trading assets:
Debt and equity
instruments, excluding
loans
3,656
3,656
(1,703)
(1,703)
(2,171)
(1) (c)
(2,172)
Loans reported as trading
assets:
(112)
Changes in instrument-
$
(384) $ (112)
(499)
Principal
transactions
All other
income
Total
changes in
fair value
recorded(e)
Federal funds sold and
securities purchased under
resale agreements
$
Securities borrowed
300 $
164
$
300 $
164
(384) $
(499)
$
$
specific credit risk
248
I
318
(c)
(242)
21
(221)
(c)
589
(7)
582
Other changes in fair value
(c)
(c)
427
216
643
(c)
(4)
322
specific credit risk
248
(136)
(136)
353
Other changes in fair
value
(c)
3
Determination of instrument-specific credit risk for items
for which the fair value option was elected
5
(59)
(59)
(8)
353
(8)
Loans:
Changes in instrument-
8
The following describes how the gains and losses that are
attributable to changes in instrument-specific credit risk,
were determined.
•
Loans and lending-related commitments: For floating-
rate instruments, all changes in value are attributed to
instrument-specific credit risk. For fixed-rate
instruments, an allocation of the changes in value for
the period is made between those changes in value that
are interest rate-related and changes in value that are
credit-related. Allocations are generally based on an
analysis of borrower-specific credit spread and recovery
Nonprincipal-protected debt (c)
ΝΑ
49,042
ΝΑ
ΝΑ
41,176
NA
Total long-term debt
NA
$
87,924
ΝΑ
NA
$
72,281
(10,236)
NA
31,105 $
41,341
52,385
$
47,407 $
(4,978) $
54,019
$ 48,582 $
(5,437)
Principal-protected debt
(d)
$
47,768
$
38,882 $
(8,886) $
(d)
$
Long-term beneficial interests
Nonprincipal-protected debt (c)
Total long-term beneficial interests
199
Notes to consolidated financial statements
Structured note products by balance sheet classification and risk component
The following table presents the fair value of structured notes, by balance sheet classification and the primary risk type.
December 31, 2023
December 31, 2022
(in millions)
Risk exposure
Interest rate
Credit
Foreign exchange
Equity
Commodity
Total structured notes
Long-term
debt
JPMorgan Chase & Co./2023 Form 10-K
At December 31, 2023 and 2022, the contractual amount of lending-related commitments for which the fair value option was
elected was $9.7 billion and $7.6 billion, respectively, with a corresponding fair value of $97 million and $24 million,
respectively. Refer to Note 28 for further information regarding off-balance sheet lending-related financial instruments.
(d) Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if
applicable, the contractual principal payment at the Firm's next call date.
(a) These balances are excluded from nonaccrual loans as the loans are insured and/or guaranteed by U.S. government agencies.
(b) There were no performing loans that were ninety days or more past due as of December 31, 2023 and 2022.
(c) Remaining contractual principal is not applicable to nonprincipal-protected structured notes and long-term beneficial interests. Unlike principal-protected
structured notes and long-term beneficial interests, for which the Firm is obligated to return a stated amount of principal at maturity, nonprincipal-
protected structured notes and long-term beneficial interests do not obligate the Firm to return a stated amount of principal at maturity, but for
structured notes to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. However, investors
are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal-protected notes.
ΝΑ
$
1
ΝΑ
NA
$
5
$
ΝΑ
$
1
ΝΑ
ΝΑ
$
5
ΝΑ
ΝΑ
borrowings
(3,141)
50,411
principal
outstanding
principal
outstanding
Fair value
(under)
contractual
principal
outstanding
Loans reported as trading assets
$
2,987
$
Loans
838
(2,399) $ 2,517
$
368 $
(2,149)
(106)
Fair value
967
principal
outstanding
Contractual
•
information, where available, or benchmarking to
similar entities or industries.
Long-term debt: Changes in value attributable to
instrument-specific credit risk were derived principally
from observable changes in the Firm's credit spread as
observed in the bond market.
Securities financing agreements: Generally, for these
types of agreements, there is a requirement that
collateral be maintained with a market value equal to or
in excess of the principal amount loaned; as a result,
there would be no adjustment or an immaterial
adjustment for instrument-specific credit risk related to
these agreements.
198
JPMorgan Chase & Co./2023 Form 10-K
Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal
balance outstanding as of December 31, 2023 and 2022, for loans, long-term debt and long-term beneficial interests for
which the fair value option has been elected.
December 31, (in millions)
Loans
Nonaccrual loans
2023
2022
Fair value
over/
Fair value
over/
(under)
contractual Contractual
829
Subtotal
3,825
6,135
(1,688)
Loans
38,948
38,060
(888)
42,588
41,135
(1,453)
Subtotal
Total loans
Long-term debt
48,495
46,028
(2,467)
7,823
(1,579)
7,968
9,547
1,320
(2,505)
3,484
1,197
(138)
(2,287)
90 or more days past due and government guaranteed
(a)
47,270
Loans
59
(6)
124
115
(9)
All other performing loans (b)
Loans reported as trading assets
65
441
4,196
$
(4,547)
36,300
(3,318)
$
47,823
(a) Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b) Includes liquid securities and other cash collateral held at third-party custodians related to derivative instruments where an appropriate legal opinion has
been obtained. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative payables
balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with that
counterparty.
(c) Derivative collateral relates only to OTC and OTC-cleared derivative instruments.
(d) Net derivatives receivable included cash collateral netted of $48.3 billion and $51.5 billion at December 31, 2023 and 2022, respectively. Net derivatives
payable included cash collateral netted of $70.0 billion and $69.2 billion at December 31, 2023 and 2022, respectively. Derivative cash collateral relates
to OTC and OTC-cleared derivative instruments.
JPMorgan Chase & Co./2023 Form 10-K
209
Notes to consolidated financial statements
Liquidity risk and credit-related contingent features
In addition to the specific market risks introduced by each derivative contract type, derivatives expose JPMorgan Chase to
credit risk - the risk that derivative counterparties may fail to meet their payment obligations under the derivative contracts
and the collateral, if any, held by the Firm proves to be of insufficient value to cover the payment obligation. It is the policy of
JPMorgan Chase to actively pursue, where possible, the use of legally enforceable master netting arrangements and collateral
agreements to mitigate derivative counterparty credit risk inherent in derivative receivables.
While derivative receivables expose the Firm to credit risk, derivative payables expose the Firm to liquidity risk, as the
derivative contracts typically require the Firm to post cash or securities collateral with counterparties as the fair value of the
contracts moves in the counterparties' favor or upon specified downgrades in the Firm's and its subsidiaries' respective credit
ratings. Certain derivative contracts also provide for termination of the contract, generally upon a downgrade of either the
Firm or the counterparty, at the fair value of the derivative contracts. The following table shows the aggregate fair value of net
derivative payables related to OTC and OTC-cleared derivatives that contain contingent collateral or termination features that
may be triggered upon a ratings downgrade, and the associated collateral the Firm has posted in the normal course of
business, at December 31, 2023 and 2022.
OTC and OTC-cleared derivative payables containing downgrade triggers
(in millions)
December 31, 2023
Aggregate fair value of net derivative payables
Collateral posted
$
14,655
14,673
$
December 31, 2022
16,023
$
15,505
Net amounts
sheets
(7,642)
4,312
184
3,780
31,554
(d)
112
9,021
(8,758)
21,087 (16,512)
624,756 (586,372)
(112)
263
4,575
(d)
38,384
9,293
9,293
12,757
12,757
$ 546,972
$ 40,847
$ 637,513
$
51,141
Collateral not nettable on the Consolidated balance
(b)(c)
The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan
and OTC-cleared derivative contracts with contingent collateral or termination features that may be triggered upon a ratings
downgrade. Derivatives contracts generally require additional collateral to be posted or terminations to be triggered when the
predefined rating threshold is breached. A downgrade by a single rating agency that does not result in a rating lower than a
preexisting corresponding rating provided by another major rating agency will generally not result in additional collateral
(except in certain instances in which additional initial margin may be required upon a ratings downgrade), nor in termination
payment requirements. The liquidity impact in the table is calculated based upon a downgrade below the lowest current rating
of the rating agencies referred to in the derivative contract.
Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives
(in millions)
Contract type
Interest rate (a) (b)
Foreign exchange (c)
Commodity (d)
Total
Year ended December 31, 2022
(in millions)
Contract type
(a)(b)
Interest rate
Foreign exchange (c)
Commodity (d)
Total
Year ended December 31, 2021
(in millions)
Contract type
Interest rate (a) (b)
Foreign exchange (c)
Commodity (d)
Total
Year ended December 31, 2023
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well
as pre-tax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 2023,
2022 and 2021, respectively. The Firm includes gains/(losses) on the hedging derivative in the same line item in the
Consolidated statements of income as the related hedged item.
Fair value hedge gains and losses
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting
designation or purpose.
December 31, 2023
(in millions)
Single-notch
downgrade
Two-notch
downgrade
$
Amount required to settle contracts with termination triggers upon downgrade (b)
75 $
93
1,153
592
(a) Includes the additional collateral to be posted for initial margin.
11,954
(b) Amounts represent fair values of derivative payables, and do not reflect collateral posted.
Single-notch
downgrade
Two-notch
downgrade
128 $
88
1,293
925
Derivatives executed in contemplation of a sale of the underlying financial asset
In certain instances the Firm enters into transactions in which it transfers financial assets but maintains the economic exposure
to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The
Firm generally accounts for such transfers as collateralized financing transactions as described in Note 11, but in limited
circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. The amount of such transfers
accounted for as a sale where the associated derivative was outstanding was not material at both December 31, 2023 and
2022.
210
JPMorgan Chase & Co./2023 Form 10-K
Impact of derivatives on the Consolidated statements of income
December 31, 2022
Gains/(losses) recorded in income
3,596
8,788
120
(120)
5,376
(5,192)
14,284 (10,504)
537,679 (506,125)
1,019
8,054
(7,572)
482
(1,636)
3
1,674
(1,645)
29
Total credit contracts
11,971
(10,949)
1,022
9,728
(9,217)
511
Foreign exchange contracts:
OTC
209,386
(199,173)
10,213
(9,313)
246,457
10,332
1,639
22
Amounts netted
Gross
derivative
on the
Consolidated
payables
balance sheets
Net
derivative
payables
Gross
derivative
payables
on the
Consolidated
balance sheets
Net
derivative
payables
$ 161,901 $ (152,467)
76,007
436
(75,729)
$ 9,434
278
238,344
(390)
(228,586)
46
9,758
$ 190,108 $ (176,890)
97,417 (97,126)
327
(305)
287,852 (274,321)
$
13,218
291
13,531
(231,248)
OTC-cleared
552
(26,554)
3,279
33,137
(29,083)
4,054
28,291
(27,103)
1,188
63,136
(56,443)
6,693
58,124
(53,657)
4,467
Total equity contracts
Commodity contracts:
OTC
OTC-cleared
Exchange-traded (a)
Total commodity contracts
Derivative payables with appropriate legal opinion
Derivative payables where an appropriate legal
opinion has not been either sought or obtained
Total derivative payables recognized on the
Consolidated balance sheets
29,833
2,639
(27,360)
29,999
(470)
82
Exchange-traded (a)
6
-
6
1,488
20
(1,417)
-
Total foreign exchange contracts
(5,192)
209,944
10,301
247,965
(232,665)
15,209
71
20
15,300
Equity contracts:
OTC
Exchange-traded (a)
(199,643)
Income statement impact of
excluded components (e)
OCI impact
Derivatives
(c) Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses
related to the derivatives and the hedged items due to changes in foreign currency rates and the income statement impact of excluded components were
recorded primarily in principal transactions revenue and net interest income.
(d) Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or net realizable value (net
realizable value approximates fair value). Gains and losses were recorded in principal transactions revenue.
(e) The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward
points on foreign exchange forward contracts, time values and cross-currency basis spreads. Excluded components may impact earnings either through
amortization of the initial amount over the life of the derivative or through fair value changes recognized in the current period.
(f) Represents the change in value of amounts excluded from the assessment of effectiveness under the amortization approach, predominantly cross-
currency basis spreads. The amount excluded at inception of the hedge is recognized in earnings over the life of the derivative.
JPMorgan Chase & Co./2023 Form 10-K
211
Notes to consolidated financial statements
As of December 31, 2023 and 2022, the following amounts were recorded on the Consolidated balance sheets related to
certain cumulative fair value hedge basis adjustments that are expected to reverse through the income statement in future
periods as an adjustment to yield.
Carrying amount
of the hedged
items a
Cumulative amount of fair value hedging adjustments
included in the carrying amount of hedged items:
Active hedging Discontinued hedging
relationships
December 31, 2023
(in millions)
Assets
Investment securities - AFS
(c)
$
151,752
(b) Includes the amortization of income/expense associated with the inception hedge accounting adjustment applied to the hedged item. Excludes the accrual
of interest on interest rate swaps and the related hedged items.
$
(a) Primarily consists of hedges of the benchmark (e.g., Secured Overnight Financing Rate ("SOFR")) interest rate risk of fixed-rate long-term debt and AFS
securities. Gains and losses were recorded in net interest income.
(26)
OCI impact
Derivatives
Hedged items
Income
statement
impact
Amortization
approach
Changes in fair
value
Derivatives -
Gains/(losses)
recorded in OCI (f)
(4,323) $
$
(1,317)
(9,609)
(15,249) $
3,765 $
1,349
9,710
14,824 $
(558) $
$
(439) $
32
(286)
101
(425) $
(286) $
32
72
(335) $
(26)
549 $
Liabilities
Long-term debt
$
84,073
$
(4,149) $
$
175,257
$
(11,879) $
Total
(1,542) $
(5,691)
(3,313) $
(15,192)
(a) Excludes physical commodities with a carrying value of $5.6 billion and $26.0 billion at December 31, 2023 and 2022, respectively, to which the Firm
applies fair value hedge accounting. As a result of the application of hedge accounting, these inventories are carried at fair value, thus recognizing
unrealized gains and losses in current periods. Since the Firm exits these positions at fair value, there is no incremental impact to net income in future
periods.
(b) Excludes hedged items where only foreign currency risk is the designated hedged risk, as basis adjustments related to foreign currency hedges will not
reverse through the income statement in future periods. At December 31, 2023 and 2022, the carrying amount excluded for AFS securities is
$19.3 billion and $20.3 billion, respectively, and for long-term debt is zero and $221 million, respectively.
(c) Carrying amount represents the amortized cost, net of allowance if applicable. Effective January 1, 2023, the Firm adopted the portfolio layer method
hedge accounting guidance. At December 31, 2023, the amortized cost of the portfolio layer method closed portfolios was $83.9 billion, of which $68.0
billion was designated as hedged. The amount designated as hedged is the sum of the notional amounts of all outstanding layers in each portfolio, which
includes both spot starting and forward starting layers. The cumulative amount of basis adjustments was $(165) million, which is comprised of $73 million
and $(238) million for active and discontinued hedging relationships, respectively. Refer to Note 1 and Note 10 for additional information.
(d) Positive (negative) amounts related to assets represent cumulative fair value hedge basis adjustments that will reduce (increase) net interest income in
future periods. Positive (negative) amounts related to liabilities represent cumulative fair value hedge basis adjustments that will increase (reduce) net
interest income in future periods.
(e) Represents basis adjustments existing on the balance sheet date associated with hedged items that have been de-designated from qualifying fair value
hedging relationships.
212
JPMorgan Chase & Co./2023 Form 10-K
(c)
(d)(e)
relationships
Active hedging Discontinued hedging
$
195,455
$
(2,042) $
(d)(e)
relationships
Total
(2,010) $
(1,461)
(9,727) $
Income statement impact of
(e)
excluded components
(11,769)
(in millions)
Assets
Investment securities - AFS
Liabilities
Long-term debt
Cumulative amount of fair value hedging adjustments
included in the carrying amount of hedged items:
Carrying amount
of the hedged
items (a)(B)
relationships
December 31, 2022
Gains/(losses) recorded in income
130
Note 5 - Derivative instruments
$
(134)
Gains/(losses) recorded in income
Income statement impact of
(e)
excluded components
OCI impact
Derivatives Hedged items
Income
statement
impact
Amortization
approach
Changes in fair
value
Derivatives -
Gains/(losses)
recorded in OCI (f)
$
(14,352) $
(1,317)
106
14,047 $
(305) $
(262) $
1,423
106
(528)
106
130
$
921
(601) $
$
1,066
Hedged items
Income
statement
impact
Amortization
approach
Changes in fair
value
Derivatives -
Gains/(losses)
recorded in OCI (f)
$
1,554 $
722
1,227
(1,248) $
306
$
(15,563) $
157
239
(601)
239
(134)
(706)
521
525
$
3,503 $
(2,437) $
(483)
2022
(70)
15,400 $
48
There are three types of hedge accounting designations: fair
value hedges, cash flow hedges and net investment hedges.
JPMorgan Chase uses fair value hedges primarily to hedge
fixed-rate long-term debt, AFS securities and certain
commodities inventories. For qualifying fair value hedges,
the changes in the fair value of the derivative, and in the
value of the hedged item for the risk being hedged, are
recognized in earnings. Certain amounts excluded from the
assessment of effectiveness are recorded in OCI and
recognized in earnings over the life of the derivative. If the
hedge relationship is terminated, then the adjustment to
the hedged item continues to be reported as part of the
basis of the hedged item and, for interest-bearing financial
instruments, is amortized to earnings as a yield adjustment.
Derivative amounts affecting earnings are recognized
consistent with the classification of the hedged item
primarily net interest income and principal transactions
To qualify for hedge accounting, a derivative must be highly
effective at reducing the risk associated with the exposure
being hedged. In addition, for a derivative to be designated
as a hedge, the risk management objective and strategy
must be documented. Hedge documentation must identify
the derivative hedging instrument, the asset or liability or
forecasted transaction and type of risk to be hedged, and
how the effectiveness of the derivative is assessed
prospectively and retrospectively. To assess effectiveness,
the Firm uses statistical methods such as regression
analysis, nonstatistical methods such as dollar-value
comparisons of the change in the fair value of the derivative
to the change in the fair value or cash flows of the hedged
item, and qualitative comparisons of critical terms and the
evaluation of any changes in those terms. The extent to
which a derivative has been, and is expected to continue to
be, highly effective at offsetting changes in the fair value or
cash flows of the hedged item must be assessed and
documented at least quarterly. If it is determined that a
derivative is not highly effective at hedging the designated
exposure, hedge accounting is discontinued.
The Firm applies hedge accounting to certain derivatives
executed for risk management purposes - generally interest
rate, foreign exchange and commodity derivatives.
However, JPMorgan Chase does not seek to apply hedge
accounting to all of the derivatives associated with the
Firm's risk management activities. For example, the Firm
does not apply hedge accounting to purchased CDS used to
manage the credit risk of loans and lending-related
commitments, because of the difficulties in qualifying such
contracts as hedges. For the same reason, the Firm does
not apply hedge accounting to certain interest rate, foreign
exchange, and commodity derivatives used for risk
management purposes.
Derivatives designated as hedges
Notes to consolidated financial statements
203
JPMorgan Chase & Co./2023 Form 10-K
As permitted under U.S. GAAP, the Firm nets derivative
assets and liabilities, and the related cash collateral
receivables and payables, when a legally enforceable
master netting agreement exists between the Firm and the
derivative counterparty. Refer to Note 1 for further
discussion of the offsetting of assets and liabilities. The
accounting for changes in value of a derivative depends on
whether or not the transaction has been designated and
qualifies for hedge accounting. Derivatives that are not
designated as hedges are reported and measured at fair
value through earnings. The tabular disclosures on pages
207-214 of this Note provide additional information on the
amount of, and reporting for, derivative assets, liabilities,
gains and losses. Refer to Notes 2 and 3 for a further
discussion of derivatives embedded in structured notes.
All free-standing derivatives that the Firm executes for its
own account are required to be recorded on the
Consolidated balance sheets at fair value.
Accounting for derivatives
The Firm provides clearing services for clients in which the
Firm acts as a clearing member at certain exchanges and
clearing houses. The Firm does not reflect the clients'
derivative contracts in its Consolidated Financial
Statements. Refer to Note 28 for further information on the
Firm's clearing services.
The Firm enters into OTC derivatives, which are negotiated
and settled bilaterally with the derivative counterparty. The
Firm also enters into, as principal, certain ETD such as
futures and options, and OTC-cleared derivative contracts
with CCPS. ETD contracts are generally standardized
contracts traded on an exchange and cleared by the CCP,
which is the Firm's counterparty from the inception of the
transactions. OTC-cleared derivatives are traded on a
bilateral basis and then novated to the CCP for clearing.
Derivative clearing services
Refer to the risk management derivatives gains and losses
table on page 214 and the hedge accounting gains and
losses tables on pages 211-213 of this Note for more
information about risk management derivatives.
Derivative counterparties and settlement types
Commodities derivatives are used to manage the price risk
of certain commodities inventories. Gains or losses on these
derivative instruments are expected to substantially offset
the depreciation or appreciation of the related inventory.
Credit derivatives are used to manage the counterparty
credit risk associated with loans and lending-related
commitments. Credit derivatives compensate the purchaser
when the entity referenced in the contract experiences a
credit event, such as bankruptcy or a failure to pay an
obligation when due. Credit derivatives primarily consist of
CDS. Refer to the Credit derivatives section on pages 214-
216 of this Note for a further discussion of credit
derivatives.
Foreign currency derivatives are used to manage the
foreign exchange risk associated with certain foreign
currency-denominated (i.e., non-U.S. dollar) assets and
liabilities and forecasted transactions, as well as the Firm's
net investments in certain non-U.S. subsidiaries or branches
whose functional currencies are not the U.S. dollar. As a
result of fluctuations in foreign currencies, the U.S. dollar-
equivalent values of the foreign currency-denominated
assets and liabilities or the forecasted revenues or expenses
increase or decrease. Gains or losses on the derivative
instruments related to these foreign currency-denominated
assets or liabilities, or forecasted transactions, are expected
to substantially offset this variability.
The Firm generally uses interest rate derivatives to manage
the risk associated with changes in interest rates. Fixed-rate
assets and liabilities appreciate or depreciate in market
value as interest rates change. Similarly, interest income
and expense increase or decrease as a result of variable-
rate assets and liabilities resetting to current market rates,
and as a result of the repayment and subsequent
origination or issuance of fixed-rate assets and liabilities at
current market rates. Gains and losses on the derivative
instruments related to these assets and liabilities are
expected to substantially offset this variability.
The Firm manages certain market and credit risk exposures
using derivative instruments, including derivatives in hedge
accounting relationships and other derivatives that are used
to manage risks associated with specified assets and
liabilities.
Risk management derivatives
The majority of the Firm's derivatives are entered into for
market-making purposes. Clients use derivatives to mitigate
or modify interest rate, credit, foreign exchange, equity and
commodity risks. The Firm actively manages the risks from
its exposure to these derivatives by entering into other
derivative contracts or by purchasing or selling other
financial instruments that partially or fully offset the
exposure from client derivatives.
Market-making derivatives
Derivative contracts derive their value from underlying
asset prices, indices, reference rates, other inputs or a
combination of these factors and may expose
counterparties to risks and rewards of an underlying asset
or liability without having to initially invest in, own or
exchange the asset or liability. JPMorgan Chase makes
markets in derivatives for clients and also uses derivatives
to hedge or manage its own risk exposures. Predominantly
all of the Firm's derivatives are entered into for market-
making or risk management purposes.
revenue.
Effective January 1, 2023, the Firm adopted the new
portfolio layer method hedge accounting guidance which
expanded the ability to hedge a portfolio of fixed-rate
assets to allow more types of assets to be included in the
portfolio, and to allow more of the portfolio to be hedged.
The Firm employs the Portfolio Layer Method to manage
the interest rate risk of portfolios of fixed-rate assets.
Throughout the life of the open hedge, basis adjustments
are maintained at the portfolio level and are only allocated
to individual assets under certain circumstances. These
include instances where the portfolio amount falls below
the hedged layer amounts, or in cases of voluntary de-
designation.
JPMorgan Chase uses cash flow hedges primarily to hedge
the exposure to variability in forecasted cash flows from
floating-rate assets and liabilities and foreign currency-
denominated revenue and expense. For qualifying cash flow
hedges, changes in the fair value of the derivative are
recorded in OCI and recognized in earnings as the hedged
item affects earnings. Derivative amounts affecting
earnings are recognized consistent with the classification of
the hedged item - primarily noninterest revenue, net
interest income and compensation expense. If the hedge
relationship is terminated, then the change in value of the
derivative recorded in AOCI is recognized in earnings when
the cash flows that were hedged affect earnings. For hedge
relationships that are discontinued because a forecasted
transaction is expected to not occur according to the
original hedge forecast, any related derivative values
recorded in AOCI are immediately recognized in earnings.
JPMorgan Chase uses net investment hedges to protect the
value of the Firm's net investments in certain non-U.S.
subsidiaries or branches whose functional currencies are
not the U.S. dollar. For qualifying net investment hedges,
changes in the fair value of the derivatives due to changes
in spot foreign exchange rates are recorded in OCI as
translation adjustments. Amounts excluded from the
assessment of effectiveness are recorded directly in
earnings.
(163) $
(528) $
(108) $
Hedge foreign currency-denominated assets and liabilities
Hedge foreign currency-denominated forecasted revenue and
expense
• Foreign exchange
Corporate
Cash flow hedge
211-212
Corporate
Fair value hedge
36
Hedge fixed rate assets and liabilities
Hedge floating-rate assets and liabilities
Manage specifically identified risk exposures in qualifying hedge accounting relationships:
• Interest rate
Designation and disclosure segment or unit reference
Use of Derivative
Type of Derivative
Page
Affected
The following table outlines the Firm's primary uses of derivatives and the related hedge accounting designation or disclosure
category.
JPMorgan Chase & Co./2023 Form 10-K
204
• Interest rate
Foreign exchange
Amounts netted
Amount of additional collateral to be posted upon downgrade (a)
OTC-cleared
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that
are reflected on the Firm's Consolidated balance sheets as of December 31, 2023 and 2022, by accounting designation (e.g.,
whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
Free-standing derivative receivables and payables (a)
Gross derivative receivables
Gross derivative payables
December 31, 2023
(in millions)
Not
designated
as hedges
Designated
as hedges
Total
derivative
receivables
Net
derivative
receivables (b)
Not
designated
as hedges
Designated
as hedges
Total
derivative
payables
Net
derivative
payables
Trading assets and
liabilities
Interest rate
$ 250,689
$
2
Impact of derivatives on the Consolidated balance sheets
Credit
JPMorgan Chase & Co./2023 Form 10-K
While the notional amounts disclosed above give an
indication of the volume of the Firm's derivatives activity,
the notional amounts significantly exceed, in the Firm's
view, the possible losses that could arise from such
transactions. For most derivative contracts, the notional
amount is not exchanged; it is simply a reference amount
used to calculate payments.
Swaps
115
136
Spot, futures and forwards
157
136
Written options
130
117
Purchased options
115
98
Total commodity contracts
517
487
Total derivative notional amounts
$
49,813 $
49,476
(a) Refer to the Credit derivatives discussion on pages 214-216 for more
information on volumes and types of credit derivative contracts.
(b) Represents the sum of gross long and gross short third-party notional
derivative contracts.
206
9,654
$ 250,691
9,654
$ 26,324
551
65,811
9,368
16,378
5,874
Total fair value of trading
assets and liabilities
$ 538,270 $
978 $ 539,248 $ 54,864
40,847
$ 545,240 $ 1,732 $ 546,972 $
Gross derivative payables
Gross derivative receivables
December 31, 2022
Not
designated
(in millions)
as hedges
Designated
as hedges
Total
derivative
receivables
Net
derivative
receivables(b)
Not
designated
as hedges
Designated
as hedges
-
12,620
1,089
12,038
212,263
$ 240,482
$ 240,482 $ 11,896
12,038
-
Foreign exchange
205,010
765
205,775
18,019
210,623
Commodity contracts
1,640
Commodity
57,689
15,228
57,689
4,928
65,811
211
15,439
5,042
16,286
92
Equity
Total equity contracts
1,944
2,272
214
Corporate, CIB
214
Market-making derivatives and other activities:
• Various
• Various
Market-making and related risk management
Other derivatives
Market-making and other
Market-making and other
CIB
214
CIB, AWM,
214
Corporate
205
JPMorgan Chase & Co./2023 Form 10-K
Notes to consolidated financial statements
Notional amount of derivative contracts
The following table summarizes the notional amount of
free-standing derivative contracts outstanding as of
December 31, 2023 and 2022.
2023
Interest rate contracts
CIB, AWM
214
CCB
Specified risk management
Fair value hedge
Corporate
213
211-212
Cash flow hedge
Corporate
213
• Foreign exchange
Hedge the value of the Firm's investments in non-U.S. dollar
functional currency entities
Net investment hedge
Corporate
Notional amounts"
213
Manage the credit risk associated with wholesale lending exposures
Manage the risk associated with certain other specified assets and
liabilities
• Commodity
Manage specifically
• Interest rate
⚫ Credit
Hedge commodity inventory
identified risk exposures not designated in qualifying hedge accounting relationships:
Manage the risk associated with mortgage commitments, warehouse
loans and MSRS
Specified risk management
Specified risk management
Fair value hedge
CIB, AWM
211-212
• Interest rate and
foreign exchange
Total
derivative
(b)
2022
830
775
Purchased options
798
759
Total foreign exchange contracts
13,306
12,747
Equity contracts
Swaps
Futures and forwards
Written options
Purchased options
639
618
157
110
778
636
698
580
Written options
7,017
6,957
Spot, futures and forwards
Swaps
$
23,251 $
24,491
Futures and forwards
2,690
2,636
Written options
3,370
3,047
2023
Purchased options
2,992
Total interest rate contracts
32,673
33,166
Credit derivatives (a)
1,045
1,132
Foreign exchange contracts
Cross-currency swaps
4,721
3,362
Net
derivative
December 31, (in billions)
Trading assets and
Exchange-traded (a)
Total equity contracts
25,001
(23,677)
1,324
30,462
(29,084)
1,378
30,323
28,467
(25,665)
4,658
(27,109)
1,358
55,463
(52,761)
2,702
58,790
(52,774)
6,016
Commodity contracts:
OTC
OTC
OTC-cleared
Equity contracts:
14
42
(9,239)
981
OTC
203,624
(187,295)
16,329
OTC-cleared
469
Exchange-traded (a)
6
Total foreign exchange contracts
204,099
(459)
(2)
(187,756)
10
4
237,941
1,461
15
16,343
239,417
(216,796)
(1,417)
(1)
(218,214)
21,145
44
21,203
Exchange-traded (a)
Total commodity contracts
Derivative receivables with appropriate legal opinion
Derivative receivables where an appropriate legal
opinion has not been either sought or obtained
Total derivative receivables recognized on the
Consolidated balance sheets
$
54,864
$ 639,593
$
70,880
(22,461)
(23,014)
$ 32,403
$
47,866
JPMorgan Chase & Co./2023 Form 10-K
December 31, (in millions)
U.S. GAAP nettable derivative payables
Interest rate contracts:
OTC
OTC-cleared
Exchange-traded (a)
Total interest rate contracts
Credit contracts:
OTC
payables payables
$ 539,248
9,232
9,232
8,027
Collateral not nettable on the Consolidated balance
sheets
(b)(c)
Net amounts
208
8,049
133
5,214 (5,190)
13,396 (10,397)
531,221 (484,384)
(5,084)
2,965
14,430
(7,633)
(1,704)
6,797
10
24
2,999
46,837
(d)
120
9,103
(8,745)
23,653 (16,490)
630,361 (568,713)
(112)
8
358
7,163
61,648
(d)
(123)
939
8,027
8,474
1,746
10,220
61,913
1,705
25,357
9,139
8,867
62,461
20,758
2,511
62,461
23,269
8,804
6,757
Total fair value of trading
assets and liabilities
$ 636,251 $ 3,342 $ 639,593 $ 70,880
$ 632,392
$
5,121 $ 637,513 $ 51,141
(a) Balances exclude structured notes for which the fair value option has been elected. Refer to Note 3 for further information.
(b) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and
payables when a legally enforceable master netting agreement exists.
207
JPMorgan Chase & Co./2023 Form 10-K
Notes to consolidated financial statements
Derivatives netting
The following tables present, as of December 31, 2023 and 2022, gross and net derivative receivables and payables by
contract and settlement type. Derivative receivables and payables, as well as the related cash collateral from the same
counterparty, have been netted on the Consolidated balance sheets where the Firm has obtained an appropriate legal opinion
with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, amounts are
not eligible for netting on the Consolidated balance sheets, and those derivative receivables and payables are shown
separately in the tables below.
In addition to the cash collateral received and transferred that is presented on a net basis with derivative receivables and
payables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate
counterparty credit risk associated with the Firm's derivative instruments, but are not eligible for net presentation:
61,913
23,652
Commodity
Equity
754
18,856
liabilities
(7,535)
Interest rate
$ 300,411
$
4
$ 300,415 $ 28,419
$ 290,291
$
$ 290,291
•
$ 15,970
10,329
10,329
Foreign exchange
239,946
1,633
241,579
23,365
9,971
248,911
2,610
9,971
251,521
Credit
•
1,090
collateral that consists of liquid securities and other cash collateral held at third-party custodians, which are shown
separately as "Collateral not nettable on the Consolidated balance sheets" in the tables below, up to the fair value exposure
amount. For the purpose of this disclosure, the definition of liquid securities is consistent with the definition of high quality
liquid assets as defined in the LCR rule;
(71,275)
144
248,722
(389)
(224,367)
13
24,355
$ 203,922 $ (178,261)
93,800
559
298,281
$ 25,661
(93,424)
(311)
(271,996)
376
248
26,285
(7,226)
411
1,904
(1,877)
27
9,541
•
438
(9,103)
71,419
402
24,198
7,637
OTC
the amount of collateral held or transferred that exceeds the fair value exposure at the individual counterparty level, as of
the date presented, which is excluded from the tables below; and
December 31, (in millions)
U.S. GAAP nettable derivative receivables
Interest rate contracts:
collateral held or transferred that relates to derivative receivables or payables where an appropriate legal opinion has not
been either sought or obtained with respect to the master netting agreement, which is excluded from the tables below.
OTC-cleared
Exchange-traded (a)
Credit contracts:
OTC
2022
Total interest rate contracts
Total credit contracts
derivative
receivables
Net
Amounts netted
Gross
on the
derivative Consolidated
receivables balance sheets
OTC-cleared
Amounts netted
on the
Consolidated
balance sheets
Net
derivative
receivables
2023
Foreign exchange contracts:
Gross
derivative
receivables
$ 176,901 $ (152,703)
Total commissions and other fees $ 6,836 $ 6,581 $ 6,624
(a) Includes travel-related and annuity sales commissions, depositary
receipt-related service fees, as well as other service fees, which are
recognized as revenue when the services are rendered.
$ 2,831 $ 3,046
2,348
2,554
1,402
1,024
Commissions and other fees are earned primarily by CIB,
CCB and AWM.
Refer to Note 15 for further information on risk
management activities and MSRS.
Mortgage fees and related income
This revenue category reflects CCB's Home Lending
production and net mortgage servicing revenue.
Production revenue includes fees and income recognized as
earned on mortgage loans originated with the intent to sell,
and the impact of risk management activities associated
with the mortgage pipeline and warehouse loans.
Production revenue also includes gains and losses on sales
and lower of cost or fair value adjustments on mortgage
loans held-for-sale (excluding certain repurchased loans
insured by U.S.government agencies), and changes in the
fair value of financial instruments measured under the fair
value option. Net mortgage servicing revenue includes
operating revenue earned from servicing third-party
mortgage loans, which is recognized over the period in
which the service is provided; changes in the fair value of
MSRS; the impact of risk management activities associated
with MSRS; and gains and losses on securitization of excess
mortgage servicing. Net mortgage servicing revenue also
includes gains and losses on sales and lower of cost or fair
value adjustments of certain repurchased loans insured by
U.S. government agencies.
(a) Includes the impact of First Republic. Refer to Note 34 for additional
information.
Card income
This revenue category includes interchange and other
income from credit and debit card transactions; and fees
earned from processing card transactions for merchants,
both of which are recognized when purchases are made by
a cardholder and presented net of certain transaction-
related costs. Card income also includes account origination
costs and annual fees, which are deferred and recognized
on a straight-line basis over a 12-month period.
Certain credit card products offer the cardholder the ability
to earn points based on account activity, which the
cardholder can choose to redeem for cash and non-cash
rewards. The cost to the Firm related to these proprietary
rewards programs varies based on multiple factors
including the terms and conditions of the rewards
programs, cardholder activity, cardholder reward
redemption rates and cardholder reward selections. The
Firm maintains a liability for its obligations under its
rewards programs and reports the current-period cost as a
reduction of card income.
Net interest income from mortgage loans is recorded in
interest income.
2,310
1,706
Year ended December 31,
Administration fees
Asset management fees earned primarily by AWM and CCB.
Commissions and other fees
This revenue category includes commissions and fees from
brokerage and custody services, and other products.
Brokerage commissions represents commissions earned
when the Firm acts as a broker, by facilitating its clients'
purchases and sales of securities and other financial
instruments. Brokerage commissions are collected and
recognized as revenue upon occurrence of the client
transaction. The Firm reports certain costs paid to third-
party clearing houses and exchanges net against
commission revenue.
Credit card revenue sharing agreements
$ 14,405
Administration fees predominantly include fees for custody,
funds services, securities lending and securities clearance.
These fees are recorded as revenue over the period in
which the related service is provided.
218
JPMorgan Chase & Co./2023 Form 10-K
All other commissions and fees (a)
The following table presents the components of
(in millions)
Commissions and other fees
2023
2022
2021
Brokerage commissions
$ 2,820
commissions and other fees.
The Firm has contractual agreements with numerous co-
brand partners that grant the Firm exclusive rights to issue
co-branded credit card products and market them to the
customers of such partners. These partners endorse the co-
brand credit card programs and provide their customer or
member lists to the Firm. The partners may also conduct
marketing activities and provide rewards redeemable under
their own loyalty programs that the Firm will grant to co-
brand credit cardholders based on account activity. The
terms of these agreements generally range from five to ten
years.
Operating lease income
Interchange and merchant
processing income
Reward costs and partner
payments
$
Losses on tax-oriented
investments
(1,538)
3,654 $ 4,914
(1,491) (1,570)
Estimated bargain purchase
gain associated with the
First Republic acquisition
Gain related to the
acquisition of CIFM
$ 2,843
Gain on sale of Visa B shares
2,775
339 (b) -
914
Refer to Note 2 and 18 for additional information on Visa B
shares and operating leases, respectively.
$ 14,096
(a) Refer to Note 34 for additional information on the First Republic
acquisition.
(b) Gain on the original minority interest in CIFM upon the Firm's
acquisition of the remaining 51% of the entity.
(a)
The Firm typically makes payments to the co-brand credit
card partners based on the cost of partners' marketing
activities and loyalty program rewards provided to credit
cardholders, new account originations and sales volumes.
Payments to partners based on marketing efforts
undertaken by the partners are expensed by the Firm as
incurred and reported as marketing expense. Payments for
partner loyalty program rewards are reported as a
reduction of card income when incurred. Payments to
partners based on new credit card account originations are
accounted for as direct loan origination costs and are
deferred and recognized as a reduction of card income on a
straight-line basis over a 12-month period. Payments to
partners based on sales volumes are reported as a
reduction of card income when the related interchange
income is earned.
2021
2023
All other (a)
Total card income
2023
2022
2021
$ 31,021 $ 28,085 $ 23,592
(24,601) (22,162) (17,868)
(1,636) (1,503)
(622)
2022
$ 4,784 $ 4,420 $ 5,102
Card income is earned primarily by CCB, CIB and CB.
JPMorgan Chase & Co./2023 Form 10-K
219
Notes to consolidated financial statements
Other income
This revenue category includes operating lease income, as
well as losses associated with the Firm's tax-oriented
investments, predominantly alternative energy equity-
method investments in CIB. The losses associated with these
tax-oriented investments are more than offset by lower
income tax expense from the associated tax credits.
The following table presents certain components of other
income:
Year ended December 31,
(in millions)
(a) Predominantly represents the amortization of account origination
costs and annual fees, which are deferred and recognized on a
straight-line basis over a 12-month period.
$ 15,220
19,957
378
5,082
5,119
Equity
10,229
8,068
Commodity
2,202
2,348
Total trading revenue
24,554
2,787
7,773
1,428
16,325
Private equity losses
(94)
(45)
$ 24,460 $ 19,912
Foreign exchange
1,646
2,691
1,412
1,434
Notes to consolidated financial statements
217
Noninterest expense
Year ended December 31,
(in millions)
2023
2022
Principal transactions
2021
instrument type
Interest rate (a)
$ 5,607
$ 3,010
$
Credit (b)
(c)
Trading revenue by
(21)
$ 16,304
(a) Includes the impact of changes in funding valuation adjustments on
derivatives.
(b) Includes the impact of changes in credit valuation adjustments on
derivatives, net of the associated hedging activities.
Lending- and deposit-related fees are earned by CCB, CIB,
CB, and AWM.
Asset management fees
Investment management fees include fees associated with
assets the Firm manages on behalf of its clients, including
investors in Firm-sponsored funds and owners of separately
managed investment accounts. Management fees are
typically based on the value of assets under management
and are collected and recognized at the end of each period
over which the management services are provided and the
value of the managed assets is known. The Firm also
receives performance-based management fees, which are
earned based on exceeding certain benchmarks or other
performance targets and are accrued and recognized when
the probability of reversal is remote, typically at the end of
the related billing period.
All other asset management fees include commissions
earned on the sales or distribution of mutual funds to
clients. These fees are recorded as revenue at the time the
service is rendered or, in the case of certain distribution
fees, based on the underlying fund's asset value or investor
redemption activity.
The following table presents the components of asset
management fees.
Year ended December 31,
(in millions)
Asset management fees
Investment management fees
All other asset management
fees
commitments are generally short term. Refer to Note 34 for additional
information.
2023
2021
(a)
$ 14,908
$ 13,765
$ 14,027
312
331
2022
Total asset management fees
(a) Includes the amortization of the purchase discount on certain acquired
lending-related commitments associated with First Republic,
predominantly in AWM and CB. The discount is deferred in other
liabilities and recognized on a straight-line basis over the commitment
period and was largely recognized in the current year as the
2021
$ 1,472
5,560
(c) Includes net markdowns on held-for-sale positions, primarily unfunded
commitments, in the bridge financing portfolio.
Principal transactions revenue is earned primarily by CIB.
Lending- and deposit-related fees
Lending-related fees include fees earned from loan
commitments, standby letters of credit, financial
guarantees, and other loan-servicing activities. Deposit-
related fees include fees earned from performing cash
management activities, and providing overdraft and other
deposit account services. Lending- and deposit-related fees
are recognized over the period in which the related service
is provided. Refer to Note 28 for further information on
lending-related commitments.
The following table presents the components of lending-
and deposit-related fees.
Year ended December 31,
(in millions)
2023
$ 7,098 $ 7,032
2022
(a)
Deposit-related fees
$ 2,365
5,048
$ 1,468
5,630
$ 7,413
Total lending- and deposit-related
fees
Lending-related fees
Other expense
Net interest income
Year ended December 31,
(in millions)
Legal expense
Provision for credit losses
Net interest income after
provision for credit losses
$ 79,947
$ 26,097 $ 5,553
$ 66,710 $ 52,311
6,389 (9,256)
$ 60,321 $ 61,567
(a) Represents securities that are tax-exempt for U.S. federal income tax
purposes.
(b) Negative interest and rates reflect the net impact of interest earned
offset by fees paid on client-driven prime brokerage securities
borrowed transactions.
(c) Includes interest earned on brokerage-related held-for-investment
customer receivables, which are classified in accrued interest and
accounts receivable, and all other interest-earning assets, which are
classified in other assets on the Consolidated balance sheets.
(d) All other interest-bearing liabilities includes interest expense on
brokerage-related customer payables.
(e) Includes the accretion of the purchase discount on certain acquired
loans and investment securities associated with First Republic. Refer to
Note 34 for additional information.
221
Notes to consolidated financial statements
Note 8 - Pension and other postretirement
employee benefit plans
The Firm has various defined benefit pension plans and
OPEB plans that provide benefits to its employees in the
U.S. and certain non-U.S. locations. Substantially all the
defined benefit pension plans are closed to new
participants. The principal defined benefit pension plan in
the U.S., which covered substantially all U.S. employees,
was closed to new participants and frozen for existing
participants on January 1, 2020, (and January 1, 2019 for
new hires on or after December 2, 2017). Interest credits
continue to accrue to participants' accounts based on their
accumulated balances.
The Firm maintains funded and unfunded postretirement
benefit plans that provide medical and life insurance for
certain eligible employees and retirees as well as their
dependents covered under these programs. None of these
plans have a material impact on the Firm's Consolidated
Financial Statements.
JPMorgan Chase & Co./2023 Form 10-K
9,320
$ 89,267
$ 81,321
other interest-bearing
liabilities
(d)
9,396
3,246
257
Long-term debt
The Firm also provides a qualified defined contribution plan
in the U.S. and maintains other similar arrangements in
certain non-U.S. locations. The most significant of these
plans is the JPMorgan Chase 401(k) Savings Plan ("the
401(k) Savings Plan"), which covers substantially all U.S.
employees. Employees can contribute to the 401(k) Savings
Plan on a pretax and/or Roth 401(k) after-tax basis. The
Firm makes annual matching and pay credit contributions
to the 401(k) Savings Plan on behalf of eligible
participants.
15,803
4,282
Beneficial interest issued by
consolidated VIES
953
226
83
Total interest expense
8,075
The following table presents the pretax benefit obligations, plan assets, the net funded status, and the amounts recorded in
AOCI on the Consolidated balance sheets for the Firm's significant defined benefit pension and OPEB plans.
As of or for the year ended December 31,
(in millions)
Projected benefit obligations
2023
2022
2021
$
$
$
(393) $
1,609
1,216 $
(421) $
Pension and OPEB plans
(b)
(192) $
1,408
1,216
(201)
1,333
$ 1,132
1,459
$ (1,129)
(a) The service cost component of net periodic defined benefit cost is reported in compensation expense; all other components of net periodic defined benefit
costs are reported in other expense in the Consolidated statements of income.
(b) Includes pension settlement losses of $92 million and $33 million, respectively, for the years ended December 31, 2022 and 2021.
JPMorgan Chase & Co./2023 Form 10-K
(b)
Trading liabilities - debt and all
Total recognized in other comprehensive (income)/loss
Total defined contribution plans
Fair value of plan assets
$
Defined benefit
pension and OPEB plans
2023
(14,740) $
22,013
7,273
2022
(13,545)
19,890
6,345
Net funded status
Accumulated other comprehensive income/(loss)
(1,517)
Total pension and OPEB cost included in noninterest expense
(1,916)
Gains and losses
Gains or losses resulting from changes in the benefit
obligation and the fair value of plan assets are recorded in
OCI. Amortization of net gains or losses are recognized as
part of the net periodic benefit cost over subsequent
periods, if, as of the beginning of the year, the net gain or
loss exceeds 10% of the greater of the projected benefit
obligation or the fair value of the plan assets. Amortization
is generally over the average expected remaining lifetime of
plan participants, given the frozen status of most plans. For
the year ended December 31, 2023, the net gain was
attributable to market-driven increases in the fair value of
plan assets, partially offset by changes in the discount rate
and interest crediting rate. During the year ended
December 31, 2022, a remeasurement of the Firm's U.S.
principal defined benefit plan in the third quarter, was
required as a result of a pension settlement. The
remeasurement resulted in a reduction in the fair value of
the Firm's U.S. principal defined benefit plan assets,
reflecting market conditions at the time of remeasurement,
and a reduction in the plan's projected benefit obligation
totaling $4.0 billion and $2.6 billion, respectively, resulting
in a net decrease of $1.4 billion in pre-tax AOCI.
The following table presents the net periodic benefit costs reported in the Consolidated statements of income for the Firm's
defined benefit pension, defined contribution and OPEB plans, and
pension and OPEB plans.
other comprehensive income for the defined benefit
Year ended December 31, (in millions)
Total net periodic defined benefit plan cost/(credit) (a)
The weighted-average discount rate used to value the benefit obligations as of December 31, 2023 and 2022, was 5.16% and
5.14%, respectively.
126
747
1,894
220
JPMorgan Chase & Co./2023 Form 10-K
Note 7 - Interest income and Interest expense
Interest income and interest expense are recorded in the
Consolidated statements of income and classified based on
the nature of the underlying asset or liability.
Interest income and interest expense includes the current-
period interest accruals for financial instruments measured
at fair value, except for derivatives and financial
instruments containing embedded derivatives that would be
separately accounted for in accordance with U.S. GAAP,
absent the fair value option election; for those instruments,
all changes in fair value including any interest elements, are
primarily reported in principal transactions revenue. For
financial instruments that are not measured at fair value,
the related interest is included within interest income or
interest expense, as applicable.
Interest income on loans and securities include the
amortization and accretion of purchase premiums and
discounts, as well as net deferred fees and costs on loans.
These amounts are deferred in loans and investment
securities, respectively, and recognized on a level-yield
basis.
Refer to Notes 10, 11, 12, and 20 for further information
on accounting for interest income and interest expense
related to investment securities, securities financing
activities (i.e., securities purchased or sold under resale or
repurchase agreements; securities borrowed; and securities
loaned), loans and long-term debt, respectively.
Refer to Note 32 for additional information on noninterest
revenue and expense by segment.
The following table presents the components of interest
income and interest expense:
Loans
Taxable securities
Non-taxable securities (a)
2023
2022
2021
(e)
$ 83,384
17,390
Year ended December 31,
(in millions)
Interest income
$52,736 $ 41,537
In November 2023, the FDIC approved a final rule to
implement a special assessment intended to recover losses
to the Deposit Insurance Fund (“DIF”) arising from the
protection of uninsured depositors resulting from the
systemic risk determination made on March 12, 2023. The
final rule imposed a special assessment at a quarterly rate
of 3.36 basis points on insured depository institutions
whose estimated uninsured deposits were over $5.0 billion
as of December 31, 2022. In the fourth quarter of 2023,
the Firm recognized the estimated special assessment
expense of $2.9 billion (pre-tax).
(a) Included the $2.9 billion FDIC special assessment.
(b) Included payments to the FDIC in the second quarter of 2023 with
respect to First Republic individuals who were not employees of the
Firm until July 2, 2023, as well as $360 million restructuring and
integration costs. Refer to Note 34 for additional information on the
First Republic acquisition.
FDIC-related expense
First Republic-related expense
2023
2022
2021
1,436
$
FDIC Special Assessment
266
426
(a)
4,203
860
730
(b)
1,060
$
Other expense on the Firm's Consolidated statements of
income included:
10,372
1,336
9,039
512
(c)
7,669
3,763
894
$170,588
21,797
$92,807 $ 57,864
Interest bearing deposits
Federal funds purchased and
securities loaned or sold under
repurchase agreements
$ 40,016
$ 10,082 $ 531
13,259
3,721
274
Short-term borrowings
Deposits with banks
6,460
(385)
7,983
975
1,063
Total investment securities
Trading assets - debt instruments
Federal funds sold and securities
(e)
18,726
11,347
7,523
2,237
15,950
6,825
purchased under resale
agreements
15,079
4,632
958
Securities borrowed (b)
9,053
Trading revenue is presented primarily by instrument type.
The Firm's client-driven market-making businesses
generally utilize a variety of instrument types in connection
with their market-making and related risk-management
activities; accordingly, the trading revenue presented in the
table below is not representative of the total revenue of any
individual LOB.
The following table presents the components of card income:
Year ended December 31,
(in millions)
In the financial commodity markets, the Firm transacts in
OTC derivatives (e.g., swaps, forwards, options) and ETD
that reference a wide range of underlying commodities. In
the physical commodity markets, the Firm primarily
purchases and sells precious and base metals and may hold
other commodities inventories under financing and other
arrangements with clients.
(b) Excludes amounts reclassified from AOCI to income on the sale or liquidation of hedged entities. During the year ended December 31, 2023, the Firm
reclassified a net pre-tax loss of $(35) million to other revenue including the impact of the acquisition of CIFM. The Firm reclassified net pre-tax gains of
$38 million to other income/expense related to the liquidation of certain legal entities during the year ended December 31, 2022. The amount
reclassified for the year ended December 31, 2021 was not material. Refer to Note 24 for further information.
JPMorgan Chase & Co./2023 Form 10-K
213
Notes to consolidated financial statements
Gains and losses on derivatives used for specified risk
management purposes
The following table presents pre-tax gains/(losses)
recorded on a limited number of derivatives, not designated
in hedge accounting relationships, that are used to manage
risks associated with certain specified assets and liabilities,
including certain risks arising from mortgage commitments,
warehouse loans, MSRs, wholesale lending exposures, and
foreign currency denominated assets and liabilities.
Year ended December 31,
(in millions)
Contract type
Interest rate (a)
Credit (b)
Foreign exchange (c)
Total
Derivatives gains/(losses)
recorded in income
2023
(a) Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign
exchange forward contracts. The Firm elects to record changes in fair value of these amounts directly in other income.
$2,452
$(228)
Amounts
recorded in
OCI
The Firm did not experience any forecasted transactions that failed to occur for the years ended 2023, 2022 and 2021.
Over the next 12 months, the Firm expects that approximately $(1.6) billion (after-tax) of net losses recorded in AOCI at
December 31, 2023, related to cash flow hedges will be recognized in income. For cash flow hedges that have been
terminated, the maximum length of time over which the derivative results recorded in AOCI will be recognized in earnings is
approximately six years, corresponding to the timing of the originally hedged forecasted cash flows. For open cash flow
hedges, the maximum length of time over which forecasted transactions are hedged is approximately seven years. The Firm's
longer-dated forecasted transactions relate to core lending and borrowing activities.
Net investment hedge gains and losses
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting
relationships, and the pre-tax gains/(losses) recorded on such instruments for the years ended December 31, 2023, 2022 and
2021.
Year ended December 31,
(in millions)
Foreign exchange derivatives
2023
2022
2022
2021
(a)(b)
Amounts
recorded in
OCI
$(1,732)
Amounts
recorded in
income
$(123)
(a)(b)
Amounts
recorded in
OCI
$3,591
Amounts
recorded in
income(a)(b)
Amounts
recorded in
income
$384
2021
$
(135) $
Notes to consolidated financial statements
The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives,
because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value
of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm's view, the
risks associated with such derivatives.
Total credit derivatives and credit-related notes
December 31, 2023
(in millions)
Credit derivatives
Credit default swaps
JPMorgan Chase & Co./2023 Form 10-K
Other credit derivatives
Total credit derivatives
Credit-related notes (b)
Total
Maximum payout/Notional amount
Protection purchased
Net protection
Protection sold
(a)
(a) Primarily consists of hedges of SOFR-indexed floating-rate assets. Gains and losses were recorded in net interest income.
(b) Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of
gains and losses follows the hedged item - primarily noninterest revenue and compensation expense.
215
A credit-related note is a funded derivative with a credit risk
component where the issuer of the credit-related note
purchases from the note investor credit protection on a
reference entity or an index. Under the contract, the
investor pays the issuer the par value of the note at the
inception of the transaction, and in return, the issuer makes
periodic payments to the investor, based on the credit risk
of the referenced entity. The issuer also repays the investor
the par value of the note at maturity unless the reference
entity (or one of the entities that makes up a reference
index) experiences a specified credit event. If a credit event
occurs, the issuer is not obligated to repay the par value of
the note, but rather, the issuer pays the investor the
difference between the par value of the note and the fair
value of the defaulted reference obligation at the time of
settlement. Neither party to the credit-related note has
recourse to the defaulting reference entity.
(441)
(2)
(578) $
(827) $ 1,078
51
(94)
(48)
94
(824) $ 1,078
(a) Primarily represents interest rate derivatives used to hedge the
interest rate risk inherent in mortgage commitments, warehouse loans
and MSRs, as well as written commitments to originate warehouse
loans. Gains and losses were recorded predominantly in mortgage fees
and related income.
(b) Relates to credit derivatives used to mitigate credit risk associated
with lending exposures in the Firm's wholesale businesses. These
derivatives do not include credit derivatives used to mitigate
counterparty credit risk arising from derivative receivables, which is
included in gains and losses on derivatives related to market-making
activities and other derivatives. Gains and losses were recorded in
principal transactions revenue.
(c) Primarily relates to derivatives used to mitigate foreign exchange risk
of specified foreign currency-denominated assets and liabilities. Gains
and losses were recorded in principal transactions revenue.
Gains and losses on derivatives related to market-making
activities and other derivatives
The Firm makes markets in derivatives in order to meet the
needs of customers and uses derivatives to manage certain
risks associated with net open risk positions from its
market-making activities, including the counterparty credit
risk arising from derivative receivables. All derivatives not
included in the hedge accounting or specified risk
management categories above are included in this
category. Gains and losses on these derivatives are
The following tables present a summary of the notional
amounts of credit derivatives and credit-related notes the
Firm sold and purchased as of December 31, 2023 and
2022. Upon a credit event, the Firm as a seller of protection
would typically pay out a percentage of the full notional
amount of net protection sold, as the amount actually
required to be paid on the contracts takes into account the
recovery value of the reference obligation at the time of
settlement. The Firm manages the credit risk on contracts
to sell protection by purchasing protection with identical or
similar underlying reference entities. Other purchased
protection referenced in the following tables includes credit
derivatives bought on related, but not identical, reference
positions (including indices, portfolio coverage and other
reference points) as well as protection purchased by CIB
through credit-related notes. Other purchased protection
also includes credit protection against certain loans in the
retained lending portfolio through the issuance of credit
derivatives and credit-related notes.
primarily recorded in principal transactions revenue. Refer
to Note 6 for information on principal transactions revenue.
Credit derivatives are financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) and which allow
one party (the protection purchaser) to transfer that risk to
another party (the protection seller). Credit derivatives
expose the protection purchaser to the creditworthiness of
the protection seller, as the protection seller is required to
make payments under the contract when the reference
entity experiences a credit event, such as a bankruptcy, a
failure to pay its obligation or a restructuring. The seller of
credit protection receives a premium for providing
protection but has the risk that the underlying instrument
referenced in the contract will be subject to a credit event.
The Firm is both a purchaser and seller of protection in the
credit derivatives market and uses these derivatives for two
primary purposes. First, in its capacity as a market-maker,
the Firm actively manages a portfolio of credit derivatives
by purchasing and selling credit protection, predominantly
on corporate debt obligations, to meet the needs of
customers. Second, as an end-user, the Firm uses credit
derivatives to manage credit risk associated with lending
exposures (loans and unfunded commitments) in its
wholesale and consumer businesses and derivatives
counterparty exposures in its wholesale businesses, and to
manage the credit risk arising from certain financial
instruments in the Firm's market-making businesses.
Following is a summary of various types of credit
derivatives.
214
JPMorgan Chase & Co./2023 Form 10-K
Credit default swaps
Credit derivatives may reference the credit of either a single
reference entity ("single-name"), broad-based index or
portfolio. The Firm purchases and sells protection on both
single- name and index-reference obligations. Single-name
CDS and index CDS contracts are either OTC or OTC-cleared
derivative contracts. Single-name CDS are used to manage
the default risk of a single reference entity, while index CDS
contracts are used to manage the credit risk associated with
the broader credit markets or credit market segments. Like
the S&P 500 and other market indices, a CDS index consists
of a portfolio of CDS across many reference entities. New
series of CDS indices are periodically established with a new
underlying portfolio of reference entities to reflect changes
in the credit markets. If one of the reference entities in the
index experiences a credit event, then the reference entity
that defaulted is removed from the index. CDS can also be
referenced against specific portfolios of reference names or
against customized exposure levels: for example, to provide
protection against the first $1 million of realized credit
losses in a $10 million portfolio of exposure. Such
structures are commonly known as tranche CDS.
For both single-name CDS contracts and index CDS
contracts, upon the occurrence of a credit event, under the
terms of a CDS contract neither party to the CDS contract
has recourse to the reference entity. The protection
purchaser has recourse to the protection seller for the
difference between the face value of the CDS contract and
the fair value of the reference obligation at settlement of
the credit derivative contract, also known as the recovery
value. The protection purchaser does not need to hold the
debt instrument of the underlying reference entity in order
to receive amounts due under the CDS contract when a
credit event occurs.
Credit-related notes
Credit derivatives
with identical
underlyings (c)
(3,525)
(2,303)
274
$
2,113
209
145
483
$
2,258
Derivatives gains/(losses) recorded in income and other comprehensive income/(loss)
Year ended December 31, 2022
Amounts reclassified
(in millions)
Contract type
from AOCI to income
Interest rate (a)
$
(1,775)
$
64
222
Cash flow hedge gains and losses
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and
the pre-tax gains/(losses) recorded on such derivatives, for the years ended December 31, 2023, 2022 and 2021,
respectively. The Firm includes the gains/(losses) on the hedging derivative in the same line item in the Consolidated
statements of income as the change in cash flows on the related hedged item.
Year ended December 31, 2023
(in millions)
Contract type
Interest rate (a)
Foreign exchange (b)
Foreign exchange
(b)
Derivatives gains/(losses) recorded in income and other comprehensive income/(loss)
Amounts reclassified
from AOCI to income
Amounts recorded
in OCI
Total change
in OCI for period
$
(1,839)
Total
Total
Amounts recorded
in OCI
from AOCI to income
Amounts recorded
in OCI
Total change
in OCI for period
Contract type
Interest rate (a)
$
1,032
(in millions)
$
Total
$
190
1,222
(2,370)
67
$
(3,402)
(123)
Foreign exchange (b)
$
Amounts reclassified
Derivatives gains/(losses) recorded in income and other comprehensive income/(loss)
Total change
in OCI for period
$
(153)
$
(7,131)
$
(6,978)
Year ended December 31, 2021
(267)
(75)
$
(420)
$
(7,473)
$
(7,053)
(342)
(sold)/
purchased (d)
Other protection
purchased(e)
$
(6,370)
$ (416,097)
(126,625)
$
2,324
1,267
$ (1,495)
(3,209)
Total
$ (123,728) $ (381,802)
$ (37,192) $ (542,722) $
3,591
$
(4,704)
$ 829
(1,942)
$ (1,113)
(a) The ratings scale is primarily based on external credit ratings defined by S&P and Moody's.
(b) Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements including cash collateral netting.
216
JPMorgan Chase & Co./2023 Form 10-K
(87,011)
$ (30,822)
$ (90,484) $ (294,791)
(33,244)
Noninvestment-grade
December 31, 2022
(in millions)
<1 year
1-5 years
>5 years
$ (489,018) $
Total notional
amount
3,659
2,466
6,125
Note 6 - Noninterest revenue and noninterest expense
$ (1,144)
(1,583)
$ (2,727)
$ 3,398
Fair value of
receivables (b)
Fair value of
payables
Net fair
value
Risk rating of reference entity
Investment-grade
$ 2,515
883
Noninterest revenue
The Firm records noninterest revenue from certain
contracts with customers in investment banking fees,
deposit-related fees, asset management fees, commissions
and other fees, and components of card income. The related
contracts are often terminable on demand and the Firm has
no remaining obligation to deliver future services. For
arrangements with a fixed term, the Firm may commit to
deliver services in the future. Revenue associated with
these remaining performance obligations typically depends
on the occurrence of future events or underlying asset
values, and is not recognized until the outcome of those
events or values are known.
Investment banking fees
4,394
Total investment banking fees $ 6,519 $ 6,686 $ 13,216
Investment banking fees are earned primarily by CIB.
Principal transactions
Principal transactions revenue is driven by many factors,
including:
the bid-offer spread, which is the difference between the
price at which a market participant is willing and able to
sell an instrument to the Firm and the price at which
another market participant is willing and able to buy it
from the Firm, and vice versa; and
realized and unrealized gains and losses on financial
instruments and commodities transactions, including
those accounted for under the fair value option, primarily
used in client-driven market-making activities.
2,979
Realized gains and losses result from the sale of
instruments, closing out or termination of transactions,
or interim cash payments.
In connection with its client-driven market-making
activities, the Firm transacts in debt and equity
instruments, derivatives and commodities, including
physical commodities inventories and financial instruments
that reference commodities.
Principal transactions revenue also includes realized and
unrealized gains and losses related to:
•
•
derivatives designated in qualifying hedge accounting
relationships, primarily fair value hedges of commodity
and foreign exchange risk;
derivatives used for specific risk management purposes,
primarily to mitigate credit, foreign exchange and
interest rate risks.
Refer to Note 5 for further information on the income
statement classification of gains and losses from derivatives
activities.
- Unrealized gains and losses result from changes in
valuation.
(383,285) $
(105,733)
2,760
3,707
This revenue category includes debt and equity
underwriting and advisory fees. As an underwriter, the Firm
helps clients raise capital via public offering and private
placement of various types of debt and equity instruments.
Underwriting fees are primarily based on the issuance price
and quantity of the underlying instruments, and are
recognized as revenue typically upon execution of the
client's transaction. The Firm also manages and syndicates
loan arrangements. Credit arrangement and syndication
fees, included within debt underwriting fees, are recorded
as revenue after satisfying certain retention, timing and
yield criteria.
The Firm also provides advisory services, by assisting its
clients with mergers and acquisitions, divestitures,
restructuring and other complex transactions. Advisory fees
are recognized as revenue typically upon execution of the
client's transaction.
The following table presents the components of investment
banking fees.
Year ended December 31,
(in millions)
Underwriting
Equity
Debt
4,853
8,822
Total underwriting
2023
2022
2021
$ 1,149 $ 975 $ 3,969
2,610
2,732
3,759
Advisory
$
$ (89,981) $ (263,834) $ (29,470)
(31,419)
(69,515)
(4,799)
$ (333,349) $ (34,269)
$ (121,400)
$
46,511
Maximum payout/Notional amount
December 31, 2022
(in millions)
Credit derivatives
Credit default swaps
30,221
Other credit derivatives (a
Protection purchased
Protection sold
with identical
underlyings(c)
Net protection
(sold)/
purchased (d)
Other protection
purchased (e)
Total credit derivatives
$
$
$
(450,172)
(38,846)
(489,018)
$ 473,823
$
45,416
519,239
23,651
6,570
30,221
$
519,239
7,517
36,723
-
-
-
9,788
$
(489,018)
29,206
The following table presents all realized and unrealized
gains and losses recorded in principal transactions revenue.
This table excludes interest income and interest expense on
trading assets and liabilities, which are an integral part of
the overall performance of the Firm's client-driven market-
making activities in CIB and fund deployment activities in
Treasury and CIO. Refer to Note 7 for further information
on interest income and interest expense.
(495,557)
(47,165)
(542,722)
509,846
65,029
574,875
(e) Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on
the identical reference instrument.
The following tables summarize the notional amounts by the ratings, maturity profile, and total fair value, of credit derivatives
as of December 31, 2023 and 2022, where JPMorgan Chase is the seller of protection. The maturity profile is based on the
remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the rating of the reference
entity on which the credit derivative contract is based. The ratings and maturity profile of credit derivatives where JPMorgan
Chase is the purchaser of protection are comparable to the profile reflected below.
Protection sold - credit derivatives ratings (a)/maturity profile
December 31, 2023
(in millions)
Risk rating of reference entity
<1 year
(d) Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of
protection pays to the buyer of protection in determining settlement value.
1-5 years
Total notional
amount
Fair value of
receivables(b)
Fair value of
payables(b)
Net fair
value
Investment-grade
Noninvestment-grade
Total
>5 years
$
(c) Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on
protection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than
the notional amount of protection sold.
22,526
$
14,289
17,864
32,153
$
2,917
11,746
14,663
Credit-related notes
(a) Other credit derivatives predominantly consist of credit swap options and total return swaps.
(b) Predominantly represents Other protection purchased by CIB.
(b)
Total
$
(542,722)
$ 574,875
$
32,153
$
7,863
JPMorgan Chase & Co./2023 Form 10-K
All other interest-earning assets"
Total interest income
Interest expense
(a) Includes the impact of First Republic, primarily obligations of U.S. states and municipalities. Refer to Note 34 for additional information.
(d)
95,001
91,612
84,175 $
80,878
5,662
5,072
$
5,660
$
5,166
$
%
Average yield (a)
Fair value
$
Total
Due after
10 years (c)
Due after five years
through 10 years
Due after one year
through five years
Due in one
year or less
Amortized cost
Mortgage-backed securities
Available-for-sale securities
December 31, 2023 (in millions)
5.27 %
By remaining maturity
6.15 %
5.05 %
Obligations of U.S. states and municipalities
6.06 %
6.60 %
6.15 %
5.84 %
5.44 %
Average yield (a)
57,805
6,659
23,933
27,212
1
Fair value
58,051
$
6,736
23,884 $
27,430 $
$
1
$
Amortized cost
U.S. Treasury and government agencies
4.96 %
The following table presents the amortized cost and estimated fair value at December 31, 2023, of JPMorgan Chase's investment
securities portfolio by contractual maturity.
Contractual maturities and yields
JPMorgan Chase & Co./2023 Form 10-K
134,356
48
15,687
118,717
207,463
-
18,363
189,100
Obligations of U.S. states and municipalities
9,945
74
591
9,428
19,747
53
1,080
18,720
Asset-backed securities:
Collateralized loan obligations
Other
Total held-to-maturity securities
Total investment securities, net of
58,565
112,719
160,592
13,074
-
173,666
$ 54 $ (36)
(940)
$ (345)
$ 38
Provision for credit losses
(2,578)
$(2,380)
2021
$ 595
$ 198
622
(3,802)
$(3,180)
Investment securities losses
Realized losses
$
Amortized cost
Realized gains
9,262
9,966
10,361
10
734
9,637
Total mortgage-backed securities
125,857
56
13,194
U.S. Treasury and government agencies
2022
47
$
55
Amortized cost (b)
Total available-for-sale securities
(d)
9,573
9,538
6.41 %
6.82 %
5,151
$
5,175
$
3,506
3,503
6.48 %
3.72 %
6.13 %
869 $
861
23
23 $
$
Average yield (a)
Fair value
Amortized cost
10.62 %
- %
4.10 %
6.25 %
$
15.37 %
8,956 $
8,868
8,382
7,448
2.58 %
$
5,868
5,480
2.56%
- %
Average yield (a)
Fair value
$
$
Amortized cost
Mortgage-backed securities
Held-to-maturity securities
5.33 %
5.25 %
(d)
201,704
205,417
121,068 $
117,919
37,253 $
37,115
5.75 %
5.53 %
3.79 %
Average yield (a)
$
38,140
37,802
Fair value
100
14
66
8,841
8,814
3.68 %
Average yield (a)
Fair value
$
Amortized cost
Non-U.S. government debt securities
5.89 %
5.93 %
4.51 %
3.03 %
3.70 %
Average yield (a)
(d)
21,367
20,770
533
54
10
Fair value
21,243
20,647 $
531 $
$
$
4,553 $
3,658 $
4,335
20
162
$
$
14
$
67
81 $
$
Asset-backed securities
Average yield (a)
10 $
Fair value
Corporate debt securities
3.55 %
3.79 %
2.00 %
4.35 %
21,282
4,461
3,470
4,537
21,387
$
Amortized cost
$
352
1
1,131
74
813
81
1,944
155
Total mortgage-backed securities
5,166
170
1,143
123
6,309
293
Obligations of U.S. states and municipalities
3,051
241
364
162
3,415
403
Non-U.S. government debt securities
6,941
321
Commercial
3,848
27
2
Less than 12 months
Available-for-sale securities with gross unrealized losses
12 months or more
Year ended December 31, 2022
(in millions)
Fair value
Gross
unrealized losses
Fair value
Gross
unrealized losses
Total fair
value
Total gross
unrealized losses
Available-for-sale securities
Mortgage-backed securities:
Residential:
U.S.
1,187 $
71
260 $
40 $
1,447 $
111
Non-U.S.
2,848
25
70
2,918
357
10,789
678
746 $
29,423 $
1,592
2023
JPMorgan Chase & Co./2023 Form 10-K
229
Notes to consolidated financial statements
AFS securities are considered impaired if the fair value is
less than the amortized cost.
The Firm recognizes impairment losses in earnings if the
Firm has the intent to sell the debt security, or if it is more
likely than not that the Firm will be required to sell the debt
security before recovery of its amortized cost. In these
circumstances the impairment loss is recognized in
investment securities gains/(losses) in the Consolidated
Statements of Income and is equal to the full difference
between the amortized cost (net of allowance if applicable)
and the fair value of the security.
For impaired debt securities that the Firm has the intent
and ability to hold, the securities are evaluated to
determine if a credit loss exists. If it is determined that a
credit loss exists, that loss is recognized as an allowance for
credit losses through the provision for credit losses in the
Consolidated Statements of Income, limited by the amount
of impairment. Any impairment on debt securities that the
Firm has the intent and ability to hold not due to credit
losses is recorded in OCI.
Factors considered in evaluating credit losses include
adverse conditions specifically related to the industry,
geographic area or financial condition of the issuer or
underlying collateral of a security; and payment structure of
the security.
When assessing securities issued in a securitization for
credit losses, the Firm estimates cash flows considering
relevant market and economic data, underlying loan-level
data, and structural features of the securitization, such as
subordination, excess spread, overcollateralization or other
forms of credit enhancement, and compares the losses
projected for the underlying collateral ("pool losses")
against the level of credit enhancement in the securitization
structure to determine whether these features are sufficient
to absorb the pool losses, or whether a credit loss exists.
For beneficial interests in securitizations that are rated
below "AA" at their acquisition, or that can be contractually
prepaid or otherwise settled in such a way that the Firm
would not recover substantially all of its recorded
investment, the Firm evaluates impairment for credit losses
when there is an adverse change in expected cash flows.
HTM securities - credit risk
Allowance for credit losses
The allowance for credit losses on HTM securities
represents expected credit losses over the remaining
expected life of the securities.
The allowance for credit losses on HTM obligations of U.S.
states and municipalities and commercial mortgage-backed
securities is calculated by applying statistical credit loss
factors (estimated PD and LGD) to the amortized cost. The
credit loss factors are derived using a weighted average of
five internally developed eight-quarter macroeconomic
scenarios, followed by a single year straight-line
interpolation to revert to long run historical information for
periods beyond the forecast period. Refer to Note 13 for
further information on the eight-quarter macroeconomic
forecast.
The allowance for credit losses on HTM collateralized loan
obligations and U.S. residential mortgage-backed securities
is calculated as the difference between the amortized cost
and the present value of the cash flows expected to be
collected, discounted at the security's effective interest
rate. These cash flow estimates are developed based on
expectations of underlying collateral performance derived
using the eight-quarter macroeconomic forecast and the
single year straight-line interpolation, as well as considering
the structural features of the security.
The application of different inputs and assumptions into the
calculation of the allowance for credit losses is subject to
significant management judgment, and emphasizing one
input or assumption over another, or considering other
inputs or assumptions, could affect the estimate of the
allowance for credit losses on HTM securities.
Credit quality indicator
The primary credit quality indicator for HTM securities is the
risk rating assigned to each security. At December 31,
2023 and 2022, all HTM securities were rated investment
grade and were current and accruing, with approximately
99% and 98% rated at least AA+, respectively.
Allowance for credit losses on investment securities
The allowance for credit losses on investment securities was
$128 million, $96 million and $42 million as of
December 31, 2023, 2022 and 2021, respectively, which
included a cumulative-effect adjustment to retained
earnings related to the transfer of HTM securities to AFS for
the year ended December 31, 2023.
Selected impacts of investment securities on the
Consolidated statements of income
230
69
2,842
18
125
Corporate debt securities
150
2
207
22
357
24
Asset-backed securities:
Collateralized loan obligations
Other
Total available-for-sale securities with gross
915
unrealized losses
3,010
61
2,586
51
2,701
256
20,904 $
846
$
8,519 $
64
5,711
$
1,815
369,848
26,770 $
16,033 $
12 months or more
Year ended December 31, 2023
(in millions)
Fair value
Gross
unrealized
losses
Fair value
Gross
unrealized losses
Total fair
value
Total gross
unrealized losses
Available-for-sale securities
Mortgage-backed securities:
Residential:
U.S.
$
81 $ - $
1,160 $
68 $
1,241 $
68
Non-U.S.
722
1
722
Less than 12 months
1
Available-for-sale securities with gross unrealized losses
AFS securities impairment
61
178
58,260
1,755
27,272 342,754
61,414
2,325
425,305
4
1,522
110
59,896
105 36,762
2,215
388,648
$ 641,493 $
995 $47,983
$ 594,505
allowance for credit losses
$ 575,304 $ 1,940 $ 32,786 $ 544,458
(a) Represents the amount of portfolio layer method basis adjustments related to AFS securities hedged in a closed portfolio. Under U.S. GAAP portfolio layer
method basis adjustments are not allocated to individual securities, however the amounts impact the unrealized gains or losses in the table for the types
of securities being hedged. Refer to Note 1 and Note 5 for additional information.
(b) The Firm purchased $4.1 billion, $33.7 billion and $111.8 billion of HTM securities for the years ended December 31, 2023, 2022 and 2021,
respectively.
(c) The amortized cost of investment securities is reported net of allowance for credit losses of $128 million and $96 million at December 31, 2023 and
2022, respectively.
(d) Excludes $2.8 billion and $2.5 billion of accrued interest receivable at December 31, 2023 and 2022, respectively, included in accrued interest and
accounts receivable on the Consolidated balance sheets. The Firm generally does not recognize an allowance for credit losses on accrued interest
receivable, consistent with its policy to write them off no later than 90 days past due by reversing interest income. The Firm did not reverse through
interest income any accrued interest receivable for the years ended December 31, 2023 and 2022.
(e) As of December 31, 2023, included $24.2 billion of AFS securities associated with First Republic. Refer to Note 34 for additional information.
At December 31, 2023, the investment securities portfolio
consisted of debt securities with an average credit rating of
AA+ (based upon external ratings where available, and
where not available, based primarily upon internal risk
ratings). Risk ratings are used to identify the credit quality
of securities and differentiate risk within the portfolio. The
Firm's internal risk ratings generally align with the
qualitative characteristics (e.g., borrower capacity to meet
financial commitments and vulnerability to changes in the
economic environment) defined by S&P and Moody's,
however the quantitative characteristics (e.g., probability of
default ("PD") and loss given default (“LGD")) may differ as
they reflect internal historical experiences and
assumptions. Risk ratings are assigned at acquisition,
reviewed on a regular and ongoing basis by Credit Risk
Management and adjusted as necessary over the life of the
investment for updated information affecting the issuer's
ability to fulfill its obligations.
228
JPMorgan Chase & Co./2023 Form 10-K
The following tables present the fair value and gross unrealized losses by aging category for AFS securities at December 31,
2023 and 2022. The tables exclude U.S. Treasury and government agency securities and U.S. GSE and government agency
MBS with unrealized losses of $4.6 billion and $9.6 billion, at December 31, 2023 and 2022, respectively; changes in the
value of these securities are generally driven by changes in interest rates rather than changes in their credit profile given the
explicit or implicit guarantees provided by the U.S. government.
Commercial
228
3
28
88
28
Asset-backed securities:
Collateralized loan obligations
Other
Total available-for-sale securities with gross
unrealized losses
932
2
3,744
26
4,676
28
208
1
1,288
25
1,496
26
(a)
10,737
$
49 $
79
9
Corporate debt securities
359
1,775
136
2,003
139
Total mortgage-backed securities
309
3
3,657
205
3,966
208
866 $
Obligations of U.S. states and municipalities
20
2,278
246
4,412
266
Non-U.S. government debt securities
7,145
23
4,987
336
12,132
2,134
Year ended December 31,
111,649
99,791
3.02 %
125,899
112,719
incentive plans in its Consolidated statements of income.
2021
Year ended December 31, (in millions)
Cost of prior grants of RSUS, PSUs and
SARS that are amortized over their
applicable vesting periods
2023
2022
$1,510
$ 1,253 $ 1,161
Tax benefits
Income tax benefits (including tax benefits from dividends
or dividend equivalents) related to share-based incentive
arrangements recognized in the Firm's Consolidated
statements of income for the years ended December 31,
2023, 2022 and 2021, were $836 million, $901 million
and $957 million, respectively.
Accrual of estimated costs of share-
based awards to be granted in future
periods, predominantly those to full-
career eligible employees
Total noncash compensation expense
related to employee share-based
incentive plans
1,607
1,541
1,768
$ 3,117 $2,794 $2,929
At December 31, 2023, approximately $1.0 billion
(pretax) of compensation expense related to unvested
awards had not yet been charged to net income. That cost is
expected to be amortized into compensation expense over a
weighted-average period of 1.7 years. The Firm does not
capitalize any compensation expense related to share-
based compensation awards to employees.
226
JPMorgan Chase & Co./2023 Form 10-K
Note 10 - Investment securities
Investment securities consist of debt securities that are
classified as AFS or HTM. Debt securities classified as
trading assets are discussed in Note 2. Predominantly all of
the Firm's AFS and HTM securities are held by Treasury and
CIO in connection with its asset-liability management
activities.
AFS securities are carried at fair value on the Consolidated
balance sheets. Unrealized gains and losses, after any
applicable hedge accounting adjustments or allowance for
credit losses, are reported in AOCI. The specific
identification method is used to determine realized gains
and losses on AFS securities, which are included in
investment securities gains/(losses) on the Consolidated
statements of income. HTM securities, which the Firm has
the intent and ability to hold until maturity, are carried at
amortized cost, net of allowance for credit losses, on the
Consolidated balance sheets.
For both AFS and HTM securities, purchase discounts or
premiums are generally amortized into interest income on a
level-yield basis over the contractual life of the security.
However, premiums on certain callable debt securities are
amortized to the earliest call date.
The Firm recognized the following noncash compensation
expense related to its various employee share-based
Effective January 1, 2023, the Firm adopted the portfolio
layer method hedge accounting guidance which permitted a
transfer of HTM securities to AFS upon adoption. The Firm
transferred obligations of U.S. states and municipalities with
a carrying value of $7.1 billion resulting in the recognition
of $38 million net pre-tax unrealized losses in AOCI. Refer
to Note 1 and Note 24 for additional information.
Compensation expense
ΝΑ
141.19
Granted
23,758
1,244
139.39
Exercised or vested
(17,773)
Forfeited
(1,468)
134.86
142.11
(261)
46.58
Canceled
Outstanding, December 31
Exercisable, December 31
ΝΑ
ΝΑ
52,243 $
141.31
2,250 $ 152.19
7.7 $
40,444
ΝΑ
The total fair value of RSUs and PSUs that vested during the years ended December 31, 2023, 2022 and 2021, was $2.5
billion, $3.2 billion and $2.9 billion, respectively. The total intrinsic value of options exercised during the years ended
December 31, 2023, 2022 and 2021, was $24 million, $75 million and $232 million, respectively.
During 2022, the Firm transferred investment securities
with a fair value of $78.3 billion from AFS to HTM for capital
management purposes. AOCI included pretax unrealized
losses of $4.8 billion on the securities at the date of
transfer.
Unrealized gains or losses at the date of transfer of these
securities continue to be reported in AOCI and are amortized
into interest income on a level-yield basis over the
remaining life of the securities. This amortization will offset
the effect on interest income of the amortization of the
premium or discount resulting from the transfer recorded at
fair value.
Transfers of securities between AFS and HTM are non-cash
transactions.
111
1,466
Non-U.S.
Commercial
1,608
4
1
1,611
3,176
5
27
3,154
2,930
12
139
2,803
2,113
-
155
1,958
Total mortgage-backed securities
95,001
896
4,285
1
1,576
2,028
68
227
JPMorgan Chase & Co./2023 Form 10-K
Notes to consolidated financial statements
The amortized costs and estimated fair values of the investment securities portfolio were as follows for the dates indicated.
December 31, (in millions)
Available-for-sale securities
Mortgage-backed securities:
2023
2022
Gross
Amortized unrealized unrealized
cost (c)(d)
gains losses
Gross
Fair
value
$
Amortized
+(c)(d)
cost
Gross
unrealized
losses
Fair
value
U.S. GSES and government agencies
Residential:
$ 88,377 $ 870 $ 4,077 $ 85,170
$ 77,194 $
479 $ 6,170
$ 71,503
U.S.
2,086
10
Gross
unrealized
gains
91,612
2,511
47,726 $
(in millions)
Level 1
Level 2(b)
Level 3 (c) Total fair value
Level 1(a)
(b)
Level 2
Level 3 (c) Total fair value
Assets measured at fair value classified in the
fair value hierarchy
$ 6,521 $ 10,713 $
3,124 $
20,358 $ 5,308 $ 9,617 $ 2,613 $
17,538
Assets measured at fair value using NAV as a
practical expedient
Net defined benefit pension plan payables
2,097
(442)
2,593
(241)
Total fair value of plan assets
$
22,013
$
19,890
(a)
(a) Consists predominantly of equity securities, U.S. federal, state, and local and non-U.S. government debt securities, and cash equivalents.
(b) Consists predominantly of corporate debt securities and U.S. federal, state, and local and non-U.S. government debt securities.
(c) Consists of corporate-owned life insurance policies, fund investments, and participating annuity contracts in 2023, and corporate-owned life insurance
policies and participating annuity contracts in 2022.
December 31,
2023
3
The following table presents the weighted-average actuarial assumptions used to determine the net periodic benefit costs for
the defined benefit pension and OPEB plans.
Year ended December 31,
Discount rate
Expected long-term rate of return on plan assets
Plan assumptions
The Firm's expected long-term rate of return is a blended
weighted average, by asset allocation of the projected long-
term returns for the various asset classes, taking into
consideration local market conditions and the specific
allocation of plan assets. Returns on asset classes are
developed using a forward-looking approach and are not
strictly based on historical returns, with consideration given
to current market conditions and the portfolio mix of each
plan.
The discount rates used in determining the benefit
obligations are generally provided by the Firm's actuaries,
with the Firm's principal defined benefit pension plan using
a rate that was selected by reference to the yields on
portfolios of bonds with maturity dates and coupons that
closely match each of the plan's projected cash flows.
Fair value measurement of the plans' assets and liabilities
Defined benefit pension and OPEB plans
2023
2022
5.14 %
2.54 %
5.74 %
3.68 %
2021
2.17 %
2.97 %
Investment strategy and asset allocation
The assets of the Firm's defined benefit pension plans are
held in various trusts and are invested in well-diversified
portfolios of equity and fixed income securities, cash and
cash equivalents, and alternative investments. The Firm
regularly reviews the asset allocations and asset managers,
as well as other factors that could impact the portfolios,
which are rebalanced when deemed necessary. As of
December 31, 2023, the approved asset allocation ranges
by asset class for the Firm's principal defined benefit plan
are 42-100% debt securities, 0-40% equity securities,
0-2% real estate, and 0-10% alternatives.
Assets held by the Firm's defined benefit pension and OPEB
plans do not include securities issued by JPMorgan Chase or
its affiliates, except through indirect exposures through
investments in exchange traded funds, mutual funds and
collective investment funds managed by third-parties. The
defined benefit pension and OPEB plans hold investments
that are sponsored or managed by affiliates of JPMorgan
Chase in the amount of $1.8 billion and $1.7 billion, as of
December 31, 2023 and 2022, respectively.
Refer to Note 2 for information on fair value measurements, including descriptions of level 1, 2, and 3 of the fair value
hierarchy and the valuation methods employed by the Firm.
Pension plan assets and liabilities measured at fair value
Defined benefit pension and OPEB plans
2022
JPMorgan Chase & Co./2023 Form 10-K
223
Notes to consolidated financial statements
The Firm's policy for issuing shares upon settlement of
employee share-based incentive awards is to issue either
new shares of common stock or treasury shares. During
2023, 2022 and 2021, the Firm settled all of its employee
share-based awards by issuing treasury shares.
Refer to Note 23 for further information on the
classification of share-based awards for purposes of
calculating earnings per share.
JPMorgan Chase & Co./2023 Form 10-K
225
Notes to consolidated financial statements
RSUS, PSUs and SARS activity
Generally, compensation expense for RSUs and PSUs is measured based on the number of units granted multiplied by the stock
price at the grant date, and for SARS, is measured at the grant date using the Black-Scholes valuation model. Compensation
expense for these awards is recognized in net income as described previously. The following table summarizes JPMorgan
Chase's RSUs, PSUs and SARS activity for 2023.
RSUS/PSUS
SARS
Year ended December 31, 2023
Weighted-
(in thousands, except weighted-average data, and
where otherwise stated)
Number of
units
Weighted-
average grant
date fair value
average
Weighted-average
remaining
Number of
awards
exercise
price
contractual life
(in years)
Aggregate
intrinsic
value
Outstanding, January 1
The Firm separately recognizes compensation expense for
each tranche of each award, net of estimated forfeitures, as
if it were a separate award with its own vesting date.
Generally, for each tranche granted, compensation expense
is recognized on a straight-line basis from the grant date
until the vesting date of the respective tranche, provided
that the employees will not become full-career eligible
during the vesting period. For awards with full-career
eligibility provisions and awards granted with no future
substantive service requirement, the Firm accrues the
estimated value of awards expected to be awarded to
employees as of the grant date without giving consideration
to the impact of post-employment restrictions. For each
tranche granted to employees who will become full-career
eligible during the vesting period, compensation expense is
recognized on a straight-line basis from the grant date until
the earlier of the employee's full-career eligibility date or
the vesting date of the respective tranche.
Once the PSUs and dividend equivalent share units have
vested, the shares of common stock that are delivered, after
applicable tax withholding, must be retained for an
additional holding period, for a total combined vesting and
holding period of approximately five to eight years from the
grant date depending on regulations in certain countries.
Under the LTI Plans, stock appreciation rights ("SARS")
were generally granted with an exercise price equal to the
fair value of JPMorgan Chase's common stock on the grant
date. SARS generally expire ten years after the grant date.
In 2021, the Firm awarded its Chairman and CEO and its
President and Chief Operating Officer 1.5 million and
750,000 SARS, respectively. There were no grants of SARS
in 2023 or 2022.
Performance share units ("PSUs") are granted annually,
and approved by the Firm's Board of Directors, to members
of the Firm's Operating Committee under the variable
compensation program. PSUs are subject to the Firm's
achievement of specified performance criteria over a three-
year period. The number of awards that vest can range
from zero to 150% of the grant amount. In addition,
dividends that accrue during the vesting period are
reinvested in dividend equivalent share units. PSUs and the
related dividend equivalent share units are converted into
shares of common stock after vesting.
RSUS are awarded at no cost to the recipient upon their
grant. Generally, RSUs are granted annually and vest at a
rate of 50% after two years and 50% after three years and
are converted into shares of common stock as of the vesting
date. In addition, RSUs typically include full-career eligibility
provisions, which allow employees to continue to vest upon
voluntary termination based on age and/or service-related
requirements, subject to post-employment and other
restrictions. All RSU awards are subject to forfeiture until
vested and contain clawback provisions that may result in
cancellation under certain specified circumstances.
Predominantly all RSUs entitle the recipient to receive cash
payments equivalent to any dividends paid on the
underlying common stock during the period the RSUs are
outstanding.
Changes in level 3 fair value measurements using
significant unobservable inputs
Investments classified in level 3 of the fair value hierarchy
increased in 2023 to $3.1 billion, due to $400 million in
unrealized gains and $173 million of transfers in, partially
offset by $59 million in settlements. The decline in 2022
was due to $501 million in unrealized losses and
$54 million in settlements.
Estimated future benefit payments
The following table presents benefit payments expected to
be paid for the defined benefit pension and OPEB plans for
the years indicated.
Year ended December 31,
(in millions)
2024
2025
2026
2027
2028
Years 2029-2033
139.90
$
1,142
1,125
1,113
1,077
1,063
5,143
224
JPMorgan Chase & Co./2023 Form 10-K
Note 9 - Employee share-based incentives
Employee share-based awards
In 2023, 2022 and 2021, JPMorgan Chase granted long-
term share-based awards to certain employees under its
LTIP, as amended and restated effective May 15, 2018, and
subsequently amended effective May 18, 2021. Under the
terms of the LTIP, as of December 31, 2023, 54 million
shares of common stock were available for issuance
through May 2025. The LTIP is the only active plan under
which the Firm is currently granting share-based incentive
awards. In the following discussion, the LTIP, plus prior Firm
plans and plans assumed as the result of acquisitions, are
referred to collectively as the "LTI Plans," and such plans
constitute the Firm's share-based incentive plans.
Defined benefit
pension and OPEB
plans
$
84,059
78,081
66,647 $
61,560
1.11 %
63,974 $
63,012
0.63 %
Average yield (a)
Fair value
$
Amortized cost (b)
Total held-to-maturity securities
6.50 %
77,939 $
69,480
6.58 %
6.86 %
%
Average yield(a)
60,015
39,737
20,262
16
Fair value
6.36 %
60,380
161,382 $
148,702
2.74 %
232
In resale and securities borrowed agreements, the Firm is
exposed to credit risk to the extent that the value of the
securities received is less than initial cash principal
advanced and any collateral amounts exchanged. In
repurchase and securities loaned agreements, credit risk
exposure arises to the extent that the value of underlying
securities advanced exceeds the value of the initial cash
principal received, and any collateral amounts exchanged.
Additionally, the Firm typically enters into master netting
agreements and other similar arrangements with its
counterparties, which provide for the right to liquidate the
underlying securities and any collateral amounts exchanged
in the event of a counterparty default. It is also the Firm's
policy to take possession, where possible, of the securities
underlying resale and securities borrowed agreements.
Refer to Note 29 for further information regarding assets
pledged and collateral received in securities financing
agreements.
Securities financing agreements expose the Firm primarily
to credit and liquidity risk. To manage these risks, the Firm
monitors the value of the underlying securities
(predominantly high-quality securities collateral, including
government-issued debt and U.S. GSEs and government
agencies MBS) that it has received from or provided to its
counterparties compared to the value of cash proceeds and
exchanged collateral, and either requests additional
collateral or returns securities or collateral when
appropriate. Margin levels are initially established based
upon the counterparty, the type of underlying securities,
and the permissible collateral, and are monitored on an
ongoing basis.
Credit risk mitigation practices
The Firm has elected the fair value option for certain
securities financing agreements. Refer to Note 3 for further
information regarding the fair value option. The securities
financing agreements for which the fair value option has
been elected are reported within securities purchased
under resale agreements, securities loaned or sold under
repurchase agreements, and securities borrowed on the
Consolidated balance sheets. Generally, for agreements
carried at fair value, current-period interest accruals are
recorded within interest income and interest expense, with
changes in fair value reported in principal transactions
revenue. However, for financial instruments containing
embedded derivatives that would be separately accounted
for in accordance with accounting guidance for hybrid
instruments, all changes in fair value, including any interest
elements, are reported in principal transactions revenue.
Securities financing agreements not elected under the fair
value option are measured at amortized cost. As a result of
the Firm's credit risk mitigation practices described below,
the Firm did not hold any allowance for credit losses with
respect to resale and securities borrowed arrangements as
of December 31, 2023 and 2022.
collateralized financings on the Firm's Consolidated balance
sheets. Where appropriate under applicable accounting
guidance, securities financing agreements with the same
counterparty are reported on a net basis. Refer to Note 1
for further discussion of the offsetting of assets and
liabilities. Fees received and paid in connection with
securities financing agreements are recorded over the life
of the agreement in interest income and interest expense
on the Consolidated statements of income.
Securities financing agreements are treated as
Note 11 - Securities financing activities
JPMorgan Chase enters into resale, repurchase, securities
borrowed and securities loaned agreements (collectively,
“securities financing agreements") primarily to finance the
Firm's inventory positions, acquire securities to cover short
sales, accommodate customers' financing needs, settle
other securities obligations and to deploy the Firm's excess
cash.
369,942
Notes to consolidated financial statements
JPMorgan Chase & Co./2023 Form 10-K
(d) Includes AFS securities associated with First Republic, primarily due after 10 years. Refer to Note 34 for additional information.
(c) Substantially all of the Firm's U.S. residential MBS and collateralized mortgage obligations are due in 10 years or more, based on contractual maturity. The
estimated weighted-average life, which reflects anticipated future prepayments, is approximately seven years for agency residential MBS, seven years for
agency residential collateralized mortgage obligations, and six years for nonagency residential collateralized mortgage obligations.
(b) For purposes of this table, the amortized cost of available-for-sale securities excludes the allowance for credit losses of $34 million and the portfolio layer
fair value hedge basis adjustments of $73 million at December 31, 2023. The amortized cost of held-to-maturity securities also excludes the allowance for
credit losses of $94 million at December 31, 2023.
(a) Average yield is computed using the effective yield of each security owned at the end of the period, weighted based on the amortized cost of each security.
The effective yield considers the contractual coupon, amortization of premiums and accretion of discounts, and the effect of related hedging derivatives,
including closed portfolio hedges. Taxable-equivalent amounts are used where applicable. The effective yield excludes unscheduled principal prepayments;
and accordingly, actual maturities of securities may differ from their contractual or expected maturities as certain securities may be prepaid. However, for
certain callable debt securities, the average yield is calculated to the earliest call date.
2.61 %
342,754
3.96 %
231
40,019 $
20,345 $
$
1.26 %
0.97 %
0.63 %
Average yield (a)
173,666
160,592
$
$
48,929
41,516
- %
56,064
Fair value
$
60,763
63,974 $
$
Amortized cost
U.S. Treasury and government agencies
2.97 %
63,012
0.93 %
Obligations of U.S. states and municipalities
Amortized cost
16
$
Amortized cost
Asset-backed securities
3.92 %
3.94 %
3.21 %
%
%
Average yield (a)
9,428
9,174
9,997
$
9,714
283 $
254
Fair value
$
$
JPMorgan Chase & Co./2023 Form 10-K
485 6,463
(in millions)
205,456
1,762
5,514
201,704
216,188
890 11,221
205,857
Held-to-maturity securities (b)
Mortgage-backed securities:
6,752
U.S. GSES and government agencies
U.S. Residential
39
11,643
9,709
4
Commercial
10,534
13
970
581
105,614
94,010
8,743
Total available-for-sale securities
ΝΑ
125
5,792
Other
2,804
8
26
2,786
3,152
(e)
2
3,085
Unallocated portfolio layer fair value
basis adjustments (a)
73
(73)
ΝΑ
ΝΑ
ΝΑ
ΝΑ
69
1
113,492
13,709
Non-U.S. government debt securities
6,786
403
86
7,103
21,367
266
390
10,503
21,243
92,060
302 3,459
95,217
57,805
522
276
58,051
U.S. Treasury and government agencies
Obligations of U.S. states and municipalities
35
21,387
359
99,818
28
11
6,769
Collateralized loan obligations
Asset-backed securities:
357
24
254
381
28
128
Corporate debt securities
19,696
678
14
20,360
21,282
100
5,916
December 31, 2023 and 2022. When the Firm has obtained
an appropriate legal opinion with respect to a master
netting agreement with a counterparty and where other
relevant netting criteria under U.S. GAAP are met, the Firm
nets, on the Consolidated balance sheets, the balances
outstanding under its securities financing agreements with
the same counterparty. In addition, the Firm exchanges
securities and/or cash collateral with its counterparty to
reduce the economic exposure with the counterparty, but
such collateral is not eligible for net Consolidated balance
sheet presentation. Where the Firm has obtained an
appropriate legal opinion with respect to the counterparty
master netting agreement, such collateral, along with
Net amounts (c)
(247,181) $
(43,610)
523,308 $
244,046
$
Securities purchased under resale agreements
Securities borrowed
Assets
Net amounts
(c)
276,127 $
200,436
(b)
Amounts
presented on the
Consolidated
balance sheets
Amounts netted
on the
Consolidated
balance sheets
Gross amounts
(in millions)
December 31, 2023
relevant netting criteria under U.S. GAAP, is presented in
the table below as "Amounts not nettable on the
Consolidated balance sheets," and reduces the "Net
amounts" presented. Where a legal opinion has not been
either sought or obtained, the securities financing balances
are presented gross in the "Net amounts" below. In
transactions where the Firm is acting as the lender in a
securities-for-securities lending agreement and receives
securities that can be pledged or sold as collateral, the Firm
recognizes the securities received at fair value within other
assets and the obligation to return those securities within
accounts payable and other liabilities on the Consolidated
balance sheets.
securities financing balances that do not meet all these
Amounts not
nettable on the
Consolidated
balance sheets"
(267,582)
(144,543)
8,545
55,893
Liabilities
(b)
Amounts not
nettable on the
Consolidated
balance sheets
Amounts
presented on the
Consolidated
balance sheets
Amounts netted
on the
Consolidated
balance sheets
Gross amounts
December 31, 2022
31
(8,501)
30,793
$
(182,011)
212,804 $
8,532
(247,181) $
(43,610)
459,985 $
52,142
Securities loaned and other (a)
$
Securities sold under repurchase agreements
The table below summarizes the gross and net amounts of
the Firm's securities financing agreements, as of
$
(d) The wholesale portfolio segment's classes align with loan classifications as defined by the bank regulatory agencies, based on the loan's collateral,
purpose, and type of borrower.
(in millions)
$ 326,409
70,866
Auto and other
Residential real estate
(a)
$ 237,561
2022
2023
December 31, (in millions)
The following table provides information about retained
consumer loans, excluding credit card, by class.
(a) Includes scored mortgage and home equity loans held in CCB and AWM, and scored mortgage loans held in CIB.
(b) Includes scored auto, business banking and consumer unsecured loans as well as overdrafts, primarily in CCB.
(c) Includes loans held in CIB, CB, AWM, Corporate, and risk-rated exposure held in CCB, for which the wholesale methodology is applied when determining the
allowance for loan losses.
Notes to consolidated financial statements
239
JPMorgan Chase & Co./2023 Form 10-K
Net gains/(losses) on sales of loans and lending-related commitments (including adjustments to record loans and lending-
related commitments held-for-sale at the lower of cost or fair value) recognized in noninterest revenue was $56 million for the
year ended December 31, 2023 of which $62 million was related to loans. Net gains/(losses) on sales of loans and lending-
related commitments was $(186) million for the year ended December 31, 2022 of which $(48) million was related to loans.
Net gains/(losses) on sales of loans and lending-related commitments was $261 million for the year ended December 31,
2021 of which $253 million was related to loans. In addition, the sale of loans may also result in write downs, recoveries or
changes in the allowance recognized in the provision for credit losses.
Gains and losses on sales of loans
63,192
(c) Excludes purchases of retained loans of $5.1 billion, $12.4 billion and $25.8 billion for the years ended December 31, 2023, 2022 and 2021,
respectively, which are predominantly sourced through the correspondent origination channel and underwritten in accordance with the Firm's standards.
(d) Includes loans acquired in the First Republic acquisition consisting of $91.9 billion in Consumer, excluding credit card and $59.2 billion in Wholesale.
Refer to Note 34 for additional information.
Total retained loans
$ 300,753
(in millions, except ratios)
Revolving loans
Term loans by origination year (f)
December 31, 2023
Delinquency is the primary credit quality indicator for retained residential real estate loans. The following tables provide
information on delinquency and gross charge-offs for the year ended December 31, 2023.
Residential real estate
JPMorgan Chase & Co./2023 Form 10-K
240
the portfolio. Similar to residential real estate loans,
geographic distribution provides insights into the
portfolio performance based on regional economic
activity and events.
For scored auto and business banking loans, geographic
distribution is an indicator of the credit performance of
For residential real estate loans, the current estimated
LTV ratio, or the combined LTV ratio in the case of junior
lien loans, is an indicator of the potential loss severity in
the event of default. Additionally, LTV or combined LTV
ratios can provide insight into a borrower's continued
willingness to pay, as the delinquency rate of high-LTV
loans tends to be greater than that for loans where the
borrower has equity in the collateral. The geographic
distribution of the loan collateral also provides insight as
to the credit quality of the portfolio, as factors such as
the regional economy, home price changes and specific
events such as natural disasters, will affect credit
quality. The borrower's current or "refreshed" FICO
score is a secondary credit quality indicator for certain
loans, as FICO scores are an indication of the borrower's
credit payment history. Thus, a loan to a borrower with a
low FICO score (less than 660) is considered to be of
higher risk than a loan to a borrower with a higher FICO
score. Further, a loan to a borrower with a high LTV
ratio and a low FICO score is at greater risk of default
than a loan to a borrower that has both a high LTV ratio
and a high FICO score.
•
•
Delinquency rates are the primary credit quality indicator
for consumer loans. Loans that are more than 30 days past
due provide an early warning of borrowers who may be
experiencing financial difficulties and/or who may be
unable or unwilling to repay the loan. As the loan continues
to age, it becomes more clear whether the borrower is likely
to be unable or unwilling to pay. In the case of residential
real estate loans, late-stage delinquencies (greater than
150 days past due) are a strong indicator of loans that will
ultimately result in a foreclosure or similar liquidation
transaction. In addition to delinquency rates, other credit
quality indicators for consumer loans vary based on the
class of loan, as follows:
(a) Included $90.7 billion of loans associated with First Republic.
$ 397,275
2023
(b) Includes purchases of residential real estate loans, including the Firm's voluntary repurchases of certain delinquent loans from loan pools as permitted by
Government National Mortgage Association ("Ginnie Mae") guidelines for the years ended December 31, 2023, 2022 and 2021. The Firm typically elects
to repurchase these delinquent loans as it continues to service them and/or manage the foreclosure process in accordance with applicable requirements of
Ginnie Mae, FHA, RHS, and/or VA.
3,403
Year ended December 31,
(in millions)
2021
JPMorgan Chase & Co./2023 Form 10-K
44,818
1,284
2,713
$
1,088
41,934
1,055
229
2,884
$
$
1,625 (b)(c)
$
Total
Wholesale
Purchases
(a) Reclassifications of loans to held-for-sale are non-cash transactions.
Sales
credit card
31,821
2,178
1,637
$
1,122
31,022
799
1,225
Retained loans reclassified to held-for-sale (a)
$
$
515
$
(b)(c)
Total
Wholesale
Credit card
Consumer, excluding
2022
2021
2020
0.13 %
0.13 %
$ - $ - $ - $ - $ 4 $
% of 30+ days past due to
(d)(e)
total retained loans
Gross charge-offs
0.15 %
$ 326,409
8,538
$
7,533
$
$ 60,820
$ 21,592
$ 55,624
$ 84,602
0.14 %
$ 64,450
0.29 %
0.72 %
2022
(in millions, except ratios)
Loan delinquency(a)(b)
Within the
Revolving loans
Term loans by origination year (f)
December 31, 2022
204
$
7
$
26
$
167
0.63 %
4.53 %
2.04 %
$ 23,250
Total retained loans
1,380
682
$ 7,479
$ 59,563
$ 21,530
$ 55,546
$ 84,496
$ 64,366
$ 23,216
+(c)
Current
Loan delinquency(a)(b)
Total
Converted to
term loans
Within the
revolving
period
Prior to
2019
2019
$
30-149 days past due
33
74
164
5
456
21
8
17
10
Credit card
1
$ 324,347
8,151
223
49
801
41
70
89
150 or more days past due
2021
credit card
2022
Notes to consolidated financial statements
Loan portfolio
The Firm's loan portfolio is divided into three portfolio segments, which are the same segments used by the Firm to determine
the allowance for loan losses: Consumer, excluding credit card; Credit card; and Wholesale. Within each portfolio segment the
Firm monitors and assesses the credit risk in the following classes of loans, based on the risk characteristics of each loan class.
Consumer, excluding
credit card
⚫ Residential real estate
• Auto and other(b)
(a)
Credit card
• Credit card loans
Wholesale (c)(d)
• Secured by real estate
• Commercial and industrial
Other
(e)
311,375
$
237
10,004
JPMorgan Chase & Co./2023 Form 10-K
The Firm acquires property from borrowers through loan
restructurings, workouts, and foreclosures. Property
acquired may include real property (e.g., residential real
estate, land, and buildings) and other commercial and
personal property (e.g., automobiles, aircraft, railcars, and
ships).
Interest income on these loans is accrued and recognized
based on the contractual rate of interest. Changes in fair
value are recognized in noninterest revenue. Loan
origination fees are recognized upfront in noninterest
revenue. Loan origination costs are recognized in the
associated expense category as incurred.
Because these loans are recognized at fair value, the Firm's
allowance for loan losses and charge-off policies do not
apply to these loans. However, loans at fair value are
subject to the Firm's nonaccrual policies.
Refer to Note 3 for further information on the Firm's
elections of fair value accounting under the fair value
option. Refer to Note 2 and Note 3 for further information
on loans carried at fair value and classified as trading
assets.
236
JPMorgan Chase & Co./2023 Form 10-K
Loan classification changes
Loans in the held-for-investment portfolio that
management decides to sell are transferred to the held-for-
sale portfolio at the lower of cost or fair value on the date
of transfer. Credit-related losses are charged against the
allowance for loan losses; non-credit related losses such as
those due to changes in interest rates or foreign currency
exchange rates are recognized in noninterest revenue.
In the event that management decides to retain a loan in
the held-for-sale portfolio, the loan is transferred to the
held-for-investment portfolio at amortized cost on the date
of transfer. These loans are subsequently assessed for
impairment based on the Firm's allowance methodology.
Refer to Note 13 for a further discussion of the
methodologies used in establishing the Firm's allowance for
loan losses.
Loan modifications
The Firm seeks to modify certain loans in conjunction with
its loss mitigation activities. Through the modification,
JPMorgan Chase grants one or more concessions to a
borrower who is experiencing financial difficulty in order to
minimize the Firm's economic loss and avoid foreclosure or
repossession of the collateral, and to ultimately maximize
payments received by the Firm from the borrower. The
concessions granted vary by program and by borrower-
specific characteristics, and may include interest rate
reductions, term extensions, other-than-insignificant
payment delays or principal forgiveness. Effective January
1, 2023 the Firm adopted the Financial Instruments - Credit
Losses: Troubled Debt Restructurings and Vintage
Disclosure accounting guidance, which changed the
accounting for loan modifications from TDRs to FDMs. Refer
to Note 1 for further information.
Loans, except for credit card loans, reported as FDMs are
generally placed on nonaccrual status, although in many
cases such loans were already on nonaccrual status prior to
modification. These loans may be returned to performing
status (the accrual of interest is resumed) if the following
criteria are met: (i) the borrower has performed under the
modified terms for a minimum of six months and/or six
payments, and (ii) the Firm has an expectation that
repayment of the modified loan is reasonably assured based
on, for example, the borrower's debt capacity and level of
future earnings, collateral values, LTV ratios, and other
current market considerations. In certain limited and well-
defined circumstances in which the loan is current at the
modification date, such loans are not placed on nonaccrual
status at the time of modification.
The allowance for credit losses associated with FDMs is
measured using the Firm's established allowance
methodology, which considers the expected re-default rates
for the modified loans. Refer to Note 13 for further
discussion.
For periods ending prior to January 1, 2023, modifications
of loans where the Firm granted concessions to a borrower
experiencing financial difficulty were accounted for and
reported as TDRs. The concessions granted varied by
program and by borrower-specific characteristics, and
included interest rate reductions, term extensions, payment
delays, principal forgiveness, or the acceptance of equity or
other assets in lieu of payments. Loans with short-term and
other insignificant modifications that were not considered
concessions were not TDRs.
Loans modified in TDRs were generally measured for
impairment using the Firm's established asset-specific
allowance methodology, which considers the expected
redefault rates for the modified loans. A loan modified in a
TDR generally remained subject to the asset-specific
component of the allowance throughout its remaining life,
regardless of whether the loan was performing and had
been returned to accrual status. Refer to Note 13 for
further discussion.
Foreclosed property
The Firm recognizes foreclosed property upon receiving
assets in satisfaction of a loan (e.g., by taking legal title or
physical possession). For loans collateralized by real
property, the Firm generally recognizes the asset received
at foreclosure sale or upon the execution of a deed in lieu of
foreclosure transaction with the borrower. Foreclosed
assets are reported in other assets on the Consolidated
balance sheets and initially recognized at fair value less
estimated costs to sell. Each quarter the fair value of the
acquired property is reviewed and adjusted, if necessary, to
the lower of cost or fair value. Subsequent adjustments to
fair value are charged/credited to noninterest revenue.
Operating expense, such as real estate taxes and
maintenance, are charged to other expense.
Loans for which the fair value option has been elected are
measured at fair value, with changes in fair value recorded
in noninterest revenue.
618
Credit card
185,175
(a)
487
Credit card
211,123
$
$ 397,275
(a)
Consumer, excluding
credit card
Total
At fair value
Held-for-sale
Retained
(in millions)
December 31, 2023
The following tables summarize the Firm's loan balances by portfolio segment.
(e) Includes loans to SPES, financial institutions, personal investment companies and trusts, individuals and individual entities (predominantly Global Private
Bank clients within AWM and J.P. Morgan Wealth Management within CCB), states and political subdivisions, as well as loans to nonprofits. Refer to Note
14 for more information on SPES.
12,331
Wholesale
$ 603,670
Wholesale
$ 672,472
3,498
26,520
Total (b)(c)
$ 1,280,870
3,985
38,851
$
$ 300,753
credit card
Consumer, excluding
$ 410,093
Total
At fair value
Held-for-sale
Retained
(in millions)
December 31, 2022
$ 1,323,706
$ 702,490
211,123
$
(a)
Loans at fair value
Loan origination fees or costs and purchase price discounts
or premiums are deferred in a contra loan account until the
related loan is sold. The deferred fees or costs and
discounts or premiums are an adjustment to the basis of the
loan and therefore are included in the periodic
determination of the lower of cost or fair value adjustments
and/or the gain or loss recognized at the time of sale.
Because these loans are recognized at the lower of cost or
fair value, the Firm's allowance for loan losses and charge-
off policies do not apply to these loans. However, loans
held-for-sale are subject to the Firm's nonaccrual policies.
Interest income on loans held-for-sale is accrued and
recognized based on the contractual rate of interest.
Retained loans reclassified to held-for-sale (a)
Sales
Purchases
(in millions)
Year ended December 31,
The following tables provide information about the carrying value of retained loans purchased, sold and reclassified to held-
for-sale during the periods indicated. Loans that were reclassified to held-for-sale and sold in a subsequent period are
excluded from the sales line of this table.
(c) Loans (other than those for which the fair value option has been elected) are presented net of unamortized discounts and premiums and net deferred loan
fees or costs. These amounts were not material as of December 31, 2023 and 2022.
(b) Excludes $6.8 billion and $5.2 billion of accrued interest receivable at December 31, 2023 and 2022, respectively. The Firm wrote off accrued interest
receivable of $49 million and $39 million for the years ended December 31, 2023 and 2022, respectively.
(a) Includes loans associated with First Republic consisting of $90.7 billion of retained loans and $1.9 billion of loans at fair value in consumer, excluding
credit card and $53.9 billion of retained loans in wholesale.
$ 1,135,647
42,079
3,970
$ 1,089,598
Total (b)(c)
3,352
32,075
Year ended December 31,
$ 639,097
(in millions)
Sales
152,505
46,151
1,760
$
(d)
Total
Wholesale
60,300
43,949
1,486
$
$
92,205
2,202
274
$
(b)(c)(d)
Credit card
Consumer, excluding
credit card
2023
238
Retained loans reclassified to held-for-sale (a)
Purchases
185,175
$
Originated or purchased loans held-for-investment (i.e.,
"retained")
•
Loans modified to borrowers experiencing financial
difficulty that are determined to be collateral-
dependent.
JPMorgan Chase & Co./2023 Form 10-K
235
•
Notes to consolidated financial statements
Loans to borrowers who have experienced an event that
suggests a loss is either known or highly certain are
subject to accelerated charge-off standards (e.g.,
residential real estate and auto loans are charged off or
charged down within 60 days of receiving notification of
a bankruptcy filing).
Auto loans upon repossession of the automobile.
Other than in certain limited circumstances, the Firm
typically does not recognize charge-offs on the government-
guaranteed portion of loans.
Wholesale loans are charged off when it is highly certain
that a loss has been realized. The determination of whether
to recognize a charge-off includes many factors, including
the prioritization of the Firm's claim in bankruptcy,
expectations of the workout/restructuring of the loan and
valuation of the borrower's equity or the loan collateral.
When a loan is charged down to the lower of its amortized
cost or the estimated net realizable value of the underlying
collateral, the determination of the fair value of the
collateral depends on the type of collateral (e.g., securities,
real estate). In cases where the collateral is in the form of
liquid securities, the fair value is based on quoted market
prices or broker quotes. For illiquid securities or other
financial assets, the fair value of the collateral is generally
estimated using a discounted cash flow model.
For residential real estate loans, collateral values are based
upon external valuation sources. When it becomes likely
that a borrower is either unable or unwilling to pay, the
Firm utilizes a broker's price opinion, appraisal and/or an
automated valuation model of the home based on an
exterior-only valuation ("exterior opinions"), which is then
updated at least every 12 months, or more frequently
depending on various market factors. As soon as practicable
after the Firm receives the property in satisfaction of a debt
(e.g., by taking legal title or physical possession), the Firm
generally obtains an appraisal based on an inspection that
includes the interior of the home ("interior appraisals").
Exterior opinions and interior appraisals are discounted
based upon the Firm's experience with actual liquidation
values as compared with the estimated values provided by
exterior opinions and interior appraisals, considering state-
specific factors.
For commercial real estate loans, collateral values are
generally based on appraisals from internal and external
valuation sources. Collateral values are typically updated
every six to twelve months, either by obtaining a new
appraisal or by performing an internal analysis, in
accordance with the Firm's policies. The Firm also considers
both borrower- and market-specific factors, which may
result in obtaining appraisal updates or broker price
opinions at more frequent intervals.
Loans held-for-sale
Loans held-for-sale are measured at the lower of cost or fair
value, with valuation changes recorded in noninterest
revenue. For consumer loans, the valuation is performed on
a portfolio basis. For wholesale loans, the valuation is
performed on an individual loan basis.
Certain consumer loans are charged off or charged down to
their net realizable value earlier than the FFIEC charge-off
standards in the following circumstances:
Consumer loans are generally charged off or charged down
to the lower of the amortized cost or the net realizable
value of the underlying collateral (i.e., fair value less
estimated costs to sell), with an offset to the allowance for
loan losses, upon reaching specified stages of delinquency
in accordance with standards established by the FFIEC.
Residential real estate loans, unmodified credit card loans
and scored business banking loans are generally charged
off no later than 180 days past due. Scored auto and
closed-end consumer loans, including modified credit card
accounts placed on a fixed payment plan, are charged off
no later than 120 days past due.
Charge-offs
The allowance for loan losses represents the estimated
expected credit losses in the held-for-investment loan
portfolio at the balance sheet date and is recognized on the
balance sheet as a contra asset, which brings the amortized
cost to the net carrying value. Changes in the allowance for
loan losses are recorded in the provision for credit losses on
the Firm's Consolidated statements of income. Refer to
Note 13 for further information on the Firm's accounting
policies for the allowance for loan losses.
Loans held-for-sale
•
Loans at fair value
The following provides a detailed accounting discussion of
the Firm's loans by category:
Loans held-for-investment
Originated or purchased loans held-for-investment,
including PCD, are recorded at amortized cost, reflecting
the principal amount outstanding, net of the following:
unamortized deferred loan fees, costs, premiums or
discounts; charge-offs; collection of cash; and foreign
exchange. Credit card loans also include billed finance
charges and fees.
Interest income
Consumer, excluding
Interest income on performing loans held-for-investment is
accrued and recognized as interest income at the
contractual rate of interest. Purchase price discounts or
premiums, as well as net deferred loan fees or costs, are
recognized in interest income over the contractual life of
the loan as an adjustment of yield.
Nonaccrual loans
Nonaccrual loans are those on which the accrual of interest
has been suspended. Loans (other than credit card loans
and certain consumer loans insured by U.S. government
agencies) are placed on nonaccrual status and considered
nonperforming when full payment of principal and interest
is not expected, regardless of delinquency status, or when
principal and interest has been in default for a period of 90
days or more, unless the loan is both well-secured and in
the process of collection. A loan is determined to be past
due when the minimum payment is not received from the
borrower by the contractually specified due date or for
certain loans (e.g., residential real estate loans), when a
monthly payment is due and unpaid for 30 days or more.
Finally, collateral-dependent loans are typically maintained
on nonaccrual status.
On the date a loan is placed on nonaccrual status, all
interest accrued but not collected is reversed against
interest income. In addition, the amortization of deferred
amounts is suspended. Interest income on nonaccrual loans
may be recognized as cash interest payments are received
(i.e., on a cash basis) if the recorded loan balance is
deemed fully collectible; however, if there is doubt
regarding the ultimate collectibility of the recorded loan
balance, all interest cash receipts are applied to reduce the
carrying value of the loan (the cost recovery method). For
consumer loans, application of this policy typically results in
the Firm recognizing interest income on nonaccrual
consumer loans on a cash basis.
A loan may be returned to accrual status when repayment is
reasonably assured and there has been demonstrated
performance under the terms of the loan or, if applicable,
the terms of the restructured loan.
As permitted by regulatory guidance, credit card loans are
generally exempt from being placed on nonaccrual status;
accordingly, interest and fees related to credit card loans
continue to accrue until the loan is charged off or paid in
full.
Allowance for loan losses
The Firm classifies accrued interest on loans, including
accrued but unbilled interest on credit card loans, in
accrued interest and accounts receivables on the
Consolidated balance sheets. For credit card loans, accrued
interest once billed is then recognized in the loan balances,
with the related allowance recorded in the allowance for
credit losses. Changes in the allowance for credit losses on
accrued interest on credit card loans are recognized in the
provision for credit losses and charge-offs are recognized
by reversing interest income. For other loans, the Firm
generally does not recognize an allowance for credit losses
on accrued interest receivables, consistent with its policy to
write them off no later than 90 days past due by reversing
interest income.
2020
Consumer, excluding credit card loan portfolio
Consumer loans, excluding credit card loans, consist
primarily of scored residential mortgages, home equity
loans and lines of credit, auto and business banking loans,
with a focus on serving the prime consumer credit market.
These loans include home equity loans secured by junior
liens, prime mortgage loans with an interest-only payment
period, and certain payment-option loans that may result in
negative amortization.
2018
459,985
52,142
Remaining contractual maturity of the agreements
December 31, 2022
(in millions)
Total securities sold under repurchase agreements
Total securities loaned and other
Transfers not qualifying for sale accounting
Overnight and
continuous
205,235
50,138
$
Up to 30 days
170,696
1,285
$
30 - 90 days
37,120
Greater than
90 days
Total
988
$
1,544
Total
480,793
$
52,443
December 31, 2023
(in millions)
Total securities sold under repurchase agreements
Total securities loaned and other
Remaining contractual maturity of the agreements
Overnight and
continuous
259,048
49,610
Up to 30 days
$
102,941
$
30 - 90 days
20,960
Greater than
90 days
77,036
$
67,742
3
(g) Refreshed FICO scores represent each borrower's most recent credit score, which is obtained by the Firm on at least a quarterly basis.
(f) Represents the aggregate unpaid principal balance of loans divided by the estimated current property value. Current property values are estimated, at a
minimum, quarterly, based on home valuation models using nationally recognized home price index valuation estimates incorporating actual data to the
extent available and forecasted data where actual data is not available. Current estimated combined LTV for junior lien home equity loans considers all
available lien positions, as well as unused lines, related to the property.
(e) Generally excludes loans under payment deferral programs offered in response to the COVID-19 pandemic.
(d) Interest income on nonaccrual loans recognized on a cash basis was $180 million and $175 million for the years ended December 31, 2023 and 2022,
respectively.
(c) Generally, all consumer nonaccrual loans have an allowance. In accordance with regulatory guidance, certain nonaccrual loans that are considered
collateral-dependent have been charged down to the lower of amortized cost or the fair value of their underlying collateral less costs to sell. If the value of
the underlying collateral improves subsequent to charge down, the related allowance may be negative.
(b) Mortgage loans insured by U.S. government agencies excluded from nonaccrual loans were not material at December 31, 2023 and 2022.
(a) Includes collateral-dependent residential real estate loans that are charged down to the fair value of the underlying collateral less costs to sell. The Firm
reports, in accordance with regulatory guidance, residential real estate loans that have been discharged under Chapter 7 bankruptcy and not reaffirmed
by the borrower ("Chapter 7 loans") as collateral-dependent nonaccrual loans, regardless of their delinquency status. At December 31, 2023,
approximately 9% of Chapter 7 residential real estate loans were 30 days or more past due.
237,561
$
326,409
46,896
51,233
5,432
7,163
7,108
(h) Includes residential real estate loans, primarily held in LLCS in AWM that did not have a refreshed FICO score. These loans have been included in a FICO
band based on management's estimation of the borrower's credit quality.
480,793
(i) Included U.S. government-guaranteed loans as of December 31, 2023 and 2022.
(k) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2023.
1,017
52,443
At December 31, 2023 and 2022, the Firm held $505 million and $692 million, respectively, of financial assets for which the
rights have been transferred to third parties; however, the transfers did not qualify as a sale in accordance with U.S. GAAP.
These transfers have been recognized as collateralized financing transactions. The transferred assets are recorded in trading
assets and loans, and the corresponding liabilities are recorded primarily in short-term borrowings and long-term debt on the
Consolidated balance sheets.
234
JPMorgan Chase & Co./2023 Form 10-K
Note 12 - Loans
Loan accounting framework
The accounting for a loan depends on management's
strategy for the loan. The Firm accounts for loans based on
the following categories:
•
•
JPMorgan Chase & Co./2023 Form 10-K
242
(n) Included $54.9 billion, $14.9 billion, $3.5 billion, and $7.8 billion in California, New York, Florida and Massachusetts, respectively, associated with First
Republic.
(m) Included $90.7 billion of loans associated with First Republic.
(1) Included $1.1 billion in equal to or greater than 660 FICO scores within 80% to 100% LTV ratio, and $87.9 billion and $1.1 billion in equal to or greater
than 660 and less than 660 FICO scores, respectively, within less than 80% LTV ratio associated with First Republic.
(j) Excludes loans with no FICO and/or LTV data available.
52,142
$
49,254
(a) Includes securities-for-securities lending agreements of $5.6 billion and $7.0 billion at December 31, 2023 and 2022, respectively, accounted for at fair
value, where the Firm is acting as lender.
(b) In some cases, collateral exchanged with a counterparty exceeds the net asset or liability balance with that counterparty. In such cases, the amounts
reported in this column are limited to the related net asset or liability with that counterparty.
(c) Includes securities financing agreements that provide collateral rights, but where an appropriate legal opinion with respect to the master netting
agreement has not been either sought or obtained. At December 31, 2023 and 2022, included $7.1 billion and $6.0 billion, respectively, of securities
purchased under resale agreements; $50.7 billion and $49.0 billion, respectively, of securities borrowed; $30.0 billion and $29.1 billion, respectively, of
securities sold under repurchase agreements; and securities loaned and other which were not material at both December 31, 2023 and 2022.
233
JPMorgan Chase & Co./2023 Form 10-K
Notes to consolidated financial statements
The tables below present as of December 31, 2023 and 2022 the types of financial assets pledged in securities financing
agreements and the remaining contractual maturity of the securities financing agreements.
2023
Gross liability balance
2022
December 31, (in millions)
Mortgage-backed securities:
U.S. GSES and government agencies
Residential nonagency
Securities sold
under repurchase
agreements
6
Securities loaned
and other
30,955
198,382 $ (167,427)
9,533
(9,527)
Assets
Securities purchased under resale agreements
Securities borrowed
$
597,912 $
228,279
(282,411) $
(42,910)
315,501 $
185,369
(304,120)
(131,578)
$
11,381
53,791
Liabilities
Securities sold under repurchase agreements
Securities loaned and other (a)
$
480,793 $
52,443
(282,411) $
(42,910)
$
Securities sold
under repurchase
agreements
Securities loaned
and other
71,064
Total
97,400
1,455
155,156
1,259
39,247
2,025
37,121
461
2,703
2,981
$
25,820
459,985
47,628
30,075
Equity securities
Asset-backed securities
Corporate debt securities
Non-U.S. government debt
58,050
$
2,292
2,414
Commercial nonagency
2,669
2019
8,050
U.S. Treasury, GSES and government agencies
1,034
191,254
1,464
Obligations of U.S. states and municipalities
2,323
1,735
5
216,467
9,060
2,007
9,968
2022.
(a) Individual delinquency classifications include mortgage loans insured by U.S. government agencies which were not material at December 31, 2023 and
0.66 %
3.80 %
0.34 %
2.07 %
0.42 %
0.19 %
0.05 %
0.02 %
0.08 %
% of 30+ days past due to
total retained loans (d)
$ 237,561
$ 10,068
5,608
(b) At December 31, 2023 and 2022, loans under payment deferral programs offered in response to the COVID-19 pandemic which are still within their
deferral period and performing according to their modified terms are generally not considered delinquent.
$
(c) Included $6.4 billion, $26.3 billion, $21.9 billion, $14.8 billion, $7.4 billion, and $10.9 billion of term loans originated in 2023, 2022, 2021, 2020, 2019
and prior to 2019, respectively, and $2.5 billion of revolving loans within the revolving period associated with First Republic.
(e) Included $343 million of 30 or more days past due loans associated with First Republic.
(f) Purchased loans are included in the year in which they were originated.
Greater than 125% and refreshed FICO scores:
(f)(g)(h)
Current estimated LTV ratios
3,745
$
December 31, 2022
December 31, 2023
3,466
$
(in millions, except weighted-average data)
Nonaccrual loans (a)(b)(c)(d)(e)
The following table provides information on nonaccrual and other credit quality indicators for retained residential real estate
loans.
Nonaccrual loans and other credit quality indicators
Notes to consolidated financial statements
JPMorgan Chase & Co./2023 Form 10-K
241
Approximately 37% of the total revolving loans are senior lien loans; the remaining balance are junior lien loans. The lien
position the Firm holds is considered in the Firm's allowance for credit losses. Revolving loans that have been converted to
term loans have higher delinquency rates than those that are still within the revolving period. That is primarily because the
fully-amortizing payment that is generally required for those products is higher than the minimum payment options available
for revolving loans within the revolving period.
(d) Excludes mortgage loans that are 30 or more days past due insured by U.S. government agencies which were not material at December 31, 2023 and
2022. These amounts have been excluded based upon the government guarantee.
$ 50,709
6,366
$
11
1
29
1
150 or more days past due
Total retained loans
30-149 days past due
$
$ 15,397
$ 43,315
$ 66,072
$ 39,934
Current
Total
Converted to
term loans
revolving
period
9,923
Prior to
2018
14
20
6,339
20
$49,632
$ 15,427
$ 43,335
$ 66,084
$ 39,964
914
684
$ 235,963
9,685
208
175
Equal to or greater than 660
4
7
10
15
597
$
5,589
$
480
Less than 660
6
Equal to or greater than 660
769
51 %
770
49 %
237,561
$
(m)
326,409
$
1,406
989
8,659
(I)
9,277
215,096
$
309,251
127,072
$
10,800
11,296
101% to 125% and refreshed FICO scores:
10,856
6,380
14,213
(n)
14,968
15,506
18,870
22,778
(n)
34,471
48,815
73,112
(n)
(I)
(n)
102
Texas
Florida
New York
California
Geographic region(i)(k)
Weighted average FICO (8) (i)
Weighted average LTV ratio (f)(i)
NO FICO/LTV available
Less than 660
Equal to or greater than 660
Less than 80% and refreshed FICO scores:
Less than 660
184
80% to 100% and refreshed FICO scores:
Equal to or greater than 660
Massachusetts
Illinois
Total retained loans
Washington
(I)
6,491
Colorado
12,034
6
174
4
2
223
New Jersey
72
Total retained loans
All other
Connecticut
$
Less than 660
$
Converted to term loans
Total
84
$
206,613
Within the revolving period
882
205,731
2,217
2,169
December 31, 2023
credit quality trends within the portfolio; however, the score
does not capture all factors that would be predictive of
future credit performance. Refreshed FICO score
information, which is obtained at least quarterly, for a
statistically significant random sample of the credit card
portfolio is indicated in other credit quality indicators. FICO
is considered to be the industry benchmark for credit
(in millions, except ratios)
The following tables provide information on delinquency and gross charge-offs for the year ended December 31, 2023.
The Firm generally originates new credit card accounts to
prime consumer borrowers. However, certain cardholders'
FICO scores may decrease over time, depending on the
performance of the cardholder and changes in the credit
score calculation.
scores.
While the borrower's credit score is another general
indicator of credit quality, the Firm does not view credit
scores as a primary indicator of credit quality because the
borrower's credit score tends to be a lagging indicator. The
distribution of such scores provides a general indicator of
The credit card portfolio segment includes credit card loans
originated and purchased by the Firm. Delinquency rates
are the primary credit quality indicator for credit card loans
as they provide an early warning that borrowers may be
experiencing difficulties (30 days past due); information on
those borrowers that have been delinquent for a longer
period of time (90 days past due) is also considered. In
addition to delinquency rates, the geographic distribution of
the loans provides insight as to the credit quality of the
portfolio based on the regional economy.
Credit card loan portfolio
Notes to consolidated financial statements
2,301
245
JPMorgan Chase & Co./2023 Form 10-K
Loan delinquency
40
12.33 %
$
181,793
1,356
1,230
5,491
accordance with regulatory guidance, certain nonaccrual loans that
are considered collateral-dependent have been charged down to the
lower of amortized cost or the fair value of their underlying collateral
less costs to sell. If the value of the underlying collateral improves
subsequent to charge down, the related allowance may be negative.
(c) Interest income on nonaccrual loans recognized on a cash basis was
not material for the years ended December 31, 2023 and 2022.
(d) The geographic regions presented in this table are ordered based on
the magnitude of the corresponding loan balances at December 31,
2023.
$
2.14 %
1.05
Total
December 31, 2022
Converted to term loans
Within the revolving period
166 $
$
3.98
2,209
2.09 %
1.03
5,325
% of 90+ days past due to total retained loans
Gross charge-offs
% of 30+ days past due to total retained loans
Loan delinquency ratios
90 or more days past due and still accruing
Total retained loans
$
30-89 days past due and still accruing
Current and less than 30 days past due
and still accruing
211,123
1,006 $
$
210,117
$
(a) At December 31, 2023 and 2022, nonaccrual loans excluded $15
million and $101 million, respectively, of PPP loans 90 or more days
past due and guaranteed by the SBA, of which $15 million and $76
million, respectively, were no longer accruing interest based on the
guidelines set by the SBA. Typically the principal balance of the loans is
insured and interest is guaranteed at a specified reimbursement rate
subject to meeting the guidelines set by the SBA. There were no loans
that were not guaranteed by the SBA that are 90 or more days past
due and still accruing interest at December 31, 2023 and 2022.
(b) Generally, all consumer nonaccrual loans have an allowance. In
10,959 $
Loan modifications
5,684
Florida
8,502
Texas
$
California
Geographic region
(d)
129
177 $
$
Nonaccrual loans (a)(b)(c)
December 31, December 31,
2023
2022
Total Auto and other
(in millions)
The following table provides information on nonaccrual and
other credit quality indicators for retained auto and other
consumer loans.
Nonaccrual and other credit quality indicators
JPMorgan Chase & Co./2023 Form 10-K
244
(a) At December 31, 2023 and 2022, auto and other loans excluded $20 million and $153 million, respectively, of PPP loans guaranteed by the SBA that are
30 or more days past due. These amounts have been excluded based upon the SBA guarantee.
11.28 %
696
1.18 %
9,689
7,216
4,847
New York
4,938
4,345
63,192
70,866 $
Total retained loans
25,475
27,722
All other
1,481
1,714
North Carolina
1,551
1,779
The Firm grants certain modifications of auto and other
loans to borrowers experiencing financial difficulty, which
effective January 1, 2023, are reported as FDMs. For the
year ended December 31, 2023, auto and other FDMS
were not material and there were no additional
commitments to lend to borrowers modified as FDMs.
For periods ending prior to January 1, 2023, modifications
of auto and other loans where the Firm granted concessions
to borrowers who were experiencing financial difficulty
were generally accounted for and reported as TDRs. Loans
with short-term or other insignificant modifications that
were not considered concessions were not TDRs. For the
years ended December 31, 2022 and 2021, auto and other
TDRs were not material.
Arizona
1,900
Pennsylvania
1,708
1,912
Georgia
2,219
2,609
New Jersey
2,839
3,147
Illinois
1,822
$
Percentage of portfolio based on carrying value with estimated refreshed FICO scores
Equal to or greater than 660
64
0.2
0.2
No FICO available
13.0
86.8 %
85.8 %
14.0
Less than 660
185,175
$
211,123
$
Total retained loans
70,878
80,287
4,487
5,209
5,517
6,088
5,493
6,307
All other
Arizona
Pennsylvania
(a) The geographic regions presented in the table are ordered based on the magnitude of the corresponding loan balances at December 31, 2023.
Loan modifications
The Firm grants certain modifications of credit card loans to borrowers experiencing financial difficulty, which effective
January 1, 2023, are reported as FDMs. These modifications may involve placing the customer's credit card account on a fixed
payment plan, generally for 60 months, which typically includes reducing the interest rate on the credit card account. If the
borrower does not make the contractual payments when due under the modified payment terms, the credit card loan
continues to age and will be charged-off in accordance with the Firm's standard charge-off policy. In most cases, the Firm does
not reinstate the borrower's line of credit.
Financial effects of FDMS
The following table provides information on credit card loan modifications considered FDMs.
0.59 %
30-89 days past due and still accruing
Current and less than 30 days past due and still accruing $
(in millions)
Year ended December 31, 2023
The following table provides information on the payment
status of FDMs during the year ended December 31, 2023.
Payment status of FDMs and redefaults
Accordingly, trial modifications are not considered FDMs.
For the year ended December 31, 2023, the Firm also had $27 million of credit card loans subject to trial modifications. The
changes to the TDR accounting guidance eliminated the TDR reasonably expected and concession assessment criteria.
(b) The interest rates represent weighted average at enrollment.
(a) Term extension includes credit card loans whose terms have been modified under long-term programs by placing the customer's credit card account on a
fixed payment plan.
Colorado
Term extension with a reduction in the
weighted average contractual interest rate
from 23.19% to 3.64%
0.31 %
648
648
$
$
Total
Term extension and interest rate reduction (a) (b)
% of loan modifications to total
retained credit card loans
Amortized
cost basis
Loan modification
(in millions)
Year ended December 31, 2023
Financial effect of loan modification
5,792
6,424
7,643
4.52
1.45 %
12.56 %
0.67
1.40 %
% of 90+ days past due to total retained loans
% of 30+ days past due to total retained loans
Loan delinquency ratios
Total retained loans
90 or more days past due and still accruing
30-89 days past due and still accruing
0.68
$
Loan delinquency
(in millions, except ratios)
185,175
$
796
$
184,379
$
1,266
36
1,420
Current and less than 30 days past due
and still accruing
182,489
246
Other credit quality indicators
8,688
10,089
11,364
12,905
15,103
15,046
16,915
Ohio
New Jersey
Illinois
Florida
JPMorgan Chase & Co./2023 Form 10-K
New York
22,086
28,154
$
32,652
Texas
California
December 31, 2022
December 31, 2023
Geographic region (a)
(in millions, except ratios)
The following table provides information on other credit quality indicators for retained credit card loans.
19,171
3.02 %
$
1.68 %
Within the
Revolving loans
Term loans by origination year
December 31, 2023
(in millions, except ratios)
Delinquency is the primary credit quality indicator for retained auto and other loans. The following tables provide information
on delinquency and gross charge-offs for the year ended December 31, 2023.
Auto and other
Notes to consolidated financial statements
243
At December 31, 2023 and 2022, the Firm had residential
real estate loans, excluding those insured by U.S.
government agencies, with a carrying value of $566 million
and $565 million, respectively, that were not included in
REO, but were in the process of active or suspended
foreclosure.
Active and suspended foreclosure
(a) Represents loans permanently modified in TDRs that experienced a
payment default in the periods presented, and for which the payment
default occurred within one year of the modification. The dollar
amounts presented represent the balance of such loans at the end of
the reporting period in which such loans defaulted.
$ 147 $ 160
1
2
28
16
$
1
$
-
38
38
2023
2022
2021
2020
231
7
1
1
120 or more days past due
$ 69,862
102
$
$ 2,984
511
$
$ 1,777
23
$ 6,538
$ 14,797
279
276
30-119 days past due
$ 30,328
Current
Loan delinquency
Total
Converted
to term
loans
revolving
period
Prior to
2019
2019
$ 12,825
22
2.92
3.35
Concession granted: (a)
4,588
4,182
Number of loans permanently modified
6,246
3,902
modification
Number of loans approved for a trial
2021
2022
Year ended December 31,
Interest rate reduction
the period presented. This table excludes loans with short-
term or other insignificant modifications that are not
considered concessions.
The following table provides information about how
residential real estate loans were modified in TDRs during
For periods ending prior to January 1, 2023, modifications
of residential real estate loans where the Firm granted
concessions to borrowers who were experiencing financial
difficulty were generally accounted for and reported as
TDRS. Loans with short-term or other insignificant
modifications that were not considered concessions were
not TDRs. For the years ended December 31, 2022 and
2021, new TDRs were $362 million and $866 million, and
there were no additional commitments to lend to borrowers
whose residential real estate loans were modified in TDRs.
The Firm's proprietary modification programs as well as
government programs, including U.S. GSE programs,
generally provide various concessions to financially
troubled borrowers including, but not limited to, interest
rate reductions, term or payment extensions and delays of
principal and/or interest payments that would otherwise
have been required under the terms of the original
agreement.
Nature and extent of TDRS
For the year ended December 31, 2023, residential real
estate FDMS of $29 million were 30 or more days past due
and FDMs that re-defaulted were $17 million.
Payment status of FDMS and redefaults
In addition to FDMS, the Firm also had $69 million of loans
subject to a trial modification, and $9 million of Chapter 7
loans for the year ended December 31, 2023. The changes
to the TDR accounting guidance eliminated the TDR
reasonably expected and concession assessment criteria.
Accordingly, trial modifications and Chapter 7 loans were
considered TDRs, but not FDMs. Refer to Note 1 for further
information.
For the year ended December 31, 2023, residential real
estate FDMs were $136 million. The financial effects of the
FDMs, which were predominantly in the form of term
extensions and interest rate reductions, included extending
the weighted-average life of the loans by 20 years, and
reducing the weighted-average contractual interest rate
from 7.21% to 4.44% for the year ended December 31,
2023. There were no additional commitments to lend to
borrowers experiencing financial difficulty whose loans
have been modified as FDMs.
Financial effects of FDMS
The Firm grants certain modifications of residential real
estate loans to borrowers experiencing financial difficulty,
which effective January 1, 2023, are reported as FDMs. The
Firm's proprietary modification programs as well as
government programs, including U.S. GSE programs, that
generally provide various modifications to borrowers
experiencing financial difficulty including, but not limited
to, interest rate reductions, term extensions, other-than-
insignificant payment delay and principal forgiveness that
would otherwise have been required under the terms of the
original agreement, are considered FDMs.
Loan modifications
90 or more days past due and still accruing
JPMorgan Chase & Co./2023 Form 10-K
78
Term or payment extension
74 %
4.54 %
4.75 %
2021
2022
Balance of loans that redefaulted within one
year of permanent modification (a)
Principal forgiven
Principal deferred
Charge-offs recognized upon permanent
modification
Weighted-average remaining contractual term
(in years) of loans with term or payment
extensions - after TDR
(in millions, except weighted average data)
Weighted-average interest rate of loans with
interest rate reductions - before TDR
Weighted-average interest rate of loans with
interest rate reductions - after TDR
Weighted-average remaining contractual term
(in years) of loans with term or payment
extensions - before TDR
Year ended December 31,
54 %
The following table provides information about the financial
effects of the various concessions granted in modifications
of residential real estate loans and about redefaults of
certain loans modified in TDRs for the periods presented.
The following table presents only the financial effects of
permanent modifications and does not include temporary
concessions offered through trial modifications. This table
also excludes loans with short-term or other insignificant
modifications that were not considered concessions.
(b) Includes variable interest rate to fixed interest rate modifications and
payment delays that meet the definition of a TDR.
(a) Represents concessions granted in permanent modifications as a
percentage of the number of loans permanently modified. The sum of
the percentages exceeds 100% because predominantly all of the
modifications include more than one type of concession. Concessions
offered on trial modifications are generally consistent with those
granted on permanent modifications.
36
37
2
1
23
10
Principal and/or interest deferred
Principal forgiveness
Other(b)
53
67
Financial effects of TDRS and redefaults
2.20 %
43
19
$
$ 2,342
578
$
$ 1,467
$ 3,991
68
11,401
100
24
53
120 or more days past due
308
263
30-119 days past due
$
$ 20,212
$ 22,187
Current
Total
to term
loans
period
revolving
Prior to
2018
2018
2019
118
$62,296
33
17
0.83 %
1.15 %
1.17 %
% of 30+ days past due to total
retained loans
$63,192
133
$
$ 2,356
596
$
$ 1,500
2020
$ 4,059
$
$ 20,573
$ 22,450
Total retained loans
85
5
2
1
811
10
12
11,525
2021
2022
Converted
2.36 %
1.15 %
1.75 %
1.86 %
0.91 %
% of 30+ days past due to total
retained loans(a)
$ 70,866
143
$
$ 3,006
528
3.22 %
$
$ 6,624
$ 13,063
$ 15,077
$ 30,605
Total retained loans
37
17
3
8
967
24
$ 1,820
17
0.73 %
1.39 %
Within the
Revolving loans
Term loans by origination year
December 31, 2022
Loan delinquency
(in millions, except ratios)
947
$
4
$
-
28.67 %
$
35 $
$
53
$
161
$
297
$
333
$
Gross charge-offs
64
Total
2022
cost basis
Total
Converted to
term loans
Within the
revolving
period
Prior to 2018
2018
2019
2020
2021
2022
Revolving loans
Term loans by origination year
December 31, 2022
Other (a)
340
(in millions)
265,809
77,159
342,968
59
2,194 $
176,728 $
43,801
220,529 $
13 $
$
8
$
$
8,663
4,532 $
2,001
811
$
6,662
3,721 $
2,253 $
$
10,099 $
2,172
12,271 $
8 $
Loans by risk ratings
$
2022
2023
Criticized
Retained loans secured by real estate
(in millions, except ratios)
December 31,
Total retained loans secured by
real estate
Other Commercial
Multifamily
The following table presents additional information on retained loans secured by real estate within the Wholesale portfolio,
which consists of loans secured wholly or substantially by a lien or liens on real property at origination. Multifamily lending
includes financing for acquisition, leasing and construction of apartment buildings. Other commercial lending largely includes
financing for acquisition, leasing and construction, largely for office, retail and industrial real estate. Included in secured by
real estate loans is $10.2 billion and $6.4 billion as of December 31, 2023 and 2022, respectively, of construction and
development loans made to finance land development and on-site construction of commercial, industrial, residential, or farm
buildings.
Notes to consolidated financial statements
251
JPMorgan Chase & Co./2023 Form 10-K
(b) As of December 31, 2023, included $610 million, $1.0 billion, $820 million, $1.1 billion, $244 million, and $1.4 billion of retained loans originated in
2023, 2022, 2021, 2020, 2019 and prior to 2019, respectively, and $11.8 billion of revolving loans within the revolving period and $56 million
converted to term loans associated with First Republic.
Investment-grade
(a) Includes loans to SPES, financial institutions, personal investment companies and trusts, individuals and individual entities (predominantly Global Private
Bank clients within AWM and J.P. Morgan Wealth Management within CCB), states and political subdivisions, as well as loans to nonprofits. Refer to Note
14 for more information on SPES.
59,693
82
3,597 $ 249,585
171,049 $
32,240
203,289 $
7,251 $
475
7,726 $
2,159 $
451
2,610 $
4,529 $
699
5,228 $
48,950 $ 22,960 $ 14,836 $
$
Total retained loans
13,015 $
1,821
15,864 $
7,096
32,121 $
16,829
Noninvestment-grade
3,679 $ 309,278
2023
10,033 $
6,169
16,202 $
8 $
5 $
$
1
$
989
1,014
2,003 $
748 $
525
1,273 $
4,501 $
1,995 $
2,506
3,045 $
3,459
6,504 $
45,160 $ 20,782 $
$
Total retained loans
8,338 $
12,444
21,072 $
24,088
Noninvestment-grade
76,275
$
Loans by risk ratings
(in millions)
Total
Converted to
term loans
period
revolving
Prior to
2018
2018
2019
2020
2021
2022
Within the
Revolving loans
Investment-grade
18,034 $
8,092
26,126 $
298 $
82
87,354 $
$
Gross charge-offs
52,392 $
$
(b)
Total retained loans
14,054
Noninvestment-grade
38,338 $
$
Investment-grade
Loans by risk ratings
Total
Converted to
term loans
91,385
revolving
period
2019
2020
2021
2022
2023
Revolving loans
Within the
Term loans by origination year
December 31, 2023
Other (a)
(in millions)
(a) As of December 31, 2023, included $364 million, $568 million, $471 million, $212 million, $53 million, and $121 million of retained loans originated in
2023, 2022, 2021, 2020, 2019 and prior to 2019, respectively, and $1.2 billion of revolving loans within the revolving period and $12 million converted
to term loans associated with First Republic.
167,660
$
83
Prior to 2019
Term loans by origination year
2022
2022
2023
Other
2022
2023
2022
2023
Commercial
and industrial
Secured by real estate
(in millions)
December 31,
$ 342,968 $ 309,278 $ 672,472 $ 603,670
The following table provides information on retained wholesale nonaccrual loans.
Nonaccrual loans
(c) Represents loans that are considered well-collateralized and therefore still accruing interest.
2022
(a) The U.S. and non-U.S. distribution is determined based predominantly on the domicile of the borrower.
(b) Borrowers associated with First Republic are predominantly domiciled in the U.S.
Criticized nonaccrual (c)
$ 162,338 $ 126,732 $ 167,166 $ 167,660
1,963
2,346
699
724
1,018
1,221
246
401
154
338
53
26
Total retained loans
2,544
Total
retained loans
2022
JPMorgan Chase & Co./2023 Form 10-K
252
occurs when the loans have been partially charged off and/or there have been interest payments received and applied to the loan balance.
(b) Interest income on nonaccrual loans recognized on a cash basis were not material for the years ended December 31, 2023 and 2022.
(a) When the discounted cash flows or collateral value equals or exceeds the amortized cost of the loan, the loan does not require an allowance. This typically
1,963
2,346 $
699 $
724 $
1,018 $
618
1,345
1,397 $
949
212
$
2023
487
686 $
332
776 $
445
1,221 $
246 $
401 $
$
Total nonaccrual loans (b)
74
$
172
129 $
272
Without an allowance (a)
$
With an allowance
Nonaccrual loans
492 $
232
2023
$ 667,341 $ 599,009
2,447
$ 164,899 $ 165,415
1,127
100
Secured by real estate
December 31,
The following table provides information on the geographic distribution and delinquency for retained wholesale loans.
Geographic distribution and delinquency
0.19 %
0.41 %
0.53 %
0.06 %
246
$
401
$
3.08 %
4.74 %
Commercial
and industrial
3,908
$ 126,732
$ 162,338
$ 61,613 $ 47,593
1,992
4.19 %
195
4,096
6.65 %
325 $
$ 79,139
1,916
2.42 %
51 $
76 $
0.08 %
0.25 %
(a) Included $20.7 billion and $13.1 billion of Multifamily and Other commercial loans, respectively, associated with First Republic.
% of criticized nonaccrual loans to total retained loans secured by real estate
$
Criticized nonaccrual
$ 100,725
3,596
3.57 %
% of criticized to total retained loans secured by real estate
(a)
7,692
$ 341,128 $ 307,511
1,090
1,015
Other
Amortized
162
1
150
90 or more days past due and still accruing (c)
884
402
473
Current and less than 30 days past due and still accruing $ 161,314 $ 126,083
30-89 days past due and still accruing
Loan delinquency
$ 672,472 $ 603,670
$ 162,338 $ 126,732 $ 167,166 $ 167,660 $ 342,968 $ 309,278
Total retained loans
$ 549,636 $ 479,589
122,836
124,081
78,753
Total
retained loans
$ 127,638 $ 125,324 $ 262,499 $ 230,525
39,528
80,469
2,992
2,839
$ 159,499 $ 123,740
Total non-U.S.
Total U.S.
Loans by geographic distribution (a)(b)
2023
2022
2023
2022
2023
2022
2023
(in millions)
42,336
December 31, 2022
40,087 $
47,267
479
190,056
57,888
1,106
699
59,693
77,159
91,385
94,542
27,180
$ 126,732
$ 162,338
41,933
724
1,018
1,221
246
401
Total retained loans (a)
162,553
Total noninvestment-grade
1,257
8,974
12,684
3,662
7,291
Criticized performing
75,178
81,393
80,637
23,272
34,241
Noncriticized
Noninvestment-grade:
$ 425,412
Criticized nonaccrual
$ 458,838
21,232
$ 167,166
0.61
0.73
0.19
0.25
% of criticized nonaccrual to
total retained loans
2.60
3.51
0.58
0.58
5.96
8.32
3.08
4.74
% of total criticized to total
retained loans
13,742
70.47 %
80.70 %
77.50 %
45.49 %
43.44 %
78.55 %
74.17 %
total retained loans
% of investment-grade to
$ 603,670
1,963
178,258
2,346
213,634
$ 672,472
$ 309,278
Commercial and industrial
$ 167,660
68.23 %
$ 249,585
$ 265,809
$ 76,275
34 $
$
Balance of loans that redefaulted within one
year of modification
5.14
4.13
Weighted-average interest rate of loans -
after TDR
17.75 %
19.86 %
Weighted-average interest rate of loans -
before TDR
393
418 $
$
Balance of new TDRs (a)
2021
57
2022
Year ended December 31,
The following table provides information about the financial
effects of the concessions granted on credit card loans
modified in TDRs and redefaults for the periods presented.
For all periods disclosed, new enrollments were less than
1% of total retained credit card loans.
For periods ending prior to January 1, 2023, modifications
of credit card loans where the Firm granted concessions to
borrowers who were experiencing financial difficulty were
generally accounted for and reported as TDRs. The Firm
granted concessions for most of the credit card loans under
long-term programs. These concessions involved placing
the customer's credit card account on a fixed payment plan,
generally for 60 months, and typically included reducing
the interest rate on the credit card account. Substantially all
modifications under the Firm's long-term programs were
considered to be TDRs. Loans with short-term or other
insignificant modifications that were not considered
concessions were not reported as TDRs.
Financial effects of TDRS and redefaults
Notes to consolidated financial statements
247
JPMorgan Chase & Co./2023 Form 10-K
For credit card loans modified as FDMs, payment default is
deemed to have occurred when the borrower misses two
consecutive contractual payments. Defaulted modified
credit card loans remain in the modification program and
continue to be charged off in accordance with the Firm's
standard charge-off policy.
There were $50 million FDMs that re-defaulted during the
year ended December 31, 2023 which were a combination
of term extension and interest rate reduction.
648
$
31
59
558
(in millions, except weighted-average data)
(a) Represents the outstanding balance prior to modification.
(b) Represents loans modified in TDRs that experienced a payment default
in the periods presented, and for which the payment default occurred
within one year of the modification. The amounts presented represent
the balance of such loans as of the end of the quarter in which they
defaulted.
For credit card loans modified in TDRs, payment default was
deemed to have occurred when the borrower missed two
consecutive contractual payments. Defaulted modified
credit card loans remained in the modification program and
continued to be charged of in accordance with the Firm's
standard charge-off policy.
248
72,624
$
$ 99,552
$ 120,405
Investment-grade
Loans by risk ratings
2022
Total retained loans
2023
2022
2023
Other(b)
2022
2023
Commercial and industrial
2022
2023
(in millions, except ratios)
JPMorgan Chase & Co./2023 Form 10-K
Wholesale loan portfolio
Wholesale loans include loans made to a variety of clients,
ranging from large corporate and institutional clients to
high-net-worth individuals.
The primary credit quality indicator for wholesale loans is
the internal risk rating assigned to each loan. Risk ratings
are used to identify the credit quality of loans and
differentiate risk within the portfolio. Risk ratings on loans
consider the PD and the LGD. The PD is the likelihood that a
loan will default. The LGD is the estimated loss on the loan
that would be realized upon the default of the borrower and
takes into consideration collateral and structural support
for each credit facility.
Management considers several factors to determine an
appropriate internal risk rating, including the obligor's debt
capacity and financial flexibility, the level of the obligor's
earnings, the amount and sources for repayment, the level
and nature of contingencies, management strength, and the
industry and geography in which the obligor operates. The
Firm's internal risk ratings generally align with the
qualitative characteristics (e.g., borrower capacity to meet
financial commitments and vulnerability to changes in the
economic environment) defined by S&P and Moody's,
however the quantitative characteristics (e.g., PD and LGD)
may differ as they reflect internal historical experiences and
assumptions. The Firm generally considers internal ratings
with qualitative characteristics equivalent to BBB-/Baa3 or
higher as investment grade, and these ratings have a lower
PD and/or lower LGD than non-investment grade ratings.
Noninvestment-grade ratings are further classified as
noncriticized and criticized, and the criticized portion is
further subdivided into performing and nonaccrual loans,
representing management's assessment of the collectibility
of principal and interest. Criticized loans have a higher PD
than noncriticized loans. The Firm's definition of criticized
aligns with the U.S. banking regulatory definition of
criticized exposures, which consist of special mention,
substandard and doubtful categories. Refer to Note 1 for
additional information.
0.21
Risk ratings are reviewed on a regular and ongoing basis by
Credit Risk Management and are adjusted as necessary for
updated information affecting the obligor's ability to fulfill
its obligations.
JPMorgan Chase & Co./2023 Form 10-K
249
Notes to consolidated financial statements
Internal risk rating is the primary credit quality indicator for retained wholesale loans. The following tables provide
information on internal risk rating and gross charge-offs for the year ended December 31, 2023.
Secured by real estate
December 31,
As noted above, the risk rating of a loan considers the
industry in which the obligor conducts its operations. As
part of the overall credit risk management framework, the
Firm focuses on the management and diversification of its
industry and client exposures, with particular attention paid
to industries with an actual or potential credit concern.
Refer to Note 4 for further detail on industry
concentrations.
0.23
$ 342,968
0.33
period
0.35
2019
2020
2021
2022
2023
revolving
Converted
Revolving loans
Within the
Term loans by origination year
December 31, 2023
Commercial and industrial
to term
loans
JPMorgan Chase & Co./2023 Form 10-K
(a) As of December 31, 2023 included $3.3 billion, $11.2 billion, $6.2 billion, $4.3 billion, $2.9 billion, and $5.1 billion of retained loans originated in 2023,
2022, 2021, 2020, 2019 and prior to 2019, respectively, and $838 million of revolving loans within the revolving period associated with First Republic.
2 $ 126,732
1,926 $
99,552
27,180
2
$
1,006 $
920
$
5,277 $ 17,289
2,395
5,659
7,672 $ 22,948 $
14,666 $
3,498
18,164 $
22,407 $ 14,773 $
5,602
3,032
28,009 $ 17,805 $
24,134 $
6,072
30,206 $
$
Total retained loans
250
Noninvestment-grade
Total
Loans by risk ratings
$
8
$ 167,166
75
84,090 $
259 $
94,542
74
72,624
$
1
38,394 $
45,696
$
1,115
1,006
2,121 $
$
12
(in millions)
1,030 $
1,144
2,174 $
2 $
2,291 $
1,989
4,276 $
9,299
13,575 $
110 $
10,642 $
16,444
27,086 $
8 $
25 $
$
Gross charge-offs
33,765 $
$
Total retained loans (a)
18,890
Noninvestment-grade
14,875 $
$
Investment-grade
4,280 $
55 $
$
Prior to 2019
Loans by risk ratings
15,677 $
3,987
19,664 $
23 $
16,820 $
3,840
20,660 $
$
25,784 $
7,839
33,623 $
22 $
28,874 $
12,579
41,453 $
48 $
15,164 $
20 $
$
Gross charge-offs
$
Total retained loans (a)
10,687 $
4,477
Noninvestment-grade
$
Investment-grade
Loans by risk ratings
21,108
7,918
29,026
Total
Within the
revolving
period
Prior to 2019
2019
2020
2021
2022
2023
Revolving loans
Term loans by origination year
December 31, 2023
Secured by real estate
Investment-grade
(b) Includes loans to SPES, financial institutions, personal investment companies and trusts, individuals and individual entities (predominantly Global Private
Bank clients within AWM and J.P. Morgan Wealth Management within CCB), states and political subdivisions, as well as loans to nonprofits. As of
December 31, 2023, predominantly consisted of $106.9 billion to individuals and individual entities, $91.2 billion to SPES, and $87.5 billion to financial
institutions, Refer to Note 14 for more information on SPEs.
(a) As of December 31, 2023 included $33.8 billion of Secured by real estate loans, $3.0 billion of Commercial and industrial loans, and $17.1 billion of
Other loans associated with First Republic.
Converted to
term loans
$
(in millions)
-
1,455 $
(in millions)
Converted to
term loans
Within the
revolving
period
Prior to 2018
2018
2019
2020
2021
2022
Revolving loans
Term loans by origination year
December 31, 2022
Secured by real estate
192
Total
1
$
120,405
1,291
2
41,933
$
$
2
$
162,338
78
$
$
2,746 $
• Virtual call centers. When we sought to expand
our customer service specialists program across
the United States, we turned to Detroit, launch-
ing our first virtual call center in 2022. Invest-
ments in Detroit's workforce development
infrastructure helped us hire 90 virtual cus-
tomer service specialists for a program that
has outperformed many of our traditional call
centers around the world. Following this suc-
cess, we expanded our hiring efforts and this
virtual program to Baltimore to create new jobs
that jump-start careers. And now we're evaluat-
ing the possibility of expanding even further.
Creating opportunity for people with disabili-
ties. The firm's Office of Disability Inclusion
continues to lead strategy and initiatives aimed
at advancing economic opportunity for people
with disabilities. In 2023, we joined lawmakers
and business leaders in Washington, D.C., to
show support for passage of the Supplemental
Security Income (SSI) Savings Penalty
Elimination Act. Modernizing the SSI program,
by updating asset limits for the first time in
nearly 40 years, would allow millions of people
with disabilities who receive SSI benefits the
opportunity to build their savings without put-
ting their essential benefits at risk. We also
provided business coaching to more than 370
entrepreneurs with disabilities.
across the United States and has hired over
900,000 veterans and military spouses. In 2023,
VJM announced the creation of its Advisory
Board, which is composed of 14 corporate lead-
ers, to provide strategic direction and oversight
of VJM as it continues to expand its commitment
to support economic opportunities for veterans
and military spouses, including its goal to hire 2
million veterans and 200,000 military spouses by
2030. JPMorgan Chase alone has hired in excess
of 18,000 veterans since 2011 and currently
employs more than 3,100 military spouses.
effort sponsors recruitment, mentorship and
development programs to support the military
members and veterans working at JPMorgan
Chase. Back in 2011, we joined with 10 other com-
panies to launch the Veteran Jobs Mission (VJM),
whose membership has since grown to more than
300 companies representing various industries
Military and Veterans Affairs. This firmwide
BRG has more than 70,000 employees globally.
Advancing Black Pathways. This comprehensive
program, which just reached the five-year mark,
focuses on strengthening the economic founda-
tion of Black communities because we know that
opportunity is not always created equally. The
program does so by, among other accomplish-
ments, helping to diversify our talent pipeline,
providing opportunities for Black individuals to
enter the workforce and gain valuable experi-
ence, and investing in the financial success of
Black Americans through a focus on financial
health, homeownership and entrepreneurship.
An important part of the program's work is
achieved through our investment in Historically
Black Colleges and Universities (HBCU). We now
partner with 18 schools across the United States
to boost recruitment connections, expand
career pathways for Black students and other
students, and support their long-term develop-
ment and financial health. As a measure of the
program's success, in four years we have made
nearly 400 hires into summer and full-time
•
•
• Women on the Move. At JPMorgan Chase, they
sure are! Women represent 28% of our firm's
senior leadership globally. In fact, our major
lines of business - CCB, AWM and CIB, which
would be among Fortune 1000 companies on
their own - are all run by women (one with a
co-head who is male). More than 10 years ago, a
handful of senior women at the company, on
their own, started this global, firmwide, inter-
nally focused organization called Women on the
Move. It was so successful that we expanded the
initiative beyond the company; it now empowers
clients and consumers, as well as women
employees and their allies, to build their
careers, grow their businesses and improve
their financial health. The Women on the Move
22
analyst and associate roles at the firm.
21
Senior business consultants. To help entrepre-
neurs and small businesses make the transition
from community lending to accessing capital
from traditional financial institutions, we created
a new job - senior business consultant - to
provide support. Senior business consultants in
branches that focus on underserved communi-
ties offer coaching and help business owners
with everything from navigating access to credit
to managing cash flow to generating effective
marketing. Since 2020, these consultants have
mentored more than 5,500 business owners,
helping them improve their operations, grow
revenue and network with others in the local
business community.
•
•
Entrepreneurs of Color Fund. A critical chal-
lenge we have seen in so many communities is
that traditional lending standards render too
many entrepreneurs - particularly entrepre-
neurs of color and those serving these commu-
nities ineligible for credit. In response, we
helped launch the Entrepreneurs of Color Fund
(EOCF) in Detroit, a lending program designed to
help aspiring small business owners gain access
to critical resources needed for growth that are
often not equitably available - capital, technical
assistance and mentorship, among others.
These challenges aren't unique to Detroit so we
worked with community development financial
institutions to replicate the EOCF program in
10 markets across the United States in 2023,
deploying more than 2,900 loans and $176
million in capital to underserved entrepreneurs
across the country.
• AdvancingCities. The organizing principles that
define the business and community investments
we make and how we best achieve an overall
impact in local economies were heavily influ-
enced by our experience in Detroit. Seeing
Detroit's comeback begin to take shape several
years ago, we created AdvancingCities to repli-
cate this model for large-scale investments to
other cities around the world. From San Fran-
cisco to Paris to Greater Washington, D.C., we've
applied what we learned in Detroit to communi-
ties where conditions are opportune for success
and require deeper investments - where com-
munity, civic and business leaders have come
together to solve problems and get results.
•
•
JPMorgan Chase Service Corps. Ten years ago,
we launched the JPMorgan Chase Service Corps
to strengthen the capacity-building of nonprofit
partners. We brought employees from around
the world to Detroit to assist with its recovery
from creating a scoring model for a nonprofit to
helping prioritize neighborhoods for develop-
ment funding to devising an implementation
plan for an integrated talent management
system. Since that time, the Service Corps has
expanded, with more than 1,500 JPMorgan
Chase employees contributing 100,000 hours
to support over 300 nonprofits globally.
Community Centers/Branches and Community
Managers. A local bank branch, especially in a
low-income neighborhood, can be successful
only when it fits the community's needs. That is
why over the last several years we have shifted
our approach to how we offer access to financial
health education, as well as low-cost products
and services to help build wealth. Since 2019,
we have opened 16 Community Center branches,
often in areas with larger Black, Hispanic or
Latino populations, and have plans to open
three more by the end of 2024. These branches
have more space to host grassroots community
events, small business mentoring sessions and
financial health seminars, which have been
well-attended to date, over 400,000 people
have taken advantage of the financial education
seminars. In each of these Community Center
branches, we hired a Community Manager (who
acts as a local ambassador) to build relation-
ships with community leaders, nonprofits and
small businesses. The Community Manager
concept and practice have become so successful
that we have also placed these managers in
many of our traditional branches in underserved
communities. We now have 149 Community
Managers throughout our branch network.
• Work skills development. Detroit showed us
how talent in communities is often overlooked.
We saw this in the early days of our investment
when we visited our partners at Focus: HOPE, a
training program designed to help Detroiters
develop skills for high-demand jobs. Quickly, it
became clear that the training and education
system in Detroit was disconnected from
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
Business Resource Groups. To deepen our cul-
ture of inclusion in the workplace, we have 10
Business Resource Groups (BRG) across the com-
pany to connect more than 160,000 participat-
ing employees around common interests, as well
as to foster networking and camaraderie.
Groups welcome anyone - allies and those with
shared affinities alike. For example, some of our
largest BRGS are Access Ability (employees with
disabilities and caregivers), Adelante (Hispanic
and Latino employees), BOLD (Black employees),
NextGen (early career professionals), PRIDE
(LGBTQ+ employees) and Women on the Move.
Finally, we should also consider that rates have
been extremely low for a long time - it's hard to
know how many investors and companies are truly
prepared for a higher rate environment.
It's also interesting to point out that many of our
efforts were spawned from our work around
Advancing Black Pathways, Military and Veterans
Affairs, and our work in Detroit. While we've
banked Detroit for more than 90 years, our $200
million investment in its economic recovery over
the last decade demonstrated that investing in
communities is a smart business strategy. We are
one of the largest banks in Detroit, from consumer
banking to investment banking, and it's quite clear
that not only did our efforts help Detroit, but they
also helped us gain market share. The extent of
Detroit's remarkable recovery was recently high-
lighted when Moody's upgraded the city's credit
rating to investment grade - an extraordinary
achievement just over 10 years after the city filed
the largest municipal bankruptcy in U.S. history.
For JPMorgan Chase, Detroit was an incubator for
developing models that help us hone how we
deploy our business resources, philanthropic capi-
tal, skilled volunteerism, and low-cost loans and
equity investments, as well as how we identify top
talent to drive successful business and societal
improvements. I hope that, as shareholders, you
are proud of our focus on promoting opportunity
for all, both within and outside our organization,
which includes economic opportunity. Some of our
initiatives are listed below.
23
merger integration. Overall, the integration
involves effectively combining more than 165
systems (e.g., statement, deposit, accounting and
human resources) and consolidating policies, risk
reporting, and other various rules and procedures.
We hope to have most of the integration done by
the middle of 2024.
Fortunately, we were very familiar and comfort-
able with all of the assets we were acquiring from
First Republic. What we didn't take on was First
Republic's excessive interest rate exposure -
of the reasons it failed - which we effectively
hedged within days of the acquisition.
one
Our people did a great job of respectfully manag-
ing this transition, knowing that circumstances
were particularly tough for our new colleagues,
whom we tried to welcome with open arms. We did
everything we could to redeploy individuals whose
jobs were lost because of the merger (we directly
hired over 5,000 people). Our approach has always
been to go into an acquisition knowing we can
learn things from other teams, and in this case,
we did: First Republic had done an outstanding job
serving high-net-worth clients and venture capital-
ists, and we are developing what is effectively a
new business for us following First Republic's ser-
vicing model. We will serve these high-net-worth
clients through a single point of contact, supported
by a concierge service model, across our distribu-
tion channels - including more than 20 new
J.P. Morgan branded branches.
NAVIGATING IN A COMPLEX AND
POTENTIALLY DANGEROUS WORLD
In the policy section, we talk about how we may be
entering one of the most treacherous geopolitical
eras since World War II. And I have written in the
past about high levels of debt, fiscal stimulus,
ongoing deficit spending and the unknown effects
of quantitative tightening (which I am more wor-
ried about than most) so I won't repeat those
views here. However, the impacts of these geopo-
litical and economic forces are large and some-
what unprecedented; they may not be fully under-
stood until they have completely played out over
multiple years. In any case, JPMorgan Chase must
be prepared for the various potential impacts and
outcomes on our company and our people.
We remain wary of economic prognosticating.
While all companies essentially budget on a base
case forecast, we are very careful not to run our
business that way. Instead, we look at a range of
potential outcomes for which we need to be pre-
pared. Geopolitical and economic forces have an
unpredictable timetable - they may unfold over
months, or years, and are nearly impossible to put
into a one-year forecast. They also have an unpre-
dictable interplay: For example, the geopolitical
situation may end up having virtually no effect on
the world's economy or it could potentially be its
determinative factor.
We have ongoing concerns about persistent
inflationary pressures and consider a wide
range of outcomes to manage interest rate
exposure and other business risks.
Many key economic indicators today continue
to be good and possibly improving, including
inflation. But when looking ahead to tomorrow,
conditions that will affect the future should be
considered. For example, there seems to be a large
number of persistent inflationary pressures, which
may likely continue. All of the following factors
appear to be inflationary: ongoing fiscal spending,
remilitarization of the world, restructuring of
global trade, capital needs of the new green econ-
omy, and possibly higher energy costs in the future
(even though there currently is an oversupply of
gas and plentiful spare capacity in oil) due to a lack
of needed investment in the energy infrastructure.
In the past, fiscal deficits did not seem to be
closely related to inflation. In the 1970s and early
1980s, there was a general understanding that
inflation was driven by "guns and butter"; i.e.,
fiscal deficits and the increase to the money
supply, both partially driven by the Vietnam War,
led to increased inflation, which went over 10%.
The deficits today are even larger and occurring in
boom times - not as the result of a recession -
and they have been supported by quantitative
easing, which was never done before the great
financial crisis. Quantitative easing is a form of
increasing the money supply (though it has many
offsets). I remain more concerned about quantita-
tive easing than most, and its reversal, which has
never been done before at this scale.
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
19
Equity values, by most measures, are at the high
end of the valuation range, and credit spreads are
extremely tight. These markets seem to be pricing
in at a 70% to 80% chance of a soft landing –
modest growth along with declining inflation and
interest rates. I believe the odds are a lot lower
than that. In the meantime, there seems to be an
enormous focus, too much so, on monthly inflation
data and modest changes to interest rates. But the
die may be cast - interest rates looking out a year
or two may be predetermined by all of the factors
I mentioned above. Small changes in interest rates
today may have less impact on inflation in the
future than many people believe.
•
Therefore, we are prepared for a very broad range
of interest rates, from 2% to 8% or even more,
with equally wide-ranging economic outcomes -
from strong economic growth with moderate infla-
tion (in this case, higher interest rates would result
from higher demand for capital) to a recession
with inflation; i.e., stagflation. Economically, the
worst-case scenario would be stagflation, which
would not only come with higher interest rates but
also with higher credit losses, lower business
volumes and more difficult markets. Under these
many different scenarios, our company would
continue to perform at least okay. Importantly,
being prepared means we can continue to help our
clients no matter what the future portends.
We seek to be engaged globally and carefully
manage complex countries and geopolitical
issues.
JPMorgan Chase does business in more than 100
countries, and we have people on the ground in
over 60 countries. In almost all those locations, we
do research on their economy, their markets and
their companies; we bank their government insti-
tutions and their companies; and we bank multina-
tional corporations, including the U.S. multina-
tional corporations within their borders. This is a
critical role - not only in helping those countries
grow and improve but also in expanding the global
economy.
Many of these countries are quite complex with dif-
ferent laws, customs and regulations. We are occa-
sionally asked why we bank certain companies and
even certain countries, particularly when countries
have some laws and customs that are counter to
many of the values held in the United States.
Here's why:
• The U.S.government sets foreign policy. And
when it does, we salute. Wherever we do busi-
ness, we follow the law of the United States, as it
applies in that country (in addition to the laws of
the country itself), in all respects. Think of trade
rules, sanctions, anti-money laundering and the
Foreign Corrupt Practices Act, among others. By
and large, these things help improve those coun-
tries. In most cases, the U.S. government does
not want us to leave because it agrees, gener-
ally, that the engagement of American business
enhances our relationships with other countries
and helps those countries themselves.
20
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
•
Engagement makes the world a better place.
We all should want the world to continue to
improve. Isolation and lack of engagement do
not accomplish that goal. While we believe that
it makes sense for the United States to push for
constant improvement around the world - from
advocating for human rights to fighting corrup-
tion - this is rarely accomplished through coer-
cion, and, in fact, is enhanced by engagement.
We need to be prepared for emerging
challenges and position ourselves to under-
stand them. We created a new role - Head of
Asia Pacific Policy and Strategic Competitiveness
― to focus specifically on key policy issues
critical to the firm's (and, in fact, the country's)
competitiveness, such as trade restrictions,
supply chains and infrastructure. We also cre-
ated a new strategic security forum to focus on
emerging and evolving risks, including trade
wars, pandemics, cybersecurity and actual
wars, to name just a few.
OUR EXTENSIVE COMMUNITY
OUTREACH EFFORTS, INCLUDING
DIVERSITY, EQUITY AND INCLUSION
JPMorgan Chase makes an extraordinary effort as
part of our "normal" day-to-day outreach to
engage with individual clients, small and midsized
businesses, large and multinational firms, govern-
ment officials, regulators and the press in cities all
around the world. This dialogue is part of the nor-
mal course of business but it is also part of build-
ing trust and putting down roots in a community.
We believe that companies, and banks in particu-
lar, must earn the trust of the communities and
countries in which they operate. We believe - and
we are unashamed about this - that it is our obliga-
tion to help lift up the communities and countries in
which we do business. We believe that doing so
enhances business and the general economic
well-being of those communities and countries and
also enhances long-term shareholder value. JPMor-
gan Chase thrives when communities thrive.
This approach is integral to what we do, in great
scale, around the world - and it works. We are
quite clear that whether our efforts are inspired by
the goodness of our hearts (as philanthropy or
venture-type investing) or good business, we try
to measure the actual outcomes.
not just in the banking system but with leveraged
companies and others. Remember, a simple 2
percentage point increase in rates essentially
reduced the value of most financial assets by 20%,
and certain real estate assets, specifically office
real estate, may be worth even less due to the
effects of recession and higher vacancies. Also
remember that credit spreads tend to widen,
sometimes dramatically, in a recession.
•
The mini banking crisis of 2023 is over, but
beware of higher rates and recession - not
just for banks but for the whole economy.
When we purchased First Republic in May 2023
following the failure of two other regional banks,
Silicon Valley Bank (SVB) and Signature Bank, we
thought that the current banking crisis was over.
Only these three banks were offsides in having
the toxic combination of extreme interest rate
exposure, large unrealized losses in the
held-to-maturity (HTM) portfolio and highly
concentrated deposits. Most of the other regional
banks did not have these problems. However, we
stipulated that the crisis was over provided that
interest rates didn't go up dramatically and we
didn't experience a serious recession. If long-end
rates go up over 6% and this increase is accompa-
nied by a recession, there will be plenty of stress -
Increasing our rural investment. We are proud
to be the only bank with branches in all 48 con-
tiguous states, which include many rural com-
munities. Nearly 17 million consumers living in
rural areas hold over $100 billion in deposits
with us and $175 billion in loans. We are also a
leading wholesale lender in these communities,
helping to fuel local economies through relation-
ships with local companies, governments, hospi-
tals and universities. Since 2019, we have made
material progress in extending our footprint to
reach more rural Americans, including expand-
ing our branch network into 13 new states with
large rural populations. Now we are raising the
bar. With our new strategy, we have a goal to
have a branch available to serve 50% of a state's
population within an acceptable driving dis-
tance, including in heavily rural states such as
Alabama and Iowa. This focus is part of our
recently announced plan to build an additional
500 branches and hire 3,500 employees over
the next three years. Through this expansion,
we will partner across lines of business and our
Corporate Responsibility organization to help
advance inclusive economic growth and bring
the full force of the firm to America's heartland.
Communication about concrete successes. Across
industries, market participants need to do a better job of
celebrating and championing concrete successes and
tangible milestones. This includes highlighting success
stories around emerging technologies and the complex
nature of the carbon transition. Stakeholders also should
better convey the benefits of clean energy - across all
technologies - to help combat misinformation and foster a
more informed dialogue.
26
26
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
⚫ Work skills training. Businesses depend on healthy, thriving
communities so the carbon transition needs to work for
everyone. This includes helping to ensure that workers are
trained in the skills for the future, such as through improved
engineering schools and job training programs. Work across
the entire supply chain is essential to moving at pace. As one
example, the U.S. Bureau of Labor Statistics estimates we will
need more than 70,000 additional electricians per year
through 2031; it is currently unclear how the market will
meet that demand. If the deployment of heat pumps and
electric vehicle chargers accelerates, demand for electricians
will be even higher. A concerted focus to train electricians
can help the United States meet some of its climate goals
while providing well-paying jobs that do not require a four-
year college degree. Also, broadly speaking, businesses are
in a better position to make investments with confidence
when labor requirements across the value chain - from
design and manufacturing to installation are satisfied.
We recently reconsidered certain memberships.
JPMorgan Chase recently exited Climate Action 100+ and the
Equator Principles. "Why?" we are asked. While we don't
necessarily disagree with some of the principles many
organizations have, we make our own business decisions. We
think we have some of the best-in-class environmental, social
and risk standards because we have invested in our own
in-house experts and matured our own risk management
processes over the years. As a result, we are going to go our
own way and make our own independent decisions, gathering
the best learnings of experts in the field, and, of course, we
will follow all legal requirements.
We are engaged but recognize our role: three more
important points.
First, everyone should understand that conquering the climate
problem needs proper government action, particularly around
taxes, permitting, grids, infrastructure building and proper
coordination of policies - we are not there yet. Second, there is
no known technology that can fill the gap between our
"aspirations" and the current trajectory of the world. We hope
and believe that this will be found (for example, through carbon
capture, improved batteries, hydrogen or other measures). This
new technology will also require proper government research
and development funding, as the effort cannot be accomplished
by private enterprise alone. And third, we are going to use the
word “commitment” much more reservedly in the future,
clearly differentiating between aspirations we are actively
striving toward and binding commitments.
For JPMorgan Chase to play the right role in tackling the
climate challenge, we have organized a special group around
the green economy and related infrastructure investment.
This group will coordinate and inform our work across all
established industry groups (from auto to real estate, energy,
agriculture and others) and includes hundreds of employees
devoted to these efforts.
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
27
POWERING ECONOMIC GROWTH IN FLORIDA
From Tallahassee to Miami and from Tampa to Palm Bay,
JPMorgan Chase has been committed to Florida for more than
130 years and has enjoyed being the bank for all communities.
Each year, we contribute billions of dollars to the economy, hire
and train local residents, help to revitalize neighborhoods and
remove barriers to opportunity for Floridians across the state.
Our partnerships with businesses, nonprofits, government
entities and community organizations have enabled us to drive
sustainable impact and help them achieve their goals. We
couldn't be more proud to help make opportunity happen
in Florida.
Public education and engagement. Without question, clients
told us that public commitment to and investment in energy-
related infrastructure is one of the most important parts of
combating the climate crisis and running their businesses.
Supporting the buildout of energy-related infrastructure with
speed and scale is critical. Public acceptance of building and
advancing the infrastructure needed to meet climate goals is
at the heart of progress. While the energy transition is poised
to deliver benefits to communities across the world, securing
acceptance and support to build clean energy infrastructure
at scale is challenging. Access to job-creating renewable
energy projects can help rural communities thrive by
advancing local economies. Ensuring public support and
social license to operate requires better engagement
strategies, including widespread stakeholder education about
the benefits of these technologies for local communities.
This year, we forged a relationship with Inter Miami CF, one of
the most recognizable sports teams in the world. Through this
partnership and the newly named Chase Stadium, we're
continuing to contribute to South Florida and its local
communities. In Tampa, home to nearly 6,000 of our
employees, we're triggering an additional $210 million in
economic activity and creating over 660 local construction jobs
through the renovation of our Highland Oaks campus and
downtown Tampa office. We're proud that one-third of all
Floridians do business with us through deposits, credit cards or
a mortgage. Through each of our investments across the state,
we're ensuring that residents have the resources and tools they
need to thrive.
Our clients range from the city of Jacksonville to the Orlando
Utilities Commission, the University of South Florida, Broward
Health and the District School Board of Pasco County - a
decades-long client.
• We are the lead treasury bank for the Wounded Warrior
Project, one of the largest veteran service organizations in
the United States. Headquartered in Jacksonville, the
organization caters to wounded veterans and service
members who served in the military on or after 9/11.
Our support to investment and middle-market banking
clients:
•
Over the last five years, we have provided in excess of $318
billion in credit and capital to local clients, such as utility,
technology and tourism companies.
• We have more than 12,500 large and midsized clients across
the state.
Our support to local financial firms:
• Over the last five years, we have provided more than $24
billion in credit and capital for financial institutions, such as
local banks, insurance companies, asset managers and
securities firms.
• We bank over 50 of Florida's regional, midsized and
community banks, helping them play an essential role
in maintaining the state's economy and serve local
communities.
28
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
employers and their talent needs. By investing
in programs like Focus: HOPE, we have been
able to help bridge local skills gaps by training
people for in-demand jobs in communities like
Dallas, Miami and Washington, D.C. Between
2019 and 2023, we supported more than 2 mil-
lion people through our extensive learning and
career programming around the world.
• We serve over 150 government, higher education, healthcare
and nonprofit clients throughout the state, and over the last
five years, we have provided more than $20.2 billion in credit
and capital to them.
Public/private partnerships in scaling bankable projects.
Scaling investments needs to happen both for commercially
proven technologies (e.g., wind and solar) and for emerging
technologies (e.g., green hydrogen, sustainable aviation fuel
and carbon capture). Developing "bankable" clean energy
projects will require the application of smart financial tools,
as well as further policy support. It will take public/private
partnerships and innovation to create catalytic forms of
capital that can step into these gaps, absorb first-mover
risks and provide the necessary funding. The cost of capital
is too high for some companies - and public funds ought
to be deployed in a smart way that effectively attracts
private capital.
Our support to government, higher education, healthcare
and nonprofit organizations:
•
We've nearly completed our five-year, $30
billion Racial Equity Commitment - it will now
become a permanent part of our business.
What began in 2020 as a five-year, $30 billion
commitment is now transforming into a consistent
business practice for our lines of business in
support of Black, Hispanic, Latino and other
underserved communities. By the end of 2023,
we reported over $30 billion in progress toward
our original goal. However, our focus is not on
how much money is deployed - but on long-term
impact and outcomes. And going forward, these
programs will be embedded in our business-
as-usual operating system.
• Affordable rental housing. Through our
Affordable Housing Preservation program, we
approved program funding to date of approxi-
mately $21 billion in loans to incentivize the
preservation of over 190,000 affordable housing
rental units across the United States. Addition-
ally, we financed approximately $5 billion for the
construction and rehabilitation of affordable
rental housing.
•
•
Homeownership. In 2023, we expanded our
$5,000 Chase Homebuyer Grant program to
include over 15,000 majority Black, Hispanic and
Latino communities - and in January 2024, we
increased our grant amount to $7,500 in select
markets. Since our grant program began in
2021, we have provided about 8,600 grants
totaling $43 million. We also have provided
home purchase and refinance loans in 2023
worth over $4.6 billion for more than 14,000
Black, Hispanic and Latino households across
the economic spectrum.
• Small business. The Business Card Special
Purpose Credit Program, launched in January
2023, has provided over 10,900 cards, totaling
over $43 million in available credit lines to
underserved entrepreneurs and communities
across the United States.
24
24
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
Supplier diversity. In 2023, our firm spent
approximately $2.3 billion directly with diverse
suppliers - an increase of 10% over 2022. As a
part of our racial equity commitment, over $450
million was spent in 2023 with more than 190
Black-, Hispanic- and Latino-owned businesses.
Minority depository institutions and commu-
nity development financial institutions. To
date, we have invested more than $110 million in
equity in diverse financial institutions and pro-
vided over $260 million in incremental financing
to community development financial institutions
to support communities that lack access to tradi-
tional financing. JPMorgan Chase also helped
these institutions build their capacity so they
can provide a greater number of critical services
like mortgages and small business loans.
We're thoughtfully continuing our diversity,
equity and inclusion efforts.
Of course, JPMorgan Chase will conform as the
laws evolve. We will scour our programs, our words
and our actions to make sure they comply.
That said, we think all the efforts mentioned
above will remain largely unchanged. And, in fact,
around the world, cities and communities where
we do business applaud these efforts. We also
believe our initiatives make us a more inclusive
company and lead to more innovation, smarter
decisions and better financial results for us and
for the economy overall.
•
In May 2023, we gathered with knowledgeable and influential
people from the energy industry writ large to the government
and financial services arena in Scottsdale, Arizona, for an
action forum. The goal was to explore various aspects of the
climate challenge and try to devise effective solutions that
could help lead to meaningful progress. The climate challenge
is immense and complex. Addressing it requires more than
making simplistic statements and rules; rather, energy
systems and global supply chains need to be transformed
across virtually all industries. And there is also a deep need
for new research and development. Energy systems and
supply chains provide the foundation of the global economy
and must be treated with care.
•
To find a way forward, we sought input from diverse
stakeholders in pursuit of a North Star. In Scottsdale and in
discussions with clients across industries about what's needed
to achieve a low-carbon economy, these five action steps and
reforms were top of mind:
We are often asked in particular about "equity"
and what that word means. To us, it means equal
treatment, equal opportunity and equal access ...
not equal outcomes. There is nothing wrong with
acknowledging and trying to bridge social and eco-
nomic gaps, whether they be around wealth or
health. We would like to provide a fair chance for
everyone to succeed - regardless of their back-
ground. And we want to make sure everyone who
works at our company feels welcome.
The task for industry, policymakers and finance is to help
formulate solutions that support the transition to a low-carbon
economy, balancing affordable, reliable access to energy with
generating economic growth.
At the same time, the opportunity here is immense. The
investment required to meet climate goals – estimated at over
$5 trillion annually - could generate economywide growth and
opportunity at a scale the world has not seen since the
Industrial Revolution.
-
WHAT WE LEARNED: A FIVE-POINT ACTION PLAN TO MOVE FORWARD
ON THE CLIMATE CHALLENGE
Supportive government policy and leadership to advance
the transition. Policy that promotes favorable economic
conditions to make the transition viable is a critical first step
for clients. This includes government leadership via
mandates, incentives or subsidies to support jobs and
investment in the transition; actions on permitting and
interconnection reform; and regulatory clarity and
certainty, especially around long-term investments. As one
vital example, current grid infrastructure is insufficient to
accommodate the growth in renewables.
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
Our commitment to these ideals is also reflected in
our employees. The talent at our firm is a vibrant
mix of cultures, beliefs and backgrounds. We are,
of course, fully committed to freedom of speech.
There are things that you can say that would be
permitted under freedom of speech but would not
be allowed under our Code of Conduct. For exam-
ple, we do not allow intimidation, threats or highly
prejudicial behavior or speech. Our Code of Con-
duct clearly stipulates that certain statements and
behavior, while allowed under freedom of speech,
can lead to disciplinary action at our company -
from being reprimanded to being fired.
We believe in the values of democracy, including
freedom of speech and expression, and are
staunchly against discrimination and hate. We
have not turned away and will not turn away -
customers because of their political or religious
affiliations nor would we tell customers how they
should spend their money.
Before I comment about culture issues, I have a
confession to make: I am a full-throated, red-
blooded, patriotic, free-enterprise (properly regu-
lated, of course) and free-market capitalist. Our
company is frequently asked to take a position on
an issue, rule or legislation that might be consid-
ered "cultural." When that happens, we take a
deep breath and study the matter. Many of the
laws in question have many specific requirements,
some of which you would agree with but not oth-
ers. But we are being asked to support the entire
law. In cases like these, we simply make our own
statement that reflects our educated view and val-
ues; however, we do not give our voice to others.
We want to articulate how we weigh in on
social issues and what it means for our
customers.
25
ΝΑ
4,326
812
3,192
322
NA
(619)
(789)
3,651
283
4,564
(543)
(141)
ΝΑ
(1,473)
630
ΝΑ
$
ΝΑ
$
(939)
10,250
$
4,371
16,386
$
ΝΑ
3,636
17,800
$
6,892
$
28,328
ΝΑ
ΝΑ
$
(141)
$
269
(6)
$
2,040
$
11,200
$
6,486
(4)
1,765
$
1,765
$
10,250
$
4,371
$
19,726
(1,699)
(2)
3
2,403
181
2,853
11
2,712
142
2,865
4
543
2,293
6,189
(1,858)
(4,838)
(2,375)
(9,071)
1
3,353
$
Total lending-related commitments
Wholesale
180
1,012
$
186
4,228
Allowance for lending-related commitments by impairment methodology
Asset-specific
$ - $
3,216
89
89
Portfolio-based
75
1,810
1,885
Total allowance for lending-related commitments(e)
$
$
75
Loans measured at fair value of collateral less cost to sell
6
Portfolio-based
Total retained loans
Collateral-dependent loans
Net charge-offs
$
3,287
393,988
397,275
$
$
$
$
211,123
$ 211,123
$
670,134
672,472
5,625
1,275,245
$ 1,280,870
2,338
Total
$
$
(e) The allowance for lending-related commitments is reported in accounts payable and other liabilities on the Consolidated balance sheets.
(f) At December 31, 2023, 2022 and 2021, lending-related commitments excluded $17.2 billion, $13.1 billion and $15.7 billion, respectively, for the
consumer, excluding credit card portfolio segment; $915.7 billion, $821.3 billion and $730.5 billion, respectively, for the credit card portfolio segment;
and $19.7 billion, $9.8 billion and $32.1 billion, respectively, for the wholesale portfolio segment, which were not subject to the allowance for lending-
related commitments.
258
JPMorgan Chase & Co./2023 Form 10-K
(table continued from previous page)
Consumer,
excluding
(d) Includes collateral-dependent loans, including those for which foreclosure is deemed probable, and nonaccrual risk-rated loans for all periods presented.
Prior periods also include non collateral-dependent TDRS or reasonably expected TDRs and modified PCD loans.
credit card
2022
Wholesale
Consumer,
Total
excluding
credit card
Credit card
2021
Credit card
1,899
(c) As of December 31, 2023, included the allowance for credit losses associated with First Republic.
(a) Represents the impact to the allowance for loan losses upon the adoption of the Financial Instruments - Credit Losses: Troubled Debt Restructurings
accounting guidance. Refer to Note 1 for further information.
1,974
Lending-related commitments by impairment methodology
Asset-specific
$ - $ - $
464
$
464
Portfolio-based (f)
(b) At December 31, 2023 and 2022, in addition to the allowance for credit losses in the table above, the Firm also had an allowance for credit losses of
$243 million and $21 million, respectively, associated with certain accounts receivable in CIB.
16,386
28,248
28,248
$
$
516,577
517,041
544,825
$
545,289
$
$
$
$
$
4,371
$
16,386
$
11,978
$
10,250
796
2,189
$
288,775
184,379
$
300,753
$
$
185,175
$
19,726 $
(89)
2,664
10,977
6,019
19,660
2,430
9,937
1,765
4,108
$
2,040
$
11,200
$
6,486
$
16,475
$
601,481
603,670
$ 1,089,598 $
464
(17) $
4,049
33
$
4,472
$
$ - $ - $ 90
$
76
76
$
$
38
$
71
617
$
14,963 $
1,074,635
16
3,585
13,919
281,637
295,556 $
$
987
$
2,255
$
17,161
$
153,309
993,045
154,296
$
560,354
$ 1,010,206
$
(33) $
558,099
263
$
313
120
(75)
(74)
(149)
1
1
1
157
1
76
$
$
2,306
$
2,382
$
Asset-specific (d)
113
(37) - 15
ΝΑ
2,148
$
2,261
$
187
$
$
ΝΑ
2,222
2,409
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
ΝΑ
$
$
$
2,148
$
10,250
$
6,519
$
18,689
$
1,878
(624)
223
$
467
$
66 $
(665)
$
$
22,204 $
$
8,792
$
2,261
ΝΑ
ΝΑ
ΝΑ
$
96
ΝΑ
ΝΑ
ΝΑ
$
42
$
2,116
$
11,200
$
113
Loans by impairment methodology
ΝΑ
$
- %
Reduced weighted average contractual interest by 654 bps
0.10 %
Extended loans by a weighted average of 23 months
0.07 %
Provided payment deferrals with delayed amounts primarily
recaptured at the end of the deferral period and extended
loans by a weighted average of 137 months
(a) Includes loans to nonprofits, financial institutions, and personal investment companies and trusts.
Payment status of FDMS and redefaults
Financial effect of loan modification
The following table provides information by loan class about the payment status of FDMs during the year ended December 31,
2023.
Secured by real estate
Commercial and industrial
Other
(in millions)
Year ended December 31, 2023
Year ended December 31, 2023
Year ended December 31, 2023
Amortized cost basis
Current and less than 30 days past due and still
accruing
245
609
9
(in millions)
Loan modification
Single modifications
Interest rate reduction
$
Term extension
Multiple modifications
355
Other-than-insignificant
extension
Total(a)
$
Other
Year ended December 31, 2023
Amortized cost basis
% of loan modifications to total
retained Other loans
payment deferral and term
Notes to consolidated financial statements
$
947 $
Year ended December 31, 2023
Year ended December 31, 2023
Year ended December 31, 2023
1 $
2
3
6 $
Other
49 $
50 $
400
209
609
31
31
(a) Represents FDMs that were 30 days or more past due.
As of December 31, 2023, additional unfunded
commitments to lend to borrowers experiencing financial
difficulty for Commercial and industrial and Other loan
FDMs were $1.8 billion and $4 million, respectively. There
were no additional unfunded commitments to lend to
borrowers experiencing financial difficulties for Secured by
real estate loan FDMs.
1
118 $
Commercial and industrial
Amortized cost basis
30-89 days past due and still accruing
Criticized nonaccrual
Total
$
374
1,363 $
The following table provides information by loan class about FDMs that re-defaulted during the year ended December 31,
2023.
2
40
42
Secured by real estate
160 $
Loan modification
Term extension
$
Other-than-insignificant payment deferral
Interest rate reduction and term extension
Total(a)
$
(in millions)
253
JPMorgan Chase & Co./2023 Form 10-K
1,363
3
- %
Interest rate reduction and
term extension
3
- %
Other-than-insignificant
Extended loans by a weighted average of 14 months
payment deferral and
Total
(in millions)
5
$
160
Loan modification
Single modifications
interest rate reduction
Term extension
0.09%
149
5,089
Loan modifications
The Firm grants certain modifications of wholesale loans to borrowers experiencing financial difficulty, which effective January
1, 2023, are reported as FDMS.
Financial effects of FDMS
The following tables provide information by loan class about modifications considered FDMs.
(in millions)
Loan modification
Financial effect of loan modification
Single modifications
$
Other-than-insignificant
payment deferral
Multiple modifications
Secured by real estate
Year ended December 31, 2023
Amortized cost basis
% of loan modifications to total
retained Real Estate loans
Term extension
$
Other-than-insignificant
payment deferral
402
0.24 %
$
35
2
0.02 %
- %
Provided payment deferrals with delayed amounts primarily
recaptured at the end of the deferral period
Provided payment deferrals with delayed amounts primarily
re-amortized over the remaining life of the loan and extended
loans by a weighted-average of 7 months
Extended loans by a weighted average of 76 months and
reduced amortized cost basis of the loans by $5 million
Reduced weighted average contractual interest rate over the
life of the loan as a result of converting from variable to fixed
rate and extended loans by a weighted average of 16 months
- %
7
1
- %
$
Provided payment deferrals with delayed amounts primarily
re-amortized over the remaining life of the loan, reduced
weighted average contractual interest by 75 bps and
extended loans by a weighted average of 29 months
0.55 % Extended loans by a weighted average of 17 months
Financial effect of loan modification
916
Multiple modifications
Other-than-insignificant
payment deferral and term
extension
Other-than-insignificant
payment deferral and
interest rate reduction and
term extension
Term extension and principal
forgiveness
Interest rate reduction and
term extension
Provided payment deferrals with delayed amounts primarily
re-amortized over the remaining life of the loan
Reduced weighted average contractual interest by 350 bps
and extended loans by a weighted average of 3 months
Provided payment deferrals with delayed amounts primarily
recaptured at maturity and reduced weighted average
- % contractual interest by 184 bps
Commercial and industrial
Year ended December 31, 2023
Amortized cost basis
% of loan modifications to total
retained Commercial and industrial
loans
Nature and extent of TDRS
22,420
Prior to January 1, 2023, certain loan modifications were
considered TDRs. These loan modifications provided various
concessions to borrower who were experiencing financial
difficulty. Loans with short-term or other insignificant
modifications that were not considered concessions were
not TDRs nor were loans for which the Firm elected to
suspend TDR accounting guidance under the option
provided by the CARES Act.
As a result of the elimination of the requirement to assess
whether a modification is reasonably expected or involves a
concession, the population of loans considered FDMS is
greater than the population previously considered TDRs.
$
8,114
$
22,420
Ending balance at December 31,
Allowance for lending-related commitments
Beginning balance at January 1,
12,450
$
2,382
Cumulative effect of a change in accounting principle (a)
ΝΑ
ΝΑ
Provision for lending-related commitments
(1) (407)
(408)
76 $ - $ 2,306 $
Other
$
$
(132)
(1,444)
Net charge-offs
632
4,698
879
6,209
1,856
Provision for loan losses
6,048
2,484
9,468
Other
1
21
22
936
(793)
Ending balance at December 31,
75
Allowance for loan losses by impairment methodology
Asset-specific (d)
Portfolio-based
Total allowance for loan losses
(876) $
392
$
(484)
24,522
2,732
7,722
22,904
$
1,856
$
12,450
8,114
12,450
$
$
$
$
-
$
1,899
$
1,974
Total allowance for investment securities
10,013
NA
$
128
Total allowance for credit losses (b)(c)
$
1,931
$
12,450
ΝΑ
(519)
Gross recoveries collected
7,653
Relevant risk characteristics for the wholesale portfolio
include risk rating, delinquency status, tenor, level and
type of collateral, LOB, geography, industry, credit
enhancement, product type, facility purpose, and
payment terms.
The majority of the Firm's credit exposures share risk
characteristics with other similar exposures, and as a result
are collectively assessed for impairment (“portfolio-based
component"). The portfolio-based component covers
consumer loans, performing risk-rated loans and certain
lending-related commitments.
If an exposure does not share risk characteristics with other
exposures, the Firm generally estimates expected credit
losses on an individual basis, considering expected
repayment and conditions impacting that individual
exposure ("asset-specific component”). The asset-specific
component covers collateral-dependent loans and risk-
rated loans that have been placed on nonaccrual status.
Portfolio-based component
The portfolio-based component begins with a quantitative
calculation that considers the likelihood of the borrower
changing delinquency status or moving from one risk rating
to another. The quantitative calculation covers expected
credit losses over an instrument's expected life and is
estimated by applying credit loss factors to the Firm's
estimated exposure at default. The credit loss factors
incorporate the probability of borrower default as well as
loss severity in the event of default. They are derived using
a weighted average of five internally developed
macroeconomic scenarios over an eight-quarter forecast
period, followed by a single year straight-line interpolation
JPMorgan Chase & Co./2023 Form 10-K
255
Notes to consolidated financial statements
Relevant risk characteristics for the consumer portfolio
include product type, delinquency status, current FICO
scores, geographic distribution, and, for collateralized
loans, current LTV ratios.
to revert to long run historical information for periods
beyond the eight-quarter forecast period. The five
macroeconomic scenarios consist of a central, relative
adverse, extreme adverse, relative upside and extreme
upside scenario, and are updated by the Firm's central
forecasting team. The scenarios take into consideration the
Firm's macroeconomic outlook, internal perspectives from
subject matter experts across the Firm, and market
consensus and involve a governed process that incorporates
feedback from senior management across LOBS, Corporate
Finance and Risk Management.
Asset-specific component
To determine the asset-specific component of the
allowance, collateral-dependent loans (including those
loans for which foreclosure is probable) and nonaccrual
risk-rated loans in the wholesale portfolio segment are
generally evaluated individually.
On January 1, 2023 the Firm adopted the Financial
Instruments - Credit Losses: Troubled Debt Restructurings
accounting guidance as described in Note 1.
The adoption of this guidance eliminated the requirement
to measure the allowance for TDRs using a discounted cash
flow (DCF) methodology and allowed the option of a non-
DCF portfolio-based approach for modified loans to
borrowers experiencing financial difficulty. If a DCF
methodology is still applied for these modified loans, the
discount rate must be the post-modification effective
interest rate, instead of the pre-modification effective
interest rate.
The Firm elected to change from an asset-specific allowance
approach to its non-DCF, portfolio-based allowance
approach for modified loans to troubled borrowers for all
portfolios except collateral-dependent loans and nonaccrual
256
risk-rated loans, for which the asset-specific allowance
approach will continue to apply. The adoption did not
impact the collateral-dependent allowance approach or
scope.
The quantitative calculation is adjusted to take into
consideration model imprecision, emerging risk
assessments, trends and other subjective factors that are
not yet reflected in the calculation. These adjustments are
accomplished in part by analyzing the historical loss
experience, including during stressed periods, for each
major product or model. Management applies judgment in
making this adjustment, including taking into account
uncertainties associated with the economic and political
conditions, quality of underwriting standards, borrower
behavior, credit concentrations or deterioration within an
industry, product or portfolio, as well as other relevant
internal and external factors affecting the credit quality of
the portfolio. In certain instances, the interrelationships
between these factors create further uncertainties.
The application of different inputs into the quantitative
calculation, and the assumptions used by management to
adjust the quantitative calculation, are subject to significant
management judgment, and emphasizing one input or
assumption over another, or considering other inputs or
assumptions, could affect the estimate of the allowance for
loan losses and the allowance for lending-related
commitments.
This guidance was adopted under the modified
retrospective method which resulted in a net decrease to
the allowance for credit losses of $587 million and an
increase to retained earnings of $446 million, after-tax
predominantly driven by residential real estate and credit
card.
•
Collective and Individual Assessments
254
JPMorgan Chase & Co./2023 Form 10-K
Note 13 - Allowance for credit losses
The Firm's allowance for credit losses represents
management's estimate of expected credit losses over the
remaining expected life of the Firm's financial assets
measured at amortized cost and certain off-balance sheet
lending-related commitments. The allowance for credit
losses generally comprises:
•
•
the allowance for loan losses, which covers the Firm's
retained loan portfolios (scored and risk-rated),
When calculating the allowance for loan losses and the
allowance for lending-related commitments, the Firm
assesses whether exposures share similar risk
characteristics. If similar risk characteristics exist, the Firm
estimates expected credit losses collectively, considering
the risk associated with a particular pool and the probability
that the exposures within the pool will deteriorate or
default. The assessment of risk characteristics is subject to
significant management judgment. Emphasizing one
characteristic over another or considering additional
characteristics could affect the allowance.
the allowance for lending-related commitments, which is
presented on the Consolidated balance sheets in accounts
payable and other liabilities, and
The income statement effect of all changes in the allowance
for credit losses is recognized in the provision for credit
losses.
Determining the appropriateness of the allowance for credit
losses is complex and requires significant judgment by
management about the effect of matters that are inherently
uncertain. At least quarterly, the allowance for credit losses
is reviewed by the CRO, the CFO and the Controller of the
Firm. Subsequent evaluations of credit exposures,
considering the macroeconomic conditions, forecasts and
other factors then prevailing, may result in significant
changes in the allowance for credit losses in future periods.
The Firm's policies used to determine its allowance for loan
losses and its allowance for lending-related commitments
are described in the following paragraphs. Refer to Note 10
for a description of the policies used to determine the
allowance for credit losses on investment securities.
Methodology for allowances for loan losses and lending-
related commitments
The allowance for loan losses and allowance for lending-
related commitments represents expected credit losses
over the remaining expected life of retained loans and
lending-related commitments that are not unconditionally
cancellable. The Firm does not record an allowance for
future draws on unconditionally cancellable lending-related
commitments (e.g., credit cards). Expected losses related to
accrued interest on credit card loans are considered in the
Firm's allowance for loan losses. However, the Firm does
not record an allowance on other accrued interest
receivables, due to its policy to write these receivables off
no later than 90 days past due by reversing interest
income.
The expected life of each instrument is determined by
considering its contractual term, expected prepayments,
cancellation features, and certain extension and call
options. The expected life of funded credit card loans is
generally estimated by considering expected future
payments on the credit card account, and determining how
much of those amounts should be allocated to repayments
of the funded loan balance (as of the balance sheet date)
versus other account activity. This allocation is made using
an approach that incorporates the payment application
requirements of the Credit Card Accountability
Responsibility and Disclosure Act of 2009, generally paying
down the highest interest rate balances first.
The estimate of expected credit losses includes expected
recoveries of amounts previously charged off or expected to
be charged off, even if such recoveries result in a negative
allowance.
the allowance for credit losses on investment securities,
which is reflected in investment securities on the
Consolidated balance sheets.
For collateral-dependent loans, the fair value of collateral
less estimated costs to sell, as applicable, is used to
determine the charge-off amount for declines in value (to
reduce the amortized cost of the loan to the fair value of
collateral) or the amount of negative allowance that should
be recognized (for recoveries of prior charge-offs
associated with improvements in the fair value of the
collateral).
For non-collateral dependent loans, the Firm generally
measures the asset-specific allowance as the difference
between the amortized cost of the loan and the present
value of the cash flows expected to be collected, discounted
at the loan's effective interest rate. Subsequent changes in
impairment are generally recognized as an adjustment to
the allowance for loan losses. The asset-specific component
of the allowance for non-collateral dependent loans
incorporates the effect of the modification on the loan's
expected cash flows including changes in interest rates,
principal forgiveness, and other concessions, as well as
management's expectation of the borrower's ability to
repay under the modified terms.
Estimating the timing and amounts of future cash flows is
highly judgmental as these cash flow projections rely upon
estimates such as loss severities, asset valuations, the
amounts and timing of interest or principal payments
(including any expected prepayments) or other factors that
are reflective of current and expected market conditions.
These estimates are, in turn, dependent on factors such as
the duration of current overall economic conditions,
industry, portfolio, or borrower-specific factors, the
expected outcome of insolvency proceedings as well as, in
certain circumstances, other economic factors. All of these
estimates and assumptions require significant management
judgment and certain assumptions are highly subjective.
$
2,040
$
11,200
6,486
$
19,726
Total
Cumulative effect of a change in accounting principle (a)
(100)
2
(587)
Gross charge-offs
1,151
5,491
1,011
(489)
Wholesale
2023
Credit card
Other financial assets
In addition to loans and investment securities, the Firm
holds other financial assets that are measured at amortized
cost on the Consolidated balance sheets, including credit
exposures arising from lending activities subject to
collateral maintenance requirements. Management
estimates the allowance for other financial assets using
various techniques considering historical losses and current
economic conditions.
Credit risk arising from lending activities subject to
collateral maintenance requirements is generally mitigated
by factors such as the short-term nature of the activity, the
JPMorgan Chase & Co./2023 Form 10-K
fair value of collateral held and the Firm's right to call for,
and the borrower's obligation to provide additional margin
when the fair value of the collateral declines. Because of
these mitigating factors, these exposures generally do not
require an allowance for credit losses. However,
management may also consider other factors such as the
borrower's ongoing ability to provide collateral to satisfy
margin requirements, or whether collateral is significantly
concentrated in an individual issuer or in securities with
similar risk characteristics. If in management's judgment,
an allowance for credit losses for these exposures is
required, the Firm estimates expected credit losses based
on the value of the collateral and probability of borrower
default.
257
JPMorgan Chase & Co./2023 Form 10-K
Notes to consolidated financial statements
Allowance for credit losses and related information
The table below summarizes information about the allowances for credit losses, and includes a breakdown of loans and
lending-related commitments by impairment methodology. Refer to Note 10 for further information on the allowance for
credit losses on investment securities.
(Table continued on next page)
Year ended December 31,
(in millions)
Allowance for loan losses
Beginning balance at January 1,
Consumer,
excluding
credit card
For the year ended December 31, 2022 and 2021, new
TDRs were $801 million and $881 million, respectively.
New TDRs for the year ended December 31, 2022 and
2021 reflected extended maturity dates and covenant
waivers primarily in the Commercial and Industrial loan
class. For the year ended December 31, 2022 and 2021,
the impact of these modifications resulting in new TDRs was
not material to the Firm.
$
U.S. unemployment rate (a)
90 $
2,292
Assets
Total assets
held in
held by
consolidated
securitization securitization
Assets held in
nonconsolidated
Total
interests
VIES
VIES
securitization
VIES with
continuing
involvement
Trading
assets
Investment
securities
Other
financial
assets
held by
JPMorgan
Chase
nonconsolidated VIES"
Residential mortgage:
$
Subprime
58,570 $
8,881
675 $
Commercial and other
(b)
168,042
Total
$ 235,493 $
675 $
Prime/Alt-A and option ARMS
39,319
1,312
120,262
160,893
JPMorgan Chase interest in securitized assets in
(c)(d)(e)
Securitization-related (a)
pages 264-265
The Firm's other business segments are also involved with VIES (both third-party and Firm-sponsored), but to a lesser extent,
as follows:
•
•
Asset & Wealth Management: AWM sponsors and manages certain funds that are deemed VIES. As asset manager of the
funds, AWM earns a fee based on assets managed; the fee varies with each fund's investment objective and is competitively
priced. For fund entities that qualify as VIES, AWM's interests are, in certain cases, considered to be significant variable
interests that result in consolidation of the financial results of these entities.
Commercial Banking: CB provides financing and lending-related services to a wide spectrum of clients, including certain
third-party-sponsored entities that may meet the definition of a VIE. CB does not control the activities of these entities and
does not consolidate these entities. CB's maximum loss exposure, regardless of whether the entity is a VIE, is generally
limited to loans and lending-related commitments which are reported and disclosed in the same manner as any other third-
party transaction.
Corporate: Corporate is involved with entities that may meet the definition of VIES; however these entities are generally
subject to specialized investment company accounting, which does not require the consolidation of investments, including
VIES. In addition, Treasury and CIO invest in securities generally issued by third parties which may meet the definition of
VIES (e.g., issuers of asset-backed securities). In general, the Firm does not have the power to direct the significant
activities of these entities and therefore does not consolidate these entities. Refer to Note 10 for further information on the
Firm's investment securities portfolio.
In addition, CIB also invests in and provides financing and other services to VIES sponsored by third parties. Refer to page 266
of this Note for more information on the VIES sponsored by third parties.
Significant Firm-sponsored VIES
Credit card securitizations
Principal amount outstanding
CCB's Card Services business may securitize originated
credit card loans, primarily through the Chase Issuance
Trust (the “Trust”). The Firm's continuing involvement in
credit card securitizations includes servicing the
receivables, retaining an undivided seller's interest in the
receivables, retaining certain senior and subordinated
securities and maintaining escrow accounts.
trusts, as indicated above, obligates the Firm to absorb
losses and gives the Firm the right to receive certain
benefits from these VIES that could potentially be
significant.
The underlying securitized credit card receivables and other
assets of the securitization trusts are available only for
payment of the beneficial interests issued by the
securitization trusts; they are not available to pay the Firm's
other obligations or the claims of the Firm's creditors.
The agreements with the credit card securitization trusts
require the Firm to maintain a minimum undivided interest
in the credit card trusts (generally 5%). As of
December 31, 2023 and 2022, the Firm held undivided
interests in Firm-sponsored credit card securitization trusts
of $4.9 billion and $6.1 billion, respectively. The Firm
maintained an average undivided interest in principal
receivables owned by those trusts of approximately 65%
JPMorgan Chase & Co./2023 Form 10-K
261
Notes to consolidated financial statements
and 62% for the years ended December 31, 2023 and
2022, respectively. The Firm did not retain any senior
securities and retained $1.5 billion of subordinated
securities in certain of its credit card securitization trusts at
both December 31, 2023 and 2022. The Firm's undivided
interests in the credit card trusts and securities retained are
eliminated in consolidation.
Firm-sponsored mortgage and other securitization trusts
The Firm securitizes (or has securitized) originated and
purchased residential mortgages, commercial mortgages
and other consumer loans primarily in its CCB and CIB
businesses. Depending on the particular transaction, as well
as the respective business involved, the Firm may act as the
servicer of the loans and/or retain certain beneficial
interests in the securitization trusts.
The following tables present the total unpaid principal amount of assets held in Firm-sponsored private-label securitization
entities, including those in which the Firm has continuing involvement, and those that are consolidated by the Firm. Continuing
involvement includes servicing the loans, holding senior interests or subordinated interests (including amounts required to be
held pursuant to credit risk retention rules), recourse or guarantee arrangements, and derivative contracts. In certain
instances, the Firm's only continuing involvement is servicing the loans. The Firm's maximum loss exposure from retained and
purchased interests is the carrying value of these interests.
December 31, 2023
(in millions)
The Firm consolidates the assets and liabilities of its
sponsored credit card trusts as it is considered to be the
primary beneficiary of these securitization trusts based on
the Firm's ability to direct the activities of these VIES
through its servicing responsibilities and other duties,
including making decisions as to the receivables that are
transferred into those trusts and as to any related
modifications and workouts. Additionally, the nature and
extent of the Firm's other continuing involvement with the
page 264
$
1,981 $
55,362 $
9,709
164,915
229,986 $
754 $
754 $
37,058
1,743
127,037
165,838
$
$
744 $
10
888
1,642 $
1,918 $
$
2,662
$
10
670
6,931
670 $
9,603
(a) Excludes U.S. GSES and government agency securitizations and re-securitizations, which are not Firm-sponsored.
(b) Consists of securities backed by commercial real estate loans and non-mortgage-related consumer receivables.
(c) Excludes the following: retained servicing; securities retained from loan sales and securitization activity related to U.S. GSES and government agencies;
interest rate and foreign exchange derivatives primarily used to manage interest rate and foreign exchange risks of securitization entities; senior securities
of $52 million and $134 million at December 31, 2023 and 2022, respectively, and subordinated securities were not material for both December 31,
2023 and 2022, which the Firm purchased in connection with CIB's secondary market-making activities.
(d) Includes interests held in re-securitization transactions.
(e) As of December 31, 2023 and 2022, 77% and 84%, respectively, of the Firm's retained securitization interests, which are predominantly carried at fair
value and include amounts required to be held pursuant to credit risk retention rules, were risk-rated "A" or better, on an S&P-equivalent basis. The
retained interests in prime residential mortgages consisted of $2.5 billion and $2.6 billion of investment-grade retained interests at December 31, 2023
and 2022, respectively, and $88 million and $27 million of noninvestment-grade retained interests at December 31, 2023 and 2022, respectively. The
retained interests in commercial and other securitization trusts consisted of $6.1 billion and $5.8 billion of investment-grade retained interests, and $1.7
billion and $1.1 billion of noninvestment-grade retained interests at December 31, 2023 and 2022, respectively.
262
JPMorgan Chase & Co./2023 Form 10-K
2,216
5,373
7,291 $
595 $
3
831
1,429 $
Total
$
60 $ 2,636
3
5,638
7,619 $
1,354
7,823
1,414 $ 10,462
Principal amount outstanding
Assets
Total assets
held in
held by
consolidated
securitization securitization
JPMorgan Chase interest in securitized assets in
nonconsolidated VIES (c) (d)(e)
Assets held in
nonconsolidated
Commercial and other (b)
Total
interests
continuing
involvement
Other
Investment financial
securities assets
held by
JPMorgan
Chase
December 31, 2022
(in millions)
VIES
VIES
Securitization-related (a)
Residential mortgage:
Prime/Alt-A and option ARMS
Subprime
securitization
VIES with
Financing of municipal bond investments
Trading
assets
Securitization of both originated and purchased
residential and commercial mortgages, and other
consumer loans
$
20,423
$
-
$
462,143
$
482,566 $
29,588
29,588
453,571
764
$
454,335
$
483,159
483,923
JPMorgan Chase & Co./2023 Form 10-K
259
Notes to consolidated financial statements
Discussion of changes in the allowance
The allowance for credit losses as of December 31, 2023
was $24.8 billion, reflecting a net addition of $3.1 billion
from December 31, 2022.
•
The net addition to the allowance for credit losses included
$1.9 billion, consisting of:
$
$1.3 billion in consumer, predominantly driven by CCB,
comprised of $1.4 billion in Card Services, partially offset
by a net reduction of $200 million in Home Lending. The
net addition in Card Services was driven by loan growth,
including an increase in revolving balances, partially
offset by reduced borrower uncertainty. The net
reduction in Home Lending was driven by improvements
in the outlook for home prices, and
$
455 $
482,111
- $ - $ 167
Assisting clients in accessing the financial markets in
a cost-efficient manner and structuring transactions
to meet investor needs
$
167
$
2,306
$
2,382 $
113
113
1,981
- $ - $ 764
2,094
$
2,148
$
2,261
$
$
$
$
20,423
461,688
$
• $675 million in wholesale, driven by net downgrade
activity, the net effect of changes in the Firm's weighted
average macroeconomic outlook, including deterioration
in the outlook for commercial real estate in CB, and an
addition for certain accounts receivable in CIB, partially
offset by the impact of changes in the loan and lending-
related commitment portfolios.
455
The changes in the Firm's weighted average macroeconomic
outlook also included updates to the central scenario in the
third quarter of 2023 to reflect a lower forecasted
unemployment rate consistent with a higher growth rate in
GDP, and the impact of the additional weight placed on the
adverse scenarios in the first quarter of 2023, reflecting
elevated recession risks due to high inflation and tightening
financial conditions.
Subsequent changes to this forecast and related estimates
will be reflected in the provision for credit losses in future
periods.
Refer to Critical Accounting Estimates Used by the Firm on
pages 155-158 for further information on the allowance
for credit losses and related management judgments.
Refer to Consumer Credit Portfolio on pages 114-119,
Wholesale Credit Portfolio on pages 120-130 for additional
information on the consumer and wholesale credit
portfolios.
260
JPMorgan Chase & Co./2023 Form 10-K
Note 14 - Variable interest entities
Refer to Note 1 on page 171 for a further description of the Firm's accounting policies regarding consolidation of and
involvement with VIES.
The following table summarizes the most significant types of Firm-sponsored VIES by business segment. The Firm considers a
"Firm-sponsored" VIE to include any entity where: (1) JPMorgan Chase is the primary beneficiary of the structure; (2) the VIE
is used by JPMorgan Chase to securitize Firm assets; (3) the VIE issues financial instruments with the JPMorgan Chase name;
or (4) the entity is a JPMorgan Chase-administered asset-backed commercial paper conduit.
Transaction Type
Line of Business
Credit card securitization trusts
CCB
Activity
page references
Securitization of originated credit card receivables
Servicing and securitization of both originated and
purchased residential mortgages
pages 261-262
pages 262-264
pages 262-264
Mortgage securitization trusts
Mortgage and other securitization trusts
CIB
The net addition also included $1.2 billion to establish the
allowance for the First Republic loans and lending-related
commitments in the second quarter of 2023.
Multi-seller conduits
Municipal bond vehicles
YoY growth in U.S. real GDP (b)
(a) Reflects quarterly average of forecasted U.S. unemployment rate.
(b) The year over year growth in U.S. real GDP in the forecast horizon of
the central scenario is calculated as the percentage change in U.S. real
GDP levels from the prior year.
%
2023 Form 10-K
1.5 %
The Firm's allowance for credit losses is estimated using a
weighted average of five internally developed
macroeconomic scenarios. The adverse scenarios
incorporate more punitive macroeconomic factors than the
central case assumptions provided in the table below,
resulting in a weighted average U.S. unemployment rate
peaking at 5.5% in the fourth quarter of 2024, and a
weighted average U.S. real GDP level that is 1.5% lower
than the central case at the end of the second quarter of
2025.
The following table presents the Firm's central case
assumptions for the periods presented:
The allowance for credit losses also reflected a reduction of
$587 million as a result of the adoption of changes to the
TDR accounting guidance on January 1, 2023. Refer to Note
1 for further information.
0.4 %
U.S. unemployment rate (a)
YoY growth in U.S. real GDP (b)
Central case assumptions
at December 31, 2023
2Q24
4Q24
4.1 %
4.4 %
4.1 %
1.8 %
2Q25
1.0 %
5.0 %
Central case assumptions
at December 31, 2022
2Q23
4Q23
4.3 %
0.7 %
2Q24
3.8 %
JPMorgan Chase & Co./2023 Form 10-K
(d)
Residential
mortgage
2021
2022
Year ended December 31,
(in millions)
The following table provides information related to the Firm's securitization activities for the years ended December 31, 2023,
2022 and 2021, related to assets held in Firm-sponsored securitization entities that were not consolidated by the Firm, and
where sale accounting was achieved at the time of the securitization.
Securitization activity
For loan securitizations accounted for as a sale, the Firm
recognizes a gain or loss based on the difference between
the value of proceeds received (including cash, beneficial
interests, or servicing assets received) and the carrying
value of the assets sold. Gains and losses on securitizations
are reported in noninterest revenue.
Commercial
and other(e)
266
2023
Residential
23,876 $
Residential
mortgage
Servicing fees collected
7,251 $
24
The Firm has securitized and sold a variety of loans,
including residential mortgages, credit card receivables,
commercial mortgages and other consumer loans. The
purposes of these securitization transactions were to satisfy
investor demand and to generate liquidity for the Firm.
For loan securitizations in which the Firm is not required to
consolidate the trust, the Firm records the transfer of the
loan receivable to the trust as a sale when all of the
following accounting criteria for a sale are met: (1) the
transferred financial assets are legally isolated from the
Firm's creditors; (2) the transferee or beneficial interest
holder can pledge or exchange the transferred financial
assets; and (3) the Firm does not maintain effective control
over the transferred financial assets (e.g., the Firm cannot
repurchase the transferred assets before their maturity and
it does not have the ability to unilaterally cause the holder
to return the transferred assets).
$
Proceeds received from loan sales as financial
instruments(b)(c)
All cash flows during the period: (a)
Commercial
mortgage and other(e)
Commercial
and other(e)
14,917
10,218 $
$
3,901
7,678 $
$
(d)
9,036 $
Loan securitizations
$
Customer municipal bond vehicles (TOB trusts)
1,242
3,896
Mortgage securitization entities (a)
Other
Total
$
781
62
1,112
2,151 $ 34,411
10
(f)
263
550 $
791
1,437
37,112 $ 12,610 $
143
67
210
161
161
The Firm holds investments in unconsolidated tax credit
vehicles, which are limited partnerships and similar entities
that own and operate affordable housing, energy, and other
projects. These entities are primarily considered VIES. A
third party is typically the general partner or managing
member and has control over the significant activities of the
tax credit vehicles, and accordingly the Firm does not
consolidate tax credit vehicles. The Firm generally invests in
these partnerships as a limited partner and earns a return
primarily through the receipt of tax credits allocated to the
projects. The maximum loss exposure, represented by
equity investments and funding commitments, was $35.1
billion and $30.2 billion, of which $14.7 billion and $10.6
billion was unfunded at December 31, 2023 and 2022,
respectively. The Firm assesses each project and to reduce
the risk of loss, may withhold varying amounts of its capital
investment until the project qualifies for tax credits. Refer
to Note 25 for further information on affordable housing
tax credits and Note 28 for more information on off-balance
sheet lending-related commitments.
The Firm enters into transactions with VIES structured by
other parties. These include, for example, acting as a
derivative counterparty, liquidity provider, investor,
underwriter, placement agent, remarketing agent, trustee
or custodian. These transactions are conducted at arm's-
length, and individual credit decisions are based on the
analysis of the specific VIE, taking into consideration the
quality of the underlying assets. Where the Firm does not
have the power to direct the activities of the VIE that most
significantly impact the VIE's economic performance, or a
variable interest that could potentially be significant, the
Firm generally does not consolidate the VIE, but it records
and reports these positions on its Consolidated balance
sheets in the same manner it would record and report
positions in respect of any other third-party transaction.
Tax credit vehicles
VIES sponsored by third parties
Notes to consolidated financial statements
265
JPMorgan Chase & Co./2023 Form 10-K
The Firm may provide various services to customer TOB
trusts, including remarketing agent, liquidity or tender
option provider. In certain customer TOB transactions, the
Firm, as liquidity provider, has entered into a
reimbursement agreement with the Residual holder. In
those transactions, upon the termination of the vehicle, the
Firm has recourse to the third-party Residual holders for
any shortfall. The Firm does not have any intent to protect
Residual holders from potential losses on any of the
underlying municipal bonds. The Firm does not consolidate
customer TOB trusts, since the Firm does not have the
power to make decisions that significantly impact the
economic performance of the municipal bond vehicle.
The Firm's maximum exposure as a liquidity provider to
customer TOB trusts at December 31, 2023 and 2022, was
$5.1 billion and $5.8 billion, respectively. The fair value of
assets held by such VIES at December 31, 2023 and 2022
was $7.3 billion and $8.2 billion respectively.
(f) Primarily includes purchased supply chain finance receivables and purchased auto loan securitizations in CIB.
"Beneficial interests issued by consolidated VIES". The holders of these beneficial interests generally do not have recourse to the general credit of
JPMorgan Chase. Included in beneficial interests in VIE assets are long-term beneficial interests of $3.1 billion and $2.1 billion at December 31, 2023 and
2022, respectively.
(d) The interest-bearing beneficial interest liabilities issued by consolidated VIES are classified in the line item on the Consolidated balance sheets titled,
(b) Includes assets classified as cash and other assets on the Consolidated balance sheets.
(c) The assets of the consolidated VIES included in the program types above are used to settle the liabilities of those entities. The assets and liabilities include
third-party assets and liabilities of consolidated VIES and exclude intercompany balances that eliminate in consolidation.
(a) Includes residential mortgage securitizations.
12,889
279 $
(e) Includes liabilities classified as accounts payable and other liabilities on the Consolidated balance sheets.
$
2022
8,921
4.6 %
5.9
2.9 %
6.0
1.2 %
Loans and excess MSRS sold to U.S. government-
sponsored enterprises and loans in securitization
transactions pursuant to Ginnie Mae guidelines
In addition to the amounts reported in the securitization
activity tables above, the Firm, in the normal course of
business, sells originated and purchased mortgage loans
and certain originated excess MSRs on a nonrecourse basis,
predominantly to U.S. GSEs. These loans and excess MSRs
are sold primarily for the purpose of securitization by the
U.S. GSES, who provide certain guarantee provisions (e.g.,
credit enhancement of the loans). The Firm also sells loans
into securitization transactions pursuant to Ginnie Mae
guidelines; these loans are typically insured or guaranteed
by another U.S. government agency. The Firm does not
consolidate the securitization vehicles underlying these
transactions as it is not the primary beneficiary. For a
limited number of loan sales, the Firm is obligated to share
a portion of the credit risk associated with the sold loans
with the purchaser. Refer to Note 28 for additional
information about the Firm's loan sales- and securitization-
related indemnifications and Note 15 for additional
information about the impact of the Firm's sale of certain
excess MSRS.
JPMorgan Chase & Co./2023 Form 10-K
267
Notes to consolidated financial statements
The following table summarizes the activities related to
loans sold to the U.S. GSES, and loans in securitization
transactions pursuant to Ginnie Mae guidelines.
2021
Year ended December 31,
(in millions)
2023
Carrying value of loans sold
$
19,906 $ 48,891 $ 105,035
Proceeds received from loan
sales as cash
10
loan sales
(c)
Total proceeds received from
103,286
48,096
Weighted-average discount rate
19,389
securities
Proceeds from loan sales as
161
22 $
300 $
$
(a)(b)
9,783 $
3.0
Commercial mortgage retained interest:
$
5
62
2
24,450 $
153
15,044
1
Cash flows received on interests
325
425
489
285
578
273
(a) Excludes re-securitization transactions.
(b) Predominantly includes Level 2 assets.
(c) The carrying value of the loans accounted for at fair value approximated the proceeds received upon loan sale.
(d) Represents prime mortgages. Excludes loan securitization activity related to U.S. GSES and government agencies.
(e) Includes commercial mortgage and other consumer loans.
4.0 %
4.8 %
Weighted-average discount rate
10.8
9.6
Weighted-average life (in years)
Weighted-average life (in years)
Residential mortgage retained interest:
2022
2023
Year ended December 31,
3.3 %
3.9
Key assumptions used to value retained interests originated
during the year are shown in the table below.
2021
1,232
In the normal course of business, JPMorgan Chase makes
markets in and invests in commercial paper issued by the
Firm-administered multi-seller conduits. The Firm held $9.8
billion and $13.8 billion of the commercial paper issued by
the Firm-administered multi-seller conduits at
December 31, 2023 and 2022, respectively, which have
been eliminated in consolidation. The Firm's investments
reflect the Firm's funding needs and capacity and were not
driven by market illiquidity. Other than the amounts
required to be held pursuant to credit risk retention rules,
the Firm is not obligated under any agreement to purchase
the commercial paper issued by the Firm-administered
multi-seller conduits.
39
264
$
Deal-specific liquidity facilities, program-wide liquidity and
credit enhancement provided by the Firm have been
eliminated in consolidation. The Firm or the Firm-
administered multi-seller conduits provide lending-related
commitments to certain clients of the Firm-administered
multi-seller conduits. The unfunded commitments were
$10.8 billion and $10.6 billion at December 31, 2023 and
2022, respectively, and are reported as off-balance sheet
lending-related commitments in other unfunded
commitments to extend credit. Refer to Note 28 for more
information on off-balance sheet lending-related
commitments.
Municipal bond vehicles
Municipal bond vehicles or tender option bond ("TOB")
trusts allow institutions to finance their municipal bond
investments at short-term rates. In a typical TOB
transaction, the trust purchases highly rated municipal
bond(s) of a single issuer and funds the purchase by issuing
two types of securities: (1) puttable floating-rate
certificates ("floaters") and (2) inverse floating-rate
residual interests ("residuals”). The floaters are typically
purchased by money market funds or other short-term
investors and may be tendered, with requisite notice, to the
TOB trust. The residuals are retained by the investor
seeking to finance its municipal bond investment. TOB
transactions where the residual is held by a third-party
investor are typically known as customer TOB trusts, and
non-customer TOB trusts are transactions where the
Residual is retained by the Firm. Customer TOB trusts are
sponsored by a third party. The Firm serves as sponsor for
all non-customer TOB transactions. The Firm may provide
various services to a TOB trust, including remarketing
agent, liquidity or tender option provider, and/or sponsor.
J.P. Morgan Securities LLC may serve as a remarketing
agent on the floaters for TOB trusts. The remarketing agent
is responsible for establishing the periodic variable rate on
the floaters, conducting the initial placement and
remarketing tendered floaters. The remarketing agent may,
but is not obligated to, make markets in floaters. Floaters
held by the Firm were not material during 2023 and 2022.
JPMorgan Chase Bank, N.A. or J.P. Morgan Securities LLC
often serves as the sole liquidity or tender option provider
for the TOB trusts. The liquidity provider's obligation to
perform is conditional and is limited by certain events
JPMorgan Chase & Co./2023 Form 10-K
("Termination Events"), which include bankruptcy or failure
to pay by the municipal bond issuer or credit enhancement
provider, an event of taxability on the municipal bonds or
the immediate downgrade of the municipal bond to below
investment grade. In addition, the liquidity provider's
exposure is typically further limited by the high credit
quality of the underlying municipal bonds, the excess
collateralization in the vehicle, or, in certain transactions,
the reimbursement agreements with the Residual holders.
Holders of the floaters may “put," or tender, their floaters
to the TOB trust. If the remarketing agent cannot
successfully remarket the floaters to another investor, the
Consolidated VIE assets and liabilities
liquidity provider either provides a loan to the TOB trust for
the TOB trust's purchase of the floaters, or it directly
purchases the tendered floaters.
TOB trusts are considered to be variable interest entities.
The Firm consolidates non-customer TOB trusts because as
the Residual holder, the Firm has the right to make
decisions that significantly impact the economic
performance of the municipal bond vehicle, and it has the
right to receive benefits and bear losses that could
potentially be significant to the municipal bond vehicle.
The following table presents information on assets and liabilities related to VIES consolidated by the Firm as of December 31,
2023 and 2022.
Assets
Liabilities
December 31, 2023
(in millions)
VIE program type
Trading
assets
117 $
$
9,460
$
-
$
To ensure timely repayment of the commercial paper, and
to provide the conduits with funding to provide financing to
customers in the event that the conduits do not obtain
funding in the commercial paper market, each asset pool
financed by the conduits has a minimum 100% deal-
specific liquidity facility associated with it provided by
JPMorgan Chase Bank, N.A. JPMorgan Chase Bank, N.A. also
provides the multi-seller conduit vehicles with uncommitted
program-wide liquidity facilities and program-wide credit
enhancement in the form of standby letters of credit. The
amount of program-wide credit enhancement required is
based upon commercial paper issuance and approximates
10% of the outstanding balance of commercial paper.
The Firm consolidates its Firm-administered multi-seller
conduits, as the Firm has both the power to direct the
significant activities of the conduits and a potentially
significant economic interest in the conduits. As
administrative agent and in its role in structuring
transactions, the Firm makes decisions regarding asset
types and credit quality, and manages the commercial
paper funding needs of the conduits. The Firm's interests
that could potentially be significant to the VIES include the
fees received as administrative agent and liquidity and
program-wide credit enhancement provider, as well as the
potential exposure created by the liquidity and credit
enhancement facilities provided to the conduits.
Firm-sponsored credit card trusts
Other(e)
Beneficial
interests in
VIE assets (d)
assets
Total
(c)
Other (b)
Loans
Total
liabilities
Firm-administered multi-seller conduits
Multi-seller conduit entities are separate bankruptcy
remote entities that provide secured financing,
collateralized by pools of receivables and other financial
assets, to customers of the Firm. The conduits fund their
financing facilities through the issuance of highly rated
commercial paper. The primary source of repayment of the
commercial paper is the cash flows from the pools of assets.
In most instances, the assets are structured with deal-
specific credit enhancements provided to the conduits by
the customers (i.e., sellers) or other third parties. Deal-
specific credit enhancements are generally structured to
cover a multiple of historical losses expected on the pool of
assets, and are typically in the form of overcollateralization
provided by the seller. The deal-specific credit
enhancements mitigate the Firm's potential losses on its
agreements with the conduits.
As of December 31, 2023 and 2022, the Firm did not
consolidate any U.S. GSE and government agency re-
securitization VIES or any Firm-sponsored private-label re-
securitization VIES.
Residential mortgage
The Firm securitizes residential mortgage loans originated
by CCB, as well as residential mortgage loans purchased
from third parties by either CCB or CIB. CCB generally
retains servicing for all residential mortgage loans it
originated or purchased, and for certain mortgage loans
purchased by CIB. For securitizations of loans serviced by
CCB, the Firm has the power to direct the significant
activities of the VIE because it is responsible for decisions
related to loan modifications and workouts. CCB may also
retain an interest upon securitization.
In addition, CIB engages in underwriting and trading
activities involving securities issued by Firm-sponsored
securitization trusts. As a result, CIB at times retains senior
and/or subordinated interests (including residual interests
and amounts required to be held pursuant to credit risk
retention rules) in residential mortgage securitizations at
the time of securitization, and/or reacquires positions in the
secondary market in the normal course of business. In
certain instances, as a result of the positions retained or
reacquired by CIB or held by Treasury and CIO or CCB, when
considered together with the servicing arrangements
entered into by CCB, the Firm is deemed to be the primary
beneficiary of certain securitization trusts.
The Firm does not consolidate residential mortgage
securitizations (Firm-sponsored or third-party-sponsored)
when it is not the servicer (and therefore does not have the
power to direct the most significant activities of the trust)
or does not hold a beneficial interest in the trust that could
potentially be significant to the trust.
Commercial mortgages and other consumer securitizations
CIB originates and securitizes commercial mortgage loans,
and engages in underwriting and trading activities involving
the securities issued by securitization trusts. CIB may retain
unsold senior and/or subordinated interests (including
amounts required to be held pursuant to credit risk
retention rules) in commercial mortgage securitizations at
the time of securitization but, generally, the Firm does not
service commercial loan securitizations. Treasury and CIO
may choose to invest in these securitizations as well. For
commercial mortgage securitizations the power to direct
the significant activities of the VIE generally is held by the
servicer or investors in a specified class of securities
("controlling class”). The Firm generally does not retain an
interest in the controlling class in its sponsored commercial
mortgage securitization transactions.
Re-securitizations
The Firm engages in certain re-securitization transactions in
which debt securities are transferred to a VIE in exchange
for new beneficial interests. These transfers occur in
connection with both U.S. GSES and government agency
sponsored VIES, which are backed by residential mortgages.
The Firm's consolidation analysis is largely dependent on
the Firm's role and interest in the re-securitization trusts.
The following table presents the principal amount of
securities transferred to re-securitization VIES.
Year ended December 31,
(in millions)
Transfers of securities to VIES
U.S. GSES and government
agencies
2023
2022
2021
$ 18,864 $ 16,128
53,923
Most re-securitizations with which the Firm is involved are
client-driven transactions in which a specific client or group
of clients is seeking a specific return or risk profile. For
these transactions, the Firm has concluded that the
decision-making power of the entity is shared between the
Firm and its clients, considering the joint effort and
decisions in establishing the re-securitization trust and its
assets, as well as the significant economic interest the client
holds in the re-securitization trust; therefore the Firm does
not consolidate the re-securitization VIE.
The Firm did not transfer any private label securities to re-
securitization VIES during 2023, 2022 and 2021, and
retained interests in any such Firm-sponsored VIES as of
December 31, 2023 and 2022 were not material.
Additionally, the Firm may invest in beneficial interests of
third-party-sponsored re-securitizations and generally
purchases these interests in the secondary market. In these
circumstances, the Firm does not have the unilateral ability
to direct the most significant activities of the re-
securitization trust, either because it was not involved in
the initial design of the trust, or the Firm was involved with
an independent third-party sponsor and demonstrated
shared power over the creation of the trust; therefore, the
Firm does not consolidate the re-securitization VIE.
2,580
3,371 $
$
Interest in VIES
U.S. GSES and government agencies
(in millions)
Multi-seller conduits
December 31,
2023
Nonconsolidated
re-securitization VIES
The following table presents information on the Firm's
interests in nonconsolidated re-securitization VIES.
Notes to consolidated financial statements
263
JPMorgan Chase & Co./2023 Form 10-K
2022
Municipal bond vehicles
1
2,056
23,020 $
263 $
23,283
Assets
December 31, 2022
(in millions)
Trading assets Loans
Other(b)
Total
assets (c)
Beneficial
interests in
VIE assets (d)
Other(e)
Liabilities
Total
liabilities
VIE program type
Firm-sponsored credit card trusts
$
$
9,236
2,001
2 $
1,999 $
$
9,799
22,989
2,096
$
7
Municipal bond vehicles
170
100 $
$
9,699
22,819
Firm-administered multi-seller conduits
2,089
591 $ 40,372
$
2,170 $ 37,611
2,127
11
2,116
2,078
22
17,811
Mortgage securitization entities
30
6 $
2,998 $
17,781
$
9,577
27,567
194
27,372
3,004
9,275
(a)
693
$
Total
159
159
449
250
-
86
Other
182
57
125
701
8
113
Gains/(losses) on loan sales (d)(e)
Principal securitized
-
467 $
2,039 $
98
1,590
632
1,535
1,298
584
520
(e)
Servicer advances, net of an allowance for uncollectible amounts, at December 31
659
758
1,611
(a) Includes purchase price adjustments associated with MSRS purchased, primarily as a result of loans that prepaid within 90 days of settlement, allowing the
Firm to recover the purchase price.
(b) Includes excess MSRS transferred to agency-sponsored trusts in exchange for stripped mortgage-backed securities ("SMBS"). In each transaction, a portion
of the SMBS was acquired by third parties at the transaction date; the Firm acquired the remaining balance of those SMBS as trading securities.
(c) Represents both the impact of changes in estimated future prepayments due to changes in market interest rates, and the difference between actual and
expected prepayments.
(d) Represents changes in prepayments other than those attributable to changes in market interest rates.
(e) Represents amounts the Firm pays as the servicer (e.g., scheduled principal and interest, taxes and insurance), which will generally be reimbursed within a
short period of time after the advance from future cash flows from the trust or the underlying loans. The Firm's credit risk associated with these servicer
advances is minimal because reimbursement of the advances is typically senior to all cash payments to investors. In addition, the Firm maintains the right
to stop payment to investors if the collateral is insufficient to cover the advance. However, certain of these servicer advances may not be recoverable if
they were not made in accordance with applicable rules and agreements.
497
$ 421 $
2022
2023
Operating revenue:
Net mortgage servicing revenue:
$
Production revenue
CCB mortgage fees and related
Year ended December 31,
(in millions)
The following table presents the components of mortgage
fees and related income (including the impact of MSR risk
management activities) for the years ended December 31,
2023, 2022 and 2021.
Notes to consolidated financial statements
JPMorgan Chase & Co./2023 Form 10-K
271
income
2021
Change in unrealized gains/(losses) included in income related to MSRs held at December 31,
Contractual service fees, late fees and other ancillary fees included in income
Third-party mortgage loans serviced at December 31, (in billions)
7,973 $
(822)
(114)
1,093
1,376
2,908
(1,011)
(936)
(788)
424
2,022
404
(22)
14
109
14
-
Prepayment model changes and other(d)
8,522 $
$
Fair value at December 31,
98
2,039
467
5,494
Total changes in valuation due to inputs and assumptions
17
43
Total changes in valuation due to other inputs and assumptions
(415)
3
51
(306)
$ 2,215
1,634
1,582
131
(1,946)
93
(623)
(525)
Impact on fair value of 100 basis points
adverse change
$ (369)
$ (341)
Total net mortgage servicing
revenue
754
739
(56)
Impact on fair value of 200 basis points
adverse change
(709)
(655)
Total CCB mortgage fees and related
income
(a) Includes the impact of operational risk and regulatory capital.
$
JPMorgan Chase & Co./2023 Form 10-K
272
(a) Represents both the impact of changes in estimated future
prepayments due to changes in market interest rates, and the
difference between actual and expected prepayments.
(b) Represents the aggregate impact of changes in model inputs and
assumptions such as projected cash flows (e.g., cost to service),
discount rates and changes in prepayments other than those
attributable to changes in market interest rates (e.g., changes in
prepayments due to changes in home prices).
$ 2,170
$ 1,176 $ 1,250
Total risk management
Mortgage fees and related income
14
1
All other
2,159
1,236
1,175
11
(336)
(356)
5.77 %
(401)
6.10 %
Total operating revenue
(936)
(1,011)
due to collection/realization of
expected cash flows
Changes in MSR asset fair value
Loan servicing revenue
623
2022
Weighted-average prepayment speed
assumption (constant prepayment rate)
Impact on fair value of 10% adverse change
Impact on fair value of 20% adverse change
Weighted-average option adjusted spread(a)
(in millions, except rates)
December 31,
The table below outlines the key economic assumptions
used to determine the fair value of the Firm's MSRS at
December 31, 2023 and 2022, and outlines the
sensitivities of those fair values to immediate adverse
changes in those assumptions, as defined below.
Changes in fair value based on variations in assumptions
generally cannot be easily extrapolated, because the
relationship of the change in the assumptions to the change
in fair value are often highly interrelated and may not be
linear. In the following table, the effect that a change in a
particular assumption may have on the fair value is
calculated without changing any other assumption. In
reality, changes in one factor may result in changes in
another, which would either magnify or counteract the
impact of the initial change.
1,257
2023
(188)
646
Risk management:
Change in derivative fair value
and other
(306)
17
43
assumptions in model (b)
value due to other inputs and
(788)
469
$ (206)
6.29 %
404
2,022
424
due to market interest rates
and other (a)
Changes in MSR asset fair value
Other changes in MSR asset fair
1,363
6.12 %
$ (183)
1,028
2022
2023
2022
Securitized loans
Residential mortgage:
Prime/ Alt-A & option ARMS
$
Subprime
Commercial and other
120,262
39,319 $ 37,058
1,312
1,743
127,037
$
Total loans securitized
$ 160,893 $ 165,838
$
440 $
131
2,874
3,445 $
511
JPMorgan Chase & Co./2023 Form 10-K
268
20
79 $
$
1,671
Net liquidation losses /
(recoveries)
50
948
(1)
5
212
(29)
14 $
60
Note 15 - Goodwill, mortgage servicing rights, and other intangible assets
90 days past due
2023
2023
$
1,400
19,689 $ 48,118 $ 103,447
(25) $
(a) Includes securities from U.S. GSES and Ginnie Mae that are generally
sold shortly after receipt or retained as part of the Firm's investment
securities portfolio.
(b) Included in level 2 assets.
(c) Excludes the value of MSRS retained upon the sale of loans.
(d) Gains/(losses) on loan sales include the value of MSRS.
(e) The carrying value of the loans accounted for at fair value
approximated the proceeds received upon loan sale.
Options to repurchase delinquent loans
9
In addition to the Firm's obligation to repurchase certain
loans due to material breaches of representations and
warranties as discussed in Note 28, the Firm also has the
option to repurchase delinquent loans that it services for
Ginnie Mae loan pools, as well as for other U.S. government
agencies under certain arrangements. The Firm typically
Loan delinquencies and liquidation losses
elects to repurchase delinquent loans from Ginnie Mae loan
pools as it continues to service them and/or manage the
foreclosure process in accordance with the applicable
requirements, and such loans continue to be insured or
guaranteed. When the Firm's repurchase option becomes
exercisable, such loans must be reported on the
Consolidated balance sheets as a loan with a corresponding
liability. Refer to Note 12 for additional information.
The following table presents loans the Firm repurchased or
had an option to repurchase, real estate owned, and
foreclosed government-guaranteed residential mortgage
loans recognized on the Firm's Consolidated balance sheets
as of December 31, 2023 and 2022. Substantially all of the
loans and real estate owned are insured or guaranteed by
U.S. government agencies.
December 31,
(in millions)
2023
2022
Securitized assets
As of or for the year ended December 31,
(in millions)
The table below includes information about components of and delinquencies related to nonconsolidated securitized financial
assets held in Firm-sponsored private-label securitization entities, in which the Firm has continuing involvement as of
December 31, 2023 and 2022.
27
(b) Relates to voluntary repurchases of loans, which are included in
accrued interest and accounts receivable.
(a) Predominantly all of these amounts relate to loans that have been
repurchased from Ginnie Mae loan pools.
2022
22
Foreclosed government-guaranteed residential
mortgage loans
(b)
839
597 $
8
$
Loans repurchased or option to repurchase (a)
Real estate owned
Goodwill
10
combination as the difference between the purchase price
and the fair value of the net assets acquired, and can be
adjusted up to one year from the acquisition date as
additional information pertaining to facts and
circumstances that existed as of the acquisition date is
obtained about the fair value of assets acquired and
liabilities assumed. Subsequent to initial recognition,
goodwill is not amortized but is tested for impairment
during the fourth quarter of each fiscal year, or more often
if events or circumstances, such as adverse changes in the
business climate, indicate that there may be an impairment.
The goodwill associated with each business combination is
allocated to the related reporting units, which are generally
determined based on how the Firm's businesses are
managed and how they are reviewed. The following table
presents goodwill attributed to the reportable business
segments and Corporate.
Disposition of MSRs (b)
(a)
Purchase of MSRS
Originations of MSRS
MSR activity:
Fair value at beginning of period
Net additions/(dispositions)
As of or for the year ended December 31, (in millions, except where otherwise noted)
receives fixed-rate interest payments) increase in value
when interest rates decline. JPMorgan Chase uses
combinations of derivatives and securities to manage the
risk of changes in the fair value of MSRs. The intent is to
offset any interest-rate related changes in the fair value of
MSRs with changes in the fair value of the related risk
management instruments.
The fair value of MSRS is sensitive to changes in interest
rates, including their effect on prepayment speeds. MSRs
typically decrease in value when interest rates decline
because declining interest rates tend to increase
prepayments and therefore reduce the expected life of the
net servicing cash flows that comprise the MSR asset.
Conversely, securities (e.g., mortgage-backed securities),
and certain derivatives (e.g., those for which the Firm
JPMorgan Chase & Co./2023 Form 10-K
270
As permitted by U.S. GAAP, the Firm has elected to account
for its MSRS at fair value. The Firm treats its MSRs as a
single class of servicing assets based on the availability of
market inputs used to measure the fair value of its MSR
asset and its treatment of MSRS as one aggregate pool for
risk management purposes. The Firm estimates the fair
value of MSRS using an option-adjusted spread ("OAS”)
model, which projects MSR cash flows over multiple interest
rate scenarios in conjunction with the Firm's prepayment
model, and then discounts these cash flows at risk-adjusted
rates. The model considers portfolio characteristics,
contractually specified servicing fees, prepayment
assumptions, delinquency rates, costs to service, late
charges and other ancillary revenue, and other economic
factors. The Firm compares fair value estimates and
assumptions to observable market data where available,
and also considers recent market activity and actual
portfolio experience.
MSRS represent the fair value of expected future cash flows
for performing servicing activities for others. The fair value
considers estimated future servicing fees and ancillary
revenue, offset by estimated costs to service the loans, and
generally declines over time as net servicing cash flows are
received, effectively amortizing the MSR asset against
contractual servicing and ancillary fee income. MSRs are
either purchased from third parties or recognized upon sale
or securitization of mortgage loans if servicing is retained.
The following table summarizes MSR activity for the years ended December 31, 2023, 2022 and 2021.
Mortgage servicing rights
Changes due to collection/realization of expected cash flows
Changes due to market interest rates and other (c)
1,659
798
Goodwill is recorded upon completion of a business
253
3,276
$
Changes in valuation due to inputs and assumptions:
$ 5,494
$
2021
2022
2023
Discount rates
Changes in valuation due to other inputs and assumptions:
7,973
Unanticipated declines in business performance, increases
in credit losses, increases in capital requirements, as well as
deterioration in economic or market conditions, adverse
regulatory or legislative changes or increases in the
estimated market cost of equity, could cause the estimated
fair values of the Firm's reporting units to decline in the
future, which could result in a material impairment loss to
earnings in a future period related to some portion of the
associated goodwill.
Projected cash flows (e.g., cost to service)
Notes to consolidated financial statements
Balance at beginning of period
Changes during the period from:
Business combinations (a)
Other (b)
Year ended December 31, (in
millions)
amount of goodwill.
The following table presents changes in the carrying
$ 52,634 $51,662 $50,315
$ 32,116 $ 32,121 $31,474
8,266 8,008 7,906
2,985 2,985 2,986
8,582 7,902 7,222
685
646
Balance at December 31,
2021
2023
Total goodwill
December 31, (in millions)
units and JPMorgan Chase's market capitalization. In
evaluating this comparison, the Firm considers several
factors, including (i) a control premium that would exist in a
market transaction, (ii) factors related to the level of
execution risk that would exist at the Firmwide level that do
not exist at the reporting unit level and (iii) short-term
market volatility and other factors that do not directly
affect the value of individual reporting units.
Consumer & Community Banking
Corporate & Investment Bank
Commercial Banking
Asset & Wealth Management
Corporate
2022
2023
727
2021
The goodwill impairment test is generally performed by
comparing the current fair value of each reporting unit with
its carrying value. If the fair value is in excess of the
carrying value, then the reporting unit's goodwill is
considered not to be impaired. If the fair value is less than
the carrying value, then an impairment is recognized for the
amount by which the reporting unit's carrying value
exceeds its fair value, up to the amount of goodwill
allocated to that reporting unit.
2022
JPMorgan Chase & Co./2023 Form 10-K
269
The Firm's goodwill was not impaired at December 31,
2023, 2022 and 2021.
The Firm uses the reporting units' allocated capital plus
goodwill and other intangible assets as a proxy for the
carrying values of equity for the reporting units in the
goodwill impairment testing. Reporting unit equity is
determined on a similar basis as the allocation of capital to
the LOBS which takes into consideration a variety of factors
including capital levels of similarly rated peers and
applicable regulatory capital requirements. LOB's allocated
capital levels are incorporated into the Firm's annual
budget process, which is reviewed by the Firm's Board of
Directors and Operating Committee. Allocated capital is
further reviewed at least annually and updated as needed.
The primary method the Firm uses to estimate the fair value
of its reporting units is the income approach. This approach
projects cash flows for the forecast period and uses the
perpetuity growth method to calculate terminal values.
These cash flows and terminal values, which are based on
the reporting units' annual budgets and forecasts are then
discounted using an appropriate discount rate. The discount
rate used for each reporting unit represents an estimate of
the cost of equity for that reporting unit and is determined
considering the Firm's overall estimated cost of equity
(estimated using the Capital Asset Pricing Model), as
adjusted for the risk characteristics specific to each
reporting unit (for example, for higher levels of risk or
uncertainty associated with the business or management's
forecasts and assumptions). To assess the reasonableness
of the discount rates used for each reporting unit,
management compares the discount rate to the estimated
cost of equity for publicly traded institutions with similar
businesses and risk characteristics. In addition, the
weighted average cost of equity (aggregating the various
reporting units) is compared with the Firm's overall
estimated cost of equity for reasonableness. The valuations
derived from the discounted cash flow analysis are then
compared with market-based trading and transaction
multiples for relevant competitors. Trading and transaction
comparables are used as general indicators to assess the
overall reasonableness of the estimated fair values,
although precise conclusions generally cannot be drawn
due to the differences that naturally exist between the
Firm's businesses and competitor institutions.
The Firm also takes into consideration a comparison
between the aggregate fair values of the Firm's reporting
(b) Predominantly foreign currency adjustments.
(a) For 2023, predominantly represents estimated goodwill associated
with the acquisition of the remaining 51% interest in CIFM in AWM and
the acquisition of Aumni Inc. in CIB. For 2022, represents estimated
goodwill associated with the acquisitions of Global Shares PLC in AWM,
Frosch Travel Group, LLC and Figg, Inc. in CCB, and Renovite
Technologies, Inc. and Volkswagen Payments S.A. in CIB. For 2021,
represents goodwill associated with the acquisitions of Nutmeg in
Corporate, OpenInvest and Campbell Global in AWM, and Frank and
The Infatuation in CCB.
Goodwill impairment testing
$ 52,634 $51,662 $ 50,315
1,073
(6)
1.426
(79)
917
55
$ 51,662 $ 50,315 $ 49,248
2024
As of December 31, 2023, the remaining maturities of
interest-bearing time deposits were as follows.
U.S.
Non-U.S.
$194,895 $ 86,971
(a) Represents all time deposits in non-U.S. offices as these deposits
typically exceed the insured limit.
Total
$ 281,866
December 31,
(in millions)
2025
243
180
922
2026
21
264
2027
175
$ 222,841 $ 142,529
35
140
742
$ 132,654 $ 64,622
90,187
77,907
7,378
2023
(a)
430,743
2028
391,926
6,816
Total deposits in non-U.S. offices
Total deposits
453,840
418,931
Land, buildings and leasehold improvements $ 14,862 $ 13,486
Right-of-use assets (a)
7,917
2022
(b)
$ 30,157 $ 27,734
(a) Excluded $514 million and $350 million of right-of-use assets that
were recorded in Other assets at December 31, 2023 and 2022,
respectively.
(b) Other premises and equipment is comprised of internal-use software
and furniture and equipment.
JPMorgan Chase computes depreciation using the straight-
line method over the estimated useful life for buildings and
furniture and equipment. The Firm depreciates leasehold
improvements over the lesser of the remainder of the lease
term or the estimated useful life. The Firm also capitalizes
certain costs associated with the acquisition or
development of internal-use software. Once the software is
ready for its intended use, these costs are amortized on a
straight-line basis over the software's expected useful life.
The estimated useful lives range from 10 to 50 years for
buildings and leasehold improvements, and 3 to 10 years
for internal-use software and furniture and equipment.
Impairment is assessed when events or changes in
circumstances indicate that the carrying value of an asset
may not be fully recoverable.
$ 2,400,688 $ 2,340,179
(a) Includes structured notes classified as deposits for which the fair value
option has been elected. Refer to Note 3 for further discussion.
As of December 31, 2023 and 2022, time deposits in
denominations that met or exceeded the insured limit were
as follows.
December 31, (in millions)
U.S. offices
Non-U.S. offices (a)
Total
Other premises and equipment
Total premises and equipment
136
8.4
1,128
8,431
(b)
8,833
$ 7,782
8,183
4.01 %
8.4
3.55 %
$
1,662
$
1,613
Supplemental non-cash information
Right-of-use assets obtained in
exchange for operating lease
obligations
$
2,094
$
1,435
(a) Included $647 million of right-of-use assets associated with First
Republic.
Interest-bearing (included $681 and
$273 at fair value)
(b) Included $712 million of lease liabilities associated with First Republic.
$
(a)
2022
2023
After 5 years
Total
475
251
726
$196,631
$ 88,450
$ 285,081
274
JPMorgan Chase & Co./2023 Form 10-K
Note 18 - Leases
992
Firm as lessee
Operating lease liabilities and ROU assets are recognized at
the lease commencement date based on the present value
of the future minimum lease payments over the lease term.
The future lease payments are discounted at a rate that
estimates the Firm's collateralized borrowing rate for
financing instruments of a similar term and are included in
accounts payable and other liabilities. The operating lease
ROU assets, predominantly included in premises and
equipment, also include any lease prepayments made, plus
initial direct costs incurred, less any lease incentives
received. Rental expense associated with operating leases is
recognized on a straight-line basis over the lease term, and
generally included in occupancy expense in the
Consolidated statements of income.
The carrying values of the Firm's operating leases were as
follows:
December 31,
(in millions, except where otherwise
noted)
Right-of-use assets
Lease liabilities
Weighted average remaining lease term
(in years)
Weighted average discount rate
Supplemental cash flow information
Cash paid for amounts included in the
measurement of lease liabilities -
operating cash flows
At December 31, 2023, JPMorgan Chase and its
subsidiaries were obligated under a number of
noncancellable leases, predominantly operating leases for
premises and equipment used primarily for business
purposes. These leases generally have terms of 20 years or
less, determined based on the contractual maturity of the
lease, and include periods covered by options to extend or
terminate the lease when the Firm is reasonably certain
that it will exercise those options. All leases with lease
terms greater than twelve months are reported as a lease
liability with a corresponding right-of-use ("ROU”) asset.
None of these lease agreements impose restrictions on the
Firm's ability to pay dividends, engage in debt or equity
financing transactions or enter into further lease
agreements. Certain of these leases contain escalation
clauses that will increase rental payments based on
maintenance, utility and tax increases, which are non-lease
components. The Firm elected not to separate lease and
non-lease components of a contract for its real estate
leases. As such, real estate lease payments represent
payments on both lease and non-lease components.
7,432
5,779
23,097
1.48 %
5.41%
4.28 %
Interest rates(f)
41,506
52,048
25,336
20,933
Variable rate
15,383
20,745
$
6,236
11,551
$
2,958
$
Fixed rate
Senior debt:
ΝΑ
3.40 %
3.91 %
%
2.02 %
Fixed rate
Year ended December 31,
163,283
$
12,052
$
$ 109,145
8.25 %
8.25 %
%
- %
8.25 %
42,086
Subtotal $
$
Fixed rate
Junior subordinated debt:
Interest rates (f)
Variable rate
262
255
$
255
$
Subordinated debt:
27,005
3.40 %
Interest rates
Note 16 - Premises and equipment
Premises and equipment includes land carried at cost, as
well as buildings, leasehold improvements, internal-use
software and furniture and equipment carried at cost less
accumulated depreciation and amortization. The Firm's
operating lease right-of-use assets are also included in
Premises and equipment. Refer to Note 18 for a further
discussion of the Firm's right-of-use assets.
The following table presents certain components of
Premises and equipment.
December 31, (in millions)
2023
-
Note 17 Deposits
As of December 31, 2023 and 2022, noninterest-bearing
and interest-bearing deposits were as follows.
December 31, (in millions)
U.S. offices
Noninterest-bearing (included $75,393
and $26,363 at fair value) (a)
Interest-bearing (included $573 and
$586 at fair value) (a)
Total deposits in U.S. offices
2023
2022
$ 643,748 $ 644,902
1,303,100
1,946,848
1,276,346
1,921,248
Non-U.S. offices
2022
Noninterest-bearing (included $1,737
and $1,398 at fair value) (a)
Notes to consolidated financial statements
%
273
288
(f)
ΝΑ
As of December 31, 2023 and 2022, the gross carrying
values of other intangible assets were $4.2 billion and $1.9
billion, respectively, and the accumulated amortization was
$994 million and $679 million, respectively.
As of December 31, 2023 and 2022, the net carrying
values consist of finite-lived intangible assets of $2.0 billion
and $707 million, respectively, as well as indefinite-lived
intangible assets, which are not subject to amortization, of
$1.2 billion and $517 million, respectively.
As of December 31, 2023, other intangible assets reflected
core deposit and certain wealth management customer
relationship intangibles related to the First Republic
acquisition, and asset management contracts related to the
Firm's acquisition of the remaining 51% interest in CIFM.
Refer to Note 34 for additional information on the First
Republic acquisition.
As of December 31, 2023 and 2022, amortization expense
was $315 million and $145 million, respectively.
The following table presents estimated future amortization
expense.
December 31, (millions)
Impairment testing
The Firm's finite-lived and indefinite-lived other intangible
assets are assessed for impairment annually or more often
if events or changes in circumstances indicate that the asset
might be impaired. Once the Firm determines that an
impairment exists for an intangible asset, the impairment is
recognized in other expense.
2024
2025
2026
2027
2028
JPMorgan Chase & Co./2023 Form 10-K
Finite-lived
intangible assets
$
330
294
290
272
(in millions)
$
2023
131
5,989
1,985
8,105
11,565
2.52 %
2.91 %
3.72 %
3.32 %
3.06 %
Subordinated debt:
Fixed rate
2,976
$
5,886
$
8,863
$
17,725
$
19,693
Variable rate
Interest rates (f)
Variable rate
194,515
$ 200,984
JPMorgan Chase & Co./2023 Form 10-K
Notes to consolidated financial statements
Note 20 - Long-term debt
JPMorgan Chase issues long-term debt denominated in various currencies, predominantly U.S. dollars, with both fixed and
variable interest rates. Included in senior and subordinated debt below are various equity-linked or other indexed instruments,
which the Firm has elected to measure at fair value. Changes in fair value are recorded in principal transactions revenue in the
Consolidated statements of income, except for unrealized gains/(losses) due to DVA which are recorded in OCI. The following
table is a summary of long-term debt carrying values (including unamortized premiums and discounts, issuance costs,
valuation adjustments and fair value adjustments, where applicable) by remaining contractual maturity as of December 31,
2023.
By remaining maturity at
December 31,
(in millions, except rates)
Parent company
Senior debt:
Total
2022
Total
2023
Under 1 year
1-5 years
After 5 years
Fixed rate
$
5,981
$
86,113
$ 108,890
$
277
(f)
3.88 %
93
Variable rate
4,000
14,000
18,000
11,000
Interest rates (f)
4.59 %
5.12 %
6.06 %
4.89 %
4.32 %
Purchase Money Note (a):
Fixed rate
$
$
48,989
$
$
48,989
$
$
Interest rates
23,246
(g)
4.88 %
4.69 %
4.62 %
4.50 %
Subtotal $
9,088
$
97,988
$ 119,738
$ 226,814
$
225,773
Subsidiaries
Federal Home Loan Banks
advances:
Fixed rate
$
13,940
$
9,269
$
37
$
Rental expense
The credit card rewards liability represents the estimated
cost of rewards points earned and expected to be redeemed
by cardholders. The liability is accrued as the cardholder
earns the benefit and is reduced when the cardholder
redeems points. The redemption rate and cost per point
assumptions are key assumptions to estimate the liability
and the current period impact is recognized in Card Income.
Refer to Note 7, 18, 25 and 30 for additional information
on accrued interest, operating lease liabilities, income taxes
and litigation reserves, respectively.
$ 290,307 $ 300,141
10,530
(1,697)
8,833
Total future minimum lease payments
Less: Imputed interest
Total
In addition to the table above, as of December 31, 2023,
the Firm had additional future operating lease
commitments of $420 million that were signed but had not
yet commenced. These operating leases will commence
between 2024 and 2026 with lease terms up to 21 years.
JPMorgan Chase & Co./2023 Form 10-K
275
Notes to consolidated financial statements
Firm as lessor
The Firm provides auto and equipment lease financing to its
customers through lease arrangements with lease terms
that may contain renewal, termination and/or purchase
options. The Firm's lease financings are predominantly auto
operating leases. These assets subject to operating leases
are recognized in other assets on the Firm's Consolidated
balance sheets and are depreciated on a straight-line basis
over the lease term to reduce the asset to its estimated
residual value. Depreciation expense is included in
technology, communications and equipment expense in the
Consolidated statements of income. The Firm's lease
income is generally recognized on a straight-line basis over
the lease term and is included in other income in the
Consolidated statements of income.
On a periodic basis, the Firm assesses leased assets for
impairment, and if the carrying amount of the leased asset
exceeds the undiscounted cash flows from the lease
payments and the estimated residual value upon disposition
of the leased asset, an impairment is recognized.
The risk of loss on auto and equipment leased assets
relating to the residual value of the leased assets is
monitored through projections of the asset residual values
at lease origination and periodic review of residual values,
and is mitigated through arrangements with certain
manufacturers or lessees.
The following table presents the carrying value of assets
subject to leases reported on the Consolidated balance
sheets:
December 31,
(in millions)
Carrying value of assets subject to
operating leases, net of accumulated
depreciation
Accumulated depreciation
3,767
2023
1,015
1,318
2022
Gross rental expense
$
2,079 $
2,079
Sublease rental income
Net rental expense
(72)
(119)
$
2,007 $
1,960
The following table presents future payments under
operating leases as of December 31, 2023:
Year ended December 31, (in millions)
2024
2025
2026
2027
2028
After 2028
$ 1,685
1,576
1,169
(a) Includes credit card rewards liability of $13.2 billion and $11.3 billion
at December 31, 2023 and 2022, respectively.
2022
10,663 $
1,868
1,158
2026
451
2027
32
2028
9
After 2028
8
Total future minimum lease receipts
$ 3,526
276
JPMorgan Chase & Co./2023 Form 10-K
Note 19 - Accounts payable and other liabilities
Accounts payable and other liabilities consist of brokerage
payables, which include payables to customers and
payables related to security purchases that did not settle, as
well as other accrued expenses, such as compensation
accruals, credit card rewards liability, operating lease
liabilities, accrued interest payables, merchant servicing
payables, income tax payables and litigation reserves.
The following table presents the components of accounts
payable and other liabilities.
December 31, (in millions)
Brokerage payables
Other payables and liabilities (a)
Total accounts payable and other
liabilities
2023
2022
$ 161,960 $ 188,692
128,347 111,449
2025
$
$
Year ended December 31, (in millions)
12,302
3,288
4,282
The following table presents the Firm's operating lease
income and the related depreciation expense on the
Consolidated statements of income:
Year ended December 31,
(in millions)
2023
2022
2021
Operating lease income
$
2,843 $
3,654 $
4,914
Depreciation expense
1,778
2,475
3,380
The following table presents future receipts under
operating leases as of December 31, 2023:
2024
68,244
Other intangible assets
$
2,250
2,250
225,000
225,000
300,000
150,000 150,000
Series FF
Series HH
Series II
10/20/2017
1,258
1,258
7/31/2019
125,750 125,750
4/21/2015
Series Z
6.100
9/23/2014
1,600
1,600
160,000 160,000
Series X
Series CC
300,000
3,000
1,500
526.27
(h)
804.08
SOFR + 2.58
401.44
610.00
610.00
610.00
SOFR + 3.33
353.65
340.91
7/1/2019
10/1/2024
5/1/2020
11/1/2022
8/1/2024
2/1/2025
4/1/2025
6/1/2026
3.650
4.000
SOFR + 2.58
5.000
4.600
3,000 1/23/2020
1,500 2/24/2020
2,000 5/12/2021
2,000
200,000 200,000
Series KK
6/9/2014
462.50
-
612.50
100,000
100,000
Series U
2,000
2,000
200,000
200,000
Series S
1,000
1,500
150,000
150,000
Series R
1,500
1,500
150,000
150,000
Series Q
1,500
4/23/2008
4/23/2013
7/29/2013
1/22/2014
1,000 3/10/2014
SOFR + 3.25
SOFR + 3.30
6.750
6.125
- % 4/30/2018
5/1/2023
8/1/2023
2/1/2024
4/30/2024
612.50
612.50
SOFR + 3.33
675.00
675.00
675.00
SOFR + 3.78
600.00
(g)
600.00
756.73
SOFR + 3.30
515.00
515.00
801.41
SOFR + 3.25
(f)
$ 375.03 $370.38
- % $
Series V
$ - $ -
SOFR + 3.38
500.00
12.0
10.9
compensation plans
Employee benefits and
Reissuance:
4,104.9
(1,055.5)
(119.7)
4,104.9
(1,160.8)
(23.1)
(69.5)
13.5
Repurchase
Treasury - balance at January 1
4,104.9
January 1
Total issued - balance at
2021
2022
2023
(in millions)
(1,170.7)
Employee stock purchase
plans
1.0
1.2
$
The Firm's finite-lived and indefinite-lived other intangible
assets are initially recorded at their fair value primarily
upon completion of a business combination. Subsequently,
the Firm's finite-lived intangible assets, including core
deposit intangibles, customer relationship intangibles, and
certain other intangible assets, are amortized over their
useful lives, estimated based on the expected future
economic benefits to the Firm of the intangible asset. The
Firm's intangible assets with indefinite lives, such as asset
management contracts, are not subject to amortization and
are assessed periodically for impairment.
JPMorgan Chase & Co./2023 Form 10-K
282
As of December 31, 2023, approximately 61.6 million
shares of common stock were reserved for issuance under
various employee incentive, compensation, option and
stock purchase plans, and directors' compensation plans.
The Board of Directors' authorization to repurchase
common shares is utilized at management's discretion, and
the timing of purchases and the exact amount of common
shares that may be repurchased is subject to various
factors, including market conditions; legal and regulatory
considerations affecting the amount and timing of
repurchase activity; the Firm's capital position (taking into
account goodwill and intangibles); internal capital
generation; current and proposed future capital
requirements; and alternative investment opportunities.
The $30 billion common share repurchase program
approved by the Board does not establish specific price
targets or timetables. The repurchase program may be
suspended by management at any time; and may be
executed through open market purchases or privately
negotiated transactions, or utilizing Rule 10b5-1 plans,
which are written trading plans that the Firm may enter into
from time to time under Rule 10b5-1 of the Securities
Exchange Act of 1934 and which allow the Firm to
repurchase its common shares during periods when it may
otherwise not be repurchasing common shares – for
example, during internal trading blackout periods.
(c) As directed by the Federal Reserve, total net repurchases and common
stock dividends in the first and second quarter of 2021 were restricted
and could not exceed the average of the Firm's net income for the four
preceding calendar quarters. Effective July 1, 2021, the Firm became
subject to the normal capital distribution restrictions provided under
the regulatory capital framework.
(b) In the second half of 2022, the Firm temporarily suspended share
repurchases, which it resumed under its current common share
repurchase program in the first quarter of 2023.
(a) Excludes excise tax and commissions. As part of the Inflation Reduction
Act of 2022, a 1% excise tax was imposed on net share repurchases
effective January 1, 2023.
Aggregate purchase price of
common stock repurchases
Effective May 1, 2022, the Firm is authorized to purchase
up to $30 billion under its common share repurchase
program previously approved by the Board of Directors,
which was announced on April 13, 2022.
(1,228.3) (1,170.7) (1,160.8)
2,876.6 2,934.2 2,944.1
Outstanding at December 31
Total treasury - balance at
December 31
Total reissuance
14.4
13.2
11.9
0.9
Year ended December 31,
500.00
$9,898 $3,122 $ 18,448
119.7
(f) The dividend rate for Series Q preferred stock became floating and payable quarterly starting on May 1, 2023; prior to which the dividend rate was fixed
at 5.15% or $257.50 per share payable semiannually. The dividend rate for each quarterly dividend period commencing on August 1, 2023 is three-
month term SOFR (plus a spread adjustment of 0.26% per annum) plus the spread of 3.25%.
(e) The initial dividend declared is prorated based on the number of days outstanding for the period. Dividends were declared quarterly thereafter at the
contractual rate.
(d) Dividends on preferred stock are discretionary and non-cumulative. When declared, dividends are declared quarterly. Dividends are payable quarterly on
fixed-rate preferred stock. Dividends are payable semiannually on fixed-to-floating rate preferred stock while at a fixed rate, and payable quarterly after
converting to a floating rate.
(a) Represented by depositary shares.
2,740,375 2,740,375 $ 27,404 $ 27,404
Total
preferred
stock
201.76
365.00
(g) The dividend rate for Series R preferred stock became floating and payable quarterly starting on August 1, 2023; prior to which the dividend rate was
fixed at 6.00% or $300.00 per share payable semiannually. The dividend rate for each quarterly dividend period commencing on August 1, 2023 is three-
month term SOFR (plus a spread adjustment of 0.26% per annum) plus the spread of 3.30%.
365.00
400.00
400.00
400.00
460.00
460.00
460.00
SOFR + 3.125
SOFR + 2.745
CMT + 2.85
500.00
(e)
(h) The dividend rate for Series CC preferred stock became floating and payable quarterly starting on November 1, 2022; prior to which the dividend rate was
fixed at 4.625% or $231.25 per share payable semiannually. The dividend rate for each quarterly dividend period commencing on August 1, 2023 is
three-month term SOFR (plus a spread adjustment of 0.26% per annum) plus the spread of 2.58%.
Each series of preferred stock has a liquidation value and redemption price per share of $10,000, plus accrued but unpaid
dividends. The aggregate liquidation value was $27.7 billion at December 31, 2023.
280
23.1
69.5
Total number of shares of common
stock repurchased
(c)
(b)
2023 2022" 2021
Year ended December 31,
(in millions)
The following table sets forth the Firm's repurchases of
common stock for the years ended December 31, 2023,
2022 and 2021.
Common shares issued which were reissued from treasury
by the Firm during the years ended December 31, 2023,
2022 and 2021 were as follows.
At December 31, 2023 and 2022, JPMorgan Chase was
authorized to issue 9.0 billion shares of common stock with
a par value of $1 per share.
Note 22 - Common stock
Notes to consolidated financial statements
281
JPMorgan Chase & Co./2023 Form 10-K
Each series of the Firm's preferred stock may be redeemed on any dividend payment date on or after the earliest redemption
date for that series. All outstanding preferred stock series may also be redeemed following a "capital treatment event," as
described in the terms of each series. Any redemption of the Firm's preferred stock is subject to non-objection from the Board
of Governors of the Federal Reserve System (the “Federal Reserve").
On October 3, 2022, the Firm redeemed all $2.5 billion of its fixed-to-floating rate non-cumulative preferred stock, Series V.
On February 1, 2022, the Firm redeemed all $2.0 billion of its fixed-to-floating rate non-cumulative preferred stock, Series Z.
Redemption rights
On October 31, 2022, the Firm redeemed all $2.9 billion of its fixed-to-floating rate non-cumulative perpetual preferred stock,
Series I.
Redemptions
JPMorgan Chase & Co./2023 Form 10-K
(a)
Series I
(b) Each series of fixed-to-floating rate preferred stock converts to a floating rate at the earliest redemption date.
(c) Effective June 30, 2023, CME Term SOFR became the replacement reference rate for fixed-to-floating rate preferred stock issued by the Firm that formerly
referenced U.S. dollar LIBOR. References in the table to "SOFR" mean a floating annualized rate equal to three-month term SOFR (plus a spread adjustment
of 0.26% per annum) plus the spreads noted. The reference to "CMT" means a floating annualized rate equal to the five-year Constant Maturity Treasury
("CMT") rate plus the spread noted.
142.33
$
125
$
2,998
$
$
interests(e)
Total long-term beneficial
3,123
2.81 %
3.45 %
4.74 %
- %
143
125
125
Variable rate
Interest rates (f)
1,999
4.69 %
$
2,142
(a) Reflects the Purchase Money Note associated with the First Republic acquisition. Refer to Note 34 for additional information.
(b) Included long-term debt of $93.0 billion and $13.8 billion secured by assets totaling $218.5 billion and $208.3 billion at December 31, 2023 and 2022,
respectively. The amount of long-term debt secured by assets does not include amounts related to hybrid instruments.
Carrying value
(in millions)
Shares (a)
The following is a summary of JPMorgan Chase's non-cumulative preferred stock outstanding as of December 31, 2023 and
2022, and the quarterly dividend declarations for the years ended December 31, 2023, 2022 and 2021.
At December 31, 2023 and 2022, JPMorgan Chase was authorized to issue 200 million shares of preferred stock, in one or
more series, with a par value of $1 per share. In the event of a liquidation or dissolution of the Firm, JPMorgan Chase's
preferred stock then outstanding takes precedence over the Firm's common stock with respect to the payment of dividends
and the distribution of assets.
Note 21 - Preferred stock
Notes to consolidated financial statements
JPMorgan Chase & Co./2023 Form 10-K
279
The Firm's unsecured debt does not contain requirements
that would call for an acceleration of payments, maturities
or changes in the structure of the existing debt, provide any
limitations on future borrowings or require additional
collateral, based on unfavorable changes in the Firm's
credit ratings, financial ratios, earnings or stock price.
JPMorgan Chase & Co. has guaranteed certain long-term
debt of its subsidiaries, including structured notes. These
guarantees rank pari passu with the Firm's other unsecured
and unsubordinated indebtedness. The amount of such
guaranteed long-term debt and structured notes was $41.1
billion and $28.2 billion at December 31, 2023 and 2022,
respectively.
The weighted-average contractual interest rates for total
long-term debt excluding structured notes accounted for at
fair value were 3.65% and 3.26% as of December 31,
2023 and 2022, respectively. In order to modify exposure
to interest rate and currency exchange rate movements,
JPMorgan Chase utilizes derivative instruments, primarily
interest rate and cross-currency interest rate swaps, in
conjunction with some of its debt issuances. The use of
these instruments modifies the Firm's interest expense on
the associated debt. The modified weighted-average
interest rates for total long-term debt, including the effects
of related derivative instruments, were 5.20% and 4.89%
as of December 31, 2023 and 2022, respectively.
JPMorgan Chase & Co./2023 Form 10-K
278
(i) The aggregate carrying values of debt that matures in each of the five years subsequent to 2023 is $51.2 billion in 2024, $53.5 billion in 2025, $48.7
billion in 2026, $26.2 billion in 2027 and $79.0 billion in 2028.
(g) As of December 31, 2023, included $23.2 billion of FHLB advances associated with First Republic. Refer to Note 34 for additional information.
(h) As of December 31, 2023, long-term debt in the aggregate of $208.2 billion was redeemable at the option of JPMorgan Chase, in whole or in part, prior to
maturity, based on the terms specified in the respective instruments.
(f) The interest rates shown are the weighted average of contractual rates in effect at December 31, 2023 and 2022, respectively, including non-U.S. dollar
fixed- and variable-rate issuances, which excludes the effects of the associated derivative instruments used in hedge accounting relationships, if
applicable. The interest rates shown exclude structured notes accounted for at fair value.
(e) Included on the Consolidated balance sheets in beneficial interests issued by consolidated VIES. Also included amounts accounted for at fair value which
were not material as of December 31, 2023 and 2022. Excluded short-term commercial paper and other short-term beneficial interests of $19.9 billion
and $10.5 billion at December 31, 2023 and 2022, respectively.
(d) Included $12.5 billion and $10.3 billion of outstanding zero-coupon notes at December 31, 2023 and 2022, respectively. The aggregate principal amount
of these notes at their respective maturities is $47.9 billion and $45.3 billion, respectively. The aggregate principal amount reflects the contractual
principal payment at maturity, which may exceed the contractual principal payment at the Firm's next call date, if applicable.
(c) Included $87.9 billion and $72.3 billion of long-term debt accounted for at fair value at December 31, 2023 and 2022, respectively.
$
Dividend declared per share(d)
2,998
$
-
Subtotal $
6.33 %
7.14 %
7.45 %
6.18 %
%
1,298
$
1,210
420
Variable rate
Interest rates (f)
550
$
518
$
Fixed-to-floating rate:
518
790
420
$
1,308
2,998
$
$
Fixed rate
295,865
$
(h)(i)
391,825
$
133,098
$
$ 207,553
51,174
$
Total long-term debt (b)(c)(d)
1,848
$
1,728
$
$
December 31,
Long-term beneficial
interests:
2022
200,000
Series MM
1,850
1,850
185,000
185,000
Series LL
(e)
200,000
475.00
475.00
NA
12/1/2024
4.750
600.00
600.00
600.00
ΝΑ
475.00
2,000
2,000
4.550
420.00
420.00
2023
ΝΑ
9/1/2026
4.200
(e)
245.39
462.52
462.52
ΝΑ
(e)
6/1/2026
4.625
321.03
455.00
455.00
ΝΑ
6/1/2026
3/1/2024
6.000
3/17/2021
5/20/2021
7/29/2021
575.00
169,625 169,625
Series DD
- % 9/1/2020
6/4/2015
7/29/2015
Series BB
-- $ - $ -
Series AA
2021
2022
2023
Year ended December 31,
Floating
annualized
rate (c)
(b)
Earliest
redemption
date
Contractual rate
in effect at
December 31,
2023
575.00
Issue date
2023
December 31,
2022
1,696
1,696
Fixed-rate:
185,000
ΝΑ
ΝΑ
Series EE
9/1/2020
12/1/2023
575.00
5.750
9/21/2018
1/24/2019
11/7/2019
$ - $ - $ 305.00
307.50
1,500
150,000
150,000
1,850
900
1,500
Series JJ
185,000
1,850
Series GG
NA
90,000
900
90,000
Total capital
CET1 capital ratio
Risk-weighted assets
Total capital ratio
December 31, 2022
Tier 1 capital
(in millions, except ratios)
Basel III Standardized
Basel III Advanced
Tier 1 capital ratio
250,585
Chase & Co.
JPMorgan
Chase Bank, N.A.
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
$
$
262,030
262,032
CET1 capital
$
277,306
JPMorgan
(in millions, except ratios)
Risk-based capital metrics: (a)
Tier 1 leverage
The following tables present risk-based capital metrics under both the Basel III Standardized and Basel III Advanced
approaches and leverage-based capital metrics for JPMorgan Chase and JPMorgan Chase Bank, N.A. As of December 31, 2023
and 2022, JPMorgan Chase and JPMorgan Chase Bank, N.A. were well-capitalized and met all capital requirements to which
each was subject.
Well-capitalized
ratios
308,497
(a)
BHC
IDI
BHC (b)
IDI
Leverage-based capital ratios
SLR
4.0 %
5.0
4.0 %
6.0
December 31, 2023
ΝΑ
ΝΑ
6.0
Note: The table above is as defined by the regulations issued by the
Federal Reserve, OCC and FDIC and to which the Firm and JPMorgan Chase
Bank, N.A. are subject.
(a) Represents minimum SLR requirement of 3.0%, as well as
supplementary leverage buffer requirements of 2.0% and 3.0% for
BHC and JPMorgan Chase Bank, N.A., respectively.
(b) The Federal Reserve's regulations do not establish well-capitalized
thresholds for these measures for BHCs.
JPMorgan Chase & Co./2023 Form 10-K
289
Notes to consolidated financial statements
CECL Regulatory Capital Transition
Beginning January 1, 2022, the $2.9 billion CECL capital
benefit, provided by the Federal Reserve in response to the
COVID-19 pandemic, is being phased out at 25% per year
over a three-year period. As of December 31, 2023, the
Firm's CET1 capital reflected the remaining $1.4 billion
benefit associated with the CECL capital transition
provisions.
Similarly, as of January 1, 2023, the Firm has phased out
50% of the other CECL capital transition provisions which
impacted Tier 2 capital, adjusted average assets, total
leverage exposure and RWA, as applicable.
5.0 %
281,308
277,769
1,621,789
$
218,934
269,668
$
Tier 1 capital
245,631
269,672
218,934
245,631
$
269,668
269,672
Total capital
288,433
264,583
275,255
Risk-weighted assets
1,653,538
1,597,072
1,609,773
1,475,602
CET1 capital ratio
Capital ratio
requirements
13.2 %
CET1 capital
1,671,995
.(a)
JPMorgan
Chase Bank, N.A.
250,585
277,306
295,417 (b)
1,669,156
$
262,030
262,032
268,392
(b)
1,526,952
15.0 %
16.2 %
15.0 %
17.2 %
16.6
16.2
16.6
17.2
18.5
17.3
17.7
17.6
Basel III Standardized
Basel III Advanced
JPMorgan
Chase & Co.
JPMorgan
Chase Bank, N.A.
JPMorgan
Chase & Co.
Risk-based capital metrics: (a
Under the risk-based capital and leverage-based guidelines
of the Federal Reserve, JPMorgan Chase is required to
maintain minimum ratios for CET1 capital, Tier 1 capital,
Total capital, Tier 1 leverage and the SLR. Failure to meet
these minimum requirements could cause the Federal
Reserve to take action. JPMorgan Chase Bank, N.A. is also
subject to these capital requirements established by its
primary regulators.
The business of JPMorgan Chase Bank, N.A. is subject to
examination and regulation by the OCC. The Bank is a
member of the U.S. Federal Reserve System, and its
deposits in the U.S. are insured by the FDIC, subject to
applicable limits.
(e) Represents requirements for JPMorgan Chase Bank, N.A. pursuant to
regulations issued under the FDIC Improvement Act.
10.3
18.7
Cash reserves at non-U.S. central banks and held for
other general purposes
9.3
8.1
$ 19.6 $ 26.8
Total restricted cash (a)
(a) Comprises $18.2 billion and $25.4 billion in deposits with banks, and
$1.4 billion and $1.4 billion in cash and due from banks on the
Consolidated balance sheets as of December 31, 2023 and 2022,
respectively.
Also, as of December 31, 2023 and 2022, the Firm had the
following other restricted assets:
•
•
Cash and securities pledged with clearing organizations
for the benefit of customers of $40.5 billion and $42.4
billion, respectively.
Securities with a fair value of $20.5 billion and $31.7
billion, respectively, were also restricted in relation to
customer activity.
Intercompany funds transfers
Restrictions imposed by U.S. federal law prohibit JPMorgan
Chase Bank, N.A., and its subsidiaries, from lending to
JPMorgan Chase & Co. ("Parent Company") and certain of
its affiliates unless the loans are secured in specified
amounts. Such secured loans provided by any banking
subsidiary to the Parent Company or to any particular
affiliate, together with certain other transactions with such
affiliate (collectively referred to as "covered transactions"),
must be made on terms and conditions that are consistent
with safe and sound banking practices. In addition, unless
collateralized with cash or US Government debt obligations,
covered transactions are generally limited to 10% of the
banking subsidiary's total capital, as determined by the risk-
based capital guidelines; the aggregate amount of covered
transactions between any banking subsidiary and all of its
affiliates is limited to 20% of the banking subsidiary's total
capital.
The Parent Company's two principal subsidiaries are
JPMorgan Chase Bank, N.A. and JPMorgan Chase Holdings
LLC, an intermediate holding company (the "IHC"). The IHC
generally holds the stock of JPMorgan Chase's subsidiaries
other than JPMorgan Chase Bank, N.A. and its subsidiaries.
The IHC also owns other assets and provides intercompany
loans to the Parent Company. The Parent Company is
obligated to contribute to the IHC substantially all the net
proceeds received from securities issuances (including
issuances of senior and subordinated debt securities and of
preferred and common stock).
The principal sources of income and funding for the Parent
Company are dividends from JPMorgan Chase Bank, N.A.
and dividends and extensions of credit from the IHC. In
addition to dividend restrictions set forth in statutes and
regulations, the Federal Reserve, the OCC and the FDIC have
authority under the Financial Institutions Supervisory Act to
prohibit or to limit the payment of dividends by the banking
organizations they supervise, including the Parent Company
and its subsidiaries that are banks or bank holding
companies, if, in the banking regulator's opinion, payment
of a dividend would constitute an unsafe or unsound
practice in light of the financial condition of the banking
organization. The IHC is prohibited from paying dividends or
extending credit to the Parent Company if certain capital or
liquidity "thresholds" are breached or if limits are otherwise
imposed by the Parent Company's management or Board of
Directors.
At January 1, 2024, the Parent Company's banking
subsidiaries could pay, in the aggregate, approximately $20
billion in dividends to their respective bank holding
companies without the prior approval of their relevant
banking regulators. The capacity to pay dividends in 2024
will be supplemented by the banking subsidiaries' earnings
during the year.
288
JPMorgan Chase & Co./2023 Form 10-K
Note 27 - Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the Firm as a
consolidated financial holding company. The OCC
establishes similar minimum capital requirements and
standards for the Firm's principal IDI subsidiary, JPMorgan
Chase Bank, N.A.
Segregated for the benefit of securities and cleared
derivative customers
The capital rules under Basel III establish minimum capital
ratios and overall capital adequacy standards for large and
internationally active U.S. bank holding companies and
banks, including the Firm and JPMorgan Chase Bank, N.A.
Two comprehensive approaches are prescribed for
calculating RWA: a standardized approach ("Basel III
Standardized"), and an advanced approach ("Basel III
Advanced"). For each of the risk-based capital ratios, the
capital adequacy of the Firm and JPMorgan Chase Bank,
N.A. is evaluated against the lower of the Standardized or
Advanced approaches compared to their respective
regulatory capital ratio requirements.
2022
December 31, (in billions)
Tier 1 capital ratio
Decreases based on tax positions
related to prior periods
(1,110)
(824)
(657)
Decreases related to cash settlements
with taxing authorities
(9)
(126)
(148)
Balance at December 31,
$ 5,401 $ 5,043 $ 4,636
After-tax interest expense/(benefit) and penalties related
to income tax liabilities recognized in income tax expense
were $229 million, $141 million and $174 million in 2023,
2022 and 2021, respectively.
At December 31, 2023 and 2022, in addition to the liability
for unrecognized tax benefits, the Firm had accrued $1.6
billion and $1.3 billion, respectively, for income tax-related
interest and penalties.
JPMorgan Chase & Co./2023 Form 10-K
287
Notes to consolidated financial statements
Note 26 - Restricted cash, other restricted
assets and intercompany funds transfers
Restricted cash and other restricted assets
Certain of the Firm's cash and other assets are restricted as
to withdrawal or usage. These restrictions are imposed by
various regulatory authorities based on the particular
activities of the Firm's subsidiaries.
The Firm is required to maintain cash reserves at certain
non-US central banks.
The Firm is also subject to rules and regulations established
by other U.S. and non U.S. regulators. As part of its
compliance with the respective regulatory requirements,
the Firm's broker-dealer activities are subject to certain
restrictions on cash and other assets.
The following table presents the components of the Firm's
restricted cash:
2023
The three components of regulatory capital under the Basel
III rules are as illustrated below:
Common stockholder's equity
including capital for AOCI related to:
11.0 %
7.0 %
ΝΑ
6.5 %
Tier 1
capital
12.9
8.5
12.5
8.5
6.0 %
8.0
Total capital
14.9
10.5
14.5
10.5
10.0
10.0
Note: The table above is as defined by the regulations issued by the
Federal Reserve, OCC and FDIC and to which the Firm and JPMorgan Chase
Bank, N.A. are subject.
(a) Represents the regulatory capital ratio requirements applicable to the
Firm. The CET1, Tier 1 and Total capital ratio requirements each
include a respective minimum requirement plus a GSIB surcharge of
4.0% as calculated under Method 2; plus a 2.9% SCB for Basel III
Standardized ratios and a fixed 2.5% capital conservation buffer for
Basel III Advanced ratios. The countercyclical buffer is currently set to
0% by the federal banking agencies.
(b) For the period ended December 31, 2022, the CET1, Tier 1, and Total
capital ratio requirements under Basel III Standardized applicable to
the Firm were 12.0%, 13.5% and 15.5%, respectively; the Basel III
Advanced CET1, Tier 1, and Total capital ratio requirements applicable
to the Firm were 10.5%, 12.0%, and 14.0%, respectively. SCB for
Basel III Standardized ratio for 2022 was 4.0%.
(c) Represents requirements for JPMorgan Chase Bank, N.A. The CET1,
Tier 1 and Total capital ratio requirements include a fixed capital
conservation buffer requirement of 2.5% that is applicable to
JPMorgan Chase Bank, N.A. JPMorgan Chase Bank, N.A. is not subject
to the GSIB surcharge.
(d) Represents requirements for bank holding companies pursuant to
regulations issued by the Federal Reserve.
7.0 %
11.4 %
CET1 capital
IDI(e)
• AFS debt securities
Less certain deductions for:
• Defined benefit pension and OPEB
plans
CET1
capital
Tier 1
capital
⚫ Goodwill
• MSRs
• Deferred tax assets that arise from
NOL and tax credit carryforwards
Total
capital
• Perpetual preferred stock
The following table presents the leverage-based regulatory
capital ratio requirements and well-capitalized ratios to
which the Firm and JPMorgan Chase Bank, N.A. were subject
as of December 31, 2023 and 2022.
Add'l
-Tier 1
capital
• Qualifying allowance for
credit losses
Tier 2
capital
The following table presents the risk-based regulatory
capital ratio requirements and well-capitalized ratios to
which the Firm and JPMorgan Chase Bank, N.A. were subject
as of December 31, 2023 and 2022.
Standardized capital
ratio requirements
BHC(a)(b)
IDI (c)
Risk-based capital ratios
Advanced capital
ratio requirements
Well-capitalized
ratios
BHC (a)(b)
IDI (c)
BHC (d)
• Long-term debt qualifying as
Tier 2
Total capital ratio
ΝΑ
16.9 %
16.9
18.1
28,872
4,388
536,786
27,439
4,134
471,980
$1,326,782
479
408
37
3,313
$4,139
6
2,742
$ 2,817
Securities lending indemnification
agreements and guarantees
$283,664 $
Derivatives qualifying as guarantees
1,693
364
11,657
- $ - $ - $ 2
40,848
$ 283,664
54,562
$ 283,386
59,180
$
$
89
649
Unsettled resale and securities borrowed
agreements
991
94,920
3,628
82
143,337 185,890 182,756 24,803
$1,078,159 $ 193,224 $ 189,249 $ 37,215 $1,497,847
961,061
854,802
826
75
Wholesale:
Other unfunded commitments to extend
credit(d)
(j)(k)
(k)
125,478 175,190 179,046
23,812
503,526
440,407
2,797
2,328
(d)
13,775
4,084
Standby letters of credit and other
financial guarantees"
Other letters of credit (d)
(c)
Total wholesale"
Total lending-related
Other guarantees and commitments
10,478
222
186 --
95,106
116,975
Exchange & clearing house guarantees
and commitments
Other guarantees and commitments
(g)
265,887
9,216
1,516
314
4,028
265,887
15,074
191,068
8,634
38
53
-
(a) Includes certain commitments to purchase loans from correspondents.
(b) Also includes commercial card lending-related commitments primarily in CB and CIB.
(c) Predominantly all consumer and wholesale lending-related commitments are in the U.S.
(d) As of December 31, 2023 and 2022, reflected the contractual amount net of risk participations totaling $88 million and $71 million, respectively, for
other unfunded commitments to extend credit; $8.2 billion at both periods for standby letters of credit and other financial guarantees; and $589 million
and $512 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk
participations.
(e) As of December 31, 2023 and 2022, collateral held by the Firm in support of securities lending indemnification agreements was $300.3 billion and
$298.5 billion, respectively. Securities lending collateral primarily consists of cash, G7 government securities, and securities issued by U.S. GSEs and
government agencies.
(f) As of December 31, 2023 and 2022, includes guarantees to the Fixed Income Clearing Corporation under the sponsored member repo program and
commitments and guarantees associated with the Firm's membership in certain clearing houses.
(g) As of December 31, 2023 and 2022, primarily includes unfunded commitments related to certain tax-oriented equity investments, other equity
investment commitments. and unfunded commitments to purchase secondary market loans.
(h) For lending-related products, the carrying value includes the allowance for lending-related commitments and the guarantee liability; for derivative-related
products, and lending-related commitments for which the fair value option was elected, the carrying value represents the fair value.
(i) For lending-related commitments, the carrying value also includes fees and any purchase discounts or premiums that are deferred and recognized in
accounts payable and other liabilities on the Consolidated balance sheets. Deferred amounts for revolving commitments and commitments not expected to
fund, are amortized to lending- and deposit-related fees on a straight line basis over the commitment period. For all other commitments the deferred
amounts remain deferred until the commitment funds or is sold.
(j) As of December 31, 2023, includes fair value adjustments associated with First Republic for residential real estate lending-related commitments totaling
$630 million, for auto and other lending-related commitments totaling $148 million and for other unfunded commitments to extend credit totaling $1.1
billion. Refer to Note 34 for additional information.
(k) As of December 31, 2022, included net markdowns on held-for-sale positions related to unfunded commitments in the bridge financing portfolio.
28
64
100
24
Unsettled repurchase and securities
loaned agreements
60,170
554
60,724
66,407
|
(2)
(7)
Loan sale and securitization-related
indemnifications:
Mortgage repurchase liability
12,412
Loans sold with recourse
ΝΑ
NA
NA
ΝΑ
ΝΑ
NA
NA
NA
803
ΝΑ
820
76
76
393
6,493
7,334
934,822
8.3 %
Total leverage exposure
$
4,540,465
SLR
$
6.1 %
4,038,739
$
4,367,092
$
3,925,502
6.5 %
5.6 %
6.9 %
(a) The capital metrics reflect the CECL capital transition provisions.
(b) Adjusted average assets, for purposes of calculating the leverage ratios, includes quarterly average assets adjusted for on-balance sheet assets that are
subject to deduction from Tier 1 capital, predominantly goodwill, inclusive of estimated equity method goodwill, and other intangible assets.
290
JPMorgan Chase & Co./2023 Form 10-K
Note 28 - Off-balance sheet lending-related
financial instruments, guarantees, and
other commitments
JPMorgan Chase provides lending-related financial
instruments (e.g., commitments and guarantees) to address
the financing needs of its customers and clients. The
contractual amount of these financial instruments
represents the maximum possible credit risk to the Firm
should the customer or client draw upon the commitment
or the Firm be required to fulfill its obligation under the
guarantee, and should the customer or client subsequently
fail to perform according to the terms of the contract. Most
of these commitments and guarantees have historically
been refinanced, extended, cancelled, or expired without
being drawn or a default occurring. As a result, the total
contractual amount of these instruments is not, in the
Firm's view, representative of its expected future credit
exposure or funding requirements.
To provide for expected credit losses in wholesale and
certain consumer lending-related commitments, an
allowance for credit losses on lending-related commitments
is maintained. Refer to Note 13 for further information
regarding the allowance for credit losses on lending-related
commitments.
The following table summarizes the contractual amounts
and carrying values of off-balance sheet lending-related
financial instruments, guarantees and other commitments
at December 31, 2023 and 2022. The amounts in the table
below for credit card and home equity lending-related
commitments represent the total available credit for these
products. The Firm has not experienced, and does not
anticipate, that all available lines of credit for these
products will be utilized at the same time. The Firm can
reduce or cancel credit card lines of credit by providing the
borrower notice or, in some cases as permitted by law,
without notice. In addition, the Firm typically closes credit
card lines when the borrower is 60 days or more past due.
The Firm may reduce or close HELOCS when there are
significant decreases in the value of the underlying
property, or when there has been a demonstrable decline in
the creditworthiness of the borrower.
291
6.6 %
7.9 %
7.2 %
Tier 1 leverage ratio
13.6 %
15.3
18.3 %
18.3
16.4
18.7
(a) The capital metrics reflect the CECL capital transition provisions.
(b) Includes the impacts of certain assets associated with First Republic to which the Standardized approach has been applied as permitted by the transition
provisions in the U.S. capital rules.
Three months ended
(in millions, except ratios)
December 31, 2023
December 31, 2022
JPMorgan
Chase & Co.
JPMorgan Chase & Co./2023 Form 10-K
JPMorgan
Chase Bank, N.A.
JPMorgan
Chase Bank, N.A.
Leverage-based capital metrics: (a)
Adjusted average assets (b)
$
3,831,200
$
3,337,842
$
3,703,873
$
3,249,912
JPMorgan
Chase & Co.
14.9
16.8
Notes to consolidated financial statements
Contractual amount
15,278
12,231
(j)
148
Total consumer, excluding credit card
19,164
7,334
6,493
12,412
45,403
33,518
826
75
Credit card (b)
915,658
-
-
915,658
821,284
-
-
(c)
Total consumer
2,872
75
678
(i)
By remaining maturity as of December 31,
(in millions)
Expires in
1 year or
less
Expires
after
1 year
through
3 years
2023
Expires
after
Carrying value (h)(i)
2022
2023
2022
3 years
through
5 years
Off-balance sheet lending-related financial instruments, guarantees and other commitments
Expires
after 5
years
Total
Lending-related
Consumer, excluding credit card:
Residential Real Estate (a)
$
6,917 $
Auto and other
12,247
7,175 $
159
6,493 $
9,540 $ 30,125 $ 21,287
Total
123
2,992
related to prior periods
(768)
(1,690)
2,412
5,381
2,380
(572) 1,808
(15,482) 3,718 (11,764)
345
(7,289)
(83)
1,749
262
(5,540)
1,714
(95)
(1,697)
407
Net change
17
312
1,619
(1,290)
329
(3,574)
3,553
(21)
265
(3,309)
(2,447)
125
(2,322)
(855)
2,698
2,452
3,180
7,071
(591)
Hedges
Translation adjustments():
(1,078)
$
(340) $
(10,443)
(a) As of December 31, 2023 includes after-tax net unamortized unrealized gains/(losses) of $(29) million related to HTM securities that have been
transferred to AFS as permitted by the new hedge accounting guidance adopted on January 1, 2023. Includes after-tax net unamortized unrealized gains/
(losses) of $(895) million, $(1.3) billion, and $2.4 billion related to AFS securities that have been transferred to HTM for the years ended 2023, 2022 and
2021, respectively. Refer to Note 10 for further information.
The following table presents the pre-tax and after-tax changes in the components of OCI.
Pre-tax
2023
Tax
effect
2022
2021
After-tax
Pre-tax
Tax
effect
After-tax Pre-tax
Tax
effect
After-tax
Year ended December 31, (in millions)
Unrealized gains/(losses) on investment securities:
Net unrealized gains/(losses) arising during the period
Reclassification adjustment for realized (gains)/losses
included in net income (a)
$ 3,891 $ (922) $ 2,969
$(17,862) $ 4,290
$(13,572) $ (7,634) $ 1,832
$ (5,802)
Net change
Translation
1,861
(590)
(611)
Net change
2,258
(534)
1,355
1,724
420
(7,053)
(101)
1,693
319
(5,360)
(1,222)
(3,525)
293
846
(929)
(2,679)
Defined benefit pension and OPEB plans, net
change (e).
421
(48)
373
(1,459)
218
(1,241)
1,129
(207)
922
(1,066)
258
(420)
1,775
included in net income (d)
Reclassification adjustment for realized (gains)/losses
5
(466)
(461)
Fair value hedges, net change (c):
(134)
33
(101)
130
(32)
98
(26)
$
7
Cash flow hedges:
Net unrealized gains/(losses) arising during the period
483
(114)
369
(7,473)
1,794
(5,679)
(2,303)
553
(1,750)
(19)
(808)
6,898
(17,341)
46,734
291
189
231
$ 47,760 $ 35,892 $ 46,503
2,938.6 2,965.8 3,021.5
$ 16.25 $ 12.10 $ 15.39
$ 47,760 $ 35,892 $ 46,503
2,938.6 2,965.8 3,021.5
4.5
4.2
5.1
2,943.1
2,970.0
3,026.6
$ 16.23 $ 12.09 $ 15.36
JPMorgan Chase & Co./2023 Form 10-K
283
Notes to consolidated financial statements
Note 24 - Accumulated other comprehensive income/(loss)
AOCI includes the after-tax change in unrealized gains and losses on investment securities, foreign currency translation
adjustments (including the impact of related derivatives), fair value changes of excluded components on fair value hedges,
cash flow hedging activities, net gain/(loss) related to the Firm's defined benefit pension and OPEB plans, and fair value
option-elected liabilities arising from changes in the Firm's own credit risk (DVA).
Unrealized
gains/(losses)
Accumulated
48,051 36,081
Translation
adjustments,
1,600
Total weighted-average diluted
shares outstanding
Net income per share
JPMorgan Chase & Co./2023 Form 10-K
Note 23 - Earnings per share
Basic earnings per share ("EPS") is calculated using the
two-class method. Under the two-class method, all earnings
(distributed and undistributed) are allocated to common
stock and participating securities. JPMorgan Chase grants
RSUS under its share-based compensation programs,
predominantly all of which entitle recipients to receive
nonforfeitable dividends during the vesting period on a
basis equivalent to dividends paid to holders of the Firm's
common stock. These unvested RSUs meet the definition of
participating securities based on their respective rights to
receive nonforfeitable dividends, and they are treated as a
separate class of securities in computing basic EPS.
Participating securities are not included as incremental
shares in computing diluted EPS; refer to Note 9 for
additional information.
Diluted EPS incorporates the potential impact of
contingently issuable shares, including awards which
require future service as a condition of delivery of the
underlying common stock. Diluted EPS is calculated under
both the two-class and treasury stock methods, and the
more dilutive amount is reported. For each of the periods
presented in the table below, diluted EPS calculated under
the two-class method was more dilutive.
The following table presents the calculation of net income
applicable to common stockholders and basic and diluted
EPS for the years ended December 31, 2023, 2022 and
2021.
Year ended December 31,
(in millions,
except per share amounts)
Basic earnings per share
Net income
2023
2022
2021
Less: Preferred stock dividends
Net income applicable to common
equity
Less: Dividends and undistributed
earnings allocated to participating
securities
Net income applicable to common
stockholders
Total weighted-average basic shares
outstanding
Net income per share
Diluted earnings per share
Net income applicable to common
stockholders
Total weighted-average basic shares
outstanding
Add: Dilutive impact of unvested
PSUs, nondividend-earning RSUs
and SARS
$ 49,552 $ 37,676 $ 48,334
1,501 1,595
Year ended December 31,
(in millions)
Balance at December 31, 2020
Net change
on investment
securities
$
(1,153)
$
(84)
(1,241)
1,621
(17,257)
Balance at December 31, 2022
Net change
(a)
$ (9,124)
$
5,381
Balance at December 31, 2023
$ (3,743)
(a)
$
(1,545) $
329
(1,216) $
(33) $ (5,656)
(101) 1,724
(134) $ (3,932)
$
(1,451)
373
$
468
$
$ (210)
(8,070)
(293)
922
net of
hedges
$ 8,180
$
(473) $
(5,540)
(461)
Balance at December 31, 2021
Net change
$ 2,640
(a)
$
(808)
(934) $
(611)
Fair value Cash flow
hedges hedges
(112) $ 2,383
(19) (2,679)
(131) $ (296)
98
(5,360)
Defined benefit
pension and OPEB
plans
DVA on fair value
option elected
liabilities
other
comprehensive
income/(loss)
$ (1,132)
$
(860)
$
7,986
(11,764)
100
(293)
DVA on fair value option elected liabilities, net
change:
18,093
16,625
Valuation allowance
(183)
(198)
Deferred tax assets, net of valuation
allowance
$
17,910
$
16,427
Deferred tax liabilities
Depreciation and amortization
$
779
$
2,044
Mortgage servicing rights, net of
hedges
1,794
1,864
Leasing transactions
2,254
2,843
Gross deferred tax assets
Other, net
365
Tax attribute carryforwards
Affordable housing tax credits
The Firm recognized $2.0 billion of tax credits and other tax
benefits associated with investments in affordable housing
projects within income tax expense for the year ended
2023, and $1.8 billion and $1.7 billion for the years ended
2022 and 2021, respectively. The amount of amortization
of such investments reported in income tax expense was
$1.6 billion, $1.4 billion and $1.3 billion, respectively. The
carrying value of these investments, which are reported in
other assets on the Firm's Consolidated balance sheets, was
$14.6 billion and $12.1 billion at December 31, 2023 and
2022, respectively. The amount of commitments related to
these investments, which are reported in accounts payable
and other liabilities on the Firm's Consolidated balance
sheets, was $6.8 billion and $5.4 billion at December 31,
2023 and 2022, respectively.
Deferred taxes
Deferred income tax expense/(benefit) reflects the
differences between assets and liabilities measured for
financial reporting purposes versus income tax return
purposes. Deferred tax assets are recognized if, in
management's judgment, their realizability is determined to
be more likely than not. If a deferred tax asset is
determined to be unrealizable, a valuation allowance is
established. The significant components of deferred tax
assets and liabilities are reflected in the following table, the
net deferred tax assets are reflected in other assets on the
Firm's Consolidated balance sheets.
2023
2022
286
December 31, (in millions)
Deferred tax assets
Allowance for loan losses
Employee benefits
$
5,809
$
5,193
1,247
1,342
(a)
Accrued expenses and other
9,887
8,577
Non-U.S. operations
860
1,148
290
2,935
3,801
Gross deferred tax liabilities
JPMorgan Chase - New
York State
2012-2014
JPMorgan Chase - New
York City
JPMorgan Chase - U.K.
2015-2017
2011 2020
Field examination of
certain select entities
Year ended December 31,
(in millions)
2023
2022
2021
Balance at January 1,
$ 5,043
$ 4,636
$ 4,250
Increases based on tax positions
related to the current period
1,440
1,234
798
Increases based on tax positions
Field Examination
Field Examination
returns; certain
matters at Appellate
level
Field examination of
amended returns;
certain matters at
Appellate level
Field examination of
original and amended
7,762
10,552
Net deferred tax assets
$
10,148
$
5,875
(a) Includes the estimated net deferred tax asset associated with the First
Republic acquisition. The allocation of the tax basis to individual assets
may be refined during the measurement period, which could result in
an impact to the gross deferred tax assets and liabilities.
JPMorgan Chase has recorded deferred tax assets of $290
million at December 31, 2023 in connection with tax
attribute carryforwards. State and local capital loss
carryforwards were $1.2 billion, U.S. federal NOL
carryforwards were $586 million, non-U.S. NOL
carryforwards were $570 million, and other U.S. federal tax
attributes were $118 million. If not utilized, a portion of the
U.S. federal NOL carryforwards and other U.S. federal tax
attributes will expire between 2026 and 2037 whereas
others have an unlimited carryforward period. Similarly,
certain non-U.S. NOL carryforwards will expire between
2026 and 2040 whereas others have an unlimited
carryforward period. The state and local capital loss
carryforwards will expire in 2026 and 2027.
The valuation allowance at December 31, 2023, was due to
the state and local capital loss carryforwards and certain
non-U.S. deferred tax assets, including NOL carryforwards.
285
JPMorgan Chase & Co./2023 Form 10-K
At December 31, 2023, 2022 and 2021, JPMorgan Chase's
unrecognized tax benefits, excluding related interest
expense and penalties, were $5.4 billion, $5.0 billion and
$4.6 billion, respectively, of which $3.9 billion, $3.8 billion
and $3.4 billion, respectively, if recognized, would reduce
the annual effective tax rate. Included in the amount of
unrecognized tax benefits are certain items that would not
affect the effective tax rate if they were recognized in the
Consolidated statements of income. These unrecognized
items include the tax effect of certain temporary
differences, the portion of gross state and local
unrecognized tax benefits that would be offset by the
benefit from associated U.S. federal income tax deductions,
and the portion of gross non-U.S. unrecognized tax benefits
that would have offsets in other jurisdictions. JPMorgan
Chase evaluates the need for changes in unrecognized tax
benefits based on its anticipated tax return filing positions
as part of its U.S. federal and state and local tax returns. In
addition, the Firm is presently under audit by a number of
taxing authorities, most notably by the Internal Revenue
Service, as summarized in the Tax examination status table
below. The evaluation of unrecognized tax benefits as well
as the potential for audit settlements make it reasonably
possible that over the next 12 months the gross balance of
unrecognized tax benefits may increase or decrease by as
much as approximately $1.1 billion. The change in the
unrecognized tax benefit would result in a payment or
income statement recognition.
The following table presents a reconciliation of the
beginning and ending amount of unrecognized tax benefits.
Tax examination status
JPMorgan Chase is continually under examination by the
Internal Revenue Service, by taxing authorities throughout
the world, and by many state and local jurisdictions
throughout the U.S. The following table summarizes the
status of tax years that remain subject to income tax
examination of JPMorgan Chase and its consolidated
subsidiaries by significant jurisdictions as of December 31,
2023.
JPMorgan Chase - U.S.
JPMorgan Chase - U.S.
2011 2013
2014-2020
Periods under
examination
Status
Unrecognized tax benefits
JPMorgan Chase & Co./2023 Form 10-K
The Firm will recognize any U.S. income tax expense it may
incur on global intangible low tax income as income tax
expense in the period in which the tax is incurred.
(a) For purposes of this table, non-U.S. income is defined as income
generated from operations located outside the U.S.
(in millions)
Current income tax expense/
(benefit)
U.S. federal
Non-U.S.
U.S. state and local
2023
2022
2021
$
8,973 $ 5,606 $ 2,865
4,355
2,718
3,266
2,630
1,897
Total current income tax expense/
(benefit)
16,594
11,228
7,480
Deferred income tax expense/
(benefit)
(3,475)
(2,004) 3,460
Year ended December 31,
Income tax expense/(benefit)
The following table reflects the components of income tax
expense/(benefit) included in the Consolidated statements
of income.
21.0 % 21.0 %
Total other comprehensive income/(loss)
$ 8,567 $ (1,669) $ 6,898
2,141
(520) 1,621
$(21,744) $ 4,487 $(17,257)
(393)
$(10,099) $ 2,029 $ (8,070)
(a) The pre-tax amount is reported in Investment securities gains/(losses) in the Consolidated statements of income.
(b) Reclassifications of pre-tax realized gains/(losses) on translation adjustments and related hedges are reported in other income/expense in the
Consolidated statements of income. During the year ended December 31, 2023, the Firm reclassified a net pre-tax loss of $(3) million to other revenue,
$(35) million related to the net investment hedge loss, and a $32 million gain related to cumulative translation adjustment, including the impact of the
acquisition of CIFM. During the year ended December 31, 2022, the Firm reclassified a net pre-tax loss of $(8) million. During the year ended
December 31, 2021, the Firm reclassified a net pre-tax loss of $(7) million.
(c) Represents changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads, which are excluded from the assessment
of hedge effectiveness and recorded in other comprehensive income. The initial cost of cross-currency basis spreads is recognized in earnings as part of
the accrual of interest on the cross-currency swaps.
(d) The pre-tax amounts are primarily recorded in noninterest revenue, net interest income and compensation expense in the Consolidated statements of
income.
(e) During the year ended December 31, 2022, a remeasurement of the Firm's U.S. principal defined benefit plan in the third quarter, was required as a result
of a pension settlement. The remeasurement resulted in a net decrease of $1.4 billion in pre-tax AOCI. Refer to Note 8 for further information.
284
JPMorgan Chase & Co./2023 Form 10-K
Note 25 - Income taxes
35
JPMorgan Chase and its eligible subsidiaries file a
consolidated U.S. federal income tax return. JPMorgan
Chase uses the asset and liability method to provide for
income taxes on all transactions recorded in the
Consolidated Financial Statements. This method requires
that income taxes reflect the expected future tax
consequences of temporary differences between the
carrying amounts of assets or liabilities for book and tax
purposes. Accordingly, a deferred tax asset or liability for
each temporary difference is determined based on the tax
rates that the Firm expects to be in effect when the
underlying items of income and expense are realized.
JPMorgan Chase's expense for income taxes includes the
current and deferred portions of that expense. A valuation
allowance is established to reduce deferred tax assets to
the amount the Firm expects to realize.
Effective tax rate and expense
The following table presents a reconciliation of the
applicable statutory U.S. federal income tax rate to the
effective tax rate.
Effective tax rate
Year ended December 31,
Statutory U.S. federal tax rate
Increase/(decrease) in tax rate
resulting from:
U.S. state and local income
taxes, net of U.S. federal
income tax benefit
2023
2022
2021
21.0 %
Due to the inherent complexities arising from the nature of
the Firm's businesses, and from conducting business and
being taxed in a substantial number of jurisdictions,
significant judgments and estimates are required to be
made. Agreement of tax liabilities between JPMorgan Chase
and the many tax jurisdictions in which the Firm files tax
returns may not be finalized for several years. Thus, the
Firm's final tax-related assets and liabilities may ultimately
be different from those currently reported.
37
(1,094)
(101)
0.4
0.1
U.S.
Business tax credits
(4.4)
(5.4)
(4.2)
(a)
Non-U.S.
$ 46,868 $ 34,626
14,744 11,540
$ 50,126
9,436
Other, net
(0.4)
(0.2)
(0.1)
(a)
Effective tax rate
19.6 %
18.4 % 18.9 %
(a) Income tax expense associated with the First Republic acquisition was
reflected in the estimated bargain purchase gain, which resulted in a
reduction in the Firm's effective tax rate.
Income before income tax
expense
$ 61,612 $ 46,166 $ 59,562
1.5
Non-U.S. earnings
2021
2022
389
(4,534)
(2,738)
$ 12,060 $ 8,490
U.S. federal
Non-U.S.
U.S. state and local
Total deferred income tax
expense/(benefit)
Total income tax expense
3,748
$ 11,228
(154)
(580)
Total income tax expense includes $68 million of tax
benefits in 2023, $331 million of tax benefits in 2022, and
$69 million of tax expenses in 2021, resulting from the
resolution of tax audits.
Results from U.S. and non-U.S. earnings
The following table presents the U.S. and non-U.S.
components of income before income tax expense.
2.8
3.5
3.0
Tax-exempt income
(0.9)
(0.9)
(0.9)
Year ended December 31,
(in millions)
2023
Tax effect of items recorded in stockholders' equity
The preceding table does not reflect the tax effect of certain
items that are recorded each period directly in
stockholders' equity, which are predominantly reflected in
OCI as disclosed in Note 24. For the year ended December
31, 2023, stockholders' equity also reflected the tax effect
associated with the Firm's adoption of the TDR accounting
guidance recognized in retained earnings. Refer to Note 1
for further information.
292
9,654
302
(in millions)
Notional amounts
Derivative guarantees
2022
54,562 $
59,180
31,820
Stable value contracts with
contractually limited exposure
Maximum exposure of stable
value contracts with
contractually limited exposure
32,488
1,652
The following table summarizes the derivatives qualifying
as guarantees as of December 31, 2023 and 2022.
2,063
Derivative payables
89
649
In addition to derivative contracts that meet the
characteristics of a guarantee, the Firm is both a purchaser
and seller of credit protection in the credit derivatives
market. Refer to Note 5 for a further discussion of credit
derivatives.
Unsettled securities financing agreements
In the normal course of business, the Firm enters into resale
and securities borrowed agreements. At settlement, these
commitments result in the Firm advancing cash to and
receiving securities collateral from the counterparty. The
Firm also enters into repurchase and securities loaned
agreements. At settlement, these commitments result in the
Firm receiving cash from and providing securities collateral
to the counterparty. Such agreements settle at a future
date. These agreements generally do not meet the
definition of a derivative, and therefore, are not recorded
on the Consolidated balance sheets until settlement date.
These agreements predominantly have regular-way
settlement terms. Refer to Note 11 for a further discussion
of securities financing agreements.
Loan sales- and securitization-related indemnifications
Mortgage repurchase liability
In connection with the Firm's mortgage loan sale and
securitization activities with U.S. GSES the Firm has made
representations and warranties that the loans sold meet
certain requirements, and that may require the Firm to
repurchase mortgage loans and/or indemnify the loan
purchaser if such representations and warranties are
breached by the Firm.
Fair value
The fair value of derivative guarantees reflects the
probability, in the Firm's view, of whether the Firm will be
required to perform under the contract. The Firm reduces
exposures to these contracts by entering into offsetting
transactions, or by entering into contracts that hedge the
market risk related to the derivative guarantees.
The notional value of derivative guarantees generally
represents the Firm's maximum exposure. However,
exposure to certain stable value products is contractually
limited to a substantially lower percentage of the notional
amount.
The Firm transacts in certain derivative contracts that have
the characteristics of a guarantee under U.S. GAAP. These
contracts include written put options that require the Firm
to purchase assets upon exercise by the option holder at a
specified price by a specified date in the future. The Firm
may enter into written put option contracts in order to meet
client needs, or for other trading purposes. The terms of
written put options are typically five years or less.
Derivatives deemed to be guarantees also includes stable
value contracts, commonly referred to as “stable value
products", that require the Firm to make a payment of the
difference between the market value and the book value of
a counterparty's reference portfolio of assets in the event
that market value is less than book value and certain other
conditions have been met. Stable value products are
transacted in order to allow investors to realize investment
returns with less volatility than an unprotected portfolio.
These contracts are typically longer-term or may have no
stated maturity, but allow the Firm to elect to terminate the
contract under certain conditions.
$
408
$
6
16,861
$
539
$
15,296
$
795
(a) The ratings scale is based on the Firm's internal risk ratings. Refer to Note 12 for further information on internal risk ratings.
JPMorgan Chase & Co./2023 Form 10-K
293
Notes to consolidated financial statements
Securities lending indemnifications
Through the Firm's securities lending program,
counterparties' securities, via custodial and non-custodial
arrangements, may be lent to third parties. As part of this
program, the Firm provides an indemnification in the
lending agreements which protects the lender against the
failure of the borrower to return the lent securities. To
minimize its liability under these indemnification
agreements, the Firm obtains cash or other highly liquid
collateral with a market value exceeding 100% of the value
of the securities on loan from the borrower. Collateral is
marked to market daily to help assure that collateralization
is adequate. Additional collateral is called from the
borrower if a shortfall exists, or collateral may be released
to the borrower in the event of overcollateralization. If a
borrower defaults, the Firm would use the collateral held to
purchase replacement securities in the market or to credit
the lending client or counterparty with the cash equivalent
thereof.
The cash collateral held by the Firm may be invested on
behalf of the client in indemnified resale agreements,
whereby the Firm indemnifies the client against the loss of
principal invested. To minimize its liability under these
agreements, the Firm obtains collateral with a market value
exceeding 100% of the principal invested.
Derivatives qualifying as guarantees
Private label securitizations
The liability related to repurchase demands associated with
private label securitizations is separately evaluated by the
Firm in establishing its litigation reserves.
Refer to Note 30 for additional information regarding
litigation.
Loans sold with recourse
The Parent Company has guaranteed certain long-term debt
and structured notes of its subsidiaries, including JPMorgan
Chase Financial Company LLC ("JPMFC"), a 100%-owned
finance subsidiary. All securities issued by JPMFC are fully
and unconditionally guaranteed by the Parent Company and
no other subsidiary of the parent company guarantees
these securities. These guarantees, which rank pari passu
with the Firm's unsecured and unsubordinated
indebtedness, are not included in the table on page 292 of
this Note. Refer to Note 20 for additional information.
296
JPMorgan Chase & Co./2023 Form 10-K
Note 29 - Pledged assets and collateral
Pledged assets
The Firm pledges financial assets that it owns to maintain
potential borrowing capacity at discount windows with
Federal Reserve banks, various other central banks and
FHLBS. Additionally, the Firm pledges assets for other
purposes, including to collateralize repurchase and other
securities financing agreements, to cover short sales and to
collateralize derivative contracts and deposits. Certain of
these pledged assets may be sold or repledged or otherwise
used by the secured parties and are parenthetically
identified on the Consolidated balance sheets as assets
pledged.
The following table presents the Firm's pledged assets.
December 31, (in billions)
Assets that may be sold or repledged or
otherwise used by secured parties
Assets that may not be sold or repledged or
otherwise used by secured parties
(a)
Assets pledged at Federal Reserve banks and
FHLBS
Total pledged assets
2023
2022
$ 145.0
$ 110.8
244.2
counterparties. The obligations of the subsidiaries are
included on the Firm's Consolidated balance sheets or are
reflected as off-balance sheet commitments; therefore, the
Parent Company has not recognized a separate liability for
these guarantees. The Firm believes that the occurrence of
any event that would trigger payments by the Parent
Company under these guarantees is remote.
37
In the normal course of business, the Parent Company may
provide counterparties with guarantees of certain of the
trading and other obligations of its subsidiaries on a
contract-by-contract basis, as negotiated with the Firm's
The Firm acts as a sponsoring member to clear eligible
overnight and term resale and repurchase agreements
through the Government Securities Division of the Fixed
Income Clearing Corporation ("FICC") on behalf of clients
that become sponsored members under the FICC's rules.
The Firm also guarantees to the FICC the prompt and full
payment and performance of its sponsored member clients'
respective obligations under the FICC's rules. The Firm
minimizes its liability under these guarantees by obtaining a
security interest in the cash or high-quality securities
collateral that the clients place with the clearing house;
therefore, the Firm expects the risk of loss to be remote.
The Firm's maximum possible exposure, without taking into
consideration the associated collateral, is included in the
Exchange & clearing house guarantees and commitments
line on page 292. Refer to Note 11 for additional
information on credit risk mitigation practices on resale
agreements and the types of collateral pledged under
repurchase agreements.
The Firm provides servicing for mortgages and certain
commercial lending products on both a recourse and
nonrecourse basis. In nonrecourse servicing, the principal
credit risk to the Firm is the cost of temporary servicing
advances of funds (i.e., normal servicing advances). In
recourse servicing, the servicer agrees to share credit risk
with the owner of the mortgage loans, such as Fannie Mae
294
JPMorgan Chase & Co./2023 Form 10-K
or Freddie Mac or a private investor, insurer or guarantor.
Losses on recourse servicing predominantly occur when
foreclosure sales proceeds of the property underlying a
defaulted loan are less than the sum of the outstanding
principal balance, plus accrued interest on the loan and the
cost of holding and disposing of the underlying property.
The Firm's securitizations are predominantly nonrecourse,
thereby effectively transferring the risk of future credit
losses to the purchaser of the mortgage-backed securities
issued by the trust. The unpaid principal balance of loans
sold with recourse as well as the carrying value of the
related liability that the Firm has recorded in accounts
payable and other liabilities on the Consolidated balance
sheets, which is representative of the Firm's view of the
likelihood it will have to perform under its recourse
obligations, are disclosed in the table on page 292.
Other off-balance sheet arrangements
Indemnification agreements - general
In connection with issuing securities to investors outside the
U.S., the Firm may agree to pay additional amounts to the
holders of the securities in the event that, due to a change
in tax law, certain types of withholding taxes are imposed
on payments on the securities. The terms of the securities
may also give the Firm the right to redeem the securities if
such additional amounts are payable. The Firm may also
enter into indemnification clauses in connection with the
licensing of software to clients ("software licensees") or
when it sells a business or assets to a third party ("third-
party purchasers"), pursuant to which it indemnifies
software licensees for claims of liability or damages that
may occur subsequent to the licensing of the software, or
third-party purchasers for losses they may incur due to
actions taken by the Firm prior to the sale of the business or
assets. It is difficult to estimate the Firm's maximum
exposure under these indemnification arrangements, since
this would require an assessment of future changes in tax
law and future claims that may be made against the Firm
that have not yet occurred. However, based on historical
experience, management expects the risk of loss to be
remote.
Merchant charge-backs
Under the rules of payment networks, in its role as a
merchant acquirer, the Firm's Merchant Services business
in CIB Payments, retains a contingent liability for disputed
processed credit and debit card transactions that result in a
charge-back to the merchant. If a dispute is resolved in the
cardholder's favor, the Firm will (through the cardholder's
issuing bank) credit or refund the amount to the cardholder
and will charge back the transaction to the merchant. If the
Firm is unable to collect the amount from the merchant, the
Firm will bear the loss for the amount credited or refunded
to the cardholder. The Firm mitigates this risk by
withholding future settlements, retaining cash reserve
accounts or obtaining other collateral. In addition, the Firm
recognizes a valuation allowance that covers the payment
or performance risk related to charge-backs.
For the years ended December 31, 2023, 2022 and 2021,
the Firm processed an aggregate volume of $2,411.0
billion, $2,158.4 billion, and $1,886.7 billion, respectively.
Clearing Services - Client Credit Risk
The Firm provides clearing services for clients by entering
into securities purchases and sales and derivative contracts
with CCPs, including ETDs such as futures and options, as
well as OTC-cleared derivative contracts. As a clearing
member, the Firm stands behind the performance of its
clients, collects cash and securities collateral (margin) as
well as any settlement amounts due from or to clients, and
remits them to the relevant CCP or client in whole or part.
There are two types of margin: variation margin is posted
on a daily basis based on the value of clients' derivative
contracts and initial margin is posted at inception of a
derivative contract, generally on the basis of the potential
changes in the variation margin requirement for the
contract.
As a clearing member, the Firm is exposed to the risk of
nonperformance by its clients, but is not liable to clients for
the performance of the CCPs. Where possible, the Firm
seeks to mitigate its risk to the client through the collection
of appropriate amounts of margin at inception and
throughout the life of the transactions. The Firm can also
cease providing clearing services if clients do not adhere to
their obligations under the clearing agreement. In the event
of nonperformance by a client, the Firm would close out the
client's positions and access available margin. The CCP
would utilize any margin it holds to make itself whole, with
any remaining shortfalls required to be paid by the Firm as
a clearing member.
The Firm reflects its exposure to nonperformance risk of the
client through the recognition of margin receivables from
clients and margin payables to CCPs; the clients' underlying
securities or derivative contracts are not reflected in the
Firm's Consolidated Financial Statements.
It is difficult to estimate the Firm's maximum possible
exposure through its role as a clearing member, as this
would require an assessment of transactions that clients
may execute in the future. However, based upon historical
experience, and the credit risk mitigants available to the
Firm, management believes it is unlikely that the Firm will
have to make any material payments under these
arrangements and the risk of loss is expected to be remote.
Refer to Note 5 for information on the derivatives that the
Firm executes for its own account and records in its
Consolidated Financial Statements.
JPMorgan Chase & Co./2023 Form 10-K
295
Notes to consolidated financial statements
Exchange & Clearing House Memberships
The Firm is a member of several securities and derivative
exchanges and clearing houses, both in the U.S. and other
countries, and it provides clearing services to its clients.
Membership in some of these organizations requires the
Firm to pay a pro rata share of the losses incurred by the
organization as a result of the default of another member.
Such obligations vary with different organizations. These
obligations may be limited to the amount (or a multiple of
the amount) of the Firm's contribution to the guarantee
fund maintained by a clearing house or exchange as part of
the resources available to cover any losses in the event of a
member default. Alternatively, these obligations may also
include a pro rata share of the residual losses after applying
the guarantee fund. Additionally, certain clearing houses
require the Firm as a member to pay a pro rata share of
losses that may result from the clearing house's investment
of guarantee fund contributions and initial margin,
unrelated to and independent of the default of another
member. Generally a payment would only be required
should such losses exceed the resources of the clearing
house or exchange that are contractually required to
absorb the losses in the first instance. In certain cases, it is
difficult to estimate the Firm's maximum possible exposure
under these membership agreements, since this would
require an assessment of future claims that may be made
against the Firm that have not yet occurred. However,
based on historical experience, management expects the
risk of loss to the Firm to be remote. Where the Firm's
maximum possible exposure can be estimated, the amount
is disclosed in the table on page 292, in the Exchange &
clearing house guarantees and commitments line.
Sponsored member repo program
Guarantees of subsidiaries
114.8
$
$
2,756
1,589
1,167
878
65,040
Total international
28,971
18,794
Latin America/Caribbean
10,177
92,678
43,293
49,385
Total
$
121,649 $
62,087
$
North America (a)
517,904
277,897
2,300
3,282
Investment-grade (a)
of credit
Other letters
Standby letters of credit and
other financial guarantees
Other letters
of credit
Standby letters of credit and
other financial guarantees
(in millions)
December 31,
2022
2023
Standby letters of credit, other financial guarantees and other letters of credit
The following table summarizes the contractual amount and carrying value of standby letters of credit and other financial
guarantees and other letters of credit arrangements as of December 31, 2023 and 2022.
The contractual amount and carrying value of guarantees
and indemnifications are included in the table on page 292.
For additional information on the guarantees, see below.
Standby letters of credit and other financial guarantees
Standby letters of credit and other financial guarantees are
conditional lending commitments issued by the Firm to
guarantee the performance of a client or customer to a
third party under certain arrangements, such as commercial
paper facilities, bond financings, acquisition financings,
trade financings and similar transactions.
Non-lending-related contingent obligations are recognized
when the liability becomes probable and reasonably
estimable. These obligations are not recognized if the
estimated amount is less than the carrying amount of any
non-contingent liability recognized at inception (adjusted
for any amortization). Examples of non-lending-related
contingent obligations include indemnifications provided in
sales agreements, where a portion of the sale proceeds is
allocated to the guarantee, which adjusts the gain or loss
that would otherwise result from the transaction. For these
indemnifications, the initial liability is amortized to income
as the Firm's risk is reduced (i.e., over time or when the
indemnification expires).
or other assets (for premiums receivable). Any premium
receivable recorded in other assets is reduced as cash is
received under the contract, and the fair value of the
liability recorded at inception is amortized into income as
lending and deposit-related fees over the life of the
guarantee contract. The lending-related contingent
obligation is recognized based on expected credit losses in
addition to, and separate from, any non-contingent
obligation.
U.S. GAAP requires that a guarantor recognize, at the
inception of a guarantee, a liability in an amount equal to
the fair value of the obligation undertaken in issuing the
guarantee. U.S. GAAP defines a guarantee as a contract that
contingently requires the guarantor to pay the guaranteed
party based upon: (a) changes in an underlying asset,
liability or equity security of the guaranteed party; or (b) a
third party's failure to perform under a specified
agreement. The Firm considers the following off-balance
sheet arrangements to be guarantees under U.S. GAAP:
standby letters of credit and other financial guarantees,
securities lending indemnifications, certain indemnification
agreements included within third-party contractual
arrangements, certain derivative contracts and the
guarantees under the sponsored member repo program.
As required by U.S. GAAP, the Firm initially records
guarantees at the inception date fair value of the non-
contingent obligation assumed (e.g., the amount of
consideration received or the net present value of the
premium receivable). For these obligations, the Firm
records this fair value amount in other liabilities with an
offsetting entry recorded in cash (for premiums received),
Guarantees
Other unfunded commitments to extend credit generally
consist of commitments for working capital and general
corporate purposes, extensions of credit to support
commercial paper facilities and bond financings in the event
that those obligations cannot be remarketed to new
investors, as well as committed liquidity facilities to clearing
organizations. The Firm also issues commitments under
multipurpose facilities which could be drawn upon in
several forms, including the issuance of a standby letter of
credit.
Other unfunded commitments to extend credit
59,562 $
7,380
40,954
48,334
860,841
2,882,726
$ 3,743,567
27,439
$
4,134
Allowance for lending-related commitments
$
110
$
37
$
82
$
6
Guarantee liability
369
-
326
Total carrying value
Commitments with collateral
$
$
479
4,388
28,872
(a) Substantially reflects the U.S.
(b) Includes the impact of First Republic. Refer to Note 34 for additional information.
(c) Revenue is composed of net interest income and noninterest revenue.
(d) Expense is composed of noninterest expense and the provision for credit losses.
(e) Total assets for the U.K. were approximately $352 billion, $357 billion and $365 billion at December 31, 2023, 2022 and 2021, respectively.
JPMorgan Chase & Co./2023 Form 10-K
6,372
$
19,694
$
3,552
$
19,205
$
3,040
Noninvestment-grade (a)
9,178
836
8,234
1,094
Total contractual amount
$
675.6
December 31, December 31,
2023
$ 1,064.8
10,105
863,926
North America (a) (b)
123,231
76,024
47,207
39,447
3,011,467
14,405
Total
158,104 $
96,492 $
61,612 $
49,552 $ 3,875,393
2022
Europe/Middle East/Africa
(e)
$
$
20,468
34,873
Total international
$
20,974
$
Asia-Pacific
10,605
11,947 $
6,550
9,027 $
(e)
6,402
$
4,055
2,709
529,335
251,588
Latin America/Caribbean
3,294
1,971
1,323
994
83,003
18,765 $
11,754 $
7,011 $
5,158 $
34,412
29,243
2,747,161
Total
$
128,695 $
82,529 $
46,166 $
37,676
$ 3,665,743
2021
Europe/Middle East/Africa
$
16,561 $
10,833 $
(e)
5,728 $
4,202
Asia-Pacific
62,315
Europe/Middle East/Africa
96,727
North America a
558,430
Asia-Pacific
10,025
6,763
3,262
2,119
281,479
Latin America/Caribbean
3,178
1,697
1,481
1,156
78,673
Total international
31,968
20,214
567.6
8,433
918,582
(a)
2023
11,754
Net income
297
JPMorgan Chase & Co./2023 Form 10-K
Notes to consolidated financial statements
Note 30 - Litigation
Contingencies
As of December 31, 2023, the Firm and its subsidiaries and
affiliates are defendants or respondents in numerous
evolving legal proceedings, including private proceedings,
public proceedings, government investigations, regulatory
enforcement matters, and the matters described below. The
litigations range from individual actions involving a single
plaintiff to class action lawsuits with potentially millions of
class members. Investigations and regulatory enforcement
matters involve both formal and informal proceedings, by
both governmental agencies and self-regulatory
organizations. These legal proceedings are at varying stages
of adjudication, arbitration or investigation, and involve
each of the Firm's lines of business and several geographies
and a wide variety of claims (including common law tort
and contract claims and statutory antitrust, securities and
consumer protection claims), some of which present novel
legal theories.
The Firm believes the estimate of the aggregate range of
reasonably possible losses, in excess of reserves
established, for its legal proceedings is from $0 to
approximately $1.3 billion at December 31, 2023. This
estimated aggregate range of reasonably possible losses
was based upon information available as of that date for
those proceedings in which the Firm believes that an
estimate of reasonably possible loss can be made. For
certain matters, the Firm does not believe that such an
estimate can be made, as of that date. The Firm's estimate
of the aggregate range of reasonably possible losses
involves significant judgment, given:
•
•
•
the number, variety and varying stages of the
proceedings, including the fact that many are in
preliminary stages,
the existence in many such proceedings of multiple
defendants, including the Firm, whose share of liability
(if any) has yet to be determined,
the numerous yet-unresolved issues in many of the
proceedings, including issues regarding class
certification and the scope of many of the claims, and
the uncertainty of the various potential outcomes of
such proceedings, including where the Firm has made
assumptions concerning future rulings by the court or
other adjudicator, or about the behavior or incentives of
adverse parties or regulatory authorities, and those
assumptions prove to be incorrect.
In addition, the outcome of a particular proceeding may be
a result which the Firm did not take into account in its
estimate because the Firm had deemed the likelihood of
that outcome to be remote. Accordingly, the Firm's
estimate of the aggregate range of reasonably possible
losses will change from time to time, and actual losses may
vary significantly.
Set forth below are descriptions of the Firm's material legal
proceedings.
1MDB Litigation. J.P. Morgan (Suisse) SA was named as a
defendant in a civil litigation filed in May 2021 in Malaysia
by 1 Malaysia Development Berhad ("1MDB"), a Malaysian
state-owned and controlled investment fund. The claim
alleges “dishonest assistance” against J.P. Morgan (Suisse)
SA in relation to payments of $300 million and
$500 million, from 2009 and 2010, respectively, received
from 1MDB and paid into an account at J.P. Morgan (Suisse)
SA held by 1MDB PetroSaudi Limited, a joint venture
company between 1MDB and PetroSaudi Holdings
(Cayman) Limited. The Firm is challenging the validity of
service and the Malaysian Court's jurisdiction to hear the
claim. In August 2023 the Court denied an application by
1MDB to discontinue its claim with permission to re-file a
new claim in the future. An appeals court is scheduled in
August 2024 to hear separate appeals filed by 1MDB and
the Firm against that August 2023 decision. In its appeal,
the Firm seeks to prevent any claim from continuing.
In addition, in November 2023, the Federal Office of the
Attorney General (OAG) in Switzerland notified J.P. Morgan
(Suisse) SA that it is conducting an investigation into
possible criminal liability in connection with transactions
arising from J.P. Morgan (Suisse) SA's relationship with the
1MDB PetroSaudi joint venture and its related persons for
the period September 2009 through August 2015. The OAG
investigation is ongoing.
Amrapali. India's Enforcement Directorate ("ED") is
investigating J.P. Morgan India Private Limited in
connection with investments made in 2010 and 2012 by
two offshore funds formerly managed by JPMorgan Chase
entities into residential housing projects developed by the
Amrapali Group (“Amrapali”) relating to delays in delivering
or failure to deliver residential units. In August 2021, the
ED issued an order fining J.P. Morgan India Private Limited
approximately $31.5 million, and the Firm is appealing that
order. Relatedly, in July 2019, the Supreme Court of India
issued an order making preliminary findings that Amrapali
and other parties, including unspecified JPMorgan Chase
entities and the offshore funds that had invested in the
projects, violated certain criminal currency control and
money laundering provisions, and ordered the ED to
conduct a further inquiry. The Firm is responding to and
cooperating with the inquiry.
Foreign Exchange Investigations and Litigation. The Firm
previously reported settlements with certain government
authorities relating to its foreign exchange ("FX") sales and
trading activities and controls related to those activities.
Among those resolutions, in May 2015, the Firm pleaded
guilty to a single violation of federal antitrust law. The
Department of Labor ("DOL") granted the Firm exemptions
that permit the Firm and its affiliates to continue to rely on
the Qualified Professional Asset Manager exemption under
$ 1,064.8 $ 793.2
298
485.9
202.9
$ 108.6 $ 104.4
681.7
Total assets
$ 793.2
Collateral
The Firm accepts financial assets as collateral that it is
permitted to sell or repledge, deliver or otherwise use. This
collateral is generally obtained under resale and other
securities financing agreements, prime brokerage-related
held-for-investment customer receivables and derivative
contracts. Collateral is generally used under repurchase and
other securities financing agreements, to cover short sales,
and to collateralize derivative contracts and deposits.
The following table presents the fair value of collateral
accepted.
December 31, (in billions).
Collateral permitted to be sold or
repledged, delivered, or otherwise used
Collateral sold, repledged, delivered or
otherwise used
2023
2022
$ 1,303.9 $ 1,346.9
982.8
1,019.4
(a) As of December 31, 2023, included $88.4 billion of assets pledged to
the FDIC associated with the First Republic acquisition. Refer to Note
34 for additional information.
Total pledged assets do not include assets of consolidated
VIES; these assets are used to settle the liabilities of those
entities. Refer to Note 14 for additional information on
assets and liabilities of consolidated VIES. Refer to Note 11
for additional information on the Firm's securities financing
activities. Refer to Note 20 for additional information on the
Firm's long-term debt. The significant components of the
Firm's pledged assets were as follows.
December 31, (in billions)
Loans
Trading assets and other
Total pledged assets
2023
2022
274.5
JPMorgan Chase & Co./2023 Form 10-K
Investment securities
With respect to civil litigation matters, in a putative class
action filed against the Firm and other foreign exchange
dealers on behalf of certain parties who purchased foreign
currencies at allegedly inflated rates, the District Court
denied certification of a class and granted summary
judgment against the named plaintiffs in March 2023. An
appeal by those plaintiffs of the District Court's decision is
pending. In addition, some FX-related individual and
putative class actions based on similar alleged underlying
conduct have been filed outside the U.S., including in the
U.K., Israel, the Netherlands, Brazil and Australia. An
agreement to resolve one of the U.K. actions was reached in
December 2022. In July 2023, the U.K. Court of Appeal
overturned the Competition Appeal Tribunal's earlier denial
of a request for class certification on an opt-out basis. In
Israel, a settlement in principle has been reached on the
putative class action, which remains subject to court
approval.
300
JPMorgan Chase & Co./2023 Form 10-K
In addition to the various legal proceedings discussed
above, JPMorgan Chase and its subsidiaries are named as
defendants or are otherwise involved in a substantial
number of other legal proceedings. The Firm believes it has
meritorious defenses to the claims asserted against it in its
currently outstanding legal proceedings and it intends to
defend itself vigorously. Additional legal proceedings may
be initiated from time to time in the future.
The Firm has established reserves for several hundred of its
currently outstanding legal proceedings. In accordance with
the provisions of U.S. GAAP for contingencies, the Firm
accrues for a litigation-related liability when it is probable
that such a liability has been incurred and the amount of
the loss can be reasonably estimated. The Firm evaluates its
outstanding legal proceedings each quarter to assess its
litigation reserves, and makes adjustments in such reserves,
upward or downward, as appropriate, based on
management's best judgment after consultation with
counsel. The Firm's legal expense was $1.4 billion, $266
million and $426 million for the years ended December 31,
2023, 2022 and 2021, respectively. There is no assurance
that the Firm's litigation reserves will not need to be
adjusted in the future.
In view of the inherent difficulty of predicting the outcome
of legal proceedings, particularly where the claimants seek
very large or indeterminate damages, or where the matters
present novel legal theories, involve a large number of
parties or are in early stages of discovery, the Firm cannot
state with confidence what will be the eventual outcomes of
the currently pending matters, the timing of their ultimate
resolution or the eventual losses, fines, penalties or
consequences related to those matters. JPMorgan Chase
believes, based upon its current knowledge and after
consultation with counsel, consideration of the material
legal proceedings described above and after taking into
account its current litigation reserves and its estimated
aggregate range of possible losses, that the other legal
proceedings currently pending against it should not have a
material adverse effect on the Firm's consolidated financial
condition. The Firm notes, however, that in light of the
uncertainties involved in such proceedings, there is no
assurance that the ultimate resolution of these matters will
not significantly exceed the reserves it has currently
accrued or that a matter will not have material reputational
consequences. As a result, the outcome of a particular
matter may be material to JPMorgan Chase's operating
results for a particular period, depending on, among other
factors, the size of the loss or liability imposed and the level
of JPMorgan Chase's income for that period.
JPMorgan Chase & Co./2023 Form 10-K
301
Notes to consolidated financial statements
Note 31 - International operations
The following table presents income statement and balance
sheet-related information for JPMorgan Chase by major
international geographic area. The Firm defines
international activities for purposes of this footnote
presentation as business transactions that involve clients
residing outside of the U.S., and the information presented
below is based predominantly on the domicile of the client,
the location from which the client relationship is managed,
booking location or the location of the trading desk.
However, many of the Firm's U.S. operations serve
international businesses.
The Firm's long-lived assets for the periods presented are
not considered by management to be significant in relation
to total assets. The majority of the Firm's long-lived assets
are located in the U.S.
As of or for the year ended December 31,
Income before
income tax
(in millions)
Revenue
(d)
Expense
the Employee Retirement Income Security Act ("ERISA")
through the ten-year disqualification period following the
antitrust plea. The only remaining FX-related governmental
inquiry is a South Africa Competition Commission matter
which is currently pending before the South Africa
Competition Tribunal.
expense
*
*
As the Firm's operations are highly integrated, estimates
and subjective assumptions have been made to apportion
revenue and expense between U.S. and international
operations. These estimates and assumptions are consistent
with the allocations used for the Firm's segment reporting
as set forth in Note 32.
Trading Venues Investigations. The Firm has been
responding to government inquiries regarding its processes
to inventory trading venues and confirm the completeness
of certain data fed to trade surveillance platforms. The Firm
self-identified that certain trading and order data through
the CIB was not feeding into its trade surveillance
platforms. The Firm has completed enhancements to the
CIB's venue inventory and data completeness controls, and
other remediation is underway. The Firm has also
performed a review of the data not originally surveilled,
which is nearly complete, and has not identified any
employee misconduct, harm to clients or the market. While
the identified gaps represent a fraction of the overall
activity across the CIB, the data gap on one venue, which
largely consisted of sponsored client access activity, was
significant. The Firm is dedicated to maintaining rigorous
controls and continuously enhancing the reliability of its
trade infrastructure. The Firm expects to enter into
resolutions with two U.S. regulators that will require the
Firm to, among other things, complete its remediation,
engage an independent consultant, and pay aggregate civil
penalties of approximately $350 million. The Firm is also in
advanced negotiations with a third U.S. regulator, but there
is no assurance that such discussions will result in a
resolution. The Firm does not expect any disruption of
service to clients as a result of these resolutions.
Interchange Litigation. Groups of merchants and retail
associations filed a series of class action complaints alleging
that Visa and Mastercard, as well as certain banks,
conspired to set the price of credit and debit card
interchange fees and enacted related rules in violation of
antitrust laws.
*
Government Inquiries Related to the Zelle Network. The Firm
is responding to inquiries from civil government authorities
regarding the handling of disputes related to transfers of
funds through the Zelle Network. The Firm is cooperating
with these inquiries and responding to requests for
information.
In September 2018, the parties settled the class action
seeking monetary relief, with the defendants collectively
contributing approximately $6.2 billion. The settlement has
been approved by the District Court and affirmed on appeal.
Based on the percentage of merchants that opted out of the
settlement, $700 million has been returned to the
defendants from the settlement escrow. A separate class
action seeking injunctive relief continues, and in September
2021, the District Court granted plaintiffs' motion for class
certification in part, and denied the motion in part.
Of the merchants who opted out of the damages class
settlement, certain merchants filed individual actions
raising similar allegations against Visa and Mastercard, as
well as against the Firm and other banks. While some of
those actions remain pending, the defendants have reached
settlements with the merchants who opted out representing
approximately 70% of the combined Mastercard-branded
and Visa-branded payment card sales volume.
Jeffrey Epstein Litigation. JPMorgan Chase Bank, N.A. was
named as a defendant in lawsuits filed in the United States
District Court for the Southern District of New York alleging
that JPMorgan Chase Bank, N.A. knowingly facilitated
Jeffrey Epstein's sex trafficking and other unlawful conduct
by providing banking services to Epstein until 2013. In June
2023, the Court granted preliminary approval of a
settlement between the victim class and JPMorgan Chase
Bank, N.A., pursuant to which JPMorgan Chase Bank, N.A.
paid $290 million to a fund for Epstein survivors. In
November 2023, the Court granted final approval of the
settlement, rejecting objections, including those of certain
state Attorneys General, regarding the victims' releases.
LIBOR and Other Benchmark Rate Investigations and
Litigation. JPMorgan Chase has responded to inquiries from
various governmental agencies and entities around the
world relating primarily to the British Bankers Association's
("BBA") London Interbank Offered Rate ("LIBOR") for
various currencies and the European Banking Federation's
Euro Interbank Offered Rate ("EURIBOR”). The Swiss
Competition Commission's investigation relating to
EURIBOR, to which the Firm and one other bank remain
subject, continues. The Firm appealed a December 2016
decision by the European Commission against the Firm and
other banks finding an infringement of European antitrust
rules relating to EURIBOR. In December 2023, the European
General Court annulled the fine imposed by the European
Commission, but exercised its discretion to re-impose a fine
in an identical amount. The Firm is considering its options.
In addition, the Firm has been named as a defendant along
with other banks in various individual and putative class
actions related to benchmark rates, including U.S. dollar
LIBOR. In actions related to U.S. dollar LIBOR during the
period that it was administered by the BBA, the Firm has
obtained dismissal of certain actions and resolved certain
other actions, and others are in various stages of litigation.
The United States District Court for the Southern District of
New York has granted class certification of antitrust claims
related to bonds and interest rate swaps sold directly by the
defendants, including the Firm. In addition, a lawsuit filed
by a group of individual plaintiffs asserting antitrust claims,
alleging that the Firm and other defendants were engaged
in an unlawful agreement to set U.S. dollar LIBOR and
conspired to monopolize the market for LIBOR-based
consumer loans and credit cards was dismissed in October
2023. Plaintiff filed an appeal of the dismissal to the United
States Court of Appeals for the Ninth Circuit in November
2023. The Firm has resolved all non-U.S. dollar LIBOR
actions.
Russian Litigation. The Firm is obligated to comply with
international sanctions laws, which mandate the freezing or
restriction of certain assets. These laws apply when assets
associated with individuals, companies, products or services
are within the scope of the sanctions. The Firm has faced
actual and threatened litigation in Russia seeking payments
on transactions that the Firm cannot make, and is
contractually excused from paying, under relevant
sanctions laws, with judgment entered against the Firm in
one claim in February 2024. The Russian court may
299
Notes to consolidated financial statements
JPMorgan Chase & Co./2023 Form 10-K
SEC Inquiries. The Firm is responding to requests from the
SEC regarding aspects of certain advisory programs within
J.P. Morgan Securities LLC, including aggregation of
accounts for billing, discounting advisory fees, and selecting
portfolio managers. Separately, the Firm is responding to
requests from the SEC in connection with the timing of the
Firm's liquidation of shares distributed in-kind to certain
investment vehicles that invest in third-party managed
private funds. The Firm is cooperating with the SEC in
regard to both inquires.
Securities Lending Antitrust Litigation. JPMorgan Chase
Bank, N.A., J.P. Morgan Securities LLC, J.P. Morgan Prime,
Inc., and J.P. Morgan Strategic Securities Lending Corp. are
named as defendants in a putative class action filed in the
United States District Court for the Southern District of New
York. The complaint asserts violations of federal antitrust
law and New York State common law in connection with an
alleged conspiracy to prevent the emergence of anonymous
exchange trading for securities lending transactions. The
settlement of this action by the parties has been
preliminarily approved, and is subject to final court
approval.
A separate shareholder derivative suit was filed in March
2022 in the United States District Court for the Eastern
District of New York asserting breaches of fiduciary duty
and violations of federal securities laws based on the
alleged failure of the Board of Directors to exercise
adequate oversight over the Firm's compliance with records
preservation requirements which were the subject of
resolutions between certain of the Firm's subsidiaries and
the SEC and the CFTC. Defendants' motion to dismiss the
amended complaint is pending.
Shareholder Litigation. Several shareholder putative class
actions, as well as shareholder derivative actions purporting
to act on behalf of the Firm, have been filed against the
Firm, its Board of Directors and certain of its current and
former officers.
Certain of these shareholder suits relate to historical
trading practices by former employees in the precious
metals and U.S. treasuries markets and related conduct
which were the subject of the Firm's resolutions with the
DOJ, CFTC and SEC in September 2020, and fiduciary
activities that were separately the subject of a resolution
between JPMorgan Chase Bank, N.A. and the OCC in
November 2020. One of these shareholder derivative suits
was filed in the Supreme Court of the State of New York in
May 2022, asserting breach of fiduciary duty and unjust
enrichment claims relating to the historical trading
practices and related conduct and fiduciary activities which
were the subject of the resolutions described above. In
December 2022, the court granted defendants' motion to
dismiss this action in full, and in July 2023, the plaintiff
filed an appeal, which remains pending. A second
shareholder derivative action was filed in the United States
District Court for the Eastern District of New York in
December 2022 relating to the historical trading practices
and related conduct, which asserts breach of fiduciary duty
and contribution claims and alleges that the shareholder is
excused from making a demand to commence litigation
because such a demand would have been futile. Defendants
have moved to dismiss the complaint. In addition, a
consolidated putative class action is pending in the United
States District Court for the Eastern District of New York on
behalf of shareholders who acquired shares of JPMorgan
Chase common stock during the putative class period,
alleging that certain SEC filings of the Firm were materially
false or misleading because they did not disclose certain
information relating to the historical trading practices and
conduct. In December 2023, the court granted Defendants'
motion to dismiss the amended complaint.
disregard the parties' contractual agreement on forum
selection, and may not recognize foreign sanctions laws as a
basis for not making payment. The Firm holds assets in
Russia, which could be seized if the claims are granted and
enforced.
A shareholder derivative suit was filed in May 2023 in the
United States District Court for the Southern District of New
York against various officers and directors of the Firm
asserting breaches of fiduciary duty and unjust enrichment
based upon allegations that the defendants caused the Firm
to retain Jeffrey Epstein as a client of the bank after
defendants knew, or should have known, that Epstein was
using the Firm's financial services to facilitate his alleged
sex trafficking activities. In December 2023, the Court
dismissed the derivative action.
Total interest-bearing liabilities
Long-term debt
5.11
953
18,648
3.28
Beneficial interests issued by consolidated VIES
9,396
286,605
296,433
Trading liabilities – debt and all other interest-bearing liabilities
(d)(e)
5.05
15,803
(e)
2,593,769
81,321
3.14
Noninterest-bearing deposits
660,538
Trading liabilities - equity and other instruments"
30,501
Trading liabilities - derivative payables
All other liabilities, including the allowance for lending-related commitments
46,355
Total liabilities
1,894
181,601
3,512,764
5.33
5.18
Trading assets - equity and other instruments
2.36 %
86,121
(b)(c)
Stockholders' equity
7,669
8.90
Total interest-earning assets
3,325,708
(20,762)
171,068
5.14
Allowance for loan losses
Cash and due from banks
Trading assets - derivative receivables
24,853
13,259
160,087
Goodwill, MSRs and other intangible assets
All other noninterest-earning assets
Total assets
63,212
204,899
$
3,822,224
Liabilities
Interest-bearing deposits
$
Federal funds purchased and securities loaned or sold under repurchase agreements
Short-term borrowings
1,698,529
256,086
37,468
$
40,016
64,227
Preferred stock
2,237
Total stockholders' equity
307,150
4,632
1.51
269,231
958
0.36
205,516
1.09
190,655
(385)
(j)
(0.20)
283,108
9,097
3.21
283,829
6,856
2.42
626,122
10,372
1.66
563,147
6,460
1.15
27,863
1,224
4.39
30,830
All other interest-earning assets
0.07 %
512
$
719,772
Total liabilities and stockholders' equity
$
27,404
282,056
309,460
3,822,224
(f)
Interest rate spread
Net interest income and net yield on interest-earning assets
$
89,747
2.00 %
2.70
(a) Represents securities that are tax-exempt for U.S. federal income tax purposes.
(b) Includes brokerage-related held-for-investment customer receivables, which are classified in accrued interest and accounts receivable, and all other
interest-earning assets, which are classified in other assets on the Consolidated Balance Sheets.
(c) The rates reflect the impact of interest earned on cash collateral where the cash collateral has been netted against certain derivative payables.
(d) All other interest-bearing liabilities include brokerage-related customer payables.
Within the Consolidated average balance sheets, interest and rates summary, the principal amounts of nonaccrual loans have
been included in the average loan balances used to determine the average interest rate earned on loans. Refer to Note 12 for
additional information on nonaccrual loans, including interest accrued.
310
JPMorgan Chase & Co./2023 Form 10-K
Common stockholders' equity
(Table continued from previous page)
Average
balance
Interest (g)
Rate
Average
balance
2021
Interest(g)
Rate
$
670,773
$
9,039
1.35 %
$
2022
6.70
(Table continued on next page)
1,248,076
Loans
Purchase Money Note and FHLB advances
The Purchase Money Note is recorded in long-term debt on
the Consolidated balance sheets. The fair value of the
Purchase Money Note was estimated based on a discounted
cash flow methodology and incorporated estimated market
discount rates.
The FHLB advances assumed in the acquisition are recorded
in short-term borrowings and in long-term debt. The fair
values of the FHLB advances were based on a discounted
cash flow methodology and considered the observed FHLB
advance issuance rates.
The following table presents the unpaid principal balance ("UPB") and estimated fair values of the loans acquired as of May 1,
2023, and reflects adjustments to the acquisition-date fair value of the loans acquired through December 31, 2023.
May 1, 2023
(in millions)
Residential real estate
Auto and other
UPB
Fair value
$
Total consumer
106,240
3,093
109,333
$
92,053
2,030
94,083
Secured by real estate
Commercial & industrial
37,117
33,602
4,332
3,932
Other (a)
Total wholesale
23,499
21,625
64,948
assets on the Consolidated balance sheets on the
acquisition date. The fair values of the indemnification
assets were estimated based on the timing of the forecasted
losses underlying the related allowance for credit losses.
The subsequent quarterly remeasurement of the
indemnification assets is based on changes in the amount
and timing of forecasted losses in the allowance for credit
losses associated with the shared-loss assets and is
recorded in other income. Under certain circumstances, the
Firm may be required to make a payment to the FDIC upon
termination of the shared-loss agreements based on the
level of actual losses and recoveries on the shared-loss
assets. The estimated potential future payment is reflected
as contingent consideration as part of the purchase price
consideration.
JPMorgan Chase & Co./2023 Form 10-K
308
valuations utilized assumptions that the Firm believes a
market participant would use to estimate fair values, such
as growth and attrition rates, projected fee income as well
as related costs to service the relationships, and discount
rates. The core deposit and customer relationship
intangibles will be amortized over a projected period of
future cash flows of approximately 7 years. Refer to Note
15 for further discussion on other intangible assets.
Indemnification assets - Shared-loss agreements
The indemnification assets represent forecasted recoveries
from the FDIC associated with the shared-loss assets over
the respective shared-loss recovery periods. The
indemnification assets were recorded at fair value in other
1,336
15
$
67,834
+A
$
30,285
153,242
1,455
675
6,574
$
192,231
$
87,572
59,159
27,919
2,793
724
$
121,622
$
70,609
$
2,775
(a) Includes $10.6 billion of cash paid to the FDIC at acquisition and $3.6 billion payable to the FDIC, less cash acquired of $680 million.
(b) Includes $447 million of securities financing transactions with First Republic Bank that were effectively settled on the acquisition date.
(c) In the fourth quarter, certain assets and liabilities were reclassified resulting in a $762 million increase to loans, an $870 million decrease to accounts
receivable and other assets and a $30 million increase to accounts payable and other liabilities.
(d) Other assets include $1.2 billion in tax-oriented investments and $683 million of lease right-of-use assets. Other liabilities include the related tax-oriented
investment liabilities of $669 million and lease liabilities of $748 million. Refer to Note 14 and Note 18 for additional information.
The issuance of the $50 billion Purchase Money Note, the effective settlement of the Firm's $5 billion deposit and
$447 million of securities financing with First Republic Bank, and the $3.6 billion payable to the FDIC as part of the purchase
price consideration are considered non-cash transactions.
The following describes the accounting policies and fair value methodologies generally used by the Firm for the following
assets acquired and liabilities assumed: core deposit and customer relationship intangibles, shared-loss agreements and the
related indemnification assets, Purchase Money Note, and FHLB advances.
For further discussion of the Firm's accounting policies and valuation methodologies, refer to Note 2 and Note 3 for fair value
measurement, Note 10 for investment securities, Note 12 for loans, Note 17 for deposits, and Note 28 for lending-related
commitments.
Core deposit and customer relationship intangibles
Core deposit and certain wealth management customer
relationship intangibles were acquired as part of the First
Republic acquisition. The core deposit intangible of $1.3
billion was valued by discounting estimated after-tax cost
savings over the remaining useful life of the deposits using
the favorable source of funds method. The after-tax cost
savings were estimated based on the difference between
the cost of maintaining the core deposit base relative to the
cost of next best alternative funding sources available to
market participants. The customer relationship intangibles
of $180 million were valued by discounting estimated after-
tax earnings over their remaining useful lives using the
multi-period excess earnings method. Both intangible asset
2,614
Total loans
$
174,281
$
21,797
4.36 %
Federal funds sold and securities purchased under resale agreements
317,159
15,079
4.75
Securities borrowed
193,228
7,983
4.13
Trading assets - debt instruments
376,928
16,001
499,396
4.25
573,914
17,390
3.03
Non-taxable securities (a)
Total investment securities
30,886
1,560
5.05
604,800
18,950
3.13
(i)
(h)
Loans
Taxable securities
83,589
$
(Taxable-equivalent interest and rates; in millions, except rates)
$
153,242
(a) In the fourth quarter, certain assets and liabilities were reclassified resulting in a $900 million increase to the UPB and a $762 million increase to the fair
value of Other wholesale loans.
Unaudited pro forma condensed combined financial information
Included in the Firm's Consolidated statements of income are noninterest revenue, net interest income and net income
contributed by First Republic of $4.4 billion, $3.7 billion and $4.1 billion, respectively, for the year ended December 31,
2023.
The following table presents certain unaudited pro forma financial information for the year ended December 31, 2023 and
2022 as if the First Republic acquisition had occurred on January 1, 2022, including recognition of the estimated bargain
purchase gain of $2.8 billion and the provision for credit losses of $1.2 billion. Additional adjustments include the interest on
the Purchase Money Note and the impact of amortizing and accreting certain estimated fair value adjustments related to
intangible assets, loans and lending-related commitments.
The Firm expects to achieve operating cost savings and other business synergies resulting from the acquisition that are not
reflected in the pro forma amounts. The pro forma information is not necessarily indicative of the historical results of
operations had the acquisition occurred on January 1, 2022, nor is it indicative of the results of operations in future periods,
particularly in light of recent changes in market and economic conditions.
(in millions)
Noninterest revenue
Net interest income
Net income
JPMorgan Chase & Co./2023 Form 10-K
Year ended December 31,
$
Deposits with banks
2023
65,816
90,856
48,665
2022
66,510
71,005
41,089
309
Supplementary Information: Distribution of assets, liabilities and stockholders' equity; interest rates
and interest differentials
Consolidated average balance sheets, interest and rates
Provided below is a summary of JPMorgan Chase's
consolidated average balances, interest and rates on a
taxable-equivalent basis for the years 2021 through 2023.
Income computed on a taxable-equivalent basis is the
income reported in the Consolidated statements of income,
adjusted to present interest income and rates earned on
(Unaudited)
Year ended December 31,
Assets
assets exempt from income taxes (i.e., federal taxes) on a
basis comparable with other taxable investments. The
incremental tax rate used for calculating the taxable-
equivalent adjustment was approximately 24% in 2023,
2022 and 2021.
Average
balance
2023
Interest(g)
Rate
$
4.33
Non-U.S.
(i)
128,387
5,280
4.11
568,505
17,469
3.07
36,295
1,481
4.08
U.S.
5,447
(a)
All other interest-earning assets, predominantly U.S.
Total interest-earning assets
1,137,162
76,884
6.76
110,914
6,705
6.05
86,121
7,669
8.90
3,325,708
171,068
5.14
Interest-bearing liabilities
Interest-bearing deposits:
U.S.
4.31
10,721
248,541
2.93
$
296,784 $
202,612
15,348
5.17 %
6,449
3.18
Federal funds sold and securities purchased under resale agreements:
U.S.
Non-U.S.
Securities borrowed:
U.S.
Non-U.S.
Trading assets - debt instruments:
U.S.
1,290,110
Non-U.S.
U.S.
Non-U.S.
Loans:
155,304
8,330
5.36
161,855
6,749
4.17
133,805
6,239
4.66
59,423
1,744
Investment securities:
Non-U.S.
26,253
Non-U.S.
3,215
54
1.68
2,593,769
81,321
3.14
$
731,939
3,325,708 $
81,321
2.45 %
$
89,747
2.70 %
77,923
3.01
11,824
1.61
Net interest income and net yield:
U.S.
Non-U.S.
Percentage of total assets and liabilities attributable to non-U.S. operations:
Assets
Liabilities
24.7
20.2
(a) The rates reflect the impact of interest earned on cash collateral where that cash collateral has been netted against certain derivative payables.
(b) Represents the amount of noninterest-bearing liabilities funding interest-earning assets.
(c) Negative interest and rates reflect the net impact of interest earned offset by fees paid on client-driven prime brokerage securities borrowed transactions.
Refer to the "Net interest income" discussion in Consolidated Results of Operations on pages 54-57 for further information.
312
JPMorgan Chase & Co./2023 Form 10-K
5.37
15,749
293,218
5.11
408,419
13,763
3.37
Federal funds purchased and securities loaned or sold under repurchase agreements:
U.S.
197,049
10,639
5.40
Non-U.S.
59,037
2,620
4.44
Trading liabilities - debt, short-term and all other interest-bearing liabilities:
U.S.
2.03
Non-U.S.
Long-term debt:
U.S.
Non-U.S.
Total interest-bearing liabilities
Noninterest-bearing liabilities (b)
Total investable funds
205,388
7,774
3.79
118,685
3,516
2.96
18,648
953
Beneficial interests issued by consolidated VIES, predominantly U.S.
(i)
U.S.
Interest
3,853,540
26,776
172,822
69,101
55,003
207,737
$
3,725,202
$
1,748,666
$
10,082
0.58 %
$
1,672,669
$
531
0.03 %
242,762
3,721
1.53
46,063
747
1.62
259,302
44,618
274
0.11
126
0.28
$
215,408
59,467
78,606
653,985
11,596
1.77
593,977
7,796
1.31
(h)
(h)
1,100,318
52,877
4.81
1,035,399
41,663
4.02
268,019
128,229
(17,399)
27,601
140,778
3,763
2.93
93,241
2.78
123,079
3,215,942
(22,179)
894
0.73
58,294
1.81
3,349,079
Rate
3,246
241,431
$
67,144
1.76 %
2.00
33,027
$
250,968
283,995
3,725,202
(f)
$
52,741
1.59 %
1.64
(e) The combined balance of trading liabilities - debt and equity instruments was $153.3 billion, $138.1 billion and $128.2 billion for the years ended
December 31, 2023, 2022 and 2021, respectively.
(f) The ratio of average stockholders' equity to average assets was 8.1%, 7.4% and 7.6% for the years ended December 31, 2023, 2022 and 2021,
respectively. The return on average stockholders' equity, based on net income, was 16.0%, 13.2% and 17.0% for the years ended December 31, 2023,
2022 and 2021, respectively.
(g) Interest includes the effect of related hedging derivatives. Taxable-equivalent amounts are used where applicable.
(h) Included fees and commissions on loans of $2.2 billion, $1.8 billion and $1.9 billion for the years ended December 31, 2023, 2022 and 2021,
respectively
(i) The annualized rate for securities based on amortized cost was 3.09%, 1.75% and 1.33% for the years ended December 31, 2023, 2022 and 2021,
respectively, and does not give effect to changes in fair value that are reflected in AOCI.
(j) Negative interest and rates reflect the net impact of interest earned offset by fees paid on client-driven prime brokerage securities borrowed transactions.
JPMorgan Chase & Co./2023 Form 10-K
311
Interest rates and interest differential analysis of net interest income - U.S. and non-U.S.
Presented below is a summary of interest and rates segregated between U.S. and non-U.S. operations for the years 2021
through 2023. The segregation of U.S. and non-U.S. components is based on the location of the office recording the
transaction.
(Table continued on next page)
(Unaudited)
Year ended December 31,
(Taxable-equivalent interest and rates; in millions, except rates)
Interest-earning assets
Deposits with banks:
2023
Average balance
(f)
253,068
284,961
3,853,540
$
31,893
257
0.11
11,208
226
2.02
14,595
83
0.57
250,080
2,566,798
719,249
8,075
3.23
250,378
1.21
4,282
26,097
1.02
2,482,993
5,553
0.22
674,485
39,155
36,656
57,388
185,989
60,318
186,755
3,568,579
3,441,207
1.71
48,848
As part of the consideration paid, JPMorgan Chase issued a
five-year, $50 billion secured note to the FDIC (the
"Purchase Money Note"). The Purchase Money Note bears
interest at a fixed rate of 3.4% and is secured by certain of
the acquired loans. The Purchase Money Note is prepayable
upon notice to the holder.
$
JPMorgan Chase & Co./2023 Form 10-K
304
64
67
64
40
(Table continued from previous page)
41
49
57
59
58
57
50
35
Overhead ratio
As of or for the year ended
(in millions, except ratios)
$
Noninterest revenue
2021
2022
2023
2021
December 31,
2022
2021
2022
2023
Total
Reconciling Items (a)
Corporate
2023
33 %
25 %
31 %
1,259,896
$ 21,107
$ 83,000
1,661
1,668
1,333
2,055
300,325
6,457
5,963
$14,129 $14,925
$108,000 $103,000
1,338,168 1,334,296
500,370
514,085
642,951
Total assets
$50,000
4,669
$6,143 $4,213
$29,507 $25,000
257,106
$5,246
$24,000
230,776
1,426
$5,227 $4,365 $4,737
$16,671 $17,000
21 %
16 %
20%
25 %
14 %
13 %
41 %
29 %
38 %
13,524
234,425
232,037
245,512
$14,000
1,528
132 $
(1,798)
$
68 $
(5,366)
(976)
2,266
Overhead ratio
Return on equity
Total assets
(4,262)
Average equity
Income tax expense/(benefit)
tax expense/(benefit)
Income/(loss) before income
71,343
76,140
87,172
Net income/(loss)
(3,582)
(555)
(233)
(3,713) $
$
(743)
2,821 $
$
11,228
8,490
12,060
59,562
46,166
61,612
(3,655)
(3,655)
(3,582)
(4,262)
(1,653)
1,802
6,883
$20,957
1,034
Noninterest expense
89,267
(430)
(434)
(480)
(3,551)
1,878
66,710
7,906
$ 61,985 $ 69,338
$ 68,837
(3,225)
$
(3,148)
(3,782) $
Net interest income
52,311
Total net revenue
8,038
(9,256)
6,389
9,320
81
22
171
Provision for credit losses
121,649
128,695
158,104
(3,655)
(3,582)
(4,262)
(3,483)
80
5,601
$
$14,916
$50,000
Average equity
2022
2023
2021
2022
2023
2021
2021
2022
2021
2022
2023
(in millions, except ratios)
December 31,
ended
2023
As of or for the year
(b)
(b)
32,787
39,928
55,030
Net interest income
$3,929
$3,494 $3,336
(b)
$38,403
$40,315
$17,092
$14,886
$ 15,118
Noninterest revenue
(b)
$ 36,202
Asset & Wealth Management
Commercial Banking
Corporate & Investment Bank
Asset & Wealth Management, with client assets of $5.0
trillion, is a global leader in investment and wealth
management.
Asset & Wealth Management
Middle Market Banking covers small and midsized
companies, local governments and nonprofit clients.
Corporate Client Banking covers large corporations.
Commercial Real Estate Banking covers investors,
developers, and owners of multifamily, office, retail,
industrial and affordable housing properties.
Commercial Banking provides comprehensive financial
solutions, including lending, payments, investment banking
and asset management products across three primary client
segments: Middle Market Banking, Corporate Client Banking
and Commercial Real Estate Banking. Other includes
amounts not aligned with a primary client segment.
Commercial Banking
Securities Services, a leading global custodian which
provides custody, fund accounting and administration, and
securities lending products principally for asset managers,
insurance companies and public and private investment
funds.
Asset Management
The Corporate & Investment Bank, which consists of
Banking and Markets & Securities Services, offers a broad
suite of investment banking, market-making, prime
brokerage, lending, and treasury and securities products
and services to a global client base of corporations,
investors, financial institutions, merchants, government and
municipal entities. Banking offers a full range of investment
banking products and services in all major capital markets,
including advising on corporate strategy and structure,
capital-raising in equity and debt markets, as well as loan
origination and syndication. Banking also includes
Payments, which provides services, that enable clients to
manage payments globally across liquidity and account
solutions, commerce solutions, clearing, trade and working
capital. Markets & Securities Services includes Markets, a
global market-maker across products, including cash and
derivative instruments, which also offers sophisticated risk
management solutions, prime brokerage, clearing and
research. Markets & Securities Services also includes
Consumer & Community Banking offers products and
services to consumers and small businesses through bank
branches, ATMs, digital (including mobile and online) and
telephone banking. CCB is organized into Banking & Wealth
Management (including Consumer Banking, J.P. Morgan
Wealth Management and Business Banking), Home Lending
(including Home Lending Production, Home Lending
Servicing and Real Estate Portfolios) and Card Services &
Auto. Banking & Wealth Management offers deposit,
investment and lending products, cash management,
payments and services. Home Lending includes mortgage
origination and servicing activities, as well as portfolios
consisting of residential mortgages and home equity loans.
Card Services issues credit cards and offers travel services.
Auto originates and services auto loans and leases.
Consumer & Community Banking
The following is a description of each of the Firm's business
segments, and the products and services they provide to
their respective client bases.
The Firm is managed on an LOB basis. There are four major
reportable business segments - Consumer & Community
Banking, Corporate & Investment Bank, Commercial
Banking and Asset & Wealth Management. In addition, there
is a Corporate segment. The business segments are
determined based on the products and services provided, or
the type of customer served, and they reflect the manner in
which financial information is evaluated by the Firm's
Operating Committee. Segment results are presented on a
managed basis. Refer to Segment results of this footnote
for a further discussion of JPMorgan Chase's business
segments.
-
Note 32 Business segments
Corporate & Investment Bank
Offers multi-asset investment management solutions across
equities, fixed income, alternatives and money market
funds to institutional and retail investors providing for a
broad range of clients' investment needs.
Global Private Bank
Provides retirement products and services, brokerage,
custody, estate planning, lending, deposits and investment
management to high net worth clients.
The Firm's current allocation methodology incorporates
Basel III Standardized RWA and the GSIB surcharge, both
under rules currently in effect, as well as a simulation of
capital in a severe stress environment. At least annually,
the assumptions, judgments and methodologies used to
allocate capital are reassessed and, as a result, the capital
allocated to the LOBS may change.
Each business segment is allocated capital by taking into
consideration a variety of factors including capital levels of
similarly rated peers and applicable regulatory capital
requirements. ROE is measured and internal targets for
expected returns are established as key measures of a
business segment's performance.
Capital allocation
Consumer & Community Banking
(Table continued on next page)
Segment results and reconciliation (a)
The following table provides a summary of the Firm's
segment results as of or for the years ended December 31,
2023, 2022 and 2021, on a managed basis. The Firm's
definition of managed basis starts with the reported U.S.
GAAP results and includes certain reclassifications to
present total net revenue for the Firm (and each of the
reportable business segments) on an FTE basis.
Accordingly, revenue from investments that receive tax
credits and tax-exempt securities is presented in the
managed results on a basis comparable to taxable
investments and securities. This allows management to
assess the comparability of revenue from year-to-year
arising from both taxable and tax-exempt sources. The
corresponding income tax impact related to tax-exempt
items is recorded within income tax expense/(benefit).
These adjustments have no impact on net income as
reported by the Firm as a whole or by the LOBS.
Segment results
Notes to consolidated financial statements
303
JPMorgan Chase & Co./2023 Form 10-K
Other Corporate includes staff functions and expense that is
centrally managed as well as certain Firm initiatives and
activities not solely aligned to a specific LOB. The major
Other Corporate functions include Real Estate, Technology,
Legal, Corporate Finance, Human Resources, Internal Audit,
Risk Management, Compliance, Control Management,
Corporate Responsibility and various Other Corporate
groups.
The Corporate segment consists of Treasury and Chief
Investment Office ("CIO") and Other Corporate. Treasury
and CIO is predominantly responsible for measuring,
monitoring, reporting and managing the Firm's liquidity,
funding, capital, structural interest rate and foreign
exchange risks.
Corporate
The majority of AWM's client assets are in actively managed
portfolios.
8,492
11,900
13,540
12,052
19,793
28,430
(benefit)
income tax expense/
Income/(loss) before
10,919
27,840
11,829
4.041
4,719
5,378
25,553
27,350
28,594
12,780
20,092
19,594
27,564
$ 21,232
Net income/(loss)
4,877
7,198
(b)
(b)
(b)
(b)
Income tax expense/
(benefit)
6,265
5,791
6,888
6.914
5,546
8,198
(b)
$ 54,349
(b)
(227)
11,533
15,546
51,943
48,102
48,807
49,879
10,008
54,814
Total net revenue
$13,560 $12,507 $13,071
3,886
5,241
6,267
6,079
8,197
70,148
19,827 17,748
16,957
Provision for credit losses
128
159
(947)
1,268
1,970
(1,174)
1,158
121
(6,989)
29,028
31,208
34,819
Noninterest expense
(b)
3.813
6,899
(b)
$
Return on equity
$ 37,676 $ 48,334
(20)
3,002
(1)
Net increase/(decrease) in cash
and due from banks and
deposits with banking
subsidiaries
Assets
2022
Cash and due from banks
2023
Balance sheets
8,544
(6,759)
(32,122)
(1,205) (1,238)
(879)
December 31, (in millions)
All other financing activities, net
Net cash provided by/(used in)
financing activities
$
42 $
9,804
deposits with banking
136
152
Bank and bank holding company
Cash and due from banks and
Advances to, and receivables from, subsidiaries:
Deposits with banking subsidiaries
6,865
9,847
deposits with banking
subsidiaries at the beginning of
the year
Cash and due from banks and
41
9,806
2,727
3,198
Trading assets
6,845
(8,070)
$ 40,264
(17,257)
$ 20,419
$ 56,450
- -
Proceeds from issuance of
preferred stock
1,329
1,260
1,525
Income tax benefit
7,350
(15,543)
(25,105)
borrowings
5,753
32,217
46,160
subsidiaries
(18,294)
Equity in undistributed net
income of subsidiaries
1,867
Comprehensive income
6,898
(loss), net
(13,562) (12,858)
(13,463)
(3,162) (18,408)
(9,824)
(2,575)
(7,434)
Redemption of preferred stock
Treasury stock repurchased
Dividends paid
Other comprehensive income/
41,252
4,199
$ 37,676 $ 48,334
$ 49,552
Net income
Non-bank
Payments of long-term
21
subsidiaries at the end of the
year
Settlement of First Republic deposit and other related party transactions (b)
Purchase Money Note (at fair value)
Amounts paid/due to the FDIC, net of cash acquired (a)
Purchase price consideration
(in millions)
$ 49,552
Contingent consideration - Shared-loss agreements
price allocation as of
The computation of the purchase price, the estimated fair values of the assets acquired and liabilities assumed as part of the
First Republic acquisition and the related estimated bargain purchase gain are presented below, and reflect the adjustments
made through December 31, 2023 to the acquisition-date fair value of the net assets acquired.
Notes to consolidated financial statements
307
JPMorgan Chase & Co./2023 Form 10-K
The Firm had placed a $5 billion deposit with First Republic
Bank on March 16, 2023, as part of $30 billion of deposits
provided by a consortium of large U.S. banks. The Firm's $5
billion deposit was effectively settled as part of the
acquisition and the associated allowance for credit losses
was released upon closing. The Firm subsequently repaid
the remaining $25 billion of deposits to the consortium of
banks, including accrued interest through the payment date
on May 9, 2023.
assets, which represent the fair value of the CSLA and
SFSLA on the acquisition date, are reflected in the total
assets acquired.
Fair value purchase
on real property or shares in cooperative property
constituting a primary residence. The indemnification
Purchase price consideration
Securities
Loans (c)
Estimated gain on acquisition, after-tax
Fair value of net assets acquired
Total liabilities assumed
Deferred tax liabilities
Accounts payable and other liabilities (c) (d)
(c)(d)
Assets
Lending-related commitments
Deposits
Liabilities
Total assets acquired
Accounts receivable and other assets
Indemnification assets - Shared-loss agreements
Core deposit and customer relationship intangibles
FHLB advances
In connection with the First Republic acquisition, the Firm
and the FDIC entered into two shared-loss agreements with
respect to certain loans and lending-related commitments
(the "shared-loss assets"): the Commercial Shared-Loss
Agreement ("CSLA") and the Single-Family Shared-Loss
Agreement ("SFSLA"). The CSLA covers 80% of credit
losses, on a pari passu basis, over 5 years with a
subsequent 3-year recovery period for certain acquired
commercial loans and other real estate exposure. The
SFSLA covers 80% of credit losses, on a pari passu basis,
for 7 years for certain acquired loans secured by mortgages
The First Republic acquisition resulted in a preliminary
estimated bargain purchase gain of $2.7 billion. The Firm
has continued to progress in the settlement process with
the FDIC and refine its acquisition-date fair value estimates.
As a result, during the year ended December 31, 2023,
adjustments totaling $63 million were made, increasing the
estimated bargain purchase gain to $2.8 billion.
In addition, the purchase price and the estimated bargain
purchase gain could change pending management's
finalization of its acquisition date fair value estimates for
certain of the assets acquired and liabilities assumed, which
may take place up to one year from the acquisition date, as
permitted by U.S. GAAP.
$ 591,696 $ 555,687
Total assets
532,759
1,064
9,108
1,045
8,962
Other assets
Non-bank
Liabilities and stockholders' equity
568,472
$ 13,742
10,291
Cash income taxes paid, net (d)
Bank and bank holding company
Cash interest paid
Investments (at equity) in subsidiaries and
affiliates:
$ 9,846
$ 9,847 $ 6,845
$ 7,462 $ 4,065
6,941 15,259
Borrowings from, and payables to, subsidiaries
and affiliates
Short-term borrowings
Other liabilities
The Firm and the FDIC have not yet completed the
settlement process under which the purchase price, and the
identification of the assets acquired and liabilities assumed,
will be finalized. The finalization of this settlement process
may impact the amount of the estimated bargain purchase
gain. The purchase and assumption agreement entered into
with the FDIC allows for final settlement to occur up to a
year after the acquisition date.
The Firm has determined that this acquisition constitutes a
business combination under U.S. GAAP. Accordingly, the
initial recognition of the assets acquired and liabilities
assumed were generally measured at their estimated fair
values as of May 1, 2023. The determination of those fair
values required management to make certain market-based
assumptions about expected future cash flows, discount
rates and other valuation inputs at the time of the
acquisition. The Firm believes that the fair value estimates
of the assets acquired and liabilities assumed provide a
reasonable basis for determining the estimated bargain
purchase gain.
On May 1, 2023, JPMorgan Chase acquired certain assets
and assumed certain liabilities of First Republic Bank (the
"First Republic acquisition") from the Federal Deposit
Insurance Corporation ("FDIC"), as receiver. The Firm
believes that the First Republic acquisition is
complementary to the Firm's existing franchises. The
acquisition resulted in an estimated bargain purchase gain,
which represents the excess of the estimated fair value of
the net assets acquired above the purchase price.
Note 34 - Business combinations
JPMorgan Chase & Co./2023 Form 10-K
(d) Represents payments, net of refunds, made by the Parent Company to
various taxing authorities and includes taxes paid on behalf of certain
of its subsidiaries that are subsequently reimbursed. The
reimbursements were $13.2 billion, $11.3 billion, and $13.9 billion
for the years ended December 31, 2023, 2022 and 2021,
respectively.
(c) Refer to Notes 20 and 28 for information regarding the Parent
Company's guarantees of its subsidiaries' obligations.
(b) At December 31, 2023, long-term debt that contractually matures in
2024 through 2028 totaled $9.1 billion, $27.5 billion, $29.1 billion,
$20.1 billion, and $21.8 billion, respectively.
(a) Includes interest expense for intercompany derivative hedges on the
Firm's LTD and related fair value adjustments, which is offset by
related amounts in Other interest expense/(income).
306
$ 22,777 $ 24,164
999
1,130
11,500
10,440
228,542 227,621
263,818 263,355
327,878 292,332
$ 591,696 $ 555,687
Total liabilities and stockholders' equity
Total stockholders' equity
Total liabilities (c)
Long-term debt (b)(c)
46
and undistributed net income of
May 1, 2023
49,169
Operating activities
Year ended December 31,
(in millions)
Statements of cash flows
Year ended December 31,
Statements of income and comprehensive income
statements.
2022
The following tables present Parent Company-only financial
Note 33 Parent Company
Notes to consolidated financial statements
305
JPMorgan Chase & Co./2023 Form 10-K
As a result of the organizational changes that were announced on January 25, 2024, the Firm will be reorganizing its business
segments to reflect the manner in which the segments will be managed. The reorganization of the business segments is
expected to be effective in the second quarter of 2024.
(b) In the first quarter of 2023, the allocations of revenue and expense to CCB associated with a Merchant Services revenue sharing agreement were
discontinued and are now retained in Payments in CIB. Prior-period amounts have been revised to conform with the current presentation.
-
(a) Segment results on a managed basis reflect revenue on a FTE basis with the corresponding income tax impact recorded within income tax expense/
(benefit). These adjustments are eliminated in reconciling items to arrive at the Firm's reported U.S. GAAP results.
2021
2023
Non-bank
company
Bank and bank holding
affiliates:
Less: Net income of subsidiaries
and affiliates
$ 48,334
Net income
$ 37,676
2023
Dividends from subsidiaries and
Income
(in millions)
2021
2022
$ 49,552
59
59
55
NA
ΝΑ
1,518,100
1,328,219
1,348,437
$ 282,056
3,875,393
$
79,968 $
$
58,068
73,529 $
Income before income tax benefit
$
$
$ 253,068
3,665,743
$ 250,968
3,743,567
NM
NM
NM
NM
NM
NM
19 %
14 %
17 %
NM
NM
NM
NM
NM
NM
Parent company net loss
62,868
(13,316)
ΝΑ
$ 61,000
11,714
(income)
Other interest expense/
Net change in:
5,353
22,731
(14,658)
2,258
Financing activities
(2,969)
31
(24,975)
(3,000)
31
31
Interest expense/(income) to
subsidiaries and affiliates (a)
(1,349)
Borrowings from subsidiaries
and affiliates
(2,249)
19,398
41,389
44,699 51,252
(7,023) (2,918)
borrowings
Proceeds from long-term
6,641
10,890
17,403
Total expense
2,637
2,817
3,431
Noninterest expense
2,647
(4,491)
25
(25,000)
Short-term borrowings
1,137
12,394
Other income/(expense) from
(5,595)
9,730
57,096
Net cash provided by/(used in)
operating activities
32
subsidiaries:
498
61,000 40,500 10,000
9,412 (23,747) (12,677)
Other operating adjustments
$ 40,500 $ 10,000
All other investing activities, net
Net cash provided by/(used in)
investing activities
Cash dividends from subsidiaries
and affiliates
-
Interest income from subsidiaries
Bank and bank holding
1,166
Non-bank
company
(654)
63,563
Advances to and investments in
subsidiaries and affiliates, net
366
250
859
335
Total income
1,801
Investing activities
Net change in:
Expense
Other income/(expense)
(3,497)
5,271
43,107
1,982
93
493
586
4,981
U.S.
5,390
2,462
409
Trading liabilities - debt, short-term and all other interest-bearing
liabilities:
10,110
6,263
Non-U.S.
2,861
3,327
(466)
7,556
1,293
U.S.
Federal funds purchased and securities loaned or sold under
repurchase agreements:
3,426
206
3,265
161
10,707
(480)
2,523
143
Non-U.S.
(31)
51,834
5
597
3,797
3,722
75
7,723
5,229
8
(3)
3,390
2,494
Change in net interest income
Change in interest expense
2,729
Non-U.S.
Long-term debt:
212
(69)
727
346
381
Beneficial interests issued by consolidated VIES, predominantly
U.S.
881
756
125
1,907
1,924
(17)
U.S.
Non-U.S.
27,931
5,857
17,635
10,296
U.S.
Loans:
205
207
(2)
879
651
3,595
2,534
1,061
6,475
8,165
(1,690)
228
Non-U.S.
U.S.
Investment securities:
357
775
(418)
1,597
931
666
55,224
Non-U.S.
1,884
2,988
6,125
6,750
Non-U.S.
268
19,227
20,511
(1,284)
U.S.
Interest-bearing deposits:
Interest-bearing liabilities
34,947
30,942
4,005
77,827
77,350
477
Change in interest income
2,869
2,708
161
3,906
7,655
(3,749)
All other interest-earning assets, predominantly U.S.
1,476
1,328
148
2,781
3,039
(258)
9,738
362
Volume- and/or revenue-related expenses generally
correlate with changes in the related business/
transaction volume or revenue. Examples include
commissions and incentive compensation within the
LOBS, depreciation expense related to operating lease
assets, and brokerage expense related to trading
transaction volume.
$ 22,603
FTE: Fully taxable equivalent
FSB: Financial Stability Board
Freddie Mac: Federal Home Loan Mortgage Corporation
Free standing derivatives: a derivative contract entered
into either separate and apart from any of the Firm's other
financial instruments or equity transactions. Or, in
conjunction with some other transaction and is legally
detachable and separately exercisable.
Forward points: Represents the interest rate differential
between two currencies, which is either added to or
subtracted from the current exchange rate (i.e., "spot
rate") to determine the forward exchange rate.
FRC: Firmwide Risk Committee
Firm: JPMorgan Chase & Co.
FINRA: Financial Industry Regulatory Authority
FICO score: A measure of consumer credit risk provided by
credit bureaus, typically produced from statistical models
by Fair Isaac Corporation utilizing data collected by the
credit bureaus.
FICC: The Fixed Income Clearing Corporation
Glossary of Terms and Acronyms
JPMorgan Chase & Co./2023 Form 10-K
316
FHLB: Federal Home Loan Bank
FHA: Federal Housing Administration
FFIEC: Federal Financial Institutions Examination Council
Federal Reserve: The Board of the Governors of the Federal
Reserve System
FDM: "Financial difficulty modification" applies to loan
modifications effective January 1, 2023, and is deemed to
occur when the Firm modifies specific terms of the original
loan agreement. The following types of modifications are
considered FDMs: principal forgiveness, interest rate
reduction, other-than-insignificant payment delay, term
extension or a combination of these modifications.
FDIC: Federal Deposit Insurance Corporation
FCC: Firmwide Control Committee
Fannie Mae: Federal National Mortgage Association
FASB: Financial Accounting Standards Board
FCA: Financial Conduct Authority
Structural expenses are those associated with the day-to-
day cost of running the Firm and are expenses not
included in the above two categories. Examples include
employee salaries and benefits, certain other incentive
compensation, and costs related to real estate.
Investments in the business include expenses associated
with supporting medium- to longer-term strategic plans
of the Firm. Examples include front office growth, market
expansion, initiatives in technology (including related
compensation), marketing, and acquisitions.
•
•
•
Expense categories:
EU: European Union
ETD: "Exchange-traded derivatives": Derivative contracts
that are executed on an exchange and settled via a central
clearing house.
FVA: Funding valuation adjustment
ERISA: Employee Retirement Income Security Act of 1974
FX: Foreign exchange
G7 government securities: Securities issued by the
government of one of the G7 nations.
The LTV ratio at the origination date of the loan. Origination
date LTV ratios are calculated based on the actual
appraised values of collateral (i.e., loan-level data) at the
origination date.
1,509
LTV: "Loan-to-value": For residential real estate loans, the
relationship, expressed as a percentage, between the
principal amount of a loan and the appraised value of the
collateral (i.e., residential real estate) securing the loan.
Origination date LTV ratio
LTIP: Long-term incentive plan
LOB CROS: Line of Business and CTC Chief Risk Officers
LOB: Line of business
LLC: Limited Liability Company
LIBOR: London Interbank Offered Rate
LGD: Loss given default
LDA: Loss Distribution Approach
LCR: Liquidity coverage ratio
J.P. Morgan Securities: J.P. Morgan Securities LLC
JPMSE: J.P. Morgan SE
JPMorgan Chase Foundation or the Firm's Foundation: A
not-for-profit organization that makes contributions for
charitable and educational purposes.
JPMorgan Chase Bank, N.A.: JPMorgan Chase Bank,
National Association
ISDA: International Swaps and Derivatives Association
JPMorgan Chase: JPMorgan Chase & Co.
IPO: Initial public offering
Investment-grade: An indication of credit quality based on
JPMorgan Chase's internal risk assessment. The Firm
considers ratings of BBB-/Baa3 or higher as investment-
grade.
IHC: JPMorgan Chase Holdings LLC, an intermediate holding
company
IDI: Insured depository institutions
ICAAP: Internal capital adequacy assessment process
IBOR: Interbank Offered Rate
HTM: Held-to-maturity
HQLA: "High-quality liquid assets" consist of cash and
certain high-quality liquid securities as defined in the LCR
rule.
Households: A household is a collection of individuals or
entities aggregated together by name, address, tax
identifier and phone number.
Home equity - junior lien: Represents loans and
commitments where JPMorgan Chase holds a security
interest that is subordinate in rank to other liens.
Home equity-senior lien: Represents loans and
commitments where JPMorgan Chase holds the first
security interest on the property.
Ginnie Mae: Government National Mortgage Association
GSIB: Global systemically important banks
HELOC: Home equity line of credit
G7: Group of Seven nations: Countries in the G7 are
Canada, France, Germany, Italy, Japan, the U.K. and the U.S.
$ (2,913) $ 25,516
EPS: Earnings per share
Embedded derivatives: are implicit or explicit terms or
features of a financial instrument that affect some or all of
the cash flows or the value of the instrument in a manner
similar to a derivative. An instrument containing such terms
CCB Small business customer: A unique business or legal
entity that has financial ownership or decision-making
power with respect to accounts. Where a customer uses the
same identifier as both a Consumer and a Small business,
the customer is included in both metrics.
Consumer and a Small business, the customer is included in
both metrics.
CCB: Consumer & Community Banking
CCAR: Comprehensive Capital Analysis and Review
CB: Commercial Banking
Bridge Financing Portfolio: A portfolio of held-for-sale
unfunded loan commitments and funded loans. The
unfunded commitments include both short-term bridge loan
commitments that will ultimately be replaced by longer
term financing as well as term loan commitments. The
funded loans include term loans and funded revolver
facilities.
BWM: Banking & Wealth Management
BHC: Bank holding company
Benefit obligation: Refers to the projected benefit
obligation for pension plans and the accumulated
postretirement benefit obligation for OPEB plans.
Beneficial interests issued by consolidated VIES:
Represents the interest of third-party holders of debt,
equity securities, or other obligations, issued by VIES that
JPMorgan Chase consolidates.
AWM: Asset & Wealth Management
Auto loan and lease origination volume: Dollar amount of
auto loans and leases originated.
AUM: "Assets under management": Represent assets
managed by AWM on behalf of its Private Banking,
Institutional and Retail clients. Includes “Committed capital
not Called."
AUC: “Assets under custody": Represents assets held
directly or indirectly on behalf of clients under safekeeping,
custody and servicing arrangements.
AOCI: Accumulated other comprehensive income/(loss)
ARM: Adjustable rate mortgage(s)
Amortized cost: Amount at which a financing receivable or
investment is originated or acquired, adjusted for accretion
or amortization of premium, discount, and net deferred fees
or costs, collection of cash, charge-offs, foreign exchange,
and fair value hedge accounting adjustments. For AFS
securities, amortized cost is also reduced by any
impairment losses recognized in earnings. Amortized cost is
not reduced by the allowance for credit losses, except
where explicitly presented net.
ALCO: Asset Liability Committee
AFS: Available-for-sale
ABS: Asset-backed securities
2022 Form 10-K: Annual report on Form 10-K for the year
ended December 31, 2022, filed with the U.S. Securities
and Exchange Commission.
Glossary of Terms and Acronyms
JPMorgan Chase & Co./2023 Form 10-K
314
$ 14,403
(4)
20,544
27
20,182
3,643 $ 10,760
$
CCO: Chief Compliance Officer
or features is referred to as a "hybrid." The component of
the hybrid that is the non-derivative instrument is referred
to as the "host." For example, callable debt is a hybrid
instrument that contains a plain vanilla debt instrument
(i.e., the host) and an embedded option that allows the
issuer to redeem the debt issue at a specified date for a
specified amount (i.e., the embedded derivative). However,
a floating rate instrument is not a hybrid composed of a
fixed-rate instrument and an interest rate swap.
CCP: "Central counterparty" is a clearing house that
interposes itself between counterparties to contracts traded
in one or more financial markets, becoming the buyer to
every seller and the seller to every buyer and thereby
ensuring the future performance of open contracts. A CCP
becomes a counterparty to trades with market participants
through novation, an open offer system, or another legally
binding arrangement.
CECL: Current Expected Credit Losses
Eligible LTD: Long-term debt satisfying certain eligibility
criteria
Eligible HQLA: Eligible high-quality liquid assets, for
purposes of calculating the LCR, is the amount of
unencumbered HQLA that satisfy certain operational
considerations as defined in the LCR rule.
EC: European Commission
DVA: Debit valuation adjustment
Distributed denial-of-service attack: The use of a large
number of remote computer systems to electronically send
a high volume of traffic to a target website to create a
service outage at the target. This is a form of cyberattack.
Dodd-Frank Act: Wall Street Reform and Consumer
Protection Act
Deposit margin: Represents net interest income expressed
as a percentage of average deposits.
Debit and credit card sales volume: Dollar amount of card
member purchases, net of returns.
CVA: Credit valuation adjustment
Custom lending: Loans to AWM's Global Private Bank
clients, including loans to private investment funds and
loans that are collateralized by nontraditional asset types,
such as art work, aircraft, etc.
CTC: CIO, Treasury and Corporate
CRR: Capital Requirements Regulation
CRO: Chief Risk Officer
Criticized: Criticized loans, lending-related commitments
and derivative receivables that are classified as special
mention, substandard and doubtful categories for
regulatory purposes and are generally consistent with a
rating of CCC+/Caal and below, as defined by S&P and
Moody's.
Credit derivatives: Financial instruments whose value is
derived from the credit risk associated with the debt of a
third-party issuer (the reference entity) which allow one
party (the protection purchaser) to transfer that risk to
another party (the protection seller). Upon the occurrence
of a credit event by the reference entity, which may include,
among other events, the bankruptcy or failure to pay its
obligations, or certain restructurings of the debt of the
reference entity, neither party has recourse to the
reference entity. The protection purchaser has recourse to
the protection seller for the difference between the face
value of the CDS contract and the fair value at the time of
settling the credit derivative contract. The determination as
to whether a credit event has occurred is generally made by
the relevant International Swaps and Derivatives
Association ("ISDA") Determinations Committee.
Glossary of Terms and Acronyms
315
JPMorgan Chase & Co./2023 Form 10-K
Commercial Card: provides a wide range of payment
services to corporate and public sector clients worldwide
through the commercial card products. Services include
procurement, corporate travel and entertainment, expense
management services, and business-to-business payment
solutions.
Collateral-dependent: A loan is considered to be collateral-
dependent when repayment of the loan is expected to be
provided substantially through the operation or sale of the
collateral when the borrower is experiencing financial
difficulty, including when foreclosure is deemed probable
based on borrower delinquency.
CMT: Constant Maturity Treasury
CLTV: Combined loan-to-value
CIO: Chief Investment Office
CIB: Corporate & Investment Bank
CFTC: Commodity Futures Trading Commission
CFP: Contingency funding plan
CET1 Capital: Common equity Tier 1 capital
CFO: Chief Financial Officer
CEO: Chief Executive Officer
CDS: Credit default swaps
375
CCB Consumer customer: A unique individual that has
financial ownership or decision-making power with respect
to accounts; excludes customers under the age of 18.
Where a customer uses the same identifier as both a
1,949
123,079
2.93
3,763
128,229
2.21
2,448
110,686
3.41
3,924
115,131
4.24
39,215
924,713
4.97
48,953
985,187
1.29
397
30,868
1.96
602
30,700
1.31
7,399
563,109
1.76
10,994
894
623,285
0.73
93,241
52
60,082
0.91
638
69,746
0.11
222
199,220
1.78
3,083
173,016
(0.10)
(370)
371,053
0.78
3,056
390,344
0.07
901
1,301,616
0.52
7,026
1,358,322
1.81
58,294
3,215,942
2.78
3,349,079
0.09
2.66
125,036
176,937
1.68
2,191
130,213
(0.09)
(181)
0.13 %
693
527,340 $
192,432
0.76
1,621
214,407
$
1.63 %
7,418
456,366 $
$
Rate
Interest
Average balance
2021
Rate
Interest
Average balance
2022
(Table continued from previous page)
Current estimated LTV ratio
2,441
3,326
1.38
299
3.28
3,683
112,133
2.22
3,530
158,793
3.17
5,414
170,975
(0.12)
(66)
52,903
0.68
426
62,780
(c)
(c)
(0.23)
(319)
137,752
1.27
1,811
142,736
0.43
659
154,825
0.26
114,406
5,307
194,570
1.23
1,802
(1,185) $ 7,910 $ 6,725
166
1,636
4,828
5,189
(361)
$ (8,225) $ 16,155 $ 7,930
change
Rate
Volume
Net
Net
change
Rate
Volume
2022 versus 2021
Increase/(decrease) due
to change in:
Increase/(decrease) due
to change in:
2023 versus 2022
U.S.
Federal funds sold and securities purchased under resale
agreements:
Non-U.S.
U.S.
Deposits with banks:
Interest-earning assets
(On a taxable-equivalent basis; in millions)
Year ended December 31,
(Unaudited)
The table below presents an attribution of net interest income between volume and rate. The attribution between volume and rate
is calculated using annual average balances for each category of assets and liabilities shown in the table and the corresponding
annual rates (refer to pages 310-313 for more information on average balances and rates). In this analysis, when the change
cannot be isolated to either volume or rate, it has been allocated to volume. The annual rates include the impact of changes in
market rates, as well as the impact of any change in composition of the various products within each category of asset or liability.
This analysis is calculated separately for each category without consideration of the relationship between categories (for example,
the net spread between the rates earned on assets and the rates paid on liabilities that fund those assets). As a result, changes in
the granularity or groupings considered in this analysis would produce a different attribution result, and due to the complexities
involved, precise allocation of changes in interest rates between volume and rates is inherently complex and judgmental.
Changes in net interest income, volume and rate analysis
Non-U.S.
313
Securities borrowed:
Non-U.S.
3,358
U.S.
Trading assets - debt instruments:
492
423
69
1,318
1,413
(95)
2,130
2,066
64
4,428
4,839
(411)
1,782
1,471
311
4,308
4,937
(629)
1,892
1,625
267
6,139
4,792
1,347
U.S.
2,384
JPMorgan Chase & Co./2023 Form 10-K
24.6
0.96
53
5,528
1.44
49
3,410
1.73
4,229
244,850
3.25
8,026
246,670
0.57
83
14,595
2.02
226
11,208
0.66
728
109,583
1.35
1,609
119,512
(0.20)
(345)
176,466
2,566,798
20.4
26,097
2,482,993
20.6
24.9
0.87
6,119
1.09
8,194
1.86
46,622
2.27
58,950
1.64 %
52,741
$
2.00 %
67,144
$
0.17 %
5,553
3,215,942 $
0.78 %
26,097
3,349,079 $
$
732,949
782,281
0.22
5,553
1.02
An estimate of the LTV as of a certain date. The current
estimated LTV ratios are calculated using estimated
collateral values derived from a nationally recognized home
price index measured at the metropolitan statistical area
("MSA") level. These MSA-level home price indices consist
of actual data to the extent available and forecasted data
where actual data is not available. As a result, the
estimated collateral values used to calculate these ratios do
not represent actual appraised loan-level collateral values;
as such, the resulting LTV ratios are necessarily imprecise
and should therefore be viewed as estimates.
Client assets: Represent assets under management as well
as custody, brokerage, administration and deposit accounts.
Client deposits and other third-party liabilities: Deposits,
as well as deposits that are swept to on-balance sheet
liabilities (e.g., commercial paper, federal funds purchased
and securities loaned or sold under repurchase
agreements) as part of client cash management programs.
Client investment assets: Represent assets under
management as well as custody, brokerage and annuity
accounts, and deposits held in investment accounts.
CLO: Collateralized loan obligations
The LTV ratio considering all available lien positions, as well
as unused lines, related to the property. Combined LTV
ratios are used for junior lien home equity products.
Macro businesses: the macro businesses include Rates,
Currencies and Emerging Markets, Fixed Income Financing
Stephen B. Burke²,3
Retired Chairman and
Chief Executive Officer
NBCUniversal, LLC
(Television and entertainment)
Todd A. Combs 2,3
Investment Officer
Berkshire Hathaway Inc.;
Chairman, President and
Chief Executive Officer
GEICO
(Conglomerate and insurance)
Alicia Boler Davis 4
Chief Executive Officer
Alto Pharmacy, LLC
(Digital pharmacy)
James Dimon
Chairman and
Chief Executive Officer
JPMorgan Chase & Co.
(Financial services)
Timothy P. Flynn¹
Retired Chairman and
Chief Executive Officer
KPMG
(Professional services)
Alex Gorsky4
Retired Chairman and
Chief Executive Officer
Johnson & Johnson
(Healthcare)
Mellody Hobson 4,5
Co-CEO and President
Ariel Investments, LLC
(Investment management)
Michael A. Neal 1,5
Retired Vice Chairman
General Electric Company;
Retired Chairman and
Chief Executive Officer
GE Capital
(Industrial and financial services)
Phebe N. Novakovic 1,5
Chairman and
Chief Executive Officer
General Dynamics
(Aerospace and defense)
Virginia M. Rometty2,3
Retired Executive Chairman,
President and Chief Executive Officer
International Business Machines
Linda B. Bammann2,4
Retired Deputy Head of Risk
Management
JPMorgan Chase & Co.
(Financial services)
Corporation
(Technology)
Board of Directors
Warehouse loans: Consist of prime mortgages originated
with the intent to sell that are accounted for at fair value
and classified as loans.
SPES: Special purpose entities
Structural interest rate risk: Represents interest rate risk
of the non-trading assets and liabilities of the Firm.
Structured notes: Structured notes are financial
instruments whose cash flows are linked to the movement
in one or more indexes, interest rates, foreign exchange
rates, commodities prices, prepayment rates, underlying
reference pool of loans or other market variables. The notes
typically contain embedded (but not separable or
detachable) derivatives. Contractual cash flows for
principal, interest, or both can vary in amount and timing
throughout the life of the note based on non-traditional
indexes or non-traditional uses of traditional interest rates
or indexes.
Taxable-equivalent basis: In presenting results on a
managed basis, the total net revenue for each of the
business segments and the Firm is presented on a tax-
equivalent basis. Accordingly, revenue from investments
that receive tax credits and tax-exempt securities is
presented in managed basis results on a level comparable
to taxable investments and securities; the corresponding
income tax impact related to tax-exempt items is recorded
within income tax expense.
TBVPS: Tangible book value per share
TCE: Tangible common equity
TDR: “Troubled debt restructuring" applies to loan
modifications granted prior to January 1, 2023 and is
deemed to occur when the Firm modifies the original terms
of a loan agreement by granting a concession to a borrower
that is experiencing financial difficulty. Loans with short-
term and other insignificant modifications that are not
considered concessions are not TDRs.
TLAC: Total Loss Absorbing Capacity
U.K.: United Kingdom
Unaudited: Financial statements and/or information that
have not been subject to auditing procedures by an
independent registered public accounting firm.
U.S.: United States of America
U.S. GAAP: Accounting principles generally accepted in the
U.S.
U.S.government agencies: U.S. government agencies
include, but are not limited to, agencies such as Ginnie Mae
and FHA, and do not include Fannie Mae and Freddie Mac
which are U.S.government-sponsored enterprises (“U.S.
GSES"). In general, obligations of U.S. government agencies
are fully and explicitly guaranteed as to the timely payment
of principal and interest by the full faith and credit of the
U.S. government in the event of a default.
U.S. GSE(s): “U.S. government-sponsored enterprises” are
JPMorgan Chase & Co./2023 Form 10-K
quasi-governmental, privately-held entities established or
chartered by the U.S. government to serve public purposes
as specified by the U.S. Congress to improve the flow of
credit to specific sectors of the economy and provide
certain essential services to the public. U.S. GSES include
Fannie Mae and Freddie Mac, but do not include Ginnie Mae
or FHA. U.S. GSE obligations are not explicitly guaranteed as
to the timely payment of principal and interest by the full
faith and credit of the U.S. government.
U.S. Treasury: U.S. Department of the Treasury
VA: U.S. Department of Veterans Affairs
VaR: "Value-at-risk" is a measure of the dollar amount of
potential loss from adverse market moves in an ordinary
market environment.
VCG: Valuation Control Group
VGF: Valuation Governance Forum
VIES: Variable interest entities
321
SLR: Supplementary leverage ratio
SMBS: Stripped mortgage-backed securities
SOFR: Secured Overnight Financing Rate
Mark A. Weinberger¹
Chief Executive Officer
CEO, Consumer & Community Banking
Robin Leopold
Head of Human Resources
Douglas B. Petno
Co-Head of Global Banking
Jennifer A. Piepszak
Co-CEO, Commercial & Investment Bank
Troy L. Rohrbaugh
Co-CEO, Commercial & Investment Bank
Sanoke Viswanathan
Chief Strategy & Growth Officer;
CEO, International Consumer Banking
Other Corporate Officers
Joseph M. Evangelisti
Corporate Communications
Mikael Grubb
Investor Relations
Elena A. Korablina
Firmwide Controller
Lou Rauchenberger
General Auditor
322
John H. Tribolati
Secretary
JPMorgan Chase & Co./2023 Annual Report
Marianne Lake
Retired Global Chairman and
Teresa A. Heitsenrether
Chief Data & Analytics Officer
Stacey Friedman
General Counsel
Ernst & Young LLP
(Professional services)
1
Audit Committee
2 Compensation & Management
Development Committee
3 Corporate Governance &
Nominating Committee
4 Risk Committee
5 Public Responsibility Committee
Operating Committee
James Dimon
Lori A. Beer
Chairman and Chief Executive Officer
Chief Information Officer
Daniel E. Pinto
President and Chief Operating Officer
Ashley Bacon
Chief Risk Officer
Jeremy Barnum
Chief Financial Officer
Tim Berry
Global Head of Corporate
Responsibility; Chairman of the
Mid-Atlantic Region
Mary Callahan Erdoes
CEO, Asset & Wealth Management
Takis T. Georgakopoulos
Global Head of Payments
Glossary of Terms and Acronyms
Member of:
JPMorgan Chase & Co./2023 Form 10-K
NA: Data is not applicable or available for the period
presented.
NAV: Net Asset Value
Net Capital Rule: Rule 15c3-1 under the Securities
Exchange Act of 1934.
Net charge-off/(recovery) rate: Represents net charge-
offs/(recoveries) (annualized) divided by average retained
loans for the reporting period.
Net interchange income includes the following
components:
318
JPMorgan Chase & Co./2023 Form 10-K
•
•
Glossary of Terms and Acronyms
Interchange income: Fees earned by credit and debit
card issuers on sales transactions.
Rewards costs: The cost to the Firm for points earned by
cardholders enrolled in credit card rewards programs
generally tied to sales transactions.
Partner payments: Payments to co-brand credit card
partners based on the cost of loyalty program rewards
earned by cardholders on credit card transactions.
Net mortgage servicing revenue: Includes operating
revenue earned from servicing third-party mortgage loans,
which is recognized over the period in which the service is
provided; changes in the fair value of MSRs; the impact of
risk management activities associated with MSRS; and gains
and losses on securitization of excess mortgage servicing.
Net mortgage servicing revenue also includes gains and
losses on sales and lower of cost or fair value adjustments
of certain repurchased loans insured by U.S. government
agencies.
Net revenue rate: Represents Card Services net revenue
(annualized) expressed as a percentage of average loans
for the period.
Net yield on interest-earning assets: The average rate for
interest-earning assets less the average rate paid for all
sources of funds.
NFA: National Futures Association
NM: Not meaningful
NOL: Net operating loss
Nonaccrual loans: Loans for which interest income is not
recognized on an accrual basis. Loans (other than credit
card loans and certain consumer loans insured by U.S.
government agencies) are placed on nonaccrual status
when full payment of principal and interest is not expected,
regardless of delinquency status, or when principal and
interest have been in default for a period of 90 days or
more unless the loan is both well-secured and in the
process of collection. Collateral-dependent loans are
typically maintained on nonaccrual status.
Nonperforming assets: Nonperforming assets include
nonaccrual loans, nonperforming derivatives and certain
assets acquired in loan satisfactions, predominantly real
estate owned and other commercial and personal property.
NSFR: Net Stable Funding Ratio
Multi-asset: Any fund or account that allocates assets under
management to more than one asset class.
OAS: Option-adjusted spread
MSR: Mortgage servicing rights
Subprime
Combined LTV ratio
JPMorgan Chase & Co./2023 Form 10-K
317
Glossary of Terms and Acronyms
and Commodities in CIB's Fixed Income Markets.
Managed basis: A non-GAAP presentation of Firmwide
financial results that includes reclassifications to present
revenue on a fully taxable-equivalent basis. Management
also uses this financial measure at the segment level,
because it believes this provides information to enable
investors to understand the underlying operational
performance and trends of the particular business segment
and facilitates a comparison of the business segment with
the performance of competitors.
Markets: consists of CIB's Fixed Income Markets and Equity
Markets businesses.
Master netting agreement: A single agreement with a
counterparty that permits multiple transactions governed
by that agreement to be terminated or accelerated and
settled through a single payment in a single currency in the
event of a default (e.g., bankruptcy, failure to make a
required payment or securities transfer or deliver collateral
or margin when due).
MBS: Mortgage-backed securities
MD&A: Management's discussion and analysis
Measurement alternative: Measures equity securities
without readily determinable fair values at cost less
impairment (if any), plus or minus observable price changes
from an identical or similar investment of the same issuer.
Merchant Services: offers merchants payment processing
capabilities, fraud and risk management, data and analytics,
and other payments services. Through Merchant Services,
merchants of all sizes can accept payments via credit and
debit cards and payments in multiple currencies.
MEV: Macroeconomic variable
Moody's: Moody's Investor Services
Mortgage origination channels:
Retail Borrowers who buy or refinance a home through
direct contact with a mortgage banker employed by the
Firm using a branch office, the Internet or by phone.
Borrowers are frequently referred to a mortgage banker by
a banker in a Chase branch, real estate brokers, home
builders or other third parties.
Correspondent - Banks, thrifts, other mortgage banks and
other financial institutions that sell closed loans to the Firm.
Mortgage product types:
Alt-A
Alt-A loans are generally higher in credit quality than
subprime loans but have characteristics that would
disqualify the borrower from a traditional prime loan. Alt-A
lending characteristics may include one or more of the
following: (i) limited documentation; (ii) a high CLTV ratio;
(iii) loans secured by non-owner occupied properties; or (iv)
a debt-to-income ratio above normal limits. A substantial
proportion of the Firm's Alt-A loans are those where a
borrower does not provide complete documentation of his
or her assets or the amount or source of his or her income.
Option ARMS
The option ARM real estate loan product is an adjustable-
rate mortgage loan that provides the borrower with the
option each month to make a fully amortizing, interest-only
or minimum payment. The minimum payment on an option
ARM loan is based on the interest rate charged during the
introductory period. This introductory rate is usually
significantly below the fully indexed rate. The fully indexed
rate is calculated using an index rate plus a margin. Once
the introductory period ends, the contractual interest rate
charged on the loan increases to the fully indexed rate and
adjusts monthly to reflect movements in the index. The
minimum payment is typically insufficient to cover interest
accrued in the prior month, and any unpaid interest is
deferred and added to the principal balance of the loan.
Option ARM loans are subject to payment recast, which
converts the loan to a variable-rate fully amortizing loan
upon meeting specified loan balance and anniversary date
triggers.
Prime
Prime mortgage loans are made to borrowers with good
credit records who meet specific underwriting
requirements, including prescriptive requirements related
to income and overall debt levels. New prime mortgage
borrowers provide full documentation and generally have
reliable payment histories.
Subprime loans are loans that, prior to mid-2008, were
offered to certain customers with one or more high risk
characteristics, including but not limited to: (i) unreliable or
poor payment histories; (ii) a high LTV ratio of greater than
80% (without borrower-paid mortgage insurance); (iii) a
high debt-to-income ratio; (iv) an occupancy type for the
loan is other than the borrower's primary residence; or (v)
a history of delinquencies or late payments on the loan.
MREL: Minimum requirements for own funds and eligible
liabilities
OCC: Office of the Comptroller of the Currency
MSA: Metropolitan statistical areas
OPEB: Other postretirement employee benefit
Over-the-counter ("OTC") derivatives: Derivative contracts
that are negotiated, executed and settled bilaterally
between two derivative counterparties, where one or both
counterparties is a derivatives dealer.
REO: Real estate owned
Reported basis: Financial statements prepared under U.S.
GAAP, which excludes the impact of taxable-equivalent
adjustments.
Retained loans: Loans that are held-for-investment (i.e.,
excludes loans held-for-sale and loans at fair value).
Revenue wallet: Proportion of fee revenue based on
estimates of investment banking fees generated across the
industry (i.e., the revenue wallet) from investment banking
transactions in M&A, equity and debt underwriting, and loan
syndications. Source: Dealogic, a third-party provider of
investment banking competitive analysis and volume-based
320
league tables for the above noted industry products.
RHS: Rural Housing Service of the U.S. Department of
Agriculture
ROA: Return on assets
ROE: Return on equity
ROTCE: Return on tangible common equity
RSU(s): Restricted stock units
RWA: "Risk-weighted assets": Basel III establishes two
comprehensive approaches for calculating RWA (a
Standardized approach and an Advanced approach) which
include capital requirements for credit risk, market risk, and
in the case of Basel III Advanced, also operational risk. Key
differences in the calculation of credit risk RWA between
the Standardized and Advanced approaches are that for
Basel III Advanced, credit risk RWA is based on risk-sensitive
approaches which largely rely on the use of internal credit
models and parameters, whereas for Basel III Standardized,
credit risk RWA is generally based on supervisory risk-
weightings which vary primarily by counterparty type and
asset class. Market risk RWA is calculated on a generally
consistent basis between Basel III Standardized and Basel III
Advanced.
S&P: Standard and Poor's
SAR as it pertains to Hong Kong: Special Administrative
Region
SAR(s) as it pertains to employee stock awards: Stock
appreciation rights
SCB: Stress capital buffer
Scored portfolios: Consumer loan portfolios that
predominantly include residential real estate loans, credit
card loans, auto loans to individuals and certain small
business loans.
SEC: U.S. Securities and Exchange Commission
Securities financing agreements: Include resale,
repurchase, securities borrowed and securities loaned
agreements
Securitized Products Group: Comprised of Securitized
Products and tax-oriented investments.
Seed capital: Initial JPMorgan capital invested in products,
such as mutual funds, with the intention of ensuring the
fund is of sufficient size to represent a viable offering to
clients, enabling pricing of its shares, and allowing the
manager to develop a track record. After these goals are
achieved, the intent is to remove the Firm's capital from the
investment.
Shelf securities: Securities registered with the SEC under a
shelf registration statement that have not been issued,
offered or sold. These securities are not included in league
tables until they have actually been issued.
OCI: Other comprehensive income/(loss)
Single-name: Single reference-entities
Regulatory VaR: Daily aggregated VaR calculated in
accordance with regulatory rules.
PSU(s): Performance share units
ROU assets: Right-of-use assets
PPP: Paycheck Protection Program under the Small
Business Association ("SBA")
Production revenue: Includes fees and income recognized
as earned on mortgage loans originated with the intent to
sell, and the impact of risk management activities
associated with the mortgage pipeline and warehouse
loans. Production revenue also includes gains and losses on
sales and lower of cost or fair value adjustments on
mortgage loans held-for-sale (excluding certain
repurchased loans insured by U.S. government agencies),
and changes in the fair value of financial instruments
measured under the fair value option.
Overhead ratio: Noninterest expense as a percentage of
total net revenue.
Parent Company: JPMorgan Chase & Co.
Participating securities: Represents unvested share-based
compensation awards containing nonforfeitable rights to
dividends or dividend equivalents (collectively,
"dividends"), which are included in the earnings per share
calculation using the two-class method. JPMorgan Chase
grants RSUs to certain employees under its share-based
compensation programs, which entitle the recipients to
receive nonforfeitable dividends during the vesting period
on a basis equivalent to the dividends paid to holders of
common stock. These unvested awards meet the definition
of participating securities. Under the two-class method, all
earnings (distributed and undistributed) are allocated to
each class of common stock and participating securities,
based on their respective rights to receive dividends.
PCAOB: Public Company Accounting Oversight Board
PCD: "Purchased credit deteriorated" assets represent
acquired financial assets that as of the date of acquisition
have experienced a more-than-insignificant deterioration in
credit quality since origination, as determined by the Firm.
PD: Probability of default
Pillar 1: The Basel framework consists of a three "Pillar"
approach. Pillar 1 establishes minimum capital
requirements, defines eligible capital instruments, and
prescribes rules for calculating RWA.
Pillar 3: The Basel framework consists of a three "Pillar"
approach. Pillar 3 encourages market discipline through
disclosure requirements which allow market participants to
assess the risk and capital profiles of banks.
PRA: Prudential Regulation Authority
Pre-provision profit/(loss): Represents total net revenue
less noninterest expense. The Firm believes that this
financial measure is useful in assessing the ability of a
lending institution to generate income in excess of its
provision for credit losses.
Pre-tax margin: Represents income before income tax
expense divided by total net revenue, which is, in
management's view, a comprehensive measure of pretax
performance derived by measuring earnings after all costs
are taken into consideration. It is one basis upon which
management evaluates the performance of AWM against
the performance of their respective competitors.
Principal transactions revenue: Principal transactions
revenue is driven by many factors, including:
319
JPMorgan Chase & Co./2023 Form 10-K
Glossary of Terms and Acronyms
the bid-offer spread, which is the difference between the
price at which a market participant is willing and able to
sell an instrument to the Firm and the price at which
another market participant is willing and able to buy it
from the Firm, and vice versa; and
realized and unrealized gains and losses on financial
instruments and commodities transactions, including
those accounted for under the fair value option, primarily
used in client-driven market-making activities.
- Realized gains and losses result from the sale of
instruments, closing out or termination of transactions,
or interim cash payments.
Unrealized gains and losses result from changes in
valuation.
In connection with its client-driven market-making
activities, the Firm transacts in debt and equity
instruments, derivatives and commodities, including
physical commodities inventories and financial instruments
that reference commodities.
•
Principal transactions revenue also includes realized and
unrealized gains and losses related to:
derivatives designated in qualifying hedge accounting
relationships, primarily fair value hedges of commodity
and foreign exchange risk;
derivatives used for specific risk management purposes,
primarily to mitigate credit, foreign exchange and
interest rate risks.
Over-the-counter cleared ("OTC-cleared") derivatives:
Derivative contracts that are negotiated and executed
bilaterally, but subsequently settled via a central clearing
house, such that each derivative counterparty is only
exposed to the default of that clearing house.
Wai Mei Hong
Europe/Middle East/Africa
Asia Pacific
Regional Chief Executive Officers
Sjoerd Leenart
Regional CEO
Hong Kong
Marco Sucharitkul
Taiwan
Filippo Gori
Carl K. Chien
Thailand
Regional CEO;
Mark C.M. Leung
Latin America/Canada
Alfonso Eyzaguirre
Regional CEO
Senior Country Officers and Location Heads
Asia Pacific
Australia and New Zealand
Robert P. Bedwell
Europe/Middle East/Africa
China
Vietnam
Co-Head of Global Banking
Van Bich Phan
The Hon. Robert M. Gates
Vice Chairman of the Council
Principal
Francesco Cardinali
Chairman of the Board of Directors
Austria
Paul Bulcke
Rice, Hadley, Gates & Manuel LLC
Washington, District of Columbia
Great Britain and Northern Ireland
London, United Kingdom
Tony Blair Institute for Global Change
Former Prime Minister of
Chairman of the Council
Executive Chairman
Rt. Hon. Tony Blair
As of March 1, 2024
J.P. Morgan International Council
323
Italy
JPMorgan Chase & Co./2023 Annual Report
David Mayhew
Vittorio U. Grilli
JPMorgan Chase Vice Chairs
Klaus Thune/Jonas Wikmark
Nordics
Cassander Verwey
The Netherlands
Khaled Hobballah
Middle East and North Africa
Philippe Ringard
Luxembourg
Peter L. Scher
Stefan P, Povaly
Canada
Tanguy A. Piret
Sub-Saharan Africa
Kevin G. Latter
Switzerland
Reinnout Böttcher
Türkiye and Azerbaijan
Mustafa Bagriacik
Latin America/Caribbean
Andean, Caribbean and Central
America
Moises Mainster
Argentina
Facundo D. Gómez Minujin
Brazil
Daniel Darahem
Chile
Andres Errazuriz
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Roy Navon
Poland
Commonwealth of Independent
Harshika Patel
States
India
Kaustubh Kulkarni
Japan
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Korea
Howard Kim
Southeast Asia
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Germany
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Iberia
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Ireland
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Israel
Indonesia
Vevey, Switzerland
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THE UNDUE INFLUENCE OF PROXY
ADVISORS
38
True collaboration could dramatically improve the
banking system. For example:
Collaboration between banks and regulators
could improve the use of resources and create
better outcomes.
Unfortunately, some recent regulations are ending
up in court. You can imagine that no one wants to
sue their regulators. Banks would not sue if they did
not think they were right - or if they thought they
had any other recourse - which they effectively do
not. This is definitely not what anyone should want.
A more constructive relationship with regulators
would reduce confusion and uncertainty and would
lead to better outcomes for banks, their sharehold-
ers, and their clients, customers and communities.
31
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
It is not clear what the full intent of the Basel
III endgame was - it will have unintended con-
sequences. Without real analysis of expected
outcomes, additional regulation will likely
reduce the number of banks offering certain
services and increase costs for all market partic-
ipants and activity, including loans, market
making and hedging (by farmers, airlines and
countries, among others). And new rules might
even increase consolidation as companies race
to achieve economies of scale in certain prod-
ucts and services.
Redirect enormous resources from things that
don't matter to things that do. As mentioned, it
takes 80,000 pages to describe a CCAR test and
80,000 pages to detail recovery and resolution.
The talent and resources at the banks and
regulators could be better used elsewhere.
Such overload is distracting and takes your eye
off the ball on real, emerging risks, including
China, trade, payment systems and cybersecu-
rity, among others.
•
• The new rules do virtually nothing to fix what
caused the failure of SVB and First Republic.
For example, they don't improve certain liquidity
requirements, limit HTM accounting or reduce
allowable interest rate exposure.
• Built over many years, the framework is now
full of duplication. The following is only a par-
tial list: American gold-plating and conceptual
inconsistencies among Comprehensive Capital
Analysis and Review (CCAR), recovery and reso-
lution plans, liquidity requirements, global sys-
temically important bank (GSIB) requirements,
and safety and soundness principles. The many
overlapping rules contribute to the bureaucracy
that generates an extraordinary amount of
make-work (an 80,000-page CCAR and shock-
ingly another, coincidentally, 80,000-page
recovery and resolution plan).
One of the single most important lessons from
the great financial crisis is that there is
enormous value to having a bank that is
well-managed and has diverse revenue sources.
Yet regulation since then both punishes
consolidation and diversification - and punishes
performance - through many features of the
GSIB surcharge.
⚫ The Basel III endgame disadvantages
American banks. The Basel III endgame has
been 10 years in the making, and it still has not
been completed. In my view, many of the rules
are flawed and poorly calibrated. If the Basel III
endgame were implemented in its current form,
it would hamper American banks: As proposed,
it would increase our firm's required capital by
25%, making our requirement 30% higher than
it would be under the equivalent European
Union proposal. That means for every loan and
asset financed in the United States by a major
American bank, that bank would have to hold
30% more capital than any international com-
petitor. The proposed regulations would also
damage market making (see the following sec-
tion). There are many other flaws but suffice it to
say that much of the work being done today to
analyze the effects should have been done
before the proposed rulemaking.
a disproportionate amount of time addressing
requests for extra details, documentation and
processes that extend far beyond the actual rules
― and distract both regulators and management
from more critical work. We should be more
focused on the truly important risks for the safety
of the system. And unfortunately, without collabo-
ration and sufficient analysis, it is hard to be confi-
dent that regulation will accomplish desired out-
comes without undesirable consequences. Instead
of constantly improving the system, we may be
making it worse. A few additional points:
Over time, these relationships have deteriorated,
and, again, are increasingly less constructive.
There is little real collaboration between practi-
tioners the banks - and regulators, who gener-
ally have not been practitioners in business. While
we acknowledge the dedication of regulators who
work with banks on a daily basis, management
teams across the industry are putting in
• The current regulatory approach to liquidity
might simply run counter to the stated intent.
Regulations should recognize the value and
importance of lending and borrowing against
good collateral and using central bank
resources, such as the discount window.
Adhering to current liquidity requirements per-
manently ties up good liquidity in a way that
makes the system more fragile and more risky.
-
• Reduce bureaucratic processes that provoke a
tendency to herd mentality. For example, CCAR
is just a point-in-time stress test, and it can lull
you into a false sense of security - for refer-
ence, we do more than 100 stress tests each
week. On interest rate exposure, focusing on
the documentation of details may stop you from
thinking about big interest rate exposure.
Sometimes analyzing "what ifs" and fat tail risks
is better than excessive and rigid models and
documentations.
• Let's imagine what's possible with real collabo-
ration. Working together, we can improve how
the FDIC manages failing institutions, how to limit
Our financial system and markets are the best
in the world and benefit ALL participants;
exceptionally good market making in the
secondary market makes our primary markets
the best in the world.
-
Some regulators seem to think that market making
is a speculative, hedge fund-like activity - and this
thinking is what might be leading them to con-
stantly increase capital requirements. The pro-
posed capital rules could fundamentally alter
market-making activities that are critical to a
thriving economy, particularly in difficult markets
when market making is even more important.
The new rules would raise capital requirements
by 50% for major banks – which could undermine
market stability, make banking services costlier
and less accessible, and push even more activity
to a less regulated banking system.
Market participants are not "Wall Street." They are
large and small, mainly sophisticated, global inves-
tors (pension plans, mutual funds, governments
and individuals) representing retirees, veterans,
individuals, unions, federal workers and others.
They all benefit from our efficient, low-cost and
transparent markets.
-
Before we discuss market making and financial
markets, readers should understand that market
making occurs in almost all businesses. There are
healthy markets in farm animals, foreign prod-
ucts, commodities, energy, logistics, healthcare
and so on. Healthy markets increase customer
choice and reduce cost. They almost always
involve holding inventory and taking some risk,
which is simply a part of the process. America's
financial markets are the biggest in the world
U.S. public debt and equity markets total $137
trillion, constituting the biggest “market" in the
world, and are larger than America's gross
domestic product (GDP) of $27 trillion.
• Examine risks outside the regulatory system
that are rarely analyzed and largely unad-
dressed. These risks include data and privacy,
as well as consumer banking and payment sys-
tems, which are growing fast in the unregulated
market. In addition, there are potential risks
from private credit markets (which I talk about
later in the next section).
PROTECTING THE ESSENTIAL ROLE OF
MARKET MAKING (TRADING)
32
I know this might be wishful thinking, but now
would be a good time to step back and have a thor-
ough and candid review of the thousands of new
rules passed since Dodd-Frank. After this review, we
should ask what is it that we really want: Do we
want to try to eliminate the possibility of bank runs?
Do we want to change and create liquidity rules that
would essentially back most uninsured deposits? Do
we want the mortgage business and leveraged lend-
ing business to be inside or outside the banking sys-
tem? Do we want products that are inside and out-
side the banking system to be regulated the same
way? Do we want to reasonably give smaller banks a
leg up in purchasing a failing bank? And while Dodd-
Frank did some good things, shouldn't we take a
look at the huge overlapping jurisdictions of various
regulators? This overlap creates difficulties, not only
for banks, but for the regulators, too. Any and all of
this is achievable, and, I believe, could be accom-
plished with simpler rules and guidelines and with-
out stifling our critical banking system.
We need a detailed review and probably a
complete revamp.
There are many more things that can be improved
- and we really should start working on them.
We can fix the housing and mortgage markets.
For example, mortgage regulations around orig-
ination, servicing and securitization could be
simplified, without increasing risk, in a way that
would reduce the average mortgage by 70 or 80
basis points. The Urban Institute estimates that
a reduction like this would increase mortgage
originations by 1 million per year and help
lower-income households, in particular, buy
their first home, thereby starting them on the
best way to build household net worth.
contagion and restore confidence to depositors,
how liquidity requirements can create more flexi-
ble funding for banks under stress, how the bank-
ing and Federal Reserve's payment system can
become more interoperable, how clearinghouse
risk can be reduced, how stress tests can protect
the system from a wider variety of outcomes,
how costs and therefore consumer costs can be
reduced (not increased), how anti-money laun-
dering requirements can be simplified and
improved at the same time, and how financial
products can be brought to the unbanked.
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
Both regulators and banks should want the same
thing - a healthy banking system, serving its cli-
ents and striving for continuous improvement.
We all should also want the enormous benefits that
would come from good collaboration between reg-
ulators and bank management teams and boards.
The whole process, including the Basel III
endgame, could be much more productive,
streamlined, economical, efficient and safe.
STAYING COMPETITIVE IN THE SHRINKING PUBLIC MARKETS
- $1.6 million to the Community Justice Project, which
empowers community-based legal advocates to help delay
displacement and improve conditions for housing stability
for renters across nine Florida counties.
- $3 million to The Miami Foundation's Resilient 305:
Building Prosperity Collaborative to increase access to
quality jobs and develop small businesses through training,
investments and capacity-building.
.
• Over the last five years, we have committed nearly $65
million in philanthropic support, including:
Our business and community investments:
• We managed more than $70 billion in investment and annuity
assets for local clients.
In 2022, we committed $10 million over five years to Tech
Equity Miami to advance equal access to tech skills, careers
and education, including:
• In 2023, we supported more than 6.1 million customers with
mortgages, auto loans and savings, checking and credit card
accounts, giving JPMorgan Chase one of the largest
consumer banking market shares in the state.
•
Our support to consumer banking needs:
• In 2023, our bankers and senior business consultants spent
more than 375,000 hours advising and supporting Florida
business owners.
• Across the state, we have over 654,000 small business
customers.
• At the end of 2023, balances for loans extended to Florida's
small businesses totaled more than $1.2 billion – funds being
used to help those businesses scale and grow, contribute to
the economy and create local jobs.
Our support to small business:
We operate 1,445 ATMs and 410 branches across the state.
- A $1 million investment to Florida Memorial University,
South Florida's only HBCU, to help traditionally
underresourced students pursue a career in technology.
Our support as a local employer:
• We employ more than 14,000 residents throughout the state,
including nearly 1,900 veterans and over 660 people with a
criminal background who deserve a second chance.
30
While we all want a strong banking and financial
system, we should step back and assess how all the
regulatory steps we have taken measure up against
the goals we all share. Since Dodd-Frank was signed
into law in 2010, thousands of rules and reporting
requirements written by 10+ different regulatory
bodies in the United States alone have been added.
And it would probably be an understatement to say
that some are duplicative, inconsistent, procyclical,
contradictory, extremely costly, and unnecessarily
painful for both banks and regulators. Many of the
rules have unintended consequences that are not
desirable and have negative impacts, such as
increasing the cost of credit for consumers (hurting
lower-income Americans the most).
To deal with this fluid environment, banks of all
sizes develop their own strategies, whether to
specialize, expand geographically or embark on
mergers and acquisitions. There are certain banking
services where economies of scale are a competitive
advantage, but not all banks need to become bigger
to gain this benefit (there are many highly success-
ful banks that are smaller). What is clear is that
banks should be allowed to pursue their individual
strategies, including mergers and acquisitions, as
they see fit. Overall, this process should be allowed
to happen - it's part of the natural and healthy
course of capitalism - and it can be done without
harming the American taxpayer or economy.
It is also important to recognize that the banking
system as we know it is shrinking relative to pri-
vate markets and fintech, which are growing and
becoming increasingly competitive. And remember
that many of these new players do not have the
same transparency or need to abide by the exten-
sive rules and regulations as traditional banks,
even if they offer similar products - this often
gives them significant advantage.
small banks and big banks serve completely differ-
ent strategic functions. Large banks bank multina-
tional corporations around the world, make
healthy markets, and wield technology and a prod-
uct set that are the best in the world. A small bank
simply cannot bank these same multinational gov-
ernments and safely move the amount of money
and securities that large banks do. Regional and
community banks have exceptional local knowl-
edge and presence and are critical in serving
thousands of towns and certain geographies.
The banking and financial system is
innovative, dynamic and constantly changing.
The banking system is not static: There are startup
banks, mergers, successful upstarts and fintech
banks, and even Apple, which effectively acts as a
bank it holds money, moves money, lends money
and so on. Nonbanks are competing with tradi-
tional banks, and, in general, this dynamism and
churn are good for innovation and invention - with
success and failure simply part of the robust pro-
cess. Innovation runs across payments systems,
budgeting, digital access, product extensions, risk
and fraud prevention, and other services. Different
institutions play different roles, and, importantly,
― from smaller banks to larger regional banks that
may not have the resources to handle all of these
regulatory requirements. It's also about the effect
on the financial markets and the economy from the
rapidly growing shadow banking system, as well as
the ultimate impact on the customers, clients and
communities we serve. This is about what's right
for the system.
-
This is not about JPMorgan Chase - we believe we
can manage through whatever is thrown our way.
This is about the impact on all parts of the system
It's good to remember that the United States has
the best financial system in the world, with diversi-
fied, deep and experienced institutions, from
banks, pension plans, hedge funds and private
equity to individual investors. It has healthy public
and private markets, transparency, rule of law and
deep research. The best banking system in the
world is a critical part of this, and, integrated with
the overall financial system, is foundational to the
proper allocation of capital, innovation and the
fueling of America's growth engine.
The Dodd-Frank Wall Street Reform and Consumer
Protection Act (Dodd-Frank) was finished 14 years
ago, and we believe it accomplished a lot of good
things. But it's been quite a while since then, and
we're still debating some very basic issues. It's
time to take a serious, hard, honest look at what
has been done and what can be improved.
GIVING THE BANK REGULATORY AND
SUPERVISORY PROCESS A SERIOUS
REVIEW
29
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
• In Florida, the average salary of our employees is more than
$87,000 (plus a starting comprehensive annual benefits
package worth nearly $17,600) compared with the statewide
per capita income of nearly $40,300.
We should recognize that the United States has the
biggest, deepest and most liquid capital markets in
the world. For these markets to function, it is
critical for transparency and liquidity to be in the
secondary market. Market making provides this,
promoting the flow of capital to real economy
investments and supporting all sectors of the
economy, including companies, state and local
governments, universities, hospitals, pension plans
and overall job creation. Without market making in
the secondary market, it would be extremely diffi-
cult for companies to raise capital through the
primary market - equity and debt offerings -
which have totaled approximately $3.6 trillion on
average over the past few years. The incredible
strength of these markets enables companies of
all sizes to grow and expand especially during times
of volatility and stress. It also enables consumers to
access cheaper credit and governments (local, state
and federal) to reduce their borrowing costs.
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
JPMorgan Chase spends $700 million per year in
extensive research coverage of nearly 5,200
companies across 83 countries. This massive effort
continuously educates investors and decision
makers around the world and often leads to
improved governance and management. It also
critically complements the firm's market-making
activities and further promotes transparency,
enabling investors to make thoughtful choices
around investing in capital markets.
While asset managers and institutional
investors have a fiduciary responsibility to
make their own decisions, it is increasingly
clear that proxy advisors have undue
influence.
I should also point out, because it may be relevant,
that ISS is owned by Deutsche Boerse, a German
company, and Glass Lewis is owned by Peloton
Capital, a Canadian private equity firm. I question
whether American corporate governance should be
determined by for-profit international institutions
that may have their own strong feelings about what
constitutes good corporate governance.
There are essentially two main proxy advisors in
the United States. One is called Institutional
Shareholder Services (ISS), and the second is
called Glass Lewis. These proxy advisors started
out providing reams of data from companies to
help their institutional investor clients vote on
proxy matters (information on executive compen-
sation, stock returns, detail on directors, policies
and so on). However, they soon also began to pro-
vide advice on how shareholders should vote on
proxy matters. And, in fact, institutional investors
generally execute their voting on an ISS or Glass
Lewis platform, which often includes a clear state-
ment of the advisory service's position.
we do. At JPMorgan Chase, we are constantly talking
with our investors - our directors, our lead director
and our corporate governance experts visit most of
our major investors whether they be direct owners
or asset managers who manage the money for oth-
ers. Meeting with your shareholders and investors is
critical, but the annual shareholder meeting itself
has become ineffective. We should try to come up
with a far more constructive alternative.
treat shareholders with tremendous respect - and
STAYING COMPETITIVE IN THE SHRINKING PUBLIC MARKETS
Asset managers (who manage money on behalf of
others) and institutional investors (e.g., pension
plans and endowments) may rely on a variety of
information sources to support their valuation
36
THE HIJACKING OF ANNUAL
SHAREHOLDER MEETINGS
There is something very positive about detailed
and disciplined quarterly financial and operating
reporting. But company CEOs and boards of direc-
tors should resist the undue pressure of quarterly
earnings, and it is clearly somewhat their fault
when they don't. However, it is naïve to think that
the pressure doesn't exist because companies that
"disappoint" can face extensive criticism, particu-
larly those with a new or young CEO. It's possible
for companies to take short-term actions to
increase earnings, such as selling more product
cheaply at the end of a quarter, cutting certain
investments that may be terrific but can show
accounting losses in the first year or two, or just
deploying more aggressive accounting methods at
times. Once shortcuts like this begin, people all
over the company understand that it is okay to
"stretch" to meet your numbers. This could put you
on a treadmill to ruin. Obviously, a company should
not resort to these tactics, but it does happen in
the public markets - and it's probably less likely in
the private markets.
THE PRESSURE OF QUARTERLY
EARNINGS COMPOUNDED BY BAD
ACCOUNTING AND BAD DECISIONS
today, lead directors generally hold most of the
authorities previously assigned to the chairman.
The governance of major corporations is evolving
away from guidance by governance principles that
focus on a company's relationship to long-term
economic value toward a bureaucratic compliance
exercise. Good corporate governance is critical, and
a little common sense would go a long way.
There are good reasons for private markets, and
some good outcomes result from them. For exam-
ple, companies can stay private longer if they wish
and raise more and different types of capital with-
out going to the public markets. However, taking a
wider view, I fear we may be driving companies
from the public markets. The reasons are complex
and may include factors such as intensified report-
ing requirements (including investors' growing
needs for environmental, social and governance
information), higher litigation expenses, costly
regulations, cookie-cutter board governance,
shareholder activism, less compensation flexibility,
less capital flexibility, heightened public scrutiny
and the relentless pressure of quarterly earnings.
Along with the universal proxy - which makes it
easier to put poorly qualified directors on a board
- the pressures to retreat from the public market
are mounting. In addition, corporate governance
principles are becoming more and more templated
and formulaic, a negative trend. For example,
proxy advisors may automatically judge directors
unfavorably if they have a long tenure on the
board, without a fair assessment of their actual
contributions or experience. Another example is
the constant battle by some proxy advisors who try
to split the chairman and CEO role when there is no
evidence this makes a company better off - in fact,
In previous letters, I have described the diminish-
ing role of public companies in the American finan-
cial system. From their peak in 1996 at 7,300,
U.S. public companies now total 4,300 - the total
should have grown dramatically, not shrunk.
Meanwhile, the number of private U.S. companies
backed by private equity firms - which does not
include the rising number of companies owned by
sovereign wealth funds and family offices - has
grown from 1,900 to 11,200 over the last two
decades. This trend is serious and may very well
increase with more regulation and litigation
coming. Along with a frank assessment of the
regulation landscape, we really need to consider:
Is this the outcome we want?
One of the reasons it is less desirable to be a public
company is because of the spiraling frivolousness of
the annual shareholder meeting, which has
devolved into mostly a showcase of grandstanding
and competing special interest groups. We should
Staying Competitive in the
Shrinking Public Markets
Almost all asset managers receive proxy advisor
data and recommendations; while some asset man-
agers vote completely independently of this infor-
mation, the majority do not. Most asset managers
have formed corporate governance or stewardship
committees that are responsible for their voting,
and these committee positions are often held not by
portfolio managers and research analysts (i.e., the
people buying and analyzing the individual securi-
ties) but by stewardship experts. While it is good to
have stewardship experts, the reality is that many
of these committees default large portions of what
they do to proxy advisors and, more troubling, make
it harder for actual portfolio managers to override
this decision making.
-
It takes enormous resources to properly
support the Markets business.
New financial products that grow extremely rap-
idly often become an area of unexpected risk in
the markets. Frequently, the weaknesses of new
products, in this case private credit loans, may
only be seen and exposed in bad markets, which
private credit loans have not yet faced. When
credit spreads gap out, when interest rates go up
and when some leveraged companies suffer in the
recession, we will find out how those loans survive
stress testing. In addition, they can create a little
bit of a "credit crunch" for borrowers since it
might be hard for private creditors to roll over
loans under those conditions. Under stress condi-
tions, private creditors would have to charge exor-
bitant prices that companies simply cannot afford
in order to book the new loan at par. Banks are in a
slightly different position.
This scrutiny will include a look at how private
credit values its assets, which isn't as transparent
as public market valuations. In addition, private
market loans commonly lack liquidity in the sec-
ondary market and are not generally supported by
in-depth market research.
On the other hand, not all players are that good.
And problems in the private credit market caused
by the bad players can leak onto the good ones,
even though private credit money is locked up for
years. If investors feel mistreated, they will cry
foul, and the government will respond by putting
a laser focus on the business. It's a reasonable
assumption that at some point regulations will
focus on the private markets as they do on the
public markets.
I have already mentioned some of the benefits of
private credit, and I'll now mention some more.
Many people in the private credit arena are very
smart and creative and want to help the compa-
nies they invest in navigate through market shoals.
They can move quickly, discreetly and flexibly.
Most generally understand that bad accounting
drives bad decisions, and their goal is to make the
right decisions for the future of the company.
THE BENEFITS AND RISKS OF
PRIVATE CREDIT
Some have argued that it's too hard and too expen-
sive to review the large number of proxies and proxy
proposals - this is both lazy and wrong. If issues are
important to a company, they should be important
to the shareholder – for the most part, only a hand-
ful of proposals are important to companies.
Taken together, these steps are designed to
respond to a growing perception (and, I believe,
reality) that the asset management industry gen-
erally places undue reliance on proxy advisors in
how proxies are voted. We believe these actions
will strengthen our relationships with our clients
and with companies while helping to build trust
among shareholders, investors and companies.
• Diminished role of proxy advisor recommenda-
tions. J.P. Morgan Asset Management makes its
own independent proxy voting decisions (based
on deep fundamental research) and stands
behind the depth and rigor of its processes and
historical information advantage. In most cases,
the firm will only use proxy advisory firms for
research, data and technical mechanics of vote
transmission and not for outsourced recommen-
dations. By the end of 2024, J.P. Morgan Asset
Management generally will have eliminated
third-party proxy advisor voting recommenda-
tions from its internally developed voting sys-
tems. Additionally, the firm will work with third-
party proxy voting advisors to remove their
voting recommendations from research reports
they provide to J.P. Morgan Asset Management
by the 2025 proxy season.
• More portfolio manager participation in proxy
committee decision making. The firm has sig-
nificantly expanded the representation of port-
folio managers on its North American Proxy
Committee in an effort to increase the diversity
of viewpoints represented on the committee. As
part of this change, and in recognition that port-
folio managers, as fiduciaries, may differ in their
views on how to vote on particular proposals
depending on a mandate's investment strategy
and guidelines, we are broadening our capabili-
ties to support voting results that may vary
across our platform.
37
STAYING COMPETITIVE IN THE SHRINKING PUBLIC MARKETS
Enhancements to the firm's internal proxy voting
process will include:
We are making enhancements to J.P. Morgan
Asset Management's proxy voting processes to
amplify the role of portfolio managers and to
address the perception of asset managers'
reliance on third-party advisor voting
recommendations.
• Other enhancements. We are working to give a
company and its management even greater
access to the ultimate decision makers; to raise
critical issues to a company as early as possible
in a constructive and proactive way; and to be
willing to tell companies how we have voted
once our decision is made rather than waiting
until votes are finally counted.
35
decision-making process. While data and recom-
mendations may form pieces of the information
mosaic, their votes should ultimately be based on
an independent application of their own voting
guidelines and policies. To the extent they use rec-
ommendations from proxy advisors in their deci-
sion-making processes, they should disclose that
they do so and should be satisfied that the infor-
mation upon which they are relying is accurate and
relevant. However, many companies would argue
that this information is frequently not balanced,
not representative of the full view and not accu-
rate. In addition, companies complain that they
often cannot get the data corrected, and, there-
fore, a vote may go uncorrected.
In volatile times, banks have been able to interme-
diate to help their clients and to work with the reg-
ulators. With new regulations, they may be less
able to do so. There have been several times in the
past few years where banks had ample liquidity
and capital but were unable to rapidly increase
their intermediation in the markets due to very
rigid liquidity and capital requirements. Finally,
the proposed rules increase the chance that the
Federal Reserve will have to step in again - and
this is not something they should want to do on a
regular basis but only in an extreme emergency.
One last fallacy is that the repo markets are all
about speculation. While it's true that repo is used
by certain investors to leverage up their positions,
about 75% of repo is essential to normal money
market functioning, i.e., is done by broker-dealers
financing their actual inventory positions, money
market funds investing their cash backed by highly
rated collateral and clients hedging their positions.
Another major fallacy is that derivatives are
objects of financial destruction. In reality, deriva-
tives are an essential part of managing financial
risk and are used by investors, corporations, farm-
ers, businesses, countries, governments and oth-
ers to manage their risks. And more than 85% of
derivatives are fairly basic forms of foreign
exchange or interest rate swaps.
You can see that our actual performance under
extreme stress isn't even close to the hypothetical
losses of the stress test.
third, in the worst quarter ever in the markets fol-
lowing the 2008 failure of Lehman Brothers, we lost
$1.7 billion, but we made $5.6 billion in Markets rev-
enue for the full year. The firm as a whole did not
lose money in any quarter that year. In 2009, there
was a complete recovery in Markets, and we made
$22 billion in Markets revenue.
Now consider these historical data points: First,
over the last 10 years, the firm's market-making
business has never had a quarterly loss and has
lost money on only 30 trading days. These loss days
represent only 1% of total trading days, and the
average loss on those days was $90 million. Second,
when markets completely collapsed during the
COVID-19 pandemic (from March 2 through March
31, 2020, the stock market fell 16%, and bond
spreads gapped out dramatically), J.P. Morgan's
market-making activities made money every day
prior to the Federal Reserve's major interventions,
which stabilized the markets. During that entire
month, we lost money on only two days but made
$2.5 billion in Markets revenue for the month. And
Market making is not particularly speculative since
market makers generally hedge their positions, as
you will see from some real life examples of the
economics and risks. We earn revenue of approxi-
mately $100 million on a typical day. In the aver-
age year, the total is nearly $30 billion. On our
$2 trillion in notional daily trading, this amounts to
only one hundredth of a cent charged to the inves-
tor for these services - an extraordinarily low cost
compared with any other market in the world.
Many large market participants - for example,
hedge funds and high-frequency traders, among
others - have no obligation to make markets. In
fact, many of these market participants often "step
out" of the markets and dramatically reduce liquid-
ity specifically when market conditions are difficult.
and in bad. Part of our brand promise is to stand
ready as the willing buyer and seller. In this, we
have never failed. In addition, in most cases
regarding government debt, where we serve as a
government securities dealer, we are legally obli-
gated to make markets. This constant visibility into
prices provided by market makers fosters investor
confidence, keeps fees low and promotes economic
growth by attracting more investors.
33
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
The main objective of market makers is to continu-
ously quote prices and diligently manage an inven-
tory to transact at those prices, which includes
assuming certain risks to support heavy volumes
and orderly trading. Market makers have a moral
obligation to try to make markets in good times
Market making entails risk but is not
particularly speculative.
JPMorgan Chase deploys approximately $70 billion
in capital to maintain our Markets franchise. This
capital supports $500 billion in securities inven-
tory (largely hedged) - and this inventory allows
us to buy and sell $2 trillion (notional) in securities
daily for our clients.
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
I would also like our shareholders to know that
our market making is backed by approximately
$7 billion in support expenses, including over
$2 billion in technology spend alone each year.
This investment allows us to maintain global
trading systems and constantly improve upon risk
management and efficiency.
Market makers add confidence, liquidity and
transparency to U.S. capital markets - market
making helps stabilize markets and can reduce
volatility.
In addition, more liquidity, not less liquidity, will be
needed to maintain market stability. Large banks
keep an inventory of securities they can deploy in
times of stress to help soothe markets; however,
with the implementation of new regulations, banks
now hold 70% as much inventory in securities as
they did before the 2008 financial crisis, while the
total size of the market has almost tripled. Higher
capital requirements will accelerate this trend
even further, impacting banks' ability to deliver
support to clients and markets in times when it is
needed the most.
Now let's take a look at the actual risk and results
versus the hypothetical risk and results. The hypo-
thetical global market shock of the CCAR stress
test has us losing $18 billion in a single day and
never recovering any of it. Let's compare that to
actual losses under real, actual market stress.
34
More market activity will move to unregulated
institutions, out of sight from regulators and with-
out the same level of consumer protections that
Americans expect from their banks. Other market
participants that don't have holistic client relation-
ships are less likely to provide liquidity to help
stabilize markets.
• Government infrastructure projects and cor-
porate development will become more expen-
sive. Federal, state and local governments, as
well as corporations and other institutions, rely
on large banks for access to U.S. capital markets
to fund development. If accessing capital mar-
kets becomes more expensive, it will have a rip-
ple effect on the hiring of American workers,
investment in research and development, and
funding to build hospitals, roads and bridges,
including the planned infrastructure projects
from the Inflation Reduction Act (IRA).
services will go up and feed through to
customers. That will lead to lower returns on
retirement accounts, college funds and other
long-term savings.
-
The cost of products that families count on to
save for retirement or college will go up as a
result of this proposal. Asset managers, money
market funds and pension funds all buy, sell
and safekeep securities and other financial
instruments for American investors. Under the
proposed rules, the cost of banking products
used on behalf of clients each day - including
brokerage, advisory, clearing and custody
Saving for retirement or college will be harder.
Mortgages and small business loans will be
more expensive. Consumers seeking a mort-
gage including first-time homebuyers and his-
torically underserved, low- to moderate-income
borrowers with smaller down payments - will
face higher interest rates or will have a tougher
time accessing one. This will occur not only
because the cost of originating and holding
these loans is higher but also because the cost
of securitizing them will rise for banks, non-
banks and government agencies. Not only that,
but the proposal will likely lead to reductions in
the size of unfunded credit card lines, which will
put pressure on FICO scores and thereby make it
more difficult for some people to access other
forms of retail credit such as mortgages. Again,
this will have the greatest impact on low- to
moderate-income borrowers who rely most
heavily on credit cards for day-to-day spending
and to build their credit history. It could even be
argued that existing regulations go too far and
that there is an opportunity to help underserved
communities by dialing down regulations that
lead to higher borrowing costs. This should be
studied and the pros and cons analyzed. The
same can be said for small business loans, which
will become more expensive and less accessible.
•
If this proposal is enacted as drafted:
•
•
Washington's Basel III endgame proposal
damages market making, hurts Americans
and drives activity to less transparent, less
regulated markets.
UPDATE ON SPECIFIC ISSUES FACING OUR COMPANY
Everyday consumer goods could be impacted.
Households contending with inflation could also
feel the effects of higher capital requirements
on market-making activities when they shop.
From beverage companies that need to manage
aluminum costs to farms that need to protect
against environmental risks, if the cost of hedg-
ing those risks increases, it could be reflected in
what consumers pay for everything from a can
of soda to meat products.
1.0
U.S. money market funds
Shadow banks
Loans held by nonbanks
Hedge fund and private equity AUM³
Top 50 sovereign wealth fund AUM4
Federal Reserve RRP volume
+A
$ 7.6
$ <0.1
$ 7.7
2.4
LA TA
2.8
U.S. private equity-backed companies (K)7
U.S. publicly listed companies (K)
Nonbank share of mortgage originations⁹
$
$
1996
$ 15.8
Nonbank share of leveraged lending 10
ta ta
$ 12.4
3.1
$ 12.0
4.1
9.7
$
7.3
+A
$
SA A
$
2.7
3.1
$
Global private credit AUM10
2.8
6.6
panies through good times and bad, seeking to
retain them as long-term clients across many
areas of the bank. They can and do take "losses"
that help the client maintain the franchise. But an
asset manager must act as a "fiduciary" of other
people's money and cannot lend based on a moral
obligation or potential future relationship.
$ 1.4
$ 92.4
$ 65.0
$ 61.7
Global GDP¹
2023
2010
2007
Total U.S. debt and equity market
financial system
($ in trillions)
Size of the Financial Sector/Industry
Recently, we have been witnessing a convergence
between the public and private markets. But it's
too soon to say how this ultimately will play out,
particularly if we go through a recessionary cycle.
Banks generally try to be there for their borrowers
in difficult times - striving to roll over loans, rene-
gotiate terms and raise additional capital. Banks
do this for multiple reasons: They normally feel an
obligation to help their clients, they have long-
term relationships and they can commonly earn
other sources of revenue from client-driven trans-
actions. Banks can also flex their capital and lend-
ing base as needed by their clients. This is because
a bank can and should make decisions to help com-
FLEXIBLE CAPITAL
A BANK'S STRENGTH: PROVIDING
$ 14.3
Banks in the
$
$ 54.2
$137.2
0.8
$
A ta ta
1.4
$ 0.9
$
6.5
$ 55.9
$
$ 4.9
4.1
$ 6.2
LA LA LA LA LA
Federal Reserve total assets
U.S. bank liquid assets²
Total U.S. broker-dealer inventories
U.S. GSIB market capitalization
U.S. bank loans
$ 0.9
$ 3.0
International isolationism has run through
American foreign policy throughout our history,
frequently with good reason. The chant, "Don't get
involved in foreign wars" was often right. That
said, the American public should remember that
even after the Revolutionary War, we did, in fact,
have British and French armies on our soil. The
sinking of American merchant and passenger ships
during World War I and the surprise attack on
Pearl Harbor in World War II brought isolationism
to a close for a time. America is never far from
being dragged into terrible conflicts. Global wars
come to our shores whether we like it or not - we
need to stay engaged.
$ 23.2
In our increasingly complex world, there is a vital
interrelationship between domestic and foreign
economic policy, particularly around trade, invest-
ment, national security and other issues. And, of
course, while American voters and leadership set
U.S. foreign policy, being a constructive part of the
global conversation has become more important
than ever.
If you doubt how important public policy is for the
health of a country, you need to look no further
than the recent history of Greece, Ireland or
Singapore. Each of these countries, starting from
deeply challenging places, implemented effective
government and policies that have done a great
job of lifting up their people when many thought it
wasn't possible. Sweden is another great example
of a country with good broad-based policies that
have succeeded at precisely what we all may want
- a dynamic, innovative, free-market economy
(Sweden actually has fewer government-owned
enterprises than America) and safety nets that
work. Conversely, you need to look no further than
North Korea or Venezuela to see the complete
destruction and havoc that terrible public policies
(often in the name of the people) can cultivate.
Strategy by its nature must be comprehensive. In
the rest of this section, I try to answer the question:
What must we do to ensure that the world stays
safe, not only for America but for freedom and
democracy? A comprehensive strategy entails four
important pillars, and we must succeed at each:
1. Maintain American leadership (including
military).
2.
Achieve long-term economic success with
our allies.
3. Strengthen our nation domestically.
Policy and strategy matter, and it's important
to be engaged.
4.
COALESCING THE WESTERN WORLD - A
UNIQUELY AMERICAN TASK
Only America has the full capabilities of military
might, economic power and the principles that
most people around the world yearn for - based
on "liberty and justice for all" and the proposition
that all people are created equal. America
remains the bastion of freedom and the arsenal
of democracy.
There is no alternative to American leadership.
In the free and democratic Western world, and, in
fact, for many other countries, there is no real or
good alternative to America. The only other poten-
tial superpower is China. Other nations know they
can rely on the founding principles of America. If
we reach out our hand, most nations will happily
take that hand. America is still the most prosper-
ous nation on the planet, which not only can guar-
antee our military strength but also positions us to
help our allies develop and grow their nations
(though we should minimize the “our way or the
highway" type of behavior). This leadership is
needed today to help Ukraine stay free in its battle
with Russia.
Most of the world wants American leadership.
America continues to be the envy of much of the
world, and as we've seen with the challenges at
our borders, there is a reason people want to
come here and not to autocratic nations. If you
opened America's borders to the rest of the world,
I have little doubt that hundreds of millions of
people would want to move here. By contrast, not
many would want to emigrate to autocratic
nations. Also, I have little doubt that if most inves-
tors across the globe could only invest in one coun-
try, they would choose the United States. Beyond
our country's borders, people and nations around
the world understand the role that America has
played in promoting world peace known as Pax
Americana. For the most part, Pax Americana has
kept the world relatively peaceful since World War
Il and helped lead to enormous global economic
prosperity, which has helped lift 1.3 billion people
out of poverty.
A PIVOTAL MOMENT FOR AMERICA AND THE FREE WESTERN WORLD: STRATEGY AND POLICY MATTER
Modern America does not engage in economic
coercion or foreign wars to steal land or treasure.
The fact that some of our foreign excursions might
have been misguided does not negate this. We
helped rebuild Europe and Japan after the devas-
tation of World War II, and we, with our allies, have
helped create global institutions to maintain
peace. We are still trusted.
Deepen focus and resolve on addressing
our most pressing challenges.
First and foremost, the Western world needs
unquestioned military might - peace through
strength.
moral forces. And now we must do so as America's
leadership is being challenged around the world.
There is nothing more important.
A PIVOTAL MOMENT FOR AMERICA AND THE FREE WESTERN WORLD: STRATEGY AND POLICY MATTER
You know heart and soul when you see it in effect
on sports teams or with "the boys in the boat".
it's a beautiful thing to watch. It's not as obvious,
but it happens in business, too.
It's essential to build trust with your
customers, constituencies and, yes, even
competitors.
Of course, I'm not bringing this up as a matter of
corporate governance or a corporation's purpose:
A business should, over the long run, try to maxi-
mize shareholder value. It is completely obvious
that running a decent business-treating everyone
ethically and earning trust and respect in all your
communities - is not only fundamental to share-
holder value but also to a healthy society.
MANAGEMENT LESSONS: THINKING, DECIDING AND TAKING ACTION - DELIBERATELY AND WITH HEART
43
A Pivotal Moment for America
and the Free Western World:
Strategy and Policy Matter
military but also its economic, diplomatic and
In past years, I have written extensively about pub-
lic policy issues. It is important to engage in these
conversations, particularly around domestic
economic policy because policy matters. While
JPMorgan Chase can execute specific plans to
improve outcomes for customers and communi-
ties, there is no replacement for effective govern-
ment policies that add to the general well-being of
the country. A stronger and more prosperous
country will make us a stronger company.
Every time I see the American flag, it reminds me
of the values and virtues of this country and its
founding principles conceived in liberty and dedi-
cated to the notion that all men and women are
created equal. Talk with someone who has recently
become a naturalized citizen or watch a ceremony
where groups of people take the oath to America,
and you will see extraordinary joy and newfound
pride. They now live free, with individual rights
protected by the Constitution and with their life
and the well-being of their family and community
protected by the U.S. military. As Americans, we
have much to be grateful for and much to defend.
If you read the newspaper from virtually any day
of any year since World War II, there is abundant
coverage on wars - hot and cold – inflation, reces-
sion, polarized politics, terrorist attacks, migration
and starvation. As appalling as these events have
been, the world was generally on a path to becom-
ing stronger and safer. When terrible events
happen, we tend to overestimate the effect they
will have on the global economy. Recent events,
however, may very well be creating risks that could
eclipse anything since World War II - we should
not take them lightly.
February 24, 2022 is another day in history that
will live in infamy. On that day, 190,000 Russian
soldiers invaded a free and democratic European
country - importantly, somewhat protected by the
threat of nuclear blackmail. Russia's invasion of
Ukraine and the subsequent abhorrent attack on
Israel and ongoing violence in the Middle East
should have punctured many assumptions about
the direction of future safety and security, bringing
us to this pivotal time in history. America and the
free Western world can no longer maintain a false
sense of security based on the illusion that dicta-
torships and oppressive nations won't use their
economic and military powers to advance their
aims - particularly against what they perceive as
weak, incompetent and disorganized Western
democracies. In a troubled world, we are reminded
that national security is and always will be para-
mount, even if its importance seems to recede in
tranquil times.
The fallout from these events should also lay to
rest the idea that America can stand alone. Of
course, U.S. leaders must always put America
first, but global peace and order are vital to
American interests. Only America has the full
capability to lead and coalesce the Western world,
though we must do so respectfully and in partner-
ship with our allies. Without cohesiveness and
unity with our allies, autocratic forces will divide
and conquer the bickering democracies. America
needs to lead with its strengths - not only its
44
As CEO of this company, every year I visit numer-
ous countries around the globe. I meet with for-
eign government leaders, presidents and prime
ministers, business leaders, and civic and aca-
demic experts, which allows me to learn a signifi-
cant amount about how public policy is executed
around the world. It also reinforces some of the
critical values and virtues that are essential to a
healthy country.
came to see me over the objection of my manage-
ment team.) The reason we were saving money is
because the healthcare benefits were cut in half
for the guards and their family members (currently
worth approximately $15,000 a year), and the sav-
ings were split with us. This was a heartless thing
to do and the second I found out, I reversed the
decision. JPMorgan Chase's success will not be
built off the backs of our guards - it will be the
result of fair treatment of all of our employees -
and we're thankful that many of those guards are
still with our company today.
"We know only too well that war comes not when
the forces of freedom are strong, but when they
are weak," said Ronald Reagan in 1980.
American leadership requires not only the
military but also the full "symphony of power."
Former Secretary of Defense Robert Gates, in his
book Exercise of Power, writes extensively in the
first chapter about “the symphony of power." He
makes the critical point that America has often
overused and misused military power and has
massively underused other muscles - diplomacy,
intelligence, communication (explaining to the
world the benefits of democracy and free enter-
prise) and comprehensive economic policy.
47
of the world's consumers live outside the United
States. Increased trade allows our workers and
farmers to access those markets. We should nego-
tiate trade agreements that can achieve more,
economically, for ourselves and our allies, as well
as meet all of our national security needs. While it
is appropriate to use trade to continue to nudge
allies in the right direction around human rights
and climate, this objective should be subordinated
to our national interests of long-term security.
Negotiating must be done in concert with our allied
nations so as not to cause a fissure in economic
relations. This is critical - strong economic bonds
will help ensure strong military alliances. The Infla-
tion Reduction Act has much good in it (more on this
later), but it angered many of our allies. To them,
the bill was by America and for America, and, sub-
sequently, they felt a need to match it so their busi-
nesses would not be disadvantaged. The terms of
the legislation could have been better negotiated
with our allies in mind, strengthening our economic
ties with the free world.
We should also immediately re-enter, if possible,
the prior negotiated Trans-Pacific Partnership
agreement. Not only is it good for the economy,
but it also could be a brilliant, strategic, economic
security move - an economic alliance that binds
us with 11 other important countries (including
Australia, Chile, Japan, Malaysia, Mexico, Singa-
pore and Vietnam). Geopolitically and strategically,
this might be one of the most important moves to
counter China. While this is a challenging step, our
political leaders need to explain and lead - and
not be afraid of dealing with the tough issues. We
also need to acknowledge that there have been
real negative job impacts as a result of trade,
which are usually concentrated around certain
areas and businesses. So any new trade policy
should be combined with a greatly enhanced Trade
Adjustment Assistance program, which provides
retraining, income assistance and relocation for
those workers directly impacted by trade.
Trade is realpolitik, and the recent cancellation of
future liquified natural gas (LNG) projects is a good
example of this fact. The projects were delayed
mainly for political reasons - to pacify those who
believe that gas is bad and that oil and gas proj-
A PIVOTAL MOMENT FOR AMERICA AND THE FREE WESTERN WORLD: STRATEGY AND POLICY MATTER
ects should simply be stopped. This is not only
wrong but also enormously naïve. One of the best
ways to reduce CO2 for the next few decades is to
use gas to replace coal. When oil and gas prices
skyrocketed last winter, nations around the world -
wealthy and very climate-conscious nations like
France, Germany and the Netherlands, as well as
lower-income nations like Indonesia, the Philippines
and Vietnam that could not afford the higher cost -
started to turn back to their coal plants. This high-
lights the importance of safe, secure and affordable
energy. Second, the export of LNG is a great eco-
nomic boon for the United States. But most import-
ant is the realpolitik goal: Our allied nations that
need secure and affordable energy resources,
including critical nations like Japan, Korea and most
of our European allies, would like to be able to
depend on the United States for energy. This now
puts them in a difficult position - they may have to
look elsewhere for such supplies, turning to Iran,
Qatar, the United Arab Emirates or maybe even
Russia. We need to minimize anything that can tear
at our economic bonds with our allies.
Industrial policy is now necessary, but it
should be carefully constructed and limited.
In some cases, industrial policy (using government
resources to subsidize investments to help make
businesses more competitive) may be the only
solution for quickly building up the industries we
need (rare earths and semiconductors, among
others) to guarantee resilient national security.
The IRA and CHIPS Act are good examples of this
and government has to get it right.
Such policy can also be used to help combat unfair
competitive policies of nations that are using state
capitalism and state control to dominate critical
industries. However, when crafting industrial policy,
the function of government needs to be narrowly
defined and kept simple; i.e., governmental jurisdic-
tion should be limited to very specific products and
48
A PIVOTAL MOMENT FOR AMERICA AND THE FREE WESTERN WORLD: STRATEGY AND POLICY MATTER
A A
The strength of our domestic production of energy
gives us a "power advantage" - cheaper and more
reliable energy, which creates economic and geo-
political advantages.
So far, the Western world has done a good job in
strengthening military alliances in response to the
war in Ukraine. Ukraine is essentially the front line
that needs immediate support. Providing that sup-
port is the best way to counter autocratic forces
that would seek to weaken the Western world, par-
ticularly America. But the ongoing wars in Ukraine
and the Middle East could become far worse and
spread in unpredictable ways. Most important, the
specter of nuclear weapons - probably still the
greatest threat to mankind - hovers as the ultimate
decider, which should strike deep fear in all our
hearts. The best protection starts with an unyield-
ing resolve to do whatever we need to do to main-
tain the strongest military on the planet - a com-
mitment that is well within our economic capability.
We already engage in trade - improving it is
good economics and great geopolitics.
We must have a better understanding of trade.
As a nation, we refuse to get into genuine trade
discussions, but this ignores the complete and
obvious truth - we already have trade relation-
ships with all these countries. Approximately 92%
All these issues can be resolved, though they will
take time and need devoted effort.
America has the most extensive group of partners,
friends and allies – both military and economic ·
that the world has probably ever seen. We should
put this to better use.
The American public ought to hear more about
why this is so important.
In perilous periods of history when our allies and
other democracies were under serious assault,
great American leaders have inspired the Ameri-
can people through words and actions - to
stand up to help and defend them. Staying on the
sidelines during battles of autocracy and democ-
racy, between dictatorship and freedom, is simply
not an option for America today. Ukraine is the
front line of democracy. If the war goes badly
for Ukraine, you may see the splintering of Pax
Americana, which would be a disaster for the
whole free world. Ukraine's struggle is our strug-
gle, and ensuring their victory is ensuring America
first. It is imperative that our national leaders
explain to the American people what is at stake
and make a powerful case - with energy, consis-
tency and clarity - for our strong enduring com-
mitment to Ukraine's survival for as long as it
takes (and it could take years).
One last point: Ukraine needs our help immediately,
but it's important to understand that much of the
money that America is directing to Ukraine is for
purchasing weapons and equipment, most of which
will be built in America. Not only is our aid helping
Ukraine, but it is going directly to American manu-
facturers, and it is helping the country rebuild our
military industrial capacity for the next generation.
46
A PIVOTAL MOMENT FOR AMERICA AND THE FREE WESTERN WORLD: STRATEGY AND POLICY MATTER
Every nation will have different national security
issues. For example, Europe in general and coun-
tries like India, Japan and Korea need reliable,
affordable and secure energy; many nations would
put food security as their top concern. This means
that we must work with our allies to accomplish
our own goals and to help them accomplish theirs.
We have extraordinary common interests in our
joint security: We must hang together - because if
we don't, we will assuredly hang separately.
STRENGTHENING OUR POSITION WITH
A COMPREHENSIVE, GLOBAL
ECONOMIC SECURITY STRATEGY
The whole Western world is rethinking and
reimagining its military strategies and alliances.
We need to do the same for our economic strate-
gies and alliances, but we should be guided by a
comprehensive global strategy that deals with
critical issues. Done properly, such a strategy
would help strengthen, coalesce and possibly be
the glue that holds together Western democratic
alliances over decades.
Foreign economic policy involves trade and invest-
ment, export controls, secure and resilient supply
chains, and the execution of sanctions and any
related industrial policies. It must also include
development finance – think of the "Belt and Road"
efforts in China - which are critical to most develop-
ing nations. This framework should tell us not only
how to deal with our allies but also how to work with
nonaligned nations around the world. These strate-
gies should not be aimed against any one country
(such as China) but rather be focused on keeping
the world safe for democracy and free enterprise.
Economic national security is paramount
both for the United States and for our allies.
It is a valid point that the Western world - both
government and business - essentially underesti-
mated the growing strength and potential threat of
China. It's also true that China has been compre-
hensively and strategically focused on these eco-
nomic issues, all while we slept. But let's not cry
over spilled milk - let's just fix it.
We missed the potential threat from three vantage
points. The first is companies' overreliance on
China as the sole link in their supply chain, which
can create vulnerabilities and reduces resiliency.
But to the extent this involves everyday items, like
clothes, sneakers, vaccine compounds and con-
sumer goods, this dependency is not as critical or
complex and will eventually be sorted out.
The second is the most critical. The United States
cannot rely on any potential adversaries for mate-
rials essential to our national security - think rare
earths, 5G and semiconductors, penicillin and
materials critical to essential pharmaceuticals,
among others. We also cannot be sharing vital
technologies that can enhance an adversary's
military capabilities. The United States should
properly and narrowly define these issues and
then act unilaterally, if necessary, to fix them.
The third is also complex, which is countering
unfair competition or "mercantilist" behavior in
critical industries; think electric vehicles, renew-
able energy and Al, among others. Examples of
this would be where a state, any state, uses gov-
ernment powers, capital, subsidies or other means
to dominate critical industries and deeply damage
the economic position of other nations. Weakening
a country economically can render it a virtual
"vassal state," reliant on potential adversaries for
essential goods and services, which also weakens
it militarily. We cannot cede our important
resources and capabilities to potential adversaries.
Sustaining America's economic strength is a bed-
rock for our long-term military strength. There are
many things we need to do to strengthen the U.S.
economy, and I talk about that later in this section.
This discussion is about foreign economic policies
- the economic battlefield.
Heart matters. And it makes a difference when
people know and see that you actually care. One
example: Many years ago when I was new to
JPMorgan Chase, I learned that the company's
security guards had been outsourced - to save
money. Since after outsourcing, when the same
guards continued coming to work every day at the
same salary, I wondered, "How could this be?"
(FYI, this was brought to my attention by the head
of the Service Employees International Union, who
45
Finally, your vision needs to be clear, coherent and
consistent. Within an organization, people very
quickly pick up the pattern of management saying
one thing but doing another. Because if words and
actions are inconsistent (for example, and I could
give many, when we say we want employees to be
treated with respect, but we allow a jerk to be their
boss), confidence in leadership will be eroded.
GDP = Gross domestic product
GSIB Global systemically important banks
RRP Reverse repurchase agreements
K Thousands
For footnoted information, refer to page 61 in this Annual Report.
STAYING COMPETITIVE IN THE SHRINKING PUBLIC MARKETS
AUM Assets under management
39
I always enjoy sharing what I've learned from
watching others, reading and experiencing through
my own journey.
BENEFITING FROM THE OODA LOOP
The military, which often operates in extreme
intensity of life and death and in the fog and
uncertainty of war, uses the term "OODA loop"
(Observe, Orient, Decide, Act - repeat), a strategic
process of constant review, analysis, decision
making and action. One cannot overemphasize the
importance of observation and a full assessment
- the failure to do so leads to some of the greatest
mistakes, not only in war but also in business and
government.
A full assessment is critical.
To properly manage any business situation, you
need to perform a full and complete assessment
of it. In business, you have to understand your
competitors, their distribution, their economics,
their innovations, and their strengths and weak-
nesses. You also need to understand customers
and their changing preferences, along with your
own costs, your people and their skills. Then
there's knowing how other factors fit in, like tech-
nology, risk, motivations ... hope you get the point.
For countries, you need a thorough grasp of their
economies, strengths and weaknesses, population
and education, access to raw materials, laws and
regulations, history and culture. Research, data
and analytics should be at a very detailed level and
constantly reassessed. Only after you complete
this diligent study can you start to make plans with
a high degree of success.
Management Lessons: Thinking,
Deciding and Taking Action -
Deliberately and with Heart
Sources: FactSet, S&P Global Market Intelligence, Assets and Liabilities of Commercial Banks in the United States H.8 data, Financial Accounts of the United States Z.1 data, World Federation of
Exchanges, Pitchbook, Preqin and World Bank.
$ 1.6
0.3
$ 6.4
4.9
Heart cannot be overstated.
11.3
4.6
4.2
4.3
12%
9%
69%
44%
54%
70%
$ 0.2
$
Get on the road - it builds knowledge and
culture.
I have frequently wondered about all the nonstop
road trips, client meetings, briefings, greetings,
bus trips, and visits to call centers, operating
centers and branches, regulators and government
officials, among others: Did they make a differ-
ence? The answer is absolutely yes because they
enabled a process of constant learning, assess-
ment and modification of best practices - gaining
insights from employees to clients to competitors.
Employees will tell you what you are doing well or
poorly if you simply ask them, and they know you
want to hear the real answer. Curiosity is a form
of humility - acknowledging that you don't know
everything. Responding to curiosity allows other
people to speak freely. Facts and details matter
and inform a deeper and deeper analysis that
allows you to continually revise and update your
plans. This, of course, also means that you are
constantly admitting prior mistakes.
6.0
-
Try to have a good decision-making process.
Try to give yourself the time to decide. Make sure
you speak with the right people and make sure the
right people are in the room. Information should
be fully shared. People should be made very com-
fortable with open debate. Quite often, the "right"
answer is simply waiting to be found - you don't
have to guess.
Crowdsourcing, compromise, consensus and
committees have benefits and risks.
There are huge benefits to crowdsourcing intelli-
gence. It is a form of full assessment, a strategy
for getting the best ideas and challenging the sta-
tus quo. We should do this for almost every major
decision. It is perfectly fine on some occasions to
compromise and gain consensus, particularly on
decisions that are not critical and can easily be
reversed. Often people spend too much time
debating issues that are simply not that import-
ant; it's better to decide and move on. Also,
before you compromise, you should know exactly
what you want to achieve and the consequences
of any tradeoffs. However, sometimes compro-
mise and consensus cannot work and only lead to
a feel-good decision that is probably wrong this
could be the road to ruin.
-
The use of committees can be good when done
properly. For example, if our risk committees
could do a full assessment and crowdsource all
potential risks, that would lead to better decision
making. I will give one very personal and painful
example, which is when we had a major trading
scandal, called The London Whale. The scandal
was not caused by the complexity of the trade but
rather the failure to go to the proper Risk com-
mittee for a thorough review, which should have
happened but didn't. I have no doubt that had the
trade been raised there, the flaws would have
been exposed immediately, thereby dramatically
reducing or eliminating the problem. On the other
hand, the opposite can happen when a commit-
tee, with everyone staring at each other, devolves
into herd-like behavior with people looking for
confirmation and ending up with a compromise
that is a poor choice.
Good leadership involves great observation and
the ability to act, but there is more...
THE SECRET SAUCE OF LEADERSHIP
(HAVE A HEART)
You need to earn trust and respect with your
employees.
You can be great at assessment, you can be bril-
liant and you may often be willing to act. But all of
that is not good enough for "complete" leadership.
To become a true leader, you need to be trusted
and you must earn your respect, every day. People
have to know that you do not have ulterior motives
and that you're trying to do the right thing – not
trying to burnish your personal reputation. Good
people want to work for people they respect, and
they will not respect people who take all the credit
and share all the blame. People need to know that
even when you make mistakes, you're willing to
admit them and take corrective action. And there
is more ...
22
42
MANAGEMENT LESSONS: THINKING, DECIDING AND TAKING ACTION - DELIBERATELY AND WITH HEART
The importance of vision, communication and
inspiration.
We know that bureaucracy can lead to politics,
corporate stasis and terrible decisions. So you can
communicate your vision about how to fight
bureaucracy by telling stories about the silly things
we do - but with a smile - and then by showing
people that you will actually fix the problems.
You need to shed sacred cows, seek out blind
spots and challenge the status quo.
One exercise that I find useful (and sometimes
painful) is to draw up a list of important decisions
that need to be made - the ones I often avoid con-
fronting. So I take time every Sunday to think
about these tough issues and almost always make
progress. Progress doesn't always mean that you
come to the final conclusion - sometimes it's just a
very rational next step that can put you on a path
to the final decision.
you wish for if you knew X was going to happen?"
(for example, higher interest rates). Decision
making takes a mix of courage, grit and guts.
The reason I've always hesitated to talk about
"vision" is because often it is the basic BS of
corporate speak - that somehow if you impart
your vision to people, they will take the mountain.
What it really is all about is this: After you've done
your full assessment and decision making, you can
then continuously educate, explain, train, simplify,
propel and fight. But this only works if people
know you are in the trenches with them, if they
understand the mission and if they are there side
by side with your effort.
To get people to think like decision makers and
take a strong point of view, we like to ask, "What
would you do if you were king or queen for a day?"
It helps shift the direction to individual decision
making. We also ask questions like, "What would
MANAGEMENT LESSONS: THINKING, DECIDING AND TAKING ACTION - DELIBERATELY AND WITH HEART 41
40
40
Very often companies or individuals develop nar-
ratives based upon beliefs that are very hard to
dislodge but are often wrong and they can lead
to terrible mistakes. A few examples will suffice.
Stripe, Inc. built a payments business by working
with developers - something we never would
have imagined but might have figured out if we
had tried to seek out what others were doing in
this area. Branches were being closed, both at
Bank One and Chase, because the assumption
was that they would not be needed in the future.
We underinvested for years in the wealth man-
agement business because we were always
focused on the value of deposits versus invest-
ments. Question everything.
Use your brains to figure out the truth - not to
justify what you already think.
It's often hard to change your own attitudes and
beliefs, especially those you may have held on to
for some time. But you must be open to it. When
you learn something that is different from what
you thought, it may affect many conclusions you
have, not just one. Try not to allow yourself to
become rigid or "weaponized," where other
employees or interest groups jazz you up so much
that you become a weapon on their behalf. This
makes it much harder to see things clearly for
yourself. When people disagree with you, seek
out where they may be partially right. This opens
the door for a deeper understanding and avoids
binary thinking.
MANAGEMENT LESSONS: THINKING, DECIDING AND TAKING ACTION - DELIBERATELY AND WITH HEART
There is too much emphasis on short-term,
monthly data and too little on long-term trends
and on what might happen in the future that would
influence long-term outcomes. For example, today
there is tremendous interest in monthly inflation
data, although it seems to me that every long-term
trend I see increases inflation relative to the last
20 years. Huge fiscal spending, the trillions needed
each year for the green economy, the remilitariza-
tion of the world and the restructuring of global
trade all are inflationary. I'm not sure models
could pick this up. And you must use judgment if
you want to evaluate impacts like these.
Also, a block of time as short as one year is an arti-
ficial framework for judging the impact of long-
term trends that could easily play out over years.
A helpful exercise is to think "future back," in
which you imagine different future outcomes,
including the ones you want, and then work back-
ward to events that are happening today (or that
might happen or that you cause to happen), closely
examining the connections between those events
and your projected or desired outcomes. Those
connections inform your risk and R&D planning.
Similarly, when companies compare the attributes
of their products and services with their competi-
tors, they usually only consider where they are
versus their competitors. But nothing is static -
they should consider where their competitors will
be in the future. Conditions are always changing,
crises are always emerging. When analyzing the
playing field, it is better to assume that your com-
petitors are strong and are already in the process
of improving and innovating. This minimizes the
chance of arrogance leading to complacency.
DECISION MAKING AND ACTING
(HAVE A PROCESS)
There is a time for an individual to decide
and act.
Sometimes you should take the time to measure
twice and cut once. And then sometimes making a
quick decision is better than delaying. You should
try to distinguish between the two. For example,
with decisions that are hard to reverse, it's usually
better to go slow. With other decisions where you
can test, learn, probe and change direction, it's
often better to go fast. It's been my experience
that it's hard for some people to actually decide
and act. This could be from analysis paralysis, lack
of "perfect" information, fear of failure or the feel-
ing that full consensus is needed before a decision
can be reached. But whatever it is, it can slow
down and possibly seriously damage a company.
It's hard to see certain long-term trends, but
you must try.
It's been 11 years since I left the
U.S. Senate, after serving 24 years in
high public office. After leaving a
career in politics, I devoted much of my
time to public lectures that took me into
every state in the union and much of
Europe, Asia, the Middle East and Latin
America.
Justice Felix Frankfurter
Wisdom too often never comes,
and so one ought not to reject it merely
because it comes late.
By George McGovern
A Politician's Dream Is a Businessman's Nightmare
(Copyright ©1992, Dow Jones & Co., Inc.)
We can safely say that America is an exceptional
nation built and grounded on principles - princi-
ples of freedom of speech, freedom of religion,
free enterprise (capitalism), and the freedom and
empowerment brought to us by our democracy
through the power to elect our leaders and of our
Constitution, which makes these individual free-
doms sacrosanct. Much of the world yearns to be
here because of those principles - the right to life,
liberty and the pursuit of happiness. We should
extol those virtues while recognizing that America
has never been a perfect nation, like all other
nations. We can acknowledge our flaws and strive
to constantly correct them, without denigrating
our nation.
JUNE 01, 1992
THE WALL STREET JOURNAL.
51
A PIVOTAL MOMENT FOR AMERICA AND THE FREE WESTERN WORLD: STRATEGY AND POLICY MATTER
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Celebrate American exceptionalism.
Manager's Journal:
In 1988, I invested most of the
earnings from this lecture circuit
acquiring the leasehold on Connecticut's
Stratford Inn. Hotels, inns and
restaurants have always held a special
fascination for me. The Stratford Inn
promised the realization of a longtime
dream to own a combination hotel,
restaurant and public conference
facility complete with an experienced
manager and staff.
Today, despite bankruptcy, we
are still dealing with litigation from
individuals who fell in or near our
restaurant. Despite these injuries, not
every misstep is the fault of someone
else. Not every such incident should be
viewed as a lawsuit instead of an
unfortunate accident. And while the
business owner may prevail in the end,
the endless exposure to frivolous claims
and high legal fees is frightening.
In retrospect, I wish I had known
more about the hazards and difficulties
of such a business, especially during a
recession of the kind that hit New
England just as I was acquiring the
inn's 43-year leasehold. I also wish
that during the years I was in public
office, I had had this firsthand
experience about the difficulties
business people face every day. That
knowledge would have made me a
better U.S. senator and a more
understanding presidential contender.
(See related letters: "Letters to
the Editor: A Politician's Dream Is a
Businessman's Nightmare" -- WSJ July
2, 1992)
-
Mr. McGovern, the 1972
Democratic presidential candidate, is
president of the Middle-Eastern
Policy Council in Washington.
The problem we face as
legislators is: Where do we set the bar
so that it is not too high to clear? I don't
have the answer. I do know that we
need to start raising these questions
more often.
In short, "one-size-fits-all"
rules for business ignore the reality of
the marketplace. And setting thresholds
for regulatory guidelines at artificial
levels e.g., 50 employees or more,
$500,000 in sales -- takes no account of
other realities, such as profit margins,
labor intensive vs. capital intensive
businesses, and local market
economics.
In services, however, consumers
do have a choice when faced with
higher prices. You may have to stay in
a hotel while on vacation, but you can
stay fewer days. You can eat in
restaurants fewer times per month, or
forgo a number of services from car
washes to shoeshines. Every such
decision eventually results in job losses
for someone. And often these are the
people without the skills to help
themselves the people I've spent a
lifetime trying to help.
--
It is clear that some businesses
have products that can be priced at
almost any level. The price of raw
materials (e.g., steel and glass) and
life-saving drugs and medical care
are not easily substituted by consumers.
It is only competition or antitrust that
tempers price increases. Consumers
may delay purchases, but they have
little choice when faced with higher
prices.
Our Connecticut hotel, along
with many others, went bankrupt for a
variety of reasons, the general economy
in the Northeast being a significant
Some of the escalation in the
cost of health care is attributed to
patients suing doctors. While one
cannot assess the merit of all these
claims, I've also witnessed firsthand the
explosion in blame-shifting and
scapegoating for every negative
experience in life.
For example, the papers today
are filled with stories about businesses
dropping health coverage for
employees. We provided a substantial
package for our staff at the Stratford
Inn. However, were we operating today,
those costs would exceed $150,000 a year
for health care on top of salaries and
other benefits. There would have been
no reasonable way for us to absorb or
pass on these costs.
been limited to that small hotel and
restaurant in Stratford, Conn., with an
especially difficult lease and a severe
recession. But my business associates
and I also lived with federal, state and
local rules that were all passed with the
objective of helping employees,
protecting the environment, raising tax
dollars for schools, protecting our
customers from fire hazards, etc. While
I never have doubted the worthiness of
any of these goals, the concept that
most often eludes legislators is: "Can
we make consumers pay the higher
prices for the increased operating costs
that accompany public regulation and
government reporting requirements
with reams of red tape." It is a simple
concern that is nonetheless often
ignored by legislators.
My own business perspective has
Today we are much closer to a
general acknowledgment that
government must encourage business to
expand and grow. Bill Clinton, Paul
Tsongas, Bob Kerrey and others have, I
believe, changed the debate of our
party. We intuitively know that to
create job opportunities we need
entrepreneurs who will risk their capital
against an expected payoff. Too often,
however, public policy does not consider
whether we are choking off those
opportunities.
cause. But that reason masks the
variety of other challenges we faced
that drive operating costs and financing
charges beyond what a small business
can handle.
Those of us who have benefited the most from this
country bear even greater responsibility to do this.
It's perfectly understandable that institutions,
including businesses, unions and industries, lobby
in Washington, D.C., to protect themselves - in
good ways and bad - but we should more regu-
larly put national interests ahead of self-interests.
It's good to want to ensure well-paying jobs and
healthy industries. But it is not good when it
reduces competition, stops the deployment of
enhanced technology, harms efficiency, creates
fake jobs or builds bridges to nowhere or damages
the general health of the economy. Doing the right
thing, the right way - which is achievable - would
be better for everyone. As former President John
F. Kennedy said, “Ask not what your country can do
for you
ask what you can do for your country."
I believe that many affected Americans are not
angry at hardworking, law-abiding immigrants
and, in fact, acknowledge the critical role immi-
grants continue to play in building this wonderful
country. Rather, they are angry that America has
not implemented proper border control and immi-
gration policies. It is astounding that many in
Congress know what to do and want to do it but
are simply unable to pass legislation because of
partisan politics. Congress did come close on a
few occasions - and I hope they keep trying.
Proper federal government budgeting and
fiscal management. The staggering inability
of the government to draft and pass a proper
budget causes deep and unnecessary damage
to our growth. Some people estimate that the
waste alone (due to improper payments, over-
lapping programs, and fragmented and duplica-
tive contracts, among other things) could cost
the nation hundreds of billions of dollars annu-
ally. This uncertainty filters through virtually
every part of the American economy and should
not be accepted.
It might be a good idea to convene a group of like-
minded leaders to build and improve upon what
already exists. The time may be right for a reimag-
ined Bretton Woods - and by this, I mean revitaliz-
ing our global architecture. Since too many parts
of the world have been neglected, any new system
has to take into account and properly address the
needs of all nations, including areas of concen-
trated poverty.
A PIVOTAL MOMENT FOR AMERICA AND THE FREE WESTERN WORLD: STRATEGY AND POLICY MATTER 49
The international rules-based order established by
the Western world after World War II is clearly
under attack by outside forces, somewhat weak-
ened by its own failures and inability to keep up
with the increasingly complex world. This interna-
tional order relies on a web of military alliances,
trade agreements (e.g., World Trade Organization),
development finance (e.g., International Monetary
Fund and the World Bank) and related global tax
and investment policies and diplomacy organiza-
tions (e.g., United Nations), which have evolved
into a confusing and overlapping regime of poli-
cies. You can now add to it the new issues of cyber
warfare, digital trade and privacy, and global
taxes, among others.
We need to strengthen and rebuild the
international order - we may need a new
Bretton Woods.
While we may always have a complex relationship
with China (made all the more complicated and
serious by ongoing wars), the country's vast size
and importance to so many other nations requires
us to stay engaged - thoughtfully and without
fear. At the same time, we need to build and exe-
cute our own long-term, comprehensive economic
security strategy to keep our position safe and
secure. I believe that respectful, strong and consis-
tent engagement would be best for both our coun-
tries and the rest of the world.
America still has an enormously strong hand-
plenty of food, water and energy; peaceful neigh-
bors; and what remains the most prosperous and
dynamic economy the world has ever seen, with
a per person GDP of over $80,000 a year. Most
important, our nation is blessed with the benefit of
true freedom and liberty. See the sidebar on the
amazing power of freedom later in this section.
While we hope the wars in Ukraine and in the
Middle East will end eventually (and, we hope, suc-
cessfully from the standpoint of our allies), these
other critical economic battles could possibly con-
tinue throughout our lifetime. If the Western world
is slowly split apart over the next few decades, it
will likely be the result of our failure to effectively
address crucial global economic challenges.
-
China has its own national security concerns. The
country is located in a very politically complex part
of the world, and many of China's actions have
caused its neighbors (e.g., Japan, Korea, Philippines,
among others) to start to re-arm and, in fact, draw
closer to the United States. It also surprises many
Americans to hear that while our country is 100%
energy sufficient, China needs to import 10 million
Over the last 20 years, China has been executing
a more comprehensive economic strategy than we
have. The country's leaders have successfully
grown their nation and, depending on how you
measure it, have the first or second largest econ-
omy in the world. That said, many question the
current economic focus of China's leadership as
they don't have everything figured out. While
China has become the largest trading partner to
many countries around the world, its own GDP per
person is $13,000. And the country continues to be
beset by many economic and domestic issues.
We should be tough, but we should engage
with China.
There are those who argue that the U.S. govern-
ment needs much more far-reaching industrial
policy to be able to micromanage and accomplish
its many ambitious objectives. To those I say, read
further in this section about how ineffective so
many government policies have been.
probably to what we know works, such as tax cred-
its and, to a lesser extent, loan guarantees. And
industrial policy should include twin provisions:
1) strict limitations on political interference, like
social policies, and 2) specific permitting require-
ments, which, if not drastically improved, will badly
inhibit our ability to make investments and allow
infrastructure to be built. Adding social policy, poli-
tics and matters other than simple tax credits dra-
matically reduces the economic efficiency of indus-
trial policy and creates conditions for corporate
America to feed at the trough of government
largess. We should quickly address how we can
improve on already executed legislation. We do not
want to look back and have great regrets about how
so much of this policy work failed.
DI DOW JONES
barrels of oil a day. It is clear that China's new lead-
ership has set a different course, with a much more
intense focus on national security, military capabil-
ity and internal development. That is their right, and
we simply need to adjust to it.
We can all forgo a little self-interest to do what
is right for our country.
PROVIDING STRONG LEADERSHIP
GLOBALLY AND EFFECTIVE
POLICYMAKING DOMESTICALLY
From my point of view, our highly charged, emo-
tional and political domestic issues are centered
around 1) immigration and lack of border security
and 2) the fraying of the American dream, particu-
larly for low-income and rural Americans who feel
left behind amid the growing wealth and prosper-
ity of others around them. Please read the sidebar
on page 57, which I believe explains the legitimate
frustration of some of our citizens. And I agree
with them.
•
• Timely permits on projects large and small.
There is virtually no industry – from agricul-
ture and construction to transportation, tech-
nology, and oil and gas – or business, large or
small, that isn't disadvantaged by the tedious
process and the length of time it takes to get
approvals for permits to get things done. This
includes federal, state and local requirements.
These bottlenecks also make investment far
more costly and slow. Timely permits would
improve infrastructure and save lives, not
endanger them.
astounding. We should be able to accomplish
our goals while sharply reducing needless and
wasteful expenses. And remember, it's dis-
couraging not only to companies but to all cit-
izens who have to deal with it on a daily basis.
-
laws). This requires an ongoing concerted
effort to streamline regulations to cost effec-
tively drive better outcomes for the United
States. The last thing we need is a constant
pile-on of politically driven, fragmented poli-
cies. Please read the sidebar on the next
page, an editorial in The Wall Street Journal by
George McGovern, one of the most liberal
presidential nominees in our lifetime, in which
he clearly lays out the complexity, risks and
costs that businesses, large and small, face
every day. While he acknowledges the worthi-
ness of the goals of many regulations, he
points out their negatives. He also calls out
the “blame-shifting and scapegoating" and
"the endless exposure to frivolous claims and
high legal fees." Not only is this state of
affairs demoralizing, but it also reduces
employment, capital investment and the for-
mation of new businesses, as well as cause
unnecessary bankruptcies. Estimates of the
regulatory costs for America are approxi-
mately $19,000 per worker, dwarfing the reg-
ulatory burdens in other countries. We all
want sensible regulations that make us a bet-
ter and safer nation but this number is
Well-conceived regulations (and related
When you travel around the United States and talk
with people of all types and persuasions, there is a
rather common refrain; namely, why are we help-
ing foreign nations with the safety of their borders
and economies when we are not doing a particu-
larly good job of protecting our own? While there is
no moral equivalency in these arguments, they are
understandable. It is clear that many Americans
feel we need to do a better job here at home
before we can focus over there. We can under-
stand why some people living in this country, who
have been neglected for decades, ask how their
government can find the money for Ukraine and
other parts of the world but not for them. It is a
reasonable question.
•
50
Consistent tax policies, conducive to both
employment and capital investment. Capital
investment is the primary driver of innovation,
productivity and, therefore, growth in America.
Tax policies change too frequently, which causes
uncertainty and complicates long-term capital
investment decision making (I won't bore you
with the details here). A bipartisan committee of
Congress is probably required to fix this - and
the sooner the better.
Growth policies include (the list could be very
long so I'll just mention a few):
For over two decades, since 2000, America has
grown at an anemic rate of 2%. We should have
strived for and achieved 3% growth. Had we done
so, GDP per person today would be $16,000
higher, which would, in turn, have paid for better
healthcare, childcare, education and other
services. Importantly, the best way to handle
our excess deficit and debt issues is to maximize
economic growth.
Deliberate policies meant to drive healthy
growth are needed.
In the sidebar, I also explain how two policies (a
large expansion of the Earned Income Tax Credit
and focus on work skills and job outcomes at high
schools, community colleges and colleges) would
not only dramatically increase both the income
and employment opportunities for many of those
left behind but would also have the virtue of actu-
ally growing the workforce. The combined effect of
all of this would be quite a boon to our GDP.
A PIVOTAL MOMENT FOR AMERICA AND THE FREE WESTERN WORLD: STRATEGY AND POLICY MATTER
Let's celebrate the shared sense of sacrifice
that gives us all strength.
-
I can understand when an individual for conscien-
tious reasons chooses not to do work that helps
our military. But I cannot understand when an
entire company takes that position. How can we
have a sense of shared sacrifice, when America is
home to 18 million veterans who were willing to
risk their lives for America's safety, and yet some
companies are not even willing to use their finger-
tips to help?
Our civil liberties depend upon the rule of law, property rights,
including intellectual property, and restrictions on government
encroachment upon these freedoms. Our Constitution and Bill
of Rights secure our individual freedoms and reserve all rights
to the individual other than those important but limited
authorities given to the government.
The issue of individual rights is not all or none or freedom ver-
sus no freedom. There are, of course, terrible examples where
individual rights were trampled upon, and the results were dev-
astating - both for the individual and for the economy - in East
Germany, Iran, North Korea, Russia, Venezuela, to name a few.
And there are many countries that protect individual rights and
are on a spectrum closer to American values. Think of Europe,
for example. But even in some countries that have some of
these rights, a lack of dynamism – often due to bureaucracy,
weak institutions and government, and corruption – is palpable
and has clearly led to less innovation, lower growth and, in
general, a lower standard of living.
-
-
Freedom must necessarily be joined with the principle of
striving toward equal opportunity. Equal opportunity is what
allows individuals to rise to the best of their ability – it also
means unequal outcomes. Equal opportunity is the foundation
for fairness and meritocracy. The fight for equality, which is a
good moral goal, should not damage the rights of the individual
and their liberties.
Democracy and freedom are cojoined – together, they make
freedom more durable. Democracy also has a self-correcting
element every four years you get to throw out leadership if
-
you don't like them (which you do not see in autocracies). But
we all know that democracy can be sloppy: Maintaining an
effective democracy is hard work. Democracy fosters open
debate and compromise, which lead to better decisions over
time (whether in government or in business). Intelligence is
effectively “crowdsourced" with constant feedback. Good public
policy comes from good debate and analytics, guided by reason
coupled with a firm understanding of what you would like the
outcomes to be and complemented with an honest assessment
of what is really happening.
Even democracies can become stagnant, bureaucratic and self-
perpetuating. Good government does many admirable things,
but admitting to mistakes is often not one of them. It takes
civically engaged citizens and a strong free press to bring
sunlight to issues and keep a nation strong.
Autocratic societies by their nature subjugate the individual to
the state. By definition they are not meritocracies - they are
more about "who you know,” and they exist to perpetuate the
existing ruling class. Their decisions are based on a completely
different calculation, and their decision-making process does
not encourage and, therefore, benefit from open
debate. Democracy means that it is immoral to subjugate
individual freedoms to state actors other than to protect the
existence of the nation itself.
There are values that many of us hold dear, such as religion,
family and country. But none may be more important than the
freedoms that allow us to choose to live our life as we see fit.
We should do more to applaud the virtue and amazing power of
our freedoms.
56
A PIVOTAL MOMENT FOR AMERICA AND THE FREE WESTERN WORLD: STRATEGY AND POLICY MATTER
HOW WE CAN HELP LIFT UP OUR LOW-INCOME CITIZENS
AND MEND AMERICA'S TORN SOCIAL FABRIC
To fix problems, we must first acknowledge them. Despite
decades of government programs and all the moralizing that
surrounds them, we have not done a particularly good job
lifting up our low-income fellow citizens. I may be wrong, but I
do believe this is tearing at the social fabric of America and is
among the root causes of the fraying of the American dream.
The gap between low-wage and well-paid workers has been
growing dramatically. From 1979 to 2019, the wage growth of
the top 10% was nearly 10 times that of the bottom 10% -
which, basically, had not increased at all. The growth of low-
income workers' annualized real wages after the pandemic
was, for the first time in decades, higher than the top 60%, but
that's not enough. The net worth for the bottom 25% of
households is $20,800, and the net worth for the bottom 10%
is essentially $0. This makes it increasingly difficult for low-
wage workers to support their families. Of the 160 million
Americans working today, approximately 40 million are paid
less than $15 per hour.
Low-income individuals bear far greater burdens than the rest
of us. Nearly 40% of Americans don't have $400 in savings to
deal with unexpected expenses, such as medical bills or car
repairs, which leads to financial distress. More than 25 million
Americans don't have medical insurance at all; of these, one in
five are in a family with income below the federal poverty level.
People who live in low-income neighborhoods also tend to have
worse health outcomes, including higher rates of mental health
issues, depression and suicide, and a lower life expectancy - as
many as 20 years. Finally, low-income Americans generally
experience higher unemployment and more crime.
There were very few positives from the pandemic,
but I'm mentioning one, which, unfortunately,
didn't last, but reflected the best of us. In New
York City, at 7 p.m. every evening, people through-
out the city would open their windows, shouting
and screaming and banging pots and pans to show
gratitude to the essential workers - sanitation
workers, police, firefighters, emergency respond-
ers, nurses and doctors. Of course, these workers
were always essential, but I was hoping that spirit
and civility would become deeply embedded and
have longer lasting effects in our society.
A PIVOTAL MOMENT FOR AMERICA AND THE FREE WESTERN WORLD: STRATEGY AND POLICY MATTER
58
An increase in the EITC to a maximum of $10,000 would cost
tens of billions a year, but I have little doubt that these policy
changes would do more than anything else to lift up low-
income families and their communities. Well-paying jobs have
been shown to reduce crime, increase household formation,
improve health and reduce addiction. Both of these policies
would have the virtue of increasing the number of people in the
workforce. I also have little doubt that this would add to GDP.
The second step is related to the first: Get more income to low-
paid workers. While this one would cost money, it is to me a
complete no-brainer since it is an expansion of an existing
program, the Earned Income Tax Credit (EITC), which many
Democrats and Republicans already agree upon. Today, the
EITC supplements low- to moderate-income working individuals
and couples, particularly with children and people living in rural
areas. For example, a single mother with two children earning
$9 an hour (approximately $20,000 a year) could receive a tax
credit of more than $6,000 at year-end. Workers without
children receive a very small tax credit (96% of all EITC dollars
were received by families with children). This should be
dramatically expanded, including eliminating the child
requirement from the calculation altogether. We should convert
the EITC to make it more like a negative income payroll tax,
paid monthly. Any tax credit income should not be offset by any
other benefits these individuals already receive (we have to
eliminate benefit "cliffs" that disincentivize work).
-
The heart and soul of the dynamism of America is human
freedom - freedom of speech, freedom of religion, free
enterprise (capitalism), and the freedom and empowerment
brought to us by our democracy through the right to elect our
leaders. Free people are at liberty to move around as they see
fit, work as they see fit, dream as they see fit, and invest in
themselves and in the pursuit of happiness as they see fit. This
freedom that people enjoy, accompanied by the freedom of
capital, is what drives the dynamism - economic and social -
of this great country.
already know what to do. With nearly 9 million job openings
and just under 6 million unemployed workers in the United
States, job skills training has never been needed more. We
already spend a tremendous amount of money on education
just not the right way.
A PIVOTAL MOMENT FOR AMERICA AND THE FREE WESTERN WORLD: STRATEGY AND POLICY MATTER
The free one is so blindingly obvious that it's almost
embarrassing to propose. Our schools (high schools,
community colleges and perhaps even four-year colleges)
should take responsibility for outcomes – they should be
judged on the quality and income level of the jobs that their
graduates and even non-graduates attain. This means providing
graduating students and other individuals with work skills (in
fields such as advanced manufacturing, cyber, data science and
technology, healthcare and so on) that will lead to better paying
jobs. These schools should work with local businesses to
replicate effective programs that are in place – because that is
where the actual jobs are now. This would be good for growth
and, as there are so many examples of successful programs, we
There are two policy changes that I believe can have a dramatic
effect on jobs, growth and equality – and they go a long way
toward repairing the frayed American dream. Let's start by
treating all jobs with respect. Even starter jobs, which are the
first rung on the ladder of opportunity, bring dignity and create
better social outcomes in terms of health, higher household
formation and lower crime. Of these two policy changes, one
would better utilize existing resources, and the other would
cost some money. But both would significantly change
outcomes for low-income Americans.
Too many policies that are wrong - affecting housing and
mortgage markets, healthcare, immigration, regulation,
education and student lending, to name a few - are
jeopardizing the opportunity for American citizens to succeed.
The people who suffer the most, throughout all of this, are not
high-income individuals. I strongly believe that these outcomes
are destroying the concept of “fair” in America and are driving
populism and diminishing, if not eliminating, trust – not only in
government but in all our institutions. Simply put, the social
needs of far too many of our citizens are not being met. We
should never accept these outcomes - we must fix them.
incarcerated. Those who do run afoul of our justice system
generally do not get the second chance that many of them
deserve. Their exclusion from the workforce is not only unfair
to them but also results in an estimated $87 billion average
annual cost to the economy.
No one can claim that the promise of equal opportunity is being
offered to all Americans through our education systems.
Students in the lowest socioeconomic bracket are 50% less
likely to attend college than those in the highest socioeconomic
groups. Many inner city schools graduate under 50% of their
students - and even those who graduate may not be well-
prepared for the workforce. In addition, boys growing up in the
bottom 10% of family income are 20 times more likely to be
57
WE SHOULD HAVE MORE FAITH IN THE AMAZING POWER
OF OUR FREEDOMS
We should attack all our other problems as well, but these two
policy changes alone would dramatically improve our low-
income neighborhoods, broadly strengthen the economy and
give more opportunity to deserving citizens. It would restore
the American Dream for many.
A PIVOTAL MOMENT FOR AMERICA AND THE FREE WESTERN WORLD: STRATEGY AND POLICY MATTER
55
We can start by trying to understand other people's
and other voters' points of view, even around deeply
emotional topics. We can stop insulting whole
classes of voters. We can stop name calling. We can
stop blame-shifting and scapegoating. We can stop
being petty. Politicians can cease insulting, baiting
and belittling each other, which diminishes them
and the voter. It has also become too acceptable
for some politicians to say one thing in private and
deliver a completely different message in public.
It would also be nice to see some cabinet members
from the opposing party. We should also stop
degrading and demonizing American business
and American institutions, which are the best in
the world, because it erodes confidence in our
very country.
Social media could do more.
There is no question that social media has some
real negative effects, from the manipulation of
elections to the increasingly documented negative
effects on the mental health of children. These are
issues impacting our individual and collective
spheres, and it's time for social media companies
to take more action to remedy these challenges -
and swiftly. Rapid advances in technology will not
only make these existing issues harder to address,
but they will likely create new ones. The current
state of the online information landscape has
wide-ranging implications on trust in institutions,
information integrity and more and it bears on
institutions like ours, where platform policy has
increasingly widespread implications for concerns
about fraud, security and other issue spaces.
-
A range of tools and approaches is required to
address this complex and important situation
and there are several measures that platform com-
panies can immediately enact, voluntarily, while
strengthening and improving their business models.
One commonsense and modest step would be for
social media companies to further empower plat-
form users' control over what they see and how it
is presented, leveraging existing tools and features
- like the alternative feed algorithm settings some
offer today. I believe many users (not just parents)
would appreciate a greater ability to more care-
fully curate their feeds; for example, prioritizing
educational content for their children.
-
Platforms could also consider enhanced authenti-
cation measures; i.e., having users identify them-
selves to the platform or to a trusted third party.
This would have the virtue of increasing individual
accountability and reducing imposters, bots and
A PIVOTAL MOMENT FOR AMERICA AND THE FREE WESTERN WORLD: STRATEGY AND POLICY MATTER
53
possibly foreign political actors on platforms. It
would have immediate benefits for users who pre-
fer content from authenticated sources that take
responsibility for their postings. There are clear
competing values that need to be balanced in such
an approach, including those related to our cher-
ished right to free speech, individual privacy and
inclusion (for example, roughly 850 million people
globally don't have a way to easily authenticate
themselves today). There are also legitimate ques-
tions as to whether authentication would be used
as a tool to chill or block speech or quash bona
fide political dissenters, and real work needs to be
done to identify policy and technical solutions that
balance such risks and benefits.
I offer these approaches as a starting place, under-
standing that it's crucial to continue honest con-
versation across sectors about the immediate,
incremental improvements we can make to our
online public square, considering the high stakes
involved in how information is created and shared.
Effective measures will require time, money, learn-
ing and improvement, all in service of significantly
enhancing the well-being, quality, and civility of
our experiences online and in the world around us.
Healthy collaboration with business is needed.
Companies big and small create jobs, pay for
employee healthcare and benefits, and build
bridges, roads and hospitals. The people who work
for and run these companies care deeply about
their country they are patriots, and they want to
see people and communities succeed and prosper.
Unfortunately, the message America hears is that
the federal government does not value business -
that business is the problem and not part of the
solution. There are fewer individuals in govern-
ment who have any significant experience in start-
ing or running a company, which is apparent every
day in the political rhetoric that demonizes busi-
nesses and free enterprise and that damages con-
fidence in American's institutions. The relationship
between business and government, in fact, might
improve if there were more people from the busi-
ness sector working in government. Inexperience
with business is also evident from the regular lack
of transparency or curiosity from regulators as
they develop economic policies with potentially
seismic consequences for the economy.
Resist being "weaponized."
The federal government, regardless of which
party is in charge, needs to earn back trust
through competence and effective
policymaking.
I remain with a deep and abiding faith in the
strength of the enduring values of America.
When I travel around the country, I experience a
very different perspective on the street and at the
local level - I see that many governors, mayors
and city council members understand they are not
facing big challenges alone. They stand shoulder to
shoulder with our company, even when some of
their constituents disagree or are skeptical about
big banks. These government officials know they
need partners who have the same stake in helping
successful communities thrive and who care about
building a prosperous future as much as they do.
For example, in fewer than 10 years, Detroit saw
one of the greatest turnarounds because of a
vibrant collaboration between government and
business. And businesses know they cannot suc-
ceed if individuals, families, towns and cities are
not flourishing. We obviously don't agree on every-
thing, but there is a shared belief that we must
work together. We can and should be full partners
in developing solutions to our big problems.
What I want and hope to see is a book about
How the West Was Won. As the wars in Ukraine
and the Middle East dragged on and as the fears of
the Western world mounted, America rose to the
challenge as it had in other turbulent times in
history. America coalesced with its allies to form
the alliances necessary to keep the world safe for
freedom and democracy.
Paraphrasing what Winston Churchill was thought
to have said: America, after it had exhausted all
other possibilities, would do the right thing.
I hope to never read a book about How the West
Was Lost, summarized as follows: The failure to
save Ukraine and find peace in the Middle East led
to more bickering among the allies and weakened
military alliances. This accelerated a division
within the Western world, splitting countries into
different economic spheres and with each nation
trying to protect its economy, trade and energy
sources. America's economy weakened, eventually
leading to the loss of its reserve currency status.
Besotted by populism and partisanship and
crippled by bureaucracy and lack of willpower,
America failed to focus on what it needed to do
to lead and save the Western world. The enemy
was within - we just didn't see it in time.
Even America, the most prosperous nation on the
planet with its vast resources, needs to focus its
resources on the complex and difficult tasks ahead.
OUT OF THE LABYRINTH, WITH FOCUS
AND RESOLVE
For example, back in 1969 the cancellation of
the Reserve Officers' Training Corps programs by
the country's most prestigious universities and
colleges likely fueled the great divide – between
elites and others in our country - that persists
today. Our strength as a nation is best served
when the best students and the best soldiers are
brought together, and we would all benefit from
more civility and better teaching around basic
virtues like hard work, shared sacrifice, justice,
rationality and more respect for the enduring
values of American freedom and free enterprise.
We need to find a way to bring more varied
expertise and accountability to government.
We should be more ambitious in striving for excel-
lence in government. I acknowledge that some of
the best and the brightest are in government and
the military today. Yet we should return to a govern-
ment that seeks out more of the best and the
brightest people from every background, including
the private sector, to benefit from their knowledge
and experience. Government also needs to leverage
the expertise of business to address problems that
it cannot solve on its own. And to be fair, business
could use its influence to do less to further its own
interest and more to enhance the nation as a whole.
54
We need good government. And there are some
things only governments can do, such as oversee
the military and justice systems. And while most
innovation happens through the private sector,
there are certain types of foundational innovations
that can only be advanced by the government,
such as basic research that simply cannot be
funded by business. The Democrats want the
government to do even more and the Republicans
even less - I think we should spend more time
trying to do even better. But no one, not even my
most liberal Democratic friends, thinks that send-
ing the government another trillion a year would
be a wise use of money.
54
The world is becoming more complex, more tech-
nologically competent and faster. Unfortunately,
the government simply is not built to innovate,
compete and move quickly, as in the competitive
business world. This may be the reason why gov-
ernment is becoming less effective. We need to
take action on this because the loss of trust in
government is damaging to society. We should be
brutally honest about the staggering number of
policies, systems and operations that are under-
performing: Too many ineffective public schools do
not give students the skills they need to land a
well-paying job; we have over 25 million uninsured
Americans, soaring healthcare costs and too many
bad outcomes; we are unable to plan, permit and
build infrastructure efficiently; our litigation
A PIVOTAL MOMENT FOR AMERICA AND THE FREE WESTERN WORLD: STRATEGY AND POLICY MATTER
system is capricious and wasteful; progress on
immigration policies and reform is frustrating; lack
of efficient mortgage markets and an affordable
housing policy keep housing out of reach for many
Americans; problems plague the Department of
Veterans Affairs, the Federal Aviation Administra-
tion and the Internal Revenue Service; public uni-
versities don't take responsibility for their costs
and are often funded by excessive student lending;
underinvestment in the electric grid results in
high costs and unreliable service; highly inefficient
U.S. merchant shipping and ports; and we have
unfunded pension plans and no action on deficit
spending, Social Security and Medicare. I'll stop
here. This should be unacceptable to all of us.
Across both businesses, we continue
to leverage data and artificial intelligence
(AI)-enabled techniques to enhance and
optimize our underwriting and credit
decisioning.
We also remain committed to increasing
homeownership among underserved
communities. Our Chase Homebuyer
Grant program has scaled to over 15,000
communities since its launch in 2021, and
we recently increased the grant amount
to $7,500 in select markets.
LEVERAGING DATA AND
TECHNOLOGY TO DELIVER
CUSTOMER VALUE AND DRIVE
SPEED TO MARKET
Data and technology make everything we
do better - our products, channels and
experiences. In 2023, CCB spent over
$3 billion on technology investments
spanning both product development and
modernization.
services and channels to meet customers'
evolving needs. From paying a bill and
checking a balance to replacing a card
and disputing a transaction, we're making
processes more seamless, taking friction
out of customers' everyday financial lives.
At the same time, customers are increas-
ingly engaging with our advice-oriented
digital and omnichannel experiences to
meet their more complex needs, like buy-
ing a home or planning for retirement.
Engaged online activity - beyond viewing
balances - is up 25% since 2019.
The rest of our technology investment is
focused on modernization, which is both
offensive and defensive. We need to
deliver new products and experiences
more quickly while executing with resil-
iency at massive scale to stay competitive
and avoid being disrupted. We've made
significant progress and are on track to
substantially complete data center migra-
tion by the end of 2024. We've also
migrated almost 90% of our data to the
public cloud. Looking ahead, we'll con-
tinue to focus on modernizing our core
banking infrastructure, which will enable
us to launch products faster, improve
platform stability and reduce run-the-
bank expenses over time.
Our data migration efforts help us take full
advantage of our extraordinary data
assets to deliver personalization at scale
and accelerate existing and future Al initia-
tives. We've been using Al for years and
have a strong foundation in place. Initially,
we focused on using Al to drive cost reduc-
tion and risk avoidance, but we've pivoted
to focus more on revenue growth. We'll
continue to invest where we will realize the
greatest benefit, including:
•
Optimizing marketing efforts to better
target profitable prospects.
Identifying unmet customer needs, then
addressing them in the moment with
digital nudges and personalized offers.
•
•
Despite recent market headwinds, Auto
and Home Lending delivered a return on
equity of 17% and 15%, respectively, aver-
aged over the last five years. While the
acquisition of First Republic's mortgage
portfolio helped bolster Home Lending
returns last year, CCB's mortgage business
was key to enabling the transaction.
#1
Predicting in real time the likelihood
of fraud to better protect customers
and the firm.
ciency of our sales force through lead
management and propensity models.
Supporting specialists with Al advance-
ments like call prediction, real-time
insights and intelligent routing to drive
customer and employee satisfaction.
PROTECTING OUR CUSTOMERS
AND THE FIRM
Risk management is core to our culture
and a key competitive advantage, helping
us build trust and providing security to
customers. We are focused on protecting
shareholders, customers and the firm by
maintaining our fortress balance sheet,
strong controls environment and through-
the-cycle decision-making approach.
CULTIVATING TALENT
ACQUIRING FIRST REPUBLIC
In the midst of widespread instability in
the banking sector, it was the strength
and breadth of our franchise and the
dedication of thousands of employees
that enabled us to complete the acquisi-
tion of virtually all of First Republic's
assets in one weekend.
We had long admired First Republic's
capabilities and culture of client service,
which complement our existing affluent
6 Excluding loan loss reserves.
CONSUMER & COMMUNITY BANKING 65
strategy. We already serve customers
across the wealth spectrum, but the
acquisition will help us deepen relation-
ships with the affluent segment. In 2023,
we prioritized stabilizing First Republic's
existing business. We retained the vast
majority of customers, and deposits have
increased approximately 20% since the
acquisition. While we are on track against
key integration milestones, 2024 will be
critical as we aim to largely complete
integration efforts by year-end.
2024 LOOK AHEAD
In Auto and Home Lending, our objective
is not market share but to be there for cus-
tomers during key moments and to create
franchise value while continuing to maxi-
mize the strength of the firm's balance
sheet, capital and liquidity. Given the cycli-
cal nature of both businesses, we manage
returns on a through-the-cycle basis.
Macro factors
Increasing the productivity and effi-
The work we do matters to customers,
communities and the economy overall. Our
goal is always to attract and retain great
talent and create a culture where every-
one's voice matters. We help employees
build a long-term career at the firm and
have a workforce that reflects the commu-
nities we serve. Our high-performance
culture rewards the hard work, heart and
humanity that our more than 140,000
employees deliver every day. All of this
leads to the best business outcomes.
•
SECURED LENDING
The macro environment going forward
will likely look very different from 2023.
While we anticipate the Federal Reserve
will lower rates this year, the trajectory
is still uncertain. Lower rates will be a
headwind for deposit margins but a
tailwind for businesses such as Home
Lending. The diversification of our
franchise provides natural offsets
and hedges and creates resiliency in
earnings and performance.
#1 in total combined
U.S. credit and debit
payments volume
gross marketing to generate 10 million
new credit card accounts and deliver
benefits to existing cardholders. The
continued demand for our leading products
has fueled portfolio growth, enabling us
to deliver more value and drive engage-
ment with our customer base.
In 2023, we focused on enhancing our
Card product continuum to effectively
serve the unique needs of each customer
segment and:
Launched Chase Freedom RiseSM for
younger, new-to-credit customers,
which has shown strong adoption using
our branches as its primary distribution.
• Launched DoorDash Rewards
Mastercard®, adding a new strategic
partner to our co-brand portfolio.
⚫ Scaled Ink Business Premier SM, launched
in late 2022, to grow share with small
businesses.
•
Continued to enhance the Sapphire
value proposition by opening lounges in
five airports to date and leveraging the
travel, dining and shopping experiences
we're building in Connected Commerce.
#1
#1 banking portal
in the United States5
SCALING GROWTH BUSINESSES
In Connected Commerce and Wealth
Management, we have the assets to win
and outsized opportunity to grow to
what we view is our fair share, given the
breadth of CCB relationships. These busi-
nesses are natural adjacencies to banking
and credit card, with scale and distribu-
tion that will fuel their growth.
Auto and Home Lending
Connected Commerce
• Scaling Travel. We are a top 5 consumer
leisure travel provider with $10 billion in
booked volume last year, up more than
25% from 2022. We've just relaunched
ChaseTravel.com to help customers
dream, discover and book travel,
including a new collection of more than
600 of the world's finest hotels.
Expanding Shopping through Chase
Offers. In 2023, we generated more
than $8 billion in attributed spend
volume, up over 30% from 2022.
We're accelerating growth by launching
Chase Media Solutions SM, a new digital
media business aimed at merchants
that allows them to target and connect
with Chase customers.
• Innovating payments and lending
capabilities. To provide customers with
innovative, convenient ways to pay and
borrow, last year we began to roll out
Pay in 4SM, which has scaled to more
than 20 million customers. We also saw
more than 50% year-over-year growth
in card-linked installment originations
through My Chase Plan®.
Wealth Management
In 2023, we grew client investment assets
by 25% to $800 billion before accounting
for the First Republic acquisition. In total,
we ended the year with $950 billion in
assets, up $450 billion since 2019, as we
close in on our goal of reaching $1 trillion
in assets under supervision. We now have
2.5 million client relationships - up 60%
from 2019 - with a record 120,000 first-
time investors in 2023.
This momentum stems from the invest-
ments we've made in products, channels
and talent in the last four years since
we established J.P. Morgan Wealth
Management. In 2023, we:
•
Added more than 400 total advisors,
ending the year with nearly 5,500 on
a path to 6,000.
• Scaled Wealth Plan, an omnichannel
financial planning experience that
customers start digitally and can finish
with an advisor. Customers have
created more than 1 million financial
plans since the experience launched
in December 2022.
44
64
CONSUMER & COMMUNITY BANKING
We continue building out a powerful two-
sided platform to connect Chase custom-
ers with top brands, helping them book
travel, discover new dining experiences
and save money while shopping. We
expect to drive approximately $30 billion
in volume and about $2 billion in revenue
through the platform in 2025. We've
nearly doubled volume over two years,
driving more than $18 billion in 2023.
Going forward, we're focused on:
We are rigorous in monitoring our portfo-
lios at a granular level using multiple
data sources to assess direct risk and the
overall health of consumers and small
businesses. Based on what we're seeing,
consumers and small businesses both
still remain generally healthy. Although
consumers have largely spent the excess
cash reserves built up from the fiscal
response to the pandemic, balance
sheets remain strong. Spending on a per
account basis is largely flat year-over-
year. Delinquencies played out as
expected in 2023, and credit card losses
should fully normalize later this year.
My focus will be on driving synergies
across our lines of business, accelerating
our investments in growth and innova-
tion, and optimizing our resources across
the firm. Priorities include harnessing
data and modernizing our technology
infrastructure so we can apply artificial
intelligence (AI) to our businesses. This
will help identify efficiencies and areas of
opportunity. I also want to make sure we
continue to manage and deploy capital in
ways that best serve our clients, particu-
larly when they need it most.
The banking industry is facing an unprec-
edented barrage of untested and unstud-
ied proposed regulations and legislation
targeting multiple aspects of our busi-
ness. The combined impact of all of these
– Basel III, Regulation II (Debit Card
Interchange Fees), overdraft and late fee
changes, the Consumer Financial Protec-
tion Bureau's Sections 1033 and 1071, and
the Credit Card Competition Act - will
meaningfully disrupt the economics of
consumer financial products and services.
This level of intervention will lead to some
combination of the following:
Our payments capabilities also continue
to strengthen and advance as we priori-
tize innovation and resiliency. We are
unique in that we can compete with fin-
techs on customer experience and digital
solutions while also offering the stability,
expansive network and services of a
global bank.
Technology is reshaping the financial
services landscape, and we are channel-
ing its transformative power. Among our
efforts, we are already using Al to
onboard customers faster, combat fraud
and serve up more insights to clients.
We are pushing into new markets both at
home and internationally. Whether it's
growing our presence in emerging mar-
kets, deepening our relationships with
multinational corporations, or expanding
our U.S. branch network and wealth man-
agement business, our strategy is guided
by a commitment to clients, communities
and long-term value creation.
The leadership positions we have today are
the result of hard work and investment
over many years. We know also how hard it
is to stay ahead of the pack. My promise to
you, our shareholders, is that we will not
be complacent. We will stay humble and
hungry and strive always to be the best,
most respected financial firm in the world.
Jenny
Daniel E. Pinto
President and Chief Operating Officer,
JPMorgan Chase & Co.
COMMERCIAL & INVESTMENT BANK
67
In January 2024, we announced an excit-
ing new chapter in our decade-long
growth story.
The decision to bring together the firm's
major wholesale businesses to form the
Commercial & Investment Bank continues
a journey we have been on for a while as
we seek to better support clients from
their early stages of growth through to
international expansion, acquisitions
and beyond.
The new combined business has the scale,
business diversity and financial firepower
to offer complete solutions across bank-
ing, trading, payments and custody to
middle market businesses, global compa-
nies and governments in more than 100
markets.
We are deeply indebted to Daniel Pinto,
who built the Corporate & Investment
Bank over the last 12 years with leader-
ship positions across products and
regions 12. In his time as CEO, the CIB grew
revenue from $34 billion in 2011 to $49
billion in 2023 and increased net income
by more than 75% during the same
period, and its Investment Banking and
Markets businesses have been #1 fran-
chises for over a decade ¹².
In March, teams across our Consumer
Banking, Private Banking, Commercial
Banking and Investment Banking busi-
nesses joined forces to deliver the firm's
full support to the venture ecosystem in
the aftermath of the regional banking tur-
moil. We are now exploring new ways to
better serve this community, including
tapping opportunities in the booming pri-
vate markets so that we can compete
effectively in this rapidly evolving area.
It is a privilege to lead this remarkable
business, and we are thrilled about the
opportunities still to come. But let us first
reflect on the key events and highlights
of our performance in 2023.
In 2023, the CIB generated net income of
$14 billion on $49 billion in revenue, mir-
roring 2022's solid performance but down
from 2021's record highs. Strong trading
results and record years for our deposit-
taking businesses cushioned the impact
of industrywide weakness in investment
banking activity, underscoring the bene-
fits of our diversified business model.
The year included central banks hiking
rates at the fastest pace in decades, a
second year of war in Ukraine and the
outbreak of conflict in the Middle East,
the collapse of several U.S. regional
banks and recession in parts of Europe.
Throughout, J.P. Morgan offered its
expertise and balance sheet, helping
companies, financial institutions and
governments weather the storm.
During the regional bank turmoil and
resulting economic stress, the firm
helped shore up the financial system
and the economy, stepping in with bil-
lions of dollars in liquidity to help
banks, their clients and investors navi-
gate the crisis. This was complemented
by the firm helping to raise $155 billion
for financial institutions in 2023.
Worldwide investment banking activity
was hit by the uncertain economic out-
look and market conditions. Industry-
wide fees shrank to a 10-year low¹, and
dealmaking remained subdued, causing
our own investment banking revenue
to dip slightly, to $6.2 billion from $6.5
billion in 2022. Even so, the business
maintained its #1 ranking in global
investment banking fees with a wallet
share of 8.8%¹. We also ranked #1 in
debt capital markets, #2 in mergers and
acquisitions (M&A), and rose to #1 in
equity capital markets¹.
Our M&A franchise advised on nearly
350 deals totaling more than $700 bil-
lion in volume¹, including some of the
year's largest announced transactions:
the $42 billion separation of Johnson
& Johnson's consumer health business,
agricultural supplier Viterra's $17 billion
merger with U.S. oilseed and grain
processor Bunge, and sandwich chain
Subway's $10 billion sale to Roark
Capital, one of the biggest transactions
in fast food history.
A decline in M&A dealmaking and the
higher interest rate environment led to
subdued debt capital markets and a drop
in our debt underwriting fees to $2.6
billion in 2023 compared with $2.8 billion
in 2022. A standout deal was the $31
billion bond deal for Pfizer to fund its
acquisition of cancer drug pioneer
Seagen, in which the firm had a lead role.
In 2023, our equity underwriting fees
were up 11% compared with 2022, and
we gained market share year-over-year¹.
While market uncertainty dented confi-
dence in initial public offerings (IPO), the
franchise led two of the year's biggest
offerings, including the $5 billion IPO of
British chip designer Arm Holdings and
consumer health company Kenvue's
$4 billion debut.
It was another strong year for our
Markets business, which generated
$28 billion in revenue. Some of the
uncertainty that plagued investment
banking activity kept trading desks busy
as clients hedged and positioned them-
selves accordingly. Fixed Income Markets
revenue was up 1% from 2022, driven
by the Securitized Products Group and
Credit, mainly offset by normalization in
Currencies & Emerging Markets, while
Equity Markets revenue dipped after
a relatively strong performance in 2022.
Clients also voted J.P. Morgan the #1
global research firm in Institutional
Investor's annual survey for the fourth
year in a row. Our analysis of economies
and markets, including research on
some 5,200 companies across more than
80 countries, is particularly sought after
during turbulent times.
CIB Payments reported a record
$9.3 billion in revenue in 2023, up from
$7.6 billion in 2022, as it benefited from
the higher interest rate environment.
68 COMMERCIAL & INVESTMENT BANK
1 Dealogic as of January 2, 2024
2 Coalition Greenwich Competitor Analytics (preliminary for
FY23). Market share is based on JPMorgan Chase's internal
business structure and revenue. Ranks are based on Coalition
Index Banks.
OUR PERFORMANCE IN 2023
In 2023, we made significant strides in
key areas:
I am equally thrilled to spend more of
my time in my role as President and Chief
Operating Officer, helping Jamie with
firmwide, strategic priorities that will
provide growth and opportunities for
years to come.
As we integrate these top-notch fran-
chises, I am delighted to hand the keys
of this incredible organization to Jenn
Piepszak and Troy Rohrbaugh. They are
exceptional leaders in every way, and
I know they will continue to work hard
each day, leading our employees and
serving our clients with heart, integrity
and excellence.
•
Fewer financial products and services
available, and the remaining ones will
become more expensive and harder to
access, especially for lower-income
consumers.
⚫ Less investment and innovation in the
financial services industry, leading to
an erosion of the customer experience.
More consolidation across the industry,
which will limit consumer choice.
•
More financial activity handled by
nonbanks outside of the regulatory
perimeter, increasing risk for
consumers.
Of course, we will comply with the final
rules and regulations and are relatively
well-positioned to do so. However,
consumers and small businesses will
likely bear the largest burden.
Our hand
We continue to operate from a position of
strength with a relentless focus on the
customer, a proven strategy and the best
team. We recognize headwinds on the
horizon and will adapt accordingly, taking
a through-the-cycle approach to manag-
ing our business. Moving forward, we'll
continue to:
•
⋅
.
Execute with excellence and a focus on
efficiency and flexibility as the environ-
ment around us changes.
Engage with regulators on how
current proposals will negatively
impact consumers and the industry.
Reshape our business where necessary
in response to new regulations, balanc-
ing impacts to shareholders, customers
and the communities we serve.
I remain very confident about the future
of our franchise, yet approach the oppor-
tunities and challenges we'll face with
great humility.
Marianne
Marianne Lake
CEO, Consumer & Community Banking
66
66
CONSUMER & COMMUNITY BANKING
Commercial &
Investment Bank
When Jamie asked me to lead a new orga-
nization 12 years ago, I was thrilled. The
firm was combining its traditional Invest-
ment Bank with the Treasury & Securities
Services division.
The rationale was clear. The merger
would create a massive franchise encom-
passing the industry's most diverse and
comprehensive solutions for the world's
largest and most prominent companies,
governments and institutions. From capi-
tal raising and M&A advice to payments,
trading and custody, the combined fran-
chise would enable us to deliver a full
range of products and solutions to clients
around the world.
As others retrenched, we believed growth
would come from being global and diver-
sified, having scale and providing a com-
plete client offering. So we merged two
divisions, identified gaps and invested in
global capabilities. To this day, I believe
the decisions we made then set us up for
the success that we've had for the last
decade. The proof is in the revenue,
returns, rankings and market share that
we've discussed with you over the years.
This January, we announced the latest
evolution of our corporate structure by
merging two divisions once again: Com-
mercial Banking (CB) with the Corporate
& Investment Bank (CIB).
Regulatory environment
#1 U.S. credit card issuer based
on sales and outstandings4
A little over half of our annual investment
is focused on product development, help-
ing ensure we have the best products,
5 #1 most-visited banking portal in the U.S. (Chase.com)
based on Similarweb.
1
JPMorgan Chase Exhibits Strength in Both Efficiency and Returns When Compared with Large Peers and
Best-in-Class Peers (page 14)
37 Represents AUM in a strategy with at least one listed female and/or diverse portfolio manager. "Diverse" defined as U.S. ethnic minority.
36 Source: iMoneynet.
35 Source: Company filings and JPMorgan Chase estimates. Rankings reflect publicly traded peer group as follows: Allianz, Bank of America, Bank of New York
Mellon, BlackRock, Charles Schwab, DWS, Franklin Templeton, Goldman Sachs, Invesco, Morgan Stanley, State Street, T. Rowe Price and UBS. JPMorgan Chase
ranking reflects Asset & Wealth Management client assets, U.S. Wealth Management investments and new-to-firm Chase Private Client deposits.
34 Percentage of active mutual fund and active ETF assets under management in funds rated 4- or 5-star: Mutual fund rating services rank funds based on their
risk adjusted performance over various periods. A 5-star rating is the best rating and represents the top 10% of industry-wide ranked funds. A 4-star rating
represents the next 22.5% of industry-wide ranked funds. A 3-star rating represents the next 35% of industry-wide ranked funds. A 2-star rating represents the
next 22.5% of industry-wide ranked funds. A 1-star rating is the worst rating and represents the bottom 10% of industrywide ranked funds. An overall
Morningstar rating is derived from a weighted average of the performance associated with a fund's three-, five and ten-year (if applicable) Morningstar Rating
metrics. For U.S.- domiciled funds, separate star ratings are provided at the individual share class level. The Nomura "star rating" is based on three-year
risk-adjusted performance only. Funds with fewer than three years of history are not rated and hence excluded from these rankings. All ratings, the assigned
peer categories and the asset values used to derive these rankings are sourced from the applicable fund rating provider. Where applicable, the fund rating
providers redenominate asset values into U.S. dollars. The percentage of AUM is based on star ratings at the share class level for U.S.-domiciled funds, and at a
"primary share class" level to represent the star rating of all other funds, except for Japan, for which Nomura provides ratings at the fund level. The
performance data may have been different if all share classes had been included. Past performance is not indicative of future results.
60
33 Source: Euromoney.
32 AUM only for 2005. Prior period amounts have been restated to include changes in product categorization.
31 Traditional assets includes Equity, Fixed Income, Multi-Asset and Liquidity AUM Brokerage, Administration and Custody assets under supervision.
30 In the fourth quarter of 2020, the Firm realigned certain wealth management clients from AWM to CCB. Prior-period amounts have been revised to conform
with the current presentation.
#1
29 Percentage of active mutual fund and active ETF assets under management in funds ranked in the 1st or 2nd quartile (one, three and five years): All quartile
rankings, the assigned peer categories and the asset values used to derive these rankings are sourced from the fund rating providers. Quartile rankings are
based on the net-of-fee absolute return of each fund. Where applicable, the fund rating providers redenominate asset values into U.S. dollars. The percentage
of AUM is based on fund performance and associated peer rankings at the share class level for U.S.-domiciled funds, at a "primary share class" level to
represent the quartile ranking for U.K., Luxembourg and Hong Kong SAR funds and at the fund level for all other funds. The performance data may have been
different if all share classes had been included. Past performance is not indicative of future results. "Primary share class" means the C share class for European
funds and Acc share class for Hong Kong SAR and Taiwan funds. If these share classes are not available, the oldest share class is used as the primary share
class. Due to a methodology change effective September 30, 2023, prior results include all long-term mutual fund assets and exclude active ETF assets.
28 Aligns with the affordable housing component of the Firm's $30 billion racial equity commitment.
27 London Stock Exchange Group, FY23.
26 S&P Global Market Intelligence as of December 31, 2023.
25 Includes gross revenues earned by the Firm that are subject to a revenue sharing arrangement between CB and the CIB for Investment Banking and Markets'
products sold to CB clients. This includes revenue related to fixed income and equity markets products.
24 New relationships (gross) exclude impact of First Republic acquisition.
23 Data in 2005 column is as of 12/31/2006.
2
22 Coalition Greenwich FY23 Competitor Analytics (preliminary). Rank is based on JPMorgan Chase's internal business structure and revenue and Coalition Index
Banks for Securities Services.
3
5
4
2023 figure is as of 3023.
3
2
1 2007 and 2010 sourced from WorldBank.org annual GDP publication. 2023 is calculated using JPM Research forecasts. Figures are represented in 2015 prices.
Consists of cash assets and Treasury and agency securities.
Size of the Financial/Sector Industry (page 39)
5 Capital returned to common stockholders includes common dividends and net repurchases.
4 2005-2012 reflect cash and cash due from banks and investment securities.
3 Includes eligible High Quality Liquid Assets (HQLA) as defined in the liquidity coverage ratio (LCR) rule and unencumbered marketable securities, such as equity
and debt securities, that the Firm believes would be available to raise liquidity including excess eligible HQLA securities at JPMorgan Chase Bank, N.A. that are
not transferable to nonbank affiliates; for December 31, 2023 and 2022, the balance includes eligible end-of-period HQLA as defined in the LCR rule, issued
December 19, 2016. For December 31, 2017-2021, the balance includes average eligible HQLA. Periods prior to 2017 represent period-end balances. December
31, 2016 and 2015 balances are under the initial U.S. rule approved on September 3, 2014. The December 31, 2014 amount is estimated prior to the effective
date of the initial rule, and under the Basel III liquidity coverage ratio (Basel III LCR) for December 31, 2013.
Basel III Transitional rules became effective on January 1, 2014; prior-period CET1 data is based on Basel I rules. As of December 31, 2014, the ratios represent
the lower of the Standardized or Advanced approach calculated under the Basel III Fully Phased-In basis.
2
1 Tangible common equity 2005-2007 reflects common stockholders' equity less goodwill and other intangible assets.
Our Fortress Balance Sheet (page 15)
Given comparisons are at the business segment level, where available; allocation methodologies across peers may be inconsistent with JPM's.
Best-in-class GSIB ROTCE represents implied net income minus preferred stock dividends of the comparable business segments of JPM GSIB peers, when
available, or of JPM GSIB peers on a firmwide basis when there is no comparable business segment: Bank of America Consumer Banking (BAC-CB), Bank of
America Global Banking and Global Markets (BAC-GB & GM), Wells Fargo & Company Commercial Banking (WFC-CB) and Morgan Stanley Wealth Management &
Investment Management (MS-WM & IM). WFC-CB is the only GSIB peer to disclose a comparable business segment to Commercial Banking.
Best-in-class all banks ROTCE represents implied net income minus preferred stock dividends of the comparable business segments of JPM peers, when
available, or of JPM peers on a firmwide basis when there is no comparable business segment: Bank of America Consumer Banking (BAC-CB), Bank of America
Global Banking and Global Markets (BAC-GB & GM), Wells Fargo & Company Commercial Banking (WFC-CB) and Morgan Stanley Wealth Management &
Investment Management (MS-WM & IM).
Best-in-class peer overhead ratio represents the comparable business segments of JPMorgan Chase (JPM) peers: Capital One Domestic Card and Consumer
Banking (COF-DC & CB), Bank of America Global Banking and Global Markets (BAC-GB & GM), Fifth Third Bank (FITB), Northern Trust Wealth Management
(NTRS-WM) and Allianz Group (ALLIANZ-AM).
Bank of America Corporation (BAC), Citigroup Inc. (C), The Goldman Sachs Group, Inc. (GS), Morgan Stanley (MS) and Wells Fargo & Company (WFC).
Managed overhead ratio = total noninterest expense/managed revenue; revenue for GS and MS is reflected on a reported basis.
6
4
Top 50 fund AUM data per Sovereign Wealth Fund Institute (SWFI).
21 Nilson, Full Year 2023.
19 Based on third-party data.
Footnotes
59
April 8, 2024
Chairman and Chief Executive Officer
Jamie Dimon
Гам Ром
Finally, we sincerely hope to see the world on the path to peace and prosperity.
as a business,
-
Thank you for your partnership.
as a bank and as a community investor- - as I am.
I hope shareholders and all readers have gained a deeper understanding
of what it takes to be an "endgame winner" in a rapidly changing world.
More important, I hope you are as proud of what we have achieved
I would also like to express my deep gratitude to the 300,000+ employees,
and their families, of JPMorgan Chase. Through these annual letters,
and respect for the tremendous character and capabilities of the
management team who got us through the good times and the bad times
to where we stand today. And I recognize that we all stand on the shoulders of many
others who came before us in building this exceptional company of ours.
an extraordinary journey. I can't even begin to express my heartfelt appreciation
and it's been
-
It's been 20 years since the Bank One-JPMorgan Chase merger
In Closing
Client Franchises Built Over the Long Term (page 11)
20 The Market Share number represents US dollar payment instructions for direct payments and credit transfers processed over Society for Worldwide Interbank
Financial Telecommunications ("SWIFT") in the countries where J.P. Morgan has sales coverage.
Note: figures may not sum due to rounding
2
18 Institutional Investor.
17 Coalition Greenwich Competitor Analytics (preliminary for FY23) reflects global firmwide Treasury Services business (CIB and CB). Market share is based on
JPMorgan Chase's internal business structure, footprint and revenue. Ranks are based on Coalition Index Banks for Treasury Services.
16 Firmwide Payments revenue metrics exclude the net impact of equity investments; 2005 data represents Treasury Services firmwide revenue only. All other
periods include Merchant Services revenue.
15 Client deposits and other third-party liabilities pertain to the Payments and Securities Services businesses.
14 Dealogic as of January 2, 2024, excludes the impact of UBS/CS merger prior to the year of the acquisition (2023).
13 Coalition Greenwich Competitor Analytics (preliminary for FY23). Market share is based on JPMorgan Chase's internal business structure and revenue. Ranks
are based on Coalition Index Banks for Markets. 2006 rank is based on JPMorgan Chase analysis.
12 Experian Velocity data as of FY23. Reflects financing market share for new and used loan and lease units at franchised and independent dealers.
11 Inside Mortgage Finance, Top Owned Mortgage Servicers as of 4Q23.
Represents users of all mobile platforms who have logged in within the past 90 days.
9
8 Represents users of all web and/or mobile platforms who have logged in within the past 90 days.
Represents GPCC loans outstanding, which excludes private label, American Express Company (AXP) Charge Card, Citi Retail Cards, and Commercial Card. Based
on loans outstanding disclosures by peers and internal JPMorgan Chase estimates.
7
6 Represents general purpose credit card (GPCC) spend, which excludes private label and Commercial Card. Based on company filings and JPMorgan Chase
estimates.
5 Digital non-card payment transactions includes outflows for ACH, Bill Pay, PayChase, Zelle, RTP, external transfers, and digital wires, excluding Credit and Debit
card sales. 2005 is based on internal JPMorgan Chase estimates.
4 Total payment volumes reflect Consumer and Small Business customers' digital (ACH, Bill Pay, PayChase, Zelle, RTP, external transfers, digital wires), non-digital
(non-digital wires, ATM, teller, checks) and credit and debit card payment outflows.
Barlow Research Associates, Primary Bank Market Share Database. Rolling 8-quarter average of small businesses with revenues of more than $100,000 and
less than $25 million. 2023 results include First Republic. Barlow's 2005 Primary Bank Market Share is based on companies with revenues of more than
$100,000 and less than $10 million.
Federal Deposit Insurance Corporation (FDIC) Summary of Deposits survey per S&P Global Market Intelligence applies a $1 billion deposit cap to Chase and
industry branches for market share. While many of our branches have more than $1 billion in retail deposits, applying a cap consistently to ourselves and the
industry is critical to the integrity of this measurement. Includes all commercial banks, savings banks and savings institutions as defined by the FDIC.
3
1 Certain wealth management clients were realigned from Asset & Wealth Management (AWM) to Consumer & Community Banking (CCB) in 4Q20. 2005 and 2013
amounts were not revised in connection with this realignment.
5
10 Based on 2023 sales volume and loans outstanding disclosures by peers (AXP, Bank of America Corporation, Capital One Financial Corporation, Citigroup Inc.
and Discover Financial Services) and JPMorgan Chase estimates. Sales volume excludes private label and Commercial Card. AXP reflects the U.S. Consumer
segment and JPMorgan Chase estimates for AXP's U.S. small business sales. Loans outstanding exclude private label, AXP Charge Card, Citi Retail Cards and
Commercial Card. Card loans outstanding market share has been revised to reflect a restatement to the 2022 reported total industry outstandings disclosed by
Nilson, which impacts annual share growth in 2023.
6
We've added more than 650 new
branches in the last five years, by far
the most of any bank in the U.S. We're
doubling down on that investment and
will add 500+ branches over the next
three years. The result is a significantly
younger branch network, which creates
embedded growth that already has driven
share gains and will continue to do so for
years to come. Newer or "unseasoned"
branches represent more than $150 bil-
lion in incremental deposit upside as they
mature. At the same time, we are consoli-
dating older branches in certain markets
in response to shifting customer behavior.
Branches remain the hub for our local
team of experts - over 50,000 bankers,
advisors and business relationship
managers - and a key distribution channel
for all parts of the firm. We continue to
optimize our network of over 4,800
branches as we aim to be within a
10-minute drive for 70% of the U.S.
population. This will help us grow share
in major metropolitan areas like Boston,
Philadelphia and Washington, D.C., as
well as states with mostly rural popula-
tions such as Alabama and Iowa, where
we are also expanding our presence.
We extended our #1 position in 2023 with
an 11.3% deposit market share, up 40
basis points from 2022. Excluding First
Republic, share growth was up 10 basis
points. Since 2019, we've increased our
share by 220 basis points. We'll continue
to drive growth by expanding branches
and evolving products to meet customer
needs by segment.
Consumer Banking
Our momentum is driven by successful
execution across all lines of business
in CCB. We're the clear market leader in
Consumer Banking, Business Banking
and Card and continue to grow.
EXTENDING OUR #1 POSITION
ACROSS INDUSTRY-LEADING
BUSINESSES
While we recognize that favorable macro
conditions contributed to overearning in
net interest income and credit, we still out-
performed as we delivered strong returns
and grew market share across businesses.
With a 38% return on equity, we exceeded
our 25% target for the third straight year
and would have done so even when nor-
malized to reflect through-the-cycle credit
and rate assumptions. Net income was
$21.2 billion, up 42% over 2022. Revenue
of $70.1 billion was up 28% from 2022, and
CCB's overhead ratio was 50%. Average
deposits were $1.1 trillion, and although
down 3% from 2022, we outperformed the
industry average. Average loans were up
20% over the prior year to $526 billion,
including the First Republic acquisition.
DELIVERING FINANCIAL
PERFORMANCE THAT IS
CONSISTENTLY BEST-IN-CLASS
ratings across branch and digital chan-
nels, while our complaint rate per
account is down nearly 10% year-over-
year. Customer attrition is below historic
levels, and CCB's overall net promoter
score remains very healthy.
3 Reflects consumers and small businesses that have
relationships with two or more CCB lines of business.
2 Unique families with primary and joint account owners
for open and funded accounts.
1 Defined as average sales debit active accounts.
62 CONSUMER & COMMUNITY BANKING
2019 2020 2021 2022 2023
2019 2020 2021 2022 2023
2019 2020 2021 2022 2023
Once we onboard a customer to the fran-
chise, we focus on earning the right to
deepen that relationship and serve more
of their financial needs. Last year was a
banner year for deepening as we ended
2023 with over 24 million multi-line of
business (LOB) customers - up 9% from
2022 and 30% from 2019³. We have
prioritized growing multi-LOB relation-
ships as it helps us address more of our
customers' needs while driving higher
retention and engagement with our prod-
ucts and services. We constantly focus
on improving the customer experience,
which we measure in many ways. We're
proud to have all-time-high satisfaction
Our branches remain a critical touchpoint
as over 900,000 people walk into one
every day. We know being local matters
and that customers increasingly value
personal interaction and advice. In 2023,
over 2 million more customers met with
a banker than in 2022.
We're engaging customers with our prod-
ucts and services and delivering seamless
experiences across digital and branch
channels. Our digital banking platform
grew to nearly 67 million active custom-
ers, up 28% since 2019. Once customers
begin to use Chase.com and the Chase
mobile app, we make it easy to help them
save for the future, make small or big
purchases (including a car or home), plan
for retirement or a dream vacation, or
find the perfect restaurant for a night
on the town.
ing customers are up 18%, Business
Banking clients are up 41% and Card
accounts are up 30%¹.
-67%
HOME LENDING
MORTGAGE
ORIGINATIONS
(+21%
We started 2023 with a goal of maintain-
ing primary bank relationships and cap-
turing money in motion, and we did both.
We retained over 95% of our primary
bank customers and succeeded in deep-
ening with investments and an enhanced,
higher-yield product set - including
competitive-rate CDs and the new
J.P. Morgan Premium Deposit account. As
a result, we successfully captured more
than 80% of yield-seeking flows in 2023.
Business Banking
Loans held by nonbank entities per the FRB Z.1 Financial Accounts of the United States.
#1 primary bank for
U.S. small businesses
#1 in U.S. retail deposit
market share
#1
#1
CHASE
VISA
ink.
BARRETT CONNECT
D. BARRETT
D. BARRETT
+30%
BUSINESS PREMIER
D. BARRETT
SAPPHIRE
PREFERRED
freedom
CONSUMER & COMMUNITY BANKING 63
4 Card outstandings market share has been revised to
reflect a restatement to the 2022 reported total industry
outstandings disclosed by Nilson, which impacted annual
share growth in 2023.
We drove growth by leveraging our
marketing capabilities to get the right
products in the right customers' hands.
In 2023, we invested nearly $7 billion in
In 2023, we extended our #1 position in
credit card, with sales and outstandings
market share up approximately 50 and
30 basis points, respectively, compared
with 20194.
Card
Continuing to expand support for small
business owners in underserved com-
munities through special purpose credit
programs, one-on-one mentoring and
local events.
Increasing banker capacity to better
cover large clients, which drives higher
retention, cross-product deepening and
client satisfaction. In 2023, we added
more than 350 bankers against our
target of 1,000 incremental bankers.
Rolling out value-added services like
payroll, broadening our payment accep-
tance suite with new offerings such as
invoicing (currently in pilot) and launch-
ing Tap-to-Pay, which enables mer-
chants to accept card payments on
their mobile devices.
We offer small business owners a compre-
hensive product suite to help them start,
run and grow their businesses. We're #1
in small business primary bank share
with 9.5% of a fragmented market and
plan to grow by:
0
LOAN AND LEASE
ORIGINATIONS
We aim to be the bank for all, so tailoring
products, services and experiences for
each customer segment and community is
central to our strategy. We're increasingly
focused on supporting the financial health
of customers and communities through
digital and in-person resources, such as
our nearly 150 dedicated Community
Managers. We now have 16 Community
Center branches and plan to open three
more in 2024.
7 Methodology updated in 2022, previous years have been restated.
BUSINESS BANKING
CLIENTS
After the pandemic, we accelerated the
pace of customer acquisition while lower-
ing attrition. Maintaining that momentum,
we now serve over 82 million consumers
and 6.4 million small businesses, up 11%
and 37%, respectively, since 2019. We're
driving that growth across businesses -
during the same period, Consumer Bank-
GROWING AND DEEPENING
RELATIONSHIPS
Our strategy is working as evidenced by
our results last year.
• Cultivating talent to build high-
performing, diverse teams where
culture is a competitive advantage.
• Leveraging data and technology to
deliver customer value and drive speed
to market.
Delivering financial performance that is
consistently best-in-class.
•
CONSUMER BANKING
CUSTOMERS
2019 TO 2023 GROWTH
- Expanding our distribution
(+18%)
- Engaging customers with products
and services they love and
•
consistent set of strategic priorities:
In 2023, we remained focused on a
I'm very proud to have co-led Consumer
& Community Banking (CCB) for the past
three years and am grateful to Jenn
Piepszak for her partnership. When we
took over this leading franchise, we
established a strategic framework for
continued, long-term success, and that
framework guided CCB to deliver strong
performance again in 2023. The evolving
macro landscape means uncertainty on
many fronts: the financial health of the
consumer, the path of credit and interest
rates, and the impact of new regulations.
While the future will bring challenges, it
will also create opportunities, and we've
proved our ability to adapt and optimize.
Consumer &
Community Banking
61
10 Preqin, Dealogic, JPM Credit Research.
9 Inside Mortgage Finance and JPMorgan Chase internal data; consists of Top 50 Originators (Top 40 for 2007).
NYSE + NASDAQ; excludes investment funds, ETF's unit trusts and companies whose business goal is to hold shares of other listed companies; a company with
several classes of shares is only counted once.
8
U.S. money market fund investment holdings of securities issued by entities worldwide.
Growing and deepening relationships by:
+41%
• Protecting our customers and the firm
through a strong risk and controls
environment.
+60%
2019 2020 2021 2022 2023
2019 2020 2021 2022 2023
2019 2020 2021 2022 2023
CREDIT CARD
ACTIVE ACCOUNTS¹
WEALTH MANAGEMENT
RELATIONSHIPS²
AUTO
It is an honor for both of us to lead this
world-class franchise, and we are excited
for the opportunities in front of us.
We are global with capabilities at scale,
and now combined with Commercial
Banking, we have the ability to become
even more client-centric.
13 Based on firmwide data using regulatory reporting
guidelines prescribed by the Federal Reserve for US
Title 1 planning purposes; includes internal settlements,
global payments to and through third-party processors
and banks, and other internal transfers.
The consistent returns created by the scale
and diversity of our franchise allow us to
keep investing through economic cycles.
Several risks remain. Economies are still
adjusting to life after the pandemic and
the injection of trillions of dollars in
monetary and fiscal stimulus; geopolitical
challenges continue to flare; and the
competitive threat is intensifying. The
outcome of these is inherently unknown
- they could provide both headwinds and
opportunities for our business.
The start of 2024 has brought some early
encouraging signs for investment banking
activity but a more mixed outlook for our
Markets business.
LOOKING AHEAD
We are investing to scale and enhance the
resiliency of our core platforms and are
pioneering new technologies to move
faster and improve the client experience.
ing experience for clients, speeding up and
improving the accuracy of our Know Your
Customer procedures, while in Investment
Banking, the technology is helping cover-
age teams to pinpoint when companies
might need to tap the equity markets.
Across the business, we are exploring use
cases for artificial intelligence. In Markets,
our Al-powered Client Intelligence plat-
form is starting to use data from across
the business to create recommendations
based on client interactions, and our Prime
Finance team is harnessing Al to better
manage the inventory of securities we
have on hand for clients while optimizing
our balance sheet for capital efficiency.
Elsewhere, Al has improved the onboard-
Our products, services and reach coupled
with incredible people and our winning
culture make us especially hopeful about
the future of our business.
Investing for the future
Adding approximately two years'
worth of clients in just two months,
with our team working around the clock
for weeks to assist clients and open
thousands of new accounts
In 2023, we continued to help clients
with their sustainability goals as well as
scaling green solutions. Since 2021, the
CIB has financed and facilitated $230
billion for green activities toward our
firmwide target of $1 trillion by 2030,
primarily by supporting clients with green
bond underwriting and financing for
renewable and clean energy. From financ-
ing and capital raising to strategic advice,
we are working closely with clients across
industries as they aim to meet their own
long-term sustainability targets.
Capital for the climate
With the acquisition of First Republic Bank
and collapse of Silicon Valley Bank, we
have a unique opportunity to expand our
support for the Innovation Economy - the
ecosystem of venture-backed companies,
founders and investors, who rely on the
private markets. In the past, these efforts
were led largely by Commercial Banking.
With our new combined franchise, we
can now better serve this dynamic, fast-
growing client base. We want to make
clients-for-life out of the legions of tech
companies and their founders by support-
ing them from the earliest stages of
growth up to IPO and beyond.
Our Payments business moves nearly
$10 trillion 13 each day, with capabilities to
send payments in more than 120 curren-
cies across 160 countries. We are future-
proofing its platforms and investing to
help businesses across industries, such as
healthcare and e-commerce accept and
make payments more seamlessly. In
Securities Services, an increasing focus is
to provide better data services to help
investor clients improve the performance
of their portfolios and the operational
efficiency of their businesses. In 2023, we
launched the first commercial offerings
on our Fusion platform, giving clients
access to their custody, fund accounting
and middle office data via API or the
cloud. We also rolled out a tool that helps
clients gather, cleanse and organize ESG
data from different sources.
•
Strong credit performance, with net
charge-offs of 12 basis points
Supporting the Innovation Economy:
The collapse of Silicon Valley Bank in
March of last year was a profound
moment. Thousands of founders, compa-
nies and investors needed to protect their
liquidity and make payroll. Many came to
us, and we were ready. Because of our
focus and significant investments to serve
the Innovation Economy (IE) over the past
decade, we were prepared.
Jenn
70 COMMERCIAL & INVESTMENT BANK
Jennifer Piepszak
Co-CEO, Commercial & Investment Bank
Try
Troy Rohrbaugh
Co-CEO, Commercial & Investment Bank
COMMERCIAL & INVESTMENT BANK
71
COMMERCIAL BANKING
2023 was a dynamic and complex year,
marked by geopolitical tensions, stubborn
inflation, rapidly rising interest rates and
a regional banking crisis. Through it all,
Commercial Banking (CB) served as a
source of stability for our clients and
communities and remained focused on
executing our strategic priorities.
Amidst this market disruption, our team
rose to the occasion to support thousands
of new clients, expand into key markets
and accelerate growth across our busi-
ness. CB's exceptional performance
reflects the strength of our franchise,
ongoing client focus, and sustained invest-
ments in our platforms and capabilities:
Record revenue of $15.5 billion, up
35% year-over-year, reflecting higher
net interest income, client acquisition
and expansion into new markets
• Record net income of $6.1 billion, up
46% year-over-year, and a 20% return
on equity
• Record Payments revenue of $8.3
billion, a 45% increase year-over-year
Gross Investment Banking revenue of
$3.4 billion, a 14% increase
year-over-year
I'm incredibly proud of our outstanding
operational and financial performance.
Our team's steadfast commitment, con-
sistent investments and market discipline
drove our success.
In 2023, we accelerated our strategy to
support this important segment of our
economy by:
Our borrower and investor clients are on
both sides of this growth, and we are
well-positioned to serve the full range of
their needs. We are growing our solution-
agnostic credit strategy, deploying balance
sheet where it makes sense for direct
lending, in addition to our existing financ-
ing and structured solutions. We are also
enhancing our offering for asset managers
and financial sponsors looking to deploy
capital. As the private markets continue to
evolve, we will remain a significant player
with a goal of providing clients with a full
range of financing options.
Trading at scale
Private capital markets
5 Coalition Greenwich Competitor Analytics (preliminary for FY23). Market share is based on JPMorgan Chase's
internal business structure and revenue. Ranks are based on Coalition Index Banks for Markets.
COMMERCIAL & INVESTMENT BANK
69
two businesses than ever before. In 2023,
over $3 billion in gross Investment Bank-
ing and Markets revenue and more than
$8 billion in firmwide Payments revenue,
almost half, came from Commercial
Banking clients. With our extensive foot-
print in the middle market, combined
with our Investment Banking franchise,
we are uniquely positioned to support
middle market clients as they grow in
size and complexity.
At the same time, our biggest multinational
and asset manager clients are navigating
an increasingly complex set of challenges
and need a banking partner with the scale,
global reach and full-service offering to
resolve them. With employees around the
world supporting clients in more than 100
countries, the newly enlarged business is
among the most complete institutional
client franchises in the industry. Wherever
companies are on their growth journey, the
newly combined business will have the
resources and coverage to help.
PAYMENTS AND SECURITIES SERVICES
Firmwide Payments revenue 7.11
($ in billions)
$10.4
2018
+76%
$18.2
2023
6 Includes gross revenues earned by the firm that are subject
to a revenue sharing arrangement between CB and the CIB
for Investment Banking and Markets products sold to CB
clients. This includes revenues related to fixed income and
equity markets products. Refer to page 65 of the firm's 2023
Form 10-K for discussion of revenue sharing.
Our trading business operates at huge
scale.
4 Revenue reflects J.P. Morgan reported revenue.
11.4%
#1
#1
In 2023, in the U.S. alone, it handled more
than 42 billion client orders and helped
investors buy and sell nearly $11 trillion
in 12,000 equity securities.
To capture market share, institutional
trading needs to be easy and intuitive.
We are investing to enhance the trading
experience for clients across the life cycle
of their trades, from onboarding to pre-
trade services like research, execution,
post-trade settlement and data services.
We are investing heavily in the electronifi-
cation of our credit business, bringing
across some of the technology and
approach behind our Equities business.
Among other initiatives in 2023,
J.P. Morgan launched a new algorithmic
trading offering to U.S. Treasury investors
to capture share in the world's most
important bond market.
As assets and international trade flows
increase, we are modernizing platforms
by moving to the cloud and increasing
automation to handle greater volumes at
lower cost.
12 2018 Securities Services revenue adjusted down by
$0.1 billion to exclude the impact of past business
simplification, exit actions and accounting changes.
11 2018 firmwide Payments revenue adjusted down by
$0.2 billion for data processing accounting re-class.
9 Preqin
10 PitchBook
8 Coalition Greenwich Institutional Client Analytics.
2023 based on 3Q23 year-to-date analysis.
2023
Private markets - both credit and equity
- have grown significantly over the past
decade. The private credit market has
grown nearly fourfold over the last 10
years to more than $1.6 trillion, while
money raised in venture capital and pri-
vate equity growth deals has more than
doubled over the same period 10.
$4.8
2018
$4.2
Securities Services revenue¹
($ in billions)
Being there for clients in all markets and
conditions, however, demands a signifi-
cant amount of capital. Although this is a
headwind, the business continues to pro-
vide solid returns, and we remain focused
on the disciplined allocation of capital
while preparing for updated U.S. capital
requirements.
Our strategy of being a complete
counterparty is paying off, with our
biggest institutional clients choosing to
do more business with us. Accordingly,
the bank's share of the institutional
client wallet has grown from 11.1% in
2018 to 13.9% in 20238.
7 Firmwide Payments revenues (predominantly in the CIB
and CB) includes certain revenues that are reported as
investment banking product revenue in CB and excludes
the net impact of equity investments.
Hiring more than 200 experienced
bankers and senior leaders across key
markets
+14%
SELECT FINANCIAL HIGHLIGHTS
$11.5
Expanding our IE presence in eight
countries, including Australia, China,
Germany, Ireland, Israel, Nordics and
the United Kingdom
11.4%
2022
2021
72 COMMERCIAL & INVESTMENT BANK
1 In the third quarter of 2023, certain revenue from CIB Markets products
was reclassified from Payments to Investment Banking. Prior period
amounts have been revised to conform with current presentation.
2023
2022
2021
Given the challenges several key competi-
tors faced in 2023, the banking landscape
changed dramatically and greatly acceler-
ated the expansion of our franchise.
Moments that mattered
$10.0
$4.2
$5.2
$15.5
$6.1
development financial institutions
$240 million to community
development projects
Credit financing to support community
5 Barlow Research Associates.
6 London Stock Exchange Group.
Developing powerful solutions: Our
firm delivers end-to-end solutions to
help our clients run their businesses
more efficiently and fuel their growth.
Through firmwide partnerships, CB
offers customized capabilities, such
as bundled services for startups and
specialized payments offerings for
segments like healthcare, real estate
and government. These broad-based
global offerings serve our clients
through every stage of their life cycle.
Delivering an exceptional experience:
CB is making great progress to optimize
our clients' journey across every touch-
point, including faster onboarding times,
streamlined documentation and intuitive,
self-service tools. As an example, we've
been able to reduce our onboarding time
to under 48 hours for a number of new
clients, and we're working to scale this
experience. Informed by our clients'
needs and expectations, we'll continue to
invest in our operations and platforms to
offer simple, efficient and digital-first
experiences to our clients of all sizes.
Multifamily Lender in the U.S.³
Middle Market, Market Penetration and Lead Share4
Emerging Middle Market, Primary Bank Market Share
COMMERCIAL & INVESTMENT BANK
Middle Market Syndicated Lender
Focus on community impact
CB has played an instrumental role in
supporting the neighborhoods where we
live and work. Our purpose-driven busi-
ness helps to create an inclusive econ-
omy, narrow the racial wealth gap and
drive sustainable economic growth. We're
a pivotal part of the firm's community
impact, but our work is more than that -
it's essential to uplifting the places we
call home.
In 2023 alone, CB extended more than
$18 billion to help communities thrive,
including:
$6 billion to vital institutions, such as
hospitals, governments and schools
$3 billion in loans to emerging middle
market businesses
• $5 billion to create and preserve over
41,000 affordable housing units
$580 million in New Markets Tax
Harnessing the power of our data: CB
has invested in tools and capabilities
to harness the full power of our data.
We've worked to combine our proprietary
data with third-party sources to form an
integrated, comprehensive data asset
that enables us to better understand our
clients' needs, manage risk and drive
operational efficiency.
73
SPOTLIGHT ON NEW YORK CITY
For over 200 years, JPMorgan Chase has proudly served clients and communities across New York City (NYC). CB supports over
7,000 clients in NYC and has extended nearly $9 billion in financing to affordable housing developers, vital institutions and local
businesses since 2019.
2023
2022
2021
$3.7
$5.7
$1.2
$1.5
TOTAL REVENUE
$2.2
MIDDLE MARKET EXPANSION
TOTAL PAYMENTS REVENUE¹
($ in billions)
Acquiring First Republic Bank: JPMorgan
Chase's acquisition of First Republic Bank
(FRB) was another notable highlight of
2023. Given the overlap with CB, FRB
offers a tremendous opportunity to
Investing in platforms that deliver
seamless digital experiences and inte-
grated payments offerings specifically
designed for startups and high-growth
companies
Providing tailored capabilities, such as
early-stage venture lending and capital
raising
Establishing Startup and Climate Tech
Banking teams to provide deep sector
expertise
$8.3
•
2021
2023
CB has supported The City of New York
for more than 50 years, providing 60
NYC agencies with services, including
lending, fraud prevention, treasury
services, and more.
MANHATTAN
THE BRONX
BROOKLYN
QUEENS
CB provided Bronx Pro Group and Services
for the Underserved with a $51 million standby
letter of credit to support the new construction
of Melrose North. This development includes
170 units of affordable housing, improved
energy efficiency and tenant amenities, and
a youth training and employment center.
2022
Through a multimillion-dollar investment
and a dedicated team, the firm is helping
Carver Federal Savings Bank serve
communities through its seven NYC
branches, including four in Brooklyn.
Founded in 1948, Carver is one of the
NEW YORK CITY
CB invested in $10.6 million of New Markets
Tax Credit allocation to expand Urban Health
Plan's Plaza Del Sol Family Health Center.
This facility provides access to primary and
specialty care, behavioral health, nutrition,
telehealth, and social services, such as the
Women, Infants and Children (WIC) program.
Our future is bright
By all measures, 2023 was a standout
year with our success driven 100% by our
people. I'd like to extend my heartfelt
gratitude to my extraordinary CB col-
leagues and partners across the firm
whose unwavering commitment not only
contributed to our performance but also
supported our clients throughout this
remarkable year.
My continued confidence in our future
reflects our proven strategy, as well as
our commitment to being our clients'
most important financial partner. An
ambitious agenda awaits, and we're not
standing still. To build upon our strong
momentum, we'll remain disciplined as
we accelerate our investments to drive
our business forward.
NET INCOME
nation's largest Black-managed minority
depository institutions and a community
development financial institution.
Market share5
Rank5
challenges of 2023 and previous market
cycles. Our industry-leading growth of
client assets is a testament to our unwav-
ering commitment to delivering on our
fiduciary responsibilities and dedication
to serving clients' best interests. We are
deeply grateful for this trust and will
continue to strive for excellence in all
we do, each and every day.
This year we are integrating our major
wholesale businesses Commercial Banking
and the Corporate & Investment Bank.
There are more connections between the
invest in the markets to the decisions
they make about their long-term retire-
ment planning. Simultaneously, to assist
our clients in navigating the intricacies of
retirement, we offer robust strategies
through our SmartRetirement solutions.
75
ASSET & WEALTH MANAGEMENT
2 For footnote, refer to page 60 footnote 29 in this Annual Report.
1 In the fourth quarter of 2020, the firm realigned certain wealth management clients from
AWM to CCB. Prior periods have been revised to conform with the current presentation.
2023
2022
2021
2020
2019
Our dedication to research is at the heart
of everything we do, from stock selection
to unique market and asset allocation
insights. For example, we deliver exclu-
sive insights to our clients through our
proprietary, industry-leading Eye on the
Market and J.P. Morgan Guide to the
Markets, viewed by hundreds of thou-
sands of financial advisors and millions
of clients every year. And we draw on
the depth and breadth of our market and
economic expertise to provide insights
into investment themes to enable more
confident portfolio decisions. Clients rely
on us to help them distinguish the signals
from the noise.
2018
2016
2015
2014
80%
94%
00
EMERGING MARKETS
AND ASIA
95%
U.S.
83%
2017
IMPRESSIVE RESULTS FOR
SHAREHOLDERS
Our success across our preeminent diver-
sified investment and client franchises
drives our consistent growth. This year,
our total client assets grew to a record
$5 trillion, our revenue to a record $20 bil-
lion and our pre-tax income to a record $7
billion-resulting in a return on equity of
31%. These results underscore the power
of a global, highly diversified platform
with exceptional investment performance
and dedicated client service.
$26.1
DFAC
2 Dimensional US Core Equity 2 ETF
Pre-tax Income
Revenue
$32.8
JEPI
1 JPMorgan Equity Premium Income ETF
Total Assets
Ticker
No. Fund Name
GLOBAL ACTIVE ETF RANKING
$7B✓
$20B✓
Delivering Strong Results
A Record Year
Innovation forms the core of our
business. Having launched our active
exchange-traded fund (ETF) platform
less than 10 years ago, we have emerged
as a global leader – ranking #2 in AUM
and net flows, led by having the #1, #3
and #5 largest actively managed ETFS
Active ETFS and SMAS
INVESTING FOR THE FUTURE
And because preferences are often
personal in nature, we are steadfast in
focusing our stewardship on voting
matters that maximize long-term share-
holder value and good governance. With
the increased prevalence of outsourcing
proxy voting, by the end of 2024, generally
we will have eliminated third-party proxy
advisor voting recommendations from our
internally developed voting systems. We
believe these enhancements will allow
companies to better understand our inde-
pendent rationale regarding voting issues.
J.P. Morgan's job to tell clients what to
include or exclude inside their portfolio
sectors or stock selection. Instead, we
empower clients to guide us and drive
their own decisions.
I have never in my time running the AWM
franchise found two clients alike in their
needs, goals and risk tolerances for their
assets. For a sovereign wealth fund or
a first-time individual investor, investing
is deeply nuanced in terms of volatility
tolerances, income and distribution
requirements, taxes, preferences and
passions. The proprietary technologies
we gained from our acquisitions of 55ip
and OpenInvest, for example, enable us
to combine over 600 different invest-
ment strategies to create highly custom-
ized portfolios in a smart, efficient way.
We know our clients have a choice - not
only in managers and investment styles
but also in preferences around sectors or
tilts and, where appropriate, in a tax-
optimized way. We do not believe it is
PERSONALIZATION, GOVERNANCE
AND STEWARDSHIP
80%
$5B ✓
90%
85%
$115
$176
$276
$389
$490
($ in billions)
RECORD 2023 FLOWS¹
We provide our clients with expertise
and effective solutions to support them
through all market cycles and prepare
them for the future. Equipped with state-
of-the-art technology and artificial intelli-
gence (AI)-enhanced tools and capabili-
ties, our advisors stand ready to guide
our clients and deliver more personalized
offerings from the first dollar they
Achieving outstanding investment results
is never easy, but after several years of
extensive quantitative easing - which
often led to undifferentiated asset moves
in concert with one another - we are
returning to a market that prioritizes fun-
damentals in valuing companies and
securities, giving us plenty of reasons to
be optimistic about the future for our
investors across asset classes.
As a fiduciary, delivering strong, long-
term investment performance is our fore-
most priority. Approximately 80% of
J.P. Morgan Asset Management assets
under management (AUM) outperformed
the
peer median over a 10-year time
period. This exceptional investment per-
formance is an outcome of decades of
refinement and involves close to 1,300
investment professionals along with one
of the industry's largest research budgets,
which enables us to actively cover nearly
2,500 public companies, with over 5,000
company visits annually. This has resulted
in 93% of our equity assets outperforming
their peers over the past decade.
$61
STRONG INVESTMENT
PERFORMANCE AND LEADING
SOLUTIONS FOR CLIENTS
-
Nearly half a trillion dollars - $490 billion
to be precise. That sum represents how
much net new money clients entrusted to
J.P. Morgan Asset & Wealth Management
(AWM) last year. During times of financial
crises or market uncertainty, J.P. Morgan
shines even brighter as a port in the
storm
RECORD NEW CLIENTS AND FLOWS
A landmark year setting the stage for
future success
Wealth Management
Asset &
COMMERCIAL & INVESTMENT BANK
74
Co-Head, Global Banking,
Former CEO, Commercial Banking
Douglas B. Petno
and 2023 was no exception.
The U.S. regional banking crises served as
a stark reminder that banking and lend-
ing are not to be treated as a commodity.
As a reflection of this awareness, AWM
drew an influx of client flows last year at a
rate nearly twice that of our closest pub-
licly listed competitor.
$85
$74
$24
85%
84% 85%
82%
91%
INTERNATIONAL
0
TOTAL
EQUITIES
Long-Term Funds AUM Outperforming
Peer Median Over 10 Years²
2023 % of J.P. Morgan Equity
INVESTMENT PERFORMANCE
J.P. Morgan Asset Management Long-Term Funds AUM Outperforming Peer Median Over
10 Years²
LONG-TERM FUNDS AUM OUTPERFORMING PEER MEDIAN
2023
2022
2021
2020
2019
2018
2017
2016
2015
2014
$49
86%
3 Represents assets held directly or indirectly on
behalf of clients under safekeeping, custody
and servicing arrangements.
Net Income
3 JPMorgan Ultra-Short Income ETF
J.P. Morgan market share
■Industry wallet ($ in billions)
Investment banking wallet trend and J.P. Morgan market share and rank
INVESTMENT BANKING
We are not complacent about these lead-
ership positions. The competitive land-
scape for our businesses is intensifying,
driven by both traditional banks as well
as further growth of nonbank financial
institutions. Core to our strategy is look-
ing very closely at all areas of the busi-
ness and pinpointing where there are
weaknesses and opportunities to grow.
Here are some of our target areas:
J.P. Morgan has an exceptional blend of
strengths that have continued to deliver
value over time. The completeness of our
products and services, talent, ongoing
investments in digital technology and
tools, client focus and fortress balance
sheet have given the CIB strong share
positions across almost all areas¹,2.
SIZING UP THE OPPORTUNITIES
AHEAD
Securities Services, our fourth major line
of business in the CIB, also had a record
year, reporting $4.8 billion in revenue.
Sitting adjacent to the industry's largest
Markets business, it provides post-trade
services to institutional asset-manager
and asset-owner clients, providing safe-
keeping, settlement and related services
for securities in approximately 100
markets around the world. Since the
CIB was formed in 2012, the Securities
Services business has nearly doubled
assets under custody from $17 trillion at
the end of 2011 to $32 trillion at the end
of 2023³. In recent years, investments
in technology have enhanced the scale
and resiliency of its platforms, enabling
the business to grow revenue and secure
major new mandates.
As announced earlier this year, we're
excited to bring together the strengths
and capabilities of CB and the Corporate
& Investment Bank. This strategic combi-
nation further solidifies our strong part-
nerships across wholesale banking and
creates the most global, complete and
diversified Commercial & Investment
Bank in the world. With an incredible
team, extraordinary client franchise,
iconic brand and unmatched capabilities,
one thing is abundantly clear: Our future
is bright.
CORPORATE RESPONSIBILITY
78
9.2%
The U.K. has long been an important mar-
ket for our firm. With over 22,000 employ-
ees, our offerings have continued to grow
with the 2021 launch of the Chase digital
consumer bank and the expansion in the
U.K. of our commercial banking, invest-
ment banking and asset management
businesses. While our presence has
evolved, the country's economic landscape
has experienced historic changes, with
ongoing income inequality and nearly 22%
of U.K. residents living in poverty.
THE UNITED KINGDOM
"We are providing support and coaching
for promising new businesses, as well as
for entrepreneurs still in the idea stage,"
she says. “Our JPMorgan Chase partnership
helps us arm these socially and economi-
cally disadvantaged women entrepreneurs
with the processes and systems they need
to succeed in their business ventures."
Monica and her team have already helped
launch 83 new businesses and are grow-
ing 47 more, creating jobs and building
individual and community wealth.
We first worked with Monica Ray at
CHCTDC, where she had served as the
organization's executive director for
more than two decades. Monica has
devoted her career to her community,
attracting investment to help improve
Wards 7 and 8's low homeownership and
high poverty and unemployment rates.
After years of collaborating on CHCTDC
initiatives and the opening of Chase's
Community Center Branch in Skyland
Town Center, Monica shared her vision
about helping to launch a small business
career and skills building incubator.
Our impact in action
• We partnered with Baltimore's Mayor's
Office of Employment Development
to launch our Baltimore Virtual Call
Center, hiring 40 Baltimore-based cus-
tomer service specialists and leaders.
Working with the Greater Washington
Partnership and Education Strategy
Group and with support from local
government leaders in D.C., Maryland
and Virginia - we recommitted $5.4
million to the TalentReady initiative to
support the preparation of high school
students across the region for in-demand
careers, building on our previous com-
mitment that engaged more than 25,000
students across five school districts.
-
• In D.C., we provided $3 million to help
launch the Congress Heights Community
Training and Development Corporation's
(CHCTDC) small business career and skills
building incubator in Wards 7 and 8.
We have pursued initiatives to address
these disparities and lift up the region's
residents and workforce.
While the firm has operated in Greater
Washington for more than 50 years, over
the past decade we have made a concerted
effort to advance our business footprint by
opening new branches, hiring local employ-
ees, lending to small businesses and con-
tributing in other ways. We have intention-
ally invested in areas where we can grow
alongside communities and help residents
achieve financial security, especially in
Washington, D.C., and Baltimore, two cities
with significant racial wealth divides.
Our approach
Landscape
Landscape
8.8%
8.4%
7.8%
The benefits of integration
2023
2018
$27.8
+42%
$19.6
($ in billions)
Markets revenue and J.P. Morgan market share and rank
MARKETS
Source: Dealogic as of January 2, 2024
#1
#1
#1
(all years)
(all years)
#1
J.P. Morgan rank
2023
2022
2016-2019 average 2020-2021 average
$66
$79
$112
$79
GREATER WASHINGTON
$228B✓
Loans (EOP)
the world - and show that working in
lockstep with communities is critical to
promoting a strong business environment.
In Corporate Responsibility (CR), we put
this philosophy into action by operating at
the nexus of business, policy and commu-
nity. We understand that complex prob-
lems aren't solved with a single grant or
meeting but rather require multifaceted
solutions. This is why we have brought
together our philanthropy, government
relations, research and policy, sustainabil-
ity and community engagement functions
to tackle inclusive economic growth as
one team. Our integrated model allows
us to tap a wide-ranging set of tools and
perspectives to address societal issues
impacting our clients, customers and
employees and drive favorable conditions
for the firm's continued success.
control over their investments and taxes.
in the world (JPMorgan Equity Premium
Income, JPMorgan Ultra-Short Income
and JPMorgan Nasdaq Equity Premium
Income). We persist in our efforts
to innovate, expanding our offerings
by launching 17 new solutions (12 U.S.
and five UCITS) in the past year. We
are equally enthusiastic about our
separately managed account (SMA)
platform. Acquiring 55ip enabled us to
provide our clients with improved tax
management and portfolio customiza-
tion, and our clients now have greater
Source: Morningstar as of February 29, 2024, excludes GBTC
($ in billions)
ASSET & WEALTH MANAGEMENT
76
EOP End of period
✓ = record
$10.8
JEPQ
Since the acquisition, our AUM increased
16-fold in this area.
JPMorgan Nasdaq Equity Premium Income ETF
Flows
Client Assets
$490B✓
$5T✓
$10.8
MINT
PIMCO Enhanced Short Maturity Active ETF
4
$22.5
JPST
5
Alternatives
As a top 10 manager and investor, with
more than $400 billion in assets and
When families do well, we do well. When
communities thrive, we thrive.
Across the firm, we believe that the
strength of our company is inextricably
linked to the vitality of our communities.
Corporate Responsibility
77
ASSET & WEALTH MANAGEMENT
CEO, Asset & Wealth Management
Mary Callahan Erdoes
Hlavy
4 Coalition Greenwich.
I am so proud of how we helped our
clients and shareholders navigate the
resources, opportunities and scale.
and thought leadership are critical ele-
ments. I am confident that our capabili-
ties and commitment to future-focused
investments, as well as enhancements
using technology and Al, will bolster our
ability to serve our clients and empower
them to attain their future success. By
achieving optimal results through these
efforts, clients reward us with their
flows, and future growth will follow.
Furthermore, we hold a unique advan-
tage that sets us apart from all of our
competitors: Being part of JPMorgan
Chase provides us with unmatched
As I have said from the beginning of my
tenure as CEO of AWM, our focus is on
being the best in the industry, not the
biggest. And by best, I mean the best
performer for clients. Advice is not a
simple commodity. Strong investment
performance across a broad, diversified
offering paired with best-in-class advice
CONCLUSION
A rigorously controlled environment
To ensure scalable growth, we are
committed to operational excellence
from enhancing trades, client transac-
tions and money movement to simplifying
interactions and implementing robust
controls and safeguards. Some of these
efforts are being further enhanced using
Al to streamline our processes, manage
risk and make informed decisions to
protect our clients. Additionally, these
investments in our infrastructure help
us - as fiduciaries - perform optimized
stress testing of client portfolios on a
consistent basis.
J.P. Morgan Asset Management (China)'s
headquarters in the heart of downtown Shanghai.
资产管理
摩根
in China dates back more than 100 years.
32% since the acquisition. We also com-
pleted the acquisition of China Interna-
tional Fund Management (CIFM), rebrand-
ing it as J.P. Morgan Asset Management
(China). We commemorated this pivotal
rebrand by moving 400 new onshore col-
leagues into Shanghai Tower. This served
not only as a celebration but also as a
testament to our shared heritage, global
strengths and deep-rooted expertise in
the local market, as J.P. Morgan's history
Global Shares, a share plan administrator
of both public and private companies
around the world, is one of our most
recent acquisitions. As we build out our
broader J.P. Morgan Workplace offering,
we are leveraging Global Shares as the
foundation to help new companies acceler-
ate growth and encourage employees and
owners to invest. With plan participants
from over 100 countries, the number
continues to grow - up 15% this past year.
Just as impressive, client assets are up
Acquisitions
a 60-year legacy, we continue to invest
in scaling and expanding our alternatives
capabilities across private equity, hedge
funds, private credit, real estate and
infrastructure. After launching J.P. Morgan
Private Capital two years ago, we success-
fully introduced technology, consumer
and life sciences strategies. As access
to alternatives continues to widen, we
launched J.P. Morgan Real Estate Income
Trust (JPMREIT) and JPMorgan Private
Markets Fund (JPMF), which is one of the
industry's first private equity funds avail-
able to individual investors. Overall, alter-
natives across AWM continue to grow.
We are not just committed to delivering for
communities - we are built for it. With
team members around the globe, we part-
ner with local residents to understand
what's happening on the ground and how
JPMorgan Chase can use its unique exper-
tise and resources to maximize impact.
Recognizing that there is no one-size-fits-
all approach, our local strategies are inform-
ed by global insights yet intentionally tai-
lored to the local context, whether that is
a region, neighborhood or even city block.
To me, there is nothing more rewarding
than seeing our impact up close. In that
spirit, I invite you to learn about our work
in Washington, D.C., Maryland and Virginia
(Greater Washington); the United Kingdom
(U.K.); Dallas-Fort Worth; and Chicago.
These place-based case studies showcase
the breadth and depth of our engage-
ments in hundreds of communities around
3 S&P Global Market Intelligence.
Empowering our team: One of CB's key
differentiators is - and always has been
our people. We provide our team with
specialized training, collaboration and
workflow tools, and content targeted to
seamlessly address clients' needs. Access
to personalized data and analytics helps
our team develop deep sector expertise
and insights to serve clients in a highly
differentiated manner.
#1
2 Excludes First Republic Bank.
2023
deepen our presence in high-growth
markets, expand our client franchise and
build upon our team. CB added more than
5,000 Commercial Real Estate clients and
approximately 2,000 Middle Market
clients along with high-quality loans and
deposits. We're making steady progress
on the integration and are excited about
the synergies between our businesses
and strength of our combined teams.
Dine
Despite these unexpected events, we
made tremendous progress executing
against our long-term, through-the-cycle
strategy.
NOTABLE #1 RECOGNITIONS IN 2023
Executing a proven strategy
Building deep, enduring relationships:
CB provides local expertise to nearly
70,000 clients across markets and sec-
tors around the world. We welcomed
close to 5,000² businesses last year and
added roughly 500 bankers to build these
relationships. In addition to supporting
clients in all 50 states, we established a
presence in Israel, Malaysia and Singa-
pore, increasing our coverage of non-U.S.
headquartered clients across 27 countries.
Capital ratios
$
433,575
Investment securities, net of allowance for credit losses
571,552
631,162
672,232
Loans
1,323,706
1,135,647
1,077,714
Total assets
3,875,393
3,665,743
453,799
$
540,607
$
15.0
18.5
16.8
16.8
7.2
6.6
3,743,567
6.5
5.6
5.4
Tier 1 leverage ratio (b)(c)
Supplementary leverage ratio ("SLR") (b)(c)
Selected balance sheet data (period-end)
Trading assets
6.1
Deposits
2,400,688
2,340,179
18,689
$
22,204
$
24,765
$
Net charge-off rate
Net charge-offs
Nonperforming assets
Allowance for loan losses to total retained loans
Allowances for credit losses
271,025
293,723
309,926
(f)
Credit quality metrics
.(e)
2,462,303
Long-term debt
391,825
295,865
301,005
Common stockholders' equity
14.9
Total stockholders' equity
264,928
259,289
327,878
292,332
294,127
Employees
300,474
16.6
13.1
13.2
393,484
489,320
3,026.6
2,970.0
2,943.1
3,021.5
2,965.8
2,938.6
15.36
12.09
16.23
15.39
$
12.10
$
16.25
$
6,389
(9,256)
61,612
46,166
59,562
12,060
466,206
8,490
$
49,552
$
37,676
$
48,334
11,228
1.75 %
2,876.6
2,944.1
15.0
178
151
129
111
112
113
44
49
55
59
59
55
1.30
0.98
1.30
23
104.45
90.29
88.07
86.08
73.12
4.10
2,934.2
4.00
3.80
17 %
14 %
19 %
21
18
71.53
1.81 %
1.62 %
9,320
68,837
$
Noninterest revenue
data
Selected income statement
Change
2022
2023
data and ratios)
(in millions, except per share
Year ended December 31,
Financial performance of JPMorgan Chase
This executive overview of the MD&A highlights selected
information and does not contain all of the information that is
important to readers of the Firm's 2023 Form 10-K. For a
complete description of the trends and uncertainties, as well
as the risks and critical accounting estimates affecting the
Firm, the 2023 Form 10-K should be read in its entirety.
EXECUTIVE OVERVIEW
JPMorgan Chase & Co./2023 Form 10-K
48
The Firm's website is www.jpmorganchase.com. JPMorgan
Chase makes available on its website, free of charge, annual
reports on Form 10-K, quarterly reports on Form 10-Q and
current reports on Form 8-K pursuant to Section 13(a) or
Section 15(d) of the Securities Exchange Act of 1934, as
soon as reasonably practicable after it electronically files or
furnishes such material to the U.S. Securities and Exchange
Commission (the "SEC") at www.sec.gov. JPMorgan Chase
makes new and important information about the Firm
available on its website at https://www.jpmorganchase.com,
including on the Investor Relations section of its website at
https://www.jpmorganchase.com/ir. Information on the
Firm's website, including documents on the website that are
referenced in this Form 10-K, is not incorporated by
reference into this 2023 Form 10-K or the Firm's other
filings with the SEC.
2019
2020
2021
2022
2023
JPMorgan Chase & Co./2023 Form 10-K
$
47
The following is Management's discussion and analysis of the financial condition and results of operations ("MD&A”) of JPMorgan
Chase for the year ended December 31, 2023. The MD&A is included in both JPMorgan Chase's Annual Report for the year ended
December 31, 2023 ("Annual Report") and its Annual Report on Form 10-K for the year ended December 31, 2023 ("2023 Form
10-K" or "Form 10-K") filed with the Securities and Exchange Commission (“SEC”). Refer to the Glossary of terms and acronyms on
pages 315-321 for definitions of terms and acronyms used throughout the Annual Report and the 2023 Form 10-K.
This Form 10-K contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are based on the current beliefs and expectations of JPMorgan Chase's management, speak
only as of the date of this Form 10-K and are subject to significant risks and uncertainties. Refer to Forward-looking Statements on
page 161 and Part 1, Item 1A: Risk factors in this Form 10-K on pages 9-33 for a discussion of certain of those risks and
uncertainties and the factors that could cause JPMorgan Chase's actual results to differ materially because of those risks and
uncertainties. There is no assurance that actual results will be in line with any outlook information set forth herein, and the Firm
does not undertake to update any forward-looking statements.
INTRODUCTION
JPMorgan Chase & Co. (NYSE: JPM), a financial holding
company incorporated under Delaware law in 1968, is a
leading financial services firm based in the United States of
America (“U.S."), with operations worldwide. JPMorgan
Chase had $3.9 trillion in assets and $327.9 billion in
stockholders' equity as of December 31, 2023. The Firm
a leader in investment banking, financial services for
consumers and small businesses, commercial banking,
financial transaction processing and asset management.
Under the J.P. Morgan and Chase brands, the Firm serves
millions of customers, predominantly in the U.S., and many
of the world's most prominent corporate, institutional and
government clients globally.
JPMorgan Chase's principal bank subsidiary is JPMorgan
Chase Bank, National Association ("JPMorgan Chase Bank,
N.A."), a national banking association with U.S. branches in
48 states and Washington, D.C. JPMorgan Chase's principal
non-bank subsidiary is J.P. Morgan Securities LLC (“J.P.
Morgan Securities"), a U.S. broker-dealer. The bank and
non-bank subsidiaries of JPMorgan Chase operate
nationally as well as through overseas branches and
subsidiaries, representative offices and subsidiary foreign
banks. The Firm's principal operating subsidiaries outside
the U.S. are J.P. Morgan Securities plc and J.P. Morgan SE
("JPMSE"), which are subsidiaries of JPMorgan Chase Bank,
N.A. and are based in the United Kingdom (“U.K.") and
Germany, respectively.
For management reporting purposes, the Firm's activities
are organized into four major reportable business
segments, as well as a Corporate segment. The Firm's
consumer business is the Consumer & Community Banking
("CCB") segment. The Firm's wholesale businesses are the
Corporate & Investment Bank ("CIB”), Commercial Banking
("CB"), and Asset & Wealth Management ("AWM")
segments. Refer to Business Segment Results on pages 65-
85, and Note 32 for a description of the Firm's business
segments, and the products and services they provide to
their respective client bases. On May 1, 2023, JPMorgan
Chase acquired certain assets and assumed certain
liabilities of First Republic Bank (the "First Republic
acquisition") from the Federal Deposit Insurance
Corporation ("FDIC"). All references in this Form 10-K to
"excluding First Republic," "including First Republic,"
"associated with First Republic" or "attributable to First
Republic" refer to excluding or including the relevant
effects of the First Republic acquisition, as well as
subsequent related business and activities, as applicable.
Refer to Note 34 for additional information.
Management's discussion and analysis
61,985
Net interest income
89,267
46
Net income
49,552
37,676
32
Diluted earnings per share
6,389
16.23
34
Selected ratios and metrics
Return on common equity
Return on tangible common
equity
Book value per share
Tangible book value per share
12.09
2018
9,320
35
66,710
11%
34
Total net revenue
158,104
128,695
23
Provision for credit losses
•
87,172
76,140
14
Pre-provision profit
70,932
52,555
Total noninterest expense
(a)(b)
75
S&P 500
225
250
S&P 500 Index
S&P Financials Index
KBW Bank Index
JPMorgan Chase
(in dollars)
December 31,
The following table and graph assume simultaneous investments of $100 on December 31, 2018, in JPMorgan Chase common
stock and in each of the above indices. The comparison assumes that all dividends were reinvested.
The following table and graph compare the five-year cumulative total return for JPMorgan Chase & Co. ("JPMorgan Chase" or
the "Firm") common stock with the cumulative return of the S&P 500 Index, the KBW Bank Index and the S&P Financials Index.
The S&P 500 Index is a commonly referenced equity benchmark in the United States of America ("U.S."), consisting of leading
companies from different economic sectors. The KBW Bank Index seeks to reflect the performance of banks and thrifts that are
publicly traded in the U.S. and is composed of leading national money center and regional banks and thrifts. The S&P
Financials Index is an index of financial companies, all of which are components of the S&P 500. The Firm is a component of all
three industry indices.
FIVE-YEAR STOCK PERFORMANCE
JPMorgan Chase & Co./2023 Form 10-K
46
166
(f) Included approximately 4,500 individuals associated with First Republic who became employees effective July 2, 2023.
(e) This metric, which was formerly Headcount, has been renamed Employees but is otherwise unchanged. Refer to Part I, Item 1, Business section on pages
2-3 of this Form 10-K for a further discussion of Human Capital.
(d) Reflects the Firm's ratios under the Basel III Standardized approach. Refer to Capital Risk Management on pages 91-101 for additional information.
7,597
$
7,247
$
8,346
6,209
200
2,853
0.52 %
0.27 %
0.30 %
As of and for the period ended December 31, 2023, the results of the Firm include the impact of First Republic. Refer to Business Segment Results on page 67
and Note 34 for additional information.
(a) Pre-provision profit, TBVPS and ROTCE are each non-GAAP financial measures. Tangible common equity ("TCE") is also a non-GAAP financial measure.
Refer to Explanation and Reconciliation of the Firm's Use of Non-GAAP Financial Measures on pages 62-64 for a discussion of these measures.
(b) For the years ended December 31, 2023, 2022 and 2021, the percentage represents average ratios for the three months ended December 31, 2023,
2022 and 2021.
(c) The ratios reflect the Current Expected Credit Losses ("CECL") capital transition provisions. Refer to Note 27 for additional information.
2,865
175
150
125
168.90
175.02
132.76
131.58
156.59
175.61
100.00
122.09
129.77
131.48
200.29
164.02
207.13
JPMorgan Chase
KBW Bank
S&P Financials
155.65
-
132.09
136.12
100
December 31,
(in dollars)
2018
2019
2020
$ 100.00
100.00
$ 147.27
2021
$ 177.72
2022
2023
$ 155.33
$ 203.09
100.00
$ 139.14
$
52,555
70,932
Total net revenue - managed
basis
(4)
28,984
27,792
Markets(c)
9
40,938
44
90,041 $ 62,355
44,533
NIR excluding Markets(c)
$
NII excluding Markets (c)
14.9
16.8
18.5
16.6
13.2 %
15.0 %
Tier 1 capital
Total capital
Memo:
17 %
14 %
21
$ 162,366 $ 132,277
18
104.45
$
90.29
86.08
73.12
16
18
$
23
As of and for the year ended December 31, 2023, the results of the Firm
include the impact of First Republic. Refer to page 67 and Note 34 for
additional information.
(a) The ratios reflect the CECL capital transition provisions. Refer to Note
27 for additional information.
The total allowance for credit losses was $24.8 billion at
December 31, 2023. The Firm had an allowance for loan
losses to retained loans coverage ratio of 1.75%,
compared with 1.81% in the prior year.
The Firm's nonperforming assets totaled $7.6 billion at
December 31, 2023, up 5%, predominantly driven by
wholesale nonaccrual loans, which reflected the impact of
downgrades. Refer to Wholesale Credit Portfolio and
Consumer Credit Portfolio on pages 120-130 and pages
114-119, respectively, for additional information.
JPMorgan Chase & Co./2023 Form 10-K
49
.
Firmwide average loans of $1.2 trillion were up 13%,
predominantly driven by higher loans in CCB and CB,
primarily as a result of First Republic.
The provision in the prior year included a $3.5 billion net
addition to the allowance for credit losses and net
charge-offs of $2.9 billion.
Firmwide average deposits of $2.4 trillion were down
4%, driven by
continued migration into higher-yielding investments in
AWM, the impact of higher customer spending in CCB,
continued deposit attrition in CB, and a net decline in
CIB, which included actions taken to reduce certain
deposits,
partially offset by
the increase in deposits associated with First Republic,
and growth related to the Firm's international
consumer initiatives in Corporate.
Refer to Liquidity Risk Management on pages 102-109
for additional information.
Selected capital and other metrics
• CET1 capital was $251 billion, and the Standardized and
Advanced CET1 ratios were both 15.0%.
-
CET1 capital
The net addition also included $1.2 billion to establish
the allowance for First Republic loans and lending-related
commitments in the second quarter of 2023.
a net addition of $1.3 billion in consumer,
predominantly driven by CCB, reflecting $1.4 billion in
Card Services driven by loan growth, including an
increase in revolving balances, partially offset by a net
reduction of $200 million in Home Lending, and
(b) Reflects the Firm's ratios under the Basel III Standardized approach.
Refer to Capital Risk Management on pages 91-101 for additional
information.
(c) NII and NIR refer to net interest income and noninterest revenue,
respectively. Markets consists of CIB's Fixed Income Markets and
Equity Markets businesses.
Comparisons noted in the sections below are for the full year
of 2023 versus the full year of 2022, unless otherwise
specified.
Firmwide overview
JPMorgan Chase reported net income of $49.6 billion for
2023, up 32%, earnings per share of $16.23, ROE of 17%
and ROTCE of 21%.
•
a net addition of $657 million in wholesale, driven by
net downgrade activity and a deterioration in the
outlook for commercial real estate in CB.
Total net revenue was $158.1 billion, up 23%,
reflecting:
•
Net interest income ("NII") of $89.3 billion, up 34%,
driven by higher rates, the impact of First Republic, and
higher revolving balances in Card Services, partially
offset by lower Markets net interest income and lower
average deposit balances. NII excluding Markets was
$90.0 billion, up 44%.
Noninterest revenue ("NIR") was $68.8 billion, up
11%, driven by the impact of First Republic, including
the $2.8 billion estimated bargain purchase gain,
higher Markets noninterest revenue, and higher asset
management fees, partially offset by the absence of the
gain on the sale of Visa B shares in the prior year,
higher net securities losses in Treasury and CIO, and
lower auto operating lease income.
Noninterest expense was $87.2 billion, up 14%,
predominantly driven by higher compensation expense,
reflecting an increase in employees, primarily in
technology and front office, as well as wage inflation. The
increase in expense also includes the $2.9 billion FDIC
special assessment and costs associated with the First
Republic acquisition.
The provision for credit losses was $9.3 billion,
reflecting $6.2 billion of net charge-offs and a net
addition to the allowance for credit losses of $3.1 billion.
Net charge-offs increased $3.3 billion, predominantly
driven by Card Services, and to a lesser extent single
name exposures in wholesale. The net addition to the
allowance for credit losses included:
•
• SLR was 6.1%.
315 Glossary of Terms and Acronyms
86 Firmwide Risk Management
Our approach
challenges. Between 2017 and 2019,
several reports captured the stark segre-
gation and inequities among communities
in Chicago, underscoring devastating
impacts on economic vitality.
-
For more than 160 years, our firm has
served Chicago, a city ripe with business
opportunities along with its share of
Landscape
CHICAGO
We are seeing a similar impact from our
T3 P2C commitment. Over the next six
months, T3 will integrate its platform with
the registration process for all Fort Worth
Independent School District middle
school students, which will give approxi-
mately 15,000 students valuable informa-
tion about educational opportunities at
various high schools and careers they can
pursue as an adult.
CORPORATE RESPONSIBILITY 79
Halfway through the first year, Commit-
2Dallas's Opportunity 2040 Plan has
already met 87% of its year 1 goal: to
help an additional 7,700 students reach
educational benchmarks that put them
on a pathway to well-paying jobs. This
work is touching Dallas County families
like the Donjuans, whose oldest daughter
Annahi will graduate from the University
of North Texas at Dallas this spring.
"I'm the first on both sides of my family
... to obtain higher education," says
Annahi. "I decided to attend college in
order to start saving and serve as a role
model for my siblings."
Our impact in action
We also promote policies at the local,
state and federal levels that align with our
goals. Since 2022, we have been a vocal
champion of Texas's House Bill 8 legisla-
tion that creates a new funding model that
incentivizes community colleges in Texas
to ensure that more students complete
certificates and other credentials or trans-
fer to a four-year university to complete
their undergraduate degree.
$750,000 to the T3 Pathways to
Careers (P2C) platform to provide a
virtual college-to-career resource to
help parents and students understand
what's needed to pursue industry-
based credentials, degrees, certifica-
tions and job opportunities.
$1.5 million to The Commit Partner-
ship's Opportunity 2040 Plan Phase 1
to support a comprehensive 18-year
investment plan to help improve the
long-term financial health of 150,000
current students by 2040.
•
While these organizations work to
address compounding issues that impact
student success and graduation rates, our
commitments are deliberately focused on
initiatives where we have expertise and
insights to add the greatest value. In
2023, we committed:
To help young people access educational
and skills training opportunities, we
began advising and funding data-driven
nonprofits, including the Commit
Partnership and Tarrant To & Through (T3)
Partnership, coalitions of school systems,
higher education institutions, local
and state governments, foundations,
employers and workforce agencies,
among others.
Our approach
Our approach
To address some of the challenges facing
the U.K., we have focused on helping busi-
nesses succeed, supporting individuals as
they build a strong financial future and
connecting people to job opportunities.
This has included committing $64 million in
philanthropic capital over the past five
years, alongside the firm's active employee
volunteerism programs, civic partnerships,
and close engagements with government
and nonprofits. We have also promoted
efforts to boost the U.K.'s leadership in
sustainable finance, providing input on a
report offering recommendations the U.K.
can take to unlock capital at scale to transi-
tion to a more sustainable energy system.
Examples of our work to benefit local
communities and economic growth include:
•
•
The Aspiring Professionals Program
(APP), run in collaboration with the
Social Mobility Foundation, works to
connect talented young people from
low-income backgrounds with work
and mentorship experiences at
JPMorgan Chase.
The Founders Forward mentoring
program pairs women entrepreneurs in
Looking at this research and findings
from the JPMorgan Chase Institute, we
recognized an opportunity to change
the decades-long trajectory of the city's
South and West Sides from disinvestment
to revitalization. Following conversations
with policymakers and residents, we
focused on addressing the city's afford-
able home shortage as an opportunity
to catalyze wealth building.
the U.K. with JPMorgan Chase mentors,
who provide business strategy and
leadership development guidance.
Over the past five years, our collective
work with nonprofits has helped more
than 33,000 people reduce their debts and
improve their financial health. We have
also provided resources to support the
growth of over 10,000 small businesses
and place 9,000+ individuals into appren-
ticeships or full- or part-time positions.
Since launching in 2012, the APP has sup-
ported more than 800 young people, 86%
of whom began full-time employment at
JPMorgan Chase or other firms within 15
months of graduation. Radhika, currently a
vice president with the firm's Global Rates
team, enrolled in APP. She credits the
program with helping her build the skills
she needed for the interview process and
now in her sales role at the firm.
Featured above: Elle
Founders Forward is also changing lives.
Approximately 240 women entrepreneurs
in the U.K. have participated in the pro-
gram. This includes Elle, whose business
won a startup accelerator competition
and expanded to the United States.
In addition to the U.K., we are proud to
offer Founders Forward in France and
Germany, further embedding our commit-
ment to fostering entrepreneurship into
the fabric of our global company.
DALLAS-FORT WORTH
Landscape
Texas is home to our largest employee
base in the United States. With many
companies like ours recognizing Texas as
a great place to do business, the state is
currently experiencing a skilled-labor
shortage, specifically in the Dallas-Fort
Worth area. This local challenge will
persist: Although 85% of living-wage
jobs in Dallas County require education
beyond a high school degree, as of 2017,
73% of Texas' students were not able
to receive postsecondary credentials
within six years, largely due to financial
obstacles.
Our impact in action
To leverage vacant city-owned land, CR
deepened partnerships with nonprofits
building affordable homes in coordination
with local government, including The
Resurrection Project, Reclaiming Chicago
and the Chicago Community Trust. These
organizations target city blocks to acquire
and build homes, supporting individual
and community wealth. They also connect
people with affordable mortgages and
help them plan for costs like maintenance
and repairs. Additionally, our businesses
combined expertise to make one of our
largest-ever affordable housing invest-
ments in redeveloping the Lawson YMCA
into 400+ affordable housing units.
Our impact in action
We see returns on our commitments in the
pride and promise of new homeowners,
including Janay, a public school teacher.
Janay saved part of every paycheck to pur-
chase her first home and put down roots.
47 Five-Year Stock Performance
Management's discussion and analysis:
48 Introduction
49 Executive Overview
54 Consolidated Results of Operations
Audited financial statements:
46 Three-Year Summary of Consolidated Financial
Highlights
162 Management's Report on Internal Control Over
Financial Reporting
166 Consolidated Financial Statements
171
Notes to Consolidated Financial Statements
58 Consolidated Balance Sheets and Cash Flows Analysis Supplementary information:
62 Explanation and Reconciliation of the Firm's Use of
Non-GAAP Financial Measures
65 Business Segment Results
163 Report of Independent Registered Public Accounting
Firm
310 Distribution of assets, liabilities and stockholders'
equity; interest rates and interest differentials
Financial:
CORPORATE RESPONSIBILITY
ed Power
Featured above: Janay
"As a teacher, building a sense of commu-
nity is one of the first things I do with my
students at the beginning of the year. It
is a way of making students feel safe,
valued and supported. This home does
the same for me," she reports.
Janay's inspiring story is one of many.
Housing production from a collaborative
of organizations - funded in part through
grants from JPMorgan Chase - surged
from 19 homes in 2022 to 79 homes in
2023, demonstrating significant progress
toward the collaborative's goal of scaling
production to more than 100 homes per
year through 2030.
This is just the beginning. In addition to
deploying $1.1 million in home loans and
raising $50 million toward lending and
home construction, our grantees have
leveraged our philanthropic support to
secure another 500 city-owned vacant
lots and gain funding from the state of
Illinois focused on assisting with down
payments and closing appraisal gaps.
LOOKING AHEAD
Table of contents
The essence of our work outlined
above can be captured in three words:
We show up. As listeners, learners and
community partners, we come to the
table real, tangible tables - ready to
create avenues to economic opportunity.
At these various tables, we ask: "What's
working?" We examine our investments
with our colleagues across the firm and
external partners, gaining an understand-
ing of how winning approaches can be
scaled to markets around the world. Our
team's work ensuring that policymakers
know the value we bring to communities
becomes all the more important as we
seek to scale solutions during this uncer-
tain political moment. It is in tandem with
elected officials and other stakeholders
that we have brought, and will continue
to bring, the right products and services
to our clients and customers.
And when we show up, in good and in
tough times, we will bring our holistic
model, positioning ourselves to grow and
truly be the bank for the place we are in,
in every market we serve. We take this
responsibility seriously. It is a privilege
to bank more than 88 million customers
and small businesses. It is a privilege to
support schools, hospitals and other
community institutions. But perhaps most
of all, it is a privilege to lead by example,
demonstrating through our business
success that the private sector has a
role to play in shaping a stronger, more
inclusive economy for everyone.
Tim
Tim Berry
Global Head of Corporate Responsibility,
Chairman of the Mid-Atlantic Region
80
-
50,306
⚫ TBVPS grew 18%, ending 2023 at $86.08.
As of December 31, 2023, the Firm had eligible end-of-
period High Quality Liquid Assets ("HQLA") of
approximately $798 billion and unencumbered
marketable securities with a fair value of approximately
$649 billion, resulting in approximately $1.4 trillion of
liquidity sources. Refer to Liquidity Risk Management on
pages 102-109 for additional information.
Income tax expense
Income before income tax expense
Provision for credit losses
Total noninterest expense
Pre-provision profit(a)
Total net revenue
(in millions, except per share, ratio, employee data and where otherwise noted)
Selected income statement data
As of or for the year ended December 31,
THREE-YEAR SUMMARY OF CONSOLIDATED FINANCIAL HIGHLIGHTS (unaudited)
Financial
45
JPMorgan Chase & Co./2023 Form 10-K
161 Forward-Looking Statements
159 Accounting and Reporting Developments
155 Critical Accounting Estimates Used by the Firm
147 Operational Risk Management
The following pages from JPMorgan Chase & Co.'s 2023
Form 10-K are not included herein: 1-44, 322
Note:
approximately $90 billion, market dependent.
Management expects the net charge-off rate in Card
Services to be less than 3.50%.
Net interest income excluding Markets and adjusted
expense are non-GAAP financial measures. Refer to
Explanation and Reconciliation of the Firm's Use of Non-
GAAP Financial Measures on pages 62-64.
42
52
Net income
JPMorgan Chase & Co./2023 Form 10-K
91 Capital Risk Management
102 Liquidity Risk Management
111 Credit and Investment Risk Management
135 Market Risk Management
144 Country Risk Management
146 Climate Risk Management
90 Strategic Risk Management
Earnings per share data
Net income:
Basic
Tier 1 capital ratio
(c)(d)
Total capital ratio (c) (d)
(b)
2023
2022
Common equity Tier 1 ("CET1") capital ratio (c)(d)
2021
158,104
87,172
$
128,695
$
121,649
71,343
$
•
Firm Liquidity coverage ratio ("LCR") (average)"
JPMorgan Chase Bank, N.A. LCR (average) (b)
Overhead ratio
Diluted
Average shares:
Basic
Diluted
Market and per common share data
Market capitalization
Loans-to-deposits ratio
Common shares at period-end
Tangible book value per share ("TBVPS")(a)
Cash dividends declared per share
Selected ratios and metrics
Return on common equity ("ROE")
Return on tangible common equity ("ROTCE") (a)
Return on assets ("ROA")
Book value per share
•
Management expects adjusted expense to be
Markets to be approximately $88 billion, market
dependent.
•
Credit for corporations
$1.0
trillion
Total Markets revenue of $27.8 billion, down
4%, with Fixed Income Markets up 1% and
Equity Markets down 13%
•
Credit for U.S. small businesses
$36
billion
Credit for consumers
$239
billion
Total credit provided and capital raised
(including loans and commitments)
trillion
$2.3
JPMorgan Chase continues to support consumers,
businesses and communities around the globe. The Firm
provided new and renewed credit and raised capital for
wholesale and consumer clients during 2023, consisting of:
Credit provided and capital raised
fees with 8.8% wallet share for the year
#1 ranking for Global Investment Banking
Debit and credit card sales volume (a) up 8%
Active mobile customers (b) up 8%
Refer to Consolidated Results of Operations and
Consolidated Balance Sheets Analysis on pages 54-57 and
pages 58-60, respectively, for a further discussion of the
Firm's results, including the provision for credit losses; and
Business Segment Results on page 67 and Note 34 for
additional information on the First Republic acquisition.
Pre-provision profit, ROTCE, TCE, TBVPS, NII and NIR
excluding Markets, and total net revenue on a managed
basis are non-GAAP financial measures. Refer to
Explanation and Reconciliation of the Firm's Use of Non-
GAAP Financial Measures on pages 62-64 for a further
discussion of each of these measures.
50
JPMorgan Chase & Co./2023 Form 10-K
Business segment highlights
Selected business metrics for each of the Firm's four lines
of business ("LOB") are presented below for the full year of
2023, and include the impact of First Republic, unless
otherwise specified.
CCB
ROE 38%
Gross Investment Banking and Markets
CIB
ROE 13%
ROE 20%
•
•
.
Average deposits down 3%; client investment
assets up 47%, or up 25% excluding First
Republic
Average loans up 20%, or up 6% excluding
First Republic; Card Services net charge-off
rate of 2.45%
CB
revenue of $3.4 billion, up 14%
•
Average loans up 20%, or up 8% excluding
On February 6, 2024, JPMorgan Chase announced that it
plans to open more than 500 new branches, renovate
approximately 1,700 locations and hire 3,500 employees
over the next three years.
• On January 25, 2024, JPMorgan Chase announced new
responsibilities for several key executives:
- Jennifer Piepszak, formerly the Co-Chief Executive
Officer ("CEO") of CCB, and Troy Rohrbaugh, formerly
the Co-head of Markets and Securities Services, became
Co-CEOs of the expanded Commercial & Investment
Bank, which brings together the Firm's major wholesale
businesses consisting of Global Investment Banking,
Commercial Banking and Corporate Banking, as well as
Markets, Securities Services and Global Payments.
Marianne Lake, the former Co-CEO of CCB, became the
sole CEO of that business.
James Dimon, Chairman and CEO, and Daniel Pinto,
President and Chief Operating Officer, will continue to
jointly manage the company, with Mr. Pinto focusing on
the execution of the Firm's LOB priorities.
As a result of these organizational changes, the Firm will
be reorganizing its business segments to reflect the
manner in which the segments will be managed. The
reorganization of the business segments is expected to be
effective in the second quarter of 2024.
• On January 16, 2024, JPMorgan Chase announced that
Mark Weinberger, 62, had been elected to its Board of
Directors, effective immediately. He will also serve as a
member of the Board's Audit Committee. Mr. Weinberger
served as the Global Chairman and Chief Executive Officer
of Ernst & Young from 2013 to 2019.
Recent events
Outlook
JPMorgan Chase's current outlook for full-year 2024 should
be viewed against the backdrop of the global and U.S.
economies, financial markets activity, the geopolitical
environment, the competitive environment, client and
customer activity levels, and regulatory and legislative
developments in the U.S. and other countries where the
Firm does business. Each of these factors will affect the
performance of the Firm. The Firm will continue to make
appropriate adjustments to its businesses and operations in
response to ongoing developments in the business,
economic, regulatory and legal environments in which it
operates.
•
•
Full-year 2024
Management expects net interest income to be
approximately $90 billion, market dependent.
Management expects net interest income excluding
These current expectations are forward-looking statements
within the meaning of the Private Securities Litigation Reform
Act of 1995. Such forward-looking statements are based on
the current beliefs and expectations of JPMorgan Chase's
management, speak only as of the date of this Form 10-K,
and are subject to significant risks and uncertainties. Refer to
Forward-Looking Statements on page 161 and Part I, Item
1A, Risk Factors section on pages 9-33 of this Form 10-K for
a further discussion of certain of those risks and uncertainties
and the other factors that could cause JPMorgan Chase's
actual results to differ materially because of those risks and
uncertainties. There is no assurance that actual results in
2024 will be in line with the outlook information set forth
below, and the Firm does not undertake to update any
forward-looking statements.
•
•
JPMorgan Chase & Co./2023 Form 10-K
$915
billion
AWM
ROE 31%
First Republic; average deposits down 9%
• Assets under management ("AUM") of $3.4
trillion, up 24%
•
51
Average loans up 2%, or down 2% excluding
First Republic; average deposits down 17%
Capital for corporate clients and non-U.S.
government entities
Credit and capital for nonprofit and U.S.
government entities (a)
(a) Includes states, municipalities, hospitals and universities.
(a) Excludes Commercial Card.
(b) Users of all mobile platforms who have logged in within the past 90
days. As of December 31, 2023, excludes First Republic.
Refer to the Business Segment Results on pages 65-85 for
a detailed discussion of results by business segment.
$47
billion
76,140